<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 14, 1996
REGISTRATION NO. 333-06585
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
CROSS-CONTINENT 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. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE (2) OFFERING PRICE (2)
<S> <C> <C> <C>
3,593,750
Common Stock (par value $.01 per share).............. shares (1) $17.00 $61,093,750
Rights to Purchase Junior Preferred Stock and Common 3,593,750
Stock of the Company................................ rights (4)
<CAPTION>
AMOUNT OF
TITLE OF EACH CLASS OF REGISTRATION
SECURITIES TO BE REGISTERED FEE (3)
<S> <C>
Common Stock (par value $.01 per share).............. $21,067
Rights to Purchase Junior Preferred Stock and Common
Stock of the Company................................
</TABLE>
(1) Includes 468,750 shares that the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act of
1933, as amended.
(3) The registration fee has been paid previously.
(4) Rights to purchase Junior Preferred Stock and Common Stock of the Company
will be issued in a number equal to the number of shares of Common Stock to
be issued for no additional consideration and, therefore, no registration
fee is required therefor. Prior to the occurrence of certain events, such
rights will not be exercisable or evidenced separately from the Common
Stock. When exercisable, each such right shall entitle the owner to purchase
from the Company one-one hundredth of a share of Junior Preferred Stock or
shares of Common Stock of the Company with a market value equal to two times
the exercise price of such right, in each case subject to certain
adjustments.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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
[LOGO]
3,125,000 SHARES
CROSS-CONTINENT AUTO RETAILERS, INC.
COMMON STOCK
---------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY
CROSS-CONTINENT 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.
------------------------------
THE COMMON STOCK HAS BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK
EXCHANGE UNDER THE SYMBOL "XC", SUBJECT TO OFFICIAL NOTICE OF ISSUANCE.
------------------------------
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) THE COMPANY 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 THE COMPANY ESTIMATED AT $1,400,000.
(3) THE COMPANY AND 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 WITH RESPECT TO THE COMPANY, THE TOTAL PRICE TO PUBLIC,
UNDERWRITING DISCOUNTS AND PROCEEDS TO THE COMPANY WILL BE $ ,
$ AND $ , RESPECTIVELY. IF THE UNDERWRITERS EXERCISE SUCH
OPTION IN FULL WITH RESPECT TO THE SELLING STOCKHOLDERS, THE TOTAL PRICE TO
PUBLIC, UNDERWRITING DISCOUNTS AND PROCEEDS TO THE SELLING STOCKHOLDERS
(BEFORE DEDUCTING EXPENSES PAYABLE BY THE SELLING STOCKHOLDERS ESTIMATED AT
$12,500) 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........................................................................................ 12
Use of Proceeds............................................................................................ 13
Dividend Policy............................................................................................ 13
Capitalization............................................................................................. 14
Dilution................................................................................................... 15
Selected Combined Financial Data........................................................................... 16
Pro Forma Combined Financial Data.......................................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 21
Business................................................................................................... 32
Management................................................................................................. 45
Principal Stockholders..................................................................................... 49
Certain Transactions....................................................................................... 50
Description of Capital Stock............................................................................... 51
Shares Eligible for Future Sale............................................................................ 55
Underwriters............................................................................................... 56
Legal Matters.............................................................................................. 57
Experts.................................................................................................... 57
Available Information...................................................................................... 57
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-CONTINENT" OR THE "COMPANY" ARE TO CROSS-CONTINENT 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"), which is located in the Oklahoma City market and 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 the Company 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
and including the full-year effect of the dealership acquired in December 1995,
the Company's pro forma 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
4
<PAGE>
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 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. The Company 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-Continent, 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. The Company'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-Continent 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.... XC
</TABLE>
- ---------
(1) Does not include up to an aggregate of 468,750 Shares that may be sold by
the Company and the Selling Stockholders pursuant to the Underwriters'
over-allotment option. See "Principal Stockholders" and "Underwriters."
(2) Assumes no exercise of the Underwriters' over-allotment option with respect
to the Company. Excludes (i) 1,325,000 shares of Common Stock reserved for
future issuance under the Company's stock option plan, including an option
to purchase 6,250 shares of Common Stock that will be granted immediately
before the completion of the Offering with an exercise price equal to the
initial public offering price, and (ii) 127,588 shares of Common Stock
issuable upon the exercise of other options that have an exercise price
equal to the initial public offering price. See "Management -- Stock Option
Plan" and "Certain Transactions."
6
<PAGE>
SUMMARY COMBINED FINANCIAL DATA
The following summary historical and pro forma combined financial data
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," the Combined Financial
Statements of the Company and the related notes and "Pro Forma Combined
Financial Data" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------------------ --------------------
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 $112,344 $141,241
Gross profit.................... 10,839 18,502 25,738 28,322 37,492 60,758 (3) 17,874 21,320
Operating income (2)(3)......... 2,355 3,369 5,016 5,683 6,593 12,634 3,290 4,747(4)
Net income (3).................. 849 956 1,995 2,382 2,195 5,871 1,105 1,799
Net income per share (5)........ $0.44
Weighted average shares
outstanding (5)................ 13,250
<CAPTION>
PRO
FORMA (1)
-----------
1996
-----------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues.................. $189,439
Gross profit.................... 32,160
Operating income (2)(3)......... 7,759 (4)
Net income (3).................. 3,963
Net income per share (5)........ $0.30
Weighted average shares
outstanding (5)................ 13,250
</TABLE>
<TABLE>
<CAPTION>
AS OF
JUNE 30, 1996
AS OF ----------------------
DECEMBER 31, PRO
1995 ACTUAL FORMA(1)
------------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................ $ 536 $ 2,044 $ 33,876
Total assets................................................................... 83,407 80,888 112,043
Long-term debt................................................................. 11,859 11,131 11,131
Stockholders' equity........................................................... 7,101 9,479 54,579
</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) During the six months ended June 30, 1996, the Company recognized a
non-cash charge to earnings of approximately $329,000 relating to employee
stock compensation in connection with the issuance of 303,250 shares of
Common Stock issued for $250,000 to Ezra P. Mager, the Company's Vice
Chairman, pursuant to an agreement dated April 1, 1996 (the "Executive
Purchase"). During the six months ended June 30, 1996, the Company also
recognized a compensation expense of $600,000 relating to a bonus paid to
Emmett M. Rice, Jr., the Company's Senior Vice President and Chief
Operating Officer (the "Executive Bonus") in connection with the
Reorganization (as defined below). Excluding the non-cash charge and
compensation expense, actual operating income and net income for the six
months ended June 30, 1996 would have approximated $5.7 million and $2.5
million, respectively.
(4) 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 six months ended June 30, 1995 approximated
$4.3 million and $2.2 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.
(5) 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 13,250,000 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 shares of Common Stock (303,250) issued in connection
with the Executive Purchase. See "Certain Transactions" and Note 15 to the
Notes to Combined Financial Statements. The weighted average number of
shares outstanding excludes any shares that may be issued by the Company
pursuant to an exercise of the Underwriters' over-allotment option. See
"Principal Stockholders" and "Underwriters."
THE COMPANY 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 THE COMPANY 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 is
the exclusive Chevrolet dealer in Amarillo and has the leading position in the
Amarillo market. In 1995, the Company derived approximately 71% of its gross
profit from its three Chevrolet dealerships in Amarillo. The Company could be
materially adversely affected if Chevrolet awarded additional dealership
franchises to others in the Amarillo market, although the Company does not
anticipate such awards will be made, or if other automobile dealerships
increased their market share in the area. 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, and GM or Chrysler
may be the target of a strike. 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. The Company believes that it has been materially
affected in the past by labor actions such as the strike against GM in March
1996. Due to the automakers' inability to provide the Company with a sufficient
supply of new vehicles and parts during such periods, the Company has purchased,
and in the event of another such strike may need to purchase, inventory from
other automobile dealers, often at prices higher than it would be required to
pay to the automakers, in order to carry an adequate level and mix of inventory.
Such events could materially adversely affect the financial results of the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- First Six Months 1996 versus First Six Months 1995."
8
<PAGE>
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 Company believes
that the automobile dealership business in the Amarillo area also is mature and
that, although the Oklahoma City automobile dealership market may experience
some growth, it is not likely to expand significantly. 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.
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. During the early part of this integration period the
operating results of an acquired dealership may decrease from results attained
prior to the acquisition as the Company implements its strategies and systems.
For the first six months of 1996, the financial performance of the two Oklahoma
City dealerships acquired in 1995 has been below the Company's financial results
in the Amarillo market and below the Oklahoma City dealerships' performance for
the first six months of 1995. 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; NEED FOR FINANCING AND POSSIBLE DILUTION
THROUGH ISSUANCE OF STOCK
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." In connection with the Offering, the Company
anticipates entering into a new "Dealer Agreement" with Chrysler's Dodge
division, under which the Company will agree not to acquire any additional
Chrysler dealership in the Oklahoma City market without Chrysler's approval and
acknowledge that Chrysler will have "good cause" to withhold its consent to any
such acquisition (other than the acquisition of Hickey Dodge).
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
9
<PAGE>
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. Under Dealer Agreements with Nissan that the Company anticipates
will be in effect upon completion of the Offering, the Company's Nissan
franchises may be terminated if, without Nissan's prior approval, Mr.
Gilliland's ownership of Common Stock falls below 20% of the total number of
shares of Common Stock issued and outstanding. See "Business -- Vehicle and
Parts Suppliers -- Relationships with Automakers." Although after the Offering
Mr. Gilliland will own approximately 52% of the Common Stock outstanding
(approximately 50% if the Underwriters' over-allotment option is exercised in
full with respect to the Selling Stockholders), this provision of the Nissan
Dealer Agreement could limit the Company's ability to issue additional shares of
Common Stock to complete acquisitions. 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."
CONCENTRATION OF VOTING POWER AND ANTI-TAKEOVER PROVISIONS
Following the Offering, through their ownership of approximately 76% of the
outstanding Common Stock (approximately 73% if the Underwriters' over-allotment
option is exercised in full with respect to the Selling Stockholders or 74% if
the Underwriters' over-allotment option is exercised in full with respect to the
Company), 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 or preventing stockholders from
realizing a premium on the sale of their shares upon an acquisition of the
Company.
Certain 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 and with the Nissan division of Nissan Motors Corp. U.S.A.
("Nissan") put the Company at risk of losing its Chevrolet or Nissan
franchises if any person or entity acquires 20% or more of the Common Stock
without Chevrolet's or Nissan's approval, as the case may be. In addition,
under its Dealer Agreement with the Dodge division of Chrysler, the Company
could lose its Dodge dealership upon any change in the ownership of a
controlling number of shares in the Company. See "Business -- Vehicle and
Parts Suppliers -- Relationships with Automakers."
(ii)Under Dealer Agreements with Nissan that the Company anticipates will
be in effect upon completion of the Offering, the Company's Nissan
franchises may be terminated if, without Nissan's prior approval, Mr.
Gilliland's ownership of Common Stock falls below 20% of the total number of
shares of Common Stock issued and outstanding or Mr. Gilliland ceases to be
the Chief Executive Officer of the Company. See "Business -- Vehicle and
Parts Suppliers -- Relationships with Automakers."
(iii)
Certain provisions of the Company's Certificate of Incorporation and
Bylaws (a) allow the Company to issue preferred stock with rights
senior to those of the Common Stock without any further vote or action by
the stockholders, (b) provide for a classified board of directors with
staggered three-year terms and (c) impose procedural requirements that could
make it more difficult for stockholders of the Company to effect certain
corporate actions. In addition, Section 203 of the Delaware General
Corporation Law restricts certain business combinations with any "interested
stockholder" as defined by such statute. See "Description of Capital Stock
-- Anti-Takeover Effects of Provisions of the Certificate of Incorporation,
Bylaws and Delaware Law."
(iv)Under the Company's Rights Agreement, shareholders (other than
certain prospective acquirors) are entitled to purchase Common Stock
at a discount or shares in the prospective acquiror at a
10
<PAGE>
discount upon certain acquisitions of 19.9% or more of the Common Stock or a
merger of the Company or similar transaction. The Company may, at the
discretion of the Board of Directors, lower this threshold to as low as 10%.
See "Description of Capital Stock -- Stockholders' Rights Plan."
(v) 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-Continent Auto. See "Management -- Stock
Option Plan."
The blank check preferred stock authorized under the Company's Certificate
of Incorporation gives the Board of Directors of the Company broad discretion
with respect to the creation and issuance of preferred stock without stockholder
approval. The issuance of such preferred stock may delay, defer or prevent a
change of control of the Company 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.
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. 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. The Company does
not currently maintain key-man life insurance for any of its officers or other
employees.
LACK OF INDEPENDENT DIRECTORS
At the time it completes the Offering, the Company will not have any outside
membership on its Board of Directors. Although it anticipates naming at least
two outside directors following completion of the Offering, such directors will
not constitute a majority of the Board, and the Company's Board of Directors may
not consist of such a majority in the future. In the absence of a majority of
independent directors, the Company's executive officers, who also are principal
stockholders and directors, could establish policies and enter into transactions
without independent approval of the terms and purposes of such policies and
transactions. In addition, although the Company will establish an audit
committee, which will consist entirely of outside directors, and a compensation
committee, which will consist of at least two outside directors, until those
committees are established, transactions and compensation policies could be
established without an independent review. These and other transactions could
present the potential for a conflict of interest between the Company and its
stockholders generally and the controlling officers, stockholders or directors.
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 Nissan will be replaced with
agreements imposing several additional terms. One of these terms will be that
11
<PAGE>
the continuation 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 Nissan Dealer Agreement could
result in the imposition of additional conditions in subsequent Dealer
Agreements or termination of such Dealer Agreement by Nissan. See "Business --
Vehicle and Parts Suppliers."
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.
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. Sales of
substantial amounts of the Common Stock by the Company's principal stockholders
or others 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 the Company to raise capital through sales
of its equity securities. As a result of all 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, which is located in the Oklahoma
City market and is one of the largest Dodge dealerships in the United States.
For its acquisition of Hickey Dodge, the Company has agreed to pay $13.85
million in cash. In addition, the Company has agreed to purchase the new vehicle
inventory of Hickey Dodge at the seller's cost and may purchase some or all of
the used vehicle inventory at a price to be agreed. The purchase of the new
vehicle inventory will be financed through floor plan financing. 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 the Company's historical margins. 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 $938,000 in
bonuses paid to the owner and general manager of Hickey Dodge, negatively
affected profitability, resulting in 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
12
<PAGE>
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 prior to the acquisition and does not intend to provide
such loan guarantees once the acquisition is completed. In the first six months
of 1996, Hickey Dodge's pre-tax margins improved from the corresponding period
in 1995. Revenues at Hickey Dodge for the first six months of 1996 were $70.7
million, a 12.4% increase from the prior year period, and pre-tax income
increased to $3.3 million from $167,000 for the first six months of 1995. Based
on its discussions with Hickey Dodge, the Company believes that revenues of
Hickey Dodge increased because of a better mix of vehicles sold and that pre-tax
income increased largely because of the absence of the negative factors that
affected 1995 results.
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 ($52.1 million if
the Underwriters' over-allotment option is exercised in full with respect to the
Company), assuming an initial public offering price of $16.00 per share. The
Company intends to apply $13.85 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 the end of 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 June 30, 1996, this debt
totaled $36.2 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 $6.25
million for working capital and other general corporate purposes, including
future acquisitions.
The Selling Stockholders may elect to sell their shares of Common Stock
pursuant to the exercise of the Underwriters' over-allotment option or to elect
not to include their shares to the full extent of the option. To the extent that
the Selling Stockholders do not sell their shares of Common Stock, the Company
will issue and sell shares of Common Stock to provide for the exercise of the
Underwriters' over-allotment option. See "Capitalization" and "Underwriters."
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-Continent. 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."
13
<PAGE>
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
debt and total capitalization of the Company at June 30, 1996, (i) including the
effect of the Reorganization and excluding the effect of the Offering and (ii)
on a pro forma basis, as adjusted to reflect the sale by the Company of
3,125,000 shares of Common Stock pursuant to 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>
JUNE 30, 1996
------------------------
ACTUAL PRO FORMA(1)
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................................... $ 8,892 $ 10,942(1)
--------- -------------
--------- -------------
Short-term debt:
Floor plan debt....................................................................... $ 36,177 $ 26,432(1)
Due to affiliates..................................................................... 4,620 420(1)
Current maturities of long-term debt.................................................. 1,543 1,543
--------- -------------
Total short-term debt............................................................. $ 42,340 $ 28,395
--------- -------------
--------- -------------
Long-term debt, excluding current maturities............................................ $ 11,131 $ 11,131
--------- -------------
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;
10,125,000 shares issued and outstanding, actual;
13,250,000 shares issued and outstanding, as adjusted (2)............................ 101 132
Paid-in capital....................................................................... 1,542 46,611
Retained earnings..................................................................... 7,836 7,836
--------- -------------
Total stockholders' equity........................................................ 9,479 54,579
--------- -------------
Total capitalization............................................................ $ 20,610 $ 65,710
--------- -------------
--------- -------------
</TABLE>
- ------------
(1) Approximately $13.85 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 $15.3
million in additional floor plan debt that will be used to acquire the
Hickey Dodge new vehicle inventory. The remainder of the estimated net
proceeds, approximately $6.25 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."
(2) If the over-allotment option is exercised, the number of issued and
outstanding shares of Common Stock will not increase if the Selling
Stockholders sell all of the shares of Common Stock included in such
option. If the Company sells all of the shares of Common Stock pursuant to
an exercise in full of the over-allotment option, stockholders' equity and
cash and cash equivalents each would increase by approximately $7.0
million. See "Use of Proceeds" and "Principal Stockholders." Excludes (i)
1,325,000 shares of Common Stock reserved for future issuance under the
Company's stock option plan, including an option to purchase 6,250 shares
of Common Stock that will be granted immediately before the completion of
the Offering with an exercise price equal to the initial public offering
price, and (ii) 127,588 shares of Common Stock issuable upon the exercise
of other options which have an exercise price equal to the initial public
offering price. See "Management -- Stock Option Plan" and "Certain
Transactions."
14
<PAGE>
DILUTION
The net tangible book value of the Company at June 30, 1996 was $2,138,000,
or $.21 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 sale by the Company of 3,125,000 shares of Common Stock pursuant
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) and the acquisition of Hickey Dodge, the Company's pro forma net
tangible book value at June 30, 1996 would have been $34,970,000 or $2.64 per
share. This represents an immediate increase in the net tangible book value of
$2.43 per share to existing stockholders and an immediate dilution of $13.36 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........... $ 0.21
Increase per share attributable to new investors................ 2.43
Pro forma net tangible book value per share after the Offering.... 2.64(1)
-----------
Dilution per share to new investors(2)............................ $ 13.36
-----------
-----------
</TABLE>
- ------------
(1) Includes the pro forma effect on net tangible book value of the Hickey
Dodge acquisition.
(2) 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. If the Company sells all of the shares of Common Stock pursuant to
an exercise in full of the Underwriters' over-allotment option, pro forma
net tangible book value after the Offering would approximate $3.06 per
share and dilution to new investors would approximate $12.92 per share.
The following table summarizes, on a pro forma basis as of June 30, 1996
(assuming the Reorganization had been completed at that date), the differences
between the number of shares of Common Stock purchased from the Company, the
total consideration paid and the average price per share paid by the existing
stockholders and by the investors purchasing 3,125,000 shares of Common Stock
from the Company in this Offering at an assumed initial public offering price of
$16.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------------- ----------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------------- ----------- ---------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders..................... 10,125,000(1) 76.4% $ 9,479,000(2) 15.9% $ 0.94
New Investors............................. 3,125,000 23.6 50,000,000 84.1 16.00
--------------- ----- ---------------- -----
Total................................... 13,250,000 100.0% $ 59,479,000 100.0%
--------------- ----- ---------------- -----
--------------- ----- ---------------- -----
</TABLE>
- ------------
(1) Excludes 133,838 shares of Common Stock that may be issued upon the
exercise at the initial public offering price of options to be granted
immediately prior to completion of the Offering.
(2) Net book value at June 30, 1996.
15
<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 six months ended June 30, 1995 and 1996 and
the balance sheet data at June 30, 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>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
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 $ 101,464 $ 125,900
Other operating revenue.............. 8,636 12,111 15,159 18,047 23,210 10,880 15,341
--------- --------- --------- --------- --------- --------- ---------
Total revenues................. 74,925 125,183 165,364 181,768 236,194 112,344 141,241
Cost of sales.......................... 64,086 106,681 139,626 153,446 198,702 94,470 119,921
--------- --------- --------- --------- --------- --------- ---------
Gross profit........................... 10,839 18,502 25,738 28,322 37,492 17,874 21,320
Selling, general and administrative.... 7,278 12,813 17,194 18,522 25,630 11,958 15,695
Depreciation and amortization.......... 408 731 992 934 951 471 549
Management fees (3).................... 798 1,589 2,536 3,183 4,318 2,155 --
Employee stock compensation (4)........ -- -- -- -- -- -- 329
--------- --------- --------- --------- --------- --------- ---------
Operating income (5)................... 2,355 3,369 5,016 5,683 6,593 3,290 4,747
Interest expense, net.................. (1,008) (1,852) (1,848) (1,950) (3,088) (1,526) (1,724)
--------- --------- --------- --------- --------- --------- ---------
Income before income taxes............. 1,347 1,517 3,168 3,733 3,505 1,764 3,023
Income tax expense..................... 498 561 1,173 1,351 1,310 659 1,224
--------- --------- --------- --------- --------- --------- ---------
Net income (6)......................... $ 849 $ 956 $ 1,995 $ 2,382 $ 2,195 $ 1,105 $ 1,799
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------- AS OF
1991 1992 1993 1994 1995 JUNE 30, 1996
--------- --------- --------- --------- --------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Working capital.......................... $ 1,274 $ 8 $ 135 $ 50 $ 536 $ 2,044
Total assets............................. 33,693 38,191 43,513 47,579 83,407 80,888
Long-term debt........................... 7,391 9,034 7,887 7,150 11,859 11,131
Total liabilities........................ 34,119 37,661 40,774 42,538 76,306 71,409
Stockholders' equity..................... (426) 530 2,739 5,041 7,101 9,479
</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 six months ended June 30, 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) Represents a non-cash charge to earnings of approximately $329,000 relating
to employee stock compensation that the Company recognized in the second
quarter of 1996 in connection with the Executive Purchase. This non-cash
charge represents the difference, as of April 1, 1996, between the
estimated fair value of the Common Stock issued in the Executive Purchase,
as determined by an independent third party appraisal expert, and the cash
consideration paid of $250,000.
(5) In addition to the non-cash charge of approximately $329,000 in connection
with the Executive Purchase (see footnote (4) above), during the six months
ended June 30, 1996, the Company recognized a compensation expense of
$600,000 relating to the Executive Bonus. Excluding the non-cash charge and
compensation expense, actual operating income and net income for the six
months ended June 30, 1996 would have approximated $5.7 million and $2.5
million, respectively.
(6) 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.
16
<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 six months ended June 30, 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 June 30, 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 and the Offering as
if they had occurred as of June 30, 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)( )(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........................ 13,250(10)
</TABLE>
(FOOTNOTES APPEAR ON FOLLOWING PAGE)
17
<PAGE>
PRO FORMA COMBINED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1996
---------------------------------------------------------------
ACTUAL PRO FORMA
ACTUAL(1) HICKEY DODGE(1) ADJUSTMENTS(2) PRO FORMA
----------- ----------------- ----------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues:
Vehicle sales.................................... $125,900 $63,539 -- $189,439
Other operating revenue.......................... 15,341 7,139 -- 22,480
----------- ------- ------- ---------
Total revenues............................... 141,241 70,678 -- 211,919
Cost of sales...................................... 119,921 59,838 -- 179,759
----------- ------- ------- ---------
Gross profit....................................... 21,320 10,840 -- 32,160
Selling, general and administrative................ 15,695 6,863 672(4) 23,230
Depreciation and amortization...................... 549 133 160(6) 842
Management fees.................................... -- -- -- --
Employee stock compensation(5)..................... 329 -- -- 329
----------- ------- ------- ---------
Operating income (11).............................. 4,747 3,844 (832) 7,759
Interest expense, net.............................. (1,724) (558) 1,000(4) (1,282 )
----------- ------- ------- ---------
Income before income taxes......................... 3,023 3,286 168 6,477
Income tax expense................................. 1,224 -- 1,290(9) 2,514
----------- ------- ------- ---------
Net income (11).................................... $ 1,799 $ 3,286 $(1,122) $ 3,963
----------- ------- ------- ---------
----------- ------- ------- ---------
Net income per share............................... $ 0.30 (10)
Weighted average shares outstanding................ 13,250 (10)
</TABLE>
- ------------
(1) Actual results of operations reflect the results of operations of the
Company for the year ended December 31, 1995 and the six months ended June
30, 1996, of Performance Dodge, Inc. (formerly Jim Glover Dodge, Inc.) for
the fiscal year ended November 30, 1995 and of Hickey Dodge for the year
ended December 31, 1995 and the six months ended June 30, 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 $13.85 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 $6.25
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. Partially offsetting the decrease in floor plan
financing will be an increase in floor plan debt to finance the purchase of
vehicle inventory related to the Hickey Dodge acquisition. See Notes 2 and
3 to the notes to the Pro Forma Combined Balance Sheet below. Interest
expense associated with such debt is reflected in Hickey Dodge's actual
results of operations for each period.
(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 net reduction in interest
expense reflecting estimated proceeds used to pay down floor plan debt. See
"Use of Proceeds." The additional expenses include:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1995 JUNE 30, 1996
------------------- ---------------
<S> <C> <C>
Management compensation.............................................................. $ 189 $ 322
Legal and professional............................................................... 300 150
Shareholder relations................................................................ 250 125
Other................................................................................ 150 75
----- -----
$ 889 $ 672
----- -----
----- -----
</TABLE>
The net 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 excludes a non-cash charge to earnings of approximately $329,000
relating to employee stock compensation that the Company recognized in the
second quarter of 1996 in connection with the Executive Purchase. This
non-cash charge represents the difference, as of April 1, 1996, between the
estimated fair value of the Common Stock issued in the Executive Purchase,
as determined by an independent third party appraisal expert, and the cash
consideration paid of $250,000.
(6) Reflects additional interest expense, depreciation and amortization as if
Performance Dodge, Inc. and Hickey Dodge had been acquired as of January 1,
1995. Additional interest expense of $540,000 for the year ended December
31, 1995 includes interest on debt used to acquire Performance Dodge at a
rate of 9.75%. Interest expense associated with floor plan debt has already
been reflected in the actual results of operations, thus no additional
interest for such debt has been included in the pro forma adjustment. The
pro forma depreciation and amortization for the year ended December 31,
1995 primarily reflects additional amortization of approximately
18
<PAGE>
$527,000 associated with intangible assets, which assets consist largely of
goodwill, resulting from the acquisition of Performance Dodge ($2,700,000)
and Hickey Dodge ($12,268,000). Amortization periods range from five to 40
years with the majority of such costs being amortized over a 40-year
period. Partially offsetting the increased amortization is a decrease in
depreciation expense of approximately $126,000 for certain property and
equipment that will not be included in the purchase of Hickey Dodge by the
Company. The pro forma adjustment for the six months ended June 30, 1996
reflects increased amortization relating solely to the Hickey Dodge
acquisition, of approximately $200,000, partially offset by $40,000 of
decreased depreciation.
(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 estimated income tax effect of the adjustments described in
footnotes (3) and (6) above and Performance Dodge, Inc. and Hickey Dodge,
as if they were taxable entities for the year ended December 31, 1995,
using the Company's incremental tax rate of approximately 37%.
(9) Reflects the estimated income tax effect of the adjustments (i) described
in footnotes (4) and (7) above for the year ended December 31, 1995, (ii)
described in footnotes (4) and (6) above and (iii) for Hickey Dodge, as if
it were a taxable entity, for the six months ended June 30, 1996, in each
case using the Company's incremental tax rate of approximately 37%.
(10) Pro forma earnings per share are based upon the assumption that 13,250,000
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 303,750 shares of Common
Stock issued in connection with the Executive Purchase. See "Certain
Transactions" and Note 15 to the Notes to Combined Financial Statements.
The pro forma earnings per share excludes the 468,750 shares subject to the
Underwriters' over-allotment option. If the Company sells all of the shares
of Common Stock pursuant to an exercise in full of such option, pro forma
earnings for the year ended December 31, 1995 and the six months ended June
30, 1996 would approximate $.43 per share and $.29 per share, respectively,
and the weighted average number of shares of Common Stock outstanding on a
pro forma basis would approximate 13,718,250 shares for both periods.
(11) In addition to the non-cash charge of approximately $329,000 in connection
with the Executive Purchase (see footnote (5) above), during the six months
ended June 30, 1996, the Company recognized a compensation expense of
$600,000 relating to the Executive Bonus. Excluding the non-cash charge and
compensation expense, pro forma operating income and pro forma net income
would have been approximately $8.7 million and $4.7 million, respectively.
19
<PAGE>
PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
AS OF JUNE 30, 1996
-------------------------------------
PRO FORMA PRO
ACTUAL ADJUSTMENTS FORMA (1)
-------- --------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................................................... $ 8,892 $ 2,050(2) 10,942
Accounts receivable................................................................ 10,664 -- 10,664
Inventories........................................................................ 38,416 15,837(3) 54,253
-------- --------------- ---------
Total current assets........................................................... 57,972 17,887 75,859
Net property, plant and equipment.................................................... 12,213 1,000(3) 13,213
Goodwill, net, and other assets...................................................... 10,703 12,268(3) 22,971
-------- --------------- ---------
Total assets..................................................................... $ 80,888 $ 31,155 $112,043
-------- --------------- ---------
-------- --------------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Floor plan debt.................................................................... $ 36,177 $ (9,745)(2)(3) $ 26,432
Current maturities of long-term debt............................................... 1,543 -- 1,543
Accounts payable................................................................... 4,796 -- 4,796
Due to affiliates.................................................................. 4,620 (4,200)(2) 420
Accrued expenses and other liabilities............................................. 6,760 -- 6,760
Deferred income taxes.............................................................. 2,032 -- 2,032
-------- --------------- ---------
Total current liabilities...................................................... 55,928 (13,945) 41,983
-------- --------------- ---------
Long-term Liabilities:
Long-term debt, excluding current maturities....................................... 11,131 -- 11,131
Deferred warranty revenue -- long-term portion..................................... 4,350 -- 4,350
-------- --------------- ---------
Total long-term liabilities.................................................... 15,481 -- 15,481
-------- --------------- ---------
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; 13,250,000 shares issued and outstanding, as adjusted(1)..... 101 31(4) 132
Paid-in capital.................................................................... 1,542 45,069(4) 46,611
Retained earnings.................................................................. 7,836 -- 7,836
-------- --------------- ---------
Total stockholders' equity..................................................... 9,479 45,100 54,579
-------- --------------- ---------
Total liabilities and stockholders' equity................................... $ 80,888 $ 31,155 $112,043
-------- --------------- ---------
-------- --------------- ---------
</TABLE>
- ----------
(1) If the Company sells all of the shares of Common Stock pursuant to an
exercise in full of the Underwriters' over-allotment option, each of
stockholders' equity and cash and cash equivalents would increase by
approximately $7.0 million, net of expenses. If the Selling Stockholders
sell all of the shares of Common Stock included in such option, there would
be no additional increase in stockholders' equity, the number of shares
issued and outstanding or cash and cash equivalents.
(2) Reflects the application of the estimated net proceeds of the Offering.
Approximately $25.0 million will be used to reduce floor plan debt,
approximately $13.85 million will be utilized to acquire Hickey Dodge and
the remainder of the estimated net proceeds of approximately $6.25 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................................................ $13,850,000
Less estimated fair value of assets acquired................................ 1,582,000
----------
Excess of purchase price over fair value of tangible assets acquired........ $12,268,000
----------
----------
</TABLE>
The Company is purchasing new vehicle and parts inventory, certain property
and equipment and the dealer agreement with Chrysler-Dodge and may purchase
some or all of the used vehicle inventory. The excess of the purchase price
over the fair value of tangible assets acquired will be allocated to
intangible 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 June 30, 1996 approximated $15,255,000, will be financed with floor plan
debt.
(4) Reflects 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.
20
<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. During the early part of the integration
period the operating results of an acquired dealership may decrease from results
attained prior to the acquisition as the Company implements its strategies and
systems. For the first six months of 1996, the financial performance of the two
Oklahoma City dealerships acquired in 1995 has been below their performance for
the first six months of 1995. 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. The Company is the exclusive
Chevrolet dealer in Amarillo and in 1995 derived approximately 71% of its gross
profit from its three Chevrolet dealerships in Amarillo. The Company could be
materially adversely affected if Chevrolet awarded additional dealership
franchises to others in the Amarillo market, although the Company does not
anticipate such awards will be made, or if other automobile dealerships
increased their market share in the area. 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 may do in new markets that it enters and with respect to all of its
dealerships in the future, 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,
21
<PAGE>
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 declined from 12.5% in 1994 to
12.1% in 1995, the Company's gross margins on new vehicle sales have
consistently been higher than the industry average. The Company's gross margins
on used vehicle sales fluctuate based on many factors, including the volume of
used vehicles sold to other dealers and wholesalers and the turnover rate of
used vehicle inventory, and were 8.9% in 1994 and 9.8% in 1995. See "Business --
Dealership Operations -- Used Vehicle Sales." Excluding sales to other dealers
and wholesalers (which are frequently at or below cost), the Company's gross
margin in 1995 of 13.7% on retail sales of used vehicles is currently higher
than its margin on new vehicles.
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-Continent 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, the Company 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.
22
<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
---------------------------------------------------------------
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
------------------------------------- ------------------------
1993 1994 1995(1) 1995(2) 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales......................................... 55.0% 50.0% 48.5% 47.7% 46.8%
Used vehicle sales........................................ 35.8 40.1 41.7 42.6 42.3
Other operating revenue (3)............................... 9.2 9.9 9.8 9.7 10.9
----- ----- ----- ----- -----
Total revenues........................................ 100.0 100.0 100.0 100.0 100.0
Cost of sales............................................... 84.5 84.4 84.1 84.1 84.9
----- ----- ----- ----- -----
Gross profit................................................ 15.5 15.6 15.9 15.9 15.1
Selling, general and administrative......................... 10.4 10.2 10.9 10.6 11.1
Depreciation and amortization............................... 0.6 0.5 0.4 0.4 0.4
Management fees (4)......................................... 1.5 1.8 1.8 1.9 --
Employee stock compensation................................. -- -- -- -- 0.2
----- ----- ----- ----- -----
Operating income............................................ 3.0 3.1 2.8 3.0 3.4
Interest expense, net....................................... (1.1) (1.1) (1.3) (1.4) (1.2)
----- ----- ----- ----- -----
Income before income taxes.................................. 1.9 2.0 1.5 1.6 2.2
Income tax expense.......................................... 0.7 0.7 0.6 0.6 0.9
----- ----- ----- ----- -----
Net income.................................................. 1.2% 1.3% 0.9% 1.0% 1.3%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</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 six months ended June 30, 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 SIX MONTHS 1996 VERSUS FIRST SIX MONTHS 1995
REVENUES
Revenues grew in each of the Company's primary revenue areas for the first
six months of 1996 as compared with the first six months of 1995, causing total
sales to increase 25.7% to $141.2 million. New vehicle sales revenue increased
23.3% in the first six months of 1996 to $66.1 million, compared with $53.6
million in the first six months of 1995. Substantially all of this increase was
attributable to the Company's dealerships in Oklahoma City, sales of which were
included for the full six months in 1996 while only one of the Company's
Oklahoma City dealerships was included for a portion of the first six months of
1995.
Used vehicle sales increased by 25.1% in the first six months of 1996 to
$59.8 million, compared with $47.8 million in the first six months of 1995. The
inclusion of the Company's Oklahoma City dealerships in the Company's results
for the first six months of 1996 accounted for 45.3% 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 40.4% to $15.3 million in
the first six months of 1996 from $10.9 million in the first six months of 1995
largely because of inclusion of the parts and service sales and F&I sales by the
Company's Oklahoma City dealerships, which accounted for 79.3% of the increase.
The remaining increase was primarily attributable to increased F&I revenue per
vehicle sold by the Company's Amarillo dealerships.
23
<PAGE>
GROSS PROFIT
Gross profit increased 19.0% in the first six months of 1996 to $21.3
million, compared with $17.9 million for the first six months 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 decreased to 15.1% in the
first six months of 1996 from 15.9% in the same period in 1995. The decrease in
gross profit as a percentage of sales was caused principally by reduced margins
for new and used vehicle sales at the Company's Amarillo dealerships, partially
offset by an increase in gross profit as a percentage of sales on new and used
vehicle sales at the Company's Oklahoma City dealerships.
The reduction in gross margin on new vehicles at the Amarillo dealerships
was primarily attributable to increased vehicle costs resulting from the
Company's efforts to minimize the effect of inventory shortfalls caused by GM's
parts plant strike in March 1996 by purchasing supplemental inventory from other
dealers. Gross margins on the sale of new vehicles at the Oklahoma City
dealerships increased in the first six months of 1996 from the same period of
1995. The Company believes that this increase was due, in part, to a one-time
favorable vehicle allocation from the manufacturers relating to the Company's
acquisition of these dealerships and, in part, to the Company's implementation
of its business strategy.
The reduction in gross margin on used vehicles at the Amarillo dealerships
was primarily attributable to increased vehicle purchase and reconditioning
costs as well as 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. If such sales to other
dealers and wholesalers continue to increase as a percentage of total used
vehicle sales, gross margins on total used vehicle sales may continue to
decline. Used vehicle gross margins at the Oklahoma City dealerships increased
slightly due to the Company's implementation of its "mirror the market" program.
In the first six months of 1996, approximately 29.6% of the Company's used
vehicles sales were to other dealers and wholesalers as compared to
approximately 22.8% in the first six months of 1995.
Gross margin on other operating revenue was reduced in the first six months
of 1996 as compared to the same period of 1995 due primarily to an increase in
the Company's repair costs relating to its extended warranties.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES; MANAGEMENT FEES
The Company's selling, general and administrative expenses increased to
$15.7 million in the first six months of 1996 compared to $12.0 million in the
first six months of 1995, and increased as a percentage of revenue to 11.1% from
10.6%. 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.
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 recorded a non-cash charge to earnings relating to employee
stock compensation of approximately $329,000 in the six months ended June 30,
1996, representing the difference between the estimated fair value, as of April
1, 1996, of the 303,750 shares of Common Stock issued in the Executive Purchase,
as determined by an independent third party appraisal expert, and the cash
consideration paid of $250,000. See "Certain Transactions" and Note 15 to the
Notes to Combined Financial Statements.
In July 1996, the Company implemented a revised compensation plan for
Messrs. Gilliland, Hall, Rice and Mager (the "Senior Management Group"). Under
this revised plan, the Company's Senior Management Group is to receive base
salaries approximating an aggregate of $1,020,000 per year, subject to cost of
living adjustments in future years. During the first six months of 1996, the
base salaries paid to the Senior Management Group totalled $180,000. Because of
the newly implemented plan, compensation to this group will increase in the
second half of 1996. In conjunction with the Reorganization, the Company has
agreed to
24
<PAGE>
pay one of its executive officers a bonus of $600,000. The Executive Bonus has
been expensed in its entirety in the three months ended June 30, 1996. Other
than the Executive Bonus, the Senior Management Group will not receive any bonus
payments in 1996.
INTEREST EXPENSE
The Company's interest expense increased 16.5% to $2.3 million for the first
six months of 1996 compared to $1.9 million for the corresponding period of
1995. The increase was due to interest expense associated with 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
six months of 1996 compared with the first six months of 1995.
NET INCOME
As a result of the factors noted above, the Company's net income increased
by 63.6% to $1.8 million in the first six months of 1996 compared to $1.1
million in the first six months of 1995. The Company's effective tax rate for
the six months ended June 30, 1996 approximated 40.5% as compared to 37.4% for
the comparable period of 1995. The increase in the effective rate relates to
certain non-deductible expenses incurred during the first six months of 1996.
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.
25
<PAGE>
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.
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. This increase was attributable to increased levels of
services provided related to the Oklahoma City dealerships and increased levels
of overall profitability of the Company.
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
26
<PAGE>
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.
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.
27
<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 are also lower
than those of the second and third quarters. The Company's results of operations
for the first and second quarters of 1996 did not reflect this historical
seasonality. This was largely attributable to the particularly high volume of
sales in the first quarter of 1996, the effects of the drought in the Texas
Panhandle and in Oklahoma that adversely affected the second quarter results, a
less favorable allocation of new vehicles from General Motors that was directly
related to strikes at two GM parts plants in March 1996 and a greater volume of
sales of used vehicles to other dealers and wholesalers (which sales are
frequently at or below cost) in the first six months of 1996. See "--First Six
Months 1996 versus First Six Months 1995."
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 (1) 1995 1995 1995 (2) 1996 1996
------------- ------------- ------------- ------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales..... $ 23,840 $ 29,789 $ 31,521 $ 29,344 $ 34,649 $ 31,493
Used vehicle sales.... 21,237 26,598 26,016 24,639 29,360 30,398
Other operating
revenue.............. 4,990 5,891 6,281 6,049 7,220 8,121
------------- ------------- ------------- ------------- ------------- -------------
Total revenues...... 50,067 62,278 63,818 60,032 71,229 70,012
Cost of sales........... 42,449 52,022 53,374 50,857 59,896 60,025
------------- ------------- ------------- ------------- ------------- -------------
Gross profit............ 7,618 10,256 10,444 9,175 11,333 9,987
Selling, general and
administrative......... 5,377 6,580 6,685 6,987 7,537 8,158
Depreciation and
amortization........... 224 248 240 240 270 279
Management fees (3)..... 798 1,357 1,393 770 -- --
Employee stock
compensation (4)....... -- -- -- -- -- 329
------------- ------------- ------------- ------------- ------------- -------------
Operating income (5).... 1,219 2,071 2,126 1,178 3,526 1,221
Interest expense, net... (704) (823) (749) (813) (975) (749)
------------- ------------- ------------- ------------- ------------- -------------
Income before income
taxes.................. 515 1,248 1,377 365 2,551 472
Income tax expense...... 193 466 515 136 952 272
------------- ------------- ------------- ------------- ------------- -------------
Net income (5).......... $ 322 $ 782 $ 862 $ 229 $ 1,599 $ 200
------------- ------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- ------------- -------------
</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.
(4) Represents a non-cash charge to earnings of approximately $329,000 relating
to employee stock compensation that the Company recognized in the second
quarter of 1996 in connection with the Executive Purchase. This non-cash
charge represents the difference, as of April 1, 1996, between the
estimated fair value of the Common Stock issued in the Executive Purchase,
as determined by an independent third party appraisal expert, and the cash
consideration paid of $250,000.
(5) In addition to the non-cash charge of approximately $329,000 in connection
with the Executive Purchase (see footnote (4) above), during the three
months ended June 30, 1996, the Company recognized a compensation expense
of $600,000 relating to the Executive Bonus. Excluding the non-cash charge
and compensation expense, actual operating income and net income for the
six months ended June 30, 1996 would have approximated $5.7 million and
$2.5 million, respectively.
28
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1995 (1) 1995 1995 1995 (2) 1996 1996
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales..... 47.6% 47.8% 49.4% 48.9% 48.6% 45.0%
Used vehicle sales.... 42.4 42.7 40.8 41.0 41.2 43.4
Other operating
revenue.............. 10.0 9.5 9.8 10.1 10.2 11.6
----- ----- ----- ----- ----- -----
Total revenues...... 100.0 100.0 100.0 100.0 100.0 100.0
Cost of sales........... 84.8 83.5 83.6 84.7 84.1 85.7
----- ----- ----- ----- ----- -----
Gross profit............ 15.2 16.5 16.4 15.3 15.9 14.3
Selling, general and
administrative......... 10.7 10.6 10.5 11.6 10.6 11.6
Depreciation and
amortization........... 0.5 0.4 0.4 0.4 0.4 0.4
Management fees (3)..... 1.6 2.2 2.2 1.3 -- --
Employee stock
compensation (4)....... -- -- -- -- -- 0.5
----- ----- ----- ----- ----- -----
Operating income (5).... 2.4 3.3 3.3 2.0 4.9 1.8
Interest expense, net... (1.4) (1.3) (1.2) (1.4) (1.3) (1.1)
----- ----- ----- ----- ----- -----
Income before income
taxes.................. 1.0 2.0 2.1 0.6 3.6 0.7
Income tax expense...... 0.4 0.7 0.8 0.2 1.3 0.4
----- ----- ----- ----- ----- -----
Net income (5).......... 0.6% 1.3% 1.3% 0.4% 2.3% 0.3%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</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.
(4) Represents a non-cash charge to earnings of approximately $329,000 relating
to employee stock compensation that the Company recognized in the second
quarter of 1996 in connection with the Executive Purchase. This non-cash
charge represents the difference, as of April 1, 1996, between the
estimated fair value of the Common Stock issued in the Executive Purchase,
as determined by an independent third party appraisal expert, and the cash
consideration paid of $250,000.
(5) In addition to the non-cash charge of approximately $329,000 in connection
with the Executive Purchase (see footnote (4) above), during the three
months ended June 30, 1996, the Company recognized a compensation expense
of $600,000 relating to the Executive Bonus. Excluding the non-cash charge
and compensation expense, actual operating income and net income for the
six months ended June 30, 1996 would have approximated $5.7 million and
$2.5 million, respectively.
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 renegotiates 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 June 30, 1996,
the Company had outstanding floor plan debt of $36.2 million at an average
annual interest rate of 8.0%. The Company anticipates that its floor plan debt
will
29
<PAGE>
decrease following the Offering as a result of the Company's repayment of
approximately $25 million in GMAC floor plan debt. This $25 million decrease
will be partially offset by the Company's assumption of approximately $15
million of floor plan debt of Hickey Dodge.
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 June 30, 1996, there was no such
indebtedness outstanding.
During the first six months of 1996, the Company generated net cash of $5.8
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.
Cash used for investing activities was approximately $565,000 for the first
six 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 second half of 1996 are expected
to approximate $560,000 relating to capital improvements to the service
department at one of the Company's dealerships. 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 $13.85 million in cash. In addition, the Company
has agreed to purchase the new vehicle inventory of Hickey Dodge at the seller's
cost and may purchase some or all of the used vehicle inventory 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 $4.7 million for the first six
months of 1996 and was primarily attributable to the Company's reduced levels of
inventory in the first six months of 1996. In 1995, cash provided by financing
activities reflected the increase in inventories, resulting in a $9.4 million
increase in floor plan debt. At June 30, 1996, the Company's long term
indebtedness totaled $11.1 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 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.
30
<PAGE>
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."
31
<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 $74.9 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 and including the full-year
effect of the dealership acquired in December 1995, the Company's pro forma 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
operating 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
32
<PAGE>
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. The Company 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-Continent, 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. The Company'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
33
<PAGE>
Company intends to focus its efforts on dealer groups that own multiple
franchises in a single city, as well as on large, single-dealer franchises
possessing significant market share. Other criteria for evaluating potential
acquisitions will include the dealership or dealer group's current
profitability, the quality of its management team, its local reputation with
customers, and its location along an interstate highway or principal
thoroughfare. The Company plans to evaluate acquisition candidates on a
case-by-case basis, and there can be no assurance that future acquisitions by
the Company will have all or any of these characteristics. See "Risk
Factors -- Availability of Acquisition Candidates; Need for Financing and
Possible Dilution through Issuance of Stock."
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-Continent 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. During the early part of the integration period
the operating results of an acquired dealership may decrease from results prior
to the acquisition as the Company implements its strategies and systems. 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*......................................... 14.6 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
34
<PAGE>
without good cause, may designate family members as successors to their business
and may not be forced to accept unordered inventory. In addition, although a
dealership's agreement with the automaker does not provide for exclusivity with
respect to the brand of cars and trucks sold by the dealership within a
particular geographic area, many states now have licensing and procedural
requirements that may impede the ability of another dealership selling the same
brand to enter a geographic market already served by a dealership.
Until the 1960s, dealerships typically were owned and operated by one
individual who controlled one franchise. Competitive and economic pressures
during the 1970s and 1980s, particularly the oil embargo of 1973 and the
subsequent loss of market share experienced by U.S. auto manufacturers to
imported vehicles, forced many dealerships to close or sell out to
better-capitalized dealer groups. Continued economic pressure on dealers,
combined with the easing of restrictions against multiple dealer ownership, have
led to further consolidation in the industry.
According to AUTOMOTIVE NEWS, the number of franchised dealerships has
declined from 36,336 dealerships in 1960 to 22,288 in 1996. This consolidation
has resulted in fewer and larger dealer groups. AUTOMOTIVE NEWS' data also
reflect that each of the largest 100 dealer groups (ranked by unit sales) had
more than approximately $150 million in revenues in 1995. Although significant
consolidation has taken place among dealerships since 1960, the industry remains
highly fragmented. The Company estimates that the largest 100 dealer groups
generated less than 10% of total revenues, and controlled approximately 5% of
all franchise dealerships, in the retail vehicle market in 1995.
The Company believes that further consolidation of automobile dealers is
likely due to the increased capital requirements of dealerships, the fact that
many dealerships are owned by individuals nearing retirement age and the desire
of certain automakers to strengthen their brand identity by consolidating their
franchised dealerships. The Company 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 the Company 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
35
<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 on an
actual basis for the first six 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 SIX MONTHS 1996 REVENUES
New vehicle sales................................................. 48,109 18,033 66,142
Used vehicle sales................................................ 45,900 13,858 59,758
Other operating revenue (2)....................................... 10,036 5,305 15,341
</TABLE>
- ------------
(1) Figures shown for 1995 are 11-month sales figures for Performance Nissan,
which the Company acquired February 2, 1995, and full-year sales figures
for Performance Dodge, which the Company acquired December 4, 1995. The
sales figures do not include sales figures for Hickey Dodge, which the
Company anticipates acquiring by the end of September 1996.
(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 the
Company'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 has operated a Kia
franchise at the Company's Westgate facility in Amarillo, which had sales of
36
<PAGE>
less than 1.0% of the Company's total revenue in 1995. The Company is in the
process of transferring this franchise back to Kia at no material cost to the
Company. 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." As the table below reflects, sales
to other dealers and wholesalers are frequently at or below cost and therefore
affect the Company's overall gross margin on used vehicle sales. 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.
37
<PAGE>
The Company's parts and service business has grown along with the Company's
growth in sales of new and used vehicles. The Company provides parts and service
primarily for the vehicle makes sold by its dealerships but also services other
makes of vehicles. In 1995, the Company's parts and service operation generated
gross margins of 52.4%, including the sale of parts at wholesale to independent
repair shops. Excluding the sale of parts at wholesale, the Company's gross
margin for parts and service would have been 63.3% in 1995, which the Company
believes compares favorably to the industry average.
The Company attributes its profitability in parts and service to its
comprehensive management system, including the use of a variable rate pricing
structure, the adoption of a team concept in servicing vehicles and 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
38
<PAGE>
Company arrange financing for a customer that is competitive (I.E., the customer
is more likely to accept the financing terms and the loan is less likely to be
refinanced) and affordable (I.E., the loan is more likely to be repaid).
The Company's subsidiary, Working Man's Credit, sells used vehicles and
provides financing to customers with low income levels or past credit problems.
Typically, the Company requires these customers to make weekly payments. If
these payments are not made, the Company may repossess the vehicle. In 1995,
less than 1% of the Company's used vehicle sales were financed by Working Man's
Credit.
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 the Company 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
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automakers, the Company receives a subsidy for its advertising expenses incurred
in connection with that automaker's vehicles. The Company expects to realize
cost savings on its advertising expenses as it acquires multiple dealerships in
particular markets, due to volume discounts and other concessions from media.
VEHICLE AND PARTS SUPPLIERS
NEW VEHICLES AND PARTS. The Company 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. See "Description of Capital Stock -- Anti-Takeover
Effect of Provisions in Dealer Agreements."
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.
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 at net book
value 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.
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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.
In connection with the Offering, the Company has been informed that its
current Dealer Agreements with Nissan will be replaced with agreements imposing
several additional terms. The continuation 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 Nissan
Dealer Agreement could result in the imposition of additional conditions in
subsequent Dealer Agreements or termination of such Dealer Agreement by Nissan.
In addition, the Company anticipates that these Dealer Agreements will give
Nissan the right to terminate the Company's Nissan franchises if, without
Nissan's prior approval, Mr. Gilliland's ownership of Common Stock falls below
20% of the total number of shares of Common Stock issued and outstanding or Mr.
Gilliland ceases to be the Chief Executive Officer of the Company. Nissan also
will have the right to terminate the Company's Dealer Agreements if any person
or entity acquires 20% or more of the Company's issued and outstanding shares
and Nissan determines that such ownership is adverse to the automaker.
Under its Dealer Agreement with the Dodge division of Chrysler, as
renegotiated in anticipation of the Offering, the Company will be subject to
several additional obligations. Chrysler will be entitled to terminate the
Company's Dodge franchise if there is any change in the ownership of a
controlling number of shares in the Company not approved by Chrysler. In
addition, the Company will agree not to acquire any additional Chrysler
dealership in the Oklahoma City market without Chrysler's approval and
acknowledge that Chrysler will have "good cause" to withhold its consent to any
such acquisition (other than the acquisition of Hickey Dodge). The Company does
not believe that this restriction will materially interfere with its acquisition
strategy.
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-Continent 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." The Company's policy on its
used vehicle inventory is to maintain a 39-day supply and to offer to other
dealers and
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wholesalers used vehicles remaining unsold for more than 60 days. The Company
estimates that sales of used vehicles to other dealers and wholesalers
constituted approximately 23% of its total used vehicle dollar sales in 1995.
The Company's vice president in charge of dealer operations establishes
guidelines for, and coordinates the purchases of, vehicles to ensure an
efficient allocation of inventory among the dealerships generally. In addition,
each of the Company's dealerships employs new and used vehicle inventory
managers who supervise the size and composition of inventories at their
individual dealerships. Inventory managers are encouraged to act as "brokers" on
behalf of their dealerships, using computerized systems, surveys and market
information to anticipate customer preferences and buy and sell to other Company
dealerships and in secondary markets. The Company believes that its coordinated
system of inventory management is unusual in the industry and enhances its
overall profitability.
Although there can be no assurance either that the Company's acquisition
strategy will be successful or that it will produce the anticipated benefits,
the Company believes that the acquisition of additional dealerships would expand
its internal market for transfers of vehicles among its dealerships and,
therefore, reduce the need to acquire vehicles from other dealers or wholesalers
or sell vehicles in the wholesale market, which frequently results in lower
gross margins. The acquisition of additional dealerships may reduce the total
amount of transportation and other fees paid to other franchised dealers. The
Company believes that its acquisition of additional dealerships also may reduce
its reliance on any particular automaker so that it may be less affected by
changes in buying trends or the automaker's inability to supply requested
inventory. The Company also believes that its acquisition of additional
dealerships may produce economies of scale in its purchasing of used vehicle
inventory.
PARTS. Each of the Company's dealerships sells factory-approved parts for
vehicle makes and models sold by that dealership. These parts are either used in
repairs made by the dealership or sold at wholesale to independent repair shops.
While a majority of the Company's dealerships sell parts primarily through their
own service departments, two of the dealerships sell predominantly at wholesale
to other dealers, body shops and repair businesses.
Currently, each of the Company's dealerships employs its own parts manager
and independently controls its parts inventory and sales. Dealerships that sell
the same new vehicle makes have access to each 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-Continent 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. In
addition, the used vehicle market is facing additional competition from
non-traditional outlets such as used-car "superstores," which have inventories
significantly larger and more varied than the Company and other more traditional
dealerships. While these superstores have not yet entered the markets in which
the Company currently does business, the Company may face this competition in
new markets it may enter. 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
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that the Company targets. The Company is the exclusive Chevrolet dealer in
Amarillo and in 1995 derived approximately 71% of its gross profit from its
three Chevrolet dealerships in Amarillo. The Company could be materially
adversely affected if Chevrolet awarded additional dealerships franchises to
others in the Amarillo market, although the Company does not anticipate such
awards will be made, or if other automobile dealerships increased their market
share in the area. In the Oklahoma City market, the Company estimates that there
are at least 13 multi-franchise dealer groups, many of which have significantly
greater market share and experience than the Company has in the Oklahoma City
area.
The Company believes that the principal competitive factors in vehicle sales
are the marketing campaigns conducted by automakers, the ability of dealerships
to offer a wide selection of the most popular vehicles, the location of
dealerships and the quality of customer service. Other competitive factors
include customer preference for makes of automobiles, pricing (including
manufacturer rebates and other special offers) and warranties. The Company
believes that its dealerships are competitive in all of these areas.
In addition to competition for vehicle sales, the Company also competes with
other auto dealers, service stores, auto parts retailers and independent
mechanics in providing parts and service. The Company believes that the
principal competitive factors in parts and service sales are price, the use of
factory-approved replacement parts, the familiarity with a dealer's makes and
models and the quality of customer service. A number of regional or national
chains offer selected parts and service at prices that may be lower than the
Company's prices.
In arranging or providing financing for its customers' vehicle purchases,
the Company competes with a broad range of financial institutions. The Company
believes that the principal competitive factors in offering financing are
convenience, interest rates and contract terms.
In addition to being affected by national competitive trends, the Company's
success depends, in part, on regional auto-buying trends, local and regional
economic factors and other regional competitive pressures. Currently, the
Company sells its vehicles in the Amarillo and Oklahoma City markets. Conditions
and competitive pressures affecting these markets, such as price-cutting by
dealers in these areas, or in any new markets the Company enters, could
adversely affect the Company, although the retail automobile industry as a whole
might not be affected.
GOVERNMENTAL REGULATIONS
A number of regulations affect the Company's business of marketing, selling,
financing and servicing automobiles. The Company also is subject to laws and
regulations relating to business corporations generally.
Under Texas and Oklahoma law, the Company must obtain a license in order to
establish, operate or relocate a dealership or operate an automotive repair
service. See "-- Vehicle and Parts Suppliers -- Relationships with Automakers."
These laws also regulate the Company's conduct of business, including its
advertising and sales practices. Other states may have similar requirements.
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 is in the process of transferring back to the automaker
its Kia
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dealership, which it has operated 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. The Company subleases its Performance Nissan
facility from GGFP, which sublease extends until February 2002 and provides the
Company with an option to extend the sublease 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 August 1, 1996 the Company employed 536 people, of whom approximately
88 were employed in managerial positions, 229 were employed in non-managerial
sales positions, 93 were employed in non-managerial parts and service positions
and 126 were employed in administrative support positions.
The Company believes that many dealerships in the retail automobile industry
have difficulty attracting and retaining qualified personnel for several
reasons, including the historical inability of dealerships to provide employees
with a marketable 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 options to purchase Common Stock and
believes this 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 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.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company, and their ages as of
August 1, 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, Treasurer 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.......................... 34 Vice President, Chief Financial Officer and Secretary
Thomas A. Corchado......................... 38 Vice President -- Fixed Operations
John W. Gaines............................. 36 Vice President -- Systems
Jerry L. Pullen............................ 50 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 the Company since its formation. Since 1987, Mr. Gilliland has been
the Managing Partner of GGFP, which prior to the Reorganization owned a majority
interest in the Company's dealerships. Mr. Gilliland currently is, and since
their acquisition by GGFP 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 the Company will expire at the annual
meeting of stockholders of the Company to be held in 1999.
Robert W. Hall has been the Senior Vice Chairman, Treasurer and a Director
of the Company since its formation. Mr. Hall currently is, and since the
acquisition of the Company's dealerships by GGFP has been, a director and the
treasurer of each of the dealerships. Since 1988, Mr. Hall has been a partner of
GGFP. Mr. Hall is the son-in-law of Mr. Gilliland. Mr. Hall's initial term as a
director of the Company 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 the Company 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 the Company 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 the Company since its formation. Mr. Rice currently
is, and since their acquisition by GGFP 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 the Company to be held in 1999.
Charles D. Winton has been a Vice President, the Chief Financial Officer and
the Secretary of the Company 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.
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Thomas A. Corchado has been Vice President -- Fixed Operations of the
Company 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 the Company 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.
Jerry L. Pullen has been the Vice President--City Manager of the Company
since July 1996, with responsibility for the Amarillo area dealerships. From
January 1988 to July 1996, Mr. Pullen served as the General Manager of the
Company's Midway Chevrolet, Inc. dealership. Mr. Pullen has over 28 years of
related experience in the automotive industry. He is currently the President of
High County Chevrolet Dealers.
Benjamin J. Quattrone has been the Vice President -- Dealer Operations of
the Company since the Reorganization. In addition, since July 15, 1996, Mr.
Quattrone has served as the General Manager of Westgate Chevrolet, Inc. Prior to
the Reorganization, 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-Continent's
Board of Directors. Upon completion of the Offering, the Company's Board of
Directors will not consist of a majority of independent directors and may not
consist of such a majority in the future. See "Risk Factors -- Lack of
Independent Directors."
The Board of Directors of the Company 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 Company's Certificate of Incorporation and
Bylaws, individuals who are employed by the Company at the time they become
directors of Cross-Continent are entitled to serve as directors only if they
remain so employed. The executive officers are elected annually by, and serve at
the discretion of, the Company's Board of Directors. Following the 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. The Company 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, in an
amount and on a 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 the Company receive reimbursement of their
reasonable out-of-pocket expenses incurred in connection with their board
activities. The Company intends to purchase directors' and officers' insurance
for its executive officers and directors, assuming that such insurance is
available on commercially reasonable terms.
EXECUTIVE COMPENSATION
The Company anticipates that during 1996 its most highly compensated
executive officers with annualized salaries exceeding $100,000, and their
annualized base salaries for 1996, will be: Mr. Gilliland -- $300,000; Mr. Hall
- -- $240,000; Mr. Mager -- $240,000; Mr. Rice -- $240,000; and Messrs. Pullen and
Winton -- each at $120,000 (collectively, the "Named Executives"). See Note 5 to
the "Pro Forma Combined Financial Data." In conjunction with the Reorganization,
the Company has agreed to pay Mr. Rice the Executive Bonus. This $600,000 bonus
has been expensed in its entirety in the three months ended June 30, 1996. See
Note 15 to the Notes to Combined Financial Statements. In his current position
as a City Manager, Mr. Pullen is entitled to receive an annual bonus equal to
5.0% of the pre-tax profits over $5.0 million (if any) of the Company's Amarillo
area dealerships, payable in cash, incentive stock or stock options, as may be
determined in the future. The Company anticipates entering into written
agreements with Messrs. Rice and
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Pullen to evidence these compensation arrangements. The Company also
historically has paid, and in the future may pay, discretionary bonuses to its
other executive officers, based on the performance of the Company or the nature
of services provided by the executives during the year. The amounts of such
future bonuses, the conditions for any such awards and the forms of any such
bonuses (such as cash, incentive stock or stock options) have not been
determined. The Company does not intend to grant any such discretionary bonuses
to any of the Senior Management Group for 1996.
The table below sets forth the compensation paid to the Company's Chief
Executive Officer and each of its most highly compensated executive officers
with annual compensation exceeding $100,000 for the year ending December 31,
1995.
<TABLE>
<CAPTION>
1995 ANNUAL COMPENSATION
-------------------------------------
NAME AND TOTAL ANNUAL
PRINCIPAL POSITION SALARY BONUS COMPENSATION
- -------------------------------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
Bill A. Gilliland
Chairman and Chief Executive Officer.................................... $ 120,000 -- $ 120,000
Emmett M. Rice, Jr.
Senior Vice President and Chief
Operating Officer....................................................... 120,000 $ 524,836 644,836
Jerry L. Pullen
Vice President -- City Manager.......................................... 72,000 568,091 640,091
Thomas A. Corchado
Vice President -- Fixed Operations...................................... 60,000 78,865 138,865
</TABLE>
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 and be exercisable starting 90
days from the date of grant. The per share exercise price of incentive stock
options ("ISOs") 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 the
Common Stock on the date of grant (or 110% in the case of 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 Securities Exchange Act of 1934, as amended, pursuant to Rule 16b-3
promulgated thereunder, which rule exempts certain short-
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swing gains from recapture by the Company. The Stock Option Plan will be
administered by the Company's Board of Directors, or a committee of the Board
comprised exclusively of two or more "non-employee directors" within the meaning
of Rule 16b-3. Subject to the terms of the Stock Option Plan, the administrator
of the Stock Option Plan 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.
Options will be exercisable during the period specified by the administrator
of the Stock Option Plan, except that options will become immediately
exercisable if upon 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." 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, unless otherwise determined by
the administrator of the Stock Option Plan, after their employment with the
Company terminates (other than by reason of death). Unless otherwise permitted
by the administrator of the Stock Option Plan, options are nontransferable,
except by will or the laws of intestate succession or pursuant to a qualified
domestic relations order. Shares underlying options that terminate unexercised
are available for reissuance under the Stock Option Plan.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table describes the beneficial ownership of the Common Stock
as of August 1, 1996 (and after giving effect to the Offering) by (i) each
person (not including the Company) 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) each person (or
group of affiliated persons) who is known by the Company to own beneficially
more than 5% of the Common Stock, (iii) each of the Company's directors and
executive officers and (iv) 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
Jerry L. Pullen (8).................... 151,875 1.5 1.1 7,249 1.1
Charles D. Winton...................... -- -- -- -- --
Thomas A. Corchado..................... -- -- -- -- --
John W. Gaines......................... -- -- -- -- --
Benjamin J. Quattrone.................. -- -- -- -- --
All executive officers and directors as
a group (9 persons) (5)............... 10,125,000 100.0 76.4 468,750 72.9
</TABLE>
- ---------
(1) The address for each beneficial owner is in care of Cross-Continent Auto
Retailers, Inc., 1201 South Taylor Street, Amarillo, Texas 79101. Each of
the individuals listed is an officer of the Company.
(2) Except as indicated in the footnotes to this table, to the knowledge of the
Company, 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
with respect to the Selling Stockholders. If the option were exercised in
full with respect to the Company, the beneficial ownership after the
Offering for Messrs. Gilliland, Hall, Rice, Mager and Pullen and all
executive officers and directors as a group would equal 50.5%, 12.6%, 7.4%,
2.2%, 1.1% and 72.7%, respectively.
(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.
(8) Jerry L. Pullen and his wife, Kaye J. Pullen, hold a controlling interest in
the general partner of KAPL, Ltd., a Texas limited partnership, which is the
record owner of these shares.
Pursuant to the Underwriting Agreement, the Underwriters have agreed to
purchase shares of Common Stock from the Selling Stockholders, if and to the
extent the Underwriters' over-allotment option is exercised with respect to the
Selling Stockholders, in proportion to the Selling Stockholders' respective
ownership interests in the Company.
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<PAGE>
CERTAIN TRANSACTIONS
Prior to the Reorganization, Bill A. Gilliland and his wife, Sandra
Gilliland, Robert W. Hall and his wife, Robin W. Hall, and Lori D'Atri
(collectively, the "GGFP Partners") held a controlling equity interest in Midway
Chevrolet, Inc., Plains Chevrolet, Inc., Westgate Chevrolet, Inc., Quality
Nissan, Inc. and Working Man's Credit Plan, Inc. The GGFP Partners held their
interests in these dealerships through GGFP, of which Mr. Gilliland is the
managing general partner. Midway, Plains and Westgate owned the common stock of
Performance Nissan, Inc., Performance Dodge, Inc. and Allied 2000 Collision
Center, Inc. The Company was formed in May 1996 and, in June 1996, acquired all
of the common stock of the dealerships owned directly by GGFP in exchange for
Common Stock of the Company. The shares of common stock of Performance Nissan,
Performance Dodge and Allied 2000 were then distributed to the Company.
GGFP and other stockholders of Midway, Plains, Westgate, Quality Nissan and
Working Man's Credit exchanged their shares of stock in those dealerships for an
aggregate of 1,012,500, 6,744,600, 1,240,000, 822,055 and 2,000 shares of Common
Stock, respectively, in the Reorganization. The exchange ratios of Common Stock
for the stock in the dealerships acquired by the Company in the Reorganization
were established through negotiation among the parties to the Reorganization.
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-Continent 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. Messrs. Gilliland and Hall hold 60% and
20%, respectively, 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 June 30, 1996, the amount
outstanding under the loan was $467,000.
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 June 30, 1996, funds advanced and outstanding
from the Company's principal stockholders and Named Executives aggregated $2.9
million and $4.2 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.
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.
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<PAGE>
GGFP was the contracting agent for the construction of certain facilities
for the Company during 1995. The total cost of the facilities 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. GGFP also subleases to the
Company the real estate on which the Company's Performance Nissan dealership is
located. Annual rent under the sublease is $228,000, which is the same amount
payable by GGFP under the principal lease for the property.
In June 1996, the Company issued 303,750 shares of Common Stock to Mr. Mager
in connection with the Executive Purchase. The Company recorded a non-cash
charge to earnings relating to employee stock compensation of approximately
$329,000 in the six months ended June 30, 1996, representing the difference
between the estimated fair value, as of April 1, 1996, of the 303,750 shares of
Common Stock issued in the Executive Purchase, as determined by an independent
third party appraisal expert, and the cash consideration paid of $250,000.
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. All of these options will
be exercisable at any time or from time to time after the 90th day after, 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 in another advisory capacity
to the Company at the time the option is exercised. Mr. Mager has agreed with
Morgan Stanley & Co. Incorporated, on behalf of the Underwriters, not to sell or
otherwise transfer or dispose of any shares of Common Stock issued upon the
exercise of these options for a period of 180 days after the date of this
Prospectus. See "Underwriters."
Mr. Gilliland has unconditionally guaranteed substantially all, and Mr. Rice
has unconditionally guaranteed a portion, of the Company's debt to
non-affiliates. At June 30, 1996, the aggregate amount of such debt was $48.9
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 August 1, 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 (assuming no exercise of the
Underwriters' over-allotment option with respect to the Company) will be
outstanding.
Holders of Common Stock have one vote per share on matters to be voted upon
by the stockholders of the Company. 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 the Company'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, 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.
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<PAGE>
Prior to the Offering, there has been no public market for the Common Stock.
The Common Stock has been approved for listing on the New York Stock Exchange
under the symbol "XC", subject to official notice of issuance.
PREFERRED STOCK
The Board of Directors of the Company may, subject to applicable law, from
time to time issue up to an aggregate of 10,000,000 shares of Preferred Stock.
The Preferred Stock may be issued in one or more series with such designations,
rights, preferences, privileges and restrictions as the Board of Directors may
determine, in each case without further vote or action by the stockholders. Such
rights may include dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences, sinking
fund provisions and the number of shares constituting any series or the
designation of such series. Because of the broad discretion of the Board of
Directors with respect to the creation and issuance of Preferred Stock without
stockholder approval, the issuance of Preferred Stock may delay, defer or
prevent a change in control of the Company 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. In connection with
its Rights Plan, the Company has designated 250,000 shares of Preferred Stock as
its Series A Junior Participating Preferred Stock. See "-- Stockholders' Rights
Plan." As of the date hereof, the Board of Directors has not provided for the
issuance of any other series of Preferred Stock, and except as described below
under "-- Stockholders' Rights Plan," there are no agreements or understandings
providing 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
The Company 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-Continent 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 the Company'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-Continent
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 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
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<PAGE>
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."
Under the Dealer Agreements with Nissan that the Company anticipates will be
in effect upon completion of the Offering, as renegotiated in anticipation of
the Offering, Nissan will have the right to terminate the Company's Nissan
franchises if, without Nissan's prior approval, Mr. Gilliland's ownership of
Common Stock falls below 20% of the total number of shares of Common Stock
issued and outstanding or
Mr. Gilliland ceases to be the Chief Executive Officer of the Company. Nissan
also will have the right to terminate the Company's Dealer Agreements if any
person or entity acquires 20% or more of the Company's issued and outstanding
shares and Nissan determines that such ownership is adverse to Nissan.
Under the Company's Dealer Agreement with the Dodge division of Chrysler,
following the Offering, Chrysler will be entitled to terminate the Company's
Dodge franchise if there is any change in the ownership of a controlling number
of shares in the Company not approved by Chrysler. The change of control
provisions in the Company's Dealer Agreements with GM, Nissan and Chrysler could
discourage a third party from acquiring a significant equity position in the
Company or from seeking control of the Company.
STOCKHOLDERS' RIGHTS PLAN
Immediately prior to completion of the Offering, the Company's Rights
Agreement (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 only with a transfer of the Common Stock until the tenth
day after (i) such time as a person or entity, together with affiliates and
associates, acquires beneficial ownership of 19.9% of the Common Stock or (ii) 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, 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 that the Acquiring Person crossed the 19.9% threshold, equal to twice
the Right's exercise price. The factors considered in
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<PAGE>
determining the exercise price of the Rights include pricing and dilution
characteristics of other rights plans with respect to similar securities
registered under the Securities Act and the estimated initial public offering
price of the Common Stock.
The Company may, at the discretion of the Board of Directors, lower this
threshold to as low as 10% of the Common Stock then outstanding. The Company
also has the right, after the Acquiring Person has crossed the 19.9% or 10%
threshold, as the case may be, 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, once the Rights become exercisable, if the Company is
merged or combined with any person or if the Company sells 50% or more of its
assets to any 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 such person having a market value at that time of two times
the exercise price of the Rights.
If the Company is unable to issue a sufficient number of shares of Common
Stock to permit the exercise in full of the Rights for Common Stock, it will
issue shares of Junior Preferred Stock upon exercise of the Rights. The Junior
Preferred Stock is non-redeemable and junior to any other preferred stock of the
Company. The provisions of the Junior Preferred Stock are designed to provide
that each one one-hundredth of a share of Junior Preferred Stock issuable upon
exercise of a Right approximates the value of one share of Common Stock. Each
whole share of Junior Preferred Stock will accrue 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 will have
a liquidation preference of $100 plus an amount equal to 100 times the amount
paid on any share of Common Stock. Each share of Junior Preferred Stock will
entitle its holder to 100 votes on matters submitted to the Company's
stockholders, which votes will be 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 transactions between
the Company and a potential acquiror, which are approved by the Company's Board
of Directors, 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 agreement 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
The Company'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, acts or omissions that involve intentional
misconduct or a knowing violation of law, or any transaction from which a
director derived an improper personal benefit. These provisions do not limit or
eliminate the rights of the Company 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.
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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 (13,718,750 shares if
the Underwriters' over-allotment option is exercised in full with respect to the
Company), assuming no exercise of options outstanding. Of the Common Stock
outstanding upon completion of this Offering, the 3,125,000 shares of Common
Stock sold in this Offering (3,593,750 shares if the Underwriters'
over-allotment option is exercised in full with respect to the Company) will be
freely transferable by the holders thereof without restriction or further
registration under the Securities Act of 1933, as amended (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 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.
The Company 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 the Company. In addition, as
part of any acquisition it may complete in the future, the Company may issue
additional shares of Common Stock subject to concentration of ownership
provisions in the Company's Dealer Agreements. 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 the Company to raise capital
through sales of its equity securities.
55
<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 their respective names 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 committed 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 propose to offer part of the shares of Common Stock
directly to the public at the Price to Public 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. Any Underwriter 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").
The Common Stock has been approved for listing on the New York Stock
Exchange under the symbol "XC", subject to official notice of issuance.
The Company and (if the Underwriters' over-allotment option is exercised
with respect to the Selling Stockholders) the Selling Stockholders have agreed
to indemnify the several Underwriters against certain liabilities, including
liabilities under the Securities Act.
Pursuant to the Underwriting Agreement, the Company and 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 may elect to
sell or not to sell their shares of Common Stock pursuant to the exercise of the
Underwriters' over-allotment option. To the extent that the Selling Stockholders
do not sell their shares of Common Stock pursuant to an exercise of the
over-allotment option, the Company will issue and sell shares of Common Stock
upon an exercise of the over-allotment option. The Selling Stockholders will
participate in the Offering only if and to the extent the Underwriters exercise
the over-allotment option and only if and to the extent they elect to sell their
shares pursuant to an exercise of such option. The Company will pay the expenses
related to the exercise of the over-allotment option (other than stock transfer
taxes and counsel fees of the Selling Stockholders, if any). 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
56
<PAGE>
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 to another, 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 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 any option
outstanding on the date hereof of which the Underwriters have been advised in
writing.
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
156,250 shares of Common Stock, representing approximately 5% 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 the Company 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
The Company 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
57
<PAGE>
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.
The Company 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.
58
<PAGE>
INDEX TO COMBINED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
HISTORICAL FINANCIAL STATEMENTS
CROSS-CONTINENT 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 six
months ended June 30, 1995 and 1996 (unaudited)....................................................... F-3
Combined Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (unaudited)................. F-4
Combined Statement of Changes in Stockholders' Equity for the three years ended December 31, 1995 and
for the six months ended June 30, 1996 (unaudited).................................................... F-5
Combined Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995 and for the six
months ended June 30, 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 six months ended June
30, 1995 and 1996 (unaudited)........................................................................... F-31
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (unaudited)............................ F-32
Statements of Changes in Stockholder's Equity for the two years ended December 31, 1995 and for the six
months ended June 30, 1996 (unaudited).................................................................. F-33
Statements of Cash Flows for the years ended December 31, 1994 and 1995 and for the six months ended June
30, 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-Continent 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-Continent 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-CONTINENT AUTO RETAILERS, INC.
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Vehicle sales $ 150,205 $ 163,721 $ 212,984 $ 101,464 $ 125,900
Other operating revenue 15,159 18,047 23,210 10,880 15,341
--------- --------- --------- --------- ---------
Total revenues 165,364 181,768 236,194 112,344 141,241
--------- --------- --------- --------- ---------
Cost and expenses:
Cost of sales 139,626 153,446 198,702 94,470 119,921
Selling, general and administrative 17,194 18,522 25,630 11,958 15,695
Depreciation and amortization 992 934 951 471 549
Management fees paid to related party 2,536 3,183 4,318 2,155 -
Employee stock compensation - - - - 329
--------- --------- --------- --------- ---------
160,348 176,085 229,601 109,054 136,494
--------- --------- --------- --------- ---------
5,016 5,683 6,593 3,290 4,747
Other income (expense):
Interest income 265 576 830 406 527
Interest expense (2,113) (2,526) (3,918) (1,932) (2,251)
--------- --------- --------- --------- ---------
Income before income taxes 3,168 3,733 3,505 1,764 3,023
Income tax provision 1,173 1,351 1,310 659 1,224
--------- --------- --------- --------- ---------
Net income $ 1,995 $ 2,382 $ 2,195 $ 1,105 $ 1,799
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-3
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- --------- JUNE 30, 1996
-------------
(unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 5,001 $ 8,362 $ 8,892
Accounts receivable 4,523 9,383 10,664
Inventories 23,243 43,731 38,416
--------- --------- -------------
Total current assets 32,767 61,476 57,972
Property and equipment, at cost, less accumulated
depreciation 9,283 12,107 12,213
Goodwill, net 3,523 7,385 7,296
Other assets 2,006 2,439 3,407
--------- --------- -------------
Total assets $ 47,579 $ 83,407 $ 80,888
--------- --------- -------------
--------- --------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan notes payable $ 18,964 $ 39,088 $ 36,177
Current maturities of long-term debt 655 1,525 1,543
Accounts payable 1,571 4,846 4,796
Due to affiliates 2,225 5,954 4,620
Accrued expenses and other liabilities 6,966 7,495 6,760
Deferred income taxes 2,336 2,032 2,032
--------- --------- -------------
Total current liabilities 32,717 60,940 55,928
--------- --------- -------------
Long-term debt 7,150 11,859 11,131
Deferred warranty revenue - long-term portion 2,671 3,507 4,350
--------- --------- -------------
Total long-term liabilities 9,821 15,366 15,481
--------- --------- -------------
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized, none issued - - -
Common stock, $.01 par value, 100,000,000 shares
authorized, 10,125,000 issued and outstanding at June
30, 1996 - - 101
Paid-in capital 1,064 1,064 1,542
Retained earnings 3,977 6,037 7,836
--------- --------- -------------
Total stockholders' equity 5,041 7,101 9,479
--------- --------- -------------
Commitments and contingencies (Notes 4, 15, 18 and 19)
--------- --------- -------------
Total liabilities and stockholders' equity $ 47,579 $ 83,407 $ 80,888
--------- --------- -------------
--------- --------- -------------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-4
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
COMBINED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE YEARS ENDED DECEMBER 31, 1995 AND
SIX MONTHS ENDED JUNE 30, 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
Issuance of common stock pursuant to reorganization
(unaudited) 9,821 98 (98)
Issuance of common stock pursuant to employment
agreement (unaudited) 304 3 576
Net income (unaudited) 1,799
----- ---------- --------- ----- ----------- -----------
Balance at June 30, 1996 (unaudited) - $ - 10,125 $ 101 $ 1,542 $ 7,836
----- ---------- --------- ----- ----------- -----------
----- ---------- --------- ----- ----------- -----------
<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
Issuance of common stock pursuant to reorganization
(unaudited) -
Issuance of common stock pursuant to employment
agreement (unaudited) 579
Net income (unaudited) 1,799
---------
Balance at June 30, 1996 (unaudited) $ 9,479
---------
---------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-5
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
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 $ 1,105 $ 1,799
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Depreciation and amortization 992 934 951 471 549
Proceeds from extended warranty sales 2,667 2,614 3,345 1,497 2,447
Amortization of deferred warranty revenue (1,089) (1,648) (2,136) (956) (1,396)
Employee stock compensation - - - - 329
Deferred taxes and other 367 (1,121) (836) 282 (968)
(Increase) decrease in:
Accounts receivable (2,383) (74) (4,860) (2,369) (1,281)
Inventory (1,697) 1,052 (8,285) (4,211) 5,315
Increase (decrease) in:
Accounts payable - trade 458 (604) 3,275 2,558 (50)
Accrued expenses and other liabilities 1,041 1,452 (68) 63 (944)
--------- --------- --------- --------- ---------
Net cash provided (used) by operating
activities 2,351 4,987 (6,419) (1,560) 5,800
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (739) (1,813) (1,485) (37) (565)
Acquisition of minority interest (1,000) - - - -
Acquisition of dealerships - - (302) - -
--------- --------- --------- --------- ---------
Net cash used by investing activities (1,739) (1,813) (1,787) (37) (565)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Change in floor plan notes payable 800 (937) 9,381 3,467 (2,911)
Due to affiliates 473 1,640 3,729 1,647 (1,334)
Long-term debt repayments (584) (1,277) (1,408) (404) (710)
Paid-in capital 300 - - - -
Proceeds from common stock issuance - - - - 250
Dividends paid (86) (80) (135) - -
--------- --------- --------- --------- ---------
Net cash provided (used) by financing
activities 903 (654) 11,567 4,710 (4,705)
--------- --------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents 1,515 2,520 3,361 3,113 530
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 $ 8,114 $ 8,892
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-6
<PAGE>
CROSS-CONTINENT 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-Continent 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-Continent 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-Continent 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-CONTINENT AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 six-month period ended June 30,
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 June 30, 1996 and the six-month periods ended June 30, 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 June
30, 1996 and the unaudited results of operations and cash flows for the six
months ended June 30, 1995 and 1996 have been included. Results for the six
months ended June 30, 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. Insurance commissions are recognized in income upon customer
acceptance of the insurance terms as evidenced by contract execution.
The Company is charged back for a portion of these fees and commissions should
the customer terminate the finance contract prior to its scheduled maturity. The
estimated allowance for these chargebacks ("chargeback allowance") is based upon
the Company's historical experience for prepayments or defaults on the finance
contracts. Finance fees and insurance commissions, net of chargebacks, are
classified as other operating revenue in the accompanying combined statement of
operations. See Note 7 for an analysis of the allowance for estimated
chargebacks.
INVENTORIES - Vehicles are stated at the lower of cost or market, cost being
determined on a specific identification basis. Parts are stated at the lower of
cost or market, cost being determined on the first-in, first-out (FIFO) basis.
F-8
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
POSTRETIREMENT BENEFITS - The Company has no material postretirement or
postemployment benefits as defined in SFAS No. 106, EMPLOYERS' ACCOUNTING FOR
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS, or SFAS No. 112, EMPLOYERS'
ACCOUNTING FOR POSTEMPLOYMENT BENEFITS.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Depreciation
is computed using the straight-line method over the respective lives of the
assets. The ranges of estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings 30 years
Furniture and equipment 3 to 7 years
7 to 15
Leasehold improvements years
</TABLE>
When depreciable assets are sold or retired, the related cost and accumulated
depreciation are removed from the accounts. Any gains or losses are included in
selling, general and administrative expenses. Major additions and betterments
are capitalized. Maintenance and repairs which do not materially improve or
extend the lives of the respective assets are charged to operating expenses as
incurred.
GOODWILL AND OTHER ASSETS - The values assigned to noncompete agreements are
being amortized on a straight-line basis over their contractual lives of five
years. Values assigned to noncompete agreements arising from business
combinations are included as other assets in the accompanying combined balance
sheet. At December 31, 1994 and 1995, the unamortized portion of such noncompete
agreements approximated $192,000 and $92,000, respectively, net of accumulated
amortization of $608,000 and $708,000, respectively. Goodwill represents the
excess of the purchase price over the estimated fair value of the net assets of
acquired businesses and is being amortized over a 40-year period. The cumulative
amount of goodwill amortization at December 31, 1994 and 1995 approximated
$309,000 and $447,000, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS - In March 1995, the FASB issued FAS No. 121,
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO
BE DISPOSED OF ("FAS 121"), which is effective for fiscal years beginning after
December 15, 1995. Effective December 31, 1995, the Company adopted FAS 121
which requires that long-lived assets (i.e., property, plant and equipment and
goodwill) held and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the net book value of the asset may
not be recoverable. An impairment loss will be recognized if the sum of the
expected future cash flows (undiscounted and before interest) from the use of
the asset is less than the net book value of the asset. Generally, the amount of
the impairment loss is measured as the difference between the net book value of
the assets and the estimated fair value of the related assets. The adoption of
this statement at December 31, 1995 had no impact on the Company's results of
operations or its financial position.
ADVERTISING AND PROMOTIONAL COSTS - Advertising and promotional costs are
expensed as incurred and are included in selling, general and administrative
expense in the accompanying combined statement of operations. Total advertising
and promotional expenses approximated $1,433,000, $1,636,000 and $2,638,000 in
1993, 1994 and 1995, respectively.
EXTENDED WARRANTY CONTRACTS - The Company's dealerships offer extended warranty
contracts on new and used vehicles sold. These contracts generally provide
extended coverage for periods of one 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
F-9
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 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.
F-10
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - ACQUISITIONS
Effective February 2, 1995, the Company acquired Performance Nissan, Inc.
(formerly Jim Glover Nissan, Inc.). Performance Nissan is engaged in the retail
sales of new and used vehicles and in the retail and wholesale of replacement
parts and vehicle servicing. The total purchase price of approximately $1.4
million was funded originally by bank debt and was subsequently refinanced with
GMAC. The acquisition has been accounted for as a purchase, and the results of
Performance Nissan have been included in the accompanying combined statements of
operations since the date of acquisition. The cost of the acquisition has been
allocated on the basis of the estimated fair market value of the assets acquired
and the liabilities assumed.
A summary of the purchase price allocation for Performance Nissan is presented
below (in thousands):
<TABLE>
<S> <C>
Net working capital $ 76
Equipment 61
Excess of cost over fair value of net assets acquired 1,300
---------
Total $ 1,437
---------
---------
</TABLE>
Effective December 4, 1995, the Company acquired Performance Dodge, Inc.
(formerly Jim Glover Dodge, Inc.). Performance Dodge is engaged in the retail
sales of new and used automobiles and in the retail and wholesale of replacement
parts and vehicle servicing. The total purchase price of approximately $5.9
million was financed with debt proceeds of $3.7 million and a mortgage of $1.85
million, both of which were provided by GMAC. The remaining purchase price
approximating $302,000 was provided with available cash from existing
dealerships. The acquisition has been accounted for as a purchase, and the
results of Performance Dodge have been included in the accompanying combined
statements of operations since the date of the acquisition. The cost of the
acquisition has been allocated on the basis of the estimated fair market value
of the assets acquired and the liabilities assumed.
A summary of the purchase price allocation for Performance Dodge is presented
below (in thousands):
<TABLE>
<S> <C>
Net working capital $ 1,160
Property and equipment 1,992
Excess of cost over fair value of net assets acquired 2,700
---------
Total $ 5,852
---------
---------
</TABLE>
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.
F-11
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
In March 1993, the Company acquired the remaining 40% minority interest in
Westgate Chevrolet, Inc. for $1.0 million, resulting in additional goodwill of
$773,000 which is being amortized over 40 years. Minority interest for the two
months ended February 28, 1993 approximated $30,000.
NOTE 4 - MAJOR SUPPLIERS AND FRANCHISE AGREEMENTS
The Company 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%. The Dealer Agreement with Dodge stipulates that the Company
could lose its Dodge dealership upon any change in ownership of a controlling
number of shares in the Company. 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.
Additionally, Nissan has the right to terminate the Company's Nissan franchises
if, without Nissan's prior approval, Mr. Gilliland's ownership of common stock
decreases below 20% of the total number of shares of common stock issued and
outstanding or Mr. Gilliland ceases to be the Chief Executive Officer of the
Company.
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-CONTINENT AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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-CONTINENT AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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-CONTINENT AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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
--------- --------- JUNE 30, 1996
-------------
(unaudited)
<S> <C> <C> <C>
Inventories at cost:
New vehicles and demonstrators $ 15,887 $ 32,502 $ 27,112
Used vehicles 6,067 9,316 9,390
Parts and accessories 1,289 1,913 1,914
--------- --------- -------------
Total inventory $ 23,243 $ 43,731 $ 38,416
--------- --------- -------------
--------- --------- -------------
</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-CONTINENT AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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-CONTINENT AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
a certain executive officer immediately prior to the Offering exercisable at the
offering price. The Plan requires that the per share exercise price of incentive
stock 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.
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 AGREEMENT
Immediately prior to the completion of the Offering, the Company's Rights
Agreement (the "Rights Agreement") will take effect. Pursuant to the Rights
Agreement, 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 may, at the discretion of the Board of Directors
lower this threshold of 19.9% to 10% of the common stock then outstanding. 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 will accrue 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 will have a liquidation
preference of $100 plus an amount equal to 100 times the amount paid on any
shares of common stock. Each share of junior preferred stock will entitle its
holder to 100 votes on matters submitted to the Company's stockholders, which
votes will be 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-CONTINENT AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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 option becomes
exercisable 90 days from the date of grant. In the second quarter of 1996, the
Company recorded compensation expense of $329,000, which represents the
difference between the estimated fair value of the common stock purchased
($579,000) and the cash consideration paid. The Company engaged an independent
third party expert to appraise the fair value of the stock as of the date of the
agreement.
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 six months ended
June 30, 1995 and 1996, allocated expenses to the Company approximated $422,000
and $615,000, 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 $98,000 and $120,000 for the unaudited six months
ended June 30, 1995 and 1996, respectively, for the use of the airplane.
In addition to the above corporate allocations, the Company has paid the Control
Group a management fee for executive management services. This fee was generally
based upon the profits earned and the level of
F-18
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
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. Effective July
1, 1996, the senior management group consisting of the Chairman, Senior Vice
Chairman, Vice Chairman, and Senior Vice President and Chief Operating Officer,
will receive annual base salaries approximating $1,020,000, may receive
restricted stock if certain performance objectives are met and may also receive
grants of stock options. In conjunction with the Reorganization, the Company has
agreed to pay one of its executive officers a bonus of $600,000. This bonus has
been expensed in the first six months ended June 30, 1996.
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 June 30, 1996, funds
advanced and outstanding from affiliates approximated $1,323,000, $2,895,000 and
$4,153,000 (unaudited), respectively. Aggregate amounts outstanding pursuant to
these arrangements at December 31, 1994 and 1995 and at June 30, 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 six months ended June 30, 1995 and 1996 approximated $10,000,
$122,000, $226,000, $129,000 and $191,000, 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 June 30, 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 facilities 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.
GGFP also subleases to the Company the real estate on which the Company's
Performance Nissan dealership is located. Annual rent under the sublease is
$228,000, which is the same amount payable by GGFP under the principal lease for
the property.
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
F-19
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
Company has an option to purchase a portion of the property on which Quality
Nissan, Inc. operates for $400,000 upon expiration of that lease in 1998. The
total rent expense under all operating leases approximated $301,000 in 1995.
The aggregate minimum rental commitments for all noncancellable operating leases
are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal year:
1996...................................................... $ 385
1997...................................................... 385
1998...................................................... 385
1999...................................................... 385
2000...................................................... 279
Thereafter................................................ 209
---------
$ 2,028
---------
---------
</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 $13.1 million for fixed assets and
intangible assets, plus an estimated $750,000 for parts inventory. The Company
currently intends to use proceeds from the Offering to fund the purchase price.
In addition, the Company will acquire the new vehicle inventory at cost and may
acquire the used vehicle inventory at a negotiated value, which will be funded
by floor plan financing. The purchase is subject to customary closing conditions
as well as the Company's successful completion of the Offering and upon approval
of the change in ownership by Dodge. The dealership's revenue for 1995
approximated $122.2 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-Continent 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 management of
Jim Glover Dodge, Inc.; 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
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
30,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Revenues:
Vehicle sales $ 56,719 $ 55,498
Other operating revenue 8,178 8,419
--------- ---------
Total revenues 64,897 63,917
--------- ---------
Cost of sales and expenses:
Cost of sales 56,867 55,370
Selling, general and administrative 6,272 7,268
Interest expense 270 367
--------- ---------
63,409 63,005
--------- ---------
Net income $ 1,488 $ 912
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-22
<PAGE>
JIM GLOVER DODGE, INC.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
NOVEMBER 30,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Current assets:
Cash $ 4 $ 632
Accounts receivable 2,653 2,267
Inventories 9,348 7,475
--------- ---------
Total current assets 12,005 10,374
Property and equipment, net of accumulated depreciation of $121,000 and $164,000,
respectively 91 130
--------- ---------
$ 12,096 $ 10,504
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan notes payable $ 8,240 $ 6,688
Accounts payable and accrued expenses 696 292
Due to affiliates - 552
--------- ---------
Total current liabilities 8,936 7,532
--------- ---------
Stockholders' equity:
Common stock, $1 par value - 250,000 shares authorized and outstanding 250 250
Retained earnings 2,910 2,722
--------- ---------
3,160 2,972
--------- ---------
Commitments and contingencies (Notes 6, 7 and 8)
Total liabilities and stockholders' equity $ 12,096 $ 10,504
--------- ---------
--------- ---------
</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
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
Balance at November 30, 1993 $ 250 $ 1,902 $ 2,152
Net income - 1,488 1,488
Distributions to stockholders - (480) (480)
----- ----------- ---------
Balance at November 30, 1994 250 2,910 3,160
Net income - 912 912
Distributions to stockholders - (1,100) (1,100)
----- ----------- ---------
Balance at November 30, 1995 $ 250 $ 2,722 $ 2,972
----- ----------- ---------
----- ----------- ---------
</TABLE>
The accompanying notes are an integral
part of these financial statements.
F-24
<PAGE>
JIM GLOVER DODGE, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER
30,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,488 $ 912
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 22 24
(Increase) decrease in:
Accounts receivable (300) 385
Inventory (149) 1,872
Increase (decrease) in:
Accounts payable and accrued expenses (617) (404)
--------- ---------
Net cash provided by operating activities 444 2,789
--------- ---------
Cash flows from investing activities:
Investment of property and equipment (34) (62)
--------- ---------
Cash flows from financing activities:
Change in floor plan notes payable 113 (1,551)
Advance from affiliates (44) 552
Distributions to stockholders (480) (1,100)
--------- ---------
Net cash used by financing activities (411) (2,099)
--------- ---------
Increase (decrease) in cash (1) 628
Cash at beginning of period 5 4
--------- ---------
Cash at end of period $ 4 $ 632
--------- ---------
--------- ---------
Cash paid for interest $ 274 $ 305
--------- ---------
--------- ---------
</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 ("Jim Glover") 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.
Jim Glover operates in the Oklahoma City area. In addition, Jim Glover retails
and wholesales replacement parts and provides vehicle servicing.
MAJOR SUPPLIER AND DEALER AGREEMENT - Jim Glover 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.
Jim Glover'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
Jim Glover to concentrations of credit risk consist principally of cash
deposits. Jim Glover 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 - Jim Glover 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. Jim Glover
receives a fee from the financial institution for arranging the financing and
receives a commission for the sale of an insurance policy. Jim Glover 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 (CONTINUED)
FEDERAL INCOME TAXES - Jim Glover is organized as a sub-chapter S-Corporation
under the Internal Revenue Code; therefore, the income earned by Jim Glover 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 (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Beginning reserve balance at December 1 $ 152 $ 93
Provision 453 525
Actual chargebacks (512) (510)
--------- ---------
Ending reserve balance at November 30 $ 93 $ 108
--------- ---------
--------- ---------
</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 Jim Glover'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 (CONTINUED)
The accounts receivable balance at November 30 is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
Trade $ 487 $ 437
Contracts in transit 1,823 1,370
Due from manufacturer 249 322
Due from finance companies 94 138
--------- ---------
Total accounts receivable $ 2,653 $ 2,267
--------- ---------
--------- ---------
</TABLE>
NOTE 4 - INVENTORIES
The November 30 inventory balance is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995
--------- ---------
<S> <C> <C>
New vehicles and demonstrators $ 5,988 $ 5,386
Used vehicles 2,602 1,343
Parts and accessories 758 746
--------- ---------
$ 9,348 $ 7,475
--------- ---------
--------- ---------
</TABLE>
NOTE 5 - FLOOR PLAN NOTES PAYABLE
The manufacturer/distributor finances new and used vehicle purchases by Jim
Glover. 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 Jim Glover'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 - Jim Glover 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 Jim Glover's primary dealership
facility and continued to lease the facility to Jim Glover. 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, Jim Glover is liable for property taxes and insurance.
NOTE 7 - LITIGATION
From time to time, Jim Glover 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 (CONTINUED)
proceedings are pending against or involve Jim Glover 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 Jim Glover in the year of
ultimate settlement.
Jim Glover 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. Jim Glover is not aware of any
pending environmental matters or matters of noncompliance with all applicable
environmental laws relating to its business.
In limited circumstances, Jim Glover 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 Jim Glover 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, Jim Glover leased the primary building and land
from an affiliate of Jim Glover. Jim Glover has accounted for this lease as an
operating lease. During fiscal 1994 and 1995, Jim Glover paid rent of $120,000
and $100,000, respectively, to this affiliate.
Several affiliated corporations advanced Jim Glover 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, Jim Glover 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-Continent Auto Retailers, Inc.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Cross-Continent 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 management of
Lynn Hickey Dodge, Inc.; 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 SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------------- --------------------
1994 1995 1995 1996
---------- ---------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Vehicle sales $ 155,406 $ 111,113 $ 57,504 $ 63,539
Other operating revenue 12,104 11,108 5,371 7,139
---------- ---------- --------- ---------
Total revenues 167,510 122,221 62,875 70,678
---------- ---------- --------- ---------
Cost and expenses:
Cost of sales 146,551 106,826 55,518 59,838
Selling, general and administrative 18,452 13,149 6,205 6,863
Depreciation and amortization 341 346 164 133
---------- ---------- --------- ---------
165,344 120,321 61,887 66,834
---------- ---------- --------- ---------
2,166 1,900 988 3,844
Other income (expense):
Interest income 177 402 148 273
Interest expense (1,750) (1,737) (969) (831)
---------- ---------- --------- ---------
Net income $ 593 $ 565 $ 167 $ 3,286
---------- ---------- --------- ---------
---------- ---------- --------- ---------
</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
--------- --------- JUNE 30,
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 3,854 $ 6,002 $ 8,323
Accounts receivable 3,129 4,495 4,113
Inventories 21,527 15,234 16,119
Due from affiliates 841 903 360
--------- --------- -------------
Total current assets 29,351 26,634 28,915
Property and equipment, at cost, less accumulated depreciation 2,085 1,943 1,856
--------- --------- -------------
Total assets $ 31,436 $ 28,577 $ 30,771
--------- --------- -------------
--------- --------- -------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Floor plan financing $ 18,737 $ 14,900 $ 15,187
Line of credit - - 5,000
Accounts payable 4,429 2,653 2,289
Accrued expenses and other liabilities 3,434 2,432 1,990
--------- --------- -------------
Total current liabilities 26,600 19,985 24,466
--------- --------- -------------
Line of credit - 5,000 -
Deferred warranty revenue - long-term portion 249 571 932
--------- --------- -------------
Total long-term liabilities 249 5,571 932
--------- --------- -------------
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 4,942
--------- --------- -------------
Total stockholder's equity 4,587 3,021 5,373
--------- --------- -------------
Commitments and contingencies (Notes 2 and 8) - - -
--------- --------- -------------
Total liabilities and stockholder's equity $ 31,436 $ 28,577 $ 30,771
--------- --------- -------------
--------- --------- -------------
</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
SIX MONTHS ENDED JUNE 30, 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) 3,286 3,286
Distributions to stockholder (unaudited) (934) (934)
--------- ---------- ----- --- ----- --------- ---------
Balance at June 30, 1996 (unaudited) $ 915 $ 92 $ 339 $ 4,942 $ 5,373
--------- ---------- ----- --- ----- --------- ---------
--------- ---------- ----- --- ----- --------- ---------
</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 SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 593 $ 565 $ 167 $ 3,286
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Depreciation and amortization 341 346 164 133
Proceeds from extended warranty sales 526 1,389 818 989
Amortization of deferred warranty revenue (47) (555) (265) (615)
(Increase) decrease in:
Accounts receivable 1,542 (1,367) (7) 382
Inventory 1,268 6,293 4,081 (886)
Due from affiliates 737 (61) 313 543
Increase (decrease) in:
Accounts payable (89) (1,776) (1,878) (364)
Accrued expenses and other liabilities 854 (1,514) (1,093) (455)
--------- --------- --------- ---------
Net cash provided (used) by operating activities 5,725 3,320 2,300 3,013
--------- --------- --------- ---------
Cash flows from investing activities:
Acquisition of property and equipment (206) (204) (114) (46)
--------- --------- --------- ---------
Cash flows from financing activities:
Change in floor plan financing (2,651) (3,837) (3,070) 287
Line of credit proceeds - 5,000 - -
Distributions to stockholder (1,272) (2,131) (1,052) (933)
--------- --------- --------- ---------
Net cash provided (used) by financing activities (3,923) (968) (4,122) (646)
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents 1,596 2,148 (1,936) 2,321
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 $ 1,918 $ 8,323
--------- --------- --------- ---------
--------- --------- --------- ---------
</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 ("Hickey Dodge") 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,
Hickey Dodge retails and wholesales replacement parts and provides vehicle
servicing. Hickey Dodge operates in the Oklahoma City area.
UNAUDITED INTERIM PERIODS - The following notes, insofar as they are applicable
to June 30, 1996 and the three-month periods ended June 30, 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 June
30, 1996 and the unaudited results of operations and cash flows for the six
months ended June 30, 1995 and 1996, have been included. Results for the six
months ended June 30, 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 - Hickey Dodge 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. Hickey
Dodge'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
Hickey Dodge 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 Hickey Dodge's
customer base; however, they are concentrated in Hickey Dodge'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 (CONTINUED)
RECOGNITION OF FINANCE FEES AND INSURANCE COMMISSIONS - Hickey Dodge 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. Hickey
Dodge receives a fee from the financial institution for arranging the financing
and receives a commission for the sale of an insurance policy. Hickey Dodge 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, Hickey Dodge 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, Hickey Dodge 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. Hickey Dodge 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 - Hickey Dodge is organized as a sub-chapter S-Corporation
under the Internal Revenue Code; therefore, the income earned by Hickey Dodge 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 (CONTINUED)
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 Hickey Dodge'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 Hickey Dodge 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 (CONTINUED)
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 Hickey Dodge. Floor
plan financing bears interest at prime plus 1% (approximately 9.5% at December
31, 1995). The notes are collateralized by all of Hickey Dodge'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.
Hickey Dodge 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 accompanying balance sheet. The
note is secured by a pledge of Hickey Dodge'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 - Hickey Dodge 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, Hickey
Dodge is liable for property taxes and insurance.
F-38
<PAGE>
LYNN HICKEY DODGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Future aggregate minimum rental commitments for noncancellable operating leases
are immaterial.
From time to time, Hickey Dodge will either partially or fully guarantee the
payment of certain customers' loans relating to the purchase of vehicles from
Hickey Dodge. A portion of these customer loans are purchased by Dakota Finance
(see Note 9). As of December 31, 1994 and 1995, Hickey Dodge 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, Hickey Dodge 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. Hickey Dodge 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>
Hickey Dodge 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, Hickey Dodge'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.
Hickey Dodge 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. Hickey Dodge 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 Hickey Dodge, and 50% by Wade Hickey, Vice President of
Hickey Dodge. In assisting its customers with their vehicle purchases, the
Company arranges financing through various lenders, including Dakota. Hickey
Dodge receives no finance commission for customer loans arranged with Dakota and
generally guarantees the customer's loan. During 1994 and 1995 and the unaudited
six months ended June 30, 1995 and 1996, Dakota financed $2,592,000, $2,175,000,
$1,067,000 and $1,244,000, respectively, of Hickey Dodge's sales. As of December
31, 1995 and June 30, 1996, Dakota had $2,164,000 and $1,856,000 (unaudited) in
outstanding loans receivable which were guaranteed by Hickey Dodge. During 1994
and 1995, and the unaudited six months ended June 30, 1995 and 1996, Hickey
Dodge recognized losses of $260,000, $176,000, $102,000 and $119,000,
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 June 30, 1996, Hickey Dodge had committed to advance
Dakota up to $5,000,000 at a rate of LIBOR plus 3%. This commitment was
scheduled to expire in April 1996; however, it has been extended on month to
month basis. Hickey Dodge advanced, primarily under this line of credit,
$3,226,000, $1,660,000 and $287,000 (unaudited) to Dakota in 1994, 1995 and the
six months ended June 30,
F-39
<PAGE>
LYNN HICKEY DODGE, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1996, respectively, for working capital purposes. Interest charged relating to
the line of credit advances accrued at 8.5% per annum and LIBOR plus 3% per
annum. Interest income of $43,000, $31,000, $26,000 and $7,000 was recognized on
the advances during the years ended December 31, 1994 and 1995 and for the
unaudited six months ended June 30, 1995 and 1996, respectively. As of December
31, 1994, 1995, and June 30, 1996, $800,000, $802,000 and $360,000 (unaudited),
respectively, was outstanding relating to such advances.
Hickey Dodge 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 Hickey Dodge as commission.
As more fully discussed in Note 8, Hickey Dodge leases most of its operating
facilities from Rolynn's, an entity controlled by Lyndel Hickey, who owns 100%
of Hickey Dodge's stock. Rent expense under this lease was $780,000 during 1994
and 1995.
NOTE 10 - SUBSEQUENT EVENTS
Hickey Dodge has executed a purchase and sale agreement whereby it has agreed to
sell substantially all of its assets to Cross-Continent Auto Retailers, Inc. The
purchase price will consist of cash consideration of approximately $13.1 million
for fixed assets and intangible assets, plus an estimated $750,000 for parts
inventory. In addition, the purchaser will acquire the new vehicle inventory at
cost and may acquire the used vehicle inventory at a negotiated value. 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 the Company 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................................................. 412,500*
Accounting fees and expenses............................................ 550,000
Transfer agent and registrar fees....................................... 7,200
Miscellaneous........................................................... 131,023
---------
TOTAL............................................................... $1,412,500
---------
---------
</TABLE>
- ---------
* Includes legal fees and expenses payable by the Selling Stockholders
estimated at $12,500.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
The Company's Certificate of Incorporation and Bylaws set forth the extent
to which officers or directors of Cross-Continent 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. The
Company'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.
The Company'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-Continent 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
II-1
<PAGE>
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 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.
The Company intends to purchase directors' and officers' insurance for its
executive officers and directors, assuming that such insurance is available on
commerically reasonable terms.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The Company 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 as of June 17, 1996, among Lynn Hickey Dodge, Inc., Lynn Hickey and
Cross Country Dodge, Inc.
**3.1 Certificate of Incorporation of Cross-Country Auto Retailers, Inc. (now named Cross-Continent Auto
Retailers, Inc.)
3.2 Proposed Form of Amended and Restated Certificate of Incorporation of Cross-Continent Auto
Retailers, Inc.
**3.3 Bylaws of Cross-Country Auto Retailers, Inc. (now named Cross-Continent Auto Retailers, Inc.)
3.4 Proposed Form of Amended and Restated Bylaws of Cross-Continent Auto Retailers, Inc.
*4.1 Specimen Common Stock Certificate
4.2 Form of Rights Agreement between Cross-Continent Auto Retailers, Inc. and The Bank of New York, as
rights agent
*4.3 Proposed Form of Power of Attorney and Custody Agreement
4.4 Form of 1996 Stock Option Plan of Cross-Continent 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., as amended by Supplemental Agreement, dated
as of July 29, 1996***
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ ---------------------------------------------------------------------------------------------------
<C> <S>
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. (now named Cross-Continent 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-Continent 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******
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ ---------------------------------------------------------------------------------------------------
<C> <S>
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-Continent Auto Retailers, Inc. and subsidiaries and Jim Glover Dodge, Inc. and Lynn Hickey
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. 2 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 August 14, 1996.
CROSS-CONTINENT 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. 2 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 August 14, 1996
Bill A. Gilliland (principal executive officer)
*
------------------------------------------- Senior Vice Chairman and Director August 14, 1996
Robert W. Hall
/s/ EZRA P. MAGER
------------------------------------------- Vice Chairman and Director August 14, 1996
Ezra P. Mager
*
------------------------------------------- Senior Vice President, Chief August 14, 1996
Emmett M. Rice, Jr. Operating Officer and Director
* Vice President and Chief Financial
------------------------------------------- Officer (principal accounting and August 14, 1996
Charles D. Winton financial officer)
*By: /s/EZRA P. MAGER
Ezra P. Mager
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
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EXHIBIT NO. DESCRIPTION PAGE
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<C> <S> <C>
*1.1 Form of Underwriting Agreement
2.1 Asset Purchase Agreement, dated as of June 17, 1996, among Lynn Hickey Dodge Inc., Lynn
Hickey and Cross Country Dodge, Inc.
**3.1 Certificate of Incorporation of Cross-Country Auto Retailers, Inc. (now named
Cross-Continent Auto Retailers, Inc.)
3.2 Proposed Form of Amended and Restated Certificate of Incorporation of Cross-Continent Auto
Retailers, Inc.
**3.3 Bylaws of Cross-Country Auto Retailers, Inc. (now named Cross-Continent Auto Retailers,
Inc.)
3.4 Proposed Form of Amended and Restated Bylaws of Cross-Continent Auto Retailers, Inc.
*4.1 Specimen Common Stock Certificate
4.2 Form of Rights Agreement between Cross-Continent Auto Retailers, Inc. and The Bank of New
York, as rights agent
*4.3 Proposed Form of Power of Attorney and Custody Agreement
4.4 Form of 1996 Stock Option Plan of Cross-Continent 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., as amended by Supplemental
Agreement, dated as of July 29, 1996***
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. (now named Cross-Continent 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------ ------------------------------------------------------------------------------------------- ---------
<C> <S> <C>
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-Continent 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-Continent 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>
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* 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>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") dated as of June 17,
1996 is entered into by and between LYNN HICKEY DODGE, INC., a Delaware
corporation ("Seller"), LYNN HICKEY, an individual (the "Shareholder") and CROSS
COUNTRY DODGE, INC., an Oklahoma corporation ("Buyer").
WITNESSETH
WHEREAS, Seller owns and operates a Dodge dealership known as Lynn
Hickey Dodge, Inc. (the "Business") located at 4025 N. May Avenue in Oklahoma
City, Oklahoma.
WHEREAS, Seller leases the premises (the "Premises") on which the
Business is located pursuant to an oral year to year lease agreement with
Rolynn's, Ltd. (the "Dealership Lease").
WHEREAS, Seller leases the premises on which the body shop associated
with the Business is located specifically at 303 S. Vermont, Oklahoma City,
Oklahoma, pursuant to a lease agreement with McMullan Companies dated as of
March 4, 1992 (the "Body Shop Lease").
WHEREAS, Seller leases the premises on which the heavy line shop
associated with the Business is located specifically at 3316 North May Avenue,
Oklahoma City, Oklahoma, pursuant to a lease agreement with Pennington
Improvement Co., Inc. dated as of March 1, 1995 (the "Heavy Line Shop Lease").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, Buyer desires to purchase and receive from Seller, and Seller desires
to sell to Buyer, the Business and substantially all of the assets used in or
arising out of the conduct of the Business.
NOW, THEREFORE, in consideration of the mutual promises, covenants,
terms, representations and warranties herein set forth, and other good, valuable
and legal consideration, the receipt and adequacy of which is hereby
acknowledged and intending to be legally bound, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE
SECTION 1 ASSETS PURCHASED. Subject to and upon the terms and conditions
hereof, and in reliance upon the covenants, representations and warranties
contained herein, Seller agrees to sell, transfer, convey, assign and deliver to
Buyer, and Buyer agrees to purchase and acquire from Seller, all of Seller's
right, title and interest in and to the following described assets (the
"Assets"), at the Closing:
<PAGE>
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SECTION 1.1 FIXED ASSETS. The personal property used in conducting the
Seller's Business (the "Fixed Assets") which will not be consumed or converted
into cash or its eqivalent during the current accounting period which is listed
on the audited Balance Sheet as of May 31, 1996, adjusted to include those Fixed
Assets acquired by Seller and to exclude those Fixed Assets disposed by Seller,
in the ordinary course of business subsequent to the audited Balance Sheet as of
May 31, 1996, and which are listed on Schedule 1.1 which will be completed and
initialled by the parties and attached hereto prior to Closing and adjusted to
the date of Closing;
1.1.1 In addition to the Fixed Assets, Seller agrees to sell,
transfer, convey, assign and deliver to Buyer, and Buyer agrees to
purchase and receive from Seller, all of Seller's right, title and
interest in and to the Special Tool Inventory which is listed on
Schedule 1.1.1 which will be completed and initialled by the parties
and attached hereto prior to Closing. Seller agrees to provide Buyer
with available manufacturers' written summaries and explanations of
the uses of such Special Tools.
SECTION 1.2 PARTS AND ACCESSORIES. The parts and accessories and any
shop supplies and materials necessary to operate the service department of
the Business; however, Buyer reserves the right to elect to not purchase
any parts or accessories which Buyer, in its sole discretion, determines to
be aged, outdated, damaged or obsolete.
SECTION 1.3 CARS AND TRUCKS. All new Dodge passenger cars and
trucks, including 1995 and 1996 demonstrators; and, subject to the
provisions of Section 4.2.6, all used cars and trucks in Seller's
inventory, at Closing;
SECTION 1.4 GOODWILL. The expectation of continued public patronage
of Seller's former business, including the right for Buyer to represent
itself as carrying on the Business in succession to the Seller including
the benefit of all pending contracts, purchase orders and customer
contacts;
SECTION 1.5 RECORDS. Access to, and upon Buyer's request, copies of
all books, records, information and other written materials (including
those comprised in or derived from data, disks, tapes, manuals, source
codes, flow charts and instructions) directly related to the employee
lists, fleet customer lists, customer lists, supplier lists, parts lists,
price sheets, manuals, marketing materials, catalogs and any similar items
used directly in the Business;
SECTION 1.6 INTELLECTUAL PROPERTY. The right, after the Closing, for
the Buyer to continue using in connection with the operation of the
Business all trade names, logos, trademarks, service marks, copyrighted
materials, trade secrets and other proprietary business information,
including but not limited to those properties identified in Schedule 1.6
which will be completed and initialled by the parties and attached hereto
prior to Closing, including the rights more specifically set forth in
Section 15.3 below.
<PAGE>
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SECTION 1.7 LEASES. Subject to the provisions of Section 9.5, all
right, title and interest of Seller under the Dealership Lease, the Body
Shop Lease and the Heavy Line Shop Lease;
SECTION 1.8 CONTRACTS. All right, title and interest of Seller under
the contracts listed on Schedule 1.8 which will be completed and initialled
by the parties and attached hereto prior to Closing;
SECTION 1.9 LICENSES. All licenses, permits, authorities and
consents (except those which by law or by their terms are not transferable)
necessary to carry on the Business;
SECTION 1.10 OFFICE SUPPLIES. All office supplies, letterhead,
postage, and similar items related to the Business of Lynn Hickey Dodge,
Inc. and specifically excluding similar items related to the business of
Dakota Conversion Company and/or Dakota Financial Company; and
SECTION 1.11 NUTS AND BOLTS. All nuts, bolts, brackets, clips and
similar supplies used in connection with the Business.
ARTICLE II
EXCLUDED ASSETS
SECTION 2 EXCLUDED ASSETS. Seller and Buyer mutually acknowledge and agree
that no assets shall be included in the Assets to be sold, transferred,
conveyed, assigned and delivered to Buyer under the terms of this Agreement
except the assets or rights of the Business which are specifically included in
the Assets as enumerated in Section 1 hereof and that for the sake of
clarification it is agreed that the Excluded Assets include but are not limited
to:
SECTION 2.1 DAKOTA ASSETS. Any right to the assets of the Dakota
Conversion Company or the Dakota Financial Company;
SECTION 2.2 HEAVY LINE SHOP EQUIPMENT. All the equipment and tire
inventory located at the heavy line shop except that it is agreed that the
parties will negotiate in good faith to reach an agreement for the purchase
of the equipment (but excluding the tire inventory) at the expiration of
the Heavy Line Shop Lease;
SECTION 2.3 CONVERSION PARTS. All van or other vehicle conversion
parts and accessories and other special made parts or accessories which are
not commonly and/or universally used on vehicles sold;
SECTION 2.4 COWBOY CAMPER PATENT. The patent on the Cowboy Camper;
and
SECTION 2.5 CLUB AUTO. Any and all rights to and/or property owned
by or related to "Club Auto" and the Club Auto business.
<PAGE>
-4-
ARTICLE III
ASSUMED LIABILITIES
SECTION 3 ASSUMED LIABILITIES. Except as set forth in this Article III or
as listed on Schedule 3 attached hereto (the "Assumed Liabilities") and which
such Schedule 3 Assumed Liabilities will be updated immediately prior to
Closing, the Buyer is not assuming or undertaking to assume any liability or
obligation of the Seller, including, but not limited to any indebtedness,
account payable, product warranty, extended warranty obligation, assessment,
tax, penalty, contract, salary, wage, compensation or benefit plan obligation,
whether disclosed, unknown, contingent or fixed, arising out of the conduct or
operation of the Business or otherwise, prior to the time of Closing, or as the
result of the consummation of the transactions contemplated by this Agreement
(the "Liabilities"). All such Liabilities shall be and remain the obligations
of the Seller.
SECTION 3.1 FLOOR PLAN. Buyer shall either pay in full or assume
Seller's floor plan liability secured by liens on vehicles referenced in
Section 1.3. Buyer also agrees to accept delivery of all merchandise,
including new vehicles, on order at Closing, in accordance with prior
practices, and either pay or floor plan the same. The holdback applicable
to vehicles on which delivery is accepted by Buyer after the date of
Closing, which has been credited to the account of the Seller by Chrysler
Corporation, will be paid to the Buyer by Seller at Closing, or within ten
(10) days after receipt of such holdback by Seller, whichever is later.
SECTION 3.2 FLEET ORDERS. At Closing, Buyer shall assume all
unfilled retail and fleet orders and deposits made thereon shall be
simultaneously transferred to Buyer. All profit derived therefrom shall
belong to Buyer.
SECTION 3.3 IN-HOUSE WARRANTY. Buyer agrees to assume the liability
and obligation under the Seller's 6-month, 6,000 mile, limited power train
warranty (the "in house used car warranty") provided that Seller refers any
such repair work to Buyer and agrees to reimburse Buyer for Buyer's actual
internal costs incurred pursuant to Seller's obligations under such
warranty.
ARTICLE IV
PURCHASE PRICE
SECTION 4. PURCHASE PRICE. Subject to the terms and conditions of this
Agreement, in reliance on the representations, warranties and agreements of
Seller and the Shareholder's Covenant Not To Compete contained herein, and in
consideration of the aforesaid sale, transfer, conveyance, assignment and
delivery of the Assets and the Shareholder's Covenant Not To Compete, Buyer
shall, in addition to the assumption of the Assumed Liabilities as provided in
Article III hereof, pay or deliver to Seller the following (collectively, the
"Purchase Price"):
SECTION 4.1 EARNEST MONEY. Simultaneous with the signing of this
Agreement, Buyer will deposit Four Hundred Thousand Dollars ($400,000.00)
(the
<PAGE>
-5-
"Earnest Money"), with First American Title & Trust Company, Oklahoma City,
Oklahoma, as escrow agent, to be applied toward the Purchase Price to be
paid at Closing, in accordance with the Escrow Agreement attached hereto as
Exhibit 4.1.
SECTION 4.2 CASH. At Closing, Buyer shall deliver to Seller, for the
purchase of the Assets, by cashier's check or other immediately available
funds the following:
4.2.1 Eleven Million Five Hundred and Ninety Thousand Dollars
($11,590,000.00) for access to the Records and the purchase of the
Intellectual Property, Leases, described Contracts, and Licenses of
the Business, and the significant market opportunity hereby acquired
by Buyer for purposes of the IPO described in Section 5, including the
exclusive right among the parties to do business in the area of
dominant influence, as such area is identified in the Chrysler
Corporation Dealer Sales and Service Agreement between Chrysler and
Buyer and as is described, identified and limited in Schedule 12.1
attached hereto;
4.2.2 Ten Thousand Dollars ($10,000.00) for the Goodwill of the
Business;
4.2.3 Seven Hundred Fifty Thousand Dollars ($750,000.00) for
the Fixed Assets;
4.2.4 An amount for the returnable and undamaged parts and
accessories as listed for sale in the then current Dealer Parts and
Accessories Price Schedules for each "Represented Manufacturer";
4.2.5 An amount for the new Dodge passenger cars and trucks
calculated as the cash sum equal to the factory invoice price to the
Seller, less any factory holdback rebate and less any other factory
rebates which the Seller may have received, or to which the Seller may
have become entitled to receive, plus options added at dealer cost,
plus Cowboy Campers added to trucks at Seller's cost, plus any freight
and handling charges. All 1995 and 1996 demonstrators shall be
conveyed for a cash sum equal to an amount as computed above, less
$.10 per mile over 2,500 miles on the odometer as depreciation for
demo service. The amount to be paid will be decreased by an amount
equal to Buyer's actually incurred internal cost of repair for any
physically damaged vehicle at Closing. The Seller and Buyer shall
agree on the dollar cost of each needed repair as of the Closing.
4.2.6 An amount for the used vehicles in Seller's inventory at
Closing to be purchased by Buyer on the basis of Seller's inventory
cost (used vehicle schedule account numbers 12800 and 12900) at such
time. Buyer shall have the right to inspect each vehicle prior to
purchase. To the extent the used vehicle scheduled price for any unit
is unacceptable to Buyer, Seller must retain ownership of the unit.
Provided however, used vehicles which have been
<PAGE>
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maintained in Seller's used vehicle inventory for a period of more
than 90 days (the "old inventory") shall be purchased and sold on a
per unit basis as agreed by Buyer and Seller at the time of Closing.
In the absence of agreement by Buyer and Seller at Closing, the Seller
must retain ownership of each unagreed old inventory unit. Seller
agrees that it will not materially alter Seller's normal used vehicle
stock by pre-Closing wholesale or other disposition outside the normal
course of business. The parties agree to negotiate in good faith on
the purchase of the old inventory units.
4.2.7 An amount for all nuts, bolts, brackets, clips and
similar supplies used in connection with the Business on the basis of
their cost to the Seller.
4.2.8 An amount for all office supplies, letterhead, postage,
and similar items related to the Business of Lynn Hickey Dodge, Inc.
and specifically excluding similar items related to the business of
Dakota Conversion Company and/or Dakota Financial Company on the basis
of their cost to the Seller exluding amounts paid pursuant to the
provisions of Section 3 as identified on item 13 in Schedule 3.
SECTION 4.3 WARRANT CERTIFICATE. At Closing, Buyer shall deliver to
Seller a Warrant Certificate in the form attached hereto as Exhibit 4.3
entitling Seller for a period of five (5) years from the Closing Date, to
subscribe for One Million Dollars ($1,000,000.00) of common stock, in Cross
Country Auto Retailers, Inc., a Delaware corporation, at an exercise price
equal to the Initial Public Offering ("IPO") price of such stock.
SECTION 4.4 REFUND OF EARNEST MONEY. In the event the transactions
contemplated by this Agreement are not consummated as a result of Buyer's
wrongful refusal to Close or failure of the IPO of Cross Country Auto
Retailers, Inc., Seller will retain the Earnest Money, including interest.
In the event Seller wrongfully refuses to Close, Chrysler fails to approve
Buyer as a Chrysler dealer or in the event of an adverse ruling under the
HSR Act, Buyer shall be entitled to a full return of the Earnest Money,
less the interest earned thereon which shall be paid to the Seller.
SECTION 4.5 ALLOCATION OF PURCHASE PRICE. Buyer and Seller agree
that the Purchase Price shall be allocated among the Assets in the manner
set forth on Schedule 4.5 which will be completed and initialled by the
parties and attached hereto prior to Closing. All federal, state, and
local tax returns filed after the Closing by either Buyer or Seller,
including, but not limited to, IRS Form 8594, will contain valuations which
are consistent with the valuations set forth on Schedule 4.5.
<PAGE>
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ARTICLE V
CLOSING
SECTION 5. CLOSING. The closing of the transactions contemplated
hereby (the "Closing") shall take place ten (10) days following the date of the
IPO of Cross Country Auto Retailers, Inc., but no later than October 15, 1996,
at such time and place as the parties may mutually agree in writing. The date
on which the Closing actually occurs is hereinafter referred to as the "Closing
Date". The Closing Date may be postponed to a later date by the mutual written
agreement of the parties.
ARTICLE VI
TRANSACTIONS AT CLOSING
SECTION 6. TRANSACTIONS AS CLOSING. The following transactions shall
take place at Closing:
SECTION 6.1 DELIVERIES BY SELLER AND SHAREHOLDER. At the Closing,
the Seller and the Shareholder shall deliver the following to the Buyer:
6.1.1 A Warranty Bill of Sale in the form as attached hereto as
Exhibit 6.1.1 and all other instruments of sale, transfer, assignment
or conveyance as are necessary, in a form reasonably satisfactory to
Buyer, to convey to Buyer all Seller's right, title and interest in
and to the Assets, to the extent and as provided in Article I;
6.1.2 Any instruments and other documents specifically
enumerated in Section 9.
6.1.3 Copies of resolutions of the Board of Directors of the
Seller, duly certified by its Secretary, in form reasonably
satisfactory to Buyer's counsel, authorizing the execution, delivery
and performance of this Agreement, the Assumption Agreement and the
Escrow Agreement and all action to be taken by Seller hereunder;
6.1.4 The Assignment and Assumption Agreement in the form as
attached hereto as Exhibit 6.1.4 for the Assumed Liabilities set forth
on Schedule 3 duly executed by Seller;
6.1.5 A Seller's Certificate in the form as attached hereto as
Exhibit 6.1.5 duly executed by Seller; and
6.1.6 The Records referred to in Section 1.5.
<PAGE>
-8-
6.1.7 Any other instruments or documents deemed reasonably
necessary or desirable by the Buyer in order to consummate the
transactions contemplated hereby;
SECTION 6.2 DELIVERIES BY BUYER. At the Closing, the Buyer shall
deliver the following to the Seller:
6.2.1 The Purchase Price;
6.2.2 Any instrument and other documents specifically
enumerated in Section 10;
6.2.3 The Warrant Certificate referred to in Section 4.3
hereof;
6.2.4 The Assignment and Assumption Agreement duly executed by
Buyer;
6.2.5 Copies of resolutions of the Board of Directors of the
Buyer, duly certified by its Secretary, in form reasonably
satisfactory to Seller's counsel, authorizing the execution, delivery
and performance of this Agreement, the Assumption Agreement and the
Escrow Agreement and all action to be taken by Buyer hereunder;
6.2.6 A Buyer's Certificate in the form as attached hereto as
Exhibit 6.2.6 duly executed by Buyer; and
6.2.7 A Guaranty Agreement in the form as attached hereto as
Exhibit 6.2.7 duly executed by Cross Country Auto Retailers, Inc.
6.2.8 Copies of resolutions of the Board of Directors of Cross
Country Auto Retailers, Inc., duly certified by its Secretary, in form
reasonably satisfactory to Seller's counsel, authorizing the
execution, delivery and performance of the Guaranty Agreement.
6.2.9 Any other instruments or documents deemed reasonably
necessary or desirable by the Seller in order to consummate the
transactions contemplated hereby, including any other instruments or
documents deemed reasonably necessary or desirable by the Seller in
order for Cross Country Auto Retailers, Inc. to consummate the
Guaranty Agreement in accordance with the undertaking and tenor
thereof.
<PAGE>
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE SELLER
SECTION 7 REPRESENTATIONS AND WARRANTIES OF THE SELLER. In order to induce
the Buyer to enter into this Agreement, the Seller represents, warrants and
covenants to the Buyer, effective as of the date of this Agreement and again at
Closing, each of the following:
SECTION 7.1 ORGANIZATION AND STANDING. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Oklahoma, is duly qualified to do business as a foreign
corporation and is in good standing in the states of the United States and
foreign jurisdictions where its ownership or leasing of property or the
conduct of the Business requires it to be so qualified.
SECTION 7.2 POWER AND AUTHORITY. Seller has all requisite right,
power and authority to own, lease and operate its properties and Assets and
to carry on the Business as the Business is now being conducted. This
Agreement constitutes the valid and binding obligation of the Shareholder
(relating to those certain agreements of Shareholder contained in Article
XII and Section 15.3 hereunder) and the Seller, enforceable against them
(and each of them) in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to the
enforcement of creditors' rights generally and by general principles of
equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law). The Shareholder and the Seller have all
requisite right, power and authority to execute and deliver this Agreement
and to perform all of his or its obligations under this Agreement.
SECTION 7.3 NO CONFLICTS. Neither the execution and delivery of this
Agreement by the Seller, nor the consummation by the Seller of the
transactions contemplated hereby, will (a) violate, conflict with, or
result in a breach of any provisions of, or constitute a default or an
event which, with notice or lapse of time or both, would constitute a
default under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or
acceleration, or result in the creation of any material lien, security
interest, charge or encumbrance upon any of the properties or Assets of the
Seller or otherwise comprising a part of the Business under any of the
terms, conditions or provisions of, the Seller's Certificate of
Incorporation, Bylaws, or any contract, note, bond, mortgage, indenture,
deed of trust, license, lease, agreement or other instrument or obligation
to which the Seller is a party or by which it may be bound, or to which the
Seller's properties or Assets may be subject, or (b) violate any judgment,
ruling, order, writ, injunction, decree, statute, rule or regulation
applicable to the Seller or any of its respective properties or Assets,
which in the case of either subparagraph (a) or (b) above would have a
materially adverse effect on the Business of the Seller. Neither the
execution and the delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, ruling,
charge or other restriction of any government, governmental agency or court
to which the Seller is
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subject, or (ii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument or other arrangement to
which the Seller is a party or by which the Seller is bound or to which the
Seller's Assets are subject, the occurrence of which would have a material
adverse effect on the Business of the Seller.
SECTION 7.4 FINANCIAL STATEMENTS. The Seller has delivered to the
Buyer copies of the following financial statements (collectively referred
to herein as the "Financial Statements") of the Seller at Schedule 7.4:
7.4.1 Balance Sheet, as of March 31, 1996.
7.4.2 Income Statement, as of March 31, 1996.
7.4.3 Balance Sheets and Income Statements for the fiscal years
ended December 31, 1995 and December 31, 1994.
To the best of Seller's information, knowledge and belief, the Financial
Statements (including the notes thereto) are true and correct in all
respects and have been compiled in accordance with Chrysler Corporation
Standard Dealer Financial Statement practices and applied on a consistent
basis throughout the periods indicated. Without limitation of the
foregoing, the Balance Sheet described in 7.4.1 above presents fairly the
financial position of the Seller as of the date indicated thereon, and the
Income Statement described in 7.4.2 above presents fairly the results of
operations of the Seller for the period indicated thereon.
SECTION 7.5 TITLE AND RELATED MATTERS. The Seller is the lawful
owner of, and has good and valuable title to, all of the Assets and
properties which it purports to own and which are reflected on the
Financial Statements except for Assets and properties sold, consumed or
otherwise disposed of by the Seller in the ordinary course of business
since the date of the Financial Statements, and such Assets and properties
are free and clear of all encumbrances except for (a) encumbrances listed
on Schedule 7.5, (b) liens for current taxes not yet due and payable or for
taxes the validity of which is being contested in good faith by appropriate
proceedings; and (c) encumbrances to secure indebtedness reflected on the
Financial Statements or indebtedness incurred in the ordinary course of
business after the date thereof. Subject to the other provisions of this
Section 7, specifically including Section 7.7, there is no significant
asset used or required by the Seller in the conduct of the Business which
is not either owned by the Seller or licensed or leased to the Seller. All
parts and accessories reflected on the Financial Statements and which Buyer
is obligated to purchase in accordance herewith are returnable and
undamaged parts and accessories that (i) are still in the original,
resalable merchandising package and in unbroken lots or (in the case of
sheet metal, a comparable substitute for the original package has been
used), (ii) were listed for sale in the then current Dealer Parts and
Accessories Price Schedules for each "Represented Manufacturers": except
"discontinued" or "replaced" parts and accessories, (iii) were
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purchased directly from "Represented Manufacturers", and (iv) all parts
purchased by the Seller shall be returnable under the terms of the
"Represented Manufacturers" Sales and Service Agreements for credit to
Seller's account.
SECTION 7.6 LICENSES AND PERMITS. The Seller has delivered to the
Buyer a summary description at Schedule 7.6, which will be completed and
initialled by the parties and attached hereto prior to Closing, and made
copies available to Buyer at Seller's dealership office, of all permits,
licenses, applications, franchises, engineering or environmental studies or
reports, certificates, trademarks, trade names, patents, patent
applications and similar such items and rights, including any and all
opportunities and potential opportunities either pending, in negotiation,
or otherwise relating to the Business to the extent that the same are
available to Seller. Except as set forth on Schedule 7.6, all of the
permits, licenses, applications, franchises and other items set forth
therein are adequate for the operation of the Business, are valid and in
full force and effect and will be transferred to the Buyer at the Closing,
unless such transfer is prohibited by law or by the terms of the material
to be transferred.
SECTION 7.7 INTELLECTUAL PROPERTY. The Seller owns and has the
exclusive right to use all intellectual property presently in use by the
Seller, which intellectual property includes patents, trademarks, trade
names, service marks, copyrights, trade secrets, customer lists,
inventions, formulas, methods, processes and other proprietary information;
but does not include any intellectual property belonging to Chrysler
Corporation, which intellectual property is expressly excluded herefrom.
There are no outstanding licenses or consents to third parties granting the
right to use any intellectual property owned by Seller to which Buyer shall
succeed hereunder, within the ADI (as defined and limited in Section 12.1).
The Seller owns or possesses all permits, grants, and licenses or other
similar rights which are necessary to, and are presently used by it in the
conduct of its Business, the loss of which would have a material adverse
effect on the Seller, free and clear of any claims and without any conflict
with the rights of others, which conflict would have a material adverse
effect upon the Seller. No royalties or fees are payable by the Seller to
any third party by reason of the use of any of the intellectual property to
which Buyer shall succeed hereunder. No additional intellectual property
is needed to permit the Seller to conduct its Business as now operated, and
no other intellectual product or intellectual property rights of any kind
are required by the Seller for its operations, except those intellectual
property rights belonging to Chrysler Corporation and its affiliates.
7.7.1 In particular, but not by way of limitation, the Seller
warrants that the Seller is the sole owner of all trade names, logos,
trademarks and service marks which (1) comprise the name, "Lynn
Hickey" heretofore used by the Seller (hereafter the "Lynn Hickey
Name"), or, (2) include the design of a cowboy shown in attached
Schedule 15.3 (hereafter the "Cowboy Logo"), and that no rights have
been granted to third parties which are inconsistent with the rights
granted to the Buyer herein; provided however, the warranty does not
extend beyond the ADI (as defined and limited in Section 12.1).
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7.7.2 The Seller has not received notice of any adversely held
patent, invention, trademark, copyright, service mark or trade name of
any other person or notice of any claims of any other person relating
to any of the intellectual property subject hereto; and, to the
knowledge of the Seller, there is no reasonable basis for any such
charge or claim. The Seller has not received notice of any present
use or encroachment of any intellectual property within the ADI which
has a material adverse effect on the business condition of the Seller;
and there is no presently known threatened use or encroachment of any
intellectual property within the ADI which could have a material
adverse effect on the condition of the Seller.
7.7.3 For purposes of this Section 7, intellectual property
does not include the trade names Lynn Hickey's Wholesale and Lynn
Hickey Auto World.
SECTION 7.8 CONTRACTS AND AGREEMENTS; ADVERSE RESTRICTIONS. The
Seller will deliver to the Buyer a list at Schedule 1.8, which will be
completed and initialled by the parties and attached hereto prior to
Closing, and copies of all pertinent contracts and other relevant
agreements to which the Seller is a party or by which it or any of its
property which is subject hereto is bound. All such contracts and
agreements included in Schedule 1.8 are in full force and effect and
binding upon the parties thereto, and none of the parties thereto is in
breach of any of the provisions thereof. Except as set forth on
Schedule 7.8, the Seller is not party to any contract, agreement or other
commitment or instrument or subject to any charter or other corporate
restriction, judgment, order, writ, injunction, decree or award which,
singly or in the aggregate, materially or adversely affects or is likely to
materially or adversely affect the Business or other operations,
properties, Assets or condition (financial or otherwise) of the Seller.
SECTION 7.9 LITIGATION AND OTHER PROCEEDINGS. Except as set forth in
Schedule 7.9 which will be completed and initialled by the parties and
attached hereto prior to Closing and correct as of Closing, the Seller is
not a party to any pending or threatened claim, action, suit, investigation
or proceeding, nor is it subject to any order, judgment or decree, except
for matters which, in the aggregate, would not have or cannot reasonably be
expected to have, a material adverse effect on the financial condition,
results of operation or Business of the Seller, and none that would relate
to or affect the proposed transaction hereunder.
SECTION 7.10 ENVIRONMENTAL PROTECTION. To the best of Seller's
information, knowledge and belief:
7.10.1 The Seller has obtained all permits, licenses and other
authorizations, which are required under applicable laws currently in
effect relating to pollution or protection of the environment,
including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic
materials or wastes into ambient air, surface water, ground water, or
land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or
handling of pollutants,
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contaminants, or hazardous or toxic materials or wastes into ambient
air, surface water, ground water, or land, or otherwise relating to
the manufacture, processing distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants or
hazardous or toxic materials or wastes or the manufacture of
substances subject to the Toxic Substances Control Act (collectively,
the "Environmental Laws").
7.10.2 The Seller is in compliance with all terms and conditions
of such permits, licenses and authorizations, and with all other
limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in such
Environmental Laws or contained in any regulation, code, plan, order,
decree, judgment or notice or demand letter from a governmental entity
issued, entered, promulgated or approved thereunder as they apply to
the Seller.
7.10.3 The Seller has not received any notification from any
governmental authority or any other person, nor does the Seller have
knowledge, that any of the current or former properties, assets or
operations of the Seller or its former subsidiaries, if any, are in
violation of any applicable Environmental Laws.
7.10.4 There is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter from a governmental entity pending
or threatened against the Seller.
7.10.5 There are no past or present events, conditions,
circumstances, activities, practices, incidents, actions or plans,
which will interfere with, or prevent compliance or continued
compliance with, the Environmental Laws or with any regulation, code,
plan, order, decree, judgment, injunction, notice or demand letter
from a governmental entity issued, entered, promulgated or approved
thereunder, or which will give rise to any common law or other legal
liability, including, without limitation, liability under the
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") or similar state or local laws in effect as of the date
hereof, or otherwise form the basis of any claim, action, demand,
suit, proceeding, hearing, notice of violation, or investigation which
would be materially adverse to the Seller, based on or resulting from
the conduct of the business by the Seller, including manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling, or the emission, discharge, release or threatened release
into the environment, of any pollutant, contaminant, chemical, or
industrial toxic or hazardous material, substance or waste. Without
in any way limiting the foregoing no release, emission or discharge
into the environment of any hazardous substance (as that term is
currently defined under CERCLA or any applicable analogous state law)
has occurred or is currently occurring in connection with the conduct
of the Business of the Seller and which would be materially adverse to
the Seller. The
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real property currently owned, leased or otherwise utilized by the
Seller contains no spill, deposit, or discharge of any hazardous
substance (as that term is currently defined under CERCLA or any
applicable analogous state law), as a result of which there would be a
materially adverse effect on the Seller.
SECTION 7.11 EMPLOYMENT CONTRACTS AND EMPLOYEE BENEFIT PLANS.
Schedule 7.11 which will be completed and initialled by the parties and
attached hereto prior to Closing contains a complete and correct list of
all pension, bonus, profit sharing, retirement, stock option, medical
expense, dental expense, hospitalization, life insurance or other death
benefit, severance, and other benefit plans, agreements, arrangements or
other programs providing remuneration or benefits for Seller's employees,
whether or not funded and whether or not reflected in any plan documents,
including available vacation of Seller's employees. There have been no
material defaults, breaches, omissions or other failings by the Seller or
any fiduciary under any of these contracts or programs. Except as set
forth on Schedule 7.11, the Seller does not sponsor any employee benefit
plan defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended (29 U.S.C. 1002(3)).
SECTION 7.12 BROKERS AND FINDERS. The Seller has not employed,
directly or indirectly for the Seller's benefit, any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees,
commissions or finders' fees, and no broker or finder has acted directly or
indirectly for the Seller in connection with this Agreement or the
transactions contemplated hereby.
SECTION 7.13 CONSENTS TO CONSUMMATION. Except as disclosed on
Schedule 7.13 which will be completed and initialled by the parties and
attached hereto prior to Closing, no consent, approval or other action of
any third party is required to be obtained by the Seller or the Shareholder
in connection with the transactions contemplated in this Agreement.
SECTION 7.14 PERSONNEL. Schedule 7.14, which will be completed and
initialled by the parties and attached hereto prior to Closing, lists all
of the current employees of the Seller and independent contractors
regularly performing services on behalf of the Seller and their respective
rates of compensation, including any other salary, bonus or other payment
arrangement made with any of them. The Seller is not a party to or bound
by any collective bargaining agreement, nor has the Seller experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. The Seller has not, to Seller's knowledge, committed
any unfair labor practice. The Seller has no knowledge of any
organizational effort presently being made or threatened by or on behalf of
any labor union with respect to employees of the Seller
SECTION 7.15 EQUIPMENT. To the best of Seller's information,
knowledge and belief, the equipment listed under Fixed Assets is in good
repair and operating condition and has been regularly and properly
maintained and fully serviced and is suitable for the purposes for which it
is presently being used.
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SECTION 7.16 CONTINUATION OF BUSINESS. The Seller knows of no
reason why the Business will not continue on in the same manner following
the execution of this Agreement and the Closing as it has been operated
prior thereto, except to the extent that the Buyer causes the Business to
change following the Closing. The Seller has no reason to believe that at
any time in the foreseeable future the Business shall be materially or
adversely affected by any event, including but not limited to the loss of
customers of its Business, the reduction in the quality and quantity of its
Business, the termination or reduction in the probability of any existing,
pending, or anticipated contracts or projects of its Business, or
otherwise, except to the extent that the Buyer causes the Business to
change following the Closing. The Seller will use its best efforts to
cause the employees, agents, and independent contractors who have performed
services as a part of the Business in the past to continue to do so
following the Closing, to the extent the Buyer so requests.
SECTION 7.17 COPIES COMPLETE; NO DEFAULT. The copies of all leases,
instruments, contracts, agreements, licenses, permits, certificates or
other documents which have been delivered or otherwise been made available
to the Buyer in connection with the transactions contemplated hereby are
complete and accurate and are true and correct copies of the originals
thereof, to the best of Seller's information, knowledge and belief.
SECTION 7.18 BORROWED MONIES. The Seller is not in default in any
respect under, and is not otherwise in violation or contravention of, any
of the terms and provisions of any agreement for the repayment of borrowed
monies. Copies of all notes and other documents and instruments evidencing
or relating to indebtedness for borrowed monies by the Seller and which
relate to the transactions subject to this Agreement are identified on
Schedule 7.18 which will be completed and initialled by the parties and
attached hereto prior to Closing.
SECTION 7.19 TAX RETURNS AND AUDITS. The Seller agrees to indemnify
and hold harmless the Buyer with respect to any income or other tax
liabilities, penalties and interest of Seller which arise from the
operation of the Business prior to Closing or arise as a result of the
transactions herein.
SECTION 7.20 COMPLIANCE WITH LAWS. The Seller has no knowledge of
any governmental proceeding or investigation involving the Seller, or has
any reason to believe that any such proceeding or investigation is pending
or threatened or that there exists any basis for any such proceeding or
investigation which materially adversly affects the Business or property of
the Seller. The Seller has no knowledge of any facts which might
reasonably be believed to be a basis for any other action, suit,
proceeding, arbitration, claim, or counterclaim against the Seller which
materially adversly affects the Business or property of the Seller. There
are no existing violations of federal, state or local laws, ordinances,
rules, codes, regulations or orders by the Seller which materially affect
the Business or property of the Seller or the possession, use, occupancy or
operation of any of its facilities or Business. There have been no illegal
kick backs, bribes, or political contributions made by the Seller.
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SECTION 7.21 NO CHANGES. Except as disclosed on Schedule 7.21 which
will be completed and initialled by the parties and attached hereto prior
to Closing, the Seller has not, since March 31, 1996, (a) operated the
Business except in the ordinary course of business; (b) incurred any debts,
liabilities or obligations except in the ordinary course of business;
(c) discharged or satisfied any liens or encumbrances, or paid any liens or
encumbrances, or paid any debts, liabilities or obligations, except in the
ordinary course of business; (d) mortgaged, pledged or subjected to lien or
other encumbrance any of its Assets, tangible or intangible, except in the
ordinary course of business; (e) sold or transferred any of its tangible
Assets, or canceled any debts or claims, except, in each case, in the
ordinary course of business; or (f) suffered any losses or waived any
rights which might have a material adverse effect on the financial
condition, Business, results of operations, properties, or Assets of the
Seller.
SECTION 7.22 REAL PROPERTY. The Seller owns no real property
subject hereto.
SECTION 7.23 FULL DISCLOSURE. No representation or warranty of the
Seller or the Shareholder in this Article VII (including the information
with the Schedules attached to this Agreement), when read together,
contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements herein or therein,
in light of the circumstances in which they are made, not misleading.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES OF BUYER
SECTION 8 REPRESENTATIONS AND WARRANTIES OF BUYER. The Buyer represents
and warrants to the Seller and the Shareholder effective as of the date of this
Agreement and again at Closing, as follows:
SECTION 8.1 ORGANIZATION AND STANDING OF BUYER. The Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Oklahoma, is duly qualified to do business as a
foreign corporation and is in good standing in the states of the United
States and foreign jurisdictions where its ownership or leasing of property
or conduct of its business requires it to be so qualified.
SECTION 8.2 AUTHORIZATION. The Buyer has full power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The executuion and delivery of this Agreement and the
consummation of the transactions hereby have been duly and validly
authorized by all necessary corporate and shareholder action on the part of
the Buyer. This Agreement constitutes the valid and binding obligation of
the Buyer, enforceable against the Buyer in accordance with its terms,
except as the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
the enforcement of creditors' rights generally and by general principles of
equity (regardless of whether such enforceability is considered in a
proceeding at law or in equity).
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SECTION 8.3 NO CONFLICT. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will
violate, conflict with, or result in a breach of any provision of or
constitute a default (or an event which, with the giving of notice or lapse
of time, or both, would constitute a default) under or result in the
termination of or accelerate the performance required by or result in a
right of termination or acceleration under or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties
or assets of the Buyer under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which the Buyer is a party
or to which the Buyer may be subject.
SECTION 8.4 BROKERS AND FINDERS. Buyer has not employed, directly or
indirectly, any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions or finders' fees, and
no broker or finder has acted directly or indirectly for Buyer in
connection with this Agreement or the transactions contemplated hereby.
SECTION 8.5 LITIGATION OR OTHER PROCEEDINGS. Buyer is not a party to
any pending or to its knowledge any threatened claim, action, suit,
investigation or proceeding, or subject to any order, judgment or decree,
except for matters which in the aggregate, will not have, or cannot
reasonably be expected to have, a materially adverse effect on the
financial condition of the Buyer, and none that would affect the Buyer's
ability to consummate the transactions contemplated hereby.
ARTICLE IX
BUYER'S CONDITIONS TO CLOSING
SECTION 9 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER. The obligation
of the Buyer to effect the transaction shall be subject, at its option, to the
fulfillment prior to the Closing Date of the following additional conditions,
each of which can be waived by the Buyer, but only in writing:
SECTION 9.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations, warranties, covenants and agreements made by the Seller
and the Shareholder in, or pursuant to, this Agreement shall be true and
correct as of the date hereof and shall be deemed to have been made again
at Closing and shall then be true and correct.
SECTION 9.2 COMPLIANCE WITH AGREEMENT. The Seller and the
Shareholder shall have fully performed and strictly complied with all of
their covenants, agreements, conditions and obligations under this
Agreement to be performed or complied with by Seller and Shareholder on or
prior to the Closing Date and the Seller and Shareholder shall have
delivered to the Buyer a duly executed Agreement.
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SECTION 9.3 THIRD PARTY CONSENTS. This Agreement and the
transactions contemplated hereby shall have received all approvals,
consents, authorizations, and waivers from governmental and other
regulatory agencies and other third parties, including lenders and lessors,
and including, but not limited to, approval of Buyer as an Oklahoma City,
Oklahoma dealer under the Chrysler Corporation Dealer Sales and Service
Agreement, required to consummate the transaction.
SECTION 9.4 ABSENCE OF LITIGATION. No action, suit or proceeding
before any court or any governmental body or authority pertaining to this
transaction, contemplated by this Agreement, or to its consummation, shall
have been instituted or threatened on or before the Closing Date.
SECTION 9.5 DEALERSHIP LEASE. Rolynn's, Ltd. shall have delivered to
the Buyer a duly executed Dealership Lease for a term of ten (10) years
with an advance monthly payment of Sixty Thousand Dollars ($60,000.00)
including pure triple net provisions and two five year options to renew,
with a CPI adjustment taking effect in the seventh year of the Dealership
Lease, but computed retroactive to the fifth year, with such lease to be
negotiated in good faith by the parties.
SECTION 9.6 BODY SHOP LEASE. McMullan Companies shall have consented
to the assignment to the Buyer of the Body Shop Lease upon terms acceptable
to Buyer.
SECTION 9.7 HEAVY LINE SHOP LEASE. Pennington Improvement Co., Inc.
shall have consented to the assignment to the Buyer of the Heavy Line Shop
Lease upon terms acceptable to Buyer.
SECTION 9.8 OPINION OF COUNSEL. At Closing, the Buyer shall receive
an opinion of counsel, dated the Closing Date, in the form of Exhibit 9.8
attached hereto.
SECTION 9.9 IPO. Cross Country Auto Retailers, Inc. shall have
completed its IPO.
SECTION 9.10 ENVIRONMENTAL REPORT. Buyer shall have obtained, at
Buyer's sole cost and expense, a Phase I Environmental Audit, the results
of which are satisfactory to Buyer in Buyer's sole discretion.
SECTION 9.11 PHYSICAL INVENTORY. Buyer shall have received, at
Buyer's sole cost and expense, a physical inventory of all units, parts,
accessories and the new and used car and truck inventory prepared by a
designee of Buyer, the results of which are satisfactory to Buyer in
Buyer's sole discretion. Such physical inventory shall have been completed
in the presence of any agent of the Seller, and agent of the Buyer and a
designee of the Buyer.
SECTION 9.12 APPROVAL OF DOCUMENTATION. The form and substance of
all certificates, instruments and other documents delivered to the Buyer
under this Agreement shall be satisfactory in all reasonable respects to
Buyer and its counsel.
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SECTION 9.13 INTELLECTUAL PROPERTY INVENTORY. The Buyer shall have
received, at Buyer's sole cost and expense, but with reasonable cooperation
of the Seller, an inventory of all intellectual property in use by the
Seller in connection with the Business and to which this Agreement applies,
such inventory to be embodied in an amended Schedule 1.6 to this Agreement.
SECTION 9.14 HART-SCOTT-RODINO ACT. The applicable waiting period
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "Act"),
and regulations promulgated thereunder, shall have expired.
ARTICLE X
SELLER'S CONDITIONS TO CLOSING
SECTION 10 CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER. The
obligation of the Seller to effect the transaction shall be subject, at its
option, to the fulfillment prior to the Closing Date of the following additional
conditions each of which can be waived by the Seller, but only in writing:
SECTION 10.1 REPRESENTATIONS AND WARRANTIES TRUE AT CLOSING. The
representations and warranties made by the Buyer in or pursuant to this
Agreement shall be true and correct as of the date hereof and shall be
deemed to have been made again at Closing and shall then be true and
correct.
SECTION 10.2 COMPLIANCE WITH AGREEMENT. The Buyer shall have
performed and complied with all of its obligations under this Agreement
that are to be performed or complied with by it at, or prior to, the
Closing and the Buyer shall have delivered to the Seller a duly executed
Agreement.
SECTION 10.3 DELIVERY OF PURCHASE PRICE. The Seller shall have
received the Purchase Price in accordance with Article IV hereof.
SECTION 10.4 APPROVAL OF DOCUMENTATION. The form and substance of
all certificates, instruments and other documents delivered to Seller under
this Agreement shall be satisfactory in all reasonable respects to Seller
and its counsel.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES
SECTION 11 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made by the parties in this Agreement or in any
certificate, schedule, statement, document or instrument furnished hereunder or
in connection with the negotiation, execution and performance of this Agreement
shall survive the Closing; provided however, that no claim or cause of action
for indemnification under Article XIV for breaches of representations or
warranties set forth in this Agreement or in any schedule or document furnished
hereto shall be
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made three (3) years after the Closing Date, except that claims and causes of
action for breaches of representations or warranties of the Seller contained in
Sections 7.5, 7.7, 7.11 and 7.20 or for Damages under Section 14.3 may be made
so long as any claim may be made in respect of such matters under applicable
statutes of limitation. Notwithstanding any investigation or audit conducted
before or after the Closing or the decision of any party to complete the
Closing, each party shall be entitled to rely upon the representations and
warranties set forth herein for the time period above.
ARTICLE XII
COVENANT NOT TO COMPETE
SECTION 12.1 SHAREHOLDER'S AND SELLER'S COVENANT NOT TO COMPETE.
Because the sale of the Business involves the sale of the goodwill of the
Seller, both the Shareholder and the Seller agree that they will not,
either directly or indirectly, alone or with others, either as an employee,
owner, partner, agent, stockholder, member, director, officer or otherwise,
enter into or engage in the business of operating a car dealership,
warranty repair business or other related business which may compete
directly or indirectly with the Buyer (the "Competitive Business") within
the area of dominant influence (the "ADI"), as such area is identified in
the Oklahoma City, Oklahoma Chrysler Corporation Dealer Sales and Service
Agreement between Chrysler and the Buyer and as reflected on Schedule 12.1
attached hereto (the ADI being all of the colored areas on the map of the
State of Oklahoma, excluding the gray area), for a term which shall be the
greater of: (a) five (5) years from the Closing Date; (b) such other
period of time as may be the maximum permissible period for enforceability
of this covenant under applicable law (the "Restrictive Period"). Neither
the Shareholder nor the Seller will individually, collectively or in
conjunction with others, directly or indirectly, within the Restricted
Period and ADI, (i) solicit or accept any Competitive Business from any
person or entity which was a customer of the Seller during the twelve
(12) months prior to the date of Closing; (ii) enter the employ of or
render any services to, any person engaged in the Competitive Business; or
(iii) directly or indirectly solicit or hire any employee of the Buyer or
encourage any such employee to leave such employment unless such employee
has already terminated such employment with the Buyer or the Buyer or the
Seller have mutually agreed in advance to the solicitation or employment.
The Seller and the Shareholder also agree that in the event of breach of
these covenants, the Buyer may protect its property rights in the goodwill
of the Business by injunction or otherwise. Buyer hereby acknowledges and
agrees that Lynn Hickey East, Inc. and Lynn Hickey Auto World, L.C., as
they are currently doing business in Tulsa, Oklahoma, are excluded from the
application of this covenant not to compete.
SECTION 12.2 BUYER'S COVENANT NOT TO SOLICIT SELLER'S EMPLOYEES. In
the event there is no Closing pursuant to this Agreement, Buyer agrees for
a period of eighteen (18) months from the date of this Agreement, not to
directly or indirectly solicit or hire any employee of the Seller or
encourage any such employee to leave such employment unless such employee
has already terminated such employment with the
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Seller or the Buyer and Seller have mutually agreed in advance to the
solicitation or employment.
SECTION 12.3 SELLER'S AND SHAREHOLDER'S NONDISCLOSURE OF
CONFIDENTIAL INFORMATION. Both the Seller and the Shareholder recognize
and acknowledge that they have in the past, they currently have, and in the
future may possibly have access to certain confidential information of the
Business, including, but not limited to, lists of accounts, operational
policies, and pricing and cost policies that are valuable, special and
unique assets of the Business (the "Confidential Information"). Except as
regards the continuing business of Seller and/or any business in which the
Shareholder has an interest which is not restricted or prohibited by the
provisions of Section 12.1, the Seller and the Shareholder agree that they
will not disclose such Confidential Information to any person, firm,
corporation, association or other entity for any purpose or reason
whatsoever, except to authorized representatives of the Buyer, or as
required by law, unless such Confidential Information becomes known to the
public generally through no fault of the Seller or Shareholder. In the
event of a breach or threatened breach by the Seller or Shareholder of the
provisions of this Section 12.3, the Buyer shall be entitled to an
injunction restraining the Seller or Shareholder from disclosing, in whole
or in part, such Confidential Information. Nothing herein shall be
construed as prohibiting the Buyer from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages.
SECTION 12.4 BUYER'S NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
Buyer recognizes and acknowledges that it has in the past, it currently
has, and in the future may possibly have access to certain confidential
information of the Seller and the Seller's Business, including, but not
limited to, lists of accounts, operational policies, and pricing and cost
policies that are valuable, special and unique assets of the Business (the
"Confidential Information"). The Buyer agrees that it will not disclose
such Confidential Information to any person, firm, corporation, association
or other entity for any purpose or reason whatsoever, except to affiliated
and authorized representatives of the Buyer, or as required by law, unless
such Confidential Information becomes known to the public generally through
no fault of the Buyer. In the event of a breach or threatened breach by
the Buyer of the provisions of this Section 12.4, the Seller shall be
entitled to an injunction restraining the Buyer from disclosing, in whole
or in part, such Confidential Information. Nothing herein shall be
construed as prohibiting the Seller from pursuing any other available
remedy for such breach or threatened breach, including the recovery of
damages.
ARTICLE XIII
TERMINATION
SECTION 13.1 MUTUAL CONSENT. This Agreement may be terminated by
the written consent of the parties.
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SECTION 13.2 BY THE BUYER. This Agreement may be terminated by
written notice of termination given by the Buyer to the Seller if a
material default should be made by the Seller or the Shareholder in the
observance of or in the due and timely performance by Seller or the
Shareholder of any of the agreements and covenants herein contained, or if
there shall have been a material breach by the Seller or the Shareholder of
any of the warranties and representations herein contained, or if the
conditions of this Agreement to be complied with or performed by the Seller
or the Shareholder at or before Closing shall not have been complied with
or performed at the time required for such compliance or performance and
such noncompliance or nonperformance shall not have been waived by the
Buyer.
SECTION 13.3 BY THE SELLER AND THE SHAREHOLDER. This Agreement may
be terminated written notice of termination given by the Seller and/or the
Shareholder to the Buyer if a material default shall be made by the Buyer
in the observance of or in the due and timely performance by the Buyer of
any agreements and covenants of the Buyer herein contained, or if there
shall have been a material breach by the Buyer of any of the warranties and
representations of the Buyer, or if the conditions of this Agreement to be
complied with or performed by the Buyer at or before Closing shall not have
been complied with or performed at the time required for such compliance or
performance and such noncompliance or nonperformance shall have not been
waived by the Seller.
ARTICLE XIV
INDEMNIFICATION
SECTION 14.1 GENERAL INDEMNITY. Subject to the overall limitations,
the minimum amounts and the time limitations set forth in this Agreement,
the Seller agrees that it will indemnify, defend and hold harmless the
Buyer and its respective successors and assigns (the "Buyer Indemnified
Parties") from and against all claims, damages, other liabilities, actions,
suits, proceedings, demands, assessments, adjustments, costs and expenses,
including reasonable attorneys' fees and expenses of investigation
(collectively, the "Damages"), incurred by any Buyer Indemnified Party as a
result of or incident to any breach of any representation, warranty,
covenant or agreement made by the Seller or the Shareholder or any of them
in this Agreement.
SECTION 14.2 NO INDEMNIFICATION FOR REPAIR OF FIXED ASSETS. The
Seller and the Shareholder will not be required to indemnify the Buyer for
any costs associated with the repair or maintenance of any Fixed Asset.
SECTION 14.3 ENVIRONMENTAL INDEMNIFICATION. Subject to the overall
limitations, the minimum amounts and the time limitations set forth in this
Agreement, with respect to any existing or potential liability arising out
of any condition, activity or event existing or occurring prior to the date
hereof with respect to any property comprising part of the Business for
which there is any material risk of liability to any governmental agency or
body or any other person or entity for the violation of any statute, rule,
regulation, ordinance or other law or for which there may be liability in
tort,
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or otherwise, and which is related to and arises out of a hazardous
environmental condition, the Seller agrees that it will indemnify, defend
and hold harmless the Buyer Indemnified Parties from and against all
claims, damages, actions, suits, proceeding, demands, assessments,
adjustments, costs, and expenses, including reasonable attorneys' fees and
expenses of investigation, incurred by any Buyer Indemnified Party as a
result of such hazerdous environmental condition and further including, if
necessary, the costs and expenses of any redemption, transportation,
incineration, treatment, or other necessary and appropriate disposition or
mitigation of such hazardous environmental condition.
SECTION 14.4 OTHER INDEMNIFICATION PROVISIONS. The foregoing
indemnification provisions are in addition to, and not in derogation of,
any statutory, equitable or common law remedy any party may have for breach
of representation, warranty, or covenant.
SECTION 14.5 THIRD-PARTY CLAIMS. In the event that the Buyer
desires to make a claim against the Seller under Section 14.1 or 14.3 in
connection with any action, suit, proceeding or demand at any time
instituted against, or made upon, the Buyer by any third party for which
the Buyer may seek indemnification hereunder (a "Third Party Claim"), the
Buyer shall promptly notify the Seller of such Third Party Claim and of the
Buyer's claim of indemnification with respect thereto; provided, however,
that no reasonable delay on the part of the Buyer in notifying the Seller
shall relieve the Seller from any obligation hereunder. The Seller shall
have thirty (30) days after receipt of such notice to notify the Buyer if
it has elected to assume the defense of such Third Party Claim. If the
Seller timely elects to assume the defense of such Third Party Claim, the
Seller shall be entitled at its own expense to conduct and control the
defense and settlement of such Third Party Claim through counsel of its own
choosing, provided that the Buyer may participate in the defense of such
Third Party Claim with its or their own counsel at its or their own
expense, and provided further that the Seller must conduct the defense of
the Third Party Claim actively and diligently in order to preserve its
rights in this regard. If the Seller fails to notify the Buyer within
thirty (30) days after receipt of the notice of a Third Party Claim, the
Buyer shall be entitled to assume the defense of such Third Party Claim
(and the Buyer need not consult with, or obtain the consent of the Seller)
and in the Buyer's sole discretion prosecute, litigate, settle and perform
such other actions as the Buyer may deem necessary in order fully to
protect the Buyer's interests, and the Seller will remain responsible for
indemnification of the Buyer to the full extent provided in this
Article XIV.
SECTION 14.6 LIMITATIONS OF LIABILITY. The Seller shall not be
required to indemnify the Buyer except to the extent that the aggregate
amount of Damages for which the Buyer is entitled to indemnification
hereunder exceeds Ten Thousand Dollars ($10,000.00) provided, however, that
such limit shall not in any way limit Buyer's common law or equitable
remedies or rights.
SECTION 14.7 CONTINUED OPERATION OF SELLER. The Shareholder
individually represents and warrants that following the Closing Date he
intends to carry on a business in the corporate entity of Seller and in
compliance with the restrictive covenants
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contained herein with the proceeds from the Closing. If the Seller
ceases to do business in the corporate entity; transfers, liquidates or
otherwise disposes of any Closing proceeds; makes, declares or pays any
extraordinary dividends; makes any other extraordinary distribution; or
increases in any excessive manner the compensation or fringe benefits of
any employee, officer, or director (all such events referred to hereafter
as a "Distribution"), to the extent of such Distribution, the Shareholder
agrees to indemnify the Buyer for any breach by the Seller of any
representation, warranty, covenant or agreement made by the Seller in
this Agreement to the extent that the Buyer is unable to recover damages
for such breach from the Seller as a result of such Distribution.
ARTICLE XV
ADDITIONAL AGREEMENTS AND COVENANTS
SECTION 15.1 BULK SALES COMPLIANCE. Buyer hereby waives compliance
by Seller with the provisions of any applicable bulk sales law, and the
parties acknowledge that such compliance shall not be a condition precedent
to the Closing. Furthermore, Seller warrants and agrees to pay and
discharge when due, and indemnify and hold Buyer fully harmless from, all
claims of creditors which could be asserted against Buyer by reason of such
noncompliance with any applicable bulk sales law.
SECTION 15.2 PRE-CLOSING COVENANTS.
15.2.1 NOTICES AND CONSENTS. The Seller will give any notices
to third parties, and will use its best efforts to obtain any third
party consents, that the Buyer may request in connection with the
matters referred to in Sections 7.6 and 7.13 above.
15.2.2 CONDUCT OF BUSINESS BY THE COMPANY PRIOR TO THE CLOSING
DATE. During the time period from the date of this Agreement to the
earlier of the Closing Date or the termination of this Agreement,
the Seller shall: (a) conduct its operations according to their
ordinary and usual course of business reasonably consistent with
past and current practices in light of the Seller's current
financial position and use its best efforts to maintain and preserve
its business organization and properties substantially intact,
employees and advantageous business relationships, and retain the
services of its officers and key employees and the Seller will not
engage in any practice, take any action, or enter into any
transaction outside the ordinary course of business. Without
limiting the generality of the foregoing, the Seller will not hold
any kind of liquidation or going out of business sale; (b) not incur
any indebtedness for borrowed money, or assume, guarantee, endorse
or otherwise as an accommodation, become responsible for the
obligations of any other individual or entity or make any loan or
advance other than in the ordinary course of business; (c) not sell,
transfer, mortgage, encumber or otherwise dispose of any of the
Seller's properties or Assets, or cancel, release or assign any
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indebtedness of the Seller or any claims held by the Seller, except in
the ordinary course of business or pursuant to contracts or agreements
in force at the date of this Agreement; (d) not make any investment
either by purchase of stock or securities, contributions to capital,
property transfers, or purchase of any property or assets of any other
individual, corporation or other entity, except for transactions in
the ordinary course of the Seller's business; (e) except for
transactions in the ordinary course of the Seller's business, not
enter into or terminate any contract or agreement, or make any change
in any of its leases or contracts, other than renewals of contracts
and leases without adverse changes of terms; (f) not increase in any
manner the compensation or fringe benefits of any of the Seller's
employees or officers or pay any pension or retirement allowance not
required by any existing plan or agreement, to any such employees or
officers, or become a party to, amend or commit itself to any pension,
retirement, profit-sharing or welfare benefit plan or agreement or
employment agreement with or for the benefit of any employee or
officer or other person other than payments consistent with past
practices and current incentive compensation plans; (g) not agree to,
or make any commitment to, take any of the actions prohibited by this
Section 15.2.2; (h) not settle any claim, action or proceeding
involving money damages, except in the ordinary course of business;
(i) not make any changes in the Articles of Incorporation or Bylaws of
the Seller; (j) not change its past practices in the acquisition and
sale of its used car inventory; or (k) not change its past practices
in the acquisition and sale of its new car inventory, including but
not limited to its past practices in the acquisition and sale of
conversion vans.
15.2.3 FULL ACCESS. Strictly subject to the provisions of
Section 12.4, the Seller will permit representatives of the Buyer to
have full access, at all reasonable times, and in a manner so as not
to interfere with the normal business operations of the Seller, to the
Seller's records and facilities. Seller will consent to an audit,
conducted under generally accepted auditing standards, of Seller's
financial statements for the years ended December 31, 1995 and
December 31 1994, which financial statements, including notes thereto,
have been prepared in accordance with the Chrysler Corporation
Standard Dealer Financial Statement practices. The audit will be
conducted by Buyer's accountants in conjunction with Seller's
accountants, O'Connor & Drew, Quincy, Massachusetts. The expense of
such audit, including the fees of the Seller's accountants, O'Connor &
Drew, shall be paid by Buyer by direct payment to O'Connor & Drew or
by reimbursement to Seller. In the event of reimbursement to Seller,
Buyer shall reimburse the full cost thereof to Seller at the time
fixed for Closing pursuant to Section 5. The amount of such direct
payment and/or reimbursement, as applicable, shall be the amount set
forth on the invoices of O'Connor & Drew, CPAs, which invoices shall
be provided to the Buyer. Seller understands that the accuracy and
completeness of the financial statements are the responsibility of
Seller and Seller will be required to provide written representation
as to the fair presentation of such financial statements . Seller
agrees to obtain the full cooperation of its officers, directors
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and employees to participate in such audits as requested by Buyer.
The start date for the above audits will be June 10, 1996. Seller's
accounting staff will assist in gathering information and providing
schedules and analyses in order to have this audit completed by
June 19, 1996.
15.2.4 NOTICE OF DEVELOPMENTS. The Seller will give prompt
written notice to the Buyer of any material adverse development
causing a breach of any of the representations and warranties above of
which the Seller has knowledge.
15.2.5 STANDSTILL. From the date hereof and through the date of
termination of this Agreement, the Seller shall not, directly or
indirectly, through any officer, director, agent or otherwise,
solicit, or initiate submission of any proposal or offer from any
person or entity (including any of their officers or employees)
relating to any liquidation, dissolution, recapitalization, merger,
consolidation or acquisition or purchase of all or a material portion
of the Assets of the Seller, or any equity interest in the Seller, or
participate in any negotiations regarding, or furnish to any other
person any information with respect to, or otherwise cooperate in any
manner with, or assist or participate in, facilitate or encourage, any
effort or attempt by any other person or entity to do or seek any of
the foregoing.
15.2.6 TECHNICAL ASSISTANCE. Both Buyer and Seller each agree
to use their best efforts to create a workable, smooth and orderly
transition between Seller's and Buyer's operation of the Business.
15.2.7 RISK OF LOSS. Risk of loss or damage by fire or other
casualty to the Assets before Closing is assumed by Seller. In the
event of a material loss or damage to the Assets, Buyer shall have the
option to terminate this Agreement.
15.2.8 HSR NOTIFICATION. Between the date of this Agreement and
the Closing Date, the parties shall, if and to the extent required by
law, file all reports or other documents required or requested by the
Federal Trade Commission ("FTC") or the United States Department of
Justice ("Justice Department") under the HSR Act, and all regulations
promulgated thereunder, concerning the transactions contemplated
hereby, and comply promptly with any requests by the FTC or Justice
Department for additional information concerning such transactions, so
that the waiting period specified in the HSR Act will expire as soon
as reasonably possible after the execution and delivery of this
Agreement. The parties agree to furnish to one another such
information concerning the Buyer, the Seller, the Shareholder and the
Business as the parties need to perform their obligations hereunder.
The Buyer agrees to pay all filing fees and costs due governmental
agencies with regard to HSR notification and compliance.
SECTION 15.3 Intellectual Property Rights.
15.3.1 THE LYNN HICKEY NAME AND THE COWBOY LOGO.
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15.3.1.a. The Seller and the Shareholder consent to the
Buyer's continued use of the Lynn Hickey Name and the Cowboy Logo
in connection with the operation of the Business within the area
of dominant influence, as such area is identified in the Oklahoma
City, Oklahoma Chrysler Corporation Dealer Sales and Service
Agreement between Chrysler and the Buyer and as reflected on
Schedule 12.1, the area of dominant influence hereafter referred
to as the "Territory." Buyer is not obligated to use the Lynn
Hickey Name or the Cowboy Logo. The parties acknowledge that the
Seller's television, radio and print advertisements aimed at the
Territory may also be broadcast or distributed outside the
Territory, but the Seller agrees such advertisements shall not be
a violation of this Agreement.
15.3.1.b. The Buyer's right to use the Cowboy Logo continues
only for so long as the Buyer also uses the Lynn Hickey Name.
15.3.1.c. For purposes of 21 Okla. Stat. 839.1-889.2, and
12 Okla. Stat. 1448-1449, the Shareholder consents to the use
by the Buyer of the Lynn Hickey Name in the Territory and agrees
that, after his death, this consent shall be binding on his
estate and his heirs for purposes of 21 Okla. Stat. 839.1-
889.2 and 12 Okla. Stat. 1448-1449.
15.3.1.d. No separate consideration is due by the Buyer
to the Seller or the Shareholder for this consent to use the Lynn
Hickey Name and the Cowboy Logo, over and above the Purchase
Price as set out in Article IV.
15.3.1.e. The Seller's consent to the Buyer's continued use
of the Lynn Hickey Name and the Cowboy Logo may be revoked by the
Seller only upon ninety (90) days written notice and only for
scandalous or immoral conduct on the part of the Buyer in
connection with the Buyer's use of the Lynn Hickey Name or
Buyer's operation of the Business. Conduct which violates
criminal or civil laws may be immoral or scandalous; however,
such conduct is not, as such, immoral and scandalous.
15.3.2 COPYRIGHTED MATERIALS. The Seller grants to the Buyer
an exclusive, irrevocable license in the Territory to exercise all
rights under copyright in all Copyrighted Materials in use by the
Seller relating to the operation and promotion of the Business, which
Copyrighted Materials include but are not limited to those identified
in Schedule 1.6. No separate consideration is due by the Buyer to the
Seller for this copyright license, over and above the Purchase Price
as set out in Article IV. The term of this license is the life of the
copyrights in the Copyright Materials.
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15.3.3 NO OTHER USES PERMITTED IN THE TERRITORY. Neither the
Shareholder nor the Seller will individually, collectively or in
conjunction with others, directly or indirectly, or through a
licensee, use the Lynn Hickey Name, the Cowboy Logo or the Copyrighted
Materials in the Territory for so long as the Buyer is using the Lynn
Hickey Name. The parties acknowledge that the Seller's television,
radio and print advertisements relating to its businesses outside the
Territory may also be broadcast or distributed inside the Territory,
but the Buyer agrees such advertisements shall not be a violation of
this Agreement.
15.3.4 TRADE NAME REPORTS. The Seller and the Buyer each
agrees to file with the Oklahoma Secretary of State within thirty (30)
days after the Closing a corporate trade name report containing the
consent of the other party. The parties mutually agree to take other
reasonable steps as from time to time may be appropriate to avoid
confusion and mistake by third parties as to their respective
corporate identities.
15.3.5. BINDING RIGHT. The Buyer's right to use the Lynn
Hickey Name, the Copyrighted Materials, and the other Intellectual
Property in the Territory shall be binding on the Seller as well as
the Shareholder and on all of their assignees, licensees, transferees
and successors in interest, and every such sale, assignment, license
or transfer entered into by either the Seller or the Shareholder shall
be expressly subject to the Buyer's continued right to use the Lynn
Hickey Name, the Copyrighted Materials, and the other Intellectual
Property in the Territory as provided in this Agreement.
15.3.6 TERMINATION. Other provisions hereof to the contrary
notwithstanding, Buyer's right to continued use of the Lynn Hickey
Name, the Cowboy Logo and the copyrighted materials shall absolutely
terminate on the first to occur of (1) the termination of this
Agreement; (2) the mutual agreement of the Seller and the Buyer after
Closing; (3) the termination of the Chrysler Corporation Dealer Sales
and Service Agreement between Chrysler and the Buyer; (4) the Buyer's
cessation of business in the Territory; or (5) as provided in Section
15.3.1.e. After termination of the Buyer's rights pursuant to this
Section 15.3.6, the Buyer shall be liable to the Seller for any
infringement of the Seller's Intellectual Property rights and shall be
subject to all equitable and legal remedies relating thereto,
including injunction and/or damages, or both, together with other
relief provided herein or by law.
15.3.7 BUYER'S HOLD HARMLESS AND INDEMNITY OF SELLER AND
SHAREHOLDER. The Buyer agrees to hold the Seller and the Shareholder,
jointly and severally, harmless and to fully and completely indemnify
them, and each of them, of, from and with respect to any and all loss,
damage or detriment of any kind, in any amount and at any time arising
by reason of the Buyer's wrongful use of the Intellectual Property and
the Intellectual Property rights subject hereto.
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SECTION 15.4 WASTE DISPOSAL. Seller agrees, at its sole cost, to
properly dispose of all pollutants, contaminants, or hazardous or toxic
materials or wastes accumulated by Seller prior to Closing and located on
any of the properties of the Business.
SECTION 15.5 WE OWES AND WORK IN PROCESS. Seller agrees to
reimburse Buyer for the cost of Seller's We Owes accumulated prior to
Closing and performed by the Buyer after Closing. "We Owes" is a term of
art in the automobile dealer industry and its meaning for purposes of this
Agreement shall be the same as it is used in such industry. Buyer agrees
to pay Seller for its Work In Process accumulated prior to Closing.
SECTION 15.6 RETURN RESERVE. Seller agrees to assign and transfer
its parts and accessories return reserve to the Buyer and allow Buyer to
participate in such return reserve accumulated prior to Closing.
SECTION 15.7 BILLED WEEK. The parties will cooperate on transfer of
in-bound units prior to Closing to properly reflect the billed week
associated with either Buyer or Seller, as appropriate, using Chrysler's
related dealer codes.
SECTION 15.8 UTILITY AND TELEPHONE SERVICE. Seller agrees to sign
over all utility and telephone services, including telephone number, to
Buyer once Closing becomes eminent. Seller agrees to allow Buyer to assume
all utility and telephone deposits except that all refundable deposits
shall remain the property of the Seller. Seller agrees to use its best
efforts to assure that there will be no breaks or discontinuances of any
utility or telephone services upon Closing.
SECTION 15.9 EMPLOYEE LIST. Seller agrees to provide, at least 30
days prior to Closing, a list of all employees of the Seller. Such list
shall contain the employee's name, employment description, annual
compensation or formula for computing such annual compensation, accrued
vacation and tentative vacation plans.
SECTION 15.10 WALK THROUGH. Prior to Closing, Seller agrees to
allow an agent of the Buyer access to the Business premises and all
facilities thereon for the purpose of observing the Fixed Assets reflected
on Schedule 1.1 and the Heavy Line Shop equipment.
SECTION 15.11 USED CAR INVENTORY. Seller agrees to continue its
ordinary course of business and past practices in selling its used car
inventory up to the Closing Date, and agrees not to sell a substantial
portion of its best used cars in contemplation of Closing. The parties
agree to negotiate in good faith on the purchase of the used car inventory.
SECTION 15.12 ADDITIONAL AGREEMENTS ON VEHICLES. Buyer agrees to
(a) provide Shareholder personally and his wife one demonstrator vehicle
each, per year; and (b) the right to purchase five (5) vehicles (including
trucks) from the Buyer on a net,
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net basis each year and which can also be financed at Buyer's net cost;
each year for so long as Buyer has the right to use the Lynn Hickey Name.
SECTION 15.13 COMMISSIONS. For any vehicle Lynn Hickey sells, Lynn
Hickey shall be compensated on a fleet manager basis for such sale.
ARTICLE XVI
GENERAL PROVISIONS
SECTION 16.1 ENTIRE AGREEMENT. This Agreement contains and
constitutes the entire agreement between the parties regarding the subject
matter hereof and supersedes all prior agreements and understandings
between the parties relating to the subject matter of this Agreement.
There are no agreements, understandings, restrictions, warranties or
representations between the parties relating to the subject matter hereof
other than those set forth in this Agreement. All exhibits and schedules
attached to this Agreement are hereby incorporated into this Agreement and
made a part of this Agreement by reference. This instrument is not
intended to have any legal effect whatsoever, or to be a legally binding
agreement, or any evidence thereof, until it has been signed by the Seller,
the Shareholder and the Buyer.
SECTION 16.2 THIRD-PARTY CONSENTS. The Seller and the Buyer
mutually agree to cooperate and use their respective best efforts to
prepare all documentation, to effect all filings and to obtain all permits,
consents, approvals and authorizations of all third parties and
governmental bodies as may be necessary to consummate the transactions
contemplated by this Agreement.
SECTION 16.3 FURTHER ACTIONS. From time to time, as and when
requested by any party hereto, the other party shall execute and deliver,
or cause to be executed and delivered, all such documents and instruments
and shall take, or cause to be taken, all such further or other actions as
such other party may reasonably deem necessary or desirable to consummate
the transactions contemplated by this Agreement.
SECTION 16.4 PUBLICITY. The parties hereto agree that no public
release or announcement concerning the terms of the transaction
contemplated by this Agreement shall be issued by any party without the
prior written consent of the other parties (which consent shall not
unreasonably be withheld), except as such release or announcement may be
required by law, in which case the party required to make the release or
announcement shall allow the other parties reasonable time to comment on
such release or announcement in advance of such issuance.
SECTION 16.5 SALES AND TRANSFER TAXES. All sales and transfer
taxes, if any, incurred in connection with transfer of the Assets
contemplated hereby shall be borne by the Buyer.
<PAGE>
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SECTION 16.6 AMENDMENT. This Agreement may not be amended,
modified or terminated except by an instrument in writing signed by all the
parties to this Agreement.
SECTION 16.7 GOVERNING LAW. This Agreement shall be construed,
enforced and governed in accordance with the laws of the State of Oklahoma.
SECTION 16.8 CONSTRUCTION. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter gender
thereof or to the plurals of each, as the identity of the person or persons
or the context may require. The descriptive headings contained in this
Agreement are for reference purposes only and are not intended to describe,
interpret, define or limit the scope, extent or intent of this Agreement or
any provision contained in this Agreement.
SECTION 16.9 INVALIDITY. If any provision contained in this
Agreement shall for any reason be held to be invalid, illegal, void or
unenforceable in any respect, such provision shall be deemed modified so as
to constitute a provision conforming as nearly as possible to such invalid,
illegal, void or unenforceable provision while still remaining valid and
enforceable; and the remaining terms or provisions contained herein shall
not be affected thereby.
SECTION 16.1 0 BINDING EFFECT AND ASSIGNMENT. This Agreement
shall be binding upon, and inure to the benefit of, the parties and their
respective legal representatives, successors, and permitted assigns. Only
with the prior written consent of the Seller, which consent will not be
unreasonably denied, the Buyer may assign its rights under this Agreement
to a related entity, and the Buyer and its assignee shall be fully
obligated, responsible and liable for performance of the Buyer's
obligations hereunder regardless of any such assignment. The Seller and
the Shareholder may not assign any of their rights or delegate any of their
obligations hereunder. Any assignment in violation hereof shall be void.
SECTION 16.11 ATTORNEYS' FEES. In the event any party institutes
litigation to enforce or protect its rights under this Agreement, the party
prevailing in any such litigation shall be entitled, in addition to all
other relief, to reasonable attorneys' fees, out-of-pocket costs and
disbursements relating to such litigation.
SECTION 16.12 NOTICES. All notices and other communications
hereunder shall be in writing, dated with the current date of such notice
and signed by the party giving such notice. Notices shall be deemed to be
duly received (a) on the date given or delivered personally or by cable,
telecopy or telex, or (b) on the earlier of the date received or three
business days after proven mailing, when mailed by registered or certified
mail (return receipt requested), to the parties at the following addresses
(or at such other address for a party as shall be specified by like
notice):
<PAGE>
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if to Buyer:
Cross Country Dodge, Inc.
c/o Cross Country Auto Retailers, Inc.
1201 South Taylor Street
P.O. Box 750
Amarillo, TX 79105-0750
Attn: Emmett M. Rice, Jr.
with a copy to:
N. Martin Stringer, Esq.
McKinney, Stringer & Webster, P.C.
101 North Broadway, Suite 800
Oklahoma City, OK 73102
if to Seller:
Lynn Hickey Dodge, Inc.
4025 N. May Avenue
Oklahoma City, OK 73112
Attn: Lynn Hickey
if to Shareholder:
Lynn Hickey
3001 Northwest Expressway
Oklahoma City, OK 73112
with a copy to:
Fredric H. Wright, Esq.
Wright & Edwards
2200 Classen, Suite 450
Oklahoma City, OK 73106
SECTION 16.13 DEFINITION OF KNOWLEDGE. As used in this Agreement,
"knowledge" is deemed to be limited to the knowledge of the Shareholder or
the Seller or the key management employees of the Business.
SECTION 16.14 EXPENSES. Whether or not the transactions
contemplated hereby are consummated, each of the parties to this Agreement
shall be responsible for his or its own costs and expenses incurred in
connection with the preparation and negotiation of this Agreement and the
transactions contemplated hereby.
SECTION 16.15 TIME IS OF THE ESSENCE. Time shall be of the essence
with respect to this Agreement and the consummation of the transactions
contemplated hereby.
<PAGE>
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SECTION 16.16 WAIVER. No waiver of any breach or default hereunder
shall be considered valid unless in writing and signed by the party giving
such waiver, and no such waiver shall be deemed a waiver of any subsequent
breach or default of the same or similar nature.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
"BUYER": CROSS COUNTRY DODGE, INC.,
an Oklahoma corporation
ATTEST:
By: /s/ Bill Gilliland
- ------------------------------ --------------------------
WITNESS Bill Gilliland, President
"SELLER": LYNN HICKEY DODGE, INC.,
an Oklahoma corporation
ATTEST:
By: /s/ Lynn Hickey
- ------------------------------ --------------------------
WITNESS Lynn Hickey, President
"SHAREHOLDER":
ATTEST:
/s/ Lynn Hickey
- ------------------------------ --------------------------
WITNESS Lynn Hickey, an individual
<PAGE>
LIST OF EXHIBITS
ASSET PURCHASE AGREEMENT
EXHIBIT 4.1 ESCROW AGREEMENT
EXHIBIT 4.3 WARRANT CERTIFICATE
EXHIBIT 6.1.1 WARRANTY BILL OF SALE
EXHIBIT 6.1.4 ASSIGNMENT AND ASSUMPTION
AGREEMENT
EXHIBIT 6.1.5 CERTIFICATE OF SELLER
EXHIBIT 6.2.6 CERTIFICATE OF BUYER
EXHIBIT 6.2.7 GUARANTY AGREEMENT
EXHIBIT 9.8 OPINION OF SELLER'S COUNSEL
<PAGE>
LIST OF SCHEDULES
ASSET PURCHASE AGREEMENT
SCHEDULE 1.1 FIXED ASSETS
SCHEDULE 1.1.1 SPECIAL TOOLS INVENTORY
SCHEDULE 1.6 INTELLECTUAL PROPERTY
SCHEDULE 1.8 CONTRACTS
SCHEDULE 3 ASSUMED LIABILITIES
SCHEDULE 4.5 ALLOCATION OF PURCHASE PRICE
SCHEDULE 7.4 FINANCIAL STATEMENTS
SCHEDULE 7.5 ENCUMBERANCES ON TITLE
SCHEDULE 7.6 LICENSES AND PERMITS
SCHEDULE 7.8 CONTRACTS WITH ADVERSE
RESTRICTIONS
SCHEDULE 7.9 LITIGATION AND OTHER
PROCEEDINGS
SCHEDULE 7.11 EMPLOYMENT CONTRACTS AND
EMPLOYEE BENEFIT PLANS
SCHEDULE 7.13 CONSENTS TO CONSUMATION
SCHEDULE 7.14 PERSONNEL LISTS
SCHEDULE 7.18 BORROWED MONIES
SCHEDULE 7.21 CHANGES IN BUSINESS OPERATIONS
SCHEDULE 12.1 AREA OF DOMINANT INFLUENCE
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CROSS-CONTINENT AUTO RETAILERS, INC.
1. The name of the Corporation is Cross-Continent Auto Retailers, Inc.
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. (a) The total number of shares of stock which the Corporation shall
have the authority to issue is 110,000,000 shares of capital stock, classified
as 100,000,000 shares of common stock, par value $.01 per share, and 10,000,000
shares of preferred stock, par value $.01 per share.
(b) PREFERRED STOCK.
(i) The Preferred Stock may be issued from time to time in one
or more classes or series, the shares of each class or series to have such
designations and powers, preferences and rights, and qualifications,
limitations and restrictions thereof, as are stated and expressed herein
and in the resolution or resolutions providing for the issue of such class
or series adopted by the board of directors of the Corporation as hereafter
prescribed.
(ii) Authority is hereby expressly granted to and vested in the
board of directors of the Corporation to authorize the issuance of the
Preferred Stock from time to time in one or more classes or series and,
with respect to each class or series of the Preferred Stock, to fix and
state, by the resolution or resolutions from time to time adopted providing
for the issuance thereof, the following:
(A) whether or not the class or series is to have voting
rights, full, special, or limited, or is to be without voting rights, and
whether or not such class or series is to be entitled to vote as a separate
class either alone or together with the holders of one or more other
classes or series of stock;
(B) the number of shares to constitute the class or series
and the designations thereof;
<PAGE>
(C) the preferences, and relative participating, optional,
or other special rights, if any, and the qualifications, limitations, or
restrictions thereof, if any, with respect to any class or series;
(D) whether or not the shares of any class or series shall
be redeemable at the option of the Corporation or the holders thereof or
upon the happening of any specified event, and, if redeemable, the
redemption price or prices (which may be payable in the form of cash,
notes, securities, or other property), and the time or times at which, and
the terms and conditions upon which, such shares shall be redeemable and
the manner of redemption;
(E) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied to
the purchase or redemption of such shares for retirement, and, if such
retirement or sinking fund or funds are to be established, the annual
amount thereof, and the terms and provisions relative to the operation
thereof;
(F) the dividend rate, whether dividends are payable in
cash, stock of the Corporation, or other property, the conditions upon
which and the times when such dividends are payable, the preference to or
the relation to the payment of dividends payable on any other class or
classes or series of stock, whether or not such dividends shall be
cumulative or noncumulative, and if cumulative, the date or dates from
which such dividends shall accumulate;
(G) the preferences, if any, and the amounts thereof which
the holders of any class or series thereof shall be entitled to receive
upon the voluntary or involuntary liquidation, dissolution, or winding-up
of, or upon any distribution of the assets of, the Corporation;
(H) whether or not the shares of any class or series, at
the option of the Corporation or the holder thereof or upon the happening
of any specified event, shall be convertible into or exchangeable for, the
shares of any other class or classes or of any other series of the same or
any other class or classes of stock, securities, or other property of the
Corporation and the conversion price or prices or ratio or ratios or the
rate or rates at which such exchange may be made, with such adjustments, if
any, as shall be stated and expressed or provided for in such resolution or
resolutions; and
(I) such other special rights and protective provisions
with respect to any class or series as may to the board of directors of the
Corporation seem advisable.
(iii) The shares of each class or series of the Preferred
Stock may vary from the shares of any other class or series thereof in any
or all of the foregoing
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<PAGE>
respects. The board of directors of the Corporation may increase the
number of shares of the Preferred Stock designated for any existing class
or series by a resolution adding to such class or series authorized and
unissued shares of the Preferred Stock not designated for any other class
or series. The board of directors of the Corporation may decrease the
number of shares of the Preferred Stock designated for any existing class
or series by a resolution subtracting from such class or series authorized
and unissued shares of the Preferred Stock designated for such existing
class or series, and the shares so subtracted shall become authorized,
unissued, and undesignated shares of the Preferred Stock.
5. (a) The directors, other than those who may be elected by the holders
of any class or series of Preferred Stock, shall be divided into three classes,
as nearly equal in number as possible. One class of directors shall be
initially elected for a term expiring at the annual meeting of stockholders to
be held in 1997, another class shall be initially elected for a term expiring at
the annual meeting of stockholders to be held in 1998, and another class shall
be initially elected for a term expiring at the annual meeting of stockholders
to be held in 1999. Members of each class shall hold office until the earliest
of (i) their successors being elected and qualified, (ii) their resignation or
removal or (iii) if such directors are, or simultaneously become, employees of
the Corporation or any subsidiary thereof at the time they are elected and
qualified as directors of the Corporation, then until the termination (for any
reason) of such employment. At each succeeding annual meeting of the
stockholders of the Corporation, the successors of the class of directors whose
term expires at that meeting shall be elected by a majority of all votes cast at
such meeting to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
Election of directors need not be by written ballot.
(b) Any director or the entire Board of Directors may be removed, but
only for cause, and only by the affirmative vote of the holders of at least a
majority of the shares then entitled to vote at an election of directors (the
"Voting Shares"), voting together as a single class.
(c) The affirmative vote of the holders of at least two-thirds of the
Voting Shares, voting together as a single class, shall be required to amend or
repeal this Section 5 or adopt any provision inconsistent herewith.
6. The Board of Directors is authorized to make, alter or repeal the
by-laws of the Corporation.
7. Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in
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<PAGE>
dissolution or of any receiver or receivers appointed for the Corporation
under the provisions of Section 279 of Title 8 of the Delaware Code order a
meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of the Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
8. No director shall have any personal liability to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director. However, this provision does not eliminate or limit the liability of
a director (a) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the General Corporation Law of Delaware or (d) for any
transaction from which the director derived an improper personal benefit. If
the General Corporation Law of Delaware is amended after the effective date of
this Certificate of Incorporation to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of this Corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law of Delaware, as so amended. Any
repeal or modification of this Section either (i) by the stockholders of this
Corporation or (ii) by an amendment to the General Corporation Law of Delaware
(unless such statutory amendment specifically provides to the contrary) shall
not adversely affect any right or protection, existing at the time of such
repeal or modification with respect to any acts or omissions occurring either
before or after such repeal or modification, of a person serving as a director
at the time of such repeal or modification.
9. No action required or permitted to be taken at any meeting of the
holders of the common stock of the Corporation may be taken without such
meeting, the giving of prior notice or the taking of a vote. The power of the
holders of the common stock of the Corporation to consent, in writing or
otherwise, to the taking of any action without such meeting, notice and vote is
specifically denied.
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<PAGE>
AMENDED AND RESTATED
BY-LAWS
OF
CROSS-CONTINENT AUTO RETAILERS, INC.
ARTICLE I
STOCKHOLDERS
Section 1.1. ANNUAL MEETINGS. An annual meeting of stockholders shall
be held for the election of directors at such date, time and place either within
or without the State of Delaware as may be designated by the Board of Directors
from time to time. Any other proper business may be transacted at the annual
meeting.
Section 1.2. SPECIAL MEETINGS. Special meetings of stockholders may
be called at any time by the Chairman of the Board, if any, a Vice Chairman of
the Board, if any, the President or the Board of Directors, to be held at such
date, time and place either within or without the State of Delaware as may be
stated in the notice of the meeting.
Section 1.3. NOTICE OF MEETINGS. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise provided by law, the written notice of any meeting
shall be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address as it
appears on the records of the Corporation.
Section 1.4. ADJOURNMENTS. Any meeting of stockholders, annual or
special, may be adjourned from time to time, to reconvene at the same or some
other place, and notice need not be given of any such adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting, the Corporation may transact any business
which might have been transacted at the original meeting. If the adjournment is
for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 1.5. QUORUM. At each meeting of stockholders, except where
otherwise provided by law or the certificate of incorporation or these by-laws,
the holders of a majority of the outstanding shares of stock entitled to vote on
a matter at the meeting, present in person or represented by proxy, shall
constitute a quorum. For purposes of the foregoing, where a separate vote by
class or classes is required for any matter, the holders of
<PAGE>
a majority of the outstanding shares of such class or classes, present in person
or represented by proxy, shall constitute a quorum to take action with respect
to that vote on that matter. Two or more classes or series of stock shall be
considered a single class if the holders thereof are entitled to vote together
as a single class at the meeting. In the absence of a quorum of the holders of
any class of stock entitled to vote on a matter, the holders of such class so
present or represented may, by majority vote, adjourn the meeting of such class
from time to time in the manner provided by Section 1.4 of these by-laws until a
quorum of such class shall be so present or represented. Shares of its own
capital stock belonging on the record date for the meeting to the Corporation or
to another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or indirectly,
by the Corporation, shall neither be entitled to vote nor be counted for quorum
purposes; PROVIDED, that the foregoing shall not limit the right of the
Corporation to vote stock, including but not limited to its own stock, held by
it in a fiduciary capacity.
Section 1.6. ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board if any, or in the absence of the Chairman of
the Board by a Vice Chairman of the Board, if any, or in the absence of a Vice
Chairman of the Board by the President, or in the absence of the President by a
Vice President, or in the absence of the foregoing persons by a chairman
designated by the Board of Directors, or in the absence of such designation by a
chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 1.7. VOTING; PROXIES. Unless otherwise provided in the
certificate of incorporation, each stockholder entitled to vote at any meeting
of stockholders shall be entitled to one vote for each share of stock held by
such stockholder which has voting power upon the matter in question. If the
certificate of incorporation provides for more or less than one vote for any
share on any matter, every reference in these by-laws to a majority or other
proportion of stock shall refer to such majority or other proportion of the
votes of such stock.
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for such stockholder by proxy, but no
such proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as, it
is coupled with an interest sufficient in law to support an irrevocable power,
regardless of whether the interest with which it is coupled is an interest in
the stock itself or an interest in the Corporation generally. A stockholder may
revoke any proxy which is not irrevocable by attending the meeting and voting in
person or by filing with the Secretary of the Corporation an instrument in
writing revoking the proxy or another duly executed proxy bearing a later date.
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<PAGE>
Voting at meetings of stockholders need not be by written ballot and
need not be conducted by inspectors unless the holders of a majority of the
outstanding shares of all classes of stock entitled to vote thereon present in
person or represented by proxy at such meeting shall so determine. Except as
provided in Section 2.2 of these by-laws, directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. In all other
matters, unless otherwise provided by law or by the certificate of incorporation
or these by-laws, the affirmative vote of the holders of a majority of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the subject matter shall be the act of the stockholders. Where a
separate vote by class or classes is required, the affirmative vote of the
holders of a majority of the shares of such class or classes present in person
or represented by proxy at the meeting shall be the act of such class, except as
otherwise provided by law or by the certificate of incorporation or these by-
laws.
Section 1.8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than sixty nor less
than ten days before the date of such meeting. If no record date is fixed by
the Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; PROVIDED, that the Board of Directors may fix a new
record date for the adjourned meeting.
In order that the Corporation may determine the stockholders entitled
to receive payment of any dividend or other distribution or allotment of any
rights or the stockholders entitled to exercise any rights in respect of any
change, conversion or exchange of stock, or for the purpose of any other lawful
action, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than sixty days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
Section 1.9. LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days
-3-
<PAGE>
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting, or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. POWERS; NUMBER; QUALIFICATIONS. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors, except as may be otherwise provided by law or in the certificate of
incorporation. The Board of Directors shall consist of three or more members,
the number thereof to be determined from time to time by the Board. Directors
need not be stockholders.
Section 2.2. ELECTION; TERM OF OFFICE; VACANCIES. Each director shall
hold office until the earliest of (i) his or her successor being elected and
qualified, (ii) his or her resignation or removal or (iii) if such director is,
or simultaneously becomes, an employee of the Corporation or any subsidiary
thereof at the time he or she is elected and qualified as a director of the
Corporation, then until the termination (for any reason) of such employment.
Unless otherwise provided in the certificate of incorporation or these by-laws,
vacancies and newly created directorships resulting from any increase in the
authorized number of directors or from any other cause may be filled by a
majority of the directors then in office, although less than a quorum, or by the
sole remaining director. Whenever the holders of any class or classes of stock
or series thereof are entitled to elect one or more directors by the certificate
of incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, or by the sole remaining
director so elected.
Section 2.3. RESIGNATION; REMOVAL. Any director may resign at any
time upon written notice to the Board of Directors or to the President or the
Secretary of the Corporation. Such resignation shall take effect at the time
specified therein, and unless otherwise specified therein no acceptance of such
resignation shall be necessary to make it effective. Any director or the entire
Board of Directors may be removed from office at any time, but only for cause,
by the holders of a majority of the shares then entitled to vote at an election
of directors. Whenever the holders of any class or series of stock are entitled
to elect one or more directors by the certificate of incorporation, such
director or directors may be removed with or without cause by the holders of a
majority of the outstanding shares of that class or series, without respect to
any vote of the outstanding shares as a whole.
Section 2.4. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at such places within or without the State of Delaware and
at such times as the
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<PAGE>
Board may from time to time determine, and if so determined notice thereof need
not be given.
Section 2.5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, if any, by a Vice
Chairman of the Board, if any, by the President or by any two directors.
Reasonable notice thereof shall be given by the person or persons calling the
meeting.
Section 2.6. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE
PERMITTED. Unless otherwise restricted by the certificate of incorporation or
these by-laws, members of the Board of Directors, or any committee designated by
the Board, may participate in a meeting of the Board or of such committee, as
the case may be, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
Section 2.7. QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the
Board of Directors a majority of the entire Board shall constitute a quorum for
the transaction of business. The vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board unless the
certificate of incorporation or these by-laws shall require a vote of a greater
number. In case at any meeting of the Board a quorum shall not be present, the
members of the Board present may adjourn the meeting until a quorum shall be
present.
Section 2.8. ORGANIZATION. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board, if any, or in the absence of the
Chairman of the Board by a Vice Chairman of the Board, if any, or in the absence
of a Vice Chairman of the Board by the President, or in their absence by a
chairman chosen at the meeting. The Secretary, or in the absence of the
Secretary an Assistant Secretary, shall act as secretary of the meeting, but in
the absence of the Secretary and any Assistant Secretary the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 2.9. ACTION BY DIRECTORS WITHOUT A MEETING. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of Directors, or
of any committee thereof, may be taken without a meeting if all members of the
Board or of such committee, as the case may be, consent thereto in writing, and
the writing or writings are filed with the minutes of proceedings of the Board
or committee.
Section 2.10. COMPENSATION OF DIRECTORS. Unless otherwise restricted
by the certificate of incorporation or these by-laws, the Board of Directors
shall have the authority to fix the compensation of directors.
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ARTICLE III
COMMITTEES
Section 3.1. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation, except
that the Board of Directors may not form an executive committee without the
unanimous consent of the Board of Directors, which consent shall specify the
members of the proposed executive committee and limitations, if any, over the
authority of the executive committee. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in the place of any such absent or disqualified
member. Any such committee, to the extent provided in the resolution of the
Board of Directors or in these by-laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority to (1) amend the certificate of incorporation (except
that a committee may, to the extent authorized in the resolution or resolutions
providing for the issuance of shares of stock adopted by the Board of Directors,
fix the designations and any of the preferences or rights of such shares
relating to dividends, redemption, dissolution, any distribution of assets of
the Corporation or the conversion into, or the exchange of such shares for,
shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), (2) adopt an agreement of merger or consolidation, (3) recommend to
the stockholders the sale, lease or exchange of all or substantially all of the
Corporation's property and assets, (4) recommend to the stockholders a
dissolution of the Corporation or a revocation of a dissolution, removing or
indemnifying directors or amending these by-laws or (5) unless the resolution,
these by-laws or the certificate of incorporation expressly so provides, declare
a dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger.
Section 3.2. COMMITTEE RULES. Unless the Board of Directors otherwise
provides, each committee designated by the Board may adopt, amend and repeal
rules for the conduct of its business. In the absence of a provision by the
Board or a provision in the rules of such committee to the contrary, a majority
of the entire authorized number of members of such committee shall constitute a
quorum for the transaction of business, the vote of a majority of the members
present at a meeting at the time of such vote if a quorum is then present shall
be the act of such committee, and in other respects each committee shall conduct
its business in the same manner as the Board conducts its business pursuant to
Article II of these bylaws.
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ARTICLE IV
OFFICERS
Section 4.1. OFFICERS; ELECTION. As soon as practicable after the
annual meeting of stockholders in each year, the Board of Directors shall elect
a President and a Secretary, and it may, if it so determines, elect from among
its members a Chairman of the Board and one or more Vice Chairmen of the Board.
The Board may also elect one or more Vice Presidents, one or more Assistant Vice
Presidents, one or more Assistant Secretaries, a Treasurer and one or more
Assistant Treasurers and such other officers as the Board may deem desirable or
appropriate and may give any of them such further designations or alternate
titles as it considers desirable. Any number of offices may be held by the same
person unless the certificate of incorporation or these bylaws otherwise
provide.
Section 4.2. TERM OF OFFICE; RESIGNATION; REMOVAL; VACANCIES. Unless
otherwise provided in the resolution of the Board of Directors electing any
officer, each officer shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal. Any officer
may resign at any time upon written notice to the Board or to the President or
the Secretary of the Corporation. Such resignation shall take effect at the
time specified therein, and unless otherwise specified therein no acceptance of
such resignation shall be necessary to make it effective. The Board may remove
any officer with or without cause at any time. Any such removal shall be
without prejudice to the contractual rights of such officer, if any, with the
Corporation, but the election of an officer shall not of itself create
contractual rights. Any vacancy occurring in any office of the Corporation by
death, resignation, removal or otherwise may be filled by the Board at any
regular or special meeting.
Section 4.3. POWERS AND DUTIES. The officers of the Corporation shall
have such powers and duties in the management of the Corporation as shall be
stated in these by-laws or in a resolution of the Board of Directors which is
not inconsistent with these by-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board.
Section 4.4. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
any, shall preside at all meetings of the Board of Directors and of the
stockholders at which he or she shall be present and shall have and may exercise
such powers as may, from time to time, be assigned to him or her by the Board or
as may be provided by law.
Section 4.5. VICE CHAIRMEN OF THE BOARD. In the absence of the
Chairman of the Board, a Vice Chairman of the Board shall preside at all
meetings of the Board of Directors and of the stockholders at which he or she
shall be present. If there be more than one Vice Chairman, the Board of
Directors may determine which one of the Vice Chairmen
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shall so preside, or, if such determination is not made by the Board, any of the
Vice Chairmen may preside. The Vice Chairman or Vice Chairmen shall exercise
such powers as may, from time to time, be assigned to him or her by the Board or
as may be provided by law.
Section 4.6. PRESIDENT. In the absence of the Chairman of the Board
and a Vice Chairman of the Board, the President shall preside at all meetings of
the Board of Directors and of the stockholders at which he or she shall be
present. The President shall be the chief executive officer and shall have
general charge and supervision of the business of the Corporation and, in
general, shall perform all duties incident to the office of president of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or as may be provided by law.
Section 4.7. VICE PRESIDENTS. The Vice President or Vice Presidents,
at the request or in the absence of the President or during the President's
inability to act, shall perform the duties of the President, and when so acting
shall have the powers of the President. If there be more than one Vice
President, the Board of Directors may determine which one or more of the Vice
Presidents shall perform any of such duties; or if such determination is not
made by the Board, the President may make such determination; otherwise any of
the Vice Presidents may perform any of such duties. The Vice President or Vice
Presidents shall have such other powers and shall perform such other duties as
may, from time to time, be assigned to him or her or them by the Board or the
President or as may be provided by law.
Section 4.8. SECRETARY. The Secretary shall have the duty to record
the proceedings of the meetings of the stockholders, the Board of Directors and
any committees in a book to be kept for that purpose, shall see that all notices
are duly given in accordance with the provisions of these by-laws or as required
by law, shall be custodian of the records of the Corporation, may affix the
corporate seal to any document the execution of which, on behalf of the
Corporation, is duly authorized, and when so affixed may attest the same, and,
in general, shall perform all duties incident to the office of secretary of a
corporation and such other duties as may, from time to time, be assigned to him
or her by the Board or the President or as may be provided by law.
Section 4.9. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation and shall deposit or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by or under
authority of the Board of Directors. If required by the Board, the Treasurer
shall give a bond for the faithful discharge of his or her duties, with such
surety or sureties as the Board may determine. The Treasurer shall keep or
cause to be kept full and accurate records of all receipts and disbursements in
books of the Corporation, shall render to the President and to the Board,
whenever requested, an account of the financial condition of the Corporation,
and, in general, shall perform all the duties incident to the office of
treasurer of
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a corporation and such other duties as may, from time to time, be assigned to
him or her by the Board or the President or as may be provided by law.
Section 4.10. OTHER OFFICERS. The other officers, if any, of the
Corporation shall have such powers and duties in the management of the
Corporation as shall be stated in a resolution of the Board of Directors which
is not inconsistent with these by-laws and, to the extent not so stated, as
generally pertain to their respective offices, subject to the control of the
Board. The Board may require any officer, agent or employee to give security
for the faithful performance of his or her duties.
Section 4.11. FIDELITY BONDS. If required by the Board of Directors,
any officer shall give the Corporation a bond in a sum and with one or more
sureties satisfactory to the Board, for the faithful performance of the duties
of his or her office, and for the restoration to the Corporation, in case of his
or her death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in his or her
possession or under his or her control belonging to the Corporation.
ARTICLE V
STOCK
Section 5.1. CERTIFICATES. Every holder of stock in the Corporation
shall be entitled to have a certificate signed by or in the name of the
Corporation by the Chairman or a Vice Chairman of the Board of Directors, if
any, or the President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the Corporation,
representing the number of shares of stock in the Corporation owned by such
holder. If such certificate is manually signed by one officer or manually
countersigned by a transfer agent or by a registrar, any other signature on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue.
Each certificate representing shares shall state upon the face thereof
that the Corporation is formed under the laws of the State of Delaware, the name
of the person or persons to whom such shares have been issued and the number and
class of such shares, and the designation of the class or series, if any, which
such certificate represents.
If the Corporation is authorized to issue more than one class of stock
or more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate which the Corporation shall issue to represent such class or
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<PAGE>
series of stock; PROVIDED, that, except as otherwise provided by law, in lieu of
the foregoing requirements, there may be set forth on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 5.2. LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES. The Corporation may issue a new certificate of stock in the
place of any certificate theretofore issued by it, alleged to have been lost,
stolen or destroyed, and the Corporation may require the owner of the lost,
stolen or destroyed certificate, or such owner's legal representative, to give
the Corporation a bond sufficient to indemnify it against any claim that may be
made against it on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
Section 5.3. TRANSFERS OF STOCK. Transfers of stock shall be made on
the books of the Corporation only by the person named in the certificate or by
his attorney, lawfully constituted in writing, and upon surrender of the
certificate therefor, together with such evidence of the payment of transfer
taxes and compliance with other provisions of law as the Corporation or its
transfer agent may require.
Section 5.4. REGISTERED STOCKHOLDERS. The Corporation may treat the
holder of record of any share or shares of stock as the holder thereof, and
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have express
or other notice thereof, save as expressly provided by the laws of Delaware.
ARTICLE VI
MISCELLANEOUS
Section 6.1. FISCAL YEAR. The fiscal year of the Corporation shall be
determined by the Board of Directors.
Section 6.2. SEAL. The Corporation may have a corporate seal which
shall have the name of the Corporation inscribed thereon and shall be in such
form as may be approved from time to time by the Board of Directors. The
corporate seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced.
Section 6.3. WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS
AND COMMITTEES. Whenever notice is required to be given by law or under any
provision of the certificate of incorporation or these by-laws, a written waiver
thereof, signed by the person
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<PAGE>
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice unless
so required by the certificate of incorporation or these by-laws.
Section 6.4. INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES.
The Corporation shall indemnify to the full extent permitted by law any person
made or threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of the fact that
such person or such person's testator or intestate is or was a director, officer
or employee of the Corporation or serves or served at the request of the
Corporation any other enterprise as a director, officer or employee. Expenses
incurred by any such person in defending any such action, suit or proceeding
shall be paid or reimbursed by the Corporation promptly upon receipt by it of an
undertaking of such person to repay such expenses if it shall ultimately be
determined that such person is not entitled to be indemnified by the
Corporation. The rights provided to any person by this by-law shall be
enforceable against the Corporation by such person who shall be presumed to have
relied upon it in serving or continuing to serve as a director, officer or
employee as provided above. No amendment of this by-law shall impair the rights
of any person arising at any time with respect to events occurring prior to such
amendment. For purposes of this by-law, the term "Corporation" shall include
any predecessor of the Corporation and any constituent corporation (including
any constituent of a constituent) absorbed by the Corporation in a consolidation
or merger; the term "other enterprise" shall include any corporation,
partnership, joint venture, trust or employee benefit plan; service "at the
request of the Corporation" shall include service as a director, officer or
employee of the Corporation which imposes duties on, or involves services by,
such director, officer or employee with respect to an employee benefit plan, its
participants or beneficiaries; any excise taxes assessed on a person with
respect to an employee benefit plan shall be deemed to be indemnifiable
expenses; and action by a person with respect to an employee benefit plan which
such person reasonably believes to be in the interest of the participants and
beneficiaries of such plan shall be deemed to be action not opposed to the best
interests of the Corporation.
Section 6.5. INTERESTED DIRECTORS; QUORUM. No contract or transaction
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or her or their
votes are counted for such purpose, if: (1) the material facts as to his or her
relationship or interest and as to the
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contract or transaction are disclosed or are known to the Board or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or (2)
the material facts as to his or her relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved in
good faith by vote of the stockholders; or (3) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or ratified
by the Board, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee that authorizes the contract or
transaction.
Section 6.6. FORM OF RECORDS. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 6.7. AMENDMENT OF BY-LAWS. These by-laws may be amended or
repealed, and new by-laws adopted, by the Board of Directors, but the
stockholders entitled to vote may adopt additional by-laws and may amend or
repeal any by-law whether or not adopted by them.
ARTICLE VII
OFFICES
Section 7.1. REGISTERED OFFICE. The registered office of the
Corporation in the State of Delaware shall be at 1209 Orange Street, City of
Wilmington, County of New Castle, and the registered agent in charge thereof
shall be The Corporation Trust Company.
Section 7.2. OTHER OFFICES. The Corporation may also have an office
or offices at other places within or without the State of Delaware.
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- -------------------------------------------------------------------------------
RIGHTS AGREEMENT
between
CROSS-CONTINENT AUTO RETAILERS, INC.
and
THE BANK OF NEW YORK, as Rights Agent
Dated as of September [ ], 1996
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
Section 1. Certain Definitions and Rules of Interpretation. . . . . 1
Section 2. Appointment of Rights Agent. . . . . . . . . . . . . . . 4
Section 3. Issue of Right Certificates. . . . . . . . . . . . . . . 4
Section 4. Form of Right Certificates . . . . . . . . . . . . . . . 5
Section 5. Countersignature and Registration. . . . . . . . . . . . 6
Section 6. Transfer, Split Up, Combination and Exchange of Right
Certificates; Mutilated, Destroyed, Lost or Stolen
Right Certificates. . . . . . . . . . . . . . . . . . 6
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. . . . . . . . . . . . . . . . . . . . . . . . 6
Section 8. Cancellation of Right Certificates . . . . . . . . . . . 7
Section 9. Availability of Preferred Shares . . . . . . . . . . . . 7
Section 10. Preferred Shares Record Date . . . . . . . . . . . . . . 8
Section 11. Adjustment of Purchase Price, Number of Shares or
Number of Rights. . . . . . . . . . . . . . . . . . . 8
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. . . . . . . . . . . . . . . . . . . . . . . . 12
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
Earning Power . . . . . . . . . . . . . . . . . . . . 13
Section 14. Fractional Rights and Fractional Shares. . . . . . . . . 13
Section 15. Rights of Action . . . . . . . . . . . . . . . . . . . . 14
Section 16. Agreement of Right Holders . . . . . . . . . . . . . . . 14
Section 17. Right Certificate Holder Not Deemed a Stockholder. . . . 15
Section 18. Concerning the Rights Agent. . . . . . . . . . . . . . . 15
Section 19. Merger or Consolidation or Change of Name of
Rights Agent. . . . . . . . . . . . . . . . . . . . . 15
Section 20. Duties of Rights Agent. . . . . . . . . . . . . . . . . 15
Section 21. Change of Rights Agent. . . . . . . . . . . . . . . . . 17
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Section 22. Issuance of New Right Certificates. . . . . . . . . . . 18
Section 23. Redemption. . . . . . . . . . . . . . . . . . . . . . . 18
Section 24. Exchange. . . . . . . . . . . . . . . . . . . . . . . . 19
Section 25. Notice of Certain Events. . . . . . . . . . . . . . . . 20
Section 26. Notices . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 27. Supplements and Amendments. . . . . . . . . . . . . . . 21
Section 28. Successors. . . . . . . . . . . . . . . . . . . . . . . 21
Section 29. Benefits of this Agreement. . . . . . . . . . . . . . . 21
Section 30. Severability. . . . . . . . . . . . . . . . . . . . . . 21
Section 31. Governing Law . . . . . . . . . . . . . . . . . . . . . 21
Section 32. Counterparts. . . . . . . . . . . . . . . . . . . . . . 22
Section 33. Descriptive Headings. . . . . . . . . . . . . . . . . . 22
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Exhibit A - Form of Certificate of Designations
Exhibit B - Form of Right Certificate
Exhibit C - Summary of Rights to Purchase Preferred Shares
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<PAGE>
Rights Agreement, dated as of September [ ], 1996, between Cross-
Continent Auto Retailers, Inc., a Delaware corporation (the "Company"), and The
Bank of New York, a New York banking corporation, as rights agent (the "Rights
Agent").
The Board of Directors of the Company has authorized and declared a
dividend of one Right (as hereinafter defined) for each Common Share (as
hereinafter defined) of the Company outstanding on September [ ], 1996, and has
further authorized and directed the issuance of one Right with respect to each
Common Share that shall become outstanding between the Record Date and the
earliest of the Distribution Date, the Redemption Date and the Final Expiration
Date (as such terms are hereinafter defined).
Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. DEFINITIONS AND RULES OF INTERPRETATION. (a) For purposes
of this Agreement, the following terms have the meanings indicated:
"Acquiring Person" means any Person who or which, together with all
Affiliates and Associates of such Person, shall be the Beneficial Owner of 19.9%
or more of the Common Shares of the Company then outstanding, but shall not
include the Company or any Company Entity. Notwithstanding the foregoing, no
Person shall become an "Acquiring Person" as the result of an acquisition of
Common Shares by the Company which, by reducing the number of shares
outstanding, increases the proportionate number of shares beneficially owned by
such Person to 19.9% or more of the Common Shares of the Company then
outstanding; PROVIDED, that if a Person shall become the Beneficial Owner of
19.9% or more of the Common Shares of the Company then outstanding by reason of
share purchases by the Company and shall, after such share purchases by the
Company, become the Beneficial Owner of any additional Common Shares of the
Company, then such Person shall be deemed to be an "Acquiring Person."
Notwithstanding the foregoing, if the Board of Directors of the Company
determines in good faith that a Person who would otherwise be an "Acquiring
Person," as defined pursuant to the foregoing provisions of this paragraph, has
become such inadvertently, and such Person divests as promptly as practicable a
sufficient number of Common Shares so that such Person would no longer be an
"Acquiring Person," as defined pursuant to the foregoing provisions of this
paragraph, then such Person shall not be deemed to be an "Acquiring Person" for
any purposes of this Agreement.
"Affiliate" has the meaning ascribed thereto in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the date
of this Agreement.
"Associate" has the meaning ascribed thereto in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the date
of this Agreement.
A Person shall be deemed the "Beneficial Owner" of, to have
"Beneficial Ownership" of and to "beneficially own" any securities:
(i) which such Person or any of such Person's Affiliates or
Associates beneficially owns, directly or indirectly;
(ii) which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time)
<PAGE>
pursuant to any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with respect
to a bona fide public offering of securities), or upon the exercise of
conversion rights, exchange rights, rights (other than these Rights), warrants
or options, or otherwise; PROVIDED, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, securities tendered pursuant to a
tender or exchange offer made by or on behalf of such Person or any of such
Person's Affiliates or Associates until such tendered securities are accepted
for purchase or exchange; or (B) the right to vote pursuant to any agreement,
arrangement or understanding; PROVIDED, that a Person shall not be deemed the
Beneficial Owner of, or to beneficially own, any security if the agreement,
arrangement or understanding to vote such security (1) arises solely from a
revocable proxy or consent given to such Person in response to a public proxy or
consent solicitation made pursuant to, and in accordance with, the applicable
rules and regulations promulgated under the Exchange Act and (2) is not also
then reportable on Schedule 13D under the Exchange Act (or any comparable or
successor report); or
(iii) which are beneficially owned, directly or indirectly, by any
other Person with which such Person or any of such Person's Affiliates or
Associates has any agreement, arrangement or understanding (other than customary
agreements with and between underwriters and selling group members with respect
to a bona fide public offering of securities) for the purpose of acquiring,
holding, voting (except to the extent contemplated by the immediately preceding
proviso) or disposing of any securities of the Company.
"Board of Directors" means the Board of Directors of the Company.
"Business Day" means any day other than a Saturday, a Sunday, or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
"close of business" on any given date means 5:00 p.m., New York City
time, on such date; PROVIDED, that if such date is not a Business Day it shall
mean 5:00 p.m., New York City time, on the next succeeding Business Day.
"Closing Price" for any day for any security means the last sale
price, regular way, for such security on such day or, in case no such sale takes
place on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if such security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the security is listed or admitted to trading or,
if such security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by Nasdaq
or such other system then in use, or, if on any such date such security is not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in such security
selected by the Board of Directors. If on any such date no such market maker is
making a market in the Rights, the fair value of the Rights on such date as
determined in good faith by the Board of Directors shall be used.
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<PAGE>
"Common Shares," when used with reference to the Company, means the
shares of common stock, par value $.01 per share, of the Company. "Common
Shares," when used with reference to any Person other than the Company, means
the capital stock (or equity interest) with the greatest voting power of such
other Person or, if such other Person is a Subsidiary of another Person, the
Person or Persons which ultimately control such first-mentioned Person.
"Company Entity" means (i) any Subsidiary of the Company, (ii) any
employee benefit plan of the Company or any Subsidiary of the Company, (iii) any
entity holding Common Shares for or pursuant to the terms of any such plan or
(iv) any person or group of persons who, immediately prior to the Record Date,
beneficially owned 19.9% or more of the Common Shares then outstanding.
"Current Per Share Market Price" of any security on any date means the
average of the daily Closing Prices per share of such security for the 30
consecutive Trading Days immediately prior to such date; PROVIDED, that (i) in
the case of the Preferred Shares, if the Preferred Shares are not publicly
traded, the "Current Per Share Market Price" of the Preferred Shares shall be
conclusively deemed to be the Current Per Share Market Price of the Common
Shares (appropriately adjusted to reflect any stock split, stock dividend or
similar transaction occurring after the date of this Agreement), multiplied by
100, (ii) in the case of the Common Shares, if the Common Shares are not
publicly held or so listed or traded, the "Current Per Share Market Price" of
the Common Shares means the fair value per share as determined in good faith by
the Board of Directors, whose determination shall be described in a statement
filed with the Rights Agent, and (iii) if the Current Per Share Market Price of
the security is determined during a period following the announcement by the
issuer of such security of (A) a dividend or distribution on such security
payable in shares of such security or securities convertible into such shares,
or (B) any subdivision, combination or reclassification of such security and
prior to the expiration of 30 Trading Days after the ex-dividend date for such
dividend or distribution, or the record date for such subdivision, combination
or reclassification, then, and in each such case, the Current Per Share Market
Price of such security shall be appropriately adjusted to reflect the current
market price per share equivalent of such security.
"Distribution Date" means the earlier of (i) the tenth day after the
Shares Acquisition Date or (ii) the tenth Business Day (or such later date as
may be determined by action of the Board of Directors prior to such time as any
Person becomes an Acquiring Person) after the date of the commencement by any
Person (other than the Company or any Subsidiary of the Company, any employee
benefit plan of the Company or any Subsidiary of the Company or any entity
holding Common Shares for or pursuant to the terms of any such plan) of, or of
the first public announcement of the intention of any Person (other than the
Company or any Subsidiary of the Company, any employee benefit plan of the
Company or any Subsidiary of the Company or any entity holding Common Shares for
or pursuant to the terms of any such plan) to commence, a tender or exchange
offer, the consummation of which would result in any Person becoming the
Beneficial Owner of Common Shares aggregating 19.9% or more of the then
outstanding Common Shares.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Final Expiration Date" has the meaning set forth in Section 7.
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"Nasdaq" means the National Association of Securities Dealers, Inc.
Automated Quotations System.
"Person" means any individual, firm, corporation or other entity, and
shall include any successor (by merger or otherwise) of such entity.
"Preferred Shares" means shares of Series A Junior Participating
Preferred Stock, par value $.01 per share, of the Company having the rights and
preferences set forth in the Form of Certificate of Designations attached to
this Agreement as Exhibit A.
"Purchase Price" has the meaning set forth in Section 7(b).
"Record Date" means September [ ], 1996.
"Redemption Date" has the meaning set forth in Section 7(a).
""Right" means a preferred share purchase right representing the right
to purchase (subject to adjustment pursuant to Section 11) one one-hundredth of
a Preferred Share upon the terms and subject to the conditions set forth in this
Agreement.
"Right Certificate" means a certificate substantially in the form of
Exhibit B.
"Shares Acquisition Date" means the first date of public announcement
by the Company or an Acquiring Person that an Acquiring Person has become such.
"Subsidiary" of any Person means any corporation or other entity of
which a majority of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such Person.
"then outstanding," when used with reference to a Person's Beneficial
Ownership of securities of the Company, means the number of such securities then
issued and outstanding together with the number of such securities not then
actually issued and outstanding which such Person would be deemed to own
beneficially hereunder.
"Trading Day" means, with respect to any security, a day on which the
principal national securities exchange on which such security is listed or
admitted to trading is open for the transaction of business or, if such security
is not listed or admitted to trading on any national securities exchange, a
Business Day.
(b) Except as otherwise expressly provided in this Agreement, the
following rules of interpretation apply to this Agreement: (i) the singular
includes the plural and the plural includes the singular; (ii) "or" and "any"
are not exclusive and "include" and "including" are not limiting; (iii) a
reference to any agreement or other contract includes permitted supplements and
amendments; (iv) a reference to a law includes any amendment or modification to
such law and any rules or regulations issued thereunder; (v) a reference to a
person includes its permitted successors and assigns; and (vi) a reference in
this Agreement to a Section, Exhibit or paragraph is to the Section, Exhibit of
paragraph of this Agreement.
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Section 2. APPOINTMENT OF RIGHTS AGENT. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the Rights
in accordance with the terms and conditions hereof, and the Rights Agent hereby
accepts such appointment. The Company may from time to time appoint such co-
Rights Agents as it may deem necessary or desirable upon 10 days' prior written
notice to the Rights Agent. The Rights Agent shall have no duty to supervise,
and shall in no event be liable for, the acts or omissions of any such co-Rights
Agent.
Section 3. ISSUE OF RIGHT CERTIFICATES. (a) Until the Distribution
Date, (i) the Rights will be evidenced by the certificates for Common Shares
registered in the names of the holders thereof (which certificates shall also be
deemed to be Right Certificates) and not by separate Right Certificates, and
(ii) the right to receive Right Certificates will be transferable only in
connection with the transfer of Common Shares. The Company shall give the
Rights Agent prompt written notice of the Distribution Date. Subject to Section
11(a)(iii), as soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign, and the Company will
send or cause to be sent (and the Rights Agent will, if requested, send, at the
Company's expense) by first-class, postage-prepaid mail, to each record holder
of Common Shares as of the close of business on the Distribution Date, at the
address of such holder shown on the records of the Company, a Right Certificate
evidencing one Right for each Common Share so held. As of the Distribution
Date, the Rights will be evidenced solely by such Right Certificates.
(b) On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights, in substantially the form of
Exhibit C ( the "Summary of Rights"), by first-class, postage-prepaid mail, to
each record holder of Common Shares as of the close of business on the Record
Date, at the address of such holder shown on the records of the Company. With
respect to certificates of Common Shares outstanding as of the Record Date,
until the Distribution Date, the Rights will be evidenced by such certificates
registered in the names of the holders thereof together with a copy of the
Summary of Rights attached thereto. Until the earliest of the Distribution
Date, Redemption Date or Final Expiration Date, the surrender for transfer of
any certificate for Common Shares outstanding on the Record Date, with or
without a copy of the Summary of Rights attached thereto, shall also constitute
the transfer of the Rights associated with the Common Shares represented
thereby.
(c) Certificates for Common Shares outstanding that become
outstanding (including, without limitation, reacquired Common Shares referred to
in the last sentence of this paragraph (b)) after the Record Date but prior to
the earliest of the Distribution Date, the Redemption Date or the Final
Expiration Date shall have impressed on, printed on, written on or otherwise
affixed to them the following legend:
This certificate also evidences and entitles the holder hereof to
certain rights as set forth in a Rights Agreement between Cross-
Continent Auto Retailers, Inc. and The Bank of New York, dated as
of September , 1996 (the "Rights Agreement"), the terms of
which are hereby incorporated herein by reference and a copy of
which is on file at the principal executive offices of Cross-
Continent Auto Retailers, Inc. Under certain circumstances, as
set forth in the Rights Agreement, such Rights will be evidenced by
separate certificates and will no longer be evidenced by this
certificate. Cross-Continent Auto Retailers, Inc. will mail to the
holder of this certificate a copy of the Rights Agreement without
charge after receipt of a written request therefor. Under
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certain circumstances, as set forth in the Rights Agreement,
Rights issued to any Person who becomes an Acquiring Person (as
defined in the Rights Agreement) may become null and void.
With respect to such certificates containing the foregoing legend, until the
Distribution Date, the Rights associated with the Common Shares represented by
such certificates shall be evidenced only by such certificates, and the
surrender for transfer of any such certificate shall also constitute the
transfer of the Rights associated with the Common Shares represented thereby.
In the event that the Company purchases or acquires any Common Shares after the
Record Date but prior to the Distribution Date, any Rights associated with such
Common Shares shall be deemed cancelled and retired so that the Company shall
not be entitled to exercise any Rights associated with the Common Shares which
are no longer outstanding.
Section 4. FORM OF RIGHT CERTIFICATES. The Right Certificates (and
the forms of election to purchase Preferred Shares and of assignment to be
printed on the reverse thereof) shall be substantially the same as Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange on which the Rights may from time to time be listed, or to conform to
usage. The Rights Certificates shall be in a machine printable format and, if
not substantially in the form of Exhibit B hereto, in such other form reasonably
satisfactory to the Rights Agent. Subject to the provisions of Section 22, the
Right Certificates shall entitle the holders thereof to purchase such number of
one one-hundredths of a Preferred Share as shall be set forth therein at the
price per one one-hundredth of a Preferred Share set forth therein (the
"Purchase Price"), but the number of such one one-hundredths of a Preferred
Share and the Purchase Price shall be subject to adjustment as provided herein.
Section 5. COUNTERSIGNATURE AND REGISTRATION. (a) The Right
Certificates shall be executed on behalf of the Company by its Chairman of the
Board, any Vice Chairman, its Chief Executive Officer, its President, any of its
Vice Presidents, or its Treasurer, either manually or by facsimile signature,
shall have affixed thereto the Company's seal or a facsimile thereof, and shall
be attested by the Secretary or an Assistant Secretary of the Company, either
manually or by facsimile signature. The Right Certificates shall be manually
countersigned by the Rights Agent and shall not be valid for any purpose unless
countersigned. In case any officer of the Company who shall have signed any of
the Right Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Right Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Right Certificates had not ceased to be such officer
of the Company; and any Right Certificate may be signed on behalf of the Company
by any person who, at the actual date of the execution of such Right
Certificate, shall be a proper officer of the Company to sign such Right
Certificate, although at the date of the execution of this Agreement such person
was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its designated office, books for registration and transfer
of the Right Certificates issued hereunder. Such books shall show the names and
addresses of the respective holders of the Right Certificates,
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the number of Rights evidenced on the face of each Right Certificate and the
date of each Right Certificate.
Section 6. TRANSFER, SPLIT UP, COMBINATION AND EXCHANGE OF RIGHT
CERTIFICATES; MUTILATED, DESTROYED, LOST OR STOLEN RIGHT CERTIFICATES. (a)
Subject to the provisions of Section 14, at any time after the close of business
on the Distribution Date, and at or prior to the close of business on the
earlier of the Redemption Date or the Final Expiration Date, any Right
Certificate or Right Certificates (other than Right Certificates representing
Rights that have become void pursuant to Section 11(a)(ii) or that have been
exchanged pursuant to Section 24) may be transferred, split up, combined or
exchanged for another Right Certificate or Right Certificates, entitling the
registered holder to purchase a like number of one one-hundredths of a Preferred
Share as the Right Certificate or Right Certificates surrendered then entitled
such holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the designated office of the Rights Agent. Thereupon the Rights
Agent shall countersign and deliver to the person entitled thereto a Right
Certificate or Right Certificates, as the case may be, as so requested. The
Company may require payment by the holder of a Rights Certificate of a sum
sufficient to cover any tax or governmental charge that may be imposed in
connection with any transfer, split up, combination or exchange of Right
Certificates.
(b) Upon (i) receipt by the Company and the Rights Agent of (A)
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Right Certificate, (b) in case of loss, theft or destruction of
a Right Certificate, of indemnity or security reasonably satisfactory to them,
and (C) at the Company's request, reimbursement to the Company and the Rights
Agent of all reasonable expenses incidental thereto, and (ii) upon surrender to
the Rights Agent and cancellation of the Right Certificate, if mutilated, the
Company will make and deliver a new Right Certificate of like tenor to the
Rights Agent for delivery to the registered holder in lieu of the Right
Certificate so lost, stolen, destroyed or mutilated.
Section 7. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF
RIGHTS. (a) The registered holder of any Right Certificate may exercise the
Rights evidenced thereby (except as otherwise provided herein) in whole or in
part at any time after the Distribution Date and before the earliest of (i) the
close of business on the tenth annual anniversary of the Record Date (the "Final
Expiration Date"), (ii) the time at which the Rights are redeemed as provided in
Section 23 (the "Redemption Date") or (iii) the time at which such Rights are
exchanged as provided in Section 24. The Rights shall be exercised by and upon
surrender of the Right Certificate evidencing such Rights, with the form of
election to purchase on the reverse side thereof duly executed, to the Rights
Agent at the designated office of the Rights Agent, together with payment of the
Purchase Price for each one one-hundredth of a Preferred Share as to which the
Rights are exercised.
(b) The purchase price for each one one-hundredth of a Preferred
Share purchasable pursuant to the exercise of a Right shall initially be
$100.00, and shall be subject to adjustment from time to time as provided in
Section 11 or 13 hereof (such initial price, as the same may be adjusted, being
referred to as the "Purchase Price"). The Purchase Price shall be payable in
lawful money of the United States of America by certified check, cashier's check
or money order payable to the order of the Company.
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<PAGE>
(c) Upon receipt of a Right Certificate representing exercisable
Rights, with the form of election to purchase duly executed, accompanied by
payment of the Purchase Price for the shares to be purchased in accordance with
Section 7(b) and an amount equal to any applicable transfer tax required to be
paid by the holder of such Right Certificate in accordance with Section 9
hereof, the Rights Agent shall thereupon promptly (i) (A) requisition from any
transfer agent of the Preferred Shares certificates for the number of Preferred
Shares to be purchased and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests or (B) requisition from the
depositary agent depositary receipts representing such number of one one-
hundredths of a Preferred Share as are to be purchased (in which case
certificates for the Preferred Shares represented by such receipts shall be
deposited by the transfer agent with the depositary agent) and the Company
hereby directs the depositary agent to comply with such request, (ii) when
appropriate, requisition from the Company the amount of cash to be paid in lieu
of issuance of fractional shares in accordance with Section 14 and, after
receipt, deliver such cash to or upon the order of the registered holder of such
Right Certificate and (iii) after receipt of such certificates or depositary
receipts referred to in clauses (i) and (ii) above, cause the same to be
delivered to or upon the order of the registered holder of such Right
Certificate, registered in such name or names as may be designated by such
holder.
(d) In case the registered holder of any Right Certificate shall
exercise less than all the Rights evidenced thereby, a new Right Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent to the registered holder of such Right Certificate or to his
duly authorized assigns, subject to the provisions of Section 14.
Section 8. CANCELLATION OF RIGHT CERTIFICATES. All Right
Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Right
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all cancelled Right Certificates to the Company.
Section 9. AVAILABILITY OF PREFERRED SHARES. (a) The Company
covenants and agrees that it will cause to be reserved and kept available out of
its authorized and unissued Preferred Shares or any Preferred Shares held in its
treasury, the number of Preferred Shares that will be sufficient to permit the
exercise in full of all outstanding Rights in accordance with Section 7. The
Company covenants and agrees that it will take all such action as may be
necessary to ensure that all Preferred Shares delivered upon exercise of Rights
shall, at the time of delivery of the certificates for such Preferred Shares
(subject to payment of the Purchase Price), be duly and validly authorized and
issued and fully paid and nonassessable shares.
(b) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any Preferred Shares upon the exercise of Rights. The Company shall not,
however, be required to pay any transfer tax which may be payable in respect of
any transfer or delivery of Right Certificates to a person other than, or the
issuance or delivery of certificates or depositary receipts for the Preferred
Shares in a name other than that of,
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the registered holder of the Right Certificate evidencing Rights surrendered for
exercise or to issue or to deliver any certificates or depositary receipts for
Preferred Shares upon the exercise of any Rights until any such tax shall have
been paid (any such tax being payable by the holder of such Right Certificate at
the time of surrender) or until it has been established to the Company's
reasonable satisfaction that no such tax is due.
Section 10. PREFERRED SHARES RECORD DATE. Each person in whose name
any certificate for Preferred Shares is issued upon the exercise of Rights
shall, for all purposes, be deemed to have become the holder of record of the
Preferred Shares represented thereby on, and such certificate shall be dated,
the date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; PROVIDED, that if the date of such surrender and payment is a
date upon which the Preferred Shares transfer books of the Company are closed,
such person shall be deemed to have become the record holder of such shares on,
and such certificate shall be dated, the next succeeding Business Day on which
the Preferred Shares transfer books of the Company are open. Prior to the
exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Shares for which
the Rights shall be exercisable, including, without limitation, the right to
vote, to receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings of
the Company, except as provided herein.
Section 11. ADJUSTMENT OF PURCHASE PRICE, NUMBER OF SHARES OR NUMBER
OF RIGHTS. The Purchase Price, the number of Preferred Shares covered by each
Right and the number of Rights outstanding are subject to adjustment from time
to time as provided in this Section 11.
(a) (i) If the Company shall at any time after the Record Date (A)
declare a dividend on the Preferred Shares payable in Preferred Shares, (B)
subdivide the outstanding Preferred Shares, (C) combine the outstanding
Preferred Shares into a smaller number of Preferred Shares or (D) issue any
shares of its capital stock in a reclassification of the Preferred Shares
(including any such reclassification in connection with a consolidation or
merger in which the Company is the continuing or surviving corporation), except
as otherwise provided in this Section 11(a), the Purchase Price in effect at the
time of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and the number and kind of shares
of capital stock issuable upon exercise of the Rights after such date, shall be
proportionately adjusted so that the holder of any Right exercised after such
time shall be entitled to receive the aggregate number and kind of shares of
capital stock which, if such Right had been exercised immediately prior to such
date and at a time when the Preferred Shares transfer books of the Company were
open, he would have owned upon such exercise and been entitled to receive by
virtue of such dividend, subdivision, combination or reclassification; PROVIDED,
that in no event shall the consideration to be paid upon the exercise of any
Right be less than the aggregate par value of the shares of capital stock of the
Company issuable upon exercise of such Right.
(ii) Subject to Section 24 of this Agreement, if any Person becomes
an Acquiring Person, each holder of a Right shall thereafter have a right to
receive, upon exercise thereof at a price equal to the then current Purchase
Price multiplied by the number of one one-hundredths of a Preferred Share for
which a Right is then exercisable, in accordance with the terms of this
Agreement and in lieu of Preferred Shares, such number of Common Shares of the
Company as shall equal the result obtained by (x) multiplying the then current
Purchase Price by the number of one
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one-hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (y) 50% of the then Current Per Share Market Price of
the Common Shares on the date of the occurrence of such event.
(iii) If any Person shall become an Acquiring Person and the Rights
shall then be outstanding, the Company shall not take any action which would
eliminate or diminish the benefits intended to be afforded by the Rights.
Notwithstanding anything to the contrary set forth in this Agreement, from and
after the occurrence of such event, any Rights that are or were acquired or
beneficially owned by any Acquiring Person (or any Associate or Affiliate of
such Acquiring Person) shall be void and any holder of such Rights shall
thereafter have no right to exercise such Rights under any provision of this
Agreement. No Right Certificate shall be issued pursuant to Section 3 that
represents Rights beneficially owned by an Acquiring Person whose Rights would
be void pursuant to the preceding sentence or any Associate or Affiliate
thereof. No Right Certificate shall be issued at any time upon the transfer of
any Rights to an Acquiring Person whose Rights would be void pursuant to the
preceding sentence or any Associate or Affiliate thereof or to any nominee of
such Acquiring Person, Associate or Affiliate. Any Right Certificate delivered
to the Rights Agent for transfer to an Acquiring Person whose Rights would be
void pursuant to the preceding sentence or any Associate or Affiliate thereof or
to any nominee of such Acquiring Person, Associate or Affiliate shall be
cancelled.
(iv) If there shall not be sufficient Common Shares issued but not
outstanding or authorized but unissued to permit the exercise in full of the
Rights in accordance with subparagraph (ii) of this Section 11(a), the Company
shall take all such action as may be necessary to authorize additional Common
Shares for issuance upon exercise of the Rights. In the event the Company
shall, after good faith effort, be unable to authorize such additional Common
Shares, the Company shall substitute, for each Common Share that would otherwise
be issuable upon exercise of a Right, a number of Preferred Shares or fraction
thereof such that the Current Per Share Market Price of one Preferred Share
multiplied by such number or fraction is equal to the Current Per Share Market
Price of one Common Share as of the date of issuance of such Preferred Shares or
fraction thereof.
(b) If the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Shares entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Shares (or shares having the same rights,
privileges and preferences as the Preferred Shares ("equivalent preferred
shares")) or securities convertible into Preferred Shares or equivalent
preferred shares at a price per Preferred Share or equivalent preferred share
(or having a conversion price per share, if a security convertible into
Preferred Shares or equivalent preferred shares) less than the then Current Per
Share Market Price of the Preferred Shares on such record date, the Purchase
Price to be in effect after such record date shall be determined by multiplying
the Purchase Price in effect immediately prior to such record date by a
fraction, the numerator of which shall be the number of Preferred Shares
outstanding on such record date plus the number of Preferred Shares that the
aggregate offering price of the total number of Preferred Shares and/or
equivalent preferred shares so to be offered (and or the aggregate initial
conversion price of the convertible securities so to be offered) would purchase
at such current market price and the denominator of which shall be the number of
Preferred Shares outstanding on such record date plus the number of additional
Preferred Shares and/or equivalent preferred shares to be offered for
subscription or purchase (or into which the convertible securities so to be
offered are initially convertible); PROVIDED, that in no event shall the
consideration to be paid upon the exercise of any Right be less than the
aggregate par value of the shares of capital stock of the Company
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issuable upon exercise of such Right. In case such subscription price may be
paid in a consideration part or all of which shall be in a form other than cash,
the value of such consideration shall be as determined in good faith by the
Board of Directors, whose determination shall be described in a statement filed
with the Rights Agent. Preferred Shares owned by or held for the account of the
Company shall not be deemed outstanding for the purpose of any such computation.
Such adjustment shall be made successively whenever such a record date is fixed;
and in the event that such rights, options or warrants are not so issued, the
Purchase Price shall be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Shares (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Shares) or subscription rights or warrants (excluding those referred
to in Section 11(b)), the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then Current Per Share Market Price of the Preferred Shares on such record date,
less the fair market value (as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent) of the portion of the assets or evidences of
indebtedness so to be distributed or of such subscription rights or warrants
applicable to one Preferred Share and the denominator of which shall be such
Current Per Share Market Price of the Preferred Shares; PROVIDED, that in no
event shall the consideration to be paid upon the exercise of any Right be less
than the aggregate par value of the shares of capital stock of the Company to be
issued upon exercise of such Right. Such adjustments shall be made successively
whenever such a record date is fixed; and in the event that such distribution is
not so made, the Purchase Price shall again be adjusted to be the Purchase Price
which would then be in effect if such record date had not been fixed.
(d) No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1.0% in the
Purchase Price; PROVIDED, that any adjustments which by reason of this Section
11(d) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one one-millionth of a
Preferred Share or one ten-thousandth of any other share or security as the case
may be. Notwithstanding the first sentence of this Section 11(d), any
adjustment required by this Section 11 shall be made no later than the earlier
of (i) three years from the date of the transaction which requires such
adjustment or (ii) the date of the expiration of the right to exercise any
Rights.
(e) If, as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than Preferred Shares,
thereafter the number of such other shares so receivable upon exercise of any
Right shall be subject to adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions with respect to the
Preferred Shares contained in paragraphs (a) through (c), inclusive, of Section
11, and the provisions of Sections 7, 9, 10 and 13 with respect to the Preferred
Shares shall apply on like terms to any such other shares.
(f) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase
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Price, the number of one one-hundredths of a Preferred Share purchasable from
time to time hereunder upon exercise of the Rights, all subject to further
adjustment as provided herein.
(g) Unless the Company shall have exercised its election as provided
in Section 11(h), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and 11(c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of one one-
hundredths of a Preferred Share (calculated to the nearest one one-millionth of
a Preferred Share) obtained by (i) multiplying (x) the number of one one-
hundredths of a Preferred Share covered by a Right immediately prior to such
adjustment by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price and (ii) dividing the product so obtained by
the Purchase Price in effect immediately after such adjustment of the Purchase
Price.
(h) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in substitution for any
adjustment in the number of one one-hundredths of a Preferred Share purchasable
upon the exercise of a Right. Each of the Rights outstanding after such
adjustment of the number of Rights shall be exercisable for the number of one
one-hundredths of a Preferred Share for which a Right was exercisable
immediately prior to such adjustment. Each Right held of record prior to such
adjustment of the number of Rights shall become that number of Rights
(calculated to the nearest one ten-thousandth) obtained by dividing the Purchase
Price in effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase Price.
The Company shall make a public announcement, with substantially contemporaneous
written notice to the Rights Agent, of its election to adjust the number of
Rights, indicating the record date for the adjustment, and, if known at the
time, the amount of the adjustment to be made. This record date may be the date
on which the Purchase Price is adjusted or any day thereafter, but, if the Right
Certificates have been issued, shall be at least 10 days later than the date of
the public announcement. If Right Certificates have been issued, upon each
adjustment of the number of Rights pursuant to this Section 11(h), the Company
shall, as promptly as practicable, cause to be distributed to holders of record
of Right Certificates on such record date Right Certificates evidencing, subject
to Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.
(i) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a Preferred Share issuable upon the exercise
of the Rights, the Right Certificates theretofore and thereafter issued may
continue to express the Purchase Price and the number of one one-hundredths of a
Preferred Share which were expressed in the initial Right Certificates issued
hereunder.
(j) Before taking any action that would cause an adjustment reducing
the Purchase Price below one one-hundredth of the then par value, if any, of the
Preferred Shares issuable upon exercise of the Rights, the Company shall take
any corporate action which may, in the
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opinion of its counsel, be necessary in order that the Company may validly and
legally issue fully paid and nonassessable Preferred Shares at such adjusted
Purchase Price.
(k) If an adjustment in the Purchase Price would be required to be
made effective as of a record date for a specified event in accordance with this
Section 11, the Company may elect to defer until the occurrence of such event
the issuing to the holder of any Right exercised after such record date of the
Preferred Shares and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Shares and other
capital stock or securities of the Company, if any, issuable upon such exercise
on the basis of the Purchase Price in effect prior to such adjustment; PROVIDED,
that the Company shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional shares upon
the occurrence of the event requiring such adjustment,
(l) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Shares, issuance
wholly for cash of any Preferred Shares at less than the Current Per Share
Market Price thereof, issuance wholly for cash of Preferred Shares or securities
which by their terms are convertible into or exchangeable for Preferred Shares,
dividends on Preferred Shares payable in Preferred Shares or issuance of rights,
options or warrants referred to in Section 11(b) hereafter made by the Company
to holders of its Preferred Shares shall not be taxable to such stockholders.
(m) If at any time after the date of this Agreement and prior to the
Distribution Date, the Company shall (i) declare or pay any dividend on the
Common Shares payable in Common Shares or (ii) effect a subdivision, combination
or consolidation of the Common Shares (by reclassification or otherwise than by
payment of dividends in Common Shares) into a greater or lesser number of Common
Shares, then in any such case (A) the number of one one-hundredths of a
Preferred Share purchasable after such event upon proper exercise of each Right
shall be determined by multiplying the number of one one-hundredths of a
Preferred Share so purchasable immediately prior to such event by a fraction,
the numerator of which is the number of Common Shares outstanding immediately
before such event and the denominator of which is the number of Common Shares
outstanding immediately after such event, and (B) each Common Share outstanding
immediately after such event shall have issued with respect to it that number of
Rights which each Common Share outstanding immediately prior to such event had
issued with respect to it. The adjustments provided for in this Section 11(m)
shall be made successively whenever such a dividend is declared or paid or such
a subdivision, combination or consolidation is effected.
Section 12. CERTIFICATE OF ADJUSTED PURCHASE PRICE OR NUMBER OF
SHARES. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common
Shares or the Preferred Shares a copy of such certificate and (c) mail a brief
summary thereof to each holder of a Right Certificate in accordance with Section
25 hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained and shall not be deemed to
have knowledge of such adjustment unless and until it shall have received such
certificate.
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Section 13. CONSOLIDATION, MERGER OR SALE OR TRANSFER OF ASSETS OR
EARNING POWER. In the event, directly or indirectly, at any time after a Person
has become an Acquiring Person, (a) the Company shall consolidate with, or merge
with and into, any other Person, (b) any Person shall consolidate with the
Company, or merge with and into the Company and the Company shall be the
continuing or surviving corporation of such merger and, in connection with such
merger, all or part of the Common Shares shall be changed into or exchanged for
stock or other securities of any other Person (or the Company) or cash or any
other property, or (c) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one or more
transactions, assets or earning power aggregating 50% or more of the assets or
earning power of the Company and its Subsidiaries (taken as a whole) to any
other Person other than the Company or one or more of its wholly owned
Subsidiaries, then, and in each such case, proper provision shall be made so
that (i) each holder of a Right (except as otherwise provided herein) shall
thereafter have the right to receive, upon the exercise thereof at a price equal
to the then current Purchase Price multiplied by the number of one one-
hundredths of a Preferred Share for which a Right is then exercisable, in
accordance with the terms of this Agreement and in lieu of Preferred Shares,
such number of Common Shares of such other Person (including the Company as
successor thereto or as the surviving corporation) as shall equal the result
obtained by (A) multiplying the then current Purchase Price by the number of one
one-hundredths of a Preferred Share for which a Right is then exercisable and
dividing that product by (B) 50% of the then Current Per Share Market Price of
the Common Shares of such other Person on the date of consummation of such
consolidation, merger, sale or transfer; (ii) the issuer of such Common Shares
shall thereafter be liable for, and shall assume, by virtue of such
consolidation, merger, sale or transfer, all the obligations and duties of the
Company pursuant to this Agreement; (iii) the term "Company" shall thereafter be
deemed to refer to such issuer; and (iv) such issuer shall take such steps
(including the reservation of a sufficient number of its Common Shares in
accordance with Section 9 hereof) in connection with such consummation as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be, in relation to the Common Shares thereafter
deliverable upon the exercise of the Rights. The Company shall not consummate
any such consolidation, merger, sale or transfer unless prior thereto the
Company and such issuer shall have executed and delivered to the Rights Agent a
supplemental agreement so providing. Notwithstanding anything in this Agreement
to the contrary, the prior written consent of the Rights Agent must be obtained
in connection with any supplemental agreement that alters the rights or duties
of the Rights Agent, except that the substitution of another party in place of
the Company under this Agreement or the lowering of the thresholds set forth in
the definitions of "Acquiring Person" and "Distribution Date" in accordance with
Section 27 shall not be deemed to alter the rights or duties of the Rights Agent
hereunder. The Company shall not enter into any transaction of the kind
referred to in this Section 13 if at the time of such transaction there are any
rights, warrants, instruments or securities outstanding or any agreements or
arrangements which, as a result of the consummation of such transaction, would
eliminate or substantially diminish the benefits intended to be afforded by the
Rights. The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers.
Section 14. FRACTIONAL RIGHTS AND FRACTIONAL SHARES. (a) The Company
shall not be required to issue fractions of Rights or to distribute Right
Certificates which evidence fractional Rights. In lieu of such fractional
Rights, there shall be paid to the registered holders of the Right Certificates
with regard to which such fractional Rights would otherwise be issuable, an
amount in cash equal to the same fraction of the current market value of a whole
Right. For the purposes of this Section 14(a), the current market value of a
whole Right shall be the Closing Price of the Rights
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for the Trading Day immediately prior to the date on which such fractional
Rights would have been otherwise issuable.
(b) The Company shall not be required to issue fractions of Preferred
Shares (other than fractions which are integral multiples of one one-hundredth
of a Preferred Share) upon exercise of the Rights or to distribute certificates
which evidence fractional Preferred Shares (other than fractions which are
integral multiples of one one-hundredth of a Preferred Share). Fractions of
Preferred Shares in integral multiples of one one-hundredth of a Preferred Share
may, at the election of the Company, be evidenced by depositary receipts,
pursuant to an appropriate agreement between the Company and a depositary
selected by it; PROVIDED, that such agreement shall provide that the holders of
such depositary receipts shall have all the rights, privileges and preferences
to which they are entitled as beneficial owners of the Preferred Shares
represented by such depositary receipts. In lieu of fractional Preferred Shares
that are not integral multiples of one one-hundredth of a Preferred Share, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one Preferred Share. For the purposes
of this Section 14(b), the current market value of a Preferred Share shall be
the Closing Price of a Preferred Share for the Trading Day immediately prior to
the date of such exercise.
(c) The holder of a Right by the acceptance thereof expressly waives
his right to receive any fractional Rights or any fractional shares upon
exercise of a Right (except as provided in Section 14(b)).
Section 15. RIGHTS OF ACTION. All rights of action in respect of
this Agreement, excepting the rights of action given to the Rights Agent under
Section 18, are vested in the respective registered holders of the Right
Certificates and, prior to the Distribution Date, the registered holders of the
Common Shares. Any registered holder of any Right Certificate (or, prior to the
Distribution Date, of the Common Shares), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Shares), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Right Certificate in the manner provided
in such Right Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and will be entitled to specific performance of
the obligations under, and injunctive relief against actual or threatened
violations of the obligations of any Person subject to, this Agreement.
Section 16. AGREEMENT OF RIGHT HOLDERS. Every holder of a Right, by
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Shares;
(b) after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the designated office of the Rights Agent, duly endorsed or accompanied by a
proper instrument of transfer;
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(c) the Company and the Rights Agent may deem and treat the person in
whose name the Right Certificate (or, prior to the Distribution Date, the
associated Common Shares certificate) is registered as the absolute owner
thereof and of the Rights evidenced thereby (notwithstanding any notations of
ownership or writing on the Right Certificates or the associated Common Shares
certificate made by anyone other than the Company or the Rights Agent) for all
purposes whatsoever, and neither the Company nor the Rights Agent shall be
affected by any notice to the contrary; and
(d) notwithstanding anything to the contrary contained in this
Agreement, neither the Company nor the Rights Agent shall have any liability to
any holder of a Right or other Person as a result of the Company's or the Rights
Agent's inability to perform any of its obligations under this Agreement by
reason of any preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental,
regulatory or administrative agency or commission, or any statute, rule,
regulation or executive order promulgated or enacted by any governmental
authority prohibiting or otherwise restraining performance of such obligation;
provided that the Company shall use its reasonable efforts to have any such
order, decree or ruling lifted or otherwise overturned as soon as possible.
Section 17. RIGHT CERTIFICATE HOLDER NOT DEEMED A STOCKHOLDER. No
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the Preferred Shares or any
other securities of the Company which may at any time be issuable on the
exercise of the Rights represented thereby, nor shall anything contained herein
or in any Right Certificate be construed to confer upon the holder of any Right
Certificate, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action, or to receive notice of meetings or other actions affecting
stockholders (except as provided in Section 25), or to receive dividends or
subscription rights, or otherwise, until the Right or Rights evidenced by such
Right Certificate shall have been exercised in accordance with the provisions
hereof.
Section 18. CONCERNING THE RIGHTS AGENT. (a) The Company agrees to
pay to the Rights Agent such compensation as shall be agreed in writing between
the Company and the Rights Agent for all services rendered by it hereunder and,
from time to time, on demand of the Rights Agent, its reasonable expenses and
counsel fees and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any and all loss, liability, damage, claim or expense
incurred without gross negligence, bad faith or willful misconduct on the part
of the Rights Agent, for anything done or omitted by the Rights Agent in
connection with the acceptance and administration of this Agreement, including
the costs and expenses of defending against any claim of liability in the
premises. The provisions of this Section 18(a) shall survive the expiration of
the Rights and the termination of this Agreement.
(b) The Rights Agent shall be protected and shall incur no liability
for, or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Shares or Common Shares or for
other securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement, or other paper or
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document believed by it to be genuine and to be signed and executed by the
proper Person or Persons, or otherwise upon the advice of counsel as set forth
in Section 20 hereof.
Section 19. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF RIGHTS
AGENT. (a) Any corporation into which the Rights Agent or any successor Rights
Agent may be merged or with which it may be consolidated, or any corporation
resulting from any merger or consolidation to which the Rights Agent or any
successor Rights Agent shall be a party, or any corporation succeeding to all or
substantially all the stock transfer or corporate trust powers of the Rights
Agent or any successor Rights Agent, shall be the successor to the Rights Agent
under this Agreement without the execution or filing of any paper or any further
act on the part of any of the parties hereto; PROVIDED, that such corporation
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time such successor Rights
Agent shall succeed to the agency created by this Agreement, any of the Right
Certificates shall have been countersigned but not delivered, any such successor
Rights Agent may adopt the countersignature of the predecessor Rights Agent and
deliver such Right Certificates so countersigned; and in case at that time any
of the Right Certificates shall not have been countersigned, any successor
Rights Agent may countersign such Right Certificates either in the name of the
predecessor Rights Agent or in the name of the successor Rights Agent; and in
all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name; and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.
Section 20. DUTIES OF RIGHTS AGENT. The Rights Agent undertakes only
the duties and obligations expressly imposed by this Agreement and no implied
duties or obligations shall be read into this Agreement against the Rights Agent
upon the following terms and conditions, by all of which the Company and the
holders of Rights, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel of its choosing
(who may be legal counsel for the Company), and the opinion of such counsel
shall be full and complete authorization and protection to the Rights Agent as
to any action taken or omitted by it in good faith and in accordance with such
opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by any one of the Chairman of the Board, any
Vice Chairman, the Chief Executive Officer, the President, any Vice President,
the Treasurer or the Secretary of the Company and delivered to the Rights Agent;
and such certificate shall be full authorization to the Rights Agent for any
action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
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(c) The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own gross negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, and all such statements and recitals are and shall be deemed to have been
made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(iii)) or any adjustment in the
terms of the Rights (including the manner, method or amount thereof) provided
for in Section 3, 11, 13, 23 or 24, or the ascertaining of the existence of
facts that would require any such change or adjustment (except with respect to
the exercise of Rights evidenced by Right Certificates after the Rights Agent's
actual notice that such change or adjustment is required); nor shall it by any
act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any Preferred Shares to be issued pursuant to
this Agreement or any Right Certificate or as to whether any Preferred Shares
will, when issued, be validly authorized and issued, fully paid and
nonassessable, nor shall the Rights Agent be responsible for the legality of the
terms hereof in its capacity as an administrative agent.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
one of the Chairman of the Board, any Vice Chairman, the Chief Executive
Officer, the President, any Vice President, the Treasurer or the Secretary of
the Company, and to apply to such officers for advice or instructions in
connection with its duties, and it shall not be liable for any action taken or
suffered by it in good faith in accordance with instructions of any such officer
or for any delay in acting while waiting for those instructions. Any
application by the Rights Agent for written instructions from the Company may,
at the option of the Rights Agent, set forth in writing any action proposed to
be taken or omitted by the Rights Agent under this Agreement and the date on or
after which such action shall be taken or such omission shall be effective. The
Rights Agent shall not be liable for any action taken by, or omission of, the
Rights Agent in accordance with a proposal included in such application on or
after the date specified in such application (which date shall not be less than
three Business Days after the date any officer of the Company actually receives
such application, unless such officer shall have consented in writing to any
earlier date) unless prior to taking any such action (or the effective date in
the case of an omission), the Rights Agent shall have received written
instructions in response to such application specifying the action to be taken
or omitted.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or
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become pecuniarily interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or otherwise act as
fully and freely as though it were not Rights Agent under this Agreement.
Nothing herein shall preclude the Rights Agent from acting in any other capacity
for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase (as the case may be) has not been
completed, the Rights Agent shall not take any further action with respect to
such requested exercise or transfer without first consulting with the Company.
(l) In addition to the foregoing, the Rights Agent shall be protected
and shall incur no liability for, or in respect of, any action taken or omitted
by it in connection with its administration of this Agreement if such acts or
omissions are in reliance upon (i) the proper execution of the certification
concerning beneficial ownership appended to the form of assignment and the form
of election to purchase attached hereto unless the Rights Agent shall have
actual knowledge that, as executed, such certification is untrue, or (ii) the
non-execution of such certification including, without limitation, any refusal
to honor any otherwise permissible assignment or election by reason of such non-
execution.
(m) The Company agrees to give the Rights Agent prompt written notice
of any event or ownership of which the Company has knowledge that would prohibit
the exercise or transfer of the Right Certificates.
Section 21. CHANGE OF RIGHTS AGENT. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Shares or Preferred Shares by registered or certified mail. The
Company may remove the Rights Agent or any successor Rights Agent upon 30 days'
notice in writing, mailed to the Rights Agent or successor Rights Agent, as the
case may be, and to each transfer agent of the Common Shares or Preferred Shares
by registered or certified mail. If the Rights Agent shall resign or be removed
or shall otherwise become incapable of acting, the Company shall appoint a
successor to the Rights Agent. If the Company shall fail to make such
appointment within a period of 30 days after giving notice of such removal or
after it has been notified in writing of such resignation or incapacity by the
resigning or incapacitated Rights Agent or by the holder of a Right Certificate
(who shall, with such notice, submit his Right Certificate for inspection by the
Company), then the Rights Agent or the registered holder of any
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Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be a corporation organized
and doing business under the laws of the United States or of the State of New
York (or of any other state of the United States so long as such corporation is
authorized to do business as a banking institution in the State of New York, in
good standing, having an office in the State of New York, which is authorized
under such laws to exercise corporate trust or stock transfer powers and is
subject to supervision or examination by federal or state authority and which
has at the time of its appointment as Rights Agent a combined capital and
surplus of at least $50 million. After appointment, the successor Rights Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Rights Agent without further act or deed; but
the predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Shares or Preferred Shares, and mail a notice thereof in writing to
the registered holders of the Right Certificates. Failure to give any notice
provided for in this Section 21, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of the Rights
Agent or the appointment of the successor Rights Agent, as the case may be.
Section 22. ISSUANCE OF NEW RIGHT CERTIFICATES. Notwithstanding any
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Right Certificates evidencing Rights in
such form as may be approved by the Board of Directors to reflect any adjustment
or change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement.
Section 23. REDEMPTION. (a) The Board of Directors may, at its
option, at any time prior to such time as any Person becomes an Acquiring
Person, redeem all but not less than all of the then outstanding Rights at a
redemption price of $.01 per Right, appropriately adjusted to reflect any stock
split, stock dividend or similar transaction occurring after the date hereof
(such redemption price being hereinafter referred to as the "Redemption Price").
The redemption of the Rights by the Board of Directors may be made effective at
such time, on such basis and with such conditions as the Board of Directors in
its sole discretion may establish.
(b) Immediately upon the action of the Board of Directors ordering
the redemption of the Rights pursuant to Section 23(a), and without any further
action and without any notice, the right to exercise the Rights will terminate
and the only right thereafter of the holders of Rights shall be to receive the
Redemption Price. The Company shall promptly give public notice, with
substantially contemporaneous written notice to the Rights Agent, of any such
redemption; PROVIDED, that the failure to give, or any defect in, any such
notice shall not affect the validity of such redemption. Within 10 days after
such action of the Board of Directors ordering the redemption of the Rights, the
Company shall mail a notice of redemption to all the holders of the then
outstanding Rights at their last addresses as they appear upon the registry
books of the Rights Agent or, prior to the Distribution Date, on the registry
books of the transfer agent for the Common Shares. Any notice which is mailed
in the manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method by
which the payment of the Redemption Price will be made. Neither the Company nor
any of its Affiliates or
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Associates may redeem, acquire or purchase for value any Rights at any time in
any manner other than that specifically set forth in this Section 23 or in
Section 24, and other than in connection with the purchase of Common Shares
prior to the Distribution Date.
Section 24. EXCHANGE. (a) The Board of Directors may, at its
option, at any time after any Person becomes an Acquiring Person, exchange all
or part of the then outstanding and exercisable Rights (which shall not include
Rights that have become void pursuant to the provisions of Section 11(a)(ii)
hereof) for Common Shares at an exchange ratio of one Common Share per Right,
appropriately adjusted to reflect any stock split, stock dividend or similar
transaction occurring after the date hereof (such exchange ratio being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the
foregoing, the Board of Directors shall not be empowered to effect such exchange
at any time after any Person (other than the Company or any Company Entity),
together with all Affiliates and Associates of such Person, becomes the
Beneficial Owner of 50% or more of the Common Shares then outstanding.
(b) Immediately upon the action of the Board of Directors ordering
the exchange of any Rights pursuant to Section 24(a) and without any further
action and without any notice, the right to exercise such Rights shall terminate
and the only right thereafter of a holder of such Rights shall be to receive
that number of Common Shares equal to the number of such Rights held by such
holder multiplied by the Exchange Ratio. The Company shall promptly give public
notice, with substantially contemporaneous written notice to the Rights Agent,
of any such exchange; PROVIDED, that the failure to give, or any defect in, such
notice shall not affect the validity of such exchange. The Company promptly
shall mail a notice of any such exchange to all of the holders of such Rights at
their last addresses as they appear upon the registry books of the Rights Agent.
Any notice which is mailed in the manner herein provided shall be deemed given,
whether or not the holder receives the notice. Each such notice of exchange
will state the method by which the exchange of the Common Shares for Rights will
be effected and, in the event of any partial exchange, the number of Rights
which will be exchanged. Any partial exchange shall be effected pro rata based
on the number of Rights (other than Rights which have become void pursuant to
the provisions of Section 11(a)(iii)) held by each holder of Rights.
(c) If there shall not be sufficient Common Shares issued but not
outstanding or authorized but unissued to permit any exchange of Rights as
contemplated in accordance with this Section 24, the Company shall take all such
action as may be necessary to authorize additional Common Shares for issuance
upon exchange of the Rights. If the Company shall, after good faith effort, be
unable to authorize such additional Common Shares, the Company shall substitute,
for each Common Share that would otherwise be issuable upon exchange of a Right,
a number of Preferred Shares or fraction thereof such that the Current Per Share
Market Price of one Preferred Share multiplied by such number or fraction is
equal to the Current Per Share Market Price of one Common Share as of the date
of issuance of such Preferred Shares or fraction thereof.
(d) The Company shall not be required to issue fractions of Common
Shares or to distribute certificates which evidence fractional Common Shares.
In lieu of such fractional Common Shares, the Company shall pay to the
registered holders of the Right Certificates with regard to which such
fractional Common Shares would otherwise be issuable an amount in cash equal to
the same fraction of the current market value of a whole Common Share. For the
purposes of this paragraph (d), the current market value of a whole Common Share
shall be the Closing Price
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<PAGE>
of a Common Share for the Trading Day immediately prior to the date of exchange
pursuant to this Section 24.
Section 25. NOTICE OF CERTAIN EVENTS. (a) In case the Company shall
propose (i) to pay any dividend payable in stock of any class to the holders of
its Preferred Shares or to make any other distribution to the holders of its
Preferred Shares (other than a regular quarterly cash dividend), (ii) to offer
to the holders of its Preferred Shares rights or warrants to subscribe for or to
purchase any additional Preferred Shares or shares of stock of any class or any
other securities, rights or options, (iii) to effect any reclassification of its
Preferred Shares (other than a reclassification involving only the subdivision
of outstanding Preferred Shares), (iv) to effect any consolidation or merger
into or with, or to effect any sale or other transfer (or to permit one or more
of its Subsidiaries to effect any sale or other transfer), in one or more
transactions, of 50% or more of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to, any other Person, (v) to effect the
liquidation, dissolution or winding up of the Company, or (vi) to declare or pay
any dividend on the Common Shares payable in Common Shares or to effect a
subdivision, combination or consolidation of the Common Shares (by
reclassification or otherwise than by payment of dividends in Common Shares),
then, in each such case, the Company shall give to the Rights Agent and each
holder of a Right Certificate, in accordance with Section 26, a notice of such
proposed action. Such notice shall specify the record date for the purposes of
such stock dividend or distribution of rights or warrants, or the date on which
such reclassification, consolidation, merger, sale, transfer, liquidation,
dissolution, or winding up is to take place and the date of participation
therein by the holders of the Common Shares and/or Preferred Shares, if any such
date is to be fixed. Such notice shall be so given, in the case of any action
covered by clause (i) or (ii) above, at least 10 days prior to the record date
for determining holders of the Preferred Shares for purposes of such action and,
in the case of any such other action, at least 10 days prior to the earlier of
the taking of such proposed action or the date of participation therein by the
holders of the Common Shares or Preferred Shares, as the case may be.
(b) If the event set forth in Section 11(a)(ii) shall occur, then the
Company shall as soon as practicable thereafter give to the Rights Agent and
each holder of a Right Certificate, in accordance with Section 26, a notice of
the occurrence of such event, which notice shall describe such event and the
consequences of such event to holders of Rights under Section 11(a)(ii).
Section 26. NOTICES. Notices or demands authorized by this Agreement
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Cross-Continent Auto Retailers, Inc.
1201 South Taylor Street
Amarillo, Texas 79101
Telecopy: (806) 374-3818
Attention: Robert W. Hall
Subject to the provisions of Section 21 hereof, the designated office of the
Rights Agent shall be, and any notice or demand authorized by this Agreement to
be given or made by the Company or by the holder of any Right Certificate to or
on the Rights Agent shall be sufficiently given or made if sent
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<PAGE>
by first-class mail, postage prepaid, addressed, (until another address is filed
in writing with the Company) as follows:
The Bank of New York
101 Barclay Street, Floor 12W
New York, New York 10286
Telecopy: (212) 815-3201
Attention: Stock Transfer Administration
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.
Section 27. SUPPLEMENTS AND AMENDMENTS. The Company may from time to
time supplement or amend this Agreement without the approval of any holders of
Right Certificates in order to cure any ambiguity, to correct or supplement any
provision contained herein which may be defective or inconsistent with any other
provisions herein, or to make any other provisions with respect to the Rights
which the Company may deem necessary or desirable, any such supplement or
amendment to be evidenced by a writing signed by the Company and the Rights
Agent; PROVIDED, that from and after such time as any Person becomes an
Acquiring Person, this Agreement shall not be amended in any manner which would
adversely affect the interests of the holders of Rights. Without limiting the
foregoing, the Company may at any time prior to such time as any Person becomes
an Acquiring Person amend this Agreement to lower the thresholds set forth in
the definitions of "Acquiring Person" and "Distribution Date" in Section 1(a) to
not less than the greater of (i) the sum of .001% and the largest percentage of
the outstanding Common Shares then known by the Company to be beneficially owned
by any Person (other than the Company or any Company Entity) and (ii) 10%.
Notwithstanding any other provision hereof, the Rights Agent's consent must be
obtained regarding any amendment or supplement pursuant to this Section 27 which
alters the Rights Agent's rights or duties, except that the substituting of
another party in place of the Company under this Agreement or the lowering of
the thresholds as aforesaid shall not be deemed to alter the rights or duties of
the Rights Agent hereunder.
Section 28. SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Upon the delivery of a certificate from an executive officer or the secretary of
the Company which states that the proposed supplement or amendment is in
compliance with the terms of this Section, the Rights Agent shall execute such
supplement or amendment.
Section 29. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement
shall be construed to give to any person or corporation other than the Company,
the Rights Agent and the registered holders of the Right Certificates (and,
prior to the Distribution Date, the Common Shares) any legal or equitable right,
remedy or claim under this Agreement. This Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Shares).
- 23 -
<PAGE>
Section 30. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
SECTION 31. GOVERNING LAW THIS AGREEMENT AND EACH RIGHT CERTIFICATE
ISSUED HEREUNDER SHALL BE DEEMED TO BE A CONTRACT MADE UNDER THE LAWS OF THE
STATE OF NEW YORK AND FOR ALL PURPOSES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF SUCH STATE APPLICABLE TO CONTRACTS TO BE MADE AND
PERFORMED ENTIRELY WITHIN SUCH STATE.
Section 32. COUNTERPARTS. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. DESCRIPTIVE HEADINGS. Descriptive headings of the
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
CROSS-CONTINENT AUTO RETAILERS, INC.
By ___________________________
Name:
Title:
THE BANK OF NEW YORK, as Rights Agent
By ___________________________
Name:
Title:
-24 -
<PAGE>
EXHIBIT A
FORM
of
CERTIFICATE OF DESIGNATIONS
of
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
of
CROSS-CONTINENT AUTO RETAILERS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
_______________________________________
Cross-Continent Auto Retailers, Inc., Inc., a corporation organized
and existing under the General Corporation Law of the State of Delaware
(hereinafter called the "Corporation"), hereby certifies that the following
resolution was adopted by the Board of Directors of the Corporation as required
by Section 151 of the General Corporation Law at a meeting duly called and held
on September [___], 1996:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (hereinafter called the "Board of
Directors" or the "Board") in accordance with the provisions of the Certificate
of Incorporation, the Board of Directors hereby creates a series of Preferred
Stock, par value $ .01 per share (the "Preferred Stock"), of the Corporation and
hereby states the designation and number of shares, and fixes the relative
rights, preferences, and limitations thereof as follows:
Series A Junior Participating Preferred Stock:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock") and the number of shares constituting the Series A Preferred
Stock shall be 250,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, that no decrease shall reduce
the number of shares of Series A Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
A-1
<PAGE>
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any series
of Preferred Stock (or any similar stock) ranking prior and superior to
the Series A Preferred Stock with respect to dividends, the holders of
shares of Series A Preferred Stock, in preference to the holders of Common
Stock, par value $ .01 per share (the "Common Stock"), of the Corporation,
and of any other junior stock, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for
the purpose, quarterly dividends payable in cash on the first day of
March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1 or (b)
subject to the provision for adjustment hereinafter set forth, 100 times
the aggregate per share amount of all cash dividends, and 100 times the
aggregate per share amount (payable in kind) of all non-cash dividends or
other distributions, other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect to
the first Quarterly Dividend Payment Date, since the first issuance of any
share or fraction of a share of Series A Preferred Stock. In the event
the Corporation shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of
Common Stock) into a greater or lesser number of shares of Common Stock,
then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause
(b) of the preceding sentence shall be adjusted by multiplying such amount
by a fraction, the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) of this Section
immediately after it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of Common Stock); provided
that, if no dividend or distribution shall have been declared on the
Common Stock during the period between any Quarterly Dividend Payment Date
and the next subsequent Quarterly Dividend Payment Date, a dividend of $1
per share on the Series A Preferred Stock shall nevertheless be payable on
such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment
Date next preceding the date of issue of such shares, unless the date of
issue of such shares is prior to the record date for the first Quarterly
Dividend Payment Date, in which case dividends on such shares shall begin
to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record
date for the determination of holders of shares of Series A Preferred
Stock entitled to receive a quarterly dividend and before such Quarterly
Dividend Payment Date, in either of which events such dividends shall
A-2
<PAGE>
begin to accrue and be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series A Preferred Stock in an amount less than the
total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be not more than 60 days prior
to the date fixed for the payment thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
100 votes on all matters submitted to a vote of the stockholders of the
Corporation. If the Corporation shall at any time declare or pay any
dividend on the Common Stock payable in shares of Common Stock, or effect
a subdivision or combination or consolidation of the outstanding shares of
Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the number of votes per
share to which holders of shares of Series A Preferred Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or
by law, the holders of shares of Series A Preferred Stock and the holders
of shares of Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class on all
matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series A Preferred Stock shall have no special voting rights
and their consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth herein) for
taking any corporate action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends, or make any other
distributions, on any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity (either as
to dividends or upon liquidation,
A-3
<PAGE>
dissolution or winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in
proportion to the total amounts to which the holders of all such
shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such junior stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the
Series A Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series A Preferred Stock, or any shares of stock
ranking on a parity with the Series A Preferred Stock, except in
accordance with a purchase offer made in writing or by publication
(as determined by the Board of Directors) to all holders of such
shares upon such terms as the Board of Directors, after consideration
of the respective annual dividend rates and other relative rights and
preferences of the respective series and classes, shall determine in
good faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(A) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new series
of Preferred Stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other Certificate
of Designations creating a series of Preferred Stock or any similar stock or as
otherwise required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (A) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preferred Stock unless, prior thereto, the holders of shares of Series A
Preferred Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (B) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preferred Stock, except distributions made ratably on the Series A
Preferred Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such liquidation,
dissolution or winding up. In the event the Corporation shall at any
A-4
<PAGE>
time declare or pay any dividend on the Common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preferred Stock were entitled immediately prior to
such event under the proviso in clause (A) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
If the Corporation shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 8. NO REDEMPTION. The shares of Series A Preferred Stock
shall not be redeemable.
Section 9. RANK. The Series A Preferred Stock shall rank, with
respect to the payment of dividends and the distribution of assets, junior to
all series of any other class of the Corporation's Preferred Stock.
Section 10. AMENDMENT. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Series A Preferred Stock, voting
together as a single class.
A-5
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Corporation by its Chairman of the Board and attested by its
Secretary this [___] day of September, 1996.
________________________________
Chairman of the Board
Attest:
___________________________
Secretary
A-6
<PAGE>
EXHIBIT B
Form of Right Certificate
Certificate No. R- ______________ Rights
NOT EXERCISABLE AFTER SEPTEMBER [___], 2006 OR EARLIER IF
REDEMPTION OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO
REDEMPTION AT $.01 PER RIGHT AND TO EXCHANGE ON THE TERMS SET
FORTH IN THE RIGHTS AGREEMENT.
Right Certificate
CROSS-CONTINENT AUTO RETAILERS, INC.
This certifies that ____________________ or registered assigns, is the
registered owner of the number of Rights set forth above, each of which entitles
the owner thereof, subject to the terms, provisions and conditions of the Rights
Agreement, dated as of September [___], 1996 (the "Rights Agreement"), between
Cross-Continent Auto Retailers, Inc., a Delaware corporation (the "Company"),
and The Bank of New York, as rights agent (the "Rights Agent"), to purchase from
the Company at any time after the Distribution Date (as such term is defined in
the Rights Agreement) and prior to 5:00 p.m.., (New York City time), on
September [___], 2006 at the designated office of the Rights Agent, or at the
office of its successor as Rights Agent, one one-hundredth of a fully paid non-
assessable share of Series A Junior Participating Preferred Stock, par value
$.01 per share (the "Preferred Shares"), of the Company, at a purchase price of
$100.00 per one one-hundredth of a Preferred Share (the "Purchase Price"), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase duly executed. The number of Rights evidenced by this Right
Certificate (and the number of one one-hundredths of a Preferred Share which may
be purchased upon exercise hereof) set forth above, and the Purchase Price set
forth above, are the number and Purchase Price as of September [___], 1996,
based on the Preferred Shares as constituted at such date. As provided in the
Rights Agreement, the Purchase Price and the number of one one-hundredths of a
Preferred Share which may be purchased upon the exercise of the Rights evidenced
by this Right Certificate are subject to modification and adjustment upon the
happening of certain events.
This Right Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions are
hereby incorporated herein by reference and made a part hereof and to which
Rights Agreement reference is hereby made for a full description of the rights,
limitations of rights, obligations, duties and immunities hereunder of the
Rights Agent, the Company and the holders of the Right Certificates. Copies of
the Rights Agreement are on file at the principal executive offices of the
Company and the above-mentioned offices of the Rights Agent.
B-1
<PAGE>
This Right Certificate, with or without other Right Certificates, upon
surrender at the designated office of the Rights Agent, may be exchanged for
another Right Certificate or Right Certificates of like tenor and date
evidencing Rights entitling the holder to purchase a like aggregate number of
Preferred Shares as the Rights evidenced by the Right Certificate or Right
Certificates surrendered shall have entitled such holder to purchase. If this
Right Certificate shall be exercised in part, the holder shall be entitled to
receive upon surrender hereof another Right Certificate or Right Certificates
for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $.01 per Right or (ii) may be exchanged in whole or in part for
Preferred Shares or shares of the Company's Common Stock, par value $.01 per
share.
No fractional Preferred Shares will be issued upon the exercise of any
Right or Rights evidenced hereby (other than fractions which are integral
multiples of one one-hundredth of a Preferred Share, which may, at the election
of the Company, be evidenced by depositary receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.
No holder of this Right Certificate shall be entitled to vote or
receive dividends or be deemed for any purpose the holder of the Preferred
Shares or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement), or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised as provided in the Rights Agreement.
This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.
WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of _______________.
ATTEST: CROSS-CONTINENT AUTO RETAILERS, INC.
___________________________ By ___________________________
Countersigned:
THE BANK OF NEW YORK, as Rights Agent
By ________________________
Authorized Signatory
B-2
<PAGE>
Date of authorization:______________________
B-3
<PAGE>
Form of Reverse Side of Right Certificate
FORM OF ASSIGNMENT
------------------
(To be executed by the registered holder if such
holder desires to transfer the Right Certificate.)
FOR VALUE RECEIVED ___________________________________________ hereby
sells, assigns and transfers unto ______________________________________________
_______________________________________________________________________
(Please print name and address of transferee)
this Right Certificate, together with all right, title and interest therein, and
does hereby irrevocably constitute and appoint ________________________
Attorney, to transfer the within Right Certificate on the books of the within-
named Company, with full power of substitution.
Dated: _____________________________
_______________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Rights Agent, which requirements include
membership or participation in STAMP or such other "signature guarantee program"
as may be determined by the Rights Agent in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.
- --------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
_______________________________________
Signature
- --------------------------------------------------------------------------------
B-4
<PAGE>
Form of Reverse Side of Right Certificate -- continued
FORM OF ELECTION TO PURCHASE
----------------------------
(To be executed if holder desires to exercise
Rights represented by the Right Certificate.)
To: CROSS-CONTINENT AUTO RETAILERS, INC.
The undersigned hereby irrevocably elects to exercise
______________________ Rights represented by this Right Certificate to purchase
the Preferred Shares issuable upon the exercise of such Rights and requests that
certificates for such Preferred Shares be issued in the name of:
Please insert social security
or other taxpayer identifying number
________________________________________________________________________________
(Please print name and address),
____________________________________________________________________________
If such number of Rights shall not be all the Rights evidenced by this
Right Certfificate, a new Right Certificate for the balance remaining of such
Rights shall be registered in the name of and deliverd to:
Please insert social security
or other taxpayer identifying number
________________________________________________________________________________
(Please print name and address)
____________________________________________________________________________
Dated: _____________________________, 1995
_______________________________________
Signature
Signature Guaranteed:
Signatures must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Rights Agent, which requirements include
membership or participation in STAMP or such other "signature guarantee program"
as may be determined by the Rights Agent in addition to, or in substitution for,
STAMP, all in accordance with the Securities Exchange Act of 1934, as amended.
B-5
<PAGE>
Form of Reverse Side of Right Certificate -- continued
- --------------------------------------------------------------------------------
The undersigned hereby certifies that the Rights evidenced by this
Right Certificate are not beneficially owned by an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).
_______________________________________
Signature
- --------------------------------------------------------------------------------
NOTICE
------
The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.
If the certification set forth above in the Form of Assignment or the
Form of Election to Purchase, as the case may be, is not completed, the Company
and the Rights Agent will deem the beneficial owner of the Rights evidenced by
this Right Certificate to be an Acquiring Person or an Affiliate or Associate
thereof (as defined in the Rights Agreement) and such Assignment or Election to
Purchase will not be honored.
B-6
<PAGE>
EXHIBIT C
SUMMARY OF RIGHTS TO PURCHASE
PREFERRED SHARES
On September [___], 1996, the Board of Directors of Cross-Continent
Auto Retailers, Inc. (the "Company") declared a dividend of one preferred share
purchase right (a "Right") for each outstanding share of common stock, par value
$.01 per share (the "Common Shares"), of the Company. The dividend is payable
on September [___], 1996 (the "Record Date") to the stockholders of record on
that date. Each Right entitles the registered holder to purchase from the
Company one one-hundredth of a share of Series A Junior Participating Preferred
Stock, par value $.01 per share (the "Preferred Shares"), of the Company at a
price of $100 per one one-hundredth of a Preferred Share (the "Purchase Price"),
subject to adjustment. The description and terms of the Rights are set forth in
a Rights Agreement (the "Rights Agreement") between the Company and The Bank of
New York as rights agent (the "Rights Agent").
Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") have acquired beneficial ownership of 19.9% or more of the
outstanding Common Shares or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to such time as any person
or group of affiliated persons becomes an Acquiring Person) following the
commencement of, or announcement of an intention to make, a tender offer or
exchange offer the consummation of which would result in the beneficial
ownership by a person or group of 19.9% or more of the outstanding Common Shares
(the earlier of such dates being called the "Distribution Date"), the Rights
will be evidenced, with respect to any of the Common Share certificates
outstanding as of the Record Date, by such Common Share certificate with a copy
of this Summary of Rights attached thereto.
The Rights Agreement provides that, until the Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the Common Shares. Until the Distribution Date (or earlier
redemption or expiration of the Rights), new Common Share certificates issued
after the Record Date upon transfer or new issuance of Common Shares will
contain a notation incorporating the Rights Agreement by reference. Until the
Distribution Date (or earlier redemption or expiration of the Rights), the
surrender for transfer of any certificates for Common Shares outstanding as of
the Record Date, even without such notation or a copy of this Summary of Rights
being attached thereto, will also constitute the transfer of the Rights
associated with the Common Shares represented by such certificate. As soon as
practicable following the Distribution Date, separate certificates evidencing
the Rights ("Right Certificates") will be mailed to holders of record of the
Common Shares as of the close of business on the Distribution Date and such
separate Right Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The
Rights will expire on September [___], 2006 (the "Final Expiration Date"),
unless the Final Expiration Date is extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case, as described below.
C-1
<PAGE>
The Purchase Price payable, and the number of Preferred Shares or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution (i) in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Preferred
Shares, (ii) upon the grant to holders of the Preferred Shares of certain rights
or warrants to subscribe for or purchase Preferred Shares at a price, or
securities convertible into Preferred Shares with a conversion price, less than
the then-current market price of the Preferred Shares or (iii) upon the
distribution to holders of the Preferred Shares of evidences of indebtedness or
assets (excluding regular periodic cash dividends paid out of earnings or
retained earnings or dividends payable in Preferred Shares) or of subscription
rights or warrants (other than those referred to above).
The number of outstanding Rights and the number of one one-hundredths
of a Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Shares or a stock
dividend on the Common Shares payable in Common Shares or subdivisions,
consolidations or combinations of the Common Shares occurring, in any such case,
prior to the Distribution Date.
Preferred Shares purchasable upon exercise of the Rights will not be
redeemable. Each Preferred Share will be entitled to a minimum preferential
quarterly dividend payment of $1 per share but will be entitled to an aggregate
dividend of 100 times the dividend declared per Common Share. In the event of
liquidation, the holders of the Preferred Shares will be entitled to a minimum
preferential liquidation payment of $100 per share but will be entitled to an
aggregate payment of 100 times the payment made per Common Share. Each
Preferred Share will have 100 votes, voting together with the Common Shares.
Finally, it the event of any merger, consolidation or other transaction in which
Common Shares are exchanged, each Preferred Share will be entitled to receive
100 times the amount received per Common Share. These rights are protected by
customary antidilution provisions.
Because of the nature of the Preferred Shares, dividend, liquidation
and voting rights, the value of the one one-hundredth interest in a Preferred
Share purchasable upon exercise of each Right should approximate the value of
one Common Share.
If the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold
after a person or group has become an Acquiring Person, proper provision will be
made so that each holder of a Right will thereafter have the right to receive,
upon the exercise thereof at the then current exercise price of the Right, that
number of shares of common stock of the acquiring company which at the time of
such transaction will have a market value of two times the exercise price of the
Right. If any person or group of affiliated or associated persons becomes an
Acquiring Person, proper provision shall be made so that each holder of a Right,
other than Rights beneficially owned by the Acquiring Person (which will
thereafter be void), will thereafter have the right to receive upon exercise
that number of Common Shares having a market value of two times the exercise
price of the Right.
At any time after any person or group becomes an Acquiring Person and
prior to the acquisition by such person or group of 50% or more of the
outstanding Common Shares, the Board of Directors of the Company may exchange
the Rights (other than Rights owned by such person or group, which will have
become void), in whole or in part, at an exchange ratio of one Common Share, or
one one-hundredth of a Preferred Share (or of a share of a class or series of
the Company's
C-2
<PAGE>
preferred stock having equivalent rights, preferences and privileges), per Right
(subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1.0% in
such Purchase Price.
No fractional Preferred Shares will be issued (other than fractions
which are integral multiples of one one-hundredth of a Preferred Share, which
may, at the election of the Company, be evidenced by depositary receipts) and in
lieu thereof, an adjustment in cash will be made based on the market price of
the Preferred Shares on the last trading day prior to the date of exercise.
At any time prior to the acquisition by a person or group of
affiliated or associated persons of beneficial ownership of 19.9% or more of the
outstanding Common Shares, the Board of Directors of the Company may redeem the
Rights in whole, but not in part, at a price of $.01 per Right (the "Redemption
Price"). The redemption of the Rights may be made effective at such time on
such basis with such conditions as the Board of Directors in its sole discretion
may establish. Immediately upon any redemption of the Rights, the right to
exercise the Rights will terminate and the only right of the holders of Rights
will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board of Directors of
the Company without the consent of the holders of the Rights, including an
amendment to lower certain thresholds described above to not less than the
greater of (i) the sum of .001% and the largest percentage of the outstanding
Common Shares then known to the Company to be beneficially owned by any person
or group of affiliated or associated persons and (ii) 10%, except that from and
after such time as any person or group of affiliated or associated persons
becomes an Acquiring Person no such amendment may adversely affect the interests
of the holders of the Rights.
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 to receive dividends.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on S-1, No. 333-
06585. A copy of the Rights Agreement is available free of charge from the
Company. This summary description of the Rights does not purport to be complete
and is qualified in its entirety by reference to the Rights Agreement, which is
hereby incorporated herein by reference.
C-3
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
1996 STOCK OPTION PLAN
1. PURPOSE; TYPES OF AWARDS; CONSTRUCTION.
The purpose of the 1996 Stock Option Plan (the "Plan") of Cross-Continent
Auto Retailers, Inc., a Delaware corporation (the "Company"), is to attract and
retain employees (including officers), directors and independent contractors of
the Company, or any Subsidiary or Affiliate which now exists or hereafter is
organized or acquired, and to furnish additional incentives to such persons by
encouraging them to acquire a proprietary interest in the Company. Pursuant to
Section 6 of the Plan, there may be granted Options, including "incentive stock
options" and "nonqualified stock options". The Plan is intended to satisfy the
requirements of Rule 16b-3 promulgated under Section 16 of the Exchange Act and
shall be interpreted in a manner consistent with the requirements thereof.
2. DEFINITIONS.
For purposes of the Plan, the following terms shall be defined as set forth
below:
(a) "Administrator" means the Board or, if and so long as a Committee
has been established and is in existence, the Committee.
(b) "Affiliate" means any entity if, at the time of granting of an
Option, (i) the Company, directly, owns at least 20% of the combined voting
power of all classes of stock of such entity or at least 20% of the ownership
interests in such entity or (ii) such entity, directly or indirectly, owns at
least 20% of the combined voting power of all classes of stock of the Company.
(c) "Beneficiary" means the person, persons, trust or trusts which
have been designated by an Optionee in his or her most recent written
beneficiary designation filed with the Company to receive the benefits specified
under the Plan upon his or her death, or, if there is no designated Beneficiary
or surviving designated Beneficiary, then the person, persons, trust or trusts
entitled by will or the applicable laws of descent and distribution to receive
such benefits.
(d) "Board" means the Board of Directors of the Company.
(e) "Change in Control" means a change in control of the Company
which will be deemed to have occurred if:
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Exchange Act (other than an Exempt Person), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing 50% or more of the combined voting power of the Company's
then outstanding voting securities; PROVIDED that no Change of Control
shall be deemed to have occurred as the result of an acquisition by
the Company of any of its then outstanding voting securities which, by
reducing the number of shares outstanding, increases the proportionate
number of shares of voting securities beneficially owned by any person
to 50% or more of the combined voting power of the Company's then
outstanding voting securities; PROVIDED FURTHER, that if a person
shall become the beneficial owner of 50% or more of the combined
voting
<PAGE>
power of the Company's then outstanding voting securities by reason of
share purchases by the Company and shall, after such share purchases
by the Company, become the beneficial owner of any additional voting
securities of the Company, then a Change of Control shall be deemed to
have occurred; and PROVIDED FURTHER, that, notwithstanding anything to
the contrary contained in the Plan, if the Board of Directors of the
Company determines in good faith that a person who would otherwise be
a beneficial owner as defined pursuant to the foregoing provisions of
this paragraph has become such inadvertently, in a manner that
otherwise would cause a Change of Control, and such person divests as
promptly as practicable a sufficient number of voting securities so
that such person would no longer be a beneficial owner, then a Change
of Control shall be deemed to not have occurred for any purposes of
this Plan;
(ii) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has
entered into an agreement with the Company to effect a transaction
described in clause (i), (iii), or (iv) of this Section 2(e)) whose
election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least a majority of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved, cease for any reason to constitute at
least a majority thereof;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving or parent entity)
50% or more of the combined voting power of the voting securities of
the Company or such surviving or parent entity outstanding immediately
after such merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as hereinbefore defined), other
than an Exempt Person, acquired 50% or more of the combined voting
power of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve of a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets (or any transaction having a similar effect).
(f) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(g) "Committee" means the committee, consisting exclusively of two or
more Non-Employee Directors (as defined in Rule 16b-3), if and as the same may
be established by the Board to administer the Plan; PROVIDED, HOWEVER, that to
the extent required for the Plan to comply with the applicable provisions of
Section 162(m) of the Code, "Committee" means either such committee or a
subcommittee of that committee, as the case may be, which shall be constituted
to comply with the applicable requirements of Section 162(m) of the Code and the
regulations promulgated thereunder.
(h) "Company" means Cross-Continent Auto Retailers, Inc., a
corporation organized under the laws of the State of Delaware, or any successor
corporation.
2
<PAGE>
(i) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and as now or hereafter construed, interpreted and
applied by regulations, rulings and cases.
(j) "Exempt Person" means (1) the Company, (2) any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, (3)
any corporation owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of Stock, or
(4) any person or group of persons who, immediately prior to the adoption of
this Plan, owned more than 50% of the combined voting power of the Company's
then outstanding voting securities.
(k) "Fair Market Value" means, with respect to Stock or other
property, the fair market value of such Stock or other property determined by
such methods or procedures as shall be established from time to time by the
Administrator. Notwithstanding the foregoing, the per share Fair Market Value
of Stock as of a particular date shall mean (i) if the shares of Stock are then
listed on a national securities exchange, the closing sales price per share of
Stock on the national securities exchange on which the stock is principally
traded, for the last preceding date on which there was a sale of such Stock on
such exchange, or (ii) if the shares of Stock are then traded on the National
Market System of the National Association of Securities Dealers Automated
Quotation System ("NASDAQ"), the reported per share closing price of the Stock
on the day prior to such date or, if there was no such price reported for such
date, on the next preceding date for which such a price was reported, or (iii)
if the shares of Stock are then traded in an over-the-counter market other than
on the NASDAQ National Market System, the average of the closing bid and asked
prices for the shares of Stock in such over-the-counter market for the last
preceding date on which there was a sale of such Stock in such market, or (iv)
if the shares of Stock are not then listed on a national securities exchange or
traded in an over-the-counter market, such value as the Administrator, in its
sole discretion, shall determine in good faith.
(l) "ISO" means any Option intended to be and designated as an
incentive stock option within the meaning of Section 422 of the Code.
(m) "NQSO" means any Option not designated as an ISO.
(n) "Option" means a right, granted to an Optionee under Section 6(b)
of the Plan, to purchase shares of Stock. An Option may be either an ISO or an
NQSO, provided that ISOs may be granted only to employees of the Company or a
Subsidiary.
(o) "Optionee" means a person who, as an employee, director or
independent contractor of the Company, a Subsidiary or an Affiliate, has been
granted an Option.
(p) "Plan" means this Cross-Continent Auto Retailers, Inc. 1996 Stock
Option Plan, as amended from time to time.
(q) "Rule 16b-3" means Rule 16b-3, as from time to time in effect,
promulgated by the Securities and Exchange Commission under Section 16 of the
Exchange Act, including any successor to such Rule.
(r) "Stock" means the common stock, par value $.01 per share, of the
Company.
(s) "Stock Option Agreement" means any written agreement, contract,
or other instrument or document evidencing an Option.
(t) "Subsidiary" means any corporation in which the Company, directly
or
3
<PAGE>
indirectly, owns stock possessing 50% or more of the total combined voting power
of all classes of stock of such corporation.
3. ADMINISTRATION.
The Plan shall be administered by the Administrator. The Administrator
shall have the authority in its discretion, subject to and not inconsistent with
the express provisions of the Plan, to administer the Plan and to exercise all
the powers and authorities either specifically granted to it under the Plan or
necessary or advisable in the administration of the Plan, including, without
limitation, the authority to grant Options; to determine the persons to whom and
the time or times at which Options shall be granted; to determine the type and
number of Options to be granted, the number of shares of Stock to which Options
may relate and the terms, conditions, restrictions and performance criteria
relating to any Options; to determine whether, to what extent, and under what
circumstances Options may be settled, canceled, forfeited, exchanged, or
surrendered; to make adjustments in the terms and conditions of, and the
criteria and performance objectives included in, Options in recognition of
unusual or non-recurring events affecting the Company or any Subsidiary or
Affiliate or the financial statements of the Company or any Subsidiary or
Affiliate, or in response to changes in applicable laws, regulations, or
accounting principles; to designate Affiliates; to construe and interpret the
Plan and any Options; to prescribe, amend and rescind rules and regulations
relating to the Plan; to determine the terms and provisions of the Stock Option
Agreements (which need not be identical for each Optionee); and to make all
other determinations deemed necessary or advisable for the administration of the
Plan.
The Administrator may appoint a chairperson and a secretary and may make
such rules and regulations for the conduct of its business as it shall deem
advisable, and shall keep minutes of its meetings. All determinations of the
Administrator shall be made by a majority of its members either present in
person or participating by conference telephone at a meeting or by written
consent. The Administrator may delegate to one or more of its members or to one
or more agents such administrative duties as it may deem advisable, and the
Administrator or any person to whom it has delegated duties as aforesaid may
employ one or more persons to render advice with respect to any responsibility
the Administrator or such person may have under the Plan. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all persons, including the Company, and any Subsidiary, Affiliate or
Optionee (or any person claiming any rights under the Plan from or through any
Optionee) and any stockholder.
No member of the Board or Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Option granted
hereunder.
4. ELIGIBILITY.
Options may be granted to employees (including officers), directors and
independent contractors of the Company and its present or future Subsidiaries
and Affiliates, in the discretion of the Administrator. In determining the
person to whom Options shall be granted and the type of Options granted
(including the number of shares to be covered by such Options), the
Administrator shall take into account such factors as the Administrator shall
deem relevant in connection with accomplishing the purposes of the Plan.
5. STOCK SUBJECT TO THE PLAN.
The maximum number of shares of Stock reserved for the grant of Options
under the Plan shall be 1,325,000 shares of Stock, subject to adjustment as
provided herein. Such shares may, in whole or in part, be authorized but
unissued shares or shares that shall have been or may be reacquired by the
Company in the open market, in private transactions or otherwise. The number of
shares of Stock available for issuance under the Plan shall be reduced by the
number of shares of
4
<PAGE>
Stock subject to outstanding Options. If any shares subject to an Option are
forfeited, canceled, exchanged or surrendered or if an Option otherwise
terminates or expires without a distribution of shares to the Optionee, the
shares of Stock with respect to such Option shall, to the extent of any such
forfeiture, cancellation, exchange, surrender, termination or expiration, again
be available for Options under the Plan.
In the event that the Administrator shall determine that any dividend or
other distribution (whether in the form of cash, Stock, or other property),
recapitalization, stock split, reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase, or share exchange, or other
similar corporate transaction or event, affects the Stock such that an
adjustment is appropriate in order to prevent dilution or enlargement of the
rights of an Optionee under the Plan, then the Administrator shall make such
equitable changes or adjustments as it deems necessary or appropriate to any or
all of (i) the number and kind of shares of Stock which may thereafter be issued
in connection with Options, (ii) the number and kind of shares of Stock issued
or issuable in respect of outstanding Options, and (iii) the exercise price,
grant price, or purchase price relating to any Option; PROVIDED THAT, with
respect to ISOs, such adjustment shall be made in accordance with Section 424(h)
of the Code.
6. SPECIFIC TERMS OF OPTIONS.
(a) GENERAL. The term of each Option shall be for such period as may
be determined by the Administrator. The Administrator may make rules relating
to Options, and may impose on any Option or the exercise thereof, at the date of
grant or thereafter, such additional terms and conditions, not inconsistent with
the provisions of the Plan, as the Administrator shall determine.
(b) OPTIONS. The Administrator is authorized to grant Options to
Optionees on the following terms and conditions:
(i) TYPE OF OPTION. The Stock Option Agreement evidencing
the grant of an Option under the Plan shall designate the Option as an
ISO (in the event its terms, and the individual to whom it is granted,
satisfy the requirements for ISOs under the Code), or an NQSO.
(ii) EXERCISE PRICE. The exercise price per share of Stock
purchasable under an Option shall be determined by the Administrator;
provided that, except as may otherwise be required by the Code, in the
case of an ISO, such exercise price shall be not less than the Fair
Market Value of a share of Stock on the date of grant of such Option
and, in the case of an ISO granted to the holder of more than 10% of
the Stock outstanding at the date of grant of such Option, such
exercise price shall be not less than 110% of the Fair Market Value on
such date of grant. In no event shall the exercise price for the
purchase of shares of Stock be less than par value. The exercise
price for Stock subject to an Option may be paid in cash or by an
exchange of Stock previously owned by the Optionee, or a combination
of both, in an amount having a combined value equal to such exercise
price. Any shares of Stock exchanged upon the exercise of any Option
shall be valued at the Fair Market Value on the date on which such
shares are exchanged. An Optionee also may elect to pay all or a
portion of the aggregate exercise price by having shares of Stock with
a Fair Market Value on the date of exercise equal to the aggregate
exercise price withheld by the Company or sold by a broker-dealer in
accordance with applicable law.
(iii) TERM AND EXERCISABILITY OF OPTIONS. The date on which
the Administrator adopts a resolution expressly granting an Option
shall be considered the day on which such Option is granted. Options
shall be exercisable over the
5
<PAGE>
exercise period (which shall not exceed ten years from the date of
grant or five years from the date of grant in the case of an ISO
granted to a holder of more than 10% of Stock outstanding as of such
date), at such times and upon such conditions as the Administrator may
determine, as reflected in the Stock Option Agreement. An Option may
be exercised to the extent of any or all full shares of Stock as to
which the Option has become exercisable, by giving written notice of
such exercise to the Company's Secretary and paying the exercise price
as described in Section 6(b)(ii).
(iv) TERMINATION OF EMPLOYMENT, ETC. An Option may not be
exercised unless the Optionee is then in the employ of, is then a
director of, or then maintains an independent contractor relationship
with, the Company or any Subsidiary or Affiliate (or a company or a
parent or subsidiary company of such company issuing or assuming the
Option in a transaction to which Section 424(a) of the Code applies),
and unless the Optionee has continuously maintained any of such
relationships, since the date of grant of the Option; PROVIDED THAT,
the Stock Option Agreement may contain provisions extending the
exercisability of Options, in the event of specified terminations, to
a date not later than the expiration date of such Option. The
Administrator may establish a period during which the Beneficiaries of
an Optionee who died while an employee, director or independent
contractor of the Company or any Subsidiary or Affiliate or during any
extended period referred to in the immediately preceding proviso may
exercise those Options which were exercisable on the date of the
Optionee's death; provided that no Option shall be exercisable after
its expiration date.
(v) NONTRANSFERABILITY. Unless otherwise determined by the
Administrator, Options shall not be transferable by an Optionee except
by will or the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined under the Code or Title
I of the Employee Retirement Income Security Act of 1974, as amended,
or the rules thereunder, and shall be exercisable during the lifetime
of an Optionee only by such Optionee or his guardian or legal
representative.
(vi) OTHER PROVISIONS. Options may be subject to such other
conditions as the Administrator may prescribe in its discretion.
7. CHANGE IN CONTROL PROVISIONS.
In the event of a Change in Control, any and all Options then outstanding
shall become fully exercisable and vested, whether or not theretofore vested and
exercisable.
8. GENERAL PROVISIONS.
(a) COMPLIANCE WITH LEGAL AND EXCHANGE REQUIREMENTS. The Plan, the
granting and exercising of Options thereunder, and the other obligations of the
Company under the Plan and any Stock Option Agreement, shall be subject to all
applicable federal and state laws, rules and regulations, and to such approvals
by any regulatory or governmental agency as may be required. The Company, in
its discretion, may postpone the issuance or delivery of Stock under any Option
until completion of such stock exchange listing or registration or qualification
of such Stock or other required action under any state, federal or foreign law,
rule or regulation as the Company may consider appropriate, and may require any
Optionee to make such representations and furnish such information as it may
consider appropriate in connection with the issuance or delivery of Stock in
compliance with applicable laws, rules and regulations.
(b) NO RIGHT TO CONTINUED EMPLOYMENT, ETC. Nothing in the Plan or in
any
6
<PAGE>
Option granted or Stock Option Agreement entered into pursuant to the Plan shall
confer upon any Optionee the right to continue in the employ of, or to continue
as a director of or an independent contractor to, the Company, any Subsidiary or
any Affiliate, as the case may be, or to be entitled to any remuneration or
benefits not set forth in the Plan or such Stock Option Agreement or to
interfere with or limit in any way the right of the Company or any such
Subsidiary or Affiliate to terminate such Optionee's employment, directorship or
independent contractor relationship.
(c) TAXES. The Company or any Subsidiary or Affiliate is authorized
to withhold from any Option granted, any payment relating to an Option under the
Plan (including from a distribution of Stock), or any other payment to an
Optionee, amounts of withholding and other taxes due in connection with any
transaction involving an Option, and to take such other action as the
Administrator may deem advisable to enable the Company and an Optionee to
satisfy obligations for the payment of withholding taxes and other tax
obligations relating to any Option. This authority shall include authority to
withhold or receive Stock or other property and to make cash payments in respect
thereof in satisfaction of an Optionee's tax obligations.
(d) AMENDMENT AND TERMINATION OF THE PLAN. The Board may at any time
and from time to time alter, amend, suspend, or terminate the Plan in whole or
in part. Notwithstanding the foregoing, no amendment shall affect adversely any
of the rights of any Optionee, without such Optionee's consent, under any Option
theretofore granted under the Plan.
(e) NO RIGHTS TO OPTIONS; NO STOCKHOLDER RIGHTS. No Optionee shall
have any claim to be granted any Option under the Plan, and there is no
obligation for uniformity of treatment of Optionees. Except as provided
specifically herein, an Optionee or a transferee of an Option shall have no
rights as a stockholder with respect to any shares covered by the Option until
the date of the issuance of a stock certificate to such Optionee for such
shares.
(f) UNFUNDED STATUS OF OPTIONS. The Plan is intended to constitute
an "unfunded" plan for incentive and deferred compensation. Nothing contained
in the Plan or any Option shall give any such Optionee any rights that are
greater than those of a general creditor of the Company.
(g) NO FRACTIONAL SHARES. No fractional shares of Stock shall be
issued or delivered pursuant to the Plan or any Option. The Committee shall
determine whether cash, other Options, or other property shall be issued or paid
in lieu of such fractional shares or whether such fractional shares or any
rights thereto shall be forfeited or otherwise eliminated.
(h) GOVERNING LAW. The Plan and all determinations made and actions
taken pursuant hereto shall be governed by the laws of the State of Delaware
without giving effect to the conflict of laws principles thereof.
(i) EFFECTIVE DATE; PLAN TERMINATION. (a) The Plan shall take
effect upon its adoption by the Board.
(j) The Board may terminate the Plan at any time with respect to any
shares of Stock that are not subject to Options. Unless terminated earlier by
the Board, the Plan shall terminate ten years after the effective date and no
Options shall be granted under the Plan after such date. Termination of the
Plan under this Section 8(j) will not affect the rights and obligations of any
Optionee with respect to options granted prior to termination.
7
<PAGE>
SUPPLEMENTAL AGREEMENT TO
GENERAL MOTORS CORPORATION
DEALER SALES AND SERVICE AGREEMENT
This Supplemental Agreement ("Agreement") is entered into among PLAINS
------
CHEVROLET, INC. ("Dealer"), CROSS-COUNTRY AUTO RETAILERS, INC. ("Public
- --------------- ----------------------------------
Company") and General Motors Corporation, Division,
-----------------
acting on behalf of itself, and
---------------------------------------
(collectively "Divisions").
WHEREAS, the Divisions have each entered into a General Motors Corporation
Dealer Sales and Service Agreement ("Dealer Agreement") with Dealer permitting
Dealer to conduct Dealership Operations on behalf of Divisions from approved
locations identified in the Dealer Agreement;
WHEREAS, the organization and ownership structure of Dealer and Public Company
are such that the terms of the Dealer Agreement and not wholly adequate to
address the legitimate business needs and concerns of the Dealer, Public Company
and Divisions; and
WHEREAS, Dealer and the Divisions have entered into their respective Dealer
Agreements in consideration for and reliance upon certain understandings,
assurances and representations which the parties hereto wish to document;
NOW, THEREFORE, the parties agree as follows:
1. For purposes of the Dealer Agreement, including Paragraph Third and Article
2, EMMETT M. RICE, JR. shall be considered as Dealer Operator. The
--------------------------
Divisions have relied and will rely upon the personal qualifications and
management skills of Dealer Operator who also serves as VICE PRESIDENT
-------------------
of the Dealer. Dealer and Public Company hereby represent that, subject to
Dealer Operator's duties as an officer of Dealer, Dealer Operator has
complete and irrevocable authority to make all decisions, and enter into
any and all necessary business commitments required in the normal course of
conducting Dealership Operations on behalf of Dealer and may take all
actions normally required of a Dealer Operator pursuant to Paragraph Third
and Article 2 of the Dealer Agreement. Neither Dealer nor Public Company
will revoke, modify or amend such authority without the prior written
approval of Divisions. Because of the unique structure of Dealer, the 15%
ownership requirement contained in Article 2 and Article 3 shall not apply
to Dealer Operator. The parties further agree, that for purposes of
Article 12.1.2, the Dealer shall have the right to propose a successor
Dealer Operator.
2. The removal or withdrawal, of Dealer Operator without Divisions' prior
written consent shall constitute grounds for termination of the Dealer
Agreements subject to applicable law. However, the Divisions recognize
that employment responsibilities of the Dealer Operator with Dealer and/or
Public Company may change, making it impractical for the Dealer Operator to
continue to fulfill his/her responsibilities as Dealer Operator. In that
case, or in the event Dealer Operator leaves the employ of Dealer and/or
Public Company, Dealer shall have the opportunity to propose a replacement
Dealer Operator. The Divisions will not unreasonably withhold approval of
any such proposal, provided the proposed replacement has the skills and
qualifications to act as Dealer Operator pursuant to the standard policies
and procedures of General Motors Corporation
1
<PAGE>
Dealer shall make every effort to obtain the consent of the Divisions to a
proposed replacement Dealer Operator prior to the removal or withdrawal of
the approved Dealer Operator. If that is not practical, Dealer shall
notify Division in writing within 10 days following the withdrawal of the
approved Dealer Operator. Within 60 days of that withdrawal, Dealer will
submit to Division a plan and appropriate applications to replace Dealer
Operator with a qualified replacement acceptable to Division. The
replacement Dealer Operator must assume his/her responsibilities no later
than 90 days following the withdrawal of the approved Dealer Operator.
3. Dealer is a wholly-owned subsidiary of Public Company. Dealer and Public
Company hereby warrant that the representations and assurances of each
herein are within their respective authority to make and do not contravene
any directive, policy or procedure of Dealer or Public Company. The
parties hereto acknowledge that the provisions of this Agreement shall not
be applicable until such time as this Supplemental Agreement is fully-
executed by all parties.
4. Any material change in ownership of Dealer, or any event with respect to
Public Company described in Paragraph 5 below, shall be considered a change
in ownership of Dealer under the terms of the Dealer Agreements, and all
applicable provisions of those Dealer Agreements will apply to any such
change. The Divisions have executed the Dealer Agreements in reliance upon
the ownership and management structure and any material change in such
structure (other than changes in ownership of Public Company, which are
discussed in Paragraph 5 below), shall be the basis for a review of the
agreements between us and whether changes and modifications are required
and whether the business relationship between us should continue or
terminate.
5. Given the ultimate control of Dealer by Public Company, and the Divisions'
strong interest in assuring that those who own and control their Dealers
have interests consistent with those of the Divisions, Dealer and Public
Company agree that if an ownership interest is acquired in Public Company
by a person or entity which notifies Public Company via Schedule 13D filed
with the Securities and Exchange Commission, Dealer shall advise Division
in writing, and attach a copy of that Schedule. In the event Item 4 of
that Schedule discloses that the person or entity acquiring such ownership
interest owns or controls twenty percent (20%) of Public Company and
intends of may intend either: (a) an acquisition of additional securities
of Public Company or (b) an extraordinary corporate transaction such as a
merger, reorganization or liquidation, involving Public Company or Dealer
or (c) a sale or transfer of a material amount of assets of Public Company
or Dealer (d) any change in the present Board of Directors or management of
Public Company of (e) any other material change in Public Company's
business or corporate structure of (f) any action similar to those noted
above, then, if the Divisions reasonably conclude that such person or
entity does not have interests compatible with those of General Motors, or
is otherwise not qualified to have an ownership interest in a General
Motors dealership, Dealer and Public Company agree that within 90 days of
receipt of written notice from Division of this fact, they will: (i)
transfer the assets associated with Dealer to a third party reasonably
acceptable to the Divisions, (ii) voluntarily terminate the Dealer
Agreements in effect with Dealer, or (iii) provide evidence to Divisions
that such person or entity no longer has such an ownership interest in
Public Company above the 20% threshold. Should Dealer enter into an
agreement to transfer its assets to a third party, the right of first
refusal described in Article 12.3 shall apply to any such transfer.
6. Dealer, Public Company and General Motors stipulate and agree that the
dispute resolution process for the appropriate General Motors Division
shall be the initial, exclusive source of
2
<PAGE>
resolution of any dispute regarding the General Motors Dealer Agreement(s)
and this Supplemental Agreement including, but not limited to, involuntary
termination of the Dealer Agreement(s) and/or approval of Dealer or Public
Company for additional investment in or ownership of General Motors
dealerships. Upon final determination through such dispute resolution,
each party shall have recourse to a review de novo by the appropriate state
court of administrative agency consistent with the provisions of state law.
The parties further agree that if a dispute is specific to a particular
division, the appropriate divisional dispute resolution mechanism will be
used for the resolution of that particular matter. However, this shall not
defeat each party's recourse to review de novo as provided herein.
7. Dealer and Public Company further stipulate and agree that if Dealer,
Public Company, General Motors, and the public are to realize the potential
benefits that Dealer and Public Company represent to be the result of
General Motors approving the ownership structure proposed by Dealer and
Public Company, then an integral component of the participation by Dealer
and Public Company is their agreement that all such dealerships owned by
Public Company shall fully comply with General Motors Network 2000 Channel
Strategy including proper franchise alignment and facilities that are
properly located and that are in compliance with appropriate divisional
image programs. The Channel Strategy as it relates to Dealer is set forth
in a memorandum dated October 5, 1995, from Ronald L. Zarrella to all GM
dealers, and in the written statement of the strategy as it relates to each
of Dealer's dealerships, copies of which are attached hereto. Dealer and
Public Company further stipulate and agree that within 12 months of the
acquisition of any General Motors dealership that is not consistent with
the Channel Strategy, Dealer and Public Company will have complied with the
Channel Strategy for that location. If Dealer and Public Company fail to
do so within the time provided, then Dealer will terminate the
representation of such Divisions as reasonably required by General Motors
to comply with the Channel Strategy. If such termination is required,
General Motors will purchase from Dealer and/or Public Company the
dealership assets at net book value for each Dealer Agreement so
terminated.
8. Dealer and Public Company agree that all such dealerships shall be solely
for the exclusive representation of General Motors products and related
services and Dealership Operations as permitted by the Dealer Agreements
and in no event shall be used for the display, sale or promotion of any new
vehicle other than those of General Motors Corporation or Saturn
Corporation.
Dealer and Public Company agree that should Dealer cease to provide
exclusive representation of General Motors products, based on the proper
franchise alignment as determined by the Channel Strategy, then that shall
constitute good cause in and of itself for the termination of the Dealer
Agreements then in effect with Dealer and Dealer shall voluntarily
terminate the Dealer Agreements then in effect.
9. In the event of any termination of the Dealer Agreement or any transaction
or event that would, in effect, discontinue Dealership Operations from that
location, Dealer and Public Company agree to provide General Motors with:
(a) the right to purchase the dealership facilities for fair market value
based on automotive use through the appraisal process attached hereto, or
(b) an assignment of any existing lease or lease options that are
available.
3
<PAGE>
10. Dealer and Public Company agree to provide to Divisions a list of the
officers and key management of Dealer and Public Company along with those
individuals key responsibilities in regard to the control and management of
Dealer. Dealer and Public Company agree to propose to Divisions any
material changes in the individuals of their responsibilities. Such
proposal should be provided to the Divisions in writing sixty (60) days
prior to such change and shall include sufficient information to permit
Divisions to evaluate the proposed change consistent with normal policies
and procedures. For purposes of this Agreement, the term "key management"
shall mean
BILL A. GILLILAND, ROBERT W. HALL AND EMMETT M. RICE, JR.
---------------------------------------------------------------------------
--------------------------------------------------------------------------.
11. Dealer and Public Company recognize that customers benefit from competition
in the marketplace and agree that any proposal to acquire additional GM
dealerships shall be subject to and considered consistent with the terms of
General Motors Multiple Dealer Investor/Multiple Dealer Operator policies
as set forth in NAO Bulletin 94-11, a copy of which has been provided to
Dealer and Public Company.
12. Public Company agrees that all General Motors dealerships in which Public
Company maintains an investment will use Electronic Funds Transfer (E.F.T.)
for settlement of the dealership obligations to General Motors and that
General Motors will have right of offset for any unpaid debit balances for
any General Motors dealership in which Public Company maintains or
maintained an investment at the time the indebtedness occurred and the
right to collect those amounts from the account for any other General
Motors dealership in which Public Company maintains an investment.
13. Dealer and Public Company agree that Dealer shall maintain, at all times,
sufficient working capital to meet or exceed the minimum net working
capital standards for the Dealer as determined from time to time by the
Divisions consistent with the normal practices and procedures of the
Divisions. Dealer and Public Company shall provide such documentation as
reasonably requested by the Divisions to assure compliance with that
requirement. Public Company shall submit an annual audited consolidated
balance sheet for the combined dealership operations of Public Company.
14. The parties agree that this Agreement shall supplement the terms of the
Dealer Agreements in accordance with Article 17.11 of the Dealer
Agreements.
15. In the event that the policies of General Motors Corporation with regard to
the issues addressed herein should be modified, the parties agree to review
such modifications to determine whether modification to this Agreement is
appropriate.
16. Nothing in this Agreement or the Dealer Agreement shall be construed to
confer any rights upon any person not a party hereto or thereto, nor shall
it create in any party an interest as a third party beneficiary of this
Agreement of the Dealer Agreement. Dealer and Public Company hereby agree
to indemnify and hold harmless General Motors Corporation, its directors,
officers, employees, subsidiaries, agents and representatives from and
against all claims, actions, damages, expenses, costs and liability arising
from or in connection with any action by a third-party in its
4
<PAGE>
capacity as a stockholder of Public Company other than through a derivative
stockholder suit authorized by the Board of Directors of Public Company.
17. This Agreement is intended to modify and adapt certain provisions of the
Dealer Agreement and is intended to be incorporated as part of the Dealer
Agreement. In the event that any provisions of this Agreement are in
conflict with other provisions of the Dealer Agreement Standard Provisions,
the provisions contained in this Supplemental agreement shall govern.
IN WITNESS WHEREOF, the parties have executed this Agreement this 29 day of
----
July, 1996.
- ------
"Dealer" "Public Company"
PLAINS CHEVROLET, INC. CROSS-COUNTRY AUTO RETAILERS, INC.
- -------------------------- --------------------------
Robert W. Hall Robert W. Hall
- -------------------------- --------------------------
By: Robert W. Hall By: Robert W. Hall
Title : Vice President Title: Senior Vice Chairman
Date: Date:
General Motors Corporation
CHEVROLET Division
- -------------
- --------------------------
By:
Title: Director
Date:
5
<PAGE>
EXHIBIT A
---------
PROCEDURE FOR DETERMINATION OF
------------------------------
FAIR MARKET VALUE
-----------------
For purposes of the Supplemental Agreement to General Motors Corporation Dealer
Sales and Service Agreement ("Supplemental Agreement") to which this is an
attachment, the term "Fair Market Value" shall mean the fair market value of the
land and improvements comprising the Dealership Premises ("Premises") as an
automobile sales and service facility. Fair Market Value shall be calculated
for the Premises (a) as an automobile sales and service facility, and not
necessarily for its highest and best use, (b) having regard for comparable sales
of automobile sales and service facilities similar to the Premises in the market
area in which the Premises are located, (c) is "AS IS, WHERE IS" condition and
(d) if an appraiser uses an "income approach" to valuation, such appraiser will
use motor vehicle industry standards for predicting motor vehicle sales and/or
the motor vehicle sales performance of other similar dealerships in the
geographic area of the Premises, rather than the actual sales at the Premises,
as the basis for projecting income from the Premises. Fair Market Value shall
be determined as follows:
1. Public Company and GM shall attempt, in good faith, to agree on Fair
Market Value for the Premises. If Public Company and GM fail, refuse, or are
unable for any reason to agree on Fair Market Value within thirty (30) days
following termination pursuant to Paragraph 9 of the Supplemental Agreement,
Public Company shall within ten (10) days thereafter select an appraiser and
notify GM in writing of the name, address and qualifications of such appraiser.
Within ten (10) days following its receipt of such notice, GM shall select an
appraiser and notify Public Company of the name, address and qualifications of
such appraiser. Such two appraisers shall endeavor to agree upon Fair Market
Value. If such two appraisers shall agree upon Fair Market Value, that amount
shall be binding upon Public Company and GM.
2. If such two appraisers shall be unable to agree upon Fair Market Value
within fifteen (15) days after the selection of an appraiser by GM, then such
appraisers shall advise Public Company and GM of their respective determinations
of Fair Market Value. If the greater of the two determinations of Fair Market
Value is less than or equal to one hundred five percent (105%) of the lesser of
the two determinations of Fair Market Value, the Fair Market Value shall equal
the average of such two determinations of Fair Market Value, which amount shall
be binding and conclusive upon Public Company and GM. If the greater of the two
determinations is more than one hundred five percent (105%) of the lesser of the
two determinations, the two appraisers shall so advise Public Company and GM and
shall select a third appraiser to make the determination for Fair Market Value,
which determination shall be binding and conclusive upon Public Company and GM.
3. If such two appraisers shall be unable to agree upon the designation
of the third appraiser within ten (10) days after the expiration of the fifteen
(15) day period referred to above, or if such third appraiser does not make a
determination of Fair Market Value within fifteen (15) days after his/her
selection, then such third appraiser or a substituted third appraiser, as
applicable shall, at the request of either party hereto, be appointed by the
United States District Court for the District in which the Premises are located.
The determination of Fair Market Value
<PAGE>
made by the third appraiser appointed pursuant hereto shall be made within
fifteen (15) days after such appointment and shall be binding and conclusive
upon Public Company and GM.
4. All appraisers selected or appointed as provided above shall (i) be
independent qualified MAI appraisers active in the market in which the Premises
are located, with experience in appraising automobile sales and service
facilities, (ii) use the definition of Fair Market Value set forth above, and
(iii) be registered in the state in which the Premises are located ("State") if
the State provides for or requires such registrations. The costs and expenses
of any appraiser selected by a party shall be borne solely by such party, and
the costs and expenses of a third appraiser, shall be shared equally between
Public Company and GM.
If GM elects to purchase the Premises, then within thirty (30) days following
initiation of the appraisal process, Public Company shall supply GM with a
commitment for title insurance and a title report showing good and marketable
title in Public Company. At closing, Public Company shall cause a policy of
title insurance to be issued to GM insuring good and marketable title.
The parties shall close the purchase and sale of the Premises withing thirty
(30) days after the determination of the Fair Market Value of the Premises. The
parties shall prepare, execute and deliver all appropriate and customary closing
documents and make such closing adjustments as may be normal for transactions of
this type in the State.
<PAGE>
Chrysler Corporation
DODGE
SALES AND SERVICE AGREEMENT
Performance Dodge, Inc.
- --------------------------------------------------------------------------------
(DEALER Firm Name and D/B/A, if applicable)
located at 7609 S. E. 29th Street Midwest City Oklahoma
---------------------------------------------------------------------
(STREET) (CITY) (STATE)
a(n) ________________________________________ hereinafter called DEALER, and
(INDIVIDUAL CORPORATION OR PARTNERSHIP)
Chrysler Corporation, a Delaware corporation, hereinafter sometimes referred to
as "CC", have entered into this Chrysler Corporation Dodge Sales and Service
Agreement, hereinafter referred to as "Agreement", the terms of which are as
follows:
- --------------------------------------------------------------------------------
INTRODUCTION
The purpose of the relationship established by this Agreement is to provide a
means for the sale and service of specified Dodge vehicles and the sale of CC
vehicle parts and accessories in a manner that will maximize customer
satisfaction and be of benefit to DEALER and CC.
While the following provisions, each of which is material, set forth the
undertakings of this relationship, the success of those undertakings rests on a
recognition of the mutuality of interest of DEALER and CC, and a spirit of
understanding and cooperation by both parties in the day to day performance of
their respective functions. As a result of such considerations, CC has entered
into this Agreement in reliance upon and has placed its trust in the personal
abilities, expertise, knowledge and integrity of DEALER's principal owners and
management personnel, which CC anticipates will enable DEALER to perform the
personal services contemplated by this Agreement.
It is the mutual goal of this relationship to promote the sale and service of
specified CC products by maintaining and advancing their excellence and
reputation by earning, holding and furthering the public regard for CC and all
CC dealers.
- --------------------------------------------------------------------------------
1 PRODUCTS COVERED
DEALER has the right to order and purchase from CC and to sell at retail only
those specific models of CC vehicles, sometimes referred to as "specified CC
vehicles," listed on the Motor Vehicle Addendum, attached hereto and
incorporated herein by reference. CC may change the models of CC vehicles listed
on the Motor Vehicle Addendum by furnishing DEALER a superseding Motor Vehicle
Addendum. Such a superseding Motor Vehicle Addendum will not by deemed or
construed to be an amendment to this Agreement.
- --------------------------------------------------------------------------------
2 DEALER'S MANAGEMENT
CC has entered into this Agreement relying on the active, substantial and
continuing personal participation in the management of DEALER's organization by:
NAME POSITION
Michael R. Robine General Manager
- ------------------------------- ----------------------------------------
Emmett M Rice, Jr. Vice President
- ------------------------------- ----------------------------------------
<PAGE>
DEALER represents and warrants that at least one of the above named individuals
will be physically present at the DEALER's facility (sometimes referred to as
"Dealership Facilities") during most of its operating hours and will manage all
of DEALER's business relating to the sale and service of CC products. DEALER
shall not change the personnel holding the above described position(s) or the
nature and extent of his/her/their management participation without the prior
written approval or CC.
- --------------------------------------------------------------------------------
3 DEALER'S CAPITOL STOCK OR PARTNERSHIP INTEREST
If DEALER is a corporation or partnership, DEALER represents and agrees that the
persons named below own beneficially the capital stock or partnership of DEALER
in the percentages indicated below. DEALER warrants there well be no change
affecting more than 50% of the ownership interest of DEALER, nor will there be
any other change in the ownership interest of DEALER which may affect the
managerial control of DEALER without CC's prior written approval.
Voting Non-Voting Partnership Active
Name Stock Stock Interest Yes/No
Gilliland/Rice Group, Inc. 100 % % % Yes
- ------------------------------ ------- ------- ------- -------
% % %
- ------------------------------ ------- ------- ------- -------
% % %
- ------------------------------ ------- ------- ------- -------
% % %
- ------------------------------ ------- ------- ------- -------
% % %
- ------------------------------ ------- ------- ------- -------
TOTAL 100 % % %
------- ------- -------
- --------------------------------------------------------------------------------
4 SALES LOCALITY
DEALER shall have the non-exclusive right, subject to the provisions of this
Agreement, to purchase from CC those new specified CC vehicles, vehicle parts,
accessories and other CC products for resale at he DEALER's facilities and
location described in the Dealership Facilities and Location Addendum, attached
hereto and incorporated herein by reference. DEALER will actively and
effectively sell and promote the retail sale of CC vehicles, vehicle parts and
accessories in DEALER's Sales Locality. As used herein, "Sales Locality" shall
mean the area designated in writing to DEALER by CC from time to time as the
territory of DEALER's responsibility for the sale of CC vehicles, vehicle parts
and accessories, although DEALER is free to sell said products to customers
wherever they may be located. Said Sales Locality may be shared with other CC
dealers of the same line-make as CC determines to be appropriate.
- --------------------------------------------------------------------------------
5 ADDITIONAL TERMS AND PROVISIONS
The additional terms and provisions set forth in the document entitled
"Chrysler Corporation Sales and Service Agreement Additional Terms and
Provisions" marked "Form 91 (C-P-D)," as may hereafter be amended from time to
time, constitute a part of this Agreement with the same force and effect as if
set forth at length herein, and the term "this Agreement" includes said
additional terms and provision.
- --------------------------------------------------------------------------------
6 FORMER AGREEMENTS, REPRESENTATIONS OR STATEMENTS
This Chrysler Corporation Dodge Sales and Service Agreement and other documents,
(or their successors as specifically provided for herein) which are specifically
incorporated herein by reference constitute the entire agreement between the
parties relating to the purchase by DEALER of those new specified CC vehicles,
parts and accessories from CC for resale; and it cancels and supersedes all
earlier agreements, written or oral, between CC and DEALER relating to the
purchase by DEALER of Dodge vehicles, parts and accessories, except for (a)
amounts owing by CC to DEALER, such as payments for warranty service performed
and incentive programs, or (b) amounts owing or which may be determined to be
owed, as a result of an audit or investigation, by DEALER to CC due to DEALER's
purchase from CC of vehicles, parts, accessories and other goods or services, or
(c) amounts DEALER owes
<PAGE>
to CC as a result of other extensions of credit by CC to DEALER. No
representations or statements, other than those expressly set forth herein or
those set forth in the applications for this Agreement submitted to CC by
DEALER or DEALER's representatives, are made or relied upon by any party
hereto in entering into this Agreement.
- --------------------------------------------------------------------------------
7 WAIVER AND MODIFICATION
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 the filling in of blank spaces and lines) will be valid or binding on CC
unless approved in writing by the President or a Vice President or the National
Dealer Placement Manager of Chrysler Corporation.
- --------------------------------------------------------------------------------
8 AMENDMENT
DEALER and CC recognize that this Agreement does not have an expiration date and
will continue in effect unless terminated under the limited circumstances set
forth in Paragraph 28. DEALER and CC further recognize that the passage of time,
changes in the industry, ways of doing business and other unforeseen
circumstances may cause CC to determine that it should amend all Chrysler
Corporation Dodge Sales and Service Agreements. Therefore, CC will have the
right to amend this Agreement to the extent that CC deems advisable, provided
that CC makes the same amendment in Chrysler Corporation Dodge Sales and Service
Agreements generally. Each such amendment will be issued in a notice sent by
certified mail or delivered in person to DEALER and signed by the President or a
Vice President or the National Dealer Placement Manager of Chrysler Corporation.
Thirty-five (35) days after mailing or delivery of such notice to DEALER, this
Agreement will be deemed amended in the manner and to the extent set forth in
the notice.
- --------------------------------------------------------------------------------
9 ARBITRATION
Any and all disputes arising out of or in connection with the interpretation,
performance or non-performance of this Agreement or any and all disputes
arising out of or in connection with transactions in any way related to this
Agreement (including, but not limited to, the validity, scope and
enforceability of this arbitration provision, or disputes under rights
granted pursuant to the statutes of the state in which DEALER is licensed)
shall be finally and completely resolved by arbitration pursuant to the
arbitration laws of the United States of America as codified in Title 9 of
the United States Code, Sections 1-14, under the Rules of Commercial
Arbitration of the American Arbitration Association (hereinafter referred to
as the "Rules") by a majority vote of a panel of three arbitrators. One
arbitrator will be selected by DEALER (DEALER's arbitrator). One arbitrator
will be selected by CC (CC's arbitrator). These arbitrators must be selected
by the respective parties within ten (10) business days after receipt by
either DEALER or CC of a written notification from the other party of a
decision to arbitrate a dispute pursuant to this Agreement. Should either CC
or DEALER fail to select an arbitrator within said ten-day period, the party
who so fails to select an arbitrator will have its arbitrator selected by the
American Arbitration Association upon the application of the other party. The
third arbitrator must be an individual who is familiar with business
transactions and be a licensed attorney admitted to the practice of law
within the United States of America, or a judge. The third arbitrator will be
selected by DEALER's and CC's arbitrators. If said arbitrators cannot agree
on a third arbitrator within thirty (30) days from the date of the
appointment of the last selected arbitrator, then either DEALER's to CC's
arbitrator may apply to the American Arbitration Association to appoint said
third arbitrator pursuant to the criteria set forth above. The arbitration
panel shall conduct the proceedings pursuant to the then existing Rules.
Notwithstanding the foregoing, to the extent any provision of the Rules conflict
with any provision of this Paragraph 9, the provisions of this Paragraph 9 will
be controlling.
CC and DEALER agree to facilitate the arbitration by: (a) each party paying
to the American Arbitration Association one-half (1/2) of the required
deposit before the proceedings commence; (b) making available to one another
and to the arbitration panel, for inspection and photocopying all documents,
books and records, if determined by the arbitrator to be relevant to the
dispute; (c) making available to one another and to the arbitration panel
personnel directly or indirectly under their control, for testimony during
hearings and prehearing proceedings if determined by the arbitration panel to
be relevant to the dispute; (d) conducting arbitration hearings to the
greatest extent possible on consecutive business days; and (e) strictly
observing the time periods established by the Rules or by the arbitration
panel for the submission of evidence and of briefs.
<PAGE>
Unless otherwise agreed to by CC and DEALER, a stenographic record of the
arbitration shall be made and a transcript thereof shall be ordered for each
party, with each party paying one-half (1/2) of the total cost of such recording
and transcription. The stenographer shall be state-certified, if certification
is made by the state, and the party to whom it is most convenient shall be
responsible for securing and notifying such stenographer of the time and place
of the arbitration hearing(s).
If the arbitration provision is invoked when the dispute between the parties
is either the legality of terminating this Agreement or of adding a new CC
dealer of the same line-make or relocating an existing CC dealer of the same
line-make, CC will stay the implementation of the decision to terminate this
Agreement or add such new CC dealer or approve the relocation of an existing
CC dealer of the same line-make until the decision of the arbitrator has been
announced, providing DEALER does not in any way attempt to avoid the
obligations of this Paragraph 9, in which case the decision at issue will be
immediately implemented.
Except as limited hereby, the arbitration panel shall have all powers of law and
equity, which it can lawfully assume, necessary to resolve the issues in dispute
including, without limiting the generality of the foregoing, making awards of
compensatory damages, issuing both prohibitory and mandatory orders in the
nature of injunctions and compelling the production of documents and witnesses
for pre-arbitration discovery and/or presentation at the arbitration hearing on
the merits of the case. The arbitration panel shall not have legal or equitable
authority to issue a mandatory or prohibitory order which: (a) extends or has
effect beyond the subject matter of this Agreement, or (b) will govern the
activities of either party for a period of more than two years; nor shall the
arbitration panel have authority to award punitive, consequential or any damages
whatsoever beyond or in addition to the compensatory damages allowed to be
awarded under this Agreement.
The decision of the arbitration panel shall be in written form and shall include
findings of fact and conclusions of law.
It is the intent and desire of DEALER and CC to hereby and forever renounce
and reject any and all recourse to litigation before any judicial or
administrative forum and to accept the award of the arbitration panel as
final and binding, subject to no judicial or administrative review, except on
those grounds set forth in 9 USC Section 10 and Section 11. Judgment on the
award and/or orders may be entered in any court having jurisdiction over the
parties or their assets. In the final award and/or order, the arbitration
panel shall divide all costs (other than attorney fees, which shall be borne
by the party incurring such fees and other costs specifically provided for
herein) incurred in conducting the arbitration in accordance with what the
arbitration panel deems just and equitable under the circumstances. The fees
of DEALER's arbitrator shall by paid by DEALER. The fees of CC's arbitrator
shall be paid by CC.
- --------------------------------------------------------------------------------
10 SIGNATURE
This Agreement becomes valid only when signed by the President or a Vice
President or the National Dealer Placement Manager of Chrysler Corporation
and by a duly authorized officer or executive of DEALER if a corporation; or
by one of the general partners of DEALER if a partnership; or by DEALER if an
individual.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement which is
finally executed at
DETROIT , Michigan, in triplicate, on Dec 05 1995
- ----------------- --------------------------------
Performance Dodge, Inc.
- -----------------------------------------------------
(DEALER Firm Name and D/B/A, if applicable)
By /s/
--------------------------------------------------
(Individual Duly Authorized to Sign)
Vice-President
- -----------------------------------------------------
(Title)
CHRYSLER CORPORATION
By /s/
--------------------------------------------------
National Dealer
Placement Manager
- -----------------------------------------------------
(Title)
<PAGE>
C-P-D
CHRYSLER
CORPORATION
[LOGO] SALES AND
SERVICE
AGREEMENT
ADDITIONAL TERMS
AND PROVISIONS
<PAGE>
INDEX
PAGE
11 SELLING, SERVICE, COMPLIANCE, FACILITIES AND
LOCATION, FINANCES, PERSONNEL AND SIGNAGE . . . . . . . . . 2
(a) SELLING. . . . . . . . . . . . . . . . . . . . . . . . 2
(b) SERVICE. . . . . . . . . . . . . . . . . . . . . . . . 3
(c) COMPLIANCE . . . . . . . . . . . . . . . . . . . . . . 4
(d) FACILITIES AND LOCATION. . . . . . . . . . . . . . . . 4
(i) DEALER'S Responsibilities . . . . . . . . . . . . 4
(ii) Changes in Facilities or Location . . . . . . . . 4
(e) FINANCES . . . . . . . . . . . . . . . . . . . . . . . 4
(f) PERSONNEL. . . . . . . . . . . . . . . . . . . . . . . 4
(g) SIGNAGE. . . . . . . . . . . . . . . . . . . . . . . . 5
12 ADVERTISING . . . . . . . . . . . . . . . . . . . . . . . . 5
13 REPORTS, RECORDS AND BUSINESS SYSTEMS . . . . . . . . . . . 5
14 ORDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 6
15 DELIVERY. . . . . . . . . . . . . . . . . . . . . . . . . . 6
16 ACCEPTANCE OF SHIPMENTS . . . . . . . . . . . . . . . . . . 6
17 OTHER CHARGES . . . . . . . . . . . . . . . . . . . . . . . 6
18 DELAY OR FAILURE TO FILL ORDERS . . . . . . . . . . . . . . 6
19 OPTION TO REPURCHASE DAMAGED VEHICLES . . . . . . . . . . . 6
20 CLAIMS FOR DAMAGE OR SHORTAGE . . . . . . . . . . . . . . . 7
21 PRICES, CHARGES, TERMS OF PURCHASE AND PAYMENT. . . . . . . 7
22 CHANGE IN PRICE . . . . . . . . . . . . . . . . . . . . . . 7
23 SALE AND SUPPLY OF PARTS. . . . . . . . . . . . . . . . . . 8
24 COLLECTION OF INDEBTEDNESS. . . . . . . . . . . . . . . . . 8
25 TITLE . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
26 WARRANTY AND INDEMNIFICATION
FOR PRODUCT LIABILITY LITIGATION. . . . . . . . . . . . . . 8
(a) WARRANTY . . . . . . . . . . . . . . . . . . . . . . . 8
(b) INDEMNIFICATION FOR PRODUCT LIABILITY LITIGATION . . . 9
(c) REPAIR/REPLACE REQUIREMENTS. . . . . . . . . . . . . . 9
27 CHANGE OF MODELS, PARTS AND ACCESSORIES
DECLARED OBSOLETE OR DISCONTINUED . . . . . . . . . . . . . 9
28 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . 9
29 REPURCHASE OBLIGATIONS UPON TERMINATION . . . . . . . . . . 11
30 DISPOSITION OF DEALER'S PREMISES. . . . . . . . . . . . . . 12
31 TRANSACTIONS AFTER TERMINATION. . . . . . . . . . . . . . . 13
32 SUCCESSORS TO DEALER. . . . . . . . . . . . . . . . . . . . 13
33 SURVIVING SPOUSE'S FINANCIAL INTEREST . . . . . . . . . . . 14
34 SALE OF DEALERSHIP ASSETS OR OWNERSHIP INTERESTS. . . . . . 14
35 USE OF TRADE NAMES, TRADEMARKS, LOGOS, ETC. . . . . . . . . 15
36 DEALER IS NOT AGENT . . . . . . . . . . . . . . . . . . . . 16
37 INABILITY TO PERFORM. . . . . . . . . . . . . . . . . . . . 16
38 ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . 16
39 NON-WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . 16
40 SEVERABILITY. . . . . . . . . . . . . . . . . . . . . . . . 16
41 TITLES. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
42 INTERPRETATION. . . . . . . . . . . . . . . . . . . . . . . 16
43 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>
Chrysler Corporation
SALES AND SERVICE AGREEMENT
ADDITIONAL TERMS AND PROVISIONS
The following additional terms and provisions apply to and are a part of the
Chrysler Corporation Sales and Service Agreement(s) to which DEALER is a
signatory:
- --------------------------------------------------------------------------------
11 SELLING. SERVICE, COMPLIANCE, FACILITIES AND LOCATION, FINANCES, PERSONNEL
AND SIGNAGE
(a) SELLING
DEALER shall use its best efforts to promote energetically and sell aggressively
and effectively at retail (which includes lease and rental units) each and every
model of CC vehicles identified in the aforementioned Motor Vehicle Addendum and
CC vehicle parts, accessories and other CC products and services, to private and
fleet customers in DEALER's Sales Locality. DEALER will sell the number of new
CC vehicles necessary to fulfill DEALER's Minimum Sales Responsibility for each
passenger car line or truck line represented by the vehicles listed on the Motor
Vehicle Addendum, as defined below.
DEALER's Minimum Sales Responsibility for each line will be determined as
follows:
From time to time, but at least once a year for each such line, CC will compute
the ratio of the number of new CC passenger cars and/or trucks registered in
the most recent whole or partial calendar year-to-date period for which
registration figures are available in the CC Sales Zone in which DEALER is
located to the total number of new passenger cars or, if CC deems it
appropriate, the total number of those new passenger cars or trucks which CC, in
its sole discretion, determines to be competitive with any or all of its
passenger cars or trucks so registered in that Zone during the same period. The
ratio thus obtained will be applied to the comparable category of the total
number of new passenger cars or competitive passenger cars and/or trucks, as
appropriate, registered during the same period in Dealer's Sales Locality. The
resulting number will be DEALER's Minimum Sales Responsibility for each of said
lines during this same time period, subject to adjustment as described below.
Upon DEALER's written request, CC may adjust DEALER's Minimum Sales
Responsibility, if appropriate in CC's judgment, to take into account
extraordinary local conditions to the extent, in CC's opinion, such conditions
are beyond DEALER's control and have affected DEALER's sales performance
differently from the sales performance of other new vehicle dealers in DEALER's
Sales Locality or other like vehicle line CC dealers in the Sales Zone in which
DEALER is located.
If DEALER's Sales Locality is shared by one or more other CC dealer(s) of the
same line, DEALER's Minimum Sales Responsibility for such line will be the
number of new vehicles DEALER must sell in order to achieve DEALER's fair share
of the Minimum Sales Responsibility for all such CC dealers in the Sales
Locality. The Minimum Sales Responsibility for the total CC dealers of the same
line in the Sales Locality will be determined by using the same method described
above in this Paragraph 11(a). CC will determine DEALER's fair share by
assessing the relative importance of DEALER's immediate area of influence as
compared with the Sales Locality as a whole.
This assessment will then be converted to a percentage which will represent
DEALER's fair share of the Minimum Sales Responsibility for the Sales Locality.
Registration figures used in these computations will be new vehicle
registrations as reported by any recognized reporting organization selected by
CC. If vehicle registration data is not reasonably available, CC may use other
records, generally accepted in the industry, for the purpose of determining
motor vehicle purchases and to establish DEALER's Minimum Sales Responsibility.
To the extent that registration figures or other records generally accepted in
the automotive industry for purposes of determining motor vehicle purchases are
not reasonably available for purposes of considering any of the factors
specified herein, CC may rely on other records and data developed by CC that
reasonably depict purchases of motor vehicles
<PAGE>
in an applicable area to establish DEALER's Minimum Sales Responsibility.
(b) SERVICE
DEALER shall service CC vehicles actively and effectively and provide and
maintain, for servicing CC vehicles, adequate facilities equipped with the basic
tools common to the trade and with special tools and equipment peculiar to CC
products and necessary for servicing and repairing specified CC vehicles
properly, efficiently and competitively. DEALER shall comply with parts, service
and warranty guides established by CC from time to time, make a sincere effort
to satisfy service customers, and render prompt, efficient and courteous service
to all owners or lessees of all CC vehicles badged Chrysler, Plymouth or Dodge
regardless of where such vehicle was purchased or leased. DEALER shall perform
all pre-delivery and road-ready services recommended by CC on new CC vehicles
DEALER sells.
After six (6) quarters of operation, including operation under any preceding CC
Dealer Agreement, DEALER shall, at all times under this Agreement, meet its
minimum service satisfaction requirements by maintaining a rating on Chrysler
Corporation's Customer Satisfaction Index, Prep-It-Right and Deliver-It-Right
evaluations (as determined by Chrysler Corporation from time to time, based upon
surveys conducted of DEALER's customers) which is equal or greater than the
average Customer Satisfaction Index, Prep-It-Right and Deliver-It-Right ratings
for the national Sales Level Group (as those groups are determined by CC from
time to time) in which DEALER is included within DEALER's Sales Zone (as said
Sales Zone is determined by CC from time to time). CC will review, at least
once a year, DEALER's performance under the Customer Satisfaction Index and
DEALER's Prep-It-Right and Deliver-It-Right ratings.
DEALER shall supply to all purchasers from DEALER of new CC vehicles a copy of
CC's appropriate new vehicle warranty; make such certifications and
verifications of odometer readings and maintenance and service preformed on
vehicles badged Chrysler, Plymouth or Dodge, or other matters as may be required
under the terms of the CC vehicle warranty and as CC may from time to time
otherwise prescribe; and provide owners of CC vehicles badged Chrysler, Plymouth
or Dodge all warranty service and campaign inspections or corrections to which
they may be entitled in accordance with the policies and procedures set forth in
Chrysler Corporation's Warranty Policy and Procedure Manual and in bulletins and
documents relating to service that CC may, from time to time, supply to DEALER.
The provisions of said Warranty Policy and Procedure Manual, including any
revisions thereto which shall be furnished to DEALER by CC from time to time,
constitute a part of this Agreement with the same force and effect as if set
forth in its entirety herein.
DEALER shall comply with all policies, procedures, directives and rulings of the
Chrysler Corporation Customer Arbitration Board.
CC has placed its trust and confidence in the integrity and fidelity of DEALER
and, therefore, CC shall compensate DEALER for services claimed to have been
performed by DEALER under CC's warranties or campaign inspections and
corrections if claimed in accordance with CC's then current policies and
procedures described above. DEALER agrees to comply with all such policies and
procedures including, but not limited to, policies and procedures relating to
the keeping of books and records respecting claims DEALER may make for
compensation for service DEALER performs under warranties or campaign
inspections and corrections. DEALER agrees that CC may inspect DEALER's books
and records regarding any warranty service or other claims for compensation
DEALER may submit to CC. CC may charge DEALER's account for claims which have
been disallowed as a result of such inspection.
DEALER shall perform all warranty, pre-delivery, road-ready, campaign
inspections and corrections, and other services hereunder as an independent
contractor and not as the agent of CC and shall assume responsibility for and
hold CC harmless from, all claims (including, but not limited to, claims
resulting from the negligent or willful acts or omissions of DEALER) against CC
arising out of or in connection with DEALER's performance of such service.
If DEALER modifies any CC vehicle or installs on any CC vehicle any equipment,
part or accessory that has not been supplied or approved by CC, or sells any CC
vehicle which has been modified after leaving the possession, custody or control
of CC, or sells a non-Chrysler Corporation service contract in connection with
the sale of any CC vehicle, DEALER shall disclose to the customer in writing
that the modification, equipment, accessory or part is not supplied or approved
by CC and is not included in warranties furnished by CC or, in the case of a
service contract, the coverage is not provided by Chrysler Corporation, its
3
<PAGE>
parent, subsidiaries or its affiliates. DEALER will write such disclosure on
the purchase order and on the customer's bill of sale. Notwithstanding the
foregoing, DEALER may not use parts which have not been authorized by CC in
performing repairs under CC warranties.
(c) COMPLIANCE
DEALER shall comply with all applicable federal, state and local laws, rules or
regulations in the operation of the dealership.
(d) FACILITIES AND LOCATION
(i) DEALER's Responsibilities
DEALER shall provide facilities for the sale and service of CC products and
related activities ("Dealership Operations") at the location set forth in the
aforementioned Dealership Facilities and Location Addendum. The entire
Dealership Facilities including, but not in limitation of the foregoing, new and
used vehicle display area, salesrooms, service area, parts and accessories area,
building exterior and grounds will be satisfactory to CC as to appearance and
layout, and will be maintained and used as set forth in the Dealership
Facilities and Location Addendum. DEALER shall at all times maintain the
Dealership Facilities so that they are of adequate capacity to accommodate
DEALER's total vehicle sales volume and are relatively equivalent in their
attractiveness, level of maintenance, overall appearance and use to those
facilities maintained by DEALER's principal competitors.
DEALER shall conduct its Dealership Operations only from the dealership location
and dealership facilities above mentioned and in the manner and at least during
the hours usual in the trade in DEALER's Sales Locality. DEALER shall not,
except as provided for in subparagraph 11(d) (ii) hereunder, either directly or
indirectly, establish any place or places of business for the conduct of its
Dealership Operations other than at the Dealership Facilities and Dealership
Operations location as set forth in the Dealership Facilities and Location
Addendum.
If all of the Dealership Facilities are not at the same location, DEALER shall
not utilize any separate portion of the Dealership Facilities for the conduct of
any Dealership Operations other than as specified in the current Dealership
Facilities and Location Addendum. The Dealership Facilities and Location
Addendum shall identify any other purposes for which the Dealership Facilities
are to be used and the actual space and areas to be allocated for such purposes.
(ii) Changes in Facilities or Location
DEALER shall not make any change in the location of Dealership Operations or
make any change in the area and use of Dealership Facilities without the prior
written approval of CC. Any written approval of a change in the location or in
the area or use of Dealership Facilities shall be valid only if in the form of a
new Dealership Facilities and Location Addendum or a separate written agreement
signed by DEALER and one of the authorized representatives of CC identified in
Paragraph 10 hereinabove.
(e) FINANCES
DEALER shall maintain and employ in connection with DEALER's business such net
working capital, net worth, and wholesale credit and retail financing
arrangements necessary for DEALER to carry out successfully DEALER's
undertakings pursuant to this Agreement and in accordance with guides therefor
as may be issued by CC from time to time. At no time shall DEALER's net working
capital be less than the amount specified in the Minimum Working Capital
Agreement executed in conjunction with this Agreement and incorporated herein by
reference, or the amount thereafter established by any superseding Minimum
Working Capital Agreement.
(f) PERSONNEL
DEALER shall employ in accordance with the volume of DEALER's business such
number of competent technicians in DEALER's repair shops as may be required to
assure prompt, satisfactory and competitive customer service for all owners of
CC vehicles who may request such service from DEALER. In particular and without
limitation to the generality of the foregoing, DEALER shall cause its service
personnel to receive such training from time to time required by CC to maintain
their technical expertise to render competent customer service, including the
use of improved methods of repair, or the repair of new parts or systems,
developed by CC.
Failure to comply with the service training requirements of the immediately
preceding subparagraph of this Paragraph 11(f) may result in suspension of
deliveries of CC vehicles until DEALER complies with such training
4
<PAGE>
requirements. Protracted failure to comply with such training requirements may
result in termination of this Agreement pursuant to Paragraph 28 hereunder. The
immediately foregoing sentence shall not be construed as in any way limiting the
general applicability of Paragraph 28 to any of the other provisions of this
Paragraph 11.
DEALER shall employ and maintain for its retail business a number of trained and
competent new and used motor vehicle sales, lease, service, parts and general
management personnel that are sufficient for DEALER to carry out successfully
all of DEALER's undertakings in this Agreement. In particular and without
limitation of the generality of the foregoing, DEALER shall cause its sales
personnel to receive such training from time to time as may be required by CC to
maintain their sales expertise to render satisfactory sales.
(g) SIGNAGE
DEALER shall display and maintain brand signs, fascia and other signage in
compliance with the policies and guidelines of Chrysler Corporation's Dealership
Identification Program, including any modification or revisions to such policies
and guidelines, which shall from time to time be furnished to DEALER by CC.
- --------------------------------------------------------------------------------
12 ADVERTISING
CC, in promoting the sale and lease of its products by DEALER and other CC
dealers, shall seek to advertise in the most effective manner to develop public
interest and confidence in its dealers and products.
DEALER shall engage in advertising and sales promotion programs and shall use
effective showroom displays to help fulfill DEALER's responsibility to promote
CC products and services vigorously and aggressively. In advertising in support
of DEALER's selling, leasing and servicing CC products, DEALER shall advertise
only in a manner that will develop customer confidence in DEALER and CC products
and shall not use any advertising tending to mislead or deceive the public or
violate any applicable federal, state or local laws, rules or regulations, nor
shall DEALER disparage CC or any company, or products of such company, directly
involved in the manufacture of CC vehicles. DEALER shall discontinue any
advertising that CC may find to be injurious to CC's business or likely to
deceive the public or violative of any applicable federal, state or local laws,
rules or regulations.
DEALER shall at all times be a member in good standing of the Dealer Advertising
Association, for the lines set forth in the Motor Vehicle Addendum, which covers
a geographical area that encompasses, in whole or significant part, DEALER's
Sales Locality and which has been approved by CC.
- --------------------------------------------------------------------------------
13 REPORTS, RECORDS AND BUSINESS SYSTEMS
DEALER shall submit to CC for confidential use by CC and its affiliates, in such
manner, in such form, and at such times as CC may reasonably request, complete
and accurate reports of sales and stocks of new and used vehicles on hand and
other reports, including monthly financial statements and operating reports.
DEALER shall use and keep accurate and current at all times a uniform accounting
system and will follow accounting practices, satisfactory to CC, which will
enable CC to develop comparative information in order, among other things, to
provide business management assistance to dealers for the mutual benefit of
DEALER and CC. DEALER agrees that CC may at any time for confidential use
inspect DEALER's books and records to determine whether they are kept in such
manner that the data shown in them can be used in CC's business management
assistance to dealers, to assess DEALER's financial condition, and to verify
invoices or other claims DEALER may render to CC. CC may, during the course of
such inspection, make copies of such books and records and retain such copies
for CC's confidential use.
DEALER shall maintain an electronic data storage, transmission and communication
system in the manner and form required from time to time by CC.
CC and its affiliates shall not, without approval of DEALER, disclose the
contents of DEALER's financial records to persons not a party or an affiliate of
a party to this Agreement except when required by compulsory process from a
court, government agency or arbitrator, or when CC, in its discretion, considers
it appropriate to disclose said financial records in an adjudicatory or
arbitration proceeding involving the parties to this Agreement.
5
<PAGE>
- -------------------------------------------------------------------------------
14 ORDERS
CC shall ship specified CC vehicles, parts and accessories to DEALER only on
DEALER's order.
DEALER shall submit to CC, in the manner and form required by CC, current
orders for CC vehicles, parts and accessories, and estimates of DEALER's
future vehicle requirements at such times and for such periods as CC
reasonably may request for the mutual benefit of all CC dealers and CC. All
orders are subject to acceptance by CC, which acceptance may be in whole or
in part.
Except as otherwise allowed by this Agreement, CC shall use its best efforts
to fill accepted orders for specified CC vehicles, parts and accessories.
Notwithstanding the foregoing, in the event that demand exceeds supply of
specified CC vehicles, DEALER acknowledges that CC has the right to allocate
such supply in any reasonable manner CC deems fit in any geographical market.
- -------------------------------------------------------------------------------
15 DELIVERY
CC may deliver specified CC vehicles by rail, truck, boat or any other means
of transport, or deliver them for driveaway, endeavoring, when exceptional
circumstances arise and the cost is not increased, to meet DEALER's
preference as to mode of transportation, CC may deliver specified CC vehicles
to a carrier that CC selects, for shipment to DEALER at DEALER's place of
business or to the city or town where DEALER's place of business is located
(or to the nearest practicable unloading point) "to CC's order, notify
DEALER," or may deliver such vehicles at any other point that CC may establish.
CC may deliver parts and accessories to DEALER by delivering them to a
carrier that CC selects for shipment to the city or town where DEALER's
place of business is located, or by delivering them to DEALER at any point
that CC may establish.
- -------------------------------------------------------------------------------
16 ACCEPTANCE OF SHIPMENTS
If DEALER requests diversion of CC products shipped to DEALER or if CC is
required to divert any CC products because DEALER fails, refuses or is unable
to accept delivery of such products, or is there is a failure to pay as
required for the products that DEALER has ordered, or a failure to accept
C.O.D. shipments of products DEALER has ordered, CC may divert the shipment
and charge DEALER the demurrage, transport, storage and other expense arising
by reason of any such diversion.
- -------------------------------------------------------------------------------
17 OTHER CHARGES
DEALER shall be responsible for and will pay any and all charges for
demurrage, storage or other charges accruing after arrival of shipment at the
distribution point established by CC.
- -------------------------------------------------------------------------------
18 DELAY OR FAILURE TO FILL ORDERS
CC shall not be liable for delay or failure to fill orders that have been
accepted, where such delay or failure is the result of any event beyond the
control of CC including, but not in limitation of the generality of the
foregoing, any law, regulation or administrative or judicial order, or any
acts of God, wars, riots, wrecks, fires, strikes, lockouts, other labor
troubles, embargoes, blockades, delay or failure of any other supplier or
carrier of CC to deliver or make delivery of CC products, or any material
shortage or curtailment of production, including those due to economic
conditions, or any discontinuance of manufacture or sale of products by CC or
its suppliers. Furthermore, CC will not be liable for delay or failure to
fill orders when such delay or failure is pursuant to any provision under
this Agreement.
- -------------------------------------------------------------------------------
19 OPTION TO REPURCHASE DAMAGED VEHICLES
DEALER shall notify CC if any new and unused CC vehicle in DEALER's
possession has sustained major damage as defined in the Warranty Policy and
Procedure Manual. To preserve that quality and value of new CC vehicles
ordered for the public, CC shall have the option to divert such a vehicle
prior to delivery to DEALER or repurchase from DEALER all or any of such
vehicles at a price equal to the net purchase price paid by DEALER to CC.
DEALER agrees to assign its rights under any insurance contract related to
the repurchased CC vehicles to CC. CC shall make appropriate payment for
repurchased CC vehicles directly to any lien holder or, if there is no lien,
directly to DEALER.
6
<PAGE>
- -------------------------------------------------------------------------------
20 CLAIMS FOR DAMAGE OR SHORTAGE
CC shall not be liable for loss of or damage to CC products sold hereunder
occurring after delivery thereof to DEALER, DEALER's agent, or a carrier
within the North American Continent for shipment to DEALER, as provided in
Paragraph 15 of this Agreement. Should any products sold under this Agreement
be delivered in damaged condition or with shortages, claims for said damages
or shortages shall be made in accordance with CC's then current policies and
procedures. To the extent required by law, DEALER shall notify the purchaser
of a vehicle of any damage sustained by such vehicle prior to sale. DEALER
shall indemnify and hold CC harmless from any liability resulting from
DEALER's failure to so notify such purchasers.
- -------------------------------------------------------------------------------
21 PRICES, CHARGES, TERMS OF PURCHASE AND PAYMENT
CC shall notify DEALER from time to time of the prices, charges and terms of
purchase for products sold under this Agreement and shall charge DEALER for
such products according to the prices, charges and terms of purchase in
effect at the date of shipment. CC reserves the right, without prior notice,
to change prices, charges and terms of purchase for any product sold under
this Agreement.
DEALER shall pay CC for products sold under this Agreement in lawful money of
the United States of America by such method and/or in such manner as CC may
announce from time to time or approve in writing with collection charges, if
any, added.
If not included in the price, DEALER shall pay all excise or other taxes
which may be levied on the products purchased hereunder or on the sale,
shipment, ownership or use thereof. Further, DEALER certifies as of the date
of each purchase, hereunder that all products purchased hereunder are
purchased for resale, retail lease or demonstration purposes.
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22 CHANGE IN PRICE
Should CC reduce the wholesale price at factory of any CC vehicle (not
including accessories and optional equipment) of a particular yearly model,
line and body style then currently in production, CC shall refund to DEALER
in cash or by a credit against DEALER's indebtedness to CC, for each new,
unused and unsold CC vehicles (not including demonstrators) of that
particular model, line and body style that at the time of the reduction is in
DEALER's stock or in transit to DEALER, an amount equal to the difference
between the reduced wholesale price and the wholesale price paid to CC by
DEALER.
If, at the time of the official model introduction date (as determined by CC)
of a new yearly model, CC announces a wholesale price of any CC vehicle
(not including accessories and optional equipment) of any particular body
style and line of the new model which is below the wholesale price of a
vehicle of the same body style and line of the discontinued yearly model, CC
shall refund to DEALER in cash or by credit against DEALER's indebtedness to
CC an amount equal to the difference between the reduced wholesale price and
the wholesale price of the same body style and line of the discontinued yearly
model. Such refund will apply only to new, unused and unsold CC vehicles (not
including demonstrators) of the particular body style and line of the
discontinued yearly model that on the official model introduction date (as
determined by CC) of the new yearly model is in DEALER's stock or in transit
to DEALER, unless CC determines that the line or particular body style of the
new yearly model is so changed in size, design, equipment, specifications or
price as for all practical purposes, to make the line a new and different
line or to make the particular body style a new and different body style of
the discontinued yearly model.
Notwithstanding the provisions of the two paragraphs immediately above, in
any case where items considered standard equipment on a current vehicle or on
a vehicle of the discontinued yearly model are not included as standard
equipment on the corresponding vehicle with a reduced wholesale price or on the
corresponding vehicle of the new model, any wholesale price decrease
resulting from the exclusion of such standard equipment will not be included
in any refund under this paragraph 22.
In order to qualify for a refund in either case set forth above, DEALER must
make a written claim, supported by adequate evidence, within thirty (30) days
of the effective date of the introduction in price or the official model
introduction date of the new yearly model.
Should CC increase the wholesale price of any CC vehicle, said price increase
will not apply to an order submitted to
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CC by DEALER prior to the date the notification of such price increase was
issued if the order was submitted for the specific purpose of fulfilling a
valid and legitimate purchase agreement between DEALER and a retail purchaser
and if such an order was properly identified in the manner required by CC and
was delivered to the ordering retail purchaser.
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23 SALE AND SUPPLY OF PARTS
DEALER shall not represent, sell, offer for sale or use in repairing CC
vehicles, parts which are represented as new or remanufactured Chrysler
Corporation or Mopar parts or parts which are represented to be manufactured
or produced by any company directly involved in the manufacture of the
vehicles specified in the Motor Vehicle Addendum to this Agreemnent, unless
such parts are in fact manufactured, remanufactured or designed for or by
Chrysler Corporation, Mopar or a company directly involved in the manufacture
of said specified vehicles and are properly identified as Chrysler
Corporation or Mopar parts or parts of said directly involved companies with
the respective consent of each of the aforementioned organizations.
DEALER at all times shall keep on hand in DEALER's place of business the
number and assortment of Chrysler Corporations or Mopar parts, that, in CC's
judgment, is necessary to meet the service requirements of DEALER's CC
customers and to meet all of DEALER's obligations under this Agreement.
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24 COLLECTION OF INDEBTEDNESS
CC may apply to any amount owed by DEALER to CC or to any of CC's affiliatess
any credit owing to DEALER by CC or any of its affiliates. As used in this
Agreement, "affiliate" means Chrysler Corporation and any of its subsidiaries
or their subsidiaries, or any other corporation, partnership or other legal
entity which has an ownership interest in CC or any corporation, partnership
or other legal entity in which CC has an ownership interest, or any
subsidiary thereof.
Should DEALER assign its right to amounts owed to DEALER by CC to any third
party, prior to executing such an assignment DEALER shall notify such third
party of CC's first priority right to such credits.
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25 TITLE
Title to products CC sells to DEALER hereunder and risk of loss will pass to
DEALER on delivery of the products to DEALER, DEALER's agent, or the carrier,
whichever occurs first. However, CC retains a lien for payment on the
products so sold until paid for in full, in cash. CC will receive negotiable
instruments only as conditional payment.
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26 WARRANTY AND INDEMNIFICATION FOR PRODUCT LIABILITY LITIGATION
(a) WARRANTY
CC's warranty on new CC vehicles, as in effect from time to time, will be as
set forth in Chrysler Corporation's Warranty Policy and Procedure Manual. CC
shall supply sufficient copies of CC's then current CC vehicle warranty to
DEALER to permit DEALER, in accordance with DEALER's obligation under
Paragraph 11 of this Agreement, to provide a copy to each purchaser from
DEALER of a new CC vehicle. EXCEPT FOR THE CC WARRANTY, THERE ARE NO OTHER
EXPRESS OR IMPLIED WARRANTIES MADE OR DEEMED TO HAVE BEEN MADE TO ANY PERSON
BY CC APPLICABLE TO PRODUCTS SOLD UNDER THIS AGREEMENT. THE CC WARRANTLY WILL
BE EXPRESSLY IN LIEU OF ANY OTHER WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO, ANY IMPLIED WARRANTLY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE; AND THE REMEDIES SET FORTH IN SUCH WARRANTY WILL BE THE
ONLY REMEDIES AVAILABLE TO ANY PERSON WITH RESPECT TO PRODUCTS SOLD
HEREUNDER. CC neither assumes nor authorizes any other person, including
DEALER, to assume for CC any other obligation or liability in regard to such
products.
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(b) INDEMNIFICATION FOR PRODUCT LIABILITY LITIGATION
If a product liability lawsuit is filed naming DEALER as a defendant and it
is determined that the bodily injury or property damage alleged by the
plaintiff was caused solely by a design defect or a defect created by CC in
the manufacture or assembly of a CC vehicle, part or accessory, which latter
defect was not reasonably susceptible of discovery by DEALER in either
DEALER's new car preparation or subsequent servicing during the warranty
period, then CC shall indemnify and hold DEALER harmless from losses, damages
and expenses, including reasonable attorneys' fees, resulting from such
product liability lawsuit. As used in this Paragraph 26(b), a "product
liability lawsuit" shall mean a lawsuit seeking damages for bodily injury or
property damage allegedly sustained in a motor vehicle accident, and which
injury or damage is alleged to have been caused in any part by a defect in
the design, manufacture or assembly of a CC vehicle, part or accessory.
Whenever DEALER intends to request CC to indemnify DEALER with respect to
a product liability lawsuit, DEALER shall file with the court an appropriate
response which will prevent a default judgment from being taken against
DEALER, and DEALER shall, within thirty (30) business days after service of
the complaint, notify CC in writing and shall provide at that time copies of
any pleadings which may have been served, together with all information then
available regarding the circumstances giving rise to such product liability
lawsuit. Any such notices shall be sent by certified mail to the attention of
the Office of the General Counsel, Chrysler Corporation, Post Office Box
1919, Detroit, Michigan 48288 or such other address as CC may designate in
writing to DEALER. Upon such request for indemnification, CC shall have the
option, upon reasonable notice to DEALER, to retain counsel and assume full
control over the defense of the lawsuit. If CC is prevented by DEALER from
exercising this option, CC's obligation hereunder to indemnify DEALER shall
be rendered null and void and be of no force or effect.
(c) REPAIR/REPLACE REQUIREMENTS
This provision shall apply if DEALER is located in a state which has in
effect or hereafter adopts or enacts any law or regulation imposing liability
on a motor vehicle manufacturer, importer, distributor and/or dealer for sale
of a vehicle presumed under such law or regulation to be defective by reason,
inter alia, of repeated unsuccessful attempts to repair such vehicle within a
specified period of time or by reason of such vehicle being unavailable and
out of service to the purchaser for a specified period of time.
DEALER shall make a good faith effort to immediately notify CC in writing of
the existence of any vehicle which may become subject to such law or
regulation prior to a presumption of liability arising under such law or
regulation from the inability to repair or correct a nonconformity or
condition of a vehicle.
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27 CHANGE OF MODELS, PARTS AND ACCESSORIES DECLARED OBSOLETE OR DISCONTINUED
CC at any time may discontinue any or all models, lines or body styles and
may revise, change or modify their construction or classification. All DEALER
orders for specified CC vehicles shall refer to models, lines and body styles
in production at the time CC receives the orders unless DEALER specifies
otherwise. CC at any time may declare obsolete or discontinue any or all
parts, accessories and other merchandise. CC may act under this Paragraph 27
without notice and, except as set forth in Paragraph 22 of this Agreement,
without any obligation to DEALER by reason of DEALER's previous purchases.
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28 TERMINATION
(a) DEALER may terminate this Agreement on not less than thirty (30) days
written notice.
(b) CC may terminate this Agreement on not less than sixty (60) days written
notice for the following reasons:
(i) in accordance with CC's ordinary and customary procedures, upon the
failure of DEALER to fully perform any of DEALER's undertakings under
Paragraph 11(a) of this Agreement or failure of DEALER to meet its minimum
service satisfaction requirements set forth in Paragraph 11(b) of this
Agreement within one hundred and eighty (180) days after notification by CC
that DEALER has not fully performed the aforementioned undertakings,
obligations or requirements, or
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(ii) the failure of DEALER to perform fully any of DEALER's
undertakings or obligations as set forth in this Agreement including, but
without limiting the generality of the foregoing, the undertakings and
obligations set forth in Paragraphs 11(b) through 11(g) or Paragraphs 12, 13,
14, 23, 26(c) or 35 of this Agreement, or
(iii) the death of any person listed in Paragraph 2 of this Agreement
(other than the death of DEALER if DEALER is a sole proprietorship) or the
failure of any such person so listed to continue active and substantial personal
participation in the management of the Dealership Operation as required by
Paragraph 2, or
(iv) a misrepresentation of or change, whether voluntary or by
operation of law, in the ownership if DEALER is an individual, or of the
ownership interests listed in Paragraph 3 of this Agreement resulting in a
transfer of control or majority interest in the capital stock or partnership
interest of DEALER, unless CC has given prior written approval to such change,
or
(v) any material misrepresentation by any of DEALER's owners or
executives as to any fact relied upon by CC in entering into this Agreement, or
(vi) a disagreement, dispute or controversy between or among
principals, partners, managers, officers or stockholders of DEALER that, in the
opinion of CC, may adversely affect the operation, management or business of
DEALER, or
(vii) the conviction of DEALER or any individual named in Paragraph 2
or 3 herein of any crime that, in CC's opinion, may affect adversely the
operation or business of DEALER or the name, goodwill or reputation of Chrysler
Corporation, CC products, or DEALER, or
(viii) the failure of DEALER to pay any indebtedness of DEALER to CC in
accordance with the applicable terms and conditions required by CC, or
(ix) impairment of the reputation or financial standing of DEALER or
any of DEALER's owners or executives or discovery by CC of any facts existing
prior to or at the time of signing this Agreement which, in CC's opinion, tend
to impair such reputation or financial standing, or
(x) any submission by DEALER to CC of a false or fraudulent
application or claim, or any claim or statements in support thereof, for payment
including, but not limited to, pre-delivery inspection or adjustment, warranty
repairs, special policy or campaign adjustments or repairs performed by DEALER,
sales incentives, parts compensation, or any other discount, allowance, refund
or credit under any plan, provision or other program offered by CC, whether or
not DEALER offers or makes to CC or CC seeks or obtains from DEALER restitution
of any payments made to DEALER on the basis of any such false or fraudulent
application, claim or statement, or
(xi) conduct by DEALER which, in DEALER's dealings with customers or
the public, is fraudulent or constitutes a deceptive or unfair act or practice,
or
(xii) DEALER's failure to comply with requirements set forth in the
National Traffic and Motor Vehicle Safety Act of 1996 or any other legislation
or regulation pertaining to safety, air pollution or noise control which may be
imposed on automobile dealers or with reasonable requests of CC made in
conjunction with action being taken on its part to comply with the
aforementioned statutory or regulatory requirements, or
(xiii) the notification of termination or termination, for any reason,
of any other Chrysler Corporation Dealer Agreement(s) which may be in effect
between DEALER and Chrysler Corporation, or
(xiv) the failure of DEALER to comply fully with the policies,
procedures, directives and rulings of the CC Customer Arbitration Board, or
(xv) CC offers a new Sales and Service Agreement to all of its dealers
selling the line(s) of vehicles set forth on the Motor Vehicle Addendum.
Termination by CC will not be effective unless the President or a Vice President
or the National Dealer Placement Manager of Chrysler Corporation signs the
notice.
(c) Notwithstanding the provisions above, this Agreement will
terminate automatically without notice from either party on:
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(i) the death of DEALER, if DEALER is a sole proprietorship, or
(ii) an attempted or actual assignment or transfer of this Agreement
or an attempted or actual transfer of a substantial portion of dealership assets
by DEALER without the prior written consent of CC, or
(iii) an assignment by DEALER for the benefit of creditors, or
(iv) the insolvency of DEALER, or the preparation of any petition by
or for DEALER for voluntary institution of any proceeding under the Bankruptcy
Act or under any State insolvency law, whether or not such petition is ever
filed; or the involuntary institution against DEALER of any proceeding under the
Bankruptcy Act or under any State insolvency law which is not vacated within ten
(10) days from the institution thereof; or the appointment of a receiver or
other officer having similar powers for DEALER or DEALER's business which is not
removed within ten (10) days from his/her appointment, or any levy under
attachment, execution or similar process which is not within ten (10) days
vacated or removed by payment or bonding, or
(v) the discontinuance by CC of the production or distribution of all
CC vehicles listed on the Motor Vehicle Addendum, or
(vi) the failure of DEALER to fully conduct its Dealership Operations
for seven (7) consecutive business days, or
(vii) the loss, termination or expiration of any license or permit
required by law for DEALER to perform DEALER's obligations under this Agreement
or otherwise conduct business as a new vehicle dealer for CC products.
Termination of this Agreement will cancel all unfilled orders for vehicles,
parts and accessories.
The obligations of the parties to this Agreement as set forth in Paragraphs 9,
(or Paragraph 7 in a Term Agreement), 21, 24, 26(a), 26(b), 29, 30, 31 and 35
shall remain in full force and effect after the effective date of termination.
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29 REPURCHASE OBLIGATIONS UPON TERMINATION
Except when termination of this Agreement will be followed by CC issuing to
DEALER, or to DEALER's successors, assigns, heirs or devisees, a new agreement
of any sort for the sale and service of CC vehicles, including, but not in
limitation of the generality of the foregoing, such an agreement with a term of
limited duration, CC agrees to buy and DEALER agrees to sell, free and clear of
any liens and encumbrances, within ninety (90) days after the effective date of
any termination under Paragraph 28:
(a) All new, unused and unsold specified CC vehicles (not including
demonstrators), unmodified and in good, undamaged condition, of any yearly model
current at the effective date of termination that were purchased by DEALER from
CC and that are on the effective date of termination the property of and in the
possession, custody and control of DEALER. The repurchase price will be the
dealer net invoice price at the time of DEALER's purchase of each such vehicle
from CC, less any applicable rebates, incentive payments, adjustments or
allowances paid or credited by CC to DEALER. CC shall not be required to
repurchase CC vehicles built on DEALER's special order to other than CC standard
specifications.
(b) All new, unused and damaged CC parts that are priced and
identified as eligible for return in Chrysler Corporation's then current parts
lists and that were purchased by DEALER from CC and are on the effective date of
termination the property of and in the possession, custody and control of
DEALER, at current listed prices (exclusive of transportation charges). CC
shall add to such current listed prices (exclusive of transportation charges) an
allowance of five percent (5%) of such prices for packing and crating by DEALER
and a credit for transportation charges paid by DEALER to ship such parts to the
destination CC designates. CC shall subtract from such current listed prices
(exclusive of transportation charges) all maximum allowable discounts and the
cost of any necessary refinishing, reconditioning or repacking to restore the
parts to their original saleable condition, and CC's cost of determining whether
such parts are free and clear of all liens and encumbrances. Prior to purchase
by CC, DEALER shall deliver the parts (tagged and inventoried in accordance with
CC's instructions) for inspection F.O.B. at any point CC may designate. CC's
determination of the quantity and value of the parts returned will be conclusive
unless DEALER notifies CC in writing within
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fifteen (15) days of receiving the check or statement of account for such parts
returned of any error made in such determination.
(c) All new, unused and undamaged CC accessories or accessories
packages for the yearly model current at the effective date of termination,
complete as supplied to and purchased by DEALER from CC during the twelve (12)
months immediately preceding the effective date of termination and that are on
the effective date of termination the property of and in the possession, custody
and control of DEALER at the prices then applicable (less maximum allowable
discounts) and current at the effective date of termination, exclusive of
transportation charges. CC shall add to such currently applicable prices an
allowance of five percent (5%) of such prices (less maximum allowable discounts)
for packing and crating by DEALER and a credit for transportation charges paid
by DEALER in shipping such accessories to the destination CC designates. CC
shall subtract from such currently applicable prices (less maximum allowable
discounts) the cost of necessary refinishing, reconditioning or repackaging of
such accessories or accessories packages to restore them to their original
salable condition and CC's cost of determining whether such accessories or
accessories packages are free and clear of all liens and encumbrances. Prior to
purchase by CC, DEALER will deliver the accessories or accessories packages,
tagged and inventoried in accordance with CC's instructions, for inspection
F.O.B. at any point CC may designate. CC's determination of the quantity and
value of the accessories or accessories packages returned will be conclusive
unless DEALER notifies CC in writing within fifteen (15) days of receiving the
check or statement of account for such accessories or accessories packages
returned of any error made in such determination.
(d) All signs of a type required by CC belonging to DEALER, showing
the name "Chrysler Corporation" or one of the designated trade names applicable
only to CC products or CC's affiliated companies. CC shall pay to DEALER for
such signs the fair market value or the price for which DEALER purchased such
signs, whichever is lower. CC shall have the right, upon termination of this
Agreement, to enter DEALER's premises peacefully and remove all such signs.
(e) Special tools (in complete sets), of a type recommended by CC,
adapted only to the serving of CC vehicles and purchased by DEALER during the
thirty-six (36) months immediately preceding the effective date of termination
at a price and under terms and conditions to be agreed upon by CC and DEALER.
CC will pay DEALER for any items purchased pursuant to this Paragraph 29 within
ninety (90) days of CC's receipt and acceptance of said items, subject to
Paragraph 24 of this Agreement.
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30 DISPOSITION OF DEALER'S PREMISES
On termination of this Agreement by CC on sixty (60) day's written notice
pursuant to Paragraph 28 hereof, except when termination results because
DEALER's facilities have been closed for seven (7) consecutive business days or
from a person named in Paragraph 2 of this Agreement ceasing to participate in
the management of DEALER, CC shall take the following action respecting DEALER's
premises as defined below (herein called the Premises), if DEALER so requests,
and provided that DEALER has paid to CC all monies owing to CC:
(a) If, on DEALER's receipt of notice of termination, DEALER owns the
premises:
CC shall assist DEALER in effecting an orderly and equitable disposition of the
Premises by a sale or lease. If necessary to effect such disposition, CC, at
its option, within a reasonable time shall lease the Premises from DEALER for at
least one (1) year or purchase the Premises, or cause them to be leased or
purchased, on fair and equitable terms. In such event, DEALER and CC shall
agree on the value or rental value of the Premises for the purpose of either a
sale or lease. If DEALER and CC are unable to so agree, each shall appoint a
disinterested qualified real estate appraiser and the two so appointed will
agree on the value or rental value of the Premises, as the case may be. If the
two appraisers are unable to agree, they shall select a third disinterested
qualified real estate appraiser who shall determine such value. The value or
rental value so determined shall be final and binding on both DEALER and CC. If
one or more appraisals are necessary, DEALER and CC shall share equally the cost
of such appraisals.
(b) If, on DEALER's receipt of notice of termination, DEALER is
leasing the Premises:
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CC shall assist Dealer in effecting an orderly and equitable disposition of
DEALER's leasehold interest in the Premises. If necessary to effect such
disposition, CC, at its option, within a reasonable time, for the remainder of
the lease or for twelve (12) months, whichever period is shorter, shall (1)
sublet the Premises from DEALER, or (2) take an assignment of the lease of the
Premises from DEALER, or (3) pay DEALER monthly or otherwise, as the parties may
agree, the lower of the rental specified in the lease or the fair rental value
of the Premises determined in the manner provided in (a) above, provided,
however, that DEALER may receive such payments under only one dealer agreement
with Chrysler Corporation or any of their affiliates or subsidiaries.
(c) If DEALER owns part of the Premises and leases part of them,
section (a) above will apply to the part owned and section (b) above to the part
leased.
CC shall have no obligation to DEALER under this Paragraph 30 if, after receipt
of notice of termination, (1) DEALER in any way encumbers the Premises or
DEALER's interest in them or takes any other action respecting the Premises that
would adversely affect any of CC's obligations under this Paragraph 30, or
performance thereof, or (2) DEALER receives and refuses a bona fide offer to
purchase, lease or sublet all or substantially all of the Premises at a price
and on terms that CC believes are fair, or (3) DEALER's lease of the Premises or
part thereof is continued, renewed or extended by DEALER's act or failure to
act, or (4) DEALER fails or refuses to use DEALER'S best efforts to sell, lease
or sublease the Premises or to notify CC of any offer to buy, lease or sublease
the Premises; or if, after the effective date of termination of this agreement,
(a) the Premises or part thereof are used or occupied by anyone for any purpose,
or (b) DEALER, if a proprietor, or any of the persons named in Paragraph 3 of
this agreement is in the business of selling and/or servicing new or used motor
vehicles in the Sales locality referred to in this agreement or the general area
surrounding it, or (c) DEALER, if a proprietor, or any of the persons named in
Paragraph 3 of this agreement occupies or could, in CC's opinion, occupy all or
substantially all of the Premises for any business in which one or more of them
engages.
"Premises" as used in this Paragraph 30 means the place or places of business in
the Sales Locality (1) that DEALER uses exclusively to carry out DEALER's
obligations in selling and servicing new products under this agreement or
jointly under this and any other agreement or agreements with CC on the date of
DEALER's receipt of notice of termination and (2) are set forth in the
Dealership Facilities and Location Addendum (Addenda).
To receive CC's assistance as set forth in this Paragraph 30, DEALER must have
operated continuously as a CC dealer for the twelve (12) months immediately
preceding the effective date of termination and must have given CC a written
request for such assistance within thirty (30) days after DEALER's receipt of
the notice of termination of this Agreement. On receipt of such request from
DEALER, CC will initiate compliance with its obligations under this Paragraph
30. If under section (b) above CC elects to make monthly payment, then DEALER
shall make written application for them on such forms and at such times as CC
reasonably may require. If DEALER requests assistance under this Paragraph 30,
then CC, at all reasonable times, shall have full access to the Premises and
DEALER'S books and records pertaining to the Premises.
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31 TRANSACTIONS AFTER TERMINATION
After the effective date of termination, if CC, in its discretion, elects to
fill retail orders of DEALER or otherwise transacts business related to the sale
of CC products with DEALER, all such transactions will be governed by the same
terms that this Agreement provides, so far as those terms are applicable.
Notwithstanding any such transaction, CC shall not be deemed to have waived or
rescinded the termination or have renewed this Agreement.
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32 SUCCESSORS TO DEALER
On termination of this Agreement by reason of the death of DEALER, if an
individual, or on termination by CC because of the death of any of the persons
named in Paragraph 2 of this Agreement if DEALER is a partnership or
corporation:
(a) If DEALER had so requested in writing (signed by DEALER if an
individual or by those persons representing a majority of the ownership interest
in DEALER if DEALER is a partnership or corporation), delivered to CC during the
lifetime of such decedent, CC shall offer a Chrysler Corporation Sales and
Service
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Agreement (limited to a two (2) year term) to any person DEALER has nominated in
such written request to CC as the person DEALER desires to continue DEALER's
business after such death, provided that such nominated person has demonstrated
operating qualifications satisfactory to CC in the course of active, substantial
and continuing participation in the management of DEALER's organization, and
possesses or is able to acquire within a reasonable time after such death,
capital and facilities that are satisfactory to CC, and will be able to exercise
as much control over the operations and affairs of the dealership as the
deceased exercised. Such Chrysler Corporation Sales and Service Agreement(s)
shall be limited to a term of two (2) years and subject to earlier termination
as provided therein. At least ninety (90) days before the expiration of the two
(2) year term referred to above, CC shall determine if the person granted said
two (2) year agreement possesses the required capital and facilities and has
satisfactorily performed the obligations under said two (2) year agreement.
This determination will be based on said person's performance during the
aforementioned two (2) year period to qualify for the standard Chrysler
Corporation Sales and Service Agreement then in effect. If CC determines that
said person possesses all such qualifications, then CC shall offer such standard
agreement to said person.
(b) CC shall, if DEALER has not nominated a successor under this
Paragraph 32 and has nor named a person whose surviving spouse may hold a
financial interest under Paragraph 33, review the qualifications of any
remaining person named in Paragraph 2 of this Agreement. If any such person
possesses operating qualifications satisfactory to CC and possesses or is able
to acquire within a reasonable time facilities and capital necessary to qualify
as a CC dealer, CC shall offer such person a Chrysler Corporation Sales and
Service Agreement or Term Sales and Service Agreement, as CC deems appropriate.
If more than one such person qualifies, CC will select the person or persons to
whom an agreement will be offered.
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33 SURVIVING SPOUSE'S FINANCIAL INTEREST
On termination of this Agreement by reason of the death of DEALER, if an
individual, or on termination by CC because of the death of any of the persons
named in Paragraph 2 of this Agreement if DEALER is a partnership or
corporation, the surviving spouse of the person who died may hold a financial
interest in any successor dealership, provided that the following conditions are
met:
(a) Prior to the death referred to above, DEALER had delivered to CC
a notice in writing signed by all the person named in Paragraph 2 of this
Agreement naming the deceased person (who must also be named in Paragraph 2 of
this Agreement ) as the person whose surviving spouse may hold the financial
interest. DEALER may name only one person but may, on written notice to CC,
signed as Above, change the person named.
(b) Within sixty (60) days of the date of such death, the surviving
spouse executes with the person or persons who will be named in Paragraph 2 of
the CC Sales and Service Agreement(s) between CC and the successor dealership a
written agreement in which the surviving spouse agrees not to participate in any
way in the management or operation of the successor dealership. Such agreement
shall be delivered to CC within fifteen (15) days after it has been signed by
both parties. Notwithstanding the immediately foregoing provisions of the
Paragraph 33(b), such an agreement not to participate need not be made if CC has
approved the surviving spouse as a person to be named in Paragraph 2 of the CC
Sales and Service Agreement(s) between CC and the successor dealership.
Nothing contained herein will obligate CC to enter into a sales and service
agreement with the surviving spouse or any person not otherwise acceptable to CC
or require CC to continue this or any other agreement with the surviving spouse
or any other person for any period of time beyond the time when CC would have a
right to terminate such an agreement in accordance with the terms thereof.
"Successor dealership" as used in this Paragraph 33 means a dealership (1) that
qualifies for and enters into a Chrysler Corporation Sales and Service Agreement
with CC, (2) that possesses and has the right to use the physical assets and
organization that remain after the death first referred to in this Paragraph 33,
and (3) in which the surviving spouse retains or acquires the financial interest
as referred to above.
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34 SALE OF DEALERSHIP ASSETS OR OWNERSHIP INTERESTS
CC acknowledges that DEALER may at any time negotiate for the sale of its
assets, and any of the owners of
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DEALER may at any time negotiate the sale of their ownership interests in
DEALER, with any purchaser on such terms as may be agreed upon by them and the
prospective purchaser. Any such sale, however, will not create any obligation
of CC to do business with any such purchaser.
DEALER acknowledges that, in connection with any such sale to any such
purchaser, this Agreement is not assignable without the written consent of CC.
If the proposed purchase and sale arrangement contemplates or is conditioned
upon the prospective purchaser being granted by CC an agreement similar to this
Agreement, DEALER shall provide CC written notice thereof prior to any
completion or closing of the transactions contemplated by such purchase and sale
arrangement and the prospective purchaser shall apply to CC, on forms provided
by CC, for such an agreement. In order that CC can determine whether effective
dealership operations will result if the prospective purchaser's application is
approved, CC may, in processing the application, without liability to DEALER or
any such owners, counsel with the prospective purchaser regarding any matters
including, but not limited to, matters relating to the investments in the
proposed dealership operations, the management and the facilities that may be
required by CC.
If DEALER or such owners have notified CC and the prospective purchaser has made
application as provided above, CC shall consider and process such application,
together with the applications of any others for such an agreement, in
accordance with its established procedures and CC shall not unreasonably
withhold its approval of such an application. Any such approval shall be
conditioned upon payment in full by DEALER of all of DEALER's obligations to CC,
which payments shall be made at CC's option on or before the sale to the
prospective purchaser. If CC decides not to continue authorized dealership
operations at DEALER's premises, however, no such application will be considered
or processed by CC and CC shall so notify DEALER or such owners and the
prospective purchaser.
Notwithstanding the foregoing provision of this Paragraph 34, even if the
prospective purchaser of DEALER's assets or ownership interests in DEALER
meets CC's qualifications for appointment as a dealer, CC may, at its
discretion, offer to purchase DEALER's assets or ownership interest in DEALER
on the same terms as said qualified prospective purchaser. If CC makes such
an offer, DEALER shall sell the dealership assets to CC on the aforementioned
same terms. However, if CC has not made such an offer within fifteen (15)
business days after CC's receipt of the aforementioned application and all
necessary information, CC shall be deemed to have declined to offer to
purchase DEALER's assets or ownership interests in DEALER. Within fifteen
(15) days after CC has communicated its offer to purchase DEALER's assets or
ownership interest in DEALER, as described above, DEALER may withdraw, by
written notification to CC, its proposal to sell said assets or ownership
interest to any purchaser, in which case CC's aforementioned offer to
purchase will be null and void. Additionally, DEALER may request in writing
that CC predetermine whether a proposed purchaser would be acceptable to CC
prior to entering into an agreement to sell DEALER's assets or ownership
interests. If such a request is made, CC shall make such determination. If CC
determines that the proposed purchaser is acceptable to CC, CC shall decline
to make an offer to purchase such assets or ownership interest. Such
determination of acceptability and declination will not act to deny CC its
right not to approve the proposed purchase and sale arrangement as set forth
above.
- --------------------------------------------------------------------------------
35 USE OF TRADE NAMES, TRADEMARKS, LOGOS, ETC.
DEALER may use in DEALER's corporate, firm or trade name in a manner CC approves
in writing any trade name applicable to those CC products set forth in the Motor
Vehicle Addendum. DEALER shall discontinue immediately the use of any such trade
names in DEALER's corporate, firm or trade name when CC so requests in writing
and DEALER shall take such steps as may be necessary or appropriate, in CC's
opinion, to change such corporate, firm or trade name so as to eliminate any
trade name of CC products therefrom.
Except as specifically allowed herein, DEALER shall not use, in any manner, the
trademarks, trade names, insignias or the like of CC, its divisions, affiliates
or subsidiaries without CC's explicit and prior written consent. DEALER shall
discontinue immediately any and all use of any such trademark, trade name,
insignias or the like when CC so requests in writing.
On termination of this Agreement, DEALER shall discontinue immediately using any
trade names applicable to CC vehicles or other products in DEALER's corporate,
firm or trade name or using any trade names, trademarks or insignias adopted or
used by CC or its divisions,
15
<PAGE>
affiliates or subsidiaries, and will take such steps as may be necessary or
appropriate, in CC's opinion, to change such corporate, firm or trade name so as
to eliminate any trade names applicable to CC products therefrom, and will
discontinue using any signs, stationery or advertising containing any such trade
names, trademarks or insignias or anything else that might make it appear that
DEALER is an authorized dealer for CC vehicles or products.
- --------------------------------------------------------------------------------
36 DEALER IS NOT AGENT
This Agreement does not create the relationship of principal and agent between
CC and DEALER, and under no circumstances is either party to be considered the
agent of the other.
- --------------------------------------------------------------------------------
37 INABILITY TO PERFORM
In addition to any other exemption from liability specifically provided for in
this Agreement, neither DEALER nor CC will be liable for failure to perform its
part of this Agreement when the failure is due to fire, flood, strikes or other
labor disputes, accident, war, riot, insurrection, acts of government,
governmental regulation or other circumstances beyond the control of the
parties.
- --------------------------------------------------------------------------------
38 ASSIGNMENT
DEALER may not assign or transfer this Agreement, or any part hereof, or
delegate any duties or obligations under this Agreement without the written
consent of CC, executed by the President or a Vice President or the National
Dealer Placement Manager of Chrysler Corporation.
- --------------------------------------------------------------------------------
39 NON-WAIVER
The waiver by either party of any breach or violation of or default under any
provision of this Agreement will not operate as a waiver of such provision or of
any subsequent breach or violation thereof or default thereunder.
- --------------------------------------------------------------------------------
40 SEVERABILITY
If any provision of this Agreement should be held invalid or unenforceable for
any reason whatsoever or to violate any law of the United States, the District
of Colombia or any State, this Agreement is to be considered divisible as to
such provision, and such provision is to be deemed deleted from this Agreement
or, in the event that it should be held to violate only the laws of the District
of Colombia or of any State, to be inapplicable within the territory thereof,
and the remainder of this Agreement will be valid and binding as if such
provision were not included herein or as if it were included herein only with
respect to territories outside of such District or State, as the case may be.
Notwithstanding the foregoing, when, in the absence of this Paragraph 40,
Federal law would otherwise be deemed to preempt a state law which purports to
limit or prohibit any right, obligation or duty under any provision of this
Agreement, then this Paragraph 40 shall not be construed to delete any such
provision of this Agreement and the parties hereto will be subject to the terms
of such provision as if such a state law did not exist.
- --------------------------------------------------------------------------------
41 TITLES
The titles appearing in this Agreement have been inserted for convenient
reference only and do not in any way affect the construction, interpretation or
meaning of the text.
- --------------------------------------------------------------------------------
42 INTERPRETATION
In the event of a dispute hereunder, the terms of this Agreement shall be
construed in accordance with the laws of the State of Michigan.
- --------------------------------------------------------------------------------
43 NOTICES
Unless otherwise specifically required by the terms of this Agreement, any
notice required or permitted under this Agreement must be in writing and will be
sufficient if delivered personally, or sent through the United States mail
system, postage prepaid, addressed, as appropriate, either to DEALER at the
place of business designated in this Agreement, or at such other address as
DEALER may designate in writing to CC, or to Chrysler Corporation at Post Office
Box 857, Detroit, Michigan 48288 or such other address as CC may designate in
writing to DEALER.
16
<PAGE>
MOTOR VEHICLE ADDENDUM
TO
CHRYSLER CORPORATION
SALES AND SERVICE AGREEMENT
Performance Dodge, Inc.
--------------------------------------
(Dealer Firm Name)
--------------------------------------
(DFA)
Midwest City OK
--------------------------------------
(City) (State)
As of the effective date of this Motor Vehicle Addendum to the Chrysler
Corporation Sales and Service Agreement between Dealer and Chrysler Corporation,
Dealer, as an authorized Chrysler Corporation dealer, has a non-exclusive right
to purchase the following new models of Motor Vehicles:
All passenger cars of the Dodge line make.
All trucks of the Dodge line make.
This Motor Vehicle Addendum shall remain in effect unless and until superseded
by a new Motor Vehicle Addendum furnished Dealer by Chrysler Corporation.
Effective Date: Dec 05 1995
----------------
CHRYSLER CORPORATION
By /s/
----------------------------------------------
(Signature)
National Dealer
Placement Manager
-------------------------------------------------
(Title)
<PAGE>
SUBLEASE AGREEMENT
This Sublease Agreement ("Sublease") is made and entered into as of the
1st day of June, 1996 by and between GILLILAND GROUP FAMILY PARTNERSHIP
hereinafter referred to as the "Tenant," and PERFORMANCE NISSAN, INC.,
hereinafter referred to as the "Subtenant."
RECITALS
Tenant is the lessee under a certain Lease Agreement (the "Lease") dated
as of February 2, 1995, by and between The Steven P. Hudiburg Trust, The David
Roger Hudiburg Trust, Paula Tate, individually, Jim Glover, individually, Karen
Stevens, individually and Hudiglo, Inc., an Oklahoma corporation, and Tenant,
pursuant to which Lease Tenant has leased from Lessor certain real property (the
Leased Premises") more particularly described in Exhibit "A", attached hereto
and incorporated herein by reference.
Tenant and Subtenant desire to enter into a sublease agreement with respect
to the Leased Premises, subject to the terms and conditions hereinafter set out.
NOW, THEREFORE, in consideration of the premises, the mutual covenants and
agreements hereinafter set out, and other good and valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, it is agreed by the
parties as follows:
AGREEMENTS
1. LEASED PREMISES. Tenant hereby subleases, lets and demises to
Subtenant the Leased Premises.
2. TERM. Subject to and upon the conditions set forth below, the
term of this Sublease shall commence as of the date hereof and shall terminate
on the date of termination of the Lease, as modified or amended from time to
time (whether at the stated date of termination or any renewal period as set
forth therein or otherwise, including, without limitation, by reason of default
of Tenant thereunder).
3. RENT. Subtenant agrees to pay as rental of this Sublease the amounts
specified in the Lease, such amounts to be payable as and when specified in said
Lease.
<PAGE>
4. OTHER TERMS, COVENANTS AND CONDITIONS. This Sublease is subject to
and subordinate to the terms and provisions of the Lease, as modified or amended
from time to time; and, with respect to the Leased Premises, Subtenant hereby
assumes and shall be obligated to perform all of the obligations, both monetary
and non-monetary, of Tenant as provided in the Lease (limited, however, to the
total monetary obligations contained in this Sublease); but Tenant shall remain
liable under the Lease and hereby covenants and agrees to timely pay to Lessor
all rents and other amounts owing under the Lease. A copy of the Lease is
attached hereto as Exhibit "B" and incorporated herein by reference. Anything
herein to the contrary notwithstanding, Subtenant acknowledges that a default by
Subtenant under the Lease shall constitute a default under this Sublease. Tenant
warrants and represents that the Lease is in full force and effect.
5. DEFAULT REMEDIES. Any action or omission by the Subtenant which
results in a default of the Lease shall be a default under this Sublease. In the
event of Subtenant's failure to pay rent according to the terms of the Lease, or
other default under this Sublease, the Tenant is entitled to exercise each and
every remedy against Subtenant to which it is entitled by law or in equity,
including, without limitation, any right or remedy against Subtenant to which
the Lessor is entitled under the Lease. In the event of default by Tenant of any
of its obligations under the Lease, including, but not limited to, payment of
rent, Subtenant shall have the right, but not the obligation, to cure such
default by Tenant within the same cure period which is provided to Tenant under
the Lease. In the event of Tenant's default and Subtenant's election to cure
such default, Tenant agrees to indemnify and reimburse Subtenant upon demand for
any monies expended by it to cure such default, and in the event that Tenant
fails to so reimburse Subtenant, Subtenant may deduct such amounts from
subsequent installments of basic rent which may from time to time thereafter
become due to the Tenant. In the event any default by Tenant is not cured within
the time provided by the Lease, this Sublease shall terminate immediately and
Subtenant shall have no more obligations hereunder.
6. COLLECTION COSTS; ATTORNEY'S FEES. In the event of any default by
Tenant or Subtenant hereunder and should it become necessary for either party to
bring an action against the other to enforce this Sublease or to sue for its
default, the non-defaulting party shall be entitled to recover all costs of
enforcement of suit, including, but not limited to, court costs, expense of suit
and attorney's fees, if it prevails.
7. NOTICES. Any notice or document required or permitted to be
delivered by this Sublease shall be deemed to be delivered when deposited in the
United States mail, postage prepaid, certified mail, return receipt requested,
addressed to the parties at the respective addresses set out below:
2
<PAGE>
IF TO TENANT: Gilliland Group Family Partnership
1201 S. Taylor
Amarillo, Texas 79101
IF TO SUBTENANT: Performance Nissan, Inc.
8029 S.E. 29th
Midwest City, Oklahoma 73110
8. BINDING AGREEMENT. This Sublease shall be binding upon and shall
inure to the benefit of the Tenant and Subtenant, and their respective heirs,
personal representatives, successors and permitted assigns.
9. ASSIGNMENT. Neither this Sublease nor the rights or obligations
of the parties hereunder may be assigned, subleased or transferred (by operation
of law or otherwise) by either party without the express written consent of the
other party, which consent shall not be unreasonably withheld.
10. REMEDIES. Nothing in this Sublease shall be construed to limit the
lawful remedies available to either party in the event of breach of any
provision of this Sublease, the provisions of which may be enforced by any right
or remedy available at law or in equity.
11. AMENDMENTS. This Sublease may be modified or amended only by the
mutual written agreement of the parties hereto.
12. GOVERNING LAW. This Sublease shall be governed by and construed in
accordance with the internal laws of the State of Texas without regard to the
law of conflict of laws.
IN WITNESS WHEREOF, the parties hereto have executed, or have caused to be
executed by their duly authorized officers, this Sublease as of the day and year
first above written.
TENANT: GILLILAND GROUP FAMILY PARTNERSHIP
By:/s/ Bill Gilliland
-------------------------------
Bill Gilliland, General Partner
By: /s/ Robert W. Hall
-------------------------------
Robert W. Hall, General Partner
3
<PAGE>
SUBTENANT: PERFORMANCE NISSAN, INC.
By: /s/Bill Gilliland
-------------------------
Bill Gilliland, President
THE STATE OF TEXAS *
COUNTY OF POTTER *
This instrument was acknowledged before me on the day of 1ST day of June,
1996, by BILL GILLILAND, General Partner of GILLILAND GROUP FAMILY PARTNERSHIP,
a general partnership.
[NOTARY SEAL] /s/ Jaime McNabb
-----------------------------
Notary Public, State of Texas
THE STATE OF TEXAS *
COUNTY OF POTTER *
This instrument was acknowledged before me on the day of 1st day of June,
1996, by ROBERT W. HALL, General Partner of GILLILAND GROUP FAMILY
PARTNERSHIP, a general partnership.
[NOTARY SEAL] /s/ Jaime McNabb
-----------------------------
Notary Public, State of Texas
THE STATE OF TEXAS *
COUNTY OF POTTER *
This instrument was acknowledged before me on the day of 1ST day of June,
1996, by BILL GILLILAND, President of PERFORMANCE NISSAN, INC., an Oklahoma
corporation, on behalf of said corporation.
[NOTARY SEAL] /s/ Jaime McNabb
-----------------------------
Notary Public, State of Texas
4
<PAGE>
A PART OF THE SOUTHWEST QUARTER OF SECTION 11, T. 11 N..R. 2 W.. S. W.. MIDWEST
CITY, OKLAHOMA COUNTY, OKLAHOMA. BEING MORE PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT THE SOUTHWEST CORNER OF SAID SECTION 11, THENCE N. 00'08'26'W.,
ALONG THE WEST LINE OF THE SOUTHWEST QUARTER OF SAID SECTION 11, A DISTANCE OF
330.00 FEET; THEN EAST AND PARALLEL WITH THE SOUTH LINE OF THE SOUTHWEST QUARTER
OF SAID SECTION 11, A DISTANCE OF 653.48 FEET TO THE WEST RIGHT-OF-WAY LINE OF
THE O.C.A.& A. RAILROAD, SAID POINT BEING IN A CURVE, THENCE SOUTHWESTERLY,
ALONG THE WEST RIGHT-OF-WAY LINE OF THE O.C.A. & A. RAILROAD, ON A CURVE TO
THE LEFT HAVING A RADIUS OF 1859.86 FEET, AN ARC DISTANCE OF 126.25 FEET TO A
POINT OF TANGENCY; THENCE S. 45'12'00' W., ALONG THE WEST RIGHT-OF-WAY LINE
OF THE O.C.A. & A. RAILROAD, A DISTANCE OF 183.00 FEET TO A POINT OF
CURVATURE; THENCE SOUTHERLY, ALONG THE WEST RIGHT-O-WAY LINE OF THE O.C.A. &
A. RAILROAD RIGHT-OF WAY, ON A CURVE TO THE LEFT HAVING A RADIUS OF 622.96
FEET, AN ARC DISTANCE OF 140.21 FEET TO THE SOUTH LINE OF THE SOUTHWEST
QUARTER OF SAID SECTION 11; THENCE WEST, ALONG THE SOUTH LINE OF THE
SOUTHWEST QUARTER OF SAID SECTION 11, A DISTANCE OF 348.74 FEET TO THE POINT
OR PLACE OF BEGINNING; LESS AND EXCEPT THE PORTION OF SUBJECT PROPERTY SET
OUT IN WARRANTY DEED RECORDED IN BOOK 328 PAGE 294, NOW OWNED BY OKLAHOMA
COUNTY AND LESS AND EXCEPT WARRANTY DEED RECORDED IN BOOK 1678 PAGE 420.
TRACT "B"
Beginning at the Southwest Corner of Block 10, thence N along the West
Line of said Block 10, a distance of 150 feet, Thence East along a
line parallel to the South Line of said Block 10, a Distance of 603.15
feet, thence South a distance of 150 feet, thence West 603.15 feet to
the place of beginning.
Tract B above described shall not be included in the option to purchase in
paragraph five (5) of the lease agreement unless Lessor has acquired title to
said tract prior to the notice by Lessee to exercise said option.
Exhibit "A"
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT, made and entered into this 2nd day of February, 1995, by
and between THE STEVEN P. HUDIBURG TRUST, THE DAVID ROGER HUDIBURG TRUST, PAULA
TATE, individually, JIM GLOVER, individually, KAREN STEVENS, individually and
HUDIGLO, INC., an Oklahoma corporation, hereinafter referred to as LESSOR and
THE GILLILAND GROUP FAMILY PARTNERSHIP and KEITH WADLEY, or their nominee
hereinafter referred to as LESSEE;
WHEREAS, LESSOR is the owner of the hereinafter described real property and
appurtenances thereto; and whereas LESSEE desires to lease said real property in
accordance with the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the terms, conditions and covenants herein
made, each to the other, the parties hereby agree as follows:
PREMISES
1. LESSOR, by these presents does hereby demise, lease and let unto
LESSEE, and LESSEE does hereby take and hire from LESSOR, the premises
hereinafter referred to as "leased premises", being the real property more
particularly described in Exhibit "A" attached hereto, initialed by the
respective parties hereto for identification, and the terms of which are
incorporated herein by reference, subject to all the terms, conditions,
covenants and promises herein contained.
TERM
2. LESSEE shall hold the leased premises for the following term:
commencing on the 2nd day of February, 1995 and ending on the 1st day of
February, 2002.
PURPOSE AND USE
3- LESSEE shall use the leased premises to conduct an automobile
dealership for the sale of vehicles and other products, in all its branches and
uses incidental thereto. LESSEE shall not, without LESSOR's consent, have the
right to change its use of the leased premises, which shall not be unreasonably
withheld by LESSOR.
RENT
4. LESSEE shall pay to the LESSOR as rental for the leased premises
during the term of this lease, as follows:
A. Thirty-eight Thousand Dollars ($38,000.00) upon execution
1
EXHIBIT "B"
<PAGE>
of this lease agreement, which represents the rent for the first and last month
of this lease, receipt of which is hereby acknowledged by LESSOR; and,
B. Eighty Two (82) equal installments of Nineteen Thousand Dollars
($19,000.00) each, with the first installment due on the 2nd day of February,
1995, and succeeding installments due on the 1st day of each month thereafter.
All rentals shall be free and clear of any and all expenses and charges
incurred directly or indirectly by LESSEE.
OPTION
5. LESSEE shall have the option to purchase the premises leased hereunder
at the expiration of the base term of this lease for the sum of Two Million One
Hundred Fifty Thousand Dollars ($2,150,000.00) payable on the last day of the
lease period. LESSEE shall give LESSOR sixty (60) days notice prior to the
expiration of this lease of their intent to exercise the option to purchase.
LESSOR agrees not to encumber the property for any amount in excess of
Two Million One Hundred Fifty Thousand Dollars ($2,150,000.00) during this
option period.
OPTION TO RENEW
6. LESSEE is given the option to renew this lease for one additional
seven year term following the base term of seven years upon the same terms and
conditions. LESSEE shall pay to LESSOR during the renewal term as follows:
84 equal installments of $22,000.00 payable monthly on the same day as set forth
in the lease. Written notice to exercise said option shall be given by
LESSEE to LESSOR on or before sixty (60) days prior to the expiration of the
base seven year term. PROVIDED, HOWEVER, this option is granted on condition;
this lease shall not have been previously canceled or terminated by operation
of law; and, LESSEE shall have during the whole term of this lease faithfully
performed all of the terms, conditions, covenants and promises herein.
TITLE; QUIET ENJOYMENT
7. LESSOR is the lawful owner of the leased premises, and covenants that
LESSEE, upon paying the rent and complying with the terms, covenants and
conditions contained herein shall peaceably and quietly hold and enjoy the
leased premises for said term.
COMPLIANCE WITH LAWS
8. LESSEE shall, at its sole expenses, promptly comply with
2
<PAGE>
(a) all laws and ordinances; (b) all regulations and requirements of any
governmental agency asserting Jurisdiction over the leased premises; (c) all
notices of violation thereof; (d) all requirements of the National Board of Fire
Underwriters, or any other body exercising similar functions; and (e) the
requirements of all policies of insurance affecting the leased premises. LESSEE
shall indemnify and hold harmless the LESSOR from all loss, costs and expenses
he may sustain or incur on account of breach thereof.
HAZARDOUS MATERIALS
9. LESSEE represents and warrants to LESSOR that neither the LESSEE nor any
tenant, occupant or use of the property, nor any other person, will engage in or
permit any operations or activities upon, or any use of occupancy of the
Property, or any portion thereof, for the purpose of or in any way involving the
handling, manufacturing, treatment, storage, use, generation, release,
discharge, refining, dumping or disposal of any "Hazardous Materials" (whether
legal or illegal, accidental or intentional) as defined in the Comprehensive
Environmental Response, Compensation and Liability Act (42 U.S.C. Section
9601 et seq.) and/or the Resource Conservation and Recovery Act (42 U.S.C.
Section 6901 et seq.), on, under, in or about the Property, or transport
"Hazardous Materials" to, from or across the Property, nor will any
"Hazardous Materials" be constructed, deposited, stored, or otherwise located
on, under, in or about the Property.
ENTRIES; INSPECTION
10. LESSOR and his representatives may enter upon the leased premises at any
reasonable time for the purpose of (a) inspecting them; (b) performing any
maintenance or repair work which LESSOR determines to be necessary; or (c)
exhibiting them in connection with sale or appraisement of the building. All
entries, except during an emergency which endangers the premises shall be during
business hours at times which will cause minimum inconvenience to LESSEE.
ASSIGNMENT; SUBLETTING
11. LESSEE shall not have the right to assign this lease or sublet any
portion of the lease premises without the written consent of LESSOR (which shall
not be unreasonably withheld by LESSOR) provided, however, if any assignment or
sublease is made, LESSEE shall not be relieved of his express obligations
hereunder except with the express written consent of LESSOR. Also, no
assignee or sub-lessee shall have the right to assign or sublet any portion of
this lease without the written consent of LESSOR.
LIENS, LABOR AND MATERIAL
12. LESSOR shall not be liable for the payment of any work,
3
<PAGE>
improvements or construction of any kind on the leased premises contracted by
LESSEE. No liens shall attach to the leased premises on account of any such
indebtedness. LESSEE shall not suffer or permit any labor or material lien to be
impressed against the leased premises by reason of any act or omission of the
LESSEE. In the event any claim of such lien is made against the leased premises
and LESSEE shall not have caused it to be released within fifteen (15) days
after notice from the LESSOR to LESSEE to do so, LESSOR may pay and discharge
it. LESSEE shall pay the LESSOR, upon the next rent paying date, an amount which
LESSOR shall have paid in discharging such lien together with an attorney fee
and other costs LESSOR may have incurred in discharging such lien, together with
interest thereon at the rate of 18% per annum. Failure to pay the same when due
shall make available to LESSOR all remedies herein for non-payment of rent.
Provided, however, if LESSEE desires to contest the validity of any such lien,
he may do so, provided he shall first furnish LESSOR with a sufficient bond
indemnifying LESSOR against any loss, liability or damage on account thereof.
DEFAULT BY LESSEE
13. Should LESSEE default in the payment of any installment of rent or other
payments required, when due, LESSOR shall have the option after ten (10) days
written notice to LESSEE (1) to terminate this lease without any penalty or
damages for so doing, by giving written notice thereof to LESSEE; or (2) to
enter the leased premises without any penalty or damages for so doing, take
possession thereof, and relet them in good faith for the account of LESSEE on
the best terms available without such re-entry working in forfeiture of the
rents to be paid and of the covenants to be performed by LESSEE during the term
of this lease. In the event of such reletting, LESSEE shall (1) reimburse LESSOR
for costs and expenses thereof including any necessary repairs, and (2) pay all
deficiencies, if any, each month thereafter. Should LESSEE default in the
performance of any covenants other than payment of rent or other money and fail
to perform same within sixty (60) days after written notice thereof, LESSOR may
terminate this lease by giving written notice thereof to LESSEE.
CONDEMNATION
14. Condemnation of all of the leased premises or so much thereof as to
render the remainder thereof wholly inadequate for the purpose and use stated
herein shall operate to terminate this lease.
DESTRUCTION OR INJURY
15. In the event the leased premises shall, during the term of this lease,
become damaged or destroyed or injured by fire, storm or any other cause of
casualty, LESSOR shall immediately
4
<PAGE>
notify the insurance company and begin repairing or replacing the damaged or
destroyed portion of the premises. Rent shall be abated during the period of
repair in direct proportion to the percent of the premises that shall be
unusable.
MAINTENANCE
16. LESSEE shall during the term of this lease, at his sole expense, keep
the leased premises, and all buildings and appurtenances thereunto belonging, in
good repair, and in a safe and secure condition, reasonable wear and tear
excepted.
TAXES AND UTILITIES
17. LESSEE shall pay before date of delinquency for every year during the
term of this lease, all real estate and personal property taxes, and all
assessments, utility and service charges and any other governmental levies
against the leased premises and any buildings or improvements thereon.
INSURANCE
18. LESSEE agrees to keep in effect during the term of this lease, fire and
extended coverage insurance, covering the leased premises, written by a
responsible insurance company authorized to do business within the State, in an
amount equal to not less than eighty percent (80%) of the insurable value of the
premises, and to furnish LESSOR proof thereof. This insurance policy is to
provide that payment of any losses covered under said insurance policy is to
provide that payment of any losses covered under said policy shall be paid to
LESSOR and LESSEE, as their interest may appear, and such proceeds shall be made
available to LESSOR for the sole purpose of rebuilding and repairing said leased
premises, If, however, following damage to or destruction of the leased
premises, this lease is canceled as provided herein, then all such insurance
proceeds shall be paid to LESSOR, and LESSEE shall relinquish all rights under
said insurance policy.
LESSEE agrees on the commencement of the term of this lease to take out
public liability insurance covering the leased premises. Said policy or policies
shall be for an amount of at least Three Million Dollars ($3,000,000.00) for
death or injury to one person and Five Million Dollars ($5,000,000.00) for death
or injury to two (2) or more persons, plus One Hundred Thousand Dollars
($100,000.00) property damage, which said policy or said policies of insurance
shall name the LESSOR as an additional insured thereunder, and LESSEE agrees to
maintain the same at LESSEE's sole cost and expense in full force and effect
during the entire term of this lease. Upon the request of LESSOR, LESSEE shall
furnish the LESSOR with a copy of such insurance coverage, or with a certificate
of the company issuing such insurance, certifying that
5
<PAGE>
the same is in full force and effect.
HOLDING OVER
19. In the event LESSEE remains in possession of the premises after the
expiration of this lease, or any renewal thereof, and without the execution of a
new lease, LESSEE shall be deemed to be occupying said premises as a tenant from
month to month, subject to all of the conditions, provisions and obligations of
this lease insofar as same are applicable to a month to month tenancy.
TERMINATION BY MUTUAL AGREEMENT
20. This lease may be terminated at any time during the term hereof by
mutual agreement in writing between the parties hereto. In the event of such
termination, this lease shall terminate on the next rent paying date following
the date of such agreement.
SURRENDER
21. At the termination of this lease, however such termination may be
brought about, LESSEE shall surrender to LESSOR possession of the leased
premises and any improvements thereon, in good order, condition and state of
repair, usual wear and tear from a reasonable use thereof and damage or
destruction thereof by fire, storm, flood or other unavoidable casualty
excepted.
RELATIONSHIP OF PARTIES
22. Nothing herein contained shall be deemed or construed by the parties
hereto, nor by any third party, as creating the relationship of principal and
agent or of partnership or of Joint venture between the parties hereto, it being
understood and agreed that neither the method of computation of rent nor any
other provisions contained herein, nor any acts of the parties hereto, shall be
deemed to create any relationship between the parties hereto other than the
relationship of LESSOR and LESSEE.
RECEIVERSHIP, BANKRUPTCY, ETC.
23. In the case LESSEE during the term of this lease shall file a voluntary
petition of bankruptcy or shall make an assignment for the benefit of creditors,
or shall be adjudicated a bankrupt, the LESSOR shall at any time thereafter have
the right to terminate and end this lease by serving upon LESSEE a fifteen (15)
day notice in writing served either personally upon LESSEE or his agent and
6
<PAGE>
employees, or by certified United States mail, postage prepaid, return receipt
requested, and upon the expiration of fifteen (15) days after the service of
said notice as aforesaid or the deposit of the same and the lease shall
thereupon cease and end with the same effect as though there was an expiration
of the original term. Action by LESSOR or failure to act under this paragraph
shall be without prejudice to any remedies which might otherwise be used for
breach of covenants or collection of rents.
NOTICES
24. Any notice, communication, request, reply or advice (hereinafter
severally and collectively, for convenience, called Notice) in this Agreement
provided or permitted to be given, made or accepted by either party to the other
must be in writing and may, unless otherwise in this Agreement expressly
provided, be given or be served by depositing the same in the United States
mail, postpaid and registered or certified and addressed to the party to be
notified, with return receipt requested, or by delivering the same in person to
an officer of such party, or by pre-paid telegram, when appropriate, addressed
to the party to be notified. Notice deposited in the mail in the manner
hereinabove described shall be effective, unless otherwise stated in this
Agreement, from and after the date it is so deposited. Notice given in any
other manner shall be effective only if and when received by the party to be
notified. For purposes of notice, the addresses of the parties shall be as
follows:
If to Seller to: Jim Glover
7609 S.E. 29th
Midwest City, OK 73110
If to Buyer to: The Gilliland Group Family Partnership
Box 750
Amarillo, Texas 79105
AGREEMENT
25. This is the entire agreement between the parties. There are no promises,
considerations, conditions, representations or agreement other than those stated
herein. This agreement cannot be amended or supplemented in any way other than
in writing. all purported oral changes, amendments or supplements shall be null
and void.
BINDING ON HEIRS, SUCCESSOR, ETC.
26. This lease agreement shall be binding upon and inure to
7
<PAGE>
the benefit of the heirs successors and assigns of the parties.
IN WITNESS WHEREOF, the parties hereto have executed this Lease Agreement
in duplicate the day and year first above written, each party retaining an
executed instrument.
"LESSOR"
/s/Paula Tate /s/ Paul Hudiberg
- --------------------- ------------------------------
PAULA TATE THE STEVEN P.HUDIBERG TRUST
BY: Paul Hudiberg, Trustee
/s/ Karen Stevens /s/ Paul Hudiberg
- --------------------- ------------------------------
KAREN STEVENS THE DAVID ROGER HUDIBERG TRUST
BY: Paul Hudiberg,
Trustee HUDIGLO, INC.
/s/Jim Glover BY: /s/ Steve Hudiberg
- --------------------- ----------------------
JIM GLOVER Steve Hudiberg, President
ATTEST:
/s/Jim Glover
- ---------------------
Jim Glover, Secretary
"LESSEE"
/s/ Keith Wadley THE GILLILAND GROUP FAMILY
- --------------------- PARTNERSHIP
KEITH WADLEY /s/unreadable
--------------------------
8
<PAGE>
STATE OF OKLAHOMA )
) ss.
COUNTY OF Tulsa )
The foregoing instrument was acknowledged before me this 16th day of
January, 1995, by PAULA TATE, to me known to be the identical person who
executed the within and foregoing instrument and acknowledged to me that he
executed the same as his free and voluntary act and deed for the uses and
purposes therein set forth. Given under my hand and seal the day and year last
above written.
/s/unreadable
----------------------
Notary Public
My Commission Expires:5-23-98
STATE OF OKLAHOMA )
) ss.
COUNTY OF OKLAHOMA )
The foregoing instrument was acknowledged before me this
6th day of January, 1995, by KAREN STEVENS, to me known to be the identical
person who executed the within and foregoing instrument and acknowledged to me
that he executed the same as his free and voluntary act and deed for the uses
and purposes therein set forth. Given under my hand and seal the day
and year last above written.
/s/Jeanie Wear
---------------------
Notary Public
My Commission Expires:10-21-95
STATE OF OKLAHOMA )
) ss.
COUNTY OF OKLAHOMA )
The foregoing instrument was acknowledged before me this
2 day of February, 1995, by JIM GLOVER, to me known to be the identical person
who executed the within and foregoing instrument and acknowledged to me that he
executed the same as his free and voluntary act and deed for the uses and
purposes therein set forth. Given under my hand and seal the day and year last
above written.
/s/Vickie Campbell
---------------------
Notary Public
My Commission Expires:
4/10/96
<PAGE>
ACKNOWLEDGMENTS
STATE OF OKLAHOMA )
) ss.
COUNTY OF OKLAHOMA )
The foregoing instrument was acknowledged before me this 2 day of February,
1995, by Bill Gilliland on behalf of THE GILLILAND GROUP FAMILY PARTNERSHIP,
to me known to be the identical person who executed the within and foregoing
instrument and acknowledged to me that he executed the same as his free and
voluntary act and deed for the uses and purposes therein set forth. Given
under my hand year last above written.
/s/Vickie Campbell
---------------------
Notary Public
My Commission Expires:
4/10/96
- --------------------------------------------------------------------------------
STATE OF OKLAHOMA )
) ss.
COUNTY OF OKLAHOMA )
The foregoing instrument was acknowledged before me this 2 day of February,
1995, by KEITH WADLEY, to me known to be the identical person who executed the
within and foregoing instrument and acknowledged to me that he executed the same
as his free and voluntary act and deed for the uses and purposes therein set
forth. Given under my hand and seal the day and year last above written.
/s/Vickie Campbell
---------------------
Notary Public
My Commission Expires: 4/10/96
- --------------------------------------------------------------------------------
The foregoing instrument was acknowledged before me this 11th day of
January, 1995, by PAUL HUDIBURG, to me known to be the identical person who
subscribed the name of the maker thereof to the foregoing instrument as Trustee
of the Steven P. Hudiburg Trust and as Trustee of the David Roger Hudiburg
Trustexecuted the within and foregoing instrument and acknowledged to me that he
executed the same as his free and voluntary act and deed for the uses and
purposes therein set forth. Given under my hand and seal the day and year last
above written.
/s/ Jeanie Wear
---------------------
Notary Public
My Commission Expires: 10-21-95
<PAGE>
STATE OF OKLAHOMA )
) ss.
COUNTY OF OKLAHOMA )
The foregoing instrument was acknowledged before me this 5th day of
January, 1995, by STEVE HUDIBURG, to me known to be the identical person who
subscribed the name of the maker thereof to the foregoing instrument as
President of Hudiglo, Inc. and acknowledged to me that he executed the same as
his free and voluntary act and deed for the uses and purposes therein set forth.
Given under my hand and seal the day and year last above written.
/s/ Jeanie Wear
---------------------
Notary Public
My Commission Expires: 10-21-95
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CORPORATION AND
SHAREHOLDERS' AGREEMENT
OF
XARIS MANAGEMENT COMPANY, INC.
(A TEXAS CORPORATION)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
SECTION 1: PURPOSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Maintain Control by Shareholders . . . . . . . . . . . . . 1
(b) Provide for Orderly Disposition . . . . . . . . . . . . . . 1
(c) Provide a Market . . . . . . . . . . . . . . . . . . . . . 1
(d) Maintain S Corporation Status . . . . . . . . . . . . . . . 1
SECTION 2: RESTRICTIONS ON TRANSFERS . . . . . . . . . . . . . . . . . . . . 1
2.1 Restrictions on Transfers . . . . . . . . . . . . . . . . . . . . 1
2.2 Restrictions Apply to Transferred Stock . . . . . . . . . . . . . 1
2.3 Attempted Transfers in Violation of Share
Transfer Restrictions . . . . . . . . . . . . . . . . . . . . . . 2
2.4 Exempted Transfers . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Shareholders' Approve . . . . . . . . . . . . . . . . . . . 3
(b) Transfer to the Corporation . . . . . . . . . . . . . . . . 3
(c) Transfer by Spouse . . . . . . . . . . . . . . . . . . . . 3
(d) Transfer to other Shareholder . . . . . . . . . . . . . . . 3
(e) Intra Family Transfers . . . . . . . . . . . . . . . . . . 3
(f) Transfer at Death . . . . . . . . . . . . . . . . . . . . . 3
2.5 Right of First Refusal of Third Party Offers
to Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Prerequisites for Transfer . . . . . . . . . . . . . . . . 3
(b) Contents of Notice . . . . . . . . . . . . . . . . . . . . 4
(c) Priorities and Deadlines . . . . . . . . . . . . . . . . . 5
(d) Purchase Price and Terms . . . . . . . . . . . . . . . . . 5
SECTION 3: BUY-OUT RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Events Triggering a Buy-Out Right . . . . . . . . . . . . . . . . 6
(a) Transfers and Attempted Transfers in
Violation of Transfer Restrictions . . . . . . . . . . . . 6
(b) Death of Shareholder . . . . . . . . . . . . . . . . . . . 6
(c) Death or Divorce of Spouse . . . . . . . . . . . . . . . . 7
3.2 Notice and Deadline Requirements for Buy-Out Rights . . . . . . . 7
(a) Notice Requirements . . . . . . . . . . . . . . . . . . . . 7
(b) Deemed Notice . . . . . . . . . . . . . . . . . . . . . . . 7
(c) Priorities and Deadlines . . . . . . . . . . . . . . . . . 7
3.3 Value of the Stock to be Purchased . . . . . . . . . . . . . . . 8
(a) Determining Value . . . . . . . . . . . . . . . . . . . . . 8
-i-
<PAGE>
(1) Book Value . . . . . . . . . . . . . . .. . . . . . . 8
SECTION 4: PROCEDURES TO EXERCISE PURCHASE RIGHTS . . . . . . . . . . . . 9
4.1 General Rules . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.2 Surviving Shareholder's Purchase Rights . . . . . . . . . . . . 9
(a) Surviving Shareholder's Alternatives . . . . . . . . . . 9
(b) Notice to Other Parties . . . . . . . . . . . . . . . . . 9
(c) Deemed Notice . . . . . . . . . . . . . . . . . . . . . . 9
4.3 Corporation's Purchase Rights . . . . . . . . . . . . . . . . . 10
(a) Corporation's Alternatives . . . . . . . . . . . . . . . 10
(b) Notice to Shareholders . . . . . . . . . . . . . . . . . 10
(c) Shareholders' Meeting . . . . . . . . . . . . . . . . . . 10
(d) Shareholder's Obligation to Vote . . . . . . . . . . . . 10
(e) Shareholder's Obligation to Purchase . . . . . . . . . . 11
4.4 Shareholders' Purchase Rights . . . . . . . . . . . . . . . . 11
(a) Shareholders' Alternatives . . . . . . . . . . . . . . . 11
(b) Procedure to Determine Number of Shares
the Shareholders will Purchase . . . . . . . . . . . . . 12
(c) Notice to Selling Person . . . . . . . . . . . . . . . . 13
4.5 Purchase Terms and Conditions . . . . . . . . . . . . . . . . . 13
(a) Payment of Purchase Price . . . . . . . . . . . . . . . . 13
(b) Closing Date . . . . . . . . . . . . . . . . . . . . . . 14
(c) Closing . . . . . . . . . . . . . . . . . . . . . . . . . 14
(d) Default . . . . . . . . . . . . . . . . . . . . . . . . . 14
(e) Other Terms of the Installment Note . . . . . . . . . . . 15
(f) Priority of Any Note Payable by the Corporation . . . . . 15
(g) Covenants by the Corporation . . . . . . . . . . . . . . 15
SECTION 5: SUBCHAPTER S PROVISIONS . . . . . . . . . . . . . . . . . . . . 16
5.1 Application of this Section . . . . . . . . . . . . . . . . . . 16
5.2 Making the Election . . . . . . . . . . . . . . . . . . . . . . 16
(a) Shareholder Decision to Make S Election . . . . . . . . . 16
(b) Making the Election . . . . . . . . . . . . . . . . . . . 16
(c) Qualified Subchapter S Trusts . . . . . . . . . . . . . . 16
5.3 Consent Necessary to Revoke or Make a Transfer that
Terminates the Subchapter S Election. . . . . . . . . . . . . . 17
5.4 Curing Improper Revocation or Termination . . . . . . . . . . . 17
(a) Damages . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) Accountant's Computation of Damages . . . . . . . . . . . 17
(c) Damages if Termination Waived By IRS . . . . . . . . . . 18
(d) Requalification of Corporation . . . . . . . . . . . . . 18
-ii-
<PAGE>
(e) Built-in Gains . . . . . . . . . . . . . . . . . . . . . 19
5.5 Mandatory Dividends . . . . . . . . . . . . . . . . . . . . . . 19
(a) Periodic Distributions . . . . . . . . . . . . . . . . . 19
(b) Terminating Distributions . . . . . . . . . . . . . . . . 19
5.6 Tax Elections . . . . . . . . . . . . . . . . . . . . . . . . . 20
(a) Termination of Interest . . . . . . . . . . . . . . . . . 20
(b) Distributions First Reduce Earnings and Profits . . . . . 20
(c) Closing of Books For Mid-Year Termination . . . . . . . . 20
(d) Shareholder's Agreement to Effect Elections . . . . . . . 20
5.7 Year End Shareholders' Meeting . . . . . . . . . . . . . . . . 20
5.8 Tax Matters Shareholder . . . . . . . . . . . . . . . . . . . . 21
5.9 Special Provisions for Share Purchases . . . . . . . . . . . . 21
5.10 Section 1363(c) Tax Elections . . . . . . . . . . . . . . . . . 22
5.11 Delivery of Tax Information to Shareholders . . . . . . . . . . 22
5.12 Non-Applicability of Exemptions from the Share
Transfer Restrictions in SECTI0N 2 . . . . . . . . . . . . . . 22
SECTION 6: VOTING PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 22
6.1 Voting Agreements . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 7: DEFINITIONS AND RULES OF CONSTRUCTION . . . . . . . . . . . . . 23
7.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(a) Agreement . . . . . . . . . . . . . . . . . . . . . . . . 23
(b) Code . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(c) Corporation . . . . . . . . . . . . . . . . . . . . . . . 24
(d) Delivery . . . . . . . . . . . . . . . . . . . . . . . . 24
(e) Eligible Person . . . . . . . . . . . . . . . . . . . . . 24
(f) Executor . . . . . . . . . . . . . . . . . . . . . . . . 24
(g) Family . . . . . . . . . . . . . . . . . . . . . . . . . 24
(h) Incapacitation . . . . . . . . . . . . . . . . . . . . . 24
(i) Involuntary Transfer . . . . . . . . . . . . . . . . . . 25
(j) Offering Shareholder . . . . . . . . . . . . . . . . . . 25
(k) Party . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(l) Person . . . . . . . . . . . . . . . . . . . . . . . . . 25
(m) Remaining Shareholders . . . . . . . . . . . . . . . . . 26
(n) Securities Act . . . . . . . . . . . . . . . . . . . . . 26
(o) Selling Person . . . . . . . . . . . . . . . . . . . . . 26
(p) Shareholder . . . . . . . . . . . . . . . . . . . . . . . 26
(q) Spouse . . . . . . . . . . . . . . . . . . . . . . . . . 26
(r) Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 26
(s) Surviving Shareholder . . . . . . . . . . . . . . . . . . 27
-iii-
<PAGE>
(t) Tax Regulations . . . . . . . . . . . . . . . . . . . . . 27
(u) Terminated Spouse . . . . . . . . . . . . . . . . . . . . 27
(v) Transfer . . . . . . . . . . . . . . . . . . . . . . . . 27
7.2 Titles, Captions, and Sections . . . . . . . . . . . . . . . . 28
7.3 Derivative Word . . . . . . . . . . . . . . . . . . . . . . . . 29
7.4 Gender and Plurals . . . . . . . . . . . . . . . . . . . . . . 29
7.5 References to the Internal Revenue Code and
Other Statutes . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8: MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.2 Other Documents to Effectuate Agreement . . . . . . . . . . . . 30
8.3 Compliance with Securities Laws . . . . . . . . . . . . . . . . 30
(a) Investment Representation . . . . . . . . . . . . . . . . 30
(b) Covenant to Comply with Securities Laws . . . . . . . . . 30
8.4 Endorsement on Share Certificates . . . . . . . . . . . . . . . 31
8.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.6 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . 32
8.7 Creditors . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.8 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . 32
8.9 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.10 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.11 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . 33
8.12 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.13 Attorney's Fees and Costs . . . . . . . . . . . . . . . . . . . 33
8.14 Severability . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.15 "Days" Defined . . . . . . . . . . . . . . . . . . . . . . . . 34
8.16 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . 34
8.17 Further Action . . . . . . . . . . . . . . . . . . . . . . . . 34
-iv-
<PAGE>
CORPORATION AND SHAREHOLDERS'
AGREEMENT
Xaris Management Company, Inc., a Texas corporation (the "Corporation"),
and each and all of its Shareholders enter into this Agreement as of May 6,
1996. Each Party agrees to and must abide by all of its terms, conditions, and
provisions.
SECTION 1: PURPOSES
1.1 PURPOSES. The Parties enter into this Agreement for the following
purposes:
(a) MAINTAIN CONTROL BY SHAREHOLDERS. To maintain control of
the Corporation in the hands of the Shareholders.
(b) PROVIDE FOR ORDERLY DISPOSITION. To provide an orderly
disposition of the Corporation's Stock if a Shareholder dies or otherwise
terminates his relationship with the Corporation.
(c) PROVIDE A MARKET. To provide a market for the Corporation's
Stock if a Shareholder dies or otherwise terminates his relationship with the
Corporation.
(d) MAINTAIN S CORPORATION STATUS. To maintain any Corporate
election under Subchapter S of the Code until the specified portion of the
Shareholders desire to terminate it.
SECTION 2: RESTRICTIONS ON TRANSFERS
2.1 RESTRICTIONS ON TRANSFERS. Unless allowed by Sections 2.4 or 2.5
or required by SECTION 3, no Person may make a Transfer or attempt or purport to
make a Transfer.
2.2 RESTRICTIONS APPLY TO TRANSFERRED STOCK. When a Transfer allowed
by Sections 2.4 or 2.5 or required by SECTION 3 occurs or when applicable law
allows a Transfer to occur in spite of the Transfer restrictions of Section 2.1:
(a) The restrictions of Section 2.1 continue to apply to
subsequent Transfers.
-1-
<PAGE>
(b) The Transferee becomes a Shareholder, and his spouse (if
any) becomes a Spouse, and this Agreement applies to them
just as it does to any other Shareholder and Spouse.
(c) The new Shareholder and his Spouse (if any) must
acknowledge this Agreement's application to their Stock
and:
(A) execute and Deliver to the Corporation when
the Transfer occurs (or as soon after as is
reasonably practicable):
(i) Schedule A of a counterpart of this
Agreement, or
(ii) another document acceptable to the
Corporation
binding them to abide by the terms,
conditions, and provisions of this Agreement.
2.3 ATTEMPTED TRANSFERS IN VIOLATION OF SHARE TRANSFER RESTRICTIONS.
If a Person attempts or purports to make a Transfer and Sections 2.4 or 2.5 or
SECTION 3 it does not exempt the Transfer from the restrictions of Section 2.1:
(a) that attempted or purported Transfer is void and of no
effect,
(b) the Person to whom the attempted or purported Transfer was
made:
(1) does not have any rights in the Stock attempted or
purported to have been Transferred, and
(2) is not a Shareholder, and
(c) the Corporation
(1) may not recognize or treat the Person to whom the
attempted or purported Transfer was made as having
any rights in the Stock attempted or purported to
have been Transferred (or the Corporation by reason
of owning that Stock),
(2) may not issue any Stock certificates to the Person to
whom the attempted or purported Transfer was made,
and
-2-
<PAGE>
(3) may not pay any dividends or make any other
distributions to the Person to whom the attempted
or purported Transfer was made on the Stock
attempted or purported to have been Transferred.
2.4 EXEMPTED TRANSFERS. A Person may make a Transfer if the Transfer
is to an Eligible Person, the Transferee and his Spouse, if any, comply with
Section 2.2(c), and the Transfer also satisfies one of the following additional
conditions:
(a) SHAREHOLDERS' APPROVE. All the Shareholders holding Stock
having general voting rights approve the Transfer in
writing.
(b) TRANSFER TO THE CORPORATION. The Person makes the Transfer
to the Corporation.
(c) TRANSFER BY SPOUSE. A Spouse makes the Transfer to her
spouse.
(d) TRANSFER TO OTHER SHAREHOLDER. The Person makes the
Transfer to a Shareholder of the same class of Stock.
(e) INTRA FAMILY TRANSFERS. A Shareholder makes the Transfer
to:
(1) members of his Family, or
(2) one or more trusts that each entirely and
exclusively benefit him or his Family.
(f) TRANSFER AT DEATH. A Shareholder makes the Transfer at
death and not all his Stock is purchased under Section
3.l(b), but only to the extent of the Stock not so
purchased.
2.5 RIGHT OF FIRST REFUSAL OF THIRD PARTY OFFERS TO PURCHASE.
(a) PREREQUISITES FOR TRANSFER. A Shareholder may make a
Transfer if and when all of the following occur:
(1) The Shareholder receives a bona fide, legally
enforceable offer to purchase Stock from an Eligible
Person that the Shareholder desires to accept.
-3-
<PAGE>
(2) The Shareholder Delivers to the Corporation and the
Remaining Shareholders a written notice meeting the
requirements of Section 2.5(b).
(3) The Corporation or the Remaining Shareholders
(following the applicable procedures described in
SECTION 4) do not purchase any part of the Stock
offered for sale.
(4) The proposed Transferee and his Spouse, if any:
(A) comply with Section 2.2(c); and
(B) purchase (within 30 days after the
Corporation's and the Remaining Shareholders'
rights to purchase the Stock expire under
Section 4.3) all of the Stock offered
according to Section 2.5(b)(5):
(i) at the price described in Section
2.5(b)(3).
(ii) on the terms and conditions described in
Section 2.5(b)(4).
(b) CONTENTS OF NOTICE. The notice referred to in Section 2.5(a)(2)
must contain each of the following:
(1) A description of the Stock the Shareholder desires to
Transfer according to the offer described in Section
2.5(a)(1).
(2) The name of the proposed Transferee according to the offer
described in Section 2.5(a)(1).
(3) The per share price (or the value of any consideration
that is not cash but that is property) for the Stock
according to the offer described in Section 2.5(a)(1).
(4) A description of all other terms and conditions of the
offer described in Section 2.5(a)(1).
(5) An offer, binding on the Shareholder (and his Spouse), to
sell to the Corporation and the other Shareholders the
Stock described in Section 2.5(b)(1) on the terms
described in Section 2.5(d).
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The amount described in Section 2.5(b)(3) may not include any value attributable
to any employment contract, consulting contract, or any other side agreement
between the Person making the offer and the Shareholder (or his Spouse) giving
the notice.
(c) PRIORITIES AND DEADLINES. The Corporation has the first right to
purchase the Stock described in Section 2.5(b)(1). The Remaining Shareholders
have the next right to purchase the Stock described in Section 2.5(b)(1) to the
extent the Corporation does not purchase the Stock. Together the Corporation and
the Remaining Shareholders have a total of 120 days to purchase the Stock on the
terms described in Section 2.5(d) according to the procedures of SECTION 4.
(d) PURCHASE PRICE AND TERMS. If a Party accepts the offer according
to SECTION 4:
(1) The purchase price of the Stock is:
(A) the lesser of:
(i) the per share price specified in Section
2.5(b), or
(ii) the price determined under Section 3.3,
if the offer described in Section 2.5(a)(1) is for a
cash or deferred cash consideration, or
(B) the price determined under Section 3.3.
(2) The terms and conditions of the purchase are:
(A) the terms and conditions described in Section
2.5(b)(4) if the offer described in Section
2.5(a)(1) is for a cash or a deferred cash
consideration, or
(B) the terms described in Section 4.5.
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SECTION 3: BUY-OUT RIGHTS
3.1 EVENTS TRIGGERING A BUY-OUT RIGHT.
(a) TRANSFERS AND ATTEMPTED TRANSFERS IN VIOLATION OF TRANSFER
RESTRICTIONS.
(1) If a Person attempts to make a Transfer violating the
Transfer restrictions of Section 2.1, the Corporation and the Remaining
Shareholders have the right to purchase (and the owner must sell), in accord
with the procedures of SECTION 4, all the Stock involved in the attempted
Transfer at the price described in Section 3.3 and on the other terms described
in Section 4.5.
(2) If Section 2.1 or 2.3 is ineffective against a
Transferee for any reason, the Corporation and the Remaining Shareholders have
the right to purchase (and the owner must sell), in accord with the procedures
of SECTION 4, any Stock involved in a Transfer violating the restrictions of
Section 2.1 on the following terms:
(A) The purchase price of the Stock is the lesser
of:
(i) the amount of cash and the value of any
other consideration received in the
prohibited Transfer, or
(ii) the price determined under Section 3.3.
(B) The terms and conditions of the purchase are,
at the option of the purchasing Party:
(i) the same terms and conditions as the
prohibited Transfer, or
(ii) the terms and conditions of Section 4.5.
The Corporation and any Shareholder may enforce the purchase rights accorded
them under this Section 3.l(a) by obtaining specific performance of those
rights.
(b) DEATH OF SHAREHOLDER. If an individual Shareholder dies
and the Transfer of the decedent's and his Spouse's Stock at his death does
not satisfy one of the conditions in Section 2.4 (other than Section 2.4(f)),
the Corporation and the Remaining Shareholders have the right to purchase
(and the owner must sell), in accord with the procedures of SECTION 4, the
decedent's and his Spouse's Stock at the price described in Section 3.3 and
on the other terms described in Section 4.5.
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(c) DEATH OR DIVORCE OF SPOUSE. If the Spouse of a Shareholder
becomes a Terminated Spouse, the Surviving Shareholder has the right to purchase
(and the owner must sell), in accord with the procedures of SECTION 4, the
Terminated Spouse's Stock at the price described in Section 3.3 and on the other
terms described in Section 4.5. If the Surviving Shareholder does not receive or
acquire all the Terminated Spouse's Stock, the Corporation and other
Shareholders have the right to purchase (and the Terminated Spouse or her
Executor must sell), in accord with the procedures of SECTION 4, the Terminated
Spouse's Stock at the price described in Section 3.3 and on the other terms
described in Section 4.5.
3.2 NOTICE AND DEADLINE REQUIREMENTS FOR BUY-OUT RIGHTS. Except when
Section 3.1 provides otherwise, whenever one or more Persons have the right to
purchase the Stock of any other Person because one or more of the events
triggering a buy-out in Section 3.1 occurs, the following requirements apply:
(a) NOTICE REQUIREMENTS. Within 30 days after the event that
triggers the buy-out right occurs, the Offering Shareholder must Deliver a
written notice to the Corporation and all Remaining Shareholders containing each
of the following:
(1) A description of the number and class or series of shares
of Stock that the Offering Shareholder must offer for
sale.
(2) An offer, binding on the Offering Shareholder (and his
Spouse and any other Person with an interest in the Stock
described in Section 3.2(a)(1)), to sell to the
Corporation and the Remaining Shareholders the Stock
described in Section 3.2(a)(1) on the terms required by
the applicable buy-out right.
(b) DEEMED NOTICE. If the Offering Shareholder fails to Deliver the
notice according to Section 3.2(a) or if the notice given is defective in any
manner, a notice containing the matters described in Section 3.2(a) is deemed
Delivered when the Corporation and each Remaining Shareholder have actual
knowledge of the event causing the buy-out right to arise.
(c) PRIORITIES AND DEADLINES.
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(1) When the Corporation and the Remaining Shareholders have
the right under Section 3.1 to purchase Stock:
(A) The Corporation has the first right to purchase the
Stock.
(B) The Remaining Shareholders have the next right to
purchase the Stock to the extent the Corporation
does not purchase the Stock.
(C) Together the Corporation and the Remaining
Shareholders have a total of 120 days to purchase
the Stock according to the procedures of SECTION 4.
(2) When a Surviving Shareholder has the right under Section
3.1 to purchase Stock, he has a total of 30 days to purchase the Stock according
to the procedures of SECTION 4.
3.3 VALUE OF THE STOCK TO BE PURCHASED.
(a) DETERMINING VALUE. Unless specifically stated otherwise, Stock
must be bought and sold under a buy-out right granted under Section 3.1 at a
price equal to the Stock's fair market value. The Parties agree that the fair
market value of the Stock must be determined in the following manner:
(1) BOOK VALUE. The fair market value of the Stock equals the
net book value of the Corporation's assets and liabilities, determined:
(A) by the accountant who regularly prepares the
Corporation's financial statements,
(B) as of the last day of the month in which the buy-out
right granted under Section 3.1 arose,
(c) in accord with the regular financial statements
prepared by or for the Corporation, and
(D) in accord with the accounting principles
consistently applied by the Corporation in preparing
those financial statements.
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SECTION 4: PROCEDURES TO EXERCISE PURCHASE RIGHTS
4.1 GENERAL RULES. When a Surviving Shareholder has the right to
purchase Stock, the Surviving Shareholder may exercise his right according to
Section 4.2. When the Corporation has the right to purchase any Stock, the
Corporation may exercise its rights according to Section 4.3. When the Remaining
Shareholders have the right to purchase any Stock, they may exercise their
rights according to Section 4.4. Unless specifically stated otherwise, all
purchases and sales of Stock will be closed according to Section 4.5.
4.2 SURVIVING SHAREHOLDER'S PURCHASE RIGHTS. This Section 4.2 applies
whenever a Surviving Shareholder (or any other single Shareholder) has the right
to purchase any Stock.
(a) SURVIVING SHAREHOLDER'S ALTERNATIVES. When a Surviving
Shareholder has the right to purchase Stock of his Terminated Spouse, he has 30
days from the date the event causing the Surviving Shareholder's Spouse to
become a Terminated Spouse to exercise his right to purchase by Delivering to
the Terminated Spouse or her Executor a writing specifying the amount of the
Stock he agrees to purchase. If a Surviving Shareholder does not so act within
the 30-day period, his right to purchase expires.
(b) NOTICE TO OTHER PARTIES. If the Surviving Shareholder:
(1) fails to exercise his purchase rights within the 30-day
period,
(2) rejects his purchase rights, or
(3) partially exercises his purchase rights by agreeing to
purchase only a part of the Stock he has the right to
purchase,
the Surviving Shareholder must (or the Terminated Spouse or her Executor may)
Deliver written notice of that fact to the Corporation and the Remaining
Shareholders when the first of these described events occurs.
(c) DEEMED NOTICE. If the Surviving Shareholder (or the Terminated
Spouse or her Executor) fails to Deliver notice according to Section 4.2(b)
or if the notice given is defective in any manner, that notice is deemed
Delivered when the Corporation and each Remaining Shareholder have actual
knowledge of an event described in Section 4.2(b).
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4.3 CORPORATION'S PURCHASE RIGHTS. This Section 4.3 applies whenever the
Corporation has the right to purchase any Stock.
(a) CORPORATION'S ALTERNATIVES. When the Corporation has the right
to purchase Stock offered for sale in a notice described in Section 2.5(b),
Section 3.2(a), Section 3.2(b), or Section 4.2(b), the Corporation (or its
assignee) has 60 days from the date it actually or constructively receives the
notice described in Section 2.5(b), Section 3.2(a), Section 3.2(b), or Section
4.2(b) to accept the offer by Delivering to the Offering Shareholder a writing
specifying the amount of the Stock it agrees to purchase.
(b) NOTICE TO SHAREHOLDERS. If the Corporation (or its assignee):
(1) fails to accept the Offering Shareholder's offer within
the 60-day period,
(2) rejects the Offering Shareholder's offer, or
(3) partially accepts the Offering Shareholder's offer by
agreeing to purchase only a part of the Stock offered,
the Corporation must Deliver written notice of that fact to the Remaining
Shareholders when the first of these described events occurs.
(c) SHAREHOLDERS' MEETING. Within 5 days after actually or
constructively receiving the notice described in Section 2.5(b), Section 3.2(a),
Section 3.2(b), or Section 4.2(b), the Corporation must call a special
Shareholders' meeting. The meeting must be held within 10 working days after the
call. At the meeting, the Shareholders must decide whether and to what extent
the Corporation (or its assignee) should purchase the offered Stock. The
Corporation must act according to the affirmative vote of the holders of a
majority of votes entitled to be cast at the meeting, excluding votes of the
Stock covered in the notice described in Section 2.5(b), Section 3.2(a),
Section 3.2(b), or Section 4.2(b).
(d) SHAREHOLDER'S OBLIGATION TO VOTE. The Shareholders, including
the Offering Shareholder, agree to vote their shares of Stock in favor of all
action necessary or appropriate:
(1) to implement the decision made according to Section
4.3(c).
(2) to cause the Corporation to have enough legally available
corporate funds for the Corporation to purchase the Stock
the Shareholders decided it would purchase according to
Section 4.3(c).
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For example, the Shareholders must vote
(A) to revalue the Corporation's assets and liabilities on a
fair market value basis, or
(B) to reduce the Corporation's stated capital and to use all
the Corporation's capital surplus,
if necessary, to allow the Corporation to fund the purchase.
(e) SHAREHOLDER'S OBLIGATION TO PURCHASE.
(1) If:
(A) the Corporation's legal counsel maintains the opinion
that even after taking all actions described in Section
4.3(d) the Corporation may not legally purchase all the
Stock it has agreed to purchase, and
(B) some part of the Stock of the Selling Shareholder will go
unpurchased if the Corporation fails to purchase the
Stock it has agreed to purchase,
the Remaining Shareholders must purchase their proportionate share (determined
under Section 4.3(e)(2)) of the Stock the Corporation cannot legally purchase.
They must make the purchase at the same time the Corporation's purchase closes.
(2) Each Remaining Shareholder's proportionate share of remaining
Stock equals:
(A) the percentage of all the Stock of the Corporation held
by Remaining Shareholders that the Stock he holds
represents, or
(B) whatever proportion the Remaining Shareholders may
unanimously agree on.
4.4 SHAREHOLDERS' PURCHASE RIGHTS. This Section 4.4 applies whenever the
Remaining Shareholders have the right to purchase any Stock.
(a) SHAREHOLDERS' ALTERNATIVES. When the Remaining Shareholders
have the right to purchase Stock offered for sale in a notice described in
Section 2.5(b), Section 3.2(a), Section
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3.2(b), or Section 4.2(b), each has 60 days from the date he receives the notice
described in Section 4.3(b) to accept the offer by Delivering to the Corporation
a writing specifying the amount of the Stock he desires to purchase. If a
Remaining Shareholder does not so accept within the 60-day period, his right
to purchase under the offer expires.
(b) PROCEDURE TO DETERMINE NUMBER OF SHARES THE SHAREHOLDERS WILL
PURCHASE. Each Remaining Shareholder has the obligation to purchase the entire
amount of Stock he indicates a desire to purchase under Section 4.4(a); but he
may not have the right to purchase that much Stock. The exact amount of Stock
each Remaining Shareholder desiring to purchase Stock must purchase depends on
how much Stock the Corporation allocates to each Remaining Shareholder. The
Corporation must allocate the Stock to each Remaining Shareholder indicating a
desire to purchase under Section 4.4(a) according to the following procedures:
(1) First, the Corporation must determine each Remaining
Shareholder's initial purchase percentage. For each
Remaining Shareholder, that percentage equals the number
of shares of Stock owned by him divided by the number of
shares of Stock owned by all of them.
(2) Next, the Corporation must make the initial allocation to
each Remaining Shareholder. Accordingly, the Corporation
must tentatively allocate to each an amount of Stock
equal to
(A) the total amount of Stock that the Remaining
Shareholders have the right to purchase, multiplied
by
(B) each Remaining Shareholder's initial purchase
percentage (according to Section 4.4(b)(1)).
The Corporation must then reduce each Remaining
Shareholder's tentative allocation if necessary down to
the amount of Stock he indicated a desire to purchase
under Section 4.4(a). The resulting amount of Stock
equals each Remaining Shareholder's initial allocation of
Stock.
(3) Next, the Corporation will make another allocation
to each Remaining Shareholder if any Stock remains
unallocated after the initial allocation of Section
4.4(b)(2). If no Stock remains unallocated, the
process stops. If some Stock remains una!located, the
Corporation must make another allocation to each
Remaining Shareholder who has not received an
allocation of Stock equal to the amount he indicated
a desire to purchase. The Corporation must make that
allocation by
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repeating Sections 4.4(b)(1) and 4.4(b)(2), but
applying them only to each Remaining Shareholder who
has not yet received an allocation of Stock equal to
the amount he indicated a desire to purchase.
(4) Next, the Corporation must repeat Section 4.4(b)(3)
until either no Stock remains unallocated or each
Remaining Shareholder has received an allocation
equal to the amount he indicated a desire to
purchase.
If any Stock that the Remaining Shareholders have the right to purchase remains
unallocated after the Corporation follows the allocation procedures, the
Corporation may notify the Remaining Shareholders of that fact and each
Remaining Shareholder can Deliver a supplement to the notice he previously
Delivered according to Section 4.4(a) indicating his desire to purchase
additional Stock. The Corporation must then reallocate the Stock under this
Section 4.4(b) so long as it can do so before it must Deliver notice of the
allocation according to Section 4.4(c).
(c) NOTICE TO SELLING PERSON. The Corporation must Deliver to the
Selling Person notice specifying the allocations made under Section 4.4(b) and
the resulting amount of Stock that each Remaining Shareholder agrees to
purchase. The Corporation must Deliver that notice before the applicable
deadline for purchase expires.
4.5 PURCHASE TERMS AND CONDITIONS.
(a) PAYMENT OF PURCHASE PRICE. Except when this Agreement provides
otherwise, each purchasing Party, individually, in proportion to the amount of
Stock each purchases, must pay the purchase price of any Stock in cash, by
certified or cashiers check, or in other readily available funds, at the closing
specified in this Section 4.5, in the following manner:
(1) A down payment of at least 10 percent of the total
purchase price must be paid in cash, by certified or cashiers check, or in other
readily available funds at the closing specified in Section 4.5(b).
(2) The balance of the purchase price must be paid annually
in 9 equal installments of principal and accrued interest computed at a per
annum rate equal to the Prime Rate as reported from time to time in the Money
Market section of the Wall Street Journal then in effect (or if no such rate is
then in effect, at the rate of 10% per annum). The first installment payment is
due on the first anniversary of the closing of the purchase of the Stock. The
obligation to make these installment payments must be evidenced by a promissory
note containing these repayment terms and the other terms specified in Section
4.5(e).
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(b) CLOSING DATE. Except when this Agreement provides otherwise or
the Parties to the transaction agree otherwise, the purchase of any Stock must
be closed on or before 30 days after the specified time period for exercising
the Person's purchase rights expire, at a time, place, and date specified in the
written notice[s] Delivered to the Selling Person describing the amount of Stock
each purchasing Party agrees to purchase. If the date so determined is a
Saturday, Sunday, or holiday, then the closing must occur on the first
succeeding business day.
(c) CLOSING. At the closing of the purchase of any Stock:
(1) Each purchasing Party must Deliver to the Selling Person:
(A) The payment specified in Section 4.5(a).
(B) A duly executed installment note, containing the
provisions required by Section 4.5(e).
(C) An attorney's opinion, in form and substance
satisfactory to the Selling Person, that the
purchase is an exempt transaction under the
applicable federal and state securities laws.
(2) The Selling Person must Deliver to each purchasing Party:
(A) Share certificates (or Transfer orders in the case
of uncertificated Stock) for all the Stock
Transferred either duly endorsed in blank for
Transfer or with duly executed stock powers
attached.
(B) A certificate, dated as of the closing date,
containing a representation and warranty that on the
closing date the Selling Person Transferred, or
caused to be Transferred, to the purchasing Party
good and marketable title to all the Stock in
question, free and clear of all claims, equities,
liens, charges, and encumbrances.
(C) Any other documents or agreements required by this
Agreement.
(d) DEFAULT. Failure to make any payment required by any
installment note authorized by Section 4.5(a) when due constitutes a default on
the note and causes the remaining unpaid balance to become immediately due and
payable. The Selling Person then has all the rights and remedies to enforce
payment of the unpaid balance authorized by law. Notwithstanding, before
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the note's balance becomes immediately due and payable, the Selling Person (or
his successor in interest) must Deliver written notice of the default to the
purchasing Party and, if the purchasing Party pays in full the past due amount
within 10 days after Delivery of this notice, the default is cured as if it
never occurred.
(e) OTHER TERMS OF THE INSTALLMENT NOTE. The amount of the
installment note called for by Section 4.5(a) must provide that the maker has
the privilege at any time to prepay without penalty all or any part of the
balance due on the note with interest to the date of prepayment. Partial
prepayments must be applied to the next maturing installments in inverse order.
(f) PRIORITY OF ANY NOTE PAYABLE BY THE CORPORATION. The
Corporation's obligation under any installment note called for by Section 4.5(a)
of which it is the maker has an equal priority with the Corporation's debts to
its general, unsecured creditors except to the extent secured or subordinated by
agreement or by the terms of this Agreement.
(g) COVENANTS BY THE CORPORATION. If the Corporation purchases any
of the Stock, so long as any part of the purchase price remains unpaid:
(1) The Corporation may not, without the prior written
consent of the Selling Person (or his successor in
interest):
(A) declare or pay any dividends on its shares.
(B) reorganize its capital structure, unless the
reorganization is intended to provide adequate funds
to apply to the payment of the purchase price of the
Stock.
(C) merge or consolidate with any other corporation or
sell any substantial portion of its assets except in
the regular course of business.
(2) The Corporation must:
(A) allow the Selling Person (or his successor in
interest) to examine the Corporation's books and
records, and
(B) promptly send to the Selling Person (or his
successor in interest) a copy of all accounting
reports and tax returns prepared for or on behalf of
the Corporation,
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just as if the Selling Person (or his successor in
interest) were a Shareholder of record.
SECTION 5: SUBCHAPTER S PROVISIONS
5.1 APPLICATION OF THIS SECTION. This SECTION 5 applies if the
Shareholders agree (according to Section 5.2) the Corporation should make an
election to be taxed as a "small business corporation" under Subchapter S of the
Code. If this SECTION 5 becomes applicable, the other SECTIONS of this Agreement
apply only to the extent they are not inconsistent with this SECTION 5.
5.2 MAKING THE ELECTION.
(a) SHAREHOLDER DECISION TO MAKE S ELECTION. If 51 percent of the
Shareholders consent in writing to the Corporation making an election to be
taxed as an S corporation under Subchapter S of the Code, the Corporation must
make that election according to Section 5.2(b). All Shareholders who consented
to the election and their Spouses must execute any additional consents or
documents according to Section 5.2(b). Any Shareholder who did not consent to
the election and his Spouse must either:
(1) execute any additional consents or documents necessary to
make the election according to Section 5.2(b), or
(2) agree to sell, according to Section 3.1(a)(1) as if the
Shareholder had attempted to make a Transfer violating
this Agreement, all that Shareholder's and his Spouse's
Stock.
(b) MAKING THE ELECTION. If the requisite Shareholders consent, the
Shareholders must cause the Corporation to execute all forms necessary to
effectuate the Subchapter S election for federal and, if applicable, state
purposes. In addition, each Shareholder and his Spouse must execute, or cause to
be executed, by the proper Person all consents necessary to effectuate the
Subchapter S election for federal and, if applicable, state purposes. The
Shareholders must also authorize all filings (of the election and the consents)
with the appropriate federal and state tax authorities in a timely manner so
that the election may become effective for the intended tax year.
(c) QUALIFIED SUBCHAPTER S TRUSTS. Before Stock may be issued to or
Transferred to a Qualified Subchapter S Trust (within the meaning of Code
Section 1361(d)), the beneficiary of the Trust must furnish evidence
satisfactory to the Corporation's legal counsel that the beneficiary has
consented to the Corporation's election to operate under Subchapter S of the
Code.
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5.3 CONSENT NECESSARY TO REVOKE OR MAKE A TRANSFER THAT TERMINATES THE
SUBCHAPTER S ELECTION. Each Shareholder and his Spouse agree not to take any
action, or make any Transfer of Stock which terminates or revokes the
Corporation's Subchapter S election unless the same number of Shareholders
required by Section 5.2(a) to make a Subchapter S election consent in writing to
that action or Transfer.
5.4 CURING IMPROPER REVOCATION OR TERMINATION.
(a) DAMAGES. Any Shareholder who causes or authorizes an action or
Transfer which terminates the Corporation's Subchapter S election in violation
of Section 5.3 (whether in his capacity as a Shareholder, director, officer,
employee, or agent for the Corporation or otherwise) agrees to pay the
Corporation and every other Shareholder the amount of any and all resulting
damages, liabilities, or costs. The resulting damages, liabilities, and costs
include:
(1) direct and indirect damages, liabilities, and costs.
(2) any additional federal or state tax liability incurred by
the Corporation or any other Shareholder because of the
action or Transfer.
(3) any attorneys' fees or other costs incurred in computing
and collecting any damages, liabilities, or costs.
Notwithstanding, no Shareholder has any liability under this Section 5.4 for
making a Transfer that terminates the election if the Shareholder in good faith
relied on a written legal opinion that the Transfer would not terminate the
Corporation's Subchapter S election.
(b) ACCOUNTANT'S COMPUTATION OF DAMAGES. The accountant that
regularly prepares the Corporation's tax returns must compute the amount of the
Corporation's and Shareholders' additional federal and state tax liability
caused by an improper action or Transfer. That computation conclusively
establishes those amounts unless this Section 5.4(b) provides otherwise.
When he computes the amount of additional tax liabilities, the
accountant must determine the present value of the difference between the
projected estimated federal and state income taxes of the Corporation and the
Shareholders for the five tax years following the action or Transfer
improperly terminating the Corporation's election and the estimated federal
and state income taxes the Corporation and the Shareholders would have to pay
during this five-year period had the
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Corporation's election remained in effect. The accountant must base that
projection on the following assumptions:
(1) each Shareholder's tax rate equals the maximum applicable
marginal rate for the tax year preceding the tax year in
which the action or Transfer occurs.
(2) the Corporation distributes all of its net income each
year.
(3) if the Corporation has projected net losses or
deductions, the net deductions for the five-year
computational period do not exceed the sum of each
Shareholder's tax basis when the action or Transfer
occurs plus any contributions to capital made by the
Shareholder between the action or Transfer and the
accountant's determination.
(c) DAMAGES IF TERMINATION WAIVED BY IRS. If the Internal Revenue
Service grants a waiver under Code Section 1362(f) so that the Corporation's
election is reinstated retroactively to the date of termination, the amount
of damages resulting from the action or Transfer equals the sum of:
(1) the total tax adjustments, interest, and any applicable
penalties the Internal Revenue Service requires the
Corporation or the Shareholders to pay to obtain the
waiver.
(2) any attorneys' fees and other costs and expenses incurred
by the Corporation and the other Shareholders to obtain
the waiver.
(d) REQUALIFICATION OF CORPORATION. The Shareholders agree to
mitigate their damages by:
(1) taking appropriate action to cause the Corporation to
again qualify as a "small business corporation" according
to Code Section 1361(b), and
(2) causing the Corporation to file a timely request for a
waiver of the termination pursuant to Code Section
1362(f) but only if the Shareholder whose action or
Transfer caused the improper termination satisfies all
the following conditions:
(A) he agrees to cooperate fully with the other
Shareholders in seeking requalification by, for
example, instituting or joining
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in an action to rescind any action or Transfer that
caused the termination.
(B) he provides an indemnity bond or other security
satisfactory to the Corporation and the Remaining
Shareholders covering all of the anticipated costs
and expenses involved in requalifying the
Corporation as a "small business corporation" and
obtaining the waiver.
(C) he obtains a written legal opinion that the
Corporation once again qualifies as a "small
business corporation" and that there is a reasonable
basis for believing the Internal Revenue Service
will grant the waiver.
(e) BUILT-IN GAINS. The amount of any damages resulting from an
improper action or Transfer includes any tax on built-in gains assessed
according to Code Section 1374 if the Corporation regains its Subchapter S
election under Code Section 1362(f) or re-elects Subchapter S status under
Code 1362(g) within 60 months after the wrongful termination.
5.5 MANDATORY DIVIDENDS.
(a) PERIODIC DISTRIBUTIONS. While the Corporation's Subchapter S
election is in effect, the Corporation must endeavor to make pro rata
distributions to the Shareholders to pay taxes. The distributions should at
least equal their estimated federal and state income taxes attributable to their
pro rata share of the Corporation's net long-term and Code Section 1231
capital gains and nonseparately computed income pursuant to Code Section
1366(a). The Corporation's accountant who regularly prepares its tax returns
must compute this estimated tax liability on the basis of the highest
marginal rate applicable to individuals on capital gains and other taxable
income for the tax year in question.
Unless applicable state law prevents it, or the Shareholders unanimously
agree otherwise, the Corporation must declare and pay the total amount of the
minimum mandatory dividend required by this Section 5.5(a) no later than March
15 of the calendar year following the close of the Corporation's tax year. The
total pro rata distributions made to the Shareholders during the prior tax year
of the Corporation must be taken into account in determining the amount, if any,
of any additional distributions that must be made by the following March 15th to
meet the requirements of this Section 5.5(a).
(b) TERMINATING DISTRIBUTIONS. If the Corporation's election is
revoked or terminated, the Corporation must declare and pay pro rata cash
distributions during the post-termination transition period equal to the
Corporation's accumulated adjustments account. Those distributions
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need not be made, however, to the extent the Shareholders unanimously agree to
make the election authorized by Code Section 1371(e)(2), or if applicable
state law prevents the Corporation from making them.
5.6 TAX ELECTIONS.
(a) TERMINATION OF INTEREST. If a Shareholder terminates his entire
interest in the Corporation while it is a Subchapter S corporation, the
Corporation must elect (according to Code Section 1377(a)(2)) to have the
rules in Code Section 1377(a)(1) applied as if the Corporation's tax year
consisted of two short tax years, with the first one ending on the date of
the Shareholder's termination.
(b) DISTRIBUTIONS FIRST REDUCE EARNINGS AND PROFITS. If the
Corporation is an S corporation and for any reason has earnings and profits,
then the Corporation must elect (according to Code Section 1368(e)(3)) to
have any distribution to the Shareholders reduce those earnings and profits
until they have been eliminated.
(c) CLOSING OF BOOKS FOR MID-YEAR TERMINATION. If the Corporation's
election is effectively terminated or revoked before the end of a tax year, then
the Corporation must elect (according to Code Section 1362(e)(3)) to use the
Corporation's accounting records rather than make a pro rata allocation to
compute the income tax consequences to the Shareholders and the Corporation for
the part of the year it was an S corporation and the part of the year it was a C
corporation.
(d) SHAREHOLDER'S AGREEMENT TO EFFECT ELECTIONS. If Sections
5.6(a), 5.6(b), or 5.6(c) require the Corporation to make any elections, each
Shareholder and his Spouse (including a Shareholder who may have disposed of his
Stock before the election is filed) agree:
(1) to cause the Corporation to execute and file in a timely
manner with the appropriate federal (and, if required,
state) tax officials the necessary form or forms to make
the election.
(2) to execute the necessary Shareholders' consents to make
the election.
5.7 YEAR END SHAREHOLDERS' MEETING. At least one month before the end of
each tax year, the Shareholders must call a meeting. At that meeting the agenda
must include:
(a) a review of the Corporation's operations during the tax year
from a tax perspective.
(b) consideration of possible actions to eliminate or ameliorate
any tax problems that in the opinion of the accountant who
regularly handles the Corporation's tax matters and the
Corporation's general counsel (or, if applicable, the
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attorney retained to advise the Corporation on tax matters)
require remedial action.
The notice for the meeting must include notice of the tax review. The
Corporation's accountant and appropriate legal counsel must be invited to attend
this meeting.
5.8 TAX MATTERS SHAREHOLDER. If the Corporation is operating as an S
corporation, and, according to Code Sections 6241-6245 and applicable Tax
Regulations, it must have a Tax Matters Shareholder, the Person designated in
Schedule TMS must serve in that capacity. If the initial Person selected to
act as the Tax Matters Shareholder:
(a) ceases to be a Shareholder,
(b) resigns, or
(c) is unable for any reason to serve in this capacity,
Shareholders holding 51 percent of the Stock must elect a replacement Tax
Matters Shareholder, and the Corporation must enter the name of the replacement
and the date of his election on Schedule TMS. The Tax Matters Shareholder has
the exclusive authority to negotiate a settlement or agreement with the Internal
Revenue Service on any Subchapter S item at issue in an entity level audit
according to Code Sections 6241-6245. However, the Tax Matters Shareholder
may not finalize any settlement or agreement without first informing each
Shareholder in writing of the issues in question and his proposed
recommendations as to each issue, and obtaining the written consent of
Shareholders holding 51 percent of the Stock to his recommended action.
5.9 SPECIAL PROVISIONS FOR SHARE PURCHASES. If a Shareholder
Transfers any of his Stock to the Corporation and/or the other Shareholders
in accord with SECTION 3 and at the time of the Transfer the Corporation is
operating as an S corporation, the following special provisions apply:
(a) The formula price determined according to Section 3.3 must be
reduced by any distributions:
(1) made by the Corporation to the Transferring Shareholder
between the effective date the price for the Stock is
established and the date of closing, and
(2) paid from the Corporation's accumulated adjustments
account.
(b) The formula price determined according to Section 3.3 must be
reduced by the Selling Person's pro rata amount of any taxes
required to be paid by the
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Corporation under Code Section 1374 and on excessive passive
income under Code Section 1375 for the tax year of the
Transfer. The amount of these taxes attributed to the
Transferring Shareholder must be determined on the basis of
the amount that would have been due if the Corporation's tax
year had ended on the closing date.
The accountant that regularly prepares the Corporation's financial statements
must make these adjustments (and any other appropriate adjustments due to the
Corporation being taxed as an S Corporation).
5.10 SECTION 1363(c) TAX ELECTIONS. The Shareholders agree that the
Corporation may make any election allowed under Code Section 1363(c) that
affects how the Corporation or Shareholders compute tax items derived from
the Corporation only after Shareholders holding 51 percent of the Stock
approve the election.
5.11 DELIVERY OF TAX INFORMATION TO SHAREHOLDERS. The Corporation must
Deliver to the Shareholders copies of the K-1 schedules and any other
information the Shareholders need to include the Corporation's tax results in
their individual tax returns. It must do so no later than one month before the
deadline for filing the Shareholders' returns. If the Corporation fails to do so
within the specified time, the Person or Persons responsible for timely
Delivering the information must pay any interest or penalties, or additional
professional fees, the Shareholders incur because the Corporation did not timely
Deliver the information.
5.12 NON-APPLICABILITY OF EXEMPTIONS FROM THE SHARE TRANSFER RESTRICTIONS
IN SECTION 2. The exemptions from the Stock Transfer restrictions in Sections
2.4 and 2.5 and the Transfers provided in SECTION 3 apply only if the Transfer
is otherwise exempt and does not cause the Corporation's Subchapter S election
to terminate.
SECTION 6: VOTING PROVISIONS
6.1 VOTING AGREEMENTS. The Shareholders agree to exercise their voting
rights on their Stock as follows:
(a) They must exercise their rights to vote in whatever manner and
at whatever times as may be necessary to cause Lori Gilliland D'Atri, or her
nominee[s], to hold one-half of all the Corporation's directorships as long as
she lives.
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(b) Before exercising their voting rights on:
(1) A proposal to sell, lease, convey, exchange, Transfer, or
otherwise dispose of all or substantially all of the
Corporation's property or assets,
(2) A proposal to merge or consolidate the Corporation with
another corporation, domestic or foreign,
(3) A proposal to amend the Corporation's articles of
incorporation,
(4) A proposal to wind up and dissolve the Corporation, or
(5) A proposal to adopt a plan of distribution of shares,
securities, or any consideration other than money in the
process of winding up the Corporation,
the Shareholders must come to a unanimous agreement on the proposal. If the
Shareholders fail to come to unanimous agreement on the proposal, they agree
that the proposal may not be passed or carried out and agree to vote all their
Stock accordingly.
(c) The Shareholders also agree that the Corporation may not
withdraw as a Partner or as a General Partner from, vote for the dissolution,
liquidation, termination, or other form of cessation of, or vote to amend the
Partnership Agreement of, Xaris, Ltd.,
(d) On all other matters, the Shareholders may exercise their
voting rights on their Stock as they see fit.
SECTION 7: DEFINITIONS AND RULES OF CONSTRUCTION
7.1 DEFINITIONS. The capitalized terms used in this Agreement have the
following meanings:
(a) AGREEMENT. The term "Agreement" means this corporation and
shareholders' agreement, as amended, modified, supplemented, or restated from
time to time, as the context requires.
(b) CODE. The term "Code" means the Internal Revenue Code of 1986,
as amended, or corresponding provisions of subsequent, superseding federal
revenue laws.
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(c) CORPORATION. The term "Corporation" means Xaris Management
Company, Inc.
(d) DELIVERY. The term "Delivery" means:
(1) actually physically delivering a writing to a Person to
whom Delivery is to be made or the Person's agent.
(2) depositing a writing in the United States mail, via
certified mail, return receipt requested, postage
prepaid, properly addressed to the Person to whom
Delivery is to be made.
(e) ELIGIBLE PERSON. The term "Eligible Person" means each Person
who is:
(1) eligible to become a qualified Shareholder under any
federal or state tax statute the Corporation has adopted
(for example, Subchapter S status under the Code), and
who agrees in writing to file any consents necessary to
continue that status and to take no action that
terminates the qualification without the written consent
of the Remaining Shareholders according to this
Agreement; and
(2) a Person whose ownership of the Stock will not cause the
Corporation to owe a personal holding company tax or
similar federal or state penalty tax.
(f) EXECUTOR. The term "Executor" means the Person serving as the
qualified personal representative of a decedent's estate, whether serving as a
dependent executor, an independent executor, an administrator, a temporary
administrator, or in any other capacity. The term includes all personal
representatives when there are two or more.
(g) FAMILY. The term "Family" means, in relation to a Person, his
parents and their lineal descendants (including legally adopted descendants) and
their spouses.
(h) INCAPACITATION. The term "Incapacitation" means, in relation to
a Person, that
(1) the Person's attending physician and another physician or
psychologist chosen by the attending physician have
determined and declared, in writing, that the Person is
physically or mentally incapable of managing his property
and financial affairs; or
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(2) a court of competent jurisdiction has determined and
declared, in a judicial pronouncement, that the Person is
incapacitated or of unsound mind or that the Person is
physically or mentally incapable of managing his property
and financial affairs.
(i) INVOLUNTARY TRANSFER. The term "Involuntary Transfer" means any
Transfer that occurs without a voluntary act of the Shareholder owning Stock. It
includes Transfers occurring as a result of:
(1) death.
(2) any court-ordered sale, partition, or other disposition.
(3) any foreclosure, levy, execution, trustee's or other
involuntary sale.
(4) filing any involuntary:
(A) bankruptcy, insolvency, or receivership petition,
(B) assignment for the benefit of creditors,
(C) attachment or other legal or equitable interest on
Stock,
where the involuntary petition, assignment, or attachment
is not discharged within 30 days after its effective
date.
(5) a settlement agreement.
(j) OFFERING SHAREHOLDER. The term "Offering Shareholder" means the
Shareholder or Shareholders and their Spouse or Spouses (or other owner of
Stock) making or required to make an offer to sell their Stock under SECTION 2
or SECTION 3 before a Person having the right to purchase the Stock exercises
the right (at which time the Offering Shareholder becomes a Selling Person).
(k) PARTY. The term "Party" means the Corporation and all
Shareholders.
(l) PERSON. The term "Person" means any natural person or legal
entity. It includes individuals, fiduciaries, receivers, trustees, trusts,
corporations, partnerships, limited partnerships, professional associations,
professional corporations, trusts, and all other forms of business organizations
which may exist under the laws of Texas or any other state, or the United
States.
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(m) REMAINING SHAREHOLDERS. The term "Remaining Shareholders" means
all Shareholders other than an Offering Shareholder.
(n) SECURITIES ACT. The term "Securities Act" means the Securities
Act of 1933, as amended.
(o) SELLING PERSON. The term "Selling Person" means the Person:
(1) owning or
(2) controlling the transfer of
the Stock subject to a buy-out right granted in Section 3.1. Examples of a
"Selling Person" include the following when their interest in Stock is subject
to a buy-out right: a Shareholder owning Stock; a Spouse owning a community
property interest in Stock; an Executor having the power to transfer a deceased
Shareholder's Stock; the trustee of the bankruptcy estate of a Shareholder
holding the Shareholder's Stock; the guardian of an Incompetent Shareholder's
estate.
(p) SHAREHOLDER. The term "Shareholder" means:
(1) Each Person who executes a counterpart of this Agreement
as a Shareholder, for so long as the Person owns record
title to Stock; and
(2) Each other Person who acquires record title to Stock.
(q) SPOUSE. The term "Spouse" means any Person who is or becomes
the husband or wife of a Shareholder. A Spouse may also be a Shareholder if
Stock ownership is recorded in the name of the Spouse or jointly (under any
legally recognized form of tenancy), in the name of the Spouse and the Spouse's
spouse.
(r) STOCK. The term "Stock" means:
(1) (A) all stock or shares or interests in stock or shares
in the Corporation,
(B) any stock options and any warrants, stock conversion
privileges, or any other share rights in the
Corporation,
actually or beneficially now or later owned by any
Person, whether owned or acquired as separate or
community property, and
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(2) all Stock or rights to Stock of any other corporation
into which that Stock may be changed, or for which they
may be exchanged, whether through reorganization,
recapitalization, stock split-up, combinations of Stock,
merger, or consolidation.
Any Stock acquired by means of stock options, warrants, conversion privileges,
or other right exercised after any Transfer made in accord with this Agreement
must be offered for sale at the same price and on the identical other terms as
the other Stock owned or previously owned by the Shareholder acquiring that
Stock.
(s) SURVIVING SHAREHOLDER. The term "Surviving Shareholder" means a
Shareholder whose Spouse has become a Terminated Spouse.
(t) TAX REGULATIONS. The term "Tax Regulations" means the Income
Tax Regulations, promulgated under the Code, as those regulations may be amended
from time to time (including corresponding provisions of succeeding
regulations).
(u) TERMINATED SPOUSE. The term "Terminated Spouse" means a Spouse
who owns Stock and to whom any of the following events occurs:
(1) The Spouse predeceases her husband; but only if the
predeceasing Spouse does not Transfer (by will, by
inheritance, or through any other Transfer occurring
because of her death) to her surviving husband all the
Stock she owns.
(2) The Spouse becomes divorced from her husband; but only if
(A) the Spouse is not a Shareholder, and
(B) the Spouse does not in their divorce Transfer to
her husband all the Stock she owns.
(v) TRANSFER. The term "Transfer" means any transfer of any
ownership interest in (i) Stock or (ii) the owner of Stock. It includes:
(1) any sale, conveyance, assignment, or partition of Stock.
(2) any gift of Stock.
(3) any Involuntary Transfer.
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(4) (A) (i) any transfer of ownership of Stock to a
bankruptcy estate or receivership, or
(ii) the change in legal, beneficial, or equitable
ownership of Stock
caused by filing:
(B) (i) a voluntary petition under any bankruptcy or
insolvency law, or
(ii) a petition to appoint a receiver.
(5) any assignment for the benefit of creditors.
(6) any encumbrance, pledge, mortgage, hypothecation.
(7) any change in the legal or beneficial ownership of a
partnership or corporation that is a Shareholder.
(8) any other disposition of any interest in:
(A) Stock, or
(B) the owner of Stock.
When used in this Section 7.1(v), "owner of Stock" means any Person directly or
indirectly owning Stock. A Person indirectly owns Stock if he owns any interest
in another Person that directly or indirectly owns Stock. Thus, indirect
ownership occurs regardless of the number of intervening Persons owning direct
or indirect interests in Stock. It includes, for example, any ownership interest
in any Person that in turn owns any ownership interest in another Person that
owns Stock.
When used in this Section 7.1(v), "interest" in Stock includes the right to
receive dividends and other distributions and the right to exercise any voting
privileges.
7.2 TITLES, CAPTIONS, AND SECTIONS. All section titles or captions in
this Agreement have been inserted for convenience only. They must not be
construed in interpreting this Agreement, as they do not in any way define,
limit, extend, or describe the scope or intent of any provisions of this
Agreement. Unless otherwise provided, references to "SECTIONS" and "Sections"
are to sections of this Agreement.
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7.3 DERIVATIVE WORD. When the context requires, derivatives of terms
defined elsewhere in this Agreement have been used. When a derivative of a
defined term is used, the derivative term's meaning must be determined by
reference to the defined term from which it derives.
7.4 GENDER AND PLURALS. Simply for ease in drafting, this Agreement uses
the masculine gender when referring to a Shareholder and the feminine gender
when referring to a Spouse. The use of a gender must not be construed as
precluding the other genders when interpreting this Agreement. Thus, whenever
the context may require, any pronoun used in this Agreement includes the
corresponding masculine, feminine, or neuter forms. Similarly, whenever the
context may require, the singular form of nouns, pronouns and verbs includes the
plural, and vice versa.
7.5 REFERENCES TO THE INTERNAL REVENUE CODE AND OTHER STATUTES.
(a) All references in this Agreement to the Code mean the Internal
Revenue Code of 1986, as amended from time to time, and all revisions,
recodifications, or replacements of that code.
(b) Any reference to any other statute includes any amendment,
replacement, or recodification of that statute.
SECTION 8: MISCELLANEOUS
8.1 TERMINATION. This Agreement continues in effect until it is
terminated in accord with this Section 8.1. This Agreement terminates when
required by law, or, if sooner, when one or more of the following events occurs:
(a) all Parties consent in writing to terminate the Agreement.
(b) the Corporation dissolves, becomes bankrupt, or becomes
insolvent.
(c) the Corporation ceases to conduct any business or investment
operations.
(d) one Shareholder acquires all the Stock.
(e) the Corporation issues or sells Stock in a public offering that
any federal securities law requires to be registered.
(f) all the Shareholders Transfer all the Stock in a merger,
consolidation, or share exchange (unless the merger,
consolidation, or share exchange merely effects
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a change in the form or domicile of the Corporation without
changing the respective shareholdings of the Shareholders).
When this Agreement terminates, the Corporation must issue new
certificates for the same number of shares of Stock but without the endorsement
required by Section 8.4 to each Shareholder who surrenders his old certificates
for Stock.
8.2 OTHER DOCUMENTS TO EFFECTUATE AGREEMENT. Each Shareholder agrees to:
(a) maintain a Will directing his Executor to carry out this
Agreement.
(b) execute all documents and to take all other appropriate action
to effectuate the purposes of this Agreement.
Failure to so maintain a Will does not relieve any Shareholder or the estate of
any Shareholder of its obligations under this Agreement.
8.3 COMPLIANCE WITH SECURITIES LAWS.
(a) INVESTMENT REPRESENTATION. Each Shareholder represents to all
other Shareholders and to the Corporation that:
(1) he has acquired all Stock for investment and not with a
view to its sale or distribution within the meaning of
the Securities Act.
(2) he has no present intention of selling or otherwise
disposing of any of the Stock for his own account and no
one else has or will have a beneficial ownership in any
of his Stock.
(3) he has been advised that the Stock has not been
registered with the Securities and Exchange Commission
and may not be offered, sold, or otherwise Transferred
except in accord with the Securities Act.
(b) COVENANT TO COMPLY WITH SECURITIES LAWS. By accepting a
certificate evidencing Stock, each Shareholder agrees that at no time may he
Transfer any Stock unless either:
(1) the appropriate Person files and maintains an effective
registration statement under the Securities Act and
applicable state securities laws for the Stock.
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(2) counsel satisfactory to the Corporation and its counsel
renders its opinion (in form and substance satisfactory
to the Corporation and its counsel) concluding that the
proposed Transfer will not violate the Securities Act or
applicable state securities laws.
8.4 ENDORSEMENT ON SHARE CERTIFICATES. All share certificates for Stock
now or later issued by the Corporation must contain the following statement
which the Corporation must print or type conspicuously on the front or back of
the certificate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
OTHER FEDERAL OR STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE
OFFERED, SOLD, TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED, OR
OTHERWISE DISTRIBUTED EXCEPT: (1) UPON REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND ANY OTHER APPLICABLE FEDERAL
OR STATE SECURITIES LAWS, OR (2) UPON DELIVERY TO THE CORPORATION OF
AN OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION THAT
REGISTRATION IS NOT REQUIRED FOR THAT OFFER, SALE, TRANSFER,
ASSIGNMENT, PLEDGE, HYPOTHECATION, OR OTHER DISTRIBUTION.
AN AGREEMENT DATED MAY 6, 1996, EFFECTIVE AGAINST THE CORPORATION
AND (AMONG OTHERS) THE HOLDER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE, RESTRICTS THE TRANSFER AND ENCUMBRANCE AND VOTING
RIGHTS OF THE HOLDER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE. GENERALLY, THE AGREEMENT REQUIRES THE HOLDER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE TO VOTE HIS SHARES IN
THE MANNER REQUIRED BY THE AGREEMENT, RESTRICTS THE TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE TO CERTAIN INSTANCES,
ALLOWS THE CORPORATION AND/OR OTHER SHAREHOLDERS TO PURCHASE THE
SECURITIES REPRESENTED BY THIS CERTIFICATE WHEN CERTAIN EVENTS
OCCUR. THE CORPORATION'S SECRETARY HAS A COPY OF THAT AGREEMENT ON
FILE, AND THE CORPORATION AGREES TO FURNISH TO THE RECORD HOLDER OF
THIS CERTIFI
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CATE WITHOUT CHARGE A COPY OF THAT AGREEMENT WHEN THE RECORD HOLDER
DELIVERS TO THE CORPORATION AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE A REQUEST FOR A COPY OF THE AGREEMENT.
For uncertificated Stock, the Corporation must send to each Shareholder a
written notice containing the preceding statement within 30 days after the
issuance or Transfer of Stock.
8.5 NOTICES. Whenever this Agreement or law requires or permits a Person
to give to another any consent, approval, notice, request, or demand, that
Person must give the consent, approval, notice, request, or demand in writing
(including, without limitation, fax, telex, or other telegraphic communications)
to be effective. The Parties must deem any consent, approval, notice, request or
demand to have been given on the earlier of
(a) Receipt, or
(b) The third business day after it is enclosed in an envelope,
addressed to the party to be notified at the address indicated
in this Agreement, properly stamped, sealed, and deposited in
the United States mail, certified, return receipt requested.
A Person may change the Person to whom notices or requests must
be given and the address at which those notices or requests may be given by
providing written notice to that effect to each other Party.
8.6 BINDING EFFECT. This Agreement binds and inures to the benefit
of the Parties and their heirs, executors, administrators, successors, legal
representatives, and permitted assigns. Each Transferee and the Spouse of each
Transferee must sign Schedule A binding them to the terms of this Agreement
before the Employer may register any Stock in their name(s). Failing to sign
does not, however, prevent this Agreement from binding the Transferee and the
Transferee's Spouse.
8.7 CREDITORS. None of the creditors of the Parties may benefit from or
enforce any provisions of this Agreement.
8.8 INTEGRATION. This agreement constitutes the entire agreement among
the parties pertaining to its subject matter. The Parties have not made any
representations, agreements, or arrangements, or have any understandings, oral
or written, pertaining to the subject matter of this Agreement that they have
not fully expressed in this Agreement. This Agreement supersedes any pertinent
prior agreements and understandings whether written or oral not contained in
this Agreement.
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8.9 AMENDMENTS. Amendments to this Agreement have effect only if
contained in a written instrument that:
(a) sets out the particulars of the amendment.
(b) an authorized representative of each of the Parties executes.
(c) becomes incorporated into or attached to Schedule B of this
Agreement.
8.10 WAIVER. A Party does not waive any term, covenant, or condition of
this Agreement by failing to insist on strict compliance with any of its terms,
covenants, or conditions. Nor does a Party that waives or relinquishes any right
or power at any one time or times waive or relinquish the right or power for all
or any other times.
8.11 APPLICABLE LAW. This Agreement must be interpreted and construed in
accordance with and governed by the laws of the State of Texas, without regard
to the principles of conflicts of law.
8.12 REMEDIES. The Parties recognize, understand, and agree that
irreparable injury would be caused to the Shareholders and the Corporation by
any Party's failure to comply with the terms of this Agreement. If any actual or
threatened default in or breach of any of the provisions in this Agreement
occurs, the aggrieved Person or Persons have the right to institute and
prosecute proceedings in any court of competent jurisdiction, either in law or
in equity, to obtain:
(a) specific performance,
(b) an injunction,
(c) monetary damages, and
(d) any other appropriate relief in law or in equity any court in
the United States of America may grant.
The rights and remedies contained in this Agreement are cumulative and not
exclusive of each other or of any other rights or remedies the aggrieved Party
may otherwise obtain.
8.13 ATTORNEY'S FEES AND COSTS. If, because any Party breaches the
Agreement, another Party or Parties employ an attorney or attorneys to enforce
their rights under this Agreement, then the breaching Party or Parties must pay
the reasonable attorney's fees and costs incurred by the prevailing Party or
Parties to enforce the Agreement or to obtain any other relief for the breach.
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8.14 SEVERABILITY. The invalidity or unenforceability of any term or
provision or any clause of this Agreement in no way impairs or affects the
validity or enforceability of any other part of this Agreement, which remain
in full force and effect.
8.15 "DAYS" DEFINED. Any reference in this Agreement to "days" means all
calendar days, exclusive of Saturdays, Sundays, and legal holidays under the
laws of the United States or the state whose laws govern this Agreement.
8.16 COUNTERPARTS. This Agreement may be executed in counterparts. All
counterparts together constitute one agreement binding on all the Parties even
if not all the Parties have signed the original or the same counterparts.
8.17 FURTHER ACTION. The Parties and their heirs, executors,
administrators, successors, legal representatives, and permitted assigns must
execute and deliver all documents, provide all information and take or refrain
from taking action as may be necessary or appropriate to achieve the purposes of
this Agreement.
The Parties to this Agreement have executed it as of the 6th day of May,
1996.
CORPORATION: XARIS MANAGEMENT COMPANY, INC.
By: /s/ Lori Gilliland D'Atri
------------------------------
Lori Gilliland D'Atri, President
1201 S. Taylor
Amarillo, TX 79101
SHAREHOLDERS:
/s/ Lori Gilliland D'Atri
---------------------------------
Lori Gilliland D'Atri
1201 S. Taylor
Amarillo, TX 79101
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/s/ Robert W. Hall
---------------------------------
Robert W. Hall
1201 S. Taylor
Amarillo, TX 79101
/s/ Robin Worth Hall
---------------------------------
Robin Worth Hall
1201 S. Taylor
Amarillo, TX 79101
/s/ R. Wayne Moore
---------------------------------
R. Wayne Moore
2811 Parker
Amarillo, Texas 79109
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SPOUSAL CONSENT AND POWER OF ATTORNEY
Each of the undersigned Spouses:
1. acknowledges that she has read and is familiar with the Agreement.
2. agrees to be bound by the Agreement.
3. joins in the Agreement to the extent, if any, that her joinder is
necessary.
To that end:
1. Each of the undersigned Spouses agrees that to the extent she is not
also a Shareholder:
(a) her Spouse may join in any future amendment or modification of
this Agreement without her further signature, acknowledgment,
agreement, or consent.
(b) the Agreement applies to any interest which she may have in
Stock in the Corporation owned directly or beneficially by her
spouse.
2. Each of the undersigned Spouses does here name, constitute, and
appoint her spouse who is a Party as her true and lawful attorney, for her and
in her place and stead (and to the exclusion of herself and all other Persons),
to manage, administer, control, and perform or exercise any and all powers,
rights, and options concerning all Stock:
(a) which she now or later owns as either her separate property or
community property with her husband and
(b) for which she is not a Shareholder.
By this provision, each Spouse intends to, and does, vest in her husband who is
a Party the exclusive right, power, and authority to manage and deal with her
Stock for which she is not a Shareholder to the fullest extent permitted by law,
relinquishing all rights and powers to manage, administer, or control that Stock
and delegating to her husband the exclusive power and privilege of acting on her
behalf concerning that Stock whether connected to the performance of this
Agreement or otherwise. Furthermore, each Spouse agrees that her husband acting
in her place and stead has the full right, power, and authority to bind her
property, both separate and community, by the exercise of any option, election,
right, or privilege granted or created by this Agreement or by the discharge or
performance of any duty or obligation imposed or created by this Agreement. Each
power of
<PAGE>
attorney here created and every right, power, privilege, and authority here
delegated constitutes an irrevocable power of attorney, coupled with an
interest, which must continue beyond, and not be terminated or affected by, the
disability of any Spouse or the divorce of a Spouse from her
husband/Shareholder.
SPOUSES:
/s/ Robin Worth Hall
---------------------------------
Robin Worth Hall
/s/ Robert W. Hall
---------------------------------
Robert W. Hall
/s/ Helen Moore
---------------------------------
Helen Moore
<PAGE>
SCHEDULE A
SIGNATURES BY TRANSFEREES AND SPOUSES OF TRANSFEREES
1. TRANSFEREES. Each of the undersigned Transferees of Stock, in accord
with the Corporation and Shareholders' Agreement dated as of May 6, 1996,
acknowledges and agrees that he has read and is familiar with this Agreement and
that he and his heirs, Executors, administrators, successors, assigns, and any
other Transferee of any Stock actually or beneficially owned by him are bound by
all of its provisions.
Signature of Transferee Date
_______________________________ ________________
_______________________________ ________________
_______________________________ ________________
_______________________________ ________________
2. SPOUSES OF TRANSFEREES. Each of the undersigned Spouses of a
Shareholder who has signed Paragraph 1. of this Schedule acknowledges that she
has read and is familiar with the provisions of the Corporation and
Shareholders' Agreement dated May 6, 1996, and agrees:
(a) to be bound by it,
<PAGE>
(b) to appoint her spouse as her power of attorney, and
(c) to join in the Agreement to the extent, if any, that her
joinder may be necessary,
as if she had executed the consent and power of attorney attached to the
Agreement as the Spouse of an original Party to this Agreement.
Signature of Spouse Date
_______________________________ ________________
_______________________________ ________________
_______________________________ ________________
<PAGE>
SCHEDULE B
AMENDMENTS
The Corporation and Shareholders' Agreement dated as of May 6, 1996, is
amended pursuant to Section 8.9 as follows:
<PAGE>
SCHEDULE TMS
TAX MATTERS SHAREHOLDER
Initial Tax Matters Shareholder:
Lori Gilliland D' Atri
Names of Subsequent
Tax Matters Shareholders: Date
_______________________________ ________________
_______________________________ ________________
_______________________________ ________________
_______________________________ ________________
<PAGE>
UNANIMOUS CONSENT TO ACTION TAKEN IN LIEU OF
SPECIAL MEETING OF THE SHAREHOLDERS OF
XARIS MANAGEMENT COMPANY, INC.
The Shareholders take, consent to or ratify the following actions:
1. REMOVAL OF DIRECTOR. In accordance with Section 2.5 of the Bylaws of the
Corporation, the Shareholders consent to the removal of Lori Gilliland D'Atri
as the Corporation's sole Director.
2. ELECTION OF DIRECTOR. In accordance with Section 2.4 of the Bylaws of the
Corporation, the Shareholders consent to filling the vacancy created by the
removal of Lori Gilliland D'Atri as the Corporation's sole Director by electing
Bill A. Gilliland to serve as the Corporation's sole Director.
Effective the 6th day of May, 1996.
SHAREHOLDERS:
/s/ Lori Gilliland D'Atri
----------------------------------
Lori Gilliland D'Atri, Shareholder
/s/ Robert W. Hall
----------------------------------
Robert W. Hall, Shareholder
/s/ Robin Worth Hall
----------------------------------
Robin Worth Hall, Shareholder
/s/ R. Wayne Moore
----------------------------------
R. Wayne Moore, Shareholder
<PAGE>
FIRST AMENDMENT TO
CORPORATION AND SHAREHOLDERS' AGREEMENT
According to the terms of Section 8.9 of the Corporation and Shareholders'
Agreement of Xaris Management Company, Inc., dated as of May 6, 1996, the
authorized representatives of the Parties agree to amend Section 6.1(a) of the
Agreement as follows:
(a) (1) They must exercise their rights to vote in whatever
manner and at whatever times as may be necessary to cause Billy A.
Gilliland, or his nominee[s], to hold all the Corporation's directorships
as long as he lives.
(2) When Billy A. Gilliland dies, they must exercise their
rights to vote in whatever manner and at whatever times as may be necessary to
cause Lori Gilliland D'Atri, or her nominee[s], to hold all the Corporation's
directorships as long as she lives.
Executed this 21st day of June, 1996, to be effective as of May 6, 1996
CORPORATION: XARIS MANAGEMENT COMPANY, INC.
By: /s/ Billy A. Gilliland
-------------------------------
Billy A. Gilliland, President
SHAREHOLDERS:
/s/ Billy A. Gilliland
----------------------------------
Billy A. Gilliland, Trustee of the
Lori D'Atri Revocable Trust
/s/ Lori Gilliland D'Atri
----------------------------------
Lori Gilliland D'Atri, Trustee of
The Lori D'Atri Revocable Trust
<PAGE>
/s/ Robert W. Hall
----------------------------------
Robert W. Hall
/s/ Robin Worth Hall
----------------------------------
Robin Worth Hall
/s/ R. Wayne Moore
----------------------------------
R. Wayne Moore
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Amendment No. 2 to Registration Statement on Form S-1 of our report dated June
21, 1996, relating to the financial statements of Cross-Continent Auto
Retailers, Inc., which appears in such Prospectus. We also hereby consent to the
use in the Prospectus constituting part of this Amendment No. 2 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
August 14, 1996
