<PAGE>
 
                                                                EXHIBIT 10.3.7

                  NISSAN CONTIGUOUS MARKET OWNERSHIP ADDENDUM
                  -------------------------------------------

This Nissan Contiguous Market Ownership Addendum (the "CMO Agreement") is
entered into this 30th day of JUNE, 1997, by and among Nissan Motor Corporation
in U.S.A. ("Nissan"), Thomas A. Price ("Dealer Principal" or "Price"), Smart
Nissan, Inc., ("Marin Nissan" or "Dealer"), and FirstAmerica Automotive, Inc.,
("FAA").

                                   RECITALS
                                   --------     

WHEREAS, Nissan, FAA and Dealer desire to create a Contiguous Market Ownership
Area in the San Francisco Bay Area, (the "Penisula CMO");

WHEREAS, Nissan, FAA and Dealer commit to develop and execute a Market Area Plan
that describes how Dealer will develop the Peninsula CMO through the provision
or establishment of Dealership Facilities;

WHEREAS, Nissan, FAA and Dealer also commit to develop and execute a Business
Plan that describes how Dealer will fulfill its sales, service, customer
relations and other commitments hereunder, including heightened performance
standards that Dealer commits to meet;

WHEREAS, Dealer commits to operate in accordance with the Market Area Plan and
the Business Plan;

WHEREAS, Nissan, Price, FAA and Dealer acknowledge that this CMO Agreement
forges a new collaborative relationship in the automotive industry that is
uniquely and mutually beneficial to the parties, was negotiated by them in the
spirit of cooperation, and does not adversely affect their existing rights and
responsibilities;

WHEREAS, Price, FAA and Dealer, in exchange for the opportunities and other
consideration specified herein, agree to assume the obligations set forth
herein; and

NOW, THEREFORE, in consideration of the agreements and mutual covenants set
forth herein, and other good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged, the parties hereto agree as follows:

                                   AGREEMENT
                                   ---------

1.   THE CMO AGREEMENT
     -----------------

     The CMO Agreement supplements the Nissan Dealer Sales and Service Agreement
     between Nissan and Dealer (the "Dealer Agreement"), including the Standard
     Provisions thereto (the "Standard Provisions"). To the extent that the CMO
     Agreement conflicts with the Dealer Agreement, the CMO Agreement controls
     and shall govern the relationship between the parties. Subject to such
     conflicts and except as otherwise provided herein, the Dealer Agreement
     survives the execution of the CMO Agreement and remains in full force and
     effect.

<PAGE>
 
2.   DEFINITIONS
     -----------

     The parties agree that the following terms, as used in the CMO Agreement,
     shall be defined exclusively as set forth below.

          A.   "NISSAN VEHICLES" shall mean Nissan Cars and Nissan Trucks as
          well as "near-new" Nissan Vehicles of the current and three prior
          model years.

          B.   "NISSAN PRODUCTS" shall mean Nissan Vehicles, Genuine Parts and
          Accessories, Nissan Security + Plus and such other products and
          services offered by Nissan to Dealer and designated by Nissan as a
          Nissan Product.

          C.   "PRIMARY MARKET AREA" shall mean the Peninsula CMO, which shall
          consist of the entire geographic area that is designated from time to
          time as the area of Dealer's sales and service responsibility for
          Nissan Products in a Notice of Primary Market Area issued by Nissan to
          Dealer. Nissan reserves the right, in its reasonable discretion, to
          issue a new, superseding "Notice of Primary Market Area" to Dealer
          from time to time.

          D.   "EXECUTIVE MANAGER" shall mean the person named as Executive
          Manager in the Final Paragraph of the Dealer Agreement upon whose
          personal qualifications, expertise, reputation, integrity, experience,
          ability and representations that he or she shall devote his or her
          efforts to and have full managerial authority and responsibility for
          the day-to-day management and performance of Dealer throughout the
          Peninsula CMO, or with Nissan's consent, any contiguous CMO(s),
          including but not limited to the supervision of all Location Managers,
          which Nissan has relied in entering into the CMO Agreement.

          E.   "LOCATION MANAGER" shall mean the persons named as Location
          Managers in the Location Manager Addendum to the CMO Agreement upon
          whose personal qualifications, expertise, reputation, integrity,
          experience, ability and representations that he or she shall devote
          his or her full-time efforts to and have managerial authority and
          responsibility for the day-to-day management and performance of Dealer
          at a particular Dealership Facility, Nissan has relied in entering
          into the CMO Agreement.

          F.   "MARKET AREA PLAN" shall mean the written plan prepared and
          executed by the parties that describes the number, location, type,
          size and opening date of the Dealership Facilities to be provided by
          Dealer hereunder.

          G.   "BUSINESS PLAN" shall mean the written plan prepared and executed
          by the parties that contains Dealer's plan and commitment to develop
          its business throughout the Peninsula CMO, including but not limited
          to its plan and commitment with respect to organizational,
          operational, financial, succession and other issues, and certain
          standards on which its performance hereunder will be evaluated.

                                       2

<PAGE>
 
          H.   "Dealership Facilities" shall mean the land areas at each
          Dealership Location and the buildings and improvements erected thereon
          provided by Dealer in accordance with Section 2 of the Standard
          Provisions and the Market Area Plan.

3.   TERM
     ----

     This Agreement and the Dealer Agreement shall have a renewable term
     commencing on its effective date and continuing for a term of five years
     unless terminated earlier in accordance with Section 12 of the Standard
     Provisions or the CMO Agreement.

4.   DEALERSHIP LOCATION AND DEALERSHIP FACILITIES
     ---------------------------------------------

     A.   DEALERSHIP FACILITIES
          ---------------------

          In accordance with the Market Area Plan, FAA and Dealer shall provide
          Dealership Facilities at each Dealership Location that are
          satisfactory in space, appearance, usage, layout and signage; and
          otherwise are substantially in accordance with the Guides therefor
          established by Nissan from time to time. Dealer shall conduct its
          Dealership Operations only from the Dealership Locations specified in
          the Dealership Facilities Addendum and shall use each such place of
          business only for the purposes specified therefor in the Dealership
          Facilities Addendum. Where applicable, Dealer shall establish
          additional Dealership Facilities in the time, place and manner agreed
          to by Dealer and Nissan in the Market Area Plan. Dealer agrees that
          the Dealership Facilities shall have a consistent image, appearance
          and name.

     B.   DEALERSHIP FACILITIES ADDENDUM
          ------------------------------

          FAA, Dealer and Nissan shall execute a Dealership Facilities Addendum
          which will include a description of each Dealership Location and each
          Dealership Facility as well as the approved use for each such place of
          business and facility.

     C.   EXCLUSIVE NISSAN OPERATIONS
          ---------------------------

          FAA and Dealer agree that each Dealership Facility and Dealership
          Location shall be dedicated to the promotion of Nissan Products and
          devoted exclusively to the conduct of Nissan sales, service, parts
          and/or other operations as specified in the Dealership Facilities
          Addendum. Dealer shall not conduct any sales, service, parts and/or
          other operations for any other new line-make of vehicles at any of the
          Dealership Facilities or Dealership Locations.

     D.   PENINSULA CMO OBLIGATIONS
          -------------------------

          FAA shall develop, and Dealer shall devote its full efforts to
          developing the Peninsula CMO. Consequently, Dealer agrees that it will
          not engage, either directly or indirectly, in any of the activities
          contemplated by the CMO Agreement from facilities or locations outside
          of the Peninsula CMO. If Dealer fails to

                                       3

<PAGE>
 
          develop the Peninsula CMO according to its Market Area Plan or to
          implement the plans or meet the performance standards established in
          the Business Plan, then Nissan, will provide written notice specifying
          the default and a reasonable period of at least 45 days within which
          to cure the default. Should the 45 day cure period expire without
          material remedy of the breach, Nissan may (i) terminate the CMO
          Agreement under Paragraph 11 hereof, (ii) restructure the Peninsula
          CMO and reassign to other Authorized Nissan Dealers any areas
          necessary to achieve the maximum potential development of the
          Peninsula CMO, or (iii) exercise its option to purchase under
          Paragraph 10.C hereof.


5.   MARKET AREA PLAN
     ----------------

     FAA, Dealer and Nissan shall execute a Market Area Plan that describes how
     Dealer will develop its Primary Market Area through the provision or
     establishment of Dealership Facilities. The Market Area Plan is an
     essential part of the CMO Agreement.

     A.   MARKET AREA DEVELOPMENT
          -----------------------

     FAA and Dealer agree to develop its Primary Market Area according to the
     Market Area Plan, which shall include a detailed description of the number,
     location, type, size, usage and opening date of the Dealership Facilities
     to be provided.

     B.   PLAN MODIFICATIONS
          ------------------

     The Market Area Plan may be modified only if Nissan, FAA and Dealer agree
     that a material change in marketing conditions warrants the proposed
     modification.

     C.   MARKET STUDIES
          --------------

     The parties agree that although Nissan may continue to perform market
     studies of the Primary Market Area and any contiguous market areas, or any
     portion thereof pursuant to Section 4.A of the Standard Provisions, they
     will base the Market Area Plan on their collaborative review and analysis
     of all relevant data, including such market studies. Section 4.B of the
     Standard Provisions is hereby deleted in its entirety.


     D.   WAIVER OF CLAIMS BASED ON NISSAN'S ACTIONS OUTSIDE THE PRIMARY
          --------------------------------------------------------------
          MARKET AREA
          -----------

     Nissan agrees that in taking action outside the Primary Market Area, it
     will consider the impact of such action on Dealer's investment in and plans
     for the Primary Market Area. Dealer agrees not to initiate or prosecute any
     judicial, administrative or governmental proceeding with respect to
     Nissan's actions outside the Primary Market Area, including but not limited
     to its appointment or relocation of any other Authorized Nissan Dealer.

                                       4
<PAGE>
 
6.   BUSINESS PLAN
     -------------

     FAA, Dealer and Nissan shall execute a Business Plan in the form specified
     in the Business Planning Process Workbook that describes how Dealer will
     fulfill its sales, service, customer relations, marketing and other
     commitments hereunder. The Business Plan is an essential part of the CMO
     Agreement.


     A.   BUSINESS PLANNING
          -----------------

          The Business Plan shall include the following elements:


          i.   a statement of Dealer's legal and financial structure, including
               capitalization, line of credit and equity ownership;

          ii.  the sales, service, customer relations, marketing and other
               standards on which Dealer's performance will be evaluated, which
               standards Dealer acknowledges and agrees will be higher than
               those established for Authorized Nissan Dealers that are not
               responsible for a CMO;

          iii. a detailed organizational structure and staffing plans, including
               the number of certified sales, service and parts managers, sales
               personnel, and technicians that shall be provided for the
               Peninsula CMO;

          iv.  specific plans for maximizing owner loyalty and customer
               satisfaction, including hours of operation and customer
               convenience systems;

          v.   advertising, merchandising, marketing and community relations
               plans;

          vi.  successorship, including the identity of the proposed successors
               to Dealer, Dealer Principal and/or Executive Manager; and

          vii. other standards or plans as agreed by Nissan, FAA and Dealer.


     B.   OPERATIONS
          ----------

          Dealer shall operate in accordance with the Business Plan and shall
          actively and effectively promote the sale of Nissan Products to
          customers located throughout the Primary Market Area. In particular,
          Dealer shall implement the plans and meet the performance standards
          established in the Business Plan.


     C.   ANNUAL BUSINESS PLAN REVIEW
          ---------------------------

          Dealer shall review and update its Business Plan annually, or more
          often if needed, and submit it to Nissan for joint review. Updated
          Plans will include a performance evaluation and any proposed
          modifications to the prior year's plan. If Nissan, 

                                       5
<PAGE>
 
          FAA and Dealer agree that changes to the proposed Plan are necessary,
          Dealer will make such changes and resubmit its Plan.


               I.   PERFORMANCE EVALUATION
                    ---------------------- 

               Dealer's performance of its obligations is essential to the
               effective representation of Nissan Products, and to the
               reputation and goodwill of Nissan, in the Peninsula CMO.
               Therefore, Dealer agrees to review its performance against the
               prior year's Business Plan in its updated Business Plan. Nissan,
               FAA and Dealer will use this analysis as a basis for jointly
               evaluating Dealer's performance so that any necessary
               improvements can be made. In evaluating Dealer's sales
               performance, in addition to those factors established in the
               Standard Provisions, Nissan will give consideration to: (a) sales
               volume or market share objectives for Nissan Products set by the
               parties, and (b) sales and market penetration achieved by Dealer
               in each of the various segments in which Nissan Vehicles compete.


               II.  PLAN MODIFICATIONS
                    ------------------

               Plans for operations are subject to update, but modifications can
               be implemented only if Nissan, FAA and Dealer agree thereto.



7.   OTHER DEALER RESPONSIBILITIES
     -----------------------------

     A.   FINANCIAL AND OPERATIONAL REPORTING
          -----------------------------------

          Dealer shall provide to Nissan financial statements and sales reports
          pursuant to Section 6.G of the Standard Provisions for each Dealership
          Facility and for Dealer for the entire Primary Market Area. Dealer
          shall furnish to Nissan annual certified financial statements for
          Dealer or for the entity that owns Dealer and shall otherwise disclose
          to Nissan in a format reasonably satisfactory to Nissan the financial
          and operational results of Dealer's Nissan business.


     B.   DISCLOSURE OF FINANCIAL INFORMATION TO AFFILIATED COMPANIES
          -----------------------------------------------------------

          Nissan shall be entitled to disclose to and receive from affiliated
          companies, including but not limited to Nissan Motor Acceptance
          Corporation, all financial statements and reports provided by Dealer
          under the CMO Agreement and/or the Dealer Agreement or otherwise
          relating to Dealership Operations.


     C.   DEALER'S LOAN ARRANGEMENTS FOR REAL PROPERTY
          --------------------------------------------

          Dealer's loan arrangements for its Dealership Facilities and/or
          Dealership Locations shall grant to Nissan the right to notice of and
          a reasonable opportunity

                                       6 
<PAGE>
 
          to cure any default thereunder as well as the right to take possession
          of such real property upon such cure, and shall otherwise be
          satisfactory in form to Nissan.


8.   NISSAN CAR AND NISSAN TRUCK ALLOCATIONS
     ---------------------------------------                    

     Nissan's allocation of Nissan Cars and Nissan Trucks to Dealer shall be
     based on the entire Primary Market Area in accordance with the procedures
     established therefor by Nissan.


9.   TRANSFERS
     ---------

     A.   SALE OF PENINSULA CMO DEALERSHIP
          --------------------------------

          In view of the efforts and resources that Nissan has expended in order
          to establish the Peninsula CMO, if Dealer proposes to sell certain
          assets or Dealership Facilities, Nissan may require that Dealer sell
          all Peninsula CMO dealership assets, or none of such assets or
          Dealership Facilities to the proposed buyer.


     B.   QUALIFICATIONS OF PROPOSED DEALER PRINCIPAL
          -------------------------------------------

          FAA and Dealer acknowledge and agree that, in view of the increased
          responsibilities that Price has assumed as the principal of Dealer for
          the Peninsula CMO, Nissan has and will apply heightened standards with
          respect to the personal, business and financial qualifications,
          expertise, reputation, integrity, experience and ability of a proposed
          Dealer Principal.


     C.   SUCCESSORSHIP
          -------------

          Section 14 of the Standard Provisions is hereby deleted in its
          entirety. The parties shall address successorship in the Business Plan
          prepared pursuant to Paragraph 6 hereof. Dealer shall identify the
          proposed successor to Dealer, Dealer Principal an/or Executive Manager
          in its successorship plan and shall provide such documents and
          information as Nissan may reasonably require in evaluating such plans.
          Nissan shall evaluate such plan and approve it only if it meets the
          heightened standards applied by Nissan in connection with Nissan
          Contiguous Market Ownership Agreements. Subject to Paragraph 10
          hereof, the parties agree that if for any reason Dealer is unable to
          implement its successorship plan upon the death or physical or mental
          incapacity of Dealer Principal, then Dealer shall be given a
          reasonable period of time not to exceed six (6) months in which to
          transfer to person(s) acceptable to Nissan the principal assets of
          Dealer utilized in the dealership business, including but not limited
          to the Dealership Facilities, and for such person(s) to apply for a
          Nissan Dealer Sales and Service Agreement and, if applicable, a Nissan
          Contiguous Market Ownership Agreement.

                                       7
<PAGE>
 
     D.   DEALER'S OBLIGATION TO REPAY FINANCIAL INTERVENTION FUNDING UPON
          ----------------------------------------------------------------
          PUBLIC OFFERINGS
          ---------------- 

          If Nissan has furnished financial intervention funding to FAA and/or
          Dealer in connection with the establishment or development of the
          Peninsula CMO, then, upon the completion of any public offering of FAA
          and/or Dealer's stock or other ownership interest, upon Nissan's
          demand, Dealer shall repay to Nissan the full amount of such funding.


10.  RIGHTS OF FIRST REFUSAL OR OPTION TO PURCHASE
     --------------------------------------------- 

     A.   DEALERSHIP ASSETS OR OWNERSHIP INTERESTS
          ----------------------------------------

          Whenever Dealer proposes to sell its principal assets or the owners of
          Dealer propose to sell a majority ownership interest in Dealer, in
          addition to its rights under Articles Third and Fourth of the Dealer
          Agreement and Section 15.B of the Standard Provisions, Nissan shall
          have the right and option to purchase the dealership assets or
          ownership interests pursuant to this Paragraph 10.

          i.   If Nissan chooses to exercise its option, it must do so in its
               written refusal to consent to the proposed sale or transfer
               pursuant to Section 15.B. Dealer agrees not to complete any
               proposed change or sale prior to the expiration of the period for
               exercise of Nissan's option and without Nissan's prior written
               consent. Such exercise shall be null and void if Dealer withdraws
               its proposal within thirty (30) days following Dealer's receipt
               of Nissan's notice exercising its option.

          ii.  After being exercised, Nissan's option may be assigned to any
               party, and Nissan hereby agrees to guarantee the full payment of
               the purchase price by such assignee. Nissan's rights under this
               Paragraph 10 shall be binding on and enforceable against any
               assignee or successor in interest of Dealer or purchaser of
               Dealer's assets. Nissan shall have no obligation to exercise its
               rights hereunder.

          iii. If Dealer has entered into a bona fide written buy/sell agreement
               respecting its Nissan dealership, Nissan's right under this
               Paragraph 10 shall be a right of first refusal, enabling Nissan
               to assume the prospective purchaser's rights and obligations
               under such buy/sell agreement. The purchase price and other terms
               of sale shall be those set forth in such agreement and any
               related documents. Nissan may request, FAA and Dealer agrees to
               provide all other documents relating to Dealer and to the
               proposed transfer, including, but not limited to, those
               reflecting any other agreements or understandings between the
               parties to the buy/sell agreement. Nissan shall have sixty (60)
               days from its receipt of all such documents in which to exercise
               its right of first refusal hereunder. If Dealer refuses either
               to 

                                       8
<PAGE>
 
               provide such documentation or to state in writing that no such
               documents exist, it shall be presumed that the agreement is not
               bona fide.

          iv.  In the absence of a bona fide written buy/sell agreement, Nissan
               shall have the option, but no obligation, under this Paragraph 10
               to purchase the principal assets of Dealer utilized in the
               Dealership Operations, including real property and leasehold
               interest, and to terminate this Agreement and all rights granted
               Dealer hereunder. If the Dealership Facilities are leased by
               Dealer from an affiliated company, the right to purchase the
               principal assets of Dealer shall include the right to lease the
               Dealership Facilities. The purchase price of Dealer's assets
               shall be at their fair market value as a going concern as
               negotiated by the parties and the other terms of sale shall be
               those agreed by Dealer and Nissan. If Dealer and Nissan are
               unable to reach a negotiated settlement in a reasonable time, the
               price and other terms of sale shall be established by arbitration
               pursuant to the Dispute Resolution Process established in
               Paragraph 12 hereof. If Nissan determines that the buy/sell
               agreement is not bona fide, Nissan will so notify Dealer. Dealer
               shall have ten (10) days from its receipt of such notice within
               which to withdraw its proposal. Nissan's exercise of its rights
               hereunder shall be null and void if Dealer withdraws its proposal
               within such time period.

          v.   Dealer shall transfer the affected property free and clear of
               liens, claims, mortgages, encumbrances, tenancies and
               occupancies. Dealer shall also furnish to Nissan copies of any
               easements, licenses, or other documents affecting the dealership
               and/or property and shall assign any permits or licenses which
               are necessary for the conduct of the Dealership Operations.


     B.   REAL PROPERTY
          -------------

          Whenever Dealer proposes to sell or lease any of its Dealership
          Facilities and/or Dealership Locations, in addition to its rights
          under Article Third and Fourth of the Dealer Agreement and Section
          15.B of the Standard Provisions, Nissan shall have the right and
          option to purchase or lease said Dealership Facilities and/or
          Dealership Locations pursuant to this Paragraph 10.B.

          i)   If Nissan chooses to exercise its right of first refusal, it must
               do so by written notice delivered to Dealer within sixty (60)
               days of Nissan's receipt of notice of the proposed sale or lease
               by Dealer. Dealer agrees not to complete any proposed sale or
               lease prior to the expiration of the period for exercise of
               Nissan's right of first refusal and without Nissan's prior
               written consent, and agrees to allow Nissan to perform an
               environmental study of the property. Dealer also agrees to
               furnish to Nissan copies of any easements, licenses,
               environmental studies or other documents affecting the property
               Such exercise shall be null and void if Dealer withdraws its sale

                                       9
<PAGE>
 
               or lease proposal within thirty (30) days following Dealer's
               receipt of Nissan's notice exercising its right of first refusal.

          ii)  After being exercised, Nissan's right to purchase or lease may be
               assigned to any party, and Nissan hereby agrees to guarantee the
               full payment of the purchase price or the rental payment by such
               assignee. Nissan's rights under this Paragraph 10.B shall be
               binding on and enforceable against any assignee or successor in
               interest of Dealer or purchaser of Dealer's assets. Nissan shall
               have no obligation to exercise its rights hereunder, and Seller
               may rescind its offer if the property is determined to be
               contaminated pursuant to an environmental study. Such
               contamination shall be deemed a breach of this agreement by
               dealer.

          iii) Dealer shall transfer the affected property by Warranty Deed
               conveying marketable title free and clear of liens, claims,
               mortgages, encumbrances, tenancies and occupancies, or, if
               applicable, by an assignment of any existing lease. The Warranty
               Deed shall be in proper form for recording. Dealer shall deliver
               complete possession of the property at the time of delivery of
               the Deed or lease assignment. Dealer shall also assign any permit
               or licenses which are necessary for the conduct of the Dealership
               Operations.

          iv)  In addition to any other rights Nissan may have at law, in equity
               or hereunder, any sale or lease of the Dealership Facilities
               and/or the Dealership Locations in violation of this right of
               first refusal shall be voidable by Nissan.

     C.   OPTION TO PURCHASE
          ------------------

          If the CMO Agreement or the Dealer Agreement is to expire or be
          terminated for any reason, including but not limited to the death or
          physical or mental incapacity, without replacement in accordance with
          Section 9.C. hereinabove, of Dealer Principal, Nissan has the option
          to purchase the principal assets of Dealer utilized in the dealership
          business, including such real property as Nissan in its sole
          discretion may elect to purchase, and cancel the CMO Agreement and the
          Dealer Agreement and all rights granted Dealer thereunder. The
          purchase price of the dealership assets and real property and other
          terms will be determined by agreement between the parties or, if the
          parties are unable to reach agreement in a reasonable time, by
          arbitration pursuant to the Dispute Resolution Process established in
          Paragraph 12 hereof. Nissan must advise Dealer of its intent to
          exercise this option within 30 days prior to the expiration of the CMO
          Agreement and/or the Dealer Agreement or within 30 days after one
          party notifies the other of its intent to terminate the CMO Agreement
          and/or the Dealer Agreement. Nissan may assign its right to exercise
          its option to purchase under this Paragraph 10.C to any third party.

                                      10
<PAGE>
 
11.  TERMINATION
     -----------

     A.   TERMINATION DUE TO ACTS OR EVENTS
          ---------------------------------

          The following represent events which are within the control of or
          originate from actions taken by Dealer or its management or owners and
          which are so contrary to the intent and purpose of the CMO Agreement
          that they warrant its termination and the termination of the Dealer
          Agreement:

          (i)   Any conduct that warrants the termination of the Dealer
                Agreement;

          (ii)  The termination of the Dealer Agreement;

          (iii) The failure of Dealer to maintain at all times exclusive Nissan
                sales, service, parts and/or other operations at the Dealership
                Facilities and the Dealership Locations; or

          (iv)  Any actual or attempted sale or transfer of stock or any other
                ownership interest in Dealer by way of a public offering without
                Nissan's prior written consent;

          Upon the occurrence of any of the foregoing events, Nissan may
          terminate the CMO Agreement by giving Dealer notice thereof, such
          termination to be effective upon the date specified in such notice, or
          such later date as may be required by any applicable statute.

     B.   TERMINATION FOR NON-PERFORMANCE
          -------------------------------

          If, based on the evaluation thereof made by Nissan, Dealer shall fail
          to substantially fulfill its responsibilities with respect to:

          (i)   the development of the Peninsula CMO according to the Market
                Area Plan;

          (ii)  the implementation of the plans set forth in the Business Plan,
                including but not limited to any deviation therefrom; or
 
          (iii) the performance of its sales, service, customer relations or
                other obligations based on the standards established therefor in
                the Business Plan;

          Nissan will notify Dealer of such failure and will review with Dealer
          the nature and extent of such failure and the reasons which, in
          Nissan's or Dealer's opinion, account for such failure. Thereafter,
          Nissan will provide Dealer with a reasonable opportunity to correct
          the failure. If Dealer fails to make substantial progress towards
          remedying such failure before the expiration of such period, Nissan,
          may, direct Dealer to transfer its rights and obligations under this
          Agreement to another entity, acceptable to Nissan, within a reasonable
          time. Should Dealer fail to do so 

                                      11
<PAGE>
 
          Nissan may (a) terminate this Agreement by giving Dealer notice of
          termination, such termination to be effective at least sixty (60) days
          after such notice is given, (b) exercise its option to purchase the
          principal assets of Dealer utilized in the business, including such
          real property as Nissan in its sole discretion may elect to purchase,
          and cancel the CMO Agreement and the Dealer Agreement pursuant to
          Paragraph 10.C hereof, or (c) restructure the Peninsula CMO and
          reassign to other Authorized Nissan Dealers any areas necessary to
          achieve the maximum potential development of the Peninsula CMO.

12.  DISPUTE RESOLUTION PROCESS
     --------------------------

     A.   EXCLUSIVE REMEDY
          ----------------

          The parties acknowledge that, at the state and federal levels, various
          courts and agencies would, in the absence of this Paragraph 12, be
          available to them to resolve claims or controversies which might arise
          between them. The parties agree that it is inconsistent with their
          relationship for either to use courts or governmental agencies to
          resolve such claims or controversies.

          THEREFORE, CONSISTENT WITH THE PROVISIONS OF THE UNITED STATES
          ARBITRATION ACT (9 U.S.C. (S)(S) 1 et seq.), NISSAN AND DEALER AGREE
          THAT THE DISPUTE RESOLUTION PROCESS OUTLINED IN THIS PARAGRAPH 12,
          WHICH INCLUDES BINDING ARBITRATION, SHALL BE THE EXCLUSIVE MECHANISM
          FOR RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM ARISING OUT OF OR
          RELATING IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP BETWEEN
          THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY STATE OR
          FEDERAL STATUTES (hereinafter "Disputes").

          There are two steps in the Dispute Resolution Process: a) Mediation,
          and b) Binding Arbitration. All Disputes must first be submitted to
          Mediation, unless that step is waived by written agreement of the
          parties. If Mediation does not resolve the Dispute to their mutual
          satisfaction, the Dealer or Nissan can submit the Dispute to Binding
          Arbitration.

          Section 16 of the Standard Provisions is deleted in its entirety.

     B.   MEDIATION
          ---------

          Dealer or Nissan can submit a Dispute to Mediation. Mediation is
          conducted by a panel consisting of a Nissan representative designated
          by Nissan, a Dealer representative designated by Dealer, and an
          independent professional mediator chosen by the parties'
          representatives. The Mediation Panel will evaluate each position and
          recommend a solution. This recommended solution is not binding.

                                      12
<PAGE>
 
     C.   BINDING ARBITRATION
          -------------------

          If a dispute has not been resolved after Mediation, or if Dealer and
          Nissan have agreed in writing to waive Mediation, the Dispute will be
          settled by Binding Arbitration. SPECIFICALLY, THE PARTIES AGREE TO
          RESOLVE ALL SUCH DISPUTES BY BINDING ARBITRATION CONDUCTED IN
          ACCORDANCE WITH THE COMMERCIAL ARBITRATION PROCEDURES OF THE AMERICAN
          ARBITRATION ASSOCIATION, WITH THE PREVAILING PARTY TO RECOVER ITS
          COSTS AND ATTORNEY'S FEES FROM THE OTHER PARTY. ALL ARBITRATION AWARDS
          ARE BINDING AND NON-APPEALABLE, EXCEPT AS OTHERWISE PROVIDED IN THE
          UNITED STATES ARBITRATION ACT. JUDGMENT UPON ANY SUCH AWARD MAY BE
          ENTERED AND ENFORCED IN ANY COURT HAVING JURISDICTION.

13.  RELEASE
     -------

     Dealer hereby releases Nissan from any and all claims and causes of action
     that it may have against Nissan for money damages or other relief relating
     to or arising out of any event occurring prior to the execution of the CMO
     Agreement, except for any accounts payable by Nissan to Dealer in
     connection with the provision of any services under the Dealer Agreement
     and any claim described in Section 11. A.1 and .2 of the Standard
     Provisions. In connection with this release, Dealer expressly acknowledges
     and waives its rights under California Civil Code, Section 1542, which
     provides:

          A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
          NOT KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE
          RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
          SETTLEMENT WITH THE DEBTOR.

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<PAGE>
 
SMART NISSAN, INC                            NISSAN MOTOR CORPORATION IN U.S.A.

By:   /s/ Thomas A. Price                 By: /s/ Thomas H. Eastwood
     -----------------------------            ------------------------------
     Thomas A. Price, President               Thomas H. Eastwood, Vice President



                                          By:  /s/ Jules Clavadetscher
                                               ------------------------------
                                               Jules Clavadetscher
                                               Regional Vice President


Acknowledged and Concur:

FirstAmerica Automotive, Inc.

By:  /s/ Thomas A. Price
     -----------------------------
     Thomas A Price, President
     President and CEO

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