EX-10
Exhibit 10.5.4 Agmt Btwn Amer Honda & Lithia
EXHIBIT 10.5.4
AGREEMENT BETWEEN
AMERICAN HONDA MOTOR COMPANY, INC.
AND
LITHIA MOTORS, INC. ET AL.
This Agreement, effective as of December 17, 1996, is entered into
between Lithia Motors, Inc., an Oregon corporation, with its principal place
of business at 360 East Jackson, Medford, Oregon 97501 ("Lithia Motors"),
Lithia HPI, Inc., an Oregon corporation, with its principal place of business
at 700 North Central, Medford, Oregon 97501 ("BPI"), Lithia HS, Inc., a
California corporation, intending to establish a place of business at 333
North Main Street, Salinas, California 93901 ("HS"), Lithia Holding, LLC, an
Oregon limited liability company, with its principal place of business at 360
East Jackson, Medford, Oregon 97501 ("Holding"), Sidney B. DeBoer, an
individual residing at 234 Vista, Ashland, Oregon 97520 ("DeBoer"), M.L. Dick
Heimann, an individual residing at 426 Roundelay, Medford, Oregon 97504
("Heimann"), and R. Bradford Gray, an individual residing at 6764 Laurel
Crest Drive, Medford, Oregon 97504 ("Gray") (the above-listed parties being
referred to collectively as the "Lithia Parties"), and American Honda Motor
Co., Inc. ("AHM"), a California corporation, with its principal place of
business at 1919 Torrance Boulevard, Torrance, California 90501.
WHEREAS, Lithia Motors currently owns and operates an authorized Honda
automobile dealership in Medford, Oregon and intends to acquire an authorized
Honda automobile dealership in Salinas, California; and
WHEREAS, Lithia Motors wants to issue stock in a public offering of
securities anticipated to be traded on the NASDAQ National Market; and
WHEREAS, AHM has formulated the American Honda Motor Co., Inc. Policy
on the Public Ownership of Honda and Acura Dealerships (the "Policy"), a copy
of which was forwarded to and subsequently reviewed by DeBoer and Heimann in
1996; and
WHEREAS, in order for Lithia Motors to make the aforementioned public
offering and, at the same time, adhere to the Policy, Lithia Motors desires
to transfer at least 53.585% of its common stock to Holding, offer no more
than 46.415% of its common stock to the public, transfer its Medford, Oregon
Honda dealership to HPI (which will at all times remain a wholly-owned
subsidiary of Lithia Motors), acquire and transfer the Salinas, California
Honda dealership to HS (which will at all times remain a wholly-owned
subsidiary of Lithia Motors), all of the foregoing subject to the
restrictions set forth in this Agreement and the Schedules hereto; and
WHEREAS, AHM is willing to permit Lithia Motors (as an entity of which
a minority portion is publicly owned and of which the majority portion is
owned by persons approved by to own Honda and Acura dealerships, provided
that Lithia adheres to the Policy and the terms and conditions set forth in
this Agreement; and
WHEREAS, the Lithia Parties are willing to adhere to the Policy and the
terms set forth herein;
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NOW THEREFORE, in consideration of the mutual covenants set forth
herein and other good and valuable consideration the sufficiency of which is
hereby acknowledged, the parties agree as follows:
1. STRUCTURE OF RELATIONSHIP
1.1 Dealerships Are Separate Legal Entities. Lithia Motors
shall establish and maintain a separate legal entity to own each Honda and
Acura dealership which it owns or controls, directly or through an Affiliate,
shall obtain a separate motor vehicle license for each dealership, and shall
maintain separate financial statements for each such dealership. Consistent
with AHM policy, the name "Honda" or "Acura," as applicable, shall appear in
the d/b/a of each dealership. The Honda dealership(s) currently owned by
Lithia Motors or approved by AHM for acquisition by Lithia Motors are listed
in Schedule A, appended hereto. As used herein, "Affiliate" of, or a person
or entity "affiliated" with, a specified person or entity, means a person or
entity that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, the person or
entity specified. For the purpose of this definition, the term "control"
(including the terms "controlling," "controlled by" and "under common control
with") means the possession, directly or indirectly, or the power to direct
or cause the direction of or influence the management and policies of a
person or entity, whether through the ownership of securities, by contract or
otherwise.
1.2 Agreement to Automobile Dealer Sales and Service
Agreement. Lithia Motors and, to the extent applicable, the other Lithia
Parties hereby agree to be bound by the terms of Honda Automobile Dealer
Sales and Service Agreement(s) and Acura Automobile Dealer Sales and Service
Agreement(s) including any addenda thereto (the "Dealer Agreements"), copies
of which are appended hereto as Schedule B. The Lithia Parties further agree
that each individual Honda and Acura dealership that Lithia Motors owns, in
whole or in part, shall execute and be bound by the applicable Dealer
Agreement.
1.3 Adherence to the Policy. Each of the Lithia Parties hereby
agree to be bound by the terms of the Policy, a copy of which is appended
hereto as Schedule C.
1.4 Transfer of Ownership of Honda Dealerships upon Occurrence
of the Initial Public Offering. Each of the Lithia Parties understands and
agrees that the public offering (the "Offering") of certain shares of the
capital stock of Lithia Motors (all such stock being referred to herein as
the "Lithia Stock") will constitute a change of ownership of the Honda
dealerships that, pursuant to the Dealer Agreement, requires AHM's prior
written approval. Provided that the representations and warranties in this
Section are accurate and that each of the Lithia Parties adhere to the terms
and conditions of this Agreement, the Policy, and the applicable Dealer
Agreements, AHM hereby agrees to the transfer of Lithia Stock pursuant to the
Offering as described herein. Each of the Lithia Parties hereby represent
and wan-ant that AHM has been provided with all documentation pertaining to
the public offering of Lithia: Stock, including but not limited to all
filings with the SEC and other federal and state regulatory agencies
(including, but not limited to, quarterly and annual financial statement
filings, prospectuses and other materials related to Lithia Motors), all
agreements between or among any of the Lithia Parties and financial
institutions and underwriters, all agreements between or among any of the
Lithia Parties, and all agreements between or among any of the Lithia
Parties, on the one hand, and other shareholders of Lithia Motors, on the
other hand. One copy of this documentation has been filed with AHM and
labeled Schedule X. Notwithstanding any statements in any of the
documentation provided by the Lithia Parties to AHM to the contrary
(including but not limited to any statements in prospectuses), the Lithia
Parties hereby further represent, warrant and covenant as follows:
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1.4.1 At least 53.585% of the Lithia Stock shall be
transferred to Holding, shall be denominated Class B Common Stock, and shall
be restricted as more fully described in Section 1.5 below.
1.4.2 The Lithia Stock offered in the Offering is referred
to as Class A Common Stock. The percentage of Class A Common Stock and any
other Lithia Stock not subject to the restrictions set forth in Section 1.5
below, whether pursuant to a future offering, conversion of Class B Common
Stock or creation of new classes of voting stock, may not exceed 46.415% of
the Lithia Stock.
1.4.3 At no time will owners of Lithia Class B Common Stock
have less than 92% of the total aggregate voting power of Lithia Motors.
1.4.4 At no time will the owners of Lithia Stock that is
not subject to the restrictions set forth in Section 1.5 below (including but
not limited to Class A Common Stock) have more than 8% of the total aggregate
voting power of Lithia Motors.
1.4.5 Schedule D, appended hereto, is an accurate list of
(1) all individuals and entities that own Lithia Stock as of the date hereof,
the number of shares held by each, and the percentage ownership of Lithia
Motors held by each and (2) all individuals and entities that will own any
interest in Holding after completion of the transfer described in this
Agreement and the percentage of ownership interest in Holding that will be
held by each.
1.5 Restrictions on Transfer of Class B Common Stock by
Stockholders. Each of the Lithia Parties hereby agree that the holders of
Lithia Class B Common Stock (the "Class B Stockholders") shall not, at any
time, without the prior written approval of AHM sell, offer or in any manner
encumber any Class B Common Stock or enter into any agreement providing for
the voting of Class B Common Stock as directed by any person or entity, or in
a I specified manner or pursuant to a specified procedure or grant any voting
proxy or otherwise enter into any arrangement the purpose or effect of which
is to vest in any other person or entity the voting rights of any Class B
Common Stock. AHM will not approve any transfers of Class B Common Stock
that it reasonably deems detrimental to AHM's interests as provided in
Section 1.8 below, and any approved offer may only be made on the condition
that the transferee agrees in writing to be bound by the terms of this
Agreement to the same extent as if it had executed this Agreement as a Class
B Stockholder. Each certificate representing Class B Common Stock held by a
Stockholder or any securities issued in respect of such Class B Common Stock
shall be stamped or otherwise imprinted with a legend substantially in the
following form:
The shares represented by this certificate are
subject to restrictions on transfer set forth in an
Agreement between American Honda Motor Company, Inc.
and the Corporation effective as of December 17,
1996, as amended, a copy of which will be furnished
by the Corporation without charge upon written
request.
Without limiting the generality of the foregoing restrictions, the
Lithia Parties specifically agree that transfers of shares of Class B Common
Stock are subject to AHM's prior written approval even if transfer is
permitted pursuant to Lithia Motors Articles of Incorporation or by an act of
the board of directors or the shareholders or by any other means. In the
event that any Class B Common Stock is transferred without the prior written
approval of AHM, including, but not limited to, transfer by operation of law
(e.g., upon the death of a Class B Stockholder to an heir), Lithia Motors
shall inform AHM of such transfer and either (a) request approval of such
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offer, (b) reacquire the shares or (c) arrange for the retransfer of the
shares to a previously approved Class B Stockholder. In the event that
Lithia Motors selects (a) above and AHM refuses to approve the transfer, then
Lithia Motors must make its best efforts to effectuate (b) or (c). If AHM
refuses to approve the transfer and Lithia Motors cannot effectuate (b) or
(c), then AHM may invoke the purchase procedures set forth in Section 9.3, as
though Lithia Motors had breached this Agreement.
1.6 Restrictions on Transfer of the Ownership Interests in
Holding. Each of the Lithia Parties hereby agree that the holders of any
ownership interest in Holding (a "Holding Interest") shall not, at any time,
without the prior written approval of AHM sell, transfer or in any manner
encumber any Holding Interest or enter into any agreement providing for the
voting or control of any Holding Interest as directed by any person or
entity, or in a specified mariner or pursuant to a specified procedure or
grant any voting proxy or otherwise enter into any arrangement the purpose or
effect of which is to vest in any other person or entity the voting rights of
any Holding Interest. AHM will not approve any transfers of any Holding
Interest that it reasonably deems detrimental to AHM's interests as provided
in Section 1.8 below, and any approved transfer may only be made on the
condition that the transferee agrees in writing to be bound by the terms of
this Agreement to the same extent as if it had executed this Agreement as an
owner of the Holding Interest on the effective date hereof. Each certificate
representing any Holding Interest, if any, or any securities issued in
respect of such Holding Interest shall be stamped or otherwise imprinted with
a legend substantially in the following form:
The shares represented by this certificate are
subject to restrictions on transfer set forth in an
Agreement between American Honda Motor Company, Inc.
and the Corporation effective as of December 17,
1996, as amended, a copy of which will be furnished
by the Corporation without charge upon written
request.
Without limiting the generality of the foregoing restrictions, the
Lithia Parties specifically agree that transfers of Holding Interests are
subject to AHM's prior written approval even if transfer is permitted
pursuant to Holding's Articles of Organization or by an act of owners of
Holding or by any other means. In the event that any Holding Interest is
transferred without the prior written approval of AHM, including, but not
limited to, transfer by operation of law (e.g., upon the death of an owner of
a Holding Interest to an heir), Holding shall inform AHM of such transfer and
either (a) request approval of such transfer, (b) reacquire the Holding
Interest or (c) arrange for the retransfer of the Holding Interest to a
previously approved owner of a Holding Interest. In the event that Holding
selects (a) above and AHM refuses to approve the transfer, then Holding must
make its best efforts to effectuate (b) or (c). If AHM refuses to approve
the transfer and Holding cannot effectuate (b) or (c), then AHM may invoke
the purchase procedures set forth in Section 9.3, as though Lithia Motors had
breached this Agreement.
1.7 Identification of Owners of Lithia Motors. Schedule E,
appended hereto, includes accurate documentation and information pertaining
to each individual or entity that owns or controls 5% or more of the Lithia
Stock, whether such stock is freely tradeable or restricted. In the event of
any change of ownership that results in an individual or entity not listed on
Schedule E obtaining ownership or control of 5% or more of Lithia Stock,
Lithia Motors shall provide AHM with the documentation and information
required by Schedule E with respect to such person or entity to the extent it
is publicly available. Lithia Motors will provide AHM with copies of all
filings made with the SEC and comparable filings made with state agencies by
persons or entities that own more than 5% of Lithia Motors and/or any of its
Affiliates. Without limiting the foregoing, Lithia Motors will use its best
efforts to provide such information regarding such stockholders as AHM may
from time to time request.
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1.8 Right of AHM to Disapprove Acquisitions of Lithia Stock.
Without limiting the restrictions set forth in Sections 1.5 and 1.6 above,
AHM shall have the irrevocable right to disapprove of the acquisition of more
than 5% of Lithia Stock by any individual or entity if such acquisition is
reasonably deemed detrimental to AHM's interests. Without limiting the
foregoing, the parties agree that such acquisition or attempted acquisition
may reasonably be deemed to be detrimental to AHM's interests if the
acquiring individual or entity (a) competes with American Honda or its
parent, subsidiaries or Affiliates in manufacturing, marketing, or selling
automotive products or services or is owned or controlled by or has a
substantial economic interest in an entity that competes with AHM or its
parent, subsidiaries or Affiliates in manufacturing, marketing, or selling
automotive products or services (not including an interest in a dealership
selling products manufactured by a competing automobile manufacturer); (b)
has c affiliations or a criminal record; (c) has inadequate experience in the
automotive sales and service business; (d) has less than an excellent credit
rating or credit history; (e) has demonstrated unacceptable customer
satisfaction index performance; or (f) has had a prior relationship with AHM
which AHM deems to have been unsatisfactory. Unless AHM objects in writing
to such acquisition within 180 days of receiving completed documentation and
information from Lithia Motors pertaining thereto, AHM shall be deemed to
have approved such acquisition. In the event AHM disapproves of such
acquisition, Lithia Motors and its then current shareholders shall make their
best efforts to prevent such acquisition or, if it has already taken place,
to reacquire the shares so transferred. In the event that Lithia Motors is
unable to prevent such acquisition or reacquire the shares, AHM may invoke
the purchase provisions of Section 9.3 hereof.
1.9 Designation of Lithia Motors' Executive Manager. Lithia
Motors shall designate DeBoer as its Executive Manager. The Executive
Manager shall have operational control of Lithia Motors and shall have final
authority to decide any dealership matters not within the authority of the
Dealer Manager. Lithia Motors agrees not to change its Executive Manager
without the prior written approval of AHM, which approval shall not be
unreasonably withheld.
1.10 No Further Public Offerings of Stock Without AHM's Prior
Written Approval. Lithia Motors shall not make any further public offerings
of Lithia Stock without AHM's prior written approval. Lithia shall submit
any proposals to make other public offerings of Lithia Stock to AHM in the
manner set forth in the Policy and AHM shall evaluate such proposal in
accordance therewith. The Lithia Parties understand and agree that AHM will
not approve of any public offering of Lithia Stock that increases the number
of shares of freely tradeable, unrestricted shares to fifty percent or more
of the total shares of Lithia Stock then outstanding.
1.11 No Public Ownership of Individual Dealerships. No Honda
and/or Acura dealership(s) that Lithia Motors owns or acquires shall be held
or owned by an entity required to file reports under Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934.
1.12 Change of Control of Lithia Motors. The Lithia Parties
acknowledge and agree that AHM has the right to ensure that its dealerships
remain under the control of persons and/or entities with a full-time
commitment to the sales and service of Honda Products or Acura Products (as
the case may be). The Lithia Parties recognize the legitimacy of AHM's
concern (as more fully set forth in the Policy) that public ownership of
dealerships, if unrestricted, could lead to the loss of AHM's control over
the selection of the individuals who sell and service AHM's products.
Therefore, in the event that a controlling interest in Lithia Motors,
Holding, HS, BPI, or any of their Affiliates that own Honda or Acura dealers
is acquired or threatened to be acquired by an individual or entity not
specifically approved by AHM, the Lithia Parties agree that AHM may exercise
the right of purchase set forth in Section 9.3. As used herein, "controlling
interest" means (a) ownership or practical control of shares of Lithia Motors
or its Affiliates sufficient to appoint or control either the management or
the board of directors thereof or (b) the practical ability to make the
day-to-day and/or policy decisions of a Honda or Acura dealership.
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2. FUTURE ACQUISITIONS BY THE LITHIA PARTIES OF HONDA AND ACURA
DEALERSHIPS.
2.1 Right of Approval by AHM. The Lithia Parties agree that
neither any of them or any of their Affiliates (as defined above) shall
acquire any interest in any Honda or Acura dealership not listed on Schedule
A without AHM's prior written approval. Approval shall be at AHM's sole
discretion and will be evaluated in light of the then-current Policy and
AHM's then current business interests. Without limiting the foregoing, in no
event will AHM approve any such acquisition unless all Honda and Acura
dealerships owned or controlled by any of the Lithia Parties and/or their
Affiliates are (a) in full compliance with all of the terms of the respective
Dealer Agreement(s) and this Agreement; and (b), meet all of the applicable
Honda or Acura policies and performance expectations.
2.2 Ownership of Contiguous Dealerships. Lithia Motors and/or
its Affiliates shall not own contiguous Honda dealerships or contiguous Acura
dealerships.
2.3 Ownership of Multiple Dealerships. The Lithia Parties
cumulatively or individually shall not own or control, directly or through an
Affiliate, Honda or Acura dealerships in excess of the numbers set forth
below:
2.3.1 Honda. The Lithia Parties shall not hold an
ownership interest, directly or through an Affiliate, in a multiple number of
Honda dealerships as provided below: (a) in a "Metro" market (a "Metro"
market is a metropolitan market area represented by two or more Honda dealer
points) with two (2) to ten (10) Honda dealership points (inclusive), no
Dealer Owner may own, operate or a have a dealer interest in more than one
(1) Honda dealership; (b) in a Metro market with eleven (11) to twenty (20)
Honda dealership points (inclusive), no Dealer Owner may own, operate or have
an interest in more than two (2) Honda dealerships; (c) in a Metro market
with twenty-one (21) or more Honda dealership points (inclusive), no Dealer
Owner may own, operate or have an interest in more than three (3) Honda
dealerships; (d) 4% of the Honda dealerships in any one of the ten Honda
Zones; and (e) seven (7) Honda dealerships nationally.
2.3.2 Acura. The Lithia Parties shall not hold an
ownership interest, directly or through an Affiliate, in more than: (a) one
(1) Acura dealership in a Metro market (as used herein, "Metro market" is a
Metropolitan market area represented by two or more Acura dealer points); (b)
two (2) Acura dealerships in any one of the six Acura Zones; and (c) three
(3) Acura dealerships nationally.
2.4 Proposed Acquisition in Excess of Limits. If the purchase
of any Honda or Acura dealership would result in exceeding the limits set
forth in this Section 2, AHM will reject the application for approval of the
ownership transfer until such time as the applicable Lithia Party shall
divest itself of the appropriate number of dealerships to bring it into
compliance with the requirements of this Agreement at which time AHM will
reconsider the proposal in light of the Policy. In case of such divestiture,
AHM may invoke the right of first refusal/purchase option provisions of
Section 8.2 hereof.
3. SEPARATE, FREESTANDING, EXCLUSIVE DEALERSHIPS
3.1 Maintenance of Exclusive Dealership Premises. Each Honda
or Acura dealership owned by Lithia Motors or its Affiliates shall be
maintained as separate, freestanding Dealership Operations that completely
and timely comply with facility design and image enhancements to AHM's brand
image, functionality and capacity standards and guidelines, which standards
and guidelines AHM may reasonably modify from time to time, and shall
exclusively offer a full range of Honda Products and services or Acura
Products and services and shall not offer competing products or services from
its Dealership Premises. Lithia BPI, Inc.'s currently nonexclusive Honda
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Dealership Operations in Medford, Oregon, will by no later am December 3 1,
1997, be conducting all business in a separate, freestanding, exclusive new
facility built and maintained in full compliance and conformity with Honda's
designs and specifications, including Honda's minimum land and building
requirements, as detailed within the Honda Image Program. Such new,
exclusive Honda dealership facility will be located on a site acceptable to
AHM. By no later than December 31, 1997, the aforementioned Honda Dealership
Operations in Medford will also be under, and will continuously remain under,
a separate corporation formed exclusively for said dealership.
3.2 Full Line of Products and Services. Lithia Motors shall
make available to the customers at each of its Honda dealerships all Honda
Products and services, including, but not limited to, vehicles, Genuine Parts
and Accessories, American Honda Finance Corporation retail financing services
(whether for purchases or leases), Honda Vehicle Service Contracts, and Honda
Certified Used Car Program. Lithia Motors shall make available to the
customers at any Acura dealership which it acquires all Acura Products and
services, including vehicles, Genuine Parts and Accessories, American Honda
Finance Corporation retail financing services (whether for purchases or
leases), Acura Vehicle Service Contracts, and Acura Preferred Pre-Owned
Program.
3.3 Treatment as Independent Dealers. For allocation and other
purposes, transfer of Honda or Acura Automobiles from one dealership to
another dealership owned by the same entity will be treated the same as a
transfer between separately-owned dealers.
3.4 Independent Reporting Requirements. Each Honda and Acura
dealership that Lithia Motors owns or acquires shall have the same reporting
requirements as all other Honda and Acura dealerships, including fully
audited dealership-specific financial information. Each individual
dealership must meet the capitalization requirements and other requirements
set forth in its individual Dealer Agreement including any addenda thereto.
The corporate by-laws of the individual corporation that actually owns the
Honda or Acura dealership must restrict it from engaging in any activity
other than the ownership and maintenance of a Honda or Acura dealership, as
the case may be.
4. DEALER MANAGERS
4.1 Approval by AHM. Each Honda and Acura dealership owned or
controlled by Lithia Motors shall have a qualified Dealer Manager, approved
by AHM (subject to the exception noted in Section 4.2 below). Each Dealer
Manager shall work at the Honda or Acura Dealership Premises, shall devote
all efforts to the management of the dealership and shall have no other
significant business interests or management responsibilities.
4.2 Trial Period. Whenever Lithia Motors nominates a new
Dealer Manager candidate for a Honda or Acura dealership, AHM shall have the
right to withhold a decision concerning approval or rejection of the
candidate for a trial period of up to one year, at its sole discretion;
provided, however, that the candidate may operate in the capacity of Dealer
Manager until AHM has approved or rejected the candidate.
4.3 Authority of Dealer Manager. Lithia Motors shall advise
AHM in writing of the limitations, by category and, where applicable, by
specific action, on the authority of the Dealer Manager regarding the
operation of the dealership. Without limiting the foregoing, the Dealer
Manager must have the authority to run the day-to-day operations of the
dealership and the capacity to enter into substantial transactions (e.g., the
placement of orders for Honda or Acura Automobiles and Genuine Parts and
Accessories) on behalf of the dealership.
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5. REPRESENTATION ON HONDA AND ACURA DEALER ORGANIZATIONS
No more than one representative each from the Honda, and
separately, Acura dealerships owned, directly or through an Affiliate, by any
of the Lithia Parties, may serve on the Honda National Dealer Advisory Board,
the Acura National Dealer Council or any future Honda or Acura national
board(s) which may be established, and no more than one representative each
may serve on either a Honda or Acura Zone Advisory Board/Council, or Honda
Advertising Triad or Acura advertising council (should one be established in
the future). Such representative must be involved on a full-time basis in
the day-to-day operation of the dealership which it is appointed to represent
and must otherwise comply with the bylaws of the applicable organization.
6. DEALERSHIP TRAINING PERSONNEL
No Lithia Party shall substitute training courses of its own for
those provided or sponsored by AHM without the prior written approval of AHM,
which approval shall be in AHM's sole discretion. In no event will AHM
approve training courses unless the trainers are certified pursuant to
Honda's or Acura's certification programs, as applicable.
7. PROSPECTUS DISCLAIMER AND INDEMNIFICATION AND HOLD HARMLESS AGREEMENT
Lithia Motors shall place in its registration statement and its
prospectus, as well as in any other document offering Lithia Stock to public
or private investors, the following disclaimer:
No Manufacturer (as defined in this Prospectus) has
been involved, directly or indirectly, in the
preparation of this Prospectus or in the offering
being made hereby. No Manufacturer has made any
statements or representations in connection with the
offering or has provided any information or materials
that were used in connection with the Offering, and
no Manufacturer has any responsibility for the
accuracy or completeness of this Prospectus.
The Lithia Parties shall, jointly and severally, indemnity and hold
harmless AHM pursuant to the terms of the Indemnification Agreement set forth
in Schedule F to this Agreement.
8. TRANSFER OF DEALERSHIPS BY LITHIA MOTORS
8.1 Sale of Ownership Interest in Dealership. This is a
personal services Agreement based upon personal skills, service,
qualifications and commitment of Lithia Motors, its Executive Manager, and
its Dealer Managers. For this reason, and because AHM has entered into this
Agreement in reliance upon Lithia Motors's, its Executive Manager's, and its
Dealer Managers' qualifications, without limiting any of the other
restrictions on transfer of ownership set forth in this Agreement, Lithia
Motors agrees to obtain AHM's prior written approval of any proposed transfer
of control or of any ownership interest in a Honda or Acura dealership owned
by Lithia Motors.
Without limiting the foregoing, in the event of such proposed
transfer, AHM shall not be obligated to renew the applicable Dealer Agreement
or to execute a new Dealer Agreement with Lithia Motors or the proposed
transferee unless (a) Lithia Motors first makes arrangements acceptable to
AHM to satisfy any outstanding indebtedness to AHM; (b) the proposed transfer
conforms to this Agreement and the Policy; and (c) the transferee agrees to
the terms and conditions of this Agreement and the Policy.
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8.2 Right of First Refusal or Option to Purchase
8.2.1 Rights. If a proposal to sell a dealership's assets
or transfer its ownership is submitted by Lithia Motors to AHM, AHM has a
right of first refusal or option to purchase the dealership assets or stock,
including any leasehold interest or realty. AHM's exercise of its right or
option under this Section supersedes Lithia Motors's right to transfer its
interest in, or ownership of, the dealership. AHM's right or option may be
assigned by it to any third party and AHM hereby guarantees the full payment
to Lithia Motors of the purchase price by such assignee. AHM may disclose
the terms of any pending ownership transfer agreement and any other relevant
dealership performance information to any potential assignee. AHM's rights
under this Section will be binding on and enforceable against any assignee or
successor in interest of Lithia Motors or purchaser of Lithia Motors's assets.
8.2.2 Exercise of AHM's. AHM shall have 180 days from
AHM's receipt of all completed documentation and information customarily
required by it to evaluate a proposed transfer of ownership in which to
exercise its option to purchase or right of first refusal. AHM's exercise of
its right of first refusal under this Section neither shall be dependent upon
nor require its prior refusal to approve the proposed transfer.
8.2.3 Right of First Refusal. If Lithia Motors has entered
into a bona fide written ownership transfer agreement for its dealership
business or assets, AHM's right under this Section is a right of first
refusal, enabling AHM to assume the buyer's rights and obligations under such
ownership transfer agreement, and to cancel this Agreement and all rights
granted Lithia Motors. Upon AHM's request, Lithia Motors agrees to provide
other documents relating to the proposed transfer and any other information
which AHM deems appropriate, including, but not limited to, those reflecting
other agreements or understandings between the parties to the ownership
transfer agreement. Refusal to provide such documentation or to state that
no such documents exist shall create the presumption that the ownership
transfer agreement is not a bona fide agreement.
8.2.4 Option to Purchase. If Lithia Motors submits a
proposal which AHM determines is not bona fide or in good faith, AHM has the
option to purchase the principal assets of Lithia Motors utilizing the
dealership business, including real estate and leasehold interest, and to
cancel this Agreement and the rights granted Lithia Motors. The purchase
price of the dealership assets will be determined by good faith negotiations
between the parties. If an agreement cannot be reached, the purchase price
will be exclusively determined as set forth in Section 9.3 of this Agreement.
8.2.5 Lithia Motors's Obligations. Upon AHM's exercise of
its right or option and tender of performance under the ownership transfer
agreement or upon whatever terms may be expressed in the ownership transfer
agreement, Lithia Motors shall forthwith transfer the affected real property
by warranty deed conveying marketable title free and clear of all liens,
claims, mortgages, encumbrances, tenancies and occupancies. The warranty
deed shall be in proper form for recording, and Lithia Motors shall deliver
complete possession of the property and deed at the time of closing. Lithia
Motors shall also furnish to AHM all copies of any easements, licenses or
other documents affecting the property or dealership operations and shall
assign any permits or licenses that are necessary or desirable for the use of
or appurtenant to the property or the conduct of such Dealer Operations.
Lithia Motors also agrees to execute and deliver to AHM instruments
satisfactory to AHM conveying title to all personal property, including
leasehold interests, involved in the transfer or sale to AHM. If any
personal property is subject to any lien or charge of any kind, Lithia Motors
agrees to procure the discharge and satisfaction thereof prior to the closing
of sale of such property to AHM.
9
8.3. Transfer Provisions Fair and Reasonable. In entering into
this Agreement, each of the Lithia Parties understands that AHM would not
consent to the transfer of Honda or Acura dealerships to an entity that is
owned in part by a publicly-held corporation without the restrictions on
subsequent transfer set forth in this Agreement. The Lithia Parties have
entered into this Agreement to induce AHM to consent to such transfer to an
entity that is owned in part by a publicly-held corporation and hereby
acknowledge and agree that the restrictions on subsequent transfer set forth
herein are "fair" and "reasonable" as those terms are used under state and
federal laws governing the relationship between automobile manufacturers and
automobile dealers.
9. REMEDIES OF AHM.
9.1 Cumulative Remedies. All of AHM's remedies set forth
herein are cumulative. No explicit listing of any remedy shall foreclose AHM
from seeking any remedy at law or in equity, including injunctive relief,
that would otherwise be available to it.
9.2 Injunctive Relief. Lithia Motors agrees that any breach by
any of the Lithia Parties or their Affiliates of the covenants set forth in
this Agreement that pertain to the ownership, control, transfer, and/or
operation of Honda or Acura dealerships would result in irreparable harm to
AHM and therefore agrees that AHM shall be entitled to emergency, pre and
permanent injunctive relief to prevent such breaches.
9.3 Right to Purchase. The Lithia Parties understand and
acknowledge that AHM has the right to maintain a personal relationship with
its dealers and a healthy and competitive dealer network and that the Policy
and this Agreement are designed to ensure the protection of that right. and
the integrity of the dealer network while at the same time enabling Lithia
Motors to raise capital through the public offering of stock. Therefore, in
the event that any of the Lithia Parties materially breach the Policy or this
Agreement or any Dealer Agreement, in addition to any other remedies that AHM
might have, upon notice from AHM, the Lithia Parties agree that they will
sell to AHM all assets of the Honda and Acura dealerships that they own or
control at their then current fair market value and on the terms set forth in
Section 8.2.5 and that the applicable Dealer Agreements will terminate upon
such sale. Any dispute as to the fair market value of such dealerships will
be resolved by arbitration as described in Section 10 hereof. In such
arbitration, the Arbitrator shall be empowered only to determine (1) whether
a material breach took place; and, (2) if so, the fair market value of the
dealerships at issue. The arbitrator in such proceeding shall not have the
power to award any other damages or other relief. If the arbitrator finds a
material breach, Lithia Motors shall transfer the dealerships to AHM or its
designee at the fair market value de ed by the arbitrator without the
necessity of further legal action by AHM. The arbitrator's decision shall be
unappealable and unreviewable. If, in violation of the terms hereof, any of
the Lithia Parties require AHM to obtain a court judgment to enforce the
arbitrator's decision, the arbitrator's decision shall be enforceable in any
court of competent jurisdiction and Lithia Motors agrees to pay the costs and
attorneys' fees expended in connection therewith. The foregoing arbitration
shall not, without the consent of both parties, be consolidated with any
other arbitration initiated by a party pursuant to Section 10 hereof.
9.4 Indemnification for Claims by Disappointed Buyer. The
Lithia Parties, jointly and severally, hereby agree to indemnity and hold
harmless AHM and its affiliates from and against any and all losses,
liabilities, judgments, amounts paid in settlement, claims, damages and
expenses whatsoever (collectively a "Claim"), including, but not limited to,
any and all expenses whatsoever (including reasonable attorneys' fees)
incurred in investigating, preparing or defending against any litigation,
commenced or threatened, to which AHM may become subject as a result of AHM's
exercise of the rights set forth in Sections 8.2 and 9.3 of this Agreement.
Without limiting the generality of the immediately preceding sentence, this
indemnification covers any Claim brought against AHM by an individual or
entity that alleges that the individual or entity would have purchased an
interest in a Honda or Acura dealership but for AHM's interference with such
proposed purchase.
10
10. DISPUTE RESOLUTION
Except as modified in Section 9.3 above, any controversy or claim
arising out of or relating to the Agreement, or the breach thereof, or any
failure to agree where agreement of the parties is necessary pursuant hereto,
including the determination of the scope of this agreement to arbitrate,
shall be resolved by the following procedures:
10.1 Attempt to Resolve Dispute. The parties shall use all
reasonable efforts to amicably resolve the dispute through direct
discussions. The senior management of each party commits itself to respond
promptly to any such dispute. Any party may send written notice to the other
parties identifying the matter in dispute and invoking the procedures of this
article. Within ten (10) days after such written notice is received, unless
a delay is agreed to by both parties to the dispute or the parties agree to
confer by telephone, one or more senior management of each party shall meet
in Los Angeles, California to attempt to amicably resolve the dispute by
written agreement. If said dispute cannot be settled through direct
discussions, the parties agree to first endeavor to settle the dispute in an
amicable manner by mediation in Los Angeles and administered by the American
Arbitration Association ("AAA"), pursuant to the Commercial Mediation Rules
of the AAA at the time of submission prior to resorting to binding
arbitration.
10.2 Application to Binding Arbitration. If after forty-five
(45) days from the first written notice of dispute, the parties fail to
resolve the dispute by written agreement or mediation, either party may
submit the dispute to final and binding arbitration administered by the AAA,
pursuant to the Commercial Arbitration Rules of the AAA at the time of
submission. The arbitration shall be held in Los Angeles before a single
neutral, independent, and impartial arbitrator (the "Arbitrator").
10.3 Binding Arbitration Procedure. Unless the parties have
agreed upon the selection of the Arbitrator before then, the AAA shall
appoint the Arbitrator as soon as practicable, but in any event within thirty
(30) days after the submission to AAA for binding arbitration. The
arbitration hearings shall commence within forty-five (45) days after the
selection of the Arbitrator. Unless the Arbitrator otherwise directs, each
party shall be limited to three pre-hearing depositions lasting no longer
than 6 hours each. The parties shall exchange documents to be used at the
hearing no later than ten (10) days prior to the hearing date. Unless the
Arbitrator otherwise directs, each party shall have no longer than three days
to present its position, the entire proceedings before the Arbitrator shall
be on no more than eight hearing days within a three week period. The
Arbitrator's award shall be made no more than thirty (30) days following the
close of the proceeding. The Arbitrator's award may not include
consequential, exemplary, or punitive damages. The Arbitrator's award shall
be a final and binding determination of the dispute and shall be fully
enforceable in any court of competent jurisdiction. The prevailing party
shall be entitled to recover its reasonable attorneys' fees and expenses,
including arbitration administration fees, incurred in connection with such
proceeding. Except in a proceeding to enforce the results of the
arbitration, neither party nor the Arbitrator may disclose the existence,
content, or results of any arbitration hereunder without the prior written
consent of both parties.
10.4 Exceptions. Notwithstanding the foregoing, either party
may, without recourse to arbitration, assert against the other party a
third-party claim, cross-claim or like claim in any action brought by a Third
Party to which this Agreement or the obligations of the parties hereunder may
pertain. Nothing herein shall prevent a party from seeking injunctive
relief, where appropriate, from a court of competent jurisdiction pending the
outcome of any arbitration concerning the subject of such arbitration or when
authorized by an arbitrator's award or when emergency relief is required.
11
11. ENTIRE AGREEMENT OF THE PARTIES
There are no prior agreements or understandings, either oral or
written, between the parties affecting this Agreement, except as otherwise
specified or referred to in this Agreement (including the Schedules hereto).
No change or addition to, or deletion of any portion of this Agreement shall
be valid or binding upon the parties hereto unless approved in writing signed
by an officer of each of the parties hereto. The parties acknowledge that
each of them have been represented by counsel and are substantial entities
with considerable resources. This Agreement has been fully negotiated. No
provision of this Agreement shall be construed against a party on the ground
that the party or its attorneys drafted it.
12. SEVERABILITY
If any provision of this Agreement should be held invalid or
unenforceable for any reason
whatsoever, or conflicts with any applicable law, this Agreement will
be considered divisible as to such provision(s), and such provision(s) will
be deemed amended to comply with such law, or if it (they) cannot be so
amended without materially affecting the tenor of the Agreement, then it
(they) will be deemed deleted from this Agreement in such jurisdiction, and
in either case, the remainder of the Agreement will be valid and binding.
Notwithstanding the foregoing, if, as a result of any provision of this
Agreement being held invalid or unenforceable, AHM's ability to control the
selection of the Dealer Owner, Executive Manager, or the Dealer Manager or to
otherwise maintain its ability to exercise reasonable discretion over the
selection of the actual individual who is managing a Honda or Acura
dealership is materially restricted beyond the terms of this Agreement or the
Dealer Agreement, AHM shall be permitted to invoke the purchase provisions of
Section 9.3 hereof.
13. NO IMPLIED WAIVERS
The failure of either party at any time to require performance by
the other party of any provision herein shall in no way affect the right of
such party to require such performance at any time thereafter, nor shall any
waiver by any party of a breach of any provision herein constitute a waiver
of any succeeding breach of the same or any other provision, nor constitute a
waiver of the provision itself.
14. AHM POLICIES
AHM has adopted certain policies which are attached hereto as Schedule
G. Lithia
Motors hereby agrees to abide by these policies as attached hereto and
as reasonably amended by AHM from time to time, and other policies
promulgated in the future by AHM. In addition, AHM has expressed a
commitment to diversity in management and among employees. Lithia Motors
hereby agrees to adhere to that commitment by seeking to achieve diversity
among the management personnel and employees it appoints in connection with
the Honda and Acura dealerships it owns or controls. Without limiting the
generality of the foregoing, Lithia Motors hereby agrees that its dealerships
will meet or exceed (with respect to both the applicable zone and the United
States as a whole) average Honda and/or Acura dealership performance (as such
performance is measured by AHM, now or in the future) with respect to
customer satisfaction, sales, and market share.
15. APPLICABLE LAW
This Agreement shall be governed by and construed according to
the laws of the State of California.
12
16. BENEFIT
This Agreement is entered into by and between AHM and the Lithia
Parties for their sole and mutual benefit. Neither this Agreement nor any
specific provision contained in it is intended or shall be construed to be
for the benefit of any third party.
17. NOTICE TO THE PARTIES
Any notices permitted or required under the terms of this
Agreement shall be directed to the following respective addresses of the
parties, or if either of the parties shall have specified another address by
notice in writing to the other party, then to the address last specified:
If to AHM:
AMERICAN HONDA MOTOR CO., INC.
Honda Division
1919 Torrance Boulevard
Torrance, California 90501
Attention: Dealer Placement Department
AMERICAN HONDA MOTOR CO., INC.
Acura Division
1919 Torrance Boulevard
Torrance, California 90501
Attention: Acura Dealer Development Department
with a copy to:
Associate General Counsel
HONDA NORTH AMERICA, INC.
Law Department
700 Van Ness Avenue
Torrance, California 90509-2206
If to any of the Lithia Parties:
LITHIA MOTORS, INC.
360 East Jackson
Medford, Oregon 97501
Attention: Sidney B. DeBoer
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
LITHIA MOTORS, INC.
BY: /s/Sidney B. DeBoer
Title
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LITHIA HOLDING, LLC
BY: /s/Sidney B. DeBoer
Title
LITHIA HPI, LLC
BY: /s/Sidney B. DeBoer
Title
LITHIA HS, INC.
BY: /s/Sidney B. DeBoer
Title
/s/Sidney B. DeBoer
------------------------------------------
Sidney B. DeBoer
/s/M.L. Dick Heimann
------------------------------------------
M.L. Dick Heimann
/s/R. Bradford Gray
------------------------------------------
R. Bradford Gray
AMERICAN HONDA MOTOR CO., INC.
Honda Division
BY: /s/Richard Colliver
Richard Colliver
Senior Vice President
Automobile Sales Division
LITHIA MOTORS, INC.
Acura Division
BY: /s/Richard B. Thomas
Richard B. Thomas
Executive Vice President
Acura Division
14
SCHEDULE LIST
A. List of Lithia
B. AHM Automobile Dealer Sales and Service Agreements
C. AHM Policy on the Public Ownership of Honda and Acura Dealerships
D. Lithia Motors and Holding Ownership Information -- Restricted
Shares
E. Lithia Motors Ownership Information -- 5% Interest Holders
F. Indemnification Agreement
G. AHM Policies
X. Lithia Motors Documentation (retained in AHM's files; not attached to
copies of the Agreement)
15
A.
List of Lithia Motors Honda Dealerships
Lithia HPI, Inc.
dba Lithia Honda
700 North Central
Medford, Oregon 97501-5817
16
B.
AHM Automobile Dealer Sales and Service Agreements
17
C.
AHM Policy on the Public Ownership of Honda and Acura Dealerships
18
AMERICAN HONDA MOTOR CO., INC.
POLICY ON THE PUBLIC OWNERSHIP
OF HONDA AND ACURA DEALERSHIPS
I. OBJECTIVES
In this Policy on the Public Ownership of Honda and Acura
Dealerships (the "Policy"), American Honda Motor Co., Inc. ("American Honda")
addresses several issues raised by the recent announcement by certain
entities which own automobile dealerships that they intend to offer stock for
sale to the public. Proposals for the public ownership of automobile
dealerships have been widely publicized in the press. American Honda has
been asked by several dealers and the National Automobile Dealers Association
to state its position on the public ownership of Honda and Acura
dealerships. This Policy is an effort to address these inquiries by
providing guidelines for the ownership of Honda and Acura dealerships that
assist Dealer Owners and potential Dealer Owners in assessing whether a
particular form of ownership is consistent with American Honda's standards
for its dealerships.
II. BACKGROUND
A. The Personal Nature of the Dealer Owner Relationship
There is no simple "yes" or "no" answer to the question, "Will
American Honda permit transfer of a dealership to a publicly-owned
corporation?" The answer depends on whether the proposed form of ownership
preserves the individualized relationship between the Dealer Owner and the
local community, on the one hand, and American Honda and the Dealer Owner, on
the other hand.
Despite the recent increase of mass marketing (including the
advent over the last twenty years of so-called "category killers" such as the
toy store giants that have replaced neighborhood toy stores and the hardware
giants that have replaced local hardware stores), American Honda continues to
believe that automobile sales and service are most effectively done through
dedicated, local dealerships with strong ties to the community. For most
automobile purchasers, the decision to buy a new car is a major financial
commitment and is only made after extensive deliberation. Although
competitive price is undoubtedly a major factor in the buying decision,
American Honda believes strongly that the building of a relationship between
the dealer and the buyer, particularly the development of trust in the
qualify of the product and the service provided by Honda dealers has, over
the years, been a major selling point that has distinguished Honda and Acura
vehicles from the competition. When a first-time new car buyer purchases a
Honda vehicle, American Honda believes that we have a great opportunity to
make that customer a life-time Honda and Acura buyer -- because we provide
the best products and the best service through the most dedicated and
committed dealers.
In order to ensure that Honda and Acura dealers provide the
advice and service required by new car buyers, American Honda attempts to
select the best people to be its dealers and requires that these people
maintain personal control over dealership operations. Because individual
Dealer Owners have considerable autonomy as to how they run their
dealerships, American Honda's influence over the quality of its dealerships
depends in large part n how wisely it selects its dealers. Although no
process is perfect, American Honda believes that over the years it has done
an excellent job of selecting Dealer Owners and is extremely proud of the
quality of its dealerships.
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B. The Dealer Agreement
The Honda or Acura Automobile Dealer Sales and Service Agreement
(the "Dealer Agreement") between American Honda and its dealers includes a
number of provisions that ensure that the relationship between American Honda
and its dealers will remain personal. Section C of the Dealer Agreement
states: "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." Sections C and D of the Dealer Agreement name the specific
individuals who own the dealership, their percentage of ownership, the
individual who will function as the Dealer operation and the individual who
will function as the Dealer Manager. Section J states: "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." In Section 8.1 of
the Dealer Agreement, "Dealer agrees that American Honda has the right to
select each successor and replacement dealer and to approve its owners and
principal management." Dealers must inform American Honda in writing of any
potential change in the ownership or management listed in Sections C and D.
Prior to taking effect, such changes must be approved in writing by American
Honda. American Honda's approval will not be unreasonably withheld.
C. The Potential Benefits of Public Investment in dealerships
Public investment in dealerships offers potential benefits to
both American Honda and its dealers. American Honda needs exclusive Honda or
Acura dealerships with separate, freestanding state-of-the-art facilities at
prime locations to meet its long term business objectives. American Honda
dealers need to compete vigorously and such competition may include expanded
and improved showrooms, upgraded computerization, the introduction of various
customer amenities, etc. The ability to raise capital through public
offerings of stock provides an additional means of financing improvement in
dealership facilities and operations.
D. The Tension between Personal Relationship and Public
Ownership
American Honda believes that the quality of the individuals who
serve as Honda or Acura dealers and Dealer Managers is essential to the
success of American Honda and the dealership. Therefore, American Honda is
determined to maintain its personal relationship with its Dealer Owners and
Dealer Managers and to continue to exercise the right of approval of changes
in dealer ownership and management as set forth in the Dealer Agreement. To
the extent that public ownership of a Honda or Acura dealership means that
the dealer Manager will be appointed by a board of directors selected by
owners of publicly-traded stock, such an arrangement is inconsistent with
American Honda's needs and the dealer Agreement. On the other hand, public
ownership of a portion of the shares of a dealership may be consistent with
American Honda's objectives in cases in which a controlling interest in the
dealership is maintained by a specified Dealer Owner and the dealership is
managed by a specified Dealer Manager. The following guidelines are an
attempt to reconcile the tension between American Honda's need for a personal
relationship with each dealer and dealer proposals for public ownership of an
interest in dealerships.
III. PUBLIC OWNERSHIP GUIDELINES
A. Case-By-Case Determination. As in the past, American Honda
will evaluate requests to transfer ownership of Honda and Acura dealerships
on a case-by-case basis. Proposals to transfer ownership to entities with
publicly-traded shares will be reviewed based on the standards set forth in
this Policy. AMERICAN HONDA RESERVES THE RIGHT, IN ITS SOLE BUSINESS
JUDGMENT, TO APPROVE OR REJECT SUCH TRANSFERS.
20
B. Proposals To Be Submitted in Writing. All proposals to
transfer ownership of Honda and Acura dealerships must be submitted in
writing to American Honda and must include:
1. A list of the individuals and entities that will own
privately-held shares of the dealership, including the amount of shares owned
by such individual or entity and information and documentation about each
such individual or entity; in the case of entities owning or controlling such
privately-held shares, a list of the individuals owning such entities and
information and documentation about such individuals;
2. With respect to ownership interests not listed in
accordance with subsection 1, immediately above, a list of the individuals
and entities that will own or control 5% or more of the dealership (either
through ownership of publicly-held stock or any combination of privately-held
stock and publicly-held stock or any other arrangement), including
information and documentation about each such individual or entity;
3. The number and percentage (if any) of the shares of
the entity that owns the dealership that will be publicly traded.
4. A detailed description, including flow charts, of the
proposed structure of the entities that will own and/or control the
dealership and the relationship of the Dealer Owner to these entities,
including, with respect to entities with a significant interest in the Dealer
Owner, a description of the individuals holding such interest;
5. The name and a brief biography of the individual who
will function as Dealer Manager and a detailed description of the functions
and responsibilities of the Dealer Manager;
6. Complete financial documents (including but not
limited to the most recent and the prior year end audited financial
statements of any entity proposing to obtain any interest equal to or grater
than 5% of a dealership or 55 of an entity that owns a dealership),
indicating, among other things, the amount of capitalization of the
dealership and the verifiable sources of such capitalization;
7. A detailed description of the proposed use of the
funds to be raised from the public investment;
8. The articles and bylaws of the entities that will own
and/or control the dealership;
9. Copies of the proposed transactional documents that
will be used to effectuate the transaction, including, without limitation,
copies of any government filings and contracts pertaining thereto; and
10. Copies of any additional documents that the
transferees, transferors and other parties having a substantial interest in
the transaction have that American Honda would reasonably need to evaluate
the proposal.
After receipt of complete documentation for the Proposal, as
outlined above, and due consideration thereof, American Honda will provide
the party submitting the proposal with a preliminary assessment of the
proposed transaction. NO FINAL DECISION ON THE PROPOSAL WILL BE MADE UNTIL
SUBMISSION OF FINAL VERSIONS OF ITEMS 1 THROUGH 10 WITH ANY OTHER
DOCUMENTATION REQUESTED BY AMERICAN HONDA AND AMERICAN HONDA AND THE NEW
OWNERSHIP ENTITY AGREE ON AND ENTER INTO A DEALER AGREEMENT.
21
It is not advisable to make any expenditures or commitments, or
to enter into any contracts or incur any obligations on the assumption that
authorization of a proposal will be granted. Any such expenditures,
commitments or obligations, financial or otherwise, made or entered into by a
dealer in anticipation of authorization of a proposal, and prior to: (1)
receipt of final written approval by American Honda and (2) execution of the
necessary documents as described above (including a new Dealer Agreement) are
made entirely at the dealer's own risk and without any liability on the part
of American Honda.
C. Guides to Preparation of an Acceptable Proposal
In preparing the documents listed immediately above, the dealer
should keep in mind the following list of standards (which is intended to
provide guidance, not to be a complete list) to which American Honda will
require adherence:
1. All dealerships must have a qualified Dealer Manager
acceptable to American Honda. American Honda's right to prior written
approval of any change of dealer Manager must be incorporated into the
transactional documents. The Dealer Manager should be a well-respected,
civicly-active member of the community. As discussed above, personal
involvement by Dealer Managers in Dealership Operations is an important means
of ensuring that Honda and Acura dealerships are run with a high level of
attention, care and commitment. The Dealer Manager must maintain control
over the day-to-day operations of the dealership and the transactional
documents should set forth in detail the level of autonomy that the Dealer
Manager will exercise, including, for example, the amount of money that the
Dealer Manager will be empowered to transfer. Dealerships must abide by
American Honda's commitment to encourage diversity of persons in dealer
management positions.
2. The Dealer Owner's Executive Manager (that is, the
person who has operational control of the entity that owns and/or controls
the dealership) should e an experienced, well-respected executive with final
authority to decide any dealership matters not within the authority of the
Dealer Manager.
3. Dealerships are non-transferable without the prior
written consent of American Honda. Because the shares of publicly-owned
corporations are freely transferable, the percentage of public ownership must
be restricted so that a controlling interest of the dealership remains in the
hands of approved individuals. It follows that the controlling interest in
the entity that controls the dealership cannot be transferred without the
prior written consent of American Honda. In no event may the percentage of
public ownership of a dealership exceed the percentage of private ownership
by American Honda-approved individual and privately-held entities. To the
extent that an entity not approved by American Honda attempts to acquire
control and/or ownership of a dealership, the dealer Agreement with American
Honda must provide for termination of the Dealer Agreement and/or American
Honda's right to acquire the dealership at its fair market value.
4. The controlling interest in Honda or Acura
dealerships must remain in the hands of a person or entity engaged
predominantly in the sale and service of new automobiles. For example,
American Honda will not approve transfer of dealerships or entities that
control dealerships to general retailers or retailers that deal primarily in
non-automotive products.
22
5. American Honda will not approve the transfer of Honda
or Acura dealerships to entities that are known to have significant
investments in companies that compete with American Honda or its parent,
subsidiaries or Affiliates in manufacturing, marketing, or selling automotive
products or services.
6. Public corporations having an ownership interest in
the dealership and the individuals and entities that control such public
corporations (but not persons whose ownership interest is limited to passive
ownership of 5% or less of the shares of public corporations) must agree to
obtain American Honda's approval before acquiring an interest in any other
Honda or Acura dealership, American Honda reserves the right to limit the
number and/or location of Honda and Acura dealerships that can be owned or
controlled by any one individual or corporation. In the future, except where
a specific finding is made by American Honda that such acquisition would
further a business interest or American Honda, individuals and/or entities
will be limited to acquiring interests in dealerships as follows:
a. HONDA
No one shall be allowed to acquire an ownership interest,
directly or through an Affiliate, in a multiple number of Honda dealerships
as provided below:
(a) in a "Metro" market (a "Metro" market is a
metropolitan market area represented by two or more Honda dealer points) with
two (2) to ten (10) Honda dealership points (inclusive), no Dealer Owner may
own, operate or have an interest in more than one (1) Honda dealership;
(b) in a Metro market with eleven (11) to twenty (20)
Honda dealership points (inclusive), no Dealer Owner may own, operate or have
an interest in more than two (2) Honda dealerships;
(c) in a Metro market with twenty-one (21) or more Honda
dealership points, no Dealer Owner may own, operate or have an interest in
more than three (3) Honda dealerships;
(d) 4% of the Honda dealerships in any one of the ten
Honda Zones; and
(e) seven (7) Honda dealerships nationally.
No one shall acquire contiguous Honda dealerships.
b. ACURA
No one shall be allowed to acquire an ownership interest,
directly or through an Affiliate, in a multiple number of Acura dealerships
as provided below:
(a) one (1) Acura dealer in a "Metro" market (a "Metro"
market is a Metropolitan market are represented by two or more acura dealer
points);
(b) two (2) Acura dealerships in any one of the six Acura
Zones; and
(c) three (3) Acura dealerships nationally.
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No one shall acquire contiguous Acura dealerships.
"Affiliate" of, or a person or entity "affiliated" with, a
specified person or entity, means a person or entity that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the person or entity specified. For the
purpose of this definition, the term "control" (including the terms
"controlling," "controlled by" and "under common control with" means the
possession, directly or indirectly, or the power to direct or cause the
direction of the management and policies of a person or entity, whether
through the ownership of securities, by contract or otherwise.
7. The dealership would continue to have the same
reporting requirements as all other Honda and Acura dealerships, including
dealership-specific financial information on the same as is that the
dealership has provided such information in the pst. In the case of
corporations that, with American Honda's approval, own multiple Honda and
Acura dealerships, each such dealership must be separately incorporated and
financial information must be broken down by individual dealership and must
meet capitalization requirements, etc., by individual dealership. The
corporate by-laws of the individual corporation that actually owns a Honda or
Acura dealership must restrict it from engaging in any activity other than
the ownership and maintenance of a Honda or Acura dealership.
8. The dealership must agree to provide American Honda
with all information and documents, including but not limited to SEC filings,
that evidence a substantial change of ownership or control of such dealership
or any entity with a controlling interest in such dealership. Individuals or
entities that acquire, own or control more than 5% of any entity that owns or
controls a Honda or Acura dealership must provide American Honda with copies
of all filings made to the SEC, all comparable filings made to state
agencies, and, at least once annually, the most recent calendar year's fully
audited financial statements. Nothing in this section 8 should be construed
to limit the requirement that any proposed change in the ownership or control
of privately-held shares of a dealership or any entity that owns a dealership
must be reported to American Honda and is subject to American Honda's prior
written approval.
9. For allocation and other purposes, transfer of Honda
or Acura Automobiles from one dealership to another dealership owned and/or
controlled by the same entity will treated the same as a transfer between
separately-owned dealers.
10. The dealership should be committed to providing
separate, freestanding Dealership Operations that exclusively offer a full
range of Honda Products and services or Acura Products and services and do
not offer competing products or services from its Dealership Premises.
11. The controlling individual or entity must be liable
for the operation of the dealership and have must agree to indemnify American
Honda for any claims made by shareholders of publicly-held shares against
American Honda to the full extent permitted by law. American Honda must have
the right (but not the obligation) to review all documentation and other
representations to the public about any offering of stock in the dealership
or the entity owning the dealership. Whether or not American Honda reviews
them, such documentation and representations must include an affirmative
statement that American Honda is completely independent of the entity
offering the stock and that, although American Honda's acts or omissions may
have an impact on the value of the stock, American Honda bears no
responsibility for such impact and has no liability to any investor under any
legal or equitable theory.
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12. The entity that owns or controls the dealership may
not commingle its trademarks with dealer trademarks other than those used
exclusively in connection with the dealership. For example, a dealer could
use its own "dealership" trademark in conjunction with the Honda or Acura
Trademarks as in "John smith HONDA" but it could not use a trademark in
conjunction with the Honda or Acura Trademarks that it also uses in
conjunction with non-Honda or non-Acura goods or services. The entity must
agree to maintain the Honda or Acura brand image, as that image is developed
by American Honda.
13. The entity that owns the dealership must agree to
have all dealership sales and service personnel certified by American Honda
pursuant to its usual certification programs; to use and sell genuine Honda
and Acura parts and accessories; and to participate in good faith in
applicable Honda or Acura sales, marketing, service, parts, facility image
and upgrade, training, customer satisfaction, and diversity programs.
14. The Dealer Agreement will also provide that breaches
of the Dealer Agreement or failure to adhere to American Honda requirements
by any individual dealership owned by an entity shall be treated as breaches
of the Dealer Agreement between American Honda and such entity and shall
constitute reasonable grounds for rejection by American Honda of acquisition
by the entity of additional Honda or Acura dealerships.
15. American Honda will not approve any transfer of a
dealership that is not in full compliance with the Dealer Agreement between
American Honda and such dealership prior to such transfer.
16. The Dealer Agreement with the entity that owns the
dealership will include provisions that incorporates the provisions of this
Policy and, without limiting the foregoing, permit American Honda to
terminate the Dealer Agreement for breaches of the above-listed requirements
and to reacquire the dealership as set forth in subsection IIIC3 above.
Inquires about the Policy should be made to Honda Dealer Placement
Department and/or Acura Dealer development, as applicable.
Inquiries about the transfer of a dealership should be made to Zone
Sales Office.
25
D.
Lithia Motors and Holding Ownership Information -- Restricted Shares
26
Schedule D
Lithia Motors and Holding Ownership Information -- Restricted Shares
M.L. Dick Heimann Sidney B. DeBoer R. Bradford Gray
34.875% Beneficial 58.125% Beneficial 7% Beneficial
Interest Interest Interest
Sidney B. DeBoer
100% Voting
Managing Member
Lithia Holding Company, L.L.C. The Public
53.585% of all shares 46.415% of all shares (if options exercised)
4,110,000 Shares of Class "B" Common 3,560,000 Class "A" Common
10 votes per share, 92% Control 1 votes per share
Tax Id 93-1171867 8% Control
LITHIA MOTORS, INC.
Shares Votes
Class B Restricted Shares ...... 4,110,000 53.585 41,100,000 92.029%
Class A Shares ................. 2,875,000 37.484 2,875,000 6.438%
Class A Employee Stock Incentive
Options ..................... 685,000 8.931 685,000 1.534%
Total .......................... 7,670,000 100.000 44,660,000 100.000%
27
E.
Lithia Motors Ownership Information - 5% Interest Holders
28
Schedule E
Lithia Motors Ownership Information - 5% Interest Holders
The only 5% interest holder that is known to Lithia Motors, Inc.
management is Lithia Holding Company, LLC with 4,1 10,000 shares of class B
common representing 53.585% of all shares of outstanding common stock
(assuming all employee stock incentive options are exercised).
The largest block of stock sold to the underwriters was 250,000 shares,
which is less than 5% interest. Information as to the shareholders is given
to us quarterly by the transfer agent which is unavailable at this time.
They immediately report to us any holdings which are equal to or greater than
10%. If stocks are held in "Street Name" then it may be impossible to tell
if someone or entity has accumulated more than 5% interest.
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F.
Indemnification Agreement
30
SCHEDULE F
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT, effective as of December 17,
1996, is entered into between Lithia Motors, Inc., an Oregon corporation,
with its principal place of business at 360 East Jackson, Medford, Oregon
97501 ("Lithia Motors"), Lithia HPI, Inc., an Oregon corporation, with its
principal place of business at 700 North Central, Medford, Oregon 97501
("BPI"), Lithia HS, Inc., a California corporation, intending to establish a
place of business at 333 North Main Street, Salinas, California 93901 ("HS"),
Lithia Holding, LLC, an Oregon limited liability company, with its principal
place of business at 360 East Jackson, Medford, Oregon 97501 ("Holding"),
Sidney B. DeBoer, an individual residing at 234 Vista, Ashland, Oregon 97520
("DeBoer"), M.L. Dick Heimann, an individual residing at 426 Roundelay,
Medford, Oregon 97504 ("Heimann"), and R. Bradford Gray, an individual
residing at 6764 Laurel Crest Drive, Medford, Oregon 97504 ("Gray"), on the
one hand (collectively, the "Indemnifying Parties"), and American Honda Motor
Co., Inc. ("AHM"), a California corporation, with its principal place of
business at 1919 Torrance Boulevard, Torrance, California 90501, on the other
hand.
WITNESSETH
WHEREAS, Lithia Motors has been formed to own subsidiary corporations
which will own and operate automobile dealerships; and
WHEREAS, Lithia Motors intends to publicly offer and sell a portion of
the shares of the Lithia Stock (as defined in the Agreement between American
Honda Motor Company, Inc. and Lithia Motors, Inc. et al. [the "Agreement"])
in a public offering pursuant to the Securities Act of 1933 (the "Act");
WHEREAS, AHM has consented to the offer and sale of such Lithia Stock
to the public on the terms set forth in the Agreement between the parties on
or about date herewith; and
WHEREAS, in recognition of AHM's demand for complete protection against
liability and threats of legal action and in order to obtain AHM's consent to
the offer and sale of such shares, the Indemnifying Parties wish to provide
in this Indemnification Agreement for the indemnification of and the
advancing of expenses to AHM as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants made herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereby agree as follows:
1. INDEMNITY OF AHM
The Indemnifying Parties hereby agree to indemnity and hold harmless
AHM and its affiliates from and against any and all losses, liabilities,
judgments, amounts paid in settlement, claims, damages and expenses
whatsoever (collectively a "Claim"), including, but not limited to, any and
all expenses whatsoever (including reasonable attorneys' fees) incurred in
investigating, preparing or defending against any litigation, commenced or
threatened, to which AHM may become subject under the Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the securities laws of
any state (the "Blue Sky Laws"), any other statute or at common law or
otherwise under the laws of any foreign country, arising in connection with
or resulting from the sale of the Lithia Stock. In addition, the
Indemnifying Parties hereby agree to indemnity and hold harmless AHM from any
31
and all claims of the shareholders of Lithia Motors with respect to any
matter. If it is ultimately determined, based upon a final decision of a
court, arbitrator or other authorized panel or a settlement entered into by
the parties to the dispute and consented to by AHM that AHM was liable for
such Claim in whole or in part, the indemnification set forth herein shall be
reduced proportionately to reflect the extent of such liability, and AHM
shall reimburse the Indemnifying Party for any expenses advanced by it
pursuant to Paragraph 3 of this Indemnification Agreement to the extent that
such expenses were in excess of the Indemnifying Parties' proportionate
liability.
If the indemnification provided for in this Section 1 from the
Indemnifying Parties is unavailable to AHM hereunder in respect of any
losses, claims, damages, liabilities or expenses referred to therein as a
result of a judicial determination that such indemnification may not be
enforced in such case notwithstanding this Indemnification Agreement, the
Indemnifying Parties, in lieu of indemnifying AHM, shall contribute to the
amount paid or payable by AHM as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Parties and AHM in connection with the
actions which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Parties and AHM shall be determined by
reference to, among other things, whether any action in question, including
any untrue or alleged untrue statement of material fact or omission or
alleged omission to state a material fact, has been made by, or relates to
information supplied by, such Indemnifying Parties or AHM, and the
Indemnifying Parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
2. NOTIFICATION AND DEFENSE OF CLAIM
(a) If any litigation is commenced against AHM in respect of
which indemnity may be sought pursuant to this Indemnification Agreement, AHM
shall promptly notify Lithia Motors in writing of the commencement of any
such litigation, and the Indemnifying Parties shall then assume the defense
of any such litigation, including the employment and fees of counsel
(reasonably satisfactory to AHM) and the payment of all such expenses.
(b) AHM shall have the right to employ its own counsel in any
such case to oversee the litigation on behalf of AHM, to consult with the
attorneys engaged by the Indemnifying Parties as to the proper handling of
the litigation and to take such actions in connection with the litigation as
are reasonably necessary to protect AHM's interests. The Indemnifying
Parties shall pay the reasonable fees and expenses of not more than one
additional firm of attorneys for AHM. In the event of a conflict of interest
between AHM and the Indemnifying Parties such that it would be inappropriate
for Indemnifying Parties' counsel to represent AHM in any litigation, the
limitation in the immediately preceding sentence shall not apply and the
Indemnifying Parties shall pay the reasonable fees and expenses of as many
firms of attorneys as AHM reasonably requires to defend its interests.
(c) Each of the Indemnifying Parties agrees to notify AHM
promptly of the commencement of any litigation against any of the parties to
the Agreement in connection with the issue and sale of the Lithia Stock. The
Indemnifying Parties and AHM agree to cooperate with each other in the
defense of any such litigation in which AHM is named as a party.
32
(d) The Indemnifying Parties shall not be obligated to
indemnity or reimburse AHM under this Indemnification Agreement for any
amounts paid in settlement of any litigation effected without Lithia Motors's
prior written consent. The Indemnifying Parties shall not, in the defense of
any such litigation, except with AHM's prior written consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or the plaintiff to AHM
of a release from all liability in respect to such litigation. Neither
Lithia Motors nor AHM shall unreasonably withhold its consent to any proposed
settlement.
3. PAYMENT OF EXPENSES
The Indemnifying Parties agree that it will pay any and all expenses
incurred by AHM in defending any civil or criminal action, suit or proceeding
against AHM in advance of the time such expenses are due. With respect to
legal fees and disbursements of AHM's attorneys, the Indemnifying Parties
will pay such attorneys an advance retainer of up to $20,000 and will pay
additional fees and expenses of such attorneys in increments of not more am
$20,000 periodically in advance of the dates that such fees and expenses are
incurred.
4. ENFORCEMENT
(a) The Indemnifying Parties expressly confirm and agree that
they have entered into this Indemnification Agreement and assume the
obligations imposed by it in order to induce AHM to consent to the offer and
sale of Lithia Stock and acknowledge that AHM is relying upon this
Indemnification Agreement to grant such consent.
(b) In the event AHM is required to bring any action to enforce
rights or to collect monies due under this Indemnification Agreement and is
successful in such action, the Indemnifying Parties shall reimburse AHM for
all of AHM's reasonable fees and expenses in bringing and pursuing such
action.
5. MISCELLANEOUS
(a) This Indemnification Agreement shall be interpreted and
construed in accordance with the laws of the State of California, without
giving effect to the conflict of law rules.
(b) This Indemnification Agreement shall be binding upon and
inure to the benefit of the Indemnifying Parties and AHM and their respective
legal representatives, successors and assigns.
(c) No amendment, modification or termination of this
Indemnification.Agreement shall be effective unless in writing and signed by
both parties hereto.
(d) If any provision of this Indemnification Agreement should
be held invalid or unenforceable for any reason whatsoever, or conflicts with
any applicable law, this Indemnification Agreement will be considered
divisible as to such provision(s), and such provision(s) will be deemed
amended to comply with such law, or if it (they) cannot be so amended without
materially affecting the tenor of this Indemnification Agreement, then it
(they) will be deemed deleted from this Indemnification Agreement in such
jurisdiction, and in either case, the remainder of this Indemnification
Agreement will be valid and binding.
33
IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement on the date first above written.
LITHIA MOTORS, INC.
BY: /s/Sidney B. DeBoer
-------------------------------------------
Title:
LITHIA HOLDING, LLC
BY: /s/Sidney B. DeBoer
-------------------------------------------
Title:
LITHIA HPI, LLC
BY: /s/Sidney B. DeBoer
-------------------------------------------
Title:
LITHIA HS, INC.
BY: /s/Sidney B. DeBoer
-------------------------------------------
Title:
------------------------------------------------
/s/Sidney B. DeBoer
Sidney B. DeBoer
------------------------------------------------
/s/M.L. Dick Heimann
M.L. Dick Heimann
------------------------------------------------
/s/R. Bradford Gray
R. Bradford Gray
AMERICAN HONDA MOTOR CO., INC.
Honda Division
BY: /s/Richard Colliver
-------------------------------------------
Richard Colliver
Senior Vice President
Automobile Sales Division
AMERICAN HONDA MOTOR CO., INC.
Acura Division
BY: /s/Richard B. Thomas
-------------------------------------------
Richard B. Thomas
Executive Vice President
Acura Division
34
G.
AHM Policies
35