EXHIBIT 10.3
AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
THIS AGREEMENT is entered into by and between DICK DONNELLY AUTOMOTIVE
ENTERPRISES, INC., a Delaware corporation, dba "DICK DONNELLY LINCOLN, MERCURY,
AUDI, SUZUKI, ISUZU" (hereinafter referred to as "Seller"), and LITHIA MOTORS,
INC. or its nominee (hereinafter referred to as the "Buyer").
RECITALS:
Seller is a Delaware business corporation engaged in the business of
selling and servicing Lincoln, Mercury, Audi, Suzuki and Isuzu motor vehicles
and related parts and accessories from premises located at 7175 South Virginia,
Reno, Nevada and 40 Victorian Avenue, Sparks, Nevada (the "Business Real
Property), under franchises issued by Ford Motor Company, Isuzu Motor Company,
Suzuki Motor Company and Audi Motor Company.
Buyer wishes to purchase from Seller, and Seller is willing to sell to
Buyer, all assets relating to Seller's Lincoln, Mercury, Audi, Suzuki and Isuzu
franchise at P.O. Box 7120, Reno, Nevada, conditioned upon the granting to Buyer
of an exclusive franchise for the sale of new Lincoln, Mercury, Audi, Suzuki and
lsuzu motor vehicle in the same geographical area as Sellers franchise.
Buyer (or a related entity) also wishes to purchase, lease or sublease all
of the real property and improvements which constitute the Business Real
Property, and the purchase of Seller's business assets shall be conditioned upon
the simultaneous closing of the purchase, lease or sublease of that real
property by Buyer.
NOW, THEREFORE, IN CONSIDERATION OF the mutual promises set forth herein,
the parties agree as follows:
1. Definitions. In this Agreement, the following words shall have the
indicated meanings:
(a) "Closing" shall refer to the consummation of the transaction
contemplated under this Agreement in accordance with the terms hereof, and
"Closing Date* shall refer to the actual date of Closing. 'Target Closing Date"
shall refer to August 1, 1997. "Final Closing Date" shall refer to October 15,
1997.
(b) "Sellers Business" shall refer to any and all activities
conducted by Seller in Reno, Nevada, relating to the marketing and sale of new
Lincoln, Mercury, Audi, Suzuki and lsuzu vehicles and associated parts and
accessories, and the repair and servicing of new or used Lincoln, Mercury, Audi,
Suzuki and Isuzu vehicles.
(c) "Purchased Assets" shall refer to those assets which are
identified in Paragraph 2 as being purchased and sold by the parties hereunder.
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(d) Seller's "Equipment" shall refer to all non-inventory items of
tangible personal property presently owned or used by Seller in connection with
Sellers Business, including all of Sellers machinery, tools, signs, office
equipment, computer equipment, computer programs, microfiches, parts lists,
repair manuals, sales or service brochures, furniture and fixtures, and all of
Seller's leasehold improvements to the Business Real Property. Within 20 days
after the date of this Agreement, Seller shall provide to Buyer a list of the
"Certain Person" items being retained by Seller which list shall be attached
hereto as Exhibit "A".
(e) Seller's "Intangible As@N shall refer to Seller's telephone and
f-ax numbers, service customer lists, sales customer lists, vehicle sales
records, vehicle service records, all rights of Seller under contracts assigned
to and assumed by Buyer pursuant to this Agreement, all goodwill associated with
Seller's Business, and all other intangible rights and interests of any value
relating to Seller's Business; provided, however, that Seller's business name
("Dick Donnelly Lincoln, Mercury, Audi, Suzuki, Isuzu") is included within the
Intangible Assets being sold by Seller hereunder.
(f) "Business Real Property" shall refer to all of the mal property
located in Reno and Sparks, Nevada which has been used in connection with
Seller's business, including but not limited to the premises at 7175 South
Virginia St. Reno, Nevada and 40 Victorian Avenue, Sparks, Nevada.
(g) "Franchisor shall refer to Ford Motor Company, American lsuzu
Motor Corporation, American Suzuki Motor Corporation and Audi of America
Incorporated.
(h) "New Vehicle" shall refer to a Lincoln, Mercury, Audi, Suzuki and
lsuzu motor vehicle which: (i) is unregistered and unused, (ii) is from the 1997
or 1998 model year, (ii) has been driven for less than 200 odometer miles, and
(iv) may be represented or warranted to consumers as "new" under Nevada law.
"Rollback Vehicle" shall mean an unregistered vehicle from the 1997 or 1998
model year which has been sold to a customer by Seller but returned because of
the customers inability to obtain financing for the purchase. "Demonstrator
Vehicle shall mean an unregistered vehicle from the 1997 or 1998 model year
which has been used and operated by Seller on dealer plates for sales
demonstration purposes. "Used Vehicle" shall mean any vehicle which is not a
"new vehicle", a 'demonstrator vehicle" or a "rollback vehicle" as defined in
the three preceding sentences.
(i) "Date of this Agreement!' shall refer to the first date upon
which this Agreement has been signed by all of the parties.
(j) All amounts payable by Buyer to Seller at Closing shall be paid
by certified check drawn against a bank of Buyer's choice having offices located
in Jackson County, Oregon, or by whatever other means shall be acceptable to
Seller.
2. PURCHASED ASSETS. Seller agrees to sell to Buyer, and Buyer agrees to
purchase from Seller, the assets identified in Paragraphs 3, 4, 5, 6, 7, 8, 9,
and 10 of this Agreement (the "Purchased Assets"). Excluded from this
transaction are Seller's cash, accounts receivable,
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notes receivable, banking accounts and deposits, and all other assets not
identified in Paragraphs 3, 4, 5, 6, 7, 8, 9, and 1 0 of this Agreement.
3. INVENTORY OF NEW VEHICLES, DEMONSTRATOR VEHICLES AND ROLLBACK VEHICLE.
Buyer shall purchase Seller's entire inventory of new Lincoln, Mercury, Audi,
Suzuki and lsuzu vehicles, as that inventory exists on the Closing Date. Buyer
also shall purchase Seller's entire inventory of demonstrator vehicles and
rollback vehicles (up to a maximum of five rollback vehicles), as that inventory
exists on the Closing Date.
(a) PRICE OF NEW VEHICLES. The purchase price for each of Sellers
new vehicles shall be equal to Sellers factory invoice cost, reduced by any
factory hold-backs, factory rebates, factory incentives, carry-over model
allowances, floor plan allowances, finance cost allowances, advertising
allowances, and any other Rems which should reasonably be deducted in order to
establish Sellers actual net cost for each vehicle, and further reduced by the
actual net cost for any and all accessories, equipment and parts which are
missing from a vehicle. Seller's actual net cost for new vehicles shall include
Seller's actual net cost for any and all parts and accessories reasonably
installed by Seller to new vehicles in the ordinary course of business, but
shall not include any other vehicle preparation charges, labor charges or other
dealer charges of any kind.
(b) DEDUCTION FOR DAMAGE TO NEW VEHICLES. Immediately prior to
Closing, Buyer and Seller shall jointly inspect Sellers inventory of new
vehicles. If any new vehicle purchased by Buyer from Seller is damaged, the
price for that vehicle, as determined under subparagraph 3(a), shall be reduced
by the actual net cost to Buyer of repairing that damage. If Buyer and Seller
are unable to agree upon the actual net cost to Buyer of repairing the damage to
a vehicle, then Buyer and Seller shall select an independent third party to
determine that repair cost, which determination shall be binding upon both Buyer
and Seller.
(c) PAYMENT FOR NEW VEHICLES. The aggregate purchase pdoe for all
now vehicles purchased by Buyer from Seller shall be paid in full at Closing.
(d) PURCHASE ORDERS FOR NEW VEHICLES. Immediately pdor to Closing,
Buyer and Seller shall jointly review Sellers outstanding purchase orders for
new vehicles ordered from Seller by customers but not delivered prior to
Closing. At Closing, Seller shall assign to Buyer, and Buyer shall assume from
Seller, all of Seller's rights (including customer deposits) and obligations
(including sales commissions) under such purchase orders; provided, however,
that Buyer shall not be obligated to assume Seller's rights or obligations with
respect to any new vehicle purchase order which is at a price less than factory
invoice, or which provides for a trade in at a price or under terms unacceptable
to Buyer. At Closing, Seller shall reimburse Buyer for all deposits made to
Seller with respect to ordered but undelivered new vehicles.
(e) PRICE FOR DEMONSTRATOR VEHICLES AND ROLLBACK Vehicles. The price
for each demonstrator and rollback vehicle shall be determined as provided in
subparagraphs 3(a) and 3(b) and then induced by $750 per vehicle and further
reduced by 30 cents per mile for each odometer mile on that vehicle in excess of
200 miles. The price for each rollback vehicle shall be determined as provided
in subparagraphs 3(a) and 3(b) and then reduced by 30 cents per mile
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for each odometer mile in excess of 200 miles. The purchase price for
demonstrator vehicles and rollback vehicles shall be paid at Closing.
4. INVENTORY OF USED VEHICLES. Buyer intends to purchase Sellers entire
inventory of used vehicle, as that inventory exists at Closing, including
Sellers parts trucks, service vehicles and courtesy vehicles, and also including
the one car that Seller provides to each of Sierra Nevada College, the Governor
of the State of Nevada and the Reno D.A.R.E. Program.
(a) DISCLOSURES. Seller shall be obligated, prior to Closing, to:
(i) disclose to Buyer any and all facts concerning each used vehicle which
Seller would be legally obligated to disclose to a consumer (including but not
limited to known damage and usage history), and (ii) provide to Buyer legal
odometer statements and free and clear tide,(or proof @, for each of the used
vehicles.
(b) PRICE FOR USED VEHICLES. The price for the used vehicles shall
be determined by using the Kelley Blue Book wholesale value, with exception of
program vehicles which will be Seller's actual net cost. The Kelley Blue Book
used will be the most current in production as of the date of closing. Buyer
and Seller agree to establish the proposed purchase price for all of Sellers
used vehicles at least three business days prior to the anticipated Closing
Date.
(c) PAYMENT FOR USED VEHICLES. The aggregate purchase price for
Sellers inventory of used vehicle shall be paid in full at Closing.
5. INVENTORY OF NOW PARTS AND ACCESSORIES. Buyer shall purchase Seller's
entire inventory of new, current (non-obsolete), undamaged Lincoln, Mercury,
Audi, Suzuki and Isuzu vehicle parts and accessories manufactured by Franchiser
and/or third party suppliers, as that inventory exists on the Closing Date.
Buyer shall have no obligation to purchase from Seller any parts or accessories
which are used, damaged or obsolete. For purposes of this Paragraph 5, a part
or accessory shall be "obsolete" on the Closing Date if not then returnable to
the supplier from which that part was originally purchased, or if not then
listed in the supplier's then-current price and parts books. Pdor to Closing,
Seller shall maintain Sellers inventory of parts and accessories at a level
consistent with good business practices and Sellers normal and regular course of
business.
(a) PRICE FOR PARTS AND ACCESSORIES. The purchase price for each
item in Sellers inventory of new, current and undamaged parts and accessories
for Lincoln, Mercury, Audi, Suzuki and lsuzu vehicles (whether manufactured by
Franchiser or third party suppliers) shall be the net cost for that item as set
forth in the then most recent price book published by the supplier of that item,
REDUCED BY THE STOCK ORDER DISCOUNTS in order to establish what Buyers net cost
for that item would be if that item was purchased by Buyer directly from that
supplier at the time of Closing.
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(b) DETERMINATION OF INVENTORY OF PARTS AND ACCESSORIES. Sellers
inventory of new, current and undamaged Lincoln, Mercury, Audi, Suzuki and lsuzu
parts and accessories shall be determined immediately pdor to Closing (or on
whatever earlier date shall be selected by mutual agreement of the parties).
Buyer and Seller each shall be responsible for conducting the inventory.
(c) PAYMENT FOR INVENTORY OF NEW PARTS AND ACCESSORIES. The purchase
price for Seller's inventory of parts and accessories shall be paid in full at
Closing.
6. EQUIPMENT Buyer shall purchase Seller's Equipment. Buyer acknowledges
that Seller is retaining, and is not selling to buyer those personal items of
Seller's Equipment, if any, which are listed on Exhibit 'A' attached hereto.
(a) PRICE FOR EQUIPMENT. The aggregate purchase price for Seller's
Equipment shall be determined by a mutually agreed upon appraiser whose cost
shall be equally shared by the parties.
(b) PAYMENT FOR EQUIPMENT. The purchase pdoe for the Equipment
shall be paid as follows:
(1) Prior to or simultaneously with the execution of this
Agreement, Buyer is making an earnest money deposit to Capital City Escrow,
Inc., in Sacramento, California, in the amount of $300,000.00, which earnest
money deposit, together with all interest earned thereon, shall be credited at
Closing against the purchase price for the Equipment.
(2) The balance of the purchase price for the Equipment shall
be paid in full at Closing.
7. SUPPLIES. Buyer shall purchase all of the gas, oil, nuts, bolts, and
other automotive and office supplies which are held for use in Seller's
Business; provided, however, that Buyer shall not be obligated to purchase used,
damaged or obsolete items or supplies. The price for all such supplies shall be
Sellers actual net cost, as determined by mutual agreement of the parties, and
shall be paid to Seller at Closing.
8. CONTRACTUAL RIGHTS AND OBLIGATIONS. At Closing, Buyer shall assume all
rights and obligations of Seller under those certain equipment leases and other
contracts identified on Exhibit "B' attached hereto, which Exhibit "B" shall be
prepared and attached hereto within 20 days after the date of this Agreement.
Seller warrants that all of Seller's obligations under the contracts listed on
Exhibit "B* shall be current at the time of Closing. Seller agrees to indemnity
Buyer against all obligations under the contracts identified on Exhibit "B*
which relate to periods pdor to Closing. Buyer agrees to indemnity Seller
against all obligations under the co identified on Exhibit "B" which relate to
periods after Closing. The amount of any obligation assumed by Buyer pursuant
to this Paragraph 8 shall be credited at Closing against the purchase price for
the Equipment.
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9. REPAIR WORK IN PROGRESS. Buyer shall purchase all of Sellers vehicle
repair work in progress (in-house and subcontracted), at a price equal to
Sellers actual net cost (before profit and overhead) for all work completed
prior to Closing. The purchase price for work in progress shall be paid at
Closing.
10. INTANGIBLE ASSETS. Buyer shall purchase all of Seller's Intangible
Assets.
(a) The aggregate purchase price for Seller's Intangible Assets shall
be Three Million Three Hundred Thousand and 00/100 Dollars ($3,300,000.00). This
$3,300,000.00 purchase price shall be allocated among the Rems which constitute
the Intangible Assets as determined by Buyer in the reasonable exercise of
Buyer's discretion; Two Million Seven Hundred Thousand and 00/1 00 Dollars
($2,700,000.00) of the purchase price for the Intangible Assets shall be paid at
closing. The remaining $600,000.00 of the purchase price for the Intangible
Assets shall be paid by Buyer to Seller as follows (subject to the provisions of
subparagraph 10(b):
(1) During the period beginning on the Closing Date and ending
when the entire $600,000.00 deferred balance of the purchase price for the
Intangible Assets has been paid in full, interest shall accrue on the
outstanding balance of that purchase p@ at the rate of eight (8%) per
annum.
(2) Subject to the provisions of subparagraph I 0(b), the
$600,000.00 deferred balance of the purchase price for the Intangible
Assets, together with interest accruing thereunder as provided in
subparagraph 10(a)l, shall be due and payable as follows: (i) the sum of
$248,000.00 ($200,000.00 in principal and $48,000.00 in accrued interest)
shall be due and payable on the first anniversary the after Closing Date;
(ii) the sum of $232,000.00 ($200,000.00 in principal and $32,000.00 in
accrued interest) shall be due and payable an the second anniversary after
the Closing Date; (iii) the sum of $216,000-00 ($200,000.00 in principal
and $16,000.00 in accrued interest) shall be due and payable on the third
anniversary after the Closing Date.
(i) If Buyer fails to pay any amount of principal or
interest due pursuant to this subparagraph 10(a)(2) within ten (10) days
after the date when due, and if Seller notifies Buyer in writing of that
default and Buyer fails to cure that default within ten (10) days after
receipt of that written notice from Seller, then Seller shall have the right
at any time prior to the moment when Buyer cures that default, to declare
(and thereby cause) the entire unpaid balance of the purchase price to be
immediately due and payable.
(ii) Buyer's deferred payment obligation as set forth in this
subparagraph 10(a)(2) shall be unsecured.
(b) Donnelly is the owner of the franchise issued by Franchiser with
respect to Seller's Business, and Donnelly has played an important personal role
in establishing the goodwill of Seller's Business. Buyer believes that the
continued employment of Donnelly by
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Buyer after Closing is important to the continued success of the purchased
business. In order for Buyer to receive the full benefit of the goodwill
being purchased by Buyer from Seller, it will be necessary for Donnelly to
complete at least three full years of employment for Buyer subsequent to
Closing. Donnelly has agreed to continue work for Buyer for a period of five
years after Closing under terms and conditions to be established by mutual
agreement between Donnelly and Buyer prior to Closing. Seller and Buyer agree
that a would be very difficult for Buyer to establish the exact measure of
Buyers damages if Donnelly was to fail to complete all or any portion of
Donnelly's required three years of continued employment by Buyer. Seller and
Buyer further agree that subparagraphs 1 0(b)(1) through 1 0(b)(3) reflect a
reasonable estimate of those damages suffered by Buyer.
(1) If Donnelly fails to complete at least one full year of
employment with Buyer after Closing, then a reasonable estimate of the damages
suffered by Buyer as a result of that failure is the entire $600,000.00 deferred
portion of the purchase price otherwise being paid to Seller by Buyer for the
Intangible Assets pursuant to subparagraphs 10(a)(1) and I 0(a)(2), and Buyer
thereafter shall have no obligation to pay any amount of principal or interest
to Seller pursuant to subparagraphs 10(a)(1) and 10(a)(2).
(2) If Donnelly completes at least one full year of employment
with Buyer after Closing but fails to complete at least two full years of
employment with Buyer after Closing, then a reasonable estimate of the damages
suffered by Buyer as a result of that failure is the $400,000.00 amount of
principal (plus accrued interest) otherwise being paid to Seller by Buyer for
the Intangible Assets subsequent to the first anniversary after the Closing
Date, and Buyer shall have no obligation to pay any amount of principal or
interest to Seller pursuant to subparagraphs 1 0(a)(1) and 1 0(a)(2) other than
the amount of principal and interest which is due and payable on the first
anniversary after Closing.
(3) If Donnelly completes at least two full years of employment
with Buyer after Closing but fails to compete at least three full years of
employment with Buyer after Closing, then a reasonable estimate of the damages
suffered by Buyer as a result of that failure is the $200,000.00 amount of
principal (plus accrued interest) otherwise being paid to Seller by Buyer for
the Intangible Assets subsequent to the second anniversary after the Closing
Date, and Buyer shall have no obligation to pay any amount of principal or
interest to Seller pursuant to subparagraphs 1 0(a)(1) and 1 0(a)(2) other than
the amount of principal and interest which is due and payable on the second
anniversary after Closing.
(4) For purposes of subparagraphs I 0(b)(1) through 1 0(b)(3),
Donnelly shall be deemed to have failed to complete a particular period of
employment with Buyer only if Donnelly's employment is terminated for one of the
following reasons: (1) Donnelly resigns employment for a reason other than death
or permanent and substantial disability, or (ii) Buyer fires Donnelly with "good
cause". For purposes of the preceding sentence, any one or more of the
following shall constitute "good cause" for Buyer to fire Donnelly: (A) any
failure or refusal by Donnelly to perform all of the material duties and
responsibilities which are reasonably associated with Donnelly's employment by
Buyer, or (B) the commission by Donnelly of any material act of malfeasance or
misfeasance in the performance of his employment duties and responsibilities; or
(C) any failure or refusal by Donnelly to comply with each and all of the
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material terms and conditions of the employment agreement entered into between
Donnelly and Buyer. If Donnelly's employment by Buyer is terminated by
Donnelly's death or permanent and substantial disability or if Buyer fires
Donnelly without "good cause", then Donnelly shall be deemed to have completed
at least three full years of employment with Buyer for purposes of subparagraphs
1 0(b)(1) through 1 0(b)(3).
(5) The execution, at or pdor to Closing, of an employment
agreement between Donnelly and Buyer which contains terms and conditions
satisfactory to Donnelly and Buyer, shall be an absolute condition precedent to
all obligations of Buyer and Seller under this Agreement.
(c) In order for Buyer to receive the full benefit of the intangible
good vail being purchased by Buyer, it will be necessary for Seller to perform
no-charge repair work and vehicle warranty work with respect to vehicles
repaired or sold by Seller pdor to Closing. In partial consideration of the
$3,300,000.00 amount being paid by Buyer for the Intangible Assets, Seller
agrees to reimburse Buyer for the cost of repair and warranty services which are
not covered by factory warranty and which are performed by Buyer within three
(3) months after Closing in order to satisfy: (i) customers who are dissatisfied
with repair services provided by Seller prior to Closing, and (ii) warranty
claims with respect to new or used vehicles purchased from Seller prior to
Closing.
11. BULK TRANSFERS- ft is the intention of the parties that this
transaction comply with Division Six of the Nevada Uniform Commercial Code, more
commonly known as Uniform (1) Commercial Code - Bulk Transfers, and Seller shall
take all actions necessary to comply therewith.
12. LIMITATION ON LIABILITIES ASSUMED. Except as provided in subparagraph
3(d), Paragraph 8 and Paragraph 9, Buyer shall not, by season of this Agreement
or Buyer's purchase of the Purchased Assets, take responsibility for any
liabilities, debts or obligations of Seller (including Seller's trade payables,
account payables, obligations to employees, or tax liabilities).
13. WARRANTIES Of Seller. Dick Donnelly and Seller make the following
warranties to Buyer, with the intent that Buyer rely thereon:
(a) CORPORATE ORGANIZATION. Seller is a corporation organized,
validly exiting, and in good standing under the laws of the State of Nevada.
Seller is qualified to do business in the State of Nevada, and has full power
and authority to own, use, and sell its assets.
(b) CORPORATE AUTHORITY. Seller's board of directors and
shareholders have authorized the execution and delivery of this Agreement to
Buyer and the carrying out of its provisions. This Agreement will not violate
any judicial, governmental or administrative decree, order, writ, injunction, or
judgment, and will not conflict with or constitute a default under Seller's
bylaws, or any contract, agreement, or other instrument to which Seller is a
party or by which k may be bound.
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(c) EMPLOYEE ISSUES. No employees of Seller are members of any
union. Within 1 0 days after the date of this Agreement, Seller shall provide
to Buyer the following: (i) a census of Seller's employees, (ii) a written
disclosure of all benefits made available to Seller's employees (including
qualified and non-qualified retirement plans), and (iii) access to all personnel
files for soles employees. All employee benefit plans maintained by seller for
its employees shall be fully funded pdor to Closing. Seller shall pay all
wages, commissions, accrued vacation pay and other accrued compensation earned
by Seller's employees prior to Closing (together with all accrued FICA and
withholding taxes). Seller shall terminate the employment of all of Sellers
employees effective as of the close of business on the Closing Date. At Buyer's
sole discretion, Buyer may (but shall not be obligated to) hire any of Seller's
employees. Seller will not, for a period of two years following Closing, employ
or offer employment to any of Seller's terminated employees unless Buyer shall
fail to employ such employees or shall subsequently terminate such employees.
(d) UNDISCLOSED LIABILITIES AND CONTRACTUAL COMMITMENTS. Except as
otherwise disclosed in this Agreement (or in an attached Exhibit), the following
statements are true as of the date of this Agreement and shall be true at
Closing: (i) Seller does not have any liabilities which might have a material
impact on Buyers use of the Purchased Assets, (ii) Seller is not a party to any
contracts or commitments which might have a material impact on Buyers use of the
Purchased Assets, (iii) no law suit or action, administrative proceeding,
arbitration proceeding, governmental investigation, or other legal or equitable
proceeding of any kind is pending or threatened against Seller which might
adversely affect the value of the Purchased Assets, and (iv) Seller has all
licenses, permits and authorizations required by any federal, state or local
governmental or regulatory agency in order to operate Seller's Business, and
knows of no reason why any such license or permit might be subject to
revocation. If any claim is asserted against Buyer after Closing with respect
to any obligation of Seller which Seller has failed to disclose to Buyer in
writing, or which Seller has disclosed but failed to pay, then Buyer shall give
prompt written notice of that claim to Seller. Seller shall indemnity Buyer
with respect to all such obligations.
(e) CONDITION OF EQUIPMENT. Each item of the Equipment shall be in
good operating condition at Closing. Seller will continue to perform routine
maintenance and repairs with respect to the Equipment pdor to Closing. Buyer
shall have thirty days after Closing within which to advise Seller in writing if
any item of Equipment is not in good operating condition at Closing, and Seller
shall thereupon be obligated to repair or replace that item (or reimburse Buyer
for doing so).
(f) GOOD TITLE. Seller has, and shall transfer to Buyer at Closing,
good and marketable title to all of the Purchased Assets, free and clear of all
security interests, liens, equitable interests, leases, assessments,
restrictions, reservations, or other burdens of any kind. All current and
accrued taxes which may become a lien against any of the Purchased Assets shall
have been paid by Seller prior to Closing (including property taxes, sales taxes
and excise taxes).
(g) NO TOXIC MATERIALS DISCHARGED. Upon the execution of this
Agreement, Seller at its cost shall engage an appropriate environmental firm
which is acceptable to Buyer to conduct an investigation and produce a Phase One
Environmental Report regarding the
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Business Real Property. In addition, Seller shall make available to Buyer
copies of all other environmental reports and certificates (of which Seller
has knowledge) with respect to the Business Real Property. If the Phase One
Environmental Report discloses any likelihood of contamination, Seller shall
have until the Closing Date to remedy that contamination (unless Buyer waives
the requirement for remediation). In the event ft is apparent that a remedy
can not be completed by the Closing Date, then Seller can either elect to
rescind the transaction in its entirely or place sufficient funds into the
escrow at the Closing Date to cover the expense of the required remedy.
Except as disclosed by Seller on Exhibit "C" attached hereto,
(i) no activity in connection with Seller's Business pdor to Closing shall have
produced any to)dc materials, the presence or use of which upon the Business
Real Property would violate any federal, state, local or other governmental law,
regulation or order or would require reporting to any governmental authority and
(ii) the Business Real Property is otherwise free and clear of any toxic
materials. For purposes or this subparagraph (h), the phrase "toxic materials"
shall include but not be limited to any and all substances deemed to be
pollutants, toxic materials or hazardous materials under any state or federal
law.
(h) FRANCHISORS CONSENT. Seller shall take all actions which are
reasonably necessary on Seller's part to obtain the consent of the Franchiser to
the issuance to Buyer of an exclusive franchise for the sale of new Lincoln,
Mercury, Audi, Suzuki and Isuzu vehicles in the same geographical area as
Sellers current franchise in Reno and Sparks, Nevada.
(i) INDEMNIFICATION FOR BREACH OF WARRANTIES. Dick Donnelly and
Seller shall indemnity Buyer against all losses, damages and costs (including
attorney fees and court costs) relating to any warranty made by Seller in this
Agreement which is false, misleading, incomplete or inaccurate (either on the
date of this Agreement or at the time of Closing). If at any time prior to
Closing Seller determines that any warranty made by Seller in this Agreement is
incorrect, incomplete or misleading, then Seller shall advise Buyer of that fact
and shall provide to Buyer in writing whatever other information shall be
necessary to cause that warranty to be correct, complete and not misleading.
14. CONDUCT OF BUSINESS PENDING CLOSING. Seller warrants that during the
period beginning on the date of this Agreement and ending at Closing: (i) Seller
shall continue to operate Seller's Business in the usual and ordinary course,
and in substantial conformity with all applicable laws, ordinances, regulations,
rules or orders; (ii) Seller shall not allow any liens to be placed against any
of the Purchased Assets unless those liens are discharged pdor to Closing; (iii)
Seller shall not take any action which may cause a material adverse change in
the operations of Seller's Business; (iv) Seller shall not conduct any sale
which shall use the words or phrases "Going Out of Business Sale* or other words
or phrases having similar meanings; (v) Seller shall use its best efforts to
preserve the value of the Lincoln, Mercury, Audi, Suzuki and Isuzu franchise in
Reno and Sparks, Nevada.
15. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer hereby makes the
following representations and warranties to Seller, with the intent that Seller
rely thereon:
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(a) ORGANIZATION. Lithia Motors, Inc. is a corporation organized,
validly existing and in good standing under the laws of the State of Oregon, and
is entitled to own property and to carry on its business.
(b) AUTHORITY. This Agreement must be authorized by the board of
directors of Lithia Motors, Inc. within (10) days after the date of this
agreement. This Agreement will not violate the provision of any judicial,
governmental or administrative decree, order, writ, injunction, or judgment, or
conflict with or constitute a default under, the Article or bylaws of Lithia
Motors, Inc., or any contract, agreement, or other instrument to which Lithia
Motors, Inc. is a party.
16. ADDITIONAL CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The
obligation of Buyer to close this transaction is subject to each of the
following conditions (each of which is for the benefit of Buyer and may be
waived by Buyer), and Buyer shall have the right to rescind this Agreement if
any of the following conditions is not satisfied in accordance with its terms:
(a) Buyer shall have obtained from Franchiser, prior to the Final
Closing Date, an exclusive franchise to sell new Lincoln, Mercury, Audi, Suzuki
and Isuzu vehicles in the same geographical area as Seller's current franchise
in Reno and Sparks, Nevada (as evidenced by the issuance to Buyer by Franchiser
of an appropriate Dealership Sales and Service Agreement, and the approval of
Buyer as the publicly owned Dealer-Operator of the franchise), and Buyer agrees
to use its best reasonable efforts to obtain that franchise.
(b) Buyer shall be reasonably satisfied with any facility improvement
requirements which are imposed by Franchiser.
(c) Buyer shall have been permitted to inspect the business real
property. All leases and subleases which are necessary for the beneficial use
by Buyer of the Business Real Property shall be closed concurrently with this
transaction under terms and conditions which are acceptable to Buyer. Buyer
shall have been reasonably satisfied with the physical condition of the business
real property, and with all aspects of the business real property.
(d) All of Seller's agreements and warranties set forth in this
Agreement shall be true, correct, complete and not misleading at Closing;
provided that Buyer's decision to dose this transaction shall not release Seller
from liability to Buyer for any warranty which is subsequently determined to be
incorrect, incomplete or misleading.
(e) Buyer is satisfied with the kind, quality and/or value of the
items listed on Exhibit "A", and does not notify Seller to the contrary pursuant
to Paragraph 6.
(f) This agreement, shall have been authorized by the board of
directors of Lithia Motors Inc. within 10 days after the date of this agreement.
17. CLOSING. The parties shall make all reasonable effort to dose the
purchase and sale under this Agreement at or before 5:00 p.m., Pacific Standard
Time, on or before the Final
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Closing Date, at the offices of Capital City Escrow, Inc. in Sacramento,
California, or at such other location as shall be selected by mutual
agreement of the parties.
(a) The parties agree to establish a dosing escrow account at Capital
City Escrow, Inc. in Sacramento, California, (the "Closing Escrow Agent').
Buyer and Seller each shall pay one-half (1/2) of the closing escrow fees.
Buyer and Seller agree to execute whatever reasonable escrow instructions may be
required by Closing Escrow Agent in connection with this transaction. In the
event of any conflict between those escrow instructions and this Agreement, the
terms of this Agreement shall prevail. Upon the execution of this Agreement,
Buyer shall deliver to Closing Escrow Agent the sum of $300,000.00 (the
deposit), which amount shall immediately be placed into an interest bearing
account. The deposit plus interest shall be credited to Buyer and shall be
applied against the purchase price for the Equipment at Closing as provided in
Paragraph 6, or if the Closing fails to occur, then the deposit shall be
disbursed as set forth hereinafter.
(b) In all events, the Closing of the transaction contemplated under
this Agreement shall occur (if at all) on or before the Final Closing Date.
(c) If this transaction closes as provided herein, then actual
possession and all risk of loss, damage or destruction with respect to the
Purchased Assets, shall be deemed to have been delivered to Buyer at 11:59 p.m.,
Pacific Standard Time, on the Closing Date.
(d) At Closing, and coincidentally with the performance of the
obligations to be performed by Buyer at Closing, Seller shall deliver to Buyer
the following: (i) all bills of sale, assignments and other instruments of
transfer, in form and substance reasonably satisfactory to Buyer, which shall be
necessary to convey the Purchased Assets to Buyer; and (ii) all other documents
required under this Agreement.
(e) At Closing, and coincidentally with the performance of all
obligations required of Seller at Closing, Buyer shall deliver to Seller the
following: (i) payment for the Purchased Assets; and (ii) all other payments and
documents required under this Agreement. Buyer shall be responsible for all
sales taxes payable in connection with the transaction.
(f) If Closing does not take place on or before the Final Closing
Date because there has been a failure of any condition precedent set forth in
Paragraph 16 or because Seller has elected to rescind the Agreement pursuant to
subparagraph 13(g), then: (i) all rights and obligations of both parties under
this Agreement shall terminate, (ii) Buyer shall be entitled to a refund of the
entire $300,000.00 earnest money deposit (and interest earned thereon) referred
to in subparagraph 6(b), and (iii) this Agreement and all predecessor agreements
shall thereafter be void and of no effect.
(g) If Closing does not take place on or before the Final Closing
Date because of Buyer's material breach of this Agreement, then the $300,000.00
earnest money deposit delivered by Buyer to the Closing Escrow Agent (together
with all interest earned thereon while held by the Closing Escrow Agent) shall
be forfeited to Seller as Seller's sole and exclusive remedy for Buyers breach,
and Seller shall have no other rights or remedies against Buyer by
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reason of that breach. THIS SUM REPRESENTS A REASONABLE ESTIMATE BY BUYER
AND SELLER OF SELLER'S DAMAGES IN THE EVENT OF SUCH A DEFAULT, IT BEING
EXTREMELY DIFFICULT TO ASCERTAIN SELLER'S PRECISE DAMAGES. If Closing does
not take p@ on or before the Final Closing Date because of Seller's material
breach of this Agreement, then Buyer shall be entitled to: (i) a refund of
the entire $300,000.00 earnest money deposit previously delivered by Buyer to
the Closing Escrow Agent (together with all interest earned thereon while
held by the Closing Escrow Agent ), (ii) any and all other rights and
remedies for that breach which are specified in this Agreement or which may
be provided by law or in equity.
(h) Both parties agree to make a good faith effort to execute and
deliver all documents and complete all actions necessary to consummate this
transaction.
18. SELLER'S ACCOUNTS RECEIVABLE. For a period of 6 months after Closing,
Buyer shall, on Seller's behalf, and at no-charge to Seller, accept any payment
with respect to Seller's customer receivables and other receivables arising out
of the operation of Seller's Business pdor to Closing. All collected
receivables from vehicle sales shall be delivered to Seller within ten (1 0)
days after collection, and all other collected receivables shall be delivered to
Seller on a monthly basis. Buyer shall have no obligation to undertake
collection efforts with respect to Sellers receivables, and Buyer's only
obligation shall be to account for and pay over Seller's receivables which are
actually received by Buyer.
19. SURVIVAL OF REPRESENTATIONS. All representations, warranties,
indemnification obligations and covenants made in this Agreement shall survive
the Closing, and shall remain in effect until the expiration of the latest
period allowable in any applicable statute of limitations.
20. ASSIGNMENT BY BUYER. Lithia Motors, Inc. shall have the right to
assign all rights and obligations of Lithia Motors, Inc. as 'Buyer" under this
Agreement. In the event of any such assignment, the assignee shall assume all
rights and obligations of the Buyer under this Agreement, and Lithia Motors,
Inc. shall remain jointly liable for all obligations of the Buyer.
21. LEASE AND/OR PURCHASE OF BUSINESS REAL PROPERTY. As a condition to
the Closing of the transaction contemplated under this Agreement, Buyer (or a
related entity) is leasing the Sparks Business Real Property under the following
general terms and conditions, and Buyer's obligation to close the transaction
contemplated under this Agreement shall be subject to the condition that Buyer
is simultaneously able to enter into an agreement with the owner of the Sparks
Business Real Property which allows Buyer to lease the Sparks Business Real
Property under the following general terms and under such additional terms as
are reasonably satisfactory to Buyer
(a) Five year initial lease term, with Buyer having nine subsequent 5
year options to renew (for a total potential lease term of 50 years).
(b) Lease amount for first five years of $16,000.00 on a triple net
basis. Increase in basic lease amount for @ five years based on changes in CPI
for Reno during first five years, with the maximum increase being 10%. Similar
CPI adjustment (limited to 10%
Page 13 of 17
over five years) for each successive five year option period (with the
maximum increase for each five year period being 10%).
(c) At any time during initial 5 year lease term, Buyer will have
right to exercise option to purchase Sparks Business Real Property for
$1,850,000.00. When purchase option expires market price applies. If Buyer
exercises option, parties obligated to dose transaction no earlier than 6 months
and no later than 9 months after date of notice of exercise of option. Full
purchase price for property shall be payable at closing of purchase. Seller
must convey the Sparks Business Real Property free of all liens and
encumbrances.
22. Miscellaneous.
(a) There are no oral agreements or representations between the
parties which affect this transaction, and this Agreement supersedes all
previous negotiations, warranties, representations and understandings between
the parties. True copies of all documents referenced in this Agreement are
attached hereto. If any provision of this Agreement shall be determined to be
void by any court of competent jurisdiction, then that determination shall not
affect any other provision of this Agreement, and all other provisions shall
remain in full force and effect. If any provision of this Agreement is capable
of two constructions, only one of which would render the provision valid, then
the provision shall have the meaning which renders R valid. The paragraph
headings in this Agreement are for convenience purposes only, and do not in any
way define or construe the contents of this Agreement.
(b) This Agreement shall be governed and performed in accordance with
the laws of the state of Nevada. Each of the parries hereby irrevocably submits
to the jurisdiction of the courts of Washoe County, Nevada, and agrees that any
legal proceedings wkh respect to this Agreement shall be filed and heard in the
appropriate court in Washoe County, Nevada.
(c) This Agreement may be executed in multiple counterparts, each of
which shall be an original, and all of which shall constitute a single
instrument, when signed by both of the pa@. This Agreement shall inure to the
benefit of and shall be binding upon the successors and assigns of the
respective parries.
(d) Waiver by either party of strict performance of any provision of
this Agreement shall not be a waiver of, and shall not prejudice the party's
right to subsequently require strict performance of, the same provision or any
other provision. The consent or approval of either party to any act by the
other party of a nature requiring consent or approval shall not render
unnecessary the consent to or approval of any subsequent similar act.
(e) All notices provided for herein shall be in writing and shall be
deemed to be duly given when mailed by linked States certified mail, postage
prepaid, to the last-known address of the party entitled to receive the notice,
or when personally delivered to that party.
Page 14 of 17
(f) Time is of the essence to this Agreement.
(g) Should any party hereto institute any action or proceedings to
enforce or interpret any provision hereof, or for damages by reason of any
alleged breach of any provision of this Agreement, the prevailing party shall be
entitled to recover from the losing party or pa@ such amount as the court may
adjudge to be reasonable attorney's fees for services rendered to the prevailing
party in such action or proceeding. The term "prevailing party" as used in this
section shall include, without limitation, any party who is made a defendant in
litigation in which damages and/or other relief may be sought against such party
and a final judgment or dismissal or decree is entered in such litigation in
favor of such party defendant.
IN WITNESS WHEREOF, the parties have executed this Agreement on the dates
indicated below.
SELLER: DICK DONNELLY LINCOLN, MERCURY, AUDI, SUZUKI AND ISUZU, a Delaware
corporation.
By/s/RICHARD M. DONNELLY JULY 8, 1997
- --------------------------------------- --------------------------
Richard M. Donnelly, President Dated
Richard M. Donnelly
/s/RICHARD M. DONNELL JULY 8, 1997
- --------------------------------------- --------------------------
Richard M. Donnelly Dated
By/s/BRAD GRAY JULY 8, 1997
- --------------------------------------- --------------------------
Brad Gray, Executive Vice President Dated
EXHIBIT "A" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between DICK DONNELLY LINCOLN, MERCURY, AUDI, SUZUKI AND ISUZU,
INC., as "Seller", and
LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
LIST OF EQUIPMENT, FURNITURE AND FIXTURES BEING RETAINED BY SELLER
[SEE ____ PAGES ATTACHED HERETO.]
EXHIBIT "B"' TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
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Between DICK DONNELLY LINCOLN, MERCURY, AUDI, SUZUKI AND ISUZU,
INC., as "Seller", and
LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
LISTING OF LEASES AND AGREEMENTS BEING ASSUMED
[SEE ____ PAGES ATTACHED HERETO.]
EXHIBIT "C" TO AGREEMENT FOR PURCHASE AND SALE OF BUSINESS ASSETS
Between RENO LINCOLN, MERCURY, AUDI, SUZUKI AND ISUZU, INC., as "Seller",
and LITHIA MOTORS, INC. (OR NOMINEE), as Buyer
Page 16 of 17
DISCLOSURE OF TOXIC MATERIALS
[SEE ____ PAGES ATTACHED HERETO.]
Page 17 of 17