As filed with the Securities and Exchange Commission on __________, 1996.
Registration No. 333 -________________
Securities and Exchange Commission
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
LITHIA MOTORS, INC.
(Exact name of registrant as specified in charter)
OREGON 93-0572810 5511
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(State or other (I.R.S. Employer Identification No.) (Primary Standard
jurisdiction of Industrial
Incorporation or Classification
organization) Code Number)
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360 E. Jackson Street, Medford, Oregon 97501
(541) 776-6899
(Address and telephone number of registrant's principal executive offices)
Sidney B. DeBoer, President
360 E. Jackson Street
Medford, Oregon 97501
(541) 776-6899
(Name, address and telephone number of agent for service)
Copies of all communications to:
(1) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o).
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED ___________, 1996
PROSPECTUS
___________ SHARES
All of the shares of Class A Common Stock, no par value (the "Class A Common Stock"), offered hereby are being sold by Lithia Motors, Inc. ("Lithia Motors" or the "Company"). Prior to this offering (the "Offering"), there has been no public market for the Class A Common Stock of the Company. It is currently anticipated that the initial public offering price will be between $_____ and $_____ per share. For information which was considered in determining the initial public offering price, see "Underwriting". Application has been made to have the Class A Common Stock approved for quotation on the Nasdaq National Market under the symbol "LITH."
The Company has two classes of authorized Common Stock, Class A Common Stock, which is offered hereby, and Class B Common Stock, no par value (the "Class B Common Stock"). Holders of Class A Common Stock are entitled to one vote per share and holders of Class B Common Stock are entitled to ten votes per share. Class A Common Stock is not convertible but is freely transferable, while Class B Common Stock is transferable only to certain limited transferees and is freely convertible into Class A Common Stock. All of the outstanding shares of Class B Common Stock, which will represent approximately ___% of the aggregate voting power of the Company upon completion of this Offering, are controlled by Sidney B. DeBoer and beneficially owned by Mr. DeBoer, M. L. Dick Heimann and R. Bradford Gray, each executive officers of the Company, through Lithia Holding Company, L.L.C. ("Lithia Holding"), the sole shareholder of the Company immediately prior to this Offering. See "Risk Factors--Concentration of Voting Power; Anti-takeover Provisions," "Description of Capital Stock--Common Stock" and "Principal Shareholders."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK OFFERED HEREBY, SEE "RISK FACTORS" BEGINNING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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Underwriting
Price to Discounts and Proceeds to
Public Commissions (1) Company (2)
- --------------------------------------------------------------------------------
Per Share. . . . . . . . $ $ $
- --------------------------------------------------------------------------------
Total (3). . . . . . . . $ $ $
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- --------------------------------------------------------------------------------
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(1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $___________.
(3) The Company has granted to the Underwriters a 30-day option to purchase up to ____________ additional shares of Class A Common Stock solely to cover over-allotments, if any. If such option is exercised, the total Price to Public, Underwriting Discounts and Commissions and Proceeds to Company will be $_____, $_______ and $________, respectively. See "Underwriting."
The shares of Class A Common Stock are being offered by the several Underwriters when, as and if delivered to and accepted by the Underwriters and subject to various prior conditions, including the right to reject orders in whole or in part. It is expected that delivery of the certificates representing the shares will be made against payment therefor at the offices of Furman Selz LLC in New York, New York or through the facilities of the Depository Trust Company on or about ______________, 1996.
The date of this Prospectus is ___________, 1996
[Photo of Dealerships]
This Prospectus includes statistical data regarding the retail automobile industry. Unless otherwise indicated herein, such data is taken or derived from information published by the Industry Analysis Division of the National Automobile Dealers Association ("NADA") in its INDUSTRY ANALYSIS AND OUTLOOK AND AUTOMOTIVE EXECUTIVE MAGAZINE publication. This Prospectus includes trademarks of companies other than Lithia Motors, Inc., which trademarks are the property of their respective holders.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION CONTAINED IN THIS PROSPECTUS, (i) ASSUMES THAT THE UNDERWRITERS' OVER-ALLOTMENT OPTION TO PURCHASE UP TO ____________ ADDITIONAL SHARES OF CLASS A COMMON STOCK FROM THE COMPANY IS NOT EXERCISED AND (ii) GIVES EFFECT TO THE CONSUMMATION OF THE RESTRUCTURING, AS DEFINED IN AND DESCRIBED UNDER "COMPANY RESTRUCTURING AND PRIOR S CORPORATION STATUS" IN THIS PROSPECTUS, WHICH TRANSACTIONS WILL TAKE PLACE IMMEDIATELY PRIOR TO THE CLOSING OF THE OFFERING. REFERENCES HEREIN TO "COMMON STOCK" MEAN THE COMPANY'S CLASS A COMMON STOCK AND CLASS B COMMON STOCK, COLLECTIVELY. UNLESS OTHERWISE INDICATED, REFERENCES TO THE "COMPANY" MEAN LITHIA MOTORS AND ITS SUBSIDIARIES AFTER THE RESTRUCTURING.
THE COMPANY
Lithia Motors is the largest retailer of new and used vehicles in Southwest Oregon, offering 14 domestic and imported makes of new automobiles and light trucks at five locations. As an integral part of its operations, the Company also arranges related financing and insurance and sells parts, service and ancillary products. The Company has grown primarily by successfully acquiring and integrating dealerships and by obtaining new dealer franchises. Most of the Company's operations are currently located in Medford, Oregon, where it has a market share of over 40%. The Company's strategy is to become a leading acquiror of dealerships in medium-sized markets in the western United States. The Company has recently entered into agreements to acquire additional dealerships in Eugene, Oregon and Salinas, California.
The Company's two senior executives, Sidney B. DeBoer and M.L. Dick Heimann, have managed the Company's operations for over 25 years. During this time, they have developed and implemented an operating strategy that has enabled the Company to achieve profitability superior to industry averages. In 1995, the Company's gross profit margin (on a FIFO basis) was 18.0% and its pre-tax profit margin before minority interest (on a FIFO basis) was 3.3%, versus 12.9% and 1.4%, respectively, for the industry.
OPERATING STRATEGY
The Company's operating strategy consists of the following elements:
PROVIDE A BROAD RANGE OF PRODUCTS AND SERVICES. The Company offers a broad range of products and services including a wide selection of new and used cars and light trucks, vehicle financing and insurance and replacement parts and service. In Southwest Oregon, the Company's five locations offer, collectively, 14 makes of new vehicles including Chrysler, Toyota, Plymouth, Dodge, Jeep/Eagle, Honda, Saturn, Mazda, Pontiac, Lincoln, Mercury, Isuzu, Suzuki and Volkswagen. In addition, the Company sells a variety of used vehicles at a broad range of prices. By offering new and used vehicles and an array of complementary services at each of its locations, the Company seeks to increase customer traffic and meet specific customer needs. The Company believes that offering numerous new vehicle brands appeals to a variety of customers, minimizes dependence on any one manufacturer and reduces its exposure to supply problems and product cycles.
FOCUS ON USED VEHICLE SALES. A key element of the Company's operating
strategy is to focus on the sale of used vehicles. The Company's goal is to
sell two used vehicles for every new vehicle sold. In 1995, the Company sold
5,144 used vehicles, a 1.83 to one ratio as compared to new vehicles sold. The
Company strives to attract customers and enhance buyer satisfaction by offering
multiple financing options, a 10-day/500-mile "no questions asked" exchange
program and a 60-day/3,000-mile warranty on every used vehicle sold. The
Company believes that a well-managed used vehicle operation at each location
affords an opportunity to (i) generate additional customer traffic from a wide
variety of prospective buyers, (ii) increase new and used vehicle sales by
aggressively pursuing customer trade-ins, (iii) generate incremental revenues
from customers financially unable or unwilling to purchase a new vehicle, and
(iv) improve total vehicle profit margins and ancillary product sales. To
maintain a broad selection of high quality used vehicles and to meet local
demand preferences, the Company acquires used vehicles from trade-ins and a
variety of sources nationwide, including direct purchases and manufacturers' and
independent auctions.
EMPHASIZE SALES OF HIGHER MARGIN PRODUCTS AND SERVICES. The Company generates substantial incremental revenue and achieves higher profitability through the sale of certain ancillary products and services such as financing and insurance, extended service contracts and vehicle maintenance. Employees receive special training and are compensated on a commission basis to sell such products and services. The Company arranges competitive financing packages for vehicle purchases and ancillary products and services. In 1995, the Company arranged
financing for 59% of its new vehicle sales and 69% of its used vehicle sales, as compared to 42% and 51%, respectively, for the average automobile dealership in the United States. The Company also sells extended service coverage and other vehicle protection packages which the Company believes enhance the value of the vehicle and provide a higher level of customer satisfaction.
EMPLOY PROFESSIONAL MANAGEMENT TECHNIQUES. The Company employs professional management practices in all aspects of its operations, including information technology, employee training, profit-based compensation and a cash management system. Each dealership is a profit center and is managed by a trained and experienced general manager who has primary responsibility for decisions relating to inventory, advertising, pricing and personnel. Compensation of the general manager is based on dealership profitability and the compensation of department managers is similarly based upon departmental profitability. Senior management utilizes computer-based management information systems to monitor each dealership's sales, profitability and inventory on a daily basis. The Company believes the application of its professional management practices provides it a competitive advantage over many dealerships and is critical to its ability to achieve levels of profitability superior to industry average.
FOCUS ON CUSTOMER SATISFACTION AND LOYALTY. The Company emphasizes customer satisfaction throughout its organization and continually seeks to maintain a reputation for quality and fairness. The Company trains its sales people to work to identify an appropriate vehicle for each of its customers at an affordable price. The Company also recently implemented an innovative marketing program entitled "Priority You." "Priority You" provides the Company's retail customers six value-added services which the Company believes are important to overall customer satisfaction, including a commitment to (i) provide a customer credit check within 10 minutes, (ii) complete a used vehicle appraisal within 30 minutes, (iii) complete the paper work on a new vehicle purchase within 90 minutes, (iv) provide a 10-day/500-mile "no questions asked" right of exchange on any used vehicle, (v) provide a warranty on all used vehicles for 60 days/3,000 miles and (vi) make a $20 per vehicle donation to a local charity or educational organization. The Company believes "Priority You" will help differentiate it from many other dealerships thereby increasing customer traffic and developing stronger customer loyalty.
GROWTH STRATEGY
The Company's goal is to become a leading acquiror of automobile dealerships in the western United States. As part of its acquisition strategy, the Company intends to focus its efforts on acquiring dealerships or dealer groups that, among other criteria, possess either the sole franchise or a significant share of new vehicle sales in a targeted market. Additionally, the Company's evaluation of potential acquisitions takes into account a dealership's local reputation with its customers, the type and make of vehicles sold by the dealer and the possibility for the Company to acquire additional franchises within the market to achieve a larger market share. The Company believes that the majority of dealerships that fit its acquisition criteria will be located in medium-sized markets within the nine western states. Upon completing an acquisition, the Company immediately implements its operating strategy, including increasing finance and insurance revenues, selling more used vehicles and enhancing employee training. The Company also installs its management information system in the acquired dealership as soon as possible after the acquisition, which allows the Company's executive officers, as well as the general manager, to carefully monitor each aspect of the dealership's operations and performance. Whenever possible, the Company assumes the management of a dealership's operations prior to closing of an acquisition, enabling the Company to accelerate the implementation of its operating strategy.
To date, a significant percentage of the Company's growth has resulted from acquisitions and the Company believes that acquisition opportunities will continue to be available to well-capitalized, experienced dealership organizations. The Company believes that its management team has considerable experience in acquiring dealerships and implementing its operating strategy to improve the performance and profitability of such dealerships following the acquisition. The Company is continuing its expansion in Oregon and has recently signed a purchase agreement to acquire the sole Dodge franchise in Eugene, Oregon. The Company has also begun expansion into selected markets in California with the signing of a purchase agreement to acquire the sole Honda franchise in Salinas, California, located near the Monterey Peninsula. See "Risk Factors -- Dependence on Acquisitions for Growth; Manufacturers' Consent to Acquisitions" and "Pending Acquisitions."
The Company maintains its principal executive offices at 360 E. Jackson Street, Medford, Oregon 97501, and its telephone number is (541) 776-6899.
THE OFFERING
Common Stock offered by the Company. . . . . . . . . . . . shares of Class A Common Stock (1)
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Common Stock to be outstanding after the Offering. . . . . shares of Class A Common Stock (1)
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shares of Class B Common Stock
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Use of proceeds . . . . . . . . . . . . . . . . . . . . . Acquisition of additional automobile dealerships, payment of
distributions to existing owners of previously undistributed
earnings, the repayment of debt working capital and general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol . . . . . . . . . . LITH
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(1) Does not include and aggregate of _____________ shares of Class A Common Stock reserved for issuance under the Company's 1996 Stock Incentive Plan, ____________ of which are subject to outstanding options as of the date hereof. See "Management -- 1996 Stock Incentive Plan."
SUMMARY COMBINED FINANCIAL AND OPERATING DATA
The following table presents (i) summary historical combined financial and
other data of the Company as of the dates and for the periods indicated and
(ii) summary pro forma financial and other data of the Company as of the dates
and for the periods indicated giving effect to the events described in the Pro
Forma Combined and Condensed Financial Data included elsewhere herein as though
they had occurred on the dates indicated therein. The summary pro forma
financial data are not necessarily indicative of operating results or financial
position that would have been achieved had these events been consummated on the
date indicated and should not be construed as representative of future operating
results or financial position. The summary historical and pro forma financial
data should be read in conjunction with the financial statements and related
notes thereto of the Company, Roberts Dodge, Inc. and Sam Linder, Inc. with the
Pro Forma Combined and Condensed Financial Statements and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.
Six Months Ended
Years Ended December 31, June 30,
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Pro Pro
Actual Forma(1) Actual Forma(1)
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1991 1992 1993 1994 1995 1995 1995 1996 1996
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(Dollars in thousands, except per share data)
COMBINED STATEMENT OF
OPERATIONS DATA:
Total sales. . . . . . . . . $64,087 $79,439 $92,109 $109,322 $114,196 $ $54,396 $69,125 $
Gross profit(2). . . . . . . 11,064 14,022 17,260 18,905 20,943 9,763 11,456
Operating income . . . . . . (499) (102) 2,138 3,731 4,208 1,903 2,142
Income before minority
interest (2) (3). . . . . $ 229 $ 516 $ 1,786 $ 3,972 $ 4,153 $ 1,869 $ 1,903
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PRO FORMA COMBINED AND
CONDENSED STATEMENT OF
OPERATIONS DATA (4):
Income . . . . . . . . . . . _ $ 947 $2,168 $2,076 $ $ 915 $ 968 $
Income per share(5). . . . . $
Weighted average shares
outstanding(5)
OTHER OPERATING DATA:
New automobiles sold . . . . 1,890 2,106 2,464 2,744 2,715 1,303 1,594
Used automobiles sold. . . . 3,403 3,934 4,718 5,206 5,144 2,560 3,202
Gross margin (FIFO basis)(2) 17.8% 18.3% 19.3% 17.9% 18.0% 17.7% 16.9%
Pre-tax margin before
minority interest
(FIFO basis)(2) . . . . . . 1.0% 1.2% 2.5% 4.2% 3.3% 3.1% 3.1%
As of June 30, 1996
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As of Pro Forma
December 31, 1995 Actual Pro Forma(4) As Adjusted (6)
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(In thousands)
COMBINED BALANCE SHEET DATA:
Working capital. . . . . . . . . . . . . . . . . $7,764 $ 8,763 $ 6,857 $
Total assets . . . . . . . . . . . . . . . . . . 39,225 32,116 30,210
Total long-term debt . . . . . . . . . . . . . . 12,828 10,469 10,469
Total shareholders' equity . . . . . . . . . . . 854 1,906 --
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(1) For information regarding the pro forma adjustments made to the Company's
historical financial data, see "Pro Forma Combined and Condensed Financial
Data."
(2) The Company utilizes the LIFO (Last In-First Out) accounting method. See
Note 2 of the Notes to the Company's Combined Financial Statements.
Commencing January 1, 1997, the Company intends to file an election with
the IRS to convert to a FIFO (First In-First Out) accounting method and
report its earnings for tax and financial statements on the industry
standard FIFO method. If the Company had previously utilized the FIFO
method gross profit for the five years ended December 31, 1995 would have
been $11.4 million, $14.5 million, $17.8 million, $19.5 million and $20.5
million, respectively and $9.6 million and $11.7 million for the six months
ended June 30, 1995 and 1996. Income before minority interest for the five
years ended December 31, 1995 would have been $613,000, $955,000, $2.3
million, $4.6 million, and $3.7 million, respectively and $1.7 million and
$2.1 million for the six months ended June 30, 1995 and 1996.
(3) Prior to 1994, the Company paid cash bonuses to its shareholders and
members in amounts approximating their respective income tax liability on
their undistributed earnings ($532,000 in 1991, $640,000 in 1992, and $1.0
million in 1993), in addition to their normal salaries. These cash bonuses
are reflected in SG&A expenses. In 1994 and subsequent periods, cash to
meet the shareholders' and members' tax liabilities was distributed to the
shareholders and members as dividends. The Company believes that for a
fair evaluation of its historical performance, results for 1991, 1992 and
1993 should be adjusted to eliminate such bonus payments.
(4) The Company was an S Corporation and accordingly was not subject to federal
and state income taxes during the periods indicated. Pro forma net income
reflects federal and state income taxes as if the Company had been a C
Corporation, based on the effective tax rates that would have been in
effect during these periods. See "Company Restructuring and Prior S
Corporation Status" and Notes 1 and 9 of Notes to Company's Combined
Financial Statements.
(5) Historical earnings per share are not presented, as the historical capital
structure of the Company prior to the Restructuring and the Offering is
not comparable with the capital structure that will exist subsequent to
these events. Pro forma earnings per share are based upon the assumption
that ____________ shares of Common Stock are outstanding. This amount
represents the number of shares of Class B Common Stock owned by the
Company's stockholders immediately following the Restructuring but before
the Offering. See Note 1 of the Notes to the Company's Combined Financial
Statements for a calculation of weighted average shares outstanding.
(6) Adjusted to reflect the sale of Class A Common Stock offered hereby by the
Company (at an assumed initial public offering price of $_______ per
share and after deducting the underwriting discounts and estimated offering
expenses payable by the Company) and the application of the net proceeds
therefrom. See "Use of Proceeds."
(7) Does not include ____________ shares of Class A Common Stock subject to
options outstanding, as of the date of this Prospectus, under the Company's
1996 Stock Incentive Plan. See "Management -- 1996 Stock Incentive Plan."
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THESE FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN OF THE RISK FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER AND EVALUATE ALL OF THE INFORMATION SET FORTH IN THIS PROSPECTUS, INCLUDING THE RISK FACTORS SET FORTH BELOW. THE COMPANY CAUTIONS THE READER THAT THIS LIST OF RISK FACTORS MAY NOT BE EXHAUSTIVE.
DEPENDENCE ON ACQUISITIONS FOR GROWTH
The U.S. automobile industry is considered a mature industry in which minimal growth is expected in unit sales of new vehicles. Sales of new vehicles by the Company have fluctuated in the past and no assurance can be given that the Company will be able to increase or maintain unit sales from year to year in the future. Accordingly, a principal component of the Company's business strategy is to make additional acquisitions in its existing and new geographic markets. In 1996, the Company entered into agreements to purchase dealerships in Eugene, Oregon and Salinas, California.
The Company's future growth and financial success will be dependent upon a number of factors including, among others, the Company's ability to identify acceptable acquisition candidates, consummate the acquisition of such dealerships on terms that are favorable to the Company, obtain the consent of automobile manufacturers, retain, hire and train professional management and sales personnel at each such acquired dealership and promptly and profitably integrate the acquired operations into the Company. No assurance can be given that the Company will be able to improve the profitability of such acquired dealerships. The Company may acquire dealerships which have net profit margins which are materially lower than the Company's historical average net profit margin. No assurance can be given that the Company will be able to improve the net profit margins of such acquired dealerships. To manage its expansion, the Company intends to evaluate on an ongoing basis the adequacy of its existing systems and procedures, including, among others, its financial and reporting control systems, data processing systems and management structure. No assurance, however, can be given that the Company will adequately anticipate all of the demands its growth will impose on such systems, procedures and structure. Any failure to adequately anticipate and respond to such demands could have a material adverse effect on the Company.
Acquisitions of additional dealerships will require substantial capital investment and could have a significant impact on the Company's financial position and operating results. Any such acquisitions may involve the use of cash (including the net proceeds of this Offering) or the issuance of additional debt or equity securities, which could have a dilutive effect on the then-outstanding capital stock of the Company. Acquisitions could result in the accumulation of substantial goodwill and intangible assets, which would result in amortization charges to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources," and "Business -- Growth Strategy."
DEPENDENCE ON AUTOMOBILE MANUFACTURERS
The Company is significantly dependent upon its relationships with, and the success of, certain automobile manufacturers or authorized distributors thereof (collectively referred to herein as "manufacturers"). For the year ended December 31, 1995, four manufacturers, Chrysler, Toyota, Honda and Saturn, collectively accounted for 87% of the Company's new vehicle sales. The Company may become dependent on additional manufacturers as a result of its acquisition strategy and changes in the Company's sales mix.
Each of the Company's dealerships operates pursuant to a franchise agreement with each respective manufacturer. Manufacturers exert significant control over the Company's dealerships through the terms and conditions of the franchise agreements, including provisions for termination or non-renewal for a variety of causes. The Company from time-to-time has failed to comply with certain provisions of its franchise agreements. These agreements generally afford the Company a reasonable opportunity to cure such violations and no manufacturer has terminated or failed to renew any franchise agreement. If a manufacturer terminated or declined to renew one or more of the Company's significant franchise agreements, such action could have a material adverse effect on the Company and its business.
The Company also is dependent upon its manufacturers to provide it with inventory of new vehicles. The most popular automobiles tend to provide the Company with the highest profit margins and are the most difficult to obtain from the manufacturers. In order to obtain sufficient numbers of these automobiles, the Company may be required to purchase a larger number of less desirable makes and models than it would otherwise purchase. Sales of less desirable makes and models may result in lower profit margins than sales of the more popular vehicles. If the
Company is unable to obtain sufficient quantities of the most popular makes and models, its profitability may be adversely affected.
With the exception of the Saturn franchise, the Company's franchise agreements with the manufacturers do not give the Company the exclusive right to sell that manufacturer's product within a given geographical area. Accordingly, a manufacturer could grant another dealer a franchise to start a new dealership in proximity to one or more of the Company's locations or an existing dealer could move its dealership to a location which would be directly competitive with the Company. Such an event could have a material adverse effect on the Company and its operations.
The success of each of the Company's franchises is dependent to a great extent on the success of the respective manufacturer. The success of the Company is therefore linked to the financial condition, marketing, vehicle demand, production capabilities and management of the manufacturers of which the Company is a franchisee. Events such as labor strikes or negative publicity concerning a particular manufacturer may adversely affect the Company. The Company has attempted to lessen its dependence on any one manufacturer by acquiring franchise agreements with a number of different domestic and foreign automotive manufacturers.
MANUFACTURERS' CONSENT TO OFFERING
Each of the Company's franchise agreements requires the consent of the manufacturer to any change in the ownership of the franchise. Accordingly, the Company has requested a consent to the proposed Restructuring, of which this Offering is a part, from each of the manufacturers for which it serves as a franchised dealer. To date, only Chrysler, Toyota and Honda have indicated that they will consent to the Restructuring and the Offering but with certain conditions and limitations. The Company currently believes that certain manufacturers, such as Ford and Saturn, will not consent to the Restructuring. There can be no assurance that any manufacturer that does not consent to the Restructuring, will not attempt to prevent the Restructuring, terminate franchises, refuse to renew or approve franchises or take other action which could have a material adverse effect on the Company and its operations.
The franchise laws of the states of Oregon (where most of the Company's current dealerships are located) and California (where certain of the Company's pending acquisitions are located) generally make it unlawful for a manufacturer to unreasonably fail to give effect to, or attempt to prevent unreasonably, any sale or transfer of the ownership or management of a dealership or the making of reasonable changes in the capital structure of the dealership, provided that the dealership meets any reasonable capital requirements of the manufacturer and certain other conditions. See "Business -- Regulation." Until recently, all manufacturers have expressed reluctance to permit the public ownership of dealerships since franchises are awarded to a named individual to whom the manufacturer looks to have direct control of the franchise and its operations. In the attempt to address manufacturers' concerns regarding the effects of public ownership of the Company, the Company's principals have established Lithia Holding and a dual-class voting structure, designed to ensure that Sidney B. DeBoer will have voting control of the Company for the foreseeable future. See "Risk Factors -- Concentration of Voting Power; Anti-takeover Provisions", "Principal Shareholders" and "Description of Capital Stock."
This Offering is conditioned upon the Company's receipt of consents from Chrysler, Toyota and Honda, which collectively accounted for 78% of the Company's new vehicle sales in 1995. There can be no assurance that the Company will receive any other consents prior to the closing of the Offering or ever. The Company may have to sell one or more of its franchises in order to avoid termination by a manufacturer who objects to the Restructuring. In the event of such a sale, no assurance can be given that the Company will be able to receive full value for such franchises or favorable sales terms.
MANUFACTURERS' CONSENT TO ACQUISITIONS
The Company is required to obtain a consent from each relevant manufacturer prior to the acquisition of a dealership franchise. In determining whether to approve an acquisition, the manufacturers consider many factors, including the financial condition and ownership structure of the acquiror. Because the Company will be publicly owned after consummation of the Offering, the Company believes that certain manufacturers, including Ford and Saturn, will not consent to new acquisitions of their respective franchises at this time. Further, manufacturers may impose conditions on granting their approvals for acquisitions including a limitation on the number of such manufacturers' dealerships that may be acquired by the Company. In particular, Toyota limits the number of dealerships which may be owned by any one group to seven Toyota and three Lexus dealerships and prohibits ownership of contiguous dealerships and the dualing of the franchise with any other brand without its consent. The Company's ability to meet manufacturers' requirements for acquisitions in the future will have a direct bearing on the Company's ability to complete acquisitions and effect its growth strategy.
In determining whether to approve an acquisition by the Company, a manufacturer also consider factors such as the Company's past performance as measured by the manufacturer's Customer Satisfaction Index ("CSI") scores and sales performance at the Company's existing franchises. On occasion, certain of the Company's franchises have had CSI scores and sales performance numbers which were below the manufacturers' standards. In particular, the Company has relatively low sales performance numbers and below average CSI scores for its General Motors (Pontiac) franchise which is currently housed with other brands at one of its Medford stores. The low performance ratings of the Pontiac franchise have been cited by General Motors as the reason for its recent denial of the transfer of two dealerships the Company had contracted to purchase. Although the Company is still seeking to secure approvals for these acquisitions, the Company can give no assurance that it will be permitted to acquire any new General Motors franchise in the future. See "Pending Acquisitions."
LIMITATION ON STOCK OWNERSHIP; RESTRICTION ON TRANSFER
Certain manufacturers may impose limitations on the amount of the Company's securities that may be owned by an individual or a group without the prior approval of such manufacturers. For example, any acquisition of a 20% or greater ownership share of the Company by any individual or entity without Toyota's prior approval would be a violation of the Company's agreement with Toyota. This restriction may discourage certain investors from acquiring an ownership interest in the Company. Certain manufacturers also may require that Lithia Holding and/or Sidney B. DeBoer maintain a certain ownership interest in the Company. These restrictions will limit the Company's ability to raise additional capital through the issuance of equity securities to the extent that such issuance dilutes the ownership interest of Lithia Holding or Sidney B. DeBoer below requisite thresholds. See "Risk Factors -- Availability and Cost of Capital" below.
COMPETITION
The automobile dealership business is highly competitive and generally fragmented. The new and used automobile sectors are characterized by a large number of independent operators. In addition, certain regional and national car rental companies operate retail used car lots to dispose of their used rental cars. Private sales of used vehicles by previous owners is an additional source of competition. Recently, consolidation has begun to accelerate in the new and used automobile dealership business as national and regional companies have begun to establish large used automobile "mega-stores." No assurances can be made with respect to the Company's ability to continue to compete effectively with other automobile dealers or such mega-stores. Furthermore, certain of the Company's future competitors may be larger than the Company and have access to greater financial resources. See "Business --Competition." In addition, no assurance can be given that automobile manufacturers will not attempt to modify the historical automobile manufacturer/dealer franchise system in such a way to increase competition among dealers or market their vehicles through other distribution channels.
CYCLICAL NATURE OF AUTOMOBILE SALES; CONCENTRATION OF OPERATIONS IN OREGON
The market for automobiles, particularly the new automobile market, is subject to substantial cyclical variation. An increase in interest or tax rates, or uncertainties regarding future economic conditions that affect consumer spending habits, could materially adversely affect the Company's results of operations. For the past few years, the industry has experienced growth that may not be sustained in the future. A material decrease in automobile sales, whether new or used, would be expected to adversely affect the Company's results of operations.
Although the Company has a pending acquisition of a dealership in California, all of its current operations are located in Oregon. For at least the immediately foreseeable future, the Company's results of operations will be substantially dependent upon general economic conditions, consumer spending habits and preferences in Oregon and, to a lesser extent, California, as well as various factors specific to such states such as tax rates and state and local regulation. The Company's growth strategy is intended to reduce its dependence on the Oregon economy; however, no assurance can be given that it will succeed or that geographic expansion will adequately insulate it from the adverse effects of local or regional economic conditions.
AVAILABILITY AND COST OF CAPITAL
The Company's new and used automobile sales operations require significant capital resources. The Company's future operating results will be directly related to the availability and cost of its capital. The principal sources of financing for the Company's new and used automobile inventories have historically been lines of credit from United States National Bank of Oregon ("U.S. Bank") and cash generated from operations. No assurance can be given that the Company will be able to continue to obtain capital for its current or expanded operations on terms and conditions acceptable to the Company.
The Company's strategy of growth through the acquisition of additional dealerships will require substantial capital. The Company anticipates that approximately $_____ million of the net proceeds from this Offering will be used to acquire other dealerships. If the Company's acquisition strategy is successful, this capital will be fully invested within a limited period of time and the Company will require additional capital in order to continue its acquisition strategy. Such expansion and new acquisitions may involve using cash, incurring additional debt or issuing Company's equity securities, which could have a dilutive effect on the then-outstanding capital stock. The Company may seek to obtain funds through borrowings from institutions or by the public or private sale of its securities subsequent to this Offering. No assurance can be given that the Company will be able to obtain capital to finance its growth on terms and conditions acceptable to the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend largely on the efforts and abilities of its senior management, particularly Sidney B. DeBoer, the Company's President and Chief Executive Officer, M. L. Dick Heimann, the Company's Executive Vice President and Chief Operating Officer, and R. Bradford Gray, the Company's Vice- President of Acquisitions. Further, as Mr. DeBoer and Mr. Heimann are identified in each of the Company's dealership franchise agreements as the individuals who control the franchises and upon whose financial resources and management expertise the manufacturers have relied on when awarding such franchises. The loss of either of those individuals could materially adversely affect the Company's on-going relationship with its vehicle manufacturers. See "Business -- Relationships with Automobile Manufacturers." In addition, the Company places substantial responsibility on the general managers of its dealerships for the profitability of such dealerships. As the Company expands, it will need to hire additional managers, particularly as it acquires dealerships in locations which are distant from the Company's headquarters in Medford, Oregon. The market for qualified employees in the industry, particularly for general managers, is highly competitive. The loss of the services of key management personnel or the inability to attract additional qualified managers could have a material adverse effect on the Company's business and the execution of its growth strategy. The Company does not have employment agreements with any of its key management personnel which would restrict their ability to terminate their employment or compete with the Company. The Company does not maintain key man insurance on either Messrs. DeBoer or Heimann.
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's business is seasonal with a disproportionate amount of sales occurring in the second and third quarters. Due to such seasonality, the Company will likely experience quarter-to-quarter fluctuations in its operating results. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Selected Quarterly Results of Operations."
CONCENTRATION OF VOTING POWER; ANTI-TAKEOVER PROVISIONS
Upon conclusion of this Offering, Lithia Holding, of which Sidney B. DeBoer, the Company's President, Chief Executive Officer and Chairman of the Board, is the sole managing member, will hold all of the shares of outstanding Class B Common Stock. Holders of Class B Common Stock are entitled to ten votes for each share held, while holders of Class A Common Stock are entitled to one vote per share held. Consequently, upon completion of the Offering, Lithia Holding will control ______% of the aggregate number of votes eligible to be cast by shareholders for the election of Directors and certain other shareholder actions. Therefore, Lithia Holding will control the election of the Board of Directors of the Company and will be in a position to control the policies and operations of the Company. In addition, because Mr. DeBoer is the managing member of Lithia Holding, he currently does and will control all of the outstanding Class B Common Stock, thus allowing him to control the Company. See "Principal Shareholders." So long as at least 16 2/3% of the total number of shares outstanding are shares of Class B Common Stock, the holders of Class B Common Stock will be able to control all matters requiring approval of 66 2/3% or less of the aggregate number of votes. Absent increases in the number of shares of Class A Common Stock or conversion of Class B Common Stock into Class A Common Stock, the holders of shares of Class B Common Stock will be entitled to elect all members of the Board of Directors and control all matters subject to shareholder approval that do not require a class vote. See "Description of Capital Stock."
The formation of Lithia Holding and the creation of the dual classes of voting stock were undertaken by the principals of the Company to consolidate voting control of the Company in an attempt to address concerns of manufacturers who have expressed opposition to public ownership of franchised dealerships.
The Company's Board of Directors will have the authority to issue up to 15,000,000 shares of Preferred Stock and determine the price, rights, preferences and privileges (including voting rights) of those shares without any further vote or action by the shareholders. The rights of the holders of Common Stock will be subject to, and may
be materially adversely affected by the rights of the holders of any Preferred Stock that may be issued in the future. The issuance of Preferred Stock could have the effect of making it more difficult for a third party to acquire a majority of the outstanding voting stock of the Company. The Company has no present plans to issue shares of Preferred Stock. The Company's Restated Articles of Incorporation and Bylaws contain certain other provisions that may have the effect of discouraging offers to acquire the Company. The Company will also be subject to certain provisions of the Oregon Business Corporation Act which may have the effect of discouraging attempts to acquire the Company without the approval or cooperation of the Company's Board of Directors. See "Description of Capital Stock."
FOREIGN SUPPLIERS
Certain of the automobiles purchased by the Company are currently imported into the United States from Japan. In the future, automobiles that the Company distributes may also be imported from other countries. In 1995, 45% of the Company's new automobile purchases (net of fleet sales) were imported automobiles. As a result, the Company's operations are subject to the customary risks of purchasing merchandise that has been imported from abroad, including fluctuation in the value of currencies, import duties, restrictions on the transfer of funds, work stoppages and, in certain parts of the world, political instability. The United States or the countries from which the Company's products are or may be imported may, from time to time, impose new quotas, duties, tariffs or other restrictions, or adjust presently prevailing quotas, duty or tariff levels, which could affect the Company's operations and its ability to purchase imported automobiles at current or increased levels. Imports into the United States are also affected by the cost of transportation and increased competition from greater production demands abroad.
SUPERVISION AND REGULATION; ENVIRONMENTAL MATTERS
The Company's operations are subject to extensive regulation, supervision and licensing under various other federal, state and local statutes, ordinances and regulations. While management believes that it maintains all requisite licenses and permits and is in substantial compliance with all applicable federal, state and local regulations, there can be no assurance that the Company will be able to maintain all requisite licenses and permits, and the failure to satisfy those and other regulatory requirements could have a material adverse effect on the operations of the Company. The adoption of additional laws, rules and regulations could also have a material adverse effect on the Company's business. See "Business -- Regulation." Various state and regulatory agencies, such as the Occupational Safety and Health Administration ("OSHA"), the United States Environmental Protection Agency (the "EPA") and the Oregon Department of Justice, have jurisdiction over the operation of the Company's dealerships, repair shops, body shops and other operations, with respect to matters such as consumer protection, workers' safety and laws regarding clean air and water.
As with automobile dealerships generally, and service, parts and body shop operations in particular, the Company's business involves the use, handling and contracting for recycling or disposal of hazardous or toxic substances or wastes, including environmentally sensitive materials such as motor oil, waste motor oil and filters, transmission fluid, antifreeze, freon, waste paint and lacquer thinner, batteries, solvents, lubricants, degreasing agents, gasoline and diesel fuels. Accordingly, the Company is subject to regulation by federal, state and local authorities establishing health and environmental quality standards, and liability related thereto, and providing penalties for violations of those standards. The Company is also subject to laws, ordinances and regulations governing remediation of contamination at facilities it operates or to which it sends hazardous or toxic substances or wastes for treatment, recycling or disposal. The Company believes that it does not have any material environmental liabilities and that compliance with environmental laws, ordinances and regulations will not, individually or in the aggregate, have a material adverse effect on the Company's results of operations or financial condition. However, soil and groundwater contamination has been known to exist at certain properties leased by the Company. The Company has also been required to remove aboveground and underground storage tanks containing hazardous substances or wastes. 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 environmental conditions will not require additional expenditures by the Company, or that such expenditures would not be material.
SHARES ELIGIBLE FOR FUTURE SALE
No accurate prediction can be made as to the effect, if any, that future sales of Class A Common Stock, or the availability of shares for future sales, will have on the prevailing market price for the Class A Common Stock prevailing from time to time. Sales of a substantial amount of Class A Common Stock in the public market following this Offering, or the perception that such sales could occur, could adversely affect the prevailing market price for the Class A Common Stock. None of the shares of Common Stock to be held by Lithia Holding immediately after this Offering will be eligible for sale pursuant to Rule 144 until _____________, 1998. All of
such shares are subject to a lock-up agreement between the Underwriters and Lithia Holding for a period of 180 days following the date of this Prospectus. As of the date of this Prospectus, options to acquire ________ shares of Common Stock, which were granted at prices between $_______ and $______ per share, are fully vested and exercisable. See "Management -- 1996 Stock Incentive Plan" and "Shares Eligible for Future Sale."
NO PRIOR MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this Offering, there has been no public market for any of the Company's securities, and no assurance can be given that an active trading market will develop after this Offering or that the Class A Common Stock offered hereby will trade at or above the initial public offering price. The initial public offering price has been determined by negotiations among the Company and the Representatives (as defined herein) of the Underwriters. See "Underwriting." Quarterly and annual operating results of the Company, variations between such results and the results expected by investors and analysts, changes in local or general economic conditions or developments affecting the automobile industry, the Company or its competitors could cause the market price of the Class A Common Stock to fluctuate substantially. As a result of these factors, as well as other factors common to initial public offerings, the market price could fluctuate substantially from the offering price.
DILUTION; LACK OF DIVIDENDS
The public offering price is substantially higher than the tangible book value per share of Class A Common Stock. Investors purchasing shares of Class A Common Stock in this Offering will therefore incur immediate, substantial dilution. See "Dilution." Further, the Company has no plans to pay any cash dividends in the immediate future. See "Dividend Policy."
COMPANY RESTRUCTURING AND PRIOR S CORPORATION STATUS
The Company was founded by Walt DeBoer in 1946 as a single Dodge dealership in Ashland, Oregon. In 1968, upon the death of Walt DeBoer, his son, Sidney B. DeBoer, assumed ownership and control of the business and incorporated the Company in Oregon. M. L. Dick Heimann joined the Company in 1970 and serves as its Executive Vice President and Chief Operating Officer. As the Company expanded, it formed subsidiaries and affiliated entities to hold certain dealerships and real property on which the Company operates.
Currently, the Company is an S Corporation which is owned 62.5% by Sidney
D. DeBoer and 37.5% by M. L. Dick Heimann. In addition, there are four other
affiliated S Corporations which are owned 62.5% by Mr. DeBoer and 37.5% by Mr.
Heimann: (i) Lithia Rentals, Inc., (ii) Lithia Leasing, Inc., (iii) Lithia
Chrysler Plymouth Jeep Eagle, Inc. and (iv) Discount Auto & Truck Rental, Inc.
There are also three limited liability companies which are owned as indicated:
(i) Lithia TLM, L.L.C. (80% by Lithia Motors, Inc., 19.99% by Stephen R. Philips
and 0.01% by Mr. DeBoer), (ii) Lithia's Grants Pass Auto Center, L.L.C. (75% by
Lithia Motors, Inc, 24.99% by R. Bradford Gray and 0.01% by Mr. DeBoer) and
(iii) Lithia Dodge, L.L.C. (75% by Lithia Motors, Inc, 24.99% by Mr. Gray and
0.01% by Mr. DeBoer).
Prior to completion of the Offering, the Company and these other affiliated entities will consummate a restructuring (the "Restructuring") which will result in each of the Company's dealerships and operating divisions becoming direct or indirect wholly-owned subsidiaries of the Company with Lithia Holding owning all of the outstanding Class B Common Stock of the Company. All current shareholders or members will exchange their interests in the Company and the affiliated entities for shares of Lithia Holding with the exception of the interest in Lithia TLM, L.L.C. held by Mr. Philips which will be purchased by Lithia TLM, L.L.C. for $700,000, the price paid by Mr. Philips for his interest, through the payment of $135,000 cash and the cancellation of a note in the remaining principal amount of $565,000.
The Company and the other corporations and limited liability companies which are parties to the Restructuring have been treated for federal and state income tax purposes as S Corporations under subchapter S of the Internal Revenue Code of 1986, as amended (the "Code") or as partnerships. As a result of the tax status of the Company and these affiliated entities, their stockholders or members (the "Principal Owners"), rather than the Company and such other entities, have been taxed directly on the earnings of such entities for federal and state income tax purposes. In connection with the Restructuring, the tax status of the Company and these affiliated entities as S Corporations or as partnerships will terminate and they will thereafter be subject to federal and state income tax at applicable C Corporation rates.
The Company has distributed to the Principal Owners promissory notes (the "Dividend Notes") in the aggregate amount of $3.9 million, representing approximately all of the previously taxed undistributed earnings of the Company through December 31, 1995. In 1994, the Company distributed total tax payment dividends of $2.0 million to the Principal Owners. The Dividend Notes bear interest at 9% per annum and are payable in ten equal annual installments beginning one year and ten days after demand by the noteholders. Shortly before the completion of the Offering, the Company and the other affiliated entities each intend to declare additional distributions to the Principal Owners in an aggregate amount equal to the undistributed taxable income of the Company or such other entities, as the case may be, from January 1, 1996 through the effective date of the Restructuring. The Company intends to prepay the Dividend Notes and make the final distribution of earnings from a portion of the proceeds of the Offering shortly after the closing of the Offering. The total amount to be paid to the Principal Owners as the result of such distributions is expected to be approximately $6.0 million, but the final amount may be more or less than this estimate since it is dependent upon the earnings of the Company and the other affiliated entities through the effective date of the Restructuring. See "Use of Proceeds."
PENDING ACQUISITIONS
In furtherance of the Company's growth strategy, the Company has signed definitive agreements to purchase two additional dealerships: Roberts Dodge, Inc., a Dodge dealer in Eugene, Oregon and Sam Linder, Inc., a Honda dealer in Salinas, California. The consummation of these acquisitions (referred to herein as the "Pending Acquisitions") is a condition for the consummation of the Offering.
ROBERTS DODGE, INC. The Company has agreed to pay $2.25 million for Roberts Dodge, plus an additional amount for the new car and parts inventory valued at seller's cost estimated to be approximately $_____ million. The purchase price is payable as (i) $1.75 million plus the cost of the new car and parts inventory in cash at closing and (ii) a promissory note for $500,000, with interest at 8.5% per annum, payable in equal monthly installments for five years. The Company is not assuming any material liabilities as part of the acquisition. In addition, the Company will purchase the real property on which the dealership is located for $2.33 million, payable in cash at closing. The Company may assign its obligation to purchase the real estate to Lithia Properties which, in such event, would lease the property to the Company or its subsidiary operating Roberts Dodge. See "Business--Properties" and "Certain Relationships and Related Transactions." Closing is scheduled to occur on or before November 1, 1996. The purchase is subject to normal closing conditions and the approval of Chrysler. The Company expects to obtain such approval in due course, but no assurances can be made in that regard. Roberts Dodge had $31.9 million in sales in 1995 and is the sole Dodge dealer in Eugene.
SAM LINDER, INC. The Company has agreed to pay approximately $1.05 million in cash for Sam Linder Honda, plus an additional amount for the new vehicle and parts inventory valued at seller's costs and the used vehicle inventory at the KELLY WHOLESALE BLUE BOOK value less any reconditioning costs estimated to be approximately $________ million. The Company will also purchase the real property and improvements utilized for the new vehicle store prior to December 31, 1997 for $2.1 million. The Company may assign its obligation to purchase the real estate to Lithia Properties which, in such event, would lease the property to the Company or its subsidiary operating Sam Linder Honda. See "Business--Properties and "Certain Relationships and Related Transactions." Closing is scheduled to occur on or before December 2, 1996. The purchase is subject to normal closing conditions and the approval of Honda Motor Company, Inc. The Company expects to obtain such approval in due course, but no assurances can be made in that regard. Sam Linder, Inc. also has a Cadillac and Oldsmobile dealership franchise at this location which is expected to be sold and transferred to a third party purchaser. Sam Linder, Inc. had $26.9 million in sales in 1995 and is the sole Honda dealer in Salinas. Cadillac and Oldsmobile's new vehicle sales accounted for less than 15% of its 1995 revenues.
Historical financial statements for Roberts Dodge, Inc. and Sam Linder, Inc. are included in this Prospectus beginning at page F-20. Pro forma financial statements showing the effect on the Company of all of the above acquisitions as if they had occurred as of January 1, 1995 and January 1, 1996 are included in this Prospectus beginning at page 21.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Class A Common Stock offered hereby (after deducting underwriting discounts and commissions and estimated Offering expenses payable by the Company) are estimated to be $____________ ($____________ if the Underwriters' over-allotment option is exercised in full), assuming an initial offering price of $__________ per share.
The Company anticipates that the net proceeds will be used for the following purposes: (i) up to approximately $ million for the acquisition of additional automobile dealerships, including approximately $6.0 million to acquire the dealerships in Eugene, Oregon and Salinas, California, which are subject to definitive purchase agreements. See "Pending Acquisitions"; and (ii) approximately $6.0 million to repay the Dividend Notes and notes to other related parties and to distribute current earnings of the Company to the Principal Owners. The Dividend Notes bear interest at 9% per annum, payable in ten equal annual installments beginning one year and ten days after demand by the noteholders. See "Company Restructuring and Prior S Corporation Status" and "Certain Relationships and Related Transactions." The balance of the net proceeds will be used for working capital and general corporate purposes.
Pending utilization of the net proceeds for the purposes set forth herein, the Company intends to reduce the outstanding balances of existing lines of credit, including the Company's flooring line of credit (the "Flooring Line") with U.S. National Bank of Oregon, and its line of credit obtained to close the acquisitions described herein (the "Capital Line"). The Flooring Line bears interest at the prime rate. The effective annual interest rate on such indebtedness was 8.25% at June 30, 1996. The Capital Line bears interest at prime plus 0.25 percent. See Notes 6 and 12 of Notes to the Company Combined Financial Statements.
After completion of this Offering, the Company intends to re-borrow under the Flooring Line and other lines of credit as necessary from time to time to fund purchases of new and used automobiles and additional dealerships.
DIVIDEND POLICY
Other than the dividends and distributions paid to the Principal Owners referred to in "Company Restructuring and Prior S Corporation Status," the Company has no present intention to declare or pay cash dividends in the foreseeable future after the Offering. The Company intends to retain any earnings that it may realize in the future to finance its operations. The payment of any future dividends will be subject to the discretion of the Board of Directors of the Company and will depend upon the Company's results of operations, financial position and capital requirements, general business conditions, restrictions imposed by financing arrangements, if any, legal restrictions on the payment of dividends and other factors the Board of Directors deems relevant.
CAPITALIZATION
The following table sets forth the short-term debt and total combined capitalization of the Company at June 30, 1996 (i) on an actual historical basis, (ii) pro forma to include the effect of the Restructuring and (iii) as adjusted to reflect the sale of _______ shares of Class A Common Stock pursuant to the Offering and the application of the estimated net proceeds therefrom. This table should be read in conjunction with the Combined Financial Statements and related notes and "Pro Forma Combined and Condensed Financial Data" appearing elsewhere in this Prospectus. See also, "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
June 30, 1996
--------------------------------
Pro Forma
Actual Pro Forma As Adjusted
--------------------------------
(Dollars in thousands)
Flooring notes payable . . . . . . . . . . . $13,723 $13,723 $
Current maturities of long-term debt . . . . 2,207 2,207
------ ------ ------
Total short-term debt. . . . . . . . . . $15,930 $15,930 $
------ ------ ------
------ ------ ------
Long-term debt(2). . . . . . . . . . . . . . $ 8,262 $11,000 $
Minority interest. . . . . . . . . . . . . . 1,029 1,029
Owners' equity . . . . . . . . . . . . . . . 1,906 --- ---
Shareholders' equity:
Preferred Stock, no par value,
15,000,000 shares authorized, none
outstanding . . . . . . . . . . . . . --- --- --
Common Stock
Class A Common Stock, no par value,
100,000,000 shares authorized, none
outstanding, actual and pro forma;
_____, pro forma as adjusted(1) . . --- ---
Class B Common Stock, no par value,
25,000,000 shares authorized,
________ outstanding, actual,
pro forma and pro forma as
adjusted. . . . . . . . . . . . . . 801
Retained earnings (deficit) (3). . . . . --- (1,230)
------ ------ ------
Total shareholders' equity(3)/
owners' equity. . . . . . . . . . . 1,906 (429)
Total capitalization . . . . . . . . . . . . $11,197 $11,600 $
------ ------ ------
------ ------ ------
|
DILUTION
The pro forma net tangible book value of the Company's Common Stock at June 30, 1996, was $________, or $_____ per share. Pro forma net tangible book value per share of Common Stock represents the Company's total tangible assets less total liabilities, divided by the number of shares of Common Stock outstanding, assuming the Restructuring has taken place. Without taking into account any change in pro forma net tangible book value subsequent to June 30, 1996, other than to give effect to the Offering by the Company of _________________ shares of Class A Common Stock to the public at an assumed initial public offering price of $___ per share and the receipt by the Company of the net proceeds therefrom (after deducting the Underwriters' discount and estimated expenses of the public offering payable by the Company), the pro forma net tangible book value of the Company would have been $_____ per share. This amount represents an immediate increase in the pro forma net tangible book value of $_____ per share to the existing shareholders and an immediate dilution of $_____ per share to new investors purchasing shares of Class A Common Stock at the initial public offering price. The Company utilizes the LIFO method of accounting (See Note 2 of the Notes to the Company's Combined Financial Statements). Had the Company used a FIFO method, total shareholders' equity at June 30, 1996 would have been $3.2 million higher.
The following table calculates dilution by subtracting net tangible book value per share after the Offering on both a LIFO and a FIFO basis, from the initial public Offering price.
LIFO BASIS FIFO BASIS
---------------------------- ------------------------
Assumed initial public offering price per share. . . . . . $ $
-------- --------
Pro forma net tangible book value
as of June 30, 1996. . . . . . . . . $ $
--------- --------
Increase attributable to
new investors. . . . . . . . . . . . $ $
--------- --------
Pro forma net tangible book value after Offering . . . . . $ $
-------- --------
Dilution per share to new investors. . . . . . . . . . . . $ $
-------- --------
|
The following table summarizes, on a pro forma basis as of June 30, 1996, the number of shares of Common Stock purchased from the Company, the total consideration paid to the Company and the average price per share paid by the existing stockholders and by purchasers of the shares offered by the Company hereby (at an assumed initial public offering price of $_________ per share).
Average
Shares Purchased(1) Cash Paid(2) Price
------------------- ------------------
Number Percent Amount Percent PerShare
-------- --------- -------- --------- --------
Existing shareholders. . . . % $ % $
New investors. . . . . . . . % $ % $
------ ------ ------- ------ -------
Total. . . . . . . . . . 100.0% 100.0%
------ ------ ------- ------ -------
------ ------ ------- ------ -------
|
(1) Does not include an aggregate of ____________shares of Class A Common Stock
reserved for issuance under the Company's 1996 Stock Incentive Plan,______
of which are subject to options outstanding as of June 30, 1996, with a
weighted average exercise price of $____ per share. If all such options
were deemed to be exercised and proceeds were received therefrom, dilution
per share to new investors would be $_________ (LIFO Basis) or $______ (FIFO
Basis) See "Management -- 1996 Stock Incentive Plan."
(2) Does not reflect deduction of the underwriting discount or estimated
Offering expenses.
SELECTED COMBINED FINANCIAL DATA
The following selected combined financial data presented below under the captions "Combined Statement of Operations Data" and "Combined Balance Sheet Data" for and as of the end of each of the years in the four year period ended December 31, 1995, are derived from the combined financial statements of Lithia Motors, Inc. and its affiliated companies, which financial statements have been audited by KPMG Peat Marwick LLP, independent auditors. The following selected combined historical financial information at or for the six months ended June 30, 1995 and June 30, 1996 has been derived from unaudited financial statements that, in the opinion of management of the Company, reflect all adjustments, consisting of normal recurring adjustments, necessary to present fairly the financial information for such periods and as of such dates. The combined historical results for the six months ended June 30, 1996 are not necessarily indicative of results for a full fiscal year. The combined financial statements as of December 31, 1994 and 1995 and for each of the years in the three year period then ended, and as of June 30, 1996 and for the six months ended, June 30, 1995 and 1996 and the reports thereon, are included elsewhere in this Prospectus. The following combined selected financial data should be read in conjunction with the Combined Financial Statements, including the notes thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations," appearing elsewhere herein.
Six Months Ended
As of Year Ended December 31, June 30,
---------------------------------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(In thousands except per share amounts)
COMBINED STATEMENT OF OPERATIONS DATA:
SALES:
New vehicles . . . . . . . $ 28,946 $ 34,479 $ 42,663 $ 51,154 $ 53,277 $ 25,081 $ 31,482
Used vehicles. . . . . . . 23,369 29,930 34,986 42,381 44,061 20,995 28,395
Other operating revenues . 11,722 15,030 14,460 15,787 16,858 8,320 9,248
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total sales . . . . . . 64,087 79,439 92,109 109,322 114,196 54,396 69,125
Cost of sales. . . . . . . . 53,023 65,417 74,849 90,417 93,253 44,633 57,669
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit(1). . . . . . . 11,064 14,022 17,260 18,905 20,943 9,763 11,456
Selling, general and
administrative(2). . . . . 11,563 14,124 15,122 15,174 16,735 7,860 9,314
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss). . . (499) (102) 2,138 3,731 4,208 1,903 2,142
Interest income. . . . . . . 308 161 216 99 179 65 93
Interest expense . . . . . . (784) (743) (1,375) (955) (1,390) (583) (649)
Other income, net. . . . . . 1,204 1,200 807 1,097 1,156 484 382
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before minority
interest . . . . . . . . . 229 516 1,786 3,972 4,153 1,869 1,903
Minority interest. . . . . . (49) (168) (233) (458) (778) (383) (317)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (1),(2) . . . . . $ 180 $ 348 $ 1,553 $ 3,514 $ 3,375 $ 1,486 $ 1,586
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Income before taxes and
minority interest,
as reported. . . . . . . . $ 1,786 $ 3,972 $ 4,153 $ 1,869 $ 1,903
Pro forma provision
for taxes(3) . . . . . . . 697 1,521 1,598 719 742
Pro forma minority
interest . . . . . . . . . 142 283 479 235 193
---------- ---------- ---------- ---------- ----------
Pro forma net income . . . . $ 947 $ 2,168 $ 2,076 $ 915 $ 968
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
|
As of December 31,
---------------------------------------------------------------------- As of
1991 1992 1993 1994 1995 June 30, 1996
---------- ---------- ---------- ---------- ---------- ---------------------
(In thousands)
COMBINED BALANCE SHEET DATA:
Working capital. . . . . . . . . . $ 2,339 $ 1,369 $ 13 $ 6,034 $ 7,764 $ 8,763
Total assets . . . . . . . . . . . 21,080 24,955 33,381 36,656 39,225 32,116
Total long-term debt . . . . . . . 4,222 5,424 6,153 8,369 12,828 10,469
Total shareholders' equity . . . . 1,628 1,238 1,184 2,800 854 1,906
|
(1) The Company utilizes the LIFO (Last In-First Out) accounting method. See Note 2 of the Notes to the Company's Combined Financial Statements. Commencing January 1, 1997, the Company intends to file an election with the IRS to convert to a FIFO (First In-First Out) accounting method for tax and financial statement reporting and report its earnings on the FIFO method. If it had previously utilized the FIFO method, gross profit for the five years ended December 31, 1995 would have been $11.4 million, $14.5 million, $17.8 million, $19.5 million and $20.5 million, net income for the five years ended December 31, 1995 would have been $527,000, $733,000, $2.1 million, $4.1 million, and $3.0 million, respectively and $1.4 million and $1.8 million for the six months ended June 30, 1995 and 1996.
(2) Prior to 1994, the Company and it affiliated entities paid cash bonuses to their shareholders and members in amounts approximating their respective income tax liability on their undistributed earnings ($532,000 in 1991, $640,000 in 1992, and $1.0 million in 1993), in addition to their normal salaries. These cash bonuses are reflected in the SG&A expenses above. In 1994 and subsequent periods, cash to meet the shareholders' and members' tax liabilities was distributed to the shareholders and members as dividends.
The Company believes that for a fair evaluation of its historical performance, results for 1991, 1992 and 1993 should be adjusted to eliminate such bonus payments.
(3) The Company was an S Corporation and accordingly was not subject to federal and state income taxes during the periods indicated. Pro forma net income reflects federal and state income taxes as if the Company had been a C Corporation, based on the effective tax rates that would have been in effect during these periods. See "Company Restructuring and Prior S Corporation Status" and Notes 1 and 9 of Notes to Company's Combined Financial Statements.
PRO FORMA COMBINED AND CONDENSED FINANCIAL DATA
The following unaudited pro forma combined and condensed statements of operations for the year ended December 31, 1995 and for the six months ended June 30, 1996 reflect the historical accounts of the Company for those periods adjusted to give pro forma effect to the Pending Acquisitions, the conversion to the FIFO accounting method (to be effective January 1, 1997), the Restructuring and the Offering, as if these transactions had occurred at the beginning of each period presented.
The following unaudited pro forma combined balance sheet as of June 30, 1996 reflects the historical accounts of the Company as of that date adjusted to give pro forma effect to the Pending Acquisitions, the conversion to the FIFO accounting method (to be effective January 1, 1997), the Restructuring, and the Offering, as if they had occurred as of June 30, 1996.
The unaudited pro forma combined and condensed financial data and accompanying notes should be read in conjunction with the Combined Financial Statements of the Company and the related notes as well as the combined financial statements and related notes of Roberts Dodge, Inc. and Sam Linder, Inc., all of which are included elsewhere in this Prospectus. The Company believes that the assumptions used in the following statements provide a reasonable basis on which to present the pro forma financial data. The pro forma combined financial data is provided for informational purposes only and should not be construed to be indicative of the Company's financial condition or results of operations had the transactions and events described above been consummated on the dates assumed and are not intended to project the Company's financial condition on any future date or results of operations for any future period.
PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1995
-----------------------------------------------------------------------------------------------
Actual
---------------------------------------------
Roberts
Dodge, Sam Pro Forma Pro Forma Pro
Company(1) Inc.(1) Linder, Inc. Adjustments Acquisitions Forma
---------- ------- ------------ ----------- ------------ -----
(In thousands, except share data)
Sales:
New vehicle. . . . . . . . . $ 53,277 $ 15,848 $ 12,656 $ (3,069) (6) $ 78,712 $
Used vehicle . . . . . . . . 44,061 12,151 10,234 - 66,446
Other operating revenue. . . 16,858 3,895 3,967 (518) (6) 24,202
-------- -------- -------- -------- -------- --------
Total sales . . . . . . . 114,196 31,894 26,857 (3,587) (6) 169,360
Cost of sales. . . . . . . . . 93,253 27,270 22,646 (2,846) (6)(7) 140,323
-------- -------- -------- -------- -------- --------
Gross profit . . . . . . . . . 20,943 4,624 4,211 (741) 29,037
Selling, general and
administrative . . . . . . . 16,735 3,828 3,928 (458) (2)(3)(6) 24,033
-------- -------- -------- -------- -------- --------
Operating income . . . . . . . 4,208 796 283 (283) 5,004
Other income (expense), net. . (55) (527) (347) 1,358 (1)(2)(6) 429
-------- -------- -------- -------- -------- --------
Income before minority
interest and income taxes . 4,153 269 (64) 1,075 5,433
-------- -------- -------- -------- -------- --------
Minority interest. . . . . . . (778) - - - (778)
Income taxes . . . . . . . . . - - - - -
-------- -------- -------- -------- -------- --------
Net income . . . . . . . . . . 3,375 $ 269 $ (64) $ 1,075 $ 4,655 $
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Weighted average shares outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --------
--------
|
PRO FORMA COMBINED AND CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1995
-----------------------------------------------------------------------------------------------
Actual
---------------------------------------------
Roberts
Dodge, Sam Pro Forma Pro Forma Pro
Company(1) Inc.(1) Linder, Inc.(1) Adjustments Acquisitions Forma
---------- ------- -------------- ----------- ------------ -----
(In thousands, except share data)
Sales:
New vehicles . . . . . . . . $ 31,482 $ 9,771 $ 6,456 $ (1,013) (6) $ 46,696 $
Used vehicles. . . . . . . . 28,395 5,838 4,519 - 38,752
Other operating
revenues . . . . . . . . . 9,248 2,074 1,893 (242) (6) 12,973
-------- -------- -------- -------- -------- --------
Total sales . . . . . . . 69,125 17,683 12,868 (1,255) (6) 98,421
Cost of sales. . . . . . . . . 57,669 15,196 10,809 (1,321) (7) 82,172
-------- -------- -------- -------- -------- --------
Gross profit . . . . . . . . . 11,456 2,668 2,059 66 16,249
Selling, general and (8)
administrative . . . . . . . 9,314 2,165 1,912 (362) (2)(3)(6) 13,029
-------- -------- -------- -------- --------
Operating income . . . . . . . 2,142 503 147 428 3,220
Other income (expense),
net. . . . . . . . . . . . . (239) (23) (103) 686 (1)(2)(6) 113
-------- -------- -------- -------- -------- --------
Income before minority
interest and income taxes. . 1,903 272 44 1,114 3,333
-------- -------- -------- -------- -------- --------
Minority interest. . . . . . . (317) --- --- --- (317) ---
Income taxes . . . . . . . . . --- --- --- --- --- ---
-------- -------- -------- -------- -------- --------
Net income . . . . . . . . . . $ 1,586 $ 272 $ 44 $ 3,016 $ 3,294 $
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
--------
--------
Weighted average shares outstanding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
|
(1) The Company will use the proceeds from the Offering primarily to acquire dealerships in the future. The pro forma statements of operations shown above assumes that approximately $6.0 million will be used to acquire the two new dealerships. Until the remaining proceeds are used to acquire other dealerships, the Company intends to reduce floor plan debt with its bank by approximately $14 million [and to invest the remaining proceeds of approximately $________ million in other cash equivalents]. See "Use of Proceeds." Partially offsetting the decrease in floor plan financing will be an increase in floor plan debt to finance the purchase of new vehicle inventory related to the two new dealerships. See Footnotes 2 and 3 to the Pro Forma Combined Balance Sheet below. Interest expense associated with such debt is reflected in the acquired companies' actual results of operations for each period.
(2) Reflects the Company's estimate of the net deductions from selling, general and administrative expenses and reductions in interest expense which would have occurred if the Offering had been effected as of the beginning of each period and consists of (a) an elimination of certain owners tax payment bonuses and (b) a net reduction in interest expense reflecting a lower interest rate on floor plan debt available to the Company on the acquired companies' flooring debt. The reduction in expenses include:
Year Ended Six Months Ended
December 31, 1995 June 30, 1996
----------------- ----------------
Management compensation. . . . . . $277,000 $292,000
Interest expense . . . . . . . . . $ 97,000 $ 49,000
|
The net reduction in interest expense was calculated based on an average floor plan debt of approximately $6.5 million at the interest rate differential in effect during each respective period.
(3) Reflects amortization as if Roberts Dodge, Inc. and Sam Linder, Inc. had been acquired as of January 1, 1995. The pro forma amortization for the year ended December 31, 1995 and the six-month period ended June 30, 1996 reflects additional amortization of approximately $65,000 and $32,500, respectively, associated with intangible assets, which assets consist largely of goodwill, resulting from the acquisition of Roberts Dodge, and Sam Linder, Inc. Such costs are being amortized over a 40-year period. See Note 3 to Pro Forma Combined and Condensed Balance Sheet
(4) Pro forma earnings per share are based upon the assumption that __________ shares of Common Stock are outstanding for each period. This amount represents the shares to be issued in the Offering (_________) and the number of shares of Common Stock owned by the Company's stockholders immediately following the Restructuring (__________).
(5) The Company and Pending Acquisitions are S Corporations and accordingly not subject to federal and state income taxes during the period indicated. This reflects the federal and state income taxes as if the Company were and the Pending Acquisitions had been C Corporations based on a 38% effective rate assumed during the period.
(6) Reflects adjustment to sales, cost of sales, selling, general and administrative, and other expenses for General Motor products which Sam Linder, Inc. has not received approval to sell when acquired by the Company. Amounts total $3.6 million, $3.2 million, $246,000 and $36,000 and $1.3 million, $1.1 million, $103,000, and $24,000 for the year ended December 31, 1995 and the six month period ended June 30, 1996, respectively.
(7) Reflects the conversion of the Company and Sam Linder, Inc. from the LIFO method of inventory accounting to the FIFO method. Under the FIFO method, cost of sales would have been (lower) higher by $(372,000), and $263,000 for the year ended December 31, 1995 and the six month period ended June 30, 1996, respectively. The Company and Sam Linder, Inc. intend to convert to the FIFO accounting method effective January 1, 1997.
(8) No adjustments have been made to reflect anticipated savings as a result of reduced lease costs under the new lease agreements with Lithia Properties from whom the Company leases substantially all of its facilities.
PRO FORMA COMBINED AND CONDENSED BALANCE SHEET
As of June 30, 1996
---------------------------------------------
Pro Forma
Actual Adjustments Pro Forma
---------- ----------- ----------
(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents . . . . . $ 3,819 $ - $
Receivables . . . . . . . . . . . . 2,472 -
Inventories . . . . . . . . . . . . 16,480 11,705 (4)(5)
Vehicles leased to others . . . . . 3,680 -
Other current assets. . . . . . . . 932 - (6) -
---------- ---------- ----------
Total current assets. . . . . . . . 27,383 11,705
Net property, plant and equipment. . . . 1,278 5,128 (4)
Vehicles leased to other, less current
portion. . . . . . . . . . . . . . . . 1,982 -
Goodwill, net; and other assets. . . . . 1,473 2,600 (4)
---------- ----------
Total assets. . . . . . . . . . . . $ 32,116 $ 19,433 $
---------- ---------- ----------
---------- ---------- ----------
LIABILITIES, MINORITY INTEREST AND OWNERS' SHAREHOLDERS' EQUITY
Current Liabilities:
Flooring notes payable. . . . . . . $ 13,723 $ - $
Current maturities of
long-term debt. . . . . . . . . . 2,207 -
Accounts payable. . . . . . . . . . 1,249 -
Accrued expenses and other
liabilities . . . . . . . . . . . 1,441 -
---------- ---------- ----------
Total current liabilities . . . . . 18,620 -
---------- ---------- ----------
Long-term debt, excluding current
maturities . . . . . . . . . . . . . . 8,262 17,040 (4)(7)
Other long-term liabilities. . . . . . . 2,299 1,950 (5)(6)
---------- ---------- ----------
Total liabilities . . . . . . . . . 29,181 18,990
---------- ---------- ----------
Minority interest. . . . . . . . . . . . 1,029 -
---------- ---------- ----------
Owners'/Shareholders' Equity:
Preferred stock. . . . . . . . . . . . . - -
Common stock . . . . . . . . . . . . . . 801 -
Retained earnings. . . . . . . . . . . . 1,105 443 (5)(6)(7)
---------- ---------- ----------
Total owners'/shareholders'
equity. . . . . . . . . . . . . . 1,906 443
---------- ---------- ----------
Total liabilities and owners'/
shareholders' equity. . . . . . . $ 32,116 $ 19,433 $
---------- ---------- ----------
---------- ---------- ----------
|
(1) Reflects the application of the estimated net proceeds of the Offering. Approximately $________ million will be used to reduce acquired floor plan debt of acquired companies, approximately $_________ million will be utilized to acquire Roberts Dodge, Inc. and Sam Linder, Inc. See "Pending Acquisitions" and "Use of Proceeds."
(2) Reflects the issuance of __________ shares of Common Stock at an assumed initial public offering price of $_________ per share, net of estimated offering expenses.
(3) Reflects the Restructuring.
(4) Reflects the allocation of the Roberts Dodge, Inc. and Sam Linder, Inc. purchase price based on the estimated fair value of assets acquired. The purchase price consists of the following:
Roberts Sam
Dodge, Inc. Linder, Inc.
---------- ------------
Estimated total consideration $8,194,000 $6,108,000
Less estimated fair value of
assets acquired 6,394,000 5,308,000
---------- ----------
Excess of purchase price over
fair value of tangible assets acquired $1,800,000 $ 800,000
---------- ----------
---------- ----------
|
The Company is purchasing new vehicle and parts inventories, certain real property and equipment, goodwill and dealer agreements, and may purchase some or all of the used vehicle inventory. The excess of the purchase price over the fair value of tangible assets acquired will be allocated to intangible assets, primarily the dealer agreements and goodwill. Fair value of assets acquired primarily represents the estimated fair value of the parts inventory and certain property and equipment. Vehicle inventory, which at June 30, 1996 approximated $___________, will be financed with floor plan debt.
(5) Reflects the conversion of the Company and Sam Linder, Inc. from LIFO method of inventory accounting to the FIFO method. Under the FIFO method, shareholders' equity would have been higher by $3.2 million. The Company and Sam Linder, Inc. intends to convert to the FIFO accounting method effective January 1, 1997.
(6) Represents the establishment of a deferred income tax asset of $997,000 and a deferred income tax liability of $594,000 to effect the Company's conversion to C Corporation status.
(7) Reflects the estimated distribution and payment of $_____ to its current shareholders of substantially all of the undistributed commutative taxable income through the date of the termination of the S Corporation election that has been taxed or is taxable to its current shareholders and payment of $3.3 million in notes to Principal Owners and other affiliates for all previously taxed undistributed earning.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Combined Financial Statements of the Company and the notes thereto included elsewhere in this Prospectus. The following includes a discussion of certain significant business trends and uncertainties as well as other forward-looking statements. For a discussion of important factors that could cause actual results to differ materially from the forward-looking statements, see "Risk Factors."
GENERAL
The Company is the largest retailer of new and used vehicles in Southwest Oregon, offering 14 domestic and imported makes of new automobiles and light trucks at five locations. As an integral part of its operations, the Company also arranges related finance and insurance and sells parts, service and ancillary products. The Company has successfully acquired and integrated several new dealer franchises in Southwest Oregon where it has achieved a dominant market share. The Company is seeking to become a leading acquiror of dealerships in the western United States. The Company has recently entered into agreements to acquire an additional dealership in Eugene, Oregon, and Salinas, California.
The following table sets forth selected condensed financial data expressed as a percentage of total sales for the periods indicated for the average automotive dealer in the United States. 1996 data is not available.
AVERAGE U.S. DEALERSHIP
Year ended December 31,
-----------------------------
1993 1994 1995
---- ---- ----
STATEMENT OF OPERATIONS DATA:
Sales:
New vehicles. . . . . . . . . . . . . . 60.0% 60.3% 58.6%
Used vehicles . . . . . . . . . . . . . 26.4 26.9 29.0
Parts and services sales, other . . . . 13.6 12.8 12.4
----- ----- -----
Total sales. . . . . . . . . . . . . 100.0% 100.0% 100.0%
Gross profit . . . . . . . . . . . . . . . . 13.4 13.1 12.9
Total dealership expense . . . . . . . . . . 11.8 11.3 11.5
----- ----- -----
Income before taxes. . . . . . . . . . . . . 1.6% 1.8% 1.4%
----- ----- -----
----- ----- -----
- --------------------
|
Source: AUTOMOTIVE EXECUTIVE/August 1996; NADA Industry Analysis Division
The following table sets forth selected condensed financial data for the Company expressed as a percentage of total sales for the periods indicated below. Gross profit and pre-tax margins are presented on a FIFO basis and before minority interest to permit comparisons to U.S. industry data.
LITHIA MOTORS, INC.
Six Months Ended
Year ended December 31, June 30,
------------------------------ ------------------
1993 1994 1995 1995 1996
------ ------ ------ ------ ------
STATEMENT OF OPERATIONS DATA:
Sales:
New vehicles. . . . . . . . . . . . . . 46.3% 46.8% 46.7% 46.1% 45.5%
Used vehicles . . . . . . . . . . . . . 38.0 38.8 38.5 38.6 41.1
Parts and service sales . . . . . . . . 9.2 9.1 9.6 9.8 8.9
Finance, insurance and other. . . . . . 6.5 5.3 5.2 5.5 4.5
----- ----- ----- ----- -----
Total sales. . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit(1). . . . . . . . . . . . . . . 19.3 17.9 18.0 17.7 16.9
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . . 16.4 13.9 14.7 14.5 13.6
----- ----- ----- ----- -----
Operating income(1). . . . . . . . . . . . . 2.9 4.0 3.3 3.2 3.3
Other income (expense), net. . . . . . . . . (0.4) 0.2 0.0 (0.1) (0.2)
----- ----- ----- ----- -----
Income before taxes and minority
interest(1). . . . . . . . . . . . . . . . 2.5% 4.2% 3.3% 3.1% 3.1%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
|
(1) Using the FIFO method of accounting for inventory to permit comparisons to U.S. industry data. The Company currently uses the LIFO method for tax and financial reporting, purposes but will convert to the FIFO method effective January 1, 1997.
New vehicle revenues include sales of new vehicles (other than "book only" fleet sales) at retail. Used vehicle revenues include amounts received for used vehicles sold to wholesale and retail customers. Finance, insurance and other includes fees and commissions from finance and insurance ("F&I") transactions, sales of the Company's extended service contracts for vehicles, and "book only" fleet sales, net. The Company recognizes revenue attributable to sales of its service contracts over the term of the contracts for accounting purposes, although it receives payment in full at the time of the sale. For vehicle financing contracts, the Company receives either a fee or a spread from the lender for originating and assigning the loan but is assessed a chargeback fee by the lender if the contract is cancelled, in most cases, within 120 days of making the loan. Early cancellation can result from early repayment because of refinancing the loan, selling or trade-in of the vehicle or default on the loan.
The Company currently utilizes the LIFO method of accounting for inventory, but will convert to the FIFO method effective January 1, 1997. If the FIFO method of inventory accounting had been used by the Company in prior periods, income before taxes and minority interest would have been higher (lower) by $556,000, $615,000, and ($426,000) for the years ended December 31, 1993, 1994, and 1995, respectively and $(162,000) and $235,000 for the six months ended June 30, 1995 and 1996, respectively, from the reported results under the LIFO method. In the analysis of interim and annual results, the Company has provided a discussion of gross profits on FIFO as well on a LIFO basis because management believes that in assessing trends and comparing the Company's performance with prior periods or with industry data, FIFO data should be considered. Further, commencing January 1, 1997, the Company will utilize the FIFO method of accounting for both book and tax purposes.
At each of its dealership locations, the Company's management focuses on maximizing profitability in each area of operations rather than on the volume of vehicle sales. The key factors affecting the Company profitability are its dominant market share for the new vehicle brands it sells and its focused efforts to increase the sales of used vehicles, F&I and ancillary products.
The average gross profit margins obtained by franchised automobile dealers in the United States on sales of new vehicles have declined from over 7.0% in 1991 to 6.5% in 1995. The Company's gross profit margin (on a FIFO basis) on new vehicle sales was 12.8% for 1995 and 13.2% for the first six months of 1996. The Company's gross profit margin on new vehicle sales has consistently been higher than the industry average.
The Company's gross profit margin (on a FIFO basis) on used vehicle sales was 11.4% for 1995 and 10.0% for the first six months of 1996. Excluding sales to wholesalers (which are frequently at or close to cost), the Company's gross profit margin on a FIFO basis in 1995 and for the first six months of 1996 on retail sales of used vehicles were 13.2% and 12.6%, respectively. The industry average in 1995 was 11.5%. See "Business - Dealership Operations."
The Company's salary expense, employee benefit costs and advertising expenses comprise the majority of its selling, general and administrative ("SG&A") expense. The Company's interest expense fluctuates based primarily on the level of debt required to support the inventory of new and used vehicles at its dealerships and vehicles leased to others.
The Company and its affiliated entities have been treated for federal income tax purposes as S Corporations or as partnerships under the Internal Revenue Code since their inception and, as a result, have not been subject to federal or certain state income taxes. Accordingly, the following discussion of the Company's historical results of operations does not include a discussion of income tax expense. Immediately before the completion of this Offering, and in connection with the Restructuring, the Company and its affiliated entities that are S Corporations will terminate their status as S Corporations and will thereafter be subject to federal and state income tax at applicable C Corporation rates. Prior to 1994, the shareholders and members of the Company and the affiliated entities each received substantial year-end tax payment bonuses to provide the cash to pay income taxes on the Company's and affiliated entities income which was taxable to the principals. Such payments were reflected in SG&A expense. See "Management--Executive Compensation."
The Company has accounted for each of its acquisitions prior to 1993 by the purchase method of accounting, and, as a result, does not include in its financial statements the results of operations of these dealerships prior to the date they were acquired by the Company. The combined financial statements of the Company reflect the results of operations, financial position and cash flows of each of the Company's dealerships and those of its affiliated entities whose operations will be combined under the Restructuring, using an "as if" pooling of interest basis of accounting.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
REVENUES
Revenues increased in each of the Company's operating segments for the first six months of 1996 as compared to the first six months of 1995, resulting in total sales increasing 27.1% to $69.1 million. New vehicle sales revenue increased 25.5% in the first six months of 1996 to $31.5 million, compared with $25.1 million for the first six months of 1995. The increase in sales was due primarily to increased unit sales (22.3%) which resulted from higher levels of promotional activity for certain popular brands and, to a much lesser extent, an increase in the average per unit sales price (2.6%).
Used vehicle sales increased by 35.2% in the first six months of 1996 to $28.4 million, compared with $21.0 million in the first six months of 1995. The increase in sales was due primarily to the availability in the 1996 period of an increasing number of late-model used vehicles which were in high demand by consumers. Increased used vehicle revenue was attributable primarily to unit sales increases (25.1%) and, to a lesser extent, an increase in the average per unit sales price (8.4%).
The Company's other operating revenue increased 11.2% to $9.2 million in the first six months of 1996, from $8.3 million in the first six months of 1995, due to an increased number of F&I transactions and to a lesser extent, increases in service department maintenance and repairs.
GROSS PROFIT
Gross profit (on a LIFO basis) increased 17.4% for the first six months of 1996 to $11.5 million, compared with $9.8 million for the first six months of 1995, primarily because of the increase in new and used vehicle sales during the period. Gross profit margin decreased from 17.9% for the first six months in 1995 to 16.8% for the first six months of 1996. The decrease in gross profit margin was primarily caused by a reduction in profit margins on used vehicle sales and other operating revenue, partially offset by an increase in gross profit
as a percentage of sales on new vehicles. Gross profit margin in 1995 was favorably impacted by the reduction in new vehicle inventory during the period which resulted in historically lower vehicle inventory costs flowing through cost of sales.
Gross profit (on a FIFO basis) increased 21.8% for the first six months of 1996 to $11.7 million, compared with $9.6 million for the first six months of 1995, primarily because of the increase in new and used vehicle sales during the period. Gross profit margin decreased from 17.7% for the first six months in 1995 to 16.9% for the first six months of 1996. The decrease in gross profit margin was primarily caused by a reduction in profit margins on used vehicles sales and other operating revenue, partially offset by an increase in gross profit margin.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
The Company's SG&A expense increased to $9.3 million in the first six months of 1996 compared to $7.9 million in the first six months of 1995. SG&A as a percentage of sales decreased to 13.6% from 14.5%. The increase in SG&A was due primarily to increased selling, or variable expense related to the increase in sales, and to a lesser extent, an increase in compensation for additional personnel and management in preparation for the Pending Acquisitions. See "Pending Acquisitions."
INTEREST EXPENSE
The Company's interest expense increased by 11.3% to $649,00 for the first six months of 1996, compared to $583,000 for the first six months of 1995. The increase was due entirely to an increase in the average balances of flooring and other notes outstanding for the first six months of 1996, offset partially by a decrease in interest rates. The increase in the loan balances was due primarily to additional borrowings to finance additional inventory and notes to Principal Owners.
OTHER INCOME, NET
Other income, net, which consisted primarily of management fees and equity in the income of Lithia Properties and other non-dealer service income, decreased 21.1% from $484,000 to $382,000 for the first six-months of 1996. This reduction is due to a non reoccurring lawsuit recovery in the prior period.
1995 COMPARED TO 1994
REVENUES
Revenue increased 4.6% to $114.2 million in 1995 from $109.3 million in 1994. New vehicle revenue increased 4.2%, while used vehicle revenue increased 4.0%. The increase in sales was due to per-unit price increases in new and used vehicles, offset in part by a reduction in unit sales of 1.1%. Industry and Company unit sales were essentially flat from 1994 to 1995.
The Company's other operating revenue increased 6.8% to $16.9 million 1995 compared to $15.8 million in 1994, primarily due to increases in service department maintenance and repairs.
GROSS PROFIT
Gross profit (on a LIFO basis) increased 10.8% in 1995 to $20.9 million from $18.9 million in 1994. Gross profit margin increased from 17.3% to 18.3% in 1995. Gross profit margin in 1995 was favorably impacted by the reduction in new vehicle inventory during the period which resulted in historically lower vehicle inventory costs flowing through costs of goods sold.
Gross profit (on a FIFO basis) increased 5.1% in 1995 to $20.5 million from $19.5 million in 1994. Gross profit margin, at 18.0%, was essentially unchanged from 1994. Increases in gross profit margin on new vehicle sales were offset by a reduction in the gross profit margin on new vehicles and parts and service sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
The Company's SG&A expense increased 10.3% to $16.7 million or 14.7% of the Company's revenues, in 1995, from $15.2 million, or 13.9% of the Company's revenues in 1994. A reserve for workers' compensation claims, expense associated with compensation, primarily from salaries and bonuses for the Company's managers and, to a lesser extent, an increase in advertising expense, accounted for a significant portion of the increase.
INTEREST EXPENSE
The Company's interest expense in 1995 increased 45.5% to $1.4 million from $955,000 in 1994. The increase was due primarily to an increase in the Company's average loan balances in 1995 as compared to 1994, and, to a lesser extent, an increase in interest rates on borrowed funds. Loan balances increased to support increased flooring of inventory, vehicles leased to others and notes to Principal Owners incurred during the period.
OTHER INCOME, NET
Other income, net, consisted primarily of management fees derived from the Company's management of Lithia Properties and equity in the income of Lithia Properties and other non-dealers service income, increased 5.4% from the prior year. This increase is attributable to primarily to receipt of a judgment in a lawsuit brought by the Company.
1994 COMPARED TO 1993
REVENUES
Revenues increased 18.7% to $109.3 million in 1994 as compared with $92.1 million in 1993. New vehicle sales increased 19.9%, while used vehicle sales increased 21.1% in 1994 compared to 1993. The increase in vehicle sales was due to increased per unit sales prices and high consumer demand for new vehicles (unit sales increase of 11.4%) as well as low-mileage, late-model used vehicles (unit sales increase of 10.3%).
The Company's other operating revenue increased 9.2% to $15.8 million in 1994 compared to $14.5 million in 1993, primarily as a result of increases in revenues derived from the Company's parts and service operations.
GROSS PROFIT
Gross profit (on a LIFO basis) increased 9.5% to $18.9 million in 1994 from $17.3 million in 1993. Gross profit margin decreased to 17.3% in 1994 compared to 18.7% in 1993. The decrease in gross profit margin occurred in all operating segments.
Gross profit (on a FIFO basis) increased 9.6% to $19.5 million in 1994 from $17.8 million in 1993. Gross profit margin decreased to 17.9% in 1994 compared to 19.3% in 1993, occurred in all operating segments and was consistent with industry trends.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
SG&A expense increased less than 1.0% in 1994. This represents a decline in SG&A expense as a percentage of sales to 13.9% in 1994 compared to 16.4% in 1993. This decrease was primarily due to an increase in sales volumes and the effect of special tax payment bonuses ($1.0 million) paid in 1993 to the owners of the Company to fund personal income tax payments on earnings of the Company. In 1994 and subsequent periods, such amounts were distributed as dividends or other distributions and were not reflected as an administrative expense. This decrease was offset by additional compensation and other benefits provided to Company management.
INTEREST EXPENSE
The Company's interest expense decreased 30.5% to $955,000 in 1994 from $1.4 million in 1993. The decrease in interest expense was primarily due to lower loan balances and a decrease in the Company's flooring interest rates.
OTHER INCOME, NET
Other income, net, for the period consisted primarily of management fees derived from Lithia Properties and equity in the income of Lithia Properties and other non-dealer service income, increased 35.9% to $1.1 million. This increase is attributable to an increase in equity in the earnings of Lithia Properties, advertising service income and administrative fees.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal needs for capital resources are to finance acquisitions, capital expenditures and increased working capital requirements. Historically, the Company has relied primarily upon internally generated cash flows from operations, borrowings under its credit facility and borrowings from its shareholders to finance its operations and expansion.
The Company currently has a credit facility with U.S. Bank, giving the Company access to an aggregate of approximately $37.2 million of credit for various purposes. The principal component of the credit facility is a Flooring Line which permits the Company to borrow up to $27.9 million, based on the level of the new and used vehicle inventories securing the line. The Flooring Line bears interest at rates from prime (for new vehicles) to prime plus 0.5% (for used vehicles). At June 30, 1996, the annualized rates of interest on the Flooring Line were from 8.25% to 8.75%. The principal payments are due within five business days of an automobile being sold. The Flooring Line also permits the Company to borrow at the U.S. Bank's Interbank Offering Rate, which is the rate offered to U.S. Bank for U.S. dollar deposits in the Eurodollar market selected by U.S. Bank. These borrowings are available only in increments of $500,000 and cannot be prepaid before the end of their terms (typically, 60 or 90 days) without substantial penalty. The rate is generally one percentage point less than the standard rate available under the Flooring Line. The Flooring Line expires on September 10, 1997. See Note 2 of the Notes to Company's Combined Financial Statements. Management believes that the Flooring Line provides the Company with financing at rates less than those available from manufacturers and other sources.
The credit facility provides a line of credit permitting the Company to borrow up to $1.0 million for the purpose of in-house financing of vehicle sales and in-house leases (subject to a maximum amount equal to 75% of the total in- house vehicle receivables under 60 days past due). See "Business--Dealership Operations." The borrowings under this line of credit bear interest at prime plus 1.0% (9.25% at June 30, 1996). See "Note 5 of the Notes to the Company's Combined Financial Statements." An additional line of credit of $2.15 million is available for the purchase of equipment, $1.4 million of which is available for purchasing equipment associated with future or pending acquisitions. The borrowings under this line of credit bear interest at prime plus 0.5% (8.75% at June 30, 1996).
The credit facility also includes a Capital Line, a line of credit of $6.0 million to finance acquisitions. The Capital Line bears interest at prime plus 0.75% and is secured by the Company's inventory, receivables, equipment and real property. During the first year in which the Capital Line is used, interest only is payable monthly. After the first year, monthly payments are based on a ten-year amortization, with final payment due five years from the first draw. As of June 30, 1996, there were no borrowings under the Capital Line.
The Company has also established an additional $5.0 million unsecured line of credit from Western Bank to finance additional acquisitions. The line bears interest at prime plus 1.0%. As of June 30, 1996, there were no borrowings under this line of credit.
The Company had $24.2 million of debt outstanding at June 30, 1996, consisting of $3.6 million in notes payable to the Principal Owners and other affiliated parties, primarily to pay the undistributed Subchapter S earnings, $1.0 million in term borrowings under fixed-rate notes secured by equipment, $13.7 million in variable- rate borrowings under its credit facility and $5.9 million outstanding on vehicles leased to others.
Capital expenditures, exclusive of acquisitions, were $134,000 in 1995 and $223,000 for the first six months of 1996. The principal capital expenditures in 1995 and the first six months of 1996 included equipment, building improvements and computer equipment for use in the Company's dealerships.
The following table sets forth the estimated funds required to complete the Pending Acquisitions, all anticipated prior to year-end 1996. Acquisition costs are necessarily estimates as the actual purchase price will depend on inventory levels at each acquired dealership upon closing. Estimates assumes the purchase of used vehicles at each store location.
Pending Acquisitions Total Estimated Purchase Price -------------------- ------------------------------ Roberts Dodge, Inc. $8,200,000 Sam Linder, Inc. $6,100,000 |
The Company anticipates that it will be able to satisfy its cash requirements through December 1998, including its expected growth, primarily with cash flow from operations, borrowings under the Flooring Line and the Company's other lines of credit and the proceeds of this Offering.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's sales and operating results have historically varied during each quarter of the year. Historically, sales have been lower in the fourth quarter 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 fourth quarter than during the other quarters of each fiscal year; however, this did not hold true for the year 1995. Management believes that interest rates, levels of consumer debt, consumer buying patterns and confidence, as well as general economic conditions, may also contribute to fluctuations in sales and operating results. The timing of acquisitions may cause substantial fluctuations of operating results from quarter to quarter.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following tables set forth the Company's results of operations data (on a LIFO Basis) for the quarterly periods presented. This presentation should be read in conjunction with the audited and unaudited financial statements of the Company and the Notes thereto appearing elsewhere in this Prospectus. Because of the seasonal nature of the Company's business and based on the Company's past experience, it expects its operating income for the fourth quarter to be lower than that of other quarters.
Quarter Ended
------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30,
1995 1995 1995 1995 1996 1996
-------- -------- -------- -------- -------- --------
(In thousands)
Sales:
New vehicles. . . . . . . $12,241 $12,840 $14,743 $13,453 $14,817 $16,665
Used vehicles . . . . . . 10,717 10,278 12,251 10,815 13,239 15,156
Other operating
revenues . . . . . . . 4,160 4,160 4,532 4,006 4,390 4,859
-------- -------- -------- -------- -------- --------
Total sales. . . . . . . . . 27,118 27,278 31,526 28,274 32,446 36,680
Cost of sales. . . . . . . . 22,264 22,369 25,734 22,886 26,965 30,705
-------- -------- -------- -------- -------- --------
Gross profit . . . . . . . . 4,854 4,909 5,792 5,388 5,481 5,975
32
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Selling, general and
administrative. . . . . . 3,895 3,961 4,309 4,570 4,517 4,797
-------- -------- -------- -------- -------- --------
Operating income . . . . . . 959 948 1,483 818 964 1,178
Other income (expense),
net . . . . . . . . . . . 165 (203) (91) 74 (145) (94)
-------- -------- -------- -------- -------- --------
Income before minority
interest. . . . . . . . . 1,124 745 1,392 892 819 1,084
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
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Quarter Ended
------------------------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30,
1995 1995 1995 1995 1996 1996
-------- -------- -------- -------- -------- --------
(In thousands)
Sales:
New vehicles. . . . . . . 45.1% 47.1% 46.8% 47.6% 45.7% 45.4%
Used vehicles . . . . . . 39.5 37.7 38.9 38.3 40.8 41.3
Other operating
revenues . . . . . . . . 15.3 15.3 14.4 14.2 13.5 13.2
-------- -------- -------- -------- -------- --------
Total sales. . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales. . . . . . . . 82.1 82.0 81.6 80.9 83.1 83.7
-------- -------- -------- -------- -------- --------
Gross profit . . . . . . . . 17.9 18.0 18.4 19.1 16.9 16.3
Selling, general and
administrative. . . . . . 14.4 14.5 13.7 16.2 13.9 13.1
-------- -------- -------- -------- -------- --------
Operating income . . . . . . 3.5 3.5 4.7 2.9 3.0 3.2
Other income (expense),
net . . . . . . . . . . . 0.6 (0.7) (0.3) 0.3 (0.5) (0.3)
-------- -------- -------- -------- -------- --------
Income before minority
interest. . . . . . . . . 4.1% 2.7% 4.4% 3.2% 2.5% 3.0%
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
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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.
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," which the Company will adopt for its fiscal year ending December 31, 1996, will require "that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable." In the opinion of the Company's management, the adoption of SFAS 121 will not have a material effect on the Company's financial position or results of operations.
In October 1995, the Financial Accounting Standards Board issued Statement No. 123 ("SFAS 123"), which establishes a fair value based method of accounting for stock-based compensation plans. The Company will continue to account for employee stock options under APB Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and therefore believes the statement will have no impact on the Company's financial statements other than expanded footnote disclosure. SFAS 123 will be effective for fiscal years beginning after December 15, 1995.
INDUSTRY
Domestic and foreign automobile manufacturers distribute their vehicles through franchised dealerships. In 1995, franchised automobile dealers in the United States sold over $290 billion in new cars and light trucks and over $180 billion in used vehicles. New vehicle sales grew at an average rate of 12.5% from 1991 to 1995, while new vehicle unit sales, after growing at an average rate of 7.1% each year from 1991 through 1994, declined 2.0% in 1995. From 1991 through 1995 used vehicle units and revenues grew at average rates of 1.8% and 12.3% respectively. See "Risk Factors; Cyclical Nature of Automobile Sales; Concentration of Operations in Oregon." The following chart provides information about new and used vehicle unit and dollar sales of U.S. franchised dealerships for the years 1991 to 1995. Used vehicle sales reflect sales at retail and wholesale from franchised dealerships and do not include sales by independent used car and truck retailers. Sales by independent used vehicle retailers were $77.2, $81.0, $100.3, $134.1 and $129.7 billion, respectively from 1991 to 1995.
UNITED STATES FRANCHISED DEALERS' VEHICLES SALES
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
(Units in millions; dollars in billions)
New vehicle unit sales . . . . . . . . . 12.3 12.9 13.9 15.1 14.8
New vehicle sales revenue. . . . . . . . $ 182.9 $ 191.7 $ 225.1 $ 261.8 $ 293.3
Used vehicle unit sales. . . . . . . . . 14.6 14.6 14.8 15.1 15.7
Used vehicle sales revenue . . . . . . . $ 114.1 $ 130.0 $ 146.0 $ 167.8 $ 181.7
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Sources: NADA; CNW Market Research.
Dealerships sell new and used vehicles and offer a range of other services and products, including repair and warranty work, replacement parts, extended warranty coverage, financing and credit insurance. In 1995, of the average dealership's revenue, new vehicles sales constituted 58.6%, used vehicles sales 29.0%, and sales of other products and services 12.4%, of total sales. Automotive dealership profitability varies widely and depends, in part, on the effective management of inventory, marketing, competition, quality control and customer responsiveness. Since 1991, retail automobile dealerships in the United States have earned on average between 12.9% and 14.1% gross profit margin and between 1.0% and 1.6% net profit margin, on sales.
In recent years, manufacturers have offered attractive lease terms to reduce the monthly costs of owning a new automobile, especially on short-term vehicle leases. This has drawn consumers to such short-term leases, which has had the effect of bringing the consumer back to the new vehicle market sooner than if the purchase had been financed through longer-term debt financing. This also provides new car dealerships with a steady source of late-model, off-lease vehicles for their used car inventory and enables the parts and service departments within each dealership to provide repair service under factory warranty coverage for the term of the lease. Industry-wide, the percentage of new vehicle retail sales that are leasing transactions has increased from 13.5% in 1990 to 31.5% in 1995.
Several economic and industry factors have led to a consolidation of the highly-fragmented vehicle dealership industry. Dealerships typically have been owned and operated by one individual who controlled a single franchise. After significant expansion in the number of franchised dealerships in the 1950's, competitive and economic pressures during the 1970s and 1980s, particularly the oil embargo of 1973 and the subsequent loss of market share experienced by U.S. auto manufacturers to imported vehicles, many dealerships were forced to close or sell to better-capitalized dealer groups. Continued competitive and economic pressure on dealers, combined with the easing of restrictions against multiple dealer ownership, has led to a further reduction in the number of franchised dealerships.
According to industry data, the number of franchised dealerships has declined from 36,336 dealerships in 1960 to 22,288 in 1996. While the number of dealerships has decreased, there has been an increase in the formation of larger dealer groups. Despite this consolidation, however, the Company estimates that the largest 100 dealer groups generate less than 10% of total industry revenues and control approximately 5% of all franchised dealerships in the retail vehicle.
The Company believes that the franchised automobile dealership industry will continue to consolidate due to the increased capital required to operate dealerships, the fact that many dealerships are owned by individuals nearing retirement age and the desire of certain manufacturers to strengthen their brand identity by consolidating their franchised dealerships. For example, General Motors Corporation has announced its Network 2000 Channel Strategy (Project 2000) to close or consolidate 1,500 of its 8,400 franchised dealerships by the year 2000. The Company believes that an opportunity exists for dealership groups with significant equity capital and experience in identifying, acquiring and professionally managing dealerships to acquire additional franchises either for cash, stock, debt or a combination thereof. Publicly-owned dealership groups, such as the Company, are able to offer prospective sellers tax-advantaged transactions through the use of publicly-traded stock which may, in certain circumstances, make them more attractive acquirors to prospective sellers.
BUSINESS
GENERAL
Lithia Motors is the largest retailer of new and used vehicles in Southwest Oregon, offering 14 domestic and imported makes of new automobiles and light trucks at five locations. As an integral part of its operations, the Company also arranges related financing and insurance and sells parts, service and ancillary products. The Company has grown primarily by successfully acquiring and integrating dealerships and by obtaining new dealer franchises. Most of the Company's operations are currently located in Medford, Oregon, where it has a market share of over 40%. The Company's strategy is to become a leading acquiror of dealerships in medium-sized markets in the western United States. The Company has recently entered into agreements to acquire additional dealerships in Eugene, Oregon and Salinas, California.
The Company's two senior executives, Sidney B. DeBoer and M.L. Dick Heimann, have managed the Company's operations for over 25 years. During this time, they have developed and implemented an operating strategy that has enabled the Company to achieve profitability superior to industry averages. In 1995, the Company's gross profit margin (on a FIFO basis) was 18.0% and its pre-tax profit margin before minority interest (on a FIFO basis) was 3.3%, versus 12.9% and 1.4%, respectively, for the industry.
OPERATING STRATEGY
The Company's operating strategy consists of the following elements:
PROVIDE A BROAD RANGE OF PRODUCTS AND SERVICES. The Company offers a broad range of products and services including a wide selection of new and used cars and light trucks, vehicle financing and insurance and replacement parts and service. In Southwest Oregon, the Company's five locations offer, collectively, 14 makes of new vehicles including Chrysler, Toyota, Plymouth, Dodge, Jeep/Eagle, Honda, Saturn, Mazda, Pontiac, Lincoln, Mercury, Isuzu, Suzuki and Volkswagen. In addition, the Company sells a variety of used vehicles at a broad range of prices. By offering new and used vehicles and an array of complementary services at each of its locations, the Company seeks to increase customer traffic and meet specific customer needs. The Company believes that offering numerous new vehicle brands appeals to a variety of customers, minimizes dependence on any one manufacturer and reduces its exposure to supply problems and product cycles.
FOCUS ON USED VEHICLE SALES. A key element of the Company's operating
strategy is to focus on the sale of used vehicles. The Company's goal is to
sell two used vehicles for every new vehicle sold. In 1995, the Company sold
5,144 used vehicles, a 1.83 to one ratio as compared to new vehicles sold. The
Company strives to attract customers and enhance buyer satisfaction by offering
multiple financing options, a 10-day/500-mile "no questions asked" exchange
program and a 60-day/3,000-mile warranty on every used vehicle sold. The
Company believes that a well-managed used vehicle operation at each location
affords an opportunity to (i) generate additional customer traffic from a wide
variety of prospective buyers, (ii) increase new and used vehicle sales by
aggressively pursuing customer trade-ins, (iii) generate incremental revenues
from customers financially unable or unwilling to purchase a new vehicle, and
(iv) improve total vehicle profit margins and ancillary product sales. To
maintain a broad selection of high quality used vehicles and to meet local
demand preferences, the Company acquires used vehicles from trade-ins and a
variety of sources nationwide, including direct purchases and manufacturers' and
independent auctions.
EMPHASIZE SALES OF HIGHER MARGIN PRODUCTS AND SERVICES. The Company generates substantial incremental revenue and achieves higher profitability through the sale of certain ancillary products and services such as F&I, extended service contracts and vehicle maintenance. Employees receive special training and are compensated on a commission basis to sell such products and services. The Company arranges competitive financing packages for vehicle purchases and ancillary products and services. In 1995, the Company arranged financing for 59% of its new vehicle sales and 69% of its used vehicle sales, as compared to 42% and 51%, respectively, for the average automobile dealership in the United States. The Company also sells extended service coverage and other vehicle protection packages which the Company believes enhance the value of the vehicle and provide a higher level of customer satisfaction.
EMPLOY PROFESSIONAL MANAGEMENT TECHNIQUES. The Company employs professional management practices in all aspects of its operations, including information technology, employee training, profit-based compensation and a cash management system. Each dealership is a profit center and is managed by a trained and experienced general manager who has primary responsibility for decisions relating to inventory, advertising, pricing and personnel. Compensation of the general manager is based on dealership profitability and the compensation of department managers is similarly based upon departmental profitability. Senior management utilizes computer-based management information systems to monitor each dealership's sales, profitability and inventory on a daily basis. The Company believes the application of its professional management practices provides it a competitive advantage over many dealerships and is critical to its ability to achieve levels of profitability superior to industry average.
FOCUS ON CUSTOMER SATISFACTION AND LOYALTY. The Company emphasizes customer satisfaction throughout its organization and continually seeks to maintain a reputation for quality and fairness. The Company trains its sales people to work to identify an appropriate vehicle for each of its customers at an affordable price. The Company also recently implemented an innovative marketing program entitled "Priority You." "Priority You" provides the Company's retail customers six value-added services which the Company believes are important to overall customer satisfaction, including a commitment to (i) provide a customer credit check within 10 minutes, (ii) complete a used vehicle appraisal within 30 minutes, (iii) complete the paper work on a new vehicle purchase within 90 minutes, (iv) provide a 10-day/500-mile "no questions asked" right of exchange on any used vehicle, (v) provide a warranty on all used vehicles for 60 days/3,000 miles and (vi) make a $20 per vehicle donation to a local charity or educational organization. The Company believes "Priority You" will help differentiate it from many other dealerships thereby increasing customer traffic and developing stronger customer loyalty.
GROWTH STRATEGY
The Company's goal is to become a leading acquiror of automobile dealerships in the western United States. As part of its acquisition strategy, the Company intends to focus its efforts on acquiring dealerships or dealer groups that, among other criteria, possess either the sole franchise or a significant share of new vehicle sales in a targeted market. Additionally, the Company's evaluation of potential acquisitions takes into account a dealership's local reputation with its customers, the type and make of vehicles sold by the dealer and the possibility for the Company to acquire additional franchises within the market to achieve a larger market share. The Company believes that the majority of dealerships that fit its acquisition criteria will be located in medium-sized markets within the nine western states. Upon completing an acquisition, the Company immediately implements its operating strategy, including increasing finance and insurance revenues, selling more used vehicles and enhancing employee training. The Company also installs its management information system in the acquired dealership as soon as possible after the acquisition, which allows the Company's executive officers, as well as the general manager, to carefully monitor each aspect of the dealership's operations and performance. Whenever possible, the Company assumes the management of a dealership's operations prior to closing of an acquisition, enabling the Company to accelerate the implementation of its operating strategy.
To date, a significant percentage of the Company's growth has resulted from acquisitions and the Company believes that acquisition opportunities will continue to be available to well-capitalized, experienced dealership organizations. The Company believes that its management team has considerable experience in acquiring dealerships and implementing its operating strategy to improve the performance and profitability of such dealerships following the acquisition. The Company is continuing its expansion in Oregon and has recently signed a purchase agreement to acquire the sole Dodge franchise in Eugene, Oregon. The Company has also begun expansion into selected markets in California with the signing of a purchase agreement to acquire the sole Honda franchise in Salinas, California, located near the Monterey Peninsula. See "Risk Factors - Dependence on Acquisitions for Growth; Manufacturer's Consent to Acquisitions" and "Pending Acquisitions."
DEALERSHIP OPERATIONS
The Company owns and operates five dealership locations in southwest Oregon, four in Medford and one in Grants Pass, Oregon. Each of the Company's stores sell new and used vehicles and related automotive parts and services. The Company's primary target market is comprised of middle-income customers seeking moderately-priced vehicles. The Company offers 14 makes of new vehicles, including Chrysler, Toyota, Plymouth, Dodge, Jeep/Eagle, Honda, Saturn, Mazda, Pontiac, Lincoln, Mercury, Isuzu, Suzuki and Volkswagen.
The operations of each of the Company's locations are overseen by a general manager, who has primary responsibility for all aspects of the operations of the dealership, including new and used vehicle inventory, advertising and marketing, and the selection of personnel. Each location is operated as a profit center and the general manager's compensation is based on dealership profitability. Each general manager reports directly to the Company's Chief Operating Officer. In addition, each dealership's general sales manager, used vehicle manager, parts manager, service manager and F&I managers report directly to the general manager and are compensated in large part on profitability.
NEW VEHICLE SALES. The Company sells 14 domestic and imported brands ranging from economy to luxury cars, as well as sport utility vehicles, minivans and light trucks. In 1995, the Company sold 2,715 new vehicles with total sales of $53.3 million, which constituted 46% of the Company's total revenues. The following table sets forth, by manufacturer, the percentage of new vehicles sold (net of "book only" fleet sales) by the Company during 1995.
1995 Percentage of
Manufacturer New Vehicle Sales
------------ ------------------
Chrysler (Chrysler, Plymouth, Dodge, Jeep/Eagle) . . 43.6%
Toyota . . . . . . . . . . . . . . . . . . . . . . . 23.3
Honda. . . . . . . . . . . . . . . . . . . . . . . . 11.2
Saturn . . . . . . . . . . . . . . . . . . . . . . . 9.0
Ford (Lincoln/Mercury) . . . . . . . . . . . . . . . 5.3
Mazda. . . . . . . . . . . . . . . . . . . . . . . . 2.7
General Motors (Pontiac) . . . . . . . . . . . . . . 2.1
Isuzu. . . . . . . . . . . . . . . . . . . . . . . . 2.0
Suzuki . . . . . . . . . . . . . . . . . . . . . . . 0.9
Volkswagen . . . . . . . . . . . . . . . . . . . . . 0.0 *
---
100.0%
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The following table sets forth the sales and gross profit margins (on a FIFO basis) for new vehicle sales for the periods presented.
COMPANY'S NEW VEHICLE SALES
First six
months
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ---------
(Dollars in thousands)
Unit sales . . . . . . . 1,890 2,106 2,464 2,744 2,715 1,594
Sales revenue. . . . . . $28,946 $34,479 $42,663 $51,154 $53,277 $31,482
Gross profit margin* . . 9.6% 12.2% 12.8% 12.5% 12.8% 13.2%
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The Company purchases substantially all of its new car inventory directly from manufacturers who allocate new vehicles to dealerships based on the amount of vehicles sold by the dealership and by the dealership's market area. The Company will also exchange vehicles with other dealers to accommodate customer demand and to balance inventory.
As required by law, the Company posts the manufacturer's suggested retail price on every new vehicle. As is customary in the automobile industry, the final sales price of a new vehicle is generally negotiated with the customer. However, at the Company's Saturn dealership the Company does not deviate from the posted price. The Company is continually evaluating its pricing practices and policies in light of changing consumer preferences and competitive factors.
The Company also sells vehicles for delivery directly from the factory to a fleet purchaser ("book only" fleet sales). The Company realizes substantially less profit per vehicle than it does through retail sales. Only the net revenue on "book only" fleet sales is included in the Company's revenue.
USED VEHICLE SALES. The Company offers a variety of makes and models of used cars and light trucks, of varying model years and prices. Used vehicle sales are an important part of the Company's overall profitability. In 1995, the Company sold 5,144 used vehicles with total sales of $44.0 million which constituted 39% of the Company's total revenue. The Company has made a strategic commitment to emphasize used vehicle sales by the retention of a full- time used vehicle manager at each of its locations and the allocation of additional financing and display space to this effort. The Company also believes there is substantial consumer demand for quality used vehicles, given the escalating prices of new vehicles.
The Company sells used vehicles to retail customers and, in the case of vehicles in poor condition or vehicles which have not sold within a reasonable period of time, to other dealers and to wholesalers. As the table below reflects, sales to other dealers and to wholesalers are frequently at or close to cost and therefore affect the Company's overall gross profit margin on used vehicle sales. Excluding wholesale transactions, the Company's gross profit margin (on a FIFO basis) on used vehicle sales was 13.2% in 1995, as compared to the industry average for 1995 of 11.5%. The following table reflects used vehicle sale transactions of the Company from 1991 through June 1996. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
COMPANY'S USED VEHICLE SALES
First six
months
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ---------
(Dollars in thousands)
Retail unit sales. . . . . 2,375 2,640 3,076 3,372 3,302 1,839
Retail sales revenue . . . $18,762 $24,228 $29,680 $36,389 $36,997 $21,566
Retail gross margin* . . . 14.9% 16.2% 13.9% 13.5% 13.2% 12.6%
Wholesale unit sales . . . 1,028 1,294 1,642 1,834 1,842 1,363
Wholesale sales revenue. . $4,607 $5,702 $5,306 $5,999 $7,064 $6,829
Wholesale gross margin . . 1.9% 3.7% 3.0% 3.0% 2.4% 1.4%
Total unit sales . . . . . 3,403 3,934 4,718 5,206 5,144 3,202
Total sales revenue. . . . $23,369 $29,930 $34,986 $42,381 $44,061 $28,395
Total gross margin . . . . 12.3% 13.8% 12.3% 12.0% 11.4% 10.0%
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The Company acquires the majority of its used vehicles through customer trade-ins. The Company also acquires its used vehicles at "closed" auctions which may be attended only by new car dealers and which offer off-lease, rental and fleet vehicles, and at "open" auctions which offer repossessed vehicles and vehicles being sold by other dealers.
The Company sells the majority of its used cars to retail purchasers. In an effort to reach the Company's objective of two used vehicle sales for every new vehicle sale, the Company employs innovative marketing programs, such as "Priority You," which offers a 60-day/3,000-mile warranty and a 10-day/500-mile "no questions asked" exchange program on every used vehicle it sells in order to generate customer confidence in his or her purchasing decision. Each dealership's used vehicle manager is responsible for the purchasing and pricing his used vehicle inventory. The Company strives to sell each of its used vehicles within 60-days of acquisition and financially motivates its used vehicle managers to effect such sales within that period.
VEHICLE FINANCING AND LEASING. The Company believes that its customers' ability to obtain financing at its dealerships is critical to its ability to sell new and used vehicles and ancillary products and services. The Company provides a variety of financing and leasing alternatives in order to meet the specific needs of each potential customer. The Company believes its ability to obtain customer-tailored financing on a "same day" basis provides it with an advantage over many of its competitors, particularly smaller competitors who lack the resources to offer vehicle financing or who do not generate sufficient volume to attract the diversity of financing sources that are available to the Company. The Company's F&I managers have extensive knowledge regarding available financing alternatives and sources and are specially trained to determine the customer's financing needs to enable the customer to purchase or lease an automobile. The Company seeks to finance or arrange financing for every used vehicle it sells and has financed a larger percentage of its transactions than the industry average. During 1995, the Company financed or arranged for financing for over 59% of its new vehicle sales and 69% of its used vehicle sales, compared to an industry average of 42% and 51%, respectively.
The Company maintains close relationships with a wide variety of financing sources and arranges financing for its customers with those sources that are best suited to satisfy its customers' particular needs. The Company also utilizes financing sources, wherever possible, that maximize the Company's revenues on the sale of the loan to such source. The interest rates available and the required down payment, if any, depend to a large extent, upon the bank or other institution providing the financing and the credit history of the particular customer. Currently, the Company has relationships with 22 banks and other financial institutions who are in a position to arrange financing for automobile purchases or leases by the Company's customers. The Company's managers have close working relationships with the third-party financing sources which enables them to quickly determine a customer's credit position and confirm the type and level of financing that the third party can commit to provide. This process generally occurs within a matter of minutes while the customer is still in the store, allowing the sales manager to assist the customer in making a fully-informed decision regarding the terms of the sale.
In most cases, the Company arranges financing for its customers from third party sources, which relieves the Company from any credit risk. However, in certain circumstances where the Company believes the credit risk is manageable and the risk-weighted income is expected to exceed the earnings available upon the immediate sale of the finance contract, the Company will directly finance or lease the automobile to such customer. In these cases, the Company bears the risk of default by the borrower or lessee. Historically, the Company has provided direct financing for less than 1.0% of its new and used vehicle sales and has incurred insignificant losses related to such activities. The Company intends to continue providing financing to certain of its customers and may gradually expand its direct financing operations in circumstances where it believes attractive returns can be achieved or other operational benefits can be obtained.
ANCILLARY SERVICES AND PRODUCTS. The Company employs two to three F&I managers at each dealership to market a number of ancillary products and services to every purchaser of a new or used vehicle. Typically, these products and services yield high profit margins and contribute significantly to improving the overall profitability of the Company.
The Company offers extended service contracts which provide that, for a predetermined and prepaid price, all designated repairs covered by the plan during its term will be made by the Company at no additional charge above the deductible. While all new vehicles are sold with the automobile manufacturer's standard warranty, service plans provide additional coverage beyond the time frame or scope of the manufacturer's warranty. Purchasers of used vehicles are offered a similar extended service contract, even if the selected vehicle is no longer under the manufacturer's warranty.
Substantially all of these contracts sold are written by the Company. The Company manages the service and warranty obligations that it sells and provides the parts and service (or pays the cost of others who may provide such parts and services) for claims made under the contract. Most required services under the contracts are provided by the Company thereby increasing the Company's sales of parts and service. The Company's net service contract income has increased from $575,000 in 1993 to $764,000 in 1995. Claims and cancellations have been less than 16% of recognized service contract income in each of these years.
The Company offers its customers credit life, health and accident insurance when they finance an automobile purchase. The Company receives a commission on each policy sold. The Company also offers other ancillary products such as protective coatings and automobile alarms.
The Company also owns and operates two automobile rental facilities, Avis Rent-A-Car, and Discount Auto & Truck Rental, Inc. located in Medford, Oregon.
PARTS AND SERVICE, PAINT AND BODY SHOP. The Company considers its parts and service operations to be an integral part of its customer service program and an important element of establishing customer loyalty. The Company provides parts and service primarily for the new vehicle brands sold by the Company's stores but may also service other vehicles. In 1995, the Company's parts and service operations generated $11.0 million in revenues, or 10% of total revenues, at a gross profit margin of 45% (on a FIFO basis). The Company attributes its profitability in parts and service to its comprehensive management system, including the use of a variable pricing structure designed to reflect the difficulty and sophistication of different types of repairs. The mark-ups on parts is based upon the cost and availability of a particular part.
The service and parts business is relatively stable and provides an important recurring revenue stream to the Company's dealerships. The Company also notifies owners of vehicles purchased at its dealerships when their vehicles are due for periodic service, thereby encouraging preventive maintenance rather than post-breakdown repairs. To a limited extent, revenues from this department are countercyclical to new car sales as owners repair existing vehicles rather than buy new vehicles. The Company believes this helps mitigate the affects of a downturn in the new vehicle sales cycle.
The Company has in excess of 80 service bays throughout its network of dealerships. All service facilities are equipped with technologically advanced tools and diagnostic equipment and are staffed by factory-trained and certified service technicians. The Company's dealerships feature various combinations of fully-equipped service facilities capable of handling almost any type of vehicle repair, from rebuilding engines and transmissions to routine maintenance functions including oil changes, front-end alignments and inspections. All dealerships offer lounges where service customers may relax or conduct business while waiting for service to be performed.
The Company has operated a full-service paint and body shop since 1970. The body shop services all of the Company's dealerships located in southwest Oregon, other dealerships in the area that do not have a captive body shop, and a number of major automotive casualty insurance companies that contract with the Company to perform insurance repairs. A new 39,480 square-foot body and paint facility is being constructed in Medford, Oregon, to handle the increased demand for the Company's body and paint services. The new facility, to be completed in Spring 1997, will have four paint booths as well as the latest technology, tools and equipment. The facility will be leased to the Company pursuant to a long- term lease from Lithia Properties. See "Properties" and "Certain Relationships and Related Transactions."
SALES AND MARKETING
The Company emphasizes customer satisfaction throughout its organization and continually seeks to maintain a reputation for quality and fairness. The Company's sales force works closely with each customer to identify an appropriate vehicle at a price affordable to that customer. The Company believes that its "counseling" approach during the sales process increases the likelihood that a customer will be satisfied with the vehicle purchased over a longer time period and enables the Company to sell more vehicles at higher gross profit margins.
The Company recently implemented a marketing program entitled "Priority You," which provides the Company's retail customers six value-added services which the Company believes are important to the overall satisfaction of the customer, including a commitment to (i) provide a customer credit check within 10 minutes, (ii) complete a used vehicle appraisal within 30 minutes, (iii) complete the paper work on a new vehicle purchase within 90 minutes, (iv) provide a 10-day/500-mile "no questions asked" right of exchange on any used vehicle, (v) provide a 60-day/3,000-mile warranty on all used vehicles, and (vi) make a $20 per vehicle donation to a local charity or educational organization. The Company believes "Priority You" will help differentiate it from traditional dealerships and, thereby, increase customer traffic and develop customer loyalty.
Advertising and marketing play a significant role in the success of the Company. The competitive environment of the automobile dealership industry requires that a substantial portion of each sales dollar be allocated to advertising. However, as is the case with most new automobile dealerships, approximately 75% of the Company's advertising and marketing expenses are paid for by the automobile manufacturers. The manufacturers also provide the Company with the benefit of market research, which assists the Company in developing its own advertising and marketing campaigns. The Company believes that it receives significant benefit from manufacturers'
advertising, particularly in the medium-sized markets in which the Company's stores are the only franchise representing the manufacturer.
The Company's marketing efforts generally focus on a wide range of potential buyers. The Company offers a variety of new and used cars and light trucks with at various prices and financing terms. The Company utilizes most forms of media in its advertising, including television, newspaper, radio and direct mail, including periodic mailers to previous customers. The Company primarily uses advertising that focuses on developing its image as a reputable dealer, offering quality service, affordable automobiles and financing for all potential buyers. In addition, the Company's individual dealerships periodically sponsor price discounts or other promotions designed to attract additional customers. Each dealership has substantial control over the content and timing of its promotions, although all advertising is coordinated by the Company. As the Company owns several dealerships, it realizes cost savings on its advertising expenses in the Medford, Oregon, market from volume discounts and other media concessions.
The Company also benefits from a substantial amount of advertising through cooperatives or associations, such as the Southern Oregon Toyota Dealers Association. The Company participates as a member of these cooperatives or associations whose members, among other things, pool their resources and expertise together with that of the manufacturer to develop advertising aimed at benefitting all of their members.
MANAGEMENT INFORMATION SYSTEM
The Company's financial information, operational and accounting data and other related statistical information are consolidated, processed and maintained at its headquarters in Medford, Oregon, on a network of server computers and work stations. The flexible nature of the Company's installed network allows for accumulation, processing and distribution of information using ADP, Inc. computing programs. ADP, Inc. is a national software provider for many companies including automotive dealers. All sales and expense information, and other data related to the operations of each dealership or other Company facility, are entered at each location. This system allows senior management to access detailed information on a "real time" basis from all of the Company's dealerships and other stores regarding, for example, the makes and models of automobiles in its inventory, the mix of new and used automobile sales, the number of automobiles being sold or leased, the percentage of vehicles for which the Company arranged financing or sold ancillary products and services, the profit margins being obtained on sales, and the relative performances of the Company's dealerships to each other. Such information is also available to each dealership's general manager. Reports can be generated that set forth and compare revenue and expense data by department and by store, allowing management to quickly analyze the results of operations, identify trends in the business, and focus on areas that require attention or improvement. The Company believes that its management information system also allows its general managers to quickly respond to changes in consumer preferences and purchasing patterns, thereby maximizing inventory turnover.
The Company believes that its management information system is a key factor in successfully incorporating newly acquired businesses into the Company. Following each acquisition, the Company installs its system at the dealership location, thereby quickly making the financial, accounting and other operational data easily accessible to senior management at the Company's corporate offices. With access to such data, senior management can efficiently incorporate the Company's operating strategy at the newly acquired dealership.
CASH MANAGEMENT
The Company employs cash management systems designed to maximize returns and minimize interest expense. The Company's new vehicle flooring line is supplied by the Company's bank, rather than by automobile manufacturers, unlike many dealerships that do not have the financial condition or results of operations that would permit them to obtain bank financing on terms more favorable than those offered by manufacturers. As a result, the Company's interest rate for flooring financing is 25 to 50 basis points below the rates currently available to it from most manufacturers. In addition, in order to minimize the outstanding balance under the Company's Flooring Line, all available excess cash in the Company's various checking accounts are automatically transferred at the end of each weekday to a central collateral account U.S. Bank. These funds are used to pay down the balance under the Flooring Line, thereby reducing the balance on which the Company is required to pay interest and decreasing the Company's overall interest expense below what it otherwise would be. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources."
RELATIONSHIPS WITH AUTOMOBILE MANUFACTURERS
The Company has, either directly or through its subsidiaries, entered into franchise or dealer sales and service agreements with each manufacturer of the new vehicles it sells. The Company currently has agreements with Chrysler Corporation (Chrysler, Plymouth, Dodge, Jeep/Eagle), American Honda Motor Co. Inc. (Honda), American Isuzu Motors, Inc. (Isuzu), Ford Motor Company (Lincoln, Mercury), General Motors Corporation (Pontiac), Mazda Motor of America, Inc. (Mazda), Saturn Corporation (Saturn), Toyota Motor Distributors, Inc. (Toyota), American Suzuki Motor Corporation (Suzuki) and Volkswagen of America (Volkswagen).
The typical automotive franchise agreement specifies the locations at which the dealer has the right and the obligation to sell vehicles and related parts and products and to perform certain approved services in order to serve a specified market area. The designation of such areas and the allocation of new vehicles among dealerships are subject to the discretion of the manufacturer, which generally does not guarantee exclusivity within a specified territory. A franchise agreement may impose requirements on the dealer concerning such matters as the showroom, the facilities and equipment for servicing vehicles, the maintenance of inventories of vehicles and parts, the maintenance of minimum net working capital, the training of personnel and the adherence to certain performance standards established by the manufacturer regarding sales volume and customer satisfaction. Compliance with these requirements is closely monitored by each manufacturer. In addition, manufacturers require each dealership to submit monthly and annual financial statements of operations. The franchise agreements also grant the dealer the non-exclusive right to use and display manufacturers' trademarks, service marks and designs in the form and manner approved by each manufacturer.
Most franchise agreements expire after a specified period of time, ranging from one to five years; however, some franchise agreements, including those with Chrysler, have no termination date. The typical franchise agreement provides for early termination or non-renewal by the manufacturer under certain circumstances such as change of management or ownership without manufacturer consent, insolvency or bankruptcy of the dealership, death or incapacity of the dealer manager, conviction of a dealer manager or owner of certain crimes, misrepresentation of certain information by the dealership or dealer manager or owner to the manufacturer, failure to adequately operate the dealership, failure to maintain any license, permit or authorization required for the conduct of business, or material breach of other provisions of the franchise agreement including the dealership's poor sales performance or low CSI ratings. The dealer is typically entitled to terminate the franchise agreement at any time without cause.
Each franchise agreement sets forth the name of the person approved by the manufacturer to exercise full managerial authority over the dealership's operations and the names and ownership percentages of the approved owners of the dealership, and contains provisions requiring the manufacturer's prior approval of changes in management or transfers of ownership of the dealership. Accordingly, any significant change in ownership, including the sale of shares by the Company to the public or the acquisition of a dealership from a third party, is subject to the consent of the respective manufacturer. Prior to the Offering, the Company will endeavor to obtain the approval of each relevant manufacturer to proceed with the Restructuring and to conduct the Offering. The Company must also request and receive approval from the relevant manufacturer prior to the closing of an acquisition or the establishment of an automobile dealership. See "Risk Factors -- Dependence on Automobile Manufacturers; -- Manufacturers' Consent to the Offering; -- Manufacturers' Consent to Acquisitions."
COMPETITION
The new and used automobile dealership business in which the Company operates is highly competitive. The automobile dealership industry is fragmented and characterized by a large number of independent operators, many of whom are individuals, families and small groups. In the sale of new vehicles, the Company principally competes with other new automobile dealers in the same general vicinity of the Company's dealership locations. Such competing dealerships may offer the same or different models and makes of vehicles that the Company sells. In the sale of used vehicles, the Company principally competes with other used automobile dealers and with new automobile dealers that operate used automobile lots in the same general vicinity of the Company's dealership locations. The Company believes that there are approximately 14 other new automobile dealerships and 66 other used automobile stores within a 50-mile radius of Medford, Oregon, near which all of the Company's dealerships are currently located. In addition, certain regional and national car rental companies operate retail used car lots to dispose of their used rental cars.
The Company also may face increased competition from certain automobile "superstores," such as CarMax, a division of Circuit City Stores Inc., United Auto Group, AutoNation USA and Driver's Mart Worldwide Inc. Such used automobile superstores have emerged recently in various areas of the United States and are beginning to expand nationally. However, the Company is not aware of any of such superstores currently located in any region where the Company operates dealerships. In addition, the Company competes to a lesser extent with an increasing number of automobile dealers that sell vehicles through nontraditional methods, such as through direct mail or via the Internet.
Due to the size and number of the automobile dealerships that the Company owns, the Company is relatively larger than the independent operators with which it currently competes. However, as it enters other markets, the Company, may face competitors that are much larger and that have access to greater financial resources. Historically, the Company's size has permitted it to attract experienced and professional sales and service personnel and has provided the Company the resources to compete effectively. The Company, however, does not have any cost advantage in purchasing new vehicles from manufacturers and typically relies on advertising and merchandising, sales expertise, service reputation and location of its dealerships to sell new vehicles.
REGULATION
The Company's operations are subject to extensive regulation, supervision and licensing under various federal, state and local statutes, ordinances and regulations. Various state and regulatory agencies, such as OSHA, the EPA and the Oregon Department of Justice, have jurisdiction over the operation of the Company's dealerships, repair shops, body shops and other operations, with respect to matters such as consumer protection, workers' safety and laws regarding clean air and water.
The relationship between a franchised automobile dealership and a manufacturer is governed by various federal and state laws established to protect dealerships from the generally unequal bargaining power between the parties. Federal laws, as well as Oregon and California state laws, prohibit a manufacturer from terminating or failing to renew a franchise without good cause. Under Oregon and 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 also prohibited from preventing or attempting to prevent any reasonable changes in the capital structure or the manner in which a dealership is financed. Further, Oregon law prohibits a manufacturer from failing to give effect to, or attempting to prevent, the sale of the ownership or management, or an interest in the ownership or management, of a dealership. Under California law, a dealer, or any officer, partner or stockholder may sell or transfer any interest in the dealership business provided that the sale or transfer of such interest does not have the effect of a sale or transfer of the franchise, without the consent of the manufacturer. Manufacturers are, however, entitled to object to a sale or change of management where such an objection is related to material reasons relating to the character, financial ability or business experience of the proposed transferee. In both Oregon and California, 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.
Automobile dealers and manufacturers are also subject to various federal and state laws established to protect consumers, including so-called "Lemon Laws" which require a manufacturer or the dealer to replace a new vehicle or accept it for a full refund within one year after initial purchase if the vehicle does not conform to the manufacturer's express warranties and the dealer or manufacturer, after a reasonable number of attempts, is unable to correct or repair the defect. Federal laws require certain written disclosures to be provided on new vehicles, including mileage and pricing information. In addition, the financing and insurance activities of the Company are subject to certain statutes governing credit reporting, debt collection, and insurance industry regulation.
The imported automobiles purchased by the Company are subject to United States customs duties and, in the ordinary course of its business, the Company may, from time to time, be subject to claims for duties, penalties, liquidated damages, or other charges. Currently, United States customs duties are generally assessed at 2.5% of the customs value of the automobiles imported, as classified pursuant to the Harmonized Tariff Schedule of the United States.
As with automobile dealerships generally, and parts, service and body shop operations in particular, the Company's business involves the use, handling and contracting for recycling or disposal of hazardous or toxic substances or wastes, including environmentally sensitive materials such as motor oil, waste motor oil and filters,
transmission fluid, antifreeze, freon, waste paint and lacquer thinner, batteries, solvents, lubricants, degreasing agents, gasoline and diesel fuels. The Company has also been required to remove aboveground and underground storage tanks containing such substances or wastes. Accordingly, the Company is subject to regulation by federal, state and local authorities establishing health and environmental quality standards, and liability related thereto, and providing penalties for violations of those standards. The Company is also subject to laws, ordinances and regulations governing remediation of contamination at facilities it operates or to which it sends hazardous or toxic substances or wastes for treatment, recycling or disposal. The Company believes that it does not have any material environmental liabilities and that compliance with environmental laws, ordinances and regulations will not, individually or in the aggregate, have a material adverse effect on the Company's results of operations or financial condition. See "Risk Factors - Supervision and Regulation; Environmental Matters."
EMPLOYEES
As of June 30, 1996, the Company employed approximately 340 persons on a
full-time equivalent basis. None of the Company's employees is represented by a
labor union or bound by a collective bargaining agreement. However, the service
department employees at Sam Linder, Inc., a dealership the Company is intending
to purchase later this year, are bound by a collective bargaining agreement.
See "Pending Acquisitions." The Company believes it has a good relationship
with its employees.
PROPERTIES
Substantially all of the Company's facilities currently are leased from Lithia Properties LLC, an Oregon Limited Liability Company ("Lithia Properties"), with aggregate monthly lease payments totalling approximately $170,900. See "Certain Relationships and Related Transactions -- Lease of Real Estate from Lithia Properties."
The Company's headquarters, which presently occupy approximately 4,700 square feet of space, are located in Medford, Oregon. The Company and its various dealerships and other facilities occupy an aggregate of approximately 21 acres of land, providing approximately 185,000 square feet of building space. Such properties consist primarily of automobile showrooms, display lots, service facilities, two body and paint shops, rental agencies, supply facilities, automobile storage lots, parking lots and offices. The Company believes its facilities are currently adequate for its needs and are in good maintenance and repair.
The following table sets forth each of the Company's facilities, all of which are leased from Lithia Properties and the approximate square footage at each facility, the acreage of each location and the annual rental rate for the current and previous three years together with the rate to be effective January 1, 1997. Company in 1997, the Company will be responsible for all taxes, insurance and maintenance with respect to the facilities. Previously, Lithia Properties had been responsible for these payments. All facilities are located in Medford, Oregon except for the Grants Pass Auto Center, located in Grants Pass, Oregon. Minor parcels of land and the Avis Rent-A-Car facility are leased from third parties.
TOTAL TOTAL
BUILDING LAND-
DEALERSHIP/FACILITY SQUARE FT. ACRES
------------------- ---------- -----
Lithia Motors, Inc. 5,255 0.42
Lithia Honda Pontiac Suzuki
Isuzu Volkswagen 32,978 4.47
Lithia Toyota Lincoln Mercury 35,849 3.75
Lithia Dodge Chrysler Plymouth
Mazda Jeep/Eagle 47,446 4.25
Saturn of Southwest Oregon 11,226 2.33
Grants Pass Auto Center(Dodge)(1) 27,978 3.69
Lithia Body & Paint(2) 20,500 0.95
Lithia Body & Paint(3) 41,729 5.01
Thrift Auto Supply 11,230 0.46
Discount Auto & Truck Rental 2,778 0.31
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(1) Acquired by Lithia Properties from the Company June 1, 1996.
(2) A new facility is under construction. The current facility will be absorbed and utilized by the Lithia Dodge Chrysler Plymouth Mazda Jeep/Eagle dealership.
(3) Under construction. To be occupied Spring 1997.
The following table sets forth information regarding the facilities of the two proposed dealership acquisitions. See "Pending Acquisitions." The Company may assign its right and obligation to purchase these properties to Lithia Properties. If the properties are purchased by Lithia Properties it is anticipated such facilities would be leased to the Company on terms similar to the Company's other new leases and at an initial monthly rental rate equal to 1% of the purchase price of such properties.
TOTAL TOTAL
BUILDING LAND- TO BE
DEALERSHIP/FACILITY LOCATION SQUARE FT. ACRES PURCHASED/LEASED
- ------------------- -------- ---------- ----- ----------------
Roberts Dodge Eugene, Oregon 24,996 3.68 Purchased
Linder Honda Salinas, California 17,446 3.24 Lease/Purchase
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LITIGATION
The Company is, from time to time, a party to litigation that arises in the normal course of its business operations. The Company does not believe it is presently a party to litigation that will have a material adverse effect on its business or operations.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Lithia are as follows:
Year Elected or
Appointed
Director/Executive
NAME AGE POSITION Officer
- ------------------ --- -------- ------------------
Sidney B. DeBoer 53 Chairman, President, Chief 1968
Executive Officer and Secretary
M. L. Dick Heimann 53 Chief Operating Officer, 1970
Executive Vice President
Brian R. Neill 42 Chief Financial Officer 1995
R. Bradford Gray 45 Vice President- Acquisitions 1995
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SIDNEY B. DEBOER. Mr. DeBoer has served as the Chairman, President, Chief Executive Officer and Secretary of the Company since 1968. He also is a member of various automobile industry organizations, including the President's Club of the National Automobile Dealers Association, Oregon Auto Dealers Association, Medford New Car Dealers Association, Chrysler Dealer Council, Toyota Dealer Council and Honda Dealer Council.
M. L. DICK HEIMANN. Mr. Heimann has served as the Executive Vice President and Chief Operating Officer of the Company since 1970. Prior to joining the Company, he served as a district manager of Chrysler Corporation from 1967 to 1970. He is a member of various automobile industry organizations including the Oregon Auto Dealers Association, the Jeep Dealer Council and the Medford New Car Dealers Association, for which he has previously served as president. Mr. Heimann is a graduate of University of Colorado with a Bachelor of Science in Biology and Languages.
BRIAN R. NEILL. Mr. Neill has served as the Chief Financial Officer of the Company since September 1995. Prior to joining the Company at that time, he served as the Senior Vice President and Chief of Operations of Jackson County Federal Bank in Medford, Oregon from 1977 to 1991. Mr. Neill, a graduate of Northwest Christian College with a Bachelor of Science degree in Management, is graduating from the NADA Dealer Candidate Academy in November 1996.
R. BRADFORD GRAY. Mr. Gray has served as the Vice President-Acquisitions of the Company since 1995. From 1981 to 1995, he has served in various capacities with the Company including, most recently, as General Manager of the Company's Grants Pass (1991-1995) and Lithia Dodge (1989-1991) dealerships. Since 1975, Mr. Gray has held various positions in the automobile sales industry, including sales representative, sales manager and general manager.
The Company has committed to seek and elect at least two independent directors to serve on the Board of Directors no later than 90 days after the Offering. At this time no candidates have been asked to serve as directors. All directors hold office until the next annual meeting of shareholders or until their successors have been duly elected and qualified. Executive officers are appointed by, and serve at the discretion of, the Board of Directors (the "Board").
COMMITTEES OF THE BOARD
The Board will establish a Compensation Committee and an Audit Committee, effective with the election of at least two independent directors. The Compensation Committee will review and approve salaries for the executive officers, any grants of stock options and other incentive compensation for employees of the Company. The Audit Committee will recommend the selection of auditors for the Company and will review the results of the audit and other reports and services provided by the Company's independent auditors.
The Company intends to provide competitive compensation to its independent directors and reimburses all directors for their reasonable out-of-pocket expenses incurred in connection with their attendance at Board meetings.
OTHER KEY PERSONNEL
All of the persons listed below have served the Company in these key positions for over five years.
YEARS WITH CURRENT
NAME AGE THE COMPANY POSITION
- ------------------ --- ----------- --------
Stephen R. Philips 43 19 General Manager -
Toyota/Lincoln Mercury
Burt Frederickson 44 16 General Manager - Saturn
Bryan DeBoer 30 7 General Manager -
Honda/Pontiac/Suzuki/
Isuzu/Volkswagen
Don Jones, Jr. 33 7 General Manager -
Dodge/Chrysler/
Plymouth/Jeep/Eagle
Dorothy Crockett 47 16 Comptroller
Bill Daves 53 15 Vice President - Human
Resources - Training
and Development
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION. The following table shows compensation paid to the Chief Executive Officer and each of the two other executive officers who had total compensation during 1995 exceeding $100,000.
All of the persons listed below have served the Company in these key positions for over five years.
SUMMARY COMPENSATION TABLE
Annual Compensation (1)
-------------------------
All Other
Name and Position Year Salary Bonus (2) Compensation
- ----------------- ---- --------- --------- ------------
Sidney B. DeBoer 1995 $ 331,125 $ 1,500 $ 2,310(3)
M. L. Dick Heimann 1995 $ 277,125 $ 1,500 $ 2,310(3)
R. Bradford Gray 1995 $ 189,060 $ 3,645 $ 5,981(4)
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(1) For calendar year 1996, the officers shown in the table receive the
following annual salaries: Mr. DeBoer - $352,800; Mr. Heimann -$273,000;
and Mr. Gray - $192,000.
(2) Includes a "wellness bonus" of $1,500 for each of the named Executive
Officers. All full-time employees are entitled to an annual "wellness
bonus" equal to $150 per year for each year of employment (maximum of
$1,500) for undergoing a physical and other health counseling.
(3) Consists of amounts contributed by the Company to the accounts of Mr.
DeBoer and Mr. Heimann pursuant to the Company's 401(k) and Profit Sharing
Plan.
(4) Includes $2,310 contributed by the Company to the account of Mr. Gray
pursuant to the Company's 401(k) and Profit Sharing Plan, an automobile
allowance of $3,625 and an insurance premium payment of $46.
1996 STOCK INCENTIVE PLAN
In April, 1996, the Board and the Company's shareholders adopted the Company's 1996 Stock Incentive Plan (the "Plan"). The Plan provides for the granting of stock-based awards ("Awards") to executive officers (including those who are directors), to other employees and to non-employee consultants of the Company. Such Awards may take any form approved by the Board or by a committee designated by the Board, including stock options, stock bonuses, stock appreciation rights and restricted stock awards. Stock options granted under the Plan may be either options that qualify as "incentive stock options", within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended ("Incentive Options"), or those that do not qualify as such "incentive stock options" ("Non-qualified Options"). The Plan, which permits up to __________ shares of the Company's Class A Common Stock to be issued, terminates on April 4, 2006. As of the date hereof, stock options with respect to ___________ shares of Class A Common Stock were outstanding, constituting all of the Awards granted under the Plan to date. An additional _______________ shares were available for issuance under the Plan. As of the date of this prospectus, options with respect to ___________ shares are exercisable.
Shares of Class A Common Stock may be issued under the Plan for any lawful consideration. To date, the Company has only granted stock options pursuant to the Plan. The Plan is administered by the Board or by a Compensation Committee of the Board. Subject to the terms of the Plan, the Board or the Compensation Committee determines the persons to whom Awards are granted and the terms and the number of shares covered by each Award.
The term of each option may not exceed ten years from the date the option is granted, or five years in the case of an option granted to a holder of more than 10% of the fully-diluted capital stock of the Company. Options may become exercisable in whole at grant or in installments over time, as determined by the Committee.
With respect to the stock options granted by the Company to date, such options generally expire when the optionee ceases to be affiliated with the Company. Options may not be transferred other than by will or the laws of descent and distribution, and during the lifetime of an optionee may be exercised only by the optionee. Each of the outstanding stock options under the Plan provide that if the optionee is terminated without cause at any time when Sidney B. DeBoer is not the chairman, president or chief executive officer of the Company, then all options held by such optionee shall become fully vested and exercisable for a period of three months following the termination of employment.
The Plan provides that any Award may contain, at the discretion of the Committee, a provision conditioning or accelerating the receipt of benefits pursuant to such Award upon the occurrence of specified events, including continued employment by the Company, a change in control, merger, dissolution or liquidation of the Company, or the sale of substantially all of the Company's assets. The acceleration of vesting of Awards in the event of a merger or other similar event may be seen as an anti-takeover provision and may have the effect of discouraging a proposal for merger, a takeover attempt or other efforts to gain control of the Company.
Under the terms of the options issued to date, payment upon the exercise of an option may be in cash, by check or by delivery of shares of Class A Common Stock with a "fair market value," as defined in the Plan, equal to the aggregate exercise price.
OPTION GRANTS. No option grants were made during 1995 to any of the executive officers of the Company. In April 1996, the following grants of options to acquire Class A Common Stock were made to executive officers:
Name Number of Shares Exercise Price Expiration Date - ------------ ---------------- -------------- --------------- Sidney B. DeBoer April 4, 2001 M.L. Dick Heimann April 4, 2001 R. Bradford Gray April 4, 2006 Brian R. Neill April 4, 2006 |
The options granted to Messrs Gray and Neill have a term of 10 years and have exercise prices equal to the fair market value of the shares underlying those options on the date the option was granted, as determined by an independent valuation. The options granted to Messrs DeBoer and Heimann have a term of 5 years and have exercise prices at 110% of such fair market value as provided by the Plan. No other Awards have been made to executive officers under the Plan.
OPTION EXERCISES. No options were outstanding during 1995 and no options have been exercised in 1996 by any optionee.
PRINCIPAL STOCKHOLDERS
The following table sets forth, as of June 30, 1996, and as adjusted to
reflect the sale of shares of the Company's Common Stock in this Offering,
certain information with respect to beneficial ownership of the Common Stock by
(i) each person or entity known by the Company to own beneficially more than 5%
of the Common Stock, (ii) each director of the Company, (iii) each executive
officer of the Company named in the summary compensation table, and (iv) all
directors and officers as a group. Except as indicated in footnotes to this
table, each of 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.
Shares Beneficially Owned Shares Beneficially Owned
Before the Offering(1) After the Offering(1)
-------------------------------------------- --------------------------------------------------------
Class A Class B Class A Class B Percent of
-------------------- ---------------------- -------------------------------------------- Voting
Name and Address(2) Number Percent Number Percent Number Percent Number Percent Power
- ------------------- ------ ------- ------ ------- ------ ------- ------ ------- -------
Lithia Holding Company,
LLC (3) --- ---% ---% --- ---% 100% _____%
Sidney B. DeBoer(3) (4) 100% 100% 1.7% 100% ---%
M. L. Dick Heimann(3) (4) 100% --- ---% 1.7% --- ---% ---%
Brian R. Neill (5) 100% --- ---% * --- ---% *
R. Bradford Gray --- ---% --- ---% --- ---% --- ---% ---%
All directors and officers
as a group (4 persons) 100% 100% 4.1% 100% ---%
|
* Less than 0.1%
(1) Assumes consummation of the Restructuring. See "Company Restructuring and
Prior S Corporation Status." Also assumes no exercise of the Underwriters'
over-allotment option. See "Underwriting".
(2) All such person can be reached c/o 360 E. Jackson Street, Medford, Oregon
97501.
(3) Lithia Holding's members consists of Messrs DeBoer, Heimann and Gray. Mr.
DeBoer, as the manager of Lithia Holding and pursuant to the terms of its
operating agreement, has the sole voting and investment power with respect
to all of the Class B Common Stock held.
(4) Each of Messrs DeBoer and Heimann hold an option to purchase
shares of Class A Common Stock at a exercise price of $ per
share, of which are exercisable within 60 days of this
Prospectus. See "Executive Compensation" and "1996 Stock Incentive Plan".
(5) Mr. Neill holds an option to acquire shares of Class A
Common Stock at $ per share, all of which are exercisable within
60 days of the date of this Prospectus.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPANY RESTRUCTURING AND INDEBTEDNESS TO EXECUTIVE OFFICERS
The Company is currently owned by Sidney B. DeBoer (62.5%) and M. L. Dick Heimann (37.5%). Mr. DeBoer and Mr. Heimann also own, with the same ownership percentages, Lithia Rentals, Lithia Leasing, Lithia Chrysler Plymouth Jeep Eagle, Inc., and Discount Auto & Truck Rental, Inc. Further, Sidney B. DeBoer and Stephen R. Phillips have 0.01% and 19.99% interests, respectively, in Lithia Toyota LLC, which is otherwise owned by the Company. Similarly, Sidney B. DeBoer and R. Bradford Gray have 0.01% and 24.99% interests, respectively, in Lithia's Grants Pass Auto Center, L.L.C. and Lithia Dodge, L.L.C.
Contemporaneously with the Offering, and pursuant to an Agreement of Reorganization, the Company and the foregoing affiliated entities will consummate a restructuring which will result in each of the Company's dealerships and operating divisions becoming direct or indirect wholly-owned subsidiaries of the Company. The Company will continue to be controlled by Sidney B. DeBoer and M. L. Dick Heimann through their ownership of Lithia Holding. See "Company Restructuring and Prior S Corporation Status," "Principal Shareholders" and "Description of Capital Stock."
The Company and its affiliated corporations and limited liability companies, which together directly or indirectly own and control the Company's dealerships, are currently treated for federal and state income tax purposes as subchapter S Corporations or partnerships under the Internal Revenue Code of 1986, as amended. Accordingly, Sidney B. DeBoer, M. L. Dick Heimann, R. Bradford Gray and Stephen R. Philips, the principal owners of the Company and the affiliated entities, have been taxed directly on the earnings of those entities. In December 1995, the Company and the affiliated entities distributed to these individuals the Dividend Notes in the aggregate amount of $3.9 million, representing approximately all of the previously taxed undistributed earnings of those entities. See "Company Restructuring and Prior S Corporation Status." The Dividend Notes bear interest at 9% per annum, payable in ten equal annual installments beginning one year and ten days after demand by the noteholders. Prior to completion of the Offering, the Company and the affiliated entities intend to distribute additional amounts in the form of additional promissory notes to these individuals in an aggregate amount equal to the undistributed taxable income of the Company and the affiliated entities from January 1, 1996, through the effective date of the Restructuring. Any final distribution of earnings will be paid at or shortly after the closing of the Offering. Upon consummation of the Restructuring, the Company will assume the obligations of the affiliated entities under the Dividend Notes. It is anticipated that the Company will prepay the Dividend Notes and make distributions of the remaining undistributed earnings using a portion of the proceeds of the Offering. See "Use of Proceeds." The total amount to be paid to these individuals, including prepayment of the Dividend Notes, is expected to be approximately $6.0 million, with the actual amount being dependent on the actual earnings of the
Company and the affiliated entities through the date of Restructuring. Dividends of $2.0 million were paid to those individuals in 1994 with respect to prior Company and affiliated entity income.
LEASE OF REAL ESTATE FROM LITHIA PROPERTIES
Substantially all of the real property on which the Company's businesses are located is owned by Lithia Properties, the members of which are the Company (20%), Sidney B. DeBoer (35%), M.L. Dick Heimann (30%) and three of Mr. DeBoer's children, who own 5% each. The Company and the affiliated entities paid an aggregate of $2.1 million, $2.1 million and $2.2 million in lease payments to Lithia Properties during the years ended December 31, 1993, 1994 and 1995, respectively. For the years ending December 31, 1996, lease payments will total $2.3 million of which $2.4 million represents the lease of the Company's facilities in Grants Pass which were acquired by Lithia Properties on June 1, 1996, from Lithia Dodge, LLC. The Company and Lithia Properties have recently entered into new lease agreements with respect to each facility, effective January 1, 1997. The new leases have terms of 30 years and have aggregate annual payments of $2.0 million. This amount includes approximately $304,000 for the lease of a body and paint facility currently under construction, and expected to be completed in 1997. Lease payments will commence on such facility upon completion of construction. Unlike in prior years, and commencing 1997, the Company will be responsible for property taxes, insurance and maintenance expenses. The initial payments are determined by a formula based on the fair market value of the properties according to recent independent appraisals, and approximate 1% of such fair market value per month. Lease payments are paid monthly and will be adjusted each year beginning January 1998 to an amount equal to any increase in the cost of living based on the "Consumer Price Index - Pacific Cities and U. S. Average" (1967-100) published by the bureau of Labor Statistics of the U. S. Department of Labor, for the City of Portland, Oregon. If any improvements are made to the properties at the Company's request or with its concurrence, then upon completion, the monthly lease payment shall be adjusted as follows: If the improvements are of such a nature as to cause an increase in the fair market value of the property, then the monthly lease payment shall be increased by 1.0% of the increase in fair market value. If the improvements do not materially increase the fair market value of the property, then the monthly lease payment shall be increased by the amount which would amortize the cost of the improvements over a 60-month period at 12% interest per annum. For a more complete description of the Company's facilities, see "Business."
MANAGEMENT CONTRACT WITH LITHIA PROPERTIES
The Company provides accounting, property management, and general administrative services to Lithia Properties in connection with the management of the facilities owned by Lithia Properties and leased to the Company or related entities. The Company receives a monthly fee of $36,000 for its services to Lithia Properties. In 1995, the Company received $288,000 under the contract. The current Management Contract terminates on December 31, 1996.
GUARANTEE OF LITHIA PROPERTIES, INDEBTEDNESS
The Company guaranteed certain indebtedness of Lithia Properties, incurred in connection with the purchase or refinancing of real property which secures the loan. The loans have a total principal amount of $13.1 million with interest rates from 8.25% to 10.0% and have terms of from 2 years to 12 years.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 100,000,000 shares of Class A Common Stock, no par value, 25,000,000 shares of Class B Common Stock, no par value, and 15,000,000 shares of Preferred Stock, no par value. The Board of Directors may, by its own action, decrease the number of authorized shares of Class B Common Stock. If it does so, the number of shares of Class A Common Stock will automatically be increased on a share for share basis.
COMMON STOCK
Each share of Common Stock is designated as either Class A Common Stock or Class B Common Stock. As of the date hereof, there are no shares of Class A Common Stock outstanding and _______________ shares of Class B Common Stock outstanding. All of the outstanding Class B Common Stock is held by Lithia Holding. Upon completion of this Offering, there will be _____________ shares ( _____________ shares if the over-allotment options is exercised) of Class A Common Stock and _______________ shares of Class B Common Stock outstanding. The issued and outstanding shares of Class B Common Stock have been, and the shares of Class A Common Stock offered hereby will be, duly authorized, validly issued, fully paid and nonassessable.
Without the prior approval of shareholder holding over a majority of all Class A Common Stock outstanding, no additional shares of Class B Common Stock can be issued, except in conjunction with stock splits, reverse stock splits, stock dividends, reclassification and similar transactions and events regarding the Class A Common Stock that would otherwise have the effect of changing conversion rights of the Class B Common Stock relative to the Class A Common Stock (the "Adjustments").
Holders of Common Stock do not have any preemptive rights or rights to subscribe for additional securities of the Company. Shares of Common Stock are not redeemable, and there are no sinking fund provisions.
While the shares of Class A Common Stock are not convertible into any other series or class of the Company's securities, each share of Class B Common Stock is freely convertible into one share (subject to the Adjustments) of Class A Common Stock at the option of the holder of the Class B Common Stock. All shares of Class B Common Stock shall automatically convert to shares of Class A Common Stock (on a share-for-share basis, subject to the Adjustments) on the earliest record date for an annual meeting of the Company shareholders on which the number of shares of Class B Common Stock outstanding is less than 1% of the total number of shares of Common Stock outstanding. Shares of Class B Common Stock may not be transferred to third parties (except for transfers to certain family members and in other limited circumstances). Any purported transfer of Class B Common Stock to a person who is not a permitted transferee under the Articles of Incorporation is automatically void.
Subject to the preferences applicable to any Preferred Stock outstanding at the time, holders of shares of Common Stock are entitled to dividends if, when and as declared by the Board of Directors from funds legally available therefor, and are entitled, in the event of liquidation, to share ratably in all assets remaining after payment of liabilities and Preferred Stock preferences, if any. Each share of Class A Common Stock and Class B Common Stock will be treated equally with respect to dividends and distributions.
Holders of Class A Common Stock are entitled to one vote for each share held of record, and holders of Class B Common Stock are entitled to ten votes for each share held of record. The Class A Common Stock and Class B Common Stock vote together as a single class on all matters submitted to a vote of shareholders (including the election of directors), except that, the Oregon Business Corporation Act would entitled either the Class A Common Stock or the Class B Common Stock to vote as a separate voting group on any proposed amendment of the Company's Articles of Incorporation otherwise requiring shareholder approval if the proposed amendment would (i) increase or decrease the aggregate number of authorized shares of the class, (ii) effect an exchange or reclassification of all or part of the shares of the class into shares of another class or create a right to do so, (iii) change the shares of all or part of the class into a different number of shares of the same class, (iv) create a new class having rights or preferences with respect to distributions or dissolution that are prior to superior or substantially equal to shares of the class or (v) otherwise alter the rights, preferences or limitations of all or part of the shares of the class. In these circumstances, the class of Common Stock to be altered shall vote on the
amendment as a separate class. Shares of Common Stock do not have cumulative voting rights with respect to the election of directors. Immediately after this Offering, Lithia Holding will hold shares of Class B Common Stock constituting approximately ___% of the voting power of the outstanding Common Stock, which will allow it to control all actions to be taken by the shareholders, except as noted above, including the election of all directors to the Board of Directors. See "Principal Shareholders" and "Risk Factors--Control by Management."
PREFERRED STOCK
The Board of Directors may, without further action of the shareholders of the Company, issue shares of Preferred Stock in one or more series and fix the rights and preferences thereof, including the dividend rights, dividend rates, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or the designations of such series, and increase or decrease the number of shares of any such series (but not below the number of such shares then outstanding). The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of holders of any Preferred Stock that may be issued in the future. Issuance of Preferred Stock provides desirable flexibility in connection with possible acquisitions and other corporate purposes. However, the Board of Directors, without further shareholder approval, can issue Preferred Stock with voting and conversion rights that would adversely affect the voting power and other rights of the holders of Common Stock. In addition, the Board of Directors can issue and sell shares of Preferred Stock to designated persons, the impact of which could make it more difficult for a holder of a substantial block of Common Stock to remove incumbent directors or otherwise gain control of the Company. The Company has no present plans to issue any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE OREGON BUSINESS CORPORATIONS ACT
Upon completion of the Offering, the Company will become subject to the Oregon Control Share Act (Oregon Revised Statutes Sections 60.801-60.816). The Oregon Control Share Act generally provides that a person (the "Acquiring Person") who acquires voting stock of an Oregon corporation in a transaction which results in such Acquiring Person holding more than 20%, 33-1/3% or 50% of the total voting power of such corporation (a "Control Share Acquisition") cannot vote the shares it acquires in the Control Share Acquisition ("control shares") unless voting rights are accorded to such control shares by the holders of a majority of the outstanding voting shares, excluding the control shares held by the Acquiring Person and shares held by the Company's officers and inside directors ("interested shares"), and by the holders of a majority of the outstanding voting shares, including interested shares. This vote would be required at the time an Acquiring Person's holdings exceed 20% of the total voting power of a company, and again at the time the Acquiring Person's holdings exceed 33-1/3% and 50%, respectively. The term "Acquiring Person" is broadly defined to include persons acting as a group. A transaction in which voting power is acquired solely by receipt of an immediately revocable proxy does not constitute a "Control Share Acquisition."
The Acquiring Person may, but is not required to, submit to the Company an "Acquiring Person Statement" setting forth certain information about the Acquiring Person and its plans with respect to the Company. The Acquiring Person Statement may also request that the Company call a special meeting of shareholders to determine whether the control shares will be allowed to retain voting rights. If the Acquiring Person does not request a special meeting of shareholders, the issue of voting rights of control shares will be considered at the next annual meeting or special meeting of shareholders that is held more than 60 days after the date of the Control Share Acquisition. If the Acquiring Person's control shares are accorded voting rights and represent a majority or more of all voting power, shareholders who do not vote in favor of the restoration of such voting rights will have the right to receive the appraised "fair value" of their shares, which may not be less than the highest price paid per share by the Acquiring Person for the control shares.
Upon completion of the Offering, the Company will also become subject to the Oregon Business Combination Act (Oregon Revised Statutes Sections 60.825- 60.845). The Oregon Business Combination Act generally provides that in the event a person or entity acquires 15% or more of the voting stock of an Oregon corporation (an "Interested Shareholder"), the corporation and the Interested Shareholder, or any affiliated entity, may not engage in certain business combination transactions for a period of three years following the date the person became an Interested Shareholder. Business combination transactions for this purpose include (a) a merger or plan of share exchange, (b) any sale, lease, mortgage or other disposition of the assets of the corporation where the assets have an aggregate market value equal to 10% or more of the aggregate market value of the corporation's assets or outstanding capital stock, and (c) certain transactions that result in the issuance of capital stock of the corporation
to the Interested Shareholder. These restrictions do not apply if (i) the Interested Shareholder, as a result of the transaction in which such person became an Interested Shareholder, owns at least 85% of the outstanding voting stock of the corporation (disregarding shares owned by directors who are also officers and certain employee benefit plans), (ii) the Board of Directors approves the share acquisition or business combination before the Interested Shareholder acquired 15% or more of the corporation's voting stock, or (iii) the Board of Directors and the holders of at least two-thirds of the outstanding voting stock of the corporation (disregarding shares owned by the Interested Shareholder) approve the transaction after the Interested Shareholder acquires 15% or more of the corporation's voting stock.
The Oregon Control Share Act and the Oregon Business Combination Act will have the effect of encouraging any potential acquiror to negotiate with the Company's Board of Directors and will also discourage certain potential acquirors unwilling to comply with the provisions of these laws. A corporation may provide in its articles of incorporation or bylaws that the laws described above do not apply to its shares. The Company has not adopted such a provision and does not currently intend to do so. These laws may make the Company less attractive for takeover, and thus shareholders may not benefit from a rise in the price of the Common Stock that a takeover could cause.
LIMITATION OF LIABILITY AND INDEMNIFICATION
As allowed by the Oregon Business Corporation Act, the Company's Articles of Incorporation provide that the liability of the directors of the Company for monetary damages will be eliminated to the fullest extent permissible under Oregon law. This is intended to eliminate the personal liability of a director for monetary damages in an action brought by or in the right of the Company for breach of a director's duties to the Company or its shareholders except for liability: (1) for any breach of the director's duty of loyalty to the Company or its shareholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; and (3) for any unlawful distribution to shareholders; or (4) for any transaction from which the director derived an improper personal benefit. This provision does not limit or eliminate the rights of the Company or any shareholder to seek non-monetary relief, such as an injunction or rescission, in the event of a breach of a director's duty of care. This provision also does not affect the director's responsibilities under any other laws, such as the federal or state securities or environmental laws.
The Articles of Incorporation and the Bylaws also provide that the Company shall indemnify, to the fullest extent permitted under Oregon law, any person who has been made, or is threatened to be made, a party to an action, suit or legal proceeding by reason of the fact that the person is or was a director or officer of the Corporation. The Company has entered into separate indemnification agreements with each of its directors and executive officers. These agreements require the Company to indemnify its officers and directors to the fullest extent permitted by law, including circumstances in which indemnification would otherwise be discretionary. Among other things, the agreements require the Company to indemnify directors, officers and such employee against certain liabilities that may arise by reason of their status or service as a director, officer or employee and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.
TRANSFER AGENT
The transfer agent for the Common Stock is ___________________________.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding _______ shares of Class A Common Stock (and any of the __________________ shares sold which are subject to the over-allotment option) and ______________ shares of Class B Common Stock. Of these shares, the shares of Class A Common Stock sold in the Offering, except for any shares purchased by an "affiliate" of the Company, as that term is defined in the rules and regulations under the Securities Act of 1933, as amended (the "Securities Act"), will be freely tradable without restriction or further registration under the Securities Act. The remaining _____________ shares of Class B Common Stock outstanding were issued and sold by the Company pursuant to an exemption provided under the Securities Act and are restricted securities within the meaning of Rule 144 under the Securities Act (the "Restricted Shares"). The Restricted Shares may be resold only in an Offering registered under the Securities Act, pursuant to an exemption from such registration such as that provided by Rule 144 under the Act, or, in certain circumstances, in private transactions outside of any public trading market.
In general, under Rule 144 a person (or persons whose shares must be aggregated for purposes of the volume limitation under the rule), including any affiliate, who has beneficially owned Restricted Shares for at least two years would be entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the outstanding shares of the Company's Common Stock (_____________ shares, assuming the issuance of ________ shares of Class A Common Stock in this Offering by the Company) or the reported average weekly trading volume in the over-the-counter market for the four weeks preceding the sale. Sales under Rule 144 are also subject to certain manner of sale restrictions and notice requirements and to the availability of current public information about the Company. It is not expected that such information concerning the Company will be available until at least 90 days after the closing date of the Offering. Future sales of such shares could have a material adverse effect on the market price of the Company's Common Stock. Persons who have not been affiliates of the Company for at least three months, and who have held their shares for more than three years, are entitled to sell such shares without any volume limitations, in reliance upon paragraph (k) of Rule 144. Upon completion of the Restructuring, Lithia Holding will be deemed to have held the ____________ shares of Class B Common Stock for more than three years, but is an affiliate of the Company. Affiliates of the Company are subject to the volume and other limitations with respect to all shares held by them, regardless of whether such shares are Restricted Shares.
In addition, the Company has reserved _________________ shares of Class A Common Stock for issuance pursuant to the Plan. Of this amount, _______________ shares are subject to outstanding options, ________________ of which are exercisable as of the date of this Prospectus. The Company intends to file a registration statement under the Act to register shares to be issued pursuant to the Plan. Such registration statement is expected to be filed as soon as practicable after the closing date of the Offering and will become effective automatically upon filing. Shares issued upon exercise of outstanding stock options after the effective date of the Plan's registration statement generally will be eligible for resale in the open market, unless held by affiliates of the Company.
Lithia Holding and each executive officer and director of the Company have agreed not to sell or otherwise dispose of shares of Common Stock for a period of 180 days following the closing date of the Offering without the consent of Furman Selz LLC, one of the Representatives of the Underwriters. See "Underwriting." After expiration of the lock-up period, all of such shares will be eligible for sale in the public market, subject to the provisions of Rule 144, described above.
Prior to the Offering there has been no public trading market for the Common Stock of the Company and no accurate predictions can be made as to the effect, if any, that sales of Restricted Shares or shares issued under the Plan may have on the prevailing market price of the Class A Common Stock from time to time. See "Principal Shareholders" and "Management -- 1996 Stock Incentive Plan." Sales of significant numbers of Restricted Shares or shares issued under the Plan or the "overhang" resulting from the eligibility of such shares for sale into the public trading markets could adversely affect prevailing market prices and could impair the ability of the Company to raise additional capital in the future through an Offering of its equity securities at a price acceptable to the Company or use its equity securities as consideration in future acquisitions.
UNDERWRITING
The underwriters named below (the "Underwriters"), for which Furman Selz LLC, Dain Bosworth Incorporated and EVEREN Securities, Inc. are acting as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions set forth in the Underwriting Agreement, to purchase from the Company the number of shares of Class A Common Stock indicated below opposite their respective names:
Number of
Underwriter Shares
----------- ---------
Furman Selz LLC ........................
Dain Bosworth Incorporated .............
EVEREN Securities, Inc. ................
_____________________ ..................
_____________________ ..................
_____________________ ..................
_____________________ ..................
---------
Total .............................
-----------
-----------
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The Underwriting Agreement provides that the obligations of the Underwriters to purchase the shares of Class A Common Stock listed above are subject to the approval of certain legal matters by counsel and various other conditions. The Underwriting Agreement also provides that the Underwriters are committed to purchase all of the shares of Class A Common Stock offered hereby, if any are purchased (except for any shares that may be purchased through exercise of the Underwriters' over-allotment option which may be exercised by the Underwriters in whole or in part).
The Representatives have advised the Company that the Underwriters propose to offer the shares of Class A Common Stock to the public at the initial public offering price set forth on the cover of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share to certain other dealers. After the Offering, the public offering price and other selling terms may be changed by the Representatives. The Class A Common Stock is offered subject to receipt and acceptance by the Underwriters, and to certain other conditions, including the right to reject orders in whole or in part.
Prior to this Offering, there has been no public market for the Class A Common Stock. Accordingly, the initial pubic offering price has been determined by negotiation between the Company and the Representatives. Among the factors considered in determining the initial public offering price were the Company's present and historical results of operations, current financial condition, estimates of the business potential and prospects of the Company, the condition of the Company's target market, the experience of the Company's management, the economics of the industry in general, the general condition of the equities market at the time of the Offering and other relevant factors. There can be no assurance that any active trading market will develop for the Class A Common Stock or as to the price at which the Class A Common Stock may trade in the public market from time to time subsequent to the Offering.
The Company has granted the Underwriters an option, exercisable during the 30-day period after the date of this Prospectus, to purchase up to _____________ additional shares of Class A Common Stock at the initial public offering price set forth on the cover page of this Prospectus, less underwriting discounts and commissions. To the extent the Underwriters exercise the option, each Underwriter will have a firm commitment, subject to certain conditions, to purchase such number of additional shares of Class A Common Stock as is proportionate to such Underwriter's initial commitment to purchase shares from the Company. The Underwriters may exercise such option solely to cover over- llotments, if any, incurred in connection with the sale of shares of Class A Common Stock offered hereby.
The Underwriting Agreement provides that the Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments that the Underwriters may be required to make in respect thereof.
All of the Company's executive officers and directors and Lithia Holding have agreed that, for a period of 180 days after the day on which the Registration Statement becomes effective by order of the Commission, they will not, without the prior written consent of Furman Selz LLC, directly or indirectly, offer for sale, sell, contract to sell, or grant any option to sell (including, without limitation, any short sale), pledge, establish an open "put equivalent position" within the meaning of Rule 16a-1(h) under the Exchange Act, transfer, assign or otherwise dispose of any shares of the Company's Class A Common Stock or securities exchangeable for or convertible into shares of the Company's Class A Common Stock, or any option, warrant or other right to acquire such shares, or publicly announce the intention to do any of the foregoing.
The Representatives have advised the Company that the Underwriters do not intend to confirm sales of Class A Common Stock offered by this Prospectus made to any accounts over which they exercise discretionary authority.
The Company has applied for quotation of the Class A Common Stock on the Nasdaq National Market under the symbol "LITH."
The foregoing is a brief summary of the provisions of the Underwriting Agreement and does not purport to be a complete statement of its terms and conditions. A copy of the form of Underwriting Agreement has been filed as an exhibit to the Registration Statement.
LEGAL MATTERS
The validity of the Company's Class A Common Stock being offered hereby will be passed upon for the Company by Foster Pepper & Shefelman. Certain legal matters will be passed upon for the Underwriters by Milbank, Tweed, Hadley & McCloy, Los Angeles, California.
EXPERTS
The combined financial statements and schedules of Lithia Motors, Inc. and affiliates as of December 31, 1994 and 1995, and for each of the years in the three-year period then ended, and the combined financial statements of Roberts Dodge, Inc. at December 31, 1995 and for each of the years in the two-year period then ended included herein and elsewhere in the Registration Statement have been included herein and in the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP, independent auditors appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
The financial statements of Sam Linder, Inc., included in this Prospectus and in the Registration Statement, have been audited by Moss Adams LLP, independent certified public accountants, to the extent and for the periods set forth in their reports appearing elsewhere herein and in the Registration Statement, and are included in reliance upon such reports given upon the authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the "Commission"), a Registration Statement on Form S-1 under the Securities Act, with respect to the Class A Common Stock offered hereby. This Prospectus, which is part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and financial schedules thereto. Statements contained in this Prospectus as to the contents of any contract or other document referred to herein are not necessarily complete, and in each instance that a reference is made to a contract or other document filed as an exhibit to the Registration Statement, each such statement is qualified in all respects by such reference. A copy of the Registration Statement may be examined without charge at the Commission's principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional offices of the Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048, and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any part thereof may be obtained from the Public Reference Section of the Commission upon payment of certain fees prescribed by the Commission. Copies of such materials may also be obtained from the website that the Commission maintains at http://www.sec.gov.
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 Company intends to furnish to its shareholders annual reports containing consolidated financial statements audited by independent certified public accountants and quarterly reports containing unaudited consolidated financial information for the first three quarters of each year.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
INDEX TO COMBINED FINANCIAL STATEMENTS
PAGE
---------
HISTORICAL FINANCIAL STATEMENTS
Lithia Motors, Inc. and Affiliated Companies
Report of Independent Auditors'.......................................................................... F-1
Combined Balance Sheets.................................................................................. F-2
Combined Statements of Operations........................................................................ F-3
Combined Statements of Changes in Owners' Equity......................................................... F-4
Combined Statements of Cash Flows........................................................................ F-5
Notes to Combined Financial Statements................................................................... F-6
Roberts Dodge, Inc. and Affiliated Company
Independent Auditors' Report............................................................................. F-20
Combined Balance Sheets.................................................................................. F-21
Combined Statements of Operations........................................................................ F-22
Combined Statements of Changes in Owners' Equity......................................................... F-23
Combined Statements of Cash Flows........................................................................ F-24
Notes to Combined Financial Statements................................................................... F-25
Sam Linder, Inc.
Independent Auditors' Report............................................................................. F-31
Balance Sheet............................................................................................ F-32
Statements of Operations and Accumulated Deficit......................................................... F-33
Statement of Cash Flows.................................................................................. F-34
Notes to Financial Statements............................................................................ F-35
|
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Lithia Motors, Inc. and Affiliated Companies:
We have audited the accompanying combined balance sheets of Lithia Motors, Inc. and Affiliated Companies as of December 31, 1994 and 1995, and the related combined statements of operations, changes in owners' equity, and cash flows for the years in the three-year period ended December 31, 1995. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Lithia Motors, Inc. and Affiliated Companies as of December 31, 1994 and 1995 and the results of their operations and their cash flows for the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
March 8, 1996
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31, JUNE 30, 1996
-------------------- ------------------------
1994 1995 ACTUAL PROFORMA
--------- --------- ----------- -----------
(UNAUDITED) (UNAUDITED)
(NOTE 9)
ASSETS
Current assets:
Cash and cash equivalents...................................... $ 6,952 $ 9,350 $ 3,819 $ 3,819
Trade receivables.............................................. 1,289 1,744 2,322 2,322
Lease receivables, current portion............................. 125 140 150 150
Inventories.................................................... 19,132 17,700 16,480 16,480
Vehicles leased to others, current portion..................... 3,201 3,462 3,680 3,680
Notes receivable............................................... 78 127 14 14
Prepaid expenses and other..................................... 309 273 918 918
Deferred income taxes.......................................... -- -- -- 997
--------- --------- ----------- -----------
Total current assets......................................... 31,086 32,796 27,383 28,380
--------- --------- ----------- -----------
Property, plant and equipment, net............................... 3,070 3,234 1,278 1,278
Vehicles leased to others, less current portion.................. 1,724 1,864 1,982 1,982
Other assets:
Lease receivables, less current portion........................ 88 310 333 333
Notes receivable............................................... 88 146 261 261
Investment in affiliate........................................ 488 569 591 591
Other noncurrent assets........................................ 115 303 288 288
--------- --------- ----------- -----------
779 1,328 1,473 1,473
--------- --------- ----------- -----------
$ 36,659 $ 39,222 $ 32,116 $ 33,113
--------- --------- ----------- -----------
--------- --------- ----------- -----------
LIABILITIES, MINORITY INTEREST AND OWNERS' EQUITY
Current liabilities:
Notes payable.................................................. $ 390 $ 625 $ -- $ --
Flooring notes payable......................................... 21,218 19,590 13,723 13,723
Current maturities of long-term debt........................... 1,621 2,085 2,207 2,207
Trade payables................................................. 846 1,455 1,249 1,249
Accrued liabilities............................................ 974 1,280 1,441 1,441
Deferred income taxes.......................................... -- -- -- 594
--------- --------- ----------- -----------
Total current liabilities.................................... 25,049 25,035 18,620 19,214
Long-term debt, less current maturities........................ 6,748 10,743 8,262 11,000
Deferred revenue............................................... 1,462 1,782 2,238 2,238
Other long-term liabilities.................................... 61 62 61 61
--------- --------- ----------- -----------
Total liabilities............................................ 33,320 37,622 29,181 32,513
--------- --------- ----------- -----------
Commitments and contingency......................................
Minority interest................................................ 536 749 1,029 1,029
Owners' equity:
Common stock................................................... 751 801 801 801
Retained earnings.............................................. 2,052 50 1,105 (1,230)
--------- --------- ----------- -----------
Total owners' equity......................................... 2,803 851 1,906 (429)
--------- --------- ----------- -----------
$ 36,659 $ 39,222 $ 32,116 $ 33,113
--------- --------- ----------- -----------
--------- --------- ----------- -----------
|
See accompanying notes to combined financial statements.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
Sales:
Vehicle.................................................. $ 77,649 $ 93,535 $ 97,338 $ 46,076 $ 59,877
Service, body, parts and other........................... 14,460 15,787 16,858 8,320 9,248
--------- --------- --------- --------- ---------
Net sales.............................................. 92,109 109,322 114,196 54,396 69,125
--------- --------- --------- --------- ---------
Cost of sales:
Vehicle.................................................. 67,161 81,234 83,487 39,763 52,244
Service, body, parts and other........................... 7,688 9,183 9,766 4,870 5,425
--------- --------- --------- --------- ---------
Cost of sales.......................................... 74,849 90,417 93,253 44,633 57,669
--------- --------- --------- --------- ---------
Gross profit........................................... 17,260 18,905 20,943 9,763 11,456
Selling, general and administrative........................ 15,122 15,174 16,735 7,860 9,379
--------- --------- --------- --------- ---------
Operating income....................................... 2,138 3,731 4,208 1,903 2,077
--------- --------- --------- --------- ---------
Other income (expense):
Equity in income of affiliate............................ 55 77 81 29 22
Interest income.......................................... 216 99 179 65 93
Interest expense......................................... (1,374) (954) (1,390) (583) (649)
Other, net............................................... 751 1,019 1,075 455 360
--------- --------- --------- --------- ---------
(352) 241 (55) (34) (174)
--------- --------- --------- --------- ---------
Income before minority interest........................ 1,786 3,972 4,153 1,869 1,903
Minority interest.......................................... (233) (458) (778) (383) (317)
--------- --------- --------- --------- ---------
Net income............................................. $ 1,553 $ 3,514 $ 3,375 $ 1,486 $ 1,586
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net income data (unaudited):
Income before income taxes and minority interest, as
reported............................................... $ 1,786 $ 3,972 $ 4,153 $ 1,869 $ 1,903
Proforma income taxes.................................... (697) (1,521) (1,598) (719) (742)
--------- --------- --------- --------- ---------
Proforma net income before minority interest............. 1,089 2,451 2,555 1,150 1,161
Proforma minority interest............................... (142) (283) (479) (235) (193)
--------- --------- --------- --------- ---------
Proforma net income...................................... $ 947 $ 2,168 $ 2,076 $ 915 $ 968
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Proforma net income per share............................ $ 0.65 $ 0.29 $ 0.30
Shares used in computing proforma net income per share... 3,196 3,196 3,196
--------- --------- ---------
--------- --------- ---------
|
See accompanying notes to combined financial statements.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CHANGES IN OWNERS' EQUITY
(IN THOUSANDS)
COMMON STOCK
------------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
----------- ----------- --------- ---------
Balance, December 31, 1992................................................ 4,720 $ 799 $ 437 $ 1,236
Net income................................................................ -- -- 1,553 1,553
Issuance of common stock:
Lithia Rentals, Inc..................................................... 1,000 25 -- 25
Dividends................................................................. -- -- (1,630) (1,630)
----- ----- --------- ---------
Balance, December 31, 1993................................................ 5,720 824 360 1,184
Net income................................................................ -- -- 3,514 3,514
Issuance of common stock:
Lithia Rentals, Inc..................................................... 667 50 -- 50
Discount Auto and Truck Rental, Inc..................................... 1,000 20 -- 20
Cancellation of common stock:
Paul Phillips, Inc...................................................... (500) (143) 143 --
Dividends................................................................. -- -- (1,965) (1,965)
----- ----- --------- ---------
Balance, December 31, 1994................................................ 6,887 751 2,052 2,803
Net income................................................................ -- -- 3,375 3,375
Issuance of common stock:
Discount Auto and Truck Rental, Inc..................................... 2,500 50 -- 50
Dividends................................................................. -- -- (5,377) (5,377)
----- ----- --------- ---------
Balance, December 31, 1995................................................ 9,387 801 50 851
Net income (unaudited).................................................... -- -- 1,586 1,586
Dividends (unaudited)..................................................... -- -- (531) (531)
----- ----- --------- ---------
Balance, June 30, 1996 (unaudited)........................................ 9,387 $ 801 $ 1,105 $ 1,906
----- ----- --------- ---------
----- ----- --------- ---------
|
See accompanying notes to combined financial statements.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX-MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
Cash flows from operating activities:
Net income.................................................... $ 1,553 $ 3,514 $ 3,375 $ 1,486 $ 1,586
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization............................. 1,803 1,954 1,832 785 960
(Gain) Loss on sale of assets............................. (184) (146) (305) 18 (142)
Minority interest in income............................... 233 458 778 383 317
Equity in income of Properties............................ (55) (77) (81) (29) (22)
Changes in operating assets and liabilities:
Trade and lease receivables............................. (682) 1,659 (692) (459) (611)
Inventories............................................. (5,177) (2,085) 1,432 3,977 1,220
Other current assets.................................... 13 (116) 27 80 (642)
Deposits to related parties............................. (3) 0 3 3 0
Other noncurrent assets................................. (55) 2 (188) (97) 15
Trade payables.......................................... 561 (1,793) 609 (377) (206)
Accrued liabilities..................................... 6 1,002 306 41 161
Other long-term liabilities............................. 153 358 321 228 455
Proceeds from sale of vehicles leased to others........... 4,254 5,289 4,757 2,056 3,382
Expenditures for vehicles leased to others................ (6,963) (6,764) (6,308) (3,255) (3,647)
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities... (4,543) 3,205 5,866 4,840 2,826
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Notes receivable issued....................................... (135) (142) (190) (158) (446)
Principal payments received on notes receivable............... 142 309 83 49 444
Principal payments received on notes-related.................. 201 0 0 0 0
Proceeds from sale of assets.................................. 0 3 10 0 1,286
Capital expenditures.......................................... (108) (164) (524) (134) (223)
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities... 100 6 (621) (243) 1,061
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Net borrowings (repayments) on flooring notes payable......... 5,443 2,170 (1,628) (4,337) (5,867)
Net borrowings (repayments) on notes payable.................. 1,527 (2,312) 235 (390) (625)
Principal payments on long-term debt.......................... (3,244) (9,084) (8,070) (3,869) (7,251)
Proceeds from issuance of long-term debt...................... 3,973 11,300 12,529 4,966 4,892
Proceeds from issuance of common stock and minority
interest.................................................... 25 (73) 50 0 0
Principal payments received on notes receivable -- owners'.... 15 144 142 142 149
Dividends and distributions................................... (1,630) (1,965) (5,377) (1,518) (531)
Distribution to minority interest............................. (172) (298) (728) (315) (185)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities... 5,937 (118) (2,847) (5,321) (9,418)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents.. 1,494 3,093 2,398 (724) (5,531)
Cash and cash equivalents at beginning of period................ 2,365 3,859 6,952 6,952 9,350
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period...................... $ 3,859 $ 6,952 $ 9,350 $ 6,228 $ 3,819
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental disclosures of cash flow information:
Cash paid during the period for interest...................... $ 1,375 $ 955 $ 1,390 $ 583 $ 649
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Supplemental schedule of noncash financing activities:
Cancellation of common stock.................................. $ -- $ 143 $ -- $ -- $ --
Issuance of notes receivable -- minority interest............. -- -- 678 678 --
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
|
See accompanying notes to combined financial statements.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Lithia Motors, Inc. and Affiliated Companies (the Company) operate in Medford and Grants Pass, Oregon and are primarily dealers in new and used automobile and light-duty trucks. The Company serves customers located principally in southern Oregon. In addition, the Company retails and wholesales replacement parts and provides vehicle servicing, leasing and financing.
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of the following entities who are affiliated through common ownership and management:
Lithia Motors, Inc. Subchapter S Corporation Lithia TLM LLC Limited Liability Corporation Lithia Dodge LLC Limited Liability Corporation Lithia Grants Pass Auto Center LLC Limited Liability Corporation Lithia Leasing, Inc. Subchapter S Corporation Discount Auto and Truck Rental, Inc. Subchapter S Corporation Lithia Rentals, Inc. Subchapter S Corporation |
Lithia TLM LLC, Lithia Dodge LLC and Lithia Grants Pass Auto Center LLC are limited liability corporations majority owned by Lithia Motors, Inc.. The 20%, 25% and 25% minority interests in Lithia TLM LLC, Lithia Dodge LLC and Lithia Grants Pass Auto Center LLC, respectively have been recorded in the accompanying financial statements.
All significant intercompany accounts and transactions, consisting principally of intercompany sales, have been eliminated upon combination.
As stipulated in the Operating Agreements ("the Agreements"), for Lithia TLM LLC, Lithia Dodge LLC and Lithia's Grants Pass Auto Center LLC the term of the Companies is for thirty years, terminating in 2025, unless terminated earlier. In addition, the terms of the agreements limit the transferability of a member's interest without the consent of the other members. Lithia Motors, Inc. is the managing member of all Limited Liability Corporations referred to above.
As a limited liability company, each member's liability is limited to amounts reflected in their respective member accounts.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers contracts in transit and all highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INVENTORIES
New vehicle, used vehicle and parts and accessories inventories are stated at the lower of cost or market. Cost is determined by using the last-in, first-out (LIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are being depreciated over their estimated useful lives principally on the straight-line basis. Expenditures for maintenance, repairs and minor renewals are 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.
INCOME TAXES
The Company is currently an S Corporation for federal and state income tax reporting purposes. Federal and state income taxes on the income of an S Corporation are generally by the individual stockholders rather than the corporation.
The Company's S Corporation status will terminate immediately prior to the effectiveness of the proposed IPO of its common stock discussed in note 12. At this time the Company will establish its net deferred tax liabilities and record an accompanying charge to income tax expense. The accompanying statements of income for the year ended December 31, 1995, and the six-months ended June 30, 1996, reflect provisions for income taxes on an unaudited pro forma basis, using the asset and liability method, as if the Company had been a C Corporation, fully subject to federal and state income taxes.
Under the asset and liability method, deferred income tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of changes in tax rates is recognized in income in the period that includes the enactment date.
ENVIRONMENTAL LIABILITIES AND EXPENDITURES
Accruals for environmental matters, if any, are recorded in operating expenses when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated. Accrued liabilities are exclusive of claims against third parties and are not discounted.
In general, costs related to environmental remediation are charged to expense. Environmental costs are capitalized if the costs increase the value of the property and/or mitigate or prevent contamination from future operations.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) PRO FORMA NET INCOME PER SHARE
Pro forma net income per share is computed using pro forma net income (as described in note 9) and is based on the weighted average number of shares of common stock outstanding and common equivalent shares from stock options outstanding using the treasury stock method. In accordance with certain Securities and Exchange Commission (SEC) Staff Accounting Bulletins, such computations include all common and common equivalent shares issued within 12 months of the offering date as if they were outstanding for all periods presented using the treasury stock method and the anticipated IPO price.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements for the six-months ended June 30, 1996 and 1995 have been prepared on substantially the same basis as the audited financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information set forth therein.
FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, trade receivables, trade payable and short term borrowing approximate fair value because of the short-term nature of these instruments. The fair value of long-term debt was estimated by discounting the future cash flows using market interest rates and does not differ significantly from that reflected in the financial statements.
Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
ADVERTISING
The Company expenses production and other costs of advertising as incurred.
CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base.
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash deposits. The Company generally limits its exposure to credit risk from balances on deposit in financial institutions in excess of the FDIC-insured limit.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at December 31, 1995 and 1994 and revenues and expenses during the three-year period ended December 31, 1995. The actual outcome of the estimates could differ from the estimates made in the preparation of the financial statements.
REVENUE RECOGNITION
Revenue from service contract insurance sold by the Company is recorded as deferred revenue upon initial receipt and recognized as income on a prorated basis over the term of the policy. Income from finance and insurance commissions is recorded separately on an accrual basis. Revenue from the sale of cars is recognized upon delivery, when the sales contract is signed and down payment has been received. Fleet sales of vehicles are shown on a net basis in other revenue.
(2) INVENTORIES AND RELATED NOTES PAYABLE
The new and used vehicle inventory collateralizing related notes payable and other inventory were as follows:
DECEMBER 31
----------------------------------------------
JUNE 30,
1994 1995 1996
---------------------- ---------------------- ----------------------
INVENTORY NOTES INVENTORY NOTES INVENTORY NOTES
COST PAYABLE COST PAYABLE COST PAYABLE
----------- --------- ----------- --------- ----------- ---------
New and demonstrator
vehicles.................. $ 16,776 $ 17,172 $ 13,972 $ 15,346 $ 12,549 $ 12,905
Used vehicles.............. 6,847 4,046 7,532 4,244 7,839 818
Parts and accessories...... 831 -- 1,092 -- 1,223 --
----------- --------- ----------- --------- ----------- ---------
Inventories at FIFO........ 24,454 21,218 22,596 19,590 21,611 13,723
Less LIFO reserve for new
and used vehicles and
parts inventories......... 5,322 -- 4,896 -- 5,131 --
----------- --------- ----------- --------- ----------- ---------
Inventories at LIFO........ $ 19,132 $ 21,218 $ 17,700 $ 19,590 $ 16,480 $ 13,723
----------- --------- ----------- --------- ----------- ---------
----------- --------- ----------- --------- ----------- ---------
|
If the first-in, first-out (FIFO) method of inventory accounting were used by the Company, net income would have been higher (lower) by $557, $615 and $(426) and $235 for the years ended December 31, 1993, 1994 and 1995 and the six-month period ended June 30, 1996, respectively.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(2) INVENTORIES AND RELATED NOTES PAYABLE (CONTINUED) Flooring notes payable consist of 8.5% to 9% flooring notes secured by new and used vehicles. The flooring arrangements permit the Company to borrow up to $21,900 in 1995 and 1994 and $27,900 for the six-month period ended June 30, 1996, restricted by new and used vehicle levels. The notes are due within five days of the vehicle being sold or after the vehicle has been in inventory for one year for new vehicles, six months for program vehicles, and on a revolving basis for used vehicles.
(3) PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- -----------
Buildings and improvements...................................... $ 1,373 $ 1,445 $ --
Service and equipment........................................... 1,224 1,431 1,468
Furniture, signs and fixtures................................... 1,634 1,607 1,701
--------- --------- -----------
4,231 4,483 3,169
Less accumulated depreciation................................... 1,587 1,840 1,892
--------- --------- -----------
2,644 2,643 1,277
Land............................................................ 426 591 --
--------- --------- -----------
$ 3,070 $ 3,234 $ 1,277
--------- --------- -----------
--------- --------- -----------
|
(4) VEHICLES LEASED TO OTHERS AND RELATED LEASE RECEIVABLES
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- ---------
Vehicles leased to others..................................... $ 6,201 $ 6,678 $ 6,941
Less accumulated depreciation................................. (1,276) (1,352) (1,279)
--------- --------- ---------
4,925 5,326 5,662
Less current portion, net................................... 3,201 3,462 3,680
--------- --------- ---------
$ 1,724 $ 1,864 $ 1,982
--------- --------- ---------
--------- --------- ---------
|
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(4) VEHICLES LEASED TO OTHERS AND RELATED LEASE RECEIVABLES (CONTINUED) Lease receivables result from customer leases of vehicles under agreements which qualify as operating and direct-financing leases. Future minimum lease income from non-cancelable long-term leases and direct-financing leases are as follows:
DIRECT-
OPERATING FINANCING
----------- -----------
Year ending December 31:
1996.................................................................. $ 1,563 $ 140
1997.................................................................. 884 118
1998.................................................................. 220 91
1999.................................................................. 44 51
2000 and thereafter................................................... 8 50
----------- -----
$ 2,719 $ 450
----------- -----
----------- -----
|
(5) NOTES PAYABLE
Notes payable consist of a 9.25% credit line with a bank for the in-house financing of vehicle sales and leases. The Company may borrow up to $1,000 or 75% of the total in-house vehicle receivables under 60 days past due.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(6) LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996
--------- --------- ---------
Notes payable to officer and director,
interest at 9%; due in ten equal annual
installments beginning one year and ten
days subsequent to demand by the
note holder................................................. $ 925 $ 3,865 $ 3,262
Notes payable to related parties other than
officer and director, interest at 8.0% to
9.0%; due in ten equal annual installments
beginning at various times subsequent to
demand by the note holder................................... 827 1,234 316
Notes payable in monthly installments, including
interest at 9%; maturing at various dates
through 2000; secured by equipment.......................... 1,092 1,404 1,039
Notes payable in monthly installments, including
interest at 8.75% to 10%; maturing at
various dates through 2000; secured by
vehicles leased to others................................... 4,409 5,466 5,852
Mortgages payable in monthly installments of
$105, including interest at 7.5% to 12%;
maturing at various dates through 2013;
secured by land and buildings............................... 1,092 858 --
Other......................................................... 24 1 --
--------- --------- ---------
8,369 12,828 10,469
Less current maturities....................................... 1,621 2,085 2,207
--------- --------- ---------
$ 6,748 $ 10,743 $ 8,262
--------- --------- ---------
--------- --------- ---------
|
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(6) LONG-TERM DEBT (CONTINUED) The schedule of future principal payments on long-term debt after December 31, 1995 is as follows:
DECEMBER 31,
1995
------------
Year ending:
1996.......................................................................... $ 2,085
1997.......................................................................... 4,740
1998.......................................................................... 1,036
1999.......................................................................... 790
2000 and thereafter........................................................... 4,177
------------
$ 12,828
------------
------------
|
(7) MINORITY INTEREST
For the years ended December 31, 1994 and 1995 and the six-month period ended June 30, 1996, the Company held notes receivable of $142, $678 and $565, respectively, from minority owners' of the Company. These notes are secured by the minority owners' interest in the Company and bear interest at .5% over prime rate and 10.5% respectively. The amount of the receivables are shown on the balance sheet as a reduction to minority interest.
(8) OWNERS' EQUITY
CAPITAL STRUCTURE
The capital structure of the corporations included in the combined balance sheet at December 31, 1994 is as follows:
NO PAR COMMON STOCK
-------------------------------------
AUTHORIZED ISSUED OUTSTANDING
----------- --------- -------------
Lithia Motors, Inc.......................................... 1,000 240 120
Lithia Leasing, Inc......................................... 1,000 100 100
Discount Auto and Truck Rental, Inc......................... 10,000 4,000 4,000
Lithia Rentals, Inc......................................... 5,000 2,667 2,667
|
The capital structure of the corporations included in the combined balance sheet at December 31, 1995 is as follows:
NO PAR COMMON STOCK
-------------------------------------
AUTHORIZED ISSUED OUTSTANDING
----------- --------- -------------
Lithia Motors, Inc.......................................... 1,000 240 120
Lithia Leasing, Inc......................................... 1,000 100 100
Discount Auto and Truck Rental, Inc......................... 10,000 6,500 6,500
Lithia Rentals, Inc......................................... 5,000 2,667 2,667
|
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(9) PRO FORMA INCOME TAXES
The unaudited pro forma amounts included in the accompanying pro forma balance sheet as of June 30, 1996, reflect the following unaudited pro forma adjustments:
- Provisions for income taxes as if the Company had been a C Corporation, fully subject to federal and state income taxes.
- A current deferred income tax asset of $997 and a deferred income tax liability of $594, established to effect the Company's conversion to C Corporation status. The net of these amounts will be credited to income tax expense as a nonrecurring credit upon the Company's conversion to C Corporation status but have been excluded from the pro forma statement of income.
- A $2,738 S Corporation distribution payable to the current stockholders. This amount represents estimated undistributed S Corporation earnings of the Company from January 1, 1996 through the completion of the proposed IPO and the amount of the stockholders' S Corporation tax bases.
The pro forma provision for income taxes reflects the income tax expense that would have been reported if the Company had been a C Corporation. The components of unaudited pro forma income taxes are as follows:
YEAR ENDED
DECEMBER 31, SIX-MONTHS
------------------------------- ENDED JUNE
1993 1994 1995 30, 1996
--------- --------- --------- -------------
Pro forma income taxes:
Current:
Federal........................................... $ 490 $ 1,292 $ 1,487 $ 693
State............................................. 102 269 309 144
--------- --------- --------- -----
Total current................................... 592 1,561 1,796 837
--------- --------- --------- -----
Deferred:
Federal........................................... 87 (33) (164) (79)
State............................................. 18 (7) (34) (16)
--------- --------- --------- -----
Total deferred.................................. 105 (40) (198) (95)
--------- --------- --------- -----
Total pro forma income taxes.................... $ 697 $ 1,521 $ 1,598 $ 742
--------- --------- --------- -----
--------- --------- --------- -----
|
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(9) PRO FORMA INCOME TAXES (CONTINUED) The following tabulation reconciles the expected corporate federal income tax expense (computed by multiplying the Company's income before minority interest by 34%) to the Company's unaudited pro forma income tax expense:
YEAR ENDED
DECEMBER 31, SIX-MONTHS
------------------------------- ENDED JUNE
1993 1994 1995 30, 1996
--------- --------- --------- -------------
Expected pro forma income tax expense................. $ 607 $ 1,350 $ 1,412 $ 647
State income taxes, net of federal tax effect......... 78 173 181 83
Other, net............................................ 12 (2) 5 12
--------- --------- --------- -----
$ 697 $ 1,521 $ 1,598 $ 742
--------- --------- --------- -----
--------- --------- --------- -----
|
The tax effects of temporary differences that give rise to significant portions of the unaudited pro forma deferred income tax assets and liability as of June 30, 1996, are presented below:
Pro forma deferred income tax assets:
Allowance and accruals................................................. $ 997
---------
Total deferred income tax assets................................... 997
Pro forma deferred income tax liability:
Property and equipment, principally due to differences in
depreciation......................................................... (594)
---------
Pro forma net deferred income tax liability........................ $ 403
---------
---------
|
(10) COMMITMENTS AND CONTINGENCY
RECOURSE PAPER
The Company is contingently liable to banks for recourse paper from the financing of vehicle sales. The contingent liability at December 31, 1994 and 1995 was approximately $77 and $206, respectively.
OPERATING LEASES
Substantially all of the Companies operations are conducted in leased facilities under noncancelable operating leases with Lithia Properties, LLC a related party (note 13). These leases expire at various dates through 1996. At the end of the lease term, all of the leases are renewable at the then fair rental value for periods of five to seven years.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(10) COMMITMENTS AND CONTINGENCY (CONTINUED) The minimum rental commitments under operating leases after December 31, 1995 are as follows:
DECEMBER 31,
1995
-------------
1996............................................................................ $ 2,265
|
Rental expense for all operating leases was $1,849, $1,888 $1,993 and $1,023 for the years ended December 31, 1993, 1994 and 1995 and the six-month period ended June 30, 1996, respectively.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(11) PROFIT SHARING PLAN
The Company has a defined contribution plan and trust (the 401(k) and profit sharing plan) covering substantially all full-time employees. Effective May 1, 1995, the Plan was amended to include a 401(k) component for eligible employees. The annual contribution to the plan is at the discretion of the Board of Directors of Lithia Motors, Inc. Contributions of $100, $100, $84 and $46 were paid for the years ended December 31, 1993, 1994, 1995 and the six-month period ended June 30, 1996, respectively. Employees may contribute up to 15% of compensation to the plan under certain circumstances.
(12) INVESTMENT IN UNCONSOLIDATED AFFILIATE
The Company has an investment in Lithia Properties, LLC, the members of which are the Company (20%), Sidney DeBoer (35%), M.L. Dick Heimann (30%) and three of Mr. DeBoer's children (5% each). This investment is accounted for using the equity method. The following table summarizes activity in the Company's investment through June 30, 1996:
Investment in affiliate, December 31, 1993........................... $ 411
Equity in affiliate.................................................. 77
Distributions from affiliate......................................... --
---------
Investment in affiliate, December 31, 1994........................... 488
Equity in affiliate.................................................. 81
Distributions from affiliate......................................... --
---------
Investment in affiliate, December 31, 1995........................... 569
Equity in affiliate.................................................. 22
Distributions from affiliate......................................... --
---------
Investment in affiliate, June 30, 1996............................... $ 591
---------
---------
|
(13) RELATED PARTY TRANSACTIONS
Substantially all of the real property on which the Company's business is located is owned by Lithia Properties, LLC, (note 12). The Company, leases its facilities under various lease agreements from Lithia Properties, LLC (note 10). Rental expense for these operating leases was $1,849, $1,888, $1,993 and $1,023 for the years ended December 31, 1993, 1994 and 1995 and the six-month period ended June 30, 1996, respectively. Recorded in other assets deposits relating to these operating leases of $178, $175 and $175 for the years ended December 31, 1994 and 1995 and the six-month period ended June 30, 1996, respectively relating to these operating leases is recorded in other current assets.
The Company provides management services to Lithia Properties, LLC. Other income includes management fees of $288 for the years ended December 31, 1993, 1994 and 1995 and $144 for the six-month period ended June 30, 1996, respectively.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(13) RELATED PARTY TRANSACTIONS (CONTINUED) Lithia Properties, LLC leases certain equipment to the Company. Selling, general and administrative expense includes equipment rental expense of $27, $26, $27 and $10 for the years ended December 31, 1993, 1994 and 1995 and the six-month period ended June 30, 1996, respectively.
The Company has notes payable included in long-term debt of $925, $3,865 and $3,262 for the years ended December 31, 1994 and 1995 and the six-month period ended June 30, 1996, respectively, to certain officers and directors. These notes accrue interest at 9% and are due in ten equal annual installments beginning one year and ten days subsequent to demand by the noteholder.
The Company has agreed to guarantee certain indebtedness of Lithia Properties LLC incurred in connection with purchases of real property which secures the loan. The total indebtedness is approximately $11,917.
(14) SUBSEQUENT EVENTS (UNAUDITED)
STOCK INCENTIVE PLAN
In April, 1996, the Board and the Company's shareholders adopted the Company's 1996 Stock Incentive Plan (the Plan). The Plan provides for the granting of stock-based awards to executive officers (including those who are directors), to other employees and non-employee consultants of the Company. Either non-qualified or incentive stock options may be issued under this plan and are exercisable for a period of up to ten years from the date of grant. The Plan is permitted to issue up to 500 shares of the Company's Class A common stock. The following table summarizes stock option activity through June 30, 1996:
PRICE
SHARES RANGE
----------- -------------
Outstanding options at December 31, 1995........................................ -- $ --
Granted......................................................................... 320.5 4.14 - 4.55
Exercised....................................................................... -- --
Canceled........................................................................ -- --
----- -------------
Outstanding options at June 30, 1996............................................ 320.5 $ 4.14 - 4.55
----- -------------
----- -------------
|
At June 30, 1996, no outstanding options were exercisable.
STOCKHOLDER DISTRIBUTIONS
As an S Corporation, the Company has made distributions to its stockholders partially to provide them with funds to pay income taxes on corporate earnings. Immediately prior to the completion of the proposed IPO, the Company intends to declare a distribution payable to existing stockholders of the Company. This distribution represents undistributed S Corporation earnings of the Company through the completion of the proposed IPO and the amount of the stockholders' S Corporation tax bases.
LITHIA MOTORS, INC.
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, 1993,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1996 (UNAUDITED)
(14) SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED) RESTRUCTURING
On April 5, 1996, Lithia Motors, Inc. authorized 25,000 shares of Series B common stock and 100,000 shares of Series A common stock of which 3,000 and 0, respectively are outstanding. On October 8, the Board of Directors approved the filing of a registration statement with the SEC permitting the Company to sell shares of its Class A common stock. Prior to completion of the offering, the Company and other affiliated companies will consummate a restructuring which will result in each of the Company's dealerships and operating divisions becoming direct or indirect wholly-owned subsidiaries and Lithia Holdings, LLC owning all of the outstanding Class B common stock of the Company.
ACQUISITIONS
The Company has signed definitive agreements to purchase two additional dealerships described below. These purchases are subject to normal closing conditions and the approval of the appropriate factories.
The Company has agreed to pay $2.25 million plus the new car and parts inventory at seller's cost for Roberts Dodge, a Dodge dealer in Eugene, Oregon. In addition, the Company will purchase the real property on which the dealership is located for $2.3 million.
The Company has agreed to pay $1.05 million plus the new car and parts inventory at seller's cost for Sam Linder, Inc. a Honda, Cadillac, and Oldsmobile dealership in Salinas, California. In addition, the Company will purchase the real property on which the dealership is located for $2.33 million. Closing is scheduled to occur on or before November 1, 1996.
LINE OF CREDIT
The Company obtained a secured line of credit from a bank in the principal amount of $6.0 million which will be utilized to fund the cash portion of the acquisitions described above. The credit line bears interest at prime plus 75 basis points with interest due monthly during the first year "draw down" period, after which monthly payments are based on a ten-year amortization schedule, with final payment due five years from the initial advance.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Roberts Dodge, Inc. and Affiliated Company:
We have audited the accompanying combined balance sheets of Roberts Dodge, Inc. and Affiliated Company as of December 31, 1995, and the related combined statements of operations, changes in owners' equity, and cash flows for the years in the two-year period ended December 31, 1995. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present fairly, in all material respects, the financial position of Roberts Dodge, Inc. and Affiliated Company as of December 31, 1995 and the results of their operations and their cash flows for the years in the two-year period ended December 31, 1995, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Portland, Oregon
September 17, 1996
ROBERTS DODGE, INC.
AND AFFILIATED COMPANY
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
1995
------------- JUNE 30,
1996
-----------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 2,220 $ 1,202
Trade receivables, net.............................................................. 555 785
Inventories......................................................................... 4,383 4,766
Prepaid expenses and other.......................................................... 7 42
------ -----------
Total current assets.......................................................... 7,165 6,795
------ -----------
Property, plant and equipment, net.................................................... 1,413 1,452
Other assets:
Goodwill............................................................................ 22 20
Stockholder advances................................................................ -- 178
Other noncurrent assets............................................................. 156 174
------ -----------
178 372
------ -----------
$ 8,756 $ 8,619
------ -----------
------ -----------
LIABILITIES AND OWNERS' EQUITY
Current liabilities:
Notes payable....................................................................... $ -- $ 200
Flooring notes payable.............................................................. 4,241 4,149
Current maturities of long-term debt................................................ 1,970 1,470
Trade payables...................................................................... 407 182
Accrued liabilities................................................................. 213 496
------ -----------
Total current liabilities..................................................... 6,831 6,497
Long-term debt, less current maturities............................................... 1,125 1,056
------ -----------
Total liabilities............................................................. 7,956 7,553
------ -----------
Commitments and contingency
Owners' equity:
Common stock, no par value, 10,000 shares authorized, 100 shares issued and
outstanding....................................................................... 250 250
Retained earnings................................................................... 550 816
------ -----------
Total owners' equity.......................................................... 800 1,066
------ -----------
$ 8,756 $ 8,619
------ -----------
------ -----------
|
See accompanying notes to combined financial statements.
ROBERTS DODGE, INC.
AND AFFILIATED COMPANY
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
Sales:
Vehicle............................................................. $ 26,383 $ 27,999 $ 14,233 $ 15,609
Service, parts and other............................................ 3,588 3,895 1,920 2,074
--------- --------- --------- ---------
29,971 31,894 16,153 17,683
--------- --------- --------- ---------
Cost of sales:
Vehicle............................................................. 23,526 25,086 12,602 13,827
Service, parts and other............................................ 2,104 2,184 1,055 1,188
--------- --------- --------- ---------
25,630 27,270 13,657 15,015
--------- --------- --------- ---------
Gross profit.................................................... 4,341 4,624 2,496 2,668
Selling, general and administrative................................... 3,654 3,828 1,946 2,165
--------- --------- --------- ---------
Operating income................................................ 687 796 550 503
--------- --------- --------- ---------
Other income (expense):
Interest income..................................................... 27 101 15 78
Interest expense.................................................... (477) (602) (299) (302)
Other, net.......................................................... (29) (26) (20) (7)
--------- --------- --------- ---------
(479) (527) (304) (231)
--------- --------- --------- ---------
Net income...................................................... $ 208 $ 269 $ 246 $ 272
--------- --------- --------- ---------
--------- --------- --------- ---------
|
See accompanying notes to combined financial statements.
ROBERTS DODGE, INC.
AND AFFILIATED COMPANY
COMBINED STATEMENTS OF CHANGES IN OWNERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK
------------------------ RETAINED
SHARES AMOUNT EARNINGS TOTAL
----------- ----------- ----------- ---------
Balance, December 31, 1993................................................. 1 $ 250 $ 135 $ 385
Net income................................................................. -- -- 208 208
Distributions.............................................................. -- -- (37) (37)
--
----- ----- ---------
Balance, December 31, 1994................................................. 1 250 306 556
Net income................................................................. -- -- 269 269
Distributions.............................................................. -- -- (24) (24)
--
----- ----- ---------
Balance, December 31, 1995................................................. 1 250 551 801
Net income (unaudited)..................................................... -- -- 272 272
Distributions (unaudited).................................................. -- -- (7) (7)
--
----- ----- ---------
Balance, June 30, 1996 (unaudited)......................................... 1 $ 250 $ 816 $ 1,066
--
--
----- ----- ---------
----- ----- ---------
|
See accompanying notes to combined financial statements.
ROBERTS DODGE, INC.
AND AFFILIATED COMPANY
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
Cash flows from operating activities:
Net income.............................................................. $ 208 $ 269 $ 246 $ 272
Adjustments to reconcile net earnings to net
cash provided by (used in) operating activities:
Depreciation and amortization....................................... 87 125 50 49
Changes in assets and liabilities:
(Increase) decrease in trade receivables.......................... (10) (73) 142 (230)
(Increase) decrease in inventories................................ (1,139) 239 (54) (383)
(Increase) decrease in other current assets....................... (13) 8 (12) (35)
Increase (decrease) in trade payables............................. 73 153 (26) (224)
Increase (decrease) in accrued liabilities........................ 54 20 293 283
Increase in other non current assets.............................. (130) (50) (177) (196)
--------- --------- --------- ---------
Net cash provided by (used in)
operating activities.......................................... (870) 691 462 (464)
--------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures.................................................... (88) (201) (118) (86)
--------- --------- --------- ---------
Net cash used in investing activities........................... (88) (201) (118) (86)
--------- --------- --------- ---------
Cash flows from financing activities:
Net borrowings (repayments) on flooring
notes payable......................................................... 1,340 (40) (359) (92)
Net borrowings (repayments) on notes payable............................ -- -- 25 200
Principal payments on long-term debt.................................... (151) (135) (62) (569)
Proceeds from issuance of long-term debt................................ -- 1,936 83 --
Distributions........................................................... (37) (24) (22) (7)
--------- --------- --------- ---------
Net cash provided by (used in)
financing activities.......................................... 1,152 1,737 (335) (468)
--------- --------- --------- ---------
Net increase (decrease) in cash........................................... 194 2,227 9 (1,018)
Cash (book overdraft), beginning of period................................ (201) (7) (7) 2,220
--------- --------- --------- ---------
Cash (book overdraft), end of period...................................... $ (7) $ 2,220 $ 2 $ 1,202
--------- --------- --------- ---------
--------- --------- --------- ---------
|
See accompanying notes to combined financial statements.
ROBERTS DODGE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Roberts Dodge, Inc. and Affiliated Company's (the Company) is an Oregon Corporation. Its principal business is the retail sales of new Dodge automobiles obtained through an exclusive dealer agreement with Chrysler Motors Corporation (Chrysler) and the sale of used cars. In addition, the Company retails and wholesales replacement parts and provides vehicle servicing. The Company operates in the Eugene, Oregon area.
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of the following entities which are affiliated through common ownership:
- Roberts Dodge, Inc.
- Sole proprietorship - real estate
All significant intercompany accounts and transactions, consisting principally of intercompany sales, have been eliminated upon combination.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers contracts in transit and all highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents.
INVENTORIES
Vehicles are stated at the lower of cost or market, cost being determined on a specific identification basis. Parts are stated at the lower of cost or market, cost being determined on the first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and is being depreciated over their estimated useful lives on the declining balance and straight-line basis. Expenditures for maintenance, repairs and minor renewals are 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.
FEDERAL INCOME TAXES
The Company is organized as a sub-chapter S-Corporation under the Internal Revenue Code; therefore, the income earned by Roberts Dodge, Inc. is reported on the personal tax returns of the stockholders. Consequently, no provision for income taxes has been recorded in the accompanying financial statements.
ROBERTS DODGE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) MAJOR SUPPLIER AND DEALER AGREEMENT
The Company purchases substantially all of its new vehicles and inventory from Chrysler at the prevailing prices charged by the automaker to all franchised dealers. The Company's overall sales could be impacted by the automaker's ability or unwillingness to supply the dealership with an adequate supply of popular models.
The Dealer Agreement generally limits the location of the dealership and retains automaker approval rights over changes in dealership management and ownership. The automaker is also entitled to terminate the agreement if the dealership is material breach of the terms.
INTERIM FINANCIAL STATEMENTS
The accompanying unaudited financial statements for the six-months ended June 30, 1996 and 1995 have been prepared on substantially the same basis as the audited financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information set forth therein.
FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, trade receivables, trade payable and short term borrowing approximate fair value because of the short-term nature of these instruments. The fair value of long-term debt was estimated by discounting the future cash flows using market interest rates and does not differ significantly from that reflected in the financial statements.
Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
ADVERTISING
The Company expenses production and other costs of advertising as incurred.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Roberts Dodge to concentrations of credit risk consist principally of cash deposits. Concentrations of credit risk with respect to customer receivables are limited primarily to Chrysler Financial Corp. and financial institutions such as regional banks.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at December 31, 1995 and revenues and expenses during the two-year period then ended. The
ROBERTS DODGE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) actual outcome of the estimates could differ from the estimates made in the preparation of the financial statements.
REVENUE RECOGNITION
Revenues from vehicle and parts sales and from service operations are recognized at the time the vehicle is delivered to the customer or service is completed.
RECOGNITION OF FINANCE FEES AND INSURANCE COMMISSIONS
The Company arranges financing for its customers' vehicle purchases and arranges insurance in connection therewith. Financing contracts are reviewed by the dealership and are forwarded to Chrysler Financial Corp. and other financial institutions. The Company receives a fee from the financial institution for arranging the financing and receives a commission for the sale of an insurance policy. The Company is charged back (chargebacks) for a portion of this fee should the customer terminate the finance or insurance contract before its' scheduled term. Finance fees and insurance commissions, net of chargebacks, are classified with Service, Parts and Other revenue in the accompanying statement of operations.
(2) INVENTORIES AND RELATED NOTES PAYABLE
The new and used vehicle inventory collateralizing related notes payable and other inventory were as follows:
DECEMBER 31, 1995 JUNE 30, 1996
---------------------- ----------------------
INVENTORY NOTES INVENTORY NOTES
COST PAYABLE COST PAYABLE
----------- --------- ----------- ---------
New and demonstrator vehicles....................... $ 2,899 $ 3,464 $ 3,310 $ 3,562
Used vehicles....................................... 1,180 777 1,203 587
Parts and accessories............................... 304 -- 253 --
----------- --------- ----------- ---------
$ 4,383 $ 4,241 $ 4,766 $ 4,149
----------- --------- ----------- ---------
----------- --------- ----------- ---------
|
The automaker finances new and used vehicle purchases by the Company. Floor plan financing bears interest at prime plus 1% (approximately 9.25% at June 30, 1996). The notes are collateralized by all of the Company's tangible and intangible personal property, including but not limited to, substantially all new, used and demonstrator vehicles, parts and accessories inventory, accounts receivable, and all machinery and equipment. The notes are generally due within ten days of the sale of the vehicles or within three days after receiving the sales proceeds, whichever is sooner. Accordingly, floor plan financing is classified as current in the accompanying balance sheet.
ROBERTS DODGE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 (UNAUDITED)
(3) PROPERTY, PLANT AND EQUIPMENT
DECEMBER 31, JUNE 30,
1995 1996
------------- -----------
Buildings and improvements........................................... $ 1,047 $ 1,047
Service and equipment................................................ 204 206
Furniture, signs and fixtures........................................ 69 69
Construction-in-progress............................................. -- 84
------ -----------
1,320 1,406
Less accumulated depreciation........................................ 328 375
------ -----------
992 1,031
Land................................................................. 421 421
------ -----------
$ 1,413 $ 1,452
------ -----------
------ -----------
|
(4) NOTES PAYABLE
The Company has a $500 revolving line of credit with Chrysler Financial Corp. which is scheduled to mature on April 15, 1997. Outstanding borrowings by the Company totaled $200 at June 30, 1996 (unaudited). There were no outstanding borrowings at December 31, 1995. Advances under the credit line accrue interest at variable rates (9.5% at June 30, 1996) and are subject to the collateral and guaranty provisions in the Chrysler credit arrangement described in note 5.
ROBERTS DODGE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 (UNAUDITED)
(5) LONG-TERM DEBT
Long-term debt consists of the following:
DECEMBER 31, JUNE 30,
1995 1996
------------- -----------
Note payable to Chrysler, interest at 11% or if higher, prime plus
1%, monthly installments of $11, maturing in 1997................... $ 74 $ 45
Note payable to Chrysler, due in monthly installments of $1 plus
interest at prime plus 5%........................................... 15 10
Demand notes payable to stockholder, interest at prime less 1.25%.... 1,807 1,318
Note payable to Chrysler, monthly installments of $1 plus interest at
10.25%.............................................................. 46 41
Note payable to Chrysler, due in monthly installments of $15
including interest at 9%............................................ 1,144 1,105
Other................................................................ 9 7
------ -----------
3,095 2,526
Less current maturities.............................................. 1,970 1,470
------ -----------
$ 1,125 $ 1,056
------ -----------
------ -----------
|
The schedule of future principal payments on long-term debt after December 31, 1995 is as follows:
DECEMBER 31,
1995
-------------
Year ending:
1996.......................................................................... $ 1,970
1997.......................................................................... 120
1998.......................................................................... 110
1999.......................................................................... 110
2000 and thereafter........................................................... 785
------
$ 3,095
------
------
|
The Chrysler notes described above, and the revolving line of credit with Chrysler are personally guaranteed by the stockholders of the Company. Substantially all assets of the Company have been pledged as collateral for the notes. In addition, Chrysler requires guarantees from companies related through common ownership. The Company has guaranteed certain term notes for Roberts Ford, Inc. and Frontier Motors, Inc. The combined balances of these obligations are reflected on the books of the respective companies and totaled $950 at September 17, 1996.
Interest paid to stockholders totaled $32 and $50 for the year ended December 31, 1995 and the six-month period ended June 30, 1996 (unaudited), respectively.
ROBERTS DODGE, INC. AND AFFILIATED COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31,
1994 AND 1995 AND THE SIX MONTHS ENDED
JUNE 30, 1995 AND 1996 (UNAUDITED)
(6) COMMITMENTS AND CONTINGENCY
RECOURSE PAPER
The Company is contingently liable to Chrysler Financial Corp. for recourse paper from the financing of vehicle sales. The contingent liability at December 31, 1995 and the six-month period ended June 30, 1996 (unaudited) was approximately $331 and $143, respectively.
(7) PROFIT SHARING PLAN
Effective January 1, 1994, the Company established a 401(k) profit-sharing plan covering substantially all employees. Contributions to the plan include elective salary reduction by the employees, and matching contributions up to a stated percentage and discretionary amounts by the Company. Company contributions totaled $7, $37, and $22 for the years ended December 31, 1994, 1995 and six-month period ended June 30, 1996 (unaudited), respectively.
(8) SUBSEQUENT EVENTS
Roberts Dodge has executed a purchase and sale agreement whereby it has agreed to sell substantially all of its assets to Lithia Motors, Inc. The purchase price will consist of cash consideration of approximately $2.25 million for fixed assets and intangible assets, plus an additional amount for the new car and parts inventory valued at the seller's cost. The purchase price is payable as (i) $1.75 million plus the cost of the new car and parts inventory in cash at closing and (ii) a promissory note for $500,000, with interest at 8.5% per annum, payable in equal monthly installments for five years. The Company is not assuming any material liabilities as part of the acquisition. In addition, the Company will purchase the real property on which the dealership is located for $2.33 million, payable in cash at closing.
Closing is scheduled to occur on or before November 1, 1996. The purchase is subject to normal closing conditions and the approval of Chrysler.
(9) RELATED PARTY TRANSACTIONS
R & R Advertising (R & R) is an advertising agency owned by a stockholder of the Company. The Company purchases all their television and radio advertising through this agency. Approximately 50% of total advertising expense is purchased through R & R. Advertising expense was $527, $463 and $193 for the years ended December 31, 1994 and 1995 and the six-month period ended June 30, 1996 (unaudited), respectively.
At June 30, 1996, trade receivables included a $200 balance due from Frontier Motors, Inc., a dealership owned 70% by the stockholder's of the Company.
INDEPENDENT AUDITORS' REPORT
To the Stockholder
Sam Linder, Inc.
We have audited the accompanying balance sheet of Sam Linder, Inc. (dba Sam Linder Cadillac-Honda-Oldsmobile) as of December 31, 1995, and the related statements of operations and accumulated deficit and cash flows for each of the years in the two-year period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sam Linder, Inc. as of December 31, 1995, and the results of its operations and cash flows for each of the years in the two-year period ended December 31, 1995, in conformity with generally accepted accounting principles.
Moss Adams LLP
Seattle, Washington
September 17, 1996
SAM LINDER, INC.
(DBA SAM LINDER CADILLAC-HONDA-OLDSMOBILE)
BALANCE SHEET
DECEMBER 31,
1995
------------ JUNE 30,
1996
------------
(UNAUDITED)
ASSETS
Current Assets
Cash and cash equivalents............................... $ 1,128,900 $ 537,200
Receivables............................................. 537,300 471,600
Inventories............................................. 2,433,400 2,931,100
Notes receivable........................................ 170,000 129,100
Prepaid expenses and other.............................. 19,000 60,700
------------ ------------
Total current assets.................................. 4,288,600 4,129,700
Property, Plant and Equipment, net........................ 270,600 354,400
Other Assets.............................................. 33,700 32,000
------------ ------------
$ 4,592,900 $ 4,516,100
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Flooring notes payable.................................. $ 2,287,100 $ 2,430,600
Current maturities of obligation under capital lease.... -- 21,500
Trade payables.......................................... 468,500 355,400
Accrued liabilities..................................... 209,200 318,600
Advances from stockholder............................... 1,461,500 1,163,000
------------ ------------
Total current liabilities............................. 4,426,300 4,289,100
Obligation Under Capital Lease, less current maturities... -- 104,200
------------ ------------
Total liabilities..................................... 4,426,300 4,393,300
------------ ------------
Stockholders' Equity
Common stock, $2,000 par value, 2,500 shares authorized,
500 shares issued and outstanding..................... 1,000,000 1,000,000
Accumulated deficit..................................... (833,400 ) (877,200)
------------ ------------
Total stockholders' equity............................ 166,600 122,800
------------ ------------
$ 4,592,900 $ 4,516,100
------------ ------------
------------ ------------
|
The accompanying notes are an integral part of these financial statements.
SAM LINDER, INC.
(DBA SAM LINDER CADILLAC-HONDA-OLDSMOBILE)
STATEMENT OF OPERATIONS AND ACCUMULATED DEFICIT
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------------- ---------------------------
1994 1995 1995 1996
------------- ------------- ------------ -------------
(UNAUDITED)
SALES
Vehicle............................................. $ 16,112,600 $ 22,889,800 $ 9,494,000 $ 10,975,400
Service, body and parts............................. 2,692,300 2,550,600 1,283,500 1,446,700
Finance and lease................................... 620,300 1,417,000 528,800 446,000
------------- ------------- ------------ -------------
19,425,200 26,857,400 11,306,300 12,868,100
------------- ------------- ------------ -------------
COST OF SALES
Vehicle............................................. 14,808,400 20,936,700 8,588,700 9,945,200
Service, body and parts............................. 1,448,600 1,393,500 703,000 669,500
Finance and lease................................... 124,000 315,800 169,600 194,100
------------- ------------- ------------ -------------
16,381,000 22,646,000 9,461,300 10,808,800
------------- ------------- ------------ -------------
Gross profit...................................... 3,044,200 4,211,400 1,845,000 2,059,300
SELLING, GENERAL AND ADMINISTRATIVE 3,038,700 3,928,000 1,824,200 1,912,000
------------- ------------- ------------ -------------
Operating income.................................. 5,500 283,400 20,800 147,300
------------- ------------- ------------ -------------
OTHER INCOME (EXPENSE)
Interest expense.................................... (227,800) (346,700) (183,700) (103,800)
Other, net.......................................... (3,400) (800) 500 200
------------- ------------- ------------ -------------
(231,200) (347,500) (183,200) (103,600)
------------- ------------- ------------ -------------
NET (LOSS) INCOME..................................... (225,700) (64,100) (162,400) 43,700
ACCUMULATED DEFICIT
Beginning of period................................. (542,000) (769,300) (769,300) (833,400)
Dividends........................................... (1,500) -- -- (87,500)
------------- ------------- ------------ -------------
End of period....................................... $ (769,300) $ (833,400) $ (931,700) $ (877,200)
------------- ------------- ------------ -------------
------------- ------------- ------------ -------------
|
The accompanying notes are an integral part of these financial statements.
SAM LINDER, INC.
(DBA SAM LINDER CADILLAC-HONDA-OLDSMOBILE)
STATEMENT OF CASH FLOWS
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income................................................. $(225,700) $ (64,100) $(162,400) $ 43,700
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities
Depreciation and amortization................................... 92,700 92,500 51,400 47,600
Change in allowance for doubtful accounts....................... -- 86,000 89,000 (2,000)
Changes in assets and liabilities
(Increase) decrease in receivables.............................. (159,700) (14,900) 94,700 67,700
(Increase) decrease in inventories.............................. 446,500 (235,200) (61,700) (497,700)
(Increase) decrease in other current assets..................... 3,500 (6,200) (113,800) (41,700)
(Increase) decrease in other noncurrent assets.................. 3,600 (4,700) (3,100) 1,700
Increase (decrease) in trade payables........................... (91,500) 261,300 123,300 (113,100)
Increase (decrease) in accrued liabilities...................... 70,500 (40,700) 15,900 109,400
Increase in accrued interest on advances from stockholder....... 103,800 140,200 70,100 140,200
--------- --------- --------- ---------
Net cash provided by (used in) operating activities......... 243,700 214,200 103,400 (244,200)
--------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Net collections (increase) of notes receivable.................... (300) 316,200 161,900 40,900
Acquisition of property and equipment............................. (3,900) (17,800) (8,300) --
--------- --------- --------- ---------
Net cash provided by (used in) investing activities......... (4,200) 298,400 153,600 40,900
--------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings (repayments) on flooring notes payable............. 81,500 143,300 (655,300) 143,500
Principal payments on long-term debt.............................. (40,000) (73,300) (64,000) --
Net borrowings (repayments) on advances from stockholder.......... (195,200) 180,000 200,000 (438,700)
Principal payments on obligations under capital lease............. -- -- -- (5,700)
Dividends paid.................................................... (1,500) -- -- (87,500)
--------- --------- --------- ---------
Net cash provided by (used in) financing activities......... (155,200) 250,000 (519,300) (388,400)
--------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 84,300 762,600 (262,300) (591,700)
CASH AND CASH EQUIVALENTS
Beginning of period............................................... 282,000 366,300 366,300 1,128,900
--------- --------- --------- ---------
End of period..................................................... $ 366,300 $1,128,900 $ 104,000 $ 537,200
--------- --------- --------- ---------
--------- --------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest.......................... $ 124,000 $ 206,500 $ 113,600 $ 103,800
--------- --------- --------- ---------
--------- --------- --------- ---------
Cash paid during the period for income taxes...................... $ 800 $ 800 $ 800 $ 800
--------- --------- --------- ---------
--------- --------- --------- ---------
Non-cash investing and financing activities:
Equipment acquired through capital lease........................ $ -- $ -- $ -- $ 131,400
--------- --------- --------- ---------
--------- --------- --------- ---------
|
The accompanying notes are an integral part of these financial statements.
SAM LINDER, INC.
(DBA SAM LINDER CADILLAC-HONDA-OLDSMOBILE)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS -- Sam Linder, Inc., dba Sam Linder Cadillac-Honda-Oldsmobile (the Company), was established as a corporation on November 30, 1989. The purpose of the Company is to engage in retail sales of new Cadillac, Honda and Oldsmobile vehicles obtained through dealership agreements, used vehicles, parts and service. The Company sells to individuals and commercial businesses located primarily in the Salinas, California area.
CASH AND CASH EQUIVALENTS -- For purposes of reporting cash flows, the Company considers contracts in transit and all highly liquid debt instruments with a maturity of three months or less when purchased to be cash equivalents.
INVENTORIES -- New vehicle, used vehicle and parts and accessories inventories are stated at the lower of cost or market. Cost is determined by using the last-in, first-out (LIFO) method.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost and are being depreciated over their estimated useful lives, principally using the straight-line method. Expenditures for maintenance, repairs and minor renewals are 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.
INCOME TAXES -- The Company, with the consent of its stockholder, has elected to be an S Corporation under the Internal Revenue Code and California Revenue and Taxation Code. In lieu of corporate income taxes, the stockholders of an S Corporation are taxed on their proportionate share of the Company's taxable income or receive a deduction for their proportionate share of the Company's taxable loss. The Company is subject to a 1.5% California franchise tax on taxable income, with a minimum amount of $800 payable annually.
INTERIM FINANCIAL STATEMENTS -- The accompanying unaudited financial statements for the six-months ended June 30, 1995 and 1996 have been prepared on substantially the same basis as the audited financial statements, and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information set forth therein.
ADVERTISING -- The Company expenses production and other costs of advertising as incurred. Advertising expense for the years ended December 31, 1995 and 1994 were $386,100 and $190,700, respectively. Advertising expense for the six months ended June 30, 1996 and 1995 were $189,900 (unaudited) and $150,000 (unaudited), respectively.
CONCENTRATIONS OF CREDIT RISK -- Concentration of credit risk with respect to trade receivables is limited due to the large number of customers comprising the Company's customer base. Receivables arising from vehicle sales are secured by the related vehicle. Receivables arising from all other sales are unsecured open accounts.
Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash deposits. At December 31, 1995, the Company has deposits in excess of amounts insured by the FDIC.
MANAGEMENT ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at December 31, 1995 and June 30, 1996 and revenues and
SAM LINDER, INC.
(DBA SAM LINDER CADILLAC-HONDA-OLDSMOBILE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
expenses during the years ended December 31, 1994 and 1995 and the six month
periods ended June 30, 1995 and 1996. The actual outcome of the estimates could
differ from the estimates made in the preparation of the financial statements.
REVENUE RECOGNITION -- Revenue from the sale of cars is recognized upon delivery, when the sales contract is signed and down payment has been received. Income from finance and insurance commissions is recorded separately on an accrual basis.
MAJOR SUPPLIER AND DEALER AGREEMENT -- The Company purchases substantially all of its new vehicles and inventory from automakers at the prevailing prices charged by the automakers to all franchised dealers. The Company's overall sales could be impacted by the automaker's ability or unwillingness to supply the dealership with an adequate supply of popular models. The Dealer Agreement generally limits the location of the dealership and retains automaker approval rights over changes in dealership management and ownership. The automaker is also entitled to terminate the agreement if the dealership is material breach of the terms.
NOTE 2 -- RECEIVABLES
DECEMBER 31,
1995
------------ JUNE 30,
1996
-----------
(UNAUDITED)
Trade receivables................................................. $ 482,900 $ 373,900
Finance reserves.................................................. 54,700 91,700
Employee receivables.............................................. 26,700 31,000
------------ -----------
564,300 496,600
Less allowance for doubtful accounts.............................. 27,000 25,000
------------ -----------
$ 537,300 $ 471,600
------------ -----------
------------ -----------
|
NOTE 3 -- NOTES RECEIVABLE
DECEMBER 31,
1995
------------ JUNE 30,
1996
-----------
(UNAUDITED)
VARIOUS NOTES RECEIVABLE ARISING FROM IN-HOUSE FINANCING OF USED VEHICLE SALES, with
payments of principal and interest required either weekly, semi-monthly, or monthly
and terms range from twelve to twenty-four months. Interest rates range from 8.9% to
19.75%, and the notes are collateralized by the related vehicles.................... $ 272,000 $ 231,100
NOTE RECEIVABLE FROM RELATED PARTY, with interest at .5% above prime plus .50% due
monthly, principal due on demand, unsecured......................................... 50,000 50,000
------------ -----------
322,000 281,100
Less allowance for doubtful accounts.................................................. 152,000 152,000
------------ -----------
$ 170,000 $ 129,100
------------ -----------
------------ -----------
|
SAM LINDER, INC.
(DBA SAM LINDER CADILLAC-HONDA-OLDSMOBILE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- INVENTORIES AND RELATED NOTES PAYABLE
The new and used vehicle inventory collateralizing related notes payable and other inventory are as follows:
DECEMBER 31, 1995 JUNE 30, 1996
-------------------------- --------------------------
INVENTORY NOTES INVENTORY NOTES
COST PAYABLE COST PAYABLE
------------ ------------ ------------ ------------
(UNAUDITED)
New and demonstrator vehicles............................ $ 1,800,800 $ 2,287,100 $ 2,297,000 $ 2,430,600
Used vehicles............................................ 1,059,300 -- 1,132,900 --
Parts and accessories.................................... 225,800 -- 181,800 --
------------ ------------ ------------ ------------
Inventories at FIFO...................................... 3,085,900 2,287,100 3,611,700 2,430,600
Less LIFO reserve for new and used vehicles and parts
inventories............................................. 652,500 -- 680,600 --
------------ ------------ ------------ ------------
Inventories at LIFO...................................... $ 2,433,400 $ 2,287,100 $ 2,931,100 $ 2,430,600
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
|
If the specific identification and the first-in, first-out (FIFO) methods had been used in the accompanying financial statements, net loss would have decreased by $65,900 and $122,000 to net income of $1,800 and net loss of $103,700 for the years ended December 31, 1995 and 1994, respectively. Net income would have increased by $28,100 and net loss would have decreased by $32,900 to net income of $71,800 and net loss of $129,500 for the six months ended June 30, 1996 and 1995, respectively (unaudited). Stockholder's equity would have increased to $819,100 and $803,400 (unaudited) at December 31, 1995 and June 30, 1996.
Notes payable consist of floor plan notes to Bank of America National Trust and Savings Association, secured by new and used vehicle inventories. The notes are payable on specific dates after sale of units, with monthly curtailments including interest at the bank's reference rate plus .75% (8.75% at December 31, 1995). The floor plan agreement requires the Company to meet certain financial covenants as defined by the agreement. The Company must maintain a current ratio of 1.25 to 1.0, working capital of $850,000, tangible net worth of $2,000,000 and a ratio of liabilities to tangible net worth of 2.25 to 1.0, all as defined in the agreement. Additional restrictions apply to incurring direct or contingent debt, capital expenditures and changes in ownership. Floor plan notes payable are guaranteed by the Company's majority stockholder.
The Company recognized manufacturers' floor plan interest expense subsidies of approximately $82,000 and $51,000 for the years ended December 31, 1995 and 1994, respectively, and $15,000 and $9,000 for the six months ended June 30, 1996 and 1995, respectively (unaudited). These amounts have been offset against floor plan interest expense in the accompanying statements of operations.
SAM LINDER, INC.
(DBA SAM LINDER CADILLAC-HONDA-OLDSMOBILE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- PROPERTY, PLANT AND EQUIPMENT
DECEMBER
31, 1995
---------- JUNE 30,
1996
-----------
(UNAUDITED)
Company vehicles............................. $ 32,500 $ 32,500
Equipment.................................... 206,300 206,300
Furniture and fixtures....................... 299,000 299,000
Leasehold improvements....................... 278,600 278,600
Signs........................................ 13,700 13,700
Equipment under capital lease................ -- 131,400
---------- -----------
830,100 961,500
Less accumulated depreciation and
amortization............................... 559,500 607,100
---------- -----------
$ 270,600 $ 354,400
---------- -----------
---------- -----------
|
NOTE 6 -- OBLIGATION UNDER CAPITAL LEASE
At June 30, 1996, future minimum lease payments for equipment under a capital lease agreement are as follows:
YEAR ENDING JUNE 30,
- ----------------------------------------------------------------------------------
1997.............................................................................. $ 33,000
1998.............................................................................. 33,000
1999.............................................................................. 33,000
2000.............................................................................. 33,000
2001.............................................................................. 22,000
----------
Total minimum lease payments...................................................... 154,000
Less imputed interest............................................................. 28,300
----------
Present value of minimum lease payments........................................... 125,700
----------
Less current maturities........................................................... 21,500
----------
$ 104,200
----------
----------
|
SAM LINDER, INC.
(DBA SAM LINDER CADILLAC-HONDA-OLDSMOBILE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- TRANSACTIONS WITH RELATED PARTIES
NOTE RECEIVABLE -- As further discussed in Note 3, a note receivable is due from an entity owned by the Company's majority stockholder.
ADVANCES -- Advances from the majority stockholder are unsecured and due on demand after December 31, 1996. Interest on the advances has been accrued at the rate of 6% per annum. At December 31, 1995 and June 30, 1996, $600,000 of the advances have been subordinated to Bank of America National Trust and Savings Association.
MANAGEMENT SERVICES FEE -- In 1996, the Company paid $100,000 to an entity affiliated through common ownership for management services to be provided during 1996. The amount paid is being amortized monthly, with $50,000 being charged to operations for the six months ended June 30, 1996.
LEASE AGREEMENT -- As further discussed in Note 8, the Company leases its premises from the majority stockholder.
NOTE 8 -- COMMITMENTS AND CONTINGENCY
The Company is obligated under a noncancellable operating lease with the stockholder for the rental of its facilities through November 1999. The Company is also obligated under a noncancellable operating sublease for the rental of a car lot through August 1997. An option exists to extend this lease to August 2000.
The Company leases equipment under noncancellable agreements which expire in May, 2000. Following is a schedule of the approximate future minimum lease payments under the above noncancellable operating leases:
YEAR ENDING DECEMBER 31, STOCKHOLDER OTHER TOTAL
- ---------------------------------------------------------- ----------- --------- ----------
1996 (six months)......................................... $ 120,000 $ 15,000 $ 135,000
1997...................................................... 240,000 34,000 274,000
1998...................................................... 240,000 7,000 247,000
1999...................................................... 220,000 2,000 222,000
2000...................................................... -- 2,000 2,000
----------- --------- ----------
$ 820,000 $ 60,000 $ 880,000
----------- --------- ----------
----------- --------- ----------
|
SAM LINDER, INC.
(DBA SAM LINDER CADILLAC-HONDA-OLDSMOBILE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- COMMITMENTS AND CONTINGENCY (CONTINUED)
Rental expense incurred on operating leases amounted to approximately
$285,000 and $280,000 for the years ended December 31, 1995 and 1994,
respectively, with $240,000 being attributable to the lease with the stockholder
for each of the years. Rental expense incurred on operating leases amounted to
approximately $136,000 for the six months ended June 30, 1996 and 1995, with
$120,000 being attributable to the lease with the stockholder in each of the six
month periods.
ENVIRONMENTAL -- Substantially all of the Company's facilities are subject to federal, state and local provisions regulating the discharge of materials into the environment. Compliance with these provisions has not had, nor does the Company expect such compliance to have, any material effect upon the capital expenditures, net income, financial condition or competitive position of the Company. Management believes that its current practices and procedures for the control and disposition of such wastes comply with applicable federal and state requirements.
During the year ended December 31, 1995, the Company removed its underground gasoline and used motor oil storage tanks and cleaned up minor contamination surrounding the tanks. The Company does not expect to incur any further liability related to this clean-up. The Company has no plans to seek reimbursement from the State of California for the clean-up under SB 2004, the Underground Storage Tank Clean-up Fund.
Accruals for environmental matters are recorded in operating expenses when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated.
In general, costs related to environmental remediation are charged to expense. Environmental costs are capitalized if the costs increase the value of the property and/or mitigate or prevent contamination from future operations.
NOTE 9 -- FAIR VALUE OF SIGNIFICANT FINANCIAL INSTRUMENTS
The carrying amount of cash equivalents, trade receivables, trade payables and flooring notes payable approximate fair value because of the short-term nature of these instruments.
Fair value estimates are made at a specific point in time, based on relevant market information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
The carrying amounts and estimated fair values of the Company's significant financial instruments, none of which are held for trading purposes, are as follows:
DECEMBER 31, 1995 JUNE 30, 1996 (UNAUDITED)
-------------------------- --------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------ ------------ ------------ ------------
Financial assets
Notes receivable............................. $ 170,000 $ 170,000 $ 129,100 $ 129,100
Financial liabilities
Flooring notes payable....................... $ 2,287,100 $ 2,287,100 $ 2,430,600 $ 2,430,600
|
The carrying amounts shown in the above table are included in the balance sheet under the indicated captions.
SAM LINDER, INC.
(DBA SAM LINDER CADILLAC-HONDA-OLDSMOBILE)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- FAIR VALUE OF SIGNIFICANT FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Notes Receivable -- The fair values are based on the current rates offered by the Company for loans of the same remaining maturities with similar risks and collateral requirements.
Flooring Notes Payable -- The carrying amounts approximate fair value because the interest rate fluctuates with the lender's prime rate.
Advances From Stockholder -- It is not practicable to determine the fair value of advances from the majority stockholder, as the related party nature of the transaction impacts the repayment terms.
NOTE 10 -- LABOR AGREEMENT
Mechanics account for approximately 25% of the Company's work force and are covered by a collective bargaining agreement. This agreement was renewed in June 1996 for a three year period.
NOTE 11 -- SUBSEQUENT EVENT
Sam Linder, Inc. has executed a purchase and sale agreement whereby it has agreed to sell substantially all if its assets to Lithia Motors, Inc. The purchase price will consist of cash consideration of approximately $1,049,000 for property, plant and equipment and intangible assets, plus an amount for parts inventory. In addition, the purchaser will acquire the new vehicle inventories at the cost paid to the manufacturer and used vehicle inventories at a negotiated value. The sale is subject to customary closing conditions and approval of the change in ownership by the franchisers.
[Description of "Priority You" Marketing Campaign]
[Inside Back Cover of Prospectus]
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES OTHER THAN THE SHARES OF CLASS A COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE OF THIS PROSPECTUS OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY........................................................... 3
RISK FACTORS................................................................. 8
COMPANY RESTRUCTURING AND PRIOR S CORPORATION STATUS ........................ 13
PENDING ACQUISITIONS......................................................... 15
USE OF PROCEEDS.............................................................. 15
DIVIDEND POLICY.............................................................. 16
CAPITALIZATION............................................................... 17
DILUTION..................................................................... 17
SELECTED COMBINED FINANCIAL DATA............................................. 19
PRO FORMA COMBINED AND CONDENSED FINANCIAL DATA.............................. 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................................... 26
INDUSTRY..................................................................... 34
BUSINESS......................................................................35
MANAGEMENT................................................................... 46
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................... 49
DESCRIPTION OF CAPITAL STOCK................................................. 51
SHARES ELIGIBLE FOR FUTURE SALE.............................................. 53
UNDERWRITING................................................................. 54
LEGAL MATTERS................................................................ 56
EXPERTS...................................................................... 56
ADDITIONAL INFORMATION....................................................... 56
UNTIL ______________, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
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_______________ SHARES
[LOGO]
LITHIA MOTORS, INC.
CLASS A COMMON STOCK
PROSPECTUS
FURMAN SELZ
DAIN BOSWORTH INCORPORATED
EVEREN SECURITIES, INC.
_________, 1996
PART II
(Items not required in Prospectus)
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the fees and expenses incurred by the Company in connection with the Offering. Except for the SEC registration fees, NASD filing fees, and Nasdaq initial listing fees, all expenses are estimates:
SEC Registration Fees. . . . . . . . .$12,769
NASD Filing Fees . . . . . . . . . . . .4,203
Nasdaq Initial Listing Fee . . . . . . 20,725
Blue Sky Fees and Expenses
(including legal fees). . . . . . . 15,000
Costs of Printing. . . . . . . . . . .100,000
Accounting Fees and Expenses . . . . .175,000
Legal Fees . . . . . . . . . . . . . .275,000
Miscellaneous Expenses . . . . . . . .192,303
--------
Total Expenses. . . . . . . . . . $795,000
--------
--------
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ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
As an Oregon corporation, the Company is subject to the Oregon Business Corporation Act (the "Business Corporation Act"). Under the Business Corporation Act, a corporation may provide in its Articles of Incorporation or in its Bylaws for the indemnification of directors and officers against liability where the director or officer has acted in good faith and with a reasonable belief that actions taken were in the best interests of the corporation or at least not adverse to the corporation's best interests and, if in a criminal proceeding, the individual had no reasonable cause to believe that the conduct in question was unlawful. Under the Business Corporation Act, a corporation may not indemnify an officer or director against liability in connection with a claim by or in the right of the corporation in which such officer or director was adjudged liable to the corporation or in connection with any other proceeding in which the officer or director was adjudged liable for receiving an improper personal benefit; however, a corporation may indemnify against the reasonable expenses associated with such proceeding. A corporation may not indemnify against breaches of the duty of loyalty. The Business Corporation Act provides for mandatory indemnification of directors against all reasonable expenses incurred in the successful defense of any claim made or threatened whether or not such claim was by or in the right of the corporation. A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification in view of all the relevant circumstances whether or not the director or officer met the good faith and reasonable belief standards of conduct set out in the statute. Unless otherwise stated in the Articles of Incorporation, officers of the corporation are also entitled to the benefit of the above statutory provisions.
The Business Corporation Act also provides that the corporation may, by so providing in its Articles of Incorporation, eliminate or limit the personal liability of a director to the corporation or its shareholders for monetary damages for conduct as a director, provided that the Articles of Incorporation may not eliminate or limit liability for any breach of the director's duty of loyalty, acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, any unlawful distribution, or any transaction from which the director received an improper personal benefit.
In accordance with Oregon law, the Articles of Incorporation of the Company provide that directors are not personally liable to the corporation or its shareholders for monetary damages for conduct as a director, except for (i) any breach of a director's duty of loyalty to the corporation, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of the law, (iii) any distribution to shareholders which is unlawful, or (iv) any transaction from which the director received an improper personal benefit.
The Articles of Incorporation also provide for indemnification of any person who is or was a party, or is threatened to be made a party, to any civil, administrative or criminal proceeding by reason of the fact that the person is or was a director or officer of the corporation or any of its subsidiaries, or is or was serving at the request of the corporation as a director, officer, partner, agent or employee of another corporation or entity, against
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expenses, including attorneys' fees, judgments, fines and amounts paid in settlement, actually and reasonably incurred by that person if (i) the person acted in good faith and in a manner reasonably believed to not be opposed to the best interests of the corporation, or (ii) the act or omission giving rise to such action or proceeding is ratified, adopted or confirmed by the corporation, or the benefit thereof was received by the corporation. Indemnification is available under this provision of the Articles of Incorporation in the case of derivative actions, unless the person is adjudged to be liable for gross negligence or deliberate misconduct in the performance of the person's duty to the corporation. To the extent a director, officer, employee or agent (including an attorney) is successful on the merits or otherwise in defense of any action to which this provision is applicable, the person is entitled to indemnification for expenses actually and reasonably incurred by the person in connection with that defense.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On April 5, 1996, the Company issued __________ shares of Class B Common Stock pursuant to the terms of a Plan of Recapitalization under which Sidney B. DeBoer exchanged 75 shares of the Company's Common Stock for __________ shares of Class B Common Stock and M. L. Dick Heimann exchanged 45 shares of the Company's Common Stock for __________ shares of Class B Common Stock. The issuance of these securities was exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
The index of exhibits are being filed with this Registration Statement is attached on page E-1.
(b) Financial Statement Schedules
None.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(A) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the Underwriter to permit prompt delivery to each purchaser.
(B) For purposes of determining any liability under the Securities Act of
1933, as amended, the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant Rule 424(b)(1) or
(4), or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared it effective.
(C) For the purpose of determining any liability under the Securities Act of 1933, as amended, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(D) Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended, (the "Act") may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of
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appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Medford, state of Oregon, on October 8, 1996.
LITHIA MOTORS, INC.
By /s/Sidney B. DeBoer ------------------------------------------ Sidney B. DeBoer, President |
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Sidney B. DeBoer and Brian R. Neill or either of them as his true and lawful attorney-in-fact and agents, with full power of substitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) and supplements to this Registration Statement, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact 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 or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON OCTOBER 8, 1996
/s/ Sidney B. DeBoer /s/ M. L. Dick Heimann
- ----------------------------------------- -----------------------------------
Sidney B. DeBoer, Chairman, President, M.L. Dick Heimann, Director
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Brian R. Neill
- -----------------------------------------
Brian R. Neill, Chief Financial Officer
and Secretary
(Principal Financial and Accounting Officer)
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EXHIBIT INDEX
|
Exhibit
-------
*1.1 Form of Underwriting Agreement
*3.1 Restated Articles of Incorporation of Lithia Motors, Inc.
*3.2 By-Laws of Lithia Motors, Inc.
*4.1 Specimen Common Stock certificate
*5.1 Opinion of Foster Pepper & Shefelman
10.1 1996 Stock Incentive Plan
*10.2 Form of Stock Option Agreements under 1996 Stock Incentive Plan
10.2.1 Incentive Stock Option Agreement
10.2.2 Non-Qualified Stock Option Agreement
10.2.3 Incentive Stock Option Agreement
10.3.1 Chrysler Corporation Chrysler Sales and Service Agreement, dated
January 10, 1994, between Chrysler Corporation and Lithia
Chrysler Plymouth Jeep Eagle, Inc. (standard provisions are in
Exhibit 10.3.2 hereto).(1)
10.3.2 Chrysler Corporation Dealer Agreement Standard Provisions
10.4.1 Honda Automobile Dealer Sales and Service Agreement dated August
11, 1994, between American Honda Motor Company, Inc. and Lithia
Motors, Inc. dba Lithia Honda (standard provisions are in Exhibit
10.4.2 hereto).
10.4.2 American Honda Automobile Dealer's Standard Agreement
*10.5.1 Isuzu Dealer Sales and Service Agreement, dated June 5, 1996
between American Isuzu Motors, Inc. and Lithia Motors, Inc.
10.5.2 Isuzu Dealer Sales and Service Agreement General Provisions
*10.6.1 Mercury Sales and Service Agreement, dated December 28, 1979,
between Ford Motor Company and Lithia Motors, Inc.(2)
*10.6.2 Amendment, dated May 22, 1989, to Mercury Sales and Service
Agreement and Lincoln Sales and Service Agreement
10.6.3 Ford Motor Company Imported Vehicle Sales and Service Agreement,
dated July 2, 1984, between Ford Motor Company and Lithia Motors,
Inc. dba Lithia Toyota, Lincoln-Mercury (General provisions are
in Exhibit 10.6.4 hereto)
10.6.4 Ford Motor Company Imported Vehicle Sales and Service Agreement
General Provisions
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10.7.1 General Motors Corporation Dealer Sales and Service Agreement,
dated March 12, 1993, between General Motors Corporation Pontiac
Division and Lithia Motors, Inc. dba Lithia Pontiac
10.7.2 General Motors Dealer Sales and Service Agreement Standard
Provisions.
10.8.1 Mazda Dealer Agreement, dated April 11, 1994 between Mazda Motor
of America, Inc. and Lithia Dodge, L.L.C. dba Lithia Mazda
10.8.2 Letter, dated September 29, 1995 extending Mazda Dealer Agreement
between Mazda Motor of America, Inc. and Lithia Dodge, L.L.C. dba
Lithia Mazda
10.9.1 Saturn Distribution Corporation Dealer Agreement, dated September
12, 1991, between Saturn Distribution Corporation and Medford
Dodge dba Saturn of Medford
10.10.1 Toyota Dealer Agreement, dated January 30, 1990, between Toyota
Motor Distributors, Inc. and Lithia Motors, Inc. dba Medford
Toyota
*10.10.2 Toyota Dealer Agreement Standard Provisions.
*10.10.3 Agreement, dated September 30, 1996, between Toyota Motor Sales,
U.S.A., Inc. and Lithia Motors, Inc.
*10.11.1 Suzuki Term Dealer Sales and Service Agreement, dated May 13,
1996, between American Suzuki Motor Corporation and Lithia
Motors, Inc. dba Lithia Suzuki
10.13.1 Asset Purchase Agreement, dated August 2, 1996, between Lithia
Motors, Inc. and Roberts Dodge, Inc.
10.13.2 Land Sale Contract, dated August 2, 1996, between Lithia
Properties, L.L.C. and Milford G. Roberts, Sr. and Sandra L.
Roberts
*10.13.3 Assignment of Land Sale Contract, dated , between
Lithia Properties, LLC and Lithia Motors, Inc.
*10.14.1 Form of Purchase and Sale Agreement between Lithia Motors, Inc.
and Sam Linder, Inc.
*10.15.1 Form of Agreement of Reorganization, dated October 10, 1996, by
and among Lithia Motors, Inc., LGPAC, Inc., Lithia DM, Inc.,
Lithia MTLM, Inc., Lithia HPI, Inc., Lithia SSO, Inc., Lithia
Rentals, Inc., Discount Auto and Truck Rental, Inc., Lithia Auto
Services, Inc., Lithia Holding Company, L.L.C., Sidney B. DeBoer,
Manfred L. (Dick) Heimann, R. Bradford Gray, and Stephen R.
Philips
*10.16.1 Alternative Rate Option Promissory Note by Lithia Motors, Inc.,
Lithia TLM, LLC, Lithia Dodge, L.L.C., and Lithia's Grants Pass
Auto Center, L.L.C., to United States National Bank of Oregon in
the amount of $18 million.(3)
*10.16.2 Promissory Note by Lithia Motors, Inc. to United States National
Bank of Oregon in the amount of $6.0 million.(4)
*10.16.3 Promissory Note by Lithia Leasing, Inc. to United States National
Bank of Oregon in the amount of $1.4 million (5)
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*10.17.1 Promissory Note between Lithia Motors, Inc. and Sidney B. DeBoer in the amount of $500,000(6)
*10.17.2 Subordination Agreement between Lithia Motors, Inc., Sidney B.
DeBoer and United States National Bank(7)
*10.18.1 Floor Plan Accommodation Agreement (Security Agreement) between Lithia Motors, Inc. and United States National Bank of Oregon(8)
*10.18.2 Corporate Resolution to Guarantee of Lithia Motors, Inc. (9)
*10.19.1 Commercial Guaranty under which Sidney B. DeBoer is the guarantor of obligations of Lithia Motors, Inc. to US National Bank of Oregon(10)
*10.20.1 Management Contract between Lithia Leasing, Inc. and Lithia Properties LLC.
*21.1 Subsidiaries of Lithia Motors, Inc.
23.1 Consent of KPMG Peat Marwick LLP relating to Lithia Motors, Inc.
23.2 Consent of KPMG Peat Marwick LLP relating to Roberts Dodge, Inc.
23.3 Consent of Moss Adams LLP
23.4 Consent of Foster Pepper & Shefelman (included in Exhibit 5.1).
24.1 Powers of Attorney (included in the signature pages of this registration statement).
27.1 Financial Data Schedules.
* To be filed by amendment.
(1) Substantially identical agreements exist between Chrysler Corporation and Lithia Chrysler Plymouth Jeep Eagle, Inc., and between Chrysler Corporation and Lithia's Grants Pass Auto Mart, with respect to Jeep, Eagle, Dodge and Plymouth sales and service, and between Chrysler Corporation and Medford Dodge with respect to Dodge sales and service.
(2) A substantially identical agreement exists between the same parties with respect to Linder Sales and Services.
(3) Substantially identical notes exist between the same parties in amounts of $2.0 million, $2.5 million, and $5.0 million.
(4) A substantially identical note exists between the same parties in the amount of 400,000.
(5) Substantially identical notes exist between the same parties in amounts of 750,000, and $1.0 million.
(6) A substantially identical note exists between Lithia Motors, Inc. and Manfred L. Heimann in the same amount
(7) A substantially identical agreement exists between Lithia Motors, Inc. and Manfred L. Heimann
(8) Substantially identical agreements exist between United States National Bank of Oregon and each of Lithia TLM, LLC, Lithia Dodge, L.L.C., Lithia's Grants Pass Auto Center, L.L.C., and Lithia Leasing, Inc.
(9) A substantially identical guarantee exists under which Lithia's Grants Pass Auto Center, L.L.C. is the Guarantor.
(10) A substantially identical guaranty exists under which Manfred L.
Heimann is the Guarantor of Lithia Motors, Inc.
EXHIBIT 10.1
LITHIA MOTORS, INC.
1996 STOCK INCENTIVE PLAN
SECTION 1. PURPOSE OF PLAN
The purpose of this 1996 Stock Incentive Plan ("Plan") of Lithia Motors, Inc., an Oregon corporation (the "Company"), is to enable the Company to attract, retain and motivate its employees and consultants by providing for or increasing the proprietary interests of such employees and consultants in the Company.
SECTION 2. PERSONS ELIGIBLE UNDER PLAN
Each of the following persons (each, a "Participant") shall be eligible
to be considered for the grant of Awards (as hereinafter defined) hereunder:
(1) any employee of the Company or any of its subsidiaries, including any
director who is also such an employee, and (2) any consultant of the Company
or any of its subsidiaries.
SECTION 3. AWARDS
(a) The Committee (as hereinafter defined), on behalf of the Company, is authorized under this Plan to enter into any type of arrangement with a Participant that is not inconsistent with the provisions of this Plan and that, by its terms, involves or might involve the issuance of (i) shares of Class A Common Stock, no par value, of the Company ("Common Shares") or (ii) a Derivative Security (as such term is defined in Rule 16a-1 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as such rule may be amended from time to time) with an exercise or conversion privilege at a price related to the Common Shares or with a value derived from the value of the Common Shares. The entering into of any such arrangement is referred to herein as the "grant" of an "Award."
(b) Awards are not restricted to any specified form or structure and may include, without limitation, sales or bonuses of stock, restricted stock, stock options, reload stock options, stock purchase warrants, other rights to acquire stock, securities convertible into or redeemable for stock, stock appreciation rights, phantom stock, dividend equivalents, performance units or performance shares, and an Award may consist of one such security or benefit, or two or more of them in tandem or in the alternative.
(c) Awards may be issued, and Common Shares may be issued, pursuant to an Award, for any lawful consideration as determined by the Committee, including, without limitation, services rendered by the recipient of such Award.
(d) Subject to the provisions of this Plan, the Committee, in its sole and absolute discretion, shall determine all of the terms and conditions of each Award granted under this Plan, which terms and conditions may include, among other things:
(i) a provision permitting the recipient of such Award, including any recipient who is a director or officer of the Company, to pay the purchase price of the Common Shares or other
property issuable pursuant to such Award, or such recipient's tax withholding obligation with respect to such issuance, in whole or in part, by any one or more of the following:
(A) the delivery of cash;
(B) the delivery of other property deemed acceptable by the Committee;
(C) the delivery of previously owned shares of capital stock of the Company (including "pyramiding") or other property; or
(D) a reduction in the amount of Common Shares or other property otherwise issuable pursuant to such Award.
(ii) a provision conditioning or accelerating the receipt of benefits pursuant to such Award, either automatically or in the discretion of the Committee, upon the occurrence of specified events, including, without limitation, continued employment by the Company, a change of control of the Company (as defined by the Committee), an acquisition of a specified percentage of the voting power of the Company, the dissolution or liquidation of the Company, a sale of substantially all of the property and assets of the Company or an event of the type described in Section 7 hereof; or
(iii) a provision required in order for such Award to qualify as an incentive stock option (an "Incentive Stock Option") under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"); PROVIDED, HOWEVER, that no Award issued to any consultant may qualify as an Incentive Stock Option.
SECTION 4. STOCK SUBJECT TO PLAN
(a) The aggregate number of Common Shares that may be issued pursuant to all Incentive Stock Options granted under this Plan shall not exceed 500,000, subject to adjustment as provided in Section 7 hereof.
(b) At any time, the aggregate number of Common Shares issued and issuable pursuant to all Awards (including all Incentive Stock Options) granted under this Plan shall not exceed 500,000, subject to adjustment as provided in Section 7 hereof.
(c) For purposes of Section 4(b) hereof, the aggregate number of Common Shares issued and issuable pursuant to Awards granted under this Plan shall at any time be deemed to be equal to the sum of the following:
(i) the number of Common Shares that were issued prior to such time pursuant to Awards granted under this Plan, other than Common Shares that were subsequently reacquired by the Company pursuant to the terms and conditions of such Awards and with respect to which the holder thereof received no benefits of ownership such as dividends; plus
(ii) the number of Common Shares that were otherwise issuable prior to such time pursuant to Awards granted under this Plan, but that were withheld by the Company as payment of the purchase price of the Common Shares issued pursuant to such Awards or as payment of the recipient's tax withholding obligation with respect to such issuance; plus
(iii) the maximum number of Common Shares that are or may be issuable at or after such time pursuant to Awards granted under this Plan prior to such time.
(d) Subject to adjustment as provided in Section 7 hereof, the aggregate number of Common Shares subject to Awards granted during any calendar year to any one Participant (including the number of shares involved in Awards having a value derived from the value of Common Shares) shall not exceed 200,000 shares.
SECTION 5. DURATION OF PLAN
No Awards shall be made under this Plan after April 4, 2006. Although Common Shares may be issued after April 4, 2006 pursuant to Awards made on or prior to such date, no Common Shares shall be issued under this Plan after April 4, 2016.
SECTION 6. ADMINISTRATION OF PLAN
(a) This Plan shall be administered by a committee (the "Committee") of
the Board of Directors of the Company (the "Board") consisting of two or more
directors, each of whom: (i) is a "disinterested person" (as such term is
defined in Rule 16b-3 promulgated under the Exchange Act, as such Rule may be
amended from time to time), and (ii) with respect to any Award that is
intended to give rise to "performance based compensation" within the meaning
of Section 162(m)(4)(C) of the Code, is an "outside director" within the
meaning of Section 162(m)(4)(C)(i) of the Code. Notwithstanding the
foregoing, however, prior to the registration of the Common Shares under
Section 12 of the Exchange Act, this Plan may, in the absence of action by
the Committee, be administered by the entire Board (subject to any
limitations contained in Rule 16b-3 or otherwise).
(b) Subject to the provisions of this Plan, the Committee shall be authorized and empowered to do all things necessary or desirable in connection with the administration of this Plan, including, without limitation, the following:
(i) adopt, amend and rescind rules and regulations relating to this Plan;
(ii) determine which persons are Participants and to which of such Participants, if any, Awards shall be granted hereunder;
(iii) grant Awards to Participants and determine the terms and conditions thereof, including the number of Common Shares issuable pursuant thereto;
(iv) accelerate the exercisability of an Award or extend the period during which an owner of an Award may exercise his or her rights under such Award (but not beyond April 4, 2016);
(v) determine whether, and the extent to which adjustments are required pursuant to Section 7 hereof; and
(vi) interpret and construe this Plan and the terms and conditions of any Award granted hereunder.
SECTION 7. ADJUSTMENTS
If the outstanding securities of the class then subject to this Plan are increased, decreased or exchanged for or converted into cash, property or a different number or kind of securities, or if cash, property and/or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, merger, consolidation, recapitalization, restructuring, reclassification, dividend (other than a regular, quarterly cash dividend) or other distribution, stock split, reverse stock split or the like, or if substantially all of the property and assets of the Company are sold, then, unless the terms of such transaction shall provide otherwise, the Committee shall make appropriate and proportionate adjustments in (a) the number and type of shares or other securities or cash or other property that may be acquired pursuant to Incentive Stock Options and other Awards theretofore granted under this Plan, (b) the maximum number and type of shares or other securities that may be issued pursuant to Incentive Stock Options and other Awards thereafter granted under this Plan, and (c) the maximum number of Common Shares for which Awards may be granted during any one calendar year; PROVIDED, HOWEVER, that no adjustment shall be made to the number of Common Shares that may be acquired pursuant to outstanding Incentive Stock Options or the maximum number of Common Shares with respect to which Incentive Stock Options may be granted under this Plan to the extent such adjustment would result in such options being treated as other than Incentive Stock Options; PROVIDED further that no such adjustment shall be made to the extent the Committee determines that such adjustment would result in the disallowance of a federal income tax deduction for compensation attributable to Awards hereunder by causing such compensation to be other than "performance-based compensation" within the meaning of Section 162(m)(4)(C) of the Code.
SECTION 8. AMENDMENT AND TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time and in any manner, subject to the following limitations:
(a) No such amendment or termination shall deprive the recipient of any Award theretofore granted under this Plan, without the consent of such recipient, of any of his or her rights thereunder or with respect thereto; and
(b) If an amendment to this Plan would (a) increase the maximum number of Common Shares that may be issued pursuant to (i) all Awards granted under this Plan, (ii) all Incentive Stock Options granted under this Plan, or (iii) Awards granted under this Plan during any calendar year to any one Participant, (b) change the class of persons eligible to receive Awards under this Plan, (c) otherwise materially increase the benefits hereunder accruing to participants who are subject to Section 16 of the Exchange Act in a manner not specifically contemplated herein, or (d) affect this Plan's compliance with Rule 16b-3 or applicable provisions of the Code, as amended from time to time, the amendment shall be subject to approval by the Company's shareholders to the extent required to comply with Rule 16b-3, Sections 422 and 162(m) of the Code, and other applicable provisions of or rules under the Code, as amended from time to time.
SECTION 9. EFFECTIVE DATE OF PLAN
This Plan shall be effective as of April 5, 1996, the date upon which it was approved by the Board; PROVIDED, HOWEVER, that no Common Shares may be issued under this Plan until it has been approved, directly or indirectly, by the affirmative votes of the holders of a majority of the securities of the Company present, or represented, and entitled to vote at a meeting duly held or, in lieu thereof, by action by written consent, in accordance with the laws of the State of Oregon.
SECTION 10. DEFINITION OF FAIR MARKET VALUE
For purposes of this Plan, "Fair Market Value" shall mean the fair market value of the Common Shares. If the Common Shares are not publicly traded, fair market value shall be determined by the Board or the Committee and may be computed by any method which the Board or the Committee in good faith believes will reflect the fair market value of the Common Shares on the date of such determination. If the Common Shares are publicly traded, fair market value shall be the closing sale price per share of the Common Shares, for securities listed on a national securities exchange, or the closing bid price per share of the Common Shares, for securities quoted by NASDAQ, on the day in question (or, if such day is not a trading day or if no sales of Common Shares were made on such day, on the nearest preceding trading day on which sales of Common Shares were made), as reported in The Wall Street Journal or, if trading in the Common Shares is not then reported in The Wall Street Journal, at such closing sale or bid price as may then appear in what the Board or the Committee in its judgment then deems to be the most nearly comparable listing or reporting service.
EXHIBIT 10.2.1
LITHIA MOTORS, INC.
1996 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into as of the Date of Grant indicated below by and between Lithia Motors, Inc., an Oregon corporation (the "Company"), and the person named below as Grantee.
WHEREAS, Grantee is an employee of the Company; and
WHEREAS, pursuant to the Company's 1996 Stock Incentive Plan (the "Plan"), the committee of the Board of Directors of the Company administering the Plan (the "Committee") has approved the grant to Grantee of an option to purchase shares of the Class A Common Stock of the Company, no par value (the "Common Stock"), on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the covenants set forth herein, the parties hereto hereby agree as follows:
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS.
(a) The Company hereby grants to Grantee, and Grantee hereby accepts, as of the Date of Grant, an option to purchase the number of shares of Common Stock indicated below (the "Option Shares") at the Exercise Price per share indicated below, which option shall expire at 5:00 o'clock p.m., Oregon time, on the Expiration Date indicated below and shall be subject to all of the terms and conditions set forth in this Agreement (the "Option").
Grantee:
-----------------------------------
Date of Grant: , 1996
------------------- ----
Number of shares purchasable:
----------------------------------------
Exercise Price per share: $
---------------------------------------------
Expiration Date: , 2004
------------------- ----
|
(b) The Option shall become exercisable to purchase, and shall vest with respect to, all of the Option Shares on the seventh anniversary of the Date of Grant set forth above. Notwithstanding the foregoing, if the Company closes an underwritten initial public offering of the Common Stock (the "IPO"), then the Option shall become exercisable to purchase, and shall vest with respect to, the Option Shares at the rate of one-fifth of the Option Shares (rounded to the nearest whole share) on each anniversary of the closing of the IPO until the fifth anniversary of the closing of the IPO, at which time all of the Option Shares shall be vested. Grantee hereby agrees that, in the event of an IPO, Grantee shall enter into any lock-up agreement reasonably requested by the underwriters of the IPO, which would
restrict Grantee's ability to sell any Option Shares for a certain period of time following the IPO (not to exceed 180 days).
(c) The Option is intended to qualify as an incentive stock option (an "Incentive Stock Option") under Section 422 of the Internal Revenue Code (the "Code") and consequently, notwithstanding anything herein to the contrary:
(i) the Expiration Date shall not be more than 10 years from the Date of Grant and the Exercise Price per share shall not be less than the Fair Market Value (as defined in the Plan) per share on the Date of Grant; PROVIDED, HOWEVER, that if, on the Date of Grant, Grantee owns (after application of the family and other attribution rules of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporations, then the Expiration Date shall not be more than five years from the Date of Grant and the Exercise Price per share shall not be less than 110% of the Fair Market Value per share on the Date of Grant; and
(ii) the aggregate Fair Market Value (determined as of the date such options are granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by Grantee during any calendar year (under the Plan and all other stock option plans of the Company and its parent and subsidiary corporations) shall not exceed $100,000.
2. TERMINATION OF OPTION.
(a) TERMINATION OF EMPLOYMENT.
(i) DEFINITION. In the event that Grantee shall cease to be an employee of the Company or its parent or any of its subsidiaries for any reason, such event shall be referred to herein as the "Termination" of Grantee's "Employment," and the Grantee's Employment shall be deemed "Terminated" as of the last day of the Grantee's Employment with the Company or a parent or subsidiary of the Company.
(ii) RETIREMENT. If Grantee's Employment is Terminated by reason of Grantee's retirement in accordance with the Company's then-current retirement policy ("Retirement"), then (A) the portion of the Option that has not vested on or prior to the date of such Retirement shall terminate on such date and (B) the remaining vested portion of the Option shall terminate three months after the date Grantee's Employment is Terminated.
(iii) WITHOUT CAUSE. If Grantee's Employment is Terminated by the
Company without "Cause" (as defined below), then (A) if Sidney B. DeBoer is the
Chairman, President or Chief Executive Officer of the Company at the time of
such Termination, the Option shall terminate upon the date of such Termination
of Employment, or (B) if Sidney B. DeBoer is not the Chairman, President or
Chief Executive Officer of the Company at the time of such Termination, the
Option shall become exercisable to purchase, and shall vest with respect to, all
of the Option Shares on the date of such Termination of Employment and shall
terminate three months after the date of Termination. For purposes of this
Section 2(a)(iii), "Cause" shall mean Grantee's fraudulent or criminal behavior,
willful misconduct, insubordination or violation of any duty of loyalty if the
Chairman, President, Chief Executive Officer, Board of Directors or Committee
determines, in its sole judgment, that such behavior, misconduct,
insubordination or violation has, or can be expected to have, an adverse effect
on the Company or any of its subsidiaries or any of their respective businesses.
(iv) DEATH OR PERMANENT DISABILITY. If Grantee's Employment is Terminated by reason of the death or Permanent Disability (as hereinafter defined) of Grantee, then (A) the portion of the Option that has not vested on or prior to the date of such Termination of Employment shall terminate on such date and (B) the remaining vested portion of the Option shall terminate upon the earlier of the Expiration Date or the first anniversary of the date of such Termination of Employment. "Permanent Disability" shall mean the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months. Grantee shall not be deemed to have a Permanent Disability until proof of the existence thereof shall have been furnished to the Board in such form and manner, and at such times, as the Board may require. Any determination by the Board that Grantee does or does not have a Permanent Disability shall be final and binding upon the Company and Grantee.
(v) OTHER TERMINATION. If Grantee's Employment is Terminated for Cause, then the Option shall terminate upon the date of such Termination of Employment. If Grantee's Employment is Terminated for any reason other than (A) Retirement, (B) without Cause by the Company, (C) death, (D) Permanent Disability or (E) for Cause, then the Option (including any vested and unvested portions) shall terminate upon the date of such Termination of Employment, unless an IPO has occurred, in which case (X) the portion of the Option that has not vested on or prior to the date of such Termination of Employment shall terminate on such date and (Y) the remaining vested portion of the Option shall terminate thirty (30) days after the date of such Termination of Employment.
(b) ACCELERATION OF OPTION. In addition to the provisions of Section
2(a)(iii)(B), the Committee, in its sole discretion, may accelerate the
exercisability of the Option at any time and for any reason.
(c) OTHER EVENT CAUSING TERMINATION OF OPTION. Notwithstanding anything to the contrary in this Agreement, the Option shall terminate upon the consummation of any of the following events, or, if later, the thirtieth day following the first date upon which such event shall have been approved by both the Board and the stockholders of the Company:
(i) the dissolution or liquidation of the Company; or
(ii) a sale of substantially all of the property and assets of the Company, unless the terms of such sale shall provide otherwise;
provided that in connection with such transaction the Company shall pay to Grantee in cash an amount equal to the excess of the Fair Market Value (on the date of the applicable corporate transaction) of the Option Shares subject to the then-unexercised vested portion of the Option over the exercise price of such portion of the Option, unless, in the event of a sale of substantially all of the property and assets of the Company, the acquiring corporation has granted substitute options to purchase its shares on such terms and conditions as shall substantially preserve the rights and economic benefits of the Option.
3. ADJUSTMENTS. Subject to Section 7 of the Plan, in the event that the outstanding securities of the class then subject to the Option are increased, decreased or exchanged for or converted into cash, property and/or a different number or kind of securities, or if cash, property and/or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, merger, consolidation, recapitalization, reclassification, dividend (other than a regular, quarterly cash dividend) or other distribution, stock split, reverse stock split or the like, or in the event that substantially all of the property and assets of the Company are sold, then, unless such event shall cause the Option to
terminate pursuant to Section 2(c) hereof or unless the terms of the transaction shall provide otherwise, the Committee shall make appropriate and proportionate adjustments in the number and type of shares or other securities or cash or other property that may thereafter be acquired upon the exercise of the Option; PROVIDED, HOWEVER, that any such adjustments in the Option shall be made without changing the aggregate Exercise Price of the then unexercised portion of the Option; and PROVIDED, FURTHER, that no adjustments under this Section 3 shall be made in connection with the IPO or transactions contemplated thereby, unless the Committee shall determine that appropriate adjustments shall be made.
4. EXERCISE.
(a) The Option shall be exercisable during Grantee's lifetime only by Grantee or by his or her guardian or legal representative, and after Grantee's death only by the person or entity entitled to do so under Grantee's last will and testament or applicable intestate law. The Option may only be exercised by the delivery to the Company of a written notice of such exercise, which notice shall specify the number of Option Shares to be purchased (the "Purchased Shares") and the aggregate Exercise Price for such shares (the "Exercise Notice"), together with payment in full of such aggregate Exercise Price in cash or by check payable to the Company; PROVIDED, HOWEVER, that payment of such aggregate Exercise Price may instead be made, in whole or in part, by the delivery to the Company of a certificate or certificates representing shares of Common Stock, duly endorsed or accompanied by a duly executed stock powers, which delivery effectively transfers to the Company good and valid title to such shares, free and clear of any pledge, commitment, lien, claim or other encumbrance (such shares to be valued on the basis of the aggregate Fair Market Value (as defined in the Plan) thereof on the date of such exercise), provided that the Company is not then prohibited from purchasing or acquiring such shares of Common Stock.
(b) If required by the Company, at the time of exercise, Grantee
shall give to the Company satisfactory assurance in writing, signed by Grantee
or his or her legal representative, as the case may be, that such shares are
being purchased for investment only and not with a view to the distribution
thereof; provided, however, that such assurance shall be deemed inapplicable to
(i) any sale of such shares by Grantee subject to a registration statement
covering such sale, which has heretofore been (or may hereafter be) filed and
become effective under the Securities Act of 1933, as amended (the "Securities
Act"), and is current and with respect to which no stop order suspending the
effectiveness thereof has been issued, and (ii) any other sale of such shares
with respect to which, in the opinion of counsel for the Company, such assurance
is not required to be given in order to comply with the provisions of the
Securities Act.
5. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated to
withhold an amount on account of any tax imposed as a result of the exercise of
the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., Medicare, state disability insurance tax or other
employment tax, then Grantee shall, upon request of the Company but no later
than the first day upon which the Company becomes obligated to pay such amount
to the appropriate taxing authority, pay such amount to the Company in cash or
by check payable to the Company. Notwithstanding anything to the contrary in
Section 4, Grantee's rights to exercise any Option, and any transfer of Common
Stock to Grantee pursuant to the exercise of any Option, are conditioned upon
the payment in full by Grantee of the amounts determined by the Company to be
due hereunder.
6. NOTICES. All notices and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed given if delivered personally or five days after mailing by certified or registered mail, postage prepaid, return receipt requested, to the Company in care of its Secretary at the principal executive offices of the Company, or to Grantee at the address set forth
beneath his or her signature on the signature page hereto, or at such other addresses as Grantee may designate by written notice in the manner aforesaid.
7. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS. Notwithstanding anything to the contrary in this Agreement, no shares of stock purchased upon exercise of the Option, and no certificate representing all or any part of such shares, shall be issued or delivered if: (a) such shares have not been admitted to listing upon official notice of issuance on each stock exchange upon which shares of that class are then listed; (b) in the opinion of counsel to the Company, such issuance or delivery would cause the Company to be in violation of or to incur liability under any federal, state or other securities law, or any requirement of any stock exchange listing agreement to which the Company is a party, or any other requirement of law or of any administrative or regulatory body having jurisdiction over the Company; or (c) at the time of that issuance or delivery the Company is an electing and qualifying S Corporation, and, in the opinion of counsel to the Company, such issuance or delivery might reasonably be expected to cause the termination or revocation of the Company's status as an S Corporation, and all of the shareholders of the Company have not approved such issuance or delivery. Notwithstanding the provisions of Section 8, in no event shall Grantee be permitted to transfer (as defined in Section 8) the Option or any shares of stock purchased upon exercise of the Option to any person or entity if, at the time of such proposed transfer, the Company is an electing and qualifying S Corporation, and, in the opinion of counsel to the Company, such proposed transfer might reasonably be expected to cause the termination or revocation of the Company's status as an S Corporation, and all of the shareholders of the Company have not approved such transfer.
8. NONTRANSFERABILITY. Neither the Option nor any interest therein may be transferred in any manner by the Grantee to any person or entity other than by will or the laws of descent and distribution. For purposes of this Paragraph 8, the term "transfer" shall mean and include any form of sale, exchange, gift, disposition, alienation, assignment, pledge, hypothecation, encumbrance, levy of attachment, levy of execution, conveyance in connection with bankruptcy proceedings, conveyance upon divorce, and/or any other conveyance of any kind, including both voluntary and involuntary conveyances, and also including conveyances by operation of law. In the event of any attempt by Grantee to transfer the Option or any right hereunder except as provided for herein, the Option shall thereupon become null and void and of no effect. Notwithstanding the foregoing, under such rules and regulations as the Board or the Committee may establish pursuant to the terms of the Plan, a beneficiary may be designated with respect to the Option in the event of the death of Grantee.
9. PLAN. The Option is granted pursuant to the Plan, as in effect on the Date of Grant, and is subject to all the terms and conditions of the Plan, as the same may be amended from time to time; PROVIDED, HOWEVER, that no such amendment shall deprive Grantee, without his or her consent, of the Option or of any of Grantee's rights under this Agreement. The interpretation and construction by the Committee of the Plan, this Agreement, the Option and such rules and regulations as may be adopted by the Committee for the purpose of administering the Plan shall be final and binding upon Grantee. Until the Option shall expire, terminate or be exercised in full, the Company shall, upon written request therefor, send a copy of the Plan, in its then-current form, to Grantee or any other person or entity then entitled to exercise the Option.
10. STOCKHOLDER RIGHTS. No person or entity shall be entitled to vote, receive dividends or be deemed for any purpose the holder of any Option Shares until the Option shall have been duly exercised to purchase such Option Shares in accordance with the provisions of this Agreement.
11. EMPLOYMENT OR CONTRACT RIGHTS. No provision of this Agreement or of the Option granted hereunder shall (a) confer upon Grantee any right to continue in the employ of the Company or
any of its subsidiaries, (b) affect the right of the Company and each of its
subsidiaries to terminate the employment of Grantee, with or without Cause, or
(c) confer upon Grantee any right to participate in any employee welfare or
benefit plan or other program of the Company or any of its subsidiaries other
than the Plan. Nothing herein shall limit Grantee's right to terminate his or
her employment. GRANTEE HEREBY ACKNOWLEDGES AND AGREES THAT THE COMPANY AND
EACH OF ITS SUBSIDIARIES MAY TERMINATE THE EMPLOYMENT OF GRANTEE AT ANY TIME AND
FOR ANY REASON, OR FOR NO REASON, UNLESS GRANTEE AND THE COMPANY OR SUCH
SUBSIDIARY ARE PARTIES TO A WRITTEN EMPLOYMENT AGREEMENT THAT EXPRESSLY PROVIDES
OTHERWISE.
12. PARTICIPATION IN OTHER PLANS. Nothing herein contained shall affect Grantee's right to participate in and receive benefits from and in accordance with the then current provisions of any pension, insurance, or other stock option or employment welfare plan or program of the Company.
13. BINDING EFFECT OF AGREEMENT. Except as set forth in Section 8 hereof, this Agreement shall be binding upon and inure to the benefit of any successors or assigns of the Company or Grantee.
14. MISCELLANEOUS.
(a) WAIVER. No waiver of any right or obligation of either party under this Agreement shall be effective unless in a writing, specifying such waiver, executed by the party against which such waiver is being enforced. A waiver by either party hereto of any of its rights under this Agreement on any occasion shall not be a bar to the exercise of the same right on any subsequent occasion or of any other right at any time.
(b) AMENDMENT OR MODIFICATION. This Agreement may be amended, altered, or modified only by a writing, specifying such amendment, alteration or modification, executed by the party against which it is being enforced.
(c) GOVERNING LAW. This Agreement and the Option granted hereunder shall be governed by and construed and enforced in accordance with the laws of the State of Oregon without reference to choice or conflict of law principles.
(d) COMPLETE AGREEMENT. This Agreement, along with the Plan, constitutes the complete understanding of the parties hereto regarding the subject matter thereof and supersedes all prior or contemporaneous agreements of the parties, whether written or oral, with respect to such subject matter.
(e) ATTORNEYS' FEES. In the event a suit, arbitration or other proceeding is brought to enforce or interpret any provision of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees to be fixed in amount by the court or the arbitrator(s) (including without limitation, costs, expenses and fees on any appeal). The prevailing party will be entitled to recover its costs of suit, arbitration or other proceeding, regardless of whether such suit, arbitration or other proceeding proceeds to a final judgment or award.
IN WITNESS WHEREOF, the Company and Grantee have duly executed this Agreement as of the Date of Grant.
LITHIA MOTORS, INC.
GRANTEE:
(Exhibit E)
[Pre-IPO-100%]
LITHIA MOTORS, INC.
1996 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into as of the Date of Grant indicated below by and between Lithia Motors, Inc., an Oregon corporation (the "Company"), and the person named below as Grantee.
WHEREAS, Grantee is an employee of the Company; and
WHEREAS, pursuant to the Company's 1996 Stock Incentive Plan (the "Plan"), the committee of the Board of Directors of the Company administering the Plan (the "Committee") has approved the grant to Grantee of an option to purchase shares of the Class A Common Stock of the Company, no par value (the "Common Stock"), on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the covenants set forth herein, the parties hereto hereby agree as follows:
1. GRANT OF OPTION, CERTAIN TERMS AND CONDITIONS.
(a) The Company hereby grants to Grantee, and Grantee hereby accepts, as of the Date of Grant, an option to purchase the number of shares of Common Stock indicated below (the "Option Shares") at the Exercise Price per share indicated below, which option shall expire at 5:00 o'clock p.m., Oregon time, on the Expiration Date indicated below and shall be subject to all of the terms and conditions set forth in this Agreement (the "Option").
Grantee:
-----------------------------------
Date of Grant: , 1996
------------------- ----
Number of shares purchasable:
----------------------------------------
Exercise Price per share: $
---------------------------------------------
Expiration Date: , 2004
------------------- ----
|
(b) The Option shall become exercisable to purchase, and shall vest with respect to, all of the Option Shares on the seventh anniversary of the Date of Grant set forth above. Notwithstanding the foregoing, if the Company closes an underwritten initial public offering of the Common Stock (the "IPO"), then the Option shall become exercisable to purchase, and shall vest with respect to, all of the Option Shares on the date of the closing of the IPO. Grantee hereby agrees that, in the event of an IPO, Grantee shall enter into any lock-up agreement reasonably requested by the underwriters of the IPO, which would restrict Grantee's ability to sell any Option Shares for a certain period of time following the IPO (not to exceed 180 days).
(c) The Option is intended to qualify as an incentive stock option (an "Incentive Stock Option") under Section 422 of the Internal Revenue Code (the "Code") and consequently, notwithstanding anything herein to the contrary:
(i) the Expiration Date shall not be more than 10 years from the Date of Grant and the Exercise Price per share shall not be less than the Fair Market Value (as defined in the Plan) per share on the Date of Grant; PROVIDED, HOWEVER, that if, on the Date of Grant, Grantee owns (after application of the family and other attribution rules of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporations, then the Expiration Date shall not be more than five years from the Date of Grant and the Exercise Price per share shall not be less than 110% of the Fair Market Value per share on the Date of Grant; and
(ii) the aggregate Fair Market Value (determined as of the date such options are granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by Grantee during any calendar year (under the Plan and all other stock option plans of the Company and its parent and subsidiary corporations) shall not exceed $100,000.
2. TERMINATION OF OPTION.
(a) TERMINATION OF EMPLOYMENT.
(i) DEFINITION. In the event that Grantee shall cease to be an employee of the Company or its parent or any of its subsidiaries for any reason, such event shall be referred to herein as the "Termination" of Grantee's "Employment," and the Grantee's Employment shall be deemed "Terminated" as of the last day of the Grantee's Employment with the Company or a parent or subsidiary of the Company.
(ii) RETIREMENT. If Grantee's Employment is Terminated by reason of Grantee's retirement in accordance with the Company's then-current retirement policy ("Retirement"), then (A) the portion of the Option that has not vested on or prior to the date of such Retirement shall terminate on such date and (B) the remaining vested portion of the Option shall terminate three months after the date Grantee's Employment is Terminated.
(iii) WITHOUT CAUSE. If Grantee's Employment is Terminated by the
Company without "Cause" (as defined below), then (A) if Sidney B. DeBoer is the
Chairman, President or Chief Executive Officer of the Company at the time of
such Termination, the Option shall terminate upon the date of such Termination
of Employment, or (B) if Sidney B. DeBoer is not the Chairman, President or
Chief Executive Officer of the Company at the time of such Termination, the
Option shall become exercisable to purchase, and shall vest with respect to, all
of the Option Shares on the date of such Termination of Employment and shall
terminate three months after the date of Termination. For purposes of this
Section 2(a)(iii), "Cause" shall mean Grantee's fraudulent or criminal behavior,
willful misconduct, insubordination or violation of any duty of loyalty if the
Chairman, President, Chief Executive Officer, Board of Directors or Committee
determines, in its sole judgment, that such behavior, misconduct,
insubordination or violation has, or can be expected to have, an adverse effect
on the Company or any of its subsidiaries or any of their respective businesses.
(iv) DEATH OR PERMANENT DISABILITY. If Grantee's Employment is Terminated by reason of the death or Permanent Disability (as hereinafter defined) of Grantee, then (A) the portion of the Option that has not vested on or prior to the date of such Termination of Employment shall
terminate on such date and (B) the remaining vested portion of the Option shall terminate upon the earlier of the Expiration Date or the first anniversary of the date of such Termination of Employment. "Permanent Disability" shall mean the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months. Grantee shall not be deemed to have a Permanent Disability until proof of the existence thereof shall have been furnished to the Board in such form and manner, and at such times, as the Board may require. Any determination by the Board that Grantee does or does not have a Permanent Disability shall be final and binding upon the Company and Grantee.
(v) OTHER TERMINATION. If Grantee's Employment is Terminated for Cause, then the Option shall terminate upon the date of such Termination of Employment. If Grantee's Employment is Terminated for any reason other than (A) Retirement, (B) without Cause by the Company, (C) death, (D) Permanent Disability or (E) for Cause, then the Option (including any vested and unvested portions) shall terminate upon the date of such Termination of Employment, unless an IPO has occurred, in which case the vested portion of the Option shall terminate thirty (30) days after the date of such Termination of Employment.
(b) ACCELERATION OF OPTION. In addition to the provisions of Section
2(a)(iii)(B), the Committee, in its sole discretion, may accelerate the
exercisability of the Option at any time and for any reason.
(c) OTHER EVENTS CAUSING TERMINATION OF OPTION. Notwithstanding anything to the contrary in this Agreement, the Option shall terminate upon the consummation of any of the following events, or, if later, the thirtieth day following the first date upon which such event shall have been approved by both the Board and the stockholders of the Company:
(i) the dissolution or liquidation of the Company; or
(ii) a sale of substantially all of the property and assets of the Company, unless the terms of such sale shall provide otherwise;
provided that in connection with such transaction the Company shall pay to Grantee in cash an amount equal to the excess of the Fair Market Value (on the date of the applicable corporate transaction) of the Option Shares subject to the then-unexercised vested portion of the Option over the exercise price of such portion of the Option, unless, in the event of a sale of substantially all of the property and assets of the Company, the acquiring corporation has granted substitute options to purchase its shares on such terms and conditions as shall substantially preserve the rights and economic benefits of the Option.
3. ADJUSTMENTS. Subject to Section 7 of the Plan, in the event that the outstanding securities of the class then subject to the Option are increased, decreased or exchanged for or converted into cash, property and/or a different number or kind of securities, or if cash, property and/or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, merger, consolidation, recapitalization, reclassification, dividend (other than a regular, quarterly cash dividend) or other distribution, stock split, reverse stock split or the like, or in the event that substantially all of the property and assets of the Company are sold, then, unless such event shall cause the Option to terminate pursuant to Section 2(c) hereof or unless the terms of the transaction shall provide otherwise, the Committee shall make appropriate and proportionate adjustments in the number and type of shares or other securities or cash or other property that may thereafter be acquired upon the exercise of the Option; PROVIDED, HOWEVER, that any such adjustments in the Option shall be made without changing the
aggregate Exercise Price of the then unexercised portion of the Option; and PROVIDED, FURTHER, that no adjustments under this Section 3 shall be made in connection with the IPO or transactions contemplated thereby, unless the Committee shall determine that appropriate adjustments shall be made.
4. EXERCISE.
(a) The Option shall be exercisable during Grantee's lifetime only by Grantee or by his or her guardian or legal representative, and after Grantee's death only by the person or entity entitled to do so under Grantee's last will and testament or applicable intestate law. The Option may only be exercised by the delivery to the Company of a written notice of such exercise, which notice shall specify the number of Option Shares to be purchased (the "Purchased Shares") and the aggregate Exercise Price for such shares (the "Exercise Notice"), together with payment in full of such aggregate Exercise Price in cash or by check payable to the Company; PROVIDED, HOWEVER, that payment of such aggregate Exercise Price may instead be made, in whole or in part, by the delivery to the Company of a certificate or certificates representing shares of Common Stock, duly endorsed or accompanied by a duly executed stock powers, which delivery effectively transfers to the Company good and valid title to such shares, free and clear of any pledge, commitment, lien, claim or other encumbrance (such shares to be valued on the basis of the aggregate Fair Market Value (as defined in the Plan) thereof on the date of such exercise), provided that the Company is not then prohibited from purchasing or acquiring such shares of Common Stock.
(b) If required by the Company, at the time of exercise, Grantee
shall give to the Company satisfactory assurance in writing, signed by Grantee
or his or her legal representative, as the case may be, that such shares are
being purchased for investment only and not with a view to the distribution
thereof, provided, however, that such assurance shall be deemed inapplicable to
(i) any sale of such shares by Grantee subject to a registration statement
covering such sale, which has heretofore been (or may hereafter be) filed and
become effective under the Securities Act of 1933, as amended (the "Securities
Act"), and is current and with respect to which no stop order suspending the
effectiveness thereof has been issued, and (ii) any other sale of such shares
with respect to which, in the opinion of counsel for the Company, such assurance
is not required to be given in order to comply with the provisions of the
Securities Act.
5. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated to
withhold an amount on account of any tax imposed as a result of the exercise of
the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., Medicare, state disability insurance tax or other
employment tax, then Grantee shall, upon request of the Company but no later
than the first day upon which the Company becomes obligated to pay such amount
to the appropriate taxing authority, pay such amount to the Company in cash or
by check payable to the Company. Notwithstanding anything to the contrary in
Section 4, Grantee's rights to exercise any Option, and any transfer of Common
Stock to Grantee pursuant to the exercise of any Option, are conditioned upon
the payment in full by Grantee of the amounts determined by the Company to be
due hereunder.
6. NOTICES. All notices and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed given if delivered personally or five days after mailing by certified or registered mail, postage prepaid, return receipt requested, to the Company in care of its Secretary at the principal executive offices of the Company, or to Grantee at the address set forth beneath his or her signature on the signature page hereto, or at such other addresses as Grantee may designate by written notice in the manner aforesaid.
7. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS. Notwithstanding anything to the contrary in this Agreement, no shares of stock purchased upon exercise of the Option, and no certificate representing all or any part of such shares, shall be issued or delivered if: (a) such shares have not been admitted to listing upon official notice of issuance on each stock exchange upon which shares of that class are then listed; (b) in the opinion of counsel to the Company, such issuance or delivery would cause the Company to be in violation of or to incur liability under any federal, state or other securities law, or any requirement of any stock exchange listing agreement to which the Company is a party, or any other requirement of law or of any administrative or regulatory body having jurisdiction over the Company; or (c) at the time of that issuance or delivery the Company is an electing and qualifying S Corporation, and, in the opinion of counsel to the Company, such issuance or delivery might reasonably be expected to cause the termination or revocation of the Company's status as an S Corporation, and all of the shareholders of the Company have not approved such issuance or delivery. Notwithstanding the provisions of Section 8, in no event shall Grantee be permitted to transfer (as defined in Section 8) the Option or any shares of stock purchased upon exercise of the Option to any person or entity if, at the time of such proposed transfer, the Company is an electing and qualifying S Corporation, and, in the opinion of counsel to the Company, such proposed transfer might reasonably be expected to cause the termination or revocation of the Company's status as an S Corporation, and all of the shareholders of the Company have not approved such transfer.
8. NONTRANSFERABILITY. Neither the Option nor any interest therein may be transferred in any manner by the Grantee to any person or entity other than by will or the laws of descent and distribution. For purposes of this Paragraph 8, the term "transfer" shall mean and include any form of sale, exchange, gift, disposition, alienation, assignment, pledge, hypothecation, encumbrance, levy of attachment, levy of execution, conveyance in connection with bankruptcy proceedings, conveyance upon divorce, and/or any other conveyance of any kind, including both voluntary and involuntary conveyances, and also including conveyances by operation of law. In the event of any attempt by Grantee to transfer the Option or any right hereunder except as provided for herein, the Option shall thereupon become null and void and of no effect. Notwithstanding the foregoing, under such rules and regulations as the Board or the Committee may establish pursuant to the terms of the Plan, a beneficiary may be designated with respect to the Option in the event of the death of Grantee.
9. PLAN. The Option is granted pursuant to the Plan, as in effect on the Date of Grant, and is subject to all the terms and conditions of the Plan, as the same may be amended from time to time; PROVIDED, HOWEVER, that no such amendment shall deprive Grantee, without his or her consent, of the Option or of any of Grantee's rights under this Agreement. The interpretation and construction by the Committee of the Plan, this Agreement, the Option and such rules and regulations as may be adopted by the Committee for the purpose of administering the Plan shall be final and binding upon Grantee. Until the Option shall expire, terminate or be exercised in full, the Company shall, upon written request therefor, send a copy of the Plan, in its then-current form, to Grantee or any other person or entity then entitled to exercise the Option.
10. STOCKHOLDER RIGHTS. No person or entity shall be entitled to vote, receive dividends or be deemed for any purpose the holder of any Option Shares until the Option shall have been duly exercised to purchase such Option Shares in accordance with the provisions of this Agreement.
11. EMPLOYMENT OR CONTRACT RIGHTS. No provision of this Agreement or of the Option granted hereunder shall (a) confer upon Grantee any right to continue in the employ of the Company or any of its subsidiaries, (b) affect the right of the Company and each of its subsidiaries to terminate the employment of Grantee, with or without Cause, or (c) confer upon Grantee any right to participate in any employee welfare or benefit plan or other program of the Company or any of its subsidiaries other than
the Plan. Nothing herein shall limit Grantee's right to terminate his or her employment. GRANTEE HEREBY ACKNOWLEDGES AND AGREES THAT THE COMPANY AND EACH OF IT'S SUBSIDIARIES MAY TERMINATE THE EMPLOYMENT OF GRANTEE AT ANY TIME AND FOR ANY REASON, OR FOR NO REASON, UNLESS GRANTEE AND THE COMPANY OR SUCH SUBSIDIARY ARE PARTIES TO A WRITTEN EMPLOYMENT AGREEMENT THAT EXPRESSLY PROVIDES OTHERWISE.
12. PARTICIPATION IN OTHER PLANS. Nothing herein contained shall affect Grantee's right to participate in and receive benefits from and in accordance with the then current provisions of any pension, insurance, or other stock option or employment welfare plan or program of the Company.
13. BINDING EFFECT OF AGREEMENT. Except as set forth in Section 8 hereof, this Agreement shall be binding upon and inure to the benefit of any successors or assigns of the Company or Grantee.
14. MISCELLANEOUS.
(a) WAIVER. No waiver of any right or obligation of either party under this Agreement shall be effective unless in a writing, specifying such waiver, executed by the party against which such waiver is being enforced. A waiver by either party hereto of any of its rights under this Agreement on any occasion shall not be a bar to the exercise of the same right on any subsequent occasion or of any other right at any time.
(b) AMENDMENT OR MODIFICATION. This Agreement may be amended, altered, or modified only by a writing, specifying such amendment, alteration or modification, executed by the party against which it is being enforced.
(c) GOVERNING LAW. This Agreement and the Option granted hereunder shall be governed by and construed and enforced in accordance with the laws of the State of Oregon without reference to choice or conflict of law principles.
(d) COMPLETE AGREEMENT. This Agreement, along with the Plan, constitutes the complete understanding of the parties hereto regarding the subject matter thereof and supersedes all prior or contemporaneous agreements of the parties, whether written or oral, with respect to such subject matter.
(e) ATTORNEYS' FEES. In the event a suit, arbitration or other proceeding is brought to enforce or interpret any provision of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees to be fixed in amount by the court or the arbitrator(s) (including without limitation, costs, expenses and fees on any appeal). The prevailing party will be entitled to recover its costs of suit, arbitration or other proceeding, regardless of whether such suit, arbitration or other proceeding proceeds to a final judgment or award.
IN WITNESS WHEREOF, the Company and Grantee have duly executed this Agreement as of the Date of Grant.
LITHIA MOTORS, INC.
GRANTEE:
EXHIBIT 10.2.2
[POST-IPO]
LITHIA MOTORS, INC.
1996 STOCK INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into as of the Date of Grant indicated below by and between Lithia Motors, Inc., an Oregon corporation (the "Company"), and the person named below as Grantee.
WHEREAS, Grantee is an employee or consultant of the Company and/or one or more of its subsidiaries; and
WHEREAS, pursuant to the Company's 1996 Stock Incentive Plan (the "Plan"), the committee of the Board of Directors of the Company administering the Plan (the "Committee") has approved the grant to Grantee of an option to purchase shares of the Class A Common Stock of the Company, no par value (the "Common Stock"), on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the covenants set forth herein, the parties hereto hereby agree as follows:
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company hereby grants to Grantee, and Grantee hereby accepts, as of the Date of Grant, an option to purchase the number of shares of Common Stock indicated below (the "Option Shares") at the Exercise Price per share indicated below, which option shall expire at 5:00 o'clock p.m., Oregon time, on the Expiration Date indicated below and shall be subject to all of the terms and conditions set forth in this Agreement (the "Option"). On each anniversary of the Date of Grant, the Option shall become exercisable to purchase, and shall vest with respect to, that number of Option Shares (rounded to the nearest whole share) equal to the total number of Option Shares multiplied by the Annual Vesting Rate indicated below.
The Option is NOT intended to qualify as an incentive stock option under Section 422 of the Internal Revenue Code (an "Incentive Stock Option").
2. ACCELERATION AND TERMINATION OF OPTION.
(a) TERMINATION OF EMPLOYMENT.
(i) TERMINATION WITHIN ONE YEAR AFTER CHANGE OF CONTROL. In the event that Grantee shall cease to be an employee or independent sales representative of the Company or any of its subsidiaries (such event shall be referred to herein as the "Termination" of Grantee's "Employment") for any reason, or for no reason, within one year after a Change of Control (as hereinafter defined), then (A) the portion of the Option that has not vested on or prior to the date of such Termination of Employment shall fully vest on such date and (B) the Option shall terminate upon the earlier of the Expiration Date or the first anniversary of the date of such Termination of Employment. "Change of Control" shall mean the first to occur of the following events:
(A) any date upon which the directors of the Company who were last nominated by the Board of Directors (the "Board") for election as directors cease to constitute a majority of the directors of the Company;
(B) the date of the first public announcement that any person or entity, together with all Affiliates and Associates (as such capitalized terms are defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such person or entity, shall have become the Beneficial Owner (as defined in Rule 13d-3 promulgated under the Exchange Act) of voting securities of the Company representing 25% or more of the voting power of the Company (a "25% Stockholder"), provided, however, that the terms "person" and "entity," as used in this clause (B), shall not include (1) the Company or any of its subsidiaries, (2) any employee benefit plan of the Company or any of its subsidiaries, (3) any entity holding voting securities of the Company for or pursuant to the terms of any such plan, (4) any person or entity if the transaction that resulted in such person or entity becoming a 25% Stockholder was approved in advance by the Board or (5) any person or entity who was a 25% Stockholder on the date of adoption of the Plan by the Board; or
(C) a reorganization, merger or consolidation of the Company (other than a reorganization, merger or consolidation the sole purpose of which is to change the Company's domicile solely within the United States) the consummation of which results in the outstanding securities of any class then subject to the Option being exchanged for or converted into cash, property and/or a different kind of securities.
(ii) RETIREMENT. If Grantee's Employment is Terminated by reason of Grantee's retirement in accordance with the@ Company's then-current retirement policy ("Retirement"), and a Change of Control shall not have occurred within one year prior thereto, then (A) the portion of the Option that has not vested on or prior to the date of such Retirement shall terminate on such date and (B) the remaining vested portion of the Option shall terminate three months after the date Grantee's Employment is Terminated.
(iii) WITHOUT CAUSE. If Grantee's Employment is Terminated by the
Company without "Cause" as defined below), then (A) if Sidney B. DeBoer is the
Chairman, President or Chief Executive Officer of the Company at the time of
such Termination, the Option shall terminate upon the date of such Termination
of Employment, or (B) if Sidney B. DeBoer is not the Chairman, President or
Chief Executive Officer of the Company at the time of such Termination, the
Option shall become exercisable to purchase, and shall vest with respect to, all
of the Option Shares on the date of such Termination of Employment and shall
terminate three months after the date of Termination. For purposes of this
Section 2(a)(iii), "Cause" shall mean Grantee's fraudulent or criminal behavior,
willful
misconduct, insubordination or violation of any duty of loyalty if the Chairman, President, Chief Executive Officer, Board of Directors or Committee determines, in its sole judgment, that such behavior, misconduct, insubordination or violation has, or can be expected to have, an adverse effect on the Company or any of its subsidiaries or any of their respective businesses.
(iv) DEATH OR PERMANENT DISABILITY. If Grantee's Employment is Terminated by reason of the death or Permanent Disability (as hereinafter defined) of Grantee, and a Change of Control shall not have occurred within one year prior thereto, then (A) the portion of the Option that has not vested on or prior to the date of such Termination of Employment shall terminate on such date and (B) the remaining vested portion of the Option shall terminate upon the earlier of the Expiration Date or the first anniversary of the date of such Termination of Employment. "Permanent Disability" shall mean the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months. Grantee shall not be deemed to have a Permanent Disability until proof of the existence thereof shall have been furnished to the Board in such form and manner, and at such times, as the Board may require. Any determination by the Board that Grantee does or does not have a Permanent Disability shall be final and binding upon the Company and Grantee.
(v) OTHER TERMINATION. If Grantee's Employment is Terminated for Cause, then the Option shall terminate upon the date of such Termination of Employment. If Grantee's Employment is Terminated for any reason other than (A) Retirement, (B) death, (C) Permanent Disability or (D) for Cause by the Company, and a Change of Control shall not have occurred within one year prior thereto, then (X) the portion of the Option that has not vested on or prior to the date of such Termination of Employment shall terminate on such date and (Y) the remaining vested portion of the Option shall terminate thirty (30) days after the date of such Termination of Employment.
(b) OTHER EVENTS CAUSING ACCELERATION OF OPTION.
(i) Notwithstanding the other terms of the Option, the Option shall become fully exercisable with respect to all Shares covered hereby upon the first to occur of the following:
(A) the date of dissemination to the stockholders of the Company of a proxy statement seeking stockholder approval of a reorganization, merger or consolidation of the Company as a result of which the outstanding securities of the class then subject to the Plan are exchanged for or converted into cash, property and/or securities not issued by the Company, unless such reorganization, merger or consolidation shall have been affirmatively recommended to the stockholders of the Company by the Board;
(B) the first date upon which the directors of the Company who were last nominated by the Board for election as directors shall cease to constitute a majority of the authorized number of directors of the Company; or
(C) the date of dissemination to the stockholders of the Company of a proxy statement disclosing a change of control (as defined by the Company) of the Company.
(ii) The Committee, in its sole discretion, may accelerate the exercisability of the Option at any time and for any reason.
(c) OTHER EVENTS CAUSING TERMINATION OF OPTION. Notwithstanding anything to the contrary in this Agreement, the Option shall terminate upon the consummation of any of the following
events, or, if later, the thirtieth day following the first date upon which such event shall have been approved by both the Board and the stockholders of the Company:
(i) the dissolution or liquidation of the Company; or
(ii) a sale of substantially all of the property and assets of the Company, unless the terms of such sale shall provide otherwise;
provided that in connection with such transaction the Company shall pay to Grantee in cash an amount equal to the excess of the Fair Market Value (on the date of the applicable corporate transaction) of the Option Shares subject to the then-unexercised vested portion of the Option over the exercise price of such portion of the Option, unless, in the event of a sale of substantially all of the property and assets of the Company, the acquiring corporation has granted substitute options to purchase its shares on such terms and conditions as shall substantially preserve the rights and economic benefits of the Option.
3. ADJUSTMENTS. Subject to Section 7 of the Plan, in the event that the outstanding securities of the class then subject to the Option are increased, decreased or exchanged for or converted into cash, property and/or a different number or kind of securities, or if cash, property and/or securities are distributed in respect of such outstanding securities, in either case as a result of a reorganization, merger, consolidation, recapitalization, reclassification, dividend (other than a regular, quarterly cash dividend) or other distribution, stock split, reverse stock split or the like, or in the event that substantially all of the property and assets of the Company are sold, then, unless such event shall cause the Option to terminate pursuant to Section 2(c) hereof or unless the terms of the transaction shall provide otherwise, the Committee shall make appropriate and proportionate adjustments in the number and type of shares or other securities or cash or other property that may thereafter be acquired upon the exercise of the Option; PROVIDED, HOWEVER, that any such adjustments in the Option shall be made without changing the aggregate Exercise Price of the then unexercised portion of the Option.
4. EXERCISE.
(a) The Option shall be exercisable during Grantee's lifetime only by Grantee or by his or her guardian or legal representative, and after Grantee's death only by the person or entity entitled to do so under Grantee's last will and testament or applicable intestate law. The Option may only be exercised by the delivery to the Company of a written notice of such exercise, which notice shall specify the number of Option Shares to be purchased (the "Purchased Shares") and the aggregate Exercise Price for such shares (the "Exercise Notice"), together with payment in full of such aggregate Exercise Price in cash or by check payable to the Company; PROVIDED, HOWEVER, that payment of such aggregate Exercise Price may instead be made, in whole or in part, by the delivery to the Company of a certificate or certificates representing shares of Common Stock, duly endorsed or accompanied by a duly executed stock powers, which delivery effectively transfers to the Company good and valid title to such shares, free and clear of any pledge, commitment, lien, claim or other encumbrance (such shares to be valued on the basis of the aggregate Fair Market Value (as defined in the Plan) thereof on the date of such exercise), provided that the Company is not then prohibited from purchasing or acquiring such shares of Common Stock.
(b) If required by the Company, at the time of exercise, Grantee
shall give to the Company satisfactory assurance in writing, signed by Grantee
or his or her legal representative, as the case may be, that such shares are
being purchased for investment only and not with a view to the distribution
thereof; provided, however, that such assurance shall be deemed inapplicable to
(i) any sale
of such shares by Grantee subject to a registration statement covering such sale, which has heretofore been (or may hereafter be) filed and become effective under the Securities Act of 1933, as amended (the "Securities Act"), and is current and with respect to which no stop order suspending the effectiveness thereof has been issued, and (ii) any other sale of such shares with respect to which, in the opinion of counsel for the Company, such assurance is not required to be given in order to comply with the provisions of the Securities Act.
5. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated to
withhold an amount on account of any tax imposed as a result of the exercise of
the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., Medicare, state disability insurance tax or other
employment tax, then Grantee shall, upon request of the Company but no later
than the first day upon which the Company becomes obligated to pay such amount
to the appropriate taxing authority, pay such amount to the Company in cash or
by check payable to the Company. Notwithstanding anything to the contrary in
Section 4, Grantee's rights to exercise any Option, and any transfer of Common
Stock to Grantee pursuant to the exercise of any Option, are conditioned upon
the payment in full by Grantee of the amounts determined by the Company to be
due hereunder.
6. NOTICES. All notices and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed given if delivered personally or five days after mailing by certified or registered mail, postage prepaid, return receipt requested, to the Company in care of its Secretary at the principal executive offices of the Company, or to Grantee at the address set forth beneath his or her signature on the signature page hereto, or at such other addresses as Grantee may designate by written notice in the manner aforesaid.
7. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS. Notwithstanding anything to the contrary in this Agreement, no shares of stock purchased upon exercise of the Option, and no certificate representing all or any part of such shares, shall be issued or delivered if (a) such shares have not been admitted to listing upon official notice of issuance on each stock exchange upon which shares of that class are then listed or (b) in the opinion of counsel to the Company, such issuance or delivery would cause the Company to be in violation of or to incur liability under any federal, state or other securities law, or any requirement of any stock exchange listing agreement to which the Company is a party, or any other requirement of law or of any administrative or regulatory body having jurisdiction over the Company.
8. NONTRANSFERABILITY. Neither the Option nor any interest therein may be transferred in any manner by the Grantee to any person or entity other than by will or the laws of descent and distribution. For purposes of this Paragraph 8, the term "transfer" shall mean and include any form of sale, exchange, gift, disposition, alienation, assignment, pledge, hypothecation, encumbrance, levy of attachment, levy of execution, conveyance in connection with bankruptcy proceedings, conveyance upon divorce, and/or any other conveyance of any kind, including both voluntary and involuntary conveyances, and also including conveyances by operation of law. In the event of any attempt by Grantee to transfer the Option or any right hereunder except as provided for herein, the Option shall thereupon become null and void and of no effect. Notwithstanding the foregoing, under such rules and regulations as the Board or the Committee may establish pursuant to the terms of the Plan, a beneficiary may be designated with respect to the Option in the event of the death of Grantee.
9. PLAN. The Option is granted pursuant to the Plan, as in effect on the Date of Grant, and is subject to all the terms and conditions of the Plan, as the same may be amended from time to time; PROVIDED, HOWEVER, that no such amendment shall deprive Grantee, without his or her consent, of the Option or of any of Grantee's rights under this Agreement. The interpretation and construction by the Committee of the Plan, this Agreement, the Option and such rules and regulations as may be adopted by
the Committee for the purpose of administering the Plan shall be final and binding upon Grantee. Until the Option shall expire, terminate or be exercised in full, the Company shall, upon written request therefor, send a copy of the Plan, in its then-current form, to Grantee or any other person or entity then entitled to exercise the Option.
10. STOCKHOLDER RIGHTS. No person or entity shall be entitled to vote, receive dividends or be deemed for any purpose the holder of any Option Shares until the Option shall have been duly exercised to purchase such Option Shares in accordance with the provisions of this Agreement.
11. EMPLOYMENT OR CONTRACT RIGHTS. No provision of this Agreement or of
the Option granted hereunder shall (a) confer upon Grantee any right to continue
in the employ of or contract with the Company or any of its subsidiaries, (b)
affect the right of the Company and each of its subsidiaries to terminate the
employment or contract of Grantee, with or without cause, or (c) confer upon
Grantee any right to participate in any employee welfare or benefit plan or
other program of the Company or any of its subsidiaries other than the Plan.
Nothing herein shall limit Grantee's right to terminate his or her employment.
GRANTEE HEREBY ACKNOWLEDGES AND AGREES THAT THE COMPANY AND EACH OF IT'S
SUBSIDIARIES MAY TERMINATE THE EMPLOYMENT OR CONTRACT OF GRANTEE AT ANY TIME AND
FOR ANY REASON, OR FOR NO REASON, UNLESS GRANTEE AND THE COMPANY OR SUCH
SUBSIDIARY ARE PARTIES TO A WRITTEN EMPLOYMENT OR INDEPENDENT SALES
REPRESENTATIVE AGREEMENT THAT EXPRESSLY PROVIDES OTHERWISE.
12. PARTICIPATION IN OTHER PLANS. Nothing herein contained shall affect Grantee's right to participate in and receive benefits from and in accordance with the then current provisions of any pension, insurance, or other stock option or employment welfare plan or program of the Company.
13. BINDING EFFECT OF AGREEMENT. Except as set forth in Section 8 hereof, this Agreement shall be binding upon and inure to the benefit of any successors or assigns of the Company or Grantee.
14. MISCELLANEOUS.
(a) WAIVER. No waiver of any right or obligation of either party under this Agreement shall be effective unless in a writing, specifying such waiver, executed by the party against which such waiver is being enforced. A waiver by either party hereto of any of its rights under this Agreement on any occasion shall not be a bar to the exercise of the same right on any subsequent occasion or of any other right at any time.
(b) AMENDMENT OR MODIFICATION. This Agreement may be amended, altered, or modified only by a writing, specifying such amendment, alteration or modification, executed by the party against which it is being enforced.
(c) GOVERNING LAW. This Agreement and the Option granted hereunder shall be governed by and construed and enforced in accordance with the laws of the State of Oregon without reference to choice or conflict of law principles.
(d) COMPLETE AGREEMENT. This Agreement, along with the Plan, constitutes the complete understanding of the parties hereto regarding the subject matter thereof and supersedes all prior or contemporaneous agreements of the parties, whether written or oral, with respect to such subject matter.
(e) ATTORNEYS' FEES. In the event a suit, arbitration or other proceeding is brought to enforce or interpret any provision of this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees to be fixed in amount by the court or the arbitrator(s) (including without limitation, costs, expenses and fees on any appeal). The prevailing party will be entitled to recover its costs of suit, arbitration or other proceeding, regardless of whether such suit, arbitration or other proceeding proceeds to a final judgment or award.
IN WITNESS WHEREOF, the Company and Grantee have duly executed this Agreement as of the Date of Grant.
LITHIA MOTORS, INC.
GRANTEE:
EXHIBIT 10.2.3
[POST-IPO]
LITHIA MOTORS INC.
1996 STOCK INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered into as of the Date of Grant indicated below by and between Lithia Motors, Inc., an Oregon corporation (the "Company"), and the person named below as Grantee.
WHEREAS, Grantee is an employee of the Company and/or one or more of its subsidiaries; and
WHEREAS, pursuant to the Company's 1996 Stock Incentive Plan (the "Plan"), the committee of the Board of Directors of the Company administering the Plan (the "Committee") has approved the grant to Grantee of an option to purchase shares of the Class A Common Stock of the Company, no par value (the "Common Stock"), on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and the covenants set forth herein, the parties hereto hereby agree as follows:
1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company hereby grants to Grantee, and Grantee hereby accepts, as of the Date of Grant, an option to purchase the number of shares of Common Stock indicated below (the "Option Shares") at the Exercise Price per share indicated below, which option shall expire at 5:00 o'clock p.m., Oregon time, on the Expiration Date indicated below and shall be subject to all of the terms and conditions set forth in this Agreement (the "Option"). On each anniversary of the Date of Grant, the Option shall become exercisable to purchase, and shall vest with respect to, that number of Option Shares (rounded to the nearest whole share) equal to the total number of Option Shares multiplied by the Annual Vesting Rate indicated below.
Grantee:
-------------------------
Date of Grant: , 1996
--------------- ------
Number of shares purchasable:
---------------------------
Exercise Price per share:
----------------------------
Expiration Date: , 2004
--------------- ------
Annual Vesting Rate: %
---------------------------
|
The Option is intended to qualify as an incentive stock option (an "Incentive Stock Option") under Section 422 of the Internal Revenue Code (the "Code") and consequently, notwithstanding anything herein to the contrary:
(a) the Expiration Date shall not be more than 10 years
from the Date of Grant and the Exercise Price per share shall not be less than the Fair Market Value (as defined in the Plan) per share on the Date of Grant; PROVIDED, HOWEVER, that if, on the Date of Grant, Grantee owns (after application of the family and other attribution rules of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporations, then the Expiration Date shall not be more than five years from the Date of Grant and the Exercise Price per share shall not be less than 110% of the Fair Market Value per share on the Date of Grant; and
(b) the aggregate Fair Market Value (determined as of the date such options are granted) of the shares of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by Grantee during any calendar year (under the Plan and all other stock option plans of the Company and its parent and subsidiary corporations) shall not exceed $100,000.
2. ACCELERATION AND TERMINATION OF OPTION.
(a) TERMINATION OF EMPLOYMENT.
(i) TERMINATION WITHIN ONE YEAR AFTER CHANGE OF CONTROL. In the event that Grantee shall cease to be an employee of the Company or any of its subsidiaries (such event shall be referred to herein as the "Termination" of Grantee's "Employment") for any reason, or for no reason, within one year after a Change of Control (as hereinafter defined), then (A) the portion of the Option that has not vested on or prior to the date of such Termination of Employment shall fully vest on such date and (B) the Option shall terminate upon the earlier of the Expiration Date or the first anniversary of the date of such Termination of Employment. "Change of Control" shall mean the first to occur of the following events:
(A) any date upon which the directors of the Company who were last nominated by the Board of Directors (the "Board") for election as directors cease to constitute a majority of the directors of the Company;
(B) the date of the first public announcement that any person or entity, together with all Affiliates and Associates (as such capitalized terms are defined in Rule 12b-2 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of such person or entity, shall have become the Beneficial Owner (as defined in Rule 13d-3 promulgated under the Exchange Act) of voting securities of the Company representing 25% or more of the voting power of the Company (a "25% Stockholder"), provided, however, that the terms "person" and "entity," as used in this clause (B), shall not include (1) the Company or any of its subsidiaries, (2) any employee benefit plan of the Company or any of its subsidiaries, (3) any entity holding voting securities of the Company for or pursuant to the terms of any such plan, (4) any person or entity if the transaction that resulted in such person or entity becoming a 25% Stockholder was approved in advance by the Board or (5) any person or entity who was a 25% Stockholder on the date of adoption of the Plan by the Board; or
(C) a reorganization, merger or consolidation of the Company (other than a reorganization, merger or consolidation the sole purpose of which is to change the Company's domicile solely within the United States) the consummation of which results in the outstanding securities of any class then subject to the Option being exchanged for or converted into cash, property and/or a different kind of securities.
(ii) RETIREMENT. If Grantee's Employment is Terminated by reason of Grantee's retirement in accordance with the Company's then-current retirement policy ("Retirement"), and a Change of Control shall not have occurred within one year prior thereto, then (A) the portion of the Option that has not vested on or prior to the date of such Retirement shall terminate on such date and (B) the remaining vested portion of the Option shall terminate three months after the date Grantee's Employment is Terminated.
(iii) WITHOUT CAUSE. If Grantee's Employment is Terminated by the
Company without "Cause" (as defined below), then (A) if Sidney B. DeBoer is the
Chairman, President or Chief Executive Officer of the Company at the time of
such Termination, the Option shall terminate upon the date of such Termination
of Employment, or (B) if Sidney B. DeBoer is not the Chairman, President or
Chief Executive Officer of the Company at the time of such Termination, the
Option shall become exercisable to purchase, and shall vest with respect to, all
of the Option Shares on the date of such Termination of Employment and shall
terminate three months after the date of Termination. For purposes of this
Section 2(a)(iii), "Cause" shall mean Grantee's fraudulent or criminal behavior,
willful misconduct, insubordination or violation of any duty of loyalty if the
Chairman, President, Chief Executive Officer, Board of Directors or Committee
determines, in its sole judgment, that such behavior, misconduct,
insubordination or violation has, or can be expected to have, an adverse effect
on the Company or any of its subsidiaries or any of their respective businesses.
(iv) DEATH OR PERMANENT DISABILITY. If Grantee's Employment is Terminated by reason of the death or Permanent Disability (as hereinafter defined) of Grantee, and a Change of Control shall not have occurred within one year prior thereto, then (A) the portion of the Option that has not vested on or prior to the date of such Termination of Employment shall terminate on such date and (B) the remaining vested portion of the Option shall terminate upon the earlier of the Expiration Date or the first anniversary of the date of such Termination of Employment. "Permanent Disability" shall mean the inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than 12 months. Grantee shall not be deemed to have a Permanent Disability until proof of the existence thereof shall have been furnished to the Board in such form and manner, and at such times, as the Board may require. Any determination by the Board that Grantee does or does not have a Permanent Disability shall be final and binding upon the Company and Grantee.
(v) OTHER TERMINATION. If Grantee's Employment is Terminated for Cause, then the Option shall terminate upon the date of such Termination of Employment. If Grantee's Employment is Terminated for any reason other than (A) Retirement, (B) death, (C) Permanent Disability or (D) for Cause by the Company, and a Change of Control shall not have occurred within one year prior thereto, then (X) the portion of the Option that has not vested on or prior to the date of such Termination of Employment shall terminate on such date and (Y) the remaining vested portion of the Option shall terminate thirty (30) days after the date of such Termination of Employment.
(b) OTHER EVENTS CAUSING ACCELERATION OF OPTION.
(i) Notwithstanding the other terms of the Option, the Option shall become fully exercisable with respect to all Shares covered hereby upon the first to occur of the following:
(A) the date of dissemination to the stockholders of the Company of a proxy statement seeking stockholder approval of a reorganization, merger or consolidation of the Company as a result of which the outstanding securities of the class then subject to the Plan are
exchanged for or converted into cash, property and/or securities not issued by the Company, unless such reorganization, merger or consolidation shall have been affirmatively recommended to the stockholders of the Company by the Board;
(B) the first date upon which the directors of the Company who were last nominated by the Board for election as directors shall cease to constitute a majority of the authorized number of directors of the Company; or
(C) the date of dissemination to the stockholders of the Company of a proxy statement disclosing a change of control (as defined by the Company) of the Company.
(ii) The Committee, in its sole discretion, may accelerate the exercisability of the Option at any time and for any reason.
(c) OTHER EVENTS CAUSING TERMINATION OF OPTION. Notwithstanding anything to the contrary in this Agreement, the Option shall terminate upon the consummation of any of the following events, or, if later, the thirtieth day following the first date upon which such event shall have been approved by both the Board and the stockholders of the Company:
(i) the dissolution or liquidation of the Company; or
(ii) a sale of substantially all of the property and assets of the Company, unless the terms of such sale shall provide otherwise;
provided that in connection with such transaction the Company shall pay to Grantee in cash an amount equal to the excess of the Fair Market Value (on the date of the applicable corporate transaction) of the Option Shares subject to the then-unexercised vested portion of the Option over the exercise price of such portion of the Option, unless, in the event of a sale of substantially all of the property and assets of the Company, the acquiring corporation has granted substitute options to purchase its shares on such terms and conditions as shall substantially preserve the rights and economic benefits of the Option.
3. ADJUSTMENTS. Subject to Section 7 of the Plan, in the event that the
outstanding securities of the class then subject to the Option are increased,
decreased or exchanged for or converted into cash, property and/or a different
number or kind of securities, or if cash, property and/or securities are
distributed in respect of such outstanding securities, in either case as a
result of a reorganization, merger, consolidation, recapitalization,
reclassification, dividend (other than a regular, quarterly cash dividend) or
other distribution, stock split, reverse stock split or the like, or in the
event that substantially all of the property and assets of the Company are sold,
then, unless such event shall cause the Option to terminate pursuant to
Section 2(c) hereof or unless the terms of the transaction shall provide
otherwise, the Committee shall make appropriate and proportionate adjustments in
the, number and type of shares or other securities or cash or other property
that may thereafter be acquired upon the exercise of the Option; PROVIDED,
HOWEVER, that any such adjustments in the Option shall be made without changing
the aggregate Exercise Price of the then unexercised portion of the Option.
4. EXERCISE.
(a) The Option shall be exercisable during Grantee's lifetime only by Grantee or by his or her guardian or legal representative, and after Grantee's death only by the person or entity entitled to do so under Grantee's last will and testament or applicable intestate law. The Option may only be exercised by the delivery to the Company of a written notice of such exercise, which notice shall specify
the number of Option Shares to be purchased (the "Purchased Shares") and the aggregate Exercise Price for such shares (the "Exercise Notice"), together with payment in full of such aggregate Exercise Price in cash or by check payable to the Company; PROVIDED, HOWEVER, that payment of such aggregate Exercise Price may instead be made, in whole or in part, by the delivery to the Company of a certificate or certificates representing shares of Common Stock, duly endorsed or accompanied by a duly executed stock powers, which delivery effectively transfers to the Company good and valid title to such shares, free and clear of any pledge, commitment, lien, claim or other encumbrance (such shares to be valued on the basis of the aggregate Fair Market Value (as defined in the Plan) thereof on the date of such exercise), provided that the Company is not then prohibited from purchasing or acquiring such shares of Common Stock.
(b) If required by the Company, at the time of exercise, Grantee
shall give to the Company satisfactory assurance in writing, signed by Grantee
or his or her legal representative, as the case may be, that such shares are
being purchased for investment only and not with a view to the distribution
thereof; provided, however, that such assurance shall be deemed inapplicable to
(i) any sale of such shares by Grantee subject to a registration statement
covering such sale, which has heretofore been (or may hereafter be) filed and
become effective under the Securities Act of 1933, as amended (the "Securities
Act"), and is current and with respect to which no stop order suspending the
effectiveness thereof has been issued, and (ii) any other sale of such shares
with respect to which, in the opinion of counsel for the Company, such assurance
is not required to be given in order to comply with the provisions of the
Securities Act.
5. PAYMENT OF WITHHOLDING TAXES. If the Company becomes obligated to
withhold an amount on account of any tax imposed as a result of the exercise of
the Option, including, without limitation, any federal, state, local or other
income tax, or any F.I.C.A., Medicare, state disability insurance tax or other
employment tax, then Grantee shall, upon request of the Company but no later
than the first day upon which the Company becomes obligated to pay such amount
to the appropriate taxing authority, pay such amount to the Company in cash or
by check payable to the Company. Notwithstanding anything to the contrary in
Section 4, Grantee's rights to exercise any Option, and any transfer of Common
Stock to Grantee pursuant to the exercise of any Option, are conditioned upon
the payment in full by Grantee of the amounts determined by the Company to be
due hereunder.
6. NOTICES. All notices and other communications required or permitted to be given pursuant to this Agreement shall be in writing and shall be deemed given if delivered personally or five days after mailing by certified or registered mail, postage prepaid, return receipt requested, to the Company in care of its Secretary at the principal executive offices of the Company, or to Grantee at the address set forth beneath his or her signature on the signature page hereto, or at such other addresses as Grantee may designate by written notice in the manner aforesaid.
7. STOCK EXCHANGE REQUIREMENTS; APPLICABLE LAWS. Notwithstanding
anything to the contrary in this Agreement, no shares of stock purchased upon
exercise of the Option, and no certificate representing all or any part of such
shares, shall be issued or delivered if (a) such shares have not been admitted
to listing upon official notice of issuance on each stock exchange upon which
shares of that class are then listed or (b) in the opinion of counsel to the
Company, such issuance or delivery would cause the Company to be in violation of
or to incur liability under any federal, state or other securities law, or any
requirement of any stock exchange listing agreement to which the Company is a
party, or any other requirement of law or of any administrative or regulatory
body having jurisdiction over the Company. Notwithstanding the provisions of
Section 8, in no event shall Grantee be permitted to transfer (as defined in
Section 8) the Option or any shares of stock purchased upon exercise of the
Option to any person or entity if, at the time of such proposed transfer, the
Company is an electing and qualifying S Corporation,
and, in the opinion of counsel to the Company, such proposed transfer might reasonably be expected to cause the termination or revocation of the Company's status as an S Corporation, and all of the shareholders of the Company have not approved such transfer.
8. NONTRANSFERABILITY. Neither the Option nor any interest therein may be transferred in any manner by the Grantee to any person or entity other than by will or the laws of descent and distribution. For purposes of this Paragraph 8, the term "transfer" shall mean and include any form of sale, exchange, gift, disposition, alienation, assignment, pledge, hypothecation, encumbrance, levy of attachment, levy of execution, conveyance in connection with bankruptcy proceedings, conveyance upon divorce, and/or any other conveyance of any kind, including both voluntary and involuntary conveyances, and also including conveyances by operation of law. In the event of any attempt by Grantee to transfer the Option or any right hereunder except as provided for herein, the Option shall thereupon become null and void and of no effect.
Notwithstanding the foregoing, under such rules and regulations as the Board or the Committee may establish pursuant to the terms of the Plan, a beneficiary may be designated with respect to the Option in the event of the death of Grantee.
9. PLAN. The Option is granted pursuant to the Plan, as in effect on the Date of Grant, and is subject to all the terms and conditions of the Plan, as the same may be amended from time to time; PROVIDED, HOWEVER, that no such amendment shall deprive Grantee, without his or her consent, of the Option or of any of Grantee's rights under this Agreement. The interpretation and construction by the Committee of the Plan, this Agreement, the Option and such rules and regulations as may be adopted by the Committee for the purpose of administering the Plan shall be final and binding upon Grantee. Until the Option shall expire, terminate or be exercised in full, the Company shall, upon written request therefor, send a copy of the Plan, in its then-current form, to Grantee or any other person or entity then entitled to exercise the Option.
10. STOCKHOLDER RIGHTS. No person or entity shall be entitled to vote, receive dividends or be deemed for any purpose the holder of any Option Shares until the Option shall have been duly exercised to purchase such Option Shares in accordance with the provisions of this Agreement.
11. EMPLOYMENT OR CONTRACT RIGHTS. No provision of this Agreement or of the Option granted hereunder shall (a) confer upon Grantee any right to continue in the employ of the Company or any of its subsidiaries, (b) affect the right of the Company and each of its subsidiaries to terminate the employment of Grantee, with or without cause, or (c) confer upon Grantee any right to participate in any employee welfare or benefit plan or other program of the Company or any of its subsidiaries other than the Plan. Nothing herein shall limit Grantee's right to terminate his or her employment. GRANTEE HEREBY ACKNOWLEDGES AND AGREES THAT THE COMPANY AND EACH OF ITS SUBSIDIARIES MAY TERMINATE THE EMPLOYMENT OF GRANTEE AT ANY TIME AND FOR ANY REASON, OR FOR NO REASON, UNLESS GRANTEE AND THE COMPANY OR SUCH SUBSIDIARY ARE PARTIES TO A WRITTEN EMPLOYMENT AGREEMENT THAT EXPRESSLY PROVIDES OTHERWISE.
12. PARTICIPATION IN OTHER PLANS. Nothing herein contained shall affect Grantee's right to participate in and receive benefits from and in accordance with the then current provisions of any pension, insurance, or other stock option or employment welfare plan or program of the Company.
13. BINDING EFFECT OF AGREEMENT. Except as set forth in Section 8 hereof, this Agreement shall be binding upon and inure to the benefit of any successors or assigns of the Company or Grantee.
14. MISCELLANEOUS.
(a) WAIVER. No waiver of any right or obligation of either party under this Agreement shall be effective unless in a writing, specifying such waiver, executed by the party against which such waiver is being enforced. A waiver by either party hereto of any of its rights under this Agreement on any occasion shall not be a bar to the exercise of the same right on any subsequent occasion or of any other right at any time.
(b) AMENDMENT OR MODIFICATION. This Agreement may be amended, altered, or modified only by a writing, specifying such amendment, alteration or modification, executed by the party against which it is being enforced.
(c) GOVERNING LAW. This Agreement and the Option granted hereunder shall be governed by and construed and enforced in accordance with the laws of the State of Oregon without reference to choice or conflict of law principles.
(d) COMPLETE AGREEMENT. This Agreement, along with the Plan, constitutes the complete understanding of the parties hereto regarding the subject matter thereof and supersedes all prior or contemporaneous agreements of the parties, whether written or oral, with respect to such subject matter.
(e) ATTORNEYS' FEES. In the event a suit, arbitration or other proceeding is brought to enforce or interpret any provision of this Agreement, the prevailing party shall be entitled to recover reasonable attorneys' fees to be fixed in amount by the court or the arbitrator(s) (including without limitation, costs, expenses and fees on any appeal). The prevailing party will be entitled to recover its costs of suit, arbitration or other proceeding, regardless of whether such suit, arbitration or other proceeding proceeds to a final judgment or award.
IN WITNESS WHEREOF, the Company and Grantee have duly executed this Agreement as of the Date of Grant.
LITHIA MOTORS, INC.
GRANTEE:
EXHIBIT 10.3.1
Chrysler Corporation
Chrysler
SALES AND SERVICE AGREEMENT
Lithia Chrysler Plymouth Jeep Eagle, Inc., located at 315 E. 5th Street, Medford, Oregon, a(n) Corporation hereinafter called DEALER, and Chrysler Corporation, a Delaware corporation, hereinafter sometimes referred to as "CC," have entered into this Chrysler Corporation Chrysler 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 Chrysler 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
Sidney B. DeBoer President
R. Bradford Gray General Manager
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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.
Non-Voting Partnership Active
Name Voting Stock Stock Interest Yes/No
Sidney B. DeBoer 62.50% % % Yes
Manfred L. Heimann 37.50% % % Yes
% % %
% % %
% % %
Total 100.00% % %
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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 Chrysler 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 Chrysler 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 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 Chrysler 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 Chrysler 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 nonperformance 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, Sections 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.
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 Section 10 and Section 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 DETROIT, Michigan, in triplicate, on JAN 10 1994
Lithia Chrysler Plymouth Jeep Eagle, Inc.
(DEALER Firm Name and D/B/A, if applicable)
By [Signature]
(Individual Duly Authorized to Sign)
CHRYSLER CORPORATION
(Title)
EXHIBIT 10.3.2
CHRYSLER CORPORATION
SALES AND SERVICE AGREEMENT
ADDITIONAL TERMS AND PROVISIONS
The following additional terms and provisions apply to and are part of the Chrysler Corporation Sales and Service Agreement(s) to which DEALER is a signatory.
11 SELLING, SERVICE, COMPLIANCE, FACILITIES AND LOCATION, FINANCES, PERSONNEL AND SIGNAGE
(a) SELLING
DEALER shall use its best efforts to promote energetically and sell aggressively and effectively at retail (which includes lease and rental units) each and every model of CC vehicles identified in the aforementioned Motor Vehicle Addendum and CC vehicle parts, accessories and other CC products and services, to private and fleet customers in DEALER's Sales Locality. DEALER will sell the number of new CC vehicles necessary to fulfill DEALER's Minimum Sales Responsibility for each passenger car line or truck line represented by the vehicles listed on the Motor Vehicle Addendum, as defined below.
DEALER's Minimum Sales Responsibility for each such line will be determined as follows:
From time to time, but at least once a year for each such line, CC will compute the ratio of the number of new CC passenger cars and/or trucks registered in the most recent whole or partial calendar year-to-date period for which registration figures are available in the CC Sales Zone in which DEALER is located to the total number of new passenger cars or, if CC deems it appropriate, the total number of those new passenger cars or trucks which CC, in its sole discretion, determines to be competitive with any or all of its passenger cars or trucks so registered in that Zone during the same period. The ratio thus obtained will be applied to the comparable category of the total number of new passenger cars or competitive passenger cars and/or trucks, as appropriate, registered during the same period in Dealer's Sales Locality. The resulting number will be DEALER's Minimum Sales Responsibility for each of said lines during this same period, subject to adjustment as described below.
Upon DEALER's written request, CC may adjust DEALER's Minimum Sales Responsibility, if appropriate in CC's judgment, to take into account extraordinary local conditions to the extent, in CC's opinion, such conditions are beyond DEALER's control and have affected DEALER's sales performance differently from the sales performance of other new vehicle dealers in DEALER's Sales Locality or other like vehicle line CC dealers in the Sales Zone in which DEALER is located.
If DEALER's Sales Locality is shared by one or more other CC dealer(s) of the same line, DEALER's Minimum Sales Responsibility for such line will be the number of new vehicles DEALER must sell in order to achieve DEALER's fair share of the Minimum Sales Responsibility for all such CC dealers in the Sales Locality. The Minimum Sales Responsibility for the total CC dealers of the same line in the Sales Locality will be determined by using the same method described above in this Paragraph 11(a). CC will determine DEALER's fair share by assessing the relative importance of DEALER's immediate area of influence as compared with the Sales Locality as a whole.
This assessment will then be converted to a percentage which will represent DEALER's fair share of the Minimum Sales Responsibility for the Sales Locality.
Registration figures used in these computations will be new vehicle
registrations as reported by any recognized reporting organization selected by
CC. If vehicle registration data is not reasonably available, CC may use other
records, generally accepted in the industry, for the purpose of determining
motor vehicle purchases and to establish DEALER's Minimum Sales Responsibility.
To the extent that registration figures or other records generally accepted in
the automotive industry for purposes of determining motor vehicle purchases are
not reasonably available for purposes of considering any of the factors
specified herein, CC may rely on other records and data developed by CC that
reasonably depict purchases of motor vehicles in an applicable area to establish
DEALER's Minimum Sales Responsibility.
(b) SERVICE
DEALER shall service CC vehicles actively and effectively and provide and maintain, for servicing CC vehicles, adequate facilities equipped with the basic tools common to the trade and with special tools and equipment peculiar to CC products and necessary for servicing and repairing specified CC vehicles properly, efficiently and competitively. DEALER shall comply with parts, service and warranty guides established by CC from time to time, make a sincere effort to satisfy service customers, and render prompt, efficient and courteous service to all owners or lessees of all CC vehicles badged Chrysler, Plymouth or Dodge regardless of where such vehicle was purchased or leased. DEALER shall perform all predelivery and road-ready services recommended by CC on new CC vehicles DEALER sells.
After six (6) quarters of operation, including operation under any preceding CC Dealer Agreement, DEALER shall, at all times during this Agreement, meet its minimum service satisfaction requirements by maintaining a rating on Chrysler Corporation's Customer Satisfaction Index, Prep-It-Right and Deliver-It-Right evaluations (as determined by Chrysler Corporation from time to time, based upon surveys conducted of DEALER's customers) which is equal to or greater than the average Customer Satisfaction Index, Prep-lt-Right and Deliver-It-Right ratings for the national Sales Level Group (as those groups are determined by CC from time to time) in which DEALER is included within DEALER's Sales Zone (as said Sales Zone
is determined by CC from time to time). CC will review, at least once a year, DEALER's performance under the Customer Satisfaction Index and DEALER's Prep-It-Right and Deliver-It-Right ratings.
DEALER shall supply to all purchasers from DEALER of new CC vehicles a copy of CC's appropriate new vehicle warranty; make such certifications and verifications of odometer readings and maintenance and service performed on vehicles badged Chrysler, Plymouth or Dodge, or other matters as may be required under the terms of the CC vehicle warranty and as CC may from time to time otherwise prescribe; and provide owners of CC vehicles badged Chrysler, Plymouth or Dodge all warranty service and campaign inspections or corrections to which they may be entitled in accordance with the policies and procedures set Forth in Chrysler Corporation's Warranty Policy and Procedure Manual and in bulletins and documents relating to service that CC may, from time to time, supply to DEALER. The provisions of said Warranty Policy and Procedure Manual, including any revisions thereto which shall be furnished to DEALER by CC from time to time, constitute a part of this Agreement with the same force and effect as if set forth in its entirety herein.
DEALER shall comply with all policies, procedures, directives and rulings of the Chrysler Corporation Customer Arbitration Board.
CC has placed its trust and confidence in the integrity and fidelity of DEALER and, therefore, CC shall compensate DEALER for services claimed to have been performed by DEALER under CC's warranties or campaign inspections and corrections if claimed in accordance with CC's then current policies and procedures described above. DEALER agrees to comply with all such policies and procedures including, but not limited to, policies and procedures relating to the keeping of books and records respecting claims DEALER may make for compensation for service DEALER performs under CC's warranties or campaign inspections and corrections. DEALER agrees that CC may inspect DEALER's books and records regarding any warranty service or other claims for compensation DEALER may submit to CC. CC may charge DEALER's account for claims which have been disallowed as a result of such inspection.
DEALER shall perform all warranty, pre-delivery, road-ready, campaign inspections and corrections, and other services hereunder as an independent contractor and not as the agent of CC and shall assume responsibility for and hold CC harmless from, all claims (including, but not limited to, claims resulting from the negligent or willful acts or omissions of DEALER) against CC arising out of or in connection with DEALER's performance of such service.
If DEALER modifies any CC vehicle or installs on any CC vehicle any equipment, part or accessory that has not been supplied or approved by CC, or sells any CC vehicle which has been modified after leaving the possession, custody or control of CC, or sells a non-Chrysler Corporation service contract in connection with the sale of any CC vehicle, DEALER shall disclose to the customer in writing that the modification, equipment, accessory or part is not
supplied or approved by CC and is not included in warranties furnished by CC or, in the case of a service contract, the coverage is not provided by Chrysler Corporation, its parent, subsidiaries or its affiliates. DEALER will write such disclosure on the purchase order and on the customer's bill of sale. Notwithstanding the foregoing, DEALER may not use parts which have not been authorized by CC in performing repairs under CC warranties.
(c) COMPLIANCE
DEALER shall comply with all applicable federal, state and local laws, rules or regulations in the operation of the dealership.
(d) FACILITIES AND LOCATION
(i) DEALER'S RESPONSIBILITIES
DEALER shall provide facilities for the sale and service of CC products and related activities ("Dealership Operations") at the location set forth in the aforementioned Dealership Facilities and Location Addendum. The entire Dealership Facilities including, but not in limitation of the foregoing, new and used vehicle display area, sales rooms, service area, parts and accessories area, building exterior and grounds will be satisfactory to CC as to appearance and layout, and will be maintained and used as set forth in the Dealership Facilities and Location Addendum. DEALER shall at all times maintain the Dealership Facilities so that they are of adequate capacity to accommodate DEALER's total vehicle sales volume and are relatively equivalent in their attractiveness, level of maintenance, overall appearance and use to those facilities maintained by DEALER's principal competitors.
DEALER shall conduct its Dealership Operations only from the dealership location and dealership facilities above mentioned and in the manner and at least during the hours usual in the trade in DEALER's Sales Locality. DEALER shall not, except as provided for in subparagraph 11(d)(ii) hereunder, either directly or indirectly, establish any place or places of business for the conduct of its Dealership Operations other than at the Dealership Facilities and Dealership Operations location as set forth in the Dealership Facilities and Location Addendum.
If all of the Dealership Facilities are not at the same location, DEALER shall not utilize any separate portion of the Dealership Facilities for the conduct of any Dealership Operations other than as specified in the Current Dealership Facilities and Location Addendum. The Dealership Facilities and Location Addendum shall identify any other purposes for which the Dealership Facilities are to be used and the actual space and areas to be allocated for such purposes.
(ii) CHANGES IN FACILITIES OR LOCATION
DEALER shall not make any change in the location of Dealership Operations or make any change in the area and use of Dealership Facilities without the prior written approval of CC. Any written approval of a change in the location or in the area or use of Dealership Facilities shall be valid only if in the form of a new Dealership Facilities and Location Addendum or a separate written agreement signed by DEALER and one of the authorized representatives of CC identified in Paragraph 10 hereinabove.
(e) FINANCES
DEALER shall maintain and employ in connection with DEALER's business such net working capital, net worth, and wholesale credit and retail financing arrangements necessary for DEALER to carry out successfully DEALER's undertakings pursuant to this Agreement and in accordance with guides therefor as may be issued by CC from time to time. At no time shall DEALER's net working capital be less than the amount specified in the Minimum Working Capital Agreement executed in conjunction with this Agreement and incorporated herein by reference, or the amount thereafter established by any superseding Minimum Working Capital Agreement.
(f) PERSONNEL
DEALER shall employ in accordance with the volume of DEALER's business such number of competent technicians in DEALER's repair shops as may be required to assure prompt, satisfactory and competitive customer service for all owners of CC vehicles who may request such service from DEALER. In particular and without limitation to the generality of the foregoing, DEALER shall cause its service personnel to receive such training from time to time required by CC to maintain their technical expertise to render competent customer service, including the use of improved methods of repair, or the repair of new parts or systems, developed by CC.
Failure to comply with the service training requirements of the immediately preceding subparagraph of this Paragraph 11(f) may result in suspension of deliveries of CC vehicles until DEALER complies with such training requirements. Protracted failure to comply with such training requirements may result in termination of this Agreement pursuant to Paragraph 28 hereunder. The immediately foregoing sentence shall not be construed as in any way limiting the general applicability of Paragraph 28 to any of the other provisions of this Paragraph 11.
DEALER shall employ and maintain for its retail business a number of trained and competent new and used motor vehicle sales, lease, service, parts and general management personnel that are sufficient for DEALER to carry out successfully all of DEALER's undertakings in this Agreement. In particular and without limitation of the generality of the foregoing, DEALER
shall cause its sales personnel to receive such training from time to time as may be required by CC to maintain their sales expertise to render satisfactory sales.
(g) SIGNAGE
DEALER shall display and maintain brand signs, fascia and other signage in compliance with the policies and guidelines of Chrysler Corporation's Dealership Identification Program, including any modification or revisions to such policies and guidelines, which shall from time to time be furnished to DEALER by CC.
12 ADVERTISING
CC, in promoting the sale and lease of its products by DEALER and other CC dealers, shall seek to advertise in the most effective manner to develop public interest and confidence in its dealers and products.
DEALER shall engage in advertising and sales promotion programs and shall use effective showroom displays to help fulfill DEALER's responsibility to promote CC products and services vigorously and aggressively. In advertising in support of DEALER's selling, leasing and servicing CC products, DEALER shall advertise only in a manner that will develop customer confidence in DEALER and CC products and shall not use any advertising, tending to mislead or deceive the public or violate any applicable federal, state or local laws, rules or regulations, nor shall DEALER disparage CC or any company, or products of such company, directly involved in the manufacture of CC vehicles. DEALER shall discontinue any advertising that CC may find to be injurious to CC's business or likely to deceive the public or violative of any applicable federal, state or local laws, rules or regulations.
DEALER shall at all times be a member in good standing of the Dealer Advertising Association, for the lines set forth in the Motor Vehicle Addendum, which covers a geographical area that encompasses, in whole or significant part, DEALER's Sales Locality and which has been approved by CC.
13 REPORTS, RECORDS AND BUSINESS SYSTEMS
DEALER shall submit to CC for confidential use by CC and its affiliates, in such manner, in such form, and at such times as CC may reasonably request, complete and accurate reports of sales and stocks of new and used vehicles on hand and other reports, including monthly financial statements and operating reports.
DEALER shall use and keep accurate and current at all times a uniform accounting system and will follow accounting practices, satisfactory to CC, which will enable CC to develop
comparative information in order, among other things, to provide business management assistance to dealers for the mutual benefit of DEALER and CC. DEALER agrees that CC may at any time for confidential use inspect DEALER's books and records to determine whether they are kept in such manner that the data shown in them can be used in CC's business management assistance to dealers, to assess DEALER's financial condition, and to verify invoices or other claims DEALER may render to CC. CC may, during the course of such inspection, make copies of such books and records and retain such copies for CC's confidential use.
DEALER shall maintain an electronic data storage, transmission and communication system in the manner and form required from time to time by CC.
CC and its affiliates shall not, without approval of DEALER, disclose the contents of DEALER's financial records to persons not a party or an affiliate of a party to this Agreement except when required by compulsory process from a court, government agency or arbitrator, or when CC, in its discretion, considers it appropriate to disclose said financial records in an adjudicatory or arbitration proceeding involving the parties to this Agreement.
14 ORDERS
CC shall ship specified CC vehicles, parts and accessories to DEALER only on DEALER's order.
DEALER shall Submit to CC, in the manner and form required by CC, current orders for CC vehicles, parts and accessories, and estimates of DEALER's future vehicle requirements at such times and for such periods as CC reasonably may request for the mutual benefit of all CC dealers and CC. All orders are subject to acceptance by CC, which acceptance may be in whole or in part.
Except as otherwise allowed by this Agreement, CC shall use its best efforts to fill accepted orders for specified CC vehicles, parts and accessories. Notwithstanding the foregoing, in the event that demand exceeds supply of specified CC vehicles, DEALER acknowledges that CC has the right to allocate such supply in any reasonable manner CC deems fit in any geographical market.
15 DELIVERY
CC may deliver specified CC vehicles by rail, truck, boat or any other means of transport, or deliver them for driveaway, endeavoring, when exceptional circumstances arise and the cost is not increased, to meet DEALER's preference as to mode of transportation. CC may deliver specified CC vehicles to a carrier that CC selects, for shipment to DEALER at DEALER's place of business or to the city or town where DEALER's place of business is located (or to the
nearest practicable unloading point) "to CC's order, notify DEALER," or may deliver such vehicles at any other point that CC may establish.
CC may deliver parts and accessories to DEALER by delivering them to a carrier that CC selects for shipment to the city or town where DEALER's place of business is located, or by delivering them to DEALER at any point that CC may establish.
16 ACCEPTANCE OF SHIPMENTS
If DEALER requests diversion of CC products shipped to DEALER or if CC is required to divert any CC products because DEALER fails, refuses or is unable to accept delivery of such products, or if there is a failure to pay as required for the products that DEALER has ordered, or a failure to accept C.O.D. shipments of products DEALER has ordered, CC may divert the shipments and charge DEALER the demurrage, transport, storage and other expense arising by reason of any such diversion.
17 OTHER CHARGES
DEALER shall be responsible for and will pay any and all charges for demurrage, storage or other charges accruing after arrival of shipment at the distribution point established by CC.
18 DELAY OR FAILURE TO FILL ORDERS
CC shall not be liable for delay or failure to fill orders that have been accepted, where such delay or failure is the result of any event beyond the control of CC including, but not in limitation of the generality of the foregoing, any law, regulation or administrative or judicial order, or any acts of God, wars, riots, wrecks, fires, strikes, lockouts, other labor troubles, embargoes, blockades, delay or failure of any other supplier or carrier of CC to deliver or make delivery of CC products, or any material shortage or curtailment of production, including those due to economic conditions, or any discontinuance of manufacture or sale of products by CC or its suppliers. Furthermore, CC will not be liable for delay or failure to fill orders when such delay or failure is pursuant to any provision under this Agreement.
19 OPTION TO REPURCHASE DAMAGED VEHICLES
DEALER shall notify CC if any new and unused CC vehicle in DEALER's possession has sustained major damage as defined in the Warranty Policy and Procedure Manual. To preserve the quality and value of new CC vehicles ordered for the public, CC shall have the option to divert such a vehicle prior to delivery to DEALER or repurchase from DEALER all or any of such vehicles at a price equal to the net purchase price paid by DEALER to CC. DEALER agrees to assign its rights under any insurance contract related to the repurchased CC vehicles
to CC. CC shall make appropriate payment for repurchased CC vehicles directly to any lien holder or, if there is no lien, directly to DEALER.
20 CLAIMS FOR DAMAGE OR SHORTAGE
CC shall not be liable for loss of or damage to CC products sold hereunder occurring after delivery thereof to DEALER, DEALER's agent, or a carrier within the North American Continent for shipment to DEALER, as provided in Paragraph 15 of this Agreement. Should any products sold under this Agreement be delivered in damaged condition or with shortages, claims for said damages or shortages shall be made in accordance with CC's then current policies and procedures. 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 CC harmless from any liability resulting from DEALER's failure to so notify such purchasers.
21 PRICES, CHARGES, TERMS OF PURCHASE AND PAYMENT
CC shall notify DEALER from time to time of the prices, charges and terms of purchase for products sold under this Agreement and shall charge DEALER for such products according to the prices, charges and terms of purchase in effect at the date of shipment. CC reserves the right, without prior notice, to change prices, charges and terms of purchase for any product sold under this Agreement.
DEALER shall pay CC for products sold under this Agreement in lawful money of the United States of America by such method and/or in such manner as CC may announce from time to time or approve in writing, with collection charges, if any, added.
If not included in the price, DEALER shall pay all excise or other taxes which may be levied on the products purchased hereunder or on the sale, shipment, ownership or use thereof. Further, DEALER certifies as of the date of each purchase hereunder that all products purchased hereunder are purchased for resale, retail lease or demonstration purposes.
22 CHANGE IN PRICE
Should CC reduce the wholesale price at factory of any CC vehicle (not including accessories and optional equipment) of a particular yearly model, line and body style then currently in production, CC shall refund to DEALER in cash or by a credit against DEALER's indebtedness to CC, for each new, unused and unsold CC vehicle (not including demonstrators) of that particular model, line and body style that at the time of the reduction is in DEALER's stock or in transit to DEALER, an amount equal to the difference between the reduced wholesale price and the wholesale price paid to CC by DEALER.
If, at the time of the official model introduction date (as determined by CC) of a new yearly model, CC announces a wholesale price of any CC vehicle (not including accessories and optional equipment) of any particular body style and line of the new model which is below the wholesale price of a vehicle of the same body style and line of the discontinued yearly model, CC shall refund to DEALER in cash or by credit against DEALER's indebtedness to CC an amount equal to the difference between the reduced wholesale price and the wholesale price of the same body style and line of the discontinued yearly model. Such refund will apply only to new, unused and unsold CC vehicles (not including demonstrators) of the particular body style and line of the discontinued yearly model that on the official model introduction date (as determined by CC) of the new yearly model is in DEALER's stock or in transit to DEALER, unless CC determines that the line or particular body style of the new yearly model is so changed in size, design, equipment, specifications or price as, for all practical purposes, to make the line a new and different line or to make the particular body style a new and different body style of the discontinued yearly model.
Notwithstanding the provisions of the two paragraphs immediately above, in any case where items considered standard equipment on a current vehicle or on a vehicle of the discontinued yearly model are not included as standard equipment on the corresponding vehicle with a reduced wholesale price or on the corresponding vehicle of the new model, any wholesale price decrease resulting from the exclusion of such standard equipment will not be included in any refund under this paragraph 22.
In order to qualify for a refund in either case set forth above, DEALER must make a written claim, supported by adequate evidence, within thirty (30) days of the effective date of the reduction in price or the official model introduction date of the new yearly model.
Should CC increase the wholesale price of any CC vehicle, said price increase will not apply to an order submitted to CC by DEALER prior to the date the notification of such price increase was issued if the order was submitted for the specific purpose of fulfilling a valid and legitimate purchase agreement between DEALER and a retail purchaser and if such an order was properly identified in the manner required by CC and was delivered to the ordering retail purchaser.
23 SALE AND SUPPLY OF PARTS
DEALER shall not represent, sell, offer for sale or use in repairing CC vehicles, parts which are represented as new or remanufactured Chrysler Corporation or Mopar parts or parts which are represented to be manufactured or produced by any company directly involved in the manufacture of the vehicles specified in the Motor Vehicle Addendum to this Agreement, unless such parts are in fact manufactured, remanufactured or designed for or by Chrysler Corporation, Mopar or a company directly involved in the manufacture of said specified vehicles and are properly identified as Chrysler Corporation or Mopar parts or parts of said directly involved companies with the respective consent of each of the aforementioned organizations.
DEALER at all times shall keep on hand in DEALER's place of business the number and assortment of Chrysler Corporation or Mopar parts, that, in CC's judgment, is necessary to meet the service requirements of DEALER's CC customers and to meet all of DEALER's obligations under this Agreement.
24 COLLECTION OF INDEBTEDNESS
CC may apply to any amount owed by DEALER to CC or to any of CC's affiliates any credit owing to DEALER by CC or any of its affiliates. As used in this Agreement, "affiliate" means Chrysler Corporation and any of its subsidiaries or their subsidiaries, or any other corporation, partnership or other legal entity which has an ownership interest in CC or any corporation, partnership or other legal entity in which CC has an ownership interest, or any subsidiary thereof.
Should DEALER assign its right to amounts owed to DEALER by CC to any third party, prior to executing such an assignment DEALER shall notify such third party of CC's first priority right to such credits.
25 TITLE
Title to products CC sells to DEALER hereunder and risk of loss will pass to DEALER on delivery of the products to DEALER, DEALER's agent, or the carrier, whichever occurs first. However, CC retains a lien for payment on the products so sold until paid for in full, in cash. CC will receive negotiable instruments only as conditional payment.
26 WARRANTY AND INDEMNIFICATION FOR PRODUCT LIABILITY LITIGATION
(a) WARRANTY
CC's warranty on new CC vehicles, as in effect from time to time, will be as set
forth in Chrysler Corporation's Warranty Policy and Procedure Manual. CC shall
supply sufficient copies of CC's then current CC vehicle warranty to DEALER to
permit DEALER, in accordance with DEALER's obligation under Paragraph 11 of this
Agreement, to provide a copy to each purchaser from DEALER of a new CC vehicle.
EXCEPT FOR THE CC WARRANTY, THERE ARE NO OTHER EXPRESS OR IMPLIED WARRANTIES
MADE (OR DEEMED TO HAVE BEEN MADE TO ANY PERSON BY CC APPLICABLE TO PRODUCTS
SOLD UNDER THIS AGREEMENT. THE CC WARRANTY WILL BE EXPRESSLY IN LIEU OF ANY
OTHER WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; AND THE
REMEDIES SET FORTH IN SUCH WARRANTY WILL BE THE ONLY REMEDIES AVAILABLE TO ANY
PERSON WITH RESPECT TO
PRODUCTS SOLD HEREUNDER. CC neither assumes nor authorizes any other person, including DEALER, to assume for CC any other obligation or liability in regard to such products.
(b) INDEMNIFICATION FOR PRODUCT LIABILITY LITIGATION
If a product liability lawsuit is filed naming DEALER as a defendant and it is determined that the bodily injury or property damage alleged by the plaintiff was caused solely by a design defect or a defect created by CC in the manufacture or assembly of a CC vehicle, part or accessory, which latter defect was not reasonably susceptible of discovery by DEALER in either DEALER's new car preparation or subsequent servicing during the warranty period, then CC shall indemnify and hold DEALER harmless from losses, damages and expenses, including reasonable attorneys' fees, resulting from such product liability lawsuit. As used in this Paragraph 26(b), a "product liability lawsuit" shall mean a lawsuit seeking damages for bodily injury or property damage allegedly sustained in a motor vehicle accident, and which injury or damage is alleged to have been caused in any part by a defect in the design, manufacture or assembly of a CC vehicle, part or accessory.
Whenever DEALER intends to request CC to indemnify DEALER with respect to a product liability lawsuit, DEALER shall file with the court an appropriate response which will prevent a default judgment from being taken against DEALER, and DEALER shall, within thirty (30) business days after service of the complaint, notify CC in writing and shall provide at that time copies of any pleadings which may have been served, together with all information then available regarding the circumstances giving rise to such product liability lawsuit. Any such notices shall be sent by certified mail to the attention of the Office of the General Counsel, Chrysler Corporation, Post Office Box 1919, Detroit, Michigan 48288 or such other address as CC may designate in writing to DEALER. Upon such request for indemnification, CC shall have the option, upon reasonable notice to DEALER, to retain counsel and assume full control over the defense of the lawsuit. If CC is prevented by DEALER from exercising this option, CC's obligation hereunder to indemnify DEALER shall be rendered null and void and be of no force or effect.
(c) REPAIR/REPLACE REQUIREMENTS
This provision shall apply if DEALER is located in a state which has in effect or hereafter adopts or enacts any law or regulation imposing liability on a motor vehicle manufacturer, importer, distributor and/or dealer for sale of a vehicle presumed under such law or regulation to be defective by reason, inter alia, of repeated unsuccessful attempts to repair such vehicle within a specified period of time or by reason of such vehicle being unavailable and out of service to the purchaser for a specified period of time.
DEALER shall make a good faith effort to immediately notify CC in writing of the existence of any vehicle which may become subject to such law or regulation prior to a presumption of liability arising under such law or regulation from the inability to repair or correct a nonconformity or condition of a vehicle.
27 CHANGE OF MODELS, PARTS AND ACCESSORIES DECLARED OBSOLETE OR DISCONTINUED
CC at any time may discontinue any or all models, lines or body styles and may revise, change or modify their construction or classification. All DEALER orders for specified CC vehicles shall refer to models, lines and body styles in production at the time CC receives the orders unless DEALER specifies otherwise. CC at any time may declare obsolete or discontinue any or all parts, accessories and other merchandise. CC may act under this Paragraph 27 without notice and, except as set forth in Paragraph 22 of this Agreement, without any obligation to DEALER by reason of DEALER's previous purchases.
28 TERMINATION
(a) DEALER may terminate this Agreement on not less than thirty (30) days written notice.
(b) CC may terminate this Agreement on not less than sixty (60) days written notice for the following reasons:
(i) in accordance with CC's ordinary and customary procedures, upon the failure of DEALER to fully perform any of DEALER's undertakings under Paragraph 11(a) of this Agreement or failure of DEALER to meet its minimum service satisfaction requirements set forth in Paragraph 11(b) of this Agreement within one hundred and eighty (180) days after notification by CC that DEALER has not fully performed the aforementioned undertakings, obligations or requirements, or
(ii) the failure of DEALER to perform fully any of DEALER's undertakings or obligations as set forth in this Agreement including, but without limiting the generality of the foregoing, the undertakings and obligations set forth in Paragraphs 11(b) through 11(g) or Paragraphs 12, 13, 14, 23, 26(c) or 35 of this Agreement, or
(iii) the death of any person listed in Paragraph 2 of this Agreement (other than the death of DEALER if DEALER is a sole proprietorship) or the failure of any such person so listed to continue active and substantial personal participation in the management of the Dealership Operation as required by Paragraph 2, or
(iv) a misrepresentation of or change, whether voluntary or by operation of law, in the ownership if DEALER is an individual, or of the ownership interests listed in Paragraph 3 of this Agreement resulting in a transfer of control or majority interest in the capital stock or partnership interest of DEALER, unless CC has given prior written approval to such change, or
(v) any material misrepresentation by any of DEALER's owners or executives as to any fact relied upon by CC in entering into this Agreement, or
(vi) a disagreement, dispute or controversy between or among principals, partners, managers, officers or stockholders of DEALER that, in the opinion of CC, may adversely affect the operation, management or business of DEALER, or
(vii) the conviction of DEALER or any individual named in Paragraph 2 or 3 herein of any crime that, in CC's opinion, may affect adversely the operation or business of DEALER or the name, goodwill or reputation of Chrysler Corporation, CC products, or DEALER, or
(viii) the failure of DEALER to pay any indebtedness of DEALER to CC in accordance with the applicable terms and conditions required by CC, or
(ix) impairment of the reputation or financial standing of DEALER or any of DEALER's owners or executives or discovery by CC of any facts existing prior to or at the time of signing this Agreement which, in CC's opinion, tend to impair such reputation or financial standing, or
(x) any submission by DEALER to CC of a false or fraudulent application or claim, or any claim or statements in support thereof, for payment including, but not limited to, pre-delivery inspection or adjustments, warranty repairs, special policy or campaign adjustments or repairs performed by DEALER, sales incentives, parts compensation, or any other discount, allowance, refund or credit under any plan, provision or other program offered by CC, whether or not DEALER offers or makes to CC or CC seeks or obtains from DEALER restitution of any payments made to DEALER on the basis of any such false or fraudulent application, claim or statement, or
(xi) conduct by DEALER which, in DEALER!s dealings with customers or the public, is fraudulent or constitutes a deceptive or unfair act or practice, or
(xii) DEALER's failure to comply with requirements set forth in the National Traffic and Motor Vehicle Safety Act of 1966 or any other legislation or regulation pertaining to safety, air pollution or noise control which may be imposed on
automobile dealers or with reasonable requests of CC made in conjunction with action being taken on its part to comply with the aforementioned statutory or regulatory requirements, or
(xiii) the notification of termination or termination, for any reason, of any other Chrysler Corporation Dealer Agreement(s) which may be in effect between DEALER and Chrysler Corporation, or
(xiv) the failure of DEALER to comply fully with the policies, procedures, directives and rulings of the CC Customer Arbitration Board, or
(xv) CC offers a new Sales and Service Agreement to all of its dealers selling the line(s) of vehicles set forth on the Motor Vehicle Addendum.
Termination by CC will not be effective unless the President or a Vice President or the National Dealer Placement Manager of Chrysler Corporation signs the notice.
(c) Notwithstanding the provisions above, this Agreement will terminate automatically without notice from either party on:
(i) the death of DEALER, if DEALER is a sole proprietorship, or
(ii) an attempted or actual assignment or transfer of this Agreement or an attempted or actual transfer of a substantial portion of dealership assets by DEALER without the prior written consent of CC, or
(iii) an assignment by DEALER for the benefit of creditors, or
(iv) the insolvency of DEALER, or the preparation of any petition by
or for DEALER for voluntary institution of any proceeding under
the Bankruptcy Act or under any State insolvency law, whether or
not such petition is ever filed; or the involuntary institution
against DEALER of any proceeding under the Bankruptcy Act or
under any State insolvency law which is not vacated within ten
(10) days from the institution thereof; or the appointment of a
receiver or other officer having similar powers for DEALER or
DEALER's business which is not removed within ten (10) days from
his/her appointment; or any levy under attachment, execution or
similar process which is not within ten (10) days vacated or
removed by payment or bonding, or
(v) the discontinuance by CC of the production or distribution of all CC vehicles listed on the Motor Vehicle Addendum, or
(vi) the failure of DEALER to fully conduct its Dealership Operations for seven (7) consecutive business days, or
(vii) the loss, termination or expiration of any license or permit required by law for DEALER to perform DEALER's obligations under this Agreement or otherwise conduct business as a new vehicle dealer for CC products.
Termination of this Agreement will cancel all unfilled orders for vehicles, parts and accessories.
The obligations of the parties to this Agreement as set forth in Paragraphs 9, (or Paragraph 7 in a Term Agreement), [___], 24, 26(a), 26(b), 29, 30, 31 and 35 shall remain in full force and effect after the effective date of termination.
29 REPURCHASE OBLIGATIONS UPON TERMINATION
Except when termination of this Agreement will be followed by CC issuing to DEALER, or to DEALER's successors, assigns, heirs or devisees, a new agreement of any sort for the sale and service of CC vehicles, including, but not in limitation of the generality of the foregoing, such an agreement with a term of limited duration, CC agrees to buy and DEALER agrees to sell, free and clear of any liens and encumbrances, within ninety (90) days after the effective date of any termination under Paragraph 28:
(a) All new, unused and unsold specified CC vehicles (not including demonstrators), unmodified and in good, undamaged condition, of the yearly model current at the effective date of termination that were purchased by DEALER from CC and that are on the effective date of termination the property of and in the possession, custody and control of DEALER. The repurchase price will be the dealer net invoice price at the time of DEALER's purchase of each such vehicle from CC, less any applicable rebates, incentive payments, adjustments or allowances paid or credited by CC to DEALER. CC shall not be required to repurchase CC vehicles built on DEALER's special order to other than CC standard specifications.
(b) All new, unused and undamaged CC parts that are priced and identified as eligible for return in Chrysler Corporation's then current parts lists and that were purchased by DEALER from CC and are on the effective date of termination the property of and in the possession, custody and control of DEALER, at current listed prices (exclusive of transportation charges). CC shall add to such current listed prices (exclusive of transportation charges) an allowance of five percent (5%) of such prices for packing and crating by DEALER and a credit for transportation charges paid by DEALER to ship such parts to the destination CC designates. CC shall subtract from such current listed prices (exclusive of transportation charges) all maximum allowable discounts and the cost of any necessary refinishing, reconditioning or repacking to restore the parts to their original saleable condition, and CC's cost of determining whether such parts are free and clear of all liens and encumbrances. Prior to purchase by CC,
DEALER shall deliver the parts (tagged and inventoried in accordance with CC's instructions) for inspection F.O.B. at any point CC may designate. CC's determination of the quantity and value of the parts returned will be conclusive unless DEALER notifies CC in writing within fifteen (15) days of receiving the check or statement of account for such parts returned of any error made in such determination.
(c) All new, unused and undamaged CC accessories or accessories packages for the yearly model current at the effective date of termination, complete as supplied to and purchased by DEALER from CC during the twelve (12) months immediately preceding the effective date of termination and that are on the effective date of termination the property of and in the possession, custody and control of DEALER at the prices then applicable (less maximum allowable discounts) and current at the effective date of termination, exclusive of transportation charges. CC shall add to such currently applicable prices an allowance of five percent (5%) of such prices (less maximum allowable discounts) for packing and crating by DEALER and a credit for transportation charges paid by DEALER in shipping such accessories to the destination CC designates. CC shall subtract from such currently applicable prices (less maximum allowable discounts) the cost of necessary refinishing, reconditioning or repackaging of such accessories or accessories packages to restore them to their once original salable condition and CC's cost of determining whether such accessories or accessories packages are free and clear of all liens and encumbrances. Prior to purchase by CC, DEALER will deliver the accessories or accessories packages, tagged and inventoried in accordance with CC's instructions, for inspection F.O.B. at any point CC may designate. CC's determination of the quantity and value of the accessories or accessories packages returned will be conclusive unless DEALER notifies CC in writing within fifteen (15) days of receiving the check or statement of account for such accessories or accessories packages returned of any error made in such determination.
(d) All signs of a type required by CC belonging to DEALER, showing the name "Chrysler Corporation" or one of the designated trade names applicable only to CC products or CC's affiliated companies. CC shall pay to DEALER for such signs the fair market value or the price for which DEALER purchased such signs, whichever is lower. CC shall have the right, upon termination of this Agreement, to enter DEALER's premises peacefully and remove all such signs.
(e) Special tools (in complete sets), of a type recommended by CC, adapted only to the servicing of CC vehicles and purchased by DEALER during the thirty-six (36) months immediately preceding the effective date of termination at a price and under terms and conditions to be agreed upon by CC and DEALER.
CC will pay DEALER for any items purchased pursuant to this Paragraph 29 within ninety (90) days of CC's receipt and acceptance of said items, subject to Paragraph 24 of this Agreement.
30 DISPOSITION OF DEALER'S PREMISES
On termination of this Agreement by CC on sixty (60) days' written notice pursuant to Paragraph 28 hereof, except when termination results because DEALER's facilities have been closed for seven (7) consecutive business days or from a person named in Paragraph 2 of this Agreement ceasing to participate in the management of DEALER, CC shall take the following action respecting DEALER's premises as defined below (herein called the Premises), if DEALER so requests, and provided that DEALER has paid to CC all monies owing to CC:
(a) If, on DEALER's receipt of notice of termination, DEALER owns the Premises:
CC shall assist DEALER in effecting an orderly and equitable disposition of the Premises by a sale or lease. If necessary to effect such disposition, CC, at its option, within a reasonable time shall lease the Premises from DEALER for at least one (1) year or purchase the Premises, or cause them to be leased or purchased, on fair and equitable terms. In such event, DEALER and CC shall agree on the value or rental value of the Premises for the purpose of either a sale or lease. If DEALER and CC are unable to so agree, each shall appoint a disinterested qualified real estate appraiser and the two so appointed will agree on the value or rental value of the Premises, as the case may be. If the two appraisers are unable to agree, they shall select a third disinterested qualified real estate appraiser who shall determine such value. The value or rental value so determined shall be final and binding on both DEALER and CC. If one or more appraisals are necessary, DEALER and CC shall share equally the cost of such appraisals.
(b) If, on DEALER's receipt of notice of termination, DEALER is leasing the Premises:
CC shall assist DEALER in effecting an orderly and equitable disposition of DEALER's leasehold interest in the Premises. If necessary to effect such disposition, CC, at its option, within a reasonable time, for the remainder of the lease or for twelve (12) months, whichever period is shorter, shall (1) sublet the Premises from DEALER, or (2) take an assignment of the lease of the Premises from DEALER, or (3) pay DEALER monthly or otherwise, as the parties may agree, the lower of the rental specified in the lease or the fair rental value of the Premises determined in the manner provided in (a) above; provided, however, that DEALER may receive such payments under only one dealer agreement with Chrysler Corporation or any of their affiliates or subsidiaries.
(c) If DEALER owns part of the Premises and leases part of them, section
(a) above will apply to the part owned and section (b) above to the part leased.
CC shall have no obligation to DEALER under this Paragraph 30 if, after receipt of notice of termination, (1) DEALER in any way encumbers the Premises or DEALER's interest in them or takes any other action respecting the Premises that would adversely affect any of CC's obligations under this Paragraph 30, or performance thereof, or (2) DEALER receives and refuses a bona fide offer to purchase, lease or sublet all or substantially all of the Premises at a price and
on terms that CC believes are fair, or (3) DEALER's lease of the Premises or
part thereof is continued, renewed or extended by DEALER's act or failure to
act, or (4) DEALER fails or refuses to use DEALER's best efforts to sell, lease
or sublease the Premises or to notify CC of any offer to buy, lease or sublease
the Premises; or if, after the effective date of termination of this agreement,
(a) the Premises or part thereof are used or occupied by anyone for any purpose,
or (b) DEALER, if a proprietor, or any of the persons named in Paragraph 3 of
this agreement is in the business of selling and/or servicing new or used motor
vehicles in the Sales locality referred to in this agreement or the general area
surrounding it, or (c) DEALER, if a proprietor, or any of the persons named in
Paragraph 3 of this agreement occupies or could, in CC's opinion, occupy all or
substantially all of the Premises for any business in which one or more of them
engages.
"Premises" as used in this Paragraph 30 means the place or places of business in the Sales Locality (1) that DEALER uses exclusively to carry out DEALER's obligations in selling and servicing new products under this agreement or jointly under this and any other agreement or agreements with CC on the date of DEALER's receipt of notice of termination and (2) are set forth in the Dealership Facilities and Location Addendum (Addenda).
To receive CC's assistance as set forth in this Paragraph 30, DEALER must have
operated continuously as a CC dealer for the twelve (12) months immediately
preceding the effective date of termination and must have given CC a written
request for such assistance within thirty (30) days after DEALER's receipt of
the notice of termination of this Agreement. On receipt of such request from
DEALER, CC will initiate compliance with its obligations under this Paragraph
30. If under section (b) above CC elects to make monthly payments, then DEALER
shall make written application for them on such forms and at such times as CC
reasonably may require. If DEALER requests assistance under this Paragraph 30,
then CC, at all reasonable times, shall have full access to the Premises and
DEALER's books and records pertaining to the Premises.
31 TRANSACTIONS AFTER TERMINATION
After the effective date of termination, if CC, in its discretion, elects to fill retail orders of DEALER or otherwise transacts business related to the sale of CC products with DEALER, all such transactions will be governed by the same terms that this Agreement provides, so far as those terms are applicable. Notwithstanding any such transactions, CC shall not be deemed to have waived or rescinded the termination or have renewed this Agreement.
32 SUCCESSORS TO DEALER
On termination of this Agreement by reason of the death of DEALER if an individual, or on termination by CC because of the death of any of the persons named in Paragraph 2 of this Agreement if DEALER is a partnership or corporation:
(a) If DEALER had so requested in writing (signed by DEALER if an individual or by those persons representing a majority of the ownership interest in DEALER if DEALER is a partnership or corporation), delivered to CC during the lifetime of such decedent, CC shall offer a Chrysler Corporation Sales and Service Agreement (limited to a two (2) year term) to any person DEALER has nominated in such written request to CC as the person DEALER desires to continue DEALER's business after such death, provided that such nominated person has demonstrated operating qualifications satisfactory to CC in the course of active, substantial and continuing participation in the management of DEALER's organization, and possesses or is able to acquire within a reasonable time after such death, capital and facilities that are satisfactory to CC, and will be able to exercise as much control over the operations and affairs of the dealership as the deceased exercised. Such Chrysler Corporation Sales and Service Agreement(s) shall be limited to a term of two (2) years and subject to earlier termination as provided therein. At least ninety (90) days before the expiration of the two (2) year term referred to above, CC shall determine if the person granted said two (2) year agreement possesses the required capital and facilities and has satisfactorily performed the obligations under said two (2) year agreement. This determination will be based on said person's performance during the aforementioned two (2) year period to qualify for the standard Chrysler Corporation Sales and Service Agreement then in effect. If CC determines that said person possesses all such qualifications, then CC shall offer such standard agreement to said person.
(b) CC shall, if DEALER has not nominated a successor under this Paragraph 32 and has not named a person whose surviving spouse may hold a financial interest under Paragraph 33, review the qualifications of any remaining person named in Paragraph 2 of this Agreement. If any such person possesses operating qualifications satisfactory to CC and possesses or is able to acquire within a reasonable time facilities and capital necessary to qualify as a CC dealer, CC shall offer such person a Chrysler Corporation Sales and Service Agreement or Term Sales and Service Agreement, as CC deems appropriate. If more than one such person qualifies, CC will select the person or persons to whom an agreement will be offered.
33 SURVIVING SPOUSE'S FINANCIAL INTEREST
On termination of this Agreement by reason of the death of DEALER, if an individual, or on termination by CC because of the death of any of the persons named in Paragraph 2 of this Agreement if DEALER is a partnership or corporation, the surviving spouse of the person who died may hold a financial interest in any successor dealership, provided that the following conditions are met:
(a) Prior to the death referred to above, DEALER had delivered to CC a notice in writing signed by all the persons named in Paragraph 2 of this Agreement naming the deceased person (who must also be named in Paragraph 2 of this Agreement) as the person whose surviving spouse may hold the financial interest. DEALER may name only one person but may, on written notice to CC, signed as above, change the person named.
(b) Within sixty (60) days of the date of such death, the surviving spouse
executes with the person or persons who will be named in Paragraph 2 of the CC
Sales and Service Agreement(s) between CC and the successor dealership a written
agreement in which the surviving spouse agrees not to participate in any way in
the management or operation of the successor dealership. Such agreement shall
be delivered to CC within fifteen (15) days after it has been signed by both
parties. Notwithstanding the immediately foregoing provisions of this Paragraph
33(b), such an agreement not to participate need not be made if CC has approved
the surviving spouse as a person to be named in Paragraph 2 of the CC Sales and
Service Agreement(s) between CC and the successor dealership.
Nothing contained herein will obligate CC to enter into a sales and service agreement with the surviving spouse or any person not otherwise acceptable to CC or require CC to continue this or any other agreement with the surviving spouse or any other person for any period of time beyond the time when CC would have a right to terminate such an agreement in accordance with the terms thereof.
"Successor dealership" as used in this Paragraph 33 means a dealership (1) that qualifies for and enters into a Chrysler Corporation Sales and Service Agreement with CC, (2) that possesses and has the right to use the physical assets and organization that remain after the death first referred to in this Paragraph 33, and (3) in which the surviving spouse retains or acquires the financial interest as referred to above.
34 SALE OF DEALERSHIP ASSETS OR OWNERSHIP INTERESTS
CC acknowledges that DEALER may at any time negotiate for the sale of its assets, and any of the owners of DEALER may at any time negotiate the sale of their ownership interests in DEALER, with any purchaser on such terms as may be agreed upon by them and the prospective purchaser. Any such sale, however, will not create any obligation of CC to do business with any such purchaser.
DEALER acknowledges that, in connection with any such sale to any such purchaser, this Agreement is not assignable without the written consent of CC. If the proposed purchase and sale arrangement contemplates or is conditioned upon the prospective purchaser being granted by CC an agreement similar to this Agreement, DEALER shall provide CC written notice thereof prior to any completion or closing of the transactions contemplated by such purchase and sale arrangement and the prospective purchaser shall apply to CC, on forms provided by CC, for such an agreement. In order that CC can determine whether effective dealership operations will result if the prospective purchaser's application is approved, CC may, in processing the application, without liability to DEALER or any such owners, counsel with the prospective purchaser regarding any matters including, but not limited to, matters relating to the investments in the proposed dealership operations, the management and the facilities that may be required by CC.
If DEALER or such owners have notified CC, and the prospective purchaser has made application as provided above, CC shall consider and process such application, together with the applications of any others for such an agreement, in accordance with its established procedures and CC shall not unreasonably withhold its approval of such an application. Any such approval shall be conditioned upon payment in full by DEALER of all of DEALER's obligations to CC, which payment shall be made at CC's option on or before the sale to the prospective purchaser. If CC decides not to continue authorized dealership operations at DEALER's premises, however, no such application will be considered or processed by CC and CC shall so notify DEALER or such owners and the prospective purchaser.
Notwithstanding the foregoing provision of this Paragraph 34, even if the prospective purchaser of DEALER's assets or ownership interests in DEALER meets CC's qualifications for appointment as a dealer, CC may, at its discretion, offer to purchase DEALER's assets or ownership interest in DEALER on the same terms as said qualified prospective purchaser. If CC makes such an offer, DEALER shall sell the dealership assets to CC on the aforementioned same terms. However, if CC has not made such an offer within fifteen (15) business days after CC's receipt of the aforementioned application and all necessary information, CC shall be deemed to have declined to offer to purchase DEALER's assets or ownership interests in DEALER. Within fifteen (15) days after CC has communicated its offer to purchase DEALER's assets or ownership interest in DEALER, as described above, DEALER may withdraw, by written notification to CC, its proposal to sell said assets or ownership interest to any purchaser, in which case CC's aforementioned offer to purchase will be null and void. Additionally, DEALER may request in writing that CC predetermine whether a proposed purchaser would be acceptable to CC prior to entering into an agreement to sell DEALER's assets or ownership interests. If such a request is made, CC shall make such determination. If CC determines that the proposed purchaser is acceptable to CC, CC shall decline to make an offer to purchase such assets or ownership interest. Such determination of acceptability and declination will not act to deny CC its right not to approve the proposed purchase and sale arrangement as set forth above.
35 USE OF TRADE NAMES, TRADEMARKS, LOGOS, ETC.
DEALER may use in DEALER's corporate, firm or trade name in a manner CC approves in writing any trade name applicable to those CC products set forth in the Motor Vehicle Addendum. DEALER shall discontinue immediately the use of any such trade names in DEALER's corporate, firm or trade name when CC so requests in writing and DEALER shall take such steps as may be necessary or appropriate, in CC's opinion, to change such corporate, firm or trade name so as to eliminate any trade name of CC products therefrom.
Except as specifically allowed herein, DEALER shall not use, in any manner, the trademarks, trade names, insignias or the like of CC, its divisions, affiliates or subsidiaries without CC's explicit and prior written consent. DEALER shall discontinue immediately any and all use of any such trademark, trade name, insignias or the like when CC so requests in writing.
On termination of this Agreement, DEALER shall discontinue immediately using any trade names applicable to CC vehicles or other products in DEALER's corporate, firm or trade name or using any trade names, trademarks or insignias adopted or used by CC or its divisions, affiliates or subsidiaries, and will take such steps as may be necessary or appropriate, in CC's opinion, to change such corporate, firm or trade name so as to eliminate any trade names applicable to CC products therefrom, and will discontinue using any signs, stationery or advertising containing any such trade names, trademarks or insignias or anything else that might make it appear that DEALER is an authorized dealer for CC vehicles or products.
36 DEALER IS NOT AGENT
This Agreement does not create the relationship of principal and agent between CC and DEALER, and under no circumstances is either party to be considered the agent of the other.
37 INABILITY TO PERFORM
In addition to any other exemption from liability specifically provided for in this Agreement, neither DEALER nor CC will be liable for failure to perform its part of this Agreement when the failure is due to fire, flood, strikes or other labor disputes, accident, war, riot, insurrection, acts of government, governmental regulation or other circumstances beyond the control of the parties.
38 ASSIGNMENT
DEALER may not assign or transfer this Agreement, or any part hereof, or delegate any duties or obligations under this Agreement without the written consent of CC, executed by the President or a Vice President or the National Dealer Placement Manager of Chrysler Corporation.
39 NON-WAIVER
The waiver by either party of any breach or violation of or default under any provision of this Agreement will not operate as a waiver of such provision or of any subsequent breach or violation thereof or default thereunder.
40 SEVERABILITY
If any provision of this Agreement should be held invalid or unenforceable for any reason whatsoever or to violate any law of the United States, the District of Columbia or any State, this Agreement is to be considered divisible as to such provision, and such provision is to be deemed deleted from this Agreement or, in the event that it should be held to violate only the laws of the District of Columbia or of any State, to be inapplicable within the territory thereof, and the
remainder of this Agreement will be valid and binding as if such provision were not included herein or as if it were included herein only with respect to territories outside of such District or State, as the case may be. Notwithstanding the foregoing, when, in the absence of this Paragraph 40, Federal law would otherwise be deemed to preempt a state law which purports to limit or prohibit any right, obligation or duty under any provision of this Agreement, then this Paragraph 40 shall not be construed to delete any such provision of this Agreement and the parties hereto will be subject to the terms of such provision as if such a state law did not exist.
41 TITLES
The titles appearing in this Agreement have been inserted for convenient reference only and do not in any way affect the construction, interpretation or meaning of the text.
42 INTERPRETATION
In the event of a dispute hereunder, the terms of this Agreement shall be construed in accordance with the laws of the State of Michigan.
43 NOTICES
Unless otherwise specifically required by the terms of this Agreement, any notice required or permitted under this Agreement must be in writing and will be sufficient if delivered personally, or sent through the United States mail system, postage prepaid, addressed, as appropriate, either to DEALER at the place of business designated in this Agreement, or at such other address as DEALER may designate in writing to CC, or to Chrysler Corporation at Post Office Box 857, Detroit, Michigan 48288 or such other address as CC may designate in writing to DEALER.
EXHIBIT 10.4.1
H O N D A
AUTOMOBILE DEALER
SALES AND SERVICE
AGREEMENT
Lithia Motors, Inc. dba
LITHIA HONDA #207171
700 North Central
Medford, Oregon 97501-5817
AMERICAN HONDA MOTOR CO., INC.
A
This is an agreement between the Honda Automobile Division, American Honda Motor Co., Inc. [American Honda] and Lithia Motors, Inc. [Dealer], a(n) Oregon corporation doing business as LITHIA HONDA. By this agreement, which is made and entered into at Torrance, California, effective the 11th day of August, 1994, American Honda gives to Dealer the nonexclusive right to sell and service Honda Products at the Dealership Location. It is the purpose of this Agreement, including the Honda Automobile Dealer Sales and Service Agreement Standard Provisions [Standard Provisions], which are incorporated herein by reference, to set forth the rights and obligations which Dealer will have as a retail seller of Honda Products. Achievement of the purposes of this Agreement is premised upon the mutual understanding and cooperation between American Honda and Dealer. American Honda and Dealer have each entered into this Agreement in reliance on the integrity and ability and expressed intention of each to deal fairly with the consuming public and with each other.
For consistency and clarity, terms which are used frequently in this Agreement have been defined in Article 12 of the Standard Provisions.
B
American Honda grants to Dealer the nonexclusive right to buy Honda
Products and to identify itself as a Honda dealer at the Dealership Location.
Dealer assumes the obligations specified in this Agreement and agrees to
sell and service effectively Honda Products within Dealer's Primary Market
Area and to maintain premises satisfactory to American Honda.
C
Dealer covenants and agrees that this Agreement is personal to Dealer, to the Dealer Owner, and to the Dealer Manager, and American Honda has entered into this Agreement based upon their particular qualifications and attributes and their continued ownership or participation in Dealership Operations. The parties therefore recognize that the ability of Dealer to perform this Agreement satisfactorily and the Agreement itself are both conditioned upon the continued active involvement in or ownership of Dealer by either:
(1.) the following person(s) in the percentage(s) shown:
PERCENT OF
NAME ADDRESS TITLE OWNERSHIP
Sidney B. DeBoer 360 E. Jackson President/ 75 shares
Medford, Oregon Secretary/
Treasurer
Manfred L. Heimann 426 Roundelay Circle Vice President 45 shares
Medford, Oregon
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(2.) _______________________________________________________, an individual personally owning an interest in Dealer or at least 25% and who has presented to American Honda a firm and binding contract giving to him the right and obligation of acquiring an ownership interest in Dealer in excess of 50% within five years of the commencement of Dealership Operations and being designated in that contract as Dealer operator.
D
Dealer represents, and American Honda enters into this Agreement in reliance upon the representation, that Byran DeBoer exercises the functions of Dealer Manager and is in complete charge of Dealership Operations with authority to make all decisions on behalf of Dealer with respect to Dealership Operations. Dealer agrees that there will be no change in Dealer Manager without the prior written approval of American Honda.
E
American Honda has approved the following premise as the location(s) for the display of Honda Trademarks and for Dealership Operations.
HONDA NEW VEHICLE
SALES SHOWROOM PARTS AND SERVICE FACILITY
700 North Central 700 North Central
Medford, Oregon Medford, Oregon
SALES AND GENERAL OFFICES USED VEHICLE DISPLAY
AND SALES FACILITIES
Page 2 of 12
-2-
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700 North Central 700 North Central Medford, Oregon Medford, Oregon |
F
There shall be no voluntary or involuntary change, direct or indirect, in the legal or beneficial ownership or executive power or responsibility of Dealer for the Dealership Operations, specified in Paragraphs C and D hereof, without the prior written approval of American Honda.
G
Dealer agrees to maintain, solely with respect to the Dealership Operations, minimum net working capital of $168,136.00, minimum owner's equity of $210,045.00, and flooring and a line or lines of credit in the aggregate amount of $574,140.00 with banks or financial institutions approved by American Honda for use in connection with Dealer's purchases of and carrying of inventory of Honda Products, all of which American Honda and Dealer agree are required to enable Dealer to perform its obligations pursuant to this Agreement. If Dealer also carries on another business or sells other products, Dealer's total net working capital, owner's equity and lines of credit shall be increased by an appropriate amount.
H
This Agreement is made for the period beginning August 11, 1994 and ending August 31, 1999, unless sooner terminated. Continued dealings between American Honda and Dealer after the expiration of this Agreement shall not constitute a renewal of this Agreement for a term, but rather shall be on a day-to-day basis, unless a new agreement or a renewal of this Agreement is fully executed by both parties.
I
This Agreement may not be varied, modified or amended except by an instrument in writing, signed by duly authorized officers of the parties, referring specifically to this Agreement and the provision being modified, varied or amended.
J
Neither this Agreement, nor any part thereof or interest therein, may be transferred or assigned by Dealer, directly or indirectly, voluntarily or by operation of law, without the prior written consent of American Honda.
Lithia Motors, Inc. dba
LITHIA HONDA #207171 By
- ----------------------------------- -------------------------
[Corporate or Firm Name] [Dealer]
AMERICAN HONDA MOTOR CO., INC. [Corporate Seal]
HONDA AUTOMOBILE DIVISION
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EXHIBIT 10.4.2
HONDA
CIVIC
AUTOMOBILE DEALER'S STANDARD AGREEMENT
AMERICAN HONDA MOTOR CO., INC.
TABLE OF CONTENTS
HONDA AUTOMOBILE DEALER'S STANDARD AGREEMENT
ARTICLE I: DEFINITIONS
1. "HONDA MOTOR" . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2. "DISTRIBUTOR" . . . . . . . . . . . . . . . . . . . . . . . . . . .1
3. "DEALER". . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
4. "HONDA AUTOMOBILES" . . . . . . . . . . . . . . . . . . . . . . . .1
5. "HONDA AUTOMOBILE PARTS". . . . . . . . . . . . . . . . . . . . . .1
6. "HONDA TRADEMARK" . . . . . . . . . . . . . . . . . . . . . . . . .1
7. "HONDA SIGN". . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II: BASIC OBLIGATION
1. SALE AND RESALE OF HONDA AUTOMOBILES AND HONDA AUTOMOBILE PARTS . .1
2. DEALER'S RESPONSIBILITY FOR SALE AND PROMOTION. . . . . . . . . . .2
3. APPOINTMENT OF DEALERS. . . . . . . . . . . . . . . . . . . . . . .2
4. CONDUCT OF DEALER . . . . . . . . . . . . . . . . . . . . . . . . .2
5. DIRECTIVES AND POLICIES OF DISTRIBUTOR. . . . . . . . . . . . . . .2
6. DEALER AS INDEPENDENT BUSINESS. . . . . . . . . . . . . . . . . . .2
7. DEALER'S POWER AND AUTHORITY LIMITATION . . . . . . . . . . . . . .3
8. DISTRIBUTOR'S NON-LIABILITY . . . . . . . . . . . . . . . . . . . .3
ARTICLE III: DEALER'S GENERAL BUSINESS REQUIREMENTS
1. DEALER'S BUSINESS PREMISES. . . . . . . . . . . . . . . . . . . . .3
2. DESCRIPTION AND PLANS OF DEALER'S PREMISES. . . . . . . . . . . . .3
3. EXPANSIONS AND IMPROVEMENTS OF DEALER'S PREMISES. . . . . . . . . .4
4. RELOCATION AND NEW DEALER'S PREMISES. . . . . . . . . . . . . . . .4
5. DEALER'S PERSONNEL. . . . . . . . . . . . . . . . . . . . . . . . .4
6. HOURS OF BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . .4
7. CAPITAL REQUIREMENTS. . . . . . . . . . . . . . . . . . . . . . . .4
8. ACCOUNTING SYSTEM . . . . . . . . . . . . . . . . . . . . . . . . .5
9. RECORD SUPPORTING CLAIMS. . . . . . . . . . . . . . . . . . . . . .5
10. EXAMINATION OF ACCOUNTS AND RECORDS . . . . . . . . . . . . . . . .6
ARTICLE IV: SALES OF HONDA AUTOMOBILES AND HONDA AUTOMOBILE PARTS
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1. DEALER'S RESPONSIBILITY FOR SALES . . . . . . . . . . . . . . . . .6
2. SALES AND MECHANICAL STAFF. . . . . . . . . . . . . . . . . . . . .6
3. SALES AND SERVICE RECORDS . . . . . . . . . . . . . . . . . . . . .7
4. CUSTOMER'S COMPLAINTS . . . . . . . . . . . . . . . . . . . . . . .7
5. TREATMENT OF PURCHASERS . . . . . . . . . . . . . . . . . . . . . .7
A. DELIVERED PRICES AND ITEMIZED INVOICES . . . . . . . . . . . .7
B. TRUE STATEMENT AS TO SELLING PRICES. . . . . . . . . . . . . .7
C. SUGGESTED RETAIL PRICES. . . . . . . . . . . . . . . . . . . .7
D. SALE WITHOUT OPTIONAL EQUIPMENT OR ACCESSORIES . . . . . . . .7
E. PRE-DELIVERY INSPECTION. . . . . . . . . . . . . . . . . . . .8
ARTICLE V: DEALER'S HONDA AUTOMOBILE PARTS AND SUPPLIES
1. PROMOTION OF HONDA AUTOMOBILE PARTS . . . . . . . . . . . . . . . .8
2. DEALER'S PARTS DEPARTMENT REQUIREMENTS. . . . . . . . . . . . . . .8
3. SALE OF HONDA AUTOMOBILE PARTS. . . . . . . . . . . . . . . . . . .8
4. MINIMUM INVENTORY OF HONDA AUTOMOBILE PARTS . . . . . . . . . . . .9
ARTICLE VI: CUSTOMER'S SERVICE
1. SERVICE TO BE PROVIDED BY DEALER. . . . . . . . . . . . . . . . . .9
2. SERVICE DEPARTMENT. . . . . . . . . . . . . . . . . . . . . . . . .9
3. REPRESENTATION OF HONDA AUTOMOBILE PARTS. . . . . . . . . . . . . .9
4. CONTACT WITH PURCHASERS . . . . . . . . . . . . . . . . . . . . . .9
5. WARRANTY DIRECTIVES AND PROCEDURES. . . . . . . . . . . . . . . . 10
ARTICLE VII: DEALER'S PURCHASES AND INVENTORY
1. PRICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2. ORDER AND ACCEPTANCE. . . . . . . . . . . . . . . . . . . . . . . 10
3. LOCAL TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4. PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5. RESERVATION OF TITLE FOR SECURITY . . . . . . . . . . . . . . . . 11
6. PASSING OF TITLE AND RISK . . . . . . . . . . . . . . . . . . . . 12
7. EXTENT OF DISTRIBUTOR'S RESPONSIBILITY FOR DEFECTS AND DAMAGE . . 12
8. CLAIMS FOR INCOMPLETE DELIVERY. . . . . . . . . . . . . . . . . . 12
9. CHANGES OF SPECIFICATIONS . . . . . . . . . . . . . . . . . . . . 12
10. FAILURE OF OR DELAY IN DELIVERY . . . . . . . . . . . . . . . . . 13
11. RETURN OR DIVERSION ON FAILURE TO ACCEPT. . . . . . . . . . . . . 13
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12. INVENTORIES . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VIII: WARRANTY TO CUSTOMERS
1. MANUFACTURER'S WARRANTY . . . . . . . . . . . . . . . . . . . . . 14
2. WARRANTY TO CUSTOMERS . . . . . . . . . . . . . . . . . . . . . . 14
3. WARRANTY CLAIM PROCEDURE. . . . . . . . . . . . . . . . . . . . . 14
4. WARRANTY REGISTRATION PROCEDURE . . . . . . . . . . . . . . . . . 15
ARTICLE IX: ESTIMATES AND REPORTS
1. ESTIMATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2. SALES AND INVENTORY REPORTS . . . . . . . . . . . . . . . . . . . 15
ARTICLE X: SIGNS, TRADEMARKS AND TRADENAMES
1. SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
A. PRODUCT SIGN . . . . . . . . . . . . . . . . . . . . . . . . 16
B. CUSTOMER SERVICE SIGN. . . . . . . . . . . . . . . . . . . . 16
C. OTHER NECESSARY SIGNS. . . . . . . . . . . . . . . . . . . . 16
2. TRADEMARKS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
A. EXCLUSIVE OWNERSHIP. . . . . . . . . . . . . . . . . . . . . 16
B. USE BY DEALER. . . . . . . . . . . . . . . . . . . . . . . . 16
C. DISCONTINUANCE OF USE UPON TERMINATION . . . . . . . . . . . 16
D. DEALER'S LIABILITY FOR FAILURE TO DISCONTINUE USE. . . . . . 17
ARTICLE XI: ADVERTISING PROMOTIONAL PROGRAM . . . . . . . . . . . . . . . 17
ARTICLE XII: COMPLIANCE WITH LAWS . . . . . . . . . . . . . . . . . . . . 17
ARTICLE XIII: TERMINATION OF SALES AGREEMENT
1. TERMINATION BY DEALER . . . . . . . . . . . . . . . . . . . . . . 18
2. TERMINATION FOR CAUSE . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE XIV: SIGNS, LITERATURE, BUSINESS NAME, ETC. UPON TERMINATION
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1. REMOVAL OF SIGNS. . . . . . . . . . . . . . . . . . . . . . . . . 20
2. LITERATURE, MANUALS, PROMOTIONAL MATERIAL, ETC. . . . . . . . . . 20
3. BUSINESS NAME . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE XV: TERMINATION DELIVERIES
1. CANCELLATION OF ORDERS. . . . . . . . . . . . . . . . . . . . . . 21
2. TERMINATION DELIVERIES. . . . . . . . . . . . . . . . . . . . . . 21
3. EFFECT OF TRANSACTIONS AFTER TERMINATION. . . . . . . . . . . . . 22
ARTICLE XVI: REPURCHASE OF HONDA AUTOMOBILES, HONDA
AUTOMOBILE PARTS, SPECIAL TOOLS AND
EQUIPMENT AFTER TERMINATION
1. HONDA AUTOMOBILES . . . . . . . . . . . . . . . . . . . . . . . . 23
2. HONDA AUTOMOBILE PARTS. . . . . . . . . . . . . . . . . . . . . . 23
3. SPECIAL TOOLS AND EQUIPMENT . . . . . . . . . . . . . . . . . . . 24
4. DELIVERY TO DISTRIBUTOR . . . . . . . . . . . . . . . . . . . . . 24
5. INSPECTION OF PROPERTY AT DEALER'S PREMISES . . . . . . . . . . . 24
6. RIGHT OF REJECTION. . . . . . . . . . . . . . . . . . . . . . . . 24
7. LIENS AND ENCUMBRANCES. . . . . . . . . . . . . . . . . . . . . . 25
8. PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9. FREIGHT AND INSURANCE CHARGES . . . . . . . . . . . . . . . . . . 25
ARTICLE XVII: OBLIGATIONS OF DISTRIBUTOR IN CASE OF DEATH . . . . . . . . 25
1. DEATH OF DEALER . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XVIII: DISTRIBUTOR'S ASSISTANCE
1. ASSISTANCE IN SALE OF DEALER'S BUSINESS . . . . . . . . . . . . . 26
ARTICLE XIX: GENERAL PROVISIONS
1. AUTHORITY TO SIGN FOR DISTRIBUTOR . . . . . . . . . . . . . . . . 27
2. ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . . . . 27
3. RELEASE OF CLAIMS . . . . . . . . . . . . . . . . . . . . . . . . 27
4. VARIATIONS, MODIFICATIONS, AMENDMENTS . . . . . . . . . . . . . . 27
5. NO TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7. WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8. DIVISIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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HONDA AUTOMOBILE DEALER'S STANDARD AGREEMENT
ARTICLE I
DEFINITIONS
As used herein:
1. "HONDA MOTOR" means Honda Motor Co., Ltd., a Japan corporation.
2. "DISTRIBUTOR" means American Honda Motor Co., Inc., a California corporation.
3. "DEALER" means the authorized Honda Automobile Dealer.
4. "HONDA AUTOMOBILES" means automobiles of any model and type manufactured in whole or in part by Honda Motor and supplied to Dealer by Distributor.
5. "HONDA AUTOMOBILE PARTS" means parts, accessories and optional equipment for Honda Automobiles which are manufactured by or for Honda Motor or Distributor and title to which passes through Distributor.
6. "HONDA TRADEMARK" means any trademark, service mark, or other identifying word, emblem, insignia, symbol, slogan, design or indicia now or during the term of this Agreement claimed or adopted by Honda Motor or Distributor to distinguish Honda Automobiles, Honda Automobile Parts, or services related thereto, including but not limited to "HONDA," "H," "HM," "AHM," and the wing design.
7. "HONDA SIGN" means any sign displaying any Honda Trademark, including but not limited to, the standard Customer's Service Sign.
ARTICLE II
BASIC OBLIGATION
1. SALE AND RESALE OF HONDA AUTOMOBILES AND HONDA AUTOMOBILE PARTS:
Subject to the provisions of this Agreement, Distributor shall sell and deliver Honda Automobiles and Honda Automobile Parts to Dealer for resale and assist the Dealer and its operation relating to the resale of and customers' service for Honda Automobiles and Honda Automobile Parts.
2. DEALER'S RESPONSIBILITY FOR SALE AND PROMOTION:
Dealer assumes the responsibility for the promotion and sale of Honda Automobiles, Honda Automobile Parts, and rendering customers' service for Honda Automobiles within an area in which the Dealer's premises are located, which is herein referred to as "AREA OF RESPONSIBILITY" and agrees to devote his principal efforts to such area.
3. APPOINTMENT OF DEALERS:
Distributor reserves the right to appoint one or more authorized Honda Automobile Dealers in the above mentioned "Area of Responsibility" as Distributor may, from time to time, determine necessary.
4. CONDUCT OF DEALER:
In the operation of its business, Dealer shall protect the reputation and goodwill of Honda Automobiles, Honda Automobile Parts and other Honda products, of Honda Motor and Distributor and shall refrain from all conduct and activities which might be detrimental and reflect adversely upon the reputation of Honda Automobiles, Honda Automobile Parts and other Honda products or Honda Motor or Distributor or are contrary to good business practices or to any laws, statutes, rules and regulations affecting the operation of a retail automobile business and shall not engage in any discourteous, deceptive, misleading or unethical practices or activities, but shall give prompt, efficient and courteous service to its customers and actively and honestly promote the sale of Honda Automobiles and Honda Automobile Parts.
5. DIRECTIVES AND POLICIES OF DISTRIBUTOR:
In the operation of Dealer's business and in the sale and promotion of Honda Automobiles and Honda Automobile Parts and in rendering customers' service and in all other activities pursuant to any provisions of this Agreement, Dealer shall abide by all reasonable directives and policies of Distributor. Distributor shall periodically evaluate Dealer's business operation and may require Dealer to make any reasonable adjustments necessary to uphold and protect the reputation and goodwill of Honda Automobiles including Honda Automobile Parts.
6. DEALER AS INDEPENDENT BUSINESS:
Dealer represents and shall transact and operate his business in accordance with the provisions of this Agreement as an independent business on its own behalf and its own account.
7. DEALER'S POWER AND AUTHORITY LIMITATION:
Dealer has no power or authority or right to act as an agent or otherwise for the account or on behalf of Honda Motor or Distributor or to assume or create any obligation or responsibility, expressed or implied, for or in behalf of Honda Motor or Distributor or to bind Honda Motor or Distributor in any manner whatsoever.
8. DISTRIBUTOR'S NON-LIABILITY:
Distributor shall not be liable or responsible whatsoever for any expenditures made or obligations, indebtedness or liability incurred by Dealer in connection with Dealer's performance of its obligations under this Agreement.
ARTICLE III
DEALER'S GENERAL BUSINESS REQUIREMENTS
1. DEALER'S BUSINESS PREMISES:
To provide proper Honda Automobile and Honda Automobile Parts representation commensurate with the reputation and goodwill attached to the name "Honda" and to facilitate the proper sales and servicing of Honda Automobiles and Honda Automobile Parts, Dealer will maintain business premises satisfactory to Distributor with respect to appearance, location, size of buildings, space allotments and adequate layout as well as equipment, showroom, office, storage space, used car
lot, body repair and paint shop, if any, parking facilities, workshop and service operation; each of which shall comply with the standards, policies and directives of Distributor as developed in proportion to the number of Honda Automobiles and Honda Automobile Parts that may reasonably be expected to be sold and serviced by Dealer.
2. DESCRIPTION AND PLANS OF DEALER'S PREMISES:
For the purpose of identifying the business premises and providing satisfactory evidence that said business premises are in compliance with Distributor's standards, policies and directives as specified in Paragraph 1 of Article III, Dealer will submit to Distributor as Exhibit A of this Agreement, a complete and full description and plans of the location, land, building and all other requirements as contained in Paragraph 1 of Article Ill herein. Such description and/or plans shall be submitted on a "Description and Plan of Dealer's Premises" form to be furnished by Distributor and must be approved in writing by Distributor.
3. EXPANSIONS AND IMPROVEMENTS OF DEALER'S PREMISES:
If during the term of this Agreement, expansion of Dealer's premises is necessary to properly sell and service customers, it is agreed that Dealer and Distributor will enter into a bona fide and good faith negotiation to determine the extent of improvements necessary to fulfill the requirements of such expansion of business. Upon agreement by Distributor and Dealer of any change of said description and/or plans, a new "Description and Plans of Dealer's Premises" shall be prepared, signed by Dealer, and approved by Distributor in writing.
4. RELOCATION AND NEW DEALER'S PREMISES:
Once a Dealer has established its business facilities at a location mutually satisfactory to Dealer and Distributor, Dealer will not move to or establish a new or different location, branch sales office, branch service establishment or any place or business including any used automobiles or truck lots or location without first obtaining a written approval of Distributor.
5. DEALER'S PERSONNEL:
Dealer shall at all times employ for its business qualified and competent personnel for sale of Honda Automobiles and sale of used automobiles and for sale of Honda Automobile Parts and for servicing Honda Automobiles in such numbers and in such capacities as required according to Distributor's standards, policies and directives for Dealer's satisfactory operation. Dealer, at its cost, shall cause such of
its qualified personnel, who may come within the scope of any training courses conducted by Distributor, to attend such training whenever Distributor specifies that attendance is required and will use such material and information as may be specified from time to time by Distributor.
6. HOURS OF BUSINESS:
During the term of this Agreement the Dealer shall operate its business at its premises during and for not less than the customary business days and hours of the trade in Dealer's area.
7. CAPITAL REQUIREMENTS:
Dealer and Distributor fully understand that a successful operation of Dealer's business will to a great extent depend on the amount of net working capital, owner's equity and line of credit with which Dealer maintains its business operations, and, therefore, Dealer agrees that it will at all times maintain as its minimum net working capital, owner's equity and lines of credit in accordance with the amount set forth in a separate minimum net working capital agreement to be executed by Dealer and Distributor at the time of the execution of this Agreement. If due to changed conditions, Distributor shall deem it necessary to materially increase or decrease the amount of minimum net working capital, owner's equity or line or lines of credit for Dealer to properly operate its business, Dealer agrees to maintain the revised amount of minimum net working capital, owner's equity, or line or lines of credit, as the case may be deemed necessary by Distributor, to meet such changed conditions for the proper operation of Dealer's business and Dealer and Distributor agree to execute a new Sales Agreement, thereof setting forth such revised amounts. If the amounts thereof are increased or decreased, Dealer will meet the new minimum net working requirements within the time agreed upon by Dealer and Distributor.
8. ACCOUNTING SYSTEM:
In order that Distributor may obtain satisfactory and adequate financial operation data and information concerning Dealer's business operation to enable Distributor to formulate policies beneficial to Dealer's interest and for the promotion and sales of Honda Automobiles and Honda Automobile Parts, it is agreed Dealer will use and keep up-to-date an accounting system of the type which will meet the accepted accounting practices of the accounting profession and satisfactory to Distributor, and upon request by Distributor, Dealer will furnish to Distributor by the fifteenth (15th) day of each month, a complete and accurate financial and operation statement on forms furnished or approved by Distributor with such supporting data as Distributor might request covering the period of operation so designated, and showing
a true and actual account of Dealer's business. In addition, if the Dealer is, at the time of the execution of this Agreement or thereafter, engaged in the sale of any other product or service, Dealer shall maintain and keep separate records and books relating to the sales of Honda Automobiles and Honda Automobile Parts and servicing of Honda Automobiles so that Distributor shall be fully advised of all matters relating to transactions of Dealer pursuant to the terms of this Agreement; and Dealer shall furnish Distributor with one (1) copy of a certified profit and loss statement and balance sheet of Honda products and services consolidated statement for all products and services monthly.
9. RECORD SUPPORTING CLAIMS:
Dealer will prepare, keep up-to-date and retain records in support of application for reimbursement of warranty policy work performed by Dealer, and application for discounts, allowances, refunds or credits, in accordance with the policies, procedures and directions formulated by Distributor.
10. EXAMINATION OF ACCOUNTS AND RECORDS:
Dealer will permit, at any reasonable business hours, an examination of its accounts and records to be made by person or persons in the employ of or acceptable to Distributor.
ARTICLE IV
SALES OF HONDA AUTOMOBILES AND HONDA AUTOMOBILE PARTS
1. DEALER'S RESPONSIBILITY FOR SALES:
Dealer will use its best and principal efforts in promoting sales performance of Honda Automobiles and Honda Automobile Parts and rendering service to owners of Honda Automobiles satisfactory to Distributor in Dealer's Area of Responsibility, and agrees to meet Sales Quotas as may be determined by Distributor as hereinafter provided. Dealer's sales performance shall be evaluated, based an such reasonable criteria as Distributor may determine from time to time, which may include but not be limited to the relative sales of New Honda Automobiles by Dealer in comparison with sales of other makes of automobiles in such area, with the nationwide, statewide or local sales of New Honda Automobiles, with sales of New Honda Automobiles in comparative trade areas, development of Dealer's sales performance over reasonable sales time, the availability and the delivery of Honda Automobiles to Dealer, and local conditions, including but not limited to geographic location, climate, population,
transportation facilities and general shopping habits of the buying public directly affecting such sales performance, and reasonable Sales Quotas likewise determined by Distributor from time to time. When two or more Honda Automobile Dealers are located within Dealer's Area of Responsibility, evaluations of the sales performance of Dealer shall be based upon Dealer's contribution to the combined sales performance of all New Honda Automobiles in such area, Dealer's sales participation experience within such area, and consideration of all the other sales performance factors hereinabove set forth.
2. SALES AND MECHANICAL STAFF:
Dealer shall at all times maintain a staff of competent salesmen and a selling and customer relations organization adequate to take care of its sales potential. Dealer shall employ Distributor-trained and certified service technicians in such manners and capacities as specified according to Distributor's standards, policies and directives to service the owners of Honda Automobiles in Dealer's Area of Responsibility.
3. SALES AND SERVICE RECORDS:
Dealer will keep separate, complete and current records pertaining to sales and servicing of Honda Automobiles and Honda Automobile Parts and will permit Distributor or its designee or designees at any reasonable business hours to inspect such records.
4. CUSTOMER'S COMPLAINTS:
Dealer will receive, investigate and handle all complaints made by owners of Honda Automobiles promptly, courteously and efficiently in order to secure and maintain the goodwill of the public toward Dealer, Distributor and Honda Automobiles, and any complaint received by Dealer which cannot be readily remedied by Dealer shall be promptly reported in detail to Distributor.
5. TREATMENT OF PURCHASERS:
A. DELIVERED PRICES AND ITEMIZED INVOICES:
Dealer will inform purchasers of Honda Automobiles and any Parts of purchasers' delivered prices and give them an itemized invoice covering the details of their purchases.
B. TRUE STATEMENT AS TO SELLING PRICES:
Dealer will not make any misleading statements or misrepresentations as to the items making up the total selling price of a New Honda Automobile, Honda Automobile Parts, or as to the prices related to such items.
C. SUGGESTED RETAIL PRICES:
Dealer hereby fully understands that any suggested retail price which may be issued by Distributor pursuant to applicable laws is merely a suggested price and no Dealer is required to sell any Honda Automobiles or Honda Automobile Parts at such suggested retail prices.
D. SALE WITHOUT OPTIONAL EQUIPMENT OR ACCESSORIES:
Dealer recognizes that a retail customer has the right to purchase New Honda Automobile without being required to purchase any optional equipment or accessories, which the purchaser does not want unless such equipment or accessories are required under applicable law or regulations. Dealer shall remove such optional equipment or accessories not desired by customer or will immediately order a New Honda Automobile without such optional equipment or accessories.
E. PRE-DELIVERY INSPECTION:
Dealer will inspect, test and condition each New Honda Automobile before delivering it to customer in accordance with Distributor's Pre-Delivery and Inspection Schedule, except wholesale sales to other authorized Honda Automobile Dealers. Dealer agrees to promptly submit verification to Distributor, on the forms provided by Distributor, that the Pre-Deliver Inspection has been properly performed by a Distributor-trained and certified service technician.
ARTICLE V
DEALER'S HONDA AUTOMOBILE PARTS SUPPLIES
1. PROMOTION OF HONDA AUTOMOBILE PARTS:
Dealer will use its best efforts to promote the sales of Honda Automobile Parts in the Dealer's Area of Responsibility including use of such means as may be specified from time to time by Distributor's directives and suggestions.
2. DEALER'S PARTS DEPARTMENT REQUIREMENTS:
In the operation of Dealer's Parts Department, Dealer shall comply with such reasonable standards or requirements as Distributor shall from time to time define, and Dealer shall at all times employ qualified and competent parts manager, parts clerk and parts employee and in such number as may be required to satisfactorily manage and operate such Parts Department, and use forms prescribed by Distributor, and at all times give prompt and careful attention to owners of Honda Automobiles.
3. SALE OF HONDA AUTOMOBILE PARTS:
Dealer shall not sell or offer for sale as Honda Automobile Parts, or as parts approved by Honda Motor or Distributor, any parts which are not in fact, respectively, Honda Automobile Parts, or parts expressly approved by Honda Motor or Distributor, and in no event shall Dealer sell or offer for sale or use in connection with Honda Automobiles any parts or accessories which are not permitted to be sold under the standard set forth pursuant to the National Traffic and Motor Vehicle Safety Act of 1966 as amended.
4. MINIMUM INVENTORY OF HONDA AUTOMOBILE PARTS:
Dealer will carry in stock at all times during the term of this Agreement reasonable inventory of Honda Automobile Parts to render proper service to owners of Honda Automobiles in Dealer's Area of Responsibility.
ARTICLE VI
CUSTOMER'S SERVICE
1. SERVICE TO BE PROVIDED BY DEALER:
Dealer shall provide the best possible service to any Honda Automobile owner who may request such service from Dealer, including performance of warranty repairs, and shall use its best efforts and endeavor to promote customer's service.
2. SERVICE DEPARTMENT:
In the operation of Dealer's Service Department, Dealer agrees to comply with such standards as Distributor may from time to time define; Dealer shall at all times indicate the location of the Service Department through a customer service sign in accordance with the directives of Distributor; shall purchase and maintain all general tools, special tools and equipment required by Distributor to property service Honda Automobiles; shall provide Distributor with verification per Exhibit B of this Agreement, that all required tools and equipment are available on Dealer's premises and in good operating condition for use on Honda Automobiles; shall employ qualified and competent service manager, service writer, shop foreman, experienced, competent and Distributor-trained technician and other service employee and in such numbers as may be required by Distributor; shall use Honda service promotional material and workshop forms prescribed by Distributor; shall properly execute all service and repair work with respect to Honda Automobiles; and shall provide prompt and careful service for owners of Honda Automobiles.
3. REPRESENTATION OF HONDA AUTOMOBILE PARTS:
Dealer shall not represent as New Honda Automobile Parts or as new parts approved by Honda Motor or Distributor other than New Honda Automobile Parts or new parts expressly approved by Honda Motor or Distributor.
4. CONTACT WITH PURCHASERS:
Dealer will furnish owners of Honda Automobiles prompt, courteous and efficient service and will establish regular contact by correspondence, or otherwise, with all persons who purchased Honda Automobiles from Dealer.
5. WARRANTY DIRECTIVES AND PROCEDURES:
Distributor shall from time to time issue directives or policies on Dealer's warranty procedures and adjustments which will be reviewed periodically by Distributor to assure the handling of adjustments and warranty problems properly and efficiently, to maintain maximum benefits to Dealer and Distributor and to foster goodwill of owners of Honda Automobiles and good relationship toward Dealer, Distributor and Honda Automobiles. Any change or modification of such directives or policies shall become effective three (3) days after mailing of such notice to Dealer.
ARTICLE VII
DEALER'S PURCHASES AND INVENTORY
1. PRICES:
Distributor shall sell Honda Automobiles and Honda Automobile Parts to Dealer at such prices and upon such terms as may be established from time to time by Distributor. Dealer shall pay any and all sales taxes, use taxes, State excise taxes and other governmental or municipal charges imposed or levied or based upon the sale of Honda Automobiles or Honda Automobile Parts by Distributor to Dealer. In the event of any increase or decrease of the prices established by Distributor, Dealer shall have the right to cancel all orders for Honda Automobiles affected by such increase or decrease which are pending and unfilled at the time Dealer obtains written notice of the increase or decrease from Distributor, provided that Distributor be notified in writing of such cancellation within ten (10) days from the time Dealer receives such notice, and provided that such order or orders have not been shipped by Distributor to Dealer.
2. ORDER AND ACCEPTANCE:
Dealer shall furnish its orders for Honda Automobiles and Honda Automobile Parts to Distributor on forms supplied by Distributor at such time or times and for such period or periods as Distributor reasonably may require from time to time, and all such orders may be accepted by Distributor in whole or as to any part thereof. All orders of Dealer shall be binding upon it unless and until they are rejected in writing by Distributor, provided, however, that in the event of a partial acceptance by Distributor, Dealer shall no longer be bound with respect to the parts of the order not accepted. In the event of shortage or restricted supply, Dealer gives Distributor the
right to allocate such supply in any reasonable manner Distributor deems fit in any geographical market area.
3. LOCAL TAXES:
With each order furnished by Dealer to Distributor, Dealer represents and warrants, as of the date of the purchase of the Honda Automobiles or Honda Automobile Parts ordered, that all Honda Automobiles, Honda Automobile Parts and similar items purchased from Distributor are purchased by Dealer for resale in the ordinary course of Dealer's business and that Dealer has complied with all the pertinent provisions of local law prerequisite to the collection and payment by Dealer of all sales taxes, use taxes, State excise taxes and other governmental or municipal charges applicable to all such purchases or resale transactions and will furnish evidence thereof to Distributor upon request. In the event that any Honda Automobiles, Honda Automobile Parts or other tangible property purchased from Distributor are put to a taxable use by Dealer, or are in fact purchased by Dealer for purposes other than resale in the ordinary course of Dealer's business, Dealer shall make timely return and payment to the appropriate taxing authorities, of all applicable sales taxes, use taxes, State excise taxes and other governmental or municipal charges imposed or levied or based upon the sale of such Honda Automobiles or Honda Automobile Parts or other tangible property by Distributor to Dealer, and shall hold Distributor free and harmless from any and all claims and demands which may be made by such taxing authorities with respect thereto.
4. PAYMENTS:
Dealer shall make payment at the time and upon the conditions specified in Distributor's established terms of payment. Delivery of any checks or instruments of payment, other than actual cash, shall not constitute payment until Distributor shall have collected actual cash in the full amount thereof. Dealer shall pay all collection charges and costs of exchange, if any, incurred in connection with its payments.
5. RESERVATION OF TITLE FOR SECURITY:
Except where the invoice may show a sale on credit, title to the Honda Automobiles or Honda Automobile Parts sold by Distributor to Dealer shall remain with Distributor to secure the payment therefor, and Distributor shall have the right to stop such shipment in transit and to repossess, retake and resell said Honda Automobiles or Honda Automobile Parts and give credit therefor, and Dealer shall bear the cost of transportation and sale thereof, if any, if Distributor shall elect to sell.
6. PASSING OF TITLE AND RISK:
Except for reservation of title in Distributor as provided in Article VII, Paragraph 5 supra, the title to Honda Automobiles and Honda Automobile Parts sold by Distributor to Dealer, and all risks and peril thereto shall pass to Dealer at the time of their delivery to Dealer, Dealer's agent or carrier at the place of delivery specified in accordance with the Distributor's established terms of delivery and during all subsequent transportation; and it shall be up to Dealer to insure such risks for its benefit and at its expense.
7. EXTENT OF DISTRIBUTOR'S RESPONSIBILITY FOR DEFECTS AND DAMAGE:
As between Distributor and Dealer only, Distributor assumes responsibility for damage of Honda Automobiles and Honda Automobile Parts caused during storage by Distributor or prior to delivery to Dealer, Dealer's agent or carrier at the place of delivery specified in Distributor's terms of delivery, provided Dealer notes nature and extent of damage on carrier's delivery receipt and notifies Distributor not more than five (5) days after delivery. Distributor assumes responsibility for concealed damage provided that carrier and Distributor are properly notified of the nature and extent of such damage not more than forty-eight (48) hours after delivery in accordance with the directives and policies of Distributor.
Dealer shall cause all such defects or damage to be repaired fully in accordance with the standards, directives and policies of Distributor to a level not less than the original condition before such damage was incurred.
8. CLAIMS FOR INCOMPLETE DELIVERY:
All claims for incomplete delivery of Honda Automobiles or Honda Automobile Parts ordered by Dealer must be properly submitted to Distributor not more than five (5) days after Dealer receives shipment, provided that, in the case of automobile shipments, all shortages are noted on the carrier's delivery receipt.
9. CHANGES OF SPECIFICATIONS:
Distributor reserves the right, at any time, to change or modify, without notice, any specifications, design or model of Honda Automobiles and Honda Automobile Parts. In the event of any change or modification with respect to any Honda Automobiles or Honda Automobile Parts, Dealer shall not be entitled to have such or similar change or modification with respect to any Honda Automobiles or
Honda Automobile Parts already ordered or purchased by Dealer and shipped to Dealer or in Dealer's possession, except as may be required by applicable law.
10. FAILURE OF OR DELAY IN DELIVERY:
Neither Distributor nor Honda Motor shall be under any liability whatsoever to Dealer or to its customer for failure to deliver, or for delay in making delivery pursuant to orders of Dealer accepted by Distributor if such failure or delay is due, in whole or in part, to the fact that delivery or timely delivery was rendered impossible or more burdensome than it would have been in the normal course of business by any event, whether foreseen or foreseeable or not, including any event in the nature of acts of God, acts of providence, foreign or civil wars, riots, interruptions of navigation or transportation, shipwrecks, strikes, lockout, other labor troubles in place of business of Distributor or its supplies, embargoes, blockades, fires, explosions, any labor, material, transportation or utility shortage, failures of Honda Motor or of any other supplier of Distributor to deliver, or delay of Honda Motor or of any other supplier in making delivery and any cause beyond control of Distributor, the foregoing specific events having listed herein only by way of illustration and not by way of limitation.
11. RETURN OR DIVERSION ON FAILURE TO ACCEPT:
If without fault on part of Distributor, Dealer should fail or refuse to accept delivery of any Honda Automobiles or Honda Automobile Parts ordered by Dealer, Dealer shall pay Distributor the amount of all expenses incurred by Distributor in shipping such Honda Automobiles or Honda Automobile Parts to Dealer and expenses of returning them to the original place of shipment or in directing them to another destination, as determined by Distributor; but in no event shall the cost to Dealer for returning such non-accepted items be in an amount in excess of the expenses of returning such Honda Automobiles or Honda Automobile Parts to their original place of shipment. In the event, such Honda Automobile Parts be returned to a warehouse of Distributor, Dealer shall pay, in addition to said expenses, restocking charges of such Honda Automobile Parts according to terms established by Distributor.
12. INVENTORIES:
Dealer shall acquire and at all times maintain at least such minimum inventory of Honda Automobiles and Honda Automobile Parts as may be reasonably determined from time to time by Distributor, but this obligation shall be subject to the ability of Distributor to supply the products ordered by Dealer. Dealer also shall have available at all times for purposes of demonstration the number of Honda Automobiles of the most current models and types, as reasonably requested by Distributor in accordance
with the volume of Dealer's business, and shall keep the same at all times in first class operating condition. Dealer shall increase from time to time, as may be reasonably requested by Distributor, its minimum inventory of Honda Automobiles and Honda Automobile Parts and the number of Honda Automobiles held by it for the purpose of demonstration.
ARTICLE VIII
WARRANTY TO CUSTOMERS
1. MANUFACTURER'S WARRANTY:
New Honda Automobiles and New Honda Automobile Parts supplied to Dealer by Distributor will be warranted by Distributor only in accordance with the manufacturer's or Distributor's written warranty to customers as may be furnished to Dealer from time to time by Distributor be distributed to its retail consumers, which warranty may be amended or modified at any time by Distributor. OTHER THAN THE WARRANTY CONTAINED IN SAID MANUFACTURER'S OR DISTRIBUTOR'S WRITTEN WARRANTY, NEITHER DISTRIBUTOR NOR HONDA MOTOR MAKES ANY WARRANTY WHATSOEVER, EXPRESSED OR IMPLIED, AS TO THE QUALITY OR CONDITION OF HONDA AUTOMOBILES OR HONDA AUTOMOBILE PARTS TO BE SUPPLIED BY IT TO DEALER, INCLUDING, BUT NOT BY WAY OF LIMITATION, THE MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSES OF SUCH HONDA AUTOMOBILES OR HONDA AUTOMOBILE PARTS AND ASSUMES NO LIABILITY WHATSOEVER, WHETHER FOR DIRECT, INDIRECT OR CONSEQUENTIAL DAMAGES, OR IN ANY OTHER WAY, IN CONNECTION WITH SUCH CONDITION.
2. WARRANTY TO CUSTOMERS:
Dealer shall make all sales of Honda Automobiles and Honda Automobile Parts in such manner that the customers shall acquire all rights accorded thereto by the Manufacturer's or Distributor's written warranty as amended from time to time by Distributor, to the exclusion of any other, further or different warranty from or on behalf of Honda Motor or Distributor.
3. WARRANTY CLAIM PROCEDURE:
Procedures for the processing and disposition of warranty claims and for the return and disposition of Honda Automobile Parts claimed to be defective, and
payment and credit therefor shall be established from time to time by Distributor. Dealer shall comply with all the requests of Distributor for the performance of services pursuant to warranty claims.
4. WARRANTY REGISTRATION PROCEDURE:
Dealer agrees to notify Distributor of the sale of each New Honda Automobile, or used Honda Automobile, if still under warranty, on such forms as prescribed by Distributor in accordance with policies and procedures established from time to time by Distributor.
ARTICLE IX
ESTIMATES AND REPORTS
1. ESTIMATES:
To enable Distributor to estimate requirements for future delivery, Dealer will furnish Distributor every month by the time specified by Distributor with a monthly estimate of Dealer's requirements of New Honda Automobiles on a form provided by Distributor for a period of time as may be designated by Distributor.
2. SALES AND INVENTORY REPORTS:
To assist Distributor in the evaluation of current market trends and adjustments of established current and future shipment schedule, Dealer will furnish Distributor every month by the time specified by Distributor with monthly sales and inventory reports of Honda Automobiles, on forms furnished by Distributor. Such reports shall show separately detail sales of both new and used Honda Automobiles and new and used automobiles other than Honda Automobiles made during such period, separate detailed inventory of both new and used Honda Automobiles and unfilled orders for Honda Automobiles on hand at the end of each month. Dealer shall also furnish Distributor with such daily interim sales and inventory reports, on forms furnished by Distributor, as Distributor may reasonably require in evaluating Dealer's current sales and inventory. Such daily interim sales and inventory reports shall be furnished to Distributor within the time as may be requested by Distributor.
ARTICLE X
SIGNS, TRADEMARKS AND TRADENAMES
1. SIGNS:
Dealer will purchase, erect and maintain at Dealer's expense the following signs, except those prohibited by applicable law, statute or ordinance.
A. PRODUCT SIGN:
A standard Honda electric sign authorized by Distributor in a conspicuous place outside Dealer's showroom.
B. CUSTOMER SERVICE SIGN:
The standard service sign authorized by Distributor in a suitable location on the outside of Dealer's place of business. Other service signs shall be placed in conspicuous locations to direct customers requiring use of Dealer's servicing facilities.
C. OTHER NECESSARY SIGNS:
Such other signs as Distributor approves in writing and is deemed necessary to advertise Dealer's business property. All Honda Signs, other than above described, must be first approved in writing by Distributor before installation.
2. TRADEMARKS:
A. EXCLUSIVE OWNERSHIP:
Dealer agrees that Honda Motor and/or Distributor are the owners of and are entitled to the exclusive use of the various Honda Trademarks.
B. USE BY DEALER:
Dealer is granted during the term of this Agreement the non-exclusive privilege of displaying the Honda Trademarks in connection with the sale, offering for sale and servicing of Honda Automobiles and Honda Automobile Parts, of using such trademarks in the business name of Dealer under which Dealer's Honda Automobile business is conducted, and upon prior and separate written approval of Distributor, provided, however, that Dealer shall discontinue the display or use of any Honda Trademark or change the manner in which any such trademark is displayed or used
when requested to do so by Distributor. Dealer agrees that any use or display of the Honda Trademarks inures solely to the benefit of Honda Motor and/or Distributor, including all goodwill. Dealer agrees that it shall not use such trademarks in its corporate name.
C. DISCONTINUANCE OF USE UPON TERMINATION:
Dealer agrees that the above granted privilege is automatically revoked upon termination or expiration without renewal of this Agreement and that there is no continuing or other right or license to use or display the Honda Trademarks. Dealer agrees that if any such trademark is used in Dealer's business name or in signs, advertising or in any other manner by Dealer, Dealer will, upon termination or expiration without renewal of this Agreement, immediately discontinue, at is own expense, all such use and display thereof. See Article XIV, infra.
D. DEALER'S LIABILITY FOR FAILURE TO DISCONTINUE USE:
If dealer shall refuse or neglect to keep and perform the provisions of Section 2, subsections A, B or C, of this Article X or Sections 1, 2 or 3 of Article XIV, Dealer shall reimburse Honda Motor and/or Distributor for all costs, attorney's fees and other expenses incurred by Honda Motor and/or Distributor in connection with legal action to require Dealer to comply therewith.
ARTICLE XI
ADVERTISING PROMOTIONAL PROGRAM
Dealer agrees to actively advertise Honda Automobiles and Honda Automobile Parts and to display appropriate signs required by Distributor and to cooperate to the greatest reasonable extent with all promotional programs of Distributor and to protect Dealer's customers and the public and to maintain the goodwill and reputation of Honda Automobiles and Honda Automobile Parts. Dealer will not advertise or trade in Distributor's products in such a way as to be injurious or detrimental to such goodwill and reputation and will not publish, advertise or use any form of advertising matter or media objectionable to Distributor, and will discontinue immediately any advertising objected to by Distributor.
ARTICLE XII
COMPLIANCE WITH LAWS
Dealer shall at all times hereunder operate and conduct its business in full compliance with all Federal, State, County, or City statutes, laws, rules, regulations and ordinances, particularly the applicable State Motor Vehicle Code, the National Traffic and Motor Vehicle Safety Act of 1966 and all amendments thereto, and all federal or state trade regulation laws. Dealer agrees to fully cooperate and comply immediately with any directives or instructions of Distributor pertaining to matters concerning compliance with said National Traffic and Motor Vehicle Act of 1966, or with rules, regulations and standards promulgated by the Secretary of Transportation or the Traffic Safety Administrator.
ARTICLE XIII
TERMINATION OF SALES AGREEMENT
1. TERMINATION BY DEALER:
Dealer may terminate this Agreement by serving upon Distributor written notice of termination, by certified or registered mail addressed to Distributor at its home office. Such termination to be effective thirty (30) days after actual receipt by Distributor of such Notice.
2. TERMINATION FOR CAUSE:
A. If Dealer breaches, violates or defaults under any obligation of Dealer set forth in this Agreement or in connection with any conduct or any transaction between Distributor and Dealer within the scope of this Agreement, Distributor may terminate this Agreement by giving Dealer written notice of termination by certified or registered mail addressed to Dealer at its place of business to be effective sixty (60) days after receipt of such notice. This provision shall not in any way be construed to limit or restrict Distributor's rights to cancel this Agreement as otherwise herein provided.
B. Distributor may, at its option, forthwith terminate this Agreement for cause by notifying Dealer by certified or registered mail or telegraph. The following events shall be considered sufficient cause for the forthwith termination of this Agreement; such causes are enumerated in this Agreement only by way of illustration and not by way of limitation.
1. Failure by Dealer or Distributor to secure and maintain any license necessary for the conduct of Dealer or Distributor of its business pursuant to this Agreement or the expiration without renewal, or suspension, or revocation of any such license.
2. Any transfer or attempted transfer by Dealer of the whole or any part of this Agreement or any interest therein or any right or obligation thereunder, without the prior written consent of Distributor subject to laws of state in which Dealer is located.
3. Insolvency of Dealer or the voluntary commencement by Dealer or the involuntary commencement against Dealer of any proceedings under the Bankruptcy Act or under any State insolvency law, which is not vacated within ten (10) days from the institution thereof; or the appointment of a receiver or other officer having similar powers for Dealer or Dealer's business who is not removed within ten (10) days from appointment thereof; or any levy under attachment, garnishment or execution or similar process which is not within ten (10) days vacated or removed by payment or bonding.
4. Any change, whether voluntary or by operation of law, in the legal or beneficial ownership of or in the executive power or responsibility in Dealer without the prior written consent of Distributor.
5. Any disagreement or personal difficulty between or among partners or stockholders of Dealer or in the management of Dealer which in the Distributor's opinion may adversely affect the conduct of Dealer's business, or the presence in the management of Dealer or any person who in the Distributor's opinion does not have or no longer has requisite qualifications for his position.
6. Impairment of reputation or the financial standings of Dealer or of any partner, stockholder or officer of Dealer subsequent to the execution of this Agreement, or the ascertainment by Distributor of any facts existing at or prior to the time of execution of this Agreement which tend to impair such reputation or financial standings, or if Dealer is in default of any obligations or debts due to Distributor or if Dealer's account with Distributor becomes delinquent.
7. Submission by Dealer of any false or fraudulent application, report or statement, or false or fraudulent claim for reimbursement, refund or payment, including, but not by way of limitation, false and fraudulent warranty claims.
8. Conviction in any court of competent jurisdiction of Dealer or of any partner, stockholder, or officer of Dealer for any crime or violation of law, if in the opinion of Distributor such conviction may adversely affect the conduct of Dealer's business or tend to be harmful to the goodwill of Honda Motor or Distributor to the reputation of Honda Automobiles, Honda Automobile Parts or other Honda products.
9. Should Dealer enter into any agreement, understanding, or contract, oral or written, with any other Dealer or Dealers with the purpose of fixing prices of Honda Automobiles or Honda Automobile Parts.
10. Death or incapacity (for reasons of health) of Dealer, if an individual, or of a partner of Dealer, if a partnership, or dissolution or liquidation of Dealer, if a partnership or a corporation.
11. Failure of Dealer to maintain dealership operations as a going business, open during customary business hours, for seven consecutive business days except if such failure is due to causes beyond Dealer's control and is without Dealer's fault or negligence.
12. Termination of Distributor's Franchise as a Honda Automobile Distributor.
13. Failure of Dealer to perform the required pre-delivery inspection, testing and conditioning services and procedural requirements relating thereto.
14. Failure of Dealer to make improvements, alterations, or modifications of its business premises which Dealer has agreed or represented to Distributor that Dealer shall make or do.
15. Discontinuance of the Automobile Series for which Dealer holds this Sales Agreement.
C. Termination of this Agreement is subject to state laws and procedures in which the Dealer is located.
ARTICLE XIV
SIGNS, LITERATURE, BUSINESS NAME, ETC. UPON TERMINATION
1. REMOVAL OF SIGNS:
Upon termination or expiration without renewal of this Agreement, Dealer shall forthwith remove, at its own expense, all authorized signs which are displayed at the premises for which this dealership was granted, and sell and deliver the same to Distributor at Dealer's place of business or such other place as may be designated by Distributor, labelled and packaged in suitable containers for transportation. Distributor shall pay Dealer such price for such Honda signs as reasonably shall be determined by Distributor, provided, however, that such price shall in no event be less than Dealer's cost price for such signs reduced by straight line depreciation on the basis of a useful life of five years except Distributor shall not be required to pay for any signs not purchased by Dealer for use or display at the premises for which this dealership was granted. Dealer agrees to forthwith destroy all unauthorized signs.
2. LITERATURE, MANUALS, PROMOTIONAL MATERIAL, ETC.:
Upon termination or expiration without renewal of this Agreement, Dealer shall deliver to Distributor at Distributor's place of business, or to a third person designated by Distributor, or destroy upon request by Distributor, any and all technical or service literature, advertising and other printed material, then in Dealer's possession or under its control, which relates to Honda Automobiles or Honda Automobile Parts, and which was obtained by Dealer from Distributor. Distributor shall pay Dealer therefor a reasonable amount as determined by Distributor, provided Dealer was charged therefor by Distributor. Dealer shall at its own expense destroy all other printed material, including business stationery, bearing any Honda Trademark or referring to Honda Automobiles or Honda Automobile Parts in any way which might make it appear that Dealer is still a Honda Automobile Dealer.
3. BUSINESS NAME:
Upon termination or expiration without renewal of this Agreement, Dealer shall, at its sole expense, promptly remove all Honda Trademarks from its business name and any registration thereof, and shall in all respects cease to hold itself out to the public or trade as a Honda Automobile Dealer. See also Section 2, subsections C and D of Article X, supra, re discontinuance of use of Honda Trademarks.
ARTICLE XV
TERMINATION DELIVERIES
1. CANCELLATION OF ORDERS:
Upon the mailing of the written termination or expiration without renewal of this Agreement, Distributor shall have the right to cancel all pending orders of Dealer for Honda Automobiles, Honda Automobile Parts, and special tools and equipment, whether previously accepted by Distributor or not, except as provided in Article XV, Paragraph 2, below.
2. TERMINATION DELIVERIES:
In the event of termination of this Agreement or expiration without renewal thereof, and upon written request by Dealer, Distributor will use its best efforts to furnish Dealer with Honda Automobiles to fill Dealer's bona fide orders on hand on the date of termination or expiration without renewal subject to the following conditions and limitations:
A. Within ten (10) days following the date of service of the notice of termination upon Dealer or expiration without renewal of this Agreement, Dealer shall deliver to Distributor a written schedule of Dealer's bona fide retail orders on hand on the date of termination together with a photo-copy of each such order attached. Such schedule shall show the name and address of each retail customer and the details with respect to each Honda Automobile ordered, including model, body type, color and accessories and shall specify each bona fide order against which Dealer desires Distributor to make delivery and that Dealer does not have in stock such Honda Automobiles to fill such orders. Such unfilled retail orders for which delivery is thus specified by Dealer, when approved by Distributor, shall constitute Dealer's Unfilled Order Schedule. No change or substitution may be made by Dealer in such Dealer's Unfilled Order Schedule and Distributor shall not be obligated to make delivery of any Honda Automobile to Dealer except as specified therein. In the event Dealer fails to deliver to Distributor the timely detailed Schedule above required, Dealer shall have no further rights.
B. Honda Automobiles shall be delivered to Dealer by Distributor hereunder substantially in accordance with the schedules and basis of delivery in effect with respect to other dealers in the same zone area at the time of Dealer's termination, and Dealer shall accept any such Honda Automobiles required to be delivered by Distributor hereunder against Dealer's Unfilled Order Schedule immediately upon notification by Distributor of the availability to Dealer of such
Honda Automobiles and in accordance with the terms and conditions of sales established by Distributor and in effect at the time of shipment. In the event of its failure to do so, Dealer shall have no further right to receive such Honda Automobiles or any other Honda Automobile in lieu of them.
C. Dealer shall give Distributor notice immediately of any cancellation for any reason of any retail order set forth in Dealer's Unfilled Order Schedule and in the event of cancellation of any order contained in Dealer's Unfilled Order Schedule before delivery by Distributor of such Honda Automobile against such order, Distributor shall be released from any obligation to make delivery of such Honda Automobile.
3. EFFECT OF TRANSACTIONS AFTER TERMINATION:
The acceptance of orders from Dealer or the continuance of sale of Honda Automobiles and Honda Automobile Parts to Dealer or any other act of Distributor after termination of this Agreement shall not be construed as a renewal of this Agreement for any further term nor a waiver of the termination.
ARTICLE XVI
REPURCHASE OF HONDA AUTOMOBILES, HONDA AUTOMOBILE PARTS, SPECIAL TOOLS AND EQUIPMENT AFTER TERMINATION
Upon the termination or expiration without renewal of this Agreement, Distributor shall have the option to purchase from Dealer all or any part of the properties hereinafter set forth, and Dealer agrees to sell and deliver the same to Distributor in accordance with the provisions herein contained. Distributor shall have thirty (30) days after effective date of termination or expiration without renewal to exercise its option to repurchase the properties hereinafter described.
1. HONDA AUTOMOBILES:
All new, unused and undamaged Honda Automobiles unsold at the effective date of termination or expiration of this Agreement in Dealer's inventory, in its possession or under its control which are in first class saleable condition and of the then current model and type, and provided that they were purchased by Dealer from Distributor. The price for such Honda Automobiles shall be the price at which they were originally purchased by Dealer from Distributor or the price last established by Distributor for the sale of identical Honda Automobiles, whichever shall be lower, in either case less all prior refunds and allowances made by Distributor with respect
thereto, if any. Further Dealer agrees that within ten (10) days after termination or expiration without renewal of this Agreement, Dealer shall deliver to Distributor a written inventory, in such form as Distributor may require, of all Honda Automobiles in its inventory, possession or control.
2. HONDA AUTOMOBILE PARTS:
All new, unused and undamaged Honda Automobile Parts listed in "Distributor's Current Parts Price Schedule," then unsold and in Dealer's inventory, or in its possession or control, which are in first class saleable condition, provided they were purchased by Dealer from Distributor. The price for such Honda Automobile Parts shall be the price then last established by Distributor for the sale of such identical Honda Automobile Parts, less all prior refunds or allowances made by Distributor in respect thereto and less restocking charges. Further Dealer agrees that within thirty (30) days after termination or expiration without renewal, it will deliver to Distributor a list, in such form as Distributor may require, of all Honda Automobile Parts in its inventory, possession or control.
3. SPECIAL TOOLS AND EQUIPMENT:
All special tools and equipment for Honda Automobiles owned by Dealer and purchased from Distributor by Dealer or pursuant to request of Distributor. The price for such special tools and equipment shall be a reasonable price determined by Distributor, but such price shall in no event be less than Dealer's cost price for such tools and equipment reduced by a straight line depreciation on the basis of a useful life of five years. Further Dealer agrees that within thirty (30) days after termination or expiration without renewal, it will deliver to Distributor a list of all special tools and equipment in its inventory, possession or control.
4. DELIVERY TO DISTRIBUTOR:
Dealer agrees to retain such Honda Automobiles, Honda Automobile Parts, special tools and equipment at Dealer's place of business, labelled and packaged in suitable containers for transportation until receipt of shipping instructions from Distributor, and upon receipt of such shipping instructions, Dealer shall comply therewith.
5. INSPECTION OF PROPERTY AT DEALER'S PREMISES:
Distributor, or its designee or designees, at such reasonable time and for such reasonable period of time as Distributor may determine, shall have the right to enter Dealer's premises for the purpose of checking the list submitted by Dealer or
examining and inspecting of any and all items of property therein set forth to determine the correctness of the list submitted and the condition of such property.
6. RIGHT OF REJECTION:
Notwithstanding anything to the contrary contained and regardless of whether the Distributor has exercised his right of inspection under Paragraph 5, of this Article XVI or not, in the event Distributor exercises his option to repurchase the properties described in Paragraphs 1, 2 and 3 of Article XVI, Distributor shall have the right, for a period of thirty (30) days after delivery of such property to Distributor, to reject any or all of the Honda Automobiles, Honda Automobile Parts or special tools and equipment to be repurchased by Distributor, if any such product or property does not meet any of the requirements set forth in said Paragraphs 1, 2 or 3 of this Article XVI, or if any such products or property so delivered to Distributor was purchased by Dealer for premises operated under another and separate Honda Automobile Sales Agreement.
7. LIENS AND ENCUMBRANCES:
All Honda Automobiles, Honda Automobile Parts, Honda Signs, special tools and equipment to be repurchased by Distributor pursuant to provisions of Article XIV or Article XVI of this Agreement shall be free and clear of all liens, encumbrances or attachments, and Distributor may deduct from the purchase price of such property all indebtedness of Dealer to Distributor, including any payments made by Distributor to satisfy any lien, encumbrance or attachment.
8. PAYMENT:
All payment due from Distributor to Dealer pursuant to provisions of Article XIV or Article XVI of this Agreement or in connection with the termination of Dealer's Sales Agreement, shall be made by Distributor within ten (10) days after all matters therein provided shall be finally determined and all credits and offsets ascertained. In the event it be found that a balance is due from Dealer to Distributor, Dealer shall pay such sum to Distributor within ten (10) days of notice of such balance.
9. FREIGHT AND INSURANCE CHARGES:
If Dealer cancels this Agreement, Dealer shall pay all freight and insurance charges from Dealer's premises to the place of delivery designated by Distributor on all repurchases of Honda Automobiles, Honda Automobile Parts, special tools and equipment, Honda Signs, manuals, literature, promotional material, etc., which
Distributor is obligated to, or elects to, repurchase under this Agreement, provided that Dealer shall not be liable for any amount greater than the freight and insurance charges from Dealer's premises to Distributor's closest warehouse.
ARTICLE XVII
OBLIGATIONS OF DISTRIBUTOR IN CASE OF DEATH
1. DEATH OF DEALER:
Notwithstanding the right of Distributor to forthwith terminate this Agreement pursuant to Paragraph 10 of Article XIII herein upon the death or incapacitation (for reasons of health) of any person referred to therein, Distributor shall not so terminate this Agreement pursuant to said Paragraph 10 before the end of the calendar year during which such death or incapacitation of any such person occurs, if upon such death or incapacitation of such person his/her beneficial interest in Dealer's business passes directly to his/her spouse or children, or any of them, and if either (1) the person having executive powers and responsibility in the management of the Dealer's business remains unchanged, or (2) within sixty (60) days after said death or incapacitation arrangements are completed for the assumption of executive power and responsibility in Dealer's business during the remainder of the calendar year by persons acknowledged by Distributor to be satisfactory to it. However, nothing in this Article XVII shall affect or waive Distributor's right otherwise to terminate this Agreement pursuant to any provision of this Agreement other than said Paragraph 10 and subject to any laws relating thereto in which the Dealer is located.
ARTICLE XVIII
DISTRIBUTOR'S ASSISTANCE
1. ASSISTANCE IN SALE OF DEALER'S BUSINESS:
To the end that the equities of the Dealer may be protected and its loss, if any, be minimized, Distributor will assist Dealer in the orderly disposition of Dealer's business assets in accordance with the following provisions:
A. If Dealer desires the assistance of Distributor in the disposition of Dealer's business assets, which at the time of Dealer's first knowledge of termination of expiration of this Agreement were being used solely for the performance of Dealer's obligations under this Agreement and Dealer's Sales Agreement, Dealer may
within thirty (30) days from effective date of termination of this Agreement file with Distributor a written request for assistance in the disposition of such business assets and shall therein set forth an itemized statement of all assets and property to be included therein, excluding therefrom all Honda Automobiles, Honda Automobile Parts, special tools and equipment and Honda Signs, etc., as may be repurchased by Distributor under the provisions of Article XIV and Article XVI of this Agreement. If Dealer fails to make such timely request, Distributor shall be released from any and all obligations to Dealer under the section.
B. Upon receipt of such request from Dealer, Distributor shall endeavor to locate a purchaser who will offer to purchase such business assets of the Dealer's business used solely for the performance of Dealer's obligations under this Agreement and Dealer's Sales Agreement at the price set by Dealer or at a fair and reasonable price. In the event Distributor is unable to locate a purchaser of such business assets at a price acceptable to Dealer within thirty (30) days after receipt of such request from Dealer, then Distributor shall be released from any and all obligations to locate a purchaser for Dealer pursuant to such request.
ARTICLE XIX
GENERAL PROVISIONS
1. AUTHORITY TO SIGN FOR DISTRIBUTOR:
Dealer acknowledges that only a Vice-President, or Secretary or Assistant Secretary is authorized on behalf of Distributor to execute this Agreement or to agree to any variation, modification or amendment of any of its provisions.
2. ENTIRE AGREEMENT:
This instrument contains the entire Agreement between the parties. No representations or statements other than those expressly set forth herein were made or relied upon in entering into this Agreement.
3. RELEASE OF CLAIMS:
This Agreement terminates and supersedes as of the beginning of its term all prior agreements, if any, with respect to Honda Automobiles and Honda Automobile Parts between the parties. The parties hereby waive, abandon and relinquish any and all claims of any kind and nature whatsoever arising from or out of or in connection with any such prior agreement, provided, however, that nothing herein contained shall
be deemed a waiver of any claims arising out of prior sales of Honda Automobiles and Honda Automobile Parts by Distributor to Dealer.
4. VARIATIONS, MODIFICATIONS, AMENDMENTS:
This Agreement may not be varied, modified or amended except by an instrument in writing duly signed by the parties.
5. NO TRANSFER:
Neither this Agreement, nor any part thereof or any interest therein, may be transferred or assigned by Dealer without the prior written consent of Distributor except states with law regulating transfers.
6. NOTICES:
All notices under or pursuant to the provisions of this Agreement shall be directed to the other party at their respective address as stated herein, or, if either of the parties shall have specified another address by notice in writing to the other party, to the address thus last specified. The parties shall advise each other forthwith in writing of any change of address.
7. WAIVERS:
The waiver by either party of any breach or violation of or default under any provision of this Agreement shall not be deemed to be a waiver by such person of any subsequent breach or violation thereof or default thereunder, or of any other provisions herein.
8. DIVISIBILITY:
This Agreement is to be governed by and construed according to the laws of the State of California. If any provision of this Agreement should be held invalid or unenforceable for any reason whatsoever or to violate any law of the United States, the District of Columbia or any state this Agreement shall be considered divisible as to such provision, and such provision shall be deemed deleted from this Agreement in such jurisdiction or, in the event that it should be held to violate only the laws of the District of Columbia or of any state, such provision shall be inapplicable only within the territory thereof, and the remainder of this Agreement shall be valid and binding as if such provision was not included herein or as if it were included herein only with respect to territories outside of such District or state, as the case may be.
10.5.2
DEALER SALES
AND
SERVICE AGREEMENT
ISUZU
AMERICAN ISUZU MOTORS INC.
ISUZU DEALER SALES
AND
SERVICE AGREEMENT
ADDITIONAL PROVISIONS
TABLE OF CONTENTS
Page
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I. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
II. SALES TO DEALER . . . . . . . . . . . . . . . . . . . . . . . . . . .3
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A. Dealer's Orders. . . . . . . . . . . . . . . . . . . . . . . . .3
B. Shipment and Risk of Loss. . . . . . . . . . . . . . . . . . . .3
C. Passage of Title . . . . . . . . . . . . . . . . . . . . . . . .3
D. Freight. . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
E. Diversions . . . . . . . . . . . . . . . . . . . . . . . . . . .4
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. . . . . . . . . . . . . . . . . . . . . . . . . .5
3. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . .5
I. Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . .5
J. Failure or Delay in Filling Orders . . . . . . . . . . . . . . .6
K. Alteration of Isuzu Products . . . . . . . . . . . . . . . . . .6
III. DEALERSHIP OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . .7
A. Dealership Location and Facilities . . . . . . . . . . . . . . .7
1. Dealership Facilities . . . . . . . . . . . . . . . . . . .7
2. Changes in Dealership Location or Facilities. . . . . . . .7
3. Hours of Business . . . . . . . . . . . . . . . . . . . . .7
4. Identification of Dealership Facilities . . . . . . . . . .7
5. Evaluation of Dealer's Performance with
Respect to Dealership Facilities. . . . . . . . . . . . . .7
B. Vehicle Sales Operations . . . . . . . . . . . . . . . . . . . .8
1. Responsibility of Dealer. . . . . . . . . . . . . . . . . .8
2. Sales Personnel . . . . . . . . . . . . . . . . . . . . . .8
3. Inventory . . . . . . . . . . . . . . . . . . . . . . . . .8
4. Modification of Isuzu Vehicles. . . . . . . . . . . . . . .8
5. Evaluation of Dealer's Sales Performance. . . . . . . . . .8
6. Evaluation of Sales of Isuzu Trucks . . . . . . . . . . . .9
C. Used Vehicle Sales Operations. . . . . . . . . . . . . . . . . .9
D. Rental and Leasing Operations. . . . . . . . . . . . . . . . . 10
E. Parts and Accessories Sales Operations . . . . . . . . . . . . 10
1. Responsibility of Dealer. . . . . . . . . . . . . . . . . 10
2. Sales Personnel . . . . . . . . . . . . . . . . . . . . . 10
3. Inventory . . . . . . . . . . . . . . . . . . . . . . . . 10
4. Representations Concerning Parts and
Accessories . . . . . . . . . . . . . . . . . . . . . . . 10
5. Evaluation of Dealer's Parts and Accessories
Sales Performance . . . . . . . . . . . . . . . . . . . . 11
F. Service Operations . . . . . . . . . . . . . . . . . . . . . . 11
1. General Service Responsibilities of Dealer. . . . . . . . 11
2. Specific Service Obligations of Dealer. . . . . . . . . . 11
(a) New Vehicle Pre-Delivery Inspections and
Adjustments. . . . . . . . . . . . . . . . . . . . . 11
(b) Complimentary Maintenance Service. . . . . . . . . . 11
(c) Warranty Repairs . . . . . . . . . . . . . . . . . . 12
(d) Campaign Inspections and Corrections . . . . . . . . 12
(e) Disposition of Replaced Parts. . . . . . . . . . . . 12
(f) Maintenance and Repair Service . . . . . . . . . . . 13
(g) Payments by Distributor to Dealer. . . . . . . . . . 13
3. Other Service Responsibilities of Dealer. . . . . . . . . 13
(a) Compliance with Laws Regulating Vehicles
and Other Products . . . . . . . . . . . . . . . . . 13
(b) Service Personnel. . . . . . . . . . . . . . . . . . 13
(c) Service Equipment and Special and
Essential Tools. . . . . . . . . . . . . . . . . . . 14
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4. Evaluations of Dealer's Service Performance . . . . . . . 14
G. Advertising, Promotional and Public Relations
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 14
1. Advertising Standards . . . . . . . . . . . . . . . . . . 14
2. Dealer's Advertising Programs . . . . . . . . . . . . . . 14
3. Participation in Distributor's Advertising
Programs. . . . . . . . . . . . . . . . . . . . . . . . . 14
4. Customer Relations. . . . . . . . . . . . . . . . . . . . 14
(a) Informing Customers as to Details of
Charges. . . . . . . . . . . . . . . . . . . . . . . 14
(b) Right of Retail Purchaser to Buy Vehicle
Without Purchasing Optional Equipment or
Accessories. . . . . . . . . . . . . . . . . . . . . 15
(c) Informing Retail Purchasers as to
Optional Equipment or Accessories
Installed by Dealer. . . . . . . . . . . . . . . . . 15
H. Capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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I. Accounting System. . . . . . . . . . . . . . . . . . . . . . . 15
J. Records and Reports. . . . . . . . . . . . . . . . . . . . . . 16
1. Financial Statements. . . . . . . . . . . . . . . . . . . 16
2. Ownership and Management Records. . . . . . . . . . . . . 16
3. Sales and Service Records and Reports . . . . . . . . . . 16
4. Records Concerning Applications and Claims for
Payments. . . . . . . . . . . . . . . . . . . . . . . . . 16
K. Inspection of Accounts and Records . . . . . . . . . . . . . . 17
L. Trademarks and Service Marks . . . . . . . . . . . . . . . . . 17
IV. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 18
A. Indemnification of Distributor . . . . . . . . . . . . . . . . 18
B. Indemnification of Dealer. . . . . . . . . . . . . . . . . . . 18
C. Exception to Indemnification . . . . . . . . . . . . . . . . . 19
V. TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
A. Termination of Agreement . . . . . . . . . . . . . . . . . . . 20
1. Voluntary Termination by Dealer . . . . . . . . . . . . . 20
2. Termination Due to Acts or Events Controlled
by Dealer, Its Owner(s) or Manager(s) . . . . . . . . . . 20
3. Termination by Distributor for Failure of
Performance by Dealer . . . . . . . . . . . . . . . . . . 22
4. Termination Because of Death or Incapacity of
Owner and/or Executive Manager. . . . . . . . . . . . . . 22
5. Termination for Failure of Dealer or
Distributor to be Licensed. . . . . . . . . . . . . . . . 23
6. Termination by Mutual Agreement . . . . . . . . . . . . . 23
7. Right to Rely on Any Applicable Termination
Provision . . . . . . . . . . . . . . . . . . . . . . . . 23
B. Transactions After Termination . . . . . . . . . . . . . . . . 24
1. Effect of Termination on Orders . . . . . . . . . . . . . 24
2. Effect of Transactions After Termination. . . . . . . . . 24
3. Purchases of Eligible Items . . . . . . . . . . . . . . . 24
4. Responsibilities of Dealer. . . . . . . . . . . . . . . . 25
5. Payment by Distributor. . . . . . . . . . . . . . . . . . 26
VI. SUCCEEDING AND NEW AND SUPERSEDING
SALES AND SERVICE AGREEMENTS. . . . . . . . . . . . . 27
A. Succeeding Agreements. . . . . . . . . . . . . . . . . . . . . 27
B. New and Superseding Dealer Agreements. . . . . . . . . . . . . 27
C. Effect of New or Superseding Agreement on
Responsibilities and Obligations under this
Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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VII. ESTABLISHMENT OF SUCCESSOR DEALER. . . . . . . . . . . . . . . . . 29
A. Because of Death of Owner. . . . . . . . . . . . . . . . . . . 29
B. Because of Death or Incapacity of Executive Manager. . . . . . 29
C. Evaluation of Successor Dealer . . . . . . . . . . . . . . . . 30
D. Termination of Market Representation . . . . . . . . . . . . . 30
E. Termination of Offer . . . . . . . . . . . . . . . . . . . . . 30
VIII. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 31
A. Dealer Not Made Agent or Legal Representative. . . . . . . . . 31
B. Dealer's Responsibility for Its Operations,
Expenditures, Liabilities and Obligations. . . . . . . . . . . 31
C. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
D. Offsets and Set Offs . . . . . . . . . . . . . . . . . . . . . 31
E. Changes Required by Law. . . . . . . . . . . . . . . . . . . . 32
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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 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.
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, it 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 designed 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 transporation 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.
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 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 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.
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.
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 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, tradenames 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, tradenames 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, without 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.
(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, adjustments and services pursuant to Article III F2(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.
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 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-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 Products. 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.
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 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.
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 (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 pre-delivery 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.
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.
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 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 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.
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 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.
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 ownership 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 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.
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 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.
EXHIBIT 10.6.3
FORD MOTOR COMPANY
IMPORTED VEHICLE SALES AND SERVICE AGREEMENT
STANDARD PROVISIONS
1. NOTICES
Any notice or designation required or permitted by this agreement shall be in writing and shall be given by personal delivery or by first-class mail, postage prepaid. Notices to the Company shall be delivered to or addressed to the District Sales Manager of the area in which the Dealer is located; notices to the Dealer shall be delivered to any person designated in paragraph F(ii) of this agreement or directed to the Dealer at the Dealer's principal place of business as described herein.
2. OPERATION OF BUSINESS
(a) SALES AND SERVICE RESPONSIBILITY. The Dealer shall vigorously and aggressively promote, solicit and make sales of IMPORTED VEHICLES at retail, and of other IMPORTED PRODUCTS at retail and wholesale, in the DEALER'S LOCALITY in volumes that are satisfactory in the considered business judgment of the Company in the light of, among other things, the total sales and registrations of IMPORTED VEHICLES and other foreign and domestic vehicles of similar price and function in such locality, the retail sales objectives for IMPORTED PRODUCTS established for the Dealer by the Company from time to time, the number and location of other IMPORTED PRODUCT dealers in such locality and the sales and registrations of IMPORTED VEHICLES, other IMPORTED PRODUCTS and other imported and domestic vehicles of similar price and function in any of the Company's sales zone, district or region in which the Dealer is located. The Dealer shall also render prompt, workmanlike, courteous and willing service on all IMPORTED PRODUCTS presented to his place of business for such purpose, including without limitation all service to which a purchaser of an IMPORTED PRODUCT from any authorized dealer may be entitled, pursuant to the Company's then current Warranty and Policy Manual; however, the Dealer shall render warranty and policy service on eligible IMPORTED PRODUCTS to all purchasers of any such products from any authorized dealer. The Dealer shall not be limited to residents of the DEALER'S LOCALITY in making sales or rendering service.
(b) PLACE OF BUSINESS, FACILITIES AND EQUIPMENT. The Dealer shall establish and maintain a place of business at a location mutually satisfactory to the Dealer and the Company, which shall (i) contain such space for the storage, display, sale and service of IMPORTED VEHICLES at retail and GENUINE NEW PARTS at retail and wholesale, the retail sale of used vehicles, customer parking and waiting, and office functions, and (ii) be equipped with such tools and diagnostic and other equipment, as will meet facility, tool and equipment standards established by the Company from time to time, in the exercise of its considered business judgment, for all IMPORTED PRODUCTS dealers of comparable market area and
sales potential and as will enable the Dealer to fulfill his sales and service responsibilities hereunder. The Dealer shall maintain the operation of such place of business during and for not less than the business hours customary in the trade in the area, and shall not move or alter the same or establish any other place of business for the sale or service of IMPORTED PRODUCTS or the retail sale of used vehicles at any other location, without the prior written consent of the Company.
(c) CAPITAL. The Dealer at all times shall maintain and employ in connection with the Dealer's business and operations under this agreement such investment, net working capital, net worth, lines of credit and retail finance plans as may be required to enable the Dealer to fulfill all of the Dealer's responsibilities under this agreement.
(d) SIGNS. The Dealer shall identify the Dealer's place of business as an authorized sales and service establishment for IMPORTED PRODUCTS with such signs as are consistent with standards established by the Company from time to time and approved by the Company with respect to any display therein of any trademark or trade name used or claimed by the Company.
(e) PERSONNEL. The Dealer shall employ and train a sufficient number of competent personnel of good character, including, without limitation, managers, salesmen and service technicians, to fulfill all of the Dealer's responsibilities under this agreement, and shall cause such personnel to attend such training schools as the Company may establish for them from time to time.
(f) ACCOUNTING SYSTEM. The Dealer shall install and use in his business in IMPORTED PRODUCTS and trade-ins thereon an accounting system in accordance with the Company's manuals of accounting procedures for its authorized dealers. Such system shall be given priority in use by the Dealer but shall not be exclusive of any other system the Dealer may desire to use.
(g) REPORTS. The Dealer shall furnish to the Company, at the times and on the forms prescribed by the Company, complete, accurate and true statements of the financial condition and operating results of the Dealer's business in IMPORTED PRODUCTS and trade-ins thereon, and such sales and other reports as the Company from time to time may require. All such statements and reports shall be based whenever applicable upon the accounting system referred to in subparagraph 2(f) hereof. Financial information furnished by the Dealer shall be handled on a confidential basis by the Company and, unless authorized by the Dealer or required by law, or offered in evidence in judicial or arbitration proceedings, shall not be furnished, except as an unidentified part of a composite or coded report, to any party outside of the Company.
(h) THE DEALER'S STOCKS. The Dealer, subject to the Company's filling his orders, shall maintain stocks of IMPORTED VEHICLES and GENUINE NEW PARTS of an assortment and quantity adequate to meet the Dealer's share of current demand therefor in the DEALER'S LOCALITY and enable the Dealer to meet his sales and service responsibilities hereunder.
(i) THE DEALER'S ORDERS. The Dealer shall furnish the Company each month on the dates and forms designated by the Company, (i) orders for the numbers and models of IMPORTED VEHICLES the Dealer will purchase during such further succeeding months as the Company may designate from time to time, (ii) estimates of the Dealer's requirements of IMPORTED VEHICLES for such succeeding months as the Company from time to time may request, and orders for the Dealer's requirements of GENUINE NEW PARTS.
(j) DEMONSTRATORS. The Dealer shall keep available at all times in good appearance and running order for demonstration purposes an adequate number of new IMPORTED VEHICLES of the latest year model.
(k) CUSTOMER HANDLING. The Dealer shall cooperate with Company programs, and develop and maintain his own programs, designed to develop good relationships between the Dealer and the public. The Dealer shall make reasonable efforts to handle satisfactorily all matters brought to his attention relating to the sale and servicing of IMPORTED PRODUCTS, shall make regular contact with owners and users of IMPORTED PRODUCTS in the DEALER'S LOCALITY, and shall report promptly to the Company the details of each inquiry or complaint received by the Dealer relating to any IMPORTED PRODUCT which the Dealer cannot handle satisfactorily. The Dealer shall not display, offer for sale, or promote as a GENUINE NEW PART, any part or accessory which is not in fact a GENUINE NEW PART. The Dealer shall not make directly or indirectly any false or misleading statement or representation to a customer as to any IMPORTED VEHICLE, GENUINE NEW PART or other item of purchase, or the source, condition or capabilities thereof, or the prices or charges therefor, or the charges made by the Company for distribution, delivery, taxes or other items.
(l) CUSTOMER DEPOSITS. The Dealer shall use all reasonable efforts to safeguard each deposit of cash or property (and proceeds therefrom) received from a customer in anticipation of a future delivery of an IMPORTED VEHICLE until such delivery is consummated.
(m) TRADE PRACTICES AND ADVERTISING. The Dealer shall conduct business in a manner that will reflect favorably at all times on the good name and reputation of the Company and IMPORTED PRODUCTS; and avoid in every way any "BAIT," deceptive, misleading, confusing or illegal advertising or business practice. The Company shall not employ or encourage any dealer to employ any such practice.
(n) INSPECTIONS AND TESTS. The Dealer shall allow persons designated by the Company, at reasonable times and intervals, to examine the Dealer's facilities, stocks of IMPORTED PRODUCTS and used vehicles and vehicles in for service, to test the Dealer's equipment and to examine, copy and audit any or all of the Dealer's records and documents relating in any way to the Dealer's business hereunder. The Dealer shall maintain all records and documents relating to claims made upon or paid by the Company for one (1) year from the date of payment in the case of warranty and policy claims and for two (2) years from the date of payment in the case of any other claims.
(o) SUGGESTED PRICE LABELS. If any passenger car IMPORTED VEHICLE is delivered by the Company to the Dealer with an incorrect label, or without a completed label, affixed thereto pursuant to the Federal Automobile Information Disclosure Act, the Dealer shall promptly complete and affix to such vehicle a label on the form and in accordance with the directions furnished by the Company.
(p) INDEMNIFICATION BY THE COMPANY. The Company shall defend, indemnify, hold harmless and protect the Dealer from any losses, damages or expense, including costs and attorney's fees, resulting from or related to lawsuits, complaints or claims commenced against the Dealer by third parties concerning:
(1) Property damage to an IMPORTED PRODUCT or bodily injury or property damage arising out of an occurrence caused solely by a "production defect" in that product (i.e., due to defective materials or workmanship utilized or performed at the factory), except for any "production defect" in tires and diesel engines made by others, provided, however, that the "production defect" could not have been discovered by the Dealer in the reasonable predelivery inspection of the IMPORTED VEHICLE as recommended by the Company.
(2) Property damage to an IMPORTED PRODUCT or bodily injury or property damage arising out of an occurrence caused solely by a defect in the design of that product, except for a defect in the design of tires or diesel engines made by others.
(3) Any damage occurring to a new IMPORTED VEHICLE and repaired by the Company (excluding removal and replacement of an entire component with a like component where no welding, riveting or painting is involved), from the time the IMPORTED VEHICLE leaves the Company's assembly plant or warehouse to the time it is delivered to the Dealer's designated location, provided the Company failed to notify the Dealer in writing of such damage and repair in transit prior to delivery of the IMPORTED VEHICLE to the first retail customer.
In the event that any legal action arising out of any of these causes is brought against the Dealer, the Company shall undertake, at its sole expense, to defend said action on behalf of the Dealer when requested to do so by the Dealer, provided that the Dealer promptly notifies the Company in writing of the commencement of the action against the Dealer and cooperates fully in the defense of the action in such manner and to such extent as the Company may reasonably require (provided, however, that the Company shall have the right to continue the suit in the name of the Dealer, if the Company deems such action to be necessary). Should the Company refuse to undertake the defense on behalf of the Dealer, or fail to undertake an adequate defense, the Dealer may conduct its own defense and the Company shall be liable for the cost of such defense, including reasonable attorney's fees, together with any verdict, judgment or settlement paid by the Dealer (provided, however, that the Dealer shall notify the Company within a reasonable period of any such settlement).
(4) Personal injury or property damage arising solely out of a negligent or improper act of any employee of the Company.
3. SALES TO OTHERS AND PURCHASES FROM OTHERS
The Dealer reserves the right to make purchases from others without liability of any kind to the Company, provided that the Dealer shall not be relieved of any responsibility under this agreement. The Company reserves the right to make sales to others (including without limitation to other dealers) and to appoint other or additional dealers in IMPORTED PRODUCTS without liability of any kind to the Dealer. The Dealer shall be given an opportunity to discuss with Company representatives the appointment of any additional dealer in IMPORTED VEHICLES in the DEALER'S LOCALITY prior to the Company's appointing the same.
4. CONSIDERATION OF ORDERS
The Company shall make reasonable efforts to fill each order of the Dealer that is accepted by the Company, but shall not be liable in any respect for failure or delay in shipping any accepted order that is due wholly or in part to any shortage of material, labor, transportation, or utility service, or to any labor or production difficulty of the Company, any source supplying IMPORTED PRODUCTS to the Company, or their suppliers, or to any cause beyond the Company's control or without the Company's fault or negligence. The Company shall not be liable for shipping IMPORTED PRODUCTS over routes or by means of transportation not specified by the Dealer.
5. PRICES AND CHARGES
The Dealer shall pay the Company the DEALER PRICE for each IMPORTED PRODUCT purchased from the Company by the Dealer, plus the Company's charges for reimbursement for all applicable taxes and duties, plus any applicable holdback deposit, plus any charge for import handling or advertising and reimbursement of taxes not included in the DEALER PRICE. The Company may change such DEALER PRICE, charges or deposit at any time without notice. Such price, charges and deposit shall be those in effect, and delivery to the Dealer shall be deemed made and the order filled, on the date of delivery to the carrier or to the Dealer, whichever occurs first. If the Company increases the DEALER PRICE for any IMPORTED PRODUCT, the Dealer may cancel, by notice to the Company within ten (10) days after his receipt of notice of the increase, any orders for such product placed by him prior to receiving notice of the increase and unfilled at the time the Company receives his notice of cancellation.
6. TERMS AND TITLE
(a) PAYMENT. Payment for each IMPORTED PRODUCT purchased by the Dealer shall be made in cash in advance unless the invoice or the Company's then current and applicable wholesale payment plan provides otherwise, in which event the terms of the invoice or such plan shall govern. Receipt of any commercial paper shall not constitute payment until collected in full. The Dealer shall pay all collection charges.
(b) TITLE. Title to each IMPORTED PRODUCT purchased by the Dealer shall pass to the Dealer, or to the finance institution designated by him, upon delivery by the Company to the carrier or the Dealer, whichever occurs first, but the Company shall retain a security interest in and right to repossess any product until paid therefor.
(c) LOSSES, SHIPPING AND STORAGE CHARGES. The Dealer shall bear all risk of loss or damage to, and all shipping charges applicable to any IMPORTED VEHICLE purchased by him occurring or accruing after delivery of the vehicle to him or the carrier f.o.b. at a Company designated location. The Dealer shall be responsible for and pay any and all demurrage, storage and other charges accruing after arrival of any shipment at its destination.
(d) STATE AND LOCAL TAXES. As a part of each order, the Dealer represents and warrants that all IMPORTED PRODUCTS are purchased for resale in the ordinary course of business and that he has complied with all requirements for his collection and/or payment of applicable sales, use and like taxes. The Dealer agrees to make timely and proper return and payment of all applicable sales, use and like taxes, and to hold the Company harmless from all claims and demands therefor.
7. REFUNDS ON DEALER PRICE REDUCTIONS
If the Company changes the DEALER PRICE for any then current year model of
IMPORTED VEHICLE (or for any new year model which replaces an equivalent
next prior year model) or any factory-installed options therefor, the
Company shall pay or credit to the Dealer, for each unused, undamaged and
unsold IMPORTED VEHICLE and each Dealer-owned demonstrator of record, of
such current (or next prior) year model in the Dealer's stock or service on
the effective date of such change, the difference between the total DEALER
PRICES for such stock or demonstrator vehicle and factory-installed options
thereon before and after such changes, provided (i) such changes result,
after allowing for all other sums paid or offered by the Company on the
vehicle or its options, in a net price reduction for the vehicle as so
equipped in excess of Five Dollars ($5.00), (ii) the vehicle was purchased
from the Company or another authorized dealer within the next preceding
twelve (12) months, (iii) no substantial change has been made in the
opinion of the Company in the capacity, performance, size, weight, design,
and/or specifications of the vehicle or its factory-installed options, and
(iv) the Dealer applies for such payment or credit on the form, in the time
and with the supporting evidence specified by the Company.
Notwithstanding anything to the contrary in this paragraph 7, the Company shall have no obligation to make any refund or credit hereunder with respect to: (i) any reduction in the amount of the Company's charges for reimbursement of taxes; (ii) any reduction in any contribution for advertising or sales promotion; (iii) any reduction in or lower DEALER PRICE for any option not factory-installed; (iv) any reduction in or lower DEALER PRICE made by the Company in response to any law, order, regulation or request of any government or governmental agency; or (v) any price change or sum paid or offered by the Company with respect to any IMPORTED PRODUCT unless it is announced by the Company as a reduction in the DEALER PRICE, and is reflected in the Company's Suggested List Price, for such product.
8. CHANGES WITH RESPECT TO IMPORTED PRODUCTS
The Dealer acknowledges that the Company's plans for continued importation and sale of IMPORTED PRODUCTS and its domestic marketing strategy therefor depend upon satisfactory prices from the supplier(s) thereof, and will be affected, among other things, by changes in international relationships, world market conditions, foreign exchange rates and U.S. customs duties and surcharges, the development of competitive products domestically produced by the Company or other manufacturers, as well as satisfactory shipments, sales and profits. Accordingly, the Dealer recognizes that at any time and from time to time:
(a) The design of any IMPORTED PRODUCT may be changed without notice, or
(b) Upon notice to the Dealer, the Company may:
(i) reduce or discontinue the importation of any IMPORTED
PRODUCT, or
(ii) provide the Dealer a new product in place of any IMPORTED
PRODUCT, or
(iii) market a competitive product through other dealers,
all without any liability or obligation to the Dealer, including without limitation, any obligation with respect to any IMPORTED PRODUCT theretofore ordered or purchased by, or delivered to the Dealer.
9. WARRANTY
(a) IMPORTED VEHICLE WARRANTY. The Company shall from time to time establish, by notice to the Dealer, the warranty to the owner applicable to each IMPORTED VEHICLE. There shall be NO OTHER WARRANTY, express or implied, including any warranty of MERCHANTABILITY OR FITNESS, or any other obligation of the Company to the Dealer or the owner with respect to the IMPORTED VEHICLE or any part thereof except the warranty established pursuant to this subparagraph. The Dealer shall expressly incorporate such warranty as a part of each buyer's order form or other contract for the sale of an IMPORTED VEHICLE and shall deliver a copy of the warranty, in the form furnished by the Company, to the owner at the time the IMPORTED VEHICLE is delivered to the owner, all in accordance with instructions set forth in the Company's then current Warranty and Policy Manual and supplements thereto (hereinafter called "Warranty Manual").
(b) GENUINE NEW PART WARRANTY. The Company shall from time to time establish, by notice to the Dealer, the warranty applicable to each GENUINE NEW PART. There shall be NO OTHER WARRANTY, express or implied, including any warranty of MERCHANTABILITY OR FITNESS, or any other obligation of the Company to the Dealer or the customer with respect to any GENUINE NEW PART or any part thereof except the warranty established pursuant to this subparagraph.
10. OWNER LITERATURE
The Dealer shall deliver to each retail purchaser of an IMPORTED VEHICLE from him, information concerning the warranty, product service and dealer service policies in such form as may then be in effect.
11. PREDELIVERY INSPECTION
The Dealer shall, at his own expense, unless the Company shall establish a reimbursement procedure therefor, inspect and condition each IMPORTED VEHICLE before delivery to a retail customer in accordance with schedules and instructions furnished by the Company from time to time.
12. DEALER NOT AGENT OF THE COMPANY
This agreement does not in any way create the relationship of principal and agent between the Company and the Dealer; and under no circumstances shall the Dealer be considered to be the agent of the Company. The Dealer shall not act or attempt to act, or represent himself, directly or by implication, as agent of the Company or in any manner create or attempt to create any obligation on behalf or in the name of the Company.
13. TRADEMARKS AND TRADE NAMES
(a) LIMITATIONS ON USE. The Dealer shall not use, or permit the use of, the word "Ford" or any other trademark or trade name used or claimed by the Company or any source supplying IMPORTED PRODUCTS to the Company, or coined words or combinations containing the same or parts thereof, either as a part of any firm name or trade name unless the Company shall consent thereto in writing, or in connection with any business conducted by the Dealer other than dealing, under this agreement, in IMPORTED PRODUCTS to which such mark or name refers, and in trade-ins thereon, and then only in the manner, form and extent approved by the Company. The Dealer shall accomplish discontinuance of such use on request of the Company at any time.
(b) PROTECTION AND NON-CONTEST. The Dealer shall promptly carry out all instructions issued by the Company from time to time to protect and promote any trademark or trade name used or claimed by the Company or any source supplying IMPORTED PRODUCTS to the Company, and shall not contest the validity of, or the right of the Company or any such source to exclusive use of, any such trademark or trade name.
14. TERMINATION
(a) BY THE COMPANY. The Company may terminate this agreement:
(1) By notice given to the Dealer not less than ninety (90) days prior to the effective date of such notice in the event the Dealer shall have failed to fulfill any one or more of the Dealer's responsibilities set forth in this agreement.
(2) By notice given to the Dealer, effective immediately, in any of
the following events: (i) failure of the Dealer to fulfill any
one or more of the Dealer's responsibilities set forth in
paragraphs 5 as to prices or charges, 6 as to terms or title, and
13 as to trademarks and trade names; (ii) any assignment or
attempted assignment by the Dealer of any interest in this
agreement or any change, however accomplished, in the direct or
indirect ownership or management of the Dealer from that set
forth in paragraph F, without the Company's prior written assent;
(iii) failure of the Dealer for any reason to function in the
ordinary course of business or to keep his place of business open
during and for not less than the hours customary in the trade in
his area; (iv) any conviction in a court of competent
jurisdiction of the Dealer or any person named in paragraph F, or
any disagreement between or among such persons, which in the
opinion of the Company may affect adversely the ownership,
operation, management, business, reputation or interest of the
Dealer or the Company; (v) submission by the Dealer to the
Company of any false or fraudulent report or statement, including
without limitation claims for labor or parts under paragraph 9 as
to warranties, and claims for any other sum from the Company;
(vi) the Dealer shall have continued or repeated any advertising
or practice contrary to subparagraph 2(m) or shall have engaged
in similar advertising or practices after notice from the Company
that the same may be regarded by the Company as a basis for
termination of this agreement; (vii) the Dealer shall have
continued or repeated any customer handling practice contrary to
subparagraph 2(k) or shall have engaged in similar customer
handling or practices after notice from the Company that the same
may be regarded by the Company as a basis for termination of this
agreement; (viii) misrepresentation by the Dealer to the Company
as to the ownership or management of the Dealer either in
connection with the application for this agreement or thereafter;
(ix) if the Dealer has been holding one or more other sales and
service agreements from the Company covering other vehicles made
or sold by the Company, the termination for any reason of any
such other agreement by either the Company or the Dealer; (x) any
of the reasons set forth in subparagraph 8(b) hereof (except
clause (iii) thereof) with respect to IMPORTED VEHICLES.
(3) By notice given to the Dealer not less than thirty (30) days prior to the effective date of such notice in the event the Company decides to terminate all outstanding sales agreements with Dealers for IMPORTED PRODUCTS and to offer to them a new or amended form or forms of sales and service agreement.
(b) BY EITHER PARTY. Either party may terminate this agreement by notice given to the other, effective immediately, in any of the following events: (i) dissolution of the Dealer if the Dealer is a corporation or partnership; (ii) insolvency of the Dealer, inability of the Dealer to meet debts as they mature, filing by or against the Dealer of any petition under any bankruptcy or reorganization or receivership law, appointment by a court of a temporary or permanent receiver or trustee or custodian for the Dealer
or all or any part of the Dealer's business, or an assignment by the Dealer for benefit of creditors; (iii) failure of either party to obtain or maintain any required license; or (iv) death or physical or mental incapacity of any owner of the Dealer named in paragraph F, provided, however, that in order to facilitate orderly liquidation of the dealership, the Company shall defer the effective date of termination for a period of from three months to one year, as the Company may determine, if the representative of such deceased or incapacitated owner shall so request.
(c) BY THE DEALER. The Dealer may terminate this agreement at any time at will by notice given to the Company at least thirty (30) days prior to the effective date of such notice.
15. ACTS IN GOOD FAITH
The Dealer acknowledges that each of the Dealer's responsibilities under this agreement is reasonable, proper and fundamental to the purposes of this agreement and failure by the Dealer to fulfill any of the same would constitute a material breach of this agreement. The Dealer further acknowledges that the occurrence of any of the events of immediate termination described in subparagraphs 14(a)(2) or 14(b) would seriously impair fundamental considerations upon which this agreement is based, and that the right of termination reserved in subparagraph 14(a)(3) for the offer of new sales and service agreements is necessary to permit the Company to remain competitive at all times with other manufacturers and sellers of vehicles. The Dealer agrees that if the Company or any of its representatives (i) requests the Dealer to fulfill any of such responsibilities, or (ii) believes that any such failure, occurrence or event is occurring or has occurred and advises the Dealer that, unless remedied, such failure, occurrence or event may result in termination or nonrenewal of this agreement by the Company, or (iii) recommends or gives notice of termination or nonrenewal of, or terminates, or does not renew, this agreement because of any such failure, occurrence or event, then such request, advice, recommendation, notice, termination or nonrenewal shall not be considered to constitute or be evidence of coercion or intimidation, or threat thereof, or action not in good faith.
16. OPPORTUNITY TO CURE
Notwithstanding anything herein to the contrary, the Company shall give the Dealer a reasonable opportunity to cure any failure by the Dealer to fulfill any of the Dealer's responsibilities set forth in paragraphs 2 as to operation of his business, 5 as to prices and charges, 6 as to terms and title, 9 as to warranties, 10 as to owner literature, 11 as to predelivery inspection, 12 as to no agency and 13 as to trademarks and trade names prior to giving the Dealer notice of termination or nonrenewal based upon such failure.
17. DISPOSITION OF THE DEALER'S ASSETS
The Dealer agrees that the Company has the right to select the dealers it shall appoint to distribute products made or sold by it and may decline to appoint, as an authorized dealer of the Company, any purchaser or prospective purchaser of any of the assets or capital stock of the Dealer upon the termination of this agreement or otherwise.
18. OBLIGATIONS UPON TERMINATION
Upon termination or nonrenewal of this agreement the Dealer shall cease to be an authorized dealer in IMPORTED PRODUCTS and shall:
(a) SUMS OWING THE COMPANY. Pay to the Company all sums owing from the Dealer to the Company.
(b) DISCONTINUANCE OF USE OF TRADEMARKS AND TRADE NAMES. At the Dealer's expense (i) remove all signs erected or used by the Dealer, or by any business affiliated with the Dealer and bearing any trademark or trade name used or claimed by the Company or any source supplying IMPORTED PRODUCTS to the Company (except as such use may be permitted under other sales and service agreements with the Company), or any word indicating that the Dealer is an authorized dealer in any IMPORTED PRODUCT; (ii) erase or obliterate all such trademarks, trade names and words from stationery, forms and other papers used by the Dealer or any business affiliated with the Dealer; (iii) permanently discontinue all advertising of the Dealer as an authorized dealer in any IMPORTED PRODUCT; and (iv) refrain from doing anything that would indicate that the Dealer is or was an authorized dealer in any IMPORTED PRODUCT. If the Dealer does not comply with any of the requirements of this paragraph 18(b), the Dealer shall reimburse the Company for all costs and expenses, including attorneys' fees, incurred by the Company in effecting or enforcing compliance.
(c) ASSIGNMENT OF ORDERS AND CUSTOMER DEPOSITS. Assign to the Company, or its nominee, all customer orders for IMPORTED PRODUCTS which the Dealer has not filled, and all customer deposits made thereon; and deliver to the Company the names and addresses of the Dealer's existing and prospective customers of IMPORTED PRODUCTS.
(d) CANCELLATION OF ORDERS. Termination or nonrenewal of this agreement shall operate to cancel each order for an IMPORTED PRODUCT theretofore received by the Company from the Dealer and unfilled (as defined in paragraph 5) on the effective date of termination or nonrenewal.
(e) WARRANTY WORK. The Dealer shall cease to be eligible to receive reimbursement from the Company with respect to any work thereafter performed or part thereafter supplied under any warranty or policy applicable to any IMPORTED PRODUCT, unless specifically authorized by the Company in writing to perform such work and then only in the manner and for the period of time set forth in such authorization.
(f) SERVICE RECORDS. The Dealer shall deliver to the Company or its nominee all of the Dealer's records with respect to predelivery, warranty, policy, campaign and other service work of the Dealer.
19. REACQUISITION OF IMPORTED PRODUCTS AND ACQUISITION OF THE DEALER'S SIGNS, TOOLS AND EQUIPMENT
Upon termination or nonrenewal of this agreement by the Company (except pursuant to subparagraph 14(a)(3) unless the Dealer shall fail to accept a new agreement) or by the Dealer, the Dealer may elect, as provided in paragraph 20, to have the Company purchase or accept upon return from the Dealer, in return for his general release specified in paragraph 20:
(a) IMPORTED VEHICLES. Each unused, undamaged and unsold IMPORTED VEHICLE (including all factory-installed options thereon) in the Dealer's stock on the effective date of such termination or nonrenewal, provided such vehicle is in first-class saleable condition, is of a then current year model, has not been altered since purchase from the Company, and was purchased by the Dealer from the Company or another authorized dealer in IMPORTED VEHICLES prior to the time the Dealer first learned of the prospective termination or nonrenewal of this agreement. The price for such IMPORTED VEHICLE shall be its DEALER PRICE, plus the Company's charges for holdback deposits, import handling, advertising and reimbursement of taxes if the same are not included in the DEALER PRICE at the time it was purchased from the Company, less all allowances previously paid or offered thereon by the Company.
(b) GENUINE NEW PARTS.
(i) Each unused, undamaged and unsold GENUINE NEW PART (including unopened appearance and maintenance materials and paint) in the Dealer's stock on the effective date of termination or nonrenewal, provided such part is offered for sale by the Company to authorized IMPORTED VEHICLE dealers in the Company's then current price list of pass and accessories, is in first-class saleable condition and was purchased by the Dealer either from the Company or in reasonable volume from another authorized dealer in IMPORTED VEHICLES prior to the time the Dealer first learned of the prospective termination or nonrenewal of this agreement.
(ii) Each unused, undamaged and unsold accessory for IMPORTED VEHICLES in the Dealer's stock on the effective date of termination or nonrenewal, provided such accessory is in first-class saleable condition, was purchased by the Dealer either from the Company or another authorized dealer in IMPORTED VEHICLES prior to the time the Dealer first learned of the prospective termination or nonrenewal of this agreement, and was sold by the Company either for use in an IMPORTED VEHICLE that is a current year model on such effective date or within the twelve months next preceding such effective date.
(iii) The price for each such part or accessory shall be its DEALER PRICE in effect on the effective date of termination or nonrenewal, less all allowances and discounts paid or offered thereon by the Company.
(iv) The Dealer at his own expense shall carefully pack and box such of the eligible parts and accessories as the Company may direct and the Company shall pay the Dealer an additional 5% of the DEALER PRICE of the eligible parts and accessories so packed and boxed.
(c) THE DEALER'S SIGNS. Each sign or portion thereof bearing the word "Merkur" or any trademark or trade name used or claimed by the Company pertaining to IMPORTED PRODUCTS which is located at a place of business of and is owned by the Dealer on the effective date of termination or nonrenewal, and was approved by the Company pursuant to subparagraph 2(d) hereof. The price for each such sign or part thereof shall be its fair market value on such effective date as agreed by the Company and the Dealer, or, if they cannot agree, as determined by a qualified independent appraiser selected by the Company and the Dealer.
(d) TOOLS AND MECHANICAL EQUIPMENT. All tools and automotive service
equipment owned by the Dealer on the effective date of termination or
nonrenewal which were designed especially for servicing IMPORTED
PRODUCTS, which are of a type and number recommended in writing by the
Company, which are in usable and good condition except for reasonable
wear and tear, and which were purchased by the Dealer within the three
(3) year period preceding the effective date of termination or
nonrenewal. The price for each such tool and item of automotive
service equipment shall be its fair market value on such effective
date as agreed by the Company and the Dealer, or, if they cannot
agree, as determined by a qualified independent appraiser selected by
the Company and the Dealer.
(e) PROCEDURES, DELIVERY AND TITLE. The Dealer shall return all property to be purchased or reacquired by the Company pursuant to this paragraph 19 in accordance with the procedures and timetables then established by the Company, shall deliver such property at the Dealer's place of business unless the Company directs otherwise (in which event the Company shall pay transportation costs to the place of delivery) and shall furnish a general warranty bill of sale thereof satisfactory to the Company, together with evidence satisfactory to the Company that the Dealer has complied with all applicable bulk sales laws and that such property is free and clear of all claims, liens and encumbrances.
(f) PAYMENT. The Company shall pay the Dealer for the property purchased or reacquired by it pursuant to this paragraph 19 within a reasonable time following the Dealer's fulfillment of all of the Dealer's obligations under paragraph 18 and this paragraph 19, subject to the Dealer's tender of a general release as specified in paragraph 20 and subject to offset of any obligations then owing by the Dealer to the Company.
(g) ASSIGNMENT OF BENEFITS. As an assist to the Dealer in effecting an orderly transfer of his assets to a replacement dealer and to minimize possible interruptions in customer convenience and service, in the event of termination or nonrenewal by either party, any rights or benefits with respect to subparagraphs 19(a), 19(b), 19(c) and 19(d),
herein may be assigned by the Dealer to anyone to whom the Dealer has agreed to sell the respective property and whom the Company has approved as a replacement for the Dealer. Such assignments will be subject to Dealer's fulfillment of his obligations under paragraph 18 and this paragraph 19 and subject to the Dealer's tender of a general release as specified in paragraph 20.
20. TERMINATION BENEFITS FULL COMPENSATION; GENERAL RELEASE
If the Company or the Dealer terminates or does not renew this agreement,
the Company shall, within a reasonable time after the effective date of
such termination or nonrenewal, submit to the Dealer a written tender of
the benefits set forth in paragraph 19, including an estimate of the amount
to be paid thereunder, and a form for the Dealer to use if he desires to
reject and release the Company from providing such benefits. The Dealer
shall have thirty (30) days after his receipt of such tender and release
form to elect either (i) to reject all of such benefits by executing and
returning the release form to the Company within such thirty (30) days, or
(ii) to accept any or all such benefits as full and complete compensation
to the Dealer for such termination or nonrenewal by failing to execute and
return the release form within such thirty (30) days. Upon the Dealer's
election to accept any of such benefits, the Company shall be released from
any and all other liability to the Dealer, however claimed to arise, except
for such amounts as the Company may have agreed in writing to pay to the
Dealer. The Dealer, simultaneously with his receipt of the benefits
provided for in paragraph 19, shall execute and deliver to the Company a
satisfactory general release which shall exempt any remaining liability
under paragraph 19 or other written agreements.
21. DISPOSITION OF THE DEALERS ASSETS
In view of the nature, purposes and objectives of the Company's Dealer Sales and Service Agreements, and the differences in operating requirements among dealerships of differing sizes and types of markets, the Company expressly reserves the right to select the dealers with whom it will enter into such agreements so as to maintain as high quality a dealer organization as possible.
In the event this agreement is terminated or not renewed by either party or if the Dealer plans to terminate or not renew this agreement, the Company acknowledges that the Dealer has the right to negotiate for the sale of the assets of the Dealer at such price as may be agreed upon by the Dealer and the prospective purchaser. In turn, the Dealer acknowledges that the Company has the right to approve or decline to approve any prospective purchaser as to his character, automotive experience, management, capital and other qualifications for appointment as an authorized dealer in IMPORTED PRODUCTS for the dealership operations involved. Approval by the Company of the prospective purchaser shall not, however, be unreasonably withheld. If, in the opinion of the Company, the price to be paid for such assets appears, on the basis of the average operating results of other dealers, to result in an unsatisfactory return on investment so that such prospective purchaser (i) may not remain as a dealer, or (ii) may be impelled to sell IMPORTED PRODUCTS at high noncompetitive prices with a probable reduction in sales volume, the Company may without liability to the Dealer, counsel with such prospective purchaser regarding such opinions.
22. DEALER'S SUCCESSOR ON DEATH OR INCAPACITY
Upon any termination or nonrenewal of this agreement because of the death or incapacity of any owner named in paragraph F(i), the Company shall offer a two-year interim sales agreement for IMPORTED PRODUCTS:
(a) To any person previously nominated, in an amendment to paragraph F(ii), by such owner as his successor, together with any remaining persons named in paragraph F(i), provided that:
(i) The nominee has been participating in the management of the dealership for a reasonable period of time and is named in paragraph F(ii) when notice of such termination or nonrenewal is given; and
(ii) The facilities and capital of the dealership are then satisfactory in the opinion of the Company; and
(iii) If more than one person has been nominated, the Company in its discretion shall determine to which nominee or nominees the interim agreement shall be offered.
(b) If there is no valid nominee, then to the spouse of such owner, together with any remaining persons named in paragraph F(i), provided that:
(i) Managerial authority for the operation of the dealership will be vested in persons named in paragraph F(ii), or in other persons determined by the Company to be qualified; and
(ii) The facilities and capital of the dealership are then satisfactory in the opinion of the Company.
(c) Such two-year interim sales and service agreement shall be the same as the Company's then standard sales and service agreement for IMPORTED PRODUCTS, except that it shall be designated as an interim agreement. The Company may, in its discretion, extend the term of any interim sales and service agreement to facilitate the purchase by others of the former owner's interest in the dealership. Before the end of any interim sales and service agreement, the Company shall determine, in its discretion, whether or not the persons named in paragraphs F(i) and F(ii) of such agreement then possess the necessary qualifications, capital and facilities of an authorized dealer. If the Company determines that they do possess the same, the Company shall offer them its then standard form of IMPORTED PRODUCTS sales and service agreement.
(d) In the event that the persons to whom an interim or standard sales and service agreement is offered do not accept the same within thirty (30) days, the offer shall automatically expire.
(e) Notwithstanding anything to the contrary in this paragraph 22, the Company shall not be obligated to offer an Interim Agreement to any person if the Company notifies the Dealer in writing prior to termination or nonrenewal of this agreement because of the death or incapacity of an owner named in paragraph F(i) that the Company's plans do not provide for continuation of representation of IMPORTED PRODUCTS at the Dealer's location.
23. ACKNOWLEDGMENTS
This agreement terminates and supersedes all other agreements, and constitutes the entire agreement, between the parties with respect to IMPORTED PRODUCTS. Each party acknowledges that, except as expressly set forth herein or elsewhere in writing, no representation, understanding or presumption of law or fact has been made or relied upon (i) which has induced the execution of this agreement or would in any way modify any of its provisions, or (ii) with respect to the effectiveness or duration of this agreement or the sales or profit expectancy of the Dealer. The Dealer also acknowledges that he has voluntarily entered into this agreement without coercion or intimidation or threats thereof from the Company, and that each of its terms and conditions are reasonable, fair and equitable.
24. ASSIGNMENT
Neither this agreement nor any right or interest hereunder may be assigned by the Dealer without the prior written assent of the Company.
25. NO IMPLIED WAIVERS
Except as expressly provided in this agreement, the waiver by either party, or the failure by either party to claim a breach, of any provision of this agreement shall not constitute a waiver of any subsequent breach, or affect in any way the effectiveness of such provision.
26. TRANSACTIONS AFTER TERMINATION NOT A RENEWAL
In the event either party has any business relations with the other party after termination or nonrenewal of this agreement, such relations shall not constitute a renewal of this agreement or a waiver of such termination, but all such transactions shall be governed by terms identical with the provisions of this agreement unless the parties execute a new and different agreement.
27. LIMITATION OF THE COMPANY'S LIABILITY
This agreement contemplates that all investments by or in the Dealer shall be made, and the Dealer shall purchase and resell IMPORTED PRODUCTS, in conformity with the provisions hereof, but otherwise in the discretion of the Dealer and the Dealer's owners. Except as herein specified, nothing herein contained shall impose any liability on the Company in connection with the Dealer's operations under this agreement or otherwise or for
any expenditure made or incurred by the Dealer in preparation for performance or in performance of the Dealer's responsibilities under this agreement.
28. EFFECT OF DETERMINATIONS BY THE COMPANY
Any determination, opinion or exercise of discretion to be made by the Company in connection with any provision of this agreement shall be made by the Company alone and shall be final, conclusive, and binding upon the parties hereto.
29. AMENDMENT
Notwithstanding anything in this agreement to the contrary, the Company shall have the right to amend, modify or change this agreement in case of legislation, government regulation or changes in circumstances beyond the control of the Company that might affect materially the relationship between the Company and the Dealer.
30. MICHIGAN AGREEMENT
This agreement has been signed by the Dealer and sent to the Company in Michigan for final approval and execution, and has been signed and delivered on behalf of the Company. The parties intend this agreement to be executed as a Michigan agreement and to be construed in accordance with the laws of the State of Michigan.
EXHIBIT 10.6.4
FORD MOTOR COMPANY
IMPORTED VEHICLE SALES AND SERVICE AGREEMENT
Oakland DISTRICT AGREEMENT made as of the 2nd day of July, 1984, by and between Lithia Motors, Inc. Corporation, Oregon, doing business as Lithia Toyota, Lincoln-Mercury and with a principal place of business at 360 E. Jackson, Medford, Jackson, Oregon 97501 (hereinafter called "Dealer"), and Ford Motor Company, a Delaware corporation with its principal place of business at Dearborn, Michigan (hereinafter called "Company")
PREAMBLE
The purpose of this agreement is to establish the Dealer as an authorized dealer for the sale and service of the new IMPORTED VEHICLES (as herein defined and designated to the Dealer), and parts and accessories therefor, offered to the Dealer by the Company, and to set forth the responsibilities of the Company in selling those products to the Dealer and of the Dealer in reselling and providing service for them within the framework of a franchised dealer system.
The purpose of this preamble is to assist in understanding those responsibilities in the light of the nature of the Company's business in imported products, the franchised dealer system, and the interdependence among the Company, the dealer and the public.
The Company and its dealers in imported products can succeed only if an adequate supply of their products is made available to consumers at prices they are willing and able to pay and prompt, reliable and efficient sources for service and replacement parts are provided. To achieve these results, the Company and its suppliers must schedule production and importation and build up warehouse stocks of vehicles and parts and accessories therefor in substantial quantities far in advance of receipt of actual orders. These production and importation schedules are generally set at least six months in advance based upon its and the best estimates available of the current and future market for each product. If the estimated sales volume for any product is not realized, the Company suffers because of commitments already made, and the costs of distributing that product are increased. If the dealers' actual orders for any product are different or higher than estimated, the Company and the dealers both suffer loss of profits because of insufficient supply.
In the opinion of the Company, franchised dealers, each responsible for representation of designated imported products in a market area, are usually best able to sell such products in the necessary volumes and provide
[TEXT MISSING]
IN CONSIDERATION of the mutual agreements and acknowledgements herein made, the parties agree as follows:
A. DEFINITIONS. As used herein:
1. "IMPORTED VEHICLES" shall mean the makes, lines and models of automotive vehicles designated in paragraph I hereof, and such other or additional makes, lines or models as the Company may designate in writing to the Dealer from time to time, made by one or more foreign sources and from time to time imported into the United States from countries other than Canada, and offered for sale by the Company to the Dealer for resale.
2. "GENUINE NEW PARTS" shall mean parts, equipment and accessories distributed
by the Company for IMPORTED VEHICLES and "IMPORTED PRODUCTS" shall mean IMPORTED
VEHICLES and GENUINE NEW PARTS.
3. "DEALER PRICE" shall mean the price to the Dealer established by the Company from time to time for each IMPORTED PRODUCT f.o.b. Company warehouse before deduction of any cash or other discount and as the Company may establish from time to time, either inclusive or exclusive of any dealer holdback deposit or any charge for taxes, import handling or advertising.
4. "DEALER'S LOCALITY" shall mean such locality as may be designated by the Company from time to time as the area of the Dealer sales and service responsibility for IMPORTED VEHICLES.
B. APPOINTMENT. Subject to the provisions of this agreement, the Company appoints the Dealer as an authorized dealer at retail in IMPORTED VEHICLES and at retail and wholesale in other IMPORTED PRODUCTS. The Dealer accepts such appointment and agrees to fulfill the responsibilities of such a dealer as herein provided.
C. AGREEMENT TO PURCHASE AND SELL. Subject to the provisions of this agreement, the Dealer shall purchase IMPORTED PRODUCTS from the Company, and the Company shall make reasonable efforts to supply and sell the same to the Dealer, in sufficient quantities to enable him to fulfill his responsibilities hereunder.
D. STANDARD PROVISIONS PART OF AGREEMENT. Ford Motor Company's Imported Vehicle Sales and Service Agreement Standard Provisions (Form LM-8137a), a duplicate original of which is attached to the Dealer's copy hereof, have been read and agreed to by each party, and such Standard Provisions and any duly executed and delivered supplement or amendment thereto, are hereby made a part of this agreement as if here set forth in full.
E. AUTHORIZED COMPANY PERSONNEL The Dealer acknowledges notice that (i) this agreement shall bind the Company when it bears the facsimile signature of the Vice President and General Manager or the General Manager of the Lincoln- Mercury Division of the Company, and the manual countersignature of the General Sales Manager, Market Representation Manager, or a Regional or District Sales Manager, of the Lincoln-Mercury Division of the Company, and a copy thereof is delivered personally or by mail to the Dealer or the Dealer's principal place of business, (ii) no one except the Vice President and General Manager, or the General Manager, General Sales Manager, or Market Representation Manager of the Lincoln-Mercury Division of the Company, or the Secretary or an Assistant Secretary of the Company, is authorized on behalf of the Company to
make or execute any other agreement relating to the subject matter hereof, or in any manner to modify the terms of this agreement, and they only by an instrument in writing, and (iii) no one except such Vice President and General Manager, or the General Manager, Secretary or Assistant Secretary is authorized to terminate this agreement on behalf of the Company, and they only by an instrument in writing.
F. DEALER PERSONNEL. This agreement has been entered into by the Company in reliance (i) upon the representation and agreement that the following person(s), and only the following person(s), shall be the principal owners of the Dealer:
PERCENTAGE
NAME HOME ADDRESS OF INTEREST
- ---- ------------ -----------
Sidney B. DeBoer 401 E. Modec, Medford, Or. 62.5%
Manfred L. Heimann 426 Roundelay Circle, Medford, Or. 37.5%
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EXHIBIT 10.7.1
PONTIAC DIVISION
DEALER SALES AND SERVICE AGREEMENT
In reliance upon the agreement by the parties to fulfill their respective commitments, this Agreement, effective March 10, 1993, is entered into by GENERAL MOTORS CORPORATION, PONTIAC DIVISION ("PONTIAC"), a Delaware corporation, and LITHIA MOTORS, INC., dba LITHIA PONTIAC, an OREGON corporation, incorporated on October 1, 1977; doing business at 700 North Central Avenue, Medford, Oregon 97501 ("Dealer").
PREAMBLE
The future of PONTIAC and PONTIAC dealers depends on setting and meeting high standards of excellence. We will succeed by achieving superior customer satisfaction 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 January 28, 1997, 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.
EIGHTH
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 provide 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.
NINTH
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.
TENTH
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.
ELEVENTH
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.
TWELFTH
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.
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) on behalf of PONTIAC by its General Sales and Service Manager and his authorized representative.
LITHIA MOTORS, INC. PONTIAC DIVISION
DBA LITHIA PONTIAC General Motors Corporation By By -------------------------------- ------------------------------------ Dealer Operator General Sales & Service Manager March 10, 1993 March 10, 1993 |
EXHIBIT 10.7.2
STANDARD PROVISIONS
DEALER
SALES AND SERVICE
AGREEMENT
GENERAL MOTORS CORPORATION
TABLE OF CONTENTS FOR STANDARD PROVISIONS
Page
PURPOSE OF AGREEMENT......................................................... 1
ARTICLE 1. APPOINTMENT AS AUTHORIZED DEALER................................. 1
ARTICLE 2. DEALER OPERATOR.................................................. 1
ARTICLE 3. DEALER OWNER..................................................... 2
ARTICLE 4. AUTHORIZED LOCATIONS............................................. 2
4.1 Dealer Network Planning.................................................. 2
4.2 Area of Primary Responsibility........................................... 2
4.3 Establishment of Additional Dealers...................................... 3
4.4 Facilities............................................................... 3
4.4.1 Location....................................................... 3
4.4.2 Change in Location or Use of Premises.......................... 3
4.4.3 Size........................................................... 4
4.4.4 Dealership Image and Design.................................... 4
4.4.5 Dealership Equipment........................................... 4
ARTICLE 5. DEALER'S RESPONSIBILITY TO PROMOTE, SELL,
AND SERVICE PRODUCTS.......................................... 5
5.1 Responsibility to Promote and Sell....................................... 5
5.2 Responsibility to Service................................................ 6
5.3 Customer Satisfaction.................................................... 6
5.4 Business Planning........................................................ 6
ARTICLE 6. SALE OF PRODUCTS TO DEALERS...................................... 7
6.1 Sale of Motor Vehicles to Dealer......................................... 7
6.2 Sale of Parts and Accessories to Dealer.................................. 7
6.3 Prices and Other Terms of Sale........................................... 7
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6.3.1 Motor Vehicles................................................. 7
6.3.2 Parts and Accessories.......................................... 8
6.4 Inventory................................................................ 8
6.4.1 Motor Vehicle Inventory........................................ 8
6.4.2 Parts and Accessories.......................................... 8
6.5 Warranties on Products................................................... 8
ARTICLE 7. SERVICE OF PRODUCTS.............................................. 9
7.1 Service for Which Division Pays.......................................... 9
7.1.1 New Motor Vehicle Pre-Delivery Inspections and Adjustments..... 9
7.1.2 Warranty and Special Policy Repairs............................ 9
7.1.3 Campaign Inspections and Corrections........................... 9
7.1.4 Payment for Pre-Delivery Adjustments, Warranty, Campaign and
Transportation Damage Work..................................... 9
7.2 Parts, Accessories, and Body Repairs.....................................10
7.2.1 Warranty and Policy Repairs....................................10
7.2.2 Representations and Disclosures as to Parts and Accessories....10
7.2.3 Body Repairs...................................................10
7.2.4 Tools and Equipment............................................10
ARTICLE 8. TRAINING.........................................................10
ARTICLE 9. REVIEW OF DEALER'S SALES AND SERVICE
PERFORMANCE...................................................11
ARTICLE 10. CAPITALIZATION...................................................11
ARTICLE 11. ACCOUNTS AND RECORDS.............................................11
11.1 Uniform Accounting System...............................................11
11.2 Examination of Accounts and Records.....................................11
11.3 Confidentiality of Dealer Data..........................................12
ARTICLE 12. CHANGES IN MANAGEMENT AND OWNERSHIP.............................12
12.1 Succession Rights Upon Death or Incapacity..............................12
12.1.1 Successor Addendum.............................................12
12.1.2 Absence of Successor Addendum..................................13
12.1.3 Successor Dealer Requirements..................................13
12.1.4 Term of New Dealer Agreement...................................13
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12.1.5 Limitation on Offers...........................................13
12.1.6 Cancellation of Addendum.......................................14
12.2 Other Changes in Ownership or Management................................14
12.3 Right of First Refusal to Purchase......................................15
12.3.1 Creation and Coverage..........................................15
12.3.2 Purchase Price and Other Terms of Sale.........................15
(a) Bona Fide Agreement..................................15
(b) Absence of Bona Fide Agreement.......................15
12.3.3 Consummation...................................................15
12.3.4 Assignment.....................................................15
12.3.5 Transfer Involving Family Members and Dealer Management........16
ARTICLE 13. BREACHES AND OPPORTUNITY TO REMEDY..............................16
13.1 Certain Acts or Events..................................................16
13.2 Failure of Performance by Dealer........................................17
ARTICLE 14. TERMINATION OF AGREEMENT........................................18
14.1 By Dealer...............................................................18
14.2 By Agreement............................................................18
14.3 Failure to be Licensed..................................................18
14.4 Incapacity of Dealer Operator...........................................18
14.5 Acts or Events..........................................................19
14.6 Reliance on Any Applicable Termination Provision........................19
14.7 Transactions After Termination..........................................19
14.7.1 Effect on Orders...............................................19
14.7.2 Termination Deliveries.........................................20
14.7.3 Effect of Transactions After Termination.......................20
ARTICLE 15. TERMINATION ASSISTANCE..........................................20
15.1 Deferral of Effective Date..............................................20
15.2 Purchase of Personal Property...........................................20
15.2.1 Division's Obligations.........................................20
15.2.2 Dealer's Responsibilities......................................21
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15.2.3 Payment........................................................22
15.2.4 Assignment of Rights...........................................22
15.3 Assistance on Premises..................................................22
15.3.1 Division's Obligation..........................................22
15.3.2 Owned Premises.................................................23
15.3.3 Leased Premises................................................23
15.3.4 Rent and Price.................................................23
15.3.5 Limitations on Obligation to Provide Assistance................24
ARTICLE 16. DISPUTE RESOLUTION PROCESS......................................24
ARTICLE 17. GENERAL PROVISIONS..............................................25
17.1 No Agent or Legal Representative Status.................................25
17.2 Responsibility for Operations...........................................25
17.3 Taxes...................................................................25
17.4 Indemnification by General Motors.......................................25
17.5 Trademarks and Service Marks............................................26
17.6 Notices.................................................................27
17.7 No Implied Waivers......................................................27
17.8 Assignment of Rights or Delegation of Duties............................27
17.9 No Third Party Benefit Intended.........................................27
17.10 Accounts Payable.......................................................27
17.11 Sole Agreement of Parties..............................................28
17.12 Applicable Law.........................................................28
17.13 Superseding Dealer Agreements .........................................28
GLOSSARY.....................................................................29
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STANDARD PROVISIONS
The following Standard Provisions are part of Division's Dealer Sales and Service Agreement (Form GMMS 1012).
PURPOSE OF AGREEMENT
The purpose of this Agreement is to promote a relationship between Division and its Dealers which encourages and facilitates cooperation and mutual effort to satisfy customers, and permits Division and its dealers to fully realize their opportunities for business success. Division has established a network of authorized dealers operating at approved locations to effectively sell and service its Products and to build and maintain consumer confidence and satisfaction in Dealer and Division. Consequently, Division relies upon each Dealer to provide appropriate skill, capital, equipment, staff and facilities to properly sell, service, protect the reputation, and satisfy the customers of Division's Products in a manner that demonstrates a caring attitude toward those customers. At the same time, Dealer relies upon Division to provide sales and service support and to continually strive to enhance the quality and competitiveness of its Products.
This mutual dependence requires a spirit of cooperation, trust and confidence between Division and its dealers. To facilitate attainment of cooperation, trust and confidence, and to provide Division with the benefit of dealer advice regarding many decisions which affect dealer business operations, Division has established mechanisms to obtain dealer input in the decision- making process. These mechanisms are described in Division's Dealer Sales and Service Agreement.
This Agreement (i) authorizes Dealer to sell and service Division's Products and represent itself as a Division Dealer; (ii) states the terms under which Dealer and Division agree to do business together; (iii) states the responsibilities of Dealer and Division to each other and to customers; and (iv) reflects the mutual dependence of the parties in achieving their business objectives.
ARTICLE 1. APPOINTMENT AS AUTHORIZED DEALER
Division appoints Dealer as a non-exclusive dealer of Division Products. Dealer has the right to buy Products and the obligation to market and service those Products in accordance with this Agreement and related documents.
ARTICLE 2. DEALER OPERATOR
This is a Personal Services Agreement, entered into in reliance on the qualifications of Dealer Operator identified in Paragraph Third, and on Dealer's assurance that Dealer Operator will provide personal services by exercising full managerial authority over Dealership Operations. Dealer Operator will have an unencumbered ownership interest in Dealer of at least 15 percent at all times. A Dealer Operator must be a competent business person, an effective manager, must have demonstrated a caring attitude toward customers, and should have a successful record as a merchandiser of automotive products
and services or otherwise have demonstrated the ability to manage a dealership. The experience necessary may vary with the potential represented by each dealer location.
ARTICLE 3. DEALER OWNER
Division enters into this Agreement in reliance on the qualifications of dealer owner(s) identified in the Dealer Statement of Ownership. Division and Dealer agree each dealer owner will continue to own, both of record and beneficially, the percentage stated in the Dealer Statement of Ownership, unless a change is made in accordance with Article 12.
ARTICLE 4. AUTHORIZED LOCATIONS
4.1 DEALER NETWORK PLANNING
Because Division distributes its Products through a network of authorized dealers operating from approved locations, those dealers must be appropriate in number, located properly, and have proper facilities to represent and service Division's Products competitively and to permit each dealer the opportunity to achieve a reasonable return on investment if it fulfills its obligations under its Dealer Agreement. Through such a dealer network, the Division can maximize the convenience of customers in purchasing Products and having them serviced. As a result, customers, dealers, and the Division all benefit.
To maximize the effectiveness of its dealer network, Division agrees to monitor marketing conditions and strive, to the extent practicable, to have dealers appropriate in number, size and location to achieve the objectives stated above. Such marketing conditions include Division's sales and registration performance, present and future demographic and economic considerations, competitive dealer networks, the ability of Division's existing dealers to achieve the objectives stated above, the opportunities available to existing dealers, and other appropriate circumstances.
4.2 AREA OF PRIMARY RESPONSIBILITY
Dealer is responsible for effectively selling, servicing and otherwise representing Division's Products in the Area designated in a Notice of Area of Primary Responsibility. Division retains the right to revise Dealer's Area of Primary Responsibility at Division's sole discretion consistent with dealer network planning objectives. If Division determines that marketing conditions warrant a change in Dealer's Area of Primary Responsibility, it will advise Dealer in writing of the proposed change, the reasons for it, and will consider any information the Dealer submits. Dealer must submit such information in writing within 30 days of receipt of notice of the proposed change. If Division thereafter decides the change is warranted, it will issue a revised Notice of Area of Primary Responsibility.
4.3 ESTABLISHMENT OF ADDITIONAL DEALERS
Division reserves the right to appoint additional dealers but Division will not exercise this right without first analyzing dealer network planning considerations.
Prior to establishing an additional dealer within Dealer's Area of Primary Responsibility, Division will advise Dealer in writing and give Dealer thirty days to present relevant information before Division makes a final decision. Division will advise Dealer of the final decision, which will be made solely by Division pursuant to its business judgment. Nothing in this Agreement is intended to require Dealer's consent to the establishment of an additional dealer.
Neither the appointment of a dealer at or within three miles of a former dealership location as a replacement for the former dealer nor the relocation of an existing dealer will be considered the establishment of an additional Dealer for purposes of this Article 4.3. Such events are within the sole discretion of Division, pursuant to its business judgment.
4.4 FACILITIES
4.4.1 LOCATION
Dealer agrees to conduct Dealership Operations only from the approved location(s) within its Area of Primary Responsibility. The Location and Premises Addendum identifies Dealer's approved location(s) and facilities ("Premises"). If more than one location is approved, Dealer agrees to conduct from each location only those Dealership Operations authorized in the Addendum for such location.
4.4.2 CHANGE IN LOCATION OR USE OF PREMISES
If Dealer wants to make any change in location(s) or Premises, or in the uses previously approved for those Premises, Dealer will give Division written notice of the proposed change, together with the reasons for the proposal, for Division's evaluation and final decision in light of dealer network planning considerations. No change in location or in the use of Premises, including addition of any other vehicle lines, will be made without Division's prior written authorization.
Before Division requires any changes in Premises, it will consult with Dealer, indicate the rationale for the change, and solicit Dealer's views on the proposal. If, after such review with Dealer, Division determines a change in Premises or location is appropriate, the Dealer will be allowed a reasonable time to implement the change. Any such changes will be reflected in a new Location and Premises Addendum or other written agreement executed by Dealer and Division.
Nothing herein is intended to require the consent or approval of any dealer to a proposed relocation of any other dealer.
4.4.3 SIZE
Dealer agrees to provide Premises at its approved location(s) that will promote the effective performance and conduct of Dealership Operations, and the Division's image and goodwill. Consistent with Division's dealer network planning objectives and Division's interest in maintaining the stability and viability of its dealers, Dealer agrees that its facilities will be sized in accordance with Division's requirements for that location.
Division agrees to establish and maintain a clearly stated policy for determining reasonable dealer facility space requirements and to periodically re-evaluate those requirements to ensure that they continue to be reasonable.
4.4.4 DEALERSHIP IMAGE AND DESIGN
The appearance of Dealer's Premises is important to the image of Dealer and Division, and can affect the way customers perceive Division's Products and its dealers generally. Dealer therefore agrees that its Premises will be properly equipped and maintained, and that the interior and exterior retail environment and signs will comply with any reasonable requirements Division may establish to promote and preserve the image of Division and its dealers.
Division will monitor developments in automotive and other retailing to ensure that Division's image and facility requirements are responsive to changes in the marketing environment.
Division will take into account existing economic and marketing conditions, and consult with dealers as described in Division's Dealer Sales and Service Agreement, in establishing such requirements.
4.4.5 DEALERSHIP EQUIPMENT
Effective performance of Dealer's responsibilities under this Agreement requires that the dealership be reasonably equipped to communicate with customers and the Division and to properly diagnose and service Products. Accordingly, Dealer agrees to provide for use in the Dealership Operations any equipment reasonably designated by Division as necessary to Dealer's effective performance under this Agreement. Division will make such designations only after having consulted with dealers as described in Division's Dealer Sales and Service Agreement.
ARTICLE 5. DEALER'S RESPONSIBILITY TO PROMOTE, SELL,
AND SERVICE PRODUCTS
5.1 RESPONSIBILITY TO PROMOTE AND SELL
5.1.1 Dealer agrees to effectively, ethically and lawfully sell and promote the purchase, lease and use of Products by consumers located in its Area of Primary Responsibility. To achieve this objective, Dealer agrees to:
(a) maintain an adequate force of trained sales personnel;
(b) explain to Product purchasers the items which make up the purchase price and provide purchasers with itemized invoices;
(c) not charge customers for services for which Dealer is reimbursed by General Motors;
(d) include in customer orders only equipment or accessories requested by customer or required by law; and
(e) ensure that the customer's purchase and delivery experience are satisfactory.
If Dealer modifies or sells a modified new Motor Vehicle, or installs any equipment, accessory or part not supplied by General Motors, or sells any non- General Motors service contract for a Motor Vehicle, Dealer will disclose this fact on the purchase order and bill of sale, indicating that the modification, equipment, accessory or part is not warranted by General Motors or, in the case of a service contract, the coverage is not provided by General Motors or an affiliate.
5.1.2 Dealer is authorized to sell new Motor Vehicles only to customers located in the United States. Dealer agrees that it will not sell new Motor Vehicles for resale or principal use outside the United States. Dealer also agrees not to sell any new Motor Vehicles which were not originally manufactured for sale and distribution in the United States.
5.1.3 Division will conduct general advertising programs to promote the sale of Products for the mutual benefit of Division and Dealers. Division will make available to Dealer advertising and sales promotion materials from time to time and advise Dealer of any applicable charges.
5.2 RESPONSIBILITY TO SERVICE
5.2.1 Dealer agrees to maximize customer satisfaction by providing courteous, convenient, prompt, efficient and quality service to owners of Motor Vehicles, regardless of from whom the Vehicles were purchased. All service will be performed and administered in a professional manner and in accordance with all applicable laws and regulations, and this Agreement, including the Service Policies and Procedures Manual, as amended from time to time.
5.2.2 Dealer agrees to maintain an adequate service and parts organization as recommended by Division, including a competent, trained service and parts manager(s), trained service and parts personnel and, where service volume or other conditions make it advisable, a consumer relations manager.
5.2.3 Dealer and Division will each provide the other with such information and assistance as may reasonably be requested by the other to facilitate compliance with applicable laws, regulations, investigations and orders relating to Products.
5.2.4 To build and maintain consumer confidence in, and satisfaction with, Dealer and Division, Dealer will comply with Divisional procedures for the investigation and resolution of Product-related complaints.
5.2.5 Division will make available to Dealer current service and parts manuals, bulletins, and technical data publications relating to Motor Vehicles.
5.3 CUSTOMER SATISFACTION
Dealer and Division recognize that appropriate care for the customer will promote customer satisfaction with Division's Products and its dealers, which is critically important to our current and future business success. Dealer therefore agrees to conduct its operations in a manner which will promote
customer satisfaction with the purchase and ownership experience. Division agrees to provide Dealer with reasonable support to assist Dealer's attainment of customer satisfaction. At its discretion, Division will monitor the satisfaction of Dealer's customers, and report the results to Dealer. Any written response from Dealer concerning a customer satisfaction report issued to Dealer will become a part of the report.
5.4 BUSINESS PLANNING
To enable Dealer to most effectively meet its obligations under this Agreement, and to enable Division to effectively support Dealer's efforts, Dealer agrees to develop and implement a Business Plan if such is required by Division.
ARTICLE 6. SALE OF PRODUCTS TO DEALERS
6.1 SALE OF MOTOR VEHICLES TO DEALER
Division will periodically furnish Dealer one or more Motor Vehicle Addenda specifying the current model types or series of new Motor Vehicles which Dealer may order under this Agreement. Division may change a Motor Vehicle Addendum by furnishing a superseding one, or may cancel an Addendum at any time.
Division will endeavor to distribute new Motor Vehicles among its dealers in a fair and equitable manner. Many factors affect the availability and distribution of Motor Vehicles to dealers, including component availability and production capacity, sales potential in Dealer's Area of Primary Responsibility, varying consumer demand, weather and transportation conditions, governmental regulations, and other conditions beyond the control of General Motors. Division reserves to itself discretion in accepting orders and distributing Motor Vehicles, and its judgments and decisions are final. Upon written request, Division will advise Dealer of the total number of new Motor Vehicles, by series, sold to Dealers in Dealer's Zone or Branch during the preceding month.
6.2 SALE OF PARTS AND ACCESSORIES TO DEALER
New, reconditioned or remanufactured automotive parts and accessories marketed by General Motors and listed in current Dealer Parts and Accessories Price Schedules or supplements furnished to Dealer are called Parts and Accessories.
Orders for Parts and Accessories will be submitted and processed according to written procedures established by General Motors or other designated suppliers.
6.3 PRICES AND OTHER TERMS OF SALE
6.3.1 MOTOR VEHICLES
Prices, destination charges, and other terms of sale applicable to purchases of new Motor Vehicles will be those established according to Vehicle Terms of Sale Bulletins furnished periodically to Dealer.
Prices, destination charges, and other terms of sale applicable to any Motor Vehicle may be changed at any time. Except as otherwise provided in writing, changes apply to Motor Vehicles not shipped to Dealer at the time the changes are made effective.
Dealer will receive written notice of any price increase before any Motor Vehicle to which such increase applies is shipped, except for initial prices for a new model year or for any new model or body type. Dealer has the right to cancel or modify the affected orders by delivering written notice to Division within 10 days after its receipt of the price increase notice.
6.3.2 PARTS AND ACCESSORIES
Prices and other terms of sale applicable to Parts and Accessories are established by General Motors according to the Parts and Accessories Terms of Sale Bulletin furnished to Dealer.
Prices and other terms of sale applicable to Parts and Accessories may be changed by General Motors at any time. Such changes apply to Parts and Accessories not shipped to Dealer at the time changes become effective.
6.4 INVENTORY
6.4.1 MOTOR VEHICLE INVENTORY
Dealer recognizes that customers expect Dealer to have a reasonable quantity and variety of current model Motor Vehicles in inventory. Accordingly, Dealer agrees to order and stock and Division agrees to make available, subject to Article 6.1, a mix of models and series of Motor Vehicles identified in the Motor Vehicle Addendum in quantities adequate to enable Dealer to fulfill its obligations in its Area of Primary Responsibility.
6.4.2 PARTS AND ACCESSORIES
Dealer agrees to stock sufficient Parts and Accessories made available by General Motors to perform warranty repairs and policy adjustments and meet customer demand.
6.5 WARRANTIES ON PRODUCTS
General Motors warrants new Motor Vehicles and Parts and Accessories (Products) as explained in documents provided with the Products or in the Service Policies and Procedures Manual.
EXCEPT AS OTHERWISE PROVIDED BY LAW, THE WRITTEN GENERAL MOTORS WARRANTIES ARE THE ONLY WARRANTIES APPLICABLE TO PRODUCTS. WITH RESPECT TO DEALERS, SUCH WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES OR LIABILITIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY LIABILITY FOR COMMERCIAL LOSSES BASED UPON NEGLIGENCE OR MANUFACTURER'S STRICT LIABILITY. EXCEPT AS MAY BE PROVIDED UNDER AN ESTABLISHED GENERAL MOTORS PROGRAM OR PROCEDURE, GENERAL MOTORS NEITHER ASSUMES NOR AUTHORIZES ANYONE TO ASSUME FOR IT ANY OTHER OBLIGATION OR LIABILITY IN CONNECTION WITH PRODUCTS, AND GENERAL MOTORS MAXIMUM LIABILITY IS TO REPAIR OR REPLACE THE PRODUCT.
ARTICLE 7. SERVICE OF PRODUCTS
7.1 SERVICE FOR WHICH DIVISION PAYS
7.1.1 NEW MOTOR VEHICLE PRE-DELIVERY INSPECTIONS AND ADJUSTMENTS
Because new vehicle delivery condition is critical to customer satisfaction, Dealer agrees to perform specified pre-delivery inspections and adjustments on each new Motor Vehicle and verify completion according to procedures identified in the Service Policies and Procedures Manual.
7.1.2 WARRANTY AND SPECIAL POLICY REPAIRS
Dealer agrees to perform (i) required warranty repairs on each qualified Motor Vehicle at the time of pre-delivery service and when requested by owner, and (ii) special policy repairs approved by Division. When the vehicle is returned to the owner, Dealer will provide owner a copy and explanation of the repair document reflecting all services performed.
7.1.3 CAMPAIGN INSPECTIONS AND CORRECTIONS
Division will notify Dealer of suspected unsatisfactory conditions on Products and issue campaign instructions. Dealer agrees to inspect and correct suspected unsatisfactory conditions on Products in accordance with the instructions. Dealer will also determine that campaign inspections and corrections have been made on new and used Motor Vehicles in its inventory prior to sale, and follow-up on Products on which campaigns are outstanding.
Division may ship, and Dealer agrees to accept, unordered parts and materials required for campaigns. Upon campaign completion, Dealer will receive credit for excess parts and materials so shipped if they are returned or disposed of according to Division's instructions.
7.1.4 PAYMENT FOR PRE-DELIVERY ADJUSTMENTS, WARRANTY, CAMPAIGN AND TRANSPORTATION DAMAGE WORK
For Dealer's performance of services, pre-delivery inspections and adjustments, warranty repairs, special policy repairs, campaign inspections and corrections, and transportation damage repairs, Division will provide or pay Dealer for the Parts and other materials required and will pay Dealer a reasonable amount for labor. Payment will be made according to policies in the Service Policies and
Procedures Manual. Deter will not impose any charge for such service on owners or users except where a deductible or pro-rata charge applies.
7.2 PARTS, ACCESSORIES, AND BODY REPAIRS
7.2.1 WARRANTY AND POLICY REPAIRS
Dealer agrees to use only genuine GM or General Motors approved Parts and Accessories in performing warranty repairs, special policy repairs, and any other repairs paid for by Division, in accordance with the applicable provisions of the Service Policies and Procedures Manual.
7.2.2 REPRESENTATIONS AND DISCLOSURES AS TO PARTS AND ACCESSORIES
In servicing vehicles marketed by General Motors, Dealer agrees to disclose the use of non-General Motors parts and accessories as set forth in Article 5.1.1.
7.2.3 BODY REPAIRS
Dealer agrees to provide quality body repair service for Motor Vehicles. Dealer can provide this service through its own body shop, or by arrangement with an alternate repair establishment.
7.2.4 TOOLS AND EQUIPMENT
Dealer agrees to provide essential service tools as required by Division and other tools and equipment as necessary to fulfill its responsibilities to properly diagnose and service Products.
ARTICLE 8. TRAINING
Properly trained personnel are essential to the success of Dealer and Division, and to providing customers with a satisfactory sales and service experience. Division agrees to make available or recommend to Dealer product, sales, service and parts, accounting and business management training courses for Dealer personnel. Division will make such training available as conveniently in time and location as practical circumstances permit. Division will assist Dealer in determining training requirements and periodically will require that Dealer have personnel attend specific courses. Dealer agrees to comply with any such reasonable training requirements and pay any specified training charges. Division will consult with dealers as described in Division's Dealer Sales and Service Agreement prior to determining the training courses or programs from which an individual Dealer's requirements under this Article may be established. Specific minimum service training requirements will be described in Division's Service Policies and Procedures Manual.
Division will make available personnel to advise and counsel Dealer personnel on sales, service, parts and accessories, and related subjects.
ARTICLE 9. REVIEW OF DEALER'S SALES AND SERVICE PERFORMANCE
Dealer's performance of its obligations is essential to the effective representation of Division's Products, and to the reputation and goodwill of Dealer, Division, and other Division dealers. Periodically, Division will review various aspects of Dealer's sales and service performance. Division and Dealer will use the review process to identify areas in which improvements or changes are necessary so that Dealer can take prompt action to achieve acceptable performance.
ARTICLE 10. CAPITALIZATION
The Capital Standard Addendum reflects the minimum net working capital necessary for Dealer to conduct Dealership Operations. Dealer agrees to maintain at least this level of net working capital. Division will issue a new Addendum if changes in operating conditions or Divisional guidelines indicate capital needs have changed materially.
To avoid damage to goodwill which could result if Dealer is financially unable to fulfill its commitments, Dealer agrees to have and maintain a separate line of credit from a financial institution available to finance its purchase of new vehicles. The amount of the line of credit will be sufficient for Dealer to meet its obligations under Article 6.4.
ARTICLE 11. ACCOUNTS AND RECORDS
11.1 UNIFORM ACCOUNTING SYSTEM
A uniform accounting system facilitates an evaluation of Dealer business
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management practices and the impact of Division's policies and practices. Division therefore agrees to maintain, and Dealer agrees to use and maintain records in accordance with, a uniform accounting system set forth in an accounting manual furnished to Dealer.
Dealer also agrees to timely submit true and accurate applications or claims for payments, discounts or allowances; true and correct orders for Products and reports of sale and delivery; and any other reports or statements required by Division, in the manner specified by Division, and to retain such records for at least two years.
11.2 EXAMINATION OF ACCOUNTS AND RECORDS
Dealer agrees to permit any designated representative of Division to examine, audit, and take copies of any of the accounts and records Dealer is to maintain under the accounting manual and this Agreement. Dealer agrees to make such accounts and records readily available at its facilities during regular business hours. Division agrees to furnish Dealer with a list of any reproduced records.
11.3 CONFIDENTIALITY OF DEALER DATA
Division agrees not to furnish any personal or financial data submitted to it by Dealer to any non-affiliated entity unless authorized by Dealer, required by law, or pertinent to judicial or administrative proceedings, or to proceedings under the Dispute Resolution Process.
ARTICLE 12. CHANGES IN MANAGEMENT AND OWNERSHIP
The parties recognize that customers and authorized dealers, as well as shareholders and employees of General Motors, have a vital interest in the continued success and efficient operation of Division's dealer network. Accordingly, Division has the responsibility of continuing to administer the network to ensure that dealers are owned and operated by qualified persons able to meet the requirements of this Agreement.
12.1 SUCCESSION RIGHTS UPON DEATH OR INCAPACITY
12.1.1 SUCCESSOR ADDENDUM
Dealer can apply for a Successor Addendum designating a proposed dealer operator and/or owners of a successor dealer to be established if this Agreement expires or is terminated because of death or incapacity. Division will execute the Addendum provided Dealer is meeting its obligations under this Agreement and under any Dealer Agreement which Dealer may have with other Divisions of General Motors for the conduct of Dealership Operations at the approved location; and the proposed dealer operator is, and will continue to be, employed full-time by Dealer or a comparable automotive dealership, and is already qualified or is being trained to qualify as a dealer operator; and provided all other proposed owners are acceptable.
Division may refuse to enter into a Successor Addendum with Dealer if Division has previously notified Dealer it does not plan to continue Dealership Operations at the approved location, except for renewal of an existing Successor Addendum where the same proposed dealer operator continues to be qualified.
Upon expiration of this Agreement, Division will, upon Dealer's request, execute a new successor addendum provided a new and superseding dealer agreement is executed with Dealer, and Dealer, the proposed dealer operator and dealer owners are then qualified as described above.
12.1.2 ABSENCE OF SUCCESSOR ADDENDUM
If this Agreement expires or is terminated because of death or incapacity and Dealer and Division have not executed a Successor Addendum, the Dealer Operator or, if there is not a remaining Dealer Operator, the remaining dealer owners may propose a successor dealer [to] continue the operations identified in this Agreement. The proposal must be made to Division in writing at least 30 days prior to the expiration or termination of this Agreement, including any deferrals.
12.1.3 SUCCESSOR DEALER REQUIREMENTS
Division will accept a proposal to establish a successor dealer submitted by a proposed dealer operator under this Article 12.1 provided:
(a) the proposed successor dealer and the proposed dealer operator are ready, willing and able to meet the requirements of a new dealer agreement at the approved location(s);
(b) Division approves the proposed dealer operator and all proposed owners not previously approved for the existing Dealership Operations;
(c) all outstanding monetary obligations of Dealer to General Motors have been satisfied; and
(d) Dealer has not been previously notified that Division may discontinue Dealership Operations at that location.
12.1.4 TERM OF NEW DEALER AGREEMENT
The dealer agreement offered a successor dealer will be for a three-year term. Division will notify the successor dealer in writing at least 90 days prior to the expiration date whether the successor dealer has performed satisfactorily and, if so, that Division will offer a new dealer agreement.
12.1.5 LIMITATION ON OFFERS
Dealer will be notified in writing of the decision on a proposal to establish a successor dealer submitted under Article 12.1 within 60 days after Division has received from Dealer all applications and information reasonably requested by Division. Division may condition its offer of a dealer agreement on the relocation of dealership operations to an approved location by successor dealer within a reasonable time. Division's offer of a new dealer agreement under this Article 12.1 will automatically expire if not accepted in writing by the proposed successor dealer within 60 days after it receives the offer.
12.1.6 CANCELLATION OF ADDENDUM
Dealer may cancel an executed Successor Addendum at any time prior to the death of a Dealer Operator or Dealer Owner, or the incapacity of Dealer Operator. Division may cancel an executed Successor Addendum only if the proposed dealer operator is no longer qualified under Article 12.1.1.
12.2 OTHER CHANGES IN OWNERSHIP OR MANAGEMENT
If Dealer proposes a change in Dealer Operator, a change in ownership, or a transfer of the dealership business or its principal assets to any person conditioned upon Division's entering into a dealer agreement with that person, Division will consider Dealer's proposal and not arbitrarily refuse to approve it, subject to the following:
12.2.1 Dealer agrees to give Division prior written notice of any proposed change or transfer described above. Dealer understands that if any such change is made prior to Division's approval of the proposal, termination of this Agreement will be warranted and Division will have no further obligation to consider Dealer's proposal.
12.2.2 Division agrees to consider Dealer's proposal, taking into account factors such as (a) the personal, business, and financial qualifications of the proposed dealer operator and owners, and (b) whether the proposed change is likely to result in a successful dealership operation with acceptable
management, capitalization, and ownership which will provide satisfactory sales, service, and facilities at an approved location, while promoting and preserving competition and customer satisfaction.
12.2.3 Division will notify Dealer in writing of Division's decision on Dealer's proposal within 60 days after Division has received from Dealer all applications and information reasonably requested by Division. If Division disagrees with the proposal, it will specify its reasons.
12.2.4 Any material change in Dealer's proposal, including change in price, facilities, capitalization, proposed owners, or dealer operator, will be considered a new proposal, and the time period for Division to respond shall recommence.
12.2.5 Division's prior written approval is not required where the transfer of equity ownership or beneficial interest to an individual is (a) less than ten percent in a calendar year; and (b) between existing dealer owners previously approved by Division where there is no change in majority ownership or voting control. Dealer agrees to notify Division within 30 days of the date of the change and to execute a new Dealer Statement of Ownership.
12.2.6 Division is not obligated to approve any proposed changes in management or ownership under this Article unless Dealer makes arrangements acceptable to Division to satisfy any indebtedness of Dealer to General Motors.
12.3 RIGHT OF FIRST REFUSAL TO PURCHASE
12.3.1 CREATION AND COVERAGE
If Dealer submits a proposal for a change of ownership under Article 12.2, Division will have a right of first refusal to purchase the dealership assets regardless of whether the proposed buyer is qualified to be a dealer. If Division chooses to exercise this right, it will do so in its written response to Dealer's proposal. Division will have a reasonable opportunity to inspect the assets, including real estate, before making its decision.
12.3.2 PURCHASE PRICE AND OTHER TERMS OF SALE
(a) BONA FIDE AGREEMENT
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 Division agree to other terms.
Upon Division's request, Dealer agrees to provide all documents relating to the proposed transfer. If Dealer refuses to provide such documentation or state in writing that such documents do not exist, it will be presumed that the agreement is not bona fide.
(b) ABSENCE OF BONA FIDE AGREEMENT
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 Division. 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.
12.3.3 CONSUMMATION
Dealer agrees to transfer the property by Warranty Deed, where possible, conveying marketable title free and clear of liens and encumbrances. The Warranty Deed will be in proper form for recording and Dealer will deliver complete possession of the property 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 Dealership Operations.
12.3.4 ASSIGNMENT
Division's rights under this section may be assigned to any third party ("Assignee"). If there is an assignment, Division will guarantee full payment of the purchase price by the Assignee. Division shall have the opportunity to discuss the terms of the buy/sell agreement with a potential Assignee.
Division's rights under this Article are binding on and enforceable against any Assignee or successor in interest of Dealer or purchaser of Dealer's assets.
12.3.5 TRANSFER INVOLVING FAMILY MEMBERS AND DEALER MANAGEMENT
When the proposed change of ownership involves a transfer by a dealer owner solely to a member or members of his or her immediate family, or to a qualifying member of Dealer's Management, the Division's right of first refusal will not apply. An "immediate family member" shall be the spouse, child, grandchild, spouse of a child or grandchild, brother, sister or parent of the dealer owner. A "qualifying member of Dealer's Management" shall be an individual who has been employed by Dealer for at least two years and otherwise qualifies as a dealer operator.
ARTICLE 13. BREACHES AND OPPORTUNITY TO REMEDY
13.1 CERTAIN ACTS OR EVENTS
The following acts or events, which are within the control of Dealer or
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originate from action taken by Dealer or its management or owners, are material breaches of this Agreement. If Division learns that any of the acts or events has occurred, it may notify the Dealer in writing. If notified, Dealer will be given the opportunity to respond in writing within 30 days of receipt of the notice, explaining or correcting the situation to Division's satisfaction.
13.1.1 The removal, resignation, withdrawal, or elimination from Dealer for any reason of any Dealer Operator or dealer owner without Division's prior written approval.
13.1.2 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 contrary to the terms of this Agreement.
13.1.3 Any change, whether voluntary or involuntary, in the record or beneficial ownership of Dealer as set forth in the Dealer Statement of Ownership furnished by Dealer, unless permitted by Article 12.2.5 or pursuant to Division's written approval.
13.1.4 Any undertaking by Dealer or any of its owners to conduct, either directly or indirectly, any of the Dealership Operations at any unapproved location.
13.1.5 Any sale, transfer, relinquishment, or discontinuance of use by Dealer of any of the Dealership Premises or other principal assets required in the conduct of the Dealership Operations, without Division's prior written approval.
13.1.6 Any dispute among the owners or management personnel of Dealer which, in Division's opinion, may adversely affect the Dealership Operations or the interests of Dealer or Division.
13.1.7 Refusal by Dealer to timely furnish sales, service or financial information and related supporting data, or to permit Division's examination or audit of Dealer's accounts and records.
13.1.8 A finding by a government agency or court of original jurisdiction or a settlement arising from charges that Dealer, or it predecessor of Dealer owned or controlled by the same person, had committed a misdemeanor or unfair or deceptive business practice which, in Division's opinion, may adversely affect the reputation or interests of Dealer or Division.
13.1.9 Willful failure of Dealer to comply with the provisions of any laws or regulations relating to the sale or service of Products.
13.1.10 Submission by Dealer of false applications or reports, including false orders for Products or reports of delivery or transfer of Products.
13.1.11 Failure of Dealer to maintain the line of credit required by
Article 10.
13.1.12 Failure of Dealer to timely pay its obligations to General
Motors.
13.1.13 Any other material breach of Dealer's obligations under this
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Agreement not otherwise identified in this Article 13 or in Article 14.
If Dealer's response demonstrates that the breach has been corrected, or otherwise explains the circumstances to Division's satisfaction, then Division shall confirm this fact in writing to Dealer.
If, however, Dealer's response does not demonstrate that the breach has been corrected, or explain the circumstances to Division's satisfaction, termination is warranted and Division may terminate
this Agreement upon written notice to Dealer. Termination will be effective 60 days following Dealer's receipt of the notice.
13.2 FAILURE OF PERFORMANCE BY DEALER
If Division determines that Dealer's Premises are not acceptable, or that Dealer has failed to adequately perform its sales or service responsibilities, including those responsibilities relating to customer satisfaction and training, Division will review such failure with Dealer.
As soon as practicable thereafter, Division will notify Dealer in writing of the nature of Dealer's failure and of the period of time (which shall not be less than six months) during which Dealer will have the opportunity to correct the failure.
If Dealer does correct the failure by the expiration of the period, Division will so advise the Dealer in writing.
If, however, Dealer does not correct the failure by the expiration of the period, Division may terminate this Agreement by giving Dealer 90 days advance written notice.
ARTICLE 14. TERMINATION OF AGREEMENT
14.1 BY DEALER
Dealer has the right to terminate this Agreement without cause at any time
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upon written notice to Division. Termination will be effective 30 days after Division's receipt of the notice, unless otherwise mutually agreed in writing.
14.2 BY AGREEMENT
This Agreement may be terminated at any time by written agreement between Division and Dealer.
Termination assistance will apply only as specified in the written termination agreement.
14.3 FAILURE TO BE LICENSED
If Division or Dealer fails to secure or maintain any license required for the performance of obligations under this Agreement or such license is suspended or revoked, either party may immediately terminate this Agreement by giving the other party written notice.
14.4 INCAPACITY OF DEALER OPERATOR
Because this is a Personal Services Agreement, Division may terminate this Agreement by written notice to Dealer if Dealer Operator is so physically or mentally incapacitated that the Dealer
Operator is unable to actively exercise full managerial authority. The effective date of termination will be stated in such written notice and will be not less than three months after receipt of such notice.
14.5 ACTS OR EVENTS
If Division learns that any of the following has occurred, it may terminate this Agreement by giving Dealer written notice of termination. Termination will be effective on the date specified in the notice.
14.5.1 Conviction in a court of original jurisdiction of Dealer, or a predecessor of Dealer owned or controlled by the same person, or any Dealer Operator or dealer owner of any felony.
14.5.2 Insolvency of Dealer; or filing by or against Dealer of a petition in bankruptcy; or filing of a proceeding for the appointment of a receiver or trustee for Dealer, provided such filing or appointment is not dismissed or vacated within thirty days; or execution by Dealer of an assignment for the benefit of creditors or any foreclosure or other due process of law whereby a third party acquires rights to the operation, ownership or assets of Dealer.
14.5.3 Failure of Dealer to conduct customary sales and service operations during customary business hours for seven consecutive business days.
14.5.4 Any misrepresentation to General Motors by Dealer or by any Dealer Operator or owner in applying for this Agreement, or in identifying the Dealer Operator, or record or beneficial ownership of Dealer.
14.5.5 Submission by Dealer of false applications or claims for any payment, credit, discount, or allowance, including false applications in connection with incentive activities, where the false information was submitted to generate a payment to Dealer for a claim which would not otherwise have qualified for payment.
Termination for failure to correct other breaches will be according to the procedures outlined in Article 13.
14.6 RELIANCE ON ANY APPLICABLE TERMINATION PROVISION
The terminating party may select the provision under which it elects to terminate without reference in its notice to any other provision that may also be applicable. The terminating party subsequently also may assert other grounds for termination.
14.7 TRANSACTIONS AFTER TERMINATION
14.7.1 EFFECT ON ORDERS
If Dealer and Division do not enter into a new Dealer Agreement when this Agreement expires or is terminated, all of Dealer's outstanding orders for Products will be automatically cancelled except as provided in this Article 14.7.
Termination of this Agreement will not release Dealer or Division from the obligation to pay any amounts owing the other, nor release Dealer from the obligation to pay for Special Vehicles if Division has begun processing such orders prior to the effective date of termination.
14.7.2 TERMINATION DELIVERIES
If this Agreement is voluntarily terminated by Dealer or expires or is terminated because of the death or incapacity of a Dealer Operator or death of a Dealer Owner, without a termination or expiration deferral, Division will use its best efforts consistent with its distribution procedures to furnish Dealer with Motor Vehicles to fill Dealer's bona fide retail orders on hand on the effective date of termination or expiration, not to exceed, however, the total number of Motor Vehicles invoiced to Dealer for retail sale during the three months immediately preceding the effective date of termination.
14.7.3 EFFECT OF TRANSACTIONS AFTER TERMINATION
Neither the sale of Products to Dealer nor any other act by Division or Dealer after termination of this Agreement will be construed as a waiver of the termination.
ARTICLE 15. TERMINATION ASSISTANCE
15.1 DEFERRAL OF EFFECTIVE DATE
If this Agreement is scheduled to expire or terminate because of the death
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or incapacity of a Dealer Operator or the death of a Dealer Owner and Dealer requests an extension of the effective date of expiration or termination thirty days prior to such date, Division will defer the effective date for up to a total of eighteen months after such death or incapacity occurs to assist Dealer in winding up its Dealership Operations.
15.2 PURCHASE OF PERSONAL PROPERTY
15.2.1 DIVISION'S OBLIGATIONS
If this Agreement expires or is terminated and Division does not offer Dealer or a replacement dealer that has substantially the same ownership (more than 50 percent including total family ownership) a new Dealer Agreement, Division will offer to purchase the following items of personal property (herein called Eligible Items) from Dealer at the prices indicated:
(a) New and unused Motor Vehicles of the current model year purchased by Dealer from Division at a price equal to the net prices and charges that were paid to General Motors;
(b) Any signs owned by Dealer of a type recommended in writing by Division and bearing any Marks at a price agreed upon by Division and Dealer. If Division and Dealer cannot agree on a price, they will select a third party who will set the price;
(c) Any essential tools recommended by Division and designed specifically for service of Motor Vehicles that Division offered for sale during the three years preceding termination at prices established in accordance with the applicable pricing formula in the Service Policies and Procedures Manual; and
(d) Unused and undamaged Parts and Accessories that (i) are still in the original, resalable merchandising packages and in unbroken lots (in the case of sheet metal, a comparable substitute for the original package may be used); (ii) are listed for sale in the then current Dealer Parts and Accessories Price Schedules (except "discontinued" or "replaced" Parts and Accessories); and (iii) were purchased by Dealer either directly from General Motors or from an outgoing dealer as a part of Dealer's initial Parts and Accessories inventory. Prices will be those dealer prices in effect at the time General Motors receives the Parts and Accessories, less any applicable allowances whether or not any such allowances were made to Dealer when Dealer purchased the Parts and Accessories. In addition, an allowance of five percent of dealer price for packing costs and reimbursement for transportation charges to the destination specified by General Motors will be credited to Dealer's account.
15.2.2 DEALER'S RESPONSIBILITIES
Division's obligation to purchase Eligible Items is subject to Dealer fulfilling its responsibility under this subsection.
Within fifteen days following the effective date of termination or expiration of this Agreement, Dealer will furnish Division with a list of vehicle identification numbers and such other information as Division may request pertaining to eligible Motor Vehicles. Dealer will deliver the eligible Motor Vehicles to a destination determined by Division that will be in a reasonable proximity to Dealer's Premises.
Within two months following the effective date of termination or expiration of this Agreement, Dealer will mail or deliver to General Motors a complete and separate list of each of the Eligible Items other than Motor Vehicles. Dealer will retain the Eligible Items until receipt of written shipping instructions from General Motors. Within thirty days after receipt of instructions, Dealer will ship the Eligible Items, transportation charges prepaid, to the destinations specified in the instructions.
Dealer will take action and execute and deliver such instruments as necessary to (a) convey to Division and General Motors good and marketable title to all Eligible Items to be purchased, (b) comply with the requirements of any applicable state law relating to bulk sales or transfer, and (c) satisfy and discharge any liens or encumbrances on Eligible Items prior to their delivery to Division and General Motors.
15.2.3 PAYMENT
Subject to Article 17.10, Division will pay for the Eligible Items as soon as practicable following their delivery to the specified destinations. Payment may be made directly to anyone having a security or ownership interest in the Eligible Items.
If Division has not paid Dealer for the Eligible Items within two months after delivery, and if Dealer has fulfilled its termination obligations under this Agreement, Division will, at Dealer's written request, estimate the purchase price of the unpaid Eligible Items and all other amounts owed Dealer by General Motors. After deducting the amounts estimated to be owing General Motors and its subsidiaries by Dealer, Division will advance Dealer 75 percent of the net amount owed Dealer and will pay the balance, if any, as soon as practicable thereafter.
15.2.4 ASSIGNMENT OF RIGHTS
If Division has decided to appoint a replacement dealer at Dealer's location, Dealer may sell its Eligible Items and, if approved in writing by Division, assign its rights under this Article 15.2 to a designated replacement dealer provided the replacement dealer assumes Dealer's obligations under this Article.
15.3 ASSISTANCE ON PREMISES
15.3.1 DIVISION'S OBLIGATION
Subject to Article 17.10, Division agrees to give Dealer assistance in disposing of the Premises if (i) this Agreement expires for any reason or is terminated by Division under Articles 13.2 or 14.4 and (ii) Dealer is not offered a new Dealer Agreement. Such assistance shall be given only on Premises that are described in the Location and Premises Addendum and only if:
(a) they are used solely for Dealership Operations (or similar dealership operations under agreements with other Divisions of General Motors which will be terminated simultaneously with this Agreement); and
(b) they are not substantially in excess of space requirements at the time of termination or, if they are substantially in excess, they became excessive because of a reduction in the requirements applicable to Dealer's facilities.
Any Dealer request for such assistance must be in writing and received by Division within thirty days of the expiration or termination of this Agreement.
Premises that consist of more than one parcel of property or more than one building, each of which is separately usable, distinct and apart from the whole or any other part with appropriate ingress or egress, shall be considered separately under this Article 15.3.
15.3.2 OWNED PREMISES
Division will provide assistance on owned Premises by either (a) locating a
purchaser who will offer to purchase the Premises at a reasonable price, or
(b) locating a lessee who will offer to lease the Premises. If Division does
not locate a purchaser or lessee within a reasonable time, Division will itself
either purchase or, at its option, lease the Premises for a reasonable term at a
reasonable rent. If the cause of termination or expiration is a death or the
incapacity of the Dealer Operator, Division may
instead pay Dealer a sum equal to a reasonable rent for a period of twelve months immediately following the effective date of termination or expiration of this Agreement.
15.3.3 LEASED PREMISES
Division will provide assistance on leased Premises by either:
(a) locating a tenant(s), satisfactory to lessor, who will sublet for the balance of the lease or assume it; or
(b) arranging with the lessor for the cancellation of the lease without penalty to Dealer; or
(c) reimbursing Dealer for the lesser of the rent specified in the lease or settlement agreement or a reasonable rent for a period equal to the lesser of twelve months from the effective date or termination or expiration of the balance of the lease term.
Upon request, Dealer will use its best efforts to effect a settlement of the lease with the lessor subject to Division's prior approval of the terms. Division is not obligated to reimburse Dealer for rent for any month during which the Premises are occupied by Dealer or anyone else after the first month following the effective date of termination or expiration.
15.3.4 RENT AND PRICE
Division and Dealer will fix the amount of a reasonable rent and a reasonable price for the Premises by agreement at the time Dealer requests assistance. The factors to be considered in fixing those amounts are:
(a) the adequacy and desirability of the Premises for a dealership operation; and
(b) the fair market value of the Premises. If Division and Dealer cannot agree, the fair market value will be determined by the median appraisal of three qualified real estate appraisers, of whom Dealer and Division will each select one and the two selected will select the third. The cost of appraisals will be shared equally by Dealer and Division.
15.3.5 LIMITATIONS ON OBLIGATION TO PROVIDE ASSISTANCE
Division will not be obligated to provide assistance on Premises if Dealer:
(a) fails to accept a bona fide offer from a prospective purchaser, sublessee or assignee;
(b) refuses to execute a settlement agreement with the lessor if the agreement would be without cost to Dealer;
(c) refuses to use its best efforts to effect a settlement when requested by Division; or
(d) refuses to permit Division to examine Dealer's books and records if necessary to verify claims of Dealer under this Article.
Any amount payable by Division as rental reimbursement or reasonable rent shall be proportionately reduced if the Premises are leased or sold to another party during the period for which such amount is payable. Payment of rental reimbursement or reasonable rent is waived by Dealer if it does not file its claim therefor within two months after the expiration of the period covered by the payment. Upon request, Dealer will support its claim with satisfactory evidence of its accuracy and reasonableness.
ARTICLE 16. DISPUTE RESOLUTION PROCESS
Division and Dealer agree that mutual respect, trust and confidence are vital to the relationship between Division and Dealer. So that such respect, trust and confidence can be maintained, and differences that may develop between Dealer and Division may be resolved amicably, Division and Dealer agree to resolve disputes in accordance with the Dispute Resolution Process, a copy of which has been provided to Dealer.
ARTICLE 17. GENERAL PROVISIONS
17.1 NO AGENT OR LEGAL REPRESENTATIVE STATUS
This Agreement does not make either party the agent or legal representative
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of the other for any purpose, nor does it grant either party authority to assume or create any obligation on behalf of or in the name of the others. No fiduciary obligations are created by this Agreement.
17.2 RESPONSIBILITY FOR OPERATIONS
Except as provided in this Agreement, Dealer is solely responsible for all expenditures, liabilities and obligations incurred or assumed by Dealer for the establishment and conduct of its operations.
17.3 TAXES
Dealer is responsible for all local, state, federal, or other applicable taxes and tax returns related to its dealership business and will hold General Motors harmless from any related claims or demands made by any taxing authority.
17.4 INDEMNIFICATION BY GENERAL MOTORS
General Motors will assume the defense of Dealer and indemnify Dealer against any judgment for monetary damages or rescission of contract, less any offset recovered by Dealer, in any lawsuit naming Dealer as a defendant relating to any Product that has not been altered when the lawsuit concerns:
17.4.1 Breach of the General Motors warranty related to the Product, bodily injury or property damage claimed to have been caused solely by a defect in the design, manufacture, or assembly of a Product by General Motors (other than a defect which should have been detected by Dealer in a reasonable inspection of the Product);
17.4.2 Failure of the Product to conform to the description set forth in advertisements or product brochures distributed by General Motors because of changes in standard equipment or material component parts unless Dealer received notice of the changes prior to retail delivery of the affected Product by Dealer; or
17.4.3 Any substantial damage to a Product purchased by Dealer from General Motors which has been repaired by General Motors unless Dealer has been notified of the repair prior to retail delivery of the affected Product.
If General Motors reasonably concludes that allegations other than those set forth in 17.4.1, 17.4.2, or 17.4.3 above are being pursued in the lawsuit, General Motors shall have the right to decline to accept the defense or indemnify dealer or, after accepting the defense, to transfer the defense back to Dealer and withdraw its agreement to indemnify Dealer.
Procedures for requesting indemnification, administrative details, and limitations are contained in the Service Policies and Procedures Manual under "Indemnification." The obligations assumed by General Motors are limited to those specifically described in this Article and in the Service Policies and Procedures Manual and are conditioned upon compliance by Dealer with the procedures described in the Manual. This Article shall not affect any right either party may have to seek indemnification or contribution under any other contract or by law and such rights are hereby expressly preserved.
17.5 TRADEMARKS AND SERVICE MARKS
General Motors or affiliated companies are the exclusive owners or licensees of the various trademarks, service marks, names and designs (Marks) used in connection with Products and services.
Dealer is granted the non-exclusive right to display Marks in the form and manner approved by Division in the conduct of its dealership business. Dealer agrees to permit any designated representative of Division upon the Premises during regular business hours to inspect Products or services in connection with Marks.
Dealer will not apply to register any Marks either alone or as part of another mark, and will not take any action which may adversely affect the validity of the Marks or the goodwill associated with them.
Dealer agrees to purchase and sell goods bearing Marks only from parties authorized or licensed by Division or General Motors.
Marks may be used as part of the Dealer's name with Division's written approval.
Dealer agrees to change or discontinue the use of any Marks upon Division's request.
Dealer agrees that no company owned by or affiliated with Dealer or any of its owners may use any Mark to identify a business without Division's written permission.
Upon termination of this Agreement, Dealer agrees to immediately discontinue, at its expense, all use of Marks. Thereafter, Dealer will not use, either directly or indirectly, any Marks or any other confusingly similar marks in a manner that Division determines is likely to cause confusion or mistake or deceive the public.
Dealer will reimburse Division for all legal fees and other expenses incurred in connection with action to require Dealer to comply with this Article 17.5.
17.6 NOTICES
Any notice required to be given by either party to the other in connection with this Agreement will be in writing and delivered personally or by first class or express mail or by facsimile. Notices to Dealer will be directed to Dealer or its representatives at Dealer's principal place of business and, except for indemnification requests made pursuant to Article 17.4, notices by Dealer will be directed to the appropriate Zone or Branch Manager of the Division(s) of General Motors.
17.7 NO IMPLIED WAIVERS
The delay or failure of either party to require performance by the other party or the waiver by either party of a breach of any provision of this Agreement will not affect the right to subsequently require such performance.
17.8 ASSIGNMENT OF RIGHTS OR DELEGATION OF DUTIES
Dealer has not paid any fee for this Agreement. Neither this Agreement nor any right granted by this Agreement is a property right.
Except as provided in Article 12, neither this Agreement nor the rights or obligations of Dealer may be sold, assigned, delegated or otherwise transferred.
Division may assign this Agreement and any rights, or delegate any obligations, under this Agreement to any affiliated or successor company, and will provide Dealer written notice of such assignment or delegation. Such assignment or delegation shall not relieve Division of liability for the performance of its obligations under this Agreement.
17.9 NO THIRD PARTY BENEFIT INTENDED
This Agreement is not enforceable by any third parties and is not intended to convey any rights or benefits to anyone who is not a party to this Agreement.
17.10 ACCOUNTS PAYABLE
All monies or accounts due Dealer are net of Dealer's indebtedness to Division, General Motors and its subsidiaries. In addition, Division may deduct any amounts due or to become due from Dealer to Division or General Motors, or any amounts held by Division, from any sums or accounts due or to become due from Division, General Motors or its subsidiaries.
17.11 SOLE AGREEMENT OF PARTIES
Except as provided in this Agreement, Division has made no promises to Dealer, Dealer Operator, or dealer owner and there are no other agreements or understandings, either oral or written, between the parties affecting this Agreement or relating to any of the subject matters covered by this Agreement.
Except as otherwise provided herein, this Agreement cancels and supersedes all previous agreements between the parties that relate to any matters covered herein, except as to any monies which may be owing between the parties.
No agreement between Division and Dealer which relates to matters covered herein, and no change in, addition to (except the filling in of blank lines) or erasure of any printed portion of this Agreement, will be binding unless permitted under the terms of this Agreement or related documents, or approved in a written agreement executed as set forth in Division's Dealer Sales and Service Agreement.
17.12 APPLICABLE LAW
This agreement is governed by the laws of the State of Michigan. However, if performance under this Agreement is illegal under a valid law of any jurisdiction where such performance is to take place, performance will be modified to the minimum extent necessary to comply with such law if it was effective as of the effective date of this Agreement.
17.13 SUPERSEDING DEALER AGREEMENTS
If Division offers a superseding form of dealer agreement to Division's dealers generally at any time prior to expiration of this Agreement, Division may terminate this Agreement by prior written notice to Dealer, provided Division offers Dealer a dealer agreement in the superseding form for a term of not less than the unexpired term of this Agreement.
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 Division and Dealer execute a superseding dealer agreement, and the matured rights and obligations of the parties hereunder shall continue under the new agreement.
Dealer's performance under any prior agreement may be considered in an evaluation of Dealer's performance under this or any succeeding agreement.
GLOSSARY
1. AREA OF PRIMARY RESPONSIBILITY - The geographic area designated by Division from time to time in a Notice of Area of Primary Responsibility.
2. DEALER - The corporation, partnership or proprietorship that signs the Dealer Agreement with Division.
3. DEALER AGREEMENT - The Dealer Sales and Service Agreement, including the Agreement proper that is executed, the Standard Provisions, all of the related Addenda, the Accounting and Service Policies and Procedures Manuals, and the Terms of Sale Bulletins.
4. DEALERSHIP OPERATIONS - All operations contemplated by the Dealer Agreement. These operations include the sale and service of Products and any other activities undertaken by Dealer related to Products, including rental and leasing operations, used vehicle sales and body shop operations and finance and insurance operations whether conducted directly or indirectly by Dealer.
5. DIVISION - The unit of General Motors Corporation that has entered into a Dealer Agreement with Dealer authorizing it to market and service Division's Motor Vehicles.
6. GENERAL MOTORS - General Motors Corporation.
7. MOTOR VEHICLES - All current model types or series of new motor vehicles specified in any Motor Vehicle Addendum and all past General Motors motor vehicles marketed through Motor Vehicle Dealers.
8. PRODUCTS - Motor Vehicles, Parts and Accessories.
9. SERVICE POLICIES AND PROCEDURES MANUAL - The Manual issued periodically which details certain administrative and performance requirements for Dealer service under the Dealer Agreement.
10. SPECIAL VEHICLES - Motor Vehicles that have limited marketability because they differ from standard specifications or incorporate special equipment.
EXHIBIT 10.8.1
TERM APRIL 11, 1994 THROUGH DECEMBER 31, 1994
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DEALER DEALER'S LEGAL NAME LITHIA DODGE
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d/b/a LITHIA MAZDA
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DEALER'S APPROVED LOCATION 333 NORTH RIVERSIDE AVE. - SALES
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325 EAST 5TH STREET - SERVICE & PARTS
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MEDFORD, OREGON 97501
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BY /s/ SIDNEY B. DEBOER TITLE PRESIDENT
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MAZDA MOTOR OF AMERICA, INC. 7755 IRVINE CENTER DRIVE
IRVINE, CALIFORNIA 92718
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THE MAZDA DEALER AGREEMENT SHALL BE EFFECTIVE ONLY UPON THE WRITTEN
APPROVAL OF THE PRESIDENT OR ANY OF THE VICE PRESIDENTS OF MAZDA.
SCHEDULE OF DOCUMENTS
I. BASIC AGREEMENT Basic Agreement
Sales and Service Obligations of MAZDA and
DEALER
MAZDA Image
Customer Satisfaction
Essential MAZDA Programs
MAZDA Information Systems
Reasonable Expectations of DEALER and MAZDA
Communications and Review Procedures
Additional Provisions
Term
DEALER Acknowledgment
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II. ADDITIONAL AGREEMENTS General Terms and Conditions
Definitions
General Provisions
Purchase Terms and Conditions
Dealership Location
DEALER Review and Action Plan
MAZDA Image
Renewal and Termination
Renewal
Termination
Effect of Expiration or Termination
Mutual Releases
Other Actions
Ownership and Transfer
General
Rights of Spouses and Children
Transfer to Other Nominees
Dispute Resolution
Non-Judicial Resolution
Third Party Non-Judicial Resolution
Judicial Resolution
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(c) employ qualified and trained personnel for the sale and service of MAZDA Products,
(d) advertise MAZDA Products and services in the local area where DEALER is located, using media selected by DEALER,
(e) participate in local auto shows and product exhibitions,
(f) use retail sales promotion materials prepared by MAZDA for use by MAZDA Dealers, such as catalogs, banners, product information centers and other point-of-sale materials,
(g) use sales aids prepared by MAZDA for use by sales, service and parts personnel of MAZDA Dealers,
(h) encourage DEALER's sales, service, parts and administrative personnel to participate in incentive programs offered by MAZDA,
(i) cause DEALER's eligible employees to fully participate in training programs conducted by MAZDA for sales, service, parts, administrative and management personnel of MAZDA Dealers, and
(j) acquire, maintain and use special tools, manuals and equipment offered by MAZDA for use by DEALER's personnel.
II. MAZDA IMAGE
MAZDA and DEALER acknowledge that the following are essential purposes of the MAZDA Dealer Agreement:
(a) to safeguard and promote the image, goodwill and reputation of the MAZDA Trademarks, MAZDA Products, MAZDA, DEALER and MAZDA Dealers generally, and
(b) to avoid any and all deceptive, misleading, illegal, unethical and discourteous practices by the parties and their personnel.
Accordingly, MAZDA and DEALER agree to conduct all activities between them and others in such manner as is consistent with and in furtherance of these essential purposes, and to take any action reasonably required to correct a situation having an adverse effect on the MAZDA image.
III. CUSTOMER SATISFACTION
1. Acknowledgment
MAZDA and DEALER acknowledge that, in maintaining and preserving the image, reputation and goodwill of the MAZDA Trademarks, MAZDA Products, DEALER, MAZDA and MAZDA Dealers generally, the highest priority shall be given to ensuring that customers are continually informed about and satisfied with MAZDA Products and services provided by MAZDA and DEALER. MAZDA and DEALER further acknowledge that the principal contact with customers will be DEALER, that DEALER shall have the primary responsibility for handling customer satisfaction matters, and that MAZDA shall support DEALER's efforts by providing technical information and assistance regarding MAZDA Products. Accordingly, in addition to their other obligations under the MAZDA Dealer Agreement, MAZDA and DEALER agree to the following provisions.
2. MAZDA's Obligations.
MAZDA shall:
(a) cause qualified personnel to visit DEALER's facilities on a periodic basis to discuss customer satisfaction matters,
(b) designate a person having the principal responsibility and authority on behalf of MAZDA to handle and resolve customer satisfaction matters with customers and DEALER,
(c) prepare and offer to DEALER consumer materials about MAZDA Products and services,
(d) establish consumer communications programs,
(e) keep DEALER promptly and fully advised with respect to customer matters involving DEALER, and timely respond to notices from DEALER. In situations involving claims of defects in MAZDA Products, and
(f) provide suitable information to permit DEALER to respond to customers, consumer organizations and government agencies in a timely and courteous fashion in customer satisfaction matters involving DEALER.
3. DEALER'S OBLIGATIONS
Dealer shall:
(a) ensure proper training in customer satisfaction matters for sales, service, parts and administrative personnel, and cause DEALER's personnel at all times to treat customers in a prompt, courteous and professional manner,
(b) designate a person having the principal responsibility and authority on behalf of DEALER to handle and resolve customer satisfaction matters with customers and MAZDA,
(c) provide to customers materials prepared by MAZDA about MAZDA Products and services,
(d) participate in consumer communications programs established by MAZDA,
(e) keep MAZDA promptly and fully advised with respect to claims of defects in MAZDA Products and other customer matters in which MAZDA has expressed an interest, and
(f) cooperate with consumer organizations and government agencies in customer satisfaction matters involving DEALER, and use its best efforts to resolve customer satisfaction matters in a fair and honest manner which will maintain the goodwill of customers and the image and reputation of MAZDA Products.
IV. ESSENTIAL MAZDA PROGRAMS
MAZDA shall develop and offer programs for the benefit of (i) customers, (ii) MAZDA Dealers or (iii) MAZDA concerning, without limitation, advertising, sales, data processing, consumer information and service and training. MAZDA's general manager may reasonably deem participation by MAZDA Dealers generally in certain programs to be essential for maintaining an effective and efficient distribution system for MAZDA Products.
Accordingly, DEALER shall participate in these essential programs pursuant to their terms and conditions as part of the performance by DEALER of its obligations under the MAZDA Dealer Agreement. MAZDA reserves the right to limit DEALER's participation in other programs of MAZDA if DEALER fails or refuses to participate in an essential program.
V. MAZDA INFORMATION SYSTEMS
1. Establishment and Purpose.
MAZDA shall establish, from time to time, information systems for use by MAZDA Dealers generally and MAZDA to maintain an effective and efficient distribution system for MAZDA Products, to facilitate the efficient and timely performance of
their obligations to one another, and to enhance the competitive position of MAZDA Products in the marketplace. These systems shall, without limitation, relate to:
(a) distribution, sales and inventories of MAZDA Products,
(b) warranty claims,
(c) consumer communications,
(d) product quality assurance,
(e) DEALER financial information, and
(f) transportation claims.
2. DEALER Utilization.
DEALER shall utilize these information systems, in accordance with policies and procedures applicable to MAZDA Dealers generally and established by MAZDA from time to time. As part of such utilization, DEALER shall report, update and verify information as may be required by MAZDA for processing and maintaining information under such systems.
3. Electronic Systems.
MAZDA and DEALER acknowledge that effective and efficient communication of information between them is increasingly likely to require DEALER to utilize electronic communication and data processing hardware and software which can communicate with and is otherwise compatible with MAZDA hardware and software. Accordingly, DEALER shall acquire and maintain hardware and software deemed by MAZDA to be necessary for this purpose. DEALER shall implement necessary changes and modifications in its hardware and software as may be required by MAZDA for this purpose upon MAZDA's giving at least three months' advance written notice to DEALER of such changes.
4. Accurate Information.
DEALER acknowledges that maintaining accurate information regarding DEALER's Business on a current basis is important for the management and evaluation of DEALER's Business and also to permit MAZDA to identify and develop programs and services for the benefit of MAZDA Dealers and customers generally. Accordingly, DEALER agrees that all information submitted to MAZDA shall be complete and accurate and submitted in the form and at the times requested by MAZDA. DEALER will verify the accuracy of all information prior to its being submitted to MAZDA so that no information will be false or misleading. In addition to any other remedies available to MAZDA under the MAZDA Dealer Agreement, DEALER agrees to fully compensate MAZDA for all costs incurred by MAZDA in identifying and correcting false or misleading information problems.
VI. REASONABLE EXPECTATIONS OF DEALER AND MAZDA
1. Business Expectations.
The reasonable expectations of DEALER and MAZDA are to deal in good faith with each other in pursuit of their respective interests and the intents and purposes of the MAZDA Dealer Agreement. Each party acknowledges that meeting its goals and objectives for the business relationship contemplated hereby is and will continue to be dependent upon its own conduct, business judgment and performance hereunder. DEALER and MAZDA further acknowledge: (i) that by entering into the MAZDA Dealer Agreement, each party is and will continue to be involved in an inherently speculative business venture that requires each party to assume significant business risks; (ii) that the success or failure of the business
contemplated hereby is uncertain; and (iii) that no profit or specific level of profitability is represented or can be assured to either party. The MAZDA Dealer Agreement is not intended to eliminate the business risks, but is intended to fairly and reasonably allocate the business risks between DEALER and MAZDA. Accordingly, except as expressly set forth in the MAZDA Dealer Agreement, DEALER makes no representations or warranties to MAZDA, including without limitation any representation or warranty that DEALER will sell a particular number of MAZDA Vehicles, meet any specific sales objective for MAZDA Products, or otherwise achieve any particular level of market penetration in any area served from DEALER's Approved Location. Similarly, except as expressly set forth in the MAZDA Dealer Agreement, MAZDA makes no representations or warranties to DEALER, including without limitation any representation or warranty with respect to the future success or profitability of the business contemplated hereby, or that MAZDA will be able to satisfy DEALER's requirements for MAZDA Products when and as they arise from time to time.
2. Acknowledgments.
DEALER and MAZDA acknowledge that they may not fulfill their respective expectations for the business contemplated by the MAZDA Dealer Agreement and agree that in such event the parties may take any one or more of the following actions, consistent with applicable law: (i) DEALER or MAZDA may elect to terminate or not renew the MAZDA Dealer Agreement as provided herein; (ii) DEALER may elect to utilize some of its resources to engage in businesses involving the promotion, sale and service of products other than MAZDA Products, including those which may be competitive with MAZDA Products; or (iii) if MAZDA determines it would be in the best interests of customers or MAZDA to do so, MAZDA may elect to appoint another dealer to promote, sell and service MAZDA Products near DEALER's Approved Location. DEALER and MAZDA shall give each other at least sixty days' written notice prior to taking any of the foregoing actions, for the purpose of enabling the parties to discuss whether there exist any mutually agreeable alternatives to the proposed action. To the extent any consent is required from a party, such party will not unreasonably withhold its consent to any of the foregoing actions by the other.
3. DEALER's Representations.
DEALER represents and warrants and MAZDA enters into the MAZDA Dealer Agreement in reliance upon DEALER's representation that the information contained in the MAZDA Dealer Representations made to MAZDA by DEALER are true, complete and not misleading.
VII. COMMUNICATIONS AND REVIEW PROCEDURES
1. Periodic Review.
From time to time one or more designated representatives from MAZDA and DEALER shall meet to review the past performance under the MAZDA Dealer Agreement, anticipated sales, service, parts and other matters affecting the past, present and future conduct of DEALER's Business and DEALER's relationship with MAZDA. Both parties shall make every effort towards continuing frank, open and constructive discussions to best promote the continuing and successful performance of MAZDA and DEALER under the MAZDA Dealer Agreement and to enhance the relationship between the parties.
2. Responsibility of MAZDA Representatives.
DEALER acknowledges that designated field representatives of MAZDA having responsibility for communications with DEALER on behalf of MAZDA with respect to day-to-day operational matters do not have authority to represent MAZDA or make commitments on behalf of MAZDA concerning matters of interpretation of the MAZDA Dealer Agreement or matters of policy affecting the relationship of DEALER and MAZDA, including without limitation matters involving: (i) methods of allocation for MAZDA Products; (ii) the determination by MAZDA of essential MAZDA programs necessary for DEALER to perform its obligations under the MAZDA Dealer Agreement; (iii) whether MAZDA has fulfilled its reasonable expectations for the business contemplated by the MAZDA Dealer Agreement; (iv) the appointment of another Dealer near DEALER's Approved Location; or (v) the termination or renewal of the MAZDA Dealer Agreement. Accordingly, DEALER may not rely on any such field representative of MAZDA with respect to such matters. If DEALER has any questions concerning matters of interpretation of the MAZDA Dealer Agreement or other policy matters, DEALER shall consult with an appropriate officer of MAZDA having executive responsibility for the matter in question, including MAZDA's general manager.
3. DEALER's General Manager.
DEALER agrees to employ at all times qualified and competent personnel to manage DEALER's business, including one individual who shall act as DEALER's General Manager. Such General Manager shall have principal responsibility for the overall management of DEALER's Business, shall have full authority to make decisions and act on DEALER's behalf, and shall devote his or her full time and attention to serving in that capacity. If DEALER is an individual, DEALER shall act as such General Manager. If DEALER is not an individual, DEALER shall inform MAZDA in writing in advance and on a continuing basis of the name and qualifications of each individual employee who is designated by DEALER from time to time to act as such General Manager. DEALER acknowledges that any such designation shall not relieve DEALER of its responsibilities under the MAZDA Dealer Agreement even though MAZDA may rely upon such individual to act on DEALER's behalf.
VIII. ADDITIONAL PROVISIONS
1. Components of MAZDA Dealer Agreement.
DEALER and MAZDA acknowledge that the business relationship between them involves many matters requiring detailed terms and conditions governing their respective contractual rights and obligations, and that the terms and conditions of their relationship may be changed or supplemented because of changes in market conditions and other relevant factors. Accordingly, MAZDA and DEALER agree to the following provisions, which are incorporated by this reference into and made a part of the MAZDA Dealer Agreement:
(a) those provisions which are set forth in the additional agreements attached hereto,
(b) those provisions which currently are set forth in written instructions issued by MAZDA to MAZDA Dealers generally, as amended from time to time, including but not limited to MAZDA warranty policies and procedures, MAZDA transportation claims policies and procedures, MAZDA parts bulletins, MAZDA parts policies and procedures, the MAZDA service organization and facilities guide and the MAZDA Dealer identification policies,
(c) those provisions which are set forth in other additional agreements or written instructions which are issued by MAZDA in the future to be generally applicable to all MAZDA Dealers, it being understood and agreed by DEALER that
the conduct of DEALER's business is to be governed by requirements established by MAZDA as applicable to all MAZDA Dealers generally.
2. Definition of Terms.
All terms which are defined in the additional provisions, when so used in the MAZDA Dealer Agreement, shall have the same meaning as set forth therein.
3. Amendments.
MAZDA may amend the MAZDA Dealer Agreement (including any of the above referenced additional provisions) or issue a new Dealer Agreement, without further consideration, provided that MAZDA takes any such action with respect to all MAZDA Dealers generally.
IX. TERM
The MAZDA Dealer Agreement and all additional provisions incorporated by reference under Section VIII shall be in effect with respect to DEALER for the term stated on the signature page of the MAZDA Dealer Agreement unless terminated sooner pursuant to the additional agreement entitled "Renewal and Termination."
X. DEALER ACKNOWLEDGMENT
DEALER has read and understands the terms and conditions of the MAZDA Dealer Agreement, including the Basic Agreement and all additional provisions incorporated by reference under Section VIII of the Basic Agreement and is fully aware of the obligations of DEALER and MAZDA. DEALER and MAZDA each acknowledge that they are entering into the MAZDA Dealer Agreement as their free and voluntary act in order to pursue their independent business interests and in the expectation that their business relationship will be to their mutual economic benefit. In so doing DEALER and MAZDA are relying upon their own judgment and the counsel of their advisors.
DEALER Initials:
This General Terms and Conditions document is an additional agreement under the MAZDA Dealer Agreement between MAZDA and DEALER, and as such is incorporated by reference into the MAZDA Dealer Agreement and is binding upon MAZDA and DEALER as if executed by each of them.
1. DEFINITIONS
As used in the MAZDA Dealer Agreement the following terms shall have the following meanings:
1. "DEALER" means the business entity identified as dealer on the signature page of the MAZDA Dealer Agreement.
2. "DEALER's Approved Location" means the address of DEALER set forth on the signature page of the MAZDA Dealer Agreement.
3. "DEALER's Business" means all activities of DEALER relating to the promotion, sale and service of MAZDA Products and all other activities of DEALER under the MAZDA Dealer Agreement.
4. "Manufacturer" means MAZDA Motor Corporation, a corporation, or any other corporation which manufactures MAZDA Vehicles.
5. "MAZDA" means the business entity identified as Mazda on the signature page of the MAZDA Dealer Agreement.
6. "MAZDA Dealers" means others who promote, sell and service MAZDA Products pursuant to an agreement with MAZDA authorizing them to engage in business under the MAZDA Trademarks and to participate in the distribution system established by MAZDA for MAZDA Products.
7. "MAZDA Dealer Representations" means the application, related documents and information, and representations previously submitted or made by DEALER to MAZDA for the purpose of enabling MAZDA to evaluate DEALER and to determine whether to enter into or renew the MAZDA Dealer Agreement with DEALER including but not limited to the information set forth on any attachment hereto entitled MAZDA Dealer Representations, which is incorporated herein by reference.
8. "MAZDA Parts and Accessories" means new parts and accessories designed for use on MAZDA Vehicles and marketed by MAZDA, or other parts and accessories specifically designated by MAZDA in writing as MAZDA Parts and Accessories.
9. "MAZDA Products" means MAZDA Vehicles and MAZDA Parts and Accessories.
10. "MAZDA Vehicles" means new cars and trucks which bear the trademark MAZDA and are sold by MAZDA to MAZDA Dealers.
11. "MAZDA Trademarks" means the various trademarks, service marks, names, logos and designs (including the name "MAZDA"), and all registrations thereof, now or hereafter owned, claimed, adopted, acquired or used by Manufacturer, MAZDA or any other company involved in the chain of distribution for MAZDA Products.
II. GENERAL PROVISIONS
1. Relationship Between DEALER and MAZDA.
DEALER and MAZDA acknowledge that the MAZDA Dealer Agreement does not make either party the agent, partner, or legal representative of the other for any purpose, and that neither party has any power or authority to act as agent for the other or assume or create any obligation on behalf of or in the name of the other, or bind such party in any manner. DEALER and MAZDA further acknowledge _________ length, and that the business relationship between them does not create any franchise, special trust, confidential or other fiduciary relationship, or any duties arising from such relationship. Each party shall be solely responsible for any and all expenditures and liabilities incurred by it in connection with the MAZDA Dealer Agreement or the performance of obligations hereunder. DEALER has not paid to MAZDA and MAZDA has not _____________________
This Purchase Terms and Conditions document is an additional agreement under the MAZDA Dealer Agreement between MAZDA and DEALER, and as such is incorporated by reference into the MAZDA Dealer Agreement and is binding upon MAZDA and DEALER as if executed by each of them.
PURCHASE TERMS AND CONDITIONS
1. Orders.
DEALER agrees to submit orders for MAZDA Products to MAZDA in such form and under such terms and conditions as may be required by MAZDA from time to time. Any
such orders are subject to acceptance by MAZDA, and may be accepted in whole or in part. Orders may be accepted by notice to DEALER or by shipment of the MAZDA Products ordered. Orders shall be irrevocable for 120 days after submission to MAZDA, and shall be irrevocable after shipment to DEALER of the MAZDA Products ordered.
2. Changes in MAZDA Products.
MAZDA may fill DEALER orders with MAZDA Products incorporating the most recent improvements or changes, including those made after an order is placed, without any obligation to make the same or similar changes on MAZDA Products previously purchased by or shipped to DEALER. MAZDA may install any equipment required by applicable law to be installed on any MAZDA Products ordered by DEALER, whether or not such item of equipment is included in DEALER's order for the MAZDA Products. MAZDA may at any time, without incurring liability to DEALER, discontinue sales or shipments of any model or type of MAZDA Products. MAZDA may act under the provisions of this paragraph without notice and without any obligation to DEALER by reason of DEALER's previous purchases.
3. Delivery
MAZDA shall endeavor to deliver MAZDA Products to DEALER as soon as practicable after acceptance of DEALER's order. MAZDA shall not be liable for delay or nondelivery of MAZDA Products, nor shall MAZDA be obligated to deliver to DEALER any particular quantity or mix of MAZDA Products. MAZDA may deliver MAZDA Products by any means or carrier. MAZDA Products may be shipped to DEALER at DEALER's Approved Location ______ or DEALER's Approved Location. Upon delivery of the MAZDA Products to the first carrier or to DEALER, whichever occurs first, risk of loss of the MAZDA Products shall pass to DEALER or to the financing institution previously designated by DEALER in writing to MAZDA. Title to the MAZDA Vehicles shall pass to DEALER upon payment in full therefor, while title to MAZDA Parts and Accessories shall pass upon delivery as set forth in the previous sentence. MAZDA shall retain a lien on the MAZDA Products securing payment for the MAZDA Products until paid for in full. DEALER shall make written claim for any shortage or damage in any shipment of MAZDA Products within the time and in the manner as may be required by MAZDA.
4. MAZDA Product Supply.
DEALER and MAZDA acknowledge that the supply of MAZDA Products to MAZDA can vary from time to time for many reasons beyond the control of MAZDA. Accordingly, MAZDA may not at all times have an available supply of all makes, models and colors of MAZDA Vehicles or of MAZDA Parts and Accessories sufficient to meet the demands of all MAZDA Dealers generally or the specific demands of DEALER or its customers; or at other times MAZDA may have a greater supply of MAZDA Vehicles or of MAZDA Parts and Accessories than is required by all MAZDA Dealers generally or specifically by DEALER or its customers. In order to maintain an effective distribution system for MAZDA Products, it may be necessary for MAZDA to allocate its supply of MAZDA Products among all MAZDA Dealers, utilizing uniform methods of allocation from time to time which take into consideration such factors as MAZDA deems relevant, including without limitation the size, sales performance, inventories and sales potential of MAZDA Dealers. Accordingly, MAZDA has not made, and cannot make any representation or warranty to Dealer that Dealer can expect to ____________ including particular makes, models or colors of MAZDA Vehicles. DEALER acknowledges that it is not entering into the MAZDA Dealer Agreement on the basis of any such representation or warranty, and that it may not at all times have such quantities of MAZDA Products available or in its inventories as it desires or deems necessary to meet the demands therefor from prospective customers of MAZDA Products, or to satisfy DEALER's objectives for
sales of MAZDA Products. DEALER agrees to conduct DEALER's Business in accordance with the terms and conditions of allocation systems established by MAZDA from time to time for all MAZDA Dealers generally. MAZDA acknowledges that DEALER is not required to purchase any specific quantity of MAZDA Products, and that DEALER may from time to time decline to purchase from MAZDA any or all MAZDA Products allocated to DEALER under MAZDA's allocation system; provided DEALER acknowledges that any refusal to purchase MAZDA Products allocated to it may adversely affect its ability relative to other MAZDA Dealers to receive MAZDA Products thereafter or to participate in other programs of MAZDA available to other MAZDA Dealers. DEALER acknowledges that the allocation system presently utilized by MAZDA for MAZDA Vehicles has been explained to and understood by DEALER and that it is a fair and reasonable system for allocating MAZDA Vehicles among all MAZDA Dealers generally.
5. Prices.
DEALER agrees to purchase MAZDA Products according to the prices, charges and terms established by MAZDA from time to time and in effect on the date of shipment, including destination charges. MAZDA reserves the right, without prior notice, to change prices, charges and terms for any MAZDA Products.
6. Taxes.
DEALER agrees to pay all excise or other taxes levied on MAZDA Products purchased by DEALER or on the sale, shipment, ownership or use of the MAZDA Products to or by DEALER.
7. Reshipment and Diversion.
MAZDA agrees to pay all expenses incurred by DEALER in reshipping to MAZDA any MAZDA Products not ordered by DEALER, provided that DEALER reships the MAZDA Products promptly as directed by MAZDA. DEALER agrees to pay any expenses incurred by MAZDA for any diversion of MAZDA Products resulting from DEALER's failure or refusal to accept any MAZDA Products ordered by and shipped to DEALER or to make timely payment for any MAZDA Products.
8. Payment.
DEALER agrees to pay MAZDA for MAZDA Products sold to DEALER on terms established by MAZDA from time to time. DEALER agrees to pay MAZDA's cost of collection (including attorneys' fees) of any amount owed by DEALER to MAZDA. MAZDA may offset any amount owed by MAZDA to DEALER. All MAZDA Products purchased by DEALER from MAZDA (other than MAZDA Vehicles) shall be charged to DEALER's parts account, unless otherwise specified by MAZDA prior to the date of purchase. If any payment of DEALER's parts account is delinquent, MAZDA may ship MAZDA Products purchased by DEALER on a C.O.D. or prepaid basis.
9. Financial Resources.
DEALER agrees to maintain and employ in DEALER's Business at all times financial resources sufficient to enable DEALER to satisfy DEALER's obligations under the MAZDA Dealer Agreement. These resources shall include the amounts of working capital, new vehicle flooring, and other financial resources which MAZDA may reasonably require; provided that no such requirement shall be deemed to be a warranty by MAZDA of the adequacy of such financial resources for the successful conduct of DEALER's Business.
DEALERSHIP LOCATION
DEALER's Approved Location.
DEALER agrees to conduct DEALER's Business at DEALER's Approved Location and at no other location. DEALER acknowledges that DEALER's Approved Location is an integral part of MAZDA's network of MAZDA Dealers which promote, sell and service MAZDA products, and the continued conduct of DEALER's Business at DEALER's Approved Location is essential to maintain an effective and efficient distribution system for MAZDA Products. Accordingly, MAZDA will not require DEALER to relocate its facilities to another location unless such relocation is deemed reasonably necessary to meet changes in sales and service requirements of customers of MAZDA Products. In addition, DEALER shall not sell or transfer any interest of DEALER in DEALER's facilities or the underlying property of DEALER's Approved Location without the prior written consent of MAZDA.
This DEALER Review and Action Plan document is an additional agreement under the MAZDA Dealer Agreement between MAZDA and DEALER, and as such is incorporated by reference into the MAZDA Dealer Agreement and is binding upon MAZDA and DEALER as if executed by each of them.
DEALER REVIEW AND ACTION PLAN
This DEALER Review and Action Plan document is an additional agreement under the MAZDA Dealer Agreement between Mazda and Dealer, and as such is incorporated by reference into the MAZDA Dealer Agreement and is binding upon MAZDA and Dealer as if executed by each of them.
DEALER REVIEW AND ACTION PLAN
1. Purpose.
MAZDA and DEALER acknowledge that it is desirable for MAZDA to review, evaluate and suggest to DEALER goals related to the sales, service, parts and other operations of DEALER which DEALER should reasonably expect to accomplish so as to : (i) provide for high levels of satisfied customers of MAZDA products; (ii) promote the image, reputation and goodwill of DEALER, MAZDA, MAZDA Products, and MAZDA Dealers generally; and (iii) permit DEALER to operate as an effective member of the nationwide distribution system for MAZDA Products.
2. Information From DEALER.
DEALER acknowledges that MAZDA will require information on a continuing basis from DEALER regarding DEALER's facilities, operations and personnel in order for MAZDA to review and evaluate DEALER's operations. DEALER agrees to provide such information in a prompt and helpful manner as requested from time to time by MAZDA. MAZDA intends to utilize such information to compile data regarding MAZDA Dealers and the local areas where they do business as part of MAZDA's review program.
3. Individualized Annual Action Plan.
Based on the information from DEALER and other information developed by MAZDA, MAZDA will evaluate DEALER's representation of MAZDA in the local area where DEALER does business. MAZDA will prepare and present to DEALER at least annually an individualized action plan for DEALER with respect to DEALER's operations, facilities, personnel, tools, equipment and support services which MAZDA reasonably determines need to be improved to provide effective representation of
MAZDA under the MAZDA Dealer Agreement. MAZDA agrees to discuss with DEALER the analysis and the goals for improvement presented in the action plan.
4. Voluntary Nature of Compliance.
DEALER acknowledges that the individual action plan for DEALER will be prepared by MAZDA to benefit DEALER and MAZDA Dealers generally, and to enhance the effectiveness and efficiency of the nationwide distribution system for MAZDA Products. DEALER agrees to consider seriously and to use its best efforts to accomplish within a reasonable period of time, on a cost effective basis for DEALER, those goals for improvement which MAZDA presents to DEALER in an action plan. MAZDA agrees to cooperate with DEALER and help DEALER accomplish those goals. DEALER acknowledges that its failure to make adequate progress toward accomplishing the goals suggested by MAZDA in an action plan may mean that DEALER will not be able to provide effective representation of MAZDA in the local area in which DEALER does business, and that MAZDA will not be able to fulfill its reasonable expectations for the business relationship with DEALER contemplated by the MAZDA Dealer Agreement.
This MAZDA image document is an additional agreement under the MAZDA Dealer Agreement between MAZDA and DEALER, and as such is incorporated by reference into the MAZDA Dealer Agreement and is binding upon MAZDA and DEALER as if executed by each of them.
MAZDA IMAGE
1. Use of MAZDA Trademarks.
In connection with DEALER's performance of its obligations under the MAZDA Dealer Agreement, DEALER may use the MAZDA Trademarks as authorized by MAZDA. DEALER shall not use any MAZDA Trademarks, or any mark, word, symbol, trade dress or logo similar to any MAZDA Trademark, in connection with the sale of any property other than MAZDA Products. DEALER shall use the MAZDA Trademarks only in the color, size, form and style required or approved by MAZDA from time to time. No MAZDA Trademark or mark, name or word similar thereto may be used in any trademark registration by DEALER. Except as provided below, DEALER shall use the word "MAZDA" in its assumed business name, and shall not use the word in DEALER's legal name. The word "MAZDA" may be used in DEALER's legal name only when required by law or when DEALER may not legally utilize an assumed business name containing the word "MAZDA." DEALER's use of the word "MAZDA" in its assumed business name or in its legal name shall be made only with the prior written approval of MAZDA and upon such terms and conditions as MAZDA may specify from time to time. No company owned by or affiliated with DEALER or any person who is an owner of DEALER may use the MAZDA Trademarks or other marks, names or words similar thereto without the prior written permission of MAZDA. At MAZDA's request, DEALER agrees to discontinue or change the manner in which DEALER uses any MAZDA trademarks.
2. Ownership and Protection of MAZDA Trademarks.
DEALER shall not impair the value or contest the right of Manufacturer or MAZDA to the exclusive ownership and use of any MAZDA Trademark. DEALER's use of any MAZDA Trademark shall not create, or be deemed to create, any right, title or interest in the MAZDA Trademarks in DEALER or any other party, and any such use shall inure to the _________________ benefit of the owner of the MAZDA Trademarks. To help protect the MAZDA Trademarks, DEALER agrees to notify MAZDA promptly whenever DEALER learns of an infringement or misuse of MAZDA Trademarks by any person. DEALER shall not represent as MAZDA Products any products which are not MAZDA Products.
3. DEALER Facilities.
DEALER's place of business shall be satisfactory to MAZDA in appearance and condition.
4. Signs.
DEALER agrees to provide identification and departmental signs required by MAZDA. DEALER agrees to prominently display, illuminate, maintain and repair the signs at DEALER's Approved Location, at DEALER's expense and in a manner approved by MAZDA.
5. Advertising.
DEALER agrees to actively and adequately advertise MAZDA Products in a manner that will develop interest and confidence in MAZDA Products in the local area where DEALER does business. DEALER shall not use any advertising which in MAZDA's opinion tends to mislead or deceive the public. DEALER's advertising will conform to MAZDA's advertising standards, will adequately maintain the image, reputation and goodwill of the MAZDA Trademarks, MAZDA Products, MAZDA and other MAZDA Dealers, and will not conflict with other national and regional advertising for MAZDA Products. DEALER agrees to discontinue immediately any advertising that MAZDA determines: (i) may be injurious to the image, goodwill or reputation of the MAZDA Trademarks, MAZDA, MAZDA Products, and other MAZDA Dealers; or (ii) may be likely to mislead or deceive the public; or (iii) which is inconsistent with MAZDA's advertising or the requirements of this paragraph.
This Renewal and Termination document is an additional agreement under the MAZDA Dealer Agreement between MAZDA and DEALER, and as such is incorporated by reference into the MAZDA Dealer Agreement and is binding upon MAZDA and DEALER as if executed by each of them.
I. RENEWAL
MAZDA and DEALER agree to renew the MAZDA Dealer Agreement upon the expiration of its stated period for such renewal period as MAZDA may reasonably offer to DEALER at least ninety days prior to expiration, unless:
(a) DEALER refuses to agree to special conditions for the conduct of DEALER's Business proposed in good faith by MAZDA, which refusal shall give MAZDA good cause for non-renewal, or (b) Any event or series of events has occurred during the period of the MAZDA Dealer Agreement which gives DEALER or MAZDA the right to terminate.
II. TERMINATION
1. Termination by Mutual Consent.
The MAZDA Dealer Agreement may be terminated at any time by the written consent of DEALER and MAZDA. The termination shall be effective on the date specified in the written consent. If MAZDA and DEALER fail to renew the MAZDA Dealer Agreement pursuant to Section I, the MAZDA Dealer Agreement shall be deemed to be terminated by mutual consent of DEALER and MAZDA.
2. New Form of Dealer Agreement.
If MAZDA at any time offers a new form of MAZDA dealer agreement to MAZDA Dealers generally, MAZDA may terminate the MAZDA Dealer Agreement by a written notice to DEALER which offers the new form of dealer agreement to DEALER. The termination
shall be effective ninety days after DEALER receives the notice or, if it occurs earlier, on the date upon which the new MAZDA Dealer Agreement between MAZDA and DEALER becomes effective.
3. Termination by DEALER.
DEALER may terminate the MAZDA Dealer Agreement at any time by written notice to MAZDA. DEALER acknowledges that MAZDA has made a significant investment in servicing DEALER and in performing its obligations under the MAZDA Dealer Agreement in order to maintain customer satisfaction and supply of MAZDA Products in the local area where DEALER does business. DEALER acknowledges further that in order to preserve and protect that investment, MAZDA requires adequate notice in order to engage a substitute dealer in the event DEALER wishes to terminate the relationship with MAZDA under the MAZDA Dealer Agreement. Accordingly, the termination shall be effective sixty days after receipt by MAZDA of the notice.
4. Termination for Cause by MAZDA.
(a) IMMEDIATE. The following events are so contrary to the spirit, nature and purposes of the MAZDA Dealer Agreement that MAZDA shall have the right upon the occurrence of any of them to terminate the MAZDA Dealer Agreement, effective as of the date of the event, by sending notice of termination to DEALER by registered or certified mail or telegram:
(i) The insolvency of DEALER; the filing by DEALER of a voluntary petition in bankruptcy; the filing of an involuntary petition to have DEALER declared bankrupt, if the petition is not vacated within thirty days from the date of filing; the appointment of a receiver or trustee for DEALER, if the appointment is not vacated within thirty days from the date of appointment; the execution by DEALER of an assignment for the benefit of creditors; any other act of bankruptcy by DEALER; or any of the foregoing with respect to any partner in DEALER.
(ii) Except as provided for elsewhere in the MAZDA Dealer Agreement the death or incapacity of DEALER to perform the obligations of DEALER hereunder, if an individual, or of any partner of DEALER, if a partnership, or the dissolution or liquidation of DEALER (or the taking of any action to dissolve or liquidate DEALER), if a partnership or corporation.
(iii) The conduct of DEALER's Business at other than DEALER's Approved Location without the prior written approval of MAZDA.
(iv) DEALER's entering into any contract for the sale, transfer or assignment by DEALER of any rights or privileges of DEALER under the MAZDA Dealer Agreement, or for the transfer or delegation by DEALER of any material obligations of DEALER under the MAZDA Dealer Agreement, unless such contract contains a provision requiring MAZDA's written approval of the purchaser, transferee or assignee before the closing of the transaction, and DEALER delivers to MAZDA a copy of such contract within seven days following DEALER's execution thereof.
(v) DEALER's entering into any contract for the sale, transfer, or assignment of the principal assets of DEALER required for the conduct of DEALER's Business, unless such contract contains a provision requiring MAZDA's written determination before the closing of the transaction that the transaction will not impair DEALER's ability to conduct DEALER's Business at DEALER's Approved Location, and DEALER delivers to MAZDA a copy of such contract within seven days following DEALER's execution thereof.
(vi) The conviction of DEALER or of any owner or manager of DEALER referred to in the MAZDA Dealer Agreement of any crime which may have a material adverse effect on DEALER's Business or the image, goodwill or reputation of MAZDA, MAZDA Products or other MAZDA Dealers.
(vii) The failure of DEALER to be open for business at DEALER's Approved Location for seven or more consecutive days (excluding Sundays).
(viii) The termination of MAZDA's rights to distribute MAZDA Products to DEALER.
(b) WITHIN SIXTY DAYS. The following events are so contrary to the spirit, nature and purposes of the MAZDA Dealer Agreement that it any of them continue to exist sixty days after MAZDA has sent to DEALER a written notice of the existence of any such event listed below and MAZDA's intention to terminate if such event is not remedied, MAZDA may terminate the MAZDA Dealer Agreement, effective immediately, by sending final notice of termination to DEALER by registered or certified mail or telegram:
(i) A voluntary or involuntary change in the ownership of DEALER without the prior written approval of MAZDA.
(ii) The failure of DEALER to have any license or permit required by law for the conduct of DEALER's Business under the MAZDA Dealer Agreement.
(iii) Any conduct of DEALER detrimental to the image, goodwill or reputation of MAZDA, MAZDA Products or MAZDA Dealers generally.
(iv) The failure to pay any amount due MAZDA within 7 days following receipt of notice that an amount due has not been paid.
(v) Any chronic or repeated default in reporting, record keeping, or other business requirement of DEALER arising out of the MAZDA Dealer Agreement, and the business contemplated hereby.
(vi) Any other material breach by DEALER of DEALER's warranties, obligations or performance under the MAZDA Dealer Agreement.
5. Notices.
(a) DEALER agrees to immediately give MAZDA written notice upon the occurrence of any of the events specified in Section 11.4. If DEALER fails to give MAZDA written notice within seven days after the occurrence of any event set forth in Section 11.4(b), the notice of intention to terminate the MAZDA Dealer Agreement from MAZDA under Section 11.4(b) shall be deemed to have been sent to DEALER on the date of the event.
(b) If DEALER is deemed to be a debtor under the Bankruptcy Code and a Debtor-in-Possession or Trustee of DEALER has a right to accept or reject the MAZDA Dealer Agreement, the MAZDA Dealer Agreement shall be deemed to be rejected if it is not accepted by the Debtor-in-Possession or Trustee within sixty days following the filing of the petition in bankruptcy.
RENEWAL AND TERMINATION
III. EFFECT OF EXPIRATION OR TERMINATION
1. General.
The provisions of this Section shall govern the rights and obligations of the parties upon expiration or termination of the MAZDA Dealer Agreement. Except as provided in this Section, DEALER shall immediately upon expiration or termination of the MAZDA Dealer Agreement cease to be, or act as, or represent itself to be an authorized dealer of MAZDA Products.
2. Further Transactions.
If, after the expiration or termination of the MAZDA Dealer Agreement, MAZDA accepts any orders from DEALER or otherwise transacts business with DEALER, all such transactions shall be governed by terms identical to those in the MAZDA Dealer Agreement. Nevertheless, the acceptance of orders or transaction of other business shall not waive the expiration or termination, or constitute an extension or renewal of the MAZDA Dealer Agreement.
3. Signs, Trademarks and Names.
DEALER agrees to immediately discontinue and abandon the direct or indirect use of all MAZDA Trademarks with the word "MAZDA," or any other words, symbols or expressions including or resembling MAZDA Trademarks, whether appearing on signs, posters, advertising matter or stationery, in any legal name or assumed business name, or in any other form. If DEALER falls to comply with the requirements of this paragraph following expiration or termination of the MAZDA Dealer Agreement, MAZDA or Manufacturer may bring a legal action against DEALER seeking any remedy available to MAZDA or Manufacturer, including without limitation the issuance of an injunction against any unauthorized use of a MAZDA Trademark, and in such case all costs, attorneys' fees and expenses incurred in the action by MAZDA or Manufacturer shall be paid by DEALER.
4. Repurchase by MAZDA.
MAZDA agrees to repurchase from DEALER, and DEALER agrees to sell to MAZDA, all of the following property owned by DEALER:
(a) All saleable, unused and undamaged current model MAZDA Vehicles, at a price equal to DEALER's net cost (excluding the cost of inland freight and all parts and accessories other than MAZDA Parts and Accessories) or the price last established by MAZDA for the sale by MAZDA to MAZDA Dealers of identical MAZDA Vehicles, whichever is lower, less prior refunds or allowances thereon, and less any costs required to place the MAZDA Vehicles in new-car condition.
(b) All new, unused and undamaged MAZDA Parts and Accessories which appear on MAZDA's then current price list and are in good and saleable condition, at a price equal to the price established by MAZDA for the sale to MAZDA Dealers of identical MAZDA Parts and Accessories, less MAZDA's then current charge for the cost of handling and restocking.
(c) All tools, manuals, equipment specially designed for servicing MAZDA Vehicles, and any other materials bearing any MAZDA Trademark which are in good and useable condition and were purchased by DEALER from MAZDA, as well as all authorized MAZDA signs at DEALER's Approved Location. Tools, equipment and signs shall be sold at prices to be agreed upon by MAZDA and DEALER or determined by a third party selected by MAZDA and DEALER.
5. Inventory and Inspection.
Within thirty days after expiration or termination of the MAZDA Dealer Agreement, DEALER shall deliver to MAZDA an accurate inventory in the form required by MAZDA of all property to be repurchased by MAZDA. If DEALER fails to timely deliver the inventory, MAZDA may enter DEALER's place of business to prepare the inventory and DEALER shall reimburse MAZDA for the cost to MAZDA of preparation. MAZDA may inspect the property at any time.
6. Delivery.
As soon as possible after MAZDA receives and reviews the inventory of property to be repurchased, MAZDA shall furnish DEALER with shipping instructions and DEALER agrees to make delivery of the property to be repurchased, transportation charges prepaid, to destinations within the United States designated by MAZDA. DEALER agrees to take action and execute and deliver instruments as may be required by MAZDA to convey to MAZDA or its nominee good and marketable title to the property upon delivery to MAZDA or the shipper, comply with any applicable state law relating to bulk sales or transfers, and satisfy and discharge any liens or encumbrances on the property prior to delivery.
7. Payment.
MAZDA agrees to pay DEALER for the property repurchased under this Section within sixty days after delivery of the property. All or part of the payment may be made by MAZDA, at its option, to any financing institution or other person to discharge any lien or encumbrance on the property. The expiration or termination of the MAZDA Dealer Agreement shall not release DEALER from any obligation to pay any amounts which DEALER may then owe MAZDA. MAZDA may deduct from the purchase price of any property repurchased by MAZDA under this Section any amounts owned by DEALER to MAZDA.
8. Customer Records.
Immediately upon expiration or termination of the MAZDA Dealer Agreement, DEALER shall inform MAZDA of all unfilled orders for sale of MAZDA Products by DEALER. Within thirty days after expiration or termination, DEALER agrees to deliver to MAZDA copies of all DEALER's customer, service and warranty files and records which are requested by MAZDA during the thirty-day period, provided MAZDA agrees to pay the reasonable costs of the copies.
IV. MUTUAL RELEASES
Effective upon (i) the renewal of the MAZDA Dealer Agreement pursuant to Section
I, (ii) ninety days after the termination of the MAZDA Dealer Agreement pursuant
to Section II, or (iii) DEALER's transfer of the principal assets of DEALER used
in DEALER's Business or the cumulative transfer of a controlling interest in
DEALER, it is the express intention of each party to release the other party and
each party shall be deemed to have released the other party from all claims,
causes of action, costs or expenses, including attorneys' fees, whether known or
unknown, as of such effective date, arising from or related to the MAZDA Dealer
Agreement, except that DEALER shall not be deemed to have released any claims
related to defects in the design or manufacture of MAZDA Products, MAZDA and
DEALER shall not be deemed to have released any claims for amounts which the
other then owes it under the MAZDA Dealer Agreement, and neither party shall be
deemed to have released any claim arising from the termination or refusal to
renew the MAZDA Dealer Agreement or any claim to enforce the provisions of this
Section IV. Upon the request of any party deemed to have been released
hereunder, the other party shall execute and deliver a written release in form
satisfactory to the releasing party.
V. OTHER ACTIONS
DEALER acknowledges that if good cause for non-renewal or termination by MAZDA arises under Section I or II, MAZDA will be unable to fulfill its reasonable expectations of economic benefits from DEALER's performance under the MAZDA Dealer Agreement. Accordingly, if MAZDA is prevented for any reason from refusing not to renew or from terminating the MAZDA Dealer Agreement, where the terms of the MAZDA Dealer Agreement would otherwise permit such action, MAZDA shall be entitled to limit its obligations under the MAZDA Dealer Agreement to those which are reasonably related to the economic benefits which MAZDA expects to derive from DEALER's actual performance hereunder.
This Ownership and Transfer document is an additional agreement under the MAZDA Dealer Agreement between MAZDA and DEALER, and as such is incorporated by reference into the MAZDA Dealer Agreement and is binding upon MAZDA and DEALER as if executed by each of them.
I. GENERAL
As part of its MAZDA Dealer Representations, DEALER has stated the name, address and percentage of ownership of each person who is an owner of DEALER. MAZDA has
entered into the MAZDA Dealer Agreement in reliance upon this statement. DEALER agrees to give MAZDA prior written notice of any proposed change in the persons or percentages set forth in this statement. If such change would cause a change in the control of DEALER or would be equivalent to a sale, transfer or assignment of substantially all of the DEALER's Business or of any right under the MAZDA Dealer Agreement ("Ownership Change"), no such change shall be effective without the prior written consent of MAZDA, which consent shall not be unreasonably withheld. MAZDA will give its consent as provided in Sections II and III below.
II. RIGHTS OF SPOUSES AND CHILDREN
Upon the death or incapacity of DEALER to perform the obligations of DEALER hereunder (of an individual) or of any person owning an interest in DEALER (if a partnership or corporation), MAZDA agrees to consent to the transfer of the MAZDA Dealer Agreement or the ownership interest to the spouse or children of the deceased or incapacitated person, if all of the following conditions are met:
(a) Prior to his death or incapacity, the deceased or incapacitated person shall have delivered to MAZDA a written notice nominating as his successor his spouse or children and specifying the proportions in which ownership is to be transferred to each of them;
(b) Within ninety days after the death or incapacity, all of the persons nominated shall have submitted to MAZDA a written application for the transfer to them of the MAZDA Dealer Agreement or the ownership interest;
(c) MAZDA shall have determined that after the transfer to them of the MAZDA Dealer Agreement or the ownership interest, DEALER will satisfy all of DEALER's obligations under the MAZDA Dealer Agreement, including but not limited to the requirements set forth in the MAZDA Dealer Representations; and
(d) DEALER and all of the persons nominated shall have provided MAZDA with all information requested by MAZDA and shall have executed all documents needed by MAZDA to effect the transfer.
III. TRANSFER TO OTHER NOMINEES
The MAZDA Dealer Agreement, any ownership interest in DEALER, and the principal assets of DEALER required for conduct of DEALER's Business may be transferred only with the prior written consent of MAZDA. MAZDA will give its consent as set forth below. In the event of the death or incapacity of DEALER to perform the obligations of DEALER hereunder (if an individual) or of any person owning an interest in DEALER (if a partnership or corporation), MAZDA shall consent to __________ the ownership interest to any persons referred to in the MAZDA Dealer Representations and with respect to whom MAZDA has received prior written notice as provided in the MAZDA Dealer Representations, if all of the following conditions are met:
(a) Prior to his death or incapacity, the deceased or incapacitated person shall have delivered to MAZDA a written notice nominating as his successor one or more of the persons referred to in the MAZDA Dealer Representations ______________ and specifying the proportions in which ownership is to be transferred to each of them;
(b) Within ninety days after the death or incapacity, all of the persons nominated shall have submitted to MAZDA a written application for the transfer to them of the MAZDA Dealer Agreement or the ownership interest;
(c) MAZDA shall have determined that after the transfer of the MAZDA Dealer Agreement or the ownership interest, DEALER will satisfy all of DEALER's obligations under the MAZDA Dealer Agreement, including but not limited to the requirements set forth in the MAZDA Dealer Representations; and
(d) DEALER and all of the persons nominated shall have provided MAZDA with all information requested by MAZDA and shall have executed all documents needed by MAZDA to effect the transfer.
DISPUTE RESOLUTION
This Dispute Resolution document is an additional agreement under the MAZDA Dealer Agreement between MAZDA and DEALER, and as such is incorporated by reference into the MAZDA Dealer Agreement and is binding upon MAZDA and DEALER as if executed by each of them.
I. NON-JUDICIAL RESOLUTION
1. Acknowledgment.
DEALER and MAZDA recognize that from time to time disputes may arise between them involving matters affecting their business relationship and performance under the MAZDA Dealer Agreement. DEALER and MAZDA further recognize that frequent disputes or the continuation of unresolved disputes between them is not consistent with the spirit of dealing in good faith between them, and may interfere with fulfilling the various purposes of the MAZDA Dealer Agreement, including without limitation those of maintaining high levels of customer satisfaction, the image, reputation and goodwill of the MAZDA Trademarks, MAZDA Products, DEALER, MAZDA and MAZDA Dealers generally, and an effective and efficient distribution system for MAZDA Products. Accordingly, DEALER and MAZDA agree in all circumstances to seek prompt and expeditious non-judicial resolution of disputes between them through good faith negotiations, involving open, frank and constructive discussions having reference to the spirit, intents and purposes of the MAZDA Dealer Agreement.
2. Management Review.
If requested in writing by DEALER's General Manager, MAZDA agrees to cause any matter in dispute, including without limitation matters involving participation in MAZDA programs, supply of MAZDA Products, interpretation of the MAZDA Dealer Agreement and policies affecting the relationship between DEALER and MAZDA, to be reviewed by the appropriate officer of MAZDA having management responsibility for the matter, including MAZDA's general manager. Neither party shall be required to be represented by legal counsel in the course of the foregoing review process.
II. THIRD PARTY NON-JUDICIAL RESOLUTION
1. Stipulations as to Facts and Issues in Dispute.
If MAZDA and DEALER have any dispute between them that has not been resolved
pursuant to Section I, and if either party wishes to pursue the matter further,
the initiating party shall first give written notice to the other, which notice
shall set forth in detail every basis claimed for liability and each issue of
fact which the initiating party reasonably believes supports its claims. Within
thirty days thereafter the responding party shall inform the initiating party in
writing of (i) all factual issues as to which the responding party agrees; (ii)
all factual issues to which it does not agree and the reasons therefor; (iii)
its statement of additional issues of fact not identified by the initiating
party but which the responding party believes are relevant to the claims and
(iv) any additional claims and supporting facts the responding party wishes to
assert against the initiating party. Within thirty days following receipt of
such response, the initiating party shall state in writing to the responding
party: (i) all facts that it agrees to; and (ii) all facts to which it does not
agree and the reasons therefor. Within thirty days thereafter, both parties
shall stipulate in a single writing: (i) all facts as to which they agree; and
(ii) all of the remaining contested issues of fact. Upon the execution of the
stipulation, either party may pursue the dispute based on those facts agreed to or alleged in such stipulation and no others.
2. Third Party Resolution.
DEALER and MAZDA agree to submit promptly the unresolved dispute to a non- judicial third party review process where required by law, or where the parties mutually agree such review is likely to result in a prompt resolution of the dispute. Neither party shall be required to be represented by legal counsel in the course of the foregoing review process.
3. Binding Arbitration.
If a controversy or claim arising out of or relating to the MAZDA Dealer Agreement, the breach thereof or the business relationship between DEALER and MAZDA under the MAZDA Dealer Agreement, cannot be resolved by a legally required third party non-judicial review process, or where the parties cannot mutually agree on some other third party non-judicial review process, either party may submit the matter to binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the Arbitrator may be entered in any court having jurisdiction thereof. Any demand for arbitration under this paragraph must be flied in writing with the American Arbitration Association within thirty days following a written notice by DEALER or MAZDA to the other that, in the notifying party's opinion, the controversy or claim cannot be resolved by the means specified in the second paragraph of this Section II. The demand for arbitration shall be filed in the city in which MAZDA's principal place of business is located. Either party shall be entitled to appear at the arbitration proceedings and take or give testimony by telephone.
4. Confidentiality of Proceedings.
DEALER and MAZDA acknowledge that the foregoing non-judicial procedures are intended to provide a private resolution of disputes between them. Accordingly, all documents, records, and other information relating to the dispute shall at all times be maintained in the strictest confidence and not disclosed to any third party except when necessary for the specific purpose of resolving the pending dispute.
5. Costs and Expenses.
Each party shall bear its own expenses, including without limitation professional fees and costs, incurred in connection with the non-judicial resolution of any dispute between them. The parties shall share equally the costs and expenses of any third party participating in a non-judicial review process or in an arbitration proceeding.
III. JUDICIAL RESOLUTION
1. Acknowledgement.
The parties acknowledge and agree that their business relationship and performance under the MAZDA Dealer Agreement involves transactions in or affecting interstate commerce, and that they intend and agree that all disputes between them shall be resolved by the non-judicial procedures set forth in this additional agreement. The foregoing obligation shall not be enforceable by either party as to any issue in dispute when expressly prohibited by law, in which event DEALER and MAZDA agree to seek judicial resolution of such unresolved issue in dispute only after all reasonably available non-judicial means have been
fully explored and exhausted in accordance with Section I above, and the procedures have been followed for the execution of the written stipulation of facts and issues in dispute as set forth in Section II above.
2. Court Litigation.
Any party who brings a judicial proceeding shall file the same in the jurisdiction in which the principal office of the other party is located. The complaint in such action shall include and incorporate by reference the stipulation of facts and issues in dispute referred to in Section II above. For the purposes of expediting the resolution of their dispute, the parties agree to limit the litigation and discovery to the contested issues of fact contained in the stipulation, and not litigate or take discovery with respect to any other factual matters.
3. Costs and Expenses.
All costs, attorneys' fees and expenses incurred in a judicial proceeding by the prevailing party shall be paid by the other.
EXHIBIT 10.8.2
Mazda Motor of America, Inc. William D Goetze Senior Vice President General Manager
CERTIFIED MAIL
RETURN RECEIPT REQUESTED
September 29, 1995
Sidney Deboer
LITHIA MAZDA
333 North Riverside Ave
Medford, OR 97501
Dear Dealer Principal:
Mazda Motor of America, Inc. (Mazda) hereby extends the duration of hte Mazda Dealer Agreement currently existing between you and Mazda to and including December 31, 1996.
This extension is automatic and does not require any action by you to take effect, but you should keep this letter with your executed Mazda Dealer Agreement.
Sincerely,
/s/ W.D.Goetze |
EXHIBIT 10.9.1
SATURN
DEALER
AGREEMENT
SATURN DISTRIBUTION CORPORATION
SATURN DISTRIBUTION CORPORATION
DEALER AGREEMENT
TABLE OF CONTENTS
ARTICLE PAGE
PART ONE:
MISSION, PHILOSOPHY AND FRAMEWORK
OF FRANCHISOR-DEALER RELATIONSHIP
1. SATURN MISSION............................................................1
2. SATURN PHILOSOPHY.........................................................2
3. DEALER COMMITMENT TO MISSION AND PHILOSOPHY...............................2
4. SHARED RESPONSIBILITY.....................................................2
A. Customer Action Council..............................................2
B. Franchise Development Team...........................................3
C. Franchise Task Forces................................................3
5. DISPUTE RESOLUTION PROCESS................................................3
A. Exclusive Remedy.....................................................3
B. Mediation............................................................4
C. Binding Arbitration..................................................4
PART TWO:
RIGHTS GRANTED
6. AUTHORIZED DEALER.........................................................5
7. DEALER OPERATOR...........................................................5
A. Personal Qualifications..............................................5
B. Management Responsibility............................................5
8. TERM......................................................................6
9. AUTHORIZED LOCATIONS AND TERRITORIAL RIGHTS...............................6
A. Dealer's Marketing Area..............................................6
(1) Facility Design and Appearance..................................6
(2) Exclusive Use...................................................7
B. Territorial Rights...................................................7
PART THREE:
PRODUCT RESPONSIBILITIES
10. DEALER'S RESPONSIBILITY TO PROMOTE, SELL AND SERVICE
SATURN PRODUCTS...........................................................8
A. Responsibility to Promote and Sell...................................8
B. Responsibility to Service............................................8
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11. SALE OF PRODUCTS TO DEALERS...............................................8
A. Sale of Motor Vehicles to Dealer.....................................8
B. Sale of Parts and Accessories to Dealer..............................9
C. Prices and Other Terms of Sale.......................................9
(1) Motor Vehicles..................................................9
(2) Parts and Accessories...........................................9
D. Inventory...........................................................10
(1) Motor Vehicle Inventory........................................10
(2) Parts and Accessories..........................................10
E. Warranties on Products..............................................10
12. SERVICE OF PRODUCTS......................................................11
A. Service for Which Franchisor Pays...................................11
(1) New Motor Vehicle Pre-Delivery Inspections
and Adjustments................................................11
(2) Warranty Repairs and Special Policy
Adjustments....................................................11
(3) Campaign Inspections and Corrections...........................11
(4) Payment for Pre-Delivery Adjustments,
Warranty and Campaign Work.....................................11
B. Parts, Accessories, Service Contracts and Body
Repairs.............................................................12
(1) Warranty Repairs and Policy Adjustments........................12
(2) Representations and Disclosures as to Modifications, Parts,
Accessories and
Service Contracts..............................................12
(3) Body Repair....................................................12
PART FOUR:
THE BUSINESS PLANNING PROCESS
13. BUSINESS PLANNING........................................................12
A. Marketing Area Plan.................................................12
(1) Marketing Area Development.....................................13
(2) Operations.....................................................13
B. Annual Plan Review..................................................13
(1) Performance Evaluation.........................................14
(2) Plan Modifications.............................................14
PART FIVE:
OTHER OPERATING RESPONSIBILITIES
14. SATURN SYSTEMS...........................................................15
A. Systems for Which Dealer Pays.......................................15
(1) Sales and Service Systems......................................15
(2) Computer System................................................15
(3) Signs..........................................................16
(4) Tools and Equipment............................................16
B. Other Systems.......................................................16
(1) Convenience Systems............................................16
(2) Accounts and Records...........................................16
a. Uniform Accounting System.................................16
b. Examination of Accounts and Records.......................17
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c. Confidentiality of Dealer Data............................17
(3) Additional Systems.............................................17
15. MARKETING ASSOCIATIONS...................................................17
16. TRAINING.................................................................17
17. CAPITALIZATION...........................................................18
PART SIX:
REPLACEMENT DEALERS
18. CHANGES IN OWNERSHIP.....................................................18
A. Succession Rights upon Death or Incapacity..........................18
(1) Successor Addendum.............................................18
(2) Rights of Remaining Owners.....................................19
(3) Successor Dealer Requirements..................................19
(4) Limitation on Offers...........................................19
(5) New Successor Addendum.........................................20
B. Changes of Ownership or Dealer Operator.............................20
C. Right of First Refusal or Option to Purchase........................21
(1) Creation and Coverage..........................................21
(2) Purchase Price and Other Terms of Sale.........................22
(a) Bona Fide Agreement.......................................22
(b) Absence of Bona Fide Agreement............................22
PART SEVEN:
TERMINATION AND TERMINATION ASSISTANCE
19. TERMINATION..............................................................23
A. Termination of Agreement............................................23
(1) By Dealer......................................................23
(2) By Agreement...................................................23
(3) Failure to be Licensed.........................................23
(4) Misrepresentation, Failure to Conduct
Operations, or Disqualification or Change
of Dealer Operator or Owner....................................24
(5) Failure of Performance.........................................24
(6) Reliance on Any Applicable Termination
Provision......................................................24
(7) Option to Purchase.............................................25
B. Transactions after Termination......................................25
(1) Orders.........................................................25
(2) Deliveries.....................................................25
(3) Effect of Transactions after Termination.......................26
20. TERMINATION ASSISTANCE...................................................26
PART EIGHT:
GENERAL PROVISIONS
21. ACKNOWLEDGEMENT OF FRANCHISE LAW COMPLIANCE..............................26
A. Dealer's Investigation..............................................26
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B. Disclosure..........................................................26
C. Review..............................................................27
22. GENERAL PROVISIONS.......................................................27
A. No Agent or Legal Representative Status.............................27
B. Dealer's Responsibility for its Operations..........................27
C. Taxes...............................................................27
D. Indemnification by Saturn...........................................27
E. Trademarks and Service Marks........................................28
F. Notices.............................................................29
G. No Implied Waivers..................................................29
H. Assignment of Rights or Delegation of Duties........................29
I. Accounts Payable....................................................29
J. Sole Agreement of Parties...........................................29
K. Review and Modifications of Agreement Terms.........................30
23. EXECUTION ON BEHALF OF DEALER AND FRANCHISOR.............................30
GLOSSARY.................................................................32
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SATURN DISTRIBUTION CORPORATION
DEALER AGREEMENT
This Agreement, effective the [25th] day of [October], 19[91], is entered into by Saturn Distribution Corporation (Franchisor), a wholly-owned subsidiary of Saturn Corporation (Saturn), and [MEDFORD DODGE D/B/A SATURN OF MEDFORD].
( ) a proprietorship; ( ) a partnership; ( ) a corporation, [formed] in the State of [OREGON] on |
[12/31/88], located in [MEDFORD], [OREGON] (Dealer).
PURPOSE OF THE AGREEMENT
The principal purposes of this Agreement are to:
A. affirm the commitment of Franchisor and Dealer to adhere to the Saturn Philosophy and achieve the Saturn Mission;
B. identify the framework within which Franchisor and Dealer will jointly act to fulfill their commitments to each other;
C. authorize Dealer to sell and service Saturn Products and to represent itself as a Saturn Dealer; and
D. identify other commitments, rights and responsibilities of Franchisor and Dealer.
PART ONE:
MISSION, PHILOSOPHY AND FRAMEWORK
OF FRANCHISOR-DEALER RELATIONSHIP
1. SATURN MISSION
The Mission of Saturn is to market vehicles developed and manufactured in the United States that are world leaders in quality, cost and customer satisfaction through the integration of people, technology and business systems.
Achieving this Mission is dependent in part upon the development and maintenance of a network of authorized Dealers working together with Franchisor to build and maintain customer confidence in Dealer and Saturn.
2. SATURN PHILOSOPHY
Meeting the needs of customers, Dealers, Saturn, Franchisor, suppliers and the community is fundamental to the Saturn Mission. To meet the needs of customers, Saturn Products and services must be world leaders in satisfaction and value. To meet the needs of Dealers, Franchisor will conduct business in an open and fair manner, and will share responsibility and decision-making with Dealers in the manner specified in this Agreement to further the spirit of trust and respect which is critical to the relationship.
3. DEALER COMMITMENT TO MISSION AND PHILOSOPHY
Because Dealers represent Saturn's products to the public, it is essential to the success of Saturn, Franchisor and Dealers that each Dealer embrace Saturn's Mission and Philosophy as its own. Dealer understands that its relationship with Franchisor can be conducted in a spirit of trust and respect only if both Dealer and Franchisor act in an open, fair and cooperative manner. Dealer therefore commits to adhere to the Saturn Philosophy in the conduct of its business and to work jointly with Franchisor and Saturn, in the framework identified in this Agreement, to accomplish the Saturn Mission. Dealer acknowledges that the success of Saturn, Franchisor, other Dealers and suppliers is dependent upon Dealer fulfilling this commitment.
Consistent with the Saturn Philosophy, Dealer pledges to maintain the highest ethical standard in all activities.
4. SHARED RESPONSIBILITY
In consideration for Dealers' commitments and to ensure that the relationship between Franchisor and its Dealers remains mutually satisfactory, Franchisor has established mechanisms for collective Dealer input to the decision-making process on all matters significantly affecting Dealers' business. Dealer involvement is provided through three principal mechanisms: the Customer Action Council, the Franchise Development Team, and the Franchise Task Forces.
A. CUSTOMER ACTION COUNCIL
The Customer Action Council (CAC) is a Saturn policy team whose primary focus is customer satisfaction. Its scope includes market research, product planning, promotional planning, customer satisfaction systems, and other strategies affecting Saturn customers and Dealers.
Three Dealer Operators participate along with Franchisor and Saturn representatives from various disciplines including sales, service, marketing, engineering, manufacturing and finance. The Dealer Operators must be members of the Franchise Development Team, are selected by that Team, and serve on the CAC for staggered two-year terms.
B. FRANCHISE DEVELOPMENT TEAM
The Franchise Development Team (FDT) is comprised of an equal number of Saturn Dealer Operators and Franchisor representatives. The FDT has authority to make decisions on proposed modifications to specific areas of the business covered in Parts Four and Five of this Agreement. These areas are key to the successful operation of the Saturn dealer network, and proposed changes can only be made through the FDT.
The FDT uses a consensus decision-making process, described in the Franchise System Manuals. Dealer Operator will be trained in the process following the execution of this Agreement.
The FDT is self-governing according to its by-laws. Franchisor representatives are chosen by Franchisor. Dealer Operators are chosen according to the by-laws.
C. FRANCHISE TASK FORCES
As necessary, the FDT may establish Franchise Task Forces and delegate certain of its functions if it concludes the input of additional Dealer Operators and Franchisor representatives is required. However, the FDT cannot delegate its decision-making responsibilities. The FDT will determine the membership of each Task Force and the scope of its assignment. A representative from the FDT will serve as coordinator of each Task Force.
5. DISPUTE RESOLUTION PROCESS
A. EXCLUSIVE REMEDY
Franchisor and Dealer believe that their mutual commitment to the Mission and Philosophy, together with the mechanisms for sharing responsibility described in Article 4, should minimize the potential for disputes between them. Nevertheless, disputes may occur which cannot be resolved in the normal course of business.
Franchisor and Dealer acknowledge that, at the state and federal levels, various courts and agencies would, in the absence of this Article 5, be available to them to resolve claims or controversies which might arise between them. Franchisor and Dealer agree that it is inconsistent with the Mission and Philosophy 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. Section 1 et seq.), DEALER AND FRANCHISOR AGREE THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS ARTICLE, WHICH INCLUDES BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM FOR RESOLVING ANY CONTROVERSY OR CLAIM BETWEEN THEM ARISING OUT OF OR RELATING TO THIS AGREEMENT, ITS CREATION, OR TERMINATION.
There are two steps in the Dispute Resolution Process: Mediation and Binding Arbitration. All controversies or claims must 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, then Dealer or Franchisor can submit the dispute to Binding Arbitration.
B. MEDIATION
Dealer or Franchisor can submit to Mediation a claim or controversy between them which arises out of or relates to the Dealer Agreement. Mediation is conducted by a panel consisting of an equal number of Franchisor representatives and Dealer Operators selected by the Franchise Development Team. The Mediation Panel will evaluate each position and recommend a solution. This recommended solution is not binding.
Franchisor and Dealer agree that the procedures contained in the Dealer Dispute Resolution Guide govern Mediation under this Article.
C. BINDING ARBITRATION
If a claim or controversy arising out of or relating to this Agreement has not been resolved after Mediation, or if Dealer and Franchisor have agreed in writing to waive Mediation, the claim or controversy will be settled by Binding Arbitration in accordance with the procedures in the Dealer Dispute Resolution Guide. All awards of the arbitration are binding and non-appealable except as otherwise provided in the United States Arbitration Act. Judgment upon any award rendered by the arbitrator(s) may be entered and enforced in any court having jurisdiction.
PART TWO:
RIGHTS GRANTED
6. AUTHORIZED DEALER
Dealer has presented to Franchisor information regarding its qualifications to be appointed a Saturn Dealer, and its Dealer Operator and Owners have been evaluated and found to satisfy Franchisor's standards. Dealer has also presented to Franchisor a Marketing Area Plan, stating Dealer's proposal to develop and operate facilities in its Marketing Area to promote, sell and service Saturn Products and Franchisor has accepted the Plan.
In reliance upon these representations made by Dealer and Dealer's commitment to the Mission and Philosophy, Franchisor grants Dealer a non- exclusive right to:
A. buy new Saturn motor vehicles identified in any Motor Vehicle Addendum and related Parts and Accessories; and
B. identify itself as an authorized Saturn Dealer at the locations approved by the Franchisor.
Dealer accepts the rights granted and agrees to fulfill its obligations under this Agreement.
7. DEALER OPERATOR
A. PERSONAL QUALIFICATIONS
Franchisor is entering into this Agreement in reliance on the qualifications and capabilities of the person identified in Article 23 as Dealer Operator, on that person's commitment to the Mission and Philosophy, and on Dealer's assurance that the personal services of the Dealer Operator will be provided in the overall management of the dealership business.
B. MANAGEMENT RESPONSIBILITY
Franchisor and Dealer agree that the Dealer Operator must have the authority to exercise management control of the Dealer.
Dealer's Marketing Area Plan describes the ownership of Dealer and any arrangements necessary to comply with this Article.
8. TERM
If Dealer continues to meet all conditions and fulfill its obligations and responsibilities under this Agreement, the Agreement will not expire until 90 days following the death or incapacity of Dealer Operator. If this Agreement is to expire because of the death or incapacity of Dealer Operator, Dealer may request a deferral of the effective date of expiration to assist Dealer in winding up its dealership business or to provide for a transfer of assets or ownership previously approved under Article 18. The request must be made at least 30 days prior to the effective date of expiration, and Franchisor will not unreasonably refuse to grant any necessary extension.
9. AUTHORIZED LOCATIONS AND TERRITORIAL RIGHTS
A. DEALER'S MARKETING AREA
Dealer has been furnished a Notice of Dealer's Marketing Area. Dealer is responsible for effectively selling, servicing, and otherwise representing Saturn Products in the territory designated. Dealer agrees to conduct dealership operations only from approved locations within its Marketing Area. The locations are specified in Dealers Marketing Area Plan as described in Article 13. Where applicable, Dealer will establish additional facilities in the time and manner agreed to by Dealer and Franchisor in that Plan.
(1) Facility Design and Appearance
Saturn's Mission to be the industry leader in customer satisfaction can be furthered if Dealers' facilities share a consistent architectural design and retail environment and are readily identifiable as Saturn dealership locations. Accordingly, Dealer agrees to purchase Franchisor's Retail Environmental Design Package and to provide dealership facilities consistent with that Package. Dealer agrees to review all proposed facility plans with Franchisor and obtain Franchisors approval before committing to construction.
Dealer pledges that its facilities will be properly maintained and satisfactory in appearance to promote and preserve the image of Saturn and Dealers. Dealer further agrees to make any future modifications to facilities which may be approved by the Franchise Development Team. Dealer agrees that it will not make modifications to its facilities without Franchisor's prior written authorization.
(2) Exclusive Use
To ensure that Saturn, Franchisor and Dealer benefit from the common dealership facility design and retail environment and to ensure that Dealer can effect properly any required future modifications, Dealer agrees that its facilities will be used exclusively for the conduct of Saturn dealership operations.
B. TERRITORIAL RIGHTS
It is the intention of Franchisor and Dealer that Dealer devote its full efforts to developing its Marketing Area. Consequently, Dealer
agrees that it will not engage, either directly or indirectly, in any of the activities contemplated by this Agreement from locations outside of its Marketing Area.
Franchisor will not authorize any other dealer to establish a Saturn dealer facility in Dealer's Marketing Area if Dealer meets its obligations under the Marketing Area Plan and this Agreement. If Dealer fails to develop its territory according to its Marketing Area Plan, then Franchisor may terminate this Agreement for failure of performance under Article 19 or restructure Dealer's Marketing Area and reassign any areas necessary to achieve the maximum potential development of the territory.
PART THREE:
PRODUCT RESPONSIBILITIES
10. DEALER'S RESPONSIBILITY TO PROMOTE, SELL AND SERVICE SATURN PRODUCTS
A. RESPONSIBILITY TO PROMOTE AND SELL
(1) Dealer agrees to effectively sell and promote the purchase and use (including rental and leasing) of Saturn Products to customers located in its Marketing Area. Dealers performance of this obligation will be reviewed annually in conjunction with the Marketing Area Plan, as described in Article 13.
(2) Dealer is authorized to sell new and unused Motor Vehicles only
(a) to customers who purchase for personal use or for a primary
business use other than resale and (b) to other Saturn Dealers.
(3) Dealer is authorized to sell Motor Vehicles only to customers located in the United States. Dealer agrees that it will not sell Motor Vehicles for resale or use outside the continental United States, Alaska and Hawaii.
B. RESPONSIBILITY TO SERVICE
Dealer agrees to provide courteous, convenient, prompt, efficient and quality service to owners of Motor Vehicles, regardless of where the vehicles were purchased. All service will be performed in a professional manner and in accordance with the systems in the Franchise System Manuals.
11. SALE OF PRODUCTS TO DEALERS
A. SALE OF MOTOR VEHICLES TO DEALER
Dealer has a Motor Vehicle Addendum specifying the current model types or series of new motor vehicles which Dealer may purchase. Franchisor may change the Motor Vehicle Addendum by furnishing Dealer a superseding Motor Vehicle Addendum.
Franchisor will endeavor to allocate new Motor Vehicles among its dealers in a fair and equitable manner. The method used to allocate
Motor Vehicles will give Franchisor discretion in exercising business judgment to achieve fairness and equity.
B. SALE OF PARTS AND ACCESSORIES TO DEALER
New or remanufactured automotive parts and accessories marketed by Saturn and listed in current Dealer Parts and Accessories Price Schedules or supplements furnished to Dealer are called Parts and Accessories. Sales of Parts and Accessories to Dealer will be made by Franchisor, Saturn or other suppliers designated by Franchisor.
Orders for Parts and Accessories will be submitted and processed according to written procedures established by Franchisor, Saturn or other designated suppliers.
C. PRICES AND OTHER TERMS OF SALE
(1) Motor Vehicles
Prices, destination charges and other terms of sale applicable to purchases of new Motor Vehicles will be those established according to the Vehicle Terms of Sale Bulletin furnished to Dealer.
Prices, destination charges and other terms of sale applicable to any Motor Vehicle may be changed at any time. Changes apply to Motor Vehicles not shipped at the time the changes are made effective.
If there is an increase in the price charged to Dealer for a Motor Vehicle or any optional equipment during a model year, such increase does not apply to bona fide sold orders submitted prior to the effective date of the price increase.
Dealer will receive written notice of any price increase before any Motor Vehicle to which such increase applies is shipped except for initial prices for a new model year or for any new model or body type.
(2) Parts and Accessories
Prices and other terms of sale applicable to Parts and Accessories are established according to the Parts and Accessories Terms of Sale Bulletin furnished to Dealer.
Prices and other terms of sale applicable to Parts and Accessories may be changed at any time. Such changes apply to Parts and Accessories not shipped at the time changes become effective.
D. INVENTORY
(1) Motor Vehicle Inventory
Dealer recognizes that customers expect Dealer to have a reasonable quantity and variety of current model Motor Vehicles in inventory. Accordingly, Dealer agrees to stock and sell, subject to any supply restrictions, all models and
series of Motor Vehicles identified in the Motor Vehicle Addendum.
(2) Parts and Accessories
Dealer agrees to stock sufficient Parts and Accessories to perform warranty repairs and policy adjustments and meet the demands of its customers. Dealer will use the Saturn Parts Inventory Control System to provide on-line computer access to Dealers parts inventory and parts sales.
E. WARRANTIES ON PRODUCTS
Saturn warrants the new Motor Vehicles and Parts Accessories (Products) it produces. The warranties are explained in documents provided with the Products or explained in the Franchise System Manuals. Franchisor does not warrant Products.
EXCEPT AS OTHERWISE PROVIDED BY LAW, THE WRITTEN SATURN WARRANTIES ARE THE ONLY WARRANTIES APPLICABLE TO NEW PRODUCTS. WITH RESPECT TO DEALERS, SUCH WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES OR LIABILITIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY LIABILITY FOR COMMERCIAL LOSSES BASED UPON NEGLIGENCE OR MANUFACTURER'S STRICT LIABILITY. EXCEPT AS MAY BE PROVIDED UNDER AN ESTABLISHED SATURN PROGRAM OR PROCEDURE, SATURN NEITHER ASSUMES NOR AUTHORIZES ANYONE TO ASSUME FOR IT ANY OTHER OBLIGATION OR LIABILITY IN CONNECTION WITH PRODUCTS, AND SATURN'S MAXIMUM LIABILITY IS TO REPAIR OR REPLACE THE PRODUCT.
Any Parts and Accessories sold to Dealer by a designated supplier are not warranted by Saturn or Franchisor and are warranted only as specified by the supplier.
12. SERVICE OF PRODUCTS
A. SERVICE FOR WHICH FRANCHISOR PAYS
(1) New Motor Vehicle Pre-Delivery Inspections and Adjustments
Because new vehicle delivery condition is critical to customer satisfaction, Dealer agrees to perform pre-delivery inspections and adjustments on each new Motor Vehicle and verify completion according to procedures.
(2) Warranty Repairs and Special Policy Adjustments
Dealer agrees to perform (i) required warranty repairs on each qualified Motor Vehicle at the time of pre-delivery service and when requested by owner, and (ii) special policy adjustments approved by Franchisor. When the vehicle is returned to the owner, Dealer will provide owner a copy and explanation of the repair document reflecting all services performed.
(3) Campaign Inspections and Corrections
Dealer agrees to find and correct suspected unsatisfactory conditions on Products identified by Franchisor. Dealer will also determine that campaign inspections and corrections have been made on new and used Saturn motor vehicles in its inventory prior to sale and follow-up on Products on which campaigns are outstanding.
(4) Payment for Pre-Delivery Adjustments, Warranty and Campaign Work
For Dealer's performance of services, pre-delivery adjustments, warranty repairs, special policy adjustments, and campaign inspections and corrections, Franchisor will provide or pay Dealer for the Parts and other materials required and will pay Dealer a fair amount for labor. Payment will be made according to policies in the Franchise System Manuals. Dealer will not impose any charge for such service on owners or users except where a deductible or pro-rata charge applies.
B. PARTS, ACCESSORIES, SERVICE CONTRACTS AND BODY REPAIRS
(1) Warranty Repairs and Policy Adjustments
Dealer agrees to use only genuine Saturn or Franchisor approved parts in performing warranty repairs and special policy adjustments.
(2) Representations and Disclosures as to Modifications, Parts, Accessories and Service Contracts
Dealer and Franchisor recognize that owners and users of Motor Vehicles reasonably expect that the vehicles sold by Dealer and the parts, accessories and service contracts sold or used by Dealer in servicing vehicles are marketed by Saturn or Franchisor. If Dealer sells or uses parts, accessories or service contracts not marketed by Saturn or Franchisor, it will give customers written notice, prior to the sale or service, that such parts, accessories or service contracts are not marketed or warranted by Saturn or Franchisor. Dealer also agrees not to represent that vehicle modifications not specifically authorized by Saturn are warranted or approved by Saturn or Franchisor.
(3) Body Repairs
Dealer must provide body repair service for Saturn Motor Vehicles. Dealer can provide this service through its own body shop, or in cases where Franchisor agrees that unusual circumstances make it impractical for Dealer to own and operate its own body shop, by arrangement with an independent repair establishment acceptable to Franchisor.
PART FOUR:
THE BUSINESS PLANNING PROCESS
13. BUSINESS PLANNING
A. MARKETING AREA PLAN
Dealer and Franchisor have executed a Marketing Area Plan (Plan) which describes how Dealer will develop its Marketing Area and fulfill its sales and service commitments. The Plan is an essential part of the Agreement.
(1) Marketing Area Development
Dealer agrees to develop its assigned Marketing Area according to the Marketing Area Plan. Its commitments for development include:
(a) detailed description of the number, location, type, size and opening date of facilities to be provided;
(b) detailed implementation schedules for each facility; and
(c) statement of Dealer's legal and financial structure, including capitalization, line of credit and equity ownership.
(2) Operations
Dealer agrees to fulfill the sales and service commitments described in the Marketing Area Plan. Its commitments for operations include:
(a) performance standards;
(b) detailed organizational structure and staffing plans;
(c) plans for personnel development;
(d) specific plans for maximizing customer satisfaction, including hours of operation and customer convenience systems;
(e) advertising, merchandising, and community relations plans; and
(f) other items as agreed by Franchisor and Dealer or as required by the Franchise Development Team.
B. ANNUAL PLAN REVIEW
Dealer agrees to update its Plan annually, or more often if needed, and submit it to Franchisor for joint review. Updated Plans will include a performance evaluation and any proposed modifications to the prior year's Plan. If Franchisor and Dealer agree that changes to the proposed Plan are necessary, Dealer will make such changes and resubmit its Plan.
(1) Performance Evaluation
Dealer's performance of its obligations is essential to the effective representation of Saturn Products, and to the reputation and goodwill of Franchisor, Saturn, and other Saturn Dealers. Therefore, Dealer agrees to review its performance against the prior year's Plan in its updated Plan.
Franchisor and Dealer will use this analysis as the basis for jointly evaluating Dealers performance so that any necessary improvements can be made.
Factors considered in evaluating Dealer's performance will include its attainment of the prior year's objectives, Dealer's performance trends, Dealer's financial performance and the manner in which Dealer has conducted its operations. Periodic facility evaluations will be conducted, including an evaluation of Dealer's compliance with then-current requirements and standards for dealership under the Marketing Area Plan. Other factors considered in the evaluation will include product availability and an assessment of whether actual market conditions adversely affected Dealer's ability to attain the prior year's objectives.
(2) Plan Modifications
While Dealer's plan for Marketing Area development is subject to update, modifications to facility plans will occur only if Franchisor believes that a material change in marketing conditions warrants a proposed modification.
Plans for operations are subject to update, but modifications can be implemented only if Franchisor and Dealer reach consensus that the proposed modifications are consistent with the Saturn Mission, Philosophy, and systems.
PART FIVE:
OTHER OPERATING RESPONSIBILITIES
14. SATURN SYSTEMS
Dealer recognizes that achieving industry-leading customer satisfaction is a major objective of the Saturn Mission. This level of satisfaction cannot be attained without consistent application by all Dealers of designated sales, service, marketing, facilities and other systems. Dealer agrees to purchase, implement and maintain required systems identified in this Agreement set forth in the Franchise System Manuals, or approved by the Franchise Development Team.
A. SYSTEMS FOR WHICH DEALER PAYS
(1) Sales and Service Systems
Dealer agrees to pay Saturn, Franchisor, or approved sources for initial systems necessary to develop and implement Saturn sales and service in Dealer's Marketing Area. These systems include materials and programs which will promote proper, consistent and competitive display, sales and service of Saturn Products. Periodically, the Franchise Development Team will determine that new updated materials, information or programs are necessary. Dealer agrees to accept and utilize such designated new or updated materials, information or programs and pay any applicable charges. Any such charges
will be established by the Franchise Development Team and will be based upon anticipated costs.
(2) Computer System
Saturn's Mission involves the integration of people, technology and business systems. This integration is possible only if all Dealers have computer systems which meet the dealership's internal business needs, permit direct communication between Dealers, Franchisor and Saturn, and give Franchisor and Saturn ready access to Dealer's accounts and records. Accordingly, Dealer agrees to purchase and use the approved computer system packages.
To maintain this integration, Dealer agrees to update its computer system packages when changes are approved by the Franchise Development Team.
(3) Signs
To promote consistency of image, Dealer agrees to purchase and use only signs approved by Franchisor. Dealer agrees to make and pay for any changes in signage approved by the Franchise Development Team.
(4) Tools and Equipment
Dealer agrees to provide adequate service tools and equipment as required to fulfill its responsibilities for service. Dealer also agrees to purchase and maintain specified special tools and equipment to service Saturn Products.
B. OTHER SYSTEMS
(1) Convenience Systems
An integral part of Franchisor's plan to develop industry-leading customer satisfaction is to promote Saturn Dealers as the unsurpassed source of convenient automobile sales and service. Dealer agrees it will conduct dealership operations to support this concept.
Dealers proposed operating hours and customer convenience systems will be elements of its Marketing Area Plan.
(2) Accounts and Records
a. Uniform Accounting System
Both Franchisor and Dealers can benefit by using Dealer operating information to develop composite operating statistics, analyze Dealers' business management practices, and assess the impact of Franchisor's policies and practices. To assure maximum benefit, Dealer agrees to maintain a uniform accounting system and furnish reports and records as provided in the Franchise System Manuals.
b. Examination of Accounts and Records
In addition to the access which Franchisor and Saturn have to Dealers accounts and records through computer systems, any designated representative of Franchisor is authorized to examine, audit, reproduce and take copies of any of the accounts and records Dealer maintains under this Agreement. Dealer agrees to make such accounts and records readily available at its facilities during business hours. Franchisor agrees to furnish Dealer with a copy of any reproduced records.
c. Confidentiality of Dealer Data
Franchisor will not furnish any personal or financial data submitted to it by Dealer to any non-affiliated entity unless authorized by Dealer, required by law, pertinent to proceedings under the Dispute Resolution Process, or to court or administrative proceedings.
(3) Additional Systems
Dealer can use additional systems that are compatible with Saturn's Mission, Philosophy, and systems. Dealer agrees to discontinue use of systems deemed incompatible by Franchisor.
15. MARKETING ASSOCIATIONS
Franchisor and Dealer acknowledge the mutual benefits of comprehensive joint advertising and merchandising by Dealers to promote the sale and service of Saturn Products, including Parts and Accessories. Accordingly, Franchisor will assist Dealers in establishing marketing associations and in developing their by-laws. Dealer agrees to cooperate in forming the associations and to participate actively in them.
The marketing associations will assess a fixed amount for each new Saturn Motor Vehicle purchased by Dealers to fund advertising and merchandising programs. As a service to the associations, Franchisor will collect the assessed amount.
16. TRAINING
Training of all Dealer employees is critical to the success of Dealer and Franchisor in conducting business based on the Mission, Philosophy and designated systems. Therefore, Dealer agrees that all its employees will participate in initial and ongoing training programs identified in the Franchise System Manuals, and any others approved by the Franchise Development Team, within the time frames specified. Dealer agrees to pay any specified training charges.
17. CAPITALIZATION
Dealer will maintain the levels of capitalization mutually agreed upon with Franchisor in the Marketing Area Plan to ensure Dealer's financial capability to fulfill its commitments. To avoid erosion of Saturn's goodwill which could result if Dealer is financially unable to fulfill its commitments, Dealer agrees to have and maintain a separate line of credit from a financial institution available for Dealer to draw upon to finance
new vehicles. The amount of the line of credit and the identity of the financial institution shall be included in Dealer's Marketing Area Plan.
PART SIX:
REPLACEMENT DEALERS
18. CHANGES IN OWNERSHIP
Dealer and Franchisor recognize that it is essential to the success of all associated with Saturn that each Dealer be owned and operated by parties committed to the Mission and Philosophy. It is equally important that Dealer Operators remain highly qualified and continue to meet the same high personal standards of the initial Saturn Dealer Operators. Because Franchisor has entered into this Agreement based on the personal qualifications of Dealer Operator and the qualifications of any Owner(s), Dealer agrees that it cannot assign its rights under this Agreement.
A. SUCCESSION RIGHTS UPON DEATH OR INCAPACITY
(1) Successor Addendum
Dealer can apply for a Successor Addendum designating a proposed dealer operator and/or owners of a successor dealer to be established if this Agreement expires because of death or incapacity. Franchisor will execute the Successor Addendum if the proposed dealer operator successfully completes the Dealer Selection Process then used by Franchisor to evaluate proposed new dealers, and any proposed owners satisfy applicable Dealer Selection Criteria. However, the proposed dealer operator and owners will not be required to meet the usual capital requirements nor demonstrate an ability to implement Dealer's Marketing Area Plan until the Successor Addendum is implemented. At the time of application, Dealer will pay Franchisor a non- refundable fee to defray costs associated with review of the proposal.
(2) Rights of Remaining Owners
If this Agreement expires because of the death or incapacity of the Dealer Operator, and Dealer and Franchisor have not executed a Successor Addendum, the remaining owners may propose a successor dealer to continue the operations identified in this Agreement. The proposal must be made in writing to Franchisor at least 30 days prior to the expiration of this Agreement, including any deferrals granted under Article 8. At the time of application, Dealer will pay Franchisor a non-refundable fee to defray costs associated with review of the proposal.
The proposal will be accepted if it meets the requirements of Article 18A(3), if the proposed dealer operator successfully completes the Dealer Selection Process, and any proposed owners satisfy applicable Dealer Selection Criteria.
(3) Successor Dealer Requirements
Franchisor will accept a proposal to establish a successor dealer submitted by a proposed dealer operator under Article 18A provided:
(a) the proposed successor dealer and the proposed dealer operator are ready, willing and able to comply with the requirements of a new dealer agreement and agree to adhere to and implement the Marketing Area Plan agreed to by Dealer;
(b) all outstanding monetary obligations of Dealer to Saturn and Franchisor have been paid.
(4) Limitation on Offers
Dealer will be notified in writing of the decision on a proposal under Article 18A(3) within 60 days after Dealer has submitted all applications and information reasonably requested by Franchisor and the proposed dealer operator has successfully completed the Dealer Selection Process. Franchisors offer of a new dealer agreement under this Article 18A will automatically expire if not accepted by the proposed successor dealer within 60 days after it receives the offer.
(5) New Successor Addendum
Dealer may cancel an executed Successor Addendum at any time prior to the death or incapacity of the Dealer Operator. Franchisor may cancel an executed Successor Addendum only if the proposed dealer operator or proposed owner(s) no longer meet the Dealer Selection Criteria applicable to each. The parties may execute a superseding Successor Addendum by agreement.
B. CHANGES OF OWNERSHIP OR DEALER OPERATOR
If Dealer proposes a change in Dealer Operator or a transfer of its Saturn dealership business to any person conditioned upon Franchisors entering into a Dealer Agreement with that person, Franchisor will consider Dealer's proposal subject to the following:
(1) To maintain the high standard and quality of the Dealer network, Dealer agrees to give Franchisor prior written notice of any proposed disposition of its principal assets or of any proposed change of ownership in which a party (i) first acquires a five percent equity ownership or beneficial interest in the franchised business, (ii) acquires an additional five percent equity ownership or beneficial interest in the franchised business in a calendar year, or (iii) acquires majority ownership or voting control in the franchised business. Dealer understands if any such change is made prior to Franchisor's approval of the proposal, termination of this Agreement will be warranted and Franchisor will have no further obligation to consider Dealer's proposal.
(2) If the proposal involves a change of Dealer Operator, Dealer will pay Franchisor a fee to defray the costs of review of the proposal and completion of the Dealer Selection Process. Franchisor has no obligation to consider the proposal until it has received this non- refundable payment.
(3) Dealer will be notified in writing of the decision on its proposal within 60 days after Dealer has furnished all applications and information reasonably requested by Franchisor and the proposed dealer operator has successfully completed the Dealer Selection Process. If Franchisor disagrees with the proposal, it will specify its reasons.
(4) Any material change in Dealers proposal, including change in price, proposed owners, or Dealer Operator, will be considered a new proposal, and the time period for Franchisor to respond shall recommence.
(5) Prior written approval is not required where the transfer of equity ownership or beneficial interest to an individual is (a) less than five percent in a calendar year; or (b) between existing owners of Dealer previously approved by Franchisor where there is no change in majority ownership or voting control. Dealer agrees to notify Franchisor within 30 days of the date of the change and to execute a new Dealer statement of ownership.
(6) Franchisor is not obligated to execute a new Dealer Agreement under this Article unless Dealer makes arrangements acceptable to Franchisor to satisfy any indebtedness to Saturn or Franchisor.
C. RIGHT OF FIRST REFUSAL OR OPTION TO PURCHASE
(1) Creation and Coverage
If a proposal is submitted by Dealer under Article 18B, Franchisor has a right of first refusal or option to purchase the dealership assets under this Article 18C. If Franchisor exercises its right or option, it will do so in the written decision on Dealer's proposal. Franchisor's right or option may be assigned to any party and Franchisor will guarantee the full payment of the purchase price by the assignee. Franchisor has the right to disclose the terms of the buy/sell agreement to any potential assignee.
If Dealer has entered into a bona fide written buy/sell agreement for its dealership business or assets, Franchisor's right under this Section is a right of first refusal, enabling Franchisor to assume the buyer's rights and obligations under such buy/sell agreement and cancel this Agreement and all rights granted Dealer. In the absence of a bona fide written buy/sell agreement, Franchisor has the option to purchase the principal assets of Dealer utilized in the dealership business, other than real property, and cancel this agreement and all rights granted Dealer. Real property will be included only if the Franchisor and Dealer agree.
If Franchisor exercises its right or option, the fee described in Article 18B(2) will be refunded if the person proposed by Dealer as replacement dealer operator or owner satisfies the Dealer Selection Criteria.
Franchisor's rights under this Article 18C will be binding on and enforceable against any assignee or successor in interest of Dealer or purchaser of Dealer's assets.
(2) Purchase Price and Other Terms of Sale
(a) Bona Fide Agreement
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 Franchisor agree to other terms.
Upon Franchisor's request, Dealer agrees to provide all other documents relating to the proposed transfer, including, but not limited to, those reflecting any other agreements or understandings between the parties to the buy/sell agreement. If Dealer does not provide such documentation or state in writing that such documents do not exist, it will be presumed that the agreement is not bona fide.
(b) Absence of Bona Fide Agreement
In the absence of a bona fide written buy/sell agreement, the purchase price of the dealership assets, excluding new and undamaged parts and accessories, will be determined by good faith negotiations between the parties. If agreement cannot be reached, the purchase price will be determined through the Dispute Resolution Process. The repurchase prices for such new and undamaged parts and accessories will be the prices last indicated in the parts price listing established by the Franchisor. Franchisor will not be responsible for repurchase of non-Saturn parts or accessories in the Franchisee's inventory, or of Saturn parts and accessories that are not resaleable as new, as specified in the Franchise System Manual. Dealer agrees to transfer the property by Warranty Deed conveying marketable title free and clear. The Warranty Deed will be in proper form for recording and Dealer will deliver complete of the Warranty Deed. Dealer will also furnish Franchisor copies of any easements, licenses or other documents affecting the property and assign any permits or licenses necessary for the conduct of the dealership business to Franchisor.
PART SEVEN:
TERMINATION AND TERMINATION ASSISTANCE
19. TERMINATION
A. TERMINATION OF AGREEMENT
(1) By Dealer
Dealer may terminate this Agreement by written notice to Franchisor. Termination will be effective 30 days after Franchisor's receipt of the notice, unless otherwise mutually agreed in writing.
(2) By Agreement
This Agreement may be terminated at any time by written agreement between Franchisor and Dealer.
Termination assistance will be applicable only as specified in the written termination agreement.
(3) Failure to be Licensed
If Franchisor or Dealer fails to secure or maintain any license required for the performance of obligations under this Agreement or such license is suspended or revoked, either party may immediately terminate this Agreement by giving the other party written notice.
(4) Misrepresentation, Failure to Conduct Operations, or Disqualification or Change of Dealer Operator or Owner
If Dealer submits any false information to Saturn or Franchisor;
fails to conduct customary dealership operations for seven
consecutive business days; or Dealer Operator or Owner fails to
continue to meet the Dealer Selection Criteria applicable to
each; or Dealer Operator is changed or withdraws without prior
written approval of Franchisor; or a party i) first acquires a
five percent equity ownership or beneficial interest in dealer,
ii) acquires an additional five percent equity ownership or
beneficial interest in a calendar year, or iii) acquires majority
ownership or voting control, without the prior written approval
of Franchisor; Franchisor will notify Dealer and provide 30 days
for Dealer to respond. Thereafter, Franchisor may notify Dealer
that the Agreement will be terminated not less than 30 days after
receipt of notice. If Dealer chooses to use the Dispute
Resolution Process, the Agreement will continue pending a final
resolution of the dispute.
(5) Failure of Performance
If Dealer fails to perform any other obligations it has under this Agreement, including those in the Marketing Area Plan, Franchisor will review the failure with Dealer.
If Franchisor determines that corrective action by Dealer is not forthcoming, it will notify Dealer of the failure in writing and of the period of time during which Dealer is expected to remedy the failure.
If the failure is not remedied within that period, Franchisor may terminate this Agreement by giving Dealer three months advance written notice.
(6) Reliance on Any Applicable Termination Provision
The terminating party may select the termination provision under which it elects to terminate without reference in its notice of termination to any other provision that may also be applicable. The terminating party subsequently also may avert other grounds for termination.
(7) Option to Purchase
If this Dealer Agreement is to expire or terminate for any reason, Franchisor has the option to purchase the principal assets of Dealer utilized in the dealership business, other than real property, and cancel this Agreement and all rights granted Dealer. Real property will be included only if the Franchisor and Dealer agrees.
The purchase price of the dealership assets and other terms will be determined under Article 18C(2)(b). Franchisor must advise Dealer of its intent to exercise this option within 60 days after it notifies Dealer that an event has occurred which would cause expiration or warrant termination.
B. TRANSACTIONS AFTER TERMINATION
(1) Orders
If Dealer and Franchisor do not enter into a new Dealer Agreement when this Agreement expires or is terminated, Dealers designated supply of Products will be automatically cancelled except as provided in this Article.
Termination or expiration of this Agreement will not release Dealer or Franchisor from the obligation to pay any amounts owing the other when due.
(2) Deliveries
If this Agreement is voluntarily terminated by Dealer or expires because of the death or incapacity of a Dealer Operator, Franchisor will use its best efforts consistent with distribution procedures to furnish Dealer with Motor Vehicles to fill Dealer's bona fide retail orders on hand on the effective date of termination or expiration, not to exceed, however, the total number of Motor Vehicles invoiced to Dealer for retail sale during the average of any three month period from the year preceding the effective date of termination.
(3) Effect of Transactions after Termination
Neither the sale of Products to Dealer nor any other act by Saturn, Franchisor, or Dealer after termination or expiration of this Agreement will be a waiver of the termination or expiration.
20. TERMINATION ASSISTANCE
If this Agreement expires or is terminated and Franchisor does not offer Dealer or a replacement dealer that has substantially the same ownership (more than 50 percent including total family ownership) a new Dealer Agreement, Franchisor will offer to purchase certain items of personal property from Dealer and will provide assistance on Dealership Premises, as specified in the Franchise System Manuals. Franchisor's obligations under this Article 20 are subject to Dealer fulfilling its responsibilities relating to termination assistance, described in the Franchise System Manuals.
PART EIGHT:
GENERAL PROVISIONS
21. ACKNOWLEDGEMENT OF FRANCHISE LAW COMPLIANCE
A. DEALER'S INVESTIGATION
Dealer acknowledges that it has conducted an independent investigation of the business venture contemplated by this Agreement, and recognizes that it involves business risks and that its success will be largely dependent upon the ability of Dealer. Franchisor expressly disclaims the making of, and Dealer acknowledges that it has not received, and warranty or guarantee, express or implied, as to the potential volume, profits, or success of the business venture contemplated by this Agreement.
B. DISCLOSURE
Dealer acknowledges having received a copy of this Agreement (together with attachments and related documents) at least five business days prior to the date on which this Agreement was executed. Dealer further acknowledges having received the disclosure document which is required by the Trade Regulation Rule of the Federal Trade Commission entitled "Disclosure Requirements and Prohibitions Concerning Franchising and Business Opportunity Ventures," and which contains a copy of this Agreement, at least ten business days prior to the date on which this Agreement was executed.
C. REVIEW
Dealer acknowledges that it has read and understood this Agreement (and its attachments and related agreements) and that Franchisor has afforded Dealer ample time and opportunity to consult with advisors of Dealer's own choosing about the potential benefits and risks of its entering into this Agreement.
22. GENERAL PROVISIONS
A. NO AGENT OR LEGAL REPRESENTATIVE STATUS
This Agreement does not make either party or Saturn the agent or legal representative of the others for any purpose, nor does it grant either party or Saturn authority to assume or create any obligation on behalf of or in the name of the others. No fiduciary obligations are created by this Agreement.
B. DEALER'S RESPONSIBILITY FOR ITS OPERATIONS
Except as provided in this Agreement, Dealer is solely responsible for all expenditures, liabilities and obligations incurred or assumed by Dealer for the establishment and conduct of its operations.
C. TAXES
Dealer is responsible for all local, state, federal or other applicable taxes and tax returns related to its dealership business and will hold Franchisor and Saturn harmless from any related claims or demands made by any taxing authority.
D. INDEMNIFICATION BY SATURN
Saturn has agreed with Franchisor that Saturn will assume the defense of Dealer and indemnify Dealer against any judgment for monetary damages or rescission of contract in any lawsuit naming Dealer as a defendant when the lawsuit concerns:
(1) Breach of the Saturn warranty related to a Product or bodily injury or property damage claimed to have been caused solely by a defect in the design, manufacture or assembly of a Product by Saturn. Saturn may withhold indemnification where a defect should have been detected during the predelivery inspection of the Product;
(2) Failure of a Product to conform to the description set forth in advertisements or product brochures distributed by Saturn because of changes in standard equipment or material component parts unless Dealer received notice of the changes prior to retail delivery of the affected Product by Dealer; or
(3) Any substantial damage to a Product purchased by Dealer from Saturn which has been repaired by Saturn unless Dealer has accepted the Product with knowledge of the repair.
Saturn has no obligation under its agreement with Franchisor if the Product involved has been altered. Any indemnification provided by Saturn will be net of any offset recovered by Dealer.
Procedures for requesting indemnification, administrative details, and limitations are contained in the Franchise System Manuals.
E. TRADEMARKS AND SERVICE MARKS
Saturn, Franchisor, or affiliated companies are the exclusive owners of the various trademarks, service marks, names, and designs (Marks) used in connection with Products.
Dealer is granted the non-exclusive right to display Marks in the form and manner approved by Franchisor in the conduct of its dealership business.
Marks may be used as part of the Dealer's name with the written approval of Franchisor.
Dealer agrees to change or discontinue the use of any Marks upon request by Franchisor.
Dealer agrees that no company owned by or affiliated with Dealer or any of its owners may use any Mark to identify a business without Franchisor's written permission.
Upon termination of this Agreement, Dealer agrees to immediately discontinue, at its expense, all use of Marks. Thereafter, Dealer will not use, either directly or indirectly, any Marks or any other
confusingly similar marks in a manner that Franchisor determines is likely to cause confusion or mistake or deceive the public.
Dealer will reimburse Franchisor for all legal fees and other expenses incurred in connection with action to require Dealer to comply with this Article 22E.
F. NOTICES
Any notice required to be given by either party to the other in connection with this Agreement will be in writing and delivered personally or by mail. Notices to Dealer will be directed to Dealer or its representatives at Dealer's principal place of business and notices by Dealer will be directed to: Dealer Development, Saturn Distribution Corporation, 1400 Stephenson Highway, Troy, Michigan 48007-7025. Mailed notices will be deemed received on the date deposited in U.S. or express mail.
G. NO IMPLIED WAIVERS
The delay or failure of Franchisor or Dealer to require performance by the other party or the waiver by Franchisor or Dealer of a breach of any provision of this Agreement will not affect the right to subsequently require such performance.
H. ASSIGNMENT OF RIGHTS OR DELEGATION OF DUTIES
Franchisor may assign this Agreement and any rights or delegate any obligations to any affiliated or successor company, and will provide Dealer written notice of such assignment or delegation. Such assignment or delegation by Franchisor will not relieve Franchisor of liability for the performance of its obligations.
I. ACCOUNTS PAYABLE
All monies or accounts due Dealer will be considered net of Dealer's indebtedness to Franchisor and Saturn. Franchisor and Saturn may deduct any amounts due or to become due from Dealer to Franchisor or Saturn, or any amounts held by Franchisor or Saturn, from any sums or accounts due or to become due from Saturn or Franchisor to Dealer.
J. SOLE AGREEMENT OF PARTIES
Except as provided in this Agreement, Franchisor has made no promises to Dealer, Dealer Operator, or Dealer Owner and there are no other agreements or understandings, either oral or written, between the parties affecting this Agreement or relating to any of the subject matters covered by this Agreement.
Except as otherwise provided herein, this Agreement cancels and supersedes all previous agreements between the parties that relate to any matters covered herein.
No agreement between Franchisor and Dealer which relates to matters covered herein, and no change in, addition to (except the filling in of blank lines) or erasure of any printed portion of this Agreement,
will be binding unless it is approved in a written agreement executed under Article 23.
K. REVIEW AND MODIFICATIONS OF AGREEMENT TERMS
To demonstrate its commitment to the Saturn Philosophy, Franchisor has entered into this indefinite term Agreement. However, neither Franchisor nor Dealer want to prevent the modification of their contractual relationship as necessary to respond to changes in marketing conditions. Therefore, the Franchise Development Team will review the Agreement every five years, unless it determines an earlier review is necessary.
In the event the FDT recommends a superseding form of Dealer Agreement, Franchisor and Dealer agree to terminate this Agreement and execute the new Agreement. Unless otherwise agreed in writing, the rights and obligations of Dealer that may otherwise become applicable upon termination or expiration of this Agreement will not be applicable.
23. EXECUTION ON BEHALF OF DEALER AND FRANCHISOR
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 chief executive officer, Dealer Operator and Dealer Owner(s); and
(b) on behalf of Franchisor by either its President or the Vice- President, Sales.
[MEDFORD DODGE D/B/A SATURN
OF MEDFORD] Saturn Distribution Corporation
- ------------------------------ -------------------------------
Dealer Name
By By
--------------------------- ----------------------------
Dealer Operator Date President Date
By By
--------------------------- ----------------------------
Dealer Owner Date Vice-President Date
Sales
By
---------------------------
Dealer Owner Date
By
---------------------------
Dealer Owner Date
-23-
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By
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Dealer Owner Date
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GLOSSARY
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As used in this Dealer Agreement, the following terms shall have the following definitions:
1. Dealer - The corporation, partnership or proprietorship that signs the Dealer Agreement.
2. Dealer Agreement - The Dealer Agreement that is executed including the Marketing Area Plan and other related Addenda, the Franchise System Manuals, and the Terms of Sale Bulletins.
3. Dealer Operator - Principal manager of Dealer upon whose personal service Franchisor relies in entering into the Dealer Agreement.
4. Dealer Owner - Owner of five percent or more equity ownership or beneficial interest of Dealer upon whom Franchisor relies in entering into the Dealer Agreement.
5. Dealer Selection Criteria - The qualifications and standards which prospective Dealer Operators and Dealer Owners must satisfy to be approved by Franchisor.
6. Dealer Selection Process - The process which an applicant must successfully complete prior to becoming a Saturn Dealer Operator. This process includes: the application, questionnaires, assessment at the applicant's place of business, an orientation and interview, and agreement upon a Marketing Area Plan.
7. Dealership Premises - Approved facilities provided by Dealer for dealership operations.
8. Franchise System Manuals - The Manual which contains the policies, procedures, systems, and guidelines for the conduct of Saturn dealership operations under the Dealer Agreement.
9. Marketing Area - The geographic area assigned to Dealer and identified in a Notice of Dealer's Marketing Area.
10. Marks - The various trademarks, service marks, names and designs used by Saturn, Franchisor, and its affiliated companies in connection with Products.
11. Motor Vehicles - All current model types or series of new motor vehicles specified in any Motor Vehicle Addendum and all past motor vehicles marketed through Dealers.
12. Parts and Accessories - New or remanufactured automotive parts and accessories marketed or approved by Saturn or Franchisor and listed in current Dealer Parts and Accessories Price Schedules and supplements.
13. Products - Motor Vehicles, Parts and Accessories.
14. Retail Environmental Design Package - A comprehensive design package that provides a design guide and access to a portfolio of Saturn dealership facility design control drawings (interior and exterior).
EXHIBIT 10.10.1
TOYOTA DEALER AGREEMENT
This is an Agreement between TOYOTA MOTOR DISTRIBUTORS, INC. (DISTRIBUTOR), and LITHIA MOTORS, INC. (DEALER), a(n) individual, partnership, X corporation, duly incorporated in the state of OREGON, and doing business as Medford 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 integrity, expressed intention to deal fairly with DEALER and the consuming public, and 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 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, cooperation, trust and confidence of both DISTRIBUTOR and DEALER.
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; and
C. Establish and maintain satisfactory dealership facilities at the location(s) set forth herein.
III. TERM OF THIS AGREEMENT
This Agreement is effective this 30th day of JANUARY, 1990, and shall continue for a period of Six (6) Years and shall expire on JANUARY 29, 1996, unless ended by mutual agreement or terminated as provided herein. This Agreement may not be extended except in writing signed by DISTRIBUTOR and IMPORTER.
IV. OWNERSHIP OF DEALER
DISTRIBUTOR enters into this Agreement in reliance upon DEALER's representation that the following persons, and only the following persons, will be the Owner(s) of DEALER and that, by their signatures hereto, such persons are committed to the achievement of the purposes and objectives of this Agreement and agree to abide by the terms and conditions herein:
OWNERSHIP
NAME ADDRESS INTEREST
---- ------- ---------
Sidney B. DeBoer 360 E. Jackson Street 62.5%
Medford, OR
Manfred L. Heiman Same 37.5%
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V. MANAGEMENT OF THE DEALERSHIP
DISTRIBUTOR and DEALER agree that the retention of qualified management is of critical importance to the successful operation of DEALER. DISTRIBUTOR, therefore, enters into this Agreement upon DEALER's representation that SIDNEY B. DEBOER, and no other person, exercises the function of General Manager and is in complete charge of DEALER's Toyota operations with 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 services 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.
VII. APPROVED DEALER LOCATIONS
DISTRIBUTOR and DEALER recognize that DEALER is free to sell Toyota Products to CUSTOMERS wherever they may be located. However, in order that DISTRIBUTOR may establish and maintain an effective network of authorized Toyota dealers, DISTRIBUTOR has approved the following facilities as the exclusive location(s) for the sale and servicing of Toyota Products and for the display of Toyota Marks:
TOYOTA NEW VEHICLE SALES
AND SHOWROOM PARTS AND SERVICE
------------------------ -----------------
360 E. JACKSON STREET
MEDFORD, OR SAME
SALES AND GENERAL OFFICE USED VEHICLE DISPLAY AND SALES
------------------------ ------------------------------
SAME SAME
BODY AND PAINT STORAGE
-------------- -------
NONE THIRD AND RIVERSIDE
MEDFORD, OR
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Each of these facilities is approved only for the function indicated.
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. Neither may DEALER 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. APPLICABLE LAW
The parties acknowledge and agree that this Agreement is or is deemed to have been made in the County and State in which DEALER is located and shall be governed by and construed according to the laws thereof.
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. The Dealer agrees to achieve a sales level on Toyota cars which will result in the Dealer achieving a penetration level at or above Regional average for import nameplate car as measured by R.L. Polk registration data by December 31, 1990.
2. The Dealer agrees to achieve an Owner Satisfaction Index score at or above Regional average by December 31, 1990. The Dealer understanding the importance of total customer satisfaction, further agrees to maintain scores at or above Regional average for the remainder of this Agreement.
XI. EXECUTION OF AGREEMENT
Notwithstanding any other provision herein, the parties to this Agreement, DISTRIBUTOR and DEALER, agree that this Agreement only shall be valid and binding if it is signed:
A. On behalf of DEALER by a duly authorized person;
B. On behalf of DISTRIBUTOR by the President and General and/or Regional 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, in good faith and for their mutual benefit.
(Dealer Entity Name)
DATE: By: [PRESIDENT]
------------ -------------------------- ---------------
SIGNATURE TITLE
DATE: By:
------------ -------------------------- ---------------
SIGNATURE TITLE
DATE: By:
------------ -------------------------- ---------------
SIGNATURE TITLE
TOYOTA MOTOR DISTRIBUTORS, INC. DISTRIBUTOR
-------------------------------
(Distributorship Name)
DATE: By: [GENERAL MANAGER]
------------ -------------------------- ------------------
SIGNATURE [DONALD R. MILLER] TITLE
DATE: [JAN 30 1990] By: [PRESIDENT]
------------- -------------------------- ---------------
SIGNATURE TITLE
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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 Dealer Agreement then prescribed by IMPORTER.
TOYOTA MOTOR SALES, U.S.A., INC.
DATE: [JAN 30 1990] By: [PRESIDENT]
------------- -------------------------- ---------------
SIGNATURE [Y. TOGO] TITLE
-31-
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TOYOTA
PRODUCT ADDENDUM
TO
TOYOTA DEALER AGREEMENT
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Pursuant to Paragraph I(A) of the Toyota Dealer Agreement, DISTRIBUTOR hereby grants DEALER the non-exclusive right to buy and resell the Toyota Products as defined in the Toyota Dealer Agreement and identified below:
Tercel Cressida Corolla Land Cruiser MR 2 Van/Cargo Van Camry Truck (GVW 1 & 2) Celica Cab/Chassis (GVW 1 & 2) Supra 4 Runner |
and all parts, accessories and equipment for such vehicles.
This Toyota Product Addendum shall remain in effect unless and until superseded
by a new Toyota Product Addendum furnished DEALER by IMPORTER.
EXHIBIT 10.13.1
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is made and entered into this 2nd day of August, 1996, by and between ROBERTS DODGE, INC., an Oregon corporation (hereinafter referred to as "Seller" or the "Company"), and LITHIA MOTORS, INC. an Oregon corporation (hereinafter referred to as "Purchaser").
WITNESSETH:
WHEREAS, Seller desires to sell to Purchaser, and Purchaser desires to buy from Seller substantially all of the assets of the Company which Assets are used in and related to the business of the Company of selling, leasing and repairing used vehicles and new Dodge vehicles (the "Business").
NOW, THEREFORE, upon the terms and considerations herein set forth, it is agreed as follows:
1. PURCHASE AND SALE. Purchaser agrees to buy and Seller agrees to sell the following assets of Company (hereinafter referred to as the "Assets") on the following terms and at the prices indicated with payment to be made at Preliminary and Final Closing (as hereinafter defined):
a. FIXED ASSETS. Purchaser agrees to purchase all of Seller's fixed assets, subject to Purchaser's review and approval of same, including, but not limited to machinery and shop equipment, special tools, signs, office equipment, furniture and fixtures presently located
at Seller's place of business or in Seller's possession as of the date of this offer. The purchase price for said assets is the sum of $450,000 and shall include all of the fixed assets, as mentioned above, excluding the ADP computer on lease and furniture in dealer's office, and also excluding any items, mutually agreed to, and listed in Schedule "A" to become attached here. The $450,000 shall be paid in full at the Final Closing.
b. GOODWILL, COVENANT NOT-TO-COMPETE AND OTHER ASSETS. Purchaser shall purchase Seller's goodwill, name, service and sales customer lists, vehicles sales and service records, telephone, fax number, and covenant not-to- compete from BOB AND BUTCH ROBERTS. The covenant not-to-compete shall be for a period of five (5) years and shall include Lane County, Oregon. The purchase price for said assets, including the covenant not-to-compete, is the sum of $1,800,000. The terms of payment is as follows: $1,300,00 to be paid at the Final Closing and the remaining $500,000 shall be in the form of a promissory note from Purchaser which shall be fully amortized, including all principal and interest at a rate of 8.5% per annum over a five (5) year period. In the event Purchaser elects to use a Corporate Nominee, Lithia Motors, Inc., shall be a co- maker of said promissory note, at anytime, without penalty. Purchaser shall be obligated to pay off the promissory note if Purchaser becomes a public company. Seller shall not hire any existing personnel without the written permission from purchaser. Permission is granted for list provided 8/13/96.
c. NEW VEHICLES. Purchaser shall purchase from Seller all of Seller's new unregistered, and unused 1996 and 1997 model Dodge vehicles ("New Vehicles") at a price equal to factory invoice, less any factory holdbacks, rebates or incentives, carryover model
allowances, floorplan allowances, finance cost allowances, advertising charges, and any other similar items which should reasonably be deducted to establish Seller's net cost for such vehicles, plus dealer installed parts and accessories at dealer's actual cost, and less the Seller's actual cost of any missing accessories, equipment or parts. If there is any damage to any new vehicles, there shall be a deduction of such damages as agreed upon between a representative of Purchaser and a representative of Seller. If Purchaser and Seller cannot agree on this amount, they shall choose an independent third party to determine the amount and such party's determination shall be binding. All new vehicles shall be paid in full at the Final Closing.
d. USED VEHICLES, COMPANY VEHICLES, AND DEMONSTRATORS. Purchaser shall purchase, on an all-or-nothing basis, Seller's used vehicles, company vehicles and demonstrators in Seller's inventory, as of the closing date, at a value mutually agreed to by both Purchaser and Seller. In the event Purchaser and Seller cannot agree on a value, then Seller shall retain those vehicles, and Purchaser shall not be obligated to purchase same. Any of the above vehicles purchased shall be paid in full at the Final Closing. [SELLER MUST REMOVE VEHICLES WITHIN 1 WEEK IF NOT PURCHASED.]
e. PARTS AND ACCESSORIES. Purchaser shall purchase from Seller all of Seller's current returnable, unused, undamaged, non-obsolete, new factory parts and accessories for Dodge vehicles on hand at Final Closing. Purchaser shall also purchase all of Seller's non-obsolete parts and accessories on hand at closing obtained from suppliers other than Seller's franchiser. All Dodge pals shall be listed in the most recent factory price book, as inventoried and valued by a mutually acceptable inventory service, at the net cost set forth in the price
books, less any dealer discounts available. Non-factory parts and accessories shall be valued in accordance with the current prices in the price lists of suppliers of such parts and accessories. Purchaser shall not be obligated to purchase any used, damaged or obsolete parts or accessories (obsolete shall mean parts which have no sales for 270 days). Seller agrees to maintain the parts and accessories inventory at normal operating levels through the Final Closing. The cost of the inventory service shall be divided equally between Purchaser and Seller. The value of the parts and accessory inventories shall be paid in full at the Final Closing.
f. WORK-IN-PROCESS. Purchaser shall purchase from Seller all of Seller's work-in-process and sublet repairs work at a price equal to Seller's actual net cost. The value of the work-in-process inventory shall be paid in full at the Final Closing.
g. MISCELLANEOUS INVENTORY AND SUPPLIES. Purchaser shall purchase from Seller all of Seller's miscellaneous inventory such as gas, oil, nuts, bolts, and the like, the price of which is to be determined by a representative of Purchaser and Seller, at Seller's actual cost of such items. The value of the miscellaneous inventory and supplies shall be paid in full at the Final Closing.
h. ASSUMPTIONS OF LEASES AND CONTRACTS. In addition to the purchase of the fixed assets, as outlined in paragraph 1(a) above, Purchaser shall assume Seller's obligations under those leases and contracts set forth in Schedule "B" attached hereto.
i. PURCHASE ORDERS. Seller shall transfer to Purchaser all of Seller's purchase orders for new vehicles as of the closing date, together with all deposits on such purchase orders.
j. REAL AND IMPROVED PROPERTY. Purchaser shall purchase from Seller the real property and all improvements for the sum of $2,330,050, subject to a loan approval satisfactory to Purchaser. The purchase price of the real property and improvements shall be paid in full at the Final Closing. Unless otherwise agreed to in writing, the Real Property and Dealership Asset Purchase shall close simultaneously. Purchaser hereby acknowledges that it is the intention of Seller to complete an IRC Section 1031 exchange which will not delay the close of escrow or cause additional expense to Purchaser. Seller's rights and obligations under this agreement may be assigned to REAL ESTATE EXCHANGE, INC. for the purpose of completing such an exchange. Purchaser agrees to cooperate with Seller and REAL ESTATE EXCHANGE, INC. in a manner necessary to complete the exchange.
k. ASSETS NOT SOLD. Notwithstanding anything to the contrary hereinabove, the following assets and properties shall be retained by Seller and shall not be sold or transferred to Purchaser: Accounts and notes receivable, prepaid insurance and other prepaid assets, antiques, personal effects, dealer finance reserves, earned factory rebates, earned credits, manufacturer holdbacks or other allowances or incentives relating to vehicles sold prior to Final Closing, bank deposits and cash. Provided, however, Purchaser, with the assistance of Seller, shall for a period of 180 days following Final Closing use its best efforts to collect Seller's accounts receivable. Purchaser shall collect such accounts receivable as are paid to Purchaser in the normal course of business, without charge to Seller, [ON A MONTHLY BASIS] and shall promptly pay the same over to Seller (whether the payments are received during or subsequent to the 180 day period), but shall act solely as a conduit in doing so and shall have no
responsibility to undertake any collection efforts with regard thereto. All payments from the customer shall be applied first to such accounts receivable accruing prior to Final Closing, unless customer expressly directs otherwise.
l. OTHER OBLIGATIONS ASSUMED. Except as specifically set forth herein, Purchaser is assuming no liabilities of Seller in connection with the transaction set forth in this Agreement. However, Purchaser will assume all of Seller's customer complaints, contracts in transit, "make goods", "comebacks" and the like arising out of service performed by Seller prior to the commencement date of the Final Closing, and which would normally be covered under Seller's applicable warranties, good customer relations and adjustments. Seller agrees to reimburse Purchaser for the mutually agreeable dealer costs of these items for a period of up to sixty days from the effective date of the Final Closing; and for finance and insurance charge backs paid by Purchaser on Seller's behalf as provided in paragraph 8(b) below.
2. PRELIMINARY CLOSING AND FINAL CLOSING.
a. PRELIMINARY CLOSING. The Preliminary Closing shall be the execution and delivery of this Agreement and a Real Estate Purchase Agreement for the sale to Purchaser, or its designated nominee or assignee, of the Company's dealership property. The Final Closing shall occur on or before October 1, 1996. Purchaser shall pay to Seller at the Preliminary Closing as partial payment for the Dealerships assets the sum of One Hundred Thousand Dollars ($100,000).
i. The Final Closing of the purchase and sale shall be contingent upon the approval of this transaction and the issuance of sales and service agreements by Chrysler
Corporation and Chrysler Financial Corporation or financial institution of Purchaser's choice for credit line financing, and approval and license by the Oregon Department of Motor Vehicles, if required, and shall occur at such place and time as the parties mutually agree, within fourteen (14) days (or as otherwise agreed in writing to coordinate Final Closing with the end of a monthly accounting period) after the date upon which Purchaser, or its designated nominee or assignee, shall have received written approval to become an authorized dealer of Dodge vehicles at Seller's location in Eugene (the "Approvals"). The parties agree to use best efforts to expedite the Approvals of Purchaser or its nominee or assignee, as a new Dodge dealer and to meet the minimum capital requirements imposed by Dodge.
ii. Purchaser shall notify Seller promptly of the receipt of the Approvals.
b. FINAL CLOSING.
i. PAYMENTS.
1. At Final Closing, Purchaser shall either re-floor all new vehicles or shall pay to Seller, in addition to the amounts set forth in paragraph 2(b)(i)(2) an amount as calculated in paragraph 1(d) hereto as and for the purchase price thereof.
2. At the Final Closing, Purchaser shall receive a credit against the Purchase Price of the payment in paragraph 2(a) and shall pay the following to Seller in cash: The balance of the Purchase Price, as calculated pursuant to paragraph 1, cash, less any offsets under paragraph 2(b)(i)(3).
3. Seller shall pay to Purchaser, by offset from the amount to be paid by Purchaser the full amount of all manufacturer hold backs, rebates, incentives and the like that are due or have been taken by Seller on the new vehicles purchased by Purchaser, and Purchaser shall promptly pay Seller any such amounts received by Purchaser with respect to vehicles sold prior to Final Closing.
ii. DOCUMENTS. At the Final Closing, the parties shall exchange the following:
1. Seller shall deliver the Assets and a bill of sale for the Assets, certain of which assets described in Schedule "B" hereto are subject to the lease obligations identified therein; but all of the other Assets shall be free and clear of all claims, liens or encumbrances.
2. Purchaser's Approvals to become an authorized dealer of Dodge vehicles at Seller's present location under respective dealer sales and service agreements.
3. Seller shall deliver all of the dealerships' service records, customer records, customer lists, deal jackets and the like, which shall remain the property of Seller, but shall be retained and stored by Purchaser; provided, however, that Purchaser shall be entitled to destroy these records after six (6) years.
4. Each party shall deliver to the other evidence to the reasonable satisfaction of the other or its counsel of proper corporate and stockholder action authorizing ratifying the execution of this Agreement and the consummation of the transactions contemplated hereby.
5. The parties shall deliver such other documents as Seller or Purchaser or their counsel shall reasonably request in order to carry out the intent, purpose and terms of this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller, with any exceptions and subject to any disclosures which may be contained herein, in schedules attached hereto or in other writings referred to herein, represents, warrants and covenants to Purchaser that at the time of Preliminary Closing and Final Closing:
a. Seller owns all the Assets to be sold hereunder and at the final Closing they will be delivered free and clear of all restrictions and/or conditions to transfer or assignment, claims or right of an other person or entity, or defects in title, and free and clear of mortgages, liens, pledges, encumbrances, equities, covenants, conditions or restrictions, except as described herein and for possible minor matters that, in the aggregate, are not substantial in amount, do not materially detract from or interfere with the present or intended use of any of the assets, nor materially impair operations of the Company as a Dodge dealership; and all new vehicles sold to Purchaser shall be in the computer inventory of DODGE and not previously sold. Seller, to the best of its knowledge, has full power to sell and transfer the Assets without obtaining the consent or approval of any other person or entity, other than factory approvals. The transfer of the Assets to Purchaser will not violate, at Final Closing, any provision of the articles of incorporation or bylaws of the Company, or the provisions of any material note, mortgage, lien, lease, agreement, instrument of arbitration, award, judgment or
decree to which the Company, or its principal shareholders, is subject or a party, to the best of Sellers knowledge.
b. Seller has made or will make available to Purchaser for examination all of the Company's book and records concerning the dealership and the Assets at reasonable times following execution hereof.
c. No representations or statements made by Seller or on its behalf contain or will contain any untrue statement of a material fact or omit to state any material fact regarding the Assets, which fact would be necessary to make such representations, warranties or statements not materially misleading to Purchaser.
d. Upon the receipt of factory and respective manufacturer approvals, the consummation of the transactions contemplated by this Agreement will not, to the best of Seller's knowledge, result in or constitute any of the following that would materially, adversely affect the transactions contemplated herein:
i. A default or event that, with notice or lapse of time or both, would be a default, breach or violation of the articles of incorporation or bylaws of the Company or any license, promissory note, conditional sale contract, commitment, indenture, mortgage, deed of trust, dealer agreement or other agreement instrument or arrangement to which the Company is a party or by which the Assets are bound.
ii. An event that would permit any party to terminate any agreement or to accelerate the maturity of any indebtedness or other obligation of the Company; or
iii. The creation or imposition of a third party lien, charge or encumbrance on any of the Assets.
e. Seller is validly existing, and in good standing under the laws of Oregon, and has all regulatory authorizations and permits necessary to operate its business, and is duly qualified to do business from and at the real property described.
f. To the best of Seller's knowledge, Seller has good and marketable title to the Assets and interests in the Assets purchased by Purchaser, whether real, personal, mixed, tangible or intangible, which constitute all of the Assets and interest in the Assets that are used in the Business.
g. The Company has no employment contracts or consulting agreements
with or for any officer or employee that cannot be terminated at will and does
not have, and is not bound by, any unfunded severance pay, and bonus which is
not accrued on the books of the Company to the best of Seller's knowledge.
[SELLER SHALL PAY PURCHASER FOR ALL ACCRUED LIABILITIES TO EMPLOYEES, ANY EXCESS
NOT PAID TO EMPLOYEES SHALL BE REFUNDED WITHIN 1 YEAR.]
h. Except as disclosed in writing and to the best of Seller's
knowledge, Seller is not a party to any written or oral (i) contract not made in
the ordinary course of business, (ii) contract with any labor union,
(iii) advertising contract or contract for public relations services,
(iv) continuing contract for the purchase of materials, supplies or equipment,
or (v) contract continuing for a period of more than thirty (30) days or which
is not terminable
without cost or other liability to Seller, or its successors, which relates to the operation of the dealerships or the Assets.
i. To the best of the Company's knowledge, it has complied with, and is not in violation of, applicable Federal, State or local statutes, laws and regulations affecting the Assets, the real estate at which it conducts business or the operation of its Business.
j. Except for minor collection matters under $1,000, there is not any claim, suit, action, counterclaim, cross claim, arbitration or legal, administrative or other proceeding or governmental investigation pending or threatened against or affecting the Assets, Seller or its principal shareholders. The Company is not in default or in violation with respect to any order, writ, injunction or decree issued by any federal, state, local or foreign court or regulatory authority affecting the dealership, Seller or the Assets except as reflected in Schedule "C".
k. The Company does not, to the best of its knowledge, have any debt, liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, whether due or to become due that would have a material, adverse effect on the transactions contemplated by this Agreement, that is not reflected on Schedule "C", the Company's July 31, 1996 Financial Statement. Seller represents Schedule "D" is the financial statement it provides to Chrysler Financial and it has been prepared in accordance with factory reporting requirements. [PURCHASER HAS RIGHT TO AUDIT BOOKS OF SELLER FOR WHATEVER PERIODS REQUIRED BY SEC REQUIREMENTS FOR PUBLIC COMPANIES AT PURCHASER'S EXPENSE. (SECURITY EXCHANGE COMMISSION)].
l. The Company has filed or will file all Federal, State and local Tax returns required by law and has paid all taxes, assessments and penalties due and payable as of the date hereof and on the date of Final Closing, except as the time for filing or payments has been properly extended and disclosed to Purchaser, that would have a material, adverse effect on the transactions contemplated in this Agreement. Except for federal and state income taxes, the provision for taxes reflected in the financial statements (Schedule "D") is adequate for any and all federal, state, and local taxes for the period ending on the date of such financial statement and for all prior periods whether or not disputed, and the amounts so provided on said financial statements have actually been paid or will be paid when due (or as extended) to the appropriate federal, state or local tax collecting agency as of the date hereof and as of the date of Final Closing. There are no pending disputes as to taxes of any nature payable by the Company.
m. From the date of this Agreement to the Final Closing, the Company will not cause or make, except in the ordinary course of its business, or except with Purchaser's written consent prior to the Final Closing, any:
i. change in the manner of conducting the business of the Company;
ii. loan or commitments to make loans, or capital expenditures by the Company;
iii. sale or transfer of the Assets of the Company;
iv. amendment, release or voluntary termination of any contract, agreement, lease, insurance policy, bonding agreement, license or dealer agreement to which the Company is a party;
v. mortgage, pledge or other encumbrance of any Assets of the Company; or
vi. enter into any other contract, commitment or transaction affecting the Assets or Seller's obligations hereunder, prior to the Final closing.
n. Except for transactions in the normal course of its business, Seller shall also, from the date of this Agreement until the Final Closing, not cause or make without Purchaser's written consent (which consent shall not be unreasonably withheld) any:
i. material adverse change in the financial condition, liabilities, Assets, business or prospects of the Company, including the telephone number of the Business, which Seller agrees to release to Purchaser upon Final Closing, subject to Purchaser paying all future accruing telephone charges with regard thereto, but with no liability on Purchaser's part for accrued advertising charges through the date of Final Closing;
ii. increase in the salary or other compensation payable or to become payable by the Company to any of its agents, officers, employees or consultants, or the declaration, payment or commitment or obligation of any kind for the payment by it of a substantial bonus or other additional salary or compensation to any such person, or any deferred compensation agreement for any such person;
iii. issue or create any offerings, warrants, obligations, subscriptions, options, convertible securities or other commitments under which any interests of the Company might be directly or indirectly authorized, sold, issued or transferred;
iv. pay any obligation or liability of the Company, fixed or contingent, other than current liabilities and monthly payments required on installment liabilities and any payments on the obligations owed by the Company;
v. cause a material change in, perform any act or fail to perform any act which would render any of the representations or warranties in this paragraph untrue or inaccurate or incomplete as of the Final Closing Date of the purchase contemplated by this Agreement.
o. From and after the date hereof and for a term of five (5) years, Seller and Guarantors individually agree and covenant not to:
i. engage in any new car franchise ownership within Lane County, Oregon;
ii. actively solicit by phone, mail or other direct advertisement, customers of the Company; or
iii. use the name Roberts Dodge, Inc. for any purposes except to finalize the termination of the dealership business, within the State of Oregon, without using a DBA.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER. Purchaser, with any exceptions and subject to any disclosures which may be contained herein, in schedules hereto or in other writings referred to herein, represents, warrants and covenants to Seller that at the time of Preliminary and Final Closing:
a. Purchaser has the right, power, legal capacity and authority to enter into and perform its obligations under this Agreement.
b. This Agreement and the documents to be delivered or executed at the Preliminary and Final Closing have been or will be, duly executed and delivered and are, or will be, the lawful, valid and legally binding obligation of Purchaser, its designated nominee or assignee, enforceable against it in accordance with their respective terms. The execution, delivery and consummation of this Agreement are not prohibited by and do not violate or conflict with any provision of and will not result in a default under, a termination of, an acceleration of, or a breach of: (i) any material contract, agreement or other instrument to which Purchaser is a party; (ii) to the best knowledge of Purchaser, any regulation, order, decree or judgment of any arbitration panel, court or governmental agency; and (iii) to the best knowledge of Purchaser, any other restriction of any kind to which it is subject.
c. Purchaser, or its designated nominee or assignee, will diligently and in good faith pursue an application to become an authorized Dodge dealer.
d. Purchaser will arrange in good faith adequate financing to consummate this Agreement and the Real Estate Purchase Agreement.
e. Cause a material change in, perform any act or fail to perform any act which would render any of the representations or warranties in this paragraph untrue or inaccurate or incomplete as of the Final Closing Date of the purchase contemplated by this Agreement.
f. Purchaser agrees to store on the Real Property without cost to Seller, but at Seller's risk, including all risk or loss, any item to which Seller retains title hereunder and does not sell to Purchaser for a maximum period of one hundred twenty (120) days following Final Closing, [EXCEPT FOR NONPURCHASED VEHICLES WHICH MUST BE REMOVED IN 1 WEEK.] during which time Seller may by any reasonable means, including mutually agreeable consignment arrangements with Purchaser, hold the same out for sale for Seller's account; provided such storage does not unreasonably hamper Purchaser's operation of the dealership business or use of the Real Property.
g. Purchaser agrees that Seller shall have reasonable access to the dealership and its records after Final Closing and Purchaser will assist Seller as Seller may reasonably require to wind down Seller's business after Final Closing, including without limitation, assisting Seller in the collection of Seller's accounts receivable, including Seller's Dodge warranty claims. Seller shall provide Purchaser with a list of those of Seller's accounts receivable as to which Seller desires Purchaser's assistance, and all amounts received in payment of such accounts receivable shall be recorded as such, immediately upon receipt, and paid over to Seller in the form received on a [MONTHLY BASIS.] In the case of Seller's Dodge warranty claims and incentive payments, to the extent and if, as and when Dodge tenders any payment in respect of Seller's warranty claims or incentive payments in the form of credit to Purchaser's Dodge parts account or to Purchaser's incentive account, Purchaser shall refund to Seller on or before the 10th day of each month the net amount of all such credits received during the prior calendar month and there shall accompany each refund an appropriate accounting of Seller's warranty
claim or incentive credits represented by such refund. If payments are received by Purchaser from a customer having account balances outstanding to both Seller and Purchaser, any such payment which is specifically identified by the payor as being for Seller's account shall be paid over by Purchaser to Seller and any such payment not so identified as belonging to Seller shall be applied first to the accounts receivable of Seller and the remainder shall be credited as a payment on the accounts receivable of Purchaser. Purchaser will assist Seller in the collection of Seller's accounts receivable, without costs or expense to Seller, for a period of six (6) months following the Final Closing.
5. PURCHASER'S CONDITIONS TO CLOSING. Purchaser's conditions to closing shall be the following:
a. FACTORY APPROVALS. This offer is subject to approval of Purchaser, or Purchaser's nominee and the issuance of a Dodge Dealership Sales and Service Agreement with Chrysler Corporation and approval of Buyer's nominee as the Dealer-Operator of the franchise. It is expressly understood and agreed that any facility requirements shall be approved by Purchaser and this agreement is subject to Purchaser's sole and complete approval of such requirements, if any.
b. ENVIRONMENTAL, TOXIC WASTE AND PERMITS. This offer is subject to the dealership meeting the requirements established by all regulatory agencies governing the operation of the dealership, including but not limited to, the Department of Motor Vehicles, city and/or county permits and license departments. Environmental Protection Agency, and other agencies as shall be included in the final purchase agreement to be approved by both Purchaser,
Seller and their respective attorneys. Purchaser represents that there are no in-ground hoists, below-ground gas tanks, below-ground waste oil tanks, and the real property is free and clear of any toxic waste or hazardous waste material. Seller shall furnish Purchaser with a copy of all environmental reports and any certificates of compliance regarding the above items and that the property is environmentally free of any toxic or hazardous waste.
6. SELLER'S OBLIGATIONS BEFORE FINAL CLOSING. Seller agrees from the date of this Agreement until Final Closing:
a. To perform, abide by and adhere to all representations and warranties set forth in this Agreement.
b. To cause the Company to allow Purchaser, its counsel and
representatives, to have full access to all properties, books, accounts,
records, contracts and documents of, or relating to, its Dodge dealership and
the Assets. Seller shall furnish or cause to be furnished to Purchaser all data
and information concerning its dealership and the Assets that may reasonably be
requested. Purchaser agrees to treat this information as confidential, not to
deliver any of it to third parties, except as required by law, [AND SEC
REQUIREMENTS] or to carry the intent and purpose of this transaction, to use it
only for Purchaser's purposes, and, if the transactions contemplated herein are
not consummated, to return the information to Seller and Purchaser warrants to
Seller that Purchaser will not use any such information for any purpose.
[PURCHASER MAY DISCLOSE AUDIT RESULTS IN PROSPECTUS AS A PUBLIC COMPANY.]
c. To certify that all representations and warranties of Seller set forth in this Agreement will also be true on and as of the Final Closing, as if made on that date, except for changes in the ordinary course of business.
d. To diligently and in good faith assist and cooperate with Purchaser in its application to become an authorized Dodge dealer. At or prior to Final Closing, Seller shall terminate its working agreements with Dodge by delivering to them letters of resignation in a form satisfactory to each such manufacturer.
e. Seller shall use its best efforts not to damage any Asset of the Company (whether or not covered by insurance) that materially and adversely affects its financial condition, business or prospects.
f. Seller shall use its best efforts to prevent any other event or condition of any character that has or might reasonably have a material and adverse effect on the financial condition, business, Assets or prospects of the Company and shall keep the dealerships in full operation between Preliminary and Final Closing.
7. TERMINATION. If either party files for bankruptcy, voluntarily or involuntarily, on or before the date of Final Closing, the other party shall have the option to terminate this Agreement for 30 days following receipt of written notice of such filing. In the event of termination of this Agreement, neither party shall have any further liability hereunder, except said termination shall not excuse or eliminate any breaches of this Agreement which have occurred prior to such termination.
8. REMEDIES.
a. In the event the transactions contemplated by this Agreement should not be completed for any reason other than Seller's unexcused failure to tender the performance required pursuant to this Agreement, Purchaser, Seller and Guarantors agree that Seller shall be entitled to retain, as its sole and exclusive remedy, the payments made by Purchaser at Preliminary Closing, and that such payments are not refundable to Purchaser under any circumstances except as expressly provided in this Paragraph 7.
b. In the event of a failure to close resulting from Seller's unexcused failure or refusal to tender the performance required by this Agreement and the Land Sale Contract, Purchaser may either (i) obtain a refund of any payments made by Purchaser under this Agreement or (ii) obtain specific performance of this Agreement, which remedies shall be Purchaser's sole, mutually exclusive remedies.
9. INDEMNIFICATION.
a. Seller shall indemnify and hold harmless Purchaser and its agents, its designated nominee, transferee, successors and assigns from and against all claims, damages, actions, losses and expenses, including reasonable attorney's fees and expert witness fees, arising out of or that are caused in whole or in part from any default or breach of any warranty, representation, or covenant of Seller in this Agreement. In the event or a loss for which Purchaser is entitled to indemnification under this Agreement that Seller does not dispute, Purchaser may set off against Seller the amount of the loss incurred by Purchaser.
b. Seller agrees to reimburse Purchaser for all amounts mutually agreed to be paid by Purchaser for a period of up to [NINETY (90)] days from the effective date of the Final Closing on charge backs or expenses related to customer complaints, "make goods", "comebacks" and the like arising from services performed prior to the date of commencement of the Final Closing and which would normally be covered under Seller's applicable warranties, good customer relations and adjustments; and for finance and insurance charge backs paid by Purchaser on Seller's behalf. Purchaser shall invoice Seller or this designee monthly for these charges.
c. Purchaser shall indemnify and hold harmless Seller and its agents, its designated nominee, transferee, successors and assigns from and against all claims, damages, action, losses and expenses, including reasonable attorney fees and expert witness fees, arising out of or that are caused in whole or in part from any default or breach of any warranty, representation, or covenant of Purchaser in this Agreement.
d. Any party or parties seeking indemnification under this paragraph 8 (i.e. collectively, the "Indemnitee") shall, on each occasion that indemnification is sought, give prompt written notice for such indemnification, of any claim, suit or demand which the Indemnitee believes give rise to indemnification to it hereunder (the person to whom such notice of claim is given being referred to herein as the "Indemnitor"). Except as hereinafter provided, the Indemnitor shall be obligated to defend and to direct the defense against any such claim, suit or demand, in its name or in the name of the Indemnitee at the Indemnitor's expense and with counsel of the Indemnitor's own choosing and shall have the sole right to settle or compromise
any such claim, suit or demand; provided, however, that the Indemnitor will not, without the Indemnitee's written consent, settle or compromise any claim or consent to any entry of judgment which does not include as an unconditional term thereof the giving by the claimant or the plaintiff to the Indemnitee of a release from all liability in respect of such claim, in form and substance reasonably satisfactory to the Indemnitee. The Indemnitee shall at the Indemnitor's expense, cooperate in the defense of any such claim, suit or demand. If the Indemnitor, within a reasonable time after notice of a claim, fails to defend the Indemnitee, the Indemnitee shall be entitled to undertake the defense, compromise or settlement of such claim at the expense of and for the account and risk of the Indemnitor, utilizing counsel of the Indemnitee's own choosing.
e. If (i) losses are claimed by Seller Indemnitees and Purchaser Indemnitees with respect to the same cause, condition, event, circumstance, occurrence, happening or transaction; and (ii) such losses are caused by or arise out of Seller's operation or ownership of the Assets prior to Final Closing and Purchaser's conduct after Final Closing, or if Seller and Purchaser are jointly and severally liable therefor, then Seller and Purchaser shall be obligated INTER SE to each indemnify the other under this Paragraph only for that portion of such losses as are legally caused by, or equitably attributable to, Seller or Purchaser, respectively.
10. BROKERAGE FEES. Purchaser and Seller each agree to pay National Business Brokers, Inc. a commission of [$100,000] (for a total of [$200,000)] on the purchase price of the assets of the dealership and the price of the real property. Said commissions shall be paid to Broker upon Final Closing.
11. COSTS. Each of the parties shall pay all costs and expenses (including attorney fees and accounting fees) incurred or to be incurred by them in negotiating, closing and carrying out the transactions contemplated by this Agreement.
12. ENTIRE AGREEMENT. This Agreement and the schedules or exhibits attached hereto or thereto, constitute the entire agreement between the parties pertaining to the subject matter contained herein and supersede any prior agreements. No supplement, modification or amendment of this agreement shall be binding unless executed in writing by the parties. No waiver of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provisions, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party granting the waiver.
13. COUNTERPARTS. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
14. ASSIGNMENT. This Agreement shall be binding on and shall inure to the benefit of the parties to it and their respective heirs, legal representatives, successors and assigns. Purchaser may assign this Agreement, provided Purchaser guarantees the performance of all obligations under this Agreement of any nominee or assignee.
15. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except for the provisions of paragraph 3(o), the several representations, warranties, indemnities, covenants and agreements of the parties contained in or made pursuant to this Agreement shall be deemed to
survive the Final Closing for 24 months and shall be binding upon the parties and their successors in interest.
16. COMMUNICATIONS. All notices, requests, demands and other communications under this Agreement shall be in writing and shall either be delivered personally or sent by first-class mail, registered or certified, postage prepaid and properly addressed as follows:
To Seller: Roberts Dodge, Inc.
c/o Milford G. Roberts, Sr.
10705 Island Avenue
Island City, OR 97850
To Purchaser: Lithia Motors, Inc.
c/o Sidney DeBoer
360 East Jackson
Medford, OR 97501
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17. GOVERNING LAW. This Agreement shall be construed in accordance with and governed by the local laws of the State of Oregon.
18. ARBITRATION AND ATTORNEY FEES.
a. In the event of a dispute over the terms, conditions, performance or interpretation of this Agreement, the parties agree to submit to mandatory binding arbitration for resolution of their disputes in accordance with the Oregon Revised Statutes Section 36.300 ET SEQ.
b. Notice of such dispute must be timely given by serving upon the other party written notice of the complaint, a statement adequately describing the complaint, the specific paragraphs or subparagraphs of this Agreement allegedly violated and the remedies sought. The arbitration panel shall consist of three arbitrators, one nominated by Purchaser, one
nominated by Seller, with the third arbitrator to be selected by the other two. The arbitrators shall adopt their own rules for the conduct of the arbitration and shall be authorized to make an award of specific performance. The arbitration shall take place in Eugene, Oregon.
c. If any claim, arbitration or legal action or other proceeding is brought for the interpretation or enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party shall be entitled to recover actual attorney fees, expert witness fees and other costs and expenses incurred in the enforcement of this Agreement whether by filing suit or not, but not the costs of their appointed arbitrator, in addition to any other relief to which that party may be entitled.
d. Nothing herein set forth shall prevent the parties from settling any dispute by mutual agreement at any time.
19. SEVERABILITY. Notwithstanding anything contained herein to the contrary, if this Agreement is or may be deemed for any reason to violate Seller's Dodge dealer sales and service agreement, in any manner whatsoever, then and in that event this Agreement shall be deemed modified, by consent of the parties, to the extent and in the manner necessary to reform this Agreement to comply with and not violate all relevant provisions of the said Dodge dealer sales and service agreements.
IN WITNESS WHEREOF, the parties to this Agreement have duly executed it on the day and year first above written.
SELLER: PURCHASER:
ROBERTS DODGE, INC. LITHIA MOTORS, INC.
By By
------------------------- -------------------------
MILFORD G. ROBERTS, SR. SIDNEY B. DeBOER
President President & CEO
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The undersigned, Milford G. Roberts, unconditionally guarantee the foregoing performance of Roberts Dodge, Inc.
The undersigned, Sidney B. DeBoer unconditionally guarantees the foregoing performance of Lithia Motors, Inc. [EXCEPT FOR NOTE]
LIST OF ATTACHED SCHEDULES
Schedule A Excluded Personal Property Schedule B Leased Personal Property Schedule C Legal Matters, Debts or Obligations Schedule D Financial Statement dated July 31, 1996 |
EXHIBIT 10.13.2
LAND SALE CONTRACT
LITHIA PROPERTIES, L.L.C., (hereinafter referred to as "Buyer"), hereby agrees to purchase from MILFORD G. ROBERTS, SR. and SANDRA L. ROBERTS, husband and wife, (hereinafter referred to as "Seller"), and Seller hereby agrees to sell to Buyer, that certain real property located in Eugene, Oregon, together with all structures and improvements located thereof (the "Property"), more particularly described in Exhibit "A" attached hereto and incorporated herein by reference, on the following terms and conditions:
1. TITLE RESERVED. Title to the premises and improvements or fixtures thereon is reserved in the Seller until Buyer fully performs the terms, conditions and covenants of this Contract to be performed by Buyer.
2. PURCHASE PRICE. The purchase price (the "Purchase Price") for the Property shall be Two Million Three Hundred Thirty Thousand Fifty Dollars ($2,330,050), which shall be paid as follows:
(a) cash out upon Final Closing; [or cash to loan at Chrysler Credit if buyer qualifies]
(b) Buyer hereby acknowledges that it is the intention of Seller to complete an IRC Section 1031 exchange which will not delay the close of escrow or cause additional expense to Purchaser. Seller's rights and obligations under this agreement may be assigned to REAL ESTATE EXCHANGE, INC. for the purpose of completing such an exchange. Buyer agrees
to cooperate with Seller and REAL ESTATE EXCHANGE, INC. in a manner necessary to complete the exchange.
3. THE CLOSING.
a. The closing (the "Initial Closing") of the transaction contemplated by this Agreement shall take place contemporaneously with the Final Closing of an Asset Purchase Agreement executed contemporaneously herewith.
b. The Final Closing (the "Final Closing") shall occur when buyer has paid the entire Deferred Amount and performed all its other obligations under this Contract.
4. PRORATIONS AND CLOSING COSTS. All real property taxes and assessments and any other expenses with respect to the Property shall be prorated between Seller and Buyer as of the Initial Closing to the extent of information then available, and Seller and Buyer agree to cooperate and to use their best efforts to complete any other such prorations no later than sixty (60) days after Initial Closing Date. Such expenses for the period prior to the Initial Closing will be for the account of Seller and such expenses for the period on and after the Initial Closing Date will be for the account of Buyer. The parties shall split equally all routine title company fees. Seller shall pay all title insurance premiums for a Purchaser's ALTA title policy in favor of Buyer in the amount of the Purchase Price. Buyer shall select the title company to handle the closing.
5. TITLE. Within thirty (30) days after the execution of this Contract by both parties, Seller shall furnish to Buyer a title insurance commitment (the "Title Binder") showing marketable title to the Property in Seller and committing to issue an ALTA Purchaser's Policy
to Buyer, such Title Binder to specify all exceptions to title, including, without limitation, easements, liens, encumbrances, restrictions, conditions or covenants affecting the Property together with copies of all such exceptions. In the event any exceptions appear on the Title Binder that are not acceptable to Buyer (referred to as "Objections"), Buyer shall notify Seller in writing of such Objections within ten (10) days of receipt of the Title Binder, copies of exceptions and the survey required in Paragraph 9 hereof. In the event Seller is unable or unwilling to cure such title Objections within ten (10) days after receipt of Buyer's notification of such Objections, Buyer may either extend the time during which Seller may cure such objections, terminate this contract by written notice to Seller, or accept such title as Seller can deliver. In the event of termination or Seller's unwillingness to cure any title Objections, the parties shall have no further right or obligation hereunder. Buyer's obligation to close shall be conditioned upon the issuance of the ALTA Form B Purchaser's Title Policy in conformity with the Title Binder. Title exceptions to which the Buyer does not object shall be referred to herein as Permitted Encumbrances.
6. TAXES. Buyer shall pay all further taxes and assessments against the property and all public, municipal and statutory liens which may be lawfully imposed upon the property. The taxes and assessments may be paid at the times provided by the laws of the State of Oregon or pursuant to any available installment method.
7. TAX STATEMENTS. Until a change is requested, all tax statements shall be sent to the following address: Lithia Properties, L.L.C. 360 East Jackson, Medford, OR 97501.
8. INSURANCE. Buyer agrees to keep the buildings on the premises insured against loss by fire or other casualty in an amount not less than the insurable value thereof with loss payable to the parties hereto as their interests appear at the time of loss with priority in payment to Seller. Buyer may apply the proceeds of such insurance to repair or replacement in the event election to do so is done within a period of three months after the loss; but otherwise any amount received by Seller under such insurance in payment of a loss shall be applied upon the unpaid balance owed by the Buyer to the Seller. The proceeds of insurance applied to repair or replacement shall not reduce the amount owing by Buyer under this Contract.
9. IMPROVEMENT, ALTERATIONS AND REPAIRS. Buyer agrees that all improvements now located, or which shall hereafter be placed on the property, shall remain a part of the real property and shall not be removed at any time prior to the expiration of this Contract without the written consent of Seller. Buyer shall not commit or suffer any waste of the property, or the improvements thereon, or the alterations thereof; and shall maintain the property, and all improvements thereon and all alterations thereof, in good condition and repair. Buyer shall not otherwise make or cause to be made any substantial changes or alterations to the property without first obtaining the written consent of Seller.
10. UTILITIES. Buyer shall promptly pay all charges of public utilities for the delivery of water, gas, electricity or other services to the premises.
11. DELIVERY OF POSSESSION. Buyer shall be entitled to possession of the property as of the date of Final Closing under the Asset Purchase Agreement.
12. COMPLIANCE WITH LAW. Buyer shall promptly comply with all laws, ordinances, regulations, directions, rules and requirements of all governmental authorities applicable to the use or occupancy of the property, and in this connection shall promptly make all required repairs, alterations and additions.
13. DELIVERY OF DEED. Upon payment of the entire purchase price for the property, as provided herein, and performance by Buyer of all other terms, conditions and provisions hereof, Seller shall forthwith execute and deliver to Buyer a general warranty deed conveying the property free and clear of all liens and encumbrances, except as above provided and those placed upon the property or suffered by Buyer subsequent to the date of this Contract.
14. DEFAULT. In the event that Buyer shall fail to perform any of the terms of this Contract, time of payment and performance being of the essence, Seller shall, subject to the requirements of notice as herein provided, have the following rights:
a. To foreclose the Contract by strict foreclosure in equity.
b. To declare the full unpaid balance of the Contract immediately due and payable.
c. To specifically enforce the terms of this Contract by suit in equity.
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER. Seller, with any exceptions and subject to any disclosures which may be contained herein, in exhibits hereto or in other writings referred to herein, represents, warrants and covenants to Buyer that at the time of the Initial and Final Closings:
a. Seller has the right, power, legal capacity and authority to enter into and perform its obligations under this Contract;
b. This Contract and the documents to be delivered or executed at the Initial and Final Closings have been, or will be, duly executed and delivered and are, or will be, the lawful, valid and legally binding obligation of Seller enforceable against Seller in accordance with their respective terms. The execution, delivery and consummation of this Contract are not prohibited by and do not violate or conflict with any provision of and will not result in a default under, a termination of, an acceleration of, or breach of: (i) to the best of Seller's knowledge any material contract, agreement or other instrument to which Seller is a party; (ii) to the best of Seller's knowledge any regulation, order, decree or judgment of any arbitration panel, court or governmental agency, including any Environmental Protection Agency rules or regulations pertaining to toxic waste or hazardous materials; and (iii) to the best of Seller's knowledge any other restriction of any kind to which Seller is subject.
c. Seller has, or will have at the Initial Closing, good and marketable equitable title to the Property, free and clear of all deeds of trust and mortgages; and free and clear of all liens, security agreements, financing statements, conditional sale or title retention agreements, charges and encumbrances of every kind, nature or description, except for those disclosed in the Title Binder and Accepted by Buyer as Permitted Encumbrances.
d. At the Final Closing, Seller shall convey by general warranty deed to Buyer good and marketable fee simple absolute title to the property owned in fee, free of all liens and encumbrances except the Permitted Encumbrances. Seller agrees that Seller will not
suffer, permit or cause any additional debt or encumbrance to attach to the property, and will not modify any provisions of any existing deed of trust or mortgage without the prior consent of Buyer.
e. No material, adverse change shall have occurred in the condition of the property, nor shall Buyer or Seller have made any material change in, or performed or failed to perform any act which would render any of the representations or warranties in this paragraph untrue or inaccurate or incomplete between the execution hereof and the Final Closing.
f. Except as may be incidental to the operation of an automobile dealership and associated vehicle repair and maintenance facilities:
i. Seller has not to the best of its knowledge, engaged in or permitted any operations or activities upon, or any use or occupancy of the property, or any portion thereof, for the purpose of or in any way involving the handling, manufacture, treatment, storage, use, generation, release, discharge, refining, dumping or disposal of any "Hazardous Materials" (whether legal or illegal, accidental or intentional) on, under, in or about the property, or transported any "Hazardous Materials" to, from or across the Property, nor, to the best of Seller's knowledge, are any "Hazardous Materials" presently constructed, deposited, stored, or otherwise located on, under, in or about the Property, nor, to the best of Seller's knowledge, have any "Hazardous Materials" migrated from the Property upon or beneath other properties, nor, to the best of Seller's knowledge, have any "Hazardous Materials" migrated or threatened to migrate from other properties upon, about or beneath the Property.
For the purposes of the above paragraph "Hazardous Materials" is defined as any chemical, element or molecule which can or will cause pollution or the presence of which requires investigation or remediation under any federal, state or local statute, regulation, ordinance, order, action, policy or common law or can create a nuisance, hazard, toxic, explosive, corrosive, flammable, infectious, radioactive, carcinogenic, mutagenic or other dangerous condition on the Property.
ii. There is not constructed, placed, deposited, stored, disposed or located on the Property any asbestos in any form which has become or threatens to become friable.
iii. To the extent there are underground improvements, including but not limited to treatment, storage, gas, sump or water tanks, gas or oil wells located on the Property, such underground improvements are and, at all times while under Seller's control, to the best of Seller's knowledge, have been in compliance with all federal, state or local laws or regulations applicable thereto.
iv. To the best of Seller's knowledge, there is not constructed, placed, deposited, stored, disposed of nor located on the Property any polychlorinated biphenyls ("PCB's") nor transformers, capacitors, ballasts, or other equipment which contains dielectric fluid containing PCB's.
v. There is not constructed, placed, deposited, stored, disposed of nor located on the Property any insulating material containing urea formaldehyde, to the best of Seller's knowledge.
vi. The Property and its existing uses and activities thereon, including but not limited to Seller's use, maintenance and operation of the Property, and all of Seller's activities and conduct of business related thereto, comply and have at all times complied in all material respects with all environmental requirements ("Environmental Requirements") imposed by any federal, state or local authority, to the best of Seller's knowledge.
vii. Seller has not received notice or other communication concerning any alleged material violation of "environmental Requirements", whether or not corrected to the satisfaction of the appropriate authority, nor notice or other communication concerning alleged material liability for damages or costs resulting from non-conformity with "Environmental Requirements" in connection with the Property and there exists no writ, injunction, decree, order or judgment outstanding, nor any lawsuit, claim, proceeding, citation, directive, summons or investigation, pending or threatened, relating to the ownership, use, maintenance or operation of the Property by any person, or from alleged material violation of "Environmental Requirements", or from the suspected presence of material quantities of "Hazardous Material" thereon, nor, to the best of Seller's knowledge, does there exist any basis for such lawsuit, claim, proceeding, citation, directive, summons or investigation being instituted or filed.
viii. To the best of Seller's knowledge, Seller has all permits and licenses required to be issued to it by any governmental authority on account of any or all of its activities on the Property, and is in full compliance with the terms and conditions of such permits and licenses. No change in the facts or circumstances reported or assumed in the application for or granting of such permits or licenses exists, and such permits and licenses are
in full force and effect. The Property is properly zoned for the business activities presently conducted thereon.
16. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BUYER. Buyer, with any exceptions and subject to any disclosures which may be contained herein, in exhibits hereto or in other writings referred to herein, represents, warrants and covenants to Seller that at the time of the Initial and Final Closings;
a. Buyer has the right, power, legal capacity and authority to enter into and perform Buyer's obligations under this Contract.
b. This Contract and the documents to be delivered or executed at the Initial Closing have been, or will be, duly executed and delivered and are, or will be, the lawful, valid and legally binding obligation of Buyer, enforceable against Buyer in accordance with their respective terms. The execution, delivery and consummation of this Contract are not prohibited by and do not violate or conflict with any provision of and will not result in a default under, a termination of, an acceleration of or a breach of: (i) any material contract, agreement or other instrument to which Buyer is a party; (ii) to the best knowledge of Buyer, any regulation, order, decree or judgment of any arbitration panel, court or governmental agency; and (iii) to the best knowledge of Buyer, any other restriction of any kind to which Buyer is subject.
c. Buyer certifies that this Contract of purchase is accepted and executed on the basis of Buyer's own examination and personal knowledge of the premises and opinion of the value thereof; that no attempt has been made to influence Buyer's judgment; that no representations as to the condition or repair of said premises have been made by Seller or by any
agent of Seller; that no agreement or promise to alter, repair or improve said premises have been made by Seller or by any agent of Seller; and that Buyer takes said property and the improvements thereon in the condition existing at the time of this Contract.
17. SELLER'S DELIVERY AT INITIAL CLOSING. On or before the completion of the Initial Closing, Seller shall deliver the following into escrow:
a. A duly executed and acknowledged General Warranty Deed and such other documents as are necessary to grant and convey the Property, including all water rights appurtenant thereto that are owned by Seller, to Buyer or Buyer's designee, free and clear of all liens and encumbrances (except Permitted Encumbrances) and those accepted by Buyer, and warranting the title to the property against all persons whomsoever; and
b. Such other documents and funds as are required of Seller to close the sale of the Property in accordance with this Contract; and
On the date Final Closing is completed, Buyer shall be issued, at Seller's expense, an ALTA owner's policy of title insurance, with liability in the amount of the Purchase Price, insuring that fee simple absolute title in the Property is vested in Buyer, or its designee, subject only to the lien of real property taxes not delinquent, and the Permitted Encumbrances, and those accepted by Buyer; and
c. A written Phase 11 environmental audit performed by environmental engineers has been furnished to Buyer and accepted by Buyer; and
d. Possession of all of the Property; and
e. Confirmation that Lithia Motors, Inc., or its nominee or assignee, has been approved by Chrysler Corporation to be a Dodge dealer at the Property, and the parties have closed on the Asset Purchase Agreement.
18. BUYER'S DELIVERY AT INITIAL CLOSING. On or before the completion of closing, Buyer shall deliver the following:
a. The Down Payment in cash or readily available funds.
b. Such other documents and funds as are required of Buyer to close the purchase of the Property in accordance with this Contract.
19. SELLER'S DELIVERY AT FINAL CLOSING. From escrow Seller shall deliver the deed described in paragraph 17.a. of this Contract.
20. RISK OF LOSS. Seller shall assume all risk of loss or damage to the Property, including building and improvements located thereon, from the date hereof until Final Closing. Seller agrees to maintain insurance for the replacement value of the Property and improvements located thereon from the date hereof until Final Closing. In the event there is loss or damage to the Property between the date hereof and the date of Final Closing that is covered by insurance, then Buyer shall proceed with this transaction upon the transfer and assignment to Buyer of all Seller's right, title and interest in and to the aforementioned insurance proceeds on the full value of the property and improvements located thereon.
21. DEFAULT/FAILURE TO CLOSE. The following shall be the remedies of Seller and Buyer if either party hereto defaults or fails to close the transaction set forth herein:
a. REMEDIES IN EVENT OF FAILURE TO CLOSE. In the event the Initial Closing does not take place at the time and in the manner herein specified due to a default of Seller hereunder, Buyer shall have the option in Buyer's discretion to (i) elect to extend the time as may be necessary for Seller to cure such default, or (ii) waive such default and proceed with closing, or (iii) demand and receive specific performances by Seller of all of the obligations, covenants and agreements by Seller to be performed hereunder. In the event the Initial Closing does not take place at the time and in the manner specified herein due to a default of Buyer hereunder, Seller shall have all remedies against Buyer available to Seller at law, including the remedy of specific performance.
b. BUYER'S REMEDIES IN EVENT SELLER FAILS TO REMOVE LIENS OR ENCUMBRANCES AGAINST PROPERTY. In the event there are any liens, notices of interest, options, judgments, or encumbrances against the Property at the time of Final Closing which have not been accepted by Buyer, or in the event any liens, notices of interest, options, judgments or encumbrances shall hereafter accrue against the Property during the term of this Agreement by acts or neglect of Seller, and without the prior written consent of Buyer, then Buyer may, at Buyer's option, in addition to all other remedies Buyer may have by statute or under the Agreement, demand and receive specific performance of Seller's obligations to clear such liens, options, notices, judgments, or encumbrances affecting the Property.
22. CURE OF ENCUMBRANCES AND LIENS. If Seller shall be unable to deliver at the Final Closing a General Warranty Deed, and other documents necessary to convey the Property to Buyer free and clear of all liens and encumbrances not provided for herein or
accepted by Buyer, and if Buyer shall not exercise the privilege (which Buyer shall have) of waiving the liens and encumbrances which shall be the basis of such inability, and accepting the title in its then condition without diminution of the Purchase Price and without claim or demand against Seller, then each and all of the obligations of the parties under this Contract shall thereunder cease.
23. ASSIGNMENT. Neither Seller nor Buyer may assign this Contract without the prior written consent of the other, except that Buyer shall have the right to assign this Contract and all Buyer's rights hereunder to any person or entity controlled by Buyer, subject to the terms and conditions of this Contract, provided that the assignee assumes all obligations of Buyer and agrees to execute all documents and perform all obligations imposed on Buyer as if the assignee was the original buyer under this Contract. An assignment will not relieve Buyer of Buyer's obligations hereunder. This Contract shall be binding upon and inure to the benefit of the successors and assigns of Buyer and Seller.
24. ENTIRE AGREEMENT. This Contract and the exhibits attached hereto constitute the entire agreement between the parties pertaining to the purchase and sale of the subject property and supersedes any prior agreements. No supplement, modification or amendment of this Contract shall be binding unless executed in writing by the parties. No waiver of the provisions of this Contract shall be deemed, or shall constitute, a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver. No waiver shall be binding unless executed in writing by the party granting the waiver.
25. RECORDING. This Contract shall not be recorded or filed in any public records without the mutual consent of all parties. Seller shall execute and acknowledge a memorandum of this Contract in a form suitable for recording, and Buyer may record the memorandum.
26. PARTIES IN INTEREST. Nothing in this Contract, whether express or implied, is intended to confer any rights or remedies under or by reason of this Contract on any persons other than the parties to it and their respective successors and assigns, or is anything in this Contract intended to relieve or discharge the obligation or liability of any third persons to any party to this Contract, nor shall any provision give any other person any right of subrogation or action over against any party to this Contract.
27. NOTICES. All notices required or permitted to be given hereunder shall be in writing and shall be deemed given upon personal service or deposit in the United States first class mail, postage prepaid, and addressed as follows:
To Seller: Milford G. Roberts, Sr. and Sandra L. Roberts
10705 Island Avenue
Island City, OR 97850
To Buyer: Lithia Properties, L.L.C.
360 East Jackson
Medford, OR 97501
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28. ARBITRATION AND ATTORNEY FEES.
a. In the event of a dispute over the terms, conditions, performance or interpretation of this Contract, the parties agree to submit to mandatory binding arbitration for resolution of their disputes.
b. Notice of such dispute must be timely given by serving upon the other party written notice of the complaint, a statement adequately describing the complaint, and the specific paragraphs or subparagraphs of this Contract allegedly violated and the remedies sought. The arbitration panel shall consist of three arbitrators, one nominated by Buyer, one nominated by Seller, with the third arbitrator to be selected by the other two. The arbitrators shall adopt their own rules for the conduct of the arbitration and shall be authorized to make an award of specific performance. The arbitration shall take place in Eugene, Oregon in accordance with Oregon Revised Statutes Section 36.300 ET SEQ.
c. If any claim, arbitration or legal action or other proceeding is brought for the interpretation or enforcement of this Contract, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Contract, the successful or prevailing party shall be entitled to recover actual attorney fees, expert witness fees and other costs and expenses incurred in the enforcement of this Contract whether by filing suit or not, but not the costs of their appointed arbitrator, in addition to any other relief to which that party may be entitled.
d. Nothing herein set forth shall prevent the parties from settling any suit brought for the enforcement of this Contract, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Contract. The successful or prevailing party shall be entitled to recover actual attorney fees, expert witness fees and other costs and expenses incurred in the enforcement of this Contract whether by filing suit,
commencing an arbitration proceeding, or otherwise, in addition to any other relief to which that party may be entitled.
29. TIME. Time, prompt and punctual payment of any and all sums payable hereunder,and the exact performance and observation of each and all of the agreements and provisions herein contained on the part of Buyer to be observed and performed, are in each and every case of the essence of this Contract. Failure of Seller at any time to require performance by Buyer of any of the provisions hereof, or the acceptance of any payment after the same is due, or the failure in any one instance to pursue any of the remedies of Seller upon the default of Buyer in the performance of Buyer's obligations in this agreement shall not constitute a waiver of this non-waiver clause or the other provisions of this Contract and shall not prevent Seller from exercising any of the remedies herein provided on account of any past or future breach, either in the making of the payments herein provided or in the performance of the various obligations hereof by Buyer.
30. FURTHER ASSURANCES. Seller and Buyer shall execute, acknowledge and deliver such instruments, do such things and perform such acts as may be reasonably necessary to complete the purchase and sale of the Property in accordance with this Agreement.
31. GOVERNING LAW. This Agreement shall be construed in accordance with and governed by the laws of the State of Oregon.
32. SEVERABILITY. If any section, sentence, clause or phrase of this Agreement shall be held to be illegal or unenforceable, such determination shall not affect the remaining portions hereof.
33. COUNTERPARTS. This Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
34. ZONING STATEMENT. THE PROPERTY DESCRIBED IN THIS INSTRUMENT MAY NOT BE WITHIN A FIRE PROTECTION DISTRICT PROTECTING STRUCTURES. THE PROPERTY IS SUBJECT TO LAND USE LAWS AND REGULATIONS, WHICH IN FARM OR FOREST ZONES, MAY NOT AUTHORIZE CONSTRUCTION OR SITING OF A RESIDENCE. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROVED USES AND EXISTENCE OF FIRE PROTECTION FOR STRUCTURES.
35. CAVEAT. THIS INSTRUMENT WILL NOT ALLOW USE OF THE PROPERTY DESCRIBED IN THIS INSTRUMENT IN VIOLATION OF APPLICABLE LAND USE LAWS AND REGULATIONS. BEFORE SIGNING OR ACCEPTING THIS INSTRUMENT, THE PERSON ACQUIRING FEE TITLE TO THE PROPERTY SHOULD CHECK WITH THE APPROPRIATE CITY OR COUNTY PLANNING DEPARTMENT TO VERIFY USES AND TO DETERMINE ANY LIMITS ON LAWSUITS AGAINST FARMING OR FOREST PRACTICES AS DEFINED IN ORS 30.930.
IN WITNESS WHEREOF, the foregoing Real Estate Purchase Agreement was executed this [2nd] day of August, 1996.
SELLER: BUYER:
LITHIA PROPERTIES, L.L.C.
[s] [s]
By
- ------------------------------ -----------------------------------
MILFORD G. ROBERTS, SR. SIDNEY B. DeBOER
[s]
- ------------------------------
SANDRA L. ROBERTS
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Lithia Motors, Inc. and Affiliated Companies
We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" and "Selected Combined Financial Data" in the prospectus.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
October 11, 1996
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EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Roberts Dodge, Inc. and Affiliated Company
We consent to the use of our report included herein and to the reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Portland, Oregon
October 11, 1996
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EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated September 17, 1996 on our audits of the financial statements of Sam Linder, Inc. in the Lithia Motors, Inc. Registration Statement (Form S-1) dated October , 1996 for the registration of Common Stock.
Moss Adams LLP
Seattle, Washington
October , 1996
| ARTICLE 5 |
| THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMBINED FINANCIAL STATEMENTS OF LITHIA MOTORS, INC. AND AFFILIATED COMPANIES AT DECEMBER 31, 1995, [AND FOR THE YEAR THEN ENDED] AND THE UNAUDITED COMBINED FINANCIAL STATEMENTS OF LITHIA MOTORS, INC. AND AFFILIATED COMPANIES AT JUNE 30, 1996, AND FOR THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | YEAR | 6 MOS |
| FISCAL YEAR END | DEC 31 1995 | DEC 31 1996 |
| PERIOD START | JAN 01 1995 | JAN 01 1996 |
| PERIOD END | DEC 31 1995 | JUN 30 1996 |
| CASH | 9,350 | 3,819 |
| SECURITIES | 0 | 0 |
| RECEIVABLES | 1,884 | 2,472 |
| ALLOWANCES | 0 | 0 |
| INVENTORY | 17,700 | 16,480 |
| CURRENT ASSETS | 32,796 | 27,383 |
| PP&E | 5,074 | 3,170 |
| DEPRECIATION | 1,840 | 1,892 |
| TOTAL ASSETS | 39,222 | 32,116 |
| CURRENT LIABILITIES | 25,035 | 18,620 |
| BONDS | 10,743 | 8,262 |
| PREFERRED MANDATORY | 0 | 0 |
| PREFERRED | 0 | 0 |
| COMMON | 801 | 801 |
| OTHER SE | 50 | 1,105 |
| TOTAL LIABILITY AND EQUITY | 39,222 | 32,116 |
| SALES | 114,196 | 69,125 |
| TOTAL REVENUES | 115,531 | 69,600 |
| CGS | 93,253 | 57,669 |
| TOTAL COSTS | 109,988 | 67,048 |
| OTHER EXPENSES | 0 | 0 |
| LOSS PROVISION | 0 | 0 |
| INTEREST EXPENSE | (1,390) | (649) |
| INCOME PRETAX | 4,153 | 1,903 |
| INCOME TAX | 0 1 | 0 |
| INCOME CONTINUING | 3,375 | 1,586 |
| DISCONTINUED | 0 | 0 |
| EXTRAORDINARY | 0 | 0 |
| CHANGES | 0 | 0 |
| NET INCOME | 3,375 | 1,586 |
| EPS PRIMARY | 0 2 | 0 2 |
| EPS DILUTED | 0 2 | 0 2 |
| 1 | COMPANY IS A SUBCHAPTER S CORPORATION |
| 2 | NOT MEANINGFUL. COMPANY'S CAPITAL STRUCTURE PRECLUDES MEANINGFUL PER SHARE CALCULATIONS |