<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 1-12297
UNITED AUTO GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-3086739
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
375 PARK AVENUE, NEW YORK, NEW YORK 10152
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 223-3300
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Voting Common Stock, par value $0.0001 per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes..x.. No .....
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
The aggregate market value of voting common stock held by non-affiliates as of
March 24, 1998 was $286,862,693.
As of March 24, 1998, there were 19,178,180 shares of voting Common Stock and
605,454 shares of non-voting Common Stock outstanding.
Portions of the registrant's proxy statement to be filed in connection with
the annual meeting of shareholders, presently scheduled to be held on May 21,
1998, are incorporated by reference in Part III of this Form 10-K.
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TABLE OF CONTENTS
PART I
PAGE
<S> <C>
1. Business........................................................................................ 2
2. Properties...................................................................................... 8
3. Legal Proceedings............................................................................... 9
4. Submission of Matters to a Vote of Securityholders.............................................. 9
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters........................... 9
6. Selected Consolidated Financial Data............................................................ 11
7. Management's Discussion and Analysis of Financial Condition and Results of Operations........... 13
8. Financial Statements and Supplementary Data..................................................... 20
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............ 21
PART III
10. Directors and Executive Officers of the Registrant.............................................. 21
11. Executive Compensation.......................................................................... 21
12. Security Ownership of Certain Beneficial Owners and Management.................................. 21
13. Certain Relationships and Related Transactions.................................................. 21
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................................ 21
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PART I
ITEM 1. BUSINESS
OVERVIEW
United Auto Group, Inc. ("UAG" or the "Company") 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. At the end of 1997, the
Company operated franchises located in Arizona, Arkansas, Connecticut,
Florida, Georgia, Nevada, New Jersey, New York, North Carolina, South Carolina,
Tennessee, Texas and Puerto Rico. 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 UnitedAuto Finance Inc.
("UnitedAuto 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. In addition, UAG
dealerships market a complete line of aftermarket automotive products and
services through UnitedAuto Care, an aftermarket products and services
subsidiary.
UAG was incorporated in the State of Delaware in December 1990 and commenced
dealership operations in October 1992. Unless the context otherwise requires,
references herein to "Common Stock" refers to the Company's Voting Common
Stock, par value $0.0001 per share.
The Company was formed to capitalize on consolidation opportunities within the
highly fragmented automotive retailing industry by acquiring, consolidating,
and operating large automobile retailers and related businesses. As capital
requirements to operate dealerships continue to increase and many owners who
were granted franchises in the 1950s and 1960s approach retirement age, many
individual dealers are seeking exit opportunities. These conditions present
attractive consolidation opportunities for larger automobile retailers such as
UAG.
The following table sets forth information with respect to the dealerships
acquired by the Company during 1997:
2
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<TABLE>
<CAPTION>
DATE
ACQUIREE ACQUIRED LOCATIONS FRANCHISES
- -------- -------- --------- ----------
<S> <C> <C> <C>
Crown Automotive 3/97 Houston, TX Chrysler-Plymouth, Dodge, Jeep-Eagle
Hanna Nissan 4/97 Las Vegas, NV Nissan
Staluppi Group 4/97 Long Island, NY Nissan, Toyota
W. Palm Beach, FL Chrysler-Plymouth, Infiniti, 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 Chyrsler-Plymouth, Jeep-Eagle
Shreveport Dodge 9/97 Shreveport, LA Dodge
Covington Pike Dodge 11/97 Memphis, TN Dodge
Central Ford 11/97 Little Rock, AK Ford
Triangle Dealers 12/97 San Juan, Puerto Rico Chrysler, Honda, Toyota, Daewoo
Mayaguez, Puerto Rico Chrysler, Honda, Acura, Daewoo
Ponce, Puerto Rico Honda, Acura, Suzuki
</TABLE>
Management believes that UAG is well-positioned to continue capitalizing on
the consolidation trend in the automotive retailing industry due to its proven
acquisition history, diverse geographic presence, substantial size and
financial resources. Since December 31, 1997, the Company has entered into
agreements to purchase five franchises. Also during the first quarter of 1998,
the Company has completed the acquisition, pending manufacturer approval
relating to certain franchises, of four dealer groups operating 32 franchises
in seven states, including the Young Automotive Group and the Classic
Automotive Group.
UAG purchases substantially all new car inventories directly from
manufacturers. 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. In accordance with the individual
franchise agreements, each dealership is subject to certain rights and
restrictions typical of the industry. The ability of manufacturers to
influence the operations of a dealership, or the loss of a franchise
agreement, could have a negative impact on the Company's operating results.
Manufacturers allocate inventory based on the size and location of
dealerships, but actual shipments result from negotiations with individual
dealers. The Company believes that larger dealers, such as UAG, are better
positioned to secure favorable inventory shipments and optimize manufacturers'
allocations. UAG finances its inventory purchases through revolving credit
arrangements known in the industry as floor plan facilities.
GROWTH STRATEGY
UAG seeks to be a leader in the consolidation of the automotive retailing
industry and to increase stockholder value through a growth strategy that
includes the following principal elements:
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Acquire and Integrate Profitable Dealership Operations
UAG seeks to capitalize on continuing consolidation in the 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 20,000
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 as dealership managers and some also participate in overall Company
operations through 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 catalysts for
continual dealership growth. In addition, the dealer 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
approximating 60% of new vehicle prices, typically generate higher gross
margins than new car sales 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 (i) an increase in the
availability of late-model, low-mileage used vehicles due in part to the large
supply of vehicles coming off short-term leases, (ii) improvements in the
quality of motor vehicles and (iii) increases in the prices of new vehicles.
UAG believes that through its new vehicle franchises, it enjoys significant
advantages over both independent and chain used-vehicle companies in sourcing
used vehicles. Specifically, the Company has access to (i) a steady supply of
used vehicles accepted as trade-ins for new vehicle purchases, (ii) off-lease
vehicles that were originally leased through the new vehicle franchise and
(iii) used vehicle auctions open only to new vehicle dealers. In addition,
only new vehicle franchises are able to sell used vehicles certified by the
manufacturer under recently 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. 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 through its
UnitedAuto Care subsidiary.
Service and Parts. Each of UAG's new vehicle 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
warranties. 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 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 dealership 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.
Generate Incremental Revenue from Automobile Finance Business
The majority of new and used automobiles purchased from franchised dealerships
and independent businesses are financed. To further increase the incremental
profit achievable through its vehicle sales by capturing some of this
financing business, the Company established UnitedAuto Finance, its own
automobile finance subsidiary. UnitedAuto Finance purchases, sells and
services primarily prime credit quality automobile loans originated by both
UAG and third-party dealerships. Additionally, UnitedAuto Finance receives
fees from financial institutions which purchase installment contracts from
customers referred to them by UnitedAuto Finance. Based in Rochester, New
York, UnitedAuto Finance commenced loan operations in January 1995 and, as of
December 31, 1997, served approximately 250 dealerships in Arizona, Arkansas,
Connecticut, Georgia, New Jersey, New York, Tennessee and Texas.
5
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OPERATING STRATEGY
Implement "Best Practices"
The Chairman's Committee, comprised of senior executives 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.
Emphasize Customer Service
Central to UAG's overall philosophy is customer-oriented service designed to
meet the needs of an increasingly sophisticated and demanding automotive
consumer through "one-stop" shopping convenience, competitive pricing and a
sales staff that is knowledgeable about product offerings and responsive to a
customer's particular needs. The Company's goal is to establish lasting
relationships with its customers, which enhance its reputation in the
community and create the opportunity for significant repeat and referral
business.
The quality of customer service provided by dealerships' sales and service
departments is measured by customer satisfaction index ("CSI") scores, which
are derived from data accumulated by manufacturers through individual customer
surveys. UAG relies on this data to improve dealership operations and uses it
as a factor in determining the compensation of general managers and sales and
service personnel in all its dealerships. The Company's most recent CSI scores
indicate that a majority of its dealerships' CSI scores were at or above the
average CSI scores for the applicable regions.
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.
6
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For new vehicle sales, 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 and on-line purchasing services and warehouse
clubs. Due to lower overhead and sales costs, these companies may be capable
of operating on smaller gross margins and offering lower sales prices than
franchised dealers. In addition, the Company may face competition in the
future from partnerships between manufacturers and dealers.
For used vehicle sales, the Company competes with other franchised dealers,
independent used vehicle dealers, automobile rental agencies, private parties
and used vehicle "superstores" for supply and resale of 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 other 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.
UnitedAuto Finance
UnitedAuto 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 with fixed
market rates, and are not as flexible in the marketplace. Independent auto
finance companies focus on unconventional segments of the market with some
lending to lower credit borrowers in exchange for higher yields. The Company
believes that the principal competitive factors in offering financing are
convenience, interest rates and contract terms. Certain larger competitors of
UnitedAuto 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 UnitedAuto Finance, some finance companies are organized by large
dealership groups as part of a vertical integration strategy.
7
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EMPLOYEES AND LABOR RELATIONS
As of December 31, 1997, UAG employed approximately 4,000 people,
approximately 145 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.
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, refrigerant, 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 imposing
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 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.
ITEM 2. PROPERTIES
The Company seeks to structure its operations so as to avoid the ownership of
real property. As a result, the Company leases or subleases all of its
facilities, including dealerships and office space used for corporate
activities. As of December 31, 1997, the Company has leases at each of its
dealerships, which can include facilities for (i) new and used vehicle sales,
(ii) vehicle service operations, (iii) retail and wholesale parts operations,
(iv) body shop operations, (v) storage and (vi) general office use. Such
leases are generally for a period of between five and twenty years and
typically include renewal options for an additional five to ten years in favor
of the Company. In addition, the Company leases office space in New York, NY
and Rochester, NY for the Company's corporate headquarters and the corporate
offices of UnitedAuto Finance.
8
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ITEM 3. 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 the Company's Voting Common
Stock issued in connection with and/or traceable to the Company's initial
public offering (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 the related 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 of 1933, as amended (the "Securities
Act"). They also seek to have their actions certified as class actions under
Federal Rules of Civil Procedure. On August 5, 1997, the Lawsuits were ordered
consolidated for all purposes. On October 3, 1997, the plaintiffs filed a
consolidated amended class action complaint. On November 17, 1997, the Company
filed a motion to dismiss the consolidated amended class action complaint. The
court has not yet ruled on this motion. The Company believes that the
plaintiffs' claims are without merit and intends to defend the Lawsuits
vigorously.
Additionally, the Company and its subsidiaries are involved in litigation that
has arisen in the ordinary course of business. None of these 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
symbol "UAG." There were 119 holders of record of the Common Stock and one
holder of record of the Non-voting Common Stock as of March 24, 1998. There is
no established market for the Company's Non-voting Common Stock, but such
stock is convertible into an equal number of shares of Voting Common Stock at
any time, subject to certain conditions, for no cost at the option of the
holder thereof.
The following table sets forth the high and low sales prices as reported on
the NYSE during each fiscal quarter since the Company's Common Stock began
trading on the NYSE after its initial public offering in October 1996.
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1997 1996
QUARTER ENDED HIGH LOW HIGH LOW
------------- ---- --- ---- ---
March 31 31 3/4 19 1/4 N/A
June 30 19 7/8 16 N/A
September 30 27 7/8 19 1/4 N/A
December 31 26 13/16 13 3/4 35 1/4 21 3/8
The Company has not declared or paid dividends on its Common Stock during 1997
or 1996. The Company intends to retain future earnings, if any, to finance the
development and expansion of its business and, therefore, does not anticipate
paying any cash dividends on its Common Stock in the foreseeable future. The
decision whether to pay dividends will be made by the Board of Directors of
the Company in light of conditions then existing, including the Company's
results of operations, financial condition and requirements, business
conditions and other factors.
The Senior Credit Facility (as hereinafter defined) restricts the Company from
paying dividends in excess of $5.0 million in the aggregate. In addition, the
indentures governing the Notes (as hereinafter defined) limit the Company's
ability to pay dividends based on a formula which takes into account, among
other things, the Company's consolidated net income. The Company is a holding
company whose assets consist primarily of the indirect ownership of the
capital stock of its operating subsidiaries. Consequently, the Company's
ability to pay dividends is dependent upon the earnings of its subsidiaries
and their ability to distribute earnings to the Company and other advances and
payments by such subsidiaries to the Company.
Pursuant to support agreements by the Company in favor of subsidiaries of
UnitedAuto Finance that were entered into in connection with securitization
transactions or sales of automobile loan receivables, the Company is
prohibited from paying dividends in excess of 50% of its cumulative net income
measured over specified periods.
Pursuant to the automobile franchise agreements to which the Company's
dealerships are subject, all dealerships are required to maintain a certain
minimum working capital, and some dealerships are also required to maintain a
certain minimum net worth. These requirements may restrict the ability of the
Company's operating subsidiaries to make dividend payments, which in turn may
restrict the Company's ability to make dividend payments.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected historical consolidated financial and
other data of the Company as of and for the five years in the period ended
December 31, 1997. Such financial information has been derived from the
Company's consolidated financial statements. During the five year period, the
Company made a number of acquisitions, each of which has been accounted for
using the purchase method of accounting. Accordingly, the Company's financial
statements include the results of operations of the acquired dealerships only
from the date of acquisition. As a result, the Company's period to period
results of operations vary depending on the dates of such acquisitions. The
selected consolidated financial data should be read in conjunction with the
Company's consolidated financial statements and related footnotes included
elsewhere herein.
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA (1)
YEARS ENDED DECEMBER 31,
(Dollars in thousands, except per share data)
1997 (2)(3) 1996 (4) 1995 (5) 1994 1993
----------- -------- -------- ---- ----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
AUTO DEALERSHIPS
Total revenues $2,087,148 $1,302,031 $805,621 $731,629 $606,091
Cost of sales, including floor
plan interest 1,830,086 1,156,459 720,634 646,197 536,542
-------------------------------------------------------------------------------------
Gross profit 257,062 145,572 84,987 85,432 69,549
Selling, general and
administrative expenses 255,066 124,244 90,586 80,415 66,910
-------------------------------------------------------------------------------------
Operating income (loss) 1,996 21,328 (5,599) 5,017 2,639
Other interest expense (14,071) (4,398) (1,438) (860) (1,233)
Other income (expense), net 297 2,506 2,208 (2,899) -
-------------------------------------------------------------------------------------
Income (loss) before income taxes (11,778) 19,436 (4,829) 1,258 1,406
AUTO FINANCE
Loss before income taxes (3,735) (1,490) (1,382) (616) -
-------------------------------------------------------------------------------------
TOTAL COMPANY
Income (loss) before minority
interests, income tax
(provision) benefit and (15,513) 17,946 (6,211) 642 1,406
extraordinary item
Minority interests (138) (3,306) 366 (887) (117)
Income tax (provision) benefit 5,511 (6,606) 2,191 - (47)
-------------------------------------------------------------------------------------
Income (loss) before
extraordinary item (10,140) 8,034 (3,654) (245) 1,242
Extraordinary item - (4,987) - - -
-------------------------------------------------------------------------------------
Net income (loss) $(10,140) $3,047 $(3,654) $(245) $1,242
=====================================================================================
Income (loss) before
extraordinary item per diluted
common share $(0.54) $0.74 $(0.67) $(0.06) $0.65
=====================================================================================
OTHER AUTO DEALERSHIP DATA:
Gross profit margin 12.3% 11.2% 10.5% 11.7% 11.5%
Operating margin 0.1% 1.6% (0.7)% 0.7% 0.4%
New cars sold at retail 50,985 36,802 25,138 22,464 18,608
Used cars sold at retail 31,253 18,344 8,953 8,340 7,891
</TABLE>
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<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA (1)
- --------------------------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31,
(Dollars in thousand)
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
AUTO DEALERSHIPS
Intangible assets, net $326,774 $177,194 $48,774 $23,018 $22,832
Long-term debt 238,550 11,121 24,073 6,735 4,122
AUTO FINANCE
Net assets 32,601 14,552 3,501 291 -
TOTAL COMPANY
Total assets 975,662 528,244 240,397 174,922 157,041
Total stockholders' equity 300,557 284,501 51,699 31,432 26,410
</TABLE>
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(1) During 1997, the Company changed its method of accounting for new
vehicle inventory from LIFO to the specific identification method.
Management believes the specific identification method (i) more
accurately matches revenues with costs, (ii) more accurately reflects
the current market value of new vehicle inventories and (iii) will
provide for a more meaningful comparison of the Company's operating
results and financial position with that of its competition. This
change in accounting principle has been applied by retroactively
restating the Company's financial statements for prior years. The
effect of the change in accounting for new vehicle inventories was to
increase net income and income before extraordinary item by $573 ($0.05
per diluted share) in 1996, decrease net income and income before
extraordinary item by $188 ($0.03 per diluted share) in 1995 and
increase net income and income before extraordinary item by $1,446
($0.38 per diluted share) and $1,099 ($0.60 per diluted share) in 1994
and 1993, respectively.
(2) Includes a $31.7 million charge recorded during 1997 (the "Fourth
Quarter Charge"). The charge included costs associated with (i) the
divestiture of automotive franchises, (ii) the closure of three
stand-alone used vehicle satellite locations in Arkansas and the
disposal of related inventory, (iii) the implementation of a new policy
to more efficiently manage the Company's working capital invested in
retail inventory, (iv) excess real estate, (v) the write-off of
non-performing assets and (vi) certain corporate consulting agreements.
Costs associated with the Fourth Quarter Charge amounting to $9.8
million and $20.9 million have been reflected in cost of goods sold and
selling, general and administrative expenses, respectively, in the
Consolidated Statements of Operations. In addition, $1.0 million has
been reflected in the results of UnitedAuto Finance.
(3) Includes the results of Crown Automotive, Hanna Nissan, the Staluppi
Automotive Group, the Gene Reed Automotive Group, the Lance Landers
dealerships, Stone Mountain Jeep Eagle, Shreveport Dodge, Central Ford,
Covington Pike Dodge and the Triangle Group from their respective dates
of acquisition
(4) Includes the results of Atlanta Toyota, United Nissan (GA), Peachtree
Nissan, the Sun Automotive Group, the Evans Group and United Nissan
(TN) from their respective dates of acquisition.
(5) Includes the results of Landers Auto from its date of acquisition.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company retails new and used automobiles and light trucks, operates
service and parts departments and sells various aftermarket products,
including finance and insurance contracts. The Company also owns UnitedAuto
Finance, an automobile finance company.
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
the Company's 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.
UnitedAuto Finance derives revenues from the purchase, sale and servicing of
motor vehicle installment contracts originated by both UAG and third-party
dealerships, as well as from fees paid by financial institutions which
purchase installment contracts from customers referred to them by UnitedAuto
Finance.
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, depreciation, amortization, rent, insurance,
utilities and other outside services. Interest expense consists of interest
charges on all of the Company's interest-bearing debt, other than interest
relating to floor plan inventory financing which is included in cost of sales.
During 1997, the Company recorded a pre-tax charge of $31.7 million (the
"Fourth Quarter Charge"). The charge included costs associated with (i) the
divestiture of automotive franchises, (ii) the closure of three
stand-alone used vehicle satellite locations in Arkansas and the disposal of
related inventory, (iii) the implementation of a new policy to more
efficiently manage the Company's working capital invested in retail inventory,
(iv) excess real estate, (v) the write-off of non-performing assets and (vi)
certain corporate consulting agreements. Costs associated with the Fourth
Quarter Charge amounting to $9.8 million and $20.9 million have been reflected
in cost of goods sold and selling, general and administrative expenses,
respectively, in the Consolidated Statements of Operations. In addition, $1.0
million has been reflected in the results of UnitedAuto Finance.
Also, the Company changed its method of accounting for new vehicle inventory
from LIFO to the specific identification method. All prior period results of
operations and related comparisons in this Management's Discussion and
Analysis of Financial Condition and Results of Operations have been restated
to reflect such change in accounting principle.
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Also, the Company made a number of dealership acquisitions in 1997, 1996 and
1995. 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
date of acquisition.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Auto Dealerships
Revenues. Revenues increased by $785.1 million, or 60.3%, from $1.3 billion to
$2.1 billion. The overall increase in revenues is due principally to
dealership acquisitions made in 1997 and the inclusion of a full year's
revenues for dealerships acquired in 1996, offset by a net decrease in sales
at dealerships owned prior to January 1, 1996. The net decrease in revenues at
dealerships owned prior to January 1, 1996 is due primarily to (i) a reduction
in revenues at Atlanta Toyota, impacted by shortages of inventory of certain
models and weakness in the Atlanta market, and (ii) a decrease in sales volume
at the Company's DiFeo division, resulting principally from the closure of
unprofitable dealerships.
Sales of new and used vehicles increased by $663.0 million, or 56.9%, from
$1.2 billion to $1.8 billion. The overall increase in vehicle sales is due
principally to dealership acquisitions made in 1997 and the inclusion of a
full year's revenues for dealerships acquired in 1996, offset by the net
decrease in new and used vehicle sales at dealerships owned prior to January
1, 1996 noted above. Aggregate unit retail sales of new and used vehicles
increased by 38.5% and 70.4%, respectively, due principally to acquisitions,
offset by the sales declines noted above. For the year ended December 31,
1997, the Company sold 50,985 new vehicles (62.0% of total vehicle sales) and
31,253 used vehicles (38.0% of total vehicle sales). For the year ended
December 31, 1996, the Company sold 36,802 new vehicles (66.7% of total
vehicle sales) and 18,344 used vehicles (33.3% of total vehicle sales). The
increase in the relative proportion of used vehicle sales to total vehicle
sales was due primarily to the expansion of used car operations in response to
the popularity of used cars. New vehicle selling prices increased by an
average of 11.4% due primarily to changes in the mix of models sold and
changes in manufacturer pricing. Used vehicle selling prices increased by an
average of 9.2% due to changes in market conditions which resulted in a change
in the mix of used vehicles sold and the increase in sales of recent model
year off-lease vehicles.
Finance and insurance revenues (aftermarket product sales) increased by $25.2
million, or 57.8%, from $43.6 million to $68.8 million. The increase is due
primarily to (i) dealership acquisitions made in 1997, (ii) the inclusion of a
full year's revenues for dealerships acquired in 1996 and (iii) the
establishment of UnitedAuto Care, partially offset by a net decrease in
finance and insurance revenues in the DiFeo Group. The decrease in the DiFeo
Group is due principally to the closure of certain franchises.
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Service and parts revenues increased by $96.9 million, or 103.2%, from $93.9
million to $190.8 million. The increase is due primarily to dealership
acquisitions made in 1997 and the inclusion of a full year's revenues for
dealerships acquired in 1996, partially offset by a net decrease in service
and parts revenues in the DiFeo Group. The decrease in the DiFeo Group is due
to the closure of certain franchises.
Gross Profit. Gross profit increased by $111.5 million, or 76.6%, from $145.6
million to $257.1 million. Gross profit as a percentage of revenues increased
from 11.2% to 12.3%. The increase in gross profit and in gross profit as a
percentage of revenues is due to (i) dealership acquisitions made in 1997 and
the inclusion of a full year's operations for dealerships acquired in 1996,
(ii) increased dealership 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 revenues, (iv) improved gross
profit margins on finance and insurance revenues, (v) improved gross profit
margins on service and parts revenues and (vi) the establishment of UnitedAuto
Care, offset by the Fourth Quarter Charge.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $130.8 million, or 105.3%, from $124.2
million to $255.1 million due principally to (i) dealership acquisitions made
in 1997 and the inclusion of a full year's operations for dealerships acquired
in 1996, (ii) an increase in the infrastructure required to manage the
substantial increase in the Company's operations and planned expansion of its
business in the future and (iii) the Fourth Quarter Charge. Selling, general
and administrative expenses as a percentage of revenue increased to 12.2 %
from 9.5%.
Other Interest Expense. Other interest expense increased by $9.7 million, from
$4.4 million to $14.1 million. The increase is due to interest expense arising
from (i) borrowings under the Senior Credit Facility, (ii) the issuance of the
Company's Senior Subordinated Notes due 2007 and (iii) 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 $2.3
million, from $2.6 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.
Auto Finance
Loss before income taxes. UnitedAuto Finance's loss before income taxes
increased by $2.2 million, from $1.5 million to $3.7 million. The increase is
due principally to (i) an increase in the infrastructure required to manage
the substantial increase in UnitedAuto Finance's operations and planned
expansion of its business in the future, (ii) charges relating to revised loan
loss estimates and (iii) the Fourth Quarter Charge.
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Total Company
Provision for Income Taxes. During 1997, the Company recorded an income tax
benefit in the amount of $5.5 million, compared with income tax expense of
$6.6 million in the prior year. The change is due to the Company's
experiencing a net operating loss in 1997 compared with net income in 1996.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Auto Dealerships
DiFeo Restructuring. The Company undertook a broad restructuring of its DiFeo
Group in 1995 (the "DiFeo Restructuring"). The restructuring included (i) the
elimination of 17 unprofitable franchises, (ii) a significant reduction in
personnel and (iii) the liquidation of outdated inventory. Costs associated
with the DiFeo Restructuring were approximately $0.5 million and $0.7 million
for the years ended December 31, 1996 and 1995, 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 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 sold 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 car facilities and the establishment of
stand-alone retail used car 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
changes in market conditions which resulted in a change in the mix of used
vehicles sold.
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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 $60.6 million, or 71.3%, from $85.0
million to $145.6 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 6.7% from 10.5% to
11.2%. 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.
Total Company
Provision for Income Taxes. The 1996 provision for income taxes is $6.6
million, compared to an income tax credit of $2.2 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.
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LIQUIDITY AND CAPITAL RESOURCES
CASH AND LIQUIDITY REQUIREMENTS
The cash requirements of the Company are primarily for acquisition of new
dealerships, working capital and the expansion of existing facilities.
Historically, these cash requirements have been met through issuances of
equity and debt instruments and cash flow from operations. At December 31,
1997, the Company had working capital of $105.1 million.
During 1997, dealership activities resulted in net cash provided by operations
of $18.3 million. Net cash used by dealerships in investing activities during
the year ended December 31, 1997 totaled $173.0 million, relating primarily to
dealership acquisitions, funding provided to UnitedAuto Finance and capital
expenditures. Dealership financing activities provided $182.3 million of cash
during the year ended December 31, 1997 principally relating to net proceeds
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.
At December 31, 1997, the Company had approximately $94.4 million of cash
available to fund operations and future acquisitions. In addition, the Company
was party to a $50.0 million Senior Credit Facility, dated March 20, 1997 (as
amended) (the "Senior Credit Facility"), with a group of banks, which was to
be used principally for acquisitions. On February 27, 1998, the Company
replaced the Senior Credit Facility with a new credit agreement, which
provides for up to $75.0 million in term loans, revolving loans and letters of
credit, to be used principally for acquisitions.
During 1997, the Company issued $200.0 million aggregate principal amount of
its 11% Senior Subordinated Notes due 2007 (the "Notes"). Net proceeds from
the sale of the Notes amounted to $189.5 million, of which $50.0 million was
used to repay in full amounts then outstanding under the Senior Credit
Facility. The balance of the proceeds was deposited with the Company's floor
plan lenders, which deposits earn interest at rates designated in the
Company's floor plan agreements with the various floor plan lenders, and
ultimately was used for working capital and to fund acquisitions.
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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. During January and February 1998, the Company
completed the acquisition of several dealerships and dealer groups.
Approximately $98.2 million of the aggregate consideration in connection
therewith was paid in cash, $28.0 million of which was borrowed under the new
credit agreement. 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.
IMPACT OF YEAR 2000
Many existing computer programs use only two digits to identify a year in the
date field and, if not corrected, many computer applications could fail or
generate erroneous results in the year 2000. Based on a recent assessment,
management of the Company believes that its computer systems will not require
any significant modifications in order to properly process date-related
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information in the year 2000 and thereafter (or be "year 2000 compliant").
However, the Company could be materially adversely affected if the systems of
its significant vendors, including those supplying and maintaining the general
ledger and related accounting systems at each of the Company's dealerships,
will not be year 2000 compliant. The Company has received assurances that such
vendors are adequately addressing this issue. Nevertheless, there can be no
guarantee that the systems provided by such vendors, or that the systems of
other companies with which the Company does business, will be year 2000
compliant and that any such non-compliance will not have a material adverse
effect on the Company.
NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
Financial Reporting for Segments of a Business Enterprise ("FAS No. 131"). FAS
No. 131 establishes standards relating to the means by which business' report
operating segment information in financial information issued to shareholders.
FAS No. 131, effective for interim periods beginning after December 31, 1997,
is not expected to result in significant changes to the financial statements
and related disclosures prepared by the Company.
FORWARD LOOKING STATEMENTS
Certain portions of this Annual Report contain "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. All
statements, other than statements of historical facts, included in this Annual
Report or incorporated herein by reference 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,
some of which are described in greater detail elsewhere in this Annual Report,
include the following: (i) the Company is subject to the influence of various
manufacturers whose franchises it holds; (ii) the Company is leveraged and
subject to restrictions imposed by the terms of its indebtedness; (iii) the
Company's growth depends in large part on the Company's ability to manage
expansion, control costs in its operations and consummate and consolidate
dealership acquisitions; (iv) many of the Company's franchise agreements
impose restrictions on the transferability of the Company's Common Stock; (v)
the Company will require substantial additional capital to acquire automobile
dealerships and purchase inventory; (vi) unit sales of motor vehicles
historically have been cyclical; (vii) the automotive retailing industry is
highly competitive; (viii) the automotive retailing industry is a mature
industry; (ix) the Company's success depends to a significant extent on key
members of its management; and (x) the Company's business is seasonal. In
light of the foregoing, readers of this Annual Report are cautioned not to
place undue reliance on the forward-looking statements contained herein.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the consolidated financial statements listed in the accompanying Index to
Consolidated Financial Statements for the information required by this item.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Items 10 through 13 is included in the Company's
definitive proxy statement under the captions "The Board of Directors and its
Committees," "Election of Directors," "Executive Officers," "Security
Ownership of Certain Beneficial Owners and Management" and "Certain
Relationships and Related Transactions." Such information is incorporated
herein by reference, pursuant to General Instruction G(3).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
The consolidated financial statements listed in the accompanying
Index to Consolidated Financial Statements are filed as part of this
Annual Report on Form 10-K.
(b) Reports on Form 8-K.
The Company filed the following Current Reports on Form 8-K during
the quarter ended December 31, 1997:
1. October 31, 1997, reporting under Items 5 and 7 (Hanna
Nissan and Reed Group financial information).
2. November 6, 1997, reporting under Items 5 and 7
(announcement of Young Automotive acquisition).
3. November 20, 1997, reporting under item 7 (United Auto
Group, Inc. pro forma financial information).
(c) Exhibits
3.1(c) Third Restated Certificate of Incorporation.
3.2(a) Restated Bylaws.
4.1(a) Specimen Common Stock certificate.
4.2(f) 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.
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4.4(f) 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.
10.1.1(a) Registration Rights Agreement, dated as of October 15, 1993,
among the Company and the investors listed therein, as amended
July 31, 1996.
10.1.4(a) Form of Warrant.
10.1.8(a) Stock Option Plan of the Company.
10.1.11(a) Letter, dated July 24, 1996, from Chrysler Corporation to the
Company.
10.1.12(a) Agreement, dated July 24, 1996, between the Company and Toyota
Motor Sales U.S.A., Inc.
10.1.13(a) Non-employee Director Compensation Plan of the Company.
10.1.14(a) Form of Agreement among the Company, certain of its affiliates
and American Honda Motor Co., Inc.
10.1.15(a) Form of Option Certificate of the Company in favor of Samuel X.
DiFeo and Joseph C. DiFeo.
10.1.18(d) Consulting Agreement, dated March 3, 1997, between the Company
and Carl Spielvogel.
10.2.1(a) Honda Automobile Dealer Sales and Service Agreement, including
Standard Provisions.
10.2.2(a) Lexus Dealer Agreement, including Standard Provisions.
10.2.3(a) Mitsubishi Dealer Sales and Services Agreement, including
Standard Provisions.
10.2.4(a) BMW of North America, Inc. Dealer Agreement, including Standard
Provisions.
10.2.5(a) Suzuki Term Dealer Sales and Service Agreement, including
Standard Provisions.
10.2.6(a) Toyota Dealer Agreement, including Standard Provisions.
10.2.7(a) General Motors Dealer Sales and Service Agreement, including
Standard Provisions.
10.2.9(a) Nissan Dealer Term Sales and Service Agreement, including
Standard Provisions.
10.2.10(a) Chrysler Corporation Term Sales and Service Agreement, including
Standard Provisions.
10.2.15(a) Hyundai Motor America Dealer Sales and Service Agreement,
including Standard Provisions.
10.2.21 Isuzu Dealer Sales and Service Agreement, including
and .22(a) Standard Provisions.
10.2.26(a) 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.
10.3.1 Ford Sales and Service Agreement, including Standard Provisions.
10.4.5(a) Employment Agreement, dated as of August 1, 1995, between Landers
Auto Sales, Inc. and Steve Landers.
10.5.13(a) Employment Agreement, dated as of January 16, 1996, among the
Company, UAG Atlanta, Inc. and John Smith.
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10.8.1(a) 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. and certain parties named therein, as amended on October 21,
1996 by Amendment No. 1, Amendment No. 2 and Amendment No. 3.
10.8.3(a) Form of Employment Agreement between the Company, UAG West, Inc.,
and Steven Knappenberger.
10.8.5(a) Audi Dealer Agreement, including Standard Provisions.
10.8.6(a) Acura Automobile Dealer Sales and Service Agreement, including
Standard Provisions.
10.8.8(a) Porsche Sales and Service Agreement, including Standard
Provisions.
10.8.9(a) Land Rover North America, Inc. Dealer Agreement, including
Standard Provisions.
10.8.21(e) Rolls-Royce Dealer Agreement.
10.11.1(b) 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.
10.13.1(d) 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.
10.15.1(e) 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.
10.18.1(f) Stock Purchase Agreement, dated July 25, 1997 among The Company,
UAG Classic, Inc., Classic Auto Group, Inc., Cherry Hill Classic
Cars, Inc., Classic Enterprises, Inc., Classic Buick, Inc.,
Classic Chevrolet, Inc., Classic Management, Inc., Classic
Turnersville, Inc., Classic Imports, Inc. and Thomas J. Hessert,
Jr. (as amended).
10.19.1.1(f) Stock Purchase Agreement, dated as of September 25, 1997 among
The Company, UAG Young, Inc., Dan Young Chevrolet, Inc., Dan
Young, Inc., Parkway Chevrolet, Inc., Young Management Group,
Inc. and certain parties named therein.
10.19.1.2(f) Agreement and Plan of Merger, dated as of September 25, 1997
among The Company, UAG Kissimmee Motors, Inc., UAG Paramount
Motors, Inc., UAG Century Motors, Inc., Paramount Chevrolet-Geo,
Inc., Century Chevrolet-Geo, Inc. and certain parties named
therein.
18.1 Letter from Coopers & Lybrand L.L.P. regarding change in
accounting principle.
21.1 Subsidiaries of the Company.
23.1 Consent of Coopers & Lybrand L.L.P.
27.1 December 31, 1997 Financial Data Schedule.
27.2 September 30, 1997 Financial Data Schedule, restated to reflect
(i) a change in the Company's accounting for new vehicle
inventories from LIFO to the Specific Identification method and
(ii) basic and diluted earnings per share data as required by
SFAS 128.
27.3 June 30, 1997 Financial Data Schedule, restated to reflect (i) a
change in the Company's accounting for new vehicle inventories
from LIFO to the Specific Identification method and (ii) basic and
diluted earnings per share data as required by SFAS 128.
27.4 March 31, 1997 Financial Data Schedule, restated to reflect (i) a
change in the Company's accounting for new vehicle inventories from
LIFO to the Specific Identification method and (ii) basic and
diluted earnings per share data as required by SFAS 128.
27.5 December 31, 1996 Financial Data Schedule, restated to reflect (i)
a change in the Company's accounting for new vehicle inventories
from LIFO to the Specific Identification method and (ii) basic and
diluted earnings per share data as required by SFAS 128.
<PAGE>
27.6 September 30, 1996 Financial Data Schedule, restated to reflect (i)
a change in the Company's accounting for new vehicle inventories
from LIFO to the Specific Identification method and (ii) basic and
diluted earnings per share data as required by SFAS 128.
- ------------------------
23
<PAGE>
(a) Incorporated herein by reference to the identically numbered exhibit
to the Company's Registration Statement on Form S-1, Registration No.
333-09429.
(b) 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.
(c) 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.
(d) 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.
(e) 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.
(f) Incorporated herein by reference to the identically numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997, File No. 1-12297.
(d) Schedules - No Financial Statement Schedules are required to be filed
as part of this Annual Report on Form 10-K.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, in New York, New
York on April 13, 1998.
UNITED AUTO GROUP, INC.
By: /s/ Marshall S. Cogan
---------------------------------
Marshall S. Cogan
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on its behalf by
the registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Marshall S. Cogan Chairman of the Board and Chief Executive April 13, 1998
- --------------------------- Officer (Principal Executive Officer)
Marshall S. Cogan
/s/ Samuel X. DiFeo President and Chief Operating Officer April 13, 1998
- --------------------------- and Director
Samuel X. DiFeo
/s/ Karl H. Winters Executive Vice President and April 13, 1998
- --------------------------- Chief Financial Officer
Karl H. Winters (Principal Financial Officer)
/s/ James R. Davidson Executive Vice President - Accounting April 13, 1998
- --------------------------- and Treasurer
James R. Davidson (Principal Accounting Officer)
/s/ Robert H. Nelson Executive Vice President - Operations April 13, 1998
- --------------------------- and Director
Robert H. Nelson
/s/ Richard Sinkfield Executive Vice President - Administration April 13, 1998
- --------------------------- and Director
Richard Sinkfield
/s/ Michael R. Eisenson Director April 13, 1998
- -----------------------
Michael R. Eisenson
/s/ John J. Hannan Director April 13, 1998
- ---------------------------
John J. Hannan
/s/ Jules B. Kroll Director April 13, 1998
- ---------------------------
Jules B. Kroll
/s/ John M. Sallay Director April 13, 1998
- ---------------------------
John M. Sallay
</TABLE>
25
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
UNITED AUTO GROUP, INC.
Report of Independent Accountants................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996........ F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995................................. F-4
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995........................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995................................. F-6
Notes to Consolidated Financial Statements.......................... F-7
F-1
<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. (the "Company") listed in Item 14 of this Form 10-K. 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 the Company as of December 31, 1997 and 1996, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Princeton, New Jersey
February 27, 1998
F-2
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31,
1997 1996
----- ----
<S> <C> <C>
AUTO DEALERSHIPS
Cash and cash equivalents $94,435 $66,875
Accounts receivable, net 92,601 52,018
Inventories 324,330 173,983
Deferred tax assets 16,039 7,004
Other current assets 4,374 4,819
----------------------------
Total current assets 531,779 304,699
Property and equipment, net 37,588 22,341
Intangible assets, net 326,774 177,194
Other assets 42,322 6,587
----------------------------
TOTAL AUTO DEALERSHIP ASSETS 938,463 510,821
----------------------------
AUTO FINANCE
Cash and cash equivalents 1,557 1,138
Restricted cash 3,547 1,850
Finance assets, net 30,408 12,476
Other assets 1,687 1,959
----------------------------
TOTAL AUTO FINANCE ASSETS 37,199 17,423
----------------------------
TOTAL ASSETS $975,662 $528,244
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
AUTO DEALERSHIPS
Floor plan notes payable $328,203 $170,170
Short-term debt 6,069 6,069
Accounts payable 30,199 22,187
Accrued expenses 52,180 19,680
Current portion of long-term debt 9,981 5,444
----------------------------
Total current liabilities 426,632 223,550
Long-term debt 238,550 11,121
Due to related party 616 1,334
Deferred tax liabilities 4,709 4,867
----------------------------
TOTAL AUTO DEALERSHIP LIABILITIES 670,507 240,872
----------------------------
AUTO FINANCE
Short-term debt 387 1,001
Accounts payable and other liabilities 4,211 1,870
----------------------------
TOTAL AUTO FINANCE LIABILITIES 4,598 2,871
----------------------------
Commitments and contingent liabilities
STOCKHOLDERS' EQUITY
Voting Common Stock 2 2
Non-voting Common Stock - -
Additional paid-in-capital 310,373 284,502
Retained earnings (accumulated deficit) (9,818) (3)
----------------------------
TOTAL STOCKHOLDERS' EQUITY 300,557 284,501
----------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $975,662 $528,244
============================
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
AUTO DEALERSHIPS
Vehicle sales $1,827,609 $1,164,569 $716,394
Finance and insurance 68,754 43,574 29,806
Service and parts 190,785 93,888 59,421
-----------------------------------------
Total revenues 2,087,148 1,302,031 805,621
Cost of sales, including floor plan interest 1,830,086 1,156,459 720,634
-----------------------------------------
Gross profit 257,062 145,572 84,987
Selling, general and administrative expenses 255,066 124,244 90,586
-----------------------------------------
Operating income (loss) 1,996 21,328 (5,599)
Other interest expense (14,071) (4,398) (1,438)
Other income (expense), net 297 2,506 2,208
-----------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES - AUTO DEALERSHIPS (11,778) 19,436 (4,829)
-----------------------------------------
AUTO FINANCE
Revenues 2,615 1,798 530
Interest expense (1,014) (421) (174)
Operating and other expenses (5,336) (2,867) (1,738)
-----------------------------------------
LOSS BEFORE INCOME TAXES - AUTO FINANCE (3,735) (1,490) (1,382)
-----------------------------------------
TOTAL COMPANY
Income (loss) before minority interests, income tax
(provision) benefit and extraordinary item (15,513) 17,946 (6,211)
Minority interests (138) (3,306) 366
Income tax (provision) benefit 5,511 (6,606) 2,191
-----------------------------------------
Income (loss) before extraordinary item (10,140) 8,034 (3,654)
Extraordinary item (net of income tax benefit of $2,685) - (4,987) -
=========================================
Net income (loss) $(10,140) $3,047 $(3,654)
=========================================
Basic income (loss) before extraordinary item per
common share $(0.56) $0.79 $(0.74)
=========================================
Basic net income (loss) per common share $(0.56) $0.30 $(0.74)
=========================================
Income (loss) before extraordinary item per diluted common
share $(0.54) $0.74 $(0.67)
=========================================
Net income (loss) per diluted common share $(0.54) $0.28 $(0.67)
=========================================
Shares used in computing basic per share data 18,227 10,144 4,932
=========================================
Shares used in computing diluted per share data 18,607 10,851 5,482
=========================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<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, 1994 1,971,611 $1 1,529,236 $1 $30,827 $604 $31,432
Issuance of stock for cash 1,679,118 - 1,053,549 - 23,921 - 23,921
Net loss - - - - - (3,654) (3,654)
---------------------------------------------------------------------------------------
Balances, December 31, 1995 3,650,729 1 2,582,785 1 54,748 (3,050) 51,699
Issuance of stock, primarily for 1,576,617 - 1,010,965 - 22,854 - 22,854
acquisitions
Preferred stock conversion (5,227,346) (1) 5,227,346 - 1 - 1
Issuance of common stock in minority
exchanges - - 1,113,841 - 34,015 - 34,015
Issuance of stock in initial public - - 6,250,000 1 170,410 - 170,411
offering
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 - - - - - 3,047 3,047
---------------------------------------------------------------------------------------
Balances, December 31, 1996 - - 17,294,928 2 284,502 (3) 284,501
Issuance of stock for acquisitions - - 1,497,218 - 27,986 - 27,986
Issuance of stock - exercise of stock
options - - 503,000 - 6,706 6,706
Repurchase of common stock - - (397,000) - (8,821) - (8,821)
Unrealized gain on marketable securities
-UnitedAuto Finance - - - - - 325 325
Net loss - - - - - (10,140) (10,140)
---------------------------------------------------------------------------------------
Balances, December 31, 1997 - $- 18,898,146 $2 $310,373 $(9,818) $300,557
=======================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
UNITED AUTO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
----------------------- --------------------- ----------------------
AUTO AUTO AUTO AUTO AUTO AUTO
DEALERSHIPS FINANCE DEALERSHIPS FINANCE DEALERSHIPS FINANCE
----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $(7,731) $(2,409) $3,989 $(942) $(2,760) $(894)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating
activities:
Depreciation and amortization 9,100 580 5,325 2,472 2,536 284
Fourth quarter charge 30,660 1,000 - - - -
Deferred income tax benefit (9,193) - 2,401 - (2,374) -
Related party interest income - - (2,580) - (3,039) -
Gain on sales of loans - (101) - (800) - (129)
Loans originated - (193,774) - (75,440) - (18,769)
Loans repaid or sold - 175,751 - 72,659 - 11,236
Minority interests 138 - 3,306 - (366) -
Changes in operating assets and liabilities:
Finance subsidiary assets - (2,208) - (3,346) - -
Accounts receivable (8,317) - (6,480) - (1,524) -
Inventories (39,280) - (10,581) - 16,319 -
Floor plan notes payable 37,210 - 25,548 - (14,753) -
Accounts payable and accrued expenses 2,433 906 (60) 385 5,240 302
Other 3,269 318 2,374 (1,566) 1,417 (77)
---------------------------------------------------------------------------
Net cash provided by (used in) operating
activities 18,289 (19,937) 23,242 (6,578) 696 (8,047)
---------------------------------------------------------------------------
INVESTING ACTIVITIES:
Purchase of equipment and improvements (11,915) (246) (6,457) (314) (1,496) (243)
Dealership acquisitions (139,639) - (98,812) - (19,921) -
Investment in auto finance subsidiary (21,468) 21,468 (12,582) 12,582 (4,592) 4,592
Other investments - - (3,726) (1,417) (4,135) -
---------------------------------------------------------------------------
Net cash provided by (used in) investing
activities (173,022) 21,222 (121,577) 10,851 (30,144) 4,349
---------------------------------------------------------------------------
FINANCING ACTIVITIES:
Proceeds from issuance of stock 4,772 - 195,818 - 25,220 -
Repurchase of common stock (8,821) - (1,179) - - -
Proceeds from borrowings of long-term debt 252,999 - 20,092 - 16,300 -
Deferred financing costs (10,689) - (1,011) - (2,549) -
Net repayments of short-term debt (400) - (10,118) - (3,863) -
Payments of long-term debt and capital leases (54,850) - (43,314) - (2,073) -
Advances from (to) affiliates, net (718) - 225 - 359 -
Borrowings of warehouse credit line - 51,749 - 56,762 - 14,202
Payments of warehouse credit line - (52,615) - (60,428) - (10,005)
---------------------------------------------------------------------------
Net cash provided by (used in) financing
activities 182,293 (866) 160,513 (3,666) 33,394 4,197
---------------------------------------------------------------------------
Net increase in cash and cash equivalents 27,560 419 62,178 607 3,946 499
Cash and cash equivalents, beginning of year 66,875 1,138 4,697 531 751 32
===========================================================================
Cash and cash equivalents, end of year $94,435 $1,557 $66,875 $1,138 $4,697 $531
===========================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<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, UnitedAuto
Finance Inc. ("UnitedAuto Finance"), UAG also purchases, sells and services
financing contracts on new and used vehicles originated by both UAG and third
party dealerships.
As discussed in Note 5, the Company completed a number of acquisitions during
the three years in the period ended December 31, 1997.
In October 1996, The Company consummated an initial public offering of
6,250,000 shares of its common stock (the "IPO"). Net proceeds from the IPO
amounted to $170,410, which were used to prepay outstanding indebtedness, fund
certain acquisitions, fund the expansion of UnitedAuto Finance and for working
capital purposes.
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. CHANGE IN ACCOUNTING PRINCIPLE
In 1997, the Company changed its method of accounting for new vehicle
inventory from LIFO to the specific identification method. Management believes
the specific identification method (i) more accurately matches revenues with
costs, (ii) more accurately reflects the current market value of new vehicle
inventories and (iii) will provide for a more meaningful comparison of the
Company's operating results and financial position with that of its
competition. This change in accounting principle has been applied by
retroactively restating the Company's financial statements for prior years.
The effect of the change in accounting principle was to increase income before
extraordinary item and net income by $573 ($0.05 per diluted share) in 1996
and to decrease income before extraordinary item and net income by $188 ($0.03
per diluted share) in 1995.
F-7
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
3. UNUSUAL ITEMS
During the fourth quarter of 1997, the Company recorded a $31,660 pre-tax
charge. The charge included costs associated with (i) the divestiture of
automotive franchises, (ii) the closure of three stand-alone used vehicle
satellite locations in Arkansas and the disposal of related inventory, (iii)
the implementation of a new policy to more efficiently manage the Company's
working capital invested in retail inventory, (iv) excess real estate, (v) the
write-off of non-performing assets and (vi) certain corporate consulting
agreements. Costs associated with the pre-tax charge amounting to $9,800 and
$20,900 have been reflected in cost of goods sold and selling, general and
administrative expenses, respectively, in the Consolidated Statements of
Operations. In addition, $1,000 has been reflected in the results of
UnitedAuto Finance.
During 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, relating
primarily to severance, were approximately $500 and $680 for the years ended
December 31, 1996 and 1995, respectively.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 of financial
instruments approximates fair value due either to length of maturity or the
existence of variable interest rates that approximate prevailing market rates.
F-8
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
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 and are
periodically sold into a commercial paper conduit or to a financial
institution. 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 the sale of the finance receivables.
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:
Inventory Component Valuation Method
- ------------------- ----------------
New vehicles Specific identification
Used vehicles Specific identification
Parts, accessories and other Factory list price
New vehicle and parts inventories are purchased primarily from vehicle
manufacturers.
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 under - Economic life or life of the
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 Consolidated Statements of Operations.
F-9
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
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 financial
reporting and tax bases 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 of $326,774, consisting primarily of excess of cost over the
fair value of net assets acquired in purchase business combinations, are being
amortized on a straight-line basis over periods not exceeding 40 years.
Accumulated amortization at December 31, 1997 amounted to $10,192.
Amortization expense for the years ended December 31, 1997, 1996 and 1995 was
$6,300, $1,712 and $904, respectively.
Impairment of Long-Lived Assets
The carrying value of long-lived assets, including intangibles, is reviewed if
the facts and circumstances, such as significant declines in revenues,
earnings or cash flows or material adverse changes in the business climate,
suggest that it may be impaired. The Company performs its review by comparing
the book value of long-lived assets to the estimated undiscounted cash flows
relating to such assets. If any impairment in the value of the long-lived
assets is indicated, the carrying value of the long-lived assets is adjusted
to reflect such impairment calculated based on the discounted cash flows of
the impaired assets or the assets fair value, as appropriate.
Auto Finance - Finance Assets
Finance receivables, consisting of retail vehicle loans purchased by
UnitedAuto Finance, are accumulated in pools and sold either to financial
institutions or into commercial paper conduits. Prior to their sale, these
contracts are carried at the lower of their principal balance outstanding or
their market value. Market value is estimated based on the characteristics of
the finance receivable held for sale and the terms of recent sales of similar
finance receivables. Periodically, UnitedAuto Finance repurchases the pools of
finance receivables from the financial institutions or commercial paper
conduits and sells them in a term securitization through special purpose
subsidiaries (a "Securitization"). In connection with each Securitization,
UnitedAuto Finance retains the servicing rights and an interest in the sold
receivables, and is paid a servicing fee which is recognized as collected over
the remaining term of the receivables.
F-10
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
Pursuant to agreements covering the sale of finance receivables to financial
institutions or into commercial paper conduits, UnitedAuto Finance is required
to hedge each such pool to provide protection relating to the pool's net
yield. The notional amounts of outstanding hedges entered into to hedge pools
of finance receivables were $42,837 and $37,612 at December 31, 1997 and 1996,
respectively. The fair value of such hedge agreements represented unrecorded
liabilities of $721 and $288 as of December 31, 1997 and 1996, respectively.
UnitedAuto Finance has credit and interest rate risk exposure on finance
receivables held for sale. Accordingly, UnitedAuto Finance 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. From time to time, while finance receivables are
being accumulated for sale, they may be pledged against a liquidity credit
line established by UnitedAuto Finance.
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, finance assets and accrued expenses.
Advertising
Advertising costs are expensed as incurred. The Company incurred advertising
costs of $25,075, $14,217 and $10,705 for the years ended December 31, 1997,
1996 and 1995, respectively.
Net Income (loss) per Common Share
Basic earnings per share data was computed based on the weighted average
number of common shares outstanding. Diluted earnings per share data was
computed based on the weighted average number of shares of common stock
outstanding, adjusted for the dilutive effect of stock options, warrants and
preferred stock.
Reclassifications
In order to maintain consistency and comparability of financial information
between periods presented, certain reclassifications have been made to the
Company's December 31, 1996 financial statements to conform to the current
year presentation.
F-11
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
5. BUSINESS COMBINATIONS
During 1997 and 1996, the Company completed a number of acquisitions. 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 date of
acquisition.
Acquisitions Completed During 1997
In December 1997, the Company acquired the Triangle Group, located in Puerto
Rico, for $12,800 in cash.
In May 1997, the Company acquired the Gene Reed Automotive Group, located in
North and South Carolina, 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.
In April 1997, the Company acquired the Staluppi Automotive Group (the
"Staluppi Group"), located in New York and Florida, for $49,614, consisting of
$25,450 in cash, $21,864 of promissory notes and $2,300 of UAG common stock.
In addition, if the Staluppi Group achieves certain levels of annual pre-tax
earnings during any of the next three years, the Company will be required to
make additional payments.
In April 1997, the Company acquired Gary Hanna Nissan, Inc., located in Las
Vegas Nevada, 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.
In February 1997, the Company acquired Shannon Automotive Limited, located in
the Houston area, for $7,000 in cash and 335,329 shares of UAG common stock.
During the year ended December 31, 1997, the Company also acquired (i)
Covington Pike Dodge, located in Memphis Tennessee, (ii) Central Ford, located
in Little Rock Arkansas, (iii) Shreveport Dodge, located in Shreveport
Louisiana, (iv) Stone Mountain Chyrsler-Plymouth Jeep-Eagle, located in Stone
Mountain Georgia and (v) the Lance Landers dealerships, located in Benton
Arkansas. The Company paid $15,500 in cash in consideration for such
acquisitions.
F-12
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
Acquisitions Completed During 1996
In October 1996, the Company acquired substantially all of the Sun Group,
located in the Phoenix area, for a total of $24,666 payable in cash plus the
assumption of $4,929 of indebtedness. If the Sun Group achieves certain levels
of annual pre-tax earnings for the two-year period ending October 31, 1998,
the Company will be required to make additional payments.
During the year ended December 31, 1996, the Company also acquired (i) the
Evans Group (ii) Standefer Motor Sales, Inc. (iii) Hickman Nissan, Inc. (iv)
Steve Rayman Nissan, Inc. and (v) Atlanta Toyota, each of which is located in
the Atlanta area. The Company issued $4,400 of seller financed notes payable
and paid $61,800 in cash in consideration for such acquisitions.
Pro Forma Results of Operations
The following unaudited consolidated pro forma results of operations of the
Company for the years ended December 31, 1997 and 1996 give effect to (i)
acquisitions consummated during 1997 and 1996 and (ii) the offering of the
Company's Senior Subordinated Notes due 2007 as if they had occurred on
January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED
1997 1996
---- ----
<S> <C> <C>
Revenues $2,564,164 $2,573,648
Income (loss) before minority interests and income tax provision (22,650) 26,285
Net income (loss) (13,501) 15,471
Net income (loss) per diluted common share (0.71) 0.81
</TABLE>
Pending Acquisitions
In December 1997, the Company entered into a definitive agreement to acquire
the New Graceland Dodge ("Graceland"), located in Memphis Tennessee, for
$5,500 in cash. The acquisition of Graceland closed in February 1998.
In November 1997, the Company entered into a definitive agreement to acquire
the Skelton Automotive Group ("Skelton"), located in Memphis Tennessee.
Consideration for the purchase amounts to $16,500, including $14,700 in cash
and $1,800 of seller financed promissory notes. The acquisition of Skelton
closed in January 1998.
In September 1997, the Company entered into a definitive agreement to acquire
the Young Automotive Group ("Young"), with operations in North Carolina, South
Carolina, Florida, Illinois and Indiana. The aggregate consideration for the
acquisition amounts to $68,600, consisting of $50,000 in cash, 1,040,039
shares of UAG common stock and $7,000 of seller financed promissory notes. The
Company agreed to make a contingent payment in cash or stock to the extent the
shares issued in connection with this transaction have an aggregate market
value of less than $27,000 on the date they become freely tradable. The
acquisition of Young closed in February 1998, pending manufacturer approval
relating to certain franchises.
In July 1997, the Company entered into a definitive agreement to acquire the
Classic Automotive Group ("Classic") in New Jersey. The aggregate consideration
for the acquisition was $28,700, consisting of $28,000 in cash and $700 of UAG
common stock. The acquisition of Classic closed in February 1998, pending
manufacturer approval relating to certain franchises.
F-13
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
6. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
New vehicles $232,804 $114,542
Used vehicles 74,285 50,060
Parts, accessories and other 17,241 9,381
-------------------------------
Total Inventories $324,330 $173,983
===============================
</TABLE>
7. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Furniture, fixtures and equipment $18,202 $9,742
Equipment under capital lease 4,280 2,201
Leasehold improvements 21,546 14,024
-------------------------
Total 44,028 25,967
Less: Accumulated depreciation and amortization 6,440 3,626
-------------------------
Property and equipment, net $37,588 $22,341
=========================
</TABLE>
Depreciation and amortization expense for the years ended December 31, 1997,
1996 and 1995 was $2,800, $1,888 and $1,632, respectively. Accumulated
amortization at December 31, 1997 and 1996 on equipment under capital lease,
included in accumulated depreciation and amortization above, amounted to $830
and $1,072, respectively.
8. 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:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Chrysler Financial Corporation, interest - 8.26% and 8.16% at December 31, 1997
and 1996, respectively. $215,902 $114,533
World Omni Corp., interest - 8.26% and 7.94% at December 31, 1997 and 1996,
respectively. 91,388 18,512
Other, interest - between 7.87% and 8.97% at December 31, 1997 and between 7.75%
and 9.25% at December 31, 1996. 20,913 37,125
---------------------------
Total floor plan notes payable $328,203 $170,170
===========================
</TABLE>
F-14
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
The floor plan agreements grant a security interest in substantially all of
the dealerships assets and require the repayment of debt after a vehicle's
sale. Interest rates on the floor plan agreements are variable and increase or
decrease based on movements in prime or LIBOR borrowing rates. The weighted
average interest rate on floor plan borrowings was 8.2%, 8.3% and 8.9% for the
years ended December 31, 1997, 1996 and 1995, respectively.
9. SHORT-TERM DEBT
The Company and Chrysler Financial Corporation ("CFC") are party to a
short-term debt agreement which shares in the security interest granted under
the floor plan arrangement at one of the Company's dealerships. The agreement
permits borrowings, subject to a formula based on parts and used vehicle
collateral, up to a maximum of $10,000, and includes covenants that require
the maintenance of tangible net worth and other financial ratios. At December
31, 1997, $6,069 was outstanding under this agreement. Interest on borrowings
under this agreement are based on LIBOR plus 2.25%. The CFC agreement replaced
an agreement with GMAC with similar terms. At December 31, 1996, $6,069 was
outstanding under the GMAC agreement. The borrowing rate at December 31, 1997
and 1996 under these agreements was 8.26% and 9.50%, respectively. The
weighted average interest rate on short-term borrowings was 8.15% and 9.89%
for the years ended December 31, 1997 and 1996, respectively.
In addition, UnitedAuto Finance maintained a $5,000 loan arrangement with a
bank (the "Loan Arrangement") for the purpose of purchasing finance
receivables. Under the terms of the Loan Agreement, the amount borrowed by
UnitedAuto Finance could not exceed 95% of the outstanding principal balance
of eligible receivables pledged to secure the loan. The Loan Arrangement
expired on October 30, 1997. The amount outstanding under the Loan Arrangement
as of December 31, 1996 was $748. On February 26, 1998, UnitedAuto Finance
established a new $5,000 loan arrangement with another bank with terms and
conditions similar to the Loan Arrangement.
10. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Series A and B Senior Subordinated Notes due 2007, less net unamortized discount of
$1,744 at December 31,1997 $198,256 $ -
Seller financed promissory notes payable through 2002, weighted average interest - 7.22%
and 8.5% at December 31, 1997 and 1996, respectively. 36,096 6,990
Term loans, weighted average interest - 8.26% and 9.25% at December 31, 1997 and
1996, respectively. 3,266 3,458
Capitalized lease obligations 3,867 4,832
Other installment loans 7,046 1,285
--------------------------
Total long-term debt 248,531 16,565
Less: Current portion 9,981 5,444
--------------------------
Net long-term debt $238,550 $11,121
==========================
</TABLE>
F-15
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
Scheduled maturities of long-term debt for each of the next five years and
thereafter are as follows:
1998 $9,981
1999 8,807
2000 15,020
2001 1,777
2002 11,644
2003 and thereafter 201,302
-----------
Total long-term debt $248,531
===========
On July 23, 1997, the Company completed the sale of $150,000 aggregate
principal amount of 11% Senior Subordinated Notes due 2007 (the "Series A
Notes"). On September 16, 1997, the Company completed the sale of an
additional $50,000 aggregate principal amount of 11% Senior Subordinated Notes
due 2007, Series B (together with the Series A Notes the "Notes"). The sale of
the Notes were exempt from registration under the Securities Act of 1933
pursuant to Rule 144A thereunder. Proceeds from the offering of the Notes
after issue discount, discount to initial purchasers and transaction costs
amounted to approximately $189,469.
The Notes are fully and unconditionally guaranteed (subject to fraudulent
conveyence laws) on a joint and several basis by the Company's Auto Dealership
subsidiaries (the "Note Guarantors"). Separate financial information of the
Note Guarantors has been omitted because (i) the Company is a holding company
with no independent operations and (ii) separate financial information for the
Note Guarantors is presented on the face of the Company's consolidated
financial statements under the caption "Auto Dealerships."
In March 1997, the Company entered into a $50,000 senior credit facility (as
amended, the "Senior Credit Facility"), with a group of banks, which was to be
used principally for acquisitions. The Senior Credit Facility provides for
borrowings on a revolving basis of up to $50,000, bears interest at LIBOR plus
2.75% and matures in March 2000. Pursuant to the terms of the Senior Credit
Facility, the Company is required to pay certain fees relating to outstanding
letters of credit and unused commitments. There were no amounts borrowed
against the Senior Credit Facility as of December 31, 1997.
The Senior Credit Facility contains a number of significant covenants that,
among other things, restrict the ability of the Company to dispose of assets,
incur additional indebtedness, repay other indebtedness, pay dividends, create
liens on assets, make investments or acquisitions and engage in mergers or
consolidations. In addition, the Company is required to comply with specified
ratios and tests, including cash interest expense coverage, debt service
coverage, debt to earnings ratios and a minimum net worth covenant. The Senior
Credit Facility also contains typical events of defaults including change of
control, material adverse change and non-payment of obligations. On February
27, 1998, the Company replaced the Senior Credit Facility with a new credit
agreement (the "Credit Agreement"), which provides for up to $75,000 in term
loans, revolving loans and letters of credit, to be used principally for
acquisitions. The Credit Agreement matures in three years and contains
conditions, covenants and events of default similar to those included in the
terminated Senior Credit Facility.
F-16
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
During 1995, the Company issued indebtedness (the "Old Notes") that was due in
2003, which were redeemed in October 1996 with a portion of the proceeds from
the IPO. The redemption of the Old Notes resulted in an extraordinary pre-tax
loss of $7,672, due to (i) a 10% call premium, (ii) the write-off of original
issue discount and (iii) the write-off of deferred financing costs. The Old
Notes also contained detachable warrants that granted the holders the option
to purchase UAG Common Stock at $0.01 per share. Upon the consummation of the
IPO, 1,109,491 shares of UAG Common Stock were issued in a cash-less exchange
for all of the then outstanding warrants. The settlement of the warrants
resulted in a $2,769 increase to the Company's stockholders' equity.
11. OPERATING LEASE OBLIGATIONS
The Company leases its dealership facilities and corporate office under
non-cancelable operating lease agreements, which expire on various dates
through 2017. Minimum future rental payments required under non-cancelable
operating leases in effect as of December 31, 1997 are as follow:
1998 $21,567
1999 21,436
2000 20,941
2001 20,789
2002 19,632
2003 and thereafter 198,247
-------------
$302,612
=============
Rent expense for the years ended December 31, 1997, 1996, and 1995 amounted to
$17,674, $8,729 and $7,113, respectively. A number of the dealership leases are
with former owners who continue to operate the dealerships as employees of the
Company. Of the total rental payments, $10,911, $5,240 and $4,502,
respectively, were made to related parties.
12. RELATED PARTY TRANSACTIONS
The Company is the tenant under a number of non-cancelable lease agreements
with employees of the Company. The Company believes all such leases are on
terms no less favorable to the Company than would be obtained through
arm's-length negotiations with unaffiliated third parties.
As of January 1, 1997, the Company entered into an agreement whereby the
Company's exposures with respect to the majority of the extended service
contracts sold by UnitedAuto Care are to be assumed by an affiliate of a major
stockholder in exchange for certain fees. It is the Company's belief that the
fees relating to these transactions are on terms at least as favorable as
those which could be obtained from an unrelated third party. Aggregate fees
paid by the Company during 1997 relating to this agreement totaled
approximately $3,154.
F-17
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
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. Interest income on such
advances, amounting to $2,580 and $3,039 in 1996 and 1995, respectively, has
been reflected in other income (expense), net in the accompanying Consolidated
Statements of Operations.
From time to time, the Company pays and/or receives fees from certain major
stockholders for services rendered in the normal course of business. These
transactions reflect the providers' cost or an amount mutually agreed upon by
both parties. It is the Company's belief that the payments relating to these
transactions are on terms at least as favorable as those which could be
obtained from an unrelated third party. Aggregate (income) expense relating to
such transactions of $(2,118), $225 and $359 for the years ending December 31,
1997, 1996 and 1995, respectively, has been reflected in selling, general and
administrative expenses in the accompanying Consolidated Statements of
Operations. As of December 31, 1997 and 1996, the Company owes $616 and $1,334,
respectively, for such services.
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. Under the Stock Option
Plan, all full-time employees of the Company and its subsidiaries and
affiliates are eligible to participate. During 1997, the Company granted
options to purchase 594,800 shares at the fair market value of the Company's
stock on the date of the grant. As of December 31, 1997, 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. As of December 31, 1997, 333,413
shares of Common Stock were available for the grant of options under the Stock
Option Plan. Presented below is a summary of the status of stock options held
by eligible employees during 1997 and 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
---- ----
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
STOCK OPTIONS SHARES PRICE SHARES PRICE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding at
beginning of year 1,026,500 $13.90 127,200 $12.50
Granted 594,800 18.98 945,800 14.22
Exercised 503,000 10.34 46,500 10.00
Forfeited 39,325 11.41 - -
-------------------------------------------------------
Options outstanding at end
of year 1,078,975 $18.45 1,026,500 $13.90
=======================================================
</TABLE>
F-18
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
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 prior to the Company's IPO with
options that vest and become exercisable over four years on a schedule similar
to the previously granted options. In addition, during 1996 the Company
granted 272,800 more options to purchase shares of Common Stock at an exercise
price of ten dollars per share.
The following table summarizes the status of UAG's employee stock options
outstanding and exercisable at January 1, 1998:
<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>
250,000 7.7 $30.00 137,500 $30.00
316,400 8.8 10.00 215,700 10.00
512,575 9.6 18.04 75,700 17.00
================== =============
1,078,975 428,900
================== =============
</TABLE>
The Company has adopted the disclosure only provisions of Financial Accounting
Standards Board Statement of Financial Accounting Standards No. 123,
Accounting for Stock Based Compensation ("SFAS 123"). Had the Company elected
to recognize compensation expense for stock options based on the fair value at
the grant dates of awards, net income and earnings per share would have been
as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996
---- ----
<S> <C> <C>
Income (loss) before extraordinary item $(10,760) $7,094
Income (loss) before extraordinary item per diluted share (0.59) 0.65
Net income (loss) (10,760) 2,107
Net income (loss) per diluted share (0.59) 0.19
</TABLE>
The weighted average fair value of the Company's stock options was calculated
using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997 and 1996: no dividend
yield; expected volatility of 30%; a risk-free interest rate of 7% and
expected lives of five years. The weighted average fair value of options
granted during the years ended December 31, 1997 and 1996 is $4.74 and $4.23
per share, respectively.
F-19
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
14. STOCKHOLDERS' EQUITY
At December 31, 1997 and 1996, the following classes of stock are authorized,
issued or outstanding (share amounts in thousands):
<TABLE>
<S> <C> <C>
Class A Convertible Preferred Stock, $0.0001 par value; retired in 1996. $- $-
Preferred Stock, $0.0001 par value; 100 shares authorized, none issued and - -
outstanding
Voting Common Stock, $0.0001 par value, 40,000 shares authorized; 18,736 shares
issued, including 443 treasury shares, at December 31, 1997; 16,736 shares
issued, including 46 treasury shares, at December 31, 1996. 2 2
Non-voting Common Stock, $0.0001 par value, 1,125 shares authorized; 605 issued and
outstanding at December 31, 1996 and 1995. - -
Class C Common Stock, $0.0001 par value, 20,000 shares authorized; none issued and
outstanding - -
Additional paid-in-capital 310,373 284,502
Retained earnings (accumulated deficit) (9,818) (3)
--------------------------
Total stockholders' equity $300,557 $284,501
==========================
</TABLE>
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. The
repurchase program was completed during 1997, pursuant to which the Company
repurchased a total of 443,000 shares at an average price per share of $22.57.
Concurrent with the IPO, 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. In addition, the Company became
authorized to issue up to 100,000 shares of a new series of Preferred Stock,
with rights, preferences and privileges thereon to be determined by the Board
of Directors. The Company also became authorized to issue up to 20,000,000
shares of Class C Common Stock. No such Preferred or Class C Common Stock has
been issued as of December 31, 1997.
F-20
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
15. INCOME TAXES
The income tax (provision) benefit consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $- $(187) $-
State and local (1,932) (997) (285)
------------------------------------------
Total current (1,932) (1,184) (285)
------------------------------------------
Deferred:
Federal 4,456 (5,422) 2,476
State and local 2,987 - -
------------------------------------------
Total deferred 7,443 (5,422) 2,476
------------------------------------------
Income tax (provision) benefit before extraordinary item 5,511 (6,606) 2,191
Income tax benefit from extraordinary item - 2,685 -
------------------------------------------
Income tax (provision) benefit $5,511 $(3,921) $2,191
==========================================
</TABLE>
The income tax (provision) benefit varied from the U.S. federal statutory
income tax rate due to the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income tax (provision) benefit at Federal statutory rate of 35%. $5,479 $(5,142) $2,046
State and local income taxes, net of federal benefit 720 (892) (186)
Non-deductible amortization of goodwill (750) - -
Valuation allowance - - 745
Tax on income of minority interests - (570) -
Other 62 (2) (414)
-------------------------------------
Income tax (provision) benefit before extraordinary item $5,511 $(6,606) $2,191
=====================================
</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
accounting purposes and those amounts as measured by tax laws and regulations.
The components of deferred tax assets and liabilities at December 31, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
DEFERRED TAX ASSETS
Net operating loss carryforwards $7,751 $6,065
Accrued liabilities 4,988 -
Partnership investments 2,038 -
Other 1,262 939
-------------------------
Total deferred tax assets $16,039 $7,004
-------------------------
DEFERRED TAX LIABILITIES
Depreciation and amortization $(3,848) $-
Sale of finance receivables and other items (861) (1,590)
Partnership investments - (3,277)
-------------------------
Total deferred tax liabilities (4,709) (4,867)
-------------------------
Net deferred tax assets (liabilities) $11,330 $2,137
=========================
</TABLE>
F-21
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
At December 31, 1997, the Company has $15,693 of net operating loss
carryforwards that expire through 2012. In addition, at December 31, 1997, the
Company also has $33,625 of state net operating loss carryforwards that expire
at various dates through 2012.
16. SUPPLEMENTAL CASH FLOW INFORMATION
The following table presents supplementary cash flow information:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- ----
AUTO AUTO AUTO AUTO AUTO AUTO
DEALERSHIPS FINANCE DEALERSHIPS FINANCE DEALERSHIPS FINANCE
----------- ------- ----------- ------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Supplemental information:
Cash paid interest $8,016 $276 $9,912 $420 $8,437 $109
Cash paid income taxes 3,321 56 420 37 - 3
Non-cash financing and
investing activities:
Dealership acquisition
costs financed by
issuance of stock 28,150 - - - - -
Dealership acquisition
cost financed by
long-term debt 27,104 - 4,100 - 4,014 -
Capitalized lease
obligations 1,101 252 1,570 - - -
Stock issuance costs
amortized against
proceeds from issuance
of stock - - 775 - 910 -
Minority interests
acquired by issuance
of stock - - 34,015 - - -
</TABLE>
17. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
STATEMENTS OF OPERATIONS DATA (1) : QUARTER QUARTER QUARTER QUARTER (2)
------- ------- ------- -----------
<S> <C> <C> <C> <C>
1997 (3)
Auto Dealerships
Total revenues $388,200 $526,958 $625,975 $546,015
Gross profit 47,612 68,650 80,641 60,159
Operating income (loss) 5,856 14,683 15,997 (34,540)
Auto Finance
Loss before income taxes (96) (103) (1,175) (2,361)
Total Company
Income (loss) before minority interests and income
tax (provision) benefit 5,588 12,803 9,819 (43,723)
Net income (loss) 3,317 7,599 5,870 (26,926)
Basic net income (loss) per common share 0.19 0.42 0.31 (1.43)
Net income (loss) per diluted common share 0.19 0.42 0.31 (1.41)
</TABLE>
F-22
<PAGE>
UNITED AUTO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Dollars in thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
STATEMENTS OF OPERATIONS DATA (1): QUARTER QUARTER QUARTER QUARTER
1996 (4) ------- ------- ------- -------
<S> <C> <C> <C> <C>
Auto Dealerships
Total revenues $261,719 $336,220 $356,845 $347,247
Gross profit 29,717 37,412 39,892 38,551
Operating income (loss) 2,054 8,055 6,872 4,347
Auto Finance
Loss before income taxes (264) (85) (377) (764)
Total Company
Income (loss) before minority interests and income
tax (provision) benefit 1,706 7,672 5,553 3,015
Income before extraordinary item 449 3,894 2,221 1,470
Extraordinary item - - - (4,987)
Net income (loss) 449 3,894 2,221 (3,517)
Basic income before extraordinary item per common
share 0.07 0.49 0.26 0.10
Income before extraordinary item per diluted common
share 0.06 0.44 0.21 0.09
</TABLE>
(1) As discussed in Note 2, the Company changed its method of accounting
for new vehicle inventory from LIFO to the specific identification
method.
(2) As discussed in Note 3, the Company recorded a $31.7 million charge
during the fourth quarter of 1997.
(3) Includes the results of Crown Automotive, Hanna Nissan, the Staluppi
Automotive Group, the Gene Reed Automotive Group, the Lance Landers
dealerships, Stone Mountain Jeep Eagle, Shreveport Dodge, Central Ford,
Covington Pike Dodge and the Triangle Group from their respective dates
of acquisition
(4) Includes the results of Atlanta Toyota, United Nissan (GA), Peachtree
Nissan, the Sun Automotive Group, the Evans Group and United Nissan
(TN) from their respective dates of acquisition.
The net income (loss) per common share amounts are calculated independently
for each of the quarters presented. The sum of the quarters may not equal the
full year net income (loss) per common share amount.
18. YEAR 2000 RISKS
Many existing computer programs use only two digits to identify a year in the
date field and, if not corrected, many computer applications could fail or
generate erroneous results in the year 2000. Based on a recent assessment,
management of the Company believes that its computer systems will not require
any significant modifications in order to properly process date-related
information in the year 2000 and thereafter (or be "year 2000 compliant").
However, the Company could be materially adversely affected if the systems of
its significant vendors, including those supplying and maintaining the general
ledger and related accounting systems at each of the Company's dealerships,
will not be year 2000 compliant. The Company has received assurances that such
vendors are adequately addressing this issue. Nevertheless, there can be no
guarantee that the systems provided by such vendors, or that the systems of
other companies with which the Company does business, will be year 2000
compliant and that any such non-compliance will not have a material adverse
effect on the Company.
F-23
<PAGE>
19. 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 the Company's Voting 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 the related 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 of 1933, as amended (the "Securities Act"). They also seek to have their
actions certified as class actions under Federal Rules of Civil Procedure.
On August 5, 1997, the Lawsuits were ordered consolidated for all purposes.
On October 3, 1997, the plaintiffs filed a consolidated amended class action
complaint. On November 17, 1997, the Company filed a motion to dismiss the
consolidated amended class action complaint. The court has not yet ruled on
this motion. The Company believes that the plaintiffs' claims are without
merit and intends to defend the Lawsuits vigorously.
Additionally, the Company and its subsidiaries are involved in litigation
that has arisen in the ordinary course of business. None of these 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.
F-24
<PAGE>
EXHIBIT 10.3.1
[LOGO] FORD MOTOR COMPANY
Memphis Region
FORD SALES AND SERVICE AGREEMENT
AGREEMENT made as of the 1st day of December, 1997, by and between Central Ford
Center, Inc., an Arkansas corporation, doing business as Landers Ford and with
a principal place of business at 4600 S. University, PO Box 1649, Little Rock
(Pulaski County), AR 72209 (72018) (hereafter called the "Dealer") and Ford
Motor Company, a Delaware corporation with its principal place of business at
Dearborn, Michigan (hereinafter called the "Company").
- PREAMBLE -
The purpose of this agreement is to (i) establish the Dealer as an
authorized dealer in COMPANY PRODUCTS including VEHICLES (as herein defined),
(ii) set forth the respective responsibilities of the Company in producing and
selling those products to the Dealer and of the Dealer in reselling and
providing service for them and (iii) recognize the interdependence of both
parties in achieving their mutual objectives of satisfactory sales, service and
profits by continuing to develop and retain a broad base of satisfied owners of
COMPANY PRODUCTS.
In entering into this agreement, the Company and the Dealer recognize
that the success of the Company and of each of its authorized dealers depends
largely on the reputation and competitiveness of COMPANY PRODUCTS and dealers'
services, and on how well each fulfills its responsibilities under this
agreement.
It is the opinion of the Company that sales and service of COMPANY
PRODUCTS usually can best be provided to the public through a system of
independent franchised dealers, with each dealer fulfilling its
responsibilities in a given locality from properly located, adequate,
well-equipped and attractive dealerships, which are staffed by competent
personnel and provided with the necessary working capital. The Dealer
recognizes that, in such a franchise system, the Company must plan for the
establishment and maintenance of the numbers, locations and sizes of dealers
necessary for satisfactory and proper sales and service representation in each
market area as it exists and as it develops and changes. At the same time, the
Company endeavors to provide each of its dealers with a reasonable profit
opportunity based on the potential for sales and service of COMPANY PRODUCTS
within its locality.
The Company endeavors to make available to its dealers a variety of
quality products, responsive to broad wants and needs of the buying public,
which are attractively styled, of sound engineering design and produced on a
timely basis at competitive prices. The development, production and sale of
such products require that the Company and its manufacturing sources make large
continuing investments in plants, equipment, tools and other facilities,
engineering and styling research and development, quality control procedures,
trained personnel and marketing programs. Heavy commitments must also be made
in advance for raw materials and
<PAGE>
finished parts. For purposes of making these investments and commitments,
planning production and estimating costs for setting prices, the Company
assumes in advance an estimated volume of sales for each of its products.
Within each year, it develops production schedules from orders submitted by its
franchised dealers and its and their best estimates of the market demand for
COMPANY PRODUCTS.
In turn, each of the Company's franchised dealers makes important
investments or commitments in retail sales and service facilities and
equipment, in working capital, in inventories of vehicles, parts and
accessories, and trained sales and service personnel based on annual planning
volumes for their markets.
If satisfactory volumes for either the Company or a dealer are not
realized, each may suffer because of commitments already made and the cost of
manufacturing and of selling each product may be increased. Each dealer must
give the Company orders for the products needed to serve its market. The
Company seeks to adjust production schedules, to the extent feasible, to fill
dealer orders, and to allocate fairly any product in short supply, but
inevitably both the Company and its dealers suffer loss of profits to the
extent they cannot meet market demands. Thus, the automotive business is a high
risk business in which the Company, its manufacturing sources and its dealers
can succeed only through cooperative and competitive effort in their respective
areas of manufacturing, sales, service and customer satisfaction.
Because it is the dealer who deals directly with, and develops the
sale of COMPANY PRODUCTS to the consuming public, the Company substantially
relies on its dealers to provide successful sales and merchandising programs,
competent service operations and effective owner relations programs. To do
this, dealers must carry out their responsibilities of establishing and
maintaining adequate wholesale and retail finance plans, new and used vehicle
sales programs, parts and service sales programs, personnel training and
supportive capitalization and working capital. To assist its dealers in these
responsibilities, the Company establishes and periodically updates standards of
operation and planning guides based on its experience and current conditions.
It also offers sales and service training courses, advice as to facilities,
counseling in the various phases of new and used vehicle merchandising, parts
and service merchandising, leasing, daily rentals and facilities development.
It also conducts national advertising, promotional and other marketing programs
and assists dealers in developing complementary group and individual programs.
To enable the Company to provide such assistance, it requires dealers
to submit uniform and accurate sales, operating and financial reports from
which it can derive and disseminate analytical and comparative operating data
and advice to dealers. The Company also solicits dealers to bring to its
attention through their National Dealer Council organization any mutual dealer
problems or complaints as they arise.
Because the Company relies heavily on its dealers for success, it
reserves the right to cease doing business with any dealer who is not
contributing sufficiently to such success. Similarly, the Company recognizes
that its dealers look to it to provide competitive products and programs and
that, if it does not do so, any dealer may elect to cease doing business with
the Company.
ii
<PAGE>
The Company has elected to enter into this agreement with the Dealer
with confidence in the Dealer's integrity and ability, its intention to carry
out its responsibilities set forth in this agreement, and its desire to provide
courteous, competent and satisfying sales and service representation to
consumers for COMPANY PRODUCTS, and in reliance upon its representations as to
the persons who will participate in the ownership and management of the
dealership.
The dealer has elected to enter into this agreement with the Company
with confidence in its integrity and ability, its intention to provide
competitive products and assist the Dealer to market them successfully, and its
desire to maintain high quality dealers.
Both parties recognize the rights of the Dealer and the Company under
this agreement are defined and limited by the terms of this agreement and
applicable law. The Company and the Dealer further acknowledge that their
methods of operation and business practices have an important effect on the
reputation of the Dealer, the Company, COMPANY PRODUCTS and other franchised
dealers of the Company. The Company and the Dealer also acknowledge that
certain practices are detrimental to their interests, such as deceptive,
misleading or confusing advertising, pricing, merchandising or business
practices, or misrepresenting the characteristics, quality, condition or origin
of any item of sale.
It is the expectation of each of the parties that by entering into
this agreement, and by the full and faithful observance and performance of its
duties, a mutually satisfactory relationship will be established and
maintained.
- TERMS OF THE AGREEMENT -
IN CONSIDERATION of the mutual agreements and acknowledgements
hereinafter made, the parties hereto agree as follows:
A. The Company hereby appoints the Dealer as an authorized dealer at
retail in VEHICLES and at retail and wholesale in other COMPANY PRODUCTS and
grants the Dealer the privilege of buying COMPANY PRODUCTS from the Company for
sale in its DEALERSHIP OPERATIONS (as herein defined). The Company also grants
to the Dealer the privilege of displaying, at approved location(s), the
Company's trademarks and trade names applicable to COMPANY PRODUCTS. The Dealer
hereby accepts such appointment.
B. Subject to and in accordance with the terms and conditions of this
agreement, the Company shall sell COMPANY PRODUCTS to the Dealer and the Dealer
shall purchase COMPANY PRODUCTS from the Company.
C. The Ford Motor Company Ford Sales and Service Agreement Standard
Provisions (Form "FD925-A"), a duplicate original of which is attached to the
Dealer's duplicate original of this agreement, have been read and agreed to by
the Company and by the Dealer, and such Standard Provisions and any duly
executed and delivered supplement or amendment thereto, are hereby made a part
of this agreement with the same force and effect as if set forth herein in
full.
iii
<PAGE>
D. This agreement shall bind the Company when it bears the facsimile
signature of the General Manager, and the manual countersignature of the
General Sales Manager, Market Representation Manager, or a Regional Sales
Manager, of the Ford Division of the company and a duplicate original thereof
is delivered personally or by mail to the Dealer or the Dealer's principal
place of business.
E. The Dealer acknowledges that (i) this agreement may be executed
only in the manner provided in paragraph D hereof, (ii) no one except the
General Manager, The General Sales Manager, or Market Representation Manager of
the Ford Division of the Company, or the Secretary or an Assistant Secretary of
the Company, is authorized to make or execute any other agreement relating to
the subject matter hereof on behalf of the Company, or in any manner to
enlarge, vary or modify the terms of this agreement, and then only by an
instrument in writing, and (iii) no one except the General Manager of the Ford
Division of the Company, or the Secretary or an Assistant Secretary of the
Company, is authorized to terminate this agreement on behalf of the Company,
and then only by an instrument in writing.
F. In view of the personal nature of this agreement and its objectives
and purposes, the Company expressly reserves to itself the right to execute a
Ford Sales and Service Agreement with individuals or other entities
specifically selected and approved by the Company. Accordingly, this agreement
and the rights and privileges conferred on the Dealer hereunder are not
transferable, assignable or salable by the Dealer and no property right or
interest, direct or indirect, is sold, conveyed or transferred to the Dealer
under this agreement. This Agreement has been entered into by the Company with
the Dealer in reliance (i) upon the representation and agreement that the
following person(s), and only the following person(s), shall be the principal
owners of the Dealer:
<TABLE>
<CAPTION>
HOME PERCENTAGE OF
NAME ADDRESS INTEREST
<S> <C> <C>
BPT Holding, Inc. 7800 Alcoa Rd. - Benton, AR 72015 100
- -------------------------------------------------------------------------------------------------------------------------
Landers United Auto Group No. 5, Inc. 100
- -------------------------------------------------------------------------------------------------------------------------
Landers Auto Sales, Inc. 100
- -------------------------------------------------------------------------------------------------------------------------
United Auto Group, Inc. 100
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(ii) upon the representation and agreement that the following person(s), and
only the following person(s), shall have full managerial authority for the
operating management of the Dealer in the performance of this agreement:
<TABLE>
<CAPTION>
HOME
NAME ADDRESS TITLE
<S> <C> <C>
Steve Landers 3316 Highway 5 - Benton, AR 72015 President
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
iv
<PAGE>
and (iii) upon representation and agreement that the following person(s), and
only the following person(s), shall be the remaining owners of the Dealer:
<TABLE>
<CAPTION>
HOME PERCENTAGE OF INTEREST
NAME ADDRESS
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Dealer shall give the Company prior notice of any proposed change in the
said ownership or managerial authority, and immediate notice of the death or
incapacity of any such person. No such change or notice, and no assignment of
this agreement or of any right or interest herein, shall be effective against
the Company unless and until embodied in an appropriate amendment to or
assignment of this agreement, as the case may be, duly executed and delivered
by the Company and by the Dealer. The Company shall not unreasonably withhold
its consent to any such change.
G. (Strike out either subparagraph (1) or (2) whichever is not
applicable.)
(1) This agreement shall continue in force and effect from the date of
its execution until terminated by either party under the provisions of
paragraph 17 hereof.
H. Both the Company and the Dealer assume and agree to carry out and
perform their respective responsibilities under this agreement.
The parties hereto have duly executed this agreement in duplicate as of the day
and year first above written.
[LOGO] FORD MOTOR COMPANY
/s/ LANDERS FORD
-----------------------------
(Dealer's Trade Name)
General Manager, Ford Division By /s/ Steve J. Landers
-------------------------
Countersigned by (Title) President
--------------------
/s/ [illegible]
- ----------------------------------
- ----------------------------------
v
<PAGE>
FORD SALES & SERVICE AGREEMENT
FORD MOTOR COMPANY
FORD DIVISION
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Paragraph Page
<S> <C> <C>
1. DEFINITIONS..............................................................................................1
2. RESPONSIBILITIES WITH RESPECT TO VEHICLES................................................................3
(a) Sales.................................................................................................3
(b) Orders................................................................................................5
(d) Stocks................................................................................................6
(e) Demonstrators.........................................................................................6
(f) Factory Suggested Price Labels........................................................................7
(g) Owner Literature......................................................................................7
(h) Rebates and Allowances................................................................................7
(i) Warranty..............................................................................................7
3. RESPONSIBILITIES WITH RESPECT TO GENUINE PARTS...........................................................8
(a) Sales.................................................................................................8
(b) Orders................................................................................................8
(c) Consideration of Orders...............................................................................9
(d) Stocks................................................................................................9
(e) Returns and Allowances................................................................................9
(f) Warranty..............................................................................................9
4. RESPONSIBILITIES WITH RESPECT TO SERVICE.................................................................9
(a) Predelivery Service..................................................................................10
(b) Warranty and Policy and Campaign Service.............................................................10
(c) Maintenance and Repair Service.......................................................................11
(d) Service Tools and Equipment..........................................................................11
5. RESPONSIBILITIES WITH RESPECT TO DEALERSHIP FACILITIES..................................................11
(a) Locations and Facilities.............................................................................11
(b) Dealership Facilities Supplement.....................................................................11
(c) Changes and Additions................................................................................11
(d) Company Assistance...................................................................................12
(e) Fulfillment of Responsibility........................................................................12
6. OTHER DEALER AND COMPANY RESPONSIBILITIES...............................................................12
(a) Signs................................................................................................12
(b) Personnel............................................................................................12
(c) Dealer Residence.....................................................................................13
(d) Capital..............................................................................................13
(e) Accounting System....................................................................................13
(f) Financial Reports....................................................................................13
(g) Delivery and Sales Reports...........................................................................13
(h) Customer Handling....................................................................................14
(i) Business Practices, Advertising and Programs.........................................................14
(j) Compliance with Laws, Rules and Regulations..........................................................14
(k) Indemnification by the Company.......................................................................15
7. DEALER'S RESPONSIBILITIES WITH RESPECT TO HOURS OF BUSINESS.............................................16
8. PURCHASES FROM OTHERS AND SALES TO OTHERS...............................................................16
9. DETERMINATION OF DEALER REPRESENTATION..................................................................16
(a) Representation Planning..............................................................................16
(b) Information to Dealer................................................................................16
(c) Additional Dealers...................................................................................17
(d) Established Dealer Points............................................................................17
i
<PAGE>
<CAPTION>
Paragraph Page
<S> <C> <C>
10. PRICES AND CHARGES......................................................................................17
11. TERMS AND TITLE.........................................................................................18
(a) Payment..............................................................................................18
(b) Title................................................................................................18
(c) Risk of Loss and Claims..............................................................................18
(d) Demurrage and Diversion Liability....................................................................18
(e) State and Local Taxes................................................................................19
12. RECORDS, INSPECTIONS AND TESTS..........................................................................19
(a) Record Retention.....................................................................................19
(b) Inspections and Tests................................................................................19
13. CHANGES IN COMPANY PRODUCTS.............................................................................19
14. DEALER NOT AGENT OF THE COMPANY.........................................................................20
15. TRADEMARKS AND TRADE NAMES..............................................................................20
(a) Use in Firm Name.....................................................................................20
(b) Limitations on Use...................................................................................20
16. REPORTS TO FORD MOTOR COMPANY'S DEALER POLICY BOARD.....................................................20
17. TERMINATION OR NONRENEWAL OF AGREEMENT..................................................................21
(a) By Dealer............................................................................................21
(b) By Company Due to Events Controlled by Dealer........................................................21
(c) By Company for Nonperformance by Dealer of Sales, Service, Facilities or Other Responsibilities......22
(d) By Company or Dealer Because of Death or Physical or Mental Incapacity of any Principal Owner........23
(e) By Company or Dealer for Failure of Dealer or Company to be Licensed.................................23
(f) By Company at Will...................................................................................24
(g) By Company Upon the Offer of a New Agreement.........................................................24
(h) Acts in Good Faith...................................................................................24
18. REQUIRED APPEAL TO POLICY BOARD--TERMINATIONS OR NONRENEWALS----OPTIONAL ARBITRATION PLAN...............25
(a) Arbitration Plan.....................................................................................25
(b) Appeal to Policy Board...............................................................................25
(c) Optional Arbitration.................................................................................25
(d) Limitation of Actions................................................................................26
(e) Expenses of Arbitration..............................................................................26
19. OBLIGATIONS UPON TERMINATION OR NONRENEWALS.............................................................27
(a) Sums Owing the Company...............................................................................27
(b) Discontinuance of Use of Trademarks and Trade Names..................................................27
(c) Warranty Work........................................................................................28
(d) Service Records......................................................................................28
(e) Orders and Customer Deposits.........................................................................28
(f) Deliveries After Termination or Nonrenewal...........................................................28
20. SUCCESSOR TO THE DEALER IN THE EVENT OF DEATH OR INCAPACITY.............................................29
(a) Interim Agreement....................................................................................29
(b) Buy-out..............................................................................................31
(c) Term/Continuation....................................................................................31
(d) Limitation of Offer..................................................................................31
(e) Limitation for Acceptance............................................................................32
ii
<PAGE>
<CAPTION>
Paragraph Page
<S> <C> <C>
21. REACQUISITION OF COMPANY PRODUCTS AND ACQUISITION OF THE DEALER'S SIGNS, SPECIAL TOOLS AND
EQUIPMENT, AND MAINTENANCE ITEMS 33
(a) Vehicles.............................................................................................32
(b) Genuine Parts........................................................................................32
(c) Dealer's Signs.......................................................................................32
(d) Special Tools and Equipment..........................................................................33
(e) Procedure Delivery and Title.........................................................................33
(f) Payment..............................................................................................33
(g) Assignment of Benefits...............................................................................34
22. DEALERSHIP FACILITIES ASSISTANCE UPON NONRENEWAL OR CERTAIN TERMINATIONS BY THE COMPANY.................34
(a) Dealer Eligibility...................................................................................34
(b) Eligible Facilities..................................................................................35
(c) Company's Obligation.................................................................................35
(d) Limitations on Company's Obligation..................................................................36
(e) Satisfaction of Company's Obligation.................................................................36
23. TERMINATION BENEFITS FULL COMPENSATION; GENERAL RELEASE.................................................37
24. DISPOSITION OF THE DEALER'S ASSETS......................................................................37
(a) Company Right to Approve Change in Ownership.........................................................37
(b) Company Right to First Refusal to Purchase...........................................................38
25. NEW AGREEMENT...........................................................................................39
26. ACKNOWLEDGEMENTS........................................................................................39
27. NO IMPLIED WAIVERS......................................................................................40
28. RELATIONS AFTER TERMINATION NOT A RENEWAL...............................................................40
29. LIMITATION OF THE COMPANIES LIABILITY...................................................................40
30. NOTICES.................................................................................................40
31. AMENDMENT...............................................................................................41
32. MICHIGAN AGREEMENT......................................................................................41
33. CONFLICT WITH STATUTE...................................................................................41
iii
</TABLE>
<PAGE>
FORD MOTOR COMPANY
FORD SALES AND SERVICE AGREEMENT
STANDARD PROVISIONS
1. DEFINITIONS
As used herein, the following terms shall have the following meanings,
respectively:
(A) "COMPANY PRODUCTS" shall mean such
(1) new passenger cars,
(2) new trucks and chassis, excluding all trucks and chassis of series
850 or higher designations, and
(3) parts and accessories therefor,
as from time to time are offered for sale by the Company to all authorized Ford
dealers as such for resale, plus such other products as may be offered for sale
by the Company to the Dealer from time to time. The Company reserves the right
to offer any new, different and differently designated passenger car, truck or
chassis, and any other product, bearing any trademarks or brand names used or
claimed by the Company or any of its subsidiaries, including the name "Ford",
to selected authorized Ford dealers or others under existing or separate new
agreements; provided, however, that the Company shall not franchise any such
new passenger car bearing the name "Ford" (other than the Ford script-in-oval
corporate form of trademark) to anyone who is not an authorized Ford dealer.
(B) "CAR" shall mean any passenger car, and "TRUCK" shall mean any
truck or chassis, included in this agreement pursuant to paragraph 1(a) above.
"VEHICLE" shall mean any CAR or TRUCK and "VEHICLES" shall mean CARS and
TRUCKS.
(C) "COMPETITIVE CARS" and "COMPETITIVE TRUCKS" shall mean those new
cars and new trucks, respectively, not marketed by the Company which are
selected by the Company as generally comparable with CARS and TRUCKS,
respectively, in price and product characteristics.
(D) "INDUSTRY CARS" and "INDUSTRY TRUCKS" shall mean all new cars and
all new trucks, respectively, of all manufacturers to the extent data therefor
are reasonably available.
<PAGE>
(E) "GENUINE PARTS" shall mean such parts, accessories and equipment
for VEHICLES as are offered for sale by the Company from time to time to the
Dealer.
(F) "DEALER PRICE" shall mean, with respect to each COMPANY PRODUCT to
which it refers, the price to the Dealer for such product, as from time to time
established by the Company, before deduction of any cash or other discount
applicable thereto. It shall not include any amount in the nature of a
predelivery or other holdback deposit or charge, any dealer association
collection, any charge by the Company for distribution, delivery or taxes, or
any other charge for special items or services.
(G) "VEHICLE TERMS OF SALE BULLETIN" shall mean the latest VEHICLE
TERMS OF SALE BULLETIN and amendments thereto furnished to the Dealer from time
to time by the Company setting forth the terms of sale and ordering procedures
applicable to sales of VEHICLES to authorized Ford dealers.
(H) "PARTS AND ACCESSORIES TERMS OF SALE BULLETIN" shall mean the
latest PARTS AND ACCESSORIES TERMS OF SALE BULLETIN and amendments thereto
furnished to the Dealer from time to time by the Company setting forth the
terms of sale and ordering procedures applicable to sales of GENUINE PARTS to
authorized Ford dealers.
(I) "CUSTOMER SERVICE BULLETIN" shall mean the latest CUSTOMER SERVICE
BULLETIN and amendments thereto furnished to the Dealer from time to time by
the Company establishing standards for authorized Ford dealers with respect to
service personnel, training, tools and equipment, for customer handling
procedures and for evaluating the Dealer's service performance.
(J) "DEALER'S LOCALITY" shall mean the locality designated in writing
to the Dealer by the Company from time to time as the area of the Dealer's
sales and service responsibility for COMPANY PRODUCTS.
(K) "DEALERSHIP LOCATION" shall mean the place or places of business
of the Dealer for carrying out this agreement which are approved by the Company
as provided in paragraph 5 of this agreement.
(L) "DEALERSHIP FACILITIES" shall mean the land areas, buildings and
improvements established at the DEALERSHIP LOCATION in accordance with the
provisions of paragraph 5 of this agreement.
(M) "DEALERSHIP OPERATIONS" shall mean the sale of COMPANY PRODUCTS
and used vehicles, service operations and (if the Dealer so elects) rental or
leasing of VEHICLES, conducted by the Dealer at or from the DEALERSHIP
FACILITIES.
-2-
<PAGE>
(N) "CAR PLANNING VOLUME" and "TRUCK PLANNING VOLUME" shall mean the
average annual estimated sales base for CARS and TRUCKS, respectively,
established by the Company for the Dealer from time to time for planning
purposes under its standard procedures for authorized Ford dealers in single or
multiple DEALERS' LOCALITIES, as the case may be, based on historical sales and
registrations, and current trends, in CARS, TRUCKS, COMPETITIVE CARS and TRUCKS
and INDUSTRY CARS and TRUCKS in the DEALER'S LOCALITY. Consideration shall also
be given to the environs of the DEALERSHIP LOCATION and market trends therein,
consumer shopping habits, demographic factors and other appropriate data to the
extent available and pertinent. Such terms shall not represent the actual sales
volumes to be achieved by the Dealer to meet his responsibilities under
paragraph 2 of this agreement.
(O) "PERCENT RESPONSIBILITY" shall mean the ratio of the Dealer's CAR
PLANNING VOLUME, and of the Dealer's TRUCK PLANNING VOLUME, to the total CAR
PLANNING VOLUMES and to the total TRUCK PLANNING VOLUMES, respectively, for all
authorized Ford dealers M" the DEALER'S LOCALITY.
(P) "UIO" (units in operation) shall mean the CARS and TRUCKS of the
next preceding three or more model years (as determined by the Company from
time to time) licensed within the DEALER'S LOCALITY at a given time multiplied
by the Dealer's PERCENT RESPONSIBILITY therefor.
(Q) "GUIDES" shall mean such reasonable standards as may be
established by the Company for the Dealer from time to time under its standard
procedures for authorized Ford dealers (i) for DEALERSHIP FACILITIES and
equipment, capitalization and net working capital based on such factors as CAR
and TRUCK PLANNING VOLUMES, UIO, the DEALER'S LOCALITY and (ii) for
inventories, personnel, demonstrators and other elements of DEALERSHIP
OPERATIONS based on such factors as sales and service volumes.
2. RESPONSIBILITIES WITH RESPECT TO VEHICLES
(A) SALES. The Dealer shall promote vigorously and aggressively
the sale at retail (and, if the Dealer elects, the leasing and rental) of CARS
and TRUCKS to private and fleet customers within the DEALER'S LOCALITY, and
shall develop energetically and satisfactorily the potentials for such sales
and obtain a reasonable share thereof; but the Dealer shall not be limited to
the DEALER'S LOCALITY in making sales. To this end, the Dealer shall develop,
maintain and direct a trained, quality vehicle sales organization and shall
conduct throughout each model year aggressive advertising and sales promotion
activities, making use to the greatest feasible extent of the Company's
advertising and sales promotion programs relating to VEHICLES.
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The Dealer's performance of his sales responsibility for CARS
shall be measured by such reasonable criteria as the Company may develop from
time to time, including:
(1) Dealer's sales of CARS to private and fleet users located in the
DEALER'S LOCALITY as a percentage of:
(i) all private and all fleet registrations of CARS in the
DEALER'S LOCALITY,
(ii) all private and all fleet registrations of COMPETITIVE CARS
in the DEALER'S LOCALITY,
(iii) all private and all fleet registrations of INDUSTRY CARS in
the DEALER'S LOCALITY, and
(iv) the private and fleet sales objectives for CARS established
by the Company for the Dealer from time to time.
(2) If the Dealer is not the only authorized dealer in CARS in the
DEALER'S LOCALITY, the following factors shall be used in
computing percentages pursuant to 2(a)(1) above:
(i) The Dealer's sales of CARS to users located in the DEALER'S
LOCALITY shall be deemed to be the total registrations
thereof in the DEALER'S LOCALITY multiplied by the Dealer's
percent of sales of all CARS made by all authorized Ford
dealers located in the DEALER'S LOCALITY unless the Dealer
or the Company shows that the Dealer actually has made a
different number of such sales,
(ii) The registrations of CARS and COMPETITIVE and INDUSTRY CARS
in the DEALER'S LOCALITY against which the Dealer shall be
measured shall be the total thereof multiplied by the
Dealer's PERCENT RESPONSIBILITY, and
(iii) The Dealer's objectives for CARS shall be the total
objectives therefor of all authorized Ford dealers in the
DEALER'S LOCALITY multiplied by the Dealer's PERCENT
RESPONSIBILITY.
(3) A comparison of each such percentage with percentages similarly
obtained for all other authorized Ford dealers combined in the
Company's sales zone and district in which the Dealer is located,
and where subparagraph 2(a)(2) applies,
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for all other authorized Ford dealers combined in the DEALER'S
LOCALITY.
(4) In evaluating any comparisons provided for in subparagraph 2(a)(3)
above, the Company shall give consideration to the availability of
CARS to the Dealer and other authorized Ford dealers and any
special local marketing conditions that might affect the Dealer's
sales performance differently from the sales performance of
COMPETITIVE or INDUSTRY CAR dealers or other authorized Ford
dealers.
(5) The sales and registration data referred to in this subparagraph
2(a) shall include sales to and registrations in the name of
leasing and daily rental operations and shall be those utilized in
the Company's records or in reports furnished to the Company by
independent sources selected by it and generally available for
such purpose in the automotive industry. In the event such reports
of the registrations and/or sales of INDUSTRY or COMPETITIVE CARS
in the DEALER'S LOCALITY are not generally available, the
evaluation of the Dealer's sales performance shall be based on
such registrations and/or sales or purchase data as can be
reasonably obtained by the Company.
The Dealer's performance of his sales responsibility for TRUCKS shall
be determined in the same manner as for CARS.
The Company will provide to the Dealer an evaluation of his
performance under this subparagraph (2)(a) from time to time as initiated by
the Company, or not more than once a month upon the written request of the
Dealer.
(B) ORDERS.
(1) To enable the Company to plan for and establish, and its
manufacturing sources to carry out, production schedules, the
Dealer shall, on the dates and forms provided by the Company,
furnish the Company basic orders for types of VEHICLES and
specific orders for individual VEHICLES against the applicable
basic order as specified in the applicable VEHICLE TERMS OF
SALE BULLETIN.
(2) The Company is authorized to have installed on any VEHICLE
ordered by the Dealer any equipment or accessory required by
any applicable federal, state or local law, rule, or
regulation.
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(3) Any order for a VEHICLE not shipped during the month for
which delivery was scheduled will remain in effect unless
canceled by the Dealer or the Company by written notice to the
other. An order for an "off standard" VEHICLE may be canceled
only by or with the consent of the Company. Any VEHICLE which
differs from the Company's standard specifications, or which
incorporates special equipment, shall be considered an "off
standard" VEHICLE.
(4) The Dealer shall not be liable to the Company for any failure
to accept shipments of VEHICLES ordered from the Company where
such failure is due to any labor difficulty at the DEALERSHIP
LOCATION or to any cause beyond the Dealer's control or
without the Dealer's fault or negligence.
(C) CONSIDERATION OF ORDERS.
(1) The Company may reject orders not submitted in accordance
with subparagraph 2(b)(1) above. The Company shall make
reasonable efforts to fill each order of the Dealer that is
accepted by the Company. During any period of shortage of any
VEHICLE, the Company shall be entitled to give priority to
accepted orders for such VEHICLES for resale to users residing
within the DEALER'S LOCALITY of the ordering dealer.
(2) The Company shall not be liable to the Dealer in any respect
for failure to ship or for delay in shipment of accepted
orders for VEHICLES where such failure or delay is due wholly
or in part to (i) shortage or curtailment of material, labor,
transportation, or utility services, (ii) any labor or
production difficulty in any of its own or any of its
suppliers' locations, (iii) any governmental action, or (iv)
any cause beyond the Company's control or without its fault or
negligence.
(D) STOCKS. The Dealer shall maintain stocks of current models of such
lines or series of VEHICLES, of an assortment and in quantities as are in
accordance with Company GUIDES therefor, or adequate to meet the Dealer's share
of current and anticipated demand for VEHICLES in the DEALER'S LOCALITY. The
Dealer's maintenance of VEHICLE stocks shall be subject to the Company's
filling the Dealer's orders therefor.
(E) DEMONSTRATORS. The Dealer shall maintain at all times in good
condition and running order for demonstration and loan to prospective
purchasers, such numbers of the latest model of such
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lines or series of VEHICLES as are in accordance with Company GUIDES therefor.
(F) FACTORY SUGGESTED PRICE LABELS. If any CAR is delivered by the
Company to the Dealer with an incorrect label, or without a completed label,
affixed thereto pursuant to the Federal Automobile Information Disclosure Act,
the Dealer shall promptly complete and affix to such CAR a correct label on the
form and in accordance with the directions furnished by the Company.
(G) OWNER LITERATURE. The Dealer shall, in accordance with the
Company's instructions, complete, execute and deliver to each retail purchaser
of a VEHICLE from him the Company's then current publications for owners with
respect to the operation, maintenance and warranty of that VEHICLE (hereinafter
called "Owner's Literature"). The Dealer shall fulfill promptly all dealer
responsibilities under each piece of the Owner's Literature delivered by him.
The Company may specify in the Owner's Literature that the Dealer will perform
certain inspections of the VEHICLE. The Dealer authorizes the Company to charge
his account for work done by another Company authorized CAR or TRUCK dealer
under the Owner's Literature delivered by the Dealer, and to credit his account
for work done by him under Owner's Literature delivered by another Company
authorized CAR or TRUCK dealer. The charge or credit shall be in the amount
specified by the Company from time to time.
(H) REBATES AND ALLOWANCES. The Dealer shall be entitled to such
rebates and allowances from the Company on VEHICLES and factory-installed
options, subject to such conditions and procedures, as may be specified in the
applicable VEHICLE TERMS OF SALE BULLETIN or other notice pertaining thereto
sent to the Dealer by the Company, provided that any change in the model
close-out allowance shall be announced to the Dealer prior to the Company's
solicitation of the build-out order.
(I) WARRANTY. The Company shall from time to time establish, by notice
to the Dealer, the warranty to the owner applicable to each VEHICLE. There
shall be NO OTHER WARRANTY, express or implied, including any warranty of
MERCHANTABILITY OR FITNESS, or any other obligation of the Company to the
Dealer or the owner with respect to the VEHICLE or any part thereof except the
warranty established pursuant to this subparagraph. The Dealer shall expressly
incorporate such warranty as a part of each buyer's order form or other
contract for the sale of a VEHICLE and shall deliver a copy of the warranty,
in. the form furnished by the Company, to the owner at the time the VEHICLE is
delivered to the owner, all in accordance with instructions set forth in the
Company's then current Warranty and Policy Manual and supplements thereto
(hereinafter called "Warranty Manual").
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3. RESPONSIBILITIES WITH RESPECT TO GENUINE PARTS
(A) SALES. The Dealer shall promote vigorously and aggressively the
sale of GENUINE PARTS to service, wholesale and other customers within the
DEALER'S LOCALITY, and shall develop energetically and satisfactorily the
potentials for such sale and obtain a reasonable share thereof; but the Dealer
shall not be limited to the DEALER'S LOCALITY in making sales. To this end, the
Dealer shall develop, maintain and direct a trained quality parts sales
organization and shall conduct aggressive advertising and sales promotion
activities, making use to the greatest feasible extent of the Company's
advertising and sales promotion programs relating to GENUINE PARTS. The Dealer
shall not sell or offer for sale or use in the repair of any COMPANY PRODUCT,
as a GENUINE PART, any part or accessory that is not in fact a GENUINE PART.
The Dealer's performance of his sales responsibility for GENUINE PARTS
shall be measured by such reasonable criteria as the Company may develop from
time to time including:
(1) His sales as a percentage of the sales objectives established
for him by the Company from time to time, and his sales per
UIO, and
(2) A comparison of such percentage and sales per UIO with the
percentage similarly obtained and sales per UIO of all other
authorized Ford dealers combined in one or more of the
following: (i) the DEALER'S LOCALITY, (ii) the Company's
sales or service zone, and (iii) the district in which the
Dealer is located, as the Company may determine.
(B) ORDERS.
(1) Stock orders for the Dealer's requirements of GENUINE PARTS
shall be furnished to the Company by the Dealer in accordance
with the applicable PARTS AND ACCESSORIES TERMS OF SALE
BULLETIN.
(2) Any order for a GENUINE PART not shipped in accordance with
normal shipping schedules will remain in effect unless
cancelled by the Dealer or the Company by written notice to
the other.
(3) The Dealer shall not be liable to the Company for any failure
to accept shipment of GENUINE PARTS ordered from the Company
where such failure is due to any labor difficulty in the
Dealer's place of business or to any cause beyond the
Dealer's control or without the Dealer's fault or negligence.
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(C) CONSIDERATION OF ORDERS.
(1) The Company shall make reasonable efforts to fill each order
of the Dealer that is accepted by the Company.
(2) The Company shall not be liable to the Dealer in any respect
for failure to ship or for delay in shipment of accepted
orders for GENUINE PARTS where such failure or delay is due
wholly or in part to (i) shortage or curtailment of material,
labor, transportation or utility services, (ii) any labor or
production difficulty in any of its own or any of its
suppliers' locations, (iii) any governmental action or (iv)
any cause beyond the Company's control or without its fault
or negligence.
(D) STOCKS. The Dealer shall maintain a stock of parts, including
GENUINE PARTS, in accordance with Company GUIDES therefor, and of an assortment
in quantities adequate to meet the current and anticipated demand therefor. The
Dealer's maintenance of stocks of GENUINE PARTS shall be subject to the
Company's filling the Dealer's orders therefor.
(E) RETURNS AND ALLOWANCES. The Dealer shall be entitled to such
allowances, discounts, incentives and return privileges from the Company on
GENUINE PARTS subject to such conditions and procedures as may be specified in
the applicable PARTS AND ACCESSORIES TERMS OF SALE BULLETIN or other notice
pertaining thereto sent to the Dealer by the Company.
(F) WARRANTY. The Company shall from time to time establish, by notice
to the Dealer, the warranty applicable to each GENUINE PART. There shall be NO
OTHER WARRANTY, express or implied, including any warranty of MERCHANTABILITY
OR FITNESS, or any other obligation of the Company to the Dealer or the
customer with respect to any GENUINE PART or any part thereof except the
warranty established pursuant to this subparagraph. The Dealer shall expressly
incorporate such warranty as a part of each sale of a GENUINE PART, in
accordance with instructions set forth in the Warranty Manual.
4. RESPONSIBILITIES WITH RESPECT TO SERVICE
The Dealer shall develop, maintain and direct a trained, quality
service organization and render at the DEALERSHIP FACILITIES prompt,
workmanlike, courteous and willing service to owners and users of COMPANY
PRODUCTS, in accordance with the standards and procedures set forth in the
applicable CUSTOMER SERVICE BULLETIN, including without limitation all service
to which a purchaser of a COMPANY PRODUCT from any authorized Ford dealer may
be entitled.
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(A) PREDELIVERY SERVICE. The Dealer shall perform or be responsible
for the performance of such inspection, conditioning and repair of each VEHICLE
before delivery as may be prescribed for such VEHICLE in the Company's
applicable predelivery inspection and conditioning schedules furnished by the
Company to the Dealer. The Dealer shall maintain or be responsible for the
maintenance of adequate records of all predelivery inspection, conditioning and
repair work performed by or for the Dealer.
(B) WARRANTY AND POLICY AND CAMPAIGN SERVICE.
(1) The Dealer shall perform all warranty and policy service on
each COMPANY PRODUCT it is certified to sell and service,
presented by owners, in accordance with the warranty and
policy applicable thereto and the applicable provisions of
the Warranty Manual and CUSTOMER SERVICE BULLETIN.
(2) The Dealer shall perform campaign inspections and/or
corrections for owners and users of all VEHICLES, subject to
the campaign instructions issued by the Company from time to
time and the applicable provisions of the Warranty Manual.
The Company may ship parts in quantity to the Dealer to
effect such campaign work and if such parts are in excess of
the Dealer's requirements, the Dealer may return unused parts
to the Company for credit after completion of the campaign.
(3) The Dealer shall use only GENUINE PARTS in performing
warranty, policy and campaign work, except as otherwise
provided in the Warranty Manual, CUSTOMER SERVICE BULLETIN or
campaign instructions, and shall give precedence to all such
work over other service work if the use of the vehicle is
impaired. The Dealer shall promptly report to the Company,
and seek the Company's assistance with respect to, any
warranty or policy or campaign work which cannot be performed
to the owner's or the Dealer's satisfaction. The Company
shall give precedence to such requests over other service
assistance. The Dealer shall provide the owner with a copy of
the repair order for such work itemizing the work performed.
The Dealer shall have such repair order signed by the owner
except in unusual circumstances where it is not feasible to
obtain such signature.
(4) The Dealer shall submit claims to the Company for
reimbursement for the parts and labor used in performing
warranty, policy and campaign work and the Company shall
reimburse the Dealer therefor,
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in accordance with the provisions of the Warranty Manual or
campaign instructions and the Dealer's approved warranty
labor rate. The Dealer shall maintain adequate records and
documents supporting such claims in accordance with the
provisions of the Warranty Manual.
(C) MAINTENANCE AND REPAIR SERVICE. The Dealer shall perform all other
maintenance and repair services, including, where feasible, body repair
services, reasonably required by owners and users of VEHICLES and shall provide
each customer a copy of the repair order itemizing the work performed and the
charges therefor. The Dealer shall have the customer sign such repair order
except in unusual circumstances where it is not feasible to obtain such
signature.
(D) SERVICE TOOLS AND EQUIPMENT. The Dealer shall acquire and maintain
for use in DEALERSHIP OPERATIONS such diagnostic equipment and other tools,
equipment and machinery, comparable to the type and quality recommended by the
Company from time to time, as are necessary to meet the Dealer's service
responsibilities hereunder and substantially in accordance with Company GUIDES
therefor and the applicable CUSTOMER SERVICE BULLETIN.
5. RESPONSIBILITIES WITH RESPECT TO DEALERSHIP FACILITIES
(A) LOCATIONS AND FACILITIES. The Dealer shall establish and maintain
at the DEALERSHIP LOCATION approved by the Company DEALERSHIP FACILITIES of
satisfactory appearance and condition and adequate to meet the Dealer's
responsibilities under this agreement. The DEALERSHIP FACILITIES shall be
substantially in accordance with the GUIDES therefor established by the Company
from time to time.
(B) DEALERSHIP FACILITIES SUPPLEMENT. The Dealer and the Company have
executed, as a part of and simultaneously with this agreement, a Dealership
Facilities Supplement which includes a description of all of the DEALERSHIP
LOCATION and FACILITIES, the GUIDES therefor as of the date of this agreement
and the purpose for which each shall be used.
(C) CHANGES AND ADDITIONS. The Dealer shall not move or substantially
modify or change the usage of any of the DEALERSHIP LOCATION or FACILITIES for
COMPANY PRODUCTS, nor shall the Dealer or any person named in subparagraphs
F(i) or F(ii) hereof directly or indirectly establish or operate in whole or in
part any other locations or facilities for the sale or service of COMPANY
PRODUCTS or the sale of used vehicles without the prior written consent of the
Company. Any such change shall be evidenced by a new Dealership Facilities
Supplement executed by the Dealer and the Company. To ensure that all data
included on the Dealership Facilities Supplement are reasonably accurate, the
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Company and the Dealer shall execute a new Dealership Facilities Supplement at
least once every five (5) years.
(D) COMPANY ASSISTANCE. To assist the Dealer in planning, establishing
and maintaining DEALERSHIP LOCATION and FACILITIES in accordance with his
responsibilities under this agreement, the Company will make available, at the
request of the Dealer, and at a mutually convenient time and place, personnel
to provide counsel and advice regarding location and facility planning,
including layout and design.
(E) FULFILLMENT OF RESPONSIBILITY. The Dealer shall be deemed to be
fulfilling his responsibilities under this paragraph 5 when and as long as the
DEALERSHIP LOCATION is approved by the Company and the DEALERSHIP FACILITIES
are substantially in accordance with the current GUIDES therefor. The execution
of this agreement or of any Dealership Facilities Supplement shall not of
itself be construed as evidence of the fulfillment by the Dealer of his
responsibilities to provide adequate DEALERSHIP LOCATION and FACILITIES.
6. OTHER DEALER AND COMPANY RESPONSIBILITIES
(A) SIGNS. The Dealer shall install and maintain at the DEALERSHIP
LOCATION signs of good appearance and adequate to identify such locations as
(1) authorized sales and service establishments for VEHICLES and other COMPANY
PRODUCTS identifying such products as products of the Company, (2) authorized
sales locations for used vehicles and (3) authorized locations for the leasing
or rental of vehicles, as the case may be. Each sign shall be compatible with
the design standards established by the Company from time to time and shall be
subject to the Company's approval with respect to any display of any trademark
or trade name used or claimed by the Company or any of its subsidiaries.
Fulfillment of any separate Dealership Identification Agreement between the
Dealer and the Company shall be deemed fulfillment of this subparagraph 6(a).
The Company will make available, at the request of the Dealer, and at a
mutually convenient time and place, personnel to provide counsel and advice
regarding dealership signs and identification.
(B) PERSONNEL. The Dealer shall employ and train such numbers and
classifications of competent personnel of good character, including, without
limitation, sales, parts, service, owner relations and other department
managers, salesmen and service technicians, as will enable the Dealer to
fulfill all his responsibilities under this agreement. The Company shall
provide assistance to the Dealer in determining personnel requirements. In
response to the training needs of the Dealer's personnel, the Dealer at his
expense shall cause his personnel to attend training schools or courses
conducted by the Company from time to time.
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(C) DEALER RESIDENCE. Effective operation of the Dealer's business is
dependent in large part on the Dealer's management becoming a part of and
accepted within his local community. Accordingly, each person named in
subparagraph F(ii) hereof shall (unless otherwise approved in writing by the
Company because of individual circumstances) reside within the DEALER'S
LOCALITY.
(D) CAPITAL. The Dealer shall at all times maintain and employ in
connection with his DEALERSHIP OPERATIONS separately from any other business of
the Dealer, such total investment, net working capital, adequate lines of
wholesale credit and competitive retail financing plans for VEHICLES as are in
accordance with Company GUIDES therefor and will enable the Dealer to fulfill
all his responsibilities under this agreement.
(E) ACCOUNTING SYSTEM. It is in the mutual interests of the Dealer and
the Company that uniform accounting systems and practices be maintained by the
Company's authorized dealers in order that the Company may develop and
disseminate helpful information, evaluate the relative operating performance of
each dealer and develop criteria that will enable the Company to formulate
plans and policies in the interests of its dealers and the Company and that
will assist each dealer to obtain satisfactory results from his dealership
operations. Accordingly, the Dealer shall install and use in his DEALERSHIP
OPERATIONS, whether conducted as one or several business entities, an
accounting system, not exclusive of any other system the Dealer may wish to
use, in accordance with the Company's Manual of Dealer Accounting Procedures as
amended from time to time.
(F) FINANCIAL REPORTS. In furtherance of the mutual interests set
forth in paragraph 6(e) hereof, the Dealer shall furnish to the Company each
month, at the time and on the forms prescribed by the Company, a complete
statement reflecting the true financial condition and the month and
year-to-date operating results of his DEALERSHIP OPERATIONS as of the end of
the preceding month. The Dealer also shall promptly furnish to the Company a
copy of any adjusted annual statement that may be prepared by or for the
Dealer. All such statements, reports and data shall be based whenever
applicable upon the accounting system installed and used by the Dealer in
accordance with subparagraph 6(e). Financial information furnished by the
Dealer shall be handled on a confidential basis by the Company and, unless
authorized by the Dealer or required by law, or offered in evidence in judicial
or arbitration proceedings, shall not be furnished, except as an unidentified
part of a composite or coded report, to any party outside of the Company.
(G) DELIVERY AND SALES REPORTS. To assist the Company in evaluating
current sales and market trends, in advising its manufacturing sources of
adjustments desired in production and distribution schedules, and in providing
the type of information
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necessary to provide assistance and counsel to the Dealer, the Dealer shall (1)
accurately complete the information prescribed on the vehicle delivery card and
forward such card to the Company at or as soon as reasonably possible after the
end of the day on which the new VEHICLE is delivered or sold, whichever shall
occur first, to the private or fleet customer or to rental or leasing
operations, if any, conducted or controlled by the Dealer, and (2) furnish the
Company with accurate and complete delivery or sales reports and data relating
to the Dealer and his DEALERSHIP OPERATIONS at the times and on such forms as
the Company may specify from time to time.
(H) CUSTOMER HANDLING. The Dealer shall cooperate with Company
programs, and develop and maintain his own programs, designed to develop good
relationships between the Dealer and the public. The Dealer shall promptly
investigate and handle all matters brought to his attention by the Company or
the public relating to the sale or servicing of COMPANY PRODUCTS in the
DEALER'S LOCALITY, in accordance with procedures set forth in the applicable
CUSTOM SERVICE BULLETIN, so as to develop public confidence in the Dealer, the
Company and COMPANY PRODUCTS. The Dealer shall report promptly to the Company
the details of each inquiry or complaint received by the Dealer relating to any
COMPANY PRODUCT which the Dealer cannot handle satisfactorily. The Dealer shall
not make, directly or indirectly, any false or misleading statement or
representation to any customer as to any VEHICLE, GENUINE PART or other COMPANY
PRODUCT as to the source, condition or capabilities thereof, or the Dealer's or
the Company's prices or charges therefor or for distribution, delivery, taxes
or other items.
(I) BUSINESS PRACTICES, ADVERTISING AND PROGRAMS. The Dealer shall
conduct DEALERSHIP OPERATIONS in a manner that will reflect favorably at all
times on the reputation of the Dealer, other Company authorized dealers, the
Company, COMPANY PRODUCTS and trademarks and trade names used or claimed by the
Company or any of its subsidiaries. The Dealer shall avoid in every way any
"bait", deceptive, misleading, confusing or illegal advertising or business
practice. The Company shall not publish or employ any such advertising or
practice or encourage any dealer or group of dealers to do so.
(J) COMPLIANCE WITH LAWS, RULES AND REGULATIONS. The Dealer shall
comply with all applicable federal, state, and local laws, rules and
regulations in the ordering, sale and service of COMPANY PRODUCTS and the sale
and service of used vehicles, including without limitation those related to
motor vehicle safety, emissions control and customer service. The Company shall
provide the Dealer, and the Dealer shall provide the Company, such information
and assistance as may be reasonably requested by the other in connection with
the performance of obligations under such laws, rules and regulations.
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(K) INDEMNIFICATION BY THE COMPANY. The Company shall defend,
indemnify, hold harmless and protect the Dealer from any losses, damages or
expense, including costs and attorney's fees, resulting from or related to
lawsuits, complaints or claims commenced against the Dealer by third parties
concerning:
(1) Property damage to a COMPANY PRODUCT or bodily injury or
property damage arising out of an occurrence caused solely by
a "production defect" in that product (i.e., due to defective
materials or workmanship utilized or performed at the
factory, except for any "production defect" in tires and
diesel engines made by others, provided, however, that the
"production defect" could not have been discovered by the
Dealer in the reasonable pre-delivery inspection of the
VEHICLE, as recommended by the Company.
(2) Property damage to a COMPANY PRODUCT or bodily injury or
property damage arising out of an occurrence caused solely by
a defect in the design of that product, except for a defect
in the design of tires or diesel engines made by others.
(3) Any damage occurring to a new VEHICLE, and repaired by the
Company (excluding removal and replacement of an entire
component with a like component where no welding, riveting or
painting is involved), from the time the VEHICLE leaves the
Company's assembly plant or warehouse to the time it is
delivered to the Dealer's designated location, provided the
Company failed to notify the Dealer in writing of such damage
and repair in transit prior to delivery of the VEHICLE to the
first retail customer.
In the event that any legal action arising out of any of
these causes is brought against the Dealer, the Company shall
undertake, at its sole expense, to defend said action on
behalf of the Dealer when requested to do so by the Dealer,
provided that the Dealer promptly notifies the Company in
writing of the commencement of the action against the Dealer
and cooperates fully in the defense of the action in such
manner and to such extent as the Company may reasonably
require (provided, however, that the Company shall have the
right to continue the suit in the name of the Dealer, if the
Company deems such action to be necessary). Should the
Company refuse to undertake the defense on behalf of the
Dealer, or fail to undertake an adequate defense, the Dealer
may conduct its own defense and the Company shall be liable
for the
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cost of such defense, including reasonable attorney's fees,
together with any verdict, judgment or settlement paid by the
Dealer (provided, however, that the Dealer shall notify the
Company within a reasonable period of any such settlement).
(4) Personal injury or property damage arising solely out of a
negligent or improper act of an employee of the Company.
7. DEALER'S RESPONSIBILITIES WITH RESPECT TO HOURS OF BUSINESS
To the end that the needs of customers and owners served by the Dealer
are fulfilled properly, the Dealer shall maintain DEALERSHIP OPERATIONS open
for business during all hours and days which are customary in the trade and
lawful for such operations in the DEALER'S LOCALITY.
8. PURCHASES FROM OTHERS AND SALES TO OTHERS
The Dealer reserves the right to make purchases from others without
obligation or liability of any kind to the Company, provided that the Dealer
shall not be relieved of any responsibility assumed by the Dealer under this
agreement; and, except as otherwise expressly provided herein, the Company
reserves the right to make sales to others (including without limitation to
other dealers) without obligation or liability of any kind to the Dealer.
9. DETERMINATION OF DEALER REPRESENTATION
(A) REPRESENTATION PLANNING. The Company reserves the right to
determine, from time to time, in its best judgment, the numbers, locations and
sizes of authorized dealers necessary for proper and satisfactory sales and
service representation for COMPANY PRODUCTS within and without the DEALER'S
LOCALITY. In making such determinations, the Company from time to time
conducts, to the extent deemed adequate by the Company and subject to the ready
availability of information, studies of the locality, including such factors as
its geographic characteristics, consumer shopping habits, competitive
representation patterns, sales and service requirements, convenience of
customers or potential customers and past and future growth and other trends in
marketing conditions, population, income, UIO, VEHICLE sales and registrations
and COMPETITIVE and INDUSTRY CAR and TRUCK registrations.
(B) INFORMATION TO DEALER. The Company will inform the Dealer of any
proposed change in the Company's market representation plans for the DEALER'S
LOCALITY, provided that if the Company's market representation plans do not
provide for the continuation of representation of COMPANY PRODUCTS from the
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Dealer's DEALERSHIP FACILITIES (except for a relocation thereof), the Company
shall not be obligated to inform other dealers thereof, but shall give the
Dealer written notice thereof. If, in the Company's opinion, such changes
should be disclosed to other dealers in connection with the Company's market
representation plans for their respective DEALERSHIP OPERATIONS, the Company
may inform such other dealers thereof, without liability to the Dealer, no
earlier than thirty (30) days after such notice to the Dealer and shall inform
such other dealers that the Dealer may maintain his DEALERSHIP OPERATIONS for
so long as the Dealer desires and fulfills his responsibilities under this
agreement.
(C) ADDITIONAL DEALERS. The Company shall have the right to appoint
additional dealers in VEHICLES within or without the DEALER'S LOCALITY except
that, if an additional dealer will be within the DEALER'S LOCALITY and within
ten (10) miles driving distance of the Dealer's principal place of business,
the Company shall not appoint the additional dealer unless a study made
pursuant to subparagraph 9(a) reasonably demonstrates, in the Company's
opinion, that such appointment is necessary to provide VEHICLES with proper
sales and service representation in such locality with due regard to the
factors referred to above in subparagraph 9(a). The Company by written notice
to the Dealer will give the Dealer thirty (30) days in which to review the
applicable study (excluding information regarding other dealers considered
confidential by the Company), to discuss such additional dealer with
representatives of the Company and to give the Company written notice of
objection to the proposed addition. If the Dealer fails to give such written
notice by such time, he shall be deemed to have consented to the proposed
addition. The Company will give consideration to any such written objection and
advise the Dealer in writing of its decision before any commitment is made or
negotiations conducted with any dealer prospect. If the Dealer appeals to the
Dealer Policy Board within fifteen (15) days of such decision, no action will
be taken by the Company until the Dealer Policy Board has rendered a decision
on the matter.
(D) ESTABLISHED DEALER POINTS.
Nothing in this paragraph 9 shall restrict the right of the Company to
appoint a dealer in VEHICLES as a replacement for a dealer in VEHICLES, or to
fill an established open point for a dealer in VEHICLES, at or near a location
previously approved by the Company.
10. PRICES AND CHARGES
Sales of COMPANY PRODUCTS by the Company to the Dealer hereunder will
be made in accordance with the prices, charges, discounts and other terms of
sale set forth in price schedules or other notices published by the Company to
the Dealer from time to
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time in accordance with the applicable VEHICLE TERMS OF SALE BULLETIN or PARTS
AND ACCESSORIES TERMS OF SALE BULLETIN. Except as otherwise specified in
writing by the Company, such prices, charges, discounts and terms of sale shall
be those in effect, and delivery to the Dealer shall be deemed to have been
made and the order deemed to have been filled on the date of delivery to the
carrier or the Dealer, whichever occurs first. The Company has the right at any
time and from time to time to change or eliminate prices, charges, discounts,
allowances, rebates, refunds or other terms of sale affecting COMPANY PRODUCTS
by issuing a new VEHICLE or PARTS AND ACCESSORIES TERMS OF SALE BULLETIN, new
price schedules or other notices. In the event the Company shall increase the
DEALER PRICE for any COMPANY PRODUCT, the Dealer shall have the right to
cancel, by notice to the Company within ten (10) days after receipt by the
Dealer of notice of such increase, any orders for such product placed by the
Dealer with the Company prior to receipt by the Dealer of notice of such
increase and unfilled at the time of receipt by the Company of such notice of
cancellation.
11. TERMS AND TITLE
(A) PAYMENT. Payment by the Dealer for each COMPANY PRODUCT shall be
in accordance with the terms and conditions set forth in the applicable VEHICLE
or PARTS AND ACCESSORIES TERMS OF SALE BULLETIN.
(B) TITLE. Title to each COMPANY PRODUCT purchased by the Dealer shall
(unless otherwise provided in the applicable VEHICLE or PARTS AND ACCESSORIES
TERMS OF SALE BULLETIN) pass to the Dealer, or to such financing institution or
other party as may have been designated to the Company by the Dealer, upon
delivery thereof to the carrier or to the Dealer, whichever occurs first, but
the Company shall retain a security interest in and right to repossess any
product until paid therefor.
(C) RISK OF LOSS AND CLAIMS. The Company shall assume all risk of loss
or damage to any VEHICLE purchased by the Dealer from the Company which is not
borne by the carrier while the VEHICLE is in the possession of the carrier
provided the Dealer properly inspects and records any loss or damage of the
VEHICLE upon receipt thereof. The Dealer shall cooperate with the Company in
processing all claims for loss or damage of the VEHICLE in accordance with the
Company's then current procedures.
(D) DEMURRAGE AND DIVERSION LIABILITY. The Dealer shall be responsible
for and pay any and all demurrage, storage and other charges accruing after
arrival of any shipment at its destination. In the event the Dealer shall fail
or refuse for any reason (other than labor difficulty in the Dealer's place of
business or any cause beyond the Dealer's control or without the Dealer's fault
or negligence) to accept delivery of any COMPANY PRODUCT ordered by the Dealer,
the Dealer shall also pay the
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Company the amount of all expenses incurred by the Company in shipping such
product to the Dealer and in returning such product to the original shipping
point or diverting it to another destination; but in no event shall the Dealer
pay the Company more for any such diversion than the expense of returning the
product to its original shipping point.
(E) STATE AND LOCAL TAXES. The Dealer hereby represents and warrants
that all COMPANY PRODUCTS purchased from the Company are purchased for resale
in the ordinary course of the Dealer's business. The Dealer further represents
and warrants that the Dealer has complied with all requirements for his
collection and/or payment of applicable sales, use and like taxes, and has
furnished or will furnish evidence thereof to the Company. These
representations and warranties shall be deemed a part of each order given by
the Dealer to the Company.
The Dealer agrees that, as to any COMPANY PRODUCT put to a taxable use
by the Dealer, or in fact purchased by the Dealer other than for resale, the
Dealer shall make timely and proper return and payment of all applicable sales,
use and like taxes, and shall hold the Company harmless from all claims and
demands therefor.
12. RECORDS, INSPECTIONS AND TESTS
(A) RECORD RETENTION. The Dealer shall retain for at least two (2)
years all records and documents, including journals and ledgers, which relate
in any way, in whole or in part, to DEALERSHIP OPERATIONS, except for records
used as a basis for submission of warranty and policy claims, which shall be
retained for at least one (1) year.
(B) INSPECTIONS AND TESTS. The Dealer shall allow persons designated
by the Company, at reasonable times and intervals and during normal business
hours, to examine the DEALERSHIP FACIL1TIES and OPERATIONS, the Dealer's stocks
of COMPANY PRODUCTS and used vehicles and vehicles at the DEALERSHIP FACILITIES
for service or repair, to test the Dealer's equipment, to check and instruct
the Dealer and his employees in the proper handling of warranty and other
repairs and claims based thereon, and to examine, copy and audit any and all of
the Dealer's records and documents. The Company may charge back to the Dealer
all payments or credits made by the Company to the Dealer pursuant to such
claims or otherwise which were improperly claimed or paid.
13. CHANGES IN COMPANY PRODUCTS
The Company may change the design of any COMPANY PRODUCT, or add any
new or different COMPANY PRODUCT or line, series or body style of VEHICLES, at
any time and from time to time, without notice or obligation to the Dealer,
including any obligation with
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respect to any COMPANY PRODUCT theretofore ordered or purchased by or delivered
to the Dealer. Such changes shall not be considered model year changes as
contemplated by the provisions of any VEHICLE TERMS OF SALE BULLETIN. The
Company may discontinue any VEHICLE or other COMPANY PRODUCT at any time
without liability to the Dealer.
14. DEALER NOT AGENT OF THE COMPANY
This agreement does not in any way create the relationship of
principal and agent between the Company and the Dealer and under no
circumstances shall the Dealer be considered to be an agent of the Company. The
Dealer shall not act or attempt to act, or represent himself, directly or by
implication, as agent of the Company or in any manner assume or create any
obligation on behalf of or in the name of the Company.
15. TRADEMARKS AND TRADE NAMES
(A) USE IN FIRM NAME. The Dealer may not use any trademark or trade
name used or claimed by the Company or any of its subsidiaries in the Dealer's
firm name or trade name except with the Company's prior written approval. If,
after such approval, the Company should at any time so request, the Dealer
shall promptly discontinue such use and take all steps necessary or appropriate
in the opinion of the Company to eliminate such trademark or trade name from
the Dealer's firm name or trade name.
(B) LIMITATIONS ON USE. The Dealer shall not use any trademark or
trade name used or claimed by the Company or any of its subsidiaries, or coined
words or combinations containing the same or parts thereof, in connection with
any business conducted by the Dealer other than in dealing in COMPANY PRODUCTS
to which such trademark or trade name refers, and then only in the manner and
form approved by the Company; provided that the word "Ford" may be used in
connection with a business operated by or affiliated with the Dealer as the
Dealer's used vehicle outlet if the Dealer obtains the Company's prior written
approval, which may be revoked at any time, and if the Dealer retains the right
to require any such affiliated business to discontinue such use at any time the
Dealer may direct. The Dealer shall direct such discontinuance on request of
the Company at any time.
The Dealer shall not contest the right of the Company to exclusive use
of any trademark or trade name used or claimed by the Company or any of its
subsidiaries.
16. REPORTS TO FORD MOTOR COMPANY'S DEALER POLICY BOARD
In the interest of maintaining harmonious relationships between the
parties to this agreement, the Dealer shall report promptly in writing to the
Company's Dealer Policy Board
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(hereafter called "Policy Board") any act or failure to act on the part of the
Company or any of its representatives which the Dealer believes was not in
accordance with this agreement or was not reasonable, fair, for good cause or
provocation or in good faith as to the Dealer. For the purposes of this
agreement, the term "good faith" shall mean the Company and its representatives
acting in a fair and equitable manner toward the Dealer so as to guarantee the
Dealer freedom from coercion or intimidation from the Company. It is the
purpose of the Policy Board to receive, carefully evaluate and, to the extent
possible, resolve any such claim to the mutual satisfaction of the parties. Any
decision of the Policy Board shall be binding on the Company but shall not be
binding on the Dealer.
17. TERMINATION OR NONRENEWAL OF AGREEMENT
(A) BY DEALER. The Dealer may terminate or not renew this agreement at
any time at will by giving the Company at least thirty (30) days prior written
notice thereof.
(B) BY COMPANY DUE TO EVENTS CONTROLLED BY DEALER. The following
represent events which are substantially within the control of the Dealer and
over which the Company has no control, and which are so contrary to the intent
and purpose of this agreement as to warrant its termination or nonrenewal
(1) Any transfer or attempted transfer by the Dealer of any
interest in, or right, privilege or obligation under this
agreement; or transfer by operation of law or otherwise, of
the principal assets of the Dealer that are required for the
conduct of DEALERSHIP OPERATIONS; or any change, however
accomplished, without the Company's prior written consent,
which consent shall not be unreasonably withheld, in the
direct or indirect ownership or operating management of the
Dealer as set forth in paragraph F.
(2) Any misrepresentation in applying for this agreement by the
Dealer or any person named in paragraph F; or submission by
the Dealer to the Company of any false or fraudulent
application or claim, or statement in support thereof, for
warranty, policy or campaign adjustments, for wholesale parts
or VEHICLE sales incentives or for any other refund, credit,
rebate, incentive, allowance, discount, reimbursement or
payment under any Company program; or acceptance by the
Dealer of any payment for any work not performed by the
Dealer in accordance with the provisions of this agreement,
the Warranty Manual or any applicable CUSTOMER SERVICE
BULLETIN.
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(3) Insolvency of the Dealer, inability of the Dealer to meet
debts as they mature, filing by the Dealer of a voluntary
petition under any bankruptcy or receivership law,
adjudication of the Dealer as a bankrupt or insolvent
pursuant to an involuntary petition under any such law,
appointment by a court of a temporary or permanent receiver,
trustee or custodian for the Dealer or the Dealer's assets,
or execution of an assignment by the Dealer for the benefit
of creditors; dissolution of the Dealer; or failure of the
Dealer for any reason to function in the ordinary course of
business, or to maintain the DEALERSHIP OPERATIONS open for
business during and for not less than the hours customary in
the trade and lawful in the DEALER'S LOCALITY as set forth in
paragraph 7.
(4) Conviction in a court of original jurisdiction of the Dealer
or any person named in paragraph F for any violation of law,
or any conduct by any such person unbecoming a reputable
businessman, or disagreement between or among any persons
named in paragraph F, which in the Company's opinion tends to
affect adversely the operation or business of the Dealer or
the good name, goodwill or reputation of the Dealer, other
authorized dealers of the Company, the Company, or COMPANY
PRODUCTS.
(5) The Dealer shall have engaged, after written warning by the
Company, in any advertising or business practice contrary to
the provisions of subparagraph 6(i) of this agreement.
(6) Failure of the Dealer to fulfill any provision of paragraph
10 (as to prices or charges), or paragraph 11 (as to terms
and title, including payment for COMPANY PRODUCTS), or
paragraph 15 (as to trademarks or trade names), or to pay the
Company any sum due pursuant to any agreement, including any
purchase or lease agreement, between the Company and the
Dealer.
Upon occurrence of any of the foregoing events, the Company may
terminate this agreement by giving the Dealer at least fifteen (15) days prior
written notice thereof.
(C) BY COMPANY FOR NONPERFORMANCE BY DEALER OF SALES, SERVICE,
FACILITIES OR OTHER RESPONSIBILITIES. If the Dealer shall fail to fulfill any
of his responsibilities with respect to:
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(1) CARS or TRUCKS under the provisions of paragraph 2 of this
agreement,
(2) GENUINE PARTS under the provisions of paragraph 3 of this
agreement,
(3) Service under the provisions of paragraph 4 of this
agreement,
(4) DEALERSHIP LOCATION or FACILITIES under the provisions of
paragraph 5 of this agreement, or
(5) Other responsibilities under the provisions of subparagraphs
6(a) through 6(h) (as to signs, personnel residence, capital,
accounting system, financial reports, delivery or sales
reports or customer handling), subparagraph 6(j) (as to laws,
rules or regulations), paragraph 12 (as to records,
inspections and tests) or paragraph 14 (as to the Dealer not
being an agent of the Company) of this agreement,
the Company shall notify the Dealer in writing of such failure or failures,
will offer to review promptly with the Dealer the reasons which, in the
Company's or Dealer's opinion, account for such failure or failures and will
provide the Dealer with a reasonable opportunity to cure the same. If the
Dealer fails or refuses to cure the same within a reasonable time after such
notice, the Company may terminate or not renew this agreement by giving the
Dealer at least ninety (90) days prior written notice thereof.
(D) BY COMPANY OR DEALER BECAUSE OF DEATH OR PHYSICAL OR MENTAL
INCAPACITY OF ANY PRINCIPAL OWNER Since this agreement has been entered into by
the Company in reliance upon the continued participation in the ownership of
the Dealer by the persons named in subparagraph F(i) hereof, the Company or the
Dealer may (subject to the provisions of paragraph 20 hereof) terminate or not
renew this agreement, by giving the other at least fifteen (15) days prior
written notice thereof, in the event of the death or physical or mental
incapacity of any owner of the Dealer named in subparagraph F(i); provided,
however, that in order to facilitate orderly termination and liquidation of the
dealership, the Company shall defer for a period of three (3) months to one (1)
year, as the Company may determine, the exercise of its right to terminate in
such event if the executor or representative of such deceased or incapacitated
owner shall so request and shall demonstrate the ability to carry out the terms
and conditions of this agreement.
(E) BY COMPANY OR DEALER FOR FAILURE OF DEALER OR COMPANY TO BE
LICENSED. If the Company or the Dealer requires a license for the performance
of any responsibility under this agreement in
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any jurisdiction where this agreement is to be performed and if either party
shall fail to secure and maintain such license, or if such license is suspended
or revoked, irrespective of the cause or reason, either party may terminate or
not renew this agreement by giving the other at least fifteen (15) days prior
written notice thereof.
(F) BY COMPANY AT WILL. If this agreement is not for a stated term
specified in paragraph G of this agreement, the Company may terminate this
agreement at will at any time by giving the Dealer at least one hundred and
twenty (120) days prior written notice thereof.
(G) BY COMPANY UPON THE OFFER OF A NEW AGREEMENT. The Company may
terminate this agreement at any time by giving the Dealer at least thirty (30)
days prior written notice thereof in the event the Company offers a new or
amended form of agreement to its authorized dealers in COMPANY PRODUCTS.
(H) ACTS IN GOOD FAITH.
(1) The Dealer acknowledges that each of his responsibilities
under this agreement is reasonable, proper and fundamental to
the purpose of this agreement and that (i) his failure to
fulfill any of them would constitute a material breach of
this agreement, (ii) the occurrence of any of the events set
forth in subparagraph 17(b), 17(c), or 17(e) would seriously
impair fundamental considerations upon which this agreement
is based, and (iii) the rights of termination or nonrenewal
reserved in the events specified in subparagraph 17(g) are
necessary to permit the Company to remain competitive at all
times. The Dealer acknowledges that any such failure,
occurrence or event constitutes a reasonable, fair, good, due
and just cause and provocation for termination or nonrenewal
of this agreement by the Company.
(2) The Dealer agrees that if the Company or any of its
representatives (i) requests the Dealer to fulfill any of
such responsibilities, (ii) believes that any such failure,
occurrence or event is occurring or has occurred and advises
the Dealer that, unless remedied, such failure, occurrence or
event may result in Company termination or nonrenewal of this
agreement, (iii) gives the Dealer notice of termination or
nonrenewal, or terminates or falls to renew this agreement,
because of any such failure, occurrence or event, then such
request, advice, notice, termination or nonrenewal shall not
be considered to constitute or be evidence of coercion or
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intimidation, or threat thereof, or to be unreasonable,
unfair, undue or unjust, or to be not in good faith.
18. REQUIRED APPEAL TO POLICY BOARD--TERMINATIONS OR NONRENEWALS--OPTIONAL
ARBITRATION PLAN
(A) ARBITRATION PLAN. The Company has adopted the Ford Motor Company
Plan and Rules of Arbitration ("Arbitration Plan") effective June 1, 1972, a
copy of which was delivered to the Dealer with this agreement. The Company
reserves the right to terminate, change or modify the Arbitration Plan at any
time upon notice to the Dealer. Any arbitration pursuant to the Arbitration
Plan shall be governed by the terms of the Arbitration Plan in effect on the
date such arbitration is commenced.
(B) APPEAL TO POLICY BOARD. Any protest, controversy or claim by the
Dealer (whether for damages, stay of action or otherwise) with respect to any
termination or nonrenewal of this agreement by the Company or the settlement of
the accounts of the Dealer with the Company after any termination or nonrenewal
of this agreement by the Company or the Dealer has become effective, shall be
appealed by the Dealer to the Policy Board within fifteen (15) days after the
Dealer's receipt of notice of termination or nonrenewal, or, as to settlement
of accounts after termination or nonrenewal, within one year after the
termination or nonrenewal has become effective. Appeal to the Policy Board
shall be a condition precedent to the Dealer's right to pursue any other remedy
available under this agreement or otherwise available under law. The Company,
but not the Dealer, shall be bound by the decision of the Policy Board.
(C) OPTIONAL ARBITRATION. If the Dealer is dissatisfied with the
decision of the Policy Board in a case referred to in subparagraph 18(b), the
Dealer may, at his option, elect to arbitrate in accordance with the
Arbitration Plan or elect not to arbitrate and retain the right to pursue
whatever other remedies may be available, provided that:
(1) The Dealer's election to arbitrate shall be made by filing an
Arbitration Demand with the Secretary appointed under the
Arbitration Plan within thirty (30) days after receipt by the
Dealer of a decision by the Policy Board. The Arbitration
Demand shall set forth a clear and complete statement of the
nature of the Dealer's claim and the basis thereof, the
amount involved, if any, and the remedy sought. The
Arbitration Demand shall be in writing and shall be given by
personal delivery or sent by registered or certified mail,
postage prepaid, to the Secretary, Arbitration
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Panel, Ford Motor Company, at the address shown in the Plan
and Rules of Arbitration.
(2) If the Dealer, by filing a timely Arbitration Demand, elects
to arbitrate, arbitration shall be the sole and exclusive
remedy of the Dealer in such cases, and the decision and
award of the Arbitration Panel provided for in the
Arbitration Plan shall be final and binding on both parties.
(3) If the Dealer elects to arbitrate, either party may enjoin
the other from pursuing any other remedy in such cases,
except that either party may sue to enforce any order or
award of the Arbitration Panel and judgment upon such order
or award may be entered by any court having jurisdiction.
(D) LIMITATION OF ACTIONS. If the Dealer elects not to arbitrate by
failing to file a timely Arbitration Demand, all causes of action at law or in
equity and all rights and remedies before federal, state, or local
administrative agencies, departments or boards shall be forever barred unless
commenced or instituted within one year after the date of the decision of the
Policy Board.
(E) EXPENSES OF ARBITRATION. During the first quarter of each calendar
year, the Company and the Chairmen of the Ford and Lincoln-Mercury National
Dealer Councils ("Dealer Council Chairmen") shall jointly establish a budget
for that calendar year for the retainer fees, daily few, clerical costs, travel
expenses and living allowances Compansation") of the Arbitrator selected by the
Dealer Council Chairmen, for one-half of the Compensation of the Arbitrator
selected as Chairman of the Arbitration Panel, and for one-half of the cost of
outside services employed by the Arbitration Panel, pursuant to the Arbitration
Plan.
(1) The amount of such budget shall be advanced by the Company to
a Trustee selected by the Company and the Dealer Council
Chairmen. The Trustee shall pay the Compensation of the
Arbitrator selected by the Dealer Council Chairmen, one-half
of the Compensation of the Chairman of the Arbitration Panel,
and one-half of the cost of outside services employed by the
Arbitration Panel, as statements are rendered therefor, from
and to the extent of such advance. All other costs of the
Arbitration Panel for that calendar year shall be borne by
the Company except as hereinafter provided. Any unexpended
portion of such budget shall be carried forward to the next
calendar year.
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(2) The amount of such budget shall be spread in equal amounts
among all dealerships then having valid and outstanding Ford,
Mercury or Lincoln Sales and Service Agreements with the
Company ("Authorized Dealers"). Such equal amount shall be
charged to each Authorized Dealer. The Dealer shall promptly
pay the amount so charged.
(3) Each party shall pay and bear all costs of any witness called
or other evidence adduced by that party, of any attorney,
accountant or other person retained by that party and of any
transcript ordered by that party in connection with any
arbitration under the Arbitration Plan.
(4) The Arbitration Panel, as a part of any award, may assess,
against any party or parties to an arbitration under the
Arbitration Plan, all or any part of the costs of any witness
called, any other evidence adduced, or any outside service
employed, at the direct request of any Arbitrator.
19. OBLIGATIONS UPON TERMINATION OR NONRENEWALS
Upon termination or nonrenewal of this agreement by either party, the
Dealer shall cease to be an authorized Ford dealer; and:
(A) SUMS OWING THE COMPANY. The Dealer shall pay to the Company
all sums owing to the Company by the Dealer.
(B) DISCONTINUANCE OF USE OF TRADEMARKS AND TRADE NAMES. The Dealer
shall at his own expense (1) remove all signs erected or used by the Dealer, or
by any business associated or affiliated with the Dealer, and bearing the name
"Ford" or any other trademark or trade name used or claimed by the Company or
any of its subsidiaries (except signs owned by the Company and except as such
use may be permitted under other agreements relating to products of the Company
other than COMPANY PRODUCTS) or any word indicating that the Dealer is an
authorized dealer with respect to any COMPANY PRODUCT, (2) erase or obliterate
all such trademarks, trade names and words from stationery, forms and other
papers used by the Dealer, or any business affiliated with the Dealer, (3)
discontinue all advertising of the Dealer as an authorized dealer in COMPANY
PRODUCTS, (4) discontinue any use of any such trademark, trade name or word in
the Dealer's firm or trade name and take all steps necessary or appropriate in
the opinion of the Company to change such firm or trade name to eliminate any
such trademark, trade name or word therefrom, and (5) refrain from doing
anything whether or not specified above that would indicate that the Dealer is
or was an authorized Dealer in COMPANY PRODUCTS.
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If the Dealer fails to comply with any of the requirements of this
subparagraph 19(b), the Dealer shall reimburse the Company for all costs and
expenses, including reasonable attorney's fees, incurred by the Company in
effecting or enforcing compliance.
(C) WARRANTY WORK. The Dealer shall cease to be eligible to receive
reimbursement from the Company with respect to any work thereafter performed or
part thereafter supplied under any warranty or policy applicable to any COMPANY
PRODUCT, unless specifically authorized by the Company in writing to perform
such work and then only in the manner and for the period of time set forth in
such authorization.
(D) SERVICE RECORDS. The Dealer shall deliver to the Company or its
nominee all of the Dealer's records with respect to predelivery, warranty,
policy, campaign and other service work of the Dealer.
(E) ORDERS AND CUSTOMER DEPOSITS. The Dealer shall assign to the
Company or its nominee all customer orders for COMPANY PRODUCTS which the
Dealer has not filled and which the Company is not obligated by subparagraph
19(f) to supply to the Dealer, and all customer deposits made thereon; and
deliver to the Company or its nominee the names and addresses of the Dealer's
existing and prospective customers for COMPANY PRODUCTS.
(F) DELIVERIES AFTER TERMINATION OR NONRENEWAL. If this agreement
shall be terminated or not renewed by the Company (1) because of the death or
physical or mental in capacity of any principal owner of Dealer pursuant to
subparagraph 17(d) hereof, or (2) at will pursuant to subparagraph 17(f)
hereof, the Company shall use its best efforts to fill the Dealer's bona fide
orders for COMPANY PRODUCTS outstanding on the effective date of termination or
nonrenewal. The Company's fulfillment of such orders for VEHICLES, however, may
be limited to the number and type of VEHICLES delivered to the Dealer by the
COMPANY during the ninety (90) days immediately preceding such date, or the
number and type of bona fide retail orders for VEHICLES accepted by the Dealer
and unfilled on such date, whichever is smaller. Deliveries under this
subparagraph shall be made in substantial accord with the Company's normal
delivery schedules for the area, unless the Company ejects to make all such
deliveries within thirty (30) days after the effective date of termination. The
Dealer shall inspect, condition and repair such VEHICLES in the manner
specified in this agreement and in accordance with procedures outlined by the
Company from time to time.
Except for deliveries required by this subparagraph 19(f), each order
for a COMPANY PRODUCT received by the Company from the Dealer and unfilled on
the effective date of termination or expiration of this agreement shall be
deemed cancelled.
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20. SUCCESSOR TO THE DEALER IN THE EVENT OF DEATH OR INCAPACITY
In the event of termination or nonrenewal of this agreement by the
Company pursuant to subparagraph 17(d) because of the death or physical or
mental incapacity of a principal owner of the Dealer named in subparagraph F(i)
hereof:
(A) INTERIM AGREEMENT. The Company, subject to the other provisions of
this paragraph, shall offer an Interim Ford Sales and Service Agreement for
COMPANY PRODUCTS:
(1) To a successor dealership composed of the last person
nominated by such principal owner as his successor, together
with any other principal and remaining owners named in
subparagraphs, F(i) and F(iii) (hereafter called "Other
Owners") hereof, provided that:
(i) The nomination had been submitted to the Company in
writing on the form supplied by the Company with the
consent of the Other Owners prior to such death or the
occurrence of such incapacity, and
(ii) The Company, upon receipt of the nomination had accepted
the nominee as then being qualified (or as capable of
becoming qualified in five (5) years), and at the time
the notice of termination or nonrenewal is given,
approves the nominee as then being qualified, to assume
full managerial authority for the DEALERSHIP OPERATIONS,
which acceptance or approval shall not be unreasonably
withheld, and
(iii) The nominee has been named as a manager of, and has
been actively participating in the general management of,
the Dealer or a satisfactorily performing automotive or
comparable retail business for a reasonable period of
time prior to the time of the notice of termination or
nonrenewal, and
(iv) The successor dealership, at the time the Interim
Agreement is to be offered, has capital and facilities
substantially in accordance with Company GUIDES therefor,
and
(v) In the event more than one nominee fulfills the above
conditions, the Company, in its discretion, shall
determine which nominee or nominees, together with the
Other Owners, shall compose the successor dealership
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towhich such Interim Agreement shall be offered;
(2) To a successor dealership, in the event that any principal
owner has notified the Company in writing that the spouse or
another relative or heir of such principal owner shall retain
or acquire a financial interest in the successor dealership
and the Company has approved such spouse, relative or heir
for such financial interest which approval shall not be
unreasonably withheld. Such successor dealership shall be
composed of such spouse, relative or heir, together with the
Other Owners and any nominee or nominee approved and
qualified pursuant to subparagraph 20(a)(1) hereof, provided
that:
(i) The Other Owners and any nominees and such spouse,
relative or heir agree in writing how each of them shall
participate in the ownership and management of the
successor dealership, and
(ii) Managerial authority, and responsibility of the
successor dealership shall be vested in a nominee
approved and qualified pursuant to subparagraph 20(a)(1)
hereof, or in a person or persons who have been named in
subparagraph F(ii) of this agreement and have been
actually participating in the general management of the
Dealer for a reasonable period of time prior to the
notice of termination or nonrenewal or in another person
or persons qualified to same managerial authority and
responsibility and approved by the Company to he so
named, which approval shall not be unreasonably withheld,
and
(iii) The successor dealership, at the time the Interim
Agreement is to be offered has capital and facilities
substantially in accordance with Company GUIDES therefor;
(3) To a successor dealership in the event that the deceased or
incapacitated Principal owner has neither nominated a
successor pursuant to subparagraph 20(a)(1) hereof, nor
notified the Company of a retained or acquired financial
interest pursuant to subparagraph 20(a)(2) hereof which
successor dealership shall be composed of the Other Owners;
provided that the Other Owners agree in writing how each of
them shall
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participate in the ownership and management of the successor
dealership and the successor dealership fulfills the
conditions set forth in subparagraphs 20(a) (2) (ii) and
(iii) of this agreement
(B) BUY-OUT. The successor dealership named in such Interim Agreement
shall arrange in writing, subject to the approval of the Company which shall
not be unreasonably withheld, for one or more persons named in subparagraph
F(ii) of the Interim Agreement to have the right acquire during its term at
least a 20% ownership interest in the successor dealership and, if the
successor dealership is offered a standard Sales and Service Agreement for
COMPANY PRODUCTS at the expiration of the Interim Agreement, to have the right
to acquire additional ownership interests therein during the first five (5)
years of such standard agreement and, at the end of such five (5) years, to
acquire the entire ownership interest therein.
(C) TERM/CONTINUATION. Any Interim Agreement offered pursuant to this
paragraph 20 shall be in the form in effect between the Company and its
authorized dealers in COMPANY PRODUCTS at the time of such offer, and the term
of such Interim Agreement shall be for twenty-four (24) months, or such longer
term as the Company shall determine to be reasonable to permit the person or
persons named in subparagraph F(i) thereof to acquire a 20% ownership interest
in the successor dealership pursuant to subparagraph 20(b) of this agreement,
subject to termination during such term as provided in such Interim Agreement.
At least ninety (90) days prior to the end of the term of such Interim
Agreement, the Company shall determine whether or not the person or persons
composing the successor dealership with which such Interim Agreement shall have
been executed possess the qualifications with respect to management, capital
and facilities necessary to fulfill the responsibilities of an authorized
dealer in COMPANY PRODUCTS and, if the Company shall determine that they do
possess the same, which determination shall not be unreasonably made, the
Company shall offer to such successor dealership, upon the expiration of the
term of the Interim Agreement, a standard Sales and Service Agreement for
COMPANY PRODUCTS in the form then in effect.
(D) LIMITATION OF OFFER. Notwithstanding anything stated or implied to
the contrary in this paragraph 20, the Company shall not be obligated to offer
an Interim Agreement to any successor dealership if the Company has notified
the Dealer in writing prior to such death or physical or mental incapacity that
the Company's market representation plans do not provide for continuation of
representation from the DEALERSHIP FACILITIES as determined by the Company
under paragraph 9 of this agreement. If such market representation plans
provide for the relocation of the Dealer to another location, however, the
Company shall offer an Interim Agreement subject to the condition that the
successor
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dealership relocate within a reasonable time to such other location
in facilities approved by the Company.
(E) LIMITATION FOR ACCEPTANCE. In the event that the person or persons
composing a proposed successor dealership to which any offer of an Interim
Agreement or Standard Sales and Service Agreement for COMPANY PRODUCTS shall
have been made pursuant to this paragraph 20, shall not accept the same within
thirty (30) days after notification to them of such offer, such offer shall
automatically expire.
21. REACQUISITION OF COMPANY PRODUCTS AND ACQUISITION OF THE DEALER'S SIGNS,
SPECIAL TOOLS AND EQUIPMENT, AND MAINTENANCE ITEMS
Upon termination or nonrenewal of this agreement by the Company, the
Dealer may elect as provided in paragraph 23 or, upon termination or nonrenewal
of this agreement by the Dealer, the Dealer may demand in his notice of
termination or nonrenewal, to have the Company purchase or accept upon return
from the Dealer, in return for his general release specified in paragraph 23:
(A) VEHICLES. Each unused, undamaged and unsold VEHICLE (together with
all factory-installed options thereon) in the Dealer's stock on the effective
date of such termination or nonrenewal, provided such VEHICLE is in first-class
salable condition, is of a then current model has not been altered outside the
Company's factory, and was purchased by the Dealer from the Company or another
authorized dealer in VEHICLES prior to giving or receiving notice of such
termination or nonrenewal. The price for such VEHICLE shall be its DEALER
PRICE, plus the Company's charges for distribution, delivery and taxes, at the
time it was purchased from the Company, less all allowances paid or applicable
allowances offered thereon by the Company.
(B) GENUINE PARTS. Each unused, undamaged and unsold GENUINE PART, and
each unopened item of appearance and maintenance materials and paints
(hereinafter called "maintenance items") in the Dealer's stock on the effective
date of such termination or nonrenewal, provided such GENUINE PART or
maintenance item is offered for sale by the Company to authorized dealers in
VEHICLES in the Company's then current Parts and Accessories Price Schedules,
is in first-class salable condition, including reasonably legible and usable
packaging and was purchased by the Dealer from the Company or another Company
authorized dealer in normal volume prior to giving or receiving notice of such
termination or nonrenewal. Notwithstanding the foregoing, the repurchase of
such GENUINE PARTS identified by the Company as accessories shall be limited to
those so purchased by the Dealer within twelve (12) months preceding such date,
or those sold to the Dealer by the Company for use in a VEHICLE that is a
current model on such effective date. The price for each
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such GENUINE PART or maintenance item shall be its DEALER PRICE in effect on
the effective date of termination or nonrenewal, less all allowances paid or
applicable allowances offered thereon by the Company. The Dealer, at his own
expense, shall carefully pack and box such of the eligible GENUINE PARTS and
maintenance items as the Company may direct, and the Company shall pay the
Dealer an additional five percent (5%) of the DEALER PRICE of the eligible
GENUINE PARTS and maintenance items so packaged and boxed.
(C) DEALER'S SIGNS. Each sign at DEALERSHIP LOCATION which bears a
trademark or trade name used or claimed by the Company or any of its
subsidiaries, is owned by the Dealer on the effective date of termination or
nonrenewal, was approved by the Company pursuant to subparagraph 6(a) and, if
requested by the Company, is removed by the Dealer at his expense. The price
for each such sign shall be its fair market value on such effective date as
agreed by the Company and the Dealer, or, if they cannot agree, is determined
by a qualified independent appraiser selected by the Company and the Dealer.
(D) SPECIAL TOOLS AND EQUIPMENT. All special tools and automotive
service equipment owned by the Dealer on the effective date of termination or
nonrenewal which were designed especially for servicing VEHICLES, which are of
the type recommended in writing by the Company and designated as "special"
tools and equipment in the applicable CUSTOMER SERVICE BULLETIN or other notice
pertaining thereto sent to the Dealer by the Company, which are in usable and
good condition except for reasonable wear and tear, and which were purchased by
the Dealer within the three (3) year period preceding the effective date of
termination or nonrenewal. The price for each special tool and item of
automotive service equipment shall be its fair market value on such effective
date as agreed by the Company and the Dealer, or, if they cannot agree, as
determined by a qualified independent appraiser selected by the Company and the
Dealer.
(E) PROCEDURE DELIVERY AND TITLE. The Dealer shall return all property
to be Purchased or acquired by the Company pursuant to this paragraph 21 in
accordance with the Procedures and timetables then established by the Company,
shall deliver such property at the DEALERSHIP FACILITY unless the Company
directs otherwise (in which event the Company shall pay transportation costs to
the place of delivery), shall and hereby does warrant good clear title to all
such property, and shall furnish to the Company evidence satisfactory to the
Company that the Dealer has complied with all applicable bulk sales laws and
that such property is free and clear of all claims liens and encumbrances.
(F) PAYMENT. The Company shall pay the Dealer for the property
purchased or acquired by it pursuant to this paragraph 21 within a reasonable
time following the Dealer's fulfillment of all of the Dealer's obligations
under paragraph 19 and this
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paragraph 21 subject to the Dealer's tender of a
general release as specified in paragraph 23, and further subject to offset of
any obligations owing by the Dealer to the Company. If the Company has not paid
the Dealer the net amount due the Dealer for such property within a period of
two (2) months after the Dealer has famed his obligations under this paragraph
21 and provided the Dealer has fully complied with Paragraphs 19 and 23, the
Company will, at the Dealers request advance the Dealer seventy-five percent
(75%) of the estimated amount due the Dealer net of any monies; owed to the
Company by the Dealer. The Company will pay the balance of such amount as soon
as practical thereafter.
(G) ASSIGNMENT OF BENEFITS. As an assist to the Dealer in effecting an
orderly transfer of his assets to a replacement dealer and to minimize possible
interruptions in customer convenience and service, in the event of termination
or nonrenewal by either party, any rights or benefits with respect to
subparagraphs 21(a), 21(b), 21(c) and 21(d), herein may be assigned by the
Dealer to anyone to whom the Dealer has agreed to sell the respective property
and whom the Company has approved as a replacement for the Dealer. Such
assignments will be subject to Dealer's fulfillment of his obligations under
paragraph 19 and this paragraph 21 and subject to the Dealer's tender of a
general release as specified in paragraph 23.
22. DEALERSHIP FACILITIES ASSISTANCE UPON NONRENEWAL OR CERTAIN TERMINATIONS
BY THE COMPANY
(A) DEALER ELIGIBILITY. The Dealer may elect, as provided in paragraph
23, to have the Company assist the Dealer with respect to the Dealer's Eligible
Facilities (as herein defined), in return for the Dealer's general release as
specified in paragraph 23, upon nonrenewal of this agreement by the Company, or
upon termination of this agreement by the Company, for the following reasons:
(1) Because of disagreement among persons named in paragraphs
pursuant to subparagraph 17(b)(4) or because of the Dealer's
failure with respect to prices or charges, terms or title or
trademarks or trade names, or other sums due the Company
pursuant to subparagraph 17(b)(6);
(2) Because of the Dealer's nonperformance of his
responsibilities set forth in paragraphs 2, 3, 4 or 6
pursuant to subparagraph 17(c);
(3) Because of the death or physical or mental incapacity of a
principal owner named in subparagraph F(i) pursuant to
subparagraph 17(d) providing that a successor dealership is
not appointed as provided under paragraph 20;
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(4) Because of failure of the Dealer or the Company to be
licensed pursuant to subparagraph 17(e); or
(5) At will pursuant to subparagraph 17(f) if this agreement is
not for a stated term specified in paragraph G of this
agreement
(B) ELIGIBLE FACILITIES. "Eligible Facilities" are hereby defined as
only those DEALERSHIP FACILITIES which are listed in the Dealership Facilities
Supplement in effect at the time of such nonrenewal or termination, are
approved by the Company pursuant to paragraph 5, are owned or leased by the
Dealer and are being used by the Dealer solely for fulfilling his
responsibilities under this agreement (or under this agreement and one or more
vehicle sales agreements with the Company which are not renewed or are
terminated by the Company at the same time as this agreement) at the time the
Dealer received notice of such nonrenewal or termination.
(C) COMPANY'S OBLIGATION. Subject to the provisions of subparagraph
22(d) hereof, if neither the Dealer nor the Company can arrange with a third
party within ninety (90) days after the effective date of such termination or
nonrenewal:
(1) In the case of Eligible Facilities which are owned by the
Dealer, either a lease for one year commencing within such
ninety (90) days at fair rental value or a sale within such
ninety (90) days at fair market value; or
(2) In the case of Eligible Facilities which are leased by the
Dealer, either an assignment of lease, or a sublease for one
year (or for the balance of the term of the Dealer's lease if
that is shorter) commencing within such ninety (90) days at
the Dealer's rental rate (or, if the facilities are owned by
an affiliate of the Dealer at fair rental value, if that is
different),
the Company shall offer either to make monthly payments to the Dealer,
commencing with the ninety-first day, pursuant to subparagraph 22(e) hereof, or
to make a lump sum payment to the Dealer pursuant to said subparagraph 22(e),
or to accept for itself on the ninety-first day such a lease or sale from the
Dealer-owner or such an assignment or sublease from the Dealer-lessee.
For the purpose of this subparagraph 22(c), fair market or fair rental
value shall mean value based on the use of the facilities in the conduct of
DEALERSHIP OPERATIONS. In the event the Dealer and the Company are unable to
agree on the fair market or rental value of any Eligible Facilities, such value
shim be
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determined by an independent real estate appraiser selected by the
Dealer and the Company.
(D) LIMITATIONS ON COMPANY'S OBLIGATION. The Company's obligation with
respect to any Eligible Facilities shall be limited to those expressly set
forth in this paragraph 22. The Company shall be released from all obligations
with respect to any Eligible Facilities if (1) the Dealer fails to give the
Company, within thirty (30) days after the Company shall have sent him a tender
of benefits as provided in paragraph 23, a written request for assistance
pursuant to this paragraph 22, accompanied by a written representation by the
Dealer that the Dealer and each owner named in subparagraph F(i) is, for a
period of at least one (1) year, retiring from the business of selling new and
used passenger cars and trucks in the general area of the DEALER'S LOCALITY,
(2) the Dealer fails to make diligent efforts to obtain from third parties an
offer to purchase, lease, sublease or take an assignment of lease described in
subparagraph 22(c), or refuses, or within a reasonable time fails to accept,
such an offer from a third party; (3) the Dealer does not accept any offer with
respect to Eligible Facilities made by the Company in accordance with
subparagraph 22(c) within thirty (30) days after receiving it, (4) the Dealer
or anyone else occupies such facilities for any purpose for a period of more
than ninety (90) days following the effective date of such termination or
nonrenewal, or (5) the Company arranges a cancellation of the lease of any
leased facilities without cost to the Dealer or the Dealer fails or refuses to
execute an agreement covering such cancellation.
(E) SATISFACTION OF COMPANY'S OBLIGATION. The Company may satisfy all
of its obligations under this paragraph 22 with respect to any Eligible
Facilities by paying to the Dealer (1) if the facilities are owned by the
Dealer, the difference, each month for twelve months (or until facilities are
sold if that is earlier), between any lesser rentals received by the Dealer for
such facilities for such month and the fair rental value of such facilities for
such month, or (2) if the facilities are leased by the Dealer, the difference,
each month for twelve months (or until the expiration of the lease if that is
earlier) between any lesser rentals received by the Dealer for such facilities
for such month and the rental paid by the Dealer (or, if the facilities are
owned by an affiliate of the Dealer, the fair rental value if that is
different) for such facilities for such month, or (3) at the election of the
Company, a lump sum, equal to the total payments contemplated in items (1) or
(2) of this subparagraph 22(e), or such lesser sum as may be agreed upon
between the Dealer and the Company, or by paying any lease cancellation cost
negotiated by the Dealer or the Company not to exceed the total of the
Company's obligations under subparagraphs 22(c) and 22(e).
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23. TERMINATION BENEFITS FULL COMPENSATION; GENERAL RELEASE
In the event of termination or nonrenewal of this agreement by the
Company, the Company, within thirty (30) days after the effective date thereof,
shall submit to the Dealer (1) a written tender of the benefits provided for in
paragraph 21 (and in paragraph 22 where applicable) and (2) a form for the
Dealer to use to elect either to reject all of such benefits or to accept one
or more of them as full and complete compensation for such nonrenewal or
termination. The Dealer shall have thirty (30) days after receipt of such form
to return the same to the Company evidencing his election. If the Dealer fails
to return the form stating such election within such thirty (30) days, the
Dealer shall be deemed to have elected to accept such benefits. Upon the
Dealer's election to accept any of such benefits, or upon the Dealer's demand
of any such benefits upon any termination or nonrenewal by the Dealer, the
Company shall be released from any and an other liability to the Dealer with
respect to all relationships and actions between the Dealer and the Company,
however claimed to arise, except any liability that the Company may have under
subparagraph 19(f) and said paragraphs 21 and 22, and except for such amounts
as the Company may have agreed in writing to pay to the Dealer. Simultaneously
with the receipt of any benefits so elected or demanded, the Dealer shall
execute and deliver to the Company a general release with exceptions, as above
described, satisfactory to the Company.
24. DISPOSITION OF THE DEALER'S ASSETS
(A) COMPANY RIGHT TO APPROVE CHANGE IN OWNERSHIP.
(1) In view of the nature, purposes and objectives of the
Company's Dealer sales and Service Agreements, and the
differences in operating requirements among dealerships of
differing sizes and types of markets, the Company expressly
reserves the right to select the dealers with whom it will
enter into such agreements so as to maintain as high quality
a dealer organization as possible.
(2) In the event this agreement is terminated or not renewed by
either party or if the Dealer plans to terminate or not renew
this agreement, the Company acknowledges that the Dealer has
the right to negotiate for the sale of the assets of the
Dealer as such price as may be agreed upon by the Dealer and
the prospective purchaser. In turn, the Dealer acknowledges
that the Company has the right to approve or decline to
approve any prospective purchaser as to his character,
automotive experience, management, capital and other
qualifications for appointment as an authorized dealer in
COMPANY PRODUCTS for the DEALERSHEP
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OPERATIONS involved. Approval by the Company of the
prospective purchaser shall not, however, be unreasonably
withheld. If, in the opinion of the Company, the price to be
paid for such assets appears, on the basis of the average
operating results of other dealers, to result in an
unsatisfactory return on investment so that such prospective
purchaser (1) may not remain as a dealer, or (2) may be
impelled to sell COMPANY PRODUCTS at high noncompetitive
prices with a probable reduction in sales volume, the Company
may, without liability to the Dealer, counsel with such
prospective purchaser regarding such opinions.
(B) COMPANY RIGHT TO FIRST REFUSAL TO PURCHASE.
(1) In the event the Dealer proposes a change in the ownership of
51 percent or more of the stock or transfer by sale or
otherwise of the dealership business or its principal assets
to any person or entity conditioned upon the Company entering
into a Sales and Service Agreement with that person or
entity, the Company shall have a Right of First Refusal to
Purchase the stock or assets on the same terms and conditions
offered or agreed to with such person, regardless of whether
the proposed buyer is qualified to be a dealer.
(2) To exercise its Right of First Refusal, the Company must
notify the Dealer in writing within thirty days of its
receipt of the completed proposal for the proposed sale or
transfer.
(3) Upon the Company's request the Dealer shall provide all
documents relating to the transfer. The Company shall have
the right to inspect the assets, including real estate,
before exercising its Right of First Refusal.
(4) The Company's Right of First Refusal under this subparagraph
24(b) may be assigned to any third party ("Assignee"). If
there is an assignment, the Company will guarantee full
payment of the purchase price by the Assignee. The Company
shall have the opportunity to discuss the terms of the
buy/sell agreement with any potential Assignee, as long as
such information is treated confidentially.
(5) The Company's rights hereunder are binding on and enforceable
against any successor in interest of the Dealer or purchaser
of the Dealer's assets.
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When the proposed change of ownership involves a transfer by
the Dealer solely to a member or members of his or her
immediate family, or to a qualifying member of Dealer
management, the Company's Right of First Refusal will not
apply. An "immediate family member" shall be the spouse,
child, grandchild, spouse of a child or grandchild, brother,
sister or parent of the Dealer owner or his or her spouse. A
"qualifying member of the Dealer's management" shall be an
individual who has been employed by the Dealer in the
dealership for at least four years and is otherwise qualified
as a dealer operator.
(6) The Company agrees to pay the reasonable expenses, including
attorney's fees which do not exceed the usual, customary, and
reasonable fees charged for similar work done for other
clients, incurred by the proposed new owners and transferee
prior to the Company's exercise of its Right of First Refusal
in negotiating and implementing the contract for the proposed
sale or transfer of the Dealer or Dealer's assets.
(7) Notwithstanding the foregoing, no payment of such expenses
and attorney's fees shall be required if the Dealer has not
submitted or caused to be submitted an accounting of those
expenses within thirty days of the Dealer's receipt of the
Company's written request for such an accounting. Such
accounting may be requested before the exams by the Company
of its Right of First Refusal.
25. NEW AGREEMENT
The termination or nonrenewal of this agreement by the Company in
connection with the offer by the Company of a new sales and service agreement
for one or more COMPANY PRODUCT'S to the Dealer or the Dealer's successor in
interest, shall not give rise to the rights and obligations provided in
paragraphs 19, 21 and 22 with respect to the COMPANY PRODUCTS included in such
new agreement, unless otherwise specified by the Company in writing.
26. ACKNOWLEDGEMENTS
This agreement terminates and supersedes all other agreements
concerning the DEALERSHIP OPERATIONS and constitutes the entire agreement
between the parties with respect to the subject matter hereof. Each party
acknowledges that, except as expressly set forth herein, no representation,
understanding or presumption of law or fact has been made or relied upon (1)
which has induced the execution of this agreement or would in any way modify
any of its provisions, or (2) with respect to the
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effectiveness or duration of this agreement or the sales or profit expectancy
of the DEALERSHIP OPERATIONS. The Dealer further acknowledges that he has
voluntarily entered into this agreement without coercion or intimidation or
threats thereof from the Company, and that each of its provisions is
reasonable, fair and equitable.
27. NO IMPLIED WAIVERS
Except as expressly provided in this agreement, the waiver by either
party, or the failure by either party to claim a breach of any provision of
this agreement, shall not constitute a waiver of any subsequent breach, or
affect in any way the effectiveness of such provision.
28. RELATIONS AFTER TERMINATION NOT A RENEWAL
In the event that, after termination or nonrenewal of this agreement,
either party has any business relations with the other party with respect to
any COMPANY PRODUCT, such relations shall not constitute either a renewal of
this agreement or a waiver of such termination or nonrenewal, but all such
relations shall be governed by terms identical with the provisions of such
agreement unless the parties execute a new and different agreement.
29. LIMITATION OF THE COMPANIES LIABILITY
This agreement contemplates that all investments by or in the Dealer
shall be made, and the Dealer shall purchase and resell COMPANY PRODUCTS, in
conformity with the provisions hereof but otherwise in the discretion of the
Dealer and the Dealer's owners. Except as herein specified, nothing herein
contained shall impose any liability on the Company in connection with the
DEALERSHIP OPERATIONS or otherwise or for any expenditure made or incurred by
the Dealer in preparation for performance or in performance of the Dealers
responsibilities under this agreement.
30. NOTICES
Any notice required or permitted by this agreement, or given in
connection herewith, shall be in writing and shall be given by personal
delivery or by first-class or certified or registered mail, postage prepaid.
Notices to the Company shall be delivered to or addressed to the District Sales
Manager of the area in which the Dealer is located except notices given by the
Dealer either to the Policy Board or pursuant to the Arbitration Plan. Notices
to the Dealer did be delivered to any person designated in paragraph F(ii) of
this agreement or directed to the Dealer at the Dealer's principal place of
business as described herein.
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31. AMENDMENT
Notwithstanding anything in this agreement to the contrary, the
Company shall have the right to amend, modify or change this agreement in case
of legislation, government regulation or changes in circumstances beyond the
control of the Company that might affect materially the relationship between
the Company and the Dealer.
32. MICHIGAN AGREEMENT
This agreement has been signed by the Dealer and sent to the Company
in Michigan for final approval and execution and has there been signed and
delivered on behalf of the Company. The parties intend this agreement to be
executed as a Michigan Agreement and to be construed in accordance with the
laws of the State of Michigan.
33. CONFLICT WITH STATUTE
If performance under this agreement is illegal under a valid law of
any jurisdiction where such performance is to take place, the performance will
be modified to the minimum extent necessary to comply with any such law as was
effective on the date of execution of this agreement.
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Exhibit 18.1
[Coopers & Lybrand LLP Letterhead]
April 13, 1998
United Auto Group, Inc.
375 Park Avenue
22nd Floor
New York, NY 10152
We are providing this letter to you for inclusion as an exhibit to your Form
10-K filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in accounting from the
last-in, first-out method to the specific identification method contained in
the Company's Form 10-K for the year ended December 31, 1997. Based on our
reading of the data and discussions with Company officials about the business
judgment and business planning factors relating to the change, we believe
management's change to be reasonable. Accordingly, in reliance on management's
determination as regards elements of business judgment and business planning,
we concur that the newly adopted accounting principle described above is
preferable in the Company's circumstances to the method previously applied.
/s/ Coopers & Lybrand L.L.P.
<PAGE>
Exhibit 21.1
UNITED AUTO GROUP, INC.
Subsidiaries as of December 31, 1997
Name of Company State of
Incorporation
Carolinas
Gene Reed Chevrolet, Inc. SC
d/b/a Gene Reed Chevrolet
Michael Chevrolet-Oldsmobile, Inc. SC
d/b/a Michael Chevrolet Oldsmobile
Reed-Lallier Chevrolet, Inc. NC
d/b/a Reed-Lallier Chevrolet
UAG Carolina, Inc. DE
DiFeo-Danbury
Danbury Auto Partnership NJ
d/b/a Fair Honda
Danbury Auto Partnership NJ
d/b/a UnitedAuto Mart
Danbury Chrysler Plymouth Partnership NJ
d/b/a Fair Dodge
Fair Chevrolet-Geo Partnership NJ
d/b/a Fair Chevrolet/Geo
Fair Hyundai Partnership NJ
d/b/a Fair Hyundai/Isuzu/Suzuki
DiFeo-Jersey City
DiFeo Chevrolet-Geo Partnership NJ
DiFeo Hyundai Partnership NJ
DiFeo Nissan Partnership NJ
d/b/a DiFeo Nissan
DiFeo Partnership HCT, Inc. DE
DiFeo Partnership RCM, Inc. DE
DiFeo Partnership SCT, Inc. DE
DiFeo Partnership X, Inc. DE
<PAGE>
Name of Company State of
Incorporation
DiFeo Partnership, Inc. DE
DiFeo Tenafly Partnership NJ
d/b/a DiFeo BMW
Hudson Motors Partnership NJ
d/b/a Hudson Toyota
Hudson Toyota, Inc. NJ
J & F Oldsmobile Partnership NJ
Somerset Motors Partnership NJ
d/b/a DiFeo Lexus
Somerset Motors, Inc. NJ
UAG Northeast (NY), Inc. DE
UAG Northeast, Inc. DE
DiFeo-Nyack
County Auto Group Partnership NJ
d/b/a Rockland Toyota
DiFeo Chrysler Plymouth Jeep Eagle Partnership NJ
d/b/a DiFeo Chrysler Plymouth/ Jeep Eagle/ Hyundai
DiFeo Partnership RCT, Inc. DE
Rockland Motors Partnership NJ
d/b/a Rockland Mitsubishi
DiFeo-Toms River NJ
DiFeo Partnership IX, Inc. DE
DiFeo Partnership VIII, Inc. DE
OCM Partnership NJ
d/b/a Gateway Mitsubishi
Page 2
<PAGE>
Name of Company State of
Incorporation
OCT Partnership NJ
d/b/a Gateway Toyota
Georgia
Atlanta Toyota, Inc. TX
d/b/a Atlanta Toyota
Conyers Nissan, Inc. GA
d/b/a Conyers Nissan
Peachtree Nissan, Inc. GA
d/b/a Peachtree Nissan
UAG Atlanta II, Inc. DE
UAG Atlanta III, Inc. DE
UAG Atlanta IV Motors, Inc. GA
d/b/a United BMW
UAG Atlanta IV, Inc. DE
UAG Atlanta V, Inc. DE
UAG Atlanta VI, Inc. DE
UAG Atlanta, Inc. DE
United Jeep Eagle Chrysler Plymouth of Stone Mountain, Inc. GA
d/b/a United Jeep Eagle/ Chrysler Plymouth of
Stone Mountain
United Nissan, Inc. (GA) GA
d/b/a United Nissan
Arkansas
BPT Holdings, Inc. AR
Central Ford Center, Inc. AR
d/b/a Landers Ford
Landers Auto Sales, Inc. AR
d/b/a Landers Isuzu
Page 3
<PAGE>
Name of Company State of
Incorporation
Landers Auto Sales, Inc. AR
d/b/a Landers Jeep/Eagle/Chrysler Plymouth/Dodge
Landers Buick-Pontiac, Inc. AR
d/b/a Landers Buick-Pontiac
Landers United Auto Group No. 2, Inc. AR
d/b/a Landers Used Cars-North
Landers United Auto Group No. 3, Inc. AR
d/b/a Landers United AutoMart
Landers United Auto Group No. 4, Inc. AR
d/b/a Landers Buick Pontiac/GMC Truck
Landers United Auto Group No. 5, Inc. AR
Landers United Auto Group, Inc. AR
United Landers, Inc. DE
Louisiana
UnitedAuto Dodge of Shreveport, Inc. DE
d/b/a UnitedAuto Dodge of Shreveport
Nevada
UAG Nevada, Inc. DE
United Nissan, Inc. (NV) NV
Page 4
<PAGE>
Name of Company State of
Incorporation
Puerto Rico
HVP Motor Corporation PR
d/b/a Triangle del Caribe
PVH Motor Corporation PR
d/b/a Triangle Chrysler de Infanteria
S.H.V.P. Motor Corp. PR
d/b/a Triangle el Comandante
UAG-Caribbean, Inc. DE
VPH Motor Corporation PR
d/b/a Triangle del Oeste
Sun-Arizona
6725 Agent Partnership AZ
6725 Dealership, Ltd. AZ
SA Automotive, Ltd. AZ
d/b/a Scottsdale Acura
Scottsdale Audi, Ltd. AZ
Scottsdale Management Group, Ltd. AZ
SK Motors, Ltd. AZ
d/b/a Scottsdale/Porsche/Audi/Rolls-Royce/Bentley
SL Automotive, Ltd. AZ
d/b/a Scottsdale Lexus
SPA Automotive, Ltd. AZ
d/b/a Land Rover Scottsdale
Sun BMW, Ltd. AZ
d/b/a Camelback BMW
LRP, Ltd. AZ
d/b/a Land Rover Phoenix
Page 5
<PAGE>
Name of Company State of
Incorporation
UAG West, Inc. DE
Tennessee
UAG Tennessee, Inc. DE
United Nissan, Inc. (TN) TN
d/b/a United Nissan
Covington Pike Dodge, Inc. DE
d/b/a Covington Pike Dodge
UAG Memphis, Inc. DE
Texas
Shannon Automotive, Ltd. TX
d/b/a Crown Jeep Eagle/Chrysler Plymouth
Shannon Automotive, Ltd. TX
d/b/a Crown Dodge
UAG Texas II, Inc. DE
UAG Texas, Inc. DE
UAG East-North
UAG East, Inc. DE
Westbury Nissan Ltd. NY
d/b/a Westbury Nissan Superstore
Westbury Superstore, Ltd. NY
Page 6
<PAGE>
Name of Company State of
Incorporation
UAG East-South
Auto Mall Payroll Services, Inc. FL
Auto Mall Storage, Inc. FL
Florida Chrysler Plymouth Jeep Eagle, Inc. FL
d/b/a Florida Chrysler Plymouth/Jeep Eagle
Northlake Auto Finish, Inc. FL
Palm Auto Plaza, Inc. FL
d/b/a Palm Beach Toyota
West Palm Automall, Inc. FL
West Palm Infiniti, Inc. FL
d/b/a West Palm Infiniti
West Palm Nissan, Inc. FL
d/b/a West Palm Nissan
United AutoCare
United AutoCare Products, Inc. DE
United AutoCare, Inc. DE
UnitedAuto Care (Bermuda), Ltd. BERMUDA
UnitedAuto Finance
Atlantic Auto Funding Corporation DE
Atlantic Auto Second Funding Corporation DE
Atlantic Auto Third Funding Corporation DE
UnitedAuto Finance Inc. DE
Page 7
<PAGE>
Name of Company State of
Incorporation
Other
UAG Capital Management, Inc. GA
UAG Finance Company, Inc. DE
UnitedAuto Enterprises, Inc. DE
Page 8
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
United Auto Group, Inc. on Form S-3 (Registration No. 333-39997) and Form S-8
(Registration Nos. 333-14971 and 333-26219) of our report dated
February 27, 1998 on our audits of the consolidated financial statements as of
December 31, 1997 and 1996, and for the years ended December 31, 1997, 1996,
and 1995, which report is in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Princeton, New Jersey
April 13, 1998
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<RECEIVABLES> 85,699
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<TOTAL-ASSETS> 760,889
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<BONDS> 93,722
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<TOTAL-LIABILITY-AND-EQUITY> 760,889
<SALES> 915,158
<TOTAL-REVENUES> 917,243
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<SECURITIES> 0
<RECEIVABLES> 62,461
<ALLOWANCES> (1,147)
<INVENTORY> 218,756
<CURRENT-ASSETS> 329,826
<PP&E> 28,879
<DEPRECIATION> (4,020)
<TOTAL-ASSETS> 576,791
<CURRENT-LIABILITIES> 268,395
<BONDS> 11,777
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<TOTAL-LIABILITY-AND-EQUITY> 576,791
<SALES> 388,200
<TOTAL-REVENUES> 389,185
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<PERIOD-START> JAN-01-1996
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<CASH> 66,875
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<RECEIVABLES> 53,241
<ALLOWANCES> (1,223)
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<CURRENT-ASSETS> 304,699
<PP&E> 25,967
<DEPRECIATION> (3,626)
<TOTAL-ASSETS> 528,244
<CURRENT-LIABILITIES> 223,550
<BONDS> 11,121
0
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<TOTAL-LIABILITY-AND-EQUITY> 528,244
<SALES> 1,302,031
<TOTAL-REVENUES> 1,303,829
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<TOTAL-COSTS> 1,280,703
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<EXTRAORDINARY> (4,987)
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<EPS-PRIMARY> 0.30
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<CURRENT-LIABILITIES> 172,357 141,360
<BONDS> 45,735 24,073
0 0
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<CGS> 847,763 720,634
<TOTAL-COSTS> 937,758 811,220
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