<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/ X / QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission File Number 001-1181
CROSS-CONTINENT AUTO RETAILERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2653095
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1201 S. TAYLOR
AMARILLO, TEXAS 79101
(Address of principal executive offices) (Zip Code)
(806) 374-8653
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
Number of shares outstanding of each of the issuer's classes of common stock,
as of November 12, 1998:
<TABLE>
Class Shares Outstanding
- -------------------------------------- ------------------
<C> <S>
Common Stock, $.01 par value per share 13,573,908
</TABLE>
1
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
INDEX
PART I
<TABLE>
<CAPTION>
FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1 Financial Statements
Consolidated Statements of Operations
Three Months Ended September 30, 1998 and September 30, 1997
Nine Months Ended September 30, 1998 and September 30, 1997 3
Consolidated Balance Sheets at
September 30, 1998 and December 31, 1997 4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and September 30, 1997 5
Notes to Consolidated Financial Statements 6
Independent Accountants' Review Report 12
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Consolidated Margin Statistics 15
Same Store Comparisons Margin Statistics 16
Results of Operations
Three months ended September 30, 1998 17
Results of Operations
Nine months ended September 30, 1998 21
PART II
OTHER INFORMATION
Item 1 Legal Proceedings 27
Item 6 Exhibits and Reports on Form 8-K 28
</TABLE>
2
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS - EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1998 1997 1998 1997
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES
Vehicle sales $ 152,607 $ 118,078 $ 428,961 $ 315,043
Other operating revenue 23,176 16,706 63,575 44,150
----------- ----------- ----------- ------------
Total revenues 175,783 134,784 492,536 359,193
Cost of sales 143,743 111,061 405,145 296,756
----------- ----------- ----------- ------------
Gross profit 32,040 23,723 87,391 62,437
----------- ----------- ----------- ------------
Operating expenses
Selling, general and administrative 24,806 16,786 67,187 45,429
Depreciation and amortization 1,029 815 2,868 1,814
Employee severance charge (Note 9) - - 815 -
Merger related expenses (Note 2) 750 - 750 -
Loss from sale of dealerships (Note 6) - - - 347
----------- ----------- ----------- ------------
Total operating expenses 26,585 17,601 71,620 47,590
----------- ----------- ----------- ------------
Income before interest and taxes 5,455 6,122 15,771 14,847
Other income (expense)
Interest income 195 159 489 992
Interest expense (2,379) (2,112) (7,149) (5,058)
----------- ----------- ----------- ------------
Income before income taxes 3,271 4,169 9,111 10,781
Income tax provision 1,467 1,557 3,649 4,157
----------- ----------- ----------- ------------
Net income $ 1,804 $ 2,612 $ 5,462 $ 6,624
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Basic and diluted net income per share $ .13 $ 0.19 $ 0.40 $ 0.48
----------- ----------- ----------- ------------
----------- ----------- ----------- ------------
Weighted average common shares outstanding:
Basic 13,574 13,446 13,569 13,764
Diluted 13,648 13,564 13,698 13,831
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
------------------ -----------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . $ 7,141 $ 15,173
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . 24,778 16,884
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,347 55,807
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . 1,543 1,792
-------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . 93,809 89,656
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . 9,228 33,165
Goodwill and other intangible assets, net. . . . . . . . . . . . . . . 83,604 67,988
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,356 6,464
-------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . $ 192,997 $ 197,273
-------- ---------
-------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Floor plan notes payable . . . . . . . . . . . . . . . . . . . . . . $ 51,239 $ 53,368
Current maturities of long-term debt . . . . . . . . . . . . . . . . 876 727
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 7,303 6,117
Due to affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . 2,400 15,150
Accrued expenses and other liabilities . . . . . . . . . . . . . . . 13,152 10,559
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . 1,396 647
-------- ---------
Total current liabilities. . . . . . . . . . . . . . . . . . 76,366 86,568
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,529 44,263
Other liabilities and deferred credits . . . . . . . . . . . . . . . . 4,378 3,180
-------- ---------
Total long-term liabilities. . . . . . . . . . . . . . . . . 45,907 47,443
Stockholders' equity
Preferred stock, $.01 par value, 10,000,000 shares
authorized, none issued. . . . . . . . . . . . . . . . . . . . . . . - -
Common stock, $.01 par value, 100,000,000 shares
authorized, 14,205,703 issued. . . . . . . . . . . . . . . . . . . . 142 142
Paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . 55,054 54,528
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . 22,794 17,332
Treasury stock, 631,795 and 760,000 shares at cost
at September 30, 1998 and December 31, 1997, respectively . . . . . (7,266) (8,740)
-------- ---------
Total stockholders' equity . . . . . . . . . . . . . . . . . 70,724 63,262
Commitments and contingencies
Total liabilities and stockholders' equity . . . . . . . . . $ 192,997 $ 197,273
-------- ---------
-------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
1998 1997
------ ------
<S> <C> <C>
Cash flows from operating activities
Net income . . . . . . . . . . . . . . . . . . . . . . . . $5,462 $6,624
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization. . . . . . . . . . . . . . 2,868 1,814
Amortization of deferred warranty revenue. . . . . . . . (1,189) (1,907)
Deferred taxes and other . . . . . . . . . . . . . . . . - (748)
(Increase) decrease in
Accounts receivable. . . . . . . . . . . . . . . . . . . (4,552) 4,178
Inventory. . . . . . . . . . . . . . . . . . . . . . . . 9,677 3,812
Other assets . . . . . . . . . . . . . . . . . . . . . . (227) (2,135)
Increase (decrease) in
Accounts payable - trade . . . . . . . . . . . . . . . . (3,760) (4,067)
Accrued expenses and other liabilities . . . . . . . . . 1,787 1,383
------- ------
Net cash provided by operating activities. . . . . . . 10,066 8,954
Cash flows from investing activities
Acquisition of property and equipment. . . . . . . . . . . (2,291) (1,504)
Construction costs . . . . . . . . . . . . . . . . . . . . (6,131) (4,935)
Acquisition of dealerships . . . . . . . . . . . . . . . . (13,964) (41,620)
Proceeds from sale/leaseback . . . . . . . . . . . . . . . 35,450 -
------- ------
Net cash provided by (used in) investing activities. . 13,064 (48,059)
Cash flows from financing activities
Change in floor plan notes payable . . . . . . . . . . . . (12,359) (903)
Net proceeds from borrowings . . . . . . . . . . . . . . . - 30,037
Long-term debt repayments. . . . . . . . . . . . . . . . . (6,053) (17,702)
Due to affiliates. . . . . . . . . . . . . . . . . . . . . (443) (7,121)
Proceeds from borrowings - affiliates. . . . . . . . . . . 3,008 -
Debt repayments - affiliates . . . . . . . . . . . . . . . (15,315) -
------- ------
Net cash provided by (used in) financing activities. . . (31,162) 4,311
Decrease in cash and cash equivalents. . . . . . . . . . . . (8,032) (34,794)
Cash and cash equivalents at beginning of period . . . . . . 15,173 36,946
------- ------
Cash and cash equivalents at end of period . . . . . . . . . $ 7,141 $ 2,152
------- ------
------- ------
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1998
NOTE 1. UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three and nine months ended September 30, 1998 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1998. This interim report should be read in conjunction
with the consolidated financial statements and notes related thereto, and
management's discussion and analysis of results of operations and financial
condition included in Cross-Continent Auto Retailers, Inc.'s Annual Report on
Form 10-K for the year ended December 31, 1997. Unless the context indicates
otherwise, references to "C-CAR" or the "Company" are to Cross-Continent Auto
Retailers, Inc and its subsidiaries. The accompanying unaudited consolidated
financial statements have been subject to review by the Company's independent
accountants whose report is included herein.
NOTE 2. MERGER
The Company entered into an Agreement and Plan of Merger, dated as
of September 3, 1998 (the "Merger Agreement"), which provides for a
wholly-owned subsidiary of Republic Industries, Inc. ("Republic") to be
merged with and into the Company ("Merger"). Upon consummation of the
proposed Merger, the Company will become a wholly-owned subsidiary of
Republic, and the Company's stockholders will be entitled to receive $10.70
in cash, without interest, for each share of the Company's common stock held
by them. The Merger is subject to certain closing conditions including
government and manufacturer approvals, and the approval of the Company's
stockholders. Consummation of the Merger is also conditioned on the
divestiture of the Company's dealership in Denver, Colorado, and the
divestiture, or assignment, of the Company's interest in one of its pending
acquisitions (see Note 8). The divestitures, or assignments, of these
dealerships are expected to coincide with the completion of the Merger. The
Merger is expected to close in the first quarter of 1999; however, there can
be no assurance that the Merger, or the transactions contemplated thereunder,
will be completed.
The Company incurred and recorded merger-related expenses of
approximately $750,000 during the quarter ended September 30, 1998. The
Company will record all additional merger-related expenses as incurred until
the proposed Merger is consummated or abandoned.
NOTE 3. NET INCOME PER COMMON SHARE
As of September 30, 1998, the Company had 1,159,541 stock options
outstanding with exercise prices ranging from $8.00 to $19.25 which have been
excluded from the diluted earnings per share calculations as the effect of
such would have been anti-dilutive. As of September 30, 1997 the Company had
263,494 options outstanding with exercise prices ranging from $10.00 to
$19.25 which have been excluded from the diluted earnings per share
calculations as the effect of such would have been anti-dilutive. The Company
is contingently committed to issue additional shares in connection with the
Chaisson (as hereinafter defined) acquisition (See
6
<PAGE>
Note 5). The Company has included 74,000 shares and 124,000 shares in the
diluted share calculations for the three and nine months ending September 30,
1998, as if it were the end of the contingent period. The actual contingent
period ends January 5, 1999.
NOTE 4. RELATED PARTY TRANSACTIONS
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, Chairman of the Board and Chief
Executive Officer. Currently, the Company pays Plains Air, Inc. $20,000 per
month for fixed costs, $800 per hour for operating expenses and actual fuel
cost when the airplane is used by the Company. During the three months ended
September 30, 1998 and 1997, the Company paid Plains Air, Inc. an aggregate
of approximately $102,000 and $130,000, respectively, for the use of the
airplane; for the nine months ended September 30, 1998 and 1997, the Company
paid approximately $407,000 and $399,000, respectively. In July, the Company
began using an airplane owned by R. Douglas Spedding, an officer of the
Company, in addition to the airplane above. The Company pays R. Douglas
Spedding $800 per hour for operating expenses. For the three and nine months
ended September 30, 1998, the Company paid R. Douglas Spedding approximately
$69,000 for the use of the plane.
In general, the Company is required to pay for all vehicles
purchased from the manufacturers upon delivery of the vehicles to the
Company. The Company purchases new vehicles and certain used vehicles through
financing obtained from manufacturer's captive finance companies and a
certain bank. This type of financing is known as "floor plan financing" or
"flooring." Under arrangements with the manufacturer's captive finance
companies, the Company may deposit funds with such finance companies in an
amount up to a certain percentage of the outstanding floor plan balance. Such
funds earn interest at approximately the same rate charged on outstanding
floor plan balances. From time to time certain Company executives and other
affiliates will advance funds to the Company primarily for the purpose of
investing excess cash with the finance companies. The Company acts only as an
intermediary in this process. As of September 30, 1998, the Company had
withdrawn and repaid all advanced funds and interest earned. The amount of
interest accrued pursuant to these arrangements during the three months ended
September 30, 1998 approximated $62,000. The amount of interest accrued
during the nine months ended September 30, 1998 and 1997 approximated
$160,000 and $193,000, respectively.
Subsequent to the acquisition of Toyota West Sales & Service, Inc.
and Douglas Toyota, Inc. (see Note 5), the seller, R. Douglas Spedding,
became an officer of the Company. In connection with the acquisition of
Toyota West Sales & Service, Inc. ("Toyota West") and Douglas Toyota, Inc.
("Denver Toyota"), the Company purchased two tracts of land from R. Douglas
Spedding in exchange for a total of $7.5 million in seller-financed notes.
The plots of land were used to relocate the Las Vegas, Nevada and the Denver,
Colorado dealerships to newly constructed facilities. In connection with
interim financing on construction projects at the two new locations, the
Company entered into an Interim Construction and Master Loan Agreement ("Loan
Agreement") with R. Douglas Spedding. The Loan Agreement provided interim
financing up to $7.7 million for use on construction of the new automobile
dealership facilities in Las Vegas, Nevada and Denver, Colorado. Interest
accrued at the prime rate plus 1% payable monthly, and any outstanding
balance, if any, was to be payable on October 31, 1998. Upon completion of
the sale and leaseback transaction for Denver Toyota and Toyota West (see
Note 7), the Company retired approximately $7.7 million of the outstanding
Loan Agreement and $7.5 million of the seller-financed land notes. The Loan
Agreement and all seller-financed land notes and related interest have been
paid in full. Interest on the construction and land notes totaled
approximately $514,000 for the nine month period ended September 30, 1998.
7
<PAGE>
On January 16, 1998, the Company entered into a floor plan financing
arrangement with R. Douglas Spedding, an officer of the Company, for $3.0
million. The purpose of the arrangement is to provide financing for the
Company's used vehicle operations at its Toyota dealerships in Denver,
Colorado and Las Vegas, Nevada. The notes mature on December 1, 1998 and bear
interest at 9%. Total amount outstanding at September 30, 1998 was $2.4
million. The aggregate amount outstanding is included due to affiliates in
the accompanying balance sheet. Interest on the floor plan notes for the
three and nine months ended September 30, 1998 totaled approximately $54,000
and $148,000, respectively.
NOTE 5. ACQUISITIONS
Effective January 1, 1998, the Company acquired JRJ Investments,
Inc. ("Chaisson") which owns Chaisson Motor Cars, a multi-line dealership
operating in Las Vegas, Nevada, and Chaisson BMW, in Henderson, Nevada. The
purchase price was $18.8 million, including acquisition costs. The cash
portion, $14.0 million, was funded under the Company's credit line and from
available working capital. The Company also issued a note for $2.8 million
payable to the seller bearing interest at 8%. Principal and interest on the
note are payable monthly over five years. The Company also issued 128,205
shares of its Common Stock to the seller. The Company has guaranteed the
seller a price of the Common Stock of $15.60 per share one year from the date
of closing, January 5, 1999. To the extent the stock price is less than
$15.60 the Company must make up the difference in cash or by issuing
additional shares of common stock to provide a total value of $2.0 million as
of January 5, 1999. The Chaisson acquisition has been accounted for as a
purchase and the results of Chaisson's operations have been included in the
Company's consolidated statement of operations since January 1, 1998. A
summary of the purchase price allocation for Chaisson is presented below (in
thousands):
<TABLE>
<S> <C>
Property and equipment $ 1,620
Goodwill and other intangibles 17,197
--------
Total $ 18,817
--------
--------
</TABLE>
Effective July 1, 1997, the Company acquired Sahara Nissan, Inc.
("Nissan West") for approximately $14.3 million. Effective April 1, 1997, the
Company acquired Toyota West and Denver Toyota for an aggregate purchase
price of approximately $40.7 million. Each of these transactions have been
accounted for as a purchase and the results of operations from these
dealerships have been included in the Company's consolidated statement of
operations since the dates of acquisition.
The unaudited consolidated statement of operations data as of
September 30, 1997, is presented below on a pro forma basis as though the
acquisitions of Chaisson, Nissan West, Toyota West, and Denver Toyota
(collectively, the "Acquisitions") had all occurred as of January 1, 1997 (in
thousands, except per share data):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Pro forma revenue 156,702 506,610
Pro forma net income 2,606 7,087
Pro forma net income per share .19 .51
Pro forma weighted average shares 13,574 13,827
</TABLE>
8
<PAGE>
The adjustments to arrive at pro forma revenue include the historic
revenue of the Acquisitions prior to the purchase of each. Pro forma net
income includes historic income of the Acquisitions adjusted for additional
amortization expense related to purchased goodwill and other intangibles,
increased interest expense associated with the debt incurred in the
Acquisitions and the tax effects of these adjustments.
The pro forma results of operations information is not necessarily
indicative of the operating results that would have occurred had the
Acquisitions occurred as of January 1, 1997, nor is it necessarily indicative
of future operating results.
NOTE 6. DISPOSITION
Effective July 1, 1997, the Company sold 100% of the stock in
Performance Dodge, Inc. and Performance Nissan, Inc. ("Performance"), both in
the Oklahoma City, Oklahoma market, to Benji Investments, Ltd., a Texas
limited partnership controlled by Emmett M. Rice, Jr., the Company's former
Chief Operating Officer (also a shareholder and former Director of the
Company), in exchange for 760,000 shares of the Company's stock valued at a
total of $8.7 million. During the quarter ended June 30, 1997, the Company
recorded an estimated loss on the disposition of $347,000, which included
estimated selling expenses. In conjunction with the sale, the Company repaid
$4.3 million in long-term debt associated with the acquisition of these
dealerships. The Company also retained ownership of the Performance Dodge
facilities and the related mortgage, and is leasing such facilities to Benji
Investments, LTD. The combined revenue and operating loss from these
dealerships for the six-month periods ended June 30, 1998 and 1997 are
presented (in thousands) below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
--------------------------
1998 1997
---- ----
<S> <C> <C>
Revenue $ - $37,312
Operating loss $ - $ 561
</TABLE>
NOTE 7. SALE AND LEASEBACK TRANSACTIONS
On December 31, 1997, the Company entered into a contract with a
third party to sell all of its dealership real property in Amarillo, Texas
and the recently constructed dealership properties located in Denver,
Colorado and Las Vegas, Nevada. The total sales price approximated $36.0
million. In connection with the sale, the Company exercised its option to
purchase certain real property under lease used by its Quality Nissen
dealership in Amarillo, Texas for $400,000, and included the property in the
sale. The Company has leased back all the property for a term of ten years
with two ten year renewal options. The initial annual lease rate for all the
property is approximately $4.1 million triple net with annual escalation not
to exceed 2.5% per year beginning the fourth year of the initial lease term.
On February 24, 1998, the Company completed the sale of the Amarillo
properties. The Company received proceeds of $13.2 million and retired
existing mortgages of approximately $5.5 million. The Denver, Colorado
transaction was completed on March 31, 1998. The Company received $8.9
million in sales proceeds and retired approximately $3.4 million in interim
construction notes and $2.0 million in land purchase notes. The Las Vegas,
Nevada transaction was completed on May 19, 1998. The Company received
approximately $13.8 million in sales proceeds and retired approximately $4.3
million in interim construction notes and $5.5 million in land purchase
notes. The remaining proceeds will and have been used for general corporate
purposes including the reduction of other debt, acquisitions and working
capital needs. A gain of approximately $2.5 million has been deferred and is
being amortized into income as a reduction of lease costs over the lease term.
9
<PAGE>
NOTE 8. PENDING ACQUISITIONS
The Company has entered into a contract to acquire a certain
dealership in California. The proposed purchase price is approximately $6.0
million consisting of approximately $4.1 million in cash, $1.4 million in
seller financed notes and $500,000 in assumed debt. During the nine months
ended September 30, 1998, the Company advanced approximately $2.1 million
towards the closing of this transaction. Consummation of the Merger (Note 2)
is conditioned on the divestiture, or assignment, of the Company's interest
in its pending acquisition of the California dealership. The Company expects
that the divestiture, or assignment, will coincide with the completion of the
Merger; however, there can be no assurance the divestiture or the Merger will
be completed.
The Company has entered into a contract to acquire a certain
dealership in Nevada. The proposed purchase price is approximately $12.5
million consisting of approximately $9.0 million in cash, $3.2 million in
seller financed notes and approximately $300,000 in value of the Company's
common stock. The Company has not obtained approval from the related
manufacturer, and the purchase contract expires January 1, 1999. As a result,
the Company has been negotiating with and intends to enter into an agreement
with Republic to sell or assign its interests in this Nevada dealership to
Republic. The Company has advanced approximately $1.5 million toward the
closing of this transaction.
The Company is currently managing the dealerships discussed above
under management agreements. Under the agreements, the Company provides
management of day-to-day operations in exchange for non-refundable fees equal
to the dealerships' pre-tax profits above a fixed monthly amount. During the
three months and nine months ended September 30, 1998, the Company recognized
approximately $824,000 and $2.0 million, respectively, in management fee
income, which is reflected in other operating revenue in the accompanying
consolidated statements of operations.
NOTE 9. EMPLOYEE SEVERANCE CHARGE
The Company recorded a pre-tax charge of $815,000 during the nine
months ended September 30, 1998, representing employee severance incurred
with the realignment of management and certain other personnel.
NOTE 10. CONTINGENCIES
The Company is subject to certain agreements with the various
manufacturers that supply new vehicles and parts to each of its dealerships.
These agreements generally limit the locations of dealerships, contain
provisions regarding the adequacy of facilities and retain manufacturer
approval rights over changes in dealership management and ownership. Each
manufacturer is also entitled to terminate these agreements for a dealership
if the dealership is in material breach of the terms. Nissan Motor Corp.,
U.S.A. ("Nissan") has advised the Company that the facility where Nissan West
is located does not meet Nissan's current requirements. Also, the Company has
agreed to make certain changes at its BMW of North America, Inc. ("BMW")
location in Las Vegas, Nevada, including making the location exclusively a
BMW retail location. The Company is developing a facilities plan to meet the
requirements of Nissan and BMW and believes it will be able to satisfy the
requirements of these manufacturers without any significant interruption of
business. However, there can be no assurance that these plans will be
acceptable to Nissan or BMW, as the case may be.
The Company is a defendant in three class action lawsuits that have
been filed by several claimants against approximately 700 automobile
dealerships across the State of Texas. The plaintiffs allege that the
charging of the vehicle inventory taxes to vehicle purchasers constitutes
fraud, violates the Texas Deceptive Trade Practices
10
<PAGE>
Act, and constitutes price fixing in violation of the Clayton Antitrust Act.
The Texas Automobile Dealers Association has hired counsel to represent the
defendants in these lawsuits. The defendants have denied the allegations and
the affiliates contend that they have charged the vehicle inventory taxes to
vehicle purchasers in compliance with applicable law. The Company has
answered interrogatories and document production request in one of the
lawsuits. The defendants intend to vigorously defend their position.
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.
11
<PAGE>
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
To: The Board of Directors and Stockholders of
Cross-Continent Auto Retailers, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Cross-Continent Auto Retailers, Inc. and its subsidiaries (the "Company") as
of September 30, 1998, and the related condensed consolidated statements of
income for the three and nine month periods ended September 30, 1998 and
1997, and cash flows for the nine month periods ended September 30, 1998 and
1997. These financial statements are the responsibility of the Company's
management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data, and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred
to above for them to be in conformity with generally-accepted accounting
principles.
We previously audited, in accordance with generally-accepted auditing
standards, the consolidated balance sheet of the Company as of December 31,
1997, and the related consolidated statements of income, shareholders'
equity, and cash flows for the year then ended (not presented herein) and in
our report dated February 13, 1998, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the accompanying
consolidated balance sheet information as of December 31, 1997, is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
PricewaterhouseCoopers LLP
Fort Worth, Texas
November 12, 1998
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FACTORS THAT MAY AFFECT FUTURE RESULTS
The statements, other than statements of historical facts included in
this Quarterly Report on Form 10-Q, including statements set forth under
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's future financial positions, business
strategy, budgets, project cost and plans and objectives of management for
future operations and recent and future acquisitions, are forward-looking
statements. In addition, forward-looking statements generally can be
identified by the use of forward-looking terminology such as "may," "will,"
"expect," "intends," "estimate," "anticipate," or "believe" or the negative
thereof or variation thereon or similar terminology. Although the Company
believes the expectations reflected in such forward-looking statements will
prove correct, there can be no assurance that such expectations will prove to
have been correct. Stockholders are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
Quarterly Report. Other than as prescribed by law, the Company undertakes no
obligation to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date of the Quarterly
Report to reflect the occurrence of unanticipated events. Important factors
that could cause actual results to differ materially from the Company's
expectations may include, but are not limited to, local, regional and
national economic conditions, changes in the consumer demand for products
offered by the Company, manufacturer employee strikes and other matters that
may adversely affect the availability of products and pricing, state and
federal regulatory environment, availability of additional funding for
acquisitions, failure to assimilate the operations and personnel of the
acquired dealerships, failure of the Merger, and other risks identified in
the Company's previous filings with the Commissions. The Company can not
control these risks and uncertainties and in many cases, can not predict the
risks and uncertainties that could cause its actual results to differ
materially from the indicated by the forward-looking statements.
GENERAL
C-Car currently owns and operates a group of automobile dealerships
in the Amarillo, Texas, Oklahoma City, Oklahoma, Denver, Colorado and Las
Vegas, Nevada markets. The financial condition and results of operations
reported herein are based upon the results of operations of the dealerships
operated by the Company for the time periods reported. The Company generates
its revenues from sales of new and used vehicles, fees for repair and
maintenance services, sale of replacement parts, and fees and commissions
from arranging financing, extended warranties, and credit insurance in
connection with vehicle sales.
The Company entered into the Merger Agreement, which provides for a
wholly-owned subsidiary of Republic to be merged with and into the Company.
Upon consummation of the proposed Merger, the Company will become a
wholly-owned subsidiary of Republic, and the Company's stockholders will be
entitled to receive $10.70 in cash, without interest, for each share of the
Company's common stock held by them. The Merger is subject to certain closing
conditions including government and manufacturer approvals, and the approval
of the Company's stockholders. The Merger is also conditioned on the
divestiture of the Company's dealership in Denver, Colorado, and the
divestiture, or assignment, of the Company's interest in one of its pending
acquisitions. The divestiture of these dealerships is expected to coincide
with the completion of the Merger. The Merger is expected to close in the
first quarter of 1999; however, there can be no assurances the Merger, or the
transactions contemplated thereunder, will be completed.
13
<PAGE>
Until the Merger is completed, the proposed Merger, and the proposed
transactions contemplated thereunder, may be a distraction to certain key
employees of the Company and could have a negative impact on the Company's
results of operations. While the Company plans to minimize the distractions
to key employees, there can be no assurance that the distractions will not
occur.
In April, 1997, the Company completed the purchase of Toyota West in
Las Vegas, Nevada and Denver Toyota in Denver, Colorado, from owner R.
Douglas Spedding. In July, 1997, the Company acquired Nissan West in Las
Vegas, Nevada. In January, 1998, the Company acquired Chaisson, also in Las
Vegas. The term "Acquisitions" refers collectively to the aforementioned
dealerships, but only for the time period in which the dealership is not
included in the same periods of 1998 and 1997. The Acquisitions were
accounted for as purchases and, accordingly, the operating results of the
acquired dealerships have been included in the operating results of the
Company since their respective dates of acquisition. The Company also has two
acquisitions pending in Nevada and California and is currently operating
those dealerships under management agreements.
Effective July 1, 1997, the Company completed the sale of Performance
to Benji Investments, Ltd., a Texas limited partnership controlled by Emmett
M. Rice, Jr., a former Officer and Director of the Company (the
"Divestiture"). Because of the significant growth of the Company since its
formation, as a result of the aforementioned Merger, Acquisitions and the
Divestiture, the Company's historical results of operations, its
period-to-period comparisons of such results and certain financial data may
not be meaningful or indicative of future results.
14
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
CONSOLIDATED MARGIN STATISTICS
<TABLE>
<CAPTION>
QTR. ENDED QTR. ENDED YTD YTD
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER. 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------ ------------------- ------------------
(IN THOUSANDS,EXCEPT UNITS AND PERCENTAGES)
<S> <C> <C> <C> <C>
New vehicle sales
Units ........................ 3,719 2,891 9,946 7,393
Revenue ....................... $ 89,399 $ 65,260 $241,690 $163,550
Average selling price ......... $ 24.0 $ 22.6 $ 24.3 $ 22.1
Used vehicle sales (1)
Units ......................... 6,444 5,691 18,814 16,631
Revenue ....................... $ 63,208 $ 52,818 $187,272 $151,493
Average selling price ......... $ 9.8 $ 9.3 $ 10.0 $ 9.1
Total Vehicles Sales
Units ......................... 10,163 8,582 28,760 24,024
Revenue ....................... $152,607 $118,078 $428,962 $315,043
Other operating revenue
Finance and insurance ......... $ 6,809 $ 5,231 $ 17,898 $ 13,975
Parts and service ............. 13,700 10,242 38,221 26,879
Other revenue ................. 2,667 1,233 7,455 3,296
-------- -------- -------- --------
Total other operating revenue 23,176 16,706 63,574 44,150
Total revenue ................... $175,783 $134,784 $492,536 $359,193
-------- -------- -------- --------
-------- -------- -------- --------
Gross profit
New vehicles .................. $ 8,777 $ 6,523 $ 23,878 $ 17,288
Used vehicles(1) .............. 6,572 5,882 18,793 15,375
Finance and insurance .. 6,381 4,772 16,735 12,592
Parts and service ............. 7,643 5,313 20,530 13,886
Other revenue ................. 2,667 1,233 7,455 3,296
-------- -------- -------- --------
Total gross profit .............. $ 32,040 $ 23,723 $ 87,391 $ 62,437
-------- -------- -------- --------
-------- -------- -------- --------
Gross profit percent
New vehicles .................. 9.8% 10.0% 9.9% 10.6%
Used vehicles(1) .............. 10.4% 11.1% 10.0% 10.1%
Finance and insurance ......... 93.7% 91.2% 93.5% 90.1%
Parts and service ............. 55.8% 51.9% 53.7% 51.7%
Other revenue ................. 100.0% 100.0% 100.0% 100.0%
-------- -------- -------- --------
Total gross profit percent ...... 18.2% 17.6% 17.7% 17.4%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- ------------------
(1) Used vehicle information includes the Company's retail and wholesale used
vehicle activities.
15
<PAGE>
CROSS-CONTINENT AUTO RETAILERS, INC.
(1)SAME STORE COMPARISONS MARGIN STATISTICS
<TABLE>
<CAPTION>
QTR. ENDED QTR. ENDED YTD YTD
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
------------------ ------------------ ------------------ ------------------
(IN THOUSANDS,EXCEPT UNITS AND PERCENTAGES)
<S> <C> <C> <C> <C>
New vehicle sales
Units ......................... 3,238 2,891 6,947 6,637
Revenue ....................... $ 74,347 $ 65,260 $160,287 $149,522
Average selling price ......... $ 23.0 $ 22.6 $ 23.1 $ 22.5
Used vehicle sales (2)
Units ......................... 5,840 5,691 13,782 14,467
Revenue ....................... $ 54,872 $ 52,818 $130,113 $133,866
Average selling price ......... $ 9.4 $ 9.3 $ 9.4 $ 9.3
Total Vehicles Sales
Units ......................... 9,078 8,582 20,729 21,104
Revenue ....................... $129,219 $118,078 $290,400 $283,388
Other operating revenue
Finance and insurance ......... $ 6,168 $ 5,231 $ 13,223 $ 12,546
Parts and service ............. 10,903 10,241 24,130 23,003
Other revenue ................. 2,303 1,233 4,948 2,944
-------- -------- -------- --------
Total other operating revenue 19,374 16,705 42,301 38,493
Total revenue ................... $148,593 $134,783 $332,701 $321,881
-------- -------- -------- --------
-------- -------- -------- --------
Gross profit
New vehicles .................. $ 7,359 $ 6,523 $ 15,508 $ 15,761
Used vehicles (2) ............. 6,092 5,882 12,950 14,631
Finance and insurance ......... 5,741 4,772 12,216 11,230
Parts and service ............. 6,030 5,313 13,027 12,364
Other revenue ................. 2,303 1,233 4,948 2,944
-------- -------- -------- --------
Total gross profit .............. $ 27,525 $ 23,723 $ 58,649 $ 56,930
-------- -------- -------- --------
-------- -------- -------- --------
Gross profit percent
New vehicles .................. 9.9% 10.0% 9.7% 10.5%
Used vehicles (2) ............. 11.1% 11.1% 10.0% 10.9%
Finance and insurance ......... 93.1% 91.2% 92.4% 89.5%
Parts and service ............. 55.3% 51.9% 54.0% 53.7%
Other revenue ................. 100.0% 100.0% 100.0% 100.0%
-------- -------- -------- --------
Total gross profit percent ...... 18.5% 17.6% 17.6% 17.7%
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
- ------------------
(1) "Same Store" information relates to the dealerships for which their results
of operations are included in the Consolidated Statements of Operations for
the same periods of 1998 and 1997.
(2) Used vehicle information includes the Company's retail and wholesale used
vehicle activities.
16
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES AND GROSS PROFIT
NEW VEHICLES -
Same store unit sales (which are defined as the results of the
Company's dealerships which are included in the Consolidated Statements of
Operations for the same periods of 1998 and 1997) increased 347 units, or
12.0%, from the third quarter of 1997 to the third quarter of 1998. The
increase in same store unit sales is primarily attributable to an increase in
same store unit sales in the Las Vegas, Nevada, and Denver, Colorado,
markets, partially offset by a decrease in same store unit sales in the
Amarillo, Texas, market. Unit sales in the Denver and Las Vegas markets
increased 501 units, or 35.1%, primarily attributable to the relocation of
the Company's Toyota dealerships to new larger facilities and to a
continuation of manufacturer consumer incentive programs designed to
stimulate retail demand for new vehicles. The consumer incentives offered by
the manufacturers generally consist of discounts, rebates and favorable
financing and leasing programs. Unit sales in the Amarillo market declined
263 units, or 22.4%, primarily attributable to the General Motors strike that
caused a disruption in the availability of new vehicle inventory at the
Company's Chevrolet dealerships. Same store average selling price per unit
increased $387, or 1.7%, primarily attributable to model mix and manufacturer
cost increases passed on in the sales price of new vehicles. As a result of
these factors, same store sales increased by approximately $9.1 million, or
13.9% from the third quarter of 1997 to the third quarter of 1998. The
Chaisson acquisition added approximately $15.1 million in new vehicle revenue
and 481 new unit sales with an average price of $31,293.
Same store gross profit on new vehicle sales increased approximately
$836,000, or 12.8%, which is primarily attributable to the increase in same
store new vehicle unit sales. The Chaisson acquisition added approximately
$1.4 million in gross profit with a gross profit percentage of 9.4%. The
Company expects lower new vehicle sales and gross profit in the fourth fiscal
quarter of 1998 as the Company enters its slower selling season.
The table below sets forth a reconciliation of new vehicle units,
revenues, and gross profit from the third quarter of 1997 to the third
quarter of 1998 accounting for the variance in same store results and the
Acquisitions.
<TABLE>
<CAPTION>
UNITS REVENUES GROSS PROFIT
----- -------- ------------
<S> <C> <C> <C>
Quarter ended September 30, 1997 ... 2,891 $65,260,000 $6,523,000
Same store variance ................ 347 9,087,000 836,000
Acquisitions ....................... 481 15,052,000 1,418,000
----- ----------- -----------
Quarter ended September 30, 1998 ... 3,719 $89,399,000 $8,777,000
----- ----------- -----------
----- ----------- -----------
</TABLE>
USED VEHICLES -
Same store unit sales increased 149 units, or 2.6%, including retail
and wholesale sales, primarily attributable to the Company's continued
efforts to improve its used vehicle operations at its existing dealerships.
Same store sales excluding the Oklahoma City, Oklahoma market increased by
approximately $5.4 million, or 11.6%. Unit sales in Oklahoma City, Oklahoma
declined by 248 units in the third quarter of 1998 compared to the third
quarter of 1997. Management believes the decline in unit sales at the
Oklahoma City, Oklahoma dealership is primarily attributable to the Company's
continued efforts to change the sales method to eliminate
17
<PAGE>
low margin, highly promotional, volume selling. The Chaisson acquisition
added approximately $8.3 million in used vehicle revenue and 604 used vehicle
unit sales with an average price of $13,801.
Same store gross profit excluding the Oklahoma City, Oklahoma market
increased approximately $407,000, or 7.7%, from the third quarter of 1997 to
the third quarter of 1998, which is primarily attributable to increased used
vehicle unit sales. The Chaisson acquisition added approximately $480,000 in
gross profit with a gross profit percentage of 5.7%. Chaisson's gross profit
margin is lower than the Company's other dealerships, primarily due to the
fact that Chaisson sells on average a higher priced used vehicle.
The table below sets forth a reconciliation of used vehicle units,
revenues, and gross profit from the third quarter of 1997 to the third
quarter of 1998 accounting for the variance in same store results and the
Acquisitions.
<TABLE>
<CAPTION>
UNITS REVENUES GROSS PROFIT
----- -------- ------------
<S> <C> <C> <C>
Quarter ended September 30, 1997 ... 5,691 $52,818,000 $5,882,000
Same store variance ................ 149 2,054,000 210,000
Acquisitions ....................... 604 8,336,000 480,000
----- ------------- ----------
Quarter ended September 30, 1998 ... 6,444 $63,208,000 $6,572,000
----- ------------- ----------
----- ------------- ----------
</TABLE>
OTHER OPERATING REVENUE -
Finance and insurance (F&I) revenue primarily represents fees and
commissions the Company earns for selling and placing customers' retail
finance and lease contracts, credit life insurance contracts and third party
extended warranty contracts. Same store F&I revenue increased approximately
$937,000, or 17.9%, primarily attributable to increased vehicle sales and F&I
penetration rates at the Company's dealerships in the Las Vegas, Nevada and
Denver, Colorado markets. The Chaisson acquisition added approximately
$641,000 in F&I revenue.
Same store F&I gross profit increased approximately $969,000, or
20.3%, from the third quarter of 1997 to the third quarter of 1998. Gross
profit percentage increased to 93.1% in the third quarter of 1998 from 91.2%
in the third quarter of 1997, primarily attributable to a decrease in the
cost of extended warranties.
Parts and service revenue represents the retail and wholesale sales
of repair and replacement parts and the sale of labor for servicing customers
vehicles. Same store parts and service revenue increased approximately
$662,000, or 6.5%, primarily attributable to increased capacity at the
Company's two recently relocated dealerships. The Chaisson acquisition added
approximately $2.8 million in parts and service revenue.
Same store parts and service gross profit increased approximately
$717,000, or 13.5%. The gross profit percentage increased from 51.9% in the
third quarter of 1997 to 55.3% in the third quarter of 1998, primarily
attributable to a change in the mix of retail and wholesale parts and service
sales. The Chaisson acquisition added approximately $1.6 million in gross
profit from parts and service activities with a gross profit percentage of
57.7%.
Other revenue primarily consists of documentation fees charged by
the Company to its customers on vehicle sales. The amount of fees is usually
governed by state statute, regulation or regulatory agency. Also included in
other revenue are management fee income and rental income. Same store revenue
and gross profit from other revenue increased $1.1 million, or 86.8%, from
the third quarter of 1997 primarily as a result of the management fee revenue
from two dealerships the Company currently manages under management
agreements. The Chaisson acquisition added approximately $364,000 in other
revenue and gross profit primarily from documentation fees.
18
<PAGE>
The table below sets forth a reconciliation of other operating
revenue and gross profit by major category accounting for the variance in
same store results and the Acquisitions.
<TABLE>
<CAPTION>
F&I PARTS & SERVICE OTHER REVENUE TOTAL
--- --------------- ------------- -----
GROSS GROSS GROSS GROSS
REVENUE PROFIT REVENUE PROFIT REVENUE PROFIT REVENUE PROFIT
------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Quarter ended September 30, 1997 ... $5,231 $4,772 $10,241 $5,313 $1,233 $1,233 $16,705 $11,318
Same store variance ................ 937 969 662 717 1,070 1,070 2,669 2,756
Acquisitions ....................... 641 640 2,797 1,613 364 364 3,802 2,617
------- ------ ------- ------ ------ ------ ------- -------
Quarter ended September 30, 1998 ... $6,809 $6,381 $13,700 $7,643 $2,667 $2,667 $23,176 $16,691
------- ------ ------- ------ ------ ------ ------- -------
------- ------ ------- ------ ------ ------ ------- -------
</TABLE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) -
Selling, general and administrative expenses increased approximately
$8.0, to $24.8, million for the third quarter ended September 30, 1998. The
primary reasons for the increase in selling, general and administrative
expenses are the inclusion of the Chaisson acquisition which added
approximately $3.4 million in expense, rent expense attributable to the sale
and leaseback transaction that was completed in the second quarter of 1998
which increased expense approximated $1.0 million, and overall higher
corporate and operating expenses as a result of the Company's acquisition
strategy. In the comparable period last year, the Company modified pay plans
of certain officers and key employees resulting in a reduction in
compensation expense of approximately $1.3 million. As part of the modified
pay plans, the Company granted these officers and employees options to
purchase 492,214 shares of the Company's common stock at an exercise price of
$8.06 per share, representing the market price of the shares on the date of
grant. The Company believes the selling, general and administrative expenses
will increase in the future due to the Company's acquisition strategy and
additional lease expense as a result of the sale and leaseback transaction.
The Company incurred and recorded merger-related expenses of
approximately $750,000 during the quarter ended September 30, 1998. The
Company will record all additional merger-related expenses as incurred until
the proposed Merger is consummated or abandoned.
DEPRECIATION AND AMORTIZATION -
Depreciation and amortization increased approximately $214,000,
primarily attributable to the inclusion of amortization expense as a result
of the Chaisson acquisition. The Company expects this expense to increase
throughout 1998 as compared to 1997 due to a full year impact from the
Acquisitions.
INTEREST EXPENSE -
The Company's interest expense, net of interest income, increased
approximately $231,000 from the comparable period last year primarily due to
higher debt levels and floor plan interest expense resulting from the
Chaisson acquisition which was partially offset by reduced mortgage financing
as a result of the sale and leaseback transaction. The Chaisson acquisition
added approximately $186,000 in interest expense for the three month period
ended September 30, 1998. Long-term debt increased from approximately $39.7
million at September 30, 1997 to approximately $42.4 million at September 30,
1998, primarily due to debt incurred to finance the Acquisitions. The Company
expects interest expense to increase throughout 1998 due to the full year
effect of the additional long-term debt and increased floor plan notes
attributable to the Acquisitions. These increases will be partially offset by
reduced interest associated with property mortgages which were repaid with
the proceeds from the sale leaseback transaction. Net interest expense may be
further impacted by the future direction of interest rates.
19
<PAGE>
INCOME TAX PROVISION -
The Company's effective tax rate for the quarter ended September 30,
1998 approximated 44.8%, compared to 37.3%, for the quarter ended September
30, 1997. The Company recorded merger-related expenses of $750,000 during the
quarter ended September 30, 1998, which are not deductible for purposes of
calculating federal income tax. Before the charge for non-deductible merger
expenses, the effective tax rate for the quarter ended September 30, 1998
approximated 36.5%. The decrease in the effective tax rate is attributable to
a higher percentage of the Company's taxable income being generated in
Nevada, which has no state income tax. Excluding non-deductible
merger-related expenses, management expects the effective tax rate for 1998
to remain in the 36.5% to 37.5% range.
BASIC AND DILUTED NET INCOME PER SHARE -
Basic and diluted net income per share was $.13 for the third quarter
of 1998 compared to $.19 for the third quarter of 1997. Excluding the
non-deductible merger expenses of $750,000, the Company's basic and diluted
net income per share was $.19 for the third quarter ended September 30, 1998.
20
<PAGE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES AND GROSS PROFIT
NEW VEHICLES -
Same store unit sales increased 310 units, or 4.7%, from the first
nine months of 1997 to the first nine months of 1998. The increase in same
store unit sales is primarily attributable to an increase in same store unit
sales in the Las Vegas, Nevada, and Denver, Colorado, markets, partially
offset by a decrease in same store unit sales in the Amarillo, Texas, market.
Unit sales in the Denver and Las Vegas markets increased 497 units, or 19.8%,
primarily attributable to the relocation of the Company's Toyota dealerships
to new larger facilities and to a continuation of manufacturer consumer
incentive programs designed to stimulate retail demand for new vehicles. The
consumer incentives offered by the manufacturers generally consist of
discounts, rebates and favorable financing and leasing programs. Unit sales
in the Amarillo market declined 336 units, or 10.7%, primarily attributable
to the General Motors strike that caused a disruption in the availability of
new vehicle inventory at the Company's Chevrolet dealerships. As a result of
these factors, same store sales increased by approximately $10.8 million, or
7.2%, from the nine months ended September 30, 1997 to the nine months ended
September 30, 1998. Same store sales average selling price per unit increased
$544, or 2.4%. The Acquisitions added approximately $81.4 million in new
vehicle revenue and 2,999 new unit sales with an average price of $27,143.
The average sales price at the dealerships acquired in the Acquisitions,
excluding Chaisson which sells higher priced vehicles, was $22,270.
Same store gross profit on new vehicle sales decreased approximately
$253,000, or 1.6%, primarily attributable to higher inventory costs at the
Amarillo dealerships affected by the General Motors strike. The Company
purchased new vehicle inventory from other dealers in an attempt to mitigate
the effect of the General Motors strike. The units purchased from the other
dealers were purchased at a higher cost than units purchased directly from
General Motors. The Acquisitions added approximately $8.4 million in gross
profit with a gross profit percentage of 10.3%.
The table below sets forth a reconciliation of new vehicle units,
revenues, and gross profit from the first nine months of 1997 to the first
nine months of 1998 accounting for the variance in same store results, the
Acquisitions and Divestiture.
<TABLE>
<CAPTION>
UNITS REVENUES GROSS PROFIT
----- -------- ------------
<S> <C> <C> <C>
Nine months ended September 30, 1997 ............ 7,393 $163,550,000 $17,288,000
Same store variance ............................. 310 10,765,000 (253,000)
Acquisitions .................................... 2,999 81,403,000 8,370,000
Effects of the Divestiture ...................... (756) (14,028,000) (1,527,000)
----- ---------- ---------
Nine months ended September 30, 1998 ............ 9,946 $241,690,000 $23,878,000
----- ------------ -----------
----- ---------- ---------
</TABLE>
USED VEHICLES -
Same store unit sales decreased 685 units, or 4.7%, including retail
and wholesale sales. Same store sales, excluding the Oklahoma City, Oklahoma
dealership, increased by approximately $10.8 million, or 7.1%, primarily
attributable to the Company's continued focus on improving used vehicle
operations at its existing dealerships. Unit sales at the Oklahoma City,
Oklahoma dealership declined by 1,594 units in the first nine months of 1998.
Management believes the decline in unit sales at the Oklahoma City, Oklahoma
dealership is primarily attributable to a less than desirable used vehicle
inventory, the Company's continued effort to change
21
<PAGE>
the sales method to eliminate low margin highly promotional volume selling
and high personnel turnover. The Acquisitions added approximately $57.2
million used vehicle revenue and 5,032 used vehicle unit sales at an average
price of $11,359.
Same store gross profit decreased approximately $1.7 million, or
11.5%, primarily attributable to the decline in sales at the Company's
Oklahoma City, Oklahoma dealership. The Acquisitions added approximately $5.8
million in gross profit with a gross profit percentage of 10.2%.
The table below sets forth a reconciliation of used vehicle units,
revenues, and gross profit from the first nine months of 1997 to the first
nine months of 1998 accounting for the variance in same store results, the
Acquisitions and Divestiture.
<TABLE>
<CAPTION>
UNITS REVENUES GROSS PROFIT
----- -------- ------------
<S> <C> <C> <C>
Nine months ended September 30, 1997 .............................. 16,631 $151,493,000 $15,375,000
Same store variance ............................................... (685) (3,753,000) (1,681,000)
Acquisitions ...................................................... 5,032 57,159,000 5,843,000
Effects of the Divestiture ........................................ (2,164) (17,627,000) (744,000)
----- ------------ ----------
Nine months ended September 30, 1998 .............................. 18,814 $187,272,000 $18,793,000
----- ------------ ----------
----- ------------ ----------
</TABLE>
OTHER OPERATING REVENUE -
Finance and insurance (F&I) revenue primarily represents fees and
commissions the Company earns for selling and placing customers' retail
finance and lease contracts, credit life insurance contracts and third party
extended warranty contracts. Same store F&I revenue increased approximately
$677,000, or 5.4%, primarily attributable to an increase in unit sales at the
Denver, Colorado and Las Vegas, Nevada dealerships. The Acquisitions added
approximately $4.7 million in F&I revenue.
Same store F&I gross profit increased by approximately $986,000, or
8.8%, from the first nine months of 1997 to the first nine months of 1998.
Same store gross profit percentage increased from 89.5% to 92.4% for the
comparable nine month periods, primarily attributable to a reduction in
extended warranty costs.
Parts and service revenue represents the retail and wholesale sales
of repair and replacement parts and the sale of labor for servicing customers
vehicles. Same store parts and service revenue increased approximately $1.1
million, or 4.9%, in the first nine months of 1998 compared to the first nine
months of 1997. Same store parts and service revenue, excluding the Oklahoma
City, Oklahoma dealership, increased by approximately $2.5 million, or 13.4%,
primarily attributable to increased capacity at the Company's two recently
relocated dealerships. The Acquisitions added approximately $14.1 million in
parts and service revenue.
Same store parts and service gross profit increased approximately
$663,000, or 5.4%. Same store gross profit percentage increased from 53.7% to
54.0% for the comparable nine months, primarily attributable to a change in
the mix of retail and wholesale parts and service sales. The Acquisitions
added approximately $7.5 million in parts and service gross profit at a gross
profit percentage of 53.2%.
Other revenue primarily consists of documentation fees charged by
the Company to its customers on vehicle sales. The amount of fees is usually
governed by state statute, regulation or regulatory agency. Also included in
the other revenue is management fee income and rental income. Same store
other revenue and gross profit increased $2.0 million, or 68.1%, from the
first nine months of 1997 to the first nine months of 1998,
22
<PAGE>
primarily as a result of the management fee revenue from two dealerships the
Company currently manages under management agreements. The Acquisitions added
approximately $2.5 million in other revenue and gross profit primarily from
documentation fees. The Acquisitions are located in states which permit
higher documentation fees compared to the Company's other same store
dealerships.
The table below sets forth a reconciliation of other operating
revenue and gross profit by major category accounting for the variance in
same store results, the Acquisitions and Divestiture.
<TABLE>
<CAPTION>
F&I PARTS & SERVICE OTHER REVENUE TOTAL
--- --------------- ------------- -----
GROSS GROSS GROSS GROSS
REVENUE PROFIT REVENUE PROFIT REVENUE PROFIT REVENUE PROFIT
------- ------ ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Nine months ended September 30, 1997 ...... $13,975 $12,592 $26,879 $13,886 $3,296 $3,296 $44,150 $29,774
Same store variance ....................... 677 986 1,127 663 2,004 2,004 3,808 3,653
Acquisitions .............................. 4,675 4,519 14,091 7,503 2,507 2,507 21,273 14,529
Effects of the Divestiture ................ (1,429) (1,362) (3,876) (1,522) (352) (352) (5,657) (3,236)
----- ----- ------- ------- ------ ------ ------- -------
Nine months ended September 30, 1998 ...... $17,898 $16,735 $38,221 $20,530 $7,455 $7,455 $63,574 $44,720
----- ----- ------- ------- ------ ------ ------- -------
----- ----- ------- ------- ------ ------ ------- -------
</TABLE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A) -
Selling, general and administrative expenses increased approximately
$21.8 million for the comparable nine month periods of 1997 to 1998. The
Acquisitions added approximately $20.8 million while the Divestiture reduced
selling, general and administrative expenses approximately $5.6 million. The
Company's selling, general and administrative expenses were 13.6% of revenues
for the nine months ended September 30, 1998 versus 12.6% for the nine months
ended September 30, 1997. This increased percentage is primarily attributable
to higher corporate and operating expenses as a result of the Company's
acquisition strategy and increased lease expense as a result of the sale and
leaseback transaction. In the third quarter of 1997, the Company modified pay
plans of certain officers and key employees resulting in a reduction in
compensation expense of approximately $1.3 million. The Company expects
additional lease expense for the remainder of 1998 as a result of the sale
and leaseback transaction. The annualized rent expense under the contract is
$4.1 million for the properties, net of the amortization of the deferred gain.
DEPRECIATION AND AMORTIZATION -
Depreciation and amortization increased approximately $1.1 million,
or 58.1%, primarily attributable to the inclusion of amortization expense
from the Acquisitions. The Company expects this expense to increase
throughout 1998 due to a full year impact from the Acquisitions.
INTEREST EXPENSE -
The Company's interest expense, net of interest income, increased
approximately $2.6 million from the comparable period last year due to higher
debt levels and floor plan interest expense resulting from the Acquisitions.
The Acquisitions added approximately $1.2 million in interest expense for the
nine month period ended September 30, 1998. The Company's long-term debt
increased from approximately $39.7 million at September 30, 1997 to
approximately $42.4 million at September 30, 1998, primarily due to debt
incurred to finance the Acquisitions. The Company expects interest expense to
increase throughout 1998 due to the full year effect of the additional
long-term debt and increased floor plan notes payable attributable to the
Acquisitions. These increases will be partially offset by reduced interest
associated with property mortgages which were repaid with the proceeds from
the sale leaseback transaction. Net interest expense may be further impacted
by additional borrowings to finance acquisitions and the future direction of
interest rates.
23
<PAGE>
INCOME TAX PROVISION -
The effective tax rate for the nine months ended September 30, 1998
was 40.0%, compared to the Company's effective income tax rate for the nine
months ended September 30, 1997 of approximately 38.6%. Before the charge for
non-deductible merger-related expenses, the effective rate for the nine
months ended September 30, 1998 was 37.0%. Excluding non-deductible
merger-related expenses, management expects its effective tax rate for 1998
to be in the 36.5% to 37.5% range.
BASIC AND DILUTED NET INCOME PER SHARE -
Basic and diluted net income per share decreased from $.48 in the
first nine months of 1997 to $.40 in the first nine months of 1998. Before
considering an employee severance charge and a merger-related expense charge
during the nine months ended September 30, 1998, and a loss recorded on the
Divestiture in 1997, basic net income per share remained unchanged at $.50.
Diluted net income per share before the respective charges decreased from
$.50 in 1997 to $.49 in 1998. The weighted average shares outstanding and
diluted weighted average shares outstanding decreased from approximately 13.8
million to approximately 13.6 million for the nine-month periods of 1997 and
1998 primarily due to treasury shares received in the Divestiture offset by
shares issued in the Acquisitions.
The Company believes several factors are in place that will affect
net income throughout the remainder of 1998 and into 1999. The Company
expects lower volume of new and used vehicle sales in the fourth and first
quarters as these are traditionally slower selling seasons. The Company will
have the benefit of a full year impact from the Acquisitions. The Company
will also be receiving management fees from two dealerships currently under
management contract until the acquisitions are divested, assigned or
terminated. The Company anticipates additional non-deductible merger-related
expenses will be incurred. Also the plan to divest certain operations as a
result of the Merger, or any other realignment of its dealerships, may have a
negative impact on revenues, gross profits, and selling, general and
administrative expenses. The Company does not expect volume or margin growth
in its Amarillo, Texas market and expects negative comparisons for Oklahoma
City, Oklahoma for both volume and gross profit. While the Denver, Colorado
and Las Vegas, Nevada markets continue to grow, national and regional sales
trends indicate flat demand for new vehicles throughout 1998.
LIQUIDITY AND CAPITAL RESOURCES -
During the first nine months of 1998, cash provided from operating
activities totaled approximately $10.3 million, compared to net cash provided
from operating activities of approximately $9.0 million during the first nine
months of 1997. The increase is primarily attributable to a reduction in
inventory as the Company enters the slower selling season.
Cash provided from investing activities of approximately $13.0
million during the first nine months of 1998 related primarily to the net
proceeds received on the sale and leaseback transactions offset by the
acquisition of Chaisson and the construction costs related to the two new
dealership facilities for Denver Toyota and Toyota West. The Company
completed the sale and leaseback transactions during the first six months of
1998, netted approximately $35.4 million in proceeds.
Cash used in financing activities totaled approximately $31.2
million for the first nine months of 1998 compared to cash provided of
approximately $4.3 million for the first nine months of 1997. The Company's
cash used in financing activities for the nine months ended September 30,
1998 related primarily to the cash used in reducing floor plan debt and
retiring mortgage debt and affiliate debt in connection with the sale and
leaseback transaction of approximately $20.7 million.
24
<PAGE>
The Company finances its purchases of new vehicle inventory with
manufacturer captive finance companies and commercial banks. The Company also
maintains lines of credit with manufacturer captive finance companies for the
financing of used vehicle inventories. The lenders receive a security
interest in all inventory it finances. The Company makes monthly interest
payments on the amount financed and must repay the principal amount of the
indebtedness with respect to any vehicle within a few days of the sale of
such vehicle by the Company. The Company periodically renegotiates the terms
of its financing, including the interest rate. At September 30, 1998, the
Company had outstanding floor plan debt of approximately $51.2 million which
incurred an average annual interest rate of approximately 8.8% during the
first nine months of 1998.
The Company began financing its used vehicle operations at its
Denver Toyota and Toyota West dealerships on January 16, 1998. The amount of
this floor plan line is $3.0 million and is provided by R. Douglas Spedding,
an officer of the Company. The notes mature on December 1, 1998 and bear an
interest rate of 9%. Total amount outstanding at September 30, 1998 was
approximately $2.4 million.
The Company has entered into a contract to acquire a certain
dealership in California. The proposed purchase price is approximately $6.0
million consisting of approximately $4.1 million in cash and $1.4 million in
seller financed notes and $500,000 in assumed debt. During the first nine
months of 1998, the Company advanced approximately $2.1 million towards the
closing of this transaction. The Company anticipates divesting, or assigning,
its interest in this pending acquisition as part of the Merger Agreement.
The Company has entered into a contract to acquire a certain
dealership in Nevada. The proposed purchase price is approximately $12.5
million consisting of approximately $9.0 million in cash, $3.2 million in
seller financed notes and approximately $300,000 in value of the Company's
common stock. During the first nine months of 1998 the Company advanced
approximately $1.5 million towards the closing of this transaction. The
Company anticipates selling, or assigning, its interest in this acquisition
to Republic .
The Company has incurred a deferred tax liability of approximately
$4.0 million in connection with the change in its tax basis of accounting for
inventory from LIFO to FIFO effective for 1996. The Company believes that it
is required to pay this liability in six annual installments, beginning in
1997, and believes that it will be able to pay such obligation with cash
provided by operations.
The Company believes that its existing capital resources, including
cash on hand, cash from operations, and funds available under the credit
facility will be sufficient to run the Company's operations in the ordinary
course of business and fund its debt service requirements. Additional
financing may be required to fund one of the pending Acquisitions should the
Merger not be completed. To the extent the Company pursues additional
acquisitions, it most likely will need to raise additional capital either
through the public or private issuance of equity or debt securities or
through additional bank borrowings.
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.
25
<PAGE>
YEAR 2000 ISSUES
The Year 2000 ("Y2K") issue is a global concern that computer
programs, processors and embedded chips programmed to recognize date formats
with two-digit years will not be able to distinguish between the year 1900
and the year 2000. As a result, companies are at risk for possible mistakes
or system failures that could cause disruptions in their business operations.
The Company has initiated its plan of action to address the Y2K issue. This
plan of action is necessary to insure that the Company's hardware, software
and data feeds that consider and process date sensitive information will
continue to function properly after December 31, 1999.
The Company's plan of action has identified all areas of material
concern and has separated the concerns between mission critical systems and
non-mission critical systems. The mission critical systems have been
primarily identified as operational and financial computer systems,
dealership communication systems, electronic parts cataloging systems,
telecommunication systems and outside vendor systems. These mission critical
systems have been and will be addressed first in the Company's Y2K plan of
action. The non-mission critical systems have been primarily identified as
dealership security systems and a network of personal computers.
The Company utilizes an integrated operational and financial
computer information system that supports the Company's core business
processes, including vehicle sales, parts and service sales, customer
financing, inventory management, payroll and accounting. The Company has
identified this integrated information system as its primary mission critical
system. One vendor supplies the Company's operational and financial computer
software for its primary mission critical systems. On November 1, 1998, the
Company upgraded its primary mission critical system to the most current
release of the software that is certified Y2K compliant. All of the Company's
existing dealerships are on this system except Chaisson Motor Cars and
Chaisson BMW. To install the Y2K compliant software at Chaisson Motor Cars
and Chaisson BMW, the Company will need to upgrade the dealerships' existing
computer system or further expand the Company's primary computer system to
include the two Chaisson dealerships. The Company has developed a plan of
action to bring Chaisson Motor Cars and Chaisson BMW into Y2K compliance by
the end of the first quarter of 1999.
With the upgrade of the Company's primary mission critical system,
all dealerships' electronic parts cataloging systems (EPC) and most
dealership communications systems (DCS) and are now Y2K compliant. Three
dealerships have ordered and are awaiting upgraded DCS's from their
respective franchisors. These DCS upgrades are expected to be completed by
the end of the second quarter of 1999.
The Company's two pending Acquisitions were not included in the
upgrade of the primary mission critical system. The Company has received
documentation from the pending Acquisitions' primary system vendor that
upgrades to bring their systems into Y2K compliance will be shipped in 1998.
Should the upgrade not bring the system into Y2K compliance, the Company has
contingently planned to convert the two pending Acquisitions' systems to the
primary computer system used by the Company's existing dealerships which is
currently Y2K compliant. The Company's plan of action for the two pending
Acquisitions is contingent on the selling, assigning or divesting of its
interest in the dealerships as related to the Merger.
As of November 1, 1998, the Company had completed testing all the
dealership telecommunication systems. The Company has identified four
dealerships whose phone systems will need to be upgraded or replaced. The
Company has also initiated a plan to send letters of compliance to major
vendors used by each dealership, in order to verify Y2K compliance by the
vendor. The major vendors include, but are not limited to, automobile
manufacturers, automobile parts suppliers, banks, finance companies and
warranty companies.
The Company's plan of action to test all identified non-mission
critical systems is in process and will be intensified once the mission
critical systems issues have been addressed. The Company is currently testing
all
26
<PAGE>
Company personal computers and related software. All personal computers and
software will be Y2K compliant by the end of 1999. The Company does not
anticipate any material costs related to the personal computer and software
upgrades.
The upgrade for the primary mission critical system was supplied and
installed by the Company's primary vendor and all costs were covered by the
Company's existing maintenance and support fees. The Company anticipates
leasing the Y2K compliant upgrade for the existing system at Chaisson Motor
Cars and Chaisson BMW at a cost of approximately $126,000. The DCS upgrades
yet to be installed on the primary mission critical system are anticipated to
be leased at a cost of approximately $10,000 each. If the Company determines
that the primary integrated computer system needs to be upgraded for the
Chaisson dealerships or the pending Acquisitions, each dealership conversion
will be leased at a cost of approximately $125,000. Upgrading or replacing
the four dealerships' phone systems has been estimated to cost up to
$200,000. The funds for updating or replacing the phone systems will be
provided by funds from normal operations. The Company will be expensing Y2K
costs as incurred.
The failure to correct a material Y2K problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. The Company is
concerned that failure to correct a material Y2K problem could cause
manufacturers problems in shipping inventory to the dealerships and cause
financial institutions problems in financing customer purchases and providing
the necessary cash flow for normal day-to-day operations. At this time, the
Company cannot determine whether failure to correct a material Y2K problem
will have material and adverse effects on the Company's operations. The
Company believes that the plan of action for Y2K compliance it has undertaken
will significantly reduce the possibility of material and adverse effects on
the Company's operations.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a defendant in three class action lawsuits that have
been filed by several claimants against approximately 700 automobile
dealerships across the State of Texas. The plaintiffs allege that the
charging of the vehicle inventory taxes to vehicle purchasers constitutes
fraud, violates the Texas Deceptive Trade Practices Act, and constitutes
price fixing in violation of the Clayton Antitrust Act. The Texas Automobile
Dealers Association has hired counsel to represent the defendants in these
lawsuits. The defendants have denied the allegations and the affiliates
contend that they have charged the vehicle inventory taxes to vehicle
purchasers in compliance with applicable law. The Company has answered
interrogatories and document production request in one of the lawsuits. The
defendants intend to vigorously defend their position.
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.
27
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) LISTING OF EXHIBITS
A list of exhibits required by Item 601 of Regulation S-K and
filed as part of this report is set forth in the Exhibit Index,
which immediately precedes such exhibits.
(b) REPORTS ON FORM 8-K
None.
28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CROSS-CONTINENT AUTO RETAILERS, INC.
Date: November 12, 1998 By: /s/ John W. Gaines
-------------------------------
John W. Gaines,
Vice President-Finance and
Chief Financial Officer
Date: November 12, 1998 By: /s/ Charles D. Winton
-------------------------------
Charles D. Winton,
Vice President and Chief
Accounting Officer
29
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------
<S> <C>
2.1 Asset Purchase Agreement dated as of June 17, 1996, among Lynn Hickey Dodge, Inc., Lynn Hickey, and Cross Country
Dodge, Inc. (1)
2.2 Stock Purchase Agreement, dated as of January 23, 1997, by and between Cross-Continent Auto Retailers, Inc. and R.
Douglas Spedding (2)
2.3 Amendment to Stock Purchase Agreement dated as of April 1, 1997, by and between Cross-Continent Auto Retailers, Inc.
and R. Douglas Spedding (3)
2.4 Stock Purchase Agreement dated as of February 28, 1997, among Cross-Continent Auto Retailers, Inc., Jack Biegger, Dale
Edwards, and Sahara Datsun, Inc., d/b/a Jack Biegger Nissan, as amended by the Amendment to Stock Purchase Agreement
dated as of March 17, 1997, among Cross-Continent Auto Retailers, Inc., Jack Biegger, Dale Edwards, and Sahara Nissan,
Inc., d/b/a Jack Biegger Nissan (10)
2.5 Second Amendment to Stock Purchase Agreement dated as of April 30, 1997, by and between Cross-Continent Auto
Retailers, Inc., Jack Biegger, Dale Edwards, and Sahara Datsun, Inc., d/b/a Jack Biegger Nissan, as amended by the
Amendment to Stock Purchase Agreement dated as of March 17, 1997, among Cross-Continent Auto Retailers, Inc., Jack
Biegger, Dale Edwards, and Sahara Nissan, Inc., d/b/a Jack Biegger Nissan (10)
2.6 Asset Purchase Agreement dated as of April 16, 1997, by and between JRJ Investments, Inc., a Nevada corporation, The
Chaisson Family Trust R-501, and Cross-Continent Auto Retailers, Inc. (11)
2.6.1 Consent to Termination of Agreements dated as of August 5, 1997, among Cross-Continent Auto Retailers, Inc.,
JRJ Investments, Inc. and The Chaisson Family Trust R-501 (11)
2.7 Purchase Agreement dated as of March 1, 1997, between RDS, Inc. and Cross-Continent Auto Retailers, Inc. (omitting
exhibits thereto, which will be furnished supplementally to the Commission upon request) (3)
2.8 Purchase Agreement dated as of March 1, 1997, between R. Douglas Spedding and Cross-Continent Auto Retailers, Inc.
(omitting exhibits thereto, which will be furnished supplementally to the Commission upon request) (3)
2.9 Third Amendment to Stock Purchase Agreement, dated as of May 9, 1997, among Cross-Continent Auto Retailers, Inc., The
Jack Biegger Revocable Living Trust, The Dale M. Edwards Revocable Family Trust, and Sahara Nissan, Inc. d/b/a Jack
Biegger Nissan. (9)
2.10 Stock Purchase Agreement dated as of June 20, 1997 between Cross-Continent Auto Retailers, Inc. and Benji
Investments, Ltd. (omitting exhibits thereto, which will be furnished supplementally to the Commission upon request).
(11)
2.11 Stock Purchase Agreement dated as of October 8, 1997, by and among Cross-Continent Auto Retailers, Inc., The Chaisson
Family Trust R-501, and JRJ Investments, Inc. (omitting exhibits thereto, which will be furnished supplementally to
the Commission upon request) (13)
2.12 Amendment to Stock Purchase Agreement dated as of October 14, 1997, by and among Cross-Continent Auto
Retailers, Inc., The Chaisson Family Trust R-501, and JRJ Investments, Inc. (13)
2.13 Amended and Restated Stock Purchase Agreement dated as of November 1, 1997, by and among Cross-Continent Auto
Retailers, Inc., The Chaisson Family Trust R-501, and JRJ Investments, Inc. (omitting exhibits thereto, which will be
furnished supplementally to the Commission upon request) (15)
2.14 Stock Purchase Agreement dated October 16, 1997, by and among Cross-Continent Auto Retailers, Inc., Thomas A.
Randt, Ronald J. Blomquist, and Tar-Car, Inc. (omitting exhibits thereto, which will be furnished supplementally to
the Commission upon request) (16)
2.15 Amendment to Stock Purchase Agreement dated January 14, 1998, by and among Cross-Continent Auto Retailers,
Inc., Thomas A. Randt, Ronald J. Blomquist, and Tar-Car, Inc. (16)
30
<PAGE>
2.16 Asset Purchase Agreement dated December 17, 1997, by and among Vinci, Inc., Ronald C. Vinci, and Sahara Imports, Inc.
(omitting exhibits thereto, which will be furnished supplementally to the Commission upon request) (16)
2.17 Amendment to Asset Purchase Agreement dated January 29, 1998, by and among Vinci, Inc., Ronald C. Vinci, and
Sahara Imports, Inc. (16)
2.18 Agreement and Plan of Merger dated September 3, 1998, by and among Cross-Continent Auto Retailers, Inc., Republic
Industries, Inc., and RI/BG Merger Corp. (omitting exhibits thereto, which will be furnished supplementally to the
Commission upon request)
3.1 Amended and Restated Certificate of Incorporation of Cross-Continent Auto Retailers, Inc. (4)
3.3 Amended and Restated Bylaws of Cross-Continent Auto Retailers, Inc. (4)
4.1 Specimen Common Stock Certificate (4)
4.2 Rights Agreement between Cross-Continent Auto Retailers, Inc. and The Bank of New York, as rights agent (4)
4.3 Amended and Restated 1996 Stock Option Plan of Cross-Continent Auto Retailers, Inc. (5)
4.4 Registration Rights Agreement dated as of April 1, 1997, by and between Cross-Continent Auto Retailers, Inc. and R.
Douglas Spedding (3)
4.5 Registration Rights Agreement dated January 5, 1998, by and between Cross-Continent Auto Retailers, Inc. and The
Chaisson Family Trust R-501 (16)
4.6 First Amendment to Rights Agreement between Cross-Continent Auto Retailers, Inc. and The Bank of New York, as rights
agent, dated September 2, 1998 (18)
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 (1)(6)
10.2 Sales and Service Agreement between Performance Dodge, Inc. and Chrysler Corporation, dated as of October 1,
1996 (1)
10.3 Dealer Sales and Service Agreement dated September 23, 1996, between the Nissan Division of Nissan Motor
Corporation, U.S.A., Quality Nissan, Inc. and Cross-Continent Auto Retailers, Inc. (4)
10.4 Dealer Sales and Service Agreement dated September 23, 1996, between the Nissan Division of Nissan Motor
Corporation, U.S.A., Performance Nissan and Cross-Continent Auto Retailers, Inc. (4)
10.4(a) Dollar Volume Contract dated April 1, 1997, between Plains Chevrolet, Inc., Westgate Chevrolet, Inc., Midway
Chevrolet, Inc., Quality Nissan, Inc. and Amarillo Globe News (1)
10.5 Sublease Agreement dated June 1, 1995, between Gilliland Group Family Partnership and Performance Nissan,
Inc. (1)
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. (1)
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.) (1)
10.8 Wholesale Security Agreement, as amended, dated December 4, 1995, between General Motors Acceptance
Corporation and Performance Dodge, Inc. (1) (7)
10.9 Corporation and Shareholders' Agreement of Xaris Management Co. (1)
10.10 Documents dated December 4, 1995, relating to $5,550,000 loan by General Motors Acceptance Corporation to
Performance Dodge, Inc. (1)
10.10.1 Promissory Note by Performance Dodge, Inc. to General Motors Acceptance Corporation, in the amount of
$1,850,000 (2)
10.10.2 Promissory Note by Performance Dodge, Inc. to General Motors Acceptance Corporation, in the amount of
$3,700,000 (fully repaid)(2)
10.10.4 Security Agreement between General Motors Acceptance Corporation and Performance Dodge, Inc. (2)
10.10.5 Mortgage, Assignment and Security Agreement between General Motors Acceptance Corporation and Performance
Dodge, Inc. (2)
10.11 Documents relating to loan by General Motors Acceptance Corporation to Midway Chevrolet, Inc. (1)
31
<PAGE>
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 (2)
10.11.2 Renewal, Extension and Modification Agreement dated February 20, 1995, between General Motors Acceptance
Corporation and Midway Chevrolet, Inc. (2)
10.11.3 Security Agreement dated February 20, 1995, between General Motors Acceptance Corporation and Midway
Chevrolet, Inc. (2)
10.12 Documents dated December 4, 1995, relating to $1,350,000 loan by General Motors Acceptance Corporation to
Performance Nissan, L.L.C. (1)
10.12.1 Promissory Note by Performance Nissan, L.L.C. to General Motors Acceptance Corporation, in the amount of
$1,350,000 (2)
10.12.2 Cross-Default and Cross-Collateralization Agreement between General Motors Acceptance Corporation and
Performance Nissan, L.L.C. (2)
10.12.3 Security Agreement between General Motors Acceptance Corporation and Performance Nissan, L.L.C. (2)
10.13 Documents relating to used vehicle inventory financing agreements between General Motors Acceptance
Corporation and Cross-Continent Auto Retailers, Inc. dealership subsidiaries (1)
10.13.1 Used Vehicle Wholesale Borrowing Base Credit Line Loan Agreement dated June 7, 1996, between General Motors
Acceptance Corporation and Plains Chevrolet, Inc. (2)(7)
10.13.2 Promissory Note dated June 7, 1996, by Plains Chevrolet, Inc. to General Motors Acceptance Corporation, in
the amount of $3,000,000 (2)(8)
10.13.3 Cross-Default and Cross-Collateralization Agreements between General Motors Acceptance Corporation and Midway
Chevrolet, Inc., Plains Chevrolet, Inc., Quality Nissan, Inc., and Westgate Chevrolet, Inc. (2)
10.14 Employment Contract dated February 21, 1997, by and between Cross-Continent Auto Retailers, Inc. and James F.
Purser (2)
10.15 Employment Contract dated February 18, 1997, by and between Cross-Continent Auto Retailers, Inc. and R. Wayne
Moore (11)
10.16 Employment Agreement dated as of April 1, 1997, by and between R. Douglas Spedding and Cross-Continent Auto
Retailers, Inc. (3)
10.17 Employment Agreement dated as of April 1, 1997, by and between Douglas J. Spedding and Cross-Continent Auto
Retailers, Inc. (3)
10.18 Promissory Note dated April 1, 1997, by Cross-Continent Auto Retailers, Inc. to the order of R. Douglas
Spedding in the principal amount of $7,000,000 (fully repaid)(3)
10.19 Promissory Note dated April 4, 1997, by Cross-Continent Auto Retailers, Inc. to Amarillo National Bank in the
principal amount of $8,000,000 (fully repaid)(3)
10.20 Documents dated April 10, 1997, relating to promissory note by Cross-Continent Auto Retailers, Inc. to the
order of RDS, Inc. in the principal amount of $2,000,000 (3)
10.20.1 Promissory Note by Cross-Continent Auto Retailers, Inc. to the order of RDS, Inc. (3)
10.20.2 Security Agreement between Cross-Continent Auto Retailers, Inc. and RDS, Inc. (3)
10.20.3 Deed of Trust between Cross-Continent Auto Retailers, Inc. and RDS, Inc. (3)
10.21 Documents dated April 10, 1997, relating to promissory note by Cross-Continent Auto Retailers, Inc. to the
order of R. Douglas Spedding in the principal amount of $5,500,000 (3)
10.21.1 Promissory Note by Cross-Continent Auto Retailers, Inc. to the order of R. Douglas Spedding (3)
10.21.2 Security Agreement between Cross-Continent Auto Retailers, Inc. and R. Douglas Spedding (3)
10.21.3 Deed of Trust between Cross-Continent Auto Retailers, Inc. and R. Douglas Spedding (3)
10.22 Release and Indemnification Agreement dated as of April 10, 1997, between Cross-Continent Auto Retailers,
Inc. and R. Douglas Spedding (3)
10.23 Unsecured Promissory Note dated July 1, 1997, by Cross-Continent Auto Retailers, Inc. to The Jack Biegger
Revocable Living Trust, in the principal amount of $360,000.00. (9)
10.24 Unsecured Promissory Note, dated July 1, 1997, by Cross-Continent Auto Retailers, Inc. to The Dale M. Edwards
Revocable Family Trust, in the principal amount of $240,000.00. (9)
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10.25 Unsecured Promissory Note, dated July 1, 1997, by Sahara Nissan, Inc. to The Jack Biegger Revocable Living
Trust, in the principal amount of $275,000.00. (9)
10.26 Unsecured Promissory Note, dated July 1, 1997, by Sahara Nissan, Inc. to The Dale M. Edwards Revocable Family
Trust, in the principal amount of $125,000.00. (9)
10.27 Documents, dated as of June 26, 1997, relating to line of credit for Cross-Continent Auto Retailers, Inc.
with Texas Commerce Bank National Association, individually and as agent. (9)
10.27.1 Revolving Credit Agreement between Cross-Continent Auto Retailers, Inc., and Texas Commerce Bank National
Association. (9)
10.27.2 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries to the order of Texas
Commerce Bank National Association. (9)
10.27.3 Pledge and Security Agreement between Cross-Continent Auto Retailers, Inc. and Texas Commerce Bank National
Association. (9)
10.28 Dealer Sales and Service Agreement dated July 1, 1997, between the Nissan Division of Nissan Motor
Corporation, U.S.A., Sahara Nissan, Inc., Cross-Continent Auto Retailers, Inc., and Bill A. Gilliland. (9)
10.29 Environmental Agreement dated July 1, 1997 between Cross-Continent Auto Retailers, Inc. and The Jack Biegger
Revocable Living Trust. (9)
10.30 Separation Agreement dated as of June 20, 1997 between Cross-Continent Auto Retailers, Inc. and Emmett M.
Rice, Jr. (11)
10.32 Documents, dated as of August 7, 1997, relating to the line of credit for Cross-Continent Auto Retailers, Inc.
with Texas Commerce Bank National Association, individually and as agent (13)
10.32.1 First Amendment to Revolving Credit Agreement among Cross-Continent Auto Retailers, Inc.; its subsidiaries;
Texas Commerce Bank National Association; Amarillo National Bank; The Bank of Tokyo-Mitsubishi, Ltd., Houston Agency;
and U.S. Bank. (13)
10.32.2 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries to the order of Texas
Commerce Bank National Association in the principal amount of $22,500,000 (13)
10.32.3 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries to the order of Amarillo
National Bank in the principal amount of $7,500,000 (13)
10.32.4 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries to the order of Bank of
Tokyo-Mitsubishi, Ltd., Houston Agency, in the principal amount of $5,000,000 (13)
10.32.5 Revolving Note by Cross-Continent Auto Retailers, Inc. and all of its subsidiaries to the order of U. S. Bank
in the principal amount of $5,000,000 (13)
10.33 Lease Agreement dated August 15, 1997 between Cross-Continent Auto Retailers, Inc. and Performance Dodge,
Inc. (12)
10.34 Joinder Agreement dated July 1, 1997 between Sahara Nissan, Inc. and Texas Commerce Bank National Association
(13)
10.35 Documents dated as of September 30, 1997 relating to the loan agreement between Cross-Continent Auto Retailers,
Inc. and R. Douglas Spedding (omitting exhibits thereto, which will be furnished supplementally to the
Commission upon request) (13)
10.35.1 Master Construction and Master Loan Agreement among Toyota West Sales and Service, Inc., Douglas Toyota,
Inc., Sahara Imports, Inc., and Cross-Continent Auto Retailers, Inc. as Borrowers, and R. Douglas Spedding as Lender
(13)
10.35.2 Promissory Note by Cross-Continent Auto Retailers, Inc. to the order of R. Douglas Spedding in the principal
amount of $7,400,000 (13)
10.35.3 Deed of Trust among Cross-Continent Auto Retailers, Inc. as Borrower, the Public Trustee of Adams County,
Colorado, as Trustee, and R. Douglas Spedding as Lender (13)
10.35.4 Deed of Trust and Assignment of Rents among Cross-Continent Auto Retailers, Inc. as Grantor, Old Republic
Title Company of Nevada as Trustee, and R. Douglas Spedding as Beneficiary (13)
10.35.5 Security Agreement between Cross-Continent Auto Retailers, Inc., Douglas Toyota, Inc. and Toyota West Sales
and Service, Inc. as Debtors and R. Douglas Spedding as Lender (13)
10.35.6 Guaranty by Bill A. Gilliland in favor of R. Douglas Spedding (13)
10.36 Documents dated August 22, 1997 relating to loans by General Motors Acceptance Corporation to Cross-Continent
Auto Retailers, Inc. and certain subsidiaries (13)
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10.36.1 Cross Default and Cross Collateralization Agreement among General Motors Acceptance Corporation and Midway
Chevrolet, Inc., Plains Chevrolet, Inc., Quality Nissan, Inc., Westgate Chevrolet, Inc., Sahara Nissan, Inc.,
and Cross-Continent Auto Retailers, Inc. (13)
10.36.2 Guaranty Agreement between Cross-Continent Auto Retailers, Inc. and General Motors Acceptance Corporation (13)
10.37 Assumption Agreement dated August 22, 1997 between General Motors Acceptance Corporation and Cross-Continent
Auto Retailers, Inc. relating to Performance Dodge, Inc. (omitting exhibit thereto, which will be furnished
supplementally to the Commission upon request) (13)
10.38 Amendment to Office Lease dated October 1, 1997, between Gilliland Group Family Partnership and Cross-Country
Auto Retailers, Inc. (now named Cross-Continent Auto Retailers, Inc.) (13)
10.39 Amendment No. 1 to Nissan Dealer Term Sales and Service Agreement dated October 13, 1997, between the Nissan
Division of Nissan Motor Corporation U.S.A. and Sahara Nissan, Inc. d/b/a Jack Biegger Nissan (13)
10.40 Management Agreement dated as of the 16th day of October, 1997, by and between Cross-Continent Auto
Retailers, Inc. and Tar-Car, Inc. (16)
10.41 Amendment to Management Agreement effective as of November 1, 1997, by and between Cross-Continent Auto
Retailers, Inc. and Tar-Car, Inc. (16)
10.42 Management Agreement dated as of the 17th day of December, 1997, by and between Sahara Imports, Inc. and
Vinci, Inc. (16)
10.43 Management Agreement dated as of November 1, 1997 by and among Cross-Continent Auto Retailers, Inc., JRJ
Investments, Inc., and the Chaisson Family Trust R-501 (15)
10.44 Triple Net Lease Agreement dated November 1, 1997 covering 2333 South Decatur Boulevard, Las Vegas, Nevada,
by and between JRJ Properties and JRJ Investments, Inc. (15)
10.45 Triple Net Lease Agreement dated November 1, 1997 covering 261 and 251 Auto Mall Drive, Henderson, Nevada, by
and between The Chaisson Family Trust R-501 and JRJ Investments, Inc. (15)
10.46 Unsecured Promissory Note dated January 5, 1998, by Cross-Continent Auto Retailers, Inc. to The Chaisson
Family Trust R-501 (15)
10.47 Management Agreement dated January 5, 1998, by and among Cross-Continent Auto Retailers, Inc., JRJ
Investments, Inc., and The Chaisson Family Trust R-501. (15)
10.48 Escrow Agreement dated January 5, 1998, by and among Cross-Continent Auto Retailers, Inc., The Chaisson
Family Trust R-501, and United Title of Nevada, Inc. (15)
10.49 Agreement Regarding Stock Options dated January 5, 1998, between James J. Chaisson, Jr. and Cross-Continent
Auto Retailers, Inc. (15)
10.50 Real Property Purchase Agreement dated as of December 31, 1997, by and among Capital Automotive REIT, Capital
Automotive, L.P., Plains Chevrolet, Inc., Midway Chevrolet, Inc., Westgate Chevrolet, Inc., Quality Nissan, Inc.,
and Cross-Continent Auto Retailers, Inc. (omitting exhibits thereto, which will be furnished supplementally
to the Commission upon request) (16)
10.51 Documents dated January 16, 1998 relating to financing for the purchase of used vehicles at T-West Sales &
Service, Inc. and Douglas Motors, Inc. (16)
10.51.1 Promissory Note from T-West Sales & Service, Inc. to R. Douglas Spedding, with Guaranty by Cross-Continent
Auto Retailers, Inc. (16)
10.51.2 Security Agreement between T-West Sales & Service, Inc. and R. Douglas Spedding (16)
10.51.3 Promissory Note from Douglas Motors, Inc. to R. Douglas Spedding, with Guaranty by Cross-Continent Auto
Retailers, Inc. (16)
10.51.4 Security Agreement between Douglas Motors, Inc. and R. Douglas Spedding (16)
10.52 Sublease Agreement dated February 25, 1998 by and between Allied 2000 Collision Center, Inc. and Plains
Chevrolet, Inc. (16)
10.53 Sublease Agreement dated February 25, 1998 by and between Working Man's Credit Plan, Inc. and Plains
Chevrolet, Inc. (16)
10.54 Sublease Agreement dated February 25, 1998 by and between Westgate Chevrolet, Inc. and Enterprise Rent-A-Car
Company (16)
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10.55 Guaranty and Subordination Agreement dated February 25, 1998 by Cross-Continent Auto Retailers, Inc. in favor
of Capital Automotive, L.P. (16)
10.56 Lease Agreement dated February 25, 1998 by and between Capital Automotive, L. P. and Plains Chevrolet, Inc.
(14) (16)
10.57 Dealer Agreement effective as of February 1, 1998 by and between BMW of North America, Inc. and JRJ
Investments, Inc. (16)
10.58 Waiver and Second Amendment to Revolving Credit Agreement dated March 27, 1998 by and among Cross-Continent
Auto Retailers, Inc. and 12 of its subsidiaries; Chase Bank of Texas, National Association, formerly known
as Texas
Commerce Bank National Association; Amarillo National Bank; The Bank of Tokyo-Mitsubishi; and U.S. Bank. (17)
10.59 Settlement Agreement and Release dated March 23, 1998 between Cross-Continent Auto Retailers, Inc. and James
F. Purser. (17)
10.60 Amendment to Real Property Purchase Agreement and Lease Agreement dated May 14, 1998, by and among Capital
Automotive L.P., Capital Automotive REIT, Cross-Continent Auto Retailers, Inc., and T-West Sales & Service, Inc.
(19)
10.61 Waiver and Third Amendment to Revolving Credit Agreement dated June 30, 1998 by and among Cross-Continent
Auto Retailers, Inc. and 12 of its subsidiaries; Chase Bank of Texas, National Association, formerly known as Texas
Commerce Bank National Association; Amarillo National Bank; The Bank of Tokyo-Mitsubishi; and U.S. Bank. (19)
27.1 Financial Data Table
</TABLE>
<TABLE>
<S> <C>
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (Registration No. 333-0685), incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1996, incorporated herein by
reference.
(3) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated April 10, 1997, incorporated herein by reference.
(4) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the Quarterly Period Ended September 30, 1996, incorporated herein
by reference.
(5) Previously filed as an exhibit to the Company's Registration Statement on
Form S-8, filed with the Securities and Exchange Commission on March 7,
1997, incorporated herein by reference.
(6) Substantially identical agreements exist between the Chevrolet Division and
each of Midway Chevrolet, Inc. and Westgate Chevrolet, Inc.
(7) Substantially identical Agreements exist between General Motors Acceptance
Corporation and each of Midway Chevrolet, Inc., Westgate Chevrolet, Inc.,
and Quality Nissan, Inc.
(8) Substantially identical Promissory Notes have been executed by Midway
Chevrolet, Inc., Westgate Chevrolet, Inc., and Quality Nissan, Inc., in the
amounts indicated for each dealership subsidiary in the Cross-Default and
Cross-Collateralization Agreement (Exhibit 10.13.3)
(9) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated July 15, 1997, incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1997, incorporated herein by
reference.
(11) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1997, incorporated herein by
reference.
(12) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated September 2, 1997, incorporated herein by reference.
(13) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 1997, incorporated herein
by reference.
35
<PAGE>
(14) Substantially identical agreements exist between Capital Automotive, L.P.
and each of Midway Chevrolet, Inc., Westgate Chevrolet, Inc., Quality
Nissan, Inc., Douglas Motors, Inc., and T-West Sales & Service, Inc.
(15) Previously filed as an exhibit to the Company's Current Report on Form 8-K
dated January 5, 1998, incorporated herein by reference.
(16) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997, incorporated herein by
reference.
(17) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended March 31, 1998, incorporated herein by
reference.
(18) Previously filed as an exhibit to the Company's Registration Statement on
Form 8-A/A dated September 29, 1998, incorporated herein by reference.
(19) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1998, incorporated herein by
reference.
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called this
"Agreement"), dated as of September 3, 1998, is entered into by and among
Cross Continent Auto Retailers, Inc., a Delaware corporation (the "Company"),
Republic Industries, Inc., a Delaware corporation ("Purchaser"), and RI/BG
Merger Corp., a Delaware corporation and a wholly-owned subsidiary of
Purchaser ("Merger Sub").
RECITALS
WHEREAS, the Boards of Directors of Purchaser, Merger Sub and the
Company each have determined that it is in the best interests of their
respective stockholders for Purchaser to acquire the Company upon the terms
and subject to the conditions set forth herein; and
WHEREAS, the Company, Purchaser and Merger Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representation, warranties, covenants and agreements contained herein the
parties hereto hereby agree as follows:
ARTICLE I.
THE MERGER; CLOSING; EFFECTIVE TIME
1.1. THE MERGER.
Subject to the terms and conditions of this Agreement, at the
Effective Time (as hereinafter defined) Merger Sub shall be merged with and
into the Company and the separate corporate existence of Merger Sub shall
thereupon cease (the "Merger"). The Company shall be the surviving
corporation in the Merger (sometimes hereinafter referred to as the
"Surviving Corporation") and shall continue to be governed by the laws of the
State of Delaware, and the separate corporate existence of the Company with
all its rights, privileges, immunities, powers and franchises shall continue
unaffected by the Merger, except as set forth in Section 2.1. The Merger
shall have the effects specified in the Delaware General Corporation Law (the
"DGCL").
1.2. CLOSING.
The closing of the Merger (the "Closing") shall take place (i) at the
offices of Morrison & Foerster LLP, 755 Page Mill Road, Palo Alto, California
94304, on the first business day on which the last to be fulfilled or waived
of the conditions set forth in Article VII hereof shall be fulfilled or
waived in accordance with this Agreement, or (ii) at such other place and
time and/or on such other date as the Company and Purchaser may agree. The
date on which the Closing occurs is hereinafter referred to as the "Closing
Date."
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<PAGE>
1.3. EFFECTIVE TIME.
At the completion of the Closing, and provided that this Agreement has
not been terminated or abandoned pursuant to Article VIII hereof, the Company
and the Purchaser will cause a Certificate of Merger (the "Delaware
Certificate of Merger") to be executed and filed with the Secretary of State
of the State of Delaware as provided in Section 251 of the DGCL. The Merger
shall become effective at the time and on the date on which the Delaware
Certificate of Merger has been duly filed with the Secretary of State of
Delaware, and such time is hereinafter referred to as the "Effective Time."
ARTICLE II.
CERTIFICATE OF INCORPORATION, BYLAWS AND OFFICERS
AND DIRECTORS OF THE SURVIVING CORPORATION
2.1. THE CERTIFICATE OF INCORPORATION.
The Certificate of Incorporation of the Company in effect at the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation, until duly amended in accordance with the terms thereof and the
DGCL.
2.2. THE BYLAWS.
The Bylaws of the Merger Sub in effect at the Effective Time shall be
the Bylaws of the Surviving Corporation, until duly amended in accordance
with the terms thereof and the DGCL.
2.3. OFFICERS AND DIRECTORS.
The directors and officers of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors and officers,
respectively, of the Surviving Corporation until their successors have been
duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and Bylaws.
ARTICLE III.
CONVERSION OR CANCELLATION OF SHARES IN THE MERGER
3.1. CONVERSION OR CANCELLATION OF SHARES.
The manner of converting or canceling shares of the Company and Merger
Sub in the Merger shall be as follows:
(a) At the Effective Time, each share ("Share") of the
Company's common stock, $0.01 par value per share (together with all rights
associated therewith pursuant to the
2
<PAGE>
Rights Agreement, as hereinafter defined, "Common Stock"), issued and
outstanding immediately prior to the Effective Time, other than Shares that
are held by stockholders ("Dissenting Stockholders") exercising appraisal
rights pursuant to Section 262 of the DGCL, shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into
the right to receive, without interest, an amount in cash (the "Merger
Consideration") equal to $10.70. All such Shares, by virtue of the Merger
and without any action on the part of the holders thereof, shall no longer be
outstanding and shall be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such Shares shall thereafter
cease to have any rights with respect to such Shares, except the right to
receive the Merger Consideration for such Shares upon the surrender of such
certificate in accordance with Section 3.2 or the right, if any, to receive
payment from the Surviving Corporation of the "fair value" of such Shares as
determined in accordance with Section 262 of the DGCL.
(b) At the Effective Time, each Share issued and held in the
Company's treasury at the Effective Time, shall, by virtue, of the Merger and
without any action on the part of the holder thereof, cease to be
outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
(c) At the Effective time, each share of Common Stock par value
$0.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any action on
the part of Merger Sub or the holders of such shares, be converted into one
Share of the Surviving Corporation.
3.2. PAYMENT FOR SHARES.
From and after the Closing, Purchaser shall ensure that the paying
agent appointed by Purchaser with the Company's prior reasonable approval
(the "Paying Agent") has, as and when needed, amounts sufficient in the
aggregate to provide all funds necessary for the Paying Agent to make
payments pursuant to Section 3.1(a) hereof to (a) holders of Shares issued
and outstanding immediately prior to the Effective Time, and (b) the Eligible
Option Holders (as hereinafter defined). After the Effective Time, there
shall be no transfers on the stock transfer books of the Surviving
Corporation of shares of capital stock of the Company which were outstanding
immediately prior to the Effective Time. Promptly after the Effective Time,
but in any event no later than ten (10) business days after the Closing Date,
the Surviving Corporation shall cause to be mailed to each person who was, at
the Effective Time, a holder of record of Shares or an Eligible Option Holder
a form (mutually agreed to by Purchaser and the Company) of letter of
transmittal and instructions for use in effecting (i) the surrender of the
certificates which, immediately prior to the Effective Time, represented any
of such Shares in exchange for payment therefor, with respect to
stockholders, and (ii) the payment to the Eligible Option Holders of all
amounts payable thereto pursuant to Section 3.5. Upon surrender to the
Paying Agent of such certificates (with respect to the stockholders) and
delivery of the letter of transmittal, duly executed and completed in
accordance with the instructions thereto, the Surviving Corporation shall
promptly cause to be paid to each person entitled thereto (1) a check in the
amount equal to the Merger Consideration multiplied by the number of Shares
held by such person, with respect to the stockholders, and (2) with respect
to an Eligible Option Holder, a
3
<PAGE>
check in the amount payable to such Eligible Option Holder pursuant to
Section 3.5, in each case, less any required tax withholdings. No interest
will be paid or will accrue on the amount payable to any person hereunder.
In the case of a stockholder, if payment is to be made to a person other than
the registered holder of the cerificate surrendered, it shall be a condition
of such payment that the certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by
reason of the payment to a person other than the registered holder of the
certificate surrendered or establish to the satisfaction of the Surviving
Corporation or the Paying Agent that such tax has been paid or is not
applicable. Two hundred and seventy (270) days following the Effective Time,
the Surviving Corporation shall be entitled to cause the Paying Agent to
deliver to it any funds (including any interest received with respect
thereto) made available to the Paying Agent which have not been disbursed to
holders of certificates formerly representing Shares outstanding on the
Effective Time or Eligible Option Holders, as applicable, and thereafter such
persons shall be entitled to look to the Surviving Corporation only as
general creditors thereof with respect to the cash payable hereunder.
Notwithstanding the foregoing, neither the Paying Agent nor any party hereto
shall be liable to any holder of certificates formerly representing Shares or
any Eligible Option Holder for any amount paid to a public official pursuant
to any applicable abandoned property, escheat or similar law. The Surviving
Corporation shall pay all charges and expenses, including those of the Paying
Agent, in connection with this Section.
3.3. DISSENTER'S RIGHTS.
If any Dissenting Stockholder shall be entitled to be paid the "fair
value" of his or her Shares, as provided in Section 262 of the DGCL, the
Company shall give Purchaser notice thereof and Purchaser shall have the
right to participate in all negotiations and proceedings with respect to any
such demands. Neither the Company nor the Surviving Corporation shall,
except with the prior written consent of Purchaser, voluntarily make any
payment with respect to, or settle or offer to settle, any such demand for
payment. If any Dissenting Stockholder shall fail to perfect or shall have
effectively withdrawn or lost the right to dissent, the Shares held by such
Dissenting Stockholder shall thereupon be treated as though such Shares had
been converted into the Merger Consideration pursuant to Section 3.1.
3.4. TRANSFER OF SHARES AFTER THE EFFECTIVE TIME.
No transfers of Shares shall be made on the stock transfer books of
the Surviving Corporation at or after the Effective Time.
3.5. COMPANY OPTIONS.
At the Effective Time, each option (each such option, a "Company
Option") to purchase shares of Common Stock outstanding immediately prior to
the Effective Time with an exercise price per share less than the Merger
Consideration shall automatically be converted into the right to receive cash
in the amount of the product of (a) the Merger Consideration minus such
exercise price, multiplied by (b) the number of shares of Common Stock for
which such Company Option is exerciseable. All other Company Options
outstanding as of the Effective Time shall
4
<PAGE>
automatically be terminated effective as of the Effective Time. The holders
of all Company Options subject to automatic conversion pursuant to this
Section 3.5 are herein referred to as the "Eligible Option Holders."
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Purchaser and Merger Sub
as follows:
4.1. ORGANIZATION AND QUALIFICATION.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all requisite
corporate power and authority to own or lease and operate its properties and
assets and to carry on its business as it in now being conducted. The
Company is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction in which the character of its properties
owned or leased or the nature of its activities makes such qualification
necessary, except for any failures to so qualify or to be in good standing
which, individually or in the aggregate, does not have and can not reasonably
be expected to have a Material Adverse Effect (as hereinafter defined). True
and complete copies of the Certificate of Incorporation and the Bylaws of the
Company (the "Organizational Documents") have been delivered to Purchaser.
The Organizational Documents are in full force and effect. The Company is
not in violation of any provision of the Organizational Documents.
4.2. SUBSIDIARIES.
(i) Except for shares of the Subsidiaries (as hereinafter
defined), the Company does not own of record or beneficially, directly or
indirectly, (a) any shares of outstanding capital stock or securities
convertible into capital stock of any other corporation or (b) any equity or
other interest in any partnership, joint venture or other non-corporate
business enterprise. Each Subsidiary is a corporation or limited
partnership, as applicable, duly organized, validly existing and in good
standing under the laws of its jurisdiction of formation and has all
requisite corporate or partnership, as applicable, power and authority to own
or lease and operate its properties and to carry on its business as it is now
being conducted. Each Subsidiary is duly qualified as a foreign corporation
or partnership, as applicable, to do business, and is in good standing, in
each jurisdiction in which the character of its properties owned or leased or
the nature of its activities makes such qualification necessary, except for
any failures to so qualify or to be in good standing which, individually or
in the aggregate, does not have and cannot reasonably be expected to have a
Material Adverse Effect. Each Subsidiary and its jurisdiction of formation
is set forth in Schedule 4.2(a) attached hereto. None of the Subsidiaries is
in violation of any provision of its organizational documents, true and
complete copies of which have been delivered to Purchaser.
5
<PAGE>
(ii) Except as set forth on Schedule 4.2(b), all the outstanding
shares of capital stock of each Subsidiary are validly issued, fully paid and
nonassessable and are owned directly by the Company, free and clear of any
liens, claims, charges, encumbrances or adverse claims, and there are no
proxies outstanding or restrictions on voting with respect to any such shares.
(iii) For purposes of this Agreement, the term "Subsidiary" shall
mean any corporation or other business entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are at the
time owned by the Company and/or one or more other Subsidiaries.
4.3. AUTHORITY.
(i) The Company has all requisite corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder.
The execution, delivery and performance of this Agreement by the Company and
the consummation by it of the transactions contemplated hereby have been duly
authorized by the Company's Board of Directors and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement and the transactions contemplated hereby, other than the approval
and adoption of this Agreement by a majority of the stockholders of the
Company in the manner set forth in Section 6.3, to the extent required by
applicable law. This Agreement has been duly executed and delivered by the
Company and, subject (as to the obligation to consummate the Merger) to such
stockholder approval, constitutes the legal, valid and binding obligation of
the Company, enforceable against the Company in accordance with its terms.
(ii) Without limiting the provisions of Section 4.3(i) above, the
Board of Directors of the Company, at a meeting duly called and held has, in
light of and subject to the terms and conditions set forth herein, (a)
determined that this Agreement, the Voting Agreement (as hereinafter defined)
the Merger and the other transactions contemplated hereby and by the Voting
Agreement are fair and in the best interests of the stockholders of the
Company, and (b) resolved to recommend approval and adoption of this
Agreement and the Merger.
(iii) The Board of Directors of the Company has received an opinion
(the "Fairness Opinion") from Dain Rauscher Wessels (the "Advisor"), the
Company's financial advisor to the effect that, as of the date of such
opinion, the consideration to be received by the holders of Shares in the
Merger is fair to such holders from a financial point of view. Such opinion
has not been withdrawn, revoked or modified. A true and complete copy of
such opinion has been delivered to Purchaser.
(iv) The Company and its Board of Directors have authorized and
taken all necessary action to amend the Rights Agreement between the Company
and the Bank of New York, as Rights Agent, dated as of September 20, 1996
(the "Rights Agreement"), without redeeming the Rights (as defined in the
Rights Agreement), such that none of the execution, delivery or performance
of this Agreement or the Voting Agreement or the consummation of the
transactions contemplated hereby or thereby will (a) cause any Rights issued
pursuant to the Rights Agreement to become exercisable or to separate from
the stock certificate to which they are attached, (b) cause Purchaser, Merger
Sub or any of their affiliates to be an Acquiring Person
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(as defined in the Rights Agreement), or (c) trigger other provisions of the
Rights Agreement, including giving rise to a Distribution Date (as defined in
the Rights Agreement), and such amendment shall be in full force and effect
at all times from and after the date hereof through the Effective Time. As
of the date hereof and at all times on or prior to the Effective Time, the
restrictions to business combinations contained in Section 203 of the DGCL
are, and will be, inapplicable to the execution, delivery and performance of
the this Agreement and the Voting Agreement and to the consummation of the
Merger and the other transactions contemplated by this Agreement and the
Voting Agreement. Prior to the execution of the Voting Agreement, the Board
of Directors of the Company approved the Voting Agreement and the
transactions contemplated thereby. The foregoing actions by the Company's
Board of Directors are irrevocable (without limiting the Company's Board of
Director's rights with respect to a Superior Proposal (as hereinafter
defined)) and the same shall survive any termination of this Agreement.
4.4. NONCONTRAVENTION.
Except as set forth on Schedule 4.4 attached hereto, the execution,
delivery and performance of this Agreement by the Company and the
consummation of the transactions contemplated hereby, will not (i) violate or
conflict with any provision of any law applicable to the Company or any of
its Subsidiaries or by which any of their respective properties or assets is
bound, (ii) require the consent, waiver, approval, license or authorization
of, notification of, or any filing by the Company with any governmental
authority or any other person or entity (other than the filing of a
pre-merger notification report under the HSR Act (as hereinafter defined),
the filing with and clearance by the Securities Exchange Commission (the
"SEC") of the Proxy Statement (as hereinafter defined) and the approval of
the Company's stockholders in the manner set forth in Section 6.3), (iii)
conflict with or result in any breach of any provision of the Organizational
Documents of the Company or the respective organizational documents of the
Subsidiaries, or (iv) violate, conflict with, result in a breach of or the
acceleration of any obligation under, or constitute a default (or an event
which with notice or the lapse of time or both would become a default) under,
or give to others any right of termination, payment, amendment, acceleration
or cancellation of, or result in the creation of a lien or other encumbrance
on any property or asset of the Company or any Subsidiary pursuant to any
provision of any indenture, mortgage, lien, lease, agreement, contract,
instrument, order, judgment, ordinance, regulation or decree to which the
Company or any Subsidiary is subject or by which the Company or any
Subsidiary or any of their property or assets is bound, except with respect
to clauses (i), (ii) and (iv) where such violations, conflicts, breaches,
defaults, or the failure to give such notice, make such filing, or obtain
such authorizations, consents or approvals, would not, individually or in the
aggregate, have or reasonably be expected to have a Material Adverse Effect
(as hereinafter defined) on the Company. As used in this Agreement, the term
"Material Adverse Effect" shall mean, with respect to any party, a material
adverse effect on the business, assets (including intangible assets),
condition (financial or other), prospects or operating results of such party
and its subsidiaries, taken as a whole, including, in the case of a "Material
Adverse Effect" on the Company, such an effect on the value thereof to the
Purchaser or the ability of such party to consummate the Merger.
4.5. CAPITALIZATION.
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The authorized capital stock of the Company consists in its entirety
of (i) 100,000,000 shares of Common Stock, and (ii) 10,000,000 shares of
preferred stock. As of the date hereof, 13,573,908 shares of Common Stock
were issued and outstanding, all of which were duly and validly issued, fully
paid and nonassessable, and no shares of preferred stock were issued and
outstanding. Except for Company Options to purchase an aggregate of 1,161,541
shares of Common Stock granted pursuant to the Company's Amended and Restated
1996 Stock Option Plan (the "Company Stock Plan"), a true and complete copy
of which, together with the form of option agreement executed in connection
with each option grant, has been delivered to Purchaser, no subscription,
warrant, option, convertible security, stock appreciation or other right
(contingent or other) to purchase or acquire, or any securities convertible
into or exchangeable for, any shares of any class of capital stock of the
Company or any Subsidiary is authorized or outstanding and there is not any
commitment of the Company or any Subsidiary to issue any shares, warrants,
options or other such rights or to distribute to holders of any class of its
capital stock any evidences of indebtedness or assets. Neither the Company
nor any Subsidiary has any obligation (contingent or other) to purchase,
redeem or otherwise acquire any shares of its capital stock or any interest
therein or to pay any dividend or make any other distribution in respect
thereof. A true and complete list of all of the holders of Company Options,
indicating for each the number of shares of Common Stock for which such
Company Options are exercisable, the exercise price, the vesting schedule and
the termination date, is listed on Schedule 4.5(a) attached hereto. The
authorized capital stock of each Subsidiary consists in its entirety of the
shares described on Schedule 4.5(b) attached hereto, all of which shares are
issued and outstanding and owned beneficially and of record by the Company.
The Company has no obligation, contingent, or otherwise, which will survive
the Merger, to register any of its presently outstanding securities (or any
securities that may subsequently be issued) under the Securities Act (as
hereinafter defined). The Company is not a party or subject to any agreement
or understanding, and to its Knowledge (as hereinafter defined), except as
set forth on Schedule 4.5(b), there is no agreement or understanding between
any other persons or entities that affects or relates to the voting or giving
of written consents with respect to any of the Company's securities or the
voting by a director of the Company. For the purposes of this Agreement, the
term "Knowledge" means the knowledge of the directors and officers of the
Company and the Subsidiaries, after reasonable and diligent inquiry and
investigation.
4.6. SEC FILINGS.
The Company has timely filed with the SEC all forms, reports,
schedules, statements and other documents required to be filed by it since
September 24, 1996 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder, or the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations promulgated thereunder. The reports, statements and registration
statements referred to in the immediately preceding sentence (including,
without limitation, any financial statements or schedules or other
information incorporated by reference therein) are referred to in this
Agreement as the "Company SEC Filings." The Company SEC Filings (i) were
prepared and filed in compliance, in all material respects, with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations promulgated thereunder and (ii) did not at the
time of filing (or if amended, supplemented or
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superseded by a filing prior to the date hereof, on the date of that filing)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of the Subsidiaries is required to file any
forms, reports or other documents with the SEC. The Company will promptly
deliver to Purchaser copies of all Company SEC Filings filed with the SEC
after the date hereof.
4.7. FINANCIAL STATEMENTS.
(a) The consolidated financial statements of the Company included in
the Company SEC Filings have been prepared (i) from, and are in accordance
with, the books and records of the Company and its Subsidiaries, (ii) comply
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, and (iii)
in accordance with the United States generally accepted accounting principles
("GAAP") consistently applied and consistent with prior periods, subject, in
the case of unaudited interim consolidated financial statements, to year-end
adjustments (which consist of normal recurring accruals) and the absence of
certain footnote disclosures. The consolidated balance sheets of the Company
included in the Company SEC Filings fairly present the financial position of
the Company and the Subsidiaries as of their respective dates, and the
related consolidated statements of operations, stockholders' equity and cash
flows included in the Company SEC Filings fairly present the results of
operations of the Company and the Subsidiaries for the respective periods
then ended, subject, in the case of unaudited interim financial statements,
to year-end adjustments (which consist of normal recurring accruals) and the
absence of certain footnote disclosures.
(b) Except as set forth on Schedule 4.7(b), neither the Company nor
any of the Subsidiaries has any material liabilities or obligations, whether
accrued, absolute, contingent or otherwise, except for those liabilities that
were (i) fully reflected on the consolidated balance sheet included in the
Company's Report on Form 10-Q for the quarter ended June 30, 1998, and not
heretofore paid or discharged; (ii) incurred prior to the date of such
consolidated balance sheet, which, in accordance with GAAP consistently
applied, were not required to be recorded thereon (all of which liabilities
have been disclosed in the Company SEC filings), (iii) incurred in the
ordinary course of business consistent with past practice since the date of
such consolidated balance sheet, or (iv) any indebtedness reasonably approved
by Purchaser incurred in connection with the transactions described in
Section 6.2 or as listed on Schedule 6.1.
4.8. ABSENCE OF CERTAIN CHANGES OR EVENTS.
Since June 30, 1998, the businesses of the Company and its
Subsidiaries have been conducted in the ordinary course, and neither the
Company nor any Subsidiary has (i) issued any stock, bonds or other corporate
securities (or options, warrants on other rights to acquire such securities),
(ii) borrowed any amount (other than vehicle floor plan indebtedness in the
ordinary course of business consistent with past practice) or incurred any
material liabilities (absolute or contingent), except in the ordinary course
consistent with past practice, (iii) discharged or satisfied any lien or
incurred or paid any obligation or liability (absolute or contingent) other
than
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current liabilities shown on the consolidated balance sheet of the Company
and the Subsidiaries as of June 30, 1998 and current liabilities incurred
since the date of such balance sheet in the ordinary course of business
consistent with past practice, (iv) declared or made any dividend, payment or
distribution in cash, stock or property to stockholders or purchased or
redeemed any shares of its capital stock or other securities, (v) mortgaged,
pledged or subjected to lien any of its assets, tangible or intangible, other
than liens for current real property taxes not yet due and payable or
mechanics' or materialmens' liens, not filed of record incurred in the
ordinary course of business consistent with past practice, (vi) sold,
assigned, leased or transferred any of its material properties or assets
(other than sales of inventory in the ordinary course of business consistent
with past practice), acquired (including, without limitation, for cash or
shares of stock, by merger, consolidation, or acquisition of stock or assets)
any interest in any corporation, partnership or other business, business
organization or division thereof, or cancelled any material debts or claims
(except for any such cancellations in the ordinary course of business
consistent with past practice or as otherwise contemplated hereby), (vii)
except as set forth on Schedule 4.8, made any changes in director, officer or
key employee compensation or in any bonus, insurance, pension or other
employee benefit plan (other than in the ordinary course of business
consistent with past practice), (viii) taken any action with respect to
accounting policies or procedures, except for changes required by GAAP, (ix)
agreed, in writing or otherwise, to take any of the actions listed in clauses
(i) through (viii) above, (x) suffered any Material Adverse Effect or waived
any rights of substantial value, whether or not in the ordinary course of
business, or (xi) entered into any material transaction, except in the
ordinary course of business or as otherwise contemplated hereby (other than
as set forth in Section 6.2).
4.9. COMPLIANCE WITH LAWS.
Neither the Company nor any Subsidiary is in material default under or
in violation, in any material respect, of any order of any court,
governmental authority or arbitration board or tribunal to which the Company
or such Subsidiary is or was subject or in violation, in any material
respect, of any laws, ordinances, governmental rules or regulations
(including, but not limited to, those relating to export controls, labor and
employment matters, environmental matters and foreign corrupt practices) to
which the Company or any Subsidiary is or was subject. Neither the Company
nor any Subsidiary has failed to obtain any licenses, permits, franchises or
other governmental authorizations necessary to the ownership of its
properties or to the conduct of its business, except where the failure to
obtain any of the foregoing would not or could not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company. All of such licenses, permits, franchises and authorizations are
and, after giving effect to the transactions contemplated hereby, will
continue to be, valid and in full force and effect. Schedule 4.9 attached
hereto sets forth a list of all material licenses, permits, franchises and
authorizations held by the Company and its Subsidiaries.
4.10. DISCLOSURE DOCUMENTS.
(i) Each document required to be filed by the Company with the
SEC in connection with the transactions contemplated hereby (collectively,
the "Company Disclosure Documents"), including, without limitation, the Proxy
Statement and any amendments or
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supplements thereto, will, when filed, comply as to form and substance with
the requirements of the Exchange Act.
(ii) The Proxy Statement will not (a) at the time the Proxy
Statement or any amendment or supplement thereto is first mailed to
stockholders of the Company, at the time such stockholders vote on adoption
of this Agreement and at the Effective Time, contain any untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading or (b) at the time of such stockholder vote or at the
Effective Time omit any information necessary to correct any statement that
has become materially false or misleading in any earlier communication with
respect to the solicitation of any proxy for such meeting. At the time of
the filing of any Company Disclosure Document (other than the Proxy
Statement) and at the time of distribution thereof, such Company Disclosure
Document will not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
Notwithstanding the foregoing, no representation is made by the Company with
respect to information supplied by Purchaser specifically for inclusion in
the Proxy Statement or any other Company Disclosure Document that relates to
Purchaser or any affiliate or associate of Purchaser.
4.11. LITIGATION.
Except for matters 6, 7 and 8 set forth on Schedule 4.11 attached
hereto, there is no action, suit, investigation, proceeding, claim,
arbitration, mediation, unfair labor practice complaint or grievance pending
or, to the Knowledge of the Company, threatened against or affecting the
Company or any Subsidiary, or their respective properties or rights, before
any court, governmental body or arbitration board or tribunal, except for any
such action, suit, investigation, proceeding, claim, arbitration, mediation,
unfair labor practice complaint or grievance that, individually or in the
aggregate, if adversely determined, would or could reasonably be expected to
have a Material Adverse Effect on the Company (and the other significant
litigation matters set forth on Schedule 4.11 are not reasonably expected,
individually or in the aggregate, if adversely determined, to have a Material
Adverse Effect on the Company). Neither the Company nor any Subsidiary nor
any of the property or assets of any of them is subject to any order,
judgment, injunction or decree.
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4.12. INTELLECTUAL PROPERTY.
(i) Schedule 4.12(a) attached hereto contains a complete and
accurate list of all material trademarks, trade names, service marks,
copyrights, logos, know-how, computer software programs or applications
(including any imbedded software in instrumentation or otherwise), and tangible
or intangible proprietary information or material (collectively, the
"Proprietary Property"), including all contracts, agreements and licenses
relating thereto, owned by the Company or its Subsidiaries or in which either of
them has any rights. Each of the Company and its Subsidiaries owns, or is
licensed or otherwise possesses legally enforceable rights to use, all material
Proprietary Property that is necessary to conduct the business of each of the
Company and its Subsidiaries as currently conducted.
(ii) Except as set forth on Schedule 4.12(b), none of the
Proprietary Property, no use thereof by the Company or any Subsidiary, and no
permitted use thereof by any licensee infringes upon or violates, in any
material respect, any copyright, trade secret or other intellectual property
right of any person or entity, and no claim or demand with respect to any such
infringement or violation has been made or, to the Knowledge of the Company,
threatened, which claim or demand, individually or when aggregated with all such
claims and demands, if adversely determined, would or could reasonably be
expected to have a Material Adverse Effect on the Company.
(iii) The Company has adopted and is implementing a plan such
that all Proprietary Property that contains or calls on a calendar function,
including, without limitation, any function that is indexed to a computer
processing unit clock or provides specific dates or calculates spans of dates,
will be able to record, store, process and provide true and accurate dates and
calculations for dates and spans of dates including and following January 1,
2000, except for any failures to so record, store, process and provide which do
not and are not reasonably expected to have, individually or in the aggregate, a
material cost to the Company. Pursuant to such plan, none of the Company's or
the Subsidiaries' Proprietary Property, accounting systems or other systems will
be materially adversely affected or impaired by the date change from December
31, 1999, to January 1, 2000. The cost to implement such plan has not been and
will not be material.
4.13. LABOR MATTERS.
Neither the Company nor any Subsidiary is bound by any collective
bargaining agreement or other arrangement with a labor union or association
representing any employee, nor has the Company or any Subsidiary experienced any
strike, work slowdown or stoppage, lock-out or material grievance, claim of
unfair labor practices or other collective bargaining dispute. The Company has
no Knowledge of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to the employees of the Company or
any Subsidiary.
4.14. SEVERANCE ARRANGEMENTS.
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Except pursuant to the Company's severance policies as in effect on the
date hereof (which are described on Schedule 4.14 attached hereto, true and
complete copies of which have been delivered to Purchaser), or except as
otherwise described on Schedule 4.14, neither the Company nor any Subsidiary is
a party to any agreement with any employee (i) the benefits of which (including,
without limitation, severance benefits) are contingent, or the terms of which
are materially altered, upon the occurrence of the transactions contemplated
hereby or a transaction involving the Company or any Subsidiary of the nature of
any of the transactions contemplated by this Agreement, or (ii) providing
severance benefits in excess of those generally available to similarly situated
employees under the foregoing severance policies, after the termination of
employment of such employees regardless of the reason for such termination of
employment. Except as set forth on Schedule 4.14 attached hereto, neither the
Company nor any Subsidiary is a party to any employment agreement or
compensation guarantee extending for a period longer than one year from the date
hereof.
4.15. TAXES.
(i) Each of the Company, the Subsidiaries and any affiliated,
combined or unitary group of which any such corporation is or was a member has
(a) except as set forth on Schedule 4.15, timely filed all federal, state, local
and foreign returns, declarations, reports, estimates, information returns and
statements ("Returns") required to be filed by it in respect of any Taxes (as
hereinafter defined) for all periods, with respect to the Company, and for all
periods during which the Subsidiaries have been owned by the Company or owned by
or affiliated with Bill A. Gilliland, with respect to the Subsidiaries, which
Returns were correct and complete in all material respects, (b) timely paid or
withheld all Taxes that are due and payable, whether or not shown on any Return
(other than Taxes that are being contested in good faith by appropriate
proceedings and are adequately reserved for in the Company's most recent
consolidated financial statements described in Section 4.8 hereof),
(c) established reserves (excluding reserves for deferred taxes) that are
adequate for the payment of all Taxes not yet due and payable with respect to
the Company and the Subsidiaries through the date hereof, and (d) complied in
all material respects with all applicable laws, rules and regulations relating
to the payment and withholding of Taxes.
(ii) Except as set forth on Schedule 4.15, there is no
deficiency, claim, audit, action, suit, proceeding, or investigation now pending
or threatened against or with respect to the Company or any Subsidiary in
respect of any Taxes. There are no requests for rulings or determinations in
respect of any Taxes pending between the Company or any Subsidiary and any
taxing authority. Except as set forth on Schedule 4.15, none of the Company or
any Subsidiary currently is the beneficiary of any extension of time within
which to file any Return.
(iii) Neither the Company nor any Subsidiary has executed or
entered into (or prior to the Effective Time will execute or enter into) with
the Internal Revenue Service or any taxing authority (a) any agreement or other
document extending or having the effect of extending the period for assessments
or collection of any Taxes for which the Company or any Subsidiary would be
liable or (b) a closing agreement pursuant to Section 7121 of the Internal
Revenue
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Code (the "Code"), or any predecessor provision thereof or any similar
provision of foreign, state or local Tax law that relates to the assets or
operations of the Company or any Subsidiary.
(iv) For purposes of this Agreement, "Tax" (and with
correlative meaning, "Taxes") shall mean all federal, state, local, foreign or
other taxing authority net income, franchise, sales, use, ad valorem, property,
payroll, withholding, excise, severance, transfer, employment, alternative or
add-on minimum, stamp, occupation, premium, environmental or windfall profits
taxes, and other taxes, charges, fees, levies, imposts, customs, duties,
licenses or other assessments, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority.
(v) The Company has made available to Purchaser true and
complete copies of (a) all income tax audit reports, statements of deficiencies,
closing or other agreements received by or on behalf of the Company or any
Subsidiary relating to Taxes, and (b) all federal, state, local and foreign
income tax Returns filed by the Company or any Subsidiaryof the Company, for all
periods ending on and after the date of the Company's formation, and of the
Subsidiaries, for all periods during which the Subsidiaries have been owned by
the Company or owned by or affiliated with Bill A. Gilliland. No claim has ever
been made by an authority in a jurisdiction where the Company, at any time, or
any of the Subsidiaries, at any time during which such Subsidiary has been owned
by the Company or owned by or affiliated with Bill A. Gilliland, does not file
Returns that it is or may be subject to taxation by such jurisdiction. The
Company has provided to Purchaser a description of the Company's and each
Subsidiary's net operating loss carryforwards, other material tax carryovers,
excess loss accounts, material tax elections, and deferred intercompany
transactions. Neither the Company nor any Subsidiary has any net operating
losses or other tax attributes presently limited under Code Sections 382, 383,
or 384, or the federal consolidated return regulations.
(vi) None of the Company and its Subsidiaries has filed a
consent under Code Section 341(f) concerning collapsible corporations. None of
the Company and its Subsidiaries has made any material payments, is obligated to
make any material payments, or is a party to any agreement that under certain
circumstances could obligate it to make any material payments that will not be
deductible under Code Section 280G. None of the Company and its Subsidiaries
has been a United States real property holding corporation within the meaning of
Code Section 897(c)(2) during the applicable period specified in Code Section
897(c)(1)(A)(ii). None of the Company and its Subsidiaries is (or ever has
been) a party to any tax allocation or sharing agreement. None of the Company
and its Subsidiaries (A) has been a member of an affiliated group filing a
consolidated federal income Tax Return or (B) has any liability for the Taxes of
any person or entity (other than any of the Company and its Subsidiaries) under
Reg. Section 1.1502-6 (or any similar provision of state, local, or foreign
law), as a transferee or successor, by contract, or otherwise.
4.16. EMPLOYEE BENEFIT PLANS.
(i) Each of the Company and the Subsidiaries has complied and
currently is in compliance in all material respects, both as to form and
operation, with the applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
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and the Code, with respect to each "employee benefit plan" as defined under
Section 3(3) of ERISA ("Plan") which the Company or any Subsidiary (a) has
ever adopted, maintained, established or to which any of the same has been
required to contribute to or has ever contributed or (b) currently maintains
or to which any of the same currently contributes or is required to
contribute or (c) currently participates in or is required to participate in.
(ii) Neither the Company nor any Subsidiary has ever
maintained, adopted or established, contributed or been required to contribute
to, or otherwise participated in or been required to participate in, a
"multiemployer plan" (as defined in Section 3(37) of ERISA). No amount is due
or owing from the Company or any of its subsidiaries on account of a
"multiemployer plan" (as defined in Section 3(37) of ERISA) or on account of any
withdrawal therefrom.
(iii) Notwithstanding anything else set forth herein, other
than routine claims for benefits and liability for premiums due to the Pension
Benefit Guaranty Corporation, neither the Company nor any Subsidiary has
incurred any material liability with respect to a Plan that is currently due and
owing and has not yet been satisfied, including without limitation under ERISA
(including without limitation Title I or Title IV thereof), the Code or other
applicable law, and no event has occurred, and, to the Knowledge of the Company,
there exists no condition or set of circumstances (other than the accrual or
payment of benefits under the normal terms of the Plans), that could result in
the imposition of any material liability on the Company or any Subsidiary with
respect to a Plan, including without limitation under ERISA (including without
limitation Title I or Title IV of ERISA), the Code or other applicable law with
respect to a Plan.
(iv) Except as required by applicable law, neither the Company
nor any Subsidiary has committed itself, orally or in writing, (x) to provide or
cause to be provided to any person any payments or provision of any "welfare" or
"pension" benefits (as defined in Sections 3(1) and 3(2) of ERISA) in addition
to, or in lieu of, those payments or benefits set forth under any Plan, (y) to
continue the payment of, or accelerate the payment of, benefits under any Plan,
except as expressly set forth thereunder or (z) to provide or cause to be
provided any severance or other post-employment benefit, salary continuation,
termination, disability, death, retirement, health or medical benefit to any
person (including without limitation any former or current employee) except as
set forth under any Plan.
4.17. ENVIRONMENTAL MATTERS.
The Company and the Subsidiaries are and have at all times been in
compliance, in all material respects, with all Environmental Laws governing
their businesses, operations, properties and assets, including, without
limitation: (a) all requirements relating to the Discharge and Handling of
Hazardous Substances; (b) all requirements relating to notice, record keeping
and reporting; (c) all requirements relating to obtaining and maintaining
Licenses for the ownership by each of the Company or the Subsidiaries of the
Owned Properties (as hereinafter defined) and its other properties and assets
and the operation of its business as presently conducted and the use by the
Company or the Subsidiaries of the Leased Premises (as hereinafter defined) and
(d) all
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applicable writs, orders, judgments, injunctions, governmental
communications, decrees, informational requests or demands issued pursuant
to, or arising under, any Environmental Laws.
(i) There are no (and, to the Knowledge of the Company, there
is no basis for any) material non-compliance orders, warning letters or notices
of violation (collectively "Notices"), claims, suits, actions, judgments,
penalties, fines, or administrative or judicial investigations of any nature or
proceedings (collectively "Proceedings") pending or, to the Knowledge of the
Company, threatened against or involving the Company or the Subsidiaries, their
businesses, operations, properties or assets or the Owned Properties or Leased
Premises, issued by any governmental authority or third party with respect to
any Environmental Laws or Licenses issued to the Company or the Subsidiaries
thereunder in connection with, related to or arising out of the ownership by the
Company or the Subsidiaries of the Owned Properties and their other properties
or assets or the operation of their businesses or the use by the Company or the
Subsidiaries of the Leased Premises, which have not been resolved to the
satisfaction of the issuing governmental authority or third party in a manner
that would not impose any material obligation, burden or continuing liability on
Purchaser or the Company or the Subsidiaries (as wholly owned subsidiaries of
Purchaser) in the event that the transactions contemplated by this Agreement are
consummated.
(ii) Neither the Company nor the Subsidiaries have at any time
Discharged, nor have they at any time allowed or arranged for any third party to
Discharge, Hazardous Substances to, at or upon: (a) any location other than a
site lawfully permitted to receive such Hazardous Substances; (b) any parcel of
real property owned or leased at any time by the Company or the Subsidiaries
(including, without limitation, the Owned Properties and Leased Premises),
except in compliance, in all material respects, with applicable Environmental
Laws; or (c) any site which, pursuant to CERCLA or any similar state law has
been placed on the National Priorities List or its state equivalent, or the
Environmental Protection Agency or any relevant state agency has notified the
Company or the Subsidiaries that it has proposed or is proposing to place on the
National Priorities List or its state equivalent. There has not occurred, nor
is there presently occurring, a material Discharge, or threatened material
Discharge of any Hazardous Substance on, into or directly beneath the surface of
any real property owned or leased at any time by the Company or the
Subsidiaries, including, without limitation, the Owned Properties and Leased
Premises.
(iii) There has been no material Discharge from or rupture of
any Aboveground Storage Tanks or Underground Storage Tanks.
(iv) Schedule 4.17 attached hereto identifies (a) all
environmental audits, assessments or occupational health studies undertaken
during the prior two years relating to or affecting the Company or the
Subsidiaries, the Owned Properties or the Leased Premises; and (b) all ground,
water, soil, air or asbestos monitoring undertaken by the Company or the
Subsidiaries in the past two years relating to or affecting the real property
owned or leased at any time by the Company or the Subsidiaries, including the
Owned Properties and Leased Premises.
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(v) For purposes of this Section, the following terms shall
have the meanings ascribed to them below:
"Aboveground Storage Tank" shall have the meaning
ascribed to such term in Section 6901 ET SEQ., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule, regulation,
order ruling, or decree governing Aboveground Storage Tanks.
"Discharge" means any manner of spilling, leaking,
dumping, discharging, releasing, migrating or emitting, as any of such terms
may further be defined in any Environmental Law, into or through any medium
including, without limitation, ground water, surface water, land, soil or air.
"Environmental Laws" means all federal state, regional
or local statutes, laws rules, regulations, codes, ordinances, rulings,
licenses and changes thereto which govern or relate to pollution, protection
of the environment, public health and safety, air emissions, water
discharges, waste disposal, hazardous or toxic substances, solid or hazardous
waste.
"Handle" means any manner of generating, accumulating,
storing, treating, disposing of, transporting, transferring, labeling,
handling, manufacturing or using, as any of such terms may further be defined
in any Environmental Law.
"Hazardous Substances" shall be construed broadly to
include any toxic or hazardous substance, material or waste, and any other
contaminant, pollutant or constituent thereof, whether liquid, solid,
semi-solid, sludge and/or gaseous, the presence of which requires
investigation or remediation under any Environmental Laws or which are
regulated, listed or controlled by, under or pursuant to any Environmental
Laws.
"Licenses" means, for purposes of this Section 4.17
only, all licenses, certificates, permits, approvals, decrees and
registrations required under the Environmental Laws.
"Underground Storage Tank" shall have the meaning
ascribed to such term in Section 6901 ET SEQ., as amended, of RCRA, or any
applicable state or local statute, law, ordinance, code, rule, regulation,
order, ruling or decree governing Underground Storage Tanks.
4.18. CERTAIN TRANSACTIONS.
Except as set forth on Schedule 4.18 attached hereto, there are no
existing or proposed transactions, agreements, arrangements or understandings
between the Company or any Subsidiary and their respective "affiliates," as such
term is defined in Rule 405 promulgated under the Securities Act.
4.19. BROKERS.
Except for the fee payable by the Company to the Advisor in connection
with the Fairness Opinion, no person is entitled to any brokerage or finder's
fee or commission in
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connection with the transactions contemplated by this Agreement as a result
of any action taken by or on behalf of the Company or any of the Subsidiaries
or their affiliates.
4.20. ASSETS.
(a) The Company and the Subsidiaries have good and
marketable title to or a valid leasehold interest in all of their
properties and assets (tangible and intangible), including without
limitation, all the properties and assets reflected on the
Consolidated Balance Sheet included in the Company's Quarterly Report
on Form 10-Q for the three months ended June 30, 1998 (except to the
extent disposed of in the ordinary course of business consistent with
past practice), all the properties and assets purchased or otherwise
acquired by the Company or any Subsidiary since the date of thereof,
and all properties and assets used in its business. None of such
properties or assets is subject to any mortgage, pledge, lien,
security interest, encumbrance, restriction or charge of any kind
material to the business of the Company taken as a whole, except as
set forth in the Company SEC Filings or Schedule 4.20(a) attached
hereto. The Company and the Subsidiaries own and operate the motor
vehicle dealerships (the "Dealerships") listed on Schedule 4.20(b)
attached hereto at the locations set forth thereon, and the Dealerships
are owned and operated by the Company or the Subsidiaries, as
applicable, as indicated thereon.
(b) Except for employee owned tools, the Fixed Assets
currently in use or necessary for the business and operations of the
Company and the Subsidiaries are in good operating condition, normal
wear and tear excepted. For purposes of this Agreement, the term
"Fixed Assets" means all vehicles (other than vehicles held as
inventory), machinery, equipment, tools, supplies, leasehold
improvements, furniture and fixtures, owned, used by or located on the
premises of the Company and the Subsidiaries or set forth on the
balance sheet of the Company included in the Company's filing on
Report 10-Q for the quarter ended June 30, 1998 or acquired since the
date of such balance sheet.
(c) As of June 30, 1998, the inventories shown on the
Consolidated Balance Sheet included in the Company's Quarterly Report
on Form 10-Q for the three months ended June 30, 1998 consisted in all
material respects of items of a quantity and quality useable or
saleable in the ordinary course of business and have been replenished
in all material respects in the ordinary course of business consistent
with past practice. All such inventories (including any reserves
established with respect thereto) are valued on the Consolidated
Balance Sheet included in the Company's Quarterly Report on Form 10-Q
for the three months ended June 30, 1998 in accordance with GAAP
consistent with past practice.
4.21. REAL PROPERTY OWNED OR LEASED.
(i) Schedule 4.21(a) attached hereto contains the street
addresses of all real property or any interest therein owned by any of the
Company or the Subsidiaries (the parcels of real property so identified on are
referred to herein collectively as the "Owned Properties"). With
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respect to each such parcel of Owned Properties the respective entity
designated on Schedule 4.21(a) has good and marketable title, free and clear
of (1) any mortgages (except as set forth on Schedule 4.21(a)), pledges,
liens, security interests or other encumbrances securing debt for borrowed
money, or (2) any other lien, restriction, covenant, condition, easement or
exception (other than liens for real estate taxes not yet due and payable or
mechanics' or materialmens' liens not filed of record incurred in the
ordinary course of business consistent with past practice), which materially
impairs the use or value of such Owned Property to the Company.
(ii) Schedule 4.21(b) attached hereto sets forth a list of all
leases, licenses or similar agreements to which the Company or the Subsidiaries
is a party, which are for the use or occupancy of real estate (the "Leases")
(true and complete copies of which have previously been furnished to Purchaser),
in each case, setting forth: (a) the lessor and lessee thereof and the
commencement date, term and renewal rights under each of the Leases, and (b) the
street address and legal description of each property covered thereby (the
"Leased Premises"). The Leases are in full force and effect and have not been
amended and no party thereto is in default or breach under any such Lease. No
event has occurred which, with the passage of time or the giving of notice or
both, would cause a breach of or default under any of such Leases. The Company
and the Subsidiaries have valid leasehold interests in each of the Leased
Premises, which leasehold interests are free and clear of (1) any mortgages,
liens and encumbrances relating to debt for borrowed money, and (2) any other
liens, encumbrances, covenants and easements or title defects of any nature
whatsoever, which other line, encumbrance, covenant, easement or title defect
could materially impairs the use or value of the applicable Leased Premises to
the Company.
(iii) With respect to each parcel of the Owned Properties and
Leased Premises, (a) there are no pending or, to the Knowledge of the Company
or any of the Subsidiaries, threatened condemnation proceedings, suits or
administrative actions relating to any such parcel or other matters materially
affecting adversely the current use, occupancy or value thereof; (b) there are
no contracts granting to any party or parties the right of use or occupancy of
any such parcel, and there are no parties (other than the Company and the
Subsidiaries) in possession of any such parcel; and (c) except as set forth on
Schedule 4.21(c), there are no outstanding options or rights of first refusal or
similar rights to purchase any such parcel or any portion thereof or interest
therein.
4.22. INSURANCE.
The Company maintains all policies of fire, products liability, general
liability, vehicle, workers' compensation, directors' and officers' liability,
title and other insurance covering the Company or its Subsidiaries or any of
their respective property or assets that are material to the business of the
Company and the Subsidiaries, in such amounts and such terms as are customary in
the industry. Except as set forth on Schedule 4.22, there is no material claim
pending under any of such policies as to which coverage has been questioned,
denied or disputed by the underwriters of such policies and, to the Company's
Knowledge, there is no basis for any underwriter of such policy to deny any
material pending claim. All of such policies are in full force and effect in
all material respects, and no notice of cancellation or termination has been
received with respect to any such policy which has not been replaced or which
cannot be
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replaced on substantially similar terms prior to the date of such
cancellation or termination. All premiums due and payable under such
policies have been paid. No insurance policy or arrangement provides for any
retrospective premium adjustment, experience based liability or loss sharing
arrangement affecting the Company or any Subsidiary, except adjustments,
liabilities or loss sharing arrangements which would not be material in amount.
4.23. MATERIAL CONTRACTS.
(i) Schedule 4.23 attached hereto sets forth a list of each
Material Contract (as defined below), true, correct and complete copies of which
have been provided to Purchaser, including without limitation all franchise,
sales and service, dealer and other agreements or undertakings (the "Franchise
Agreements") with automobile manufacturers or distributors (collectively, the
"Factories"). Schedule 4.23 identifies (a) which Franchise Agreements grant the
Company and the Subsidiaries full rights and privileges necessary to operate the
Dealerships; (b) all rights of first refusal granted to any Factory pursuant to
any of the Franchise Agreements, and (c) all Material Contracts that require the
consent of third parties to the transactions contemplated hereby. The copy of
each Material Contract furnished to Purchaser is a true and complete copy of the
document it purports to represent and reflects all amendments thereto made
through the date of this Agreement. The Company and the Subsidiaries have not
violated, in any material respect, any of the terms or conditions of any
Material Contract or any term or condition which would permit termination or
modification of any Material Contract, all of the covenants to be performed by
any other party thereto have, to the Knowledge of the Company, been fully
performed, and no material claims have been made or issued for breach or
indemnification or notice of default or termination under any Material Contract.
Each of the Material Contracts constitutes the legal, valid and binding
obligation of the Company and the Subsidiaries that is a party thereto, each in
accordance with its express terms. No event has occurred which constitutes, or
after notice or the passage of time, or both, would constitute, a material
default by any Company and the Subsidiaries under any Material Contract, and no
such event has occurred which constitutes or would constitute a material default
by any other party. Neither of the Company and the Subsidiaries is subject to
any liability or payment resulting from renegotiation of amounts paid under any
Material Contract.
(ii) As used in this Section 4.23, the term "Material
Contracts" shall mean written or oral, (a) loan agreements, indentures,
mortgages, pledges, hypothecations, deeds of trust, conditional sale or title
retention agreements, security agreements, equipment financing obligations or
guaranties, or other sources of contingent liability in respect of any
indebtedness or obligations to any other person or entity, or letters of intent
or commitment letters with respect to same (other than those which individually
provide for money borrowed of less than $200,000); (b) the Leases; (c) leases of
personal property (other than those which individually provide for annual
payments of less than $200,000); (d) distribution, sales agency or franchise or
similar agreements (including, without limitation, the Franchise Agreements), or
agreements providing for an independent contractor's services, or letters of
intent with respect to same (other than those which individually provide for
annual payments of less than $200,000); (e) employment agreements, management
service agreements, consulting agreements, confidentiality agreements,
non-competition agreements and any other agreements relating to any employee,
officer or
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director of the Company and the Subsidiaries; (f) licenses, assignments or
transfers of trademarks, trade names, service marks, patents, copyrights,
trade secrets or know how, or other agreements regarding material Proprietary
Property; (g) contracts relating to pending capital expenditures by the
Company and the Subsidiaries; (h) non-competition agreements restricting the
Company or Subsidiaries in any manner; (i) any agreements pursuant to which
the Company is a party or by which it is bound relating to the issuance,
registration or voting of shares of its capital stock (or options or other
rights to acquire the same); and (j) any other contracts material to the
Company or the Subsidiaries.
4.24. ADVERSE IMPACT OF ACTIONS OR PROPOSALS OF FACTORIES.
Except as set forth on Schedule 4.24, to the Knowledge of the Company,
none of the Factories nor any other dealer has taken or proposed to take any
action that could have an adverse impact on the Dealerships, including, but not
limited to, (i) relocating or closing the Dealerships; (ii) relocating any other
dealership or establishing or awarding a new franchise for a dealership to a
location that could have an adverse impact on the Dealerships; or
(iii) protesting any action taken or proposed to be taken by the Dealerships.
The Company has delivered to Purchaser copies of any written documentation or
proposals relating to the foregoing in the possession of the Company or the
Subsidiaries, including any strategic plans of the Factories relating to
distribution, marketing, facilities or divisional image or alignment or any
documentation relating to specific plans or proposals with respect to the
Dealerships. As of the date hereof, neither the Company nor the Subsidiaries
have any claims, and no basis exists (nor will any basis exist solely as a
result of the passage of time) for any claims, by the Company or the
Subsidiaries against the Factories. To the Knowledge of Company, none of the
Factories has requested any change in the management staff of the Dealerships
and, to the Knowledge of the Company, there exists no basis upon which the
Factories would request such a change in management staff.
4.25. RECEIVABLES.
All of the Receivables are valid and legally binding, represent bona
fide transactions and arose in the ordinary course of business of the Company or
the Subsidiaries, as the case may be. All of the Receivables are good and
collectible receivables, and will be collected in accordance with past practice
and the terms of such receivables (and in any event within six months following
the Closing Date), without set off or counterclaims, subject to the allowance
for doubtful accounts, if any, set forth on the balance sheet of the Company
included in the Company's Report on Form 10-Q for the quarter ended June 30,
1998, as reasonably adjusted since the date of such balance sheet in the
ordinary course of business. For purposes of this Agreement, the term
"Receivables" means all receivables of the Company and the Subsidiaries,
including without limitation all contracts in transit, manufacturer's warranty
receivables and all trade account receivables arising from the provision of
services, sale of inventory, notes receivable, and insurance proceeds
receivable.
4.26. VOTE REQUIRED.
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The affirmative vote of the holders of a majority of the outstanding
shares of Company Common Stock is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve this Agreement and
the transactions contemplated hereby.
4.27. FULL DISCLOSURE.
To the Company's Knowledge, neither any representation or warranty by
the Company in this Agreement nor any statement by the Company in any Schedule
hereto or any certificate delivered pursuant to this Agreement contains an
untrue statement of a material fact or omits to state any material fact
necessary in order to make the representations, warranties or statements made
herein or therein, in the light of the circumstances under which they were made,
not misleading.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser and Merger Sub, jointly and severally, represent and warrant
to the Company as follows:
5.1. ORGANIZATION AND QUALIFICATION.
Each of Purchaser and Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own or lease and operate
its properties and assets and to carry on its business as it is now being
conducted, except as would not have a Material Adverse Effect on Purchaser.
Each of Purchaser and Merger Sub is duly qualified as a foreign corporation to
do business, and is in good standing, in each jurisdiction in which the
character of its properties owned or leased or the nature of its activities
makes such qualification necessary, except where the failure to be so qualified
would not have a Material Adverse Effect on Purchaser or Merger Sub, as
applicable.
5.2. AUTHORITY RELATIVE TO AGREEMENT.
Each of Purchaser and Merger Sub has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
The execution and delivery of this Agreement by Purchaser and Merger Sub and the
consummation by Purchaser and Merger Sub of the transactions contemplated hereby
have been duly authorized by the Board of Directors of Purchaser and Merger Sub,
and no other corporate proceedings on the part of Purchaser of Merger Sub
(including, without limitation, any action by its stockholders) are necessary to
authorize this Agreement and the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Purchaser and Merger Sub and
constitutes the legal, valid and binding obligation of Purchaser and Merger Sub,
enforceable against Purchaser and Merger Sub in accordance with its terms.
5.3. NON-CONTRAVENTION.
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The execution, delivery and performance of this Agreement by Purchaser
and the consummation by them of the transactions contemplated hereby, will not
(i) violate or conflict with, in any material respect, any provision of any law
applicable to Purchaser or Merger Sub or by which any property or asset of them
is bound, (ii) require the consent, waiver, approval, license or authorization
of or any filing by Purchaser or Merger Sub with any public authority (other
than (a) the filing of a pre-merger notification report under the HSR Act, (b)
in connection with or in compliance with the provisions of the Exchange Act, the
DGCL, the "takeover" or "blue sky" laws of various states, (c) applicable state
statutes and regulations regulating the conduct of the Surviving Corporation's
and the Subsidiaries' business, and (d) any other filings and approvals
expressly contemplated by this Agreement), (iii) conflict with or result in any
breach of any provision of the respective certificate of incorporation or
by-laws of Purchaser or Merger Sub in any respect or (iv) except as provided
on Schedule 5.3 attached hereto, violate, conflict with, result in a breach
of or the acceleration of any obligation under, or constitute a default (or
an event which with notice or the lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of Purchaser or Merger Sub pursuant to
any provision of any indenture, mortgage, lien, lease, agreement, contract,
instrument, order, judgment, ordinance, regulation or decree to which
Purchaser or Merger Sub is subject or by which Purchaser or Merger Sub or any
of its property or assets is bound; except in the case of clauses (i), (ii)
and (iv) where such violations, conflicts, breaches, defaults or the failure
to give such notice, make such filings, or obtain such authorizations,
consents or approvals, would not, individually or in the aggregate, have a
Material Adverse Effect on the Purchaser or Merger Sub.
5.4. DISCLOSURE DOCUMENTS.
None of the information supplied or to be supplied in writing by either
Purchaser or Merger Sub for inclusion in the Proxy Statement, including any
amendment or supplement to the Proxy Statement, will, at the respective times
such documents are filed, and when sent or given to stockholders of the Company,
contain any untrue statement of a material fact, or omit to state any material
fact necessary in order to make the statements made therein in light of the
circumstances under which they are made not misleading or at the time of the
Meeting and at the Effective Time, contain any untrue statement of a material
fact, or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they are made, not false or misleading or necessary to
correct any statement in any earlier communication or the solicitation of
proxies for the Meeting which shall have become false or misleading.
Notwithstanding the foregoing, neither Purchaser nor Merger Sub makes any
representation or warranty with respect to any information that has been
supplied by the Company or any Subsidiary or their auditors, attorneys,
financial advisors, other consultants or advisors specifically for use in the
Proxy Statement or in any other documents to be filed with the SEC or any
regulatory agency in connection with the transactions contemplated hereby.
5.5. BROKERS.
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No person is entitled to any brokerage or finder's fee or commission in
connection with the transactions contemplated by this Agreement as a result of
any action taken by or on behalf of Purchaser or Merger Sub.
ARTICLE VI.
CERTAIN AGREEMENTS
6.1. CONDUCT OF THE COMPANY'S BUSINESS.
Subject solely to Section 6.2, the Company covenants and agrees that,
except as described on Schedule 6.1 attached hereto, prior to the Effective
Time, unless Purchaser shall otherwise consent in writing or as otherwise
expressly contemplated by this Agreement:
(a) the business of the Company and the Subsidiaries
shall be conducted only in, and the Company and the Subsidiaries shall
not take any action except in, the ordinary course of business and
consistent with past practice; and
(b) neither the Company nor any Subsidiary shall, directly
or indirectly, do any of the following: (i) sell, pledge, dispose of
or encumber (or permit any Subsidiary to sell, pledge, dispose of or
encumber) any assets of the Company or any Subsidiary, except in the
ordinary course of business consistent with past practice; (ii) amend
or propose to amend its Certificate of Incorporation, or Articles of
Incorporation, as applicable, or Bylaws; (iii) split, combine or
reclassify any outstanding shares of its capital stock, or declare,
set aside or pay any dividend or distribution payable in cash, stock,
property or otherwise with respect to such shares; (iv) redeem,
purchase, acquire or offer to acquire (or permit any Subsidiary to
redeem, purchase, acquire or offer to acquire) any shares of its
capital stock; or (v) enter into any contract, agreement, commitment
or arrangement with respect to any of the matters set forth in this
paragraph (b);
(c) neither the Company nor any Subsidiary shall (i) issue,
sell, pledge or dispose of, or agree to issue, sell, pledge or dispose
of, any additional shares of, or securities convertible or
exchangeable for, or any options, warrants or rights of any kind to
acquire any shares of, its capital stock of any class or other
property or assets whether pursuant to the Company Stock Plans or
otherwise; PROVIDED that the Company may issue shares of Company
Common Stock upon the exercise of currently outstanding options
referred to in Section 4.6 hereof; (ii) acquire (by merger,
consolidation or acquisition of stock or assets) any corporation,
partnership or other business organization or division thereof, (iii)
except for vehicle financing in the ordinary course of business
consistent with past practice, incur any indebtedness for borrowed
money or issue any debt securities; (iv) enter into or modify any
Material Contract, except in the ordinary course of business and
consistent with past practice; (v) terminate, modify, assign, waive,
release or relinquish any material contract rights or amend any
material rights or claims not in the
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ordinary course of business or (vi) settle or compromise any material
claim, action, suit or proceeding pending or threatened against the
Company or any Subsidiary;
(d) neither the Company nor any Subsidiary shall grant
any increase in the salary or other compensation of its employees or
enter into any employment agreement or make any loan to or enter into
any transaction of any other nature with any employee of the Company or
any Subsidiary, except in the ordinary course of business consistent
with past practice;
(e) neither the Company nor any Subsidiary shall adopt
or amend, in any material respect, except as contemplated hereby or as
may be required by applicable law or regulation, any collective
bargaining, bonus, profit sharing, compensation, stock option,
restricted stock, pension, retirement, deferred compensation, employment
or other employee benefit plan, agreement, trust, fund, plan or
arrangement for the benefit or welfare of any directors, officers or
employees (including, without limitation, any such plan or arrangement
relating to severance or termination pay); and
(f) neither the Company nor any Subsidiary shall take any
action that would make any representation or warranty of the Company
hereunder inaccurate in any respect at, or as of any time prior to,
the Effective Time, or omit to take any action necessary to prevent
any such representation or warranty from being inaccurate in any
respect at any such time.
6.2. ACQUISITION.
The Company shall (and shall cause the applicable Subsidiaries to)
diligently perform all of their obligations to acquire Las Vegas Honda, in Las
Vegas, Nevada (the "New Dealership"), and shall consummate the same, subject and
pursuant to the terms and conditions of the acquisition agreement relating
thereto (as in effect on the date hereof), as and when required by such
agreement, provided that no modification or amendment to such agreement (or
waiver of any covenant or condition set forth therein) shall be entered into or
taken without Purchaser's prior written consent, which consent shall not be
unreasonably withheld or delayed. Upon completion of the acquisition of the New
Dealership, the New Dealership shall be deemed a "Dealership" for all purposes
of this Agreement.
6.3. STOCKHOLDER APPROVAL.
(a) As soon as reasonably practicable after the date hereof,
the Company shall take all action necessary in accordance with the DGCL and its
Certificate of Incorporation and Bylaws to call, give notice of and convene a
meeting (a "Meeting") of its stockholders to consider and vote upon the approval
and adoption of this Agreement, the Merger and the transactions contemplated
hereby. The Board of Directors shall, subject solely to the rights of the Board
of Directors with respect to a Superior Proposal (as hereinafter defined) as set
forth in Section 6.6(a), recommend that the stockholders of the Company vote to
approve and adopt this Agreement and the Merger and any other matters to be
submitted to stockholders in connection therewith.
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(b) As promptly as reasonably practicable after the date
hereof, the Company shall prepare a proxy statement, prepared in accordance with
the requirements of the Exchange Act, the DGCL and the Company's Certificate of
Incorporation and Bylaws pertaining to the Merger and containing the unanimous
recommendation of the Company's Board of Directors to approve and adopt this
Agreement, and the Merger and (the "Proxy Statement"). Purchaser shall
reasonably cooperate with the Company in the preparation of the Proxy Statement
and any amendments and supplements thereto. The Proxy Statement shall not be
distributed, and no amendment or supplement thereto shall be made by the
Company, without the prior consent of Purchaser and its counsel. The Company
shall use its commercially reasonable efforts to have the Proxy Statement
cleared by the SEC and shall cause a definitive Proxy Statement to be
distributed to its stockholders entitled to vote upon the Merger as promptly as
practicable thereafter.
(c) The Company shall notify Purchaser of the receipt of the
comments of the SEC and of any requests by the SEC for amendments or supplements
to the Proxy Statement or for additional information, and promptly supply
Purchaser with copies of all correspondence between the Company (or its
representatives) and the SEC (or its staff) with respect thereto, all of which
correspondence shall be subject to Purchaser's prior reasonable approval. If,
at any time prior to the Meeting, any event should occur relating to or
affecting the Company or Purchaser, or to their respective officers or
directors, which event should be described in an amendment or supplement to the
Proxy Statement, the parties shall promptly inform one another and shall
cooperate in promptly preparing, filing and clearing with the SEC and, if
required by applicable securities laws, distributing to the Company's
stockholders such amendment or supplement.
(d) Concurrently herewith, each of Bill A. Gilliland, Robert
W. Hall, Xaris, Ltd. and the Gilliland Family Partnership (the "Shareholder
Group") have entered into a Voting Agreement with the Purchaser in the form
attached hereto as Exhibit 6.3 (the "Voting Agreement").
6.4. ACCESS TO INFORMATION.
(a) The Company shall, and shall cause the Subsidiaries and
its and their respective officers, directors, employees, representatives and
agents to, afford, from the date hereof to the Effective Time, the officers,
employees, representatives and agents of Purchaser reasonable access during
regular business hours to its officers, employees, agents, properties, books,
records and workpapers, and shall promptly furnish Purchaser all financial,
operating and other information and data as Purchaser, through its officers,
employees or agents, may reasonably request.
(b) No investigation by Purchaser shall modify, impair,
affect, add to or subtract from any representations or warranties of the parties
hereto or the conditions to the obligations of the parties hereto to effect the
Merger.
6.5. FURTHER ASSURANCES
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Subject to the terms and conditions herein provided, each of the parties
hereto agrees to use all commercially reasonable efforts to promptly take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, including, without
limitation, using all commercially reasonable efforts to obtain all necessary
waivers, consents and approvals and to effect all necessary registrations and
filings. Without limiting the foregoing, the parties hereto shall make promptly
their respective filings, if any, and thereafter make any other required
submissions, under the HSR Act, with respect to the transactions contemplated
hereby, and shall, if requested by Purchaser, seek early termination of the
applicable waiting period under the HSR Act. Without limiting the foregoing,
each of the parties shall use its commercially reasonable best efforts to take,
or cause to be taken, all appropriate actions, and to do, or cause to be done,
all things necessary, proper or advisable under applicable laws and regulations
to consummate and make effective the transactions contemplated herein,
including, without limitation, using its commercially reasonable efforts to
obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of any governmental authority and parties to contracts
with the Company or the Subsidiaries as are necessary for the consummation of
the transactions contemplated hereby. Each of the parties shall make on a
prompt and timely basis all governmental or regulatory notifications and filings
required to be made by it for the consummation of the transactions contemplated
hereby.
6.6. FACTORY APPROVALS.
Without limiting Section 6.5 above, each of the parties hereto shall (a)
cooperate in the preparation and filing of, and take all appropriate actions in
connection with, the application to the Factories for approval of the
transactions contemplated hereby, and (b) use commercially reasonable efforts,
consistent with a mutually acceptable litigation strategy, to (i) defend all
lawsuits or other legal proceedings challenging this Agreement or the
consummation of the transactions contemplated hereby, (ii) lift or rescind any
injunction or restraining order or other order in connection therewith
materially adversely affecting the ability of the parties to consummate the
transactions contemplated hereby, and (iii) institute any lawsuits or legal
proceedings necessary, appropriate or advisable to obtain the approvals or
consents of the Factories to the transactions contemplated by this Agreement.
The Purchaser will have primary responsibility for directing any such lawsuits
or legal proceedings, and in accordance with such direction, the parties will
coordinate their efforts to pursue their legal remedies as contemplated above,
in order to obtain the approvals necessary to consummate the transactions
contemplated by this Agreement and to obtain appropriate relief.
6.7. INQUIRIES AND NEGOTIATIONS.
(a) The Company, the Subsidiaries, their affiliates and their
respective officers, directors, employees, representatives and agents
(including, without limitation, any investment banker, attorney or accountant
retained by the Company or any of its Subsidiaries) shall immediately cease any
existing discussions or negotiations, if any, with any parties conducted
heretofore with respect to any acquisition (except as provided on Schedule 6.1)
or exchange of all or any material portion of the assets of, or any equity
interest in, the Company or
27
<PAGE>
any of the Subsidiaries (by direct purchase from the Company, tender or
exchange offer or otherwise) or any business combination, merger or similar
transaction (including an exchange of stock or assets) with or involving the
Company or any Subsidiary or any division of the Company (an "Acquisition
Transaction"). Except as set forth in this Section 6.7(a), neither the
Company, the Subsidiaries nor any of their affiliates, nor any of their or
their respective officers, directors, employees, representatives or agents,
shall, directly or indirectly, encourage, solicit, participate in or initiate
discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or "group" (as defined in
Section 13(d) of the Exchange Act) (other than Purchaser or Merger Sub, any
affiliate or associate of Purchaser and Merger Sub or any designees of
Purchaser and Merger Sub) with respect to any inquiries or the making of any
offer or proposal (including, without limitation, any offer or proposal to
the stockholders of the Company) concerning an Acquisition Transaction (an
"Acquisition Proposal"); provided, however, that the Company may, directly or
indirectly, furnish information and access pursuant to an appropriate
confidentiality agreement, in each case only in response to an unsolicited
request for information or access, to any person making a written Superior
Proposal (as hereinafter defined) to the Board of Directors of the Company,
and may participate in discussions and negotiate with such person concerning
any such Superior Proposal, if and only if the Board of Directors of the
Company determines in good faith, based upon the written advice of outside
counsel to the Company reasonably acceptable to Purchaser ("Counsel"), that
failing to provide such information or access or to participate in such
discussions or negotiations would constitute a breach of the Board's
fiduciary duty under applicable law and provided, further, that nothing
herein shall prevent the Board from taking, and disclosing to the Company's
stockholders, a position contemplated by Rules 14d-9 and 14e-2 promulgated
under the Exchange Act with regard to any tender offer; provided, further,
that the Board shall not recommend that the stockholders of the Company
tender their Shares (or approve any such Superior Proposal in any meeting of
the stockholders of the Company to approve any such Superior Proposal) in
connection with any such Superior Proposal unless the Board shall have
determined in good faith, based upon the written advice of Counsel to the
Company, that failing to take such action would constitute a breach of the
Board's fiduciary duty to the Company's stockholders under applicable law.
The Board shall (i) notify Purchaser immediately if any Superior Proposal is
made and shall in such notice indicate the identity of the offeror and the
terms and conditions of any such Superior Proposal, and (ii) keep Purchaser
promptly apprised of significant developments as to such Superior Proposal.
The Company agrees not to release any third party from, or waive any provisions
of, any confidentiality or standstill agreement to which the Company is a
party, unless the Board shall have determined in good faith, based upon the
written advice of Counsel to the Company, that failing to release such third
party or waive such provisions would constitute a breach of the fiduciary
duties of the Board of Directors to the Company's stockholders under
applicable law. For the purposes hereof, the term "Superior Proposal" means
an Acquisition Proposal made by a third-party after the date hereof, which
was not encouraged, solicited or initiated by the Company, the Subsidiaries
or any of their affiliates or any of their respective officers, directors,
employees, representatives or agents, the value of which Acquisition Proposal
to the stockholders of the Company has been determined by the Board of
Directors to be materially greater than the value to such stockholders
represented by the transactions contemplated hereby.
28
<PAGE>
(b) In connection with any Superior Proposal recommended to
the stockholders of the Company for approval, as provided above, if Purchaser
does not elect to terminate this Agreement pursuant to Section 8.1, then, upon
written demand from Purchaser, the Board of Directors of the Company shall, as
promptly as practicable thereafter, give notice of and convene a Meeting to
consider and vote upon the approval and adoption of this Agreement, the Merger
and the transactions contemplated hereby, in the manner provided in Section 6.3.
6.8. NOTIFICATION OF CERTAIN MATTERS.
The Company shall give prompt notice to Purchaser, and Purchaser shall
give prompt notice to the Company, of (i) the occurrence, or failure to occur,
of any event that such party believes would be likely to cause any of its
representations or warranties contained in this Agreement to be untrue or
inaccurate in any material respect at any time from the date hereof to the
Effective Time and (ii) any material failure of the Company, Purchaser or Merger
Sub, as the case may be, or any officer, director, employee or agent thereof, to
comply with or satisfy any covenant, condition or agreement to be complied with
or satisfied by it hereunder. No such notice shall modify, impair or constitute
a waiver of any breach of any representation, warranty or covenant, including,
without limitation, any such breach with respect to which such notice is given.
6.9. INDEMNIFICATION.
(a) The Certificate of Incorporation and Bylaws of the
Surviving Corporation shall contain the provisions with respect to
indemnification and exculpation from liability set forth in the Company's
Certificate of Incorporation and Bylaws as in effect on the date hereof, which
provisions shall not be amended, repealed or otherwise modified for a period of
six years from the Effective Time in any manner that would materially adversely
affect the rights thereunder of individuals who, on or prior to the Effective
Time, were directors, officers, employees or agents of the Company
(collectively, the "Indemnified Parties"), unless such modification is required
by law.
(b) For a period of six years after the Effective Time, the
Surviving Corporation shall maintain officers' and directors' liability
insurance covering those Indemnified Parties who are currently covered by the
Company's directors' and officers' liability insurance policy, a copy of which
has heretofore been delivered to Purchaser, on terms no less favorable than the
terms of such current insurance coverage, PROVIDED, HOWEVER, that in no event
shall the Surviving Corporation be required to expend in any one year an amount
in excess of 150% of the annual premiums currently payable by the Company for
such insurance, PROVIDED, FURTHER, HOWEVER, that if the annual premiums of such
insurance coverage exceed such amount, the Surviving Corporation shall obtain a
policy with the greatest coverage available for a cost not exceeding such
amount.
(c) This Section 6.9 shall survive the consummation of the
Merger at the Effective Time, is intended to benefit the Company, Purchaser, the
Surviving Corporation and the Indemnified Parties, and shall be binding on the
successors and assigns of the Surviving Corporation.
29
<PAGE>
6.10. RIGHTS PLAN.
The Company covenants and agrees that it will not (a) redeem the Rights,
(b) amend the Rights Agreement (except as provided in Section 4.32), or (c) take
any action which would allow any Person (as defined in the Rights Agreement)
other than Purchaser to acquire beneficial ownership of 19.9% or more of the
Common Stock without causing a Distribution Date (as defined in the Rights
Agreement) to occur. Notwithstanding the foregoing, the Company may take any of
the actions described in clause (c) above, to the extent solely in connection
with a Superior Proposal and in the manner and subject to the terms and
conditions of Section 6.7.
6.11. COMPANY OPTIONS.
Prior to the Closing, the Company shall cause all outstanding amounts
owed to the Company or the Subsidiaries by holders of Company Options to be paid
in full or offset against the amounts payable to such holders pursuant to
Section 3.5.
6.12. CERTAIN TRANSACTIONS.
Prior to the Closing Date, the Company shall (a) cause the Lease with
respect to the Leased Premises for its headquarters in Amarillo, Texas, to be
amended, such that, from and after the Effective Time, the same shall be
terminable by the tenant thereunder upon sixty (60) days prior written notice,
(b) cause all other contracts, agreements and understandings between the Company
or any Subsidiary and any person or entity affiliated with the Company or any
Subsidiary to be terminated, without liability to the Company or any Subsidiary,
and (c) at Purchaser's direction, use reasonable commercial efforts to divest of
any dealership operations on terms reasonably satisfactory to Purchaser in order
to satisfy the conditions to Closing set forth in Section 7.1.
6.13. OPTION PLAN.
At the Effective Time, the Company shall have terminated the Company
Stock Option Plan with no liability of the Company thereunder, including,
without limitation, to any of the holders of Company Options at any time (other
than obligations which will be satisfied pursuant to Section 3.5).
ARTICLE VII.
CONDITIONS TO THE MERGER
7.1. CONDITIONS TO THE MERGER RELATING TO PURCHASER AND MERGER SUB.
The obligation of Purchaser and Merger Sub to effect the Merger shall be
subject, unless waived in writing by them, to the fulfillment at or prior to the
Effective Time of the following conditions:
30
<PAGE>
(a) this Agreement and the Merger hereby shall have been
approved and adopted by the requisite vote of the stockholders of the
Company;
(b) no preliminary or permanent injunction or other order
decree or ruling issued by any court of competent jurisdiction nor any
statute, rule, regulation or order entered, promulgated or enacted by
any governmental, regulatory or administrative agency or authority shall
be in effect that would restrain the effective operation of the business
of the Company and the Subsidiaries from and after the Effective Time,
and no proceeding challenging this Agreement or the transactions
contemplated hereby or seeking to prohibit, alter, prevent or materially
delay the Merger shall be pending before any court, arbitrator or
governmental agency, body or official;
(c) all of the representations and warranties of the
Company set forth in this Agreement shall have been true and correct on
the date of this Agreement, and (i) with respect to all such
representations and warranties that are not subject to materiality (or
similar) qualifiers, shall be true and correct in all material respects
on the Closing Date (subject to any transactions and other actions
permitted or required to be taken pursuant to this Agreement), with the
same force and effect as if made on such date, and (ii) with respect to
all such representations and warranties that are subject to materiality
(or similar) qualifiers shall be true and correct on the Closing Date in
accordance with their terms, with the same force and effect as if made
on such date;
(d) the Company shall have performed, in all material
respects, all of its covenants and obligations under this Agreement;
(e) the Chief Executive Officer of the Company shall have
executed and delivered to Purchaser a certificate, in form reasonably
acceptable to Republic, certifying as to the matters set forth in
clauses (c) and (d) above;
(f) Between the date hereof and the Closing Date, there
shall not have occurred any fact, circumstance, development or event
which has or could reasonably be expected to have a Material Adverse
Effect on the Company, and the Company shall have delivered to Purchaser
a certificate, dated as of the Closing Date, to that effect.
(g) Purchaser shall have received an opinion of counsel to
the Company reasonably acceptable to the Purchaser, dated as of the
Closing Date, in form and substance reasonably acceptable to Purchaser;
(h) (i) Purchaser shall have received all consents required
under the Franchise Agreements between the Company and the Factories
or shall have entered into new arrangements and franchise agreements
of the type generally in use at that time to operate a dealership of
each of the Factories at the current locations of the Dealerships,
subject only to such additional terms and conditions as are acceptable
to Purchaser, and the Closing hereunder shall be in compliance with
any agreements then in effect between the Purchaser and any Factories;
(ii) the expiration or early termination of any waiting period under
the HSR Act shall have occurred; (iii) the Company and Purchaser shall
have
31
<PAGE>
received such other consents to the Merger and other transactions
contemplated hereby and waivers of rights to terminate or modify any
rights or obligations of the Company or the Subsidiaries, from any
person or entity from whom such consent or waiver is required, under
any Material Contract listed or required to be listed in Schedule 4.23
(other than the Franchise Agreements) or any law or regulation (other
than the HSR Act), or who as a result of the transactions contemplated
hereby, would have such rights to terminate or modify such Material
Contracts, either by the terms thereof or as a matter of law, except
for any failures to obtain any such consent which, individually or in
the aggregate, do not have and could not reasonably be expected to
have a Material Adverse Effect on Purchaser or the Company; and (iv)
Purchaser shall have obtained any applicable dealer license or other
approvals required under state laws or the applicable state motor
vehicle authorities and all other governmental authorities with
respect to the transactions contemplated hereby, except for any
failures to obtain any such licenses or approvals which, individually
or in the aggregate, do not have and could not reasonably be expected
to have a Material Adverse Effect on Purchaser or the Company;
(i) The Surviving Corporation and each of Bill A. Gilliland,
Robert W. Hall and John Gaines shall have entered into Employment
Agreements (the "Employment Agreements"), with respect to the
employment of such persons by the Surviving Corporation from and after
the Closing Date, in the forms attached hereto as Exhibits 7.1(i)(A)
and 7.1(i)(B), respectively; and
(j) The Voting Agreement shall have been observed and
shall continue to be in full force and effect in accordance with their
respective terms.
7.2. CONDITIONS TO THE MERGER RELATING TO THE COMPANY.
The obligation of the Company to effect the Merger shall be subject, at
its option or waiver in writing, to the fulfillment at or prior to the Effective
Time of the following conditions:
(a) this Agreement and the Merger shall have been approved
and adopted by the requisite vote of the stockholders of the Company;
(b) the expiration or earlier termination of any waiting
period under the HSR Act shall have occurred;
(c) all of the representations and warranties of the
Purchaser and Merger Sub set forth in this Agreement shall have been
true and correct on the date of this Agreement, and (i) with respect to
all such representations and warranties that are not subject to
materiality (or similar) qualifiers, shall be true and correct in all
material respects on the Closing Date (subject to any transactions and
other actions permitted or required to be taken pursuant to this
Agreement), with the same force and effect as if made on such date, and
(ii) with respect to all such representations and warranties that are
subject to materiality (or similar) qualifiers shall be true and correct
on the Closing Date in accordance with their terms, with the same force
and effect as if made on such date; and
32
<PAGE>
(d) Purchaser and Merger Sub shall have performed, in all
material respects, all of their covenants and obligations under this
Agreement;
(e) no preliminary or permanent injunction or other order
decree or ruling issued by any court of competent jurisdiction nor any
statute, rule, regulation or order entered, promulgated or enacted by
any governmental, regulatory or administrative agency or authority
shall be in effect that would prevent the consummation of the Merger as
contemplated hereby;
(f) The Purchaser shall have entered into the Employment
Agreements, the Noncompetition Agreements.
ARTICLE VIII.
TERMINATION AND ABANDONMENT
8.1. TERMINATION AND ABANDONMENT.
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time, whether before or after approval by the
stockholders of the Company:
(a) by mutual action of the Boards of Directors of Purchaser
and the Company;
(b) by either Purchaser or the Company, if the Merger shall
not have been effected on or prior to the close of business on the date that is
one year from the date hereof; unless, in any case, such event has been caused
by the breach of this Agreement by the party seeking such termination;
(c) by Purchaser, if the Board of Directors of the Company
shall have withdrawn, modified or amended in a manner adverse to Purchaser and
Merger Sub its approval or recommendation of the Merger (or failed to re-affirm
its approval or recommendation within ten days after Purchaser's request
following receipt by the Company's of an Acquisition Proposal) to the Company's
stockholders, or approved, recommended or endorsed any Superior Proposal; or
(d) by Purchaser or the Company, upon the occurrence of any
material breach by the other party of any of its representations, warranties,
covenants or agreements, which breach is not cured within fifteen days after
written notice of such breach is delivered by the non-breaching party.
Any party desiring to terminate this Agreement pursuant to this Section
8.1 shall give written notice to the other party in accordance with Section 9.5.
8.2. EFFECT OF TERMINATION.
33
<PAGE>
Except as provided in Sections 6.7 and 9.2 hereof, in the event of the
termination of this Agreement and the abandonment of the Merger pursuant to
Section 8.1, this Agreement shall thereafter become void and have no effect, and
no party hereto shall have any liability to any other party hereto or its
stockholders or directors or officers in respect thereof, except that nothing
herein shall relieve any party from liability for any material breach of any
representation, warranty, covenant or agreement contained herein accrued prior
to the date of termination.
ARTICLE IX.
MISCELLANEOUS
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
Except as provided in Section 4.3(iv) and as provided in the Voting
Agreement, the representations and warranties in this Agreement and in any
instrument delivered pursuant hereto shall not survive the Effective Time.
9.2. EXPENSES, ETC.
(a) Subject to Section 9.2(b), in the event that the transactions
contemplated by this Agreement are not consummated, then neither the Company, on
the one hand, nor Purchaser and Merger Sub, on the other hand, shall have any
obligation to pay any of the fees and expenses of the other incident to the
negotiation, preparation and execution of this Agreement, including the fees and
expenses of counsel, accountants, investment bankers and other experts.
(b) In the event the transactions contemplated by this Agreement are
terminated by Purchaser pursuant to Section 8.1(c), the Company shall within ten
(10) days after written demand from Purchaser, pay to Purchaser all reasonable
out-of-pocket costs and expenses of Purchaser and Merger Sub, including, without
limitation, fees and expenses of counsel, accountants and other advisors.
9.3. PUBLICITY.
The Company and Purchaser agree that they will not issue any press
release or make any other public announcement concerning this Agreement or the
transactions contemplated hereby without first consulting with the other party
and using good faith efforts to agree on the content of such release or
announcement, except that the Company or Purchaser may make such public
disclosure that it believes in good faith to be required by law, regulation or
the New York Stock Exchange (in which event such party shall consult with the
other prior to making such disclosure).
9.4. EXECUTION IN COUNTERPARTS.
34
<PAGE>
For the convenience of the parties, this Agreement may be executed in
one or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.5. NOTICES.
All notices that are required or may be given pursuant to the terms of
this Agreement shall be in writing and shall be sufficient in all respects if
given in writing and delivered by hand or national overnight courier service,
transmitted by telecopy with confirmation of receipt or mailed by registered or
certified mail (return receipt requested), postage prepaid (effective when
delivered by hand or telecopy, one business day after dispatch by overnight
courier, and on the day received after dispatch by mail), as follows:
If to Purchaser or Merger Sub, to:
Republic Industries, Inc.
Republic Tower
110 S.E. 6th Street, 20th Floor
Fort Lauderdale, Florida 33301
Attention: Jonathan P. Ferrando, Vice President.
with a copy to:
Morrison & Foerster LLP
755 Page Mill Road
Palo Alto, CA 94304
Attention: Joseph Barbeau, Esq.
If to the Company, to:
Cross Continent Auto Retailers, Inc.
1201 S. Taylor Street
P.O. Box 750
Amarillo, Texas 79105-0750
Attention: Bill A. Gilliland
with a copy to:
Winstead Sechrest & Minick P.C
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270-21999
Attention: Thomas W. Hughes, Esq.
35
<PAGE>
or such other address or addresses as any party hereto shall have designated by
notice in writing to the other parties hereto.
9.6. WAIVERS.
The Company, on the one hand, and Purchaser and Merger Sub, on the other
hand, may, in its sole discretion, by written notice to the other, (i) extend
the time for the performance of any of the obligations or other actions of the
other under this Agreement; (ii) waive any inaccuracies in the representations
or warranties of the other contained in this Agreement or in any document
delivered pursuant to this Agreement; (iii) waive compliance with any of the
conditions of the other contained in this Agreement; or (iv) waive performance
of any of the obligations of the other under this Agreement. Except as provided
in the preceding sentence, no action taken pursuant to this Agreement,
including, without limitation, any investigation by or on behalf of any party,
shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants or agreements
contained in this Agreement. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach.
9.7. ENTIRE AGREEMENT.
This Agreement, its Schedules, the Voting Agreement and the documents
executed at the Effective Time in connection herewith constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral and written, among the
parties hereto with respect to the subject matter hereof. No representation,
warranty, promise, inducement or statement of intention has been made by any
party that is not embodied in this Agreement or such other documents, and none
of the parties shall be bound by, or be liable for, any alleged representation,
warranty, promise, inducement or statement of intention not embodied herein or
therein.
9.8. APPLICABLE LAW; VENUE.
(a) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware, without regard to principles of conflict
of laws.
(b) The parties to this Agreement agree that any suit, action or
proceeding arising out of, or with respect to, this Agreement shall be brought
exclusively in the Delaware Chancery Court (if jurisdiction is applicable) or in
the other state courts of Delaware or in the U.S. District Court for the
District of Delaware (as the commencing party may elect), and the parties hereby
accept the exclusive jurisdiction of such courts for the purpose of any such
suit, action or proceeding. In addition, each party hereby irrevocably waives,
to the fullest extent permitted by law, any objection which it may now or
hereafter have to the laying of venue of any such suit, action or proceeding in
any such court and hereby further irrevocably waives any claim that any such
suit, action or proceedings brought in any such court has been brought in an
inconvenient forum.
9.9. BINDING EFFECT; BENEFITS.
36
<PAGE>
This Agreement shall inure to the benefit of and be binding upon the
parties hereto and their respective permitted successors and assigns.
Notwithstanding anything contained in this Agreement to the contrary, nothing in
this Agreement, expressed or implied, is intended to confer on any person other
than the parties hereto or their respective permitted successors and assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement; PROVIDED, HOWEVER, that the provisions of Section 6.9 hereof shall
accrue to the benefit of, and shall be enforceable by, each of the Indemnified
Parties.
9.10. ASSIGNABILITY.
Neither this Agreement nor any of the parties' rights hereunder shall be
assignable by any party hereto without the prior written consent of the other
parties hereto.
9.11. AMENDMENTS.
This Agreement may be varied, amended or supplemented at any time before
or after the approval and adoption of this Agreement by the stockholders of the
Company by action of the respective Boards of Directors of the Company,
Purchaser and Merger Sub, without action by the stockholders thereof; PROVIDED
that, after approval and adoption of this Agreement by the Company's
stockholders, no such variance, amendment or supplement shall, without consent
of such stockholders, reduce the amount or alter the form of the consideration
that the holders of the capital stock of the Company shall be entitled to
receive upon the Effective Time pursuant to the terms hereof. Without limiting
the generality of the foregoing, this Agreement may only be amended, varied or
supplemented by an instrument in writing, signed by the parties hereto.
37
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement and Plan of Merger as of the day and year first above written.
Republic Industries, Inc..
By
-------------------------------------------
Thomas S. Butler, Vice President
RI/BG Merger Corp.
By
-------------------------------------------
Thomas S. Butler, Authorized Signatory
Cross Continent Auto Retailers, Inc.
By
-------------------------------------------
Bill A. Gilliland, Chief Executive Officer
38
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