<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration File No.: 333-35907
PROSPECTUS
OFFER FOR ALL OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR UP TO $150,000,000 PRINCIPAL AMOUNT OF
11% SENIOR SUBORDINATED NOTES DUE 2007
OF
UNITED AUTO GROUP, INC.
THE NOTES ARE EFFECTIVELY SUBORDINATE TO SUBSTANTIALLY ALL OF THE OUTSTANDING
INDEBTEDNESS OF THE COMPANY AND THE GUARANTORS. THE COMPANY HAS NOT ISSUED,
AND DOES NOT HAVE ANY CURRENT FIRM ARRANGEMENTS TO ISSUE, ANY SIGNIFICANT
ADDITIONAL INDEBTEDNESS TO WHICH THE NOTES WOULD BE SENIOR.
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON DECEMBER 22, 1997
UNLESS EXTENDED
United Auto Group, Inc., a Delaware corporation ("UAG" or the "Company"),
hereby offers upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange $1,000 principal amount of its
11% Senior Subordinated Notes due 2007 (the "New Notes") for each $1,000
principal amount of its issued and outstanding 11% Senior Subordinated Notes
due 2007 (the "Old Notes" and, together with the New Notes, the "Notes") from
the holders thereof. The terms of the New Notes are identical in all material
respects to the terms of the Old Notes, except that the New Notes have been
registered under the Securities Act of 1933, as amended (the "Securities
Act"), and therefore will not bear legends restricting their transfer and
will not contain terms providing for an increase in the interest rate thereon
under certain circumstances described in the Registration Rights Agreement
(as defined). The New Notes evidence the same debt as the Old Notes and will
be issued pursuant to, and entitled to the same benefits under, the Indenture
(as defined) governing the Old Notes.
The Notes will mature on July 15, 2007. Interest on the Notes accrues at
the rate of 11% per annum and is payable semiannually in arrears on January
15 and July 15 of each year, commencing on January 15, 1998. The Notes are
redeemable at the option of the Company, in whole or in part, at any time on
or after July 15, 2002 at the redemption prices set forth herein, plus
accrued and unpaid interest thereon to the redemption date. In addition, at
any time prior to July 15, 2000, the Company may redeem the Notes at a
redemption price equal to 111% of the principal amount thereof, plus accrued
and unpaid interest thereon to the redemption date, with the net cash
proceeds of one or more Public Equity Offerings (as defined); provided,
however, that at least $100.0 million in aggregate principal amount of Notes
shall remain outstanding after each such redemption. Upon the occurrence of a
Change of Control (as defined), each holder of Notes will have the right to
require the Company to repurchase all or any portion of such holder's Notes
at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest thereon to the purchase date. There can be no assurance that
upon a Change of Control the Company will have sufficient funds to purchase
any of the Notes.
(Cover continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 15 FOR A DISCUSSION OF CERTAIN
FACTORS THAT HOLDERS TO THE OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE
EXCHANGE OFFER AND THAT PROSPECTIVE INVESTORS IN THE NEW NOTES SHOULD
CONSIDER IN CONNECTION WITH SUCH INVESTMENT.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is November 21, 1997
<PAGE>
(Cover continued from previous page)
The Notes are unsecured obligations of the Company, subordinated in right
of payment to all Senior Debt (as defined) of the Company, including all
obligations under the Company's Senior Credit Facility (as defined). The
Company may incur, under the Senior Credit Facility or otherwise, significant
additional indebtedness to which the Notes would be subordinate, to the
extent permitted under the Indenture, primarily to finance dealership
acquisitions and the purchase of inventory. The Notes are fully and
unconditionally guaranteed (subject to fraudulent conveyance laws) on a joint
and several basis (the "Guarantees") by substantially all of the subsidiaries
of the Company (the "Guarantors"). The Guarantees are unsecured obligations
of the Guarantors, subordinated in right of payment to all Senior Debt of the
Guarantors, including all of the Guarantors' obligations under their
guarantees of the Senior Credit Facility and all floor plan notes payable (of
which $243.0 million was outstanding as of September 30, 1997). Other than
the Series B Notes (as defined), the Company has not issued, and does not
have any current firm arrangements to issue, any significant indebtedness
with which the Notes would rank pari passu in right of payment.
The New Notes will bear interest from and including the date of issuance
thereof. Holders (as defined) whose Old Notes are accepted for exchange will
receive accrued interest thereon to, but not including, the date of issuance
of the New Notes, such interest to be payable with the first interest payment
on the New Notes, but will not receive any payment in respect of interest on
the Old Notes accrued after the issuance of the New Notes.
The Old Notes were originally issued and sold on July 23, 1997 in a
transaction not registered under the Securities Act, in reliance upon the
exemption provided in Section 4(2) of the Securities Act and Rule 144A under
the Securities Act (the "Initial Offering"). The Company is making the
Exchange Offer in reliance on the position of the staff of the Securities and
Exchange Commission (the "Commission") as set forth in certain no-action
letters addressed to other parties in other transactions. However, the
Company has not sought its own no-action letter and there can be no assurance
that the staff of the Commission would make a similar determination with
respect to the Exchange Offer.
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as
defined in Rule 405 of the Securities Act) of the Company, (ii) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the New
Notes and (iii) it is acquiring the New Notes in the ordinary course of its
business (a Holder unable to make the foregoing representations is referred
to as a "Restricted Holder"). A Restricted Holder will not be able to
participate in the Exchange Offer and may only sell its Old Notes pursuant to
a registration statement containing the selling securityholder information
required by Item 507 of Regulation S-K under the Securities Act, or pursuant
to an exemption from the registration requirement of the Securities Act.
Each broker-dealer (other than a Restricted Holder) that receives New
Notes for its own account pursuant to the Exchange Offer (a "Participating
Broker-Dealer") is required to acknowledge in the Letter of Transmittal that
it acquired the Old Notes as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with
the resale of such New Notes. Based upon interpretations by the staff of the
Commission, the Company believes that New Notes issued pursuant to the
Exchange Offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer upon
compliance with the prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act. The Company has
agreed that for a period of 120 days following consummation of the Exchange
Offer it will make this Prospectus available, for use in connection with any
such resale, to any Participating Broker-Dealer that notifies the Company in
the Letter of Transmittal that it may be subject to such prospectus delivery
requirements. The Company believes that during such period of time, delivery
of this Prospectus, as it may be amended or supplemented, will satisfy the
prospectus delivery requirements of a Participating Broker-Dealer engaged in
market-making or other trading activities. See "Exchange Offer" and "Plan of
Distribution".
Based upon interpretations by the staff of the Commission, the Company
believes that New Notes issued pursuant to the Exchange Offer may be offered
for resale, resold, and otherwise transferred by a Holder thereof (other than
a Restricted Holder or a Participating Broker-Dealer) without compliance with
the registration and prospectus delivery requirements of the Securities Act.
(Cover continued on next page)
2
<PAGE>
(Cover continued from previous page)
The New Notes are new securities for which there is currently no market.
The Company presently does not intend to apply for listing or quotation of
the New Notes on any securities exchange or stock market. The Company has
been advised by J.P. Morgan Securities Inc., Salomon Brothers Inc, CIBC Wood
Gundy Securities Corp., Montgomery Securities and Scotia Capital Markets
(USA) Inc. (the "Initial Purchasers") that, following completion of the
Exchange Offer, they presently intend to make a market in the New Notes;
however, the Initial Purchasers are not obligated to do so and any
market-making activities with respect to the New Notes may be discontinued at
any time without notice. There can be no assurance that an active public
market for the New Notes will develop.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the rights and preferences and will
be subject to the limitations applicable thereto under the Indenture.
Following consummation of the Exchange Offer, the holders of Old Notes will
continue to be subject to the existing restrictions upon transfer thereof and
the Company will have no further obligation to such holders to provide for
the registration under the Securities Act of the Old Notes held by them. To
the extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered Old Notes could be adversely affected. It
is not expected that an active market for the Old Notes will develop while
they are subject to restrictions on transfer. See "Risk Factors --
Consequences of Failure to Exchange."
The Company will accept for exchange any and all Old Notes that are
validly tendered and not withdrawn on or prior to 5:00 p.m., New York City
time, on the date the Exchange Offer expires, which will be December 22, 1997
(the "Expiration Date"), unless the Exchange Offer is extended by the Company
in its sole discretion, in which case the term "Expiration Date" shall mean
the latest date and time to which the Exchange Offer is extended. Tenders of
Old Notes may be withdrawn at any time prior to 5:00 p.m., New York City
time, on the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered for exchange. However,
the Exchange Offer is subject to certain conditions which may be waived by
the Company and to the terms and provisions of the Registration Rights
Agreement. Old Notes may be tendered only in denominations of $1,000 and
integral multiples thereof. The Company has agreed to pay all of the expenses
incurred by it in connection with the Exchange Offer. See "The Exchange
Offer--Fees and Expenses."
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of November 19, 1997.
The Company will not receive any proceeds from this Exchange Offer. No
dealer-manager has been retained in connection with this Exchange Offer. See
"Use of Proceeds" and "Plan of Distribution."
3
<PAGE>
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE EXCHANGE OFFER COVERED BY THIS PROSPECTUS. IF GIVEN OR
MADE SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE GUARANTORS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NEW
NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATIONS THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN
THIS PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY OR THE GUARANTORS SINCE THE
DATE HEREOF.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Incorporation of Certain Documents by
Reference ........................... 5
Prospectus Summary.................... 6
Risk Factors.......................... 15
Use of Proceeds....................... 22
Capitalization........................ 23
Selected Consolidated Financial Data . 24
The Exchange Offer.................... 26
Certain Relationships and Related
Transactions......................... 35
Description of Senior Credit
Facility............................. 36
Description of Notes.................. 37
Certain U.S. Federal Income Tax
Considerations....................... 62
Plan of Distribution.................. 64
Legal Matters......................... 65
Experts............................... 65
Available Information................. 65
</TABLE>
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS OTHER
THAN STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS OR
INCORPORATED HEREIN BY REFERENCE, INCLUDING WITHOUT LIMITATION, CERTAIN
STATEMENTS UNDER "PROSPECTUS SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," REGARDING
THE COMPANY'S FINANCIAL POSITION AND BUSINESS STRATEGY MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE
EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT
CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT.
IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS AND UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN
AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS
ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS.
4
<PAGE>
This Prospectus includes statistical data regarding the automotive
retailing industry. Unless otherwise indicated, such data is taken or derived
from information published by the Industry Analysis Division of the National
Automobile Dealers Association in its NADA Data 1996, Crain Communications
Inc. in its Automotive News 100-Year Almanac and 1997 Market Data Book and
ADT Automotive, Inc. in its 1997 Used Car Market Report or provided to the
Company by CNW Marketing Research.
NO AUTOMOBILE MANUFACTURER HAS BEEN INVOLVED, DIRECTLY, OR INDIRECTLY, IN
THE PREPARATION OF THIS PROSPECTUS OR IN THE EXCHANGE OFFER BEING MADE
HEREBY. NO MANUFACTURER HAS MADE ANY STATEMENTS OR REPRESENTATIONS IN
CONNECTION WITH THE EXCHANGE OFFER OR HAS PROVIDED ANY INFORMATION OR
MATERIALS THAT ARE USED IN CONNECTION WITH THE EXCHANGE OFFER, AND NO
MANUFACTURER HAS ANY RESPONSIBILITY FOR THE ACCURACY OR COMPLETENESS OF THIS
PROSPECTUS.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
1. The Company's Annual Report on Form 10-K (File No. 1-12297) for the
fiscal year ended December 31, 1996, filed pursuant to Section 13(a) of the
Exchange Act.
2. The Company's Quarterly Reports on Form 10-Q (File No. 1-12297) for the
fiscal periods ended March 31, 1997, June 30, 1997 and September 30, 1997.
3. The Company's Current Reports on Form 8-K (File No. 1-12297) filed by
the Company on January 23, 1997, March 3, 1997, March 10, 1997, March 21,
1997 (as amended by Form 8-K/A filed on April 30, 1997), April 21, 1997, May
9, 1997, May 15, 1997 (as amended by Form 8-K/A filed on July 14, 1997), July
8, 1997, July 15, 1997, August 7, 1997, September 24, 1997, October 31, 1997,
November 6, 1997 and November 20, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Prospectus and prior to
the termination or consummation of the Exchange Offer shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from
the dates of filing of such documents.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.
5
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and historical and pro
forma financial statements included elsewhere in this Prospectus. Unless the
context otherwise requires, references herein to the "Company" or "UAG"
include United Auto Group, Inc. and its subsidiaries.
THE COMPANY
UAG is a leading acquirer, consolidator and operator of franchised
automobile and light truck dealerships and related businesses. The Company is
the second largest publicly-traded retailer of new motor vehicles in the
United States. As of October 31, 1997, UAG operated 58 franchises located in
Arizona, Arkansas, Connecticut, Florida, Georgia, Louisiana, Nevada, New
Jersey, New York, North Carolina, South Carolina, Tennessee and Texas and
representing 27 American, Asian and European brands. As an integral part of
its dealership operations, UAG also sells used vehicles. All of UAG's
franchised dealerships include integrated service and parts operations, which
are an important source of recurring revenues. The Company also owns Atlantic
Auto Finance Corporation ("Atlantic Finance"), an automobile finance company
engaged in the purchase, sale and servicing of primarily prime credit quality
automobile loans originated by both UAG and third-party dealerships.
The Company was incorporated in the State of Delaware in December 1990 and
commenced dealership operations in October 1992. The Company's executive
offices are located at 375 Park Avenue, New York, New York 10152, and its
telephone number is (212) 223-3300.
COMPETITIVE STRENGTHS
The Company has attained a leading position in its industry through a
series of acquisitions. The Company attributes its success and its continued
opportunities for growth and profitability to the following competitive
strengths:
DIVERSE PRODUCT AND GEOGRAPHIC PORTFOLIO. Since its initial acquisition in
October 1992, the Company has completed 19 dealership acquisitions
organized into eight geographic hubs including the New York, Atlanta and
Phoenix metropolitan areas. Brand portfolio is carefully managed to reduce
the risks associated with both changes in consumer preferences and
dependence on any single manufacturer or market segment. Also, geographic
diversity mitigates the Company's exposure to regional economic and weather
conditions. The Company will continue to target dealerships in the South,
Southeast and Southwest regions of the United States, which benefit from
lower operating costs than those of other regions and favorable climatic
conditions throughout the year.
SCALE OF OPERATIONS. The Company's scale of operations allows it to enhance
revenues and reduce costs relative to smaller dealership groups and
stand-alone dealerships. For example, through its United AutoCare
subsidiary, UAG dealerships market a variety of aftermarket products and
services that generate additional revenues previously captured by
third-party vendors. The Company believes that United AutoCare's size and
large customer pool allow it to provide credit insurance at more favorable
rates than its smaller competitors. The Company's bulk purchasing of
appearance packages and other aftermarket products provides opportunities
for improved margins relative to smaller dealership groups. UAG also
benefits from its large number of dealerships and high sales volumes when
negotiating floor plan financing rates. Also, the Company believes that its
hub strategy provides opportunities to lower used vehicle acquisition costs
at the regional level.
ACCESS TO CAPITAL MARKETS. The Company believes that its proven ability to
access the capital markets is a competitive advantage. The capital raised
allows the Company to implement its acquisition program in order to
continue to participate in the consolidation of the automotive retailing
industry. The Company is often sought out by potential sellers who are
attracted by UAG's ability to acquire their dealerships for a combination
of cash and stock.
CUSTOMER FOCUS. Central to UAG's overall philosophy is customer-oriented
service designed to meet the needs of an increasingly sophisticated and
demanding automotive consumer. Each of the Company's dealerships is a
full-service operation, providing sales, service and parts departments. The
Company seeks to provide its customers with a satisfying, pleasant and
informative retailing experience, which entails "one-stop" shopping
convenience, competitive pricing and a sales staff that is knowledgeable
about product offerings and responsive to a customer's particular needs.
Continuous
6
<PAGE>
training of the sales force focuses on providing skills that improve its
interactions with customers. A key management tool at UAG is customer
service index ("CSI") scores, which are derived from data accumulated by
manufacturers through customer surveys. These scores are monitored
carefully by management to improve dealership operations and are used as a
factor in determining compensation of general managers.
BUSINESS STRATEGY
UAG seeks to be a leader in the consolidation of the automotive retailing
industry and to increase shareholder value through a strategy that includes
the following principal elements:
ACQUIRE AND INTEGRATE PROFITABLE DEALERSHIP OPERATIONS. UAG seeks to
capitalize on continuing consolidation in the $675 billion U.S. automotive
retailing industry by selectively acquiring profitable dealerships. The
Company targets dealerships or dealership groups with established records
of profitability as well as with experienced management willing to remain
in place. The Company focuses on opportunities in geographic markets with
above-average projected population and job growth. Of the approximately
22,000 dealerships in the United States, the Company believes that at least
2,000 dealerships, some of which are members of dealership groups, meet its
acquisition criteria. The Company may also target dealerships in North
American markets outside the United States. The Company is also creating
regional hubs of dealerships that will be able to share administrative and
other operations to reduce costs.
GROW HIGHER-MARGIN OPERATING BUSINESSES. UAG is focusing on growing its
higher-margin businesses such as the retail sale of used vehicles,
aftermarket products and service and parts. UAG receives a steady supply of
used vehicles through trade-ins, vehicles coming off lease ("off-lease
vehicles") and used car auctions open only to new car dealers. In addition,
only new car dealers are able to sell used cars certified by manufacturers.
Through these programs, UAG is able to provide customers with
manufacturer-backed extended warranties and attractive financing on their
used car purchases. UAG also has the opportunity on each new or used
vehicle sold to generate incremental revenue from the sales of aftermarket
products, including accessories such as radios, cellular phones and alarms,
as well as agency services such as extended service contracts, credit
insurance policies and financing and lease contracts. Finally, each UAG new
car dealership offers an integrated service and parts department, which
provides an important recurring revenue stream to the Company's
dealerships.
IMPLEMENT "BEST PRACTICES." The Chairman's Committee, comprised of senior
executive officers and key managers, meets regularly to review the
operating performance of individual dealerships as well as to examine
important industry trends and, where appropriate, recommend specific
operating improvements. This facilitates implementation of successful
strategies throughout the organization so that each dealership can benefit
from the successes of the others as well as from the knowledge and
experience of UAG's senior management. Management also attends various
industry-sponsored leadership and management seminars and receives
continuing education in products, marketing strategies and management
information systems. The Company shares training techniques across its
dealership base and has made improving service absorption and aftermarket
revenues a Company-wide focus.
GENERATE INCREMENTAL REVENUE FROM AUTOMOBILE FINANCE BUSINESS. In 1996,
industry wide, greater than 70% of new and used automobiles purchased from
franchised dealerships and independent businesses were financed. To further
increase the incremental profit achievable through its vehicle sales by
capturing some of this financing business, the Company established Atlantic
Finance, an automobile finance company engaged in the purchase, sale and
servicing of primarily prime credit quality automobile loans originated by
both UAG and third-party dealerships. Led by an experienced management
team, Atlantic Finance seeks to grow by (i) increasing its business with
existing UAG dealerships, including those with which it has yet to commence
financing activities, (ii) commencing financing activities with dealerships
acquired by UAG in the future and (iii) using its presence in its local
operating markets to cultivate relationships with additional unaffiliated
dealerships.
7
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PENDING ACQUISITIONS
Set forth below are all the material acquisitions with respect to which
the Company has recently reached definitive agreements (the "Pending
Acquisitions"). The automobile franchises to be acquired in the Pending
Acquisitions are set forth in the chart below. The Exchange Offer is not
conditioned upon the consummation of any of the Pending Acquisitions, and no
assurance can be made that one or more of the Pending Acquisitions, each of
which is subject to customary conditions (including manufacturer approvals),
will not terminate prior to consummation.
On July 25, 1997, the Company reached a definitive agreement to acquire
the Lynn Alexander Group, located in San Angelo, Texas, for a purchase price
of $10.6 million in cash and a $1.3 million note. The Lynn Alexander Group
had approximately $90.0 million in revenues in 1996.
On July 25, 1997, the Company reached a definitive agreement to acquire
Classic Auto Group, located in the Philadelphia, Pennsylvania, metropolitan
area, for a purchase price of $28.0 million in cash and a $2.0 million note.
The Classic Auto Group had approximately $233.0 million in revenues in 1996.
On September 25, 1997, the Company reached a definitive agreement to
acquire the Young Automotive Group, located in the Carolinas, Florida,
Illinois and Indiana, for a purchase price of $50.0 million in cash and $25.0
million in Common Stock. The Young Automotive Group had approximately $379.2
million in revenues in 1996.
ACQUISITION HISTORY
The following table sets forth information with respect to the dealerships
that are owned as of October 31, 1997 by the Company and those that are
proposed to be acquired in the Pending Acquisitions:
<TABLE>
<CAPTION>
DATE
DEALERSHIP ACQUIRED LOCATIONS FRANCHISES HELD
- ------------------------ ---------- -------------------- --------------------------------
<S> <C> <C> <C>
DiFeo Group
DiFeo Automotive Group 10/92 Danbury, CT Chevrolet-Geo, Hyundai, Isuzu,
Suzuki
Bound Brook, NJ Lexus
Jersey City, NJ Hyundai, Jeep-Eagle, Toyota
Tenafly, NJ BMW
Nyack, NY Mitsubishi, Toyota
DiFeo Nissan 11/92 Jersey City, NJ Nissan
DiFeo Chrysler-Plymouth 12/92 Jersey City, NJ Chrysler-Plymouth
Fair Honda 1/93 Danbury, CT Honda
Fair Dodge 2/93 Danbury, CT Dodge
Gateway 8/93 Toms River, NJ Mitsubishi, Toyota
Landers Auto 8/95 Benton, AR Chrysler-Plymouth, Dodge, GMC
Truck, Jeep-Eagle
Atlanta Toyota 1/96 Duluth, GA Toyota
United Nissan (GA) 5/96 Morrow, GA Nissan
Peachtree Nissan 7/96 Chamblee, GA Nissan
Sun Automotive Group 10/96 Phoenix, AZ BMW, Land Rover
Scottsdale, AZ Acura, Audi, Land Rover, Lexus,
Porsche, Rolls-Royce/Bentley (a)
Evans Group 10/96 Duluth, GA BMW
Conyers, GA Nissan
United Nissan (TN) 10/96 Chattanooga, TN Nissan
Crown Automotive 3/97 Houston, TX Chrysler-Plymouth, Dodge,
Jeep-Eagle
Hanna Nissan 4/97 Las Vegas, NV Nissan
Staluppi Group 4/97 Long Island, NY Nissan(2), Toyota (2)
W. Palm Beach, FL Chrysler-Plymouth, Infiniti,
Jeep-Eagle, Nissan, Toyota
8
<PAGE>
DATE
DEALERSHIP ACQUIRED LOCATIONS FRANCHISES HELD
- ------------------------ ---------- -------------------- --------------------------------
Reed Group 5/97 Fayetteville, NC Chevrolet
North Charleston, SC Chevrolet
Summerville, SC Chevrolet-Geo, Oldsmobile
Lance Landers 6/97 Benton, AR Buick, Isuzu, Pontiac
Stone Mountain 8/97 Stone Mountain, GA Chrysler-Plymouth, Jeep-Eagle
Shreveport Dodge 10/97 Shreveport, LA Dodge
Lynn Alexander Group (b) San Angelo, TX Chevrolet, Chrysler-Plymouth,
Dodge, Jeep-Eagle, Nissan
Classic Auto Group (b) Cherry Hill, NJ Buick, Saab
Moorestown, NJ Chevrolet
Turnersville, NJ Acura, BMW, Buick, Chevrolet,
Honda, Nissan
Young Automotive Group (b) Kissimmee, FL Toyota
Bloomington, IL Chevrolet
Indianapolis, IN Chevrolet, Honda, Isuzu
Tipton, IN Buick, Chevrolet, GMC Truck,
Oldsmobile, Pontiac
Ashville, NC Chevrolet
Goldsboro, NC Cadillac, Chevrolet, Oldsmobile
Hilton Head, SC BMW, Buick, GMC Truck, Pontiac
</TABLE>
(a) Acquired February 1997.
(b) Acquisiton pending.
SERIES B NOTES OFFERING
On September 16, 1997, the Company issued $50,000,000 aggregate principal
amount of its 11% Senior Subordinated Notes due 2007, Series B (the "Series B
Notes") in an offering exempt from registration under the Securities Act
pursuant to Rule 144A thereunder. The Series B Notes are substantially
identical to, and rank pari passu in right of payment with, the Notes. The
Series B Notes were issued at 100.75% of their principal amount. The
approximately $48.7 million in net proceeds of such offering were deposited
with the Company's floor plan lenders and are available for working capital
and general corporate purposes, including acquisitions.
9
<PAGE>
THE EXCHANGE OFFER
REGISTRATION RIGHTS AGREEMENT . The Old Notes were sold by the Company on
July 23, 1997 to the Initial Purchasers, who
resold the Old Notes (i) to "qualified
institutional buyers" (as defined in Rule
144A under the Securities Act) in reliance
upon Rule 144A under the Securities Act and
(ii) outside the United States to persons
other than U.S. persons in reliance upon
Regulation S under the Securities Act. In
connection therewith, the Company, the
Guarantors named therein and the Initial
Purchasers entered into the Registration
Rights Agreement dated as of July 23, 1997
(the "Registration Rights Agreement"),
providing for, among other things, the
Exchange Offer.
THE EXCHANGE OFFER ............ The Company is offering to exchange up to
$150,000,000 aggregate principal amount of
New Notes for up to $150,000,000 aggregate
principal amount of Old Notes issued in the
Initial Offering in reliance upon an
exemption from registration under the
Securities Act. Upon consummation of the
Exchange Offer, the terms of the New Notes
(including principal amount, interest rate,
maturity and ranking) will be identical in
all material respects to the terms of the
Old Notes for which they may be exchanged
pursuant to the Exchange Offer, except that
the New Notes have been registered under the
Securities Act and therefore will not bear
legends restricting their transfer and will
not contain terms providing for an increase
in the interest rate thereon under certain
circumstances described in the Registration
Rights Agreement. See "The Exchange
Offer--Purpose and Effect of the Exchange
Offer."
MINIMUM CONDITION ............. The Exchange Offer is not conditioned upon
any minimum aggregate principal amount of
Old Notes being tendered for exchange.
EXPIRATION DATE ............... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on December 22, 1997,
unless extended (the "Expiration Date"). See
"The Exchange Offer--Expiration Date;
Extensions; Amendments."
EXCHANGE DATE ................. The date of acceptance for exchange of the
Old Notes will be the first business day
practicable following the Expiration Date.
CONDITIONS TO THE EXCHANGE
OFFER ......................... The obligation of the Company to consummate
the Exchange Offer is subject to certain
conditions, including the absence of (i)
certain types of litigation or laws, (ii)
certain adverse changes relating to the
Company, (iii) certain financial or
political crises and (iv) unobtained
governmental approvals. See "The
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Exchange Offer--Conditions." The Company
reserves the right to terminate or amend the
Exchange Offer at any time prior to the
Expiration Date upon the occurrence of any
such condition.
WITHDRAWAL RIGHTS ............. Tenders may be withdrawn at any time prior
to the Expiration Date. Any Old Notes not
accepted for any reason will be returned
without expense to the tendering holders
thereof as promptly as practicable after the
expiration or termination of the Exchange
Offer. See "The Exchange Offer--Withdrawal
of Tenders."
PROCEDURES FOR TENDERING OLD
NOTES ......................... See "The Exchange Offer--Procedures for
Tendering."
FEDERAL INCOME TAX
CONSEQUENCES .................. The exchange of Old Notes for New Notes by
Holders will not be a taxable exchange for
federal income tax purposes, and Holders
should not recognize any taxable gain or
loss or any interest income as a result of
such exchange. See "Certain U.S. Federal
Income Tax Considerations."
CERTAIN REPRESENTATIONS ....... Each Holder desiring to participate in the
Exchange Offer will be required to
represent, among other things, that (i) it
is not an "affiliate" (as defined in Rule
405 of the Securities Act) of the Company,
(ii) it is not engaged in, and does not
intend to engage in, and has no arrangement
or understanding with any person to
participate in, a distribution of the New
Notes and (iii) it is acquiring the New
Notes in the ordinary course of its business
(a Holder unable to make the foregoing
representations is referred to as a
"Restricted Holder").
TRANSFER RESTRICTIONS ON NEW
NOTES ......................... Based upon interpretations by the staff of
the Commission, the Company believes that
New Notes issued pursuant to the Exchange
Offer to Participating Broker-Dealers may be
offered for resale, resold, and otherwise
transferred by a Participating Broker-Dealer
upon compliance with the prospectus delivery
requirements, but without compliance with
the registration requirements, of the
Securities Act. The Company has agreed that
for a period of 120 days following
consummation of the Exchange Offer it will
make this Prospectus available, for use in
connection with any such resale, to any
Participating Broker-Dealer that notifies
the Company in the Letter of Transmittal
that it may be subject to such prospectus
delivery requirements. The Company believes
that during such period of time, delivery of
this Prospectus, as it may be amended or
supplemented, will satisfy the prospectus
delivery requirements of a Participating
Broker-Dealer engaged in market-making or
other trading activities. See "Exchange
Offer" and "Plan of Distribution." Based
upon interpretations by
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the staff of the Commission, the Company
believes that New Notes issued pursuant to
the Exchange Offer may be offered for
resale, resold, and otherwise transferred by
a Holder thereof (other than a Restricted
Holder or a Participating Broker-Dealer)
without compliance with the registration and
prospectus delivery requirements of the
Securities Act.
EFFECT ON HOLDERS OF OLD
NOTES ......................... As a result of the making of this Exchange
Offer, and upon acceptance for exchange of
all validly tendered Old Notes pursuant to
the terms of this Exchange Offer, the
holders of the Old Notes will have no
further registration or other rights under
the Registration Rights Agreement, except
under certain limited circumstances. Holders
of the Old Notes who do not tender their Old
Notes in the Exchange Offer will continue to
hold such Old Notes and will be entitled to
all the rights and limitations applicable
thereto under the Indenture dated as of July
23, 1997 among the Company, the Guarantors
and The Bank of New York, as trustee (the
"Trustee"), relating to the Old Notes and
the New Notes (as amended, the "Indenture").
All untendered, and tendered but unaccepted,
Old Notes will continue to be subject to the
restrictions on transfer provided for in the
Old Notes and the Indenture. To the extent
that Old Notes are tendered and accepted in
the Exchange Offer, the trading market, if
any, for the Old Notes could be adversely
affected. See "Risk Factors--Consequences of
Failure to Exchange."
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THE NEW NOTES
ISSUER ........................ United Auto Group, Inc.
SECURITIES OFFERED ............ $150,000,000 aggregate principal amount of
11% Senior Subordinated Notes due 2007.
MATURITY DATE ................. July 15, 2007.
INTEREST PAYMENT DATES ........ January 15 and July 15, commencing January
15, 1998.
OPTIONAL REDEMPTION ........... The New Notes will be redeemable at the
option of the Company, in whole or in part,
at any time on or after July 15, 2002 at the
redemption prices set forth herein, plus
accrued and unpaid interest thereon to the
redemption date. In addition, on or prior to
July 15, 2000, the Company may redeem the
Notes at a redemption price equal to 111% of
the principal amount thereof, plus accrued
and unpaid interest thereon to the
redemption date, with the net cash proceeds
of one or more Public Equity Offerings;
provided, however, that at least $100.0
million in aggregate principal amount of
Notes shall remain outstanding after each
such redemption. See "Description of
Notes--Optional Redemption."
GUARANTEES .................... The New Notes will be fully and
unconditionally guaranteed (subject to
fraudulent conveyance laws) on a joint and
several basis by substantially all of the
subsidiaries of the Company, so long as such
subsidiaries are guarantors under the Senior
Credit Facility. See "Description of
Notes--The Guarantees."
SUBORDINATION ................. The New Notes are unsecured obligations of
the Company, subordinated in right of
payment to all Senior Debt of the Company,
including all obligations under the
Company's Senior Credit Facility. The
Guarantees will be unsecured obligations of
the Guarantors, subordinated in right of
payment to all Senior Debt of the
Guarantors, including all of the Guarantors'
obligations under their guarantees of the
Senior Credit Facility and all floor plan
notes payable (of which $243.0 million was
outstanding as of September 30, 1997). The
Notes are effectively subordinate to
substantially all of the outstanding
Indebtedness of the Company and the
Guarantors. The Company has not issued, and
does not have any current firm arrangements
to issue, any significant additional
Indebtedness to which the Notes would be
senior. See "Description of
Notes--Subordination."
CHANGE OF CONTROL ............. Upon the occurrence of a Change of Control,
each holder of New Notes will have the right
to require the
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Company to purchase all or any portion of
such holder's New Notes at a price equal to
101% of the principal amount thereof, plus
accrued and unpaid interest thereon to the
date of purchase. The terms of the Senior
Credit Facility may limit the Company's
ability to repurchase any New Notes upon a
Change of Control. There can be no assurance
that upon a Change of Control the Company
will have sufficient funds to purchase any
of the New Notes. See "Description of
Notes--Change of Control."
COVENANTS ..................... The Indenture contains certain covenants
that, among other things, limit the ability
of the Company or any Restricted Subsidiary
to incur additional Indebtedness, make
certain Restricted Payments and Investments,
create Liens, enter into transactions with
Affiliates or consummate certain merger,
consolidation or similar transactions. In
addition, the Company will be required to
offer to purchase New Notes at 100% of the
principal amount thereof with the net
proceeds of certain asset sales. These
covenants are subject to a number of
significant exceptions and qualifications.
See "Description of Notes."
FOR THE DEFINITIONS OF CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY, SEE
"DESCRIPTION OF NOTES."
RISK FACTORS
Before tendering their Old Notes for New Notes offered hereby, holders of
Old Notes should consider carefully certain factors, including the following,
which (other than the one referenced in clause (i) below) are generally
applicable to the Old Notes as well as the New Notes: (i) holders of Old
Notes who do not exchange pursuant to the Exchange Offer will suffer certain
adverse consequences; (ii) the Company is subject to the influence of the
various manufacturers whose franchises it holds; (iii) the Notes and the
Guarantees are subordinated to all Senior Debt of the Company and the
Guarantors, respectively; (iv) the Company is leveraged and subject to
restrictions imposed by the terms of its indebtedness; (v) many of the
Company's franchise agreements impose restrictions upon the transferability
of the Common Stock; (vi) the Company's growth depends in large part on its
ability to manage expansion, control costs in its operations and consolidate
dealership acquisitions; (vii) the Company will require substantial
additional capital to acquire automobile dealerships and purchase inventory;
(viii) unit sales of motor vehicles historically have been cyclical; (ix) the
automotive retailing industry is highly competitive; (x) the automotive
retailing industry is a mature industry; (xi) the Company's success depends
to a significant extent on key members of its management; and (xii) the
Company's business is seasonal. For a fuller discussion of these and other
risk factors, see "Risk Factors."
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RISK FACTORS
In addition to the other information in this Prospectus, before tendering
their Old Notes for New Notes offered hereby, holders of Old Notes should
consider carefully the following factors, which (other than "Consequences of
Failure to Exchange") are generally applicable to the Old Notes as well as
the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the
restrictions on transfer of such Old Notes as set forth in the legend thereon
as a consequence of the issuance of the Old Notes pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. In general, the Old
Notes may not be offered or sold unless registered under the Securities Act
and applicable state securities laws, or pursuant to an exemption therefrom.
Except under certain limited circumstances, the Company does not intend to
register the Old Notes under the Securities Act. In addition, any holder of
Old Notes who tenders in the Exchange Offer for the purpose of participating
in a distribution of the New Notes may be deemed to have received restricted
securities and, if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. To the extent Old Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for the Old Notes not tendered
could be adversely affected. See "The Exchange Offer."
INFLUENCE OF AUTOMOBILE MANUFACTURERS
Each of the Company's dealerships operates pursuant to a franchise
agreement between the applicable automobile manufacturer (or authorized
distributor thereof, referred to herein as the "manufacturer") and the
subsidiary of the Company that operates such dealership, and the Company is
dependent to a significant extent on its relationship with such
manufacturers. Manufacturers exercise a great degree of control over
dealerships, and the franchise agreement provides for termination or
non-renewal for a variety of causes. The Company from time to time has been
in non-compliance with certain provisions of certain of its franchise
agreements, such as the obligation to obtain prior manufacturer approval of
changes in dealership management. Actions taken by manufacturers to exploit
their superior bargaining position could have a material adverse effect on
the Company. For example, Saturn Corporation's refusal to grant its approval
for the IPO and its assertion of an alleged right of first refusal with
respect to one franchise necessitated the Company's transfer of the two
Saturn franchises in its DiFeo Group to an affiliated holding company. See
"--Stock Ownership/Issuance Limits." Furthermore, prior manufacturer approval
is required with respect to acquisitions of automobile dealerships, and a
manufacturer may deny the Company's application to make an acquisition or
seek to impose further restrictions on the Company as a condition to granting
approval of an acquisition. See "--Risks Associated with Acquisitions."
Many manufacturers attempt to measure customers' satisfaction with their
sales and warranty service experiences through systems, which vary from
manufacturer to manufacturer, generally known as the CSI. These manufacturers
may use a dealership's CSI scores as a factor in evaluating applications for
additional dealership acquisitions and other matters. Certain dealerships of
the Company have had difficulty from time to time meeting their
manufacturers' CSI standards. The components of CSI have been modified from
time to time in the past, and there is no assurance that such components will
not be further modified or replaced by different systems in the future.
Failure of the Company's dealerships to comply with the standards imposed by
manufacturers at any given time may have a material adverse effect on the
Company.
The success of each of the Company's franchises is, in large part,
dependent upon the overall success of the applicable manufacturer.
Accordingly, the success of the Company is linked to the financial condition,
management, marketing, production and distribution capabilities of the
manufacturers of which the Company is a franchisee. Accordingly, events, such
as labor strikes, that may adversely affect a manufacturer may also adversely
affect the Company. For example, a strike of the independent truckers who
distribute Chrysler Corporation ("Chrysler") motor vehicles adversely
affected the Company in the second half of 1995. Similarly, the delivery of
vehicles from manufacturers later than scheduled, which may occur
particularly during periods of new product introductions, can lead to reduced
sales during such periods. This has been experienced at certain of the
Company's dealerships from time to time, including in the third
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quarter of 1996. Moreover, any event that causes adverse publicity involving
such manufacturers may have an adverse effect on the Company regardless of
whether such event involves any of the Company's dealerships.
SUBORDINATION OF THE NOTES AND THE GUARANTEES; RELEASE OF GUARANTEES
The Notes are subordinated in right of payment to all Senior Debt of the
Company, including all obligations under the Senior Credit Facility. In the
event of the bankruptcy, liquidation or reorganization of the Company, the
assets of the Company will be available to pay obligations on the Notes only
after all Senior Debt of the Company has been paid in full, and sufficient
assets may not remain to pay amounts due on any or all of the Notes then
outstanding. Similarly, the Guarantees will be subordinated in right of
payment to all Senior Debt of the Guarantors, including the Guarantors'
obligations under their guarantees of the Senior Credit Facility and all
floor plan notes payable (of which $243.0 million was outstanding as of
September 30, 1997). In certain circumstances, provisions of the Senior Debt
of the Company or the Guarantors could prohibit payments of amounts due to
holders of the Notes. See "Description of Notes -- Subordination." Additional
Senior Debt may be incurred by the Company and the Guarantors from time to
time, subject to certain limitations. See "Description of Notes -- Covenants
- -- Limitation on Incurrence of Indebtedness."
Any Guarantor may be released from its Guarantee if such Guarantor is
released from its guarantee of the Senior Credit Facility. See "Description
of Notes -- The Guarantees." Upon such release, the Notes will be
structurally subordinated to all liabilities of such Guarantor.
LEVERAGE; RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
As of September 30, 1997, the Company's total consolidated indebtedness
(including floor plan notes payable) and total stockholders' equity was
$494.6 million and $323.7 million, respectively, and total indebtedness
represented 60.4% of total capitalization.
The degree to which the Company is leveraged could have important
consequences to the holders of Notes, including: (i) the Company's ability to
obtain additional financing for working capital (including inventory
financing), capital expenditures, acquisitions or other purposes may be
restricted; (ii) a substantial portion of the Company's cash flow from
operations will be required to be used for debt service; and (iii) the
Company's leveraged position may make it more vulnerable to economic
downturns and may limit its ability to withstand competitive pressures. In
addition, the Company's operating flexibility with respect to certain
business matters will be limited by covenants contained in the Indenture and
the Senior Credit Facility.
The Company believes that, based on its current level of operations, it
will have sufficient capital to carry on its business and will be able to
meet its scheduled debt service requirements. However, there can be no
assurance that the future cash flow of the Company will be sufficient to meet
the Company's obligations and commitments. If the Company is unable to
generate sufficient cash flow from operations in the future to service its
indebtedness and to meet its other commitments, the Company will be required
to adopt one or more alternatives, such as refinancing or restructuring its
indebtedness, selling material assets or operations or seeking to raise
additional debt or equity capital. There can be no assurance that any of
these actions could be effected on a timely basis or on satisfactory terms or
that these actions would enable the Company to continue to satisfy its
capital requirements. In addition, the terms of existing or future franchise
agreements or debt agreements, including the Indenture and the Senior Credit
Facility, may prohibit the Company from adopting any of these alternatives.
See "--Stock Ownership/Issuance Limits," "Description of Senior Credit
Facility" and "Description of Notes."
STOCK OWNERSHIP/ISSUANCE LIMITS
A number of manufacturers impose restrictions upon the transferability of
the Common Stock. The most prohibitive restrictions, imposed by American
Honda Motor Co., Inc. ("Honda"), provide that, under certain circumstances,
the Company may be forced to sell or surrender its Honda and Acura franchises
if a person or entity acquires a 5% ownership interest in the Company if
Honda objects to such acquisition within 180 days; however, so long as
control of the Company is held by its original non-public stockholders, any
bank, mutual fund, insurance company or pension fund may acquire up to a 10%
ownership interest
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(15% ownership interest in the case of any entity in its capacity as
investment advisor, trustee or custodian for the benefit of third parties) in
the Company without such consent but only if such bank, mutual fund,
insurance company or pension fund is not owned or controlled by or does not
own 15% or more of, or control, any entity (other than an automobile
dealership) that competes with Honda or its affiliates in manufacturing,
marketing or selling automotive products or services. Similarly, several
manufacturers have the right to approve the acquisition of 20% ownership
interests in the Company.
In addition, the Company has agreed with Honda that no more than 40% of
the Company's capital stock (on a fully diluted basis) may be publicly held
at any time. The Company believes that slightly less than 40% of the Common
Stock (on a fully diluted basis) is currently publicly held. A substantial
number of shares of Common Stock are eligible for public sale pursuant to the
terms of Rule 144 under the Securities Act, and the Company is in the process
of registering a substantial number of outstanding shares on a "shelf"
registration statement. See "--Control by Principal Stockholders." Only the
Company's three largest stockholders are prohibited from selling any of their
shares without Honda's consent. Similarly, a number of manufacturers,
including Chrysler, continue to prohibit changes in ownership that may affect
management control of the Company. In connection with the IPO, Chrysler
agreed that it will not consider the issuance of up to 40% of the Common
Stock (on a fully diluted basis) to be a change of control. However, future
acquisitions or sales of substantial amounts of shares in the market may
affect management control. Actions by its stockholders or prospective
stockholders which would violate any of the above restrictions are generally
outside the control of the Company, and if the Company is unable to
renegotiate such restrictions, it may be forced to terminate or sell one or
more franchises, which could have a material adverse effect on the Company.
Since Honda has recently expressed an unwillingness to relax its
restrictions, the Company may be required to terminate or sell its two Honda
franchises. Honda's current position may inhibit the Company's ability to
acquire dealership groups that include Honda franchises. Finally, Honda has
the right to approve any future public offerings of capital stock, and the
consent of other manufacturers may be needed as well. This may impede the
Company's ability to raise required capital, including to make payments in
respect of the Notes. See "--Capital Requirements."
RISKS ASSOCIATED WITH ACQUISITIONS
The Company's growth depends in large part on its ability to manage
expansion, control costs in its operations and consolidate dealership
acquisitions into existing operations. This strategy will entail reviewing
and potentially reorganizing acquired dealership operations, corporate
infrastructure and systems and financial controls. Unforeseen expenses,
difficulties, complications and delays frequently encountered in connection
with the rapid expansion of operations could inhibit the Company's growth.
There can be no assurance that the Company will identify acquisition
candidates that would result in the most successful combinations or that
acquisitions will be able to be consummated on acceptable terms. The
magnitude, timing and nature of future acquisitions will depend upon various
factors, including the availability of suitable acquisition candidates, the
negotiation of acceptable terms, the Company's financial capabilities, the
availability of skilled employees to manage the acquired companies and
general economic and business conditions. In particular, the increasing
competition among potential acquirers has resulted in higher prices being
paid for attractive targets.
In addition, the Company's future growth via acquisition of automobile
dealerships will depend on its ability to obtain the requisite manufacturer
approvals. There can be no assurance that manufacturers will grant such
approvals. A number of manufacturers have policies limiting the number of
franchises that may be held by any one company. For example, it is currently
the policy of Toyota Motor Sales ("Toyota") to restrict any company from
holding more than seven Toyota or more than three Lexus franchises and
restrict the number of franchises held within certain geographic areas.
Toyota has also recently announced a policy requiring a nine-month waiting
period between acquisitions of Toyota franchises and between acquisitions of
Lexus franchises. Similarly, it is currently the policy of Honda to restrict
any company from holding more than seven Honda or more than three Acura
franchises and restrict the number of franchises held within certain
geographic areas. Honda and Toyota have sued a competitor of the Company to
enforce such policies. At October 31, 1997, the Company held 58 franchises,
including 14 Chrysler franchises, ten Nissan franchises (of which one is
Infiniti), nine Toyota franchises (of which two are Lexus), eight General
Motors Corporation ("GM") franchises, three BMW franchises and two Honda
franchises (of which one is Acura).
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The Company is among the largest Chrysler, Toyota, Nissan and BMW dealers in
the United States. See "--Influence of Automobile Manufacturers" and
"Business -- Acquisition History."
Alternatively, in connection with acquisitions by the Company, one or more
manufacturers may seek to impose further restrictions on the Company in
connection with their approval of an acquisition. For example, each of GM and
Chrysler conditioned its approval of the acquisition of Landers Auto upon the
Company's agreement to implement certain measures at its existing GM and
Chrysler dealerships, respectively, to provide certain additional training to
the employees at such dealerships and to achieve and maintain higher CSI
scores. If such goals are not attained, the Company may be precluded from
acquiring, whether directly from GM or Chrysler or through acquisitions,
additional GM or Chrysler franchises and it may lead GM or Chrysler to
conclude that it has a basis pursuant to which it may seek to terminate or
refuse to renew the Company's existing GM or Chrysler franchises. In
addition, Nissan Motor Corporation U.S.A. ("Nissan") conditioned the
Company's acquisitions of the Nissan franchises held by the Evans Group and
United Nissan (TN) upon the Company's agreeing to grant to Nissan an option
to acquire the Evans Group's Nissan franchise. Moreover, factors outside the
Company's control may cause a manufacturer to reject the Company's
application to make acquisitions. See "--Influence of Automobile
Manufacturers."
CAPITAL REQUIREMENTS
The Company requires substantial capital in order to acquire automobile
dealerships. Such capital might be raised through additional public or
private financings, as well as borrowings and other sources. Other than the
Senior Credit Facility, which is temporarily unavailable (see "Description of
Senior Credit Facility"), the Company does not have any commitments or
immediate plans with respect to acquisition financing, and there can be no
assurance that additional or sufficient financing will be available, or, if
available, that it will be available on acceptable terms. Moreover, the
Company may be impeded by certain manufacturers from accessing the public
equity markets. See "--Stock Ownership/Issuance Limits." In addition, a
decline in the market price of the Common Stock for any reason, including,
without limitation, a perception that sales of substantial amounts of Common
Stock could occur, may increase the amount of cash required by the Company to
finance acquisitions. See "--Control by Principal Stockholders." If adequate
funds are not available, the Company may be required to significantly curtail
its acquisition program.
In addition, the Company is dependent to a significant extent on its
ability to finance the purchase of inventory, which in the automotive retail
industry involves significant sums of money in the form of floor plan
financing. As of September 30, 1997, the Company had $243.0 million of floor
plan notes payable. Substantially all the assets of the Company's dealerships
are pledged to secure such indebtedness, which may impede the Company's
ability to borrow from other sources. The Company currently has floor plan
facilities with a variety of lenders, including primarily Chrysler Financial
Corporation and World Omni Financial Corp. Most of such lenders are
associated with manufacturers with whom the Company has franchise agreements.
Consequently, deterioration of the Company's relationship with a manufacturer
could adversely affect its relationship with the affiliated floor plan lender
and vice versa. See "--Influence of Automobile Manufacturers."
The operations of Atlantic Finance also require substantial borrowings.
See "--Risks Associated with Automobile Finance Subsidiary -- Capital
Requirements; Interest Rate Fluctuations."
CYCLICALITY
Unit sales of motor vehicles, particularly new vehicles, historically have
been cyclical, fluctuating with general economic cycles. During economic
downturns, the automotive retailing industry tends to experience similar
periods of decline and recession as the general economy. The Company believes
that the industry is influenced by general economic conditions and
particularly by consumer confidence, the level of personal discretionary
spending, interest rates and credit availability. There can be no assurance
that the industry will not experience sustained periods of decline in vehicle
sales in the future, and that such decline would not have a material adverse
effect on the Company.
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COMPETITION
The automotive retailing industry is highly competitive with respect to
price, service, location and selection. The Company competes with numerous
automobile dealerships in each of its market segments, many of which are
large and have significant financial and marketing resources. The Company
also competes with private market buyers and sellers of used cars, used car
dealers, other franchised dealers, service center chains and independent
shops for service and repair business. In recent years, automobile dealers
have also faced increased competition in the sale of vehicles from automobile
rental agencies, independent leasing companies and used-car "superstores,"
some of which employ sales techniques such as "haggle-free" pricing. Some of
these recent market entrants are capable of operating on smaller gross
margins than those on which the Company is capable of operating because they
have lower overhead and sales costs.
MATURE INDUSTRY
The automotive retailing industry is a mature industry in which minimal
growth in unit sales of new vehicles is expected. Accordingly, growth in the
Company's revenues and earnings will depend significantly on the Company's
ability to acquire and consolidate profitable dealerships, to grow its
higher-margin businesses and to expand its automobile finance business.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success will depend to a significant extent
upon the efforts and abilities of the executive management of the Company and
its subsidiaries. The loss of the services of one or more of these key
employees could have a material adverse effect on the Company. The Company's
business will also be dependent upon its ability to continue to attract and
retain qualified personnel, including key management in connection with
future acquisitions.
SEASONALITY
The Company's business is seasonal, with a disproportionate amount of
vehicle sales occurring in the second and third fiscal quarters. The
dealerships of the DiFeo Group and the Long Island dealerships of the
Staluppi Group, which are located in the New York metropolitan area, are
those affected most by seasonality.
IMPORTED PRODUCTS
Certain motor vehicles retailed by the Company, as well as certain major
components of vehicles retailed by the Company, are of foreign origin.
Accordingly, the Company is subject to the import and export restrictions of
various jurisdictions and is dependent to some extent upon general economic
conditions in and political relations with a number of foreign countries,
including Japan, Germany, South Korea and the United Kingdom.
RISKS ASSOCIATED WITH AUTOMOBILE FINANCE SUBSIDIARY
Capital Requirements; Interest Rate Fluctuations
Atlantic Finance, a wholly owned subsidiary of the Company, requires
substantial borrowings to fund the purchase of retail installment contracts
from automobile dealerships. Consequently, Atlantic Finance's profitability
is affected by the difference, or "spread," between the rate of interest paid
on the funds it borrows and the rate of interest charged on the installment
contracts it purchases, which rate in most states is limited by law. In
addition, since the interest rates at which Atlantic Finance borrows are
variable and the interest rates at which Atlantic Finance purchases the
retail installment contracts are fixed, Atlantic Finance assumes the risk of
interest rate increases prior to the time contracts are sold. There can be no
assurance that Atlantic Finance will be able to extend its present revolving
credit facilities or enter into new warehouse financing facilities on
reasonable terms in the future or that interest rate increases will not
adversely affect its ability to achieve and maintain profitability with
respect to the retail installment contracts it holds.
Dependence on Securitization Transactions
Atlantic Finance relies on a strategy of periodically selling retail
installment receivables on a securitized basis. The securitization proceeds
are utilized to repay borrowings under its revolving credit facilities,
thereby making such facility available to acquire additional retail
installment contract receivables. The terms of any securitization transaction
are affected by a number of factors, some of which are beyond
19
<PAGE>
Atlantic Finance's control and any of which could cause substantial delays.
These factors include, among other things, conditions in the securities
markets in general, conditions in the asset-backed securitization market and
approval by all parties to the terms of the transaction. Gains from the sale
of receivables in securitized transactions generate a significant portion of
Atlantic Finance's revenues. If Atlantic Finance were unable to securitize
loans in a given financial reporting period, Atlantic Finance could incur a
significant decline in total revenues and profitability for such period.
Credit Risk
Payments by consumers on a number of the retail installment contracts
purchased by Atlantic Finance become delinquent from time to time and some
end up in default. There can be no assurance as to the future credit
performance of Atlantic Finance's customers or that general economic
conditions will not worsen and lead to higher rates of delinquency and
default. For example, for the quarter ended March 31, 1997, Atlantic
Finance's annualized default rate was 2.17%, a significant increase over
comparable periods. In addition, Atlantic Finance commenced operations in the
first quarter of 1995, and there can be no assurance that the rates of future
delinquency and defaults will be at levels that will allow Atlantic Finance
to achieve and maintain overall profitability.
Regulation
Atlantic Finance is subject to regulation under various federal, state and
local laws and in some jurisdictions is required to be licensed by the state
banking authority. Most states in which Atlantic Finance operates limit the
interest rate, fees and other charges that may be imposed by, or prescribe
certain other terms of, the contracts that Atlantic Finance purchases and
restrict its right to repossess and sell collateral. An adverse change in
those laws or regulations could have a material adverse effect on Atlantic
Finance's profitability by, among other things, limiting the states in which
Atlantic Finance may operate or the interest rate that may be charged on
retail installment contracts or restricting Atlantic Finance's ability to
realize the value of the collateral securing the contracts.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, ordinances and
regulations which establish various health and environmental quality
standards, and liability related thereto, and provide penalties for
violations of those standards. Under certain laws and regulations, a current
or previous owner or operator of real property may be liable for the costs of
removal and remediation of hazardous or toxic substances or wastes on, under,
in or emanating from such property. Such laws typically impose liability
whether or not the owner or operator knew of, or was responsible for, the
presence of such hazardous or toxic substances or wastes. Certain laws,
ordinances and regulations may impose liability on an owner or operator of
real property where on-site contamination discharges into waters of the
state, including groundwater. Under certain other laws, generators of
hazardous or toxic substances or wastes that send such substances or wastes
to disposal, recycling or treatment facilities may be liable for remediation
of contamination at such facilities. Other laws, ordinances and regulations
govern the generation, handling, storage, transportation and disposal of
hazardous and toxic substances or wastes, the operation and removal of
underground storage tanks, the discharge of pollutants into surface waters
and sewers, emissions of certain potentially harmful substances into the air
and employee health and safety.
Past and present business operations of the Company subject to such laws,
ordinances and regulations include the use, handling and contracting for
recycling or disposal of hazardous or toxic substances or wastes, including
environmentally sensitive materials such as motor oil, waste motor oil and
filters, transmission fluid, antifreeze, refrigerants, waste paint and
lacquer thinner, batteries, solvents, lubricants, degreasing agents, gasoline
and diesel fuels. The Company is subject to other laws, ordinances and
regulations as the result of the past or present existence of underground
storage tanks at many of the Company's properties. In addition, soil and
groundwater contamination has been known to exist at certain properties owned
or leased by the Company and there can be no assurance that other properties
have not been contaminated by any leakage from such tanks or any spillage of
hazardous or toxic substances or wastes.
Certain laws and regulations, including those governing air emissions and
underground storage tanks, have been amended so as to require compliance with
new or more stringent standards as of future dates. The
20
<PAGE>
Company cannot predict what other environmental legislation or regulations
will be enacted in the future, how existing or future laws or regulations
will be administered or interpreted or what environmental conditions may be
found to exist in the future. Compliance with new or more stringent laws or
regulations, stricter interpretation of existing laws or the future discovery
of environmental conditions may require additional expenditures by the
Company, some of which may be material. See "Business -- Environmental
Matters."
CONTROL BY PRINCIPAL STOCKHOLDERS
As of September 30, 1997, Trace International Holdings, Inc. ("Trace"),
Aeneas Venture Corporation ("Aeneas"), an affiliate of Harvard Private
Capital Group, Inc. ("Harvard Private Capital"), and AIF II, L.P. ("AIF"), an
affiliate of Apollo Advisors, L.P. ("Apollo"), owned 22.0%, 15.6% and 10.1%
of the outstanding Common Stock, respectively. As a result, such persons have
the ability to control the Company and direct its affairs and business.
Circumstances may occur in which the interests of such persons could be in
conflict with the interests of the holders of Notes and holders of Common
Stock generally. See "--Stock Ownership/Issuance Limits." In addition, such
persons may have an interest in pursuing transactions that, in their
judgment, enhance the value of their equity investment in the Company, even
though such transactions may involve risks to the holders of Notes.
The Company is in the process of registering on a "shelf" registration
statement under the Securities Act approximately 9,600,000 outstanding shares
of Common Stock which were issued pursuant to an exemption from registration
under the Securities Act and/or which are held by affiliates of the Company,
including the approximately 8,700,000 shares held in the aggregate by Trace,
Aeneas and AIF. Trace, Aeneas and AIF have informed the Company that they are
registering such shares in order to provide themselves with more flexibility
in pursuing their investment strategy, that, provided they are not
contractually prohibited from doing so, they may pledge all or a portion of
their shares from time to time to secure borrowings and that they do not have
any present intention to sell any shares of Common Stock.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase all or any portion of such
holder's Notes. (The same provision appears in the indenture governing the
Series B Notes.) If a Change of Control were to occur, there can be no
assurance that the Company would have sufficient financial resources, or
would be able to arrange financing, to pay the repurchase price for all Notes
tendered by holders thereof. Further, the provisions of the Indenture may not
afford holders of Notes protection in the event of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction
involving the Company that may adversely affect holders of Notes, if such
transaction does not result in a Change of Control. In addition, the terms of
the Senior Credit Facility may limit the Company's ability to repurchase any
Notes upon a Change of Control. Any future credit agreements or other
agreements relating to other indebtedness to which the Company becomes a
party may contain similar restrictions and provisions. In the event a Change
of Control occurs at a time when the Company is prohibited from repurchasing
Notes, the Company could seek the consent of its lenders to repurchase Notes
or could attempt to refinance the borrowings that contain such prohibition.
If the Company does not obtain such consent or repay such borrowing, the
Company would remain prohibited from repurchasing Notes. In such case, the
Company's failure to repurchase tendered Notes would constitute an Event of
Default under the Indenture, which would, in turn, constitute a further
default under certain of the Company's existing debt agreements and may
constitute a default under the terms of other indebtedness that the Company
may enter into from time to time. See "--Control by Principal Stockholders"
and "Description of Notes -- Change of Control."
FRAUDULENT CONVEYANCE CONSIDERATIONS
Each Guarantor's Guarantee of the obligations of the Company under the
Notes may be subject to review under relevant federal and state fraudulent
conveyance statutes in a bankruptcy, reorganization or rehabilitation case or
similar proceeding or a lawsuit by or on behalf of unpaid creditors of such
Guarantor. If a court were to find under relevant fraudulent conveyance
statutes that, at the time the Notes were issued, (a) a Guarantor guaranteed
the Notes with the intent of hindering, delaying or defrauding current or
future creditors or (b) (i) a Guarantor received less than reasonably
equivalent value or fair consideration for
21
<PAGE>
guaranteeing the Notes and (ii) (A) was insolvent or was rendered insolvent
by reason of such Guarantee, (B) was engaged, or about to engage, in a
business or transaction for which its assets constituted unreasonably small
capital or (C) intended to incur, or believed that it would incur,
obligations beyond its ability to pay as such obligations matured (as all of
the foregoing terms are defined in or interpreted under such fraudulent
conveyance statutes), then such court could avoid or subordinate such
Guarantee to presently existing and future indebtedness of such Guarantor and
take other action detrimental to the holders of the Notes, including, under
certain circumstances, invalidating such Guarantee. See "Description of Notes
- -- The Guarantees."
LACK OF PUBLIC MARKET FOR THE NEW NOTES
There is no established trading market for the New Notes, and there can be
no assurance as to (i) the liquidity of any such market that may develop,
(ii) the ability of holders of New Notes to sell their New Notes or (iii) the
price at which the holders of New Notes would be able to sell their New
Notes. If such a market were to exist, the New Notes could trade at prices
that may be higher or lower than their principal amount or purchase price,
depending on many factors, including prevailing interest rates, the market
for similar notes and the financial performance of the Company. The Company
has been advised by the Initial Purchasers that, following completion of the
Exchange Offer, they presently intend to make a market in the New Notes.
However, the Initial Purchasers are not obligated to do so, and any
market-making activity with respect to the New Notes may be discontinued at
any time without notice. In addition, such market making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act and
may be limited during the pendency of a shelf registration statement filed
pursuant to the Registration Rights Agreement. See "Description of Notes --
Registration Rights."
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
New Notes offered hereby. In consideration for issuing the New Notes as
described in this Prospectus, the Company will receive in exchange Old Notes
in like principal amount, the terms of which are identical in all material
respects to those of the New Notes, except that the New Notes have been
registered under the Securities Act and therefore will not bear any legends
restricting their transfer and will not contain terms providing for an
increase in the interest rate thereon under certain circumstances described
in the Registration Rights Agreement. The Old Notes surrendered in exchange
for the New Notes will be retired and cancelled. Accordingly, the issuance of
the New Notes will not result in any change in the indebtedness of the
Company or the Guarantors.
The net proceeds to the Company from the Initial Offering was
approximately $140.8 million after deducting the discount to the initial
purchasers of the Old Notes and offering expenses. $50.0 million of such net
proceeds were used to repay amounts outstanding under the Senior Credit
Facility. See "Description of Senior Credit Facility." The balance of such
net proceeds was deposited with the Company's floor plan lenders, which
deposits earn interest at floor plan rates. For a description of the
Company's floor plan notes payable, see the notes to the Company's audited
consolidated financial statements, incorporated herein by reference. The
Company has such deposits available (in addition to other funds) for use for
working capital and other general corporate purposes, including acquisitions.
Since the closing of the Initial Offering, the Company has used approximately
$2.0 million to finance the acquisition of Stone Mountain Jeep Eagle and
approximately $3.5 million to finance the acquisition of Shreveport Dodge.
22
<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and consolidated
capitalization of the Company as of September 30, 1997. This table should be
read in conjunction with the consolidated historical and pro forma financial
statements of the Company and the notes thereto incorporated by reference
into this Prospectus.
<TABLE>
<CAPTION>
------------------------
AS OF SEPTEMBER 30, 1997
------------------------
<S> <C>
In thousands
Short-term debt:
Short-term debt, excluding floor plan (1) $ 6,790
Current portion of long-term debt 7,472
------------------------
Total short-term debt $ 14,262
========================
Long-term debt (excluding current
portion):
Senior Credit Facility $ --
Senior Subordinated Notes 200,000
Other 37,356
------------------------
Total long-term debt 237,356
------------------------
Stockholders' equity 323,719
------------------------
Total capitalization $561,075
========================
</TABLE>
- ------------
(1) As of September 30, 1997, an aggregate of $243.0 million was
outstanding under the Company's floor plan facilities.
23
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial
and other data of the Company (and, where indicated, of the Predecessor
Company) as of the dates and for the periods indicated, including the results
of operations of acquired dealerships from their respective dates of
acquisition. The balance sheet data as of December 31, 1996, 1995, 1994, 1993
and 1992 and the statements of operations data for the years ended December
31, 1996, 1995, 1994, 1993 and for the three months ended December 31, 1992
have been derived from the financial statements of the Company which have
been audited by Coopers & Lybrand L.L.P., the Company's independent
accountants. The selected consolidated financial data set forth below for the
Company for the nine months ended September 30, 1997 and September 30, 1996
and for the Predecessor Company for the nine months ended September 30, 1992
are unaudited but have been prepared on the same basis as the audited
consolidated financial statements and contain all adjustments, consisting of
only normal recurring accruals, that the Company considers necessary for a
fair presentation of the financial position and results of operations for the
periods presented. Operating results for the nine months ended September 30,
1997 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1997. The selected consolidated financial data
should be read in conjunction with the consolidated financial statements and
related notes and Pro Forma Condensed Consolidated Financial Statements of
the Company.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
THE COMPANY
--------------------------------------------------------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31, DECEMBER 31,
Dollars in thousands 1997(2) 1996(3) 1996(4) 1995(5) 1994 1993 1992
------------ ---------- ------------ ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Auto Dealerships
Total revenues $1,541,133 $954,784 $1,302,031 $805,621 $731,629 $606,091 $98,040
Cost of sales, including floor plan
interest 1,344,730 848,479 1,157,368 720,344 647,643 537,688 85,712
------------ ---------- ------------ ---------- ---------- ---------- --------------
Gross profit 196,403 106,305 144,663 85,277 83,986 68,403 12,328
Selling, general and administrative
expenses 160,367 90,040 124,244 90,586 80,415 66,910 12,929
------------ ---------- ------------ ---------- ---------- ---------- --------------
Operating income (loss) 36,036 16,265 20,419 (5,309) 3,571 1,493 (601)
Other interest expense (7,249) (3,619) (4,398) (1,438) (860) (1,233) --
Other income (expense), net 297 2,295 2,506 2,208 (2,899) -- --
------------ ---------- ------------ ---------- ---------- ---------- --------------
Income (loss) before income
taxes--Auto Dealerships 29,084 14,941 18,527 (4,539) (188) 260 (601)
Auto Finance
Revenues 2,472 1,604 1,798 530 2 -- --
Interest expense (408) (276) (421) (174) -- -- --
Operating and other expenses (3,438) (2,054) (2,867) (1,738) (618) -- --
------------ ---------- ------------ ---------- ---------- ---------- --------------
Loss before income taxes--Auto
Finance (1,374) (726) (1,490) (1,382) (616) -- --
------------ ---------- ------------ ---------- ---------- ---------- --------------
Total Company
Income (loss) before minority
interests, (provision) benefit for
income taxes and extraordinary
item 27,710 14,215 17,037 (5,921) (804) 260 (601)
Minority interests (118) (2,792) (3,306) 366 (887) (117) 152
(Provision) benefit for income
taxes (11,106) (5,305) (6,270) 2,089 -- (47) --
------------ ---------- ------------ ---------- ---------- ---------- --------------
Income (loss) before extraordinary
item 16,486 6,118 7,461 (3,466) (1,691) 96 (449)
Extraordinary item (net of income
tax benefit)(6) -- -- (4,987) -- -- -- --
------------ ---------- ------------ ---------- ---------- ---------- --------------
Net income (loss) $ 16,486 $ 6,118 $ 2,474 $ (3,466) $ (1,691) $ 96 $ (449)
============ ========== ============ ========== ========== ========== ==============
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY(1)
------------------------
NINE MONTHS
ENDED
SEPTEMBER 30,
Dollars in thousands 1992
------------------------
<S> <C>
STATEMENTS OF OPERATIONS DATA:
Auto Dealerships
Total revenues $297,010
Cost of sales, including floor plan
interest 257,845
------------------------
Gross profit 39,165
Selling, general and administrative
expenses 40,873
------------------------
Operating income (loss) (1,708)
Other interest expense --
Other income (expense), net --
------------------------
Income (loss) before income
taxes--Auto Dealerships (1,708)
Auto Finance
Revenues --
Interest expense --
Operating and other expenses --
------------------------
Loss before income taxes--Auto
Finance --
------------------------
Total Company
Income (loss) before minority
interests, (provision) benefit for
income taxes and extraordinary
item (1,708)
Minority interests --
(Provision) benefit for income
taxes (197)
------------------------
Income (loss) before extraordinary
item (1,905)
Extraordinary item (net of income
tax benefit)(6) --
------------------------
Net income (loss) $ (1,905)
========================
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------------------
THE COMPANY
----------------------------------------------------------------------
AS OF SEPTEMBER 30, AS OF DECEMBER 31,
Dollars in thousands 1997 1996 1995 1994 1993 1992
------------- ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Auto Dealerships
Total assets $858,613 $505,693 $227,275 $169,766 $154,218 $ 87,084
Floor plan notes payable 242,960 170,170 97,823 92,310 84,601 57,887
Other debt 251,297 23,968 44,538 29,440 24,209 3,630
Auto Finance
Net assets 25,794 14,522 3,501 291 -- --
Total Company
Total assets 887,603 522,950 236,027 170,342 154,218 87,084
Floor plan notes payable 242,960 170,170 97,823 92,310 84,601 57,887
Other debt 251,618 24,969 49,199 29,440 24,209 3,630
Total stockholders'
equity 323,719 281,468 49,240 28,785 25,264 19,243
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
THE COMPANY
---------------------------------------------------------------------------
NINE MONTHS THREE MONTHS
ENDED ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- ---------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dollars in thousands
OTHER DATA:
EBITDA(7) $42,169 $20,660 $27,928 $(1,489) $2,301 $2,417 $(322)
EBITDA margin(8) 2.7% 2.2% 2.1% (0.2)% 0.3% 0.4% (0.3)%
Depreciation and amortization $ 6,802 $ 2,550 $ 7,797 $ 2,820 $2,245 $ 924 $ 279
Capital expenditures $ 8,378 $ 3,595 $ 6,771 $ 1,739 $5,237 $1,624 $ 511
Ratio of EBITDA to other interest
expense (9) 5.51x 5.30x 5.80x (7) 2.68x 1.96x (7)
Ratio of earnings to fixed charges(10) 4.62x 4.65x 4.54x (10) (10) 1.21x (10)
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
------------------------
PREDECESSOR COMPANY(1)
------------------------
NINE MONTHS
ENDED
SEPTEMBER 30,
1992
------------------------
<S> <C>
Dollars in thousands
OTHER DATA:
EBITDA(7) $(882)
EBITDA margin(8) (0.3)%
Depreciation and amortization $ 826
Capital expenditures $ 445
Ratio of EBITDA to other interest
expense (9) (7)
Ratio of earnings to fixed charges(10) (10)
</TABLE>
(1) Predecessor Company represents the combined historical results of the
DiFeo Group acquired by the Company on October 1, 1992.
(2) Includes the results of Crown Automotive from March 1, 1997, Hanna
Nissan from April 22, 1997, the Staluppi Group from April 30, 1997, the
Reed Group from May 30, 1997, Lance Landers from June 9, 1997 and Stone
Mountain from August 22, 1997.
(3) Includes the results of Atlanta Toyota from January 1, 1996, United
Nissan (GA) from May 1, 1996, Peachtree Nissan from July 1, 1996 and
the Sun Automotive Group, the Evans Group and United Nissan (TN) from
October 28, 1996.
(4) Includes the results of Atlanta Toyota from January 1, 1996, United
Nissan (GA) from May 1, 1996, Peachtree Nissan from July 1, 1996 and
the Sun Automotive Group, the Evans Group and United Nissan (TN) from
October 28, 1996.
(5) Includes the results of Landers Auto from August 1, 1995.
(6) Represents the 10% call premium and the write-off of original issue
discount and related deferred financing costs arising from the October
1996 redemption of the Company's Series A and B Senior Notes due 2003.
(7) EBITDA is defined as income (loss) before minority interests,
(provision) benefit for income taxes, extraordinary item, interest
expense (exclusive of interest relating to floor plan notes payable)
and depreciation and amortization. For the purpose of calculating
EBITDA for the year ended December 31, 1996, amortization has been
reduced by $1.7 million for the write-off of original issue discount
arising from the early retirement of the Company's Series A and B
Senior Notes due 2003, during October 1996, which was included as an
extraordinary item in the Company's consolidated financial statements.
The Company has included information concerning EBITDA because it is
used by certain investors as a measure of a company's ability to
service its debt. EBITDA is not required by GAAP and should not be
considered an alternative to net income or any other measure of
performance required by GAAP, or as an indicator of the Company's
operating performance, and should be read in conjunction with the
consolidated statements of cash flows in the consolidated financial
statements of the Company included elsewhere herein. EBITDA was
insufficient to cover non-floor plan interest expense for the year
ended December 31, 1995, the three months ended December 31, 1992 and
the nine months ended September 30, 1992 by $3.1 million, $0.3 million
and $0.9 million, respectively.
(8) EBITDA margin is calculated as the ratio of EBITDA to consolidated
revenues for the period.
(9) Includes other interest expense from Auto Dealerships and interest
expense from Auto Finance.
(10) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income (loss) before minority interests,
(provision) benefit for income taxes, extraordinary item and fixed
charges. Fixed charges consist of interest expense (excluding the
amount of interest capitalized during the period and interest expense
relating to floor plan notes payable and including amortization of
deferred financing costs). Earnings were insufficient to cover fixed
charges for the years ended December 31, 1995 and 1994, the three
months ended December 31, 1992, and the nine months ended September 30,
1992 by $5.9 million, $0.8 million, $0.6 million and $1.7 million,
respectively.
25
<PAGE>
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were sold by the Company on July 23, 1997 to the Initial
Purchasers, who resold the Old Notes (i) to "qualified institutional buyers"
(as defined in Rule 144A under the Securities Act) in reliance upon Rule 144A
under the Securities Act and (ii) outside the United States to persons other
than U.S. persons in reliance upon Regulation S under the Securities Act. In
connection therewith, the Company, the Guarantors named therein and the
Initial Purchasers entered into the Registration Rights Agreement, pursuant
to which the Company and such Guarantors agreed, for the benefit of the
Holders of the Old Notes, that they would, at their sole cost, (i) within 60
days following the original issuance of the Old Notes, file with the
Commission the Exchange Offer Registration Statement (of which this
Prospectus is a part) under the Securities Act with respect to an issue of a
series of new notes of the Company identical in all material respects to the
series of Old Notes and (ii) use their reasonable best efforts to cause such
Exchange Offer Registration Statement to become effective under the
Securities Act within 135 days following the original issuance of the Old
Notes. Upon the effectiveness of the Exchange Offer Registration Statement,
the Company will offer to the Holders of the Old Notes the opportunity to
exchange their Old Notes for a like principal amount of New Notes, to be
issued without a legend restricting their transfer and which may, subject to
certain exceptions described below, be reoffered and resold by the Holder
without restrictions or limitations under the Securities Act. The term
"Holder" with respect to any Note means any person in whose name such Note is
registered on the books of the Company.
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as
defined in Rule 405 of the Securities Act) of the Company, (ii) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the New
Notes and (iii) it is acquiring the New Notes in the ordinary course of its
business (a Holder unable to make the foregoing representations is referred
to as a "Restricted Holder"). A Restricted Holder will not be able to
participate in the Exchange Offer and may only sell its Old Notes pursuant to
a registration statement containing the selling securityholder information
required by Item 507 of Regulation S-K under the Securities Act, or pursuant
to an exemption from the registration requirement of the Securities Act.
Each broker-dealer (other than a Restricted Holder) that receives New
Notes for its own account pursuant to the Exchange Offer (a "Participating
Broker-Dealer") is required to acknowledge in the Letter of Transmittal that
it acquired the Old Notes as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with
the resale of such New Notes. Based upon interpretations by the staff of the
Commission, the Company believes that New Notes issued pursuant to the
Exchange Offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer upon
compliance with the prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act. The Company has
agreed that for a period of 120 days following consummation of the Exchange
Offer it will make this Prospectus available, for use in connection with any
such resale, to any Participating Broker-Dealer that notifies the Company in
the Letter of Transmittal that it may be subject to such prospectus delivery
requirements. The Company believes that during such period of time, delivery
of this Prospectus, as it may be amended or supplemented, will satisfy the
prospectus delivery requirements of a Participating Broker-Dealer engaged in
market-making or other trading activities. See "Exchange Offer" and "Plan of
Distribution".
Based upon interpretations by the staff of the Commission, the Company
believes that New Notes issued pursuant to the Exchange Offer may be offered
for resale, resold, and otherwise transferred by a Holder thereof (other than
a Restricted Holder or a Participating Broker-Dealer) without compliance with
the registration and prospectus delivery requirements of the Securities Act.
If (i) prior to the consummation of the Exchange Offer, it is reasonably
determined in good faith that (A) the New Notes upon receipt would not be
tradable by Holders thereof, other than Restricted Holders, without
registration under the Securities Act and applicable state securities laws or
(B) the Commission is unlikely to permit the consummation of the Exchange
Offer or (ii) the Exchange Offer is commenced but not consummated prior to
March 5, 1998 for any reason, then the Company is required under the
26
<PAGE>
Registration Rights Agreement to file with the Commission a shelf
registration statement (the "Shelf Registration Statement") to cover resales
of Transfer Restricted Securities (as defined) by the Holders thereof who
satisfy certain conditions relating to the provision of information for
inclusion in the Shelf Registration Statement. The Company is required under
the Registration Rights Agreement to file the Shelf Registration Statement as
promptly as reasonably practicable but in no event later than 60 days after
the date on which the Company becomes obligated to file same, to use its
reasonable best efforts to cause the Shelf Registration Statement to be
declared effective within 135 days after the filing thereof and, except under
certain circumstances, to keep the Shelf Registration Statement continuously
effective under the Securities Act until July 23, 1999. For purposes of the
foregoing, "Transfer Restricted Securities" means each Old Note and each New
Note to which clause (i)(A) of the first sentence of this paragraph is
applicable, until in the case of any such Notes (i) such Notes have been sold
pursuant to an effective registration statement, (ii) such Notes have been
sold in compliance with Rule 144 under the Securities Act or would be
permitted to be sold pursuant to Rule 144(k) thereunder or (iii) such Notes
cease to be outstanding.
The Company will, in the event of the filing of the Shelf Registration
Statement, provide to each Holder of Transfer Restricted Securities covered
by the Shelf Registration Statement copies of any Shelf Registration
Statement or any prospectus which is a part thereof, notify each such Holder
when the Shelf Registration Statement has become effective and take certain
other actions as are required to permit unrestricted resales of Transfer
Restricted Securities. A Holder of Transfer Restricted Securities that sells
such Transfer Restricted Securities pursuant to the Shelf Registration
Statement generally will be required to be named as a selling security holder
in the related prospectus and to deliver a prospectus to the purchaser, will
be subject to certain of the civil liability provisions under the Securities
Act in connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such Holder (including
certain indemnification obligations). In addition, Holders of Transfer
Restricted Securities will be required to deliver information to be used in
connection with the Shelf Registration Statement within a reasonable time in
order to have their Transfer Restricted Securities included in the Shelf
Registration Statement and receive any Additional Interest (as defined). The
Company will notify such Holders of the occurrence of any event that makes
any statement made in the Shelf Registration Statement untrue in any material
respect or that requires the making of any changes so that it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading, in which case such Holders will be prohibited from
using the Shelf Registration Statement and any prospectus which is a part
thereof until the Company amends or supplements the same.
If (i) the Company is required to file the Shelf Registration Statement
and (A) it has not been filed on or prior to the date by which it is required
to be filed, (B) it is not declared effective by the Commission on or prior
to the 135th day after filing thereof or (C) it is declared effective but
thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the period specified in the
Registration Rights Agreement or (ii) the Exchange Offer is not consummated
on or prior to January 4, 1998 (each such event referred to in clauses (i)
and (ii) above, a "Registration Default"), then the Company will pay
liquidated damages in the form of additional interest ("Additional Interest")
(in addition to the interest otherwise due thereon) to each Holder of
affected Notes, if any, in an amount equal to 25 basis points per annum on
the principal amount thereof for each day during the first 90-day period that
the Registration Default continues. The amount of Additional Interest, if
any, will increase by an additional 25 basis points per annum with respect to
each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Additional Interest of 100 basis points per
annum. Following the cure of all Registration Defaults, Additional Interest,
if any, will cease to accrue.
Payment of Additional Interest is the sole remedy available to the Holders
of Transfer Restricted Securities in the event that the Company does not
comply with the deadlines set forth in the Registration Rights Agreement with
respect to the registration of Transfer Restricted Securities for resale
under the Shelf Registration Statement.
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TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. The Company will issue $1,000 principal amount
of New Notes in exchange for each $1,000 principal amount of outstanding Old
Notes accepted in the Exchange Offer. Holders may tender some or all of their
Old Notes pursuant to the Exchange Offer. However, Old Notes may be tendered
only in integral multiples of $1,000.
The terms of the New Notes will be identical in all material respects to
the terms of the Old Notes, except that the New Notes have been registered
under the Securities Act and therefore will not bear legends restricting
their transfer and will not be entitled to Additional Interest, if any, under
certain circumstances described in the Registration Rights Agreement. The New
Notes will evidence the same debt as the Old Notes and will be entitled to
the benefits of the Indenture under which the Old Notes were, and the New
Notes will be, issued.
As of the date of this Prospectus, $150.0 million aggregate principal
amount of the Old Notes is outstanding. The Company has fixed the close of
business on November 19, 1997 as the record date for the Exchange Offer for
purposes of determining the persons to whom this Prospectus, together with
the Letter of Transmittal, will initially be sent. As of such date, there was
one registered Holder of the Old Notes.
Holders of the Old Notes do not have any appraisal or dissenters' rights
under law or the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the applicable
requirements of the Exchange Act and the rules and regulations of the
Commission thereunder.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the
Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
December 22, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the
Exchange Agent (as defined) of any extension by oral or written notice and
will make a public announcement thereof prior to 9:00 a.m., New York City
time, on the next business day after each previously scheduled Expiration
Date, unless otherwise required by applicable law or regulation.
The Company reserves the right, in its reasonable discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or, if any of the
conditions set forth below under the caption "--Conditions" shall not have
been satisfied, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension or termination to the Exchange Agent or (ii)
to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by a public announcement thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered Holders, and
the Company will extend the Exchange Offer for a period of five to ten
business days, depending upon the significance of the amendment and the
manner of disclosure to the registered Holders, if the Exchange Offer would
otherwise expire during such five to ten business day period.
Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, termination or amendment of the
Exchange Offer, the Company shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
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PROCEDURES FOR TENDERING
Only a Holder of Old Notes may tender such Old Notes in the Exchange
Offer. A Holder who wishes to tender Old Notes for exchange pursuant to the
Exchange Offer must transmit a properly completed and duly executed Letter of
Transmittal, or a facsimile thereof, together with any required signature
guarantees, or, in the case of a book-entry transfer, an Agent's Message (as
defined), and any other required documents, to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date. In addition, either
(i) certificates for such Old Notes must be received by the Exchange Agent
prior to the Expiration Date along with the Letter of Transmittal, (ii) a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Old Notes into the Exchange Agent's account at The Depository Trust
Company ("DTC" or the "Book-Entry Transfer Facility") pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the Holder must comply
with the guaranteed delivery procedures described below. To be tendered
effectively, the Old Notes, or Book-Entry Confirmation, as the case may be,
the Letter of Transmittal and other required documents must be received by
the Exchange Agent at the address set forth below under "--Exchange Agent"
prior to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF
DOCUMENTS TO THE BOOK ENTRY TRANSFER FACILITY IN ACCORDANCE WITH ITS
PROCEDURE DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
DTC has authorized DTC participants that hold Old Notes on behalf of
beneficial owners of Old Notes through DTC to tender their Old Notes as if
they were Holders. To effect a tender of Old Notes, DTC participants should
either (i) complete and sign the Letter of Transmittal (or a manually signed
facsimile thereof), have the signature thereon guaranteed if required by the
instructions to the Letter of Transmittal, and mail or deliver the Letter of
Transmittal (or such manually signed facsimile) to the Exchange Agent
pursuant to the procedure set forth in "Procedures for Tendering" or (ii)
transmit their acceptance to DTC through the DTC Automated Tender Offer
Program ("ATOP") for which the transaction will be eligible and follow the
procedure for book-entry transfer set forth in "--Book-Entry Transfer."
The tender by a Holder will constitute an agreement between such Holder
and the Company in accordance with the terms and subject to the conditions
set forth herein and in the Letter of Transmittal.
The method of delivery of the Old Notes and the Letter of Transmittal and
all other required documents to the Exchange Agent is at the election and
risk of the Holder. Instead of delivery by mail, it is recommended that
Holders use an overnight or hand delivery service. In all cases, sufficient
time should be allowed to assure delivery to the Exchange Agent before the
Expiration Date. No Letter of Transmittal or Old Notes, or Book-Entry
Confirmation, as the case may be, should be sent to the Company.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such beneficial owner's own behalf, such
owner must, prior to completing and executing the Letter of Transmittal and
delivering such beneficial owner's Old Notes, either make appropriate
arrangement to register ownership of the Old Notes in such owner's name or
obtain a properly completed bond power from the registered Holder. The
transfer of registered ownership may take considerable time.
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power and signed by such
registered Holder as such registered Holder's name appears on such Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity,
such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act
must be submitted with the Letter of Transmittal.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old Notes tendered pursuant thereto are tendered (i) by a
registered Holder who has not completed the box entitled "Special Issuance
Instructions" or "Special
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Delivery Instructions" on the Letter of Transmittal or (ii) for the account
of an Eligible Institution. In the event that signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, such guarantee must be by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or an "eligible guarantor institution" within the meaning
of Rule 17Ad15 under the Exchange Act (an "Eligible Institution").
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all Old
Notes not properly tendered or any Old Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The
Company also reserves the right to waive any defects, irregularities or
conditions of tender as to particular Old Notes. The Company's interpretation
of the terms and conditions of the Exchange Offer (including the instructions
in the Letter of Transmittal) shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Old Notes must be cured within such time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall incur any
liability for failure to give notice of any defect or irregularity with
respect to any tender of Old Notes. Tenders of Old Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Old Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will not be deemed to have been properly tendered. Such Old Notes will
be returned by the Exchange Agent to the tendering Holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
By tendering, each Holder will represent to the Company, among other
things, that such Holder is not a Restricted Holder. In addition, each
Participating Broker-Dealer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
For each Old Note accepted for exchange, the Holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. For purposes of the Exchange Offer, the Company shall be deemed to
have accepted properly tendered Old Notes for exchange when, as and if the
Company has given oral or written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes or a timely
Book-Entry Confirmation of such Old Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility, a properly completed and duly executed
Letter of Transmittal or Agent's Message and all other required documents. If
any tendered Old Notes are not accepted for any reason set forth in the terms
and conditions of the Exchange Offer or if Old Notes are submitted for a
greater principal amount than the Holder desires to exchange, such unaccepted
or non-exchanged Old Notes will be returned without expense to the tendering
Holder thereof (or, in the case of Old Notes tendered by book-entry transfer
into the Exchange Agent's account at the Book-Entry Transfer Facility
pursuant to the book-entry transfer procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with such
Book-Entry Transfer Facility) as promptly as practicable after the Expiration
Date.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish a new account or utilize an existing
account with respect to the Old Notes at DTC promptly after the date of this
Prospectus, and any financial institution that is a participant in DTC and
whose name appears on a security position listing as the owner of Old Notes
may make a book-entry tender of Old Notes by causing DTC to transfer such Old
Notes into the Exchange Agent's account in accordance with DTC's procedures
for such transfer. However, although tender of Old Notes may be effected
through book-entry transfer into the Exchange Agent's account at DTC, the
Letter of Transmittal (or a manually signed facsimile thereof), properly
completed and validly executed, with any required signature guarantees, or an
Agent's Message in lieu of the Letter of Transmittal, and any other required
documents, must, in any case, be received by the Exchange Agent at its
address set forth below under the
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caption "Exchange Agent" on or prior to the Expiration Date, or the
guaranteed delivery procedures described below must be complied with. The
confirmation of book-entry transfer of Old Notes into the Exchange Agent's
account at DTC as described above is referred to herein as a "Book-Entry
Confirmation." Delivery of documents to DTC in accordance with DTC's
procedures does not constitute delivery to the Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a Book-Entry
Confirmation, which states that DTC has received an express acknowledgment
from the participant in DTC tendering the Old Notes stating (i) the aggregate
principal amount of Old Notes which have been tendered by such participant,
(ii) that such participant has received and agrees to be bound by the term of
the Letter of Transmittal and (iii) that the Company may enforce such
agreement against the participant.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date or (iii) who cannot complete the procedure for book-entry
transfer on a timely basis, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate
number(s) of such Old Notes and the principal amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the
Expiration Date, the Letter of Transmittal (or facsimile thereof) or, in
the case of a book-entry transfer, an Agent's Message, together with the
certificate(s) representing the Old Notes, or a Book-Entry Confirmation,
as the case may be, and any other documents required by the Letter of
Transmittal will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof) or, in the case of a book-entry transfer, an Agent's
Message, as well as the certificate(s) representing all tendered Old Notes
in proper form for transfer, or a Book-Entry Confirmation, as the case may
be, and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within three New York Stock Exchange
trading days after the Expiration Date.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number or numbers and principal amount of such Old Notes), (iii)
be signed by the Holder in the same manner as the original signature on the
Letter of Transmittal by which such Old Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Old Notes register the
transfer of such Old Notes into the name of the person withdrawing the tender
and (iv) specify the name in which any such Old Notes are to be registered,
if different from that of the Depositor. If certificates for Old Notes have
been delivered or otherwise identified to the Exchange Agent, then, prior to
the release of such certificates, the withdrawing Holder must also submit the
serial numbers of the particular certificates to be withdrawn and a signed
notice of withdrawal with signatures guaranteed by an Eligible Institution
unless such Holder is an Eligible Institution. If Old Notes have been
tendered pursuant to the procedure for book-entry transfer described above,
any notice of withdrawal must specify the name and number of the account at
the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the
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procedures of the Book-Entry Transfer Facility. All questions as to the
validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company in its sole discretion, which determination
shall be final and binding on all parties. Any Old Notes so withdrawn will be
deemed not to have been validly tendered for purposes of the Exchange Offer
and no New Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under
"--Procedures for Tendering" at any time prior to the Expiration Date.
Any Old Notes which have been tendered but which are not accepted for
payment due to withdrawal, rejection of tender or termination of the Exchange
Offer will be returned as soon as practicable after withdrawal, rejection of
tender or termination of the Exchange Offer to the Holder thereof without
cost to such Holder (or, in the case of Old Notes tendered by book-entry
transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book-entry transfer procedures described above, such
Old Notes will be credited to an account maintained with such Book-Entry
Transfer Facility for the Old Notes).
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall
not be required to accept for exchange, or exchange New Notes for, any Old
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company, or any material adverse development has occurred in any existing
action or proceeding with respect to the Company or any of its
subsidiaries;
(b) any change, or any development involving a prospective change, in the
business or financial affairs of the Company or any of its subsidiaries
has occurred which, in the reasonable judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer or materially impair the contemplated benefits of the Exchange Offer
to the Company;
(c) any law, statute, rule or regulation is proposed, adopted or enacted,
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company;
(d) there shall have occurred (i) any general suspension of trading in,
or general limitation on prices for securities on the New York Stock
Exchange, (ii) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States or any limitation by any
governmental agency or authority that adversely affects the extension of
credit to the Company or (iii) a commencement of war, armed hostilities or
other similar international calamity directly or indirectly involving the
United States; or, in the case any of the foregoing exists at the time of
commencement of the Exchange Offer, a material acceleration or worsening
thereof; or
(e) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable judgment, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
The foregoing conditions are for the sole benefit of the Company and may
be asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any
time and from time to time in its reasonable discretion. The failure by the
Company at any time to exercise any of the foregoing rights shall not be
deemed a waiver of such right and each such right shall be deemed an ongoing
right which may be asserted at any time and from time to time.
If the Company determines in its reasonable judgment that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old
Notes and return all tendered Old Notes to the tendering Holders, (ii) extend
the Exchange Offer and retain all Old Notes tendered prior to the expiration
of the Exchange
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Offer, subject, however, to the rights of Holders to withdraw such Old Notes
(see "--Withdrawal of Tenders" above) or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly
tendered Old Notes which have not been withdrawn. If such waiver constitutes
a material change to the Exchange Offer, the Company will promptly disclose
such waiver by means of a prospectus supplement that will be distributed to
the registered Holders, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
waiver and the manner of disclosure to the registered Holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Requests for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent addressed as follows:
To: The Bank of New York
By Hand/Overnight Courier:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attn: Benjamin Post
Reorganization Section
Facsimile Transmission
(212) 815-6339
Confirm by Telephone: (212) 815-6335
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional
solicitation may be made by telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however,
certificates representing New Notes, or Old Notes for principal amounts not
tendered or accepted for exchange, are to be delivered to, or are to be
issued in the name of, any person other than the registered Holder of the Old
Notes tendered, or if tendered Old Notes are registered in the name of any
person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old
Notes, which is the principal amount as reflected in the Company's accounting
records on the date of the exchange. Accordingly, no gain or loss for
accounting purposes will be recognized. The expenses of the Exchange Offer
and the unamortized expenses related to the issuance of the Old Notes will be
amortized over the term of the Notes.
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REGULATORY APPROVALS
The Company does not believe that the receipt of any material federal or
state regulatory approvals will be necessary in connection with the Exchange
Offer, other than the effectiveness of the Exchange Offer Registration
Statement under the Securities Act.
OTHER
Participation in the Exchange Offer is voluntary and Holders of Old Notes
should carefully consider whether to accept the terms and conditions thereof.
Holders of the Old Notes are urged to consult their financial and tax
advisors in making their own decisions on what action to take with respect to
the Exchange Offer.
CONSEQUENCES OF FAILURE TO PROPERLY TENDER OLD NOTES IN THE EXCHANGE OFFER
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent
of such Old Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, Holders of the Old
Notes desiring to tender such Old Notes in exchange for New Notes should
allow sufficient time to ensure timely delivery. The Company is under no duty
to give notification of defects or irregularities with respect to tenders of
Old Notes for exchange. Old Notes that are not tendered or that are tendered
but not accepted by the Company for exchange, will, following consummation of
the Exchange Offer, continue to be subject to the existing restrictions upon
transfer thereof under the Securities Act and, upon consummation of the
Exchange Offer, certain rights under the Registration Rights Agreement will
terminate.
In the event the Exchange Offer is consummated, the Company will not be
required to register the unexchanged Old Notes. Unexchanged Old Notes will
continue to be subject to the following restrictions on transfer: (i) the
unexchanged Old Notes may be resold only if registered pursuant to the
Securities Act, if any exemption from registration is available thereunder or
if neither such registration nor such exemption is required by law and (ii)
the unexchanged Old Notes will bear a legend restricting transfer in the
absence of registration or an exemption therefrom. The Company does not
currently anticipate that it will register the unexchanged Old Notes under
the Securities Act. To the extent that Old Notes are tendered and accepted in
connection with the Exchange Offer, any trading market for unexchanged Old
Notes could be adversely affected.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an agreement between United AutoCare and a wholly-owned
subsidiary of Trace, effective as of January 1, 1997, the Company's exposure
with respect to United AutoCare's extended service contracts are assumed by
such subsidiary in exchange for certain fees. As of September 30, 1997,
aggregate fees paid under such agreement totaled approximately $750,000.
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DESCRIPTION OF SENIOR CREDIT FACILITY
The Company has entered into a Credit Agreement, dated as of March 20,
1997, providing for revolving loans of up to $50.0 million from a syndicate
of banks led by The Bank of Nova Scotia and Morgan Guaranty Trust Company of
New York (as amended, the "Senior Credit Facility"). Of the available
commitments under the Senior Credit Facility, $45.0 million may be used to
finance acquisitions of automobile dealerships and related expenses and $5.0
million may be used for working capital purposes. All loans outstanding under
the Senior Credit Facility were repaid out of the proceeds of the Initial
Offering.
To permit the offering of the Series B Notes, the consent of the banks
representing a majority of the aggregate amount of the commitments under the
Senior Credit Facility was required to amend certain terms thereof, such as
the debt incurrence covenant and various financial ratios. Prior to such
offering, such banks waived, until January 15, 1998, any violations caused by
such offering and agreed to commence the requisite internal procedures to
effect a formal amendment. Pending such amendment, the Company will not be
permitted to borrow funds under the Senior Credit Facility. No assurance can
be given that such amendment will be effected, and if it is not, the Company
will need to secure a new credit facility.
Interest on outstanding loans is payable quarterly in arrears at the rate per
annum, at the option of the Company, of either (a) the Base Rate Margin plus
the higher of (i) the prime rate announced by The Bank of Nova Scotia or (ii)
the federal funds rate plus 0.5%, or (b) the Euro-Dollar Margin plus an
amount based on the applicable Euro-Dollar Reserve Percentage (as defined).
Through December 31, 1997, the Base Rate Margin is 1.75% and the Euro-Dollar
Margin is 2.75%. The interest rate at June 30, 1997 was 9.9%. After December
31, 1997, based upon the Company's Leverage Ratio (as defined) as of the end
of the last fiscal quarter for which the Company has delivered financial
statements to the banks, the Base Rate Margin will be between 1.75% and 3.0%
and the Euro-Dollar will be between 2.75% and 4.0%. Any overdue principal or
interest will bear interest at the rate per annum of 2.0% plus the applicable
margin. In addition, the Company is required to pay a quarterly commitment
fee of 0.5% per annum on the amount of unused commitments.
Subject to certain conditions, the Company is entitled to borrow money under
the Senior Credit Facility at any time until March 19, 1998. The Company is
required to repay loans outstanding thereunder, unless otherwise accelerated
upon an event of default, in accordance with the following schedule:
<TABLE>
<CAPTION>
PRINCIPAL REPAYMENT DATE AMOUNT OF REPAYMENT
------------------------ -------------------
<S> <C>
June 20, 1998 $ 4,000,000
September 20, 1998 4,000,000
December 20, 1998 4,000,000
March 20, 1999 4,000,000
June 20, 1999 4,000,000
September 20, 1999 4,000,000
December 20, 1999 4,000,000
March 20, 2000 22,000,000
</TABLE>
If the aggregate principal amount of loans outstanding on March 19, 1998
is less than $50.0 million, the amount of later required repayments will be
reduced. In addition, the Company is required to repay loans in an amount
equal to (i) 80% of the net proceeds of certain types of equity issuances and
(ii) 50% of any Excess Cash Flow (as defined) for the 1997 or 1998 fiscal
year. The Company may make prepayments at any time without payment of any
penalty or premium (other than breakage costs in connection with Euro-Dollar
loans).
The Senior Credit Facility contains various covenants and events of default
customary for agreements of this type.
Indebtedness under the Senior Credit Facility ranks senior to the Notes. The
Senior Credit Facility is guaranteed by substantially all of the Company's
subsidiaries, is secured by the pledge of the ownership interests of most of
such subsidiaries and requires the Company, to the extent permitted, to
deliver a guarantee and a pledge with respect to each newly acquired
subsidiary. Such requirement, as well as certain other covenants under the
Senior Credit Facility, may be waived with the consent of the banks
representing a majority of the aggregate amount of the commitments
thereunder.
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<PAGE>
DESCRIPTION OF NOTES
As used below in this "Description of Notes" section, the "Company" means
United Auto Group, Inc. but not any of its subsidiaries. The Old Notes were
issued, and the New Notes are to be issued, under an Indenture dated as of
July 23, 1997 (as amended, the "Indenture") among the Company, the Guarantors
and The Bank of New York, as Trustee (the "Trustee"). The terms of the New
Notes are identical in all material respects to the terms of the Old Notes,
except that the New Notes have been registered under the Securities Act and
therefore will not bear legends restricting their transfer and will not
contain terms providing for an increase in the interest rate thereon under
certain circumstances described in the Registration Rights Agreement. The
terms of the Notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). The Notes are subject to all such terms, and
holders of the Notes are referred to the Indenture and the Trust Indenture
Act for a statement thereof. A copy of the Indenture and the Registration
Rights Agreement are filed as exhibits to the Registration Statement of which
this Prospectus is a part. The statements under this caption relating to the
Notes, the Indenture and the Registration Rights Agreement are summaries of
all the material terms thereof but do not purport to be complete, and where
reference is made to particular provisions of the Indenture or the
Registration Rights Agreement, such provisions, including the definitions of
certain terms, are qualified in their entirety by such reference. Terms
defined under "--Certain Definitions" have the meanings in this "Description
of Notes" as set forth therein.
The Notes are unsecured obligations of the Company, limited to $150.0
million aggregate principal amount. The Notes are issued only in fully
registered form, without coupons, in denominations of $1,000 and any integral
multiple thereof. No service charge will be made for any registration of
transfer or exchange of Notes, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith. Initially, the Trustee will act as paying agent and
registrar for the Notes.
PRINCIPAL, MATURITY AND INTEREST
The Notes were issued on the Issue Date at 98.529% of their principal
amount and will mature on July 15, 2007. The Notes bear interest at the rate
of 11% per annum from the Issue Date or from the most recent interest payment
date to which interest has been paid or provided for. Interest is payable
semiannually on January 15 and July 15 of each year, commencing January 15,
1998, to the Person in whose name a Note is registered (a "Holder") at the
close of business on the preceding January 1 or July 1 (each, a "Record
Date"), as the case may be. Interest on the Notes is computed on the basis of
a 360-day year of twelve 30-day months. Holders must surrender the Notes to
the paying agent for the Notes to collect principal payments. The Company
will pay principal and interest by check and may mail interest checks to a
Holder's registered address.
OPTIONAL REDEMPTION
The Notes are subject to redemption, at the option of the Company, in
whole or in part, at any time on or after July 15, 2002 and prior to
maturity, upon not less than 30 or more than 60 days' notice mailed to each
Holder of Notes to be redeemed, in amounts of $1,000 or an integral multiple
thereof, at the following redemption prices (expressed as percentages of
principal amount), plus accrued interest to but excluding the date fixed for
redemption (subject to the right of Holders on the relevant Record Date to
receive interest due on an interest payment date that is on or prior to the
date fixed for redemption), if redeemed during the 12-month period beginning
July 15 of the years indicated:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------- ------------
<S> <C>
2002 ................ 105.500%
2003 ................ 103.667
2004 ................ 101.833
2005 and thereafter 100.000
</TABLE>
In addition, prior to July 15, 2000, the Company may redeem Notes with the
net cash proceeds received by the Company from one or more Public Equity
Offerings, at a redemption price equal to 111% of the
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<PAGE>
principal amount thereof, plus accrued and unpaid interest to (but excluding)
the date fixed for redemption; provided, however, that at least $100.0
million in aggregate principal amount of Notes remains outstanding
immediately after any such redemption (excluding any Notes owned by the
Company or any of its Affiliates). Notice of redemption pursuant to this
paragraph must be mailed to Holders of Notes to be redeemed not later than 60
days following the consummation of the relevant Public Equity Offering.
Selection of Notes for any partial redemption shall be made by the
Trustee, in accordance with the rules of any national securities exchange on
which the Notes may be listed or, if the Notes are not so listed, pro rata or
by lot or in such other manner as the Trustee shall deem appropriate and
fair. Notes in denominations larger than $1,000 may be redeemed in part but
only in integral multiples of $1,000. Notice of redemption will be mailed to
each Holder of Notes to be redeemed at such Holder's registered address. On
and after the date fixed for redemption, interest will cease to accrue on
Notes or portions thereof called for redemption.
The Notes do not have the benefit of any sinking fund.
CHANGE OF CONTROL
Within 30 days following a Change of Control, the Company will commence an
Offer to Purchase all outstanding Notes at a purchase price in cash equal to
101% of their principal amount, plus accrued and unpaid interest to the
Purchase Date. Such Offer to Purchase will be consummated not earlier than 30
days and not later than 60 days after the commencement thereof. Each Holder
shall be entitled to tender all or any portion of the Notes owned by such
Holder pursuant to the Offer to Purchase, subject to the requirement that any
portion of a Note tendered must bear an integral multiple of $1,000 principal
amount.
A "Change of Control" will be deemed to have occurred in the event that
(whether or not otherwise permitted by the Indenture) after the Issue Date
(a) any transaction (including, without limitation, any merger or
consolidation) shall be consummated after which any Person or any Persons
acting together that would constitute a group (for purposes of Section 13(d)
of the Exchange Act, or any successor provision thereto) (a "Group"),
together with any Affiliates, other than Permitted Holders, shall
"beneficially own" (as defined in Rule 13d-3 under the Exchange Act, or any
successor provision thereto) at least (x) 50% of the voting power of the
outstanding Voting Stock of the Company or (y) 40% of the voting power of the
Voting Stock of the Company, and the Permitted Holders own in the aggregate
less than such Person or Group (in doing the "own less than" comparison in
this clause (ii), the holdings of the Permitted Holders who are members of
the new Group shall not be counted in the voting power of such new Group);
(b) (x) the Company or any Restricted Subsidiary sells, leases or otherwise
transfers all or substantially all of the assets of the Company and the
Restricted Subsidiaries, taken as a whole, to any Person other than a Wholly
Owned Subsidiary, or (y) the Company consolidates with or merges with or into
another Person or any Person consolidates with, or merges with or into, the
Company, in either case under this clause (b), in one transaction or series
of related transactions in which immediately after the consummation thereof
Persons owning a majority of the voting power of the Voting Stock of the
Company immediately prior to such consummation shall cease to own a majority
of the voting power of the Voting Stock of the Company or the surviving or
transferee entity if other than the Company; (c) Continuing Directors cease
to constitute at least a majority of the Board of Directors of the Company;
or (d) the stockholders of the Company approve any plan or proposal for the
liquidation or dissolution of the Company.
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1
under, the Exchange Act. The Company will not be required to make an Offer to
Purchase upon a Change of Control if a third party makes the Offer to
Purchase in the manner, at the times and otherwise in compliance with the
requirements set forth in the Indenture applicable to an Offer to Purchase
made by the Company and purchases all Notes validly tendered and not
withdrawn under such Offer to Purchase.
With respect to the sale of assets referred to in the definition of
"Change of Control," the phrase "all or substantially all" of the assets of
the Company and the Restricted Subsidiaries, taken as a whole, will likely be
interpreted under applicable law and will be dependent upon particular facts
and circumstances. As a result, there may be a degree of uncertainty in
ascertaining whether a sale or transfer of "all or substantially
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<PAGE>
all" of the assets of the Company and the Restricted Subsidiaries, taken as a
whole, has occurred. In addition, no assurances can be given that the Company
will be able to acquire Notes tendered upon the occurrence of a Change of
Control. The ability of the Company to pay cash to the Holders upon a Change
of Control may be limited by its then existing financial resources. The
Senior Credit Facility contains certain covenants that may limit or impede
the Company's ability to repurchase Notes upon a Change of Control, and
future debt agreements of the Company may prohibit or limit such repurchase.
If the Company does not obtain a waiver or consent from the holders of such
Indebtedness (if required) or repay such Indebtedness, the Company may be
prohibited from repurchasing Notes. In such event, the Company's failure to
purchase tendered Notes would constitute an Event of Default under the
Indenture which would in turn constitute a default under the Senior Credit
Facility and possibly other Indebtedness. None of the provisions relating to
a repurchase upon a Change of Control are waivable by the Board of Directors
of the Company or the Trustee. See "Risk Factors -- Change of Control."
The foregoing provisions will not prevent the Company from entering into
transactions of the types described above with management or their
affiliates. In addition, such provisions may not necessarily afford the
Holders protection in the event of a highly leveraged transaction, including
a reorganization, restructuring, merger or similar transaction involving the
Company that may adversely affect the Holders because such transactions may
not involve a shift in voting power or beneficial ownership, or even if they
do, may not involve a shift of the magnitude required under the definition of
Change of Control to trigger the provisions.
SUBORDINATION
The Company's obligations with respect to the payment of the principal of
and interest on the Notes is subordinated in right of payment, to the extent
and in the manner provided in the Indenture, to the prior payment in full of
all Senior Debt of the Company.
Upon any payment or distribution of assets or securities of the Company of
any kind or character (whether in cash, property or securities) upon any
dissolution or winding up or total or partial liquidation or reorganization
of the Company, whether voluntary or involuntary or in bankruptcy,
insolvency, receivership or other proceedings, all amounts due or to become
due with respect to Senior Debt of the Company (including any interest
accruing subsequent to an event of bankruptcy or insolvency, whether or not
allowed or allowable thereunder) shall first be paid in full, or payment
provided for, before the Holders or the Trustee on their behalf shall be
entitled to receive any payment by the Company of the principal of or
interest on the Notes, or any payment to acquire any of the Notes for cash,
property or securities, or any distribution with respect to the Notes of any
cash, property or securities. Before any payment may be made by or on behalf
of the Company of the principal of or interest on the Notes upon any such
dissolution or winding up or liquidation or reorganization, any payment or
distribution of assets or securities of the Company of any kind or character,
whether in cash, property or securities, to which the Holders or the Trustee
on their behalf would be entitled, but for the subordination provisions of
the Indenture, shall be made by the Company, or by any receiver, trustee in
bankruptcy, liquidating trustee, agent or other person making such payment or
distribution, directly to the holders of Senior Debt of the Company (pro rata
to such holders on the basis of the respective amounts of Senior Debt held by
such holders) or their representative(s) or to the trustee(s) under any
indenture pursuant to which any such Senior Debt may have been issued as
their respective interests may appear, to the extent necessary to pay all
such Senior Debt in full after giving effect to any concurrent payment,
distribution or provision therefor to or for the holders of such Senior Debt.
No direct or indirect payment by or on behalf of the Company of principal
of or interest on the Notes (other than payments to Holders from funds held
in trust for the benefit of Holders pursuant to the defeasance provisions of
the Indenture), whether pursuant to the terms of the Notes or upon
acceleration or otherwise, will be made if, at the time of such payment,
there exists a default in the payment of all or any portion of the
obligations on any Designated Senior Debt, whether at maturity, on account of
mandatory redemption or prepayment, acceleration or otherwise, and such
default shall not have been cured or waived. In addition, during the
continuance of any non-payment default or non-payment event of default with
respect to any Designated Senior Debt pursuant to which the maturity thereof
may be accelerated, and upon
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<PAGE>
receipt by the Trustee of written notice (a "Payment Blockage Notice") from a
holder or holders of such Designated Senior Debt or the trustee or agent
acting on behalf of such Designated Senior Debt, then, unless and until such
default or event of default has been cured or waived or has ceased to exist
or such Designated Senior Debt has been discharged or repaid in full, or the
requisite holders of such Designated Senior Debt have otherwise agreed in
writing, no payment or distribution will be made by or on behalf of the
Company on account of or with respect to the Notes (except payments to
Holders from funds held in trust for the benefit of Holders pursuant to the
defeasance provisions of the Indenture) during a period (a "Payment Blockage
Period") commencing on the date of receipt of such Payment Blockage Notice by
the Trustee and ending 179 days thereafter. Notwithstanding anything herein
to the contrary, (x) in no event will a Payment Blockage Period extend beyond
179 days from the date of the Payment Blockage Notice in respect thereof was
given and (y) there must be 180 days in any 365 day period during which no
Payment Blockage Period is in effect. Not more than one Payment Blockage
Period may be commenced with respect to the Notes during any period of 365
consecutive days. No default or event of default that existed or was
continuing on the date of commencement of any Payment Blockage Period with
respect to the Designated Senior Debt initiating such Payment Blockage Period
may be, or be made, the basis for the commencement of any other Payment
Blockage Period by the holder or holders of such Designated Senior Debt or
the trustee or agent acting on behalf of such Designated Senior Debt, whether
or not within a period of 365 consecutive days, unless such default or event
of default has been cured or waived for a period of not less than 90
consecutive days.
The failure to make any payment or distribution for or on account of the
Notes by reason of the provisions of the Indenture described under this
section will not be construed as preventing the occurrence of an Event of
Default described in clause (a), (b) or (c) of the first paragraph under
"--Events of Default."
By reason of the subordination provisions described above, in the event of
insolvency of the Company, funds which would otherwise be payable to Holders
will be paid to holders of Senior Debt of the Company to the extent necessary
to repay such Senior Debt in full, and the Company may be unable to fully
meet its obligations with respect to the Notes. Subject to the restrictions
set forth in the Indenture, in the future the Company may incur additional
Senior Debt. See "Risk Factors -- Subordination of the Notes and the
Guarantees; Release of Guarantees."
At September 30, 1997, there was an aggregate of $294.6 million of Senior
Debt of the Company and the Guarantors outstanding.
THE GUARANTEES
The Guarantors, jointly and severally, fully and unconditionally guarantee
(subject to fraudulent conveyance laws) on a senior subordinated basis all of
the obligations of the Company under the Indenture, including its obligation
to pay principal of and interest on the Notes. The obligation of each
Guarantor is limited to the maximum amount which, after giving effect to all
other contingent and fixed liabilities of such Guarantor, will result in the
obligations of such Guarantor under its Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. See
"Risk Factors -- Fraudulent Conveyance Considerations." Except as provided in
"--Covenants," the Company is not restricted from selling or otherwise
disposing of a Guarantor.
The Company will not permit any Subsidiary to become an obligor (including
as guarantor) under, or in respect of, the Senior Credit Facility without
causing such Subsidiary to become a Guarantor. Any such Subsidiary shall (a)
execute and deliver a supplemental indenture in form reasonably satisfactory
to the Trustee pursuant to which such Subsidiary shall unconditionally
guarantee all of the Company's obligations under the Notes and the Indenture
on the terms set forth in the Indenture and (b) deliver to the Trustee an
opinion of counsel that such supplemental indenture has been duly authorized,
executed and delivered by such Subsidiary and constitutes a valid and legally
binding and enforceable obligation of such Subsidiary (subject, in the case
of enforceability, to customary bankruptcy, insolvency, fraudulent conveyance
and similar exceptions).
40
<PAGE>
Any Subsidiary of the Company that ceases to be an obligor (including as
guarantor) under, or in respect of, the Senior Credit Facility shall be
released from its Guarantee upon delivery of an officers' certificate to the
Trustee certifying to such effect.
In addition, the Indenture provides that if all of the Capital Stock of a
Guarantor is sold by the Company or any Subsidiary in a transaction
constituting an Asset Disposition (or which, but for the provisions of clause
(c) of the definition of such term, would constitute an Asset Disposition),
and, if required by the Indenture, (x) the Net Available Proceeds from such
Asset Disposition are used in accordance with the covenant described under
"--Covenants -- Limitation on Certain Asset Dispositions" or (y) the Company
delivers to the Trustee an Officers' Certificate to the effect that the Net
Available Proceeds from such Asset Disposition will be used in accordance
with the covenant described under "--Covenants -- Limitation on Certain Asset
Dispositions" within the time limits specified by such covenant, then such
Guarantor shall be released and discharged from its Guarantee upon such use
in the case of clause (x) or upon such delivery in the case of clause (y).
The Company may, at its option, cause any of its Subsidiaries to be a
Guarantor.
The obligations of each Guarantor under its Guarantee are subordinated to
the prior payment in full of all Senior Debt of such Guarantor on the same
basis as the obligations of the Company on the Notes are subordinated to
Senior Debt of the Company. See "Risk Factors -- Subordination of the Notes
and the Guarantees; Release of Guarantees." Each Guarantee ranks pari passu
in right of payment with any other senior subordinated indebtedness of the
Guarantor thereof and senior to any future Subordinated Indebtedness of such
Guarantor.
Separate financial statements of the Guarantors are not included herein
because (i) the Company is a holding company with no independent operations,
(ii) the Guarantees are full and unconditional (except to the extent
necessary to comply with fraudulent conveyance laws), (iii) the Guarantors
are jointly and severally liable with respect to the Notes and (iv) Atlantic
Finance and its subsidiaries are the sole subsidiaries of the Company that
are not Guarantors and financial information with respect to such entities is
set forth separately on the face of the Company's consolidated financial
statements under the caption "Auto Finance."
COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Indebtedness
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, Incur any Indebtedness, except:
(i) Indebtedness of the Company or any Restricted Guarantor, if the
Consolidated Cash Flow Ratio for the four full fiscal quarters for which
quarterly or annual financial statements are available next preceding the
Incurrence of such Indebtedness would be greater than 2.0 to 1.0, and
Permitted Refinancings thereof;
(ii) Indebtedness of the Company Incurred under the Senior Credit
Facility in an aggregate amount not to exceed $100.0 million less any
amount of Indebtedness repaid from the proceeds of Asset Dispositions as
provided under "--Limitation on Certain Asset Dispositions," which
repayment results in a permanent reduction of the commitments under the
Senior Credit Facility;
(iii) Indebtedness owed by the Company to any Restricted Guarantor or
Indebtedness owed by a Restricted Subsidiary to the Company or a
Restricted Guarantor; provided, however, upon either (x) the transfer or
other disposition by such Restricted Guarantor or the Company of any
Indebtedness so permitted under this clause (iii) to a Person other than
the Company or another Restricted Guarantor or (y) such Restricted
Guarantor's ceasing to be a Restricted Guarantor, the provisions of this
clause (iii) shall no longer be applicable to such Indebtedness and such
Indebtedness shall be deemed to have been Incurred at the time of any such
issuance, sale, transfer or other disposition, as the case may be;
(iv) Interest Rate Obligations of the Company or any Restricted
Subsidiary relating to Indebtedness of the Company or such Restricted
Subsidiary permitted to be Incurred under the Indenture; provided,
41
<PAGE>
however, that the notional amount of such Interest Rate Obligations does
not exceed the amount of the Indebtedness to which such Interest Rate
Obligations relate;
(v) Indebtedness of the Company or any Restricted Subsidiary under
Currency Agreements to the extent relating to (x) Indebtedness of the
Company or any Restricted Subsidiary permitted to be Incurred under the
Indenture and/or (y) obligations to purchase assets, properties or
services incurred in the ordinary course of business of the Company or any
Restricted Subsidiary; provided, however, that such Currency Agreements do
not increase the Indebtedness or other obligations of the Company and the
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities or
compensation payable thereunder;
(vi) Permitted Refinancings of any Indebtedness to the extent outstanding
on the Issue Date;
(vii) Indebtedness of the Company under the Notes and the Exchange Notes,
and Permitted Refinancings thereof;
(viii) Floor Plan Notes;
(ix) Acquired Indebtedness and Permitted Refinancings thereof;
(x) guarantees by the Company or any Restricted Guarantor of Indebtedness
of the Company or any Restricted Subsidiary otherwise permitted to be
Incurred under the Indenture;
(xi) Purchase Money Debt, and Permitted Refinancings thereof, in an
aggregate amount not to exceed $35.0 million at any time outstanding;
(xii) Atlantic Finance Loans; and
(xiii) Indebtedness of the Company or any Restricted Guarantor not
otherwise permitted to be Incurred pursuant to clauses (i) through (xii)
above which, together with any other outstanding Indebtedness Incurred
pursuant to this clause (xiii), does not exceed $20.0 million in the
aggregate at any time outstanding.
Limitation on Restricted Payments
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly,
(i) declare or pay any dividend, or make any distribution of any kind or
character (whether in cash, property or securities), in respect of any
class of Capital Stock of the Company or any Restricted Subsidiary
(excluding any (x) dividends or distributions payable solely in shares of
Qualified Stock or in options, warrants or other rights to acquire such
shares, or (y) in the case of any Restricted Subsidiary, dividends or
distributions payable to the Company or a Restricted Subsidiary),
(ii) purchase, redeem or otherwise acquire or retire for value any shares
of Capital Stock of the Company or any Restricted Subsidiary, any options,
warrants or rights to purchase or acquire such shares or any securities
convertible or exchangeable into such shares (excluding any such shares,
options, warrants, rights or securities that are owned by the Company or a
Restricted Subsidiary),
(iii) make any Investment (other than a Permitted Investment), or make
any payment on a guarantee of any obligation of any Person other than the
Company or a Restricted Subsidiary, or
(iv) redeem, defease, repurchase, retire or otherwise acquire or retire
for value, prior to any scheduled maturity, repayment or sinking fund
payment, Subordinated Indebtedness (each of the transactions described in
clauses (i) through (iv) (other than any exception to any such clause)
being a "Restricted Payment")
if, at the time thereof:
(1) a Default shall have occurred and be continuing, or
(2) upon giving effect to such Restricted Payment, the Company could
not Incur at least $1.00 of additional Indebtedness pursuant to the
terms of the Indenture described in clause
(i) of "--Limitation on Incurrence of Indebtedness," or
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<PAGE>
(3) upon giving effect to such Restricted Payment, the aggregate
amount of all Restricted Payments (other than any Restricted Payment
described in clause (ii), (iii), (iv), (v), (vi), (vii) or (viii) of
the next paragraph) (including the Fair Market Value of all Restricted
Payments not made in cash or Cash Equivalents, valued at the time of
each such Restricted Payment) declared or made on or after the Issue
Date exceeds the sum of the following (the "Basket"):
(a) 50% of cumulative Consolidated Net Income of the Company (or,
in the case cumulative Consolidated Net Income of the Company
shall be negative, less 100% of such deficit) for the period
(treated as one accounting period) from the beginning of the
fiscal quarter in which the Issue Date occurs through the last day
of the fiscal quarter for which financial statements are
available; plus
(b) the aggregate net cash proceeds received (other than from a
Subsidiary of the Company) after the Issue Date from the issuance
of, or equity contribution with respect to, shares of Qualified
Stock and warrants, rights or options to purchase or acquire such
shares; plus
(c) the amount by which Indebtedness of the Company or any
Restricted Subsidiary (other than Subordinated Indebtedness) is
reduced on the Company's balance sheet upon the conversion or
exchange (other than by a Subsidiary of the Company) subsequent to
the Issue Date into Qualified Stock (less the amount of any cash,
or the Fair Market Value of any other property, distributed by the
Company or any Restricted Subsidiary upon such conversion or
exchange to the extent such cash or other property reduced the
amount of such Indebtedness); plus
(d) the aggregate after-tax net proceeds (consisting of cash and
Cash Equivalents) from the sale or other disposition of, or any
distribution in respect of, any Investment (other than any such
proceeds that the Company elects to be applied toward the
calculation of Net Investment under clause (vii) or (viii) of the
next paragraph) constituting a Restricted Payment made after the
Issue Date; provided, however, that any gain (or loss) on such
sale or disposition or any such distribution included in such
after-tax net proceeds shall not be included in determining
Consolidated Net Income for purposes of clause (a) above;
provided, further, that amounts included in this clause (d) shall
not exceed the Net Investment by the Company in the Person (or its
Subsidiaries) in respect of which such Investment was made; plus
(e) $10.0 million.
The foregoing provision will not prohibit any of the following:
(i) any dividend on any class of Capital Stock of the Company or any
Restricted Subsidiary paid within 60 days after the declaration thereof
if, on the date when the dividend was declared, the Company or such
Restricted Subsidiary, as the case may be, could have paid such dividend
in accordance with the provisions of the Indenture;
(ii) the Refinancing of any Subordinated Indebtedness otherwise permitted
pursuant to the terms of the Indenture described in clause (v) of
"--Limitation on Incurrence of Indebtedness";
(iii) the exchange or conversion of any Indebtedness of the Company or
any Restricted Subsidiary for or into Qualified Stock;
(iv) any Restricted Payment made with the proceeds of a substantially
concurrent sale (other than to a Subsidiary of the Company) for cash of
Qualified Stock;
(v) any Investment to the extent that the consideration therefor consists
of Qualified Stock;
(vi) required or ratable payments to holders of minority interests in any
Restricted Subsidiary;
(vii) any Investments in Atlantic Finance or any of its Subsidiaries;
provided, however, that the Net Investment in respect of Investments made
pursuant to this clause (vii) shall not exceed $25.0 million in the
aggregate at any time outstanding; and
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(viii) Investments not otherwise permitted pursuant to clauses (i)
through (vii) above; provided, however, that the Net Investment in respect
of Investments made pursuant to this clause (viii) shall not exceed $20.0
million in the aggregate at any time outstanding;
provided, however, that (I) with respect to each of clauses (iv), (v),
(vi), (vii) and (viii) no Default shall have occurred and be continuing and
(II) no issuance of Qualified Stock pursuant to clause (ii), (iii), (iv),
(v), (vi), (vii) or (viii) shall increase the Basket.
The Indenture provides that for purposes of this covenant, (i) an
"Investment" shall be deemed to be made at the time any Restricted Subsidiary
is designated as an Unrestricted Subsidiary in an amount (proportionate to
the Company's equity interest in such Restricted Subsidiary) equal to the
Fair Market Value of such Restricted Subsidiary at such time; provided,
however, that in the event that any Subsidiary acquired after the Issue Date
is designated an Unrestricted Subsidiary, the amount of Investment deemed
made at such time shall be equal to the Net Investment of the Company and the
Restricted Subsidiaries in such Restricted Subsidiary at such time; (ii) upon
the redesignation of an Unrestricted Subsidiary as a Restricted Subsidiary,
the Basket shall be increased by the amount (proportionate to the Company's
equity interest in such Unrestricted Subsidiary) equal to the lesser of (x)
the Fair Market Value of such Unrestricted Subsidiary at the time of such
redesignation and (y) the Net Investment of the Company and the Restricted
Subsidiaries in such Unrestricted Subsidiary; provided, however, that in the
event that any Subsidiary acquired after the Issue Date is redesignated a
Restricted Subsidiary, the amount of such increase shall be equal to the Net
Investment of the Company and the Restricted Subsidiaries in such
Unrestricted Subsidiary at such time; and (iii) an "Investment" shall be
deemed to be made at the time that the ownership or voting power of the
Company and the Restricted Subsidiaries in any Restricted Subsidiary is
reduced to below majority (but greater than zero) in an amount equal to the
Fair Market Value of such former Restricted Subsidiary at such time
multiplied by the percentage ownership or voting power (whichever is less) of
the Company and the Restricted Subsidiaries in such former Restricted
Subsidiary; provided, however, that in the event that the ownership or voting
power of any Subsidiary acquired after the Issue Date is so reduced, the
amount of Investment deemed made at such time shall be equal to the Net
Investment of the Company and the Restricted Subsidiaries in such former
Restricted Subsidiary at such time. Notwithstanding the foregoing, Atlantic
Finance and its Subsidiaries shall be designated Unrestricted Subsidiaries as
of the Issue Date and such designation shall not be deemed an Investment.
Limitation on Restrictions Affecting Restricted Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary (other
than a Restricted Guarantor) to, directly or indirectly, create or otherwise
cause or suffer to exist any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to (i) pay dividends or make any other
distributions in respect of its Capital Stock or pay any Indebtedness or
other obligation owed to the Company or any Restricted Subsidiary, (ii) make
loans or advances to, or guarantee any Indebtedness of, the Company or any
Restricted Subsidiary or (iii) transfer any of its property or assets to the
Company or any Restricted Subsidiary, except for (a) any encumbrance or
restriction existing under or by reason of any agreement in effect on the
Issue Date (including the Senior Credit Facility) as any such agreement is in
effect on such date or as such agreement is amended thereafter but only if
such encumbrance or restriction is no more restrictive than in the agreement
being amended, (b) any encumbrance or restriction under any agreement of or
relating to such Restricted Subsidiary prior to the date on which such
Restricted Subsidiary was acquired by the Company and outstanding on such
date and not Incurred in anticipation or contemplation of becoming a
Restricted Subsidiary and provided such encumbrance or restriction shall not
apply to any assets of the Company or any Restricted Subsidiary other than
the Restricted Subsidiary so acquired or its assets, (c) customary provisions
contained in an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of a
Restricted Subsidiary; provided, however, that such encumbrance or
restriction is applicable only to such Restricted Subsidiary or assets, (d)
any encumbrance or restriction existing under or by reason of applicable law,
(e) customary provisions restricting subletting or assignment of any lease
governing any leasehold interest of any Restricted Subsidiary, (f) covenants
in franchise agreements with car manufacturers customary for franchise
agreements in the automobile retailing industry, (g) covenants in purchase
money obligations for property restricting transfer of such property, (h)
covenants in security agreements securing Indebtedness of a Restricted
Subsidiary (to the
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extent that such Liens were otherwise incurred in accordance with
"--Limitation on Liens" below) that restrict the transfer of property subject
to such agreements and (i) customary covenants in Floor Plan Notes.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
incur or suffer to exist any Lien on or with respect to any property or
assets of the Company or any Restricted Subsidiary owned on the Issue Date or
thereafter acquired or on the income or profits thereof to secure
Indebtedness, without making, or causing such Restricted Subsidiary to make,
effective provision for securing the Notes or the Guarantee of such
Restricted Subsidiary (and, if the Company shall so determine, any other
Indebtedness of the Company or such Restricted Subsidiary, including
Subordinated Indebtedness; provided, however, that Liens securing the Notes
and any Indebtedness pari passu with the Notes are senior to such Liens
securing such Subordinated Indebtedness) equally and ratably with such
Indebtedness or, in the event such Indebtedness is subordinate in right of
payment to the Notes or the Guarantee, prior to such Indebtedness, as to such
property or assets for so long as such Indebtedness shall be so secured.
The foregoing restrictions shall not apply to (i) Liens existing on the
Issue Date securing Indebtedness existing on the Issue Date; (ii) Liens
securing Senior Debt (including Liens securing Floor Plan Notes and
Indebtedness under the Senior Credit Facility) and any guarantees thereof to
the extent that the Indebtedness secured thereby is permitted to be incurred
under the covenant described under "--Limitation on Incurrence of
Indebtedness;" (iii) Liens securing only the Notes and the Guarantees, if
any; (iv) Liens in favor of the Company or a Guarantor, if any; (v) Liens to
secure Indebtedness Incurred for the purpose of financing all or any part of
the purchase price or the cost of construction or improvement of the property
(or any other capital expenditure financing) subject to such Liens; provided,
however, that (a) the aggregate principal amount of any Indebtedness secured
by such a Lien does not exceed 100% of such purchase price or cost, (b) such
Lien does not extend to or cover any other property other than such item of
property and any improvements on such item, (c) the Indebtedness secured by
such Lien is Incurred by the Company within 180 days of the acquisition,
construction or improvement of such property and (d) the Incurrence of such
Indebtedness is permitted by the provisions of the Indenture described under
"--Limitation on Incurrence of Indebtedness;" (vi) Liens on property existing
immediately prior to the time of acquisition thereof (and not created in
anticipation or contemplation of the financing of such acquisition); (vii)
Liens on property of a Person existing at the time such Person is acquired or
merged with or into or consolidated with the Company or any such Restricted
Subsidiary (and not created in anticipation or contemplation thereof); (viii)
Liens to secure Indebtedness Incurred to Refinance, in whole or in part, any
Indebtedness secured by Liens referred to in the foregoing clauses (i)-(vii)
so long as such Liens do not extend to any property other than the property
securing the Indebtedness being Refinanced and the principal amount of
Indebtedness so secured is not increased except for the amount of any premium
required to be paid in connection with such Refinancing pursuant to the terms
of the Indebtedness Refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such Refinancing by
means of a tender offer, exchange offer or privately negotiated repurchase,
plus the expenses of the issuer of such Indebtedness reasonably incurred in
connection with such Refinancing; and (viii) Liens in favor of the Trustee as
provided for in the Indenture on money or property held or collected by the
Trustee in its capacity as Trustee.
Limitation on Certain Asset Dispositions
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, make one or more Asset Dispositions unless: (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration for such Asset Disposition at least equal to the Fair Market
Value of the assets sold or disposed of; and (ii) not less than 80% of the
consideration for the disposition consists of (A) cash or Cash Equivalents
(including any held in escrow); (B) the assumption of Indebtedness (other
than non-recourse Indebtedness or any Subordinated Indebtedness) of the
Company or such Restricted Subsidiary or other obligations relating to such
assets (provided, however, that the Company and the Restricted Subsidiaries
are released from any liability for such Indebtedness); (C) Replacement
Assets or (D) any combination of the foregoing clauses (A), (B) and (C). All
Net Available Proceeds of an Asset Disposition shall be applied within
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360 days of such Asset Disposition (i) to capital investments in properties
or assets that will be used in a business of the Company and the Restricted
Subsidiaries conducted on the Issue Date or in a business reasonably related
thereto and/or (ii) to the permanent reduction and prepayment of any Senior
Debt of the Company then outstanding (including a permanent reduction of
commitments in respect thereof). Any Net Available Proceeds from any Asset
Disposition that are not applied as provided in the immediately preceding
sentence shall be used not later than the 361st day after such Asset
Disposition to make an Offer to Purchase outstanding Notes at a purchase
price in cash equal to 100% of their principal amount, plus accrued and
unpaid interest to the Purchase Date. Notwithstanding the foregoing, the
Company may defer making any Offer to Purchase outstanding Notes until there
are aggregate unutilized Net Available Proceeds from Asset Dispositions
otherwise subject to the two immediately preceding sentences equal to or in
excess of $10.0 million (at which time, the entire unutilized Net Available
Proceeds from Asset Dispositions otherwise subject to the two immediately
preceding sentences, and not just the amount in excess of $10.0 million,
shall be applied as required pursuant to this paragraph). Any remaining Net
Available Proceeds following the completion of the required Offer to Purchase
may be used by the Company for any other purpose (subject to the other
provisions of the Indenture) and the amount of Net Available Proceeds then
required to be otherwise applied in accordance with this covenant shall be
reset to zero, subject to any subsequent Asset Disposition. These provisions
will not apply to a transaction consummated in compliance with the provisions
of the Indenture described under "--Mergers, Consolidations and Certain Sales
of Assets."
In the event that the Company makes an Offer to Purchase the Notes, the
Company shall comply with any applicable securities laws and regulations,
including any applicable requirements of Section 14(e) of, and Rule 14e-1
under, the Exchange Act.
Limitation on Senior Subordinated Indebtedness
The Company (i) will not Incur any Indebtedness that by its terms (or by
the terms of the agreement or instrument governing such Indebtedness) is
subordinate in right of payment to any other Indebtedness of the Company
unless such Indebtedness is also by its terms (or by the terms of the
agreement or instrument governing such Indebtedness) made expressly either
(x) pari passu in right of payment with the Notes or (y) subordinate in right
of payment to the Notes in the same manner and at least to the same extent as
the Notes are subordinate to Senior Debt of the Company, and (ii) will not
permit any Guarantor to Incur any Indebtedness that by its terms (or by the
terms of the agreement or instrument governing such Indebtedness) is
subordinate in right of payment to any other Indebtedness of such Guarantor
unless such Indebtedness is also by its terms (or by the terms of the
agreement governing such Indebtedness) made expressly either (x) pari passu
in right of payment with the Guarantee of such Guarantor or (y) subordinate
in right of payment to the Guarantee of such Guarantor in the same manner and
at least to the same extent as the Guarantee of such Guarantor is subordinate
to Senior Debt of such Guarantor.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into any transaction with any of their
respective Affiliates, including, without limitation, the purchase, sale,
lease or exchange of property, the rendering of any service, or the making of
any guarantee, loan, advance or Investment, unless the terms of such
transaction are at least as favorable as the terms that could be obtained at
such time by the Company or such Restricted Subsidiary, as the case may be,
in a comparable transaction made on an arms-length basis with a Person that
is not such an Affiliate; provided, however, that (x) if the aggregate
consideration exceeds $1.0 million, the Company shall deliver an officers'
certificate to the Trustee stating that a majority of the Disinterested
Directors have determined, in their good faith judgment, that the terms of
such transaction are at least as favorable as the terms that could be
obtained at such time by the Company or such Restricted Subsidiary, as the
case may be, in a comparable transaction made on an arms-length basis with a
Person that is not such an Affiliate and (y) if the aggregate consideration
exceeds $5.0 million, the Company shall also deliver to the Trustee, prior to
the consummation of the transaction, the favorable written opinion of a
nationally recognized accounting, appraisal or investment banking firm as to
the fairness of the transaction to the Company or such Restricted Subsidiary,
from a financial point of view; provided, however, that this clause (y) shall
not apply to (I) transactions relating to the assumption
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by Trace of liabilities of the Company or any Restricted Subsidiary under
extended service contracts (or Trace's indemnification of the Company or any
Restricted Subsidiary for liabilities thereof) or (II) the writing of
extended service contracts by Trace to customers of the Company or any
Restricted Subsidiary. The provisions of this covenant shall not apply to (i)
transactions permitted by the provisions of the Indenture described above
under the caption "--Limitation on Restricted Payments," (ii) reasonable fees
and compensation paid to, and indemnity provided on behalf of, officers,
directors and employees of the Company or any Restricted Subsidiary in the
ordinary course of business and on ordinary business terms or as determined
in good faith by the Board of Directors of the Company and (iii) transactions
solely between or among the Company and/or one or more Restricted
Subsidiaries.
Provision of Financial Information
Whether or not the Company is subject to Section 13(a) or 15(d) of the
Exchange Act, or any successor provision thereto, the Company shall file with
the Commission the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were so required, such documents to be filed with the Commission
on or prior to the respective dates (the "Required Filing Dates") by which
the Company would have been required so to file such documents if the Company
were so required. The Company shall also in any event (a) within 15 days of
each Required Filing Date (i) transmit by mail to all holders of Notes, as
their names and addresses appear in the Note Register, without cost to such
holders, and (ii) file with the Trustee, copies of the annual reports,
quarterly reports and other documents which the Company is required to file
with the Commission pursuant to the preceding sentence, and (b) if,
notwithstanding the preceding sentence, filing such documents by the Company
with the Commission is not permitted under the Exchange Act, promptly upon
written request supply copies of such documents to any prospective holder of
Notes.
Mergers, Consolidations and Certain Sales of Assets
The Company will not consolidate or merge with or into any Person, or
sell, assign, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, assign, lease, convey or otherwise dispose of
(however effected, including, without limitation, by merger or
consolidation)) all or substantially all of the Company's assets (determined
on a consolidated basis for the Company and the Restricted Subsidiaries),
whether as an entirety or substantially an entirety in one transaction or a
series of related transactions, including by way of liquidation or
dissolution, to any Person unless, in each such case: (i) the entity formed
by or surviving any such consolidation or merger (if other than the Company
or such Restricted Subsidiary, as the case may be), or to which such sale,
assignment, lease, conveyance or other disposition shall have been made (the
"Surviving Entity"), is a corporation organized and existing under the laws
of the United States, any state thereof or the District of Columbia; (ii) the
Surviving Entity assumes by supplemental indenture all of the obligations of
the Company on the Notes and under the Indenture and the Registration Rights
Agreement (upon which assumption the Company will be discharged of any and
all obligations on the Notes and under the Indenture and the Registration
Rights Agreement); (iii) immediately after giving effect to such transaction
and the use of any net proceeds therefrom on a pro forma basis, the Company
or the Surviving Entity, as the case may be, (A) shall have a Consolidated
Net Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction and (B) could Incur at least $1.00 of
additional Indebtedness pursuant to clause (i) of the provisions of the
Indenture described under "--Limitation on Incurrence of Indebtedness;" (iv)
immediately before and after giving effect to such transaction and treating
any Indebtedness that becomes an obligation of the Company or any Restricted
Subsidiary as a result of such transaction as having been Incurred by the
Company or such Restricted Subsidiary, as the case may be, at the time of the
transaction, no Default shall have occurred and be continuing; and (v) if, as
a result of any such transaction, property or assets of the Company or a
Restricted Subsidiary would become subject to a Lien not excepted from the
provisions of the Indenture described under "--Limitation on Liens," the
Company, Restricted Subsidiary or the Surviving Entity, as the case may be,
shall have secured the Notes or its Guarantee, as applicable, as required by
said covenant. The provisions of this paragraph shall not apply to any merger
of a Restricted Subsidiary with or into the Company or a Wholly Owned
Subsidiary or any transaction pursuant to which a Guarantor is to be released
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in accordance with the terms of its Guarantee and the Indenture in connection
with any transaction complying with the provisions of the Indenture described
under "--Limitation on Certain Asset Dispositions."
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
(a) failure to pay principal of any Note when due (whether or not
prohibited by the provisions of the Indenture described under
"--Subordination");
(b) failure to pay any interest on any Note when due, continued for 30
days (whether or not prohibited by the provisions of the Indenture
described under "--Subordination");
(c) default in the payment of principal of and interest on Notes required
to be purchased pursuant to an Offer to Purchase as described under
"--Change of Control" or "--Covenants -- Limitation on Certain Asset
Dispositions" when due and payable (whether or not prohibited by the
provisions of the Indenture described under "--Subordination");
(d) failure to perform or comply with any of the provisions described
under "--Covenants -- Mergers, Consolidations and Certain Sales of
Assets";
(e) failure to perform any other covenant or agreement of the Company
under the Indenture or the Notes continued for 60 days after written
notice to the Company by the Trustee or holders of at least 25% in
aggregate principal amount of outstanding Notes;
(f) default under the terms of one or more instruments evidencing or
securing Indebtedness of the Company or any Restricted Subsidiary having
an outstanding principal amount of $10.0 million or more individually or
in the aggregate that has resulted in the acceleration of the payment of
such Indebtedness or failure to pay principal when due at the stated final
maturity of any such Indebtedness;
(g) the rendering of a final judgment or judgments (not subject to
appeal) against the Company or any Restricted Subsidiary in an amount of
$10.0 million or more which remains undischarged or unstayed for a period
of 60 days after the date on which the right to appeal has expired;
(h) certain events of bankruptcy, insolvency or reorganization affecting
the Company or any Restricted Subsidiary; and
(i) any Guarantee, ceases to be in full force and effect or is declared
null and void and unenforceable or is found to be invalid or any Guarantor
denies its liability under its Guarantee (other than by reason of a
release of such Guarantor from its Guarantee in accordance with the terms
of the Indenture and such Guarantee).
If an Event of Default (other than an Event of Default with respect to the
Company described in clause (h) of the preceding paragraph) shall occur and
be continuing, either the Trustee or the Holders of at least 25% in aggregate
principal amount of the outstanding Notes may accelerate the maturity of all
Notes; provided, however, that after such acceleration, but before a judgment
or decree based on acceleration, the Holders of a majority in aggregate
principal amount of outstanding Notes may, under certain circumstances,
rescind and annul such acceleration if all Defaults, other than the
non-payment of accelerated principal, have been cured or waived as provided
in the Indenture; provided, however, that so long as the Senior Credit
Facility shall be in full force and effect, if an Event of Default shall have
occurred and be continuing (other than an Event of Default with respect to
the Company described in clause (h) of the preceding paragraph), the Notes
shall not become due and payable until the earlier to occur of (x) five
business days following delivery of a written notice of such acceleration of
the Notes to the agent under the Senior Credit Facility and (y) the
acceleration of any Indebtedness under the Senior Credit Facility. If an
Event of Default with respect to the Company described in clause (h) of the
preceding paragraph occurs, the outstanding Notes will ipso facto become
immediately due and payable without any declaration or other act on the part
of the Trustee or any Holder. For information as to waiver of defaults, see
"--Modification and Waiver."
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The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default with respect to the Notes, give the Holders notice
of all uncured Defaults known to it; provided, however, that, except in the
case of an Event of Default or a Default in payment with respect to the Notes
or a Default in complying with "--Covenants -- Mergers, Consolidations and
Certain Sales of Assets," the Trustee shall be protected in withholding such
notice if and so long as the Board of Directors or responsible officers of
the Trustee in good faith determine that the withholding of such notice is in
the interest of the Holders.
No Holder will have any right to institute any proceeding with respect to
the Indenture or for any remedy thereunder, unless the Trustee (i) shall have
failed to act for a period of 60 days after receiving written notice of a
continuing Event of Default by such Holder and a request to act by Holders of
at least 25% in aggregate principal amount of Notes outstanding, (ii) shall
have been offered indemnity reasonably satisfactory to it and (iii) shall not
have received from the Holders of a majority in aggregate principal amount of
the outstanding Notes a direction inconsistent with such request. However,
such limitations do not apply to a suit instituted by a Holder of a Note for
enforcement of payment of the principal of or interest on such Note on or
after the respective due dates expressed in such Note.
The Company will be required to furnish to the Trustee annually a
statement as to its performance of certain of its obligations under the
Indenture and as to any default in such performance.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its substantive obligations and the substantive
obligations of the Guarantors in respect of the Notes and the Guarantees by
delivering all outstanding Notes to the Trustee for cancellation and paying
all sums payable by the Company on account of principal of and interest on
all Notes or otherwise. In addition to the foregoing, the Company may,
provided that no Default has occurred and is continuing or would arise
therefrom (or, with respect to a Default specified in clause (h) of "--Events
of Default," any time on or prior to the 91st calendar day after the date of
such deposit (it being understood that this condition shall not be deemed
satisfied until after such 91st day)) and provided that no default under any
Senior Debt would result therefrom, terminate its substantive obligations and
the substantive obligations of the Guarantors in respect of the Notes and the
Guarantees (except for the Company's obligation to pay the principal of and
the interest on the Notes and such Guarantors' guarantee thereof) by (i)
depositing with the Trustee, under the terms of an irrevocable trust
agreement, money or United States Government Obligations sufficient (without
reinvestment) to pay all remaining indebtedness on the Notes to maturity or
to redemption, (ii) delivering to the Trustee either an Opinion of Counsel or
a ruling directed to the Trustee from the Internal Revenue Service to the
effect that the holders of the Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and termination
of obligations, (iii) delivering to the Trustee an Opinion of Counsel to the
effect that the Company's exercise of its option under this paragraph will
not result in the Company, the Trustee or the trust created by the Company's
deposit of funds pursuant to this provision becoming or being deemed to be an
"investment company" under the Investment Company Act of 1940, as amended,
and (iv) complying with certain other requirements set forth in the
Indenture. In addition, the Company may, provided that no Default has
occurred and is continuing or would arise therefrom (or, with respect to a
Default specified in clause (h) of "--Events of Default," any time on or
prior to the 91st calendar day after the date of such deposit (it being
understood that this condition shall not be deemed satisfied until after such
91st day)) and provided that no default under any Senior Debt would result
therefrom, terminate all of its substantive obligations and all of the
substantive obligations of the Guarantors in respect of the Notes and the
Guarantees (including the Company's obligation to pay the principal of and
interest on the Notes and such Guarantors' guarantee thereof) by (i)
depositing with the Trustee, under the terms of an irrevocable trust
agreement, money or United States Government Obligations sufficient (without
reinvestment) to pay all remaining indebtedness on the Notes to maturity or
to redemption, (ii) delivering to the Trustee either a ruling directed to the
Trustee from the Internal Revenue Service to the effect that the holders of
the Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such deposit and termination of obligations or an
Opinion of Counsel based upon such a ruling addressed to the Trustee or a
change in the applicable Federal tax law since the date of the Indenture, to
such effect, (iii) delivering to the Trustee an Opinion of Counsel to the
effect that the Company's exercise of its option under this paragraph will
not result in the Company, the Trustee or the trust created by the Company's
deposit of funds pursuant to this provision becoming or
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being deemed to be an "investment company" under the Investment Company Act
of 1940, as amended, and (iv) complying with certain other requirements set
forth in the Indenture.
The Company may make an irrevocable deposit pursuant to this provision
only if at such time it is not prohibited from doing so under the
subordination provisions of the Indenture or certain covenants in the
instruments governing Senior Debt, and the Company has delivered to the
Trustee and any Paying Agent an Officers' Certificate to that effect.
GOVERNING LAW
The Indenture, the Notes and the Guarantees are governed by the laws of
the State of New York without regard to principles of conflicts of laws.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the holders of a majority in aggregate
principal amount of the outstanding Notes; provided, however, that no such
modification or amendment may, without the consent of the holder of each Note
affected thereby, (a) change the Stated Maturity of the principal of any
Note, (b) alter the optional redemption or repurchase provisions of any Note
or the Indenture in a manner adverse to the holders of the Notes (other than
the provisions of the Indenture relating to any Offer to Purchase required
under the covenants described under "--Covenants -- Limitation on Certain
Asset Dispositions" or "--Change of Control"), (c) reduce the principal
amount of any Note, (d) reduce the rate of or extend the time for payment of
interest on any Note, (e) change the place or currency of payment of
principal of or interest on any Note, (f) modify any provisions of the
Indenture relating to the waiver of past defaults (other than to add sections
of the Indenture subject thereto) or the right of the holders to institute
suit for the enforcement of any payment on or with respect to any Note or the
Guarantee, or the modification and amendment of the Indenture and the Notes
(other than to add sections of the Indenture or the Notes which may not be
amended, supplemented or waived without the consent of each holder affected),
(g) reduce the percentage of the principal amount of outstanding Notes
necessary for amendment to or waiver of compliance with any provision of the
Indenture or the Notes or for waiver of any Default, (h) waive a default in
the payment of principal of, interest on, or redemption payment with respect
to, any Note (except a rescission of acceleration of the Notes by the holders
as provided in the Indenture and a waiver of the payment default that
resulted from such acceleration), (i) modify the ranking or priority of the
Notes or the Guarantee, or modify the definition of Senior Debt or Designated
Senior Debt or amend or modify the subordination provisions of the Indenture
in any manner adverse to the Holders, or (j) release any Guarantor from its
Guarantee or the Indenture otherwise than in accordance with the Indenture
(it being understood that nothing in this clause (j) requires the consent of
the holders of more than a majority in aggregate principal amount of the
outstanding Notes to amend or modify the provisions of the Indenture
described under "--Covenants -- Limitation on Certain Asset Dispositions");
provided, further, however, that no such modification or amendment may,
without the consent of the holders of three-fourths of the aggregate
principal amount of Notes affected thereby, modify any of the provisions
(including the definitions relating thereto) relating to any Offer to
Purchase required under the covenant described under "--Change of Control" in
a manner materially adverse to the Holders.
The holders of a majority in aggregate principal amount of the outstanding
Notes, on behalf of all holders of Notes, may waive compliance by the Company
with certain restrictive provisions of the Indenture. Subject to certain
rights of the Trustee, as provided in the Indenture, (i) the holders of a
majority in aggregate principal amount of the outstanding Notes, on behalf of
all holders of Notes, may waive any past default under the Indenture, except
a default in the payment of principal or interest or a default arising from
failure to effect an Offer to Purchase required under the covenant described
under "--Change of Control," or a default in respect of a provision that
under the Indenture cannot be modified or amended without the consent of the
holder of each outstanding Note affected and (ii) the holders of
three-fourths of the aggregate principal amount of Notes affected thereby, on
behalf of all holders of Notes, may waive a default arising from failure to
effect an Offer to Purchase required under the covenant described under
"--Change of Control."
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS,
EMPLOYEES AND STOCKHOLDERS
No director, officer, employee or stockholder of the Company or any of its
Subsidiaries, as such, will have any liability for any obligations of the
Company or any Guarantor under the Notes, the Indenture, the Guarantees or
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance
of the Notes. Such waiver may not be effective to waive liabilities under the
federal securities laws, and it is the view of the Commission that such a
waiver is against public policy.
THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will perform only such duties as are specifically set forth in
the Indenture. During the existence of a Default, the Trustee will exercise
such rights and powers vested in it under the Indenture and use the same
degree of care and skill in their exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs. The
Indenture and provisions of the Trust Indenture Act incorporated by reference
therein contain limitations on the rights of the Trustee, should it become a
creditor of the Company, the Guarantors, or any other obligor upon the Notes,
to obtain payment of claims in certain cases or to realize on certain
property received by it in respect of any such claim as security or
otherwise. The Trustee is permitted to engage in other transactions with the
Company and its Affiliates; provided, however, that if it acquires any
conflicting interest (as defined in the Indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture or the Registration Rights Agreement. Reference is made to the
Indenture or the Registration Rights Agreement for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person (a) assumed in
connection with an Acquisition of such Person or (b) existing at the time
such Person becomes a Restricted Subsidiary or is merged or consolidated with
or into the Company or any Restricted Subsidiary; provided, however, that
such Indebtedness (x) was not Incurred in connection with, or in
contemplation of, such Acquisition, such Person becoming a Restricted
Subsidiary or such merger or consolidation and (y) is not recourse to any
Person or assets other than such Person or its assets (including its
Subsidiaries and their assets).
"Acquisition" means (i) any capital contribution (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise) by the Company or any Restricted
Subsidiary to any other Person, or any acquisition or purchase of Capital
Stock of any other Person by the Company or any Restricted Subsidiary, in
either case pursuant to which such Person shall become a Restricted
Subsidiary or shall be consolidated or merged with or into the Company or any
Restricted Subsidiary or (ii) any acquisition by the Company or any
Restricted Subsidiary of the assets of any person which constitute
substantially all of an operating unit or line of business of such Person or
which is otherwise outside of the ordinary course of business.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with any specified Person. For purposes of this definition, "control"
when used with respect to any Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Disposition" means any sale, transfer or other disposition
(including, without limitation, by merger, consolidation or
sale-and-leaseback transaction) of (i) shares of Capital Stock of any
Restricted Subsidiary (other than directors' qualifying shares) or (ii)
property or assets (other than any cash or Cash Equivalents) of the Company
or any Restricted Subsidiary; provided, however, that an Asset Disposition
shall not include (a) any such sale, transfer or other disposition to the
Company or to any Restricted
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Guarantor, (b) any sale, transfer or other disposition of defaulted
receivables for collection or any sale, transfer or other disposition of
property or assets in the ordinary course of business, (c) any sale, transfer
or other disposition that does not (together with all related sales,
transfers or dispositions) involve aggregate consideration in excess of $2.5
million, (d) the granting of any Lien (or foreclosure thereon) to the extent
that such Lien is granted in compliance with "--Covenants -- Limitation on
Liens," (e) any Restricted Payment permitted by "--Covenants -- Limitation on
Restricted Payments," (f) the sale, assignment, lease, conveyance or
disposition or other transfer (however effected, including, without
limitation, by merger or consolidation) of all or substantially all of the
assets of the Company and the Restricted Subsidiaries, taken as a whole, in
accordance with "--Covenants -- Mergers, Consolidations and Certain Sales of
Assets" or (g) any disposition that constitutes a Change of Control.
"Atlantic Finance Loan" means any loan by Atlantic Finance to the Company
which is due not later than the business day next following the day such loan
was made; provided, however, that (x) the proceeds of such loan are deposited
with a floor plan lender (including any bank holding Floor Plan Notes) and
(y) such loan bears interest at a rate not higher than that accruing on such
deposit.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness for borrowed money or Preferred Stock, the quotient obtained by
dividing (i) the sum of the products of the number of years from the date of
determination to the dates of each successive scheduled principal or
liquidation value payments of such Indebtedness or Preferred Stock,
respectively, and the amount of such principal or liquidation value payments,
by (ii) the sum of all such principal or liquidation value payments.
"Bankruptcy Code" means Title 11, United States Code.
"Basket" has the meaning set forth in "--Covenants -- Limitation on
Restricted Payments."
"Capital Lease Obligations" of any Person means the obligations to pay
rent or other amounts under a lease of (or other Indebtedness arrangements
conveying the right to use) real or personal property of such Person which
are required to be classified and accounted for as a capital lease or
liability on the face of a balance sheet of such Person in accordance with
GAAP. The amount of such obligations shall be the capitalized amount thereof
in accordance with GAAP and the stated maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease prior to
the first date upon which such lease may be terminated by the lessee without
payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests,
partnership interests, participations or other equivalents (however
designated) of ownership of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued or
guaranteed by the United States of America, or any governmental entity or
agency or political subdivision thereof (provided, that the full faith and
credit of the United States of America is pledged in support thereof),
maturing within one year of the date of purchase; (ii) commercial paper
issued by corporations or financial institutions maturing within 180 days
from the date of the original issue thereof, and rated "P-1" or better by
Moody's Investors Service or "A-1" or better by Standard & Poor's Ratings
Group or an equivalent rating or better by any other nationally recognized
securities rating agency; (iii) certificates of deposit issued or acceptances
accepted by or guaranteed by any bank or trust company organized under the
laws of the United States of America or any state thereof or the District of
Columbia, in each case having capital, surplus and undivided profits totaling
more than $500,000,000, maturing within one year of the date of purchase; and
(iv) money market funds substantially all of whose assets comprise securities
of the type described in clauses (i) through (iii).
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding
up of such Person, to shares of Capital Stock of any other class of such
Person.
"Consolidated Cash Flow Available For Fixed Charges" means for any period
the Consolidated Net Income for such period (x) increased (to the extent
Consolidated Net Income for such period has been reduced thereby) by the sum
of (without duplication) (i) Consolidated Fixed Charges for such period, plus
(ii) Consolidated Income Tax Expense for such period, plus (iii) the
consolidated depreciation and amortization expense included in the income
statement of the Company prepared in accordance with GAAP
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for such period, plus (iv) any other non-cash charges to the extent deducted
from or reflected in such Consolidated Net Income except for any non-cash
charges that represent accruals of, or reserves for, cash disbursements to be
made in any future accounting period and (y) decreased by interest income on
deposits with floor plan lenders (including any bank holding Floor Plan
Notes) made with proceeds of Atlantic Finance Loans.
"Consolidated Cash Flow Ratio" means for any period the ratio of (i)
Consolidated Cash Flow Available for Fixed Charges for such period to (ii)
Consolidated Fixed Charges for such period; provided, however, that all
Incurrences and repayments of Indebtedness (including the Incurrence giving
rise to such calculation and any repayments in connection therewith) and all
dispositions (including discontinued operations) or acquisition of assets
(other than in the ordinary course of business) made during or after such
period and on or prior to the date of determination shall be given pro forma
effect as if they occurred on the first day of such four-quarter period,
except that Indebtedness under the Senior Credit Facility shall be deemed to
be the average daily balance of such Indebtedness during such four-quarter
period. Calculations of pro forma amounts in accordance with this definition
may take into account a reduction of cost of goods sold in the amount of
interest earned on financing proceeds deposited with any holder of Floor Plan
Notes.
"Consolidated Fixed Charges" means for any period, without duplication,
(a) the consolidated interest expense included in a consolidated income
statement (without deduction of interest or finance charge income) of the
Company and the Restricted Subsidiaries for such period calculated on a
consolidated basis in accordance with GAAP (it being understood that the
foregoing does not include interest on Floor Plan Notes), but excluding (x)
the amortization of deferred financing costs and (y) interest on Atlantic
Finance Loans, and (b) dividend requirements of the Company and the
Restricted Subsidiaries with respect to Disqualified Stock and with respect
to all other Preferred Stock of Restricted Subsidiaries (in each case (i)
whether in cash or otherwise (except dividends payable solely in shares of
Capital Stock (other than any Disqualified Stock) of the Company or any
Restricted Subsidiary) and (ii) other than dividends with respect to Capital
Stock held by the Company or any Restricted Guarantor) paid, declared,
accrued or accumulated during such period times, in the case of this clause
(b), a fraction the numerator of which is one and the denominator of which is
one minus the then effective consolidated Federal, state and local income tax
rate of the Company, expressed as a decimal.
"Consolidated Income Tax Expense" means for any period the consolidated
provision for income taxes of the Company and the Restricted Subsidiaries for
such period calculated on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means for any period the consolidated net income
(or loss) of the Company and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP; provided,
however, that there shall be excluded therefrom (a) the net income (or loss)
of any Person acquired by the Company or any Restricted Subsidiary in a
pooling-of-interests transaction for any period prior to the date of such
transaction, (b) the net income (or loss) of any Restricted Subsidiary (other
than any Guarantor) which is then subject to restrictions that prevent or
limit the payment of dividends or the making of distributions to such Person
to the extent of such restrictions (regardless of any waiver thereof), (c)
non-cash gains and losses due solely to fluctuations in currency values, (d)
the net income (or loss) of any Person that is not a Restricted Subsidiary,
except to the extent of the amount of dividends or other distributions
representing the Company's proportionate share of such Person's net income
for such period actually paid in cash to the Company by such Person during
such period, (e) other than for calculating the Basket, gains or losses on
Asset Dispositions by the Company or any Restricted Subsidiary, (f) other
than for calculating the Basket, all extraordinary or non-recurring gains or
losses determined in accordance with GAAP, (g) the effect of FASB 52
(hyperinflationary accounting) and interpretations by the Commission thereof
and (h) in the case of a successor to the Company by consolidation or merger
or as a transferee of the Company's assets, any earnings (or losses) of the
successor corporation prior to such consolidation, merger or transfer of
assets.
"Consolidated Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Stock of such Person or attributable to Unrestricted
Subsidiaries.
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"Continuing Director" means a director who either was a member of the
Board of Directors of the Company on the Issue Date or who became a director
of the Company subsequent to the Issue Date and whose election, or nomination
for election by the Company's stockholders, was duly approved by a majority
of the Continuing Directors then on the Board of Directors of the Company,
either by a specific vote or by approval of the proxy statement issued by the
Company on behalf of the entire Board of Directors of the Company in which
such individual is named as nominee for director.
"Currency Agreement" means, with respect to any Person, any foreign
exchange contract, currency swap agreement or other similar agreement or
arrangement, which may include the use of derivatives, designed to protect
such Person against, or to expose such Person to, fluctuations in currency
values.
"Default" means any event that is, or after notice or lapse of time or
both would become, an Event of Default.
"Designated Senior Debt" means (i) so long as the Senior Credit Facility
is in effect, the Senior Debt incurred thereunder and (ii) any other Senior
Debt which has at the time of initial issuance an aggregate outstanding
principal amount in excess of $25 million which has been so designated as
Designated Senior Debt by the Board of Directors of the Company at the time
of initial issuance in a resolution delivered to the Trustee.
"Disinterested Director" means a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest
in or with respect to the transaction being considered.
"Disqualified Stock" of any Person means any Capital Stock of such Person
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the option of the holder
thereof, in whole or in part, on or prior to the final maturity of the Notes;
provided, however, that any such Capital Stock that so matures or is
redeemable in part shall be deemed Disqualified Stock only to the extent that
it so matures or is so redeemable.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.
"Fair Market Value" means, with respect to any asset, the price (after
taking into account any liabilities relating to such assets) which could be
negotiated in an arm's-length transaction, for cash, between a willing seller
and a willing and able buyer, neither of which is under any compulsion to
complete the transaction; provided, however, that the Fair Market Value of
any such asset or assets shall be determined conclusively (i) for any
determination pursuant to the covenant described under "--Covenants --
Limitation on Restricted Payments" or "--Covenants -- Limitation on Certain
Asset Dispositions," by the Board of Directors of the Company acting in good
faith, which determination shall be evidenced by a resolution of such Board
delivered to the Trustee, and (ii) for any other determination, by an officer
of the Company acting in good faith.
"Floor Plan Notes" means Indebtedness of the Company or any Restricted
Subsidiary all of the proceeds of which are used to purchase vehicles and/or
vehicle parts and supplies to be sold in the ordinary course of business of
the Company and the Restricted Subsidiaries.
"GAAP" means generally accepted accounting principles, consistently
applied, as in effect on the Issue Date in the United States of America, as
set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board or
in such other statements by such other entity as is approved by a significant
segment of the accounting profession in the United States.
"Guarantee" means a guarantee of the Notes by a Guarantor under the
Indenture.
"guarantee" means, as applied to any obligation, (i) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment
or performance (or payment of damages in the
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event of non-performance) of all or any part of such obligation, including,
without limiting the foregoing, the payment of amounts drawn down by letters
of credit. A guarantee shall include, without limitation, any agreement to
maintain or preserve any other Person's financial condition or to cause any
other Person to achieve certain levels of operating results. It is understood
that the obligations of the Company under the Support Agreement dated as of
June 14, 1996 between the Company and Atlantic Auto Second Funding
Corporation constitute a guarantee for purposes of the Indenture only to the
extent of the accrued liability, if any, of the Company for any breach of the
representations and warranties of Atlantic Finance contained in Section 3.2
of the Purchase Agreement dated as of June 14, 1996 between Atlantic Auto
Second Funding Corporation and Atlantic Finance, and that obligations of the
Company under similar agreements will constitute a guarantee for purposes of
the Indenture only to the extent of similar accrued liabilities.
"Guarantor" means (i) each Subsidiary of the Company that, on the Issue
Date, is an obligor (including as guarantor) under, or in respect of, the
Senior Credit Facility and (ii) each Subsidiary of the Company that pursuant
to the terms of the Indenture executes a supplemental indenture to the
Indenture as a Guarantor, in each case, until such Subsidiary is released
from its Guarantee.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (including by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to
GAAP or otherwise, of any such Indebtedness or other obligation on the
balance sheet of such Person (and "Incurrence," "Incurred" and "Incurring"
shall have meanings correlative to the foregoing). Indebtedness of any Person
or any of its Subsidiaries existing at the time such Person becomes a
Restricted Subsidiary (or is merged into or consolidates with the Company or
any Restricted Subsidiary), whether or not such Indebtedness was incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary (or being merged into or consolidated with the Company or any
Restricted Subsidiary), shall be deemed Incurred at the time any such Person
becomes a Restricted Subsidiary or merges into or consolidates with the
Company or any Restricted Subsidiary. Neither the accrual of interest, nor
the accretion of accreted value, shall be deemed to be an Incurrence.
"Indebtedness" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) all indebtedness of such Person for money
borrowed, (ii) all indebtedness of such Person evidenced by bonds,
debentures, notes or other similar instruments, including obligations
incurred in connection with the acquisition of property, assets or
businesses, (iii) every reimbursement obligation of such Person with respect
to letters of credit, bankers' acceptances or similar facilities issued for
the account of such Person, (iv) all indebtedness of such Person issued or
assumed as the deferred purchase price of property or services (but excluding
trade accounts payable or accrued liabilities arising in the ordinary course
of business), (v) every Capital Lease Obligation of such Person, (vi) every
net obligation under interest rate swap or similar agreements or foreign
currency hedge, exchange or similar agreements of such Person and (vii) every
obligation of the type referred to in clauses (i) through (vi) of another
Person and all dividends of another Person the payment of which, in either
case, such Person has guaranteed or is responsible or liable for, directly or
indirectly, as obligor, guarantor or otherwise. Indebtedness (a) shall
include (without duplication) the liquidation preference and any mandatory
redemption payment obligations in respect of any Disqualified Stock of the
Company, and any Preferred Stock of a Subsidiary of the Company, (b) shall
never be calculated taking into account any cash and cash equivalents held by
such Person, (c) shall not include obligations arising from agreements of the
Company or a Subsidiary to provide for indemnification, adjustment of
purchase price, earn-out or other similar obligations, in each case, Incurred
in connection with the acquisition or disposition of any business or assets
of a Subsidiary, (d) which provides that an amount less than the principal
amount thereof shall be due upon any declaration of acceleration thereof
shall be deemed to be incurred or outstanding in an amount equal to the
accreted value thereof at the date of determination determined in accordance
with GAAP and (e) shall not be deemed to be Incurred upon the issuance of a
guarantee by the Company, in connection with an Acquisition, of the price of
its Common Stock, unless such guarantee is evidenced by a bond, debenture,
note or similar instrument.
"Interest Rate Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, and (ii) other
agreements or arrangements designed to protect such Person against, or to
expose such Person to, fluctuations in interest rates.
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"interest" means, with respect to the Notes, the sum of any cash interest
and any Additional Interest (as defined in the Registration Rights Agreement)
on the Notes.
"Investment" by any Person means any direct or indirect loan, advance,
guarantee or other extension of credit or capital contribution to (by means
of transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Indebtedness issued by, any other Person.
"Issue Date" means July 23, 1997, the original issue date of the Notes.
"Issuers" means the Company and the Guarantors.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, security interest, lien, charge,
easement (other than any easement not materially impairing usefulness or
marketability), encumbrance, preference, priority or other security agreement
with respect to such property or assets (including, without limitation, any
conditional sale or other title retention agreement having substantially the
same economic effect as any of the foregoing).
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or Cash Equivalents received (including by way of sale or discounting of
a note, installment receivable or other receivable, but excluding any other
consideration received (x) in the form of assumption by the acquirer of
Indebtedness or other obligations relating to such properties or assets or
(y) in any other non-cash form) therefrom by such Person, including any cash
received by way of deferred payment or upon the monetization or other
disposition of any non-cash consideration (including notes or other
securities) received in connection with such Asset Disposition, net of (i)
all legal, title and recording tax expenses, commissions, any relocation
expenses incurred as a result thereof and other fees and expenses incurred
and all federal, state, foreign and local taxes required to be accrued as a
liability as a consequence of such Asset Disposition, (ii) all payments made
by such Person or any of its Restricted Subsidiaries on, or in respect of,
any Indebtedness (A) which is secured by such assets in accordance with the
terms of any Lien upon or with respect to such assets or (B) which must, by
the terms of such Lien or otherwise (including the obtaining of any necessary
consent in respect thereof to such Asset Disposition) or by applicable law,
be repaid as a result of such Asset Disposition, (iii) all payments made with
respect to liabilities associated with the assets which are the subject of
the Asset Disposition, including, without limitation, trade payables and
other accrued liabilities, (iv) appropriate amounts to be provided by such
Person or any Restricted Subsidiary thereof, as the case may be, as a reserve
in accordance with GAAP against any liabilities associated with such assets
and retained by such Person or any Restricted Subsidiary thereof, as the case
may be, after such Asset Disposition, including, without limitation,
liabilities under any indemnification obligations and severance and other
employee termination costs associated with such Asset Disposition, until such
time as such amounts are no longer reserved or such reserve is no longer
necessary (at which time any remaining amounts will become Net Available
Proceeds to be allocated in accordance with the provisions of the second and
third sentences under
"--Covenants -- Limitation on Certain Asset Dispositions") and (v) all
distributions and other payments made to minority interest holders in
Restricted Subsidiaries of such Person or joint ventures as a result of such
Asset Disposition.
"Net Investment" means, in respect of any Investment and the issuer
thereof (and its Subsidiaries), the excess of (i) the aggregate amount of all
Investments made therein by the Company or any Restricted Subsidiary on or
after the Issue Date (including the Fair Market Value of all such Investments
not made in cash or Cash Equivalents, valued at the time of each such
Investment) over (ii) the aggregate amount returned in cash or Cash
Equivalents on or with respect to Investments in such Person (whenever such
Investment was made) whether through the sale or other disposition of the
Investment in such Person (or portion thereof) or through interest payments,
principal payments, dividends or other distributions or payments; provided,
however, that such payments or distributions shall not be (and have not been)
included in clause (3) (d) of the first paragraph described under
"--Covenants -- Limitation on Restricted Payments."
"Offer to Purchase" means a written offer (the "Offer") sent by the
Company by first class mail, postage prepaid, to each holder at his address
appearing in the register for the Notes on the date of the Offer offering
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to purchase up to the principal amount of Notes specified in such Offer at
the purchase price specified in such Offer (as determined pursuant to the
Indenture). Unless otherwise required by applicable law, the Offer shall
specify an expiration date (the "Expiration Date") of the Offer to Purchase
which shall be not less than 30 days nor more than 60 days after the date of
such Offer and a settlement date (the "Purchase Date") for purchase of Notes
within five Business Days after the Expiration Date. The Company shall notify
the Trustee in writing at least 15 Business Days (or such shorter period as
is acceptable to the Trustee) prior to the mailing of the Offer of the
Company's obligation to make an Offer to Purchase, and the Offer shall be
mailed by the Company or, at the Company's written request, by the Trustee in
the name and at the expense of the Company. The Offer shall contain all the
information required by applicable law to be included therein. The Offer
shall contain all instructions and materials necessary to enable such holders
to tender Notes pursuant to the Offer to Purchase. The Offer shall also
state:
(i) the Section of the Indenture pursuant to which the Offer to Purchase
is being made;
(ii) the Expiration Date and the Purchase Date;
(iii) the aggregate principal amount of the outstanding Notes offered to
be purchased by the Company pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such amount has been determined
pursuant to the Section of the Indenture requiring the Offer to Purchase)
(the "Purchase Amount");
(iv) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of Notes accepted for payment (as specified
pursuant to the Indenture) (the "Purchase Price");
(v) that the holder may tender all or any portion of the Notes registered
in the name of such holder and that any portion of a Note tendered must be
tendered in an integral multiple of $1,000 principal amount;
(vi) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(vii) that interest on any Note not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue
to accrue;
(viii) that on the Purchase Date the Purchase Price will become due and
payable upon each Note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(ix) that each holder electing to tender all or any portion of a Note
pursuant to the Offer to Purchase will be required to surrender such Note
at the place or places specified in the Offer prior to the close of
business on the Expiration Date (such Note being duly endorsed by, or
accompanied by a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the holder thereof or his
attorney duly authorized in writing);
(x) that holders will be entitled to withdraw all or any portion of Notes
tendered if the Company (or its Paying Agent) receives, not later than the
close of business on the fifth Business Day next preceding the Expiration
Date, a facsimile transmission or letter setting forth the name of the
holder, the principal amount of the Notes the holder tendered, the
certificate number of the Notes the holder tendered and a statement that
such holder is withdrawing all or a portion of his tender;
(xi) that (a) if Notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase all such Notes and
(b) if Notes in an aggregate principal amount in excess of the Purchase
Amount are tendered and not withdrawn pursuant to the Offer to Purchase,
the Company shall purchase Notes having an aggregate principal amount
equal to the Purchase Amount on a pro rata basis (with such adjustments as
may be deemed appropriate so that only Notes in denominations of $1,000 or
integral multiples thereof shall be purchased); and
(xii) that in the case of any Holder whose Note is purchased only in
part, the Company shall execute and the Trustee shall authenticate and
deliver to the holder of such Note without service charge,
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a new Note or Notes, of any authorized denomination as requested by such
holder in writing, in an aggregate principal amount equal to and in
exchange for the unpurchased portion of the Note so tendered.
An Offer to Purchase shall be governed by and effected in accordance with
the provisions above pertaining to any Offer. An Offer to Purchase may be
conditioned on the consummation of the applicable Change of Control events.
See "--Change of Control."
"Permitted Holder" means any of Trace International Holdings, Inc.,
Harvard Private Capital Group, Inc., Aeneas Venture Corporation and Apollo
Advisors, L.P. and their Affiliates.
"Permitted Investments" means (i) Investments in Cash Equivalents; (ii)
Investments representing Capital Stock or obligations issued to the Company
or any Restricted Subsidiary in the course of the good faith settlement of
claims against any other Person or by reason of a composition or readjustment
of debt or a reorganization of any debtor of the Company or any Restricted
Subsidiary; (iii) deposits, including interest-bearing deposits, maintained
in the ordinary course of business in banks or with floor plan lenders; (iv)
trade receivables and prepaid expenses, in each case arising in the ordinary
course of business; provided, however, that such receivables and prepaid
expenses would be recorded as assets of such Person in accordance with GAAP;
(v) endorsements for collection or deposit in the ordinary course of business
by such Person of bank drafts and similar negotiable instruments of such
other Person received as payment for ordinary course of business trade
receivables; (vi) any Interest Rate Obligations or Currency Agreements with
an unaffiliated Person permitted by clause (iv) or (v) under "--Covenants --
Limitation on Incurrence of Indebtedness"; (vii) Investments received as
consideration for an Asset Disposition in compliance with the provisions of
the Indenture described under "--Covenants -- Limitation on Certain Asset
Dispositions" above; (viii) Investments in the Company or any Restricted
Subsidiary or any Person that after giving effect to such Investment will be
a Restricted Subsidiary; and (ix) prepaid expenses and loans or advances to
employees of the Company or any Restricted Subsidiary in the ordinary course
of business.
"Permitted Refinancing" means, with respect to any Indebtedness,
Indebtedness to the extent representing a Refinancing of such Indebtedness;
provided, however, that (a) such Indebtedness does not exceed the amount of
Indebtedness so Refinanced plus the amount of any premium required to be paid
in connection with such Refinancing pursuant to the terms of the Indebtedness
Refinanced or the amount of any premium reasonably determined by the issuer
of such Indebtedness as necessary to accomplish such Refinancing by means of
a tender offer, exchange offer or privately negotiated repurchase, plus the
expenses of such issuer reasonably incurred in connection therewith, (b) in
the case of any Refinancing of Indebtedness that is pari passu with the
Notes, such Refinancing Indebtedness is made pari passu with or subordinate
in right of payment to the Notes, and, in the case of any Refinancing of
Indebtedness that is subordinate in right of payment to the Notes, such
Refinancing Indebtedness is subordinate in right of payment to the Notes on
terms no less favorable to the Holders than those contained in the
Indebtedness being Refinanced, (c) the Refinancing Indebtedness by its terms,
or by the terms of any agreement or instrument pursuant to which such
Indebtedness is issued, does not have an Average Life that is less than the
remaining Average Life of the Indebtedness being Refinanced and does not
permit redemption or other retirement (including pursuant to any required
offer to purchase to be made by the Company or a Restricted Subsidiary) of
such Indebtedness at the option of the holder thereof prior to the final
stated maturity of the Indebtedness being Refinanced, other than a redemption
or other retirement at the option of the holder of such Indebtedness
(including pursuant to a required offer to purchase made by the Company or a
Restricted Subsidiary) which is conditioned upon a change of control of the
Company pursuant to provisions substantially similar to those contained in
the Indenture described under "--Change of Control" or which is otherwise on
terms substantially similar to those in such Indebtedness being Refinanced
and (d) such Refinancing Indebtedness is Incurred by the obligor on the
Indebtedness being Refinanced or by the Company or any Restricted Guarantor.
"Person" means any individual, corporation, limited or general
partnership, limited liability company, limited liability partnership, joint
venture, association, joint stock company, trust, unincorporated organization
or government or any agency or political subdivision thereof.
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"Preferred Stock" means Capital Stock of any Person of any class or
classes (however designated) that ranks prior, as to the payment of dividends
or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to Capital Stock of
any other class of such Person.
"principal" of any Note, means principal of, and premium, if any, with
respect to, such Note.
"Public Equity Offering" means an underwritten public offering of Common
Stock of the Company pursuant to an effective registration statement filed
under the Securities Act (excluding any registration statements filed on Form
S-8 or any successor form).
"Purchase Date" has the meaning set forth in the definition of "Offer to
Purchase."
"Purchase Money Debt" means Indebtedness of the Company or any Restricted
Subsidiary Incurred for the purpose of financing all or any part of the
purchase price, or the cost of construction or improvement, of any property;
provided, however, that the aggregate amount of such Indebtedness shall not
exceed the lesser of (x) the Fair Market Value of such property or (y) such
purchase price or cost.
"Qualified Stock" means any Capital Stock of the Company other than
Disqualified Stock.
"Refinance" means refinance, renew, extend, replace, defease or refund;
and "Refinancing" and "Refinanced" have correlative meanings.
"Replacement Assets" means (x) properties and assets (other than cash or
any Capital Stock or other security) that will be used in a business of the
Company and the Restricted Subsidiaries conducted on the Issue Date or in a
business reasonably related thereto or (y) Capital Stock of any Person that
will become on the date of Acquisition thereof a Restricted Subsidiary as a
result of such Acquisition.
"Restricted Guarantor" means, at any time of determination, a Restricted
Subsidiary that is a Guarantor at such time.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Senior Credit Facility" means the Credit Agreement, dated as of March 20,
1997, among the Company, as borrower, the guarantors party thereto, The Bank
of Nova Scotia, as administrative agent, Morgan Guaranty Trust Company of New
York, as documentation agent, and the lenders named therein, including any
deferrals or Refinancings thereof, or amendments, modifications or
supplements thereto (including, without limitation, any amendment increasing
the amount borrowed thereunder), and any agreement providing therefor whether
by or with the same or any other lender, creditors or group of creditors and
including related notes, guarantee agreements and other instruments and
agreements executed in connection therewith.
"Senior Debt" means, with respect to any Person at any date, (i) in the
case of the Company or any Guarantor, all Indebtedness under the Senior
Credit Facility, including principal, premium, if any, and interest on such
Indebtedness and all other amounts due on or in connection with such
Indebtedness, including all charges, fees and expenses, (ii) all other
Indebtedness of such Person for borrowed money, including principal, premium,
if any, and interest on such Indebtedness, unless the agreement or instrument
under which such Indebtedness for money borrowed is created, incurred,
assumed or guaranteed expressly provides that such Indebtedness for money
borrowed is not senior or superior in right of payment to the Notes, and all
Refinancings or amendments thereof and (iii) all interest on any Indebtedness
referred to in clauses (i) and (ii) accruing during the pendency of any
bankruptcy or insolvency proceeding, whether or not allowed or allowable as a
claim in such proceeding thereunder. Notwithstanding the foregoing, Senior
Debt of any Person shall not include (a) Indebtedness which is pursuant to
its terms or any agreement or instrument relating thereto subordinated or
junior in right of payment or otherwise to any other Indebtedness of such
Person (including, without limitation, Indebtedness represented by
Disqualified Stock); provided, however, that no Indebtedness shall be deemed
to be subordinate or junior in right of payment or otherwise to any other
Indebtedness of a Person solely by reason of such other Indebtedness being
secured and such Indebtedness not being secured, (b) the Notes or the
Guarantees, (c) any Indebtedness of such Person to any of its Subsidiaries,
(d) Indebtedness Incurred in violation of the
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provisions of the Indenture described under "--Covenants -- Limitation on
Incurrence of Indebtedness," (e) obligations for goods, materials or services
purchased or rendered in the ordinary course of business or obligations
consisting of trade payables, (f) any liability for federal, state, local or
other taxes owed or owing by such Person and (g) any Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of the
Bankruptcy Code, is without recourse to such Person.
"Subordinated Indebtedness" of the Company or any Guarantor means any
Indebtedness (whether outstanding on the date hereof or hereafter Incurred)
which is by its terms expressly subordinate or junior in right of payment to
the Notes or the Guarantee of such Guarantor, as the case may be.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such Person
and one or more other Subsidiaries thereof or (ii) any other Person (other
than a corporation) in which such Person, or one or more other Subsidiaries
of such Person or such Person and one or more other Subsidiaries thereof,
directly or indirectly, has at least a majority ownership and voting power
relating to the policies, management and affairs thereof.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination has been designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. Any such designation by the Board of Directors
will be evidenced to the Trustee by promptly filing with the Trustee a copy
of the board resolution giving effect to such designation and an officers'
certificate certifying that such designation complied with the foregoing
provisions. The Indenture will provide that the Company shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, at any time,
(a) be liable for any Indebtedness of any Unrestricted Subsidiary (other than
in the form of an Investment therein in accordance with "--Covenants --
Limitation on Restricted Payments") or (b) be liable for any Indebtedness
that provides that the holder thereof may (upon notice, lapse of time or
both) declare a default thereon or cause the payment thereof to be
accelerated or payable prior to its stated final maturity upon the occurrence
of a default with respect to any Indebtedness of any Unrestricted Subsidiary.
The Board of Directors may redesignate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that (i) no Default shall have
occurred and be continuing and (ii) Indebtedness of such Unrestricted
Subsidiary and all Liens on any asset of such Unrestricted Subsidiary
outstanding immediately following such redesignation would, if Incurred at
such time, be permitted to be Incurred under the Indenture. As of the Issue
Date, Atlantic Finance was designated an Unrestricted Subsidiary.
"Voting Stock" of any Person means the Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons
performing similar functions) of such Person, whether at all times or only so
long as no senior class of securities has such voting power by reason of any
contingency.
"Wholly Owned Subsidiary" means a Restricted Subsidiary, all of the
outstanding Capital Stock or other ownership interests of which (other than
directors' qualifying shares) shall at the time be owned by the Company
and/or by one or more Wholly Owned Subsidiaries.
BOOK-ENTRY; DELIVERY AND FORM
The certificates representing the New Notes will be issued in fully
registered form without interest coupons (each, a "Global Note"). Upon
issuance, each Global Note will be deposited with, or on behalf of, The
Depository Trust Company (the "Depositary") and registered in the name of
Cede & Co., as nominee of the Depositary, and the Depositary or its custodian
will credit, on its internal system, the respective principal amount of the
individual beneficial interests represented by each Global Note to the
accounts of persons who have accounts with the Depositary. Ownership of
beneficial interests in a Global Note will be limited to persons who have
accounts with the Depositary ("participants") or persons who hold interests
through participants. Ownership of beneficial interests in a Global Note will
be shown on, and the transfer of that ownership will be effected only
through, records maintained by the Depositary or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
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So long as the Depositary, or its nominee, is the registered holder of a
Global Note, the Depositary or such nominee, as the case may be, will be
considered the sole owner or holder of the Notes represented by such Global
Note for all purposes under the Indenture and the Notes. No beneficial owner
of an interest in a Global Note will be able to transfer that interest except
in accordance with the Depositary's applicable procedures.
Payments of the principal of, and interest on, the Global Notes will be
made to the Depositary or its nominee, as the case may be, as the registered
owner thereof. None of the Company, the Trustee or any Paying Agent will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Notes or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company expects that the Depositary or its nominee, upon receipt of
any payment of principal or interest in respect of a Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note
as shown on the records of the Depositary or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in
such Global Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the name of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in the Depositary will be effected in the
ordinary way in accordance with the Depositary's rules and will be settled in
same-day funds.
The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Notes (including the presentation of
Notes for exchange as described below) only at the direction of one or more
participants to whose accounts an interest in the Global Notes is credited
and only in respect of such portion of the aggregate principal amount of
Notes as to which such participant or participants has or have given such
direction.
The Depositary has advised the Company as follows: the Depositary is a
limited purpose trust company organized under the laws of the State of New
York, a "banking organization" within the meaning of New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "Clearing Agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. The Depositary
was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants
through electronic book-entry changes in accounts of its participants,
thereby eliminating the need for physical movement of certificates.
Participants include securities brokers and dealers, banks, trust companies
and clearing corporations and certain other organizations. Indirect access to
the Depositary system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a participant, either directly or indirectly ("indirect participants").
Although the Depositary has agreed to the foregoing procedures in order to
facilitate transfers of interests in the Global Notes among participants of
the Depositary, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. Neither
the Company nor the Trustee will have any responsibility for the performance
by the Depositary or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
If (i) the Depositary is at any time unwilling or unable to continue as a
depositary for the Global Notes and a successor depositary is not appointed
by the Company within 120 days or (ii) the Company in its sole discretion
determines that the Global Notes (in whole but not in part) should be
exchanged for certificated notes, the Company will issue certificated notes
in exchange for the Global Notes. In addition, any person having a beneficial
interest in a Global Note may, upon request to the Trustee following an Event
of Default under the Indenture, exchange such beneficial interest for
certificated notes.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain material U.S. federal income tax
consequences of the acquisition, ownership and disposition of the Notes.
Unless otherwise stated, this discussion addresses the U.S. federal income
tax consequences to persons that hold New Notes as capital assets and that
are (i) citizens or residents of the United States, (ii) corporations
organized in or under the laws of the United States or any political
subdivision thereof or therein, (iii) estates the income of which is subject
to U.S. federal income tax regardless of its source or (iv) a trust (A) for
taxable years beginning after December 31, 1996 (or ending after August 20,
1996, if the trustee has made an applicable election), if a court within the
United States is able to exercise primary supervision over the trust's
administration and one or more U.S. fiduciaries have the authority to control
all its substantial decisions or (B) for taxable years not described in
clause (A), if the income of the trust is subject to U.S. federal income
taxation regardless of its source ("U.S. Holders"). This discussion does not
purport to address specific tax consequences that may be relevant to
particular persons (including, for example, financial institutions,
broker-dealers, insurance companies, tax-exempt organizations and persons in
special situations, such as those who hold Notes as part of a straddle,
hedge, conversion transaction or other integrated investment or investors in
pass-through entities). This discussion does not address the tax consequences
to persons that have a "functional currency" other than the U.S. dollar. In
addition, this discussion does not address U.S. federal alternative minimum
tax consequences or federal estate and gift tax consequences or any aspect of
state, local or foreign taxation. This discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), the Treasury Department
regulations promulgated thereunder and administrative and judicial
interpretations thereof, all of which are subject to change, possibly on a
retroactive basis.
PROSPECTIVE PURCHASERS OF THE NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES TO THEM OF
ACQUIRING, OWNING AND DISPOSING OF THE NOTES, AS WELL AS THE APPLICATION OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
THE EXCHANGE OFFER
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should be treated as a continuation of the corresponding Old Notes because
the terms of the New Notes are not materially different from the terms of the
Old Notes. Accordingly, such exchange should not constitute a taxable event
to U.S. Holders and, therefore, (i) no gain or loss should be realized by a
U.S. Holder upon receipt of a New Note, (ii) the holding period of the New
Note should include the holding period of the Old Note exchanged therefor and
(iii) the adjusted tax basis of the New Note should be the same as the
adjusted tax basis of the Old Note exchanged therefor immediately prior to
the exchange.
DEBT CHARACTERIZATION
The Company will treat the Notes as indebtedness for federal income tax
purposes, and the following discussion assumes that such treatment is
correct. If the Notes were not respected as debt, they likely would be
treated as equity ownership interests in the Company. In such event, the
Company would not be entitled to claim a deduction for interest payable on
the Notes. As a result, the Company's after-tax cash flow and, consequently,
its ability to make payments with respect to the Notes could be reduced.
INTEREST INCOME
A U.S. Holder will recognize ordinary income when it receives or accrues
interest on Notes in accordance with such U.S. Holder's method of tax
accounting.
The Old Notes were not issued with "original issue discount" ("OID") within
the meaning of Section 1273 of the Code. A U.S. Holder that purchased an Old
Note at a discount that exceeds a statutorily defined de minimis amount will
be subject to the "market discount" rules of the Code, and a U.S. Holder that
purchased an Old Note at a premium will be subject to the bond premium
amortization rules of the Code.
DISPOSITION OF NOTES
If a U.S. Holder sells or otherwise disposes of a Note in a taxable
transaction (including redemption or retirement of the Note), the U.S. Holder
will recognize gain or loss equal to the difference between the amount
realized on the sale (excluding any such amount attributable to accrued but
previously unrecognized
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interest, which will be taxable as ordinary interest income) and the U.S.
Holder's adjusted tax basis in the Note. A U.S. Holder's adjusted tax basis
in a Note will be equal to the amount the U.S. Holder paid to purchase the
Note, (i) increased by any unpaid interest that has accrued on the Note and
any accrued market discount that, in each case, has previously been included
by such U.S. Holder in taxable income and (ii) decreased by any bond premium
previously amortized and any principal payments previously received by such
U.S. Holder with respect to the Note. Subject to the market discount rules,
any such gain or loss will be capital gain or loss, long-term or short-term
depending upon whether the Holder has held the Note for more than one year.
Under recently enacted legislation, the maximum regular individual U.S.
federal income tax rate on capital gains is 20% for property held for more
than 18 months and 28% for property held for more than one year but not more
than 18 months. Capital gains on the sale of property held for one year or
less are subject to U.S. federal income tax at ordinary income rates. Subject
to certain limited exceptions, capital losses cannot be used to offset
ordinary income.
FOREIGN HOLDERS
For purposes of this discussion, a "Foreign Holder" is any holder of a
Note other than a U.S. Holder. A Foreign Holder generally will not be subject
to U.S. federal withholding tax on interest paid on the Notes so long as the
Foreign Holder (i) is not actually or constructively a "10 percent
shareholder" of the Company or a "controlled foreign corporation" with
respect to which the Company is a "related person" within the meaning of the
Code and (ii) provides an appropriate statement, signed under penalties of
perjury, certifying that the beneficial owner of the Note is a Foreign Holder
and providing that foreign person's name and address. If the information
provided in this statement changes, the foreign person must so inform the
payor within 30 days of such change. The statement generally must be provided
in the year a payment occurs or in either of the two preceding years. If the
foregoing conditions are not satisfied, then interest paid on the Notes will
be subject to U.S. withholding tax at a rate of 30%, unless such rate is
reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain a Foreign Holder realizes on the sale, redemption,
retirement or other taxable disposition of a Note will be exempt from U.S.
federal income and withholding tax, provided that (i) the gain is not
effectively connected with the Foreign Holder's conduct of a trade or
business in the United States, (ii) in the case of a Foreign Holder that is
an individual, the Foreign Holder is not present in the United States for 183
days or more in the taxable year of the disposition and (iii) the Foreign
Holder is not subject to tax pursuant to the provisions of U.S. tax law
applicable to certain U.S. expatriates.
If the interest, gain or other income a Foreign Holder recognizes on a Note
is effectively connected with the Foreign Holder's conduct of a trade or
business in the United States, the Foreign Holder (although exempt from the
withholding tax previously discussed if an appropriate statement is
furnished) generally will be subject to U.S. federal income tax on the
interest, gain or other income at regular federal income tax rates. In
addition, if the Foreign Holder is a foreign corporation, it may be subject
to a branch profits tax equal to 30% of its "effectively connected earnings
and profits," as adjusted for certain items, unless it qualifies for a lower
rate under an applicable tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will be required to report annually to the IRS, and to each
U.S. Holder of record, the amount of interest paid on the Notes (and the
amount, if any, withheld) for each calendar year, except as to exempt holders
(generally, corporations and tax-exempt entities). Each U.S. Holder subject
to the reporting requirements will be required to provide under penalties of
perjury, a certificate containing the U.S. Holder's name, address, correct
federal taxpayer identification number and a statement that the U.S. Holder
is not subject to backup withholding. Should a nonexempt U.S. Holder fail to
provide the required certificate, the Company or its paying agent will be
required to withhold 31% of the interest and other payments on the Notes
otherwise payable to the U.S. Holder and to remit the withheld amount to the
IRS as a payment against the U.S. Holder's federal income tax liability.
A Foreign Holder will generally be exempt from backup withholding and
information reporting requirements, but may be required to comply with
certification and identification procedures in order to obtain an exemption
from backup withholding and information reporting. Any amount paid as backup
withholding will be creditable against the Foreign Holder's U.S. Federal
income tax liability.
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PLAN OF DISTRIBUTION
Each Holder desiring to participate in the Exchange Offer will be required
to represent, among other things, that (i) it is not an "affiliate" (as
defined in Rule 405 of the Securities Act) of the Company, (ii) it is not
engaged in, and does not intend to engage in, and has no arrangement or
understanding with any person to participate in, a distribution of the New
Notes and (iii) it is acquiring the New Notes in the ordinary course of its
business (a Holder unable to make the foregoing representations is referred
to as a "Restricted Holder"). A Restricted Holder will not be able to
participate in the Exchange Offer and may only sell its Old Notes pursuant to
a registration statement containing the selling securityholder information
required by Item 507 of Regulation S-K under the Securities Act, or pursuant
to an exemption from the registration requirement of the Securities Act.
Each broker-dealer (other than a Restricted Holder) that receives New
Notes for its own account pursuant to the Exchange Offer (a "Participating
Broker-Dealer") is required to acknowledge in the Letter of Transmittal that
it acquired the Old Notes as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with
the resale of such New Notes. Based upon interpretations by the staff of the
Commission, the Company believes that New Notes issued pursuant to the
Exchange Offer to Participating Broker-Dealers may be offered for resale,
resold, and otherwise transferred by a Participating Broker-Dealer upon
compliance with the prospectus delivery requirements, but without compliance
with the registration requirements, of the Securities Act. The Company has
agreed that for a period of 120 days following consummation of the Exchange
Offer it will make this Prospectus available, for use in connection with any
such resale, to any Participating Broker-Dealer that notifies the Company in
the Letter of Transmittal that it may be subject to such prospectus delivery
requirements. Such Participating Broker-Dealer must also undertake in the
Letter of Transmittal to use its reasonable best efforts to notify the
Company when, prior to the expiration of such 120-day period, it is no longer
subject to such requirements. If the Company is not so notified by any
Participating Broker-Dealers that they may be subject to such requirements or
if it is later notified by all such Participating Broker-Dealers that they
are no longer subject to such requirements, the Company will not be required
to maintain the effectiveness of the Exchange Offer Registration Statement or
to amend or supplement this Prospectus following the consummation of the
Exchange Offer or following such date of notification, as the case may be.
The Company believes that during such period of time, delivery of this
Prospectus, as it may be amended or supplemented, will satisfy the prospectus
delivery requirements of a Participating Broker-Dealer engaged in
market-making or other trading activities.
Based upon interpretations by the staff of the Commission, the Company
believes that New Notes issued pursuant to the Exchange Offer may be offered
for resale, resold, and otherwise transferred by a Holder thereof (other than
a Restricted Holder or a Participating Broker-Dealer) without compliance with
the registration and prospectus delivery requirements of the Securities Act.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by Participating Broker-Dealers for their
own account pursuant to the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or at
negotiated prices. Any such resale may be made directly to purchasers or to
or through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such Participating Broker-Dealer and/or
the purchasers of any such New Notes. Any Participating Broker-Dealer that
resells New Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act. The Letter of Transmittal states that by acknowledging
that it will deliver and by delivering a prospectus, a Participating
Broker-Dealer will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
The Company has agreed to pay all expenses incidental to the Exchange Offer
other than commissions and concessions of any brokers or dealers and will
indemnify holders of the Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act, as set forth in
the Registration Rights Agreement.
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LEGAL MATTERS
Certain legal matters in connection with the New Notes offered hereby will
be passed upon for the Company and Guarantors by Willkie Farr & Gallagher,
New York, New York.
EXPERTS
The consolidated balance sheets as of December 31, 1996 and 1995, and the
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996 of the
Company, and the financial statements of Shannon Automotive Ltd., the
Staluppi Automotive Group, Gary Hanna Nissan, Inc. and the Gene Reed
Automotive Group, each of which is as of and for the year ended December 31,
1996, incorporated by reference in this Registration Statement, have been
incorporated herein in reliance on the reports of Coopers & Lybrand L.L.P.,
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
AVAILABLE INFORMATION
The Company and the Guarantors have filed with the Commission a
Registration Statement on Form S-4 (the "Registration Statement," which term
shall include all amendments, exhibits, annexes and schedules thereto)
pursuant to the Securities Act, and the rules and regulations promulgated
thereunder, covering the New Notes being offered hereby. This Prospectus does
not contain all the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to in the
Registration Statement are not necessarily complete. With respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference.
The Company is subject to the informational reporting requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements
and other information with the Commission. Such reports, proxy statements and
other information can be inspected and copied at the public reference
facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the regional offices of the Commission located
at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York 10048 and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained at prescribed
rates by writing to the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 or its public reference facilities
in New York, New York and Chicago, Illinois. Such material may also be
accessed electronically by means of the Commission's Web site
(http://www.sec.gov.). The Common Stock is listed on the New York Stock
Exchange, Inc. at which such material may be inspected.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered, upon the written or oral request
of such person, a copy of any and all documents incorporated by reference
herein. See "Incorporation of Certain Documents by Reference." Such requests
should be addressed to United Auto Group, Inc., 375 Park Avenue, New York,
New York 10152, Attention: Secretary. The Company's Secretary may also be
reached at (212) 230-0400.
In the event that the Company ceases to be subject to the informational
reporting requirements of the Exchange Act, the Company has agreed that,
whether or not it is required to do so by the rules and regulations of the
Commission, for so long as any of the Notes remain outstanding, it will
furnish to the holders of the Notes and file with the Commission (unless such
filings are not permitted under the Exchange Act) the quarterly and annual
reports and other documents that would be required to be filed if the Company
were subject to such reporting requirements. In addition, for so long as any
of the Notes remain outstanding, the Company has agreed to make available to
any beneficial owner of the Old Notes in connection with any sale thereof,
the information required by Rule 144A(d)(4) under the Securities Act.
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[United Auto Group, Inc. Logo]
UNITED AUTO GROUP, INC.
