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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
COMMISSION FILE NUMBER: 1-13461
GROUP 1 AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 76-0506313
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
950 ECHO LANE, SUITE 350, HOUSTON, TEXAS 77024
(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code (713) 467-6268
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Securities Exchanges on which Registered
------------------- -----------------------------
COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
The aggregate market value of the voting stock held by non-affiliates
of the Registrant was approximately $296.8 million as of March 26, 1999 (based
on the last sale price of such stock as quoted on the New York Stock Exchange).
At such date there was no non-voting stock outstanding.
As of March 26, 1999, there were 20,413,913 shares of Registrant's
Common Stock, par value $.01 per share, outstanding.
Documents incorporated by reference: Proxy Statement of Group 1
Automotive, Inc. for the Annual Meeting of Stockholders to be held on May 12,
1999, which is incorporated into Part III of this Form 10-K.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I............................................................................................................3
Item 1. Business.............................................................................................3
Item 2. Properties..........................................................................................16
Item 3. Legal Proceedings...................................................................................16
Item 4. Submission of Matters to a Vote of Security Holders.................................................16
Item 4A. Management..........................................................................................17
PART II..........................................................................................................19
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...............................19
Item 6. Selected Consolidated Financial Data................................................................20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...............21
Item 7A. Qualitative and Quantitative Disclosures About Market Risk..........................................33
Item 8. Financial Statements and Supplementary Data.........................................................33
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure................33
PART III.........................................................................................................34
Item 10. Directors and Executive Officers of the Registrant..................................................34
Item 11. Executive Compensation..............................................................................34
Item 12. Security Ownership of Certain Beneficial Owners and Management......................................34
Item 13. Certain Relationships and Related Transactions......................................................34
PART IV..........................................................................................................34
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....................................34
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Group 1 Automotive, Inc. ("Group 1", the "Company", "we" or "us") is a
leading operator and consolidator in the highly fragmented automotive retailing
industry. Simultaneously with the closing of our initial public offering
("IPO") in November 1997, we acquired four automobile dealership groups, known
as our "founding groups", representing 30 automobile dealership franchises.
During 1998, we acquired 33 additional automobile dealership franchises. Our
automobile dealership franchises are located in Texas, Oklahoma, Florida, New
Mexico, Georgia and Colorado. We sell new and used cars and light trucks,
provide maintenance and repair services, sell replacement parts and arrange
vehicle financing, insurance and service contracts.
BUSINESS STRATEGY
We plan to capitalize on our position as a leading consolidator, while
maintaining our high operating standards in the automotive retailing industry,
by:
(1) emphasizing growth through acquisitions and
(2) implementing an operating strategy of managing our
dealerships on a decentralized basis, rewarding employees
with equity grants and incentive compensation, centralizing
certain administrative functions on a national basis,
expanding our higher margin businesses, continuing our
commitment to customer service and implementing new
technology.
By merging management talent and proven operating capabilities with a
corporate management team that is experienced in achieving and managing
long-term growth in a consolidation environment, we believe that we are in a
strong position to execute this strategy.
GROWTH THROUGH ACQUISITIONS
Under our acquisition program, we pursue:
(1) "platform" acquisitions of large, profitable and well managed
dealerships in large metropolitan and high-growth suburban
geographic markets that we do not currently serve and
(2) smaller "tuck-in" acquisitions to existing platforms that
allow us to increase brand diversity, capitalize on economies
of scale and offer a greater breadth of products and services
in each of the markets in which we operate.
We have used and intend to continue to use our common stock to fund a
portion of our acquisitions. In addition, we have a revolving credit facility,
which will provide us with the ability to borrow up to $110 million for
acquisitions.
ENTERING NEW GEOGRAPHIC MARKETS. We intend to expand into geographic
markets we do not currently serve by acquiring large, profitable and well
established megadealers that are leaders in their regional markets. We pursue
megadealers that have superior operational and financial management personnel,
which we will seek to retain. We believe that by retaining existing high
quality management we will be able to effectively operate acquired megadealers
with management personnel who understand the local market without having to
employ and train new and untested personnel. We believe that we are positioned
to pursue larger, well established acquisition candidates because of our depth
of management, our capital structure and the reputation of our principals as
leaders in the automotive retailing industry.
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EXPANDING WITHIN EXISTING MARKETS. We plan to make tuck-in
acquisitions of additional dealerships in each of the markets in which we
operate, including acquisitions that increase the brands, products and services
offered in these markets. We believe that these acquisitions will increase our
operating efficiencies and cost savings on a regional level in areas such as
advertising, vendor consolidation, data processing and personnel utilization.
RECENT ACQUISITIONS. During 1999, we signed definitive purchase
agreements related to 28 dealership franchise acquisitions. Two of these
acquisitions are new platforms representing 14 dealership franchises in west
Texas and north Florida. The remaining acquisitions are tuck-ins, which will
complement our platform operations in Texas, Oklahoma, New Mexico and Georgia.
Two of the tuck-in acquisitions were closed during January 1999. These
acquisitions will bring our total number of dealership franchises to 83 and the
number of brands represented to 24. The closing of each of these acquisitions
is subject to customary closing conditions, including approval of various
manufacturers, government agencies and the completion of due diligence. The
aggregate consideration paid, or to be paid, in completing these acquisitions,
excluding the assumption of an estimated $63.3 million of inventory financing,
is approximately $91.0 million in cash and 1.3 million shares of our Common
Stock.
In connection with these acquisitions, certain of the former owners
involved in the management of the dealerships will execute long-term employment
agreements that contain post-employment non-competition covenants. Generally,
the real estate and facilities comprising the acquired dealerships are leased
from affiliates of the former stockholders of the acquired companies under
long-term leases, with fair market value rental rates.
RECENT OFFERINGS. In March 1999, we completed offerings of two million
shares of our common stock and $100 million of our 10-year senior subordinated
notes (the "Notes") with an interest rate of 10 7/8% (the "offerings").
Proceeds before our expenses totaled $138.9 million and were used to
temporarily repay borrowings under our credit facility. We expect to use these
proceeds in the future to complete acquisitions and any such use would result
in an increase in borrowings under the credit facility.
OPERATING STRATEGY
We follow an operating strategy that focuses on decentralized
dealership operations, centralization of certain administrative functions,
expansion of higher margin businesses, customer service and new technology
initiatives.
We formed committees made up of the platform presidents and general
managers of our dealerships in order to identify and share best practices. We
believe that these committees will promote the widespread application of
strategic programs, facilitate the integration of future acquisitions and
improve operating efficiency and customer satisfaction.
DECENTRALIZED DEALERSHIP OPERATIONS. We believe that by managing our
dealerships on a decentralized basis, we provide superior customer service and
a focused, market-specific responsiveness to sales, service, marketing and
inventory control. Local presence and an in-depth knowledge of customers' needs
and preferences are important in generating market share growth. By
coordinating certain operations on a platform basis, we believe that we will
achieve cost savings in such areas as advertising, vendor consolidation, data
processing and personnel utilization. We create incentives for our management
teams and sales forces through the use of stock options and cash bonus
programs. In addition, the management of the dealerships we acquire generally
receive significant equity positions in us as a result of the use of our common
stock in our acquisition program.
NATIONALLY CENTRALIZED ADMINISTRATIVE FUNCTIONS. We believe that by
consolidating the purchasing power of our dealerships on a centralized basis we
have benefited from significant cost savings. For example, since we began
operations, we have reduced the interest rate on our floorplan financing
through our consolidated credit facility. Furthermore, we have benefited from
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the consolidation of administrative functions such as risk management, employee
benefits and employee training.
EXPAND HIGHER MARGIN ACTIVITIES. We focus on expanding our higher
margin businesses such as used vehicle retail sales, parts and service and
arranging vehicle service, finance and insurance contracts. While each of our
platforms operates independently in a manner consistent with its specific
market's characteristics, they also pursue an integrated company-wide strategy
designed to grow each of these higher margin businesses to enhance
profitability and stimulate internal growth. With a competitive advantage in
sourcing and attractive lease financing, new vehicle franchises are especially
well positioned to capitalize on industry growth in used vehicle sales. In
addition, each of our dealerships offers an integrated parts and service
department, which provides an important source of recurring higher margin
revenues. We also have the opportunity on each new or used vehicle sold to
generate incremental revenues from the arranging of vehicle service contracts,
credit insurance policies and finance or lease contracts. Each of these
business areas is a focus of internal growth.
COMMITMENT TO CUSTOMER SERVICE. We focus on providing high quality
customer service to meet the needs of customers. Our dealerships strive to
cultivate lasting relationships with their customers, and we believe these
efforts increase our opportunities for significant repeat and referral
business. For example, the dealerships regard their service and repair
activities as an integral part of their overall approach to customer service.
This approach provides us with an opportunity to foster ongoing relationships
with customers and deepen customer loyalty. In addition, our dealerships
continually review their selling processes in an effort to better meet the
needs of their customers.
DEALERSHIP OPERATIONS
Each of our platforms has an established management structure that
promotes and rewards entrepreneurial spirit, and the achievement of team goals.
The general manager of each dealership is ultimately responsible for the
operation, personnel and financial performance of the dealership. The general
manager is complemented with a management team consisting of a new vehicle
sales manager, used vehicle sales manager, parts and service managers and
finance managers. Each dealership is operated as a distinct profit center, in
which dealership general managers are given a high degree of autonomy. The
general manager and the other members of the dealership management team, as
long-time members of their local communities, are typically best able to judge
how to conduct day-to-day operations based on their experience in and
familiarity with the local market.
NEW VEHICLE SALES. We currently represent 22 American, Asian and
European brands of economy, family, sports and luxury cars, light trucks and
sport utility vehicles. The following table sets forth for the twelve months
ended December 31, 1998, certain information relating to the brands of new
vehicles sold at retail by us on an actual and on a pro forma basis assuming
that all of our dealerships (acquired by December 31, 1998) were acquired on
January 1, 1998. These results may not be indicative of our results after the
acquisition of the dealerships by us:
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<TABLE>
<CAPTION>
PRO FORMA ACTUAL
NUMBER OF NEW VEHICLES PERCENTAGE OF PRO NUMBER OF NEW
MANUFACTURER SOLD FORMA TOTAL VEHICLES SOLD
------------ ---------------------- ----------------- -------------
<S> <C> <C> <C>
Ford................ 11,609 25.2% 8,479
Toyota.............. 6,980 15.1 6,980
Chevrolet........... 4,514 9.8 3,331
Nissan.............. 4,248 9.2 4,248
Dodge............... 3,289 7.1 2,649
Honda............... 3,123 6.8 3,123
Lexus............... 2,000 4.3 2,000
Plymouth............ 1,901 4.1 1,391
Chrysler............ 1,708 3.7 1,342
Jeep................ 1,316 2.9 1,141
Acura............... 1,218 2.6 1,218
GMC................. 1,134 2.5 1,134
Isuzu............... 722 1.6 722
Mitsubishi.......... 706 1.5 706
Pontiac............. 701 1.5 544
Oldsmobile.......... 199 0.4 153
Mercury............. 191 0.4 191
Mercedes-Benz....... 118 0.3 118
Suzuki.............. 98 0.2 98
Buick............... 87 0.2 87
Lincoln............. 81 0.2 81
Cadillac............ 48 0.1 1
Volvo............... 30 0.1 30
Other............... 78 0.2 55
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Total..... 46,099 100.0% 39,822
========== ========= ========
</TABLE>
Our dealerships' new vehicle retail sales include traditional new
vehicle retail lease transactions and lease-type transactions, both of which
are arranged by the dealerships. New vehicle leases generally have short terms,
bringing the customer back to the market sooner than if the purchase were debt
financed. In addition, leases provide our dealerships with a steady source of
late-model, off-lease vehicles for their used vehicle inventory. Generally,
leased vehicles remain under factory warranty for the term of the lease,
allowing the dealerships to provide repair service to the lessee throughout the
lease term.
Our dealerships seek to provide customer-oriented service designed to
meet the needs of its customers and establish lasting relationships that will
result in repeat and referral business. The dealerships continually evaluate
innovative ways to improve the buying experience for their customers. We
believe that our ability to share best practices among our dealerships gives us
an advantage over smaller dealerships. For example, the dealerships strive to:
(1) employ more efficient selling approaches;
(2) utilize computer technology that decreases the time necessary
to purchase a vehicle;
(3) engage in extensive follow-up after a sale in order to
develop long-term relationships with customers; and
(4) extensively train their sales staffs to be able to meet the
needs of the customer.
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Our dealerships acquire substantially all of their new vehicle
inventory from the automobile manufacturers ("Manufacturers"). Manufacturers
allocate a limited inventory among their franchised dealers based primarily on
sales volume and input from dealers. The dealerships generally finance their
inventory purchases through revolving credit arrangements, including a portion
of our credit facility, known in the industry as floorplan facilities.
USED VEHICLE SALES. We sell used vehicles at each of our franchised
dealerships. Sales of used vehicles have become an increasingly significant
source of profit for the dealerships. Consumer demand for used vehicles has
increased as prices of new vehicles have risen and as more high quality used
vehicles have become available. Furthermore, used vehicles typically generate
higher gross margins than new vehicles because of their limited comparability
and the somewhat subjective nature of their valuation. We intend to continue
growing our used vehicle sales operations by maintaining a high quality
inventory, providing competitive prices and vehicle service contracts for our
used vehicles, and continuing to promote used vehicle sales.
Profits from sales of used vehicles depend primarily on the
dealerships' ability to obtain a high quality supply of used vehicles and
effectively manage that inventory. Our new vehicle operations provide the used
vehicle operations with a large supply of high quality trade-ins and off-lease
vehicles, which are the best sources of high quality used vehicles. The
dealerships supplement their used vehicle inventory with used vehicles
purchased at auctions.
Each of the dealerships generally maintains a 35-day supply of used
vehicles and offers to other dealers and wholesalers used vehicles that they do
not retail to customers. Trade-ins may be transferred among our dealerships to
provide balanced inventories of used vehicles at each of our dealerships. We
believe that the acquisition of additional dealerships will expand our internal
market for transfers of used vehicles among our dealerships and, therefore,
increase the ability of each of our dealerships to offer the same brand of used
vehicles as it sells new and to maintain a balanced inventory of used vehicles.
We intend to develop integrated computer inventory systems that will allow us
to coordinate vehicle transfers between our dealerships, primarily on a
regional basis.
Our dealerships have taken several steps towards building client
confidence in their used vehicle inventory, one of which includes their
participation in the manufacturer certification processes which are available
only to new vehicle franchises. This process makes these used vehicles eligible
for new vehicle benefits such as new vehicle finance rates and extended
manufacturer service contracts. In addition, the dealerships offer vehicle
service contracts covering the used vehicles that they sell.
We believe that our franchised dealerships' strengths in offering used
vehicles include:
(1) access to trade-ins on new vehicle purchases, which are
typically lower mileage and higher quality relative to
trade-ins on used car purchases,
(2) access to late-model, low mileage off-lease vehicles, and
(3) the availability of manufacturer certification programs for
our higher quality used vehicles.
This supply of high quality trade-ins and off-lease vehicles reduces
our dependence on auction vehicles, which are typically a higher cost source of
used vehicles.
PARTS AND SERVICE SALES. We provide parts and service at each of our
franchised dealerships primarily for the vehicle makes sold at that dealership.
We perform both warranty and non-warranty service work. In addition to each of
our dealerships' parts and service businesses, we owned 12 collision service
centers at December 31, 1998.
Historically, the automotive repair industry has been highly
fragmented. However, we believe that the increased use of advanced technology
in vehicles has made it difficult for independent repair shops to retain the
expertise to perform major or technical repairs.
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Additionally, Manufacturers permit warranty work to be performed only at
franchised dealerships. Hence, unlike independent service operations, our
franchised dealerships are qualified to perform work covered by Manufacturer
warranties. Given the increasing technological complexity of motor vehicles and
the trend toward extended manufacturer and dealer warranty periods for new
vehicles, we believe that an increasing percentage of repair work will be
performed at our franchised dealerships, each of which have the sophisticated
equipment and skilled personnel necessary to perform such repairs and offer
vehicle service contracts.
We attribute our profitability in parts and service to a comprehensive
management system, including the use of variable rate pricing structures,
cultivation of strong customer relationships through an emphasis on preventive
maintenance and the efficient management of parts inventory.
In charging for their mechanics' labor, the dealerships use variable
rate structures designed to reflect the difficulty and sophistication of
different types of repairs. The percentage mark-ups on parts are similarly
priced based on market conditions for different parts. We believe that variable
rate pricing helps our dealerships achieve overall gross margins in parts and
service which are superior to those of certain competitors who rely on fixed
labor rates and percentage markups.
Our dealerships seek to retain each vehicle purchaser as a customer of
the dealership's parts and service departments. The dealerships have systems in
place that track their customers' maintenance records and notify owners of
vehicles purchased or serviced at the dealerships when their vehicles are due
for periodic services. The dealerships regard service and repair activities as
an integral part of their overall approach to customer service, providing an
opportunity to foster ongoing relationships with the dealership's customers and
deepen customer loyalty.
The dealerships' parts departments support their respective sales and
service departments. Each of the dealerships sells factory-approved parts for
vehicle makes and models sold by that dealership. These parts are either used
in repairs made by the dealership, sold at retail to its customers or at
wholesale to independent repair shops and other franchised dealerships.
Currently, each of the dealerships employs its own parts manager and
independently controls its parts inventory and sales. Our dealerships that sell
the same new vehicle makes have access to each other's computerized inventories
and frequently obtain unstocked parts from our other dealerships.
OTHER DEALERSHIP REVENUES. Other dealership revenues consist primarily
of finance, vehicle service contract and insurance income. The dealerships
arrange financing for their customers' vehicle purchases, sell vehicle service
contracts and arrange selected types of credit insurance in connection with the
financing of vehicle sales. The dealerships place heavy emphasis on finance and
insurance ("F&I") and offer advanced F&I training to their finance and
insurance managers. Typically, the dealerships forward proposed financing
contracts to Manufacturers' captive finance companies, selected commercial
banks or other financing parties. The dealerships receive a financing fee from
the lender for arranging the financing and are typically assessed a charge-back
against a portion of the financing fee if the contract is terminated prior to
its scheduled maturity for any reason, such as early repayment or default. As a
result, the dealerships must arrange financing for a customer that is
competitive (i.e., the customer is more likely to accept the financing terms
and the loan is less likely to be refinanced) and affordable (i.e., the loan is
more likely to be repaid). We do not own a finance company and, generally, do
not retain significant credit risk after a loan is made.
At the time of a new vehicle sale, the dealerships offer vehicle
service contracts to supplement the manufacturer warranty. Additionally, the
dealerships sell primary vehicle service contracts for used vehicles.
Currently, the dealerships primarily sell service contracts of third party
vendors, for which they recognize a commission upon the sale of the contract.
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The dealerships also offer certain types of credit insurance to
customers who arrange the financing of their vehicle purchases through the
dealerships. The dealerships sell credit life insurance policies to these
customers, providing for repayment of the vehicle loan if the obligor dies
while the loan is outstanding. The dealerships also sell accident and
disability insurance policies, which provide payment of the monthly loan
obligations during a period in which the obligor is disabled. Currently, the
dealerships primarily sell such insurance through third party vendors, for
which they recognize a commission upon the sale of the contract.
AGREEMENTS WITH MANUFACTURERS
The following table set forth the percentage of our new vehicle retail
unit sales attributable to the Manufacturers we represented during 1998 on a
pro forma basis giving effect to all of our acquisitions in 1998:
<TABLE>
<CAPTION>
PERCENTAGE OF OUR
NEW VEHICLE
PRO FORMA RETAIL
UNITS FOR THE TWELVE
MONTHS ENDED
MANUFACTURER DECEMBER 31, 1998
------------ -----------------
<S> <C>
Ford.......................................... 25.8%
Toyota/Lexus.................................. 19.4
DaimlerChrysler............................... 18.1
General Motors................................ 14.5
Honda/Acura................................... 9.4
Nissan........................................ 9.2
Other......................................... 3.6
------
Total ...................................... 100.0%
======
</TABLE>
FRANCHISE AGREEMENTS. Each of our dealerships operates under a
franchise agreement with one of our Manufacturers (or authorized distributors).
Under our dealership franchise agreements, the Manufacturers exert considerable
influence over the operations of our dealerships. Each of the franchise
agreements may be terminated or not renewed by the Manufacturer for a variety
of reasons, including any unapproved changes of ownership or management. While
we believe that we will be able to renew all of our franchise agreements, we
cannot guarantee that all of our franchise agreements will be renewed or that
the terms of the renewals will be favorable to us.
Our franchise agreements do not give us the exclusive right to sell a
Manufacturer's product within a given geographic area but, generally, our
geographic area is protected by various state franchise laws.
ACQUISITIONS. We must obtain the consent of the Manufacturer prior to
the acquisition of any of its dealership franchises. Delays in obtaining, or
failing to obtain, Manufacturer approvals for dealership acquisitions could
adversely affect our growth strategy. Obtaining the consent of a Manufacturer
for the acquisition of a dealership could take a significant amount of time or
might be rejected entirely. In determining whether to approve an acquisition,
Manufacturers may consider many factors, including the moral character and
business experience of the dealership principals and the financial condition,
ownership structure and customer satisfaction index scores of our dealerships.
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Our Manufacturers attempt to measure customers' satisfaction with
automobile dealerships through systems generally known as the customer
satisfaction index or "CSI". The Manufacturers have modified the components of
their CSI scores from time to time in the past, and they may replace them with
different systems.
In addition, a Manufacturer may limit the number of its dealerships
that we may own or the number that we may own in a particular geographic area.
The following is a summary of the restrictions imposed by our most significant
Manufacturers.
Ford. Ford currently limits the number of dealerships that we may own
to the greater of (1) 15 Ford and 15 Lincoln Mercury dealerships and (2) that
number of Ford and Lincoln Mercury dealerships accounting for 5% of the
preceding year's total Ford, Lincoln and Mercury retail sales of those brands
in the United States. In addition, Ford limits us to one Ford dealership in a
Ford-defined market area having two or less authorized Ford dealerships and
one-third of Ford dealerships in any Ford-defined market area having more than
three authorized Ford dealerships. In many of its dealership franchise
agreements Ford has the right of first refusal to acquire, subject to
applicable state law, the Ford franchised dealership when its ownership
changes.
Toyota. Toyota restricts the number of dealerships that we may own and
the time frame over which they may be acquired. We can acquire no more than two
Toyota dealerships in each semi-annual period from January to June and July to
December until we acquire a total of seven Toyota dealerships. After we acquire
seven Toyota dealerships we can acquire, if we are then qualified, additional
dealerships, over a minimum of seven semi-annual periods, up to a maximum
number of dealerships equal to 5% of Toyota's aggregate national annual retail
sales volume. In addition, Toyota restricts the number of Toyota dealerships
that we may acquire in any Toyota-defined region and "Metro" market, as well as
any contiguous market. We may acquire only three Lexus dealerships nationally
and two Lexus dealerships in any one of the four Lexus geographic areas. While
we recently have been granted a Lexus companion dealership located south of
Houston, this dealership is not considered by Lexus to be a new and separate
Lexus dealership for purposes of the restriction on the number of Lexus
dealerships we may acquire.
Chrysler. Currently, we have no agreement with Chrysler restricting
our ability to acquire Chrysler dealerships. Chrysler has advised us that in
determining whether to approve an acquisition of a Chrysler dealership,
Chrysler considers the number of Chrysler dealerships the acquiring company
already owns. Chrysler currently considers carefully, on a case-by-case basis,
any acquisition that would cause the acquiring company to own more than 10
Chrysler dealerships nationally, six in the same Chrysler-defined zone and two
in the same market.
General Motors. General Motors currently limits the number of GM
dealerships that we may acquire prior to October 1999 to five additional GM
dealership locations (any one dealership, however, may include a number of
different GM franchises, such as a combination of GMC, Pontiac and Buick
franchises). In addition, GM limits the maximum number of GM dealerships that
we may acquire at any time to 50% of the GM dealerships, by franchise line, in
a GM-defined geographic market area. However, our current agreement with GM
does not include Saturn dealerships and our future acquisition of a Saturn
dealership will be subject to GM approval on a case-by-case basis.
Honda. Under our current agreement with Honda, Honda limits the number
of dealerships that we may own to (1) seven Honda and three Acura franchises
nationally, (2) one Honda dealership in a Honda-defined "Metro" market with two
to 10 Honda dealership points, (3) two Honda dealerships in a Metro market
with 11 to 20 Honda dealership points, (4) three Honda dealerships in a Metro
market with 21 or more Honda dealership points, (5) no more than 4% of
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the Honda dealerships in any one of the 10 Honda geographic zones, (6) one
Acura dealership in a Metro market, and (7) two Acura dealerships in any one of
the six Acura geographic zones.
Honda has proposed a new agreement to replace our current agreement.
Honda has proposed that we could acquire Honda dealerships representing up to
6% of total Honda unit sales in the United States by December 31, 2005,
increasing 1% each year beginning January 1, 2002 from the 2% level in effect
through December 31, 2001. Also under the proposed new agreement, we could
acquire no more than two Acura dealerships in a Metro market with four or more
dealer points and one Acura dealership in other Metro markets, three Acura
dealerships in any one of the six Acura geographic zones and five Acura
dealerships nationally.
Nissan. Nissan restricts us from owning Nissan dealerships whose
primary marketing areas ("PMA", as defined by Nissan) competitive segment
registration count comprises more than 5% of Nissan's total national
competitive segment registrations based on the sum of the retail competitive
segment registrations in PMAs associated with us; or 20% of any Nissan region's
total competitive segment registrations contained in all PMAs associated with
us in that region.
We currently own six Ford, 21 Chrysler, two Toyota, one Lexus, three
Honda and two Acura dealership franchises and eight General Motors dealership
locations. Under current restrictions, we may acquire the maximum number of
Toyota dealerships described above based on aggregate national retail sales
volume of Toyota, two additional Lexus dealerships, four additional Honda
dealerships, one additional Acura dealership, approximately 400 additional
Ford, Lincoln and Mercury dealerships and five additional GM dealership
locations prior to October 1999, subject to being increased.
FINANCINGS. Provisions in our agreements with our Manufacturers may
restrict in the future our ability to obtain certain types of financing. Our
current agreement with Honda requires Honda's consent for any equity offering.
Honda's proposed new agreement with us does not contain that requirement.
Honda's proposed new agreement prohibits pledging the stock of Honda
franchised dealerships to secure debt financing, although it allows pledging
the proceeds from the sale of Honda franchised dealership stock. We have not
executed the proposed new agreement.
If we materially breach our agreement with Honda, Honda could purchase
our Honda and Acura dealerships at their fair market value and terminate our
dealer agreements with Honda and Acura.
Our agreement with General Motors contains provisions prohibiting
pledging the stock of our GM franchised dealerships. Our agreement with Ford
permits pledging our Ford franchised dealerships' stock and assets, but only
for Ford dealership-related debt. Moreover, our Ford agreement permits our Ford
franchised dealerships to guarantee, and to use Ford franchised dealership
assets to secure, our debt, but only for Ford dealership-related debt. Ford
waived that requirement with respect to the Notes and the subsidiary guarantees
of the Notes. If, however, we fail to meet certain minimum financial ratios,
Ford can reject any acquisition of Ford franchised dealerships and/or purchase
our Ford franchised dealerships.
OUR OWNERSHIP AND MANAGEMENT. As a condition to granting their consent
to our previous acquisitions and our initial public offering, some
Manufacturers have imposed other restrictions on us.
These restrictions prohibit, among other things:
o any one person, who in the opinion of the Manufacturer is
unqualified to own its franchised dealership or has interests
incompatible with the Manufacturer, from acquiring more than
a specified percentage of our common stock (for example, 5%
in the case of Honda; 20% in the case of General Motors,
Toyota and Nissan, and 50% in the case of Ford);
o certain material changes in us or extraordinary corporate
transactions such as a merger or sale of a material amount of
our assets;
o the removal of a dealership general manager without the
consent of the Manufacturer;
11
<PAGE> 12
o the use of dealership facilities to sell or service new
vehicles of other Manufacturers, in certain situations; and
o change in control of our Board of Directors or management.
If we are unable to comply with these restrictions, we generally must
(1) sell the assets of the dealerships to the Manufacturer or to a third party
acceptable to the Manufacturer, or (2) terminate the dealership agreements with
the Manufacturer. The Manufacturers may impose additional restrictions on us in
the future.
Our current agreement with Honda gives Honda the right to approve the
acquisition of more than 5% of our common stock by any individual or entity,
and any subsequent acquisition of more than 10% by such individual, if Honda
determines that such acquisition is reasonably detrimental to its interests.
Honda may determine that such acquisition is reasonably detrimental to its
interests if the acquiring person; competes with Honda, has criminal
affiliations or a criminal record, has inadequate experience in the automotive
sales and service business, has an unacceptable credit rating, has unacceptable
CSI scores or has had prior unsatisfactory relationships with Honda.
An institutional investor may acquire up to 10% of our common stock
without the consent of Honda, unless the institutional investor competes with
Honda, has criminal affiliations or a criminal record, or has acquired, or has
reasonable likelihood of acquiring, a controlling interest in us.
We are required to notify Honda with respect to any such acquisition
or proposed acquisition. If Honda does not approve the acquisition, we are
required to use our best efforts to prevent the acquisition or, if the
acquisition has already occurred, reacquire the shares so transferred. If we
are unable to prevent the acquisition or to reacquire the shares we will be in
material breach of our agreement with Honda.
In addition, under our agreement with Honda, each stockholder of the
founding groups has agreed not to sell, transfer or in any manner encumber any
of the shares of our common stock he acquired in connection with our
acquisition of the founding groups, or enter into any agreement or other
arrangement providing for the voting of such shares of common stock, without
the prior written approval of Honda. If one of these stockholders violates this
restriction, we must inform Honda. If Honda does not approve the transfer, and
we cannot acquire the shares or arrange for the retransfer of such shares to a
person approved by Honda, we will be in breach of our agreement with Honda. The
new agreement by Honda does not contain these restrictions on our stockholders.
Our agreement with Honda also provides that if an entity that Honda
has not approved acquires or threatens to acquire a controlling interest in us
or any of our Honda or Acura dealerships, we will be in breach of our agreement
with Honda.
OPERATIONS. We depend on our Manufacturers for operational support:
o We depend on the Manufacturers to provide us with a desirable
mix of new vehicles. The most popular vehicles usually
produce the highest profit margins and are frequently
difficult to obtain from the Manufacturers. If we cannot
obtain sufficient quantities of the most popular models, our
profitability may be adversely affected. Sales of less
desirable models may reduce our profit margins.
o We depend on the Manufacturers for sales incentives and other
programs that are intended to promote dealership sales or
support dealership profitability. Manufacturers historically
have made many changes to their incentive programs during
each year. A discontinuation or change in Manufacturers'
incentive programs could adversely affect our business.
Moreover, some Manufacturers use a dealership's CSI scores as
a factor for participating in incentive programs. Failure to
comply with the CSI standards could adversely affect our
participation in dealership incentive programs, which could
have a material adverse effect on us.
12
<PAGE> 13
Our Manufacturer agreements also specify that, in certain situations,
we cannot operate a dealership franchised by another Manufacturer in the same
building as that Manufacturer's franchised dealership. In addition, some
Manufacturers, like GM, are in the process of realigning their franchised
dealerships along defined "channels", such as combining Pontiac, Buick and GMC
in one dealership location. As a result, GM may require us to move or sell some
dealerships. Moreover, our Manufacturers generally require that the dealership
premises meet defined image standards. All of these requirements could impose
significant capital expenditures on us in the future.
COMPETITION
The automotive retailing industry is highly competitive. In large
metropolitan areas consumers have a number of choices in deciding where to
purchase a new or used vehicle and where to have such vehicle serviced.
In the new vehicle area, our dealerships compete with other franchised
dealerships in their marketing areas. The dealerships do not have any cost
advantage in purchasing new vehicles from the Manufacturers, and typically rely
on advertising and merchandising, sales expertise, service reputation and
location of the dealership to sell new vehicles. In recent years, automobile
dealers have also faced increased competition in the sale or lease of new
vehicles from independent leasing companies, on-line purchasing services and
warehouse clubs. In addition, Ford has started to acquire and subsequently
operate automobile dealerships for the purpose of consolidating Ford
dealerships. For example, Ford acquired dealerships in Tulsa, Oklahoma and
entered into an agreement with Republic Industries, Inc. to jointly acquire
Ford dealerships in Rochester, New York. Ford also announced that it is
exploring the possibility of going into business with some of its dealers to
create automotive superstores in selected markets.
In used vehicles, the dealerships compete with other franchised
dealers, independent used car dealers, automobile rental agencies, private
parties and used car "superstores" for supply and resale of used vehicles. Used
car "superstores" have recently opened in certain markets in which our
dealerships compete. We believe that additional used car "superstores" will
open in other markets in which we will operate.
13
<PAGE> 14
We believe that the principal competitive factors in vehicle sales
are:
o the marketing campaigns conducted by Manufacturers,
o the ability of dealerships to offer a wide selection of the
most popular vehicles,
o the location of dealerships, and
o the quality of customer service.
Other competitive factors include customer preference for particular
brands of automobiles, pricing (including Manufacturer rebates and other
special offers) and warranties. We believe that our dealerships are competitive
in all of these areas that they control.
The dealerships compete against franchised dealers to perform warranty
repairs and against other automobile dealers, franchised and independent
service center chains and independent garages for non-warranty repair and
routine maintenance business. The dealerships compete with other automobile
dealers, service stores and auto parts retailers in their parts operations. We
believe that the principal competitive factors in parts and service sales are
price, the use of factory-approved replacement parts, the familiarity with a
Manufacturer's brands and models and the quality of customer service. A number
of regional or national chains offer selected parts and services at prices that
may be lower than the dealerships prices.
GOVERNMENTAL REGULATIONS
A number of regulations affect our business of marketing, selling,
financing and servicing automobiles. We are also subject to laws and
regulations relating to business corporations generally.
Generally, we must obtain a license in order to establish, operate or
relocate a dealership or provide certain automotive repair services. These laws
also regulate the way we conduct our business, including our advertising and
sales practices.
Our financing activities with our customers are subject to federal
truth in lending, consumer leasing and equal credit opportunity regulations as
well as state and local motor vehicle finance laws, installment finance laws,
insurance laws, usury laws and other installment sales laws. Some states
regulate finance fees that may be paid as a result of vehicle sales. Penalties
for violation of any of these laws or regulations may include revocation of
certain licenses, assessment of criminal and civil fines and penalties, and in
certain instances, create a private cause of action for individuals. We believe
that our dealerships comply substantially with all laws and regulations
affecting their business and do not have any material liabilities under such
laws and regulations and that compliance with all such laws and regulations
will not, individually or in the aggregate, have a material adverse effect on
its capital expenditures, earnings, or competitive position.
ENVIRONMENTAL MATTERS
We are subject to a wide range of federal, state, and local
environmental laws and regulations, including those governing discharges into
the air and water, the storage of petroleum substances and chemicals, the
handling and disposal of wastes, and the remediation of contamination arising
from spills and releases. As with automobile dealerships generally, and parts,
service and collision service center operations in particular, our business
involves the generation, use, handling, storage, transport and disposal of
hazardous or toxic substances or wastes. Operations involving the management of
hazardous and nonhazardous wastes are subject to requirements of the federal
Resource Conservation and Recovery Act and comparable state statutes. Pursuant
to these laws, federal and state environmental agencies have established
approved methods for storage, treatment, and disposal of regulated wastes with
which we must comply.
14
<PAGE> 15
Our business involves the use of aboveground and underground storage
tanks. Under applicable laws and regulations, we are responsible for the proper
use, maintenance and abandonment of regulated storage tanks which we own or
operate, and for remediation of subsurface soils and groundwater impacted by
releases from such existing or abandoned aboveground or underground storage
tanks. In addition to these regulated tanks, we own, operate, or have otherwise
abandoned, other underground and aboveground devices or containers (e.g.,
automotive lifts and service pits) that may not be classified as regulated
tanks, but which are capable of releasing stored materials into the
environment, thereby potentially obligating us to remediate any soils or
groundwater resulting from such releases.
We are also subject to laws and regulations governing remediation of
contamination at facilities we operate or to which we send hazardous or toxic
substances or wastes for treatment, recycling or disposal. The Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), also known
as the "Superfund" law, imposes liability, without regard to fault or the
legality of the original conduct, on certain classes of persons that are
considered to have contributed to the release of a "hazardous substance" into
the environment. These persons include the owner or operator of the disposal
site or sites where the release occurred and companies that disposed or
arranged for the disposal of the hazardous substances released at such sites.
Under CERCLA, these "responsible parties" may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment, for damages to natural resources and for the
costs of certain health studies, and it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and
property damage allegedly caused by the release of hazardous substances.
Further, the Federal Water Pollution Control Act, also known as the
Clean Water Act, and comparable state laws prohibit discharges of pollutants
into regulated waters without authorized National Pollution Discharge
Elimination System (NPDES) and similar state permits, require containment of
potential discharges of oil or hazardous substances, and require preparation of
spill contingency plans.
Environmental laws and regulations have become very complex and
stringent over the years, and the task of achieving and maintaining full
compliance with all applicable environmental laws and regulations has become
much more rigorous. We currently own or lease, and in connection with our
acquisition program will in the future own or lease, properties that in some
instances have been used for auto retailing and servicing for many years.
Although we have utilized operating and disposal practices that were standard
in the industry at the time, it is possible that environmentally sensitive
materials such as new and used motor oil, transmission fluids, antifreeze,
lubricants, solvents and motor fuels may have been spilled or released on or
under the properties owned or leased by us or on or under other locations where
such materials were taken for disposal. Further, we believe that structures
found on some of these properties may contain suspect asbestos-containing
materials, albeit in nonfriable, undisturbed condition. In addition, many of
these properties have been operated by third parties whose use, handling and
disposal of such environmentally sensitive materials were not under the
Company's control.
These properties and the waste materials spilled, released or
otherwise found thereon may be subject to RCRA, CERCLA, the federal Clean Air
Act and analogous state laws. Under such laws, we could be required to remove
or remediate previously spilled or released waste materials (including such
materials spilled or released by prior owners or operators), or property
contamination (including groundwater contamination caused by prior owners or
operators), or to perform monitoring or remedial activities to prevent future
contamination (including asbestos found to be in a friable and disturbed
condition). However, we believe that we are not subject to any material
environmental liabilities and that compliance with environmental laws and
regulations does not have a material adverse effect on our operations, earnings
or competitive position. Moreover, we generally obtain environmental studies on
dealerships to be acquired and, as necessary, implement environmental
management or remedial activities to reduce the risk of noncompliance with
environmental laws and regulations.
15
<PAGE> 16
EMPLOYEES
As of December 31, 1998, we employed 3,101 people, of whom
approximately 379 were employed in managerial positions, 1,001 were employed in
non-managerial sales positions, 1,289 were employed in non-managerial parts and
service positions and 432 were employed in administrative support positions.
We believe that our relationships with our employees are favorable.
None of our employees are represented by a labor union, however, because of our
dependence on the Manufacturers we may be affected by labor strikes, work
slowdowns and walkouts at the Manufacturers' manufacturing facilities.
ITEM 2. PROPERTIES
We use a number of facilities to conduct our dealership operations.
Each of our dealerships may include facilities for (1) new and used vehicle
sales, (2) vehicle service operations, (3) retail and wholesale parts
operations, (4) collision service operations, (5) storage and (6) general
office use. We try to structure our operations so as to avoid the ownership of
real property. In connection with our acquisitions, we generally seek to lease
rather than acquire the facilities on which the acquired dealerships are
located. We generally enter into lease agreements with respect to such
facilities that have 30-year terms and are cancelable at our option after an
initial 10-year period and at the end of each subsequent five-year period. As a
result, we lease the majority of our facilities, and these facilities are
subject to long-term leases.
ITEM 3. LEGAL PROCEEDINGS
From time to time, our dealerships are named in claims involving the
manufacture of automobiles, contractual disputes and other matters arising in
the ordinary course of business. Currently, no legal proceedings are pending
against or involve us that, in our opinion, could be expected to have a
material adverse effect on our business, financial condition or results of
operations.
Because of their vehicle inventory and nature of business, automobile
dealerships generally require significant levels of insurance covering a broad
variety of risks. Our insurance includes an umbrella policy with a $50 million
per occurrence limit as well as insurance on real property, comprehensive
coverage for vehicle inventory, general liability insurance, employee
dishonesty coverage and errors and omissions insurance in connection with
vehicle sales and financing activities.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the May 28, 1998 Annual Meeting of Stockholders, our stockholders
voted on two matters.
(1) Election of two Directors:
The stockholders elected the two nominees as directors for
three-year terms based on the following voting results:
<TABLE>
<CAPTION>
VOTES CAST
--------------------------------------
AGAINST OR
NOMINEE ELECTED FOR WITHHELD
---------------------------- --------------- ------------------
<S> <C> <C>
Bennett E. Bidwell 11,241,977 8,800
Sterling B. McCall, Jr. 11,241,977 8,800
</TABLE>
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<PAGE> 17
The other directors whose terms of office continued after the
meeting are; B.B. Hollingsworth, Jr., Robert E. Howard, II,
Charles M. Smith and John H. Duncan.
(2) Appointment of Independent Public Accountants:
The stockholders ratified the appointment of Arthur Andersen
LLP as our independent public accountants for 1998. The
results of the voting were as follows:
For 10,936,488
Against 280,255
Abstain 34,034
ITEM 4A. MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are our executive officers and directors, together
with their positions and ages.
<TABLE>
<CAPTION>
EXPIRATION OF TERM
NAME AGE POSITION AS DIRECTOR
- ---------------------------- -------- ------------------------------------------ ---------------------
<S> <C> <C> <C>
B.B. Hollingsworth, Jr...... 56 Chairman, President and Chief 2000
Executive Officer
John S. Bishop.............. 52 Senior Vice President - Operations
Charles M. Smith............ 53 Senior Vice President - Industry 1999
Relations; Director
Scott L. Thompson........... 40 Senior Vice President - Chief Financial
- Officer and Treasurer
John T. Turner.............. 55 Senior Vice President - Corporate
Development
Bennett E. Bidwell.......... 71 Director 2001
John H. Duncan.............. 71 Director 1999
Robert E. Howard, II........ 52 Director; President of Howard Group 2000
Sterling B. McCall, Jr...... 64 Director; Chairman, Sterling McCall 2001
Toyota and Lexus
</TABLE>
Set forth below is a brief description of the business experience of
our executive officers and directors.
B.B. HOLLINGSWORTH, JR. has served as our Chairman since March 1997
and as President, Chief Executive Officer and Director since August 1996. Prior
to joining us, 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
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<PAGE> 18
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. Hollingworth
served as a consultant to SCI. Prior to November 1997, Mr. Hollingsworth was a
shareholder and director of Foyt Motors, Inc. a subsidiary of ours that was
acquired by us in November 1997. He has served as a director of several public
and private companies.
JOHN T. TURNER has served as our Senior Vice President - Corporate
Development since December 1996. Prior to joining us, 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.
SCOTT L. THOMPSON has served as our Senior Vice President - Chief
Financial Officer and Treasurer 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 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 S. BISHOP has served as our Senior Vice President - Operations
since October 1998. From 1981 until 1998, he served as Group Vice President of
Sales and Marketing of 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 8 years.
BENNETT E. BIDWELL has served as one of our Directors 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. 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.
JOHN H. DUNCAN has served as one of our Directors 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 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.
ROBERT E. HOWARD, II has served as one of our Directors 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 us in November
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<PAGE> 19
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.
STERLING B. MCCALL JR. has served as one of our Directors 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 ours that were acquired by us 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.
CHARLES M. SMITH has served as one of our Directors since our
formation in December 1995. He has served as our Senior Vice President -
Industry Relations since January 1, 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 were
acquired by us in November 1997. He is the 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.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock is listed on the New York Stock Exchange ("NYSE")
under the symbol "GPI". There were 152 holders of record of our Common Stock as
of March 22, 1999.
The following table presents the quarterly high and low sales prices
for our common stock since our initial public offering, as reported on the New
York Stock Exchange Composite Tape under the symbol "GPI".
<TABLE>
<CAPTION>
HIGH LOW
--------- --------
<S> <C> <C>
1997:
Fourth Quarter (commencing October 30, 1997) $13 15/16 $ 7 3/4
1998:
First Quarter 11 1/2 8 5/8
Second Quarter 18 1/2 10 5/16
Third Quarter 18 1/2 11 3/8
Fourth Quarter 26 12 15/16
1999:
First Quarter (through March 26, 1999) 30 18 5/16
</TABLE>
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<PAGE> 20
We have never declared or paid dividends on our Common Stock. We
intend to retain future earnings, if any, to finance the development and
expansion of our business and, therefore, do not anticipate paying any cash
dividends on our Common Stock in the foreseeable future. The decision whether
to pay dividends will be made by our Board of Directors after considering our
results of operations, financial condition, capital requirements, general
business conditions and other factors.
Certain provisions of the Credit Facility and the Notes require us to
maintain a certain minimum working capital and a certain aggregate net worth
and prohibit us from making substantial disbursements outside the ordinary
course of business, including limitations on the payment of cash dividends. In
addition, pursuant to the automobile franchise agreements to which our
dealerships are subject, all dealerships are required to maintain a certain
minimum working capital.
We have entered into agreements to purchase all of the outstanding
capital stock or purchase certain assets and assume certain liabilities of
various automobile dealerships for cash and shares of our Common Stock. The
following is a summary of the transactions in which stock has been or is to be
issued:
<TABLE>
<CAPTION>
DATE SECURITIES
DATE OF AGREEMENT ISSUED ACQUISITION SHARES
----------------- --------------- ----------- ------
<S> <C> <C> <C>
December 17, 1997 March 16, 1998 Carroll Automotive Group 1,428,158
December 17, 1997 March 24, 1999 Carroll Automotive Group 20,981
December 18, 1997 April 1, 1998 Maxwell Automotive Group 805,929
February 25, 1998 May 6, 1998 Johns Automotive Group 875,000
February 25, 1998 March 15, 1999 Johns Automotive Group 151,260
March 11, 1998 July 7, 1998 Luby Chevrolet 341,100
May 11, 1998 May 11, 1998 Flamingo Ford 10,000
May 16, 1998 July 20, 1998 McKinney Dodge 56,618
November 20, 1998 February 4, 1999 Sunshine Buick, Pontiac, GMC 17,826
November 25, 1998 Pending closing Tidwell Ford 371,250
</TABLE>
We are relying on Regulation D under the Securities Act of 1933, as
amended, as an exemption from registration of the Common Stock to be issued in
the acquisitions. We believe we are justified in relying on such exemption
since all but one stockholder of the groups who will receive shares of our
Common Stock are "accredited investors" under Regulation D, and we have
otherwise complied with Regulation D.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
We acquired the founding groups on November 3, 1997. For financial
statement presentation purposes, however, the Howard Group, one of the founding
groups, has been identified as the accounting acquiror. As such, the financial
data as of December 31, 1996, 1995 and 1994, and for each of the three years in
the period ended December 31, 1996 represent the historical financial data of
the Howard Group on a stand-alone basis. The financial data as of and for the
year ended December 31, 1997, includes the operations of Group 1 Automotive,
Inc., the parent company, and the founding groups, excluding the Howard Group,
beginning October 31, 1997, the effective closing date of the acquisitions for
accounting purposes. The Howard Group is included for the entire year ended
December 31, 1997. The financial data as of and for the year ended December 31,
1998, includes the operations of Group 1 and the founding groups from January
1, 1998 and the dealerships acquired during 1998, from the effective dates of
the acquisitions. The following selected historical financial data as of
December 31, 1998, 1997, 1996 and 1995, and for each of the five years in the
period ended December 31, 1998, have been
20
<PAGE> 21
derived from audited financial statements. The following selected historical
financial data as of December 31, 1994, has been derived from unaudited
financial statements, which have been prepared on the same basis as the audited
financial statements, and in our opinion, reflect all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of such
data.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1998 1997 1996 1995 1994
---------- -------- -------- -------- --------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues............................ $1,630,057 $403,967 $281,492 $254,003 $227,259
Cost of sales....................... 1,393,547 349,366 241,898 219,907 197,642
---------- -------- -------- -------- --------
Gross profit...................... 236,510 54,601 39,594 34,096 29,617
Selling, general and
administrative expenses........... 178,038 43,360 30,027 25,628 23,823
Depreciation and amortization....... 6,426 1,020 741 538 430
---------- -------- -------- -------- --------
Income from operations............ 52,046 10,221 8,826 7,930 5,364
Other income (expense):
Floorplan interest expense........ (12,837) (3,810) (3,112) (3,410) (2,408)
Other interest expense, net....... (4,027) (176) (56) (61) (44)
Other income (expense), net....... 39 156 (69) (80) 9
---------- -------- -------- -------- --------
Income before income taxes........ 35,221 6,391 5,589 4,379 2,921
Provision for income taxes.......... 14,502 573 382 744 768
---------- -------- -------- -------- --------
Net income........................ $20,719 $5,818 $5,207 $3,635 $2,153
========== ======== ======== ======== ========
Earnings per share:
Basic............................. $1.20 - - - -
Diluted........................... $1.16 - - - -
Weighted average shares outstanding:
Basic............................. 17,281,165 - - - -
Diluted........................... 17,904,878 - - - -
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $ 48,251 $ 55,475 $ 9,327 $ 7,538 $ 4,891
Inventories............................. 219,176 105,421 47,674 39,573 34,699
Total assets............................ 477,710 213,149 72,874 61,641 51,124
Total debt, including current portion... 239,192 67,857 42,887 37,320 31,601
Stockholders' equity.................... 136,184 89,372 12,210 8,620 5,346
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
We are a leading operator and consolidator in the highly fragmented
automotive retailing industry. We own automobile dealership franchises located
in Texas, Oklahoma, Florida, New Mexico, Georgia and Colorado. We sell new and
used cars and light trucks, provide maintenance and repair services at all of
our dealerships, and operate 12 collision service centers. We expect a
significant portion of our future growth to come from acquisitions of
additional dealerships.
21
<PAGE> 22
We have diverse sources of revenues, including: new car sales, new
truck sales, used car sales, used truck sales, manufacturer remarketed vehicle
sales, parts sales, service sales, collision repair services, finance fees,
insurance commissions, vehicle service contract commissions, documentary fees
and after-market product sales. Sales revenues from new and used vehicle sales
and parts and service sales include sales to retail customers, other
dealerships and wholesalers. Other dealership revenue includes revenue from
arranging financing, insurance and vehicle service contracts, net of a
provision for anticipated chargebacks, and documentary fees.
Our gross profit varies as our merchandise mix (the mix between new
vehicle sales, used vehicle sales, parts and service sales, collision repair
services and other dealership revenues) changes. Our gross margin on the sale
of products and services generally varies between approximately 8.0% and 85.0%,
with new vehicle sales generally resulting in the lowest gross margin and other
dealership revenue sales generally resulting in the highest gross margin. When
our new vehicle sales increase or decrease at a rate greater than our other
revenue sources, our gross margin responds inversely. Factors such as
seasonality, weather, cyclicality and manufacturers' advertising and incentives
may impact our merchandise mix, and therefore influence our gross margin.
Selling, general and administrative expenses consist primarily of
compensation for sales, administrative, finance and general management
personnel, rent, marketing, insurance and utilities. Interest expense consists
of interest charges on interest-bearing debt, including floorplan inventory
financing, net of interest income earned. Until we acquired them, all of the
dealerships had been managed as independent private companies and their results
of operations reflect different tax structures (S Corporations and C
Corporations) which influenced, among other things, their historical levels of
owners' compensation. Certain of these owners and key employees agreed to
reductions in their compensation and benefits in connection with their
acquisition by us.
We are integrating certain functions and installing practices that
have been successful at other franchises and in other retail segments ("best
practices"). This integration of functions and installation of best practices
may present opportunities to increase revenues and reduce costs but may also
necessitate additional costs and expenditures for corporate administration,
including expenses necessary to implement our acquisition strategy. These
various costs and possible cost-savings and revenue enhancements may make
historical operating results difficult to compare to and not indicative of,
future performance.
PRO FORMA COMBINED FOUNDING GROUPS' DATA
The pro forma combined founding groups' data presented below for 1997
and 1996 do not purport to present the combined founding groups in accordance
with generally accepted accounting principles, but represent a summation of
certain data of the individual founding groups on a historical basis, including
the effects of the pro forma adjustments. Such information does not give effect
to any other acquisitions that were made by us other than the founding groups.
This data will not be comparable to and may not be indicative of our
post-combination results of operations because (i) the founding groups were not
under common control of management and had different tax structures during the
periods presented and (ii) we used the purchase method to establish a new basis
of accounting to record the acquisitions.
The financial information presented below for the year ended December
31, 1998 reflects the historical results of our operations and includes
acquisitions made during such period, from the effective dates, for accounting
purposes, of the acquisitions.
22
<PAGE> 23
OPERATIONS DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------
1998 1997 1996
---------------------- ------------------------ ------------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- --------- ------------ --------- ----------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues
New vehicle sales......... $931,205 57.1% $513,864 56.9% $469,318 57.1%
Used vehicle sales........ 510,192 31.3 288,010 31.9 258,027 31.4
Parts and service sales... 139,144 8.5 77,215 8.6 73,451 8.9
Other dealership
revenues, net........... 49,516 3.1 23,206 2.6 21,117 2.6
---------- --------- ------------ --------- ----------- -------
Total revenues...... 1,630,057 100.0 902,295 100.0 821,913 100.0
Cost of sales............. 1,393,547 85.5 775,164 85.9 705,783 85.9
---------- --------- ------------ --------- ----------- -------
Gross profit.............. $236,510 14.5% $127,131 14.1% $116,130 14.1%
========== ========= =========== ========= =========== =======
</TABLE>
NEW VEHICLE DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1998 1997 1996
-------- -------- --------
(dollars in thousands, except gross profit per unit)
<S> <C> <C> <C>
Retail unit sales ........................................ 39,822 23,201 21,378
Retail sales revenue ..................................... $931,205 $513,864 $469,318
Gross profit ............................................. $ 74,096 $ 42,199 $ 37,677
Gross margin ............................................. 8.0% 8.2% 8.0%
Gross profit per retail unit sold ........................ $ 1,861 $ 1,819 $ 1,762
</TABLE>
USED VEHICLE DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1998 1997 1996
-------- -------- --------
(dollars in thousands, except gross profit per unit)
<S> <C> <C> <C>
Retail unit sales .............................................. 31,248 18,130 17,220
Retail sales revenue (1) ....................................... $411,065 $235,353 $219,183
Gross profit ................................................... $ 38,282 $ 21,035 $ 21,358
Gross margin ................................................... 9.3% 8.9% 9.7%
Gross profit per retail unit sold .............................. $ 1,225 $ 1,160 $ 1,240
</TABLE>
- ---------------------
(1) Excludes wholesale revenues.
PARTS AND SERVICE DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------
1998 1997 1996
------------ ----------- -------------
(dollars in thousands)
<S> <C> <C> <C>
Sales revenue.................... $139,144 $77,215 $73,451
Gross profit..................... $74,616 $40,691 $35,978
Gross margin..................... 53.6% 52.7% 49.0%
</TABLE>
23
<PAGE> 24
OTHER DEALERSHIP REVENUES, NET
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
-------- --------- ---------
(dollars in thousands, except revenues per unit)
<S> <C> <C> <C>
Retail new and used unit sales .............................. 71,070 41,331 38,598
Retail sales revenue ........................................ $49,516 $23,206 $21,117
Net revenues per retail unit sold ........................... $ 697 $ 561 $ 547
</TABLE>
HISTORICAL YEAR ENDED DECEMBER 31, 1998 COMPARED WITH PRO FORMA COMBINED
FOUNDING GROUPS YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues increased $727.8 million, or 80.7%, from $902.3
million for the year ended December 31, 1997 to $1,630.1 million for the year
ended December 31, 1998. New vehicle revenues increased $417.3 million, or
81.2%, from $513.9 million for the year ended December 31, 1997 to $931.2
million for the year ended December 31, 1998. This increase in revenue was
primarily attributable to strong customer acceptance of our products,
particularly Toyota, Lexus, Honda and Acura, and the acquisition of additional
dealership operations during 1998. The increase was partially offset by reduced
sales at our Nissan franchises, which declined due to reduced manufacturer
sales incentives as compared to the prior year. Used vehicle revenues increased
$222.2 million, or 77.2%, from $288.0 million for the year ended December 31,
1997 to $510.2 million for the year ended December 31, 1998. The increase was
primarily attributable to an emphasis on used vehicle sales in the Oklahoma and
Houston, Texas markets and the additional dealership operations acquired. Parts
and service sales increased $61.9 million, or 80.2%, from $77.2 million for the
year ended December 31, 1997 to $139.1 million for the year ended December 31,
1998. The increase was primarily attributable to the additional dealership
operations acquired. Other dealership revenues increased $26.3 million or
113.4% from $23.2 million for the year ended December 31, 1997 to $49.5 million
for the year ended December 31, 1998. The increase was due primarily to the
implementation of our vehicle service contract and insurance programs, which
resulted in improved revenues per unit, and an increase in the number of retail
new and used vehicles sold.
GROSS PROFIT. Gross profit increased $109.4 million, or 86.1%, from
$127.1 million for the year ended December 31, 1997 to $236.5 million for the
year ended December 31, 1998. The increase was attributable to increased
revenues and an increase in gross margin from 14.1% for the year ended December
31, 1997 to 14.5% for the year ended December 31, 1998. This increase was
caused by improvements in the gross margin earned on used vehicle sales and
parts and service sales, and a change in the merchandising mix, as higher
margin other dealership revenues increased as a percentage of total revenues.
Partially offsetting the gross margin increases, the gross margin on new retail
vehicle sales declined from 8.2% for the year ended December 31, 1997 to 8.0%
for the year ended December 31, 1998. The decline is attributable primarily to
reduced margins in the Nissan product line due to reduced manufacturer sales
incentives in 1998. The gross margin on used retail vehicle sales increased
from 8.9% for the year ended December 31, 1997 to 9.3% for the year ended
December 31, 1998. The increase was primarily attributable to an emphasis on
used vehicle operations in the Oklahoma platform.
24
<PAGE> 25
PRO FORMA COMBINED FOUNDING GROUPS YEAR ENDED DECEMBER 31, 1997 COMPARED WITH
PRO FORMA COMBINED FOUNDING GROUPS YEAR ENDED DECEMBER 31, 1996
REVENUES. Revenues increased $80.4 million, or 9.8%, from $821.9
million for the year ended December 31, 1996 to $902.3 million for the year
ended December 31, 1997. New vehicle revenues increased $44.6 million, or 9.5%
from $469.3 million for the year ended December 31, 1996 to $513.9 million for
the year ended December 31, 1997. The increase in revenue was primarily
attributable to significant revenue growth from maturing Round Rock Nissan and
Bob Howard Dodge franchise operations, successful marketing efforts and strong
customer acceptance of the founding groups' products, particularly Lexus. Used
vehicle revenues increased $30.0 million, or 11.6%, from $258.0 million for the
year ended December 31, 1996 to $288.0 million for the year ended December 31,
1997. The increase was primarily attributable to the maturing franchise
operations, successful marketing efforts and an emphasis on used vehicle sales
in the Oklahoma market to mitigate the impact of lower than expected new
vehicle demand. Parts and service sales increased $3.7 million, or 5.0%, from
$73.5 million for the year ended December 31, 1996 to $77.2 million for the
year ended December 31, 1997. The increase was primarily attributable to the
maturing dealership operations and increased vehicle sales. Other dealership
revenues increased $2.1 million or 10.0% from $21.1 million for the year ended
December 31, 1996 to $23.2 million for the year ended December 31, 1997. The
increase was due primarily to an increase in the number of retail new and used
vehicle sales.
GROSS PROFIT. Gross profit increased $11.0 million, or 9.5%, from
$116.1 million for the year ended December 31, 1996 to $127.1 million for the
year ended December 31, 1997. The increase was attributable to increased
revenues and a stable overall gross margin. The gross margin on new retail
vehicle sales increased from 8.0% for the year ended December 31, 1996 to 8.2%
for the year ended December 31, 1997 primarily due to stronger margins in the
Lexus and Nissan product lines, partially offset by reduced margins in the
Oklahoma market. The gross margin for retail used vehicle sales declined from
9.7% for the year ended December 31, 1996 to 8.9% for the year ended December
31, 1997. The decline was primarily attributable to efforts to increase market
share in the Oklahoma market while customer demand for new vehicles was not as
strong as in prior years.
HISTORICAL RESULTS OF OPERATIONS - GROUP 1 AUTOMOTIVE, INC.
The historical results of operations for the years ended December 31,
1998, 1997 and 1996 are a presentation in accordance with generally accepted
accounting principles. For historical presentation purposes, the Howard Group
has been identified as the accounting acquiror. As such, the financial data for
the year ended December 31, 1996 represent the historical results of operations
of the Howard Group on a stand-alone basis. The financial data for the year
ended December 31, 1997, includes the operations of Group 1 Automotive, Inc.,
the parent company, and the founding groups, excluding the Howard Group,
beginning October 31, 1997, the effective closing date of the acquisitions for
accounting purposes. The Howard Group is included for the entire year ended
December 31, 1997. The financial data for the year ended December 31, 1998,
includes the operations of Group 1 and the founding groups from January 1,
1998, and the dealerships acquired during 1998, from the effective dates of the
acquisitions. During the two-year period ended December 31, 1997, the companies
within the Howard Group operated under different tax structures. All S
Corporation entities were converted to C Corporations as of October 31, 1997.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues increased by $1,226.1 million, or 303.5%, from
$404.0 million for the year ended December 31, 1997 to $1,630.1 million for the
year ended December 31, 1998. New vehicle sales increased $703.2 million, or
308.4%, from $228.0 million for the year ended December 31, 1997 to $931.2
million for the year ended December 31, 1998. Used vehicle
25
<PAGE> 26
revenues increased $374.7 million, or 276.5%, from $135.5 million for the year
ended December 31, 1997 to $510.2 million for the year ended December 31, 1998.
Parts and service sales increased $109.1 million, or 363.7%, from $30.0 million
for the year ended December 31, 1997 to $139.1 million for the year ended
December 31, 1998. Other dealership revenues increased $39.1 million, or
376.0%, from $10.4 million for the year ended December 31, 1997 to $49.5
million for the year ended December 31, 1998. The increases were due primarily
to the inclusion of the dealership operations acquired since October 31, 1997
and our focus on higher margin activities.
GROSS PROFIT. Gross profit increased by $181.9 million, or 333.2%,
from $54.6 million for the year ended December 31, 1997 to $236.5 million for
the year ended December 31, 1998. The increase was attributable to the
inclusion of dealership operations acquired since October 31, 1997 and
improvement in our gross profit margin from 13.5% for the year ended December
31, 1997 to 14.5% for the year ended December 31, 1998. This improvement was
the result of an increase in revenues from parts and service and other
dealership revenues as a percentage of total revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $134.6 million, or 310.1%, from $43.4 million
for the year ended December 31, 1997 to $178.0 million for the year ended
December 31, 1998. The increase was primarily attributable to the inclusion of
the dealership operations acquired since October 31, 1997.
INTEREST EXPENSE, NET. Floorplan and other interest expense, net,
increased $12.9 million, or 322.5%, from $4.0 million for the year ended
December 31, 1997 to $16.9 million for the year ended December 31, 1998. The
increase was primarily attributable to the floorplan interest expense of our
additional dealership operations acquired and additional interest expense due
to borrowings on our credit facility to complete acquisitions. Partially
offsetting the increases were expense reductions realized due to lower interest
rates on floorplan notes payable obtained through our credit facility.
PRO FORMA NET INCOME. Pro forma net income increased $16.3 million, or
370.5%, from $4.4 million for the year ended December 31, 1997 to $20.7 million
for the year ended December 31, 1998. Excluding the impact of an $825,000
non-cash compensation charge in 1997, pro forma net income as a percentage of
revenues increased from 1.2% for the year ended December 31, 1997 to 1.3% for
the year ended December 31, 1998. The non-cash compensation charge related to
grants of equity to certain key employees of the Howard Group, prior to our
acquisition of the Howard Group.
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
REVENUES. Revenues increased by $122.5 million, or 43.5%, from $281.5
million for the year ended December 31, 1996 to $404.0 million for the year
ended December 31, 1997. New vehicle sales increased $63.0 million, or 38.2%,
from $165.0 million for the year ended December 31, 1996 to $228.0 million for
the year ended December 31, 1997. Used vehicle sales increased $47.0 million,
or 53.1%, from $88.5 million for the year ended December 31, 1996 to $135.5
million for the year ended December 31, 1997. Parts and service sales increased
$9.4 million, or 45.6%, from $20.6 million for the year ended December 31, 1996
to $30.0 million for the year ended December 31, 1997. Other dealership
revenues increased $3.0 million, or 40.5%, from $7.4 million for the year ended
December
26
<PAGE> 27
31, 1996 to $10.4 million for the year ended December 31, 1997. These increases
were due primarily to the inclusion of the acquisitions of the McCall, Smith
and Kingwood Groups for the last two months of the year.
GROSS PROFIT. Gross profit increased by $15.0 million, or 37.9%, from
$39.6 million for the year ended December 31, 1996 to $54.6 million for the
year ended December 31, 1997. The increase was attributable to the inclusion of
the acquisitions for the last two months of the year, which was partially
offset by a reduced gross margin from 14.1% for the year ended December 31,
1996 to 13.5% for the year ended December 31, 1997. This decline was due
primarily to reduced vehicle gross margins. The reduced vehicle margin was
caused by an emphasis on increasing market share in the Oklahoma market while
customer demand was not as strong as in prior years.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $13.4 million, or 44.7%, from $30.0 million
for the year ended December 31, 1996 to $43.4 million for the year ended
December 31, 1997. The increase was primarily attributable to the inclusion of
the acquisitions for last two months of the year and a one time $825,000
non-cash compensation charge recorded by the Howard Group for grants of equity
to certain key employees of the Howard Group. Selling, general and
administrative expenses remained constant as a percentage of revenues at 10.7%
for the years ended December 31, 1996 and 1997. Excluding the impact of the
one-time $825,000 non-cash compensation charge, selling, general and
administrative expense would have declined to 10.5% of revenues for the year
ended December 31, 1997.
INTEREST EXPENSE, NET. Floorplan and other interest expense, net,
increased $0.8 million, or 25.0%, from $3.2 million for the year ended December
31, 1996 to $4.0 million for the year ended December 31, 1997. The increase was
primarily attributable to the inclusion of the acquisitions for the last two
months of the year.
PRO FORMA NET INCOME. Pro forma net income increased $1.0 million or
29.4% from $3.4 million for the year ended December 31, 1996 to $4.4 million
for the year ended December 31, 1997. Excluding the net income impact of the
$825,000 non-cash compensation charge, pro forma net income as a percentage of
revenues remained constant at 1.2% for the years ended December 31, 1996 and
1997. The increase in pro forma net income was primarily attributable to the
inclusion of the acquisitions for the last two months of the year.
LIQUIDITY AND CAPITAL RESOURCES
Our principal sources of liquidity are cash on hand, cash from
operations, our credit facility (which includes the floorplan facility and the
acquisition facility) and equity and debt offerings.
The following table sets forth historical selected information from
our statements of cash flows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Net cash provided by operating
activities ................................ $ 24,277 $ 6,922 $ 7,332
Net cash provided by (used in)
investing activities ...................... (58,225) 10,661 (4,615)
Net cash provided by (used in)
financing activities ...................... 65,299 5,830 (1,558)
-------- -------- --------
Net increase in cash and cash
equivalents ............................... $ 31,351 $ 23,413 $ 1,159
======== ======== ========
</TABLE>
CASH FLOWS
Total cash and cash equivalents at December 31, 1998, were $66.4
million.
OPERATING ACTIVITIES. For the three-year period ended December 31,
1998, we generated $38.5 million in net cash from operating activities,
primarily driven by net income plus depreciation and amortization. Cash flow
provided by operating activities increased $17.4 million
27
<PAGE> 28
from $6.9 million for the year-ended December 31, 1997 to $24.3 million for the
year-ended December 31, 1998. This increase is primarily attributable to the
inclusion of the dealership operations acquired since October 31, 1997.
INVESTING ACTIVITIES. We obtained approximately $10.7 million from
investing activities in 1997, primarily from the cash balances obtained in the
acquisitions of the founding groups. The $58.2 million of cash used for
investing activities during 1998 was primarily attributable to cash paid in
completing acquisitions, net of cash balances obtained in the acquisitions, and
purchases of property and equipment, partially offset by sales of property and
equipment. Of the $9.7 million used in purchasing property and equipment,
approximately $5.6 million related to the purchase of land and construction of
facilities for new or expanded operations, including a new Lexus companion
dealership located in south Houston, which we expect to be opened by the third
quarter of 1999. During December 1998, we completed the sale and leaseback of
six dealership properties and received $20.0 million in gross proceeds from the
sale.
FINANCING ACTIVITIES. We obtained approximately $5.8 million and $65.3
million from financing activities in 1997 and 1998, respectively. The net cash
provided by financing activities for 1997 was primarily attributable to the net
proceeds of our initial public offering of approximately $51.8 million offset
primarily by the pay down of floorplan debt in the amount of $33.5 million. The
net cash provided during 1998 was generated primarily from drawings on our
credit facility and was utilized in completing acquisitions and supporting
increased sales volumes. Partially offsetting the $75.5 million in borrowings
was $10.0 million in principal payments on long-term debt, of which $6.6
million was related to the payoff of mortgages in connection with the sale and
leaseback transaction completed in December 1998.
WORKING CAPITAL. At December 31, 1998, we had working capital of $48.3
million. Historically, we have funded our operations with internally generated
cash flow and borrowings. While we cannot guarantee it, based on current facts
and circumstances, management believes we have adequate cash flow coupled with
borrowings under our credit facility to fund our current operations.
ACQUISITION FINANCING
We anticipate that our primary use of cash will be for the completion
of acquisitions. We expect the cash needed to complete our acquisitions will
come from the operating cash flows of our existing dealerships, borrowings
under our current credit facilities, other borrowings or equity or debt
offerings. Although we believe that we will be able to obtain sufficient
capital to fund acquisitions, we cannot guarantee that such capital will be
available to us at the time it is required or on terms acceptable to us. See
"Cautionary Statement About Forward-Looking Statements".
RECENT OFFERINGS. In March 1999, we completed offerings, in which we
sold two million shares of common stock and $100 million of 10-year senior
subordinated notes with an interest rate of 10 7/8%. We received proceeds,
before our expenses, of $138.9 million. All of the proceeds were used to
temporarily repay borrowings under our credit facility. These proceeds are
expected to be used in the future to complete acquisitions, resulting in
increased borrowings under the credit facility.
CREDIT FACILITY
In November 1998, we amended our credit facility to increase the
commitment from $345 million to $425 million (which was reduced to $405 million
upon consummation of the offerings) and to extend the term of the credit
facility from December 2000 to December 2001. The credit facility provides a
floorplan facility of $295 million for financing vehicle inventories and an
acquisition facility of $130 million (which was reduced to $110 million upon
consummation of the offerings), for financing acquisitions, general corporate
purposes and capital expenditures. Currently, $110 million is available to be
drawn under the acquisition facility, subject to a cash flow
28
<PAGE> 29
calculation and the maintenance of certain financial ratios. Additionally, the
credit facility contains various covenants, including financial ratios and
other requirements, which must be maintained by us. The credit facility also
limits the amount we may pay as cash dividends.
In January 1998, we entered into a three-year interest rate swap
agreement to hedge our exposure to changes in interest rates. This swap
converts the interest rate on $75 million of debt to a fixed rate of
approximately 7.16%.
FLOORPLAN FINANCING
We currently obtain floorplan financing for vehicle inventory through
our credit facility. This debt bears interest at the rate of LIBOR plus 150
basis points.
SALE OF DEALERSHIP PROPERTIES TO A REIT.
On December 21, 1998, we entered into an agreement with a REIT to sell
nine of our dealership properties for approximately $32.3 million in cash. In
connection with the sale of the properties, we have agreed to leaseback the
properties under leases with terms of 30 years, with tenant termination options
after 15, 20 and 25 years. As of December 31, 1998, we had closed the sale of
six properties to the REIT, pursuant to the terms of the agreement, for
approximately $20.0 million.
We generally seek to avoid the ownership of real property. Accordingly
we intend to continue to enter into sale and leaseback transactions in order to
minimize our investment in acquired and constructed facilities.
LEASES
We lease various real estate, facilities and equipment under long-term
operating lease agreements, including leases with related parties.
Substantially all related-party leases have terms of 30 years and are
cancelable at our option ten years from execution of the lease and at the end
of each subsequent five-year period.
CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
This annual report and Management's Discussion and Analysis of Results
of Operations and Financial Condition include certain "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. These statements appear in
a number of places in this annual report and include statements regarding our
plans, beliefs or current expectations, including those plans, beliefs and
expectations of our officers and directors with respect to, among other things:
o future acquisitions;
o expected future cost savings;
o future capital expenditures;
o trends affecting our future financial condition or results of
operations; and
o our business strategy regarding future operations.
Any such forward-looking statements are not assurances of future
performance and involve risks and uncertainties. Actual results may differ
materially from anticipated results for a number of reasons, including:
o industry conditions;
o future demand for new and used vehicles;
29
<PAGE> 30
o restrictions imposed on us by automobile manufacturers;
o the ability to obtain the consents of automobile
manufacturers to our acquisitions;
o the availability of capital resources; and
o the willingness of acquisition candidates to accept our
common stock as currency.
The information contained in this annual report, including the
information set forth below and under the heading "Business", identifies
additional factors that could affect our operating results and performance. We
urge you to carefully consider those factors.
All forward-looking statements attributable to us are qualified in
their entirety by this cautionary statement.
DEPENDENCE ON ACQUISITIONS FOR GROWTH
Growth in our revenues and earnings will depend significantly on our
ability to acquire and successfully operate dealerships. There can be no
assurance that we will be able to identify and acquire dealerships in the
future. In addition, managing and integrating additional dealerships into our
existing mix of dealerships may result in substantial costs, delays or other
operational or financial problems.
Restrictions by our Manufacturers as well as covenants contained in
our debt instruments limit our ability to acquire additional dealerships.
In addition, increased competition for acquisition candidates may
develop, which could result in fewer acquisition opportunities available to us
and/or higher acquisition prices.
Further, acquisitions involve a number of special risks, including
possible diversion of resources and management's attention, inability to retain
key acquired personnel and risks associated with unanticipated events or
liabilities, some or all of which could have a material adverse effect on our
business, financial condition and results of operations.
We will continue to need substantial capital in order to acquire
additional automobile dealerships. In the past, we have financed these
acquisitions with a combination of cash flow from operations, proceeds from
borrowings under our credit facilities with banks and issuances of our common
stock. We cannot guarantee that these sources of funds will be sufficient to
fund our acquisition program and other cash needs, or that we will be able to
obtain adequate additional capital from other sources.
We expect to utilize our current credit facility to borrow a portion
of the funds required for acquisitions. If funds under the credit facility are
insufficient to fund our acquisition program, we will be required to obtain
alternative financing such as from the issuance of additional debt or equity
securities or an expansion or replacement of the credit facility.
We currently intend to finance acquisitions by issuing shares of
common stock as full or partial consideration for acquired dealerships. The
extent to which we will be able or willing to issue common stock for
acquisitions will depend on the market value of the common stock from time to
time and the willingness of potential acquisition candidates to accept common
stock as part of the consideration for the sale of their businesses. If
potential acquisition candidates are unwilling to accept our common stock, we
will be forced to rely solely on available cash or debt or equity financing,
which could adversely affect our acquisition program. Accordingly, our ability
to make acquisitions could be adversely affected if the price of our common
stock declines.
CONTINGENT ACQUISITION PAYMENTS
In our early acquisitions in which we issued shares of our common
stock as consideration, we guaranteed to the recipients of the shares that they
will receive a minimum price for their shares if they sell the shares in the
market. In the event that they do not receive the
30
<PAGE> 31
guaranteed price in a sale, we are required to pay them the difference between
the price they received and the guaranteed price. As of December 31, 1998,
there were 3,450,187 shares of common stock subject to our guarantee with a
weighted average guarantee price of approximately $13.49 per share. These
guarantees have terms of three years to ten years with a weighted average term
of approximately 6.5 years. If the price of our common stock declines
substantially and we are required to perform on our guarantees, our liquidity
and ability to finance our acquisition program could be adversely affected.
In addition, in many of our acquisitions, we may be required to pay
contingent consideration to the former stockholders of the acquired dealerships
based on an increase in earnings before taxes of their operations during
certain periods of time. We cannot determine whether or how much we will have
to pay under these contingent payment arrangements. If we are required to make
any of these contingent payments, we will have to pay approximately one-half of
each payment in common stock and one-half in cash. If these contingent payments
must be paid in full, our liquidity and ability to finance our acquisition
program could be adversely affected.
DEPENDENCE ON THE SUCCESS OF OUR MANUFACTURERS
Our success depends upon the overall success of the line of vehicles
that each of our dealerships sells. Demand for our Manufacturers' vehicles as
well as the financial condition, management, marketing, production and
distribution capabilities of our Manufacturers affect our business.
Although we have attempted to lessen our dependence on any one
Manufacturer by buying dealerships representing a number of different domestic
and foreign Manufacturers, events such as labor disputes and other production
disruptions that may adversely affect a Manufacturer may also adversely affect
us. Similarly, the late delivery of vehicles from Manufacturers, which
sometimes occurs during periods of new product introductions, can lead to
reduced sales during those periods. Moreover, any event that causes adverse
publicity involving any of our Manufacturers may have an adverse effect on us
regardless of whether such event involves any of our dealerships.
YEAR 2000 CONVERSION
Year 2000 issues result from the inability of computer programs or
computerized equipment to accurately calculate, store or use a date subsequent
to December 31, 1999. The erroneous date can be interpreted in a number of
different ways; typically the year 2000 is represented as the year 1900. This
could result in a system failure or miscalculations causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
We have recognized the need to ensure that our computer systems,
equipment and operations will not be adversely impacted by the change to the
calendar year 2000. As such, we have taken steps to identify potential areas of
risk and are addressing these in our planning, purchasing and daily operations.
We have conducted a third party survey of all of the individual dealership
systems, equipment and operations and are in the process of developing an
action plan to correct deficiencies before year-end. The total cost of
converting all internal systems, equipment and operations for the year 2000 has
not been fully quantified, but it is not expected to be material to our
financial position. In connection with acquisitions, we review and address each
candidate's year 2000 readiness during the due diligence process.
We are currently reviewing the potential adverse impact resulting from
the failure of third party service providers and vendors to prepare for the
year 2000. We are dependent upon our dealerships' computer systems in our daily
operations. All of our dealerships are, or are expected to be, using a computer
system supported by a major automobile dealership computer system
31
<PAGE> 32
provider. We have contacted each of our providers and have received written
assurance from them that their systems are, or will be, year 2000 ready. We are
dependent upon these providers, as are most dealerships in the United States, to
address the year 2000 issues.
We are primarily dependent upon the Manufacturers for the production
and delivery of new vehicles and parts. Although we have no reason to believe
that our Manufacturers will not be year 2000 ready, we have been unable to
obtain written assurance from them that their systems are year 2000 ready.
While we are in the process of developing contingency plans, failure
by us, our Manufacturers or third party service providers and vendors to
adequately address the year 2000 issue could have an adverse effect on us. If
we or our third party service providers do not adequately address the year 2000
issue, we may be required to handle all business on a handwritten basis. While
this would reduce operational efficiency, we would still be able to continue
our operations. If our Manufacturers fail to adequately address the year 2000
issue, and do not correct the problems timely, we may experience shortages in
new vehicle and parts inventories.
CYCLICALITY
Our operations, like the automotive retailing industry in general, can
be impacted by a number of factors relating to general economic conditions,
including consumer business cycles, consumer confidence, economic conditions,
availability of consumer credit and interest rates. Although the above factors,
among others, may impact our business, we believe the impact on our operations
of future negative trends in such factors will be somewhat mitigated by our (i)
strong parts, service and collision repair services, (ii) variable cost salary
structure, (iii) geographic diversity and (iv) product diversity.
SEASONALITY
Our operations are subject to seasonal variations, with the second and
third quarters generally contributing more operating profit than the first and
fourth quarters. This seasonality is driven by three primary forces: (i)
Manufacturer-related factors, primarily the historical timing of major
manufacturer incentive programs and model changeovers, (ii) weather-related
factors and (iii) consumer buying patterns.
32
<PAGE> 33
ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The table below provides information about our market sensitive
financial instruments and constitutes a "forward-looking statement". Our major
market risk exposure is changing interest rates. Our policy is to manage
interest rates through use of a combination of fixed and floating rate debt.
Interest rate swaps may be used to adjust interest rate exposures when
appropriate, based upon market conditions. These swaps are entered into with
financial institutions with investment grade credit ratings, thereby minimizing
the risk of credit loss. All items described are non-trading.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
-----------------------------------------------------
(dollars in millions) 1999 2000 2001 2002
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
VARIABLE RATE DEBT
Current ................................ $ 0.1 $ -- $ 193.4 $ --
Average interest rates ............... 7.12% -- 7.12% --
Non-current ............................ $ -- $ 0.3 $ 42.0 --
Average interest rates ............... -- 7.12% 7.37% --
--------- --------- --------- ---------
Total variable rate debt ............... $ 0.1 $ 0.3 $ 235.4 $ --
Interest rate swap ..................... $ -- $ -- $ 75.0 $ --
Average pay rate (fixed) ............. -- -- 5.66% --
Average receive rate .................
(variable) -- -- 5.62% --
--------- --------- --------- ---------
Net variable rate debt ................. $ 0.1 $ 0.3 $ 160.4 $ --
========= ========= ========= =========
<CAPTION> EXPECTED MATURITY DATE
-------------------------------------- Fair Value
2003 Thereafter Total December 31, 1998
--------- ---------- -------- -----------------
<S> <C> <C> <C> <C>
VARIABLE RATE DEBT
Current ................................ $ -- $ -- $ 193.5 $ 193.5
Average interest rates ............... -- --
Non-current ............................ -- -- $ 42.3 $ 42.3
Average interest rates ............... -- --
--------- --------- ---------
Total variable rate debt ............... $ -- $ -- $ 235.8
Interest rate swap ..................... $ -- $ -- $ 75.0 $ 0.6
Average pay rate (fixed) ............. -- --
Average receive rate .................
(variable) -- --
--------- --------- ---------
Net variable rate debt ................. $ -- $ -- $ 160.8
========= ========= =========
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements for the information required by this
item.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
33
<PAGE> 34
PART III
For information concerning:
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the definitive Proxy Statement of Group 1 Automotive, Inc. for the
Annual Meeting of Stockholders to be held May 12, 1999, which will be filed
with the Securities and Exchange Commission and is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
The financial statements listed in the accompanying Index to Financial
Statements are filed as part of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
On December 11, 1998, the Company filed a Current Report on Form 8-K
reporting under Item 5 thereof and including exhibits under Item 7
thereof.
On January 25, 1999, the Company filed a Current Report of Form 8-K
reporting under Item 5 thereof and including exhibits under Item 7
thereof.
On January 26, 1999, the Company filed a Current Report of Form 8-K
reporting under Item 5 thereof and including exhibits under Item 7
thereof.
On February 5, 1999, the Company filed a Current Report of Form 8-K
reporting under Item 5 thereof and including exhibits under Item 7
thereof.
On February 24, 1999, the Company filed a Current Report of Form 8-K
reporting under Item 5 thereof and including exhibits under Item 7
thereof.
On March 5, 1999, the Company filed a Current Report of Form 8-K
reporting under Item 5 thereof and including exhibits under Item 7
thereof.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 -- Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1
of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
3.2 -- Certificate of Designation of Series A Junior Participating Preferred Stock (Incorporated by
reference to Exhibit 3.2 of the Company's Registration Statement on Form S-1 Registration No.
333-29893).
3.3 -- Bylaws of the Company (Incorporated by reference to Exhibit 3.3 of the Company's Registration
Statement on Form S-1 Registration No. 333-29893).
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
4.1 -- Specimen Common Stock certificate (Incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
4.2 -- Form of Subordinated Indenture (Incorporated by reference to Exhibit 4.5 of the Company's
Registration Statement on Form S-3 Registration No. 333-69693).
4.3 -- Form of Subordinated Debt Securities (included in Exhibit 4.2).
4.4 -- First Supplemental Indenture dated as of March 5, 1999 among Group 1 Automotive, Inc., the
Subsidiary Guarantors named therein and IBJ Whitehall Bank & Trust Company (Incorporated by
reference to Exhibit 4.1 of the Company's current report of Form 8-K dated March 5, 1999).
4.5 -- Form of 10 7/8% Senior Subordinated Note due March 1, 2009 (included in Exhibit 4.4).
10.1 -- Employment Agreement between the Company and B.B. Hollingsworth, Jr. dated November 3, 1997
(Incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.2 -- Employment Agreement between the Company and Robert E. Howard II dated November 3, 1997
(Incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.3 -- Employment Agreement between the Company and Sterling B. McCall, Jr. dated November 3, 1997
(Incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.4 -- Employment Agreement between the Company and Charles M. Smith dated November 3, 1997
(Incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.5 -- Employment Agreement between the Company and John T. Turner dated November 3, 1997
(Incorporated by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.6 -- Employment Agreement between the Company and Scott L. Thompson dated November 3, 1997
(Incorporated by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.7 -- Employment Agreement between the Company and James S. Carroll dated March 16, 1998
(Incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.8 -- 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.7 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
10.9 -- First Amendment to 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8 of the
Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.10 -- Lease Agreement between Howard Pontiac GMC and Robert E. Howard II (Incorporated by reference to
Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.11 -- Lease Agreement between Bob Howard Motors and Robert E. Howard II (Incorporated by reference to
Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.12 -- Lease Agreement between Bob Howard Chevrolet and Robert E. Howard II (Incorporated by reference
to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.13 -- Lease Agreement between Bob Howard Automotive-H and North Broadway Real Estate (Incorporated
by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration
No. 333-29893).
10.14 -- Lease Agreement between Mike Smith Autoplaza and Olds-Honda Realty (Incorporated by reference
to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.15 -- Rights Agreement between Group 1 Automotive, Inc. and ChaseMellon Shareholder Services,
L.L.C., as rights agent dated October 3, 1997 (Incorporated by reference to Exhibit 10.10 of
the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.16 -- 1998 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.11 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
10.17 -- Form of Agreement between Toyota Motor Sales, U.S.A., and Group 1 Automotive, Inc.
(Incorporated by reference to Exhibit 10.12 of the Company's Registration Statement on Form
S-1 Registration No. 333-29893).
10.18 -- Form of Supplemental Agreement to General Motors Corporation Dealer Sales and Service
Agreement (Incorporated by reference to Exhibit 10.13 of the Company's Registration Statement
on Form S-1 Registration No. 333-29893).
10.19 -- Approval Letter dated December 11, 1996 from Nissan Motor Corporation U.S.A. (Incorporated by
reference to Exhibit 10.14 of the Company's Registration Statement on Form S-1 Registration
No. 333-29893).
10.20 -- Amendment to Approval Letter from Nissan Motor Corporation U.S.A. dated September 29, 1997
(Incorporated by reference to Exhibit 10.15 of the Company's Registration Statement on Form S-1
Registration No. 333-29893).
10.21 -- Supplemental Terms and Conditions between Ford Motor Company and Group 1 Automotive, Inc.
dated September 4, 1997 (Incorporated by reference to Exhibit 10.16 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
10.22 -- Toyota Dealer Agreement between Gulf States Toyota, Inc. and Southwest Toyota, Inc. dated
April 5, 1993 (Incorporated by reference to Exhibit 10.17 of the Company's Registration
Statement on Form S-1 Registration No. 333-29893).
10.23 -- Lexus Dealer Agreement between Toyota Motor Sales, U.S.A., Inc. and SMC Luxury Cars, Inc.
dated August 21, 1995 (Incorporated by reference to Exhibit 10.18 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893.
10.24 -- Agreement between American Honda Motor Co., Inc. and the Dealership Parties dated October 23,
1997 (Incorporated by reference to Exhibit 10.24 of the Company's Registration Statement on
Form S-1 Registration No. 333-29893).
10.25 -- Form of General Motors Corporation U.S.A. Sales and Service Agreement (Incorporated by
reference to Exhibit 10.25 of the Company's Registration Statement on Form S-1 Registration
No. 333-29893).
10.26 -- Form of Nissan Motor Corporation Sales and Service Agreement (Incorporated by reference to
Exhibit 10.26 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.27 -- Lease Agreement between World Partner Enterprises Ltd. and Koons Ford, Inc. dated March 16,
1998 (Incorporated by reference to Exhibit 10.42 of the Company's Annual Report on Form 10-K
for the year-ended December 31, 1997).
10.28 -- Operations/Lease Agreement between K.C. Partnership and Perimeter Ford, Inc. dated March 16,
1998 (Incorporated by reference to Exhibit 10.43 of the Company's Annual Report on Form 10-K
for the year-ended December 31, 1997).
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.29 -- Lease Agreement between K.C. Partnership and Courtesy Ford, Inc. dated March 16, 1998
(Incorporated by reference to Exhibit 10.44 of the Company's Annual Report on Form 10-K for
the year-ended December 31, 1997).
10.30 -- Amended and Restated Sublease Agreement between Koons Development Co. and Koons Ford, Inc.
dated March 16, 1998 (Incorporated by reference to Exhibit 10.45 of the Company's Annual
Report on Form 10-K for the year-ended December 31, 1997).
10.31 -- Multi-Party Agreement by and among K.C. Partnership, Ford Leasing Development Company,
Perimeter Ford, Inc., PF Merger, Inc. and Comerica Bank dated March 16, 1998 (Incorporated by
reference to Exhibit 10.46 of the Company's Annual Report on Form 10-K for the year-ended
December 31, 1997).
10.32 -- Second Amended and Restated Revolving Credit Agreement, dated as of November 10, 1998
(Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated
December 11, 1998).
10.33 -- Stock Pledge Agreement dated December 19, 1997 (Incorporated by reference to Exhibit 10.54 of
the Company's Annual Report on Form 10-K for the year-ended December 31, 1997).
10.34 -- Swap Transaction Letter Agreement dated January 23, 1998 (Incorporated by reference to Exhibit
10.55 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997).
10.35 -- First Amendment to Group 1 Automotive, Inc. 1998 Employee Stock Purchase Plan.
10.36 -- Agreement between Nissan Motor Corporation in USA and Group 1 Automotive, Inc. dated April 28, 1998.
10.37 -- Employment Agreement between the Company and John S. Bishop dated October 7, 1998.
10.38 -- Form of Ford Motor Company Sales and Service Agreement.
10.39 -- Form of Chrysler Corporation Sales and Service Agreement.
11.1 -- Statement re: computation of earnings per share is included under Note 2 to the financial statements.
21.1 -- Group 1 Automotive, Inc. Subsidiary List.
23.1 -- Consent of Arthur Andersen LLP.
27.1 -- Financial Data Schedule.
</TABLE>
37
<PAGE> 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized in the city of Houston,
Texas, on the 31st day of March, 1999.
Group 1 Automotive, Inc.
By: /s/ B.B. Hollingsworth, Jr.
-----------------------------------
B.B. Hollingsworth, Jr.
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities indicated on the 31st day of March, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ B.B. Hollingsworth, Jr. Chairman, President and Chief
- ------------------------------------------------- Executive Officer and Director (Principal
B.B. Hollingsworth, Jr. Executive Officer)
/s/ Scott L. Thompson Senior Vice President - Chief Financial
- ------------------------------------------------- Officer and Treasurer (Chief Financial and
Scott L. Thompson Accounting Officer)
/s/ Robert E. Howard, II Director
- -------------------------------------------------
Robert E. Howard, II
/s/ Sterling B. McCall, Jr. Director
- -------------------------------------------------
Sterling B. McCall, Jr.
/s/ Charles M. Smith Director
- -------------------------------------------------
Charles M. Smith
/s/ John H. Duncan Director
- -------------------------------------------------
John H. Duncan
/s/ Bennett E. Bidwell Director
- -------------------------------------------------
Bennett E. Bidwell
</TABLE>
<PAGE> 39
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Group 1 Automotive, Inc. and Subsidiaries -- Consolidated Financial Statements
Report of Independent Public Accountants...................................................................F-2
Consolidated Balance Sheets................................................................................F-3
Consolidated Statements of Operations......................................................................F-4
Consolidated Statements of Stockholders' Equity............................................................F-5
Consolidated Statements of Cash Flows......................................................................F-6
Notes to Consolidated Financial Statements.................................................................F-7
</TABLE>
F-1
<PAGE> 40
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Group 1 Automotive, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Group 1
Automotive, Inc. and Subsidiaries (a Delaware corporation) (the Company) as of
December 31, 1998 and 1997 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Houston, Texas
February 3, 1999
F-2
<PAGE> 41
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
ASSETS 1998 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS: (in thousands)
Cash and cash equivalents .......................................... $ 66,443 $ 35,092
Accounts and notes receivable, net ................................. 21,373 10,611
Inventories ........................................................ 219,176 105,421
Deferred income taxes .............................................. 11,212 8,693
Other assets ....................................................... 8,718 1,865
--------- ---------
Total current assets ............................................ 326,922 161,682
--------- ---------
PROPERTY AND EQUIPMENT, net .......................................... 21,960 21,586
GOODWILL, net ........................................................ 123,587 27,078
OTHER ASSETS ......................................................... 5,241 2,803
--------- ---------
Total assets .................................................... $ 477,710 $ 213,149
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floorplan notes payable ............................................ $ 193,405 $ 58,488
Current maturities of long-term debt ............................... 2,966 2,316
Accounts payable and accrued expenses .............................. 82,300 45,403
--------- ---------
Total current liabilities ....................................... 278,671 106,207
--------- ---------
DEBT, net of current maturities ...................................... 42,821 7,053
DEFERRED INCOME TAXES ................................................ -- 3,699
OTHER LIABILITIES .................................................... 20,034 6,818
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, 1,000,000 shares authorized, none issued or
outstanding ..................................................... -- --
Common stock, $.01 par value, 50,000,000 shares authorized,
18,267,515 and 14,673,051 issued ................................ 183 147
Additional paid-in capital ......................................... 118,469 91,846
Retained earnings (deficit) ........................................ 18,190 (2,529)
Treasury stock, at cost, 37,366 and 10,000 shares .................. (658) (92)
--------- ---------
Total stockholders' equity ...................................... 136,184 89,372
--------- ---------
Total liabilities and stockholders' equity ...................... $ 477,710 $ 213,149
========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
<PAGE> 42
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1998 1997 1996
------------ ------------ ------------
(dollars in thousands, except per share amounts)
<S> <C> <C> <C>
REVENUES:
New vehicle sales ......................... $ 931,205 $ 228,044 $ 164,979
Used vehicle sales ........................ 510,192 135,507 88,477
Parts and service sales ................... 139,144 30,006 20,649
Other dealership revenues, net ............ 49,516 10,410 7,387
------------ ------------ ------------
Total revenues ......................... 1,630,057 403,967 281,492
COST OF SALES:
New vehicle sales ......................... 857,109 212,349 152,709
Used vehicle sales ........................ 471,910 123,932 78,912
Parts and service sales ................... 64,528 13,085 10,277
------------ ------------ ------------
Total cost of sales .................... 1,393,547 349,366 241,898
------------ ------------ ------------
GROSS PROFIT ................................ 236,510 54,601 39,594
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES .................. 178,038 43,360 30,027
DEPRECIATION AND AMORTIZATION ............... 6,426 1,020 741
------------ ------------ ------------
Income from operations ................. 52,046 10,221 8,826
OTHER INCOME AND EXPENSES:
Floorplan interest expense ................ (12,837) (3,810) (3,112)
Other interest expense, net ............... (4,027) (176) (56)
Other income (expense), net ............... 39 156 (69)
------------ ------------ ------------
INCOME BEFORE INCOME TAXES .................. 35,221 6,391 5,589
PROVISION FOR INCOME TAXES .................. 14,502 573 382
------------ ------------ ------------
NET INCOME .................................. $ 20,719 $ 5,818 $ 5,207
============ ============ ============
S Corporation pro forma income taxes
(unaudited) .............................. 1,465 1,831
------------ ------------
Pro forma net income
(unaudited) .............................. $ 4,353 $ 3,376
============ ============
Earnings per share:
Basic ..................................... $ 1.20
Diluted ................................... $ 1.16
Weighted average shares outstanding:
Basic ..................................... 17,281,165
Diluted ................................... 17,904,878
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
<PAGE> 43
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
-------------------------- PAID-IN EARNINGS TREASURY
SHARES AMOUNT CAPITAL (DEFICIT) STOCK TOTAL
----------- --------- ----------- ----------- --------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 ....... 3,353,461 $ 34 $ 4,772 $ 3,815 $ -- $ 8,621
Net income ..................... -- -- -- 5,207 -- 5,207
Issuance of common
stock ....................... 216,841 2 1,498 -- -- 1,500
Dividends, prior to the
initial public offering ..... -- -- -- (3,118) -- (3,118)
----------- --------- ----------- ----------- --------- -----------
BALANCE, December 31, 1996 ....... 3,570,302 36 6,270 5,904 -- 12,210
Net income ..................... -- -- -- 5,818 -- 5,818
Acquisition of founding
companies ................... 5,954,613 60 33,294 -- -- 33,354
Initial public offering, net ... 5,148,136 51 51,707 -- -- 51,758
Purchase of treasury stock ..... -- -- -- -- (92) (92)
Stock transfer by
shareholder, net of tax ..... -- -- 575 -- -- 575
Dividends, prior to the
initial public offering ..... -- -- -- (14,251) -- (14,251)
----------- --------- ----------- ----------- --------- -----------
BALANCE, December 31, 1997 ....... 14,673,051 147 91,846 (2,529) (92) 89,372
Net Income ................... -- -- -- 20,719 -- 20,719
Issuance of common stock in
acquisitions ................ 3,516,805 35 26,770 -- -- 26,805
Proceeds from sales of
common stock under
employee benefit plans ...... 234,650 1 2,063 -- -- 2,064
Issuance of treasury stock
to employee benefit plan .... (156,991) -- (2,210) -- 2,210 --
Purchase of treasury stock ..... -- -- -- -- (2,776) (2,776)
----------- --------- ----------- ----------- --------- -----------
BALANCE, December 31, 1998 ....... 18,267,515 $ 183 $ 118,469 $ 18,190 $ (658) $ 136,184
=========== ========= =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
<PAGE> 44
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
(dollars in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ...................................................... $ 20,719 $ 5,818 $ 5,207
Adjustments to reconcile net income to net
cash provided by operating activities -
Depreciation and amortization ................................... 6,426 1,020 741
Non-cash compensation, net of tax ............................... -- 575 --
Deferred income taxes ........................................... (4,201) (1,015) (316)
Provision for doubtful accounts and uncollectible notes ......... 356 270 108
Loss (gain) on sale of assets ................................... (115) (112) 18
Changes in assets and liabilities -
Accounts receivable ............................................. (4,544) 1,564 295
Inventories ..................................................... 44 5,686 (6,107)
Prepaid expenses and other assets ............................... (2,661) 3,609 (514)
Due from affiliates, net ........................................ -- 491 --
Floorplan notes payable ......................................... (1,730) (5,374) 5,508
Accounts payable and accrued expenses ........................... 9,983 (5,610) 2,392
-------- -------- --------
Total adjustments ........................................... 3,558 1,104 2,125
-------- -------- --------
Net cash provided by operating activities ................... 24,277 6,922 7,332
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in notes receivable .................................... (2,276) (362) (235)
Collections on notes receivable ................................. 1,630 88 192
Purchases of property and equipment ............................. (9,695) (2,164) (1,977)
Proceeds from sale of property and equipment .................... 20,238 1,935 --
Cash paid in acquisitions, net of cash received ................. (68,122) 11,164 (2,595)
-------- -------- --------
Net cash provided by (used in) investing activities ......... (58,225) 10,661 (4,615)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under floorplan facility for acquisition financing ... 33,523 (33,523) --
Net borrowings on revolving credit facility ..................... 42,000 -- --
Principal payments of long-term debt ............................ (10,001) (471) (153)
Borrowings of long-term debt .................................... 490 109 213
Issuance of common stock to benefit plans ....................... 2,063 -- 1,500
Initial public offering, net .................................... -- 51,759 --
Purchase of treasury stock ...................................... (2,776) (92) --
Dividends paid in cash, prior to the initial public offering .... -- (11,952) (3,118)
-------- -------- --------
Net cash provided by (used in) financing activities ......... 65,299 5,830 (1,558)
-------- -------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............................ 31,351 23,413 1,159
CASH AND CASH EQUIVALENTS, beginning of period ....................... 35,092 11,679 10,520
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of period ............................. $ 66,443 $ 35,092 $ 11,679
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for -
Interest ........................................................ $ 15,218 $ 4,200 $ 3,118
Taxes ........................................................... $ 17,832 $ 131 $ 924
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
<PAGE> 45
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND ORGANIZATION:
Group 1 Automotive, Inc. and Subsidiaries (Group 1 or the Company) was
founded in December 1995 to become a leading consolidator in the highly
fragmented automobile retailing industry. In October 1997, Group 1 acquired four
separate dealership groups (the Founding Groups), consisting of 30 dealership
franchises and related businesses, in exchange for consideration consisting of a
combination of cash and common stock. Concurrent with the acquisition of the
Founding Groups, Group 1 completed an initial public offering of 5,520,000
shares of common stock. The Company is engaged in the retail sale of new and
used vehicles and the arranging of vehicle finance, insurance and service
contracts. In addition, the Company sells automotive parts and provides vehicle
servicing and collision repair.
During 1998, the Company acquired an additional 33 automobile
dealership franchises in exchange for a combination of restricted common stock
and cash.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
For financial statement presentation purposes, Howard Group, one of the
Founding Groups, has been identified as the accounting acquiror. The acquisition
of the remaining Founding Groups and the subsequent acquisitions were accounted
for using the purchase method of accounting. The results of operations of the
Howard Group are included for all periods presented. The operations of Group 1
Automotive, Inc., the parent company, and the Founding Groups, excluding the
Howard Group, are included in the results of operations beginning October 31,
1997, the effective closing date of the acquisitions for accounting purposes.
The results of operations of all acquisitions subsequent to October 31, 1997 are
included from the effective dates of the closings of the acquisitions. The
allocation of purchase price to the assets acquired and liabilities assumed has
been initially assigned and recorded based on preliminary estimates of fair
value and may be revised as additional information concerning the valuation of
such assets and liabilities becomes available. All significant intercompany
balances and transactions have been eliminated in consolidation.
Revenue Recognition
Revenue from vehicle sales, parts sales and vehicle service is
recognized upon delivery to the customer.
Finance, Insurance and Service Contract Income Recognition
The Company arranges financing for customers through various
institutions and receives financing fees equal to the difference between the
loan rates charged to customers over predetermined financing rates set by the
financing institution. In addition, the Company receives commissions from the
sale of credit life and disability insurance and vehicle service contracts to
customers.
The Company may be charged back (chargebacks) for unearned financing
fees, insurance or vehicle service contract commissions in the event of early
termination of the contracts by customers. The revenues from financing fees and
commissions are recorded at the time of the sale of the vehicles and a reserve
for future chargebacks is established based on historical operating results and
the termination provisions of the applicable contracts. Finance, insurance and
vehicle service contract revenues, net of estimated chargebacks, are included in
other dealership revenue in the accompanying consolidated financial statements.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments that have
an original maturity of three months or less at the date of purchase, as well as
contracts in transit. Contracts in transit represent contracts on vehicles sold,
for which the proceeds are in transit from financing institutions.
F-7
<PAGE> 46
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Inventories
New, used and demonstrator vehicles are stated at the lower of cost or
market, determined on a specific-unit basis. Parts and accessories are stated at
the lower of cost (determined on a first-in, first-out basis) or market.
Property and Equipment
Property and equipment are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets. Leasehold
improvements are capitalized and amortized over the lesser of the life of the
lease or the estimated useful life of the asset.
Expenditures for major additions or improvements, which extend the
useful lives of assets, are capitalized. Minor replacements, maintenance and
repairs, which do not improve or extend the lives of such assets, are charged to
operations as incurred. Disposals are removed at cost less accumulated
depreciation, and any resulting gain or loss is reflected in current operations.
Goodwill
Goodwill represents the excess of the purchase price of dealerships
acquired over the fair value of tangible assets acquired at the date of
acquisition. Goodwill is amortized on a straight-line basis over 40 years.
Amortization expense charged to operations totaled approximately $2.2 million,
$170,000 and $37,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. Accumulated amortization totaled approximately $2.5 million and
$299,000 as of December 31, 1998 and 1997, respectively.
Income Taxes
The Company follows the liability method of accounting for income taxes
in accordance with Statement of Financial Accounting Standards (SFAS) No. 109.
Under this method, deferred income taxes are recorded based upon differences
between the financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
underlying assets are realized or liabilities are settled. A valuation allowance
reduces deferred tax assets when it is more likely than not that some or all of
the deferred tax assets will not be realized.
Prior to acquisition of the Founding Groups, certain entities of the
Howard Group elected S Corporation status, as defined by the Internal Revenue
Code, whereby the companies were not subject to taxation for federal purposes.
Under S Corporation status, the stockholders report their share of these
companies' taxable earnings or losses in their personal tax returns. All S
Corporation elections were terminated in conjunction with the acquisitions.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of floorplan
notes payable and long-term debt. The carrying amount of these financial
instruments approximates fair value due either to length of maturity or
existence of variable interest rates that approximate market rates.
In January 1998, the Company entered into a three-year interest rate
swap agreement to hedge its exposure to changes in interest rates. The effect of
this swap is to convert the interest rate on $75 million of debt to a fixed rate
of approximately 7.16%.
Advertising
The Company expenses production and other costs of advertising as
incurred. Advertising expense for the years ended December 31, 1998, 1997 and
1996 totaled $16.8, $5.9 and $3.2 million, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in determining the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The
F-8
<PAGE> 47
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
significant estimates made by management in the accompanying financial
statements relate to reserves for vehicle valuations, retail loan guarantees and
future chargebacks on finance, insurance and service contract income. Actual
results could differ from those estimates.
Statements of Cash Flows
For purposes of the statements of cash flows, cash and cash equivalents
include contracts in transit which are typically collected within one month.
Additionally, the net change in floorplan financing of inventory, which is a
customary financing technique in the industry, is reflected as an operating
activity in the statements of cash flows.
Earnings Per Share
SFAS No. 128 requires the presentation of basic earnings per share and
diluted earnings per share in financial statements of public enterprises. Under
the provisions of this statement, basic earnings per share is computed based on
weighted average shares outstanding and excludes dilutive securities. Diluted
earnings per share is computed including the impacts of all potentially dilutive
securities. As the Company was not a public enterprise until October 1997, and
the companies included in the statements of operations were under different tax
structures (S Corporations and C Corporations), no earnings per share data has
been presented for the historical results of operations for the years ended
December 31,1997 and 1996. The following table sets forth the shares outstanding
for the earnings per share calculations for the year ended December 31, 1998:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-----------------
<S> <C>
Common stock outstanding, beginning of period ............................. 14,673,051
Weighted average common stock issued in acquisitions ................. 2,591,834
Weighted average common stock issued to employee stock
purchase plan ........................................................ 90,123
Weighted average common stock issued in stock option exercise ........ 15,953
Less: Weighted average treasury shares repurchased ................... (89,796)
-----------
Shares used in computing basic earnings per share ......................... 17,281,165
Dilutive effect of stock options, net of assumed repurchase
of treasury stock .................................................... 623,713
-----------
Shares used in computing diluted earnings per share ....................... 17,904,878
===========
</TABLE>
Recent Accounting Pronouncements
In June 1997, SFAS No. 130, "Reporting Comprehensive Income" was
issued. SFAS No.130 requires the reporting of comprehensive income and its
components to be displayed with the same prominence as other financial
statements. This statement requires a company to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the statement
of financial position. The Company adopted this statement for its fiscal year
ended December 31, 1998.
In June 1997, SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" was issued. SFAS No. 131 requires that
segment reporting for public reporting purposes be conformed to the segment
reporting used by management for internal purposes. Additionally, it adds a
requirement for the presentation of certain segment data on a quarterly basis
starting in 1999. The Company currently operates in only one segment.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments,
F-9
<PAGE> 48
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives), and for hedging activities. It
requires that an entity recognizes all derivatives as either assets or
liabilities in the statement of financial position and measures those
instruments at fair value. If certain conditions are met, a derivative may be
specifically designated as (a) a hedge of the exposure to changes in the fair
value of a recognized asset or liability or an unrecognized firm commitment, (b)
a hedge of the exposure to variable cash flows of a forecasted transaction or
(c) a hedge of the foreign currency exposure of a net investment in a foreign
operation, an unrecognized firm commitment, an available-for-sale security or a
foreign currency-denominated forecasted transaction. The accounting for changes
in the fair value of a derivative (that is, gains or losses) depends on the
intended use of the derivative and the resulting designation. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
Management does not believe that the adoption of this statement will have a
material impact on the financial position or results of operations of the
Company.
Reclassifications
Certain reclassifications have been made to prior year financial
statements to conform them to the current year presentation.
3. BUSINESS COMBINATIONS:
During 1998, the Company acquired 33 automobile dealership franchises.
These acquisitions were accounted for as purchases. The consideration paid in
completing these acquisitions, including real estate acquired, included
approximately $68.1 million in cash, net of cash received, approximately 3.5
million shares of restricted common stock and the assumption of an estimated
$103.1 million in inventory financing and $2.9 million of mortgage financing.
Additional consideration may be paid based on the financial performance of
certain dealerships, over specified periods. Additional consideration, if any,
will be payable in cash and common stock and will result in an increase in
goodwill on the balance sheet of the Company. The accompanying consolidated
balance sheet includes preliminary allocations of the purchase price of the
acquisitions, which are subject to final adjustment. The preliminary allocations
resulted in recording approximately $98.7 million of goodwill, which is being
amortized over 40 years.
The following pro forma financial information consists of income
statement data from continuing operations as presented in the consolidated
financial statements plus (1) the acquisition of the Founding Groups and the
subsequent acquisitions assuming the acquisitions occurred on January 1, 1998
and 1997, respectively, (2) the completion of the IPO as of January 1, 1997 and
(3) certain pro forma adjustments discussed below.
<TABLE>
<CAPTION>
1998 1997
---------- ----------
(in thousands, except per share amounts)
(unaudited)
<S> <C> <C>
Revenues ......................... $1,853,693 $1,578,141
Gross profit ..................... 271,578 232,549
Income from operations ........... 60,599 51,817
Net income ....................... 23,195 18,617
Basic earnings per share ......... 1.28 1.03
Diluted earnings per share ....... 1.23 1.00
</TABLE>
Pro forma adjustments included in the amounts above primarily relate
to: (a) increases in revenues and decreases in cost of sales related to
commission arrangements on certain third-party products sold by the dealerships,
which previously directly benefited the stockholders, and which were terminated
in conjunction with the acquisitions allowing the dealerships to realize the
benefits thereafter; (b) pro forma goodwill amortization expense over an
estimated useful life of 40 years; (c) reductions in compensation expense and
management fees to the level that certain management employees and owners of the
acquired companies will contractually receive; (d) incremental corporate
overhead costs related to personnel costs, rents, professional service fees and
directors and officers liability insurance premiums; (e) net increases in
interest expense resulting from net cash borrowings utilized to complete
acquisitions, partially offset by interest rate reductions received; and (f)
incremental provisions for federal and state income taxes relating to the
compensation differential, S Corporation income and other pro forma adjustments.
F-10
<PAGE> 49
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Accounts and notes receivable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Amounts due from manufacturers .............. $ 9,522 $ 3,889
Due from finance companies .................. 4,452 3,217
Parts and service receivables ............... 3,733 2,273
Other ....................................... 4,405 1,752
-------- --------
Total accounts and notes receivable ...... 22,112 11,131
Less - Allowance for doubtful accounts ...... (739) (520)
-------- --------
Accounts and notes receivable, net ....... $ 21,373 $ 10,611
======== ========
</TABLE>
Inventories, net of valuation reserves, consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
New vehicles ................................ $155,088 $ 70,574
Used vehicles ............................... 44,384 25,690
Rental vehicles ............................. 7,228 2,495
Parts, accessories and other ................ 12,476 6,662
-------- --------
Total inventories ........................ $219,176 $105,421
======== ========
</TABLE>
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1997
------- -------
(in thousands)
<S> <C> <C>
Accounts payable, trade ..................... $31,362 $18,511
Accrued expenses ............................ 50,938 26,892
------- -------
Total accounts payable and accrued
expenses ............................ $82,300 $45,403
======= =======
</TABLE>
5. PROPERTY AND EQUIPMENT:
Property and equipment consist of the following:
<TABLE>
<CAPTION>
ESTIMATED DECEMBER 31,
USEFUL LIVES -----------------------------
IN YEARS 1998 1997
-------- ------- -------
(in thousands)
<S> <C> <C> <C>
Land.................................. -- $2,130 $7,665
Buildings............................. 30 to 40 1,086 5,403
Leasehold improvements................ 7 to 15 6,940 3,808
Machinery and equipment............... 3 to 7 8,186 2,995
Furniture and fixtures................ 5 to 7 8,104 4,590
Company vehicles...................... 5 1,556 528
------- -------
Total 28,002 24,989
Less-- Accumulated depreciation....... (6,042) (3,403)
------- -------
Property and equipment, net......... $21,960 $21,586
======= =======
</TABLE>
F-11
<PAGE> 50
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. FLOORPLAN NOTES PAYABLE:
Floorplan notes payable reflect amounts payable for the purchase of
specific vehicle inventory and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
New vehicles ................................ $166,650 $ 42,918
Used vehicles ............................... 19,452 13,174
Rental vehicles ............................. 7,303 2,396
-------- --------
Total floorplan notes payable ...... $193,405 $ 58,488
======== ========
</TABLE>
During 1998, the Company consolidated its floorplan notes payable under
its Revolving Credit Agreement with a bank group, maturing December 31, 2001
(the "Credit Facility"). These notes payable bear interest at the London
Interbank Offered Rate ("LIBOR") plus 150 basis points.
As of December 31, 1998 and 1997 the weighted average interest rate on
floorplan notes payable outstanding was 7.12% and 7.93%, respectively. The
floorplan arrangement permits the Company to borrow up to $295.0 million,
dependent upon new and used vehicle inventory levels. As of December 31, 1998,
total available borrowings under floorplan agreements were approximately $101.6
million.
Vehicle payments on the notes are due when the related vehicles are
sold. The notes are collateralized by substantially all of the inventories of
the Company.
7. LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Credit Facility (described below) ..................... $ 42,000 $ --
Note payable to a bank with monthly principal
payments of $41,892, due through March
2004, bearing interest at 7.5%, payable
monthly ............................................. 2,592 3,138
Note payable to a bank, with monthly
principal payments of $13,740 due through
August 2006, bearing interest at prime rate
(8.50% at December 31, 1997) ........................ -- 2,083
Mortgage loan to a bank, with monthly
principal payments of $15,000, due through
May 2005, bearing interest at prime plus 25
basis points (8.75% at December 31, 1997),
payable monthly ..................................... -- 1,314
Revolving line of credit with a bank, due on
demand, bearing interest at prime plus 100
basis points (9.5% at December 31, 1997) ............ -- 985
Note payable to a bank, with monthly
principal and interest payments of $5,831
due through February 2006, bearing interest
at 8.20% ............................................ -- 568
Other notes payable, maturing in varying
amounts through October 2004 with weighted
a average interest rate of 7.93% .................... 1,195 1,281
-------- --------
Total long-term debt .................................. 45,787 9,369
Less - Current portion .............................. (2,966) (2,316)
-------- --------
Long-term portion ..................................... $ 42,821 $ 7,053
======== ========
</TABLE>
F-12
<PAGE> 51
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The notes payable are secured by the land, buildings or other assets
for which the debt was incurred. In addition to floorplan notes payable, the
Credit Facility provides an acquisition line of credit of up to $130 million,
for the financing of acquisitions, general corporate purposes or capital
expenditures. The amount of funds available under the acquisition line is
dependent upon a calculation based on the Company's cash flow and maintaining
certain financial ratios. At the Company's option the acquisition line of credit
of the Credit Facility may bear interest based on the LIBOR plus a margin
varying from 150 to 275 basis points, dependent upon certain financial ratios.
Additionally, the loan agreement contains various covenants including financial
ratios and other requirements, which must be maintained by the Company. The
agreement also limits the amount the Company may pay as cash dividends. At
December 31, 1998, the interest rate on borrowings under the acquisition line of
credit of the Credit Facility was 7.37%.
Total interest expense on long-term debt was approximately $4.5
million, $176,000 and $56,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
The aggregate maturities of long-term debt as of December 31, 1998 are
as follows:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
1999 $ 2,966
2000 ...................... 693
2001 ...................... 42,078
2002 ...................... 18
2003 ...................... 17
Thereafter ................ 15
-------
Total long-term debt.... $45,787
=======
</TABLE>
8. CAPITAL STOCK AND STOCK OPTIONS:
In 1996, Group 1 adopted the 1996 Stock Incentive Plan (the Plan),
which provides for the granting or awarding of stock options, stock appreciation
rights and restricted stock to officers and other key employees and directors.
The number of shares authorized and reserved for issuance under the Plan is
2,000,000 shares, of which 71,348 are available for future issuance as of
December 31, 1998. In general, the terms of the option awards (including vesting
schedules) are established by the Compensation Committee of the Company's Board
of Directors. As of December 31, 1998, the Company has granted options to
employees and directors covering an aggregate of 1,928,652 shares of common
stock. All outstanding options are exercisable over a period not to exceed 10
years and vest over three to six-year periods.
The following table summarizes the Company's outstanding stock options:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER EXERCISE PRICE
--------- --------------
<S> <C> <C>
Options outstanding, December 31, 1996 ..................... 205,000 $ 2.90
Grants:
First quarter 1997 (all at $2.90 per share) .............. 360,000 2.90
Fourth quarter 1997 (all at $12.00 per share) ............ 682,450 12.00
--------- ---------
Options outstanding, December 31, 1997 ..................... 1,247,450 7.88
Grants (exercise prices between $12.00 and $17.88
per share) ............................................ 780,850 16.16
Exercised ................................................ (49,973) 3.13
Forfeited ................................................ (99,648) 13.27
--------- ---------
Options outstanding, December 31, 1998 ..................... 1,878,679 $ 11.15
========== =========
</TABLE>
At December 31, 1998, 208,460 options were exercisable at a weighted
average exercise price of $7.35. The weighted average exercise price of options
granted during the year ended December 31, 1997
F-13
<PAGE> 52
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
was $8.86. The weighted average remaining contractual life of options
outstanding at December 31, 1998 is 9.0 years. The weighted average fair value
per share of options granted during the years ended December 31, 1998, 1997 and
1996 is $9.18, $5.94 and $0.45 respectively. The fair value of the options
granted prior to the initial public offering were estimated on the date of the
grant using the minimum value method as the Company was not a public entity and
not able to use the Black-Scholes model because estimating the expected
volatility was not feasible. The fair value of options granted at or subsequent
to the initial public offering is estimated on the date of grant using the
Black-Scholes option pricing model.
The following table summarizes the weighted average information used in
determining the fair value of the options granted during the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Weighted average risk-free interest rate... 5.5% 5.9% 5.0%
Weighted average expected life of options.. 10 years 10 years 6 years
Weighted average expected volatility....... 42.8% 58.1% N/A
Weighted average expected dividends........ -- -- --
</TABLE>
In September 1997, Group 1 adopted the Group 1 Automotive, Inc. 1998
Employee Stock Purchase Plan (the Purchase Plan). The Purchase Plan authorizes
the issuance of up to 200,000 shares of Common Stock and provides that no
options may be granted under the Purchase Plan after June 30, 2007. Effective as
of October 1, 1998, the Purchase Plan was amended to increase the number of
shares that may be issued under the Purchase Plan, subject to stockholder
approval, from 200,000 to 1,000,000. The Purchase Plan is available to all
employees of the Company and its participating subsidiaries and is a qualified
plan as defined by Section 423 of the Internal Revenue Code. At the end of each
fiscal quarter (Option Period) during the term of the Purchase Plan, the
employee contributions are used to acquire shares of Common Stock at 85% of the
fair market value of the Common Stock on the first or the last day of the Option
Period, whichever is lower. During 1998, the Company issued 184,677 shares of
Common Stock to employees participating in the Purchase Plan.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which, if fully adopted,
requires the Company to record stock-based compensation at fair value. The
Company has adopted the disclosure requirements of SFAS No. 123 and has elected
to record employee compensation expense in accordance with Accounting Principles
Board (APB) Opinion No. 25. Accordingly, compensation expense is recorded for
stock options based on the excess of the fair market value of the common stock
on the date the options were granted over the aggregate exercise price of the
options. As the exercise price of options granted under the Plan has been equal
to or greater than the market price of the Company's stock on the date of grant,
no compensation expense related to the Plan has been recorded. Additionally, no
compensation expense is recorded for shares issued pursuant to the Purchase Plan
as it is a qualified plan.
Had compensation expense for the Plan been determined based on the
provisions of SFAS No. 123, the impact on the Company's net income would have
been as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997
------- ------
(in thousands, except per
share amounts)
<S> <C> <C>
Net income as reported.......................... $20,719 $5,818
Pro forma net income under SFAS 123............. 19,519 5,451
Pro forma basic earnings per share.............. 1.13 --
Pro forma diluted earnings per share............ 1.09 --
</TABLE>
F-14
<PAGE> 53
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. OPERATING LEASES:
The Company leases various facilities and equipment under long-term
operating lease agreements, including leases with related parties. The
related-party leases expire on various dates through May 2028 and are
cancelable, at the Company's option, at various times during the lease term. In
general, the third-party leases are cancelable at the Company's option, at
various times during the lease term, and expire on various dates through January
2029.
During 1998 the Company entered into a sale and leaseback transaction
related to nine of its owned dealerships properties. As of December 31, 1998,
the transaction had been completed with respect to six of the nine properties.
Future minimum lease payments for operating leases are as follows:
<TABLE>
<CAPTION>
RELATED
YEAR ENDED DECEMBER 31, PARTIES THIRD PARTIES TOTAL
----------------------- ------- ------------- --------
(in thousands)
<S> <C> <C> <C>
1999................... $ 7,055 $ 7,643 $ 14,698
2000................... 6,826 7,492 14,318
2001................... 6,818 6,896 13,714
2002................... 6,820 6,589 13,409
20023.................. 6,980 6,280 13,260
Thereafter............. 38,340 52,994 91,334
-------- ------- --------
Total.................. $72,839 $87,894 $160,733
======== ======= ========
</TABLE>
Total rent expense under all operating leases, including operating
leases with related parties, was approximately $11.1, $3.3 and $2.3 million for
the years ended December 31, 1998, 1997 and 1996, respectively. Rental expense
on related-party leases, which is included in the above amounts, totaled
approximately $8.3, $2.6 and $1.9 million for the years ended December 31, 1998,
1997 and 1996, respectively.
10. INCOME TAXES:
Federal and state income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1998 1997 1996
-------- -------- --------
(in thousands)
<S> <C> <C> <C>
Federal -
Current .......... $ 15,478 $ 1,291 $ 587
Deferred ......... (3,465) (762) (262)
State -
Current .......... 3,225 297 111
Deferred ......... (736) (253) (54)
-------- -------- --------
Provision for
income taxes ....... $ 14,502 $ 573 $ 382
======== ======== ========
</TABLE>
Actual income tax expense differs from income tax expense computed by
applying the U.S. federal statutory corporate tax rate of 35% in 1998 and 34% in
1996 and 1997 to income before income taxes as follows:
F-15
<PAGE> 54
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1998 1997 1996
------- ------- -------
(in thousands)
<S> <C> <C> <C>
Provision at the statutory rate ........ $12,327 $ 2,173 $ 1,900
Increase (decrease) resulting
from --
Income of S Corporations ............. -- (1,269) (1,585)
State income tax, net of benefit
for federal deduction ............. 1,618 29 38
Deferred tax assets realized on
conversion of S Corporations
to C Corporations ................. -- (403) --
Non-deductible portion of
goodwill amortization ............. 339 -- --
Other ................................ 218 43 29
------- ------- -------
Provision for income taxes ............. $14,502 $ 573 $ 382
======= ======= =======
</TABLE>
Deferred income tax provisions result from temporary differences in the
recognition of income and expenses for financial reporting purposes and for tax
purposes. The tax effects of these temporary differences representing deferred
tax assets (liabilities) result principally from the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Inventory (LIFO conversion) ............... $ (2,981) $ (3,166)
Reserves and accruals not deductible
until paid ............................ 17,828 8,639
Depreciation .............................. (1,082) (645)
Goodwill .................................. (584) --
Other ..................................... (186) 166
-------- --------
Net deferred tax asset ................. $ 12,995 $ 4,994
======== ========
</TABLE>
The net deferred tax assets (liabilities) are comprised of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1998 1997
-------- --------
(in thousands)
<S> <C> <C>
Deferred tax assets -
Current ................................ $ 11,238 $ 10,220
Long-term .............................. 7,154 --
Deferred tax liabilities -
Current ................................ (26) (1,527)
Long-term .............................. (5,371) (3,699)
-------- --------
Net deferred tax asset .................. $ 12,995 $ 4,994
======== ========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES:
Litigation
The Company is a defendant in several lawsuits arising from normal
business activities. Management has reviewed pending litigation with legal
counsel and believes that the ultimate liability, if any, resulting from such
actions will not have a material adverse effect on the Company's financial
position or results of operations.
Insurance
Because of their vehicle inventory and nature of business, automobile
dealerships generally require significant levels of insurance covering a broad
variety of risks. The Company's insurance includes an umbrella policy with a $50
million per occurrence limit as well as insurance on its real property,
comprehensive coverage for its vehicle inventory, general liability insurance,
employee dishonesty coverage and errors and omissions insurance in connection
with its vehicle sales and financing activities.
F-16
<PAGE> 55
GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Loan Guarantees
One of the Company's dealerships provides financing for certain
customers through a third-party lender. Under the terms of this financing
contract, customers execute installment contracts, which are guaranteed with
full recourse to the dealership. The dealership transfers the rights to the
future economic benefits related to the receivables; however, in the event that
the customer defaults on the note, the lender requires repayment of the
principal amount of the note plus earned interest through the date of default,
with collection efforts to be performed by the dealership. As of December 31,
1998, total customer notes outstanding under this program were approximately
$12.3 million. Under the terms of the agreement with the lender, the total
customer notes outstanding may not exceed $12.5 million. The Company has
provided reserves for estimated future loan losses based on historical loss
trends, current economic conditions and total guarantees outstanding. This
financing arrangement represents approximately 1.0% of the Company's total
financing arranged.
12. SUBSEQUENT EVENTS (UNAUDITED):
Recent Acquisitions.
During 1999, the Company signed definitive purchase agreements related
to 28 dealership franchise acquisitions with revenues of approximately $700
million. Two of these acquisitions are new platforms representing 14 dealership
franchises in west Texas and north Florida. The remaining acquisitions are
tuck-ins, which will complement platform operations in Texas, Oklahoma, New
Mexico and Georgia. Two of the tuck-in acquisitions were closed during January
1999. These acquisitions will bring the total number of dealership franchises to
83 and the number of brands represented to 24. The closing of each of these
acquisitions is subject to customary closing conditions, including manufacturer
approval and the completion of due diligence. The aggregate consideration paid,
or to be paid, in completing these acquisitions, excluding the assumption of an
estimated $63.3 million of inventory financing, is approximately $91.0 million
in cash and 1.3 million shares of restricted common stock.
Recent Offerings.
In March 1999, the Company completed offerings of two million shares
of common stock and $100 million of 10-year senior subordinated notes carrying
an interest rate of 10 7/8%. Proceeds to the Company, before expenses, totaled
$138.9 million and were used to temporarily repay borrowings under the Credit
Facility. These proceeds are expected to be used in the future to complete
acquisitions, resulting in increased borrowings under the credit facility.
F-17
<PAGE> 56
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 -- Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1
of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
3.2 -- Certificate of Designation of Series A Junior Participating Preferred Stock (Incorporated by
reference to Exhibit 3.2 of the Company's Registration Statement on Form S-1 Registration No.
333-29893).
3.3 -- Bylaws of the Company (Incorporated by reference to Exhibit 3.3 of the Company's Registration
Statement on Form S-1 Registration No. 333-29893).
4.1 -- Specimen Common Stock certificate (Incorporated by reference to Exhibit 4.1 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
4.2 -- Form of Subordinated Indenture (Incorporated by reference to Exhibit 4.5 of the Company's
Registration Statement on Form S-3 Registration No. 333-69693).
4.3 -- Form of Subordinated Debt Securities (included in Exhibit 4.2).
4.4 -- First Supplemental Indenture dated as of March 5, 1999 among Group 1 Automotive, Inc., the
Subsidiary Guarantors named therein and IBJ Whitehall Bank & Trust Company (Incorporated by
reference to Exhibit 4.1 of the Company's current report of Form 8-K dated March 5, 1999).
4.5 -- Form of 10 7/8% Senior Subordinated Note due March 1, 2009 (included in Exhibit 4.4).
10.1 -- Employment Agreement between the Company and B.B. Hollingsworth, Jr. dated November 3, 1997
(Incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.2 -- Employment Agreement between the Company and Robert E. Howard II dated November 3, 1997
(Incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.3 -- Employment Agreement between the Company and Sterling B. McCall, Jr. dated November 3, 1997
(Incorporated by reference to Exhibit 10.3 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.4 -- Employment Agreement between the Company and Charles M. Smith dated November 3, 1997
(Incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.5 -- Employment Agreement between the Company and John T. Turner dated November 3, 1997
(Incorporated by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.6 -- Employment Agreement between the Company and Scott L. Thompson dated November 3, 1997
(Incorporated by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.7 -- Employment Agreement between the Company and James S. Carroll dated March 16, 1998
(Incorporated by reference to Exhibit 10.8 of the Company's Annual Report on Form 10-K for the
year-ended December 31, 1997).
10.8 -- 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.7 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
10.9 -- First Amendment to 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8 of the
Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.10 -- Lease Agreement between Howard Pontiac GMC and Robert E. Howard II (Incorporated by reference to
Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.11 -- Lease Agreement between Bob Howard Motors and Robert E. Howard II (Incorporated by reference to
Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.12 -- Lease Agreement between Bob Howard Chevrolet and Robert E. Howard II (Incorporated by reference
to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.13 -- Lease Agreement between Bob Howard Automotive-H and North Broadway Real Estate (Incorporated
by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration
No. 333-29893).
10.14 -- Lease Agreement between Mike Smith Autoplaza and Olds-Honda Realty (Incorporated by reference
to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.15 -- Rights Agreement between Group 1 Automotive, Inc. and ChaseMellon Shareholder Services,
L.L.C., as rights agent dated October 3, 1997 (Incorporated by reference to Exhibit 10.10 of
the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.16 -- 1998 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.11 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
10.17 -- Form of Agreement between Toyota Motor Sales, U.S.A., and Group 1 Automotive, Inc.
(Incorporated by reference to Exhibit 10.12 of the Company's Registration Statement on Form
S-1 Registration No. 333-29893).
10.18 -- Form of Supplemental Agreement to General Motors Corporation Dealer Sales and Service
Agreement (Incorporated by reference to Exhibit 10.13 of the Company's Registration Statement
on Form S-1 Registration No. 333-29893).
10.19 -- Approval Letter dated December 11, 1996 from Nissan Motor Corporation U.S.A. (Incorporated by
reference to Exhibit 10.14 of the Company's Registration Statement on Form S-1 Registration
No. 333-29893).
10.20 -- Amendment to Approval Letter from Nissan Motor Corporation U.S.A. dated September 29, 1997
(Incorporated by reference to Exhibit 10.15 of the Company's Registration Statement on Form S-1
Registration No. 333-29893).
10.21 -- Supplemental Terms and Conditions between Ford Motor Company and Group 1 Automotive, Inc.
dated September 4, 1997 (Incorporated by reference to Exhibit 10.16 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893).
10.22 -- Toyota Dealer Agreement between Gulf States Toyota, Inc. and Southwest Toyota, Inc. dated
April 5, 1993 (Incorporated by reference to Exhibit 10.17 of the Company's Registration
Statement on Form S-1 Registration No. 333-29893).
10.23 -- Lexus Dealer Agreement between Toyota Motor Sales, U.S.A., Inc. and SMC Luxury Cars, Inc.
dated August 21, 1995 (Incorporated by reference to Exhibit 10.18 of the Company's
Registration Statement on Form S-1 Registration No. 333-29893.
10.24 -- Agreement between American Honda Motor Co., Inc. and the Dealership Parties dated October 23,
1997 (Incorporated by reference to Exhibit 10.24 of the Company's Registration Statement on
Form S-1 Registration No. 333-29893).
10.25 -- Form of General Motors Corporation U.S.A. Sales and Service Agreement (Incorporated by
reference to Exhibit 10.25 of the Company's Registration Statement on Form S-1 Registration
No. 333-29893).
10.26 -- Form of Nissan Motor Corporation Sales and Service Agreement (Incorporated by reference to
Exhibit 10.26 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
10.27 -- Lease Agreement between World Partner Enterprises Ltd. and Koons Ford, Inc. dated March 16,
1998 (Incorporated by reference to Exhibit 10.42 of the Company's Annual Report on Form 10-K
for the year-ended December 31, 1997).
10.28 -- Operations/Lease Agreement between K.C. Partnership and Perimeter Ford, Inc. dated March 16,
1998 (Incorporated by reference to Exhibit 10.43 of the Company's Annual Report on Form 10-K
for the year-ended December 31, 1997).
10.29 -- Lease Agreement between K.C. Partnership and Courtesy Ford, Inc. dated March 16, 1998
(Incorporated by reference to Exhibit 10.44 of the Company's Annual Report on Form 10-K for
the year-ended December 31, 1997).
10.30 -- Amended and Restated Sublease Agreement between Koons Development Co. and Koons Ford, Inc.
dated March 16, 1998 (Incorporated by reference to Exhibit 10.45 of the Company's Annual
Report on Form 10-K for the year-ended December 31, 1997).
10.31 -- Multi-Party Agreement by and among K.C. Partnership, Ford Leasing Development Company,
Perimeter Ford, Inc., PF Merger, Inc. and Comerica Bank dated March 16, 1998 (Incorporated by
reference to Exhibit 10.46 of the Company's Annual Report on Form 10-K for the year-ended
December 31, 1997).
10.32 -- Second Amended and Restated Revolving Credit Agreement, dated as of November 10, 1998
(Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated
December 11, 1998).
10.33 -- Stock Pledge Agreement dated December 19, 1997 (Incorporated by reference to Exhibit 10.54 of
the Company's Annual Report on Form 10-K for the year-ended December 31, 1997).
10.34 -- Swap Transaction Letter Agreement dated January 23, 1998 (Incorporated by reference to Exhibit
10.55 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997).
10.35 -- First Amendment to Group 1 Automotive, Inc. 1998 Employee Stock Purchase Plan.
10.36 -- Agreement between Nissan Motor Corporation in USA and Group 1 Automotive, Inc. dated April 28, 1998.
10.37 -- Employment Agreement between the Company and John S. Bishop dated October 7, 1998.
10.38 -- Form of Ford Motor Company Sales and Service Agreement.
10.39 -- Form of Chrysler Corporation Sales and Service Agreement.
11.1 -- Statement re: computation of earnings per share is included under Note 2 to the financial statements.
21.1 -- Group 1 Automotive, Inc. Subsidiary List.
23.1 -- Consent of Arthur Andersen LLP.
27.1 -- Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.35
FIRST AMENDMENT TO
GROUP 1 AUTOMOTIVE, INC.
1998 EMPLOYEE STOCK PURCHASE PLAN
WHEREAS, GROUP 1 AUTOMOTIVE, INC. (the "Company") has heretofore
adopted the GROUP 1 AUTOMOTIVE, INC. 1998 EMPLOYEE STOCK PURCHASE PLAN (the
"Plan"); and
WHEREAS, the Company desires to amend the Plan in certain respects;
NOW, THEREFORE, the Plan shall be amended as follows:
1. Subject to the provisions of paragraph 2 hereof, the first sentence
of paragraph 6 of the Plan shall be deleted and the following shall be
substituted therefor:
"Subject to the provisions of paragraph 13, the aggregate number of
shares which may be sold pursuant to options granted under the Plan
shall not exceed 1,000,000 shares of the authorized Stock, which shares
may be unissued shares or reacquired shares, including shares bought on
the market or otherwise for purposes of the Plan."
2. This First Amendment to the Plan shall be effective as of October 1,
1998, provided that this First Amendment to the Plan is approved by the
stockholders of the Company within twelve months thereafter. No more than
200,000 shares of Stock (the original number of shares subject to the Plan)
shall be issued or delivered under the Plan prior to such stockholder approval.
If the stockholders fail to approve this First Amendment to the Plan as provided
above, then the Company shall promptly refund to each participant the amount of
such participant's payroll deductions under the Plan that may not be used to
purchase in excess of the original 200,000 shares subject to the Plan.
3. As amended hereby, the Plan is specifically ratified and reaffirmed.
<PAGE> 1
EXHIBIT 10.36
AGREEMENT BETWEEN
NISSAN MOTOR CORPORATION IN U.S.A.
AND
GROUP 1 AUTOMOTIVE, INC.
This agreement dated April 28, 1998, is entered into by and between
Group 1 Automotive, Inc. ("Group 1"), a Delaware corporation, with its principal
place of business at 950 Echo Lane, Houston Texas 77024, and Nissan Motor
Corporation in U.S.A. ("NMC"), a California corporation, with its principal
place of business at 18501 South Figueroa Street, Gardena, California 90248-4500
(the "Agreement").
RECITALS
WHEREAS, NMC distributes Nissan and Infiniti brand automobile products
in the continental Unites States through a network of authorized independent
dealers; and
WHEREAS, Group 1 is in the automobile businesses of retailing and
servicing automobile products, and has acquired, through its wholly owned
affiliates or subsidiaries, several Nissan automobile dealerships and may
acquire additional Nissan and Infiniti automobile dealerships;
WHEREAS NMC's and Group 1's interests could conflict, and it is the
intent of the parties to develop a mutually beneficial business relationship;
NOW THEREFORE, Group 1 and NMC agree as follows:
AGREEMENT
1. ADHERENCE TO THE POLICY
The Nissan (and potentially Infiniti) dealerships owned by Group 1, or its
wholly owned affiliates or subsidiaries, have already agreed to comply with
NMC's dealer agreements and policies and, by this Agreement, Group 1 agrees to
not interfere with such compliance by its NMC authorized dealerships and to
itself comply with and be bound by the terms of NMC's policies, including, but
not limited to, NMC's policy limiting the number of dealers owned or controlled,
directly or indirectly, by a single entity (the "Ownership Policy"), which is
summarized as follows: i) No individual or entity may have an ownership or
management interest, direct or indirect, in Dealers whose Primary Marketing
Area's (PMA's) competitive segment registration count comprises more than 5% of
Nissan's or Infiniti's (as applicable) total, national competitive segment
registrations based on the sum of the retail competitive segment registrations
contained in all PMA's associated with the dealers; ii) No individual or entity
may hold ownership or management, direct or indirect, in Dealers whose PMA's
competitive segment registration count comprises more than 20% of any Nissan or
Infiniti (as applicable) region's total competitive segment registrations
contained in all PMA's associated with dealers in that region, iii) In order
-1-
<PAGE> 2
for any entity to acquire additional Nissan or Infiniti dealerships, within the
limits of this Agreement, the Nissan or Infiniti dealerships which it owns or
controls, directly or indirectly, must (a) be incompliance with all of the
material terms of its respective Dealer Agreements; (b) meet, in all material
respects, all of the applicable Nissan or Infiniti market representation and
other standards and policies; and (c) with respect to the NMC Division and
Region at issue, the Nissan or Infiniti dealerships which the entity owns or
controls must, in the aggregate and with respect to at least 50% of those
individual dealerships, have performed at or above all performance levels set
forth in the Business Plans for those dealerships over the proceeding 12 month
period; and iv) If the proposed acquisition of any Nissan or Infiniti dealership
would cause an individual or entity to exceed the Ownership Policy, NMC will
reject a dealer's application for approval of such ownership transfer until such
time as the purchasing individual or entity shall be able to complete the
acquisition within the requirements of this Policy. Notwithstanding the
foregoing, NMC may withhold consent to a proposed acquisition, even if that
acquisition satisfies the parameters of the Ownership Policy, based on the
grounds set forth in the Nissan Dealer Agreement and applicable state law.
2. IDENTIFICATION OF OWNERS OF GROUP 1
Group 1 represents and warrants that Schedule A hereto identifies each
individual or entity that owns, controls or has a beneficial interest in 5% or
more of Group 1 and/or of its affiliates or subsidiaries. In the event Group 1
becomes aware of any change of ownership, control or interest that results in an
individual or entity not listed on Schedule A obtaining such ownership, control
or beneficial interest, Group 1 shall provide NMC with the documentation and
information required by Schedule A with respect to such individual or entity.
Group 1 will provide NMC with copies of all filings that Group 1 becomes aware
of that are made with the SEC and comparable filings made with state agencies by
persons or entities that own, control or have a beneficial interest in 5% or
more of Group 1 and/or any of its affiliates or subsidiaries. Without limiting
the foregoing, Group 1 will use its reasonable efforts to provide such
information regarding individuals that own, control or have a beneficial
interest in 5% or more of Group 1 as NMC may from time to time reasonably
request.
3. CHANGE IN OWNERSHIP OF GROUP 1
If any person or entity acquires more than 20% of Group 1's common stock issued
and outstanding at any time and Nissan reasonably determines that such person or
entity does not have interests compatible with those of Nissan, or is otherwise
not qualified to have an ownership interest in a Nissan dealership (an "Adverse
Person"), Group 1 must terminate its dealer agreements with Nissan or transfer
the Nissan dealerships to a third party acceptable to Nissan unless, within 90
days after Nissan's determination, the Adverse Person's ownership interest is
reduced to less than 20%.
4. SEPARATE LEGAL ENTITIES FOR EACH NISSAN AND INFINITI
DEALERSHIP
Group 1 shall (i) create or maintain separate legal entities for each Nissan and
Infiniti dealership that it owns, directly or indirectly, shall obtain a
separate motor vehicle license for each such
-2-
<PAGE> 3
dealership, and shall maintain separate financial statements for each such
dealership; and (ii) where such Nissan or Infiniti dealerships are part of a
Contiguous Market Ownership Area pursuant to a Contiguous Market Ownership
Addendum, maintain a single corporate entity for the dealerships in that Area
and shall otherwise comply with the licensing and reporting requirements set
forth in that Addendum; provided, however, that if at the time of acquisition of
any Nissan or Infiniti dealership by Group 1 such dealership is not in
compliance with the requirements of clauses (i) or (ii) of this paragraph, as
applicable, Group 1 will use its reasonable efforts to cause the dealership to
comply with such requirements of clauses (i) or (ii) as soon as reasonably
practicable.
5. BRANDING/BUSINESS NAME
Consistent with NMC policy, the name "Nissan" or "Infiniti," as applicable,
shall prominently appear in the d/b/a and marketing of each dealership. Group 1
agrees that each Nissan and Infiniti dealership owned or controlled by Group 1,
directly or indirectly, shall include in its promotional, marketing and
advertising efforts the approved name of the Dealership or another name approved
by Nissan that includes the Nissan or Infiniti name and, that said dealerships
shall actively and effectively promote primarily the "Nissan" or "Infiniti"
name. Under no circumstances shall the name "Nissan" or "Infiniti" be
subordinated to or promoted less aggressively than any other name (e.g. "Group 1
Automotive" or "Group 1").
6. AUTHORITY OF THE DEALER PRINCIPAL
Each Nissan and Infiniti dealership owned or controlled by Group 1, directly or
indirectly, shall have a Dealer Principal who is delegated full authority to
perform the obligations of Dealer Principal under the terms and conditions set
forth in the applicable Nissan or Infiniti Dealer Sales and Service agreement
("Agreement"), to determine, approve, and implement the terms and provisions of
the Agreement, to make, sign, and execute any documents or further agreements,
both oral and written, between the dealer and NMC, to commit himself to the
achievement of the purposes and objectives of the Agreement, to take any and all
actions which the Dealer Principal may deem prudent, necessary, or appropriate
to effect the foregoing Agreement and to resolve all matters of the terms and
implementation as he shall deem necessary in connection therewith. Group 1 shall
not authorize or permit the Dealer Principal to take any action inconsistent
with the terms, purposes, and objectives of the Agreement.
Whenever Group 1 nominates a new Dealer Principal candidate for a Nissan or
Infiniti dealership, NMC shall have the right to withhold a decision concerning
approval or rejection of the candidate for a period of up to one year, at its
sole discretion; provided, however, that the candidate may operate in the
probationary capacity of Dealer Principal until NMC has approved or rejected
him/her. Such delay or exercise of this evaluation period does not imply
approval of the Dealer Principal candidate.
Should Group 1 reduce or modify the authority of the Dealer Principal, contrary
to the requirements of this and the Dealer Agreement, it must notify Nissan
immediately as to the specific changes in authority. Upon such notice, Nissan
will evaluate the modification of authority and notify Group 1 of its response.
Should Nissan, in its reasonable discretion, object
-3-
<PAGE> 4
to the changes, Group 1 must resolve the situation to Nissan's satisfaction or
restore the authority to that which existed prior to the modification.
NMC shall be entitled to and shall, in fact, rely upon the personal
qualifications, experience, reputation, integrity, ability, and representations
of the individual named as Dealer Principal. Any successor Dealer Principal or
Executive Manager must meet the minimum requirements set forth in NMC's current
policies relating to management.
(d) Evaluation of Management. Group 1 and NMC understand and
acknowledge that the personal qualifications, expertise, reputation, integrity,
experience and ability of the Dealer Principal and Executive Manager and their
ability to effectively manage a dealership's day-to-day operations is critical
to the success of such dealership in performing its obligations under the
respective Agreement. NMC may from time to time develop standards and/or
procedures for evaluating the performance of the Dealer Principal and Executive
Manager and of Group 1's Nissan and Infiniti dealership personnel generally. NMC
may, from time to time, evaluate the performance of the Dealer Principal and
Executive Manager, based on the standards established in the dealership's
business plan, and will advise Group 1, the respective Dealer Principal and the
Executive Manager of the results of such evaluations and the way in which any
deficiencies affect such dealership's performance of its obligations under the
applicable Agreement.
7. DESIGNATED GROUP 1 CONTACT OFFICIAL
Group 1 shall designate a Group 1 executive (other than the Dealer Principal of
the dealership) who will respond directly to any questions or concerns of NMC
regarding the relationship with NMC, the operation or performance of the
dealership(s) generally as a group, or other issues that may arise. That
executive will have full authority, in accordance with Group 1's management
policies, to discuss, address, negotiate and resolve all such issues. Matters
pertaining to a specific dealership will be addressed by Nissan with that
dealership's Dealer Principal.
8. FINANCIAL DISCLOSURES
Group 1 shall provide NMC with copies of all information and materials filed by
Group 1 with the Securities Exchange Commission under the Securities Exchange
Act of 1934, as amended, including, but not limited to, quarterly and annual
financial statement filings, prospectuses and other materials related to Group 1
and/or its automotive affiliates and subsidiaries.
9. SOLE AGREEMENT OF THE PARTIES
There are no prior agreements or understandings, either oral or written, between
the parties affecting this Agreement, except as otherwise specified or referred
to in this Agreement. No change or addition to, or deletion of any portion of
this Agreement shall be valid or binding upon the parties hereto unless approved
in a writing signed by an officer of each of the parties hereto.
-4-
<PAGE> 5
10. SEVERABILITY
If any provision of this Agreement should be held invalid or unenforceable for
any reason whatsoever, or conflicts with any applicable law, this Agreement will
be considered divisible as to such provision(s), and such provision(s) will be
deemed amended to comply with such law, or if it (they) cannot be so amended
without materially affecting the tenor of the Agreement, then it (they) will be
deemed deleted from this Agreement in such jurisdiction, and in either case, the
remainder of the Agreement will be valid and binding.
11. NO IMPLIED WAIVERS
The failure of either party at any time to require performance by the other
party of any provision herein shall in no way affect the right of such party to
require such performance at any time thereafter, nor shall any waiver by any
party of a breach of any provision herein constitute a waiver of any succeeding
breach of the same or any other provision, nor constitute a waiver of the
provision itself.
12. CONCURRENCE AND ACKNOWLEDGMENT
Group 1 acknowledges that NMC's policies and standards are prepared by NMC based
upon NMC's evaluation of the marketplace and other factors, and that NMC may
amend its policies and standards from time to time. Group 1 further agrees that
it will not interfere in the day-to-day operations of Dealer, and will neither
take, nor permit Dealer to take, actions inconsistent with NMC's policies or
Dealer's or Dealer Principal's obligations as set forth in the applicable Sales
and Service Agreement or other executed agreements.
13. APPLICABLE LAW
This Agreement shall be governed by and construed according to the laws of the
State of California. The parties to this Agreement acknowledge that it is not a
"Dealer" or "Franchise" Agreement, is not governed by the State of Federal
Manufacturer/Dealer laws, and that it does not need to be filed with any
Governmental or Administrative agencies under these laws.
14. BENEFIT
This Agreement is entered into by and between NMC and Group 1 for their sole and
mutual benefit. Neither this Agreement nor any specific provision contained in
it is intended or shall be construed to be for the benefit of any third party.
15. NOTICE TO THE PARTIES
Any notices permitted or required under the terms of this Agreement shall be
directed to the following respective addresses of the parties, or if either of
the parties shall have specified another address by notice in writing to the
other party, then to the address last specified:
-5-
<PAGE> 6
NISSAN MOTOR CORPORATION IN U.S.A.
18501 South Figueroa Street
Gardena, California 90248-4504
Attention: R. Whitfield Ramonat
Manager, Multiple Market & Public Ownership
GROUP 1 AUTOMOTIVE, INC.
950 Echo Lane
Houston, Texas 77024
Attention: B.B. Hollingsworth, Jr.
Chairman, President and Chief Executive Officer
16. DISPUTE RESOLUTION
The parties acknowledge that, at the state and federal level, various courts and
agencies would, in the absence of this Section 16, be available to them to
resolve claims or controversies which might arise between them. The parties
agree that it is inconsistent with their relationship for either to use courts
or governmental agencies to resolve such claims or controversies.
THEREFORE, CONSISTENT WITH THE PROVISION OF THE UNITED STATES ARBITRATION ACT (9
U.S.C. SEC. 1 ET SEQ.), THE PARTIES TO THIS AGREEMENT AGREE THAT THE DISPUTE
RESOLUTION PROCESS OUTLINED IN THIS SECTION, WHICH INCLUDES BINDING ARBITRATION,
SHALL BE THE EXCLUSIVE MECHANISM FOR RESOLVING ANY DISPUTE, CONTROVERSY OR CLAIM
ARISING OUT OF OR RELATING IN ANY WAY TO THIS AGREEMENT OR TO THE RELATIONSHIP
BETWEEN THE PARTIES, INCLUDING BUT NOT LIMITED TO CLAIMS UNDER ANY STATE OR
FEDERAL STATUTES (HEREINAFTER "DISPUTES").
There are two steps in the Dispute Resolution Process: Mediation and Binding
Arbitration. All Disputes must first be submitted to Mediation, unless that step
is waived by written agreement of the parties. Mediation is conducted by a panel
consisting of an equal number of representatives of the parties designated by
Nissan and selected by Group 1. The Mediation Panel will evaluate each position
and recommend a solution. This recommended solution is not binding.
If a dispute has not been resolved after Mediation, or if Group 1 and Nissan
have agreed in writing to waive Mediation, the Dispute will be settled by
Binding Arbitration.
SPECIFICALLY, THE PARTIES AGREE TO RESOLVE ALL SUCH DISPUTES BY BINDING
ARBITRATION CONDUCTED IN ACCORDANCE WIT THE COMMERCIAL ARBITRATION PROCEDURES OF
THE AMERICAN ARBITRATION ASSOCIATION, OR ANOTHER PROGRAM AGREED TO BY THE
PARTIES, WITH THE PREVAILING PARTY TO RECOVER ITS COSTS AND ATTORNEY'S FEES FROM
THE OTHER PARTY. ALL ARBITRATION AWARDS ARE BINDING AND NON-APPEALABLE, EXCEPT
AS OTHERWISE PROVIDED IN THE UNITED STATES ARBITRATION ACT. JUDGMENT UPON ANY
SUCH AWARD MAY BE ENTERED AND ENFORCED IN ANY COURT HAVING JURISDICTION.
-6-
<PAGE> 7
17. INDEMNITY
Group 1 hereby agrees to indemnify and hold harmless, NMC, its officers,
directors, affiliates and agents and each person who controls NMC within the
meaning of the Securities Act of 1933, as amended (the "Act"), from and against
any and all losses, claims, damages or liabilities, to which they or any of them
may become subject under the Act, the Securities Exchange Act of 1934, as
amended, or any other federal or state securities law, rule or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of the sale by Group 1 of any securities.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
GROUP 1 AUTOMOTIVE, INC. NISSAN MOTOR CORPORATION IN U.S.A.
By: By:
--------------------------------- ---------------------------------
B.B. Hollingsworth, Jr. Michael J. Seergy
Chairman, President and Vice-President
Chief Executive Officer General Manager, Nissan Division
-7-
<PAGE> 1
EXHIBIT 10.37
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into between Group 1
Automotive, Inc. having offices at 950 Echo Lane, Suite 350, Houston, Texas
77024 ("Employer"), and John S. Bishop, an individual currently residing at 6802
Oak Knoll Drive, Richmond, Texas 77469 ("Employee"), to be effective as of
October 7, 1998.
For and in consideration of the mutual promises, covenants, and
obligations contained herein, Employer and Employee agree as follows:
1. EMPLOYMENT AND DUTIES:
1.1. Employer agrees to employ Employee, and Employee agrees to be
employed by Employer, beginning October 7, 1998 and continuing throughout the
Term (as defined below) of this Agreement, subject to the terms and conditions
of this Agreement.
1.2. Employee shall serve as Senior Vice President - Operations of
Employer. Employee agrees to serve in the assigned position and to perform
diligently and to the best of Employee's abilities the duties and services
appertaining to such position as determined by Employer, as well as such
additional or different duties and services appropriate to such position which
Employee from time to time may be reasonably directed to perform by Employer.
Employee shall at all times comply with and be subject to such policies and
procedures as Employer may establish from time to time.
1.3. Employee shall, during the period of Employee's employment by
Employer, devote Employee's full business time, energy, and best efforts to the
business and affairs of Employer. Employee may not engage, directly or
indirectly, in any other business, investment, or activity that interferes with
Employee's performance of Employee's duties hereunder, is contrary to the
interests of Employer or any of its subsidiaries or affiliates, or requires any
significant portion of Employee's business time; provided, however, that
Employee may engage in passive personal investments that do not conflict with
the business and affairs of the Employer or any of its subsidiaries or
affiliates or interfere with Employee's performance of his or her duties
hereunder.
1.4. Employee acknowledges and agrees that Employee owes a fiduciary
duty of loyalty, fidelity and allegiance to act at all times in the best
interests of Employer or any of its subsidiaries or affiliates and to do no act
which would injure the business, interests, or reputation of Employer or any of
its subsidiaries or affiliates. In keeping with these duties, Employee shall
make full disclosure to Employer of all business opportunities pertaining to
Employer's business and shall not appropriate for Employee's own benefit
business opportunities concerning the subject matter of the fiduciary
relationship.
<PAGE> 1
Exhibit 10.38
FORD SALES & SERVICE AGREEMENT
[LOGO] FORD MOTOR COMPANY
FORD DIVISION
<PAGE> 2
TABLE OF CONTENTS FOR STANDARD PROVISIONS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
1. DEFINITIONS..............................................................1
2. RESPONSIBILITIES WITH RESPECT TO VEHICLES................................3
(a) Sales...........................................................3
(b) Orders..........................................................4
(c) Consideration of Orders.........................................4
(d) Stocks..........................................................5
(e) Demonstrators...................................................5
(f) Factory Suggested Price Labels..................................5
(g) Owner Literature................................................5
(h) Rebates and Allowances..........................................5
(i) Warranty........................................................5
3. RESPONSIBILITIES WITH RESPECT TO GENUINE PARTS...........................6
(a) Sales...........................................................6
(b) Orders..........................................................6
(c) Consideration of Orders.........................................6
(d) Stocks..........................................................6
(e) Returns and Allowances..........................................6
(f) Warranty........................................................7
4. RESPONSIBILITIES WITH RESPECT TO SERVICE.................................7
(a) Predelivery Service.............................................7
(b) Warranty and Policy and Campaign Service .......................7
(c) Maintenance and Repair Service..................................8
(d) Service Tools and Equipment.....................................8
5. RESPONSIBILITIES WITH RESPECT TO DEALERSHIP FACILITIES...................8
(a) Locations and Facilities........................................8
(b) Dealership Facilities Supplement................................8
(c) Changes and Additions...........................................8
(d) Company Assistance..............................................8
(e) Fulfillment of Responsibility...................................9
6. OTHER DEALER AND COMPANY RESPONSIBILITIES................................9
(a) Signs...........................................................9
(b) Personnel.......................................................9
(c) Dealer Residence................................................9
(d) Capital.........................................................9
(e) Accounting System...............................................9
(f) Financial Reports..............................................10
(g) Delivery and Sales Reports.....................................10
(h) Customer Handling..............................................10
(i) Business Practices, Advertising and Programs...................10
(j) Compliance with Laws, Rules and Regulations....................11
(k) Indemnification by the Company.................................11
7. DEALER'S RESPONSIBILITIES WITH RESPECT TO HOURS OF BUSINESS.............12
8. PURCHASES FROM OTHERS AND SALES TO OTHERS...............................12
9. DETERMINATION OF DEALER REPRESENTATION..................................12
(a) Representation Planning........................................12
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
(b) Information to Dealer..........................................12
(c) Additional Dealers.............................................13
(d) Established Dealer Points......................................13
10. PRICES AND CHANGES......................................................13
11. TERMS AND TITLE.........................................................13
(a) Payment........................................................13
(b) Title..........................................................13
(c) Risk of Loss and Claims........................................14
(c) Demurrage and Diversion Liability..............................14
(e) State and Local Taxes..........................................14
12. RECORDS, INSPECTIONS AND TESTS..........................................14
(a) Record Retention...............................................14
(b) Inspections and Tests..........................................14
13. CHANGES IN COMPANY PRODUCTS.............................................14
14. DEALER NOT AGENT OF THE COMPANY.........................................15
15. TRADEMARKS AND TRADE NAMES..............................................15
(a) Use in Firm Name....................................................15
(b) Limitations on Use..................................................15
16. REPORTS TO FORD MOTOR COMPANY'S DEALER POLICY BOARD.....................15
17. TERMINATION OR NONRENEWAL OF AGREEMENT..................................16
(a) By Dealer......................................................16
(b) By Company Due to Events Controlled by Dealer..................16
(c) By Company for Nonperformance by Dealer of Sales,
Service, Facilities or Other Responsibilities..................17
(d) By Company or Dealer Because of Death or Physical
or Mental Incapacity of any Principal Owner....................17
(e) By Company or Dealer for Failure of Dealer
or Company to be Licensed......................................17
(f) By Company at Will.............................................17
(g) By Company Upon the Offer of a New Agreement...................18
(h) Acts in Good Faith.............................................18
18. REQUIRED APPEAL TO POLICY BOARD -- TERMINATIONS OR NONRENEWALS --
OPTIONAL ARBITRATION PLAN...............................................18
(a) Arbitration Plan...............................................18
(b) Appeal to Policy Board.........................................18
(c) Optional Arbitration...........................................19
(d) Limitation of Actions..........................................19
(e) Expenses of Arbitration........................................19
19. OBLIGATIONS UPON TERMINATION OR NONRENEWAL..............................20
(a) Sums Owing the Company ........................................20
(b) Discontinuance of Use of Trademarks and Trade Names............20
(c) Warranty Work..................................................20
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
(d) Service Records................................................20
(e) Orders and Customer Deposits ..................................20
(f) Deliveries After Termination or Nonrenewal.....................21
20. SUCCESSOR TO THE DEALER IN THE EVENT OF DEATH OR INCAPACITY.............21
(a) Interim Agreement..............................................21
(b) Buy-Out........................................................22
(c) Term/Continuation..............................................23
(d) Limitation of Offer............................................23
(e) Limitation for Acceptance......................................23
21. REACQUISITION OF COMPANY PRODUCTS AND ACQUISITION OF THE DEALER'S
SIGNS, SPECIAL TOOLS AND EQUIPMENT, AND MAINTENANCE ITEMS...............23
(a) Vehicles.......................................................23
(b) Genuine Parts..................................................24
(c) Dealer's Signs.................................................24
(d) Special Tools and Equipment....................................24
(e) Procedures, Delivery and Title.................................25
(f) Payment........................................................25
(g) Assignment of Benefits.........................................25
22. FACILITIES ASSISTANCE UPON NONRENEWAL OR CERTAIN TERMINATIONS
BY THE COMPANY..........................................................25
(a) Dealer Eligibility.............................................25
(b) Eligible Facilities............................................26
(c) Company's Obligation...........................................26
(e) Satisfaction of Company's Obligation ..........................27
23. TERMINATION BENEFITS FULL COMPENSATION; GENERAL RELEASE.................27
(a) Company Right to Approve Change in Ownership...................28
(b) Company Right of First Refusal to Purchase.....................28
24. NEW AGREEMENT...........................................................29
25. ACKNOWLEDGEMENTS........................................................29
26. NO IMPLIED WAIVERS......................................................29
27. RELATIONS AFTER TERMINATION NOT A RENEWAL...............................30
28. LIMITATION OF THE COMPANY'S LIABILITY...................................30
39. NOTICES.................................................................30
30. AMENDMENT...............................................................30
31. MICHIGAN AGREEMENT......................................................30
32. CONFLICT WITH STATUTE...................................................30
</TABLE>
<PAGE> 5
[LOGO] FORD MOTOR COMPANY
FORD SALES AND SERVICE AGREEMENT
STANDARD PROVISIONS
DEFINITIONS
1. As used herein, the following terms shall have the following meanings,
respectively:
1. (A) "COMPANY PRODUCTS" shall mean such
(1) new passenger cars
(2) new trucks and chassis, excluding all trucks and chassis of
series 850 or higher designations, and
(3) parts and accessories therefor,
as from time to time are offered for sale by the Company to all authorized Ford
dealers as such for resale, plus such other products as may be offered for sale
by the Company to the Dealer from time to time. The Company reserves the right
to offer any new, different and differently designated passenger car, truck or
chassis, and any other product, bearing any trademarks or brand names used or
claimed by the Company or any of its subsidiaries, including the name "Ford," to
selected authorized Ford dealers or others under existing or separate new
agreements; provided, however, that the Company shall not franchise any such new
passenger car bearing the name "Ford" (other than the Ford script-in-oval
corporate form of trademark) to anyone who is not an authorized Ford dealer.
1. (B) "CAR" shall mean any passenger car, and "TRUCK" shall mean any truck
or chassis included in this agreement pursuant to paragraph 1(a) above.
"VEHICLE" shall mean any CAR or TRUCK, and "VEHICLES" shall mean CARS and
TRUCKS.
1. (C) "COMPETITIVE CARS" and "COMPETITIVE TRUCKS" shall mean those new cars
and new trucks, respectively, not marketed by the Company which are selected by
the Company as generally comparable with CARS and TRUCKS, respectively, in price
and product characteristics.
1. (D) "INDUSTRY CARS" and "INDUSTRY TRUCKS" shall mean all new cars and all
new trucks, respectively, of all manufacturers to the extent data therefor are
reasonably available.
1. (E) "GENUINE PARTS" shall mean such parts, accessories and equipment for
VEHICLES as are offered for sale by the Company from time to time to the Dealer.
1. (F) "DEALER PRICE" shall mean, with respect to each COMPANY PRODUCT to
which it refers, the price to the Dealer for such product, as from time to time
established by the Company, before deduction of any cash or other discount
applicable thereto. It shall not include any amount in the nature of a
predelivery or other holdback deposit or charge, any dealer association
collection, any charge by the Company for distribution, delivery or taxes, or
any other charge for special items or services.
-1-
<PAGE> 6
1. DEFINITIONS (CONTINUED)
1. (G) "VEHICLE TERMS OF SALE BULLETIN" shall mean the latest VEHICLE TERMS
OF SALE BULLETIN and amendments thereto furnished to the Dealer from time to
time by the Company setting forth the terms of sale and ordering procedures
applicable to sales of VEHICLES to authorized Ford dealers.
1. (H) "PARTS AND ACCESSORIES TERMS OF SALE BULLETIN" shall mean the latest
PARTS AND ACCESSORIES TERMS OF SALE BULLETIN and amendments thereto furnished to
the Dealer from time to time by the company setting forth the terms of sale and
ordering procedures applicable to sales of GENUINE PARTS to authorized Ford
dealers.
1. (I) "CUSTOMER SERVICE BULLETIN" shall mean the latest CUSTOMER SERVICE
BULLETIN and amendments thereto furnished to the Dealer from time to time by the
Company establishing standards for authorized Ford dealers with respect to
service personnel, training, tools and equipment, for customer handling
procedures and for evaluating the Dealer's service performance.
1. (J) "DEALER'S LOCALITY" shall mean the locality designated in writing to
the Dealer by the Company from time to time as the area of the Dealer's sales
and service responsibility for COMPANY PRODUCTS.
1. (K) "DEALERSHIP LOCATION" shall mean the place or places of business of
the Dealer for carrying out this agreement which are approved by the Company as
provided in paragraph 5 of this agreement.
1. (L) "DEALERSHIP FACILITIES" shall mean the land areas, building and
improvements established at the DEALERSHIP LOCATION in accordance with the
provisions of paragraph 5 of this agreement.
1. (M) "DEALERSHIP OPERATIONS" shall mean the sale of COMPANY PRODUCTS and
used vehicles, service operations and (if the Dealer so elects) rental or
leasing of VEHICLES, conducted by the Dealer at or from the DEALERSHIP
FACILITIES.
1. (N) "CAR PLANNING VOLUME" and "TRUCK PLANNING VOLUME" shall mean the
average annual estimated sales base for CARS and TRUCKS, respectively,
established by the Company for the Dealer from time to time for planning
purposes under its standard procedures for authorized Ford dealers in single or
multiple DEALERS' LOCALITIES, as the case may be, based on historical sales and
registrations, and current trends, in CARS, TRUCKS, COMPETITIVE CARS and TRUCKS
and INDUSTRY CARS and TRUCKS in the DEALER'S LOCALITY. Consideration shall also
be given to the environs of the DEALERSHIP LOCATION and market trends therein,
consumer shopping habits, demographic factors and other appropriate data to the
extent available and pertinent. Such terms shall not represent the actual sales
volumes to be achieved by the Dealer to meet his responsibilities under
paragraph 2 of this agreement.
1. (O) "PERCENT RESPONSIBILITY" shall mean the ratio of the Dealer's CAR
PLANNING VOLUME and of the Dealer's TRUCK PLANNING VOLUME, to the total CAR
PLANNING VOLUMES and to the total TRUCK PLANNING VOLUMES, respectively, for all
authorized Ford dealers in the DEALER'S LOCALITY.
1. (P) "UIO" (units in operation) shall mean the CARS and TRUCKS of the
next preceding three or more model years (as determined by the Company from time
to time) licensed within the DEALER'S LOCALITY at a given time multiplied by the
Dealer's PERCENT RESPONSIBILITY therefor.
-2-
<PAGE> 7
1. DEFINITIONS (CONTINUED)
1. (Q) "GUIDES" shall mean such reasonable standards as may be established
by the Company for the Dealer from time to time under its standard procedures
for authorized Ford dealers (i) for DEALERSHIP FACILITIES and equipment,
capitalization and net working capital based on such factors as CAR and TRUCK
PLANNING VOLUMES, UIO, the DEALER'S LOCALITY and (ii) for inventories,
personnel, demonstrators and other elements of DEALERSHIP OPERATIONS based on
such factors as sales and service volumes.
RESPONSIBILITIES WITH RESPECT TO VEHICLES
2. (A) SALES. The Dealer shall promote vigorously and aggressively the sale
at retail (and, if the Dealer elects, the leasing and rental) of CARS and TRUCKS
to private and fleet customers within the DEALER'S LOCALITY, and shall develop
energetically and satisfactorily the potentials for such sales and obtain a
reasonable share thereof; but the Dealer shall not be limited to the DEALER'S
LOCALITY in making sales. To this end, the Dealer shall develop, maintain and
direct a trained, quality vehicle sales organization and shall conduct
throughout each model year aggressive advertising and sales promotion
activities, making use to the greatest feasible extent of the Company's
advertising and sales promotion programs relating to VEHICLES.
The Dealer's performance of his sales responsibility for CARS shall be
measured by such reasonable criteria as the Company may develop from time to
time, including:
(1) Dealer's sales of CARS to private and fleet users located in the
DEALER'S LOCALITY as a percentage of:
(I) all private and all fleet registrations of CARS in the DEALER'S
LOCALITY.
(II) all private and all fleet registrations of COMPETITIVE CARS in
the DEALER'S LOCALITY,
(III) all private and all fleet registrations of INDUSTRY CARS in the
DEALER'S LOCALITY, and
(IV) the private and fleet sales objectives for CARS established by
the Company for the Dealer from time to time.
(2) If the Dealer is not the only authorized dealer in CARS in the DEALER'S
LOCALITY, the following factors shall be used in computing percentages
pursuant to 2(a) (1) above:
(I) The Dealer's sales of CARS to users located in the DEALER'S
LOCALITY shall be deemed to be the total registrations thereof
in the DEALER'S LOCALITY multiplied by the Dealer's percent of
sales of all CARS made by all authorized Ford dealers located in
the DEALER'S LOCALITY unless the Dealer or the Company shows
that the Dealer actually has made a different number of such
sales.
(II) The registrations of CARS and COMPETITIVE and INDUSTRY CARS in
the DEALER'S LOCALITY against which the Dealer shall be measured
shall be the total thereof multiplied by the Dealer's PERCENT
RESPONSIBILITY, and
(III) The Dealer's objectives for CARS shall be the total objectives
therefor of all authorized Ford dealers in the DEALER'S LOCALITY
multiplied by the Dealer's PERCENT RESPONSIBILITY.
(3) A comparison of each such percentage with percentages similarly
obtained for all other authorized Ford dealers combined in the
Company's sales zone and districts in which the Dealer is located, and
where subparagraph 2(a) (2) applies, for all other authorized Ford
dealers combined in the DEALER'S LOCALITY.
-3-
<PAGE> 8
2. RESPONSIBILITIES WITH RESPECT TO VEHICLES (CONTINUED)
(4) In evaluating any comparisons provided for in subparagraph 2(a) (3)
above, the Company shall give consideration to the availability of CARS
to the Dealer and other authorized Ford dealers and any special local
marketing conditions that might affect the Dealer's sales performance
differently from the sales performance of COMPETITIVE or INDUSTRY CAR
dealers or other authorized Ford dealers.
(5) The sales and registration data referred to in this subparagraph 2(a)
shall include sales to and registrations in the name of leasing and
daily rental operations and shall be those utilized in this Company's
records or in reports furnished to the Company by independent sources
selected by it and generally available for such purpose in the
automotive industry. In the event such reports of the registrations
and/or sales of INDUSTRY or COMPETITIVE CARS in the DEALER'S LOCALITY
are not generally available, the evaluation of the Dealer's sales
performance shall be based on such registrations and/or sales or
purchase data as can be reasonably obtained by the Company.
The Dealers's performance of his sales responsibility for TRUCKS shall be
determined in the same manner as for CARS.
The Company will provide to the Dealer an evaluation of his performance
under this subparagraph (2)(a) from time to time as initiated by the Company, or
not more than once a month upon the written request of the dealer.
2. (B) ORDERS.
(1) To enable the Company to plan for and establish, and its manufacturing
sources to carry out, production schedules, the Dealer shall, on the
dates and forms provided by the Company, furnish the Company basic
orders for types of VEHICLES and specific orders for individual
VEHICLES against the applicable basic order as specified in the
applicable VEHICLE TERMS OF SALE BULLETIN.
(2) The Company is authorized to have installed on any VEHICLE ordered by
the Dealer any equipment or accessory required by any applicable
federal, state or local law, rule, or regulation.
(3) Any order for a VEHICLE not shipped during the month for which delivery
was scheduled will remain in effect unless canceled by the Dealer or
the Company by written notice to the other. An order for an "off
standard" VEHICLE may be canceled only by or with the consent of the
Company. Any VEHICLE which differs from the Company's standard
specifications, or which incorporates special equipment, shall be
considered an "off standard" VEHICLE.
(4) The Dealer shall not be liable to the Company for any failure to accept
shipments of VEHICLES ordered from the Company where such failure is
due to any labor difficulty at the DEALERSHIP LOCATION or to any cause
beyond the Dealer's control or without the Dealer's fault or
negligence.
2. (C) CONSIDERATION OF ORDERS.
(1) The Company may reject orders not submitted in accordance with
subparagraph 2(b)(1) above. The Company shall make reasonable efforts
to fill each order of the Dealer that is accepted by the Company.
During any period of shortage of any VEHICLE, the Company shall be
entitled to give priority to accepted orders for such VEHICLES for
resale to users residing within the DEALER'S LOCALITY of the ordering
dealer.
-4-
<PAGE> 9
2. RESPONSIBILITIES WITH RESPECT TO VEHICLES (CONTINUED)
(2) The Company shall not be liable to the Dealer in any respect for
failure to ship or for delay in shipment of accepted orders for
VEHICLES where such failure or delay is due wholly or in part to (i)
shortage or curtailment of material, labor, transportation, or utility
services, (ii) any labor or production difficulty in any of its own or
any of its suppliers' locations, (iii) any governmental action, or (iv)
any cause beyond the Company's control or without its fault or
negligence.
2. (D) STOCKS. The Dealer shall maintain stocks of current models of such
lines or series of VEHICLES, of an assortment and in quantities as are in
accordance with Company GUIDES therefor, or adequate to meet the Dealer's share
of current and anticipated demand for VEHICLES in the DEALER'S LOCALITY. The
Dealer's maintenance of VEHICLE stocks shall be subject to the Company's filling
the Dealer's orders therefor.
2. (E) DEMONSTRATORS. The Dealer shall maintain at all times in good
condition and running order for demonstration and loan to prospective
purchasers, such numbers of the latest model of such lines or series of VEHICLES
as are in accordance with Company GUIDES therefor.
2. (F) FACTORY SUGGESTED PRICE LABELS. If any CAR is delivered by the
Company to the Dealer with an incorrect label, or without a completed label,
affixed thereto pursuant to the Federal Automobile Information Disclosure Act,
the Dealer shall promptly complete and affix to such CAR a correct label on the
form and in accordance with the directions furnished by the Company.
2. (G) OWNER LITERATURE. The Dealer shall, in accordance with the Company's
instructions, complete, execute and deliver to each retail purchaser of a
VEHICLE from him the Company's then current publications for owners with respect
to the operation, maintenance and warranty of that VEHICLE (hereinafter called
"Owner's Literature"). The Dealer shall fulfill promptly all dealer
responsibilities under each piece of the Owner's Literature delivered by him.
The Company may specify in the Owner's Literature that the Dealer will perform
certain inspections of the VEHICLE. The Dealer authorizes the Company to charge
his account for work done by another Company authorized CAR or TRUCK dealer
under the Owner's Literature delivered by the Dealer, and to credit his account
for work done by him under Owner's Literature delivered by another Company
authorized CAR or TRUCK dealer. The charge or credit shall be in the amount
specified by the Company from time to time.
2. (H) REBATES AND ALLOWANCES. The Dealer shall be entitled to such rebates
and allowances from the Company on VEHICLES and factory-installed options,
subject to such conditions and procedures, as may be specified in the applicable
VEHICLE TERMS OF SALE BULLETIN or other notice pertaining thereto sent to the
Dealer by the Company, provided that any change in the model close-out allowance
shall be announced to the Dealer prior to the Company's solicitation of the
build-out order.
2. (I) WARRANTY. The Company shall from time to time establish, by notice
to the Dealer, the warranty to the owner applicable to each VEHICLE. There shall
be NO OTHER WARRANTY, express or implied, including any warranty of
MERCHANTABILITY OR FITNESS, or any other obligation of the Company to the Dealer
or the owner with respect to the VEHICLE or any part thereof except the warranty
established pursuant to this subparagraph. The Dealer shall expressly
incorporate such warranty as a part of each buyer's order form or other contract
for the sale of a VEHICLE and shall deliver a copy of the warranty, in the form
furnished by the Company, to the owner at the time the VEHICLE is delivered to
the owner, all in accordance with instructions set forth in the Company's then
current Warranty and Policy Manual and supplements thereto (hereinafter called
"Warranty Manual").
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<PAGE> 10
RESPONSIBILITIES WITH RESPECT TO GENUINE PARTS
3. (A) SALES. The Dealer shall promote vigorously and aggressively the sale
of GENUINE PARTS to service, wholesale and other customers within the DEALER'S
LOCALITY, and shall develop energetically and satisfactorily the potentials for
such sale and obtain a reasonable share thereof; but the Dealer shall not be
limited to the DEALER'S LOCALITY in making sales. To this end, the Dealer shall
develop, maintain and direct a trained quality parts sales organization and
shall conduct aggressive advertising and sales promotion activities, making use
to the greatest feasible extent of the Company's advertising and sales promotion
programs relating to GENUINE PARTS. The Dealer shall not sell or offer for sale
or use in the repair of any COMPANY PRODUCT, as a GENUINE PART, any part or
accessory that is not in fact a GENUINE PART.
The Dealer's performance of his sales responsibility for GENUINE PARTS
shall be measured by such reasonable criteria as the Company may develop from
time to time including:
(1) His sales as a percentage of the sales objectives established for him
by the Company from time to time, and his sales per UIO, and
(2) A comparison of such percentage and sales UIO with the percentage
similarly obtained and sales per UIO of all other authorized Ford
dealers combined in one or more of the following: (i) the DEALER'S
LOCALITY, (ii) the Company's sales or service zone, and (iii) the
district in which the Dealer is located, as the Company may determine.
3. (B) ORDERS.
(1) Stock orders for the Dealer's requirements of GENUINE PARTS shall be
furnished to the Company by the Dealer in accordance with the
applicable PARTS AND ACCESSORIES TERMS OF SALE BULLETIN.
(2) Any order for a GENUINE PART not shipped in accordance with normal
shipping schedules will remain in effect unless cancelled by the Dealer
or the Company by written notice to the other.
(3) The Dealer shall not be liable to the Company for any failure to accept
shipment of GENUINE PARTS ordered from the Company where such failure
is due to any labor difficulty in the Dealer's place of business or to
any cause beyond the Dealer's control or without the Dealer's fault or
negligence.
3. (C) CONSIDERATION OF ORDERS.
(1) The Company shall make reasonable efforts to fill each order of the
Dealer that is accepted by the Company.
(2) The Company shall not be liable to the Dealer in any respect for
failure to ship or for delay in shipment of accepted orders for GENUINE
PARTS where such failure or delay is due wholly or in part to (i)
shortage or curtailment of material, labor, transportation or utility
services, (ii) any labor or production difficulty in any of its own or
any of its suppliers' locations, (iii) any governmental action or (iv)
any cause beyond the Company's control or without its fault or
negligence.
3. (D) STOCKS. The Dealer shall maintain a stock of parts, including
GENUINE PARTS, in accordance with Company GUIDES therefor, and of an assortment
in quantities adequate to meet the current and anticipated demand therefor. The
Dealer's maintenance of stocks of GENUINE PARTS shall be subject to the
Company's filling the Dealer's orders therefor.
3. (E) RETURNS AND ALLOWANCES. The Dealer shall be entitled to such
allowances, discounts, incentives and return privileges from the Company on
GENUINE PARTS subject to such conditions
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<PAGE> 11
3. RESPONSIBILITIES WITH RESPECT TO GENUINE PARTS (CONT.)
and procedures as may be specified in the applicable PARTS AND ACCESSORIES TERMS
OF SALE BULLETIN or other notice pertaining thereto sent to the Dealer by the
Company.
3. (F) WARRANTY. The Company shall from time to time establish, by notice
to the Dealer, the warranty applicable to each GENUINE PART. There shall be NO
OTHER WARRANTY, express or implied, including any warranty of MERCHANTABILITY OR
FITNESS, or any other obligation of the Company to the Dealer or the customer
with respect to any GENUINE PART or any part thereof except the warranty
established pursuant to this subparagraph. The Dealer shall expressly
incorporate such warranty as a part of each sale of a GENUINE PART, in
accordance with instructions set forth in the Warranty Manual.
RESPONSIBILITIES WITH RESPECT TO SERVICE
4. The Dealer shall develop, maintain and direct a trained, quality service
organization and render at the DEALERSHIP FACILITIES prompt, workmanlike,
courteous and willing service to owners and users of COMPANY PRODUCTS, in
accordance with the standards and procedures set forth in the applicable
CUSTOMER SERVICE BULLETIN, including without limitation all service to which a
purchaser of a COMPANY PRODUCT from any authorized Ford dealer may be entitled.
4. (A) PREDELIVERY SERVICE. The Dealer shall perform or be responsible for
the performance of such inspection, conditioning and repair of each VEHICLE
before delivery as may be prescribed for such VEHICLE in the Company's
applicable predelivery inspection and conditioning schedules furnished by the
Company to the Dealer. The Dealer shall maintain or be responsible for the
maintenance of adequate records of all predelivery inspection, conditioning and
repair work performed by or for the Dealer.
4. (B) WARRANTY AND POLICY AND CAMPAIGN SERVICE.
(1) The Dealer shall perform all warranty and policy service on each
COMPANY PRODUCT it is certified to sell and service, presented by
owners, in accordance with the warranty and policy applicable thereto
and the applicable provisions of the Warranty Manual and CUSTOMER
SERVICE BULLETIN.
(2) The Dealer shall perform campaign inspections and/or corrections for
owners and users of all VEHICLES, subject to the campaign instructions
issued by the Company from time to time and the applicable provisions
of the Warranty Manual. The Company may ship parts in quantity to the
Dealer to effect such campaign work and if such parts are in excess of
the Dealer's requirements, the Dealer may return unused parts to the
Company for credit after completion of the campaign.
(3) The Dealer shall use only GENUINE PARTS in performing warranty, policy
and campaign work, except as otherwise provided in the Warranty Manual,
CUSTOMER SERVICE BULLETIN or campaign instructions, and shall give
precedence to all such work over other service work if the use of the
vehicle is impaired. The Dealer shall promptly report to the Company,
and seek the Company's assistance with respect to, any warranty or
policy or campaign work which cannot be performed to the owner's or the
Dealer's satisfaction. The Company shall give precedence to such
requests over other service assistance. The Dealer
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<PAGE> 12
4. RESPONSIBILITIES WITH RESPECT TO SERVICE (CONTINUED)
shall provide the owner with a copy of the repair order for such work
itemizing the work performed. The Dealer shall have such repair order
signed by the owner except in unusual circumstances where it is not
feasible to obtain such signature.
(4) The Dealer shall submit claims to the Company for reimbursement for the
parts and labor used in performing warranty, policy and campaign work
and the Company shall reimburse the Dealer therefor, in accordance with
the provisions of the Warranty Manual or campaign instructions and the
Dealer's approved warranty labor rate. The Dealer shall maintain
adequate records and documents supporting such claims in accordance
with the provisions of the Warranty Manual.
4. (C) MAINTENANCE AND REPAIR SERVICE. The Dealer shall perform all other
maintenance and repair services, including where feasible, body repair services,
reasonably required by owners and users of VEHICLES and shall provide each
customer a copy of the repair order itemizing the work performed and the charges
therefor. The Dealer shall have the customer sign such repair order except in
unusual circumstances where it is not feasible to obtain such signature.
4. (D) SERVICE TOOLS AND EQUIPMENT. The Dealer shall acquire and maintain
for use in DEALERSHIP OPERATIONS such diagnostic equipment and other tools,
equipment and machinery, comparable to the type and quality recommended by the
Company from time to time, as are necessary to meet the Dealer's service
responsibilities hereunder and substantially in accordance with Company GUIDES
therefor and the applicable CUSTOMER SERVICE BULLETIN.
RESPONSIBILITIES WITH RESPECT TO DEALERSHIP FACILITIES
5. (A) LOCATIONS AND FACILITIES. The Dealer shall establish and maintain at
the DEALERSHIP LOCATION approved by the Company DEALERSHIP FACILITIES of
satisfactory appearance and condition and adequate to meet the Dealer's
responsibilities under this agreement. The DEALERSHIP FACILITIES shall be
substantially in accordance with the GUIDES therefor established by the Company
from time to time.
5. (B) DEALERSHIP FACILITIES SUPPLEMENT. The Dealer and the Company have
executed, as a part of and simultaneously with this agreement, a Dealership
Facilities Supplement which includes a description of all of the DEALERSHIP
LOCATION and FACILITIES, the GUIDES therefor as of the date of this agreement
and the purpose for which each shall be used.
5. (C) CHANGES AND ADDITIONS. The Dealer shall not move or substantially
modify or change the usage of any of the DEALERSHIP LOCATION or FACILITIES for
COMPANY PRODUCTS, nor shall the Dealer or any person named in subparagraphs F(i)
or F(ii) hereof directly or indirectly establish or operate in whole or in part
any other locations or facilities for the sale or service of COMPANY PRODUCTS or
the sale of used vehicles without the prior written consent of the Company. Any
such change shall be evidenced by a new Dealership Facilities Supplement
executed by the Dealer and the Company. To ensure that all data included on the
Dealership Facilities Supplement are reasonably accurate, the Company and the
Dealer shall execute a new Dealership Facilities Supplement at least once every
five (5) years.
5. (D) COMPANY ASSISTANCE. To assist the Dealer in planning, establishing
and maintaining DEALERSHIP LOCATION and FACILITIES in accordance with his
responsibilities under this agreement, the Company will make available, at the
request of the Dealer, and at a mutually convenient time and place, personnel to
provide counsel and advice regarding location and facility planning, including
layout and design.
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<PAGE> 13
5. RESPONSIBILITIES WITH RESPECT TO DEALERSHIP
FACILITIES (CONTINUED)
5. (E) FULFILLMENT OF RESPONSIBILITY. The Dealer shall be deemed to be
fulfilling his responsibilities under this paragraph 5 when and as long as the
DEALERSHIP LOCATION is approved by the Company and the DEALERSHIP FACILITIES are
substantially in accordance with the current GUIDES therefor. The execution of
this agreement or of any Dealership Facilities Supplement shall not of itself by
construed as evidence of the fulfillment by the Dealer of his responsibilities
to provide adequate DEALERSHIP LOCATION and FACILITIES.
OTHER DEALER AND COMPANY RESPONSIBILITIES
6. (A) SIGNS. The Dealer shall install and maintain at the DEALERSHIP
LOCATION signs of good appearance and adequate to identify such locations as (1)
authorized sales and service establishments for VEHICLES and other COMPANY
PRODUCTS identifying such products as products of the Company, (2) authorized
sales locations for used vehicles and (3) authorized locations for the leasing
or rental of vehicles, as the case may be. Each sign shall be compatible with
the design standards established by the Company from time to time and shall be
subject to the Company's approval with respect to any display of any trademark
or trade name used or claimed by the Company or any of its subsidiaries.
Fulfillment of any separate Dealership Identification Agreement between the
Dealer and the Company shall be deemed fulfillment of this subparagraph 6(a).
The Company will make available, at the request of the Dealer, and at a mutually
convenient time and place, personnel to provide counsel and advice regarding
dealership signs and identification.
6. (B) PERSONNEL. The Dealer shall employ and train such numbers and
classifications of competent personnel of good character, including, without
limitation, sales, parts, service, owner relations and other department
managers, salesmen and service technicians, as will enable the Dealer to fulfill
all his responsibilities under this agreement. The Company shall provide
assistance to the Dealer in determining personnel requirements. In response to
the training needs of the Dealer's personnel, the Dealer at his expense shall
cause his personnel to attend training schools or courses conducted by the
Company from time to time.
6. (C) DEALER RESIDENCE. Effective operation of the Dealer's business is
dependent in large part on the Dealer's management becoming a part of and
accepted within his local community. Accordingly, each person named in
subparagraph F(ii) hereof shall (unless otherwise approved in writing by the
Company because of individual circumstances) reside within the DEALER'S
LOCALITY.
6. (D) CAPITAL. The Dealer shall at all times maintain and employ in
connection with his DEALERSHIP OPERATIONS separately from any other business of
the Dealer, such total investment, net working capital, adequate lines of
wholesale credit and competitive retail financing plans for VEHICLES as are in
accordance with Company GUIDES therefor and will enable the Dealer to fulfill
all his responsibilities under this agreement.
6. (E) ACCOUNTING SYSTEM. It is in the mutual interests of the Dealer
and the Company that uniform accounting systems and practices be maintained by
the Company's authorized dealers in
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<PAGE> 14
6. OTHER DEALER AND COMPANY RESPONSIBILITIES (CONTINUED)
order that the Company may develop and disseminate helpful information, evaluate
the relative operating performance of each dealer and develop criteria that will
enable the Company to formulate plans and policies in the interests of its
dealers and the Company and that will assist each dealer to obtain satisfactory
results from his dealership operations. Accordingly, the Dealer shall install
and use in his DEALERSHIP OPERATIONS, whether conducted as one or several
business entities, an accounting system, not exclusive of any other system the
Dealer may wish to use, in accordance with the Company's Manual of Dealer
Accounting Procedures as amended from time to time.
6. (F) FINANCIAL REPORTS. In furtherance of the mutual interests set forth
in paragraph 6(e) hereof, the Dealer shall furnish to the Company each month, at
the time and on the forms prescribed by the Company, a complete statement
reflecting the true financial condition and the month and year-to-date operating
results of his DEALERSHIP OPERATIONS as of the end of the preceding month. The
Dealer also shall promptly furnish to the Company a copy of any adjusted annual
statement that may be prepared by or for the Dealer. All such statements,
reports and data shall be based whenever applicable upon the accounting system
installed and used by the Dealer in accordance with subparagraph 6(e). Financial
information furnished by the Dealer shall be handled on a confidential basis by
the Company and, unless authorized by the Dealer or required by law, or offered
in evidence in judicial or arbitration proceedings, shall not be furnished,
except as an unidentified part of a composite or coded report, to any party
outside of the Company.
6. (G) DELIVERY AND SALES REPORTS. To assist the Company in evaluating
current sales and market trends, in advising its manufacturing sources of
adjustments desired in production and distribution schedules, and in providing
the type of information necessary to provide assistance and counsel to the
Dealer, the Dealer shall (1) accurately complete the information prescribed on
the vehicle delivery card and forward such card to the Company at or as soon as
reasonably possible after the end of the day on which the new VEHICLE is
delivered or sold, whichever shall occur first, to the private or fleet customer
or to rental or leasing operations, if any, conducted or controlled by the
Dealer, and (2) furnish the Company with accurate and complete delivery or sales
reports and data relating to the Dealer and his DEALERSHIP OPERATIONS at the
times and on such forms as the Company may specify from time to time.
6. (H) CUSTOMER HANDLING. The Dealer shall cooperate with Company programs,
and develop and maintain his own programs, designed to develop good
relationships between the Dealer and the public. The Dealer shall promptly
investigate and handle all matters brought to his attention by the Company or
the public relating to the sale or servicing of COMPANY PRODUCTS in the DEALER'S
LOCALITY, in accordance with procedures set forth in the applicable CUSTOMER
SERVICE BULLETIN, so as to develop public confidence in the Dealer, the Company
and COMPANY PRODUCTS. The Dealer shall report promptly to the Company the
details of each inquiry or complaint received by the Dealer relating to any
COMPANY PRODUCT which the Dealer cannot handle satisfactorily. The Dealer shall
not make, directly or indirectly, any false or misleading statement or
representation to any customer as to any VEHICLE, GENUINE PART or other COMPANY
PRODUCT as to the source, condition or capabilities thereof, or the Dealer's or
the Company's prices or charges therefor or for distribution, delivery, taxes or
other items.
6. (I) BUSINESS PRACTICES, ADVERTISING AND PROGRAMS. The Dealer shall
conduct DEALERSHIP OPERATIONS in a manner that will reflect favorably at all
times on the reputation of the Dealer, other Company authorized dealers, the
Company, COMPANY PRODUCTS and
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<PAGE> 15
6. OTHER DEALER AND COMPANY RESPONSIBILITIES (CONTINUED)
trademarks and trade names used or claimed by the Company or any of its
subsidiaries. The Dealer shall avoid in every way any "bait", deceptive,
misleading, confusing or illegal advertising or business practice. The Company
shall not publish or employ any such advertising or practice or encourage any
dealer or group of dealers to do so.
6. (J) COMPLIANCE WITH LAWS, RULES AND REGULATIONS. The Dealer shall comply
with all applicable federal, state, and local laws, rules and regulations in the
ordering, sale and service of COMPANY PRODUCTS and the sale and service of used
vehicles, including without limitation those related to motor vehicle safety,
emissions control and customer service. The Company shall provide the Dealer,
and the Dealer shall provide the Company, such information and assistance as may
be reasonably requested by the other in connection with the performance of
obligations under such laws, rules and regulations.
6. (K) INDEMNIFICATION BY THE COMPANY. The Company shall defend, indemnify,
hold harmless and protect the Dealer from any losses, damages or expense,
including costs and attorney's fees, resulting from or related to lawsuits,
complaints or claims commenced against the Dealer by third parties concerning:
(1) Property damage to a COMPANY PRODUCT or bodily injury or property
damage arising out of an occurrence caused solely by a "production
defect" in that product (i.e., due to defective materials or
workmanship utilized or performed at the factory, except for any
"production defect" in tires and diesel engines made by others,
provided, however, that the "production defect" could not have been
discovered by the Dealer in the reasonable pre- delivery inspection of
the VEHICLE, as recommended by the Company.
(2) Property damage to a COMPANY PRODUCT or bodily injury or property
damage arising out of an occurrence caused solely by a defect in the
design of that product, except for a defect in the design of tires or
diesel engines made by others.
(3) Any damage occurring a new VEHICLE, and repaired by the Company
(excluding removal and replacement of an entire component with a like
component where no welding, riveting or painting is involved), from the
time the VEHICLE leaves the Company's assembly plant or warehouse to
the time it is delivered to the Dealer's designated location, provided
the Company failed to notify the Dealer in writing of such damage and
repair in transit prior to delivery of the VEHICLE to the first retail
customer.
In the event that any legal action arising out of any of these
causes is brought against the Dealer, the Company shall undertake, at
its sole expense, to defend said action on behalf of the Dealer when
requested to do so by the Dealer, provided that the Dealer promptly
notifies the Company in writing of the commencement of the action
against the Dealer and cooperates fully in the defense of the action in
such manner and to such extent as the Company may reasonably require
(provided, however, that the Company shall have the right to continue
the suit in the name of the Dealer, if the Company deems such action to
be necessary). Should the Company refuse to undertake the defense on
behalf of the Dealer, or fail to undertake an adequate defense, the
Dealer may conduct its own defense and the Company shall be liable for
the cost of such defense, including reasonable attorney's fees,
together with any verdict, judgment or settlement paid by the Dealer
(provided, however, that the Dealer shall notify the Company within a
reasonable period of any such settlement).
(4) Personal injury or property damage arising solely out of a negligent or
improper act of an employee of the Company.
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<PAGE> 16
DEALER'S RESPONSIBILITIES WITH RESPECT TO HOURS OF BUSINESS
7. To the end that the needs of customers and owners served by the Dealer
are fulfilled properly, the Dealer shall maintain DEALERSHIP OPERATIONS open for
business during all hours and days which are customary in the trade and lawful
for such operations in the DEALER'S LOCALITY.
PURCHASES FROM OTHERS AND SALES TO OTHERS
8. The Dealer reserves the right to make purchases from others without
obligation or liability of any kind to the Company, provided that the Dealer
shall not be relieved of any responsibility assumed by the Dealer under this
agreement; and, except as otherwise expressly provided herein, the Company
reserves the right to make sales to others (including without limitation to
other dealers) without obligation or liability of any kind to the Dealer.
DETERMINATION OF DEALER REPRESENTATION
9. (A) REPRESENTATION PLANNING. The Company reserves the right to
determine, from time to time, in its best judgment, the numbers, locations and
sizes of authorized dealers necessary for proper and satisfactory sales and
service representation for COMPANY PRODUCTS within and without the DEALER'S
LOCALITY. In making such determinations, the Company from time to time conducts,
to the extent deemed adequate by the Company and subject to the ready
availability of information, studies of the locality, including such factors as
its geographic characteristics, consumer shopping habits, competitive
representation patterns, sales and service requirements, convenience of
customers or potential customers and past and future growth and other trends in
marketing conditions, population, income, UIO, VEHICLE sales and registrations
and COMPETITIVE and INDUSTRY CAR and TRUCK registrations.
9. (B) INFORMATION TO DEALER. The Company will inform the Dealer of any
proposed change in the Company's market representation plans for the DEALER'S
LOCALITY, provided that if the Company's market representation plans do not
provide for the continuation of representation of COMPANY PRODUCTS from the
Dealer's DEALERSHIP FACILITIES (except for a relocation thereof), the Company
shall not be obligated to inform other dealers thereof, but shall give the
Dealer written notice thereof. If, in the Company's opinion, such changes should
be disclosed to other dealers in connection with the Company's market
representation plans for their respective DEALERSHIP OPERATIONS, the Company may
inform such other dealers thereof, without liability to the Dealer, no earlier
than thirty (30) days after such notice to the Dealer and shall inform such
other dealers that the Dealer may maintain his DEALERSHIP OPERATIONS for so long
as the Dealer desires and fulfills his responsibilities under this agreement.
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<PAGE> 17
DETERMINATION OF DEALER REPRESENTATION (CONTINUED)
9. (C) ADDITIONAL DEALERS. The Company shall have the right to appoint
additional dealers in VEHICLES within or without the DEALER'S LOCALITY except
that, if an additional dealer will be within the DEALER'S LOCALITY and within
ten (10) miles driving distance of the Dealer's principal place of business, the
Company shall not appoint the additional dealer unless a study made pursuant to
subparagraph 9(a) reasonably demonstrates, in the Company's opinion, that such
appointment is necessary to provide VEHICLES with proper sales and service
representation in such locality with due regard to the factors referred to above
in subparagraph 9(a). The Company by written notice to the Dealer will give the
Dealer thirty (30) days in which to review the applicable study (excluding
information regarding other dealers considered confidential by the Company), to
discuss such additional dealer with representatives of the Company and to give
the Company written notice of objection to the proposed addition. If the Dealer
fails to give such written notice by such time, he shall be deemed to have
consented to the proposed addition. The Company will give consideration to any
such written objection and advise the Dealer in writing of its decision before
any commitment is made or negotiations conducted with any dealer prospect. If
the Dealer appeals to the Dealer Policy Board within fifteen (15) days of such
decision, no action will be taken by the Company until the Dealer Policy Board
has rendered a decision on the matter.
9. (D) ESTABLISHED DEALER POINTS.
Nothing in this paragraph 9 shall restrict the right of the Company to
appoint a dealer in VEHICLES as a replacement for a dealer in VEHICLES, or to
fill an established open point for a dealer in VEHICLES, at or near a location
previously approved by the Company.
PRICES AND CHANGES
10. Sales of COMPANY PRODUCTS by the Company to the Dealer hereunder will
be made in accordance with the prices, charges, discounts and other terms of
sale set forth in price schedules or other notices published by the Company to
the Dealer from time to time in accordance with the applicable VEHICLE TERMS OF
SALE BULLETIN or PARTS AND ACCESSORIES TERMS OF SALE BULLETIN. Except as
otherwise specified in writing by the Company, such prices, charges, discounts
and terms of sale shall be those in effect, and delivery to the Dealer shall be
deemed to have been made and the order deemed to have been filled on the date of
delivery to the carrier or the Dealer, whichever occurs first. The Company has
the right at any time and from time to time to change or eliminate prices,
charges, discounts, allowances, rebates, refunds or other terms of sale
affecting COMPANY PRODUCTS by issuing a new VEHICLE or PARTS AND ACCESSORIES
TERMS OF SALE BULLETIN, new price schedules or other notices. In the event the
Company shall increase the DEALER PRICE for any COMPANY PRODUCT, the Dealer
shall have the right to cancel, by notice to the Company within ten (10) days
after receipt by the Dealer of notice of such increase, any orders for such
product placed by the Dealer with the Company prior to receipt by the Dealer of
notice of such increase and unfilled at the time of receipt by the Company of
such notice of cancellation.
TERMS AND TITLE
11. (A) PAYMENT. Payment by the Dealer for each COMPANY PRODUCT shall be in
accordance with the terms and conditions set forth in the applicable VEHICLE or
PARTS AND ACCESSORIES TERMS OF SALE BULLETIN.
11. (B) TITLE. Title to each COMPANY PRODUCT purchased by the Dealer shall
(unless otherwise provided in the applicable VEHICLE or PARTS AND ACCESSORIES
TERMS OF SALE BULLETIN) pass to the Dealer, or to such financing institution or
other party as may have been designated to the Company by the Dealer, upon
delivery thereof to the carrier or to the
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<PAGE> 18
11. TERMS AND TITLE (CONTINUED)
Dealer, whichever occurs first, but the Company shall retain a security interest
in and right to repossess any product until paid therefor.
11. (C) RISK OF LOSS AND CLAIMS. The Company shall assume all risk of loss
or damage to any VEHICLE purchased by the Dealer from the Company which is not
borne by the carrier while the VEHICLE is in the possession of the carrier
provided the Dealer properly inspects and records any loss or damage of the
VEHICLE upon receipt thereof. The Dealer shall cooperate with the Company in
processing all claims for loss or damage of the VEHICLE in accordance with the
Company's then current procedures.
11. (C) DEMURRAGE AND DIVERSION LIABILITY. The Dealer shall be responsible
for an pay any and all demurrage, storage and other charges accruing after
arrival of any shipment at its destination. In the event the Dealer shall fail
or refuse for any reason (other than labor difficulty in the Dealer's place of
business or any cause beyond the Dealer's control or without the Dealer's fault
or negligence) to accept delivery of any COMPANY PRODUCT ordered by the Dealer,
the Dealer shall also pay the Company the amount of all expenses incurred by the
Company in shipping such product to the Dealer and in returning such product to
the original shipping point or diverting it to another destination; but in no
event shall the Dealer pay the Company more for any such diversion than the
expense of returning the product to its original shipping point.
11. (E) STATE AND LOCAL TAXES. The Dealer hereby represents and warrants
that all COMPANY PRODUCTS purchased from the Company are purchased for resale in
the ordinary course of the Dealer's business. The Dealer further represents and
warrants that the Dealer has complied with all requirements for his collection
and/or payment of applicable sales, use and like taxes, and has furnished or
will furnish evidence thereof to the Company. These representations and
warranties shall be deemed a part of each order given by the Dealer to the
Company.
The Dealer agrees that, as to any COMPANY PRODUCT put to a taxable use by
the Dealer, or in fact purchased by the Dealer other than for resale, the Dealer
shall make timely and proper return and payment of all applicable sales, use and
like taxes, and shall hold the Company harmless from all claims and demands
therefor.
RECORDS, INSPECTIONS AND TESTS
12. (A) RECORD RETENTION. The Dealer shall retain for at least two (2)
years all records and documents, including journals and ledgers, which relate in
any way, in whole or in part, to DEALERSHIP OPERATIONS, except for records used
as a basis for submission of warranty and policy claims, which shall be retained
for at least one (1) year.
12. (B) INSPECTIONS AND TESTS. The Dealer shall allow persons designated by
the Company, at reasonable times and intervals and during normal business hours,
to examine the DEALERSHIP FACILITIES and OPERATIONS, the Dealer's stocks of
COMPANY PRODUCTS and used vehicles and vehicles at the DEALERSHIP FACILITIES for
service or repair, to test the Dealer's equipment, to check and instruct the
Dealer and his employees in the proper handling of warranty and other repairs
and claims based thereon, and to examine, copy and audit any and all of the
Dealer's records and documents. The Company may charge back to the Dealer all
payments or credits made by the Company to the Dealer pursuant to such claims or
otherwise which were improperly claimed or paid.
CHANGES IN COMPANY PRODUCTS
13. The Company may change the design of any COMPANY PRODUCT, or add any
new or different COMPANY PRODUCT or line, series or body style of VEHICLES, at
any time and from
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CHANGES IN COMPANY PRODUCTS (CONTINUED)
time to time, without notice or obligation to the Dealer, including any
obligation with respect to any COMPANY PRODUCT theretofore ordered or purchased
by or delivered to the Dealer. Such changes shall not be considered model year
changes as contemplated by the provisions of any VEHICLE TERMS OF SALE BULLETIN.
The Company may discontinue any VEHICLE or other COMPANY PRODUCT at any time
without liability to the Dealer.
DEALER NOT AGENT OF THE COMPANY
14. This agreement does not in any way create the relationship of
principal and agent between the Company and the Dealer and under no
circumstances shall the Dealer be considered to be an agent of the Company. The
Dealer shall not act or attempt to act, or represent himself, directly or by
implication, as agent of the Company or in any manner assume or create any
obligation on behalf of or in the name of the Company.
TRADEMARKS AND TRADE NAMES
15. (A) USE IN FIRM NAME. The Dealer may not use any trademark or trade
name used or claimed by the Company or any of its subsidiaries in the Dealer's
firm name or trade name except with the Company's prior written approval. If,
after such approval, the Company should at any time so request, the Dealer shall
promptly discontinue such use and take all steps necessary or appropriate in the
opinion of the Company to eliminate such trademark or trade name from the
Dealer's firm name or trade name.
15. (B) LIMITATIONS ON USE. The Dealer shall not use any trademark or
trade name used or claimed by the Company or any of its subsidiaries, or coined
words or combinations containing the same or parts thereof, in connection with
any business conducted by the Dealer other than in dealing in COMPANY PRODUCTS
to which such trademark or trade name refers, and then only in connection with a
business operated by or affiliated with the Dealer as the Dealer's used vehicle
outlet if the Dealer obtains the Company's prior written approval, which may be
revoked at any time, and if the Dealer retains the right to require any such
affiliated business to discontinue such use at any time the Dealer may direct.
The Dealer shall direct such discontinuance on request of the Company at any
time.
The Dealer shall not contest the right of the Company to exclusive use of
any trademark or trade name used or claimed by the Company or any of its
subsidiaries.
REPORTS TO FORD MOTOR COMPANY'S DEALER POLICY BOARD
16. In the interest of maintaining harmonious relationships between the
parties to this agreement, the Dealer shall report promptly in writing to the
Company's Dealer Policy Board (hereafter called "Policy Board") any act or
failure to act on the part of the Company or any of its representatives which
the Dealer believes was not in accordance with this agreement or was not
reasonable, fair, for good cause or provocation or in good faith as to the
Dealer. For the purposes of this agreement, the term "good faith" shall mean the
Company and its representatives acting in a fair and equitable manner toward the
Dealer so as to guarantee the Dealer freedom from coercion or intimidation from
the Company. It is the purpose of the Policy Board to receive, carefully
evaluate and, to the extent possible, resolve any such claim to the mutual
satisfaction of the parties. Any decision of the Policy Board shall be binding
on the Company but shall not be binding on the Dealer.
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<PAGE> 20
TERMINATION OR NONRENEWAL OF AGREEMENT
17. (A) BY DEALER. The Dealer may terminate or not renew this agreement at
any time at will by giving the Company at least thirty (30) days prior written
notice thereof.
17. (B) BY COMPANY DUE TO EVENTS CONTROLLED BY DEALER. The following
represent events which are substantially within the control of the Dealer and
over which the Company has no control, and which are so contrary to the intent
and purpose of this agreement as to warrant its termination or nonrenewal:
(1) Any transfer or attempted transfer by the Dealer of any interest
in, or right, privilege or obligation under this agreement; or
transfer by operation of law or otherwise, of the principal
assets of the Dealer that are required for the conduct of
DEALERSHIP OPERATIONS; or any change, however accomplished,
without the Company's prior written consent, which consent shall
not be unreasonably withheld, in the direct or indirect
ownership or operating management of the Dealer as set forth in
paragraph F.
(2) Any misrepresentation in applying for this agreement by the
Dealer or any person named in paragraph F; or submission by the
Dealer to the Company of any false or fraudulent application or
claim, or statement in support thereof, for warranty, policy or
campaign adjustments, for wholesale parts or VEHICLE sales
incentives or for any other refund, credit, rebate, incentive,
allowance, discount, reimbursement or payment under any Company
program; or acceptance by the Dealer of any payment for any work
not performed by the Dealer in accordance with the provisions of
this agreement, the Warranty Manual or any applicable CUSTOMER
SERVICE BULLETIN.
(3) Insolvency of the Dealer, inability of the Dealer to meet debts
as they mature, filing by the Dealer of a voluntary petition
under any bankruptcy or receivership law, adjudication of the
Dealer as a bankrupt or insolvent pursuant to an involuntary
petition under any such law, appointment by a court of a
temporary or permanent receiver, trustee or custodian for the
Dealer or the Dealer's assets, or execution of an assignment by
the Dealer for the benefit of creditors; dissolution of the
Dealer; or failure of the Dealer for any reason to function in
the ordinary course of business, or to maintain the DEALERSHIP
OPERATIONS open for business during and for not less than the
hours customary in the trade and lawful in the DEALER'S LOCALITY
as set forth in paragraph 7.
(4) Conviction in a court of original jurisdiction of the Dealer or
any person named in paragraph F for any violation of law, or any
conduct by any such person unbecoming a reputable businessman,
or disagreement between or among any persons named in paragraph
F, which in the Company's opinion tends to affect adversely the
operation or business of the Dealer or the good name, goodwill
or reputation of the Dealer, other authorized dealers of the
Company, the Company, or COMPANY PRODUCTS.
(5) The Dealer shall have engaged, after written warning by the
Company, in any advertising or business practice contrary to the
provisions of subparagraph 6(i) of this agreement.
(6) Failure of the Dealer to fulfill any provision of paragraph 10
(as to prices or charges), or paragraph 11 (as to terms and
title, including payment for COMPANY PRODUCTS), or paragraph 15
(as to trademarks or trade names), or to pay the Company any sum
due pursuant to any agreement, including any purchase or lease
agreement, between the Company and the Dealer.
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TERMINATION OR NONRENEWAL OF AGREEMENT (CONTINUED)
Upon occurrence of any of the foregoing events, the Company may terminate
this agreement by giving the Dealer at least fifteen (15) days prior written
notice thereof.
17. (C) BY COMPANY FOR NONPERFORMANCE BY DEALER OF SALES, SERVICE,
FACILITIES OR OTHER RESPONSIBILITIES. If the Dealer shall fail to fulfill any of
his responsibilities with respect to:
(1) CARS or TRUCKS under the provisions of paragraph 2 of this agreement,
(2) GENUINE PARTS under the provisions of paragraph 3 of this agreement,
(3) Service under the provisions of paragraph 4 of this agreement,
(4) DEALERSHIP LOCATION or FACILITIES under the provisions of paragraph 5
of this agreement, or
(5) Other responsibilities under the provisions of subparagraphs 6(a)
through 6(h) (as to signs, personnel, residence, capital, accounting
system, financial reports, delivery or sales reports or customer
handling), subparagraph 6(j) (as to laws, rules or regulations),
paragraph 12 (as to records, inspections and tests) or paragraph 14
(as to the Dealer not being an agent of the Company) of this
agreement,
the Company shall notify the Dealer in writing of such failure or failures, will
offer to review promptly with the Dealer the reasons which, in the Company's or
Dealer's opinion, account for such failure or failures and will provide the
Dealer with a reasonable opportunity to cure the same. If the Dealer fails or
refuses to cure the same within a reasonable time after such notice, the Company
may terminate or not renew this agreement by giving the Dealer at least ninety
(90) days prior written notice thereof.
17. (D) BY COMPANY OR DEALER BECAUSE OF DEATH OR PHYSICAL OR MENTAL
INCAPACITY OF ANY PRINCIPAL OWNER. Since this agreement has been entered into by
the Company in reliance upon the continued participation in the ownership of the
Dealer by the persons named in subparagraph F(i) hereof, the Company or the
Dealer may (subject to the provisions of paragraph 20 hereof) terminate or not
renew this agreement, by giving the other at least fifteen (15) days prior
written notice thereof, in the event of the death or physical or mental
incapacity of any owner of the Dealer named in subparagraph F(i); provided,
however, that in order to facilitate orderly termination and liquidation of the
dealership, the Company shall defer for a period of three (3) months to one (1)
year, as the Company may determine, the exercise of its right to terminate in
such event if the executor or representative of such deceased or incapacitated
owner shall so request and shall demonstrate the ability to carry out the terms
and conditions of this agreement.
17. (E) BY COMPANY OR DEALER FOR FAILURE OF DEALER OR COMPANY TO BE
LICENSED. If the Company or the Dealer requires a license for the performance of
any responsibility under this agreement in any jurisdiction where this agreement
is to be performed and if either party shall fail to secure and maintain such
license, or if such license is suspended or revoked, irrespective of the cause
or reason, either party may terminate or not renew this agreement by giving the
other at least fifteen (15) days prior written notice thereof.
17. (F) BY COMPANY AT WILL. If this agreement is not for a stated term
specified in paragraph G of this agreement, the Company may terminate this
agreement at will at any time by giving the Dealer at least one hundred and
twenty (120) days prior written notice thereof.
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<PAGE> 22
TERMINATION OR NONRENEWAL OF AGREEMENT (CONTINUED)
17. (G) BY COMPANY UPON THE OFFER OF A NEW AGREEMENT. The Company may
terminate this agreement at any time by giving the Dealer at least thirty (30)
days prior written notice thereof in the event the Company offers a new or
amended form of agreement to its authorized dealers in COMPANY PRODUCTS.
17. (H) ACTS IN GOOD FAITH.
(1) The Dealer acknowledges that each of his responsibilities under this
agreement is reasonable, proper and fundamental to the purpose of
this agreement and that (i) his failure to fulfill any of them would
constitute a material breach of this agreement, (ii) the occurrence
of any of the events set forth in subparagraph 17(b), 17(c), or 17(e)
would seriously impair fundamental considerations upon which this
agreement is based, and (iii) the rights of termination or nonrenewal
reserved in the events specified in subparagraph 17(g) are necessary
to permit the Company to remain competitive at all times. The Dealer
acknowledges that any such failure, occurrence or event constitutes a
reasonable, fair, good, due and just cause and provocation for
termination or nonrenewal of this agreement by the Company.
(2) The Dealer agrees that if the Company or any of its representatives
(i) requests the Dealer to fulfill any of such responsibilities, (ii)
believes that any such failure, occurrence or event is occurring or
has occurred and advises the Dealer that, unless remedied, such
failure, occurrence or event may result in Company termination or
nonrenewal of this agreement, (iii) gives the Dealer notice of
termination or nonrenewal, or terminates or fails to renew this
agreement, because of any such failure, occurrence or event, then
such request, advice, notice, termination or nonrenewal shall not be
considered to constitute or be evidence of coercion or intimidation,
or threat thereof, or to be unreasonable, unfair, undue or unjust, or
to be not in good faith.
REQUIRED APPEAL TO POLICY BOARD--TERMINATIONS OR
NONRENEWALS--OPTIONAL ARBITRATION PLAN
18. (A) ARBITRATION PLAN. The Company has adopted the Ford Motor Company
Plan and Rules of Arbitration ("Arbitration Plan") effective June 1, 1972, a
copy of which was delivered to the Dealer with this agreement. The Company
reserves the right to terminate, change or modify the Arbitration Plan at any
time upon notice to the Dealer. Any arbitration pursuant to the Arbitration Plan
shall be governed by the terms of the Arbitration Plan in effect on the date
such arbitration is commenced.
18. (B) APPEAL TO POLICY BOARD. Any protest, controversy or claim by the
Dealer (whether for damages, stay of action or otherwise) with respect to any
termination or nonrenewal of this agreement by the Company or the settlement of
the accounts of the Dealer with the Company after any termination or nonrenewal
of this agreement by the Company or the Dealer has become effective, shall be
appealed by the Dealer to the Policy Board within fifteen (15) days after the
Dealer's receipt of notice of termination or nonrenewal, or, as to settlement of
accounts after termination or nonrenewal, within one year after the termination
or nonrenewal has become effective. Appeal to the Policy Board shall be a
condition precedent to the Dealer's right to pursue any other remedy available
under this agreement or otherwise available under law. The Company, but not the
Dealer, shall be bound by the decision of the Policy Board.
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18. REQUIRED APPEAL TO POLICY BOARD - TERMINATIONS OR
NONREWALS - OPTIONAL ARBITRATION PLAN (CONTINUED)
18. (C) OPTIONAL ARBITRATION. If the Dealer is dissatisfied with the
decision of the Policy Board in a case referred to in subparagraph 18(b), the
Dealer may, at his option, elect to arbitrate in accordance with the Arbitration
Plan or elect not to arbitrate and retain the right to pursue whatever other
remedies may be available, provided that:
(1) The Dealer's election to arbitrate shall be made by filing an
Arbitration Demand with the Secretary appointed under the Arbitration
Plan within thirty (30) days after receipt by the Dealer of a
decision by the Policy Board. The Arbitration Demand shall set forth
a clear and complete statement of the nature of the Dealer's claim
and the basis therefore, the amount involved, if any, and the remedy
sought. The Arbitration Demand shall be in writing and shall be given
by personal delivery or sent by registered or certified mail, postage
prepaid, to the Secretary, Arbitration Panel, Ford Motor Company, at
the address shown in the Plan and Rules of Arbitration.
(2) If the Dealer, by filing a timely Arbitration Demand, elects to
arbitrate, arbitration shall be the sole and exclusive remedy of the
Dealer in such cases, and the decision and award of the Arbitration
Panel provided for in the Arbitration Plan shall be final and binding
on both parties.
(3) If the Dealer elects to arbitrate, either party may enjoin the other
from pursuing any other remedy in such cases, except that either
party may sue to enforce any order or award of the Arbitration Panel
and judgment upon such order or award may be entered by any court
having jurisdiction.
18. (D) LIMITATION OF ACTIONS. If the Dealer elects not to arbitrate by
failing to file a timely Arbitration Demand, all causes of action at law or in
equity and all rights and remedies before federal, state, or local
administrative agencies, departments or boards shall be forever barred unless
commenced or instituted within one year after the date of the decision of the
Policy Board.
18. (E) EXPENSES OF ARBITRATION. During the first quarter of each calendar
year, the Company and the Chairmen of the Ford and Lincoln-Mercury National
Dealer Councils ("Dealer Council Chairmen") shall jointly establish a budget for
that calendar year for the retainer fees, daily fees, clerical costs, travel
expenses and living allowances ("Compensation") of the Arbitrator selected by
the Dealer Council Chairmen, for one-half of the Compensation of the Arbitrator
selected as Chairman of the Arbitration Panel, and for one-half of the cost of
outside services employed by the Arbitration Panel, pursuant to the Arbitration
Plan.
(1) The amount of such budget shall be advanced by the Company to a
Trustee selected by the Company and the Dealer Council Chairmen. The
Trustee shall pay the Compensation of the Arbitrator selected by the
Dealer Council Chairmen, one-half of the Compensation of the Chairman
of the Arbitration Panel, and one-half of the cost of outside
services employed by the Arbitration Panel, as statements are
rendered therefor, from and to the extent of such advance. All other
costs of the Arbitration Panel for that calendar year shall be borne
by the Company except as hereinafter provided. Any unexpended portion
of such budget shall be carried forward to the next calendar year.
(2) The amount of such budget shall be spread in equal amounts among all
dealerships then having valid and outstanding Ford, Mercury or
Lincoln Sales and Service Agreements with the Company ("Authorized
Dealers"). Such equal amount shall be charged to each Authorized
Dealer. The Dealer shall promptly pay the amount so charged.
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<PAGE> 24
18. REQUIRED APPEAL TO POLICY BOARD - TERMINATIONS OR
NONREWALS - OPTIONAL ARBITRATION PLAN (CONTINUED)
(3) Each party shall pay and bear all costs of any witness called or
other evidence adduced by that party, of any attorney, accountant or
other person retained by that party and of any transcript ordered by
that party in connection with any arbitration under the Arbitration
Plan.
(4) The Arbitration Panel, as a part of any award, may assess, against
any party or parties to an arbitration under the Arbitration Plan,
all or any part of the costs of any witness called, any other
evidence adduced, or any outside service employed, at the direct
request of any Arbitrator.
OBLIGATIONS UPON TERMINATION OR NONRENEWAL
19. Upon termination or nonrenewal of this agreement by either party, the
Dealer shall cease to be an authorized Ford dealer; and:
19. (A) SUMS OWING THE COMPANY. The Dealer shall pay up to the Company
all sums owing to the Company by the Dealer.
19. (B) DISCONTINUANCE OF USE OF TRADEMARKS AND TRADE NAMES. The Dealer
shall at his own expense (1) remove all signs erected or used by the Dealer, or
by any business associated or affiliated with the Dealer, and bearing the name
"Ford" or any other trademark or trade name used or claimed by the Company or
any of its subsidiaries (except signs owned by the Company and except as such
use may be permitted under other agreements relating to products of the Company
other than COMPANY PRODUCTS) or any word indicating that the Dealer is an
authorized dealer with respect to any COMPANY PRODUCT, (2) erase or obliterate
all such trademarks, trade names and words from stationery, forms and other
papers used by the Dealer, or any business affiliated with the Dealer, (3)
discontinue any use of any such trademark, trade name or word in the Dealer's
firm or trade name and take all steps necessary or appropriate in the opinion of
the Company to change such firm or trade name to eliminate any such trademark,
trade name or word therefrom, and (5) refrain from doing anything whether or not
specified above that would indicate that the Dealer is or was an authorized
Dealer in COMPANY PRODUCTS.
If the Dealer fails to comply with any of the requirements of this
subparagraph 19(b), the Dealer shall reimburse the Company for all costs and
expenses, including reasonable attorney's fees, incurred by the Company in
effecting or enforcing compliance.
19. (C) WARRANTY WORK. The Dealer shall cease to be eligible to receive
reimbursement from the Company with respect to any work thereafter performed or
part thereafter supplied under any warranty or policy applicable to any COMPANY
PRODUCT, unless specifically authorized by the Company in writing to perform
such work and then only in the manner and for the period of time set forth in
such authorization.
19. (D) SERVICE RECORDS. The Dealer shall deliver to the Company or its
nominee all of the Dealer's records with respect to predelivery, warranty,
policy, campaign and other service work of the Dealer.
19. (E) ORDERS AND CUSTOMER DEPOSITS. The Dealer shall assign to the
Company or its nominee all customer orders for COMPANY PRODUCTS which the Dealer
has not filled and
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19. OBLIGATIONS UPON TERMINATION OR NONRENEWAL (CONTINUED)
which the Company is not obligated by subparagraph 19(f) to supply to the
Dealer, and all customer deposits made thereon; and deliver to the Company or
its nominee the names and addresses of the Dealer's existing and prospective
customers for COMPANY PRODUCTS.
19. (F) DELIVERIES AFTER TERMINATION OR NONRENEWAL. If this agreement
shall be terminated or not renewed by the Company (1) because of the death or
physical or mental incapacity of any principal owner of Dealer pursuant to
subparagraph 17(d) hereof, or (2) at will pursuant to subparagraph 17(f) hereof,
the Company shall use its best efforts to fill the Dealer's bona fide orders for
COMPANY PRODUCTS outstanding on the effective date of termination or nonrenewal.
The Company's fulfillment of such orders for VEHICLES, however, may be limited
to the number and type of VEHICLES delivered to the Dealer by the COMPANY during
the ninety (90) days immediately preceding such date, or the number and type of
bona fide retail orders for VEHICLES accepted by the Dealer and unfilled on such
date, whichever is smaller. Deliveries under this subparagraph shall be made in
substantial accord with the Company's normal delivery schedules for the area,
unless the Company elects to make all such deliveries within thirty (30) days
after the effective date of termination. The Dealer shall inspect, condition and
repair such VEHICLES in the manner specified in this agreement and in accordance
with procedures outlined by the Company from time to time.
Except for deliveries required by this subparagraph 19(f), each order for
a COMPANY PRODUCT received by the Company from the Dealer and unfilled on the
effective date of termination or expiration of this agreement shall be deemed
cancelled.
SUCCESSOR TO THE DEALER IN THE EVENT OF DEATH OR INCAPACITY
20. In the event of termination or nonrenewal of this agreement by the
Company pursuant to subparagraph 17(d) because of the death or physical or
mental incapacity of a principal owner of the Dealer named in subparagraph F(i)
hereof:
20. (A) INTERIM AGREEMENT. The Company, subject to the other provisions of
this paragraph, shall offer an Interim Ford Sales and Service Agreement for
COMPANY PRODUCTS:
(1) To a successor dealership composed of the last person nominated by
such principal owner as his successor, together with any other
principal and remaining owners named in subparagraphs F(i) and F(iii)
(hereafter called "Other Owners") hereof, provided that:
(I) The nomination had been submitted to the Company in writing on
the form supplied by the Company with the consent of the Other
Owners prior to such death or the occurrence of such
incapacity, and
(II) The Company, upon receipt of the nomination had accepted the
nominee as then being qualified (or as capable of becoming
qualified in five (5) years), and at the time the notice of
termination or nonrenewal is given approves the nominee as then
being qualified, to assume full managerial authority for the
DEALERSHIP OPERATIONS, which acceptance or approval shall not
be unreasonably withheld, and
(III) The nominee has been named as a manager of, and has been
actively participating in the general management of, the Dealer
or a satisfactorily performing automotive or comparable retail
business for a reasonable period of time prior to the time of
the notice of termination or nonrenewal, and
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<PAGE> 26
20. SUCCESSOR TO THE DEALER IN THE EVENT OF DEATH OR INCAPACITY (CONTINUED)
(IV) The successor dealership, at the time the Interim Agreement is
to be offered, has capital and facilities substantially in
accordance with Company GUIDES therefor, and
(V) In the event more than one nominee fulfills the above
conditions, the Company, in its discretion, shall determine
which nominee or nominees, together with the Other Owners, shall
compose the successor dealership to which such Interim Agreement
shall be offered;
(2) To a successor dealership, in the event that such principal owner has
notified the Company in writing that the spouse or another
relative or heir of such principal owner shall retain or acquire
a financial interest in the successor dealership and the Company
has approved such spouse, relative or heir for such financial
interest which approval shall not be unreasonably withheld. Such
successor dealership shall be composed of such spouse, relative
or heir, together with the Other Owners and any nominee or
nominees approved and qualified pursuant to subparagraph 20(a)
(1) hereof, provided that:
(I) The Other Owners and any nominees and such spouse, relative or
heir agree in writing how each of them shall participate in the
ownership and management of the successor dealership; and
(II) Managerial authority and responsibility of the successor
dealership shall be vested in a nominee approved and qualified
pursuant to subparagraph 20(a) (1) hereof, or in a person or
persons who have been named in subparagraph F (ii) of this
agreement and have been actually participating in the general
management of the Dealer for a reasonable period of time prior
to the notice of termination or nonrenewal or in another person
or persons qualified to assume managerial authority and
responsibility and approved by the Company to be so named,
which approval shall not be unreasonably withheld, and
(III) The successor dealership, at the time the Interim Agreement is
to be offered has capital and facilities substantially in
accordance with Company GUIDES therefor;
(3) To a successor dealership, in the event that the deceased or
incapacitated principal owner has neither nominated a successor
pursuant to subparagraph 20(a) (1) hereof, nor notified the Company
of a retained or acquired financial interest pursuant to subparagraph
20(a) (2) hereof, which successor dealership shall be composed of the
Other Owners; provided that the Other Owners agree in writing how
each of them shall participate in the ownership and management of the
successor dealership and the successor dealership fulfills the
conditions set forth in subparagraphs 20(a) (2) (ii) and (iii) of
this agreement.
20. (B) BUY-OUT. The successor dealership named in such Interim Agreement
shall arrange in writing, subject to the approval of the Company which shall not
be unreasonably withheld, for one or more persons named in subparagraph F(ii) of
the Interim Agreement to have the right to acquire during its term at least a
20% ownership interest in the successor dealership and, if the successor
dealership is offered a standard Sales and Service Agreement for
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<PAGE> 27
20. SUCCESSOR TO THE DEALER IN THE EVENT OF DEATH OR
INCAPACITY (CONTINUED)
COMPANY PRODUCTS at the expiration of the Interim Agreement, to have the right
to acquire additional ownership interests therein during the first five (5)
years of such standard agreement and, at the end of such five (5) years, to
acquire the entire ownership interest therein.
20. (C) TERM/CONTINUATION. Any Interim Agreement offered pursuant to this
paragraph 20 shall be in the form in effect between the Company and its
authorized dealers in COMPANY PRODUCTS at the time of such offer, and the term
of such Interim Agreement shall be for twenty-four (24) months, or such longer
term as the Company shall determine to be reasonable to permit the person or
persons named in subparagraph F(ii) thereof to acquire a 20% ownership interest
in the successor dealership pursuant to subparagraph 20(b) of this agreement,
subject to termination during such term as provided in such Interim Agreement.
At least ninety (90) days prior to the end of the term of such Interim
Agreement, the Company shall determine whether or not the person or persons
composing the successor dealership with which such Interim Agreement shall have
been executed possess the qualifications with respect to management, capital and
facilities necessary to fulfill the responsibilities of an authorized dealer in
COMPANY PRODUCTS and, if the Company shall determine that they do possess the
same, which determination shall not be unreasonably made, the Company shall
offer to such successor dealership, upon the expiration of the term of the
Interim Agreement, a standard Sales and Service Agreement for COMPANY PRODUCTS
in the form then in effect.
20. (D) LIMITATION OF OFFER. Notwithstanding anything stated or implied to
the contrary in this paragraph 20, the Company shall not be obligated to offer
an Interim Agreement to any successor dealership if the Company has notified the
Dealer in writing prior to such death or physical or mental incapacity that the
Company's market representation plans do not provide for continuation of
representation from the DEALERSHIP FACILITIES as determined by the Company under
paragraph 9 of this agreement. If such market representation plans provide for
the relocation of the Dealer to another location, however, the Company shall
offer an Interim Agreement subject to the condition that the successor
dealership relocate within a reasonable time to such other location in
facilities approved by the Company.
20. (E) LIMITATION FOR ACCEPTANCE. In the event that the person or persons
composing a proposed successor dealership to which any offer of an Interim
Agreement or Standard Sales and Service Agreement for COMPANY PRODUCTS shall
have been made pursuant to this paragraph 20 shall not accept the same within
thirty (30) days after notification to them of such offer, such offer shall
automatically expire.
REACQUISITION OF COMPANY PRODUCTS AND ACQUISITION OF THE DEALER'S SIGNS,
SPECIAL TOOLS AND EQUIPMENT, AND MAINTENANCE ITEMS
21. Upon termination or nonrenewal of this agreement by the Company, the
Dealer may elect as provided in paragraph 23 or, upon termination or nonrenewal
of this agreement by the Dealer, the Dealer may demand in his notice of
termination or nonrenewal, to have the Company purchase or accept upon return
from the Dealer, in return for his general release specified in paragraph 23:
21. (A) VEHICLES. Each unused, undamaged and unsold VEHICLE (together
with all factory-installed options thereon) in the Dealer's stock on the
effective date of such termination or
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<PAGE> 28
21. REACQUITION OF COMPANY PRODUTS AND ACQUISITION OF THE DEALER'S SIGNS,
SPECIAL TOOLS AND EQUIPMENT, AND MAINTENANCE ITEMS (CONTINUED)
nonrenewal, provided such VEHICLE is in first-class salable condition, is of a
then current model, has not been altered outside the Company's factory, and was
purchased by the Dealer from the Company or another authorized dealer in
VEHICLES prior to giving or receiving notice of such termination or nonrenewal.
The price for such VEHICLE shall be its DEALER PRICE, plus the Company's charges
for distribution, delivery and taxes, at the time it was purchased from the
Company, less all allowances paid or applicable allowances offered thereon by
the Company.
21. (B) GENUINE PARTS. Each unused, undamaged and unsold GENUINE PART, and
each unopened item of appearance and maintenance materials and paints
(hereinafter called "maintenance items") in the Dealer's stock on the effective
date of such termination or nonrenewal, provided such GENUINE PART or
maintenance item is offered for sale by the Company to authorized dealers in
VEHICLES in the Company's then current Parts and Accessories Price Schedules, is
in first-class salable condition including reasonably legible and usable
packaging and was purchased by the Dealer from the Company or another Company
authorized dealer in normal volume prior to giving or receiving notice of such
termination or nonrenewal. Notwithstanding the foregoing, the repurchase of such
GENUINE PARTS identified by the Company as accessories shall be limited to those
so purchased by the Dealer within twelve (12) months preceding such date, or
those sold to the Dealer by the Company for use in a VEHICLE that is a current
model on such effective date. The price for each such GENUINE PART or
maintenance item shall be its DEALER PRICE in effect on the effective date of
termination or nonrenewal, less all allowances paid or applicable allowances
offered thereon by the Company. The Dealer, at his own expense, shall carefully
pack and box such of the eligible GENUINE PARTS and maintenance items as the
Company may direct, and the Company shall pay the Dealer an additional five
percent (5%) of the DEALER PRICE of the eligible GENUINE PARTS and maintenance
items so packaged and boxed.
21. (C) DEALER'S SIGNS. Each sign at DEALERSHIP LOCATION which bears a
trademark or trade name used or claimed by the Company or any of its
subsidiaries, is owned by the Dealer on the effective date of termination or
nonrenewal, was approved by the Company pursuant to subparagraph 6(a) and, if
requested by the Company, is removed by the Dealer at his expense. The price for
each such sign shall be its fair market value on such effective date as agreed
by the Company and the Dealer, or, if they cannot agree, as determined by a
qualified independent appraiser selected by the Company and the Dealer.
21. (D) SPECIAL TOOLS AND EQUIPMENT. All special tools and automotive
service equipment owned by the Dealer on the effective date of termination or
nonrenewal which were designed especially for servicing VEHICLES, which are of
the type recommended in writing by the Company and designated as "special" tools
and equipment in the applicable CUSTOMER SERVICE BULLETIN or other notice
pertaining thereto sent to the Dealer by the Company, which are in usable and
good condition except for reasonable wear and tear, and which were purchased by
the Dealer within the three (3) year period preceding the effective date of
termination or nonrenewal. The price for each special tool and item of
automotive service equipment shall be its fair market value on such effective
date as agreed by the Company and the Dealer, or, if they cannot agree, as
determined by a qualified independent appraiser selected by the Company and the
Dealer.
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<PAGE> 29
21. REACQUITION OF COMPANY PRODUTS AND ACQUISITION OF THE DEALER'S SIGNS,
SPECIAL TOOLS AND EQUIPMENT, AND MAINTENANCE ITEMS (CONTINUED)
21. (E) PROCEDURES, DELIVERY AND TITLE. The Dealer shall return all
property to be purchased or acquired by the Company pursuant to this paragraph
21 in accordance with the procedures and timetables then established by the
Company, shall deliver such property at the DEALERSHIP FACILITIES unless the
Company directs otherwise (in which event the Company shall pay transportation
costs to the place of delivery), shall and hereby does warrant good clear title
to all such property, and shall furnish to the Company evidence satisfactory to
the Company that the Dealer has complied with all applicable bulk sales laws and
that such property is free and clear of all claims, liens and encumbrances.
21. (F) PAYMENT. The Company shall pay the Dealer for the property
purchased or acquired by it pursuant to this paragraph 21 within a reasonable
time following the Dealer's fulfillment of all of the Dealer's obligations under
paragraph 19 and this paragraph 21 subject to the Dealer's tender of a general
release as specified in paragraph 23, and further subject to offset any
obligations owing by the Dealer to the Company. If the Company has not paid the
Dealer the net amount due the Dealer for such property within a period of two
(2) months after the Dealer has fulfilled his obligations under this paragraph
21 and provided the Dealer has fully complied with paragraphs 19 and 23, the
Company will, at the Dealer's request, advance the Dealer seventy-five percent
(75%) of the estimated amount due the Dealer net of any monies owed to the
Company by the Dealer. The Company will pay the balance of such amount as soon
as practical thereafter.
21. (G) ASSIGNMENT OF BENEFITS. As an assist to the Dealer in effecting an
orderly transfer of his assets to a replacement dealer and to minimize possible
interruptions in customer convenience and service, in the event of termination
or nonrenewal by either party, any rights or benefits with respect to
subparagraphs 21(a), 21(b), 21(c) and 21(d), herein may be assigned by the
Dealer to anyone to whom the Dealer has agreed to sell the respective property
and whom the Company has approved as a replacement for the Dealer. Such
assignments will be subject to Dealer's fulfillment of his obligations under
paragraph 19 and this paragraph 21 and subject to the Dealer's tender of a
general release as specified in paragraph 23.
DEALERSHIP FACILITIES ASSISTANCE UPON NONRENEWAL OR
CERTAIN TERMINATIONS BY THE COMPANY
22. (A) DEALER ELIGIBILITY. The Dealer may elect, as provided in paragraph
23, to have the Company assist the Dealer with respect to the Dealer's Eligible
Facilities (as herein defined), in return for the Dealer's general release as
specified in paragraph 23, upon nonrenewal of this agreement by the Company, or
upon termination of this agreement by the Company, for the following reasons:
(1) Because of disagreement among persons named in paragraph F pursuant
to subparagraph 17(b) (4) or because of the Dealer's failure with
respect to prices or charges, terms or title or trademarks or trade
names, or other sums due the Company pursuant to subparagraph 17(b)
(6);
(2) Because of the Dealer's nonperformance of his responsibilities set
forth in paragraphs 2, 3, 4 or 6 pursuant to subparagraph 17(c);
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<PAGE> 30
22. DEALERSHIP FACILITIES ASSISTANCE UPON NONRENEWAL OR
CERTAIN TERMINATIONS BY THE COMPANY (CONTINUED)
(3) Because of the death or physical or mental incapacity of a principal
owner named in subparagraph F(i) pursuant to subparagraph 17(d)
providing that a successor dealership is not appointed as provided
under paragraph 20;
(4) Because of failure of the Dealer or the Company to be licensed
pursuant to subparagraph 17(e); or
(5) At will pursuant to subparagraph 17(f) if this agreement is not for a
stated term specified in paragraph G of this agreement.
22. (B) ELIGIBLE FACILITIES. "Eligible Facilities" are hereby defined as
only those DEALERSHIP FACILITIES which are listed in the Dealership Facilities
Supplement in effect at the time of such nonrenewal or termination, are approved
by the Company pursuant to paragraph 5, are owned or leased by the Dealer and
are being used by the Dealer solely for fulfilling his responsibilities under
this agreement (or under this agreement and one or more other vehicle sales
agreements with the Company which are not renewed or are terminated by the
Company at the same time as this agreement) at the time the Dealer received
notice of such nonrenewal or termination.
22. (C) COMPANY'S OBLIGATION. Subject to the provisions of subparagraph
22(d) hereof, if neither the Dealer nor the Company can arrange with a third
party within ninety (90) days after the effective date of such termination or
nonrenewal:
(1) In the case of Eligible Facilities which are owned by the Dealer,
either a lease for one year commencing within such ninety (90) days
at fair rental value or a sale within such ninety (90) days at fair
market value; or
(2) In the case of Eligible Facilities which are leased by the Dealer,
either an assignment of lease, or a sublease for one year (or for the
balance of the term of the Dealer's lease if that is shorter)
commencing within such ninety (90) days at the Dealer's rental rate
(or, if the facilities are owned by an affiliate of the Dealer at
fair rental value, if that is different);
the company shall offer either to make monthly payments to the Dealer,
commencing with the ninety-first day, pursuant to subparagraph 22(e) hereof, or
to make a lump sum payment to the Dealer pursuant to said subparagraph 22(e), or
to accept for itself on the ninety-first day such a lease or sale from the
Dealer-owner or such an assignment or sublease from the Dealer-lessee.
For the purpose of this subparagraph 22(c), fair market or fair rental
value shall mean value based on the use of the facilities in the conduct of
DEALERSHIP OPERATIONS. In the event the Dealer and the Company are unable to
agree on the fair market or rental value of any Eligible Facilities, such value
shall be determined by an independent real estate appraiser selected by the
Dealer and the Company.
22(D) LIMITATIONS ON COMPANY'S OBLIGATION. The Company's obligation with
respect to any Eligible Facilities shall be limited to those expressly set forth
in this paragraph 22. The Company shall be released from all obligations with
respect to any Eligible Facilities if (1) the Dealer fails to give the Company,
within thirty (30) days after the Company shall have sent him a tender of
benefits as provided in paragraph 23, a written request for assistance pursuant
to this paragraph 22, accompanied by a written representation by the Dealer that
the Dealer and each owner named in
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<PAGE> 31
22. DEALERSHIP FACILITIES ASSISTANCE UPON NONRENEWAL OR
CERTAIN TERMINATIONS BY THE COMPANY (CONTINUED)
subparagraph F(i) is for a period of at least one (1) year, retiring from the
business of selling new and used passenger cars and trucks in the general area
of the DEALER'S LOCALITY, (2) the Dealer fails to make diligent efforts to
obtain from third parties an offer to purchase, lease, sublease or take an
assignment of lease described in subparagraph 22(c), or refuses, or within a
reasonable time fails to accept, such an offer from a third party; (3) the
Dealer does not accept any offer with respect to Eligible Facilities made by the
Company in accordance with subparagraph 22(c) within thirty (30) days after
receiving it, (4) the Dealer or anyone else occupies such facilities for any
purpose for a period of more than ninety (90) days following the effective date
of such termination or nonrenewal, or (5) the Company arranges a cancellation of
the lease of any leased facilities without cost to the Dealer or the Dealer
fails or refuses to execute an agreement covering such cancellation.
22. (E) SATISFACTION OF COMPANY'S OBLIGATION. The Company may satisfy all
of its obligations under this paragraph 22 with respect to any Eligible
Facilities by paying to the Dealer (1) if the facilities are owned by the
Dealer, the difference, each month for twelve months (or until facilities are
sold if that is earlier), between any lesser rentals received by the Dealer for
such facilities for such month and the fair rental value of such facilities for
such month, or (2) if the facilities are leased by the Dealer, the difference,
each month for twelve months (or until the expiration of the lease if that is
earlier) between any lesser rentals received by the Dealer for such facilities
for such month and the rental paid by the Dealer (or, if the facilities are
owned by an affiliate of the Dealer, the fair rental value, if that is
different) for such facilities for such month, or (3) at the election of the
Company, a lump sum equal to the total payments contemplated in items (1) or (2)
of this subparagraph 22(e), or such lesser sum as may be agreed upon between the
Dealer and the Company, or by paying any lease cancellation cost negotiated by
the Dealer or the Company not to exceed the total of the Company's obligations
under subparagraphs 22(c) and 22(e).
TERMINATION BENEFITS FULL COMPENSATION; GENERAL RELEASE
23. In the event of termination or nonrenewal of this agreement by the
Company, the Company, within thirty (30) days after the effective date thereof,
shall submit to the Dealer (1) a written tender of the benefits provided for in
paragraph 21 (and in paragraph 22 where applicable) and (2) a form for the
Dealer to use to elect either to reject all of such benefits or to accept one or
more of them as full and complete compensation for such nonrenewal or
termination. The Dealer shall have thirty (30) days after receipt of such form
to return the same to the Company evidencing his election. If the Dealer fails
to return the form stating such election within such thirty (30) days, the
Dealer shall be deemed to have elected to accept such benefits. Upon the
Dealer's election to accept any of such benefits, or upon the Dealer's demand of
any such benefits upon any termination or nonrenewal by the Dealer, the Company
shall be released from any and all other liability to the Dealer with respect to
all relationships and actions between the Dealer and the Company, however,
claimed to arise, except any liability that the Company may have under
subparagraph 19(f) and said paragraphs 21 and 22, and except for such amounts as
the Company may have agreed in writing to pay to the Dealer. Simultaneously with
the receipt of any benefits so elected or demanded, the Dealer shall execute and
deliver to the Company a general release with exceptions, as above described,
satisfactory to the Company.
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<PAGE> 32
DISPOSITION OF THE DEALER'S ASSETS
24. (A) COMPANY RIGHT TO APPROVE CHANGE IN OWNERSHIP.
(1) In view of the nature, purposes and objectives of the Company's
Dealer Sales and Service Agreements, and the differences in operating
requirements among dealerships of differing sizes and types of
markets, the Company expressly reserves the right to select the
dealers with whom it will enter into such agreements so as to
maintain as high quality a dealer organization as possible.
(2) In the event this agreement is terminated or not renewed by either
party or if the Dealer plans to terminate or not renew this
agreement, the Company acknowledges that the Dealer has the right to
negotiate for the sale of the assets of the Dealer as such price as
may be agreed upon by the Dealer and the prospective purchaser. In
turn, the Dealer acknowledges that the Company has the right to
approve or decline to approve any prospective purchaser as to his
character, automotive experience, management, capital and other
qualifications for appointment as an authorized dealer in COMPANY
PRODUCTS for the DEALERSHIP OPERATIONS involved. Approval by the
Company of the prospective purchaser shall not, however, be
unreasonably withheld. If, in the opinion of the Company, the price
to be paid for such assets appears, on the basis of the average
operating results of other dealers, to result in an unsatisfactory
return on investment so that such prospective purchaser (1) may not
remain as a dealer, or (2) may be impelled to sell COMPANY PRODUCTS
at high noncompetitive prices with a probable reduction in sales
volume, the Company may, without liability to the Dealer, counsel
with such prospective purchaser regarding such opinions.
24. (B) COMPANY RIGHT OF FIRST REFUSAL TO PURCHASE.
(1) In the event the Dealer proposes a change in the ownership of 51
percent or more of the stock or transfer by sale or otherwise of the
dealership business or its principal assets to any person or entity
conditioned upon the Company entering into a Sales and Service
Agreement with that person or entity, the Company shall have a Right
of First Refusal to Purchase the stock or assets on the same terms
and conditions offered or agreed to with such person, regardless of
whether the proposed buyer is qualified to be a dealer.
(2) To exercise its Right of First Refusal, the Company must notify the
Dealer in writing within thirty days of its receipt of the completed
proposal for the proposed sale or transfer.
(3) Upon the Company's request the Dealer shall provide all documents
relating to the transfer. The Company shall have the right to inspect
the assets, including real estate, before exercising its Right of
First Refusal.
(4) The Company's Right of First Refusal under this subparagraph 24(b)
may be assigned to any third party ("Assignee"). If there is an
assignment, Company will guarantee full payment of the purchase price
by the Assignee. The Company shall have the opportunity to discuss
the terms of the buy/sell agreement with any potential Assignee, as
long as such information is treated confidentially.
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<PAGE> 33
DISPOSITION OF THE DEALER'S ASSETS (CONTINUED)
(5) The Company's rights hereunder are binding on and enforceable against
any successor in interest of the Dealer or purchaser of the Dealer's
assets. When the proposed change of ownership involves a transfer by
the Dealer solely to a member or members of his or her immediate
family, or to a qualifying member of Dealer management, the Company's
Right of First Refusal will not apply. An "immediate family member"
shall be the spouse, child, grandchild, spouse of a child or
grandchild, brother, sister or parent of the Dealer owner or his or her
spouse. A "qualifying member of the Dealer's management" shall be an
individual who has been employed by the Dealer in the dealership for at
least four years and is otherwise qualified as a dealer operator.
(6) The Company agrees to pay the reasonable expenses, including attorney's
fees which do not exceed the usual, customary, and reasonable fees
charged for similar work done for other clients, incurred by the
proposed new owners and transferee prior to the Company's exercise of
its Right of First Refusal in negotiating and implementing the contract
for the proposed sale or transfer of the Dealer or Dealer's assets.
(7) Notwithstanding the foregoing, no payment of such expenses and
attorney's fees shall be required if the Dealer has not submitted or
caused to be submitted an accounting of those expenses within thirty
days of the Dealer's receipt of the Company's written request for such
an accounting. Such accounting may be requested before the exercise by
the Company of its Right of First Refusal.
NEW AGREEMENT
25. The termination or nonrenewal of this agreement by the Company in
connection with the offer by the Company of a new sales and service agreement
for one or more COMPANY PRODUCTS to the Dealer or the Dealer's successor in
interest shall not give rise to the rights and obligations provided in
paragraphs 19, 21 and 22 with respect to the COMPANY PRODUCTS included in such
new agreement, unless otherwise specified by the Company in writing.
ACKNOWLEDGEMENTS
26. This agreement terminates and supersedes all other agreements
concerning the DEALERSHIP OPERATIONS and constitutes the entire agreement
between the parties with respect to the subject matter hereof. Each party
acknowledges that, except as expressly set forth herein, no representation,
understanding or presumption of law or fact has been made or relied upon (1)
which has induced the execution of this agreement or would in any way modify any
of its provisions, or (2) with respect to the effectiveness or duration of this
agreement or the sales or profit expectancy of the DEALERSHIP OPERATIONS. The
Dealer further acknowledges that he has voluntarily entered into this agreement
without coercion or intimidation or threats thereof from the Company, and that
each of its provisions is reasonable, fair and equitable.
NO IMPLIED WAIVERS
27. Except as expressly provided in this agreement, the waiver by either
party, or the failure by either party to claim a breach, of any provision of
this agreement shall not constitute a waiver of any subsequent breach, or affect
in any way the effectiveness, of such provision.
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<PAGE> 34
RELATIONS AFTER TERMINATION NOT A RENEWAL
28. In the event that, after termination or nonrenewal of this agreement,
either party has any business relations with the other party with respect to any
COMPANY PRODUCT, such relations shall not constitute either a renewal of this
agreement or a waiver of such termination or nonrenewal, but all such relations
shall be governed by terms identical with the provisions of this agreement
unless the parties execute a new and different agreement.
LIMITATION OF THE COMPANY'S LIABILITY
29. This agreement contemplates that all investments by or in the Dealer
shall be made, and the Dealer shall purchase and resell COMPANY PRODUCTS, in
conformity with the provisions hereof, but otherwise in the discretion of the
Dealer and the Dealer's owners. Except as herein specified, nothing herein
contained shall impose any liability on the Company in connection with the
DEALERSHIP OPERATIONS or otherwise or for any expenditure made or incurred by
the Dealer in preparation for performance or in performance of the Dealer's
responsibilities under this agreement.
NOTICES
30. Any notice required or permitted by this agreement, or given in
connection herewith, shall be in writing and shall be given by personal delivery
or by first-class or certified or registered mail, postage prepaid. Notices to
the Company shall be delivered to or addressed to the District Sales Manager of
the area in which the Dealer is located except notices given by the Dealer
either to the Policy Board or pursuant to the Arbitration Plan. Notices to the
Dealer shall be delivered to any person designated in paragraph F(ii) of this
agreement or directed to the Dealer at the Dealer's principal place of business
as described herein.
AMENDMENT
31. Notwithstanding anything in this agreement to the contrary, the Company
shall have the right to amend, modify or change this agreement in case of
legislation, government regulation or changes in circumstances beyond the
control of the Company that might affect materially the relationship between the
Company and the Dealer.
MICHIGAN AGREEMENT
32. This agreement has been signed by the Dealer and sent to the Company in
Michigan for final approval and execution and has there been signed and
delivered on behalf of the Company. The parties intend this agreement to be
executed as a Michigan Agreement and to be construed in accordance with the laws
of the State of Michigan.
CONFLICT WITH STATUTE
33. If performance under this agreement is illegal under a valid law of any
jurisdiction where such performance is to take place, the performance will be
modified to the minimum extent necessary to comply with any such law as was
effective on the date of execution of this agreement.
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<PAGE> 1
EXHIBIT 10.39
C-P-D
CHRYSLER
CORPORATION
[CHRYSLER LOGO] SALES AND
SERVICE
AGREEMENT
ADDITIONAL TERMS
AND PROVISIONS
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
11 SELLING, SERVICE, COMPLIANCE, FACILITIES AND LOCATION,
FINANCES, PERSONNEL AND SIGNAGE.............................................2
(a) SELLING............................................................2
(b) SERVICE............................................................3
(c) COMPLIANCE.........................................................4
(d) FACILITIES AND LOCATION............................................4
(i) DEALER's Responsibilities.................................4
(ii) Changes in Facilities or Location.........................4
(e) FINANCES...........................................................4
(f) PERSONNEL..........................................................4
(g) SIGNAGE............................................................5
12 ADVERTISING.................................................................5
13 REPORTS, RECORDS AND BUSINESS SYSTEMS.......................................5
14 ORDERS......................................................................6
15 DELIVERY....................................................................6
16 ACCEPTANCE OF SHIPMENTS.....................................................6
17 OTHER CHARGES...............................................................6
18 DELAY OR FAILURE TO FILL ORDERS.............................................6
19 OPTION TO REPURCHASE DAMAGED VEHICLES.......................................6
20 CLAIMS FOR DAMAGE OR SHORTAGE...............................................7
21 PRICES, CHARGES, TERMS OF PURCHASE AND PAYMENT..............................7
22 CHANGE IN PRICE.............................................................7
23 SALE AND SUPPLY OF PARTS....................................................8
24 COLLECTION OF INDEBTEDNESS..................................................8
25 TITLE.......................................................................8
26 WARRANTY AND INDEMNIFICATION FOR PRODUCT LIABILITY LITIGATION...............8
(a) WARRANTY...........................................................8
(b) INDEMNIFICATION FOR PRODUCT LIABILITY LITIGATION...................9
(c) REPAIR/REPLACE REQUIREMENTS........................................9
27 CHANGE OF MODELS, PARTS AND ACCESSORIES DECLARED OBSOLETE
OR DISCONTINUED.............................................................9
28 TERMINATION.................................................................9
29 REPURCHASE OBLIGATIONS UPON TERMINATION....................................11
30 DISPOSITION OF DEALER'S PREMISES...........................................12
31 TRANSACTIONS AFTER TERMINATION.............................................13
32 SUCCESSORS TO DEALER.......................................................13
33 SURVIVING SPOUSE'S FINANCIAL INTEREST......................................14
34 SALE OF DEALERSHIP ASSETS OR OWNERSHIP INTERESTS...........................14
35 USE OF TRADE NAMES, TRADEMARKS, LOGOS, ETC.................................15
36 DEALER IS NOT AGENT........................................................16
37 INABILITY TO PERFORM.......................................................16
38 ASSIGNMENT.................................................................16
39 NON-WAIVER.................................................................16
40 SEVERABILITY...............................................................16
41 TITLES.....................................................................16
42 INTERPRETATION.............................................................16
43 NOTICES....................................................................16
</TABLE>
<PAGE> 3
CHRYSLER CORPORATION
SALES AND SERVICE AGREEMENT
ADDITIONAL TERMS AND PROVISIONS
The following additional terms and provisions apply to and are part of the
Chrysler Corporation Sales and Service Agreement(s) to which
DEALER is a signatory:
- --------------------------------------------------------------------------------
11 SELLING, SERVICE, COMPLIANCE, FACILITIES
AND LOCATION, FINANCES, PERSONNEL AND SIGNAGE
(a) SELLING
DEALER shall use its best efforts to promote energetically and sell aggressively
and effectively at retail (which includes lease and rental units) each and every
model of CC vehicles identified in the aforementioned Motor Vehicle Addendum and
CC vehicle parts, accessories and other CC products and services, to private and
fleet customers in DEALER's Sales Locality. DEALER will sell the number of new
CC vehicles necessary to fulfill DEALER's Minimum Sales Responsibility for each
passenger car line or truck line represented by the vehicles listed on the Motor
Vehicle Addendum, as defined below.
DEALER's Minimum Sales Responsibility for each such line will be determined as
follows:
From time to time, but at least once a year for each such line, CC will compute
the ratio of the number of new CC passenger cars and/or trucks registered in the
most recent whole or partial calendar year-to-date period for which registration
figures are available in the CC Sales Zone in which DEALER is located to the
total number of new passenger cars or, if CC deems it appropriate, the total
number of those new passenger cars or trucks which CC, in its sole discretion,
determines to be competitive with any or all of its passenger cars or trucks so
registered in that Zone during the same period. The ratio thus obtained will be
applied to the comparable category of the total number of new passenger cars or
competitive passenger cars and/or trucks, as appropriate, registered during the
same period in Dealer's Sales Locality. The resulting number will be DEALER's
Minimum Sales Responsibility for each of said lines during this same period,
subject to adjust as described below.
Upon DEALER's written request, CC may adjust DEALER's Minimum Sales
Responsibility, if appropriate in CC's judgment, to take into account
extraordinary local conditions to the extent, in CC's opinion, such conditions
are beyond DEALER's control and have affected DEALER's sales performance
differently from the sales performance of other new vehicle dealers in DEALER's
Sales Locality or other like vehicle line CC dealers in the Sales Zone in which
DEALER is located.
If DEALER's Sales Locality is shared by one or more other CC dealer(s) of the
same line, DEALER's Minimum Sales Responsibility for such line will be the
number of new vehicles DEALER must sell in order to achieve DEALER's fair share
of the Minimum Sales Responsibility for all such CC dealers of the same line in
the Sales Locality. The Minimum Sales Responsibility for the total CC dealers of
the same line in the Sales Locality. will be determined by using the same method
described above in this Paragraph 11(a). CC will determine DEALER's fair share
by assessing the relative importance of DEALER's immediate area of influence as
compared with the Sales Locality as a whole.
This assessment will then be converted to a percentage which will represent
DEALER's fair share of the Minimum Sales Responsibility for the Sales Locality.
Registration figures used in these computations will be new vehicle
registrations as reported by any recognized reporting organization selected by
CC. If vehicle registration data is not reasonably available, CC may use other
records, generally accepted in the industry, for the purpose of determining
motor vehicle purchases and to establish DEALER's Minimum Sales Responsibility.
To the extent that registration figures or other records generally accepted in
the automotive industry for purposes of determining motor vehicle purchases are
not reasonably
2
<PAGE> 4
available for purposes of considering any of the factors specified herein, CC
may rely on other records and data developed by CC that reasonably depict
purchases of motor vehicles in an applicable area to establish DEALER's Minimum
Sales Responsibility.
(b) SERVICE
DEALER shall service CC vehicles actively and effectively and provide and
maintain, for servicing CC vehicles, adequate facilities equipped with the basic
tools common to the trade and with special tools and equipment peculiar to CC
products and necessary for servicing and repairing specified CC vehicles
properly, efficiently and competitively. DEALER shall comply with parts, service
and warranty guides established by CC from time to time, make a sincere effort
to satisfy service customers, and render prompt, efficient and courteous service
to all owners or lessees of all CC vehicles badged Chrysler, Plymouth or Dodge
regardless of where such vehicle was purchased or leased. DEALER shall perform
all pre-delivery and road-ready services recommended by CC on new CC vehicles
DEALER sells.
After six (6) quarters of operation, including operation under any preceding CC
Dealer Agreement, DEALER shall, at all times during this Agreement, meet its
minimum service satisfaction requirements by maintaining a rating on Chrysler
Corporation's Customer Satisfaction Index. Prep-It-Right and Deliver-It-Right
evaluations (as determined by Chrysler Corporation from time to time, based upon
surveys conducted of DEALER's customers) which is equal to or greater than the
average Customer Satisfaction Index, Prep-It-Right and Deliver-It-Right ratings
for the national Sales Level Group (as those groups are determined by CC from
time to time) in which DEALER is included within DEALER's Sales Zone (as said
Sales Zone is determined by CC from time to time). CC will review at least once
a year, DEALER's performance under the Customer Satisfaction Index and DEALER's
Prep-It-Right and Deliver-It-Right ratings.
DEALER shall supply to all purchasers from DEALER of new CC vehicles a copy of
CC's appropriate new vehicle warranty; make such certifications and
verifications of odometer readings and maintenance and service performed on
vehicles badged Chrysler, Plymouth or Dodge, or other matters as may be required
under the terms of the CC vehicle warranty and as CC may from time to time
otherwise prescribe; and provide owners of CC vehicles badged Chrysler, Plymouth
or Dodge all warranty service and campaign inspections or corrections to which
they may be entitled in accordance with the policies and procedures set forth in
Chrysler Corporation's Warranty Policy and Procedure Manual and in bulletins and
documents relating to service that CC may, from time to time, supply to DEALER.
The provisions of said Warranty Policy and Procedure Manual, including any
revisions thereto which shall be furnished to DEALER by CC from time to time,
constitute a part of this Agreement with the same force and effect as if set
forth in its entirety herein.
DEALER shall comply with all policies, procedures, directives and rulings of the
Chrysler Corporation Customer Arbitration Board.
CC has placed its trust and confidence in the integrity and fidelity of DEALER
and, therefore, CC shall compensate DEALER for services claimed to have been
performed by DEALER under CC's warranties or campaign inspections and
corrections if claimed in accordance with CC's then current policies and
procedures described above. DEALER agrees to comply with all such policies and
procedures including, but not limited to, policies and procedures relating to
the keeping of books and records respecting claims DEALER may make for
compensation for service DEALER performance under CC's warranties or campaign
inspections and corrections. DEALER agrees that CC may inspect DEALER's book and
records regarding any warranty service or other claims for compensation DEALER
may submit to CC. CC may charge DEALER's account for claims which have been
disallowed as a result of such inspection.
DEALER shall perform all warranty, pre-delivery, road-ready, campaign
inspections and corrections, and other services hereunder as an independent
contractor and not as the agent of CC and shall assume responsibility for and
hold CC harmless from, all claims (including, but not limited to, claims
resulting from the negligent or willful acts or omissions of DEALER) against CC
arising out of or in connection with DEALER's performance of such service.
If DEALER modifies any CC vehicle or installs on any CC vehicle any equipment,
part or accessory that has not been supplied or approved by CC, or sells any CC
vehicle which has been modified after leaving the possession, custody or control
of CC, or sells a non-Chrysler Corporation service contract in connection with
the sale of any CC vehicle, DEALER shall disclose to the customer in writing
that the modification, equipment, accessory or part is not supplied or approved
by CC and is not included in warranties furnished by CC or, in the case of a
service contract, the coverage is not provided by
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Chrysler Corporation, its parent, subsidiaries or its affiliates. DEALER will
write such disclosure on the purchase order and on the customer's bill of sale.
Notwithstanding the foregoing, DEALER may not use parts which have not been
authorized by CC in performing repairs under CC warranties.
(c) COMPLIANCE
DEALER shall comply with all applicable federal, state and local laws, rules or
regulations in the operation of the dealership.
(d) FACILITIES AND LOCATION
(i) DEALER's Responsibilities
DEALER shall provide facilities for the sale and service of CC products and
related activities ("Dealership Operations") at the location set forth in the
aforementioned Dealership Facilities and Location Addendum. The entire
Dealership Facilities including, but not in limitation of the foregoing, new and
used vehicle display area, salesrooms, service area, parts and accessories area,
building exterior and grounds will be satisfactory to CC as to appearance and
layout, and will be maintained and used as set forth in the Dealership
Facilities and Location Addendum. DEALER shall at all times maintain the
Dealership Facilities so that they are of adequate capacity to accommodate
DEALER's total vehicle sales volume and are relatively equivalent in their
attractiveness, level of maintenance, overall appearance and use to those
facilities maintained by DEALER's principal competitors.
DEALER shall conduct its Dealership Operations only from the dealership location
and dealership facilities above mentioned and in the manner and at least during
the hours usual in the trade in DEALER's Sales Locality. DEALER shall not,
except as provided for in subparagraph 11(d)(ii) hereunder, either directly or
indirectly, establish any place or places of business for the conduct of its
Dealership Operations other than at the Dealership Facilities and Dealership
Operations location as set forth in the Dealership Facilities and Location
Addendum.
If all of the Dealership Facilities are not at the same location, DEALER shall
not utilize any separate portion of the Dealership Facilities for the conduct of
any Dealership Operations other than as specified in the current Dealership
Facilities and Location Addendum. The Dealership Facilities and Location
Addendum shall identify any other purposes for which the Dealership Facilities
are to be used and the actual space and areas to be allocated for such purposes.
(ii) Changes in Facilities or Location
DEALER shall not make any change in the location of Dealership Operations or
make any change in the area and use of Dealership Facilities without the prior
written approval of CC. Any written approval of a change in the location or in
the area or use of Dealership Facilities shall be valid only if in the form of a
new Dealership Facilities and Location Addendum or a separate written agreement
signed by Dealer and one of the authorized representatives of CC identified in
Paragraph 10 hereinabove.
(e) FINANCES
DEALER shall maintain and employ in connection with DEALER's business such net
working capital, net worth, and wholesale credit and retail financing
arrangements necessary for DEALER to carry out successfully DEALER's
undertakings pursuant to this Agreement and in accordance with guides therefor
as may be issued by CC from time to time. At no time shall DEALER's net working
capital be less than the amount specified in the Minimum Working Capital
Agreement executed in conjunction with this Agreement and incorporated herein by
reference, or the amount hereafter established by any superseding Minimum
Working Capital Agreement.
(f) PERSONNEL
DEALER shall employ in accordance with the volume of DEALER's business such
number of competitive technicians in DEALER's repair shops as may be required to
assure prompt, satisfactory and competitive customer service for all owners of
CC vehicles who may request such service from DEALER. In particular and without
limitation to the generality of the foregoing, DEALER shall cause its service
personnel to receive such training from time to time required by CC to maintain
their technical expertise to render competent customer service, including the
use of improved methods of repair, or the repair of new parts or systems,
developed by CC.
Failure to comply with the service training requirements of the immediately
preceding subparagraph of this Paragraph 11(f) may result in suspension of
deliveries of CC vehicles until DEALER complies with such training requirements.
Protracted failures to comply with such training requirements may result in
termination of this Agreement pursuant to Paragraph 28 hereunder. The
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immediately foregoing sentence shall not be construed as in any way limiting the
general applicability of Paragraph 28 to any of the other provisions of this
Paragraph 11.
DEALER shall employ and maintain for its retail business a number of trained and
competent new and used motor vehicle sales, lease, service, parts and general
management personnel that are sufficient for DEALER to carry out successfully
all of DEALER's undertakings in this Agreement. In particular and without
limitation of the generality of the foregoing, DEALER shall cause its sales
personnel to receive such training from time to time as may be required by CC to
maintain their sales expertise to render satisfactory sales.
(g) SIGNAGE
DEALER shall display and maintain brand signs, fascia and other signage in
compliance with the policies and guidelines of Chrysler Corporation's Dealership
Identification Program, including any modification or revisions to such policies
and guidelines, which shall from time to time be finished to DEALER by CC.
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12 ADVERTISING
CC, in promoting the sale and lease of its products by DEALER and other CC
dealers, shall seek to advertise in the most effective manner to develop public
interest and confidence in its dealers and products.
DEALER shall engage in advertising and sales promotion programs and shall use
effective showroom displays to help fulfill DEALER's responsibility to promote
CC products and services vigorously and aggressively. In advertising in support
of DEALER's selling, leasing and servicing CC products, DEALER shall advertise
only in a manner that will develop customer confidence in DEALER and CC products
and shall not use any advertising tending to mislead or deceive the public or
violate any applicable federal, state or local laws, rules or regulations, nor
shall DEALER disparage CC or any company, or products of such company, directly
involved in the manufacture of CC vehicles. DEALER shall discontinue any
advertising that CC may find to be injurious to CC's business or likely to
deceive the public or violative of any applicable federal, state or local laws,
rules or regulations.
DEALER shall at all times be a member in good standing of the Dealer Advertising
Association, for the lines set forth in the Motor Vehicle Addendum, which covers
a geographical area that encompasses, in whole or significant part, DEALER's
Sales Locality and which has been approved by CC.
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13 REPORTS, RECORDS AND BUSINESS SYSTEMS
DEALER shall submit to CC for confidential use by CC and its affiliates, in such
manner, in such form, and at such times as CC may reasonably request, complete
and accurate repots of sales and stocks of new and used vehicles on hand and
other reports, including monthly financial statements and operating reports.
DEALER shall use and keep accurate and current at all times a uniform accounting
system and will follow accounting practices, satisfactory to CC, which will
enable CC to develop comparative information in order, among other things, to
provide business management assistance to dealers for the mutual benefit of
DEALER and CC. DEALER agrees that CC may at any time for confidential use
inspect DEALER's books and records to determine whether they are kept in such
manner that the data shown in them can be used in CC's business management
assistance to dealers, to assess DEALER's financial condition, and to verify
invoices or other claims DEALER may render to CC. CC may, during the course of
such inspection, make copies of such books and records and retain such copies
for CC's confidential use.
DEALER shall maintain an electronic data storage, transmission and communication
system in the manner and form required from time to time by CC.
CC and its affiliates shall not, without approval of DEALER, disclose the
contents of DEALER's financial records to persons not a party or an affiliate of
a party to this Agreement except when required by compulsory process from a
court, governmental agency or arbitrator, or when CC, in its discretion,
considers it appropriate to disclose said financial records in an adjudicatory
or arbitration proceeding involving the parties to this Agreement.
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14 ORDERS
CC shall ship specified CC vehicles, parts and accessories to DEALER only on
DEALER's order.
DEALER shall submit to CC, in the manner and form required by CC, current orders
for CC vehicles, parts and accessories, and estimates of DEALER's future vehicle
requirements at such times and for such periods as CC reasonably may request for
the mutual benefit of all CC dealers and CC. All orders are subject to
acceptance by CC, which acceptance may be in whole or in part.
Except as otherwise allowed by this Agreement, CC shall use its best efforts to
fill accepted orders for specified CC vehicles, parts and accessories.
Notwithstanding the foregoing, in the event that demand exceeds supply of
specified CC vehicles, DEALER acknowledges that CC has the right to allocate
such supply in any reasonable manner CC deems fit in any geographical market.
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15 DELIVERY
CC may deliver specified CC vehicles by rail, truck, boat or any other means of
transport, or deliver them for driveaway, endeavoring, when exceptional
circumstances arise and the cost is not increased, to meet DEALER's preference
as to mode of transportation. CC may deliver specified CC vehicles to a carrier
that CC selects, for shipment to DEALER at DEALER's place of business or to the
city or two where DEALER's place of business is located (or to the nearest
practicable unloading point) "to CC's order, notify DEALER," or may deliver such
vehicles at any other point that CC may establish.
CC may deliver parts and accessories to DEALER by delivering them to a carrier
that CC selects for shipment to the city or town where DEALER's place of
business is located, or by delivering them to DEALER at any point that CC may
establish.
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16 ACCEPTANCE OF SHIPMENTS
If DEALER requests diversion of CC products shipped to DEALER or if CC is
required to divert any CC products because DEALER fails, refuses or is unable to
accept delivery of such products, or if there is a failure to pay as required
for the products that DEALER has ordered, or a failure to accept C.O.D.
shipments of products DEALER has ordered, CC may divert the shipments and charge
DEALER the demurrage, transport, storage and other expense arising by reason of
any such diversion.
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17 OTHER CHARGES
DEALER shall be responsible for and will pay any and all charges for demurrage,
storage or other charges accruing after arrival of shipment at the distribution
point established by CC.
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18 DELAY OR FAILURE TO FILL ORDERS
CC shall not be liable for delay or failure to fill orders that have been
accepted, where such delay or failure is the result of any event beyond the
control of CC including, but not in limitation of the generality of the
foregoing, any law, regulation or administrative or judicial order, or any acts
of God, wars, riots, wrecks, fires, strikes, lockouts, other labor troubles,
embargoes, blockades, delay or failure of any other supplier or carrier of CC to
deliver or make delivery of CC products, or any material shortage or curtailment
of production, including those due to economic conditions, or any discontinuance
of manufacture or sale of products by CC or its suppliers. Furthermore, CC will
not be liable for delay or failure to fill orders when such delay or failure is
pursuant to any provision under this Agreement.
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19 OPTION TO REPURCHASE DAMAGED VEHICLES
DEALER shall notify CC if any new and unused CC vehicle in DEALER's possession
has sustained major damage as defined in the Warranty Policy and Procedure
Manual. To preserve the quality and value of new CC vehicles ordered for the
public, CC shall have the option to divert such a vehicle prior to delivery to
DEALER or repurchase from DEALER all or any of such vehicles at a price equal to
the net purchase price paid by DEALER to CC. DEALER agrees to assign its rights
under any insurance contract related to the repurchased CC vehicles to CC. CC
shall make appropriate payment for repurchased CC vehicles directly to any lien
holder or, if there is no lien, directly to DEALER.
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20 CLAIMS FOR DAMAGE
OR SHORTAGE
CC shall not be liable for loss of or damage to CC products sold hereunder
occurring after delivery thereof to DEALER, DEALER's agent, or a carrier within
the North American Continent for shipment to DEALER, as provided in Paragraph 15
of this Agreement. Should any products sold under this Agreement be delivered in
damaged condition or with shortages, claims for said damages or shortages shall
be made in accordance with CC's then current policies and procedures. To the
extent required by law, DEALER shall notify the purchaser of a vehicle of any
damage sustained by such vehicle prior to sale. DEALER shall indemnify and hold
CC harmless from any liability resulting from DEALER's failure to so notify such
purchasers.
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21 PRICES, CHARGES, TERMS OF PURCHASE AND PAYMENT
CC shall notify DEALER from time to time of the prices, charges and terms of
purchase for products sold under this Agreement and shall charge DEALER for such
products according to the prices, charges and terms of purchase in effect at the
date of shipment. CC reserves the right, without prior notice, to change prices,
charges and terms of purchase for any product sold under this Agreement.
DEALER shall pay CC for products sold under this Agreement in lawful money of
the United States of America by such method and/or in such manner as CC may
announce from time to time or approve in writing, with collection charges, if
any, added.
If not included in the price, DEALER shall pay all excise or other taxes which
may be levied on the products purchased hereunder or on the sale, shipment,
ownership or use thereof. Further, DEALER certifies as of the date of each
purchase hereunder that all products purchased hereunder are purchased for
resale, retail lease or demonstration purposes.
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22 CHANGE IN PRICE
Should CC reduce the wholesale price at factory of any CC vehicle (not including
accessories and optional equipment) of a particular yearly model, line and body
style then currently in production, CC shall refund to DEALER in cash or by a
credit against DEALER's indebtedness to CC, for each new, unused and unsold CC
vehicle (not including demonstrators) of that particular model, line and body
style that at the time of the reduction is in DEALER's stock or in transit to
DEALER, an amount equal to the difference between the reduced wholesale price
and the wholesale price paid to CC by DEALER.
If, at the time of the official model introduction date (as determined by CC) of
a new yearly model, CC announces a wholesale price of any CC vehicle (not
including accessories and optional equipment) of any particular body style and
line of the new model which is below the wholesale price of a vehicle of the
same body style and line of the discontinued yearly model, CC shall refund to
DEALER in cash or by credit against DEALER's indebtedness to CC an amount equal
to the difference between the reduced wholesale price and the wholesale price of
the same body style and line of the discontinued yearly model. Such refund will
apply only to new, unused and unsold CC vehicles (not including demonstrators)
of the particular body style and line of the discontinued yearly model that on
the official model introduction date (as determined by CC) of the new yearly
model is in DEALER's stock or in transit to DEALER, unless CC determines that
the line or particular body style of the new yearly model is so changed in size,
design, equipment, specifications or price as, for all practice purposes, to
make the line a new and different line or to make the particular body style a
new and different body style of the discontinued yearly model.
Notwithstanding the provisions of the two paragraphs immediately above, in any
case where items considered standard equipment on a current vehicle or on a
vehicle of the discontinued yearly model are not included as standard equipment
on the corresponding vehicle with a reduced wholesale price or on the
corresponding vehicle of the new model, any wholesale price decrease resulting
from the exclusion of such standard equipment will not be included in any refund
under this paragraph 22.
In order to qualify for a refund in either case set forth above, DEALER must
make a written claim, supported by adequate evidence, within thirty (30) days of
the effective date of the reduction in price or the official model introduction
date of the new yearly model.
Should CC increase the wholesale price of any CC vehicle, said price increase
will not apply to an order submitted to CC by DEALER prior to the date the
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notification of such price increase was issued if the order was submitted for
the specific purchase of fulfilling a valid and legitimate purchase agreement
between DEALER and a retail purchaser and if such an order was properly
identified in the manner required by CC and was delivered to the ordering retail
purchaser.
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23 SALE AND SUPPLY OF PARTS
DEALER shall not represent, sell, offer for sale or use in repairing CC
vehicles, parts which are represented as new or remanufactured Chrysler
Corporation or Mopar parts or parts which are represented to be manufactured or
produced by any company directly involved in the manufacture of the vehicles
specified in the Motor Vehicle Addendum to this Agreement, unless such parts are
in fact manufactured, remanufactured or designed for or by Chrysler Corporation,
Mopar or a company directly involved in the manufacture of said specified
vehicles and are properly identified as Chrysler Corporation or Mopar parts or
parts of said directly involved companies with the respective consent of each of
the aforementioned organizations.
DEALER at all times shall keep on hand in DEALER's place of business the number
and assortment of Chrysler Corporation or Mopar parts, that, in CC's judgment,
is necessary to meet the service requirements of DEALER's CC customers and to
meet all of DEALER's obligations under this Agreement.
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24 COLLECTION OF INDEBTEDNESS
CC may apply to any amount owed by DEALER to CC or to any of CC's affiliates any
credit owing to DEALER by CC or any of its affiliates. As used in this
Agreement, "affiliate" means Chrysler Corporation and any of its subsidiaries or
their subsidiaries, or any other corporation, partnership or other legal entity
which has an ownership interest in CC or any corporation, partnership or other
legal entity in which CC has an ownership interest, or any subsidiary thereof.
Should DEALER assign its right to amounts owed to DEALER by CC to any third
party, prior to executing such an assignment DEALER shall notify such third
party of CC's first priority right to such credits.
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25 TITLE
Title to products CC sells to DEALER hereunder and risk of loss will pass to
DEALER on delivery of the products to DEALER, DEALER's agent, or the carrier,
whichever occurs first. However, CC retains a lien for payment on the products
so sold until paid for in full, in cash. CC will receive negotiable instruments
only as conditional payment.
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26 WARRANTY AND INDEMNIFICATION FOR PRODUCT LIABILITY LITIGATION
(a) WARRANTY
CC's warranty on new CC vehicles, as in effect from time to time, will be as set
forth in Chrysler Corporation's Warranty Policy and Procedure Manual. CC shall
supply sufficient copies of CC's then current CC vehicle warranty to DEALER to
permit DEALER, in accordance with DEALER's obligation under Paragraph 11 of this
Agreement, to provide a copy to each purchaser from DEALER of a new CC vehicle.
EXCEPT FOR THE CC WARRANTY, THERE ARE NO OTHER EXPRESS OR IMPLIED WARRANTIES
MADE OR DEEMED TO HAVE BEEN MADE TO ANY PERSON BY CC APPLICABLE TO PRODUCTS SOLD
UNDER THIS AGREEMENT. THE CC WARRANTY WILL BE EXPRESSLY IN LIEU OF ANY OTHER
WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY IMPLIED WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE; AND THE REMEDIES SET
FORTH IN SUCH WARRANTY WILL BE THE ONLY REMEDIES AVAILABLE TO ANY PERSON WITH
RESPECT TO PRODUCTS SOLD HEREUNDER. CC neither assumes nor authorizes any other
person, including DEALER, to assume for CC any other obligation or liability in
regard to such products.
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(b) INDEMNIFICATION FOR PRODUCT LIABILITY LITIGATION
If a product liability lawsuit is filed naming DEALER as a defendant and it is
determined that the bodily injury or property damage alleged by the plaintiff
was caused solely be a design defect or a defect created by CC in the
manufacture or assembly of a CC vehicle, part or accessory, which latter defect
was not reasonably susceptible of discovery by DEALER in either DEALER's new car
preparation or subsequent servicing during the warranty period, then CC shall
indemnify and hold DEALER harmless from losses, damages and expenses, including
reasonable attorneys' fees, resulting from such product liability lawsuit. As
used in this Paragraph 26(b), a "product liability lawsuit" shall mean a lawsuit
seeking damages for bodily injury or property damage allegedly sustained in a
motor vehicle accident, and which injury or damage is alleged to have been
caused in any part by a defect in the design, manufacture or assembly of a CC
vehicle, part or accessory.
Whenever DEALER intends to request CC to indemnify DEALER with respect to a
product liability lawsuit, DEALER shall file with the court an appropriate
response which will prevent a default judgment from being taken against DEALER,
and DEALER shall, within thirty (30) business days after service of the
complaint, notify CC in writing and shall provide at that time copies of any
pleadings which may have been served, together with all information then
available regarding the circumstances giving rise to such product liability
lawsuit. Any such notices shall be sent by certified mail to the attention of
the Office of the General Counsel, Chrysler Corporation, Post Office Box 1919,
Detroit, Michigan 48288 or such other address as CC may designate in writing to
DEALER. Upon such request for indemnification, CC shall have the option, upon
reasonable notice to DEALER, to retain counsel and assume full control over the
defense of the lawsuit. If CC is prevented by DEALER from exercising this
option, CC's obligation hereunder to indemnify DEALER shall be rendered null and
void and be of no force of effect.
(c) REPAIR/REPLACE REQUIREMENTS
This provision shall apply if DEALER is located in a state which has in effect
or hereafter adopts or enacts any law or regulation imposing liability on a
motor vehicle manufacturer, importer, distributor and/or dealer for sale of a
vehicle presumed under such law or regulation to be defective by reason, inter
alia, of repeated unsuccessful attempts to repair such vehicle within a
specified period of time or by reason of such vehicle being unavailable and out
of service to the purchaser for a specified period of time.
DEALER shall make a good faith effort to immediately notify CC in writing of the
existence of any vehicle which may become subject to such law or regulation
prior to a presumption of liability arising under such law or regulation from
the inability to repair or correct a nonconformity or condition of a vehicle.
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27 CHANGE OF MODELS, PARTS AND ACCESSORIES DECLARED
OBSOLETE OR DISCONTINUED
CC at any time may discontinue any or all models, lines or body styles and may
revise, change or modify their construction or classification. All DEALER orders
for specified CC vehicles shall refer to models, lines and body styles in
production at the time CC receives the orders unless DEALER specifies otherwise.
CC at any time may declare obsolete or discontinue any or all parts, accessories
and other merchandise. CC may act under this Paragraph 27 without notice and,
except as set forth in Paragraph 22 of this Agreement, without any obligation to
DEALER by reason of DEALER's previous purchases.
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28 TERMINATION
(a) DEALER may terminate this Agreement on not less than thirty (30) days
written notice.
(b) CC may terminate this Agreement on not less than sixty (60) days written
notice for the following reasons:
(i) in accordance with CC's ordinary and customary procedures, upon the
failure of DEALER to fully perform any of DEALER's undertakings under Paragraph
11(a) of this Agreement or failure of DEALER to meet its minimum service
satisfaction requirements set forth in Paragraph 11(b) of this Agreement within
one hundred and eighty (180) days after notification by CC that DEALER has not
fully performed the aforementioned undertakings, obligations or requirements, or
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(ii) the failure of DEALER to perform fully any of DEALER's
undertakings or obligations as set forth in this Agreement including, but
without limiting the generality of the foregoing, the undertakings and
obligations set forth in Paragraphs 11(b) through 11(g) or Paragraphs 12, 13,
14, 23, 26(c) or 35 of this Agreement, or
(iii) the death of any person listed in Paragraph 2 of this Agreement
(other than the death of DEALER if DEALER is a sole proprietorship) or the
failure of any such person so listed to continue active and substantial personal
participation in the management of the Dealership Operation as required by
Paragraph 2, or
(iv) a misrepresentation of or change, whether voluntary or by
operation of law, in the ownership if DEALER is an individual, or of the
ownership interests listed in Paragraph 3 of this Agreement resulting in a
transfer of control or majority interest in the capital stock or partnership
interest of DEALER, unless CC has given prior written approval to such change,
or
(v) any material misrepresentation by any of DEALER's owners or
executive as to any fact relied upon by CC in entering into this Agreement, or
(vi) a disagreement, dispute or controversy between or among
principals, partners, managers, officers or stockholders of DEALER that, in the
opinion of CC, may adversely affect the operation, management or business of
DEALER, or
(vii) the conviction of DEALER or any individual named in Paragraph 2
or 3 herein of any crime that, in CC's opinion, may affect adversely the
operation or business of DEALER or the name, goodwill or reputation of Chrysler
Corporation, CC products, or DEALER, or
(viii) the failure of DEALER to pay any indebtedness of DEALER to CC in
accordance with the applicable terms and conditions required by CC, or
(ix) impairment of the reputation or financial standing of DEALER or
any of DEALER's owners or executives or discovery by CC of any facts existing
prior to or at the time of signing this Agreement which, in CC's opinion, tend
to impair such reputation or financial standing, or
(x) any submission by DEALER to CC of a false or fraudulent application
or claim, or any claim or statements in support thereof, for payment including,
but not limited to, pre- delivery inspection or adjustments, warranty repairs,
special policy or campaign adjustments or repairs performed by DEALER, sales
incentives, parts compensation, or any other discount, allowance, refund or
credit under any plan, provision or other program offered by CC, whether or not
DEALER offers or makes to CC or CC seeks or obtains from DEALER restitution of
any payments made to DEALER on the basis of any such false or fraudulent
application, claim or statement, or
(xi) conduct by DEALER which, in DEALER's dealings with customers or
the public, is fraudulent or constitutes a deceptive or unfair act or practice,
or
(xii) DEALER's failure to comply with requirements set forth in the
National Traffic and Motor Vehicle Safety Act of 1966 or any other legislation
or regulation pertaining to safety, air pollution or noise control which may be
imposed on automobile dealers or with reasonable requests of CC made in
conjunction with action being taken on its part to comply with the
aforementioned statutory or regulatory requirements, or
(xiii) the notification of termination or termination, for any reason,
of any other Chrysler Corporation Dealer Agreement(s) which may be in effect
between DEALER and Chrysler Corporation, or
(xiv) the failure of DEALER to comply fully with the policies,
procedures, directives and rulings of the CC Customer Arbitration Board, or
(xv) CC offers a new Sales and Service Agreement to all of its dealers
selling the line(s) of vehicles set forth in the Motor Vehicle Addendum.
Termination by CC will not be effective unless the President or a Vice President
or the National Dealer Placement Manager of Chrysler Corporation signs the
notice.
(c) Notwithstanding the provisions above, this Agreement will terminate
automatically without notice from either party on:
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(i) the death of DEALER, if DEALER is a sole proprietorship, or
(ii) an attempted or actual assignment or transfer of this Agreement or
an attempted or actual transfer of a substantial portion of dealership assets by
DEALER without the prior written consent of CC, or
(iii) an assignment by DEALER for the benefit of creditors, or
(iv) the insolvency of DEALER, or the preparation for any petition by
or for DEALER for voluntary institution of any proceeding under the Bankruptcy
Act or under any State insolvency law, whether or not such petition is ever
filed; or the involuntary institution against DEALER of any proceeding under the
Bankruptcy Act or under any State insolvency law which is not vacated within ten
(10) days from the institution thereof; or the appointment of a receiver or
other officer having similar powers for DEALER or DEALER's business which is not
removed within ten (10) days from his/her appointment; or any levy under
attachment, execution or similar process which is not within ten (10) days
vacated or removed by payment or bonding, or
(v) the discontinuance by CC of the production or distribution of all
CC vehicles listed on the Motor Vehicle Addendum, or
(vi) the failure of DEALER to fully conduct its Dealership Operations
for seven (7) consecutive business days, or
(vii) the loss, termination or expiration of any license or permit
required by law for DEALER to perform DEALER's obligations under this Agreement
or otherwise conduct business as a new vehicle dealer for CC products.
Termination of this Agreement will cancel all unfilled orders for vehicles,
parts and accessories.
The obligations of the parties to this Agreement as set forth in Paragraphs 9,
(or Paragraph 7 in a Term Agreement), 21, 24, 26(a), 26(b), 29, 30, 31 and 35
shall remain in full force and effect after the effective date of termination.
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29 REPURCHASE OBLIGATIONS UPON TERMINATION
Except when termination of this Agreement will be followed by CC issuing to
DEALER, or to DEALER's successors, assigns, heirs or devisees, a new agreement
of any sort for the sale and service of CC vehicles, including, but not in
limitation of the generality of the foregoing, such an agreement with a term of
limited duration, CC agrees to buy and DEALER agrees to sell, free and clear of
any liens and encumbrances, within ninety (90) days after the effective date of
any termination under Paragraph 28;
(a) All new, unused and unsold specified CC vehicles (not including
demonstrators), unmodified and in good, undamaged condition, of the yearly model
current at the effective date of termination that were purchased by DEALER from
CC and that are on the effective date of termination the property of and in the
possession, custody and control of DEALER. The repurchase price will be the
dealer net invoice price at the time of DEALER's purchase of each such vehicle
from CC, less any applicable rebates, incentive payments, adjustments or
allowances paid or credited by CC to DEALER. CC shall not be required to
repurchase CC vehicles built on DEALER's special order to other than CC standard
specifications.
(b) All new, unused and undamaged CC parts that are priced and identified as
eligible for return in Chrysler Corporation's then current parts lists and that
were purchased by DEALER from CC and are on the effective date of termination
the property of and in the possession, custody and control of DEALER, at current
listed prices (exclusive of transportation charges). CC shall add to such
current listed prices (exclusive of transportation charges) an allowance of five
percent (5%) of such prices for packing and crating by DEALER and a credit for
transportation charges paid by DEALER to ship such parts to the destination CCC
designates. CC shall subtract from such current listed prices (exclusive of
transportation charges) all maximum allowable discounts and the cost of any
necessary refinishing, reconditioning or repacking to restore the parts to their
original saleable condition, and CC's cost of determining whether such parts are
free and clear of all liens and encumbrances. Prior to purchase by CC, DEALER
shall deliver the parts (tagged and inventoried in accordance with CC's
instructions) for inspection F.O.B. at any point CC may designate. CC's
determination for the quantity and value of the parts
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returned will be conclusive unless DEALER notifies CC in writing within fifteen
(15) days of receiving the check or statement of account for such parts returned
of any error made in such determination.
(c) All new, unused and undamaged CC accessories or accessories packages for
the yearly model current at the effective date of termination, complete as
supplied to and purchased by DEALER by CC during the twelve (12) months
immediately preceding the effective date of termination and that are on the
effective date of termination the property of and in the possession, custody and
control of DEALER at the prices than applicable (less maximum allowable
discounts) and current at the effective date of termination, exclusive of
transportation charges. CC shall add to such currently applicable prices an
allowance of five percent (5%) of such prices (less maximum allowable discounts)
for packing and crating by DEALER and a credit for transportation charges paid
by DEALER in shipping such accessories to the destination CC designates. CC
shall subtract from such currently applicable prices (less maximum allowable
discounts), the cost of necessary refinishing, reconditioning or repackaging of
such accessories or accessories packages to restore them to their original
salable condition and CC's cost of determining whether such accessories or
accessories packages are free and clear of all liens and encumbrances. Prior to
purchase by CC, DEALER will deliver the accessories or accessories packages,
tagged and inventoried in accordance with CC's instructions, for inspection
F.O.B. at any point CC may designate. CC's determination of the quantity and
value of the accessories or accessories packages returned will be conclusive
unless DEALER notifies CC in writing within fifteen (15) days of receiving the
check or statement of account for such accessories or accessories packages
returned of any error made in such determination.
(d) All signs of a type required by CC belonging to DEALER, showing the name
"Chrysler Corporation" or one of the designated trade names applicable only to
CC products on CC's affiliated companies. CC shall pay to DEALER for such signs
the fair market value or the price for which DEALER purchased such signs,
whichever is lower. CC shall have the right, upon termination of this Agreement,
to enter DEALER's premises peacefully and remove all such signs.
(e) Special tools (in complete sets), of a type recommended by CC, adapted
only to the servicing of CC vehicles and purchased by DEALER during the
thirty-six (36) months immediately preceding the effective date of termination
at a price and under terms and conditions to be agreed upon by CC and DEALER.
CC will pay DEALER for any items purchased pursuant to this Paragraph 29 within
ninety (90) days of CC's receipt and acceptance of said items, subject to
Paragraph 24 of this Agreement.
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30 DISPOSITION OF DEALER'S PREMISES
On termination of this Agreement by CC on sixty (60) days' written notice
pursuant to Paragraph 28 hereof, except when termination results because
DEALER's facilities have been closed for seven (7) consecutive business days or
from a person named in Paragraph 2 of this Agreement ceasing to participate in
the management of DEALER, CC shall take the following action respecting DEALER's
premises as defined below (herein called the Premises), if DEALER so requests,
and provided that DEALER has paid to CC all monies owing to CC:
(a) If, on DEALER's receipt of notice of termination, DEALER owns the
Premises:
CC shall assist DEALER in effecting an orderly and equitable disposition of the
Premises by a sale or lease. If necessary to effect such disposition, CC, at its
option, within a reasonable time shall release the Premises from DEALER for at
least one (1) year or purchase the Premises, or cause them to be leased or
purchased, on fair and equitable terms. In such event, DEALER and CC shall agree
on the value or rental value of the Premises for the purchase of either a sale
or lease. If DEALER and CC are unable to so agree, each shall appoint a
disinterested qualified real estate appraiser and the two so appointed will
agree on the value or rental value of the Premises, as the case may be. If the
two appraisers are unable to agree, each shall appoint a disinterested qualified
real estate appraiser who shall determine such value. The value or rental value
so determined shall be final and binding on both DEALER and CC. If one or more
appraisals are necessary, DEALER and CC shall share equally the cost of such
appraisals.
(b) If, on DEALER's receipt of notice of termination, DEALER is leasing the
Premises:
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CC shall assist DEALER in effecting an orderly and equitable disposition of
DEALER's leasehold interest in the Premises. If necessary to effect such
disposition, CC, at its option, within a reasonable time, for the remainder of
the lease or for twelve (12) months, whichever period is shorter, shall (1)
sublet the Premises from DEALER, or (2) take an assignment of the lease of the
Premises from DEALER, or (3) pay DEALER monthly or otherwise, as the parties may
agree, the lower of the rental specified in the lease or the fair rental value
of the Premises determined in the manner provided in (a) above; provided,
however, that DEALER may receive such payments under only one dealer agreement
with Chrysler Corporation or any of their affiliates or subsidiaries.
(c) If DEALER owns part of the Premises and leases part of them, section (a)
above will apply to the part owned and section (b) above to the part leased.
CC shall have no obligation to DEALER under this Paragraph 30 if, after receipt
of notice of termination, (1) DEALER in any way encumbers the Premises or
DEALER's interest in them or takes any other action respecting the Premises that
would adversely affect any of CC's obligations under this Paragraph 30, or
performance thereof, or (2) DEALER receives and refuses a bona fide offer to
purchase, lease or sublet all or substantially all of the Premises at a price
and on terms that CC believes are fair, or (3) DEALER's lease of the Premises or
part thereof is continued, renewed or extended by DEALER's act or failure to
act, or (4) DEALER fails or refuses to use DEALER's best efforts to sell, lease
or sublease the Premises or to notify CC of any offer to buy, lease or sublease
the Premises; of if, after the effective date of termination of this agreement;
(a) the Premises or part thereof are used or occupied by anyone for any purpose,
or (b) DEALER, if a proprietor, or any of the persons named in Paragraph 3 of
this agreement is in the business of selling and/or servicing new or used motor
vehicles in the Sales locality referred to in this agreement or the general area
surrounding it, or (c) DEALER, if a proprietor, or any of the persons named in
Paragraph 3 of this agreement occupies or could, in CC's opinion, occupy all or
substantially all of the Premises for any business in which one or more of them
engages.
"Premises" as used in this Paragraph 30 means the place or places of business in
the Sales Locality (1) that DEALER uses exclusively to carry out DEALER's
obligations in selling and servicing new products under this agreement or
jointly under this and any other agreement or agreements with CC on the date of
DEALER's receipt of notice of termination and (2) are set forth in the
Dealership Facilities and Location Addendum (Addenda).
To receive CC's assistance as set forth in this Paragraph 30, DEALER must have
operated continuously as a CC dealer for the twelve (12) months immediately
preceding the effective date of termination and must have given CC a written
request for such assistance within thirty (30) days after DEALER's receipt of
the notice of termination of this Agreement. On receipt of such request from
DEALER, CC will initiate compliance with its obligations under this Paragraph
30. If under section (b) above CC elects to make monthly payments, then DEALER
shall make written application for them on such forms and at such times as CC
reasonably may require. If DEALER requests assistance under this Paragraph 30,
then CC, at all reasonable times, shall have full access to the Premises and
DEALER's books and records pertaining to the Premises.
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31 TRANSACTIONS AFTER TERMINATION
After the effective date of termination, if CC, in its discretion, elects to
fill retail orders of DEALER or otherwise transact business related to the sale
of CC products with DEALER, all such transactions will be governed by the same
terms that this Agreement provides, so far as those terms are applicable.
Notwithstanding any such transactions, CC shall not be deemed to have waived or
rescinded the termination or have renewed this Agreement.
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32 SUCCESSORS TO DEALER
On termination of this Agreement by reason for the death of DEALER if an
individual, or on termination by CC because of the death of any of the persons
named in Paragraph 2 of this Agreement if DEALER is a partnership or
corporation:
(a) If DEALER had so requested in writing (signed by DEALER if an individual
or by those persons representing a majority of the ownership interest in DEALER
if DEALER is a partnership or corporation), delivered to CC during the lifetime
of such decedent, CC shall offer a Chrysler Corporation Sales and Service
Agreement (limited to a two (2) year term) to any person DEALER has nominated in
such written request to CC as the person DEALER desires to continue DEALER's
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business after such death, provided that such nominated person has demonstrated
operating qualifications satisfactory to CC in the course of active, substantial
and continuing participation in the management of DEALER's organization, and
possesses or is able to acquire within a reasonable time after such death,
capital and facilities that are satisfactory to CC, and will be able to exercise
as much control over the operations and affairs of the dealership as the
deceased exercised. Such Chrysler Corporation Sales and Service Agreement(s)
shall be limited to a term of two (2) years and subject to earlier termination
as provided therein. At least ninety (90) days before the expiration of the two
(2) year term referred to above, CC shall determine if the person granted said
two (2) year agreement possesses the required capital and facilities and has
satisfactorily performed the obligations sunder said two (2) year period
agreement. This determination will be based on said person's performance during
the aforementioned two (2) year period to qualify for the standard Chrysler
Corporation Sales and Service Agreement then in effect. If CC determines that
said person possesses all such qualifications, then CC shall offer such standard
agreement to said person.
(b) CC shall, if DEALER has not nominated a successor under this Paragraph
32 and has not named a person whose surviving spouse may hold a financial
interest under Paragraph 33, review the qualifications of any remaining person
named in Paragraph 2 of this Agreement. If any such person possesses operating
qualifications satisfactory to CC and possesses or is able to acquire within a
reasonable time facilities and capital necessary to qualify as a CC dealer, CC
shall offer such person a Chrysler Corporation Sales and Service Agreement or
Term Sales and Service Agreement, as CC deems appropriate. If more than one such
person qualifies, CC will select the person or persons to whom an agreement will
be offered.
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33 SURVIVING SPOUSE'S FINANCIAL INTEREST
On termination of this Agreement by reason of the death of DEALER, if an
individual, or on termination by CC because of the death of any of the persons
named in Paragraph 2 of this Agreement if DEALER is a partnership or
corporation, the surviving spouse of the person died may hold a financial
interest in any successor dealership, provided that the following conditions are
met:
(a) Prior to the death referred to above, DEALER had delivered to CC a
notice in writing signed by all the persons named in Paragraph 2 of this
Agreement naming the deceased person (who must also be named in Paragraph 2 of
this Agreement) as the person whose surviving spouse may hold the financial
interest. DEALER may name only one person but may, on written notice to CC,
signed as above, change the person named.
(b) Within sixty (60) days of the date of such death, the surviving spouse
executes with the person or persons who will be named in Paragraph 2 of the CC
Sales and Service Agreement(s) between CC and the successor dealership a written
agreement in which the surviving spouse agrees not to participate in any way in
the management or operation of the successor dealership. Such agreement shall be
delivered to CC within fifteen (15) days after it has been signed by both
parties. Notwithstanding the immediately foregoing provisions of this Paragraph
33(b), such an agreement not to participate need not be made if CC has approved
the surviving spouse as a person to be named in Paragraph 2 of the CC Sales and
Service Agreement(s) between CC and the successor dealership.
Nothing contained herein will obligate CC to enter into a sales and service
agreement with the surviving spouse or any person not otherwise acceptable to CC
or require CC to continue this or any other agreement with the surviving spouse
or any other person for any period for time beyond the time when CC would have a
right to terminate such an agreement in accordance with the terms thereof.
"Successor dealership" as used in this Paragraph 33 means a dealership (1) that
qualifies for and enters into a Chrysler Corporation Sales and Service Agreement
with CC, (2) that possesses and has the right to use the physical assets and
organization that remain after the death first referred to in this Paragraph 33,
and (3) in which the surviving spouse retains or acquires the financial interest
as referred to above.
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34 SALE OF DEALERSHIP ASSETS OR OWNERSHIP INTERESTS
CC acknowledges that DEALER may at any time negotiate for the sale of its
assets, and any of the owners of DEALER may at any time negotiate the sale of
their ownership interests in DEALER, with any purchaser on
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such terms as may be agreed upon by them and the prospective purchaser. Any such
sale, however, will not create any obligation of CC to do business with any such
purchaser.
DEALER acknowledges that, in connection with any such sale to any such
purchaser, this Agreement is not assignable without the written consent of CC.
If the proposed purchase and sale arrangement contemplates or is conditioned
upon the prospective purchaser being granted by CC an agreement similar to this
Agreement. DEALER shall provide CC written notice thereof prior to any
completion or closing of the transactions contemplated by such purchase and sale
arrangement and the prospective purchaser shall apply to CC, on forms provided
by CC, for such an agreement. In order that CC can determine whether effective
dealership operations will result if the prospective purchaser's application is
approved, CC may, in processing the application, without liability to DEALER or
any such owners, counsel with the prospective purchaser regarding any matters
including, but not limited to, matters relating to the investments in the
proposed dealership operations, the management and the facilities that may be
required by CC.
If DEALER or such owners have notified CC, and the prospective purchaser has
made application as provided above, CC shall consider and process such
application, together with the applications of any others for such an agreement,
in accordance with its established procedures and CC shall not unreasonably
withhold its approval of such an application. Any such approval shall be
conditioned upon payment in full by DEALER of all of DEALER's obligations to CC,
which payment shall be made at CC's option on or before the sale to the
prospective purchaser. If CC decides not to continue authorized dealership
operations at DEALER's premises, however, no such application will be considered
or processed by CC and CC shall so notify DEALER or such owners and the
prospective purchaser.
Notwithstanding the foregoing provision of this Paragraph 34, even if the
prospective purchaser of DEALER's assets or ownership interests in DEALER meets
CC's qualifications for appointment as a dealer, CC may, at its discretion,
offer to purchaser DEALER's assets or ownership interest in DEALER on the same
terms as said qualified prospective purchaser. If CC makes such an offer, DEALER
shall sell the dealership assets to CC on the aforementioned same terms.
However, if CC has not made such an offer within fifteen (15) business days
after CC's receipt of the aforementioned application and all necessary
information, CC shall be deemed to have declined to offer to purchase DEALER's
assets or ownership interests in DEALER. Within fifteen (15) days after CC has
communicated its offer to purchaser DEALER's assets or ownership interest in
DEALER, as described above, DEALER may withdraw, by written notification to CC<
its proposal to sell said assets or ownership interest to any purchaser, in
which case CC's aforementioned offer to purchase will be null and void.
Additionally, DEALER may request in writing that CC predetermine whether a
proposed purchaser would be acceptable to CC prior to entering into an agreement
to sell DEALER's assets or ownership interests. If such a request is made, CC
shall make such determination. If CC determines that the proposed purchaser is
acceptable to CC, CC shall decline to make an offer to purchase such assets or
ownership interest. Such determination of acceptability and declination will not
act to deny CC its right not to approve the proposed purchase and sale
arrangement as set forth above.
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35 USE OF TRADE NAMES, TRADEMARKS, LOGOS, ETC.
DEALER may use in DEALER's corporate, firm or trade name in a manner CC approves
in writing any trade name applicable to those CC products set forth in the Motor
Vehicle Addendum. DEALER shall discontinue immediately the use of any such trade
names in DEALER's corporate, firm or trade name when CC so requests in writing
and DEALER shall take such steps as may be necessary or appropriate, in CC's
opinion, to change such corporate, firm or trade name so as to eliminate any
trade name of CC products therefrom.
Except as specifically allowed herein, DEALER shall not use, in any manner, the
trademarks, trade names, insignias or the like of CC, its divisions, affiliates
or subsidiaries without CC's explicit and prior written consent. DEALER shall
discontinue immediately any and all use of any such trademark, trade name,
insignias or the like when CC so requests in writing.
On termination of this Agreement, DEALER shall discontinue immediately using any
trade names applicable to CC vehicles or other products in DEALER's corporate,
firm or trade name or using any trade names, trademarks or insignias adopted or
used by CC or its divisions, affiliates or subsidiaries, and will take such
steps as may be necessary or appropriate, in CC's opinion, to change such
corporate, firm or trade name so as to eliminate any
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trade names applicable to CC products therefrom, and will discontinue using any
signs, stationery or advertising containing any such trade names, trademarks or
insignias or anything else that might make it appear that DEALER is an
authorized dealer for CC vehicles or products.
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36 DEALER IS NOT AGENT
This Agreement does not create the relationship of principal and agent between
CC and DEALER, and under no circumstances is either party to be considered the
agent of the other.
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37 INABILITY TO PERFORM
In addition to any other exemption from liability specifically provided for in
this Agreement, neither DEALER nor CC will be liable for failure to perform its
part of this Agreement when the failure is due to fire, flood, strikes or other
labor disputes, accident, war, riot, insurrection, acts of government,
governmental regulation or other circumstances beyond the control of the
parties.
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38 ASSIGNMENT
DEALER may not assign or transfer this Agreement, or any part hereof, or
delegate any duties or obligations under this Agreement without the written
consent of CC, executed by the President or a Vice President or the National
Dealer Placement Manager of Chrysler Corporation.
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39 NON-WAIVER
The waiver by either party of any breach or violation of or default under any
provision of this Agreement will not operate as a waiver of such provision or of
any subsequent breach or violation thereof or default thereunder.
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40 SEVERABILITY
If any provision of this Agreement should be held invalid or unenforceable for
any reason whatsoever or to violate any law of the United States, the District
of Columbia or any State, this Agreement is to be considered divisible as to
such provision, and such provision is to be deemed deleted from this Agreement
or, in the event that it should be held to violate only the laws of the District
of Columbia or of any State, to be inapplicable within the territory thereof,
and the remainder of this Agreement will be valid and binding as if such
provision were not included herein or as if it were included herein only with
respect to territories outside of such District or State, as the case may be.
Notwithstanding the foregoing, when, in the absence of this Paragraph 40,
Federal law would otherwise be deemed to preempt a state law which purports to
limit or prohibit any right, obligation or duty under any provision of this
Agreement, then this Paragraph 40 shall not be construed to delete any such
provision of this Agreement and the parties hereto will be subject to the terms
of such provision as if such a state law did not exist.
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41 TITLES
The titles appearing in this Agreement have been inserted for convenient
reference only and do not in any way affect the construction, interpretation or
meaning of the text.
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42 INTERPRETATION
In the event of a dispute hereunder, the terms of this Agreement shall be
construed in accordance with the laws of the State of Michigan.
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43 NOTICES
Unless otherwise specifically required by the terms of this Agreement, any
notice required or permitted under this Agreement must be in writing and will be
sufficient if delivered personally, or sent through the United States mail
system, postage prepaid, addressed, as appropriate, either to DEALER at the
place of businesses designated in this Agreement, or at such other address as
DEALER may designate in writing to CC, or to Chrysler Corporation at Post Office
Box 857, Detroit, Michigan 48288 or such other address as CC may designate in
writing to DEALER.
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[CHRYSLER LOGO]
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Chrysler Corporation May 3, 1996
TO: ALL CHRYSLER CORPORATION DEALERS
Please note that Chrysler Corporation ("Chrysler") is amending all Chrysler,
Plymouth, Dodge and Dodge Truck Direct Dealer Agreements and all Chrysler,
Plymouth, Dodge, Dodge Truck, Jeep and Eagle Sales And Service Agreements as
follows.
PART I only applies to Chrysler, Plymouth, Dodge and Dodge Truck DIRECT DEALER
AGREEMENTS. PART II only applies to Chrysler, Plymouth, Dodge, Dodge Truck, Jeep
and Eagle SALES AND SERVICE AGREEMENTS.
PART I
In accordance with Paragraph 5 of your regular Chrysler, Plymouth, Dodge or
Dodge Truck Direct Dealer Agreement(s), Chrysler Corporation amends all Direct
Dealer Agreements as follows:
(The underlined portion sets forth the new or changed provisions.)
1. Paragraph 1, entitled "Sales Locality," as amended September 15, 1992
and effective January 1, 1993, is further amended so that it will read
as follows:
DIRECT DEALER shall have the non-exclusive right, subject to the
provisions of this Agreement, to purchase from CHRYSLER new (Chrysler,
Plymouth, Dodge or Dodge Truck, as applicable) vehicles that are
manufactured for sale within the United States for resale to customers
located within the United States (or to other authorized (Chrysler,
Plymouth, Dodge or Dodge Truck, as applicable) dealers located within
the United States), and vehicle parts, accessories and other CHRYSLER
products for resale at DIRECT DEALER'S facilities and location
identified in the opening paragraph of this Agreement. DIRECT DEALER
will actively and effectively sell and promote the retail sale of
(Chrysler, Plymouth, Dodge or Dodge Truck, as applicable) vehicles,
vehicle parts and accessories in DIRECT DEALER'S Sales Locality. As
used herein, "Sales Locality" shall mean the area designated in writing
to DIRECT DEALER by CHRYSLER from time to time as the territory of
DIRECT DEALER'S responsibility for the sale of (Chrysler, Plymouth,
Dodge or Dodge Truck, as applicable) vehicles, vehicle parts and
accessories, although DIRECT DEALER is free to sell said vehicles to
customers located within the United States wherever they may be located
within the United States, and vehicle parts and accessories to
customers wherever they may be located. Said Sales Locality may be
shared with other (Chrysler, Plymouth, Dodge or Dodge Truck, as
applicable) dealers as CHRYSLER determines to be appropriate.
2. The first subparagraph of Paragraph 7, entitled "Selling, Service,
Facilities and Capital," is amended so that it will read as follows:
(a) Selling--DIRECT DEALER agrees to sell energetically at retail in
the Sales Locality described in Paragraph 1 of this Agreement
(Chrysler, Plymouth, Dodge or Dodge Truck, as applicable) motor
vehicles to customers located within the United States and (Chrysler,
Plymouth, Dodge or Dodge Truck, as applicable) motor vehicle parts and
accessories to customers wherever they may be located. DIRECT DEALER
must not sell new motor vehicles for resale, registration or principal
use outside the United States. DIRECT DEALER also must not sell any new
motor vehicles that were not originally manufactured for sale and
distribution within the United States.
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DIRECT DEALER agrees to sell at retail in such Sales Locality the
number of new (Chrysler, Plymouth, Dodge or Dodge Tuck, as applicable)
motor vehicles necessary to fulfill DIRECT DEALER'S Minimum Sales
Responsibility, as defined below.
3. Item (1) in the first sentence of the second subparagraph of Paragraph
21, entitled "Termination", is amended so that it will read as follows:
(CHRYSLER, PLYMOUTH, DODGE or DODGE TRUCK, as applicable) may terminate
this agreement on not less than ninety (90) days' written notice on (1)
the failure of DIRECT DEALER to perform fully any of DIRECT DEALER'S
undertakings and obligations in Paragraph 1, Paragraphs 7 through 10
and Paragraph 14 of this agreement, or . . . .
PART II
In accordance with Paragraph 6 of your Chrysler, Plymouth, Dodge and/or Dodge
Truck Term or Temporary Sales And Service Agreement or your Jeep and/or Eagle
Term Sales And Service Agreement or Paragraph 8 of your standard Chrysler,
Plymouth, Dodge, Dodge Truck, Jeep and/or Eagle Sales And Service Agreement, as
the case may be, Chrysler Corporation amends all Term, Temporary and standard
Sales And Service Agreements as follows:
1. The first sentence of Paragraph 1 of your Term, Temporary and/or
standard Sales And Service Agreement, entitled "Products Covered," is
amended so that it will read as follows:
DEALER has the right to order and purchase from CC and to sell at
retail to customers located within the United States only those
specific models of CC vehicles, sometimes referred to as "specified CC
vehicles," that are manufactured for sale and distribution within the
United States and that are listed on the Motor Vehicle Addendum,
attached hereto and incorporated herein by reference.
2. Paragraph 4 of your Term, Temporary and/or standard Sales And Service
Agreement, entitled "Sales Locality," is amended so that it will read
as follows:
DEALER shall have the non-exclusive right, subject to the provisions of
this Agreement (or Term Agreement, as the case may be) to purchase from
CC those new specified CC vehicles that are manufactured for sale
within the United States for sale to customers located within the
United States and vehicle parts, accessories and other CC products for
sale at the DEALER'S facilities and location described in the
Dealership Facilities and Location Addendum, attached hereto and
incorporated herein by reference. . . As used herein, "Sales Locality"
shall mean the area designated in writing to DEALER by CC from time to
time as the territory of DEALER'S responsibility for the sale of CC
vehicles (or specified CC vehicles, as the case may be), vehicle parts
and accessories, although DEALER is free to sell said vehicles to
customers located within the United States wherever they may be located
within the United States, and vehicle parts and accessories to
customers wherever they may be located. Said Sales Locality may be
shared with other CC dealers of the same line-make as CC determines to
be appropriate.
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3. The first subparagraph of Paragraph 11 of the Additional Terms and
Provisions of your Sales And Service Agreement(s) entitled "Selling,
Service, Compliance, Facilities and Location, Finances, Personnel and
Signage," is amended so that it will read as follows:
(a) SELLING
DEALER shall use its best efforts to promote energetically and sell
aggressively and effectively at retail (which includes lease and rental
units) each and every model of CC vehicle that is manufactured for sale
within the United States and that is identified in the aforementioned
Motor Vehicle Addendum to private and fleet customers located within
the United States in DEALER'S Sales Locality and CC vehicle parts,
accessories and other CC products and services to private and fleet
customers wherever they may be located. DEALER must not sell new
specified CC vehicles for resale, registration or principal use outside
the United States. DEALER also must not sell any new specified CC
vehicles that were not originally manufactured for sale and
distribution within the United States. DEALER will sell the number of
new CC vehicles necessary to fulfill DEALER'S Minimum Sales
Responsibility for each passenger car line or truck line represented by
the vehicles listed on the Motor Vehicle Addendum, as defined below.
4. Subparagraph (b)(i) of Paragraph 28 of the Additional Terms and
Provisions of your Sales And Service Agreement(s) entitled
"Termination" is amended so that it will read as follows:
(b) CC may terminate this Agreement on not less than sixty (60) days
written notice for the following reasons:
(i) in accordance with CC's ordinary and customary procedures,
upon the failure of DEALER to fully comply with any of
DEALER'S obligations under Paragraph 1 or 4 of this Agreement
or perform any of DEALER'S undertakings under Paragraph 11(a)
of this Agreement or failure of DEALER to meet its minimum
service satisfaction requirements set forth in Paragraph 11(b)
of this Agreement within one hundred and eighty (180) days
after notification by CC that DEALER has not fully performed
the aforementioned undertakings, obligations or requirements,
or . . .
The amendments set forth above are being made in regular Chrysler, Plymouth,
Dodge and Dodge Truck Direct Dealer Agreements generally and in Chrysler,
Plymouth, Dodge, Dodge Truck, Jeep and Eagle Term, Temporary and standard Sales
And Service Agreements generally, and are effective as of August 31, 1996 or as
soon after that as is permitted by the law of the state where DEALER is located.
We recommend that you retain this letter with your Direct Dealer and/or Sales
And Service Agreement(s).
Yours very truly,
CHRYSLER CORPORATION
/s/ V.W. Gray
V.W. Gray
National Dealer Placement Manager
3
<PAGE> 21
[CHRYSLER LOGO]
- --------------------------------------------------------------------------------
E T PAPPERT May 3, 1996
Vice President
Sales and Service
TO: ALL CHRYSLER CORPORATION DEALERS
For many years Chrysler Corporation has had a policy of opposing the
unauthorized export of its products. This practice by a few of its domestic
dealers causes numerous problems for Chrysler in its compliance with the laws of
other countries. It also causes problems for Chrysler in its relations with its
dealers and distributors in other countries, as well as for the retail customers
in those other countries who purchase its products.
The result of these practices is that vehicles that are shipped to other
countries may not comply with either the safety or emissions requirements of the
country in which they will be registered. Chrysler cannot track the ownership of
these vehicles, and may not be able to effectively conduct recall campaigns when
necessary. Retail customers do not receive warranty service, as most vehicles
sold to United States dealers do not receive warranty coverage when registered
outside of the United States or Canada. Finally, Chrysler is committed to
supporting its dealer body throughout the world, and these exports adversely
affect its relations with its dealers in other countries.
In the past, Chrysler has advised its dealers of these concerns. It has printed
notices on vehicle labels and invoices, indicating the markets for which the
vehicle was manufactured for sale. It has made exported vehicles ineligible for
sales incentive payments, and has warned that these sales may result in
adjustment of allocation or charge backs. Accordingly, Chrysler is now taking
the following actions:
o Chrysler is amending all dealer agreements to prohibit domestic dealers
from selling vehicles intended for export. A copy of that Amendment is
attached to this letter.
o Chrysler now regularly receives reports indicating the VIN and selling
dealer code for exported vehicles. These vehicles will be shown as
"available for sale" for allocation purposes for an additional 90 days
after Chrysler determines that the vehicle was exported.
o In order to insure warranty coverage for its customers in other
countries, Chrysler will surcharge dealers who sell vehicles for export
an amount necessary to cover the cost of vehicle warranty, Chrysler's
compliance with the equipment requirements of local laws and any other
costs related to the legitimate export of Chrysler vehicles. These
charges will be debited to the selling dealer's parts account with
Chrysler.
Chrysler hopes that these actions will help assure that it complies with the
laws of all of the countries in which it does business, as well as provide high
levels of customer satisfaction to its customers and maintain its commitment to
its dealers worldwide.
Sincerely,
/s/ E.T. Pappert
E.T. Pappert
Vice President Sales and Service
Attachment
1
<PAGE> 22
[CHRYSLER LOGO]
- --------------------------------------------------------------------------------
CHRYSLER CORPORATION November 8, 1995
Chrysler Center
TO: ALL CHRYSLER CORPORATION DEALERS
In the near future Chrysler Corporation ("Chrysler") will relocate its
Administrative Offices from Highland Park, Michigan to its World Headquarters in
Auburn Hills, Michigan. As a result there will be a change of mailing address.
The new offices will have considerably less floor space for storage of file
cabinets which contain the permanent Dealer Agreement files for U.S. franchised
dealers. Consequently, Chrysler intends to copy all such files to an optical
disk imaging system.
It has been nearly two decades since Chrysler consolidated its Chrysler-Plymouth
and Dodge field organizations and changed, from Regions to Zones, the name it
uses to describe the geographical area covered by each of its U.S. Sales and
Service Offices. Since the word Zone means exactly the same thing as the word
Region, Chrysler will take this opportunity to also amend the terms of its older
Chrysler, Plymouth, Dodge and Dodge Truck Direct Dealer Agreements to reflect
this change.
In view of the above, please note that Chrysler is amending all Chrysler,
Plymouth, Dodge and Dodge Truck Direct Dealer Agreements and all Chrysler,
Plymouth, Dodge, Dodge Truck, Jeep and Eagle Sales And Service Agreements in the
manner set forth below.
PART I only applies to Chrysler, Plymouth, Dodge and Dodge Truck DIRECT DEALER
AGREEMENTS. PART II only applies to Chrysler, Plymouth, Dodge, Dodge Truck, Jeep
and Eagle SALES AND SERVICE AGREEMENTS.
PART I
Pursuant to Paragraph 5 of your regular Chrysler, Plymouth, Dodge or Dodge Truck
Direct Dealer Agreement(s), Chrysler Corporation is hereby amending all such
Direct Dealer Agreements as follows:
1. The following paragraph is hereby added to Paragraph 5 as the
second subparagraph thereto:
"CHRYSLER or PLYMOUTH or DODGE or DODGE TRUCK, as the
case may be, may, in its sole discretion, store this
Agreement and other documents pertaining to this
Agreement on an electronic database. Any printout or
other output of documents stored on such electronic
database will be deemed to be the original documents
for all purposes."
2. The references in the second subparagraph of Paragraph 7(a) to
"Sales Region" and "Region" are hereby deleted and replaced
with "Sales Zone" and "Zone".
3. The reference to the mailing address at "P.O. Box 857,
Detroit, Michigan 48231" in Paragraph 29 of the Terms and
Provisions to the Chrysler, Plymouth, Dodge and/or Dodge Truck
Direct Dealer Agreements is hereby deleted and replaced with
"P.O. Box 218001, Auburn Hills, Michigan 48321-8001".
1
<PAGE> 23
PART II
Pursuant to Paragraph 6 of your Chrysler, Plymouth, Dodge and/or Dodge Truck
Term Sales And Service Agreement or your Jeep and/or Eagle Term Sales And
Service Agreement or Paragraph 8 of your standard Chrysler, Plymouth, Dodge,
Dodge Truck, Jeep and/or Eagle Sales And Service Agreement, as the case may be,
Chrysler Corporation is hereby amending all such Term and standard Sales And
Service Agreements as follows:
1. The following paragraph is hereby added to Paragraph 6 of your
Term Sales And Service Agreement and/or Paragraph 6 of your
standard Sales And Service Agreement as the second
subparagraph thereto:
"CC may, in its sole discretion, store this Agreement
and other documents pertaining to this Agreement on
an electronic database. Any printout or other output
of documents stored on such electronic database will
be deemed to be the original documents for all
purposes."
2. The reference to the Chrysler Corporation mailing address at
"Post Office Box 857, Detroit, Michigan 48288" in Paragraph 43
of the Additional Terms And Provisions is hereby deleted and
replaced with "Post Office Box 218001, Auburn Hills, Michigan
48321-8001".
The amendments set forth above are being made in Chrysler, Plymouth, Dodge and
Dodge Truck Direct Dealer Agreements and in Chrysler, Plymouth, Dodge, Dodge
Truck, Jeep and Eagle Sales And Service Agreements generally, and are effective
ninety (90) days after the date hereof. We recommend that you retain this letter
with your Direct Dealer and/or Sales And Service Agreement(s).
Yours very truly,
CHRYSLER CORPORATION
/s/ W.S. Hurst
W.S. Hurst
National Dealer Placement Manager
2
<PAGE> 24
[CHRYSLER LOGO]
- --------------------------------------------------------------------------------
CHRYSLER CORPORATION April 29, 1994
Chrysler Center
TO: ALL CHRYSLER CORPORATION DEALERS
Please take notice that Chrysler Corporation is amending all Chrysler,
Plymouth, Dodge and Dodge Truck Direct Dealer Agreements and all Chrysler,
Plymouth, Dodge, Dodge Truck, Jeep and Eagle Sales And Service Agreements to
change all references to the "Warranty and Policy Procedure Manual" or the
"Warranty Policy and Procedure Manual" to read "Dealer Policy Manual". The
amendments simply reflect the fact that the Warranty Policy and Procedure Manual
contains various sections and provisions, including, but not limited to, matters
pertaining to warranty. The amendments are not intended to alter any other
matters in Direct Dealer or Sales And Service Agreements.
The following sets forth the amendments to your Chrysler Corporation
Direct Dealer or Sales And Service Agreement(s). PART I only applies to
Chrysler, Plymouth, Dodge and Dodge Truck DIRECT DEALER AGREEMENTS. PART II only
applies to Chrysler, Plymouth, Dodge, Dodge Truck, Jeep and Eagle SALES AND
SERVICE AGREEMENTS.
PART I
Pursuant to Paragraph 5 of your regular Chrysler, Plymouth, Dodge or
Dodge Truck Direct Dealer Agreement, Chrysler Corporation is hereby amending all
such Direct Dealer Agreements as follows:
1. The reference in Paragraph 7(b) to "CHRYSLER'S (or PLYMOUTH'S,
DODGE'S or DODGE TRUCK'S, as the case may be) Warranty and Policy Procedure
Manual" is hereby deleted and replaced with "Chrysler Corporation's Dealer
Policy Manual".
2. The first sentence of Paragraph 19 is deleted in its entirety
and replaced with the following sentence:
"Chrysler Corporation's warranty on new Chrysler (or Plymouth, Dodge or
Dodge Truck, as the case may be) motor vehicles, as in effect from time
to time, will be as set forth in Chrysler Corporation's Dealer Policy
Manual, or in Chrysler Corporation's new vehicle limited warranty
booklets, or in other documents which contain the terms of Chrysler
Corporation's written warranties and which are supplied by Chrysler
Corporation to DIRECT DEALER form time to time."
PART II
Pursuant to Paragraph 6 of your Chrysler, Plymouth, Dodge and/or Dodge
Truck or Jeep and/or Eagle Term Sales And Service Agreement or Paragraph 8 of
your standard Chrysler Corporation Chrysler, Plymouth, Dodge, Dodge Truck, Jeep
and/or Eagle Sales And Service Agreement, as the case may be, Chrysler
Corporation is hereby amending all such Sales And Service Agreements as follows:
1. The references in Paragraph 11(b) to "Chrysler Corporation's
Warranty Policy and Procedure Manual" are hereby deleted and replaced with
"Chrysler Corporation's Dealer Policy Manual".
1
<PAGE> 25
2. The reference in Paragraph 26 to "Chrysler Corporation's Warranty
Policy and Procedure Manual" and the period thereafter are hereby deleted and
replaced with "Chrysler Corporation's Dealer Policy Manual, or in CC's new
vehicle limited warranty booklets, or in other documents which contain the terms
of CC's written warranties and which are supplied by CC to DEALER from time to
time".
The Amendments set forth above are being made in Chrysler, Plymouth,
Dodge and Dodge Truck Direct Dealer Agreements and in Chrysler, Plymouth, Dodge,
Dodge Truck, Jeep and Eagle Sales And Service Agreements generally, and are
effective one hundred twenty (120) days after the date hereof. We recommend that
you retain this letter with your Direct Dealer and/or Sales And Service
Agreement(s).
Yours very truly,
CHRYSLER CORPORATION
/s/ W.S. Hurst
W.S. Hurst
National Dealer Placement Manager
2
<PAGE> 1
EXHIBIT 21.1
10-K SUBSIDIARY LIST
Southwest Toyota, Inc.
Texas corporation
d/b/a Sterling McCall Toyota
SMC Luxury Cars, Inc.
Texas corporation
d/b/a Sterling McCall Lexus
McCall Automotive Group, Inc
Delaware corporation
Courtesy Nissan, Inc.
Texas corporation
Group 1 Ford, Inc.
Texas corporation
d/b/a Elgin Ford
McKinney Dodge, Inc.
Texas corporation
Smith Automotive Group, Inc.
Texas corporation
Mike Smith Automotive-H, Inc.
Texas corporation
Mike Smith Automotive-N, Inc.
Texas corporation
d/b/a Mike Smith Nissan
d/b/a Mike Smith Autoplex Nissan
Mike Smith Autoplaza, Inc.
Texas corporation
d/b/a Mike Smith Honda, Mike Smith Oldsmobile, Mike Smith GMC Truck,
Mike Smith Lincoln-Mercury, Mike Smith Mitsubishi
Mike Smith Autoplex, Inc.
Texas corporation
d/b/a Mike Smith Autoplex 2000
d/b/a Mike Smith Autoplex Buick
d/b/a Mike Smith Autoplex Volvo
<PAGE> 2
d/b/a Mike Smith Autoplex Mercedes Benz
d/b/a Mike Smith Autoplex Dodge
Mike Smith Autoplex-A, Inc.
Texas corporation
d/b/a Mike Smith Acura
Mike Smith Autoplex Buick, Inc.
Texas corporation
Mike Smith Autoplex Dodge, Inc.
Texas corporation
Mike Smith Autoplex-German Imports, Inc.
Texas corporation
d/b/a Mike Smith Autoplex Mercedes Benz
Mike Smith Autoplex-Volvo, Inc.
Texas corporation
Mike Smith L/M, Inc.
Texas corporation
Mike Smith GM, Inc.
Texas corporation
Round Rock Nissan, Inc.
Texas corporation
Smith, Liu & Corbin, Inc.
Texas corporation
d/b/a Acura Southwest
Smith, Liu & Kutz, Inc.
Texas corporation
Town North Imports, Inc.
Texas corporation
d/b/a Town North Mitsubishi
Town North Nissan, Inc.
Texas corporation
Town North Suzuki, Inc.
Texas corporation
<PAGE> 3
Mike Smith Motors, Inc.
Texas corporation
Mike Smith Imports, Inc.
Texas corporation
d/b/a Beaumont BMW
d/b/a BMW of SE Texas
d/b/a Mike Smith BMW
Bob Howard Automotive-A, Inc.
Oklahoma corporation
Bob Howard Automotive-H, Inc.
Oklahoma corporation
d/b/a Bob Howard Acura, Bob Howard Honda
Bob Howard Chevrolet, Inc.
Oklahoma corporation
d/b/a Bob Howard Chevrolet, Howard Chevrolet, Bob Howard Chevrolet-Geo,
Bob Howard Subaru
Bob Howard Dodge, Inc.
Oklahoma corporation
Bob Howard Motors, Inc.
Oklahoma corporation
d/b/a Bob Howard Toyota
Bob Howard Nissan, Inc.
Oklahoma corporation
Howard Automotive Group, Inc.
Oklahoma corporation
Howard Pontiac-GMC, Inc.
Oklahoma corporation
d/b/a Bob Howard Automall, Bob Howard GMC Truck,
Bob Howard Pontiac, Bob Howard Chrysler-Plymouth, Bob Howard Jeep-Eagle,
Bob Howard Isuzu, Bob Howard Mazda
Bob Howard Automotive-East, Inc.
Oklahoma corporation
d/b/a South Pointe Chevrolet
d/b/a Bob Howard Chevrolet
<PAGE> 4
Foyt Motors, Inc.
Texas corporation
d/b/a A.J. Foyt Honda, A.J. Foyt Isuzu, A.J. Foyt Used Cars,
Southwest Auto Credit Corp.
Kingwood Motors-H, Inc.
Texas corporation
Koons Ford, Inc.
Florida corporation
d/b/a World Ford/Hollywood, Pines Leasing,
World Ford/Pines, Car Town U.S.A.
Courtesy Ford, Inc.
Florida corporation
d/b/a World Ford/Kendall
Perimeter Ford, Inc.
Delaware corporation
Flamingo Ford, Inc.
Florida corporation
d/b/a World Ford Homestead
World Automotive Group, Inc.
Florida corporation
Prestige Chrysler Plymouth Northwest, Ltd.
Texas limited partnership
GPI Atlanta, Inc.
Delaware corporation
MMK Interests, Inc.
Texas corporation
d/b/a Maxwell Dealership Group, Maxwell Automotive Group
Prestige Chrysler Plymouth South, Ltd.
Texas limited partnership
d/b/a Maxwell Chrysler Plymouth South
Maxwell Chrysler Plymouth Jeep Eagle, Ltd.
Texas limited partnership
d/b/a Maxwell Superstore
Highland Autoplex, Inc.
Texas corporation
d/b/a Highland Autoplex
Prestige Maxwell, Inc.
Delaware corporation
<PAGE> 5
Maxwell Ford, Ltd.
Texas limited partnership
d/b/a Maxwell Ford
Maxwell Holdings, Inc.
Delaware corporation
d/b/a Maxwell Holdings
Casa Chevrolet Inc.
New Mexico corporation
d/b/a Casa Chevrolet
Casa Chrysler Plymouth Jeep Inc.
New Mexico corporation
d/b/a Westside Chrysler
Johns Automotive Group, Inc.
New Mexico corporation
Sunshine Buick Pontiac GMC Truck, Inc.
New Mexico corporation
d/b/a Sunshine Buick Pontiac GMC Truck
Luby Chevrolet Co.
Delaware corporation
Group 1 Realty, Inc.
Delaware corporation
Lubbock Motors-F, Ltd.
Texas limited partnership
Lubbock Motors-T, Ltd.
Texas limited partnership
Lubbock Automotive-M, Inc.
Delaware corporation
Rockwall Automotive-F, Ltd.
Texas limited partnership
Amarillo Motors-C, Ltd.
Texas limited partnership
Amarillo Motors-J, Ltd.
Texas limited partnership
<PAGE> 6
Amarillo Motors-F, Ltd.
Texas limited partnership
Lubbock Motors, Inc.
Texas corporation
Kutz Auto Group, Inc.
Texas corporation
Chapparal Dodge, Ltd.
Texas limited partnership
Colonial Chrysler-Plymouth, Ltd.
Texas limited partnership
Group 1 Holdings-T, Inc.
Delaware corporation
Group 1 Holdings-GM, Inc.
Delaware corporation
Group 1 Holdings-N, Inc.
Delaware corporation
Group 1 Holdings, Inc.
Delaware corporation
Delaware Acquisition-CC, L.L.C.
Delaware limited liability company
Delaware Acquisition-GM, L.L.C.
Delaware limited liability company
Delaware Acquisition-T, L.L.C.
Delaware limited liability company
Delaware Acquisition-F, L.L.C.
Delaware limited liability company
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report dated February 3, 1999 included in this Annual Report on Form
10-K, into the Company's previously filed registration statements on Form S-3
(File No. 333-69693) and on Form S-8 (File No. 333-42165 and File No.
333-70043).
ARTHUR ANDERSEN LLP
Houston, Texas
March 30, 1999
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 66,443
<SECURITIES> 0
<RECEIVABLES> 21,373
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<INVENTORY> 219,176
<CURRENT-ASSETS> 326,922
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<COMMON> 183
<OTHER-SE> 136,001
<TOTAL-LIABILITY-AND-EQUITY> 477,710
<SALES> 1,580,541
<TOTAL-REVENUES> 1,630,057
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