MANAGEMENT SERVICES AGREEMENT
THIS MANAGEMENT SERVICES AGREEMENT (the "Agreement") is entered into
effective this ____ day of May, 2001, by and between AutoCorp Equities, Inc., a
Nevada corporation ("AutoCorp"), and XXX XXXXX CHEVROLET-OLDSMOBILE, INC., an
Oklahoma corporation ("JMCO").
R E C I T A L S:
- - - - - - - -
A. JMCO is an Oklahoma corporation owned by Xxx Xxxxx ("Miles"), Xxxx
Xxxxx and Xxxxxx Xxxxxxx and is an owner and operator of a Chevrolet/Oldsmobile
automobile dealership located at 000 X. Xxxxxxxx, Xxxxxxx, Xxxxxxxx 00000,
commonly known as Xxx Xxxxx Chevrolet/Oldsmobile. There are 2701 shares of
common stock in JMCO that are issued and outstanding and Xxx Xxx, a former
stockholder, holds a promissory note (the "Xxx Note") secured in part by 2025 of
said shares.
B. AutoCorp is a Nevada corporation with its principal place of
business in Plano, Texas and is the sole shareholder of both Ace Motor Company,
a Texas corporation ("Ace"), an owner and operator of used automobile lots and
AutoCorp Financial Services, Inc., a Texas corporation ("AFS"), an owner and
servicer of automobile installment contracts.
C. JMCO desires to borrow $150,000 from AutoCorp, grant AutoCorp an
option to purchase thirteen and one-half percent (13.5%) of the ownership
interests in JMCO and assign thirteen and one half percent (13.5%) of the net
operating profits of JMCO (after payment of taxes and interest on the JMCO
Note.) Both parties agree and understand that the long-term intent of this
agreement is for AutoCorp to have an option to purchase an ownership interest in
JMCO and not merely to loan JMCO operating funds.
D. AutoCorp will provide, among other things, advisory, consulting,
management and accounting services to JMCO in consideration for the assignment
of thirteen and one half percent (13.5%) of JMCO's net operating profits.
E. AutoCorp desires to have JMCO assist Ace in securing additional
relationships with JMCO's point of sale lenders, provided that AutoCorp, Ace and
AFS indemnifies JMCO and Miles from liabilities arising from loans made by
JMCO's point of sale lenders to Ace's customers.
F. The parties hereto desire to memorialize their respective
agreements, understandings and relationships with respect to the agreements and
understandings between the parties hereto, together with the agreements and
covenants affecting JMCO, Miles, Ace and AFS.
MANAGEMENT SERVICES AGREEMENT - PAGE 1
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ARTICLE I
DEFINITIONS
1.1 For purpose of this Agreement, the following definitions shall
apply:
(a) "Capital Stock" means all evidences of ownership in JMCO
and instruments convertible into equity ownership interests in JMCO,
including, but not limited to, JMCO Common Stock.
(b) "Common Stock" means JMCO's common stock, $100.00 par
value per share.
(c) "Common Stock Purchase Warrant" means that certain Common
Stock Purchase Warrant of even date herewith by and among Xxx Xxxxx, as
grantor, JMCO and AutoCorp, which warrant grants AutoCorp the right to
purchase 13.5% of the ownership interests in JMCO in consideration of
$150,000 and approval as an investor by General Motors Corporation.
(d) "JMCO Note" means that certain Promissory Note dated
January 1, 2001 by and between JMCO, as maker, and AutoCorp, as holder,
in the original principal amount of $150,000, the proceeds of such note
have been or shall be immediately contributed by JMCO to the operating
account of JMCO, to be used by JMCO as working capital.
(e) "Unconditional Guaranty" means that certain unconditional
guaranty of even date herewith by and between Xxx Xxxxx, as guarantor
and AutoCorp, as beneficiary, to secure satisfaction of JMCO's
obligations under the JMCO Note and this Agreement.
NOW, THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which are hereby
acknowledged, the parties hereby agree as follows;
ARTICLE II
MANAGEMENT AND CONSULTING
2.1 Engagement of AutoCorp. JMCO hereby retains and engages AutoCorp to
render to JMCO management, consulting, accounting and advisory services as may
be agreed upon by and between the parties hereto during the term of this
Agreement. AutoCorp hereby accepts such engagement and agrees to render such
services upon and subject to the terms and conditions hereinafter set forth.
AutoCorp shall only be obligated to dedicate such time as is reasonably required
to perform its obligations hereunder. Further, AutoCorp shall be permitted to
own and/or operate similar and competing businesses to that of JMCO and JMCO
shall have no right or claim to any ownership, cash flow or profits arising
therefrom.
MANAGEMENT SERVICES AGREEMENT - PAGE 2
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2.2 Office Facilities. JMCO shall provide AutoCorp, if requested, with
office facilities reasonably suited for AutoCorp's use at JMCO's corporate
office to enable AutoCorp to perform its duties hereunder. AutoCorp shall use
such office facilities, on a non-exclusive, full-time or part-time (as
determined by AutoCorp) basis as a licensee and not as a tenant. JMCO, at JMCO's
expense shall provide AutoCorp with telephone, facsimile, Internet connection,
computer(s), office furniture, utilities, office supplies and secretarial and
support services as hereafter may be mutually agreed upon by and between the
parties hereto.
2.3 Term. Except as may be otherwise provided herein, the term of this
Agreement shall commence upon the effective date hereof and shall continue until
the entire balance of principal and accrued interest under the JMCO Note is paid
in full and all amounts and obligations arising under this Agreement are
satisfied in full. Additionally this agreement will terminate at the earlier of
(1) the end of twenty four months from the date herein unless extended in
writing by both parties or (2) when AutoCorp Equities, Inc. has exercised its
warrant to purchase shares of JMCO.
Should JMCO or AutoCorp fail to fulfill their obligations under this
agreement, either party ay terminate this Agreement upon delivery of ninety (90)
days written notice to the other party. Upon such termination, all outstanding
principal and accrued interest under the JMCO Note and all obligations arising
under this Agreement shall, ipso facto, immediately become due and payable.
2.4 Independent Contractor Relationship. The relationship between JMCO
and AutoCorp shall be deemed to be an independent contractor relationship and
neither party shall have the power or authority to bind the other party
contractually, financially or otherwise, except as authorized in writing by the
party to be bound. Neither party shall represent itself as the agent or legal
representative of the other party.
2.5 Prohibited Activities. During the term of this Agreement or so long
as there exists an outstanding balance under the JMCO Note or JMCO has not fully
satisfied its obligations under this Agreement, JMCO and Miles shall not permit
any of the following acts without the express written consent of AutoCorp:
(a) failure to perform or violation of any agreement with
General Motors Corporation, General Motors Acceptance, or their
successors or replacements relating to the automobile franchise
operated by JMCO; or
(b) unreasonably increase the executive compensation or draws
of Xxx Xxxxx over their current levels.
MANAGEMENT SERVICES AGREEMENT - PAGE 3
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Should JMCO engage in any of the prohibited activities mentioned above
without the written consent of AutoCorp, then AutoCorp may, at its sole option,
may terminate this agreement with ninety days (90) written notice and the "JMCO
Note" will become due and payable together with any accrued interest thereon.
In the event AutoCorp fails to perform the services provided for herein
or breaches this Agreement, JMCO may, at its sole option, terminate this
Agreement with (90) days written notice. In the event the JMCO Note is paid in
full, prior to AutoCorp exercising its option hereunder to acquire an ownership
interest in JMCO, this Agreement shall be deemed cancelled upon such payment
being tendered. If such termination occurs pursuant to this Paragraph, the
parties agree to negotiate, in good faith, additional agreement(s) enabling
continuation of a business relationship between the parties.
2.6 Compensation. In consideration for AutoCorp performing the
management services set forth herein and funding an aggregate amount of $150,000
under the JMCO Note, JMCO hereby covenants and agrees to give, transfer, assign,
set over, convey and deliver unto AutoCorp and AutoCorp hereby accepts from JMCO
the greater of: (1) interest on the JMCO Note and any extensions or
modifications thereof or (2) thirteen and one half percent (13.5%) of the net
operating profits of JMCO. For the purpose of this Agreement, Operating Profits
shall mean total operating revenue derived from the business operations of JMCO
less routine operating expenses normally incurred in the day-to-day operation of
the business. Permitted expenses for purposes of this calculation shall not
include reductions in principal debt obligations paid by JMCO.
The compensation shall be payable as follows:
(a) The applicable percentage of net operating profits payable
within 30 days following the end of the calendar year.
In the event there is a termination on a day other than calendar year
end, then the calculation of compensation herein shall be prorated to the date
of termination.
2.7 Financial Reporting.
(a) Monthly and Quarterly Financial Reports. On or before the
fifteenth (15th) day of each calendar month and calendar quarter, JMCO
shall deliver to AutoCorp monthly income statements and balance sheets,
together with a comparison of all line items to results of operations
for the same period from the prior calendar year, certified by Xxx
Xxxxx and the Chief Financial Officer of JMCO. All such statements
shall be in form and content satisfactory to General Motors
Corporation, General Motors Acceptance Corporation or their successors
or replacements and shall be prepared in accordance with generally
accepted accounting principles consistently applied. In addition, JMCO
shall deliver evidence to AutoCorp that all property and sales taxes
have been timely paid.
MANAGEMENT SERVICES AGREEMENT - PAGE 4
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(b) Annual Financial Reports. On or before March 15th of each
calendar year, JMCO shall deliver to AutoCorp annual financial
statements (balance sheet and income statement) in form and content
satisfactory to General Motors Corporation, General Motors Acceptance
Corporation , or the successors or replacements reviewed by JMCO's
outside accounting firm, which annual financial statements shall be
prepared in accordance with generally accepted accounting principles
consistently applied. On or before March 15th of each year, JMCO shall
deliver to AutoCorp evidence of payment of all income tax obligations.
(c) Because AutoCorp, a publicly held company, cannot own any
part of a Subchapter S Corporation, JMCO hereby agrees to make its
election to change its tax status to that of a C corporation as soon
after AutoCorp notifies JMCO in writing of its intention to exercise
its Warrant to purchase common stock of JMCO as is reasonably possible
and as is, at that time, allowed by the Internal Revenue Code and the
Internal Revenue Service Regulations, but no earlier than thirty days
following the date of the notice.
2.8 Sale of Dealership.
(a) Should the Chevrolet/Oldsmobile dealership owned by JMCO
be sold, even if sold prior to December 31, 2001, AutoCorp will be
entitled to receive the unpaid principal balance together with any
accrued interest thereon of the note between AutoCorp and JMCO on the
closing date even though the JMCO note is interest free until December
31, 2001.
ARTICLE III
BOARD OF DIRECTORS
3.1 Voting Agreement. During the term of this Agreement and thereafter
in the event AutoCorp exercises its Common Stock Purchase Warrant to purchase
thirteen and one half percent (13.5%) of the Capital Stock of JMCO, Xxx Xxxxx
and XXXX covenant and agree to elect a representative designated by AutoCorp to
serve as a member on the Board of Directors of JMCO.
3.2 Indemnification. To the greatest extent permitted by applicable
law, each party hereto covenants and agrees to indemnify, defend and hold
harmless the other for all actions, claims, costs, liabilities and obligations
caused by the actions of the respective indemnifying party arising from this
Agreement and/or the transactions contemplated hereby. At AutoCorp's election,
JMCO shall provide, at JMCO's expense, director and officer liability insurance
for AutoCorp's designated representative on the JMCO board, which policy shall
have such limits and contain such provisions and riders as determined by
AutoCorp in its reasonable discretion.
MANAGEMENT SERVICES AGREEMENT - PAGE 5
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ARTICLE IV
QUALIFIED INVESTOR; POINT OF SALE LENDERS
4.1 General Motors Corporation Qualified Investor. Within eighteen
months from the effective date hereof, JMCO and AutoCorp shall use their best
efforts to complete and deliver all applications and information to enable
AutoCorp to become a qualified investor in JMCO pursuant to forms and
standardized processes promulgated by General Motors Corporation. In the event
such approval is not received on or before the maturity date of the JMCO Note,
which may be accelerated as more particularly described therein, all amounts
under the JMCO Note and this Agreement, shall become due and payable. In
addition, JMCO and Miles shall jointly and severally be obligated to repay all
amounts paid or assumed by AutoCorp under any Common Stock Purchase Warrant or
agreement for JMCO Capital Stock plus interest at twelve percent (12%) per
annum. The term for payment shall be on demand unless otherwise agreed to by
AutoCorp and JMCO in writing. Failure to timely repay these amounts shall be
deemed to be an event of default hereunder and under the JMCO Note and
Unconditional Guaranty.
4.2 Point of Sale Lenders. Within a reasonable time following the
effective date hereof, JMCO shall attempt to have Ace, an affiliate of AutoCorp,
qualified as an approved originator of automobile installment contracts from
Ace's used automobile lots with JMCO's point of sale lenders.
Ace and AutoCorp shall indemnify JMCO and Xxx Xxxxx from all
liabilities arising from Ace's breach of agreements with such point of sale
lenders. In the event this Agreement is terminated for any reason whatsoever,
JMCO covenants and agrees to continue to assist Ace in maintaining relationships
with JMCO's point of sale lenders; provided, that the indemnity of JMCO
described above shall continue in full force and effect.
ARTICLE V
ADDITIONAL OWNERSHIP
5.1 Common Stock Purchase Warrant. As of even date herewith, Xxxxx,
XXXX and AutoCorp have entered into that certain Common Stock Purchase Warrant,
which warrant grants AutoCorp the option to purchase thirteen and one half
percent (13.5%) of the capital stock JMCO in consideration for forgiveness of
the $150,000 principal balances under the JMCO Note. In the event this Agreement
is terminated, the Common Stock Purchase Warrant shall also be terminated in the
event all outstanding principal and accrued interest under the JMCO Note is
fully paid and all obligations of JMCO under this Agreement are fully satisfied.
In the event the Xxx Note has not been paid in full and the Xxx shares remain
encumbered, no exercise of any Common Stock Purchase Warrant, in any
denomination, shall be allowed and no additional ownership, as provided in
Paragraph 5.2, shall be allowed. Any attempt by AutoCorp, its successors or
assigns to exercise the Common Stock Purchase Warrant while the Xxx shares are
encumbered by the Xxx note and associated agreements, in any denomination, shall
be deemed a breach of this Agreement and shall, at the option of JMCO, be a
termination hereof.
MANAGEMENT SERVICES AGREEMENT - PAGE 6
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ARTICLE VI
GENERAL
6.1 Assignment. Neither party may assign its rights or delegate its
obligations under this Agreement, in whole or in part, without the prior written
consent of the other party other than an assignment by either party of this
Agreement by merger, acquisition, or sale of all or substantially all of its
assets. Any attempted assignment or delegation without such prior consent will
be null and void. The rights and liabilities of the parties under this Agreement
will be binding upon and inure to the benefit of the parties' respective
successors and permitted assigns.
6.2 Notices. Any notice or payment required or permitted to be made or
given by either party hereto pursuant to this Agreement will be deemed delivered
on the date of issuance if sent by such party to the other party by mail
certified, return receipt requested, commercial courier, personal delivery, or a
similar reliable delivery method with proof of delivery, addressed to the
addresses set forth above or to such other address as a party shall designate by
written notice given to the other party. Electronic mail and facsimile may be
used; provided, that the person delivering such notice receives a written
confirmation of the addressee's receipt thereof or any document so delivered is
also reduced to hard copy and delivered by one of the foregoing methods.
6.3 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS WITHOUT REFERENCE TO OR
APPLICATION OF CONFLICT OF LAW RULES, IS FULLY PERFORMABLE IN DALLAS COUNTY,
TEXAS AND VENUE FOR RESOLUTION OF ANY DISPUTE ARISING HEREUNDER OR IN CONNECTION
HEREWITH SHALL BE EXCLUSIVELY IN DALLAS COUNTY, TEXAS. THIS AGREEMENT SHALL NOT
BE GOVERNED BY THE UNITED NATIONS CONVENTION FOR INTERNATIONAL SALES OF GOODS.
6.4 Severability. If any part of this Agreement is found to be invalid
or unenforceable by a court of competent jurisdiction, then it will be enforced
to the maximum extent permitted by law and the remaining provisions shall remain
in full force and effect. Furthermore, the parties agree to substitute for the
invalid or unenforceable provision a valid and enforceable provision which most
closely approximates the intent and economic effect of the invalid or
unenforceable provision.
MANAGEMENT SERVICES AGREEMENT - PAGE 7
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6.5 Waiver. The waiver of any breach of any provision of this
Agreement, the JMCO Note, Unconditional Guaranty or the Common Stock Purchase
Warrant shall not constitute a waiver of any subsequent breach of the same or
other provisions herein. To be effective, a waiver must be in writing and signed
by the waiving party.
6.6 Rights of Third Parties. Nothing contained in this Agreement,
express or implied, shall be deemed to confer any rights or remedies upon, nor
obligate any of the parties hereto, to any person or entity other than such
parties, unless expressly stated to the contrary.
6.7 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
6.8 Headings. All section headings provided herein are for convenience
only and shall not be used as a basis for construction or interpretation of this
Agreement.
6.9 Entire Agreement. This Agreement, including the exhibits hereto and
documents referenced herein (as amended by the parties hereto from time to
time), which are expressly incorporated herein by reference, constitutes the
complete and exclusive understanding and agreement between the parties and
supersedes all prior understandings and agreements, whether written or oral,
with respect to the subject matter hereof. This Agreement may not be altered,
modified, amended, changed, rescinded or discharged, in whole or in part, except
by written agreement executed by both parties.
MANAGEMENT SERVICES AGREEMENT - PAGE 8
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Executed effective as of the date and year first above written.
XXX XXXXX CHEVROLET-OLDSMOBILE, INC.
By: __________________________________
Xxx Xxxxx, President
_________________________________
XXX XXXXX, an individual
AUTOCORP EQUITIES, INC.
a Nevada corporation
By: _____________________________
Name:____________________________
Title:___________________________
MANAGEMENT SERVICES AGREEMENT - PAGE 9
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