<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
GROUP 1 AUTOMOTIVE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(l) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
[GROUP 1 AUTOMOTIVE, INC. LOGO]
Houston, Texas
---------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1999
To the Stockholders:
The 1999 Annual Meeting of Stockholders (the "Annual Meeting") of Group 1
Automotive, Inc. (the "Company") will be held on Thursday, May 12, 1999 at 10:00
a.m., local time, at Chase Bank of Texas, Mezzanine Level, 707 Travis Street,
Houston, Texas, for the following purposes:
1. To elect two directors to serve until the 2002 Annual Meeting of
Stockholders;
2. To approve an amendment to the Company's 1996 Stock Incentive Plan
to increase the number of shares of common stock available for issuance
under the plan from 2,000,000 to 3,000,000 shares;
3. To approve an amendment to the Company's 1998 Employee Stock
Purchase Plan to increase the number of shares of common stock available
for issuance under the plan from 200,000 to 1,000,000 shares;
4. To ratify the appointment of Arthur Andersen LLP as independent
accountants of the Company for the year ended December 31, 1999; and
5. To consider and act upon such other business as may properly come
before the meeting or any adjournments thereof.
The close of business on March 22, 1999, has been fixed as the record date
for the determination of stockholders entitled to receive notice of, and to vote
at, the Annual Meeting or any adjournment(s) thereof.
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. WHETHER OR NOT YOU
PLAN TO ATTEND THE ANNUAL MEETING, WE ASK THAT YOU SIGN AND RETURN THE ENCLOSED
PROXY AS PROMPTLY AS POSSIBLE. A SELF-ADDRESSED, POSTAGE PAID ENVELOPE IS
ENCLOSED FOR YOUR CONVENIENCE. RETURNING THE PROXY WILL NOT LIMIT YOUR RIGHT TO
VOTE IN PERSON OR TO ATTEND THE MEETING, BUT WILL ENSURE YOUR REPRESENTATION IF
YOU DO NOT ATTEND.
By Order of the Board of Directors
/s/ JOHN S. WATSON
John S. Watson
Secretary
Houston, Texas
April 12, 1999
<PAGE> 3
[GROUP 1 AUTOMOTIVE, INC. LOGO]
950 Echo Lane, Suite 350
Houston, Texas 77024
April 12, 1999
---------------------
PROXY STATEMENT
---------------------
GENERAL INFORMATION
PROXY SOLICITATION
This proxy statement is furnished to the stockholders of Group 1
Automotive, Inc., a Delaware corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company (the "Board").
The proxies are to be voted at the 1999 Annual Meeting of Stockholders (the
"Annual Meeting") to be held on May 12, 1999 at 10:00 a.m., local time, at Chase
Bank of Texas, Mezzanine Level, 707 Travis Street, Houston, Texas, and any
adjournments thereof, for the purposes set forth in the accompanying notice. The
Board is not aware of any other matters to be presented at the meeting. If any
other matter should be presented at the meeting upon which a vote properly may
be taken, shares represented by all duly executed proxies received by the
Company will be voted with respect thereto in accordance with the best judgment
of the persons designated as the proxies.
The solicitation of proxies by the Board will be conducted primarily by
mail. In addition, officers, directors and employees of the Company may solicit
proxies personally or by telephone, telegram or other forms of wire or facsimile
communication. The Company will reimburse brokers, custodians, nominees and
fiduciaries for reasonable expenses incurred by them in forwarding proxy
material to beneficial owners of common stock of the Company ("Common Stock").
The costs of the solicitation will be borne by the Company. This proxy statement
and the accompanying form of proxy have been mailed to stockholders on or about
April 12, 1999.
RECORD DATE AND VOTING RIGHTS
As of March 22, 1999, the record date for the determination of stockholders
entitled to notice of and to vote at the Annual Meeting, there were outstanding
20,407,932 shares of Common Stock. Each share of Common Stock entitles the
holder to one vote on each matter presented at the Annual Meeting. Common Stock
is the only class of outstanding securities of the Company entitled to notice
of, and to vote at, the Annual Meeting. A majority of the outstanding shares of
Common Stock will constitute a quorum at the meeting. Abstentions and "broker
non-votes" are counted for purposes of determining the presence or absence of a
quorum for the transaction of business. A broker non-vote occurs if a broker or
other nominee does not have discretionary authority and has not received
instructions with respect to a particular item. Abstentions are counted in
tabulations of the votes cast on proposals presented to stockholders, whereas
broker non-votes are not counted for purposes of determining whether a proposal
has been approved.
VOTING OF PROXY; REVOCABILITY
Proxies will be voted in accordance with the directions specified thereon
and otherwise in accordance with the judgment of the persons designated as
proxies. Any proxy on which no direction is specified will be voted, (a) FOR the
election of the nominees named herein to the Board, (b) FOR the amendment to the
Company's 1996 Stock Incentive Plan as contemplated herein, (c) FOR the
amendment to the Company's 1998 Employee Stock Purchase Plan as contemplated
herein and (d) FOR the ratification of the appointment of Arthur Andersen LLP as
the Company's independent accountants. Any proxy may be revoked at any time
prior to its exercise by delivery to the Secretary of the Company of written
notice of revocation or a duly executed proxy bearing a later date, or by voting
in person at the meeting.
<PAGE> 4
ANNUAL REPORT
The Company's annual report and the Company's annual report on Form 10-K
for the year ended December 31, 1998 (collectively the "Annual Report")
including the financial statements and the financial statement schedules
thereto, accompany this Proxy Statement. Stockholders are referred to in the
Annual Report for financial and other information about the activities of the
Company.
ITEM 1
ELECTION OF DIRECTORS
NOMINEES
Two directors are to be elected at the Annual Meeting. The Company's
Certificate of Incorporation provides for a classified Board. Thus, the Board is
divided into Classes I, II and III the terms of office of which are currently
scheduled to expire on the dates of the Company's Annual Meetings of
Stockholders in 2000, 2001 and 1999, respectively. Charles M. Smith and John H.
Duncan have been nominated to serve as Class III Directors and, if elected, will
serve until the Company's 2002 Annual Meeting of Stockholders and until their
respective successors shall have been elected and qualified. Each of the
nominees for director currently serves as a director of the Company. The
remaining four directors named below will not be required to stand for election
at the Annual Meeting because their present terms expire in either 2000 or 2001.
A plurality of the votes cast in person or by proxy by the holders of Common
Stock is required to elect a director. Accordingly, abstentions and broker
non-votes will have no effect on the outcome of the election of directors
assuming a quorum is present or represented by proxy at the Annual Meeting.
Stockholders may not cumulate their votes in the election of directors.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted for the election of the nominees listed below.
Although the Board does not contemplate that any of the nominees will be unable
to serve, if such a situation arises prior to the Annual Meeting, the persons
named in the enclosed proxy will vote for the election of such other person(s)
as may be nominated by the Board.
The following table sets forth certain information, as of the date of this
Proxy Statement, regarding the nominees and the other directors of the Company.
<TABLE>
<CAPTION>
DIRECTOR
POSITION AND OFFICES WITH THE COMPANY SINCE AGE
------------------------------------- -------- ---
<S> <C> <C> <C>
CLASS III NOMINEES
Charles M. Smith............... Director, Senior Vice President -- Industry
Relations 1995 53
John H. Duncan................. Director 1997 71
CLASS I DIRECTORS
B.B. Hollingsworth, Jr. ....... Chairman, President and Chief Executive Officer 1996 56
Robert E. Howard, II........... Director, President of Howard Group 1997 52
CLASS II DIRECTORS
Sterling B. McCall, Jr. ....... Director, Chairman of Sterling McCall Toyota and
Lexus 1996 64
Bennett E. Bidwell............. Director 1997 71
</TABLE>
CLASS III NOMINEES
Charles M. Smith has served as Director of the Company since its formation
in December 1995. Mr. Smith has served as Senior Vice President -- Industry
Relations of the Company since January 1999. Mr. Smith has more than 29 years
experience in the automotive retailing industry. From 1968 to 1980, he served in
various capacities in dealerships owned and operated by the Smith family. From
1980 to 1985, he owned and operated his own automobile dealership. From 1985 to
November 1997, he served as managing partner of Smith & Liu Management Company,
the management entity for the Smith Group dealerships that
2
<PAGE> 5
were acquired by the Company in November 1997. He is a former Chairman of the
American International Automobile Dealers Association and is Vice Chairman of
the Texas Automobile Dealers Association. He has won the Time Magazine Quality
Dealer Award and the Sports Illustrated All-Star Dealer Award.
John H. Duncan has served as Director of the Company since June 1997. Since
1988, Mr. Duncan has been a private investor with holdings in the automotive,
oil and gas and real estate industries. From 1958 to 1968, Mr. Duncan served as
President of Gulf & Western Industries, a company which he co-founded. Mr.
Duncan currently serves as a director, Chairman of the Executive Committee and
member of the Compensation Committee of Enron Corporation, a director and
Chairman of the Compensation Committee of Enron Oil Trading & Transportation and
a director of Enron Oil and Gas Company. Mr. Duncan also serves on the Board of
Trustees of Southwestern University, the Board of Trustees of the Texas Heart
Institute and the Board of Visitors of the University of Texas (M.D. Anderson)
Cancer Foundation.
CLASS I DIRECTORS
B.B. Hollingsworth, Jr. has served as Chairman of the Company since March
1997 and as President, Chief Executive Officer and Director of the Company since
August 1996. Prior to joining the Company, Mr. Hollingsworth spent nineteen
years with Service Corporation International ("SCI"), where he directed an
acquisition program that established SCI as the world's leading consolidator of
the funeral industry. He joined SCI in 1967, was then named Vice President for
Corporate Development, was named Vice President and Chief Financial Officer in
1972, and was elected President and named director in 1975. He served as
President and director of SCI from 1975 until retirement in 1986. From 1986 to
1996, Mr. Hollingsworth served as a consultant to SCI. Prior to November 1997,
Mr. Hollingsworth was a shareholder and director of Foyt Motors, Inc., a
subsidiary of the Company that was acquired by the Company in November 1997. He
has served as a director of several public and private companies.
Robert E. Howard, II has served as a Director of the Company since April
1997. Mr. Howard has served as President of Howard Group since November 1997.
Mr. Howard has more than 28 years experience in the automotive retailing
industry. From 1969 to 1977, he served in various management positions at
franchised dealerships. From 1978 to November 1997, he served as Chairman of
Howard Pontiac-GMC, Inc., a franchised dealership acquired by the Company in
November 1997. Prior to November 1997, Mr. Howard was also Chairman of the
following companies acquired by the Company in November 1997: Bob Howard
Chevrolet, Bob Howard Honda/Acura, Bob Howard Toyota and Bob Howard Dodge. He
was a recipient of the 1997 Time Magazine Quality Dealer Award and presently
serves as Chairman of the Oklahoma Motor Vehicle Commission and as a director of
the Oklahoma City Metropolitan Automobile Dealers Association.
CLASS II DIRECTORS
Sterling B. McCall, Jr. has served as Director of the Company since August
1996. Mr. McCall has over 29 years experience in the automotive retailing
industry and, is Chairman of Sterling McCall Toyota and Sterling McCall Lexus,
both subsidiaries of the Company that were acquired by the Company in November
1997. He served as President or Chairman of Sterling McCall Toyota and Sterling
McCall Lexus since their inception in 1969 and 1989, respectively. He is a
former director of the American International Automobile Dealers Association, a
former director and Chairman of the Houston Automobile Dealers Association, a
former Chairman of the Gulf States Toyota Dealer Council, and a former director
of the Texas Automobile Dealers Association. Mr. McCall has won the Time
Magazine Quality Dealer Award and the Sports Illustrated Dealer of Distinction
Award.
Bennett E. Bidwell has served as Director of the Company since June 1997.
Mr. Bidwell joined Chrysler Corporation as Executive Vice President in 1983 and
was elected to its board of directors in that same year. He was named Vice
Chairman of Chrysler Corporation in 1985, Vice Chairman of Chrysler Motors
Corporation in 1987 and President -- Product and Marketing of Chrysler Motors
Corporation in 1988. From 1988 to 1990, Mr. Bidwell served as Chairman of
Chrysler Motors Corporation. Mr. Bidwell retired from Chrysler Corporation in
1993. Prior to joining Chrysler, Mr. Bidwell spent 27 years with Ford Motor
Company, and from 1981 to 1983 he was President and Chief Operating Officer of
The Hertz Corporation.
3
<PAGE> 6
His past directorships include National Steel Corporation (1981-1983), McDonald
& Company Securities, Inc. (1992-1995) and Kerr-McGee Corporation (1985-1998).
Mr. Bidwell currently serves as a director for International Management Group,
Budd Company and Kelly Management Group.
THE BOARD RECOMMENDS A VOTE FOR EACH OF THE PROPOSED NOMINEES.
EXECUTIVE OFFICERS
Set forth below are the Company's executive officers together with their
positions and ages.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
B.B. Hollingsworth, Jr. .................. 56 Chairman, President and Chief Executive
Officer
John S. Bishop............................ 52 Senior Vice President -- Operations
Charles M. Smith.......................... 53 Senior Vice President -- Industry
Relations
Scott L. Thompson......................... 40 Senior Vice President -- Chief Financial
Officer and Treasurer
John T. Turner............................ 55 Senior Vice President -- Corporate
Development
</TABLE>
A description of Messrs. Hollingsworth's and Smith's work experience is set
forth above under "-- Nominees." Set forth below is a brief description of the
work experience of Messrs. Bishop, Thompson and Turner.
John S. Bishop has served as Senior Vice President -- Operations since
October 1998. From 1981 until 1998, he served as Group Vice President of Sales
and Marketing for Gulf States Toyota, an independent distributor of Toyota
vehicles, parts and accessories serving approximately 140 dealers in a
five-state area. Before joining Gulf States Toyota, Mr. Bishop was employed at
both Ford Motor Company and Chrysler Corporation for a combined eight years.
Scott L. Thompson has served as Senior Vice President -- Chief Financial
Officer and Treasurer of the Company since December 1996. From 1991 to 1996, Mr.
Thompson served as Executive Vice President, Operations and Finance for KSA
Industries, Inc., a diversified enterprise with interests in automotive
retailing, energy and professional sports. Among Mr. Thompson's other
responsibilities within the KSA group of companies, he served as a Vice
President and director of three automobile dealerships with aggregate annual
revenues of $180 million. Additionally, in connection with his position at KSA
Industries, Inc. he served as a director of Adams Resources Energy, Inc., a
public oil and gas company. He is a Certified Public Accountant, and from 1980
to 1991 he held various positions with Arthur Andersen LLP.
John T. Turner has served as the Company's Senior Vice
President -- Corporate Development since December 1996. Prior to joining the
Company, Mr. Turner functioned as Managing Director -- Corporate Development,
Europe for SCI. From 1990 to 1993, Mr. Turner served as Senior Vice
President -- Operations and Director of The Loewen Group, Inc. From 1986 to
1990, he served as President and Director of Paragon Family Services, Inc. From
1981 to 1986, he served as Senior Vice President -- Corporate Development for
SCI. Mr. Turner was a partner in Arthur Young & Company from 1977 to 1981.
Currently, he is a director of Metamor Worldwide, Inc.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of February 28, 1999 by (i) each person known by
the Company to own beneficially more than five percent of its outstanding Common
Stock, (ii) the Company's Chief Executive Officer and each of the Company's
other executive officers who are named in the Summary Compensation Table, (iii)
each of the Company's directors and (iv) all executive officers and directors as
a group. All persons listed have an address c/o of the
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<PAGE> 7
Company's principal executive offices and have sole voting and dispositive power
over the shares of Common Stock indicated as owned by such person unless
otherwise indicated.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
-----------------------
NAME OF BENEFICIAL OWNERS SHARES PERCENT
- ------------------------- --------- -------
<S> <C> <C>
B.B. Hollingsworth, Jr...................................... 613,268 3.3%
John S. Bishop.............................................. 1,000 *
Charles M. Smith............................................ 715,206 3.9
Scott L. Thompson........................................... 83,366 *
John T. Turner.............................................. 114,879 *
Bennett E. Bidwell.......................................... 3,333 *
John H. Duncan.............................................. 201,701 1.1
Robert E. Howard, II........................................ 3,032,138(2) 16.6
Sterling B. McCall, Jr...................................... 1,472,671(3) 8.1
James S. Carroll............................................ 1,052,667(4) 5.8
Alliance Capital Management L.P............................. 1,683,100(5)(6) 9.2
All directors and executive officers as a group (9 persons
including the directors and executive officers named
above).................................................... 6,237,562 33.8
</TABLE>
- ---------------
* Less than 1%
(1) Under the regulations of the Securities Exchange Commission (the
"Commission"), shares are deemed to be "beneficially owned" by a person if
he directly or indirectly has or shares the power to vote or dispose of such
shares, whether or not he has any pecuniary interest in such shares, or if
he has the right to acquire the power to vote or dispose of such shares
within 60 days, including any right to acquire such power through the
exercise of any option, warrant or right. The shares beneficially owned by
Messrs. Hollingsworth, Thompson, Turner, Bidwell and Duncan include 54,800,
53,440, 100,220, 3,333 and 3,333 shares, respectively, that may be acquired
by such person within 60 days through the exercise of stock options. The
shares owned by the executive officers and directors as a group include
215,126 shares that may be acquired by such persons within 60 days through
the exercise of stock options.
(2) Includes (i) 780,000 shares held by Howard Investments, L.L.C., which is
controlled by Mr. Howard and (ii) 25,450 shares held by Century Reinsurance
Company, Inc., which is controlled by Mr. Howard.
(3) Includes (i) 637,475 shares owned by SMC Investment, Inc., which is
controlled by Mr. McCall, (ii) 250,248 shares owned by Gulf Coast Family
Limited Partnership, which is controlled by Mr. McCall, (iii) 106,041 shares
owned by SBM-T Family Limited Partnership, which is controlled by Mr. McCall
and (iv) 30,629 shares owned by Mr. McCall's spouse.
(4) Includes 1,052,267 shares held by J. C. World Limited Partnership, which is
indirectly controlled by Mr. Carroll and 400 shares owned by his children.
(5) As reported on a Schedule 13G dated as of December 31, 1998 and filed on
February 16, 1999.
(6) The Equitable Companies Incorporated ("Equitable Companies"), 1290 Avenue of
the Americas, New York, New York 10104, is a parent holding company with
respect to its holdings of Alliance Capital Management L.P. AXA (formerly
AXA-UAP) ("AXA"), 9 Place Vendome, 75001 Paris France, owns a majority
interest in Equitable Companies. AXA Assurance I.A.R.D. Mutuelle and AXA
Assurances Vie Mutuelle, 21, rue de Chateaudun, 75009 Paris France, AXA
Conseil Vie Assurance Mutuelle, 100-101 Terrasse Boieldieu, 92042 Paris La
Defense France, and AXA Courtage Assurance Mutuelle, 26 rue Louis le Grand
75002 Paris France, collectively as a group, control AXA.
DIRECTORS' MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board met six times in 1999. Each Board member attended all of the
meetings of the Board and all of the meetings of the committees on which he
served.
The Board has established an Audit Committee and a Compensation Committee
to act on behalf of the Board and to advise the Board with respect to specific
matters. The Board does not have a standing nominating
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<PAGE> 8
committee or a committee that performs a similar function. The responsibilities
of the Audit Committee and Compensation Committee are as follows:
Audit Committee. The Audit Committee is comprised entirely of directors who
are not officers of the Company. The Audit Committee has been established to
discuss the scope and plan of the annual audit of the books and records of the
Company; to review, evaluate and advise the Board with respect to the engagement
of independent public accountants; to review the adequacy of internal accounting
procedures, and to review audit results. Messrs. Bidwell (Chairman) and Duncan
are members of the Audit Committee, which held two meetings in 1998.
Compensation Committee. The Compensation Committee is comprised entirely of
directors who are not officers of the Company. The Compensation Committee's
function is to review the compensation levels of the Company's executive
officers, to administer the Company's stock option and purchase plans and to
authorize bonuses, awards under such plans and any other form of remuneration.
Messrs. Duncan (Chairman) and Bidwell are members of the Compensation Committee,
which held four meetings in 1998.
EXECUTIVE COMPENSATION
The following table sets forth annual and long term compensation for
services in all capacities to the Company and its subsidiaries for the years
ended December 31, 1996, 1997 and 1998 of those persons who were, at December
31, 1998, the Chief Executive Officer and the other most highly compensated
executive officers of the Company who earned more than $100,000 in 1998
(collectively, the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION(1) ------------------
----------------- SECURITIES
FISCAL SALARY BONUS UNDERLYING OPTIONS
YEAR ($) ($) (#)
------ -------- -------- ------------------
<S> <C> <C> <C> <C>
B.B. Hollingsworth, Jr. ........................... 1998 $383,750 $360,000 110,000
Chairman, President and Chief Executive Officer 1997 360,000 -- 200,000
1996 60,000 -- --
John T. Turner..................................... 1998 266,667 250,000 60,000
Senior Vice President -- Corporate Development 1997 250,000 -- 205,000
1996 12,097 -- 125,000
Scott L. Thompson.................................. 1998 213,750 200,000 60,000
Senior Vice President -- Chief Financial Officer 1997 180,000 -- 160,000
and Treasurer 1996 8,710 -- 80,000
John S. Bishop..................................... 1998 70,577 75,000 100,000
Senior Vice President-- Operations
</TABLE>
- ---------------
(1) Amounts exclude perquisites and other personal benefits because such
compensation did not exceed the lesser of $50,000 or 10% of the total annual
salary and bonus reported.
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<PAGE> 9
STOCK OPTIONS GRANTED IN 1998
The following table contains certain information concerning stock options
granted to the named executive officers in 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------- POTENTIAL REALIZABLE
NUMBER VALUE AT ASSUMED
OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS EXERCISE OR PRICE APPRECIATION FOR
UNDERLYING GRANTED TO BASE PRICE OPTION TERMS(3)
OPTIONS EMPLOYEES PER EXPIRATION -----------------------
NAME GRANTED(1) DURING 1998 SHARE(2) DATE 5% 10%
---- ---------- ------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
B.B. Hollingsworth, Jr. ...... 110,000 14.2% $17.88 11/11/08 $1,237,000 $3,135,000
John T. Turner................ 60,000 7.7 17.88 11/11/08 675,000 1,710,000
Scott L. Thompson............. 60,000 7.7 17.88 11/11/08 675,000 1,710,000
John S. Bishop................ 100,000 12.9 14.25 10/07/08 896,000 2,271,000
</TABLE>
- ---------------
(1) The options expire 10 years from the date of grant. The options awarded to
Messrs. Hollingsworth and Turner vest in 25% increments per year beginning
on November 11, 1999. The options awarded to Mr. Thompson vest in 20%
increments per year beginning on November 11, 1999. The options awarded to
Mr. Bishop vest in 16.7% increments per year beginning on October 7, 1999.
(2) The exercise price of the options was based upon the fair market value of
the Common Stock on the date of grant.
(3) Calculated based upon the indicated rates of appreciation, compounded
annually, from the date of grant to the end of each option term. Actual
gains, if any, on stock option exercises and Common Stock holdings are
dependent on the future performance of the Common Stock and overall stock
market conditions. There can be no assurance that the amounts reflected in
this table will be achieved. The calculation does not take into account the
effects, if any, of provisions of the option plan governing termination of
options upon employment termination, transferability or vesting.
STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table contains certain information concerning the value of
unexercised options at December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS AT
ACQUIRED VALUE DECEMBER 31, 1998 DECEMBER 31, 1998(1)
ON REALIZED --------------------------- ---------------------------
NAME EXERCISE(#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
B.B. Hollingsworth, Jr. ....... 12,000 $132,450 54,800 243,200 $ 961,940 $3,364,060
John T. Turner................. 10,000 110,375 100,220 279,780 1,935,157 4,806,543
Scott L. Thompson.............. 26,720 378,422 53,440 219,840 991,312 3,694,656
John S. Bishop................. -- -- -- 100,000 -- 1,175,000
</TABLE>
- ---------------
(1) The value of each unexercised in-the-money stock option is equal to the
difference between the closing price of the Common Stock on the New York
Stock Exchange on December 31, 1998 of $26.00 and the per share exercise
price of the stock option.
COMPENSATION OF DIRECTORS
Board members, other than those employed by the Company, receive an annual
fee of $6,000, a fee of $1,500 for attendance at each meeting of the Board and a
fee of $1,000 for attendance at each meeting of a committee of the Board.
Directors also receive the use of one company vehicle or the economic
equivalent. In addition, directors are eligible for grants of stock options and
other awards pursuant to the Company's 1996 Stock Incentive Plan. Messrs. Duncan
and Bidwell each received options to purchase 10,000 shares of Common Stock for
$12.00 per share in 1997, and 3,000 shares of Common Stock for $17.88 per share
in 1998, under the 1996 Stock Incentive Plan.
7
<PAGE> 10
EMPLOYMENT AGREEMENTS
Each of the named executive officers, except Mr. Bishop has entered into
employment agreements with the Company dated November 3, 1997. Mr. Bishop
entered into an employment agreement with the Company dated October 7, 1998. The
employment agreements provide for the following annual base salaries: B.B.
Hollingsworth, Jr. -- $430,000; John T. Turner -- $300,000, Scott L. Thompson
-- $250,000 and John S. Bishop -- $300,000. The employment agreements also
provide that such officers' participation in bonus plans will be governed by the
bonus and incentive plans adopted by the Compensation Committee of the Board.
Each employment agreement is for a term of five years, and unless
terminated or not renewed by the Company or the employee, the term will continue
thereafter on a month-to-month basis terminable at any time by either the
Company or the employee, with or without cause, upon thirty days notice. In the
event of a termination of employment by the Company without cause or by the
employee due to an uncorrected material breach of the employment agreement by
the Company, the employee is entitled to receive his or her base salary paid
bi-weekly until the end of his contract term. In the event of an involuntary
termination of employment following a merger, consolidation or dissolution of
the Company or a sale of all its assets, the employee is entitled to a lump sum
payment equal to the amount of base pay he is entitled to under the remainder of
his contract. The Company is not obligated to pay any amounts to the employee
other than his pro rata base salary through the date of his or her termination
upon (i) voluntary termination of employment by the employee; (ii) termination
of employment by the Company for cause (as defined in the employment
agreements); (iii) death of the employee; or (iv) long-term disability of the
employee. During the period of employment and for a period of three years after
termination of employment, the employees are generally prohibited from competing
or assisting others to compete with the Company. In addition, during the period
of employment and for a period of five years after termination of employment,
the employees are generally prohibited from inducing any other employee to
terminate employment with the Company.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee's primary responsibilities include reviewing and
approving the compensation plans of the officers and certain other employees of
the Company and administering the Company's stock option and purchase plans.
Executive Compensation. The Compensation Committee believes that
compensation of executive officers should not only be adequate to attract,
motivate and retain competent executive personnel, but should also serve to
align the interests of the executive officers with those of the stockholders. To
achieve this goal the Company has adopted both short-term and long-term
incentive compensation plans that are dependent upon the Company's performance.
Base Salary. The Company and Compensation Committee have established a
pay-for-performance philosophy by generally providing conservative base salaries
while emphasizing incentive compensation programs. Executive salary levels have
been and will continue to be based on market salary levels, individual
performance and the financial performance of the Company.
Incentive Compensation. The Compensation Committee has adopted an incentive
compensation program for its executive officers that is based on the earnings
per share growth of the Company. Dependent upon the earnings per share target
achieved, these individuals could earn bonuses up to, but not exceeding, the
amount of their base compensation.
Stock Option Plan. Stock options are granted to employees, including
executive officers, to align their long-term interests with those of the
stockholders. Additionally, it allows them to develop and maintain a potentially
significant equity ownership position in the Company.
Employee Stock Purchase Plan. Generally, under this plan, all employees,
including the executive officers, are offered the opportunity to purchase a
limited amount of the Company's Common Stock at a 15% discount to market. This
is an additional equity incentive the Company has offered to all of its
employees to further promote the enhancement of stockholder value.
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The Compensation Committee consults from time to time with Towers Perrin, a
consulting firm experienced in executive compensation, and who has access to
national compensation surveys and the Company's financial records. The
Compensation Committee reviews each element of compensation to ensure that the
total compensation delivered is reflective of company performance with input on
market competitiveness. The executive compensation program is designed to
provide top quartile compensation for top quartile performance. In the last
review, the Compensation Committee confirmed that the executive compensation
program was meeting the targeted objective.
Chief Executive Officer Compensation. As described above, the Company's
executive compensation philosophy is based on providing conservative base
salaries with emphasis placed on incentive compensation programs, including the
compensation of the Company's Chief Executive Officer, B.B. Hollingsworth, Jr.
The following discussion summarizes the actions taken with respect to Mr.
Hollingsworth's compensation for 1998.
Base Salary. Mr. Hollingsworth's base salary was increased 19% during 1998
to $430,000 after receiving no increase in 1997. This increase was given in
order to recognize the Company's achievements during 1997 and 1998 under Mr.
Hollingsworth's leadership. The base salary portion of Mr. Hollingsworth's
compensation is targeted to provide a salary that approximates the 50th
percentile of those provided by other companies in the compensation study, after
considering relative performance of the companies.
Incentive Compensation. Mr. Hollingsworth earned incentive compensation of
$360,000 during 1998, after receiving no incentive compensation in 1997. Mr.
Hollingsworth received the highest level of incentive compensation achievable,
as the Company's earnings per share for the year exceeded the highest target for
the year. Earnings per share increased 53% from $0.76 in 1997 to $1.16 in 1998.
Mr. Hollingsworth's incentive compensation is targeted to fall in the 75th
percentile of the companies in the compensation study.
Stock Option Plan. Mr. Hollingsworth was granted options to purchase
110,000 shares of the Company's Common Stock, pursuant to the Company's 1996
Stock Incentive Plan. This award was given in recognition of the Company's
performance in 1998 and is targeted to fall in the 75th percentile of the awards
provided by the other companies in the compensation study.
Deductibility. Section 162(m) of the Internal Revenue Code of 1986, as
amended (the "Code"), generally disallows a tax deduction to a public company
for compensation paid to its chief executive officer and four other most highly
compensated executive officers if the compensation of any of such officers
exceeds $1 million in a particular year. Qualifying performance-based
compensation is not subject to the deduction limit if certain requirements are
met. The Company has structured portions of its performance-based compensation
of executive officers (such as stock option grants) in a manner that excludes
such compensation from the deduction limit. Awards under the Company's incentive
compensation plan do not qualify for exclusion from the deduction limit.
The Compensation Committee does not currently intend to award levels of
compensation that would result in a limitation on the deductibility of a portion
of such compensation for federal income tax purposes pursuant to Section 162(m)
of the Code. However, the Compensation Committee may authorize compensation that
results in such limitations in the future if it determines that such
compensation is in the best interest of the Company.
Respectfully submitted by the Compensation Committee of the Board of
Directors of the Company,
John H. Duncan, Chairman
Bennett E. Bidwell
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PERFORMANCE GRAPH
As required by applicable rules of the Commission, the performance graph
shown below was prepared based upon the following assumptions:
1. $100 was invested in the Company's Common Stock, the S&P 500 and
the Peer Group (as defined below) on October 29, 1997 at the initial public
offering price of the Company's Common Stock of $12 per share and the
closing price of the stocks comprising the S&P 500 and the Peer Group,
respectively, on such date. The Company's Common Stock began trading on the
New York Stock Exchange on October 30, 1997.
2. Peer Group investment is weighted based upon the market
capitalization of each individual company within the Peer Group at the
beginning of the period.
3. Dividends are reinvested on the ex-dividend dates.
The companies that comprise the Company's current Peer Group are as
follows: CarMax Group, Cross-Continent Auto Retailers, Inc., Lithia Motors,
Inc., Republic Industries, Inc., Sonic Automotive, Inc. and United Auto Group,
Inc.
COMPARISON OF CUMULATIVE TOTAL RETURN*
PERFORMANCE GRAPH
* TOTAL RETURN BASED ON $100 INITIAL INVESTMENT & REINVESTMENT OF DIVIDENDS
<TABLE>
<CAPTION>
GROUP 1
AUTOMOTIVE, PEER GROUP
MEASUREMENT DATE INC. S&P 500 ONLY
---------------- ----------- ------- ----------
<S> <C> <C> <C>
10/97.................................................. $100.00 $100.00 $100.00
12/97.................................................. 75.52 102.87 70.57
12/98.................................................. 216.67 132.27 47.43
</TABLE>
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<PAGE> 13
RELATED TRANSACTIONS
Set forth below is a description of certain transactions entered into
between the Company and certain of its officers, directors and stockholders.
John S. Watson, Secretary of the Company, is a partner in the law firm of
Vinson & Elkins L.L.P., which is the Company's principal outside counsel. The
Company paid $975,798 in legal fees to Vinson & Elkins L.L.P. for legal services
rendered in 1998.
Lexus Companion Dealership Award
During 1998, SMC Luxury Cars, Inc., a subsidiary of the Company, was
awarded a new Lexus companion dealership. In recognition of his role in
facilitating the Company's receipt of the companion dealership, Mr. McCall was
awarded 50,000 stock options with an exercise price of $14.81 per share. The
options expire August 12, 2008, ten years after the date of grant and vest in
12.5% increments per year beginning on August 12, 1999.
The Carroll Acquisition
On March 16, 1998, the Company closed its acquisition of two Ford
dealership franchises in Florida and one Ford dealership franchise in Georgia,
all of which were controlled by James S. Carroll. In consideration of Mr.
Carroll's interests in such corporations, he received 1,052,267 shares of Common
Stock or, as of March 31, 1998, approximately 6.2% of the outstanding shares of
the Common Stock and approximately $12.4 million in cash, plus additional
contingent consideration based upon the performance, over the five-year period
beginning January 1, 1999, of the Company's dealerships for which Mr. Carroll is
responsible. The maximum additional consideration to be paid by the Company to
Mr. Carroll is $5.3 million ($1.8 million of which is guaranteed), payable in
cash and Common Stock in the same proportion as in the initial payment described
above. If Mr. Carroll sells in the public market any of the shares of Common
Stock received by Mr. Carroll as part of the acquisition consideration between
March 16, 2000 and March 19, 2003, the Company is obligated to pay Mr. Carroll
in cash the amount, if any, by which the sale price of Common Stock received by
Mr. Carroll in connection with such sale is less than $14 per share.
The Bob Howard East Acquisition
In November 1997, the Company entered into an agreement to acquire Bob
Howard Automotive-East, Inc. ("Bob Howard East"), subject to Bob Howard East's
consummation of the acquisition of a Chevrolet franchise in Tulsa, Oklahoma. The
above transactions were completed in January 1999 resulting in the following,
previously agreed upon, consideration being paid to Mr. Howard:
(i) the release of 592,303 shares of Common Stock which have been
outstanding and held in escrow and
(ii) the assumption by the Company of Bob Howard East's $2.5 million
liability to Mr. Howard, which has been repaid subsequent to closing the
transactions.
Leases
The Company's strategy is to avoid the ownership of real property. The
Company generally seeks to enter into lease agreements that have 30 year terms
and are cancelable at the Company's option at various times during the lease
term. As a result, the Company leases a majority of its facilities at what are
believed to be market terms.
North Broadway Real Estate, an Oklahoma limited liability company owned 50%
by Mr. Howard and 50% by an unrelated third party leases the real estate and
facilities of the Howard collision repair center to the Company. This lease
expires on July 1, 1999, provides a monthly rental rate of $9,000, and requires
the Company to pay all applicable property taxes, maintain adequate insurance
and repair or replace the leased building if necessary.
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<PAGE> 14
Koons Ford, a subsidiary of the Company, has entered into a lease agreement
with World Partner Enterprises Ltd, a Florida limited partnership controlled by
Mr. Carroll to lease certain land and the facilities that are currently being
constructed thereon located in Hollywood, Florida for a monthly rental payment
of approximately $167,000 based on the expected cost to construct the
facilities. The initial term, which commences upon completion of construction of
the facilities, is for ten years. Koons Ford has the right to extend the term of
the lease for four five year periods. The initial rent is subject to adjustment
based on increases in the Consumer Price Index at the end of the initial term
and each five years thereafter. The lease grants Koons Ford a right of first
refusal on the property subject to the lease and an option to purchase the
property at an independently appraised value.
Koons Ford is a party to a sublease agreement with Koons Development
Company, a Florida general partnership controlled by Mr. Carroll, to lease
certain land and facilities located in Hollywood, Florida used by Koons Ford as
a Ford dealership. Koons Development Company is the tenant under the main lease,
which has a 99 year term. The sublease agreement provides for an initial monthly
rental rate of $62,500. The initial term of the sublease, which commenced on
March 16, 1998, is for ten years. Koons Ford has the right to extend the term of
the sublease for four five year periods. The initial rent is subject to
adjustment based on increases in the Consumer Price Index at the end of the
initial term and each five years thereafter. The sublease grants Koons Ford a
right of first refusal on Koons Development Company's leasehold interest and an
option to purchase the same at an independently appraised value.
Courtesy Ford, a subsidiary of the Company, is a party to a lease agreement
with K.C. Partnership, a Florida general partnership controlled by Mr. Carroll,
to lease certain land and facilities located in Miami, Florida used by Courtesy
Ford as a Ford dealership. The agreement provides for an initial monthly rental
rate of $67,000. The initial term of the lease, which commenced on March 16,
1998, is for ten years. Courtesy Ford has the right to extend the term of the
lease for four five year periods. The initial rent is subject to adjustment
based on increases in the Consumer Price Index at the end of the initial term
and each five years thereafter. The lease grants Courtesy Ford a right of first
refusal on the property and an option to purchase the property at an
independently appraised value.
Perimeter Ford, a subsidiary of the Company, is a party to a lease
agreement with K.C. Partnership to lease certain land and facilities located in
Atlanta, Georgia used by Perimeter Ford as a Ford dealership. The agreement
provides for an initial monthly rental rate of $57,250. The initial term of the
lease, which commenced on March 16, 1998, is for ten years. Perimeter Ford has
the right to extend the term of the lease for four five year periods. The
initial rent is subject to adjustment based on increases in the Consumer Price
Index at the end of the initial term and each five years thereafter. The lease
grants Perimeter Ford a right of first refusal on the property and an option to
purchase the property at an independently appraised value.
The Company also leases several other facilities from officers, directors
and large stockholders of the Company. The Company leases these other facilities
under uniform lease agreements (the "Related Party Leases"). The term of each
Related Party Lease is for 30 years and is cancelable at the Company's option
ten years from execution of the lease and at the end of each subsequent five
year period. Additionally, the Company has a right of first refusal to acquire
the property. Each Related Party Lease requires the Company to be responsible
for taxes, insurance and, in certain circumstances, maintenance. Each of the
Related Party Leases and the rents payable thereunder are described below. Under
each of the Related Party Leases, the rent is subject to increases every five
years based on increases in the Consumer Price Index.
Sterling McCall Toyota, a subsidiary of the Company, leases property that,
prior to January 1999, was owned by SMC Investment, Inc. ("SMC Investment") and
that is used by Sterling McCall Toyota as a repair center in Houston, Texas. Mr.
McCall and his affiliates own all of the stock of SMC Investment. The lease
provides for monthly rental payments of $9,000. The property was sold in January
1999 to an unrelated third-party.
Sterling McCall Toyota, a subsidiary of the Company, leases property that,
prior to January 1999, was owned by a partnership of which Mr. McCall is a
partner and that is used by Sterling McCall Toyota as a storage lot in Houston,
Texas. The lease provides for monthly rental payments of $7,000. The property
was sold in January 1999 to an unrelated third-party.
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<PAGE> 15
Sterling McCall Toyota, a subsidiary of the Company, leases property that,
prior to January 1999, was owned by two partnerships of which Mr. McCall is a
partner and that is used by Sterling McCall Toyota as an automobile dealership
in Houston, Texas. The lease provides for monthly rental payments of $70,000.
The property was sold in January 1999 to an unrelated third-party.
Sterling McCall Lexus, a subsidiary of the Company, leases property that,
prior to January 1999, was owned by a partnership of which Mr. McCall is a
partner and that is used by SMC Luxury Cars as an automobile dealership in
Houston, Texas. The lease provides for monthly rental payments of $70,000. The
property was sold in January 1999 to an unrelated third-party.
Sterling McCall Lexus, a subsidiary of the Company, leases property that,
prior to January 1999, was owned by Mr. McCall and that is used by Sterling
McCall Lexus as a repair center in Houston, Texas. The lease provides for
monthly rental payments of $6,500. The property was sold in January 1999 to an
unrelated third-party.
Mike Smith Autoplaza, a subsidiary of the Company, leases property owned by
a general partnership, of which the children of Mr. Smith are partners. The
property is used by Mike Smith Autoplaza as an automobile dealership in
Beaumont, Texas. The lease provides for monthly rental payments of $46,500.
Round Rock Nissan, a subsidiary of the Company, leases property that, prior
to January 1999, was owned by SKLR Round Rock, L.L.C., a Texas limited liability
corporation in which Mr. Smith has an ownership interest. The property is used
by Round Rock Nissan as an automobile dealership in Round Rock, Texas. The lease
provides for monthly rental payments of $32,000. The property was sold in
January 1999 to an unrelated third-party.
Bob Howard Automall, a subsidiary of the Company, leases two properties
owned by Mr. Howard and used by Bob Howard Automall as automobile dealerships in
Oklahoma City, Oklahoma. These leases provide for monthly rental payments of
$85,862.
Bob Howard Chevrolet, a subsidiary of the Company, leases property owned by
Mr. Howard and used by Bob Howard Chevrolet as an automobile dealership in
Oklahoma City, Oklahoma. The lease relating to this property provides for
monthly rental payments of $48,500.
Bob Howard Toyota, a subsidiary of the Company, leases property owned by
Mr. Howard and used by Bob Howard Toyota as an automobile dealership in Oklahoma
City, Oklahoma. The lease relating to this property provides for monthly rental
payments of $33,500.
Other
Sterling McCall Toyota and Sterling McCall Lexus have entered into an
agreement with Dealer Solutions, L.L.C. ("DSL") pursuant to which DSL is
providing management information systems software and related services to the
dealerships. Pursuant to the agreement, the dealerships currently pay a monthly
maintenance fee of approximately $18,600, which will increase to approximately
$20,000 per month upon installation of the system at the new Lexus companion
dealership, for the remainder of the five year term of the agreement. After an
initial five-year term, this agreement is subject to successive automatic
one-year extensions with the same terms and fees unless terminated by either
party with thirty days notice. In addition, upon installation of the software
system at Sterling McCall Lexus, an installation fee of $20,000 was paid to DSL.
No installation fee has been paid by Sterling McCall Toyota. Upon installation
of the system at the new Lexus companion dealership, Sterling McCall Lexus will
pay an additional installation fee of $20,000 and a one-time license fee of
$7,500. Mr. McCall, his affiliates and family members own approximately 11% of
DSL The Company does not currently have any plans to implement this system in
its other dealerships. The Company believes that these systems have been
acquired from DSL on terms, taken as a whole, that are no less favorable than
those that could be obtained from non-affiliated third parties.
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<PAGE> 16
ITEM 2
PROPOSAL TO AMEND GROUP 1 AUTOMOTIVE, INC. 1996 STOCK INCENTIVE PLAN
The Board and the stockholders of the Company adopted the Group 1
Automotive, Inc. 1996 Stock Incentive Plan (the "Stock Incentive Plan") in
November 1996. An amendment to the Stock Incentive Plan increasing the number of
shares issuable under the plan from 1,500,000 to 2,000,000 was approved by the
Board and the stockholders of the Company in March 1997. The purpose of the
Stock Incentive Plan is to encourage selected persons, including the principals
and key personnel of acquired dealerships, to serve as employees, directors,
consultants, and advisors of the Company and its subsidiaries and to develop in
such individuals a proprietary interest in the growth and performance of the
Company. A further purpose of the Stock Incentive Plan is to provide such
individuals with an increased incentive to contribute to the Company's future
success and prosperity, thus enhancing the value of the Company for the benefit
of its stockholders and to enhance the ability of the Company and its
subsidiaries to attract and retain individuals who are essential to the
progress, growth and profitability of the Company.
As of December 31, 1998, the Company had issued options to purchase
1,878,679 shares of Common Stock under the Stock Incentive Plan. The Company
projects that by June 1999, all shares authorized under the Stock Incentive Plan
will be awarded. The Board of the Company believes that in order to continue to
attract and retain high quality personnel, including the principals and key
personnel of acquired dealerships, the Stock Incentive Plan should be amended to
increase the number of shares authorized under the plan from 2,000,000 to
3,000,000 shares. The Company projects that 3,000,000 shares will be sufficient
to cover awards under the Stock Incentive Plan until June 2000.
The Board has adopted an amendment to the Stock Incentive Plan to increase
the number of shares available for issuance under the plan from 2,000,000 to
3,000,000. The amendment to the Stock Incentive Plan is contingent upon
receiving the affirmative vote of the holders of a majority of the Common Stock
present or represented by proxy and entitled to vote at the meeting. Under
Delaware law, an abstention would have the same legal effect as a vote against
this proposal, but a broker non-vote would not be counted for purposes of
determining whether a majority had been achieved. The Board recommends voting
for approval by the stockholders of the amendment to the Stock Incentive Plan.
SUMMARY OF STOCK INCENTIVE PLAN
The following general description of the Stock Incentive Plan does not
cover all matters addressed by the Stock Incentive Plan. We urge you to read the
Stock Incentive Plan.
The Stock Incentive Plan provides for the grant of any or all of the
following types of awards:
- incentive stock options;
- stock options that do not constitute incentive stock options
("non-statutory stock options"); and
- restricted stock.
Any stock option granted in the form of an incentive stock option must
satisfy the applicable requirements of Section 422 of the Code. Awards may be
made to the same person on more than one occasion and may be granted singly, in
combination or in tandem as determined by the Compensation Committee, which is
currently comprised of Messrs. Duncan and Bidwell. As of December 31, 1998 the
Company had incentive stock options and non-statutory stock options to purchase
an aggregate of 1,260,880 and 617,799 shares of Common Stock, respectively,
outstanding under the Stock Incentive Plan.
Term. The Stock Incentive Plan was adopted effective as of November 1996
and will terminate in November 2006 unless terminated earlier by the Board.
Termination of the Stock Incentive Plan will not affect the awards made prior to
termination, but awards will not be made after termination.
Administration. The Stock Incentive Plan is administered by the
Compensation Committee. Subject to the terms of the Stock Incentive Plan, the
Compensation Committee has sole authority and discretion to:
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<PAGE> 17
(i) designate which employees, consultants or directors shall received an award;
(ii) determine the types of awards to be granted under the Stock Incentive Plan;
(iii) determine the time or times an award shall be made; (iv) determine the
number of shares of Common Stock that may be issued under each option or
restricted stock award; (v) determine the terms and conditions of any award;
(vi) interpret, construe and administer the Stock Incentive Plan and any
agreement relating to an award made under the Stock Incentive Plan; and (vii)
make any other determination and take any other action that the Compensation
Committee deems necessary or desirable for the administration of the plan.
Eligibility. Awards may be granted only to persons who, at the time of
grant, are employees or consultants of the Company or its subsidiaries or
directors of the Company. As of December 31, 1998, 260 employees of the Company
or its subsidiaries or directors of the Company had been granted options under
the Stock Incentive Plan.
Shares Subject to the Stock Incentive Plan. There are 2,000,000 shares of
Common Stock reserved for issuance under the Stock Incentive Plan. An additional
1,000,000 shares of Common Stock have been reserved for issuance subject to
approval of the stockholders of the Company. If an award granted under the Stock
Incentive Plan lapses or otherwise terminates without the delivery of shares of
Common Stock or of other consideration, then the shares of Common Stock covered
by such award will again be available for granting awards under the Stock
Incentive Plan. The maximum number of shares of Common Stock that may be subject
to awards granted to any one individual during any calendar year may not exceed
500,000 shares of Common Stock. This limitation with respect to any individual
shall be applied in a manner that will permit compensation generated under the
Stock Incentive Plan to constitute "performance-based" compensation for purposes
of section 162(m) of the Code. Any shares of Common Stock delivered pursuant to
an award may consist, in whole or in part, of authorized and unissued shares or
(where permitted by applicable law) previously issued shares of Common Stock
reacquired by the Company. The number of shares authorized to be issued under
the Stock Incentive Plan and the maximum number of shares that may be awarded to
any one individual during any calendar year are subject to adjustment upon a
reorganization, stock split, recapitalization or other change in the Company's
capital structure.
Stock Options. The Stock Incentive Plan provides for two types of options:
incentive stock options and non-statutory stock options. The Compensation
Committee is authorized to grant options to eligible participants (which in the
case of incentive stock options are only individuals who are employed by the
Company or one of its subsidiaries at the time of grant) with the following
terms and conditions:
The purchase price per share of Common Stock of an option will be
determined by the Compensation Committee; provided, however, that (a) in the
case of an incentive stock option, such purchase price will not be less than the
fair market value of a share of Common Stock on the date of grant of such option
and (b) in the case of a non-statutory stock option, such purchase price will
not be less than 80% of the fair market value of a share of Common Stock on the
date of grant of such option. Further, the purchase price of any incentive stock
option granted to an employee who possesses more than 10% of the total combined
voting power of all classes of stock of the Company or of any subsidiary within
the meaning of Section 422(b)(6) of the Code must be at least 110% of the fair
market value of a share of Common Stock at the time such option is granted. The
purchase price or portion thereof shall be paid in full in the manner prescribed
by the Compensation Committee.
The Compensation Committee determines the term of each option; provided,
however, that any incentive stock option granted to an employee who possesses
more than 10% of the total combined voting power of all classes of stock of the
Company or of any subsidiary within the meaning of Section 422(b)(6) of the Code
must not be exercisable after the expiration of five years from the date of
grant. The Compensation Committee also determines the time at which an option
may be exercised in whole or in part, and the method by which (and the form,
including cash or shares of Common Stock or any combination thereof having a
fair market value on the exercise date equal to the relevant exercise price, in
which) payment of the exercise price with respect thereto may be made or deemed
to have been made.
Each incentive stock option shall not be transferable other than by will or
the laws of descent and distribution, and shall be exercisable during the
holder's lifetime only by such holder or the holder's guardian
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<PAGE> 18
or legal representative. Each non-statutory stock option will not be
transferable other than (a) by will or the laws of descent and distribution, (b)
pursuant to a qualified domestic relations order as defined by the Code or Title
I of the Employee Retirement Income Security Act of 1974, as amended, or (c)
with the consent of the Compensation Committee.
Restricted Stock Awards. The Compensation Committee is authorized to grant
restricted stock awards to eligible individuals. Pursuant to a restricted stock
award, shares of Common Stock will be issued or delivered to the holder without
any cash payment to the Company, except to the extent otherwise provided by the
Compensation Committee or required by law; provided, however, that such shares
will be subject to certain restrictions on the disposition thereof and certain
obligations to forfeit such shares to the Company as may be determined in the
discretion of the Compensation Committee. The restrictions on disposition and
the forfeiture restrictions may lapse based upon (a) the Company's attainment of
specific performance targets established by the Compensation Committee that are
based on (1) the price of a share of Common Stock, (2) the Company's earnings
per share, (3) the Company's market share, (4) the market share of a business
unit of the Company designated by the Compensation Committee, (5) the Company's
sales, (6) the sales of a business unit of the Company designated by the
Compensation Committee or (7) the return on stockholders' equity achieved by the
Company, (b) the holder's continued employment with the Company or continued
service as a consultant or director for a specified time, (c) the occurrence of
any event or the satisfaction of any other condition specified by the
Compensation Committee, or (d) a combination of these factors. The Company
retains custody of the shares of Common Stock issued pursuant to a restricted
stock award until the disposition and forfeiture restrictions lapse. The holder
may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of
such shares until the expiration of the restriction period. However, upon the
issuance to the holder of shares of Common Stock pursuant to a restricted stock
award, except for the foregoing restrictions, such holder will have all the
rights of a stockholder of the Company with respect to such shares, including
the right to vote such shares and to receive all dividends and other
distributions paid with respect to such shares.
Corporate Change. The Stock Incentive Plan provides that, upon a Corporate
Change (as hereinafter defined), the Compensation Committee may accelerate the
vesting and exercise date of options, cancel options and make payments in
respect thereof in cash, adjust the outstanding options as appropriate to
reflect such Corporate Change, or provide that each option shall thereafter be
exercisable for the number and class of securities or property that the optionee
would have been entitled to had the option already been exercised. Upon the
occurrence of a Corporate Change, the Compensation Committee may fully vest any
restricted stock awards then outstanding and, upon such vesting, all
restrictions applicable to such restricted stock will terminate. The Stock
Incentive Plan provides that a Corporate Change occurs (a) if the Company is
dissolved and liquidated, (b) if the Company is not the surviving entity in any
merger or consolidation (or survives only as a subsidiary of an entity), (c) if
the Company sells, leases or exchanges or agrees to sell, lease or exchange all
or substantially all of its assets, (d) if any person, entity or group acquires
or gains ownership or control of more than 50% of the outstanding shares of the
Company's voting stock or (e) if after a contested election of directors, the
persons who were directors before such election cease to constitute a majority
of the Board of the Company.
Amendment. The Board in its discretion may terminate the Stock Incentive
Plan at any time with respect to any shares for which an award has not
theretofore been made. The Board has the right to alter or amend the Stock
Incentive Plan or any part thereof from time to time; provided that no change in
any award theretofore made may be made which would impair the rights of the
recipient of the award without the consent of such recipient and provided,
further, that the Board may not, without approval of the stockholders, amend the
Stock Incentive Plan to (a) increase the maximum aggregate number of shares of
Common Stock that may be issued under the Stock Incentive Plan or (b) change the
class of individuals eligible to receive awards under the Stock Incentive Plan.
UNITED STATES FEDERAL INCOME TAX ASPECTS OF THE STOCK INCENTIVE PLAN
Non-Statutory Stock Options. As a general rule, no federal income tax is
imposed on the optionee upon the grant of a non-statutory stock option such as
those under the Stock Incentive Plan and the Company is not
16
<PAGE> 19
entitled to a tax deduction by reason of such a grant. Generally, upon the
exercise of a non-statutory stock option, the optionee will be treated as
receiving compensation taxable as ordinary income in the year of exercise in an
amount equal to the excess of the fair market value of the shares on the date of
exercise over the option price paid for such shares. Upon the exercise of a
non-statutory stock option, and subject to the application of Section 162(m) of
the Code as discussed below, the Company may claim a deduction for compensation
paid at the same time and in the same amount as compensation income is
recognized to the optionee assuming any federal income tax reporting
requirements are satisfied. Upon a subsequent disposition of the shares received
upon exercise of a non-statutory stock option, any appreciation after the date
of exercise should qualify as capital gain. If the shares received upon the
exercise of an option are transferred to the optionee subject to certain
restrictions, then the taxable income realized by the optionee, unless the
optionee elects otherwise, and the Company's tax deduction (assuming any federal
income tax reporting requirements are satisfied) should be deferred and should
be measured at the fair market value of the shares at the time the restrictions
lapse.
Incentive Stock Options. The incentive stock options under the Stock
Incentive Plan are intended to constitute "incentive stock options" within the
meaning of Section 422 of the Code. Incentive stock options are subject to
special federal income tax treatment. No federal income tax is imposed on the
optionee upon the grant or the exercise of an incentive stock option if the
optionee does not dispose of shares acquired pursuant to the exercise within the
two-year period beginning on the date the option was granted or within the
one-year period beginning on the date the option was exercised (collectively,
the "holding period"). In such event, the Company would not be entitled to any
deduction for federal income tax purposes in connection with the grant or
exercise of the option or the disposition of the shares so acquired. With
respect to an incentive stock option, the difference between the fair market
value of the stock on the date of exercise and the exercise price must be
included in the optionee's alternative minimum taxable income. However, if the
optionee exercises an incentive stock option and disposes of the shares received
in the same year and the amount realized is less than the fair market value of
the shares on the date of exercise, the amount included in alternative minimum
taxable income will not exceed the amount realized over the adjusted basis of
the shares.
Upon disposition of the shares received upon exercise of an incentive stock
option after the holding period, any appreciation of the shares above the
exercise price should constitute capital gain. If an optionee disposes of shares
acquired pursuant to his or her exercise of an incentive stock option prior to
the end of the holding period, the optionee will be treated as having received,
at the time of disposition, compensation taxable as ordinary income. In such
event, and subject to the application of Section 162(m) of the Code as discussed
below, the Company may claim a deduction for compensation paid at the same time
and in the same amount as compensation is treated as received by the optionee.
The amount treated as compensation is the excess of the fair market value of the
shares at the time of exercise (or in the case of a sale in which a loss would
be recognized, the amount realized on the sale if less) over the exercise price;
any amount realized in excess of the fair market value of the shares at the time
of exercise would be treated as short-term or long-term capital gain, depending
on the holding period of the shares.
Restricted Stock. An employee who has been granted restricted stock under
the Stock Incentive Plan will not realize taxable income at the time of grant,
and the Company will not be entitled to a deduction at that time, assuming that
the restrictions constitute a substantial risk of forfeiture for federal income
tax purposes. Upon expiration of the forfeiture restrictions (i.e., as shares
become vested), the holder will realize ordinary income in an amount equal to
the excess of the fair market value of the shares at such time over the amount,
if any, paid for such shares, and, subject to the application of Section 162(m)
of the Code as discussed below, the Company will be entitled to a corresponding
deduction. Dividends paid to the holder during the period that the forfeiture
restrictions apply will also be compensation to the employee and deductible as
such by the Company. Notwithstanding the foregoing, the recipient of restricted
stock may elect to be taxed at the time of grant of the restricted stock based
upon the fair market value of the shares on the date of the award, in which case
(a) subject to Section 162(m) of the Code, the Company will be entitled to a
deduction at the same time and in the same amount, (b) dividends paid to the
recipient during the period the forfeiture restrictions apply will be taxable as
dividends and will not be deductible by the Company, and (c) there will be no
further federal income tax consequences when the forfeiture restrictions lapse.
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<PAGE> 20
Section 162(m) of the Code. Section 162(m) of the Code precludes a public
corporation from taking a deduction for annual compensation in excess of $1
million paid to its chief executive officer or any of its four other
highest-paid executive officers. However, compensation that qualifies under
Section 162(m) of the Code as "performance-based" is specifically exempt from
the deduction limit. Based on Section 162(m) of the Code and the regulations
thereunder, the Company's ability to deduct compensation income generated in
connection with the exercise of stock options granted under the Stock Incentive
Plan that have an exercise price equal to or greater than the fair market value
of the shares on the date of grant should not be limited by Section 162(m) of
the Code. However, Section 162(m) of the Code could limit the Company's
deduction with respect to compensation income generated in connection with the
exercise of an option that had an exercise price less than the fair market value
of the shares on the date of grant. The Stock Incentive Plan has been designed
to provide flexibility with respect to whether restricted stock awards will
qualify as performance-based compensation under Section 162(m) of the Code and,
therefore, be exempt from the deduction limit. If the forfeiture restrictions
relating to a restricted stock award are based solely upon the satisfaction of
one of the performance criteria set forth in the Stock Incentive Plan, then the
Company believes that the compensation expense relating to such an award will be
deductible by the Company if the restricted stock becomes vested. However,
compensation expense deductions relating to restricted stock awards will be
subject to the Section 162(m) deduction limitation if the restricted stock
becomes vested based upon any other criteria set forth in such award.
The Stock Incentive Plan is not qualified under section 401(a) of the Code.
The comments set forth in the above paragraphs are only a summary of
certain of the United States federal income tax consequences relating to the
Stock Incentive Plan. No consideration has been given to the effects of state,
local, or other tax laws on the Stock Incentive Plan or award recipients.
INAPPLICABILITY OF ERISA
Based upon current law and published interpretations, the Company does not
believe the Stock Incentive Plan is subject to any of the provisions of the
Employee Retirement Income Security Act of 1974.
PARTICIPATION IN STOCK INCENTIVE PLAN
The following table sets fourth certain information concerning options
granted under the Stock Incentive Plan through December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS GRANTED
INDIVIDUAL OR GROUP (SHARES OF COMMON STOCK)
------------------- ------------------------
<S> <C>
B.B. Hollingsworth, Jr...................................... 310,000
John S. Bishop.............................................. 100,000
Scott L. Thompson........................................... 300,000
John T. Turner.............................................. 390,000
All current executive officers as a group................... 1,100,000
All current directors who are not executive officers as a
group..................................................... 76,000
All employees who are not executive officers as a group..... 778,679
</TABLE>
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE GROUP 1
AUTOMOTIVE, INC. 1996 STOCK INCENTIVE PLAN INCREASING THE NUMBER OF SHARES THAT
MAY BE ISSUED UNDER SUCH PLAN FROM 2,000,000 SHARES TO 3,000,000 SHARES.
18
<PAGE> 21
ITEM 3
PROPOSAL TO AMEND GROUP 1 AUTOMOTIVE, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
The Board and the stockholders of the Company adopted the Group 1
Automotive, Inc. 1998 Employee Stock Purchase Plan (the "Purchase Plan") on
September 23, 1997. The purpose of the Purchase Plan is to provide an incentive
for employees of the Company and certain of its subsidiaries to acquire or
increase a proprietary interest in the Company through the purchase of shares of
the Company's Common Stock.
As of December 31, 1998, the Company had issued all shares authorized to be
issued under the Purchase Plan. The Purchase Plan experienced considerable
demand in 1998 due to the performance of the Company's Common Stock in 1998 and
increases in the number of employees of the Company due to the Company's
acquisition efforts during 1998. Based on anticipated increases in the Company's
employee headcount and the level of expected employee participation in the
Purchase Plan, the Company estimates that an additional 800,000 shares may be
purchased during the next four years. The Company continues to view the Purchase
Plan as a primary vehicle to expand equity ownership among its employees.
Effective October 1, 1998, the Board approved an amendment to the Purchase
Plan, subject to stockholder approval, increasing the number of shares of Common
Stock that may be issued under the Purchase Plan from 200,000 to 1,000,000
shares. The amendment to the Purchase Plan is contingent upon receiving the
affirmative vote of the holders of a majority of the Common Stock present or
represented by proxy and entitled to vote at the meeting. Under Delaware law, an
abstention would have the same legal effect as a vote against this proposal, but
a broker non-vote would not be counted for purposes of determining whether a
majority had been achieved. The Board recommends voting for approval by the
stockholders of the amendment to the Purchase Plan.
SUMMARY OF PURCHASE PLAN
Shares Available under the Purchase Plan; Adjustments. The total number of
shares of Common Stock that may currently be issued under the Purchase Plan may
not in the aggregate exceed 200,000 shares, which may be unissued or reacquired
shares, including shares bought on the market or otherwise for purposes of the
Purchase Plan. As of December 31, 1998, all of such shares have been issued
pursuant to the Purchase Plan. An additional 800,000 shares of Common Stock have
been reserved for issuance subject to approval of the stockholders of the
Company. As of March 31, 1999, options to purchase 47,360 shares of Common Stock
have been granted under the Purchase Plan, the issuance of which are conditioned
on stockholder approval of the amendment to the Purchase Plan. The number of
shares issuable under the Purchase Plan is subject to adjustment in the event of
a change in the Common Stock by reason of a stock dividend or by reason of a
subdivision, stock split, reverse stock split, recapitalization, reorganization,
combination, reclassification of shares or other similar change. Upon any such
event, the maximum number of shares that may be subject to any option, and the
number and option price of shares subject to options outstanding under the
Purchase Plan will also be adjusted accordingly.
Eligibility. Each employee of the Company or any present or future
subsidiary of the Company that has been or will be designated as a
"Participating Company" by the administrative committee of the Purchase Plan
(the "Administrative Committee") as of a date of grant are eligible to
participate in the Purchase Plan. However, no option may be granted to an
employee if such employee, immediately after the option is granted, owns 5% or
more of the total combined voting power or value of all classes of stock of the
Company or of its parent or subsidiary corporations (within the meaning of
Sections 423(b)(3) and 424(d) of the Code). During 1998, 1,145 employees
participated in the Purchase Plan.
Participation. An eligible employee may elect to participate in the
Purchase Plan for any calendar quarter during the period from January 1, 1998 to
June 30, 2007, on the first day of each successive April, July, October and
January (each of which dates is referred to as a "date of grant"). Except as
otherwise provided in the Purchase Plan, the term of each option granted under
the Purchase Plan will be for three months (each of such three-month periods is
referred to as an "option period"), which will begin on a date of
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<PAGE> 22
grant and end on the last day of each option period (referred to as a "date of
exercise"). Subject to certain limitations of the Code, the number of shares
subject to an option for a participant will equal the quotient of (a) the
aggregate payroll deductions withheld on behalf of such participant during the
option period, divided by (b) the option price of the Common Stock applicable to
the option period, including fractions; provided, however, that the maximum
number of shares that may be subject to any option may not exceed 3,000 (subject
to adjustment).
An eligible employee may participate in the Purchase Plan only by means of
payroll deduction. Each eligible employee who elects to participate in the
Purchase Plan must deliver to the Company, within the time period prescribed by
the Administrative Committee, a written payroll deduction authorization in a
form prepared by the Company whereby he gives notice of his election to
participate in the Purchase Plan as of the next following date of grant, and
whereby he designates a percentage of his eligible compensation to be deducted
from his compensation for each pay period and paid into the Purchase Plan for
his account. The designated percentage may not be less than 1% nor greater than
10%; provided, however, that no employee may be granted an option under the
Purchase Plan that permits his rights to purchase Common Stock under the
Purchase Plan and under all other employee stock purchase plans of the Company
and its parent and subsidiary corporations to accrue at a rate that exceeds
$25,000 of fair market value of Common Stock (determined at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
Subject to the limits described above, each participant in the Purchase
Plan automatically and without any act on his part will be deemed to have
exercised his option on each date of exercise to the extent of his unused
payroll deductions under the Purchase Plan and to the extent the issuance of
Common Stock to such participant upon such exercise is lawful. The per share
purchase price of the Common Stock to be paid by each participant on each
exercise of his option will equal 85% of the fair market value of the Common
Stock on the date of exercise or on the date of grant, whichever amount is less.
For all purposes under the Purchase Plan, the fair market value of a share of
Common Stock on a particular date is equal to the closing price of the Common
Stock on the New York Stock Exchange, Inc. on that date (or, if no shares of
Common Stock have been traded on that date, on the next regular business date on
which shares of the Common Stock are so traded).
A participant who elects to participate in the Purchase Plan and who takes
no action to change or revoke such election prior to any subsequent date of
grant will be deemed to have made the same election, including the same
attendant payroll deduction authorization, for such next following and/or
subsequent date(s) of grant.
Withdrawal from the Plan and Changes in Payroll Authorization. A
participant may not elect to change the percentage of his payroll deductions
during an option period. However, any participant may withdraw in whole from the
Purchase Plan at any time prior to the date of exercise relating to a particular
option period by timely delivering to the Company a notice of withdrawal in a
form prepared by the Company. Partial withdrawals are not permitted. Promptly
following receipt of the notice of withdrawal, the Company will refund to the
participant the amount of his payroll deductions under the Purchase Plan that
have not yet been otherwise returned or used upon exercise of options and
thereafter the participant's payroll deduction authorization and interest in
unexercised options under the Purchase Plan will terminate.
Delivery of Shares; Restrictions on Transfer. As soon as practicable after
each date of exercise, the Company will deliver to a custodian (currently
Merrill Lynch, Pierce, Fenner & Smith Incorporated) one or more certificates
representing (or will otherwise cause to be credited to the account of such
custodian) the total number of whole shares of Common Stock respecting options
exercised on such date of exercise in the aggregate (for both whole and
fractional shares) of all of the participating eligible employees. Any remaining
amount representing a fractional share will not be certificated (or otherwise so
credited) and such remaining amount will be paid in cash to the custodian. The
custodian will keep accurate records of the beneficial interests of each
participating employee in such shares by means of participant accounts under the
Purchase Plan, and will provide quarterly or such other periodic statements with
respect thereto as may be directed by the Administrative Committee.
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<PAGE> 23
Except as otherwise provided in the Purchase Plan, for a period of six
months (or such other period as the Administrative Committee may specify with
respect to a particular grant of options) after the date of exercise of an
option, a participant may not sell or otherwise transfer, encumber or dispose of
the shares of Common Stock issued in connection with such exercise. Following
this restriction period, the optionee may, pursuant to procedures established by
the Administrative Committee and the custodian, direct the sale or distribution
of some or all of the whole shares of Common Stock in his account that are not
then subject to transfer restrictions and, in the event of a sale, request
payment of the net proceeds from such sale. The transfer restrictions will also
cease to apply upon the termination of a participant's employment with the
Company and its parent or subsidiary corporations for any reason whatsoever.
Termination of Employment; Leaves of Absence. Except as described below, if
the employment of a participant terminates for any reason, then the
participant's participation in the Purchase Plan ceases and the Company will
refund the amount of such participant's payroll deductions under the Purchase
Plan that have not yet been otherwise returned or used upon exercise of options.
If the employment of a participant terminates after such participant has
attained age 65 or due to death or disability, the participant, or the
participant's personal representative, as applicable, may elect either (a) to
withdraw all of the participant's accumulated unused payroll deductions under
the Purchase Plan or (b) to exercise the participant's option for the purchase
of Common Stock at the end of the option period during which the participant
terminated employment for the purchase of the number of full shares of Common
Stock which the accumulated payroll deductions at the date of the participant's
termination of employment will purchase at the applicable option price, with any
excess cash in such account to be returned to the participant or such personal
representative. If no such election is timely received by the Company, the
participant or personal representative will automatically be deemed to have
elected the second alternative and promptly after the exercise of the option,
all shares of Common Stock in such participant's account under the Purchase Plan
will be distributed to the participant or such personal representative.
During a paid leave of absence approved by the Company and meeting Internal
Revenue Service regulations, a participant's elected payroll deductions will
continue. A participant may not contribute to the Purchase Plan during an unpaid
leave of absence. If a participant takes an unpaid leave of absence that is
approved by the Company and meets Internal Revenue Service regulations, then
such participant's payroll deductions for such option period that were made
prior to such leave may remain in the Purchase Plan and be used to purchase
Common Stock on the date of exercise relating to such option period. If a
participant takes a leave of absence not described above, then such participant
will be considered to have withdrawn from the Purchase Plan. Further,
notwithstanding the foregoing, if a participant takes a leave of absence that is
described in the first or third sentence of this paragraph and such leave of
absence exceeds 90 days, then such participant will be considered to have
withdrawn from the Purchase Plan on the 91st day of such leave of absence.
Restriction Upon Assignment of Option. An option granted under the Purchase
Plan may not be transferred other than by will or the laws of descent and
distribution. Subject to certain limited exceptions, each option is exercisable,
during the participant's lifetime, only by the employee to whom granted.
Administration and Modification of the Purchase Plan. The Purchase Plan is
to be administered by a committee appointed from time to time by the Board. The
Board in its discretion may terminate the Purchase Plan at any time with respect
to any Common Stock for which options have not been granted. The Board or the
Administrative Committee has the right to alter or amend the Purchase Plan or
any part thereof from time to time; provided, however, that no change in any
option granted may be made that would impair the rights of an optionee without
the consent of such optionee.
Merger, Consolidation or Liquidation of the Company. If the Company is not
the surviving corporation in any merger or consolidation (or survives only as a
subsidiary of another entity), or if the Company is to be dissolved or
liquidated, then, unless a surviving corporation assumes or substitutes new
options (within the meaning of Section 424(a) of the Code) for all options then
outstanding, (a) the date of exercise for all options then outstanding will be
accelerated to a date fixed by the Administrative Committee prior to the
effective date of such merger or consolidation or such dissolution or
liquidation and (b) upon such effective
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<PAGE> 24
date any unexercised options will expire and the Company promptly will refund to
each participant the amount of such participant's payroll deductions under the
Purchase Plan that have not yet been otherwise returned to him or used upon
exercise of options.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
Tax Consequences to Participants. A participant's payroll deductions to
purchase Common Stock are made on an after-tax basis. There is no tax liability
to the participant when shares of Common Stock are purchased pursuant to the
Purchase Plan. However, the participant may incur tax liability upon disposition
(including by way of gift) of the shares acquired under the Purchase Plan. The
participant's U.S. federal income tax liability will depend on whether the
disposition is a qualifying disposition or a disqualifying disposition as
described below.
If a qualifying disposition of the shares is made by the participant (i.e.,
a disposition that occurs more than two years after the first day of the option
period in which the shares were purchased), or in the event of death (whenever
occurring) while owning the shares, the participant will recognize in the year
of disposition (or, if earlier, the year of the participant's death) ordinary
income in an amount equal to the lesser of (1) the excess of the fair market
value of the shares at the time of disposition (or death) over the amount paid
for the shares under the option or (2) 15% of the fair market value of the
shares at the date of grant (the beginning of the option period). Upon the sale
of the shares, any amount realized in excess of the ordinary income recognized
by the participant will be taxed to the participant as a long-term capital gain.
If the shares are sold at less than the purchase price under the option, then
there will be no ordinary income. Instead, the participant will have a capital
loss equal to the difference between the sales price and the purchase price paid
under the option.
If a disqualifying disposition of the shares is made (i.e., a disposition
(other than by reason of death) within two years after the first day of the
option period in which the shares were purchased), the participant generally
will recognize ordinary income in the year of disposition in an amount equal to
any excess of the fair market value of the shares at the date of exercise over
the purchase price paid for the shares under the option (even if no gain is
realized on the sale or if a gratuitous transfer is made). Any further gain (or
loss) realized by the participant generally will be taxed as short-term or
long-term capital gain (or loss) depending on the holding period.
Tax Consequences to the Company or Participating Company. The Company, or
the Participating Company for which a participant performs services, will be
entitled to a deduction only if the participant makes a disqualifying
disposition of any shares purchased under the Purchase Plan. In such case, the
Company or such Participating Company can deduct as a compensation expense the
amount that is ordinary income to the participant provided that, among other
things, (1) the amount meets the test of reasonableness, is an ordinary and
necessary business expense and is not an "excess parachute payment" within the
meaning of Section 280G of the Code, (2) any applicable reporting obligations
are satisfied and (3) the one million dollar limitation of Section 162(m) of the
Code is not exceeded.
THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE GROUP 1
AUTOMOTIVE, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN INCREASING THE NUMBER OF
SHARES THAT MAY BE ISSUED UNDER SUCH PLAN FROM 200,000 SHARES TO 1,000,000
SHARES.
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<PAGE> 25
ITEM 4
PROPOSAL TO RATIFY THE SELECTION OF
INDEPENDENT ACCOUNTANTS
APPOINTMENT OF ARTHUR ANDERSEN LLP
The Board, upon recommendation of the Audit Committee, has appointed Arthur
Andersen LLP, Certified Public Accountants, as the Company's independent
accountants for the year ended December 31, 1999, subject to ratification of
this appointment by the stockholders of the Company. Arthur Andersen LLP
performed audit services in connection with the examination of the financial
statements of the Company and its subsidiaries for the year ended December 31,
1998 and is considered by management of the Company to be well qualified. If
this proposal does not receive a majority vote at the meeting, the Board will
reconsider the appointment. Representatives of Arthur Andersen LLP will be
present at the Annual Meeting. They will have an opportunity to make a statement
if they desire to do so and to answer appropriate questions.
THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE SELECTION OF ARTHUR
ANDERSEN LLP AS INDEPENDENT ACCOUNTANTS OF THE COMPANY.
ITEM 5
OTHER MATTERS
The Board does not know of any other matters that are to be presented for
action at the Annual Meeting. However, if any other matter should be presented
at the meeting upon which a vote properly may be taken, shares represented by
all duly executed proxies received by the Company will be voted with respect
thereto in accordance with the best judgment of the persons designated as the
proxies.
OTHER INFORMATION
STOCKHOLDER PROPOSALS
Pursuant to various rules promulgated by the Commission, any stockholder
who wishes to submit a proposal for inclusion in the proxy material and for
presentation at the 2000 Annual Meeting of Stockholders must forward such
proposal to the Secretary of the Company, at the address indicated on page 1 of
this Proxy Statement so that the Secretary receives it no later than December
14, 1999.
In addition to the rules of the Commission described in the preceding
paragraph, the Company's bylaws provide that for a nomination of persons for
election to the Board or a proposal of business to be properly brought before
the Annual Meeting of Stockholders, it must be either (a) specified in the
notice of meeting given by the Secretary of the Company, (b) otherwise brought
before the meeting by or at the direction of the Board or (c) otherwise properly
brought before the meeting by a stockholder of the Company who is stockholder of
record at the time of giving notice hereinafter provided for, who shall be
entitled to vote at such meeting and who complies with the following notice
procedures. In addition to any other applicable requirements, for a nomination
of persons to the Board or a proposal of business to be properly brought before
an annual meeting by a stockholder of the Company, the Secretary of the Company
must have been given timely notice in writing of the nomination of persons to
the Board or the business to be bought before the annual meeting of
stockholders. To be timely, a stockholder's notice must be delivered to the
Company's Secretary at the address indicated on page 1 of this proxy statement
on or before March 3, 2000, but not earlier than February 12, 2000. A
stockholder's notice to the Secretary shall set forth (i) as to each person whom
the stockholder proposes to nominate for election as a director all information
relating to such person that is required under the rules of the Commission to be
disclosed in solicitations of proxies for election of directors in an election
contest, or is otherwise required by law, (ii) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of the
business desired to be brought before the meeting, the reasons for conducting
such business at the meeting and any material interest in such
23
<PAGE> 26
business of such stockholder and the beneficial owner, if any, on whose behalf
the proposal is made, (iii) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or proposal is made,
(a) the name and address of such stockholder, as they appear on the Company's
books, and of such beneficial owner and (b) the class or series and number of
shares of the Company which are owned beneficially and of record by such
stockholder and such beneficial owner.
Notwithstanding the foregoing bylaw provisions, in the event that the
number of directors to be elected to the Board is increased and there is no
public announcement by the Company naming all of the nominees for director or
specifying the size of the increased Board at least 80 days prior to the first
anniversary of the preceding year's annual meeting, a stockholder's notice
required by this bylaw shall also be considered timely, but only with respect to
nominees for any new positions created by such increase if it shall be delivered
to the Secretary of the Company at the address indicated on page 1 of this Proxy
Statement not later than the close of business on the 10th day following the day
on which such public announcement of the increased Board is first made by the
Company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that, except as set forth below, during the year ended
December 31, 1998, all Section 16(a) filing requirements applicable to the
Company's directors, executive officers and beneficial owners of more than 10
percent of the outstanding Common Stock were complied with. Mr. McCall
mistakenly reported the purchase of 670 shares of Common Stock acquired on July
10, 1998, on a Form 5, which was filed late on March 29, 1999, instead of on a
Form 4.
VOTING OF SHARES COVERED BY PROXIES
The persons designated to vote shares covered by proxies intend to exercise
their judgment in voting such shares on other matters that may come before the
Annual Meeting. Management does not expect, however, that any matters other than
those referred to in this Proxy Statement will be presented for action at the
Annual Meeting.
By Order of the Board of Directors
/s/ JOHN S. WATSON
John S. Watson
Secretary
Houston, Texas
April 12, 1999
24
<PAGE> 27
GROUP 1 AUTOMOTIVE, INC.
P 950 ECHO LANE, SUITE 350
HOUSTON, TEXAS 77024
R
ANNUAL MEETING OF STOCKHOLDERS -- MAY 12, 1999
O
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
X
Y
The undersigned stockholders(s) of Group 1 Automotive, Inc. a Delaware
corporation (the "Company"), hereby appoints B.B. Hollingsworth, Jr., and Scott
L. Thompson, and each of them, attorneys-in-fact and proxies of the undersigned,
with full power of substitution, to represent and to vote all shares of common
stock of the Company that the undersigned is entitled to vote at the Annual
Meeting of Stockholders to be held at Chase Bank of Texas, 707 Travis, Mezzanine
Level, Houston, Texas 77002, at 10:00 A.M., local time, on Wednesday, May 12,
1999, and at any adjournment thereof.
(CONTINUED ON REVERSE SIDE)
oFOLD AND DETACH HEREo
<PAGE> 28
<TABLE>
<S> <C> <C> <C> <C>
This Proxy, when properly executed, will be voted as directed herein by the undersigned. If no direction PLEASE MARK
is given, this proxy will be voted "FOR" proposals 1, 2, 3 and 4. The Board of Directors recommends a YOUR VOTE AS [X]
vote "FOR" proposals 1, 2, 3 and 4. INDICATED IN
THIS EXAMPLE
1. Election of Directors Nominees: Charles M. Smith and John H. Duncan 2. Approval of the amendment to the 1996
Stock Incentive Plan increasing the
FOR all nominees WITHHOLD INSTRUCTION: To withhold authority to vote for number of shares of common stock
(except as marked AUTHORITY any individual nominee, write that nominee's issuable under the plan from 2,000,000
to the contrary) to vote for name in the space provided below. to 3,000,000 shares.
all nominees
---------------------------------------------- FOR AGAINST ABSTAIN
[ ] [ ] [ ] [ ] [ ]
3. Approval of the amendment to the 1998 Employee 4. Ratification of the appointment of In their discretion, such attorneys-in-
Stock Purchase Plan increasing the number of Arthur Andersen LLP as independent fact and proxies are authorized to vote
shares of common stock issuable under the plan accountants of the Company for the upon such other business as properly may
from 200,000 to 1,000,000 shares. fiscal year ending December 31, come before the meeting.
1999.
FOR AGAINST ABSTAIN FOR AGAINST ABSTAIN I will [ ] will not [ ] be attending the
[ ] [ ] [ ] [ ] [ ] [ ] meeting
YOU ARE REQUESTED TO COMPLETE, DATE, SIGN,
AND RETURN THIS PROXY PROMPTLY. ALL JOINT
OWNERS MUST SIGN. PERSONS SIGNING AS
EXECUTORS, ADMINISTRATORS, TRUSTEES,
CORPORATE OFFICERS, OR IN OTHER REPRESENT-
ATIVE CAPACITIES SHOULD SO INDICATE.
Date: ____________________________________
__________________________________________
Signature
__________________________________________
Signature
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