ADDENDUM TO SALES AND SERVICE AGREEMENT
THIS ADDENDUM ("Addendum") is entered into effective as of the date set
forth below by and between SK MOTORS LTD., INC. d/b/a/ SCOTTSDALE PORSCHE
("Dealer"), UNITED AUTO GROUP WEST, INC. ("Dealer Owner"), UNITED AUTO GROUP,
INC. ("Public Company"), and PORSCHE CARS NORTH AMERICA, INC., a Delaware
Corporation ("Porsche Cars N.A.").
RECITALS
WHEREAS, Porsche Cars N.A. is the importer and distributor of Porsche
automobiles and parts in the United States and has the exclusive right to
authorize the establishment and operation f Porsche franchised dealer; and
WHEREAS, Porsche Cars N.A. believes it is in its best interests to enter
into Sales and Service Agreements only with dealerships in which at least a
twenty-five percent (25%) interest is owned by an individual knowledgeable in
the auto sales and leasing business who will operate or oversee the operation of
the dealerships (a "Dealer Principal"), a requirement that is set forth in every
Porsche Sales and Service Agreement; and
WHEREAS, it is the policy and practice of Porsche Cars N.A. that Sales and
Service Agreement shall not be executed with entities whose controlling
ownership includes trusts, holding companies, foundations or other impersonal
entities; and
WHEREAS, the Porsche Sales and Service Agreement requires that Porsche Cars
N.A. approve all changes in ownership of a Porsche dealership; and
WHEREAS, the Dealer will conduct its operations at 0000 Xxxx XxXxxxxx Xxxx,
Xxxxxxxxxx, Xxxxxxx 00000, with facilities, employees and certain assets that
may be shared with dealerships of other manufacturer/distributors (said
facilities and all approved successor facilities hereinafter referred to as the
"Shared Facility"); and
WHEREAS, the Dealer Owner and/or the Dealer Principal also own and operate
the other dealerships conducting their operations at the Shared Facility; and
WHEREAS, it is the policy and practice of Porsche Cars; N.A. to receive
balance sheets and income statements in connection with the operation of Porsche
dealerships; and
WHEREAS, the Porsche Dealer Operating Standards require that dealership
facilities must be satisfactory as to appearance, size, layout and equipment for
the total dealership operations; and
WHEREAS, a stock purchase and sale agreement has been executed by, among
others, Xxxxxx Xxxxxxxxxxxxx (who is the Dealer Principal of the existing
dealer) ("Xxxxxxxxxxxxx"), Dealer Owner, and Public Company, which amounts to a
change of ownership under the terms of the Sales and Service Agreement; and
WHEREAS, following consummation of such stock purchase and sale agreement,
Xxxxxxxxxxxxx will only have a nineteen percent (19%) stock ownership interest
in Dealer, and thereby Xxxxxxxxxxxxx will not satisfy the requirement in the
Sales and Service Agreement requiring a twenty-five percent (25%) ownership
interest in Dealer; and
WHEREAS, Public Company, the parent company of Dealer Owner, has requested
approval to have its stock publicly traded; and
WHEREAS, Dealer is desirous of entering into a Sales and Service Agreement
with Porsche Cars N.A., and
WHEREAS, Porsche Cars N.A. is willing to make an exception to its policy of
requiring a twenty-five percent (25%) ownership interest in Dealer as to
Xxxxxxxxxxxxx, and successor Dealer Principals and to enter into a Sales and
Service Agreement with Dealer, but only if, among other things, the terms and
conditions of this Addendum modifying Porsche Cars N.A.'s standard Sales and
Service Agreement is executed by Dealer, Dealer Owner, and Public Company, and
the terms hereof are continually satisfied throughout the term of the Sales and
Service Agreement and all extensions, renewals, and successor agreements
thereto;
NOW THEREFORE, in consideration of these premises and the mutual covenants,
conditions and agreements herein, the parties hereto agree as follows:
SECTION 1
COVENANTS
1.1 DEALER STOCK. Public Company, Dealer Owner and Dealer each represent
and warrant that there is only one class of common voting stock of Dealer and
that no additional common voting stock of Dealer will be issued nor will any
other class of stock of Dealer be created during the initial or subsequent terms
of the Sales and Service Agreement, nor shall such Dealer Stock be sued as
collateral or otherwise encumbered except as may be provided in the
Shareholders' Agreement referred to in Section 2.6. below, or as may be
permitted pursuant to the provisions of Section 4. below. Said stock shall
hereinafter be referred to in this Addendum as "Dealer Stock." In addition,
throughout the term of this Addendum and the Sales and Service Agreement and all
successor agreements thereto, Dealer Owner and Public Company agree that Dealer
Stock shall bear a legend which shall indicate that it may be transferred only
in compliance with the terms of this Addendum.
-2-
1.2. OWNERSHIP AND TRANSFER OF DEALER STOCK. Except as otherwise permitted
herein, at all times during the continuance of said Sales and Service Agreement
and al extensions and successor agreements thereto, (i) Dealer Stock shall be
owned nineteen percent (19%) b then current Dealer Principal and eighty-one
percent (81%) by Dealer Owner; (ii) each Dealer Principal shall have an Equity
Interest in the Dealership as described in Section 2 of this Addendum; and (iii)
Dealer Stock may only be transferred in accordance with the terms of this
Agreement.
1.3. OWNERSHIP AND TRANSFER OF DEALER ASSETS. Except as otherwise
permitted herein, Public Company, Dealer Owner and Dealer each agree that there
shall be no sale, encumbrance or other direct or indirect transfer of the assets
of Dealer except in the ordinary course of its business.
1.4. AUTHORITY TO MAKE DECISIONS. Public Company and Dealer Owner hereby
represent that each Dealer Principal of Dealer (including, but not limited to,
Knappenberg), shall, during the term of the Sales and Service Agreement and all
extensions thereof or successor agreements thereto, have complete and
irrevocable authority to make all decisions and enter into any and all necessary
business commitments required in the normal course of conducting dealership
operations on behalf of Dealer, and may take all actions normally required of a
Dealer Principal pursuant to Part II. A of the Sales and Service Agreement.
Neither Dealer Owner, Public Company nor Dealer will revoke, modify or amend
such authority without the prior written approval of Porsche Cars N.A.
1.5. NOTICE OF CERTAIN EVENTS. Public Company, Dealer Owner, and Dealer
each agree to inform Porsche Cars, N.A. of (i) any occurrence which may
constitute a Dealer Principal Termination Event (as that phrase is defined in
Section 2, below, (ii) any event which may constitute a "Change of Ownership or
Control" as that phrase is defined in Section 3, below, and (iii) any event
which may give Porsche Cars N.A. a Right of First Refusal as described in
Section 4, below within such periods of time of the occurrence of such events as
are set forth herein.
1.6 CHANGE OF KEY MANAGEMENT. Dealer, Dealer Owner, and Public Company
each agree to provide to Porsche Cars N.A. at least sixty (60) days prior
written notice of any proposed change in the key management of Dealer, Dealer
Owner or Public Company, or any material change in the authorities, duties or
responsibilities of such key management. Such proposal shall include sufficient
information to permit Porsche Cars N.A. to evaluate the proposed change in a
manner which is consistent with its normal policies and procedures. As of the
date of this Addendum, the phrase "key management" shall mean, with respect to
Dealer Owner and Public Company, Xxxx Xxxxxxxxxx - Chairman and CEO, Xxxxxx X.
Xxxx - Executive Vice President, and Xxxxxx Xxxxxxxx - Executive Vice President,
but such phrase shall also
-3-
be deemed to include any successors of such individuals. With respect to
Dealer, such phrase shall mean the Dealer Principal and the general manager and
all successor Dealer Principals and general managers.
1.7. AUTHORITY. Dealer, Dealer Owner, and Public Company hereby warrant
that the representations and assurances of each herein are within their
respective authority to make and do not contravene any further directive,
policy, or procedure of any other person or entity.
1.8. ACCURACY OF INFORMATION. Dealer, Dealer Owners, and Public Company
each represent and warrant that all information, whether written or oral,
delivered to Porsche Cars N.A. prior to or as of the date of execution of this
Addendum was at the time of delivery and is as of the date of execution of this
Addendum accurate and complete in all respects and acknowledge that the accuracy
and completeness of such information is a condition precedent to the execution
of this Addendum and the Sales and Service Agreement by Porsche Cars N.A.
1.9. COMPLIANCE WITH LAWS. Dealer, Dealer Owner and Public Company each
represent and warrant that at all times during the continuance of the Addendum
and the Sales and Service Agreement, that the purchases and sales of Dealer
Stock undertaken referred to in this Addendum shall comply with all relevant
state and federal laws, including state and federal securities laws.
SECTION 2
PRINCIPAL OWNER EQUITY OWNERSHIP IN DEALER
2.1. COMMON STOCK OWNERSHIP BY DEALER PRINCIPAL. At all times during the
period a person is a Dealer Principal, such person shall own at least nineteen
percent (19%) of the Dealer Stock. Such Dealer Principal shall purchase such
stock from Dealer Owner as of the effective date of his or her nomination by
Dealer Owner and the acceptance of such nomination by Porsche Cars N.A. The
purchase price for such Dealer Stock shall be the Initial Value of Dealer Stock.
Upon a subsequent Dealer Principal Termination Event, the then Dealer Principal
shall be required to sell to Dealer Owner, and Dealer Owner shall be required to
purchase, such Dealer Stock at the Subsequent Value of Dealer Stock.
2.2. PAYMENT. Unless otherwise agreed in a writing signed by the parties
hereto or in the Shareholders' Agreement referred to in Section 2.5, below, the
payment to Dealer Owner by a Dealer Principal or to a Dealer Principal by a
Dealer Owner as required by Section 2.1, above, shall be made in cash within 15
days of the occurrence of the relevant event which requires the transfer of such
Dealer Stock.
2.3. DEFINITIONS. For purposes of this Agreement, the following phrases
used in this Section 2 shall have the following
-4-
meanings unless otherwise agreed in a writing signed by the parties hereto:
(a) "Dealer Principal Termination Event" shall mean (i) the actual
termination of employment of a Dealer Principal by Dealer, or (ii) a
materiel diminution of the duties of any such Dealer Principal as
described in Section 1.2, above.
(b) "Initial Value of Dealer Stock" shall mean the value of the
Dealer Stock transferred to a Dealer Principal at the time of his or
her assumption of that position of employment with Dealer. Unless
there has been a material adverse change in the financial condition of
Dealer, the "Subsequent Value of Dealer Stock" as to the predecessor
Dealer Principal may be used as the "Initial Value of Dealer Stock"
for the next succeeding Dealer Principal.
(c) "Subsequent Value of Dealer Stock" shall mean the value of Dealer
Stock upon the occurrence of a Dealer Principal Termination Event.
2.4. DETERMINATION OF VALUE OF DEALER STOCK. Unless otherwise agreed by
the parties hereto, the value of Dealer Stock shall, for purposes of this
Section, be determined by appraisal, with such arbitrator chosen by mutual
agreement of the parties hereto. If the parties are unable to so agree, Porsche
Cars N.A. shall appoint one arbitrator and Dealer Owner shall appoint one
arbitrator. The two arbitrators so appointed shall appoint a third arbitrator.
The decision of a majority vote of the three arbitrators shall be binding on all
of the parties hereto and upon the then Dealer Principal. The cost of
arbitration under this Section 2.4 shall be paid equally by Porsche Cars N.A.
and by Dealer Owner.
2.5. SPECIAL RULES APPLICABLE TO XXXXXXXXXXXXX. Notwithstanding the
foregoing, upon a Dealer Principal Termination Event as to Knappenberg,
Knappenberg shall be required to sell, and Dealer Owner shall be required to
buy, Xxxxxxxxxxxxx'x Dealer Stock for a payment equal to the Subsequent Value of
Dealer Stock multiplied by one-hundred fifteen percent (115%) minus the sum of
the Initial Value of Dealer Stock and an amount equal to fifteen percent (15%)
thereof per annum.
2.6. SHAREHOLDERS' AGREEMENT. The terms of this Section 2 shall be
evidenced by a Shareholders' Agreement approved by Porsche Cars N.A. and which
(i) shall be entered into by and between Xxxxxxxxxxxxx and Dealer Owner upon
execution of this Addendum and which (ii) shall be entered into by Dealer Owner
and each successor Dealer Principal upon the transfer of Dealer Stock as
provided above. Such Shareholders' Agreement shall be
-5-
specifically enforceable by Porsche Cars N.A. and once approved by Porsche Cars
N.A. may not thereafter be modified except by written agreement of the parties
hereto.
SECTION 3
CHANGE OF OWNERSHIP OF CONTROL
3.1 CHANGE OF OWNERSHIP OR CONTROL DEFINED. For purposes of this Addendum
to the Sales and Service Agreement, the phrase "Change of Ownership or Control"
shall mean the occurrence of any one or more of the following events:
(a) The transfer by a Dealer Principal directly or indirectly, of any
of his or her Dealer Stock to any person other than Dealer Owner as
provided in this Addendum, provided, however, this prohibition on
transfer shall not apply to Xxxxxxxxxxxxx if such transfer is to a
trust controlled by him established primarily for the purpose of
estate planning or such transfer has been approved in advance in
writing by Porsche Cars, N.A. which approval shall not be unreasonably
withheld; or
(b) The transfer by Dealer Owner, directly or indirectly, of any of
its Dealer Owner Stock such that following such transfer Dealer Owner
owns less than eighty-one percent (81%) thereof, unless such transfer
is pursuant to Section 4, below, or unless such transfer has been
approved in advance in writing by Porsche Cars, N.A., which approval
shall not be unreasonably withheld; or
(c) The sale, encumbrance or other direct or indirect transfer of the
assets of Dealer except in the ordinary course of its business; unless
such transfer is pursuant to Section 5, below, or unless such transfer
has been approved in advance in writing by Porsche Cars, N.A., which
approval shall not be unreasonably withheld; or
(d) The acquisition of twenty percent (20%) or more of the number or
value of the outstanding stock of Public Company if Item 4 of Schedule
13D filed with the Securities and Exchange Commission discloses that
such person or entity intends or may intend either: (i) an
acquisition of additional securities of Public Company or (ii) an
extraordinary corporate transaction such as a merger, reorganization
or liquidation, involving Public Company or any of its subsidiaries or
(iii) a sale or transfer of a material amount of assets of Public
Company or any of its subsidiaries or (iv) any change in the present
Board of Directors or management of Public Company or (v) any other
-6-
material change in Public Company's business or corporate structure or
(vi) any action determined by Porsche N.A. to be similar to the events
noted in (i) - (v), above; or
(e) A change in the key management of Public Company, Dealer Owner or
Dealer described in Section 1.6, above, which is not approved in
advance in writing by Porsche Cars N.A., provided that such approval
shall not be unreasonably withheld; or
(f) A failure of Dealer Owner or a Dealer Principal or both to
perform any of the duties required of them pursuant to this Addendum
or the Sales and Service Agreement; or
(g) A material breach of any of the Covenants of Public Company,
Dealer Owner or Dealer set forth in Section 1; or
(h) The occurrence of a Dealer Principal Termination Event unless,
within 60 days thereof, nineteen percent (19%) of the Dealer Common
Stock is transferred to a successor Dealer Principal acceptable to
Porsche Cars N.A. in accordance with its policies and terms and
conditions set forth in Section 2, above.
3.2. RIGHTS OF PORSCHE CARS N.A. UPON A CHANGE OF OWNERSHIP OR CONTROL. If
a Change of Ownership or Control described in Section 3.1 shall occur during the
initial term of this Sales and Service Agreement or any extension of said
Agreement or successor Agreement thereto, and such Change of Ownership or
Control is reasonably determined by Porsche Cars N.A. to adversely affect its
interests, then Dealer, Dealer Owner and Public Company agree that within
ninety(90) days of receipt of written notice form Porsche Cars N.A. of such a
determination, Dealer, Dealer Owner, Public Company and Dealer Principal shall,
at the reasonably exercised direction of Porsche Cars N.A. (i) revoke and
rescind any third party agreement pertaining to any sale of Dealer Stock or
Dealer assets subject to this Agreement to a third party acceptable to Porsche
Cars N.A.; (ii) voluntarily terminate the Sales and Service Agreement between
Porsche Cars N.A. and Dealer; or (iii) provide evidence satisfactory to Porsche
Cars N.A. that actions have subsequently been taken by Dealer, Dealer Owner,
Public Company and/or Dealer Principal so that such Change of Ownership or
Control has been effectively cured or revoked or rescinded to the satisfaction
of Porsche Cars N.A.
SECTION 4
RIGHT OF FIRST REFUSAL - DEALER STOCK
4.1. RIGHT OF FIRST REFUSAL. In addition to the restrictions on
transferability of Dealer Stock elsewhere set
-7-
forth in this Addendum, Dealer Owners shall not sell, transfer, exchange or
otherwise dispose of any of the shares of Dealer Stock by it unless such Dealer
Stock shall first be offered to Porsche Cars N.A.
4.2. DISCLOSURE OF POTENTIAL SALE. If Dealer Owner shall desire to sell,
encumber, or otherwise dispose of its Dealer Stock, Dealer Owner shall deliver a
written notice to Porsche Cars N.A., which notice shall specify the person to
whom the shares are to be disposed or encumbered, the purchase price or other
consideration to be received by Dealer Owner for such shares, and the terms upon
which such purchase price or other consideration is to be paid. The delivery of
such written notice to Porsche Cars N.A. shall constitute an irrevocable offer
to sell all of its Dealer Stock to Porsche Cars N.A.
4.3. EXERCISE OF RIGHT OF FIRST REFUSAL. Porsche Cars N.A. may accept such
offer by delivering a written acceptance to Dealer Owner within thirty (30) days
after receipt of the written notice specified in Section 4.2. If Porsche Cars
N.A. elects to accept such offer, the purchase of such shares shall be closed
within thirty (30) days upon the same terms as are specified in such notice, or
upon such other terms as are mutually acceptable to the parties, except if the
offer set forth in such notice pertains to less than all of the Dealer Stock
held by Dealer Owner, then the purchase price for all of such Dealer Stock shall
be the price per share set forth in such notice. If Porsche Cars N.A. elects
not to exercise such offer or if Porsche Cars N.A. allows such offer to expire
without being accepted, Dealer Owner shall be able to transfer such shares on
the terms specified in the written notice to the person identified therein,
subject to the written consent of Porsche Cars N.A. which shall not be
unreasonably withheld as set forth in Section 3.2. If such transaction is not
consummated within sixty (60) days, such shares shall again be subject to the
restrictions and the repurchase option described in this Section 4.
4.4. ASSIGNMENT OF RIGHT OF FIRST REFUSAL. In the event Porsche Cars N.A.
determines to exercise its Right of First Refusal, Porsche Cars N.A. may assign
any resulting stock purchase agreement to any party. Porsche Cars N.A. hereby
agrees to guarantee the purchase price to be paid by any such assignee.
4.5. REIMBURSEMENT OF REASONABLE EXPENSES. If Porsche Cars N.A. exercises
its Right of First Refusal hereunder, Porsche Cars N.A. will reimburse Dealer
Owner for reasonable expenses up to $25,000, excluding brokerage commissions,
for which Dealer Owner is liable to the initial offeree related to the
development of any stock purchase agreement. Dealer Owner will supply Porsche
Cars N.A. with appropriate documentation to support all such expenses and copies
of all material generated during the negotiation and development of the stock
purchase agreement in anticipation of such sale (including but not limited to,
-8-
environmental reports, title search, invoices of attorneys, property inspection
reports and accounting reviews.)
4.6. LIMITATION OF RIGHT OF FIRST REFUSAL. Notwithstanding the foregoing,
Porsche Cars N.A. shall not have a Right of First Refusal as to any sale to
Xxxxxxxxxxxxx or a nominee successor of Dealer approved in advance by Porsche
Cars N.A. (which approval shall not be unreasonably withheld) or to an employee
of Dealer who is determined by Porsche Cars N.A. to be qualified and who has
been employed by Dealer for more than two (2) years.
SECTION 5
RIGHT OF FIRST REFUSAL - ASSETS
5.1. RIGHT OF FIRST REFUSAL. Dealer shall not sell, encumber or in any
other manner. direct or indirect, transfer the assets of Dealer except in the
ordinary course of business unless such Dealer asset shall first be offered to
Porsche Cars N.A. financial statement for each entity conducting business at
such location. Dealer agrees to provide such financial statements in accordance
with the terms contained in the Sales and Service Agreement and that such
financial statements shall be prepared in accordance with generally accepted
financial principles and shall disclose the method used to allocate the assets,
liabilities and expenses among the dealership entities conducting business at
the Shared Facility.
SECTION 7
CHANGE OF OTHER DEALERSHIPS AT SHARED ENTITY
Dealer Principal and Dealer Owner agree that any addition or deletion of
other automobile dealerships at the Shared Facility shall constitute a change in
the use or purpose of the Shared Facility and shall require the Dealer and
Dealer Principal to give prior written notice thereof to Porsche Cars N.A. and
shall also require the prior written approval of Porsche Cars N.A. as set forth
in Section II, Part II(B) of the Sales and Service Agreement.
SECTION 8
NON-PERFORMANCE
Porsche Cars N.A., Dealer, Dealer Owner and Public Company each agree that
the terms and conditions of this Addendum are a material inducement to Porsche
Cars N.A. to enter a Sales and Service Agreement with Dealer and constitute a
consent of Porsche Cars N.A. on an exception basis, to the ownership and
management structure of Dealer, Dealer Owner and Public Company. Porsche Cars
N.A. represents that without the assurances made by Dealer, Dealer Owner and
Public Company that the terms and conditions herein will be satisfied, Porsche
Cars N.A. would not have entered into a Sales and Service Agreement with Dealer.
-9-
This failure of Dealer, Dealer Owner, a Dealer Principal and/or Public
Company to meet any of the material terms, conditions and restrictions set forth
in this Addendum shall constitute a material breach of the Porsche Sales and
Service Agreement and shall justify termination of the Agreement. Porsche Cars
N.A.'s right to terminate under this Addendum shall be without any liability to
Porsche Cars N.A. Dealer, Dealer Owner and Public Company acknowledge that
their failure to satisfy any of the terms and conditions set forth above shall
constitute reasonable cause or good cause as those phrases are used in all
applicable statutes and regulations for termination, cancellation or failure to
renew the Sales and Service Agreement by Porsche Cars N.A.
SECTION 9
SPECIFIC PERFORMANCE
Dealer, Dealer Owner, and Public Company each acknowledge and agree that
Porsche Cars N.A. would be damaged irreparably in the event any of the
provisions of this Addendum are not performed in accordance with their specific
terms or are otherwise breached. Accordingly, each of Dealer, Dealer Owner and
Public Company agree, that in addition to any other remedy available to it under
applicable law, Porsche Cars N.A. shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Addendum and to
enforce specifically this Addendum and the terms and provisions hereof in any
action institute in any court having jurisdiction over the parties and matter
hereto.
SECTION 10
APPLICATION
This Addendum shall affect only those provisions of the Porsche Sales and
Service Agreement, and any extensions thereof of successor agreements thereto,
which are specifically modified by the terms of the Addendum. This Addendum
shall not modify, waive or otherwise vary the other terms of the Porsche Sales
and Service Agreement. If the Dealer, Dealer Owner or Public Company becomes a
party in any merger, consolidation, acquisition, or reorganization, the terms of
this Addendum and the Sales and Service Agreement shall remain in full force and
effect according to their respective terms.
SECTION 11
MODIFICATION
This Addendum has been executed in two or more copies, each of which is
deemed an original and contains the entire understanding between the parties
with respect to the subject matter of the Addendum and supersedes all oral
agreements and negotiations between the parties and the alterations, variations,
modification or waiver of the provisions of this Addendum shall
-10-
be valid only when they have been reduced to writing and duly signed by the
parties.
SECTION 12
SEVERABILITY
If any provisions of this Addendum are deemed to be invalid, such
provisions shall be severed from this Addendum and the other provisions shall
remain in full force and effect. A waiver of a breach or default under this
Addendum shall not be deemed to be a waiver of any subsequent breach or default.
IN WITNESS WHEREOF, each of the parties has executed this Addendum as of
the day of 1996.
----- --------
PORSCHE CARS NORTH AMERICAN, INC.
By:
------------------------------
Its:
-----------------------------
SK MOTORS, LTD., INC. UNITED AUTO GROUP WEST, INC.
By: By:
------------------------------- -----------------------------
Its: Its:
----------------------------- ----------------------------
UNITED AUTO GROUP, INC. XXXXXX XXXXXXXXXXXXX
By:
------------------------------ --------------------------------
Its:
----------------------------- --------------------------------
-11-
