-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Qv3fFnnQXyPCbrB7qvQJ6GleFaQ5mBSy/F5cJFpHMLg2kb8tN1qhs+9zJtuDYQnT w7pA8G1iZeStKNdIc39hGA== 0000929624-98-001418.txt : 19980817 0000929624-98-001418.hdr.sgml : 19980817 ACCESSION NUMBER: 0000929624-98-001418 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRSTAMERICA AUTOMOTIVE INC /DE/ CENTRAL INDEX KEY: 0000766886 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MANAGEMENT SERVICES [8741] IRS NUMBER: 880206732 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-97254-NY FILM NUMBER: 98690793 BUSINESS ADDRESS: STREET 1: 601 BRANNAN STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94107 MAIL ADDRESS: STREET 1: 601 BRANNAN STREET CITY: SAN FRANCISCO STATE: CA ZIP: 94107 FORMER COMPANY: FORMER CONFORMED NAME: PACIFIC NATIONAL VENTURE INC DATE OF NAME CHANGE: 19980501 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____ to ____ Commission file number: 2-97254-NY FIRSTAMERICA AUTOMOTIVE, INC. (Exact name of registrant as specified in its charter) DELAWARE 88-0206732 (State or other jurisdiction of (I.R.S. Employer incorporation Identification No.) or organization) 601 Brannan Street San Francisco, California 94107 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (415) 284-0444 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 30, 1998. Class A Common stock, $0.00001 par value 11,179,029 Class B Common stock, $0.00001 par value 3,032,000 FIRSTAMERICA AUTOMOTIVE, INC. FORM 10-Q INDEX
PART I - FINANCIAL INFORMATION Page Item 1. Financial Statements Condensed Consolidated Balance Sheets - June 30, 1998 and December 31, 1997 2 Condensed Consolidated Statements of Operations - Three and Six Months Ended June 30, 1998 and 1997 4 Condensed Consolidated Statement of Stockholders' Equity - June 30, 1998 and December 31, 1997 5 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 1998 and 1997 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 15 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 16 Signatures 17
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FIRSTAMERICA AUTOMOTIVE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
June 30, 1998 December 31, 1997 --------------- --------------------- ASSETS ------ Cash ............................................................ $ 2,187 $ 2,924 Contracts in transit ............................................ 14,163 9,454 Accounts receivable, net of allowance for doubtful accounts of $408 in 1998 and $320 in 1997 .......................... 14,399 10,328 Inventories: New vehicles ........................................... 68,023 58,344 Used vehicles .......................................... 16,021 14,027 Parts and accessories .................................. 5,732 5,223 -------- -------- Total inventories ............................... 89,776 77,594 Prepaid costs - extended warranty service contracts ............... 881 848 Deferred income taxes ........................................... 676 618 Deposits, prepaid expenses and other ............................ 4,101 2,779 -------- -------- Total current assets ............................ 126,183 104,545 Property and equipment, net of accumulated depreciation of $2,570 in 1998 and $2,133 in 1997 ............................. 9,672 7,081 Other assets: Prepaid costs - extended warranty service contracts ...... 1,117 1,287 Loan origination and other costs, net of amortization of $452 in 1998 and $195 in 1997 ................... 3,301 3,407 Other noncurrent assets ................................ 1,522 1,342 Goodwill, net of accumulated amortization of $287 in 1998 and $125 in 1997 ........................ 20,226 6,340 -------- -------- Total assets .................................... $162,021 $124,002 ======== ========
See accompanying notes to condensed consolidated financial statements. 2 FIRSTAMERICA AUTOMOTIVE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS, CONTINUED (In thousands, except share data) (Unaudited)
June 30, December 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997 ------------------------------------ -------- -------- Current liabilities: Accounts payable ......................................................... $ 6,523 $ 6,137 Accrued liabilities ...................................................... 11,936 8,804 Floor plan notes payable ................................................. 81,617 66,539 Secured lines of credit .................................................. 16,525 4,000 Other notes payable ...................................................... 6,552 1,218 Deferred revenue - extended warranty service contracts ..................... 2,115 2,034 -------- -------- Total current liabilities ................................... 125,268 88,732 Long-term liabilities: Senior notes, net of unamortized discount of $1,963 in 1998 and $2,062 in 1997 ......................................... 22,037 21,938 Deferred income taxes .................................................... 327 269 Deferred revenue - extended warranty service contracts .................... 2,708 3,061 -------- -------- Total liabilities ........................................... 150,340 114,000 8% cumulative redeemable preferred stock, $0.00001 par value; 3,500 shares issued and outstanding in 1998 and 1997 (net of discount of $491 and $526, liquidation preference of $3,500) ........................................ 3,009 2,974 Redeemable preferred stock, $0.00001 par value; 500 shares issued and outstanding in 1998 and 1997 (net of discount of $70 and $75, liquidation preference of $580 and $540) ............................................. 510 465 Stockholders' Equity Common stock, $0.00001 par value: Class A, 30,000,000 shares authorized, 11,179,029 shares issued and outstanding in 1998 and 11,201,152 in 1997 .............. -- -- Class B, 5,000,000 shares authorized, 3,032,000 shares issued and outstanding in 1998 and 1997 ............................ -- -- Class C, 30,000,000 shares authorized, 0 issued and outstanding .... -- -- Additional paid-in capital ............................................... 6,544 6,544 Retained earnings ........................................................ 1,618 19 -------- -------- Total shareholders' equity .................................. 8,162 6,563 -------- -------- Total liabilities and shareholders' equity .................. $162,021 $124,002 ======== ========
See accompanying notes to condensed consolidated financial statements. 3 FIRSTAMERICA AUTOMOTIVE, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share amounts) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, -------------------------- -------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Sales: Vehicle ....................................................... $ 155,026 $ 81,588 $ 291,766 $ 160,533 Service, parts and other ...................................... 28,025 15,462 51,902 29,541 ----------- ----------- ----------- ----------- Total sales ............................................. 183,051 97,050 343,668 190,074 Cost of sales: Vehicle ....................................................... 142,149 76,317 268,096 150,393 Service, parts and other ...................................... 11,991 7,117 22,243 13,632 ----------- ----------- ----------- ----------- Total cost of sales ..................................... 154,140 83,434 290,339 164,025 Gross profit ............................................ 28,911 13,616 53,329 26,049 Operating expenses: Selling, general and administrative ........................... 23,782 12,344 44,440 22,876 Depreciation and amortization ................................. 566 206 965 330 Combination and related expenses .............................. -- 1,584 -- 2,268 ----------- ----------- ----------- ----------- Operating income (loss) ................................. 4,563 (518) 7,924 575 Other expense: Interest expense, floor plan .................................. (1,509) (790) (2,689) (1,612) Interest expense, other ....................................... (1,152) (133) (2,043) (133) ----------- ----------- ----------- ----------- Income (loss) before income taxes ....................... 1,902 (1,441) 3,192 (1,170) Income tax (benefit) expense ......................................... 818 (1,262) 1,373 (1,025) ----------- ----------- ----------- ----------- Net income (loss)........................................ $ 1,084 $ (179) $ 1,819 $ (145) =========== =========== =========== =========== Basic earnings (loss) per share of common stock ......... $ .07 $ (0.02) $ .11 $ (0.02) Weighted average common shares outstanding .............. 14,211,067 7,841,092 14,218,400 7,841,092 Diluted earnings (loss) per share of common stock ....... $ .07 $ (0.02) $ .11 $ (0.02) Weighted average common and common equivalent shares outstanding ......................... 14,720,671 7,841,092 14,678,160 7,841,092
See accompanying notes to condensed consolidated financial statements 4 FIRSTAMERICA AUTOMOTIVE, INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In thousands) (Unaudited)
Common Stock --------------------------------------- Class A Class B --------------------------------------- Paid-in Retained Total Shares Amount Shares Amount Capital Earnings Equity -------------------------------------------------------------------------- Balance, December 31, 1997 ................ 11,201 $ -- 3,032 $ -- $ 6,544 $ 19 $ 6,563 Preferred dividend, liquidation preference, and discount amortization ............ (220) (220) Retirement of shares ...................... (22) Net income ................................ 1,819 1,819 -------------------------------------------------------------------------- Balance, June 30, 1998 .................... 11,179 $ -- 3,032 $ -- $ 6,544 $ 1,618 $ 8,162 ==========================================================================
See accompanying notes to condensed consolidated financial statements. 5 FIRSTAMERICA AUTOMOTIVE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
Six months ended June 30, ------------------------------------- 1998 1997 -------------- ------------- Cash flows from operating activities: Net income (loss) ...................................... $ 1,819 $ (145) Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ................ 965 330 Non-cash stock compensation .................. -- 701 Deferred income taxes ........................ -- (589) Deferred warranty revenue amortization, net .. (135) (162) Changes in operating assets and liabilities: Receivables and contracts in transit .... (8,780) (1,110) Inventories ............................. (8,146) (4,917) Deposits, prepaids and other assets ..... (1,961) (169) Floor plan notes payable ................ 12,600 (2,467) Accounts payable and accrued liabilities 3,518 6,981 -------------- ------------- Net cash used in operating activities ... (120) (1,547) Cash flows from investing activities: Capital expenditures ................................... (2,704) (225) Cash paid for acquisitions ............................. (15,481) (6,091) -------------- ------------- Net cash used in investing activities ... (18,185) (6,316) -------------- ------------- Cash flows from financing activities: Borrowings on secured lines of credit .................. 12,525 -- Borrowings on notes payable ............................ 5,334 8,075 Loan origination costs ................................. (151) -- Distributions to shareholders, pre-Combination (Note 1) -- (468) Preferred stock dividend ............................... (140) -- -------------- ------------- Net cash provided by financing activities 17,568 7,607 -------------- ------------- Net decrease in cash and cash equivalents (737) (256) Cash at beginning of period .................................. $ 2,924 $ 668 -------------- ------------- Cash at end of period ........................................ $ 2,187 $ 412 ============== ============= Cash paid during the period for: Interest ............................................... $ 3,786 $ 1,545 Income taxes ........................................... $ 1,222 $ 261 Non-cash activity was as follows: Common stock issued as compensation .......................... $ -- $ 701
See accompanying notes to consolidated financial statements. 6 FIRSTAMERICA AUTOMOTIVE, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (In thousands, except per share amounts) (Unaudited) (1) BASIS OF PRESENTATION The financial information included herein for the three and six-month periods ended June 30, 1998 and 1997 is unaudited and reflects, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and the results of operations for the periods presented. The financial information as of December 31, 1997 is derived from FirstAmerica Automotive, Inc.'s Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 14, 1998. These interim condensed consolidated financial statements should be read in conjunction with FirstAmerica Automotive, Inc.'s audited consolidated financial statements and the notes thereto included in FirstAmerica Automotive, Inc.'s Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the full year. (a) Organization and Combination Effective July 11, 1997, FirstAmerica Automotive, Inc. (the Company) combined (the "Combination") with a group of automobile dealership entities under common ownership and control (the "Price Dealerships"). The stockholders of the Price Dealerships received 5,526,000 shares of FirstAmerica Automotive, Inc.'s common stock, which represented a majority of the total outstanding shares of capital stock of FirstAmerica Automotive, Inc. immediately following the Combination. The Combination was accounted for as the acquisition of FirstAmerica Automotive, Inc. by the Price Dealerships, and accordingly, the financial statements for periods before the Combination represent the financial statements of the Price Dealerships. (b) Business The Company's plan is to acquire and operate multiple automobile dealerships in the highly fragmented automobile retailing industry. The Company operates 16 automobile dealerships in California, including 12 in Northern California and four in Southern California. In June 1998 the Company also opened its previously announced multi-brand service and repair facility in downtown San Francisco, California. The Company sells new and used cars and light trucks, sells replacement parts, provides vehicle maintenance, warranty and repair services, and arranges related financing and insurance products ("F&I") for its customers. The Company sells 12 domestic and foreign brands, which consist of BMW, Buick, Dodge, GMC, Honda, Isuzu, Lexus, Mitsubishi, Nissan, Pontiac, Toyota and Volkswagen. (c) Principles of Consolidation The condensed consolidated financial statements include the accounts of FirstAmerica Automotive, Inc. and its wholly-owned subsidiaries. All significant intercompany accounts and transactions are eliminated in consolidation. (2) FLOOR PLAN NOTES PAYABLE AND SECURED LINES OF CREDIT At the time of the Combination, the Company entered into a three year $175 million Loan and Security Agreement (the "Loan Agreement") with a financial company, replacing an existing $37 million line of credit to the Company. The Loan Agreement permits the Company to borrow up to a maximum of: (i) $115 million in floor plan notes payable to finance vehicle inventory; (ii) a $35 million revolver facility ("Revolver Advances"), limited by the used and parts inventory borrowing base as defined in the loan agreement; and (iii) a $25 million discretionary facility ("Discretionary Advances"), which the financial company makes at its absolute sole discretion upon request of the Company. 7 As of June 30, 1998, the Company had floor plan notes payable, Revolver Advances, and Discretionary Advances outstanding of $81.6 million, $16.5 million, and $0, respectively. Floor plan notes payables are due when vehicles are sold, leased, or delivered. Revolver Advances are due whenever the used vehicle and parts borrowing base as defined in the Loan Agreement is exceeded. The Loan Agreement grants a collateral interest in substantially all of the Company's assets and contains various financial covenants such as minimum interest coverage, minimum working capital ratios, and maximum debt to equity ratios. The availability of the Company to draw on the floor plan notes payable, Revolver Advances, and Discretionary advances for the purpose of acquiring automobile dealerships, is limited by the amount of vehicle and parts inventory of the acquired dealership. The Company also has $12.0 million available under its senior notes facility to finance acquisitions. (3) BUSINESS ACQUISITIONS (a) Beverly Hills BW, Ltd. In April 1998, the Company acquired substantially all of the operating assets of Beverly Hills BW, Ltd., a BMW automobile dealership located in West Los Angeles, California. The acquisition was accounted for using the purchase method of accounting and the results of operations of Beverly Hills BW, Ltd. has been included in the accompanying financial statements for the period beginning April 2, 1998, the effective date of acquisition. The $11.7 million purchase price was financed using the Company's secured lines of credit. The purchase price was allocated to the assets and liabilities acquired based on their estimated fair market value at the acquisition date as follows (in thousands):
Inventory and other assets, net of floor plan financing $ 1,275 Property and equipment 194 Goodwill 10,250 ------- Total purchase price $11,719 =======
(b) Burgess British Cars, Inc. In June 1998, the Company acquired substantially all of the operating assets of Burgess British Cars, Inc., a Honda automobile dealership located in Daly City, California. The $3.8 million purchase price and $0.2 million of additional working capital was financed by the proceeds of a $4.0 million loan from the Chairman of the Company's Board of Directors, to the Company, pursuant to the terms of a Letter Agreement between the Company and the Chairman. Pursuant to the terms of the Letter Agreement, the Chairman will be paid a 3% origination fee on the loan. The annual interest rate on the loan is 8.75%. The principal amount is due at the earlier of June 1, 1999 or upon the refinancing and/or equity offering of either preferred or common shares in the Company. The Company believes the origination fee to be paid to the Chairman is equivalent to that which would be paid under an arm's-length transaction. The loan is included in other notes payable in the accompanying condensed consolidated financial statements. The Burgess British Cars, Inc. acquisition was accounted for using the purchase method of accounting and its results of operations have been included in the accompanying financial statements for the period beginning June 19, 1998, the effective date of the acquisition. The purchase price has been allocated to the assets and liabilities acquired based on their estimated fair market value at the acquisition date as follows (in thousands):
Inventory and other assets, net of floor plan financing $ 215 Property and equipment 130 Goodwill 3,417 ------ Total purchase price $3,762 ======
8 The following unaudited pro forma financial data is presented as if the acquisitions had occurred on January 1, 1997, for the six months ended June 30 (in thousands):
1998 1997 --------- ---------- Total sales $371,000 $227,219 Net income (loss) 2,279 (110) Net income (loss) per share: Basic and diluted $ 0.16 $ (0.01)
(4) COMPUTATION OF PER SHARE AMOUNTS In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 128, "Earnings Per Share" (SFAS No. 128) which is effective for fiscal years ending after December 15, 1997. The Company has adopted SFAS No. 128 in the accompanying financial statements. For purposes of calculating basic earnings per share for the three and six months ended June 30, 1998, net income of $1.1 million and $1.8 million is reduced by cumulative redeemable preference dividends of $70,000 and $140,000, redeemable preferred stock liquidation preference accretion of $20,000 and $40,000 and cumulative redeemable preferred stock and redeemable preferred stock discount amortization of $20,000 and $40,000, respectively. This net income available to common stockholders of $1.0 million and $1.6 million is then divided by the weighted average shares outstanding. Weighted average shares outstanding used for basic earnings per share for the three and six months ended June 30, 1998 was 14,211,067 and 14,218,400, respectively. To calculate diluted earnings per share, net income is divided by the sum of the weighted average shares outstanding for basic earnings per share, the dilutive effect of stock options of 282,388 and 254,768 shares and the net effect of warrants of 227,216 and 204,992 shares, respectively. (5) NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Financial Accounting Standard No. 130, "Reporting Comprehensive Income." This statement establishes standards of reporting and presentation of comprehensive income and its components in a full set of general-purpose financial statements. This statement is effective for the fiscal years beginning after December 15, 1997. The Company has determined that net income and comprehensive income are the same for the periods presented and therefore no separate disclosure for comprehensive income is required. In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." This Standard requires that a public business enterprise report financial and descriptive information about its reportable operating segments. This statement is effective for financial statements for periods beginning after December 15, 1997. The Company believes that its automobile operations constitute its only operating segment and therefore no separate disclosure under this statement is required. In April 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-5, "Reporting the Cost of Start-Up Activities", which provides guidance on financial reporting for enterprise start-up costs. The SOP, which is effective for fiscal years beginning after December 15, 1998, requires the costs of start- up activities and related organization costs to be expensed as incurred. The Company is currently evaluating this SOP and its impact on its financial reporting and disclosure. (6) SUBSEQUENT EVENTS The Company has entered into a definitive agreement, subject to manufacturer approval, to acquire an automobile dealership located in Northern California for a cash purchase price of $12.0 million plus new vehicle inventory. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS AND RISK FACTORS This Quarterly Report and Management's Discussion and Analysis of Results of Operations and Financial Condition include certain " forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this document, including statements regarding potential acquisitions, expected cost savings, planned capital expenditures, the Company's future financial position, business strategy and other plans and objectives for future operations are forward-looking statements. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, such statements are based upon assumptions and anticipated results that are subject to numerous uncertainties. Actual results may vary significantly from those anticipated due to many factors, including industry conditions, future demand for new and used vehicles, the ability to obtain manufacturer consents to acquisitions, the availability of capital resources and the willingness of acquisition candidates to accept the Company's capital stock as currency. These important factors, risks and uncertainties include, but are not limited to, the cyclical nature of automobile sales, the intense competition in the automobile retail industry and the Company's ability to obtain additional sources of capital, negotiate profitable acquisitions and secure manufacturer approvals for such acquisitions. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by such factors. OVERVIEW FirstAmerica Automotive, Inc. (the "Company") is one of the largest automobile retailers in Northern California. As of June 30, 1998, the Company operated 12 automobile dealerships and one multi-brand vehicle repair and service center in Northern California, 3 dealerships in San Diego County and one in Beverly Hills, California. The Company sells new and used cars and light trucks, sells replacement parts, provides vehicle maintenance, warranty and repair services and arranges related financing and insurance products ("F&I") for its customers. At its sixteen dealership locations, certain of which represent multiple new vehicle dealerships, the Company sells 12 domestic and foreign brands, which consist of BMW, Buick, Dodge, GMC, Honda, Isuzu, Lexus, Mitsubishi, Nissan, Pontiac, Toyota and Volkswagen. In addition to its traditional dealership operations, the Company has (i) in June 1998 opened a multi-brand, full service vehicle maintenance and repair center in the downtown San Francisco area, (ii) developed a "Used Car Auto Factory" concept to centralize procurement, reconditioning and wholesale disposal of used cars, (iii) developed a "Dealer Services" concept to centralize the procurement of extended warranty service contracts and custom accessories such as alarms, stereos and chemical treatments, and (iv) obtained authorization from Nissan Motor Company ("Nissan") to form "Smart Nissan," a program to combine multiple Nissan dealerships with contiguous markets in the San Francisco Bay Area (including the Nissan dealerships owned by the Company) into a single regional dealership group that will have centralized pricing, inventory management, marketing and other economies of scale. 10 The following table sets forth selected condensed financial data for the Company expressed as a percentage of total sales for the periods indicated below. FIRSTAMERICA AUTOMOTIVE, INC.
THREE MONTHS ENDED SIX MONTHS ENDED --------------------------------------------------------- JUNE 30, JUNE 30, --------------------------------------------------------- 1998 1997 1998 1997 ------------ ----------------- ------------ ----------- STATEMENT OF OPERATIONS DATA: Sales: New vehicles 57.2% 59.4% 58.1% 60.3% Used vehicles 27.5% 24.6% 26.8% 24.1% Service, parts and other 15.3% 16.0% 15.1% 15.6% ------------ ----------------- ------------ ----------- Total sales 100.0% 100.0% 100.0% 100.0% Gross profit 15.8% 14.0% 15.5% 13.7% Selling, general and administrative 13.3% 12.9% 13.2% 12.2% Combination and related expenses 0% 1.6% 0% 1.2% ------------ ----------------- ------------ ----------- Operating income (loss) 2.5% (0.5)% 2.3% 0.3% Income (loss) before taxes 1.0% (1.5)% 0.9% (0.6)% ------------ ----------------- ------------ -----------
RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED JUNE 30, 1997 SALES. Sales increased by $86.0 million, or 88.6%, to $183.1 million for the three months ended June 30, 1998 from $97.1 million for the comparable period of 1997, primarily due to sales contributed by dealerships that the Company has acquired since June 1997. The Company expects sales growth to continue as the Company executes its acquisition strategy. New Vehicles. The Company sells twelve domestic and imported brands ranging from economy to luxury vehicles, as well as sport utility vehicles, minivans and light trucks. The Company sold 4,441 and 2,704 new vehicles in the three months ended June 30, 1998 and 1997, respectively, generating revenues of $104.7 million and $57.9 million, which constituted 57.2% and 59.4% of the Company's total sales, respectively. New vehicle sales increased by $46.8 million, or 80.8%, due to an increase in unit sales attributable to dealerships acquired by the Company as well as price increases which were consistent with manufacturers' price increases. Used Vehicles. The Company sells a variety of makes and models of used vehicles and light trucks of varying model years and prices. The Company sold 4,146 and 2,051 retail and wholesale used vehicles in the three months ended June 30, 1998 and 1997, respectively, generating revenues of $50.4 million and $23.9 million, which constituted 27.5% and 24.6% of the Company's total sales, respectively. The $26.5 million or 110.9% increase in used vehicle revenues is primarily due to a corresponding increase in used vehicle unit sales from dealerships acquired during 1997 as well as an increase in used vehicle revenues in existing stores due to the implementation of the Company's "Used Car Auto Factory." Service, parts and other revenues. Service, parts and other revenues includes revenue from the sale of parts, accessories, maintenance and repair services, and from fees earned on the sale of vehicle financing notes and warranty service contracts. Finance fees are received for notes sold to finance companies for customer vehicle financing. Warranty service contract fees are earned on extended warranty service contracts that are sold on 11 behalf of vehicle manufacturers or insurance companies. Service, parts and other revenue increased 80.6% or $12.5 million, from $15.5 million for the three months ended June 30, 1997 to $28.0 million for the comparable period in 1998, primarily due to dealerships acquired subsequent to June 1997. GROSS PROFIT. Gross profit increased by $15.3 million, or 112.3%, to $28.9 million for the three months ended June 30, 1998 versus the comparable period in 1997. Gross profit margins on new vehicles increased from 6.9% to 8.1%, primarily due to a higher percentage of luxury vehicle sales. Gross profit margins on used vehicle retail sales increased from 7.8% to 10.1% for the three months ended June 30, 1997 and 1998, respectively, primarily due to a higher percentage of luxury vehicle sales and the Company's emphasis on purchasing for resale high demand used vehicles through its "Used Car Auto Factory". Service, parts and other gross profit increased from 44.4% to 46.0% for the three months ended June 30, 1997 and 1998, respectively, primarily due to higher margins at dealerships acquired since June 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense increased 93.5%, or $11.5 million, from $12.3 million to $23.8 million for the three months ended June 30, 1997 and 1998, respectively. As a percentage of sales, selling, general and administrative expense increased from 12.9% to 13.3% for the three months ended June 30, 1997 and 1998, respectively. The increase was due primarily to expenses incurred for the establishment of a management structure for executing the Company's acquisition strategy. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $0.4 million, from $0.2 million to $0.6 million for the three months ended June 30, 1997 and 1998, respectively, primarily due to additional depreciation and goodwill amortization related to dealerships acquired since June 1997. COMBINATION AND RELATED EXPENSES. During the three months ended June 30, 1997, the Company incurred $1.6 million in certain legal, accounting, consulting and compensation expenses associated with the combination with the Price Dealerships and the development of the Company's organization and business plan. The expenses relating to the Combination were incurred during both the three and six months ended June 30, 1997. There were no comparable expenses incurred in the three months ended June 30, 1998. INTEREST EXPENSE. Floor plan interest expense increased $0.7 million to $1.5 million for the three months ended June 30, 1998 versus the comparable period in 1997. The increase was due to increased floor plan debt in 1998 from the inventory associated with the acquired dealerships. Interest expense other than floor plan increased $1.1 million from $0.1 million to $1.2 million for the three months ended June 30, 1997 and 1998, respectively, primarily due to debt incurred for the acquisition of additional dealerships. INCOME TAX EXPENSE. Income tax expense increased to $0.8 million from a tax benefit of $1.3 million for the three months ended June 30, 1998 versus the comparable period in the previous year. The Company's effective tax rate for the first three months of 1998 was 43.0% compared to 87.5% for 1997; the higher effective rate in the prior year is primarily due to certain non-deductible stock compensation expenses incurred in 1997. NET INCOME. Net income increased from a $0.2 million loss to a $1.1 million profit for the three months ended June 30, 1997 and 1998, respectively, primarily as a result of the overall increase in gross profit and other items discussed above, and the non-recurrence in 1998 of $1.6 million in Combination related expenses offset by the increase in income tax expense. SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997 Sales. Sales increased by $153.6 million, or 80.8%, to $343.7 million for the six months ended June 30, 1998 from $190.1 million for the comparable period of 1997, primarily due to sales contributed by dealerships that the Company has acquired since June 1997. The Company expects sales growth to continue as the Company executes its acquisition strategy. New Vehicles. The Company sold 8,777 and 5,590 new vehicles in the six months ended June 30, 1998 and 1997, respectively, generating revenues of $199.6 million and $114.6 million, which constituted 58.1% and 60.3% of the Company's total sales, respectively. New vehicle sales increased by $85.0 million, or 74.2%, 12 primarily due to an increase in unit sales attributable to dealerships acquired by the Company as well as increases in average unit prices which were consistent with manufacturers' price increases. Used Vehicles. The Company sold 8,096 and 3,834 retail and wholesale used vehicles in the six months ended June 30, 1998 and 1997, respectively, generating revenues of $92.1 million and $45.9 million, which constituted 26.8% and 24.1% of the Company's total sales, respectively. The $46.2 million or 100.7% increase in used vehicle revenues is primarily due to a corresponding increase in used vehicle unit sales from dealerships acquired subsequent to June 1997. Service, parts and other. Service, parts and other revenue increased 75.9% or $22.4 million, from $29.5 million for the first six months of 1997 to $51.9 million for the comparable period in 1998, primarily due to dealerships acquired since June 1997. GROSS PROFIT. Gross profit increased by $27.3 million, or 105.0%, to $53.3 million for the six months ended June 30, 1998 compared to the same period in 1997. Dealerships acquired since June 1997, contributed $22.8 million to the increase in gross profit, $2.6 million was contributed by the Used Car Auto Factory and Dealer Services groups in 1998, both concepts started by the Company in late 1997 and the remainder was primarily due to higher average gross margins at dealerships owned during both six month periods ended June 30, 1998 and 1997. Gross profit margins on new vehicles increased from 6.8% to 7.7%, primarily due to a higher percentage of luxury vehicle sales. Gross profit margins on used vehicle retail sales increased from 7.2% to 9.8% for the six months ended June 30, 1998 compared to the same period in 1997, primarily due to higher percentages of luxury vehicle sales as well as the Company's emphasis on acquiring for resale high demand used vehicles through its "Used Car Auto Factory". Service, parts and other gross profit increased from 52.6% to 57.1% for the first six months of 1997 and 1998, respectively, primarily due to higher margins at dealerships acquired since June 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. During the six months ended June 30, 1998, selling, general and administrative expense increased $21.5 million, or 94.3%, to $44.4 million, from $22.9 million in the same period in 1997. Selling, general and administrative expense as a percent of sales increased to 12.9% from 12.0% in the six months ended June 30, 1998 compared to the same period in the prior year. The increase was due primarily to expenses incurred for the establishment of a management structure for executing the Company's acquisition strategy. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $0.6 million, from $0.3 million to $0.9 million for the six months ended June 30, 1997 and 1998, respectively, primarily due to additional depreciation and goodwill amortization related to dealerships acquired. COMBINATION AND RELATED EXPENSES. During the six months ended June 30, 1997, the Company incurred $2.3 million in certain legal, accounting, consulting and compensation expenses associated with the combination with the Price Dealerships and the development of the Company's organization and business plan. The expenses relating to the Combination were incurred during the six months ended June 30, 1997. There were no comparable expenses incurred in the six months ended June 30, 1998. INTEREST EXPENSE. Floor plan interest expense increased $1.1 million or 66.8% to $2.7 million for the six months ended June 30, 1998 versus the comparable period in 1997. The increase was due to increased floor plan debt in 1998 from the inventory associated with the acquired dealerships. Interest expense other than floor plan increased $1.9 million due to debt incurred for the acquisition of dealerships. INCOME TAX EXPENSE. The income tax benefit of $1.0 million for the first six months of 1997 versus the $1.4 million expense for the comparable period in 1998 represents a $2.4 million increase. The income tax benefit in the six months ended June 30, 1997 was due to the loss before income taxes of $1.2 million, which was incurred due to combination and related expenses of $2.3 million incurred during the period. The Company's effective tax rate for the first six months of 1998 was 43.0% compared to 87.5% for 1997; the higher effective rate in 1997 was primarily due to certain non-deductible stock compensation expenses incurred in 1997. NET INCOME. Net income increased from a $0.1 million loss to a $1.8 million profit for the six months ended June 30, 1997 and 1998, respectively, primarily as a result of the overall increase in gross profit and other items discussed 13 above, and the non-recurrence in 1998 of $2.3 million in Combination-related expenses, offset by increased income tax expense. LIQUIDITY AND CAPITAL RESOURCES The cash and liquidity requirements of the Company are primarily to finance acquisitions of new automobile dealerships, service debt and fund working capital. Historically the Company has relied primarily upon cash flows from operations, floor plan financing, and other borrowings under its various credit facilities to finance its operations and the proceeds from its private debt placement with finance companies to finance its expansion. The availability of the Company to draw on the floor plan notes payable, Revolver Advances, and Discretionary advances for the purpose of acquiring automobile dealerships, is limited by the amount of vehicle and parts inventory of the acquired dealership. The Company also has $12.0 million available under its senior notes facility to finance acquisitions. In order to continue to execute the Company's acquisition strategy, the Company will need to obtain additional financing or capital. The Company is currently evaluating proposals from several investment banking groups to assist the Company in raising the additional financing or capital necessary to finance the Company's planned acquisition strategy. For the six months ended June 30, 1998, operating activities resulted in net cash used in operations of $0.1 million, primarily due to net income of $1.8 million, an increase in accounts receivable and contracts in transit of $8.8 million and increase in inventories of $8.1 million, partially offset by increases in floor plan notes payable, accounts payable and accrued liabilities of $16.1 million. For the six months ended June 30, 1997, cash used in operations totaled $1.5 million, primarily due to increases in inventories of $4.9 million, increases in accounts receivable and contracts in transit of $1.1 million, and decreases in floor plan notes payable of $2.5 million, partially offset by increases in accounts payable and accrued liabilities of $7.0 million. Net cash used in investing activities totaled $18.2 million and $6.3 million for the six months ended June 30, 1998 and 1997, respectively. Investing activities for the six months ended June 30, 1998 consisted of the acquisition of the Burgess British Cars, Inc. and Beverly Hills BMW automobile dealerships for a purchase price totaling $15.5 million, and $2.7 million in capital expenditures primarily for the build out and renovation of the Company's multi-brand service and repair center in San Francisco, as well as the improvement of existing facilities. For the six months ended June 30, 1997, net cash used in investing activities was $6.3 million, of which $6.1 million was used for the acquisition of three automobile dealerships in San Diego County and $0.2 million for improvement of equipment. Cash provided by financing activities in the six months ended June 30, 1998 totaled $17.6 million, which primarily consisted of borrowings on secured lines of credit and notes payable which were used to finance acquisitions. Net financing activities for the six months ended June 30, 1997 totaled $7.6 million, which was primarily used to finance acquisitions. YEAR 2000 CONVERSION The Company has assessed the ability of its software and other computer systems to properly utilize dates beyond December 31, 1999 (the "Year 2000 Conversion"). Management believes that the costs of the modifications and conversions required will not be material. Although management believes it will not have material Year 2000 Conversion issues, its future operations are dependent upon the ability of its vehicle manufacturers, vendors and suppliers to successfully address the Year 2000 Conversion issue. There can be no assurance that the computer systems of other companies upon which the Company's own computer system relies or upon which its business is dependent, will be timely converted, or that failure of another company to convert will not adversely affect the Company. SEASONALITY AND QUARTERLY FLUCTUATIONS Historically, the Company's sales have been lower in the first and fourth quarters of each calendar year largely due to consumer purchasing patterns during the holiday season, inclement weather during the winter months, and the reduced number of business days during the holiday season. As a result, financial performance for the Company is generally lower during the first and fourth quarters than during the other quarters of each calendar year. Management believes that interest rates, variations in automobile manufacturers incentive plans, levels of consumer debt, consumer buying patterns and confidence, as well as general economic conditions also contribute to fluctuations in sales and operating results. The timing of acquisitions may also cause substantial fluctuations of operating results from quarter to quarter. 14 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK No disclosure is required by Registrant. 15 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits The exhibits filed as a part of this report are listed below. Exhibit No. ----------- 2.1 Asset Purchase Agreement by and among the Company, Beverly Hills BW, Ltd., and Ross Gilbert. 2.2 Asset Purchase Agreement by and among the Company, Golden Sierra Auto Group and Capman. 3.1(1) Amended and Restated Certificate of Incorporation, as amended. 3.2(2) By-Laws 11 Statement of Computation of Per Share Earnings 27 Financial Data Schedule (1) Incorporated by reference to Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, filed on May 14, 1998. (2) Incorporated by refence to Exhibit 3.2 to Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1997, filed on May 14, 1998. (b) Reports on Form 8-K The Company filed a report on Form 8-K under Item 2., Acquisition or Disposition of Assets, dated June 19, 1998 and filed with the Securities and Exchange Commission on July 2, 1998. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Date: August 14, 1998 FIRSTAMERICA AUTOMOTIVE, INC. By /s/ THOMAS A. PRICE ------------------- Thomas A. Price President, Chief Executive Officer and Director (Principal Executive Officer) By /s/ DEBRA SMITHART ------------------- Debra Smithart Chief Financial Officer (Principal Financial and Accounting Officer) 17 EX-2.1 2 ASSET PURCHASE AGREEMENT WITH ROSS GILBERT ASSET PURCHASE AGREEMENT By and Between FIRSTAMERICA AUTOMOTIVE, INC. ("Purchaser") and BEVERLY HILLS BW, LTD., DBA BEVERLY HILLS BMW ("Seller") ASSET PURCHASE AGREEMENT This Asset Purchase Agreement is made and entered effective January ___ , 1998 (the "Effective Date") by and among FirstAmerica Automotive, Inc., a Delaware corporation or nominee ("Purchaser"), Beverly Hills BW, Ltd., a California general partnership, dba Beverly Hills BMW ("Seller"), and Ross Gilbert ("Owner "). RECITALS WHEREAS, Seller owns and operates a BMW automobile dealership (the "Dealership") commonly known as Beverly Hills BMW, located at 8825 and 8833 Wilshire Boulevard, Beverly Hills, California 90211 (collectively, the "Premises"). WHEREAS, Owner owns indirectly all of the outstanding partnership interest of Seller. WHEREAS, Seller desires to sell to Purchaser and Purchaser desires to purchase from Seller certain of the assets, properties and business of Seller utilized in connection with the Dealership. Now, THEREFORE, in recognition of the foregoing representations, and in consideration of the covenants set forth herein, the parties hereto agree as follows: AGREEMENT 1. DEFINITIONS. The capitalized terms as used in this Agreement shall be defined as hereinafter set forth in this Section 1, or as otherwise provided in this Agreement. 1.1 ACQUIRED ASSETS. The term "Acquired Assets" shall be defined as all of the assets and property to be acquired by Purchaser hereunder, as described in Section 2.1 hereof. 1.2 CLOSING. The term "Closing" shall be defined as the consummation of all of the transactions provided for in this Agreement, including the exchange of the Acquired Assets for the consideration provided for herein. The Closing shall occur at the offices of Escrow Holder, 4270 Wilshire Boulevard, Los Angeles, California, 90010 on the Closing Date commencing at 10:00 a.m. 1.3 CLOSING DATE. The "Closing Date" shall be defined as the date which falls 5 business days following the earliest date on which the conditions specified in Sections 7 and 8 hereof are satisfied; subject, however, to the provisions of Section 18 below. 1.4 FRANCHISE. The term "Franchise" shall be defined as the BMW Franchise currently held by Seller. 1.5 FRANCHISOR. The term "Franchisor" shall be defined as BMW North America. 1 1.6 OBSOLETE PARTS. The term "Obsolete Parts" shall be defined as all (i) factory parts which are not listed in the most current manufacturer's wholesale price book or, if listed therein, are valued at ZERO DOLLARS ($0), (ii) parts which are not returnable to the manufacturer (as defined by the Franchisor), (iii) parts indicated as discontinued, and (iv) parts which are broken or damaged, regardless of whether listed in the most current manufacturer's wholesale price book. 2. PURCHASE AND SALE OF ASSETS. 2.1 ACQUIRED ASSETS. The assets subject to this Agreement (the "Acquired Assets") shall consist of all the assets used in connection with the Franchise, including but not limited to those assets to be listed on Schedule 2.1 to be prepared prior to the Closing Date and attached hereto, all BMW special tools and all furniture, fixtures and equipment (which special tools, furniture, fixtures and equipment shall be in good working order, normal wear and tear excepted, as of the Closing Date), all leasehold improvements at the Premises used by Seller in operation of the BMW Franchise, all motor vehicles (new and used) (subject to exclusion of certain used vehicles in accordance with Section 3.2(c)), parts and accessories (subject to exclusion of Obsolete Parts in accordance with Section 3.2(d) and excess non-factory parts in accordance with Section 3.2(e)), tires, work-in-progress, advertising literature, forms, supplies, customer files and data bases, parts return privileges from the Franchisor, rights under new car purchase orders and deposits relating thereto, goodwill, Seller's customer files, all books and records relating to the Acquired Assets, all telephone numbers of Seller, the tradename "Beverly Hills BMW", or any derivative thereof, and all trademarks and/or logos related thereto, the right of occupancy of the Premises, and all contracts, agreements or commitments which have been approved by Purchaser as the same shall exist on the Closing Date. The parties agree that Schedule 2.1 shall be prepared in conjunction with the physical inventory described in Section 3.2(i) hereinbelow. 2.2 PURCHASE. Seller hereby agrees to sell, convey, transfer, assign and deliver to Purchaser, and Purchaser hereby agrees to purchase and acquire, on the Closing Date, all of the Acquired Assets. 3. CONSIDERATION FOR ACQUIRED ASSETS. 3.1 PURCHASE PRICE. Subject to the terms and conditions of this Agreement, the purchase price to be paid by Purchaser for the Acquired Assets shall be that amount which is equal to the aggregate value of the Acquired Assets as of the Closing Date determined in accordance with Section 3.2. 3.2 VALUATION OF ACQUIRED ASSETS. Those Acquired Assets which are listed below shall be valued as provided below in this Section 3:2. (a) The price for each 1998 new unregistered and undamaged BMW model vehicle with not more than three hundred (300) miles shall be the sum of the following: (i) The wholesale cost of each such vehicle determined in accordance with the factory invoice, including advertising charges; plus 2 (ii) The wholesale cost of all optional parts and accessories installed in such vehicle plus the cost of labor (determined at the internal rate pursuant to the standard factory formula) for installation of the same; plus (iii) The cost of pre-delivery expense actually performed related to specific automobiles transferred at closing, but only to the extent that such pre-delivery expense is not previously reimbursed to Seller, in which event the right to such expense reimbursement shall be assigned to Purchaser at the closing; less (iv) The sum of all distributor's allowances as of the Closing Date including, but not limited to, inventory carry-over allowances, discounts, floor plan assistance, holdbacks, rebates, contests, model changes, incentives and similar distributor's allowances related to such vehicle to the extent paid or payable to Seller. (b) The price for each 1998 unregistered and undamaged BMW demonstrator vehicle with not more than three thousand (3,000) miles shall be the value determined in accordance with subsections (a)(i) through (a)(iii) hereinabove, less the curtailment on each such vehicles as currently taken on the books of Seller as of the Closing Date. (c) All vehicles not described in subsections (a) and (b) above which are to be purchased hereunder shall be valued at a price mutually agreed upon by Seller and Purchaser; provided, however, that if Seller and Purchaser are unable to agree on a price with respect to any individual vehicle prior to the Closing Date, then such vehicle shall be excluded from the Acquired Assets and not purchased hereunder and shall be removed by Seller within ten (10) days of the Close of Escrow. (d) All new undamaged returnable genuine BMW factory parts and accessories which are in possession of Seller as of the Closing Date and which are listed in the manufacturer's most current wholesale parts and accessories price book shall be valued at manufacturer's current wholesale cost in accordance with the manufacturer's most current wholesale parts and accessories price book as of the Closing Date; provided, however, that Obsolete Parts shall be valued at ZERO DOLLARS ($0) and shall be retained by Seller, and removed by Seller from the Premises not later than ten (10) days following the Closing Date. (e) All non-factory parts, accessories and miscellaneous inventory which are in the possession of Seller as of the Closing Date, shall be valued at dealer cost, provided, however, that Purchaser shall have no obligation to purchase in excess of TWENTY THOUSAND DOLLARS ($20,000) of such items. (f) All miscellaneous inventories, including gas, oil, grease, sublet repairs and work in process shall be valued at cost as of the Closing Date. (g) All furniture, fixtures, equipment, and BMW special tools shall be valued at Seller's depreciated book value as of the Closing; provided, however, that in the event that any item of furniture, fixtures, equipment, special tools or leasehold improvement is materially damaged, destroyed or removed from the Dealership between the date of execution of this Agreement and the Closing Date, the value of said item damaged, destroyed or removed from the Dealership shall be credited against the Purchase Price if said items are included in the Purchase Price. The parties acknowledge and agree that 3 there shall be no addition to the purchase price for leasehold improvements. (h) The sum of ten million two hundred and fifty thousand dollars ($10,250,000) which sum shall be allocated as and for goodwill. (i) As of the close of business on the day immediately preceding the Closing Date or on such other date as mutually agreed upon by Purchaser and Seller, a physical inventory to determine the value of the new, used and demonstrator vehicles, and work-in-progress shall be taken jointly by the parties. Each party shall bear the expenses associated with its own personnel in connection with the valuation of the assets. The parties shall jointly employ an independent inventory service to take a pans and accessories inventory immediately prior to the Closing. The cost of such inventory shall be paid one-half by Purchaser and one-half by Seller. 3.3 PAYMENT OF PURCHASE PRICE. The purchase price determined in accordance with Section 3.2 above to be paid by Purchaser pursuant to this Agreement shall be paid as follows: (a) Within three (3) business days of execution of this Agreement by Purchaser and Seller, Purchaser shall cause the sum of FIVE HUNDRED THOUSAND DOLLARS ($500,000) (the "Deposit") to be delivered to Escrow Holder as hereinafter defined. The Deposit shall be held by the Escrow Holder in an interest bearing account, and shall be applied to the benefit of Purchaser toward the purchase price of the Dealership upon Closing. If escrow does not close, and this Agreement is terminated pursuant to Section 18, the Deposit, together with all accrued interest, shall be disbursed to Purchaser, unless the provisions of Section 22.9 are applicable, in which case the disposition of the Deposit shall be governed by the provisions of Section 22.9. (b) The balance of the purchase price shall be paid in cash on the Closing Date. 3.4 CLOSING AND POST-CLOSING ADJUSTMENTS. All deposits and expenses of a nature which are customarily subject to proration in a transaction involving the purchase and sate of assets of an ongoing business shall be apportioned between Seller and Purchaser according to the number of days in the period covered thereby which occurred prior to and including the Closing Date, and the number of such days subsequent to the Closing Date. Those items subject to proration hereunder shall include, without limitation, rent and all other amounts payable with respect to any lease for the Premises, employee compensation, utilities, personal property taxes, Beverly Hills Gross Receipts Tax, and customer prepayments. The aggregate amount of any adjustment shall be determined and paid as of the Closing Date. Any additional proration determined after the Closing Date to be paid by either party under this Section 3.4 shall be paid by check delivered within seven (7) days following determination of the amount of any such adjustment. 3.5 LIABILITIES. Purchaser shall have no obligation for any liabilities of any kind whatsoever of Seller other than those liabilities which Purchaser specifically agrees to assume all of which shall be set forth on Schedule 3.5 attached hereto, including without limitation all contracts, agreements and commitments of Seller, which Purchaser agrees to assume. Purchaser shall be responsible solely for that portion of any such obligations, which first accrue on or subsequent to the Closing Date. Purchaser shall have no obligation with respect to any liability arising under any such contract, agreement or 4 commitment prior to the Closing Date, all of which liability shall remain the responsibility of Seller. The parties acknowledge and agree that Purchaser is not assuming any employment agreements, labor agreements, collective bargaining agreements or other similar contracts. 3.6 TRANSFER TAXES. Purchaser agrees to pay any and all sales, transfer or other similar taxes which may be imposed or payable on or in connection with the transfer of the Acquired Assets. 3.7 ALLOCATION OF PURCHASE PRICE. The Purchase Price as provided for herein shall be allocated as set forth on Schedule 3.7 attached hereto. 4. REPRESENTATIONS AND WARRANTIES OF SELLER AND OWNER. Seller and Owner hereby jointly and severally represent, warrant and agree with Purchaser as follows: 4.1 GOOD STANDING. Seller is a partnership duly organized, validly existing and in good standing under the laws of the State of California and is entitled to and has the power and authority to own or lease its property and to carry on its business in the manner and in the places where such property are now owned, leased or operated and such business is now conducted. 4.2 TITLE TO ASSETS; LIENS AND ENCUMBRANCES. Seller will convey to Purchaser good and marketable title to the Acquired Assets, free and clear of all security interests, liens, claims, restrictions, equities and encumbrances whatsoever, other than liens for taxes not yet due and payable as set forth on Schedule 4.2 attached hereto. Except as set forth in Schedule 4.2, all of the tangible Acquired Assets are in good working order and condition, ordinary wear and tear excepted. 4.3 AUTHORIZATION. The execution and delivery of this Agreement and each other document, agreement and instrument contemplated hereby, and the consummation of the transactions contemplated hereby has been duly authorized and all other action, including all approvals necessary to authorize the execution and delivery of this Agreement and each other document, agreement and instrument contemplated hereby, and the consummation of the transactions contemplated hereby, have also been taken. Except for consent of the Franchisors and landlords with leases, no consent of any lender, trustee, security holder, lessor or any other person or entity is required to be obtained by Seller in connection with the execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby. This Agreement constitutes the valid and binding obligation of Seller and Owner enforceable in accordance with its terms, except as may be limited as applicable bankruptcy law and equity. Except as to the terms of the Franchise, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby (a) do not violate or constitute a breach of or default under any contract, agreement or commitment to which Seller or Owner is a party, under which they are obligated or to which any of the Acquired Assets are subject, (b) do not violate any judgment, order, statute, rule or regulation to which Seller, Owner or any of the Acquired Assets are subject or the articles of incorporation or bylaws of the Seller, and (c) will not result in the creation of any lien, charge or encumbrance on any of the Acquired Assets. 4.4 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The representations and warranties of Seller and Owner contained in this Agreement shall be true and correct in all material 5 respects on and as of the Closing Date with the same force and effect as though such representations and warranties have been made on and as of the Closing Date. 4.5 LITIGATION. Except as set forth on Schedule 4.5 attached hereto, Seller has not received service of process for, and to Seller's actual knowledge there is no pending or threatened suit, action, arbitration, or legal, administrative, or other proceeding, or governmental investigation against or affecting any of the Acquired Assets. To the actual knowledge of Seller and Owner, Seller is not in default with respect to any order, writ, injunction, or decree of any federal, state, or local court. Subject to Franchisor's rights, to the best knowledge of Seller, use of the name "Beverly Hills BMW" by Seller does not infringe upon the rights of any other person and Seller is not aware of any claim of any nature to the effect that any person other than Seller holds any rights with respect to such names. 4.6 DEFAULTS. Seller is not in material default, and to the best of Seller's actual knowledge, no event has occurred which, with the passage of time will constitute a default, with respect to any obligation or liability to be assumed by Purchaser hereunder, which are listed on Schedule 3.5 attached hereto. To the best knowledge of Seller, no other party to any obligation or liability set forth in Schedule 3.5 is in default with respect to any material provision thereof. 4.7 ENVIRONMENTAL COMPLIANCE NOTICES. Except as set forth on Schedule 4.7 Seller has received no written notice advising Seller of any defects, defaults or non-compliance in connection with the Acquired Assets or the Premises from any governmental agency dealing with environmental laws, except notices which have been previously complied with or waived by the governmental agency. 4.8 COMPLIANCE WITH LAW. To the actual knowledge of Seller, Seller has complied with, and is not in violation of, applicable federal, state or local statutes, laws or regulations the violation of which would have a material adverse effect on the continuing operation of the Dealership. 4.9 FINANCIAL REPORTS. Seller has delivered to Purchaser dealer financial statements for Seller for the calendar years 1996 and 1997 ("Dealer Financial Statement"). The income and expenses reflected in the Dealer Financial Statement have been prepared in accordance with past practices of Seller and are true and correct in all material respects. Purchaser acknowledges that it has examined and reviewed the Dealer Financial Statements to its full and complete satisfaction and represents that it is relying on the results of its own review and examination thereof in connection to the transaction to be consummated hereunder. 4.10 UNIONS. Except as set forth on Schedule 4.10 as attached hereto, Seller is not a party to any arrangement with any union, and no employees of the Seller are represented by any labor union or covered by any collective bargaining agreement or, to the knowledge of Seller, is any effort to establish such representation in progress. 4.11 FRANCHISE NOTICE. Seller and Owner have received no written notice from Franchisor regarding a proposed appointment of a new BMW Dealership within a ten (10) mile radius of the Dealership. Further, Seller and Owner have received no written notice from Franchisor regarding any material adverse action by Franchisor material to the continuing operation of the Dealership including any 6 adverse change in the allocation of new BMW automobiles. 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents, warrants and agrees with Seller and Owner as follows: 5.1 GOOD STANDING. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is entitled to and has the corporate power and authority to own or lease its property and to carry on its business in the manner and in the places where such property are now owned, leased or operated and such business is now conducted. 5.2 AUTHORIZATION. The execution and delivery of this Agreement and the consummation of transactions contemplated hereby has been duly authorized by the Board of Directors of the Purchaser and all other corporate action, including all shareholders' approvals necessary to authorize the execution and delivery of this Agreement and the transactions contemplated hereby, have also been taken. This Agreement is a valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms. Except for consent of the Franchisors, landlords under leases, no consent of any trustee, security holder or any other person or entity is required to be obtained by Purchaser in connection with the execution, delivery and performance of this Agreement by Purchaser and the consummation of the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby (a) do not violate or constitute a breach of or default under any contract, agreement or commitment to which Purchaser is a party or under which it is obligated, and (b) do not violate any judgment, order, statute, rule or regulation to which Purchaser is subject. 5.3 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. 6. CONDUCT PRIOR TO CLOSING DATE. 6.1 ONGOING OPERATIONS. From the date hereof to the Closing, Seller will use its best effort to preserve intact the Acquired Assets and to continue to operate the Dealership as a going concern, including, but not limited to, maintaining commercially reasonable inventories. Seller will not dispose of any of the Acquired Assets except in the ordinary course of business consistent with past practices, and will not, without limiting the foregoing, hold a "going-out- of-business" or "liquidation" sale. 6.2 APPROVALS. Each of Purchaser and Seller will use its best efforts to obtain all permits, approvals, authorizations and consents of third parties necessary or desirable for the consummation of the transactions contemplated by this Agreement and for the ownership and operation by Purchaser of the Acquired Assets and the Dealership related thereto. Purchaser and Seller shall proceed as promptly as practicable after the date hereof to prepare all materials necessary to obtain the consent of the Franchisors as is necessary for Purchaser to acquire the Acquired Assets and for consummation of the transactions contemplated hereby. 7 6.3 COVENANT TO COMPLY. Each of Seller, Owner, and Purchaser shall not take any action or fail to take any action which will make any of their representations and warranties not true and correct in all material respects on the Closing Date. Each of Seller, Owner, and Purchaser shall use their best efforts to satisfy or cause to be satisfied all of the conditions precedent to the other parties' obligations hereunder. Each party shall give prompt written notice of any material change in any of the information contained in the representations and warranties made in Sections 4 and 5 hereof or the schedules referred to herein which occur prior to the Closing Date; provided, however, except as otherwise provided in Sections 4 and 5, that any change in the information contained in the representations and warranties or schedules will not relieve the other party of any obligations hereunder if such changes result in a breach of the representations and warranties contained herein. 7. CONDITIONS TO PURCHASER'S OBLIGATIONS TO CLOSE. The obligations of Purchaser under this Agreement are subject to fulfillment of the conditions set forth below. Purchaser shall have the right to waive in writing all or part of any one or more of the following conditions without releasing Seller or Owner from any liability for any loss or damage sustained by Purchaser by reason of the breach by Seller or Owner of any covenant, obligation or agreement contained herein, or by reason of any misrepresentation made by Seller or Owner and upon such waiver may proceed with the transactions contemplated by this Agreement. 7.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date, Seller and Owner shall have complied with and duly performed in all material respects all agreements and conditions on their part to be complied with and performed pursuant to or in connection with this Agreement on or before the Closing Date. 7.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Seller and Owner contained in this Agreement, or otherwise made in writing in connection with the transactions contemplated hereby, shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date and Purchaser shall have received a certificate to that effect dated the Closing Date and executed by the President of the General Partner of Seller. 7.3 NO LEGAL PROCEEDINGS. No action or proceeding shall have been instituted against Owner and/or Seller which has not been dismissed or threatened to restrain or prohibit the acquisition by Purchaser or the conveyance by Seller of the Acquired Assets. 7.4 CONSENTS. Purchaser shall have received the written approval of Franchisor designating Purchaser or its designee as a duly authorized dealer for the sales and service of such Franchisor's automobiles at 8825 and 8833 Wilshire Boulevard, Beverly Hills, California 90211, free of any material condition which is materially adverse to Purchaser and such Franchisor shall have entered into a customary Dealer Sales and Service Agreement. All permits and licenses necessary to enable Purchaser to conduct the Franchise and service facility at the Premises shall have been obtained. All other requisite consents and approvals shall have been obtained. 8 7.5 TAX CLEARANCE. Seller shall have furnished to Purchaser, certificates from all appropriate federal, state, county and local authorities that all taxes and contributions payable by Seller have been paid in full. If all appropriate tax certificates are not available on the Closing Date, Escrow Holder shall withhold in escrow the estimated amount of maximum unpaid tax liability reasonably determined by Purchaser which sum shall be held by Purchaser until such time as all certificates are presented. 7.6 LIST OF EMPLOYEES. Seller shall have furnished to Purchaser a list of all employees, their rates of pay, including, separately, base pay, and incentive and commission plans. Seller shall have terminated all employees as of the Closing Date. In addition thereto, Seller shall have complied with any and all obligation of Seller under any collective union agreements and/or collective bargaining agreements. 7.7 BULK SALE. Seller shall have furnished in a timely manner all affidavits and lists of creditors and such other instruments or documents as Escrow Holder shall require for Seller and Purchaser to comply with all applicable bulk sales laws. 7.8 LEASE OF REAL PROPERTY. Seller shall have assigned to Purchaser the right to occupy the Premises commonly known as 8825 Wilshire Boulevard, Beverly Hills, California 90211, 8833 Wilshire Boulevard, Beverly Hills, California 90211 and the Storage Lot located at Robertson and Wilshire Boulevard, Beverly Hills, California 90211 (collectively referred to as "Dealership Properties"). Such leases for the Dealership Properties shall be in form and substance as set forth in Section 11 herein below. 8. CONDITIONS OF SELLER'S OBLIGATIONS TO CLOSE. The obligations of Seller under this Agreement are subject to fulfillment of the conditions set forth below. Seller shall have the right to waive in writing all or part of any one or more of the following conditions without, however, releasing Purchaser from any liability for any loss or damage sustained by Seller by reason of the breach by Purchaser of any covenant, obligation or agreement contained herein, or by reason of any misrepresentation made by Purchaser and upon such waiver may proceed with the transactions contemplated by this Agreement. 8.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date, Purchaser shall have complied with and duly performed in all material respects all of the agreements and conditions on its part required to be complied with or performed pursuant to this Agreement on or before the Closing Date. 8.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. The representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date and Seller shall have received a certificate to that effect dated the Closing Date and executed by the President or a Vice President of Purchaser. 8.3 LEASE OF REAL PROPERTY. Seller shall have assigned to Purchaser the right to occupy the Dealership Properties. Such leases for the Dealership Properties shall be in form and substance as set forth in Section 11 herein below. 8.4 NO LEGAL PROCEEDINGS. No action or proceeding shall have been instituted or threatened against Purchaser to restrain or prohibit the acquisition by Purchaser or the conveyance by 9 Seller of the Acquired Assets. 9. DELIVERIES OF SELLER ON THE CLOSING DATE. Seller agrees on the Closing Date to deliver to Purchaser: 9.1 TITLE TO ACQUIRED ASSETS. All conveyances, covenants, warranties, deeds, assignments, bills of sale, motor vehicle titles, confirmations, powers of attorney, approvals, consents and any and all further instruments as may be reasonably necessary, expedient or proper in order to complete any and all conveyances, transfers and assignments herein provided for and to convey to Purchaser such title to the Acquired Assets as Seller is obligated hereunder to convey. 9.2 CERTIFICATE OF SECRETARY. Certificate of the Secretary of the Seller setting forth a copy of the resolutions adopted by Seller's Board of Directors and shareholders authorizing and approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 9.3 CERTIFICATE. Certificate of the President of the General Partner of Seller referred to in Section 7.2. 9.4 CONSENTS. All consents, approvals, authorizations or orders of any person or entity or court or governmental agency required or necessary for the consummation of the transactions contemplated hereby, provided that Seller shall not be obligated to deliver the consent of the Franchisor. 10. DELIVERIES OF PURCHASER ON THE CLOSING DATE. Purchaser agrees on the Closing Date to deliver or cause to be delivered: 10.1 CONSIDERATION. The mounts to be delivered pursuant to Section 3.3 hereof. 10.2 CERTIFICATE OF SECRETARY. Certificate of the Secretary of the Purchaser setting forth a copy of the resolutions adopted by Purchaser's Board of Directors and shareholders authorizing and approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 10.3 CERTIFICATE. The Certificate of the President or a Vice President of the Purchaser referred to in Section 8.2. 11. LEASES. The parties acknowledge that the Dealership currently operates at the Dealership Properties. The lease for the property commonly known as 8833 Wilshire Boulevard, Beverly Hills, California shall be modified to provide for a term of ten (10) years from and after the Closing Date. The rent under such lease shall be the sum of FIFTY NINE THOUSAND DOLLARS ($59,000) per month for the first six (6) years. Thereafter, the rent shall increase to SIXTY NINE THOUSAND DOLLARS ($69,000) per month for the balance of the term. The parties hereto acknowledge and agree that the lease for the property commonly known as 8825 Wilshire Boulevard, Beverly Hills, California shall provide for a term of ten (10) years from and after the Closing Date. The rent under such lease shall be as currently set forth in the existing lease. The rent during the remainder of the ten (10) year term shall not be in 10 excess of the current rent. The parties hereto further acknowledge and agree that the leases for the properties commonly known as 8825 and 8833 Wilshire Boulevard, Beverly Hills, California shall be in form and substance reasonably satisfactory to Purchaser and its counsel. The leases for the Dealership Properties shall be either direct leases to the Purchaser or assigned to Purchaser in a form and substance reasonably satisfactory to Purchaser and its counsel. Such leases shall be attached hereto as Schedule 11 and incorporated herein by this reference. 12. ESCROW. The parties, upon execution of this Agreement shall open an escrow with Wilshire Escrow Company 4270 Wilshire Boulevard, Los Angeles, California 90010, Larry Shuffle, Escrow Officer ("Escrow Holder"). The parties shall forthwith provide to Escrow Holder any and all documentation necessary for Escrow Holder to publish such notices as may be required by the bulk sale laws of the State of California. Any and all costs of such escrow shall be paid one- half by Purchaser and one-half by Seller. 13. COVENANTS AFTER CLOSING DATE. 13.1 TRANSFER OF ACQUIRED ASSETS. Seller agrees from and after the Closing Date, upon the request of Purchaser, to do, execute, acknowledge and deliver, or to cause to be done, executed, acknowledged and delivered, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be required for the assigning, transferring, conveying, and confirming to Purchaser, or to its successors and assigns, or for the aiding, assisting, collecting and reducing to possession of, any or all of the Acquired Assets as provided herein. 13.2 COOPERATION. Seller will cooperate and use its reasonable efforts to have its officers and employees cooperate with Purchaser at Purchaser's request, on and after the Closing Date, in furnishing information, evidence, testimony and other assistance in connection with any actions, proceedings, arrangements or disputes involving Purchaser and based upon contracts, arrangements, commitments or acts of Seller which were in effect or occurred on or prior to the Closing Date. From and after the Closing Date, Seller will permit Purchaser and its representatives to have access to Seller's books and records relating to the Acquired Assets for periods prior to the Closing Date upon notice and during normal business hours. From and after the Closing Date, Purchaser will permit Seller and its representatives to have access to Seller's books and retained by Purchaser for the period prior to the Closing Date upon notice during normal business hours. Seller shall assist Purchaser after the Closing related to audits required in connection with any public offering contemplated by Purchaser; provided Seller shall not be required to expend funds or institute litigation. Purchaser shall keep any information delivered to Purchaser hereunder confidential; provided, however, Purchaser shall have the right as required by law to use such final information in connection with financial reporting or filing of any required documents with the Securities Exchange Commission or other similar or necessary use. 14. INDEMNIFICATION. 14.1 INDEMNIFICATION BY SELLER AND OWNER. Seller and Owner agree to defend, indemnify and hold Purchaser harmless from and against any and all losses, costs, damages, claims and expenses (including reasonable attorneys' fees) which Purchaser may sustain at any time by reason of (a) any debt, liability or obligation of Seller and/or Owner which were not assumed by Purchaser, (b) any 11 liability or obligation of any kind relating to the operations of the Acquired Assets, the Dealership and/or the Premises prior to the Closing Date, (c) the existence or presence of hazardous materials or toxic substances (as said terms may be defined by any applicable laws, statutes or ordinances) located at, on, under or emanating from the Premises related to the prior use of the Premises as an automobile dealership as of the Closing Date, or (d) the breach or inaccuracy of, or failure to comply with, any of the warranties, representations, covenants or agreements of Seller or Owner contained in this Agreement or in any agreement or document delivered pursuant hereto or in connection herewith or with the closing of the transactions contemplated hereby. The parties acknowledge and agree that Purchaser shall have the right to repair automobiles sold and/or serviced by Seller prior to the Closing Date to correct any customer complaints associated therewith, and Purchaser shall have the fight of reimbursement therefore from Seller and/or Owner pursuant to the terms of this section. 14.2 INDEMNIFICATION BY PURCHASER. Purchaser agrees to indemnify and hold harmless Seller from and against any and all losses, cost, damages, claims and expenses (including reasonable attorneys' fees) which Seller may sustain at any time by reason of (a) any debt, liability or obligation of Purchaser, (b) any liability or obligation of any kind relating to Purchaser's operation of the Acquired Assets, the Dealership and/or the Premises after the Closing Date, (c) the existence or presence of hazardous materials or toxic substances (as said terms may be defined by any applicable laws, statutes or ordinances) located at, on, under or emanating from the Premises after the Closing Date, or (d) the breach or inaccuracy of, or failure to comply with, any of the warranties, representations, covenants or agreements of Purchaser contained in this Agreement or in any agreement or document delivered pursuant hereto or in connection herewith or with the closing of the transactions contemplated hereby. 14.3 DEFENSE. Any party who receives notice of a claim for which it will seek indemnification shall promptly notify the indemnifying party in writing of such claim. The indemnifying party shall have the right to assume the defense of such action at its cost with counsel reasonably satisfactory to the indemnified party. The indemnified party shall have the right to participate in such defense with its own counsel at its cost. 14.4 INDEMNIFICATION COSTS. Except for warranty obligations of Seller pursuant to Section 14.5 below, each party shall not be deemed to have sustained any costs for which it is entitled to indemnification from the other party pursuant to this Agreement or any Ancillary Agreement until such time as the aggregate costs actually incurred by said party exceed TWENTY THOUSAND DOLLARS ($20,000) in the aggregate, in which event, the responsible party shall be liable for all costs, including the original TWENTY THOUSAND DOLLARS ($20,000). 14.5 SERVICE/REPAIR WARRANTIES. Notwithstanding any other provision in this Agreement to the contrary, Seller will be fully liable for and will indemnify and hold Purchaser harmless from any cost in connection with or arising out of the Seller's warranty of service or repairs performed or made by Seller on or prior to the Closing, if and to the extent Seller would have been liable for such rework had the claim been made prior to the Closing under Seller's limited service and parts warranty and such cost of repair exceeds ONE HUNDRED DOLLARS ($100) per automobile, and, provided further, that if the cost with respect thereto is estimated to be in excess of FIVE HUNDRED DOLLARS ($500), Purchaser 12 will provide notice to Seller in writing of such work prior to starting such work. 14.6 TIME LIMIT OF INDEMNITY. An indemnitee shall not be entitled to indemnification under this Section 14 unless and to the extent that indemnitee asserts a claim for indemnification in writing to the indemnitor during the applicable "Claims Period". "Claims Period" means: (a) for real or personal title matters, a period extending in perpetuity; (b) for environmental matters, a period extending in perpetuity; (c) for tax matters, a period ending on the date five (5) years after the Closing; and (d) for all other matters not expressly specified in Subsections (a), (b) and (c) above, a period ending on the date two (2) years after the Closing Date. 14.7 DISCLAIMER OF WARRANTIES. Except as otherwise provided in this Agreement, the new vehicles, used vehicles, fixed assets and inventories shall be sold to Purchaser "As Is" without any warranty whatsoever. Except as otherwise provided in this Agreement, Owners disclaim all other warranties, including, without limitation, (a) the value, nature, quality or condition of these assets, (b) the income to be derived from these assets, (c) the suitability of these assets for any and all activities and uses which Purchaser may conduct thereof, (d) the compliance of or by these assets or its operation with any laws, rules, ordinances or regulations of any applicable governmental authority or body, (e) the merchantability, marketability, profitability or fitness for a particular purpose of these assets, (f) the manner, quality, state of repair or lack of repair of these assets, or (g) any other matter with respect to these assets, specifically, that Owners have not made, do not make, and specifically disclaim any representations regarding compliance with any environmental protection, pollution or land use laws, rules, regulations, orders or requirements, including solid waste, as defined by the U.S. Environmental Protection Agency Regulations at 40 C.F.R., Part 261, or the disposal or existence, in or on the property, or any hazardous substance, as defined by the Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, and Regulations promulgated thereunder. 15. SURVIVAL OF REPRESENTATIONS. The parties hereto each agree that all representations, warranties and agreements contained herein shall survive the execution and delivery of this Agreement, the closing hereunder and any investigation made by any party hereto for a period of twenty-four (24) months following the Closing. 16. NO BROKER. Except for the obligation of Seller to Robertson Stephens & Co., which obligation shall the sole responsibility of Seller, Purchaser on the one hand, and Seller and Owner on the other, represent to the other that no broker or finder has been connected with the transactions contemplated by this Agreement. In the event of a claim by any broker or finder based upon his representing or being retained by Seller or Owner on the one hand, or by Purchaser on the other, Seller, Owner or Purchaser, as the case may be, agrees to indemnify and save harmless the other in respect of such claim. 17. USE OF THE NAME. Seller agrees that from and after the Closing Date, Purchaser shall transfer all rights, as Seller has, to the name "Beverly Hills BMW" or any derivative thereof or similar 13 name in connection with the operation of the Dealership acquired hereunder, and that Seller shall not subsequent to the Closing, use such name. 18. TERMINATION. If the Closing Date shall not have occurred on or prior to that date which is ninety (90) days after the Effective Date, any party that is not in default of its performance of its obligations under this Agreement may terminate this Agreement by giving written notice to the other party; provided, however, that if the transaction contemplated by this Agreement has not closed within ninety (90) days of the Effective Date due solely as a result of Purchaser not yet receiving the required consents from the Franchisor and/or Landlord as provided in sections 7.4 and 7.8 hereof, then either Purchaser or Seller may extend the Closing Date an additional sixty (60) days as necessary to obtain such consents. 19. RISK OF LOSS AND INSURANCE PROCEEDS. Seller shall give Purchaser notice of the occurrence of damage or destruction of, or the commencement of condemnation proceedings affecting any portion of the Premises. In the event that all or any material portion of the Premises is condemned, or destroyed or damaged by fire or other casualty prior to the Closing and the cost to repair or restore any loss or damage caused thereby is greater than FIVE HUNDRED THOUSAND DOLLARS ($500,000), then Purchaser may, at its option to be exercised within fifteen (15) days of Seller's notice of the occurrence of the damage or destruction or the commencement of the condemnation proceedings, either terminate this Agreement or consummate-the purchase for the full consideration as required by the terms hereof. If Purchaser elects to terminate this Agreement or fails to give Seller notice within such fifteen (15) days period that Purchaser will proceed with the purchase, then this Agreement shall terminate at the end of such fifteen (15) day period and the Deposit shall be returned to Purchaser less cost and expenses, including legal fees incurred in collection of the proceeds and neither party shall have any further rights or obligations hereunder. If (a) a portion of the Premises is condemned or destroyed or damaged by fire or other casualty prior to the Closing and the cost to repair or restore any loss or damage caused thereby is equal to or less than FIVE HUNDRED THOUSAND DOLLARS ($500,000); or (b) Purchaser elects within the aforesaid fifteen (15) day period to proceed with the purchase, then this Agreement shall not terminate and upon the Closing, there shall be a credit against the Purchase Price due hereunder equal to the amount of any net insurance proceeds or condemnation awards collected by Seller as a result of any such damage or destruction or condemnation, plus the amount of any insurance deductible, less any sums expended by Seller toward the restoration or repair of the premises (but in no event shall the mount of such credit exceed the Purchase Price); provided, however, in the event the insurance or condemnation proceeds are less than the actual amount necessary to replace such damage, Purchase shall receive a credit against the Purchase Price on the Closing in the amount of such difference. If the proceeds or awards have not been collected as of the Closing, then such proceeds or awards shall be assigned to Purchaser, except to the extent needed to reimburse Seller for sums expended to collect such proceeds or repair or restore the Premises, and Purchase shall not receive any credit against the Purchase Price with respect to such proceeds or awards; provided, that if the amount of proceeds or awards subsequently received by Purchaser exceeds the Purchase Price, then Purchaser shall pay to Seller any such excess within ten(10) days after Purchaser's receipt of such proceeds or awards. The provisions of this Section 19 shall survive the Closing. 20. CONFIDENTIALITY. In the event this Agreement is terminated for any reason other than the default of Seller, Purchaser shall deliver to the Seller, at no expense to Purchaser, without representation or warranty of any kind, all of the documents and papers which were supplied by the Seller to Purchaser 14 or its agents, including, without limitation, financial statements, tax returns, appraisals; inspections, investigations, studies, tests, surveys, and reports concerning the Assets, but excluding any documents or other papers which are proprietary property or trade secrets of Purchaser. Unless and until the Closing occurs, none of the parties to this Agreement shall disclose, publish or communicate either directly or indirectly, any of the terms, conditions or the subject or content of the parties' negotiations concerning purchase of the Dealership, except (a) in response to any lawful process requiting disclosure of the same as reasonably required by law or public reporting requirements, or (b) to prospective sources of financing, to mortgage brokers, franchisers, investment bankers, investors or purchasers, attorneys, accountants, consultants, experts and professionals engaged by Purchaser in connection with its due diligence investigation. The parties each agree that it shall at all times keep the contents of the negotiations confidential (subject to the exceptions stated in the preceding sentence) and that no publicity or press release with respect to any proposed transaction shall be made by either party without the prior written consent of either party. 21. NOTICES. All notices, requests or demands to a party hereunder shall be in writing and shall be given or served upon the other party by personal service, by certified return receipt requested or registered mail, postage prepaid, or by Federal Express or other nationally recognized commercial courier, charges prepaid, addressed as set forth below. Any such notice, demand, request or other communication shall be deemed to have been given upon the earlier of personal delivery thereof, three (3) business days after having been mailed as provided above, or one (1) business day after delivery through a commercial courier, as the case may be. Notices may be given by facsimile and shall be effective upon the transmission of such facsimile notice provided that the facsimile notice is transmitted on a business day and a copy of the facsimile notice together with evidence of its successful transmission indicating the date and time of transmission is sent on the day of transmission by recognized overnight carrier for delivery on the immediately succeeding business day. Each party shall be entitled to modify its address by notice given in accordance with this section. To Purchaser: FirstAmerica Automotive, Inc. 485 Serramonte Boulevard Colma, CA 94014 Fax No.: (650) 756-3945 With a copy to: W. Bruce Bercovich, Esq. Kay & Merkle 100 The Embarcadero, Penthouse San Francisco, California 94105 Fax No.: (415) 512-9277 Phone No.: (415) 357-1200 15 To Owner: Ross Gilbert Beverly Mercedes Place 9242 Beverly Blvd., Suite 281 Beverly Hills, CA 90210 Phone No.: (310) 271-4597 To Seller: Beverly Hills BW, Ltd. c/o Ross Gilbert Beverly Mercedes Place 9242 Beverly Blvd., Suite 281 Beverly Hills, CA 90210 Phone No.: (310) 271-4597 With a copy to: Norman Hoffman, Esq. 16133 Ventura Blvd., Suite "A" Encino, CA 91436 Fax No.: (818) 379-4017 Phone No.: (818) 986-8080 22. MISCELLANEOUS. 22.1 ENTIRE AGREEMENT. This Agreement, including the exhibits and schedules hereto, sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of every kind and nature between them and no party hereto shall be bound by any condition, definition, warranty or representation other than as expressly provided for in this Agreement or as may be on a date subsequent to the date hereof duly set forth in writing signed by the party hereto which is to be bound thereby. This Agreement shall not be changed, modified or amended except by a writing signed by the party to be charged and this Agreement may not be discharged except by performance in accordance with its terms or by a writing signed by the party to be charged. 22.2 GOVERNING LAW. This Agreement and its validity, construction and performance shall be governed in all respects by the laws of the State of California, without giving effect to principles of conflict of laws. 22.3 SEVERABILITY. If any provision of this Agreement or the application of any provision hereof to any person or circumstance is held invalid, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected unless the provision held invalid shall substantially impair the benefits of the remaining portions of this Agreement. 22.4 BENEFIT OF PARTIES. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, legal representatives and assigns. 22.5 NECESSARY DOCUMENTS. Each of the parties does hereby agree to do any act and to execute any other or further documents reasonably necessary or convenient to the carrying out of the 16 provisions of this Agreement. 22.6 HEADINGS. The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 22.7 ATTORNEYS' FEES. In the event that any action or proceeding is brought to enforce or interpret any provision, covenant or condition contained in this Agreement on the part of Purchaser, Seller or Owner, the prevailing party in such action or proceeding (whether after trial or appeal) shall be entitled to recover from the party not prevailing its expenses therein, including reasonable attorneys' fees and allowable costs. 22.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto. 22.9 TERMINATION AND REMEDIES. (a) LIQUIDATED DAMAGES. If Purchaser breaches this Agreement, and the transaction contemplated by this Agreement fails to close by reason thereof, Seller shall be entitled to terminate this Agreement and retain the amount of the Deposit plus any accrued interest thereon (the "Specified Sum") as liquidated damages. SELLER AND PURCHASER ACKNOWLEDGE THAT SELLER'S DAMAGES WOULD BE DIFFICULT TO DETERMINE, AND THAT THE SPECIFIED SUM IS A REASONABLE ESTIMATE OF SELLER'S DAMAGES. SELLER AND PURCHASER FURTHER AGREE THAT THIS SECTION IS INTENDED TO AND DOES LIQUIDATE THE AMOUNT OF DAMAGES DUE SELLER, AND SHALL BE SELLER'S EXCLUSIVE REMEDY AGAINST PURCHASER, BOTH AT LAW AND IN EQUITY ARISING FROM OR RELATED TO A BREACH BY PURCHASER OF ITS OBLIGATIONS TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. /s/ ___________________ ---------------------------- Seller's Initials Purchaser's Initials 17 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written. PURCHASER: SELLER: FirstAmerica Automotive, Inc., Beverly Hills BW, Ltd., a Delaware corporation a California general partnership By: /s/ Thomas Price By: RGBW, Inc., a California corporation ------------------------------- Thomas A. Price, President By: /s/ Ross Gilbert ------------------------------------- Ross Gilbert, President RGMB Corporation, a California corporation By: /s/ Ross Gilbert ------------------------------------- Ross Gilbert, President OWNER: /s/ Ross Gilbert ---------------------------------------- Ross Gilbert 18 LIST OF SCHEDULES SCHEDULE 2.1 Acquired Assets SCHEDULE 3.5 Liabilities SCHEDULE 3.7 Allocation of Purchase Price SCHEDULE 4.2 Title to Assets; Liens and Encumbrances SCHEDULE 4.5 Litigation SCHEDULE 4.10 Unions SCHEDULE 11 Lease 19 [LOGO OF BMW APPEARS HERE] BMW OF NORTH AMERICA, INC. DEALER AGREEMENT This DEALER AGREEMENT is effective as of the 20th day of April, ---- ----- 1998, by and between BMW of North America, Inc., a Delaware Corporation having its principal place of business at Woodcliff Lake, New Jersey 07675 ("BMW NA") and DEALER NAME: FAA Beverly Hills, Inc. ------------------------------------------------------------------- Dealer Location: Beverly Hills, California , a ------------------------------------------------------------ BUSINESS TYPE: Corporation --------------------------------------------------------------, (if a corporation or partnership) organized or incorporated under the laws of the STATE OF: California and ------------------------------------------- DOING BUSINESS AS: Beverly Hills BMW -------------------------------------------------------------- having its principal place of business at ADDRESS: 8825 and 8833 Wilshire Blvd. , in ------------------------------------------------------------------- CITY/TOWN: Beverly Hills , in the -------------------------------------------------------------- COUNTY OF: Los Angeles , in the -------------------------------------------------------------- STATE OF: California , (as "Dealer"). ------------------------------------------------------- All terms defined in the DEALER STANDARD PROVISIONS (Form 93/B) are incorporated herein by reference. PURPOSE OF AGREEMENT The purpose of this Agreement is to authorize Dealer to operate a BMW automobile dealership and to set forth the responsibilities of both BMW NA and Dealer in providing BMW Products and services to the consuming public. The United States automotive market requires a fluid relationship between BMW NA and authorized BMW dealers who represent BMW Products. Mutual compliance with the terms of this Agreement will promote the interests of both BMW NA and Dealer by providing each party an opportunity to earn a reasonable return on its investment through developing and retaining satisfied customers and by building a spirit of cooperation between BMW NA and authorized BMW dealers (collectively the "BMW Dealers") which will increase the value and customer perception of BMW trademarks. BMW NA and Dealer have entered into this Agreement with confidence in each others integrity, ability and expressed intention to deal fairly with the other party and the consuming public. Dealer is relying upon BMW NA's commitment to distribute quality BMW Products which meet the needs and expectations of the BMW customers in Dealers primary market and to provide Dealer with a broad range of support activities to assist Dealer in its retail operations. BMW NA is relying upon Dealers commitment to perform and carry out the responsibilities of an authorized BMW dealer, as set forth in this Agreement. Each party recognizes that it must rely upon the efforts of the other party in performing successfully under this Agreement. IN CONSIDERATION OF the foregoing and the mutual covenants herein contained, the parties hereto agree as follows: A. APPOINTMENT OF DEALER BMW NA appoints Dealer as a dealer of BMW Products. Subject to the terms of this Agreement, Dealer is granted the non-exclusive right to buy BMW Products. Dealer accepts such appointment and agrees to be bound by this Agreement. While dealer recognizes that its performance will be primarily measured based upon its activities in its Primary Market Area, Dealer agrees that this appointment does not confer upon it the exclusive right to deal in BMW Products in any specific geographic area within the 50 United States, nor does it limit the persons within the 50 United States to whom Dealer may sell BMW Products for use therein. Dealer agrees that it will not sell BMW Products for resale or use outside the 50 United States. Dealer further agrees to abide by any Export Policy established by BMW NA. Dealer acknowledges that BMW NA reserves the right to appoint additional dealers, whether located near Dealer's location or elsewhere, as BMW NA in its sole discretion deems necessary or appropriate. BMW NA agrees that it will not explore additional representation without first conferring individually with the BMW Dealer(s) surrounding the proposed location to determine whether other alternatives to additional representation are satisfactory to BMW NA. If a decision is made to proceed with establishment of additional representation, BMW NA will provide such BMW Dealer(s) no less than thirty (30) days written notice of such decision. B. DEALER STANDARD PROVISIONS AND DEALER OPERATING REQUIREMENTS The accompanying DEALER STANDARD PROVISIONS (Form 93/B), DEALER OPERATING REQUIREMENTS, DEALER FACILITY GUIDELINES, and all currently effective Addenda issued to Dealer by BMW NA, all of which may be amended, cancelled or superseded from time to time, are hereby incorporated into this Dealer Agreement ("Incorporated Documents"). Unless the context otherwise indicates, the term "Agreement" shall mean this document, the Incorporated Documents, and the documents referred to therein. Dealer hereby acknowledges receipt of this Agreement and agrees to become familiar with its terms. While Dealer is not contractually required to comply with the BMW DEALER OPERATING SYSTEM, Dealer agrees to consider conforming its operations to the guidelines and recommendations of the BMW Dealer Operating System. C. DEALER OWNERSHIP AND MANAGEMENT This is a PERSONAL SERVICES AGREEMENT. BMW NA is entering into this Agreement in reliance upon the qualifications, abilities and integrity of the Dealer Operator and upon the representation of the Dealer's Owner(s) that the Dealer Operator will have full managerial authority for operations and activities of Dealer. In order to induce BMW NA to enter into this Agreement, Dealer states that: (I) DEALER'S OWNERS. The beneficial owners, record owners and partners, if any - -------------------- of Dealer are (include Record Owners if different from Beneficial):
NAME % RECORD OR BENEFICIAL FirstAmerica, Automotive, Inc. 100% (Shareholders: Donald V. Strough 10.49 Thomas A. Price 39.93 Steven Hallock 3.19 Fred Cziska 4.57 Al Babbington 4.16 John Driebe 1.36 Trust Co. of The West 20.14 Management Options 3.02 Embarcadero Automotive, LLC. 3.92 Raintree Capital, LLC. 3.92 Brown, Gibbons, Lang, LLC. 2.01 BB Investments 2.26 H. Matthews Travis .13 Public Shareholders .90 ----- 100%)
Additional Names Attached [] C. DEALER OWNERSHIP AND MANAGEMENT - CONTINUED (II) DEALER'S OFFICERS. The following persons are Dealer's Officers: - ---------------------- NAME TITLE Thomas A. Price President Donald V. Strough Vice President Steven S. Hallock Treasurer / Secretary (III) DEALER'S CORPORATE DIRECTORS. If Dealer is a corporation, the following - ----------------------------------- are its Corporate Directors: NAME TITLE Thomas A. Price CEO Donald V. Strough Chairman Steven S. Hallock (IV) DEALER OPERATOR. The following person shall be in complete charge of - --------------------- Dealer's BMW Operations with authority to make all operating decisions on behalf of Dealer with respect to Dealer's BMW Operations and is the person upon whom BMW NA can rely to act on Dealer's behalf: Name: Robert Reehtwig ------------------------------------------------------------------------ (V) GENERAL MANAGER. The following is Dealer's General Manager (if none, enter - -------------------- "NONE"): Name: Stephan Jones ------------------------------------------------------------------------ C. DEALER OWNERSHIP AND MANAGEMENT - CONTINUED (VI) SUCCESSOR. The Dealer's Owners have nominated the following individual(s) - --------------- as proposed Dealer Owner(s) of a Successor Dealer to be established if this Agreement is terminated because of the death or permanent disability of any of the Dealers Owners (if none, enter "NONE"): Name: None ---------------------------------------------------------------- Name: None ---------------------------------------------------------------- Because of the importance that BMW NA places on the statements and representations of the Dealer's Owners and the qualifications of the Dealer Operator, Dealer agrees that there will be no change in the (a) identity of the Dealer's Owners (i above);(b) the Dealer Operator (iv above); or (c) Dealer's name, identity, business organization or structure without the prior written consent of BMW NA. To enable BMW NA to maintain effectively the BMW NA dealer network, Dealer further agrees to provide BMW NA with forty-five (45) days prior written notice of any proposed change in the ownership of Dealer, which would change the majority interest or control of Dealer, or of any proposed disposition of Dealer's BMW assets. Any such change in ownership or disposition of Dealer's BMW assets shall not be effective without the prior written consent of BMW NA which consent shall not be unreasonably withheld. BMW NA shall respond to Dealer's notification within forty-five (45) days after Dealer has furnished to BMW NA all applications and information reasonably requested to evaluate the proposal. Without limiting other considerations in determining whether BMW NA will provide consent, this Agreement may not be transferred, assigned or assumed until all indebtedness of Dealer to BMW NA, its subsidiaries or affiliates has been fully satisfied and unless the transferee, assignee or party assuming this Agreement agrees and commits to fulfill and complete all of the obligations under this Agreement and the Improvement Addendum (if applicable). C. DEALER OWNERSHIP AND MANAGEMENT - CONTINUED Dealer recognizes that BMW NA has a vital interest in ensuring that qualified personnel are employed by BMW Dealers. Therefore, Dealer agrees to employ personnel who meet the qualifications for each position. BMW NA agrees that Dealer has the right to decide reasonably all matters concerning management and personnel. Dealer has designated herein certain individuals as officers, directors, managers and/or individuals with responsibility for Dealer's BMW Operations. Dealer agrees to notify BMW NA in writing of any change in the designated individuals (ii, iii and v above) and recognizes that such designation shall not relieve Dealer of its responsibility for performance under this Agreement. Dealer agrees that BMW NA may rely upon the Dealer Operator and General Manager (if applicable) to act on Dealer's behalf and that such reliance will not alter Dealer's responsibilities under this Agreement. D. DEALER'S FACILITIES Dealer agrees that Dealer's Facilities shall satisfy all applicable provisions of this Agreement, including reasonable space, facility and BMW Corporate Identification requirements in the Dealer Operating Requirements Addendum and/or Dealer Facilities Guidelines. BMW NA recognizes the investment Dealer has in its facilities and hereby approves the location of the following Dealer's Facilities for the exclusive purpose of: 1) A showroom and sales facility for BMW Vehicles at: Address: 8825 Wilshire Blvd. Beverly Hills, CA ----------------------------------------------------------- 2) Service and Pans facilities for BMW Vehicles at: Address: 8833 Wilshire Blvd. Beverly Hills, CA ----------------------------------------------------------- 3) Facilities for the display and sale of used BMW Vehicles at: Address: 8833 Wilshire Blvd. Beverly Hills, CA ----------------------------------------------------------- 4) Other facilities (indicate the nature of the facility; e.g., storage facility): Address: ____________________________________________________________ Unless otherwise provided herein, Dealer shall conduct Dealer's BMW Operations and keep BMW Products exclusively at Dealer's Facilities designated above. In the event that Dealer desires to (i) change its principal place of business from that first set forth in this Agreement; (ii) change any location of Dealer's Facilities; (iii) establish any additional locations for either operating its business or storage of BMW Products; (iv) make any major structural or design change in Dealer's Facilities; or (v) change the usage or function of any locations or facility approved herein or otherwise utilize such locations or facilities for any functions other than the approved functions, Dealer must obtain the prior written approval of BMW NA for any such change or establishment. D. DEALER'S FACILITIES - CONTINUED In the event Dealer desires to establish or add any additional automobile franchise, line, make or dealership at Dealer's Facilities simultaneously with Dealer's BMW Operations, Dealer agrees to provide BMW NA thirty (30) days prior written notice of such establishment or addition. At the time notice is provided, Dealer shall demonstrate in writing to BMW NA that Dealer will continue to comply with the Dealer Operating Requirements Addendum and will not adversely impact the representation or sale of BMW Products. If Dealer is unable to comply, Dealer shall not pursue such establishment or addition, but may submit a detailed plan of compliance with the Dealer Operating Requirements and Dealer Operating Requirements Addendum to BMW NA. If BMW NA approves the detailed plan of compliance, Dealer may proceed with the establishment or addition. Dealer understands that BMW NA may, at its sole option, reject the plan or require issuance or modification of an Improvement Addendum in the event the plan is approved. Such approval shall not be unreasonably withheld. E. EXCLUSION OF WARRANTIES EXCEPT AS SPECIFICALLY PROVIDED FOR IN THE NEW CAR LIMITED WARRANTY, THE LIMITED WARRANTY ON EMISSION CONTROLS, THE LIMITED WARRANTY AGAINST RUST PERFORATION, THE LIMITED WARRANTY ON ORIGINAL BMW PARTS AND THE LIMITED WARRANTY ON ORIGINAL PARTS SOLD OVER THE COUNTER; ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE ARE EXCLUDED. THE EXCLUSION ALSO APPLIES TO INCIDENTAL, CONSEQUENTIAL, SPECIAL OR INDIRECT DAMAGES FOR ANY BREACH OF EXPRESS OR IMPLIED WARRANTY, INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY AND/OR FITNESS, IF ANY, APPLICABLE TO BMW PRODUCTS. F. BMW DEALER FORUM BMW NA and Dealer agree that it is in their mutual interest to have an independent group of BMW dealer representatives serve on the BMW Dealer Forum ("DEALER FORUM"). The DEALER FORUM shall represent BMW Dealers and will communicate the position of BMW Dealers to BMW NA on various common issues. BMW NA and the DEALER FORUM shall establish a mechanism to foster open and frequent communication on substantive issues affecting BMW NA and BMW Dealers. Each BMW dealer is entitled and encouraged to serve on the DEALER FORUM or on a committee of the DEALER FORUM pursuant to its by-laws and each BMW dealer is expected to support and participate in the DEALER FORUM. The DEALER FORUM shall adopt by-laws as BMW Dealers deem reasonable and necessary. The DEALER FORUM may establish committees to study various aspects of the retail environment and the BMW NA - BMW Dealers' relationship. Before any material change may be made to this Agreement, BMW NA agrees to notify the DEALER FORUM and consider BMW Dealers' position regarding the proposed change. G. TERM This Agreement shall continue in full force and effect and shall govern all relations and transactions between the parties commencing on the effective date hereof and continuing as follows: O If Dealer has fulfilled all of its obligations hereunder and no Improvement Addendum is currently in force, this Agreement shall expire five years from the effective date hereof, unless terminated earlier in accordance with the applicable provisions of this Agreement. In such event BMW NA will renew this Agreement or offer Dealer an opportunity to enter into a superseding Agreement. O If Dealer has outstanding obligations as of the effective date of this Agreement and/or an Improvement Addendum is in force, this Agreement shall expire on the earlier of three years from the effective date hereof or sixty (60) days following the earliest "Compliance Date" specified in said Addendum, unless otherwise terminated in accordance with the applicable provisions of this Agreement. H. ALTERNATE DISPUTE BMW NA and Dealer agree to minimize disputes between them. However, in the event that disputes arise, BMW NA and Dealer agree that they will attempt to resolve all matters between them before any formal action is taken to seek any administrative or judicial adjudication or governmental review. A BMW BOARD ("BOARD") will act as the Administrator of all disputes between BMW NA and Dealer arising out of this Agreement. The BOARD will consist of three representatives who will be selected by BMW NA and three representatives of BMW Dealers who will be selected by the DEALER FORUM. The BOARD will determine eligibility requirements, develop procedures to ensure a fair and equitable decision ("ADR PROCEDURES") and select individuals to participate in a DISPUTE RESOLUTION PANEL ("PANEL") to hear an eligible dispute. The PANEL shall consist of at least one BMW NA employee, one BMW dealer and one independent person selected by the BOARD. The BOARD shall also monitor the dispute resolution process, report to BMW NA and the DEALER FORUM annually on the effectiveness of this process and, when required, make recommendations for changes in this process. BMW NA and Dealer agree that the process outlined in this Article H and developed by the BOARD in the ADR PROCEDURES will be mandatory. The PANEL's recommendation will be non-binding, unless the parties agree to be bound by the decision of the PANEL. The purpose of the PANEL will be to recommend a resolution and work with the parties to reach a fair and equitable solution to their dispute in a cost-effective, efficient manner and to avoid formal adjudication or government intervention. H. ALTERNATE DISPUTE RESOLUTION - CONTINUED If either party to this Agreement initiates any action in court or an administrative agency prior to issuance of a PANEL recommendation on a dispute, that party shall pay all costs, fees and expenses, including attorneys fees, of the other party which arise out of the enforcement of this Article H. I. RIGHT OF FIRST REFUSAL BMW NA recognizes the investment which Dealer has committed to remain a BMW dealer. Dealer recognizes the importance to BMW NA of continuing dealership operations from approved locations to provide for effective sale and service of BMW Products. Accordingly, whenever Dealer intends to dispose of Dealer's BMW assets or to change majority ownership from that listed in Article C (i), BMW NA shall have the first right to purchase Dealer's BMW assets or ownership interests pursuant to this Article. Dealer agrees to disclose to the prospective buyer that any sale or disposition shall be subject to the terms of this Dealer Agreement. BMW NA will advise Dealer if it will exercise the right of first refusal within forty-five (45) days after Dealer has furnished all applications and information in accordance with Article C. If BMW NA exercises the right, BMW NA will assume the proposed buyers rights and obligations under the written agreement the proposed buyer negotiated with Dealer (the "Buy/Sell Agreement"). The purchase price shall be that set forth in the Buy/Sell Agreement. In the event BMW NA exercises its right of first refusal, BMW NA may assign the Buy/Sell Agreement to any party. BMW NA shall remain responsible to guarantee the purchase price to be paid by the assignee. Dealer shall transfer the assets and any applicable real estate free and clear of all liens and encumbrances. Any property shall be transferred by Warranty Deed, where possible, conveying marketable title. Deeds will be in the proper form for recording. Possession will be deemed transferred when the deed is delivered. Dealer will furnish copies of, and will assign where required, all agreements, licenses, easements, permits or other documents necessary for the conduct of Dealer's BMW Operations. If it exercises its right under this Article, BMW NA will reimburse Dealer for all acceptable expenses, excluding brokerage commissions, incurred by Dealer in connection with the development of the Buy/Sell Agreement. Dealer will supply BMW NA with reasonable documentation to support all those expenses and all copies of materials generated during the negotiation and development of the Buy/Sell Agreement in anticipation of the sale (including environmental reports, accounting reviews, among others.) Any dispute regarding reimbursement shall be presented for review under Article H. This Article shall not apply in the event that Dealer proposes to change majority ownership, dispose of its assets or otherwise enter into a proposed Buy/Sell Agreement with a member of Dealer's immediate family (spouse, child, brother, sister, parent, grandchild, or spouse of child); to an individual who is listed on the Successor Addendum; to an individual who is currently employed by Dealer and has been actively employed by Dealer for at least three consecutive years in the BMW Operations and is otherwise qualified as a Dealer Operator; or to an individual who is currently listed as a Dealer's Owner in Article C and has been so listed for the past three consecutive years and is otherwise qualified as a Dealer Operator. J. CUSTOMER SATISFACTION BMW NA and Dealer agree to conduct their respective businesses to promote and support the image and reputation of BMW NA, BMW Products and BMW Dealers. BMW Products must be perceived as the finest available. BMW NA and BMW Dealers must be recognized as providing the best service in the industry. Dealer, as the direct link to the BMW customer, is responsible for satisfying customers in all matters, except those directly related to product design and manufacturing. Dealer will take reasonable steps to ensure that each customer is satisfied with BMW Products, and with the services and the practices of Dealer. Dealer will recommend to BMW NA methods of reasonably satisfying customers. BMW NA will support Dealer's customer satisfaction efforts through counseling, training opportunities and providing survey results. When requested by BMW NA, Dealer shall submit a plan detailing its customer satisfaction programs. That plan shall include continuous reinforcement to all dealership personnel of the importance of customer satisfaction, necessary training for dealership personnel and methods of conveying to customers that Dealer is committed to their satisfaction. Following consultation with and notice from BMW NA or its authorized representative, Dealer shall remedy to the satisfaction of BMW NA any practice or method of operation which would have a detrimental effect upon customer satisfaction or would impair the reputation or image of BMW NA, BMW Products or Dealer. K. EXECUTION OF AGREEMENT This Agreement shall not become effective until signed by a duly authorized officer of Dealer, if a corporation; or by one of the general partners of Dealer, if a partnership; or by the named individual if a sole proprietorship; and countersigned by authorized representatives of BMW NA. L. MODIFICATION OF AGREEMENT No representative of BMW NA shall have the authority to waive any of the provisions of this Agreement or to make any amendment or modification of or any other change in, addition to, or deletion of any portion of this Agreement or to make any other agreement which imposes any obligation on either BMW NA or Dealer which is not specifically imposed by this Agreement or which renews or extends this Agreement; unless such waiver, amendment, modification, change, addition, deletion or agreement is reduced to writing and signed by two authorized representatives of BMW NA and by the authorized representative of Dealer as set forth in Article K of this Agreement. BMW OF NORTH AMERICA, INC. BY: /S/ BY: /S/ --------------------------------- -------------------------------- TITLE: Senior Vice President. General TITLE: President. FAA Beverly Hills. ------------------------------ ----------------------------- Manager, Western Region Inc. ----------- FEDERAL TAX ID # ___________________ BY: /S/ --------------------------------- TITLE: Business Development Manager ATTEST: (If Dealer is a Corporation) ------------------------------ Western Region /S/ ------------------------------------ Secretary WITNESS: (If Partnership or Proprietorship) ____________________________________ Name ____________________________________ Address EX-2.2 3 ASSET PURCHASE AGREEMENT WITH CAPMAN ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT is made and entered this 17th day of July 1997 (the "Contract Date"), by and among FirstAmerica Automotive, Inc., a Delaware corporation or nominee ("Purchaser"), Golden Sierra Auto Group, a California corporation, dba Capitol Nissan ("Seller"), and, as limited by Section 15 hereof, CAPMAN, Inc., a California corporation ("Capman"), and is made with reference to the following facts: R E C I T A L S WHEREAS, Seller owns and operates a Nissan automobile dealership (the "Dealership") commonly known as Capitol Nissan, located at 1120 Capitol Expressway Auto Mall, San Jose, California 95136 (the "Premises"). WHEREAS, Seller desires to sell to Purchaser and Purchaser desires to purchase from Seller certain of the assets, properties and business of Seller utilized in connection with the Dealership. NOW, THEREFORE, in recognition of the foregoing representations, and in consideration of the covenants set forth herein, the parties hereto agree as follows: A G R E E M E N T 1. DEFINITIONS. The capitalized terms as used in this Agreement shall be defined as hereinafter set forth in this Section 1, or as otherwise provided in this Agreement. 1.1 ACQUIRED ASSETS. The term "Acquired Assets" shall be defined as all of the assets and property to be acquired by Purchaser hereunder, as described in Section 2.1 hereof. 1.2 CLOSING. The term "Closing" shall be defined as the consummation of all of the transactions provided for in this Agreement, including the exchange of the Acquired Assets for the consideration provided for herein. The Closing shall occur at the offices of Kay & Merkle, 100 The Embarcadero, Penthouse, San Francisco, California, on the Closing Date commencing at 10:00 a.m. 1.3 CLOSING DATE. The "Closing Date" shall be defined as the date which falls 5 business days following the earliest date on which the conditions specified in Sections 7 and 8 hereof are satisfied; subject, however, to the provisions of Section 18 below. 1.4 FRANCHISE. The term "Franchise" shall be defined as the Nissan Franchise currently held by Seller. 1.5 FRANCHISER. The term "Franchiser" shall be defined as Nissan Motor Corporation. 1 1.6 OBSOLETE PARTS. The term "Obsolete Parts" shall be, defined as all (i) factory parts which are not listed in the most current manufacturer's wholesale price book or, if listed therein, are valued at ZERO DOLLARS ($0), (ii) parts which are not returnable to the manufacturer (as defined by the Franchiser, (iii) factory and non-factory parts which have been in stock more than one (1) year and/or parts which are in excess of a one (1) year supply, (iv) parts indicated as discontinued, and (v) parts which are broken or damaged, regardless of whether listed in the most current manufacturer's wholesale price book. 2. PURCHASE AND SALE OF ASSETS. 2.1 ACQUIRED ASSETS. The assets subject to this Agreement shall consist of all the assets located at the Premises and related to or used in connection with the Franchise, including but not limited to those assets to be listed on Schedule 2.1 to be prepared prior to the Closing Date and attached hereto, Nissan special tools, furniture, fixtures and equipment, which special tools, furniture, fixtures and equipment shall be in substantially the same condition at Closing as at the expiration of the Due Diligence Period, and leasehold improvements located at the Premises and used by Seller in operation of the Nissan Franchise, motor vehicles (new and used) (subject to exclusion of certain used vehicles in accordance with Section 3.2(c)), parts and accessories (subject to exclusion of Obsolete Parts in accordance with Section 3.2(d) and excess non-factory parts in accordance with Section 3.2(c)), tires, work-in- progress, advertising literature, forms and supplies for the Dealership, parts return privileges from the Franchiser, rights under new car purchase orders and deposits relating thereto, goodwill, telephone number of Seller, the name "Capitol Nissan" or any derivative thereof, the right of occupancy of the Premises and all contracts, agreements or commitments which have been approved by Purchaser as the same shall exist on the Closing Date. The parties agree that Schedule 2.1 shall be prepared in conjunction with the physical inventory described in Section 3.2(j) hereinbelow. 2.2 PURCHASE. Seller hereby agrees to sell, convey, transfer, assign and deliver to Purchaser, and Purchaser hereby agrees to purchase and acquire, on the Closing Date, all of the Acquired Assets. Any assets which are not Acquired Assets, shall be retained by Seller. 3. CONSIDERATION FOR ACQUIRED ASSETS. 3.1 PURCHASE PRICE. Subject to the terms and conditions of this Agreement, the purchase price to be paid by Purchaser for the Acquired Assets shall be that amount which is equal to the aggregate value of the Acquired Assets as of the Closing Date determined in accordance with Section 3.2. 3.2 VALUATION OF ACQUIRED ASSETS. Those Acquired Assets which are listed below shall be valued as provided below in this Section 3.2. (a) The price for each 1997 new unregistered and undamaged Nissan model vehicle with not more than three hundred (300) miles shall be the sum of the following: 2 (i) The wholesale cost of each such vehicle determined in accordance with the factory invoice, including advertising charges; plus (ii) The wholesale cost of all optional parts and accessories installed in such vehicle plus the cost of labor (determined at the internal rate pursuant to the standard factory formula) for installation of the same; less (iii) The sum of all distributor's allowances ("Allowances") as of the Closing Date including, but not limited to, inventory carry-over allowances, discounts, holdbacks, rebates, contests, model change incentives and similar distributor's allowances related to such vehicle. Purchaser shall also receive a credit against the Purchase Price equal to the number of days of unexpired Floor Plan Assistance, if any, as of the Closing for each vehicle purchased. (b) The price for each 1997 unregistered and undamaged Nissan demonstrator vehicle with not more than seven thousand five hundred (7,500) miles purchased hereunder shall be the value determined in accordance with subsections (a)(i) through (a)(iii) hereinabove, less the sum of 20c per mile for each said vehicle; (c) Notwithstanding paragraphs (a) and (b) hereinabove, Purchaser shall have no obligation to purchase new vehicles in inventory with a supply of each line of automobiles (i.e. Maxima) in excess of a 60 day supply based on the average monthly sales for those three months immediately preceding the Closing Date, provided that this paragraph (c) shall apply only in the event and to the extent Seller is able to return any vehicle in excess of the sixty (60) day supply without (i) having to repay to the Franchiser any Allowances or Floor Plan Assistance; (ii) receiving a debit against Allowances owing or future Allowances upon such return, (iii) losing credit for such vehicle in the 1997 Dealer Challenge, as hereinafter defined, or (iv) suffering any other financial detriment (other than the loss of the sale to Purchaser) upon such return (collectively "Return Loss"). (d) Notwithstanding paragraphs (a), (b) and (c) hereinabove, Seller shall have all 1997 Quests in rental service as of March 31, 1997. Purchaser shall have no obligation to purchase any 1997 Quests that not have been placed in rental service prior to March 31, 1997, with the exception of 1997 Quests delivered and invoiced by Nissan Corporation after March 31, 1997. The purchase price for all 1997 Quests in rental service with not more than 300 miles shall be valued in accordance with paragraph 3.2(a)(i) through 3.2(a)(iii) provided, however, that Purchaser shall have the right to all incentives including market share funds related to such vehicles. (e) All vehicles not described in subsections (a), (b), (c) and (d) above which are to be purchased hereunder shall be valued at a price mutually agreed upon by Seller and Purchaser; provided, however, that if Seller and Purchaser are unable to agree on a price with respect to any individual vehicle prior to the Closing Date, then such vehicle shall be excluded from the Acquired Assets and not purchased hereunder. 3 (f) All new undamaged returnable genuine Nissan factory parts and accessories which are in possession of Seller as of the Closing Date and which are listed in the manufacturer's most current wholesale parts and accessories price book shall be valued at dealer cost in accordance with the manufacturer's most current wholesale parts and accessories price book as of the Closing Date; provided, however, that Obsolete Parts shall be valued at ZERO DOLLARS ($0) and shall be retained by Seller, and removed by Seller from the Premises not later than ten (10) days following the Closing Date. (g) All non-factory parts, accessories and miscellaneous inventory which are in the possession of Seller as of the Closing Date, shall be valued at dealer cost, provided, however, that Purchaser shall have no obligation to purchase in excess of TWENTY THOUSAND DOLLARS ($20,000) of such items. (h) All work-in-progress shall be valued at retail. (i) All furniture, fixtures, equipment, leasehold improvements and special tools shall be valued at $500,000 provided, however, that in the event that any item of furniture, fixtures, equipment, special tools or leasehold improvement is materially damaged, destroyed or removed from the Dealership between the date of execution of this Agreement and the Closing Date, the value of said item damaged, destroyed or removed from the Dealership shall be credited against the Purchase Price. (j) As of the close of business on the day immediately preceding the Closing Date or on such other date as mutually agreed upon by Purchaser and Seller, a physical inventory to determine the value of the new, used and demonstrator vehicles, and work-in-progress shall be taken jointly by the parties. Each party shall bear the expenses associated with its own personnel in connection with the valuation of the assets. The parties shall jointly employ an independent inventory service to take a parts and accessories inventory immediately prior to the Closing. The cost of such inventory shall be paid one- half by Purchaser and one-half by Seller. 3.3 PAYMENT OF PURCHASE PRICE. The purchase price determined in accordance with Section 3.2 above to be paid by Purchaser pursuant to this Agreement shall be paid as follows: (a) Upon execution hereof, Purchaser shall cause the sum of FIFTY THOUSAND DOLLARS ($50,000) (the "Deposit") to be delivered to Escrow Holder as hereinafter defined. The Deposit shall be held by the Escrow Holder as an earnest money deposit toward the purchase price of the Dealership. The Deposit shall be held by Escrow Holder in an interest bearing account. At the Closing, the Deposit, including accrued interest, shall be applied and credited toward the payment of the Purchase Price. If escrow does not close, and this Agreement is terminated in a manner governed by Section 7, the Deposit, including accrued interest, will be disbursed to Purchaser. If the escrow does not close and Section 7 does not apply, the Deposit together with the interest accrued thereon shall be promptly returned to Purchaser unless the provisions of Section 22.9 are applicable, in which case the disposition of 4 the Deposit together with the interest accrued thereon shall be governed by the provisions of Section 22.9. (b) The balance of the purchase price shall be paid in cash on the Closing Date. (c) In addition to the cash payment as provided for hereinabove, Purchaser shall grant to Capman, Inc., a California corporation, an option to acquire 20,000 shares of the capital stock of FirstAmerica Automotive, Inc., a Nevada corporation, pursuant to the Stock Option Plan described in Section 8.7 hereof. 3.4 CLOSING AND POST-CLOSING ADJUSTMENTS. All expenses of a nature which are customarily subject to proration in a transaction involving the purchase and sale of assets of an ongoing business shall be apportioned between Seller and Purchaser according to the number of days in the period covered thereby which occurred prior to and including the Closing Date, and the number of such days subsequent to the Closing Date. Those items subject to proration hereunder shall include, without limitation, personal property taxes, and customer prepayments. The aggregate amount of any adjustment shall be determined and paid as of the Closing Date. In addition to Purchase Price, Purchaser shall pay to Seller the sum of ONE HUNDRED FIFTY DOLLARS ($150) per automobile sold by Seller, which automobiles qualify for the 1997 Dealer Challenge described on Schedule 3.4 hereof (the "1997 Dealer Challenge"), provided that Purchaser qualifies for such program and actually receives such funds from Franchiser. The parties acknowledge and agree that such sums shall not be due and owing until such time as such funds are received by Purchaser from Franchiser. Purchaser shall exercise reasonable good faith efforts to qualify for the 1997 Dealer Challenge. 3.5 LIABILITIES. Purchaser shall have no obligation for any liabilities of any kind whatsoever of Seller other than those liabilities which Purchaser specifically agrees to assume all of which shall be set forth on Schedule 3.5 to be attached hereto ten (10) days prior to the expiration of the Due Diligence Period, including without limitation all contracts, agreements and commitments of Seller, which Purchaser agrees to assume. Purchaser shall be responsible solely for that portion of any such obligations, which first accrue on or subsequent to the Closing Date. Purchaser shall have no obligation with respect to any liability arising under any such contract, agreement or commitment prior to the Closing Date, all of which liability shall remain the responsibility of Seller. The parties acknowledge and agree that Purchaser is not assuming any employment agreements, labor agreements, collective bargaining agreements or other similar contracts. 3.6 TRANSFER TAXES. Purchaser agrees to pay any and all sales, transfer or other similar taxes which may be imposed or payable on or in connection with the transfer of the Acquired Assets. 3.7 ALLOCATION OF PURCHASE PRICE. The Purchase Price as provided for herein shall be allocated as set forth on Schedule 3.7 attached hereto which shall agreed upon and attached hereto at or prior to Closing. 5 4. REPRESENTATIONS AND WARRANTIES OF SELLER. Except as set forth on the schedules attached hereto (the "Disclosure Schedules"), Seller and Capman hereby jointly and severally represent, warrant and agree with Purchaser as follows: 4.1 GOOD STANDING. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of California and is entitled to and has the corporate power and authority to own or lease its property and to carry on its business in the manner and in the places where such property are now owned, leased or operated and such business is now conducted. 4.2 TITLE TO ASSETS; LIENS AND ENCUMBRANCES. Seller will convey to Purchaser good and marketable title to the Acquired Assets, free and clear of all security interests, liens, claims, restrictions, equities and encumbrances whatsoever, other than liens for taxes not yet due and payable. PURCHASER SPECIFICALLY ACKNOWLEDGES AND AGREES THAT, EXCEPT AS EXPRESSLY PROVIDED IN THIS SECTION 4, SELLER IS SELLING AND PURCHASER IS PURCHASING THE ACQUIRED ASSETS ON AN "AS IS WITH ALL FAULTS" BASIS AND THAT PURCHASER IS NOT RELYING ON ANY REPRESENTATIONS OR WARRANTIES OF ANY KIND WHATSOEVER, EXPRESS OR IMPLIED, FROM SELLER, ITS AGENTS, OR BROKERS AS TO ANY MATTERS CONCERNING THE ACQUIRED ASSETS, INCLUDING, WITHOUT LIMITATION: (1) the quality, nature, adequacy and physical condition of the Acquired Assets, (2) except as otherwise provided in the Real Property Agreement, as hereinafter defined, the presence of Hazardous Materials on, under or about the Dealership or the adjoining or neighboring property, (3) the contents, adequacy or completeness of the due diligence materials from third parties delivered to Purchaser prior to the expiration of the Due Diligence Period and listed on Schedule 4.2 to be attached prior to the expiration of the ------------ Due Diligence Period, and (4) the economics of the operation of the Dealership. 4.3 AUTHORIZATION. The execution and delivery of this Agreement and each other document, agreement and instrument contemplated hereby, and the consummation of the transactions contemplated hereby has been duly authorized by the Board of Directors of the Seller and all other corporate action, including all shareholders' approvals necessary to authorize the execution and delivery of this Agreement and each other document, agreement and instrument contemplated hereby, and the consummation of the transactions contemplated hereby, have also been taken. Except for consent of the Franchiser, no consent of any lender, trustee, security holder, lessor or any other person or entity is required to be obtained by Seller in connection with the execution, delivery and performance of this Agreement by Seller and the consummation of the transactions contemplated hereby. This Agreement constitutes the valid and binding obligation of Seller and Capman enforceable in accordance with its terms, except as may be limited as applicable bankruptcy law and equity. Except as to the terms of the Franchise, the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby (a) do not violate or constitute a breach of or default under any contract, agreement or commitment to which Seller or Capman is a party, under which they are obligated or to which any of the Acquired Assets are subject, (b) do not violate any judgment, order, statute, rule or regulation to which Seller, Capman or any of the Acquired Assets are 6 subject or the articles of incorporation or bylaws of the Seller, and (c) will not result in the creation of any lien, charge or encumbrance on any of the Acquired Assets. 4.4 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The representations and warranties of Seller and Capman contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though such representations and warranties have been made on and as of the Closing Date. 4.5 LITIGATION. Seller has not received service of process for, and to the best of Seller's knowledge there is no pending or threatened suit, action, arbitration, or legal, administrative, or other proceeding, or governmental investigation against or affecting any of the Acquired Assets. To the best knowledge of Seller, Seller is not in default with respect to any order, writ, injunction, or decree of any federal, state, or local court. To the best knowledge of Seller, use of the name "Capitol Nissan" by Seller does not infringe upon the rights of any other person and Seller is not aware of any claim of any nature to the effect that any person other than Seller holds any rights with respect to such names. 4.6 DEFAULTS. Seller is not in default, and to the best of Seller's knowledge, no event has occurred which, with the passage of time will constitute a default, with respect to any obligation or liability to be assumed by Purchaser hereunder, which are listed on Schedule 3.5 attached hereto, To the best knowledge of Seller, no other party to any obligation or liability set forth in Schedule 3.5 is in default with respect to any provision thereof. 4.7 ENVIRONMENTAL COMPLIANCE NOTICES. Seller has received no written notice advising Seller of any defects, defaults or non-compliance in connection with the Acquired Assets or the Premises from any governmental agency dealing with environmental laws, except notices which have been previously complied with or waived by the governmental agency. 4.8 COMPLIANCE WITH LAW. To the best of Seller's knowledge, Seller has complied with, and is not in violation of, applicable federal, state or local statutes, laws or regulations the violation of which would have a material adverse effect on the financial condition of the Dealership. 4.9 FINANCIAL REPORTS. Seller has delivered to Purchaser dealer financial statements for Seller for the calendar years 1995 and 1996 ("Dealer Financial Statement"). The income and expenses reflected in the Dealer Financial Statement has been prepared in accordance with past practices of Seller and, to the best of Seller's knowledge, are true and correct in all material respects. 4.10 UNIONS. Seller is not a party to any arrangement with any union, and no employees of the Seller are represented by any labor union or covered by any collective bargaining agreement or, to the best of Seller's knowledge of Seller, is any effort to establish such representation in progress. 7 When used herein the term "to the best of Seller's knowledge" shall mean knowledge of Mickey Ollis, Dennis R. Boyle, and Ole Skifter without any independent investigation. In the event Purchaser discovers a breach of representation or warranty prior to Closing, Purchaser's sole remedy for such breach shall be to terminate this Agreement and seek actual damages against Seller in the amount of Purchaser's damages not to exceed the sum of FIFTY THOUSAND DOLLARS ($50,000). 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents, warrants and agrees with Seller and Owner as follows: 5.1 GOOD STANDING. Purchaser is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and is entitled to and has the corporate power and authority to own or lease its property and to carry on its business in the manner and in the places where such property are now owned, leased or operated and such business is now conducted. 5.2 AUTHORIZATION. The execution and delivery of this Agreement and the consummation of transactions contemplated hereby has been duly authorized by the Board of Directors of the Purchaser and all other corporate action, including all shareholders' approvals necessary to authorize the execution and delivery of this Agreement and the transactions contemplated hereby, have also been taken. This Agreement is a valid and binding obligation of Purchaser enforceable against Purchaser in accordance with its terms. Except for consent of the Franchiser, landlords under leases, and lenders, no consent of any trustee, security holder or any other person or entity is required to be obtained by Purchaser in connection with the execution, delivery and performance of this Agreement by Purchaser and the consummation of the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby (a) do not violate or constitute a breach of or default under any contract, agreement or commitment to which Purchaser is a party or under which it is obligated, and (b) do not violate any judgment, order, statute, rule or regulation to which Purchaser is subject. 5.3 REPRESENTATIONS AND WARRANTIES ON CLOSING DATE. The representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date. 6. SELLER'S COVENANTS. 6.1 ONGOING OPERATIONS. From the date hereof to the Closing, Seller will use its best effort to preserve intact the Acquired Assets and to continue to operate the Dealership as a going concern, including, but not limited to, maintaining commercially reasonable inventories and receivables; provided, however, Seller shall not be required to expend sums in excess of FIFTEEN THOUSAND DOLLARS ($15,000) or institute litigation in exercising such best efforts. Seller will not dispose of any of the Acquired Assets except in the ordinary course of business consistent with past practices, and will not, without limiting the foregoing, hold a "going-out-of-business" or "liquidation" sale; provided that Seller shall have the right to exercise 8 normal and customary selling and marketing activities consistent with customary practices of an ongoing dealership. 6.2 APPROVAL. Each of Purchaser and Seller will use its best efforts to obtain all permits, approvals, authorizations and consents of third parties necessary or desirable for the consummation of the transactions contemplated by this Agreement and for the ownership and operation by Purchaser of Acquired Assets and the Dealership related thereto; provided, however, Seller shall not be required to expend sums in excess of FIFTEEN THOUSAND DOLLARS ($15,000) or institute litigation in exercising such best efforts, Purchaser and Seller shall proceed as promptly as practicable after the date hereof to prepare all materials necessary to obtain the consent of the Franchiser as is necessary for Purchaser to acquire the Acquired Assets and for consummation of the transactions contemplated hereby. 6.3 COVENANT TO COMPLY. Seller shall not take any action or fail to take any action which will make any of their representations and warranties not true and correct in all material respects on the Closing Date. Seller shall use its best efforts to satisfy or cause to be satisfied all of the conditions precedent to Purchaser's obligations hereunder; provided, however, Seller shall not be required to expend sums in excess of FIFTEEN THOUSAND DOLLARS ($15,000) or institute litigation in exercising such best efforts. Seller shall give Purchaser prompt written notice of any material change in any of the information contained in the representations and warranties made in Section 4 hereof or the schedules referred to herein which occur prior to the Closing Date. 6.4 ENTRY AND INDEMNITY. In connection with any entry by Purchaser, or its agents, employees or contractors onto the Property, Purchaser shall give Seller reasonable advance notice of such entry and shall conduct such entry and any inspections in connection therewith so as to minimize, to the greatest extent possible, interference to Seller's Dealership operation. Without limiting the foregoing, prior to any entry to perform any on-site testing, Purchaser shall give Seller notice thereof, including the identity of the company or persons who will perform such testing and the proposed scope of the testing. Seller shall approve or disapprove the proposed testing within three (3) business days after receipt of such notice. If Purchaser or its agents, employees or contractors take any sample from the Property in connection with any such approved testing, at Seller's request, Purchaser shall provide to Seller a portion of such sample being tested to allow Seller, if it so chooses, to perform its own testing. Seller or its representative may be present to observe any testing or other inspection performed on the Property. Upon Seller's request, Purchaser shall promptly deliver to Seller copies of any reports relating to any testing or other inspection of the Property performed by Purchaser or its agents, employees or 9 contractors. Purchaser shall maintain, and shall assure that its contractors maintain, public liability and property damage insurance in amounts and in form and substance adequate to insure against all liability of Purchaser and its agents, employees or contractors, arising out of any entry or inspections of the Property pursuant to the provisions hereof, and Purchaser shall provide Seller with evidence of such insurance coverage upon request by Seller. Purchaser shall indemnify and hold Seller harmless from and against any costs, damages, liabilities, losses, expenses, lions or claims (including, without limitations reasonable attorneys' fees) arising out of or relating to any entry on the Property by Purchaser, its agents, employees or contractors in the course of performing the inspections, testings or inquiries provided for in this Agreement. The foregoing indemnity shall survive beyond the Closing, or, if the sale is not consummated, beyond the termination of this Agreement. 6.5 POST CLOSING ACCESS. Following the Closing, Purchaser shall, upon forty-eight (48) hours prior written notice, be granted access during normal business hours to Seller's books and records relating to customer files (e.g., deal jackets and service repair orders). Any copies of such materials shall be provided at Purchaser's expense. 7. CONDITIONS TO PURCHASER'S OBLIGATIONS TO CLOSE. The obligations of Purchaser under this Agreement are subject to fulfillment of the conditions set forth below. Purchaser shall have the right to waive in writing all or part of any one or more of the following conditions and upon such waiver may proceed with the transactions contemplated by this Agreement, and hereby releases Seller from any and all loss, damage, costs (including attorney's fees), causes of action and/or claims with respect to such failure of condition unless such failure of condition is caused by a breach of Seller, in which event the terms of Section 22.9 shall govern Purchaser's right to damages for such breach. 7.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date, Seller shall have complied with and duly performed in all material respects all agreements and conditions on their part to be complied with and performed pursuant to or in connection with this Agreement on or before the Closing Date. 7.2 REPRESENTATIONS AND WARRANTIES. The representations and warranties of Seller and Capman contained in this Agreement, of otherwise made in writing in connection with the transactions contemplated hereby, shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date and Purchaser shall have received a certificate to that effect dated the Closing Date and executed by the Vice President of Seller. 7.3 NO LEGAL PROCEEDINGS. No action or proceeding shall have been instituted or threatened to restrain or prohibit the acquisition by Purchaser or the conveyance by Seller of the Acquired Assets or which might result in any material adverse change in the business, prospects or financial or other condition of the Acquired Assets. 7.4 CONSENTS. Purchaser shall have received the written approval of Franchiser designating Purchaser or its designee as a duly authorized dealer for the sales and service of such Franchiser's automobiles at 1120 Capitol Expressway Auto Mall, San Jose, California 95136, free of any material condition which is materially adverse to Purchaser and such Franchiser shall have entered into a customary Dealer Sales and Service Agreement. 7.5 DUE DILIGENCE. Purchaser shall for a period of thirty (30) days from the date of execution of this Agreement (the "Due Diligence Period") have the right to review the books and records of the Dealership relating to the Acquired Assets, the physical condition of the Dealership property and any other items reasonably necessary or appropriate to evaluate the Dealership. Such review shall be done at times and locations as mutually agreed between 10 Purchaser and Seller provided that Purchaser shall use all reasonable efforts to have such review of books and records at locations away from the Dealership. Seller shall cooperate and provide such information reasonably necessary for Purchaser to conduct such due diligence review during such thirty (30) day period. Purchaser's failure to approve of the physical condition of the Dealership and the review of the books and records relating to the Acquired Assets by written notice (the "Notice of Intent to Proceed") to Seller prior to the expiration of the Due Diligence Period, which Notice of Intention to Proceed shall unequivocally set forth Purchaser's approval of the physical condition of the Acquired Assets, the review of the books and records relating to the Acquired Assets, and Purchaser's election to proceed with the transaction strictly in accordance with the terms of this Agreement, shall constitute Purchaser's election to terminate this Agreement in which event neither party shall have any right or liability to the other except as set forth herein. Upon Purchaser's timely delivery of the Notice of Intent to Proceed, the Deposit shall be non-refundable except as otherwise set forth herein. 7.6 ENVIRONMENTAL ASSESSMENT. During the thirty (30) day period after the. execution of this Agreement (the "Testing Period"), Purchaser and Seller shall conduct an environmental assessment (the "Environmental Assessment") of the real property at the Dealership (the "Real Property"). Expenses of any environmental consultant engaged by Purchaser and Seller to conduct the Environmental Assessment shall be paid by Purchaser. Purchaser may terminate all of its obligations under this Agreement by written notice to Seller on or before the expiration of the Testing Period, if Purchaser determines that a release or threatened release of a hazardous substance has occurred on the Real Property. Failure to timely notify Seller under this Section 7.7 is deemed to constitute a waiver of Purchaser's right to terminate this Agreement under this Section 7.7. 7.7 PHYSICAL AUDIT. On or before the Closing Date the valuation of the Acquired Assets pursuant to the physical audit specified in Section 3.2 shall be completed and approved by Purchaser and Seller. 7.8 TAX CLEARANCE. Purchaser shall have obtained certificates from the California Franchise Tax Board, the California Employment Development Department, and the County of Santa Clara that all taxes and contributions payable by Seller have been paid in full. If such certificates are not available on the Closing Date, Escrow Holder shall withhold in escrow the estimated amount of maximum unpaid tax liability reasonably determined by Purchaser which sum shall be held by Purchaser until such time as all certificates are presented. 7.9 LIST OF EMPLOYEES. Seller shall furnish to Purchaser a list of all employees names and positions. Seller shall have terminated all employees as of the Closing Date. 7.10 BULK SALE. Seller shall furnish, in an appropriate time to comply, all affidavits and lists of creditors and such other instruments or documents as Escrow Holder shall require for Seller and Purchaser to comply with all applicable bulk sales laws. 11 7.11 PURCHASE OF REAL PROPERTY. Purchaser or nominee of Purchaser shall have acquired the real property commonly known as 1120 Capitol Expressway Auto Mall, San Jose, California 95136. 8. CONDITIONS OF SELLER'S OBLIGATIONS TO CLOSE. The obligations of Seller under this Agreement are subject to fulfillment of the conditions set forth below. Seller shall have the right to waive in writing all or part of any one or more of the following conditions without, however, releasing Purchaser from any liability for any loss or damage sustained by Seller by reason of the breach by Purchaser of any covenant, obligation or agreement contained herein, or by reason of any misrepresentation made by Purchaser and upon such waiver may proceed with the transactions contemplated by this Agreement. 8.1 AGREEMENTS AND CONDITIONS. On or before the Closing Date, Purchaser shall have complied with and duly performed in all material respects all of the agreements and conditions on its part required to be complied with or performed pursuant to this Agreement on or before the Closing Date. 8.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. The representations and warranties of Purchaser contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of the Closing Date and Seller shall have received a certificate to that effect dated the Closing Date and executed by the President or a Vice President of Purchaser. 8.3 PHYSICAL AUDIT. On or before the Closing Date the valuation of the Acquired Assets pursuant to Section 3.2 shall be completed and approved by Seller. 8.4 PURCHASE OF REAL PROPERTY. On or before the expiration of the Due Diligence Period, Purchase and Seller shall have entered into the Real Property Agreement and Purchaser or nominee shall acquire the real property commonly known as 1120 Capitol Expressway Auto Mall, San Jose, California 95136 in accordance therewith on or before Closing. 8.5 NO LEGAL PROCEEDINGS. No action or proceeding shall have been instituted or threatened to restrain or prohibit the acquisition by Purchaser or the conveyance by Seller of the Acquired Assets or which might result in any material adverse change in the business, prospects or financial or other condition of the Acquired Assets. 8.6 CONSENTS. Purchaser shall have received the written approval of Franchiser designating Purchaser or its designee as a duly authorized dealer for the sales and service of such Franchiser's automobiles at 1120 Capitol Expressway Auto Mall, San Jose, California 95136, free of any material condition which is materially adverse to Purchaser and such Franchiser shall have entered into a customary Dealer Sales and Service Agreement. 8.7 WARRANT TO PURCHASE COMMON STOCK. On or before expiration of the Due Diligence Period, Seller and Purchaser shall have entered into a Warrant to Purchase 12 Common Stock allowing Seller the option to purchase 20,000 share of Purchaser's Common Stock. 9. DELIVERIES OF SELLER ON THE CLOSING DATE. Seller agrees on the Closing Date to deliver to Purchaser: 9.1 TITLE TO ACQUIRED ASSETS. All conveyances, covenants, warranties, deeds, assignments, bills of sale, motor vehicle titles, confirmations, powers of attorney, approvals, consents and any and all further instruments as may be reasonably necessary, expedient or proper in order to complete any and all conveyances, transfers and assignments herein provided for and to convey to Purchaser such title to the Acquired Assets as Seller is obligated hereunder to convey. 9.2 CERTIFICATE OF SECRETARY. Certificate of the Secretary of the Seller setting forth a copy of the resolutions adopted by Seller's Board of Directors and shareholders authorizing and approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 9.3 CERTIFICATE. Certificate of the Vice President of Seller referred to in Section 7.2. 10. DELIVERIES OF PURCHASER ON THE CLOSING DATE. Purchaser agrees on the Closing Date to deliver or cause to be delivered. 10.1 CONSIDERATION. The amounts to be delivered pursuant to Section 3.3 hereof. 10.2 CERTIFICATE OF SECRETARY. Certificate of the Secretary of the Purchaser setting forth a copy of the resolutions adopted by Purchaser's Board of Directors and shareholders authorizing and approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 10.3 CERTIFICATE. The Certificate of the President or a Vice President of the Purchaser referred to in Section 8.2. 11. REAL PROPERTY. Purchaser or nominee of Purchaser shall enter into an Agreement of Purchase and Sale (the "Real Property Agreement") with Amesbury Group, a California Limited Partnership, for the property commonly known as 1120 Capitol Expressway Auto Mall, San Jose, California 95136 (the "Property"). The purchase price for the Property shall be the sum of SIX MILLION TWO HUNDRED FIFTY THOUSAND DOLLARS ($6,250,000) payable in cash at close of escrow. The Closing of the purchase of the Property shall be simultaneous with the Closing and acquisition of the Dealership pursuant to this Agreement. Such Agreement of Purchase and Sale shall provide that Purchaser shall have 45 days from execution of the Agreement to obtain a loan secured by a first Deed of Trust on the Property for such acquisition with commercially reasonable rates and terms. Such Agreement of Purchase and Sale shall further provide that all closing costs shall be paid as is customary in Santa Clara 13 County, and shall contain a hazardous substances indemnity in favor of Purchaser. The parties shall enter into a Purchase and Sale Agreement in the form attached hereto as Schedule 11 and incorporated herein by this reference. 12. ESCROW. The parties, upon execution of this Agreement shall open an escrow with a mutually acceptable escrow company ("Escrow Holder"). The parties shall forthwith provide to Escrow Holder any and all documentation necessary for Escrow Holder to publish such notices as may be required by the bulk sale laws of the State of California. Any and all costs of such escrow shall be paid one- half by Purchaser and one-half by Seller. 13. COVENANTS AFTER CLOSING DATE. 13.1 TRANSFER OF ACQUIRED ASSETS. Seller agrees from and after the Closing Date, upon the request of Purchaser, to do, execute, acknowledge and deliver, or to cause to be done, executed, acknowledged and delivered, all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be required for the assigning, transferring, conveying, and confirming to Purchaser, or to its successors and assigns, or for the aiding, assisting, collecting and reducing to possession of, any or all of the Acquired Assets as provided herein. 13.2 COOPERATION. Seller will cooperate and use its reasonable efforts to have its officers and employees cooperate with Purchaser at Purchaser's request, on and after the Closing Date, in furnishing information, evidence, testimony and other assistance in connection with any actions, proceedings, arrangements or disputes involving Purchaser and based upon contracts, arrangements, commitments or acts of Seller which were in effect or occurred on or prior to the Closing Date. From and after the Closing Date, Seller will permit Purchaser and its representatives to have access to Setter's books and records relating to the Acquired Assets for periods prior to the Closing Date upon notice and during normal business hours. Seller shall assist Purchaser after the Closing related to audits required in connection with any public offering contemplated by Purchaser, provided Seller shall not be required to expend funds (including internal labor costs) or institute litigation. Purchaser shall keep any information delivered to Purchaser hereunder confidential; provided, however, Purchaser shall have the right as required by law to use such final information in connection with financial reporting or filing of any required documents with the Securities Exchange Commission or other similar or necessary use. 14. INDEMNIFICATION. 14.1 INDEMNIFICATION BY SELLER AND CAPMAN. Seller and Capman agree to indemnify and hold harmless Purchaser from and against any and all losses, costs, damages, claims and expenses (including reasonable attorneys' fees) which Purchaser may sustain at any time by reason of (a) any debt, liability or obligation of Seller except obligations assumed by Purchaser, (b) any liability or obligation of any kind relating to the operations of the Acquired Assets or Dealership prior to the Closing Date, or (c) the breach or inaccuracy of or failure to comply with, or the existence of any facts resulting in the inaccuracy of, any of the warranties, representations, covenants or agreements of Seller contained in this Agreement. The parties 14 acknowledge and agree that Purchaser shall have the right to repair automobiles sold and/or serviced by Seller to correct miscellaneous customer complaints that Purchaser determines in Purchaser's reasonable judgment are an obligation of Seller, with Seller's prior written approval; provided, that the total of repairs for any one automobile shall not exceed the sum of ONE THOUSAND DOLLARS ($1,000). 14.2 INDEMNIFICATION BY PURCHASER. Purchaser agrees to indemnify and hold harmless Seller from and against any and all losses, cost, damages, claims and expenses (including reasonable attorneys' fees) which Seller may sustain at any time by reason of (a) any debt, liability or obligation of Purchaser, (b) any liability or obligation of any kind relating to the operations of the Acquired Assets or Dealership after the Closing Date, or (c) the breach or inaccuracy of or failure to comply with, or the existence of any facts resulting in the inaccuracy of, any of the warranties, representations, covenants or agreements of Purchaser contained in this Agreement. 14.3 DEFENSE. Any party who receives notice of a claim for which it will seek indemnification shall promptly notify the indemnifying party in writing of such claim. The indemnifying party shall have the right to assume the defense of such action at its cost with counsel reasonably satisfactory to the indemnified party. The indemnified party shall have the right to participate in such defense with its own counsel at its cost. 15. SURVIVAL OF REPRESENTATIONS. The parties hereto each agree that all representations and warranties and indemnities contained herein shall survive the execution and delivery of this Agreement for a period of twelve (12) months following the Closing (the "Limitations Period"). Purchaser must provide Seller written notice of any claims prior to the expiration of the Limitations Period. Purchaser acknowledges and agrees that in executing this Agreement Capman's liability shall be limited to claims made by Purchaser during the Limitations Period for a breach of a representation and warranty set forth in Section 4 hereof or for Purchaser's right to indemnity pursuant to Section 14.1 hereof. 16. NO BROKER. Purchaser on the one hand, and Seller on the other, represent to the other that no broker or finder has been connected with the transactions contemplated by this Agreement. In the event of a claim by any broker or finder based upon his representing or being retained by Seller on the one hand, or by Purchaser on the other, Seller or Purchaser, as the case may be, agrees to indemnify and save harmless the other in respect of such claim. 17. USE OF THE NAME. Seller agrees that from and after the Closing Date, Purchaser shall have the right to the name "Capitol Nissan" or any derivative thereof or similar name in connection with the operation of the, Dealership acquired hereunder, and that Seller shall not subsequent to the Closing, use such name. 18. TERMINATION. If the Closing Date shall not have occurred on or prior to September 15, 1997 (the "Termination Date") or if Purchaser shall receive disapproval from the Franchiser prior thereto, any party that is not in default in the performance of its obligations under this Agreement may, thereafter, terminate this Agreement by giving written notice to the other party; provided, however, Purchaser may extend the Termination Date for a period of thirty 15 (30) days from the Termination Date ("First Extension Period") by causing the sum of Fifty Thousand Dollars and 00/100 ($50,000) to be delivered to Escrow Holder prior to the Termination Date (the "First Extension Period Deposit"). The First Extension Period Deposit shall follow the Deposit in accordance with and pursuant to the terms of Section 3.3 hereof. Purchaser may extend the First Extension Period an additional period of thirty (30) days ("Second Extension Period") by causing the sum of Fifty Thousand Dollars and 00/100 ($50,000) to be delivered to Escrow Holder prior to the expiration of the First Extension Period (the "Second Extension Period Deposit"). The Second Extension Period Deposit shall follow the Deposit in accordance with and pursuant to the terms of Section 3.3 hereof. 19. CONFIDENTIALITY. In the event this Agreement is terminated for any reason other than the default of Seller, Purchaser shall deliver to the Seller, at no expense to Purchaser, without representation or warranty of any kind, all of the documents and papers which were supplied by the Seller to Purchaser or its agents, including, without limitation, financial statements, tax returns, appraisals, inspections, investigations, studies, tests, surveys, and reports concerning the Assets, but excluding any documents or other papers which are proprietary property or trade secrets of Purchaser. Unless and until the Closing occurs, none of the parties to this Agreement shall disclose, publish or communicate either directly or indirectly, any of the terms, conditions or the subject or content of the parties' negotiations concerning purchase of the Dealership, except (a) in response to any lawful process requiring disclosure of the same as reasonably required by law or public reporting requirements, or (b) to prospective sources of financing, to mortgage brokers, franchisers, investment bankers, investors or purchasers, attorneys, accountants, consultants, experts and professionals engaged by Purchaser in connection with its due diligence investigation. The parties each agree that it shall at all times keep the contents of the negotiations confidential (subject to the exceptions stated in the preceding sentence) and that no publicity or press release with respect to any proposed transaction shall be made by either party without the prior written consent of either party. 20. RISK OF LOSS AND INSURANCE PROCEEDS. Seller shall give Purchaser notice of the occurrence of damage or destruction of, or the commencement of condemnati on proceedings affecting any portion of the Premises. In the event that all or any material portion of the Premises is condemned, or destroyed or damaged by fire or other casualty prior to the Closing and the cost to repair or restore any loss or damage caused thereby is greater than FIVE HUNDRED THOUSAND DOLLARS ($500,000), then Purchaser may, at its option to be exercised within fifteen (15) days of Seller's notice of the occurrence of the damage or destruction or the commencement of the condemnation proceedings, either terminate this Agreement or consummate the purchase for the full consideration as required by the terms hereof. If Purchaser elects to terminate this Agreement or fails to give Seller notice within such fifteen (15) day period that Purchaser will proceed with the purchase, then this Agreement shall terminate at the end of such fifteen (15) day period and the Deposit shall be returned to Purchaser and neither party shall any have further rights or obligations hereunder. If (a) a portion of the Premises is condemned or destroyed or damaged by fire or other casualty prior to the Closing and the cost to repair or restore any loss or damage caused thereby is equal to or less than FIVE HUNDRED THOUSAND DOLLARS ($500,000); or (b) Purchaser elects within the aforesaid fifteen (15) day period to proceed with the purchase, then this Agreement shall not terminate and 16 upon the Closing, there shall be a credit against the Purchase Price due hereunder equal to the amount of any insurance proceeds or condemnation awards collected by Seller as a result of any such damage or destruction or condemnation, plus the amount of any insurance deductible, less any sums expended by Seller toward the restoration or repair of the Premises (but in no event shall the amount of such credit exceed the Purchase Price); provided, however, in the event the insurance or condemnation proceeds are less dm the actual amount necessary to replace such damage, Purchaser shall receive a credit against the Purchase Price on the Closing in the amount of such difference. If the proceeds or awards have not been collected as of the Closing, then such proceeds or awards shall be assigned to Purchaser, except to the extent needed to reimburse Seller for sums expended to collect such proceeds or repair or restore the Premises, and Purchaser shall not receive any credit against the Purchase Price with respect to such proceeds or awards; provided, that if the amount of proceeds or awards subsequently received by Purchaser exceeds the Purchase Price, then Purchaser shall pay to Seller any such excess within ten (10) days after Purchaser's receipt of such proceeds or awards. The provisions of this Section 20 shall survive the Closing. 21. NOTICES. All notices, requests or demands to a party hereunder shall be in writing and shall be given or served upon the other party by personal service, by certified return receipt requested or registered mail, postage prepaid, or by Federal Express or other nationally recognized commercial courier, charges prepaid, addressed as set forth below. Any such notice, demand, request or other communication shall be deemed to have been given upon the earlier of personal delivery thereof, three (3) business days after having been mailed as provided above, or one (1) business day after delivery through a commercial courier, as the case may be. Notices may be given by facsimile and shall be effective upon the transmission of such facsimile notice provided that the facsimile notice is transmitted on a business day and a copy of the facsimile notice together with evidence of its successful transmission indicating the date and time of transmission is sent on the day of transmission by recognized overnight carrier for delivery on the immediately succeeding business day. Each party shall be entitled to modify its address by notice given in accordance with this Section 19. To Purchaser: FirstAmerica Automotive, Inc. c/o Kay & Merkle 100 The Embarcadero, Penthouse San Francisco, California 94105 Fax No.: 415-512-9277 With a copy to: W. Bruce Bercovich, Esq. Kay & Merkle 100 The Embarcadero, Penthouse San Francisco, California 94105 Fax No.: 415-512-9277 To Seller: Golden Sierra Auto Group, Inc. dba Capitol Nissan 1120 Capital Expressway Auto Mall 17 San Jose, California 95136 Fax No.: 408-297-1161 To Capman: Capitol Management Group, Inc. 675 North First Street Suite 800 San Jose, CA 95112 Fax No.: 408-297-1161 With a copy to: William Myers, Esq. Morrison & Foerster 755 Page Mill Road Palo Alto, California 94304 Fax No.: 415-494-0792 22. MISCELLANEOUS. 22.1 ENTIRE AGREEMENT. This Agreement, including the exhibits and schedules hereto, sets forth the entire agreement and understanding between the parties as to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings of every kind and nature between them and no party hereto shall be bound by any condition, definition, warranty or representation other than as expressly provided for in this Agreement or as may be on a date subsequent to the date hereof duly set forth in writing signed by the party hereto which is to be bound thereby. This Agreement shall not be changed, modified or amended except by a writing signed by the party to be charged and this Agreement may not be discharged except by performance in accordance with its terms or by a writing signed by the party to be charged. 22.2 GOVERNING LAW. This Agreement and its validity, construction and performance shall be governed in all respects by the laws of the State of California, without giving effect to principles of conflict of laws. 22.3 SEVERABILITY. If any provision of this Agreement or the application of any provision hereof to any person or circumstance is held invalid, the remainder of this Agreement and the application of such provision to other persons or circumstances shall not be affected unless the provision held invalid shall substantially impair the benefits of the remaining portions of this Agreement. 22.4 BENEFIT OF PARTIES. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors, heirs, legal representatives and assigns. Purchaser shall not assign this Agreement to any unaffiliated entity which is not controlled by, in control of , or under common control with Purchaser. 18 22.5 NECESSARY DOCUMENTS. Each of the parties does hereby agree to do any act and to execute any other or further documents reasonably necessary or convenient to the carrying out of the provisions of this Agreement. 22.6 HEADINGS. The headings in the sections of this Agreement are inserted for convenience of reference only and shall not constitute a part hereof. 22.7 ATTORNEYS' FEES. In the event that any action or proceeding is brought to enforce or interpret any provision, covenant or condition contained in this Agreement on the part of Purchaser, Seller or Capman, the prevailing party in such action or proceeding (whether after trial or appeal) shall be entitled to recover from the party not prevailing its expenses therein, including reasonable attorneys' fees and allowable costs. 22.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective upon the execution of a counterpart hereof by each of the parties hereto. 22.9 TERMINATION AND REMEDIES. (a) LIQUIDATED DAMAGES. If Purchaser breaches this Agreement, and the transaction contemplated by this Agreement fails to close by reason thereof, Seller shall be entitled to terminate this Agreement and retain the amount of the Deposit plus any accrued interest thereon (the "Specified Sum") as liquidated damages. SELLER AND PURCHASER ACKNOWLEDGE THAT SUM IS A REASONABLE ESTIMATE OF SELLER'S DAMAGES. SELLER AND PURCHASER FURTHER AGREE THAT THIS SECTION IS INTENDED TO AND DOES LIQUIDATE THE AMOUNT OF DAMAGES DUE SELLER, AND SHALL BE SELLER'S EXCLUSIVE REMEDY AGAINST PURCHASER, BOTH AT LAW AND IN EQUITY ARISING FROM OR RELATED TO A BREACH BY PURCHASER OF ITS OBLIGATIONS TO CONSUMMATE THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. Buyer __________ Seller DRB ---------- 22.10 BREACH BY SELLER. In the event that the Closing fails to occur as a result of a default of Seller, Purchaser may, as its sole and exclusive remedy, elect to either: (a) enforce the terms of this Agreement by action for specific performance, but with no reduction in the Purchase Price; provided, however, that no action for specific performance shall compel Seller to commence litigation or cure or deal with any matters outside of its reasonable control or expend funds except as provided for in the Agreement as to such matters; or (b) terminate this Agreement in which event the Purchaser shall have the right to immediate return of its deposit and damages from Seller or Capman in an amount to the actual damage suffered by Purchaser but in no event in excess of the amount of FIFTY THOUSAND DOLLARS ($50,000). 19 22.11 ACCEPTANCE OF AGREEMENT BY PURCHASER. This Agreement shall be null and void unless it is accepted by Purchaser and two fully executed copies hereof are returned to Seller on or before 5:00 p.m. (P.D.T.) on July 19, 1997. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed on the day and year first above written.
PURCHASER: SELLER: FirstAmerica Automotive, Inc. Golden Sierra Auto Group, a Nevada corporation a California corporation, dba Capitol Nissan By: /s/ Thomas A. Price By: /s/ Dennis R. Boyle ------------------------------ ------------------------ Name: Thomas A. Price Name: Dennis R. Boyle --------------------------- Its: Vice- President Its: President --------------------------- CAPMAN: CAPMAN, Inc., a California corporation By: /s/ Dennis R. Boyle ------------------------ Name: Dennis R. Boyle Its: President
20 LIST OF SCHEDULES SCHEDULE 2.1 Acquired Assets SCHEDULE 3.4 1997 Dealer Challenge SCHEDULE 3.5 Liabilities SCHEDULE 3.7 Allocation of Purchase Price SCHEDULE 4.2 Due Diligence Materials SCHEDULE 8.7 Warrant to Purchase Common Stock SCHEDULE 11 Purchase and Sale Agreement SCHEDULE 3.4 [LOGO OF NISSAN APPEARS HERE] ================================================================================ NORTHWEST REGION DEALER INCENTIVE PROGRAM "1997 DEALER CHALLENGE" OFFICIAL PROGRAM RULES DISTRICTS: 1,3,4,5,6,7,8,9,10,11,12 PROGRAM PERIOD: JANUARY 1, 1997 - DECEMBER 31, 1997 ================================================================================ ELIGIBLE PARTICIPANTS --------------------- All authorized Nissan Dealers located within the above named Districts are eligible to participate. ALL DEALERS MUST ATTAIN THEIR 1997 JANUARY/FEBRUARY/MARCH WHOLESALE OBJECTIVE TO PARTICIPATE IN THE "1997 DEALER CHALLENGE" PROGRAM. ENROLLMENT ---------- Each participating dealership will be required to enroll in the "1997 DEALER CHALLENGE" by completing the attached Official "1997 DEALER CHALLENGE" Enrollment Form. The attached enrollment form must be received by the regional office no later than March 14, 1997. ELIGIBLE MODELS --------------- All new, unused, unregistered 1996, 1997, 1997.5 and 1998 models. OBJECTIVES ---------- 1997 JAN/FEB/MARCH WHOLESALE OBJECTIVE (January 1, 1997 - March 31, 1997) Dealers will be assigned a 1997 January/February/March Wholesale Objective for the period of January 1, 1997 - March 31, 1997. To participate in the "1997 DEALER CHALLENGE" dealers must achieve the 1997 January/February/March Wholesale Objective. 1997 CALENDER YEAR OBJECTIVE (January 1, 1997 - December 31, 1997) Dealers will be assigned a 1997 Calendar Year Retail Sales Objective for the period of January 1, 1997 - December 31, 1997. Achievement of the 1997 Calendar Year Retail Sales Objective and attainment of the 1997 January/February/March Wholesale Objective will pay $50 retroactive on each eligible unit sold during January 1, 1997 - December 31, 1997. 1997 Q1 "FAST START" OBJECTIVE (January 1, 1997 - April 1, 1997) Dealers will be assigned a 1997 Q1 "Fast Start" Retail Sales Objective for the period of January 1, 1997 - April 1, 1997. Achievement of the 1997 Q1 "Fast Start" Objective and attainment of the 1997 January/February/March Wholesale Objective will pay an additional $100 retroactive on each eligible unit sold during January 1, 1997 - December 31, 1997. ONLY DEALERS WHO ATTAIN THEIR "1997 CALENDER YEAR OBJECTIVE" WILL BE ELIGIBLE TO RECEIVE THE "1997 Q1 `FAST START' AWARD". [LOGO OF NISSAN APPEARS HERE] ================================================================================ OFFICIAL "1997 DEALER CHALLENGE" ENROLLMENT FORM ================================================================================ YES! I accept the CHALLENGE and will participate in the "1997 DEALER CHALLENGE" Program. 1997 JANUARY/FEBRUARY/MARCH WHOLESALE OBJECTIVE: 349 61 1997 CALENDER YEAR OBJECTIVE: 1311 107 1997 Q1 "FAST START" OBJECTIVE: 328 DEALER NAME: CAPITOL NISSAN DEALER CODE: 2789 AUTHORIZED SIGNATURE: _____________________________ (Dealer Principal/Executive Mgr) NO! I do not wish to participate in the "1997 DEALER CHALLENGE" Program. DEALER NAME: DEALER CODE: AUTHORIZED SIGNATURE: (Dealer Principal/Executive Mgr) PLEASE COMPLETE THIS FORM BY MARCH 14, 1997 and fax it to: (510) 426-2911 Attention: Tracy Grover SCHEDULE 8.7 THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED. WARRANT TO PURCHASE COMMON STOCK Warrant #_______ Corporation: FirstAmerica Automotive, Inc., a Delaware corporation (the "Company") Initial Exercise Price: $______________ Issue Date: _______________ Expiration Date: The ___________ anniversary of the date hereof
THIS WARRANT CERTIFIES THAT, for good and valuable consideration, ___________________ ("Holder") is entitled to purchase ____________________ paid and nonassessable shares of the Common Stock (the "Shares") of the Company at the initial exercise price of $__________ per Share (the "Warrant Price"), as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant. ARTICLE I. EXERCISE -------- 1.1 Method of Exercise. Holder may exercise this Warrant by delivering a ------------------ duly executed Notice of Exercise in substantially the form attached as Appendix 1 to principal office of the Company. Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check for the aggregate Warrant Price for the Shares being purchase. 1.2 Conversion Right. In lieu of exercising this Warrant as specified in ---------------- Section 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate Fair Market Value of the Shares issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the 1 Fair Market of one Share. The Fair Market Value of the Shares shall be determined pursuant to Section 1.3. 1.3. Fair Market Value. If the Shares are traded in a public market, the ----------------- Fair Market Value of the Shares shall be the closing price of the Shares reported for the business day immediately before Holder delivers its Notice of Exercise to the Company. If the Shares are not traded in a public market, the Board of Directors of the Company shall determine Fair Market Value in its reasonable good faith judgment. The foregoing notwithstanding, if Holder advises the Board of Directors in writing that Holder disagrees with such determination, then the Company and Holder shall promptly agree upon a reputable investment banking firm to undertake such valuation. If the valuation of such investment banking firm is greater than that determined by the Board of Directors, then all fees and expenses of such investment banking firm shall be paid by the Company. In all other circumstances, such fees and expenses shall be paid by Holder. 1.4. Delivery of Certificate and New Warrant. Promptly after Holder --------------------------------------- exercises or converts this Warrant, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired. 1.5. Replacement of Warrants. On receipt of evidence reasonable ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company, and, in the case of mutilation, on surrender and cancellation of this Warrant, the Company, at its expenses, shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor. 1.6. Merger or Consolidation of the Company. -------------------------------------- 1.6.1. "Acquisition." For the purpose of this Warrant, "Acquisition" ----------- means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of the Company's securities before the transaction beneficially own less than 50% of the outstanding voting securities of the surviving entity after the transaction. 1.6.2. Assumption of Warrant. Upon the closing of any Acquisition, the --------------------- successor entity shall assume the obligations of this Warrant, and this Warrant shall be exercisable for the same securities, cash, and property as would be payable for the Shares issuable upon exercise of the unexercised portion of this Warrant as if such Share were outstanding on the record date for the Acquisition and subsequent closing. The Warrant price shall be adjusted accordingly. 1.6.3. Purchase Right. Notwithstanding the foregoing, at the election -------------- of Holder, the Company shall purchase the unexercised portion of this Warrant for cash upon the closing of any Acquisition for an amount equal to (a) the fair market value of any consideration of the Shares had Holder exercised the unexercised portion of this Warrant 2 the number of Shares issuable upon exercise of this Warrant shall be adjusted upward in such a manner that the aggregate Warrant price of this Warrant is unchanged. 2.5. Fractional Shares. No fractional shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder an amount computed by multiplying the fractional interest by the Fair Market Value of a full Share. 2.6. Certificate as to Adjustments. Upon each adjustment of the Warrant Price, the Company, at its expense, shall promptly compute such adjustment and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price in effect upon the date thereof and the series of adjustments leading to such Warrant Price. ARTICLE III. ------------ REPRESENTATIONS AND COVENANTS OF THE COMPANY -------------------------------------------- 3.1. Representations and Warranties. The Company hereby represents and ------------------------------ warrants to the Holder that all Shares which may be issued upon the exercise of the purchase right represented by this Warrant, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws. 3.2. Notice of Certain Events. If the Company proposes at any time (a) ------------------------ to declare any dividend or distribution upon its common stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription pro rata to the holders of any class or series or its stock any additional shares of stock of any class or series or other rights; (c) to effect any reclassification or recapitalization of common stock; (d) to merger or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets or to liquidate, dissolve or wind up, or (e) offer holders of registration rights the opportunity to participate in an underwritten public offering of the Company's securities for cash, then in connection with each such event, the Company shall give Holder (1) prompt prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of common stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; (2) in the case of the maters referred to in (c) and (d) above, prompt prior written notice of the date when the same will take place (and specifying the date on which the holders of common stock will be entitled to exchange their common stock for securities or other property deliverable upon the occurrence of such event); and (3) in the case of the matter referred to in (e) above, the same notice as is given to the holders of such registration rights. 4 3.3. Information Rights. So long as the Holder holds this Warrant and/or ------------------ any of the Shares, the Company shall deliver to the Holder (a) promptly after mailing, copies of all notice or other written communications to the shareholders of the Company, (b) within ninety (90) days after the end of each fiscal year of the Company, the annual audited financial statements of the Company certified by independent public accountants of recognized standing and (c) within sixty (60) days after the end of the first three quarters of each fiscal year, the Company's quarterly, unaudited financial statements. The Company's delivery obligations under this section shall terminate upon the Company becoming subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended. 3.4. Automatic Exercise. If, as of the last day of the term hereof, this ------------------ Warrant has not been fully exercised, then as of such date this Warrant shall be automatically converted, in full, in accordance with Section 1.2, without any action or notice by the Holder. 3.5. Registration Under Securities Act of 1933, as amended. The Company ----------------------------------------------------- agrees that the Shares shall be deemed "registrable securities" or otherwise entitled to "piggy back" registration rights in accordance with the terms of the following agreement between the Company and its investors (the "Agreement") _____________________. The Company agrees that no amendments will be made to the Agreement which would have an adverse impact on Holder's registration rights thereunder without the consent of Holders. By acceptance of this Warrant, Holder shall be deemed to be a party to the Agreement, unless Holder elects not to become or to cease being a party thereto. ARTICLE IV. ----------- MISCELLANEOUS ------------- 4.1. Term; Notice of Expiration. This Warrant is exercisable, in whole or -------------------------- in part, at any time and from time to time on or before the Expiration Date set forth above. 4.2. Legends. This Warrant and the Shares (and the securities issuable, ------- directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED. 5 4.3 Compliance with Securities Laws on Transfer. This Warrant and the ------------------------------------------- Shares issuable upon exercise of this Warrant may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company). The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or if there is no material question as to the availability of current information as referenced in Rule 144(c), Holder represents that it has complied with Rule 144(d) and (e) in reasonable detail, the selling broker represents that it has complied with Rule 144(f), and the Company is provided with a copy of Holder's notice of proposed sale. 4.4 Transfer Procedure. Subject to the provisions of Section 4.3, Holder ------------------ may transfer all or part of this Warrant or the Shares issuable upon exercise of this Warrant by giving the Company notice of the portion of the Warrant being transferred setting forth the name, address and taxpayer identification number of the transferee(s) and surrendering this Warrant to the Company for reissuance to the transferee(s) (and Holder, if applicable). Unless the Company is subject to the periodic reporting requirements of Section 12(g) or 15(d) of the Securities Exchange Act of 1934, as amended, the Company shall have the right to refuse to transfer any portion of this Warrant or the Shares to any person who directly competes with the Company and/or its subsidiaries. 4.5 Notices. All notices and other communications from the Company to the ------- Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished by the Company or the Holder, as the case may be, in writing by the Company or the Holder from time to time. 4.6 Waiver. This Warrant and any term hereof may be changed, waived, ------ discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. 4.7 Attorneys' Fees. In the event of any dispute between the parties --------------- concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys' fees. 4.8 Governing Law. This Warrant shall be governed by and construed in ------------- accordance with the laws of the State of California, without giving effect to its principles regarding conflicts of law. FIRSTAMERICA AUTOMOTIVE, INC. By: _________________________ 6 Name: ------------------------------ (Print) Title: ------------------------------ 7 APPENDIX 1 NOTICE OF EXERCISE 1. The undersigned hereby elects to purchase _______ Shares of the Common Stock of FirstAmerica Automotive, Inc. pursuant to the terms of the attached Warrant, and tenders herewith payment of the purchase price of such Shares in full. 1. The undersigned hereby elects to convert the attached Warrant into Shares in the manner specified in the Warrant. This conversion is exercised with respect to ____________________ of the Shares covered by the Warrant. [STRIKE PARAGRAPH 1 THAT DOES NOT APPLY.] 2. Please issue a certificate or certificates representing said Shares in the name of the undersigned or in such other name as is specified below: --------------------------- (Name) --------------------------- --------------------------- (Address) 3. The undersigned represents it is acquiring the Shares solely for its own account and not as a nominee for any other party and not with a view toward the resale or distribution thereof except in compliance with applicable securities laws. --------------------------- (Signature) Date: ------------------- SCHEDULE 11 PURCHASE AND SALE AGREEMENT THIS PURCHASE AND SALE AGREEMENT ("Agreement") dated as of July 17, 1997, is by and between AMESBURY GROUP, a California general partnership ("Seller"), and BAY AUTOMOTIVE PROPERTIES, a California limited liability company or nominee ("Buyer"), and is made with reference to the following facts: RECITALS A. Seller is the owner of that certain real property commonly known as 1120 Capitol Expressway Auto Mall, San Jose, California 95136 (the "Real Property") which is more particularly described on Exhibit A attached hereto. --------- B. Concurrently herewith, Seller and Buyer have entered into that certain Asset Purchase Agreement dated as of July 17, 1997 in the form of Exhibit B --------- hereto (the "Asset Purchase Agreement") whereby Golden Sierra Auto Group, a California corporation, dba Capitol Nissan ("Golden Sierra"), is to sell to Buyer certain of the assets, properties and business of Golden Sierra utilized in connection with Golden Sierra's Nissan automobile dealership. C. By this Agreement, Seller desires to sell Seller's rights, title and interest in and to the Real Property and certain personal property and Buyer desires to purchase all of Seller's rights, title and interest in and to the Real Property and such personal property on the terms and conditions herein set forth. NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: AGREEMENT --------- ARTICLE I PURCHASE AND SALE OF PROPERTY Section 1.1 SALE. Seller hereby agrees to sell to Buyer, and Buyer agrees to purchase from Seller, subject to the terms, covenants and conditions set forth herein, the Property, together with any and all easements and other appurtenances thereto owned by Seller, located in the City of San Jose, together with the personal property owned by Seller ("the "Personal Property"), if any, located on the Real Property and used exclusively in the operation or maintenance of the Real Property, as the same may be further described in any list which is in Seller's possession and is furnished to Buyer within the Due Diligence Period, as defined in Section 3.1 hereof. The Real Property and the Personal Property are collectively referred to herein as the "Property." The Real Property shall include, without limitation, the land described on Exhibit A attached 1 EXHIBIT C PRO-FORMA TITLE POLICY [To Follow] 2 EXHIBIT D GENERAL ASSIGNMENT THIS GENERAL ASSIGNMENT (the "Assignment") dated as of ________________, 1997, is between AMESBURY GROUP, a California general partnership ("Assignor"), and BAY AUTOMOTIVE PROPERTIES, a California limited liability company ("Assignee"). A. Assignor and Assignee have entered into that certain Purchase and Sale Agreement dated as of July 17, 1997 (the "Agreement"), pursuant to which Assignee agreed to purchase the Property from Assignor and Assignor agreed to sell the Property to Assignee, on the terms and conditions contained therein. Unless otherwise set forth herein, all initially capitalized terms shall have the meaning set forth in the Agreement. Pursuant to the Agreement, Assignor has agreed to assign to Assignee all of its right, title, and interest in and to all current licenses, permits, certificates of occupancy, approvals and entitlements issued or granted in connection with the Real Property as well as any and all development rights and any other intangible rights, interests or privileges relating to, or used in connection with the Real Property and all transferable warranties or sureties relating to the Real Property or Personal Property (collectively, the "Intangible Property"). B. Assignor has entered into the contracts listed on Exhibit D-1 hereto relating to the Property (the "Contracts"). C. Assignor desires to assign to Assignee its interest in the Contracts and the Intangible Property, and Assignee desires to accept the assignment thereof and assume the obligations thereunder, on the terms and conditions below. ACCORDINGLY, the parties hereby agree as follows: 1. Assignment. As of the date on which the Property is conveyed to ---------- Assignee pursuant to the Agreement (the "Closing Date"), Assignor hereby assigns without recourse or warranty of enforceability all of its right, title and interest in and to the Contracts and the Intangible Rights. 2. Assignor's Indemnity. Except as otherwise set forth herein, or in -------------------- the Agreement, Assignor hereby agrees to indemnify Assignee against and hold Assignee harmless from any and all liabilities, losses, damages, claims, costs or expenses, including, without limitation, reasonable attorneys' fees and costs (collectively, "Claims"), originating prior to the Closing Date and arising out of Assignor's obligations under the Contracts. 3. Assumption. Concurrently with the conveyance of Assignor's interest ---------- in the Property to Assignee, Assignee hereby assumes all of Assignor's obligations under the Contracts and the General Intangibles, and agrees to indemnify Assignor against and hold Assignor harmless from any and all Claims originating on or subsequent to the Closing Date and arising out of Assignee's obligations under the Contracts. 4. Miscellaneous. ------------- (a) In the event of any dispute between Assignor and Assignee arising our of the obligations of Assignor under this Assignment or concerning the meaning or interpretation of any provision contained herein, the losing party shall pay the prevailing party's costs and expenses of such dispute, including, without limitation, reasonable attorneys' fees and costs. (b) This Assignment shall be binding on and inure to the benefit of the parties hereto and their respective successors and assigns. (c) This Assignment may be executed in any number of counterparts, each of which shall be deemed an original but all of which taken together shall constitute one and the same instrument. IN WITNESS WHEREOF, this Assignment is entered into as of the date first above written. ASSIGNOR: AMESBURY GROUP, a California general partnership By: ______________________________ Its: ______________________________ ASSIGNEE: BAY AUTOMOTIVE PROPERTIES, a California limited liability company By: ______________________________ Its: ______________________________ By: ______________________________ Its: ______________________________ EXHIBIT E GRANT DEED [To Follow] EXHIBIT F BILL OF SALE For value received, the undersigned Vendor hereby sells, assigns and transfers to BAY AUTOMOTIVE PROPERTIES, a California limited liability company, as Vendee, all right, title, and interest of the Vendor in and to the following property: that certain Personal Property, as that term is defined in that certain Purchase and Sale Agreement between Vendor and Vendee dated as of July 17, 1997. WITNESSETH the hand and seal of the Vendor this _______ of July, 1997 VENDOR: AMESBURY GROUP, a California general partnership By: ________________________________ Its: ________________________________ By: ________________________________ Its: ________________________________ EXHIBIT G ENVIRONMENTAL REPORT [To Follow] EXHIBIT H GUADALUPE REPORT [To Follow] EXHIBIT I ASSESSMENT LEIN
JULY 11, 96 IMPROVEMENT DISTRICT NO. 94-216SJ (CAPITOL EXPRESSWAY AUTO MALL) 216AS ASSESSMENT SPREAD CONSTRUCTION CONSTRUCTION CONSTRUCTION AREA FRONTAGE CONTINGENCY TOTAL ASSMT. NO. APN PROPERTY OWNER (Acres) (Feet) (By Area) (By Const.) - ---------- ----------- ------------------------------------ --------- -------------- ------------- ------------ ------------- 1 459-03-002 AMESBURY GROUP (NISSAN) 0.65 17,154.76 1,199.46 18,354.22 2 459-03-003 AMESBURY GROUP (NISSAN) 0.67 17,682.59 1,236.37 18,918.96 3 459-03-004 AMESBURY GROUP (NISSAN) 3,587 94,667.84 6,619.20 101,287.04 4 459-04-003 KLEINMAN, SIMON & PHYLLIS (FORD) 4.5 118,783.67 8,303.98 127,087.65 5 459-04-004 ROBERT LEWIS (VOLKSWAGON) 4.62 121,930.70 8,525.42 130,456.12 6 459-04-006 KLEINMAN, SIMON & PHYLLIS (FORD) 2,091 15,345.88 1,072.98 16,418.87 7 459-04-005 A. & K. KERLEY (LINCOLN MERCURY) 3,287 86,222.43 6,028.69 92,251.12 8-a 459-04-007 M. & E. CARL (CHEVROLET) 5,717 150,882.65 10,549.75 161,432.40 8-b 459-04-007 M. & E. CARL (CHEVROLET) 3,746 27,491.94 1,922.24 29,414.18 9 459-05-019 TOYOTA MOTOR DISTRIBUTORS 4,662 123,039.17 8,602.93 131,642.09 10 459-05-018 W. KUNI (BUICK) 3,922 103,509.14 7,237.38 110,746.52 11 459-05-017 GMAC 2,928 77,275.56 5,403.12 82,678.68 12 459-05-016 T. STEVENS (HONDA) 4,941 130,402.51 9,117.77 139,520.28 13 459-27-014 EASTSIDE UNION HIGH SCH. DIST. 6.6 249,186.72 17,423.19 266,609.91 14 459-27-010 PATRICIA RUBINO (VACANT) 6,066 133,701.50 9,348.44 143,049.94 15 459-27-003 PATRICIA RUBINO (MITSUBISHI) 3,785 99,893.45 6,864.57 106,678.02 16-a 459-27-009 PATRICIA RUBINO (AUTO SERVICE) 1,181 31,168.87 2,179.33 33,348.20 16-b 459-27-009 PATRICIA RUBINO (AUTO SERVICE) 2.67 19,595.16 1,370.10 20,965.26 17 459-27-002 TOYOTA MOTOR DISTRIBUTORS 0.67 17,682.59 1,236.37 18,918.96 18 459-06-015 L. NORMANDIN (CHRYSLER PLYMOUTH) 5,796 152,967.61 10,696.53 163,663.14 19 459-06-044 JOSEPH & DOROTHY RUBINO (MAZDA) 2.65 69,938.61 4,890.12 74,828.73 20 459-06-043 JOSEPH & DOROTHY RUBINO (OLDSMOBILE) 5,325 140,537.01 9,826.38 150,363.39 21 459-06-038 HARTZHEIM ENTERPRISES LLC (DODGE) 5 131,959.64 9,226.65 141,195.29 --------- -------------- ------------- ------------ ------------- 84,044 2,131,000.00 149,000.00 2,280,000.00 75,537 2,131,000.00 149,000.00 *50% of cost for new signal at Capito Auto Mall Plaza assessed to parcel 13 only. *70% of construction cost assessed to all parcels except parcels 6, 8b and 16b. *30% of construction cost assessed to all parcels including parcels 6, 8b and 16b.
LAND & D&C D&C D&C DISTRICT ACQUISITION MANAGEMENT MANAGEMENT MANAGEMENT FINANCING ASSESSMENT ANNUAL CONTINGENCY TOTAL TOTAL ASSESSMENT (By Const.) (By Const.) (By Const.) (25 YEARS) - ---------------------------------------------------------------------------------------------------- 6,143.03 450.81 6,593.83 8,057.34 33,005.39 2,832.21 NISSAN 6,332.04 464.68 6,796.72 8,305.26 34,020.94 2,819.35 NISSAN 33,900.06 2,487.75 36,307.01 44,464.12 182,138.98 15,629.44 NISSAN 42,528.65 3,120.96 45,649.61 55,701.59 228,498.85 19,607.60 FORD 43,662.75 3,204.18 46,668.94 57,269.10 234,592.16 20,130.47 VOLKSWAGON 5,495.28 403.27 6,698.65 7,207.74 29,525.15 2,533.57 FORD 30,875.80 2,285.62 33,141.62 40,497.43 165,690.17 14,235.12 LINCOLN MERCURY 54,030.29 3,965.01 57,995.30 70,867.41 290,295.10 24,910.37 CHEVROLET 9,844.72 722.45 10,567.18 12,912.57 52,893.93 4,538.86 CHEVROLET 44,059.68 3,233.31 47,293.00 57,789.72 236,724.81 20,313.48 TOYOTA 37,066.08 2,720.00 38,786.17 48,616.76 199,149.45 17,000.12 BUICK 27,871.98 2,030.70 29,702.66 36,295.22 148,676.59 12,758.01 VACANT 46,696.46 3,426.61 50,123.27 61,248.10 250,691.74 21,529.16 HONDA 89,232.47 8,648.31 95,780.78 117,039.41 479,430.11 41,140.15 NEW AUTO MALL PLAZA 47,877.61 3,513.51 51,391.32 62,787.67 257,236.83 22,073.81 VACANT 35,771.32 2,625.07 38,396.40 46,918.51 192,192.93 16,492.17 MITSUBISHI 11,161.41 819.08 11,980.49 14,639.57 59,966.26 5,145.91 AUTO SERVICE 7,016.93 514.94 7,531.86 9,203.57 37,700.69 3,235.12 AUTO SERVICE 8,332.04 464.68 6,796.72 8,305.26 34,020.94 2,919.35 TOYOTA 54,776.90 4,019.80 58,796.70 71,846.68 294,308.53 25,254.80 CHRYSLER PLYMOUTH 25,044.65 1,837.90 26,882.65 32,849.16 134,560.44 11,546.70 MAZDA 50,325.57 3,693.14 54,018.71 66,009.21 270,390.31 23,202.33 OLDSMOBILE 47,254.06 3,467.73 50,721.70 81,979.54 253,087.62 21,786.23 DODGE - ------------------------------------------------------------------------------------ 763,100.00 56,000.00 819,100.00 1,000,900.00 4,100,000.00 763,100.00 56,000.00 1,000,900.00
NOTICE TO TRANSFEREE (BUYER): You are required by law to retain this certificate until the end of the fifth tax year following the tax year in which the transfer takes place and make the Certificate available to the Internal Revenue Service if requested to do so during that period. LIST OF EXHIBITS Schedule 1 Listing of Due Diligence Materials Exhibit A Description of Property Exhibit B Asset Purchase Agreement Exhibit C Pro-Forma Title Policy Exhibit D General Assignment Exhibit E Grant Deed Exhibit F Form of Bill of Sale Exhibit G Environmental Report Exhibit H Guadalupe Report Exhibit I Assessment Lien Exhibit J Certificate of Transferor Other Than an Individual (FIRPTA Affidavit) EX-11 4 STATEMENT OF COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11.1 FIRSTAMERICA AUTOMOTIVE, INC. STATEMENT OF COMPUTATION OF PER SHARE EARNINGS (IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED ------------------------------------ -------------------------------- JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997 ----------------- ---------------- --------------- ------------- Net income per income statement $ 1,084 $ (179) $ 1,819 $ (145) Less: Cumulative redeemable preference dividends (70) (140) Redeemable preferred stock liquidation preference accretion (20) (40) Cumulative and redeemable preferred stock (20) (40) discount amortization ================= ================= =============== ============ Net income applicable to common stockholders $ 974 $ (179) $ 1,599 $ (145) ================= ================= =============== ============ Basic Earnings Per Share: Weighted average common shares outstanding 14,211,067 7,841,092 14,218,400 7,841,092 Net income per common share, basic $ 0.07 $ (0.02) $ 0.11 $ (0.02) Diluted Earnings Per Share: Weighted average common shares outstanding 14,211,067 7,841,092 14,218,400 7,841,092 Net effect of dilutive stock options 282,388 - 254,768 - Net effect of warrants 227,216 - 204,992 - ----------------- ----------------- --------------- ------------ Total 14,720,671 7,841,092 14,678,160 7,841,092 Net income per common share, diluted $ 0.07 $ (0.02) $ 0.11 $ (0.02)
EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS 6-MOS DEC-31-1998 DEC-31-1997 JAN-01-1998 JAN-01-1997 JUN-30-1998 JUN-30-1997 2,187 2,924 0 0 28,970 20,102 (408) (320) 89,776 77,594 126,183 104,545 12,242 9,214 (2,570) (2,133) 162,021 124,002 125,268 88,732 0 0 3,519 3,439 0 0 0 0 8,162 6,563 162,021 124,002 343,668 190,074 343,668 190,074 290,339 164,025 290,339 164,025 0 0 0 0 4,732 1,745 3,192 (1,170) (1,373) (1,025) 1,819 (145) 0 0 0 0 0 0 1,819 (145) .11 (0.02) .11 (0.02)
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