EX-10
Exhibit 10.7.2 Ford Supplemental Terms & Cond
EXHIBIT 10.7.2
SUPPLEMENTAL TERMS AND CONDITIONS
FORD MOTOR COMPANY
This Agreement is made this 12th day of June, 1997 by and between Ford
Motor Company, a Delaware corporation with its principal place of business at
The American Road, Dearbom, Michigan (hereinafter called "Ford") and Lithia
Motors, Inc., an Oregon corporation, with its principal place of business at
Medford, Oregon (hereinafter called "Lithia").
WHEREAS; Lithia is established as a holding company, owning all the
shares of Lithia MTLM, Inc. of Medford, OR (LMTLM); and
WHEREAS; Lithia owns eighty (80%) percent of Lithia Motors TLM, LLC
("LTLM") and LMTLM owns twenty (20%) percent of LTLM; and
WHEREAS; LTLM holds the Lincoln and Mercury Sales and Service
Agreements ("Agreements") being transferred to Lithia; and
WHEREAS; Lithia has expressed its interest in changing the current
ownership structure, so that a minority ownership of Lithia's shares can be
held by the public; and
WHEREAS; Lithia acknowledges that Ford has the right to approve the
purchaser of the member units or assets of LTLM pursuant to the Agreements;
and
WHEREAS; Lithia has expressed an interest in acquiring additional Ford,
authorized dealerships primarily in the western United States and Lithia
acknowledges that Ford has the right to approve the purchase of the capital
stock or assets of each Ford authorized dealership pursuant to the Agreement,
as herein defined;
WHEREAS; Ford is willing to approve the transfer of up to forty-nine
(49%) percent of Lithia's voting interest to the public, subject to the terms
and conditions of the Agreements and the terms of these Supplemental Terms
and Conditions ("Supplemental Terms"); and
WHEREAS; Ford is willing to approve the transfer by one or more of its
authorized dealerships of their Ford, Mercury or Lincoln dealership
operations to Lithia, on a case by case basis but subject to the terms and
conditions of the Ford, Mercury and/or Lincoln Dealer sales and service
Agreements ("Agreement") and
the terms of these Supplemental Terms and conditions ("Supplemental
Terms");
NOW, THEREFORE, the parties do agree as follows:
1. Definitions. For purposes hereof, the following definitions
shall apply in addition to those set forth above:
a. "General Manager" shall mean the person designated by Lithia
pursuant to paragraph F (ii) of the Agreement with full day to day management
authority and approved by Ford in writing.
b. "Securities Act" shall mean the Securities Act of 1933, as
amended.
c. "Exchange Act" shall mean the Securities and Exchange Act of
1934, as
amended.
d. "SEC" shall mean the Securities and Exchange Commission.
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e. "Dealership" shall mean each Ford, Mercury or Lincoln
authorized dealership owned or controlled directly or indirectly by Lithia.
f. "Delegation Certificate" shall be the instrument executed by
an authorized officer of Lithia granting, full day to day operational and
management control of the Dealership to the General Manager.
g. "CSI" shall mean the Customer Satisfaction Index used by Ford
to measure customer satisfaction in terms of the selling process as well as
after sales service, as such may be modified from time to time by Ford.
2. Scope. Lithia has indicated that it will seek to acquire or
apply for additional Ford authorized dealerships (Ford, Mercury or Lincoln),
primarily in markets in the western United States. In order to simplify
future discussions and to avoid any misunderstandings, these Supplemental
Terms are intended to apply to those situations where Ford is willing to
approve Lithia (or its designated wholly- owned direct or indirect
subsidiary) as the purchaser of the capital stock or assets of a Ford
authorized dealership (Ford, Mercury or Lincoln) or where it is willing to
enter into an Agreement with Lithia with respect to a new dealership
location. In each situation where Ford is willing to enter into an
Agreement, Lithia will cause the Dealership to execute an Agreement and will
cause such Dealership to be bound by these Supplemental Terms.
3. Sole Ownership. To maintain financial and operational
autonomy and accountability, each Dealership will be a separate corporation
with the Ford, Mercury and or/Lincoln dealership operation being its sole
business, unless otherwise agreed in writing by Ford; provided, however,
that, if, at the time of acquisition of any Dealership, such Dealership is
not a separate corporation, Lithia will use reasonable efforts to cause the
Dealership to be held as a separate corporation as soon as practicable. Each
dealership shall be wholly owned by Lithia. Ford, however, does acknowledge
that LTLM will be a separate legal entity with the Mercury, Lincoln and
Toyota dealership operation being its sole business, and that there shall be
no requirement for this to change. Further, Ford acknowledges that LTLM will
not initially be wholly owned by Lithia, such issue which is addressed
further in these Supplemental Terms and Conditions. As is required of all
Ford authorized dealerships, LTLM and all other Dealerships shall continue to
submit monthly financial and operating performance data to Ford.
4. Capitalization. Each Dealership will be separately and fully
capitalized to ensure the maintenance of net cash, working capital and
operating investment in accordance with Ford guidelines. Other than through
dividends permitted by the law of the state of incorporation of each
Dealership, the effect of which shall not impair the ability of the
Dealership to meet the above mentioned Ford capitalization guidelines, or
through arms-length transactions, all cash and other assets generated by each
Dealership will remain within the Dealership and none of the assets of any
Dealership owned or controlled by Lithia shall be used directly or indirectly
to secure the debt or liability of Lithia or any other Dealership or other
business owned or controlled by Lithia; provided, however, that nothing
herein shall prevent the cross collateralization of capital stock or assets
with respect to the obtaining of a single floorplan financing source for all
of the Dealerships owned by Lithia. Provided, such actions are consistent
with the above undertakings, nothing contained herein shall preclude Lithia
from managing cash generated from the Dealership operations in accordance
with policies and programs established from time to time by Lithia.
5. General Manager. Lithia shall delegate in writing the
complete day to day management control of each Dealership to the General
Manager of such Dealership whose appointment shall be subject to Ford's prior
written approval which shall not be unreasonably withheld. The General
Manager shall be designated in paragraph F (ii) of the Agreement and shall
have full managerial authority and accountability for operating the
Dealership in accordance with the terms of the Agreement and the Supplemental
Terms. Each person nominated by Lithia as a General Manager must have
substantial, successful retail automotive experience and must meet Ford's
high standards for moral and ethical behavior. Upon the appointment of a
General Manager, a copy of the Delegation Certificate shall be submitted to
Ford. All proposed changes to the Delegation Certificate shall be in
writing, submitted to Ford and subject to Ford's prior written approval.
Lithia will notify Ford and obtain Fords prior written approval of any
proposed change to the General Manager, such approval not to be unreasonably
withheld. Lithia shall have the right to appoint an interim General Manager
as a temporary replacement for any General Manager who is terminated for
cause or who voluntarily resigns, in each case without the prior written
approval of Ford. In the event that an interim General Manager is appointed,
Lithia shall work with Ford to appoint a permanent General Manager within 90
days after the termination or departure of any current permanent General
Manager. In addition to meeting the criteria Ford customarily applies to new
dealer candidates, Lithia understands that the General Manager is to be
assigned to the Dealership for a sufficient time (being a minimum of 3 years
unless otherwise agreed by Ford in writing) to allow the General Manager to
develop and maintain ties to the local community evidenced by involvement in
community civic and charitable organizations, unless failure with respect to
performance of the Dealership warrants otherwise.
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6. Compensation Plans. Lithia will cause any Dealership to
provide to its General Manager and other key employees of the Dealership, as
deemed appropriate, as part of their compensation, incentive programs that
will provide specific financial rewards to the General Manager and such other
employees that are payable to them at least annually and are based upon the
achievement and maintenance by the Dealership of the long term and short term
operating performance objectives.
7. Performance Criteria. Should any Dealership fail to meet
reasonable performance criteria established by Ford relating to such matters
as sales performance, CSI and such performance criteria that Ford may
reasonably apply to all its authorized dealers, Ford will have the right to
implement the following procedure. Ford shall notify Lithia and the General
Manager in writing of such failure and shall grant Lithia and the General
Manager 90 days to either cure the failure in total or, with respect to sales
performance and CSI only, to present to Ford evidence of progress to cure the
failure indicating in Ford's reasonable judgment that the failure will be
cured within one year of Ford's notice. Should the failure not be cured
within the above period, persons delegated with authority from Lithia shall
immediately meet with authorized personnel from Ford to arrange for an
orderly and expeditious replacement of the General Manager. Should agreement
not be reached upon the identity of an appropriate replacement General
Manager within 90 days of the end of the cure period, Ford may terminate the
Agreement with immediate effect. Requirements that Dealerships consistently
meet or exceed Ford's regional average car and truck market share and
comparable dealer group average customer.satisfaction ratings, as measured by
CSI or other criteria established by Ford, shall be considered reasonable
performance requirements. Ford will not unreasonably withhold its consent to
the appointment of an appropriate replacement General Manager.
8. Additional Appointments. During the initial 12 month period after
the execution of this Agreement, Lithia shall be allowed to acquire up to two
(2) additional Lincoln Mercury Division supervised dealerships and up to three
(3) Ford Division supervised dealerships. The performance (sales performance,
CSI and such performance criteria that Ford may reasonably apply to all its
authorized dealers) of the Dealerships shall be monitored for a period of twelve
(12) months from the date of the first acquisition of a Ford Division
dealership, and if performance at the Dealerships operated by Lithia is deemed
to constitute satisfactory performance by Ford, then Lithia shall be allowed to
acquire up to one additional Ford Division supervised dealership and one
additional Lincoln Mercury supervised dealership. The performance of the
Dealerships will subsequently be reviewed for a nine month period (or more, if
an additional acquisition is not requested within the nine month period) from
the date of any new acquisition, to determine whether satisfactory performance
has been achieved and maintained and whether additional acquisitions in the
manner outlined above will be approved. Such additional acquisitions shall not
exceed one Ford Division supervised dealership and one Lincoln Mercury
supervised dealership during any nine month monitoring period, unless such
limitation is waived at Ford's sole discretion. In addition, should any
Dealership fail to maintain for any 12 month period the level of CSI at
substantially the same level that was reported for such Dealership as of the
date of its acquisition by Lithia, the Company shall not seek or apply for
another Ford authorized dealership until such time as such level of CSI is
restored to Ford's reasonable satisfaction. Ford will provide each Dealership a
report monthly, summarizing its CSI performance for the preceding month and for
the calendar year to date. Unless otherwise agreed by Ford in writing, Lithia
shall not seek or apply for a Ford authorized dealership if, once owning such
dealership, Lithia would own or control, directly or indirectly, the greater of
(a) 15 Ford and 15 Lincoln Mercury Dealerships or (b) that number of Ford
authorized dealerships with total retail sales of new vehicles in the
immediately preceding calendar year of more than 5% of the total Ford and
Lincoln Mercury branded vehicles sold at retail in the United States; provided,
however, that in no event shall Lithia seek or apply for a Ford authorized
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dealership in any market area, as defined from time to time by Ford for its
dealership network, that would result in the Lithia owning or controlling,
directly or indirectly, more than one Ford authorized dealership in those market
areas having 2 or less Ford authorized dealerships in them, or in Lithia owning
or controlling, directly or indirectly, more than 33% of the Ford authorized
dealerships in market areas, as defined from time to time by Ford for its
dealership network, having more than 3 authorized Ford dealerships in them, it
being understood that this provison is intended to apply separately to Ford and
to Lincoln Mercury dealerships. Should the above limitations be exceeded and,
notwithstanding the above limitations, Lithia seek Ford's approval to acquire an
additional authorized dealership, Ford's refusal to approve such an acquisition
shall be deemed to be a reasonable action by Ford.
9. Identification of Lithia Contact Official. Lithia shall
identify, in the Agreements, the Lithia executive (other than the General
Managers of the Dealerships) who will respond directly to any Ford concerns
regarding the operation or performance of the Dealerships, which executive
will have full authority, in accordance with Lithia management policies, to
resolve issues raised by Ford in connection with the operation of the
Dealerships.
10. Issuance of Shares. Lithia agrees that public ownership of
Lithia shall not exceed shares representing forty-nine percent (49%) of the
total voting control of Lithia. Further Lithia agrees that it shall not make
any changes to the voting structure of shares issued, authorize the creation
of a preferred class of stock or provide such class of stock voting rights,
which would result in a loss of voting control by the Holding Company,
without the prior approval of Ford. It is agreed that the voting rights
percentage of ownership for the Holding Company in Lithia will be maintained
at a percentage of at least fifty-one (51%) percent.
11. Major Changes. Lithia shall submit to Ford copies of all
effective registration statements and final reports, proxies and information
statements it files with the SEC pursuant to the Securities Act or the
Exchange Act within five (5) business days of filing with the SEC. Lithia,
if it becomes aware of or obtains copies of, shall submit to Ford all filings
submitted to the SEC by third parties that are required to disclose
significant holdings or substantial acquisitions of, or changes in, the
ownership of the capital stock of Lithia Holding LLC ("Holding, Company), the
holding Company that will hold a majority voting interest in Lithia,
including, without limitation, Schedules 13D or 13G provided Lithia becomes
aware of or receives copies of such filings. Certain events described in
such filings shall give rise to the rights and obligations of the parties
described in Attachment A.
12. Dissolution of LTLM. It is understood by Ford that the
establishment of LTLM by Lithia was undertaken to generate maximum tax
deferral benefits for Lithia, such benefits which will be fully realized by
Lithia by December 31, 1997. At such time, Lithia will dissolve LTLM and
Ford will agree to amend the Agreements to reflect LMTLM as the holder of the
Agreements with one hundred percent (100%) ownership of LMTLM being held by
Lithia. The request for the change will occur by no later than March 31,
1998 and Ford will have sixty (60) days after such request to process the
change. It is agreed by Lithia that at such time, LMTLM will then be bound
by all the terms and conditions herein that are currently applicable to LTLM.
13. Exclusive Dealership. Each Dealership shall operate as an
exclusively dedicated Ford, Mercury and/or Lincoln dealership, as the case
may be, and Lithia will not accept a sales and service agreement with any
other automobile manufacturer or importer or allow the merchandising,
display, sale or service of new vehicles other than Ford, Mercury or Lincoln
vehicles at the facilities and locations approved by Ford and used by any
Dealership for the conduct of its business ("Ford Approved Facilities"). It
is acknowledged by Ford, however, that LTLM shall operate as a Mercury,
Lincoln and Toyota dealership only, and Lithia will not accept a sales and
service agreement with any other automobile manufacturer or importer or allow
the merchandising, display, sale or service of new vehicles other than those
identified above at the facilities and locations approved by Ford and used by
LTLM for the conduct of its business. Neither LTLM, nor any other Dealership
will merchandise, display or sell new Ford, Mercury or Lincoln vehicles at
any unauthorized location including those owned or controlled by Lithia or
the Holding Company.
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14. Dealership Name. The trade name and corporate name of all
Dealerships will be subject to Ford's approval and will not include any
reference to any non-Ford, Mercury or Lincoln make vehicle.
15. Prospectus Disclaimer and Indemnification and Hold Harmless
Agreement. Lithia shall place in its registration statement and its
prospectus, as well as in any other document offering shares in Lithia 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.
16. Advertising. Lithia recognizes the benefit of local
cooperative advertising and has indicated that it will cause LTLM to remain a
fully participating member of the local Lincoln and Mercury dealer
advertising group (LMDA). Further, Lithia agrees that it will cause any
additional Dealership it shall obtain to remain a fully participating member
of the LMDA and/or the local Ford dealer advertising group (FDAF), as
applicable.
17. Auctions. Used vehicle purchases from Ford sponsored
auctions will be governed by a separate "Sponsored Auction Agreement" which
will be executed by each Dealership.
18. Site Control. Any existing agreement covering a Dealership
or its assets relating to site control will be assumed by Lithia and shall
remain in full force and effect.
19. Dispute Settlement. Any dispute concerning the Agreement or
the Supplemental Terms shall be resolved using the arbitration plan described
in paragraph 18 of the Agreements; provided, however, that notwithstanding
anything in the Agreement to the contrary, the use of such Plan shall be
mandatory and not optional and, provided, further, that no dispute need be
brought before the Ford Dealer Policy Board.
20. Agreement and Supplemental Terms. Lithia confirms that the
provisions of these Supplemental Terms are material to its relationship with
Ford and that a failure by Lithia to fully comply with any term hereof, after
having been given a reasonable opportunity to cure such failure, will
constitute good and just cause for Ford, in its discretion, to terminate the
Agreement and these Supplemental Terms with immediate effect.
21. Binding Effect. These Supplemental Terms are intended to
modify certain provisions of the Agreement and to be incorporated as a part
of the Agreement. Should there be an inconsistency between the terms of
these Supplemental Terms and any provision of the Agreement, the terms of
these Supplemental Terms shall apply.
22. Parent-Subsidiary. Lithia shall cause the Holding Company
and each Dealership to carry out the actions and to assume the
responsibilities provided herein.
IN WITNESS WHEREOF, Lithia and Ford, through their authorized officers,
have set their hands on the day and year above written.
Ford Motor Company Lithia Motors, Inc.
By: /s/ Ford Motor Company By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------- --------------------------------
Its Its President-CEO
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Attachment A
Should (a) any SEC filing disclose that a person, entity or group has a
binding agreement to acquire, or has acquired, an amount of voting securities
(or other securities convertible into voting securities) of Lithia or the
Holding Company that will place 50% or more of the voting securities (or
other securities convertible into voting securities) of Lithia or the Holding
Company into the hands of a person, entity or group who, at the date hereof,
do not directly or indirectly control 50% or more of the voting securities
(or other securities convertible into voting securities) of Lithia or the
Holding Company or the power through capital stock ownership or by contract
to elect or designate the election of 50% or more of the members of the Board
of Directors of Lithia or the Holding Company, or (b) should Lithia or the
Holding Company through their respective Boards of Directors or through
shareholder action propose (i) to enter into an extraordinary and material
corporate transaction such as a material merger or consolidation of Lithia or
the Holding Company with an enterprise in an industry new to Lithia or the
Holding Company or the liquidation of Lithia or the Holding Company,
respectively, or (ii) to sell or transfer substantially all the respective
assets of Lithia or the Holding Company or (iii) to make a change that,
together with other changes made to the respective Boards of Directors of
Lithia or the Holding Company within the preceding year would result in a
change of more than 50% of the composition of either Board of Directors,
Lithia shall provide 30 days prior written notice of such intended or
proposed action to Ford. If any such action is believed by Ford in its
reasonable judgment to have a material and adverse effect on its reputation
or image in the market place, with respect to the actions described in (b) or
materially incompatible with Ford's interests with respect to the actions
described in (a) Ford shall give Lithia written notice to such effect within
30 days of Lithia's prior notice to Ford. In such event, within 90 days of
Ford's notice, Lithia shall sell or cause to be sold one or more of the
Dealerships, as specified in the notice, to Ford or its designee at fair
market value, determined in accordance with Annex 1 or provide evidence to
Ford that the proposed action which gave rise to the issuance of Ford's
notice will not take place. Should Lithia enter into an agreement to
transfer the assets or capital stock of any Dealership to a third party,
Ford's right of first refusal provided in paragraph 24 (b) of the Agreement
shall apply.
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ANNEX
The Fair Market Value shall be determined as follows:
(a) Within 10 days after Ford has given notice to Lithia of its
intention to cause Lithia to sell one or more Dealerships (herein called the
"Valuation Date"), Ford and Lithia each shall designate a nationally
recognized investment banking firm ("Investment Banker"). If either Ford or
Lithia shall fail to designate an Investment Banker within such 10-day
period, the Investment Banker designated by the other party shall determine
the Fair Market Value, and such determination shall be binding on the parties.
(b) Within 30 days after the Valuation Date, each Investment Banker
shall submit to Ford and Lithia its written determination of the Fair Market
Value of the Dealership or group of Dealerships. If only one Investment
Banker submits a written determination within such 30-day period, the Fair
Market Value shall be deemed to be the value stated in such determination.
(c) If the two values established by the first two Investment Bankers
are within ten percent (10%) of one another (as measured from the lower
value), the average of the two values shall be deemed to be the Fair Market
Value. If the two values established by the Investment Bankers differ by
more than ten percent (10%) (measured from the lower value), the first two
Investment Bankers shall, within 10 days of the Valuation Date, jointly
select a third Investment Banker meeting the criteria specified in paragraph
(a) who shall submit to Ford and Lithia a written determination of the Fair
Market Value of the Dealership or group of Dealerships within 30 days of its
appointment. If the first two Investment Bankers fail to appoint the third
Investment Banker within the period specified, such appointment shall be made
by the American Arbitration Association. The average of the two valuations
that are closer in value shall be deemed to be the Fair Market Value of the
Dealerships or group of Dealerships.
(d) Ford and Lithia each shall bear the expense of the Investment
Banker hired by it and shall share equally in the expense of the third
Investment Banker.
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