<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 18, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
UNITED AUTO GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 5511 22-3086739
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OF ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
<TABLE>
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<S> <C> <C> <C>
UAG NORTHEAST, INC. DELAWARE 6719 13-3914604
UAG NORTHEAST (NY), INC. NEW YORK 6719 13-3915001
DIFEO PARTNERSHIP, INC. DELAWARE 6719 22-3145559
DIFEO PARTNERSHIP VIII, INC. DELAWARE 6719 22-3187703
DIFEO PARTNERSHIP IX, INC. DELAWARE 6719 22-3187702
DIFEO PARTNERSHIP HCT, INC. DELAWARE 6719 22-3187710
DIFEO PARTNERSHIP RCM, INC. DELAWARE 6719 22-3187707
DIFEO PARTNERSHIP RCT, INC. DELAWARE 6719 22-3187709
DIFEO PARTNERSHIP SCT, INC. DELAWARE 6719 22-3187705
HUDSON TOYOTA, INC. NEW JERSEY 6719 22-1919268
SOMERSET MOTORS, INC. NEW JERSEY 6719 22-2986160
COUNTY AUTO GROUP PARTNERSHIP NEW JERSEY 5511 13-3678489
DANBURY AUTO PARTNERSHIP NEW JERSEY 5511 06-1349205
DANBURY CHRYSLER PLYMOUTH PARTNERSHIP NEW JERSEY 5511 06-1359706
DIFEO BMW PARTNERSHIP NEW JERSEY 5511 22-3186285
DIFEO CHEVROLET-GEO PARTNERSHIP NEW JERSEY 5511 22-3186253
DIFEO CHRYSLER PLYMOUTH JEEP EAGLE PARTNERSHIP NEW JERSEY 5511 22-3186252
DIFEO HYUNDAI PARTNERSHIP NEW JERSEY 5511 22-3186280
DIFEO LEASING PARTNERSHIP NEW JERSEY 7515 22-3193493
DIFEO NISSAN PARTNERSHIP NEW JERSEY 5511 22-3186257
FAIR CHEVROLET-GEO PARTNERSHIP NEW JERSEY 5511 06-1349192
FAIR HYUNDAI PARTNERSHIP NEW JERSEY 5511 06-1349181
HUDSON MOTORS PARTNERSHIP NEW JERSEY 5511 22-3186282
J&F OLDSMOBILE PARTNERSHIP NEW JERSEY 5511 22-3186266
OCM PARTNERSHIP NEW JERSEY 5511 22-3248309
OCT PARTNERSHIP NEW JERSEY 5511 22-3248308
ROCKLAND MOTORS PARTNERSHIP NEW JERSEY 5511 13-3678488
SOMERSET MOTORS PARTNERSHIP NEW JERSEY 5511 22-3186283
UNITED LANDERS, INC. DELAWARE 6719 13-3860266
LANDERS AUTO SALES, INC. ARKANSAS 5511 71-0463494
LANDERS BUICK-PONTIAC, INC. ARKANSAS 5511 71-0765000
LANDERS UNITED AUTO GROUP, INC. ARKANSAS 5521 71-0784996
LANDERS UNITED AUTO GROUP NO. 2, INC. ARKANSAS 5521 71-0796323
LANDERS UNITED AUTO GROUP NO. 3, INC. ARKANSAS 5521 71-0792693
LANDERS UNITED AUTO GROUP NO. 4, INC. ARKANSAS 6719 71-0799357
UAG ATLANTA, INC. DELAWARE 6719 13-3865530
ATLANTA TOYOTA, INC. TEXAS 5511 58-1786146
UAG ATLANTA II, INC. DELAWARE 6719 22-3439248
UNITED NISSAN, INC. GEORGIA 5511 58-2038392
UAG ATLANTA III, INC. DELAWARE 6719 13-3914606
PEACHTREE NISSAN, INC. GEORGIA 5511 58-1273321
UAG WEST, INC. DELAWARE 6719 13-3914611
LRP, LTD. ARIZONA 5511 86-0805727
SA AUTOMOTIVE, LTD. ARIZONA 5511 86-0583813
SL AUTOMOTIVE, LTD. ARIZONA 5511 86-0610228
SCOTTSDALE AUDI, LTD. ARIZONA 5511 86-0839423
SCOTTSDALE MANAGEMENT GROUP, LTD. ARIZONA 8741 86-0573438
SK MOTORS, LTD. ARIZONA 5511 86-0839422
SPA AUTOMOTIVE, LTD. ARIZONA 5511 86-0389559
SUN BMW, LTD. ARIZONA 5511 86-0782655
UAG ATLANTA IV, INC. DELAWARE 6719 13-3914607
UAG ATLANTA IV MOTORS, INC. GEORGIA 5511 58-1092076
UAG ATLANTA V, INC. DELAWARE 6719 13-3914609
CONYERS NISSAN, INC. GEORGIA 5511 58-1286561
UAG TENNESSEE, INC. DELAWARE 6719 13-3914610
UNITED NISSAN, INC. TENNESSEE 5511 62-0790848
UAG TEXAS, INC. DELAWARE 6719 13-3933080
UAG TEXAS II, INC. DELAWARE 6719 13-3933083
SHANNON AUTOMOTIVE, LTD. TEXAS 5511 76-0528837
UAG NEVADA, INC. DELAWARE 6719 13-394-3658
UNITED NISSAN, INC. NEVADA 5511 88-0166773
UAG EAST, INC. DELAWARE 6719 13-394-4970
<PAGE>
AMITY AUTO PLAZA, LTD. NEW YORK 5511 11-294-0031
AMITY NISSAN OF MASSAPEQUA, LTD. NEW YORK 5511 11-2428171
AUTO MALL PAYROLL SERVICES, INC. FLORIDA 8721 65-0168491
AUTO MALL STORAGE, INC. FLORIDA 7521 65-0733691
FLORIDA CHRYSLER PLYMOUTH, INC. FLORIDA 5511 59-2676162
J&S AUTO REFINISHING, LTD. NEW YORK 7532 11-3266285
NORTHLAKE AUTO FINISH, INC. FLORIDA 7532 65-0069290
PALM AUTO PLAZA, INC. FLORIDA 5511 65-0224472
WEST PALM AUTO MALL, INC. FLORIDA 8741 65-0050208
WEST PALM INFINITI, INC. FLORIDA 5511 65-0132666
WEST PALM NISSAN, INC. FLORIDA 5511 59-2664962
WESTBURY NISSAN, LTD. NEW YORK 5511 11-304-9910
WESTBURY SUPERSTORE, LTD. NEW YORK 5511 11-298-3989
UAG CAROLINA, INC. DELAWARE 6719 13-3959601
GENE REED CHEVROLET, INC. SOUTH CAROLINA 5511 57-0714181
MICHAEL CHEVROLET-OLDSMOBILE, INC. SOUTH CAROLINA 5511 57-0917132
REED LALLIER CHEVROLET, INC. NORTH CAROLINA 5511 56-1632500
UAG ATLANTA VI, INC. DELAWARE 6719 13-3960863
UNITED JEEP EAGLE CHRYSLER PLYMOUTH OF STONE GEORGIA 5511 58-1859444
MOUNTAIN, INC.
UNITED AUTOCARE, INC. DELAWARE 6399 13-3920140
UNITED AUTOCARE PRODUCTS, INC. DELAWARE 5531 13-3922210
UAG CAPITAL MANAGEMENT, INC. DELAWARE 6799 13-3933904
UAG FINANCE COMPANY, INC. DELAWARE 6399 13-3953915
(Exact names of co-registrants (State or other jurisdiction (Primary Standard (I.R.S. Employer
as specified in their charters) of incorporation of Industrial Classification Identification
organization) Code Number) No.)
</TABLE>
375 PARK AVENUE
NEW YORK, NEW YORK 10152
(212) 223-3300
(Address, including zip code, and telephone number, including
area code, of registrants' principal executive offices)
PHILIP N. SMITH, JR., ESQ.
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
UNITED AUTO GROUP, INC.
375 PARK AVENUE
NEW YORK, NEW YORK 10152
(212) 223-3300
(Name, address, including zip code, and telephone number, including area
code, of agent for service)
WITH A COPY TO:
Laurence D. Weltman, Esq.
Willkie Farr & Gallagher
One Citicorp Center
153 East 53rd Street
New York, New York 10022
(212) 821-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this Form are to be offered
in connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS MAXIMUM PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
BE REGISTERED REGISTERED (1) PRICE (1) FEE
- ---------------------------- -------------- ---------------- ------------------ --------------
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11% Senior Subordinated
Notes
Due 2007 $150,000,000 100% $150,000,000 $45,455
- ---------------------------- -------------- ---------------- ------------------ --------------
Guarantees (2) (3) (3) (3) (2)
- ---------------------------- -------------- ---------------- ------------------ --------------
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(1) Estimated solely for the purpose of calculating the registration fee.
(2) Each Guarantor (as defined) is registering a Guarantee (as defined)
of the payment of the principal of, premium, if any, and interest on
the Notes being registered hereby. Pursuant to Rule 457(n) under the
Securities Act of 1933, as amended, no registration fee is required
with respect to the Guarantees.
(3) Not applicable.
The Registrants hereby amend this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrants
shall file a further amendment that specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY STATE.
PROSPECTUS
SUBJECT TO COMPLETION, DATED , 1997
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 EXCHANGE OFFER
WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON , 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.
(Cover continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 16 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 , 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
Notes are guaranteed 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 $269.0 million was outstanding on
a pro forma basis as of June 30, 1997).
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.
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
(Cover continued on next page)
2
<PAGE>
(Cover continued from previous page)
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 , 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 , 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
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PAGE
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Prospectus Summary...................... 6
Risk Factors............................ 16
Use of Proceeds......................... 23
Capitalization.......................... 24
Pro Forma Condensed
Consolidated Financial Statements ..... 25
Selected Consolidated Financial Data ... 32
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 34
Business................................ 40
The Exchange Offer...................... 56
Management.............................. 65
Certain Relationships and Related
Transactions........................... 70
Security Ownership...................... 72
Description of Senior Credit Facility .. 73
Description of Notes.................... 74
Certain U.S. Federal Income Tax
Considerations......................... 99
Plan of Distribution.................... 101
Legal Matters........................... 102
Experts................................. 102
Available Information................... 102
Index to Financial Statements........... F-1
</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, INCLUDING
WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE "PROSPECTUS SUMMARY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS" LOCATED ELSEWHERE HEREIN 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 INCLUDED IN THIS PROSPECTUS 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.
5
<PAGE>
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. Unless otherwise
indicated, all pro forma financial information assumes that all acquisitions
consummated subsequent to January 1, 1996 and reflected therein were
consummated on January 1, 1996.
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, operating 57 franchises located in Arizona, Arkansas,
Connecticut, Florida, Georgia, 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. For the year ended December 31, 1996, on
a pro forma basis, the Company retailed 62,769 new and 35,106 used vehicles.
For the six months ended June 30, 1997 and the year ended December 31, 1996,
on a pro forma basis, the Company had revenues of $1.2 billion and $2.4
billion, respectively, and EBITDA of $32.7 million and $65.5 million,
respectively.
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 18 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
6
<PAGE>
is knowledgeable about product offerings and responsive to a customer's
particular needs. Continuous 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. UAG's service and parts-related gross profit for the three
months ended June 30, 1997 covered 53.7% of the Company's total fixed cost
base ("service absorption"), up from 46% in 1995. The Company has targeted
a service absorption rate of 60%.
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
7
<PAGE>
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.
1996 ACQUISITIONS
The Company completed six dealership acquisitions during 1996 (the "1996
Acquisitions") for total aggregate consideration of approximately $95.8
million. In 1996, these dealerships had total sales of approximately $635.4
million. These dealerships are located in Arizona, Georgia and Tennessee and
collectively operate Acura, Audi, BMW, Land Rover, Lexus, Nissan, Porsche and
Toyota franchises. In addition, concurrently with the Company's initial public
offering in October 1996 (the "IPO"), the Company acquired the minority
interests in three subsidiaries in exchange for 1,113,841 shares of the
Company's Voting Common Stock ("Common Stock") plus certain other
consideration (the "Minority Exchange"). See "Certain Relationships and
Related Transactions."
1997 ACQUISITIONS
The Company has completed six dealership acquisitions to date during 1997
(the "1997 Acquisitions") for total aggregate consideration of approximately
$117.7 million. In 1996, these dealerships had total sales of approximately
$808.4 million. These dealerships are located in Arkansas, Florida, Georgia,
Nevada, New York, North Carolina, South Carolina and Texas and collectively
operate Chrysler-Plymouth, General Motors, Infiniti, Isuzu, Jeep-Eagle, Nissan
and Toyota franchises.
PENDING ACQUISITIONS
The Company has signed definitive agreements to make the following
acquisitions (the "Pending Acquisitions"). The automobile franchises to be
acquired in the Pending Acquisitions are set forth in "Business--Acquisition
History." 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 signed 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 signed 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 August 25, 1997, the Company signed a definitive agreement to acquire
Shreveport Dodge, located in Shreveport, Louisiana, for a purchase price of
$3.5 million in cash.
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.
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.
8
<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.
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 ,
1997, unless extended (the
"Expiration Date").
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. See
"The 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.
9
<PAGE>
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.
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.
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 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.
10
<PAGE>
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."
11
<PAGE>
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 guaranteed 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.
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
$269.0 million was outstanding on a
pro forma basis as of June 30, 1997).
CHANGE OF CONTROL ..................... Upon the occurrence of a Change of
Control, each holder of New Notes
will have the right to require the
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
12
<PAGE>
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."
13
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents (i) summary historical consolidated financial
and other data of the Company as of the dates and for the periods indicated,
including the results of operations of acquired dealerships from their
respective dates of acquisition, and (ii) summary pro forma financial and
other data of the Company as of the date and for the periods indicated giving
effect to the events described in the Pro Forma Condensed Consolidated
Financial Statements included elsewhere in this Prospectus as though they had
occurred on the dates indicated therein. The summary pro forma data are not
necessarily indicative of operating results or financial position that would
have been achieved had these events been consummated on the dates indicated
and should not be construed as representative of future operating results or
financial position. The summary historical and pro forma financial data should
be read in conjunction with the financial statements and related notes thereto
included herein, with the Pro Forma Condensed Consolidated Financial
Statements and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
PRO FORMA PRO FORMA
DOLLARS IN THOUSANDS 1997 1997 1996 1996 1996 1995 1994
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Auto Dealerships
Total revenues ........................$ 1,173,236 $ 915,158 $ 597,939 $ 2,368,309 $ 1,302,031 $ 805,621 $ 731,629
Cost of sales, including floor plan
interest (1) ......................... 1,025,626 798,896 531,560 2,087,908 1,157,368 720,344 647,643
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit .......................... 147,610 116,262 66,379 280,401 144,663 85,277 83,986
Selling, general and administrative
expenses.............................. 121,990 95,723 56,975 227,320 124,244 90,586 80,415
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss) ............... 25,620 20,539 9,404 53,081 20,419 (5,309) 3,571
Other interest expense ................ (14,584) (2,246) (2,005) (28,049) (4,398) (1,438) (860)
Other income (expense), net ........... 781 297 1,579 616 2,506 2,208 (2,899)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes--
Auto Dealerships ...................... 11,817 18,590 8,978 25,648 18,527 (4,539) (188)
Auto Finance
Revenues .............................. 2,085 2,085 1,029 1,798 1,798 530 2
Interest expense ...................... (260) (260) (176) (421) (421) (174) --
Operating and other expenses .......... (2,024) (2,024) (1,202) (2,867) (2,867) (1,738) (618)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Loss before income taxes--Auto Finance . (199) (199) (349) (1,490) (1,490) (1,382) (616)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total Company
Income (loss) before minority interests
(provision) benefit for income taxes
and extraordinary item ............... 11,618 18,391 8,629 24,158 17,037 (5,921) (804)
Minority interests .................... (97) (97) (1,734) (37) (3,306) 366 (887)
(Provision) benefit for income taxes .. (4,647) (7,378) (2,997) (9,664) (6,270) 2,089 --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before extraordinary item 7,461 (3,466) (1,691)
Extraordinary item (net of income tax
benefit)(2) ........................... (4,987) -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)(1) ...................$ 6,874 $ 10,916 $ 3,898 $ 14,457 $ 2,474 $ (3,466) $ (1,691)
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------------------------
AS OF JUNE 30, AS OF DECEMBER 31,
PRO FORMA
DOLLARS IN THOUSANDS 1997 1997 1996 1995 1994
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Auto Dealerships
Total assets.............. $878,061 $728,061 $505,693 $227,275 $169,766
Floor plan notes payable . 268,955 268,955 170,170 97,823 92,310
Other debt................ 255,347 105,347 23,968 44,538 29,440
Auto Finance
Net assets................ 23,670 23,670 14,552 3,501 291
Total Company
Total assets.............. 905,762 755,762 722,950 236,027 170,342
Floor plan notes payable . 268,955 268,955 170,170 97,823 92,310
Other debt................ 255,648 105,648 24,969 49,199 29,440
Total stockholders' equity 317,529 317,529 281,468 49,240 28,785
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30, YEARS ENDED DECEMBER 31,
PRO FORMA PRO FORMA
DOLLARS IN THOUSANDS 1997 1997 1996 1996 1996 1995 1994
----------- --------- --------- ----------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA (3).................................... $32,662 $24,996 $12,519 $65,460 $27,928 $(1,489) $2,301
EBITDA margin (4)............................. 2.8% 2.7% 2.1% 2.8% 2.1% (0.2)% 0.3%
Adjusted EBITDA (5)........................... $38,589 $81,192
Adjusted EBITDA margin (4).................... 3.3% 3.4%
Depreciation and amortization................. $ 6,200 $ 4,099 $ 1,709 $14,557 $ 7,797 $ 2,820 $2,245
Capital expenditures.......................... $ 5,808 $ 5,808 $ 2,069 $ 9,508 $ 6,771 $ 1,739 $5,237
Ratio of EBITDA to other interest expense (6). 2.20x 9.97x 5.74x 2.30x 5.80x (3) 2.68x
Ratio of earnings to fixed charges (7) ....... 1.78x 8.34x 4.96x 1.85x 4.54x (7) (7)
</TABLE>
- ------------
(1) The pro forma adjustments do not reflect a reduction of cost of sales
for reduced interest expense on floor plan notes payable resulting from
the effective repayment of a portion of such floor plan notes payable
with a portion of the net proceeds from the IPO, the Initial Offering
and the offering of the Series B Notes. If such reduction of floor plan
interest expense was reflected, pro forma net income would have been
$10.4 million for the six months ended June 30, 1997 and $23.9 million
for the year ended December 31, 1996.
(2) 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.
(3) EBITDA is defined as income (loss) before minority interests,
(provision) benefit for income taxes, extraordinary item, interest
expense (exclusive of interest expense relating to floor plan notes
payable) and depreciation and amortization. For the purpose of
calculating EBITDA for the year ended December 31, 1996, and on a pro
forma basis 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 generally accepted
accounting principles ("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 by $3.1 million.
(4) EBITDA margin and Adjusted EBITDA margin are calculated as the ratio of
EBITDA and Adjusted EBITDA, respectively, to consolidated revenues for
the period.
(5) Adjusted EBITDA represents EBITDA plus interest expense on floor plan
notes after giving effect to the effective repayment of a portion of
such floor plan notes payable with a portion of the net proceeds from
the IPO, the Initial Offering and the offering of the Series B Notes.
(6) Includes other interest expense from Auto Dealerships and interest
expense from Auto Finance.
(7) 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 by $5.9 million
and $0.8 million, respectively.
15
<PAGE>
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" and
"Business -- Franchise Agreements." 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
16
<PAGE>
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 $269.0 million was outstanding on a pro forma
basis as of June 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 June 30, 1997, on a pro forma basis, the Company's total consolidated
indebtedness (including floor plan notes payable) and total stockholders'
equity was $524.6 million and $317.5 million, respectively, and total
indebtedness represented 62.3% 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
17
<PAGE>
(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, under the Company's agreement with Honda, no more than 40% of
the Company's capital stock (on a fully diluted basis) may be freely tradable
and unrestricted at any time. The Company believes that slightly less than 40%
of the Common Stock (on a fully diluted basis) is currently freely tradable
and unrestricted. The Company has contractual obligations with its existing
equity holders to register their shares of Common Stock under the Securities
Act under certain circumstances and a number of such shares are, and more will
become with time, eligible for sale pursuant to the terms of Rule 144 under
the Securities Act. Only the Company's three largest stockholders are
prohibited from selling any of their shares without Honda's consent. See
"Security Ownership." 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. The Company currently holds 57 franchises, including 13 Chrysler
franchises, ten Nissan franchises (of which one is Infiniti), nine Toyota
franchises (of which two are Lexus), eight General Motors
18
<PAGE>
Corporation ("GM") franchises, three BMW franchises and two Honda franchises
(of which one is Acura). 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." 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 June 30, 1997, on a pro forma basis, the Company had $269.0
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.
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
19
<PAGE>
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. See "Business -- Competition."
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. See
"Business -- Business Strategy."
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.
20
<PAGE>
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 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. See "Business -- Atlantic Finance" for detailed information on
Atlantic Finance's delinquency and default rates. 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. 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.
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<PAGE>
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 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 May 31, 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 19.5%, 15.7% and 10.2% of the
outstanding Common Stock, respectively. See "Security Ownership." 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.
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. 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 "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 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."
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<PAGE>
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.
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<PAGE>
CAPITALIZATION
The following table sets forth the short-term debt and consolidated
capitalization of the Company (i) as of June 30, 1997, and (ii) as adjusted to
give effect to the issuance of the Notes and the use of a portion of the
proceeds therefrom to repay amounts outstanding under the Senior Credit
Facility and the issuance of the Series B Notes. This table should be read in
conjunction with the consolidated historical and pro forma financial
statements of the Company and the notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
----------------------
AS OF JUNE 30, 1997
AS
ACTUAL ADJUSTED
---------- ----------
<S> <C> <C>
In thousands
Short-term debt:
Short-term debt, excluding floor plan (1) $ 7,271 $ 7,271
Current portion of long-term debt 4,217 4,217
---------- ----------
Total short-term debt $ 11,488 $ 11,488
========== ==========
Long-term debt (excluding current
portion):
Senior Credit Facility $ 50,000 $ --
Senior Subordinated Notes -- 200,000
Other 44,160 44,160
---------- ----------
Total long-term debt 94,160 244,160
---------- ----------
Stockholders' equity 317,529 317,529
---------- ----------
Total capitalization $411,689 $561,689
========== ==========
</TABLE>
- ------------
(1) As of June 30, 1997, an aggregate of $269.0 million was outstanding
under the Company's floor plan facilities on an actual and as adjusted
basis. On an as adjusted basis, the Company will have deposited an
additional approximately $139.4 million with its floor plan lenders.
See "Use of Proceeds."
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PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated statement of
operations for the year ended December 31, 1996 gives effect to the following:
(i) the acquisitions of United Nissan (GA) (May 1, 1996), Peachtree Nissan
(July 1, 1996), Sun Automotive Group, the Evans Group and United Nissan (TN)
(October 28, 1996), Shannon Automotive (d/b/a Crown Automotive) (March 1,
1997), Hanna Nissan (April 22, 1997), the Staluppi Group (April 30, 1997), the
Reed Group (May 30, 1997) and Lance Landers (June 9, 1997); (ii) the Minority
Exchange; (iii) the IPO; (iv) the commitment fees under the Senior Credit
Facility and the amortization of financing costs related thereto; (v) the
Initial Offering; and (vi) the offering of the Series B Notes.
The following unaudited pro forma condensed consolidated statement of
operations for the six months ended June 30, 1997 gives effect to the
following: (i) the acquisitions of Crown Automotive, Hanna Nissan, the
Staluppi Group, the Reed Group and Lance Landers; (ii) the commitment fees
under the Senior Credit Facility and the amortization of financing costs
related thereto; (iii) the Initial Offering; and (iv) the offering of the
Series B Notes.
The following unaudited pro forma condensed consolidated balance sheet as
of June 30, 1997 gives effect to the following: (i) the acquisitions of Hanna
Nissan, the Staluppi Group, the Reed Group and Lance Landers; (ii) the Initial
Offering; (iii) the repayment of the Senior Credit Facility; and (iv) the
offering of the Series B Notes.
The pro forma condensed consolidated statements of operations assume these
events occurred on January 1, 1996 and the pro forma condensed consolidated
balance sheet assumes that the acquisitions of Hanna Nissan, the Staluppi
Group, the Reed Group and Lance Landers, the Initial Offering, the repayment
of the Senior Credit Facility and the offering of the Series B Notes occurred
on June 30, 1997.
The pro forma condensed consolidated financial statements are not
necessarily indicative of operating results or financial position that would
have been achieved had these events been consummated on the dates indicated
and should not be construed as representative of future operating results or
financial position.
These pro forma condensed consolidated financial statements should be read
in conjunction with the historical financial statements and related notes
thereto included in this Prospectus.
25
<PAGE>
UNITED AUTO GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
CROWN HANNA STALUPPI REED LANCE PRO FORMA
UAG AUTOMOTIVE (1) NISSAN (1) GROUP (1) GROUP (1) LANDERS (1) ADJUSTMENTS PRO FORMA
---------- -------------- ---------- ---------- --------- ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
In thousands, except
per share amounts
AUTO DEALERSHIPS
Total revenues $915,158 $12,573 $19,826 $152,774 $56,239 $16,666 $ -- $1,173,236
Cost of sales, including
floor plan interest 798,896 10,507 16,802 136,649 47,151 15,621 -- 1,025,626
---------- ------------ ---------- ---------- --------- ----------- ------------- ------------
Gross profit 116,262 2,066 3,024 16,125 9,088 1,045 -- 147,610
Selling, general and
administrative expenses 95,723 1,552 2,183 14,732 7,385 1,084 (110)(2) 121,990
200 (3)
(1,580)(4)
821 (5)
---------- ------------ ---------- ---------- --------- ----------- ------------- ------------
Operating income (loss) 20,539 514 841 1,393 1,703 (39) 669 25,620
Other interest expense (2,246) -- -- (63) (204) -- (670)(6) (14,584)
(11,527)(7)
294 (8)
(168)(9)
Other income (expense), net 297 -- -- 484 -- -- -- 781
---------- ------------ ---------- ---------- --------- ----------- ------------- ------------
Income before income
taxes--Auto Dealerships 18,590 514 841 1,814 1,499 (39) (11,402) 11,817
AUTO FINANCE
Revenues 2,085 -- -- -- -- -- -- 2,085
Interest expense (260) -- -- -- -- -- -- (260)
Operating and other
expenses (2,024) -- -- -- -- -- -- (2,024)
---------- ------------ ---------- ---------- --------- ----------- ------------- ------------
Loss before income
taxes--Auto Finance (199) -- -- -- -- -- -- (199)
---------- ------------ ---------- ---------- --------- ----------- ------------- ------------
TOTAL COMPANY
Income before minority
interests and provision for
income taxes 18,391 514 841 1,814 1,499 (39) (11,402) 11,618
Minority interests (97) -- -- -- -- -- -- (97)
Provision for income taxes (7,378) -- -- -- -- -- 2,731 (10) (4,647)
---------- ------------ ---------- ---------- --------- ----------- ------------- ------------
Net income $ 10,916 $ 514 $ 841 $ 1,814 $ 1,499 $ (39) $ (8,671) $ 6,874
========== ============ ========== ========== ========= =========== ============= ============
Net income per common share $ 0.61 $ 0.35
========== ============
Shares used in computing net
income per common share 18,023 1,346 (11) 19,369
========== ============= ============
</TABLE>
26
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(1) Represents the results of operations of such entities prior to their
respective dates of acquisition by UAG.
(2) Represents reduction for management fees paid to owners or affiliated
entities of acquired dealerships.
(3) Represents net change in facility expenses at acquired dealerships
due to revised and terminated lease agreements upon acquisition.
(4) Represents reduction in compensation expense at acquired dealerships
related to former owners and employees to contractual amounts.
(5) Represents amortization of excess of cost over net assets acquired
for the acquired dealerships.
(6) Represents additional interest expense from the issuance of notes
payable to certain sellers as part of the acquisitions.
(7) Represents interest on the Notes and Series B Notes and amortization
of related deferred financing costs. Deferred financing costs are
being amortized over a ten-year period. The pro forma adjustment does
not reflect a reduction of cost of sales related to reduced interest
expense on floor plan notes payable resulting from the effective
repayment of a portion of such floor plan notes payable with a
portion of the net proceeds from the Initial Offering and the
offering of the Series B Notes. If such reduction of floor plan
interest expense was reflected, pro forma net income (and net income
per common share) would have been $10.4 million ($0.53 per share) for
the six months ended June 30, 1997.
(8) Represents the reduction of interest incurred under the Senior Credit
Facility, net of commitment fees relating thereto and amortization,
over the three-year term thereof, of related deferred financing
costs.
(9) Represents reduction in related party interest income at acquired
dealerships.
(10) Represents the tax impact of pro forma adjustments at the statutory
rate ($1.9 million) and the impact of the conversion of certain
acquired entities from an S corporation to a C corporation for tax
purposes ($0.8 million).
(11) Represents shares issued in connection with certain acquisitions.
27
<PAGE>
UNITED AUTO GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1996
UNITED PEACHTREE SUN EVANS UNITED
NISSAN NISSAN AUTOMOTIVE GROUP NISSAN
UAG (GA)(1) (1) GROUP (1) (1) (TN)(1)
---------- ----------- --------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
In thousands, except per
share amounts
AUTO DEALERSHIPS
Total revenues $1,302,031 $19,892 $41,320 $160,132 $81,016 $56,704
Cost of sales, net of floor
plan interest 1,157,368 16,503 36,581 137,323 71,147 50,301
---------- ----------- --------- ---------- ------- -----------
Gross profit 144,663 3,389 4,739 22,809 9,869 6,403
Selling, general and
administrative expenses 124,244 2,481 4,072 17,385 8,428 5,233
---------- ----------- --------- ---------- ------- -----------
Operating income 20,419 908 667 5,424 1,441 1,170
Other interest expense (4,398) -- -- (430) -- --
Other income (expense), net 2,506 -- 19 (664) 139 336
---------- ----------- --------- ---------- ------- -----------
Income before income
taxes--Auto Dealerships 18,527 908 686 4,330 1,580 1,506
AUTO FINANCE
Revenues 1,798 -- -- -- -- --
Interest expense (421) -- -- -- -- --
Operating and other
expenses (2,867) -- -- -- -- --
---------- ----------- --------- ---------- ------- -----------
Loss before income
taxes-Auto Finance (1,490) -- -- -- -- --
---------- ----------- --------- ---------- ------- -----------
TOTAL COMPANY
Income before minority
interests, provision for
income taxes and
extraordinary item 17,037 908 686 4,330 1,580 1,506
Minority interests (3,306) -- -- -- -- --
Provision for income taxes (6,270) -- -- -- (709) (95)
---------- ----------- --------- ---------- ------- -----------
Income before extraordinary
item 7,461 908 686 4,330 871 1,411
Extraordinary item (net of
income tax benefit) (4,987) -- -- -- -- --
---------- ----------- --------- ---------- ------- -----------
Net income $ 2,474 $ 908 $ 686 $ 4,330 $ 871 $ 1,411
========== =========== ========= ========== ======= ===========
Income before extraordinary
item per common share $ 0.69
==========
Net income per common share $ 0.23
==========
Shares used in computing
net income per common
share 10,851
==========
</TABLE>
<PAGE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
CROWN HANNA STALUPPI REED LANCE
AUTOMOTIVE NISSAN GROUP GROUP LANDERS PRO FORMA PRO
(1) (1) (1) (1) (1) ADJUSTMENTS FORMA
------------ -------- -------- -------- --------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
In thousands, except per
share amounts
AUTO DEALERSHIPS
Total revenues $96,962 $67,504 $425,621 $138,040 $40,956 $(61,869)(2) $2,368,309
Cost of sales, net of floor
plan interest 83,290 58,082 377,556 115,570 38,156 (53,492)(2) 2,087,908
(377)(3)
(100)(4)
------------ -------- -------- -------- --------- ------------ ----------
Gross profit 13,672 9,422 48,065 22,470 2,800 (7,900) 280,401
Selling, general and
administrative expenses 10,549 6,463 41,517 17,284 2,637 (8,607)(2) 227,320
(464)(4)
(675)(5)
659 (6)
(584)(7)
(7,850)(8)
4,548 (9)
------------ -------- -------- -------- --------- ------------ ----------
Operating income 3,123 2,959 6,548 5,186 163 5,073 53,081
Other interest expense -- -- (162) (455) -- (2,447)(10) (28,049)
4,534 (11)
(23,053)(12)
(1,167)(13)
(471)(14)
Other income (expense), net -- -- 663 -- 123 (2,506)(6) 616
------------ -------- -------- -------- --------- ------------ ----------
Income before income
taxes--Auto Dealerships 3,123 2,959 7,049 4,731 286 (20,037) 25,648
AUTO FINANCE
Revenues -- -- -- -- -- -- 1,798
Interest expense -- -- -- -- -- -- (421)
Operating and other
expenses -- -- -- -- -- -- (2,867)
------------ -------- -------- -------- --------- ------------ ----------
Loss before income
taxes-Auto Finance -- -- -- -- -- -- (1,490)
------------ -------- -------- -------- --------- ------------ ----------
TOTAL COMPANY
Income before minority
interests, provision for
income taxes and
extraordinary item 3,123 2,959 7,049 4,731 286 (20,037) 24,158
Minority interests -- -- -- -- -- 3,269 (6) (37)
Provision for income taxes -- -- -- -- -- (2,590)(15) (9,664)
------------ -------- -------- -------- --------- ------------ ----------
Income before extraordinary
item 3,123 2,959 7,049 4,731 286 (19,358) 14,457
Extraordinary item (net of
income tax benefit) -- -- -- -- -- 4,987 (16) --
------------ -------- -------- -------- --------- ------------ ----------
Net income $3,123 $2,959 $7,049 $4,731 $286 $(14,371) $14,457
============ ======== ======== ======== ========= ============ ==========
Income before extraordinary
item per common share $ 0.75
============ ==========
Net income per common share $ 0.75
============ ==========
Shares used in computing
net income per common
share 8,518 (17) 19,369
============ ============ ==========
</TABLE>
28
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(1) Represents the results of operations of such entities prior to their
respective dates of acquisition by UAG.
(2) Represents adjustments to eliminate the results of operations of
dealerships not acquired (Saab and Jaguar) and of dealerships
transferred due to failure to obtain manufacturer approval (Saturn).
(3) Represents reduction in floor plan interest expense to reflect lower
floor plan interest rates available to UAG subsequent to the date of
acquisition of the Staluppi Group.
(4) Represents reduction for management fees paid to owners or affiliated
entities of acquired dealerships.
(5) Represents final costs related to the DiFeo Restructuring (as
defined).
(6) Represents adjustments that give effect to the Minority Exchange.
These adjustments include amortization expense for the excess of cost
over net assets acquired, the elimination of related party interest
income on assets exchanged, the elimination of equity in operations
of assets exchanged and the elimination of minority interest in
results of operations acquired.
(7) Represents net change in facility expenses at acquired dealerships
due to revised and terminated lease agreements upon acquisition.
(8) Represents reduction in compensation expense at acquired dealerships
related to former owners and employees to contractual amounts.
(9) Represents amortization of excess of cost over net assets acquired
for the acquired dealerships.
(10) Represents additional interest expense from the issuance of notes
payable to certain sellers as part of the acquisitions.
(11) Represents reduction in historical interest expense due to the
repayment of the Company's Series A and B Senior Notes due 2003 with
a portion of the net proceeds of the IPO.
(12) Represents interest on the Notes and Series B Notes and amortization
of related deferred financing costs. Deferred financing costs are
being amortized over a ten-year period. The pro forma adjustment does
not reflect a reduction of cost of sales related to reduced interest
expense on floor plan notes payable resulting from the effective
repayment of a portion of such floor plan notes payable with a
portion of the net proceeds from the IPO, the Initial Offering and
the offering of the Series B Notes. If such reduction of floor plan
interest expense was reflected, pro forma net income (and net income
per common share) would have been $23.9 million ($1.23 per share) for
the year ended December 31, 1996.
(13) Represents commitment fees relating to the Senior Credit Facility and
amortization, over the three-year term thereof, of related deferred
financing costs.
(14) Represents reduction in related party interest income at acquired
dealerships.
(15) Represents the tax impact of pro forma adjustments at the statutory
rate adjusted for non-deductible items ($7.4 million) and the impact
of the conversion of certain acquired entities from an S corporation
to a C corporation for tax purposes ($10.0 million).
(16) Represents the elimination of the extraordinary item due to the early
extinguishment of the Company's Series A and B Senior Notes due 2003.
(17) Represents shares issued in connection with the IPO, the Minority
Exchange and certain acquisitions.
29
<PAGE>
UNITED AUTO GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
--------------------------------------
AS OF JUNE 30, 1997
PRO FORMA
UAG ADJUSTMENTS PRO FORMA
---------- ------------- -----------
<S> <C> <C> <C>
In thousands
ASSETS
AUTO DEALERSHIPS
Cash and cash equivalents $ 43,318 $140,794 (1) $182,787
(50,000)(2)
48,675 (3)
Accounts receivable 80,883 80,883
Inventories 267,673 267,673
Other current assets 7,607 7,607
---------- ------------- -----------
Total current assets 399,481 139,469 538,950
Property and equipment, net 32,940 32,940
Intangible assets, net 288,445 288,445
Other assets 7,195 9,206 (1) 17,726
1,325 (3)
---------- ------------- -----------
TOTAL AUTO DEALERSHIP ASSETS 728,061 150,000 878,061
---------- ------------- -----------
AUTO FINANCE
Cash and cash equivalents 4,985 4,985
Finance receivables, net 20,928 20,928
Other assets 1,788 1,788
---------- ------------- -----------
TOTAL AUTO FINANCE ASSETS 27,701 27,701
---------- ------------- -----------
TOTAL ASSETS $755,762 $150,000 $905,762
========== ============= ===========
</TABLE>
30
<PAGE>
UNITED AUTO GROUP, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
---------------------------------------
AS OF JUNE 30, 1997
PRO FORMA
UAG ADJUSTMENTS PRO FORMA
---------- -------------- -----------
<S> <C> <C> <C>
In thousands
LIABILITIES AND STOCKHOLDERS' EQUITY
AUTO DEALERSHIPS
Floor plan notes payable $268,955 $268,955
Short-term debt 6,970 6,970
Accounts payable 29,707 29,707
Accrued expenses 21,831 21,831
Current portion of long-term debt 4,217 4,217
---------- -----------
Total current liabilities 331,680 331,680
Long-term debt 93,722 $(50,000)(2) 243,722
150,000 (4)
50,000 (5)
Due to related party 438 438
Deferred income taxes 8,362 8,362
---------- -------------- -----------
TOTAL AUTO DEALERSHIP LIABILITIES 434,202 150,000 584,202
---------- -------------- -----------
AUTO FINANCE
Short-term debt 301 301
Accounts payable and other liabilities 3,730 3,730
---------- -------------- -----------
TOTAL AUTO FINANCE LIABILITIES 4,031 -- 4,031
---------- -------------- -----------
STOCKHOLDERS' EQUITY
Voting Common Stock 2 2
Additional paid-in-capital 309,647 309,647
Retained earnings 7,880 7,880
---------- -------------- -----------
TOTAL STOCKHOLDERS' EQUITY 317,529 -- 317,529
---------- -------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $755,762 $150,000 $905,762
========== ============== ===========
</TABLE>
(1) Represents the net proceeds from the Initial Offering and the deferred
financing costs associated therewith.
(2) Represents the repayment of outstanding borrowings under the Senior
Credit Facility with a portion of the net proceeds of the Offering.
(3) Represents the net proceeds from the issuance of the Series B Notes and
the deferred financing costs associated therewith.
(4) Represents the Notes issued in connection with the Initial Offering.
(5) Represents the Series B Notes.
31
<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 six months ended June 30, 1997 and June 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 six months ended June 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
-------------------------------------------------------------------------------------
SIX MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, YEAR 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 $915,158 $597,939 $1,302,031 $805,621 $731,629 $606,091 $98,040
Cost of sales, including floor plan
interest 798,896 531,560 1,157,368 720,344 647,643 537,688 85,712
---------- ---------- ------------ ---------- ---------- ---------- ---------
Gross profit 116,262 66,379 144,663 85,277 83,986 68,403 12,328
Selling, general and administrative
expenses 95,723 56,975 124,244 90,586 80,415 66,910 12,929
---------- ---------- ------------ ---------- ---------- ---------- ---------
Operating income (loss) 20,539 9,404 20,419 (5,309) 3,571 1,493 (601)
Other interest expense (2,246) (2,005) (4,398) (1,438) (860) (1,233) --
Other income (expense), net 297 1,579 2,506 2,208 (2,899) -- --
---------- ---------- ------------ ---------- ---------- ---------- ---------
Income (loss) before income
taxes--Auto Dealerships 18,590 8,978 18,527 (4,539) (188) 260 (601)
Auto Finance
Revenues 2,085 1,029 1,798 530 2 -- --
Interest expense (260) (176) (421) (174) -- -- --
Operating and other expenses (2,024) (1,202) (2,867) (1,738) (618) -- --
---------- ---------- ------------ ---------- ---------- ---------- ---------
Loss before income taxes--Auto
Finance (199) (349) (1,490) (1,382) (616) -- --
---------- ---------- ------------ ---------- ---------- ---------- ---------
Total Company
Income (loss) before minority
interests, (provision) benefit for
income taxes and extraordinary
item 18,391 8,629 17,037 (5,921) (804) 260 (601)
Minority interests (97) (1,734) (3,306) 366 (887) (117) 152
(Provision) benefit for income
taxes (7,378) (2,997) (6,270) 2,089 -- (47) --
---------- ---------- ------------ ---------- ---------- ---------- ---------
Income (loss) before extraordinary
item 10,916 3,898 7,461 (3,466) (1,691) 96 (449)
Extraordinary item (net of income
tax benefit)(6) -- -- (4,987) -- -- -- --
---------- ---------- ------------ ---------- ---------- ---------- ---------
Net income (loss) $ 10,916 $ 3,898 $ 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,
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>
32
<PAGE>
<TABLE>
<CAPTION>
THE COMPANY
---------------------------------------------------------------------
AS OF JUNE 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 $728,061 $505,693 $227,275 $169,766 $154,218 $87,084
Floor plan notes payable 268,955 170,170 97,823 92,310 84,601 57,887
Other debt 105,347 23,968 44,538 29,440 24,209 3,630
Auto Finance
Net assets 23,670 14,522 3,501 291 -- --
Total Company
Total assets 755,762 522,950 236,027 170,342 154,218 87,084
Floor plan notes payable 268,955 170,170 97,823 92,310 84,601 57,887
Other debt 105,648 24,969 49,199 29,440 24,209 3,630
Total stockholders'
equity 317,529 281,468 49,240 28,785 25,264 19,243
</TABLE>
<TABLE>
<CAPTION>
THE COMPANY
-------------------------------------------------------------------------------------
SIX MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, YEAR ENDED DECEMBER 31, DECEMBER 31,
DOLLARS IN THOUSANDS 1997 1996 1996 1995 1994 1993 1992
- ------------------------------------ ---------- ---------- ------------ ---------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Dollars in thousands
OTHER DATA:
EBITDA(7) $24,996 $12,519 $27,928 $(1,489) $2,301 $2,417 $(322)
EBITDA margin(8) 2.7% 2.1% 2.1% (0.2)% 0.3% 0.4% (0.3)%
Depreciation and amortization $ 4,099 $ 1,709 $ 7,797 $ 2,820 $2,245 $ 924 $ 279
Capital expenditures $ 5,808 $ 2,069 $ 6,771 $ 1,739 $5,237 $1,624 $ 511
Ratio of EBITDA to other interest
expense (9) 9.97x 5.74x 5.80x (7) 2.68x 1.96x (7)
Ratio of earnings to fixed charges(10) 8.34x 4.96x 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>
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>
<PAGE>
(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.
(3) Includes the results of Atlanta Toyota from January 1, 1996 and United
Nissan (GA) from May 1, 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 29, 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.
33
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
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,
operating 57 franchises located in Arizona, Arkansas, Connecticut, Florida,
Georgia, 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 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.
New vehicle revenues include sales to retail customers and to leasing
companies providing consumer automobile leasing. Used vehicle revenues
include amounts received for used vehicles sold to retail customers, leasing
companies providing consumer leasing, other dealers and wholesalers. Finance
and insurance revenues are generated from sales of accessories such as
radios, cellular phones, alarms, custom wheels, paint sealants and fabric
protectors, as well as amounts received as fees for placing extended service
contracts, credit insurance policies, and financing and lease contracts. UAG
dealerships market a complete line of aftermarket automotive products and
services through its wholly-owned subsidiary, United AutoCare. Service and
parts revenues include fees paid by consumers for repair and maintenance
service and the sale of replacement parts.
Through its automobile finance subsidiary, Atlantic Finance, the Company
derives revenues from the purchase, sale and servicing of motor vehicle
installment contracts originated by both UAG and third-party dealerships.
The Company's selling expenses consist of advertising and compensation for
sales department personnel, including commissions and related bonuses.
General and administrative expenses include compensation for administration,
finance and general management personnel, rent, insurance and utilities.
Interest expense consists of interest charges on all of the Company's
interest-bearing debt other than floor plan inventory financing. Interest
expense on floor plan notes payable is included in cost of sales.
The Company made a number of acquisitions in 1996 and 1997. Each of these
acquisitions has been accounted for using the purchase method of accounting
and as a result, the Company's financial statements include the results of
operations of the acquired dealerships only from the effective date of
acquisition.
RESULTS OF OPERATIONS
The following discussion and analysis includes the Company's consolidated
historical results of operations for 1994, 1995 and 1996 and for the six
months ended June 30, 1996 and 1997.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Auto Dealerships
Revenues. Revenues increased by $317.2 million, or 53.1%, from $597.9
million to $915.2 million due to acquisitions. Revenues at dealerships
acquired subsequent to June 30, 1996 amounted to $321.9 million, offset
slightly by a net decrease in sales at dealerships owned prior to June 30,
1996 due primarily to (i) a reduction in revenues at Atlanta Toyota, impacted
by shortages of inventory of certain models, (ii) a reduction in sales volume
at the Company's DiFeo division resulting in part from the closure of
unprofitable dealerships and (iii) a decrease at Company Nissan dealerships
in the southeastern United States, which the Company believes mirrors an
overall decline in sales for Nissan in that region of the United States.
Sales of new and used vehicles increased by $269.0 million, or 50.3%, from
$535.2 million to $804.2 million. Revenues at dealerships acquired subsequent
to June 30, 1996 amounted to $278.9 million, offset
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by the net decrease in new and used vehicle sales at dealerships owned prior
to June 30, 1996 noted above. Unit retail sales of new and used vehicles
increased by 30.0% and 63.8%, respectively, due principally to acquisitions.
For the six months ended June 30, 1997, the Company sold 22,757 new vehicles
(62.0% of total vehicle sales) and 13,943 used vehicles (38.0% of total
vehicle sales). For the six months ended June 30, 1996, the Company sold
17,509 new vehicles (67.3% of total vehicle sales) and 8,510 used vehicles
(32.7% of total vehicle sales). The increase in the relative proportion of
used vehicle sales to total vehicle sales was due principally to the
expansion of used car operations in response to the popularity of used cars.
New vehicle selling prices increased by an average of 13.3% due primarily to
changes in the mix of models sold and changes in manufacturer pricing. Used
vehicle selling prices increased by an average of 11.9% due to changes in
market conditions which resulted in a change in the mix of used vehicles
sold.
Finance and insurance revenues (aftermarket product sales) increased by
$9.2 million, or 41.1%, from $22.3 million to $31.5 million due primarily to
acquisitions and the establishment of United AutoCare, offset to a degree by
a net decrease at dealerships owned prior to June 30, 1996 due to the
decrease in new and used vehicle sales noted above.
Service and parts revenues increased by $39.0 million, or 96.5%, from
$40.4 million to $79.4 million due principally to acquisitions.
Gross Profit. Gross profit increased by $49.9 million, or 75.2%, from
$66.4 million to $116.3 million. Gross profit as a percentage of revenues
increased from 11.1% to 12.7%. The increase in gross profit and in gross
profit as a percentage of revenues is due to (i) acquisitions, (ii) increased
finance and insurance and service and parts revenues, which yield higher
margins, as a percentage of total revenues, (iii) improved gross profit
margins on vehicle sales and service and parts revenues and (iv) the
establishment of United AutoCare.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $38.7 million, or 68.0%, from $57.0
million to $95.7 million due principally to acquisitions and an increase in
the infrastructure required to manage the substantial increase in the
Company's operations and the planned expansion of its business in the future.
Such expenses as a percentage of revenue increased from 9.5% to 10.5%.
Other Interest Expense. Other interest expense increased by $0.2 million,
from $2.0 million to $2.2 million due principally to an increase in interest
expense arising from the issuance of acquisition-related debt, offset by a
reduction in interest expense due to the retirement of the Company's Senior
Notes in October 1996.
Other Income (Expense), Net. Other income (expense), net decreased by $1.3
million, from $1.6 million to $0.3 million due principally to a reduction in
related party interest income resulting from the disposition of the minority
interests in certain dealerships in October 1996.
Total Company
Provision for Income Taxes. The 1997 provision for income taxes increased
$4.4 million from $3.0 million to $7.4 million. The increase is due to the
increase in taxable income and a change in the Company's estimated effective
tax rate.
1996 Compared to 1995
Auto Dealerships
DiFeo Restructuring. In an effort to increase profitability of the DiFeo
Group, the Company commenced a broad restructuring program in the first
quarter of 1995 (the "DiFeo Restructuring"), which was substantially completed
by the fourth quarter of 1995. First, the Company eliminated a total of 17
unprofitable franchises, or 45% of the DiFeo Group's total number of
franchises, by voluntarily terminating 12 franchises and effectively ceasing
to be the controlling or majority owner of five additional franchises. Second,
the Company eliminated a level of senior management and shifted greater
authority and responsibility to the general manager of each dealership. Third,
the Company reduced personnel by approximately 250 employees (including senior
management who were eliminated) and implemented pay
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plans linked to net profits and customer satisfaction. Fourth, the Company
liquidated outdated inventory in order to lower inventory carrying costs and
improve the utilization of space. Costs associated with the DiFeo
Restructuring were approximately $0.7 million and $0.7 million for the years
ended December 31, 1995 and 1996, respectively, primarily related to
severance.
Revenues. Revenues increased by $496.4 million, or 61.6%, from $805.6
million to $1,302.0 million due to the full year contribution of Landers Auto,
which was acquired in August 1995, and the acquisitions made in 1996. Revenues
at Landers Auto were $323.2 million in 1996. Revenues at the continuing
franchises of the DiFeo Group increased by $82.9 million, or 13.8%, from
$598.7 million to $681.6 million. That increase was more than offset by a
decrease of $90.6 million in revenues due to the elimination of unprofitable
franchises as part of the DiFeo Restructuring.
Sales of new and used vehicles increased by $448.2 million, or 62.6%, from
$716.4 million to $1,164.6 million. Dealerships acquired in 1996 contributed
$266.5 million to that increase. New and used vehicle sales at the continuing
franchises of the DiFeo Group increased by $66.2 million, or 12.5%, from
$529.0 million to $595.2 million. That increase was more than offset by a
decrease of $78.2 million in sales due to the elimination of unprofitable
franchises as part of the DiFeo Restructuring. Unit retail sales of new and
used vehicles increased by 46.4% and 104.9%, respectively, due principally to
the 1996 acquisitions and the full year contribution of Landers Auto. During
1996, the Company retailed 36,802 new vehicles (66.7% of total vehicle sales)
and 18,344 used vehicles (33.3% of total vehicle sales). During 1995, the
Company sold 25,138 new vehicles (73.7% of total vehicle sales) and 8,953 used
vehicles (26.3% of total vehicle sales). The increase in the relative
proportion of used vehicle sales to new vehicle sales was due principally to
the expansion of existing used vehicle operations and the establishment of
additional retail used vehicle centers in response to the increased popularity
of used cars. New vehicle selling prices increased by an average of 5.4% due
primarily to changes in the mix of models sold and changes in manufacturer
pricing. Used vehicle selling prices increased by an average of 13.7% due to
an increase in consumer demand and a change in the mix of used vehicles sold.
Finance and insurance revenues (aftermarket product sales) increased by
$13.8 million, or 46.3%, from $29.8 million to $43.6 million due to the full
year contribution of Landers Auto and the acquisitions made in 1996. Sales of
such products increased by $6.3 million, or 24.5%, from $25.7 million to $32.0
million at the continuing franchises of the DiFeo Group, offsetting the $2.0
million decrease in sales due to the elimination of unprofitable franchises as
part of the DiFeo Restructuring.
Service and parts revenues increased by $34.5 million, or 58.1%, from $59.4
million to $93.9 million due to the full year contribution of Landers Auto and
the acquisitions made in 1996.
Gross Profit. Gross profit increased by $59.4 million, or 69.6%, from $85.3
million to $144.7 million. The full year contribution of Landers Auto accounts
for $16.2 million of the increase and the remaining $37.5 million increase is
due to the 1996 acquisitions. Gross profit at the continuing franchises of the
DiFeo Group increased by $13.4 million, or 20.0%, from $66.9 million to $80.3
million. Gross profit as a percentage of revenues increased 4.7% from 10.6% to
11.1%. Included in the above gross profit figures is gross profit from finance
and insurance activities, which increased by $8.9 million, or 38.2%, from
$23.4 million to $32.3 million due principally to the full year contribution
of Landers Auto and the 1996 acquisitions.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $33.6 million, or 37.1%, from $90.6
million to $124.2 million due principally to the full year ownership of
Landers Auto and the 1996 acquisitions. Such expenses as a percentage of
revenues decreased from 11.2% to 9.5%.
Other Interest Expense. Interest expense other than floor plan increased by
$3.0 million, or 214.3%, from $1.4 million to $4.4 million as a result of
increased borrowings to finance the acquisitions made in 1995 and 1996.
Auto Finance
Loss before Income Taxes. The pretax loss from operations at Atlantic
Finance increased by $0.1 million from a loss of $1.4 million to $1.5 million.
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Total Company
Provision for Income Taxes. The 1996 provision for income taxes is $6.3
million, compared to an income tax credit of $2.1 million recorded in 1995.
The credit for 1995 was taken as the Company determined in the fourth quarter
that it was more likely than not that future taxable income from operations
would be sufficient to fully realize the tax benefits of net operating losses
incurred in prior years.
Extraordinary Item, Net of Income Tax Benefits. The extraordinary item, net
of income tax benefits, of $5.0 million represents a loss on the retirement of
long-term debt resulting from a prepayment premium and a write-off of
associated debt issuance costs.
1995 Compared to 1994
Auto Dealerships
Revenues. Revenues increased by $74.0 million, or 10.1%, from $731.6
million to $805.6 million due to the acquisition of Landers Auto in August
1995. Revenues at Landers Auto contributed $116.3 million. Revenues at the
continuing franchises of the DiFeo Group increased by $6.2 million, or 1.0%,
from $592.5 million to $598.7 million. That increase was more than offset by a
decrease of $48.5 million in revenues due to the elimination of unprofitable
franchises as part of the DiFeo Restructuring.
Sales of new and used vehicles increased by $72.0 million, or 11.2%, from
$644.4 million to $716.4 million. The acquisition of Landers Auto contributed
$109.2 million to that increase. While revenues at the continuing franchises
of the DiFeo Group increased by $5.0 million, or 0.9%, from $524.0 million to
$529.0 million, that increase was more than offset by a decrease of $42.3
million in sales due to the elimination of unprofitable franchises as part of
the DiFeo Restructuring. Unit sales of new and used vehicles increased by
11.9% and 7.4%, respectively, due principally to the acquisition of Landers
Auto. Sales of new vehicles increased by 5.6% and sales of used vehicles
decreased by 10.3% at the continuing franchises of the DiFeo Group, offset by
the elimination of unprofitable franchises as part of the DiFeo Restructuring.
During 1995, the Company retailed 25,138 new vehicles (73.7% of total vehicle
sales) and 8,953 used vehicles (26.3% of total vehicle sales). During 1994,
the Company retailed 22,464 new vehicles (72.9% of total vehicle sales) and
8,340 used vehicles (27.1% of total vehicle sales). The decrease in the
relative proportion of used vehicle sales to new vehicle sales was due
principally to stronger demand for new vehicles as opposed to used vehicles at
the DiFeo Group operations offset by the acquisition of Landers Auto, which
sells a higher proportion of used vehicles to new vehicles than the DiFeo
Group. New vehicle selling prices increased by 4.4% due primarily to changes
in manufacturer pricing. Used vehicle selling prices increased by 17.2% due to
an increase in consumer demand and a change in the mix of used vehicles sold.
Sales of finance and insurance products increased by $2.3 million, or 8.3%,
from $27.5 million to $29.8 million due to the acquisition of Landers Auto.
Sales of such products increased by $2.5 million, or 10.8%, from $23.2 million
to $25.7 million at the continuing franchises of the DiFeo Group, offsetting
in part the $2.3 million decrease in sales due to the elimination of
unprofitable franchises as part of the DiFeo Restructuring.
Service and parts revenues decreased by $0.3 million, or 0.5%, from $59.7
million to $59.4 million due to the DiFeo Restructuring, offset by increased
service and parts revenues attributable to Landers Auto.
Gross Profit. Gross profit increased by $1.3 million, or 1.5%, from $84.0
million to $85.3 million. The acquisition of Landers Auto added $10.6 million
during the five months the Company owned it. Gross profit at the continuing
franchises of the DiFeo Group decreased by $3.3 million, or 4.7%, from $70.2
million to $66.9 million. Gross profit as a percentage of revenues decreased
7.8% from 11.5% to 10.6% as the Company implemented the DiFeo Restructuring.
Included in the above gross profit figures is gross profit from finance and
insurance activities, which decreased by $1.1 million, or 4.5%, from $24.5
million to $23.4 million due principally to the DiFeo Restructuring offset by
the acquisition of Landers Auto. Gross profit from finance and insurance
activities at the continuing franchises of the DiFeo Group decreased by $0.9
million, or 4.2%, from $21.4 million to $20.5 million.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $10.2 million, or 12.7%, from $80.4
million to $90.6 million due principally to the acquisition of
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Landers Auto. Such expenses as a percentage of revenues increased from 11.0%
to 11.2% of revenues. Selling, general and administrative expenses at the
continuing franchises of the DiFeo Group increased by $3.9 million from $66.1
million to $70.0 million.
Related Party Interest Income. Related party interest income was $3.0
million in 1995. There was no such income in 1994.
Other Interest Expense. Interest expense other than floor plan increased by
$0.5 million, or 55.6%, from $0.9 million to $1.4 million as a result of
increased borrowings to finance the acquisitions of Landers Auto and Atlanta
Toyota and the issuance of certain promissory notes as part of the
consideration paid for Landers Auto, offset in part by a reduction in other
interest-bearing debt.
Equity in Loss of Uncombined Investees. Equity in loss of uncombined
investees decreased by $2.1 million, or 72.4%, from $2.9 million to $0.8
million due to improved performance of certain dealerships in which the
Company retained a minority interest.
Loss before Income Taxes. The pretax loss from dealership operations
increased from $0.2 million to $4.5 million, including the costs incurred in
connection with the DiFeo Restructuring. The deterioration in the performance
of the DiFeo Group during the first quarter of 1995 led management to
undertake the DiFeo Restructuring.
Auto Finance
Loss before Income Taxes. The pretax loss from operations at Atlantic
Finance increased by $0.8 million from $0.6 million to $1.4 million,
reflecting the early stage of its operations. Atlantic Finance was formed in
the first quarter of 1994.
Total Company
Minority Interests. Minority interests changed by $1.3 million from a
charge of $0.9 million to a credit of $0.4 million as a result of the factors
described above.
Provision for Income Taxes. An income tax credit of $2.1 million was
recorded in 1995. The credit was taken as the Company determined in the fourth
quarter that it was more likely than not that, due to the DiFeo Restructuring,
future taxable income from operations would be sufficient to fully recognize a
net deferred tax asset at December 31, 1995. This net deferred tax asset stems
from tax basis operating losses sustained in 1994 and 1995.
Net Income (Loss). Net income decreased by $1.8 million from a loss of $1.7
million to a loss of $3.5 million due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The cash requirements of the Company are primarily for acquisitions of new
dealerships, working capital and the expansion of existing facilities.
Historically, these cash requirements have been met through issuances of
equity, borrowings under various credit agreements and cash flow from
operations. At June 30, 1997, the Company's dealership operations had working
capital of $67.8 million.
During the six months ended June 30, 1997, dealership activities resulted
in net cash provided by operations of $15.0 million. Net cash used by
dealerships in investing activities during the six months ended June 30, 1997
totaled $83.4 million, relating primarily to dealership acquisitions, funding
provided to Atlantic Auto Finance and capital expenditures. Dealership
financing activities provided $44.9 million of cash during the six months
ended June 30, 1997 principally from the issuance of long-term debt.
The Company finances substantially all of its new and used vehicle
inventory under revolving floor plan financing arrangements with various
lenders. The floor plan lenders pay the manufacturer directly with respect to
new vehicles. The Company makes monthly interest payments on the amount
financed, but is not required to make loan principal repayments prior to the
sale of new and used vehicles. Substantially all of the assets of the
Company's dealerships are subject to security interests granted to their
floor plan lending sources.
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At June 30, 1997, the Company had approximately $48.3 million of cash
available to fund operations and future acquisitions and was fully borrowed
under the Senior Credit Facility. In July 1997, the Company used $50.0
million of the net proceeds from the Initial Offering to repay all loans
outstanding under the Senior Credit Facility. The balance of such proceeds in
the amount of approximately $90.8 million was deposited with the Company's
floor plan lenders, which deposits are earning interest at floor plan rates.
In September 1997, the Company also deposited the $48.7 million of net
proceeds from the offering of the Series B Notes with such floor plan
lenders. The Company has such deposits to use for working capital and general
corporate purposes, including acquisitions. The Senior Credit Facility,
however, is currently unavailable. See "Description of Senior Credit
Facility." The Company's principal source of growth has come, and is expected
to continue to come, from acquisitions of automobile dealerships. The Company
believes that its existing capital resources will be sufficient to fund its
current acquisition commitments. To the extent the Company pursues additional
significant acquisitions, it may need to raise additional capital either
through the public or private issuance of equity or debt securities or
through additional bank borrowings. A public equity offering would require
the prior approval of certain automobile manufacturers.
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.
SEASONALITY
The Company's combined business is modestly seasonal overall. The greatest
seasonalities exist with the dealerships in the New York metropolitan area,
for which the second and third quarters are the strongest with respect to
vehicle-related sales. The service and parts business at all dealerships
experiences relatively modest seasonal fluctuations.
EFFECTS OF INFLATION
The Company believes that the relatively moderate rates of inflation over
the last few years have not had a significant impact on revenue or
profitability. The Company does not expect inflation to have any near-term
material effects on the sale of its products and services. However, there can
be no assurance that there will be no such effect in the future.
The Company finances substantially all of its inventory through various
revolving floor plan arrangements with interest rates that vary based on the
prime rate or LIBOR. Such rates have historically increased during periods of
increasing inflation. The Company does not believe that it would be placed at
a competitive disadvantage should interest rates increase due to increased
inflation since most other automobile dealers have similar floating rate
borrowing arrangements.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" ("SFAS 125").
SFAS 125 establishes financial and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities. This
Statement is effective for transactions occurring after December 31, 1996. The
Company does not believe that adoption of this standard will have a material
impact on its financial position and results of operations.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 establishes standards for computing and presenting earnings per share
for periods ending after December 15, 1997. Basic and diluted earnings per
share, calculated pursuant to SFAS 128, are not expected to be materially
different from net income per common share as reflected in the financial
statements included herein.
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BUSINESS
OVERVIEW
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, operating 57 franchises located in Arizona, Arkansas,
Connecticut, Florida, Georgia, 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 Finance Corporation, 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. For the year ended December 31, 1996, on a pro forma basis, the
Company retailed 62,769 new and 35,106 used vehicles. For the six months ended
June 30, 1997 and the year ended December 31, 1996, on a pro forma basis, the
Company had revenues of $1.2 billion and $2.4 billion, respectively, and
EBITDA of $32.7 million and $65.5 million, respectively.
COMPETITIVE STRENGTHS
The Company has attained a leading position in the 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 18
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.
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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 training of the sales force
focuses on providing skills that improve its relationships with customers. A
key management tool at UAG is 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.
The Company's acquisition program has been specifically tailored to address
dealers' desire to retain a management role in their businesses while
achieving personal liquidity. Owners of acquired dealerships typically
continue in their role as dealership manager and some also participate in
overall Company operations through their roles on UAG's Chairman's Committee.
The Company believes it provides dealership managers additional management
tools as its economies of scale, marketing expertise and corporate resources
act as a catalyst for continual dealership growth. In addition, the owner may
retain an equity interest in the business through the ownership of capital
stock and/or stock options of UAG.
Grow Higher-Margin Operating Businesses
UAG is focusing on higher-margin businesses such as the retail sale of used
vehicles, aftermarket products and service and parts.
Used Vehicles. Used vehicle sales by franchised dealers, with average
prices approximately 60% of new vehicle prices, typically generate higher
gross margins than new cars because of limited comparability among them and
the somewhat subjective nature of their valuation. Consumer acceptance of used
vehicle purchasing has grown due principally to the following factors: (i) the
availability of late-model, low-mileage used automobiles has increased due to
the large supply of cars coming off short-term leases and from rental company
fleets; (ii) the quality of motor vehicles has generally improved; and (iii)
the prices of new cars have risen. The Company has taken advantage of this
trend by recently opening additional stand-alone used vehicle operations.
UAG believes that by virtue of its new vehicle franchises it enjoys
significant advantages over both independent and chain used-car companies in
sourcing used vehicles. Specifically, the Company has access to (i) a steady
supply of used cars accepted as trade-ins for new vehicle purchases, (ii)
off-lease vehicles that were originally leased through the new vehicle
franchise and (iii) used car auctions open only to new car dealers. In
addition, only new car franchises are able to sell used cars certified by the
manufacturer under newly introduced programs in which the manufacturer
supports specific high-quality used cars with extended warranties and
attractive financing options.
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Aftermarket Products. Each sale of a new or used vehicle provides the
opportunity for the Company to sell aftermarket products. A substantial
portion of the gross profit on the sale of a vehicle generally is earned from
the sale of aftermarket products. Aftermarket products include accessories
such as radios, cellular phones, alarms, custom wheels, paint sealants and
fabric protectors, as well as agency services such as extended service
contracts and credit insurance policies. In addition, the Company receives
fees for placing financing and lease contracts. In order to meet customers'
needs and help create a "one-stop" shopping experience, management continues
to expand aftermarket product offerings.
Service and Parts. Each of UAG's dealerships offers a fully integrated
service and parts department. The service and parts business provides an
important recurring revenue stream to the Company's dealerships, which may
help to mitigate the effects of downturns in the automobile sales cycle.
Unlike independent service shops or used car dealerships with service
operations, UAG is qualified to perform work covered by manufacturer warranty.
Since warranty service work is paid for by the manufacturer, consumers are
motivated to service their vehicles at a dealership for the warranty period.
In recent years, manufacturers have generally lengthened standard warranty
coverage on new cars to three years/36,000 miles and introduced warranty
coverage on used cars, further enhancing customer retention opportunities in
the service area. To grow their service and parts businesses, UAG dealerships
have implemented programs to track maintenance records of customers and
contact them regarding dealer promotions and maintenance schedules. In
addition, the Company is actively marketing warranty-covered services to
potential customers such as municipalities and corporations with large fleets
of automobiles located near certain of its dealerships. The Company is able to
offer repair services to such customers on a more efficient and less costly
basis than such customers generally can perform themselves. The Company
believes that its market share will grow at the expense of independent
mechanics' shops, which may be unable to address the increased mechanical and
electronic sophistication of today's motor vehicles and the increased expenses
of compliance with more stringent environmental regulations.
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, its own automobile finance subsidiary. Atlantic
Finance purchases, sells and services primarily prime credit quality
automobile loans originated by both UAG and third-party dealerships. Based in
Rochester, New York, Atlantic Finance commenced loan operations in January
1995 and currently serves approximately 234 dealerships in Arizona, Arkansas,
Connecticut, Georgia, New Jersey, New York and Texas. Atlantic Finance
provides the Company with another opportunity to earn incremental revenue on
its vehicle sales.
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. Atlantic Finance's goal is to
ultimately purchase up to 50% of its finance contracts from non-UAG dealers.
42
<PAGE>
ACQUISITION HISTORY
Trace established the Company to acquire, consolidate and operate large
automobile retailers and related businesses. A history of automotive
experience enabled Trace to be among the first to recognize and capitalize on
the opportunities created by the industry's rapid consolidation. This
consolidation offered UAG a means to quickly establish significant market
presence and realize economies of scale through professional operation of
dealerships.
The following table sets forth information with respect to the dealerships
that are currently owned 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
Acura, Audi, Land Rover, Lexus,
Scottsdale, AZ Porsche, Rolls-Royce/Bentley (a)
Evans Group 10/96 Duluth, GA BMW
Conyers, GA Nissan
United Nissan (TN) 10/96 Chattanooga, TN Nissan
Chrysler-Plymouth, Dodge,
Crown Automotive 3/97 Houston, TX Jeep-Eagle
Hanna Nissan 4/97 Las Vegas, NV Nissan
Staluppi Group 4/97 Long Island, NY Nissan(2), Toyota (2)
Chrysler-Plymouth, Infiniti,
W. Palm Beach, FL Jeep-Eagle, Nissan, Toyota
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
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
Shreveport Dodge (b) Shreveport, LA Dodge
</TABLE>
(a) Acquired February 1997.
(b) Acquisiton pending.
43
<PAGE>
INDUSTRY OVERVIEW
With more than $675 billion in 1996 sales, automotive retailing is the
third largest domestic industry group in the United States. The industry is
highly fragmented and largely privately held with approximately 22,000
automobile dealerships representing more than 48,000 franchises. In 1996, U.S.
franchised automobile dealers sold 15.2 million new vehicles and 15.7 million
used vehicles for sales of approximately $310 billion and $193 billion,
respectively.
Manufacturers originally established franchised dealer networks for the
distribution of their vehicles as single-dealership, single-owner operations.
In return for exclusive distribution rights within specified territories,
manufacturers exerted significant influence over such matters as a dealer's
location, inventory size and composition and merchandising programs, as well
as the identity of owners and managers. This strict control contributed to the
proliferation of small dealerships, which at their peak in the late 1940s
numbered in excess of 49,000. Several manufacturers went out of business in
the 1950s, and the number of dealerships decreased to 36,000 by 1960.
Significant industry changes took place in the 1970s when the oil embargo
forced dramatic increases in gasoline prices and foreign manufacturers
increased their penetration of the U.S. market with fuel-efficient, low-cost
vehicles. These competitive pressures offered dealers a platform for stronger
negotiating positions with manufacturers thereby fostering a change in the
traditional distribution system. Dealers began to add foreign franchises and
the phenomenon of the multi-franchise automobile dealer, or "megadealer,"
emerged, prompting both significant acquisition activity and the consolidation
activities of the 1980s. The easing of restrictions against megadealers
combined with continual competitive pressures upon undercapitalized
dealerships has led to further consolidation of the industry. Since 1960, the
number of dealerships has declined 39% to the current 22,000 level.
As the industry has evolved, so has the dealership profile. Over the past
three decades, there has been a trend toward fewer, but larger, dealerships.
In 1996, each of the largest 100 dealer groups had more than $200 million in
revenues. Although significant consolidation has taken place since its
inception, the industry today remains highly fragmented, with the largest 100
dealer groups generating less than 11% of total revenues and controlling
approximately 5% of all franchised dealerships.
DEALERSHIP OPERATIONS
The Company's management structure is designed to support and encourage
entrepreneurial drive and individual responsibility. Each dealership is
operated as a distinct profit center, where dealership managers are given a
high degree of autonomy. The Company believes that its dealership managers, as
long-time members of the local community, are best able to judge how to
conduct day-to-day operations in a manner consistent with the established
character and needs of the local community. A general manager oversees the
operations, personnel and financial performance of the dealership, which is
typically staffed by a sales manager, a parts manager, a service manager,
sales representatives, technicians and parts employees. The sales staff of
each UAG dealership is compensated primarily on a commission basis, while the
general manager, service manager and parts manager receive a combination of
salary and performance bonus.
General managers prepare monthly forecasts based on historical information
and projected trends, and a component of each general manager's compensation
is determined by meeting or exceeding these operating plans. During the year,
general managers regularly review their dealerships' progress with senior
management and make appropriate adjustments as needed. To promote
communication and efficiency in operating standards, general managers and
members of senior management attend several Company-wide strategy sessions
each year. In addition, management attends various industry-sponsored
leadership and management seminars and receive continuing education in
product, marketing strategies and management information systems.
The Company's dealerships engage in a number of interrelated businesses:
new vehicle sales; used vehicle sales; sales of aftermarket products; and
service and parts operations.
44
<PAGE>
New Vehicles
On a pro forma basis, in 1996, UAG sold at retail 62,769 new vehicles and
new vehicle operations (including fleet sales) generated $1,432 million in
revenues, or 60.5% of total auto dealership revenues.
The Company sells 27 American, Asian and European brands ranging from
economy cars to luxury cars and sport utility vehicles. The following table
sets forth, on a pro forma basis for 1996, certain information relating to new
vehicles sold at retail by the Company:
<TABLE>
<CAPTION>
NUMBER OF NEW VEHICLES % OF NEW VEHICLES SOLD
MANUFACTURER SOLD AT RETAIL AT RETAIL
- -------------- ----------------------- -----------------------
<S> <C> <C>
Toyota 22,142 35.3%
Nissan 15,439 24.6
Chrysler 11,021 17.6
General Motors 7,026 11.2
BMW 2,316 3.7
Honda 1,793 2.9
Mitsubishi 1,234 2.0
Hyundai 811 1.3
Land Rover 407 0.7
Isuzu 216 0.3
Audi 140 0.2
Porsche 119 0.1
Suzuki 105 0.1
----------------------- -----------------------
Total 62,769 100.0%
======================= =======================
</TABLE>
UAG purchases substantially all of its new car inventory directly from
manufacturers. Manufacturers allocate inventory based on the size and location
of dealerships, but actual shipments result from negotiations with individual
dealers. From time to time, UAG will exchange new vehicles with other
dealerships to accommodate customer demand and balance inventory. The Company
believes that larger dealers such as UAG are better positioned to secure
favorable inventory shipments and optimize manufacturers' allocations through
its retail network. UAG finances its inventory purchases through revolving
credit arrangements known in the industry as floor plan facilities. As a
result of its size, UAG is able to secure floor plan financing on terms more
favorable than those generally available to smaller dealers.
As required by law, UAG posts the manufacturer's suggested retail price, or
"MSRP," on every new vehicle. However, as is customary in the industry, the
final sales price is generally a negotiated price. The Company continues to
evaluate changing consumer preferences for vehicle purchasing. For example,
certain dealerships have implemented "value pricing," where the dealer is
given less flexibility to negotiate between the MSRP and wholesale price.
New vehicle retail sales are made to individual customers and to leasing
companies providing consumer leasing. Industry wide, the percentage of new
vehicle retail sales that are leasing transactions has increased from 13.5% in
1990 to 33.0% in 1996. Manufacturers have encouraged this trend through their
captive finance companies by supporting residual values in such a way so as to
reduce consumers' monthly lease payments, particularly for shorter-term
leases. This method has attracted consumers to shorter-term leases, which has
the effect of bringing the consumer back to the market sooner than if the
purchase were debt financed and providing new car dealerships with a steady
source of late-model, off-lease vehicles for their used car inventory. In
addition, because the vehicle usually remains under factory warranty for the
term of the lease, the dealership has the opportunity to provide repair
service to the lessee.
45
<PAGE>
Used Vehicles
On a pro forma basis, in 1996, UAG sold at retail approximately 35,106 used
vehicles and used vehicle operations (including sales at wholesale) generated
$667 million in revenues, or 28.1% of total auto dealership revenues.
The used car department is becoming an increasingly significant profit
center of a franchised dealership. Used vehicles typically generate higher
gross margins than new vehicles because of their limited comparability and the
somewhat subjective nature of their valuation. Profits from used cars sales
are dependent primarily on the ability to source a low-cost, high-quality
supply and effectively manage inventory. UAG's dealerships acquire their used
cars through trade-ins, lease expirations and auctions. Off-lease vehicles are
regarded as the highest quality in their age class due to their low mileage
and good condition relative to fleet and rental vehicles. When a leasing
customer declines to purchase the vehicle upon expiration of the lease,
industry practice is to offer it to the dealer that originated the transaction
before it is offered to other dealers or sold at auction. In addition, UAG
purchases a significant portion of its used car inventory at "closed"
auctions, which offer off-lease, rental and fleet vehicles. Such auctions can
be attended only by new car dealers. The balance of its used car inventory is
purchased at "open" auctions, which offer repossessed cars and cars sold by
other dealers. The Company has specialized used car managers who attend
auctions several times a week and can buy for an entire division.
The Company sells used vehicles at its franchised dealerships as well as at
various used vehicle centers. At its multi-brand dealerships, trade-ins
obtained at one location are generally transferred to the location that sells
that particular brand of new vehicles, where customer interest for that brand
is likely to be stronger and the salespersons' knowledge of that brand is
typically greater. A well-stocked used vehicle inventory allows the Company's
salespersons to offer high-quality used vehicles not only to customers
shopping for a used vehicle, but also to customers who come to the dealership
to buy a new vehicle and then realize that they cannot afford one. In order to
capitalize further on the increased popularity of used cars, the Company has
opened additional used car centers.
The Company has developed a systematic approach to managing its used car
inventory. Poor-quality trade-ins and used cars that have remained unsold for
a specific period of time varying generally from 60 to 75 days are sold at
auction. In the past, the volume of used cars that UAG has sold to certain
auctions has afforded it seller's fee discounts and favorable display
locations and times, which tend to maximize the vehicle's sale price.
The Company has taken several initiatives to enhance customer confidence in
used cars, including offering extended warranties, stocking higher-quality,
late-model used cars and participating in manufacturer certification programs.
Under such certification programs, which are available exclusively to new car
dealers, manufacturers support used vehicles with extended factory warranties
and attractive financing options. The Company performs the rigorous
inspections and reconditioning required for certification. Management believes
that its size is an advantage over smaller new car dealers, who may not
receive a sufficient supply to justify dedicating resources to the
certification process.
The Company believes that its status as a franchised new car dealer
provides it a distinct competitive advantage over independent used car sellers
and superstores in terms of access to the highest-quality and lowest-cost
supply of used vehicles. Vehicles traded in for used cars are generally older,
of poorer quality and out-of-warranty compared to trade-ins received at a new
car franchise. New car dealers generally have the first opportunity to
purchase the desirable off-lease vehicles, while independents must bid for the
remaining vehicles and subsequently may incur brokerage fees and costs of
transporting them to their stores. Auctions of off-lease and fleet vehicles
and rental cars with guaranteed manufacturer buyback are open only to
franchised new car dealers. In addition to advantages in sourcing used cars,
management believes that its affiliation with manufacturers and ability to
offer certified used cars with factory warranties raises the consumer's level
of trust and ultimately their inclination to buy used cars from franchised
rather than independent sellers.
46
<PAGE>
Aftermarket Products
On a pro forma basis, in 1996, UAG's sales of aftermarket products
generated $73 million in revenues, or 3.1% of total auto dealership revenues.
The reporting of sales of certain products in this category varies among UAG's
dealerships with certain dealerships treating the sale of products such as
radios and alarms as part of the sale of the vehicle itself.
UAG earns a significant portion of the gross profit on the sale of new and
used vehicles on the sale of aftermarket products. Aftermarket products
include accessories such as radios, cellular phones, alarms, custom wheels,
paint sealants and fabric protectors, as well as agency services such as
extended service contracts and credit insurance policies. In addition, the
Company receives fees for placing financing and lease contracts. The Company
believes that working closely with its customers to identify suitable
financing products enhances the Company's overall profitability by increasing
the percentage of vehicle purchases financed through its dealerships.
Approximately 80% of customers who purchase or lease new and used vehicles
from or through the Company originate financing or lease contracts through the
dealership. UAG earns a fee from the finance provider in its diverse network
of finance companies and leasing companies that accepts and funds the
transaction without recourse to the dealership on the contract principal
amount. The Company is, however, typically assessed a chargeback against a
portion of the finance fee if the contract is terminated prior to its
scheduled maturity for any reason, such as early repayment or default. UAG has
relationships with financing sources across the credit quality spectrum. As a
result, the Company is able to service practically any customer who requires
financing.
At the time of a new vehicle sale, the Company offers extended service
contracts to supplement warranties offered by manufacturers. UAG also sells
extended service contracts with respect to used vehicles. Currently, the
Company sells third-party extended service contracts and recognizes the
associated revenue at the time of the vehicle sale. On a pro forma basis, in
1996, the Company sold extended service contracts on 26% and 45% of its new
and used vehicle sales, respectively. The Company also offers certain types of
credit insurance to customers who finance their vehicle purchases through the
Company. Such policies generally provide for repayment of the vehicle loan if
the obligor dies before the loan is fully repaid. The Company also sells
accident and health insurance policies which provide payment of the monthly
loan obligations during any period in which the obligor is disabled. The
Company receives a commission upon the sale of a policy and a bonus based on
whether payments are made under the policy.
Service and Parts
On a pro forma basis, in 1996, UAG's service and parts operations generated
$196 million in revenues, or 8.3% of total auto dealership revenues. The
Company considers its service and parts business integral to its objective of
providing customers with a satisfying and informative dealership experience,
thereby creating an opportunity to strengthen customer loyalty.
The service and parts business is relatively stable and provides an
important recurring revenue stream to the Company's dealerships, which may
help to mitigate the effects of downturns in the automobile sales cycle. UAG
measures the performance of its service and parts operations in terms of
service absorption, which measures the percentage of the overall fixed costs
covered by service and parts-related gross profit. For the six months ended
June 30, 1997, the Company's service absorption was 53.7%. The Company has
targeted a service absorption rate of 60%.
The Company has a total of 1,014 service bays and 87 paint bays throughout
its network. The Company's service and body shop facilities are equipped with
technologically advanced tools and diagnostic equipment and staffed by
manufacturer-trained and certified service technicians. The Company's service
technicians perform full-service repairs on all brands of vehicles UAG sells.
UAG dealerships feature various combinations of fully equipped service and
body shop facilities capable of handling almost any type of vehicle repair on
virtually any type of vehicle, from rebuilding entire engines to routine
maintenance functions, including tune-ups, oil changes, tire balancing,
front-end alignments and inspections. UAG dealerships offer such services in a
relaxed and accommodating atmosphere. Most UAG dealerships have lounges
equipped with televisions, recliners, sofas, phones and food and beverage
machines to allow customers to relax or conduct business while waiting for
service to be performed.
47
<PAGE>
The Company performs both warranty and non-warranty service work, with the
cost of the warranty work being paid by the manufacturer at retail consumer
rates. Manufacturers permit warranty work to be performed only at franchised
dealerships. Hence, unlike independent service shops or used car dealerships
with service operations, UAG is qualified to perform work covered by
manufacturer warranties.
UAG's factory-certified service employees regularly attend
manufacturer-sponsored training programs to remain abreast of current
diagnostic and repair and maintenance techniques. The Company employs a
compensation program for its service technicians designed to encourage the
performance of expedited and high-quality repair and maintenance services and
ensure a high degree of customer satisfaction. Rather than paying service
technicians on an hourly basis, each technician receives a flat rate for each
service or repair performed. If a service or repair is performed incorrectly,
the technician making the initial repair or service must correct the situation
without additional compensation. This compensation arrangement facilitates the
retention of efficient service technicians who can increase their compensation
by expeditiously and accurately completing service and repairs and also
enhances customer satisfaction for repair jobs that are completed correctly
the first time.
The Company's body shops, which include multiple paint bays, are fully
equipped to make virtually any type of body repair, from complete
reconstruction of vehicle frames damaged in accidents to repairs and
replacements of hoods, body panels and fenders. UAG dealerships' body shops
are also used to refurbish vehicles in need of updating due to changes in
industry standards or to satisfy regulatory guidelines.
The parts departments support the Company's sales and service functions.
The Company utilizes its parts department when performing its repair,
maintenance and body shop services, including all parts required to
recondition used vehicles for resale. In addition to supporting the Company's
service and body shop functions, the Company markets its parts and accessories
at its dealerships to those customers who prefer to perform maintenance and
repair of vehicles on their own.
An important goal of the Company is to retain or convert each purchaser of
a vehicle into a customer of the service department. To that end, UAG has
implemented a program which tracks maintenance records of customers and
contacts them regarding dealer promotions and maintenance schedules. After a
repair or service has been completed, the customer is called to determine
whether he or she is completely satisfied. In addition, the Company is
actively marketing its warranty-covered services business to potential
higher-volume service customers such as municipalities and corporations with
large motor vehicle fleets located near certain of its dealerships. The
Company is able to offer repair services to such customers on a more efficient
and less costly basis than such customers generally can perform themselves.
ATLANTIC FINANCE
Atlantic Finance is the Company's automotive finance subsidiary engaged in
the purchase, sale and servicing of motor vehicle installment contracts
originated by both UAG and third-party dealerships. Atlantic Finance commenced
loan operations in January 1995 and currently serves approximately 234
dealerships in Arizona, Arkansas, Connecticut, Georgia, New Jersey, New York
and Texas. Atlantic Finance derives its revenues from three primary areas:
finance charges on its automobile contracts; gains in connection with the sale
or securitization of pools of automobile contract receivables; and service
fees, late charges and other related income.
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. While as of June 30, 1997, 69% of
its $100.6 million in finance contracts were originated by UAG dealers,
Atlantic Finance is not intended to be a captive finance company. Rather,
Atlantic Finance's goal is to ultimately purchase up to 50% of its finance
contracts from non-UAG dealers.
With over 90 years of collective experience in the consumer finance
industry, the four members of Atlantic Finance's senior management expect to
expand Atlantic Finance's business by demonstrating commitment to dealer
service, achieving cost efficiencies through a centralized operations
structure, pursuing cost-effective sources of capital for business growth and
focusing on high-quality credit, as described below.
48
<PAGE>
Dealer Service. Atlantic Finance's goal is to be a service-oriented and
reliable source for financing. Atlantic Finance sales representatives solicit
dealers who meet Atlantic Finance's standards and enter into a dealer
agreement that outlines contract purchase terms. After a loan application is
delivered, usually by fax from the dealer, Atlantic Finance generally responds
within two hours. If an application is not initially acceptable, Atlantic
Finance's loan officers often suggest modifications to meet Atlantic Finance's
standards, such as increasing the down payment or reducing the term of the
loan.
Centralized Operations. Atlantic Finance believes that it can effectively
service its dealers from a central site without the cost of duplicating
administrative and order processing functions in multiple locations. Atlantic
Finance employs local sales representatives who are responsible for different
geographic territories and constitute a flexible, cost efficient means for
rapid growth.
Sources of Capital. Atlantic Finance currently has available an aggregate
of $85.0 million under its revolving credit facilities, known in the industry
as warehousing programs, with Citibank, N.A. (and an affiliate thereof) and
Morgan Guaranty Trust Company of New York. Atlantic Finance uses automobile
loans as collateral to borrow from such banks. Once the warehoused amount
reaches a specified level, Atlantic Finance issues securities to investors at
a fixed rate, collateralized by the bundled loans, and continues to service
the receivables for a fee. The net proceeds of these securitizations are used
by Atlantic Finance to repay outstanding loans under its credit facilities,
which enables Atlantic Finance to redeploy its capital for further loans.
Atlantic Finance benefits from its affiliation with UAG by receiving favorable
lending terms and access to capital markets as a source of financing.
On July 19, 1996, Atlantic Finance, through a wholly owned, special-purpose
subsidiary, completed a private placement of $45.8 million aggregate principal
amount of 6.7% Asset Backed Certificates. Such certificates represent
fractional undivided interests in a trust consisting primarily of a pool of
automobile loan receivables. Atlantic Finance will service the receivables for
an annual fee equal to 1.0% of the principal amount of receivables plus
certain supplemental fees. Under certain conditions, Atlantic Finance is
obligated to repurchase receivables in the event of breach of certain
representations and warranties with respect to the receivables and in the
event of breach of certain servicing obligations and covenants of Atlantic
Finance. On the basis of a credit enhancement insurance policy issued by
Financial Security Assurance Inc. for the benefit of the holders of
certificates, the certificates were rated "AAA" by Standard & Poor's Rating
Group and "Aaa" by Moody's Investors Service, Inc.
High-Quality Credit. Atlantic Finance finances primarily prime credit
quality loans and believes its ability to effectively evaluate and monitor the
creditworthiness of customers is a critical component to this focus. To
support its evaluation process, Atlantic Finance uses sophisticated processing
systems and controls that include an evaluation of multiple credit bureau
reports and a computerized scoring system. Every loan is ultimately reviewed
by an experienced loan officer for final approval. In addition to the
creditworthiness of the customer, pricing of a finance contract is based on
several criteria such as the age of the vehicle, the term of the loan,
prevailing interest rates and Atlantic Finance's cost of capital. Most states
have maximum chargeable interest rates that vary greatly from state to state.
Once the loan is approved, Atlantic Finance monitors customer accounts on a
regular basis. If an account is delinquent, Atlantic Finance works with the
customer to resolve payment problems and to bring the account current at the
earliest possible stage of delinquency. In the event of an unremedied default,
the finance company will repossess the vehicle and sell it to a dealer,
sometimes UAG, or at public auction.
49
<PAGE>
Set forth below are tables indicating delinquency experience of Atlantic
Finance (which commenced loan operations in January 1995) as of the end of
each of the past four fiscal quarters and its loss experience for such
periods:
HISTORICAL DELINQUENCY EXPERIENCE (1)(2)
<TABLE>
<CAPTION>
JUNE 30, 1997 MARCH 31, 1997 DECEMBER 31, 1996 SEPTEMBER 30, 1996
------------------------ ----------------------- ----------------------- -----------------------
# OF LOANS AMOUNT # OF LOANS AMOUNT # OF LOANS AMOUNT # OF LOANS AMOUNT
------------ ---------- ------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Dollars in thousands
Portfolio outstanding at
period end 8,239 $100,605 6,798 $83,956 5,524 $69,348 4,776 $61,612
Percent delinquent
31-60 days(3) 2.38% 2.52% 2.21% 2.36% 2.70% 3.04% 1.91% 2.01%
61-90 days(3) 0.32% 0.32% 0.43% 0.45% 0.31% 0.35% 0.34% 0.34%
over 90 days(3) 0.35% 0.40% 0.22% 0.25% 0.24% 0.27% 0.25% 0.35%
Repossessions on hand(4) 0.50% 0.61% 0.79% 0.91% 1.19% 1.47% 1.03% 1.19%
------------ ---------- ------------ --------- ------------ --------- ------------ ---------
Total 3.54% 3.85% 3.65% 3.97% 4.44% 5.13% 3.53% 3.89%
============ ========== ============ ========= ============ ========= ============ =========
</TABLE>
(1) The information in this table includes all loans outstanding and
serviced by Atlantic Finance.
(2) As all of Atlantic Finance's loans are simple interest, the dollar
amount includes only the principal balance.
(3) The period of delinquency is based on the number of days payments are
contractually past due.
(4) Amounts represent the remaining balance of installment loans relating
to repossessed vehicles as a percentage of the total principal amount
of all loans outstanding and serviced by Atlantic Finance.
HISTORICAL LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
JUNE 30, 1997 MARCH 31, 1997 DECEMBER 31, 1996 SEPTEMBER 30, 1996
--------------- -------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Dollars in thousands
Average portfolio(1) $92,281 $76,652 $65,480 $56,042
Losses(2) 480.7 477.0 347.1 228.3
Recoveries(3) 58.0 60.5 39.3 29.1
Net losses 422.6 416.5 307.8 199.2
Net losses as a percentage of average
portfolio (annualized) 1.83% 2.17% 1.88% 1.42%
</TABLE>
(1) Represents the average of the beginning and ending balance for the
period.
(2) Represents principal amounts charged off as uncollectible.
(3) Represents principal amounts recovered on accounts previously charged
off.
COMPETITION
Automobile Dealerships
The automotive retailing industry is extremely competitive. In large
metropolitan areas, consumers have a number of choices in deciding where to
purchase a new or used vehicle and where to have such a vehicle serviced.
In the new vehicle area, the Company competes with other franchised dealers
in each of its marketing areas. The Company does not have any cost advantage
in purchasing new vehicles from the manufacturer, and typically relies on
advertising and merchandising, sales expertise, service reputation and
location of its dealerships to sell new vehicles. In recent years, automobile
dealers have also faced increased competition in the sale of new vehicles from
independent leasing companies, on-line purchasing services and warehouse
clubs. Due to lower overhead and sales costs, these companies may be capable
of operating on smaller gross
50
<PAGE>
margins and offering lower sales prices than can franchised dealers. In
addition, the Company may face competition in the future from partnerships
between manufacturers and dealers.
In used cars, the Company competes with other franchised dealers,
independent used car dealers, automobile rental agencies, private parties and
used car "superstores" for supply and resale of used vehicles. The Company
believes that it enjoys certain advantages over its competitors that sell only
used cars. See "--Business Strategy -- Grow Higher-Margin Operating Businesses
- -- Used Vehicles."
The Company believes that the principal competitive factors in vehicle
sales are the marketing campaigns conducted by manufacturers, the ability of
dealerships to offer a wide selection of the most popular vehicles, the
location of dealerships and the quality of customer service. Other competitive
factors include customer preference for particular brands of automobiles,
pricing (including manufacturer rebates and other special offers) and
warranties. The Company believes that its dealerships are competitive in all
of these areas.
The Company competes against franchised dealers to perform warranty repairs
and against other automobile dealers, franchised and unfranchised service
center chains and independent garages for non-warranty repair and routine
maintenance business. The Company competes with other automobile dealers,
service stores and auto parts retailers in its parts operations. The Company
believes that the principal competitive factors in parts and service sales are
price, the use of factory-approved replacement parts, the familiarity with a
manufacturer's brands and models and the quality of customer service. A number
of regional or national chains offer selected parts and services at prices
that may be lower than the Company's prices.
Atlantic Finance
Atlantic Finance faces competition from a variety of lenders in the
fragmented auto finance market: captive finance companies, banking
institutions and independent finance companies. Captive finance companies such
as General Motors Acceptance Corporation, Ford Motor Credit Company and
Chrysler Financial Corporation primarily focus on increasing dealer sales
volume by offering low-yield rates when promoting certain products. In
general, captive finance companies provide standardized products and fixed
market rates and are not as flexible in the marketplace. Captive finance
companies also provide automobile dealers with floor plan financing.
Independent auto finance companies focus on unconventional segments of the
market with some lending to lower credit borrowers in exchange for higher
yields. The market shares of these companies are as follows: approximately 37%
of the total auto loans outstanding are held by captive and independent
finance companies, another 45% are controlled by commercial banks and the
remaining 18% are held by savings and loan institutions, savings banks, credit
unions and specialty finance companies. The Company believes that the
principal competitive factors in offering financing are convenience, interest
rates and contract terms. Certain larger competitors of Atlantic Finance are
able to borrow at lower interest rates and, therefore, are at a competitive
advantage. While market shares shift over time, the trend in the banking
market share is toward fewer and larger super-regional competitors, reflecting
the ongoing consolidations in that industry. As in the case of Atlantic
Finance, some finance companies are organized by large dealership groups as
part of a vertical integration strategy.
FRANCHISE AGREEMENTS
Each of the Company's dealerships operates pursuant to a franchise
agreement between the applicable manufacturer and the subsidiary of the
Company that operates such dealership. The typical automotive franchise
agreement specifies the locations at which the dealer has the right and the
obligation to sell motor vehicles and related parts and products and to
perform certain approved services in order to serve a specified market area.
The designation of such areas and the allocation of new vehicles among
dealerships are subject to the discretion of the manufacturer, which generally
does not guarantee exclusivity within a specified territory. A franchise
agreement may impose requirements on the dealer concerning such matters as the
showrooms, the facilities and equipment for servicing vehicles, the
maintenance of inventories of vehicles and parts, the maintenance of minimum
net working capital and the training of personnel. Compliance with these
requirements is closely monitored by the manufacturer. In addition,
manufacturers require each dealership to submit a financial statement of
operations on a monthly and annual basis. The franchise
51
<PAGE>
agreement also grants the dealer the non-exclusive right to use and display
manufacturer's trademarks, service marks and designs in the form and manner
approved by the manufacturer.
Each franchise agreement sets forth the name of the person approved by the
manufacturer to exercise full managerial authority over the dealership's
operations and the names and ownership percentages of the approved owners of
the dealership and contains provisions requiring the manufacturer's prior
approval of changes in management or transfers of ownership of the dealership.
Each of UAG's dealerships is owned, directly or indirectly, by the Company at
the subsidiary level, and the Company has obtained the approval of each
relevant manufacturer for the Common Stock to be publicly traded. A number of
manufacturers, however, continue to prohibit the acquisition of a substantial
ownership interest in the Company or transactions that may affect management
control of the Company, in each case without the approval of the manufacturer.
See "Risk Factors -- Stock Ownership/Issuance Limits."
Most franchise agreements expire after a specified period of time, ranging
from one to five years, and the Company expects to renew any expiring
agreements in the ordinary course of business. The typical franchise agreement
provides for early termination or non-renewal by the manufacturer under
certain circumstances such as change of management or ownership without
manufacturer approval, insolvency or bankruptcy of the dealership, death or
incapacity of the dealer manager, conviction of a dealer manager or owner of
certain crimes, misrepresentation of certain information by the dealership or
dealer manager or owner to the manufacturer, failure to adequately operate the
dealership, failure to maintain any license, permit or authorization required
for the conduct of business, or material breach of other provisions of the
franchise agreement. The dealership is typically entitled to terminate the
franchise agreement at any time without cause.
The automobile franchise relationship is also governed by various federal
and state laws established to protect dealerships from the general unequal
bargaining power between the parties. The state statutes generally provide
that it is a violation for a manufacturer to terminate or fail to renew a
franchise without good cause. These statutes also provide that the
manufacturer is prohibited from unreasonably withholding approval for a
proposed change in ownership of the dealership. Acceptable grounds for
disapproval include material reasons relating to the character, financial
ability or business experience of the proposed transferee. Accordingly,
certain provisions of the franchise agreements, particularly as they relate to
a manufacturer's rights to terminate or fail to renew the franchise, have
repeatedly been held invalid by state courts and administrative agencies.
FACILITIES
The Company presently leases or subleases all its facilities and seeks to
structure its acquisitions in a way to avoid the ownership of real property.
Set forth in the table below is certain information relating to the Company's
leases and subleases.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
OCCUPANT LOCATION USE EXPIRATION
- -------- -------- --- -----------
<S> <C> <C> <C>
DIFEO GROUP
Fair Chevrolet-Geo 102 Federal Road New and used vehicle sales; general September 30, 2010
Danbury, CT office; service
Fair Hyundai/Isuzu/Suzuki 100 Federal Road New and used vehicle sales; service Month-to-month
Danbury, CT
DiFeo Lexus 1550 Route 22 East New and used vehicle sales; service September 30, 2010
Bound Brook, NJ
DiFeo Chrysler-Plymouth/ Hudson Mall on Route 440 New and used vehicle sales; service September 30, 2010
Jeep-Eagle/Hyundai Jersey City, NJ
Hudson Toyota 585 Route 440W New and used vehicle sales; service; September 30, 2010
Jersey City, NJ general office
DiFeo BMW (a) 301 County Road New and used vehicle sales January 5, 2002,
Tenafly, NJ renewable to 2012
(b) 64 North Summit Street Service July 1, 2016,
Tenafly, NJ renewable to 2036
Rockland Mitsubishi 75 N. Highland Avenue New and used vehicle sales; service September 30, 2010
Nyack, NY
Rockland Toyota 115 Route 59 New and used vehicle sales; service September 30, 2002,
Nyack, NY renewable to 2012
52
<PAGE>
-----------------------------------------------------------------------------------------------
OCCUPANT LOCATION USE EXPIRATION
- -------- -------- --- -----------
DiFeo Nissan (a) 977 Communipaw Avenue New and used vehicle sales September 30, 2010
Jersey City, NJ
(b) 909-921 Communipaw Ave. Service September 30, 2010
Jersey City, NJ
(c) 599 Route 440W New and used vehicle sales; service September 30, 2010
Jersey City, NJ
Fair Honda 102 Federal Road New and used vehicle sales; service September 30, 2010
Danbury, CT
Fair Dodge 100B Federal Road New and used vehicle sales; service March 27, 2000,
Danbury, CT renewable to 2008
Gateway Mitsubishi Route 37 & Batchelor St. New vehicle sales; service September 30, 2010
Toms River, NJ
Gateway Toyota Route 37 & Batchelor St. New and used vehicle sales; service September 30, 2010
Toms River, NJ
LANDERS AUTO
Landers Jeep-Eagle/Chrysler (a) 7800 Alcoa Road New vehicle sales; service August 31, 2016,
Plymouth/Dodge Benton, AR renewable to 2026
(b) 7800 Alcoa Road Used vehicle sales
Benton, AR
Landers Oldsmobile-GMC Truck 17821 I-30 New and used vehicle sales; service August 31, 2016,
Benton, AR renewable to 2026
Landers United AutoMart 20570 I-30 Used vehicle sales April 30, 2002,
Benton, AR renewable to 2012
Landers United AutoMart 4446 Central Avenue Used vehicle sales March 31, 2003
Hotsprings Hot Springs, AR
Landers West 1719 Merrell Drive Used vehicle sales December 31, 1998,
Little Rock, AR renewable to 2001
Landers North 6055 Landers Road Used vehicle sales May 31, 1999
North Little Rock, AR
Landers Buick-Pontiac 19236 I-30 New and used vehicle sales; service June 9, 2017,
Benton, AR renewable to 2027
ATLANTA TOYOTA 2345 Pleasant Hill Road New and used vehicle sales; service January 31, 2016
Duluth, GA
UNITED NISSAN (GA) 6889 Jonesboro Road New and used vehicle sales; service April 30, 2016,
Morrow, GA renewable to 2026
PEACHTREE NISSAN (a) 5211 and 5214 Peachtree New and used vehicle sales; service June 30, 2016,
Industrial Boulevard renewable to 2026
Chamblee, GA
(b) 3393 Malone Drive Storage facility June 30, 2016,
Chamblee, GA renewable to 2026
SUN AUTOMOTIVE GROUP
Scottsdale Lexus 6905 E. McDowell New and used vehicle sales; service April 30, 2009,
Scottsdale, AZ renewable
to 2027(1)
Land Rover Scottsdale 6925 E. McDowell New and used vehicle sales; service August 10, 2005,
Scottsdale, AZ renewable to 2025
Scottsdale Paint & Body Shop 1111 N. Miller Auto painting; auto repairs December 15, 1998,
Scottsdale, AZ renewable to 2013
Camelback BMW 1144 E. Camelback New and used vehicle sales; service February 27, 2005
Scottsdale, AZ
Land Rover Phoenix 1127 E. Camelback New and used vehicle sales; service June 30, 2005,
Phoenix, AZ renewable to 2010
Scottsdale Acura 6825 E. McDowell Road New and used vehicle sales; service April 30, 2009,
Scottsdale, AZ renewable to 2027
Scottsdale Porsche/Audi 6725 E. McDowell Road New and used vehicle sales; service April 30, 2009,
Scottsdale, AZ renewable to 2027
EVANS GROUP
United BMW 3624 Commerce Ave. New and used vehicle sales; service April 30, 2017,
Duluth, GA renewable to 2027
Conyers Nissan 1420 Iris Drive New and used vehicle sales; service April 30, 2017,
Conyers, GA renewable to 2027
UNITED NISSAN (TN) 2121 Chapman Road New and used vehicle sales; service October 31, 2016,
Chattanooga, TN renewable to 2026
53
<PAGE>
-----------------------------------------------------------------------------------------------
OCCUPANT LOCATION USE EXPIRATION
- -------- -------- --- -----------
CROWN AUTOMOTIVE
Crown Jeep Eagle 16835 Katy Freeway New and used vehicle sales; service August 31, 2001
Houston, TX
Crown Dodge 11890 Old Katy Road New and used vehicle sales; service May 13, 2000
Houston, TX
HANNA NISSAN 3250 E. Sahara Avenue New and used vehicle sales; service April 30, 2017,
Las Vegas, NV renewable to 2027
STALUPPI GROUP
Palm Auto Plaza, Inc. 521 South Military Trail New and used vehicle sales; service April 30, 2017,
d/b/a Palm Beach Toyota West Palm Beach, FL renewable to 2027
Florida Chrysler 541 South Military Trail New and used vehicle sales; service April 30, 2017,
Plymouth, Inc. West Palm Beach, FL renewable to 2027
West Palm Nissan, Inc. 561 South Military Trail New and used vehicle sales; service April 30, 2017,
West Palm Beach, FL renewable to 2027
West Palm Infiniti, Inc. 581 South Military Trail New and used vehicle sales; service April 30, 2017,
West Palm Beach, FL renewable to 2027
Northlake Auto Finish, 551 South Military Trail Auto painting; auto repairs April 30, 2017,
Inc. d/b/a Trail Auto Body West Palm Beach, FL renewable to 2027
Palm Auto Plaza, Inc. Gardenette Road Storage lot, future sales and service April 30, 2017,
West Palm Beach, FL location renewable to 2027
Amity Nissan (a)4500 Sunrise Highway New and used vehicle sales; service April 30, 2017,
Massapequa, NY renewable to 2027
(b)500 Sunrise Highway New and used vehicle sales; service April 30, 2017,
Amityville, NY renewable to 2027
J&S Auto Refinishing 200 Henry Street Auto painting; auto repairs April 30, 2017,
Lindenhurst, NY renewable to 2027
Amity Toyota (a)200 Sunrise Highway New and used vehicle sales; service April 30, 2017,
Amityville, NY renewable to 2027
(b)56 Park Place Storage lot April 30, 2017,
Amityville, NY renewable to 2027
Westbury 1121 Old Country Road New and used vehicle sales; service September 30, 2011
Toyota/Superstore Westbury, NY
Westbury Nissan (a)578 Grand Boulevard Storage lot April 30, 2017,
Westbury, NY renewable to 2027
(b)939 Old Country Road New and used vehicle sales April 30, 2017,
Westbury, NY renewable to 2027
(c)927 Old Country Road Storage lot April 30, 2017,
Westbury, NY renewable to 2027
(d)999 Old Country Road Storage lot April 30, 2017,
Westbury, NY renewable to 2027
(e)115 Frost Street Service April 30, 2017,
Westbury, NY renewable to 2027
REED GROUP
Michael Chevrolet- 1016 North Main Street New and used vehicle sales; service May 31, 2017,
Oldsmobile, Inc. Summerville, SC renewable to 2027
Reed-Lallier Chevrolet, Inc. 4500 Raeford Road New and used vehicle sales; service May 31, 2017,
Fayetteville, NC renewable to 2027
Gene Reed Chevrolet, Inc. 8199 Rivers Avenue New and used vehicle sales; service May 31, 2017,
North Charleston, SC renewable to 2027
UNITED JEEP EAGLE 5054 Highway 78 New and used vehicle sales; service August 31, 2017,
CHRYSLER PLYMOUTH OF STONE Stone Mountain, GA renewable to 2027
MOUNTAIN
UAG 375 Park Avenue Headquarters June 29, 2000
New York, NY
ATLANTIC FINANCE 800 Perinton Hills Offices August 31, 1999
Office Park
Fairport, NY
</TABLE>
(1) The owner of the property has the right to require the tenant to
purchase the property at any time after December 31, 1997 at a purchase
price equal to one hundred times the monthly rental payment at the time
of such purchase.
54
<PAGE>
EMPLOYEES AND LABOR RELATIONS
As of June 30, 1997, on a pro forma basis, UAG employed 3,543 people, 142
of whom are covered by collective bargaining agreements with labor unions.
Relations with employees are considered by the Company to be satisfactory. The
Company's policy is to motivate its key managers through, among other things,
grants of stock options. See "Management -- Stock Option Plan."
LITIGATION
In May and June, 1997, three complaints were filed in the United States
District Court for the Southern District of New York on behalf of a purported
class consisting of all persons who purchased Common Stock issued in
connection with and/or traceable to the IPO at any time up to and including
February 26, 1997 (the "Lawsuits"). The complaints name as defendants the
Company, Carl Spielvogel, Marshall S. Cogan, J.P. Morgan Securities Inc.,
Montgomery Securities and Smith Barney Inc. The plaintiffs in the Lawsuits
seek unspecified damages in connection with their allegations that the
Prospectus and Registration Statement disseminated in connection with the IPO
contained material misrepresentations and omissions in violation of Sections
11, 12(a)(2) and 15 of the Securities Act. They also seek to have their
actions certified as class actions under the Federal Rules of Civil Procedure.
On August 5, 1997, the Lawsuits were ordered consolidated for all purposes.
The Company believes that the plaintiffs' claims are without merit and intends
to defend the Lawsuits vigorously.
In addition, the Company and its subsidiaries are involved in litigation
that has arisen in the ordinary course of business. None of such matters,
either individually or in the aggregate, are expected to have a material
adverse effect on the Company's results of operations or financial condition.
ENVIRONMENTAL MATTERS
As with automobile dealerships generally, and service parts and body shop
operations in particular, the Company's business involves 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's business also involves the past and
current operation and/or removal of aboveground and underground storage tanks
containing such substances or wastes. Accordingly, the Company is subject to
regulation by federal, state and local authorities establishing health and
environmental quality standards, and liability related thereto, and providing
penalties for violations of those standards. The Company is also subject to
laws, ordinances and regulations governing remediation of contamination at
facilities it operates or to which it sends hazardous or toxic substances or
wastes for treatment, recycling or disposal.
The Company believes that it does not have any material environmental
liabilities and that compliance with environmental laws, ordinances and
regulations will not, individually or in the aggregate, have a material
adverse effect on the Company's results of operations or financial condition.
However, soil and groundwater contamination has been known to exist at certain
properties owned or leased by the Company. Furthermore, environmental laws and
regulations are complex and subject to frequent change. There can be no
assurance that compliance with amended, new or more stringent laws or
regulations, stricter interpretations of existing laws or the future discovery
of environmental conditions will not require additional expenditures by the
Company, or that such expenditures would not be material. See "Risk Factors --
Environmental Matters."
INSURANCE
The Company maintains general liability and property insurance and an
umbrella and excess liability policy in amounts it considers adequate and
customary for businesses of its kind. However, there can be no assurance that
future claims will not exceed insurance coverage.
55
<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
56
<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.
57
<PAGE>
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 , 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
, 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.
GUARANTEE 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--7E
New York, New York 10286
Attn: Vincent Jhingoor
Facsimile Transmission
(212) 815-6339
Confirm by Telephone: (212) 815-4146
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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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following information relates to the executive officers and directors
of the Company, including their ages as of May 31, 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
---------------- --- -------------------------------------------------------
<S> <C> <C>
Marshall S. Cogan 60 Chairman of the Board, Chief Executive Officer and President
Robert H. Nelson 51 Executive Vice President--Operations and Director of
UAG and Vice Chairman of Atlantic Finance
Richard Sinkfield 54 Executive Vice President--Administration and Director
Karl H. Winters 38 Executive Vice President and Chief Financial Officer
James R. Davidson 51 Senior Vice President--Finance and Treasurer
George G. Lowrance 52 Senior Vice President--Development
Philip N. Smith, Jr. 54 Senior Vice President, Secretary and General Counsel
Michael R. Eisenson 41 Director
John J. Hannan 43 Director
Jules B. Kroll 56 Director
John M. Sallay 41 Director
</TABLE>
The present principal occupation and employment background of each of the
executive officers and directors of the Company are set forth below.
MARSHALL S. COGAN has served as Chairman of the Board and Chief Executive
Officer of the Company since April 1997, prior to which he served as Vice
Chairman of the Board, and as a director since December 1990. He took on the
additional title of President in August 1997. Since 1974, Mr. Cogan has been
the principal stockholder, Chairman or Co-Chairman of the Board of Directors
and Chief Executive Officer or Co-Chief Executive Officer of Trace. Trace has
acquired many companies in various consolidating industries and conceived the
concept for UAG, which it founded in December 1990. Since May 1997, Mr. Cogan
has been the Vice Chairman of Foamex International Inc. Prior thereto, he
served as its Chairman from September 1993 and its Chief Executive Officer
from January 1994. He has also been a director of Recticel s.a. since February
1993. Mr. Cogan served as Chairman and a director of other companies formerly
owned by Trace, including General Felt Industries, Inc., Knoll International,
Inc. and Sheller-Globe Corporation. Prior to forming Trace, he was a senior
partner at Cogan, Berlind, Weill & Levitt and subsequently CBWL-Hayden Stone,
Inc., both predecessor companies to Lehman Brothers Inc. Additionally, Mr.
Cogan serves on the Board of Trustees of The Museum of Modern Art, the Boston
Latin School and New York University Medical Center and the Board of Directors
of the American Friends of the Israel Museum. He also serves on several
committees of Harvard University.
ROBERT H. NELSON has served as Executive Vice President -- Operations of
the Company since August 1997 and as a director since January 1996. He has
served as Vice Chairman of Atlantic Finance since March 1996, Chief Financial
Officer and Treasurer of Trace since 1987 and Senior Vice President, Chief
Operating Officer and a director of Trace since 1994. From January to August
1997 Mr. Nelson served as Chief Financial Officer of the Company.
RICHARD SINKFIELD has served as Executive Vice President -- Administration
of the Company since July 1997 and as a director since December 1993. He is
also a Senior Partner with the law firm of Rogers & Hardin in Atlanta,
Georgia, which he joined in 1976. Mr. Sinkfield is also a director of
Weyerhaeuser Corporation.
KARL H. WINTERS has served as Executive Vice President and Chief Financial
Officer of the Company since August 1997. Between March 1997 and August 1997,
he served as Vice President and Treasurer of the Company. Mr. Winters also
serves as Vice President -- Finance of Trace, which he joined in September
1993. Prior thereto, Mr. Winters served as a senior audit manager for Coopers
& Lybrand L.L.P., an accounting, financial advisory services and management
consulting firm, which he joined in 1983.
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JAMES R. DAVIDSON has served as Senior Vice President --Finance of the
Company since February 1997 and as Treasurer since August 1997. Prior to
joining the Company, Mr. Davidson served as an audit partner of Ernst & Young
LLP, an accounting, financial advisory services and management consulting
firm, which he joined in 1973.
GEORGE G. LOWRANCE served as Executive Vice President, Secretary and
General Counsel of the Company from January 1993 to June 1996 and has served
as Senior Vice President -- Development since June 1996. Prior to joining the
Company, he was a dealer principal for 15 years, representing Pontiac,
Chevrolet, Volvo, Nissan, Saab, Range Rover, Porsche, Audi, Volkswagen,
Peugeot, Rolls Royce and Maserati. Mr. Lowrance served as Chairman of the
National Dealer Council for Audi from 1984 to 1987 and served in the same role
for Porsche from 1987 to 1990.
PHILIP N. SMITH, JR. has served as Vice President, Secretary and General
Counsel of the Company since June 1996 and as Senior Vice President and
General Counsel since August 1997. Mr. Smith has also served as Vice President
or Senior Vice President and as Secretary and General Counsel of Trace since
January 1988 and as Vice President, Secretary and General Counsel of Foamex
International Inc. since October 1993. Prior to joining such companies, he was
the sole stockholder of a professional corporation that was a partner of the
law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
MICHAEL R. EISENSON has served as a director of the Company since December
1993. He is the President and Chief Executive Officer of Harvard Private
Capital, which he joined in 1986. Harvard Private Capital manages the private
equity and real estate portfolios of the Harvard University endowment fund.
Mr. Eisenson is also a director of Harken Energy Corporation, ImmunoGen, Inc.
and Playtex Products, Inc.
JOHN J. HANNAN has served as a director of the Company since December 1993.
Mr. Hannan is one of the founding principals of Apollo, which together with an
affiliate has acted since 1991 as managing general partner of Apollo
Investment Fund, L.P., AIF and Apollo Investment Fund III, L.P., private
securities investment funds, and of Apollo Real Estate Advisors, L.P., which
since 1993 has acted as managing general partner of the Apollo real estate
investment funds, and of Lion Advisors, L.P., which since 1991 has acted as
financial advisor to and representative for certain institutional investors
with respect to securities investments. Mr. Hannan is also a director of Aris
Industries, Inc., Converse, Inc., The Florsheim Group, Inc. and Furniture
Brands International, Inc.
JULES B. KROLL has served as a director of the Company since December 1993.
He founded Kroll Associates, an international corporate investigation and
consulting firm, in 1972 and is presently its Chairman. Mr. Kroll is also a
director of Presidential Life Corporation.
JOHN M. SALLAY has served as a director of the Company since December 1993.
He is a Managing Director of Harvard Private Capital, which he joined in 1990.
Mr. Sallay is also a director of E-Z Serve Corporation.
The directors were originally elected pursuant to the provisions of the
Stockholders Agreement, dated as of October 15, 1993 (the "Stockholders
Agreement"), among the Company and the Initial Stockholders (as defined
herein). Pursuant to such Stockholders Agreement, such provisions terminated
upon consummation of the IPO.
The Board of Directors is divided into three classes. The Class I directors
were reelected at the 1997 annual meeting of stockholders, and the current
terms of the Class I directors, Class II directors and Class III directors
expire at the annual meetings of stockholders to be held in 2000, 1998 and
1999, respectively. Messrs. Cogan and Sallay are members of Class I, Messrs.
Kroll, Nelson and Sinkfield are members of Class II and Messrs. Eisenson and
Hannan are members of Class III. At each annual meeting of the stockholders,
directors will be elected for a three-year term to succeed the directors whose
terms then expire.
66
<PAGE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has established Executive,
Compensation, Audit and Stock Option Committees, each of which reports to the
Board. The Executive Committee consists of Messrs. Cogan, Eisenson and Hannan
and has the authority to oversee the general business and affairs of the
Company. The Compensation Committee consists of Messrs. Cogan, Eisenson,
Hannan and Nelson and has the authority to determine all matters relating to
compensation of the Company's executive officers and management employees. The
Audit Committee consists of Messrs. Hannan, Kroll and Sinkfield and is
responsible for meeting with the Company's independent accountants regarding,
among other issues, audits and adequacy of the Company's accounting and
control systems. The Stock Option Committee consists of Messrs. Eisenson and
Hannan and is responsible for administering the Company's Stock Option Plan
and granting options thereunder.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1996, Mr. Cogan, Chairman of the
Company's Compensation Committee, also served as Chairman of the Board and
Chief Executive Officer of Foamex International Inc., on whose compensation
committee Mr. Spielvogel, the former Chairman of the Board and Chief Executive
of the Company, then served.
COMPENSATION OF DIRECTORS
The Company has adopted a compensation plan (the "Non-Employee Director
Compensation Plan") to provide compensation to the directors of the Company
who are not paid employees of the Company (the "Outside Directors"). Pursuant
to the Non-Employee Director Compensation Plan, each Outside Director receives
an annual retainer of $15,000, a $1,000 fee for each meeting of the Board of
Directors attended in person, $750 for each meeting of a committee of the
Board of Directors attended in person and $500 for each such meeting
participated in by telephone. Effective January 1, 1997, such fees are payable
at the option of each Outside Director in cash or in Common Stock at the
current market price. All directors are entitled to reimbursement for their
reasonable out-of-pocket expenses in connection with their travel to and
attendance at meetings of the Board of Directors or committees thereof. During
1996, there were five Outside Directors of the Company and three employee
directors. In accordance with the internal policies of their employers,
certain directors assign their director compensation to the organizations that
employ them. Directors who are also employees of the Company or its
subsidiaries receive no cash compensation for serving as Directors or as
members of Board committees.
CHAIRMAN'S COMMITTEE
The Company has a Chairman's Committee comprised of certain executive
officers and key managers representing the Company's dealerships in the
various regions across the country. The Chairman's Committee, which is chaired
by Mr. Cogan, meets regularly to review operating performance of individual
dealerships. It also examines important trends in the business and, where
appropriate, recommends specific operating improvements. It is anticipated
that the Chairman's Committee's membership will expand in line with the
Company's acquisition program.
In addition to Mr. Cogan, the members of the Chairman's Committee are:
<TABLE>
<CAPTION>
<S> <C>
James B. Brew Mr. Brew has served as Chairman and Chief Executive Officer of Atlantic
Finance since June 1997. He was formerly the President of Chase Automotive
Finance Corporation, the nation's largest non-captive automobile finance
company. He joined The Chase Manhattan Bank in 1987, where he served in
various consumer finance positions.
Samuel X. DiFeo Mr. DiFeo serves as Executive Vice President of the operating partnerships
of the DiFeo Group. Between 1970 and 1992, he co-managed the operations
of the DiFeo Group with his father, Sam C. DiFeo, and his brother, Joseph
C. DiFeo.
67
<PAGE>
Steven Knappenberger Mr. Knappenberger serves as President and Chief Operating Officer of the
Sun Group, which he joined in 1980.
Steve Landers Mr. Landers serves as Chief Executive Officer and President of Landers Auto.
He began his career in the automotive retailing industry in 1969. In 1972,
Mr. Landers, with his father, Bob Landers, opened a used car operation,
which was the predecessor to Landers Auto.
Robert H. Nelson Mr. Nelson serves as Executive Vice President--Operations and a director
of the Company and as Vice Chairman of Atlantic Finance.
John Smith Mr. Smith serves as President of Atlanta Toyota, which he joined in 1988.
He began his career in the automotive retailing industry in 1983.
</TABLE>
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table contains information concerning
annual and long-term compensation of the Chief Executive Officer and each of
the other four most highly compensated executive officers of the Company who
were serving as executive officers at December 31, 1996 (the "Named Executive
Officers") for services rendered in all capacities during the years ended
December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
------------------------- SECURITIES
NAME AND UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#)
- ------------------ ---- --------- -------- ----------
<S> <C> <C> <C> <C>
Carl Spielvogel (1) 1996 750,000 375,000 500,000
Chairman of the Board 1995 750,000 250,000 --
and Chief Executive Officer 1994 155,946 -- 70,017(2)
Arthur J. Rawl (3) 1996 308,265 50,000 34,000
Executive Vice President 1995 255,300 70,000 --
and Chief Financial Officer 1994 160,000 60,000 --
George G. Lowrance 1996 251,846 57,880 34,000
Executive Vice President-- 1995 207,677 20,000 --
Development and Industry
Relations 1994 172,244 5,000 --
Robert W. Thompson (4) 1996 150,000 25,000 3,500
Vice President--Finance 1995 107,600 10,000 --
1994 42,619 -- --
Philip N. Smith, Jr. (5) 1996 100,000 50,000 10,000
Vice President, Secretary 1995 -- -- --
and General Counsel 1994 -- -- --
</TABLE>
(1) Mr. Spielvogel's employment commenced on October 18, 1994. He
resigned from the Company in April 1997.
(2) Represents the number of shares of Common Stock subject to options on
October 18, 1994, the date of grant, which number was subject to
increase from time to time to a total of 170,095 shares upon the
issuance of shares under the Equity Facility (as defined). These
options were canceled and replaced with new options on April 3, 1996,
prior to the IPO.
(3) Mr. Rawl's employment commenced on May 1, 1994. He resigned from the
Company in January 1997.
(4) Mr. Thompson's employment commenced on August 1, 1994.
(5) Mr. Smith's employment commenced on July 1, 1996.
68
<PAGE>
CONSULTING AGREEMENT
The Company entered into a Consulting Agreement, dated March 7, 1997, with
Mr. Spielvogel (the "Consulting Agreement") pursuant to which Mr. Spielvogel
is required to perform consulting services for the Company through December
31, 2000 in exchange for a monthly fee in the amount of $83,333, certain
welfare benefits and an expense allowance. Pursuant to the Consulting
Agreement, the Company granted to Mr. Spielvogel on April 17, 1997 an
additional option to purchase up to 100,000 shares of Common Stock at an
exercise price of $17.00 per share and accelerated the vesting schedule of his
500,000 existing stock options. Accordingly, all of his options became fully
vested and exercisable on April 17, 1997 and will terminate on April 17, 2001.
The Consulting Agreement also contains customary covenants relating to
non-competition and confidentiality.
STOCK OPTION PLAN
The Company's Stock Option Plan (the "Stock Option Plan") has been adopted
by the Board of Directors and the stockholders of the Company. The Stock
Option Plan provides for the grant of non-qualified options and incentive
stock options as defined in Section 422 of the Internal Revenue Code of 1986;
only non-qualified options have been granted to date. The Stock Option Plan is
administered by the Stock Option Committee of the Board of Directors. All
full-time employees of the Company and its subsidiaries, as well as employees
of its affiliates who perform services for the Company and its subsidiaries,
are eligible to participate in the Stock Option Plan.
The aggregate number of shares of Common Stock as to which stock options
may be granted under the Stock Option Plan may not exceed 1,500,838, subject
to adjustment as provided in the Stock Option Plan. As of May 31, 1997,
options to purchase up to 1,040,000 shares had been granted under the Stock
Option Plan, of which 944,800 were still outstanding.
The following table sets forth information concerning individual grants of
options to purchase Common Stock made to the Named Executive Officers during
the year ended December 31, 1996. No options were exercised by the Named
Executive Officers during the year ended December 31, 1996.
STOCK OPTION GRANTS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS EXERCISE OR FOR OPTION TERM (1)
OPTIONS GRANTED TO BASE PRICE EXPIRATION ----------------------------
NAME GRANTED EMPLOYEES ($/SHARE) DATE 5%($) 10%($)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Carl Spielvogel 400,000(2) 35.3% 10.00 10/18/04 2,067,595 5,027,210
100,000(3) 8.8 30.00 10/22/06 1,855,239 4,701,540
Arthur J. Rawl 34,000(4) 3.0 10.00 4/23/06 213,824 541,872
George G. Lowrance 34,000(5) 3.0 10.00 4/23/06 213,824 541,872
Philip N. Smith, Jr. 10,000(6) 0.9 10.00 7/2/06 62,889 159,374
Robert W. Thompson 3,500(7) 0.3 10.00 4/23/06 22,011 55,781
</TABLE>
(1) Amounts reflect certain assumed rates of appreciation set forth in the
Commission's executive compensation disclosure rules. Actual gains, if
any, on stock option exercises will depend on future performance of the
Common Stock. No assurance can be made that the amounts reflected in
these columns will be achieved. The values in these columns assume that
the fair market value on the date of grant of each option was equal to
the exercise price thereof.
(2) Options were granted on April 3, 1996 (prior to the IPO) in replacement
of options granted on October 18, 1994 and were to vest and become
exercisable in four equal annual installments beginning on October 18,
1995. See "--Consulting Agreement" for recent acceleration of vesting.
(3) Options were granted on October 22, 1996 and were to vest and become
exercisable in four equal annual installments beginning on October 22,
1997. See "--Consulting Agreement" for recent acceleration of vesting.
(4) Options were granted on April 23, 1996 were to vest and become
exercisable in five equal annual installments beginning on May 1, 1995.
Upon Mr. Rawl's resignation from the Company in January 1997, such
options became fully vested and exercisable.
(5) Options were granted on April 23, 1996 and vest and become exercisable in
five equal annual installments beginning on December 29, 1994.
(6) Options were granted on July 2, 1996 and vest and become exercisable in
five equal annual installments beginning on June 1, 1997.
(7) Options were granted on April 23, 1996 and vest and become exercisable in
five equal annual installments beginning on August 1, 1995.
69
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Jules B. Kroll, a director of the Company, is Chairman of Kroll Associates,
a corporate investigation and consulting firm which performs services for the
Company from time to time.
Richard Sinkfield, an executive officer and director of the Company, is a
member of the law firm of Rogers & Hardin, which represents the Company in
connection with various business transactions.
Pursuant to Stock Purchase Agreements, dated October 15, 1993 (as amended,
the "Equity Facility"), among the Company and the investors named therein (the
"Initial Stockholders"), the Initial Stockholders purchased an aggregate of
8,504,750 shares of Common Stock in multiple closings between 1993 and 1996
and were granted registration rights in respect of such shares. Such
registration rights also apply to an additional 306,346 shares of Common Stock
subsequently purchased by the Initial Stockholders and to 10,000 shares of
Common Stock held by Richard Sinkfield, an executive officer and director of
the Company. Among the Initial Stockholders are Carl Spielvogel, former
Chairman of the Board and Chief Executive Officer of the Company, Jules Kroll,
a director of the Company, Trace, Aeneas and AIF. In January 1997, Trace was
also granted the right, subject to certain conditions, to have its shares of
Common Stock registered in connection with a pledge of such shares to a
lender. In addition, as of December 31, 1996, the Company owed Trace
approximately $1.3 million, which was incurred for services provided.
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 June 30, 1997, aggregate
fees paid under such agreement totaled approximately $750,000.
The Company is the tenant under a number of lease agreements with employees
of the Company. All such leases are on terms no less favorable to the Company
than would be obtained in arm's-length negotiations with unaffiliated third
parties. In addition, the Company has entered into a Broker's Agreement with
an entity controlled by Steven Knappenberger, President of the Company's Sun
Automotive Group, which provides for payment by the Company of brokerage fees
for assistance in acquiring or opening automobile dealerships in Arizona,
Colorado, New Mexico, Utah and certain counties in California.
Immediately prior to the consummation of the IPO, the holders of minority
interests (the "Minority Interests") in certain of the Company's subsidiaries,
who are also senior officers of such subsidiaries, exchanged their Minority
Interests for shares of Common Stock of the Company in the Minority Exchange.
Such shares are subject to registration rights. The consideration paid by the
Company for the Minority Interest in the DiFeo Group also included (i) an
option to purchase up to 50,000 shares of Common Stock at an exercise price of
$30.00 per share, (ii) the settlement of certain advances made by the Company
for the benefit of the holders of such Minority Interest for certain business
acquisitions and for working capital for dealerships owned solely by such
minority holders, and (iii) the minority interests owned by the Company in a
group of dealerships in New Jersey. The following table sets forth certain
information with respect to each division of the Company whose Minority
Interest was exchanged:
<TABLE>
<CAPTION>
-----------------------------
SHARES OF COMMON
MINORITY STOCK ISSUED IN
DIVISION INTEREST MINORITY EXCHANGE
- -------- ---------- -----------------
<S> <C> <C>
DiFeo Division 30% 216,079
Landers Auto 20% 750,808
Atlanta Toyota 5% 146,954
</TABLE>
On October 4, 1996, the Company granted to the then three senior officers
of Atlantic Finance options to purchase an aggregate of 5% of the outstanding
common stock of Atlantic Finance at an exercise price of $500 per share, or
$400,000 in the aggregate. Such options were immediately exercisable in full
when they were granted and will terminate on the seventh anniversary of the
date of grant. Upon the termination date (or upon the termination of an option
holder's employment, with respect to such holder's options), the option
holders will have the right to sell to the Company, and the Company will have
the right to purchase
70
<PAGE>
from the option holders, the options (or any shares of common stock issued
upon exercise thereof) at the then fair market value thereof, payable in cash
or Common Stock of the Company at the option of the Company. In addition, the
Company has granted such officers options to purchase additional common stock
of Atlantic Finance in such amounts as to enable them to retain their
percentage ownership of Atlantic Finance after the Company's contribution out
of the proceeds of the IPO. Such options will vest and become exercisable in
five equal annual installments beginning on October 28, 1997 at an exercise
price of $500 per share, increasing at a rate of 10% per year, compounded
annually from the date of grant.
71
<PAGE>
SECURITY OWNERSHIP
The following table sets forth certain information, as of May 31, 1997,
regarding the beneficial ownership of Common Stock by (i) each stockholder
who is known by the Company to own 5% or more of the outstanding shares of
Common Stock, (ii) each director, (iii) each Named Executive Officer named in
the Summary Compensation Table and (iv) all directors and executive officers
as a group.
<TABLE>
<CAPTION>
----------------------
SHARES BENEFICIALLY
OWNED
BENEFICIAL OWNER NUMBER(1) PERCENT
---------------- ----------- ---------
<S> <C> <C>
Trace International Holdings, Inc. (2)............... 3,531,156 19.5%
375 Park Avenue
New York, New York 10152
Aeneas Venture Corporation .......................... 2,843,656 15.7
(an affiliate of Harvard Private Capital Group, Inc.)
600 Atlantic Avenue
Boston, Massachusetts 02210
AIF II, L.P. ........................................ 1,843,656 10.2
c/o Apollo Advisors, L.P.
Two Manhattanville Road
Purchase, New York 10577
Carl Spielvogel (3) ................................. 203,256 1.1
Arthur J. Rawl ...................................... -- --
George G. Lowrance (4) .............................. 36,400 *
Robert W. Thompson (5) .............................. 2,200 *
Marshall S. Cogan (6)(2)............................. 3,632,156 20.0
Michael R. Eisenson (7) ............................. 2,843,656 15.7
John J. Hannan (8) .................................. 1,843,656 10.2
Jules Kroll (9)...................................... 104,474 *
Robert H. Nelson (10) ............................... 24,400 *
John M. Sallay (11) ................................. 2,843,656 15.7
Richard Sinkfield ................................... 10,400 *
Philip N. Smith, Jr. (12) ........................... 7,000 *
All directors and executive officers,
without duplication (14 persons) ................... 8,708,598 47.4
</TABLE>
* Less than 1%.
(1) Pursuant to the regulations of the Commission, shares are deemed to be
"beneficially owned" by a person if such person directly or indirectly
has or shares the power to vote or dispose of such shares, whether or
not such person has any pecuniary interest in such shares, or the right
to acquire the power to vote or dispose of such shares within 60 days,
including any right to acquire through the exercise of any option,
warrant or right.
(2) On August 27, 1997, Trace and Mr. Cogan filed a Schedule 13D with the
Commission reporting that Trace owns 3,976,490 shares, or 21.8%, of the
outstanding Common Stock.
(3) Includes 200,000 shares issuable upon exercise of options that are
vested and exercisable within 60 days.
(4) Includes 20,400 shares issuable upon exercise of options granted under
the Company's stock option plan that are vested and exercisable within
60 days and 11,000 shares held by Mr. Lowrance's wife. Mr. Lowrance
disclaims beneficial ownership of all shares owned by his wife.
(5) Includes 2,100 shares issuable upon exercise of options granted under
the Company's stock option plan that are vested and exercisable within
60 days.
(6) Includes 3,531,156 shares held by Trace, of which Mr. Cogan is the
principal stockholder, Chairman of the Board and Chief Executive
Officer, and 1,000 shares held by Mr. Cogan's wife. Mr. Cogan disclaims
beneficial ownership of all shares held by Trace or his wife.
(7) Represents the shares held by Aeneas. Mr. Eisenson is the Managing
Director, President and Chief Executive Officer of Harvard Private
Capital, the investment advisor of Aeneas. Mr. Eisenson disclaims
beneficial ownership of all shares held by Aeneas.
(8) Represents the shares held by AIF. Mr. Hannan is a director of Apollo
Capital Management, Inc., which is the general partner of Apollo, which
is the managing general partner of AIF. Mr. Hannan disclaims beneficial
ownership of all shares held by AIF.
(9) Includes 200 shares beneficially owned by Mr. Kroll's son.
(10) Includes 20,400 shares issuable upon exercise of options granted under
the Company's stock option plan that are vested and exercisable within
60 days.
(11) Represents the shares held by Aeneas. Mr. Sallay is a Managing Director
of Harvard Private Capital, the investment advisor of Aeneas. Mr.
Sallay disclaims beneficial ownership of all shares held by Aeneas.
(12) Includes 2,000 shares issuable upon exercise of options granted under
the Company's stock option plan that are vested and exercisable within
60 days.
72
<PAGE>
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 November 15, 1997, 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.
73
<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
74
<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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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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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 June 30, 1997, on a pro forma basis, there was an aggregate of $324.6
million of Senior Debt of the Company and the Guarantors outstanding.
THE GUARANTEES
The Guarantors, jointly and severally, unconditionally guarantee 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).
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.
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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,
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;
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(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
(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
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(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
(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;
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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 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.
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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 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
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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 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
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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 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."
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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."
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.
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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 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.
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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."
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
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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 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
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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 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,
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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.
"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.
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"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 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
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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.
"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.
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"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 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
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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, 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."
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"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.
"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).
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"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 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.
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<PAGE>
"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).
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
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<PAGE>
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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<PAGE>
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 (i) consolidated financial statements of UAG and its subsidiaries as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, (ii) financial statements of Shannon Automotive Ltd. (d/b/a
Crown Automotive) as of December 31, 1996 and for the year ended December 31,
1996 and (iii) financial statements of the Staluppi Group as of December 31,
1996 and for the year ended December 31, 1996 included in this Prospectus have
been included in reliance upon 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.
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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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
UNITED AUTO GROUP, INC.
As of June 30, 1997 and the six months ended June 30, 1997 and 1996 (unaudited):
Consolidated Condensed Balance Sheets.................................................. F-2
Consolidated Condensed Statements of Income............................................ F-3
Consolidated Condensed Statements of Cash Flows........................................ F-4
Notes to Consolidated Condensed Financial Statements................................... F-5
As of December 31, 1996 and 1995, and the years ended December 31, 1996, 1995 and 1994:
Report of Independent Accountants...................................................... F-8
Consolidated Balance Sheets............................................................ F-9
Consolidated Statements of Operations.................................................. F-10
Consolidated Statements of Stockholders' Equity........................................ F-11
Consolidated Statements of Cash Flows.................................................. F-12
Notes to Consolidated Financial Statements............................................. F-14
SHANNON AUTOMOTIVE LTD. (DOING BUSINESS AS CROWN AUTOMOTIVE)
Report of Independent Accountants...................................................... F-30
Balance Sheet as of December 31, 1996.................................................. F-31
Statement of Income for the year ended December 31, 1996 .............................. F-32
Statement of Changes in Partners' Capital for the year ended December 31, 1996......... F-33
Statement of Cash Flows for the year ended December 31, 1996........................... F-34
Notes to Financial Statements.......................................................... F-35
STALUPPI AUTOMOTIVE GROUP
Report of Independent Accountants...................................................... F-39
Combined Balance Sheets as of December 31, 1996 and March 31, 1997..................... F-40
Combined Statements of Income for the year ended December 31, 1996 and the
three months ended March 31, 1997 and 1996............................................ F-41
Combined Statements of Stockholders' Equity for the year ended
December 31, 1996 and the three months ended March 31, 1997........................... F-42
Combined Statements of Cash Flows for the year ended December 31, 1996 and the
three months ended March 31, 1997 and 1996............................................ F-43
Notes to Combined Financial Statements................................................. F-44
</TABLE>
F-1
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
--------------------------
JUNE 30, DECEMBER 31,
1997 1996
---------- --------------
<S> <C> <C>
ASSETS
AUTO DEALERSHIPS
Cash and cash equivalents $ 43,318 $ 66,875
Accounts receivable, net 80,883 52,018
Inventories 267,673 168,855
Other current assets 7,607 11,823
---------- --------------
Total current assets 399,481 299,571
---------- --------------
Property and equipment, net 32,940 22,341
Intangible assets, net 288,445 177,194
Other assets 7,195 6,587
---------- --------------
TOTAL AUTO DEALERSHIP ASSETS 728,061 505,693
---------- --------------
AUTO FINANCE
Cash and cash equivalents 4,985 2,688
Finance receivables, net 20,928 9,723
Other assets 1,788 4,846
---------- --------------
TOTAL AUTO FINANCE ASSETS 27,701 17,257
---------- --------------
TOTAL ASSETS $755,762 $522,950
========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
AUTO DEALERSHIPS
Floor plan notes payable $268,955 $170,170
Short-term debt 6,970 6,069
Accounts payable 29,707 22,187
Accrued expenses 21,831 17,585
Current portion of long-term debt 4,217 5,444
---------- --------------
Total current liabilities 331,680 221,455
Long-term debt 93,722 11,121
Due to related party 438 1,334
Deferred income taxes 8,362 4,867
---------- --------------
TOTAL AUTO DEALERSHIP LIABILITIES 434,202 238,777
---------- --------------
AUTO FINANCE
Short-term debt 301 1,001
Accounts payable and other liabilities 3,730 1,704
---------- --------------
TOTAL AUTO FINANCE LIABILITIES 4,031 2,705
---------- --------------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Voting common stock 2 2
Additional paid-in capital 309,647 284,502
Retained earnings (accumulated deficit) 7,880 (3,036)
---------- --------------
TOTAL STOCKHOLDERS' EQUITY 317,529 281,468
---------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $755,762 $522,950
========== ==============
</TABLE>
See Notes to Consolidated Condensed Financial Statements
F-2
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
---------------------- ----------------------
THREE MONTHS ENDED SIX MONTHS ENDED JUNE
JUNE 30, 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
AUTO DEALERSHIPS
Vehicle sales $463,381 $302,034 $804,214 $535,173
Finance and insurance 18,029 12,397 31,512 22,339
Service and parts 45,548 21,789 79,432 40,427
---------- ---------- ---------- ----------
Total revenues 526,958 336,220 915,158 597,939
Cost of sales, including floor
plan interest 458,308 299,058 798,896 531,560
---------- ---------- ---------- ----------
Gross profit 68,650 37,162 116,262 66,379
Selling, general and
administrative expenses 53,967 29,357 95,723 56,975
---------- ---------- ---------- ----------
Operating income 14,683 7,805 20,539 9,404
Other interest expense (1,777) (868) (2,246) (2,005)
Other income (expense), net -- 570 297 1,579
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES--AUTO
DEALERSHIPS 12,906 7,507 18,590 8,978
---------- ---------- ---------- ----------
AUTO FINANCE
Revenues 1,100 617 2,085 1,029
Interest expense (116) (90) (260) (176)
Operating and other expenses (1,087) (612) (2,204) (1,202)
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES--AUTO
FINANCE (103) (85) (199) (349)
---------- ---------- ---------- ----------
TOTAL COMPANY
Income before minority interests
and provision for
income taxes 12,803 7,422 18,391 8,629
Minority interests (61) (1,234) (97) (1,734)
Provision for income taxes (5,143) (2,461) (7,378) (2,997)
---------- ---------- ---------- ----------
Net income $ 7,599 $ 3,727 $ 10,916 $ 3,898
========== ========== ========== ==========
Net income per common share $ 0.42 $ 0.42 $ 0.61 $ 0.46
========== ========== ========== ==========
Shares used in computing net income
per common share 18,144 8,878 18,023 8,500
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
F-3
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<TABLE>
<CAPTION>
---------------------------------------------------
SIX MONTHS ENDED JUNE 30,
1997 1996
------------------------- -------------------------
AUTO AUTO AUTO AUTO
DEALERSHIPS FINANCE DEALERSHIPS FINANCE
------------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 11,035 $ (119) $ 4,097 $ (199)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 3,877 222 1,619 90
Deferred income tax expense 5,130 -- -- --
Related party interest income -- -- (1,548) --
Equity in loss of uncombined investee -- -- (75) --
Gain on sales of loans -- (679) -- (510)
Loans originated -- (49,934) -- (44,075)
Loans repaid or sold -- 43,126 -- 37,456
Minority interests portion of income 97 -- 1,734 --
Changes in operating assets and liabilities:
Accounts receivable (13,803) (976) (16,091) --
Inventories (13,328) -- (2,494) --
Floor plan notes payable 22,673 -- 16,651 --
Accounts payable and accrued expenses 1,572 1,934 8,580 910
Other (2,270) 256 (598) 2,520
------------- ---------- ------------- ----------
Net cash provided by (used in) operating
activities: 14,983 (6,170) 11,875 (3,808)
------------- ---------- ------------- ----------
INVESTING ACTIVITIES:
Purchase of equipment and improvements (5,774) (34) (1,916) (153)
Dealership acquisitions (68,338) -- (20,803) --
Investment in auto finance subsidiary (9,300) 9,300 (9,400) 9,400
Funding for subsequent acquisition -- -- -- --
Advances to related parties -- -- 400 --
Investment in and advances to uncombined
investee -- -- (1,438) --
------------- ---------- ------------- ----------
Net cash provided by (used in) investing
activities (83,412) 9,266 (33,157) 9,247
------------- ---------- ------------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of stock 4,324 -- 15,986 --
Repurchase of common stock (8,821) -- -- --
Proceeds from borrowings of long-term debt 53,780 -- 13,220 --
Deferred financing costs (2,141) -- (908) --
Net borrowings (repayments) of short-term debt 500 -- (1,118) --
Payments of long-term debt and capitalized lease
obligations (1,874) -- (1,376) --
Advances (to) from affiliates (896) -- 82 --
Borrowings from warehouse credit line -- 17,965 -- 30,880
Payments of warehouse credit line -- (18,764) -- (35,320)
------------- ---------- ------------- ----------
Net cash provided by (used in) financing
activities 44,872 (799) 25,886 (4,440)
------------- ---------- ------------- ----------
Net increase (decrease) in cash and cash
equivalents (23,557) 2,297 4,604 999
Cash and cash equivalents, beginning of year 66,875 2,688 4,697 531
------------- ---------- ------------- ----------
Cash and cash equivalents, end of year $ 43,318 $ 4,985 $ 9,301 $ 1,530
============= ========== ============= ==========
</TABLE>
See Notes to Consolidated Condensed Financial Statements
F-4
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)
1. BASIS OF PRESENTATION
The information presented as of June 30, 1997 and 1996, and for the three
and six month periods then ended, is unaudited, but includes all adjustments
(consisting only of normal recurring accruals) which the management of United
Auto Group, Inc. (the "Company" or "UAG") believes to be necessary for the
fair presentation of results for the periods presented. The results for any
interim period are not necessarily indicative of the results for a full year.
These consolidated condensed financial statements should be read in
conjunction with the Company's audited financial statements for the year ended
December 31, 1996, which are included as part of the Company's Annual Report
on Form 10-K.
2. NET INCOME PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128").
SFAS 128 establishes standards for computing and presenting earnings per share
for periods ending after December 15, 1997. Basic and diluted earnings per
share, calculated pursuant to SFAS 128, are not expected to be materially
different from net income per common share as reflected in the accompanying
Consolidated Condensed Statements of Income.
3. INVENTORIES
Inventories consisted of the following at the balance sheet dates:
<TABLE>
<CAPTION>
--------------------------
JUNE 30, DECEMBER 31,
1997 1996
---------- --------------
<S> <C> <C>
New vehicles $183,045 $109,414
Used vehicles 70,367 50,060
Parts, accessories and other 14,261 9,381
---------- --------------
Total inventories $267,673 $168,855
========== ==============
</TABLE>
4. BUSINESS COMBINATIONS
On April 22, 1997, the Company completed its acquisition of 100% of the
capital stock of Gary Hanna Nissan, Inc. for $13,740, consisting of $7,000 in
cash, $1,240 of promissory notes and $5,500 of UAG common stock. The
acquisition agreement provides for an additional contingent cash payment to
the extent that the UAG common stock has an aggregate market value of less
than $6,000 on the date it becomes freely tradable.
On April 30, 1997, the Company completed its acquisition of 100% of the
capital stock of the Staluppi Automotive Group (the "Staluppi Group") for
$49,614, consisting of $25,450 in cash, $21,864 of promissory notes and $2,300
of UAG common stock. The acquisition agreement provides for an additional
contingent cash payment to the extent that the UAG common stock has an
aggregate market value of less than $3,000 on the date it becomes freely
tradable. In addition, if the Staluppi Group achieves certain levels of annual
pre-tax earnings during any of the next three years, UAG will be required to
make additional payments.
On May 30, 1997, the Company completed its acquisition of 100% of the
capital stock of the Gene Reed Automotive Group (the "Reed Group") for
$34,000, consisting of $17,000 in cash, $4,000 of promissory notes and $13,000
of UAG common stock. The acquisition agreement provides for an additional
contingent cash payment to the extent that the UAG common stock has an
aggregate market value of less than $13,000 on the date it becomes freely
tradable.
F-5
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)
Effective June 1, 1997, the Company completed its acquisition of 100% of
the capital stock of the Lance Landers dealerships for $2,800 in cash.
These acquisitions were accounted for using the purchase method.
Accordingly, the Company's financial statements reflect the results of
operations of the acquired entities only from the effective date of
acquisition.
5. PRO FORMA RESULTS OF OPERATIONS
The following unaudited pro forma summary presents the consolidated results
of operations of the Company for the six months ended June 30, 1997 and 1996
after reflecting the pro forma adjustments that would be necessary to present
those results as if the acquisitions of Gary Hanna Nissan, Inc., the Staluppi
Group, the Reed Group and the Lance Landers dealerships had been consummated
as of January 1, 1996. The results of operations for the six months ended June
30, 1997 and 1996 also reflect acquisitions completed prior to March 31, 1997
as if such acquisitions had been consummated as of January 1, 1996.
<TABLE>
<CAPTION>
--------------------------
SIX MONTHS ENDED JUNE 30,
1997 1996
------------ ------------
<S> <C> <C>
Revenues $1,173,236 $1,189,928
Income before minority interests and
provision for income taxes $ 21,340 $ 21,549
Net income $ 12,707 $ 12,929
Net income per common share $ 0.66 $ 0.67
</TABLE>
The foregoing pro forma results are not necessarily indicative of results
of operations that would have been reported had the acquisitions been
completed as of January 1, 1996. The pro forma results do not reflect a
reduction of cost of sales related to reduced interest on floor plan notes
payable resulting from the application of unused proceeds from the Company's
initial public sale of common stock (the "IPO"). If the reduction of the floor
plan interest expense were reflected, then pro forma net income (and net
income per common share) would have been $14,103 ($0.73 per share) for the six
months ended June 30, 1996.
F-6
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(Dollars In Thousands, Except Per Share Amounts)
(Unaudited)
6. SUPPLEMENTAL CASH FLOW INFORMATION
The following table presents certain supplementary information to the
Consolidated Condensed Statements of Cash Flows:
<TABLE>
<CAPTION>
-------------------------------------------------
SIX MONTHS ENDED JUNE 30,
1997 1996
------------------------ ------------------------
AUTO AUTO AUTO AUTO
DEALERSHIPS FINANCE DEALERSHIPS FINANCE
------------- --------- ------------- ---------
<S> <C> <C> <C> <C>
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 3,694 $124 $3,996 $153
Cash paid for income taxes 1,898 19 148 13
NON-CASH FINANCING AND INVESTING ACTIVITIES:
Dealership acquisition costs financed by issuance
of stock 28,150 -- -- --
Dealership acquisition costs financed by
long-term debt 27,104 -- 2,100 --
Capitalized lease obligations 274 100 247 --
Stock issuance costs amortized against proceeds
from issuance of common stock -- -- 577 --
Warrants issued -- -- 576 --
</TABLE>
7. LEGAL PROCEEDINGS
In May and June 1997, three complaints were filed in the United States
District Court for the Southern District of New York on behalf of a purported
class consisting of all persons who purchased UAG common stock issued in
connection with and/or traceable to the Company's IPO at any time up to and
including February 26, 1997 (the "Lawsuits"). The complaints name as
defendants the Company, Carl Spielvogel, Marshall S. Cogan, J.P. Morgan
Securities Inc., Montgomery Securities and Smith Barney, Inc. The plaintiffs
in the Lawsuits seek unspecified damages in connection with their allegations
that the Prospectus and Registration Statement disseminated in connection with
the IPO contained material misrepresentations and omissions in violation of
Sections 11, 12(a)(2) and 15 of the Securities Act. They also seek to have
their actions certified as class actions under the Federal Rules of Civil
Procedure. The Company believes that the plaintiffs' claims are without merit
and intends to defend the Lawsuits vigorously.
8. SUBSEQUENT EVENTS
On July 23, 1997, the Company completed the sale of $150,000 aggregate
principal amount of 11% Senior Subordinated Notes due 2007 in a transaction
exempt from registration under the Securities Act of 1933 pursuant to Rule
144A thereunder. The Notes were issued at 98.529% of their principal amount.
Proceeds from the offering, after issue discount, discount to initial
purchasers and estimated transaction costs amounted to approximately $140,793.
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of United Auto Group, Inc.:
We have audited the consolidated financial statements of United Auto Group,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of United Auto Group, Inc. and Subsidiaries as of December 31, 1996 and 1995,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
/s/ Coopers &
Lybrand L.L.P.
Coopers & Lybrand
L.L.P.
Princeton, New Jersey
February 25, 1997
F-8
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
----------------------
DECEMBER 31,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
AUTO DEALERSHIPS
Cash and cash equivalents $ 66,875 $ 4,697
Accounts receivable 52,018 27,349
Inventories 168,855 101,556
Other current assets 11,823 8,047
---------- ----------
Total current assets 299,571 141,649
Property and equipment, net 22,341 12,146
Intangible assets, net 177,194 48,774
Due from related parties -- 14,578
Other assets 6,587 10,128
---------- ----------
TOTAL AUTO DEALERSHIP ASSETS 505,693 227,275
---------- ----------
AUTO FINANCE
Cash and cash equivalents 2,688 531
Finance assets, net 9,723 7,555
Other assets 4,846 666
---------- ----------
TOTAL AUTO FINANCE ASSETS 17,257 8,752
---------- ----------
TOTAL ASSETS $522,950 $236,027
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
AUTO DEALERSHIPS
Floor plan notes payable $170,170 $ 97,823
Short-term debt 6,069 16,187
Accounts payable 22,187 12,393
Accrued expenses 17,585 9,875
Current portion of long-term debt 5,444 3,169
---------- ----------
Total current liabilities 221,455 139,447
Long-term debt 11,121 24,073
Due to related party 1,334 1,109
Deferred income taxes 4,867 2,279
---------- ----------
TOTAL AUTO DEALERSHIP LIABILITIES 238,777 166,908
---------- ----------
AUTO FINANCE
Short-term debt 1,001 4,661
Accounts payable and other liabilities 1,704 590
---------- ----------
TOTAL AUTO FINANCE LIABILITIES 2,705 5,251
---------- ----------
Minority interests -- 13,608
---------- ----------
Stock purchase warrants -- 1,020
---------- ----------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Class A Convertible Preferred Stock -- 1
Voting Common Stock 2 1
Additional paid-in-capital 284,502 54,748
Retained earnings (accumulated deficit) (3,036) (5,510)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 281,468 49,240
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $522,950 $236,027
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-9
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
------------------------------------
YEARS ENDED DECEMBER 31,
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
AUTO DEALERSHIPS
Vehicle sales $1,164,569 $716,394 $644,380
Finance and insurance 43,574 29,806 27,518
Service and parts 93,888 59,421 59,731
------------ ---------- ----------
Total revenues 1,302,031 805,621 731,629
Cost of sales, including floor plan interest 1,157,368 720,344 647,643
------------ ---------- ----------
Gross profit 144,663 85,277 83,986
Selling, general and administrative expenses 124,244 90,586 80,415
------------ ---------- ----------
Operating income (loss) 20,419 (5,309) 3,571
Related party interest income 2,580 3,039 --
Other income (expense) (4,398) (1,438) (860)
Equity in loss of uncombined investees (74) (831) (2,899)
------------ ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES--
AUTO DEALERSHIPS 18,527 (4,539) (188)
------------ ---------- ----------
AUTO FINANCE
Revenues 1,798 530 2
Interest expense (421) (174) --
Operating and other expenses (2,867) (1,738) (618)
------------ ---------- ----------
LOSS BEFORE INCOME TAXES--AUTO FINANCE (1,490) (1,382) (616)
------------ ---------- ----------
TOTAL COMPANY
Income (loss) before minority interests,
(provision) benefit for income taxes and
extraordinary item 17,037 (5,921) (804)
Minority interests (3,306) 366 (887)
(Provision) benefit for income taxes (6,270) 2,089 --
------------ ---------- ----------
Income (loss) before extraordinary item 7,461 (3,466) (1,691)
Extraordinary item (net of income tax benefit
of $2,685) (4,987) -- --
------------ ---------- ----------
Net income (loss) $ 2,474 $ (3,466) $ (1,691)
============ ========== ==========
Income (loss) before extraordinary item per
common share $ 0.69 $ (0.63) $ (0.44)
============ ========== ==========
Net income (loss) per common share $ 0.23 $ (0.63) $ (0.44)
============ ========== ==========
Shares used in computing net income (loss) per
common share 10,851 5,482 3,873
============ ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-10
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
CLASS A VOTING AND
CONVERTIBLE NON-VOTING
PREFERRED STOCK COMMON STOCK
----------------------- ----------------------
RETAINED
ADDITIONAL EARNINGS TOTAL
ISSUED ISSUED PAID-IN (ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) EQUITY
------------- -------- ------------ -------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993 1,570,000 $ 1 1,343,750 $ 1 $ 25,615 $ (353) $ 25,264
Issuance of stock for cash 401,611 -- 185,486 -- 5,212 -- 5,212
Net loss for 1994 -- -- -- -- -- (1,691) (1,691)
------------- -------- ------------ -------- ------------ ------------- ---------------
Balances, December 31, 1994 1,971,611 1 1,529,236 1 30,827 (2,044) 28,785
Issuance of stock for cash 1,679,118 -- 1,053,549 -- 23,921 -- 23,921
Net loss for 1995 -- -- -- -- -- (3,466) (3,466)
------------- -------- ------------ -------- ------------ ------------- ---------------
Balances, December 31, 1995 3,650,729 1 2,582,785 1 54,748 (5,510) 49,240
Issuance of stock, primarily
for acquisitions 1,576,617 -- 1,010,965 -- 22,854 -- 22,854
Preferred stock conversion (5,227,346) (1) 5,227,346 -- 1 -- --
Issuance of common stock in
minority exchanges -- -- 1,113,841 -- 34,015 -- 34,015
Issuance of stock in initial
public offering -- -- 6,250,000 1 170,410 -- 170,411
Issuance of stock on exercise
of warrants -- -- 1,109,491 -- 2,769 -- 2,769
Issuance of stock on exercise
of stock options -- -- 46,500 -- 884 -- 884
Repurchase of common stock -- -- (46,000) -- (1,179) -- (1,179)
Net income for 1996 -- -- -- -- -- 2,474 2,474
------------- -------- ------------ -------- ------------ ------------- ---------------
Balances, December 31, 1996 -- $-- 17,294,928 $ 2 $284,502 $(3,036) $281,468
============= ======== ============ ======== ============ ============= ===============
</TABLE>
See Notes to Consolidated Financial Statements.
F-11
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
------------------------- ------------------------- ------------------------
AUTO AUTO AUTO AUTO AUTO AUTO
DEALERSHIPS FINANCE DEALERSHIPS FINANCE DEALERSHIPS FINANCE
------------- ---------- ------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 3,964 $ (1,490) $ (2,084) $ (1,382) $ (1,075) $(616)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating
activities:
Depreciation and amortization 5,325 2,472 2,536 284 2,225 20
Deferred income tax benefit 2,401 -- (2,374) -- -- --
Related party interest income (2,580) -- (3,039) -- -- --
Loss on sale of minority interest 165 -- -- -- -- --
Loss on sale of interest in uncombined
investee -- -- 348 -- 117 --
Equity in loss of uncombined investee 74 -- 483 -- 2,782 --
Gain on sales of loans -- (800) -- (129) -- --
Loans originated -- (75,440) -- (18,769) -- --
Loans repaid or sold -- 72,659 -- 11,236 -- --
Minority interests portion of income
(loss) 3,306 -- (366) -- 887 --
Changes in operating assets and
liabilities:
Finance assets -- (1,796) -- -- -- --
Accounts receivable (6,480) -- (1,524) -- (7,042) --
Inventories (10,581) -- 16,319 -- (12,417) --
Floor plan notes payable 24,548 -- (14,753) -- 14,874 --
Accounts payable and accrued expenses (60) 385 5,240 302 (1,239) 288
Other 3,160 (1,018) (90) 411 (879) (5)
------------- ---------- ------------- ---------- ------------- ---------
Net cash provided by (used in)
operating activities 23,242 (5,028) 696 (8,047) (1,767) (313)
------------- ---------- ------------- ---------- ------------- ---------
INVESTING ACTIVITIES:
Purchase of equipment and improvements (6,457) (314) (1,496) (243) (4,675) (562)
Dealership acquisitions (98,812) -- (19,921) -- (755) --
Investment in auto finance subsidiary (12,582) 12,582 (4,592) 4,592 (907) 907
Funding for subsequent acquisition 364 -- (1,840) -- -- --
Advances to related parties (1,149) -- (1,496) -- (5,923) --
Investment in and advances to uncombined
investee (1,724) -- (799) -- (4,087) --
Other investments (1,217) (1,417) -- -- -- --
------------- ---------- ------------- ---------- ------------- ---------
Net cash provided by (used in) investing
activities (121,577) 10,851 (30,144) 4,349 (16,347) 345
------------- ---------- ------------- ---------- ------------- ---------
</TABLE>
F-12
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1995 1994
------------------------- ------------------------- ------------------------
AUTO AUTO AUTO AUTO AUTO AUTO
DEALERSHIPS FINANCE DEALERSHIPS FINANCE DEALERSHIPS FINANCE
------------- ---------- ------------- ---------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES:
Proceeds from issuance of stock 195,818 -- 25,220 -- 5,450 --
Repurchase of common stock (1,179) -- -- -- -- --
Proceeds from borrowings of long-term debt 20,092 -- 16,300 -- 4,299 --
Deferred financing costs (1,011) -- (2,549) -- -- --
Net borrowings (repayments) of short-term debt (10,118) -- (3,863) -- 9,027 --
Payments of long-term debt and capitalized
lease obligations (43,314) -- (2,073) -- (1,139) --
Distribution to stockholders and minority
interest -- -- -- -- (42) --
Advances from (to) affiliates 225 -- 359 -- (7,389) --
Borrowings of warehouse credit line -- 56,762 -- 14,202 -- --
Payments of warehouse credit line -- (60,428) -- (10,005) -- --
------------- ---------- ------------- ---------- ------------- ---------
Net cash provided by financing activities 160,513 (3,666) 33,394 4,197 10,206 --
------------- ---------- ------------- ---------- ------------- ---------
Net increase (decrease) in cash and cash
equivalents 62,178 2,157 3,946 499 (7,908) 32
Cash and cash equivalents, beginning of year 4,697 531 751 32 8,659 --
------------- ---------- ------------- ---------- ------------- ---------
Cash and cash equivalents, end of year $ 66,875 $ 2,688 $ 4,697 $ 531 $ 751 $32
============= ========== ============= ========== ============= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-13
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands, Except Per Share Amounts)
1. ORGANIZATION
United Auto Group, Inc. ("UAG" or the "Company") is engaged in the sale of
new and used motor vehicles and related products and services, including
vehicle service and parts, finance and insurance products and other
aftermarket products. Through its wholly-owned consumer finance subsidiary,
Atlantic Auto Finance Corporation ("Atlantic Finance"), UAG also purchases,
sells and services financing contracts on new and used vehicles originated by
both UAG and third party dealerships.
In 1994, 1995 and through October 28, 1996, the Company had a 70% interest
in the United DiFeo Automotive Group (the "DiFeo Group"). The DiFeo Group
comprises sixteen automobile dealerships which operate in Connecticut, New
Jersey, and New York. In 1995, the Company purchased an 80% interest in
Landers Auto Sales, Inc. ("Landers"). Landers is composed of three automobile
dealerships operating in Arkansas.
Concurrent with the initial public sale of the Company's Common Stock on
October 28, 1996, the Company acquired the remaining 30% interests in the
DiFeo Group and the remaining 20% interests in Landers.
In 1996, the Company acquired 100% interests in four dealerships and two
dealership groups (as discussed in Note 3) operating in Arizona, Georgia and
Tennessee.
The Company operates dealerships which hold franchise agreements with a
number of automotive manufacturers. In accordance with the individual
franchise agreements, each dealership is subject to certain rights and
restrictions typical of the industry. The ability of the manufacturers to
influence the operations of the dealerships, or the loss of a franchise
agreement, could have a negative impact on the Company's operating results.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
accounts which require the use of significant estimates are accounts
receivable, inventories, income taxes, intangible assets and accrued expenses.
Principles of Consolidation
The consolidated financial statements include all significant
majority-owned subsidiaries and reflect operating results, assets, liabilities
and cash flows for the major aspects of the business: auto dealerships and
auto finance. Assets and liabilities of the auto dealerships are classified as
current or noncurrent and those relating to financial services are
unclassified. All material accounts and transactions among the consolidated
subsidiaries have been eliminated. Affiliated companies that are 20% to 50%
owned are accounted for using the equity method of accounting.
Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid investments that have
an original maturity of three months or less at the date of purchase.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents, accounts
receivable and payable, finance assets, interest rate hedge agreements, and
debt, including floor plan notes payable. The carrying amount
F-14
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
of financial instruments approximates fair value due either to length of
maturity or existence of variable interest rates that approximate prevailing
market rates.
Revenue Recognition -- Auto Dealerships
Revenue is recognized when vehicles are delivered to consumers or motor
vehicle service work is performed and parts are delivered. Finance and
insurance revenues are recognized upon the sale of the finance or insurance
contract or other aftermarket products. An allowance for chargebacks against
revenue recognized from customer finance contracts is established during the
period in which the related revenue is recognized.
Revenue Recognition -- Auto Finance
Revenue from finance receivables is recognized over the term of the
contract using the interest method. Certain loan origination costs are
deferred and amortized over the term of the related receivable as a reduction
in financing revenue. Generally, finance receivables are accumulated by the
Company until they attain a value in excess of $5,000, at which time they are
sold into a commercial paper conduit (i.e., a loan warehouse facility).
Interest income is recognized based on the daily principal balance of the
receivables outstanding. An allowance for financing losses on receivables may
be provided for the period from the date of origination to the date of sale.
Revenue is recognized upon sale to the conduit. Contractual servicing fees on
loans sold are recognized as earned and ancillary loan fees are recognized as
collected.
Inventory Valuation
Inventories are stated at the lower of cost or market with cost determined
by the following methods:
<TABLE>
<CAPTION>
<S> <C>
INVENTORY COMPONENT VALUATION METHOD
------------------- ----------------
New vehicles Last in, first out (LIFO)
Used vehicles Specific identification
Parts, accessories and other Factory list price
</TABLE>
New vehicle and parts inventories are purchased primarily from the related
vehicle manufacturer.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives, primarily using the straight-line method. Useful lives
for purposes of computing depreciation are:
Leasehold improvements and equipment --Economic life or life of the lease,
under capital lease whichever is shorter.
Equipment, furniture and fixtures -- 5 to 7 years
Expenditures for betterments that increase the useful life or substantially
increase the serviceability of an existing asset are capitalized. When
equipment is sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
included in the statement of operations.
Income Taxes
Income taxes are provided in accordance with Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109") which
requires an asset and liability approach to accounting for income taxes.
Deferred tax assets or liabilities are computed based upon the difference
between the financial
F-15
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
statement and income tax basis of assets and liabilities using enacted tax
rates. A valuation allowance is provided when it is more likely than not that
taxable income will not be sufficient to fully realize deferred tax assets.
Intangible Assets
Intangible assets, primarily consisting of the excess of cost over the fair
value of net assets acquired in purchased business combinations, are being
amortized on a straight-line basis over their estimated period of benefit, not
exceeding 40 years. The Company periodically reviews the continuing benefits
projected from these costs to assess their recoverability. Losses in value, if
any, are charged to operations in the period such losses are determined to be
permanent. Amortization expense was $1,712, $904, and $570 for the years ended
December 31, 1996, 1995 and 1994.
The Company's policy with respect to assessing whether there has been a
permanent impairment is to compare the carrying value of a business' excess
cost over net assets acquired with the anticipated undiscounted future cash
flows from operating activities of the business. Factors considered in
performing this assessment include current operating income, trends and other
economic factors.
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of ("SFAS
121") requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that their carrying amounts may
not be recoverable. SFAS 121 was adopted in 1996 and did not have a material
effect on the Company's results of operations, cash flows or financial
position.
Auto Finance -- Finance Assets
All finance receivables are accumulated in pools and sold into commercial
paper conduits primarily through the issuance of a certificate indicating
ownership of the contracts by CXC Incorporated, a Citibank, N. A. related
entity. Prior to their sale, these contracts are carried at the lower of their
principal balance outstanding or their market value. Market values are
estimated based on the characteristics of the finance receivables held for
sale and the terms of recent sales of similar finance receivables. While
finance receivables are being accumulated for sale into a conduit, they are
pledged against a liquidity credit line with Citibank, N.A. As of December 31,
1996, none of the finance receivables being accumulated for sale qualified as
impaired under the provisions of Statement of Financial Accounting Standards
No. 114, Accounting by Creditors for Impairment of a Loan.
The Company is required to hedge each pool of finance receivables sold into
a commercial paper conduit to provide protection for the net yield in each
pool. The differential to be paid or received as interest rates change is
included in the calculation of excess servicing and amortized over the life of
the pool. The notional amounts of outstanding hedges were $37,612 and $10,987
at December 31, 1996 and 1995, respectively. The fair value of interest rate
hedge agreements represented unrecorded liabilities of $288 and $170 as of
December 31, 1996 and 1995, respectively.
The Company has credit and interest rate risk exposure on finance
receivables held for sale. The Company has a program of credit review prior to
final approval of specific loans and maintains reserves as appropriate.
Interest rate risk is mitigated by the short period of time that receivables
are held.
Net Income (loss) per Common Share
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
Topic 4-D, all stock options and warrants granted during the twelve months
preceding the Company's initial public offering have been
F-16
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
included in the calculation of net income (loss) per common share outstanding
as if they were outstanding for all periods presented, using the treasury
stock method at the public offering price realized of $30.00 per share.
Income (loss) per common share data is as follows:
<TABLE>
<CAPTION>
---------------------------------
FOR THE YEARS ENDED DECEMBER 31,
1996 1995 1994
--------- ---------- ----------
<S> <C> <C> <C>
Income (loss) per common share before extraordinary
item................................................... $ 0.69 $(0.71) $(0.51)
Net income (loss) per common share...................... $ 0.23 $(0.71) $(0.51)
Weighted average shares outstanding (in thousands) ..... 10,851 4,905 3,296
</TABLE>
The computations of income (loss) per share are based on the weighted
average number of common shares, the weighted average number of preferred
shares, and stock options and warrants outstanding to the extent dilutive. In
1995 and 1994, the outstanding stock options were antidilutive.
3. BUSINESS COMBINATIONS
During the years ended December 31, 1996 and 1995, the Company acquired the
businesses described below. All the acquisitions have been accounted for under
the purchase method and the accompanying financial statements reflect the
results of operations from the date of acquisition.
Acquisition of Landers Auto Sales, Inc.
Effective August 1, 1995, the Company acquired an 80% interest in Landers
for $20,000 in cash and $4,014 in notes payable through August 2000. The
excess of purchase price over the underlying estimated fair value of the net
assets acquired was $25,777. In addition, if Landers achieves certain levels
of annual pre-tax earnings, the Company will be obligated to make additional
payments during each of the next three years. Any additional purchase price
incurred under the terms of this agreement will be recorded as additional cost
in excess of the fair value of net assets acquired. In 1996, Landers achieved
a pre-tax earnings level that results in an additional purchase price of $538.
Acquisition of Atlanta Toyota, Inc.
Effective January 1, 1996, the Company acquired a 100% interest in Atlanta
Toyota for $9,100 in cash and notes payable of $2,400. The excess of purchase
price over the underlying estimated fair value of the net assets acquired was
$7,937.
Acquisition of United Nissan in Morrow, Georgia
Effective May 1, 1996, the Company acquired a 100% interest in Steve Rayman
Nissan, Inc. for $11,500 in cash. The name of the dealership was then changed
to United Nissan. The excess of purchase price over the underlying estimated
fair value of the net assets acquired was $10,652.
Acquisition of Peachtree Nissan
Effective July 1, 1996, the Company acquired a 100% interest in Hickman
Nissan, Inc. for $11,000 in cash and a $2,000 note payable maturing on July 1,
1998. The name of the dealership was then changed to Peachtree Nissan. The
excess of purchase price over the underlying estimated fair value of the net
assets acquired was $10,805.
F-17
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
3. BUSINESS COMBINATIONS (Continued)
Acquisition of the Sun Group
Effective October 28, 1996, the Company acquired substantially all of the
Sun Group, consisting of six automobile dealerships located in the Phoenix
area, for a total of $24,666 payable in cash plus the assumption of $4,929 of
indebtedness. The excess of purchase price over the underlying estimated fair
value of the net assets acquired was $28,265. In addition, if the Sun Group
achieves certain levels of pre-tax earnings for the two-year period from
November 1, 1996 through October 31, 1998, the Company will be obligated for
an additional purchase price. Any additional purchase price incurred under the
terms of this agreement will be recorded as additional cost in excess of the
fair value of net assets acquired.
Acquisition of United BMW and Conyers Nissan
Effective October 28, 1996, the Company acquired a 100% interest in the two
automobile dealerships of the Evans Group located in the Atlanta area for a
total of $12,000 in cash. The names of the dealerships were then changed to
United BMW and Conyers Nissan. The excess of purchase price over the
underlying estimated fair value of the net assets acquired was $9,808.
Acquisition of United Nissan in Chattanooga, Tennessee
Effective October 28, 1996, the Company acquired a 100% interest in
Standefer Motor Sales, Inc. for $18,200 in cash. The name of the dealership
was then changed to United Nissan. The excess of purchase price over the
underlying estimated fair value of the net assets acquired was $15,168.
Pro Forma Results of Operations
The following unaudited pro forma summary presents the consolidated results
of operations of the Company for 1996 and 1995 after reflecting the pro forma
adjustments that would be necessary to present those results as if the
acquisitions had been consummated as of January 1, 1995.
<TABLE>
<CAPTION>
--------------------------
PRO FORMA RESULTS
FOR THE YEARS ENDED
DECEMBER 31,
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues $1,599,226 $1,352,770
Income before minority interests and provision for income
taxes 31,403 16,232
Net income 18,842 9,132
Net income (loss) per common share $1.05 $0.51
</TABLE>
The foregoing pro forma results are not necessarily indicative of results
of operations that would have been reported had the acquisitions been
completed as of January 1, 1995. The 1996 pro forma results do not reflect a
reduction of cost of sales related to reduced interest on floor plan notes
payable resulting from the application of as yet unused proceeds from the
Company's initial public sale of Common Stock. If the reduction of the floor
plan interest expense were reflected, then pro forma net income (and net
income per common share) would have been $21,168 (and $1.18 per share) for the
year ended December 31, 1996.
F-18
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
4. INVENTORIES
Inventories consisted of the following at the balance sheet dates:
<TABLE>
<CAPTION>
---------------------
DECEMBER 31,
1996 1995
---------- ---------
<S> <C> <C>
New vehicles $114,542 $ 74,789
Used vehicles 50,060 24,917
Parts, accessories and other 9,381 6,220
---------- ---------
173,983 105,926
Cumulative LIFO reserve (5,128) (4,370)
---------- ---------
Total Inventories $168,855 $101,556
========== =========
</TABLE>
For the years ended December 31, 1996, 1995, and 1994, the effect of using
the LIFO method as compared to the First In, First Out (FIFO) method was to
decrease net income before income taxes by $909 in 1996, decrease net loss
before income taxes by $290 in 1995, and increase net loss by $1,446 in 1994.
5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at the balance sheet
dates:
<TABLE>
<CAPTION>
-------------------
DECEMBER 31,
1996 1995
--------- --------
<S> <C> <C>
Land $ -- $ --
Furniture, fixtures and equipment 9,742 5,839
Equipment under capital lease 2,201 2,380
Leasehold improvements 14,024 7,705
--------- --------
Total 25,967 15,924
Less: Accumulated depreciation and
amortization 3,626 3,778
--------- --------
Property and equipment, net $22,341 $12,146
========= ========
</TABLE>
Depreciation and amortization expense for the years ended December 31,
1996, 1995 and 1994 was $1,888, $1,632, and $1,497, respectively. Accumulated
amortization on equipment under capital lease, included in accumulated
depreciation and amortization above, was approximately $289 and $1,072 at
December 31, 1996 and 1995, respectively.
F-19
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
6. OTHER ASSETS
Auto dealerships other assets consisted of the following at the balance
sheet dates:
<TABLE>
<CAPTION>
------------------
DECEMBER 31,
1996 1995
-------- --------
<S> <C> <C>
Restricted cash $ -- $ 1,840
Investment in and advances to uncombined subsidiaries -- 3,228
Security deposits 1,242 956
Deferred financing costs 500 2,934
Customer notes receivable 2,063 --
Other 2,782 1,170
-------- --------
Total other assets $6,587 $10,128
======== ========
</TABLE>
Restricted cash at December 31, 1995 represented the proceeds from capital
stock issued for the purpose of financing an acquisition that was completed in
January 1996.
The investment in and advances to uncombined subsidiaries at December 31,
1995 represented the Company's net equity investment in, its cash advances to,
and its net receivables for services provided and used vehicle transactions
with dealerships in which the Company did not own a majority interest. These
investments were disposed of in the minority exchange transactions discussed
in Note 11.
7. FLOOR PLAN NOTES PAYABLE
The Company's automobile dealerships have "floor plan" agreements with
several finance companies to finance the purchase of their automobile
inventory.
Floor plan notes payable consisted of the following at the balance sheet
dates:
<TABLE>
<CAPTION>
---------------------
DECEMBER 31,
1996 1995
---------- ---------
<S> <C> <C>
Chrysler Financial, interest--8.16% and 8.75% at December 31, 1996 and
1995, respectively $114,533 $31,354
World Omni Corp., interest--7.94% 18,512 --
Nissan Motor Acceptance, interest-- 7.75% 7,273 --
BMW Financial Services, interest-- 8.75% 10,014 --
GMAC, interest--9.25% and 9.75% at December 31, 1996 and 1995,
respectively 17,064 63,728
Benton State Bank, interest--8.25% and 8.75% at December 31, 1996 and
1995, respectively 2,774 2,741
---------- ---------
Total floor plan notes payable $170,170 $97,823
========== =========
</TABLE>
Interest rates on the floor plan agreements are variable and increase or
decrease based on movements in prime or LIBOR borrowing rates.
The floor plan agreements grant a collateral interest in substantially all
of the dealerships assets and require the repayment of debt after a vehicle's
sale.
Included in the Chrysler vehicle floor plan at December 31, 1995 was $6,928
payable to a related party participating in the floor plan agreements. This
was repaid in May 1996.
The weighted average interest rate on floor plan borrowings was 8.3%, 8.9%,
and 7.1% for the years ended December 31, 1996, 1995, and 1994, respectively.
F-20
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
8. SHORT-TERM DEBT
The Company and GMAC have entered into additional short-term and long-term
debt agreements which share in the collateral interest granted under the floor
plan arrangement. One such agreement permitted maximum borrowings of $10,000
at December 31, 1996 and 1995, subject to a formula based on parts and used
vehicle collateral limitations, and includes covenants that require the
maintenance of tangible net worth and other financial ratios. At December 31,
1996 and 1995, $6,069 and $8,187, respectively, were outstanding under this
agreement. These borrowings are made at the prime rate plus 1.25%. The
borrowing rates at December 31, 1996 and 1995 were 9.5% and 10.0%,
respectively.
Through October 1996 the Company had a revolving line of credit with Morgan
Guaranty Trust Company of New York. At December 31, 1995, $8,000 was
outstanding under this agreement. The line of credit bore interest at, the
prime rate plus two percent or the Federal Funds rate plus two and one half
percent, whichever was greater. The borrowing rate at December 31, 1995 was
10.5%. This line of credit was retired and all outstanding amounts due under
it were paid with a portion of the proceeds from the Company's initial public
offering.
The weighted average interest rate on the above short term borrowings was
9.89%, 10.25%, and 7.1% for the years ended December 31, 1996, 1995, and 1994,
respectively.
In addition, AAFC maintains a $5,000 loan arrangement with Citibank, N.A.
for the purpose of purchasing finance receivables. The amount borrowed by
Atlantic Finance may not exceed 93% of the outstanding principal balance of
eligible receivables pledged to secure the loan. The total amount outstanding
under this arrangement at December 31, 1996 and 1995 was $748 and $4,197,
respectively.
9. LONG-TERM DEBT
Long-term debt consisted of the following at the balance sheet dates:
<TABLE>
<CAPTION>
--------------------
DECEMBER 31,
--------------------
1996 1995
--------- ---------
<S> <C> <C>
Series A and B Senior Notes due 2003, net of unamortized discount of
$1,007 at December 31,1995 $ -- $15,293
8.0% Term notes, payable monthly through 2000 2,890 3,697
8.5% Term note, payable July 1998 2,100 --
9.0% Term note, payable July 1998 2,000 --
GMAC Term loans, weighted average interest--9.25% and 9.5% at December 31,
1996 and 1995, respectively 3,458 4,000
Capitalized lease obligations 4,832 1,686
Other installment loans 1,285 2,566
--------- ---------
Total long-term debt 16,565 27,242
Less: Current portion 5,444 3,169
--------- ---------
Net long-term debt $11,121 $24,073
========= =========
</TABLE>
The term loans with GMAC bear interest at the prime rate plus 1.0% and are
payable in monthly installments of $42 through March 1998 and $25 from April
1998 through June 1999. A $1,000 payment is required in April 1998 and a final
payment of $1,500 is required in July 1999. The GMAC term loans share in the
security interests in vehicle inventories granted to the lender under the
floor plan arrangement.
F-21
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
9. LONG-TERM DEBT (Continued)
Maturities of long-term debt for each of the next five years and thereafter
are as follows:
<TABLE>
<CAPTION>
--------
AMOUNT
--------
<S> <C>
1997 $ 5,444
1998 6,421
1999 1,863
2000 1,241
2001 634
2002 and thereafter 962
--------
Total long-term
debt $16,565
========
</TABLE>
On September 22, 1995, the Company finalized a placement on $35,000 of
Series A and B Senior Notes (collectively referred to as the "Notes") that
were due in 2003 and under which Notes were available to be issued through
March 1997. The Company initially issued $16,300 of the Notes at 12.0% with an
original issue discount of $1,020. From January to mid-July 1996, the Company
issued another $18,700 of the Notes at rates ranging from 11.65% to 12.17%. In
October 1996, the Notes were redeemed with a portion of the proceeds from the
initial public offering. The redemption of the Senior Notes resulted in an
extraordinary loss of $7,672, before income tax benefit, due to a 10.0% call
premium and the write-off of original issue discount and related deferred
financing costs.
The Notes contained detachable warrants that granted the holders the option
to purchase UAG Common Stock at $0.01 per share. At December 31, 1995, there
were 526,039 warrants outstanding. In 1996, an additional 490,060 warrants
were issued to purchase UAG common stock and 93,747 warrants were issued to
purchase UAG Class A Preferred Stock. Upon consummation of the initial public
offering, 1,109,491 shares of UAG Common Stock were issued in a cashless
exchange for all of the 1,109,846 warrants then outstanding and, as a result,
the warrants' redemption feature lapsed and stockholders' equity increased by
$2,769.
10. OPERATING LEASE OBLIGATIONS
The Company leases its dealership facilities and corporate office under
operating lease agreements. A number of the dealership leases are with former
owners who continue to operate the dealerships as employees of the Company.
These leases are noncancelable and expire on various dates through 2016.
The following is a schedule by year of future minimum rental payments
required under the operating leases as of December 31, 1996.
<TABLE>
<CAPTION>
---------
AMOUNT
---------
<S> <C>
1997 $ 11,831
1998 10,462
1999 10,172
2000 9,502
2001 9,458
2002 and thereafter 90,440
---------
$141,865
=========
</TABLE>
F-22
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
10. OPERATING LEASE OBLIGATIONS (Continued)
Total rent expense for the years ended December 31, 1996, 1995, and 1994
was approximately $8,729, $7,113, and $6,302, respectively.
Rental payments to related parties were $5,240, $4,502, and $4,272 for the
years ended December 31, 1996, 1995, and 1994, respectively.
11. MINORITY INTERESTS EXCHANGED
Prior to October 28, 1996, there were minority ownership interests in
certain of the Company's dealerships. The minority interests were recorded at
fair value at the dates of acquisition and such amounts subsequently were
adjusted for the minority share of the applicable earnings and losses.
Concurrent with the initial public sale of the Company's common stock, the
Company exchanged 1,113,841 shares of its Common Stock plus options to
purchase 50,000 shares at an exercise price of thirty dollars per share for
the outstanding minority interests. At the time of the minority exchange, the
recorded amounts of assets and liabilities, including the cost in excess of
net assets acquired, were adjusted for the difference between their recorded
amounts and their fair values at the time of the exchanges. The excess of
purchase price over the underlying estimated fair value of the net assets
acquired in the minority exchange was $39,792.
12. OTHER RELATED PARTY TRANSACTIONS
At December 31, 1995, the Company was owed $14,578 by minority or former
minority shareholders and certain of their related entities. This indebtedness
to the Company arose from advances to these shareholders for certain business
acquisitions and from working capital advances to dealerships owned by those
shareholders in which the Company has no ownership. Related party interest
income represents interest on the above mentioned advances and advances to the
uncombined investee. Separately, at December 31, 1996 and 1995, the Company
owes a stockholder $1,334 and $1,109, respectively, for services provided.
13. STOCK COMPENSATION PLANS
During 1996, the Company's Board of Directors and stockholders adopted a
Stock Option Plan and granted options to certain employees. A portion of the
options granted in 1996 retroactively vested to dates prior to the date of
grant. Prior to the adoption of the Stock Option Plan, options had been
granted to purchase 127,200 shares of the Company's Common Stock under an
employment agreement at an exercise price of twelve dollars and fifty cents
per share. These options were replaced with options that vest and become
exercisable over four years on a schedule similar to the previously granted
options and additional options to purchase 272,800 shares of Common Stock were
granted at an exercise price of ten dollars per share. At December 31, 1996,
48,672 of these options were exercisable.
Under the Stock Option Plan, all full-time employees of the Company and its
subsidiaries and affiliates are eligible to participate. The term of each
option and the exercise price is fixed by the Stock Option Committee of the
Board of Directors. As of December 31, 1996, the aggregate number of shares of
Common Stock for which stock options may be granted under the Stock Option
Plan may not exceed 1,500,838. At December 31, 1996, 827,838 shares of Common
Stock were available for grant of options under the Stock Option Plan.
Presented below is a summary of the status of stock options held by eligible
employees, and the related transactions for the years ended December 31, 1996
and 1995:
F-23
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
13. STOCK COMPENSATION PLANS (Continued)
<TABLE>
<CAPTION>
-----------------------------------------------
YEAR ENDED DECEMBER 31,
1996 1995
----------------------- -----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
STOCK OPTIONS SHARES PRICE SHARES PRICE
- ------------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year 127,200 $12.50 70,017 $12.50
Granted 945,800 14.22 57,183 12.50
Exercised (46,500) 10.00 -- --
Forfeited/Expired (127,200) 12.50 -- --
Replaced 127,200 10.00 -- --
----------- ---------- ----------- ----------
Options outstanding at end of year 1,026,500 $13.90 127,200 $12.50
=========== ========== =========== ==========
</TABLE>
The following table summarizes the status of UAG's employee stock options
outstanding and exercisable at January 1, 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------
STOCK OPTIONS
STOCK OPTIONS OUTSTANDING EXERCISABLE
- -------------------------------------- ---------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
CONTRACTUAL EXERCISE EXERCISE
SHARES LIFE PRICE SHARES PRICE
- ----------- ------------- ---------- --------- ----------
<S> <C> <C> <C> <C>
826,500 8.7 years $10.00 230,272 $10.00
200,000 9.8 years $30.00 -- $30.00
- ----------- ---------
1,026,500 230,272
=========== =========
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock Based
Compensation ("SFAS 123"). SFAS 123 establishes financial and reporting
standards for stock based compensation plans. The Company has adopted the
disclosure only provisions of this standard. Had UAG elected to recognize
compensation expense for stock options based on the fair value at the grant
dates of awards, net income (loss) and earnings (loss) per share would have
been as follows:
<TABLE>
<CAPTION>
--------------------
YEAR ENDED DECEMBER
31,
1996 1995
-------- ----------
<S> <C> <C> <C>
Income (loss) before extraordinary item As reported $7,461 $(3,466)
Pro forma $6,521 $(3,579)
- ------------------------------------------------------------------------------
Income (loss) before extraordinary item As reported $ 0.69 $ (0.63)
per share Pro forma $ 0.60 $ (0.65)
- ------------------------------------------------------------------------------
Net income (loss) As reported $2,474 $(3,466)
Pro forma $1,534 $(3,579)
- ------------------------------------------------------------------------------
Net income (loss) per share As reported $ 0.23 $ (0.63)
Pro forma $ 0.14 $ (0.65)
- ------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of UAG stock options was calculated using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996: no dividend
F-24
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
13. STOCK COMPENSATION PLANS (Continued)
yield; expected volatility of 30%; a risk-free interest rate of 7% and
expected lives of 4.5 years. The weighted average fair value of options
granted during the years ended December 31, 1996 and 1995 is $4.23 and $4.56
per share, respectively.
14. STOCKHOLDERS' EQUITY
At December 31, 1996 and 1995, the following classes of stock are
authorized, issued or outstanding:
<TABLE>
<CAPTION>
----------------------
DECEMBER 31,
1996 1995
--------- ---------
<S> <C> <C>
STOCKHOLDERS' EQUITY (Share Amounts in Thousands)
Class A Convertible Preferred Stock, $0.0001 par value; shares
issued and outstanding 0 and 3,651 at December 31, 1996 and
1995, respectively. Class retired in 1996 $ -- $ 1
Preferred Stock, $0.0001 par value; 100 shares authorized,
none issued and outstanding -- --
Voting Common Stock, $0.0001 par value, 40 million shares
authorized; 16,736 shares issued, including 46 treasury
shares, at December 31, 1996 and 2,583 shares issued and
outstanding at December 31, 1995 2 1
Non-voting Common Stock, $0.0001 par value, 1,125 shares
authorized; 605 and 0 issued and outstanding at December 31,
1996 and 1995 -- --
Class C Common Stock, $0.0001 par value, 20 million shares
authorized; none issued and outstanding -- --
Additional paid-in-capital 284,502 54,748
Retained earnings (accumulated deficit) (3,036) (5,510)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY $ 281,468 $ 49,240
========= =========
</TABLE>
On October 28, 1996, UAG completed the initial public sale of 6,250,000
shares of its Common Stock. Concurrently, all 5,227,346 outstanding shares of
Class A Convertible Preferred Stock converted into an equal number of shares
of Common Stock and 1,113,841 shares of Common Stock were issued in an
exchange for the minority interests then outstanding (see Note 11).
With the consummation of the initial public offering of Common Stock, the
Company became authorized to issue up to 100,000 shares of new series of
Preferred Stock, with rights, preferences, privileges thereon to be determined
by the Board of Directors and up to 20 million shares of Class C Common. No
such Preferred or Class C Common Stock was issued as of December 31, 1996.
In December 1996, the Board of Directors authorized a program to repurchase
the Company's common stock, spending up to a maximum of $10,000. At December
31, 1996, a total of 46,000 shares having an aggregate cost of $1,179 had been
repurchased under this program.
F-25
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
15. INCOME TAXES
The (provision) benefit for income taxes consisted of the following
components:
<TABLE>
<CAPTION>
----------------------------
YEARS ENDED DECEMBER 31,
1996 1995 1994
------- ------- -----
<S> <C> <C> <C>
Current:
Federal $ (187) $ -- $ --
State and local (997) (285) --
------- ------- -----
Total current (1,184) (285) --
------- ------- -----
Deferred:
Federal (5,086) 2,374 --
State and local -- -- --
------- ------- -----
Total deferred (5,086) 2,374 --
------- ------- -----
Total (provision) benefit before extraordinary
item (6,270) 2,089 --
Income tax benefits from extraordinary item 2,685 -- --
------- ------- -----
Total (provision) benefit $(3,585) $ 2,089 $ --
======= ======= =====
</TABLE>
The reasons for the differences between the (provision) benefit for income
taxes computed using the Federal statutory income tax rate and the reported
tax (provision) benefit are as follows:
<TABLE>
<CAPTION>
-----------------------------
YEARS ENDED DECEMBER 31,
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Tax provisions (benefits) computed at the Federal
statutory income tax rate of 35% $ 4,806 $(1,944) $ (592)
State and local income taxes, net of Federal benefit 892 186 --
Valuation allowance -- (745) 745
Taxes on income of minority interests 570 -- --
Other 2 414 (153)
------- ------- -------
Provision (benefit) for income taxes before
extraordinary item $ 6,270 $(2,089) $ --
======= ======= =======
</TABLE>
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"). Under SFAS 109, deferred income taxes reflect the estimated tax effect
of temporary differences between assets and liabilities for financial
F-26
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
15. INCOME TAXES (Continued)
accounting purposes and those amounts as measured by tax laws and
regulations. The components of deferred income tax assets and liabilities at
December 31, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
----------------------
1996 1995
---------- ----------
<S> <C> <C>
DEFERRED TAX ASSETS
Net operating loss carryforward $ 6,065 $ 4,467
Capital loss carryforwards 201 201
Organization costs 182 241
All other 556 244
---------- ----------
Total deferred tax assets 7,004 5,153
Valuation allowances -- --
---------- ----------
Net deferred tax assets $ 7,004 $ 5,153
========== ==========
DEFERRED TAX LIABILITIES
Partnership investments $(3,277) $(2,179)
Sale of finance receivables and other items (1,590) (100)
---------- ----------
Total deferred tax liabilities (4,867) (2,279)
========== ==========
Net deferred tax assets $ 2,137 $ 2,874
========== ==========
</TABLE>
Based on evaluations made as of December 31, 1996 and 1995, the Company
determined that it is and was more likely than not that future taxable income
would be sufficient to recognize the above deferred tax assets at December 31,
1996 and 1995.
At December 31, 1996, the Company has $11,683 of regular tax net operating
loss carryforwards for Federal income tax purposes that expire in 2010. In
addition, at December 31, 1996, the Company also has state net operating loss
carryforwards that total $31,060 and expire at various dates through 2011.
16. TERMINATED FRANCHISES
In 1995, the Company undertook a restructuring of its then unprofitable
DiFeo Group. Such restructuring included the termination of certain
unprofitable franchises, a reduction in personnel and the liquidation of
outdated inventory. Costs associated with this restructuring were
approximately $675 and $680 for the years ended December 31, 1996 and 1995,
respectively, and were primarily related to severance.
F-27
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
17. SUPPLEMENTAL CASH FLOW INFORMATION
The following table presents certain supplementary information to the
Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
1996 1995 1994
------------------------ ------------------------ ------------------------
AUTO AUTO AUTO AUTO AUTO AUTO
DEALERSHIPS FINANCE DEALERSHIPS FINANCE DEALERSHIPS FINANCE
------------- --------- ------------- --------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL INFORMATION:
Cash paid for interest $ 9,912 $420 $8,437 $109 $6,385 --
Cash paid for income taxes 420 37 -- 3 -- --
NON-CASH FINANCING AND
INVESTING ACTIVITIES:
Stock issuance costs amortized
against proceeds from
issuance
of stock 775 -- 910 -- 543 --
Minority interests acquired by
issuance of stock 34,015 -- -- -- -- --
Dealership acquisition cost
financed by long-term debt 4,100 -- 4,014 -- -- --
Capitalized lease obligations 1,570 -- -- -- 433 --
Warrants issued 812 -- 1,020 -- -- --
</TABLE>
18. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
---------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
1996
Auto Dealerships
Total revenues $261,719 $336,220 $356,845 $347,248
Gross profit 29,217 37,162 39,926 38,358
Operating income 1,599 7,760 6,906 4,154
Auto Finance
Loss before income taxes (264) (85) (377) (764)
Total Company
Income before minority interests and
provision for income taxes 1,207 7,422 5,587 2,822
Income before extraordinary item 171 3,727 2,221 1,343
Extraordinary item -- -- -- (4,987)
Net income (loss) 171 3,727 2,221 (3,644)
Income before extraordinary item per
common share $ 0.03 $ 0.42 $ 0.22 $ 0.08
</TABLE>
F-28
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands, Except Per Share Amounts)
18. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED) (Continued)
<TABLE>
<CAPTION>
---------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
1995
Auto Dealerships
Total revenues $162,598 $190,142 $239,601 $213,280
Gross profit 16,544 19,671 26,228 22,834
Operating income (loss) (4,285) (1,442) 2,271 (1,853)
Auto Finance
Loss before income taxes (354) (347) (356) (325)
Total Company
Income (loss) before minority
interests and provision for income
taxes (4,104) (1,715) 2,074 (2,176)
Net income (loss) (3,231) (1,671) 1,082 354
Net income (loss) per common share $ (.72) $ (.34) $ .17 $ .05
</TABLE>
In the fourth quarter of 1995 the Company determined that it was more
likely than not that future taxable income would be sufficient to fully
recognize a net deferred tax asset of $2,874 (Note 15).
The net income (loss) per common share amounts are calculated independently
for each of the quarters presented and are not presented in thousands. The sum
of the quarters may not equal the full year net income (loss) per common share
amount.
19. SUBSEQUENT EVENTS (UNAUDITED)
Effective March 1, 1997, the Company completed its acquisition of a 100%
interest in Shannon Automotive Ltd., consisting of Crown
Jeep-Eagle/Chrysler-Plymouth and Crown Dodge, located in Houston, Texas. The
total purchase price is approximately $14,000, and will be paid with
approximately $7,000 in cash and approximately $7,000 in United Auto Group,
Inc. common stock.
On February 12, 1997, the Company announced that it has entered into an
agreement to acquire 100% of the capital stock of Las Vegas based Gary Hanna
Nissan, Inc. The total purchase price is approximately $12,500, including
approximately $7,000 in cash and approximately $5,500 in United Auto Group,
Inc. common stock.
On February 25, 1997, the Company announced that it has entered into an
agreement to acquire 100% of the capital stock of the Staluppi Auto Group,
consisting of nine automotive dealerships located in the New York metropolitan
area and in Florida. The total purchase price is approximately $53,000,
including $25,000 in cash, promissory notes totaling $25,000 and approximately
$3,000 in United Auto Group, Inc. common stock.
F-29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of Shannon Automotive Ltd.:
We have audited the accompanying balance sheet of Shannon Automotive Ltd.
(a Texas Limited Partnership) as of December 31, 1996, and the related
statements of income, changes in partners' capital, and cash flows for the
year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Shannon Automotive Ltd. as
of December 31, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Houston, Texas
March 25, 1997
F-30
<PAGE>
SHANNON AUTOMOTIVE LTD.
(a Texas Limited Partnership)
Balance Sheet
December 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,279
Contracts in transit 1,384
Accounts receivable:
Trade 376
Other 170
Finance income receivable 132
Inventories 8,335
Prepaid expenses 133
---------
TOTAL CURRENT ASSETS 12,809
Property and equipment, net 285
Other assets 239
---------
TOTAL ASSETS $13,333
=========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Floor plan liability $ 8,018
Current maturities of long-term debt --
Accounts payable 553
Accrued expenses 390
---------
TOTAL CURRENT LIABILITIES 8,961
Deferred rent 249
Other liabilities 2
---------
TOTAL LIABILITIES 9,212
---------
Commitments and contingent liabilities
Partners' capital 4,121
---------
TOTAL LIABILITIES AND PARTNERS'
CAPITAL $13,333
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE>
SHANNON AUTOMOTIVE LTD.
(a Texas Limited Partnership)
Statement of Income
for the year ended December 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
<S> <C>
Sales $96,962
Cost of sales, including floor plan interest 83,290
---------
Gross profit 13,672
Selling, general and administrative expenses 10,549
---------
Net income $ 3,123
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE>
SHANNON AUTOMOTIVE LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
GENERAL LIMITED LIMITED
PARTNER PARTNER PARTNER
CAPITAL CAPITAL CAPITAL TOTAL
(CROWN JEEP (CROWN JEEP (BERYLSON, PARTNERS'
EAGLE, INC.) EAGLE, INC.) INC.) CAPITAL
------------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Partners' capital, December 31, 1995 $ 1,449 $ 2,008 $ 4 $ 3,461
Liquidation of limited partner interest 2,008 (2,008) -- --
Distributions to partners (2,232) -- (231) (2,463)
Net income for the year 2,779 -- 344 3,123
------------- ------------- -------------- -----------
Partners' capital, December 31, 1996 $ 4,004 $ -- $ 117 $ 4,121
============= ============= ============== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<PAGE>
SHANNON AUTOMOTIVE LTD.
(A TEXAS LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES:
Net income $ 3,123
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on sale of dealer rental vehicles (45)
Depreciation 105
Deferred rent (25)
Changes in operating assets and liabilities:
Contracts in transit 2,068
Accounts receivable, trade 108
Accounts receivable, other 27
Finance income receivable 51
Inventories 694
Prepaid expenses (43)
Other assets 36
Floor plan liability (2,703)
Accounts payable (600)
Accrued expenses (278)
Other liabilities (268)
---------
Net cash provided by operating activities 2,250
---------
INVESTING ACTIVITIES:
Proceeds from sale of dealer rental vehicles 282
Capital expenditures (154)
---------
Net cash provided by investing activities 128
---------
FINANCING ACTIVITIES:
Principal payments of long-term debt (160)
Distributions to partners (2,463)
---------
Net cash used in financing activities (2,623)
---------
Net decrease in cash and cash equivalents (245)
Cash and cash equivalents, beginning of year 2,524
---------
Cash and cash equivalents, end of year $ 2,279
=========
Supplemental cash flow disclosure:
Interest paid $ 962
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE>
SHANNON AUTOMOTIVE LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(Dollars in Thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
Shannon Automotive Ltd. (the "Partnership") is a Texas Limited Partnership
formed to acquire and operate two automobile dealerships located in Houston,
Texas. Operations include, but are not limited to, selling, financing or
leasing automobiles, and the servicing and maintenance of automobiles.
The Partnership operates dealerships which hold franchise agreements with a
number of automotive manufacturers. In accordance with the individual
franchise agreement, each dealership is subject to certain rights and
restrictions typical of the industry. The ability of the manufacturers to
influence the operations of the dealerships or the loss of a franchise
agreement could have a negative impact on operating results of the
Partnership.
The Partnership sells and services new and used automobiles to a large
number of customers in the Houston and surrounding areas. The Partnership
performs ongoing credit evaluations of its customers and generally does not
require collateral on its trade receivables. Reserves, if management considers
necessary, are maintained for potential credit losses and such losses have
been within management's estimates.
During 1995, Crown Jeep Eagle, Inc. (the "general partner") purchased 48%
of the 49% limited partner's interest of Bryron Properties, Inc. (the "limited
partner") for a $4,012 note payable. The general partner obtained a note of
$3,600 from Chrysler Credit Corporation which is collateralized by
substantially all the assets of the dealership. Simultaneously, Berylson, Inc.
(the "new limited partner") purchased the remaining 1% of the limited
partner's interest for an $80 note payable. The notes have been subsequently
paid off.
Effective January 1, 1996, the new limited partner received an additional
10% interest in the future profits of the Partnership. As such, the terms of
the Partnership Agreement were amended to provide that profits and losses of
the Partnership be allocated as follows:
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNER PARTNER
--------------------
<S> <C> <C>
PROFITS AND LOSSES 11% 89%
</TABLE>
The significant accounting policies of the Partnership are as follows:
Cash Equivalents
The Partnership considers all highly liquid investments purchased with an
original maturity date of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost as determined by the last-in,
first-out (LIFO) method or market value.
Property and Equipment
Property and equipment are stated at cost. Expenditures for normal
maintenance of property and equipment are charged against operations as
incurred. Upon disposition of assets, the cost and related accumulated
depreciation are removed from the accounts and the resulting gain or loss is
included in operations. Depreciation is provided over the estimated useful
lives of the depreciable assets using the straight-line method.
F-35
<PAGE>
SHANNON AUTOMOTIVE LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Revenue Recognition
Revenue is recognized when vehicles are delivered or services are provided.
Contracts in transit represent delivered vehicles for which drafts have not
yet been presented for payment.
Floor Plan Interest Income or Expense
Interest income or expense relating to floor plan financing is recorded net
of reimbursements and rebates provided by Chrysler Motors Corporation.
Dealer Trade Income
Dealer trade income represents amounts equal to the manufacturer holdbacks
on all units sold from the Partnership to other dealers.
Finance Income
Finance income arising from the sale of recourse and nonrecourse
installment contracts to financing institutions is recognized at the time the
contract is sold. The Partnership records an allowance for uncollectible
amounts which represents estimated repossession losses on contracts sold with
recourse.
Federal Income Tax
In accordance with the provisions of the Internal Revenue Code, the
Partnership is not subject to federal income tax. Each partner includes his
proportionate share of the Partnership's taxable income or loss, deductions or
credits in his own federal income tax return.
Deferred Rent
The Partnership records rental expense related to certain facility
operating leases over the life of the lease using the straight-line method, as
required by generally accepted accounting principles.
Concentration of Credit Risk
Financial instruments which potentially subject the Partnership to
concentrations of credit risk consist principally of temporary cash
investments. The Company invests its cash in deposit accounts with Bank of
America. The Company has not experienced any losses from this credit risk.
Cash equivalents at December 31, 1996, in the amount of $550, were deposited.
Management believes that the risk of loss is minimal. To date, the Partnership
has not incurred losses related to temporary cash investments.
The Partnership maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Partnership has not
experienced any losses in such accounts.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Ultimate actual results could differ from those estimates.
F-36
<PAGE>
SHANNON AUTOMOTIVE LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, receivables and accounts
payable approximate fair value due to the short-term maturities of these
instruments. The carrying value of the Partnership's Automobile Flooring and
Security Agreement approximates fair value due to variable interest rates that
approximate prevailing market rates.
2. INVENTORIES:
Inventories at December 31, 1996 consisted of the following:
<TABLE>
<S> <C>
New vehicles $6,669
Used vehicles 1,163
Parts and accessories 1,413
--------
9,245
Less LIFO reserve (910)
--------
Total inventories $8,335
========
</TABLE>
During fiscal year 1996, the Partnership experienced a LIFO inventory pool
decrement which resulted in a decrease of approximately $142 to cost of sales.
3. PROPERTY AND EQUIPMENT, NET:
Property and equipment, net at December 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
<S> <C>
Service equipment $ 226
Parts and accessories 119
Service vehicles 161
Furniture and fixtures 257
Leasehold improvements 108
-------
871
Less: accumulated depreciation and amortization (586)
-------
Total property and equipment, net $ 285
=======
</TABLE>
As of December 31, 1996, the Company utilized approximately $228 of fully
depreciated equipment in operations.
During 1996, the Partnership disposed of all of its dealer rental vehicles.
4. FLOOR PLAN LIABILITY:
The Partnership entered into financing agreements with a bank that permits
the Partnership to borrow at interest rates ranging from 7.00% to 7.25% during
1996. Borrowings are collateralized by new and used vehicle inventories,
contracts in transit, accounts receivable, property and equipment and
substantially all other assets of the Partnership, the corporate guaranties of
the general and limited partners and the personal guaranty of the shareholder
of the general partner. The financing agreements are contingent upon the
dealer maintaining a minimum tangible net worth, cash flow ratio and working
capital ratio, with which the Partnership was in compliance during 1996.
F-37
<PAGE>
SHANNON AUTOMOTIVE LTD.
(A TEXAS LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Dollars in Thousands)
5. COMMITMENTS AND CONTINGENCIES:
Litigation
There are certain claims pending against the Partnership which are
incidental to the ordinary course of business. In the opinion of management,
the Partnership has sufficient insurance coverage to cover any losses and such
claims should not result in any significant liability.
Operating Leases
The Partnership leases certain equipment, automobile dealership facilities
and office facilities under operating lease agreements which expire in various
years through 2001. Certain leases of the Partnership contain renewal options
and clauses for payments of real estate taxes, maintenance and insurance
expenses for the facilities. Rental expense for the year ended December 31,
1996 was approximately $839.
The approximate minimum future annual rental payments for these
noncancelable operating leases are as follows for years ending December 31:
<TABLE>
<S> <C>
1997 $1,056
1998 990
1999 970
2000 951
2001 328
</TABLE>
6. SUBSEQUENT EVENT:
Effective March 1, 1997, United Auto Group, Inc. purchased all of the
Partnership interest from the partners.
F-38
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of
Staluppi Automotive Group:
We have audited the accompanying combined balance sheet of Staluppi
Automotive Group as of December 31, 1996 and the related combined statements
of income, stockholders' equity and cash flows for the year ended December
31, 1996. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
combined financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of Staluppi
Automotive Group as of December 31, 1996, and the results of its combined
operations and its combined cash flows for the year ended December 31, 1996,
in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Princeton, New Jersey
June 6, 1997
F-39
<PAGE>
STALUPPI AUTOMOTIVE GROUP
COMBINED BALANCE SHEETS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
---------------------------
(UNAUDITED)
DECEMBER 31, MARCH 31,
1996 1997
-------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,206 $ --
Accounts receivable 12,991 11,302
Notes receivable--related parties 7,571 8,012
Due from related companies 498 1,478
Inventories 47,489 49,317
Other current assets 858 569
-------------- -----------
TOTAL CURRENT ASSETS 71,613 70,678
Property and equipment, net 4,367 4,288
Intangible assets, net 3,177 3,154
Other assets 185 190
-------------- -----------
TOTAL ASSETS $79,342 $78,310
============== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Floor plan notes payable $53,659 $49,684
Accounts payable 3,540 3,741
Cash overdraft -- 881
Accrued expenses 2,223 3,035
Due to related companies 1,164 1,705
Obligations under capital leases 290 290
Current portion of long-term debt 2,532 1,166
-------------- -----------
TOTAL CURRENT LIABILITIES 63,408 60,502
Long-term debt 2,465 3,442
Obligations under capital leases 928 850
-------------- -----------
TOTAL LIABILITIES 66,801 64,794
-------------- -----------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY:
Common Stock, no par value, 10,250 shares authorized, 3,500
shares issued and outstanding 12,113 12,113
Retained earnings 428 1,403
-------------- -----------
TOTAL STOCKHOLDERS' EQUITY 12,541 13,516
-------------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $79,342 $78,310
============== ===========
</TABLE>
See Notes to Combined Financial Statements.
F-40
<PAGE>
STALUPPI AUTOMOTIVE GROUP
COMBINED STATEMENTS OF INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
-------------------------------------
YEAR (UNAUDITED)
ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1996 1997 1996
-------------- ---------- ---------
<S> <C> <C> <C>
Vehicle sales $384,716 $106,780 $87,523
Finance and insurance 8,053 2,072 2,292
Service and parts 32,852 9,941 8,126
-------------- ---------- ---------
Total revenues 425,621 118,793 97,941
Cost of sales, including floor plan interest 377,556 106,556 86,816
-------------- ---------- ---------
Gross profit 48,065 12,237 11,125
Selling, general and administrative expenses 41,517 11,085 9,787
-------------- ---------- ---------
Operating income 6,548 1,152 1,338
Interest income (expense), net--other (633) (172) (153)
Interest income-related party 471 126 118
Other income (expense), net 663 323 273
-------------- ---------- ---------
Net income $ 7,049 $ 1,429 $ 1,576
============== ========== =========
</TABLE>
See Notes to Combined Financial Statements.
F-41
<PAGE>
STALUPPI AUTOMOTIVE GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
-----------------------------------------
RETAINED
COMMON STOCK EARNINGS
SHARES AMOUNT (DEFICIT) TOTAL
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Balances, December 31, 1995 3,500 $12,113 $(1,551) $10,562
Distributions to stockholders (5,070) (5,070)
Net income for 1996 -- -- 7,049 7,049
-------- --------- ---------- ---------
Balances, December 31, 1996 3,500 12,113 428 12,541
Distributions to stockholders
(unaudited) -- -- (454) (454)
Net Income for the three months
ended March 31, 1997
(unaudited) -- -- 1,429 1,429
-------- --------- ---------- ---------
Balances, March 31, 1997
(unaudited) 3,500 $12,113 $ 1,403 $13,516
======== ========= ========== =========
</TABLE>
See Notes to Combined Financial Statements.
F-42
<PAGE>
STALUPPI AUTOMOTIVE GROUP
COMBINED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
------------------------------------
(UNAUDITED)
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
1996 1997 1996
-------------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 7,049 $ 1,429 $ 1,576
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 893 224 221
Changes in operating assets and liabilities:
Accounts receivable (3,349) 1,689 (526)
Inventories (8,748) (1,828) (4,262)
Other assets and prepaid expenses (685) 283 (240)
Floor plan notes payable 10,652 (3,975) 1,425
Accounts payable (115) 201 565
Accrued expenses 344 812 1,320
Loans due from (to) related companies 133 (439) (643)
--------- --------- ---------
Net cash provided by (used in) operating
activities 6,174 (1,604) (564)
--------- --------- ---------
INVESTING ACTIVITIES:
Purchases of equipment and improvements (1,020) (121) (161)
Capital contribution 316 -- --
Proceeds from sale of assets, net 3 -- --
--------- --------- ---------
Net cash used in investing activities (701) (121) (161)
--------- --------- ---------
FINANCING ACTIVITIES:
Cash overdraft, net -- 881 --
Payments of long-term debt and capitalized
lease obligations (782) (467) (451)
Proceeds from borrowings of long-term debt 115 -- 115
Payments of notes receivable--related parties (737) (441) (1,528)
Distributions to stockholders (5,070) (454) (328)
--------- --------- ---------
Net cash used in financing activities (6,474) (481) (2,192)
--------- --------- ---------
Net decrease in cash (1,001) (2,206) (2,917)
Cash, beginning of period 3,207 2,206 3,207
--------- --------- ---------
Cash, end of period $ 2,206 $ -- $ 290
========= ========= =========
Supplemental cash flow disclosure:
Interest paid $ 597 $ 128 $ 109
========= ========= =========
</TABLE>
See Notes to Combined Financial Statements.
F-43
<PAGE>
STALUPPI AUTOMOTIVE GROUP
(Information related to the three months ended March 31, 1997 and 1996 is
unaudited)
NOTES TO COMBINED FINANCIAL STATEMENTS
(Dollars in thousands)
1. ORGANIZATION:
The Staluppi Automotive Group (the "Combined Group" or the "Company"),
operating in the States of New York and Florida, is engaged in the sale of new
and used vehicles, as well as finance, insurance and service contracts
thereon.
The Company operates dealerships which hold franchise agreements with a
number of automotive manufacturers. In accordance with the individual
franchise agreement, each dealership is subject to certain rights and
restrictions typical of the industry. The ability of the manufacturers to
influence the operations of the dealerships, or the loss of a franchise
agreement, could have a negative impact on the operating results of the
Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Combination Policy -- Common Control
The accompanying combined financial statements include the following
automotive affiliated companies that are all under common control:
Amity Nissan of Massapequa, Ltd.
Amity Auto Plaza, Ltd. (d/b/a Amity Toyota)
Westbury Nissan, Ltd.
Westbury Superstore, Ltd. (Westbury Toyota)
J&S Auto Refinishing, Ltd. (d/b/a/ Premier Autobody)
Florida Chrysler Plymouth Jeep Eagle, Inc.
Palm Auto Plaza, Inc.
West Palm Infiniti, Inc.
West Palm Nissan, Inc.
North Lake Auto Finish, Inc.
West Palm Auto Mall Used Cars & Leasing, Inc.
Automall Payroll Services, Inc.
Certain Kia Dealership assets and liabilities
All significant intercompany transactions and balances have been
eliminated. Amounts related to vehicle sales by entities included in the
Combined Group, which were paid to a company controlled by a stockholder, have
been included as a $700 increase to gross profit in these financial
statements.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Interim Financial Statements (Unaudited)
The interim information presented as of March 31, 1997 and for the three
month periods ended March 31, 1997 and 1996 is unaudited, but includes all
adjustments (consisting only of normal recurring accruals) which the Company
believes to be necessary for the fair presentation of results for the periods
presented.
F-44
<PAGE>
STALUPPI AUTOMOTIVE GROUP
(Information related to the three months ended March 31, 1997 and 1996 is
unaudited)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
Inventory Valuation
Inventories are stated at the lower of cost or market, with cost determined
by the following methods:
<TABLE>
<CAPTION>
---------------------------------
INVENTORY COMPONENT VALUATION METHOD
- --------------------------------- ---------------------------------
<S> <C>
New vehicles Last in, first out ("LIFO")
Used vehicles Specific identification
Parts, accessories, and other Factory list price
</TABLE>
New vehicle and parts inventories are purchased primarily from the related
vehicle manufacturer.
Revenue Recognition
Revenue is recognized by the Company when vehicles and parts are delivered
to consumers, or when service is performed. Finance and insurance revenues are
recognized upon the sale of the finance or insurance contracts.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives, using the straight-line and accelerated methods.
Useful lives for purposes of computing depreciation and amortization are:
<TABLE>
<S> <C>
Buildings --20 years
Leasehold improvements --Economic life or life of the lease,
whichever is shorter.
Machinery and equipment, furniture and --5 to 7 years
fixtures, and company vehicles
</TABLE>
Expenditures for repairs and maintenance which increase the useful life or
substantially increase serviceability of the asset are capitalized. All other
expenditures are charged to expense as incurred. When equipment is sold or
otherwise disposed, the cost and related accumulated depreciation are removed
from their respective accounts and any resulting gain or loss is included in
the statement of income.
Intangible Assets
Intangible assets consist primarily of excess of cost over net assets
acquired and covenants not to compete which are being amortized on a
straight-line basis over the estimated benefit period of 40 years and five
years, respectively. The Company periodically reviews these costs to assess
recoverability. Losses in value, if any, are charged to operations in the
period such losses are determined to be permanent. Amortization expense
related to intangible assets was $95 for the year ended December 31, 1996.
Accumulated amortization of intangible assets at December 31, 1996 was $569.
F-45
<PAGE>
STALUPPI AUTOMOTIVE GROUP
(Information related to the three months ended March 31, 1997 and 1996 is
unaudited)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Continued)
The Company's policy with respect to assessing whether there has been a
permanent impairment in the value of excess of cost over net assets is to
compare the carrying value of a business' excess of cost over net assets with
the anticipated undiscounted future cash flows from operating activities of
the business. Factors considered by the Company in performing this assessment
include current operating income, trends and other economic factors.
Reserve for Chargeback of Finance and Insurance Income
Provisions for chargebacks of finance and insurance income resulting from
customer prepayments and repossessions are recorded based on management's
estimates and historical experience.
Long-Lived Assets
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of"
("SFAS 121") requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of the asset in question may not be recoverable. SFAS 121 was adopted 1996 and
did not have an effect on the Company's results of operations, cash flows or
financial position.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts receivable,
accounts payable, and debt. The carrying amount of these financial instruments
generally approximate fair value due either to length of maturity or existence
of variable interest rates that approximate prevailing market rates.
Capital Stock
Each affiliate of the Company is an individual entity that issues stock for
that entity only, and at different and unrelated prices. The Company as a
single entity does not issue stock. For purposes of these financial
statements, the capital stock activity of the individual affiliates have been
accumulated to present combined totals.
Income Taxes
All the entities in the Combined Group have elected S Corporation status
under the provisions of the Internal Revenue Code. Accordingly, they are
generally not subject to federal and state income taxes. For income tax
reporting purposes, all profits and losses, and certain other items, pass
through to the stockholders of the Company, who report these items on their
individual income tax returns.
F-46
<PAGE>
STALUPPI AUTOMOTIVE GROUP
(Information related to the three months ended March 31, 1997 and 1996 is
unaudited)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands)
3. INVENTORIES:
Inventories consisted of the following items:
<TABLE>
<CAPTION>
---------------------------
(UNAUDITED)
DECEMBER 31, MARCH 31,
1996 1997
-------------- -----------
<S> <C> <C>
New vehicles $39,906 $42,993
Used vehicles 10,679 9,271
Parts, accessories and other 2,045 2,194
-------------- -----------
52,630 54,458
Cumulative LIFO reserve (5,141) (5,141)
-------------- -----------
Total Inventories $47,489 $49,317
============== ===========
</TABLE>
4. PROPERTY AND EQUIPMENT, NET:
Property and equipment, net consisted of the following items:
<TABLE>
<CAPTION>
--------------
DECEMBER 31,
1996
--------------
<S> <C>
Land $ 550
Buildings and leasehold improvements 3,494
Machinery and shop equipment 2,098
Furniture, fixtures, vehicles and other 3,252
Computer equipment and signs 1,306
--------------
Total 10,700
Less: Accumulated depreciation and amortization 6,333
--------------
Total property and equipment, net $ 4,367
==============
</TABLE>
Depreciation and amortization expense related to property and equipment for
the year ended December 31, 1996 was $798.
F-47
<PAGE>
STALUPPI AUTOMOTIVE GROUP
(Information related to the three months ended March 31, 1997 and 1996 is
unaudited)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands)
5. FLOOR PLAN NOTES PAYABLE:
The Company's automobile dealerships have "floor plan" agreements with
several finance companies to finance the purchase of their automobile
inventory.
Floor plan notes payable consisted of the following at:
<TABLE>
<CAPTION>
--------------
DECEMBER 31,
1996
--------------
<S> <C>
Primus Automotive Financial Services, Inc., interest--8.25% at December
31, 1996 $26,395
World Omni Corp., interest--9% at December 31, 1996 13,051
Nissan Motor Acceptance, interest--8.25% at December 31, 1996 7,364
Infiniti Financial Services, interest--7.75% at December 31, 1996 6,849
--------------
Total floor plan notes payable $53,659
==============
</TABLE>
Interest rates on the floor plan agreements are variable and increase or
decrease based on movements in prime or LIBOR borrowing rates.
The floor plan agreements grant a collateral interest in substantially all
of the dealerships assets and generally require the repayment of debt after a
vehicle's sale.
The weighted average interest rate on floor plan borrowings was
approximately 9% for the year ended December 31, 1996.
F-48
<PAGE>
STALUPPI AUTOMOTIVE GROUP
(Information related to the three months ended March 31, 1997 and 1996 is
unaudited)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands)
6. LONG-TERM DEBT:
Long-term debt consisted of the following at:
<TABLE>
<CAPTION>
--------------
DECEMBER 31,
1996
--------------
<S> <C>
9.14% Term note payable to The Bank of New York, payable in monthly installments,
including interest, of $31 through May, 1999. $ 800
Capital loan payable to Primus Automotive Financial Services, Inc., payable in monthly
installments of $25 plus interest. Interest at prime plus 1.5% (9.75% at December 31,
1996) 1,199
9.8% demand mortgage (collateralized by the land and building of Loans of Masapequa)
payable to Primus Automotive Financial Services, Inc. 1,261
Capital loan payable to Primus Automotive Financial Services, Inc., payable in monthly
installments of $10 plus interest. Interest at prime plus 1.5% (9.75% at December 31,
1996) 155
7.5% Capital loan (collateralized by equipment) payable to Primus Automotive Financial
Services, Inc., payable in monthly installments, including interest, of $2. 100
Capital loan (collateralized by the assets of Palm Auto Plaza, Inc. and guaranteed by
a stockholder of the Company) payable to World Omni Financial Corp. Interest at prime
plus 1.0% (9.25% at December 31, 1996). 1,069
Other 413
--------------
4,997
--------------
Less--current maturities 2,532
--------------
Total Long-term debt $2,465
==============
</TABLE>
Maturities of long-term debt for each of the next five years and thereafter
are as follows:
<TABLE>
<CAPTION>
--------
AMOUNT
--------
<S> <C>
1997 $2,532
1998 853
1999 667
2000 556
2001 265
2002 and thereafter 124
--------
Total long-term debt $4,997
========
</TABLE>
The terms of certain financing agreements contain, among other provisions,
requirements for maintaining certain cash flows, current ratios and tangible
net worth ratios, as well as restrictions on incurring additional
indebtedness.
Interest expense related to long-term debt for the year ending December 31,
1996 amounted to $488.
F-49
<PAGE>
STALUPPI AUTOMOTIVE GROUP
(Information related to the three months ended March 31, 1997 and 1996 is
unaudited)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands)
7. COMMITMENTS:
The Company has entered into capital leases for certain computer and other
equipment. Assets under capital lease, at cost, amounted to $1,698 at December
31, 1996 and are being amortized over the lives of the individual leases.
Accumulated amortization amounted to $570 at December 31, 1996.
At December 31, 1996, minimum future lease payments due under capital
leases are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 372
1998 359
1999 316
2000 273
2001 74
-------
Total minimum lease payments 1,394
Less: amount representing interest 176
-------
Net minimum lease payments 1,218
Less: current portion 290
-------
Long-term portion $ 928
=======
</TABLE>
Rent expense was $3,511 for the year ended December 31, 1996. The Company
has entered into operating leases for certain showroom and service facilities
which have minimum lease terms in excess of one year. Future annual minimum
rental payments for these operating leases are as follows for years ending
December 31:
<TABLE>
<CAPTION>
<S> <C>
1997 $ 2,002
1998 2,002
1999 2,002
2000 2,002
2001 2,002
2002 and thereafter 9,620
--------
Total $19,630
========
</TABLE>
Included in the above operating lease amounts are certain amounts payable
to a related party. In addition, the Company leases certain showroom, service
and office facilities from related parties that are on a month to month basis.
See Note 9.
Certain employees of the Company, who are members of a union, are covered
by a union sponsored multi-employer pension plan to which the Company makes
specified contributions in accordance with the union contract. The amount of
accumulated benefits and net assets of the plan is not currently available to
the Company. Expense under the union administered plan amounted to
approximately $48 for the year ended 1996.
Certain assets of the Combined Group have been pledged as collateral
against personal loans of a stockholder.
F-50
<PAGE>
STALUPPI AUTOMOTIVE GROUP
(Information related to the three months ended March 31, 1997 and 1996 is
unaudited)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands)
8. RELATED PARTY TRANSACTIONS:
The Company leases two of its showrooms, service facilities, and the total
facility in West Palm Beach from a stockholder. Rent paid to the stockholder
totaled $2,160 in 1996. The Company also leases showrooms, office space, and
storage lots from companies under common control. Rent paid to these companies
in 1996 totaled $815.
The Company received rental income of $348 in 1996 from a related company
for the use of a portion of a lot and a showroom.
Management fees paid to a related company, consisting primarily of charges
for the salary of the principal owner and administrative services, totaled
approximately $2,500.
Notes receivable--related parties bear interest at 6.5% for 1996. Interest
income on these notes totalled $489 in 1996.
9. SUBSEQUENT EVENT (UNAUDITED):
In April 1997, the stockholders of the Company sold 100% of the stock of
the entities included in the Combined Group to United Auto Group, Inc.
F-51
<PAGE>
[LOGO]
UNITED AUTO GROUP, INC.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL empowers a Delaware corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of such corporation) by reason of the fact that such person is or was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent
of another corporation or enterprise. A corporation may indemnify such person
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if he acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
has no reasonable cause to believe his conduct was unlawful. A corporation
may, in advance of the final disposition of any civil, criminal,
administrative or investigative action, suit or proceeding, pay the expense
(including attorneys' fees) incurred by any officer or director in defending
such action, provided that the director or officer undertake to repay such
amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation.
A Delaware corporation may indemnify officers and directors in an action by
or in the right of the corporation to procure a judgment in its favor under
the same conditions, except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the
corporation. Where an officer or director is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses (including attorneys' fees) which he
actually or reasonably incurred in connection therewith. The indemnification
provided is not deemed to be exclusive of any other rights to which an officer
or director may be entitled under any corporation's bylaw, agreement, vote or
otherwise.
The Company has adopted provisions in its Certificate of Incorporation and
Bylaws that provide that the Company shall indemnify its officers and
directors to the maximum extent permitted under the DGCL. Certain directors
are also entitled to indemnification from the organizations that employ them.
The Company has purchased insurance on behalf of its officers and directors
for liabilities arising out of their capacities as such.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
NO. DESCRIPTION
-- -----------
<S> <C>
***3.1 Third Restated Certificate of Incorporation of the Company.
*3.2 Restated Bylaws of the Company.
+3.3 Certificate of Incorporation of UAG Northeast, Inc.
+3.4 Bylaws of UAG Northeast, Inc.
+3.5 Certificate of Incorporation of UAG Northeast (NY), Inc.
+3.6 Bylaws of UAG Northeast (NY), Inc.
+3.7 Certificate of Incorporation of DiFeo Partnership, Inc.
+3.8 Bylaws of DiFeo Partnership, Inc.
+3.9 Certificate of Incorporation of DiFeo Partnership VIII, Inc.
+3.10 Bylaws of DiFeo Partnership VIII, Inc.
+3.11 Certificate of Incorporation of DiFeo Partnership IX, Inc.
+3.12 Bylaws of DiFeo Partnership IX, Inc.
+3.13 Certificate of Incorporation of DiFeo Partnership HCT, Inc.
II-1
<PAGE>
NO. DESCRIPTION
-- -----------
+3.14 Bylaws of DiFeo Partnership HCT, Inc.
+3.15 Certificate of Incorporation of DiFeo Partnership RCM, Inc.
+3.16 Bylaws of DiFeo Partnership RCM, Inc.
+3.17 Certificate of Incorporation of DiFeo Partnership RCT, Inc.
+3.18 Bylaws of DiFeo Partnership RCT, Inc.
+3.19 Certificate of Incorporation of DiFeo Partnership SCT, Inc.
+3.20 Bylaws of DiFeo Partnership SCT, Inc.
+3.21 Certificate of Incorporation of Hudson Toyota, Inc.
+3.22 Bylaws of Hudson Toyota, Inc.
+3.23 Certificate of Incorporation of Somerset Motors, Inc.
+3.24 Bylaws of Somerset Motors, Inc.
+3.25 Partnership Agreement of County Auto Group Partnership.
+3.26 Partnership Agreement of Danbury Auto Partnership.
+3.27 Partnership Agreement of Danbury Chrysler Plymouth Partnership.
+3.28 Partnership Agreement of DiFeo BMW Partnership.
+3.29 Partnership Agreement of DiFeo Chevrolet Geo Partnership.
+3.30 Partnership Agreement of DiFeo Chrysler Plymouth Jeep Eagle Partnership.
+3.31 Partnership Agreement of DiFeo Hyundai Partnership.
+3.32 Partnership Agreement of DiFeo Leasing Partnership.
+3.33 Partnership Agreement of DiFeo Nissan Partnership.
+3.34 Partnership Agreement of Fair Chevrolet Geo Partnership.
+3.35 Partnership Agreement of Fair Hyundai Partnership.
+3.36 Partnership Agreement of Hudson Motors Partnership.
+3.37 Partnership Agreement of J&F Oldsmobile Partnership.
+3.38 Partnership Agreement of OCM Partnership.
+3.39 Partnership Agreement of OCT Partnership.
+3.40 Partnership Agreement of Rockland Motors Partnership.
+3.41 Partnership Agreement of Somerset Motors Partnership.
+3.42 Certificate of Incorporation of United Landers, Inc.
+3.43 Bylaws of United Landers, Inc.
+3.44 Articles of Incorporation of Landers Auto Sales, Inc.
+3.45 Bylaws of Landers Auto Sales, Inc.
+3.46 Articles of Incorporation of Landers Buick-Pontiac, Inc.
+3.47 Bylaws of Landers Buick-Pontiac, Inc.
+3.48 Articles of Incorporation of Landers United Auto Group, Inc.
+3.49 Bylaws of Landers United Auto Group, Inc.
+3.50 Articles of Incorporation of Landers United Auto Group No. 2, Inc.
+3.51 Bylaws of Landers United Auto Group No. 2, Inc.
+3.52 Articles of Incorporation of Landers United Auto Group No. 3, Inc.
+3.53 Bylaws of Landers United Auto Group No. 3, Inc.
+3.54 Articles of Incorporation of Landers United Auto Group No. 4, Inc.
+3.55 Bylaws of Landers United Auto Group No. 4, Inc.
+3.56 Certificate of Incorporation of UAG Atlanta, Inc.
+3.57 Bylaws of UAG Atlanta, Inc.
+3.58 Certificate of Incorporation of Atlanta Toyota, Inc.
+3.59 Bylaws of Atlanta Toyota, Inc.
II-2
<PAGE>
NO. DESCRIPTION
-- -----------
+3.60 Certificate of Incorporation of UAG Atlanta II, Inc.
+3.61 Bylaws of UAG Atlanta II, Inc.
+3.62 Articles of Incorporation of United Nissan, Inc., a Georgia corporation.
+3.63 Bylaws of United Nissan, Inc., a Georgia corporation.
+3.64 Certificate of Incorporation of UAG Atlanta III, Inc.
+3.65 Bylaws of UAG Atlanta III, Inc.
+3.66 Articles of Incorporation of Peachtree Nissan, Inc.
+3.67 Bylaws of Peachtree Nissan, Inc.
+3.68 Certificate of Incorporation of UAG West, Inc.
+3.69 Bylaws of UAG West, Inc.
+3.70 Articles of Incorporation of LRP, Ltd.
+3.71 Bylaws of LRP, Ltd.
+3.72 Articles of Incorporation of SA Automotive, Ltd.
+3.73 Bylaws of SA Automotive, Ltd.
+3.74 Articles of Incorporation of SL Automotive, Ltd.
+3.75 Bylaws of SL Automotive, Ltd.
+3.76 Articles of Incorporation of Scottsdale Audi, Ltd.
+3.77 Bylaws of Scottsdale Audi, Ltd.
+3.78 Articles of Incorporation of Scottsdale Management Group, Ltd.
+3.79 Bylaws of Scottsdale Management Group, Ltd.
+3.80 Articles of Incorporation of SK Motors, Ltd.
+3.81 Bylaws of SK Motors, Ltd.
+3.82 Articles of Incorporation of SPA Automotive, Ltd.
+3.83 Bylaws of SPA Automotive, Ltd.
+3.84 Articles of Incorporation of Sun BMW, Ltd.
+3.85 Bylaws of Sun BMW, Ltd.
+3.86 Certificate of Incorporation of UAG Atlanta IV, Inc.
+3.87 Bylaws of UAG Atlanta IV, Inc.
+3.88 Articles of Incorporation of UAG Atlanta IV Motors, Inc.
+3.89 Bylaws of UAG Atlanta IV Motors, Inc.
+3.90 Certificate of Incorporation of UAG Atlanta V, Inc.
+3.91 Bylaws of UAG Atlanta V, Inc.
+3.92 Articles of Incorporation of Conyers Nissan, Inc.
+3.93 Bylaws of Conyers Nissan, Inc.
+3.94 Certificate of Incorporation of UAG Tennessee, Inc.
+3.95 Bylaws of UAG Tennessee, Inc.
+3.96 Charter of United Nissan, Inc., a Tennessee corporation.
+3.97 Bylaws of United Nissan, Inc., a Tennessee corporation.
+3.98 Certificate of Incorporation of UAG Texas, Inc.
+3.99 Bylaws of UAG Texas, Inc.
+3.100 Certificate of Incorporation of UAG Texas II, Inc.
+3.101 Bylaws of UAG Texas II, Inc.
+3.102 Partnership Agreement of Shannon Automotive, Ltd.
+3.103 Certificate of Incorporation of UAG Nevada, Inc.
+3.104 Bylaws of UAG Nevada, Inc.
+3.105 Articles of Incorporation of United Nissan, Inc., a Nevada corporation.
II-3
<PAGE>
NO. DESCRIPTION
-- -----------
+3.106 Bylaws of United Nissan, Inc., a Nevada corporation.
+3.107 Certificate of Incorporation of UAG East, Inc.
+3.108 Bylaws of UAG East, Inc.
+3.109 Certificate of Incorporation of Amity Auto Plaza, Ltd.
+3.110 Bylaws of Amity Auto Plaza, Ltd.
+3.111 Certificate of Incorporation of Amity Nissan of Massapequa, Ltd.
+3.112 Bylaws of Amity Nissan of Massapequa, Ltd.
+3.113 Articles of Incorporation of Auto Mall Payroll Services, Inc.
+3.114 Bylaws of Auto Mall Payroll Services, Inc.
+3.115 Articles of Incorporation of Auto Mall Storage, Inc.
+3.116 Bylaws of Auto Mall Storage, Inc.
+3.117 Articles of Incorporation of Florida Chrysler Plymouth, Inc.
+3.118 Bylaws of Florida Chrysler Plymouth, Inc.
+3.119 Certificate of Incorporation of J&S Auto Refinishing, Ltd.
+3.120 Bylaws of J&S Auto Refinishing, Ltd.
+3.121 Articles of Incorporation of Northlake Auto Finish, Inc.
+3.122 Bylaws of Northlake Auto Finish, Inc.
+3.123 Articles of Incorporation of Palm Auto Plaza, Inc.
+3.124 Bylaws of Palm Auto Plaza, Inc.
+3.125 Articles of Incorporation of West Palm Auto Mall, Inc.
+3.126 Bylaws of West Palm Auto Mall, Inc.
+3.127 Articles of Incorporation of West Palm Infiniti, Inc.
+3.128 Bylaws of West Palm Infiniti, Inc.
+3.129 Articles of Incorporation of West Palm Nissan, Inc.
+3.130 Bylaws of West Palm Nissan, Inc.
+3.131 Certificate of Incorporation of Westbury Nissan, Ltd.
+3.132 Bylaws of Westbury Nissan, Ltd.
+3.133 Certificate of Incorporation of Westbury Superstore, Ltd.
+3.134 Bylaws of Westbury Superstore, Ltd.
+3.135 Certificate of Incorporation of UAG Carolina, Inc.
+3.136 Bylaws of UAG Carolina, Inc.
+3.137 Articles of Incorporation of Gene Reed Chevrolet, Inc.
+3.138 Bylaws of Gene Reed Chevrolet, Inc.
+3.139 Articles of Incorporation of Michael Chevrolet-Oldsmobile, Inc.
+3.140 Bylaws of Michael Chevrolet-Oldsmobile, Inc.
+3.141 Articles of Incorporation of Reed Lallier Chevrolet, Inc.
+3.142 Bylaws of Reed Lallier Chevrolet, Inc.
+3.143 Certificate of Incorporation of UAG Atlanta VI, Inc.
+3.144 Bylaws of UAG Atlanta VI, Inc.
+3.145 Articles of Incorporation of United Jeep Eagle Chrysler Plymouth of Stone Mountain, Inc.
+3.146 Bylaws of United Jeep Eagle Chrysler Plymouth of Stone Mountain, Inc.
+3.147 Certificate of Incorporation of United AutoCare, Inc.
+3.148 Bylaws of United AutoCare, Inc.
+3.149 Certificate of Incorporation of United AutoCare Products, Inc.
+3.150 Bylaws of United AutoCare Products, Inc.
II-4
<PAGE>
NO. DESCRIPTION
-- -----------
+3.151 Certificate of Incorporation of UAG Capital Management, Inc.
+3.152 Bylaws of UAG Capital Management, Inc.
+3.153 Certificate of Incorporation of UAG Finance Company, Inc.
+3.154 Bylaws of UAG Finance Company, Inc.
+4.1 Indenture, dated as of July 23, 1997, among the Company, the Guarantors party thereto and
The Bank of New York, as Trustee, including form of Note and Guarantee.
+4.2 Registration Rights Agreement, dated as of July 23, 1997, among the Company, the Guarantors
party thereto, J.P. Morgan Securities Inc., Salomon Brothers Inc, CIBC Wood Gundy
Securities Corp., Montgomery Securities and Scotia Capital Markets (USA) Inc.
+4.3 Indenture, dated as of September 16, 1997, among the Company, the Guarantors party thereto
and The Bank of New York, as Trustee, including form of Series B Note and Guarantee.
+4.4 Registration Rights Agreement, dated September 16, 1997, among the Company, the Guarantors
party thereto, J.P. Morgan Securities Inc. and Scotia Capital Markets (USA) Inc.
+5.1 Opinion of Willkie Far & Gallagher regarding legality of securities.
*10.1.1.1 Registration Rights Agreement, dated as of October 15, 1993, among the Company and the
investors listed therein.
*10.1.1.2 Amendment to Registration Rights Agreement, dated as of July 31, 1996, among the Company
and the investors listed therein.
*10.1.2 Waiver, Consent and Modification Agreement, dated as of September 22, 1995, among the
Company and its stockholders.
*10.1.3 Letter Agreement, dated September 22, 1996, between the Company and J.P. Morgan Capital
Corporation.
*10.1.4 Form of Warrant.
*10.1.5 Form of Additional Warrant.
*10.1.6 Employment Agreement, dated as of June 21, 1996, between the Company and Carl Spielvogel.
*10.1.7 Severance Agreement, dated April 5, 1996, among the Company, Trace and Ezra P. Mager.
*10.1.8 Stock Option Plan of the Company.
*10.1.9 Registration Rights Agreement, dated as of August 1, 1995, among the company and the
parties listed on Schedule I thereto.
*10.1.10 Sublease, dated August 1994, between Overseas Partners, Inc. and the Company.
*10.1.11 Letter, dated July 24, 1996, from Chrysler Corporation to the Company.
*10.1.12 Agreement, dated July 24, 1996, between the Company and Toyota Motor Sales U.S.A., Inc.
*10.1.13 Non-employee Director Compensation Plan of the Company.
*10.1.14 Form of Agreement among the Company, certain of its affiliates and American Honda Motor
Co., Inc.
*10.1.15 Form of Option Certificate of the Company in favor of Samuel X. DiFeo and Joseph C. DiFeo.
*10.1.16 Form of Registration Rights Agreement among the Company and the parties listed on Schedule
U thereto.
****10.1.17 Registration Rights Agreement, dated March 6, 1997, between the Company and Kevin J.
Coffey.
****10.1.18 Consulting Agreement, dated March 3, 1997, between the Company and Carl Spielvogel.
II-5
<PAGE>
NO. DESCRIPTION
-- -----------
****10.1.19 Credit Agreement, dated as of March 20, 1997, among the Company, the Guarantors party
thereto, the Banks party thereto, The Bank of Nova Scotia, as Administrative Agent, and
Morgan Guaranty Trust Company of New York, as Documentation Agent.
****10.1.20 Pledge Agreement, dated as of March 20, 1997, among the Company, the pledgors named therein
and The Bank of Nova Scotia, as Administrative Agent.
*****10.1.21 Registration Rights Agreement, dated May 31, 1997, among the Company, Gene Reed, Jr.,
Michael L. Reed, Michael G. Lallier, Deborah B. Lallier, John P. Jones, Charles J.
Bradshaw, Charles J. Bradshaw, Jr., Julia D. Bradshaw and William B. Bradshaw.
*****10.1.22 Registration Rights Agreement, dated April 30, 1997, among the Company and John A.
Staluppi.
*10.2.1.1 Honda Automobile Dealer Sales and Service Agreement, dated October 5, 1995, between
American Honda Motor Co. Inc. and Danbury Auto Partnership.
*10.2.1.2 American Honda Motor Co. Standard Provisions.
*10.2.2.1 Lexus Dealer Agreement, dated October 5, 1992, between Lexus, a division of Toyota Motor
Sales, U.S.A., Inc, and Somerset Motors Partnership.
*10.2.2.2 Lexus Dealer Agreement Standard Provisions.
*10.2.3.1 Mitsubishi Motor Sales of America, Inc. Dealer Sales and Service Agreement, dated August
29, 1994, between Mitsubishi Motor Sales of America, Inc. and Rockland Motors Partnership,
as amended August 20, 1996.
*10.2.3.2 Mitsubishi Motor Sales of America, Inc. Dealer Sales and Service Agreement Standard
Provisions.
*10.2.4.1 BMW of North America, Inc. Dealer Agreement, dated January 1, 1994, between BMW of North
America, Inc. and DiFeo BMW Partnership, as amended October 21, 1996.
*10.2.4.2 BMW of North America, Inc. Dealer Standard Provisions Applicable to Dealer Agreement.
*10.2.5.1 Term Dealer Sales and Service Agreement, dated July 3, 1996, between American Suzuki Motor
Corporation and Fair Hyundai Partnership, as amended September 6, 1996.
*10.2.5.2 Suzuki Dealer Sales and Service Agreement Standard Provisions.
*10.2.6.1 Toyota Dealer Agreement, dated May 5, 1995, between Toyota Motor Distributors, Inc. and
Hudson Motors Partnership.
*10.2.6.2 Toyota Dealer Agreement Standard Provisions.
*10.2.7.1 Oldsmobile Division Dealer Sales and Service Agreement, dated October 2, 1992, between
General Motors Corporation, Oldsmobile Division and J&F Oldsmobile-Isuzu Partnership, as
amended December 20, 1993 and July 23, 1996.
*10.2.7.2 General Motors Dealer Sales and Service Agreement Standard Provisions.
*10.2.8.1 Chevrolet-Geo Dealer Sales and Service Agreement, dated November 1, 1995, between General
Motors Corporation, Chevrolet Motor Division and Fair Chevrolet-Geo Partnership.
*10.2.9.1 Nissan Dealer Term Sales and Service Agreement, between the Nissan Division of Nissan Motor
Corporation in U.S.A. and DiFeo Nissan Partnership.
*10.2.9.2 Nissan Dealer Sales and Service Agreement Standard Provisions.
*10.2.10.1 Chrysler Corporation Term Sales and Service Agreement, dated August 16, 1995, between Fair
Chrysler Plymouth Partnership and Chrysler Corporation.
*10.2.10.2 Chrysler Corporation Sales and Service agreement Additional Terms and Provisions
*10.2.11 Chrysler Corporation Eagle Sales and Service Agreement, dated October 8, 1992, between
DiFeo Jeep-Eagle Partnership and Chrysler Corporation.
II-6
<PAGE>
NO. DESCRIPTION
-- -----------
*10.2.12 Chrysler Corporation Chrysler Sales and Service Agreement, dated August 16, 1995, between
DiFeo Chrysler Plymouth Jeep Eagle Partnership and Chrysler.
*10.2.13 Chrysler Corporation Plymouth Sales and Service Agreement, dated November 13, 1992, between
DiFeo Chrysler Plymouth Jeep Eagle Partnership and Chrysler Corporation.
*10.2.14 Toyota Dealer Agreement, dated May 5, 1995, between Toyota Motor Distributors, Inc. and
County Auto Group Partnership.
*10.2.15.1 Hyundai Motor America Dealer Sales and Service Agreement, dated October 12, 1992, between
Hyundai Motor America and Fair Hyundai Partnership as amended November 22, 1993, October
12, 1995, March 14, 1996 and September 18, 1996.
*10.2.15.2 Hyundai Motor America Dealer Sales and Service Agreement Standard Provisions.
*10.2.16 Hyundai Motor America Dealer Sales and Service Agreement, dated November 22, 1993, as
amended April 1, 1994, and November 3, 1995, between Hyundai Motor America and DiFeo
Hyundai Partnership.
*10.2.17 Toyota Dealer Agreement, dated August 23, 1995, between Toyota Motor Distributors, Inc. and
OCT Partnership.
*10.2.18 Mitsubishi Motor Sales of America, Inc. Sales and Service Agreement, dated June 30, 1994,
between Mitsubishi Motor Sales of America, Inc. and OCM Partnership.
*10.2.19 Chrysler Corporation Jeep Sales and Service Agreement, dated October 8, 1992, between DiFeo
Jeep-Eagle Partnership and Chrysler Corporation.
*10.2.20 Chevrolet-Geo Dealer Sales and Service Agreement, dated November 1, 1995 between General
Motors Corporation, Chevrolet Motor Division and DiFeo Chevrolet-Geo Partnership
*10.2.21 Isuzu Dealer Sales and Service Agreement, dated as of September 16, 1996 between American
Isuzu Motors, Inc. and Fair Cadillac-Oldsmobile-Isuzu Partnership.
*10.2.22 Isuzu Dealer Sales and Service Agreement Additional Provisions.
*10.2.26 Settlement Agreement, dated as of October 3, 1996, among the Company and certain of its
affiliates, on the one hand, and Samuel X. DiFeo, Joseph C. DiFeo and certain of their
affiliates, on the other hand.
*10.2.27 Form of Agreement and Plan of Merger used in the Minority Exchange of the DiFeo Group.
*10.2.28 Form of Lease of certain facilities in the DiFeo Group.
*10.2.29 Lease Agreement, dated September 27, 1990, between J&F Associates and TJGHCC Associates.
*10.2.30 Lease Agreement, dated October 1, 1992, between Manly Chevrolet, Inc. and County Toyota,
Inc.
*10.2.31 Sublease, dated October 1, 1992, between DiFeo BMW, Inc. and DiFeo BMW Partnership.
*****10.2.32 Security Agreement and Master Credit Agreement, dated November 22, 1996, between DiFeo
Nissan Partnership and Chrysler Credit Corporation (substantially similar to exhibit
10.4.16 to the Company's Registration Statement on Form S-1, Registration No. 333-09429)(a
substantially similar agreement exists with each dealership in the DiFeo Group).
*10.3.1 Receivables Purchase Agreement, dated as of June 28, 1995, between Atlantic Auto Funding
Corporation and Atlantic Auto Finance Corporation.
*10.3.2 Loan and Security Agreement, dated as of June 28, 1995, among Atlantic Auto Funding
Corporation, Atlantic Auto Finance Corporation and Citibank, N.A.
*10.3.3 Support Agreement of the Company, dated as of June 28, 1995, in favor of Atlantic Auto
Funding Corporation.
II-7
<PAGE>
NO. DESCRIPTION
-- -----------
*10.3.4 Purchase Agreement, dated as of June 14, 1996, between Atlantic Auto Finance Corporation
and Atlantic Auto Second Funding Corporation.
*10.3.5 Transfer and Administration Agreement, dated as of June 14, 1996, among Atlantic Auto
Second Funding Corporation, Atlantic Auto Finance Corporation and Morgan Guaranty Trust
Company of New York.
*10.3.6 Support Agreement of the Company, dated as of June 18, 1996, in favor of Atlantic Auto
Second Funding Corporation.
*10.3.7 Pooling and Servicing Agreement relating to Atlantic Auto Grantor Trust 1996-A, dated as of
June 20, 1996, among Atlantic Auto Third Funding Corporation, Atlantic Auto Finance
Corporation and The Chase Manhattan Bank.
*10.3.8 Insurance and Indemnity Agreement, dated as of June 20, 1996, among Financial Security
Assurance Inc., Atlantic Auto Third Funding Corporation and Atlantic Auto Finance
Corporation.
*10.3.9 Master Spread Account Agreement, dated as of June 20, 1996, among Atlantic Auto Third
Funding Corporation, Financial Security Assurance Inc. and The Chase Manhattan Bank.
*10.3.10 Lease Agreement, dated as of March 18, 1994, between Perinton Hills and the Company,
including guaranty of lease of Atlantic Auto Finance Corporation.
*10.4.1 Amended and Restated Stock Purchase Agreement, dated as of July 1, 1995, among the Company,
Landers Auto Sales, Inc., Steve Landers, John Landers and Bob Landers.
*10.4.2 Promissory Note of the Company, dated August 1, 1995, in favor of Steve Landers and John
Landers.
*10.4.3 Promissory Note of the Company, dated August 1, 1995, in favor of Steve Landers and John
Landers.
*10.4.4 Guarantee of the Company, dated as of August 1, 1995, in favor of Steve Landers and John
Landers.
*10.4.5 Employment Agreement, dated as of August 1, 1995, between Landers Auto Sales, Inc. and
Steve Landers.
*10.4.6 Lease, dated as of August 1, 1995, among Steve Landers, John Landers, Bob Landers and
Landers Auto Sales, Inc., regarding Jeep-Eagle premises.
*10.4.7 Lease, dated as of August 1, 1995, among Steve Landers, John Landers, Bob Landers and
Landers Auto Sales, Inc., regarding Oldsmobile-GMC premises.
*10.4.8 Shareholders' Agreement, dated as of August 1, 1995, among the Company, United Landers,
Inc., Landers Auto Sales, Inc., Steve Landers and John Landers.
*10.4.9 Chrysler Corporation Eagle Sales and Service Agreement, dated August 16, 1995, between
United Landers Auto Sales, Inc. and Chrysler Corporation.
*10.4.10 Chrysler Corporation Jeep Sales and Service Agreement, dated August 16, 1995, between
United Landers Auto Sales, Inc. and Chrysler Corporation.
*10.4.11 Chrysler Corporation Dodge Sales and Service Agreement, dated August 16, 1995, between
United Landers Auto Sales, Inc. and Chrysler Corporation.
*10.4.12 Chrysler Corporation Plymouth Sales and Service Agreement, dated August 16, 1995, between
United Landers Auto Sales, Inc. and Chrysler Corporation.
*10.4.13 Chrysler Corporation Chrysler Sales and Service Agreement, dated August 16, 1995, between
United Landers Auto Sales, Inc. and Chrysler Corporation.
*10.4.14 Oldsmobile Division Dealer Sales and Service Agreement, dated November 1, 1995, between
General Motors Corporation, Oldsmobile Division and United Landers Auto Sales, Inc.
II-8
<PAGE>
NO. DESCRIPTION
-- -----------
*10.4.15 GMC Truck Division Dealer Sales and Service Agreement, dated November 1, 1995, between
General Motors Corporation, GMC Truck Division and United Landers Auto Sales, Inc.
*10.4.16 Security Agreement and Master Credit Agreement, dated October 25, 1993, between Landers
Oldsmobile-GMC Inc. and Chrysler Credit Corporation.
*10.4.17 Security Agreement and Master Credit Agreement, dated May 17, 1989, between Landers
Jeep-Eagle, Inc. and Chrysler Credit Corporation.
*10.4.18 Continuing Guaranty of United Landers, Inc., dated August 15, 1994, in favor of Chrysler
Credit Corporation.
*10.4.19 Commercial Loan Agreement, dated December 5, 1994, between Landers Oldsmobile-GMC, Inc. and
The Benton State Bank.
*10.4.20 Commercial Security Agreement, dated December 5, 1994, between Landers Oldsmobile-GMC, Inc.
and The Benton State Bank.
*10.4.21 Agreement, dated July 31, 1995, between the Company and General Motors Corporation,
Oldsmobile Division.
*10.5.1 Stock Purchase Agreement, dated as of November 17, 1995, among the Company, UAG Atlanta,
Inc., Atlanta Toyota, Inc, and Carl H. Westcott.
*10.5.2 Promissory Note of UAG Atlanta, Inc., dated January 16, 1996, in favor of Carl H. Westcott.
*10.5.3 Guaranty of the Company, dated as of January 16, 1996, in favor of Carl H. Westcott.
*10.5.4 Promissory Note of Atlanta Toyota, Inc., dated January 16, 1996, in favor of First Extended
Service Corporation.
*10.5.5 Guaranty of the Company, dated as of January 16, 1996, in favor of Carl H. Westcott.
*10.5.6 Lease Agreement, dated as of January 3, 1996, between Carl Westcott and Atlanta Toyota,
Inc.
*10.5.7 Lease Guaranty of the Company, dated as of January 16, 1995, in favor of Carl Westcott.
*10.5.8 Toyota Dealer Agreement, dated January 16, 1996, between Southeast Toyota Motor
Distributors, Inc. and Atlanta Toyota, Inc.
*10.5.9 Wholesale Floor Plan Security Agreement, dated May 24, 1996, between World Omni Financial
Corp. and Atlanta Toyota, Inc.
*10.5.10 Continuing Guaranty of the Company in favor of World Omni Financial Corp. and certain
affiliates.
*10.5.11 Inventory Financing Payment Agreement, dated May 24, 1996, among Atlanta Toyota, Inc.,
Fidelity Warranty Services, Inc. and World Omni Financial Corp.
*10.5.12 Shareholders' Agreement, dated as of July 31, 1996, among the Company, UAG Atlanta, Inc.,
Atlanta Toyota and John Smith.
*10.5.13 Employment Agreement, dated as of January 16, 1996, among the Company, UAG Atlanta, Inc.
and John Smith.
*10.6.1 Stock Purchase Agreement, dated as of March 1, 1996, among the Company, UAG Atlanta II,
Inc., Steve Rayman Nissan, Inc., Steven L. Rayman and Richard W. Keffer, Jr.
*10.6.2 Employment Agreement, dated as of May 1, 1996, among the Company, UAG Atlanta II, In.,
Steve Rayman Nissan, Inc. and Bruce G. Dunker.
*10.6.3 Lease Agreement, dated as of May 1, 1996, among Steven L. Rayman, Richard W. Keffer, Jr.
and Steve Rayman Nissan, Inc.
*10.6.4 Nissan Dealer Term Sales and Service Agreement, between the Nissan Division of Nissan Motor
Corporation in U.S.A. and United Nissan, Inc.
II-9
<PAGE>
NO. DESCRIPTION
-- -----------
*10.6.5 Wholesale Floor Plan Security Agreement, dated April 29, 1996, between World Omni Financial
Corp. and United Nissan, Inc.
*10.6.6 Continuing Guaranty of the Company, dated April 29, 1996, in favor of World Omni Financial
Corp. and certain affiliates.
*10.7.1 Stock Purchase Agreement, dated as of June 7, 1996, among the Company, UAG Atlanta III,
Inc. Hickman Nissan, Inc., Lynda Jane Hickman and Lynda Jane Hickman as Executrix under the
will of James Franklin Hickman, Jr., deceased.
*10.7.2 Nissan Dealer Term Sales and Service Agreement, between the Nissan Division of Nissan Motor
Corporation in U.S.A. and Peachtree Nissan, Inc.
*10.7.3 Automotive Wholesale Financing and Security Agreement, dated July 12, 1996, between Nissan
Motor Acceptance Corporation and Peachtree Nissan, Inc.
*10.7.4 Guaranty of the Company and UAG Atlanta III, Inc., dated July 12, 1996, in favor of Nissan
Motor Acceptance Corporation.
*10.7.5 Promissory Note of UAG Atlanta III, Inc., dated July 12, 996, in favor of Lynda Jane
Hickman, as Executrix under the will of James Franklin Hickman, Jr.
*10.7.6 Guaranty of Note of Hickman Nissan, Inc., dated July 12, 1996, in favor of Lynda Jane
Hickman, as Executrix under the will of James Franklin Hickman, Jr.
*10.7.7 Guaranty of Note of the Company, dated July 12, 1996, in favor of Lynda Jane Hickman, as
Executrix under the will of James Franklin Hickman, Jr.
*10.7.8 Lease Agreement, dated July 12, 1996, between Lynda Jane Hickman, as Executrix under the
will of James Franklin Hickman, Jr., and Hickman Nissan, Inc.
*10.7.9 Lease Agreement, dated July 12, 1996, between Argonne Enterprises, Inc. and Hickman Nissan,
Inc.
*10.7.10 Guaranty of Lease of the Company, dated July 12, 1996, in favor of Lynda Jane Hickman, Jr.
*10.7.11 Guaranty of Lease of the Company, dated July 12, 1996, in favor of Argonne Enterprises,
Inc.
*10.8.1 Stock Purchase Agreement, dated as of June 6, 1996, among the Company, UAG West, Inc.,
Scottsdale Jaguar, LTD., SA Automotive, LTD., SL Automotive, LTD., SPA Automotive, LTD.,
LRP, LTD., Sun BMW, LTD., Scottsdale Management Group, LTD., 6725 Dealership LTD., Steven
Knappenberger Revocable Trust Dated April 15, 1983, as amended, Brochick 6725 Trust dated
December 29, 1992, Beskind 6725 Trust dated December 29, 1992, Steven Knappenberger, Jay P.
Beskind December 29, 1992, Knappenberger 6725 Trust dated and George W. Brochick, as
amended on October 21, 1996 by Amendment No. 1, Amendment No. 2 and Amendment No. 3.
*10.8.2 Purchase and Sale Agreement, 6905 E. McDowell Road, dated June 6, 1996, among Steven
Knappenberger, as Trustee of the Steven Knappenberger Revocable Trust II, Bruce
Knappenberger, as Trustee of the Bruce Knappenberger Trust and UAG West, Inc. and Steven
Knappenberger.
*10.8.3 Form of Employment Agreement between the Company, UAG West, Inc., and Steven Knappenberger.
*10.8.4 Form of Broker's Agreement between UAG West, Inc. and KBB, Inc.
*10.8.5.1 Form of Audi Dealer Agreement.
*10.8.5.2 Audi Standard Provisions.
*10.8.6.1 Form of Acura Automobile Dealer Sales and Service Agreement.
*10.8.6.2 Acura Standard Provisions.
*10.8.7.1 Form of BMW of North America Dealer Agreement.
*10.8.8.1 Form of Porsche Sales and Service Agreement.
*10.8.8.2 Form of Addendum to Porsche Sales and Service Agreement.
II-10
<PAGE>
NO. DESCRIPTION
-- -----------
*10.8.9.1 Form of Land Rover North America, Inc. Dealer Agreement.
*10.8.9.2 Land Rover Standard Provisions.
*10.8.10 Sublease, dated June 7, 1988, between Max of Switzerland and Scottsdale Porsche & Audi,
Ltd.
*10.8.11 Lease, dated October 1990, between Lisa B. Zelinsky and R.J. Morgan Corporation of America
and Scottsdale Hyundai, Ltd.
*10.8.12 Sublease, dated July 1, 1995, between Camelback Automotive, Inc. and LRP Ltd.
*10.8.13 Lease, dated February 27, 1995, between Lee S. Maas and Sun BMW Ltd.
*10.8.14 Form of Shareholders' Agreement among UAG West, Inc., SK Motors, Ltd., and the
Knappenberger Revocable Trust.
*10.8.15 Form of Management Agreement among the Company, UAG West, Inc. and Scottsdale Jaguar, Ltd.
*10.8.16 Form of Lease Agreement between 6725 Agent and Scottsdale Jaguar, Ltd.
*10.8.17 Form of Indemnification Agreement among the Company, UAG West, Inc., Scottsdale Jaguar,
Ltd., Steven Knappenberger, and certain other individuals and trusts.
*10.8.18 Form of Real Estate Loan and Security Agreement, made by SA Automotive, Ltd. for the
benefit of Chrysler Financial Corporation.
*10.8.19 Form of Security Agreement and Master Credit Agreement of Chrysler Credit Corporation.
*10.8.20 Form of Continuing Guaranty of each of the Company and UAG West, Inc. in favor of Chrysler
Credit Corporation.
*****10.8.21 Dealer Agreement, dated as of February 28, 1997, between Rolls-Royce Motor Cars Inc. and
Scottsdale Audi, Ltd.
*10.9.1 Stock Purchase Agreement, dated August 5, 1996, among the Company, UAG Atlanta IV, Inc.,
Charles Evans BMW, Inc. and Charles F. Evans.
*10.9.2 Stock Purchase Agreement, dated August 5, 1996, among the Company, UAG Atlanta IV, Inc.,
Charles Evans Nissan, Inc. and Charles F. Evans.
*10.9.3 Form of Dealer Agreement between BMW North America, Inc. and Charles Evans BMW Inc.
*10.9.4 Form of Nissan Dealer Term Sales and Service Agreement between Nissan Motor Corporation in
U.S.A. and Charles Evans Nissan, Inc.
*10.9.5 Form of Lease Agreement between Charles F. Evans and Charles Evans BMW, Inc.
*10.9.6 Form of Lease Guaranty of the Company in favor of Charles F. Evans.
*10.9.7 Form of Lease Agreement between Charles F. Evans and Charles Evans Nissan, Inc.
*10.9.8 Form of Lease Guaranty of the Company in favor of Charles F. Evans.
*10.9.9 Form of Purchase and Sale Agreement for Charles Evans BMW Property between Charles F. Evans
and the Company.
*10.9.10 Form of Purchase and Sale Agreement for Charles Evans Nissan Property between Charles F.
Evans and the Company.
*10.9.11 Form of Inventory Financing and Security Agreement between BMW Financial Services NA, Inc.
and UAG Atlanta IV Motors Inc.
*10.9.12 Form of Guaranty of the Company in favor of BMW Financial Services NA, Inc.
*10.9.13 Form of Inventory Financing and Security Agreement between BMW Financial Services NA, Inc.
and Conyers Nissan, Inc.
*10.9.14 Form of Guaranty of the Company in favor of BMW Financial Services NA, Inc.
*10.10.1 Stock Purchase Agreement, dated September 5, 1996, among the Company, UAG Tennessee, Inc.,
Standefer Motor Sales, Inc., Charles A. Standefer and Charles A. Standefer and Karen S.
Nicely, trustees under the Irrevocable Trust Agreement of Charles B. Standefer for the
primary benefit of children, dated December 21, 1992.
II-11
<PAGE>
NO. DESCRIPTION
-- -----------
*10.10.2 Form of Nissan Dealer Term Sales and Service Agreement between Nissan Motor Corporation in
U.S.A. and Conyers Nissan, Inc.
*10.10.3 Form of Lease Agreement between Standefer Investment Company and Standefer Motor Sales,
Inc.
*10.10.4 Form of Lease Guaranty of the Company in favor of Standefer Investment Company.
*10.10.5 Form of Security Agreement and Master Credit Agreement between Chrysler Credit Corporation
and Standefer Motor Sales, Inc.
*10.10.6 Form of Continuing Guaranty of each of the Company and UAG Tennessee, Inc. in favor of
Chrysler Credit Corporation.
**10.11.1 Agreement and Plan of Merger, dated December 16, 1996, among Crown Jeep Eagle, Inc.,
Berylson, Inc., Shannon Automotive, Ltd., Kevin J. Coffey, Paul J. Rhodes, the Company, UAG
Texas, Inc. and UAG Texas II, Inc.
****10.11.2 Chrysler Corporation Dodge Sales and Service Agreement, dated April 2, 1997, between
Shannon Automotive, Ltd. and Chrysler Corporation (substantially similar to exhibit
10.2.10.1 to the Company's Registration Statement on Form S-1, Registration No. 333-09429).
****10.11.3 Chrysler Corporation Jeep Sales and Service Agreement, dated April 2, 1997, between Shannon
Automotive, Ltd. and Chrysler Corporation (substantially similar to exhibit 10.2.10.1 to
the Company's Registration Statement on Form S-1, Registration No. 333-09429).
****10.11.4 Chrysler Corporation Eagle Sales and Service Agreement, dated April 2, 1997, between
Shannon Automotive, Ltd. and Chrysler Corporation (substantially similar to exhibit
10.2.10.1 to the Company's Registration Statement on Form S-1, Registration No. 333-09429).
****10.11.5 Chrysler Corporation Chrysler Sales and Service Agreement, dated April 2, 1997, between
Shannon Automotive, Ltd. and Chrysler Corporation (substantially similar to exhibit
10.2.10.1 to the Company's Registration Statement on Form S-1, Registration No. 333-09429).
****10.11.6 Chrysler Corporation Plymouth Sales and Service Agreement, dated April 2, 1997, between
Shannon Automotive, Ltd. and Chrysler Corporation (substantially similar to exhibit
10.2.10.1 to the Company's Registration Statement on Form S-1, Registration No. 333-09429).
*****10.12.1 Stock Purchase Agreement, dated February 7, 1997, among the Company, UAG Nevada, Inc., Gary
Hanna Nissan, Inc., The Gary W. Hanna Family Trust Restated December 18, 1990 and Gary W.
Hanna, as amended April 22, 1997.
*****10.12.2 Nissan Dealer Term Sales and Service Agreement, dated April, 22 1997, between the Nissan
Division of Nissan Motor Corporation in U.S.A. and Gary Hanna Nissan, Inc. (substantially
similar to exhibit 10.2.9.1 to the Company's Registration Statement on Form S-1,
Registration No. 333-09429).
*****10.12.3 Security Agreement and Master Credit Agreement, dated April 22, 1997, between Gary Hanna
Nissan, Inc. and Chrysler Credit Corporation (substantially similar to exhibit 10.4.16 to
the Company's Registration Statement on Form S-1, Registration No. 333-09429).
*****10.13.1 Stock Purchase Agreement, dated February 19, 1997, among the Company, UAG East, Inc., Amity
Auto Plaza Ltd., Massapequa Imports Ltd., Westbury Nissan Ltd., Westbury Superstore Ltd.,
J&S Auto Refinishing Ltd., Florida Chrysler Plymouth Jeep Eagle Inc., Palm Auto Plaza Inc.,
West Palm Infiniti Inc., West Palm Nissan Inc., Northlake Auto Finish Inc., John A.
Staluppi and John A. Staluppi, Jr., as amended April 7, 1997 and April 30, 1997.
II-12
<PAGE>
NO. DESCRIPTION
-- -----------
*****10.13.2 Chrysler Corporation Eagle Sales and Service Agreement, dated May 2, 1997, between Florida
Chrysler Plymouth, Inc. and Chrysler Corporation (substantially similar to exhibit
10.2.10.1 to the Company's Registration Statement on Form S-1, Registration No. 333-09429).
*****10.13.3 Chrysler Corporation Chrysler Sales and Service Agreement, dated May 2, 1997, between
Florida Chrysler Plymouth, Inc. and Chrysler Corporation (substantially similar to exhibit
10.2.10.1 to the Company's Registration Statement on Form S-1, Registration No. 333-09429).
*****10.13.4 Chrysler Corporation Jeep Sales and Service Agreement, dated May 2, 1997, between Florida
Chrysler Plymouth, Inc. and Chrysler Corporation (substantially similar to exhibit
10.2.10.1 to the Company's Registration Statement on Form S-1, Registration No. 333-09429).
*****10.13.5 Chrysler Corporation Plymouth Sales and Service Agreement, dated May 2, 1997, between
Florida Chrysler Plymouth, Inc. and Chrysler Corporation (substantially similar to exhibit
10.2.10.1 to the Company's Registration Statement on Form S-1, Registration No. 333-09429).
*****10.13.6 Toyota Dealer Agreement, dated June 16, 1997, between Southeast Toyota Distributors, Inc.
and Palm Auto Plaza, Inc. (substantially similar to exhibit 10.2.10.1 to the Company's
Registration Statement on Form S-1, Registration No. 333-09429).
*****10.13.7 Toyota Dealer Agreement, dated June 18, 1997, between Toyota Motor Sales, U.S.A., Inc. and
Westbury Superstore, Ltd. (substantially similar to exhibit 10.2.10.1 to the Company's
Registration Statement on Form S-1, Registration No. 333-09429).
*****10.13.8 Toyota Dealer Agreement, dated June 18, 1997, between Toyota Motor Sales, U.S.A., Inc. and
Amity Auto Plaza, Ltd. (substantially similar to exhibit 10.2.10.1 to the Company's
Registration Statement on Form S-1, Registration No. 333-09429).
*****10.13.9 Nissan Dealer Term Sales and Service Agreement, dated April 30, 1997, between the Nissan
Division of Nissan Motor Corporation in U.S.A. and Amity Nissan of Massapequa, Ltd.
(substantially similar to exhibit 10.2.9.1 to the Company's Registration Statement on Form
S-1, Registration No. 333-09429).
*****10.13.10 Nissan Dealer Term Sales and Service Agreement, dated April 30, 1997, between the Nissan
Division of Nissan Motor Corporation in U.S.A. and West Palm Nissan, Inc. (substantially
similar to exhibit 10.2.9.1 to the Company's Registration Statement on Form S-1,
Registration No. 333-09429).
*****10.13.11 Nissan Dealer Term Sales and Service Agreement, dated April 30, 1997, between the Nissan
Division of Nissan Motor Corporation in U.S.A. and Westbury Nissan, Ltd. (substantially
similar to exhibit 10.2.9.1 to the Company's Registration Statement on Form S-1,
Registration No. 333-09429).
*****10.13.12 Infiniti Dealer Term Sales and Service Agreement, dated April 30, 1997, between the
Infiniti Division of Nissan Motor Corporation in U.S.A. and West Palm Infiniti, Inc.
(substantially similar to exhibit 10.2.9.1 to the Company's Registration Statement on Form
S-1, Registration No. 333-09429).
*****10.13.13 Wholesale Floor Plan Security Agreement, dated April 30, 1997, between World Omni Financial
Corp. and Florida Chrysler Plymouth, Inc. (substantially similar to exhibit 10.5.9 to the
Company's Registration Statement on Form S-1, Registration No. 333-09429)(a substantially
similar agreement exists with each dealership in the Staluppi Group).
****10.14.1 Stock Purchase Agreement, dated March 5, 1997, among the Company, Marshal Mize Ford, Inc.,
Wade Ford, Inc., Wade Ford Buford, Inc., Marshal D. Mize, Alan K. Arnold, Lewis J. Dyer and
Gary R. Billings.
II-13
<PAGE>
NO. DESCRIPTION
-- -----------
*****10.15.1 Stock Purchase Agreement, dated April 12, 1997, among the Company, Gene Reed Chevrolet,
Inc., Michael Chevrolet-Oldsmobile, Inc., Reed-Lallier Chevrolet, Inc., Gene Reed, Jr.,
Michael L. Reed, Michael G. Lallier, Deborah B. Lallier, John P. Jones, Charles J.
Bradshaw, Charles J. Bradshaw, Jr., Julia D. Bradshaw and William B. Bradshaw, as amended
May 31, 1997.
*****10.15.2 Chevrolet-Geo Dealer Sales and Service Agreement, dated June 1, 1997, between General
Motors Corporation, Chevrolet Motor Division and Gene Reed Chevrolet, Inc. (substantially
similar to exhibit 10.2.8.1 to the Company's Registration Statement on Form S-1,
Registration No. 333-09429).
*****10.15.3 Chevrolet-Geo Dealer Sales and Service Agreement, dated June 1, 1997, between General
Motors Corporation, Chevrolet Motor Division and Reed-Lallier Chevrolet, Inc.
(substantially similar to exhibit 10.2.8.1 to the Company's Registration Statement on Form
S-1, Registration No. 333-09429).
*****10.15.4 Chevrolet-Geo Dealer Sales and Service Agreement, dated June 1, 1997, between General
Motors Corporation, Chevrolet Motor Division and Michael Chevrolet-Oldsmobile, Inc.
(substantially similar to exhibit 10.2.8.1 to the Company's Registration Statement on Form
S-1, Registration No. 333-09429).
*****10.15.5 Wholesale Security Agreement, dated April 1, 1981, between General Motors Acceptance
Corporation and Gene Reed Chevrolet, Inc., as amended September 3, 1992, April 3, 1995 and
September 27, 1996 (a substantially similar agreement exists with each dealership in the
Reed Group).
*****10.16.1 Stock Purchase Agreement, dated January 8, 1997, by and among the Company, Landers Auto
Sales, Inc., Landers United Auto Group No. 4, Inc., Landers Buick Pontiac, Inc. and Lance
Landers, as amended January 8, 1997.
*****10.16.2 Isuzu Dealer Sales and Service Agreement, dated as of June 6, 1997, between American Isuzu
Motors, Inc. and Landers Auto Sales, Inc. (substantially similar to exhibit 10.2.2.1 to the
Company's Registration Statement on Form S-1, Registration No. 333-09429).
*****10.16.3 Pontiac-GMC Division Dealer Sales and Service Agreement, dated June 6, 1997, between
General Motors Corporation, Pontiac and Landers Buick-Pontiac, Inc. (substantially similar
to exhibit 10.2.7.1 to the Company's Registration Statement on Form S-1, Registration No.
333-09429).
*****10.16.4 Security Agreement and Master Credit Agreement, dated June 13, 1997, between Landers
Buick-Pontiac, Inc. and Chrysler Credit Corporation (substantially similar to exhibit
10.4.16 to the Company's Registration Statement on Form S-1, Registration No. 333-09429).
+21.1 List of subsidiaries of the Company.
23.1.1 Consent of Coopers & Lybrand L.L.P.
23.1.2 Consent of Coopers & Lybrand L.L.P.
23.1.3 Consent of Coopers & Lybrand L.L.P.
+23.2 Consent of Willkie Farr & Gallagher (included in Exhibit 5.1).
24.1 Powers of Attorney (included in signature pages).
+25.1 Statement of Eligibility of Trustee on Form T-1.
27.1 Financial Data Schedule.
II-14
<PAGE>
NO. DESCRIPTION
-- -----------
+99.1 Form of Letter of Transmittal.
+99.2 Form of Notice of Guaranteed Delivery.
</TABLE>
- ------------
* Incorporated herein by reference to the identically numbered exhibit
to the Company's Registration Statement on Form S-1, Registration
No. 333-09429.
** Incorporated herein by reference to the identically numbered exhibit
to the Company's Current Report on Form 8-K filed on December 24,
1996, File No. 1-12297.
*** Incorporated herein by reference to the identically numbered exhibit
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, File No. 1-12297.
**** Incorporated herein by reference to the identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997, File No. 1-12297.
***** Incorporated herein by reference to the identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, File No. 1-12297.
+ To be filed by amendment.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Registrants
pursuant to the provisions described under Item 20 above, or otherwise, the
Registrants have been advised that in the opinion of the Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrants of expenses incurred or paid by a director, officer or controlling
person of the Registrants in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrants will, unless
in the opinion of their counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York on September 18,
1997.
UNITED AUTO GROUP, INC.
By: /s/ Marshall S. Cogan
-------------------------------
Marshall S. Cogan
Chairman of the Board,
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Richard Sinkfield and Philip N.
Smith, Jr., as his true and lawful attorneys-in-fact and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement,
(ii) any exhibits to any such registration statement or pre-effective or
post-effective amendments or (iii) any and all applications and other
documents in connection with any such registration statement or pre-effective
or post-effective amendments, and generally to do all things and perform any
and all acts and things whatsoever requisite and necessary or desirable to
enable the Registrant to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------- --------------------------------------------- ----------------------
<S> <C> <C>
/s/ Marshall S. Cogan Chairman of the Board, Chief Executive September 18, 1997
--------------------------- Officer and President
Marshall S. Cogan
/s/ Karl H. Winters Executive Vice President and September 18, 1997
--------------------------- Chief Financial Officer
Karl H. Winters (Principal Financial Officer)
/s/ James R. Davidson Senior Vice President--Finance and September 18, 1997
--------------------------- Treasurer (Principal Accounting Officer)
James R. Davidson
/s/ Robert H. Nelson Executive Vice President--Operations September 18, 1997
-------------------------- and Director
Robert H. Nelson
/s/ Richard Sinkfield Executive Vice President--Administration and September 18, 1997
--------------------------- Director
Richard Sinkfield
/s/ Michael R. Eisenson Director September 18, 1997
---------------------------
Michael R. Eisenson
/s/ John J. Hannan Director September 18, 1997
---------------------------
John J. Hannan
/s/ Jules Kroll Director September 18, 1997
---------------------------
Jules Kroll
/s/ John M. Sallay Director September 18, 1997
---------------------------
John M. Sallay
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this Registration Statement to be signed on their behalf by
the undersigned, thereunto duly authorized, in New York, New York on September
18, 1997.
UAG NORTHEAST, INC.
UAG NORTHEAST (NY), INC.
DIFEO PARTNERSHIP, INC.
DIFEO PARTNERSHIP VIII, INC.
DIFEO PARTNERSHIP IX, INC.
DIFEO PARTNERSHIP HCT, INC.
DIFEO PARTNERSHIP RCM, INC.
DIFEO PARTNERSHIP RCT, INC.
DIFEO PARTNERSHIP SCT, INC.
HUDSON TOYOTA, INC.
SOMERSET MOTORS, INC.
UNITED LANDERS, INC.
LANDERS AUTO SALES, INC.
LANDERS BUICK-PONTIAC, INC.
LANDERS UNITED AUTO GROUP, INC.
LANDERS UNITED AUTO GROUP NO. 2,
INC.
LANDERS UNITED AUTO GROUP NO. 3,
INC.
LANDERS UNITED AUTO GROUP NO. 4,
INC.
UAG ATLANTA, INC.
ATLANTA TOYOTA, INC.
UAG ATLANTA II, INC.
UNITED NISSAN, INC.,
a Georgia corporation
UAG ATLANTA III, INC.
PEACHTREE NISSAN, INC.
UAG WEST, INC.
LRP, LTD.
SA AUTOMOTIVE, LTD.
SL AUTOMOTIVE, LTD.
SCOTTSDALE AUDI, LTD.
SCOTTSDALE MANAGEMENT GROUP, LTD.
SK MOTORS, LTD.
SPA AUTOMOTIVE, LTD.
SUN BMW, LTD.
UAG ATLANTA IV, INC.
UAG ATLANTA IV MOTORS, INC.
UAG ATLANTA V, INC.
CONYERS NISSAN, INC.
UAG TENNESSEE, INC.
UNITED NISSAN, INC.,
a Tennessee corporation
UAG TEXAS, INC.
UAG TEXAS II, INC.
UAG NEVADA, INC.
UNITED NISSAN, INC.,
a Nevada corporation
UAG EAST, INC.
AMITY AUTO PLAZA, LTD.
AMITY NISSAN OF MASSAPEQUA, LTD.
AUTO MALL PAYROLL SERVICES, INC.
II-17
<PAGE>
AUTO MALL STORAGE, INC.
FLORIDA CHRYSLER PLYMOUTH, INC.
J&S AUTO REFINISHING, LTD.
NORTHLAKE AUTO FINISH, INC.
PALM AUTO PLAZA, INC.
WEST PALM AUTO MALL, INC.
WEST PALM INFINITI, INC.
WEST PALM NISSAN, INC.
WESTBURY NISSAN, LTD.
WESTBURY SUPERSTORE, LTD.
UAG CAROLINA, INC.
GENE REED CHEVROLET, INC.
MICHAEL CHEVROLET-OLDSMOBILE, INC.
REED LALLIER CHEVROLET, INC.
UAG ATLANTA VI, INC.
UNITED JEEP EAGLE CHRYSLER
PLYMOUTH OF STONE MOUNTAIN, INC.
UNITED AUTOCARE, INC.
UNITED AUTOCARE PRODUCTS, INC.
UAG CAPITAL MANAGEMENT, INC.
UAG FINANCE COMPANY, INC.
By: /s/ Marshall S. Cogan
-------------------------------
Marshall S. Cogan
Chairman of the Board,
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Richard Sinkfield and Philip N.
Smith, Jr., as his true and lawful attorneys-in-fact and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement,
(ii) any exhibits to any such registration statement or pre-effective or
post-effective amendments or (iii) any and all applications and other
documents in connection with any such registration statement or pre-effective
or post-effective amendments, and generally to do all things and perform any
and all acts and things whatsoever requisite and necessary or desirable to
enable the Registrants to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- -------------------------------------------- ----------------------
<S> <C> <C>
/s/ Marshall S. Cogan Chairman of the Board, Chief Executive September 18, 1997
------------------------- Officer and President
Marshall S. Cogan
/s/ Karl H. Winters Executive Vice President and September 18, 1997
------------------------- Chief Financial Officer
Karl H. Winters (Principal Financial Officer)
/s/ James R. Davidson Senior Vice President--Finance and September 18, 1997
------------------------- Treasurer (Principal Accounting Officer)
James R. Davidson and Director
/s/ Robert H. Nelson Director September 18, 1997
-------------------------
Robert H. Nelson
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrants
have duly caused this Registration Statement to be signed on their behalf by
the undersigned, thereunto duly authorized, in New York, New York on September
18, 1997.
DANBURY AUTO PARTNERSHIP
DANBURY CHRYSLER PLYMOUTH PARTNERSHIP
DIFEO BMW PARTNERSHIP
DIFEO CHEVROLET-GEO PARTNERSHIP
DIFEO CHRYSLER PLYMOUTH JEEP EAGLE PARTNERSHIP
DIFEO HYUNDAI PARTNERSHIP
DIFEO LEASING PARTNERSHIP
DIFEO NISSAN PARTNERSHIP
FAIR CHEVROLET-GEO PARTNERSHIP
FAIR HYUNDAI PARTNERSHIP
J&F OLDSMOBILE PARTNERSHIP
By DIFEO PARTNERSHIP, INC.
General Partner
By: /s/ Marshall S. Cogan
---------------------------------------
Marshall S. Cogan
Chairman of the Board,
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Richard Sinkfield and Philip N.
Smith, Jr., as his true and lawful attorneys-in-fact and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement,
(ii) any exhibits to any such registration statement or pre-effective or
post-effective amendments or (iii) any and all applications and other
documents in connection with any such registration statement or pre-effective
or post-effective amendments, and generally to do all things and perform any
and all acts and things whatsoever requisite and necessary or desirable to
enable the Registrants to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- -------------------------------------------- ----------------------
<S> <C> <C>
/s/ Marshall S. Cogan Chairman of the Board, Chief Executive September 18, 1997
------------------------- Officer and President
Marshall S. Cogan
/s/ Karl H. Winters Executive Vice President and September 18, 1997
------------------------- Chief Financial Officer
Karl H. Winters (Principal Financial Officer)
/s/ James R. Davidson Senior Vice President--Finance and September 18, 1997
------------------------- Treasurer (Principal Accounting Officer)
James R. Davidson and Director
/s/ Robert H. Nelson Director September 18, 1997
-------------------------
Robert H. Nelson
</TABLE>
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York on September 18,
1997.
HUDSON MOTORS PARTNERSHIP
By DIFEO PARTNERSHIP HCT, INC.
General Partner
By: /s/ Marshall S. Cogan
----------------------------
Marshall S. Cogan
Chairman of the Board,
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Richard Sinkfield and Philip N.
Smith, Jr., as his true and lawful attorneys-in-fact and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement,
(ii) any exhibits to any such registration statement or pre-effective or
post-effective amendments or (iii) any and all applications and other
documents in connection with any such registration statement or pre-effective
or post-effective amendments, and generally to do all things and perform any
and all acts and things whatsoever requisite and necessary or desirable to
enable the Registrant to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- -------------------------------------------- ----------------------
<S> <C> <C>
/s/ Marshall S. Cogan Chairman of the Board, Chief Executive September 18, 1997
------------------------- Officer and President
Marshall S. Cogan
/s/ Karl H. Winters Executive Vice President and September 18, 1997
------------------------- Chief Financial Officer
Karl H. Winters (Principal Financial Officer)
/s/ James R. Davidson Senior Vice President--Finance and September 18, 1997
------------------------- Treasurer (Principal Accounting Officer)
James R. Davidson and Director
/s/ Robert H. Nelson Director September 18, 1997
-------------------------
Robert H. Nelson
</TABLE>
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York on September 18,
1997.
OCT PARTNERSHIP
By DIFEO PARTNERSHIP VIII, INC.
General Partner
By: /s/ Marshall S. Cogan
----------------------------
Marshall S. Cogan
Chairman of the Board,
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Richard Sinkfield and Philip N.
Smith, Jr., as his true and lawful attorneys-in-fact and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement,
(ii) any exhibits to any such registration statement or pre-effective or
post-effective amendments or (iii) any and all applications and other
documents in connection with any such registration statement or pre-effective
or post-effective amendments, and generally to do all things and perform any
and all acts and things whatsoever requisite and necessary or desirable to
enable the Registrant to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- -------------------------------------------- ----------------------
<S> <C> <C>
/s/ Marshall S. Cogan Chairman of the Board, Chief Executive September 18, 1997
------------------------- Officer and President
Marshall S. Cogan
/s/ Karl H. Winters Executive Vice President and September 18, 1997
------------------------- Chief Financial Officer
Karl H. Winters (Principal Financial Officer)
/s/ James R. Davidson Senior Vice President--Finance and September 18, 1997
------------------------- Treasurer (Principal Accounting Officer)
James R. Davidson and Director
/s/ Robert H. Nelson Director September 18, 1997
-------------------------
Robert H. Nelson
</TABLE>
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York on September 18,
1997.
OCM PARTNERSHIP
By DIFEO PARTNERSHIP IX, INC.
General Partner
By: /s/ Marshall S. Cogan
----------------------------
Marshall S. Cogan
Chairman of the Board,
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Richard Sinkfield and Philip N.
Smith, Jr., as his true and lawful attorneys-in-fact and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement,
(ii) any exhibits to any such registration statement or pre-effective or
post-effective amendments or (iii) any and all applications and other
documents in connection with any such registration statement or pre-effective
or post-effective amendments, and generally to do all things and perform any
and all acts and things whatsoever requisite and necessary or desirable to
enable the Registrant to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- -------------------------------------------- ----------------------
<S> <C> <C>
/s/ Marshall S. Cogan Chairman of the Board, Chief Executive September 18, 1997
------------------------- Officer and President
Marshall S. Cogan
/s/ Karl H. Winters Executive Vice President and September 18, 1997
------------------------- Chief Financial Officer
Karl H. Winters (Principal Financial Officer)
/s/ James R. Davidson Senior Vice President--Finance and September 18, 1997
------------------------- Treasurer (Principal Accounting Officer)
James R. Davidson and Director
/s/ Robert H. Nelson Director September 18, 1997
-------------------------
Robert H. Nelson
</TABLE>
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York on September 18,
1997.
SOMERSET MOTORS PARTNERSHIP
By DIFEO PARTNERSHIP SCT, INC.
General Partner
By: /s/ Marshall S. Cogan
----------------------------
Marshall S. Cogan
Chairman of the Board,
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Richard Sinkfield and Philip N.
Smith, Jr., as his true and lawful attorneys-in-fact and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement,
(ii) any exhibits to any such registration statement or pre-effective or
post-effective amendments or (iii) any and all applications and other
documents in connection with any such registration statement or pre-effective
or post-effective amendments, and generally to do all things and perform any
and all acts and things whatsoever requisite and necessary or desirable to
enable the Registrant to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- -------------------------------------------- ----------------------
<S> <C> <C>
/s/ Marshall S. Cogan Chairman of the Board, Chief Executive September 18, 1997
------------------------- Officer and President
Marshall S. Cogan
/s/ Karl H. Winters Executive Vice President and September 18, 1997
------------------------- Chief Financial Officer
Karl H. Winters (Principal Financial Officer)
/s/ James R. Davidson Senior Vice President--Finance and September 18, 1997
------------------------- Treasurer (Principal Accounting Officer)
James R. Davidson and Director
/s/ Robert H. Nelson Director September 18, 1997
-------------------------
Robert H. Nelson
</TABLE>
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York on September 18,
1997.
COUNTY AUTO GROUP PARTNERSHIP
By DIFEO PARTNERSHIP RCT, INC.
General Partner
By: /s/ Marshall S. Cogan
----------------------------
Marshall S. Cogan
Chairman of the Board,
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Richard Sinkfield and Philip N.
Smith, Jr., as his true and lawful attorneys-in-fact and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement,
(ii) any exhibits to any such registration statement or pre-effective or
post-effective amendments or (iii) any and all applications and other
documents in connection with any such registration statement or pre-effective
or post-effective amendments, and generally to do all things and perform any
and all acts and things whatsoever requisite and necessary or desirable to
enable the Registrant to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- -------------------------------------------- ----------------------
<S> <C> <C>
/s/ Marshall S. Cogan Chairman of the Board, Chief Executive September 18, 1997
------------------------- Officer and President
Marshall S. Cogan
/s/ Karl H. Winters Executive Vice President and September 18, 1997
------------------------- Chief Financial Officer
Karl H. Winters (Principal Financial Officer)
/s/ James R. Davidson Senior Vice President--Finance and September 18, 1997
------------------------- Treasurer (Principal Accounting Officer)
James R. Davidson and Director
/s/ Robert H. Nelson Director September 18, 1997
-------------------------
Robert H. Nelson
</TABLE>
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York on September 18,
1997.
ROCKLAND MOTORS PARTNERSHIP
By DIFEO PARTNERSHIP RCM, INC.
General Partner
By: /s/ Marshall S. Cogan
----------------------------
Marshall S. Cogan
Chairman of the Board,
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Richard Sinkfield and Philip N.
Smith, Jr., as his true and lawful attorneys-in-fact and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement,
(ii) any exhibits to any such registration statement or pre-effective or
post-effective amendments or (iii) any and all applications and other
documents in connection with any such registration statement or pre-effective
or post-effective amendments, and generally to do all things and perform any
and all acts and things whatsoever requisite and necessary or desirable to
enable the Registrant to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- -------------------------------------------- ----------------------
<S> <C> <C>
/s/ Marshall S. Cogan Chairman of the Board, Chief Executive September 18, 1997
------------------------- Officer and President
Marshall S. Cogan
/s/ Karl H. Winters Executive Vice President and September 18, 1997
------------------------- Chief Financial Officer
Karl H. Winters (Principal Financial Officer)
/s/ James R. Davidson Senior Vice President--Finance and September 18, 1997
------------------------- Treasurer (Principal Accounting Officer)
James R. Davidson and Director
/s/ Robert H. Nelson Director September 18, 1997
-------------------------
Robert H. Nelson
</TABLE>
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in New York, New York on September 18,
1997.
SHANNON AUTOMOTIVE, LTD.
By UAG TEXAS II, INC.
General Partner
By: /s/ Marshall S. Cogan
----------------------------
Marshall S. Cogan
Chairman of the Board,
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints each of Richard Sinkfield and Philip N.
Smith, Jr., as his true and lawful attorneys-in-fact and agents for the
undersigned, with full power of substitution, for and in the name, place and
stead of the undersigned to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, (i) any and all
pre-effective and post-effective amendments to this registration statement,
(ii) any exhibits to any such registration statement or pre-effective or
post-effective amendments or (iii) any and all applications and other
documents in connection with any such registration statement or pre-effective
or post-effective amendments, and generally to do all things and perform any
and all acts and things whatsoever requisite and necessary or desirable to
enable the Registrant to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------- -------------------------------------------- ----------------------
<S> <C> <C>
/s/ Marshall S. Cogan Chairman of the Board, Chief Executive September 18, 1997
------------------------- Officer and President
Marshall S. Cogan
/s/ Karl H. Winters Executive Vice President and September 18, 1997
------------------------- Chief Financial Officer
Karl H. Winters (Principal Financial Officer)
/s/ James R. Davidson Senior Vice President--Finance and September 18, 1997
------------------------- Treasurer (Principal Accounting Officer)
James R. Davidson and Director
/s/ Robert H. Nelson Director September 18, 1997
-------------------------
Robert H. Nelson
</TABLE>
II-26
<PAGE>
| Coopers | COOPERS & LYBRAND L.L.P
| & Lybrand |a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated February 25, 1997, on our audits of the financial statements
of United Auto Group, Inc.
/s/ Coopers & Lybrand L.L.P.
Princeton, New Jersey
September 18, 1997
<PAGE>
| Coopers | COOPERS & LYBRAND L.L.P
| & Lybrand |a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated March 25, 1997, on our audit of the financial statements
of Shannon Automotive Ltd.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
September 18, 1997
<PAGE>
| Coopers | COOPERS & LYBRAND L.L.P
| & Lybrand |a professional services firm
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4 of
our report dated June 6, 1997, on our audit of the financial statements
of Staluppi Automotive Group.
/s/ Coopers & Lybrand L.L.P.
Princeton, New Jersey
September 18, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001019849
<NAME> UNITED AUTO GROUP INC
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-01-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 43,318 66,875
<SECURITIES> 0 0
<RECEIVABLES> 85,699 53,241
<ALLOWANCES> 4,816 1,223
<INVENTORY> 262,937 168,855
<CURRENT-ASSETS> 399,481 299,571
<PP&E> 37,286 25,967
<DEPRECIATION> 4,346 3,626
<TOTAL-ASSETS> 755,594 522,950
<CURRENT-LIABILITIES> 331,680 221,455
<BONDS> 93,722 11,121
0 0
0 0
<COMMON> 2 2
<OTHER-SE> 317,527 281,466
<TOTAL-LIABILITY-AND-EQUITY> 55,594 522,950
<SALES> 915,158 1,302,031
<TOTAL-REVENUES> 917,540 1,303,829
<CGS> 798,896 1,157,368
<TOTAL-COSTS> 896,643 1,284,479
<OTHER-EXPENSES> 97 103
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,506 4,716
<INCOME-PRETAX> 18,391 13,731
<INCOME-TAX> 7,378 6,270
<INCOME-CONTINUING> 10,916 7,461
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 4,987
<CHANGES> 0 0
<NET-INCOME> 10,916 2,474
<EPS-PRIMARY> 0.61 0.23
<EPS-DILUTED> 0.61 0.23
</TABLE>
