<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CROSS-COUNTRY AUTO RETAILERS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 5511 75-2653096
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>
1201 SOUTH TAYLOR STREET
AMARILLO, TEXAS 79101
(806) 374-8653
(Address, including zip code, and telephone number,
including area code, of registrants principal executive offices)
ROBERT W. HALL
SENIOR VICE CHAIRMAN
1201 SOUTH TAYLOR STREET
AMARILLO, TEXAS 79101
(806) 374-8653
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
Philip K. Howard, Esq. Jerry V. Elliott, Esq.
Howard, Darby & Levin Shearman & Sterling
1330 Avenue of the Americas 599 Lexington Avenue
New York, New York 10019 New York, New York 10022
(212) 841-1000 (212) 848-4000
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLES OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED BE REGISTERED (1) PER SHARE (3) OFFERING PRICE (3)
<S> <C> <C> <C>
Common Stock (par value $.01 per share)............. 3,593,750 shares(2) $17.00 $61,093,750
<CAPTION>
TITLES OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Common Stock (par value $.01 per share)............. $21,067
</TABLE>
(1) Includes 468,750 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Rights to purchase Junior Preferred Stock of the Company, which also are
being registered hereunder, will be issued in a number equal to the shares
of Common Stock to be issued for no additional consideration and, therefore,
no registration fee is required therefor. Prior to the occurrence of certain
events, such rights will not be exercisable or evidenced separately from the
Common Stock. When exercisable, each such right shall entitle the owner to
purchase from the Company one-one hundredth of a share of Junior Preferred
Stock.
(3) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM NUMBER AND HEADING IN FORM S-1 CAPTION OR LOCATION IN PROSPECTUS
- ---------------------------------------------------- ---------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus...... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.................................. Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges................ Prospectus Summary; Risk Factors
4. Use of Proceeds.............................. Use of Proceeds
5. Determination of Offering Price.............. Underwriters
6. Dilution..................................... Dilution
7. Selling Security Holders..................... Management; Certain Transactions; Principal
Stockholders
8. Plan of Distribution......................... Underwriters
9. Description of Securities to be Registered... Outside Front Cover Page of Prospectus;
Description of Capital Stock
10. Interests of Named Experts and Counsel....... *
11. Information with Respect to the Registrant... Outside Front Cover Page; Prospectus Summary;
Risk Factors; Dividend Policy;
Capitalization; Selected Combined Financial
Data; Pro Forma Combined Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Principal
Stockholders; Certain Transactions;
Description of Capital Stock; Shares
Eligible for Future Sale; Financial
Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................. *
</TABLE>
- ------------------------
*Item is inapplicable or response thereto is in the negative.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED , 1996
3,125,000 SHARES
CROSS-COUNTRY AUTO RETAILERS, INC.
COMMON STOCK
---------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY CROSS-COUNTRY
AUTO RETAILERS, INC. PRIOR TO THIS OFFERING, THERE HAS BEEN NO PUBLIC
MARKET FOR THE COMMON STOCK. IT IS CURRENTLY ESTIMATED THAT THE
INITIAL PUBLIC OFFERING PRICE PER SHARE WILL BE BETWEEN $15 AND
$17. SEE "UNDERWRITERS" FOR A DISCUSSION OF THE FACTORS
CONSIDERED IN DETERMINING THE INITIAL
PUBLIC OFFERING PRICE.
------------------------------
APPLICATION HAS BEEN MADE FOR LISTING THE COMMON STOCK ON THE NEW YORK
STOCK EXCHANGE UNDER THE SYMBOL "XCA".
------------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS (1) COMPANY (2)
-------------- --------------- ------------
<S> <C> <C> <C>
PER SHARE......................................................... $ $ $
TOTAL (3)......................................................... $ $ $
</TABLE>
- ------------
(1) CROSS-COUNTRY AUTO AND THE SELLING STOCKHOLDERS HAVE AGREED TO INDEMNIFY
THE UNDERWRITERS AGAINST CERTAIN LIABILITIES, INCLUDING LIABILITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED. SEE "UNDERWRITERS."
(2) BEFORE DEDUCTING EXPENSES, PAYABLE BY CROSS-COUNTRY AUTO ESTIMATED AT $1.4
MILLION.
(3) CERTAIN STOCKHOLDERS OF THE COMPANY (THE "SELLING STOCKHOLDERS") HAVE
GRANTED TO THE UNDERWRITERS AN OPTION, EXERCISABLE WITHIN 30 DAYS OF THE
DATE HEREOF, TO PURCHASE UP TO AN AGGREGATE OF 468,750 ADDITIONAL SHARES OF
COMMON STOCK AT THE PRICE TO PUBLIC SHOWN ABOVE LESS UNDERWRITING DISCOUNTS
AND COMMISSIONS FOR THE PURPOSE OF COVERING OVER-ALLOTMENTS, IF ANY. IF THE
UNDERWRITERS EXERCISE SUCH OPTION IN FULL, THE TOTAL PRICE TO PUBLIC,
UNDERWRITING DISCOUNTS AND PROCEEDS TO THE SELLING STOCKHOLDERS WILL BE
$ , $ AND $ , RESPECTIVELY. SEE "PRINCIPAL STOCKHOLDERS" AND
"UNDERWRITERS."
------------------------------
THE SHARES ARE OFFERED, SUBJECT TO PRIOR SALE, WHEN, AS AND IF ACCEPTED BY
THE UNDERWRITERS NAMED HEREIN AND SUBJECT TO APPROVAL OF CERTAIN LEGAL MATTERS
BY SHEARMAN & STERLING, COUNSEL FOR THE UNDERWRITERS. IT IS EXPECTED THAT THE
DELIVERY OF THE SHARES WILL BE MADE ON OR ABOUT , 1996, AT THE
OFFICE OF MORGAN STANLEY & CO. INCORPORATED, NEW YORK, N.Y., AGAINST PAYMENT
THEREFOR IN IMMEDIATELY AVAILABLE FUNDS.
------------------------
MORGAN STANLEY & CO.
INCORPORATED
FURMAN SELZ
RAUSCHER PIERCE REFSNES, INC.
, 1996
<PAGE>
[Photographs]
<PAGE>
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITY OTHER THAN THE SHARES OF COMMON
STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary......................................................................................... 4
Risk Factors............................................................................................... 8
Use of Proceeds............................................................................................ 11
Dividend Policy............................................................................................ 11
Capitalization............................................................................................. 12
Dilution................................................................................................... 13
Selected Combined Financial Data........................................................................... 14
Pro Forma Combined Financial Data.......................................................................... 15
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 18
Business................................................................................................... 28
Management................................................................................................. 40
Principal Stockholders..................................................................................... 43
Certain Transactions....................................................................................... 44
Description of Capital Stock............................................................................... 45
Shares Eligible for Future Sale............................................................................ 48
Underwriters............................................................................................... 50
Legal Matters.............................................................................................. 51
Experts.................................................................................................... 51
Available Information...................................................................................... 51
Index to Financial Information............................................................................. F-1
</TABLE>
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
This Prospectus includes statistical data regarding the retail automobile
industry. Unless otherwise indicated herein, such data is taken or derived from
information published by the Industry Analysis Division of the National
Automobile Dealers Association ("NADA") in its INDUSTRY ANALYSIS AND OUTLOOK AND
AUTOMOTIVE EXECUTIVE MAGAZINE publications.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE
DETAILED INFORMATION AND CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. PROSPECTIVE INVESTORS SHOULD
CAREFULLY CONSIDER THE FACTORS SET FORTH HEREIN UNDER THE CAPTION "RISK FACTORS"
AND ARE URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. REFERENCES TO
"CROSS-COUNTRY AUTO" OR THE "COMPANY" ARE TO CROSS-COUNTRY AUTO RETAILERS, INC.
AND, UNLESS THE CONTEXT INDICATES OTHERWISE, ITS CONSOLIDATED SUBSIDIARIES AND
THEIR RESPECTIVE PREDECESSORS. REFERENCES IN THIS PROSPECTUS TO THE "COMMON
STOCK" MEAN THE COMMON STOCK, PAR VALUE $.01 PER SHARE, OF THE COMPANY;
REFERENCES TO THE "OFFERING" MEAN THE OFFERING OF COMMON STOCK MADE HEREBY; AND
REFERENCES TO "SHARES" MEAN THE SHARES OF COMMON STOCK OFFERED HEREBY. UNLESS
OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES THE
UNDERWRITERS' OVER-ALLOTMENT OPTION IS NOT EXERCISED.
THE COMPANY
The Company owns and operates six franchised automobile dealerships in the
Amarillo, Texas and Oklahoma City, Oklahoma markets. Through these dealerships,
the Company sells new and used cars and light trucks, arranges related financing
and insurance, sells replacement parts and provides vehicle maintenance and
repair services.
The Company's founder and Chief Executive Officer, Bill A. Gilliland, has
managed automobile dealerships since 1966 and acquired the Company's first
dealership, Quality Nissan, Inc. in Amarillo, in 1982. The Company continued its
growth in the Amarillo area by acquiring three Chevrolet dealerships, two of
which have been in continuous operation (under various owners) since the 1920s.
The Company is the exclusive Chevrolet and Nissan dealer in Amarillo. The
Company led the Amarillo market in vehicle unit sales in 1995, accounting for
approximately 36% of new vehicle unit sales and 25% of used vehicle unit sales.
In 1995, the Company entered the Oklahoma City market through the acquisition of
a Nissan dealership in February and a Dodge dealership in December. In June
1996, the Company entered into an agreement to purchase another Dodge dealership
located in the Oklahoma City market (the "Dodge Acquisition"), which is one of
the largest Dodge dealerships in the United States. With this acquisition, the
Company believes that, based on pro forma revenue, it would have been one of the
50 largest dealer groups out of more than 15,000 dealer groups nationwide in
1995.
The Company has demonstrated historical success in acquiring and integrating
dealerships, and acquisitions remain an important element of the Company's
growth strategy. According to AUTOMOTIVE NEWS the number of franchised
dealerships has declined from 36,336 in 1960 to 22,288 in 1996. Further
consolidation of automobile dealers is anticipated due to a number of factors,
including increased capital requirements for dealerships, the fact that many
dealerships are owned by individuals nearing retirement age and the desire of
certain automakers to strengthen their brand identity by consolidating their
franchised dealerships. The Company believes that an opportunity exists for
dealership groups with significant equity capital to purchase additional
franchises and that being able to offer prospective sellers tax-advantaged
transactions through the use of publicly traded stock will, in certain
instances, make Cross-Country Auto a more attractive acquiror.
As a result of the Company's business strategy and growth through
acquisitions, including the full year effect of the dealership acquired in
December 1995, the Company's sales increased from $74.9 million in 1991 to
$294.7 million in 1995. The Company believes that its business strategy and
operations have also enabled it to achieve a level of profitability superior to
the industry average. In 1995, the Company's gross profit margin was 15.9%,
compared to the industry average of 12.9%.
OPERATING STRATEGY
The Company's strategy includes:
EFFECTIVELY SERVING ITS TARGET CUSTOMERS. The Company's existing
dealerships, which together offer the complete lines of Chevrolet, Nissan and
Dodge vehicles, focus primarily on middle-income buyers seeking moderately
priced vehicles that can be financed with relatively affordable monthly
payments. The Company believes that working closely with its customers to
identify appropriate vehicles and offering suitable financing and credit
insurance products enhances the Company's overall profitability by increasing
the
4
<PAGE>
percentage of vehicle purchases financed through its dealerships and by reducing
the subsequent default rate on such financing contracts. In 1995, the Company
arranged financing for approximately 76% of its new vehicle sales and 83% of its
used vehicle sales, as compared to 42% and 51%, respectively, for the average
automobile dealership in the United States.
OPERATING MULTIPLE DEALERSHIPS IN SELECTED MARKETS. By operating multiple
dealerships within individual markets, the Company seeks to become a leading
automotive dealer in each market that it serves. This strategy enables the
Company to achieve economies of scale in advertising, inventory management,
management information systems and corporate overhead. In 1995, the Company was
the market share leader in the Amarillo vicinity, accounting for approximately
28% of the new car market and 46% of the new truck market. In Oklahoma City, the
combined market shares in 1995 for the Company's two existing Oklahoma City
dealerships were approximately 2% and 7% of new car and truck sales,
respectively. The Company estimates that, including the Dodge Acquisition, the
Company's combined market shares in Oklahoma City would have been 4% of the new
car market and 15% of the new truck market in 1995.
MAINTAINING DISCIPLINED INVENTORY MANAGEMENT. The Company believes that
maintaining a vehicle mix that matches market demand is critical to dealership
profitability. The Company's policy is to maintain a 60-day supply of new
vehicles and a 39-day supply of used vehicles. If a new vehicle remains in
inventory for 120 days, or a used vehicle for 60 days, the Company typically
disposes of the vehicle by selling it to another dealer or wholesaler. The
Company believes that this policy enhances profitability by increasing inventory
turnover and reducing carrying costs. If the Company cannot obtain a sufficient
supply of popular models from the manufacturers, it purchases the needed
vehicles from other franchised dealers throughout the United States. For
example, because Chevrolet trucks are popular in Amarillo, the Company purchases
trucks from Chevrolet dealers in other cities to supplement its allocation of
trucks from Chevrolet. In managing its used vehicle inventory, the Company
attempts to "mirror the market" by tracking new and used vehicle sales within
its region and maintaining an inventory mix that matches consumer demand.
EMPLOYING PROFIT-BASED MANAGEMENT COMPENSATION. Cross-Country Auto uses a
management compensation system that differentiates it from most other automobile
dealerships. The Company believes that at many other auto dealerships the heads
of each sales department (new vehicles, used vehicles and finance and insurance
("F&I")) are compensated based on the profitability or sales volumes of their
own departments. This method of compensation does not encourage cooperation
among departments and can affect overall profitability of the dealership. At
Cross-Country Auto, each dealership's general manager and sales managers are
trained in F&I analysis and receive bonuses based on the profitability of
overall vehicle sales and related F&I income. The Company believes that this
compensation system promotes teamwork and encourages each management team to
maximize overall profitability.
UTILIZING TECHNOLOGY THROUGHOUT OPERATIONS. The Company believes that it
has achieved a competitive advantage in its markets by integrating
computer-based systems into all aspects of its operations. The Company uses
computer-based technology to monitor each dealership's gross profit, permitting
senior management to gauge each dealership's daily and monthly gross margin
"pace" and to quickly identify areas requiring additional focus. Sales managers
also utilize a computer system to design for each customer an affordable
financing and insurance package that maximizes the Company's total profit on
each transaction. Computer technology is also an integral part of the inventory
management system for new and used vehicles and vehicle parts.
ACHIEVING HIGH LEVELS OF CUSTOMER SATISFACTION. Customer satisfaction and a
dealer's reputation for fairness are key competitive factors and are crucial for
establishing long-term customer loyalty. Cross-Country Auto's sales process is
intended to satisfy customers by providing high-quality vehicles that customers
can afford. A customer's experience with the parts and service departments at
the Company's dealerships can also positively influence overall satisfaction.
The Company strives to train its service managers as professionals, employs
state-of-the-art service equipment, maintains a computer-managed inventory of
replacement parts, and provides clean service and waiting areas to enhance
customers' post-sale experience.
5
<PAGE>
GROWTH STRATEGY
The Company intends to expand its business by acquiring additional
dealerships and seeks to improve their profitability through implementation of
the Company's business strategies. The Company believes that its management team
has considerable experience in evaluating potential acquisition candidates and
determining whether a particular dealership can be successfully integrated into
the Company's existing operations. Based on trends affecting automobile
dealerships, the Company also believes that an increasing number of acquisition
opportunities will become available to the Company.
Although it plans to evaluate acquisition candidates on a case-by-case
basis, the Company intends to make acquisitions primarily in selected cities in
the Western and Southern regions of the United States where there are fewer
dealerships relative to the size of the population than the national average.
Although it may pursue other acquisition opportunities, as part of its strategy
to acquire a leading market share in a given area, the Company intends to focus
its efforts on dealer groups that own multiple franchises in a single city, as
well as on large, single-dealer franchises possessing significant market share.
Other criteria for evaluating potential acquisitions will include a dealership
or dealer group's current profitability, the quality of its management team, its
local reputation with customers and its location along an interstate highway or
principal thoroughfare.
Upon completion of each acquisition, the Company plans to implement its
sales methods and philosophy, computer-supported management system and
profit-based compensation plan in an effort to enhance the acquired dealership's
overall profitability. Cross-Country Auto intends to focus initially on any
underperforming departments within the acquired entity that the Company believes
may yield the most rapid marginal improvements in operating results. The Company
anticipates that it will take two to three years to integrate an acquired
dealership into the Company's operations and realize the full benefit of the
Company's strategies and systems. There can be no assurance, however, that the
profitability of any acquired dealership will equal that achieved to date by the
Company's existing dealerships. See "Risk Factors -- Risks Associated with
Expansion."
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.............. 3,125,000 shares (1)
Common Stock to be outstanding
after the Offering.............. 13,250,000 shares (2)
Use of proceeds................... The net proceeds of the Offering will be used to finance
the Dodge Acquisition and future acquisitions, repay
debt and provide cash for working capital and general
corporate purposes.
New York Stock Exchange symbol.... XCA
</TABLE>
- ------------------------
(1) Does not include up to an aggregate of 468,750 Shares that may be sold by
the Selling Stockholders pursuant to the Underwriters' over-allotment
option. See "Principal Stockholders" and "Underwriters."
(2) Excludes (i) 1,325,000 shares of Common Stock reserved for future issuance
under Cross-Country Auto's stock option plan, including an option to
purchase 6,250 shares of Common Stock that will be granted immediately
before the completion of the Offering with an exercise price equal to the
initial public offering price and (ii) 127,588 shares of Common Stock
issuable upon the exercise of other options that have an exercise price
equal to the initial public offering price. See "Management -- Stock Option
Plan" and "Certain Transactions."
6
<PAGE>
SUMMARY COMBINED FINANCIAL DATA
The following summary historical and pro forma combined financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Combined Financial
Statements of the Company and the related notes and "Pro Forma Combined
Financial Data" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------ ---------------------
PRO
ACTUAL FORMA (1) ACTUAL
----------------------------------------------------- ----------- ---------------------
1991 1992 1993 1994 1995 1995 1995 1996
--------- --------- --------- --------- --------- ----------- --------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................ $ 74,925 $ 125,183 $ 165,364 $ 181,768 $ 236,194 $ 294,722 $ 50,067 $ 71,229
Gross profit.................. 10,839 18,502 25,738 28,322 37,492 45,363 7,618 11,333
Operating income (2).......... 2,355 3,369 5,016 5,683 6,593 11,068(3) 1,219 3,443(3)
Net income.................... 849 956 1,995 2,382 2,195 5,724 322 1,555
Net income per share (4)...... $ 0.43
Weighted average shares
outstanding (4).............. 13,234
<CAPTION>
PRO
FORMA (1)
----------
1996
----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................ $ 71,229
Gross profit.................. 11,333
Operating income (2).......... 3,221(3)
Net income.................... 1,729
Net income per share (4)...... $ 0.13
Weighted average shares
outstanding (4).............. 13,234
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1996
AS OF --------------------
DECEMBER 31, PRO
1995 ACTUAL FORMA
------------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................. $ 536 $ 1,595 $ 46,695
Total assets.................................................................... 83,407 78,539 93,239
Long-term debt.................................................................. 11,859 11,533 11,533
Stockholders' equity............................................................ 7,101 8,656 53,756
</TABLE>
- ------------------------
(1) For information regarding the pro forma adjustments made to the Company's
historical financial data, see "Pro Forma Combined Financial Data."
(2) Operating income is defined as income before income taxes, interest income
and interest expense.
(3) Prior to 1996 the Company paid the Gilliland Group Family Partnership
("GGFP") an annual management fee for executive management services. This
fee was generally based upon profits earned by the Company and the level of
management services rendered by GGFP. As of January 1, 1996 the Company no
longer pays management fees to GGFP. Management fees for the year ended
December 31, 1995, and for the three months ended March 31, 1995
approximated $4.3 million and $0.8 million, respectively. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Certain Transactions" and Note 17 to the Notes to the Combined Financial
Statements.
(4) Historical earnings per share are not presented as the historical capital
structure of the Company prior to the Reorganization (as defined below) and
the Offering is not comparable with the capital structure that will exist
subsequent to these events. Pro forma earnings per share are based upon the
assumption that 13,234,000 shares of Common Stock are outstanding for each
period. This amount represents the total number of Shares to be issued in
the Offering (3,125,000), the number of shares of Common Stock owned by the
Company's stockholders immediately following the Reorganization (9,821,250)
and the number of common stock equivalents (288,125) relating to 303,750
shares of Common Stock to be issued to Mr. Ezra P. Mager for $250,000. See
"Certain Transactions" and Note 15 to the Notes to Combined Financial
Statements.
CROSS-COUNTRY AUTO WAS FORMED IN MAY 1996 AND IN JUNE 1996 ACQUIRED (THE
"REORGANIZATION") ALL OF THE CAPITAL STOCK OF MIDWAY CHEVROLET, INC., PLAINS
CHEVROLET, INC., WESTGATE CHEVROLET, INC., QUALITY NISSAN, INC., PERFORMANCE
NISSAN, INC., PERFORMANCE DODGE, INC., WORKING MAN'S CREDIT PLAN, INC. AND
ALLIED 2000 COLLISION CENTER, INC. ALL OF THESE SUBSIDIARIES WERE CONTROLLED BY
MR. BILL A. GILLILAND PRIOR TO THE REORGANIZATION. MR. GILLILAND WILL REMAIN THE
PRINCIPAL STOCKHOLDER OF CROSS-COUNTRY AUTO IMMEDIATELY FOLLOWING THE OFFERING.
SEE "CERTAIN TRANSACTIONS" AND "PRINCIPAL STOCKHOLDERS."
7
<PAGE>
RISK FACTORS
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER AND EVALUATE ALL OF THE
INFORMATION SET FORTH IN THIS PROSPECTUS, INCLUDING THE RISK FACTORS SET FORTH
BELOW.
COMPETITION
Automobile retailing is a highly competitive business with over 22,000
franchised automobile dealerships in the United States at the beginning of 1996.
The Company's competition includes auto dealers selling the same or similar
makes of new and used vehicles offered by the Company, sometimes at lower prices
than those of the Company. Gross profit margins on sales of new vehicles have
been declining since 1980, and the used car market faces increasing competition
from non-traditional outlets such as used-car "superstores," which use sales
techniques such as one price shopping, and the Internet. Several groups have
recently announced plans to establish nationwide networks of used vehicle
superstores. "No negotiation" sales methods are also being tried for new cars by
at least one of these superstores and by dealers for the Saturn Division of
General Motors Corporation ("General Motors" or "GM"). The increased popularity
of leasing cars also has resulted, as the leases have expired, in a large
increase in the number of late model vehicles available in the market from
sources other than franchised dealers. As the Company seeks to acquire
dealerships in new markets, it may face significant competition (including from
other large dealer groups) as it strives to gain market share. The Company has
the leading position in the Amarillo market, and the Company's gross margins may
decline over time as it expands into markets where it does not have a leading
position. These and other competitive pressures could adversely affect the
Company's results of operations.
DEPENDENCE ON AUTOMAKERS
As a franchised dealer, the Company's success depends upon the popularity
and availability of vehicles it is authorized to sell. For example, light
trucks, in general, and the Chevrolet Suburban and Tahoe models, in particular,
are currently popular with consumers in the Amarillo market, and the Company
typically earns a higher gross profit margin on new trucks than on many new cars
sold by the Company. If consumer preferences for these models change or the
Company is unable to obtain a sufficient supply of these vehicles, the Company's
sales could decline and its results could be adversely affected. Because
approximately 71% of the Company's 1995 gross profit was attributable to the
Company's Chevrolet dealerships, the Company currently is particularly dependent
upon the continued popularity of models offered by Chevrolet and on Chevrolet's
ability to provide it with the appropriate inventory.
Domestic automakers are also vulnerable to strikes and other labor actions
by unions, which could reduce or eliminate the supply of new vehicles for a
period. For example, workers at two of GM's parts plants went on strike for 17
days during March 1996, causing a material drop in GM's first quarter vehicle
production. The current collective bargaining agreements between the United
Automobile Workers Union and each of General Motors and Chrysler Corporation
("Chrysler") are scheduled to expire on September 14, 1996. These automakers may
not be able to negotiate new collective bargaining agreements without
experiencing significant labor stoppages that could limit or interrupt the
production or distribution of these automakers' new vehicles.
MATURE INDUSTRY; CYCLICAL AND LOCAL NATURE OF AUTOMOBILE SALES
The American automobile dealership industry generally is considered a mature
industry in which minimal growth is expected in unit sales of new vehicles. In
many mature local and regional retail markets, sales of new vehicles have
fluctuated in recent years. As a consequence, growth in the Company's revenues
and earnings and the market value of the Common Stock are likely to be
significantly affected by the Company's success in acquiring and integrating
dealerships and the pace and size of such acquisitions. The automobile industry
historically has experienced periodic downturns, characterized by oversupply and
weak demand. Many factors affect the industry, including general economic
conditions and consumer confidence. Future recessions may have a material
adverse effect on the Company's business and the price of the Common Stock.
8
<PAGE>
Local economic, competitive and other conditions also affect the performance
of dealerships. The Texas Panhandle and Oklahoma have been experiencing a severe
drought since October 1995. Although the Company's sales during this period have
not been significantly affected by the drought, a continuation of this weather
condition could have a material adverse effect on the business of the Company.
RISKS ASSOCIATED WITH EXPANSION
The Company's future growth will depend in large part on its ability to
acquire additional dealerships. In pursuing a strategy of acquiring other
dealerships, the Company will face risks commonly encountered with growth
through acquisitions. These risks include incurring significantly higher capital
expenditures and operating expenses, failing to assimilate the operations and
personnel of the acquired dealerships, disrupting the Company's ongoing
business, dissipating the Company's limited management resources, failing to
maintain uniform standards, controls and policies, and impairing relationships
with employees and customers as a result of changes in management. The Company
expects that it will take two to three years to integrate an acquired dealership
into the Company's operations and realize the full benefit of the Company's
strategies and systems. To date the financial performance of the two Oklahoma
City dealerships acquired in 1995 has been below the Company's financial results
in the Amarillo market. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business -- Growth Strategy --
Acquisitions." There can be no assurance that the Company will be successful in
overcoming these risks or any other problems encountered with such acquisitions,
including in connection with its two dealerships acquired in 1995.
Acquiring additional dealerships, as the Company intends, will have a
significant impact on the Company's financial position, and could cause
substantial fluctuations in the Company's quarterly and yearly operating
results. Acquisitions could result in significant goodwill and intangible
assets, which are likely to result in substantial amortization charges to the
Company that would reduce stated earnings.
AVAILABILITY OF ACQUISITION CANDIDATES AND NEED FOR FINANCING
The Company's ability to continue to grow through the acquisition of
additional dealerships will be dependent upon (i) the availability of suitable
candidates, (ii) receiving automaker approval of acquisitions, (iii) the
Company's ability to compete effectively for available dealerships and (iv) the
availability of capital to complete the acquisitions. See "Business -- Growth
Strategy -- Acquisitions."
The Company intends to finance acquisitions with cash on hand (including the
proceeds of the Offering) and through issuances of stock or debt securities.
Using cash to complete acquisitions could substantially limit the Company's
financial flexibility. Using stock to consummate acquisitions may result in
significant dilution of shareholders' interest in the Company. Using debt to
complete acquisitions could result in financial covenants that limit the
Company's operating and financial flexibility. If the Company is unable to
obtain additional capital on acceptable terms, the Company may be required to
reduce the scope of its presently anticipated expansion, which could materially
adversely affect the Company's business and the value of the Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operation -- Liquidity and Capital Resources" and "Business -- Growth Strategy
- -- Acquisitions."
LIMITED MANAGEMENT AND PERSONNEL RESOURCES
The Company's success depends to a significant degree upon the continued
contributions of its management team (particularly its senior management) and
service and sales personnel. In addition, as the Company expands it may need to
hire additional managers. There are no employment agreements with any officers
or employees of the Company, and the Company's employees may voluntarily
terminate their employment with the Company at any time. The market for
qualified employees in the industry and in the regions in which the Company
operates, particularly for general managers, is highly competitive. The loss of
the services of key employees or the inability to attract additional qualified
managers could have a material adverse effect on the Company.
9
<PAGE>
AUTOMAKER CONTROL OVER DEALERSHIPS
Historically, automakers have exercised significant control over dealerships
and have restricted them to specified locations and retained approval rights
over changes in management and ownership. The Company's ability to expand will
depend, in part, on obtaining the consent of automakers to the Company's
acquisitions of new dealerships, including the Dodge Acquisition, which the
Company currently anticipates acquiring with a portion of the net proceeds from
the Offering. While the Company's acquisitions to date have been approved and
the Company has not been materially adversely affected by the other limitations
imposed by automakers, there can be no assurance that the Company will be able
to obtain future necessary approvals on acceptable terms or not be materially
adversely affected by other limitations in the future.
The Company has "Dealer Agreements" with its automakers, which expire in or
about the year 2000. The Company currently believes that, as it has done in
prior years, it will be able to renew all of the Dealer Agreements upon
expiration, but no such assurance can be given.
GOVERNMENTAL REGULATIONS
The Company is subject to a wide range of federal, state and local
regulations, such as local licensing requirements, consumer protection laws and
rules relating to gasoline storage, waste treatment and other environmental
matters. Future acquisitions by the Company may also be subject to regulation,
including antitrust reviews. The Company believes that it substantially complies
with all applicable laws relating to its business, but future regulations may be
more stringent and require the Company to incur significant additional costs.
CONCENTRATION OF VOTING POWER AND ANTI-TAKEOVER PROVISIONS
Following the Offering, through their ownership of approximately 76% of the
outstanding Common Stock (approximately 72% if the Underwriters' over-allotment
option is exercised in full), the current owners of the Company will continue to
control the election of all directors and all other actions submitted to a vote
of the Company's stockholders, including significant corporate actions. Other
stockholders (including purchasers of the Shares), will not have the voting
power to elect directors or make corporate decisions. This concentration of
voting power in current owners may, among other things, have the effect of
delaying or preventing a change in control of the Company.
Other agreements and corporate documents and Delaware law also make it
difficult for a third party to try to unilaterally acquire a significant
ownership position in the Company, including:
(i) The Company's Dealer Agreements with General Motors' Chevrolet
division put the Company at risk of losing its Chevrolet franchises
if any person or entity acquires more than 20% of the Common Stock without
Chevrolet's approval. See "Business -- Vehicle and Parts Suppliers --
Relationships with Automakers."
(ii)Certain provisions of the Company's Certificate of Incorporation and
Bylaws (a) allow the Company to issue preferred stock with rights
senior to those of the Common Stock without any further vote or action by
the stockholders, (b) provide for a classified board of directors with
staggered three-year terms and (c) impose procedural requirements that could
make it more difficult for stockholders of the Company to effect certain
corporate actions. In addition, Section 203 of the Delaware General
Corporation Law restricts certain business combinations with any "interested
stockholder" as defined by such statute. See "Description of Capital Stock
-- Anti-Takeover Effects of Provisions of the Certificate of Incorporation
Bylaws and Delaware Law."
(iii)
Under the Company's Stockholders' Rights Plan, shareholders (other
than certain prospective acquirors) are entitled to purchase Common
Stock at a discount or shares in the prospective acquiror at a discount upon
certain acquisitions of 19.9% or more of the Common Stock or a merger of the
Company or similar transaction. See "Description of Capital Stock --
Stockholders' Rights Plan."
(iv)Under the Company's Stock Option Plan, options outstanding thereunder
become immediately exercisable upon a "change in control" or certain
mergers or reorganizations of Cross-Country Auto. See "Management -- Stock
Option Plan."
10
<PAGE>
NO PRIOR PUBLIC MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common Stock
and there can be no assurance that an active public market for the Common Stock
will develop or continue after the Offering. The initial public offering price
of the Common Stock will be determined by negotiations among the Company and
representatives of the Underwriters. Because the Company will be one of the
first public companies dedicated to the retail auto dealership business, these
representatives will not be able to use the market prices of other companies in
the same industry as a benchmark in setting the initial public offering price.
See "Underwriters" for a discussion of the factors considered in determining the
initial public offering price. Quarterly and annual operating results of the
Company, variations between such results and the results expected by investors
and analysts, changes in local or general economic conditions or developments
affecting the automobile industry, the Company or its competitors could cause
the market price of the Common Stock to fluctuate substantially. As a result of
these factors, as well as other factors common to initial public offerings, the
market price could fluctuate substantially from the offering price.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered hereby are estimated to be approximately $45.1 million, assuming an
initial public offering price of $16.00 per share. The Company intends to apply
$13.5 million of the net proceeds to complete the Dodge Acquisition. The Company
also may apply a portion of the net proceeds to the purchase of some or all of
the used vehicle inventory associated with the Dodge Acquisition at a price to
be agreed. Although the Dodge Acquisition is contingent on receiving approval
from the Dodge division of Chrysler, the Company expects to complete the
acquisition by September 1996. See "Business -- Growth Strategy --
Acquisitions." Prior to the Dodge Acquisition, the Company intends to invest the
proceeds to be used for that acquisition in a short-term, interest-bearing
account.
The Company also intends to apply approximately $25 million of the net
proceeds to repay a majority of its vehicle financing indebtedness owed to
General Motors Acceptance Corporation ("GMAC"). Such indebtedness accrues
interest currently at an annual rate equal to 8.0%. At May 31, 1996, this debt
totaled $33.7 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The Company intends to use the remaining expected net proceeds of $6.6
million for working capital and other general corporate purposes, including
future acquisitions.
The Company will not receive any of the proceeds from any sale of Shares
pursuant to exercise of the Underwriters' over-allotment option.
DIVIDEND POLICY
The Company does not intend to pay cash dividends to holders of Common Stock
for the foreseeable future. Instead, the Company intends to apply earnings, if
any, to finance the growth of Cross-Country Auto. Any future determination to
pay cash dividends on Common Stock will be at the discretion of the Board of
Directors, will be subject to certain limitations under the General Corporation
Law of the State of Delaware and will be dependent upon the Company's financial
condition, results of operations, capital requirements and such other factors as
the Board of Directors deems relevant, including any restrictions contained in
any future debt facilities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
11
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
debt and total capitalization of the Company at March 31, 1996 (i) without
giving effect to the Reorganization or the Offering and (ii) on a pro forma
basis, adjusted to reflect the Reorganization and the Offering (at an assumed
initial public offering price of $16.00 per share) and the application of the
estimated net proceeds to be received by the Company. This table should be read
in conjunction with the Combined Financial Statements and related notes and "Pro
Forma Combined Financial Data" appearing elsewhere in this Prospectus. See also
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Certain Transactions."
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------------
ACTUAL PRO FORMA (1)
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................................... $ 10,326 $ 25,026(2)
--------- -------------
--------- -------------
Short-term debt:
Floorplan debt........................................................................ $ 33,345 $ 8,345(2)
Due to affiliates..................................................................... 5,881 481(2)
Current maturities of long-term debt.................................................. 1,470 1,470
--------- -------------
Total short-term debt............................................................. $ 40,696 $ 10,296
--------- -------------
--------- -------------
Long-term debt, excluding current maturities............................................ $ 11,533 $ 11,533
--------- -------------
Stockholders' equity:
Preferred Stock, $.01 par value, 10,000,000 shares authorized;
no shares issued and outstanding..................................................... -- --
Common Stock, $.01 par value, 100,000,000 shares authorized;
no shares issued and outstanding, actual;
12,946,250 shares issued and outstanding, as adjusted (3)............................ -- 129(1)
Paid-in capital....................................................................... 1,064 46,035(1)
Retained earnings..................................................................... 7,592 7,592
--------- -------------
Total stockholders' equity........................................................ 8,656 53,756
--------- -------------
Total capitalization............................................................ $ 20,189 $ 65,289
--------- -------------
--------- -------------
</TABLE>
- ------------------------------
(1) Excludes the issuance of 303,750 shares of Common Stock for $250,000 to
Ezra P. Mager, the Company's Vice Chairman, pursuant to an agreement dated
April 1, 1996. See "Certain Transactions" and Note 15 to the Notes to
Combined Financial Statements.
(2) Approximately $25.0 million of the net proceeds of the Offering will be
used to reduce floorplan debt and the remainder of the estimated net
proceeds, approximately $20.1 million, will be invested in an account (the
"GMAC Deposit Account") with GMAC and in other cash equivalents. The
reduction in due to affiliates represents the remittance of funds that have
been advanced to the Company to invest in the GMAC Deposit Account. See
"Certain Transactions" and "Use of Proceeds." The pro forma capitalization
table as of March 31, 1996 does not reflect the expected application of
proceeds in connection with the Dodge Acquisition.
(3) If the over-allotment option is exercised, the number of issued and
outstanding shares of Common Stock will not increase; only shares of Common
Stock owned by the Selling Stockholders are subject to such option. See
"Use of Proceeds" and "Principal Stockholders." Excludes (i) 1,325,000
shares of Common Stock reserved for future issuance under Cross-Country
Auto's stock option plan, including an option to purchase 6,250 shares of
Common Stock that will be granted immediately before the completion of the
Offering with an exercise price equal to the initial public offering price
and (ii) 127,588 shares of Common Stock issuable upon the exercise of other
options which have an exercise price equal to the initial public offering
price. See "Management -- Stock Option Plan" and "Certain Transactions."
12
<PAGE>
DILUTION
The net tangible book value of the Company at March 31, 1996 (assuming the
Reorganization had been completed at that date) was $1,275,000, or $0.13 per
share of Common Stock. Net tangible book value per share represents the amount
of the Company's net tangible assets less total liabilities divided by the
number of shares of Common Stock outstanding at that date. After giving effect
to the Offering (based upon an assumed initial public offering price of $16.00
per share and after deducting estimated offering expenses payable by the
Company), the Company's pro forma net tangible book value at March 31, 1996
would have been $46,375,000 or $3.58 per share. This represents an immediate
increase in the net tangible book value of
$3.45 per share to existing stockholders and an immediate dilution of $12.42 per
share to new investors purchasing Shares in the Offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $16.00
Net tangible book value per share before the Offering.............. $ 0.13
Increase per share attributable to new investors................... $ 3.45
Pro forma net tangible book value per share after the Offering....... $ 3.58
---------
Dilution per share to new investors(1)............................... $12.42
---------
---------
</TABLE>
- ------------------------------
(1) Dilution is determined by subtracting the net tangible book value per share
of Common Stock after the Offering from the public offering price per
share.
The following table summarizes, on a pro forma basis as of March 31, 1996
(assuming the Reorganization had been completed at that date), the differences
between the number of shares of Common Stock purchased from Cross-Country Auto,
the total consideration paid and the average price per share paid by the
existing stockholders and by the investors purchasing in this Offering at an
assumed initial public offering price of $16.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------------- ----------------------------- AVERAGE PRICE
NUMBER (1) PERCENT AMOUNT PERCENT PER SHARE
--------------- ----------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders..................... 9,821,250(2) 75.9% $ 8,656,000(3) 14.8% $ 0.88
New Investors............................. 3,125,000 24.1 50,000,000 85.2 16.00
--------------- ----- ---------------- -----
Total................................... 12,946,250 100.0% $ 58,656,000 100.0%
--------------- ----- ---------------- -----
--------------- ----- ---------------- -----
</TABLE>
- ------------------------------
(1) Excludes shares to be issued to Mr. Mager pursuant to an agreement dated
April 1, 1996. See "Certain Transactions" and Note 15 to the Notes to
Combined Financial Statements.
(2) Excludes 133,838 shares of Common Stock that may be issued upon the
exercise at the initial public offering price of options to be granted
immediately prior to completion of the Offering.
(3) Net book value at March 31, 1996.
13
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The selected combined statement of operations and balance sheet data for the
three years in the period ended December 31, 1995 are derived from the Company's
audited financial statements. The selected combined statement of operations and
balance sheet data for the two years in the period ended December 31, 1992 are
based on the Company's unaudited financial statements. The selected combined
results of operations data for the three months ended March 31, 1995 and 1996
and the balance sheet data at March 31, 1996 are derived from the unaudited
financial statements of the Company and, in the opinion of management, reflect
all adjustments necessary for a fair presentation of its results of operations
and financial condition. All such adjustments are of a normal recurring nature.
The results of operations for an interim period are not necessarily indicative
of results that may be expected for a full year or any other interim period.
This selected combined financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Combined Financial Statements and related notes included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- ----------------------
1991 1992 1993 1994 1995(1) 1995(2) 1996
--------- --------- --------- --------- --------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Revenues:
Vehicle sales......................... $ 66,289 $ 113,072 $ 150,205 $ 163,721 $ 212,984 $ 45,077 $ 64,009
Other operating revenues.............. 8,636 12,111 15,159 18,047 23,210 4,990 7,220
--------- --------- --------- --------- --------- ----------- ---------
Total revenues.................. 74,925 125,183 165,364 181,768 236,194 50,067 71,229
Cost of sales........................... 64,086 106,681 139,626 153,446 198,702 42,449 59,896
--------- --------- --------- --------- --------- ----------- ---------
Gross profit............................ 10,839 18,502 25,738 28,322 37,492 7,618 11,333
Selling, general and administrative..... 7,278 12,813 17,194 18,522 25,630 5,377 7,537
Depreciation and amortization........... 408 731 992 934 951 224 353
Management fees (3)..................... 798 1,589 2,536 3,183 4,318 798 --
--------- --------- --------- --------- --------- ----------- ---------
Operating income........................ 2,355 3,369 5,016 5,683 6,593 1,219 3,443
Interest expense, net................... 1,008 1,852 1,848 1,950 3,088 704 975
--------- --------- --------- --------- --------- ----------- ---------
Income before income taxes.............. 1,347 1,517 3,168 3,733 3,505 515 2,468
Income tax expense...................... 498 561 1,173 1,351 1,310 193 913
--------- --------- --------- --------- --------- ----------- ---------
Net income (4).......................... $ 849 $ 956 $ 1,995 $ 2,382 $ 2,195 $ 322 $ 1,555
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------- AS OF
1991 1992 1993 1994 1995 MARCH 31, 1996
--------- --------- --------- --------- --------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Working capital.......................... $ 1,274 $ 8 $ 135 $ 50 $ 536 $ 1,595
Total assets............................. 33,693 38,191 43,513 47,579 83,407 78,539
Long-term debt........................... 7,391 9,034 7,887 7,150 11,859 11,533
Total liabilities........................ 34,119 37,661 40,774 42,538 76,306 69,883
Stockholders' equity..................... (426) 530 2,739 5,041 7,101 8,656
</TABLE>
- ------------------------------
(1) The results for the year ended December 31, 1995 include the results of
Performance Nissan, Inc. from the date of acquisition, February 2, 1995,
and the results of Performance Dodge, Inc. from the date of acquisition,
December 4, 1995.
(2) The results for the three months ended March 31, 1995 include the results
of Performance Nissan, Inc. from the date of acquisition, February 2, 1995.
(3) As of January 1, 1996, the Company no longer pays management fees to GGFP.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview" and "Pro Forma Combined Financial Data."
(4) Historical earnings per share are not presented, as the historical capital
structure of the Company prior to the Offering is not comparable with the
capital structure that will exist subsequent to the Offering.
14
<PAGE>
PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined statements of operations for the
year ended December 31, 1995 and for the three months ended March 31, 1996
reflect the historical accounts of the Company for those periods adjusted to
give pro forma effect to the December 1995 acquisition of Performance Dodge,
Inc. (formerly Jim Glover Dodge, Inc.), the Reorganization and the Offering, as
if these transactions had occurred at the beginning of each period presented.
The following unaudited pro forma combined balance sheet as of March 31,
1996 reflects the historical accounts of the Company as of that date adjusted to
give pro forma effect to the Reorganization and the Offering as if they had
occurred as of March 31, 1996.
The pro forma combined financial data and accompanying notes should be read
in conjunction with the Combined Financial Statements and the related notes
included elsewhere in this Prospectus. The Company believes that the assumptions
used in the following statements provide a reasonable basis on which to present
the pro forma financial data. The pro forma combined financial data is provided
for informational purposes only and should not be construed to be indicative of
the Company's financial condition or results of operations had the transactions
and events described above been consummated on the dates assumed and are not
intended to project the Company's financial condition on any future date or
results of operations for any future period.
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------------
ACTUAL PRO FORMA
ACTUAL PERFORMANCE PRO FORMA FOR PRO FORMA
COMPANY (1) DODGE (1) ADJUSTMENTS ACQUISITION ADJUSTMENTS (3) PRO FORMA
------------ ----------- ------------- ----------- --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Vehicle sales.......... $ 212,984 $ 55,498 $ (4,856)(2) $ 263,626 -- $ 263,626
Other operating
revenues.............. 23,210 8,419 (533)(2) 31,096 -- 31,096
------------ ----------- ------------- ----------- ------- ---------------
Total revenues....... 236,194 63,917 (5,389) 294,722 -- 294,722
Cost of sales............ 198,702 55,370 (4,713)(2) 249,359 -- 249,359
------------ ----------- ------------- ----------- ------- ---------------
Gross profit 37,492 8,547 (676) 45,363 -- 45,363
Selling, general and
administrative.......... 25,630 7,244 (510)(2) 32,364 889 (4) 33,253 (5)
Depreciation and
amortization............ 951 24 67 (6) 1,042 -- 1,042
Management fees.......... 4,318 -- -- 4,318 (4,318)(7) --
------------ ----------- ------------- ----------- ------- ---------------
Operating income......... 6,593 1,279 (233) 7,639 3,429 11,068
Interest expense, net.... (3,088) (367) (479)(6) (3,934) 2,000 (4) (1,934)
------------ ----------- ------------- ----------- ------- ---------------
Income before income
taxes................... 3,505 912 (712) 3,705 5,429 9,134
Income tax expense....... 1,310 -- 75 (8) 1,385 2,025 (10) 3,410
------------ ----------- ------------- ----------- ------- ---------------
Net income............... $ 2,195 $ 912 $ (787) $ 2,320 $ 3,404 $ 5,724
------------ ----------- ------------- ----------- ------- ---------------
------------ ----------- ------------- ----------- ------- ---------------
Net income per share..... $ 0.43(9)
Weighted average shares
outstanding............. 13,234(9)
</TABLE>
15
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
-------------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS (3) PRO FORMA
--------- ----------------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenues:
Vehicle sales........................................................ $ 64,009 -- $ 64,009
Other operating revenues............................................. 7,220 -- 7,220
--------- ------ -------------
Total revenues................................................... 71,229 -- 71,229
Cost of sales.......................................................... 59,896 -- 59,896
Gross profit........................................................... 11,333 -- 11,333
Selling, general and administrative.................................... 7,537 222(4) 7,759(5)
Depreciation and amortization.......................................... 353 -- 353
Management fees........................................................ -- -- --
--------- ------ -------------
Operating income....................................................... 3,443 (222) 3,221
Interest expense, net.................................................. (975) 500(4) (475)
--------- ------ -------------
Income before income taxes............................................. 2,468 278 2,746
Income tax expense..................................................... 913 104 (10) 1,017
--------- ------ -------------
Net income............................................................. $ 1,555 $ 174 $ 1,729
--------- ------ -------------
--------- ------ -------------
Net income per share................................................... $ 0.13(9)
Weighted average shares outstanding.................................... 13,234(9)
</TABLE>
- --------------------------
(1) Actual results of operations reflect the results of operations of the
Company for the year ended December 31, 1995 and actual results for
Performance Dodge, Inc. (formerly Jim Glover Dodge, Inc.), for the fiscal
year ended November 30, 1995.
(2) Entry reverses the one month of sales and expenses (December 1994) of
Performance Dodge, Inc. recorded in its statement of operations for the year
ended November 30, 1995.
(3) The Company will use the proceeds from the Offering primarily to acquire
other dealerships in the future. Until these proceeds are used to acquire
other dealerships, including the Dodge Acquisition, the Company intends to
invest the remaining proceeds of approximately $20.1 million in the GMAC
Deposit Account, which currently pays interest at an annual rate of 8.0%,
and in other cash equivalents. See "Use of Proceeds." The pro forma
financial information above does not reflect any interest income related to
the investment of proceeds in the GMAC Deposit Account or other cash
equivalents.
(4) Reflects the Company's estimate of the net additions to selling, general and
administrative expenses and reductions in interest expense which would have
occurred if the Offering had been effected as of the beginning of each
period and consists of (a) a net increase in management compensation
pursuant to new compensation arrangements to be in place subsequent to the
Offering, (b) an increase in administrative expenses associated with public
ownership of the Company's Common Stock and (c) a reduction in interest
expense reflecting estimated proceeds used to pay down floorplan debt. See
"Use of Proceeds." The reduction in interest expense was calculated based on
an average reduction in floorplan debt of $25.0 million at the actual
interest rate in effect during each respective period.
(5) The pro forma combined statement of operations for the year ended December
31, 1995 and the first quarter ended March 31, 1996 exclude compensation
expense that the Company expects to recognize in the second quarter of 1996
related to the issuance of 303,750 shares of Common Stock to Mr. Mager
pursuant to an agreement dated April 1, 1996. The amount of compensation
expense that will be recognized in the quarter ending June 30, 1996 will be
equal to the difference between the fair value of the Common Stock issued to
Mr. Mager and the cash consideration to be paid of $250,000. The Company has
engaged an independent third party appraisal expert to estimate the fair
value of the stock as of the date of Mr. Mager's agreement to purchase the
shares. The Company expects that the charge will have a material non-cash
impact on its results of operations for the quarter ending June 30, 1996 and
for the year ending December 31, 1996. The pro forma combined balance sheet
at March 31, 1996 also excludes the increase in equity that would result
from the issuance of Common Stock to Mr. Mager pursuant to this agreement.
(6) Reflects additional interest expense, depreciation and amortization of
goodwill as if Performance Dodge, Inc. had been acquired as of the beginning
of the period.
(7) Reflects elimination of the management fees as discussed under "Certain
Transactions" and Note 17 to the Notes to Combined Financial Statements. See
footnote (4) above for increase in selling, general and administrative
expenses for executive compensation paid to these individuals.
(8) Reflects the income tax effect of the adjustments described in footnotes (2)
and (6) above and Performance Dodge, Inc. for its fiscal year ended November
30, 1995 as if it were a taxable entity, using the Company's incremental tax
rate of approximately 37%.
(9) Pro forma earnings per share are based upon the assumption that 13,234,375
shares of Common Stock are outstanding for each period. This amount
represents the Shares to be issued in the Offering (3,125,000), the number
of shares of Common Stock owned by the Company's stockholders immediately
following the Reorganization (9,821,250) and the number of common stock
equivalents (288,125) relating to 303,750 shares of Common Stock to be
issued to Mr. Mager for $250,000. See "Certain Transactions" and Note 15 to
the Notes to Combined Financial Statements.
(10)Reflects the estimated income tax effect of the adjustments described in
footnotes (4) and (7) above, using the Company's incremental tax rate of
approximately 37%.
16
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
---------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA (1)
--------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................. $ 10,326 $ 14,700(3) $ 25,026
Accounts receivable................................................... 10,297 -- 10,297
Inventories........................................................... 36,092 -- 36,092
--------- ------------- -------------
Total current assets.............................................. 56,715 14,700 71,415
--------- ------------- -------------
Net property, plant and equipment..................................... 12,175 -- 12,175
Goodwill, net, and other assets....................................... 9,649 -- 9,649
--------- ------------- -------------
Total assets...................................................... $ 78,539 $ 14,700 $ 93,239
--------- ------------- -------------
--------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Currrent Liabilities:
Floorplan debt........................................................ $ 33,345 $ (25,000 (3) $ 8,345
Current maturities of long-term debt.................................. 1,470 -- 1,470
Accounts payable...................................................... 4,631 -- 4,631
Due to affiliates..................................................... 5,881 (5,400 (3) 481
Accrued expenses and other liabilities................................ 7,761 -- 7,761
Deferred income taxes................................................. 2,032 -- 2,032
--------- ------------- -------------
Total current liabilities......................................... 55,120 (30,400) 24,720
--------- ------------- -------------
Long-term Liabilities:
Long-term debt, excluding current maturities.......................... 11,533 -- 11,533
Deferred warranty revenue -- long-term portion........................ 3,230 -- 3,230
--------- ------------- -------------
Total long-term liabilities....................................... 14,763 -- 14,763
--------- ------------- -------------
Stockholders' Equity:
Preferred Stock, $.01 par value, 10,000,000 shares authorized, no
shares issued and outstanding........................................ -- -- --
Common Stock, $.01 par value; 100,000,000 shares authorized, no shares
issued and outstanding, actual; 12,946,250 shares issued and
outstanding, as adjusted(1).......................................... -- 129(2) 129
Paid-in capital....................................................... 1,064 44,971(2) 46,035
Retained earnings..................................................... 7,592 -- 7,592
--------- ------------- -------------
Total stockholders' equity........................................ 8,656 45,100 53,756
--------- ------------- -------------
Total liabilities and stockholders' equity...................... $ 78,539 $ 14,700 $ 93,239
--------- ------------- -------------
--------- ------------- -------------
</TABLE>
- --------------------------
(1) The Company will not receive the proceeds of the sale, if any, of the
over-allotment Shares. Such amount will be remitted to the Selling
Stockholders. As a result, there is no increase in stockholders' equity or
to the number of shares issued and outstanding.
(2) Reflects the issuance of 9,821,250 shares of Common Stock issued to effect
the Reorganization and the issuance of 3,125,000 shares of Common Stock at
an assumed initial public offering price of $16.00 per share, net of
estimated offering expenses of $4.9 million. Excludes the purchase of
303,750 shares of Common Stock by Mr. Mager for $250,000 pursuant to an
agreement dated April 1, 1996. The Company has engaged an independent third
party valuation expert to value the stock as of the date of the agreement.
The fair value of the stock purchased by Mr. Mager will increase
stockholder's equity and the difference between the cash consideration of
$250,000 and the fair value of the stock will be recognized as a non-cash
compensation expense in the quarter ended June 30, 1996.
(3) Reflects the application of the estimated net proceeds of the Offering.
Approximately $25 million will be used to reduce floorplan debt and the
remainder of the estimated net proceeds, approximately $20.1 million, will
be invested in the GMAC Deposit Account and cash equivalents. The reduction
in due to affiliates represents the remittance of funds that have been
advanced to the Company to invest in the GMAC Deposit Account. See "Certain
Transactions" and "Use of Proceeds." The pro forma balance sheet as of March
31, 1996 does not reflect the application of net proceeds that is expected
to be used for the Dodge Acquisition.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
COMBINED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE
IN THIS PROSPECTUS.
OVERVIEW
The Company owns and operates six franchised automobile dealerships in the
Amarillo and Oklahoma City markets and has grown primarily through dealership
acquisitions since the founders of the Company acquired their first dealership
in 1982. Given the relatively stable demand for new and used vehicles in the
United States generally, and in the markets served by its dealerships in
particular, the Company expects that future growth will be primarily derived
from acquisitions of additional dealerships. Based on management's experience in
acquiring and integrating dealerships, the Company believes that it takes two to
three years to integrate an acquired dealership into the Company's operations
and realize the full benefit of the Company's strategies and systems.
Significant management attention, capital investment and an increase in
operating expenses are typically required for acquisitions, particularly in the
first year after the acquisition. The Company anticipates that general and
administrative expenses may increase in the future as the Company continues its
expansion by acquiring other dealerships.
The Company generates its revenues from sales of new and used vehicles, fees
for repair and maintenance services, sales of replacement parts, sales of
extended warranties on vehicles, and fees and commissions from arranging
financing and credit insurance in connection with vehicle sales. While sales of
new vehicles are sensitive to general economic conditions, the Company believes
that its used car sales and parts and service operations are less affected and
help to mitigate, in part, the effects of general economic downturns. The
Company also believes that its strong market share in the Amarillo market has
contributed to its revenues and profitability. In 1995 the Company derived
approximately 71% of its gross profit from its three Chevrolet dealerships in
Amarillo. The Company does not have as large a market share in Oklahoma City and
there can be no assurance that it will be able to obtain such a position in any
other market that it may enter.
New vehicle revenues include sales of new vehicles and revenue attributable
to vehicle leases arranged by the Company ($114.5 million in the aggregate in
1995). Sales or trades of new vehicles to other franchised dealers are not
included in Company revenues but result in an adjustment to inventory and
flooring debt. Used vehicle revenues include amounts received for used vehicles
sold to retail customers, other dealers and wholesalers ($98.5 million in the
aggregate in 1995). Other operating revenues include parts and service revenues,
fees and commissions for F&I transactions and sales of the Company's extended
warranties for vehicles. The Company recognizes revenue attributable to sales of
its warranties over the term of the warranties for accounting purposes, although
it receives payment in full at the time of sale. In contrast, when the Company
sells warranties of third party vendors, as it does in the Oklahoma City market
and is likely to do in new markets it may enter, the Company receives and, for
accounting purposes, immediately recognizes a commission at the time of sale. In
connection with vehicle financing contracts, the Company receives a fee (a
"finance fee") from the lender for originating the loan but is assessed a charge
(a "chargeback") by the lender if the contract terminates before its scheduled
maturity, which can result from early repayment because of refinancing the loan,
selling or trading in the vehicle or default on the loan. The amount of the
chargeback depends on how long the related loan was outstanding. As a result,
the Company establishes a reserve based on its historical chargeback experience.
At each of its dealerships, the Company's management focuses on maximizing
profitability in each area of operations rather than on volumes of vehicle
sales. The key factors affecting the Company's profitability are costs of sales
and selling, general and administrative expenses. The average gross margins
obtained by franchised vehicle dealers in the United States on sales of new
vehicles have declined from over 7.0% in 1991 to 6.5% in 1995. Although the
Company's gross margins on new vehicle sales have also declined, they have
consistently been higher than the industry average. The Company's gross margin
on sales of used vehicles is
18
<PAGE>
currently higher than its margin on new vehicles; however, with increasing
numbers of vehicles coming off relatively short term leases, the supply of late
model used vehicles has been increasing and the Company's gross margin on sales
of used cars has declined in recent years. See "Risk Factors -- Competition."
The Company's cost of sales and profitability are also affected by the
allocations of new vehicles which its dealerships receive from automakers. When
the Company does not receive allocations of new vehicle models adequate to meet
customer demand, it purchases additional vehicles from other dealers at a
premium to the manufacturer's invoice, reducing the gross margin realized on the
sales of such vehicles. In addition, the Company follows a disciplined approach
in selling vehicles to other dealers and wholesalers when the vehicles have been
in the Company's inventory longer than the guidelines set by the Company. Such
sales are frequently at or below cost and, therefore, affect the Company's
overall gross margin on vehicle sales. The Company's salary expense, employee
benefits costs and advertising expenses comprise the majority of its selling,
general and administrative ("SG&A") expenses. The Company's interest expense
fluctuates based primarily on the level of the inventory of vehicles held at its
dealerships, substantially all of which is financed (such financing being called
"floorplan financing" or "flooring").
As a privately held company, Cross-County Auto historically reimbursed the
Gilliland Group Family Partnership ("GGFP") for costs incurred by GGFP on behalf
of the Company, including the Company's proportionate share of GGFP's
administrative, clerical and other corporate overhead costs. In addition, the
Company paid GGFP a fee for management services generally based on the Company's
profits and the level of management services rendered. The Company's financial
statements included in this Prospectus reflect allocated costs and expenses
attributable to administrative, clerical and corporate assistance provided by
GGFP as selling, general and administrative expenses. That portion of the fee
paid to GGFP that represented a share of the overall profitability of the
Company has been reflected in the financial statements as management fees. As of
January 1, 1996, Cross-Country Auto began providing the administrative and
corporate oversight previously provided by GGFP and discontinued its practice of
paying management fees to GGFP. See "Management."
The Company has accounted for the purchase of each of its dealerships on a
purchase basis and, as a result, does not include in its financial statements
the results of operations of these dealerships prior to the date they were
acquired by the Company. The combined financial statements of the Company
reflect the results of operations, financial position and cash flows of each of
the Company's dealerships. The financial information included in this Prospectus
may not necessarily reflect the results of operations, financial position and
cash flows of the Company in the future or what the results of operations,
financial position and cash flows would have been had the Reorganization and
Offering occurred during the periods presented in the financial statements.
19
<PAGE>
RESULTS OF OPERATIONS
The following table summarizes, for the periods presented, the percentages
of total revenues represented by certain items reflected in the Company's
statement of operations.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
---------------------------------------------------------------
THREE MONTHS ENDED MARCH
YEAR ENDED DECEMBER 31, 31,
------------------------------------- ------------------------
1993 1994 1995(1) 1995(2) 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales......................................... 55.0% 50.0% 48.5% 47.6% 48.7%
Used vehicle sales........................................ 35.8 40.1 41.7 42.4 41.2
Other operating revenues (3).............................. 9.2 9.9 9.8 10.0 10.1
----- ----- ----- ----- -----
Total revenues........................................ 100.0 100.0 100.0 100.0 100.0
Cost of sales............................................... 84.5 84.4 84.1 84.8 84.1
----- ----- ----- ----- -----
Gross profit................................................ 15.5 15.6 15.9 15.2 15.9
Selling, general and administrative....................... 10.4 10.2 10.9 10.7 10.6
Depreciation and amortization............................. 0.6 0.5 0.4 0.5 0.5
Management fees (4)....................................... 1.5 1.8 1.8 1.6 --
----- ----- ----- ----- -----
Operating income............................................ 3.0 3.1 2.8 2.4 4.8
Interest expense, net....................................... (1.1) (1.1) (1.3) (1.4) (1.3)
----- ----- ----- ----- -----
Income before income taxes.................................. 1.9 2.0 1.5 1.0 3.5
Income tax expense.......................................... 0.7 0.7 0.6 0.4 1.3
----- ----- ----- ----- -----
Net income.................................................. 1.2% 1.3% 0.9% 0.6% 2.2%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
- --------------------------
(1) The results for the year ended December 31, 1995 include the results of
Performance Nissan, Inc. from the date of acquisition, February 2, 1995 and
the results of Performance Dodge, Inc. from the date of acquisition,
December 4, 1995.
(2) The results for the three months ended March 31, 1995 include the results of
Performance Nissan, Inc. from the date of acquisition, February 2, 1995.
(3) Reflects primarily parts and service sales and F&I-related revenue.
(4) Management fees reflect certain payments made to GGFP prior to 1996, which
payments have been discontinued in anticipation of the Offering.
FIRST QUARTER 1996 VERSUS FIRST QUARTER 1995
REVENUES
Revenues grew in each of the Company's primary revenue areas for the first
quarter of 1996 as compared with the first quarter of 1995, causing total sales
to increase 42.3% to $71.2 million. New vehicle sales revenue increased 45.4% in
the first quarter of 1996 to $34.6 million, compared with $23.8 million in the
first quarter of 1995. Approximately 81.4% of this increase was attributable to
the Company's dealerships in Oklahoma City, sales of which were included for a
full quarter in 1996 while only one of the Company's Oklahoma City dealerships
was included for a portion of the first quarter of 1995. The remainder of the
increase was primarily due to a net increase of 9.1% in new vehicle sales in the
Company's Amarillo dealerships, which was primarily attributable to an increase
of approximately 6% in the average selling price resulting from changes in
vehicle mix.
Used vehicle sales increased by 38.7% in the first quarter of 1996 to $29.4
million, compared with $21.2 million in the first quarter of 1995. The inclusion
of the Company's Oklahoma City dealerships in the Company's results for the 1996
quarter accounted for 56.3% of this increase. The remainder of the increase was
largely attributable to an increase in sales of used vehicles to wholesalers and
other dealers in accordance with the Company's inventory management guidelines.
An improvement in the mix of used vehicles purchased by retail customers also
resulted in higher unit prices and contributed to the overall increase in used
vehicle sales.
20
<PAGE>
The Company's other operating revenue increased 44.0% to $7.2 million in the
first quarter of 1996 from $5.0 million in the first quarter of 1995 largely
because of inclusion of the parts and service sales and F&I sales by the
Company's Oklahoma City dealerships, which accounted for 86.4% of the increase.
The remaining increase was primarily attributable to increased volume of vehicle
sales by the Company's Amarillo dealerships and increased F&I revenue per
vehicle sold.
GROSS PROFIT
Gross profit increased 48.7% in the first quarter of 1996 to $11.3 million,
compared with $7.6 million for the first quarter of 1995 primarily because of
the addition of sales from the Company's Oklahoma City dealerships in the 1996
period. Gross profit as a percentage of sales increased to 15.9% in the first
quarter of 1996 from 15.2% in the first quarter of 1995. The increase in gross
margin was caused principally by enhanced margins for new vehicle sales, parts
and service and F&I, partially offset by a slight decline in gross margins on
used vehicle sales because of increased sales to other dealers and wholesalers.
The increase in gross margin on new vehicles was primarily attributable to
the Company's Oklahoma City dealerships, which earned a higher gross margin on
new vehicle sales than the Company's Amarillo dealerships. The Company
attributes the higher gross margin in Oklahoma City in large part to a one-time
allocation of a favorable new vehicle supply from the manufacturers subsequent
to the acquisition of the Oklahoma City dealerships.
Used vehicle gross margins decreased slightly while total gross profit on
used vehicle sales increased in the first quarter of 1996 from the first quarter
of 1995. The increase in gross profit was primarily attributable to the
inclusion of the Oklahoma City dealerships. The reduction in margin on used
vehicles was largely because of a greater volume of sales of used vehicles to
other dealers and wholesalers (which sales are frequently at or slightly below
cost) to avoid carrying charges associated with used vehicle inventory. In the
first quarter of 1996, approximately 28% of the Company's used vehicle sales
were to other dealers and wholesalers as compared to approximately 23% in the
first quarter of 1995.
The increase in the Company's overall gross profit on other operating
revenue was primarily due to an increase in the gross profit on parts and
service sales from the addition of the Company's Oklahoma City dealerships.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES; MANAGEMENT FEES
The Company's selling, general and administrative expenses increased to $7.5
million in the first quarter of 1996 compared to $5.4 million in the first
quarter of 1995, and declined as a percentage of revenue to 10.6% from 10.7%.
The Oklahoma City dealerships' SG&A expenses were higher as a percentage of
their total revenues compared with the Company's Amarillo dealerships. This was
due to certain expenses incurred by the Oklahoma City dealerships in integrating
the Company's systems into their operations and implementing the Company's
strategies. In addition, in anticipation of the implementation of the Company's
Stock Option Plan, the Company's management instituted a bonus system for its
dealership general managers in the first quarter of 1996, which lowered the cash
bonus earned in the first quarter compared with the first quarter of 1995.
As of January 1, 1996, the Company ceased paying management fees to GGFP.
See Notes 4 and 7 to the Pro Forma Combined Financial Data and Note 17 to the
Combined Financial Statements.
The Company anticipates a non-cash charge to earnings in the second quarter
ending June 30, 1996 representing the difference between the purchase price and
the fair market value of the 303,750 shares of Common Stock issued to Mr. Mager.
The Company expects this charge to have a material non-cash effect on its second
quarter earnings. See "Certain Transactions" and Note 15 to the Notes to
Combined Financial Statements.
INTEREST EXPENSE
The Company's interest expense increased 34.4% to $1.2 million for the first
quarter of 1996 compared to $893,000 for the corresponding quarter of 1995. The
increase was due to interest expense associated with
21
<PAGE>
the acquisitions of the Oklahoma City dealerships and related inventories, which
were financed primarily with debt. This increase was partially offset by a
reduction in the Company's interest expense at its Amarillo dealerships caused
by lower levels of floorplan financing due to fewer vehicles held in inventory
during the first quarter of 1996 compared with the first quarter of 1995.
NET INCOME
As a result of the factors noted above, the Company's net income increased
by 396.9% to $1.6 million in the first quarter of 1996 compared to $322,000 in
the first quarter of 1995.
1995 VERSUS 1994
REVENUES
The Company's total revenue increased 29.9% to $236.2 million in 1995 from
$181.8 million in 1994. New vehicle sales increased 26.1% to $114.5 million in
1995 from $90.8 million in 1994, primarily because of the acquisitions in
February and December 1995, respectively, of the Company's Performance Nissan
and Performance Dodge dealerships in Oklahoma City. The inclusion of the results
of these two dealerships accounted for 64.7% of the Company's overall increase
in new vehicle sales in 1995. The remainder of the increase in new vehicle sales
in 1995 was largely attributable to a net increase in sales volume of 9.2% at
the Company's dealerships in Amarillo, which the Company believes was primarily
due to changes in inventory mix, population growth and, to a lesser extent,
increases in new vehicle sales prices.
Used vehicle sales increased 35.1% to $98.5 million in 1995 from $72.9
million in 1994. The inclusion of the results of the Company's Oklahoma City
dealerships accounted for 68.8% of this increase in used vehicle sales. In
addition, the Company's Quality Nissan dealership in Amarillo, which began
selling used vehicles in May 1994, accounted for 16.4% of the Company's overall
increase in used vehicle sales in 1995. The Company attributes the remainder of
the increase in its used vehicle sales in 1995 to increases in volume resulting
from improvements in stocking and selling used vehicles in demand in the
Amarillo market and an increase of approximately 18% in the average retail
selling price per vehicle sold related in part to increases in retail prices and
in part to changes in the vehicle mix.
The Company's other operating revenue increased 28.9% to $23.2 million for
1995, compared to $18.0 million for 1994 largely due to the inclusion of the
Company's Oklahoma City dealerships in the 1995 results of operations. The
addition of the Oklahoma City dealerships accounted for approximately 77% of the
increase in other operating revenue. The Company attributes the remainder of the
increase mainly to an increase in parts and service sales by its dealerships in
Amarillo, which the Company believes was caused by population growth in the
Amarillo market, and to an increase in the Amarillo dealerships' F&I sales
caused by the growth in vehicle sales and an increase in the volume of F&I
products sold by the Company, such as extended warranties and credit insurance
policies.
GROSS PROFIT
Gross profit increased 32.5% in 1995 to $37.5 million from $28.3 million in
1994 primarily due to the Oklahoma City dealerships. Gross profit as a
percentage of sales increased to 15.9% in 1995 from 15.6% in 1994. The increase
in gross margin was principally caused by higher gross margins on used vehicle
sales and parts and service sales, which were partially offset by a reduction in
the gross margin on new vehicles. The increase in gross margin on used vehicles
was primarily due to the success of the Company's strategy to mirror the market
in Amarillo. The new vehicle margin declined because the Company purchased more
new vehicles from other dealers in 1995, at prices above what the automakers
would have charged, due to General Motors' inability to supply the Company with
its desired mix of the more popular-selling models.
The Company's gross margin on used vehicle sales increased due to
improvements by the Company in stocking and selling used vehicles in demand in
its local markets and fewer used vehicle sales to other dealers and wholesalers
(which sales are frequently at or below cost). In 1995, 23.0% of the Company's
used vehicle sales were to other dealers and wholesalers as compared to 31.2% in
1994.
22
<PAGE>
The Company's overall gross margin also improved in 1995 due to higher parts
and service margins resulting from increased labor efficiencies in its parts and
service work, including the use of a variable pricing system that reflected the
difficulty and sophistication of different types of repairs, and
productivity-based compensation for its parts and service teams.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES; MANAGEMENT FEES
The Company's selling, general and administrative expenses increased to
$25.6 million, or 10.9% of the Company's revenues, in 1995 from $18.5 million,
or 10.2% of total revenues, in 1994. Expenses associated with the Oklahoma City
dealerships acquired by the Company in 1995 accounted for approximately 79% of
this increase. The Company attributes the remainder of the increase in selling,
general and administrative expenses primarily to higher compensation levels in
1995 and to an increase in advertising expenses. Due primarily to transition
costs, selling, general and administrative expenses of the Oklahoma City
dealerships represented 15.2% of the total revenue in 1995, compared with 10.0%
for the Company's Amarillo dealerships.
The Company's management fees increased 34.4% to $4.3 million in 1995 from
$3.2 million in 1994.
INTEREST EXPENSE
The Company's interest expense in 1995 increased 56.0% to $3.9 million from
$2.5 million in 1994. The Company attributes 38.4% of this increase to floorplan
financing at the Company's Oklahoma City dealership acquired in February 1995.
The remainder of the increase primarily reflects higher levels of flooring due
to higher vehicle inventories in 1995 as compared to 1994, interest expense on
the debt incurred to acquire Performance Nissan and an increase in the financing
rate charged by GMAC during 1995.
NET INCOME
The Company's net income in 1995 decreased 8.3% to $2.2 million from $2.4
million in 1994. This decrease was principally caused by an increase of $1.1
million in management fees in 1995. Excluding management fees, which were
eliminated beginning in 1996, the Company's net income would have increased by
13.1% to $4.9 million in 1995.
1994 VERSUS 1993
REVENUES
Total revenues increased 9.9% to $181.8 million in 1994 as compared with
$165.4 million in 1993. New vehicle sales were relatively unchanged at $90.8
million in 1994 compared with $91.0 million in 1993. The slight decline in new
vehicle sales was attributable to the Company's inability to obtain an
appropriate mix of new Chevrolet vehicles to meet customer demand and a
disruption in sales because of the relocation of one of the Company's
dealerships during the year. These factors were mitigated by increases in new
vehicle sales at two of the Company's dealerships because of a higher level of
truck sales and an increase in the average new vehicle retail sales price.
Used vehicle sales increased 23.1% to $72.9 million in 1994 compared with
$59.2 million in 1993. This increase was primarily attributable to the
introduction of used vehicles at one of the Company's dealerships and to an
increase in the volume of used vehicle inventory sold to other dealers and
wholesalers.
The Company's other operating revenue increased 18.4% to $18.0 million in
1994 from $15.2 million in 1993. An increase of 20.8% in parts and service
revenue was largely due to sales originating from newly renovated parts and
service facilities at one of the Company's dealerships. The increase in parts
and service revenue also was the result of inventory management systems that
were implemented in 1993. The Company's other operating revenue also increased
in 1994 due to a net increase of 8.1% in the level of F&I activity at the
Company's dealerships, which was directly related to a greater volume of sales
of used vehicles at the Company's dealerships.
23
<PAGE>
GROSS PROFIT
Gross profit increased 10.1% to $28.3 million in 1994 from $25.7 million in
1993 primarily because of increased profits in parts and service sales and
higher profits on new vehicle sales primarily due to an increase in truck sales,
which typically carry a higher margin than new car sales. Overall gross profit
as a percentage of sales remained unchanged at 15.6% in 1994 and 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES; MANAGEMENT FEES
The Company's selling, general and administrative expenses increased to
$18.5 million in 1994, which represented a slight decline in SG&A expenses as a
percentage of sales to 10.2% in 1994 compared to 10.4% in 1993. This percentage
decrease was primarily attributable to the higher volume of sales in 1994.
Management fees increased 28.0% to $3.2 million in 1994 compared to $2.5
million in 1993. This increase was primarily due to increased profitability.
INTEREST EXPENSE
The Company's interest expense increased 19.0% to $2.5 million in 1994 from
$2.1 million in 1993. This increase was attributable to higher levels of
floorplan financing caused by increased levels of inventory, interest on debt
incurred in connection with the relocation of one of the Company's dealerships
and a general increase in interest rates.
NET INCOME
As a result of the factors noted above, the Company's net income increased
20.0% to $2.4 million in 1994 from $2.0 million in 1993.
24
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following tables set forth the Company's results of operations data for
the quarterly periods presented. This presentation should be read in conjunction
with the audited and unaudited financial statements of the Company appearing
elsewhere in this Prospectus. Because of the seasonal nature of its business and
based on past experience, the Company expects its operating income for the
fourth quarter to be lower than that of the second and third quarters.
Historically, the Company's first quarter results of operations also are lower
than those of the second and third quarters. However, due to the particularly
high volume of sales in the first quarter of 1996, the Company's results of
operations for the first and second quarters of 1996 may not reflect this
historical pattern.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 (1) 1995 1995 1995 (2) 1996
----------- --------- ------------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales.............................. $ 23,840 $ 29,789 $ 31,521 $ 29,344 $ 34,649
Used vehicle sales............................. 21,237 26,598 26,016 24,639 29,360
Other operating revenues....................... 4,990 5,891 6,281 6,049 7,220
----------- --------- ------------- ------------ -----------
Total revenues............................... 50,067 62,278 63,818 60,032 71,229
Cost of sales.................................... 42,449 52,022 53,374 50,857 59,896
----------- --------- ------------- ------------ -----------
Gross profit..................................... 7,618 10,256 10,444 9,175 11,333
Selling, general and administrative expenses... 5,377 6,580 6,685 6,987 7,537
Depreciation and amortization.................. 224 248 240 240 353
Management fees (3)............................ 798 1,357 1,393 770 --
----------- --------- ------------- ------------ -----------
Operating income................................. 1,219 2,071 2,126 1,178 3,443
Interest expense, net............................ (704) (823) (749) (813) (975)
----------- --------- ------------- ------------ -----------
Income before income taxes....................... 515 1,248 1,377 365 2,468
Income tax expense............................... 193 466 515 136 913
----------- --------- ------------- ------------ -----------
Net income....................................... $ 322 $ 782 $ 862 $ 229 $ 1,555
----------- --------- ------------- ------------ -----------
----------- --------- ------------- ------------ -----------
</TABLE>
- ------------------------------
(1) Includes results of operations for Performance Nissan, Inc. from February
2, 1995.
(2) Includes results of operations for Performance Dodge, Inc. from December 4,
1995.
(3) Discontinued beginning in 1996.
25
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1995 (1) 1995 1995 1995 (2) 1996
------------ ----------- --------------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales.............................. 47.6% 47.8% 49.4% 48.9% 48.6%
Used vehicle sales............................. 42.4 42.7 40.8 41.0 41.2
Other operating revenues....................... 10.0 9.5 9.8 10.1 10.2
----- ----- ----- ----- -----
Total revenues............................... 100.0 100.0 100.0 100.0 100.0
Cost of sales.................................... 84.8 83.5 83.6 84.7 84.1
----- ----- ----- ----- -----
Gross profit..................................... 15.2 16.5 16.4 15.3 15.9
Selling, general and administrative............ 10.7 10.6 10.5 11.6 10.6
Depreciation and amortization.................. 0.5 0.4 0.4 0.4 0.5
Management fees (3)............................ 1.6 2.2 2.2 1.3 --
----- ----- ----- ----- -----
Operating income................................. 2.4 3.3 3.3 2.0 4.8
Interest expense, net............................ (1.4) (1.3) (1.2) (1.4) (1.3)
----- ----- ----- ----- -----
Income before income taxes....................... 1.0 2.0 2.1 0.6 3.5
Income tax expense............................... 0.4 0.7 0.8 0.2 1.3
----- ----- ----- ----- -----
Net income....................................... 0.6% 1.3% 1.3% 0.4% 2.2%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
- ------------------------------
(1) Includes results of operations for Performance Nissan, Inc. from February
2, 1995.
(2) Includes results of operations for Performance Dodge, Inc. from December 4,
1995.
(3) Discontinued beginning in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires cash primarily for financing its inventory of new and
used vehicles and replacement parts, acquisitions of additional dealerships,
capital expenditures and transition expenses in connection with its
acquisitions. Historically, the Company has met these liquidity requirements
primarily through cash flow generated from operating activities, floorplan
financing and borrowings under credit agreements with GMAC and commercial banks.
Floorplan financing from GMAC represents the primary source of financing for
vehicle inventories.
The Company finances its purchases of new vehicle inventory (including its
Dodge and Nissan vehicles) with GMAC. The Company also maintains a line of
credit with GMAC for the financing of used vehicles, pursuant to which GMAC
provides financing for up to 80% of the cost of used vehicles that are less than
five years old and that have been driven fewer than 70,000 miles. GMAC receives
a security interest in all inventory it finances. The Company must repay all
indebtedness with respect to any vehicle sold within two days of the sale of
such vehicle by the Company. The Company periodically negotiates the terms of
its financing with GMAC, including the interest rate. In 1995, the average
annual interest rate under the GMAC floor plan was 8.6%. As of March 31, 1996,
the Company had outstanding floorplan debt of $33.3 million at an average annual
interest rate of 8.0%.
From time to time the Company also finances its purchases of new and used
vehicles, replacement parts and short-term receivables through borrowings from
commercial banks at various rates. At May 31, 1996, there was no such
indebtedness outstanding.
During the first three months of 1996, the Company generated net cash of
$8.5 million from operating activities. Net cash used for operating activities
was $6.4 million in 1995 and was primarily attributable to increased inventory
levels and accounts receivable, partially offset by increased sales of Company
warranties and increased accounts payable. The increase in inventory levels in
1995 reflects an increase in the volume of sales and the timing of shipments
from the manufacturer. Increased receivables reflect increased sales near year
end primarily attributable to the Oklahoma City dealerships acquired in 1995.
The Company generated net cash from operations of $5.0 million and $2.4 million
in 1994 and 1993, respectively.
26
<PAGE>
Cash used for investing activities was approximately $300,000 for the first
three months of 1996 and related primarily to acquisitions of property and
equipment. Cash used for investing activities was $1.8 million, $1.8 million and
$1.7 million in 1995, 1994 and 1993, respectively, including $1.5 million, $1.8
million and $0.8 million of capital expenditures during such periods. Capital
expenditures in 1995 were primarily attributable to expenditures for renovations
at the Amarillo dealerships and expenditures related to the Company's Oklahoma
City dealerships. Capital expenditures in 1994 consisted of $1.8 million of cash
expended for capital improvements at the Company's Amarillo dealerships,
including expenditures in connection with the relocation of Quality Nissan, Inc.
The Company's capital expenditures for the nine months remaining in 1996 are
expected to approximate $600,000 relating to capital improvements to one of the
Company's service departments. The Company anticipates that cash from operations
will be sufficient to fund its planned capital expenditures for the remainder of
1996. The Company has entered into an agreement to complete the Dodge
Acquisition for approximately $13.5 million in cash and warrants to acquire $1.0
million of Common Stock at the initial public offering price. In addition, the
Company may purchase some or all of the used vehicle inventory associated with
the Dodge Acquisition at a price to be agreed. See "Business -- Growth Strategy
- -- Acquisitions." The Company currently anticipates that it will finance this
acquisition with a portion of the proceeds of the Offering. The Company
anticipates that any future acquisitions will be financed with proceeds from the
Offering, issuance of stock or debt or a combination of cash, stock and debt.
There can be no assurance that such financial resources will be available or be
available on favorable terms.
Cash used by financing activities amounted to $6.2 million for the first
three months of 1996 and was primarily attributable to the Company's reduced
levels of inventory in the first quarter of 1996. In 1995, cash provided by
financing activities reflected the increase in inventories, resulting in a $6.5
million increase in floorplan debt. At March 31, 1996, the Company's long term
indebtedness totaled $11.5 million, primarily attributable to the Company's real
estate holdings, with the remainder consisting primarily of indebtedness
incurred in connection with prior acquisitions. Cash provided by financing
activities totaled approximately $11.6 million in 1995 compared with a use of
cash of $0.7 million in 1994. This fluctuation is primarily attributable to
increases in inventory levels financed with floorplan debt.
The Company believes that its operations will generate sufficient funds to
run the Company's business in the ordinary course and fund its debt service
requirements. The Company estimates that it will incur a tax liability of
approximately $4.0 million in connection with the change in its tax basis of
accounting for inventory from LIFO to FIFO. The Company believes that it will be
required to pay this liability in three to six equal annual installments,
beginning in March 1997, and believes that it will be able to pay such
obligation with cash provided by operations.
SEASONALITY
The Company generally experiences a higher volume of new and used vehicle
sales in the second and third quarters of each year. If the Company acquires
dealerships in other markets, it may be affected by other seasonal or consumer
buying trends. See "-- Selected Quarterly Results of Operations."
27
<PAGE>
BUSINESS
OVERVIEW
The Company owns and operates six franchised automobile dealerships in the
Amarillo, Texas and Oklahoma City, Oklahoma markets. Through these dealerships,
the Company sells new and used cars and light trucks, arranges related financing
and insurance, sells replacement parts and provides vehicle maintenance and
repair services.
The Company's founder and Chief Executive Officer, Bill A. Gilliland, has
managed automobile dealerships since 1966 and acquired the Company's first
dealership, Quality Nissan, Inc. in Amarillo, in 1982. The Company continued its
growth in the Amarillo area by acquiring three Chevrolet dealerships, two of
which have been in continuous operation (under various owners) since the 1920s.
The Company is the exclusive Chevrolet and Nissan dealer in Amarillo. The
Company led the Amarillo market in vehicle unit sales in 1995, accounting for
approximately 36% of new vehicle unit sales and 25% of used vehicle unit sales.
In 1995, the Company entered the Oklahoma City market through the acquisition of
a Nissan dealership in February and a Dodge dealership in December. In June
1996, the Company entered into an agreement to make the Dodge Acquisition,
pursuant to which the Company would purchase another Dodge dealership located in
the Oklahoma City market which is one of the largest Dodge dealerships in the
United States. With this acquisition, the Company believes that, based on pro
forma revenue, it would have been one of the 50 largest dealer groups out of
more than 15,000 dealer groups nationwide in 1995.
As a result of the Company's business strategy, including the acquisition of
new dealerships, the Company's sales have increased from $74.5 million in 1991
to $236.2 million in 1995. Including the full year effect of the dealership
acquired in December 1995, the Company's 1995 sales were $294.7 million. The
Company believes that its business strategy and operations have also enabled it
to achieve a level of profitability superior to the industry average. In 1995,
the Company's gross profit margin was 15.9%, compared to the industry average of
12.9%. The Company's business strategy includes:
EFFECTIVELY SERVING ITS TARGET CUSTOMERS. The Company's existing
dealerships, which together offer the complete lines of Chevrolet, Nissan and
Dodge vehicles, focus primarily on middle-income buyers seeking moderately
priced vehicles that can be financed with relatively affordable monthly
payments. The Company believes that working closely with its customers to
identify appropriate vehicles and offering suitable financing and credit
insurance products enhances the Company's overall profitability by increasing
the percentage of vehicle purchases financed through its dealerships and by
reducing the subsequent default rate on such financing contracts. In 1995, the
Company arranged financing for approximately 76% of its sales of new vehicles
and 83% of its sales of used vehicles, as compared to 42% and 51%, respectively,
for the average automobile dealership in the U.S.
OPERATING MULTIPLE DEALERSHIPS IN SELECTED MARKETS. By operating multiple
dealerships within individual markets, the Company seeks to become a leading
automotive dealer in each market that it serves. This strategy enables the
Company to achieve economies of scale in advertising, inventory management,
management information systems and corporate overhead. In 1995, the Company was
the market share leader in the Amarillo vicinity, accounting for approximately
28% of the new car market and 46% of the new truck market. In Oklahoma City, the
combined market shares in 1995 for the Company's existing Oklahoma City
dealerships were 2% and 7% of new car and truck sales, respectively. The Company
estimates that, including the Dodge Acquisition, the Company's combined market
shares in Oklahoma City would have been 4% of the new car market and 15% of the
new truck market in 1995, or 8% of total new vehicle sales.
MAINTAINING DISCIPLINED INVENTORY MANAGEMENT. The Company believes that
maintaining a vehicle mix that matches market demand is critical to dealership
profitability. The Company's policy is to maintain a 60-day supply of new
vehicles and a 39-day supply of used vehicles. If a new vehicle remains in
inventory for 120 days, or a used vehicle for 60 days, the Company typically
disposes of the vehicle by selling it to another dealer or wholesaler. The
Company believes that this policy enhances profitability by increasing inventory
turnover and reducing carrying costs. If the Company cannot obtain a sufficient
supply of popular models from the manufacturers, it purchases the needed
vehicles from other franchised dealers throughout the
28
<PAGE>
United States. For example, because Chevrolet trucks are popular in Amarillo,
the Company purchases trucks from Chevrolet dealers in other cities to
supplement its allocation of trucks from Chevrolet. In managing its used vehicle
inventory, the Company attempts to mirror the market by tracking new and used
vehicle sales within its region and maintaining an inventory mix that matches
consumer demand.
EMPLOYING PROFIT-BASED MANAGEMENT COMPENSATION. Cross-Country Auto uses a
management compensation system that differentiates it from most other automobile
dealerships. The Company believes that at many other auto dealerships the heads
of each sales department (new vehicles, used vehicles and F&I) are compensated
based on the profitability or sales volumes of their own departments. This
method of compensation does not encourage cooperation among departments and can
affect overall profitability of the dealership. At Cross-Country Auto, each
dealership's general manager and sales managers are trained in F&I analysis and
receive bonuses based on the profitability of overall vehicle sales and related
F&I income. The Company believes that this compensation system promotes teamwork
and encourages each management team to maximize overall profitability.
UTILIZING TECHNOLOGY THROUGHOUT OPERATIONS. The Company believes that it
has achieved a competitive advantage in its markets by integrating
computer-based systems into all aspects of its operations. The Company uses
computer-based technology to monitor each dealership's gross profit, permitting
senior management to gauge each dealership's daily and monthly gross margin
"pace" and to quickly identify areas requiring additional focus. Sales managers
also utilize a computer system to design for each customer an affordable
financing and insurance package that maximizes the Company's total profit on
each transaction. Computer technology is also an integral part of the inventory
management system for new and used vehicles and vehicle parts.
ACHIEVING HIGH LEVELS OF CUSTOMER SATISFACTION. Customer satisfaction and a
dealer's reputation for fairness are key competitive factors and are crucial for
establishing long-term customer loyalty. Cross-Country Auto's sales process is
intended to satisfy customers by providing high-quality vehicles that customers
can afford. A customer's experience with the parts and service departments at
the Company's dealerships can also positively influence overall satisfaction.
The Company strives to train its service managers as professionals, employs
state-of-the-art service equipment, maintains a computer-managed inventory of
replacement parts, and provides clean service and waiting areas to enhance
customers' post-sale experience.
GROWTH STRATEGY -- ACQUISITIONS
The Company intends to expand its business by acquiring additional
dealerships and seeks to improve their profitability through implementation of
the Company's business strategies. The Company believes that its management team
has considerable experience in evaluating potential acquisition candidates and
determining whether a particular dealership can be successfully integrated into
the Company's existing operations. Based on trends affecting automobile
dealerships, the Company also believes that an increasing number of acquisition
opportunities will become available to the Company. See "Industry Overview."
In June 1996, the Company entered into an agreement to purchase
substantially all of the operating assets and the dealership franchise of one of
the largest Dodge dealerships in the United States. The Company estimates that,
including the sales of this dealership, its combined market share of total new
vehicle unit sales in Oklahoma City would have increased from approximately 4%
to approximately 8% overall for 1995. In addition to providing a means of
increasing its local market share, the Company believes that the Dodge
Acquisition will provide the Company with the opportunity to benefit from the
economies of scale that it seeks in expanding its local presence in targeted
markets.
In the Dodge Acquisition, the Company has agreed to pay $13.5 million in
cash and issue warrants to the seller to acquire $1.0 million of Common Stock at
the initial public offering price. In addition, the Company may purchase some or
all of the used vehicle inventory associated with the Dodge Acquisition at a
price to be agreed. The acquisition is subject to customary closing conditions,
including the receipt of approval from the Dodge division of Chrysler. Although
there can be no assurance that such approval will be obtained or that the
closing will occur, the Company anticipates completing the acquisition by
September 1996.
29
<PAGE>
The Company intends to continue to focus its acquisition search primarily on
markets that have fewer dealerships relative to the size of the population than
the national average. The Company believes that the most attractive markets for
acquisitions currently exist in selected cities in the Western and Southern
regions
of the United States. As part of its strategy to acquire a leading market share
in any targeted market, the Company intends to focus its efforts on dealer
groups that own multiple franchises in a single city, as well as on large,
single-dealer franchises possessing significant market share. Other criteria for
evaluating potential acquisitions will include the dealership or dealer group's
current profitability, the quality of its management team, its local reputation
with customers, and its location along an interstate highway or principal
thoroughfare. The Company plans to evaluate acquisition candidates on a
case-by-case basis, and there can be no assurance that future acquisitions by
the Company will have all or any of these characteristics.
Upon completion of each acquisition, the Company plans to implement its
sales methods and philosophy, computer-supported management system and
profit-based compensation plan in an effort to enhance the acquired dealership's
overall profitability. Cross-Country Auto intends to focus initially on any
underperforming departments within the acquired entity that the Company believes
may yield the most rapid marginal improvements in operating results. The Company
anticipates that it will take two to three years to integrate an acquired
dealership into the Company's operations and realize the full benefit of the
Company's strategies and systems. There can be no assurance, however, that the
profitability of any acquired dealership will equal that achieved to date by the
Company's existing dealerships. See "Risk Factors -- Risks Associated with
Expansion."
INDUSTRY OVERVIEW
In 1995, franchised automobile dealers in the United States sold over $290
billion in new cars and light trucks and $180 billion in used vehicles. After
growing at an average rate of 7.1% each year from 1991 through 1994, new vehicle
unit sales declined 2.0% in 1995. However, total franchised dealership dollar
sales increased 7.0% during 1995, primarily due to increased used vehicle unit
sales, increased parts and service revenues and inflation. Automobile sales are
affected by many factors, including rates of employment, income growth, interest
rates, weather patterns and other national and local economic conditions,
automotive innovations and general consumer sentiment. See "Risk Factors --
Mature Industry; Cyclical and Local Nature of Automobile Sales."
<TABLE>
<CAPTION>
UNITED STATES FRANCHISED DEALERS' VEHICLE SALES
-----------------------------------------------------
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(UNITS IN MILLIONS; DOLLARS IN BILLIONS)
<S> <C> <C> <C> <C> <C>
New vehicle unit sales........................................... 12.3 12.9 13.9 15.1 14.8
New vehicle sales revenue........................................ $ 182.9 $ 191.7 $ 225.1 $ 261.8 $ 293.3
Used vehicle unit sales*......................................... 14.2 14.6 14.8 15.1 15.7
Used vehicle sales revenue*...................................... $ 114.1 $ 130.0 $ 146.0 $ 167.8 $ 181.7
</TABLE>
- ------------------------------
*Reflects franchised dealerships sales at retail and wholesale. In addition,
sales by independent retail used car and truck dealers were $77.2, $81.0,
$100.3, $134.1 and $129.7 billion, respectively, for each of the five years
ended December 31, 1995.
Sources: NADA; CNW Market Research.
In the early years of the automobile industry, automakers established
franchised dealership networks for the distribution of their vehicles. Under
these franchise arrangements, automakers agreed to distribute their vehicles
exclusively through their dealer network. In return, under these early
arrangements automakers sought to prevent dealers from selling other automakers'
vehicles, limited the transferability of ownership interests in dealerships,
forced dealerships to accept vehicle inventory, defined the territory in which
dealers could market their vehicles and retained the right to franchise other
dealerships in those geographic areas. Most dealer agreements currently in
effect continue to require manufacturer approval for the transfer of ownership
of a dealership. Typically, however, these agreements require automakers to
reasonably consider any acquisition request, taking into account the acquiring
dealer's capital resources, industry experience and general reputation.
Pressure from dealers and state legislative developments have caused
automakers to ease a number of these restrictions during the last 50 years. For
example, dealers may not have their franchises terminated
30
<PAGE>
without good cause, may designate family members as successors to their business
and may not be forced to accept unordered inventory. In addition, although a
dealership's agreement with the automaker does not provide for exclusivity with
respect to the brand of cars and trucks sold by the dealership within a
particular geographic area, many states now have licensing and procedural
requirements that may impede the ability of another dealership selling the same
brand to enter a geographic market already served by a dealership.
Until the 1960s, dealerships typically were owned and operated by one
individual who controlled one franchise. Competitive and economic pressures
during the 1970s and 1980s, particularly the oil embargo of 1973 and the
subsequent loss of market share experienced by U.S. auto manufacturers to
imported vehicles, forced many dealerships to close or sell out to
better-capitalized dealer groups. Continued economic pressure on dealers,
combined with the easing of restrictions against multiple dealer ownership, have
led to further consolidation in the industry.
According to AUTOMOTIVE NEWS, the number of franchised dealerships has
declined from 36,336 dealerships in 1960 to 22,288 in 1996. This consolidation
has resulted in fewer and larger dealer groups. AUTOMOTIVE NEWS' data also
reflect that each of the largest 100 dealer groups (ranked by unit sales) had
more than approximately $150 million in revenues in 1995. Although significant
consolidation has taken place among dealerships since 1960, the industry remains
highly fragmented. The Company estimates that the largest 100 dealer groups
generated less than 10% of total revenues, and controlled approximately 5% of
all franchise dealerships, in the retail vehicle market in 1995.
The Company believes that further consolidation of automobile dealers is
likely due to the increased capital requirements of dealerships, the fact that
many dealerships are owned by individuals nearing retirement age and the desire
of certain automakers to strengthen their brand identity by consolidating their
franchised dealerships. Cross-Country Auto believes that an opportunity exists
for dealership groups with significant equity capital and experience in running
dealerships to purchase additional franchises either for cash, stock, debt or a
combination and that being able to offer prospective sellers tax-advantaged
transactions through the use of publicly traded stock will, in certain
circumstances, make Cross-Country Auto a more attractive acquiror to prospective
sellers.
As with retailers generally, auto dealership profitability varies widely and
depends in part on the effective management of inventory, marketing, quality
control and responsiveness to customers. Since 1991, retail automobile
dealerships in the United States have earned on average between 12.9% and 14.1%
total gross margin on sales. New vehicle sales were the smallest proportionate
contributors to dealers' gross profits during this period, most recently earning
an average gross margin of 6.5% in 1995. Used vehicles provided higher gross
margins than new vehicles during this period, with an average used vehicle gross
margin of 11.5% in 1995. Dealerships also offer a range of other services and
products, including repair and warranty work, replacement parts, extended
warranty coverage, financing and credit insurance. In 1995, the average
dealership's revenue from parts and service was about 12.4% of its total sales.
DEALERSHIP OPERATIONS
Four of the Company's six dealerships are in or within 10 miles of Amarillo,
Texas and two are in suburban areas of Oklahoma City, Oklahoma. The Company
derived approximately 71% of its gross profit from its three Chevrolet
dealerships in the Amarillo area in 1995. The Company's retail unit sales of new
and
31
<PAGE>
used vehicles in 1995 totalled more than 11,500, compared with the Company's
estimate of under 1,000 for the average franchised dealer in the United States.
The Company's sales, by market area on a pro forma basis, for 1995 and for the
first three months of 1996 are as follows:
<TABLE>
<CAPTION>
COMPANY DEALERSHIPS
-------------------------------------
AMARILLO OKLAHOMA CITY
MARKET MARKET (1) TOTAL
--------- -------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1995 SALES
New vehicles..................................................... $ 99,164 $ 42,612 $ 141,776
Used vehicles.................................................... 80,901 40,949 121,850
Other operating revenue (2)...................................... 19,224 11,872 31,096
FIRST QUARTER 1996 SALES
New vehicles..................................................... 24,086 10,563 34,649
Used vehicles.................................................... 21,774 7,586 29,360
Other operating revenue (2)...................................... 4,683 2,537 7,220
</TABLE>
- ------------------------------
(1) Figures shown are full-year sales figures for Performance Nissan, which the
Company acquired February 2, 1995, and for Performance Dodge, which the
Company acquired December 4, 1995.
(2) Primarily includes sales of parts and service (including at wholesale) and
F&I income.
Each of the Company's dealerships has a general manager who oversees all of
the operations of that dealership. In addition, each dealership's new vehicle,
used vehicle, parts and service, and F&I departments have managers who supervise
the employees in their departments and report to that dealership's general
manager. All general managers report to the Company's senior management on a
daily basis. The Company's senior management tracks the daily sales and
inventory turnover of each dealership. In addition to reporting directly to the
general manager, the department managers of each dealership also work with
Cross-Country Auto's central management staff, which includes specialists in new
and used vehicle inventory management and control, parts and service operations
and finance and insurance.
NEW VEHICLE SALES. The Company's dealerships sell the complete product
lines of new cars and light trucks manufactured by General Motors' Chevrolet
division, the Nissan division of Nissan Motors Corp. U.S.A. ("Nissan") and
Chrysler's Dodge division. Approximately 67% of new vehicles sold by the Company
in 1995 were light trucks, as compared to 41.5% of all U.S. new vehicles sold,
as reported by Automotive News. The Company believes that its new vehicle sales
mix is influenced by regional preferences as well as the Company's inventory
management policies. The Company believes that its mix of light trucks, as well
as its personalized sales approach, permit it to achieve higher gross margins on
new vehicle sales than the industry average. The Company earned gross margins
for new vehicle sales of 12.1% in 1995, as compared to the industry average for
1995 of 6.5%.
<TABLE>
<CAPTION>
COMPANY'S NEW VEHICLE SALES
----------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Unit sales.................................... 2,674 4,173 4,978 4,468 5,547
Sales revenue................................. $ 41,812 $ 72,659 $ 91,012 $ 90,804 $ 114,494
Gross margin.................................. 9.0% 10.6% 11.8% 12.5% 12.1%
</TABLE>
The Company also arranges traditional retail lease transactions in the
Oklahoma City market and lease-type transactions (such as GMAC's "smart-buy"
program) in the Amarillo market. The Company does not believe that such
leasing-related activities have significantly affected its business or will
affect its business to a substantially greater degree in the future. In addition
to its Chevrolet, Nissan and Dodge dealerships, the Company currently operates a
Kia franchise at the Company's Westgate facility in Amarillo which had sales of
less than 1.0% of the Company's total revenue in 1995. The Company is
negotiating the sale of the Kia franchise and anticipates that it will complete
the sale by October 1996. The sales data shown above reflect all of the
Company's new vehicle sales and leasing-type transactions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
32
<PAGE>
USED VEHICLE SALES. Used vehicle sales have become an increasingly
important part of the Company's overall profitability. The Company's retail used
car and truck sales have grown from 2,029 units in 1991 to 6,170 units in 1995.
The Company attributes this growth, in part, to attractive product availability.
The quality and selection of used vehicles available in the industry have
improved in the last several years primarily due to an increase in the number of
popular cars coming off short term leases. See "Risk Factors -- Competition." In
addition, increases in new vehicle prices have prompted a growing segment of the
vehicle-buying population to purchase used cars and trucks. The Company also
sells used vehicles through its wholly owned subsidiary Working Man's Credit
Plan, Inc. ("Working Man's Credit"). Working Man's Credit sells primarily older
used vehicles and finances those purchases for customers who, due to their low
income levels or past credit problems, may not be able to obtain credit for the
vehicles more typically sold by the Company's dealerships. Working Man's
Credit's sales accounted for less than 1.0% of the Company's total sales in each
of 1994 and 1995.
The Company believes that it has enhanced its used car and truck sales by
monitoring its used vehicle inventory on a daily basis and distributing
inventory to the dealership most likely to sell a particular vehicle. For
example, a Nissan vehicle traded in at any one of the Company's dealerships
typically will be placed in one of the Company's Nissan dealerships. The Company
sells used vehicles to retail customers and, particularly in the case of used
vehicles held in inventory more than 60 days, to other dealers and to
wholesalers. See "Inventory Management." Excluding inter-dealer and wholesale
transactions, the Company's gross margin on used vehicle sales was 13.7% in
1995, as compared to the industry average for 1995 of 11.5%. The following table
reflects all used vehicle sale transactions of the Company from 1991 through
1995. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
COMPANY'S USED VEHICLE SALES
---------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Retail unit sales.............................. 2,029 3,009 4,532 4,816 6,170
Retail revenue................................. $ 17,130 $ 28,059 $ 44,655 $ 50,019 $ 75,677
Retail gross margin............................ 11.9% 13.5% 16.5% 15.7% 13.7%
Wholesale unit sales........................... 2,163 3,396 4,983 5,201 5,372
Wholesale revenue.............................. $ 7,347 $ 12,354 $ 14,538 $ 22,897 $ 22,813
Wholesale gross margin......................... -2.9% -3.6% -8.2% -6.0% -3.4%
Total unit sales............................... 4,192 6,405 9,515 10,017 11,542
Total revenue.................................. $ 24,477 $ 40,413 $ 59,193 $ 72,916 $ 98,490
Total gross margin............................. 7.4% 8.3% 10.4% 8.9% 9.8%
</TABLE>
PARTS AND SERVICE. Historically, the automotive repair industry has been
highly fragmented. However, the Company believes that the increased use of
electronics and computers in vehicles has made it difficult for independent
repair shops to retain the expertise to perform major or technical repairs.
Given the increasing technological complexity of motor vehicles and extended
warranty periods for new vehicles, the Company believes that an increasing
percentage of repair work will take place at dealerships that have the
sophisticated equipment and skilled personnel necessary to perform such repairs.
The Company's parts and service business has grown along with the Company's
growth in sales of new and used vehicles. The Company provides parts and service
primarily for the vehicle makes sold by its dealerships but also services other
makes of vehicles. In 1995, the Company's parts and service operation generated
gross margins of 52.4%, including the sale of parts at wholesale to independent
repair shops. Excluding the sale of parts at wholesale, the Company's gross
margin for parts and service would have been 63.3% in 1995, which the Company
believes compares favorably to the industry average.
The Company attributes its profitability in parts and service to its
comprehensive management system, including the use of a variable rate pricing
structure, the adoption of a team concept in servicing vehicles and
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<PAGE>
the cultivation of strong customer relationships through an emphasis on
preventive maintenance. Also critical to the profitability of the Company's
parts and service business is the efficient management of parts inventory. See
"-- Inventory Management -- Parts."
In charging for its mechanics' labor, the Company uses a variable rate
structure designed to reflect the difficulty and sophistication of different
types of repairs. The percentage mark-ups on parts are similarly varied based on
market conditions for different parts. The Company believes that variable rate
pricing helps the Company to achieve overall profit margins in parts and service
superior to those of certain competitors who rely on fixed labor rates and
percentage mark-ups.
The Company also believes that the profitability of its parts and service
business is significantly enhanced by its use of teams in servicing vehicles.
Each vehicle that is brought into one of the Company's dealerships for service
typically is assigned to a team of service professionals, ranging from master
technicians with multiple skills to less experienced apprentices. The
experienced technicians perform more complicated repairs, while apprentices
assist technicians, track down needed parts and perform simple functions, such
as oil changes. Each team is responsible for servicing multiple vehicles each
day, depending upon the complexity of the services required. When possible, the
team performs multiple service functions simultaneously and, as a result,
enhances productivity and completes repairs more quickly. Team members receive
supplemental compensation based on the overall productivity of their team. The
Company believes this team system increases the productivity of its service
personnel and results in reduced training costs and higher quality repairs.
The Company also makes extensive efforts to notify owners of vehicles
purchased at the dealerships when their vehicles are due for periodic service,
thereby encouraging preventive maintenance rather than repairing cars only after
breakdowns. The Company regards its parts and service activities as an integral
part of its overall approach to customer service, providing an opportunity to
strengthen relationships with the Company's customers and deepen customer
loyalty.
Since March 1996, the Company has operated a body shop, Allied 2000
Collision Center, Inc., adjacent to its Plains Chevrolet dealership in Amarillo,
Texas. The Company intends to perform all body work for the vehicles it services
in Amarillo at this location. Previously, the Company contracted with third
parties for body repair work. The Company believes that by operating its own
body shop it can enhance its profitability on vehicle repairs and maintain
quality control. Currently, the Company contracts with third parties for body
repair work in the Oklahoma City market. However, with the Dodge Acquisition, it
will acquire a body shop and intends to perform all body work for vehicles it
services in the Oklahoma City market at the new Dodge dealership.
FINANCE AND INSURANCE. The Company also arranges financing for its
customers' vehicle purchases, sells vehicle warranties and arranges selected
types of credit insurance in connection with the financing of vehicle sales. The
Company places heavy emphasis on F&I and trains its general and sales managers
in F&I. This emphasis resulted in the Company's arranging of financing for 76.3%
of its new vehicle sales and 82.8% of its used vehicle sales in 1995, as
compared to 42% and 51%, respectively for the average U.S. dealership in 1995.
Typically, the Company's dealerships review the credit history of their
customers and forward proposed financing contracts to automakers' captive
finance companies, selected commercial banks or other financing parties. The
Company receives a finance fee from the lender for arranging the financing and
is typically assessed a chargeback against a portion of the finance fee if the
contract is terminated prior to its scheduled maturity for any reason, such as
early repayment or default. As a result, it is important that the Company
arrange financing for a customer that is competitive (I.E., the customer is more
likely to accept the financing terms and the loan is less likely to be
refinanced) and affordable (I.E., the loan is more likely to be repaid).
The Company's subsidiary, Working Man's Credit, sells used vehicles and
provides financing to customers with low income levels or past credit problems.
Typically, the Company requires these customers to make weekly payments. If
these payments are not made, the Company may repossess the vehicle. In 1995,
less than 1% of the Company's used vehicle sales were financed by Working Man's
Credit.
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<PAGE>
As the number of dealerships operated by the Company increases, the Company
may decide to create a finance subsidiary to offer financing to the Company's
customers and further enhance its F&I activities. The Company believes that such
a subsidiary could provide a source of additional profits. There is no assurance
that Cross-Country Auto will create such a subsidiary or that it will enhance
profitability.
At the time of a new vehicle sale, the Company offers extended warranties to
supplement warranties offered by automakers. Additionally, the Company sells
primary warranties for used vehicles. Currently, the Company primarily sells its
own warranties and recognizes the associated revenue over the life of the
warranty. The Company also sells warranties of third-party vendors, for which it
recognizes a commission upon the sale of the warranty, in the Oklahoma City
market and is likely to sell such third-party warranties in other markets that
the Company may enter. In 1995, the Company sold warranties on 59.1% and 74.7%,
respectively, of its new and used vehicle sales, which penetration rates the
Company believes exceed industry averages.
The Company also offers certain types of credit insurance to customers who
finance their vehicle purchases through the Company. The Company sells credit
life insurance policies to these customers, which policies provide for repayment
of the vehicle loan if the obligor dies while the loan is outstanding. The
Company also sells accident and health insurance policies, which provide payment
of the monthly loan obligations during any period in which the obligor is
disabled. These policies are underwritten by Enterprise Life Insurance Company,
which pays the Company a commission upon the sale of a policy and a bonus based
on whether payments are made under the policy. In 1995, the Company sold such
insurance on 22.3% and 32.2%, respectively, of the new and used vehicle
purchases for which it arranged financing.
SALES AND MARKETING
To promote customer satisfaction, minimize problem loans on vehicles sold
and enhance profitability, the Company seeks to "match" its customers' economic
situation to appropriate vehicles. The Company assesses (i) the customer's
equity position in the vehicle being traded in (I.E., the value of the vehicle
relative to the amount still owed on the vehicle), (ii) the ability and
willingness of the customer to make a down payment, (iii) the customer's credit
profile and (iv) the cost of the desired vehicle and the likely automobile
insurance premium the customer will be required to pay. After reviewing these
facts using a computer-based system, if it appears that a customer will not be
able to finance the vehicle purchase or prudently service the vehicle loan, the
Company may suggest a lower priced vehicle, a vehicle with fewer options or a
larger down payment to reduce the monthly payments. The Company believes that
most dealerships generally perform this financial analysis only after the
customer has agreed to purchase the vehicle at a particular price, which can
lead to customer dissatisfaction. The Company believes that its "counseling"
approach during the sales process increases the likelihood that a customer will
be satisfied with the vehicle purchase over a longer time period. Additionally,
the Company believes this approach enables it to sell more vehicles at higher
gross margins.
The salespeople employed by the Company's dealerships are compensated with a
salary plus bonus. The bonus is based on the profit to the dealership of each
vehicle sold by that salesperson, excluding F&I income. Salespeople also may
receive additional bonuses based on the total number of vehicles they sell.
The Company's marketing and advertising activities vary among its
dealerships and among its markets. Generally, the Company advertises primarily
through newspapers and does not conduct special promotions. The Company intends
to continue tailoring its marketing efforts, such as using radio or television,
to the relevant marketplace in order to reach the Company's targeted customer
base. Under arrangements with the automakers, the Company receives a subsidy for
its advertising expenses incurred in connection with that automaker's vehicles.
The Company expects to realize cost savings on its advertising expenses as it
acquires multiple dealerships in particular markets, due to volume discounts and
other concessions from media.
VEHICLE AND PARTS SUPPLIERS
NEW VEHICLES AND PARTS. Cross-Country Auto depends primarily on General
Motors' Chevrolet division, Nissan and Chrysler's Dodge unit for its supply of
new vehicles and replacement parts. Currently, the Company's total sales of new
vehicles may be adversely affected by an automaker's inability or unwillingness
35
<PAGE>
to furnish one or more dealerships with an adequate supply of models popular in
the Company's markets. A dealership that lacks sufficient inventory to satisfy
demand for a particular model may purchase additional vehicles from other
franchised dealers throughout the United States. Although the Company's gross
profit margin on sales of new vehicles purchased from other dealers is typically
lower than on vehicles supplied by the manufacturers, such sales generate gross
profit and additional income from financing, insurance, warranties and parts and
service transactions.
USED VEHICLES. The majority of the Company's dealerships' used car
inventory is derived from trade-ins. Substantially all of the remainder of the
Company's used car inventory is obtained by purchases at auctions and from
wholesalers. The Company monitors the sales of used vehicles by all franchised
and independent dealers within its geographic regions and attempts to maintain
used vehicle inventories at each dealership which mirror the market. The Company
strives to maintain a broad selection of used vehicles that generally are less
than five years old and that automakers' captive finance companies and other
commercial lenders are likely to finance for customers.
RELATIONSHIPS WITH AUTOMAKERS. Each of the Company's dealerships operates
under a separate Dealer Agreement with the relevant automaker. These agreements
establish a framework of reciprocal obligations between the dealerships and each
automaker addressing, among other things, sales and service, personnel training,
monitoring of customer satisfaction by each automaker, working capital
requirements, changes in ownership and dispute resolution procedures. In
general, the Dealer Agreements with each dealership give each automaker the
right to approve the dealership's general manager and any material change in
ownership of the dealership. Each automaker also is entitled to terminate its
Dealer Agreement if the dealership is in material breach of its terms. In
anticipation of the Offering, the Company renegotiated these agreements to
remove restrictions that would have prevented the Company from selling its
Common Stock to the public. Under the terms of its Dealer Agreements with GM, as
renegotiated in anticipation of the Offering, the Company is subject to several
additional obligations.
Following the Offering, if any person or entity acquires 20% or more of the
Company's issued and outstanding shares with the intention of acquiring
additional shares or effecting a material change in the Company's business or
corporate structure, retention of the Company's Chevrolet dealerships could be
at risk. If GM reasonably determines that such person or entity has interests
incompatible with GM's or is not qualified to own a GM dealership, the Company
must either (i) transfer the assets of the Company's GM dealerships to a third
party reasonably acceptable to GM, (ii) voluntarily terminate its Dealer
Agreements with GM divisions, or (iii) demonstrate that such person or entity in
fact owns less than 20% of the Company. See "Description of Capital Stock --
Anti-Takeover Effect of Provisions in Dealer Agreements."
Under its agreements with GM, the Company also agreed to comply with GM's
Network 2000 Channel Strategy ("Project 2000"). Project 2000 includes a plan to
eliminate 1,500 GM dealerships by the year 2000, primarily through dealership
buybacks and approval by GM of inter-dealership acquisitions, and encourages
dealers to align GM divisions' brands as may be requested by General Motors. The
agreements require that the Company must bring any GM dealership acquired after
the Offering into compliance with the Project 2000 plan within one year of the
acquisition. Failure to achieve such compliance will result in termination of
the Dealer Agreement and a buyback of the related dealership assets by GM. The
Company believes that this aspect of the agreements does not present a
significant risk to its business or future operating results. The Company
believes that all of its Chevrolet dealerships currently comply with GM's
guidelines.
The Company has also agreed that its dealerships offering new vehicles
manufactured by GM will not attempt to sell new vehicles of other automakers.
The Company believes that this requirement of exclusive representation at its GM
dealerships will not adversely affect the Company's overall profitability.
Texas and Oklahoma laws, and the laws of many other states, attempt to limit
automakers' control over dealerships. See "Industry Overview." For example,
under Texas law, despite the terms of contracts between automakers and dealers,
automakers may not prevent the sale of a dealership unless it would harm the
public or the reputation of the automaker. In addition, under Texas law and the
laws of other states, franchised dealerships may challenge automakers' attempts
to establish new franchises in the franchised dealers' markets, and state
regulators may deny applications to establish new dealerships for a number of
reasons,
36
<PAGE>
including a determination that the automaker is adequately represented in the
region. Other laws in Texas and elsewhere limit the ability of automakers to
terminate franchises, withhold their approval for the relocation of a franchise
or require that disputes be arbitrated.
INVENTORY MANAGEMENT
VEHICLES. The Company makes extensive efforts to tailor its vehicle
inventory to meet changes in local consumer demand for different vehicle models
and types and may acquire vehicles from other dealers if it cannot obtain a
sufficient supply from the automakers. The Company is not required by the terms
of its Dealer Agreements to take particular vehicle inventory from the
automakers. New and used vehicle inventory at the Company's dealerships is
continually monitored using an integrated computer inventory system that allows
the Company to track the age and size of its entire inventory and to coordinate
vehicle transfers between its dealerships in response to specific customer
demand. This computerized system also links the Company's dealerships with
secondary-market wholesalers, auctions and other dealers. In addition, the
Company assembles data from on-site surveys of customers at its dealerships and
draws upon automakers' online reports analyzing local, regional and national
vehicle purchasing trends.
The Company generally maintains a 60-day supply of new vehicles. If
Cross-Country Auto has not sold a new vehicle to a customer within 120 days
after receiving the vehicle into inventory, it attempts to transfer the vehicle
to other franchised dealers. Such a transfer does not impact new vehicle sales,
as compared with sales of used vehicles to other dealers and wholesalers, which
are reflected in total used vehicle sales. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." Cross-Country Auto's
policy on its used vehicle inventory is to maintain a 39-day supply and to offer
to other dealers and wholesalers used vehicles remaining unsold for more than 60
days. The Company estimates that sales of used vehicles to other dealers and
wholesalers constituted approximately 23% of its total used vehicle dollar sales
in 1995.
The Company's vice president in charge of dealer operations establishes
guidelines for, and coordinates the purchases of, vehicles to ensure an
efficient allocation of inventory among the dealerships generally. In addition,
each of the Company's dealerships employs new and used vehicle inventory
managers who supervise the size and composition of inventories at their
individual dealerships. Inventory managers are encouraged to act as "brokers" on
behalf of their dealerships, using computerized systems, surveys and market
information to anticipate customer preferences and buy and sell to other Company
dealerships and in secondary markets. The Company believes that its coordinated
system of inventory management is unusual in the industry and enhances its
overall profitability.
Although there can be no assurance either that the Company's acquisition
strategy will be successful or that it will produce the anticipated benefits,
the Company believes that the acquisition of additional dealerships would expand
its internal market for transfers of vehicles among its dealerships and,
therefore, reduce the need to acquire vehicles from other dealers or wholesalers
or sell vehicles in the wholesale market, which frequently results in lower
gross margins. The acquisition of additional dealerships may reduce the total
amount of transportation and other fees paid to other franchised dealers. The
Company believes that its acquisition of additional dealerships also may reduce
its reliance on any particular automaker so that it may be less affected by
changes in buying trends or the automaker's inability to supply requested
inventory. The Company also believes that its acquisition of additional
dealerships may produce economies of scale in its purchasing of used vehicle
inventory.
PARTS. Each of the Company's dealerships sells factory-approved parts for
vehicle makes and models sold by that dealership. These parts are either used in
repairs made by the dealership or sold at wholesale to independent repair shops.
While a majority of the Company's dealerships sell parts primarily through their
own service departments, two of the dealerships sell predominantly at wholesale
to other dealers, body shops and repair businesses.
Currently, each of the Company's dealerships employs its own parts manager
and independently controls its parts inventory and sales. Dealerships that sell
the same new vehicle makes have access to each
37
<PAGE>
other's computerized inventories and frequently obtain unstocked parts from the
Company's other dealerships. The Company uses a computerized tracking system to
manage the inventory of vehicle parts at its dealerships. This system allows
each dealership to monitor customer requests for parts not in stock and the
length of time each part has remained in inventory.
The Company intends to further centralize its inventory system by
establishing uniform standards for inventory control and increasing the
efficiency of cross-dealership exchanges. In addition, the Company intends to
expand the volume of its wholesale parts business.
COMPETITION
The retail automotive industry is highly competitive. Depending on the
geographic market, the Company competes with both dealers offering the same
product line as the Company and dealers offering other automakers' vehicles. The
Company also competes for vehicle sales with auto brokers and leasing companies.
Cross-Country Auto competes with small, local dealerships and with large
multi-franchise auto dealerships. Some of the Company's larger competitors have
greater financial resources and are more widely known than the Company. Some of
the Company's competitors also may utilize marketing techniques, such as
Internet visibility or "no negotiation" sales methods, not currently used by the
Company.
In the Amarillo market, the Company competes with over 10 franchised
dealerships and numerous other independent dealers of used vehicles, most of
which sell vehicles suited to the same customer group that the Company targets.
In the Oklahoma City market, the Company estimates that there are at least 13
multi-franchise dealer groups, many of which have significantly greater market
share and experience than the Company has in the Oklahoma City area.
The Company believes that the principal competitive factors in vehicle sales
are the marketing campaigns conducted by automakers, the ability of dealerships
to offer a wide selection of the most popular vehicles, the location of
dealerships and the quality of customer service. Other competitive factors
include customer preference for makes of automobiles, pricing (including
manufacturer rebates and other special offers) and warranties. The Company
believes that its dealerships are competitive in all of these areas.
In addition to competition for vehicle sales, the Company also competes with
other auto dealers, service stores, auto parts retailers and independent
mechanics in providing parts and service. The Company believes that the
principal competitive factors in parts and service sales are price, the use of
factory-approved replacement parts, the familiarity with a dealer's makes and
models and the quality of customer service. A number of regional or national
chains offer selected parts and service at prices that may be lower than the
Company's prices.
In arranging or providing financing for its customers' vehicle purchases,
the Company competes with a broad range of financial institutions. The Company
believes that the principal competitive factors in offering financing are
convenience, interest rates and contract terms.
In addition to being affected by national competitive trends, the Company's
success depends, in part, on regional auto-buying trends, local and regional
economic factors and other regional competitive pressures. Currently, the
Company sells its vehicles in the Amarillo and Oklahoma City markets. Conditions
and competitive pressures affecting these markets, such as price-cutting by
dealers in these areas, or in any new markets the Company enters, could
adversely affect the Company, although the retail automobile industry as a whole
might not be affected.
GOVERNMENTAL REGULATIONS
A number of regulations affect the Company's business of marketing, selling,
financing and servicing automobiles. The Company also is subject to laws and
regulations relating to business corporations generally.
Under Texas and Oklahoma law, the Company must obtain a license in order to
establish, operate or relocate a dealership or operate an automotive repair
service. See "Vehicle and Parts Suppliers -- Relationships with Automakers."
These laws also regulate the Company's conduct of business, including its
advertising and sales practices. Other states may have similar requirements.
38
<PAGE>
The Company's financing activities with its customers are subject to federal
truth in lending, consumer leasing and equal credit opportunity regulations as
well as state and local motor vehicle finance laws, installment finance laws,
usury laws and other installment sales laws. Some states regulate finance fees
that may be paid as a result of vehicle sales. State and federal environmental
regulations, including regulations governing air and water quality and the
storage and disposal of gasoline, oil and other materials, also apply to the
Company.
The Company believes that it complies substantially with all laws affecting
its business. Possible penalties for violation of any of these laws include
revocation of the Company's licenses and fines. In addition, many laws may give
customers a private cause of action.
PROPERTY
The Company's principal executive offices are located at 1201 South Taylor
Street, Amarillo, Texas 79101, and its telephone number is (806) 374-8653. The
Company has four dealerships at other locations in the Amarillo vicinity. In
addition, the Company operates a Kia dealership at its Westgate facility in
Amarillo. The Company also has two dealerships at adjacent locations in the
Oklahoma City, Oklahoma market. The Company's facilities occupy an aggregate of
approximately 270,000 square feet and are situated on approximately 45 acres of
land.
All of the Company's dealerships are located along interstate highways. One
of the principal factors considered by the Company in evaluating an acquisition
candidate is its location. The Company prefers to acquire dealerships located
along major thoroughfares, primarily interstate highways with ease of access,
which can be easily visited by prospective customers.
The Company owns all of the real estate on which its dealerships are
located, except for its Performance Nissan facility, a portion of its Quality
Nissan facility in Amarillo and a small portion of its Performance Dodge
facility near Oklahoma City. Cross-Country Auto's lease of its Performance
Nissan facility extends until February 2002 and provides the Company with an
option to extend the lease for an additional seven years and an option to
purchase the property in 2002 for $2.2 million. The Company's lease for a
portion of its Quality Nissan facility runs through 1998, with an option to
purchase the property for $400,000 or extend the lease for five years. The
Company also leases its principal corporate offices from GGFP for a lease term
ending 2003. The Company believes that its facilities are adequate for its
current needs. In connection with its acquisition strategy, the Company intends
to evaluate, on a case-by-case basis, the relative benefit of owning or leasing
the real estate associated with a particular dealership.
Under the terms of its Dealer Agreements, the Company must maintain an
appropriate appearance and design of its facilities and is restricted in its
ability to relocate its dealerships. See "Vehicle and Parts Suppliers --
Relationship with Automakers."
EMPLOYEES
As of June 1, 1996 the Company employed 512 people, of whom approximately 84
were employed in managerial positions, 203 were employed in non-managerial sales
positions, 92 were employed in non-managerial parts and service positions and
133 were employed in administrative support positions.
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<PAGE>
The Company believes that many dealerships in the retail automobile industry
have difficulty in attracting and retaining qualified personnel for a number of
reasons, including the historical inability of dealerships to provide employees
with an equity interest in the profitability of the dealerships. The Company
intends, upon completion of the Offering, to provide certain executive officers,
managers and other employees with stock options and believes this type of equity
incentive will be attractive to existing and prospective employees of the
Company. See "Management -- Stock Option Plan."
The Company believes that its relationship with its employees is good. None
of the Company's employees is represented by a labor union. Because of its
dependence on the automakers, however, the Company may be affected by labor
strikes, work slowdowns and walkouts at the automakers' manufacturing
facilities. See "Risk Factors -- Dependence on Automakers." The Company has a
policy of requiring prospective employees to undergo physical examinations,
including tests for illegal substances, prior to being hired and of requiring
employees to consent to drug tests at the Company's discretion during their
employment with the Company.
LEGAL PROCEEDINGS AND INSURANCE
From time to time, the Company is named in claims involving the manufacture
of automobiles, contractual disputes and other matters arising in the ordinary
course of the Company's business. Currently, no legal proceedings are pending
against or involve the Company that, in the opinion of management, could be
expected to have a material adverse effect on the business, financial condition
or results of operations of the Company.
Because of their vehicle inventory and nature of business, automobile retail
dealerships generally require significant levels of insurance covering a broad
variety of risks. The Company's insurance includes an umbrella policy as well as
insurance on its real property, comprehensive coverage for its vehicle
inventory, general liability insurance, employee dishonesty coverage and errors
and omissions insurance in connection with its vehicle sales and financing
activities.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of Cross-Country Auto, and their ages
as of June 21, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Bill A. Gilliland.......................... 58 Chairman, Chief Executive Officer and Director
Robert W. Hall............................. 39 Senior Vice Chairman and Director
Ezra P. Mager.............................. 54 Vice Chairman and Director
Emmett M. Rice, Jr......................... 38 Senior Vice President, Chief Operating Officer and
Director
Charles D. Winton.......................... 33 Vice President, Chief Financial Officer and Secretary
Thomas A. Corchado......................... 38 Vice President -- Fixed Operations
John W. Gaines............................. 36 Vice President -- Systems
James H. Holman............................ 45 Vice President -- City Manager
Benjamin J. Quattrone...................... 32 Vice President -- Dealer Operations
</TABLE>
Bill A. Gilliland has been the Chairman and Chief Executive Officer and a
Director of Cross-Country Auto since its formation. Since 1987, Mr. Gilliland
has been the Managing Partner of the Gilliland Group Family Partnership, which
prior to the Reorganization owned a majority interest in the Company's
dealerships. Mr. Gilliland currently is, and since their acquisition by the
Gilliland Group Family Partnership has been, a director and the president of
each of the Company's dealerships. Mr. Gilliland has worked in the retail
automobile industry for over 30 years. He is a member of the National Auto
Dealers Association and a former board member of the Texas Auto Dealers
Association. Mr. Gilliland's initial term as a director of Cross-Country Auto
will expire at the annual meeting of stockholders of the Company to be held in
1999.
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Robert W. Hall has been the Senior Vice Chairman and a Director of
Cross-Country Auto since its formation. Mr. Hall currently is, and since the
acquisition of the Company's dealerships by the Gilliland Group Family
Partnership has been, a director and the treasurer of each of the dealerships.
Since 1988, Mr. Hall has been a partner of the Gilliland Group Family
Partnership. Mr. Hall is the son-in-law of Mr. Gilliland. Mr. Hall's initial
term as a director of Cross-Country Auto will expire at the annual meeting of
stockholders of the Company to be held in 1997.
Ezra P. Mager has been the Vice Chairman and a Director of Cross-Country
Auto since its formation. From 1990 to January 1996, Mr. Mager was in charge of
acquisition activity for United Auto Group and its predecessors, one of the
largest automobile dealership groups in the United States, and served as its
Executive Vice Chairman from 1995 to January 1996. Prior to that time, Mr. Mager
was an executive vice president and director of Furman Selz, Mager, Dietz &
Birney, Incorporated. Mr. Mager's initial term as a director of Cross-Country
Auto will expire at the annual meeting of stockholders of the Company to be held
in 1998.
Emmett M. Rice, Jr. has been the Senior Vice President, Chief Operating
Officer and a Director of Cross-Country Auto since its formation. Mr. Rice
currently is, and since their acquisition by the Gilliland Group Family
Partnership has been, a director and the vice president of each of the Company's
dealerships. Mr. Rice has worked in and managed certain of the Company's
dealerships for over 13 years. He is a member of the National Auto Dealers
Association and the Texas Auto Dealers Association. Mr. Rice's initial term as a
director of the Company will expire at the annual meeting of stockholders of
Cross-Country Auto be held in 1999.
Charles D. Winton has been a Vice President, the Chief Financial Officer and
the Secretary of Cross-Country Auto since its formation. Mr. Winton currently
is, and since June 1995 has been, the secretary of the Company's Texas-based
dealerships. Prior to that time, Mr. Winton was Vice President of Accounting and
Taxes for Sims-Plummer Financial Services. From 1990 to 1993, Mr. Winton was a
supervisor with George B. Jones & Company, an accounting firm serving franchised
auto dealers.
Thomas A. Corchado has been Vice President -- Fixed Operations of
Cross-Country Auto since the Reorganization. From June 1993 to that time, Mr.
Corchado was employed by GGFP, where he supervised the parts and service
operations of the Company's dealerships. From June 1990 to May 1993, Mr.
Corchado was a senior consultant at Automotive Service Consultants.
John W. Gaines has been the Vice President -- Systems of Cross-Country Auto
since the Reorganization. From February 1992 to that time, Mr. Gaines was
employed by GGFP as the coordinator of projects and systems for the Company's
dealerships. Mr. Gaines was the Controller for the Amarillo National Bank in
Amarillo, Texas, from 1983 to 1992.
James H. Holman has been the Vice President--City Manager of Cross-Country
Auto since the Reorganization, with responsibility for the Oklahoma City
dealerships. From November 1994 to that time, Mr. Holman served as the General
Manager of the Plains Chevrolet Dealership. Mr. Holman also was the General
Manager of the Westgate Chevrolet Dealership from January 1994 to November 1994.
From February 1992 to January 1994, Mr. Holman was the Sales Manager at the
Plains Chevrolet dealership. From 1991 to 1992, Mr. Holman worked for Park Place
Lexus in Dallas, Texas.
Benjamin J. Quattrone has been the Vice President -- Dealer Operations of
Cross-Country Auto since the Reorganization. Prior to that time, Mr. Quattrone
was employed as the Management/Dealer Trainee of the Quality Nissan Dealership
from June 1995. Mr. Quattrone was the District Sales Manager with the Chevrolet
Motor Division of General Motors from August 1989 to February 1995.
As soon as practicable after the Offering, the Company intends to name two
individuals not employed by or affiliated with the Company to Cross-Country
Auto's Board of Directors.
The Board of Directors of Cross-Country Auto is divided into three classes,
each of which, after a transitional period, will serve for three years, with one
class being elected each year. The executive officers are elected annually by,
and serve at the discretion of, the Company's Board of Directors. Following the
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appointment of at least two outside directors, the Company intends to establish
and maintain an Audit Committee, the members of which will consist solely of
outside directors, and a Compensation Committee and a Nominating Committee of
its Board of Directors. Cross-Country Auto has not previously had any of these
committees.
The Company may compensate the members of the Board of Directors who are not
full-time employees of the Company on an annual and per meeting basis as may be
determined in the future. The Company also may decide to compensate members of
committees of the Board of Directors for each meeting attended. Directors of
Cross-Country Auto receive reimbursement of their reasonable out-of-pocket
expenses incurred in connection with their board activities.
EXECUTIVE COMPENSATION
Cross-Country Auto was incorporated in May 1996 and did not conduct any
operations prior to that time. The Company anticipates that during 1996 its most
highly compensated executive officers with annual salaries exceeding $100,000,
and their annual base salaries for 1996, will be: Mr. Gilliland -- $300,000; Mr.
Hall -- $240,000; Mr. Mager -- $240,000; Mr. Rice -- $240,000; and Mr. Holman --
$120,000 (collectively, the "Named Executives"). See Note 5 to the "Pro Forma
Combined Financial Data."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Because the Company was formed in 1996, it did not have a Compensation
Committee for a prior fiscal year. Following the appointment of at least two
outside directors to the Company's Board, the Company intends to form a
Compensation Committee and anticipates naming its two outside directors to serve
on the committee.
STOCK OPTION PLAN
The Company expects to have in place its 1996 Stock Option Plan (the "Stock
Option Plan") immediately prior to completion of the Offering. The Company
anticipates granting, under the Stock Option Plan, options to purchase 6,250
shares of Common Stock to Mr. Mager immediately before completion of the
Offering. Such options will have an exercise price equal to the per share
initial public offering price of the Common Stock. The per share exercise price
of options granted under the Stock Option Plan must equal at least 100% of the
Fair Market Value (as defined in the Stock Option Plan) of a share of
Cross-Country Auto's Common Stock on the date of grant (or 110% in the case of
incentive stock options ("ISOs") granted to employees owning more than 10% of
the Common Stock).
The purpose of the Stock Option Plan is to provide key employees (including
officers) and directors of the Company with additional incentives by increasing
their equity ownership in the Company. The Company intends to reserve a total of
1,325,000 authorized but unissued shares of Common Stock for issuance under the
Stock Option Plan. These reserved shares will represent 10% of the shares of
Common Stock outstanding after the Offering.
Options granted under the Stock Option Plan are intended to qualify as ISOs
under Section 422 of the Internal Revenue Code of 1986, as amended, or be
non-qualified. Holders of ISOs are not taxed until they sell the stock received
upon the exercise of an ISO. The entire spread between the sale proceeds and the
ISO exercise price is a long-term capital gain. Holders of non-qualified options
receive ordinary income upon exercise of the option in an amount equal to the
spread between the value of the purchased stock on exercise and the exercise
price.
The Stock Option Plan is intended to satisfy the conditions of Section 16 of
the Exchange Act pursuant to Rule 16b-3 promulgated thereunder, which rule
exempts certain short-swing gains from recapture by the Company. A committee of
Cross-Country Auto's Board of Directors comprised of at least two directors,
each of whom is "disinterested" within the meaning of Rule 16b-3, will
administer the Stock Option Plan. Subject to the terms of the Stock Option Plan,
this committee will have the sole authority and discretion to grant options,
construe the terms of the plan and make all other determinations and take all
other action with respect to the Stock Option Plan.
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Options will be exercisable during the period specified by the committee
administering the Stock Option Plan, except that options will become immediately
exercisable if there is a Change in Control (as defined in the Stock Option
Plan) of the Company. See "Risk Factors -- Concentration of Voting Power and
Anti-Takeover Provisions." Generally, options will vest over a five-year period.
Option holders may not exercise their options more than 10 years from the date
of grant (or five years in the case of ISOs granted to holders of more than 10%
of Common Stock) or after they leave Cross-Country Auto's employ (other than by
reason of death). Options are nontransferable, except by will or the laws of
intestate succession. Shares underlying options that terminate unexercised are
available for reissuance under the Stock Option Plan.
PRINCIPAL STOCKHOLDERS
The following table describes the beneficial ownership of the Common Stock
as of June 21, 1996 (and after giving effect to the Offering) by (i) each person
who has granted the Underwriters an option to purchase shares of Common Stock
held by such person if the Underwriters' over-allotment option is exercised (a
"Selling Stockholder"), (ii) by each person (or group of affiliated persons) who
is known by Cross-Country Auto to own beneficially more than 5% of the Common
Stock, (iii) by each of the Company's directors and executive officers and (iv)
by all directors and executive officers as a group.
<TABLE>
<CAPTION>
SHARES PERCENT PERCENT NUMBER OF SHARES PERCENT IF OVER-
BENEFICIALLY BEFORE AFTER SUBJECT TO OVER- ALLOTMENT OPTION
BENEFICIAL OWNER (1) OWNED (2) OFFERING OFFERING (3) ALLOTMENT OPTION EXERCISED (4)
- ----------------------------------------- ----------- ------------ -------------- ---------------- -------------------
<S> <C> <C> <C> <C> <C>
Bill A. Gilliland (5).................... 6,925,500 68.4% 52.3% 330,541 49.8%
Robert W. Hall (6)....................... 1,731,375 17.1 13.1 82,635 12.4
Emmett M. Rice, Jr. (7).................. 1,012,500 10.0 7.6 48,325 7.3
Ezra P. Mager............................ 303,750 3.0 2.3 -- 2.3
Charles D. Winton........................ -- -- -- -- --
Thomas A. Corchado....................... -- -- -- -- --
John W. Gaines........................... -- -- -- -- --
James H. Holman.......................... -- -- -- -- --
Benjamin J. Quattrone.................... -- -- -- -- --
All executive officers and directors as a
group (9 persons) (5)................... 9,973,125 98.5 75.3 461,501 71.8
</TABLE>
- ------------------------
(1) The address for each beneficial owner is in care of Cross-Country Auto
Retailers, Inc., 1201 South Taylor Street, Amarillo, Texas 79101.
(2) Except as indicated in the footnotes to this table, to the knowledge of
Cross-Country Auto, the persons named in the table have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them, except to the extent authority is shared by
spouses under applicable state law.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) Assumes that the Underwriters' over-allotment option is exercised in full.
(5) Of these shares, 1,731,375 are owned of record by Xaris, Ltd., a Texas
limited partnership. Pursuant to the terms of an agreement among Mr.
Gilliland, Lori D'Atri (Mr. Gilliland's daughter) and Mr. and Mrs. Robert W.
Hall, Mr. Gilliland controls Xaris Management Co., the general partner of
Xaris, Ltd. Mr. Gilliland disclaims beneficial ownership of these shares.
(6) Mr. Hall and his wife, Robin W. Hall, hold a controlling interest in the
general partner of Twenty-Two Ten, Ltd., a Texas limited partnership, which
is the record owner of these shares.
(7) Mr. Rice and his wife, Nancy J. Rice, hold a controlling interest in the
general partner of Benji Investments, Ltd., a Texas limited partnership,
which is the record owner of these shares.
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Pursuant to the Underwriting Agreement, the Underwriters have agreed to
purchase shares of Common Stock from the Selling Stockholders, if the
Underwriters' over-allotment option is exercised, in proportion to the Selling
Stockholders' respective ownership interests in the Company.
CERTAIN TRANSACTIONS
In anticipation of the Offering, the shareholders of Midway Chevrolet, Inc.,
Plains Chevrolet, Inc., Westgate Chevrolet, Inc., Quality Nissan, Inc. and
Working Man's Credit Plan, Inc. exchanged their shares of stock in those
companies for shares of Common Stock. Those companies then became wholly owned
subsidiaries of Cross-Country Auto. Prior to the Reorganization, Midway, Plains
and Westgate owned the common stock of Performance Nissan, Inc., Performance
Dodge, Inc. and Allied 2000 Collision Center, Inc. After Midway, Plains and
Westgate became subsidiaries of Cross-Country Auto, the shares of common stock
of Performance Nissan, Performance Dodge and Allied 2000 were distributed to
Cross-Country Auto, making them wholly owned subsidiaries of Cross-Country Auto.
The table under the heading "Principal Stockholders" shows the aggregate number
of shares of Common Stock that certain officers and directors and significant
stockholders of the Company received in exchange for their shares of common
stock of Midway Chevrolet, Plains Chevrolet, Westgate Chevrolet, Quality Nissan
and Working Man's Credit.
In connection with its business travel, the Company from time to time uses
an airplane that is owned by Plains Air, Inc. Messrs. Gilliland and Hall, the
Chairman and Senior Vice Chairman, respectively, of the Company, own Plains Air,
Inc. Currently, the Company pays Plains Air, Inc. $13,050 per month plus a fee
of approximately $488 per hour for use of the airplane. In 1995, the Company
paid an aggregate of $199,000 for the use of the airplane. The Company believes
that these fees are no less favorable to the Company than could be obtained in
an arm's-length transaction between unrelated parties. The Company anticipates
that as it pursues its acquisition strategy, its use of this airplane will
increase and its costs associated with the plane will correspondingly increase.
As a privately held company, Cross-Country Auto historically reimbursed
GGFP, which is a Texas partnership controlled by Bill A. Gilliland, the
Company's Chairman and Chief Executive Officer, for costs incurred by GGFP on
behalf of the Company, including the Company's proportionate share of GGFP's
administrative, clerical and other corporate overhead costs. In addition, the
Company paid GGFP a fee for management services generally based on the Company's
profits and the level of management services rendered. Each of Messrs. Gilliland
and Hall holds in excess of 10% of the partnership interests of GGFP. Payments
to GGFP for 1993, 1994 and 1995 were $3.0 million, $3.7 million and $5.4
million, respectively. A portion of these fees have been classified as selling,
general and administrative expenses in the Company's financial statements
included in this Prospectus. The management fees shown separately on the
accompanying financial statements have been discontinued as of January 1, 1996.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
In 1994, GGFP loaned $1.05 million to the Company in connection with the
relocation of the Company's Quality Nissan dealership. Interest on the loan
accrues at 8.0% per annum and is payable monthly. Principal is payable in
quarterly installments, and the Company expects to repay the loan in full out of
funds from operations by the end of 1996. At March 31, 1996, the amount
outstanding under the loan was $500,000.
As with other franchised dealerships, the Company is entitled to deposit
funds in the GMAC Deposit Account in an amount up to 75% of the amount of
inventory financed by GMAC. These funds so deposited earn interest at a rate
equal to the rate charged under the GMAC floorplan. Historically, the Company
has permitted its employees (including its principal stockholders and Named
Executives) to advance funds to the Company for the purpose of investing in the
GMAC Deposit Account. The Company has acted only as an intermediary in this
process. At December 31, 1995 and March 31, 1996, funds advanced and outstanding
from the Company's principal stockholders and Named Executives aggregated $2.9
million and $5.2 million, respectively. Following completion of the Offering,
the Company intends to deposit its funds in the GMAC Deposit Account before
permitting its employees, including its principal stockholders and Named
Executives, to make deposits into the account.
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During 1995, GGFP advanced funds aggregating $2.6 million to the Company for
working capital purposes relating primarily to acquisitions. These advances
accrued interest at an annual rate of 8.0% and were repaid in full in February
1996.
GGFP was the contracting agent for the construction of certain facilities
for the Company during 1995. The total cost of the facility approximated
$570,000, which included approximately $52,000 as payment to GGFP for
architectural and construction management fees.
GGFP leases the Company its corporate offices for an annual rent of $64,800
under a five-year lease extending through June 2001.
In June 1996, the Company issued 303,750 shares of Common Stock to Mr. Mager
for $250,000 in cash pursuant to an agreement dated April 1, 1996. The Company
expects to recognize in the second quarter of 1996 a noncash charge that will be
equal to the difference between the fair value of the Common Stock issued to Mr.
Mager and the cash consideration of $250,000. The Company has engaged an
independent third party appraisal expert to estimate the fair value of the stock
as of April 1, 1996.
It is anticipated that in addition to options to purchase 6,250 shares of
Common Stock that will be granted to him under the Stock Option Plan immediately
before completion of the Offering, Mr. Mager will receive from the Company upon
completion of the Offering an option to purchase an aggregate of 127,588 shares
of Common Stock at the initial public offering price. This option will be
exercisable at any time or from time to time after the first anniversary and
before the tenth anniversary of the completion of the Offering, so long as Mr.
Mager is an employee or serves as a consultant or other advisor to the Company
at the time the option is exercised.
Bill A. Gilliland has unconditionally guaranteed substantially all, and
Emmett M. Rice, Jr. has unconditionally guaranteed a portion, of the Company's
debt to non-affiliates. At March 31, 1996, the aggregate amount of such debt was
$46.3 million. To the extent proceeds of the Offering are applied to reduce any
of this debt, these guarantee obligations will be reduced. Following the
Offering, the Company intends to seek the release of Messrs. Gilliland and Rice
from these guarantees.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 100,000,000 shares of
Common Stock, par value $.01 per share, and 10,000,000 shares of Preferred
Stock, $.01 par value per share.
COMMON STOCK
As of June 21, 1996, there were 10,125,000 shares of Common Stock
outstanding that were held of record by six stockholders. Immediately following
the Offering, 13,250,000 shares of Common Stock will be outstanding.
Holders of Common Stock have one vote per share on matters to be voted upon
by the stockholders of Cross-Country Auto. They do not have cumulative voting
rights. As a result, the holders of more than 50% of the shares of the Common
Stock will have the ability to elect all of Cross-Country Auto's directors. See
"Risk Factors -- Concentration of Voting Power and Anti-Takeover Provisions."
Holders of Common Stock may receive dividends when, as and if declared by the
Board of Directors from any assets legally available therefor and may share
ratably in the assets of the Company legally available for distribution to its
stockholders in the event of the liquidation, dissolution or winding up of the
Company, in each case subject to the rights of the holders of Preferred Stock.
The Company does not intend to pay cash dividends on the Common Stock for the
foreseeable future. See "Dividend Policy." Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights and are subject to the
rights of the holders of any Preferred Stock that the Company may issue. Holders
of Common Stock are not subject to calls or assessments by the Company. All
outstanding shares of Common Stock are, and the shares of Common Stock being
issued and sold hereby will be, when issued, fully paid and non-assessable. The
rights, privileges,
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preferences and priorities of holders of the Common Stock are subject to, and
may be adversely affected by, the rights of the holders of shares of any series
of Preferred Stock that the Company may designate and issue in the future.
Prior to the Offering, there has been no public market for the Common Stock.
Application has been made for listing the Common Stock on the New York Stock
Exchange, subject to official notice of issuance.
PREFERRED STOCK
The Board of Directors of the Company may, subject to applicable law, from
time to time issue up to an aggregate of 10,000,000 shares of Preferred Stock.
The Preferred Stock may be issued in one or more series with such designations,
rights, preferences, privileges and restrictions as the Board of Directors may
determine, in each case without further vote or action by the stockholders. Such
rights may include dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences, sinking
fund provisions and the number of shares constituting any series or the
designation of such series. Because of the broad discretion of the Board of
Directors with respect to the creation and issuance of Preferred Stock without
stockholder approval, the issuance of Preferred Stock may delay, defer or
prevent a change in control of Cross-Country Auto and may adversely affect the
rights of the holders of Common Stock. The issuance of Preferred Stock with
voting or conversion rights may adversely affect the voting power of the holders
of Common Stock. In addition, because the terms of such Preferred Stock may be
fixed by the Board of Directors without stockholder approval, the Preferred
Stock could be designated and issued quickly in the event that the Company
requires additional equity capital. Under certain circumstances, this could have
the effect of decreasing the market price of the Common Stock. As of the date
hereof, the Board of Directors has not provided for the issuance of any series
of Preferred Stock, and except as described below under "-- Stockholders' Rights
Plan," there are no agreements or understandings for the issuance of Preferred
Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
CERTIFICATE OF INCORPORATION AND BYLAWS
Cross-Country Auto has included provisions in its Certificate of
Incorporation and Bylaws to help assure fair and equitable treatment of the
Company's stockholders if a person or group should seek to gain control of
Cross-Country Auto in the future. Such provisions, which are discussed below,
may make a takeover attempt more difficult, whether by tender offer, proxy
contest or otherwise. These provisions may diminish the likelihood that a
potential acquiror will make an offer for the Company's Common Stock, impede a
transaction favorable to the interests of the stockholders, or increase the
difficulty of removing the incumbent Board of Directors and management, even if
such removal would benefit the stockholders.
The Company's Board of Directors is divided into three classes, each of
which, after a transitional period, will serve for three years, with one class
being elected each year. Under the Delaware General Corporation Law,
stockholders of a corporation with a classified board may remove a director only
for cause. Under Cross-Country Auto's Certificate of Incorporation, an
affirmative vote of the holders of at least two-thirds of the shares is required
to amend or repeal the provisions related to the classified board. In addition,
all stockholder action must be taken at a duly called meeting and not by a
consent in writing. The Company's Bylaws do not permit stockholders of
Cross-Country Auto to call a special meeting of stockholders. See "Risk Factors
- -- Concentration of Voting Power and Anti-Takeover Provisions."
DELAWARE TAKEOVER STATUTE
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless prior
to the date the stockholder became an interested stockholder the board approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder or unless one of the two
exceptions to the prohibitions is satisfied: (i) upon consummation of the
transaction that resulted in such person becoming an interested stockholder, the
interested stockholder owned at least 85% of the Company's voting stock
outstanding at the
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time the transaction commenced (excluding, for purposes of determining the
number of shares outstanding, shares owned by certain directors or certain
employee stock plans) or (ii) on or after the date the stockholder became an
interested stockholder, the business combination is approved by the board of
directors and authorized by the affirmative vote (and not by written consent) of
at least two-thirds of the outstanding voting stock excluding that stock owned
by the interested stockholder. A "business combination" includes a merger, asset
sale or other transaction resulting in a financial benefit to the interested
stockholder. An "interested stockholder" is a person who (other than the
corporation and any direct or indirect majority-owned subsidiary of the
corporation), together with affiliates and associates, owns (or, as an affiliate
or associate, within three years prior, did own) 15% or more of the
corporation's outstanding voting stock. It is possible that these provisions may
have the effect of delaying, deterring or preventing a change in control of the
Company.
ANTI-TAKEOVER EFFECT OF PROVISIONS IN DEALER AGREEMENTS
Under the Company's Dealer Agreements with the Chevrolet division of General
Motors, if any person or entity acquires more than 20% of the Common Stock
issued and outstanding at any time and the Chevrolet division determines that
such person or entity does not have interests compatible with those of the
Chevrolet division, or is otherwise not qualified to have an ownership interest
in a Chevrolet dealership (an "Adverse Person"), the Company must transfer its
Chevrolet dealerships to a third party acceptable to the Chevrolet division or
terminate its Dealer Agreements with Chevrolet unless, within 90 days after
Chevrolet's determination, the Adverse Person's ownership interest in the
Company is reduced to less than 20%. See "Risk Factors -- Concentration of
Voting Power and Anti-Takeover Provisions" and "Business -- Vehicle and Parts
Suppliers -- Relationship with Automakers." These change of control provisions
in the Dealer Agreements could discourage a third party from acquiring a
significant equity position in the Company or from seeking control of the
Company.
STOCKHOLDERS' RIGHTS PLAN
Simultaneously with the completion of the Offering, the Company's
Stockholders' Rights Plan (the "Rights Plan") will take effect. The purpose of
the Rights Plan is to promote negotiations between a prospective acquiror and
the Company's Board of Directors in order to ensure that the stockholders'
interests will be best served.
Under the Rights Plan, each stockholder of the Company (including the
Company's existing stockholders) will be issued one right (a "Right") with each
share of Common Stock issued prior to the "Distribution Date" (as defined
below). The Rights are not exercisable, will not be represented by separate
certificates and are transferable with the Common Stock until the tenth day
after such time as a person or entity, together with affiliates and associates,
acquires beneficial ownership of 19.9% of the Common Stock or the tenth day
after a person or entity announces its intention to make such an acquisition
(such person or entity being the "Acquiring Person" and such date being the
"Distribution Date"). Until a Right is exercised, the holder thereof, as such,
will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or receive dividends.
Each Right is exercisable after the Distribution Date for one one-hundredth
of a share of Junior Preferred Stock at a purchase price of $ per share,
subject to adjustment. However, once the Rights are triggered, the holders of
Common Stock (other than the Acquiring Person) have the right, in lieu of
acquiring Junior Preferred Stock, to purchase Common Stock having a market
value, as of the time the Acquiring Person crossed the 19.9% threshold, of twice
the Right's exercise price.
The Company has the right to reduce the threshold to 10%. The Company also
has the right, after the Acquiring Person has crossed the 19.9% or 10% threshold
but before the Acquiring Person has acquired 50% of the Common Stock, to
exchange one new share of Common Stock for each Right (other than Rights held by
the Acquiring Person).
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Under the Rights Plan, if the Company is merged or combined with the
Acquiring Person or if the Company sells 50% or more of its assets to the
Acquiring Person, each holder of a Right (other than an Acquiring Person) has
the right, in lieu of acquiring Junior Preferred Shares, to purchase shares of
common stock of the Acquiring Person having a market value at that time of two
times the exercise price of the Rights.
If the Company is unable to issue a sufficient number of shares of Common
Stock to permit the exercise in full of the Rights for Common Stock, it will
issue shares of Junior Preferred Stock upon exercise of the Rights. The Junior
Preferred Stock is non-redeemable and junior to any other preferred stock of the
Company. The provisions of the Junior Preferred Stock are designed to provide
that each one one-hundredth of a share of Junior Preferred Stock issuable upon
exercise of a Right approximates the value of one share of Common Stock. Each
whole share of Junior Preferred Stock accrues a quarterly dividend of $1 and a
dividend equal to 100 times any dividend paid on the Common Stock. Upon
liquidation of the Company, each whole share of Junior Preferred Stock has a
liquidation preference of $100 plus an amount equal to 100 times the amount paid
on any Common Stock. Each share of Junior Preferred Stock entitles its holder to
100 votes on matters submitted to the Company's stockholders, which votes are
cast with the votes of the holders of Common Stock. If the Company were merged,
consolidated or involved in a similar transaction, each share of Junior
Preferred Stock would entitle its holder to receive 100 times the amount
received by holders of Common Stock in the merger or similar transaction.
Any exercise of the Rights would have a dilutive effect on an Acquiring
Person both economically and in terms of its percentage ownership of the
Company's Common Stock. Therefore, the existence of the Rights may discourage a
third party from attempting to acquire control of the Company. In order to
ensure that the Rights will not interfere with negotiated and approved
transactions between the Company and a potential acquiror, the Company may
redeem the Rights at a price of $.01 per Right at any time prior to the
acquisition by any person or entity of beneficial ownership of 19.9% or more the
Common Stock.
Reference is hereby made to the Rights Agreement to be entered into between
the Company and The Bank of New York, as rights agent, specifying the terms of
the Rights, which includes as an exhibit the form of Rights Certificate, and
this description is qualified in its entirety by reference to the terms and
conditions thereof. The Rights Agreement is an exhibit to the Registration
Statement of which this Prospectus is a part.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Cross-Country Auto's Certificate of Incorporation and Bylaws contain certain
provisions permitted under the Delaware General Corporation Law that limit the
liability of directors. These provisions eliminate a director's personal
liability for monetary damages resulting from a breach of fiduciary duty, except
in certain circumstances involving certain wrongful acts, such as the breach of
a director's duty of loyalty or acts or omissions that involve intentional
misconduct or a knowing violation of law. These provisions do not limit or
eliminate the rights of Cross-Country Auto or any stockholder to seek
non-monetary relief, such as an injunction or rescission, in the event of a
breach of a director's fiduciary duty. These provisions will not alter a
director's liability under federal securities laws. The Company's Certificate of
Incorporation and Bylaws also contain provisions indemnifying the directors and
officers of the Company to the fullest extent permitted by the Delaware General
Corporation Law. The Company believes that these provisions will assist it in
attracting and retaining qualified individuals to serve as directors.
TRANSFER AGENT AND REGISTRAR
The Company has appointed The Bank of New York as the transfer agent and
registrar for the Common Stock, as well as rights agent under the Rights Plan.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering, the Company will have approximately
13,250,000 shares of Common Stock issued and outstanding, assuming no exercise
of options or warrants outstanding. Of the Common Stock outstanding upon
completion of this Offering, the 3,125,000 shares of Common Stock sold in this
Offering will be freely transferable by the holders thereof without restriction
or further registration under the Securities Act, except for any shares held by
"affiliates" of the Company, as that term is defined under
48
<PAGE>
the Securities Act and the regulations promulgated thereunder (an "Affiliate"),
or persons who have been Affiliates within the preceding three months. Holders
of the remaining 10,125,000 shares of Common Stock will not be able to sell
their shares in reliance on Rule 144 under the Securities Act prior to June
1998.
In general, under Rule 144 as currently in effect, a holder (or holders
whose shares are aggregated) of "restricted securities," including persons who
may be deemed affiliated with the Company, whose shares meet a two-year holding
period requirement are entitled to sell, within any three-month period, a number
of these shares that does not exceed the greater of 1% of the then outstanding
shares of Common Stock or the average weekly reported trading volume in the
Common Stock during the four calendar weeks preceding the date on which notice
of the sale is given, provided certain manner of sale and notice requirements
and requirements as to the availability of current public information about the
Company are satisfied. Under Rule 144(k), a holder of "restricted securities"
who is deemed not to have been an affiliate of the Company during the three
months preceding a sale by him, and whose shares meet a three-year holding
period requirement, is entitled to sell those shares, without regard to these
restrictions and requirements. In addition, affiliates of the Company must
comply with the restrictions and requirements of Rule 144, other than the
two-year holding period requirement, in order to sell shares of Common Stock
which are not "restricted securities" (such as shares acquired by affiliates in
the Offering).
The Securities and Exchange Commission (the "Commission") has recently
proposed amendments to Rule 144 and Rule 144(k) that would permit resales of
restricted securities under Rule 144 after a one-year, rather than a two-year,
holding period, subject to compliance with the other provisions of Rule 144, and
would permit resale of restricted securities by non-affiliates under Rule 144(k)
after a two-year, rather than a three-year, holding period. Adoption of such
amendments could result in resales of restricted securities sooner than would be
the case under Rule 144 and Rule 144(k) as currently in effect.
Cross-Country Auto, each of its directors and officers and each current
stockholder of the outstanding Common Stock have agreed with the Underwriters
not to offer, sell or otherwise dispose of any shares of Common Stock or options
or any other rights to acquire shares of Common Stock for a period of 180 days
after the date of this Prospectus without the prior written consent of Morgan
Stanley & Co. Incorporated, except for shares offered or sold by the Company
under the Company's Stock Option Plan. Following the expiration of the 180-day
period, none of these shares will be eligible for sale in the public market
under Rule 144 until June 1998. See "Management -- Stock Option Plan" and
"Underwriters."
Cross-Country Auto has reserved 1,325,000 shares of Common Stock for
issuance under the Stock Option Plan. See "Management -- Stock Option Plan."
After the Offering, the Company may file registration statements under the
Securities Act to register the Common Stock to be issued under this plan. After
the effective date of such registration statement, shares issued under the Stock
Option Plan will be freely tradeable without restriction or further registration
under the Securities Act, unless acquired by affiliates of Cross-Country Auto.
In addition, as part of any acquisition it may complete in the future, the
Company may issue additional shares of Common Stock. See "Business -- Growth
Strategy -- Acquisitions."
Prior to the Offering, there has been no market for the Common Stock. No
prediction can be made regarding the effect, if any, that public sales of shares
of the Common Stock or the availability of shares for sale will have on the
market price of the Common Stock after the Offering. Sales of substantial
amounts of the Common Stock in the public market following the Offering, or the
perception that such sales may occur, could adversely affect the market price of
the Common Stock and could impair the ability of Cross-Country Auto to raise
capital through sales of its equity securities.
49
<PAGE>
UNDERWRITERS
Under the terms and subject to the conditions in the Underwriting Agreement
dated the date hereof (the "Underwriting Agreement"), the Underwriters named
below (the "Underwriters") have severally agreed to purchase, and the Company
has agreed to sell to them, severally, the respective number of shares of Common
Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- ------------------------------------------------------------------------------------- -----------------
<S> <C>
Morgan Stanley & Co. Incorporated....................................................
Furman Selz LLC......................................................................
Rauscher Pierce Refsnes, Inc.........................................................
-----------------
Total............................................................................ 3,125,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by their
counsel and to certain other conditions. The Underwriters are obligated to take
and pay for all of the shares of Common Stock offered hereby (other than those
covered by the Underwriters' over-allotment option described below) if any such
shares are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the Price to Public to set forth on the cover
page hereof and part to certain dealers at a price that represents a concession
not in excess of $ per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per share to other Underwriters or to certain dealers. After the initial
offering of the shares of Common Stock, the offering price and other selling
terms may from time to time be varied by Morgan Stanley & Co. Incorporated,
Furman Selz LLC and Rauscher Pierce Refsnes, Inc. (the "Representatives").
Application has been made for listing the Common Stock on the New York Stock
Exchange under the symbol "XCA".
The Company and the Selling Stockholders (if the Underwriters'
over-allotment option is exercised) have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
Pursuant to the Underwriting Agreement, the Selling Stockholders have
granted to the Underwriters an option, exercisable for 30 days from the date of
this Prospectus, to purchase up to 468,750 additional shares of Common Stock at
the Price to Public set forth on the cover page hereof, less underwriting
discounts and commissions. The Selling Stockholders will participate in the
Offering only if and to the extent the Underwriters exercise the over-allotment
option, and each Selling Stockholder will bear its or his pro rata share of the
expenses related to the exercise of the over-allotment option. The Underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any, made in connection with the Offering. To the extent such option is
exercised, each Underwriter will become obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares of Common Stock as the number set forth next to such Underwriter's name
in the preceding table bears to the total number of shares of Common Stock
offered by the Underwriters hereby. See "Principal Stockholders."
The Company, its directors and executive officers and all existing
stockholders have agreed that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, they will not for a
period of 180 days after the date of this Prospectus (i) offer, pledge, sell,
contract to sell, grant any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of, directly or indirectly, any shares of Common Stock or
any securities convertible into or exercisable or exchangeable for Common Stock
or (ii) enter into any swap or other agreement that transfers, in whole or in
part, any of the economic consequences of ownership of the Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
the
50
<PAGE>
delivery of Common Stock or such other securities, in cash or otherwise, other
than (a) the shares of Common Stock offered hereby, (b) any options or similar
securities issued pursuant to the Stock Option Plan, as such plan is in effect
on the date hereof, and (c) any shares of Common Stock issued by the Company
upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof of which the Underwriters have been advised in
writing. See "Shares Eligible for Future Sale."
The Underwriters have informed the Company that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares of
Common Stock offered by them.
At the request of the Company, the Underwriters have reserved approximately
31,000 shares of Common Stock, representing approximately 1% of the shares of
Common Stock to be sold in the Offering, for sale to certain of its employees
and certain other persons at the public offering price set forth on the cover
page hereof. If such shares are not so sold to employees of the Company, they
will be sold to the public.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Common Stock.
The initial public offering price of the Common Stock will be determined by
negotiations between Cross-Country Auto and the Representatives. Among the
factors that will be considered in determining the initial public offering price
of the Common Stock are the sales, earnings and certain other pro forma
financial and operating information of the Company in recent periods, the future
prospects of the Company and its industry in general, and certain ratios, market
price of securities and certain financial and operating information of companies
engaged in activities similar to those of the Company. Since the Company will be
one of the first public companies in the auto dealership business, the Company
and the Representatives will not be able to use the market prices of other
companies in the same industry as a benchmark in setting the initial public
offering price.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Howard, Darby & Levin, New York, New York. Certain legal
matters will be passed upon for the Underwriters by Shearman & Sterling, New
York, New York.
EXPERTS
The combined financial statements as of December 31, 1994 and 1995 and for
each of the three years in the period ended December 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
Cross-Country Auto has filed with the Commission a Registration Statement on
Form S-1 under the Securities Act for the Shares. This Prospectus, filed as part
of the Registration Statement, omits certain information contained in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements contained herein concerning the provisions
of any documents filed as exhibits to the Registration Statement are not
necessarily complete, and in each instance reference is made to the copy of such
document. Each such statement is qualified in its entirety by such reference.
The Registration Statement, including exhibits and schedules filed therewith,
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Room 1400, Chicago, Illinois 60661. Copies of such materials may be obtained at
prescribed rates from the Public Reference Section of the Commission, Room 1024,
Judiciary Plaza, 450, Fifth Street, N.W., Washington, D.C. 20549, and its public
reference facilities in New York, New York and Chicago, Illinois. The Commission
also maintains a Website (http://www.sec.gov.) that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.
Cross-Country Auto intends to furnish its stockholders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited summary financial
information.
51
<PAGE>
INDEX TO COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
HISTORICAL FINANCIAL STATEMENTS
CROSS-COUNTRY AUTO RETAILERS, INC. AND SUBSIDIARIES
Report of Independent Accountants...................................................................... F-2
Combined Statements of Operations for the years ended December 31, 1993, 1994 and 1995 and for the
three months ended March 31, 1995 and 1996 (unaudited)................................................ F-3
Combined Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (unaudited)................ F-4
Combined Statement of Changes in Stockholders' Equity for the three years ended December 31, 1995, and
for the three months ended March 31, 1996 (unaudited)................................................. F-5
Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and for the
three months ended March 31, 1995 and 1996 (unaudited)................................................ F-6
Notes to Combined Financial Statements................................................................. F-7
HISTORICAL FINANCIAL STATEMENTS
JIM GLOVER DODGE, INC.
Report of Independent Accountants...................................................................... F-21
Statements of Operations for the years ended November 30, 1994 and 1995................................ F-22
Balance Sheets as of November 30, 1994 and 1995 ....................................................... F-23
Statement of Changes in Stockholders' Equity for the two years ended November 30, 1995................. F-24
Statements of Cash Flows for the years ended November 30, 1994 and 1995................................ F-25
Notes to Financial Statements.......................................................................... F-26
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Cross-Country Auto Retailers, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Cross-Country Auto Retailers, Inc. and its subsidiaries at December 31, 1994 and
1995 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Fort Worth, Texas
June 21, 1996
F-2
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Sales:
Vehicle sales $ 150,205 $ 163,721 $ 212,984 $ 45,077 $ 64,009
Other operating revenue 15,159 18,047 23,210 4,990 7,220
--------- --------- --------- --------- ---------
Total sales 165,364 181,768 236,194 50,067 71,229
--------- --------- --------- --------- ---------
Cost and expenses:
Cost of sales 139,626 153,446 198,702 42,449 59,896
Selling, general and administrative 17,194 18,522 25,630 5,377 7,537
Depreciation and amortization 992 934 951 224 353
Management fees paid to related party 2,536 3,183 4,318 798 -
--------- --------- --------- --------- ---------
160,348 176,085 229,601 48,848 67,786
--------- --------- --------- --------- ---------
5,016 5,683 6,593 1,219 3,443
Other income (expense):
Interest income 265 576 830 189 219
Interest expense (2,113) (2,526) (3,918) (893) (1,194)
--------- --------- --------- --------- ---------
Income before income taxes 3,168 3,733 3,505 515 2,468
Income tax provision 1,173 1,351 1,310 193 913
--------- --------- --------- --------- ---------
Net income $ 1,995 $ 2,382 $ 2,195 $ 322 $ 1,555
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-3
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- MARCH 31,
1996
-----------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 5,001 $ 8,362 $ 10,326
Accounts receivable 4,523 9,383 10,297
Inventories 23,243 43,731 36,092
--------- --------- -----------
Total current assets 32,767 61,476 56,715
--------- --------- -----------
Property and equipment, at cost, less accumulated
depreciation 9,283 12,107 12,175
Goodwill, net 3,523 7,385 7,314
Other assets 2,006 2,439 2,335
--------- --------- -----------
Total assets $ 47,579 $ 83,407 $ 78,539
--------- --------- -----------
--------- --------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan notes payable $ 18,964 $ 39,088 $ 33,345
Current maturities of long-term debt 655 1,525 1,470
Accounts payable 1,571 4,846 4,631
Due to affiliates 2,225 5,954 5,881
Accrued expenses and other liabilities 6,966 7,495 7,761
Deferred income taxes 2,336 2,032 2,032
--------- --------- -----------
Total current liabilities 32,717 60,940 55,120
--------- --------- -----------
Long-term debt 7,150 11,859 11,533
Deferred warranty revenue - long-term portion 2,671 3,507 3,230
--------- --------- -----------
Total long-term liabilities 9,821 15,366 14,763
--------- --------- -----------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, none issued - - -
Capital stock, $.01 par value, 100,000,000 shares
authorized, none issued - - -
Paid-in capital 1,064 1,064 1,064
Retained earnings 3,977 6,037 7,592
--------- --------- -----------
Total stockholders' equity 5,041 7,101 8,656
--------- --------- -----------
Commitments and contingencies (Notes 4, 15, 18 and 19)
--------- --------- -----------
Total liabilities and stockholders' equity $ 47,579 $ 83,407 $ 78,539
--------- --------- -----------
--------- --------- -----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1995 AND
THREE MONTHS ENDED MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------------- ---------------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
----------- --------- ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 - $ - - $ - $ 764 $ (234) $ 530
Contributions by Control Group 300 300
Dividends paid (86) (86)
Net income 1,995 1,995
----- --------- ----- --------- --------- ----------- ---------
Balance at December 31, 1993 - - - - 1,064 1,675 2,739
Net income 2,382 2,382
Dividends paid (80) (80)
----- --------- ----- --------- --------- ----------- ---------
Balance at December 31, 1994 - - - - 1,064 3,977 5,041
Net income 2,195 2,195
Dividends paid (135) (135)
----- --------- ----- --------- --------- ----------- ---------
Balance at December 31, 1995 - - - - 1,064 6,037 7,101
Net income (unaudited) 1,555 1,555
----- --------- ----- --------- --------- ----------- ---------
Balance at March 31, 1996 (unaudited) - $ - - $ - $ 1,064 $ 7,592 $ 8,656
----- --------- ----- --------- --------- ----------- ---------
----- --------- ----- --------- --------- ----------- ---------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,995 $ 2,382 $ 2,195 $ 322 $ 1,555
Adjustments to reconcile net income to net
cash provided (used) by operating
activities:
Depreciation and amortization 992 934 951 224 353
Proceeds from extended warranty sales 2,667 2,614 3,345 657 1,040
Amortization of deferred warranty revenue (1,089) (1,648) (2,136) (420) (516)
Deferred taxes and other 367 (1,121) (836) (1,038) 77
(Increase) decrease in:
Accounts receivable (2,383) (74) (4,860) (1,430) (914)
Inventory (1,697) 1,052 (8,285) (5,890) 7,639
Increase (decrease) in:
Accounts payable - trade 458 (604) 3,275 1,452 (215)
Accrued expenses and other liabilities 1,041 1,452 (68) 593 (534)
--------- --------- --------- --------- ---------
Net cash provided (used) by operating
activities 2,351 4,987 (6,419) (5,530) 8,485
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (739) (1,813) (1,485) (273) (323)
Acquisition of minority interest (1,000) - - - -
Acquisition of dealerships - - (302) - -
--------- --------- --------- --------- ---------
Net cash used by investing activities (1,739) (1,813) (1,787) (273) (323)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Change in floor plan notes payable 800 (937) 9,381 6,460 (5,743)
Due to affiliates 473 1,640 3,729 2,230 (73)
Long-term debt repayments (584) (1,277) (1,408) (209) (382)
Paid-in capital 300 - - - -
Dividends paid (86) (80) (135) - -
--------- --------- --------- --------- ---------
Net cash provided (used) by financing
activities 903 (654) 11,567 8,481 (6,198)
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash
equivalents 1,515 2,520 3,361 2,678 1,964
Cash and cash equivalents at beginning of
period 966 2,481 5,001 5,001 8,362
--------- --------- --------- --------- ---------
Cash and cash equivalents at end of period $ 2,481 $ 5,001 $ 8,362 $ 7,679 $ 10,326
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - GENERAL INFORMATION AND BASIS OF PRESENTATION
The accompanying financial statements reflect the combined operations of Plains
Chevrolet, Inc., Midway Chevrolet, Inc., Westgate Chevrolet, Inc., Quality
Nissan, Inc., Performance Nissan, Inc., Performance Dodge, Inc. and Working
Man's Credit Plan, Inc. During June 1996, the shareholders of these entities
exchanged their shares of stock in these companies for 9,821,250 shares of
common stock in a newly created Delaware corporation, Cross-Country Auto
Retailers, Inc., representing all of such corporation's outstanding common stock
prior to the Offering. The shareholders' ownership interest of the newly created
company subsequent to the reorganization and prior to the Offering are as
follows:
<TABLE>
<S> <C>
Gilliland Group Family Partnership ("GGFP") 88.5%
Emmett M. Rice, Jr. 10.0%
Other 1.5%
</TABLE>
All of the GGFP partnership interests are owned and controlled by Bill A.
Gilliland, Chairman and CEO, Bobby Hall, Senior Vice Chairman and son-in-law to
Bill Gilliland, and Lori D'Atri, daughter of Bill Gilliland. The ownership group
described above is hereafter referred to as the Control Group.
Prior to the exchange of stock, Cross-Country Auto Retailers, Inc. did not
conduct business or have any assets and liabilities and, thus, has not operated
as a stand-alone company. The term "Company," when used hereafter, includes
Cross-Country Auto Retailers, Inc., its subsidiaries and its predecessors.
The Company will sell 3,125,000 shares of common stock in an initial public
offering (the "Offering"). The Control Group will remain the principal
stockholders of the Company immediately following the Offering.
The Company operates in one business segment - the retail sales of new and used
automobiles and the service thereof. The Company has three Chevrolet
dealerships, two Nissan dealerships and a Dodge dealership. The three Chevrolet
dealerships and one Nissan dealership are located in the Amarillo, Texas
vicinity and the Dodge and other Nissan dealership are located in the Oklahoma
City, Oklahoma vicinity.
The accompanying combined financial statements are presented as if the Company
had existed as a corporation separate from the Control Group during the periods
presented and include the historical assets, liabilities, revenues and expenses
that are directly related to the Company's operations. All material intercompany
transactions have been eliminated. For the periods presented, certain expenses
reflected in the financial statements include allocations of certain expenses
from GGFP. These allocations include expenses for general management, use of an
airplane, treasury, legal and benefits administration, insurance, tax compliance
and other miscellaneous services. The allocation of expenses was generally based
upon actual costs incurred and such costs were apportioned to the Company on
various methods such as volume of sales, number of employees, profit and actual
expense or time incurred as it related to the Company's business.
Financing associated with working capital needs and mortgage financing used to
purchase property for the dealership operations and their related interest
expense have been historically recorded on the Company's financial statements.
No other interest expense or income has been allocated to the Company in these
financial statements.
F-7
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Management believes that the foregoing allocations were made on a reasonable
basis; however, the allocations of costs and expenses do not necessarily
indicate the costs that would have been or will be incurred by the Company on a
stand-alone basis. Also, the financial information included in the financial
statements may not necessarily reflect the financial position, results of
operations and cash flows of the Company in the future or what the financial
position, results of operations and cash flows would have been if the Company
had been a separate, stand-alone company during the periods presented. It is
expected that after the Offering, the Company will incur additional corporate
expenses as a result of being a public company and will no longer remit
management fees to the Control Group (see Note 17). The pro forma adjustments
described in the unaudited Notes to Combined Pro Forma Financial Data reflect
the elimination of the management fee to GGFP as well as management's estimate
of the additional costs the Company would have incurred for the year ended
December 31, 1995 and the three-month period ended March 31, 1996 as if the
Offering and reorganization had occurred at the beginning of those periods.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM PERIODS - The following notes, insofar as they are applicable
to March 31, 1996 and the three-month periods ended March 31, 1995 and 1996, are
unaudited. These interim combined financial statements have been prepared on the
same basis as the annual financial statements included herewith. In the opinion
of management, all adjustments, consisting only of ordinary recurring accruals
considered necessary to fairly state the unaudited financial position at March
31, 1996 and the unaudited results of operations and cash flows for the three
months ended March 31, 1995 and 1996 have been included. Results for the three
months ended March 31, 1995 and 1996 are not necessarily indicative of results
which may be expected for any other interim period or for any year as a whole.
CASH AND CASH EQUIVALENTS - Cash and cash equivalents include cash on hand and
all highly liquid investments with maturities of three months or less when
purchased.
REVENUES - Revenues from vehicle and parts sales and from service operations are
recognized at the time the vehicle is delivered to the customer or service is
completed.
FINANCE FEES AND INSURANCE COMMISSIONS - Finance fees represent revenue earned
by the Company for notes placed with financial institutions in connection with
customer vehicle financing. Finance fees are recognized in income upon
acceptance of the credit by the financial institution. Insurance income
represents commissions earned on credit life, accident and disability insurance
sold in connection with the vehicle on behalf of third-party insurance
companies.
The Company is charged back for a portion of these fees and commissions should
the customer terminate the finance contract prior to its scheduled maturity. The
estimated allowance for these chargebacks ("chargeback allowance") is based upon
the Company's historical experience for prepayments or defaults on the finance
contracts. Finance fees and insurance commissions, net of chargebacks, are
classified as other operating revenue in the accompanying combined statement of
operations. See Note 7 for an analysis of the allowance for estimated
chargebacks.
INVENTORIES - Vehicles are stated at the lower of cost or market, cost being
determined on a specific identification basis. Parts are stated at the lower of
cost or market, cost being determined on the first-in, first-out (FIFO) basis.
F-8
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
POSTRETIREMENT BENEFITS - The Company has no material postretirement or
postemployment benefits as defined in SFAS No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, or SFAS No. 112, EMPLOYERS'
ACCOUNTING FOR POSTEMPLOYMENT BENEFITS.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
is computed using the straight-line method over the respective lives of the
assets. The ranges of estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings 30 years
Furniture and equipment 3 to 7 years
7 to 15
Leasehold improvements years
</TABLE>
When depreciable assets are sold or retired, the related cost and accumulated
depreciation are removed from the accounts. Any gains or losses are included in
selling, general and administrative expenses. Major additions and betterments
are capitalized. Maintenance and repairs which do not materially improve or
extend the lives of the respective assets are charged to operating expenses as
incurred.
GOODWILL AND OTHER ASSETS - The values assigned to noncompete agreements are
being amortized on a straight-line basis over their contractual lives of five
years. Values assigned to noncompete agreements arising from business
combinations are included as other assets in the accompanying combined balance
sheet. At December 31, 1994 and 1995, the unamortized portion of such noncompete
agreements approximated $192,000 and $92,000, respectively, net of accumulated
amortization of $608,000 and $708,000, respectively. Goodwill represents the
excess of the purchase price over the estimated fair value of the net assets of
acquired businesses and is being amortized over a 40-year period. The cumulative
amount of goodwill amortization at December 31, 1994 and 1995 approximated
$309,000 and $447,000, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS - In March 1995, the FASB issued FAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF ("FAS 121"), which is effective for fiscal years beginning after
December 15, 1995. Effective December 31, 1995, the Company adopted FAS 121
which requires that long-lived assets (i.e., property, plant and equipment and
goodwill) held and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the net book value of the asset may
not be recoverable. An impairment loss will be recognized if the sum of the
expected future cash flows (undiscounted and before interest) from the use of
the asset is less than the net book value of the asset. Generally, the amount of
the impairment loss is measured as the difference between the net book value of
the assets and the estimated fair value of the related assets. The adoption of
this statement at December 31, 1995 had no impact on the Company's results of
operations or its financial position.
ADVERTISING AND PROMOTIONAL COSTS - Advertising and promotional costs are
expensed as incurred and are included in selling, general and administrative
expense in the accompanying combined statement of operations. Total advertising
and promotional expenses approximated $1,433,000, $1,636,000 and $2,638,000 in
1993, 1994 and 1995, respectively.
EXTENDED WARRANTY CONTRACTS - The Company's dealerships offer extended warranty
contracts on new and used vehicles sold. These contracts generally provide
extended coverage for periods of one to six years or 12,000 to 100,000 miles,
whichever comes first. The Company accounts for the sale of its
F-9
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
extended warranty contracts in accordance with FASB Technical Bulletin No. 90-1,
ACCOUNTING FOR SEPARATELY PRICED EXTENDED WARRANTY AND PRODUCT MAINTENANCE
CONTRACTS, which requires that revenues from sales of extended warranty
contracts be recognized ratably over the lives of the contracts. Costs directly
related to sales of extended warranty contracts are deferred and charged to
expense proportionately as the revenues are recognized. A loss is recognized on
extended warranty contracts if the sum of the expected costs of providing
services under the contracts exceed related unearned revenue. The Company also
sells extended service contracts on behalf of unrelated third parties.
Commission revenue for the unrelated third-party extended service contracts is
recognized at the time of sale. Revenue and commissions recognized from the sale
of extended warranty contracts are classified as other operating revenue and the
related costs of parts and service associated therewith are classified as cost
of sales in the accompanying combined statement of operations.
ACCOUNTING FOR STOCK-BASED COMPENSATION - In October 1995, the FASB issued FAS
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("FAS 123"), which is effective
for fiscal years beginning after December 15, 1995. Effective January 1, 1996,
the Company will adopt FAS 123 which establishes financial accounting and
reporting standards for stock-based employee compensation plans. The
pronouncement defines a fair value based method of accounting for an employee
stock option or similar equity instrument and encourages all entities to adopt
that method of accounting for all of their employee stock option compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting as
prescribed by Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK
ISSUED TO EMPLOYEES ("APB 25"). Entities electing to remain with the accounting
in APB 25 must make pro forma disclosures of net income and earnings per share
as if the fair value based method of accounting defined in FAS 123 had been
applied. The Company will account for stock-based employee compensation plans
under the intrinsic method pursuant to APB 25 and will make the disclosures in
its footnotes as required by FAS 123.
INCOME TAXES - Deferred taxes are provided on the liability method whereby
deferred tax assets are recognized for deductible temporary differences and
operating loss carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the differences between
the reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment. The
operations of each of the dealerships have historically filed separate tax
returns from the Control Group.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of financial statements is
determined by reference to various market data and other valuation techniques,
as appropriate. Unless otherwise disclosed, the fair value of financial
instruments approximates their recorded values due primarily to the short-term
nature of their maturities.
EARNINGS PER SHARE - Earnings per share data is not presented, as the historical
capital structure prior to the Offering is not comparable to the capital
structure that will exist after the Offering.
OTHER OPERATING REVENUE - Other operating revenue primarily consists of finance
fees, insurance commissions, sales for parts and service and revenue recognized
from the sale of extended warranty contracts.
F-10
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PERVASIVENESS OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, and related revenues and expenses, and disclosure of gain and loss
contingencies at the date of the financial statements. Actual results could
differ from those estimates.
NOTE 3 - ACQUISITIONS
Effective February 2, 1995, the Company acquired Performance Nissan, Inc.
(formerly Jim Glover Nissan, Inc.). Performance Nissan is engaged in the retail
sales of new and used vehicles and in the retail and wholesale of replacement
parts and vehicle servicing. The total purchase price of approximately $1.4
million was funded originally by bank debt and was subsequently refinanced with
GMAC. The acquisition has been accounted for as a purchase, and the results of
Performance Nissan have been included in the accompanying combined statements of
operations since the date of acquisition. The cost of the acquisition has been
allocated on the basis of the estimated fair market value of the assets acquired
and the liabilities assumed.
A summary of the purchase price allocation for Performance Nissan is presented
below (in thousands):
<TABLE>
<S> <C>
Net working capital $ 76
Equipment 61
Excess of cost over fair value of net assets acquired 1,300
---------
Total $ 1,437
---------
---------
</TABLE>
Effective December 4, 1995, the Company acquired Performance Dodge, Inc.
(formerly Jim Glover Dodge, Inc.). Performance Dodge is engaged in the retail
sales of new and used automobiles and in the retail and wholesale of replacement
parts and vehicle servicing. The total purchase price of approximately $5.9
million was financed with debt proceeds of $3.7 million and a mortgage of $1.85
million, both of which were provided by GMAC. The remaining purchase price
approximating $302,000 was provided with available cash from existing
dealerships. The acquisition has been accounted for as a purchase, and the
results of Performance Dodge have been included in the accompanying combined
statements of operations since the date of the acquisition. The cost of the
acquisition has been allocated on the basis of the estimated fair market value
of the assets acquired and the liabilities assumed.
A summary of the purchase price allocation for Performance Dodge is presented
below (in thousands):
<TABLE>
<S> <C>
Net working capital $ 1,160
Property and equipment 1,992
Excess of cost over fair value of net assets acquired 2,700
---------
Total $ 5,852
---------
---------
</TABLE>
F-11
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The unaudited combined statement of operations data is presented below on a pro
forma basis as though Performance Nissan and Performance Dodge had been acquired
as of the beginning of 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Sales and operating revenue $ 287,849 $ 298,312
--------- ---------
--------- ---------
Net income $ 2,884 $ 2,600
--------- ---------
--------- ---------
</TABLE>
The pro forma results of operations information is not necessarily indicative of
the operating results that would have occurred had the acquisitions been
consummated as of the beginning of each period, nor are they necessarily
indicative of future operations.
In March 1993, the Company acquired the remaining 40% minority interest in
Westgate Chevrolet, Inc. for $1.0 million, resulting in additional goodwill of
$773,000 which is being amortized over 40 years. Minority interest for the two
months ended February 28, 1993 approximated $30,000.
NOTE 4 - MAJOR SUPPLIERS AND FRANCHISE AGREEMENTS
The Company has three GM, two Nissan and one Dodge auto dealerships. The Company
enters into agreements ("Dealer Agreements") with the automakers that supply new
vehicles and parts to its dealerships. The Company's overall sales could be
impacted by the automakers' ability or unwillingness to supply the dealerships
with an adequate supply of popular models. The Company's existing GM Dealer
Agreements have remaining terms of approximately five years, expiring in 2000.
The Nissan and Dodge Dealership Agreements have no stated expiration date.
Management currently believes that it will be able to renew all the GM Dealer
Agreements upon expiration; however, there can be no assurance that the GM
Dealer Agreements will be renewed.
The Dealer Agreements generally limit locations of dealerships and retain
automaker approval rights over changes in dealership management and ownership
greater than 20%. Each automaker also is entitled to terminate the dealership
agreement if the dealership is in material breach of the terms. In addition,
under the June 1996 agreements with GM, the Company has agreed to comply with
GM's Network 2000 Channel Strategy ("Project 2000"). Project 2000 includes a
plan to eliminate 1,500 GM dealerships by the year 2000, primarily through
dealership buybacks and approval by GM of interdealership acquisitions, and
encourages dealers to align GM divisions' brands as may be requested by GM. The
June 1996 agreements require that the Company bring any GM dealership acquired
after the Offering into compliance with the Project 2000 plan within one year of
the acquisition. Failure to achieve such compliance will result in termination
of the Dealer Agreement and a buy back of the related dealership assets by GM.
The Company believes that this aspect of the June 1996 agreements does not
present a significant risk to its business or future operating results. The
Company's ability to expand operations depends, in part, on obtaining the
consent of the automakers to the acquisition or establishment of additional
dealerships.
NOTE 5 - ACCOUNTS RECEIVABLE
Contracts in transit and vehicle receivables primarily represent receivables
from financial institutions such as GMAC, Chrysler Credit Corporation, and
regional banks who provide funding for customer vehicle financing. These
receivables are normally collected in less than 30 days of the sale of the
vehicle.
F-12
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Trade receivables primarily relate to the sale of parts to commercial customers
and finance fees representing amounts due from financial institutions earned
from arranging financing with the Company's customers. Amounts due from auto
manufacturers represent receivables for parts and service work performed on
vehicles pursuant to the auto manufacturer's warranty coverage. Receivables from
auto manufacturers also include amounts due from the auto manufacturer in
connection with the purchase of vehicles ("holdback") pursuant to the dealership
agreement; such amounts are generally remitted to the Company on a quarterly
basis.
The accounts receivable balances at December 31, 1994 and 1995 are comprised of
the following (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Contracts in transit and vehicle receivables $ 2,099 $ 4,837
Trade 1,345 2,596
Due from auto manufacturers 1,085 1,923
Other 129 162
--------- ---------
4,658 9,518
Less: allowance for doubtful accounts (135) (135)
--------- ---------
Total accounts receivable $ 4,523 $ 9,383
--------- ---------
--------- ---------
</TABLE>
NOTE 6 - CONCENTRATIONS OF CREDIT RISK
Financial instruments, which potentially subject the Company to concentration of
credit risk, consist principally of cash and cash equivalents and accounts
receivable. The Company invests a substantial portion of its excess cash with
GMAC and, to a lesser extent, with financial institutions with strong credit
ratings. Cash invested with GMAC can be withdrawn at any time. At December 31,
1995, amounts invested approximated $7,705,000, with the interest rate
approximating 8.5%. At times, amounts invested with financial institutions may
be in excess of FDIC insurance limits. As of December 31, 1995, the Company has
not experienced any losses on its cash equivalents.
Concentrations of credit risk with respect to customer receivables are limited
primarily to auto manufacturers and financial institutions such as GMAC and
regional banks. Credit risk arising from receivables from commercial customers
is minimal due to the large number of customers comprising the Company's
customer base. However, they are concentrated in the Company's two market areas
located in the panhandle area of Texas and central Oklahoma.
NOTE 7 - PROVISION FOR FINANCE FEES AND INSURANCE COMMISSION CHARGEBACKS
Presented below is the change in the allowance for estimated finance fees and
insurance commission chargebacks for the years ended December 31, 1993, 1994 and
1995 (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance January 1 $ 1,131 $ 1,523 $ 1,595
Provision 1,292 1,252 1,917
Actual chargebacks (900) (1,180) (1,456)
--------- --------- ---------
Ending allowance balance at December 31 $ 1,523 $ 1,595 $ 2,056
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-13
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAX MATTERS
Components of income tax expense consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Paid or payable on currently taxable income:
Federal $ 941 $ 1,160 $ 1,910
State 135 178 265
Net increase (decrease) due to deferred income
taxes 97 13 (865)
--------- --------- ---------
Total income tax expense $ 1,173 $ 1,351 $ 1,310
--------- --------- ---------
--------- --------- ---------
</TABLE>
Income tax expense for the years ended December 31, 1993, 1994 and 1995 is
different than the amount computed by applying the U.S. federal income tax rate
to income before income taxes. The reasons for these differences are as follows
(in thousands except percentages):
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Pre-tax income $ 3,168 $ 3,733 $ 3,505
Statutory tax rate 34% 34% 34%
--------- --------- ---------
Federal income tax at statutory rate 1,077 1,269 1,192
State income tax, net of federal benefit 91 103 97
Other 5 (21) 21
--------- --------- ---------
Total income tax expense $ 1,173 $ 1,351 $ 1,310
--------- --------- ---------
--------- --------- ---------
Effective tax rate 37.0% 36.2% 37.4%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Net deferred tax liabilities consist of the following components as of December
31, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Goodwill amortization $ (514) $ (500)
Inventory (3,723) (3,990)
Other -- (37)
--------- ---------
(4,237) (4,527)
--------- ---------
Deferred tax assets:
Accrued compensation -- 401
Deferred warranty revenue 1,624 2,069
Chargeback allowance 588 761
Net operating loss carryforward 141 244
Other 63 96
--------- ---------
2,416 3,571
--------- ---------
Net deferred tax liability $ (1,821) $ (956)
--------- ---------
--------- ---------
</TABLE>
F-14
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
As of December 31, 1995, the Company has net operating loss carryforwards
totaling $677,000, which expire in 2004 through 2010. Management believes that
it is more likely than not that the Company will utilize all of these loss
carryforwards; accordingly, no valuation allowance has been provided.
The Company is changing its tax basis method of valuing inventories from the
LIFO method to the FIFO and specific identification methods in 1996. The balance
of the LIFO reserve as of December 31, 1995 will be amortized into taxable
income over a three to six year period, thereby increasing current taxes
payable. This amortization will create a corresponding reduction in the deferred
tax liability related to inventory and will not impact the Company's effective
tax rate.
NOTE 9 - INVENTORIES
The inventory balances are comprised of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- MARCH 31,
1996
-----------
(unaudited)
<S> <C> <C> <C>
Inventories at cost:
New vehicles and demonstrators $ 15,887 $ 32,502 $ 25,876
Used vehicles 6,067 9,316 8,486
Parts and accessories 1,289 1,913 1,730
--------- --------- -----------
Total inventory $ 23,243 $ 43,731 $ 36,092
--------- --------- -----------
--------- --------- -----------
</TABLE>
NOTE 10 - DEBT
Notes payable and long-term debt (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Floor plan notes payable to General Motors Acceptance
Corporation with interest at prime, collateralized by
vehicle inventory. The prime interest rate at December 31,
1994 and 1995 was 8.50%. $ 18,964 $ 39,088
Mortgage loans at prime rate, maturing in 2000 and 2002,
monthly principal payments aggregating $45,500 plus
interest inclusive of principal and interest,
collateralized by related property. 6,727 8,154
Notes payable to GMAC with interest at prime, collateralized
by property and inventory, quarterly principal payments
aggregating $255,000 with interest and maturing from 1996
through 2002. 1,078 5,230
Due to affiliates on demand, with an average rate of 8.50% at
December 31, 1994 and 1995. 2,225 5,954
--------- ---------
28,994 58,426
Debt payable within one year:
Floor plan notes payable (18,964) (39,088)
Due to affiliates (2,225) (5,954)
Current maturities and notes payable (655) (1,525)
--------- ---------
Total long-term debt $ 7,150 $ 11,859
--------- ---------
--------- ---------
</TABLE>
Substantially all the Company's debt is unconditionally guaranteed by the
Control Group.
F-15
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Maturities of long-term debt for the five years subsequent to December 31, 1995
are as follows (in thousands):
<TABLE>
<S> <C>
1996....................................................... $ 1,525
1997....................................................... 1,345
1998....................................................... 1,345
1999....................................................... 1,345
2000....................................................... 1,592
2001 and thereafter........................................ 6,232
</TABLE>
Management believes that the fair value of the Company's long-term debt
approximates its recorded value based on the floating nature of the related
interest rates.
NOTE 11 - ACCRUED EXPENSES AND OTHER LIABILITIES (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Payroll and bonuses $ 2,150 $ 1,787
Deferred warranty revenue - current portion 1,736 2,109
Chargeback allowance 1,595 2,056
Other 1,485 1,543
--------- ---------
$ 6,966 $ 7,495
--------- ---------
--------- ---------
</TABLE>
NOTE 12 - PROPERTY AND EQUIPMENT (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Land $ 1,673 $ 1,858
Buildings 7,390 10,041
Furniture, fixtures and equipment 4,288 4,830
--------- ---------
13,351 16,729
Less: accumulated depreciation (4,068) (4,622)
--------- ---------
$ 9,283 $ 12,107
--------- ---------
--------- ---------
</TABLE>
NOTE 13 - EMPLOYEE BENEFIT PLANS
The Company's defined contribution plan, available to substantially all
employees, permits eligible participants to contribute from 1% to 15% of their
annual compensation. The Company may make voluntary contributions to the plan as
well. The Company has not made any contributions to the plan for the three years
ended December 31, 1995.
F-16
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Company currently anticipates implementing the following employee benefit
plans upon completion of the Offering:
The Company expects to implement its 1996 Stock Option Plan (the "Plan")
immediately prior to completion of the Offering. The Company anticipates
granting options to purchase 6,250 shares of common stock to a certain executive
officer immediately prior to the Offering exercisable at the offering price. The
Plan requires that the per share exercise price of options granted must equal at
least 100% of the fair market value at date of grant or 110% in the case of
incentive stock options granted to employees owning more than 10% of the
outstanding common stock. The Company intends to reserve 1,325,000 authorized
but unissued shares of common stock for issuance under the Plan. Options will
generally vest over a five-year period.
The Company may grant shares of restricted stock, which are subject to
forfeiture to the Company, under such conditions and for such period of time
(not less than one year) as the Company may determine. The conditions or
restrictions of any restricted stock awards may include restrictions on
transferability, requirements of continued employment, individual performance or
the Company's financial performance.
NOTE 14 - STOCKHOLDERS' RIGHTS PLAN
Simultaneously with the completion of the Offering, the Company's Stockholder's
Rights Plan (the "Plan") will take effect. Pursuant to the Plan, each
shareholder of the Company will be issued one right for each share of common
stock owned. Until a right is exercised, the holder thereof, as such, will have
no rights as a stockholder of the Company. Each right becomes exercisable upon
certain events involving the acquisition of or stated intention by an entity to
acquire 19.9% of the Company's common stock. Upon the occurrence of such an
event, each right entitles its holder to purchase common stock of the Company
or, in certain circumstances, of the acquiror, worth twice as much as the
exercise price. The Company also has the right to reduce the 19.9% threshold to
10%. If the Company is unable to issue a sufficient number of shares of common
stock to permit the exercise in full of the rights for common stock, it will
issue shares of junior preferred stock upon exercise of the rights. The junior
preferred stock is non-redeemable and junior to any other preferred stock of the
Company. The provisions of the junior preferred stock are designed to provide
that each one one-hundredth of a share of junior preferred stock issuable upon
exercise of a right approximates the value of one share of common stock. Each
whole share of junior preferred stock accrues a quarterly dividend of $1 and a
dividend equal to 100 times any dividend paid on the common stock. Upon
liquidation of the Company, each whole share of junior preferred stock has a
liquidation preference of $100 plus an amount equal to 100 times the amount paid
on any common stock. Each share of junior preferred stock entitles its holder to
100 votes on matters submitted to the Company's stockholders, which votes are
cast with the votes of the holders of common stock. If the Company were merged,
consolidated or involved in a similar transaction, each share of junior
preferred stock would entitle its holder to receive 100 times the amount
received by holders of common stock in the merger or similar transaction.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
The Company is a party to various legal actions arising in the ordinary course
of its business. The liability, if any, associated with these matters was not
determinable at December 31, 1995. While it is not feasible
F-17
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
to determine the outcome of these actions, the Company's information, including
discussions with legal counsel, at this time does not indicate that these
matters will have a material adverse effect upon financial condition, results of
operations or cash flows.
The Company is also subject to federal and state environmental regulations,
including rules relating to air and water pollution and the storage and disposal
of gasoline, oil, other chemicals and waste. Local, state and federal
regulations also affect automobile dealerships' advertising, sales, service and
financing activities. The Company believes that it complies with all applicable
laws relating to its business.
The Company has certain financial guarantees outstanding representing
conditional commitments issued by the Company to guarantee the payment of
certain customers' loans. These financial guarantees have historically
represented an immaterial portion of its sales. The Company's exposure for
financial guarantees is less than the customer's full contractual obligations
outstanding under such financial guarantees which at December 31, 1995
approximated $14.4 million. No material loss is anticipated as a result of such
guarantees.
Pursuant to an agreement dated April 1, 1996 between Mr. Ezra P. Mager, Vice
Chairman and Director, and GGFP, Mr. Mager has agreed to purchase 3% (equal to
303,750 shares) of the common stock of the Company on a fully diluted basis for
$250,000. Additionally, pursuant to such agreement, upon the closing of the
Offering the Company is obligated to grant to Mr. Mager an option pursuant to
the 1996 Stock Option Plan to purchase 1% (approximately 133,838 shares
inclusive of the 6,250 shares issuable under grants as described in Note 15) of
the shares of common stock that will then be outstanding, on a fully diluted
basis, with an exercise price equal to the Offering price. The Company will
record the difference between the estimated fair value of the common stock
purchased and the cash consideration paid as employee compensation in its second
quarter of 1996. The Company has engaged an independent third party expert to
appraise the fair value of the stock as of the date of the agreement. The
Company expects that the change will have a material non-cash impact on its
results of operations for the quarter ending June 30, 1996 and for the year
ending December 31, 1996.
NOTE 16 - SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
(In thousands) 1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Interest paid $ 2,104 $ 2,398 $ 3,697
Income taxes paid $ 658 $ 2,034 $ 1,707
</TABLE>
Additionally, the Company acquired two dealerships during 1995, both of which
were financed primarily with debt (see Note 3).
NOTE 17 - RELATED PARTY TRANSACTIONS
The Company receives services provided by GGFP which include treasury, risk
management, tax compliance, employee benefits administration and other
miscellaneous services. The costs associated with these services have been
allocated to the Company as described in Note 1. During fiscal 1993, 1994 and
1995, allocated expenses from GGFP to the Company approximated $419,000,
$508,000 and $1,090,000, respectively. During the unaudited three months ended
March 31, 1995 and 1996, allocated
F-18
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
expenses to the Company approximated $228,000 and $364,000, respectively. These
allocations are classified as selling, general and administrative expense in the
accompanying combined statement of operations.
In connection with its business travel, the Company from time to time uses an
airplane that is owned and operated by Plains Air, Inc. Plains Air, Inc. is
owned by Bill Gilliland and Bobby Hall, Chairman and Senior Vice Chairman,
respectively. Currently, the Company pays Plains Air, Inc. $13,050 per month
plus a fee of approximately $488 per hour for use of the airplane. During 1993,
1994 and 1995 the Company paid Plains Air, Inc. an aggregate of $131,000,
$154,000 and $199,000, and $38,000 and $70,000 for the unaudited three months
ended March 31, 1995 and 1996, respectively, for the use of the airplane.
In addition to the above corporate allocations, the Company has paid the Control
Group a management fee for executive management services. This fee was generally
based upon the profits earned and the level of executive management services
rendered. These fees are shown separately on the face of the accompanying
statement of operations. Commencing in 1996, the Company will no longer pay
management fees to the Control Group. In 1996, the senior management group
consisting of the Chairman, Senior Vice Chairman, Vice Chairman, and Senior Vice
President and Chief Operating Officer, will receive cash compensation
approximating $1,020,000, may receive restricted stock if certain performance
objectives are met and may also receive grants of stock options.
In general, the Company is required to pay for all vehicles purchased from the
automakers upon delivery of the vehicles to the Company. GMAC provides financing
for all new vehicles and used vehicles that are less than five years old and
have been driven less than 70,000 miles. This type of financing is known as
"floor plan financing" or "flooring." Under this arrangement with GMAC, the
Company may deposit funds with GMAC in an amount up to 75% of the amount of the
floor plan financing. Such funds earn interest at the same rate charged by GMAC
to the Company for its flooring. From time to time, the Control Group and other
affiliates will advance funds to the Company primarily for the purpose of
investing their excess cash with GMAC. The Company acts only as an intermediary
in this process. At December 31, 1994 and 1995 and at March 31, 1996, funds
advanced and outstanding from affiliates approximated $1,323,000, $2,895,000 and
$5,388,000 (unaudited), respectively. Aggregate amounts outstanding pursuant to
these arrangements at December 31, 1994 and 1995 and at March 31, 1996 are
included in Due to Affiliates in the accompanying balance sheet. The amount of
interest accrued pursuant to these arrangements during 1993, 1994, 1995 and for
the unaudited three months ended March 31, 1995 and 1996 approximated $10,000,
$122,000, $226,000, $35,000 and $84,000, respectively.
During 1994, GGFP advanced the Company $1.05 million to fund the relocation of
one of its dealerships. During 1995, GGFP advanced funds aggregating $2.6
million to the Company for working capital purposes at the dealerships acquired
in 1995. At December 31, 1994 and 1995 and at March 31, 1996, the amount
outstanding pursuant to these advances approximated $.9 million, $3.1 million
and $.5 million (unaudited), respectively.
GGFP was the contracting agent for the construction of certain facilities for
the Company during 1995. The total cost of the facility approximated $570,000
which included approximately $52,000 as payment to GGFP for architectural and
construction management fees.
The Company leases its corporate offices from GGFP under a five-year lease
extending through June 2001 for an annual rent of approximately $64,800.
F-19
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18 - LEASES
The Company leases, under operating leases, certain of the land and buildings
relating to certain of its dealerships and certain computer equipment. The
property leases expire in 1998 through 2002 and have renewal options ranging
from 5 to 7 years. The Company has an option to purchase the property on which
Performance Nissan, Inc. operates for $2.2 million upon the expiration of the
lease in 2002. Additionally, the Company has an option to purchase a portion of
the property on which Quality Nissan, Inc. operates for $400,000 upon expiration
of that lease in 1998. The total rent expense under all operating leases
approximated $301,000 in 1995.
The aggregate minimum rental commitments for all noncancellable operating leases
are as follows:
<TABLE>
<S> <C>
Fiscal year:
1996................................................. $ 385,000
1997................................................. 385,000
1998................................................. 385,000
1999................................................. 385,000
2000................................................. 279,000
Thereafter........................................... 209,000
----------
$2,028,000
----------
----------
</TABLE>
NOTE 19 - SUBSEQUENT EVENT
Effective June 17, 1996, the Company executed a purchase and sale agreement in
which it has agreed to purchase a Dodge dealership in Oklahoma City for cash
consideration of approximately $12.8 million for fixed assets and intangible
assets, plus an estimated $750,000 for parts inventory. The Company currently
intends to use proceeds from the Offering to fund the purchase price. In
addition, the Company will purchase the new and used vehicle inventory at their
negotiated fair value, which will be funded by floor plan financing provided by
GMAC and proceeds from the Offering. Additionally, the Company has agreed to
issue warrants to the seller to purchase $1,000,000 of common stock at the
Offering price. The warrants can be exercised over a five-year period commencing
with the closing date of the purchase. The fair value of the warrants will
represent additional purchase price consideration to be allocated to the
estimated fair value of the assets acquired. The purchase is contingent upon the
Company's successful completion of its Offering and upon approval of the change
in ownership by Dodge. The dealership's revenue for 1995 approximated $121.0
million. The Company will account for this acquisition as a purchase and
consolidate its results of operations from the date of consummation of the
purchase.
F-20
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Cross-Country Auto Retailers, Inc
.
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in stockholders' equity and of cash flows present fairly,
in all material respects, the financial position of Jim Glover Dodge, Inc. at
November 30, 1994 and 1995 and the results of their operations and their cash
flows for the years then ended in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Fort Worth, Texas
June 4, 1996
F-21
<PAGE>
JIM GLOVER DODGE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Revenues:
Vehicle sales $56,719,000 $55,498,000
Other operating revenues 8,178,000 8,419,000
----------- -----------
Total revenues 64,897,000 63,917,000
----------- -----------
Cost of sales and expenses:
Cost of sales 56,867,000 55,370,000
Selling, general and administrative 6,272,000 7,268,000
Interest expense 270,000 367,000
----------- -----------
63,409,000 63,005,000
----------- -----------
Net income $ 1,488,000 $ 912,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-22
<PAGE>
JIM GLOVER DODGE, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash $ 4,000 $ 632,000
Accounts receivable 2,653,000 2,267,000
Inventories 9,348,000 7,475,000
----------- -----------
Total current assets 12,005,000 10,374,000
Property and equipment, net of accumulated depreciation of
$121,000 and $164,000, respectively 91,000 130,000
----------- -----------
$12,096,000 $10,504,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan notes payable $ 8,240,000 $ 6,688,000
Accounts payable and accrued expenses 696,000 292,000
Due to affiliates - 552,000
----------- -----------
Total current liabilities 8,936,000 7,532,000
----------- -----------
Stockholders' equity:
Common stock, $1 par value - 250,000 shares authorized and
outstanding 250,000 250,000
Retained earnings 2,910,000 2,722,000
----------- -----------
3,160,000 2,972,000
----------- -----------
Commitments and contingencies (Notes 6, 7 and 8)
Total liabilities and stockholders' equity $12,096,000 $10,504,000
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-23
<PAGE>
JIM GLOVER DODGE, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE TWO YEARS ENDED NOVEMBER 30, 1995
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
--------- ----------- -----------
<S> <C> <C> <C>
Balance at November 30, 1993 $ 250,000 $ 1,902,000 $ 2,152,000
Net income - 1,488,000 1,488,000
Distributions to stockholders - (480,000) (480,000)
--------- ----------- -----------
Balance at November 30, 1994 250,000 2,910,000 3,160,000
Net income - 912,000 912,000
Distributions to stockholders - (1,100,000) (1,100,000)
--------- ----------- -----------
Balance at November 30, 1995 $ 250,000 $ 2,722,000 $ 2,972,000
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-24
<PAGE>
JIM GLOVER DODGE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-----------------------
1994 1995
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,488,000 $ 912,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 22,000 24,000
(Increase) decrease in:
Accounts receivable (300,000) 385,000
Inventory (149,000) 1,872,000
Increase (decrease) in:
Accounts payable and accrued expenses (617,000) (404,000)
---------- -----------
Net cash provided by operating activities 444,000 2,789,000
---------- -----------
Cash flows from investing activities:
Investment of property and equipment (34,000) (62,000)
---------- -----------
Cash flows from financing activities:
Change in floor plan notes payable 113,000 (1,551,000)
Advance from affiliates (44,000) 552,000
Distributions to stockholders (480,000) (1,100,000)
---------- -----------
Net cash used by financing activities (411,000) (2,099,000)
---------- -----------
Increase (decrease) in cash (1,000) 628,000
Cash at beginning of period 5,000 4,000
---------- -----------
Cash at end of period $ 4,000 $ 632,000
---------- -----------
---------- -----------
Cash paid for interest $ 274,000 $ 305,000
---------- -----------
---------- -----------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-25
<PAGE>
JIM GLOVER DODGE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OPERATIONS - Jim Glover Dodge, Inc.'s (the "Company") principal
business is the retail sales of new Dodge automobiles obtained through an
exclusive dealer agreement with the manufacturer/distributor and the sale of
used cars. The Company operates in the Oklahoma City area. In addition, the
Company retails and wholesales replacement parts and provides vehicle servicing.
MAJOR SUPPLIER AND DEALER AGREEMENT - The Company purchases substantially all of
its new vehicles and parts inventory from Chrysler Motor Company, Inc. at the
prevailing prices charged by the automobile manufacturer/distributor to all
franchised dealers.
The Company's overall sales could be impacted by the automaker's ability or
unwillingness to supply the dealership with an adequate supply of popular
models. Management currently believes that it will be able to renew the Dealer
Agreement upon expiration. However, there can be no assurance that the Dealer
Agreement will be renewed.
The Dealer Agreement generally limits the location of the dealership and retains
automaker approval rights over changes in dealership management and ownership.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of cash
deposits. The Company generally limits its exposure to credit risks from
balances on deposit in financial institutions in excess of the FDIC-insured
limit. However, at November 30, 1995, cash in excess of the FDIC-insured limit
approximated $532,000.
REVENUE RECOGNITION - Revenues from vehicle and parts sales and from service
operations are recognized at the time the vehicle is delivered to the customer
or service is completed.
ACCOUNTS RECEIVABLE - An allowance for doubtful accounts is provided for
accounts that are deemed to be uncollectible.
INVENTORIES - Vehicles are stated at the lower of cost or market, cost being
determined on a specific identification basis. Parts are stated at the lower of
cost or market, cost being determined on the first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
is computed using the straight-line method over the respective lives of the
assets.
RECOGNITION OF FINANCE FEES AND INSURANCE COMMISSIONS - The Company arranges
financing for its customers' vehicle purchases and insurance in connection
therewith. Financing contracts are reviewed by the dealership and are forwarded
to Chrysler Financing and other financial institutions. The Company receives a
fee from the financial institution for arranging the financing and receives a
commission for the sale of an insurance policy. The Company is charged back for
a portion of this fee should the customer terminate the finance contract before
its scheduled term. Finance fees and insurance commissions, net of chargebacks,
are classified as other operating revenue in the accompanying statement of
operations. See Note 2 for an analysis of the reserve for estimated future
chargebacks.
F-26
<PAGE>
JIM GLOVER DODGE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FEDERAL INCOME TAXES - The Company is organized as a sub-chapter S-Corporation
under the Internal Revenue Code; therefore, the income earned by the Company is
reported on the personal tax returns of the stockholders. Consequently, no
provision for income taxes has been recorded in the accompanying financial
statements.
ADVERTISING AND PROMOTIONAL COSTS - Advertising and promotional costs are
expensed as incurred and are included in selling, general and administrative
expense in the accompanying combined statement of operations. Total advertising
and promotional expenses approximated $1,260,000 and $1,436,000 in 1994 and
1995, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of financial instruments
approximates their recorded values due primarily to the short-term nature of
their maturities.
PERVASIVENESS OF ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses and disclosure of gain and loss contingencies
at the date of the financial statements. The actual outcome of the estimates
could differ from the estimates made in the preparation of the financial
statements.
NOTE 2 - PROVISION FOR FINANCE FEE AND INSURANCE COMMISSION CHARGEBACKS
Presented below is the change in the reserve for estimated finance and insurance
chargebacks for the fiscal years 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Beginning reserve balance at December 01 $ 152,000 $ 93,000
Provision 453,000 525,000
Actual chargebacks (512,000) (510,000)
------------ ------------
Ending reserve balance at November 30 $ 93,000 $ 108,000
------------ ------------
------------ ------------
</TABLE>
NOTE 3 - CONTRACTS IN TRANSIT AND ACCOUNTS RECEIVABLE
Contracts in transit and vehicle receivables primarily represent receivables
from financial institutions such as Chrysler Finance and regional banks who
provide funding for customer vehicle financing. These receivables are normally
collected in less than 30 days of the sale of the vehicle. Trade receivables
primarily relate to the sale of parts to commercial customers and finance fees
representing amounts due from financial institutions earned from arranging
financing with the Company's customers. Amounts due from auto manufacturers
primarily represent receivables for parts and service work performed on vehicles
pursuant to the auto manufacturer's warranty coverage.
F-27
<PAGE>
JIM GLOVER DODGE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The accounts receivable balance at November 30 is comprised of the following:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Trade $ 487,000 $ 437,000
Contracts in transit 1,823,000 1,370,000
Due from manufacturer 249,000 322,000
Due from finance companies 94,000 138,000
------------- -------------
Total accounts receivable $ 2,653,000 $ 2,267,000
------------- -------------
------------- -------------
</TABLE>
NOTE 4 - INVENTORIES
The November 30 inventory balance is comprised of the following:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
New vehicles and demonstrators $ 5,988,000 $ 5,386,000
Used vehicles 2,602,000 1,343,000
Parts and accessories 758,000 746,000
------------- -------------
$ 9,348,000 $ 7,475,000
------------- -------------
------------- -------------
</TABLE>
NOTE 5 - FLOOR PLAN NOTES PAYABLE
The manufacturer/distributor finances new and used vehicle purchases by the
Company. Floor plan notes payable bear interest at the finance company's prime
rate (approximately 9.5% at November 30, 1995). The notes are collateralized by
all of the Company's tangible and intangible personal property, including, but
not limited to, substantially all new, used and demonstrator vehicles, parts and
accessories inventory, accounts receivable, and all machinery and equipment. The
notes are generally due within ten days of the sale of the vehicles or within
three days after receiving the sales proceeds, whichever is sooner. Accordingly,
floor plan notes payable have been classified as current in the accompanying
balance sheet.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company leases the facility on which it conducts its
retail automobile business. In connection with the sale of its business and
inventory to Performance Dodge, Inc. (as more fully discussed in Note 9), the
owners of Performance Dodge, Inc. acquired the Company's primary dealership
facility and continued to lease the facility to the Company. This lease expired
upon the sale of the business and inventory to Performance Dodge, Inc. Two other
land and building leases require annual rent payments of $24,000 and $13,200 and
expire in May 1997 and March 2000, respectively.
Rent expense on all operating leases was approximately $235,000 and $236,000 for
the years ended November 30, 1994 and November 30, 1995, respectively.
Additionally, the Company is liable for property taxes and insurance.
NOTE 7 - LITIGATION
From time to time, the Company is named in claims involving the manufacture and
sale of automobiles, contractual disputes and other matters arising in the
ordinary course of business. Currently, no legal
F-28
<PAGE>
JIM GLOVER DODGE, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
proceedings are pending against or involve the Company that, in the opinion of
management, could be expected to have a material adverse effect on the financial
condition, results of operations or cash flows of the Company in the year of
ultimate settlement.
The Company is also subject to federal and state environmental regulations,
including rules relating to air and water pollution and the storage and disposal
of gasoline, oil and other chemicals and waste. The Company is not aware of any
pending environmental matters or matters of noncompliance with all applicable
environmental laws relating to its business.
In limited circumstances, the Company will either partially or fully guarantee
finance contracts of customers with the financial institutions issuing the
credit. The amount of outstanding finance contracts on which the Company has
either partially or fully guaranteed the financial performance of the customer
approximated $418,000 and $203,000 at November 30, 1994 and November 30, 1995,
respectively.
NOTE 8 - RELATED PARTY TRANSACTIONS
During fiscal 1994 and 1995, the Company leased the primary building and land
from an affiliate of the Company. The Company has accounted for this lease as an
operating lease. During fiscal 1994 and 1995, the Company paid rent of $120,000
and $100,000, respectively, to this affiliate.
Several affiliated corporations advanced the Company funds during fiscal 1995.
These advances bear interest at 9.5% and are due upon demand. Accordingly, these
advances have been classified as a current liability in the accompanying balance
sheet. The balance of these advances at November 30, 1995 approximated $552,000.
There were no outstanding advances from affiliates at November 30, 1994.
NOTE 9 - SUBSEQUENT EVENTS
Effective December 4, 1995, the Company sold substantially all its assets to
Performance Dodge, Inc. for the assumption of its floor plan liability and cash
consideration of approximately $5.9 million. Performance Dodge, Inc. is a
wholly-owned subsidiary of Cross-Country Auto Retailers, Inc.
F-29
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses, other than underwriting
discounts and commissions, payable by Cross-Country Auto in connection with the
sale of the Common Stock being registered. All the amounts shown are estimates,
except for the registration fee with the Securities and Exchange Commission, the
NASD filing fee and the New York Stock Exchange fees.
<TABLE>
<S> <C>
SEC Registration fee.................................................... $ 21,067
NASD filing fee......................................................... 6,610
New York Stock Exchange fees............................................ 119,600
Blue Sky fees and expenses.............................................. 22,500
Printing and engraving expenses......................................... 142,000
Legal fees and expenses................................................. 400,000
Accounting fees and expenses............................................ 550,000
Transfer agent and registrar fees....................................... 7,200
Miscellaneous........................................................... 131,023
---------
TOTAL............................................................... $1,400,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Cross-Country Auto's Certificate of Incorporation and Bylaws set forth the
extent to which officers or directors of Cross-Country Auto may be indemnified
against any liabilities which they may incur. The general effect of such
provisions is that any person made a party to an action, suit or proceeding by
reason of the fact that he is or was a director or officer of the Company, or of
another corporation or other enterprise which he served as such at the request
of the Company, shall be indemnified by the Company against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding,
to the full extent permitted under the laws of the State of Delaware.
Cross-Country Auto's Certificate of Incorporation and Bylaws give the Board of
Directors the authority to extend such indemnification to employees of the
Company as well. These provisions of the Company's Certificate of Incorporation
and Bylaws are not exclusive of any other indemnification rights to which an
officer or director may be entitled, whether by contract or otherwise.
The general effect of the indemnification provisions contained in Section
145 of the Delaware General Corporation Law is as follows: A director or officer
who, by reason of such directorship or officership, is involved in any action,
suit or proceeding (other than an action by or in the right of the corporation)
may be indemnified by the corporation against expenses (including attorney's
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe that his conduct was unlawful.
A director or officer who, by reason of such directorship or officership, is
involved in any action or suit by or in the right of the corporation may be
indemnified by the corporation against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made in respect of any claim,
issue or matter as to which he shall have been adjudged to be liable to the
corporation unless and only to the extent that a court of appropriate
jurisdiction shall approve such indemnification.
Cross-Country Auto's Certificate of Incorporation provides that, to the
maximum extent permitted under the General Corporation Law of the State of
Delaware, a director of Cross-Country Auto shall not be personally liable to the
Company or to any of its stockholders for monetary damages for breach of
fiduciary duty as a director of the Company. Section 102(b)(7) of the Delaware
General Corporation Law permits a corporation to include in its charter a
provision that eliminates or limits the personal liability of a director to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that such provision shall not eliminate or limit
the liability of a director (i) for any breach of the director's
II-1
<PAGE>
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law or (iv) for any transaction from which the director derived an improper
personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Cross-Country Auto was incorporated on May 16, 1996. The Company issued the
following shares of Common Stock as of June 12, 1996 for $10 per share in cash:
<TABLE>
<CAPTION>
STOCKHOLDER NUMBER OF SHARES ISSUED
- --------------------------------------- -----------------------
<S> <C>
Bill A. Gilliland 51
Twenty-Two Ten, Ltd. 17
Xaris, Ltd. 17
Benji Investments, Ltd. 10
</TABLE>
On June 20, 1996, the Company issued the following shares of its Common
Stock in exchange for all of the issued and outstanding shares of common stock
of Plains Chevrolet, Inc., Midway Chevrolet, Inc., Westgate Chevrolet, Inc.,
Quality Nissan, Inc. and Working Man's Credit Plan, Inc.:
<TABLE>
<CAPTION>
STOCKHOLDER NUMBER OF SHARES ISSUED
- --------------------------------------- -----------------------
<S> <C>
Gilliland Group Family Partnership 8,656,790
Benji Investments, Ltd. 1,012,490
KAPL, Ltd. 151,875
</TABLE>
On June 21, 1996, the Company issued 303,750 shares of Common Stock to Ezra
P. Mager for an aggregate of $250,000 in cash.
All of the issuances of securities described above were exempt from
registration pursuant to Section 4(2) of the Securities Act.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
*1.1 Form of Underwriting Agreement
*2.1 Buy-Sell Agreement relating to the Dodge Acquisition
3.1 Certificate of Incorporation of Cross-Country Auto Retailers, Inc.
3.2 Proposed Form of Amended and Restated Certificate of Incorporation of Cross-Country Auto Retailers,
Inc.
3.3 By-laws of Cross-Country Auto Retailers, Inc.
3.4 Proposed Form of Amended and Restated Bylaws of Cross-Country Auto Retailers, Inc.
*4.1 Specimen Common Stock Certificate
*4.2 Stockholders' Rights Plan
*4.3 Proposed Form of Power of Attorney and Custody Agreement
*4.4 Form of 1996 Stock Option Plan of Cross-Country Auto Retailers, Inc.
*5.1 Opinion and Consent of Howard, Darby & Levin
*10.1 Dealer Sales and Service Agreement, dated November 1, 1995, between the Chevrolet Division of
General Motors Corporation and Plains Chevrolet, Inc.**
*10.2 Sales and Service Agreement between Performance Dodge, Inc. and Chrysler Corporation
*10.3 Dealer Sales and Service Agreement, dated February 8, 1995, between the Nissan Division of Nissan
Motor Corporation in U.S.A. and Quality Nissan, Inc.***
*10.4 Dollar Volume Contract, dated March 31, 1994, between Plains Chevrolet, Inc., Westgate Chevrolet,
Inc., Midway Chevrolet, Inc., and Quality Nissan, Inc. and Amarillo Globe News
*10.5 Sublease, dated June 1, 1995, between Gilliland Group Family Partnership and Performance Nissan,
Inc.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
*10.6 Lease, dated March 1, 1994, among John W. Adams, Eleanore A. Braly as Trustee of the Eleanore A.
Braly Trust, Romie G. Carpenter, Melody Lynn Goff, and Selden Simpson and Quality Nissan, Inc.
*10.7 Lease, dated June 1, 1996, between Gilliland Group Family Partnership and Cross-Country Auto
Retailers, Inc.
*10.8 Wholesale Security Agreement, as amended, dated December 4, 1995, between General Motors Acceptance
Corporation and Performance Dodge, Inc. ****
*10.9 Corporation and Shareholders' Agreement of Xaris Management Co.
*10.10 Documents, dated December 4, 1995, relating to $5,550,000 loan by General Motors Acceptance
Corporation to Performance Dodge, Inc.
10.10.1 Promissory Note by Performance Dodge, Inc. to General Motors Acceptance Corporation, in the amount
of $1,850,000
10.10.2 Promissory Note by Performance Dodge, Inc. by General Motors Acceptance Corporation, in the amount
of $3,700,000
10.10.3 Cross-Default and Cross-Collateralization Agreement between General Motors Acceptance Corporation
and Performance Dodge, Inc.
10.10.4 Security Agreement between General Motors Acceptance Corporation and Performance Dodge, Inc.
10.10.5 Mortgage, Assignment and Security Agreement between General Motors Acceptance Corporation and
Performance Dodge, Inc.
*10.11 Documents relating to loan by General Motors Acceptance Corporation to Midway Chevrolet, Inc.
10.11.1 Promissory Note, dated December 15, 1989, by Midway Chevrolet, Inc. to General Motors Acceptance
Corporation, in the amount of $977,249.74
10.11.2 Renewal, Extension and Modification Agreement, dated February 20, 1995, between General Motors
Acceptance Corporation and Midway Chevrolet, Inc.
10.11.3 Security Agreement, dated February 20, 1995, between General Motors Acceptance Corporation and
Midway Chevrolet, Inc.
*10.12 Documents, dated December 4, 1995, relating to $1,350,000 loan by General Motors Acceptance
Corporation to Performance Nissan, L.L.C.
10.12.1 Promissory Note by Performance Nissan, L.L.C. to General Motors Acceptance Corporation, in the
amount of $1,350,000
10.12.2 Cross-Default and Cross-Collateralization Agreement between General Motors Acceptance Corporation
and Performance Nissan, L.L.C.
10.12.3 Security Agreement between General Motors Acceptance Corporation and Performance Nissan, L.L.C.
*10.13 Documents relating to used vehicle inventory financing agreements between General Motors Acceptance
Corporation and Cross-Country Auto Retailers, Inc. dealership subsidiaries
10.13.1 Used Vehicle Wholesale Borrowing Base Credit Line Loan Agreement, dated June 7, 1996, between
General Motors Acceptance Corporation and Peformance Dodge, Inc.****
10.13.2 Promissory Note, dated June 7, 1996, by Performance Dodge, Inc. to General Motors Acceptance
Corporation, in the amount of $3,000,000*****
10.13.3 Cross-Default and Cross-Collateralization Agreement between General Motors Acceptance Corporation
and Performance Nissan, Inc., Performance Dodge, Inc., Midway Chevolet, Inc., Plains Chevrolet,
Inc., Quality Nissan, Inc. and Westgate Chevrolet, Inc.
21.1 Subsidiaries
23.1 Consent of Price Waterhouse LLP, independent accountants, relating to the financial statements of
Cross-Country Auto Retailers, Inc. and subsidiaries and Jim Glover Dodge, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
*23.2 Consent of Howard, Darby & Levin (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
** Substantially identical Agreements exist between the Chevrolet Division and
each of Midway Chevrolet, Inc. and Westgate Chevrolet, Inc.
*** Substantially identical Agreement exists between the Nissan Division and
Performance Nissan, Inc.
**** Substantially identical Agreements exists between GMAC and each of Midway
Chevrolet, Inc., Plains Chevrolet, Inc., Westgate Chevrolet, Inc., Quality
Nissan, Inc. and Performance Nissan, Inc.
*****Substantially identical Promissory Notes have been executed by Midway
Chevrolet, Inc., Plains Chevrolet, Inc., Westgate Chevrolet, Inc., Quality
Nissan, Inc., and Performance Nissan, Inc., in the amounts indicated for
each dealership subsidiary in the Cross-Default and Cross-Collateralization
Agreement (Exhibit 10.13.3).
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To provide to the underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
(2) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement for the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Amarillo, State of Texas,
on June 21, 1996.
CROSS-COUNTRY AUTO RETAILERS, INC.
By /s/ BILL A. GILLILAND
------------------------------------
Name: Bill A. Gilliland
Title: Chairman and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Bill A.
Gilliland, Robert W. Hall , Emmet M. Rice, Jr. and Ezra P. Mager, any of whom
may act without the joinder of the others, as his true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
and supplements to this Registration Statement, and to file the same, with all
exhibits thereto, and all other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATE INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------------ --------------------------------- ----------------------
<C> <S> <C>
/s/ BILL A. GILLILAND Chairman, Chief Executive Officer
------------------------------------------- and Director June 21, 1996
Bill A. Gilliland (principal executive officer)
/s/ ROBERT W. HALL
------------------------------------------- Senior Vice Chairman and Director June 21, 1996
Robert W. Hall
/s/ EZRA P. MAGER
------------------------------------------- Vice Chairman and Director June 21, 1996
Ezra P. Mager
/s/ EMMETT M. RICE, JR.
------------------------------------------- Senior Vice President, Chief June 21, 1996
Emmett M. Rice, Jr. Operating Officer and Director
Vice President and Chief
/s/ CHARLES D. WINTON Financial Officer (principal
------------------------------------------- accounting and financial June 21, 1996
Charles D. Winton officer)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
*1.1 Form of Underwriting Agreement
*2.1 Buy-Sell Agreement relating to the Dodge Acquisition
3.1 Certificate of Incorporation of Cross-Country Auto Retailers, Inc.
3.2 Proposed Form of Amended and Restated Certificate of Incorporation of Cross-Country Auto
Retailers, Inc.
3.3 By-laws of Cross-Country Auto Retailers, Inc.
3.4 Proposed Form of Amended and Restated Bylaws of Cross-Country Auto Retailers, Inc.
*4.1 Specimen Common Stock Certificate
*4.2 Stockholders' Rights Plan
*4.3 Proposed Form of Power of Attorney and Custody Agreement
*4.4 Form of 1996 Stock Option Plan of Cross-Country Auto Retailers, Inc.
*5.1 Opinion and Consent of Howard, Darby & Levin
*10.1 Dealer Sales and Service Agreement, dated November 1, 1995, between the Chevrolet Division
of General Motors Corporation and Plains Chevrolet, Inc.**
*10.2 Sales and Service Agreement between Performance Dodge, Inc. and Chrysler Corporation
*10.3 Dealer Sales and Service Agreement, dated February 8, 1995, between the Nissan Division of
Nissan Motor Corporation in U.S.A. and Quality Nissan, Inc.***
*10.4 Dollar Volume Contract, dated March 31, 1994, between Plains Chevrolet, Inc., Westgate
Chevrolet, Inc., Midway Chevrolet, Inc., and Quality Nissan, Inc. and Amarillo Globe News
*10.5 Sublease, dated June 1, 1995, between Gilliland Group Family Partnership and Performance
Nissan, Inc.
*10.6 Lease, dated March 1, 1994, among John W. Adams, Eleanore A. Braly as Trustee of the
Eleanore A. Braly Trust, Romie G. Carpenter, Melody Lynn Goff, and Selden Simpson and
Quality Nissan, Inc.
*10.7 Lease, dated June 1, 1996, between Gilliland Group Family Partnership and Cross-Country Auto
Retailers, Inc.
*10.8 Wholesale Security Agreement, as amended, dated December 4, 1995, between General Motors
Acceptance Corporation and Performance Dodge, Inc. ****
*10.9 Corporation and Shareholders' Agreement of Xaris Management Co.
*10.10 Documents, dated December 4, 1995, relating to $5,550,000 loan by General Motors Acceptance
Corporation to Performance Dodge, Inc.
10.10.1 Promissory Note by Performance Dodge, Inc. to General Motors Acceptance Corporation, in the
amount of $1,850,000
10.10.2 Promissory Note by Performance Dodge, Inc. by General Motors Acceptance Corporation, in the
amount of $3,700,000
10.10.3 Cross-Default and Cross-Collateralization Agreement between General Motors Acceptance
Corporation and Performance Dodge, Inc.
10.10.4 Security Agreement between General Motors Acceptance Corporation and Performance Dodge, Inc.
10.10.5 Mortgage, Assignment and Security Agreement between General Motors Acceptance Corporation
and Performance Dodge, Inc.
*10.11 Documents relating to loan by General Motors Acceptance Corporation to Midway Chevrolet,
Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
10.11.1 Promissory Note, dated December 15, 1989, by Midway Chevrolet, Inc. to General Motors
Acceptance Corporation, in the amount of $977,249.74
10.11.2 Renewal, Extension and Modification Agreement, dated February 20, 1995, between General
Motors Acceptance Corporation and Midway Chevrolet, Inc.
10.11.3 Security Agreement, dated February 20, 1995, between General Motors Acceptance Corporation
and Midway Chevrolet, Inc.
*10.12 Documents, dated December 4, 1995, relating to $1,350,000 loan by General Motors Acceptance
Corporation to Performance Nissan, L.L.C.
10.12.1 Promissory Note by Performance Nissan, L.L.C. to General Motors Acceptance Corporation, in
the amount of $1,350,000
10.12.2 Cross-Default and Cross-Collateralization Agreement between General Motors Acceptance
Corporation and Performance Nissan, L.L.C.
10.12.3 Security Agreement between General Motors Acceptance Corporation and Performance Nissan,
L.L.C.
*10.13 Documents relating to used vehicle inventory financing agreements between General Motors
Acceptance Corporation and Cross-Country Auto Retailers, Inc. dealership subsidiaries
10.13.1 Used Vehicle Wholesale Borrowing Base Credit Line Loan Agreement, dated June 7, 1996,
between General Motors Acceptance Corporation and Peformance Dodge, Inc.****
10.13.2 Promissory Note, dated June 7, 1996, by Performance Dodge, Inc. to General Motors Acceptance
Corporation, in the amount of $3,000,000*****
10.13.3 Cross-Default and Cross-Collateralization Agreement between General Motors Acceptance
Corporation and Performance Nissan, Inc., Performance Dodge, Inc., Midway Chevolet, Inc.,
Plains Chevrolet, Inc., Quality Nissan, Inc. and Westgate Chevrolet, Inc.
21.1 Subsidiaries
23.1 Consent of Price Waterhouse LLP, independent accountants, relating to the financial
statements of Cross-Country Auto Retailers, Inc. and subsidiaries and Jim Glover Dodge, Inc.
*23.2 Consent of Howard, Darby & Levin (included in Exhibit 5.1)
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
** Substantially identical Agreements exist between the Chevrolet Division and
each of Midway Chevrolet, Inc. and Westgate Chevrolet, Inc.
*** Substantially identical Agreement exists between the Nissan Division and
Performance Nissan, Inc.
**** Substantially identical Agreements exists between GMAC and each of Midway
Chevrolet, Inc., Plains Chevrolet, Inc., Westgate Chevrolet, Inc., Quality
Nissan, Inc. and Performance Nissan, Inc.
*****Substantially identical Promissory Notes have been executed by Midway
Chevrolet, Inc., Plains Chevrolet, Inc., Westgate Chevrolet, Inc., Quality
Nissan, Inc., and Performance Nissan, Inc., in the amounts indicated for
each dealership subsidiary in the Cross-Default and Cross-Collateralization
Agreement (Exhibit 10.13.3).
ii
<PAGE>
CERTIFICATE OF INCORPORATION
OF
CROSS-COUNTRY AUTO RETAILERS, INC.
FIRST: The name of the corporation is Cross-Country Auto Retailers,
Inc.
SECOND: The address of the corporation's registered office in this
State is
1209 Orange Street,
Wilmington, New Castle County, Delaware 19801
and the name of its registered agent at such address is
The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of Delaware.
FOURTH: The corporation is authorized to issue one class of common
stock. The total number of shares of common stock which the corporation shall
have authority to issue shall be 10,000. Each share shall have a par value of
$.01.
FIFTH: The name and mailing address of the incorporator is Paul F.
Kenny, c/o Howard, Darby & Levin, 1330 Avenue of the Americas, New York, New
York 10019.
SIXTH: Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this corporation, as the case may be,
and also on this corporation.
<PAGE>
SEVENTH: No director shall have any personal liability to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. However, this provision does not eliminate or limit the
liability of a director (a) for any breach of the director's duty of loyalty to
the corporation or its stockholders, (b) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law of Delaware or (d) for any
transaction from which the director derived an improper personal benefit. If
the General Corporation Law of Delaware is amended after the effective date of
this Certificate of Incorporation to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of this corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of Delaware, as so amended. Any
repeal or modification of this Section either (i) by the stockholders of this
corporation of (ii) by an amendment to the General Corporation Law of Delaware
(unless such statutory amendment specifically provides to the contrary) shall
not adversely affect any right or protection, existing at the time of such
repeal or modification with respect to any acts or omissions occurring either
before or after such repeal or modification, of a person serving as a director
at the time of such repeal or modification.
EIGHTH: The board of directors of this corporation may adopt, amend
or repeal by-laws of this corporation.
NINTH: Elections of directors need not be by written ballot, unless
so requested by a stockholder present and entitled to vote at the meeting.
IN WITNESS WHEREOF, I have hereunto set my hand.
___________________________
Incorporator
-2-
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CROSS-COUNTRY AUTO RETAILERS, INC.
Cross-Country Auto Retailers, Inc. (the "Corporation") certifies as
follows:
I. The name of the Corporation is Cross-Country Auto Retailers, Inc. The
original Certificate of Incorporation was filed with the Secretary of State of
the State of Delaware on May 16, 1996.
II. The text of the Certificate of Incorporation is hereby amended and
restated to read in its entirety as follows:
"1. The name of the Corporation is Cross-Country Auto Retailers, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. (a) The total number of shares of stock which the Corporation shall
have the authority to issue is 110,000,000 shares of capital stock, classified
as 100,000,000 shares of common stock, par value $.01 per share, and 10,000,000
shares of preferred stock, par value $.01 per share.
(b) PREFERRED STOCK.
(i) The Preferred Stock may be issued from time to time in one
or more classes or series, the shares of each class or series to have such
designations and powers, preferences and rights, and qualifications,
limitations and restrictions thereof, as are stated and expressed herein
and in the resolution or resolutions providing for the issue of such class
or series adopted by the board of directors of the Corporation as hereafter
prescribed.
(ii) Authority is hereby expressly granted to and vested in the
board of directors of the Corporation to authorize the issuance of the
Preferred Stock from time to time in one or more classes or series and,
with respect to each class or series of the
<PAGE>
Preferred Stock, to fix and state, by the resolution or resolutions from
time to time adopted providing for the issuance thereof, the following:
(A) whether or not the class or series is to have voting
rights, full, special, or limited, or is to be without voting rights, and
whether or not such class or series is to be entitled to vote as a separate
class either alone or together with the holders of one or more other
classes or series of stock;
(B) the number of shares to constitute the class or series
and the designations thereof;
(C) the preferences, and relative participating, optional,
or other special rights, if any, and the qualifications, limitations, or
restrictions thereof, if any, with respect to any class or series;
(D) whether or not the shares of any class or series shall
be redeemable at the option of the Corporation or the holders thereof or
upon the happening of any specified event, and, if redeemable, the
redemption price or prices (which may be payable in the form of cash,
notes, securities, or other property), and the time or times at which, and
the terms and conditions upon which, such shares shall be redeemable and
the manner of redemption;
(E) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied to
the purchase or redemption of such shares for retirement, and, if such
retirement or sinking fund or funds are to be established, the annual
amount thereof, and the terms and provisions relative to the operation
thereof;
(F) the dividend rate, whether dividends are payable in
cash, stock of the Corporation, or other property, the conditions upon
which and the times when such dividends are payable, the preference to or
the relation to the payment of dividends payable on any other class or
classes or series of stock, whether or not such dividends shall be
cumulative or noncumulative, and if cumulative, the date or dates from
which such dividends shall accumulate;
(G) the preferences, if any, and the amounts thereof which
the holders of any class or series thereof shall be entitled to receive
upon the voluntary or involuntary liquidation, dissolution, or winding-up
of, or upon any distribution of the assets of, the Corporation;
(H) whether or not the shares of any class or series, at
the option of the Corporation or the holder thereof or upon the happening
of any specified event, shall be convertible into or exchangeable for, the
shares of any other class or classes or of any other series of the same or
any other class or classes of stock,
-2-
<PAGE>
securities, or other property of the Corporation and the conversion price
or prices or ratio or ratios or the rate or rates at which such exchange
may be made, with such adjustments, if any, as shall be stated and
expressed or provided for in such resolution or resolutions; and
(I) such other special rights and protective provisions
with respect to any class or series as may to the board of directors of the
Corporation seem advisable.
(iii) The shares of each class or series of the Preferred
Stock may vary from the shares of any other class or series thereof in any
or all of the foregoing respects. The board of directors of the
Corporation may increase the number of shares of the Preferred Stock
designated for any existing class or series by a resolution adding to such
class or series authorized and unissued shares of the Preferred Stock not
designated for any other class or series. The board of directors of the
Corporation may decrease the number of shares of the Preferred Stock
designated for any existing class or series by a resolution subtracting
from such class or series authorized and unissued shares of the Preferred
Stock designated for such existing class or series, and the shares so
subtracted shall become authorized, unissued, and undesignated shares of
the Preferred Stock.
5. (a) The directors, other than those who may be elected by the holders
of any class or series of Preferred Stock, shall be divided into three classes,
as nearly equal in number as possible. One class of directors shall be
initially elected for a term expiring at the annual meeting of stockholders to
be held in 1997, another class shall be initially elected for a term expiring at
the annual meeting of stockholders to be held in 1998, and another class shall
be initially elected for a term expiring at the annual meeting of stockholders
to be held in 1999. Members of each class shall hold office until their
successors are elected and qualified. At each succeeding annual meeting of the
stockholders of the Corporation, the successors of the class of directors whose
term expires at that meeting shall be elected by a majority of all votes cast at
such meeting to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
Election of directors need not be by written ballot.
(b) Any director or the entire Board of Directors may be removed, but
only for cause, and only by the affirmative vote of the holders of at least a
majority of the shares then entitled to vote at an election of directors (the
"Voting Shares"), voting together as a single class.
(c) The affirmative vote of the holders of at least two-thirds of the
Voting Shares, voting together as a single class, shall be required to amend or
repeal this Section 5 or adopt any provision inconsistent herewith.
-3-
<PAGE>
6. The Board of Directors is authorized to make, alter or repeal the by-
laws of the Corporation.
7. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under the provisions of Section 279 of Title 8 of the Delaware Code
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization of
the Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
8. No director shall have any personal liability to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. However, this provision does not eliminate or limit the liability of
a director (a) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law of Delaware or (d) for any
transaction from which the director derived an improper personal benefit. If
the General Corporation Law of Delaware is amended after the effective date of
this Certificate of Incorporation to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of this Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of Delaware, as so amended. Any
repeal or modification of this Section either (i) by the stockholders of this
Corporation or (ii) by an amendment to the General Corporation Law of Delaware
(unless such statutory amendment specifically provides to the contrary) shall
not adversely affect any right or protection, existing at the time of such
repeal or modification with respect to any acts or omissions occurring either
before or after such repeal or modification, of a person serving as a director
at the time of such repeal or modification.
9. No action required or permitted to be taken at any meeting of the
holders of the common stock of the Corporation may be taken without such
meeting, the giving of prior notice or the taking of a vote. The power of the
holders of the common stock of the Corporation to consent, in writing or
otherwise, to the taking of any action without such meeting, notice and vote is
specifically denied."
-4-
<PAGE>
III. In lieu of a meeting and a vote of stockholders, the stockholders of
the Corporation acting by unanimous written consent have approved such amendment
in accordance with Section 228 of the Delaware General Corporation Law.
IV. The amendment and restatement was duly adopted in accordance with the
provisions of Sections 242 and 245 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its _____________________ this _____ day of ___________, 1996.
CROSS-COUNTRY AUTO RETAILERS, INC.
By:
-------------------------------
Name:
Title:
-5-
<PAGE>
BY-LAWS
OF
CROSS-COUNTRY AUTO RETAILERS, INC.
ARTICLE I
STOCKHOLDERS
Section 1.1. ANNUAL MEETINGS. An annual meeting of stockholders
shall be held for the election of directors at such date, time and place either
within or without the State of Delaware as may be designated by the Board of
Directors from time to time. Any other proper business may be transacted at the
annual meeting.
Section 1.2. SPECIAL MEETINGS. Special meetings of stockholders may
be called at any time by the Chairman of the Board, if any, the Vice Chairman of
the Board, if any, the President or the Board of Directors, to be held at such
date, time and place either within or without the State of Delaware as may be
stated in the notice of the meeting. A special meeting of stockholders shall be
called by the Secretary upon the written request, stating the purpose of the
meeting, of stockholders who together own of record a majority of the
outstanding shares of each class of stock entitled to vote at such meeting.
Section 1.3. NOTICE OF MEETINGS. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation.
Section 1.4. ADJOURNMENTS. Any meeting of stockholders, annual or
special, may be adjourned from time to time, to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business
which might have been transacted at the original meeting. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 1.5. QUORUM. At each meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of stock entitled to vote on
a matter at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, where a
<PAGE>
separate vote by class or classes is required for any matter, the holders of a
majority of the outstanding shares of such class or classes, present in person
or represented by proxy, shall constitute a quorum to take action with respect
to that vote on that matter. Two or more classes or series of stock shall be
considered a single class if the holders thereof are entitled to vote together
as a single class at the meeting. In the absence of a quorum of the holders of
any class of stock entitled to vote on a matter, the holders of such class so
present or represented may, by majority vote, adjourn the meeting of such class
from time to time in the manner provided by Section 1.4 of these by-laws until a
quorum of such class shall be so present or represented. Shares of its own
capital stock belonging on the record date for the meeting to the Corporation or
to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither by entitled to vote nor be counted for quorum
purposes; PROVIDED, that the foregoing shall not limit the right of the
Corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.
Section 1.6. ORGANIZATION. Meetings of stockholders shall be
presided over by the Chairman of the Board if any, or in the absence of the
Chairman of the Board by the Vice Chairman of the Board, if any, or in the
absence of the Vice Chairman of the Board by the President, or in the absence of
the President by a Vice President, or in the absence of the foregoing persons by
a chairman designated by the Board of Directors, or in the absence of such
designation by a chairman chosen at the meeting. The Secretary, or in the
absence of the Secretary an Assistant Secretary, shall act as secretary of the
meeting, but in the absence of the Secretary and any Assistant Secretary the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 1.7. VOTING; PROXIES. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. If the
certificate of incorporation provides for more or less than one vote for any
share on any matter, every reference in these by-laws to a majority or other
proportion of stock shall refer to such majority or other proportion of the
votes of such stock.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power,
regardless of whether the interest with which it is coupled is an interest in
the stock itself or an interest in the Corporation generally. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing an instrument in writing revoking the proxy or another duly
executed proxy bearing a later date with the Secretary of the Corporation.
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Voting at meetings of stockholders need not be by written ballot and
need not be conducted by inspectors unless the holders of a majority of the
outstanding shares of all classes of stock entitled to vote thereon present in
person or represented by proxy at such meeting shall so determine. Directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
directors. In all other matters, unless otherwise provided by law or by the
certificate of incorporation or these by-laws, the affirmative vote of the
holders of a majority of the shares present in person or represented by proxy at
the meeting and entitled to vote on the subject matter shall be the act of the
stockholders. Where a separate vote by class or classes is required, the
affirmative vote of the holders of a majority of the shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class, except as otherwise provided by law or by the certificate of
incorporation or these by-laws.
Section 1.8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than sixty nor less
than ten days before the date of such meeting. If no record date is fixed by
the Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; PROVIDED, that the Board of Directors may fix a new
record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board of
Directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the Board of
Directors. If no record date has been fixed by the Board of Directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the Board of Directors is
required by law, shall be the first date on which a signed written consent
setting forth the action taken or proposed to be taken is delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by law, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting shall be at
the close of business on the day on which the Board of Directors adopts the
resolution taking such prior action.
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In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 1.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
Section 1.10. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise provided in the certificate of incorporation or by law, any action
required by law to be taken at any annual or special meeting of stockholders of
the Corporation, or any action which may be taken at any annual or special
meeting of such stockholders, may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted and shall be delivered to the Corporation by delivery to
(a) its registered office in the State of Delaware by hand or by certified mail
or registered mail, return receipt requested, (b) its principal place of
business, or (c) an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded.
Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within sixty days of the
earliest dated consent delivered in the manner required by this by-law to the
Corporation, written consents signed by a sufficient number of holders to take
action are delivered to the Corporation by delivery to (a) its registered office
in the State of Delaware by hand or by certified or registered mail, return
receipt requested, (b) its principal place of business, or (c) an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded.
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Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. POWERS; NUMBER; QUALIFICATIONS. The business and
affairs of the Corporation shall be managed by or under the direction of the
Board of Directors, except as may be otherwise provided by law or in the
certificate of incorporation. The Board of Directors shall consist of one or
more members, the number thereof to be determined from time to time by the
Board. Directors need not be stockholders.
Section 2.2. ELECTION; TERM OF OFFICE; RESIGNATION; REMOVAL;
VACANCIES. Each director shall hold office until his or her successor is
elected and qualified or until his or her earlier resignation or removal. Any
director may resign at any time upon written notice to the Board of Directors or
to the President or the Secretary of the Corporation. Such resignation shall
take effect at the time specified therein, and unless otherwise specified
therein no acceptance of such resignation shall be necessary to make it
effective. Any director or the entire Board of Directors may be removed, with
or without cause, by the holders of a majority of the shares then entitled to
vote at an election of directors. Whenever the holders of any class or series
of stock are entitled to elect one or more directors by the certificate of
incorporation, the provisions of the preceding sentence shall apply, in respect
to the removal without cause of a director or directors so elected, to the vote
of the holders of the outstanding shares of that class or series and not to the
vote of the outstanding shares as a whole. Unless otherwise provided in the
certificate of incorporation or these by-laws, vacancies and newly created
directorships resulting from any increase in the authorized number of directors
elected by all of the stockholders having the right to vote as a single class or
from any other cause may be filled by a majority of the directors then in
office, although less than a quorum, or by the sole remaining director.
Whenever the holders of any class or classes of stock or series thereof are
entitled to elect one or more directors by the certificate of incorporation,
vacancies and newly created directorships of such class or classes or series may
be filled by a majority of the directors elected by such class or classes or
series thereof then in office, or by the sole remaining director so elected.
Section 2.3. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board may from time to time determine, and if so determined
notice thereof need not be given.
Section 2.4. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, if any, by the Vice
Chairman of the Board, if any, by the President or
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by any two directors. Reasonable notice thereof shall be given by the person or
persons calling the meeting.
Section 2.5. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE
PERMITTED. Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the Board of Directors, or any committee designated by
the Board, may participate in a meeting of the Board or of such committee, as
the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
Section 2.6. QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of
the Board of Directors one-third of the entire Board shall constitute a quorum
for the transaction of business. The vote of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
unless the certificate of incorporation or these by-laws shall require a vote of
a greater number. In case at any meeting of the Board a quorum shall not be
present, the members of the Board present may adjourn the meeting from time to
time until a quorum shall be present.
Section 2.7. ORGANIZATION. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board, if any, or in the absence of the
Chairman of the Board by the Vice Chairman of the Board, if any, or in the
absence of the Vice Chairman of the Board by the President, or in their absence
by a chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.8. ACTION BY DIRECTORS WITHOUT A MEETING. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or of such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
Section 2.9. COMPENSATION OF DIRECTORS. Unless otherwise restricted
by the certificate of incorporation or these by-laws, the Board of Directors
shall have the authority to fix the compensation of directors.
ARTICLE III
COMMITTEES
Section 3.1. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of
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one or more of the directors of the Corporation. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors or in these by-laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the certificate of incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
of Directors, fix the designations and any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, removing or
indemnifying directors or amending these by-laws; and, unless the resolution,
these by-laws or the certificate of incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock or to adopt a certificate of ownership and merger.
Section 3.2. COMMITTEE RULES. Unless the Board of Directors
otherwise provides, each committee designated by the Board may adopt, amend and
repeal rules for the conduct of its business. In the absence of a provision by
the Board or a provision in the rules of such committee to the contrary, a
majority of the entire authorized number of members of such committee shall
constitute a quorum for the transaction of business, the vote of a majority of
the members present at a meeting at the time of such vote if a quorum is then
present shall be the act of such committee, and in other respects each committee
shall conduct its business in the same manner as the Board conducts its business
pursuant to Article II of these by-laws.
ARTICLE IV
OFFICERS
Section 4.1. OFFICERS; ELECTION. As soon as practicable after the
annual meeting of stockholders in each year, the Board of Directors shall elect
a President and a Secretary, and it may, if it so determines, elect from among
its members a Chairman of the Board and a Vice Chairman of the Board. The Board
may also elect one or more Vice Presidents, one or more
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Assistant Vice Presidents, one or more Assistant Secretaries, a Treasurer and
one or more Assistant Treasurers and such other officers as the Board may deem
desirable or appropriate and may give any of them such further designations or
alternate titles as it considers desirable. Any number of offices may be held
by the same person unless the certificate of incorporation or these by-laws
otherwise provide.
Section 4.2. TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES. Unless
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. Any officer
may resign at any time upon written notice to the Board or to the President or
the Secretary of the Corporation. Such resignation shall take effect at the
time specified therein, and unless otherwise specified therein no acceptance of
such resignation shall be necessary to make it effective. The Board may remove
any officer with or without cause at any time. Any such removal shall be
without prejudice to the contractual rights of such officer, if any, with the
Corporation, but the election of an officer shall not of itself create
contractual rights. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled by the Board at any
regular or special meeting.
Section 4.3. POWERS AND DUTIES. The officers of the Corporation
shall have such powers and duties in the management of the Corporation as shall
be stated in these by-laws or in a resolution of the Board of Directors which is
not inconsistent with these by-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board.
Section 4.4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
any, shall preside at all meeting of the Board of Directors and of the
stockholders at which he or she shall be present and shall have and may exercise
such powers as may, from time to time, be assigned to him or her by the Board or
as may be provided by law.
Section 4.5. VICE CHAIRMAN OF THE BOARD. In the absence of the
Chairman of the Board, the Vice Chairman of the Board, if any, shall preside at
all meetings of the Board of Directors and of the stockholders at which he or
she shall be present and shall have and may exercise such powers as may, from
time to time, be assigned to him or her by the Board or as may be provided by
law.
Section 4.6. PRESIDENT. In the absence of the Chairman of the Board
and Vice Chairman of the Board, the President shall preside at all meetings of
the Board of Directors and of the stockholders at which he or she shall be
present. The President shall be the chief executive officer and shall have
general charge and supervision of the business of the Corporation and, in
general, shall perform all duties incident to the office of president of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or as may be provided by law.
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Section 4.7. VICE PRESIDENTS. The Vice President or Vice Presidents,
at the request or in the absence of the President or during the President's
inability to act, shall perform the duties of the President, and when so acting
shall have the powers of the President. If there be more than one Vice
President, the Board of Directors may determine which one or more of the Vice
Presidents shall perform any of such duties; or if such determination is not
made by the Board, the President may make such determination; otherwise any of
the Vice Presidents may perform any of such duties. The Vice President or Vice
Presidents shall have such other powers and shall perform such other duties as
may, from time to time, be assigned to him or her or them by the Board or the
President or as may be provided by law.
Section 4.8. SECRETARY. The Secretary shall have the duty to record
the proceedings of the meetings of the stockholders, the Board of Directors and
any committees in a book to be kept for that purpose, shall see that all notices
are duly given in accordance with the provisions of these by-laws or as required
by law, shall be custodian of the records of the Corporation, may affix the
corporate seal to any document the execution of which, on behalf of the
Corporation, is duly authorized, and when so affixed may attest the same, and,
in general, shall perform all duties incident to the office of secretary of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.9. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by or under
authority of the Board of Directors. If required by the Board, the Treasurer
shall give a bond for the faithful discharge of his or her duties, with such
surety or sureties as the Board may determine. The Treasurer shall keep or
cause to be kept full and accurate records of all receipts and disbursements in
books of the Corporation, shall render to the President and to the Board,
whenever requested, an account of the financial condition of the Corporation,
and, in general, shall perform all the duties incident to the office of
treasurer of a corporation and such other duties as may, from time to time, be
assigned to him or her by the Board or the President or as may be provided by
law.
Section 4.10. OTHER OFFICERS. The other officers, if any, of the
Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in a resolution of the Board of Directors which
is not inconsistent with these by-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board. The Board may require any officer, agent or employee to give security
for the faithful performance of his or her duties.
Section 4.11. FIDELITY BONDS. If required by the Board of Directors,
any officer shall give the Corporation a bond in a sum and with one or more
sureties satisfactory to the Board, for the faithful performance of the duties
of his or her office, and for the restoration to the Corporation, in case of his
or her death, resignation, retirement or removal from office, of
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all books, papers, vouchers, money and other property of whatever kind in his or
her possession or under his or her control belonging to the Corporation.
ARTICLE V
STOCK
Section 5.1. CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman or Vice Chairman of the Board of Directors, if any,
or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the Corporation,
representing the number of shares of stock in the Corporation owned by such
holder. If such certificate is manually signed by one officer or manually
countersigned by a transfer agent or by a registrar, any other signature on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Each certificate representing shares shall state upon the face thereof
that the Corporation is formed under the laws of the State of Delaware, the name
of the person or persons to whom such shares have been issued and the number and
class of such shares, and the designation of the class or series, if any, which
such certificate represents.
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
series of stock; PROVIDED, that, except as otherwise provided by law, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 5.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE
OF NEW CERTIFICATES. The Corporation may issue a new certificate of stock in
the place of any certificate theretofore issued by it, alleged to have been
lost, stolen or destroyed, and the Corporation may require the owner of the
lost, stolen or destroyed certificate, or such owner's legal representative, to
give the Corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
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Section 5.3. TRANSFERS OF STOCK. Transfers of stock shall be made on
the books of the Corporation only by the person named in the certificate or by
his attorney, lawfully constituted in writing, and upon surrender of the
certificate therefor, together with such evidence of the payment of transfer
taxes and compliance with other provisions of law as the Corporation or its
transfer agent may require.
Section 5.4. REGISTERED STOCKHOLDERS. The Corporation may treat the
holder of record of any share or shares of stock as the holder thereof, and
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have express
or other notice thereof, save as expressly provided by the laws of Delaware.
ARTICLE VI
MISCELLANEOUS
Section 6.1. FISCAL YEAR. The fiscal year of the Corporation shall
be determined by the Board of Directors.
Section 6.2. SEAL. The Corporation may have a corporate seal which
shall have the name of the Corporation inscribed thereon and shall be in such
form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
Section 6.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS
AND COMMITTEES. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders,
directors or members of a committee of directors need be specified in any
written waiver of notice unless so required by the certificate of incorporation
or these by-laws.
Section 6.4. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES.
The Corporation shall indemnify to the full extent permitted by law any person
made or threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a director, officer
or employee of the Corporation or serves or served at the request of the
Corporation any other enterprise as a director, officer or employee. Expenses
incurred by any such person in defending any such action, suit or proceeding
shall be paid or reimbursed by the
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Corporation promptly upon receipt by it of an undertaking of such person to
repay such expenses if it shall ultimately be determined that such person is not
entitled to be indemnified by the Corporation. The rights provided to any
person by this by-law shall be enforceable against the Corporation by such
person who shall be presumed to have relied upon it in serving or continuing to
serve as a director, officer or employee as provided above. No amendment of
this by-law shall impair the rights of any person arising at any time with
respect to events occurring prior to such amendment. For purposes of this by-
law, the term "Corporation" shall include any predecessor of the Corporation and
any constituent corporation (including any constituent of a constituent)
absorbed by the Corporation in a consolidation or merger; the term "other
enterprise" shall include any corporation, partnership, joint venture, trust or
employee benefit plan; service "at the request of the Corporation" shall include
service as a director, officer or employee of the Corporation which imposes
duties on, or involves services by, such director, officer or employee with
respect to an employee benefit plan, its participants or beneficiaries; any
excise taxes assessed on a person with respect to an employee benefit plan shall
be deemed to be indemnifiable expenses; and action by a person with respect to
an employee benefit plan which such person reasonably believes to be in the
interest of the participants and beneficiaries of such plan shall be deemed to
be action not opposed to the best interests of the Corporation.
Section 6.5. INTERESTED DIRECTORS; QUORUM. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because the director or officer is
present at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
her or their votes are counted for such purpose, if: (1) the material facts as
to his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the Board or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative vote of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; or (2) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (3) the contract or transaction is fair as to the Corporation as of the time
it is authorized, approved or ratified, by the Board, a committee thereof or the
stockholders. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or of a committee
which authorizes the contract or transaction.
Section 6.6. FORM OF RECORDS. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
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Section 6.7. AMENDMENT OF BY-LAWS. These by-laws may be amended or
repealed, and new by-laws adopted, by the Board of Directors, but the
stockholders entitled to vote may adopt additional by-laws and may amend or
repeal any by-law whether or not adopted by them.
ARTICLE VII
OFFICES
Section 7.1. REGISTERED OFFICE. The registered office of the
Corporation in the State of Delaware shall be at 1209 Orange Street, City of
Wilmington, County of New Castle, and the registered agent in charge thereof
shall be The Corporation Trust Company.
Section 7.2. OTHER OFFICES. The Corporation may also have an office
or offices at other places within or without the State of Delaware.
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AMENDED AND RESTATED
BY-LAWS
OF
CROSS-COUNTRY AUTO RETAILERS, INC.
ARTICLE I
STOCKHOLDERS
Section 1.1. ANNUAL MEETINGS. An annual meeting of stockholders shall
be held for the election of directors at such date, time and place either within
or without the State of Delaware as may be designated by the Board of Directors
from time to time. Any other proper business may be transacted at the annual
meeting.
Section 1.2. SPECIAL MEETINGS. Special meetings of stockholders may
be called at any time by the Chairman of the Board, if any, a Vice Chairman of
the Board, if any, the President or the Board of Directors, to be held at such
date, time and place either within or without the State of Delaware as may be
stated in the notice of the meeting.
Section 1.3. NOTICE OF MEETINGS. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation.
Section 1.4. ADJOURNMENTS. Any meeting of stockholders, annual or
special, may be adjourned from time to time, to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business
which might have been transacted at the original meeting. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 1.5. QUORUM. At each meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of stock entitled to vote on
a matter at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, where a separate vote by
class or classes is required for any matter, the holders of a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum to take action with respect to that vote on
that matter. Two or more
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classes or series of stock shall be considered a single class if the holders
thereof are entitled to vote together as a single class at the meeting. In the
absence of a quorum of the holders of any class of stock entitled to vote on a
matter, the holders of such class so present or represented may, by majority
vote, adjourn the meeting of such class from time to time in the manner provided
by Section 1.4 of these by-laws until a quorum of such class shall be so present
or represented. Shares of its own capital stock belonging on the record date
for the meeting to the Corporation or to another corporation, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held, directly or indirectly, by the Corporation, shall neither
be entitled to vote nor be counted for quorum purposes; PROVIDED, that the
foregoing shall not limit the right of the Corporation to vote stock, including
but not limited to its own stock, held by it in a fiduciary capacity.
Section 1.6. ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board if any, or in the absence of the Chairman of
the Board by a Vice Chairman of the Board, if any, or in the absence of a Vice
Chairman of the Board by the President, or in the absence of the President by a
Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 1.7. VOTING; PROXIES. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. If the
certificate of incorporation provides for more or less than one vote for any
share on any matter, every reference in these by-laws to a majority or other
proportion of stock shall refer to such majority or other proportion of the
votes of such stock.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power,
regardless of whether the interest with which it is coupled is an interest in
the stock itself or an interest in the Corporation generally. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing with the Secretary of the Corporation an instrument in
writing revoking the proxy or another duly executed proxy bearing a later date.
Voting at meetings of stockholders need not be by written ballot and
need not be conducted by inspectors unless the holders of a majority of the
outstanding shares of all classes of stock entitled to vote thereon present in
person or represented by proxy at such
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meeting shall so determine. Except as provided in Section 2.2 of these by-laws,
directors shall be elected by a plurality of the votes of the shares present in
person or represented by proxy at the meeting and entitled to vote on the
election of directors. In all other matters, unless otherwise provided by law
or by the certificate of incorporation or these by-laws, the affirmative vote of
the holders of a majority of the shares present in person or represented by
proxy at the meeting and entitled to vote on the subject matter shall be the act
of the stockholders. Where a separate vote by class or classes is required, the
affirmative vote of the holders of a majority of the shares of such class or
classes present in person or represented by proxy at the meeting shall be the
act of such class, except as otherwise provided by law or by the certificate of
incorporation or these by-laws.
Section 1.8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than sixty nor less
than ten days before the date of such meeting. If no record date is fixed by
the Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; PROVIDED, that the Board of Directors may fix a new
record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 1.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the
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meeting during the whole time thereof and may be inspected by any stockholder
who is present.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. POWERS; NUMBER; QUALIFICATIONS. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. The Board of Directors shall consist of three or more members,
the number thereof to be determined from time to time by the Board. Directors
need not be stockholders.
Section 2.2. ELECTION: TERM OF OFFICE; VACANCIES. Each director shall
hold office until his or her successor is elected and qualified or until his or
her earlier resignation or removal. Unless otherwise provided in the
certificate of incorporation or these by-laws, vacancies and newly created
directorships resulting from any increase in the authorized number of directors
or from any other cause may be filled by a majority of the directors then in
office, although less than a quorum, or by the sole remaining director.
Whenever the holders of any class or classes of stock or series thereof are
entitled to elect one or more directors by the certificate of incorporation,
vacancies and newly created directorships of such class or classes or series may
be filled by a majority of the directors elected by such class or classes or
series thereof then in office, or by the sole remaining director so elected.
Section 2.3. RESIGNATION; REMOVAL. Any director may resign at any
time upon written notice to the Board of Directors or to the President or the
Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective. Any director or the entire
Board of Directors may be removed from office at any time, but only for cause,
by the holders of a majority of the shares then entitled to vote at an election
of directors. Whenever the holders of any class or series of stock are entitled
to elect one or more directors by the certificate of incorporation, such
director or directors may be removed with or without cause by the holders of a
majority of the outstanding shares of that class or series, without respect to
any vote of the outstanding shares as a whole.
Section 2.4. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the Board may from time to time determine, and if so determined
notice thereof need not be given.
Section 2.5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, if any, by a Vice
Chairman of the Board, if any, by the President or
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by any two directors. Reasonable notice thereof shall be given by the person or
persons calling the meeting.
Section 2.6. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE
PERMITTED. Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the Board of Directors, or any committee designated by
the Board, may participate in a meeting of the Board or of such committee, as
the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
Section 2.7. QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the
Board of Directors a majority of the entire Board shall constitute a quorum for
the transaction of business. The vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board unless the
certificate of incorporation or these by-laws shall require a vote of a greater
number. In case at any meeting of the Board a quorum shall not be present, the
members of the Board present may adjourn the meeting until a quorum shall be
present.
Section 2.8. ORGANIZATION. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board, if any, or in the absence of the
Chairman of the Board by a Vice Chairman of the Board, if any, or in the absence
of a Vice Chairman of the Board by the President, or in their absence by a
chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.9. ACTION BY DIRECTORS WITHOUT A MEETING. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or of such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
Section 2.10. COMPENSATION OF DIRECTORS. Unless otherwise restricted
by the certificate of incorporation or these by-laws, the Board of Directors
shall have the authority to fix the compensation of directors.
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ARTICLE III
COMMITTEES
Section 3.1. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation, except
that the Board of Directors may not form an executive committee without the
unanimous consent of the Board of Directors, which consent shall specify the
members of the proposed executive committee and limitations, if any, over the
authority of the executive committee. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors or in these by-laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority to (1) amend the certificate of incorporation (except
that a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors,
fix the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), (2) adopt an agreement of merger or consolidation, (3) recommend to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, (4) recommend to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, removing or
indemnifying directors or amending these by-laws or (5) unless the resolution,
these by-laws or the certificate of incorporation expressly so provides, declare
a dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger.
Section 3.2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board may adopt, amend and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a quorum is then present shall
be the act of such committee, and in other respects each committee shall conduct
its business in the same manner as the Board conducts its business pursuant to
Article II of these bylaws.
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ARTICLE IV
OFFICERS
Section 4.1. OFFICERS; ELECTION. As soon as practicable after the
annual meeting of stockholders in each year, the Board of Directors shall elect
a President and a Secretary, and it may, if it so determines, elect from among
its members a Chairman of the Board and one or more Vice Chairmen of the Board.
The Board may also elect one or more Vice Presidents, one or more Assistant Vice
Presidents, one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers and such other officers as the Board may deem desirable or
appropriate and may give any of them such further designations or alternate
titles as it considers desirable. Any number of offices may be held by the same
person unless the certificate of incorporation or these bylaws otherwise
provide.
Section 4.2. TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES. Unless
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. Any officer
may resign at any time upon written notice to the Board or to the President or
the Secretary of the Corporation. Such resignation shall take effect at the
time specified therein, and unless otherwise specified therein no acceptance of
such resignation shall be necessary to make it effective. The Board may remove
any officer with or without cause at any time. Any such removal shall be
without prejudice to the contractual rights of such officer, if any, with the
Corporation, but the election of an officer shall not of itself create
contractual rights. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled by the Board at any
regular or special meeting.
Section 4.3. POWERS AND DUTIES. The officers of the Corporation shall
have such powers and duties in the management of the Corporation as shall be
stated in these by-laws or in a resolution of the Board of Directors which is
not inconsistent with these by-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board.
Section 4.4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
any, shall preside at all meetings of the Board of Directors and of the
stockholders at which he or she shall be present and shall have and may exercise
such powers as may, from time to time, be assigned to him or her by the Board or
as may be provided by law.
Section 4.5. VICE CHAIRMEN OF THE BOARD. In the absence of the
Chairman of the Board, a Vice Chairman of the Board shall preside at all
meetings of the Board of Directors and of the stockholders at which he or she
shall be present. If there be more than one Vice Chairman, the Board of
Directors may determine which one of the Vice Chairmen
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shall so preside, or, if such determination is not made by the Board, any of the
Vice Chairmen may preside. The Vice Chairman or Vice Chairmen shall exercise
such powers as may, from time to time, be assigned to him or her by the Board or
as may be provided by law.
Section 4.6. PRESIDENT. In the absence of the Chairman of the Board
and a Vice Chairman of the Board, the President shall preside at all meetings of
the Board of Directors and of the stockholders at which he or she shall be
present. The President shall be the chief executive officer and shall have
general charge and supervision of the business of the Corporation and, in
general, shall perform all duties incident to the office of president of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or as may be provided by law.
Section 4.7. VICE PRESIDENTS. The Vice President or Vice Presidents,
at the request or in the absence of the President or during the President's
inability to act, shall perform the duties of the President, and when so acting
shall have the powers of the President. If there be more than one Vice
President, the Board of Directors may determine which one or more of the Vice
Presidents shall perform any of such duties; or if such determination is not
made by the Board, the President may make such determination; otherwise any of
the Vice Presidents may perform any of such duties. The Vice President or Vice
Presidents shall have such other powers and shall perform such other duties as
may, from time to time, be assigned to him or her or them by the Board or the
President or as may be provided by law.
Section 4.8. SECRETARY. The Secretary shall have the duty to record
the proceedings of the meetings of the stockholders, the Board of Directors and
any committees in a book to be kept for that purpose, shall see that all notices
are duly given in accordance with the provisions of these by-laws or as required
by law, shall be custodian of the records of the Corporation, may affix the
corporate seal to any document the execution of which, on behalf of the
Corporation, is duly authorized, and when so affixed may attest the same, and,
in general, shall perform all duties incident to the office of secretary of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.9. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by or under
authority of the Board of Directors. If required by the Board, the Treasurer
shall give a bond for the faithful discharge of his or her duties, with such
surety or sureties as the Board may determine. The Treasurer shall keep or
cause to be kept full and accurate records of all receipts and disbursements in
books of the Corporation, shall render to the President and to the Board,
whenever requested, an account of the financial condition of the Corporation,
and, in general, shall perform all the duties incident to the office of
treasurer of
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a corporation and such other duties as may, from time to time, be assigned to
him or her by the Board or the President or as may be provided by law.
Section 4.10. OTHER OFFICERS. The other officers, if any, of the
Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in a resolution of the Board of Directors which
is not inconsistent with these by-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board. The Board may require any officer, agent or employee to give security
for the faithful performance of his or her duties.
Section 4.11. FIDELITY BONDS. If required by the Board of Directors,
any officer shall give the Corporation a bond in a sum and with one or more
sureties satisfactory to the Board, for the faithful performance of the duties
of his or her office, and for the restoration to the Corporation, in case of his
or her death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
ARTICLE V
STOCK
Section 5.1. CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman or a Vice Chairman of the Board of Directors, if
any, or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the Corporation,
representing the number of shares of stock in the Corporation owned by such
holder. If such certificate is manually signed by one officer or manually
countersigned by a transfer agent or by a registrar, any other signature on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Each certificate representing shares shall state upon the face thereof
that the Corporation is formed under the laws of the State of Delaware, the name
of the person or persons to whom such shares have been issued and the number and
class of such shares, and the designation of the class or series, if any, which
such certificate represents.
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
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series of stock; PROVIDED, that, except as otherwise provided by law, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 5.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 5.3. TRANSFERS OF STOCK. Transfers of stock shall be made on
the books of the Corporation only by the person named in the certificate or by
his attorney, lawfully constituted in writing, and upon surrender of the
certificate therefor, together with such evidence of the payment of transfer
taxes and compliance with other provisions of law as the Corporation or its
transfer agent may require.
Section 5.4. REGISTERED STOCKHOLDERS. The Corporation may treat the
holder of record of any share or shares of stock as the holder thereof, and
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have express
or other notice thereof, save as expressly provided by the laws of Delaware.
ARTICLE VI
MISCELLANEOUS
Section 6.1. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6.2. SEAL. The Corporation may have a corporate seal which
shall have the name of the Corporation inscribed thereon and shall be in such
form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
Section 6.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS
AND COMMITTEES. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person
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entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the certificate of incorporation or these by-laws.
Section 6.4. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES.
The Corporation shall indemnify to the full extent permitted by law any person
made or threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a director, officer
or employee of the Corporation or serves or served at the request of the
Corporation any other enterprise as a director, officer or employee. Expenses
incurred by any such person in defending any such action, suit or proceeding
shall be paid or reimbursed by the Corporation promptly upon receipt by it of an
undertaking of such person to repay such expenses if it shall ultimately be
determined that such person is not entitled to be indemnified by the
Corporation. The rights provided to any person by this by-law shall be
enforceable against the Corporation by such person who shall be presumed to have
relied upon it in serving or continuing to serve as a director, officer or
employee as provided above. No amendment of this by-law shall impair the rights
of any person arising at any time with respect to events occurring prior to such
amendment. For purposes of this by-law, the term "Corporation" shall include
any predecessor of the Corporation and any constituent corporation (including
any constituent of a constituent) absorbed by the Corporation in a consolidation
or merger; the term "other enterprise" shall include any corporation,
partnership, joint venture, trust or employee benefit plan; service "at the
request of the Corporation" shall include service as a director, officer or
employee of the Corporation which imposes duties on, or involves services by,
such director, officer or employee with respect to an employee benefit plan, its
participants or beneficiaries; any excise taxes assessed on a person with
respect to an employee benefit plan shall be deemed to be indemnifiable
expenses; and action by a person with respect to an employee benefit plan which
such person reasonably believes to be in the interest of the participants and
beneficiaries of such plan shall be deemed to be action not opposed to the best
interests of the Corporation.
Section 6.5. INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board or the committee, and the Board or
-11-
<PAGE>
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (2) the material facts as to
his or her relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (3) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified by the Board, a committee
thereof or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee that authorizes the contract or transaction.
Section 6.6. FORM OF RECORDS. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 6.7. AMENDMENT OF BY-LAWS. These by-laws may be amended or
repealed, and new by-laws adopted, by the Board of Directors, but the
stockholders entitled to vote may adopt additional by-laws and may amend or
repeal any by-law whether or not adopted by them.
ARTICLE VII
OFFICES
Section 7.1. REGISTERED OFFICE. The registered office of the
Corporation in the State of Delaware shall be at 1209 Orange Street, City of
Wilmington, County of New Castle, and the registered agent in charge thereof
shall be The Corporation Trust Company.
Section 7.2. OTHER OFFICES. The Corporation may also have an office
or offices at other places within or without the State of Delaware.
-12-
<PAGE>
CROSS-COUNTRY AUTO RETAILERS: SUBSIDIARIES
1. Westgate Chevrolet, Inc.
State of Incorporation: Texas
2. Plains Chevrolet, Inc.
State of Incorporation: Texas
3. Midway Chevrolet, Inc.
State of Incorporation: Texas
4. Quality Nissan, Inc.
State of Incorporation: Texas
5. Performance Nissan, Inc.
State of Incorporation: Oklahoma
6. Performance Dodge, Inc.
State of Incorporation: Oklahoma
7. Allied 2000 Collision Center, Inc.
State of Incorporation: Texas
8. Working Man's Credit Plan, Inc.
State of Incorporation: Texas
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 20, 1996, relating
to the financial statements of Cross-Country Auto Retailers, Inc., which appears
in such Prospectus. We also hereby consent to the use in the Prospectus
constituting part of this Registration Statement on Form S-1 of our report dated
June 4, 1996, relating to the financial statements of Jim Glover Dodge, Inc.,
which appears in such Prospectus. We also consent to the reference to us under
the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Forth Worth, Texas
June 21, 1995
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