AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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HOMETOWN AUTO RETAILERS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware 06-1501703
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Identification
Organization) Number)
774 Straits Turnpike
Watertown, Connecticut 06795
(860) 945-6900
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Executive Offices)
-----------------------------
Corey Shaker
President and Chief Operating Officer
Hometown Auto Retailers, Inc.
774 Straits Turnpike
Watertown, Connecticut 06795
(860) 945-6900
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Please send copies of all correspondence to:
Stephen A. Zelnick, Esq.
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue, Suite 902
New York, New York 10022-2605
Telephone No. (212) 838-8040
Fax No. (212) 838-9190
Approximate date of commencement of proposed sale to the public: As soon
as practicable after the Registration Statement becomes effective.
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<PAGE>
If the only securities being registered on this Form are to be offered
pursuant to dividend or interest reinvestment plans, please check the following
box |_|.
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box |X|.
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering |_|.
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering |_|.
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box |_|.
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Shares Amount To Be Proposed Proposed Amount Of
To Be Registered Registered Maximum Maximum Registration Fee
Offering Aggregate Offering
Price Per Price(1)
Share(1)
<S> <C> <C> <C> <C>
Class A Common Stock
$.001 par value per
share 15,000 $3.2656 $48,984 $12.93
=========================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457. Pursuant to Rule 457(c), based upon the average of the high
and low sales prices of the Common Stock on the Nasdaq National Market on
May 31, 2000 of $3.2656.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933, as amended, or until this Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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<PAGE>
PROSPECTUS
15,000 Shares
HOMETOWN AUTO RETAILERS, INC.
Class A Common Stock, $.001 Par Value per share
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This Prospectus relates to the public offering of shares of Class A common
stock (the "Shares") of Hometown Auto Retailers, Inc. ("Hometown") which may be
offered by certain shareholders (the "Selling Shareholders"). The Shares may be
offered from time to time in transactions on the Nasdaq National Market
("Nasdaq"), in negotiated transactions not on the Nasdaq, or a combination of
such methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices relating to prevailing market prices
or at negotiated prices. The Selling Shareholders may effect such transactions
by selling the Shares to or through broker/dealers, and such broker/dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Shareholders and/or the purchasers of the Shares for whom such
broker/dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker/dealer might be in excess of
customary commissions). To the extent required, information regarding the
specific Shares to be offered and sold, the names of the Selling Shareholders,
the public offering price, the names of any such broker/dealer or agent and any
applicable commissions or discount with respect to any particular offer is set
forth herein or will be set forth in an accompanying Prospectus supplement. See
"Plan of Distribution."
None of the proceeds from the sale of the Shares by the Selling
Shareholders will be received by Hometown.
---------------------------------
See "Investment Considerations" on page 5 hereof for a discussion of
certain factors that should be considered by prospective purchasers of the
Shares.
---------------------------------
On May 19, 2000 the closing sale price of the Shares on the Nasdaq was
$3.8125 per share. The Shares are listed on the Nasdaq under the symbol "HCAR."
--------------------------------------
The Selling Shareholders and any broker/dealers or agents that participate
with the Selling Shareholders in the distribution of the shares may be deemed to
be "underwriters" within the meaning of Section 2(ii) of the Securities Act of
1933, as amended (the "Securities Act"), and any commissions received by them
and any profit on the resale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION NOR HAS THE
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is June 2, 2000.
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY HOMETOWN OR
BY ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY THE SHARES TO ANY PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION MAY NOT LAWFULLY BE MADE.
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<PAGE>
AVAILABLE INFORMATION
HOMETOWN is subject to the informational and reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission by Hometown may be
inspected and copied at the public reference facilities maintained by the
Commission at its principal offices at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and 7 World Trade Center, Suite 1300, New York, New York 10048. Such
reports, proxy statements and other information may also be obtained from the
web site that the Commission maintains at http://www.sec.gov. Copies of these
materials can also be obtained at prescribed rates from the Public Reference
Section of the Commission at its principal offices in Washington, D.C., set
forth above. Additional information with respect to this offering may be
provided in the future by means of supplements or "stickers" to the Prospectus.
The Class A Common Shares of Hometown are listed on the Nasdaq, and in
accordance therewith, annual and quarterly reports, proxy statements and other
information concerning Hometown may be inspected at the Nasdaq.
Hometown has filed a Registration Statement on Form S-3 (including all
amendments and supplements thereto, the "Registration Statement") with the
Commission under the Securities Act with respect to the Shares offered hereby.
This Prospectus, which forms a part of the Registration Statement, does not
contain all of the information set forth in the Registration Statement and the
Exhibits filed therewith, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. Statements contained herein
concerning the provisions of such documents are not necessarily complete and, in
each instance, reference is made to the Registration Statement or to the copy of
such document filed as an Exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference. Copies of the Registration Statement and the Exhibits thereto
can be obtained upon payment of a fee prescribed by the Commission or may be
inspected free of charge at the public reference facilities and regional offices
referred to above.
REPORTS TO SECURITY HOLDERS
Hometown intends to furnish to its shareholders annual reports containing
audited financial statements and quarterly reports for the first three quarters
of each fiscal year containing unaudited interim financial information. In
addition, Hometown is required to file periodic reports on Forms 8-K, 10-Q and
10-K with the Commission and make such reports available to its shareholders.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by HOMETOWN with the Commission are
incorporated in this Prospectus by reference:
(1) Hometown's Quarterly Report on Form 10-Q, for the fiscal quarter
ended March 31, 2000 filed pursuant to the Exchange Act;
(2) Hometown's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 filed pursuant to the Exchange Act;
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of this offering shall be deemed to be incorporated in this Prospectus by
reference and to be a part hereof from the date of the filing of such documents.
Any statement contained in a document incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement.
Hometown will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of any such person, a copy of any document incorporated
by reference in this Prospectus (other than exhibits unless such exhibits are
specifically incorporated by reference in such documents). Requests should be
directed to Hometown Auto Retailers, Inc., 774 Straits Turnpike, Watertown,
Connecticut 06795, (860) 945-6900, Attention: Corey Shaker, President and Chief
Operating Officer.
THE COMPANY
Hometown was incorporated in Delaware on June 5, 1997. Its principal
executive office is located at 774 Straits Turnpike, Watertown, Connecticut
06795, telephone number (860) 945-6900.
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INVESTMENT CONSIDERATIONS
Prospective investors should carefully consider the following matters
relating to the business of Hometown and the securities offered hereby.
Until the closing of its initial public offering on July 31, 1998.Hometown
Auto Retailers, Inc. conducted no operations under its own name and all revenues
were generated by its predecessor companies. On July 31, 1998, four corporations
(the "Core Operating Companies") operating six dealerships, a collision repair
center and a factory authorized free standing service center were acquired in
Exchange for 3,760,000 shares of Class B Common Stock (the "Exchange") and three
additional dealerships were acquired for cash (the "Acquisitions"). In 1999,the
Company also acquired free standing Lincoln Mercury and Toyota dealerships and
added both a Mazda and a Jeep dealership to existing locations (collectively the
"Further Acquisitions"). References herein to the "Company" or "Hometown" mean
Hometown Auto Retailers, Inc., its predecessor companies and subsidiaries after
giving effect to the foregoing transactions. Unless otherwise indicated, all
share, per share and financial information set forth herein has been adjusted
retroactively to give effect to (i) a 12,000-for-1 stock split in July 1998 and,
(ii) the issuance of 3,760,000 shares of Class B Common Stock in the Exchange.
CERTAIN FACTORS THAT MAY AFFECT GROWTH AND PROFITS
The following factors may affect the growth or profits of the Company and should
be considered by any prospective purchaser of the Company's securities:
Absence of Combined Operating History
Until July 31, 1998 the Company conducted no combined or coordinated
operations other than in connection with the Exchange, the Acquisitions and its
initial public offering. The Core Operating Companies have been operated and
managed as separate independent entities and the Company's future operating
results will depend, in part, on its ability to integrate operations and manage
the combined enterprise. The management group that will lead the Company has
been formed only recently and there can be no assurance that it will be able to
effectively and profitably integrate the Core Operating Companies, the
Acquisitions, the Further Acquisitions and any future acquisitions, or to
effectively manage the combined entity. The inability of the Company to do so
could have a material adverse effect on its business, financial condition and
results of operations.
Dependence on Automobile Manufacturers
The Company is significantly dependent upon its relationships with, and
the success of, certain Manufacturers. For the year ended December 31, 1999,Ford
Motor, Toyota Motor and Chrysler accounted for 56.5 %, 28.0%, and 10.6% of the
new vehicle sales revenues of the Company, respectively. The Company may become
dependent on additional manufacturers in the future as a result of its
acquisition strategy and changes in the Company's sales mix.
The Company also is dependent upon its Manufacturers to provide it with an
inventory of new vehicles. The most popular vehicles tend to provide the Company
with the highest profit margins and are frequently the most difficult to obtain
from the Manufacturers. In order to obtain sufficient numbers of these vehicles,
the Company may be required to purchase a larger number of less marketable makes
and models than it would otherwise purchase. Sales of less
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desirable makes and models may result in lower profit margins than sales of the
more popular vehicles. If the Company were to be unable to obtain sufficient
quantities of the most popular makes and models, its profitability could be
adversely affected.
The success of each of the Company's franchises is also dependent to a
great extent on the success of the respective Manufacturer, including its
financial condition, marketing, vehicle demand, production capabilities and
management. Events such as labor strikes or negative publicity concerning a
particular Manufacturer, including safety recalls of a particular vehicle model,
could adversely affect the Company. The Company has attempted to lessen its
dependence on any one Manufacturer by obtaining agreements with a number of
different domestic and foreign automobile manufacturers.
Lack of Exclusive Market Area
The Company's franchise and dealership agreements with its Manufacturers
do not give the Company the exclusive right to sell any Manufacturer's product
within any given geographical area. Accordingly, a Manufacturer could grant a
franchise to another dealer to start a new dealership in proximity to one or
more of the Company's locations or an existing dealer could move its dealership
to a location which would be directly competitive with the Company. Although
under Connecticut and New Jersey law a manufacturer is prohibited from
establishing a new dealership, or authorizing the relocation of an existing
dealership, to a location within 14 miles (8 miles in New Jersey under certain
circumstances) of a pre-existing dealership holding a franchise to sell the same
brand, depending upon the dealership involved, such an event could have a
material adverse effect on the Company and its operations.
Failure to Meet Loan Agreement Covenants at Year End and at end of 1st Quarter
2000
Net income for 1999 was $0.8 million or $0.13 per diluted share versus
$2.3 million or $0.39 per diluted share (Pro Forma) for 1998. Further, due to
rail transportation delays, in-transit inventory levels increased and inventory
reached $51.0 million by year-end. As a result of Hometown's earnings decline
from plan and its excess inventory, Hometown failed to comply with four
covenants in its loan agreement with General Electric Capital Corporation ("GE")
as of December 31, 1999. The Company's consolidated EBIDTA at year end was
$4,775,000 compared to the covenant of $8,810,000. The interest coverage and the
debt service coverage of the borrowers, as defined in the loan agreement, was
1.58 to 1 and 1.38 to 1 compared to the covenants of 2.5 to 1 and 2.0 to 1,
respectively. Additionally the current ratio of the specified borrowers, as
defined in the loan agreement, was 1.05 to 1 compared to the covenant of 1.1 to
1. GE waived these events of default as of December 31, 1999.
Hometown failed to comply with those covenants as of March 31, 2000. The
current ratio for the "specified borrowers" loan was 1.05 to 1 compared to the
covenant of 1.2 to 1, and the debt service ratio for the borrowers loan was 2.21
to 1 as compared to the covenant of 2.5 to 1. GE waived these events of default
as of March 31, 2000. There can be no assurance that the Company will not be in
violation of these or any other covenants in the loan agreement at June 30, 2000
or at any time thereafter. There can be no assurance that GE will grant any
waiver if an event of default occurs in the future. Upon the occurrence of an
event of default under its loan agreement with GE, not cured by the Company, it
may be
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forced to pay the outstanding balance under its loan agreement, seek alternative
sources of financing to the extent available, and/or substantially curtail
operations.
Manufacturers' Control over Dealerships
The dealerships operated by the Company sell cars and light trucks
pursuant to franchise or dealership agreements with Ford Motor, GM, Toyota
Motor, Chrysler, Mazda and American Isuzu. Through the terms and conditions of
these agreements, such Manufacturers exert considerable influence over the
operations of the Company's dealerships. Each of these agreements includes
provisions for the termination or non-renewal of the manufacturer-dealer
relationship for a variety of causes including any unapproved change of
ownership or management and other material breaches of the franchise agreement.
To its knowledge, the Company has, to date, complied with its dealership
agreements. There can be no assurance, however, that the Company will not from
time to time fail to comply with particular provisions of some or all of these
agreements. Although such agreements generally afford the Company a reasonable
opportunity to cure violations, if a Manufacturer were to terminate or decline
to renew one or more of the Company's significant agreements, such action could
have a material adverse effect on the Company and its business.
Dependence on Acquisitions for Growth
The Company's future growth and financial success will be dependent upon a
number of factors including, among others, the Company's ability to identify
acceptable acquisition candidates, consummate the acquisition of such
dealerships on terms that are favorable to the Company, obtain the consent of
applicable automobile manufacturers, acquire and retain or hire and train
professional management and sales personnel at each such acquired dealership and
promptly and profitably integrate the acquired operations into the Company. The
Company may acquire dealerships with net profit margins which are materially
lower than the Company's historical average net profit margin. No assurance can
be given that the Company will be able to improve the profitability of any such
acquired dealerships. To manage its expansion, the Company intends to evaluate
on an ongoing basis the adequacy of its existing systems and procedures,
including, among others, its financial and reporting control systems, data
processing systems and management structure. However, no assurance can be given
that the Company will adequately anticipate all of the demands its growth will
impose on such systems, procedures and structure. Any failure to adequately
anticipate and respond to such demands could have a material adverse effect on
the Company.
Acquisitions of additional dealerships will require substantial capital
investment and could have a significant impact on the Company's financial
position and operating results. Any such acquisitions may involve the use of
cash or the issuance of additional debt or equity securities which could have a
dilutive effect on the then outstanding capital stock of the Company.
Acquisitions may also result in the accumulation of substantial goodwill and
intangible assets which would result in amortization charges to the Company and
adversely affect future earnings.
Manufacturers' Restrictions on Existing and Future Acquisitions
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As a condition to granting their consent to the Exchange and the
Acquisitions, the Manufacturers have imposed certain restrictions on the
Company. Further, the consents from Ford Motor and Chrysler were subject to
conditions subsequent with respect to the submission by the Company of
supporting documents of the type generally contained in new dealer appointment
packages and such Manufacturer's approval thereof. The Company believes that
such conditions subsequent were either satisfied or waived. The Manufacturers'
consents include restriction on: (i) the acquisition of more than a specified
percentage of the Common Stock (20% in the case of GM and Toyota Motor and 50%in
the case of Ford Motor) by any one person who in the opinion of the Manufacturer
is unqualified to own a dealership of such Manufacturer or has interests
incompatible with the Manufacturer, (ii) certain material changes in the Company
or extraordinary corporate transactions such as an acquisition, merger or sale
of a material amount of assets; (iii) a change in the general manager of a
dealership without the consent of the applicable Manufacturer; (iv) the use of
dealership facilities to sell or service new vehicles of other Manufacturers;
(v) in the case of GM, the advertising or marketing of non-GM operations with GM
operations; (vi) in the case of GM, any change in control of the Company's Board
of Directors; and (vii) in the case of Ford Motor, any change in greater than
50% of the Company's Board of Directors or management. The Company believes it
has approached two percent of Lincoln/Mercury retail sales in Connecticut and
New Jersey and two percent of Ford retail sales in Connecticut. Because retail
sales numbers are constantly changing this number is also subject to change. All
of the Company's Lincoln/Mercury and Ford dealerships operate in markets having
three or less Ford or Lincoln/Mercury authorized dealerships and the Company
does not operate in any markets having four or more authorized Ford or Lincoln
dealerships. Notwithstanding the numerical limitations on the acquisition of
additional Lincoln/Mercury and Ford dealerships in certain of the Company's
existing market areas, the Company believes that Ford Motor will be cooperative
in the Company's attempts to acquire additional dealerships in both these and
other market areas, but there can be no assurance that this will be the case. If
the Company is unable to comply with the foregoing restrictions, the
Manufacturer may require the Company to sell the assets of the dealerships to
the Manufacturer or to a third party acceptable to the Manufacturer, or to
terminate the dealership agreements with the Manufacturer.
It may be anticipated that obtaining Manufacturer's consent will also be a
prerequisite to any future acquisitions which the Company will seek to
consummate. Various Manufacturers have set limits on the number of dealerships
carrying their brand which may be owned by one dealer group (or company)
nationally or in specified market areas or which may be acquired within
specified time periods.
In the case of Ford Motor Company, the Company may not acquire more than
two Ford and two Lincoln Mercury Dealerships during the first 12-month period
after execution of the Dealer Sales and Service Agreement and thereafter may not
acquire an additional dealership unless and until the Company's Ford and Lincoln
Mercury dealerships, as the case may be, are meeting Ford's performance
criteria. Additionally, the Company may not: (a) acquire an additional Ford or
Lincoln Mercury dealership, as the case may be, if the Company would then own or
control authorized Ford or Lincoln Mercury dealerships with total retail sales
of new vehicles for the preceding calendar year of more than 2% of the total
Ford or Lincoln Mercury, as the case may be, retail sales volume in the United
States or more than 2% of the total Ford or Lincoln Mercury retail sales volume
in any state; or (b) acquire an additional Ford or Lincoln Mercury dealership,
as the case may be, if the Company would own or control more than one authorized
dealership in those market areas (defined by Ford) having
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three or less Ford or Lincoln Mercury authorized dealerships in them or acquire
more than 25% of the Ford or Lincoln Mercury authorized dealerships in a market
area having four or more authorized Ford or Lincoln Mercury dealerships in them.
In the case of Toyota Motor Sales, U.S.A., Inc., the Company may not: (a)
acquire greater than a specified number of dealerships per region (e.g. four in
the Boston region and five in the New York region); (b) acquire the greater of
one or 20% of the Toyota dealerships in any metro market (as defined by
Toyota);(c) own or control dealerships in contiguous market areas; or (d)
acquire Toyota dealerships more frequently than every nine months.
In the case of General Motors, provided that the Company meets certain
managerial requirements, the Company may acquire up to five General Motor
dealerships during the period ending 24 months after the effective date of the
dealer sales and service agreement.
Certain state laws, however, limit the ability of automobile manufacturers
to reject proposed transfers of dealerships, notwithstanding the terms of any
dealership agreement. The loss of one or more of the Company's dealership
agreements could have a material adverse effect on the Company's business,
financial condition and results of operations.
Risks Related to Acquisition Financing; Future Capital Requirements
The Company currently intends to finance future acquisitions by issuing
shares of Class A Common Stock as full or partial consideration for acquired
dealerships. The issuance of additional shares of Class A Common Stock may be
dilutive to the Company's future earnings per share. In addition, the extent to
which the Company will be able or willing to issue Class A Common Stock for
acquisitions will depend on the then current market value of the Class A Common
Stock and the willingness of potential acquisition candidates to accept shares
of that stock as part of the consideration for the sale of their businesses. To
the extent that the Company is unable or unwilling to do so, the Company may be
required to use available cash or proceeds from debt or equity financings.
However, no assurance can be given that existing resources will be sufficient to
fund the Company's acquisition program and other cash needs or that the Company
will be able to obtain adequate additional capital from other sources for either
such purposes.
Risks Relating to Failure to Meet Manufacturer CSI Scores
Many manufacturers attempt to measure customers' satisfaction with
automobile dealerships through a CSI, or customer satisfaction index, rating
system. These manufacturers may use a dealership's CSI scores as a factor in
evaluating applications for additional dealership acquisitions and participation
by a dealership in incentive programs. The dealerships operated by the Core
Operating Companies have historically exceeded their Manufacturers' CSI
standards. However, there can be no assurance that either the Company
dealerships, Acquisitions and Further Acquisitions operated by members of the
Core Operating Companies or other subsequently acquired dealerships will
continue to meet such standards. Moreover, from time to time, the components of
the various Manufacturer CSI scores have been modified and there is no assurance
that such components will not be further modified or replaced by different
systems in the future which make it more difficult for key Company dealerships
to meet such standards.
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Substantial Competition
The automotive retailing industry is highly competitive with respect to
price, service, location and assortment. The Company competes with automobile
dealerships (including public franchised dealership consolidators), private
market buyers and sellers of used vehicles, used vehicle dealerships, service
center chains, independent service and repair shops and financing and insurance
("F&I") operations. In the sale of new vehicles, the Company competes with other
franchised dealers. The Company does not have any cost advantage in purchasing
new vehicles from the Manufacturers, and typically will rely on advertising,
merchandising, sales expertise, service reputation and location of its
dealerships to sell new vehicles. In recent years, the Company has also faced
competition from non-traditional sources such as companies that sell automobiles
on the Internet, automobile rental agencies, independent leasing companies,
used-car "superstores" and price clubs associated with established consumer
agencies such as the American Automobile Association, some of which use
non-traditional sales techniques such as one-price shopping. In addition, Ford
Motor has announced that it is exploring the possibility of going into business
with some of its dealers to create automotive superstores in selected markets.
In furtherance of this plan, Ford Motor announced in mid-1998, a proposed joint
venture with Republic Industries under which Ford Motor would acquire a
51%interest and Republic Industries a 49% interest in a joint venture entity
that will acquire one Lincoln Mercury and eight Ford dealerships in the
Rochester, New York area to create a retail network. The dealerships would be
operated by Republic Industries. Some of these recent market entrants may have
greater financial, marketing and personnel resources and/or lower overhead or
sales costs than the Company. In the parts and service area, the Company also
competes with a number of regional or national chains which offer selected parts
and services at prices that may be lower than the Company's prices. In addition,
there can be no assurance that the Company's strategy will be more effective
than the strategies of its competitors.
Goodwill
The Company's balance sheet at December 31, 1999 includes an amount
designated as "goodwill" that represents 25.2% of assets and 79.2% of
stockholders' equity.
Goodwill arises when an acquirer pays more for a business than the fair
value of the tangible and separately measurable intangible net assets. Generally
Accepted Accounting Principles requires that this and all other intangible
assets be amortized over the period benefited. Management has determined that
period to be no less than 40 years.
If management were not to separately recognize a material intangible asset
having a benefit period less than 40 years, or were not to give effect to
shorter benefit periods of factors giving rise to a material portion of the
goodwill, earnings reported in periods immediately following an acquisition
would be overstated. In later years, the Company would be burdened by a
continuing charge against earnings without the associated benefit to income
valued by management in arriving at the consideration paid for the business.
Earnings in later years could be significantly affected if management determined
then that the remaining balance of goodwill was impaired. Management has
reviewed all of the factors and related future cash flows which it considered in
arriving at the amount incurred to acquire each of the founding companies.
Management concluded that the anticipated future cash flows associated with
intangible assets recognized in the acquisitions will continue indefinitely, and
there is no
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persuasive evidence that any material portion will dissipate over a period
shorter than 40 years.
Mature Industry
The United States automobile dealership industry generally is considered a
mature industry in which minimal growth is expected in unit sales of new
vehicles. As a consequence, growth in the Company's revenues and earnings are
likely to be significantly affected by the Company's success in acquiring and
integrating dealerships and the pace and size of such acquisitions.
Cyclical Nature of Automobile Sales
Sales of motor vehicles, particularly new vehicles, historically have been
subject to substantial cyclical variation characterized by oversupply and weak
demand. The Company believes that the industry is affected by many factors,
including general economic conditions, consumer confidence, the level of
personal discretionary spending, interest rates and credit availability. There
can be no assurance that the industry will not experience sustained periods of
decline in vehicle sales, particularly new vehicle sales, in the future. Any
such decline could have a material adverse effect on the Company. The Company
believes that new vehicle sales in North America will be at levels increasingly
higher than 1997 in the years 2000 through 2002. The Company does not believe
that future expected sales levels through 2002 will have a negative impact on
its business. During the past five years the Company's sales of new and used
vehicles have not been materially affected by overall industry levels of vehicle
sales but have been more significantly affected by the timing of introduction of
new models by particular Manufacturers and changes in consumer preferences for
particular brands or models.
Seasonality; Variability of Quarterly Operating Results
The automobile industry is subject to seasonal variations in revenues.
Demand for cars and light trucks is generally lower during the winter months
than in other seasons, particularly in regions of the United States where the
Company is located which are associated with harsh winters. Accordingly, the
Company expects its revenues and operating results to be generally lower in its
first and fourth quarters than in its second and third quarters.
Imported Products
A significant portion of the Company's new vehicle business will involve
the sale of vehicles, parts or vehicles composed of parts that are manufactured
outside the United States. As a result, the Company's operations will be subject
to customary risks of importing merchandise, including fluctuations in the value
of currencies, import duties, exchange controls, trade restrictions, work
stoppages and general political and economic conditions in foreign countries.
The United States or the countries from which the Company's products are
imported may, from time to time, impose new quotas, duties, tariffs or other
restrictions, or adjust presently prevailing quotas, duties or tariffs, which
could affect the Company's operations and its ability to purchase imported
vehicles and/or parts.
Government Regulations and Environmental Matters
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The Company is subject to a wide range of federal, state and local laws
and regulations which are administered by various federal, state and local
regulatory agencies, such as local licensing requirements, consumer protection
laws and environmental requirements governing, among other things, discharges to
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. The violation of these laws and regulations could
result in civil and criminal penalties being levied against the Company or in a
cease and desist order against operations that are not in compliance. Future
acquisitions by the Company may also be subject to governmental regulation,
including antitrust reviews. The Company believes that the Core Operating
Companies substantially comply with all applicable laws and regulations relating
to its business, but future laws and regulations may be more stringent and
require the Company to incur significant additional costs. The failure to
satisfy current or future regulatory requirements could have a material adverse
effect on the operations and financial condition of the Company.
Concentration of Voting Power; Anti-Takeover Provisions
The former stockholders of the Core Operating Companies and their donees
own all of the Class B Common Stock, which entitles them to ten votes for each
share held, while holders of Class A Common Stock, are entitled to one vote per
share held. Consequently, such holders of the Class B Common Stock, who own
61.7% of the Company's outstanding Common Stock of all classes, will control
94.2% of the aggregate number of votes eligible to be cast by stockholders for
the election of directors and certain other stockholder actions, and will be in
a position to control the policies and operations of the Company. In addition,
the holders of the Class B Common Stock have entered into a stockholders'
agreement obligating them, for a five-year period, to vote for Salvatore A.
Vergopia, Joseph Shaker, William C. Muller Jr., Corey Shaker, Edward A. Vergopia
and James Christ as members of the Company's Board of Directors. The executive
officers and directors of the Company control 54.8% of the aggregate number of
votes eligible to be cast by stockholders for the election of directors and
certain other stockholder actions, and will be in a position to control the
policies and operations of the Company. Accordingly, absent a significant
increase in the number of shares of Class A Common Stock outstanding or
conversion of Class B Common Stock into Class A Common Stock, the holders of
shares of Class B Common Stock will be entitled, for the foreseeable future, to
elect all members of the Board of Directors and control all matters subject to
stockholder approval.
The Delaware General Corporation Law requires super-majority voting
thresholds to approve certain "business combinations" between interested
stockholders and the Company which may render more difficult or tend to
discourage attempts to acquire the Company. In addition, the Company's Board of
Directors has the authority to issue shares of preferred stock ("Preferred
Stock"), of which 2,000,000 are currently authorized, in one or more series and
to fix the rights and preferences of the shares of any such series without
stockholder approval. Any series of Preferred Stock is likely to be senior to
all classes of Common Stock of the Company with respect to dividends,
liquidation rights and, possibly, voting rights. The ability to issue Preferred
Stock could also have the effect of discouraging unsolicited acquisition
proposals, thus affecting the market price of the Common Stock and preventing
stockholders from obtaining any premium which might otherwise be offered by a
potential buyer. In addition, certain of the Company's dealer agreements will
prohibit the acquisition of more than
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a specified percentage of the Common Stock without the consent of the relevant
Manufacturers.
Possible Volatility of Price
The market price of the Class A Common Stock could be subject to wide
fluctuations in response to a number of factors, including quarterly variations
of operating results, investor perceptions of the Company and automotive
retailing industry and general economic and other conditions.
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SELLING SHAREHOLDERS
The following table shows the names of the Selling Shareholders, the
Shares owned beneficially by each of them, as of May 22, 2000, the number of
Shares that may be offered by each of them pursuant to this Prospectus and the
number of Shares and percentage of outstanding Shares to be owned by each of
them after the completion of this Offering, assuming all of the Shares being
offered are sold. None of the Selling Shareholders, except as indicated, was an
officer or director of the Company or, to the knowledge of the Company, had any
material relationship with the Company within the past three years.
Number of Percentage
Number of Number of Shares Owned of Shares
Shares Shares that After the Owned After
Selling Shareholders Owned May Be Sold Offering the Offering
-------------------- ----- ----------- -------- ------------
National Financial
Communications Corp. 15,000(1) 7,500 7,500 (2)
Robert Marks Co. Inc. 15,000(1) 7,500 7,500 (2)
-------------------------
1. On the date hereof, National Financial Communications Corp. ("NFC") is in
charge of public relations for the Company and Robert Marks Co. Inc. is an
affiliate of NFC.
2. Less than 1%
PLAN OF DISTRIBUTION
The Company will not receive any proceeds from this Offering. The Shares
may be offered from time to time in transactions on the Nasdaq, in negotiated
transactions not on the Nasdaq, or a combination of such methods of sale, at
fixed prices which may be changed, at market prices prevailing at the time of
sale, at prices relating to prevailing market prices or at negotiated prices.
The Selling Shareholders may effect such transactions by selling the Shares to
or through broker/dealers, and such broker/dealers may receive compensation in
the form of discounts, concessions or commissions from the Selling Shareholders
and/or the purchasers of the Shares for whom such broker/dealers may act as
agents or to whom they sell as principals, or both (which compensation as to a
particular broker/dealer might be in excess of customary commissions). The
Selling Shareholders and any broker/dealers or agents that may participate in
the distribution of the Shares may be deemed to be "underwriters" under the
Securities Act and any profit on the sale of the Shares by them and any
discounts, commissions or concessions received by any such broker/dealers or
agents might be deemed to be underwriting discounts and commissions under the
Securities Act.
At the time a particular offer of the Shares is made, to the extent
required, a Prospectus Supplement will be distributed which will set forth the
number of Shares being offered, the names of the Selling Shareholders, the
public offering price, the names of any broker/dealers or agents, and any
applicable commissions or discounts with respect to any particular offer.
In order to comply with the applicable securities laws of certain states,
if any, the Shares will be offered or sold through registered or licensed
brokers or dealers in those states. In addition, in certain states the Shares
may not be offered or sold unless they have been registered or qualified for
sale in such states or an exemption from such registration or qualification
requirement is available and such offering or sale is in compliance therewith.
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Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of securities may not simultaneously engage in market
making activities with respect to such securities for a period of two business
days prior to the commencement of such distribution. In addition and without
limiting the foregoing, the Selling Shareholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including, without limitation, Rules 10b-2, 10b-5, 10b-6 and 10b-7, in
connection with transactions in the Shares during the effectiveness of the
Registration Statement of which this Prospectus is a part. All of the foregoing
may affect the marketability of the Shares.
The Company will pay all of the expenses, including, but not limited to,
fees and expenses of compliance with state securities or "blue sky" laws,
incident to the registration of the Shares other than selling commissions. The
expenses payable by the Company are estimated to be $1,000.00.
LIMITATION OF DIRECTORS' LIABILITY; INDEMNIFICATION
The Company's Certificate of Incorporation limits the liability to the
Company of individual directors for certain breaches of their fiduciary duty to
the Company. The effect of this provision is to eliminate the liability of
directors for monetary damages arising out of their failure, through negligent
or grossly negligent conduct, to satisfy their duty of care, which requires them
to exercise informed business judgment. The liability of directors under the
federal securities laws is not affected. A director may be liable for monetary
damages only if a claimant can show a breach of the individual director's duty
of loyalty to the Company, a failure to act in good faith, intentional
misconduct, a knowing violation of the law, an improper personal benefit or an
illegal dividend or stock purchase.
The Company's Certificate of Incorporation also provides that each
director or officer of the Company serving as a director or officer shall be
indemnified and held harmless by the Company to the fullest extent authorized by
the General Business Corporation Law, against all expense, liability and loss
(including attorneys fees, judgments, fines, Employee Retirement Income Security
Act, excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore unenforceable.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Morse, Zelnick, Rose & Lander, LLP, 450 Park Avenue, Suite 902, New
York, New York 10022. Members of the firm beneficially own on aggregate of
60,000 shares of the Company's Class A Common Stock, Par Value $.001 per share.
EXPERTS
The audited financial statements included (incorporated by reference) in
this prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said Firm as experts (or, as experts in accounting and auditing) in
giving said reports.
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No dealer, salesperson or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus with
respect to the offering made hereby. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any of the securities offered
hereby to any person or by anyone in any jurisdiction in which such offer or
solicitation may not lawfully be made. Neither the delivery of this Prospectus
nor any sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the 15,000 information set forth
herein or in the Shares of Class A Common Stock business of the Company since
the date hereof.
Exhibits
Exhibit 23.1 Consent of Independent
Public Accountants
----------------------
TABLE OF CONTENTS
Page
Available Information ..................................................... 3
Incorporation of Certain Documents
by Reference ............................................................ 4
The Company ............................................................... 4
Investment Considerations ................................................. 5
Selling
Shareholders .............................................................. 14
Plan of Distribution....................................................... 14
Limitation of Directors' Liability;
Indemnification.......................................................... 15
Legal Matters.............................................................. 15
Experts.................................................................... 15
15,000
Shares of Class A Common Stock
Hometown Auto Retailers, Inc.
______________________
PROSPECTUS
______________________
June 2, 2000
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