<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 10, 1996
REGISTRATION NO. 333-06585
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
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 75-2653095
(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. / /
--------------------------
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.
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<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 " ".
------------------------------
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
$1,400,000.
(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
Recent Developments........................................................................................ 11
Use of Proceeds............................................................................................ 12
Dividend Policy............................................................................................ 12
Capitalization............................................................................................. 13
Dilution................................................................................................... 14
Selected Combined Financial Data........................................................................... 15
Pro Forma Combined Financial Data.......................................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 20
Business................................................................................................... 30
Management................................................................................................. 42
Principal Stockholders..................................................................................... 45
Certain Transactions....................................................................................... 46
Description of Capital Stock............................................................................... 47
Shares Eligible for Future Sale............................................................................ 50
Underwriters............................................................................................... 52
Legal Matters.............................................................................................. 53
Experts.................................................................................................... 53
Available Information...................................................................................... 53
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 Lynn Hickey Dodge, Inc.
("Hickey Dodge"), 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.
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. Giving effect to the pending acquisition of Hickey
Dodge, the Company's 1995 sales would have been $416.9 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 actual 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
4
<PAGE>
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
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 Hickey Dodge, 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 pending acquisition of Hickey Dodge and future
acquisitions, repay debt and provide cash for working
capital and general corporate purposes.
New York Stock Exchange symbol....
</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, (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 and (iii) 62,500 shares of Common Stock
(assuming an initial public offering price of $16.00 per share) issuable
upon the exercise of warrants to be granted in connection with the pending
acquisition of Hickey Dodge. See "Recent Developments," "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 $416,943 $50,067 $71,229
Gross profit.................... 10,839 18,502 25,738 28,322 37,492 60,758 (3) 7,618 11,333
Operating income (2)............ 2,355 3,369 5,016 5,683 6,593 12,634 1,219 3,443(3)
Net income...................... 849 956 1,995 2,382 2,195 5,871 322 1,555
Net income per share (4)........ $0.44
Weighted average shares
outstanding (4)................ 13,234
<CAPTION>
PRO
FORMA (1)
-----------
1996
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................. $104,666
Gross profit.................... 16,341
Operating income (2)............ 4,557 (3)
Net income...................... 2,389
Net income per share (4)........ $0.18
Weighted average shares
outstanding (4)................ 13,234
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1996
AS OF ----------------------
DECEMBER 31, PRO
1995 ACTUAL FORMA(1)
------------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................ $ 536 $ 1,595 $ 33,777
Total assets................................................................... 83,407 78,539 110,722
Long-term debt................................................................. 11,859 11,533 11,533
Stockholders' equity........................................................... 7,101 8,656 54,056
</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 for $250,000 to Ezra P. Mager, the
Company's Vice Chairman, pursuant to an agreement dated April 1, 1996 (the
"Mager Purchase"). 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. 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. 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
or its pending acquisition of Hickey Dodge. See "Recent Developments,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Growth Strategy -- Acquisitions."
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 acquisition of Hickey Dodge,
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. The Company's
Dealer Agreements with General Motors expire in or about the year 2000, and its
Dealer Agreements with its other automakers currently have no stated expiration
date. 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. In connection with the Offering, the Company has been
informed that its current Dealer Agreements with the Nissan division of Nissan
Motors Corp. U.S.A. ("Nissan") may be replaced with three-year renewable
agreements. Renewal of each of these Dealer Agreements by Nissan may be
contingent upon, among other things, the Company's achievement of stated goals
for market share penetration in the market served by the applicable dealership.
Failure to meet the market share goals set forth in any future Nissan Dealer
Agreement could result in the imposition of additional conditions in subsequent
Dealer Agreements or non-renewal of such Dealer Agreement by Nissan.
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
10
<PAGE>
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."
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.
RECENT DEVELOPMENTS
In June 1996, as part of its acquisition growth strategy, the Company
entered into an agreement to purchase substantially all of the operating assets
and the dealership franchise of Hickey Dodge, one of the largest Dodge
dealerships in the United States, located in Oklahoma City, Oklahoma. For its
acquisition of Hickey Dodge, 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 new and used vehicle inventory of Hickey Dodge 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.
In 1994 and 1995, Hickey Dodge experienced profit margins significantly
below Cross-Country Auto's historical margins due to a combination of factors.
Based on its discussions with management of Hickey Dodge, the Company believes
that, in 1994, Hickey Dodge aggressively pursued a strategy to maximize sales,
which included promotional activities and guarantees of consumer vehicle loans.
In particular, Hickey Dodge heavily promoted an attempt to set the record for
monthly unit sales volume by any U.S. automobile dealership and sold 2,815 units
in June 1994, compared to an average of approximately 1,000 units per month for
the remainder of 1994. The default rates on loans guaranteed by Hickey Dodge and
F&I charges relating to 1994 sales significantly exceeded management
expectations and, together with a $900,000 bonus paid to the owner of Hickey
Dodge, negatively affected profitability, resulting in modest pre-tax income of
$593,000 on revenues of $167.5 million in 1994. In 1995, revenues declined by
27.0% to $122.2 million. The Company believes that this reduction in sales was
largely due to reduced promotional activities, difficulty by Hickey Dodge in
obtaining an appropriate mix of new vehicles and a general downturn in the
Oklahoma City market due to the bombing of the Federal Building in April.
Although loan guarantees were curtailed in early 1995, the earnings of Hickey
Dodge continued to be affected as repossessed vehicles relating to loans
originated in 1994 were sold in 1995 for no profit. As a result of these and
other factors, pre-tax income for 1995 was only $565,000. The Company is not
assuming any liability regarding credit guarantees provided by Hickey Dodge
11
<PAGE>
prior to the acquisition and does not intend to provide such loan guarantees
once the acquisition is completed. In the first three months of 1996, Hickey
Dodge's pre-tax margins improved from the corresponding period in 1995. Revenues
at Hickey Dodge were $33.4 million, an 8.8% increase from the prior year period,
and pre-tax income increased to $1.1 million from $321,000 for the first three
months of 1995.
The Company estimates that, including the sales of Hickey Dodge, 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 increasing its market share, the Company believes that the
acquisition of Hickey Dodge 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.
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 purchase Hickey Dodge. The Company also may
apply a portion of the net proceeds to the purchase of some or all of the used
vehicle inventory of Hickey Dodge at a price to be agreed. Although the purchase
of Hickey Dodge is contingent on receiving approval from the Dodge division of
Chrysler, the Company expects to complete the acquisition by September 1996. See
"Recent Developments." Prior to the acquisition of Hickey Dodge, 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."
12
<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 $ 11,526(2)
--------- -------------
--------- -------------
Short-term debt:
Floor plan debt....................................................................... $ 33,345 $ 25,528(2)
Due to affiliates..................................................................... 5,881 481(2)
Current maturities of long-term debt.................................................. 1,470 1,470
--------- -------------
Total short-term debt............................................................. $ 40,696 $ 27,479
--------- -------------
--------- -------------
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 46,335(1)
Retained earnings..................................................................... 7,592 7,592
--------- -------------
Total stockholders' equity........................................................ 8,656 54,056
--------- -------------
Total capitalization............................................................ $ 20,189 $ 65,589
--------- -------------
--------- -------------
</TABLE>
- ------------
(1) Excludes the issuance of 303,750 shares of Common Stock in connection with
the Mager Purchase. See "Certain Transactions" and Note 15 to the Notes to
Combined Financial Statements.
(2) Approximately $13.5 million of the net proceeds of the Offering will be
used to acquire the assets (excluding vehicle inventory) of Hickey Dodge.
Approximately $25.0 million of the net proceeds of the Offering will be
used to reduce floor plan debt, partially offset by approximately $17.2
million in additional floor plan debt that will be used to acquire the
Hickey Dodge vehicle inventory. The remainder of the estimated net
proceeds, approximately $6.6 million, will be invested in an account with
GMAC (the "GMAC Deposit Account") and in other cash equivalents. The
reduction in "due to affiliates" represents the remittance of funds that
have been advanced to the Company by affiliates to invest in the GMAC
Deposit Account. See "Certain Transactions" and "Use of Proceeds."
(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,
(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 and (iii) 62,500 shares of Common Stock (assuming an initial public
offering price of $16.00 per share) issuable upon the exercise of warrants
to be granted in connection with the acquisition of Hickey Dodge. See
"Recent Developments," "Management -- Stock Option Plan" and "Certain
Transactions."
13
<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(2)
-----------
-----------
</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.
(2) The above dilution per share to new investors does not give effect to the
pending acquisition of Hickey Dodge. Dilution per share to new investors
would have approximated $12.39 had this acquisition been considered in the
above computation.
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 the Mager Purchase.
See "Certain Transactions" and Note 15 to the Notes to Combined Financial
Statements.
(2) Excludes (i) 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 and (ii) 62,500 shares of
Common Stock (assuming an initial public offering price of $16.00 per
share) issuable upon the exercise of warrants to be granted in connection
with the pending acquisition of Hickey Dodge.
(3) Net book value at March 31, 1996.
14
<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 revenue............... 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.
15
<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 pending acquisition of Hickey Dodge
(which is contingent upon, among other things, the successful completion of the
Offering), 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 pending acquisition of Hickey Dodge, 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 of
the Company as well as the financial statements and related notes of Jim Glover
Dodge, Inc. and Hickey Dodge, all of which are 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.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------------
ACTUAL PRO FORMA
ACTUAL PERFORMANCE ACTUAL PRO FORMA FOR PRO FORMA
COMPANY (1) DODGE (1) HICKEY DODGE ADJUSTMENTS ACQUISITIONS ADJUSTMENTS (2)
----------- ----------- ------------ ----------- ------------ ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Vehicle sales..................... $212,984 $55,498 $111,113 $(4,856)(3) $374,739 --
Other operating revenue........... 23,210 8,419 11,108 (533)(3) 42,204 --
----------- ----------- ------------ ----------- ------------ -------
Total revenues.................. 236,194 63,917 122,221 (5,389) 416,943 --
Cost of sales....................... 198,702 55,370 106,826 (4,713)(3) 356,185 --
----------- ----------- ------------ ----------- ------------ -------
Gross profit 37,492 8,547 15,395 (676) 60,758 --
Selling, general and
administrative..................... 25,630 7,244 13,149 (510)(3) 45,513 889(4)
Depreciation and amortization....... 951 24 346 401 (3)(6) 1,722 --
Management fees..................... 4,318 -- -- -- 4,318 (4,318)(7)
----------- ----------- ------------ ----------- ------------ -------
Operating income.................... 6,593 1,279 1,900 (567) 9,205 3,429
Interest expense, net............... (3,088) (367) (1,335) (479)(3)(6) (5,269) 2,000 (4)
----------- ----------- ------------ ----------- ------------ -------
Income before income taxes.......... 3,505 912 565 (1,046) 3,936 5,429
Income tax expense.................. 1,310 -- -- 159(8) 1,469 2,025(9)
----------- ----------- ------------ ----------- ------------ -------
Net income.......................... $ 2,195 $ 912 $ 565 $(1,205) $ 2,467 $ 3,404
----------- ----------- ------------ ----------- ------------ -------
----------- ----------- ------------ ----------- ------------ -------
Net income per share................
Weighted average shares
outstanding........................
<CAPTION>
PRO FORMA
---------
<S> <C>
Revenues:
Vehicle sales..................... $374,739
Other operating revenue........... 42,204
---------
Total revenues.................. 416,943
Cost of sales....................... 356,185
---------
Gross profit 60,758
Selling, general and
administrative..................... 46,402(5)
Depreciation and amortization....... 1,722
Management fees..................... --
---------
Operating income.................... 12,634
Interest expense, net............... (3,269)
---------
Income before income taxes.......... 9,365
Income tax expense.................. 3,494
---------
Net income.......................... $ 5,871
---------
---------
Net income per share................ $ 0.44(10)
Weighted average shares
outstanding........................ 13,234(10)
</TABLE>
(FOOTNOTES APPEAR ON FOLLOWING PAGE)
16
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
------------------------------------------------------------
ACTUAL HICKEY PRO FORMA
ACTUAL (1) DODGE (1) ADJUSTMENTS (2) PRO FORMA
---------- ----------------- --------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Vehicle sales.................................................... $64,009 $30,048 -- $ 94,057
Other operating revenue.......................................... 7,220 3,389 -- 10,609
---------- ------- ----- ---------
Total revenues............................................... 71,229 33,437 -- 104,666
Cost of sales...................................................... 59,896 28,429 -- 88,325
---------- ------- ----- ---------
Gross profit....................................................... 11,333 5,008 -- 16,341
Selling, general and administrative................................ 7,537 3,526 222(4) 11,285 (5)
Depreciation and amortization...................................... 353 65 81(6) 499
Management fees.................................................... -- -- -- --
---------- ------- ----- ---------
Operating income................................................... 3,443 1,417 (303) 4,557
Interest expense, net.............................................. (975) (290) 500(4) (765 )
---------- ------- ----- ---------
Income before income taxes......................................... 2,468 1,127 197 3,792
Income tax expense................................................. 913 -- 490(9) 1,403
---------- ------- ----- ---------
Net income......................................................... $ 1,555 $ 1,127 $(293) $ 2,389
---------- ------- ----- ---------
---------- ------- ----- ---------
Net income per share............................................... $ 0.18(10)
Weighted average shares outstanding................................ 13,234(10)
</TABLE>
- ------------
(1) Actual results of operations reflect the results of operations of the
Company for the year ended December 31, 1995 and the three months ended
March 31, 1996, Performance Dodge, Inc. (formerly Jim Glover Dodge, Inc.),
for the fiscal year ended November 30, 1995 and Hickey Dodge for the year
ended December 31, 1996 and the three months ended March 31, 1996, as
applicable.
(2) The Company will use the proceeds from the Offering primarily to acquire
dealerships in the future. The pro forma statements of operations shown
above assumes that approximately $13.5 million will be used to acquire
Hickey Dodge. Until the remaining proceeds are used to acquire other
dealerships, the Company intends to reduce floor plan debt by approximately
$25.0 million and to invest the remaining proceeds of approximately $6.6
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.
(3) 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.
(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 floor plan debt. See
"Use of Proceeds." The reduction in interest expense was calculated based
on an average reduction in floor plan 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 in connection
with the Mager Purchase. 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. and Hickey Dodge had been acquired
as of January 1, 1995.
(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
(3), (4) and (6) above and Performance Dodge, Inc. and Hickey Dodge, as if
they were taxable entities, using the Company's incremental tax rate of
approximately 37%.
(9) Reflects the estimated income tax effect of the adjustments described in
footnotes (4) and (7) above for the year ended December 31, 1995 and
footnotes (4) and (6) and Hickey Dodge as if it were a taxable entity for
the quarter ended March 31, 1996, using the Company's incremental tax rate
of approximately 37%.
(10) 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 in connection with the Mager Purchase. See "Certain Transactions"
and Note 15 to the Notes to Combined Financial Statements.
17
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
------------------------------------
PRO FORMA PRO
ACTUAL ADJUSTMENTS FORMA (1)
------- --------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................ $10,326 $ 1,200(2) $ 11,526
Accounts receivable.................................................................. 10,297 -- 10,297
Inventories.......................................................................... 36,092 17,765(3) 53,857
------- --------------- ---------
Total current assets............................................................. 56,715 18,965 75,680
------- --------------- ---------
Net property, plant and equipment...................................................... 12,175 1,000(3) 13,175
Goodwill, net, and other assets........................................................ 9,649 12,218(3) 21,867
------- --------------- ---------
Total assets....................................................................... $78,539 $ 32,183 $110,722
------- --------------- ---------
------- --------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Floor plan debt...................................................................... $33,345 $ (7,817)(2)(3) $ 25,528
Current maturities of long-term debt................................................. 1,470 -- 1,470
Accounts payable..................................................................... 4,631 -- 4,631
Due to affiliates.................................................................... 5,881 (5,400)(2) 481
Accrued expenses and other liabilities............................................... 7,761 -- 7,761
Deferred income taxes................................................................ 2,032 -- 2,032
------- --------------- ---------
Total current liabilities........................................................ 55,120 (13,217) 41,903
------- --------------- ---------
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(4) 129
Paid-in capital...................................................................... 1,064 45,271(4) 46,335
Retained earnings.................................................................... 7,592 -- 7,592
------- --------------- ---------
Total stockholders' equity....................................................... 8,656 45,400 54,056
------- --------------- ---------
Total liabilities and stockholders' equity..................................... $78,539 $ 32,183 $110,722
------- --------------- ---------
------- --------------- ---------
</TABLE>
- ----------
(1) The Company will not receive the proceeds of the sale, if any, of the
over-allotment Shares. Such amounts 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 application of the estimated net proceeds of the Offering.
Approximately $25 million will be used to reduce floor plan debt,
approximately $13.5 million will be utilized to acquire Hickey Dodge and the
remainder of the estimated net proceeds, of approximately $6.6 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."
(3) Reflects the allocation of the Hickey Dodge purchase price based on the
estimated fair value of assets acquired. The purchase price consists of the
following:
<TABLE>
<S> <C>
Estimated cash consideration................................................ $13,500,000
Estimated fair value of warrants............................................ 300,000
----------
Estimated purchase price.................................................. 13,800,000
Less estimated fair value of assets acquired................................ 1,582,000
----------
Excess of purchase price over fair value of tangible assets acquired........ $12,218,000
----------
----------
</TABLE>
The Company is purchasing vehicle and parts inventory, certain property and
equipment and the dealer agreement with Chrysler-Dodge. The excess of the
purchase price over the fair value of tangible assets acquired will be
allocated to intangible
18
<PAGE>
assets, primarily the dealer agreement and goodwill. Fair value of assets
acquired primarily represents the estimated fair value of the parts
inventory and certain property and equipment. Vehicle inventory, which at
March 31, 1995 approximated $17,183,000, will be financed with floor plan
debt.
(4) Reflects the issuance of 9,821,250 shares of Common Stock 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, plus the estimated fair value of
approximately $300,000 attributable to certain warrants to be issued in
connection with the pending acquisition of Hickey Dodge. Excludes the
purchase of 303,750 shares of Common Stock in connection with the Mager
Purchase. 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 stockholders' 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.
19
<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 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."
20
<PAGE>
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 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
"floor plan 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.
21
<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)
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
New vehicle sales..................................................... 55.0% 50.0% 48.5% 47.6%
Used vehicle sales.................................................... 35.8 40.1 41.7 42.4
Other operating revenue (3)........................................... 9.2 9.9 9.8 10.0
----- ----- ----- -----
Total revenues.................................................... 100.0 100.0 100.0 100.0
Cost of sales........................................................... 84.5 84.4 84.1 84.8
----- ----- ----- -----
Gross profit............................................................ 15.5 15.6 15.9 15.2
Selling, general and administrative..................................... 10.4 10.2 10.9 10.7
Depreciation and amortization........................................... 0.6 0.5 0.4 0.5
Management fees (4)..................................................... 1.5 1.8 1.8 1.6
----- ----- ----- -----
Operating income........................................................ 3.0 3.1 2.8 2.4
Interest expense, net................................................... (1.1) (1.1) (1.3) (1.4)
----- ----- ----- -----
Income before income taxes.............................................. 1.9 2.0 1.5 1.0
Income tax expense...................................................... 0.7 0.7 0.6 0.4
----- ----- ----- -----
Net income.............................................................. 1.2% 1.3% 0.9% 0.6%
----- ----- ----- -----
----- ----- ----- -----
<CAPTION>
1996
-----------
<S> <C>
Revenues:
New vehicle sales..................................................... 48.7%
Used vehicle sales.................................................... 41.2
Other operating revenue (3)........................................... 10.1
-----
Total revenues.................................................... 100.0
Cost of sales........................................................... 84.1
-----
Gross profit............................................................ 15.9
Selling, general and administrative..................................... 10.6
Depreciation and amortization........................................... 0.5
Management fees (4)..................................................... --
-----
Operating income........................................................ 4.8
Interest expense, net................................................... (1.3)
-----
Income before income taxes.............................................. 3.5
Income tax expense...................................................... 1.3
-----
Net income.............................................................. 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.
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
22
<PAGE>
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' selling, general and administrative 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," "-- Overview" 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
23
<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 floor plan 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.
24
<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 floor
plan 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.
25
<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 selling, general
and administrative 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 floor
plan 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.
26
<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 revenue............ 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...................... 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 as of January 1, 1996.
27
<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 revenue............ 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 as of January 1, 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, floor plan
financing and borrowings under credit agreements with GMAC and commercial banks.
Floor plan 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 floor plan 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.
28
<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 purchase Hickey Dodge 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 new and used vehicle inventory of Hickey Dodge at a
price to be agreed. See "Recent Developments." 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 floor plan 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 floor plan 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."
29
<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 acquire Hickey Dodge, 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. Giving
effect to the pending acquisition of Hickey Dodge, the Company's 1995 sales
would have been $416.9 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 actual 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 Hickey Dodge, 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
30
<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 Hickey
Dodge, one of the largest Dodge dealerships in the United States. The Company
estimates that, including the sales of Hickey Dodge, 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
acquisition of Hickey Dodge 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. Although there can be no assurance that the
closing will occur, the Company anticipates completing the acquisition by
September 1996.
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
31
<PAGE>
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................................................ $ 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*.............................................. $ 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 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.
32
<PAGE>
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
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<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 revenues 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 REVENUES
New vehicle sales................................................. $ 99,164 $ 42,612 $ 141,776
Used vehicle sales................................................ 80,901 40,949 121,850
Other operating revenue (2)....................................... 19,224 11,872 31,096
FIRST QUARTER 1996 REVENUES
New vehicle sales................................................. 24,086 10,563 34,649
Used vehicle sales................................................ 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. 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(1)
----------- ----------- ----------- ----------- ------------
(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>
- ------------
(1) Figures shown reflect actual 1995 new vehicle sales activity and do not
include the full year effect of the acquisitions completed in 1995.
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
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<PAGE>
of less than 1.0% of the Company's total revenue in 1995. 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."
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(1)
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Retail unit sales.............................. 2,029 3,009 4,532 4,816 6,170
Retail sales 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 sales 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 sales 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>
- ------------
(1) Figures shown reflect actual 1995 used vehicle sales activity and do not
include the full year effect of the acquisitions completed in 1995.
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
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<PAGE>
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 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 markups.
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, upon completion of the pending
acquisition of Hickey Dodge, it will acquire a body shop and intends to perform
all body work for vehicles it services in the Oklahoma City market at Hickey
Dodge.
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).
36
<PAGE>
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.
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.
37
<PAGE>
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
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.
38
<PAGE>
In connection with the Offering, the Company has been informed that its
current Dealer Agreements with Nissan may be replaced with three-year renewable
agreements. Renewal of each of these Dealer Agreements by Nissan may be
contingent upon, among other things, the Company's achievement of stated goals
for market share penetration in the market served by the applicable dealership.
Failure to meet the market share goals set forth in any future Nissan Dealer
Agreement could result in the imposition of additional conditions in subsequent
Dealer Agreements or non-renewal of such Dealer Agreement by Nissan.
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, 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
39
<PAGE>
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 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
40
<PAGE>
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.
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 2001. 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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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 to 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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<PAGE>
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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<PAGE>
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
KAPL, Ltd................................ 151,875 1.5 1.1 7,249 1.1
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. Hall and his wife,
Robin W. Hall, Mr. Gilliland controls Xaris Management Co., the general
partner of Xaris, Ltd. Mr. Gilliland disclaims beneficial ownership of these
shares.
(6) Mr. and Mrs. 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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<PAGE>
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 Mr. 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 floor plan. 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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<PAGE>
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 in
connection with the Mager Purchase. 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.
Mr. Gilliland has unconditionally guaranteed substantially all, and Mr. Rice
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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<PAGE>
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 under the symbol " ".
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 corporation's voting stock
outstanding at
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the 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 -- Relationships 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 $100 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).
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.
49
<PAGE>
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 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
50
<PAGE>
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.
51
<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 " ".
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 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
52
<PAGE>
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 5% 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, the
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 of the Company as of December 31, 1994 and
1995 and for each of the three years in the period ended December 31, 1995, the
financial statements of Jim Glover Dodge, Inc. as of November 30, 1994 and 1995
and for each of the two years in the period ended November 30, 1995 and the
financial statements of Lynn Hickey Dodge, Inc. as of December 31, 1994 and 1995
and for each of the two 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.
53
<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
HISTORICAL FINANCIAL STATEMENTS
LYNN HICKEY DODGE, INC.
Report of Independent Accountants........................................................................ F-30
Statements of Operations for the years ended December 31, 1994 and 1995 and for the three months ended
March 31, 1995 and 1996 (unaudited)..................................................................... F-31
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996 (unaudited)........................... F-32
Statements of Changes in Stockholder's Equity for the two years ended December 31, 1995 and for the three
months ended March 31, 1996 (unaudited)................................................................. F-33
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the three months ended
March 31, 1995 and 1996 (unaudited)..................................................................... F-34
Notes to Financial Statements............................................................................ F-35
</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>
Revenues:
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 revenues 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.
COMBINED 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
----------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 - $ - - $ - $ 764 $ (234)
Contributions by Control Group 300
Dividends paid (86)
Net income 1,995
----- ---------- ----- ---------- ----------- -----------
Balance at December 31, 1993 - - - - 1,064 1,675
Net income 2,382
Dividends paid (80)
----- ---------- ----- ---------- ----------- -----------
Balance at December 31, 1994 - - - - 1,064 3,977
Net income 2,195
Dividends paid (135)
----- ---------- ----- ---------- ----------- -----------
Balance at December 31, 1995 - - - - 1,064 6,037
Net income (unaudited) 1,555
----- ---------- ----- ---------- ----------- -----------
Balance at March 31, 1996 (unaudited) - $ - - $ - $ 1,064 $ 7,592
----- ---------- ----- ---------- ----------- -----------
----- ---------- ----- ---------- ----------- -----------
<CAPTION>
TOTAL
---------
<S> <C>
Balance at December 31, 1992 $ 530
Contributions by Control Group 300
Dividends paid (86)
Net income 1,995
---------
Balance at December 31, 1993 2,739
Net income 2,382
Dividends paid (80)
---------
Balance at December 31, 1994 5,041
Net income 2,195
Dividends paid (135)
---------
Balance at December 31, 1995 7,101
Net income (unaudited) 1,555
---------
Balance at March 31, 1996 (unaudited) $ 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 interests in 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, Robert W. 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 hereinafter 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 hereinafter, includes
Cross-Country Auto Retailers, Inc., its subsidiaries and its predecessors.
The Company plans to 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.
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
F-7
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
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.
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.
F-8
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
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 year or 12,000 miles up to six years or
100,000 miles, whichever comes first. The Company accounts for the sale of its
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 exceeds related unearned revenue. The Company also
sells extended service contracts on behalf of unrelated third parties.
Commission revenue for the unrelated third-party
F-9
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
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.
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
F-10
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
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>
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 revenues $ 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 is it 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.
F-11
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 4 - MAJOR SUPPLIERS AND FRANCHISE AGREEMENTS
The Company owns and operates three GM, two Nissan and one Dodge automobile
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 buyback 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 which 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
automakers represent receivables for parts and service work performed on
vehicles pursuant to the automakers' warranty coverage. Receivables from
automakers also include amounts due from automakers 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.
F-12
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
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 automakers 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 automakers 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 in the Texas
Panhandle 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 GMAC 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.
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
F-16
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
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 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.
F-17
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
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 (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
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 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 A. Gilliland and Robert W. 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.
F-18
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
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.
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.
F-19
<PAGE>
CROSS-COUNTRY AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
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 Lynn Hickey Dodge, Inc. 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 may acquire the new and used vehicle inventory at a
negotiated value, which will be funded by floor plan financing. 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
subject to customary closing conditions as well as 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 revenue 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 Financial Corp. 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 1 $ 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 Financial Corp. and regional banks
which 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 EVENT
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>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Cross-Country Auto Retailers, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of changes in stockholder's equity and of cash flows present fairly,
in all material respects, the financial position of Lynn Hickey Dodge, Inc. at
December 31, 1994 and 1995 and the results of its operations and its cash flows
for the two 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
July 3, 1996
F-30
<PAGE>
LYNN HICKEY DODGE, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
---------------------- --------------------
1994 1995 1995 1996
---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Vehicle sales $ 155,406 $ 111,113 $ 28,825 $ 30,048
Other operating revenue 12,104 11,108 1,912 3,389
---------- ---------- --------- ---------
Total revenues 167,510 122,221 30,737 33,437
---------- ---------- --------- ---------
Cost and expenses:
Cost of sales 146,551 106,826 26,688 28,429
Selling, general and administrative 18,452 13,149 3,173 3,526
Depreciation and amortization 341 346 86 65
---------- ---------- --------- ---------
165,344 120,321 29,947 32,020
---------- ---------- --------- ---------
2,166 1,900 790 1,417
Other income (expense):
Interest income 177 402 59 133
Interest expense (1,750) (1,737) (528) (423)
---------- ---------- --------- ---------
Net income $ 593 $ 565 $ 321 $ 1,127
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-31
<PAGE>
LYNN HICKEY DODGE, INC.
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 $ 3,854 $ 6,002 $ 7,149
Accounts receivable 3,129 4,495 4,106
Inventories 21,527 15,234 17,765
Due from affiliates 841 903 228
--------- --------- -------------
Total current assets 29,351 26,634 29,248
Property and equipment, at cost, less accumulated depreciation 2,085 1,943 1,918
--------- --------- -------------
Total assets $ 31,436 $ 28,577 $ 31,166
--------- --------- -------------
--------- --------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Floor plan financing $ 18,737 $ 14,900 $ 16,480
Accounts payable 4,429 2,653 2,945
Accrued expenses and other liabilities 3,434 2,432 2,433
--------- --------- -------------
Total current liabilities 26,600 19,985 21,858
--------- --------- -------------
Line of credit - 5,000 5,000
Deferred warranty revenue - long-term portion 249 571 797
--------- --------- -------------
Total long-term liabilities 249 5,571 5,797
--------- --------- -------------
Stockholder's equity:
Preferred stock, $100 par value, 1,500 shares authorized, none issued - - -
Common stock, $100 par value, 1,500 shares authorized, 915 shares issued
and outstanding 92 92 92
Paid-in capital 339 339 339
Retained earnings 4,156 2,590 3,080
--------- --------- -------------
Total stockholder's equity 4,587 3,021 3,511
--------- --------- -------------
Commitments and contingencies (Notes 2 and 8)
Total liabilities and stockholder's equity $ 31,436 $ 28,577 $ 31,166
--------- --------- -------------
--------- --------- -------------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-32
<PAGE>
LYNN HICKEY DODGE, INC.
STATEMENTS OF CHANGES IN STOCKHOLDER'S EQUITY
FOR THE TWO 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, 1993 $ 915 $ 92 $ 339 $ 4,835 $ 5,266
Net income 593 593
Distributions to stockholder (1,272) (1,272)
--------- ---------- ----- --- ----- --------- ---------
Balance at December 31, 1994 915 92 339 4,156 4,587
Net income 565 565
Distributions to stockholder (2,131) (2,131)
--------- ---------- ----- --- ----- --------- ---------
Balance at December 31, 1995 915 92 339 2,590 3,021
Net income (unaudited) 1,127 1,127
Distributions to stockholder (unaudited) (637) (637)
--------- ---------- ----- --- ----- --------- ---------
Balance at March 31, 1996 (unaudited) $ 915 $ 92 $ 339 $ 3,080 $ 3,511
--------- ---------- ----- --- ----- --------- ---------
--------- ---------- ----- --- ----- --------- ---------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-33
<PAGE>
LYNN HICKEY DODGE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
-------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 593 $ 565 $ 321 $ 1,127
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization 341 346 86 66
Proceeds from extended warranty sales 526 1,389 397 457
Amortization of deferred warranty revenue (47) (555) (83) (217)
(Increase) decrease in:
Accounts receivable 1,542 (1,367) 1,437 389
Inventory 1,268 6,293 (1,487) (2,532)
Due from affiliates 737 (61) 512 675
Increase (decrease) in:
Accounts payable (89) (1,776) (1,170) 292
Accrued expenses and other liabilities 854 (1,514) (982) (12)
--------- --------- --------- ---------
Net cash provided (used) by operating activities 5,725 3,320 (969) 245
--------- --------- --------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (206) (204) (2) (41)
--------- --------- --------- ---------
Cash flows from financing activities:
Change in floor plan financing (2,651) (3,837) 1,061 1,580
Line of credit proceeds - 5,000 - -
Distributions to stockholder (1,272) (2,131) (1,957) (637)
--------- --------- --------- ---------
Net cash provided (used) by financing activities (3,923) (968) (896) 943
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents 1,596 2,148 (1,867) 1,147
Cash and cash equivalents at beginning of period 2,258 3,854 3,854 6,002
--------- --------- --------- ---------
Cash and cash equivalents at end of period $ 3,854 $ 6,002 $ 1,987 $ 7,149
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-34
<PAGE>
LYNN HICKEY DODGE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS OPERATIONS - Lynn Hickey Dodge, Inc.'s (the "Company") principal
business is the retail sales of new Dodge automobiles obtained through an
exclusive dealer agreement with Dodge and the sale of used cars. In addition,
the Company retails and wholesales replacement parts and provides vehicle
servicing. The Company operates in the Oklahoma City area.
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 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.
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 automaker 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 believes that 1995 sales were negatively impacted by an
unfavorable allocation of vehicles from the automaker.
The Dealer Agreement generally limits the location of the dealership and retains
automaker approval rights over changes in dealership management and ownership.
The automaker is also entitled to terminate the dealership agreement if the
dealership is in material breach of the terms.
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.
CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of cash
deposits.
Concentrations of credit risk with respect to customer receivables are limited
primarily to Chrysler Financial Corp. and financial institutions such as
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 only market area
located in the central Oklahoma vicinity.
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.
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.
F-35
<PAGE>
LYNN HICKEY DODGE, INC.
NOTES TO FINANCIAL STATEMENTS
RECOGNITION OF FINANCE FEES AND INSURANCE COMMISSIONS - The Company arranges
financing for its customers' vehicle purchases and arranges insurance in
connection therewith. Financing contracts are reviewed by the dealership and are
forwarded to Chrysler Financial Corp. 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 ("chargebacks") for a portion of this fee should the
customer terminate the finance or insurance 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 allowance for estimated future chargebacks.
EXTENDED WARRANTY CONTRACTS - Prior to late 1994, the Company sold 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. Commencing in late 1994, the Company began offering its own extended
warranty contracts on new and used vehicles sold and continued to offer extended
warranty contracts on behalf of unrelated third parties. These contracts
generally provide extended coverage for periods of two years or 24,000 miles up
to seven years or 70,000 miles, whichever comes first. The Company accounts for
the sale of its 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.
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.
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 $3,063,000 and $2,151,000 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 or the floating nature of the related interest rates.
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.
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.
F-36
<PAGE>
LYNN HICKEY DODGE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - ALLOWANCE FOR FINANCE FEE AND INSURANCE AND WARRANTY COMMISSION
CHARGEBACKS
Presented below is the change in the allowance for estimated finance and
insurance chargebacks for 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Balance January 1 $ 488 $ 635
Provision 856 344
Actual chargebacks (709) (629)
--------- ---------
Balance at December 31 $ 635 350
--------- ---------
--------- ---------
</TABLE>
NOTE 3 - CONTRACTS IN TRANSIT AND ACCOUNTS RECEIVABLE
Contracts in transit and vehicle receivables primarily represent receivables
from financial institutions such as Chrysler Financial Corp., 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 automaker
represent receivables for parts and service work performed on vehicles pursuant
to the automaker's warranty coverage. Receivables from the automaker also
include amounts due from the automaker 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 balance at December 31 is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Trade $ 658 $ 899
Contracts in transit and vehicle receivables 2,081 3,172
Due from automaker 202 196
Due from finance companies 41 127
Other 147 101
--------- ---------
Total accounts receivable $ 3,129 $ 4,495
--------- ---------
--------- ---------
</TABLE>
NOTE 4 - INVENTORIES
The December 31 inventory balance is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
New vehicles and demonstrators $ 12,231 $ 7,845
Used vehicles 8,595 6,724
Parts and accessories 701 665
--------- ---------
$ 21,527 $ 15,234
--------- ---------
--------- ---------
</TABLE>
F-37
<PAGE>
LYNN HICKEY DODGE, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - PROPERTY AND EQUIPMENT (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Land $ 76 $ 76
Buildings 2,249 2,315
Furniture, fixtures and equipment 1,416 1,553
--------- ---------
3,741 3,944
Less: accumulated depreciation 1,656 2,001
--------- ---------
$ 2,085 $ 1,943
--------- ---------
--------- ---------
</TABLE>
NOTE 6 - NOTES PAYABLE
The automaker finances new and used vehicle purchases by the Company. Floor plan
financing bears interest at prime plus 1% (approximately 9.5% at December 31,
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 financing is
classified as current in the accompanying balance sheet.
The Company also has a $5,000,000 revolving credit note outstanding from
Chrysler Financial Corp. which was scheduled to mature on April 15, 1996; in
April 1996, the maturity date was extended to April 15, 1997. As a result of
this extension, the amount outstanding pursuant to the line of credit has been
classified as long-term in the December 31, 1995 and unaudited March 31, 1996
accompanying balance sheets. The note is secured by a pledge of the Company's
stock and accrues interest at a rate equal to LIBOR plus 2.75% (8.47% at
December 31, 1995).
NOTE 7 - ACCRUED EXPENSES AND OTHER LIABILITIES (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Deferred warranty revenue - current portion $ 229 $ 742
Chargeback allowance 635 350
Allowance for financial guarantees 1,387 419
Other 1,183 921
--------- ---------
$ 3,434 $ 2,432
--------- ---------
--------- ---------
</TABLE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES - The Company leases its dealership facility from various
lessors, but principally from Rolynn's Ltd. ("Rolynn's"), an entity controlled
by Lyndel Hickey (see Note 9). These lease agreements are generally renewed
annually. The Company also leases certain equipment for terms ranging from 2 to
5 years.
Rent expense on all operating leases was approximately $833,000 and $846,000 for
the years ended December 31, 1994 and 1995, respectively. Additionally, the
Company is liable for property taxes and insurance.
F-38
<PAGE>
LYNN HICKEY DODGE, INC.
NOTES TO FINANCIAL STATEMENTS
Future aggregate minimum rental commitments for noncancellable operating leases
are immaterial.
From time to time, the Company will either partially or fully guarantee the
payment of certain customers' loans relating to the purchase of vehicles from
the Company. A portion of these customer loans are purchased by Dakota Finance
(see Note 9). As of December 31, 1994 and 1995, the Company had full guarantees
on outstanding loans with a principal balance of $14,421,000 and $7,780,000,
respectively. Additionally, as of December 31, 1994 and 1995, the Company had
partial guarantees on outstanding customer loans with total principal balances
of $7,313,000 and $3,896,000, respectively. Partial guarantees are for an
agreed-upon amount less than the face value of the loan. The Company records an
allowance for estimated future losses on such guarantees. Below is an analysis
of the allowance for estimated losses on such guarantees (in thousands).
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Balance at January 1 $ 1,120 $ 1,387
Provision 1,626 309
Actual losses relating to guarantees (1,359) (1,277)
--------- ---------
Balance at December 31 $ 1,387 $ 419
--------- ---------
--------- ---------
</TABLE>
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 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 the 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, and other chemicals and waste. Local, state and federal
regulations also affect automobile dealership's advertising, sales, service and
financing activities. The Company believes that it complies with all applicable
laws relating to its business.
NOTE 9 - RELATED PARTY TRANSACTIONS
Dakota Finance ("Dakota") is a finance company owned 50% by Lyndel Hickey, the
sole stockholder of the Company, and 50% by Wade Hickey, Vice President of the
Company. In assisting its customers with their vehicle purchase, the Company
arranges financing through various lenders, including Dakota. The Company
receives no finance commission for customer loans arranged with Dakota and
generally guarantees the customer's loan. During 1994 and 1995 and the unaudited
three months ended March 31, 1995 and 1996, Dakota financed $2,592,000,
$2,175,000, $557,000 and $713,000, respectively, of the Company's sales. As of
December 31, 1995 and March 31, 1996, Dakota had $2,199,000 and $2,164,000
(unaudited) in outstanding loans receivable which were guaranteed by the
Company. During 1994 and 1995, and the unaudited three months ended March 31,
1995 and 1996, the Company recognized losses of $260,000, $176,000, $46,000 and
$68,000, respectively, relating to nonperformance under such guarantees. An
allowance for estimated future losses relating to these financial guarantees has
been included in the allowance for financial guarantees discussed in Note 8
above.
As of December 31, 1995 and March 31, 1996, the Company had committed to advance
Dakota up to $5,000,000 at a rate of LIBOR plus 3%. This commitment expired in
April 1996. The Company advanced, primarily under this line of credit,
$3,226,000, $1,660,000 and $164,000 (unaudited) to Dakota in 1994, 1995 and
first quarter 1996, respectively, for working capital purposes. Interest charged
relating to the line of
F-39
<PAGE>
LYNN HICKEY DODGE, INC.
NOTES TO FINANCIAL STATEMENTS
credit advances accrued at 8.5% per annum and LIBOR plus 3% per annum. Interest
income of $43,000, $31,000, $4,000 and $4,000 was recognized on the advances
during the years ended December 31, 1994 and 1995 and for the unaudited three
months ended March 31, 1995 and 1996, respectively. As of December 31, 1994,
1995, and March 31, 1996, $800,000, $802,000 and $228,000 (unaudited),
respectively, was outstanding relating to such advances.
The Company arranges credit life and accident and disability insurance for its
customers in connection with their purchase of new and used vehicles. These
insurance contracts are arranged on behalf of Mega Life and Health Insurance
Company, which reinsures a portion of the risk with a company owned by Lyndel
Hickey. During 1994 and 1995, insurance premiums received from customers totaled
$1.6 million and $0.8 million of which 60% was paid to Mega Life and 40% was
retained by the Company as commission.
As more fully discussed in Note 8, the Company leases most of its operating
facilities from Rolynn's, an entity controlled by Lyndel Hickey, who owns 100%
of the Company's stock. Rent expense under this lease was $780,000 during 1994
and 1995.
NOTE 10 - SUBSEQUENT EVENTS
The Company has executed a purchase and sale agreement whereby it has agreed to
sell substantially all of its assets to Cross-Country Auto Retailers, Inc. The
purchase price will consist of cash consideration of approximately $12.8 million
for fixed assets and intangible assets, plus an estimated $750,000 for parts
inventory. In addition, the purchaser may acquire the new and used vehicle
inventory at a negotiated value. The purchase price consideration also includes
the issuance of warrants to the Company to purchase $1.0 million of the
purchaser's common stock at its initial public offering price. The warrants can
be exercised over a five-year period commencing with the closing date of the
purchase. The sale is subject to customary closing conditions as well as the
purchaser's successful completion of its initial public offering and approval of
the change in ownership by Dodge.
F-40
<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 for 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 attorneys'
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 Asset Purchase Agreement, dated June 17, 1996, between Lynn Hickey Dodge, Inc. and Cross-Country
Auto Retailers, Inc.
**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 Bylaws 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 April 20, 1989, between the Nissan Division of Nissan
Motor Corporation in U.S.A. and Nissan of Amarillo, 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
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ ---------------------------------------------------------------------------------------------------
<C> <S>
*10.5 Sublease Agreement, dated June 1, 1995, between Gilliland Group Family Partnership and Performance
Nissan, Inc.
10.6 Lease Agreement, 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 Office 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. to 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 Chevrolet, Inc., Plains Chevrolet,
Inc., Quality Nissan, Inc. and Westgate Chevrolet, Inc.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ ---------------------------------------------------------------------------------------------------
<C> <S>
**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 filed June 21, 1996)
**27.1 Financial Data Schedule
</TABLE>
- ---------
* To be filed by amendment.
** Previously filed.
*** 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 exist between General Motors Acceptance
Corporation 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 Amendment No. 1 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on July 10, 1996.
CROSS-COUNTRY AUTO RETAILERS, INC.
By /s/ EZRA P. MAGER
------------------------------------
Name: Ezra P. Mager
Title: Vice Chairman
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE 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>
* Chairman, Chief Executive Officer
------------------------------------------- and Director July 10, 1996
Bill A. Gilliland (principal executive officer)
*
------------------------------------------- Senior Vice Chairman and Director July 10, 1996
Robert W. Hall
/s/ EZRA P. MAGER
------------------------------------------- Vice Chairman and Director July 10, 1996
Ezra P. Mager
*
------------------------------------------- Senior Vice President, Chief July 10, 1996
Emmett M. Rice, Jr. Operating Officer and Director
Vice President and Chief
* Financial Officer (principal
------------------------------------------- accounting and financial July 10, 1996
Charles D. Winton officer)
*By: /s/EZRA P. MAGER
Ezra P. Mager
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------ ------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
*1.1 Form of Underwriting Agreement
*2.1 Asset Purchase Agreement, dated June 17, 1996, between Lynn Hickey Dodge Inc. and
Cross-Country Auto Retailers, Inc.
**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 Bylaws 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 April 20, 1989, between the Nissan Division of
Nissan Motor Corporation in U.S.A. and Nissan of Amarillo, 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 Agreement, dated June 1, 1995, between Gilliland Group Family Partnership and
Performance Nissan, Inc.
10.6 Lease Agreement, 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 Office 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. to 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 Chevrolet, 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 filed June 21, 1996)
**27.1 Financial Data Schedule
</TABLE>
- ---------
* To be filed by amendment.
** Previously filed.
*** 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 exist between General Motors Acceptance
Corporation 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>
================================================================================
GMMS 1012-1 [logo]
USA 11-95 CHEVROLET
CHEV 05/31/94 GEO
CHEVROLET-GEO
Dealer Sales and Service Agreement
In reliance upon the Agreement by the parties to fulfill their respective
commitments, this Agreement effective NOVEMBER 01, 1995, is entered into by
General Motors Corporation, Chevrolet Motor Division ("Chevrolet"), a Delaware
Corporation and
PLAINS CHEVROLET, INC, , a
- -----------------------------------------------------------------------
Dealer Firm Name
/X/ TEXAS corporation, incorporated on NOVEMBER 23, 1960;
----------------- --------------------
/ / proprietorship;
/ / partnership
/ / other - specify
------------------------------------------------
doing business at 220 INT HWY 40 EAST
--------------------------------------------------
AMARILLO, TEXAS 79103-4111 ("Dealer")
--------------------------------------------------
OVERVIEW AND PURPOSE OF THE
CHEVROLET-GEO DEALER SALES AND SERVICE AGREEMENT
The principle purposes of this Agreement are to:
A. Authorize the Dealer to sell and service Chevrolet and Geo products and to
represent itself as a Chevrolet-Geo Dealer.
B. Provide a framework within which Dealer and Chevrolet may accomplish their
mutual objectives.
C. Provide a means whereby Chevrolet and Dealer may identify specific sales,
CSI, facility and other requirements by which Dealer's performance under
this Agreement may be evaluated.
D. Identify other commitments, rights and responsibilities of Chevrolet and
Dealer.
Achieving Chevrolet's vision of market leadership while exceeding customer
expectations in selling and serving Chevrolet and Geo products is
dependent in a large part upon the maintenance of a quality network of
authorized Dealers. Since Dealer represents Chevrolet and Geo to the public, it
is fundamental to the success of Chevrolet that Dealer maintain its operations
facilities and business methods in a manner which will support the Chevrolet-Geo
Dealer Agreement. Chevrolet will conduct its operations and provide assistance,
as practicable within the scope and terms of this Agreement, to assist Dealer to
accomplish the requirements of this Agreement and the Chevrolet vision.
Chevrolet will from time to time provide instructions, programs, requirements
and suggestions developed in accordance with this Agreement to both supplement
the Agreement and assist Dealer and Dealer Network.
Chevrolet's vision is to be ...America's automotive leader...providing Total
Customer Enthusiasm through:
+ Empowered people,
+ Exceptional products,
+ Excellent purchase and ownership experience,
providing outstanding value and a superior return on investment for all
stakeholders.
<PAGE>
Fourth
Chevrolet and dealers recognize that the decisions made by Chevrolet Motor
Division impact the business and livelihood of its Dealer Body as well as the
ultimate satisfaction of its customers. Chevrolet, in accord with members
representing the Chevrolet dealer body, seek to enhance its decision making
process by establishing certain methods for the inclusion of the collective
Dealer Body input in all areas directly affecting our mutual business concerns.
The forum for this is generally provided through three principle processes: The
National Dealer Council, The National Dealer Council Work Teams, and The
Partnership Council.
A. National Dealer Council
The purpose of the National Dealer Council is to establish a forum for
Chevrolet and its dealers to partner in determining Chevrolet's future direction
and strategies. Council members will participate in work teams and other joint
policy-making groups affecting our business. Much progress has been made as a
result of the National Dealer Council involvement, and Chevrolet is committed to
ensuring that this avenue continues.
+ The National Dealer Council will consist of elected Chevrolet dealer
representatives from each Zone and serve a three year term. A dealer must
have at least three years experience as a Chevrolet dealer and be involved
in the day to day operations of the dealership business in order to qualify
for election.
+ Council representatives will communicate with the dealer body in the Zone
they are representing by providing feedback on dealer council activities
and informing the Dealer Council and Chevrolet of dealer body concerns.
+ Dealer Council formally convenes up to three times a year. Individual
Council members may be asked to attend additional meetings throughout the
year in connection with their team assignments. Dealer Council members will
serve on work teams and participate in the decision making process with
Chevrolet Motor Division.
+ Any training deemed necessary by the National Dealer Council to assist in
fulfilling their responsibilities will be provided by Chevrolet.
B. National Dealer Council Work Teams
National Dealer Council representatives, Chevrolet/GM management, and
Chevrolet Dealers will serve jointly on work teams which are created to focus on
issues of mutual concern to dealers and Chevrolet. The work teams will utilize
the consensus decision making process to achieve a best value decision depending
on the defined role of each group and the requirements of each issue under
consideration.
+ Work teams will cover areas such as: Dealer Organization, Education and
Training, Product, Service/Parts, Distribution, Sales/Financial, Marketing,
and Total Customer Enthusiasm. The National Dealer Council and Chevrolet
may establish, change or discontinue teams as deemed necessary.
+ Dealers may serve on a work team for up to a three year term. Meetings will
take place on an as needed basis through phone conversations, fax system,
or in person.
C. Partnership Council
The responsibility of the Partnership Council is to coordinate work team
structures and activities of the National Dealer Council, The Partnership
Council is comprised of an equal number of Chevrolet Dealer Council members and
Chevrolet representatives which operate as a policy making body. The Partnership
Council will also address issues from the National Dealer Council and inform the
necessary work teams as needed.
<PAGE>
Seventh
d) Software:
From time to time during the term of this Agreement, GM will make available to
Dealer certain information, data, software or firmware ("software")
electronically, incorporated into tools or other products or by other means.
This Software may be owned outright by GM, or jointly with, a GM affiliate
company or authorized supplier. Dealer agrees to limit its use of the Software
to Dealership Operations and comply with any other restrictions on its use.
Training
Eighth
Chevrolet will from time to time provide training which Chevrolet believes will
enhance Dealers ability to meet the requirements of the Dealer Agreement. Dealer
will, to the extent practicable, participate in that training. Further,
Chevrolet will on occasion designate certain training that will be required in
accordance with Article 8 of the additional provisions. Dealer agrees that it
will participate in any training so designated. Decisions on training
requirements will be determined in accordance with Paragraph Fourth of this
Agreement.
Dealer Identification, Image and Facilities
Ninth
Dealer and Chevrolet recognize that the appearance, signs, environment and
quality of Dealer's facility have significant impact on both Chevrolet and Geo
products and Dealer. Dealer, therefore, agrees that its dealership premises will
be properly equipped and maintained, and that the interior and exterior retail
environment and signs will comply with reasonable requirements Chevrolet will
establish to promote and preserve the image of Chevrolet and its Dealers.
Decisions on any material changes to the image, sign and/or dealership facility
requirements will be determined in accordance with Paragraph Fourth of this
Agreement.
Dispute Resolution
Tenth
Chevrolet recognizes that the mutual respect, trust and confidence which have
been the cornerstones of Chevrolet-Dealer relations are essential to
accomplishing the objectives of this Agreement. While the relationship between
Chevrolet and Dealer is a very positive one, Chevrolet recognizes that from time
to time there may be disagreements between Chevrolet and Dealer concerning
rights and obligations arising under this Dealer Agreement. It is contemplated
that most disagreements that may arise between Dealer and Chevrolet will be
resolved through discussion between Dealer and Chevrolet field management. In
fact, Dealer is strongly encouraged to discuss and to resolve any differences
through the local field office, the Chevrolet entity most familiar with Dealer
and its operations. However, in those instances where a disagreement between
Dealer and Chevrolet cannot be resolved, Dealer may choose to seek review
through the Dispute Resolution Process, which provides for senior sales
management review and Binding Arbitration. This process is always voluntary on
the part of Dealer and is voluntary on the part of Chevrolet except as provided
in the details of the Dispute Resolution Process as set for in a separate
booklet (HGMMS-1019).
Business Management Responsibility
Eleventh
If Dealer is an authorized Dealer for more than one division of General Motors,
Chevrolet will be primarily responsible for administering the provisions of the
Dealer Agreements relating to the Dealer Statement of Ownership, dealership
location and premises addendum and capital standard addendum. Chevrolet will
execute or extend those documents for all divisions.
<PAGE>
_______________________________________________________________________________
_______________________________________________________________________________
GMMS 1014-1
USA 11-90
DNPS 3/08/90
DEALER STATEMENT OF OWNERSHIP
PLAINS CHEVROLET, INC.
- --------------------------------------------------------------------------------
Dealer Firm Name
AMARILLO, TEXAS
---------------------------------------------------------------
City, State
/ / a proprietorship, // a partnership or /X/ a corporation on NOVEMBER 23, 1960
in the State of TEXAS
-----------------
/ / other- specify
--------------------------------------------------------------
The undersigned Dealer hereby certifies that the following information is true,
accurate and complete, as of NOVEMBER 01, 1995
-----------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Names and Titles of all individuals, Active If a Corporation, Show Number Value of the Owner- Percentage
beneficiaries of trusts or other entities in of Shares and Class ship Interest of Each of
owning 5% or more of Dealer and entitled to Dealer- ------------------------------ Person Listed Based Ownership
receive dividends or profits from Dealer ship Type* Voting on Dealership's of Record
as a result of ownership. (Yes or Number or (Yes or Current Net Worth in Dealer
No) Shares Class No)
(Identify Holding Company owners on GMMS 1014-4)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BILL A. GILLILAND
VICE-PRESIDENT YES
1,700.00 COMM A YES $ 2,981,371 85.00%
- ---------------------------------------------------------------------------------------------------------------------------------
EMMETT M. RICE, JR.
PRESIDENT YES
300.00 COMM A YES $ 526,124 15.00%
- ---------------------------------------------------------------------------------------------------------------------------------
$ %
- ---------------------------------------------------------------------------------------------------------------------------------
$ %
- ---------------------------------------------------------------------------------------------------------------------------------
$ %
- ---------------------------------------------------------------------------------------------------------------------------------
$ %
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL XXX 2,000.00 COMM A XXX $ 3,507,495 100.00%
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Indicate various classes of common or preferred stock issued. State Par
Value of each share of preferred stock
Remarks:
PLAINS CHEVROLET, INC.
----------------------------------------------------------------------------
Dealer Firm Name
CHEVROLET MOTOR DIVISION
GENERAL MOTORS CORPORATION
By /s/ Emmett M. Rice, Jr. 8-1-95 By /s/ Tom Cutler 9-29-95
----------------------------------- ------------------------------------
Signature and Title Date ZONE MANAGER Date
_______________________________________________________________________________
_______________________________________________________________________________
<PAGE>
================================================================================
GM 958
USA 11-90
DNPS 4/06/90
MANUFACTURER'S CERTIFICATION OF DEALER
Date NOVEMBER 01, 1995
-------------------------------
To the Department or
Bureau if Motor Vehicles
This is to certify that:
PLAINS CHEVROLET, INC. ,
- ------------------------------------------------------------------------------
Dealer Firm NAme
/ / an individual
/ / a co-partnership
/X/ a corporation
/ / other - specify
-----------------------------------------------------------
2200 INT HWY 40 EAST
-----------------------------------------------------------
Dealership Street Number
AMARILLO, TEXAS
-----------------------------------------------------------,
City, State
is a party to a written Dealer Sales and Service Agreement effective
NOVEMBER 01, 1995 with CHEVROLET MOTOR VEHICLE DIVISION, General Motors
- ----------------- ---------------------------------
Corporation, WARREN, MICHIGAN , authorizing such party as a Dealer to sell
-------------------
and service new motor vehicles commonly known and designated as CHEVROLET.
---------
Make
The aforesaid Dealer Sales and Service Agreement is a personal
service contract dependent upon the personal connection of
EMMETT M. RICE JR
------------------------------------------------------------------------
BILL A. GILLILAND
------------------------------------------------------------------------
------------------------------------------------------------------------
All Persons Named in Paragraph Third
with the aforesaid Dealer's business and expires on OCTOBER 31, 2000 unless
---------------------
Date
sooner terminated pursuant to the provisions thereof.
CHEVROLET DIVISION
General Motors Corporation
By /s/ Tom Cutler Zone Manager
-----------------------------------------
130 E CARPENTER FREEWAY
-----------------------------------------
Office Address
IRVING, TEXAS
-----------------------------------------
City, State
================================================================================
<PAGE>
Standard Provisions
Dealer
Sales and Service
Agreement
LOGO
GENERAL MOTORS CORPORATION
<PAGE>
TABLE OF CONTENTS FOR STANDARD PROVISIONS
Page
PURPOSE OF AGREEMENT ...................................................... 1
ARTICLE 1. APPOINTMENT AS AUTHORIZED DEALER ............................... 1
ARTICLE 2. DEALER OPERATOR ................................................ 1
ARTICLE 3. DEALER OWNER ................................................... 2
ARTICLE 4. AUTHORIZED LOCATIONS ........................................... 2
4.1 Dealer Network Planning ............................................... 2
4.2 Area of Primary Responsibility ........................................ 2
4.3 Establishment of Additional Dealers ................................... 2
4.4 Facilities ............................................................ 3
4.4.1 Location ........................................................ 3
4.4.3 Change in Location or Use of Premises ........................... 3
4.4.3 Size ............................................................ 3
4.4.4 Dealership Image and Design ..................................... 3
4.4.5 Dealership Equipment ............................................ 4
ARTICLE 5. DEALER'S RESPONSIBILITY TO PROMOTE, SELL AND SERVICE PRODUCTS .. 4
5.1 Responsibility to Promote and Sell .................................... 4
5.2 Responsibility to Service ............................................. 4
5.3 Customer Satisfaction ................................................. 5
5.4 Business Planning ..................................................... 5
ARTICLE 6. SALE OF PRODUCTS TO DEALERS .................................... 5
6.1 Sale of Motor Vehicles to Dealer ...................................... 5
6.2 Sale of Parts and Accessories to Dealer ............................... 5
6.3 Prices and Other Terms of Sale ........................................ 6
6.3.1 Motor Vehicles ...................................................... 6
6.3.2 Parts and Accessories ............................................... 6
6.4 Inventory ............................................................. 6
6.4.1 Motor Vehicle Inventory ......................................... 6
6.4.2 Parts and Accessories ........................................... 6
6.5 Warranties on Products ................................................ 6
ARTICLE 7. SERVICE OF PRODUCTS ............................................ 7
7.1 Service for Which Division Pays ....................................... 7
7.1.1 New Motor Vehicle Pre-Delivery Inspections and Adjustments ...... 7
7.1.2 Warranty and Special Policy Repairs ............................. 7
7.1.3 Campaign Inspections and Corrections ............................ 7
7.1.4 Payment for Pre-Delivery Adjustments, Warranty, Campaign and
Transportation Damage Work ...................................... 7
7.2 Parts, Accessories, and Body Repairs .............................. 7
7.2.1 Warranty and Policy Repairs ..................................... 7
7.2.2 Representations and Disclosures as to Parts and Accessories ..... 7
7.2.3 Body Repairs .................................................... 7
7.2.4 Tools and Equipment ............................................. 8
ARTICLE 8. TRAINING ....................................................... 8
ARTICLE 9. REVIEW OF DEALER'S SALES AND SERVICE PERFORMANCE ............... 8
ARTICLE 10. CAPITALIZATION ................................................ 8
ARTICLE 11. ACCOUNTS AND RECORDS .......................................... 9
11.1 Uniform Accounting System ............................................ 9
11.2 Examination of Accounts and Records .................................. 9
11.3 Confidentiality of Dealer Data ....................................... 9
ARTICLE 12. CHANGES IN MANAGEMENT AND OWNERSHIP ........................... 9
12.1 Succession Rights Upon Death or Incapacity ........................... 9
12.1.1 Successor Addendum ............................................ 9
12.1.2 Absence of Successor Addendum ................................. 10
12.1.3 Successor Dealer Requirements ................................. 10
12.1.4 Term of New Dealer Agreement .................................. 10
12.1.5 Limitation on Offers .......................................... 10
12.1.6 Cancellation of Addendum ...................................... 10
12.2 Other Changes in Ownership or Management ............................. 11
12.3 Right of First Refusal to Purchase ................................... 11
12.3.1 Creation and Coverage ......................................... 11
12.3.2 Purchase Price and Other Terms of Sale ........................ 11
(a) Bona Fide Agreement ......................................... 11
(b) Absence of Bona Fide Agreement .............................. 12
12.3.3 Consummation .................................................. 12
12.3.4 Assignment .................................................... 12
12.3.5 Transfer Involving Family Members and Dealer Management ....... 12
ARTICLE 13. BREACHES AND OPPORTUNITY TO REMEDY ............................ 12
13.1 Certain Acts or Events ............................................... 12
13.2 Failure of Performance by Dealer ..................................... 13
ARTICLE 14. TERMINATION OF AGREEMENT ...................................... 14
14.1 By Dealer ............................................................ 14
14.2 By Agreement ......................................................... 14
14.3 Failure to be Licensed ............................................... 14
14.4 Incapacity of Dealer Operator ........................................ 14
14.5 Acts or Events ....................................................... 14
14.6 Reliance on Any Applicable Termination Provision ..................... 15
14.7 Transactions After Termination ....................................... 15
14.7.1 Effect on Orders .............................................. 15
14.7.2 Termination Deliveries ........................................ 15
14.7.3 Effect of Transactions After Termination ...................... 15
ARTICLE 15. TERMINATION ASSISTANCE ........................................ 15
15.1 Deferral of Effective Date ........................................... 15
15.2 Purchase of Personal Property ........................................ 15
15.2.1 Division's Obligations ........................................ 15
15.2.2 Dealer's Responsibilities ..................................... 16
15.2.3 Payment ....................................................... 16
15.2.4 Assignment of Rights .......................................... 17
15.3 Assistance on Premises ............................................... 17
15.3.1 Division's Obligation ......................................... 17
15.3.2 Owned Premises ................................................ 17
15.3.4 Leased Premises ............................................... 17
15.3.4 Rent and Price ................................................ 17
15.3.5 Limitations on Obligation to Provide Assistance ............... 18
ARTICLE 16. DISPUTE RESOLUTION PROCESS .................................... 18
ARTICLE 17. GENERAL PROVISIONS ............................................ 18
17.1 No Agent or Legal Representative Status .............................. 18
17.2 Responsibility for Operations ........................................ 18
17.3 Taxes ................................................................ 18
17.4 Indemnification by General Motors .................................... 19
17.5 Trademarks and Service Marks ......................................... 19
17.6 Notices .............................................................. 20
17.7 No Implied Waivers ................................................... 20
17.8 Assignment of Rights or Delegation of Duties ......................... 20
17.9 No Third Party Benefit Intended ...................................... 20
17.10 Accounts Payable .................................................... 20
17.11 Sole Agreement of Parties ........................................... 20
17.12 Applicable Law ...................................................... 21
17.13 Superseding Dealer Agreements ....................................... 21
GLOSSARY .................................................................. 22
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Standard Provisions
The following Standard Provisions are part of Division's Dealer Sales and
Service Agreement (Form GMMS 1012).
PURPOSE OF AGREEMENT
The purpose of this Agreement is to promote a relationship between Division
and its Dealer which encourages and facilitates cooperation and mutual effort to
satisfy customers, and permits Division and its dealers to fully realize their
opportunities for business success. Division has established a network of
authorized dealers operating at approved locations to effectively sell and
service its Products and to build and maintain consumer confidence and
satisfaction in Dealer and Division. Consequently, Division relies upon each
Dealer to provide appropriate skill, capital, equipment, staff and facilities to
properly sell, service, protect the reputation, and satisfy the customers of
Division Products in a manner that demonstrates a caring attitude toward these
customers. At the same time, Dealer relies upon Division to provide sales and
service support and to continually strive to enhance the quality and
competitiveness of its Products.
This mutual dependence requires a spirit of cooperation, trust and
confidence between Division and its dealers. To facilitate attainment of
cooperation, trust and confidence, and to provide Division with the benefit of
dealer advice regarding many decisions which affect dealer business operations,
Division has established mechanisms to obtain dealer input in the
decision-making process. These mechanisms are described in Division's Dealer
Sales and Service Agreement.
This Agreement (i) authorizes Dealer to sell and service Division's
Products and represent itself as a Division Dealer; (ii) states the terms under
which Dealer and Division agree to do business together; (iii) states the
responsibilities of Dealer and Division to each other and to customers; and (iv)
reflects the mutual dependence of the parties in achieving their business
objectives.
ARTICLE 1. APPOINTMENT AS AUTHORIZED DEALER
Division appoints Dealer as a non-exclusive dealer of Division Products.
Dealer has the right to buy Products and the obligation to market and service
those Products in accordance with this Agreement and related documents.
ARTICLE 2. DEALER OPERATOR
This is a Personal Service Agreement, entered into in reliance on the
qualifications of Dealer Operator identified in Paragraph Third, and on Dealer's
assurance that Dealer Operator will provide personal services by exercising full
managerial authority over Dealership Operations Dealer will have an unencumbered
ownership interest in Dealer of at least 15 percent at all times. A Dealer
Operator must be a competent business
<PAGE>
person, an effective manager, must have demonstrated a caring attitude toward
customers, and should have a successful record as a merchandiser of automotive
products and services or otherwise have demonstrated the ability to manage a
dealership. The experience necessary may vary with the potential represented by
each dealer location.
ARTICLE 3. DEALER OWNER
Division enters into this Agreement in reliance on the qualifications of
dealer owner(s) identified in the Dealer Statement of Ownership. Division and
Dealer agree each dealer owner will continue to own, both of record and
beneficiary, the percentage stated in the Dealer Statement of Ownership, unless
a change is made in accordance with Article 12.
ARTICLE 4. AUTHORIZED LOCATIONS
4.1 Dealer Network Planning
Because Division distributes its Products through a network of authorized
dealers operating from approved locations, those dealers must be appropriate in
number, located properly, and have proper facilities to represent and service
Division's Products competitively and to permit each dealer the opportunity to
achieve a reasonable return on investment if it fulfills its obligations under
its Dealer Agreement. Through such a dealer network, the Division can maximize
the convenience of customers in purchasing Products and having them serviced. As
a result, customers, dealers, and the Division all benefit.
To maximize the effectiveness of its dealer network, Division agrees to
monitor marketing conditions and strive, to the extent practicable, to have
dealers appropriate in number, size and location to achieve the objectives
stated above. Such marketing conditions include Division's sales and
registration performance, present and future demographic and economic
considerations, competitive dealer networks, the ability of Division's existing
dealers to achieve the objectives stated above, the opportunities available to
existing dealers, and other appropriate circumstances.
4.2 Area of Primary Responsibility
Dealer is responsible for effective selling, servicing and otherwise
representing Division's Products in the Area designated in a Notice of Area of
Primary Responsibility. Division retains the right to revise Dealer's Area of
Primary Responsibility at Division's sole discretion consistent with dealer
network planning objectives. If Division determines that marketing conditions
warrant a change in Dealer's Area of Primary Responsibility, it will advise
Dealer in writing of the proposed change, the reasons for it, and will consider
any information the Dealer submit. Dealer must submit such information in
writing within 30 days of receipt of notice of the proposed change. If Division
thereafter decides the change is warranted, it will issue a revised Notice of
Area of Primary Responsibility.
4.3 Establishment of Additional Dealers
Division reserves the right to appoint additional dealers but Division will
not exercise this right without first analyzing dealer network planning
considerations.
Prior to establishing an additional dealer within Dealer's Area of Primary
Responsibility, Division will
<PAGE>
advise Dealer in writing and give Dealer thirty days to present relevant
information before Division makes a final decision. Division will advise Dealer
of the final decision, which will be made solely by Division pursuant to its
business judgment. Nothing in this Agreement is intended to require Dealer's
consent to the establishment of an additional dealer.
Neither the appointment of a dealer at or within three miles of a former
dealership location as a replacement for the former dealer nor the relocation of
an existing dealer will be considered the establishment of an additional Dealer
for purposes of this Article 4.3. Such events are within the sole discretion of
Division, pursuant to its business judgment.
4.4 Facilities
4.4.1 Location
Dealer agrees to conduct Dealership Operations only from the approved
location(s) within its Area of Primary Responsibility. The Location and Premises
Addendum identifies Dealer's approved location(s) and facilities ("Premises").
If more than one location is approved, Dealer agrees to conduct from each
location only those Dealership Operations authorized in the Addendum for such
location.
4.4.2 Change in Location or Use of Premises
If Dealer wants to make any change in location(s) or Premises, or in the
uses previously approved for those Premises, Dealer will give Division written
notice of the proposed changes, together with the reasons for the proposal, for
Division's evaluation and final decision in light of dealer network planning
considerations. No change in location or in the use of Premises, including
addition of any other vehicle lines, will be made without Division's prior
written authority.
Before Division requires any changes in Premises, it will consult with
Dealer, indicate the rationale for the change, and solicit Dealer's views on the
proposal. If, after such review with Dealer, Division determines a change in
Premises or location is appropriate, the Dealer will be allowed a reasonable
time to implement the change. Any such changes will be reflected in a new
Location and Premises Addendum or other written agreement executed by Dealer and
Division.
Nothing herein is intended to require the consent or approval of any dealer
to a proposed relocation of any other dealer.
4.4.3 Size
Dealer agrees to provide Premises at its approved location(s) that will
promote effective performance and conduct of Dealership Operations, and the
Division's image and goodwill. Consistent with Division's dealer network
planning objectives and Division's interest in maintaining the stability and
viability of its dealers. Dealer agrees that its facilities will be sized in
accordance with Division's requirements for that location.
Division agrees to establish and maintain a clearly stated policy for
determining reasonable dealer facility space requirements and to periodically
re-evaluate those requirements to ensure that they continue to be reasonable.
4.4.4 Dealership Image and Design
The appearance of Dealer's Premises is important to the image of Dealer and
Division, and can affect the way customers perceive Division's Products and its
dealers generally. Dealer therefore agrees that its Premises will be properly
equipped and maintained, and that the interior and exterior retail environment
and signs will comply with any reasonable requirement Division may establish to
promote and preserve the image of Division and its dealers.
Division will monitor developments in automotive and
<PAGE>
other retailing to ensure that Division's image and facility requirements are
responsive to changes in the marketing environment.
Division will take into account existing economic and marketing conditions,
and consult with dealers as described in Division's Dealer Sales and Service
Agreement, in establishing such requirements.
4.4.5 Dealership Equipment
Effective performance of Dealer's responsibilities under this Agreement
requires that the dealership be reasonably equipped to communicate with
customers and the Division and to properly diagnose and service products.
Accordingly, Dealer agrees to provide for use in the Dealership Operations any
equipment reasonably designated by Division as necessary to Dealer's effective
performance under this Agreement. Division will make such designations only
after having consulted with dealers ad described in Division's Dealer Sales and
Service Agreement.
ARTICLE 5. DEALER'S RESPONSIBILITY TO PROMOTE, SELL, AND SERVICE PRODUCTS
5.1 Responsibility to Promote and Sell
5.1.1 Dealer agrees to effectively, ethically and lawfully sell and promote
the purchase, lease and use of Products by consumers located in its Area of
Primary Responsibility. To achieve this objective, Dealer agrees to:
(a) maintain an adequate force of trained sales personnel;
(b) explain to Product purchasers the items which make up the purchase
price and provide purchasers with itemized invoices;
(c) not charge customers for services for which Dealer is reimbursed
by General Motors;
(d) include in customer orders only equipment or accessories requested
by customer or required by law; and
(e) ensure that the customer's purchase and delivery experience are
satisfactory.
If Dealer modifies or sells a modified new Motor Vehicle, or installs any
equipment, accessory or part not supplied by General Motors, or sells any
non-General Motors service contract for a Motor Vehicle, Dealer will disclose
this fact on the purchase order bill of sale, indicating that the modification,
equipment, accessory or part is not warranted by General Motors or, in the case
of a service contract, the coverage is not provided by General Motors or an
affiliate.
5.1.2 Dealer is authorized to sell new Motor Vehicles only to customers
located in the United States. Dealer agrees that it will not sell new Motor
Vehicles for resale or principal use outside the United States. Dealer also
agrees not to sell any new Motor Vehicle which were not original manufactured
for sale and distribution in the United States.
5.1.3 Division will conduct general advertising programs to promote the
sale of Products for the mutual benefit of Division and Dealers. Division will
make available to Dealer advertising and sales promotion materials from time to
time and advise Dealer of any applicable charges.
5.2 Responsibility to Service
5.2.1 Dealer agrees to maximize customer satisfaction by providing
courteous, convenient, prompt, efficient and quality service to owners of Motor
Vehicles, regardless of from whom the Vehicles were
<PAGE>
purchased. All service will be performed and administered in a professional
manner and in accordance with all applicable laws and regulations, and this
Agreement, including the Service Policies and Procedures Manual, as amended from
time to time.
5.2.2 Dealer agrees to maintain an adequate service and parts organization
as recommended by Division, including a competent, trained service and parts
manager(s), trained service and parts personnel and, where service volume or
other conditions make it advisable, a customer relations manager.
5.2.3 Dealer and Division will each provide the other with such information
and assistance as may reasonably be requested by the other to facilitate
compliance with applicable laws, regulations, investigations and orders relating
to Products.
5.2.4 To build and maintain consumer confidence in, and satisfaction with,
Dealer and Division, Dealer will comply with Divisional procedures for the
investigation and resolution of Product-related complaints.
5.2.5 Division will make available to Dealer current service and parts
manuals, bulletins, and technical data publications relating to Motor Vehicles.
5.3 Customer satisfaction
Dealer and Division recognize that appropriate care for the customer will
promote customer satisfaction with Division's Products and its dealers, which is
critically important to our current and future business success. Dealer
therefore agrees to conduct its operations in a manner which will promote
customer satisfaction with the purchase and ownership experience. Division
agrees to provide Dealer with reasonable support to assist Dealer's attainment
of customer satisfaction. At its discretion, Division will monitor the
satisfaction of Dealer's customers, and report the results to Dealer. Any
written response from Dealer concerning a customer satisfaction report issued to
Dealer will become a part of the report.
5.4 Business Planning
To enable Dealer to most effectively meet its obligations under this
Agreement, and to enable Division to effectively support Dealer's efforts,
Dealer agrees to develop and implement a Business Plan if such is required by
Division.
ARTICLE 6. SALE OF PRODUCTS TO DEALERS
6.1 Sale of Motor Vehicle to Dealer
Division will periodically furnish Dealer one or more Motor Vehicle Addenda
specifying the current model types or series of new Motor Vehicles which Dealer
may order under this Agreement. Division may change a Motor Vehicle Addendum by
furnishing a superseding one, or may cancel an Addendum at any time.
Division will endeavor to distribute new Motor Vehicles among its dealers
in a fair and equitable manner. Many factors affect the availability and
distribution of Motor Vehicles to dealers, including component availability and
production capacity, sales potential in Dealer's Area of Primary Responsibility,
varying consumer demand, weather and transportation conditions, governmental
regulations, and other conditions beyond the control of General Motors. Division
reserves to itself discretion in accepting orders and distributing Motor
Vehicles, and its judgments and decisions are final. Upon written request,
Division will advise Dealer of the total number of new Motor Vehicles, by series
sold to Dealers in Dealer's Zone or Branch during the preceding month.
<PAGE>
6.2 Sale of Parts and Accessories to Dealer
New, reconditioned or remanufactured automotive parts and accessories
marketed by General Motors and listed in current Dealer Parts and Accessories
Price Schedules or supplements furnished to Dealer are called Parts and
Accessories.
Orders for Parts and Accessories will be submitted and processed according
to written procedures established by General Motors or other designated
suppliers.
6.3 Prices and Other Terms of Sales
6.3.1 Motor Vehicles
Prices, destinations charges, and other terms of sale applicable to
purchases of new Motor Vehicles will be those established according to Vehicle
Terms of Sale Bulletins furnished periodically to Dealer.
Prices, destination charges, and other terms of sale applicable to any
Motor Vehicle may be changed at any time. Except as otherwise provided in
writing, changes apply to Motor Vehicles not shipped to Dealer at the time the
changes are made effective.
Dealer will receive written notice of any price increase before any Motor
Vehicle to which such increase applies is shipped, except for initial prices for
a new model year or for any new model or body type. Dealer has the right to
cancel or modify the affected orders by delivering written notice to Division
within 10 days after its receipt of the price increase notice.
6.3.2 Parts and Accessories
Prices and other terms of sale applicable to Parts and Accessories are
established by General Motors according to the Parts and Accessories Terms of
Sale Bulletin furnished to Dealer.
Prices and other terms of sale applicable to Parts and Accessories may be
changed by General Motors at any time. Such changes apply to Parts and
Accessories not shipped to Dealer at the time changes become effective.
6.4 Inventory
6.4.1 Motor Vehicle Inventory
Dealer recognizes that customers expect Dealer to have a reasonable
quantity and variety of current model Motor Vehicles in inventory. Accordingly,
Dealer agrees to order and stock and Division agrees to make available, subject
to Article 6.1, a mix of models and series of Motor Vehicles identified in the
Motor Vehicle Addendum in quantities adequate to enable Dealer to fulfill its
obligations in its Area of Primary Responsibility.
6.4.2 Parts and Accessories
Dealer agrees to stock sufficient Parts and Accessories made available by
General Motors to perform warranty repairs and policy adjustments and meet
customer demand.
6.5 Warranties on Products
General Motors warrants new Motor Vehicles and Parts and Accessories
(Products) as explained in documents provided with the Products or in the
Service Policies and Procedures Manual.
EXCEPT AS OTHERWISE PROVIDED BY LAW, THE WRITTEN GENERAL MOTORS WARRANTIES
ARE THE ONLY WARRANTIES APPLICABLE TO PRODUCTS. WITH RESPECT TO DEALERS, SUCH
WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES OR LIABILITIES, EXPRESS OR
IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR ANY LIABILITY FOR COMMERCIAL LOSSES BASED UPON NEGLIGENCE
OR MANUFACTURER'S STRICT LIABILITY. EXCEPT AS MAY BE PROVIDED UNDER AN
ESTABLISHED GENERAL MOTORS PROGRAM OR PROCEDURE, GENERAL MOTORS NEITHER ASSUMES
NOR AUTHORIZES ANYONE TO ASSUME FOR IT ANY OTHER OBLIGATION OR LIABILITY IN
CONNECTION WITH PRODUCTS, AND GENERAL MOTORS MAXIMUM LIABILITY IS TO REPAIR
OR REPLACE THE PRODUCT.
<PAGE>
ARTICLE 7. SERVICE OF PRODUCTS
7.1 Service for Which Division Pays
7.1.1 New Motor Vehicle Pre-Delivery Inspections and Adjustments
Because new vehicle delivery condition is critical to customer
satisfaction. Dealer agrees to perform specified pre-delivery inspections and
adjustments on each new Motor Vehicle and verify completion according to
procedures identified in the service policies and procedures manual.
7.1.2 Warranty and Special Policy Repairs
Dealer agrees to perform (i) require warranty repairs on each qualified
Motor Vehicle at the time of pre-delivery service and when requested by owner,
and (ii) special policy repairs approved by Division. When the vehicle is
returned to the owner. Dealer will provide owner a copy and explanation of the
repair document reflecting all services performed.
7.1.3 Campaign Inspections and Corrections
Division will notify Dealer of suspected unsatisfactory conditions on
Products and issue campaign instructions. Dealer agrees to inspect and correct
suspected unsatisfactory conditions on Products in accordance with the
instructions. Dealer will also determine that campaign inspections and
corrections have been made on new and used Motor Vehicles in its inventory prior
to sale, and follow-up on Products on which campaigns are outstanding.
Division may ship, and Dealer agrees to accept, unordered parts and
materials required for campaigns. Upon campaign completion, Dealer will receive
credit for excess parts and materials so shipped if they are returned or
disposed of according to Division's instructions.
7.1.4 Payment for Pre-Delivery Adjustments, Warranty, Campaign and
Transportation Damage Work
For Dealer's performance of services, pre-delivery inspections and
adjustments, warranty repairs, special policy repairs, campaign inspections and
corrections, and transportation damage repairs, Division will provide or pay
Dealer for the Parts and other materials required and will pay Dealer a
reasonable amount for labor. Payment will be made according to policies in the
Service Policies and Procedures Manual. Dealer will not impose any charge for
such service on owners or users except where a deductible or pro-rata charge
applies.
7.2 Parts, Accessories, and Body Repairs
7.2.1 Warranty and Policy Repairs
Dealer agrees to use only genuine GM or General Motors approved Parts and
Accessories in performing warranty provisions of the Service Policies and
Procedures Manual.
7.2.2 Representations and Disclosures as to Parts and Accessories
In servicing vehicles marketed by General Motors, Dealer agrees to disclose
the use of non-General Motors parts and accessories as set forth in Article
5.1.1.
7.2.3 Body Repairs
Dealer agrees to provide quality body repair service for Motor Vehicles.
Dealer can provide this service through its own body shop, or by arrangement
with an alternate repair establishment.
<PAGE>
7.2.4 Tools and Equipment
Dealer agrees to provide essential service tools as required by Division
and other tools and equipment as necessary to fulfill its responsibilities to
properly diagnose and service Products.
ARTICLE 8. TRAINING
Properly trained personnel are essential to the success of Dealer and
Division, and to providing customers with a satisfactory sales and service
experience. Division agrees to make available or recommend to Dealer product,
sales, service and parts, accounting and business management training courses
for Dealer personnel. Division will make such training available as conveniently
in time and location as practical circumstances permit. Division will assist
Dealer in determining training requirements and periodically will require that
dealer have personnel attend specific courses. Dealer agrees to comply with any
such reasonable training requirements and pay any specified training charges.
Division will consult with dealers as described in Division's Dealer Sales and
Service Agreement prior to determining the training courses or programs from
which an individual Dealer's requirements under this Article may be established.
Specific minimum service training requirements will be described in Division's
Service Policies and Procedures Manual.
Division will make available personnel to advise and counsel Dealer
personnel on sales, service, parts and accessories, and related subjects.
ARTICLE 9. REVIEW OF DEALER'S SALES AND SERVICE PERFORMANCE
Dealer's performance of its obligations is essential to the effective
representation of Division's Products, and to the reputation and goodwill of
Dealer, Division, and other Division dealers. Periodically, Division will review
various aspects of Dealer's sales and service performance. Division will use the
review process to identify area in which improvements or changes are necessary
so that Dealer can take prompt action to achieve acceptable performance.
ARTICLE 10. CAPITALIZATION
The Capital Standard Addendum reflects the minimum net working capital for
Dealer to conduct Dealership Operations. Dealer agrees to maintain at least this
level of net working capital. Division will issue a new Addendum if changes in
operating conditions or Divisional guidelines indicate capital needs have
changed materially.
To avoid damage to goodwill which could result if Dealer is financially
unable to fulfill its commitments. Dealer agrees to have and maintain a separate
line of credit from financial institution available to refinance its purchase of
new vehicles. The amount of the line of credit will be sufficient for Dealer to
meet its obligations under Article 6.4.
<PAGE>
ARTICLE 11. ACCOUNTS AND RECORDS
11.1 Uniform Accounting System
A uniform accounting system facilitates an evaluation of Dealer business
management practices and the impact of Division's policies and practices.
Division therefore agrees to maintain, and Dealer agrees to use and maintain
records in accordance with, a uniform accounting system set forth in an
accounting furnished to Dealer.
Dealer also agrees to timely submit true and accurate applications or
claims for payments, discounts or allowances; true and correct orders for
Products and reports of sale and delivery; and any other reports or statements
required by Division, in the manner specified by Division, and to retain such
records for at least two years.
11.2 Examination of Accounts and Records
Dealer agrees to permit any designated representative of Division to
examine, audit, and take copies of any of the accounts and records Dealer is to
maintain under the accounting manual and this Agreement. Dealer agrees to make
such accounts and records readily available at its facilities during regular
business hours. Division agrees to furnish Dealer with a list of any reproduced
records.
11.3 Confidentiality of Dealer Data
Division agrees not to furnish any personal or financial data submitted to
it by Dealer to any non-affiliated entity unless authorized by Dealer, requires
by law, or pertinent to judicial or administrative proceedings, or to
proceedings under the Dispute Resolution Process.
ARTICLE 12. CHANGES IN MANAGEMENT AND OWNERSHIP
The parties recognize that customers and authorized dealers as well as
shareholders and employes of General Motors, have a vital interest in the
continued success and efficient operation of Division's dealer network.
Accordingly, Division has the responsibility of continuing to administer the
network to ensure that dealers are owned and operated by qualified persons able
to meet the requirement of this Agreement.
12.1 Succession Rights Upon Death or Incapacity
12.1.1 Successor Addendum
Dealer can apply for a Successor Addendum designating a proposed dealer
operator and/or owners of a successor dealer to be established if this Agreement
expires or is terminated because of death or incapacity. Division will execute
the Addendum provided Dealer is meeting its obligations under this Agreement and
under any Dealer Agreement which Dealer may have with other Divisions of General
Motors for the conduct of Dealership Operations at the approved location; and
the proposed dealer operator is, and will continue to be, employed full-time by
Dear or a comparable automotive dealership, and is already qualified or is being
trained to qualify as a dealer operator; and provided all other proposed owners
are acceptable.
Division may refuse to enter into a Successor Addendum with dealer if
Division has previously notified
<PAGE>
Dealer it does not plan to continue Dealership Operations at the approved
location, except for renewal of an existing Successor Addendum where the same
proposed dealer operator continues to be qualified.
Upon expiration of this Agreement, Division will, upon Dealer's request,
execute a new successor addendum provided a new and superseding dealer agreement
is executed with Dealer, and Dealer, the proposed dealer operator and dealer
owners are then qualified as described above.
12.1.2 Absence of Successor Addendum
If this Agreement expires or is terminated because of death or incapacity
and Dealer and Division have not executed a Successor Addendum, the Dealer
Operator or, if there is not a remaining Dealer Operator, the remaining dealer
owners may propose a successor dealer to continue operations identified in this
Agreement. The proposal must be made to Division in writing at least 30 days
prior to the expiration or termination of this Agreement, including any
deferrals.
12.1.3 Successor Dealer Requirements
Division will accept a proposal to establish a successor dealer submitted
by a proposed dealer operator under this Article 12.1 provided:
(a) the proposed successor dealer and the proposed dealer operator are
ready, willing and able to meet the requirements of a new dealer agreement
at the approved location(s);
(b) Division approves the proposed dealer operator and all proposed
owners not previously approved for the existing Dealership Operations;
(c) all outstanding monetary obligations of Dealer to General Motors
have been satisfied; and
(d) Dealer has not been previously notified that Division may
discontinue Dealership Operations at that location.
12.1.4 Term of New Dealer Agreement
The dealer agreement offered a successor dealer will be for a three-year
term. Division will notify the successor dealer in writing at least 90 days
prior to the expiration date whether the successor dealer has performed
satisfactorily and, if so, that Division will offer a new dealer agreement.
12.1.5 Limitation on Offers
Dealer will be notified in writing of the decision on a proposal to
establish a successor dealer submitted under Article 12.1 within 60 days after
Division has received from Dealer all applications and information reasonably
requested by Division. Division may condition its offer of a dealer agreement on
the relocation of dealership operations to an approved location by successor
dealer within a reasonable time. Division's offer of a new dealer agreement
under Article 12.1 will automatically expire if not accepted in writing within
60 days after it receives the offer.
12.1.6 Cancellation of Addendum
Dealer may cancel an executed Successor Addendum at any time prior to the
death of a Dealer Operator or Dealer Owner, or the incapacity of Dealer
Operator. Division may cancel an executed Successor Addendum only if the
proposed dealer operator is no longer qualified under article 12.1.1.
<PAGE>
12.2 Other Changes in Ownership or Management
If Dealer proposes a change in Dealer Operator, a change in ownership, or a
transfer of the dealership business or its principal assets to any person
conditioned upon Division's entering into a dealer agreement with that person.
Division will consider Dealer's proposal and not arbitrarily refuse to approve
it, subject to the following:
12.2.1 Dealer agrees to give Division prior written notice of any proposal
change or transfer described above. Dealer understands that if any such change
is made prior to Division's approval of the proposal, termination of this
Agreement will be warranted and Division will have no further obligation to
consider Dealer's proposal.
12.2.2 Division agrees to consider Dealer's proposal, taking into account
factors such as (a) the personal, business, and financial qualifications of the
proposed dealer operator and owners, and (b) whether the proposed change is
likely to result in a successful dealership operation with acceptable
management, capitalization, and ownership which will provide satisfactory sales,
service, and facilities at an approved location, while promoting and preserving
competition and customer satisfaction.
12.2.3 Division will notify Dealer in writing of Division's decision on
Dealer's proposal within 60 days after Division has received from Dealer all
applications and information reasonably requested by Division. If Division
disagrees with the proposal, it will specify its reasons.
12.2.4 Any material change in Dealer's proposal, including change in price,
facilities, capitalization, proposed owners, or dealer operator, will be
considered a new proposal and the time period for Division shall recommence.
12.2.5 Division's prior written approval is not required where the transfer
of equity ownership or beneficial interest to an individual is (a) than ten
person in a calendar year, and (b) between existing dealer owners previously
approved by Division where there is no change in majority ownership or voting
control. Dealer agrees to notify Division within 30 days of the date of the
change and to execute a new Dealer Statement of Ownership.
12.2.6 Division is not obligated to approve any proposed changes in
management or ownership under this Article unless Dealer makes arrangements
acceptable to Division to satisfy any indebtedness of Dealer to General Motors.
12.3 Right of First Refusal to Purchase
12.3.1 Creation and Coverage
If Dealer submits a proposal for a change of ownership under Article 12.2,
Division will have a right of first refusal to purchase the dealership assets
regardless of whether the proposed buyer is qualified to be a dealer. If
Division chooses to exercise this right, it will do so on its written response
to Dealer's proposal. Division will have a reasonable opportunity to inspect the
assets, including real estate, before making a decision.
12.3.2 Purchase Price and Other Terms of Sales
(a) Bona Fide Agreement
If Dealer has entered into a bona fide written buy/sell agreement, the
purchase price and other terms of sale will be those set forth in such agreement
and any related documents, unless Dealer and Division agree to other terms.
<PAGE>
Upon Division's request, Dealer agrees to provide all documents relating to
the proposed transfer. If Dealer refuses to provide such documentation or state
in writing that such documents do not exist, it will be presumed that the
agreement is not bona fide.
(b) Absence of Bona Fide Agreement
In the absence of a bona fide written buy/sell agreement, the purchase
price of the dealership assets will be determined by good faith negotiations by
Dealer and Division. If agreement cannot be reached within a reasonable time,
the price and other terms of sale will be established by arbitration according
to the rules of the American Arbitration Association.
12.3.3 Consummation
Dealer agrees to transfer the property by Warranty Deed, where possible,
conveying marketable title free and clear of liens and encumbrances. The
Warranty Deed will be in proper form for recording and Dealer will deliver
complete possession of the property when the Deed is delivered. Dealer will also
furnish copies of any easements, licenses or other documents affecting the
property and assign any permits or licenses necessary for the conduct of
Dealership Operations.
12.3.4 Assignment
Division's right under this section may be assigned to any third party
("Assignee"). If there is an assignment, Division will guarantee full payment of
the purchase price by Assignee. Division shall have the opportunity to discuss
the terms of the buy/sell agreement with a potential Assignee.
Division's rights under this Article are binding on and enforceable against
any Assignee or successor in interest of Dealer purchaser of Dealer's assets.
12.3.5 Transfer Involving Family Members and Dealer Management
When the proposed change of ownership involves a transfer by a dealer owner
solely to a member or members of his or her immediate family, or to a qualifying
member of Dealer's Management, the Division's right of first refusal will not
apply. An "immediate family member" shall be the spouse, child, grandchild,
spouse of a child or grandchild, brother, sister or parent of the dealer owner.
A "qualifying member of Dealer's Management" shall be an individual who has been
employed by Dealer for at least two years and otherwise qualifies as a dealer
operator.
ARTICLE 13. BREACHES AND OPPORTUNITY TO REMEDY
13.1 Certain Acts or Events
The following acts or events, which are within the control of Dealer or
originate from action taken by the Dealer or its management or owners, are
material breaches of this Agreement. If Division learns that any of the acts or
events has occurred, it may notify the Dealer in writing. If notified, Dealer
will be given the opportunity to respond in writing within 30 days of receipt of
the notice, explaining or correcting the situation to Division's satisfaction.
13.1.1 The removal, resignation, withdrawal, or elimination from Dealer for
any reason of any Dealer Operator or dealer owner without Division's prior
written approval.
13.1.2 Any attempted sale, transfer
<PAGE>
or assignment by Dealer of this Agreement or any of the rights granted Dealer
hereunder, or any attempted or actual transfer, assignment or delegation by
Dealer of any of the responsibility assumed by it under this Agreement contrary
to the terms of this Agreement.
13.1.3 Any change, whether voluntary or involuntary, in the record or
beneficial ownership of Dealer as set forth in the Dealer Statement of Ownership
furnished by Dealer, unless permitted by Article 12.2.5 or pursuant to
Division's written approval.
13.1.4 Any undertaking by Dealer or any of its owners to conduct, either
directly or indirectly, any of the Dealership Operations at any unapproved
location.
13.1.5 Any sale, transfer, relinquishment, or discontinuance of use by
Dealer of any of the Dealership Premises or other principal assets required in
the conduct of the Dealership Operations, without Division's prior written
approval.
13.1.6 Any dispute among the owners or management personnel of Dealer
which, in Division's opinion, may adversely affect the Dealership Operations or
the interests of Dealer or Division.
13.1.7 Refusal by Dealer to timely furnish sales, service or financial
information and related supporting data, or to permit Division's examination or
audit of Dealer's accounts and records.
13.1.8 A finding by a governmental agency or court of original jurisdiction
or a settlement arising from charges that Dealer, or a predecessor of Dealer
owned or controlled by the same person, had committed a misdemeanor or unfair or
deceptive business practice which, in Division's opinion, may adversely affect
the reputation or interests of Dealer or Division.
13.1.9 Willful failure of Dealer to comply with the provisions of any laws
or regulations relating to the sale or service of Products.
13.1.10 Submission of false applications or reports, including false orders
for Products or reports of delivery or transfer of Products.
13.1.11 Failure of Dealer to maintain the line of credit required by
Article 10.
13.1.12 Failure of Dealer to timely pay its obligations to General Motors.
13.1.13 Any other material breach of Dealer's obligation under this
Agreement not otherwise identified in this Article 13 or in Article 14.
If Dealer's response demonstrates that the breach has been corrected, or
otherwise explains the circumstances to Division's satisfaction, the Division
shall confirm this fact in writing to Dealer.
If, however, Dealer's response does not demonstrate that the breach has
been corrected, or explain the circumstances to Division's satisfaction,
termination is warranted and Division may terminate this Agreement upon written
notice to Dealer. Termination will be effective 60 days following receipt of the
notice.
13.2 Failure of Performance by Dealer
If Division determines that Dealer's Premises are not acceptable, or that
Dealer has failed to adequately perform its sales or service responsibilities,
including those responsibilities relating to customer satisfaction and training,
Division will review such failure with Dealer.
As soon as practicable thereafter, Division will notify Dealer in writing
of the nature of Dealer's failure and of the period of time (which shall not be
less than six months) during which dealer will have the opportunity to correct
the failure.
<PAGE>
If Dealer does correct the failure by the expiration of the period,
Division will so advise the Dealer in writing.
If, However, Dealer does not correct the failure by the expiration of the
period, Division may terminate this Agreement by giving 90 days written notice.
ARTICLE 14. TERMINATION OF AGREEMENT
14.1 By Dealer
Dealer has the right to terminate this Agreement without cause at any time
upon written notice to Division. Termination will be effective 30 days after
Division's receipt of the notice, unless otherwise mutually agree in writing.
14.2 By Agreement
This Agreement may be terminated at any time by written between Division
and Dealer. Termination assistance will apply only as specified in the written
termination agreement.
14.3 Failure to be Licensed
If Division or Dealer fails to secure or maintain any license required for
the performance of obligations under this Agreement or such license is suspended
or revoked, either party my immediately terminate this Agreement by giving the
other party written notice.
14.4 Incapacity of Dealer Owner
Because this is a Personal Services Agreement, Division may terminate this
Agreement by written notice to Dealer if Dealer Operator is so physically or
mentally incapacitated that the Dealer Operator is unable to actively exercise
full managerial authority. The effective date of termination will be stated in
such written notice and will be not less than three months after receipt of such
notice.
14.5 Acts or Events
If Division learns that any of the following has occurred, it may terminate
this Agreement by giving Dealer written notice of termination. Termination will
be effective on the date specified in the notice.
14.5.1 Conviction in a court of original jurisdiction of Dealer, or a
predecessor of Dealer owned or controlled by the same person, or any Dealer
Operator or dealer owner of any felony.
14.4.2 Insolvency of dealer, or filing by or against Dealer of a petition
in bankruptcy; or filing of a proceeding for the appointment of a receiver or
trustee for Dealer, provided such filing or appointment is not dismissed or
vacated within thirty days; or execution by Dealer of an assignment for the
benefit of creditors or any foreclosure or the due process of law whereby a
third party acquire right to the operation, ownership or assets of Dealer.
14.5.3 Failure of Dealer to conduct customary sales and service operations
during customary business hours for seven consecutive business days.
14.5.4 Any misrepresentation to General Motors by dealer or by nay Dealer
Operator or owner in applying for this Agreement, or in identifying the Dale
Operator, or record or beneficial ownership of Dealer.
14.5.5 Submission by Dealer of false applications or claims for any
payment, credit, discount, or allowance, including false applications in
connection with incentive activities, where the false information was submitted
to generate a payment to Dealer for a claim
<PAGE>
which would not otherwise have qualified for payment.
Termination for failure to correct other breaches will be according to the
procedures outlines in Articles 13.
14.6 Reliance on Any Applicable Termination Provision
Termination party may select the provision under which it elects to
terminate without reference in its notice to any other provision that may also
be applicable. The terminating party subsequently also may assert other ground
for termination.
14.7 Transactions After Termination
14.7.1 Effect on Orders
If Dealer and Division do not enter into a new Dealer Agreement when this
Agreement expires or is terminated, all of Dealer's outstanding orders for
Products will be automatically canceled except as provide in this Article 14.7.
Termination of this Agreement will not release Dealer or Division from the
obligation to pay any amounts owing the other, nor release Dealer from the
obligation to pay for Special Vehicles if Division had begun processing such
orders prior to the effective date of termination.
14.7.2 Termination deliveries
If this Agreement is voluntarily terminated by Dealer or expires or is
terminated because of the death or incapacity of a Dealer Operator or death of a
Dealer Owner, without a termination or expiration deferral, Division will use
its best efforts consistent with its distribution procedure to furnish Dealer
with Motor Vehicle to fill Dealer's bona fide retail orders on hand on the
effective date of termination or expiration, not to exceed, however the total
number of Motor Vehicles invoiced to Dealer for retail sale during the three
months immediately preceding the effective date of termination.
14.7.3 Effect of Transactions After Termination
Neither the sale or Products to Dealer nor any other act by Division or
Dealer after termination of this Agreement will be construed as a waiver of the
termination.
ARTICLE 15. TERMINATION ASSISTANCE
15.1 Deferral of Effective Date
If this Agreement is scheduled to expire or terminate because of the death
or incapacity of a Dealer Operator or the death of a Dealer Owner and Dealer
requests an extension of the effective date of expiration or termination thirty
days prior to such date, Division will defer the effective date for up to a
total of eighteen months after such death or incapacity occurs to assist Dealer
in winding up Dealership Operations.
15.2 Purchase of Personal Property
15.2.1 Division's Obligations
If this Agreement expires or is terminated and Division does not offer
Dealer or a replacement dealer that has substantially the same ownership (more
than 50 percent including total family ownership) a new Dealer Agreement,
Division will offer to purchase the following items of personal property (herein
called Eligible Items) from Dealer at the prices indicated:
(a) New and unused Motor Vehicles of the current model year purchased
by Dealer from Division at a price equal to the net prices and charges that
were paid to General Motors.
(b) Any sign owned by dealer of a type recommended in writing by
Division and bearing any Marks at a price agreed upon by Division and
<PAGE>
Dealer. If Division and Dealer cannot agree on a price, they will select a
third party who will set the price;
(c) Any essential tools recommended by Division and designed
specifically for service of Motor Vehicles that Division offered for sale
during the three years preceding termination at prices established in
accordance with the applicable pricing formula in the Service Policies and
Procedures Manual; and
(d) Unused and undamaged parts and Accessories that (i) are still in
the original, resalable merchandising packages and in unbroken lots (in the
case of sheet metal, a comparable substitute for the original package may
be used); (ii) are listed for sale in the then current Dealer Parts and
Accessories Price Schedules (except "discontinued" or "replaced" Parts and
Accessories); and (iii) were purchased by dealer either directly from
General Motors or from an outgoing dealer as part of Dealer's initial Parts
and Accessories inventory. Prices will be those dealer prices in effect at
the time General Motors receives the Parts and Accessories, less any
applicable allowances whether or not such allowances were made to Dealer
when Dealer purchased the Parts and Accessories. In addition, an allowance
of five percent of dealer price for packing costs and reimbursement for
transportation charges to the destination specified by General Motors will
be credited to Dealer's account.
15.2.2 Dealer's Responsibilities
Division's obligation to purchase Eligible Items is subject to Dealer
fulfilling its responsibility under this subsection.
Within fifteen days following the effective date of termination or
expiration of this Agreement, Dealer will furnish Division with a list of
vehicle identification numbers and such other information as Division may
request pertaining to Eligible Motor Vehicles. Dealer will deliver the eligible
Motor Vehicles to a destination determined by Division that will be in a
reasonable proximity to Dealer's Premises.
Within two months following the effective date of termination or expiration
of this Agreement, Dealer will mail or deliver to General Motors a complete and
separate list of each of the Eligible Items other than Motor Vehicles. Dealer
will retain the Eligible Items until receipt of written shipping instructions
from General Motors. Within thirty days after receipt of instructions, Dealer
will ship Eligible Items, transportation charges prepaid, to the destinations
specified in the instructions.
Dealer will take action and execute and deliver such instruments as
necessary to (a) convey to Division and General Motors good and marketable title
to all Eligible Items to be purchase, (b) comply with the requirements of any
applicable state law relating to bulk sales or transfer, and (c) satisfy and
discharge any liens or encumbrances on Eligible Items prior to their delivery to
Division and General Motors.
15.2.3 Payment
Subject to Article 17.10, Division will pay for the Eligible Items as soon
as practicable following their delivery to the specified destinations. Payment
may be made directly to anyone having a security or ownership interest in the
Eligible Items.
If Division has not paid Dealer for the Eligible Items within two months
after the delivery, and if Dealer had fulfilled its termination obligations
under its Agreement, Division will, at Dealer's request, estimate the purchase
price of the unpaid Eligible Items and all other amount owed Dealer by General
Motors. After deducting the amounts estimated to be owing General Motors and its
subsidiaries by dealer, Division will advance 75 percent of the net amount owed
Dealer and will pay the balance, if any, as soon as practicable thereafter.
<PAGE>
15.2.4 Assignment of Rights
If Division has decided to appoint a replacement dealer at Dealer's
location. Dealer may sell Eligible Items and, if approved in writing by
Division, assign rights under this Article 15.2 to a designated replacement
dealer provided the replacement dealer assumes Dealer's obligations under this
Article.
15.3 Assistance on Premises
15.3.1 Division's Obligations
Subject to Article 17.10 Division agrees to give dealer assistance in
disposing of the Premises if (i) this Agreement expires for any reason or is
terminated by Division under Articles 13.2 or 14.4 and (ii) dealer is not
offered a new Dealer Agreement. Such assistance shall be given only on Premises
that are described in the Location and Premises Addendum and only if:
(a) they are used solely for Dealership Operations (or similar
dealership operations under agreements with other Divisions of General
Motors which will be terminated simultaneously with this agreement); and
(b) they are not substantially in excess of space requirements at the
time of termination or, if they are substantially in excess, they became
excessive because of a reduction in the requirements applicable to Dealer's
facilities.
Any Dealer request for such assistance must be in writing received by
Division within thirty days of the expiration or termination of this Agreement.
Premises that concise of more than on parcel of property or more than one
building, each of which is separately usable, distinct and apart from the whole
or any other part with appropriate ingress or egress, shall be considered
separately under this Article 15.3.
15.3.2 Owned Premises
Division will provide assistance on owned Premises by either (a) locating a
purchaser who will offer to purchase the Premises at a reasonable price, or (b)
locating a lessee who will offer to lease the Premises. If Division does not
locate a purchaser or lessee within a reasonable time, Division will itself
purchase or, at its option, lease the Premises for a reasonable term at a
reasonable rent. If the cause of termination or expiration is a death or the
incapacity of the Dealer Operator, Division may instead pay dealer a sum equal
to a reasonable rent for a period of twelve months immediately following the
effective date of the termination or expiration of this Agreement.
15.3.3 Leased Premises
Division will provide assistance on leased Premises by either:
(a) locating a tenant(s), satisfactory to lessor, who will sublet for
the balance of the lease or assume it; or
(b) arranging with the lessor for the cancellation of the lease
without penalty to Dealer; or
(c) reimbursing Dealer for the lesser of the rent specified in the
lease or settlement agreement or a reasonable rent for a period equal to
the lesser of twelve months from the effective date or termination or
expiration of the balance of the lease term.
Upon request, Dealer will use its best efforts to effect a settlement of
the lease with the lessor subject to Division's prior approval of the terms.
Division is not obligated to reimburse Dealer for rent for any month during
which the Premises are occupied by Dealer or anyone else after the first month
following the effective date of termination or expiration.
15.3.4 Rent and Price
Division and Dealer will fix the amount of a reasonable rent and a
reasonable purchase price for the Premises by agreement at the time Dealer
requests assistance. The factors to be considered in fixing those amounts are:
(a) the adequacy and desirability of the Premises for a dealership
operation; and
<PAGE>
(b) the fair market value of the Premises. If Division and Dealer
cannot agree, the fair market value will be determined by the median
appraisal of three qualified real estate appraisers, of whom Dealer and
Division will select one and the two selected will select a third. The cost
of appraisals will be shared by Dealer and Division.
15.3.5 Limitations on Obligation to Provide Assistance
Division will not be obligated to provide assistance on Premises if Dealer:
(a) fails to accept a bona fide offer from a prospective purchaser,
sublessee or assignee;
(b) refuses to execute a settlement agreement with the lessor if the
agreement would be without cost to Dealer;
(c) refuses to permit division to examine books and records if
necessary to verify claims Dealer under this Article.
Any amount payable by Division as rental reimbursement or reasonable rent
shall be proportionately reduced if the Premises are leased or sold to another
party during the period for which such amount is payable. Payment of rental
reimbursement or reasonable rent is waived by Dealer if it does nor file its
claim therefor within two months after the expiration of the period covered by
the payment. Upon request, dealer will support its claim with satisfactory
evidence of its accuracy and reasonableness.
ARTICLE 16. DISPUTE RESOLUTION PROCESS
Division and Dealer agree that mutual respect, trust and confidence are
vital to the relationship between Division and Dealer. So that such respect,
trust and confidence can be maintained, and differences that may develop
between, Dealer and Division may be resolved amicably, Division and Dealer agree
to resolve dispute in accordance with the Dispute Resolution Process, a copy of
which has been provided to Dealer.
ARTICLE 17. GENERAL PROVISIONS
17.1 No Agent or Local representative Status
This Agreement does not make either party the agent of legal representative
of the other for any purpose, nor does it grant either party authority to assume
or create any obligation on behalf of or in the name of the others. No fiduciary
obligations are created by this Agreement.
17.2 Responsibility for Operations
Except as provide in this Agreement, Dealer is solely responsible for all
expenditures, liabilities and obligations incurred or assumed by Dealer for the
establishment and conduct of its operations.
17.3 Taxes
Dealer is responsible for all local, state, federal, or other applicable
taxes and tax returns related to its dealership business and will hold General
Motors harmless from any related claims or demands made by any taxing authority.
<PAGE>
17.4 Indemnification by General Motors
General Motors will assume the defense of Dealer and indemnify Dealer
against any judgment for monetary damages or rescission of contract, less any
offset recovered by Dealer, in any lawsuit naming Dealer as a defendant relating
to any Product that has not been altered when the lawsuit concerns:
17.4.1 Breach of General Motors warranty related to the Product, bodily
injury or property damage claimed to have been caused solely by a defect in the
design, manufacture, or assembly of a Product by General Motors (other than a
defect which should have been detected by dealer in a reasonable inspection of
the Product);
17.4.2 Failure of the Product to conform to the description set forth in
advertisements or product brochures by General Motors because of changes in
standard equipment or material component parts unless Dealer received notice of
the changes prior to retail delivery of the affected Product by Dealer; or
17.4.3 Any substantial damage to a Product purchased by Dealer from General
Motors which has been repaired by General Motors unless Dealer has been notified
of the repair prior to retail delivery of the affected Product.
If General Motors reasonably concludes that allegations other than those
set forth in 17.4.1, 17.4.2, or 17.4.3 above are being pursued in the lawsuit,
General Motors shall have the right to decline to accept the defense or
indemnify dealer or, after accepting the defense, to transfer the defense back
to Dealer and withdraw its agreement to indemnify Dealer.
Procedures for requesting indemnification, administrative details, and
limitations are contained in the Service Policies and Procedures Manual under
"Indemnification." The obligations assumed by General Motors are limited to
those specifically described in this Article and in the Service Policies and
Procedures Manual and are conditioned upon compliance by Dealer with the
procedures described in the Manual. This Article shall not affect any right
either party may have to seek indemnification under any other contract or by law
and such rights are hereby expressly preserved.
17.5 Trademarks and Service Marks
General Motors or affiliated companies are the exclusive owners of licenses
of the various trademarks, service marks, names and designs (Marks) used in
connection with Products and services.
Dealer is granted the non-exclusive right to display Marks in the form and
manner approved by Division in the conduct of its dealership business. Dealer
agrees to permit any designated representative of Division upon the Premises
during regular business hours to inspect Products or services in connection with
Marks,
Dealer will not apply to register any Marks either alone or as part of
another mark, and will not take any action which may adversely affect the
validity of the Marks or the goodwill associated with them.
Dealer agrees to purchase and sell goods bearing Marks only from parties
authorized or licensed by Division or General Motors.
Marks may be used as part of the Dealer's name with Division's written
approval.
Dealer agrees to change or discontinue the use of any Marks upon Division's
request.
Dealer agrees that no company owned by or affiliated with Dealer or any of
its owners may use any Mark to identify a business without Division's written
permission.
Upon termination of this Agreement, dealer agrees to immediately
discontinue, at its expense, all use of Marks. Thereafter, Dealer will not use,
either directly or indirectly, any Marks or any other confusing similar
<PAGE>
marks in a manner that Division determines is likely to cause confusion or
mistake or deceive the public.
Dealer will reimburse division for all legal fees and other expenses
incurred in connection with action to require Dealer to copy with this Article
17.5
17.6 Notices
Any notice requires to be given by either party to the other in connection
with this Agreement will be in writing and delivered personally or by first
class or express mail or by facsimile. Notices to Dealer will be directed to
Dealer or its representatives at Dealer's principal place of business and,
except for indemnification requests made pursuant to Article 17.4, notices by
Dealer will be directed to appropriate Zone or Branch Manager of the Division(s)
of General Motors.
17.7 No Implied Waivers
The delay or failure of either party to require performance by the other
party or the waiver by either party of a breach of any provision of this
Agreement will not affect the right to subsequently require such performance.
17.8 Assignment of Rights or Delegation of Duties
Dealer has not paid any fee for this Agreement. Neither this Agreement nor
any right granted by this Agreement is a property right.
Except as provided in Article 12, neither this Agreement nor the rights or
obligations of Dealer may be sold, assigned, delegated or otherwise transferred.
Division may assign this Agreement and any rights, or delegate any
obligations, under this Agreement to any affiliated or successor company, and
will provide Dealer written notice of such assignment or delegation. Such
assignment or delegation shall not relieve Division of liability for the
performance of its obligations under this Agreement.
17.9 No Third Party Benefit Intended
This Agreement is not enforceable by any third parties and is not intended
to convey any rights or benefits to anyone who is not a party to this Agreement.
17.10 Accounts Payable
All monies or accounts due Dealer are net of Dealer's indebtedness to
Division, General Motors and its subsidiaries. In addition, Division may deduct
any amounts due or to become due from Dealer to Division or General Motors, or
any amounts held by Division, from any sums or accounts due from Division,
General Motors or its Subsidiaries.
17.11 Sole Agreement parties
Except as provided in this Agreement, Division has made no promises to
dealer, Dealer Operator, or dealer owner and there are no other agreements or
understandings, either oral or written, between the parties affecting this
Agreement or relating to any of the subject matters covered by this Agreement.
Except as otherwise provided herein, this Agreement cancels and supersedes
all previous agreements between the parties that relate to any matters covered
herein, except as to any monies which may be owing between the parties.
No agreement between Division and Dealer which relates to matters covered
herein, and no change in, addition to (except the filling in of blank lines) or
erasure of any printed portion of this Agreement, will be binding unless
permitted under the terms of this Agreement or related documents, or approved in
a written agreement executed as set forth in Division's Dealer Sales and Service
Agreement.
17.12 Applicable Law
This agreement is governed by the laws of the State of Michigan. However,
if performance under this Agree-
<PAGE>
ment is illegal under a valid law of any jurisdiction where such performance is
to take place, performance will be modified to the minimum extent necessary to
comply with such law that was effective as of the effective date of this
Agreement.
17.13 Superseding Dealer Agreements
If Division offers a superseding form of dealer agreement to Division's
dealers generally at any time prior to expiration of this Agreement, Division
may terminate this Agreement by prior written notice to Dealer, provided
Division offers Dealer a dealer agreement in the superseding form for a term of
not less than the unexpired term of this Agreement.
Unless otherwise agreed in writing, the rights and obligations of Dealer
that may otherwise become applicable upon termination or expiration of the term
of this Agreement shall not be applicable if Division and Dealer execute a
superseding dealer agreement, and the matured rights and obligations of the
parties hereunder shall continue under the new agreement.
Dealer's performance under any prior agreement may be considered in an
evaluation of Dealer's performance under this or any succeeding agreement.
<PAGE>
GLOSSARY
1. Area of Primary Responsibility -- The geographic area designated by
Division from time to time in a Notice of Area of Primary Responsibility.
2. Dealer -- The corporation, partnership or proprietorship that signs the
Dealer Agreement with Division.
3. Dealer Agreement -- The Dealer Sales and Service Agreement, including the
Agreement proper that is executed, the Standard Provisions, all of the
related Addenda, the Accounting and Service Policies and Procedures
Manuals, and the Terms of Sale Bulletins.
4. Dealership Operations -- All operations contemplated by the Dealer
Agreement. These operations include the sale and service of Products and
any other activities undertaken by Dealer related to Products, including
rental and leasing operations, used vehicle sales and body shop operations
and finance and insurance operations whether conducted directly or
indirectly by Dealer.
5. Division -- The unit of General Motors Corporation that has entered into a
Dealer Agreement with Dealer authorizing it to market and service
Division's Motor Vehicles.
6. General Motors -- General Motors Corporation.
7. Motor Vehicles -- All current model types or series of new motor vehicles
specified in any Motor Vehicle Addendum and all past General Motors motor
vehicles market through Motor Vehicle Dealers.
8. Product -- Motor Vehicles, Parts and Accessories.
9. Service Policies and Procedures Manual -- The Manual issued periodically
which details certain administrative and performance requirements for
Dealer service under Dealer Agreement.
10. Special Vehicles -- Motor Vehicles that have limited marketability because
they differ from standard specifications or incorporate special equipment.
<PAGE>
[NISSAN LOGO]
NISSAN
DEALER SALES & SERVICE AGREEMENT
THIS AGREEMENT is entered into effective the day last set forth below by
and between the Nissan Division of NISSAN MOTOR CORPORATION IN U.S.A., a
California corporation, hereinafter called Seller, and the natural person or
entity identified as "Dealer" in the Final Article of this Agreement.
INTRODUCTION
The purpose of this Agreement is to establish Dealer as an authorized
dealer of Nissan Products and to provide for the sale and servicing of Nissan
Products in a manner that will best serve the interests of Seller, Dealer, other
Authorized Nissan Dealers and owners and purchasers of Nissan products. This
Agreement sets forth: the rights which Dealer will enjoy as an Authorized Nissan
Dealer; the responsibilities which Dealer assumes in consideration of its
receipt of these rights; and the respective conditions, rights and obligations
of Seller and Dealer that apply to Seller's grant to Dealer of such rights and
Dealer's assumption of such responsibilities.
This is a personal services Agreement. In entering into this Agreement and
appointing Dealer as provided below, Seller is relying upon the personal
qualifications, expertise, reputation, integrity, experience, ability and
representations of the individual(s) named herein as Principal Owner(s) and
Executive Manager.
Achievement of the purposes of this Agreement is premised upon mutual
understanding and cooperation between Seller and Dealer. Dealer has entered into
this Agreement in reliance upon Seller's integrity and expressed intention to
deal fairly with Dealer and the consuming public. Seller has entered into this
Agreement in reliance upon Dealer's integrity and ability and expressed
intention to deal fairly with Seller and the consuming public.
It is the responsibility of Seller to market Nissan Products throughout the
Territory. It is the responsibility of Dealer to actively promote the retail
sale of Nissan Products and to provide courteous and efficient service of Nissan
Products. The success of Seller and Dealer will depend on how well they each
fulfill their respective responsibilities under this Agreement. It is recognized
that: Nissan Motor Co., Ltd. (hereinafter called "Manufacturer") will endeavor
to provide motor vehicles that offer outstanding value to the consuming public.
Seller will endeavor to establish a national network of authorized Nissan
Dealers that can provide effective sales and service effort at the retail level;
and Dealer will endeavor to fulfill its responsibilities through aggressive,
sound, ethical selling practices and through conscientious regard for customer
service.
Seller and Dealer shall refrain from engaging in conduct or activities
which might be detrimental to or reflect adversely upon the reputation of
Seller, Manufacturer, Dealer or Nissan Products and shall engage in no
discourteous, deceptive, misleading or unethical practices or activities.
For consistency and clarity, terms which are used frequently in this
Agreement have been defined in Section 1 of the Standard Provisions. All terms
used herein which are defined in the Standard Provisions shall have the meaning
stated in said Standard Provisions. These definitions should be read carefully
for a proper understanding of the provisions in which they appear.
To achieve the purposes referred to above, Seller and Dealer agree as
follows:
ARTICLE FIRST: Appointment of Dealer
Subject to the conditions and provisions of this Agreement, Seller:
(a) appoints Dealer as an Authorized Nissan Dealer and grants Dealer the
non-exclusive right to buy from Seller those Nissan Products specified in
Dealer's current Product Addendum hereto, for resale, rental or lease at or from
the Dealership Locations established and described in accordance with Section 2
of the Standard Provisions; and
(b) grants Dealer a non-exclusive right, subject to and in accordance with
Section 6.K of the Standard Provisions, to identify itself as an Authorized
Nissan Dealer, to display the Nissan Marks in the conduct of its Dealership
Operations and to use the Nissan Marks in the advertising, promotion and sale of
Nissan Products in the manner provided in this Agreement.
ARTICLE SECOND: Assumption of Responsibilities by Dealer
Dealer hereby accepts from Seller its appointment as an Authorized Nissan
Dealer and, in consideration of its appointment and subject to the other
conditions and provisions of this Agreement, hereby assumes the responsibility
for:
(a) establishing and maintaining at the Dealership Locations the Dealership
Facilities in accordance with Section 2 of the Standard Provisions;
(b) actively and effectively promoting the sale at retail (and, if Dealer
elects, the leasing and rental) of Nissan Vehicles within Dealer's Primary
Market Area in accordance with Section 3 of the Standard Provisions;
(c) servicing Nissan Vehicles and for selling and servicing Genuine Nissan
Parts and Accessories in accordance with Section 5 of the Standard Provisions;
(d) building and maintaining consumer confidence in Dealer and in Nissan
Products in accordance with Section 5 of the Standard Provisions; and
(e) performance of the additional responsibilities set forth in this
Agreement, including those specified in Section 6 of the Standard Provisions.
<PAGE>
ARTICLE THIRD: Ownership
(a) Owners. This Agreement has been entered into by Seller in reliance
upon, and in consideration of, the personal qualifications, expertise,
reputation, integrity, experience, ability and representations with respect
thereto to the Principal Owner(s) named in the Final Article of this Agreement
and in reliance upon Dealer's representations concerning the ownership of Dealer
as follows:
(i) Dealer represents and agrees that the person(s) named as Principal
Owner(s) in the Final Articles of this Agreement, and only those person(s),
shall be the Principal Owner(s) of Dealer;
(ii) Dealer represents and agrees that the person(s) named as Other
Owner(s) in the Final Article of this Agreement, and only those person(s),
shall be the Other Owner(s) of Dealer.
(b) Holding Company. Seller requires that a natural person be named as the
Principal Owner(s) of Dealer because Seller relies on the personal
qualifications, expertise, reputation, integrity, experience, ability and
representations of such individuals. If one or more of the owner(s) of the
Dealer is a corporation, partnership or other entity and not a natural person
(hereinafter called "Holding Company"), Dealer and Seller agree that the natural
persons listed in the Holding Company Addendum of this Agreement as owners of
the Holding Company shall be deemed to be the Principal Owner(s) and Other
Owner(s) of Dealer, as the case may be and that the terms and conditions of this
Agreement, including without limitation the provisions of this Article Third and
Sections 12, 14 and 15 of the Standard Provisions, shall apply to the owner(s)
of the Holding Company as well as to Dealer. Dealer represents to Seller and
agrees that the Holding Company is owned as indicated in the Holding Company
addendum to this Agreement.
(c) Changes in Ownership. In view of the fact that this is a personal
services agreement and in view of its objectives and purposes, this Agreement
and the rights and privileges conferred on Dealer hereunder are not assignable,
transferable or salable by Dealer, and no property right or interest is or shall
be deemed to be sold, conveyed or transferred to Dealer under this Agreement.
Dealer agrees that any change in the ownership of Dealer specified herein
requires the prior written consent of Seller, excepting only changes in the
record or beneficial ownership interests of Other Owner(s) not effecting a
change in majority control or interest. Dealer shall give Seller prior notice of
any proposed change in said ownership requiring the consent of Seller and
immediate notice of the death or incapacity of any Principal Owner. No such
change, and no assignment of this Agreement or of any right or interest herein,
shall be effective against Seller unless and until embodied in an appropriate
amendment to or assignment of this Agreement, as the case may be, duly executed
and delivered by Seller and by Dealer. Seller shall not, however, unreasonably
withhold its consent to any such change. Seller shall have no obligation to
transact business with any person who is not named either as a Principal Owner
or Executive Manager of Dealer hereunder or otherwise to give effect to any
proposed sale or transfer of the ownership or management of Dealer prior to
having concluded the evaluation of such a proposal as provided in Section 15 of
the Standard Provisions.
ARTICLE FOURTH: Management
(a) Executive Manager. Seller and Dealer agree that the retention by Dealer
of qualified management is of critical importance to the successful operation of
Dealer and to the achievement of the purposes and objectives of this Agreement.
This Agreement has been entered into by Seller in reliance upon, and in
consideration of, the personal qualifications, expertise, reputation, integrity,
experience, ability and representations with respect thereto of the person named
as Executive Manager in the Final Article of this Agreement and on Dealer's
representation to Seller and agreement that the person identified as Executive
Manager shall be Dealer's executive manager, shall have full managerial
authority for the Dealership Operations, and shall continually provide his or
her personal services in operating the dealership and will be physically present
at the Dealership Facilities.
(b) Changes in Management. In view of the fact that this is a Personal
services Agreement and in view of its objectives and purposes, Dealer agrees
that any change in the Executive Manager from that specified in the Final
Article of this Agreement requires the prior written consent of Seller. Dealer
shall give Seller prior notice of any proposed change in Executive Manager and
immediate notice of the death or incapacity of any Executive Manager. No change
in Executive Manager shall be effective unless and until embodied in an
appropriate amendment to this Agreement duly executed and delivered by Seller
and by Dealer. Subject to the foregoing, Dealer shall make its own, independent
decisions concerning the hiring and firing of its employees including without
limitation, its Executive Manager.
To enable Seller to evaluate and respond to Dealer concerning any proposed
change in Executive Manager, Dealer agrees to provide, in the form requested by
Seller and in a timely manner, all applications and information customarily
requested by Seller to evaluate the proposed change. While Seller shall not
unreasonably withhold its consent to any such change, it is agreed that any
successor Executive Manager must possess personal qualifications, expertise,
reputation, integrity, experience and ability which are, in the opinion of
Seller, satisfactory. Seller will determine whether, in its opinion, the
proposed change is likely to result in a successful dealership operation with
capable management that will satisfactorily perform Dealer's obligations under
this Agreement. Seller shall have no obligation to transact business with any
person who is not named as an Executive Manager of Dealer hereunder prior to
having concluded its evaluation of such person.
(c) Evaluation of Management. Dealer and Seller understand and acknowledge
that the personal qualifications, expertise, reputation, ability, integrity,
experience and ability of the Executive Manager and his or her ability to
effectively manage Dealer's day-to-day Dealership Operations is critical to the
success of Dealer in performing its obligations under this Agreement. Seller may
from time to time develop standards and/or procedures for evaluating the
performance of the Executive Manager and of Dealer's personnel generally. Seller
may, from time to time, evaluate the performance of the Executive Manager and
will advise Dealer and the Executive Manager of the results of such evaluations,
and Dealer shall promptly take such action as may be required to correct any
deficiencies in the Executive Manager's performance to the reasonable
satisfaction of Seller.
<PAGE>
ARTICLE FIFTH: Additional Provisions
The additional provisions set forth in the attached "Nissan Dealer Sales
and Service Agreement Standard Provisions," bearing form number NDA-4S/9-88 are
hereby incorporated in and made a part of this Agreement. The Notice of Primary
Market Area, Dealership Facilities Addendum, Product Addendum, Dealer
Identification Addendum, Holding Company Addendum, if applicable, and all Guides
referred to in this Agreement (including references contained in the Standard
Provisions referred to above) are hereby incorporated in and made a part of this
Agreement. Dealer further agrees to be bound by and comply with: the Warranty
Manual; Seller's Manuals or Instructions heretofore or hereafter issued by
Seller to Dealer; any amendment, revision or supplement to any of the foregoing;
and any other manuals heretofore or hereafter issued by Seller to Dealer.
ARTICLE SIXTH: Termination of Prior Agreements
This Agreement cancels, supersedes and annuls all prior contracts,
agreements and understandings except as stated herein, all negotiations,
representations and understandings being merged herein. No waiver, modification
or change of any of the terms of this Agreement or change or erasure of any
printed part of this Agreement or addition to it (except filling in blank spaces
and lines) will be valid or binding on Seller unless approved in writing by the
President or an authorized Vice-President of Seller.
ARTICLE SEVENTH: Term
This Agreement shall have a term commencing on the effective date hereof
and continuing until terminated by either party in accordance with Section 12 of
the Standard Provisions.
ARTICLE EIGHTH: License of Dealer
If Dealer is required to secure or maintain a license for the conduct of
its business as contemplated by this Agreement in any state or jurisdiction
where any of its Dealership Operations are to be conducted or any of its
Dealership Facilities are located, this Agreement shall not be valid until and
unless Dealer shall have furnished Seller with written notice specifying the
date and number, if any, of such license or licenses issued to Dealer, Dealer
shall notify Seller immediately in writing in if Dealer shall fail to secure or
maintain any and all such licenses or renewal thereof or, if such license or
licenses are suspended or revoked, specifying the effective date of any such
suspension or revocation.
ARTICLE NINTH: Execution of Agreement
This Agreement, and any Addendum or amendment or notice with respect
thereto, shall be valid and binding on Seller only when it bears the signature
of either the President or an authorized Vice-President of Seller and, when such
signature is a facsimile, the manual countersignature of an authorized employee
of Seller and a duplicate original thereof is delivered personally or by mail to
the main Dealership Location. This Agreement shall bind Dealer only when it is
signed by: a duly authorized officer or executive of Dealer if a corporation;
one of the general partners of Dealer if a partnership; or Dealer if an
individual.
ARTICLE TENTH: Special Conditions.
<PAGE>
FINAL ARTICLE
Dealer NISSAN OF AMARILLO, INC. , is
a (an) (SELECT ONE) [ ] individual [ ] partnership [x] corporation
incorporated or formed under the laws of the State of TX doing business
as __________________________________________
("Dealer"). Dealer is located in Amarillo TX
------------------------------------------
City State
The Principal Owner(s) of Dealer are as follows:
PERCENTAGE
NAME RESIDENCE INTEREST
- ---- --------- ----------
Campbell, Jim Rt. 1, Box 426-B 40.00
Amarillo, TX 79106
The Other Owner(s) of Dealer are as follows:
PERCENTAGE
NAME RESIDENCE INTEREST
- ---- --------- ----------
Gilliland, Bill 2806 S. Hughes 60.00
Amarillo, TX 79109
The Executive Manager of Dealer is as follows:
PERCENTAGE
NAME RESIDENCE INTEREST
- ---- --------- ----------
Campbell, Jim Rt. 1, Box 426-B 40.00
Amarillo, TX 79106
IN WITNESS THEREOF, the parties hereto have executed this Agreement in
triplicate as of April 20, 1989 at Carson, California.
DEALER:
NISSAN OF AMARILLO, INC.
By /s/ Jim Campbell SELLER:
---------------------- NISSAN DIVISION
Title President NISSAN MOTOR CORPORATION IN U.S.A.
By /s/ [ILLEGIBLE]
------------------------------------
Title Vice President
General Manager, Nissan Division
By /s/ [ILLEGIBLE]
------------------------------------
Title National Market
Representation Manager
<PAGE>
AMENDMENT NO. 1
TO
NISSAN DEALER
SALES AND SERVICE AGREEMENT
This Agreement of Amendment is entered into effective April 15, 1993,
by and between the Nissan Division of NISSAN MOTOR CORPORATION IN U.S.A., a
California corporation (hereinafter "Seller"), and NISSAN OF AMARILLO, INC., a
Texas corporation (hereinafter "Dealer").
RECITALS
Effective April 20, 1989, Seller and Dealer entered into a
Nissan Dealer Sales and Service Agreement (hereinafter "the
Agreement"). Seller and Dealer desire to amend the Agreement to reflect
a change in Principal Owner/Executive Manager and minority stock
ownership.
THEREFORE, the parties hereby agree to amend the Agreement as follows:
1. The identification of Owner(s) and Executive Manager in the Final
Article is hereby amended to read as follows:
"The Principal Owner of Dealer is as follows:
PERCENTAGE
NAME RESIDENCE INTEREST
- ---- --------- --------
Edward L. D'Atri, Jr. 2606 S. Huges 15.00
Amarillo, TX 79109
The Other Owner of Dealer is as follows:
PERCENTAGE
NAME RESIDENCE INTEREST
- ---- --------- --------
Bill Gilliland 2806 S. Huges 85.00
Amarillo, TX 79109
The Executive Manager of Dealer is as follows:
PERCENTAGE
NAME RESIDENCE INTEREST
- ---- --------- --------
Edward L. D'Atri, J. 2606 S. Huges 15.00
Amarillo, TX 79109
2. The terms and conditions of the Agreement, to the extent not
modified herein, shall remain in full force and effect and shall continue to
bind the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate as of the day and year first above written.
DEALER SELLER
NISSAN OF AMARILLO, INC. NISSAN DIVISION
NISSAN MOTOR CORPORATION IN U.S.A.
By /s/ Edward L. D'Atri, Jr. By /s/ Earl J. Hesterberg
-------------------------- ---------------------------
Edward L. D'Atri, Jr. Earl J. Hesterberg
President Vice President
General Manager, Nissan Division
By /s/ J.C. Fassino
------------------------------
J.C. Fassino
Regional General Manager
South Central Region
Page 1 of 1
<PAGE>
AMENDMENT NO. 2
TO
NISSAN DEALER
SALES AND SERVICE AGREEMENT
This Agreement of Amendment is entered into effective July 20, 1993 by
and between the Nissan Division of NISSAN MOTOR CORPORATION IN U.S.A., a
California corporation (hereinafter "Seller"), and NISSAN OF AMARILLO, INC., a
Texas corporation (hereinafter "Dealer").
RECITALS
Effective April 20, 1989, Seller and Dealer entered into a
Nissan Dealer Sales and Service Agreement (hereinafter "the Agreement")
which was amended April 15, 1993. Seller and Dealer desire to amend the
Agreement to reflect a corporate name change.
THEREFORE, the parties hereby agree to amend the Agreement as follows:
1. The name of Dealer in the Final Article is hereby amended to read as
follows:
"Dealer Name: Westgate Nissan, Inc."
2. The terms and conditions of the Agreement, to the extent not
modified herein, shall remain in full force and effect and shall continue to
bind the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate as of the day and year first above written.
DEALER SELLER
WESTGATE NISSAN, INC. NISSAN DIVISION
NISSAN MOTOR CORPORATION IN U.S.A.
By /s/ Edward L. D'Atri, Jr. By /s/ Earl J. Hesterberg
-------------------------- ---------------------------
Edward L. D'Atri, Jr. Earl J. Hesterberg
President Vice President
General Manager, Nissan Division
By /s/ J.C. Fassino
---------------------------
J.C. Fassino
Regional General Manager
South Central Region
Page 1 of 1
<PAGE>
AMENDMENT NO. 3
TO
NISSAN DEALER
SALES AND SERVICE AGREEMENT
This Agreement of Amendment is entered into and effective April 22,
1994 by and between the Nissan Division of NISSAN MOTOR CORPORATION IN U.S.A., a
California corporation (hereinafter "Seller"), and NISSAN OF AMARILLO, INC., a
Texas corporation (hereinafter "Dealer").
RECITALS
Effective April 20, 1989, Seller and Dealer entered into a
Nissan Dealer Sales and Service Agreement (hereinafter "the Agreement")
which was amended April 15, 1993 and July 20, 1993. Seller and Dealer
desire to amend the Agreement to reflect a Minority Ownership Change,
Name Change and changes to Article Tenth (Special Conditions).
THEREFORE, the parties hereby agree to amend the Agreement as follows:
1. The identification of Owner(s) and Executive Manager in the Final
Article is hereby amended to read as follows:
"The principal Owner(s) of Dealer are as follows:
PERCENTAGE
NAME RESIDENCE INTEREST
- ---- --------- --------
Edward L. D'Atri, Jr. 6704 Club Meadow Drive 25%
Amarillo, TX 79124
The Other Owner(s) of Dealer are as follows:
PERCENTAGE
NAME RESIDENCE INTEREST
- ---- --------- --------
Bill A. Gilliland 2806 S. Hughes 75%
Amarillo, TX 79109
The Executive Manager of Dealer is as follows:
PERCENTAGE
NAME RESIDENCE INTEREST
- ---- --------- --------
Edward L. D'Atri, Jr. 6704 Club Meadow Drive 25%
Amarillo, TX 79124
2. The Name of Dealer in the Final Article is hereby amended to read as
follows:
"Dealer Name: QUALITY NISSAN, INC."
3. ARTICLE TENTH (Special Conditions): Article Tenth is hereby amended
to read as follows:
3.1 Exclusivity Provisions
In order for dealer to maintain competitive Dealership
Facilities to effectively market Nissan Products, Dealer hereby agrees
at all times during the term of this Agreement to comply with the
following provisions (hereinafter "Exclusivity Provisions"):
(i) The only line-make of new, unused motor vehicles which
Dealer shall display and sell at the Dealership Facilities shall be the
Nissan line and make of motor vehicles. Dealer shall not conduct any
dealership operations for any other make or line of new, unused
vehicles from the Dealership Facilities throughout the term of this
Agreement;
Page 1 of 2
<PAGE>
(ii) Dealer shall sell and maintain a full line of Genuine
Nissan Parts and Accessories at the Dealership Facilities and shall
provide a full range of automotive servicing for Nissan vehicles at the
Dealership Facilities pursuant to Section 5 of the Standard Provisions.
Nothing contained herein, however, shall preclude Dealer from offering
parts, accessories or servicing for vehicles of other lines or makes so
long as such products or services are incident to Dealer's Nissan
Dealership Operations:
(iii) Dealer shall not advertise or promote any make or line
of new, unused vehicles from the Dealership Facilities other than the
Nissan line; and
(iv) Dealer shall not install or maintain any sign at or near
the Dealership Facilities which would tend to lead the public into
believing that any line or make of vehicles other than the Nissan line
is sold at the Dealership Facilities.
(v) Dealer agrees that under Article Third of the Agreement
and Section 1.5 o the standard Provisions Seller may reasonably require
any proposed buyer of Dealer's assets to agree to identical Exclusivity
Provisions as a condition of Seller's consent to the change of
ownership.
The terms and conditions of the Agreement, to the extent not modified
herein, shall remain in full force and effect and shall continue to bind the
parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate as of the day and year first above written.
DEALER SELLER
QUALITY NISSAN, INC. NISSAN DIVISION
NISSAN MOTOR CORPORATION IN U.S.A.
By /s/ Edward L. D'Atri, Jr. By /s/ Earl J. Hesterberg
-------------------------- ---------------------------
Edward L. D'Atri, Jr. Earl J. Hesterberg
President Vice President
General Manager, Nissan Division
By /s/ J.C. Fassino
---------------------------
J.C. Fassino
Regional General Manager
South Central Region
Page 2 of 2
<PAGE>
AMENDMENT NO. 4
TO
NISSAN DEALER
SALES AND SERVICE AGREEMENT
This Agreement of Amendment is entered into October 14, 1994 and
effective July 13, 1994 by and between the Nissan Division of NISSAN MOTOR
CORPORATION IN U.S.A., a California corporation (hereinafter "Seller"), and
QUALITY NISSAN, INC., a Texas corporation (hereinafter "Dealer").
RECITALS
Effective April 20, 1989, Seller and Dealer entered into a
Nissan Dealer Term Sales and Service Agreement (hereinafter "the
Agreement") which was amended April 15, 1993, July 20, 1993, and April
22, 1994, Seller and Dealer desire to amend the Agreement to to reflect
a Minority Ownership and Dealer Principal Change.
THEREFORE, the parties hereby agree to amend the Agreement as follows:
1. The identification of Owner(s) and Executive Manager in the Final
Article is hereby amended to read as follows:
"The Principal Owner(s) of Dealer are as follows:
NAME RESIDENCE PERCENTAGE INTEREST
- ---- --------- -------------------
Bill A. Gilliland 2806 S. Hughes 100%
Amarillo, TX 79124
The Other Owner(s) of Dealer are as follows:
NAME RESIDENCE PERCENTAGE INTEREST
- ---- --------- -------------------
None N/A N/A
The Executive Manager of Dealer is as follows:
NAME RESIDENCE PERCENTAGE INTEREST
- ---- --------- -------------------
None N/A N/A
2. ARTICLE TENTH: Special Conditions, is hereby amended to read as
follows:
2.1 Within ninety (90) days of the date of this Agreement, Dealer shall
have an individual as its Candidate to be Executive Manager of Dealer.
The qualifications and performance of the individual proposed to act as
the Executive Manager of Dealer, (the "Candidate"), shall be evaluated by Seller
during a six-month (6-month) period. Such evaluation shall be conducted in
accordance with Seller's Executive Management Evaluation Program. If at the end
of such six-month period, Candidate's and Dealer's performance in all
departments of the dealership (including sales, service, parts and finance), is
not satisfactory to Seller under the evaluation program guidelines, Dealer shall
within sixty (60) days of the date Seller notifies Dealer that Candidate has not
met the Executive Management requirements of Seller as described above, retain
another individual who is a qualified Executive Manager to be named under
Article 10th of this Agreement.
The terms and conditions of the Agreement, to the extent not modified
herein, shall remain in full force and effect and shall continue to bind the
parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate as of the day and year first above written.
DEALER SELLER
QUALITY NISSAN, INC. NISSAN DIVISION
NISSAN MOTOR CORPORATION IN U.S.A.
By /s/ Bill A. Gilliland By /s/ Earl J. Hesterberg
-------------------------- ---------------------------
Bill A. Gilliland Earl J. Hesterberg
Vice-President Vice President
General Manager, Nissan Division
By /s/ J.C. Fassino
---------------------------
J.C. Fassino
Regional General Manager
South Central Region
<PAGE>
NISSAN [LOGO]
NISSAN DEALER
SALES AND SERVICE AGREEMENT
STANDARD PROVISIONS
NISSAN DIVISION
NISSAN MOTOR CORPORATION IN U.S.A.
<PAGE>
NISSAN DEALER SALES AND SERVICE AGREEMENT
STANDARD PROVISIONS
TABLE OF CONTENTS
1. Definitions ............................................................ 01
2. Dealership Location and Dealership Facilities .......................... 03
A. Location and Facilities ............................................. 03
B. Dealership Facilities Addendum ...................................... 03
C. Changes and Additions ............................................... 03
D. Assistance Provided by Seller ....................................... 03
E. Evaluation of Dealership Facilities and Location .................... 03
3. Vehicles Sales Responsibilities of Dealer .............................. 04
A. General Obligations of Dealer ....................................... 04
B. Sales of Nissan Cars and Nissan Trucks .............................. 04
C. Metropolitan Markets ................................................ 04
D. Additional Factors for Consideration ................................ 04
E. Used Motor Vehicle Sales ............................................ 05
F. Dealer Sales Personnel .............................................. 05
G. Assistance Provided by Seller ....................................... 05
H. Evaluation of Dealer's Sales Performance ............................ 05
4. Determination of Dealer Representation ................................. 05
A. Development of Market Studies ....................................... 05
B. Appointment of New Authorized Nissan Dealers to Fill Open Points .... 06
5. Responsibilities of Dealer With Respect to Service and Parts ........... 07
A. General Service Obligations of Dealer ............................... 07
B. Specific Service Obligations of Dealer .............................. 07
C. Service Operations of Dealer ........................................ 09
D. Parts Operations of Dealer .......................................... 10
E. Assistance Provided by Seller ....................................... 10
F. Evaluation of Dealer's Service and Parts Performance ................ 11
6. Other Seller and Dealer Responsibilities ............................... 11
A. Advertising and Promotion ........................................... 11
B. Dealer Disclosures and Representations Concerning
Nissan Products and Other Products or Services ...................... 12
C. Signs ............................................................... 12
D. Hours of Operation .................................................. 12
E. Capital and Financing ............................................... 12
F. Accounting System ................................................... 13
G. Records and Reports ................................................. 13
H. Nissan Datanet System ............................................... 14
I. Right of Inspection ................................................. 14
J. Confidentiality ..................................................... 14
K. Use of Nissan Marks ................................................. 14
7. Purchase and Delivery .................................................. 15
A. Dealer Purchases .................................................... 15
B. Delays in Delivery .................................................. 15
C. Shipment of Nissan Products ......................................... 15
D. Passage of Title .................................................... 16
E. Security Interest ................................................... 16
F. Charges For Storage and Diversions .................................. 17
G. Changes in Nissan Products .......................................... 17
8. Pricing ................................................................ 17
A. Nissan Vehicles ..................................................... 17
B. Genuine Nissan Parts and Accessories ................................ 17
9. Payment ............................................................... 18
A. Payment for Vehicles ............................................... 18
B. Payment for Parts and Accessories .................................. 18
C. Accounts Payable ................................................... 18
D. Collection of Taxes by Dealer ...................................... 19
10. Warranties ............................................................ 19
11. Indemnification ....................................................... 19
A. Indemnification of Dealer .......................................... 19
B. Indemnification of Seller .......................................... 20
C. Conditions and Exceptions to Indemnification ....................... 21
12. Termination ........................................................... 21
A. Termination Due to Certain Acts of Events .......................... 21
B. Termination by Seller for Non-Performance by Dealer ................ 23
C. Termination Because of Death or Physical or Mental
Incapacity of Principal Owner ...................................... 24
D. Termination for Failure of Seller or Dealer to be Licensed ......... 24
E. Termination by Dealer .............................................. 24
F. Termination by Seller Because of a Change of Seller's
Method of Distribution or Decision by Seller to Cease
Distribution of Nissan Vehicles .................................... 24
G. Termination Upon Entering Into a New Sales and Service
Agreement .......................................................... 25
13. Rights and Liabilities Upon Termination ............................... 25
A. Termination Procedures ............................................. 25
B. Repurchases by Seller Upon Termination ............................. 26
C. Dealer's Responsibilities with Respect to Repurchase ............... 26
D. Title to Repurchased Property ...................................... 27
E. Payment ............................................................ 27
F. Cancellation of Deliveries ......................................... 27
14. Establishment of Successor Dealer ..................................... 27
A. Because of Death of Principal Owner ................................ 27
B. Consideration of Successor Addendum ................................ 28
C. Termination of Successor Addendum .................................. 28
D. Evaluation of Successor Dealership ................................. 28
E. Termination of Market Representation ............................... 28
F. Termination of Offer ............................................... 29
15. Sale of Assets or Ownership Interests in Dealer ....................... 29
A. Sale or Transfer ................................................... 29
B. Seller's Evaluation ................................................ 29
C. Effect of Termination .............................................. 30
16. Policy Review Board ................................................... 30
A. Establishment of Policy Review Board ............................... 30
B. Appeal of Dealer Appointment to Policy Review Board ................ 31
C. Appeal of Termination to Policy Review Board ....................... 31
D. Effect of Other Proceedings ........................................ 31
17. General ............................................................... 31
A. Notices ............................................................ 31
B. No Implied Waivers ................................................. 31
C. No Agency .......................................................... 31
D. Limitations of Seller's Liability .................................. 32
E. Entire Agreement ................................................... 32
F. California Law ..................................................... 32
G. Changes Required by Law ............................................ 32
H. Severability ....................................................... 32
I. Assignment ......................................................... 32
J. No Franchise Fee ................................................... 32
K. Captions ........................................................... 33
L. Benefit ............................................................ 33
<PAGE>
NISSAN
DEALER SALES & SERVICE AGREEMENT
The following Standard provisions have by reference been incorporated in and
made a part of the Nissan Dealer Sales & Service Agreement which they accompany
and which has been executed on behalf of Seller and Dealer.
Section 1. Definitions
Seller and Dealer agree that the following terms, as used in this Agreement,
shall be defined exclusively as set forth below.
A. "Authorized Nissan Dealers" shall mean dealers located in the Territory
that are authorized by Seller to conduct Dealership Operations in connection
with he sale of Nissan Products, pursuant to a duly executed Nissan Dealer Sales
and Service Agreement.
B. "Nissan Cars" shall mean the new passenger cars specified in the current
Product Addendum.
C. "Nissan Trucks" shall mean the new trucks, cab and chassis, utility
vehicles, buses or vans specified in the current Product Addendum.
D. "Nissan Vehicles" shall mean Nissan Cars and Nissan Trucks.
E. "Genuine Nissan Parts and Accessories" shall mean such parts,
accessories and other products for Nissan Vehicles as are from time to time
offered for sale by Seller to Authorized Nissan Dealers for resale under this
Agreement.
F. "Nissan Products" shall mean Nissan Vehicles and Genuine Nissan Parts
and Accessories.
G. "Competitive Vehicles" shall mean those new vehicles which are
considered by Seller to be directly competitive with Nissan Vehicles.
H. "Industry Cars" shall mean all new cars of all manufacturers which are
sold and distributed within the United States, to the extent data relating to
registration thereof are reasonably available.
I. "Competitive Truck Segment" shall include all compact pickup trucks,
compact utility vehicles, and compact buses of all manufacturers which are sold
and distributed within the United States, to the extent data relating to
registration thereof are reasonably available.
J. "Dealership Location" shall mean the place or places of business of
Dealer established and described in accordance with Section 2 of this Agreement.
K. "Dealership Facilities" shall mean the land areas at the Dealership
Location and the buildings and improvements erected thereon provided by Dealer
in accordance with Section 2 of this Agreement.
L. "Dealership Facilities Addendum" shall mean the addendum executed by
Seller and Dealer pursuant to Section 2 of this Agreement.
M. "Dealership Operations" shall mean all dealer functions contemplated by
this Agreement including, without limitation, sale and servicing of Nissan
Products, use and display of Nissan Marks and Nissan Products, rental and
leasing of Nissan Vehicles, sales of used vehicles, body shop work, financing or
insurance services and any other activities undertaken by Dealer in connection
with Nissan Products whether conducted directly or indirectly by Dealer.
N. "Primary Market Area" shall mean the geographic area which is designated
from time to time as the area of Dealer's sales and service
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responsibility for Nissan Products in a Notice of Primary Market Area issued by
Seller to Dealer. Seller reserves the right, in its reasonable discretion, to
issue new, superseding "Notices of Primary Market Area" to Dealer from time to
time. Such geographic area may at any time be applicable to Dealer and to other
Authorized Nissan Dealers.
O. "Principal Owner(s)" shall mean the person(s) named as Principal
Owner(s) in the Final Article of this Agreement upon whose personal
qualifications, expertise, reputation, integrity, experience, ability and
representations concerning the management and operation of Dealer, Seller has
relied in entering this Agreement.
P. "Other Owner(s)" shall mean the person(s) named as Other Owner(s) in the
Final Article of this Agreement who will not be involved in the operation or
management of Dealer.
Q. "Executive Manager" shall mean the person named as Executive Manager in
the Final Article of this Agreement upon whose personal qualifications,
expertise, reputation, integrity, experience, ability and representations that
he or she shall devote his or her primary efforts to and have full managerial
authority and responsibility for the day-to-day management and performance of
Dealer, Seller has relied in entering into this Agreement.
R. "successor Addendum" shall mean the Successor Addendum, if any, executed
by Seller and Dealer pursuant to Section 14 of this Agreement.
S. "Guides" shall mean such reasonable standards as may be established by
Seller for Authorized Nissan Dealers from time to time under its standard
procedures with respect to such matters as dealership facilities, tools,
equipment, financing, capitalization, inventories, operations and personnel. The
execution of this Agreement or of any addenda hereto (including, without
limitation, any Dealership Facilities Addendum) shall not, however, be construed
as evidence of Dealer's fulfillment of or compliance with said Guides or of
Dealer's fulfillment of its responsibilities under this Agreement.
T. "Warranty Manual" shall mean the publication or publications of Seller,
as the same may from time to time be amended, revised or supplemented, which set
forth Seller's policies and procedures concerning the administration of Seller's
warranties and related matters.
U. "Nissan Marks" shall mean those trademarks, service marks, names, logos
and designs that Seller may, from time to time, use or authorize for use by
Dealer in connection with Nissan Products or Dealership Operations including,
without limitation, the name "Nissan".
V. "Seller's Manuals and Instructions" shall mean those bulletins, manuals
or instructions issued by Seller to all Authorized Nissan Dealers advising them
of Seller's policies or procedures under this Agreement including, without
limitation, the Parts and Accessories Policy and Procedures Manual and the
Nissan Dealer Accounting System Manual.
W. "Territory" shall mean the geographic area in which Seller has been
authorized by Manufacturer to distribute Nissan Products.
X. "Product Addendum" shall mean the Product Addendum issued by Seller to
Dealer which specifies those Nissan Vehicles which shall be offered for sale by
Seller to Dealer for resale. Seller reserves the right, in its sole discretion,
to issue new, superseding Product Addenda to Dealer from time to time.
Y. "Dealer Identification Addendum" shall mean the Dealer Identification
Addendum executed by Seller and Dealer pursuant to Section 6.C of this
Agreement.
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Section 2. Dealership Location and
Dealership Facilities
A. Location and Facilities.
Dealer shall provide, at the Dealership Location approved by Seller in
accordance with Section 2.B hereof, Dealership Facilities that will enable
Dealer to effectively perform its responsibilities under this Agreement and
which are reasonably equivalent to those maintained by Dealer's principal
competitors in the geographic area in which Dealer's Primary Market Area is
located. In addition, the Dealership Facilities shall be satisfactory in space,
appearance, layout, equipment, signage and otherwise be substantially in
accordance with the Guides therefor established by Seller from time to time.
Dealer shall conduct its Dealership Operations only from the Dealership Location
specified in the Dealership Facilities Addendum. If the Dealership Location is
comprised of more than one place of business, Dealer shall use each such place
of business only for the purposes specified therefor in the current Dealership
Facilities Addendum.
B. Dealership Facilities Addendum.
Dealer and Seller will execute a Dealership Facilities Addendum which will
include a description of the Dealership Location and the Dealership Facilities,
the approved use for each such place of business and facility, and the current
Guides therefor.
C. Changes and Additions.
Dealer shall not move, relocate, or change the usage of the Dealership Location
or any of the Dealership Facilities, or substantially modify any of the
Dealership Facilities, nor shall Dealer or any person named in the Final Article
of this Agreement directly or indirectly establish or operate any other
locations or facilities for the sale or servicing of Nissan Products or for the
conduct of any other of the Dealership Operations contemplated by this
Agreement, without the prior written consent of Seller. Any changes in the
Dealership Location or theDealership Facilities that may be agreed to by Seller
and Dealer shall be reflected in a new, superseding Dealership Facilities
Addendum executed by Seller and Dealer.
D. Assistance Provided by Seller.
To assist Dealer in planning, establishing and maintaining the Dealership
Facilities, Seller, at the request of Dealer, will from time to time make its
representatives available to Dealer to provide standard building layout plans,
facility planning recommendations, and counsel and advice concerning location
and facility planning.
E. Evaluation of Dealership Facilities and Location.
Seller will periodically evaluate Dealer's performance of its responsibilities
under this Section 2. In making such evaluations, Seller will give consideration
to: the actual land and building space provided by Dealer for the performance of
its responsibilities under this Agreement; the current Guides established by
Seller for the Dealership Facilities; the appearance, condition and layout of
the Dealership Facilities; the location of the Dealership Facilities relative to
the sales opportunities and service requirements of the primary market Area;
equivalence with facilities maintained by Dealer's principal competitors; and
such other factors, if any, as may directly relate to Dealer's performance of
its responsibilities under this Section 2. Evaluations prepared pursuant to this
Section 2.E will be discussed with and provided to Dealer, and Dealer shall have
an opportunity to comment, in writing, on such evaluations, and Seller will
consider Dealer's comments. Dealer shall promptly take such action as may be
required to correct any deficiencies in Dealer's performance of its
responsibilities under this Section 2.
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Section 3. Vehicle Sales
Responsibilities of Dealer
A. General Obligations of Dealer.
Dealer shall actively and effectively promote through its own advertising and
sales promotion activities the sale at retail (and if Dealer elects, the leasing
and rental) of Nissan Vehicles to customers located within Dealer's Primary
Market Area. Dealer's Primary Market Area is a geographic area which Seller uses
as a tool to evaluate Dealer's performance of its sales obligations hereunder.
Dealer agrees: that it has no right or property interest in any such geographic
area which Seller may designate; that, subject to Section 4 of this Agreement,
Seller may add, relocate or replace dealers in Dealer's Primary Market Area; and
that Seller may, in its reasonable discretion, change Dealer's Primary Market
Area from time to time.
B. Sales of Nissan Cars and Nissan Trucks.
Dealer's performance of its sales responsibility for Nissan Cars and Nissan
Trucks will be evaluated by Seller on the basis of such reasonable criteria as
Seller may develop from time to time, including for example:
1. Achievement of reasonable sales objectives which may be established from
time to time by Seller for Dealer as standards for performance;
2. Dealer's sales of Nissan Cars and Nissan Trucks in Dealer's Primary
Market Area and/or the metropolitan area in which Dealer is located, as
applicable, or Dealer's sales as a percentage of:
(i) registration of Nissan Cars and Nissan Trucks;
(ii) registrations of Competitive Vehicles;
(iii) registrations of vehicles in the competitive Truck Segment;
3. A comparison ofDealer's sales and/or registrations to sales and/or
registrations of all other Authorized Nissan Dealers combined in Seller's Sales
Region and District in which Dealer is located and, where Section 3.C applies,
for all other Authorized Nissan Dealers combined in the metropolitan area in
which Dealer is located; and
4. A comparison of sales and/or registrations achieved by Dealer to the
sales or registrations of Dealer's competitors.
The sales and registration data referred to in this Section 3 shall be
those utilized in Seller's records or in reports furnished to Seller by
independent sources selected by it and generally available for such purpose in
the automotive industry. If such reports of registration and/or sales are not
generally available, Seller may rely on such other registration and/or sales
data as can be reasonably obtained by Seller.
C. Metropolitan Markets.
If Dealer is located in a metropolitan or other marketing area where there are
located one or more Authorized Nissan Dealers other than Dealer, the combined
sales performance of all Nissan Dealers in such metropolitan or other marketing
area may be evaluated as indicated in Sections 3.B.2 and 3.B.3 above, and
Dealer's sales performance may also be evaluated on the basis of the proportion
of sales and potential sales of Nissan Vehicles in the metropolitan or other
marketing area in which Dealer is located for which Dealer fairly may be held
responsible.
D. Additional Factors for Consideration.
Where appropriate in evaluating Dealer's sales performance, Seller will take
into account such reasonable criteria as Seller may determine from time to time,
including, for example, the following: the Dealership Location; the general
shopping habits of the public in such market area; the
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availability of Nissan Vehicles to Dealer and to other Authorized Nissan
Dealers; and special local marketing conditions that would affect Dealer's sales
performance differently from the sales performance of other Authorized Nissan
Dealers; the recent and long term trends in Dealer's sales performance; the
manner in which Dealer has conducted its sales operations (including
advertising, sales promotion, and treatment of customers); and the other
factors, if any, directly affecting Dealer's sales opportunities and
performance.
E. Used Motor Vehicle Sales.
Dealer shall engage in used motor vehicle operations as and to the extent
reasonably required for Dealer to effectively perform its responsibilities for
the sale of Nissan Vehicles. Subject to requirements and guidelines established
by Seller, Dealer shall be entitled to identify such used motor vehicle
operations as a part of its Dealership Operations and to apply the Nissan Marks
relating to used motor vehicle operations.
F. Dealer Sales Personnel.
Dealer shall organize and maintain a sales organization that includes a
sufficient number of qualified and trained sales managers and sales people to
enable Dealer to effectively fulfill its responsibilities under this Section 3.
Seller may, from time to time, comment on or advise Dealer concerning the
qualifications, performance and ability of Dealer's sales personnel as the same
affect Dealer's performance of its obligations under this Section 3.
G. Assistance Provided by Seller.
1. Sales Training Courses.
Seller will offer from time to time sales training courses for Dealer sales
personnel. Based on its need therefor, Dealer shall, without expense to Seller,
have members of Dealer's sales organization attend such training courses and
Dealer shall cooperate in such courses as may from time to time be offered by
Seller.
2. Sales Personnel.
To further assist Dealer, Seller will provide to Dealer advice and counsel on
matters relating to new vehicle sales, sales personnel training and management,
merchandising, and facilities used for Dealer's vehicle sales operations.
H. Evaluation of Dealer's Sales Performance.
Seller will periodically evaluate Dealer's performance of its responsibilities
under this Section 3. Evaluations prepared pursuant to this Section 3.H will be
discussed with and provided to Dealer, and Dealer shall have an opportunity to
comment, in writing, on such evaluations. Dealer shall promptly take such action
as may be required to correct any deficiencies in Dealer's performance of its
responsibilities under this Section 3.
Section 4. Determination of
Dealer Representation
A. Development of Market Studies.
Seller may, from time to time and in its sole discretion, conduct studies of
various geographic areas to evaluate market conditions. Such market studies may,
where appropriate, take into account such factors as geographical
characteristics, consumer shopping patterns, existence of other automobile
retail outlets, sales opportunities and service requirements of the geographic
area in which Dealer's Primary Market Area is located, trends in marketing
conditions, current and prospective trends in population, income, occupation,
and such other demographic characteristics as may be determined by Seller to be
relevant to its study. Such studies will make recommendations concerning the
market, the Dealership Facilities, and the Dealership Location. Prior to
conducting a study which includes the geographic area in which Dealer's
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Primary Market Area is located, Seller will notify Dealer of its intention to
conduct such a study. Dealer will be given the opportunity to present to Seller
such information pertaining to such study as Dealer believes may be relevant.
Seller will consider all relevant information timely provided by Dealer before
concluding its study.
B. Appointment of New Authorized Nissan Dealers to Fill Open Points.
1. If any study conducted pursuant to Section 4.A recommends that an open
point be established at a location that is within ten (10) miles driving
distance, by the shortest publicly traveled route, of Dealer's main Dealership
Location, Seller will so notify Dealer. Dealer will have thirty (30) days from
Dealer's receipt of notice of the recommendations of the study in which to
object to them. Upon Dealer's request, Seller will review the results of the
study with Dealer (excluding information considered by Seller to be
confidential). Seller will consider all objections to the recommended open point
timely made by Dealer. Prior to entering into a Nissan Dealer Sales and Service
Agreement with a New Authorized Nissan Dealer filling such an open point, Seller
will give Dealer written notice of its intent to fill the open point
(hereinafter the "Notice of Appointment"). If Dealer timely files a Notice of
Appeal (as defined in Section 16.B herof) with the Policy Review Board (as
defined in Section 16.A hereof) in accordance with the procedures established in
Section 16.B therefor, Seller will not enter into a Nissan Dealer Sales and
Service Agreement appointing such New Authorized Nissan Dealer until the Policy
Review Board has rendered its decision on the matter.
2. Nissan reserves the right to sell Nissan Products to others and to
appoint Authorized Nissan Dealers within and outside the ten (10) miles driving
distance described above. However, Seller agrees that it will not enter into a
Nissan Dealer Sales and Service Agreement appointing a New Authorized Nissan
Dealer filling an open point which is located within the ten (10) miles driving
distance described above unless the study made pursuant to Section 4.A
demonstrates in Seller's good faith opinion that the declaration of an open
point is warranted by market or economic conditions.
3. Nothing in this Agreement shall be construed to require Dealer's consent
to the appointment of a New Authorized Nissan Dealer at a location that is
within the ten (10) miles driving distance described above. Nothing in this
Agreement shall be construed to grant Dealer any rights in connection with the
appointment of an Authorized Nissan Dealer at a location that is not within the
ten (10) miles driving distance described above. In addition, this Section 4.B
does not apply to, nor shall it be construed to grant Dealer any rights in
connection with any of the events or transactions excluded from the definition
of "New Authorized Nissan Dealer" in Section 4.B.4(a), (b) or (c) below.
4. "New Authorized Nissan Dealer" shall mean an Authorized Nissan Dealer
that has not previously executed a Nissan Dealer Sales and Service Agreement or
done business as an Authorized Nissan Dealer; provided, however, that "New
Authorized Nissan Dealer" shall not include an Authorized Nissan Dealer who: (a)
is a Successor Dealer appointed pursuant to Section 14, (b) is a purchaser or
transferee of the assets of or ownership interests in an Authorized Nissan
Dealer that is appointed as an Authorized Nissan Dealer pursuant to Section 15,
or (c) who is approved as a Nissan Dealer following or resulting from:
(i) a change in name or form of an Authorized Nissan Dealer;
(ii) any other sale, exchange or other transfer of any ownership interests
in or any assets of any other Authorized Nissan Dealer, by operation of law or
otherwise and whether voluntary and involuntary;
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(iii) an assignment, sale or other transfer of any interest in a Nissan
Dealer Sales and Service Agreement, by operation of law or otherwise and whether
voluntary or involuntary;
(iv) the relocation of an existing Authorized Nissan Dealer; or
(v) the replacement of a former Authorized Nissan Dealer where the
appointment of such replacement Dealer takes place within two (2) years of the
date on which the former Dealer ceased doing business and where such replacement
Dealer's main Dealership Location is located within a five (5) mile driving
distance by the shortest publicly traveled route of the former Dealer's main
Dealership Location;
regardless of whether any of the foregoing actions, individually or
collectively, result in the appointment of an Authorized Nissan Dealer at a
location that is within or without the ten (10) miles driving distance described
above.
Section 5. Responsibilities of Dealer
with Respect to Service and Parts
A. General Service Obligations of Dealer.
Dealer understands and acknowledges that future sales of Nissan Products depend,
in part, upon the satisfaction of Dealer's customers with its servicing of such
Products, Dealer further recognizes that Seller has entered into this Agreement
in reliance upon Dealer's representations concerning its ability and commitment
to fair dealing and professional servicing. Accordingly, Dealer shall develop
and maintain a quality service organization and shall render at the Dealership
Facilities prompt, efficient and courteous service to owners and users of Nissan
Products, regardless of the origin of purchase, including, without limitation,
the specific obligations described in Section 5.B. In this regard, Dealer shall
take all reasonable steps to insure that: the service needs of its customer's
Nissan Vehicles are accurately diagnosed; Dealer's customers are advised of such
needs and that each customer's consent is obtained prior to initiation of any
repairs; necessary repairs and maintenance are professionally performed; and
Dealer's customers are treated courteously and fairly.
B. Specific Service Obligations of Dealer.
1. Pre-Delivery Inspections and Service.
Dealer shall perform or be responsible for the performance of pre-delivery
inspections and service on each Nissan Vehicle prior to sale and delivery
thereof by Dealer, in accordance with the standards and procedures relating
thereto set forth in the applicable pre-delivery inspection schedules furnished
by Seller to Dealer from time to time. The completion of such inspection and
service shall be verified by Dealer on forms supplied or approved by Seller for
this purpose. Dealer shall retain the original or a legible copy of each such
form in its records and shall furnish a copy to the purchaser.
2. Warranty Repairs and Goodwill Adjustments.
Dealer shall promptly, courteously and efficiently perform: (i) warranty repairs
on each Nissan Product which qualifies for such repairs under the provisions of
any warranty furnished therewith by Seller, Manufacturer or the manufacturer of
the Product; and (ii) such other inspections, repairs or corrections on Nissan
Products as may be approved or authorized by Seller to be made at Seller's
expense (hereinafter referred to as "goodwill adjustments"). Dealer shall
perform such repairs and service on each such Nissan Product as and when
required and requested by the owner or user (or in the case of goodwill
adjustments when requested by Seller), without regard to its origin of purchase
and in accordance with the provisions relating thereto set forth in the Warranty
Manual or in Seller's Manuals or Instructions issued to Dealer from time to
time. In performing such reprise and service on Nissan products for which Seller
has agreed to reimburse Dealer, Dealer shall use Genuine Nissan Parts and
Accessories unless
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Dealer receives prior authorization from Seller to use non-genuine parts or
accessories. Dealer will provide to each owner or user of a Nissan product upon
which any such repairs or service are performed a copy of the repair order
reflecting all services performed.
3. Campaign Inspections and Corrections.
Dealer shall promptly, courteously and efficiently perform such campaign
inspections and/or corrections for owners and users of Nissan Products,
regardless of their origin of purchase, as are: (i) described in owner
notifications and recall campaigns conducted by Seller in furtherance of any
federal or state law, regulation, rule or order, or (ii) requested by Seller on
Nissan Products that qualify for such inspections and/or corrections. Once
Dealer has been notified that a recall or service campaign affects a particular
class or type of Nissan Product, Dealer shall perform such campaign inspections
and/or corrections on all affected Nissan Products then in or which thereafter
come into Dealer's inventory or which are delivered to Dealer for repair or
service. Dealer shall inquire, through the Nissan Datanet system or otherwise,
with respect to each such Nissan product to determine whether all applicable
campaign inspections and/or corrections have been performed on such Nissan
Product and, if they have not been performed, Dealer shall perform them.
Dealer shall advise Seller as and when such campaign inspections and/or
corrections are performed, in accordance with Seller's Manuals or Instructions
relating thereto and in accordance with the provisions relating thereto set
forth in the Warranty Manual. To enable Dealer to perform required corrections
as promptly as practicable, parts and/or other materials required for each such
campaign may be shipped in quantity and billed to Dealer. Dealer shall accept
and retain such parts and/or other materials for use in such campaign. Upon
completion of the campaign program, Dealer shall have the right to return excess
parts shipped by Seller to Dealer for such campaign, but only to the extent that
Dealer has not ordered and received additional parts from Seller. Such a return
of parts shall be apart from any other parts return policies or programs which
may be instituted by Seller. In performing such campaign corrections for which
Seller has agreed to reimburse Dealer for parts and materials used in making
such corrections, Dealer shall use Genuine Nissan Parts and Accessories unless
Dealer receives prior authorization from Seller to use non-genuine parts and
accessories.
4. Maintenance and Repair Service.
Dealer shall promptly, courteously and efficiently maintain and repair Nissan
Products as and when required and requested by the owner or user thereof,
without regard to their origin of purchase. Dealer shall provide all owners and
users for whom Dealer provides maintenance and repair service itemized invoices
reflecting all the services performed. In connection with its sale or offering
for sale of any maintenance services recommended by Seller for the maintenance
of a Nissan Product, Dealer shall advise each customer requesting such
recommended maintenance service of: (i) a description of the items included in
maintenance recommended by Seller and Dealer's price therefor; and (ii) the
price and description of such additional maintenance or repair being sold or
recommended by Dealer which are in addition to that recommended by Seller in
published owner's manuals.
5. Payments by Seller to Dealer.
For pre-delivery inspections and service, warranty repairs, goodwill
adjustments, and campaign inspections and corrections performed by Dealer in
accordance with this Section 5.B, Seller shall fairly and adequately reimburse
Dealer for the parts and/or other materials (or shall provide Dealer with the
parts and/or other materials) and the labor required and used in connection
therewith in accordance with the provisions relating thereto set forth in the
Warranty Manual. Dealer understands and acknowledges that such repairs are
provided for the benefit of owners and users of Nissan Products, and Dealer
shall not impose any charge on such owners or users for parts, materials, or
labor for
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which Dealer has received or will receive compensation from Seller hereunder.
Dealer shall comply with the disposition instructions contained in the
Warranty Manual with respect to any Genuine Nissan Parts or accessories acquired
by Dealer as a result of its performance of Warranty repairs, goodwill
adjustments and campaign adjustments and/or corrections.
C. Service Operations of Dealer.
1. Dealer Personnel.
Dealer shall organize and maintain, substantially in accordance with Seller's
Guides, a complete service organization that includes a competent, trained
service manager and a sufficient number of trained service and customer
relations personnel to enable Dealer to fulfill its responsibilities for service
and customer relations under this Section 5. Dealer shall designate at least one
member of its staff who shall be responsible for resolving consumer complaints
on behalf of Dealer. Dealer shall, without expense to Seller, have members of
Dealer's service organization attend training courses offered by Seller and
Dealer shall cooperate with and participate in such training courses as may from
time to time be offered by Seller. Dealer agrees that its personnel will meet
such educational, management and technical training standards as Seller may
establish or approve. Seller may, from time to time, comment on or advise Dealer
concerning the qualifications, performance and ability of Dealer's service
personnel as the same affect Dealer's performance of its obligations under this
Section 5.
2. Compliance with Laws.
In performing the maintenance and service obligations specified in Section 5.B,
Dealer shall comply with all applicable provisions of federal, state and local
laws, ordinances, rules, regulations and orders affecting Nissan Products
including, but not limited to, laws relating to safety, emissions control, noise
control and customer service. Seller shall provide to Dealer, and Dealer shall
provide to Seller, such information and assistance as may be reasonably
requested by the other in connection with the performance of obligations of the
parties under such laws, ordinances, rules, regulations and orders. If
applicable law requires the installation or supply of equipment not installed or
supplied as standard equipment by Seller or the manufacturer of a Nissan
Vehicle, Dealer shall, prior to its sale of the Nissan Vehicles on or for which
such equipment is required, install or supply such equipment at its own expense
and in conformance with such standards as may be adopted by Seller. Dealer shall
comply with all applicable laws pertaining to the installation or supply of such
equipment including, without limitation, the reporting thereof.
3. Tools and Equipment.
Dealer shall provide for use in its service operations such service equipment
and special tools, comparable to the type and quality recommended by Seller from
time to time, as are necessary to meet Dealer's service responsibilities
hereunder and as are substantially in accordance with Seller's Guides. In
addition, Dealer shall obtain and maintain for use in its service operations all
tools which are essential to the proper service, repair and maintenance of
Nissan Vehicles and are identified by Seller as essential tools. Seller shall
ship such essential tools to Dealer as required due to new model and component
introductions and Dealer shall pay Seller therefor as invoiced. If Dealer is in
possession of a tool equivalent to any essential tool shipped by Seller, Dealer
may so notify Seller and Seller will exempt Dealer from purchasing such
essential tool from Seller upon Seller's determination that Dealer's tool will
satisfy the need for the specific repair procedure or procedures for which the
essential tool is intended. Dealer shall maintain all such equipment and tools
in good repair and proper calibration so as to enable Dealer to meet its service
responsibilities under this Section 5.
4. Owner Relations.
In providing service on Nissan Products, Dealer shall make every effort to build
and maintain good
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relations between Dealer and owners and users of Nissan products. Dealer shall
promptly investigate and handle all matters brought to its attention by Seller,
owners or users of Nissan products, or any public or private agency, relating to
the sale or servicing of Nissan products, so as to develop and maintain owner
and user confidence in Dealer, Seller and Nissan products.
Dealer shall promptly report to Seller the details of each inquiry or
complaint received by Dealer relating to any Nissan Product which Dealer cannot
handle promptly and satisfactorily. Dealer will take such other steps with
respect to such customer complaints as Seller may reasonably require. Dealer
will do nothing to affect adversely Seller's rights or obligations under
applicable laws, rules and/or regulations. Furthermore, Dealer shall participate
in and cooperate with such dispute resolution procedures as Seller may designate
from time to time and such other procedures as may be required by law.
Seller will promptly investigate all matters brought to its attention by
Dealer, owners or users of Nissan products, or any public or private agency,
relating to the design, manufacture or sale by Seller of Nissan Products, and
Seller will take such action as it may deem necessary or appropriate so as to
develop and maintain owner confidence in Seller, Dealer and Nissan Products.
D. Parts Operations of Dealer.
1. Parts Sales Responsibility of Dealer.
Dealer shall actively and effectively promote through its own advertising and
sales promotion activities the sale of Genuine Nissan Parts and Accessories to
service, wholesale, retail and other customers within Dealer's Primary Market
Area.
2. Dealer Personnel.
Dealer shall organize and maintain, substantially in accordance with Seller's
recommendations with respect thereto, a complete parts organization that
includes a competent, trained parts manager and a sufficient number of trained
parts personnel to enable Dealer to fulfill its responsibilities under this
Section 5. Based on its need therefor, Dealer shall, without expense to Seller,
have members of Dealer's parts organization attend training courses offered by
Seller and Dealer shall cooperate in such training courses as may from time to
time by offered by Seller. Seller may, from time to time, comment on or advise
Dealer concerning the qualifications, performance and ability of Dealer's parts
personnel as the same affect Dealer's performance of its obligations under this
Section 5.
3. Inventories of Parts and Accessories.
Dealer shall maintain at all times a stock of parts and accessories which is
adequate to meet its service and wholesale and retail parts sales
responsibilities under this Section 5. Dealer shall also maintain, subject to
the ability of Seller to supply the products ordered by Dealer, a stock of
Genuine Nissan Parts and Accessories of an assortment and in quantities adequate
to meet customer demand and for warranty repairs, goodwill adjustments and
campaign corrections made pursuant to this Section 5.
E. Assistance Provided by Seller.
1. Service and Parts Manuals.
Seller will make available to Dealer, for use by Dealer's service and parts
personnel, Seller's Manuals or Instructions concerning Dealer's service and
parts operations and other sources of information and technical data as Seller
deems necessary to permit Dealer to perform its service and parts
responsibilities under this Section 5. Dealer shall keep such information and
data current and available for consultation by Dealer's service and parts
employees.
2. Service and Parts Field Personnel.
To further assist Dealer, Seller will provide to Dealer the advice and counsel
of its service and parts field personnel on matters relating to service,
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parts and accessories, including technical diagnosis, service and parts
management, merchandising, personnel training, owner relations, and facilities
used for Dealer's service and parts operations.
F. Evaluation of Dealer's Service and Parts Performance.
Dealer's performance of its service and parts responsibilities will be evaluated
by Seller on the basis of such reasonable criteria as Seller may develop from
time to time, including for example:
1. Dealer's performance in building and maintaining consumer confidence in
Dealer and in Nissan Products as measured by surveys or indices of consumer
satisfaction as compared with performance levels achieved by other Authorized
Nissan Dealers in Seller's Region or District in which Dealer is located or such
other means as may be deemed appropriate by Seller;
2. Reasonable parts purchase or sales performance objectives which may be
established from time to time by Seller for Dealer;
3. Dealer's advertising and promotion of its parts and service operations;
4. Dealer's performance of its service responsibilities and Dealer's
conduct of its service operations including, without limitation, the financial
results of its service operations, labor sales, warranty claims practices
training of service personnel, qualification, performance and ability of service
personnel, and inventory of special and essential tools and service equipment,
as compared with Seller's Guides therefor where such have been established
and/or as compared with performance levels achieved by other Authorized Nissan
Dealers in Seller's Region or District in which Dealer is located;
5. Dealer's performance of its parts sales responsibilities and Dealer's
conduct of its parts operations including, without limitation, the financial
results of its parts operations, training of parts personnel, and inventory of
parts, as compared with Seller's Guides therefor where such have been
established and/or as compared with performance levels achieved by other
Authorized Nissan Dealers in Seller's Region or District in which Dealer is
located; and
6. Evaluation reports resulting from any audit or review of Dealer's
service or parts operations by Seller's representatives.
Seller will periodically evaluate Dealer's performance of its
responsibilities under this Section 5. Evaluations prepared pursuant to this
Section 5 will be discussed with and provided to Dealer, and Dealer shall have
an opportunity to comment, in writing, on such evaluations. Dealer shall
promptly take such action as may be required to correct any deficiencies in
Dealer's performance of its responsibilities under this Section 5.
Section 6. Other Seller and Dealer Responsibilities
A. Advertising and Promotion.
1. Advertising Standards.
Both Seller and Dealer recognize the need for maintaining the highest standards
of ethical advertising which is of a quality and dignity consonant with the
reputation and standing of Nissan Products. Accordingly, neither Seller nor
Dealer shall publish or cause to be published any advertising relating to Nissan
Products that is not in compliance with all applicable federal, state and local
laws, ordinances, rules, regulations and orders or that is likely to mislead,
confuse or deceive the public or impair the goodwill of Manufacturer, Seller or
Dealer or the reputation of Nissan Products or the Nissan Marks.
2. Display by Dealer.
Dealer shall prominently state upon its stationery and other printed matter that
it is an Authorized Nissan Dealer.
3. Sales Promotion.
Seller will establish and maintain comprehensive advertising programs to promote
the sale of Nissan
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Vehicles and will from time to time offer advertising, sales promotion and sales
campaign materials to Dealer. In addition, to effectively promote the sale of
Nissan Products and the availability of service for Nissan Vehicles, Dealer
shall establish and maintain its own advertising and sales promotion programs
including, but not limited to, effective showroom displays, and Dealer will have
available in showroom ready condition at least one vehicle in each model line of
Nissan Vehicles for purposes of demonstration to potential customers.
B. Dealer Disclosures and Representations Concerning Nissan Products and
Other Products or Services.
Dealer understands and acknowledges that it is of vital importance to Seller
that Nissan Products are sold and serviced in a manner which promotes consumer
satisfaction and which meet the high quality standards associated with Seller,
Manufacturer, the Nissan Marks and Nissan Products in general. Accordingly,
Dealer shall fully and accurately disclose to its customers all material
information concerning the products and services sold by Dealer and the terms of
purchase and sale including, without limitation: the items making up the
purchase price; the source of products sold; and all warranties affecting
products sold. Dealer shall not make any misleading statements or
misrepresentations concerning the products sold by Dealer, the terms of sale,
the warranties applicable to such products, the source of the products, or the
recommendations or approvals of Seller or Manufacturer.
Nothing in this Agreement shall limit or be construed to limit the products
or services which Dealer may sell to its customers. Seller acknowledges that
Dealer is free to sell whatever products or services Dealer may choose in
connection with its sale and servicing of Nissan Products, subject to Dealer
obligations under Sections 5 and 6 of this Agreement.
C. Signs.
Dealer shall, at its expense, display at its Dealership Location, in such number
and at such locations as Seller may reasonably require, signs which are
compatible with the design standards established by Seller and published in
Seller's Manuals or Instructions from time to time. Dealer's use and operation
of signs displayed by Dealer at the Dealership Location and Dealer's display of
any Nissan Mark shall be subject to Seller's approval and shall be in accordance
with the terms and conditions of Section 6.K and the Dealership Identification
Addendum.
D. Hours of Operations.
Dealer recognizes that the service and maintenance needs of the owners of Nissan
Products and Dealer's own responsibilities to actively and effectively promote
the sale of Nissan products can be met properly only if Dealer keeps its
Dealership Facilities open and conducts all of its Dealership Operations
required by this Agreement during hours which are reasonable and convenient for
Dealer's customers. Accordingly, Dealer shall maintain its Dealership Facilities
open for business and shall conduct all Dealership Operations required under
this Agreement during such days and hours as automobile dealers' sales and
service facilities are customarily and lawfully open in Dealer's Primary market
Area or in the metropolitan area in which Dealer is located.
E. Capital and Financing.
Dealer recognizes that its ability to conduct its Dealership Operations
successfully on a day-to-day basis and to effectively perform its other
obligations under this Agreement including, without limitation, its obligations
with respect to Dealership Facilities, new vehicle sales, and service and parts
sales, depends to a great extent upon the adequate capitalization of Dealer,
including its maintaining sufficient net working capital and net worth and
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employing the same in its Dealership Operations. Dealer shall at all times
maintain and employ such amount and allocation of net working capital and net
worth as are substantially in accordance with Seller's Guides therefor and which
will enable Dealer to fulfill all of its responsibilities under this Agreement.
Dealer shall at all times during the term of this Agreement have flooring
arrangements (wholesale financing) satisfactory to Seller, in an amount
substantially in accordance with Seller's Guides therefor, with a financial
institution acceptable to Seller, and which will enable Dealer to fulfill its
obligations under this Agreement.
F. Accounting System.
It is in the mutual interest of Seller and Dealer that all authorized Nissan
Dealers install and maintain uniform accounting systems and practices, so that
Seller can develop standards of operating performance which will assist Dealer
in obtaining satisfactory results from its Dealership Operations and which will
assist Seller in formulating policies in the interests of Seller and all
Authorized Nissan Dealers. Accordingly, Dealer shall install and maintain an
accounting system, not exclusive of any other system, in accordance with
Seller's Nissan Dealer Accounting System Manual, as the same may from time to
time be amended, revised or supplemented.
G. Records and Reports.
1. Financial Statements.
Dealer shall furnish to Seller, on or before the tenth (10th) day of each month,
in a manner acceptable to Seller, complete and accurate financial and operating
statements which fairly present, in accordance with generally accepted
accounting principles, Dealer's financial condition as of the end of the
preceding month and the results of Dealer's Dealership Operations for the
preceding month and for that portion of Dealer's fiscal year then ended. Dealer
shall also furnish for such periods reports of Dealer's sales and inventory of
Nissan Products. Dealer shall also promptly furnish to Seller a copy of any
adjusted annual financial or operating statement prepared by or for Dealer.
2. Sales Records and Reports.
Dealer shall prepare and retain for a minimum of two (2) years, complete and
up-to-date records covering its sales of Nissan Products. To assist Seller in
evaluating, among other things, current market trends, to provide information
for use in the adjustment of production and distribution schedules, to provide
information used by Seller in providing Nissan Vehicles to Dealer, and to
provide Seller with accurate records of the ownership of Nissan Vehicles for
various purposes including warranty records and ownership notification, Dealer
shall accurately submit to Seller such information with respect to Dealer's
sales of Nissan Products as Seller may reasonably require as and in the form or
manner specified by Seller, at or as soon as possible after the close of each
business day on which such Nissan Products are sold by Dealer. If Dealer becomes
aware that any information submitted by Dealer to Seller hereunder is or has
become inaccurate, Dealer will immediately take all steps necessary to advise
Seller of and to correct such inaccuracy. Should Seller determine or discover
that any report submitted hereunder by Dealer is or has become inaccurate,
Seller may take any steps it deems necessary or appropriate to correct such
inaccuracy and to adjust its records, calculations or procedures with respect to
Dealer's reported sales to correct the effect of such inaccuracy or to prevent
additional inaccurate reports from being made.
3. Service Records.
Dealer shall prepare and retain for a minimum of
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two (2) years, in accordance with the procedures specified in the Warranty
Manual; records in support of applications for payment for pre-delivery
inspection and service, warranty repairs and goodwill adjustments, and campaign
inspections and corrections performed by Dealer; claims for parts compensation;
and applications for discounts, allowances, refunds or credits.
4. Other Reports.
Dealer shall furnish to Seller such other records or reports concerning its
Dealership Operations as Seller may reasonably require from time to time.
H. Nissan Datanet System.
Seller has developed the Nissan Datanet system, which is an electronic data
communication and processing system designed to facilitate accurate and prompt
reporting of dealership operational and financial data, submission of parts
orders and warranty claims and processing of information with respect to the
Dealership Operations. Such data is used by Seller, among other things, to
develop composite operating statistics which are useful to Dealer and Seller is
assessing Dealer's progress in meeting its obligations under this Agreement, to
provide a basis for recommendations which Seller may make to Dealer from time to
time to assist Dealer in improving Dealership Operations, to assist Seller in
developing standards of operating performance which will assist Dealer in
obtaining satisfactory results from its Dealership Operations, to assist Seller
in formulating policies in the interest of Seller and all Authorized Nissan
Dealers, and to provide sales reporting information relied upon by Seller in
providing Nissan Vehicles to Dealer. Accordingly, Dealer shall install and
maintain electronic data processing facilities which are compatible with the
Nissan Datanet system.
I. Right of Inspection.
Seller shall have the right, at all reasonable times during regular business
hours, to inspect the Dealership Facilities and to examine, audit and make and
take copies of all records, accounts and supporting data relating to the sale,
sales reporting, service and repair of Nissan Products by Dealer. When
practicable, Seller shall attempt to provide Dealer with advance notice of an
in-dealership audit of Dealer's records or accounts.
J. Confidentiality.
Seller will not furnish to any third party financial statements or other
confidential data, excluding sales records or reports, submitted by Dealer to
Seller, except as an unidentified part of a composite or coded report, unless
disclosure is authorized by Dealer or is required by law, or unless such
information is pertinent to judicial or governmental administrative proceedings
or to proceedings conducted pursuant to Section 16 of this Agreement.
K. Use of Nissan Marks.
Seller grants Dealer the non-exclusive right to identify itself as an Authorized
Nissan Dealer and to display at the Dealership Location and use, in connection
with the sale and service of Nissan Products, the Nissan Marks. The Nissan Marks
may not be used as part of Dealer's name or trade name without Seller's written
consent. No entity owned by or affiliated with Dealer or any of its owners may
use any Nissan Mark without Seller's prior written consent. Dealer shall not
make any use of any Nissan Mark which is inconsistent with Seller's policies
concerning trademark use. Dealer may not, either directly or indirectly, display
any Nissan Marks at any location or facility other than those identified in the
Dealership Facilities Addendum to this Agreement, without the prior written
consent of Seller. Except as authorized herein, Dealer shall not make use of any
Nissan Mark, and Dealer shall neither have nor claim any rights in respect of
any Nissan Mark. Dealer shall comply with any of Seller's Manuals or
Instructions regarding the use of Nissan Marks as may be issued
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to Dealer from time to time. Dealer shall promptly change or discontinue its use
of any Nissan Marks upon Seller's request. Any authorization granted may be
withdrawn by Seller at any time and, in any event, shall cease immediately upon
the effective date of termination of this Agreement.
If Seller institutes litigation to effect or enforce compliance with this
Section 6.K, the prevailing party in such litigation shall be entitled to
reimbursement for its costs and expenses in such litigation, including
reasonable attorney's fees.
Section 7. Purchase and Delivery
A. Dealer Purchases.
1. Nissan Vehicles.
From time to time Seller will advise Dealer of the number and model lines of
Nissan Vehicles which Seller has available for sale to Dealer and, subject to
this Section 7, Dealer shall have the right to purchase such Nissan Vehicles.
Seller will distribute Nissan Vehicles to Authorized Nissan Dealers in
accordance with Seller's written distribution policies and procedures as the
same may be in effect from time to time. Seller will provide to Dealer an
explanation of the method used by Seller to distribute Nissan Vehicles to
Authorized Nissan Dealers. Dealer recognizes that there are numerous factors
which affect the availability of Nissan Vehicles to Seller and to Dealer
including, without limitation, production capacity, sales potential in Dealer's
and other Primary Market Areas, varying consumer demand, weather and
transportation conditions, and state and federal government requirements. Since
such factors may affect individual dealers differently, Seller reserves to
itself sole discretion to distribute Nissan Vehicles in a fair and consistent
manner, and its decisions in such matters shall be final.
2. Genuine Nissan Parts and Accessories.
Dealer shall submit to Seller firm orders for Genuine Nissan Parts and
Accessories in such quality and variety as are reasonably necessary to fulfill
Dealer's obligations under this Agreement. All orders shall be submitted by
Dealer in the manner specified by Seller and in accordance with Seller's Parts
and Accessories Policy and Procedures Manual, may be accepted in whole or in
part by Seller, and shall be effective only upon acceptance thereof by Seller at
its home office in California (but without necessity of any notice of acceptance
by Seller to Dealer). Such orders shall not be cancelable by Dealer after
acceptance and shipment by Seller, except in accordance with Section 8 of this
Agreement.
B. Delays in Delivery.
Seller shall not be liable for failure or delay in delivery to Dealer of Nissan
Products which Seller has previously agreed to deliver to Dealer where such
failure or delay is due to cause or causes beyond the control or without the
fault or negligence of Seller.
C. Shipment of Nissan Products.
1. Nissan Vehicles.
Seller will ship Nissan Vehicles to Dealer by whatever mode of transportation,
by whatever route, and from whatever point Seller may select. Dealer shall pay
to Seller in connection with Nissan Vehicles delivered to Dealer the applicable
destination charges that are established for Dealer by Seller and that are in
effect at the time of shipment. Dealer shall bear the risk of loss and damage to
Nissan Vehicles during transportation from the point of shipment; however,
Seller will, if requested by Dealer in such manner and within such time as
Seller shall from time to time specify, prosecute claims for loss of or damage
to Nissan Vehicles during said transportation against the responsible carrier
for and on behalf of Dealer.
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2. Genuine Nissan Parts and Accessories.
Seller will ship Genuine Nissan Parts and Accessories to Dealer by whatever mode
of transportation, by whatever route, and from whatever point Seller may select.
Dealer shall bear the risk of loss and damage to Genuine Nissan Parts and
Accessories during transportation from the point of shipment.
D. Passage of Title.
Title to each Nissan product shall pass from Seller to Dealer, or to the
financial institution designated by Dealer, upon delivery of said Product to
Dealer or to a carrier for transportation to Dealer, whichever occurs first.
E. Security Interest.
1. Grant of Security Interest
As security for the full payment of all sums from time to time owed by Dealer to
Seller under this Agreement, whether such sums are now, or hereafter become, due
and owing, Dealer hereby grants to Seller a security interest in the following
(collectively referred to as "Collateral"):
(i) All non-vehicle inventory of Dealer including, without limitation,
all Genuine Nissan Parts and Accessories delivered by Seller to Dealer hereunder
on account (all such inventory hereinafter referred to collectively as
"Inventory" and individually as "Item of Inventory"); and
(ii) All proceeds from any of the foregoing including, without
limitation, insurance payable by reason of the loss, damage or destruction of
any Item of Inventory; and all accounts and chattel paper of Dealer arising from
sale, lease, or other disposition of Inventory now existing or hereafter
arising, and all liens, securities, guarantees, remedies and privileges
pertaining thereto, together with all rights and liens of Dealer relating
thereto.
2. Default in Payment.
Dealer shall be in default of this Section 7 if: (i) Dealer shall fail to pay
any amounts secured hereby when due or fail to perform any obligations under
this Section 7 in a timely manner; (ii) there shall occur any material adverse
change in the financial condition of Dealer; (iii) Dealer shall dissolve or
become insolvent or bankrupt; or (iv) Seller shall have determined in good faith
that the prospect of such payment or performance is impaired; and in any such
case Seller may declare all sums secured by this Section 7.E immediately due and
payable and Seller shall have all rights and remedies afforded to a secured
party after default under the Uniform Commercial Code or other applicable law in
effect on the date of this Agreement.
3. Assembly of Collateral, Payment of Costs, Notices.
Dealer shall, if requested by Seller upon the occurrence of any default under
the foregoing Section 7.E.2 assemble the Collateral and make it available to
Seller at a place or places designated by Seller. Dealer also shall pay all
costs of Seller including, without limitation, attorneys' fees incurred with
respect to the enforcement of any of Seller's rights under this Section 7.
4. Recording, Further Assurances.
Dealer shall execute and deliver such financing statements and such other
instruments or documents and take any other action as Seller may request in
order to create or maintain the security interest intended to be created by this
Section 7.E or to enable Seller to exercise and enforce its rights hereunder. A
carbon, photographic or other reproduction of this Agreement shall be sufficient
as a financing statement and may be filed in lieu of a financing statement in
any and all jurisdictions which accept such reproductions.
5. Records and Schedules of Inventory.
Dealer shall keep accurate records itemizing and describing the kind, type and
quantity of Inventory and shall furnish to Seller within five (5) days
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of receipt of Seller's request therefor, with a current schedule of inventory in
form and substance satisfactory to Seller ("Schedule of Inventory"), which shall
be true and accurate in all respects. A physical inventory shall be conducted no
less than annually in connection with preparation of year-end financial
statements of Dealer and, at Seller's request, a report of such inventory shall
be promptly provided to Seller.
F. Charges for Storage and Diversions.
Dealer shall be responsible for and shall pay all charges for demurrage, storage
and other expense accruing after shipment to Dealer or to a carrier for
transportation to Dealer. If diversions of shipments are made upon Dealer's
request or are made by Seller as a result of Dealer's failure or refusal to
accept shipments made pursuant to Dealer's orders, Dealer agrees to pay all
additional charges and expenses incident to such diversions.
G. Changes in Nissan Products.
Seller shall have the right in its sole discretion to discontinue the supply, or
make changes in the design or component materials, of any Nissan Product at any
time. Seller shall be under no liability to Dealer on account of any such
changes and shall not be required as a result of any such changes to make any
changes to Nissan Products previously purchased by Dealer. No change shall be
considered a model year change unless so specified by Seller.
Section 8. Pricing
A. Nissan Vehicles.
At any time prior to shipment (or delivery to a carrier for transportation to
Dealer) of any Nissan Vehicle, Seller may, without prior notice and without
incurring any liability to Dealer or anyone else, including any customer of
Dealer, change at any time and from time to time the price, discount, allowance
or other terms of sale of any Nissan Vehicle offered for sale by Seller. Except
with respect to the establishment of initial prices for a new model year vehicle
or for any new model or body type, Seller will notify Dealer by mailgram or
other acceptable means of any such change in price as soon as reasonably
practicable, and Dealer may, by notice to Seller within ten (10) days after such
notification, cancel any offer to purchase Nissan Vehicles affected by such
change, provided that Seller has not notified Dealer of its acceptance of
Dealer's offer on or prior to the date such notification by Dealer is received
by Seller.
B. Genuine Nissan Parts and Accessories.
Seller may, without prior notice and without incurring any liability to Dealer
or anyone else, including any customer of Dealer, change at any time and from
time to time the price, discount, allowance or other terms of sale of any
Genuine Nissan Part or Accessory offered for sale by Seller, and any such change
in price, discount, allowance or other terms of sale shall apply to all such
Genuine Nissan Parts and Accessories whether or not an order has been submitted
by Dealer, but not to Genuine Nissan Parts and Accessories for which Seller has
accepted and processed Dealer's order prior to the effective date of such
change. Seller will notify Dealer of any such change in price as soon as is
reasonably practicable. Dealer may, by notice to Seller, cancel any order for
Genuine Nissan Parts and Accessories affected by such change which was placed
before such notification was given, provided that such Genuine Nissan Parts and
Accessories have not been shipped to Dealer or delivered to a carrier for
transportation to Dealer on or prior to the date such notification by Dealer is
received by Seller.
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Section 9. Payment
A. Payment for Vehicles.
Payment by Dealer for Nissan Vehicles must be made in accordance with the
applicable prices, charges, discounts, allowances and other terms of sale
established by Seller either: (i) in accordance with wholesale financing
arrangements that at the time of delivery to Dealer or to a carrier for
transportation to Dealer of such Nissan Vehicles, whichever shall first occur,
are in effect between Seller, Dealer and a financing institution; or (ii) prior
to delivery to Dealer or to a carrier for transportation to Dealer, whichever
shall first occur, by cash or such other medium of payment as Seller may agree
to accept.
B. Payment for Parts and Accessories.
Parts, equipment, accessories and other products and services will normally be
billed by Seller to Dealer on Seller's invoices, which shall be due the tenth
(10th) of the month following the month of shipment of such products and
services; provided, however, Seller reserves the right to place any and all
sales of such items on a C.O.D. or cash in advance basis, without notice;
provided further, however, that Seller will endeavor to provide Dealer with
prior notice if in Seller's sole judgment such notice would be practicable.
C. Accounts Payable.
1. Right of Set Off.
In addition to any right of set off provided by law, all sums due Dealer shall
be considered net of indebtedness of dealer to Seller, and Seller may deduct any
amounts due or to become due from Dealer to Seller or any amounts held by Seller
from any sums or accounts due from Seller to Dealer.
2. Liquidated Damages.
(i) Liquidated Damages for Delinquent Payments.
In the event that Dealer fails to pay Seller in full any amounts owed by Dealer
to Seller when due, Dealer shall pay Seller a delinquency charge of one percent
(1%) per month of such amount or amounts to compensate Seller for its costs of
carrying and collection; provided, however, that Seller agrees that it will not
assess any delinquency charge on an overdue account which has a total
outstanding balance of less than $1,000.00, unless such account is more than
ninety (90) days overdue. Dealer and Seller agree that such charge is to be
assessed not as a penalty, but as liquidated damages under California Civil Code
section 1671(b) based on Seller's reasonable estimate of the losses which will
be suffered by Seller as a result of such delinquent payment or payments. The
imposition of such delinquency charges shall not imply or constitute any
agreement to forbear collection of a delinquent account.
(ii) Liquidated Damages for Improper Payments to Dealer.
Seller may, from time to time, conduct audits or review of Dealer's books and
records pursuant to Section 6.I of this Agreement. If any such audit or review
results in a determination by Seller that Dealer was or is not entitled to
received payment from Seller, Seller may debit Dealer's account in such amounts
as Seller shall determine were improperly paid to Dealer. Such a determination
may be based on Dealer's failure to comply with applicable rules or procedures
or on Dealer's submission of false or inaccurate information to Seller. In
addition, Seller may assess and, if it does, Dealer will pay a delinquency
charge of one percent (1%) per month of such amount or amounts improperly paid
by Seller to Dealer to compensate Seller for its costs of auditing, loss of
funds and collection. Dealer and Seller agree that such charge is to be assessed
not as a penalty, but as liquidated damages under California Civil Code section
1671(b) base on Seller's reasonable estimate of the losses
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which will be suffered by Seller as a result of such improper payment or
payments. The imposition of such delinquency charges shall not imply or
constitute any agreement to forbear collection of a delinquent account.
D. Collection of Taxes by Dealer.
Dealer hereby represents and warrants that all Nissan products purchased from
Seller are purchased for resale in the ordinary course of Dealer's business.
Dealer further represents and warrants that Dealer has obtained all licenses and
complied with all other requirements to collect sales, use and or other taxes
incurred in any such resale transaction, and that Dealer will furnish evidence
thereof to Seller, at Seller's request. If Dealer purchases any Nissan Products
other than for resale, or puts any Nissan Products to a taxable use, Dealer
shall pay directly to the appropriate taxing authority any sales, use or similar
taxes incurred as a result of such use or purchase, to file any tax returns
required in connection therewith and to hold Seller harmless from any claims or
demands with respect thereto.
Section 10. Warranties
The only warranties that shall be applicable to Nissan Products (or any
components thereof) shall be such written warranty or warranties as may be
furnished by Seller and as stated in the Warranty Manual or Seller's Parts and
Accessories Policy and Procedures Manual, as the same may be revised from time
to time. Except for its express limited liability under such written warranties,
neither Manufacturer nor Seller assumes, or authorizes any other person or party
including, without limitation, Dealer, to assume on their behalf any other
obligation or liability in connection with any Nissan Product (or component
thereof). Any obligations or liabilities assumed by Dealer which are in addition
to Seller's written warranties shall be solely the responsibility of Dealer.
Dealer shall expressly incorporate in full and without modification any warranty
furnished by Seller with a Nissan Vehicle as a conspicuous part of each order
form or other contract for the sale of such Nissan Vehicle by Dealer to any
buyer. Dealer shall make available to the buyer of each Nissan Product prior to
the purchase of such Nissan Product, copies of such applicable warranties as may
be furnished by Seller. Dealer shall also provide to the buyer of each Nissan
Product, in full and without modification, any owner's manual, warranty booklet
or other owner information which Seller may provide to Dealer for delivery with
such Nissan Product. Dealer agrees to abide by and implement in all other
respects Seller's warranty procedures then in effect.
Section 11. Indemnification
A. Indemnification of Dealer.
Subject to Section 11l.C, and upon Dealer's written request, Seller shall:
1. Defend Dealer against any and all claims that during the term of this
Agreement may arise, commence or be asserted against Dealer in any action
concerning or alleging:
(a) Bodily injury or property damage arising out of an occurrence caused
solely by a manufacturing defect or alleged manufacturing defect in a Nissan
Product supplied by Seller, except for any manufacturing defect in tires,
provided that the defect could not have reasonably been discovered by Dealer
during the pre-delivery inspection of the product required by Section 5.B.1 of
this Agreement;
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(b) Bodily injury or property damage arising out of an occurrence caused
solely by a defect or alleged defect in the design of a Nissan Product supplied
by Seller, except for a defect or alleged defect in the design of tires; and
(c) Any substantial damage occurring to a new Nissan Product and repaired
by Seller from the time the product left the manufacturer's assembly plant to
the time it was delivered to Dealer's designated location or to a carrier for
transportation to Dealer, whichever occurred first, provided Seller failed to
notify Dealer of such damage and repair prior to delivery of the product to the
first retail customer; and
(d) Breach of Seller's warranty of a Nissan Product which is not, in whole
or part, the result of Dealer's sales, service or repair practices or conduct;
and
2. Indemnify and hold Dealer harmless from any and all settlements made
which are approved by Seller and final judgments rendered with respect to any
claims described in Section 11.A.1; provided, however, that Seller shall have no
obligation to indemnify or hold Dealer harmless unless Dealer: (i) promptly
notifies Seller of the assertion of such claim and the commencement of such
action against Dealer; (ii) cooperates fully in the defense of such action in
such manner and to such extent as Seller may reasonably require; (iii) consents
to the employment of attorneys selected by Seller and agrees to waive any
conflict of interest then existent or which may later arise, thereby enabling
Seller's selected attorneys to represent Seller and/or the manufacturer of a
Nissan product throughout the defense of the claim; and (iv) withdraws any
actions (including cross-claims) filed against Seller or the manufacturer of a
Nissan Product arising out of the circumstances for which Dealer seeks
indemnity. Dealer shall pay all costs of its own defense incurred prior to
Seller's assumption of Dealer's defense and thereafter to the extent that Dealer
employs attorneys in addition to those selected by Seller.
3. Seller may offset any recovery on Dealer's behalf against any
indemnification that may be required under this Section 11 including, without
limitation, attorneys' fees paid by Seller pursuant to this Section 11.A and the
amount of any settlement or judgment paid by Seller.
B. Indemnification of Seller.
Subject to Section 11.C and upon Seller's written request, Dealer shall:
1. Defend Seller against any and all claims that during the term of this
Agreement may arise, commence or be asserted against Seller in any action
concerning or alleging:
(a) Dealer's failure to comply, in whole or in part, with any obligation of
Dealer under this Agreement;
(b) Any negligence, error, omission or act of Dealer in connection with the
preparation, repair or service (including warranty service, goodwill
adjustments, and campaign inspections and corrections) by Dealer of Nissan
Products;
(c) Any modification or alteration made by or on behalf of Dealer to a
Nissan Product, except those made pursuant to the express written instruction or
with the express written approval of Seller;
(d) Dealer's breach of any agreement between Dealer and Dealer's customer
or other third party;
(e) Misleading, libelous or tortious statements, misrepresentations or
deceptive or unfair practices by Dealer, directly or indirectly, to Seller, a
customer or other third party including, without limitation, Dealer's failure to
comply with Section 6.B of this Agreement;
(f) Dealer's breach of any contract or warranty other than a contract with
or warranty of Seller or the manufacturer of a Nissan Product; or
(g) Any change in the employment status or in the terms of employment of
any officer, employee or agent of Dealer or of any Principal
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Owner, Other Owner or Executive Manager including but not limited to, claims for
breach of employment contract, wrongful termination or discharge, tortious
interference with contract or economic advantage, and similar claims; and
2. Indemnify and hold Seller harmless from any and all settlements made and
final judgments rendered with respect to any claims described in Section 11.B.1;
provided, however, that Dealer shall have no obligation to indemnify or hold
Seller harmless unless Seller: (i) promptly notifies Dealer of the assertion of
such claim and the commencement of such action against Seller; (ii) cooperates
fully in the defense of such action in such manner and to such extent as Dealer
may reasonably require; (iii) consents to the employment of attorneys selected
by Dealer and agrees to waive any conflict of interest then existent or which
may later arise, thereby enabling Dealer's selected attorneys to represent
Dealer throughout the defense of the claim; and (iv) withdraws any actions
(including cross-claims) filed against Dealer arising out of the circumstances
for which Seller seeks indemnity. Seller shall pay all costs of its own defense
incurred prior to Dealer's assumption of Seller's defense and thereafter to the
extent that Seller employs attorneys in addition to those selected by Dealer.
C. conditions and Exceptions to Indemnification.
1. If the allegations asserted in any action or if any facts established
during or with respect to any action would require Seller to defend and
indemnify Dealer under Section 11.A and Dealer to defend and indemnify Seller
under Section 11.B, Seller and Dealer shall each be responsible for its own
defense in such an action and there shall be no obligation or responsibility in
connection with any defense, judgment, settlement or expenses of such action as
between Seller and Dealer.
2. In undertaking its obligations to defend and/or indemnify each other,
Dealer and Seller may make their defense and/or indemnification conditional on
the continued existence of the state of facts as then known to such party and
may provide for the withdrawal of such defense and/or indemnification at such
time as facts arise which, if known at the time of the original request for a
defense and/or indemnification, would have caused either Dealer or Seller to
refuse such request. In the event that subsequent developments in a case make
clear that the allegations which initially justified acceptance of a request for
a defense and/or indemnification are no longer at issue therein or that the
claims no longer meet the description of those for which indemnification is
required hereunder, any party providing a defense and/or indemnification
hereunder may terminate such defense and/or indemnification of the other party.
The party withdrawing from its defense and/or indemnification to defend and/or
indemnify shall give notice of its withdrawal t the indemnifying party.
Moreover, the withdrawing party shall be responsible for all costs and expenses
of defense up to the date of the other party's receipt of the notice of
withdrawal.
Section 12. Termination
A. Termination Due to Certain Acts or Events.
The following represent events which are within the control of or originate from
actions taken by Dealer or its management or owners and which are so contrary to
the intent and purpose of this Agreement that they warrant its termination:
1. Any actual or attempted sale, transfer, assignment or delegation,
whether by operation of law or otherwise, by Dealer of an interest in or right,
privilege or obligation under this Agreement, or of the principal assets
necessary for the performance of Dealer's responsibilities under this Agreement,
without, in either case, the prior
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written consent of Seller having been obtained, which consent shall not be
unreasonably withheld;
2. Subject to the provisions of Section 14 hereof, a change, by operation
of all or otherwise, in the direct or indirect ownership of Dealer, whether
voluntary or involuntary, from that set forth in the Final Article of this
Agreement, except as expressly permitted herein, without the prior written
consent of Seller having been obtained, which consent shall not be unreasonably
withheld;
3. Removal, resignation, withdrawal or elimination from Dealer for any
reason of the Executive Manage for Dealer; provided, however, Seller shall given
Dealer a reasonable period of time within which to replace such person with an
Executive Manager satisfactory to Dealer and Seller in accordance with Article
Fourth of this Agreement; or the failure of Dealer to retain an Executive
Manager who, in accordance with Article Fourth of this Agreement, in Seller's
reasonable opinion, is competent, possesses the requisite qualifications for the
position, and who will act in a manner consistent with the continue best
interests of both Seller and Dealer;
4. The failure of Dealer to maintain the Dealership Facilities open for
business or to conduct all the Dealership Operations required by this Agreement
during and for not less than the hours customary and lawful in Dealer's Primary
Market Area or in the metropolitan area in which Dealer is located for seven (7)
consecutive days, unless such failure is caused by fire, flood, earthquake or
other act of god;
5. Any undertaking by Dealer to conduct, directly or indirectly, any of the
Dealership Operations at a location or facility other than that which is
specified in the current Dealership Facilities Addendum for that Dealership
Operations;
6. The failure of Dealer to establish or maintain wholesale financing
arrangements which are in accordance with Seller's Guides and which are
reasonably acceptable to Seller with banks or other financial institutions
approved by Seller for use in connection with Dealer's purchase of Nissan
Vehicles, unless Seller shall have agreed to accept another medium of payment;
7. Insolvency of Dealer; voluntary institution by Dealer of any proceeding
under the federal bankruptcy laws or under any state insolvency law; institution
against Dealer of any proceeding under the federal bankruptcy laws or under any
state insolvency law which is not vacated within thirty (30) days from the
institution thereof; appointment of a receiver, trustee or other officer having
similar powers for Dealer or Dealer's business, provided such appointment is not
vacated within thirty (30) days of the date of such appointment; execution by
Dealer of an assignment for the benefit of creditors; or any levy under
attachment, foreclosure, execution or similar process whereby a third party
acquire rights to a significant portion of the assets of Dealer necessary for
the performance of Dealer's responsibilities under this Agreement or to the
operation or ownership of Dealer, which is not within thirty (30) days from the
date of such levy vacated or removed by payment or bonding;
8. Any material misrepresentation by Dealer or any person named in the
Final Article of this Agreement as to any fact relied on by Seller in entering
into, amending or continuing with this Agreement including, without limitation,
any representation concerning the ownership, management or capitalization of
Dealer;
9. The conviction in a court of original jurisdiction of Dealer or of any
Principal Owner or Executive Manager of a crime affecting the Dealership
Operations or of any felony; provided,
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however, that a convicted Executive Manager's ownership interest in Dealer shall
not be an event warranting termination of this Agreement if the individual is no
longer employed by Dealer or involved in any way in the management or operation
of Dealer and Dealer has made reasonable efforts to obtain the individual's
divestitute of his ownership interest in Dealer; or any willful failure of
Dealer to comply with the provision of any laws, ordinances, rules, regulations,
or orders relating to the conduct of its Dealership Operations including,
without limitation, the sale and servicing of Nissan Products.
10. Knowing submission by Dealer to Seller of: (i) a false or fraudulent
report or statement; (ii) a false or fraudulent claim (or statement in support
thereof), for payment, reimbursement or for any discount, allowance, refund,
rebate, credit or other incentive under any plan that may be offered by Seller,
whether or not Dealer offers or makes restitution; (iii) false financial
information; (iv) false sales reporting data; or (v) any false report or
statement relating to pre-delivery inspection, testing, warranties, service,
repair or maintenance required to be performed by Dealer.
Upon the occurrence of any of the foregoing events, Seller may terminate
this Agreement by giving Dealer notice thereof, such termination to be effective
upon the date specified in such notice, or such later date as may be required by
any applicable statute.
B. Termination by Seller for Non-Performance by Dealer.
1. If, based upon the evaluations thereof made by Seller, Dealer shall fail
to substantially fulfill its responsibilities with respect to:
a. Sales of new Nissan Vehicles and the other responsibilities of Dealer
set forth in Section 3 of this Agreement;
b. Maintenance of the Dealership Facilities and the Dealership Location set
forth in Section 2 of this Agreement;
c. Service of Nissan Vehicles and sale and service of Genuine Nissan Parts
and Accessories and the other responsibilities of Dealer set forth in Section 5
of this Agreement;
d. The other responsibilities assumed by Dealer in this Agreement
including, without limitation, Dealer's failure to:
(i) Timely submit accurate sales, service and financial information
concerning its Dealership Operations, ownership or management and related
supporting data, as required under this Agreement or as may be reasonably
requested by Seller;
(ii) Permit Seller to make an examination or audit of Dealer's accounts and
records concerning its Dealership Operations after receipt of notice from Seller
requesting such permission or information;
(iii) Pay Seller for any Nissan Products or any other products or services
purchased by Dealer from Seller, in accordance with the terms and conditions of
sale; or
(iv) Maintain net worth and working capital substantially in accordance
with Seller's Guides therefor; or
2. In the event that any of the following occur:
(i) any dispute, disagreement or controversy between or among Dealer and
any third party or between or among the owners or management personnel of Dealer
relating to the management or ownership of Dealer develops or exists which, in
the reasonable opinion of Seller, tends to adversely affect the conduct of the
Dealership Operations or the interests of Dealer or Seller; or
(ii) any other act or activity of Dealer, or any of its owners or
management occurs, which substantially impairs the reputation or financial
standing of Dealer or of any of its management subsequent to the execution of
this Agreement:
Seller will notify Dealer of such failure and will
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review with Dealer the nature and extent of such failure and the reasons which,
in Seller's or Dealer's opinion, account for such failure.
Thereafter, Seller will provide Dealer with a reasonable opportunity to
correct the failure. If Dealer fails to make substantial progress towards
remedying such failure before the expiration of such period, Seller may
terminate this Agreement by giving Dealer notice of termination, such
termination to be effective at least ninety (90) days after such notice is
given.
During such period Dealer will commence such actions as may be necessary so
that the termination obligations of Seller and Dealer set forth in this
Agreement may be fulfilled as promptly as practicable.
C. Termination Because of Death or Physical or Mental Incapacity of
Principal Owner.
This Agreement is a personal services agreement and has been entered into by
Seller in reliance on Dealer's being owned by the Principal Owner(s). Seller
(subject to Section 14 hereof) may terminate this agreement by giving notice to
Dealer upon the death of any of the Principal Owner(s) or if Seller in good
faith determines that any Principal Owner is so physically or mentally
incapacitated as to be unable to discharge his or her responsibility to the
operating management of Dealer. Unless deferred as hereinafter provided, the
effective date of such termination shall be not less than ninety (90) days from
the date such notice is given to Dealer.
To facilitate the orderly termination of the business relationship between
Seller and Dealer and of the Dealership Operations, Seller may, in its sole
discretion, defer the effective date of such termination and continue to operate
with Dealer under the terms of this Agreement for a period of time, to be
determined by Seller, of up to one (1) year from the date such notice of
termination is given if within sixty (60) days from the date of said notice, the
executor or representative of the deceased or incapacitated Principal Owner or a
surviving Principal Owner shall given to Seller written request for such
deferment. This Agreement shall automatically terminate without further notice
or action by Seller upon the expiration of any such deferment.
D. Termination for Failure of Seller or Dealer to be Licensed.
If Seller or Dealer shall fail to secure or maintain any license, permit or
authorization required by either of them for their performance of any obligation
under or in connection with this Agreement, or if such license, permit or
authorization is suspended or revoked, irrespective of the cause, and such
suspension or evocation continues for a period of seven (7) days, either party
may immediately terminate this Agreement by giving notice to the other party.
E. Termination by Dealer.
Dealer has the right to terminate this Agreement at any time by giving notice to
Seller, such termination to be effective thirty (30) days after the giving of
such notice (unless the thirty (30) days notice period is waived in writing by
Seller) or on such other date as may be mutually agreed to in writing by Seller
and Dealer.
F. Termination by Seller because of a Change of Seller's Method of
Distribution or Decision by Seller to Cease Distribution of Nissan Vehicles.
If Seller should elect or be required to discontinue its present method of
distributing Nissan Vehicles, or if Seller should elect or be required to cease
selling or distributing Nissan Vehicles, Seller may terminate this Agreement by
giving Dealer notice and such termination will be effective not less than one
(1) year after such notice is given.
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G. Termination Upon Entering In a New Sales and Service Agreement
Seller may terminate this Agreement at any time by giving Dealer at least
ninety (90) days prior notice thereof and offering to enter into a new or
amended form of Agreement with Dealer in a form being offered generally to
authorized Nissan Dealers.
Unless otherwise agreed in writing, the rights and obligations of Dealer
that may otherwise become applicable upon termination or expiration of the term
of this Agreement shall not be applicable if Seller and Dealer enter into a new
or superseding Dealer Sales and Service Agreement, and the rights and
obligations of the parties hereunder shall continue under the terms and
provisions of the new agreement.
Dealer's performance under any prior agreement may be considered by Seller
in evaluating Dealer's performance under this, or any succeeding, agreement.
Section 13. Rights and Liabilities Upon Termination
A. Termination Procedures.
1. Upon termination of this Agreement by either Seller or Dealer for any
reason, Dealer shall cease to be an Authorized Nissan Dealer, and Dealer shall:
(i) immediately discontinue the distribution and sale of Nissan Products as an
Authorized Nissan Dealer; and (ii) at its own expense (a) erase or obliterate
all Nissan Marks and any word or words indicating that Dealer is an Authorized
Nissan Dealer from the stationery, forms and other papers used by Dealer or any
business associated or affiliated with Dealer; (b) discontinue all advertising
of Dealer as an Authorized Nissan Dealer; (c) take all steps necessary to remove
any listing in any telephone directory yellow pages advertisement indicating
that Dealer is an Authorized Nissan Dealer; (d) discontinue any use of any
Nissan Mark in Dealer's firm or trade name and take all step necessary or
appropriate in the opinion of Seller to change such firm or trade name to
eliminate any Nissan Mark therefrom; (e) discontinue or cause to be discontinued
all other use of the Nissan Marks; (f) refrain from doing anything, whether or
not specified above, that would indicate that Dealer is or was an Authorized
Nissan Dealer; and (g) refrain from using, either directly or indirectly, any
Nissan marks or any other confusingly similar marks, names, logos or designs in
a manner likely to cause confusion or mistake or to deceive the public. If
Dealer fails to comply with any requirements of this Section 13.A.1, Dealer
shall reimburse Seller for all costs and expenses, including reasonable
attorney's fees, incurred by Seller in effecting or enforcing compliance;
2. Termination of this Agreement will not release Dealer or Seller from the
obligation to pay any amounts owing the other;
3. Subject to Section 13.E, Seller shall process all claims and make all
payments due for all labor provided and all parts and/or other materials used by
Dealer pursuant to Sections 5.B.2 and 5.B.3 prior to the effective date of
termination as provided in the Warranty Manual. Dealer shall cease, as of the
effective date of termination, to be eligible to receive reimbursement for any
work thereafter performed or parts thereafter supplied under any warranty,
campaign inspections or corrections and any other adjustment previously
authorized by Seller.
4. Dealer shall, upon Seller's request, deliver to Seller or its designee
copies of Dealer's records with respect to pre-delivery, warranty, goodwill
campaign and other service work of Dealer.
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B. Repurchases by Seller Upon Termination
Upon termination other than pursuant to a sale or transfer, Seller shall buy
from Dealer and Dealer shall sell to Seller, within ninety (90) days after the
effective date of termination:
1. All new, unused, undamaged, unlicensed, then current and immediate
previous model year Nissan Vehicles which were purchased by Dealer from Seller
and are then the unencumbered property of and in the possession of Dealer or
Dealer's flooring and/or financing institution. The price for such vehicles
shall be the invoice price previously paid by Dealer therefor, less Seller's
destination charges, all allowances paid or applicable allowances offered
thereon by Seller, any amount paid by Seller to Dealer for pre-delivery
inspection and service with respect to such vehicles pursuant to Section 5.B,
any dealer association collection, and any other charge for taxes or special
items or service. Seller shall also repurchase Genuine Nissan Accessories which
have been installed in such Nissan Vehicles which accessories are listed in the
current parts and accessories price list (except those items marked "not
eligible") at the prices set forth on Seller's then current parts and
accessories price list.
2. Subject to Section 13.C, all new, unused, undamaged and resalable
Genuine Nissan Parts and Accessories which are still in the original and
undamaged packages, were purchased from Seller, are listed int he current parts
and accessories price list (except those items marked "not eligible"), and are
then the unencumbered property of and in the possession of Dealer. The prices
for such Genuine Nissan Parts and Accessories shall be the prices set forth on
Seller's then current parts and accessories price list.
3. Subject to Section 13.C, all special tools and equipment owned by Dealer
and which are unencumbered and in the possession of Dealer on the effective date
of termination which were designed especially for servicing Nissan Vehicles, are
of the type recommended din writing by Seller and designated as "essential"
tools in accordance with Seller's Guides or other notices pertaining thereto
from Seller, are in usable and good condition, except for reasonable wear and
tear, and were purchased by Dealer from Seller within the three (3) year period
preceding the date of termination. Seller's purchase price for such essential
tools shall be calculated at Dealer's purchase price reduced by straight-line
depreciation on the basis of a useful life of thirty-six (36) months.
Dealer's and Seller's obligations with respect to the signs located at the
Dealership Facilities shall be determined in accordance with the dealership
Identification Addendum between Seller and Dealer.
C. Dealer's Responsibilities with Respect to repurchase.
Seller's obligation to repurchase Genuine Nissan Vehicles, Genuine Nissan
Parts and Accessories, and essential tools from Dealer is conditioned on
Dealer's fulfilling its responsibilities under this Section 13.C as follows:
1. Immediately following the effective date of termination of this
Agreement, Dealer shall furnish to Seller a list of vehicle identification
numbers and such other information and documents as Seller may require
pertaining to the Nissan Vehicles subject to the repurchase obligations of
Section 13.B.1 Dealer shall deliver all such vehicles in accordance with
Seller's instructions.
2. Within thirty (30 ) days after the effective date of termination of this
Agreement, Dealer shall deliver or mail to Seller a detailed inventory of all of
the items referred to in Sections 13.B.2 and 13.B.3 Within thirty (30) days of
its receipt of such inventory, Seller shall provide Dealer with instructions as
to the procedures to be followed in returning such items to Seller. Dealer
shall, at its
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expense, tag, pack and deliver all such items to Seller at Seller's designated
parts distribution centre in accordance with such instructions.
Should Dealer fail to comply with the responsibilities listed above, Seller
shall have no obligation to repurchase any such items from Dealer; provided,
however, that Seller shall have the right, but no obligation, to enter into the
Dealership Facilities for the purpose of compiling an inventory, tagging,
packing and shipping such items to Seller's designated parts distribution
center. If Seller undertakes any such responsibilities of Dealer, the repurchase
prices of such items shall be fifteen percent (15%) less than the repurchase
prices otherwise applicable under Section 13.B.
D. Title to Repurchased Property.
With respect to any items of property repurchased by Seller pursuant to this
Section 13, Dealer shall take such action and shall execute and deliver such
instruments as may be necessary: (i) to convey good and marketable title to all
such items of property; (ii) to comply with the requirements of any applicable
law relating to bulk sales and transfers; and (iii) to satisfy and discharge any
liens or encumbrances on such items of property prior to delivery thereof to
Seller.
E. Payment.
Seller shall make all payments to Dealer pursuant to this Section 13 within
ninety (90) days after Seller's receipt of all items to be repurchased by it and
provided Dealer has fulfilled all of its obligations under this Section 13;
provided, however, that Seller shall be entitled to offset against such payments
any and all indebtedness or other obligations of Dealer to Seller. Seller may
make any payment for any property repurchased pursuant to this Section 13
directly to anyone having a security or ownership interest therein.
F. Cancellation of Deliveries.
Upon termination of this Agreement Seller shall have the right to cancel all
shipments of Nissan products schedule for delivery to Dealer. After the
effective date of termination, if Seller shall voluntarily ship any Nissan
Products to Dealer, or otherwise transact business with Dealer, all such
transactions will be governed by the same terms provided in this Agreement,
insofar as those terms would have been applicable had the Agreement not been
terminated. Nevertheless, neither the shipping of such Nissan Products nor any
other acts by Seller shall be construed as a waiver of the termination or a
renewal or extension of this Agreement.
Section 14. Establishment of Successor Dealer
A. Because of Death of Principal Owner.
If Seller shall terminate this Agreement pursuant to Section 12.C because of the
death of a Principal Owner, the following provisions shall apply:
1. Subject to the other provisions of this Section 14, Seller shall offer a
two (2) year Term Sales and Service Agreement to a successor dealership
("Successor Dealership") comprised of the person nominated by such deceased
Principal Owner as his or her successor, together with the other Principal
Owner(s) and Other Owner(s), provided that:
(a) The nomination was submitted to Seller on a Successor Addendum, was
consented to by the remaining Principal Owner(s) and Other Owner(s), and was
approved by Seller prior to the death of such Principal Owner:
(b) either (i) there has been no change in the Executive Manager of Seller;
or (ii) Seller has approved a candidate for Executive Manager having the
required qualifications, expertise, integrity, experience and ability to
successfully operate the dealership and perform Dealer's obligations under this
Agreement; and
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(c) The Successor Dealership has capital and facilities substantially in
accordance with Seller's Guides therefor at the time the Term Sales and Service
Agreement is offered.
2. If the deceased Principal Owner has not nominated a successor in
accordance with Section 14.A.1(a) above, but all of the beneficial interest of
the deceased Principal Owner has passed by will or the laws of intestate
succession directly to the deceased Principal Owner's spouse and/or children or
to one (1) or more other Principal Owners who each held not less than a
twenty-five percent (25%) beneficial ownership interest in the dealership prior
to the death of the deceased Principal Owner (collectively "proposed New
Owners"), subject to the other provisions of this Section 14, Seller shall offer
a two (2) year Term Sales and Service Agreement to a Successor Dealership
composed of the Proposed New Owner(s), together with the other Principal
Owner(s) and Other Owner(s), provided that:
(a) Either (i) there has been no change in the Executive Manager of Dealer;
or (ii) Seller has approved a candidate for Executive Manager having the
required qualifications, expertise, integrity, experience and ability to
successfully operate the dealership and perform Dealer's obligations under this
Agreement; and
(b) The Successor Dealership has capital and facilities substantially in
accordance with Seller's Guides therefor at the time the Term Sales and Service
Agreement is offered.
(B) Consideration of Successor Addendum. To be named in the Successor
Addendum, a proposed Principal Owner or Executive Manager must (i) be employed
by Dealer or a comparable automotive dealership as his principal place of
employment; (ii) be already qualified as a Principal Owner or Executive Manager,
as the case may be; and (iii) otherwise be acceptable to Seller as provided
below.
Upon receipt of a request from Dealer that one or more individuals be named
in a Successor Addendum, Seller shall request those named to submit an
application and to provide all personal and financial information that Seller
may reasonably and customarily require in connection with the review of such
applications. Seller, upon the submission of all requested information, will
determine whether to consent to a Successor Addendum naming such individuals by
applying its criteria for considering the qualifications of Principal Owners or
Executive Managers, as the case may be.
C. Termination of Successor Addendum.
Dealer may, at any time, withdraw a nomination of a Successor even if Seller
previously has qualified the candidate, or cancel an executed Successor Addendum
by giving notice to Seller of such withdrawal at any time prior to the death or
incapacity of any Principal Owner named in this Agreement. Seller may cancel an
executed Successor Addendum only if the proposed Principal Owner or Executive
Manager no longer complies with the requirements of this Section 14.
D. Evaluation of Successor Dealership.
During the term of the Term Sales and Service Agreement, Seller will evaluate
the performance of the Successor Dealership and periodically review with he new
Dealer this evaluation. If the Successor Dealership's performance is deemed to
be satisfactory to Seller during the Term Sales and Service Agreement, Seller
will give first consideration to such Successor Dealership with respect to a new
Sales and Service Agreement.
E. Termination of Market Representation.
Notwithstanding anything stated or implied to the contrary in this Section 14,
Seller shall not be obligated to offer a Term Sales and Service and Agree-
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ment to any Successor Dealership if Seller notified Dealer prior to the event
causing the termination of this Agreement that Seller's market representation
plans do not provide for continuation of representation in Dealer's Primary
Market Area.
F. Termination of Offer.
If the person or persons comprising a proposed Successor Dealership to which any
offer of a Term Sales and Service Agreement for Nissan Products shall have been
made pursuant to this Section 14 do not accept same within thirty (30) days
after notification to them of such offer, such offer shall automatically expire.
Section 15. Sale of Assets or Ownership Interests in Dealer.
A. Sale or Transfer.
Article Third of this Agreement provides that neither this Agreement nor any
right or interest herein may be assigned without the prior written consent of
Seller. However, during the term of this Agreement, Dealer may negotiate for the
sale of the assets of Dealer, or the owners of Dealer may negotiate the sale of
their ownership interests in Dealer, upon such terms as may be agreed upon by
them and the prospective purchaser. With respect to any sale or transfer which
requires Seller's prior written consent under Article Third of this Agreement,
Dealer shall notify Seller prior to any closing of the transaction called for by
the purchase and sale agreement, and the prospective purchaser shall apply to
Seller for a Sales and Service Agreement.
B. Seller's Evaluation.
Seller is responsible for establishing and maintaining an effective body of
Authorized Nissan Dealers to promote the sale and servicing of Nissan Products.
Accordingly, Seller has the right and obligation to evaluate each prospective
dealer, its owner(s) and executive manager, the dealership location and the
dealership facilities to ensure that each of the foregoing is adequate to enable
Dealer to meet its responsibilities hereunder. Seller will evaluate each
prospective purchaser's qualifications and proposal of the conduct of the
Dealership Operations by applying the standards set forth or referred to in this
Agreement. In determining whether it shall consent to such a sale or transfer,
Seller will take into account factors such as the personal, business and
financial qualifications, expertise, reputation, integrity, experience and
ability of the proposed Principal Owner(s) and Executive Manager as referred to
in Articles Third and Fourth of this Agreement, the capitalization and financial
structure of the prospective dealer, the prospective purchaser's proposal for
conducting the Dealership Operations, and Seller's interest in promoting and
preserving competition.
In evaluating the prospective purchaser's application for a Sales and
Service Agreement, Seller may, without liability to Dealer, Dealer's Owners or
the prospective purchaser, consult with the prospective purchaser regarding any
matter relating to the proposed dealership.
Seller shall notify Dealer of Seller's consent or refusal to consent to
Dealer's proposed sale or transfer within sixty (60) days after Seller has
received from Dealer (i) Dealer's written request for Seller's approval; and
(ii) all applications and information customarily or reasonably requested by
Seller to evaluate such a proposal including without limitation, information
concerning each proposed owner's and/or the replacement dealer's identify,
character, business affiliations, business experience, financial qualifications
and proposals for conducting the Dealership Operations. Any material change in
such a proposal including,
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without limitation, any change in the financial terms or in the proposed
ownership or management of any proposed replacement dealer, shall be treated as
a new proposal for purposes of this Section 15.B. If Seller does not consent to
Dealer's proposed sale or transfer, Seller will specify in its notice to Dealer
the reasons for its refusal to consent.
If Seller determines that the proposed dealership would not, at the
commencement of its operations, have capital or facilities in accordance with
Seller's Guides therefor and otherwise satisfactory to Seller, or if Seller
reasonably determines that the proposed dealership might not meet Seller's
performance standards in sales or service, Seller may, in its sole discretion
and in lieu of refusing to consent to the proposed sale or transfer, agree to
enter into a Term Sales and Service Agreement with he prospective purchaser. If
Seller has recommended, pursuant to a market study conducted in accordance with
Section 4.A, that Dealer relocate its Dealership Facilities, Seller may offer to
the proposed dealer a Term Sales & Service Agreement subject to the condition
that its Dealership Facilities shall be relocated within a reasonable time to a
location and in facilities acceptable to Seller and in accordance with the
market study recommendations.
Notwithstanding anything stated or implied to the contrary in this Section
15, Seller shall not be obligated to enter into a Sales and Service Agreement
with any purchaser of the assets or ownership interests of Dealer if Seller has
notified Dealer prior to its having received notice of the propped sale or
transfer that Seller's market representation plans do not provide for
continuation of representation in Dealer's Primary Market Area.
C. Effect of Termination.
This Agreement shall end on the effective date of termination and, except as
otherwise set forth in Section 13, all rights, obligations, duties and
responsibilities of Dealer and Seller under this Agreement shall cease as of the
effective date of termination. No assignment, transfer or sale of Dealer's right
or interest in this Agreement shall have the effect of granting the assignee,
transferee or buyer any right or interest in this Agreement that is greater than
or in addition to that then held by Dealer. Any such assignment, transfer or
sale shall be subject to the terms of any written notice of deficiency under
Section 12.B or any written notice of termination under Sections 12.A, 12.B,
12.C, 12.D, 12.E or 12.F that was previously received by Dealer, including but
not limited to Dealer's obligation to correct any failure before the expiration
date of any period established in any such notice of deficiency. No such
assignment, transfer or sale shall correct any such deficiency or extend the
effective date of termination specified in any written notice of termination.
Section 16. Policy Review Board
A. Establishment of Policy Review Board.
In the interest of maintaining harmonious relations between Seller and Dealer
and to provide for the resolution of certain protests, controversies and claims
with respect to or arising out of Section 4, Section 12 or Section 13 of this
Agreement, Seller has established the Nissan Motor Corporation in U.S.A. Policy
Review Board ("Policy Review Board"). The procedures of the Policy Review Board,
as they may be revised by Seller from time to time, are incorporated herein by
reference. At the time of execution of this Agreement, Seller will have
furnished to Dealer a copy of such procedures, and Seller will furnish to Dealer
a copy of each revision or modification that Seller may thereafter make to such
procedures. Any decision of the
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Policy Review Board shall represent the independent decision of Seller and shall
be binding on Seller but no on Dealer.
B. Appeal of Dealer Appointment to Policy Review Board.
Any objections by Dealer to the proposed appointment of an additional Nissan
dealer within the ten (10) mile driving distance described in Section 4.B shall
be appealed to the Policy Review Board by filing a Notice of Appeal in
accordance with the procedures established therefor within thirty (30) days from
the date of Dealer's receipt of the Notice of Appointment.
C. Appeal of Termination to Policy Review Board.
Any protests, controversies or claims by Dealer (whether for damages, stay of
action, or otherwise) with respect to any termination of this Agreement or the
settlement of the accounts of Dealer with Seller after termination of this
Agreement has become effective shall be appealed to the Policy Review Board by
filing an appeal in accordance with eh procedures established therefor within
thirty (30) days after Dealer's receipt of notice of termination or, as to
settlement of accounts after termination, within one (1) year after the
termination has become effective.
D. Effect of Other Proceedings.
Because the purpose of the Policy Review Board is to assist in resolving issues
between Seller and Dealer in a non-adversarial setting and to avoid litigation,
if Dealer institutes or seeks any relief or remedy through legal, administrative
or other proceedings as to any matter that is or could be the subject of an
appeal to the Policy Review Board, then the Policy Review Board may, in its sole
discretion, elect to refuse to consider any appeal to the Policy Review Board
then pending or thereafter filed by Dealer relating to such subject matter.
Dealer further agrees that Dealer's seeking such relief or remedy shall
constitute a waiver of any right to an appeal to the Policy Review Board with
respect to such subject matter and Seller and the Policy Review Board shall be
forever released from any obligation they might otherwise have had to conduct
any proceedings, render any decision or take any other action in connection with
such subject matter.
Section 17. General
A. Notices.
All notices or notifications required or permitted to be given by this Agreement
to either party shall be sufficient only if given in writing and delivered
personally or by mail to Dealer at the address set forth on the Dealership
Facilities Addendum to this Agreement and to Seller at this national
headquarters, or at such other address as the party to be addressed may have
preciously designated by written notice to the other party. Unless otherwise
specified in the notice, such notices shall be effective upon receipt.
B. No Implied Waivers.
The waiver by either party, or the delay or failure by either party to claim a
breach, of any provision of this Agreement shall not affect the right to require
full performance thereafter, nor shall it constitute a waiver of any subsequent
breach, or affect in any way the effectiveness of such provision.
C. No Agency.
Dealer is an independently operated business entity in which Seller has no
ownership interest. This Agreement does not constitute Dealer the agent or legal
representative of Seller or Manufacturer for any purpose whatsoever. Dealer is
not granted any express or implied right or authority to assume or create any
obligation on behalf of or in the name of Seller or Manufacturer or to bind
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Seller or Manufacturer in any manner or thing whatsoever.
D. Limitations of Seller's Liability.
This Agreement contemplates that all investments by or in Dealer shall be made,
and Dealer shall purchase and resell Nissan Products, in conformity with the
provisions hereof, but otherwise in the discretion of Dealer. Except as herein
specified, nothing herein contained shall impose any liability on Seller in
connection with he business of Dealer or otherwise or for any expenditures made
or incurred by Dealer in preparation for performance or in performance of
Dealer's responsibilities under this Agreement.
E. Entire Agreement
This agreement contains the entire understanding of the parties hereto with
respect to the subject matter contained herein and may be amended only by a
written instrument executed by each of the parties or their respective personal
representatives, successors and/or assigns. This Agreement supersedes any and
all prior agreements with respect of the subject matter hereof, and there are no
restrictions, promises, warranties, covenants or undertakings between the
parties other than those expressly set forth in this Agreement; provided,
however, Seller shall have the right to amend, modify or change this Agreement
in case of legislation, government regulations or changes in circumstances
beyond the control of Seller that might affect materially the relationship
between Seller and Dealer as further provided in Section 17.G.
F. California Law.
This Agreement shall be deemed to have been entered into in the State of
California, and all questions concerning the validity, interpretation or
performance of any of its terms or provisions, or of any rights or obligations
of the parties hereof, shall be governed by and resolved in accordance with the
internal laws of the State of California including, without limitation, the
statute of limitations.
G. Changes Required by Law.
Should Seller determine that any federal or state legislation or regulation or
any condition referred to in Section 17.E requires a change or changes in any of
the provisions of this Agreement, Seller may offer to Dealer an amendment or an
amended Agreement embodying such change or changes. If Dealer shall fail to
execute such amendment or amended Agreement and return it to Seller within
thirty (30) days after it is offered Dealer, Seller may terminate this Agreement
by giving notice to Dealer, such termination to effective upon receipt by Dealer
of such notice.
H. Severability.
If any term or provision of this Agreement, or the application thereof to any
person or circumstance, shall to any extent be found to be invalid, void or
unenforceable, the remaining provisions and any application thereof shall
nevertheless continue in full force and effect without being impaired or
invalidated in any way.
I. Assignment.
Dealer shall not transfer or assign any right or transfer or delegate any
obligation of Dealer under this Agreement without the prior written approval of
Seller. Any purported transfer, assignment or delegation made without the prior
written approval of Seller shall be null and void.
J. No Franchise Fee.
Dealer represents and warrants that it has paid no fee, no has it provided any
goods or services in lieu of a fee, a consideration for Seller's entering into
this Agreement and that the sole consideration for Seller's entering into this
Agreement was Dealer's Principal Owners' and Executive Manager's abilities,
integrity, assurances of personal services and expressed intention to deal
fairly and equitably with Seller and the public and any
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other promises recited in this Agreement.
K. Captions.
The captions of the sections of this Agreement are for convenience and reference
only and shall in no way be construed to explain, modify, amplify, or aid in the
interpretation, construction or meaning of the provisions of this Agreement or
to be a part of this Agreement.
L. Benefit.
This Agreement is entered into by and between Seller and Dealer for their sole
and mutual benefit. Neither this Agreement nor any specific provision contained
in it is intended or shall be construed to be for the benefit of any third
party.
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Amarillo Globe-News
Dollar Volume Contract
for
Gilliland Dealerships--
Plains Chevrolet, Westgate Chevrolet, Midway Chevrolet, Quality Nissan
The above Gilliland dealerships hereby agree to contract with the Amarillo
Globe-News for the period as follows:
April 1, 1994 to March 31, 1997
The above dealerships agree to a basic program of:
1. Three full page, 4 color ads each day (one for each of the above
Chevrolet dealerships) with an annualized total billing of $1,232.784
per year for three years.
2. Each full page, 4 color ad is guaranteed to be positioned on a back
page of the section.
3. The Quality Nissan dealership agrees to a basic program of:
A 9 column X 7 1/2 inch full color ad on the front of the local news section
daily, Monday through Saturday and some other section front on Sundays for
Nissan new cars.
A 4 X 12 1/2 quarter page, black and white, used car ad in classified everyday,
Monday through Sunday with an annualized billing of $285,312 per year for three
years.
4. Smorgasbord product rates of:
A. single sheets:
-1 color, both sides.....$39/m, printed & delivered
-3 colors, both sides....$59/m, printed & delivered
B. line rates for automotive-related:
-55 cents per line, per day
C. photo-ads:
-$34.95 per ad, per week
D. City Beat repeat rate:
-$1.75 per column inch
E. Daily display rate for automotive:
-$7.25 per column inch
F. Monthly card rate, any size, black & white:
-$203 per inch per month
5. Each dealership will receive one audiotext line with the direct connect
feature.
6. Other advertising (i.e., help wanted, production work) will be done at
published monthly earned or line rates; color separation work will be
done at current rate card prices and policies.
7. Failure of the above dealerships to complete the above schedule will
result in all ads reverting to the appropriate rate card prices.
8. In exchange for this contract on the described ad program, the
Glove-News will guarantee rate protection through the life of this
contract.
[Amarillo Globe-News Letterhead]
<PAGE>
9. The Amerillo Globe-News acts in good faith in accepting ad copy from
the Gilliland dealerships. In the event of errors published in the ad,
the Globe-News will work for the dealership and/or consumer to resolve
differences created from errors in ads.
Billing procedures and amounts have been agreed upon by both parties as follows:
Plains Chevrolet ....$34,244/month .......$410,928/year
Westgate Chevrolet ..$34,244/month .......$410,928/year
Midway Chevrolet ....$34,244/month .......$410,928/year
Quality Nissan ......$23,776/month .......$285,312/year
TOTAL ...............$126,508/month ....$1,518,096/year
The three year total dollar volume amount of this contract is
$4,554,288
This agreement may not be assigned nor transferred by the advertiser and must
conform to usual Globe-News rules, regulations, policies, standard and terms of
payment.
Signed this day 3/31/94
Name, Title: /s/ Bill Gilliland, Bill Gilliland, President,
Firm: G/Group
Name, Title: /s/ Steve Beasley, Ad Director Steve Beasley, Ad Director,
Firm: Amarillo - News
<PAGE>
Multi-colored ads are allowed two free color separations per dealership per
change. Additional color separations per dealership per ad will be charged as
follows:
Size Square Inches Price
- ---- ------------- -----
4" x 5" 20" $75
5" x 7" 35" $85
6" x 9" 54" $100
8" x 10" 80" $115
9" x 12" 108" $130
10" x 12" 120" $138
11" x 14" 154" $155
12" x 17" 204" $200
Photography, in connection with any number of separations, will be done at no
charge.
Photoprint rates will be as follows:
Size Double print
---- ------------
0 to 24 sq. in. $8.00
25 to 100 sq. in. $16.00
101 to 200 sq. in. $27.00
201 to 321 sq. inc. $40.50
<PAGE>
LEASE AGREEMENT
TERMS AND DEFINITIONS
Date: March 1, 1994
Landlord:JOHN W. ADAMS; ELEANORE A. BRALY, TRUSTEE OF THE ELEANORE A. BRALY
TRUST, A TRUST CREATED BY INSTRUMENT DATED FEBRUARY 11, 1993; ROMIE G.
CARPENTER; MELODY LYNN GOFF; SELDEN SIMPSON
Landlord's Address:
c/o John W. Adams
513 First Bank Southwest
2201 Civic Circle
Amarillo, Texas 79106
Tenant: QUALITY NISSAN, INC., a Texas corporation
Tenant's Address:
7300 I-40 West
Amarillo, Texas 79106
Premises:
The Land (hereinafter defined) and the Improvements
(hereinafter defined).
Base Rent (monthly): $2,800.00
Initial Term (months): A period beginning on the Lease Commencement Date
and ending on the Termination Date.
Lease Commencement Date:
March 1, 1994
Rent Commencement Date:
March 1, 1994
Termination Date: Fifty-eight (58) months after the Rent Commencement Date.
Use: The Premises may be used by Tenant for any lawful purpose.
<PAGE>
Amount of Liability Insurance
Death/Bodily Injury: $____________
Property: $____________
"Environmental Report" means a Phase I Environmental Report purchased by
Landlord and addressed to Tenant that covers the Premises.
"Force Majeure" means any delay due to labor disputes, inability to obtain labor
or materials, riots, war, fire or other casualty, or other causes beyond the
reasonable control of the party delayed.
"Hazardous Materials" means any substance (a) which is or becomes defined as a
"hazardous waste", "hazardous substance", pollutant or contaminant under any
federal, state or local statute, regulation, rule, or ordinance or amendments
thereto, or (b) which is toxic, explosive, corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic, or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency, or instrumentality of the United States, the State of Texas, or any
subdivision thereof.
"Improvements" means the buildings and improvements now or hereafter located on
the Land.
"Land" means the land more fully described on Exhibit "A" attached hereto.
"Landlord" means the Landlord and its agents, employees, invitees, licensees, or
visitors.
"Plans" means the architectural drawings for the Premises drawn by Tenant's
architect.
"Rent" means Base Rent plus any other sums of money due Landlord by Tenant.
"Tenant" means Tenant and its agents, employees, invitees, licensees, or
visitors.
"Term" means the initial Term and any extensions of the term of this Lease.
<PAGE>
LEASE CLAUSES AND COVENANTS
A. Tenant agrees to--
1. Lease the Premises for (a) the Initial Term, and (b) any extended terms
if the Term is extended in accordance with this Lease.
2. Accept the Premises in their present condition "as is".
3. Obey all laws, ordinances, orders, and rules and regulations applicable
to (a) the use, condition, and occupancy of the Premises, including obtaining
all licenses and permits required for Tenant to conduct Tenant's business, and
(b) the generation, handling, and disposal of Hazardous Materials.
4. Pay monthly, in advance, on first day of the month, the Base Rent to
Landlord at Landlord's address beginning on the Rent Commencement Date. In the
event the Rent Commencement Date is on a day other than the first day of a
month, Tenant shall pay Base Rent for the fractional months at the beginning and
at the expiration of the Term of a per diem basis.
5. Pay, as additional rent, all other sums due under this Lease.
6. Pay for all utility and janitorial services, trash removal, and other
services used by Tenant.
7. Allow Landlord to enter the Premises at reasonable hours to perform
Landlord's obligations and inspect the Premises.
8. Repair, replace, and maintain (a) any part of the Premises that Landlord
is not obligated to repair, replace, or maintain, normal wear excepted, and (b)
the roofs, foundations, and structural soundness of the Improvements to the
extent such repairs, replacements, or maintenance is necessitated by any
alterations, improvements or additions made by Tenant to the Premises.
9. Submit in writing to Landlord any request for repairs, replacement, or
maintenance that are the obligation of the Landlord.
10. Maintain fire and extended coverage insurance on the Improvements for
the full replacement value of the Improvements, naming Landlord as an additional
insured.
11. Maintain public liability insurance for the Premises and the conduct of
Tenant's business, naming Landlord as an additional insured, in the amounts
stated in the Terms and Definitions section of this Lease.
<PAGE>
12. Maintain insurance on Tenant's personal property located on the Land.
13. Deliver certificates of insurance to Landlord before the Lease
Commencement Date and thereafter when requested.
14. Indemnify, defend, and hold Landlord harmless from any loss, attorney's
fees, expenses, or claims arising out of Tenant's use of the Premises.
15. Reimburse Landlord for Landlord's payment of all ad valorem taxes and
special assessments levied or assessed against the Premises during the Term
within thirty (30) days after Tenant's receipt of paid tax receipts from
Landlord; provided, however, that if the useful life of a special assessment is
greater than the remaining Term, Tenant's obligation to pay the special
assessment shall be limited to an annual prorated portion of the special
assessment. Real estate taxes shall be prorated for any partial calendar year at
the beginning or at the end of the Term.
16. Vacate the Premises on termination of this Lease.
17. Submit the plans to Landlord and obtain Landlord's approval of the
Plans prior to commencement of any construction on the Premises.
18. Construct all alterations, improvements or additions to the Premises
(a) in a good and workmanlike manner, (b) in compliance with applicable
governmental laws, ordinances, and rules and regulations, (c) in accordance with
the Plans, (d) at Tenant's sole cost and expense, and (e) with due diligence
subject to Force Majeure.
B. Tenant agrees not to--
1. Use the Premises for any purpose other than that stated in the Terms and
Definitions section of this Lease.
2. (a) Create a nuisance, (b) permit any waste, or (c) use the Premises in
any way that is extra hazardous, would increase insurance premiums, or would
void insurance on the Improvements.
3. Alter, improve, or make additions to the Premises without Landlord's
written consent.
4. Assign this Lease or sublease any portion of the Premises without
Landlord's written consent.
<PAGE>
C. Landlord agrees to--
1. Lease to Tenant the Premises for (a) the Initial Term and (b) any
extended terms if the Term is extended in accordance with this Lease.
2. Obey all laws, ordinances, orders, and rules and regulations applicable
to the use, condition, and occupancy of the Improvements.
3. Provide Tenant quiet enjoyment and use of the Premises without
hinderance by Landlord or anyone claiming through Landlord. Landlord warrants
that Landlord has full authority to make this Lease and is the owner of the
Premises.
4. Provide normal utility service connections to the Premises.
5. Maintain insurance on Landlord's personal property located on the Land.
6. Pay in full and discharge all ad valorem taxes and special assessments
levied or assessed against the Premises.
7. Repair, replace, and maintain (a) the roofs, foundations, and structural
soundness of the Improvements, and (b) the Premises to the extent such repairs,
replacements or maintenance is necessitated by any negligent act of Landlord, or
Landlord's agents or employees.
8. Indemnify, defend, and hold Tenant harmless from any loss, attorney's
fees, expenses, or claims arising out of (a) Landlord's use of the Premises
prior to the Lease Commencement Date, (b) Landlord's placement, storage,
manufacture, disposal, or handling of any Hazardous Materials on the Premises
prior to the Lease Commencement Date, (c) any removal, abatement, remediation or
disposal of any Hazardous Materials by Landlord, and (d) any breach or alleged
breach of Landlord's representations set forth in paragraph E(18) of this Lease.
D. Landlord agrees not to--
1. Interfere with Tenant's possession of the Premises as long as Tenant is
not in default.
2. Unreasonably withhold consent or approval to (a) the Plans, (b) Tenant's
request to alter, improve, or make additions to the Premises, or (c) a proposed
assignment or sublease.
<PAGE>
E. Landlord and Tenant agree to the following:
1. Alterations. Any physical alterations, additions or improvements made by
Tenant to the Premises will become the property of Landlord.
2. Affidavit of Dates. Upon determination of the Lease Commencement Date
and the Rent Commencement Date, Landlord and Tenant will execute an affidavit
setting forth the Lease Commencement Date, the Rent Commencement Date and the
Termination Date.
3. Option to Extend. Landlord grants to Tenant an option to extend the
Initial Term for a period of sixty months. The option to extend the Term shall
be exercised by Tenant delivering written notice to Landlord at least thirty
(30) days prior to the Termination Date. If Tenant exercises its option to
extend the Initial Term, the extended term shall begin on the Termination Date
and this Lease shall continue on the same terms, covenants and conditions,
except Tenant shall pay Base Rent to Landlord during the extended term in the
amount of $4,500.00 per month.
4. Option to Purchase. Landlord grants to Tenant an option to purchase the
Premises on the following terms and conditions: (a) Tenant may exercise its
option to purchase the Premises by delivering written notice to Landlord at any
time during the Initial Term of this Lease, or at any time during the first
twelve (12) months of the extended term of this Lease if the Term is extended in
accordance with this Lease. (b) The purchase price for the Premises shall be
Four Hundred Thousand Dollars ($400,000.00). (c) Landlord and Tenant shall close
the sale and purchase of the Premises within ninety (90) days after Tenant
exercises its option to purchase the Premises. (d) Landlord shall sell the
Premises to Tenant and convey to Tenant good and marketable title to the
Premises, subject only to such liens, encumbrances, and conditions as may be
approved in writing by Tenant.
5. Release of Claims/Subrogation. Landlord and Tenant release each other
from any claim, by subrogation or otherwise, for any damage to the Premises, the
Improvements, or personal property within the Improvements, by reason of fire or
the elements, regardless of cause, including negligence of Landlord or Tenant.
This release applies only to the extent that it is permitted by law, the damage
is covered by insurance proceeds, and the release does not adversely affect any
insurance coverage.
6. Notice to Insurance Companies. Landlord and Tenant will notify the
issuing insurance companies of the release set forth in the preceding paragraph
and will have the insurance policies endorsed, if necessary, to prevent
invalidation of the insurance coverage.
<PAGE>
7. Casualty/Total or Partial Destruction. (a) If the Premises are damaged
by casualty and can be restored within ninety (90) days, Landlord will, at its
expense, restore the Premises to substantially the same condition as they
existed before the casualty. If Landlord fails to complete restoration within
ninety (90) days from the date of written notification by Tenant to Landlord of
the casualty, Tenant may terminate this lease by written notice to Landlord. (b)
If the Premises cannot be restored within ninety (90) days, Landlord has an
option to restore or not to restore the Premises. If Landlord chooses not to
restore, this Lease will terminate. If Landlord chooses to restore, it will
notify Tenant of the estimated time to restore and give Tenant an option to
terminate this Lease by notifying Landlord within ten (10) days. If Tenant does
not terminate this Lease, it shall continue and Landlord shall restore the
Premises as provided in (a) above. (c) To the extent the Premises are
untenantable after the casualty, the Rent will be adjusted as may be fair and
reasonably until the Premises are restored.
8. Condemnation/Substantial or Partial Taking. (a) If the Premises cannot
be used for the purposes contemplated by this Lease because of condemnation or
purchase in lieu of condemnation, this Lease will terminate. (b) If there is a
condemnation or purchase in lieu of condemnation and this Lease is not
terminated, Landlord will, at Landlord's expense, restore the Premises, and the
Rent payable during the unexpired portion of the Term will be adjusted as may be
fair and reasonable. (c) Landlord shall be entitled to the condemnation award
for the legally recoverable value of its interest in the Premises and damages to
any of its remaining property. Tenant shall be entitled to the condemnation
award for the legally recoverable value of its leasehold interest in the
Premises, its relocation expenses, damages to its business, and damages to any
of its remaining property.
9. Default by Landlord/Events. Defaults by Landlord are failing to comply
with any provision of this Lease within thirty (30) days after written notice.
10. Default by Landlord/Tenant's Remedies. Tenant's remedies for Landlord's
default are to (a) terminate this Lease by written notice and sue for damages,
or (b) cure Landlord's default by any reasonably action deemed necessary by
Tenant, and in connection with such remedy pay expenses and incur obligations.
In the event Tenant pays expenses or incurs obligations to remedy Landlord's
default, Tenant shall be reimbursed by Landlord upon request for all sums
expended or obligations incurred by Tenant. If Landlord fails to reimburse
Tenant within fifteen (15) days of Tenant's request for reimbursement, Tenant
may, in addition to exercising any remedies available at law or in equity,
deduct the expenses paid and obligations incurred from the Rent subsequently
becoming due under this Lease.
<PAGE>
11. Default by Tenant/Events. Defaults by Tenant are (a) failing to pay
Rent within ten (10) days after the date payment is due, or (b) failing to
comply within thirty (30) days after written notice with any provision of this
Lease other than the default set forth in (a) above; provided, however, that if
such default cannot reasonably be cured within the thirty (30) day period and
Tenant commences curing such default within the allowed curative period and
thereafter diligently prosecutes the same to completion, Landlord shall not
invoke any of its remedies under the Lease for such default.
12. Default by Tenant/Landlord's Remedies. Landlord's remedies for Tenant's
default are to (a) enter and take possession of the Premises, after which
Landlord may relet the Premises on behalf of Tenant and receive the rent
directly by reason of the reletting, and Tenant agrees to reimburse Landlord for
any expenditures made in order to relet; (b) enter the Premises and perform
Tenant's obligations and Tenant agrees to reimburse Landlord for any
expenditures made in order to perform Tenant's obligations; or (c) terminate
this Lease by written notice and sue for damages.
13. Default/Waiver/Mitigation. It is not a waiver of default if the
nondefaulting party fails to declare immediately a default or delays in taking
any action. Pursuit of any remedies set forth in this Lease does not preclude
pursuit of other remedies in this Lease or provided by law. Landlord and Tenant
have a duty to mitigate damages.
14. Holdover. If Tenant does not vacate the Premises following termination
of this Lease, Tenant shall be a tenant at will and shall vacate the Premises on
receipt of notice from Landlord. No holding over by Tenant, whether with or
without the consent of Landlord, will extend the Term.
15. Notices. Any notice given pursuant to this Lease must be in writing,
and must be given by (a) depositing the same in the United States mail, postage
prepaid, registered or certified, and addressed to the party to be notified,
with return receipt requested, or (b) delivering the same in person to such
party. Notice provided in any manner hereinabove described shall be deemed given
when received by the party to be notified. For purposes of notice the addresses
of the parties shall, until changed as hereinafter provided, be as stated on
page 1 of this Lease. Landlord and Tenant shall have the right to change their
respective addresses upon at least ten (10) days written notice to the other
party.
16. Signs. Tenant shall have the right to place signs and trade fixtures on
the Premises and remove the signs and trade fixtures from the Premises within a
reasonable time after the
<PAGE>
expiration or termination of this Lease. All signs placed on the Premises shall
conform with all applicable laws.
17. Waiver of Liens. Landlord waives its rights, statutory or otherwise, to
claim a lien against all or any part of Tenant's equipment, inventory, and
personal property located on or in the Premises that is encumbered by a security
interest related to Tenant's floor plan financing.
18. Representations of Landlord. Landlord represents that (a) there are no
liens, security interests or other encumbrances covering the Premises or any
part thereof, except that certain deed of trust dated June 9, 1986, from John W.
Adams to R. Wesley Savage, Trustee, for the benefit of Amarillo National Bank,
recorded in Volume 626, Page 243 of the Deed of Trust Records of Randall County,
Texas, and (b) the Premises are in compliance in all material respects with all
federal, state, and local environmental laws, ordinances, rules, regulations and
orders. If at any time during the Term, the Premises are found not to be in
compliance with a federal, state, or local environmental law, ordinance, rule,
regulation, or order, and such noncompliance is not related to Tenant's use of
the Premises, Landlord shall remove, abate, or remediate the environmental
condition causing the noncompliance. During any period of environmental
remediation work on the Premises, the rent shall be reduced to an amount that is
fair and reasonable until such remediation work has been completed.
19. Alternative Dispute Resolution. Landlord and Tenant agree to mediate
any controversy or claim arising out of or relating to this Lease in good faith.
Landlord and Tenant agree that, following mediation, all unresolved issues shall
be resolved by binding arbitration. Absent an agreement to use other rules, the
arbitration will be controlled by the American Arbitration Association's
Commercial Arbitration Rules.
20. Attorney's Fees. If either party retains an attorney to enforce this
Lease, the prevailing party is entitled to recover reasonable attorney's fees.
21. Venue. Venue is in Randall County, Texas.
22. Entire Agreement. This Lease, together with the attached exhibits, is
the entire agreement of the parties, and there are no oral representations,
warranties, agreements, or promises pertaining to this Lease or to the exhibits
not incorporated in writing in this Lease. This Lease replaces and supercedes
the Lease dated October 12, 1993, between Landlord and Westgate Nissan, Inc.
23. Amendment of Lease. This Lease may be amended only by an instrument in
writing signed by Landlord and Tenant.
<PAGE>
24. Gender; Number. Whenever the context of this Lease requires, the
masculine gender includes the feminine or neuter, and the singular number
includes the plural, and the vice versa.
25. Joint and Several Liability. All agreements, covenants,
representations, and warranties made by Landlord in this Lease shall and are
intended to create joint and several liability on John W. Adams; Eleanore A.
Braly, Trustee of the Eleanore A. Braly Trust, a trust created by instrument
dated February 11, 1993; Romie G. Carpenter; Melody Lynn Goff; and Selden
Simpson.
26. Counterparts. This Lease may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one instrument.
LESSOR: /s/ John W. Adams
------------------------------------------
John W. Adams
Eleanore A. Braly, Trustee of the
Eleanore A. Braly Trust, a trust created
by instrument dated February 11, 1993
By:_______________________________________
Eleanore A. Braly, Trustee
------------------------------------------
Romie G. Carpenter
------------------------------------------
Melody Lynn Goff
/s/ Seldon Simpson
------------------------------------------
Seldon Simpson
LESSEE: QUALITY NISSAN, INC.,
a Texas corporation
By: /s/ Bill A. Gilliland
---------------------------------------
Bill A. Gilliland, Vice President
<PAGE>
24. Gender; Number. Whenever the context of this Lease requires, the
masculine gender includes the feminine or neuter, and the singular number
includes the plural, and the vice versa.
25. Joint and Several Liability. All agreements, covenants,
representations, and warranties made by Landlord in this Lease shall and are
intended to create joint and several liability on John W. Adams; Eleanore A.
Braly, Trustee of the Eleanore A. Braly Trust, a trust created by instrument
dated February 11, 1993; Romie G. Carpenter; Melody Lynn Goff; and Selden
Simpson.
26. Counterparts. This Lease may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one instrument.
LESSOR:
------------------------------------------
John W. Adams
Eleanore A. Braly, Trustee of the
Eleanore A. Braly Trust, a trust created
by instrument dated February 11, 1993
By: /s/ Eleanore A. Braly, Trustee
---------------------------------------
Eleanore A. Braly, Trustee
------------------------------------------
Romie G. Carpenter
------------------------------------------
Melody Lynn Goff
------------------------------------------
Seldon Simpson
LESSEE: QUALITY NISSAN, INC.,
a Texas corporation
By:
---------------------------------------
<PAGE>
24. Gender; Number. Whenever the context of this Lease requires, the
masculine gender includes the feminine or neuter, and the singular number
includes the plural, and the vice versa.
25. Joint and Several Liability. All agreements, covenants,
representations, and warranties made by Landlord in this Lease shall and are
intended to create joint and several liability on John W. Adams; Eleanore A.
Braly, Trustee of the Eleanore A. Braly Trust, a trust created by instrument
dated February 11, 1993; Romie G. Carpenter; Melody Lynn Goff; and Selden
Simpson.
26. Counterparts. This Lease may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one instrument.
LESSOR:
------------------------------------------
John W. Adams
Eleanore A. Braly, Trustee of the
Eleanore A. Braly Trust, a trust created
by instrument dated February 11, 1993
By:
---------------------------------------
Eleanore A. Braly, Trustee
/s/ Romie G. Carpenter
------------------------------------------
Romie G. Carpenter
------------------------------------------
Melody Lynn Goff
------------------------------------------
Seldon Simpson
LESSEE: QUALITY NISSAN, INC.,
a Texas corporation
By:
---------------------------------------
<PAGE>
24. Gender; Number. Whenever the context of this Lease requires, the
masculine gender includes the feminine or neuter, and the singular number
includes the plural, and the vice versa.
25. Joint and Several Liability. All agreements, covenants,
representations, and warranties made by Landlord in this Lease shall and are
intended to create joint and several liability on John W. Adams; Eleanore A.
Braly, Trustee of the Eleanore A. Braly Trust, a trust created by instrument
dated February 11, 1993; Romie G. Carpenter; Melody Lynn Goff; and Selden
Simpson.
26. Counterparts. This Lease may be executed in any number of counterparts,
each of which shall be deemed to be an original, but all of which shall
constitute one instrument.
LESSOR:
------------------------------------------
John W. Adams
Eleanore A. Braly, Trustee of the
Eleanore A. Braly Trust, a trust created
by instrument dated February 11, 1993
By:
---------------------------------------
Eleanore A. Braly, Trustee
------------------------------------------
Romie G. Carpenter
/s/ Melody Lynn Goff
------------------------------------------
Melody Lynn Goff
------------------------------------------
Seldon Simpson
LESSEE: QUALITY NISSAN, INC.,
a Texas corporation
By:
---------------------------------------
<PAGE>
EXHIBIT "A"
TRACT 1:
A tract of land 300 feet wide and 325 feet long out of Section 185, Block
2, AB&M Survey, Randall County, Texas, described as follows:
BEGINNING at a point in the east right-of-way line of Georgia Street, being
60 feet east and 1,518.25 feet north of the southwest corner of Section
185;
THENCE north 0 DEG. 10' west 300 feet along said east right-of-way
line of Georgia Street to a point;
THENCE north 89 DEG. 50' east 325 feet to a point;
THENCE south 0 DEG. 10' east 300 feet to a point;
THENCE south 89 DEG. 50' west 325 feet to the PLACE OF BEGINNING,
and containing 2.238 acres of land more or less.
TRACT 2:
Being a tract of land out of Section 185, Block 2, AB&M Survey, Randall
County, Texas, being a portion of Tracts 10 and 11 of Eberstadt and Brock
Subdivision, described by metes and bounds as follows:
BEGINNING at a point 1,838.25 feet north 0 DEG. 10' west and 60
feet north 89 DEG. 50' east of the southwest corner of Section 185
for the southwest corner of this tract;
THENCE north 0 DEG. 10' west along the east line of Georgia
Street, at 35 feet cross the north line of Tract 10 and the south line of
Tract 11, continue a total distance of 70.11 feet to a point for the
northwest corner of this tract;
THENCE north 89 DEG. 50' east 325 feet to a point;
THENCE south 0 DEG. 10' east 60.11 feet to a point;
THENCE south 89 DEG. 50' west 32.26 feet to a point;
THENCE south 10 DEG. 10' east 10 feet to a point;
THENCE south 89 DEG. 50' west 292.74 feet to the POINT OF
BEGINNING.
<PAGE>
OFFICE LEASE
TERMS AND DEFINITIONS
Date: June 1, 1996
Landlord: GILLILAND GROUP FAMILY PARTNERSHIP
Landlord's Address: P.O. Box 750
Amarillo, Texas 79105
Tenant: CROSS-COUNTRY AUTO RETAILERS, INC.
Tenant's Address: 1201 S. Taylor
Amarillo, Texas 79101
Premises:
Approximate Square Feet: 6200
Name of Building: N/A
Street Address/Suite: 1201 S. Taylor
City, State, Zip: Amarillo, Texas 79101
Base Rent (monthly): $5400.00
Term: Five (5) Years
Commencement Date: June 1, 1996
Termination Date: June 1, 2001
Security Deposit: $None
Use: Business Office
Amount of Liability Insurance:
Death/Bodily Injury: $1,000,000.00
Property: $500,0000.00
1
<PAGE>
Guarantors: Cross-Country Auto Retailers, Inc.
Tenant's Pro Rata Share: One Hundred Percent (100%)
"Rent" means base rent plus any other sums of money due Landlord by Tenant.
"Landlord" means Landlord and its agents, employees, invitees, licensees, or
visitors.
"Tenant" means Tenant and its agents, employees, invitees, licensees, or
visitors.
"Essential Services" means heating, ventilating, air conditioning, water, and
utility connections reasonably necessary for occupancy of the premises for
the use stated above.
"Common Areas" means all facilities and areas of the building that are intended
and designated by Landlord from time to time for the common, general, and
nonexclusive use of all tenants of the building. Landlord shall have the
exclusive control over and right to manage the common areas.
"Building Operating Hours" means 8:00 a.m. to 6:00 p.m. Monday through Friday,
except holidays.
"Parking Facility" means the facility or area described in the attached parking
facility rider, if any.
"Operating Expenses" means all expenses that Landlord shall reasonably pay in
connection with the ownership, operation, and maintenance of the building,
except principal and interest on any debt, expenditures classified as
capital expenditures for federal income tax purposes, and expenses for
which Tenant is required to reimburse Landlord.
CLAUSES AND COVENANTS
A. Tenant agrees to--
1. Lease the premises for the entire term beginning on the commencement
date and ending on the termination date.
2. Accept the premises in their present condition "as is," the premises
being currently suitable for Tenant's intended use.
2
<PAGE>
3. Obey all laws, ordinances, orders, and rules and regulations applicable
to the use, condition, and occupancy of the premises, including the rules and
regulations of the building, and parking facility, if any, adopted by Landlord.
4. Pay monthly, in advance, on the first day of the month, the base rent to
Landlord at Landlord's address.
5. Pay, as additional rent, all other sums due under this lease.
6. Pay a late charge of 5 percent of any rent not received by Landlord by
the tenth day of the month in which it is due.
7. Pay for all utility services used by Tenant and not provided by
Landlord.
8. Pay monthly, in advance, Tenant's pro rata share of the monthly
estimated operating expenses and the difference between the estimated operating
expenses and the actual operating expenses, within thirty days of receiving
notice of the amount from the Landlord.
9. Allow Landlord to enter the premises to perform Landlord's obligations,
inspect the premises, and show the premises to prospective purchasers or
tenants.
10. Repair, replace, and maintain any part of the premises that Landlord is
not obligated to repair, replace, or maintain, normal wear excepted.
11. Repair any damage to the premises or the parking facility, if any,
caused by Tenant.
12. Submit in writing to Landlord any request for repairs, replacement, and
maintenance that are the obligations of Landlord.
13. Maintain public liability insurance for the premises and the conduct of
Tenant's business, naming Landlord as an additional insured, in the amounts
stated in the basic lease terms and definitions.
14. Maintain insurance on Tenant's personal property.
15. Deliver certificates of insurance to Landlord before the commencement
date and thereafter when requested.
16. Indemnify, defend, and hold Landlord harmless from any loss, attorney's
fees, expenses, or claims arising out of use of the premises.
17. Deliver to Landlord a financing statement perfecting the security
interest.
3
<PAGE>
18. Vacate the premises and return all keys to the premises on termination
of this lease.
19. On request, execute an estoppel certificate that states the
commencement and termination dates of the lease, identifies any amendments to
the lease, describes any rights to extend the lease term or purchase rights,
lists defaults by Landlord, and provides any other information reasonably
requested.
20. Arrange with Landlord in advance for any heating, air conditioning, or
electrical needs in excess of the services provided by Landlord and pay for such
additional services as billed by Landlord.
21. Repair, replace, and maintain the (a) roof, (b) foundation, (c) parking
facility (if any) and common areas, (d) structural soundness of the exterior
walls, doors, corridors, and windows, and (e) other structures or equipment
serving the premises.
22. Provide the following services: (a) air conditioning and heating to the
premises reasonable for Tenant's use (exclusive of air conditioning or heating
for electronic data processing or other specialized equipment) during building
operating hours and at such other times at such additional cost as Landlord and
Tenant may agree on; (b) hot and cold water for lavatory and drinking purposes;
(C) janitorial service and periodic window washing; (d) elevator service, if
necessary, to provide access to and from the premises; (e) electric current for
normal office machines and building's standard lighting reasonable for Tenant's
use; and (f) lighting in common areas and fluorescent lights in building's
standard light fixtures on the premises.
23. Provide Landlord, on request, with an annual accounting of the
operating expenses and invoices and an accounting for all heating,
air-conditioning, and electrical charges in excess of the services provided by
Landlord for which Landlord requests reimbursement and reimburse Tenant promptly
for the amount of any estimated operating expenses paid by Tenant in excess of
actual operating expenses.
24. Pay, when due, in a timely manner, all ad valoren property taxes and
all business personal property taxes.
B. Tenant agrees not to--
1. Use the premises for any purpose other than that stated in the basic
lease terms and definitions.
2. (a) Create a nuisance, (b) interfere with any other tenant's normal
business operations or Landlord's management of the building, (c) permit any
waste, or (d) use the premises in any way that is extra hazardous, would
increase insurance premiums, or would void insurance on the building.
3. Change Landlord's lock system.
4
<PAGE>
4. Alter the premises.
5. Allow a lien to be placed on the premises.
6. Assign this lease or sublease any portion of the premises without
Landlord's written consent.
C. Landlord agrees to--
1. Lease to Tenant the premises for the entire term beginning on the
commencement date and ending on the termination date.
2. Allow Tenant the option to lease the premises, on the same terms and
conditions, for an additional five (5) year period from the termination date.
Tenant shall provide to Landlord sixty (60) days' written notice of its desire
to exercise this option.
3. Obey all laws, ordinances, orders, and rules and regulations applicable
to the use, condition, and occupancy of the building, and the parking facility,
if any.
4. Provide normal utility-service connections to the building.
5. Insure the building and any parking facility against all risks of direct
physical loss in an amount equal to at least 90 percent of the full replacement
cost of the same as of the date of the loss and liability; Tenant will have no
claim to any proceeds of Landlord's insurance policy.
6. Return the security deposit to Tenant, less itemized deductions, if any,
within thirty days after the termination of this lease.
D. Landlord agrees not to--
1. Interfere with Tenant's possession of the premises as long as Tenant is
not in default.
2. Unreasonably withhold consent to a proposed assignment or sublease.
E. Landlord and Tenant agree to the following:
1. Alterations. Any physical additions or improvements to the premises made
by Tenant will become the property of Landlord. Landlord may require that
Tenant, at termination of this lease and at Tenant's expense, remove any
physical additions and improvements, repair any alterations, and restore the
premises to the condition existing at the commencement date, normal wear
excepted.
5
<PAGE>
2. Abatement. Tenant's covenant to pay rent and Landlord's covenants are
independent of each other. Except as otherwise provided, Tenant shall not be
entitled to abate rent for any reason.
3. Release of Claims/Subrogation. Landlord and Tenant release each other
from any claim, by subrogation or otherwise, for any damage to the premises, the
building, the parking facility, if any, or personal property within the
building, by reason of fire or the elements, regardless of cause, including
negligence of Landlord or Tenant. This release applies only to the extent that
it is permitted by law, the damage is covered by insurance proceeds, and the
release does not adversely affect any insurance coverage.
4. Notice to Insurance Companies. Landlord and Tenant will notify the
issuing insurance companies of the release set forth in the preceding paragraph
and will have the insurance policies endorsed, if necessary, to prevent
invalidation of the insurance coverage.
5. Casualty/Total or Partial Destruction. (a) If the premises are damaged
by casualty and can be restored within ninety days, Landlord will, at its
expense, restore the premises to substantially the same condition as they
existed before the casualty. If Landlord fails to complete restoration within
ninety days from the date of written notification by Tenant to Landlord of the
casualty, Tenant may terminate this lease by written notice to Landlord. (b) If
the premises cannot be restored within ninety days, Landlord has an option to
restore or not to restore the premises. If Landlord chooses not to restore, this
lease will terminate. If Landlord chooses to restore, it will notify Tenant of
the estimated time to restore and give Tenant an option to terminate this lease
by notifying Landlord within ten days. If Tenant does not terminate this lease,
it shall continue and Landlord shall restore the premises as provided in (a)
above. (c) To the extent the premises are untenantable after the casualty and
the damage was not caused by Tenant, the rent will be adjusted as may be fair
and reasonable.
6. Condemnation/Substantial or Partial Taking. (a) If the premises cannot
be used for the purposes contemplated by this lease because of condemnation or
purchase in lieu of condemnation, this lease will terminate. (b) If there is a
condemnation or purchase in lieu of condemnation and this lease is not
terminated, Landlord will, at Landlord's expense, restore the premises, and the
rent payable during the unexpired portion of the term will be adjusted as may be
fair and reasonable. (c) Tenant will have no claim to the condemnation award or
proceeds in lieu of condemnation.
7. Uniform Commercial Code. Tenant grants Landlord a security interest in
Tenant's personal property now or subsequently located on the premises. This
lease is a security agreement under the Uniform Commercial Code. Landlord may
file a copy of this lease as a financing statement.
6
<PAGE>
8. Default by Landlord/Events. Default by Landlord are (a) failing to
comply with any provision of this lease within thirty days after written notice
or (b) failing to provide essential services to Tenant within ten days after
written notice.
9. Default by Landlord/Tenant's Remedies. Tenant's remedies for Landlord's
default are to (a) sue for damages, and (b) if Landlord does not provide an
essential service for thirty days after default, terminate this lease.
10. Default by Tenant/Events. Defaults by Tenant are (a) failing to pay
timely rent, (b) abandoning or vacating a substantial portion of the premises,
or (c) failing to comply within ten days after written notice with any provision
of this lease other than the defaults set forth in (a) and (b) above.
11. Default by Tenant/Landlord's Remedies. Landlord's remedies for Tenant's
default are to (a) enter and take possession of the premises, after which
Landlord may relet the premises on behalf of Tenant and receive the rent
directly by reason of the reletting; and Tenant agrees to reimburse Landlord for
any expenditures made in order to relet; (b) enter the premises and perform
Tenant's obligations; or (c) terminate this lease by written notice and sue for
damages. Landlord may enter and take possession of the premises by self-help, by
picking or changing locks if necessary, and may lock out Tenant or any other
person who may be occupying the premises, until the default is cured, without
being liable for damages.
12. Default/Waiver/Mitigation. It is not a waiver of default if the
nondefaulting party fails to declare immediately a default or delays in taking
any action. Pursuit of any remedies set forth in this lease does not preclude
pursuit of other remedies in this lease or provided by law. Landlord and Tenant
have a duty to mitigate damages.
13. Security Deposit. If Tenant defaults, Landlord may use the security
deposit to pay arrears of rent, to repair any damage or injury, or to pay any
expense or liability incurred by Landlord as a result of the default.
14. Holdover. If Tenant does not vacate the premises following termination
of this lease, Tenant shall be a tenant at will and shall vacate the premises on
receipt of notice from Landlord. No holding over by Tenant, whether with or
without the consent of Landlord, will extend the term.
15. Alternate Dispute Resolution. Landlord and Tenant shall submit in good
faith to mediation before filing a suit for damages.
16. Attorney's Fees. If either party retains an attorney to enforce this
lease, the prevailing party is entitled to recover reasonable attorney's fees.
17. Venue. Venue is in the country in which the premises are located.
7
<PAGE>
18. Entire Agreement. This lease, together with the attached exhibits and
riders, is the entire agreement of the parties, and there are no oral
representations, warranties, agreements, or promises pertaining to this lease or
to the expressly mentioned exhibits and riders not incorporated in writing in
this lease.
19. Amendment of Lease. This lease may be amended only by an instrument in
writing signed by Landlord and Tenant.
20. Limitation of Warranties. There are no implied warranties of
merchantability, of fitness for a particular purpose, or of any other kind
arising out of this lease, and there are no warranties that extend beyond those
expressly stated in this lease.
21. Notices. Any notice required by this lease shall be deemed to be
delivered (whether or not actually received) when deposited with the United
States Postal Service, postage prepaid, certified mail, return receipt
requested, and addressed to Landlord or Tenant at their addresses.
22. Abandoned Property. Landlord may retain, destroy, or dispose of any
property left on the premises at the end of the term.
LANDLORD: GILLILAND GROUP FAMILY PARTNERSHIP
By: /s/Bill Gilliland
----------------------------------
Bill Gilliland, General Partner
By: /s/Robert W. Hall
----------------------------------
Robert W. Hall, General Partner
TENANT: CROSS-COUNTRY AUTO RETAILERS, INC.
By: /s/Bill Gilliland, President
----------------------------------
Bill Gilliland, President
8
<PAGE>
WHOLESALE SECURITY AGREEMENT
To: General Motors Acceptance Corporation (GMAC)
In the course of our business, we acquire new and used cars, trucks and
chassis ("Vehicles") from manufacturers or distributors. We desire you to
finance the acquisition of such vehicles and to pay the manufacturers or
distributors therefor.
We agree upon demand to pay to GMAC the amount it advances or is obligated
to advance to the manufacturer or distributor for each vehicle with interest at
the rate per annum designated by GMAC from time to time and then in force under
the GMAC Wholesale Plan.
We also agree that to secure collectively the payment by us of the amounts
of all advances and obligations to advance made by GMAC to the manufacturer,
distributor or other sellers, and the interest due thereon, GMAC is hereby
granted a security interest in the vehicles and the proceeds of sale thereof
("Collateral") as more fully described herein.
The collateral subject to this Wholesale Security Agreement is new vehicles
held for sale or lease and used vehicles acquired from manufacturers or
distributors and held for sale or lease, and all vehicles of like kinds or types
now owned or hereafter acquired from manufacturers, distributors or sellers by
way of replacement, substitution, addition or otherwise, and all additions and
accessions thereto and all proceeds of such vehicles, including insurance
proceeds.
Our possession of the vehicles shall be for the purpose of storing and
exhibiting same for retail sale in the regular course of business. We shall keep
the vehicles brand new and we shall not use them illegally, improperly or for
hire. GMAC shall at all times have the right of access to and inspection of the
vehicles and the right to examine our books and records pertaining to the
vehicles.
We agree to keep the vehicles free of all taxes, liens and encumbrances,
and any sum of money that may be paid by GMAC in release or discharge thereof
shall be paid to GMAC on demand as an additional part of the obligation secured
hereunder. We shall not mortgage, pledge or loan the vehicles and shall not
transfer or otherwise dispose of them except as next hereinafter more
particularly provided. We shall execute in favor of GMAC any form of document
which may be required for the amounts advanced to the manufacturer, distributor
or seller, and shall execute such additional documents as GMAC may at any time
request in order to confirm or perfect title or security in the vehicles.
Execution by us of any instrument for the amount advanced shall be deemed
evidence of our obligation and not payment therefor. We authorize GMAC or any of
its officers or employees or agents to execute such documents in our behalf and
to supply any omitted information and correct patent errors in any document
executed by us.
We understand that we may sell and lease the vehicles at retail in the
ordinary course of business. We further agree that as each vehicle is sold, or
leased, we will, faithfully and promptly remit to you the amount you advanced or
have become obligated to advance on our behalf to the manufacturer, distributor
or seller, with interest at the designated rate per annum then in effect under
the GMAC Wholesale Plan. The GMAC Wholesale Plan is hereby incorporated by
reference.
GMAC's security interest in the vehicles shall attach to the full extent
provided or permitted by law to the proceeds, in whatever form, of any retail
sale or lease thereof by us until such proceeds are accounted for as aforesaid,
and to the proceeds of any other disposition of said vehicles or any part
thereof.
In the event we default in payment under and according to this agreement,
or in due performance or compliance with any of the terms and conditions hereof,
or in the event of a proceeding in bankruptcy, insolvency or receivership
instituted by or against us or our property, or in the event that GMAC deems
itself insecure or said vehicles are in danger of misuse, loss, seizure or
confiscation, GMAC may take immediate possession of said vehicles, without
demand or further notice and without legal process; for the purpose and in
furtherance thereof, we shall, if GMAC so requests, assemble said vehicles and
make them available to GMAC at a reasonable convenient place designated by it,
and GMAC shall have the right, and we hereby authorize and empower GMAC, to
enter upon the premises wherever said vehicles may be and remove same. We shall
pay all expenses and reimburse GMAC for any expenditures, including reasonable
attorney's fees and legal expenses, in connection with GMAC's exercise of any of
its rights and remedies under this agreement.
In the event of repossession of the vehicles by GMAC, then the rights and
remedies applicable under the Uniform Commercial Code shall apply.
Any provision hereof prohibited by law shall be ineffective to the extent
of such prohibition without invalidating the remaining provisions hereof.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed by its duly authorized representative this 4 day of December 1995.
<TABLE>
<S> <C>
Witness and Attest:
Performance Dodge, Inc.
- ---------------------------------------------
- -------------------------------------------------
Dealer's Name
Accepted: By: /s/ Emmett M. Rice, Jr.
- -------------------------------------------------
GENERAL MOTORS ACCEPTANCE CORPORATION Its: Pres.
- ----------------------------------
By: /s/Rick Personett 7609 SE 29th St.,
Midwest City, OK 73110
- ----------------------------------------------
- ------------------------------------------------------
Its Authorized Agent Address of
Dealer
6303 Waterford Blvd. Ste 100, Ok City, OK 73118
- -----------------------------------------------
Address
</TABLE>
<PAGE>
AGREEMENT AMENDING THE WHOLESALE SECURITY
AGREEMENT AND CONDITIONALLY AUTHORIZING
THE SALE OF NEW FLOOR PLAN VEHICLES ON A
DELAYED PAYMENT PRIVILEGE BASIS
This Agreement is made and executed by and between the undersigned dealer
("Dealer") and General Motors Acceptance Corporation ("GMAC") effective the date
set forth below.
WHEREAS, Dealer previously, or simultaneously with the execution of this
Agreement, executed and delivered to GMAC a Wholesale Security Agreement, by
which, among other things, (a) GMAC provides wholesale floor plan financing of
motor vehicles for Dealer, and Dealer agrees to promptly pay to GMAC the actual
amount financed, as each such financed motor vehicle is sold or leased by Dealer
(the "Vehicle Amount Financed"); and (b) GMAC consents to Dealer selling and
leasing such financed motor vehicles at retail in the ordinary course of
business (the "Routine Disposition of Vehicles"); and
WHEREAS, Dealer has requested the privilege of delaying payment of the Vehicle
Amount Financed in the limited instances where such financed motor vehicles are
sold by Dealer to a purchaser for whom both Dealer and GMAC have agreed to a
delayed payment period (the "Delayed Payment Privilege"); and
WHEREAS, Dealer and GMAC may have previously executed an Agreement for the
Delayed Payment Privilege for New Floor Plan Units, which the parties hereby
intend be superseded by this Agreement for all such transactions arising on or
after the effective date hereof; and
WHEREAS, Dealer and GMAC desire and intend hereby to retain, in full force and
effect, the validity, enforceability and relative priority of GMAC's security
interest in any and all such financed motor vehicles as are sold or leased by
Dealer pursuant to the Delayed Payment Privilege, notwithstanding GMAC's prior
consent to the Routine Disposition of Vehicles, unless and until GMAC receives
the Vehicle Amount Financed under the terms and conditions as hereinafter set
forth.
NOW, THEREFORE, in consideration of the premises, the covenants herein set
forth, and for other good and valuable consideration, the sufficiency and
receipt of which is hereby acknowledged, Dealer and GMAC hereby agree as
follows:
1. The aforementioned Wholesale Security Agreement and any and all
documents, plans, instruments or agreements relating, modifying, substituting or
attendant thereto, executed between Dealer and GMAC are hereby amended in form
and substance by inserting therein the following language as a separate and
distinct paragraph:
"Notwithstanding anything contained herein to the contrary, Dealer
(i.e., we) agrees that GMAC's security interest in any and all
vehicles sold or leased, more than one Vehicle per individual
transaction, to a customer, and in which the full payment thereof by
cash or on a properly perfected retail installment contract or other
security agreement basis is not made contemporaneous with the delivery
of such Vehicles by Dealer (the "Delayed Payment Vehicles"), shall
remain in full force and effect in such Delayed Payment Vehicles and
shall not be relinquished, extinguished, released or terminated as a
consequence of such sale or release unless and until the customer
makes payment therefore directly to GMAC or jointly to Dealer and
GMAC. Moreover, Dealer is expressly prohibited and shall not have any
express, implied or apparent authority to sell, lease, transfer or
otherwise dispose of any Delayed Payment Vehicles unless and until the
express written permission of GMAC is first obtained, and then such
authority shall be, in each and every instance, limited to the terms
and conditions of such permission; it being further agreed that the
terms of this paragraph shall not be altered, modified, supplemented,
qualified, waived or amended by reason of any agreement (unless in
writing executed by Dealer and GMAC), or by the course of performance,
course of dealing, or usage of trade by Dealer and GMAC, of either of
them.
2. Any previously executed Agreement for the Delayed Payment Privilege for
New Floor Plan Units between Dealer and GMAC is superseded by the terms and
conditions of this Agreement for all Delayed Payment Privilege transactions
arising on or after the effective date thereof.
3. Dealer shall advise GMAC of each and every potential transaction in
which Dealer requests GMAC to grant the Delayed Payment Privilege, and the
period of time for which the Delayed Payment Privilege is being requested. Such
request shall be made of GMAC in writing and on a form of the type and kind
provided by GMAC from time to time. GMAC's consent, if any, to the request must
be obtained prior to the sale, lease, transfer or delivery of any vehicles
proposed by Dealer to be disposed by the Delayed Payment Privilege (the "Delayed
Payment Privilege Vehicles").
4. GMAC's consent to the Dealer's request for disposition of Delayed
Payment Privilege Vehicles shall be further subject and contingent upon the
following additional terms and conditions:
(a) GMAC may, in its sole and exclusive discretion limit the number of
Vehicles, amount outstanding and terms and conditions for which the
Delayed Payment Privilege is requested by Dealer.
(b) GMAC may, in its sole and exclusive discretion withdraw, cancel, or
suspend the Delayed Payment Privilege at anytime and for any reason
upon a ten-day advance written notice and immediately if Dealer is in
default of any agreement which Dealer has with GMAC; provided, however,
that such withdrawal, cancellation or suspension shall not affect the
rights, interests and duties under this Agreement prior thereto.
<PAGE>
(c) Dealer shall complete, execute and deliver to GMAC, immediately upon
the delivery of Delayed Payment Privilege Vehicles, a form of the type
and kind provided by GMAC from time to time (the "Delivery Schedule").
(d) Dealer shall immediately pay GMAC the Vehicle Amount Financed upon the
earliest (i) demand by GMAC; or (ii) receipt of the amount due from the
disposition of each of the Delayed Payment Privilege Vehicles; or (iii)
the "Purchaser Payment Date" set forth on the applicable Delivery
Schedule.
(e) Dealer shall obtain from the person acquiring the Delayed Payment
Privilege Vehicle a duly authorized and executed acknowledgement from
the Purchaser confirming that the terms of sale include the
continuation of GMAC's security interest in the Delayed Payment
Privilege Vehicles. The acknowledgement shall be in writing and on a
form of the type and kind provided by GMAC from time to time, which
shall be delivered to GMAC prior to any sale, lease, transfer or
delivery of any Delayed Payment Privilege Vehicle to such person (the
"Acknowledgement of Purchaser").
(f) The grant and exercise of the Delayed Payment Privilege by Dealer shall
in no way extinguish, release or terminate GMAC's security interest in
the Delayed Payment Privilege Vehicles unless and until the conditions
described in the amending paragraph set forth in paragraph 1 of this
Agreement and the aforesaid Acknowledgement of Purchaser are first
fulfilled, which shall then and thereafter continue in the proceeds
thereof.
5. GMAC shall have no duty or obligation to examine, review or consider the
creditworthiness of any proposed or actual customer of Dealer for which Dealer
seeks GMAC's consent to the Delayed Payment Privilege and any such examination,
review or consideration by GMAC shall be for its sole and exclusive use and
purposes; the Dealer expressly agreeing that any receipt or reliance on such
information from GMAC would be gratuitous and unreasonable, respectively.
6. Dealer's obligation to pay GMAC for the Vehicle Amount Financed shall be
absolute, unconditional and primary, notwithstanding (a) GMAC consenting to the
Delayed Payment Privilege; or (b) default in the payment or acquisition terms by
the customer of the Dealer for Delayed Payment Privilege Vehicles, or that any
of the customer's surety, guarantor, co-obligor or lender; or (c) rejection or
revocation of acceptance of any Delayed Payment Privilege Vehicles by such
customer, or (d) the acceptance by GMAC of any assignment or proceeds from any
Delayed Payment Privilege Vehicles; provided, however, that nothing in this
paragraph 6 is intended to permit payment to GMAC of any more than the greater
of (i) the Vehicle Amounts Financed or (ii) the value of GMAC's security
interest in the Delayed Payment Privilege Vehicles.
7. Upon demand by GMAC, Dealer shall provide GMAC with an assignment of all
right, title and interest of the Dealer in and to the accounts, contract rights,
sale proceeds or any other interest Dealer may then or thereafter have in the
Delayed Payment Privilege Vehicle. Said assignment shall be for the purpose of
additional security only and shall be on a form of the type and kind provided by
GMAC from time to time.
8. GMAC may take such actions as it deems appropriate to assure and enforce
compliance with this Agreement, including requesting, for audit purposes,
verification from Dealer's customers the fact of delivery, possession, and
amount, date and circumstances of payment of any Delayed Payment Privilege
Vehicles, and the notification to appropriate persons of any security interest,
assignment or other claim in the Delayed Payment Privilege Vehicles of GMAC.
In witness whereof the parties hereto execute this agreement the 4 day of
December, 1995.
Performance Dodge, Inc.
GENERAL MOTORS ACCEPTANCE CORPORATION -------------------------------------
(Dealer's Name)
By /s/Rick Personett By /s/ Emmett M. Rice, Jr.
- ----------------------------------------- -------------------------------------
Its Asst. Sec. Its Pres
- ----------------------------------------- -------------------------------------
(Title) (Title)
<PAGE>
AMENDMENT TO WHOLESALE SECURITY AGREEMENT
This amendment, dated as of the date below, amends the Wholesale Security
Agreement dated December 4th, 1995 between the undersigned Dealer and General
Motors Acceptance Corporation ("GMAC"), hereinafter the "Agreement".
Whereas, Dealer acquires certain used motor vehicles through auctions approved
by General Motors Corporation ("GM") or GMAC; and
Whereas, Dealer desires GMAC to finance the acquisition of such vehicles;
Now, therefore, Dealer and GMAC agree as follows:
Wherever the term "vehicles" appears in the Agreement, such term shall include
used motor vehicles Dealer acquires through auctions approved by GM or GMAC, if
the immediate prior owner of such vehicles was GM, GMAC, an affiliate of GM or
GMAC, or any other owner or seller previously approved by GMAC ("Auction
Vehicles"). Dealer agrees upon demand to pay to GMAC the amount it advances or
is obligated to advance for each vehicle at the rate per annum designated by
GMAC from time to time and then in force under the GMAC Wholesale Plan.
The collateral subject to the Agreement, and in which Dealer grants GMAC a
security interest, shall include Auction Vehicles and all additions and
accessions thereto, and all proceeds, including insurance proceeds, now owned or
hereafter acquired, wherever such collateral is located.
Executed this 4th day of December, 1995.
Witness and Attest:
General Motors Acceptance Corporation Performance Dodge, Inc.
------------------------------
(Dealer)
By: Rick Personett By: Bill Gilliland
-------------------------------- ------------------------------
(Print or type name) (Print or type name)
/s/Rick Personett /s/Bill Gilliland
-------------------------------- -----------------------------
(Signature) (Signature)
Title: Assistant Secretary Title: President
--------------------------------- -----------------------------
Address: 6303 Waterford Blvd. Suite 100 Address: 7609 SE 29th St.
-------------------------------- -----------------------------
Oklahoma City, OK 73118 Midwest City, OK 73110
--------------------------------- -----------------------------
<PAGE>
General Motors Acceptance Corporation (GMAC)
6303 Waterford Blvd. Suite 100
Oklahoma City, OK.
We request that GMAC accept and pay drafts for units to be floor planned, from
the following distributor(s) or manufacturer(s):
Name Address
- ------------------------ -----------------------------------------------------
Chrysler Corporation 800 Chrysler Drive East, Auburn Hills, MI. 48326-2757
- ------------------------ -----------------------------------------------------
- ------------------------ -----------------------------------------------------
- ------------------------ -----------------------------------------------------
- ------------------------ -----------------------------------------------------
We recognize that GMAC will not necessarily be aware at the time a draft is
honored, that the unit financed has been received by us. It is agreed that GMAC
has no liability for non-receipt of the covered merchandise or for units
received in damaged condition. We agree to pay GMAC immediately upon request if
the covered units (in new and undamaged condition) are not, for any reason,
available for inspection at the time of any collateral check conducted by GMAC.
Performance Dodge, Inc.
-------------------------------------
(Dealership)
By: Bill Gilliland
--------------------------------------
(Print or type name)
/s/Bill Gilliland
--------------------------------------
(Signature)
Title: President
---------------------------------------
Date: December 4, 1995
----------------------------------------
Receipt Acknowledged:
General Motors Acceptance Corporation
By: Rick Personett
----------------------------------
(Print or type name)
/s/Rick Personett
---------------------------------
(Signature)
Title: Assistant Secretary
-------------------------------
Date: December 4, 1995
-------------------------------
<PAGE>
PROMISSORY NOTE
$1,850,000.00 Oklahoma City, Oklahoma
December 4, 1995
FOR VALUE RECEIVED, the undersigned, Performance Dodge, Inc., an Oklahoma
Corporation (hereinafter referred to as "Maker") whose notice address is 7609
S.E. 29th Street, Midwest City, Oklahoma 73110, hereby promises to pay to the
order of General Motors Acceptance Corporation (hereinafter referred to as
"Payee"), at its place of business, 6303 Waterford Boulevard, Suite 100,
Oklahoma City, Oklahoma 73118, or such other place as may be designated in
writing by the holder of this Note, the principal sum of ONE MILLION EIGHT
HUNDRED AND FIFTY THOUSAND DOLLARS ($1,850,000.00), together with interest on
the amount of the unpaid balance at the rate set forth below in 59 successive
monthly installments of TEN THOUSAND TWO HUNDRED SEVENTY-SEVEN DOLLARS AND
SEVENTY-EIGHT CENTS ($10,277.78) each, plus interest, commencing on the 1st day
of March, 1996, and on the same day of each month thereafter, and one final
successive monthly payment due December 1, 2000 in the amount of ONE MILLION TWO
HUNDRED FORTY-THREE THOUSAND SIX HUNDRED TEN DOLLARS AND NINETY-EIGHT CENTS
($1,243,610.98) principal and interest then unpaid. Interest on the outstanding
principal balance shall be paid monthly commencing February 1, 2000 and on the
first day of each month thereafter until the principal balance is paid in full
as provided herein.
The rate of interest will be one percent (1.00%) above the higher of: (i)
5.00% per annum; or (ii) the rate announced from time to time by a majority of
the 12 largest commercial banks operating in the United States as their base or
prime rate for computing interest on loans to borrowers of the highest credit
standing (the "Prime Rate"). As of the date of this Note, the Prime Rate is
eight and three quarters percent (8.75%) and the rate of interest hereunder is
therefore nine and three quarters percent (9.75%) per annum. Such rate of
interest shall increase or decrease hereafter by the same amount as any increase
or decrease of the Prime Rate, effective on the first day of the calendar month
following each change in the Prime Rate. In no event shall the interest provided
for herein exceed the maximum permitted by law, which the parties recognize may
change from time to time.
Interest shall accrue from the date of advance up to but excluding the date
of repayment of this Note. If advances are made on a date other than the first
day of any month, the computation of interest from and including the date of
advance up to but excluding the first day of the next month (the "Initial
Period") shall be calculated by dividing the actual number of days in the
<PAGE>
Initial Period by the total number of days in the month of such advance,
multiplying the quotient thereof by the quotient resulting from the division of
the annual interest rate by twelve, and multiplying the resulting product
thereof by the unpaid principal balance. Computation of interest due on each
monthly payment after any Initial Period shall be calculated by dividing the
annual interest rate by twelve and multiplying the quotient thereof by the
unpaid principal balance. Computation of interest due for any irregular period
occurring as a result of prepayment, shall be calculated in the same manner as
the Initial Period.
This Note is secured by (1) a Real Estate Mortgage; (2) personal property
of Borrower more specifically described in Security Agreement of even date; (3)
all collateral of Borrower heretofore or hereafter granted to payee; and (4)
assets of Borrower in the possession of payee from time to time for any purpose.
The holder hereof shall have the right, at its option, to declare the whole
amount remaining unpaid to be forthwith due and payable if the undersigned
defaults in the payment of any installment of principal or interest when the
same shall become due and payable, or if the undersigned defaults in the
performance of any agreement or condition contained in the Loan Application and
Agreement executed by the undersigned, dated November 17, 1995, and any
amendments thereto, or in the mortgage of Real Estate and/or the Security
Agreement of even date securing this indebtedness, and such default shall be
continuing at the time of such declaration; or if there is material default by
any Guarantor under the terms of its Guaranty of the indebtedness evidenced by
this Note; or upon the sale of all or any portion of the lands described in the
Mortgages securing this obligation, without prior consent of the Mortgagee; or
in the event of a proceeding in bankruptcy, insolvency, or receivership by or
against the undersigned Maker or its property; or the holder hereof deems itself
insecure.
Maker hereby agrees that if, and as often as, this Note is placed in the
hands of an attorney for collection or to defend or enforce any of the holder's
rights hereunder or under any instrument securing payment of this Note, Maker
will pay to such holder its reasonable attorney's fees and all court costs and
other expenses incurred in connection herewith.
Maker hereby waives notice of presentment, notice of dishonor and demand.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Note effective the
date first above written.
PERFORMANCE DODGE, INC.
Witness: Oklahoma Corporation
/s/Robert W. Hall By: /s/Bill Gilliland
- --------------------------------- -----------------------------
Secretary/Treasurer Bill Gilliland, President
"MAKER"
3
<PAGE>
PROMISSORY NOTE
$3,700,000.00 Oklahoma City, Oklahoma
December 4, 1995
FOR VALUE RECEIVED, the undersigned, Performance Dodge, Inc., an Oklahoma
Corporation (hereinafter referred to as "Maker") whose notice address is 7609
S.E. 29th Street, Midwest City, Oklahoma 73110, hereby promises to pay to the
order of General Motors Acceptance Corporation (hereinafter referred to as
"Payee"), at its place of business, 6303 Waterford Boulevard, Suite 100,
Oklahoma City, Oklahoma 73118, or such other place as may be designated in
writing by the holder of this Note, the principal sum of THREE MILLION SEVEN
HUNDRED THOUSAND DOLLARS ($3,700,000.00), together with interest on the amount
of the unpaid balance at the rate set forth below in 27 quarterly installments
of principal in the amount of ONE HUNDRED THIRTY-TWO THOUSAND ONE HUNDRED
FORTY-TWO DOLLARS AND SEVENTY-EIGHT CENTS ($10,277.78) each, commencing on the
1st day of March, 1996, and on the same day of each March, June, September and
December thereafter, and a final quarterly payment of ONE HUNDRED THIRTY-TWO
THOUSAND ONE HUNDRED FORTY-TWO DOLLARS AND SEVENTY-EIGHT CENTS ($132,142.78)
principal and interest then unpaid. Interest on the outstanding principal
balance shall be paid monthly commencing January 1, 1996 and on the first day of
each month thereafter until the principal balance is paid in full as provided
herein.
The rate of interest will be one percent (1.00%) above the higher of: (i)
5.00% per annum; or (ii) the rate announced from time to time by a majority of
the 12 largest commercial banks operating in the United States as their base or
prime rate for computing interest on loans to borrowers of the highest credit
standing (the "Prime Rate"). As of the date of this Note, the Prime Rate is
eight and three quarters percent (8.75%) and the rate of interest hereunder is
therefore nine and three quarters percent (9.75%) per annum. Such rate of
interest shall increase or decrease hereafter by the same amount as any increase
or decrease of the Prime Rate, effective on the first day of the calendar month
following each change in the Prime Rate. In no event shall the interest provided
for herein exceed the maximum permitted by law, which the parties recognize may
change from time to time.
Interest shall accrue from the date of advance up to but excluding the date
of repayment of this Note. If advances are made on a date other than the first
day of any month, the computation of interest from and including the date of
advance up to but excluding the first day of the next month (the "Initial
Period") shall be calculated by dividing the actual number of days in the
<PAGE>
Initial Period by the total number of days in the month of such advance,
multiplying the quotient thereof by the quotient resulting from the division of
the annual interest rate by twelve, and multiplying the resulting product
thereof by the unpaid principal balance. Computation of interest due on each
monthly payment after any Initial Period shall be calculated by dividing the
annual interest rate by twelve and multiplying the quotient thereof by the
unpaid principal balance. Computation of interest due for any irregular period
occurring as a result of prepayment, shall be calculated in the same manner as
the Initial Period.
This Note is secured by (1) a Real Estate Mortgage; (2) personal property
of Borrower more specifically described in Security Agreement of even date; (3)
all collateral of Borrower heretofore or hereafter granted to payee; and (4)
assets of Borrower in the possession of payee from time to time for any purpose.
The holder hereof shall have the right, at its option, to declare the whole
amount remaining unpaid to be forthwith due and payable if the undersigned
defaults in the payment of any installment of principal or interest when the
same shall become due and payable, or if the undersigned defaults in the
performance of any agreement or condition contained in the Loan Application and
Agreement executed by the undersigned, dated November 17, 1995, and any
amendments thereto, or in the mortgage of Real Estate and/or the Security
Agreement of even date securing this indebtedness, and such default shall be
continuing at the time of such declaration; or if there is material default by
any Guarantor under the terms of its Guaranty of the indebtedness evidenced by
this Note; or upon the sale of all or any portion of the lands described in the
Mortgages securing this obligation, without prior consent of the Mortgagee; or
in the event of a proceeding in bankruptcy, insolvency, or receivership by or
against the undersigned Maker or its property; or the holder hereof deems itself
insecure.
Maker hereby agrees that if, and as often as, this Note is placed in the
hands of an attorney for collection or to defend or enforce any of the holder's
rights hereunder or under any instrument securing payment of this Note, Maker
will pay to such holder its reasonable attorney's fees and all court costs and
other expenses incurred in connection herewith.
Maker hereby waives notice of presentment, notice of dishonor and demand.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Note effective the
date first above written.
PERFORMANCE DODGE, INC.
Witness: Oklahoma Corporation
/s/Robert W. Hall By: /s/Bill Gilliland
- ------------------------------ -----------------------------
Secretary/Treasurer Bill Gilliland, President
"MAKER"
3
<PAGE>
CROSS DEFAULT AND CROSS COLLATERALIZATION AGREEMENT
THIS AGREEMENT dated this 4th day of December, 1995, is entered into by
GENERAL MOTORS ACCEPTANCE CORPORATION, a New York corporation, (hereinafter
referred to as "GMAC") and PERFORMANCE DODGE, INC., an Oklahoma corporation,
(hereinafter referred to as "BORROWER").
W I T N E S S E T H
WHEREAS BORROWER has requested that GMAC lend to it the total sum of FIVE
MILLION FIVE HUNDRED FIFTY THOUSAND DOLLARS ($5,550,000.00) as evidenced by two
loans, one in the principal amount of $1,850,000.00 and one in the principal
amount of $3,700,000.00 to be secured by real and personal property as described
in other documentation between the parties; and
WHEREAS GMAC may hereafter make additional loans, advances, and other
extensions of credit to BORROWER; and
WHEREAS GMAC is willing to extend credit to BORROWER if BORROWER agrees to
provide additional security by cross default and cross collateralizing all of
said existing, proposed, and future loans, advances, or extensions of credit;
and
WHEREAS it is the intention of BORROWER and GMAC that all collateral in
which GMAC now has or may hereafter obtain a lien on or security in shall secure
payment and performance of all loans, advances, and other extensions of credit
now or hereafter made by GMAC to BORROWER:
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged, including the inducement of GMAC, in its
sole discretion, to extend credit to BORROWER, IT IS AGREED as follows:
(1) DEFINITIONS: As used in this Agreement, the terms listed below shall
have the following meaning:
(a) Obligation shall mean any liability, indebtedness, or obligation of
BORROWER to GMAC of every kind and nature, now existing or hereafter
arising, whether created directly or acquired by assignment, whether
matured or unmatured, and any costs or expense, including reasonable
attorneys' fees incurred in the collection or enforcement of any such
obligation;
(b) Security Agreement shall mean any existing or future agreement between
BORROWER and GMAC which creates or provides for a security interest in or
lien upon any of the assets or property (tangible or intangible, real or
personal) of BORROWER, including but not limited to
<PAGE>
security agreements, deed of trust, mortgages, and wholesale floor plan
agreements.
(2) CROSS-COLLATERALIZATION: All collateral now or hereafter subject to a
security interest or lien of GMAC pursuant to any or all of the Security
Agreements shall secure any and all Obligations, and any proceeds of any
collateral may be applied to any of the Obligations as GMAC may see fit, subject
to applicable law.
(3) CROSS DEFAULT: In addition to and not in substitution for any
provisions in any of the Security Agreements evidencing Obligations, it is
agreed that any default or breach by BORROWER in payment or default of a
material nature under any Security Agreement shall, at the option of GMAC,
constitute a default under each Security Agreement and all Promissory Notes
arising therefrom.
(4) EFFECT ON OTHER AGREEMENTS: This Agreement shall constitute an
amendment and supplement of each of the Security Agreements now or hereafter
executed and shall augment and be in addition to and not in substitution for any
provision of any Security Agreement or Obligation and shall not otherwise limit
or affect the rights and remedies of GMAC under any such Security Agreement or
Obligation.
(5) FUTURE LOANS: GMAC may, in its sole and absolute discretion, make
additional loans and other financing accommodations to BORROWER, all of which
will be subject to the terms of this Agreement. Notwithstanding anything to the
contrary, any future change in the terms of BORROWER's obligations shall require
the written consent of GMAC.
(6) NOTICES: Any notices or other communications required or permitted to
be given by this document or by any of the loan documents must be given in
writing and must be personally delivered or mailed by prepaid certified,
registered, or first class mail or delivered by a nationally recognized
overnight courier to the party to whom such notice or communication is directed
at the address set forth in this document. Any notice or other communication
shall be deemed to have been given (whether actually received or not) on the day
it is personally delivered or, if mailed, on the third day after it is mailed as
aforesaid. Either party may change its address for purposes of this document by
giving ten (10) days prior written notice of such change to the other party
pursuant to the terms of this clause.
(7) NO OTHER UNDERSTANDINGS: BORROWER acknowledges that GMAC has made no
promises to induce execution of this Agreement and that there are no other
agreements or understandings, either oral or in writing, affecting this
Agreement and nothing in this Agreement shall be considered a waiver by GMAC of
any existing or future defaults by BORROWERS of any Security Agreement or
Obligation. No
<PAGE>
further modification or amendment of this Agreement shall be made except in
writing executed by both parties.
(8) GOVERNING LAW: This Agreement shall be deemed to be a contract entered
into and made pursuant to the laws of the State of Oklahoma and shall in all
respects be governed, construed, and enforced in accordance with the laws of
said State.
(9) SUCCESSORS AND ASSIGNS: The provisions of this Agreement shall be
binding upon and shall inure to the benefit of the successors and assigns of
BORROWER and GMAC.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered the day and year first above written.
PERFORMANCE DODGE, INC.
an Oklahoma Corporation
WITNESS: By: /s/Bill Gilliland
-----------------------------
BILL GILLILAND
/s/Robert W. Hall Title PRESIDENT
- ------------------------------- -------------------------
/s/Brenda Cole Address: 7609 S.E. 29th Street
- ------------------------------- Midwest City, OK 73110
CORPORATE SEAL
BORROWER
WITNESS: GENERAL MOTORS ACCEPTANCE CORPORATION
/s/[ILLEGIBLE] By: /s/[ILLEGIBLE]
- ------------------------------- -----------------------------
/s/[ILLEGIBLE] Title Ass't Sec.
- ------------------------------- ---------------------------
Address: 6303 Waterford Blvd.
Suite 100
Oklahoma City, OK 73118
<PAGE>
SECURITY AGREEMENT
Date: 4 December, 1995
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, PERFORMANCE DODGE, INC., an Oklahoma Corporation,
"debtor" herein, 7609 S.E. 29th Street, Midwest City, Oklahoma, 73110, does
hereby grant a security interest in and mortgages unto General Motors Acceptance
Corporation, the secured party, 6303 Waterford Blvd., Suite 100, Oklahoma City,
Oklahoma, 73118, its successors and assigns all of the following personal
property, hereinafter "collateral":
1. Debtor's entire inventory of used cars, trucks and other vehicles,
trailers, semi-trailers and accessories now owned or hereafter acquired,
and all substitutions and replacements thereof located on premises now or
hereafter occupied by debtor.
2. Debtor's entire inventory of automotive parts and accessories now owned
or hereafter acquired and all replacements and substitutions thereof.
3. All fixed assets, machinery, fixtures, tools, and equipment as such term
is defined in Oklahoma Uniform Commercial Code, now owned or hereafter
acquired.
4. Accounts, contract rights, receivables and general intangibles, now
accrued or hereafter accruing to debtor, including without limitation those
arising from debtor's transactions and dealings with General Motors
Corporation, its subsidiaries, successors or assigns.
5. All office furniture, furnishings, business machines and office
equipment now owned or hereafter acquired, including, but not limited to,
desks, tables, chairs, filing cabinets, typewriters, copiers, word
processors, calculators, computer equipment of every nature and
description, storage cabinets and air conditioners located on the premises
now or hereafter occupied by debtor.
6. All collateral granted to or assets in possession of secured party from
time to time for any purpose.
7. All proceeds of collateral described in paragraphs 1 through 6, supra,
including, but not limited to, accounts, chattel paper or insurance
proceeds.
To have and to hold said collateral unto the secured party, its successors
and assigns forever; provided, however, that if debtor faithfully discharges all
of its obligations to secured
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party under any agreements now or hereafter existing between the debtor and
secured party, for which this Security Agreement is given as addition security,
then these presents shall be void, otherwise to remain in full force and effect.
This Security Agreement secures the payment and performance of all
obligations now or hereafter owing to GMAC by the undersigned.
Debtor warrants that the said collateral is owned by debtor and is free of
encumbrance; that debtor shall not subject the collateral to any subsequent
interest of a third party and shall at all times protect and secure the same.
Debtor will keep the collateral free of taxes, liens or encumbrances and any
sums which may be paid by secured party, in its discretion, in release and
discharge thereof, shall be paid by debtor to secured party upon demand. Debtor
will not sell, transfer or otherwise dispose of collateral other than in the
ordinary course of debtor's business. Secured party shall have the right to
inspect the collateral and debtor's books and records related thereto.
In the event of default by the debtor in the performance of any obligation
or agreement now or hereafter existing between the parties, then upon such
default and at any time thereafter, the secured party may declare all
obligations secured hereby immediately due and payable and may proceed to take
immediate possession of said collateral, or any party thereof, and with or
without notice demand possession thereof and with or without legal process enter
the premises where the said collateral may be and take possession of and sell
the same after first giving the debtor reasonable notice of the time and place
of such private or public sale. The expense of taking, holding, preparing for
sale and the selling shall be deducted from the proceeds of the sale and the
balance thereof applied to the partial or complete satisfaction of all
indebtedness or obligations of the debtor to the secured party. The terms of the
Agreement shall be binding upon the debtor, its successors and assigns.
IN WITNESS WHEREOF, debtor has caused this instrument to be executed by its
duly authorized officers this 4th day of December, 1995.
PERFORMANCE DODGE, INC.,
an Oklahoma Corporation
By: /s/Bill Gilliland
---------------------------------
Bill Gilliland, President
"DEBTOR"
ATTEST:
/s/Robert W. Hall
- ---------------------------
Secretary
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<PAGE>
MORTGAGE, ASSIGNMENT
AND
SECURITY AGREEMENT
FROM
PERFORMANCE DODGE, INC.
an Oklahoma Corporation
TO
GENERAL MOTORS ACCEPTANCE CORPORATION
Mortgagee
Dated December 4th, 1995
THIS INSTRUMENT IS A MORTGAGE ON BOTH REAL AND PERSONAL PROPERTY AND IS AMONG
OTHER THINGS A MORTGAGE OF CHATTELS, A SECURITY AGREEMENT AND FINANCING
STATEMENT.
"THIS INSTRUMENT CONTAINS AFTER ACQUIRED PROPERTY PROVISIONS."
<PAGE>
MORTGAGE, ASSIGNMENT AND SECURITY AGREEMENT
THIS MORTGAGE AND SECURITY AGREEMENT is made as of the 4th day of December,
1995, by Performance Dodge, Inc., an Oklahoma Corporation, having notice address
at 7609 S.E. 29th Street, Midwest City, Oklahoma 73110 (the "Mortgagor") and
General Motors Acceptance Corporation, having a notice address at 6303 Waterford
Boulevard, Suite 100, Oklahoma City, Oklahoma 73118 (the "Mortgagee").
W I T N E S S E T H:
WHEREAS, Mortgagor is indebted to Mortgagee in the sum of $5,550,000.00
with interest thereon according to the terms of two certain Promissory Notes of
even date herewith;
NOW, THEREFORE, Mortgagor, for an in consideration of the premises and of
Mortgagor's obligations as hereinafter described, has granted, bargained, sold,
warranted, mortgaged, assigned, transferred, and conveyed, and by these presents
does grant, bargain, sell, warrant, mortgage, assign, transfer and convey unto
Mortgagee all of Mortgagor's right, title and interest, whether now owned or
hereafter acquired, in all of the hereinafter described properties, rights and
interests; and as such properties, rights and interests consist of fixtures or
proceeds of collateral defined in or subject to the applicable provisions of the
Oklahoma Uniform Commercial Code, the Mortgagor grants to Mortgagee a security
interest therein:
Two tracts of land lying and situated in the Southeast Quarter (SE/4) of
Section Ten (10), Township Eleven (11) North, Range Two (2) West of the
Indian Meridian, Oklahoma County, Oklahoma, more particularly described
upon Exhibit "A" hereto attached and made a part hereof;
LESS AND EXCEPT any interest in and to oil, gas and other minerals therein
and thereunder and all rights, interests and estates of whatsoever nature
incident thereto or arising therefrom, and subject to recorded easements,
together with all and singular the tenements, hereditaments and appurtenances
thereof; all surface damages and other payments associated with the exercise of
any mineral interest or right relating to the Mortgaged Property; all buildings,
improvements and fixtures now or hereafter constructed or located thereon.
The foregoing items of real and personal property are hereafter
collectively called the "Mortgaged Property" and are hereby declared to be
subject to the mortgage lien and security interest created by this Mortgage to
secure the payment of the indebtedness and performance of the obligations herein
described.
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TO HAVE AND TO HOLD the Mortgaged Property with all the rights,
improvements and appurtenances thereunto belonging, or in anywise appertaining,
unto the Mortgagee, its successors and assigns, forever.
The Mortgagor, in consideration of the premises, does hereby covenant and
agree with the Mortgagee as follows:
1. Secured Indebtedness. This Mortgage, Assignment and Security Agreement
is given to secure all indebtedness evidenced by the two Promissory Notes
hereinabove referred to, together with all renewals, extensions and
modifications thereof, executed by Mortgagor in favor of Mortgagee in the
aggregate principal sum of FIVE MILLION FIVE HUNDRED FIFTY THOUSAND DOLLARS
($5,550,000.00) (herein collectively called the "Notes") bearing interest as
provided for in said Notes and containing provisions for the payment of attorney
fees and acceleration of maturity as therein set forth.
2. Mortgagor's Warranties. The Mortgagor represents and warrants that: the
Mortgagor is seized of an indefeasible estate in fee simple in the real property
and absolute ownership of the personal property comprising the Mortgaged
Property; the Mortgagor has full right to sell, convey and mortgage the
Mortgaged Property; the Mortgaged Property is free and clear of all general and
special taxes, liens, charges and encumbrances of every kind and character; and
Mortgagor hereby warrants and will forever defend title to the mortgaged
property against the claims of all persons whomsoever.
3. Further Assurances. Mortgagor shall execute and deliver such other and
further instruments and shall do such other and further acts as in the opinion
of the Mortgagee may be necessary or desirable to carry out more effectively the
purposes of this instrument, including, without limiting the generality of the
foregoing, the prompt correction of any defect which may hereafter be discovered
in the title to the mortgaged property or in the execution and acknowledgment of
this instrument or any other document used in connection herewith or delivered
to the Mortgagee in connection with any indebtedness.
4. Taxes. Subject to the Mortgagor's right to contest the same, the
Mortgagor will promptly pay all taxes, assessments and governmental charges
legally imposed upon this instrument or upon the Mortgaged Property or upon the
interest of the Mortgagee therein, or upon the income, profits, proceeds and
other revenues thereof except for Oklahoma Mortgage Tax which is the obligation
of the Mortgagee.
5. Maintenance; Waste. With respect to the Mortgaged Property, the
Mortgagor agrees that the Mortgagor will: keep the same in good condition and
repair; pay all general taxes, special assessments and other charges that might
be levied or assessed thereon as the same become due and payable and furnish to
the
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<PAGE>
Mortgagee receipts showing payment of any such taxes and assessments, if
demanded; pay all debts for repair or improvements hereafter arising which might
become liens thereon; comply with or cause to be complied with all requirements
of any governmental authority relating thereto; to the extent of insurance
proceeds made available, plus the amount of deduction, by Mortgagee and/or any
insurance company insuring the Mortgaged Property (or its assignee) and/or any
subsequent mortgagee, promptly repair, restore, replace or rebuild any part
thereof which might be damaged or destroyed by any casualty whatsoever or which
might be affected by any condemnation proceeding or exercise of eminent domain;
and promptly notify the Mortgagee of any damage thereto. The Mortgagor further
agrees that the Mortgagor will not: commit or suffer to be committed any waste
of the Mortgaged Property; initiate, join in or consent to any change in any
private restrictive covenant, zoning ordinance or other public or private
restriction limiting or defining the uses which may be made of the Mortgaged
Property or any part thereof; or permit any lien or encumbrance of any kind or
character which might be prior to the lien of this Mortgage to accrue or remain
on the Mortgaged Property or any part thereof.
6 A. Insurance. The Mortgagor shall keep the buildings and improvements now
existing or hereafter erected on the Mortgaged Property insured against loss by
fire, windstorm and other hazards, casualties and contingencies, vandalism, and
malicious mischief as are usually covered by extended coverage policies for the
full repair and replacement value, without reduction for depreciation, with such
companies, in such amounts, and for such periods as GMAC may require, and will
promptly pay any premiums on such insurance when due. GMAC may, at its sole
discretion, require Mortgagor to provide other, different, or additional
insurance coverage, including, without limitation, earthquake or flood
insurance. Mortgagor shall deliver to GMAC policies, certificates, or
endorsements of such insurance which will name GMAC as an insured party and will
contain loss payable clauses which will make all losses under such policies
payable to GMAC. Such policies or certificates shall contain provisions that no
such insurance may be canceled or decreased without thirty (30) days prior
written notice to GMAC.
6 B. Casualty Loss. In the event of any loss, damage, or destruction of
buildings of improvements, Mortgagor shall immediately notify GMAC. Regarding
any covered loss, such insurance company is authorized and directed to make
payment of such loss directly to GMAC, and the insurance proceeds may be applied
by GMAC toward reimbursement of all costs and expenses in collecting said
proceeds, the reduction of the indebtedness secured hereby, or the restoration
or repair of the buildings and improvements damaged or destroyed.
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<PAGE>
7. Security Interest. This Mortgage is intended to constitute a security
agreement with respect to any part of the Mortgaged Property which might now or
hereafter be characterized by law as personal property.
8. Condemnation.
8.1 Mortgagor hereby irrevocably assigns to Mortgagee any award or
payment which may be due and owing to the Mortgagor if the property or any part
thereof shall be condemned and taken under the power of eminent domain.
8.2 Immediately on obtaining knowledge of the institution of any
proceedings or negotiations for the condemnation of the Mortgaged Property or
any portion thereof, the Mortgagor will notify the Mortgagee of the pendency of
such negotiations of such proceedings. The Mortgagee may participate in any such
negotiations or proceedings, and the Mortgagor from time to time will execute
and deliver to the Mortgagee all instruments requested by the Mortgagee to
permit such participation.
8.3 The Mortgagor will file and prosecute in good faith and with due
diligence what would otherwise be its claim in any such award or payment and
will cause the same to be collected and paid over to Mortgagee.
9. Sale. If the entire property herein described or any part thereof should
be sold or otherwise transferred, at a voluntary or judicial sale or otherwise,
the entire unpaid balance of the indebtedness of the Mortgagor to Mortgagee
hereby secured and all accrued interest shall become immediately due and payable
at the option of Mortgagee.
10. Events of Default. For purposes of this Mortgage, the following shall
constitute events of default: (a) any failure or refusal to pay the indebtedness
of Mortgagor to Mortgagee or any part thereof, as the same becomes due in
accordance with the terms of the Notes which are secured by this Mortgage; or
(b) default of Mortgagor in performance of any of the terms and conditions of
this Mortgage of even date signed by Mortgagor securing said indebtedness; or
(C) if any representation or warranty made by the Mortgagor herein proves untrue
in any material respect; or (d) the execution by the Mortgagor of an assignment
for the benefit of creditors; or (e) the levy against the Mortgaged Property, or
any part thereof, of any execution, attachment, sequestration or other writ; or
(f) the appointment of a receiver of the Mortgagor or the Mortgaged Property, or
any part thereof or (g) the failure of the Mortgagor to pay any of the taxes
assessments, debts, liens or other charges prior to delinquency, or to insure
the Mortgaged Property or deliver the policies of insurance as herein provided
for; or (h) the filing by Mortgagor of a petition for adjudication as a bankrupt
or seeking any other relief under any bankruptcy, reorganization, debtor's
relief or insolvency law now or hereafter
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<PAGE>
existing or if the Mortgagor is involuntarily subjected to the filing of any
such petition, or the Mortgagor admits in writing an inability to pay debts
generally as the same become due; or (i) the sale of all or any part of the
collateral herein described without prior written consent of Mortgagee.
11. Remedies. In the event any one or more of the events of default shall
occur and shall not have been remedied, Mortgagee at its option, may declare
said entire secured indebtedness immediately due and payable, and without any
notice or demand of any kind, both of which are expressly waived. Mortgagee may,
at its sole discretion, upon such default, and subject to any mandatory
requirements of law then in force and applicable thereto:
(a) Exercise all of the rights, remedies, powers and privileges of the
Mortgagor with respect to the Mortgaged Property or any part thereof and give or
withhold all consents required therein which Mortgagor would otherwise be
entitled to give or withhold; all costs and expenses, including reasonable
attorney's fees, incurred by the Mortgagee in protecting and enforcing its
rights under this paragraph shall constitute a demand obligation owing by the
Mortgagor and shall bear interest from the date of such costs and expenses at
the rate provided in the Notes;
(b) Appoint as a matter of right a receiver or receivers for all or any
part of the Mortgaged Property, whether such receivership be incident to a
proposed sale thereof or otherwise;
(c) Foreclose this Mortgage as provided by law, with or without
appraisement, at the option of the Mortgagee, take possession of the Mortgaged
Property and exclude the Mortgagor therefrom, by receiver or otherwise,
regardless of adequacy of security or solvency of Mortgagor, and enter into
possession of the Mortgaged Property and collect the rents, issues and profits
thereof; and
(d) Exercise any and all other rights or remedies granted to the Mortgagee
pursuant to applicable law and pursuant to the provisions of said Notes and this
Mortgage upon the occurrence of an event of default thereunder or otherwise
provided by law.
12. Power of Sale. Mortgagor hereby expressly confers upon Mortgagee the
power to sell said Mortgaged Property upon default herein, without Court
proceedings, as provided by the laws of the State of Oklahoma, or to foreclose
by legal action, as Mortgagee may elect.
13. Judicial Proceedings.
13.1 Upon occurrence of an event of default, Mortgagee may proceed by suit
or suits in equity or at law, whether for foreclosure hereunder, or for sale of
the Mortgaged Property, or for the specific performance of any covenant or
agreement herein
5
<PAGE>
contained or in aid of the execution of any power herein granted, or for the
appointment of a receiver pending any foreclosure hereunder or the sale of the
Mortgaged Property, or for the enforcement of any other appropriate legal or
equitable remedy.
13.2 The Mortgagee shall have the right to become the purchaser at any sale
of the Mortgaged Property held by any court, receiver or public officer, and the
Mortgagee shall have the right to credit upon the amount of the bid made
therefor, the amount payable out of the net proceeds of such sale to it.
Recitals contained in any conveyance made to any purchaser at any sale made
hereunder shall conclusively establish the truth and accuracy of the matters
therein stated, including, without limiting the generality of the foregoing,
nonpayment of the unpaid principal sum of, interest accrued on and fees payable
in respect of the indebtedness after the same have become due and payable,
advertisement and conduct of such sale in the manner provided herein.
13.3 The Mortgagor and all who claim through or under the Mortgagor or any
one of them waive to the extent that the Mortgagor may lawfully do so, any and
all right to have the Mortgaged Property marshalled upon any foreclosure of the
lien hereof, or sold in any order, and agree that the Mortgagee or any court
having jurisdiction to foreclose such lien may sell the Mortgaged Property as an
entirety.
14. Rights Cumulative. Each and every right, power and remedy herein given
to the Mortgagee shall be cumulative and not exclusive and each and every right,
power and remedy whether specifically herein given or otherwise existing may be
exercised from time to time and so often and in such order as may be deemed
expedient by the Mortgagee as the case may be, and the exercise, or the
beginning of the exercise, of any such right, power or remedy shall not be
deemed a waiver of the right to exercise, at the same time or thereafter, any
other right, power or remedy. No delay or omission by the Mortgagee in the
exercise of any right, power or remedy shall impair any such right, power or
remedy or operate as a waiver thereof or of any other right, power or remedy
then or thereafter existing.
15. No Waiver. Any failure by the Mortgagee to insist on the strict
performance by the Mortgagor of any of the provisions hereof will not be deemed
to be a waiver of any of the provisions hereof; the Mortgagee, notwithstanding
any such failure, will have the right thereafter to insist on the strict
performance by the Mortgagor of all of the provisions of this Mortgage to be
performed by the Mortgagor. Neither the Mortgagor nor any other person now or
hereafter obligated for the payment of the whole or any part of the indebtedness
hereby secured will be relieved of such obligation by reason of the failure of
the Mortgagee to enforce any of the provisions of this Mortgage or of any
instrument evidencing or securing payment of the indebtedness hereby secured.
The Mortgagee
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<PAGE>
may at any time, without notice to any person, release any portion of the
Mortgaged Property or any other collateral or any portion thereof which might be
held as security for payment of the indebtedness hereby secured, either with or
without any consideration for such release, without in any manner affecting the
liability of the Mortgagor, and without affecting, disturbing or impairing the
validity and priority of the lien of this Mortgage on the remainder of the
Mortgaged Property which is unreleased, and without in any manner affecting or
impairing any other collateral security which might be held by the Mortgagee.
The Mortgagee reserves the right at any time and from time to time, without
notice to any person, to grant any indulgence, forbearance, release or extension
of time for the payment of the indebtedness hereby guaranteed.
16. Unenforceable Or Inapplicable Provisions. If any provision hereof is
invalid, or unenforceable under the applicable law of the State of Oklahoma or
of the United States, the other provisions thereof shall be liberally construed
in favor of the Mortgagee in order to effectuate the provision hereof and shall
not affect the validity or enforceability of any other such provisions contained
herein. Any reference herein contained to a statute or law of the State in which
no part of the Mortgaged Property is situated shall be deemed inapplicable to,
and not used in, the interpretation hereof.
17. Expenses of Collection. The Mortgagor agrees that if, and as often as
this Mortgage is placed in the hands of an attorney for collection, or to
protect the priority or validity of this Mortgage, or to prosecute or defend any
suit affecting the Mortgaged Property or to enforce or defend any of the
Mortgagee's rights under any instrument evidencing or securing payment of the
indebtedness hereby secured, the Mortgagor will pay to the Mortgagee the
Mortgagee's reasonable attorney's fees, together with all court costs, expenses
for title examination, title insurance or other disbursements relating to the
Mortgaged Property which sums will be secured hereby.
18. Notices. Any notices, requests, demands or other instrument which may
be required or permitted to be given or served upon the Mortgagor shall be
sufficiently given when mailed by certified mail, return receipt requested and
addressed to the Mortgagor at the address shown in the first paragraph of this
instrument or to such different address as the Mortgagor shall have designated
by written notices received by the Mortgagee.
19. Oral Changes. This Mortgage contains the entire agreement between the
parties pertaining to the subject matter hereof, and cannot be changed,
terminated or amended except by written agreement signed by both of the parties
hereto.
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<PAGE>
A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE WHICH ALLOWS THE MORTGAGEE TO
TAKE THE MORTGAGED PROPERTY AND SELL IT WITHOUT GOING TO COURT IN A FORECLOSURE
ACTION UPON DEFAULT BY THE MORTGAGOR UNDER THIS MORTGAGE.
IN WITNESS WHEREOF the Mortgagor has caused this writing to be signed,
sealer and delivered this 4th day of December, 1995, at Oklahoma City, Oklahoma.
PERFORMANCE DODGE, INC.,
an Oklahoma Corporation
ATTEST:
/s/Robert W. Hall /s/Bill Gilliland
- --------------------------- -----------------------------
Secretary/Treasurer BILL GILLILAND, President
[SEAL]
MORTGAGOR
STATE OF OKLAHOMA )
COUNTY OF OKLAHOMA ) ss.
Before me, a Notary Public, on this 4th day of December, 1995, personally
appeared Bill Gilliland to me known to be the identical person who subscribed
his name as maker thereof to the foregoing instrument as President of
Performance Dodge, Inc., an Oklahoma Corporation, and acknowledged to me that he
executed the same as his free and voluntary act and deed and as the free and
voluntary act and deed of said Corporation, for the uses and purposes therein
set forth.
Given under my hand and seal of office the day and year last above written.
/s/Tula D. Fessender
-----------------------------------
NOTARY PUBLIC
MY COMMISSION EXPIRES:
1/29/96
- ------------------------------
[SEAL]
[Notary Public Seal of Tula D. Fessender]
<PAGE>
TRACT I
A part of the Southeast Quarter (SE/4) of Section Ten (10), Township Eleven (11)
North, Range Two (2) West of the Indian Meridian, Oklahoma County, Oklahoma,
more particularly described as follows: commencing at the Southeast Corner of
the Southeast Quarter (SE/4) of said Section 10; Thence North 89 deg.30'37" West
along the South line of aid Southeast Quarter a distance of 175.00 feet; Thence
North 00 deg.07'00" East parallel with the East line of said Southeast Quarter a
distance of 494.20 feet; Thence South 89 deg.30'37" East parallel with the South
line of said Southeast Quarter a distance of 175.00 feet; Thence South 00
deg.07'00" West along the East line of said Southeast Quarter a distance of
494.20 feet to the Point of Beginning.
TRACT II
A part of the Southeast Quarter (SE/4) of Section Ten (10), Township Eleven (11)
North, Range Two (2) West of the Indian Meridian, Oklahoma County, Oklahoma,
more particularly described as follows: Commencing at the Southeast Corner of
the Southeast Quarter (SE/4) of said Section 10; Thence North 89 deg.30'37" West
along the South line of said Southeast Quarter a distance of 225.50 feet to the
point of beginning; Thence continuing North 89 deg.30'37" West along said South
line a distance of 371.78 feet; Thence North 00 deg.07'00" East parallel with
the East Line of said Southeast Quarter a distance of 417.44 feet to the South
line of Lot A, Block One, Chesser Addition, according to the recorded plat
thereof; Thence South 89 deg.30'37" East along the South line of said Lot A, a
distance of 171.78 feet; Thence North 00 deg.07'00" East parallel with the East
line of said Southeast Quarter a distance of 5.00 feet to the North line of said
Lot A; Thence South 89 deg.30'37" East along the North line of said Lot A, a
distance of 200.00 feet; Thence South 00 deg.07'00" West parallel with the East
line of said Southeast Quarter a distance of 422.44 feet to the Point of
Beginning.
<PAGE>
PROMISSORY NOTE
$977,249,74 Midway Chevrolet, Inc.
Amarillo, Texas
December 15, 1989
For value received, the undersigned borrower (sometimes hereinafter referred to
as "Maker") promises to pay to the order of GENERAL MOTORS ACCEPTANCE
CORPORATION (sometimes hereinafter referred to as "Payee") at its office at 3501
S. Georgia, Amarillo, Texas 79109, the principal sum of Nine Hundred
Seventy-seven Thousand Two Hundred Forty-nine and 74/100 Dollars ($977,249.74),
or so much thereof as may be advanced from time to time hereunder, in 59
successive monthly installments of Five Thousand Four Hundred Seventy-two and
no/100 Dollars ($5,472.00) each, together with interest on the amount of unpaid
principal at the rate set forth below, commencing on February 1, 1990, and on
the same day of each month thereafter, and a final successive installment of all
principal and interest unpaid on January 1, 1995. All payments made shall be
applied first to accrued interest, with the balance, if any, to principal.
The rate of interest will be one and one-quarter percent (1.25%) above the prime
rate (as hereinafter defined). Such prime rate as of the date of this promissory
note is 10.50. Upon each increase or decrease hereafter in the prime rate, the
rate of interest shall be increased or decreased by the same amounts as the
increase or decrease in the prime rate, effective on the first day of the
calendar month following each change in the prime rate. In no event shall the
interest provided for herein exceed the maximum permitted by law, which the
parties recognize may change from time to time.
The term 'prime rate' shall mean the 'prime' or 'base' rate of interest
announced from time to time by a majority of the twelve largest commercial banks
operating in the United States as their rate for computing interest on loans to
borrowers of the highest credit standing. Notwithstanding the foregoing, for the
purposes of determining the prime rate of interest under this promissory note,
the prime rate shall be considered to be 6% if the prime rate established by
said banks at any time is a figure which is less than 6% per annum.
If at any time the rate of interest then in effect under the preceding
paragraphs exceeds the maximum legal rate of interest, the interest payable
hereunder shall thereafter be the maximum legal rate of interest until such time
as the aggregate interest paid equals the aggregate interest that would
otherwise have been payable pursuant to the preceding paragraphs.
Interest shall accrue from the date of advance up to but excluding the date of
repayment of such loan. If the loan proceeds are advanced on a date other than
the first day of any month, the computation of interest from and including the
date of advance up to but excluding the first day of the next month (the
"Initial Period") shall be calculated by dividing the actual number of days in
the Initial Period by the total number of days in the month of such advance,
multiplying the quotient thereof by the quotient resulting from the division of
the annual interest rate by twelve, and multiplying the resulting product
thereof by the unpaid principal balance. Computation of interest due on each
monthly payment after any Initial Period shall be calculated by dividing the
annual interest rate by twelve and multiplying the quotient thereof by the
unpaid principal balance. Computation of interest due for any irregular period
occurring as a result of prepayment, shall be calculated in the same manner as
the initial period.
<PAGE>
Maker shall have the right at any time and from time to time upon at least two
business days prior notice to Payee to prepay this loan in whole or in part in
an aggregate principal amount of not less than 10% of the remaining principal
balance; provided, however, that in the event of any such prepayment, Maker
shall pay a prepayment premium, subject to any limitation imposed by law, in the
following amounts: (i) three percent (3%) of the principal balance prepaid if at
the time of prepayment the remaining term is over 36 months but less than 60
months; and (ii) two percent (2%) of the principal balance prepaid if at the
time of prepayment the remaining term is over 12 months but less than 37 months.
There is no prepayment premium if at the time of prepayment the remaining term
is 12 months or less. Any prepayment premium will be waived by Payee if such
prepayment is paid with the proceeds of insurance covering casualty losses to
the collateral pledged hereunder, if such prepayment is the result of a bona
fide sale of the dealership, or if the loan is terminated by Payee. All
prepayments shall include the prepayment premium (if applicable) as well as all
interest accrued on the amount being prepaid to the date of payment.
The holder hereof shall have the right, at its option, to declare the whole
amount remaining unpaid to be forthwith due and payable if the undersigned
defaults in the payment of any installment of principal or interest on this note
when the same shall become due and payable, or if the undersigned or the
dealership with which the undersigned is associated or affiliated defaults in
the performance of any agreement or condition contained in the Loan Application
and Agreement executed by the undersigned, dated September 30, 1989, and such
default shall be continuing at the time of such declaration.
Each maker, surety, endorser, and guarantor hereof severally expressly waives
all notices, demands for payment, presentations for payment, notices of
intention to accelerate the maturity, notice of acceleration of maturity,
protest, and notice of protest. The Maker further agrees, if this note is placed
in the hands of an attorney for collection, to pay reasonable attorneys' fees as
permitted by law.
It is expressly stipulated and agreed to be the intent of the Maker and Payee at
all times to comply with the applicable Texas law governing the maximum rate or
amount of interest payable on or in connection with this Note and the Loan (or
applicable United States federal law to the extent that it permits the Payee to
contract for, charge, take, reserve of receive a greater amount of interest than
under Texas law). If the applicable law is ever judicially interpreted so as to
render usurious any amount called for under this Note or under the other
security documents, or contracted for, charged, taken, reserved or received with
respect to the Loan, or if acceleration of the maturity of this Note or if any
prepayment by Maker results in Maker having paid any interest in excess of that
permitted by law, then it is Maker's and Payee's express intent that all excess
amounts theretofore collected by Payee be credited on the principal balance of
this Note (or, if this Note has been or would thereby be paid in full, refunded
to Maker), and the provisions of this Note and the other security documents
immediately be deemed reformed and the amounts thereafter collectible hereunder
and thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder and thereunder.
The right to accelerate maturity of this Note does not include the right to
accelerate any interest which has not otherwise accrued on the date of such
acceleration, and Payee does not intend to collect any unearned interest in the
event of acceleration. All sums paid or agreed to be paid to Payee for the use,
forbearance or detention of the indebtedness evidenced hereby shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full
<PAGE>
term of such indebtedness until payment in full so that the rate or amount of
interest on account of such indebtedness does not exceed the applicable usury
ceiling. To the extent that Texas law determines the Maximum Rate, the Maximum
Rate shall be determined by utilizing the Indicated (Weekly) ceiling from time
to time in effect pursuant to Tex. Rev. Civ. Stat. art. 5069-1.04, as amended.
In no event shall the provisions of Chapter 15 of the Texas Credit Code (Tex.
Rev. Civ. Stat. art. 5069-15.01, et seq.) be applicable to the loan evidenced
hereby. As used herein, the term "Maximum Rate" shall mean the maximum
non-usurious rate of interest which may be lawfully contracted for, charged,
taken, reserved or received by Payee from Maker in connection with the loan
evidenced hereby under applicable Texas law (or applicable United States federal
law to the extent that it permits Payee to contract for, charge, take, reserve
or receive a greater amount of interest than under Texas law).
This note is in renewal and extension, but not in extinguishment, of that one
certain promissory note dated February 4, 1988, executed by Yarbrough Chevrolet,
Inc. and payable to the order GMAC, in the principal sum of $650,000.
Payment Guaranteed: BORROWER(S):
MIDWAY CHEVROLET, INC.
By: /s/Billy A. Gilliland
-----------------------------
Billy A. Gilliland, President
Address: Route 3, Box 786
Rockwell Road and Canyon
Expressway
Amarillo, Texas 79105
Accepted:
General Motors Acceptance
Corporation
By: /s/ F.W. Audgins Asst. Treas/Br. Mgr.
--------------------------------------------
(Signature) (Title)
Date 12/15/89
- ------------------------------------------------
agm/2210
<PAGE>
RENEWAL, EXTENSION AND MODIFICATION AGREEMENT
This Renewal, Extension and Modification Agreement is made and entered into
this 20th day of February, 1995, to be effective January 1, 1995 by and between
General Motors Acceptance Corporation ("GMAC"), and Midway Chevrolet, Inc.
("Borrower").
RECITALS
1. Borrower has executed and delivered its promissory note dated December
15, 1989 in the original principal amount of $977,249.74 payable to GMAC,
bearing interest as therein provided and having a final maturity date of January
1, 1995 (the "Note").
2. The Note is secured by a lien created under a certain Deed of Trust,
dated December 15, 1989 from Borrower as grantor, to F. W. Hudgins, trustee, for
the benefit of GMAC, (the "Deed of Trust"), the Deed of Trust covering the
property described in Exhibit A hereto (the "Mortgaged Property") and being
recorded in Volume 772, Page 107, Deed of Trust Records, Randall County, Texas.
3. Borrower has requested that GMAC renew, extend and modify the Note as
hereinafter set forth, and continue and carry forward the lien created under the
Deed of Trust to secure the payment of the Note as extended.
NOW THEREFORE, the parties hereto agree as follows:
1. The maturity of the Note is extended from January 1, 1995 to January 1,
2000. The lien of the Deed of Trust is extended to secure the payment of the
Note as extended hereby.
2. The parties hereby acknowledge and agree that interest has been paid
through December 31, 1994 and the unpaid principal balance of the Note as of the
date hereof is $640,945.03 (the "Extended Balance").
3. The rate of interest effective as of January 1, 1995 will be one percent
(1.00%) above the prime rate as defined in the Note.
4. The Extended Balance shall be repaid in fifty-nine (59) successive
monthly installments of principal, each in the amount of Five Thousand Four
Hundred Seventy Two and No/100 Dollars ($5,472.00) plus accrued interest,
commencing on February 1, 1995, and on the same day of each month thereafter,
with a final successive installment of all unpaid principal and interest due on
January 1, 2000.
<PAGE>
5. Borrower and GMAC have entered into a Loan Application and
Agreement-Renewal and Extension, dated of even date herewith (the "Loan
Agreement"). A default under the Loan Agreement shall constitute a default under
the Note and Deed of Trust, as each have been renewed, modified and extended
hereby.
6. All terms of the Note and the Deed of Trust are incorporated herein for
all purposes.
7. (a) Definitions. For the purposes of this Agreement, the following terms
shall have the meaning herein specified:
(i) "Hazardous Materials" shall mean (1) any "hazardous waste" as
defined by the Resource Conservation and Recovery Act of 1976 (42 U.S.C.
Section 6901 et seq.), as amended from time to time, and regulations
promulgated thereunder; (2) any "hazardous substance" as defined by the
Comprehensive Environmental Response, Compensation and Liability Act of
1980 (42 U.S.C. Section 9601 et seq.) ("CERCLA"), as amended from time to
time, and regulations promulgated thereunder and all applicable state and
local laws, rules, and regulations related to hazardous substances now
existing or hereafter enacted; (3) asbestos; (4) polychlorinated biphenyls;
(5) radon gas; (6) spilled or leaked petroleum products; (7) any substance
the presence of which on the Mortgaged Property is prohibited by any Legal
Requirements; and (8) any substance for which any Legal Requirements
requires special handling in its collection, storage, treatment, or
disposal.
(ii) "Hazardous Materials Contamination" shall mean the contamination
(whether presently existing or hereafter occurring) of the buildings,
improvements, facilities, soil, ground water, air or other elements at any
time (whether before or after the date of this Agreement) due to Hazardous
Materials emanating (whether by escape, seepage, leakage, spillage,
discharge, emission, release, or otherwise, and whether intentional,
inadvertent, or otherwise) from the Mortgaged Property or from other
property onto the Mortgaged Property.
(iii) "Legal Requirements" (i) Any and all present and future judicial
decisions, statutes, rulings, rules, regulations, permits, certificates or
ordinances of any governmental authority in any way applicable to Borrower,
any guarantor (with respect to the indebtedness on the Mortgaged Property)
or the Mortgaged Property, including, but not limited to, those respecting
the ownership, use, occupancy, possession, operation, maintenance,
alteration, repair or reconstruction thereof, (ii) Borrower's or any
guarantor's presently or subsequently effective Bylaws and Articles of
Incorporation, or any instruments establishing any partnership, limited
partnership, joint venture, trust or other form of business association (if
either, both or all by any of same), (iii) any and all leases or other
contracts (written or oral) of any nature to which Borrower or guarantor
may
2
<PAGE>
be bound and (iv) any and all restrictions, reservations, conditions,
easements or other covenants or agreements of record affecting the
Mortgaged Property.
(b) Representations and Warranties. Borrower hereby represents and
warrants that:
(i) Borrower has no knowledge that, any Hazardous Materials as
currently defined by Legal Requirements in effect as of the date of this
Agreement ("Current Hazardous Materials") are now located on the Mortgaged
Property.
(ii) Borrower has not caused or permitted any Current Hazardous
Materials to be placed, held, located or disposed of on, under or at the
Mortgaged Property or any part thereof.
(iii) Borrower has no knowledge that any other person has ever caused
or permitted any Current Hazardous Materials to be placed, held, located or
disposed of on, under or at the Mortgaged Property or any part thereof.
(iv) No part of the Mortgaged Property is currently or has ever been
used by Borrower for the disposal, storage, treatment, processing,
manufacturing or other handling of Current Hazardous Materials.
(v) Borrower has no knowledge that the Mortgaged Property (or any part
thereof) has at any time prior to date of this Agreement ever been used by
any party other than Borrower for the disposal, storage, treatment,
processing, manufacturing or other handling of Current Hazardous Materials.
(vi) Borrower has no knowledge that the Mortgaged Property (or any
part thereof) is affected by any Hazardous Materials Contamination.
(vii) Borrower has no knowledge that any property adjoining the
Mortgaged Property is or has ever been used for the disposal, storage,
treatment, processing, manufacturing or other handling of Current Hazardous
Materials.
(viii) Borrower has no knowledge that any property adjoining the
Mortgaged Property is affected by Hazardous Materials Contamination.
(ix) To Borrower's knowledge, no investigation, administrative order,
consent order and agreement, litigation or settlement with respect to
Current Hazardous Materials or Hazardous Materials Contamination is
proposed, threatened, anticipated or in existence with respect to the
Mortgaged Property.
3
<PAGE>
(x) The Mortgaged Property is not currently on, and to Borrower's
knowledge, after diligent investigation and inquiry, has never been on, any
federal or state "Super Fund" or "Super Lien."
It shall not constitute a breach of the foregoing representations and
warranties if there are stored on the Mortgaged Property Hazardous Materials
commonly used and necessary for the operation of an automobile dealership as
long as such Hazardous Materials are in quantities commonly stored in automobile
dealerships and are stored in accordance with Legal Requirements.
Notwithstanding anything to the contrary contained in this Section, no event of
default shall exist under this Section as a result of any representation or
warranty contained herein being incorrect (other than the representations and
warranties set out under clause (ii) or clause (iv) above that are incorrect as
a result of matters occurring during Borrower's ownership of the Mortgaged
Property and other than any of the representations and warranties set out under
clauses (i) through (x) above as to which Borrower has made an intentional
misrepresentation), if Borrower and GMAC agree on a course of action for the
removal, treatment and disposition, as applicable (collectively the "Remedial
Action Plan"), of any on-site or off-site Hazardous Materials or Hazardous
Materials Contamination within forty-five (45) days after Borrower learns of the
existence of Hazardous Materials Contamination on the Mortgaged Property or
within a shorter period if the nature of the problem, as determined by GMAC in
GMAC's reasonable discretion, demands sooner action and if Borrower thereafter
diligently proceed with their obligations under the Remedial Action Plan in
accordance with a timetable set forth in the Remedial Action Plan.
Notwithstanding any other provision of this Agreement, Borrower shall not be
entitled to notice or an additional thirty (30) days to cure any failure to
perform Borrower's obligations under this subsection (b). With respect to the
foregoing warranties and representations, "to Borrower's knowledge," or
"Borrower's knowledge" unless otherwise expressly provided, means Borrower's
actual knowledge without inspection or inquiry, but Borrower represent that they
have not disregarded any indications of Hazardous Materials or Hazardous
Materials Contamination on the Mortgaged Property.
(c) Borrower's Covenants. Borrower shall (i) promptly comply with all Legal
Requirements relating to Hazardous Materials, Hazardous Materials Contamination,
and underground storage tanks, and provide GMAC with evidence satisfactory to
GMAC of such compliance; (ii) give notice to GMAC immediately upon Borrower's
acquiring knowledge of the presence of any Hazardous Materials on the Mortgaged
Property (other than Hazardous Materials commonly used and necessary for the
operation of an automobile dealership), of any Hazardous Materials Contamination
in quantities which violate any Legal Requirements and of any noncompliance of
Borrower or the Mortgaged Property with any Legal Requirements relating to
Hazardous Materials or Hazardous Materials Contamination, with a full written
description thereof; (iii) immediately upon receipt of any complaint, order,
citation, or notice with regard to Hazardous Materials Contamination provide
GMAC with a copy thereof; and (iv) provide GMAC, within thirty (30) days after
demand by GMAC, with a bond, letter of credit, or similar financial assurance in
an amount estimated to be the cost of remedial work by an environmental expert
chosen by GMAC, in its sole discretion (which amount may be increased at a later
time, if necessary), evidencing to GMAC's satisfaction that the necessary funds
are available to pay
4
<PAGE>
the cost of removing, treating, and disposing of any Hazardous Materials or
Hazardous Materials Contamination and to pay any assessments, costs, expenses,
fines, or penalties which may be established or imposed on, or levied against,
the Mortgaged Property or the owner thereof as a result such Hazardous Materials
or Hazardous Materials Contamination.
(d) Site Assessments. GMAC, its agents and representatives, at any
time and from time to time, with reasonable cause, either prior to or after the
occurrence of an event of default (as may be defined in the Note, Deed of Trust
or any collateral document), may contract for the services of persons (the "Site
Reviewers") to perform environmental site assessments (the "Site Assessments")
on the Mortgaged Property for the purpose of determining whether there exists on
the Mortgaged Property any environmental condition which could result in any
liability, cost or expense to the owner or occupier of such Mortgaged Property
arising under any Legal Requirement relating to Hazardous Materials of Hazardous
Materials Contamination. The Site Assessments may be performed at any time or
times, upon reasonable notice, and under reasonable conditions established by
Borrower which do not impede the performance of the Site Assessment. The Site
Reviewers are hereby authorized to enter upon the Mortgaged Property for such
purposes. The Site Reviewers are further authorized to perform both above and
below the ground testing for environmental damage or the presence of Hazardous
Materials on the Mortgaged Property and such other tests on the Mortgaged
Property as may be necessary in the reasonable opinion of the Site Reviewers to
conduct the Site Assessment. Borrower will supply to the Site Reviewers such
historical and operational information regarding the Mortgaged Property as may
be requested by the Site Reviewers to facilitate the Site Assessment and will
make available for meetings with the Site Reviewers appropriate personnel having
knowledge of such matters. Borrower shall not be liable for any penalties,
losses, costs, expenses, or claims incurred by Borrower or GMAC as a result of
gross negligence or willful misconduct of the Site Reviewers. Upon request, GMAC
shall make the results of such Site Assessment fully available to the Borrower.
GMAC shall not disclose the results of any Site Assessment to any party other
than Borrower unless required to do so by applicable law or by any assignee of
this Agreement. The cost of performing such Site Assessment shall be paid by
Borrower upon demand of GMAC and any such obligations shall be Indebtedness
secured by the Deed of Trust as modified and extended by this Agreement.
(e) Indemnification. Regardless of whether any Site Assessments are
conducted hereunder, whether any event of default shall have occurred and be
continuing or whether any remedies in respect of the Mortgaged Property are
exercised by GMAC, Borrower shall each defend, indemnify and hold harmless GMAC
from any and all liabilities (including strict liability), actions, demands,
penalties, losses, costs or expenses (including, without limitation, consultants
fees, investigation and laboratory fees, reasonable attorneys' fees, expenses
and remedial costs), suits, costs of any settlement or judgment and claims of
any and every kind whatsoever which may now or in the future (whether before or
after the release of this Agreement) be paid, incurred or suffered by or
asserted against GMAC by any person or entity or governmental agency for, with
respect to, or as a direct or indirect result of, the presence on or under, or
the escape, seepage, leakage, spillage, discharge, emission or release from the
Mortgaged Property of any Hazardous Materials or any Hazardous Materials
Contamination or
5
<PAGE>
arise out of or result from the environmental condition of the Mortgaged
Property or the applicability of any Legal Requirements relating to Hazardous
Materials (including, without limitation, CERCLA or any so-called federal, state
or local "Superfund" of "Superlien" laws, statute, law, ordinance, code, rule,
regulation, order or decree), regardless of whether or not caused by or within
the control of Borrower or GMAC; provided, however, that if GMAC becomes the
owner of the Mortgaged Property through foreclosure or deed in lieu of
foreclosure, Borrower shall not be liable for Hazardous Materials or Hazardous
Materials Contamination on the Mortgaged Property which occurred as a result of
any action taken by GMAC after becoming such owner or which migrated onto the
Mortgaged Property from any adjacent property after GMAC becomes such owner if
the existence of the Hazardous Materials or Hazardous Materials Contamination on
such adjacent property is not due to the act or omission of Borrower. The
representations, covenants, warranties and indemnification contained in this
section shall survive the foreclosure or release of the Deed of Trust and this
Agreement.
(f) GMAC's Right to Remove Hazardous Materials: Upon the expiration of
the forty-five (45) day cure period described in Section 7(b) hereof (or such
shorter period as may be applicable thereunder) without an agreement between
Borrower and GMAC on a course of action as provided therein, GMAC shall have the
right but not the obligation, without in any way limiting GMAC's other rights
and remedies under the Deed of Trust or this Agreement, to enter onto the
Mortgaged Property or to take such other actions as it deems necessary or
advisable to clean up, remove, resolve or minimize the impact of, or otherwise
deal with, any Hazardous Materials or Hazardous Materials Contamination on the
Mortgaged Property following receipt of any notice from any person or entity
asserting the existence of any Hazardous Materials or Hazardous Materials
Contamination pertaining to the Mortgaged Property or any part thereof which, if
true, could result in an order, notice, suit, imposition of a lien on the
Mortgaged Property or other action and/or which, in GMAC's sole opinion, could
jeopardize GMAC's security under the Deed of Trust and this Agreement. All
reasonable costs and expenses paid or incurred by GMAC in the exercise of any
such rights shall be indebtedness secured by the Deed of Trust, as modified by
this Agreement, and shall be payable by Borrower upon demand.
8. It is expressly stipulated and agreed to be the intent of the parties at
all times to comply with the applicable Texas law governing the maximum rate or
amount of interest payable on or in connection with the Note (or applicable
United States federal law to the extent that it permits GMAC to contract for,
charge, take, reserve or receive a greater amount of interest than under Texas
law). If the applicable law is ever judicially interpreted so as to render
usurious any amount called for under the Note or under the other security
documents, or contracted for, charged, taken, reserved or received with respect
to the Note, or if acceleration of the maturity of the Note or if any prepayment
by Borrower results in Borrower having paid any interest in excess of that
permitted by law, then it is the parties express intent that all excess amounts
theretofore collected by GMAC be credited on the principal balance of the Note
(or, if the Note has been or would thereby be paid in full, refunded to
Borrower), and the provisions of the Note and the other security documents
immediately be deemed reformed and the amounts thereafter collectible hereunder
and thereunder reduced, without the necessity of the execution of any new
document, so as to comply with the applicable law, but so as to permit the
recovery
6
<PAGE>
of the fullest amount otherwise called for hereunder and thereunder. The right
to accelerate maturity of the Note does not include the right to accelerate any
interest which has not otherwise accrued on the date of such acceleration, and
GMAC does not intend to collect any unearned interest in the event of
acceleration. All sums paid or agreed to be paid to GMAC for the use,
forbearance or detention of the indebtedness evidenced hereby shall, to the
extent permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full term of such indebtedness until payment in full so that the
rate or amount of interest on account of such indebtedness does not exceed the
applicable usury ceiling. To the extent that Texas law determines the Maximum
Rate, the Maximum Rate shall be determined by utilizing the Indicated (Weekly)
ceiling from time to time in effect pursuant to Tex. Rev. Civ. Stat. art.
5069-1.04, as amended. In no event shall the provisions of Chapter 15 of the
Texas Credit Code (Tex. Rev. Civ. Stat. art. 5069-15.01, et seq.) be applicable
to the loan evidenced hereby. As used herein, the term "Maximum Rate" shall mean
the maximum non-usurious rate of interest which may be lawfully contracted for,
charged, taken, reserved or received by GMAC from Borrower in connection with
the loan evidenced hereby under applicable Texas law (or applicable United
States federal law to the extent that it permits GMAC to contract for, charge,
take, reserve or receive a greater amount of interest than under Texas law).
9. The Deed of Trust, as modified hereby, shall continue to secure the
payment of the indebtedness as described on Exhibit B thereto, including all
renewals and extensions of such indebtedness.
10. Except as hereinabove modified, the Note shall remain in full force and
effect and mature according to the terms hereof; and the said Deed of Trust
lien, and any and all other liens and equities of any and every nature upon the
above described property or otherwise securing the payment of the Note are
hereby extended and are acknowledged to be valid, subsisting and shall continue
in full force and effect, and shall remain unimpaired to also secure the payment
of the Note as herein modified and extended. The Borrower agrees to be primarily
liable and to pay the unpaid balance of the Note, principal and interest, as
hereby modified, and to perform each and every covenant, condition and provision
of said Note, Deed of Trust and other loan and collateral documents, as may be
modified hereby.
EXECUTED this 20 day of February, 1995, to be effective as of January 1,
1995.
BORROWER MIDWAY CHEVROLET, INC.
By: /s/Bill Gilliland
-------------------------------
Bill Gilliland, President
7
<PAGE>
GMAC: GENERAL MOTORS ACCEPTANCE CORPORATION
By: ____________________________
Robert Hoover, Assistant
Treasurer
CORPORATE ACKNOWLEDGMENT
STATE OF TEXAS
COUNTY OF POTTER
This instrument was acknowledged before me on the 20 day of February, 1995,
by BILL GILLILAND, President of MIDWAY CHEVROLET, INC., on behalf of said
corporation.
[Stamp of BARBARA ROSEBERY] /s/ Barbara Rosebery
NOTARY PUBLIC ------------------------------
STATE OF TEXAS Notary Public, State of Texas
MY COMMISSION EXPIRES 11-6-96
CORPORATE ACKNOWLEDGMENT
STATE OF TEXAS
COUNTY OF POTTER
This instrument was acknowledged before me on the _______ day of February,
1995, by ROBERT HOOVER, Assistant Treasurer, of GENERAL MOTORS ACCEPTANCE
CORPORATION, on behalf of said corporation.
--------------------------------------
Notary Public, State of Texas
8
<PAGE>
GMAC: GENERAL MOTORS ACCEPTANCE CORPORATION
By: /s/ Robert Hoover
----------------------------------
Robert Hoover, Assistant
Treasurer
CORPORATE ACKNOWLEDGMENT
STATE OF TEXAS
COUNTY OF POTTER
This instrument was acknowledged before me on the 20 day of February, 1995,
by BILL GILLILAND, President of MIDWAY CHEVROLET, INC., on behalf of said
corporation.
[Stamp of BARBARA ROSEBERY] /s/ Barbara Rosebery
NOTARY PUBLIC ------------------------------
STATE OF TEXAS Notary Public, State of Texas
MY COMMISSION EXPIRES 11-6-96
CORPORATE ACKNOWLEDGMENT
STATE OF TEXAS
COUNTY OF POTTER
This instrument was acknowledged before me on the 22 day of February, 1995,
by ROBERT HOOVER, Assistant Treasurer, of GENERAL MOTORS ACCEPTANCE CORPORATION,
on behalf of said corporation.
[Stamp of GLENNA CANADA] /s/ Glenna Canada
NOTARY PUBLIC ------------------------------
STATE OF TEXAS Notary Public, State of Texas
MY COMMISSION EXPIRES 7-9-97
8
<PAGE>
EXHIBIT "A"
A 12.1575 acre tract of land out of the Northwest 1/4 of Section 32, Block 1,
T.T.&R.R. Company Survey, Randall County, Texas, being described by metes and
bounds as follows:
Beginning at the Northwest corner of Section 32, same being in the
Amarillo-Canyon Expressway (I-27) and the centerline of Rockwell Road;
THENCE S 00[degree symbol] 04' 00" W along the West line of said Section 32, a
distance of 65.50 feet to a point;
THENCE S 89[degree symbol] 56' 00" E a distance of 107.0 feet to a Texas Highway
Department Brass Cap found in the East R.O.W. of said Highway and the South
R.O.W. line of Rockwell Road, same being the Northwest and BEGINNING CORNER of
this tract;
THENCE N 89[degree symbol] 03' 00" E along the South R.O.W. line of Rockwell
Road, a distance of 499.96 feet to a Texas Highway Department Brass Cap found in
the South R.O.W. line of Rockwell Road, the Northeast corner of this tract;
THENCE S 00[degree symbol] 04' 03" a distance of 1,063.86 feet to a 1/2" x 24"
iron rod set with cap stamped Survey Marker Gresham RPS 1939, for the Southeast
corner of this tract;
THENCE N 89[degree symbol] 56' 00" W, a distance of 499.87 feet to a 3/4" iron
pipe with Kelley Cap found in the East R.O.W. of Amarillo-Canyon Expressway
(I-27) the Southwest corner of this tract;
THENCE N 00[degree symbol] 04' 00" E along the East R.O.W. of said Highway, a
distance of 1,054.99 feet to the BEGINNING CORNER of this tract;
Said tract contains 12.1575 acres of land.
<PAGE>
SECURITY AGREEMENT
That MIDWAY CHEVROLET, INC., whose address is Rt. 3, Box 786, Canyon,
Randall County, Texas 79015, hereinafter called "Debtor", hereby GRANTS to
GENERAL MOTORS ACCEPTANCE CORPORATION, whose address is 1616 S. Kentucky,
Building C, Suite 160 Amarillo, Potter County, Texas 79102, hereinafter called
"Secured Party", a security interest in the following described personal
property now located and situated at Interstate 27 and Rockwell Road, Canyon,
Randall County, Texas 79015, whether now or hereafter owned, together with all
additions and accessions thereto and replacements and proceeds thereof (the
inclusion of such proceeds does not authorize Debtor to sell, dispose of or
otherwise use the Collateral in any manner not authorized by this agreement),
all hereinafter called the "Collateral", to-wit:
All vehicle inventory including, but not limited to, motor
vehicles, trailers, and semi-trailers, and accessories,
camper bodies and camper equipment, house trailers and
trailer equipment, all replacement parts for any of these,
and other inventories now existing or hereafter acquired by
Debtor, including, but not limited to, new repair,
replacement or service parts and attachments and accessories
inventory; all fixed assets and business equipment,
including, but not limited to, machine and service
equipment, furniture and fixtures; and general intangibles,
contract rights, chattel papers, accounts and assignments of
accounts including, but not limited to, those arising out of
the sale or lease or inventory, including rents receivable
under leases and rental agreements, and discounts receivable
(factory holdback) and the open account of Debtor now
accrued or hereafter accruing; and all proceeds of the
foregoing;
which Collateral is of the following classifications: Inventory, Equipment,
Fixtures, Accounts, Chattel Paper and General Intangibles.
This security interest is to secure the payment of:
(i) a promissory note from Midway Chevrolet, Inc., to Secured Party dated
December 15, 1989 in the original principal amount of $977,249.74 (the
"Primary Note") such note which was renewed, extended and modified by
agreement of even date herewith;
(ii) any and all other indebtedness, obligations and liabilities of Midway
Chevrolet, Inc., or any guarantor of any of the
<PAGE>
indebtedness secured hereby to Secured Party, now existing or
hereafter arising, including future advances however evidenced or
created; and
(iii) all renewals, extensions, and modifications of all or any part of
said indebtedness hereby secured.
Debtor warrants, covenants, represents and agrees as follows:
(1) That Debtor is the full owner of said Collateral and has authority to
grant this security interest therein; that no Financing Statement is on file
covering the Collateral or its proceeds except those financing statements on
file as to Secured Party's prior security interests; and except for the security
interest granted hereby, there is no lien or encumbrance in or on the
Collateral, unless otherwise expressly stated herein.
(2) That Debtor's business address is the address shown at the beginning
hereof, and Debtor will immediately notify Secured Party in writing of any
change of such address.
(3) That the Collateral will not be sold, transferred, rented, leased,
pledged, made subject to a security agreement, or removed from its present
location above named without the written consent of Secured Party, except as
otherwise provided herein, and that the Collateral will not be misused or
abused, wasted or allowed to deteriorate, except for ordinary wear and tear from
its intended use. The Collateral shall remain in Debtor's possession or control
at all times at Debtor's risk of loss.
(4) Debtor will not sell, lease or otherwise dispose of any inventory
collateral other than in the ordinary course of its business at prices
constituting the then fair market value thereof. Debtor agrees to account for,
keep separate, and, in the event of default, pay over or deliver to the Secured
Party all proceeds of all Collateral promptly upon receipt thereof, such
proceeds being held in trust by Debtor for the benefit of Secured Party.
(5) The Secured Party shall have the authority, but shall not be obligated
to: (a) Notify any or all Account Debtors (as that term is defined in the
Uniform Commercial Code) of the existence of the Secured Party's security
interest and to pay or remit all sums due or to become due directly to the
Secured Party or its nominee; (b) place on any chattel paper received as
proceeds a notation or legend showing the Secured Party's security interest; (c)
in the name of the Debtor or otherwise, to demand, collect, receive and receipt
for, compound, compromise, settle and give acquittance for, and prosecute and
discontinue any suits or proceedings in respect of any or all of the Collateral;
(d) take any action which the Secured Party may deem necessary or desirable in
order to realize on the Collateral, including, without limitation, the power to
perform any contract, to endorse in the name of Debtor any checks, drafts, notes
or account of the Collateral; (e) to place upon Debtor's books and records
relating to the accounts and contract rights covered by the security interest
granted hereby a notation or legend stating that such
2
<PAGE>
account or contract right is subject to a security interest held by the Secured
Party; and (f) after any Default, to enter upon and into and take possession of
all or such part or parts of the properties of Debtor, including lands, plants,
buildings, machinery, equipment and other property as may be necessary or
appropriate in the judgment of the Secured Party to permit or enable the Secured
Party to manufacture, produce, process, store or sell or complete the
manufacture, production, processing, storing or sale of all or any part of the
Collateral as the Secured Party may elect, and to use and operate said
properties for said purposes and for such length of time as the Secured Party
may deem necessary or appropriate for said purposes without the payment of any
compensation of Debtor therefor.
(6) That the Collateral will be used primarily for the classification of
use above stated, and for no other use without the written consent of Secured
Party. The Collateral will not be affixed to any real estate or other goods so
as to become a fixture on real estate or accession to other goods (except to
real estate on which Debtor has granted a security interest to Secured Party);
if said Collateral is to be so affixed, Debtor will upon demand of Secured Party
furnish written consent or consents to the security interest hereby created or
disclaimer or disclaimers signed by all persons having an interest in the real
estate or other goods.
(7) That Debtor will sign and execute, upon request of Secured Party, any
Financing Statement or other documents or procure any document, and pay all
connected costs, necessary to protect the security interest granted hereby
against the rights or interests of third persons.
(8) That Debtor will protect the title and possession of the Collateral and
will pay promptly, when due and before becoming delinquent, all taxes and
assessments now existing or hereafter levied or assessed against said Collateral
or any part thereof, and will keep said Collateral insured, if insurable, to the
extent of the original amount of the indebtedness hereby secured or to the full
insurable value of said Collateral, whichever is the lesser, against loss or
damage by fire, windstorm and theft and any other hazard or hazards as may be
reasonably required from time to time by Secured Party, in such form and with
such insurance company or companies as may be approved by Secured Party and will
deliver to Secured Party the policies of such insurance, having attached thereto
such mortgage indemnity clause as Secured Party shall direct, and will deliver
renewals of such policies to Secured Party at least ten (10) days before any
such insurance policies expire; any sums which may become due under any such
policy, or policies, may be applied by Secured Party, at its option, to reduce
said indebtedness, whether due or not, or Secured Party may permit Debtor to use
said sums to repair or replace all Collateral damaged or destroyed and covered
by such insurance.
In the event Debtor shall fail to keep said Collateral in good repair and
condition, or to pay promptly when due all taxes and assessments, as aforesaid,
or to preserve the prior security interest hereby granted in said Collateral, or
to keep said Collateral insured, as aforesaid, or to deliver the policy or
policies of insurance or the renewal thereof to Secured Party, as aforesaid,
then Secured Party may, at its option, but without being required to do so, make
such repairs, pay such taxes and assessments, remove any prior liens or security
interests and prosecute
3
<PAGE>
or defend any suits in relation to the prior security interest of this agreement
in said Collateral, to insure and keep insured said Collateral in an amount not
to exceed that above stipulated; that any sum which my be so paid out by
Security Party and all sums paid for insurance premiums, as aforesaid, including
the costs, expenses and attorney's fees paid in any suit affecting said
Collateral when necessary to protect the security interest hereof shall bear
interest from the dates of such payments at ten (10%) per cent per annum and
shall be paid by Debtor to Secured Party upon demand, at the same place at which
the above described note or notes of Debtor are payable and shall be a part of
the indebtedness hereby secured and recoverable as such in all respects.
Debtor shall be in default under this Security Agreement and the Primary
Note upon the happening of any of the following events or conditions (herein
called an "Event of Default"):
(1) Debtor's failure to pay when due, or declared due, the indebtedness
hereby secured, or any installment thereof, principal or interest;
(2) Debtor's default in the punctual performance of any of the obligations,
covenants, terms or provisions contained herein or in the note or notes hereby
secured (other than a failure described in (1) above), if such default shall
continue for 15 days after written notice of such failure is given by Secured
Party to Debtor;
(3) If any warranty, covenant or representation made herein by Debtor
proves to have been false in any material respect when so made;
(4) Debtor's dissolution, termination of existence, insolvency or business
failure, or Debtor making an assignment for the benefit of creditors of the
commission of an act of bankruptcy, or the institution of voluntary or
involuntary bankruptcy proceedings, or the taking over of the Collateral or any
part thereof by a receiver for Debtor or the placing of same in the custody of
any court or an officer or appointee thereof;
(5) Loss, theft, substantial damage, or destruction of or to the Collateral
or any material part thereof which is not covered by hazard insurance, or the
sale, abandonment or encumbrance of the Collateral or any material part thereof
in violation of this Agreement.
(6) Default in the payment of any of the indebtedness secured hereby shall
constitute default in the payment of all the others.
Upon the occurrence of an Event of Default, and at any time thereafter,
Secured Party may elect, Debtor hereby expressly waiving notice, demand and
presentment, notice of intention to accelerate and notice of acceleration, to
declare the entire indebtedness hereby secured immediately due and payable.
In the event of default in the payment of said indebtedness when due or
declared due, Secured Party, without waiving any rights and remedies of a
Secured Party under the
4
<PAGE>
Uniform Commercial Code of Texas, shall have the right to require Debtor to
assemble the Collateral and make it available to Secured Party at a place to be
designated by Secured Party which is reasonably convenient to both Parties, and
the right to take immediate possession of any and all of the Collateral and for
this purpose shall have the right to enter upon the premises where said
Collateral may be located and remove the same or may leave the same where it is
then located, and sell the Collateral or such part thereof as Secured Party may
elect (without exhausting the power to sell the remainder or any part thereof at
Public Sale as herein provided or at Public or Private Sale as provided in the
Uniform Commercial Code of Texas) at Public Sale to the highest bidder for cash
at the Courthouse door of the County hereinabove stated where the Collateral is
now located, after having first given notice of the time, place and terms of
such Public Sale by posting a written or printed notice (which notice shall also
show the then location of the Collateral to be sold) or said sale at the
Courthouse door of said County, at least ten days before the day of sale and
after sending reasonable notice to Debtor and to such other person or persons
legally entitled thereto under the Uniform Commercial Code of Texas, of the time
and place of the Public Sale; the Collateral to be sold may be sold as an
entirety or in such parcels as Secured Party may elect and it shall not be
necessary for Secured Party to have actual possession of the Collateral or to
have it present when the sale is made, but full and perfect title shall pass
wheresoever said Collateral may then be, and Secured Party thus selling said
Collateral shall deliver to the purchaser thereof a Bill of Sale or Transfer
therefor, binding Debtor to warrant and forever defend the title to such
Collateral, and out of the proceeds of the sale pay the reasonable expenses of
retaking, holding, preparing for sale, selling and the like, reasonable
attorneys' fees and legal expenses so incurred by Secured Party, and the balance
remaining shall thereupon be applied toward the payment of the amount then owing
on the indebtedness hereby secured, including principal, interest and attorneys'
fees as provided herein and in said secured indebtedness, in such order as
Secured Party, in its sole discretion, shall determine, rendering the balance,
if any, and surplus, if any, to the person or persons legally entitled thereto
under the Uniform Commercial Code of Texas, but if there be any deficiency,
Debtor shall remain liable therefor. Secured Party shall have the right to
purchase at such Public Sale, being the highest bidder. The recitals in the Bill
of Sale or Transfer to the purchaser at such sale shall be prima facie evidence
of the truth of the matters therein stated and all prerequisites to said sale
required hereunder and under the Uniform Commercial Code of Texas shall be
presumed to have been performed.
Secured Party, in addition to the rights and remedies provided for in the
preceding paragraph, shall have all the rights and remedies of a Secured Party
under the Uniform Commercial Code of Texas and Secured Party shall be entitled
to avail itself of all such other rights and remedies as may now or hereafter
exist at law or in equity for the collection of said indebtedness and the
enforcement of the covenants herein and the foreclosure of the security interest
created hereby and the resort to any remedy provided hereunder or provided by
the Uniform Commercial Code of Texas, or by any other law of Texas, shall not
prevent the concurrent or subsequent employment of any other appropriate remedy
or remedies.
The requirement of reasonable notice to Debtor of the time and place of any
Public Sale of the Collateral or of the time after which any Private Sale, or
any other intended
5
<PAGE>
disposition thereof is to be made, shall be met if such notice is mailed,
postage prepaid, to Debtor at the address of Debtor designated at the beginning
of this Security Agreement, at least ten days before the date of any Public Sale
or at least ten days before the time after which any Private Sale or other
disposition is to be made.
Secured Party may remedy any default, without waiving same, or may waive
any default without waiving any prior or subsequent default.
The security interest herein granted shall not be affected by nor affect
any other security taken for the indebtedness hereby secured, or any part
thereof; and any extensions may be made of the indebtedness and this security
interest and any releases may be executed of the Collateral, or any part
thereof, herein conveyed without affecting the priority of this security
interest or the validity thereof with reference to any third person, and the
holder of said indebtedness shall not be limited by any election of remedies if
he chooses to foreclose this security interest by suit. The right to sell under
the terms hereof shall also exist cumulative with said suit; and one method so
resorted to shall not bar the other, but both may be exercised at the same or
different times, nor shall one be a defense to the other.
The pronouns used in this agreement are in the masculine gender but shall
be construed as feminine or neuter as occasion may require. "Secured Party" and
"Debtor" as used in this agreement include, and shall bind and shall inure to,
the benefit of the respective heirs, executors or administrators, successors,
representatives, receivers, trustees or assigns of such parties. If there be
more than one Debtor, their obligations shall be joint and several.
The law governing this secured transaction shall be the Uniform Commercial
Code of Texas and other applicable laws of the State of Texas. All terms used
herein which are defined in the Uniform Commercial Code of Texas shall have the
same meaning herein as in said Code.
If any or all of the proceeds of the indebtedness secured hereby have been
used to extinguish, extend or renew any indebtedness heretofore existing against
the Collateral or to satisfy any indebtedness or obligation secured by a lien or
encumbrance of any kind, such proceeds have been advanced by Secured Party at
Debtor's request, and, to the extent of such funds so used, the indebtedness
secured by this Security Agreement shall be subrogated to and extend to all of
the rights, claims, liens, titles and interests heretofore existing against the
Collateral to secure the indebtedness or obligation so extinguished, paid,
extended or renewed, and the former rights, claims, liens, titles and interest,
if any, shall not be waived but rather shall be continued in full force and
effect and in favor of Secured Party and shall be merged with the lien and
security interest created herein as cumulative security for the repayment of the
indebtedness secured hereby.
Debtor warrants that the extension of credit evidenced by the notes secured
hereby is solely for business or commercial purposes, other than agricultural
purposes. The Debtor further warrants that the credit transaction evidenced by
the Notes is specifically exempted under
6
<PAGE>
Regulation Z issued by the Board of Governors of the Federal Reserve System and
Title I (Truth in Lending Act) of the Consumer Credit Protection Act and that no
disclosures are required to be given under such regulations and federal laws in
connection with the above transaction.
The indebtedness secured by this Security Agreement, as to products
acquired from or through Secured Party, is in payment of the purchase price of
the collateral herein described, and the security interest granted herein is a
Purchase Money Security Interest.
It is expressly stipulated and agreed to be the intent of Debtor and
Secured Party at all times to comply with the applicable Texas law governing the
maximum rate or amount of interest payable on or in connection with the notes
secured hereby (the "Notes") and the documents securing them (the "Security
Documents") (or applicable United States federal law to the extent that it
permits the Secured Party to contract for, charge, take, reserve or receive a
greater amount of interest than under Texas law). If the applicable law is ever
judicially interpreted so as to render usurious any amount called for under the
Notes or under the other Security Documents, or contracted for, charged, taken,
reserved or received with respect to the Notes, or if acceleration of the
maturity of the Notes or if any prepayment by Debtor results in Debtor having
paid any interest in excess of that permitted by law, then it is Debtor's and
Secured Party's express intent that all excess amounts theretofore collected by
Secured Party be credited on the respective principal balance of the Notes (or,
if the Notes have been or would thereby be paid in full, refunded to Debtor),
and the provisions of the Notes and the other Security Documents immediately be
deemed reformed and the amount thereafter collectible hereunder and thereunder
reduced, without the necessity of the execution of any new document, so as to
comply with the applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder and thereunder. The right to accelerate
maturity of the Notes does not include the right to accelerate any interest
which has not otherwise accrued on the date of such acceleration. All sums paid
or agreed to be paid to Secured Party for the use, forebearance or detention of
the indebtedness secured hereby shall, to the extent permitted by applicable
law, be amortized, prorated, allocated and spread throughout the full term of
such indebtedness until payment in full so that the rate or amount of interest
on account of such indebtedness does not exceed the applicable usury ceiling. To
the extent that Texas law determines the Maximum Rate, such Maximum Rate shall
be determined by utilizing the Indicated (Weekly) ceiling from time to time in
effect pursuant to Tex. Rev. Civ. Stat. art. 5069-1.04, as amended. In no event
shall the provisions of Chapter 15 of the Texas Credit Code (Tex. Rev. Civ.
Stat. art. 5069-15.01, et seq.) be applicable to the loan evidenced hereby. As
used herein, the term "Maximum Rate" shall mean the maximum non-usurious rate of
interest which may be lawfully contracted for, charged, taken, reserved or
received by Secured Party from Debtor in connection with the loan evidenced
hereby under applicable Texas law (or applicable United States federal law to
the extent that it permits Secured Party to contract for, charge, take, reserve
or receive a greater amount of interest than under Texas law).
7
<PAGE>
"THIS SECURITY AGREEMENT IS TAKEN IN ADDITION AND IS CUMULATIVE TO, AND NOT
IN REPLACEMENT OF ANY OTHER SECURITY AGREEMENT BETWEEN THE PARTIES."
EXECUTED this 20 day of February, 1995 to be effective as of January 1,
1995,
Secured Party: Debtor:
GENERAL MOTORS ACCEPTANCE MIDWAY CHEVROLET, INC.
CORPORATION
By: By: /s/Bill Gilliland
--------------------------- --------------------------
Robert Hoover, Bill Gilliland, President
Assistant Treasurer
8
<PAGE>
"THIS SECURITY AGREEMENT IS TAKEN IN ADDITION AND IS CUMULATIVE TO, AND NOT
IN REPLACEMENT OF ANY OTHER SECURITY AGREEMENT BETWEEN THE PARTIES."
EXECUTED this 20 day of February, 1995 to be effective as of January 1,
1995,
Secured Party: Debtor:
GENERAL MOTORS ACCEPTANCE MIDWAY CHEVROLET, INC.
CORPORATION
By: /s/Robert Hoover By: /s/Bill Gilliland
------------------------------- --------------------------
Robert Hoover, Bill Gilliland, President
Assistant Treasurer
8
<PAGE>
PROMISSORY NOTE
$1,350,000.00 Oklahoma City, Oklahoma
December 4, 1995
FOR VALUE RECEIVED, the undersigned, Performance Nissan L.L.C., an Oklahoma
Limited Liability Company (hereinafter referred to as "Maker") whose notice
address is 8029 S.E. 29th Street, Midwest City, Oklahoma 73110, hereby promises
to pay to the order of General Motors Acceptance Corporation (hereinafter
referred to as "Payee"), at its place of business, 6303 Waterford Boulevard,
Suite 100, Oklahoma City, Oklahoma 73118, or such other place as may be
designated in writing by the holder of this Note, the sum of ONE MILLION THREE
HUNDRED FIFTY THOUSAND DOLLARS ($1,350,000.00), together with interest on the
amount of the unpaid balance at the rate set forth below in 20 quarterly
installments of principal in the amount of SIXTY-SEVEN THOUSAND FIVE HUNDRED
DOLLARS ($67,500.00) each, commencing on the 1st day of January, 1996, and on
the same day of each January, April, July and October thereafter, and a final
quarterly payment due October 1, 2000, of unpaid principal and interest.
Interest on the outstanding principal balance shall be paid monthly commencing
January 1, 1996 and on the same day of each month thereafter until paid in full
as provided herein.
The rate of interest will be one percent (1.00%) above the higher of: (i)
5.00% per annum; or (ii) the rate announced from time to time by a majority of
the 12 largest commercial banks operating in the United States as their base or
prime rate for computing interest on loans to borrowers of the highest credit
standing (the "Prime Rate"). As of the date of this Note, the Prime Rate is
eight and three quarters percent (8.75%) and the rate of interest hereunder is
therefore nine and three quarters percent (9.75%) per annum. Such rate of
interest shall increase or decrease hereafter by the same amount as any increase
or decrease of the Prime Rate, effective on the first day of the calendar month
following each change in the Prime Rate. In no event shall the interest provided
for herein exceed the maximum permitted by law, which the parties recognize may
change from time to time.
Interest shall accrue from the date of advance up to but excluding the date
of repayment of this Note. If advances are made on a date other than the first
day of any month, the computation of interest from and including the date of
advance up to but excluding the first day of the next month (the "Initial
Period") shall be calculated by dividing the actual number of days in the
Initial Period by the total number of days in the month of such advance,
multiplying the quotient therof by the quotient resulting from the division of
the annual interest rate by twelve, and multiplying the resulting product
thereof by the unpaid principal balance. Computation of interest due on each
monthly payment after any Initial Period shall be calculated by dividing the
annual
<PAGE>
interest rate by twelve and multiplying the quotient thereof by the unpaid
principal balance. Computation of interest due for any irregular period
occurring as a result of prepayment, shall be calculated in the same manner as
the Initial Period.
This Note is secured by (1) personal property of Borrower more
specifically described in Security Agreement of even date; (2) all collateral
of Borrower heretofore or hereafter granted to payee; and (3) assets of
Borrower in the possession of payee from time to time for any purpose.
The holder hereof shall have the right, at its option, to declare the whole
amount remaining unpaid to be forthwith due and payable if the undersigned
defaults in the payment of any installment of principal or interest when the
same shall become due and payable, or if the undersigned defaults in the
performance of any agreement or condition contained in the Loan Application and
Agreement executed by the undersigned, dated November 17, 1995, and any
amendments thereto, or in the mortgage of Real Estate and/or the Security
Agreement of even date securing this indebtedness, and such default shall be
continuing at the time of such declaration; or if there is material default by
any Guarantor under the terms of its Guaranty of the indebtedness evidenced by
this Note; or upon the sale of all or any portion of thelands described in the
Mortgages securing this obligation, without prior consent of the Mortgagee; or
in the event of a proceeding in bankruptcy, insolvency, or receivership by or
against the undersigned Maker or its property; or the holder hereof deems itself
insecure.
Maker hereby agrees that if, and as often as, this Note is placed in the
hands of an attorney for collection or to defend or enforce any of the holder's
rights hereunder or under any instrument securing payment of this Note, Maker
will pay to such holder its reasonable attorney's fees and all court costs and
other expenses incurred in connection herewith.
Maker hereby waives notice of presentment, presentment, notice of dishonor
and demand.
IN WITNESS WHEREOF, the undersigned have executed this Note effective the
date first above written.
PERFORMANCE NISSAN, L.L.C., an
Witness: Oklahoma Limited Liability Company
/s/Robert W. Hall By: /s/Bill Gilliland
- --------------------------------- -----------------------------
ROBERT W. "BOBBY" HALL, BILL A. GILLILAND, Manager
Manager
"MAKER"
2
<PAGE>
CROSS DEFAULT AND CROSS COLLATERALIZATION AGREEMENT
THIS AGREEMENT dated this 4th day of December, 1995, is entered into by
GENERAL MOTORS ACCEPTANCE CORPORATION, a New York corporation, (hereinafter
referred to as "GMAC") and PERFORMANCE NISSAN, L.L.C., an Oklahoma Limited
Liability Company, (hereinafter referred to as "BORROWER").
W I T N E S S E T H
WHEREAS BORROWER has requested that GMAC lend to it the total sum of ONE
MILLION THREE HUNDRED FIFTY THOUSAND DOLLARS ($1,350,000.00) as evidenced by a
loan, in the said principal amount to be secured by personal property as
described in other documentation between the parties; and
WHEREAS GMAC may hereafter make additional loans, advances, and other
extensions of credit to BORROWER; and
WHEREAS GMAC is willing to extend credit to BORROWER if BORROWER agrees to
provide additional security by cross default and cross collateralizing all of
said existing, proposed, and future loans, advances, or extensions of credit;
and
WHEREAS it is the intention of BORROWER and GMAC that all collateral in
which GMAC now has or may hereafter obtain a lien on or security in shall secure
payment and performance of all loans, advances, and other extensions of credit
now or hereafter made by GMAC to BORROWER:
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged, including the inducement of GMAC, in its
sole discretion, to extend credit to BORROWER, IT IS AGREED as follows:
(1) DEFINITIONS: As used in this Agreement, the terms listed below shall
have the following meaning:
(a) Obligation shall mean any liability, indebtedness, or obligation of
BORROWER to GMAC of every kind and nature, now existing or hereafter
arising, whether created directly or acquired by assignment, whether
matured or unmatured, and any costs or expense, including reasonable
attorneys' fees incurred in the collection or enforcement of any such
obligation;
(b) Security Agreement shall mean any existing or future agreement between
BORROWER and GMAC which creates or provides for a security interest in or
lien upon any of the assets or property (tangible or intangible, real or
personal) of BORROWER, including but not limited to
<PAGE>
security agreements, deed of trust, mortgages, and wholesale floorplan
agreements.
(2) CROSS-COLLATERALIZATION: All collateral now or hereafter subject to a
security interest or lien of GMAC pursuant to any or all of the Security
Agreements shall secure any and all Obligations, and any proceeds of any
collateral may be applied to any of the Obligations as GMAC may see fit, subject
to applicable law.
(3) CROSS DEFAULT: In addition to and not in substitution for any
provisions in any of the Security Agreements evidencing Obligations, it is
agreed that any default or breach by BORROWER in payment or default of a
material nature under any Security Agreement shall, at the option of GMAC,
constitute a default under each Security Agreement and all Promissory Notes
arising therefrom.
(4) EFFECT ON OTHER AGREEMENTS: This Agreement shall constitute an
amendment and supplement of each of the Security Agreements now or hereafter
executed and shall augment and be in addition to and not in substitution for any
provision of any Security Agreement or Obligation and shall not otherwise limit
or affect the rights and remedies of GMAC under any such Security Agreement or
Obligation.
(5) FUTURE LOANS: GMAC may, in its sole and absolute discretion, make
additional loans and other financing accommodations to BORROWER, all of which
will be subject to the terms of this Agreement. Notwithstanding anything to the
contrary, any future change in the terms of BORROWER's obligations shall require
the written consent of GMAC.
(6) NOTICES: Any notices or other communications required or permitted to
be given by this document or by any of the loan documents must be given in
writing and must be personally delivered or mailed by prepaid certified,
registered, or first class mail or delivered by a nationally recognized
overnight courier to the party to whom such notice or communication is directed
at the address set forth in this document. Any notice or other communication
shall be deemed to have been given (whether actually received or not) on the day
it is personally delivered or, if mailed, on the third day after it is mailed as
aforesaid. Either party may change its address for purposes of this document by
giving ten (10) days prior written notice of such change to the other party
pursuant to the terms of this clause.
(7) NO OTHER UNDERSTANDINGS: BORROWER acknowledges that GMAC has made no
promises to induce execution of this Agreement and that there are no other
agreements or understandings, either oral or in writing, affecting this
Agreement and nothing in this Agreement shall be considered a waiver by GMAC of
any existing or future defaults by BORROWER of any Security Agreement or
Obligation. No
<PAGE>
further modification or amendment of this Agreement shall be made except in
writing executed by both parties.
(8) GOVERNING LAW: This Agreement shall be deemed to be a contract entered
into and made pursuant to the laws of the State of Oklahoma and shall in all
respects be governed, construed, and enforced in accordance with the laws of
said State.
(9) SUCCESSORS AND ASSIGNS: The provisions of this Agreement shall be
binding upon and shall inure to the benefit of the successors and assigns of
BORROWER and GMAC.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered the day and year first above written.
PERFORMANCE NISSAN, L.L.C. an
Oklahoma Limited Liability Company
WITNESS: By: /s/Bill Gilliland
-----------------------------
BILL A.GILLILAND
/s/ Robert W. Hall Title MANAGER
- ------------------------------- ---------------------------
/s/ Brenda Cole Address: 8029 S.E. 29th Street
- -------------------------------
BORROWER
WITNESS: GENERAL MOTORS ACCEPTANCE CORPORATION
/s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
- ------------------------------- -----------------------------
/s/ [ILLEGIBLE] Title Ass't Sec.
- ------------------------------- ---------------------------
Address: 6303 Waterford Blvd.
Suite 100
Oklahoma City, OK 73118
<PAGE>
SECURITY AGREEMENT
Date: 4 December, 1995
For good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, Performance Nissan, L.L.C., an Oklahoma Limited
Liability Company, "debtor" herein, 8029 S.E. 29th Street, Midwest City,
Oklahoma, 73110, does hereby grant a security interest in and mortgages unto
General Motors Acceptance Corporation, the secured party, 6303 Waterford Blvd.,
Suite 100, Oklahoma City, Oklahoma, 73118, its successors and assigns all of
the following personal property, hereinafter "collateral":
1. Debtor's entire inventory of used cars, trucks and other vehicles,
trailers, semi-trailers and accessories now owned or hereafter acquired,
and all substitutions and replacements thereof located on premises now or
hereafter occupied by debtor.
2. Debtor's entire inventory of automotive parts and accessories now owned
or hereafter acquired and all replacements and substitutions thereof.
3. All fixed assets, machinery, fixtures, tools, and equipment as such term
is defined in Oklahoma Uniform Commercial Code, now owned or hereafter
acquired.
4. Accounts, contract rights, receivables and general intangibles, now
accrued or hereafter accruing to debtor, including without limitation those
arising from debtor's transactions and dealings with General Motors
Corporation, its subsidiaries, successors or assigns.
5. All office furniture, furnishings, business machines and office
equipment now owned or hereafter acquired, including, but not limited to,
desks, tables, chairs, filing cabinets, typewriters, copiers, word
processors, calculators, computer equipment of every nature and
description, storage cabinets and air conditioners located on the premises
now or hereafter occupied by debtor.
6. All collateral granted to or assets in possession of secured party from
time to time for any purpose.
7. All proceeds of collateral described in paragraphs 1 through 6, supra,
including, but not limited to, accounts, chattel paper or insurance
proceeds.
To have and to hold said collateral unto the secured party, its successors
and assigns forever; provided, however, that if debtor faithfully discharges all
of its obligations to secured party under any agreements now or hereafter
existing between the
1
<PAGE>
debtor and secured party, for which this Security Agreement is given as addition
security, then these presents shall be void, otherwise to remain in full force
and effect.
This Security Agreement secures the payment and performance of all
obligations now or hereafter owing to GMAC by the undersigned.
Debtor warrants that the said collateral is owned by debtor and is free of
encumbrance except Uniform Commercial Code filings of record in favor of Nations
Bank of Texas, N.A.; that debtor shall not subject the collateral to any
subsequent interest of a third party and shall at all times protect and secure
the same. Debtor will keep the collateral free of taxes, liens or encumbrances
and any sums which may be paid by secured party, in its discretion, in release
and discharge thereof, shall be paid by debtor to secured party upon demand.
Debtor will not sell, transfer or otherwise dispose of collateral other than in
the ordinary course of debtor's business. Secured party shall have the right to
inspect the collateral and debtor's books and records related thereto.
In the event of default by the debtor in the performance of any obligation
or agreement now or hereafter existing between the parties, then upon such
default and at any time thereafter, the secured party may declare all
obligations secured hereby immediately due and payable and may proceed to take
immediate possession of said collateral, or any party thereof, and with or
without notice demand possession thereof and with or without legal process enter
the premises where the said collateral may be and take possession of and sell
the same after first giving the debtor reasonable notice of the time and place
of such private or public sale. The expense of taking, holding, preparing for
sale and the selling shall be deducted from the proceeds of the sale and the
balance thereof applied to the partial or complete satisfaction of all
indebtedness or obligations of the debtor to the secured party. The terms of the
Agreement shall be binding upon the debtor, its successors and assigns.
IN WITNESS WHEREOF, debtor has caused this instrument to be executed by its
duly authorized officers this 4th day of December, 1995.
PERFORMANCE NISSAN, L.L.C., an
Oklahoma Limited Liability Company
By: /s/Bill Gilliland
---------------------------------
BILL A. GILLILAND, MANAGER
"DEBTOR"
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USED VEHICLE WHOLESALE BORROWING
BASE CREDIT LINE LOAN AGREEMENT
I. THE PARTIES
This Used Vehicle Wholesale Borrowing Base Credit Line Loan Agreement (the "Loan
Agreement") is made effective the 7th day of June, 1996, by and between GENERAL
MOTORS ACCEPTANCE CORPORATION, a New York corporation with a branch operations
office located at 6303 Waterford Boulevard, Suite 100, Oklahoma City, Oklahoma
73118 ("GMAC") and PERFORMANCE DODGE, INC. an Oklahoma Corporation, with its
principal business office located at 7609 S.E. 29th Street, Midwest City,
Oklahoma 73110 ("Borrower").
II. THE RECITALS
A. WHEREAS, GMAC is in the business of providing, among other things, various
credit accommodations to motor vehicle dealers, including Borrower, for use
in the purchase, sale, lease, and rental of motor vehicles ("Dealership
Financing"); and
B. WHEREAS, Borrower has requested and GMAC is willing to provide certain
credit and finance accommodations in the form of a discretionary revolving
borrowing base line of credit to finance the Borrower's acquisition of
certain used motor vehicles (the "Line of Credit") but only in accordance
with the terms and conditions of this Loan Agreement.
III. THE AGREEMENT
NOW THEREFORE, in consideration of the premises and the mutual promises herein
contained, the sufficiency of which is hereby acknowledged, GMAC and Borrower
hereby agree as follows:
1. The Line of Credit. Subject to all of the terms and conditions of this Loan
Agreement GMAC hereby establishes an initial discretionary revolving line
of credit, not to exceed THREE MILLION DOLLARS ($3,000,000.00), (the "Line
of Credit").
(a) The Purpose. The Line of Credit shall be used by the Borrower to
finance the direct acquisition and holding of Used Motor Vehicles [as
that term is defined in subparagraph 1(g)(ii)] in inventory for
subsequent sale
<PAGE>
or lease. Borrower acknowledges that the fundamental nature and
character of the Line of Credit is a purchase money loan in that the
existence and use of the credit accommodations will enable and
facilitate the acquisition of Used Motor Vehicles as inventory for
Borrower.
(b) Advances. Upon request made to GMAC by Borrower from time to time,
GMAC will loan and advance money directly to Borrower or its designee
under the Line of Credit ("Advance"). Such requests shall be in
writing and presented to GMAC substantially in the form of Exhibit 1
hereto with the appropriate insertions (the "Request for Credit Line
Advance"). The first Advance made on or after the date of this Loan
Agreement shall be in an amount and shall be so used to fully pay the
total principal amount presently outstanding under the used vehicle
floorplan financing accommodations now extant between Borrower and
GMAC. The aggregate principal amount of all Advances remaining unpaid
from time to time are deemed "Credit Line Advances."
(c) Limitation. Credit Line Advances shall at no time and in no event
exceed the lesser of THREE MILLION DOLLARS ($3,000,000.00) or the
Collateral Formula Amount, as that term is defined in subparagraph
1(g)(1); provided, however, that if it does for any reason, the excess
amount shall be deemed to be part of the Line of Credit for all
intents and purposes under this Loan Agreement.
(d) Account Stated. Each Advance shall be charged to the Borrower's
account on GMAC's books and records. GMAC will render to Borrower a
statement at least once each month to the Borrower's account which, in
the absence of manifest error, shall constitute an account stated and
shall be deemed to be correct and accepted by and binding upon
Borrower and constitute conclusive evidence as to the existence and
amounts of the Credit Line Advances, unless GMAC receives a written
statement of the Borrower's exceptions thereto within ten (10) days
after such statement is rendered to the Borrower.
(e) Principal Repayment. In addition to the other amounts Borrower, is
obligated to pay GMAC as herein set forth, Borrower shall promptly and
forthwith repay to GMAC the Credit Line Advances, as follows:
(i) Permissive Prepayment. The Credit Line Advances may be prepaid in
whole or in part at the option of Borrower and without premium or
penalty, provided, however, that any partial prepayment shall be
in multiple amounts of ten thousand dollars.
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<PAGE>
(ii) Mandatory Repayment of Credit Line Advances.
[A] So much of the Credit Line Advances must be paid from time
to time to insure the Line of Credit limitation of paragraph
1(c) is not exceeded.
[B] The full amount of the Credit Line Advances must be paid
immediately upon demand by GMAC.
(f) Interest. The Credit Line Advances shall bear interest on the
principal amount of and from the date of each Advance to the date of
repayment in full of the Credit Line Advances. Only one interest rate
will apply to the Credit Line Advances at any given time. The interest
rate on each Credit Advance will be determined from time to time at
the Prime Rate plus one percent per annum minus the rate charged by
GMAC to Borrower under the GMAC Wholesale Interest Plan ("WIP"). The
"Prime Rate" shall mean the rate of interest publicly announced as
being in effect from time to time by a majority of the twelve largest
commercial banks operating in the United States (the "Banks") as the
"prime" or "base" rate for computing interest on loans for borrowers
of the highest credit standing. In determining the Prime Rate
hereunder, GMAC's determination of the Banks and their publicly
announced prime or base rates shall be conclusive. No change will be
made in the Prime Rate unless there is a single rate of interest which
is publicly announced by at least seven of the Banks as their prime or
base rate. The Prime Rate as of the date of this Agreement is eight
and one-quarter percent (8.25%), and the rate of interest under the
GMAC WIP is one and one-quarter percent (1.25%). The initial rate of
interest under this Agreement is therefore eight percent (8%) per
annum. Notwithstanding the foregoing, for the purposes of determining
the Prime Rate of Interest under this Loan Agreement, the Prime Rate
shall be considered to be five percent (5%) if the Prime Rate
established by said banks at any time is a figure which is less than
5% per annum. Interest shall be calculated on the basis of a 360-day
year for the number of actual days outstanding. Interest shall be
billed by GMAC monthly and shall be due and payable immediately upon
receipt. The parties hereto intend to comply with applicable usury
laws and the aforesaid interred rate is to be construed in accordance
with this intent. The parties acknowledge that these laws may change
from time to time. If accelerations or other events cause the interest
contracted for, charged or received to be in excess of the lawful
maximum, Borrower will receive credits so that the interest will
comply with the law and in no event will the interest
3
<PAGE>
contracted for, charged or received exceed the legal maximum.
(g) Special Definitions.
(i) Collateral Formula Amount. The Collateral Formula Amount shall be
the aggregate of the following amounts, as hereinafter described,
as of the date of this Loan Agreement, as adjusted from time to
time, and as certified in the Certification Report required to be
submitted to GMAC by Borrower pursuant to paragraph 4 hereof,
provided that the actual Collateral Formula Amount shall at no
time be less than (i) the amount represented in the Monthly
Certification Report or (ii) the Credit Line Advances, whichever
is less:
[A] With respect to all Used Motor Vehicles owned by Borrower,
eighty percent (80%) of the lesser of (I) the actual and
reasonable acquisition costs (plus actual and reasonable
reconditioning expenditures) or (II) the current listed
wholesale value as provided in the current, local edition of
the National Automobile Dealers Association used car guide
using average condition and making no allowance for special
or additional equipment or features.
(ii) "Used Motor Vehicles" shall mean any and all motor vehicles,
cars, vans, passenger vehicles, and light trucks which:
[A] are then owned and held in inventory for sale, lease, or
rental by Borrower, including vehicles moved to auction for
resale if available upon inspection by GMAC, and vehicles
purchased by Borrower (including by trade-in) for which
Borrower is in the process of receiving title so long as
Borrower has written documentation evidencing its interest
in such trade-in; and
[B] have been owned and held in inventory for not more than
ninety (90) days from original acquisition by Borrower; and
[C] have been previously used and titled under any state title
certificate law (except if such use and titling was for the
exclusive purpose of utilizing it as a demonstrator in
promoting the sale, lease, or rental of Borrower
4
<PAGE>
merchandise); and
[D] were originally acquired by Borrower, exclusive of
reconditioning expenditures, for not less than Three
Thousand Dollars ($3,000.00) per motor vehicle; and
[E] are of any make, type, model, or age; and
[F] are not otherwise customarily regarded by GMAC in the
ordinary course of its business as a new motor vehicle; and
[G] are free from any other lien, security interest, or
encumbrance, except in favor of GMAC in connection with this
Loan Agreement; and
[H] include all parts, accessories, instruments, or equipment
originally installed thereon.
2. Security Interest and Collateral Assignment. To secure (i) the prompt and
complete payment of the Credit Line, (ii) the payment and performance of
any and all obligations and duties of Borrower of any and all other debts,
obligations or duties of Borrower to GMAC now existing or hereafter arising
by this Loan Agreement, whether direct or indirect, absolute or contingent,
or otherwise, Borrower hereby pledges, assigns and grants to GMAC a
security interest in all inventory of motor vehicles meeting each of the
conditions described in subparagraphs 1(g)(ii)[A], [C], [E], and [H],
including but not limited to all Used Motor Vehicles, now existing or
hereafter acquired and wherever located, and any and all proceeds thereof,
in whatever form (the "Collateral"). Borrower shall execute and deliver to
GMAC one or more agreements, documents, and financing statements, in form
and substance satisfactory to GMAC, as may be required by GMAC to grant and
maintain a valid, perfected first lien or security interest in the
Collateral.
3. Handling of Collateral. With respect to the Collateral, Borrower shall:
(a) maintain, secure and protect it from diminution in value; and
(b) keep it free and clear of the claims, liens, mortgage, pledge,
encumbrances, security interests and rights of all others; and
(c) hold, control and dispose of the Used Motor Vehicle only for the
purpose of storing and exhibiting it for retail
5
<PAGE>
sale or lease in the ordinary course of business; and
(d) permit GMAC full and complete access to it in order to inventory,
inspect and audit, it including review of Borrower's books and records
pertaining thereto; and
(e) insure it against all risks in such amounts and with a carrier and
deductibles acceptable to GMAC. Such insurance policy shall name GMAC
as loss payee, to the extent of its interest therein and shall contain
a cancellation provision only upon thirty (30) days prior written
notice to GMAC; and
(f) will have good and marketable title to all of it.
4. Monthly Certification Reports. Borrower shall furnish GMAC within eight (8)
days of the last day of each month a report certified by the chief
executive officer or the chief financial officer of Borrower, in the form
attached as "Exhibit 2", detailing the Collateral Formula Amount as of the
reporting date ("Monthly Certification Report"). The Monthly Certification
Report submitted as of a month-end date shall have attached to it a
complete and detailed listing of all used Motor Vehicles, in the form
attached to Exhibit 2. GMAC may, in its sole discretion, increase the
frequency of such reports and demand such a report at any time. The terms
set forth in the Monthly Certification Report shall be part and parcel of
this Loan Agreement.
5. Rights and Remedies of GMAC. Upon the occurrence of any of the following:
(a) a default by Borrower in the payment, performance or observance of any
obligation or covenant under this Loan Agreement or under any other
agreement now or hereafter entered into with GMAC; (b) the institution of a
proceeding in bankruptcy, receivership or insolvency by or against Borrower
or its property; (c) if GMAC shall deem itself insecure based on its
knowledge of any event, occurrence, circumstance or fact not directly
caused by GMAC, which in the reasonable judgment of GMAC will have a
material adverse effect on the Collateral, or on the collection by GMAC
under any guaranty of the obligations of Borrower hereunder or if any
substantial portion of Collateral is in danger of misuse, loss, seizure or
confiscation; GMAC may take immediate possession of Collateral without
demand or further notice and without legal process. In furtherance thereof,
Borrower shall, if GMAC so requests, assemble Collateral and make it
available to GMAC at a reasonable, convenient place designated by GMAC.
GMAC shall have the right, and Borrower hereby authorizes and empowers
GMAC, to enter upon the premises wherever Collateral may be and remove the
same. In addition, GMAC shall have the right to exercise one or more of the
following remedies:
6
<PAGE>
(a) institute proceedings to collect all or a portion of the Credit Line
Advances and to recover a judgment for the same and to collect upon
such judgement out of any property of the Borrower wherever situated;
(b) to offset and apply any monies, credits or other proceeds of property
of Borrower that has or may come into possession or under the control
of GMAC against any amount owing by Borrower to GMAC;
(c) sell or lease the Collateral, or any portion thereof, after five days'
written notice at public or private sale of the account of the
Borrower.
Borrower agrees that the sale by GMAC of any property repossessed by GMAC
to the seller thereof, or to any person designated by such seller at the
invoice cost thereof to Borrower less any credits granted to Borrower with
respect thereto and reasonable costs of transportation and reconditioning,
shall be deemed to be a commercially reasonable means of disposing of the
same. Borrower further agrees that if GMAC shall solicit bids from three or
more hereunder, any sale by GMAC of such property in bulk or in parcels to
the bidder submitting the highest cash bid therefor also shall be deemed to
be a commercially reasonable means of disposing of the same.
Notwithstanding the foregoing it is expressly understood that such means of
disposal shall not be exclusive, and that GMAC shall have the right to
dispose of any property repossessed hereunder by any commercially
reasonable means. GMAC's remedies hereunder are cumulative and may be
enforced successively or concurrently. Borrower shall pay all expenses and
reimburse GMAC for any expenditures, including reasonable attorney fees and
legal expenses, in connection with GMAC's exercise of any of its rights and
remedies under this Loan Agreement. In addition to the rights specified
herein, all the rights and remedies afforded GMAC by applicable law shall
apply.
6. Termination. This Loan Agreement is effective until terminated upon the
earlier of any event described in subparagraph 5(a), (b), or (c) or sixty
days after receipt of written notice of termination sent by either party to
the other. All rights and remedies of GMAC or duties and obligations of
Borrower extant upon termination of this Loan Agreement shall continue in
full force and effect until all obligations are paid in full.
7. Suspension. GMAC may, in its sole and absolute discretion and judgment,
increase, decrease, change, or suspend its obligation to make Advances
under the Line of Credit.
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<PAGE>
8. Notices. All notices, requests, and demands shall be in writing and be
given to or made upon the respective parties at the addresses set forth in
Section I of this Agreement, or to such other address as either party shall
designate for itself in writing to the other party. Notice shall be deemed
given when sent to the addressee and may include hand delivery, overnight
courier, certified mail, or electronic written transmission by public or
private means.
9. Rights and Remedies Not Waived. No course of dealing between the Borrower
and GMAC or any failure or delay on the part of GMAC in exercising any
rights or remedies hereunder shall operate as a waiver of any rights or
remedies of GMAC and no single or partial exercise of any rights or
remedies hereunder shall operate as a waiver or preclude the exercise of
any other rights or remedies hereunder.
10. Complete Agreement. Except as otherwise provided or referred to herein,
there are no other agreements or understandings, either oral or in writing,
between the parties affecting this Loan Agreement or relating to any of the
subject matters covered by this Loan Agreement. No agreement between GMAC
and Borrower which relates to matters covered herein, and no change, in
addition to (except the filing in of blank lines), or erasure of any
printed portion of this Loan Agreement will be binding unless it is
approved in a written agreement executed by a duly authorized
representative of each party.
11. Binding Effect. This Agreement shall be binding upon the parties'
successors and assigns provided, however, that Borrower shall have
absolutely no right of assignment absent prior written consent of GMAC.
12. Severability. Any provision hereof prohibited by law shall be ineffective
to the extent of such prohibitions without invalidating the remaining
provisions hereof.
13. Governing Law. This Loan Agreement shall be construed in accordance with
and governed by the laws of the location of Borrower's principal place of
business.
14. Captions. The captions of the various sections and paragraphs of this Loan
Agreement have been inserted only for the purposes of convenience; such
captions are not a part of this Loan Agreement and shall not be deemed in
any manner to modify, explain, enlarge or restrict any of the provisions of
this Loan Agreement.
IN WITNESS WHEREOF, each of the parties has causes this Loan Agreement to be
executed by its duly authorized representative effective the date first above
written.
8
<PAGE>
PERFORMANCE DODGE, INC., GENERAL MOTORS ACCEPTANCE
an Oklahoma Corporation CORPORATION
("Borrower") ("GMAC")
By: /s/ Bill Gilliland By:______________________
------------------
Bill Gilliland
Its: President Its:_____________________
9
<PAGE>
"EXHIBIT 1" to Used Vehicle Wholesale
Borrowing Base Credit Line Loan Agreement
Between GMAC and Dealer ("Borrower)"
dated___________________, 1996 (the "Loan
Agreement")
TO: Attention:______________________,
Area Manager
General Motors Acceptance Corporation
REQUEST FOR CREDIT LINE ADVANCE
Pursuant to Paragraph 1(b) of the Loan Agreement, Borrower hereby requests an
Advance from GMAC to Borrower in the principal amount of THREE MILLION DOLLARS
($3,000,000.00).
In connection with such Advance, the undersigned hereby certifies that:
1. Borrower's available Collateral Formula Amount, calculated pursuant to
subparagraph 1(g) of the Loan Agreement (i.e., Collateral Formula Amount
less outstanding Credit Line Advances), as of the date hereof is THREE
MILLION DOLLARS ($3,000,000.00).
2. The amount of the Advance requested hereunder does not exceed the amount of
credit available pursuant to paragraph 1(c) of the Loan Agreement.
3. No default under the Loan Agreement has occurred.
4. The proceeds of the Advance to Borrower requested hereby shall be (initial
only):
____ delivered to Borrower in the form of a check drawn on GMAC.
____ wire-transferred to Borrow's depository bank account number
_________________, located at the following financial institution.
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<PAGE>
________________________________________(Name)
________________________________________(Address)
ABA Routing No._________________________
Certified as of __________________________________
-------------------------
Borrower
Preparer's Name:________________________
Preparer's Title:_______________________
Preparer's Signature:___________________
2
<PAGE>
"EXHIBIT 2" to Used Vehicle Wholesale
Borrowing Base Credit Line Loan Agreement
Between GMAC and Dealer ("Borrower") dated
_____________________, 1996 (the "Loan
Agreement")
TO: Attention:______________________,
Area Manager
General Motors Acceptance Corporation
MONTHLY CERTIFICATION REPORT
Used Motor Vehicles
[see paragraph 1(g)] $_______ x____%= $_____________
Outstanding Credit Line Advances
(subtract) [see paragraph 1(b)] $_____________
Available Collateral Formula Amount
[see 1(c)] $_____________
The undersigned hereby certifies that as of the date hereof, the above
information and the attached list of Vehicles consisting of ___ pages is true
and correct and that there exists no default under the Loan Agreement.
The Monthly Certification Report of Borrower shall be subject to GMAC's
approval. No failure by GMAC to provide notice of approval or notice of
disapproval shall limit or constitute a waiver of any of the rights or remedies
of GMAC hereunder or under any other loan document. Notwithstanding anything
herein to the contrary and notwithstanding that GMAC may have previously
approved any Used Motor Vehicle for inclusion in the Collateral Formula Amount
at a specified value, GMAC may, at any time and from time to time, reevaluate
the value of any Used Motor Vehicle included in the Collateral Formula Amount.
Incident to any such reevaluation, the Borrower shall promptly provide to GMAC
any materials GMAC may reasonably require. GMAC, in its sole and absolute
discretion, may determine as a result of any such revaluation to reduce the
amount which any Used Motor Vehicle contributes to the Collateral Formula Amount
or to exclude such amount of any Used Motor Vehicle entirely, which
determination shall be conclusive and binding in the absence of manifest error.
If GMAC so determines that the
1
<PAGE>
Collateral Formula Amount of Borrower is to be reduced, GMAC shall give written
notice thereof to the Borrower stating the amount of the reduction, the Used
Motor Vehicles affected and the nature of the action taken by GMAC, and the
reduction shall be effective upon GMAC's issuance of that notice.
-------------------------
Borrower
Preparer's Name:________________________
Preparer's Title:_______________________
Preparer's Signature:___________________
2
<PAGE>
PROMISSORY NOTE
$3,000,000.00 Oklahoma City, Oklahoma
June 7, 1996
FOR VALUE RECEIVED, the undersigned, PERFORMANCE DODGE, INC., an Oklahoma
Corporation (hereinafter referred to as "Maker") whose notice address is 7609
S.E. 29th Street, Midwest City, Oklahoma 73110, hereby promises to pay to the
order of GENERAL MOTORS ACCEPTANCE CORPORATION, (hereinafter referred to as
"GMAC") at its place of business, 6303 Waterford Boulevard, Suite 100, Oklahoma
City, Oklahoma 73118, or such other place as may be designated in writing by the
holder of this Note, upon demand, the principal sum of THREE MILLION DOLLARS
($3,000,000.00), or such lesser amount as shall be equal to the aggregate
principal amount of advances made by GMAC to Maker under the Used Vehicle
Wholesale Borrowing Base Credit Line Agreement ("BBCL") of the same date of this
Note, together with interest on the amount of the unpaid balance at the rate set
forth below with such interest on the outstanding principal balance to be paid
monthly commencing July 1, 1996 and on the same day of each month thereafter
until paid in full as provided herein. Maker is to pay such amounts of principal
as provided herein. Maker is to pay such amounts of principal as maker shall
choose, but such payments shall not be in increments of less than Ten Thousand
Dollars ($10,000.00); provided, however, Maker shall immediately pay such
principal amounts so that the amounts advanced by GMAC under the BBCL shall
never exceed the amount of THREE MILLION DOLLARS ($3,000,000.00).
The rate of interest will be one percent (1.00%) above the higher of: (i)
5.00% per annum; or (ii) the rate announced from time to time by a majority of
the 12 largest commercial banks operating in the United States as their base or
prime rate for computing interest on loans to borrowers of the highest credit
standing (the "Prime Rate"), minus the rate paid by Maker under the GMAC
Wholesale Interest Plan ("WIP"). As of the date of this Note, the Prime Rate is
eight and one quarter percent (8.25%) and the rate of interest under the GMAC
WIP is one and one-quarter percent (1.25%). The initial rate of interest upon
this Note is therefore eight percent (8%) per annum. such rate of interest shall
increase or decrease hereafter by the same amount as any increase or decrease of
the Prime Rate, effective on the first day of the calendar month following each
change in the Prime Rate. In no event shall the interest provided for herein
exceed the maximum permitted by law, which the parties recognize may change from
time to time.
Interest shall accrue from the date of advance up to but excluding the date
of repayment of this Note. If advances are made on a date other than the first
day of any month, the computation of interest from and including the date of
advance up to but excluding the first day of the next month (the "Initial
Period") shall be calculated by dividing the actual number of days in the
Initial Period by the total number of days in the month of such advance,
multiplying the quotient thereof by the quotient resulting
<PAGE>
from the division of the annual interest rate by twelve, and multiplying the
resulting product thereof by the unpaid principal balance. Computation of
interest due on each monthly payment after any Initial Period shall be
calculated by dividing the annual interest rate by twelve and multiplying the
quotient thereof by the unpaid principal balance. Computation of interest due
for any irregular period occurring as a result of prepayment, shall be
calculated in the same manner as the Initial Period.
This Note is secured by (1) personal property of Borrower more specifically
described in a Security Agreement of even date; (2) all collateral of Borrower
heretofore or hereafter granted to payee; and (3) assets of Borrower in the
possession of payee from time to time for any purpose.
The holder hereof shall have the right, at its option, to declare the whole
amount remaining unpaid to be forthwith due and payable if the undersigned
defaults in the payment of any installment of principal or interest when same
shall become due or payable, or if the undersigned defaults in the performance
of any agreement or condition contained in the BBCL Agreement executed by the
undersigned, dated June 7th, 1996, and any amendments thereto, or in the
Security Agreement securing this indebtedness, and such default shall be
continuing at the time of such declaration; or if there is material default by
any Guarantor under the terms of his/her Guaranty of the indebtedness evidenced
by this Note; or in the event of a proceeding in bankruptcy, insolvency, or
receivership by or against the undersigned Maker or its property; or the holder
hereof deems itself insecure.
Maker hereby agrees that if, and as often as, this Note is placed in the
hands of an attorney for collection or to defend or enforce any of the holder's
rights hereunder or under any instrument securing payment of this Note, Maker
will pay to such holder its reasonably attorney's fees and all court costs and
other expenses incurred in connection herewith.
Maker hereby waives notice of presentment, presentment, notice of dishonor
and demand.
IN WITNESS WHEREOF, the undersigned have executed this Note effective the
date first above written.
PERFORMANCE DODGE, INC.,
Witness: an Oklahoma Corporation
/s/ [ILLEGIBLE] /s/ Bill Gilliland
- ----------------------------- ---------------------------
BILL GILLILAND, President
"MAKER"
<PAGE>
CROSS DEFAULT AND CROSS COLLATERALIZATION AGREEMENT
THIS AGREEMENT dated this _____ day of __________, 1996, is entered into by
GENERAL MOTORS ACCEPTANCE CORPORATION, a New York Corporation, (hereinafter
referred to as "GMAC"), on the one hand, and PERFORMANCE NISSAN, INC., an
Oklahoma Corporation; PERFORMANCE DODGE, INC., an Oklahoma Corporation; MIDWAY
CHEVROLET, INC., a Texas Corporation, PLAINS CHEVROLET, INC., a Texas
Corporation; QUALITY NISSAN INC., a Texas Corporation and WESTGATE CHEVROLET,
INC., a Texas Corporation, on the other hand (collectively referred to herein
"BORROWERS").
W I T N E S S E T H
WHEREAS BORROWER have requested that GMAC extend to them a line of credit
in the maximum aggregate amount of FIFTEEN MILLION FIVE HUNDRED THOUSAND
DOLLARS ($15,500,000.00), comprised of the following individual credit lines of
the Borrowers:
PERFORMANCE NISSAN, INC.,
an Oklahoma Corporation................................. $2,500,000.00
PERFORMANCE DODGE, INC.,
an Oklahoma Corporation................................. $3,000,000.00
MIDWAY CHEVROLET, INC.,
a Texas Corporation..................................... $2,500,000.00
PLAINS CHEVROLET, INC.,
a Texas Corporation..................................... $3,000,000.00
QUALITY NISSAN, INC.,
a Texas Corporation..................................... $2,000,000.00
WESTGATE CHEVROLET, INC.,
a Texas Corporation..................................... $2,500,000.00
as evidenced by loan documents including six (6) Used Vehicle Wholesale
Borrowing Base Credit Line Agreements ("BBCL"), six (6) Promissory Notes in the
aggregate amount of FIFTEEN MILLION FIVE HUNDRED THOUSAND DOLLARS
($15,500,000.00) and six (6) Security Agreements covering personal property
(all of the aforementioned documents collectively referred to as the "loan
documents"); and
WHEREAS GMAC may hereafter make additional loans, advances, and other
extensions of credit to BORROWERS; and
<PAGE>
WHEREAS GMAC is willing to extend credit to BORROWERS if BORROWERS agree to
provide additional security by cross default and cross collateralizing all of
said existing, proposed, and future loans, adances, or extensions of credit to
them individually and/or collectively; and
WHEREAS it is the intention of BORROWERS and GMAC that all collateral in
which GMAC now has or may hereafter obtain a lien on or security in from any
and/or all of Borrowers shall secure payment and performance of all loans,
advances, and other extensions of credit now or hereafter made by GMAC to any
and/or all of BORROWERS:
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is acknowledged, including the inducement of GMAC, in its
sole discretion, to extend credit to BORROWERS, IT IS AGREED as follows:
(1) DEFINITIONS: As used in this Agreement, the terms listed below shall
have the following meaning:
(a) Obligation shall mean any liability, indebtedness, or obligation of
BORROWERS, either individually and/or collectively, to GMAC of every kind
and nature, now existing or hereafter arising, whether created directly or
acquired by assignment, whether matured or unmatured, and any costs or
expense, including including reasonable attorneys' fees incurred in the
collection or enforcement of any such obligation;
(b) Security Agreement shall mean any existing or future agreement between
BORROWERS, individually and/or collectively, and GMAC which creates or
provides for a security interest in or lien upon any of the assets or
property (tangible or intangible, real or personal) of BORROWERS,
including but not limited to security agreements, deed of trust,
mortgages, and wholesale floorplan agreements.
(2) CROSS-COLLATERALIZATION: All collateral now or hereafter subject to a
security interest or lien of GMAC pursuant to any or all of the Security
Agreements shall secure any and all Obligations, and any proceeds of any
collateral may be applied to any of the Obligations as GMAC may see fit, subject
to applicable law.
(3) CROSS DEFAULT: In addition to and not in substitution for any
provisions in any of the Security Agreements evidencing Obligations, it is
agreed that any default or breach by BORROWERS, individually and/or
collectively, in payment or default of a material nature under any Security
Agreement shall, at the option
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of GMAC, constitute a default under each Security Agreement and all Promissory
Notes executed by all of the BORROWERS in favor of GMAC.
(4) EFFECT ON OTHER AGREEMENTS: This Agreement shall constitute an
amendment and supplement of each of the Security Agreements now or hereafter
executed and shall augment and be in addition to and not in substitution for any
provision of any Security Agreement or Obligation and shall not otherwise limit
or affect the rights and remedies of GMAC under any such Security Agreement or
Obligation.
(5) FUTURE LOANS: GMAC may, in its sole and absolute discretion, make
additional loans and other financing accommodations to any BORROWERS, all of
which will be subject to the terms of this Agreement. Notwithstanding anything
to the contrary, any future change in the terms of BORROWERS' obligations shall
require the written consent of GMAC.
(6) NOTICES: Any notices or other communications required or permitted to
be given by this document or by any of the loan documents must be given in
writing and must be personally delivered or mailed by prepaid certified,
registered, or first class mail or delivered by a nationally recognized
overnight courier to the party to whom such notice or communication is directed
at the address set forth in this document. Any notice or other communication
shall be deemed to have been given (whether actually received or not) on the day
it is personally delivered or, if mailed, on the third day after it is mailed as
aforesaid. Either party may change its address for purposes of this document by
giving ten (10) days prior written notice of such change to the other party
pursuant to the terms of this clause.
(7) NO OTHER UNDERSTANDINGS: BORROWERS acknowledge that GMAC has made no
promises to induce execution of this Agreement and that there are no other
agreements or understandings, either oral or in writing, affecting this
Agreement and nothing in this Agreement shall be considered a waiver by GMAC of
any existing or future default(s) by any BORROWERS of any Security Agreement or
Obligation. No further modification or amendment of this Agreement shall be
made except in writing executed by all parties.
(8) GOVERNING LAW: This Agreement shall be deemed to be a contract entered
into and made pursuant to the laws of the State of Oklahoma and shall in all
respects be governed, construed, and enforced in accordance with the laws of
said State.
(9) SUCCESSORS AND ASSIGNS: The provisions of this Agreement shall be
binding upon and shall inure to the benefit of the successors and assigns of
BORROWERS and GMAC.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered the day and year first above written.
PERFORMANCE NISSAN, INC.,
an Oklahoma Corporation
WITNESS:
By: /s/Bill Gilliland
/s/Kathy Rieken ---------------------------------
- ------------------------------ BILL GILLILAND
/s/Bob W. Hall Title PRESIDENT
- ------------------------------ -------------------------------
Address: 8029 S.E. 29th Street
Midwest City, OK 73110
PERFORMANCE DODGE, INC.,
an Oklahoma Corporation
WITNESS:
By: /s/Bill Gilliland
/s/Kathy Rieken ---------------------------------
- ------------------------------ BILL GILLILAND
/s/Bob W. Hall Title PRESIDENT
- ------------------------------ -------------------------------
Address: 7069 S.E. 29th Street
Midwest City, OK 73110
MIDWAY CHEVROLET, INC.,
a Texas Corporation
WITNESS:
By: /s/Bill Gilliland
/s/Kathy Rieken ---------------------------------
- ------------------------------ BILL GILLILAND
/s/Bob W. Hall Title PRESIDENT
- ------------------------------ -------------------------------
Address: Canyon Expressway & Rockwell
Amarillo, Texas 79106
4
<PAGE>
PLAINS CHEVROLET, INC.,
a Texas Corporation
WITNESS:
By: /s/Bill Gilliland
/s/Kathy Rieken ---------------------------------
- ------------------------------ BILL GILLILAND
/s/Bob W. Hall Title PRESIDENT
- ------------------------------ -------------------------------
Address: 22 I-40 East
Amarillo, Texas 79103
QUALITY NISSAN, INC.,
a Texas Corporation
WITNESS:
By: /s/Bill Gilliland
/s/Kathy Rieken ---------------------------------
- ------------------------------ BILL GILLILAND
/s/Bob W. Hall Title PRESIDENT
- ------------------------------ -------------------------------
Address: 4121 South Georgia
Amarillo, Texas 79110
WESTGATE CHEVROLET, INC.,
a Texas Corporation
WITNESS:
By: /s/Bill Gilliland
/s/Kathy Rieken ---------------------------------
- ------------------------------ BILL GILLILAND
/s/Bob W. Hall Title PRESIDENT
- ------------------------------ -------------------------------
Address: 7300 I-40 West
Amarillo, Texas 79106
BORROWERS
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<PAGE>
WITNESS: GENERAL MOTORS ACCEPTANCE CORPORATION
By:
- ------------------------------ ---------------------------------
Title Area Manager
- ------------------------------ -------------------------------
Address: 6303 Waterford Blvd.
Suite 100
Oklahoma City, OK 73118
6
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 1 to Registration Statement on Form S-1 of our report dated June
21, 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 Amendment No. 1 to Registration Statement
on Form S-1 of our report dated June 4, 1996, relating to the financial
statements of Jim Glover Dodge, Inc. and our report dated July 3, 1996, relating
to the financial statements of Lynn Hickey Dodge, Inc., which appear in such
Prospectus. We also consent to the reference to us under the heading "Experts"
in such Prospectus.
PRICE WATERHOUSE LLP
Forth Worth, Texas
July 10, 1995
