FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NOS. 333-109080
333-109080-01 333-109080-02 333-109080-03 333-109080-04 333-109080-05
333-109080-06 333-109080-07 333-109080-08 333-109080-09 333-109080-10
333-109080-11 333-109080-12 333-109080-13 333-109080-14 333-109080-15
333-109080-16 333-109080-17 333-109080-18 333-109080-19 333-109080-20
333-109080-21 333-109080-22 333-109080-23 333-109080-24 333-109080-25
333-109080-26 333-109080-27 333-109080-28 333-109080-29 333-109080-30
333-109080-31 333-109080-32 333-109080-33 333-109080-34 333-109080-35
333-109080-36 333-109080-37 333-109080-38 333-109080-39 333-109080-40
333-109080-41 333-109080-42 333-109080-43 333-109080-44 333-109080-45
333-109080-46 333-109080-47 333-109080-48 333-109080-49 333-109080-50
333-109080-51 333-109080-52 333-109080-53 333-109080-54 333-109080-55
333-109080-56 333-109080-57 333-109080-58 333-109080-59 333-109080-60
333-109080-61 333-109080-62 333-109080-63 333-109080-64 333-109080-65
333-109080-66 333-109080-67 333-109080-68 333-109080-69 333-109080-70
333-109080-71 333-109080-72 333-109080-73 333-109080-74 333-109080-75
333-109080-76 333-109080-77 333-109080-78 333-109080-79 333-109080-80
333-109080-81 333-109080-82 333-109080-83 333-109080-84 333-109080-85
333-109080-86 333-109080-87 333-109080-88 333-109080-89 333-109080-90
333-109080-91 333-109080-92 333-109080-93 333-109080-94 333-109080-95
333-109080-96 333-109080-97 333-109080-98 333-109080-100 333-109080-101
333-109080-102 333-109080-103 333-109080-104 333-109080-105 333-109080-106
333-109080-107 333-109080-108 333-109080-109 333-109080-110 333-109080-111
333-109080-112 333-109080-113 333-109080-114 333-109080-115 333-109080-116
333-109080-117 333-109080-118 333-109080-119 333-109080-120 333-109080-121
333-109080-122 333-109080-123 333-109080-124 333-109080-125 333-109080-126
333-109080-127 333-109080-128 333-109080-129 333-109080-130 333-109080-131
PROSPECTUS
Group 1 Automotive, Inc.
Offer To Exchange up to
$150,000,000 of 8.25% Senior Subordinated Notes Due August 15, 2013
for
$150,000,000 of 8.25% Senior Subordinated Notes Due August 15, 2013 that have
been Registered under the Securities Act of 1933
TERMS OF THE EXCHANGE OFFER
- - We are offering to exchange up to $150,000,000 of our outstanding 8.25% Senior
Subordinated Notes due August 15, 2013 for new notes with substantially
identical terms that have been registered under the Securities Act of 1933, or
Securities Act, and are freely tradable.
- - We will exchange all outstanding notes that you validly tender and do not
validly withdraw before the exchange offer expires for an equal principal
amount of new notes.
- - The exchange offer expires at 5:00 p.m., New York City time, on November 18,
2003, unless extended. We do not currently intend to extend the exchange
offer.
- - Tenders of outstanding notes may be withdrawn at any time prior to the
expiration of the exchange offer.
- - The exchange of outstanding notes for new notes will not be a taxable event to
you for U.S. federal income tax purposes.
TERMS OF THE NEW 8.25% SENIOR SUBORDINATED NOTES OFFERED IN THE EXCHANGE OFFER
MATURITY
- - The new notes will mature on August 15, 2013.
INTEREST
- - Interest on the new notes is payable on February 15 and August 15 of each
year, beginning February 15, 2004.
- - Interest will accrue from August 13, 2003.
REDEMPTION
- - We may redeem some or all of the notes at any time on or after August 15, 2008
at redemption prices listed in "Description of New Notes -- Optional
Redemption," and prior to that date we may redeem all or a portion of the
notes at a redemption price equal to the principal amount plus the make-whole
premium set forth in "Description of New Notes -- Optional Redemption", plus
accrued and unpaid interest to the redemption date.
- - Subject to certain limitations, at any time on or before August 15, 2006, we
may also redeem up to 35% of the notes using the net proceeds of certain
equity offerings.
CHANGE OF CONTROL
- - If we experience a change of control, subject to certain conditions, we must
offer to purchase the notes.
RANKING
- - The notes are senior subordinated obligations. The notes rank equally in right
of payment with all of our other existing and future senior subordinated
obligations.
- - The new notes are subordinated to our existing and future senior debt.
GUARANTEES
- - If we cannot make payment on the notes when they are due, substantially all of
our subsidiaries have guaranteed the notes and must make payment instead.
---------------------
PLEASE READ "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF FACTORS
YOU SHOULD CONSIDER BEFORE PARTICIPATING IN THE EXCHANGE OFFER.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this prospectus is October 14, 2003.
This prospectus is part of a registration statement we filed with the
Securities and Exchange Commission, or SEC. In making your investment decision,
you should rely only on the information contained in this prospectus and in the
accompanying letter of transmittal. We have not authorized anyone to provide you
with any other information. If you receive any unauthorized information, you
must not rely on it. We are not making an offer to sell these securities in any
state where the offer is not permitted. You should not assume that the
information contained in this prospectus, or the documents incorporated by
reference into this prospectus, is accurate as of any date other than the date
on the front cover of this prospectus or the date of such document, as the case
may be.
TABLE OF CONTENTS
<Table>
Forward-Looking Information................................. i
Where You Can Find More Information......................... iii
Prospectus Summary.......................................... 1
Selected Historical Financial Information................... 5
Risk Factors................................................ 7
Exchange Offer.............................................. 17
Ratio of Earnings to Fixed Charges.......................... 23
Use of Proceeds............................................. 23
Description of New Notes.................................... 24
U.S. Federal Income Tax Considerations...................... 57
Plan of Distribution........................................ 57
Legal Matters............................................... 58
Experts..................................................... 58
Letter of Transmittal....................................... Annex A
</Table>
---------------------
FORWARD-LOOKING INFORMATION
This prospectus includes or incorporates by reference certain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Securities Exchange Act of 1934, or Exchange Act.
These statements include statements regarding our plans, goals, beliefs or
current expectations, including those plans, goals, beliefs and expectations of
our officers and directors with respect to, among other things:
- the completion of future acquisitions;
- operating cash flows and availability of capital;
- capital expenditures;
- changes in sales volumes in the new and used vehicle and parts and
service markets;
- business trends, including incentives, product cycles and interest rates;
- availability of financing for inventory and working capital;
- inventory levels; and
- the early retirement of our outstanding 10 7/8% senior subordinated
notes.
i
Any such forward-looking statements are not assurances of future
performance and involve risks and uncertainties. Actual results may differ
materially from anticipated results in the forward-looking statements for a
number of reasons, including:
- the future economic environment, including consumer confidence, interest
rates, the price of gasoline, the level of manufacturer incentives and
the availability of consumer credit may affect the demand for new and
used vehicles and parts and service sales;
- the effect of adverse international developments such as war, terrorism,
political conflicts or other hostilities;
- regulatory environment, adverse legislation, or unexpected litigation;
- our principal automobile manufacturers, especially Ford, Toyota/Lexus, GM
and DaimlerChrysler may not continue to produce or make available to us
vehicles that are in high demand by our customers;
- requirements imposed on us by our manufacturers may limit our
acquisitions and affect capital expenditures related to our dealership
facilities;
- our dealership operations may not perform at expected levels or achieve
expected improvements;
- we may not achieve expected future cost savings and our future costs
could be higher than we expected;
- available capital resources and various debt agreements may limit our
ability to complete acquisitions and complete construction of new or
expanded facilities;
- our cost of financing could increase significantly;
- new accounting standards could materially impact our reported earnings;
- we may not complete additional acquisitions or the pace of acquisitions
may change;
- we may not be able to adjust our cost structure;
- we may lose key personnel;
- competition in our industry may impact our operations or our ability to
complete acquisitions;
- insurance costs could increase significantly;
- we may not achieve expected sales volumes from the new franchises granted
to us; and
- we may not obtain inventory of new and used vehicles and parts, including
imported inventory, at the cost, or in the volume, we expect.
The information contained in this prospectus, including the information set
forth under the heading "Risk Factors" identifies 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.
ii
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC (File No. 1-13461). These reports and other information
include as exhibits copies of material documents and agreements. Our SEC filings
are available to the public over the Internet at the SEC's web site at
http://www.sec.gov. You may also read and copy any document we file at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please
call the SEC at 1-800-SEC-0330 for further information about the public
reference room. Our SEC filings are also available at the offices of the New
York Stock Exchange at 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring you to that information. This prospectus incorporates important
business and financial information about us that is not included in or delivered
with this prospectus. The information incorporated by reference is an important
part of this prospectus, and information that we file later with the SEC will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any further filings made with the SEC under
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, excluding any information
furnished to the SEC pursuant to Item 9 or Item 12 of any current report on Form
8-K and any certification furnished to the SEC as an exhibit to any periodic
report on Form 10-K or Form 10-Q, until the termination of this offering:
- Annual Report on Form 10-K for the year ended December 31, 2002;
- Quarterly Reports on Form 10-Q for the quarters ended March 31, 2003 and
June 30, 2003; and
- Current Reports on Form 8-K filed January 29, 2003, February 19, 2003,
April 7, 2003, April 9, 2003, April 10, 2003, May 1, 2003, May 21, 2003,
June 2, 2003, June 3, 2003, July 10, 2003, July 31, 2003, July 31, 2003,
August 4, 2003, August 11, 2003, August 27, 2003, September 2, 2003,
September 19, 2003 and October 8, 2003 (excluding any information
furnished pursuant to Item 9 or Item 12 of any Current Report on Form
8-K).
All documents filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of
the Exchange Act (excluding any information furnished pursuant to Item 9 or Item
12 on any current report on Form 8-K and any certification furnished to the SEC
as an exhibit to any periodic report on Form 10-K or Form 10-Q) subsequent to
the date of this filing and prior to the termination of this offering shall be
deemed to be incorporated in this prospectus and to be a part hereof from the
date of the filing of such document. Any statement contained in a document
incorporated by reference herein shall be deemed to be modified or superseded
for all purposes to the extent that a statement contained in this prospectus, or
in any other subsequently filed document which is also incorporated or deemed to
be incorporated by reference, modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus.
---------------------
You should rely solely upon the information provided in this prospectus. We
have not authorized anyone to provide you with different information. You should
not assume that the information in this prospectus is accurate as of any date
other than the date of this prospectus.
Our annual, quarterly and current reports, and any amendments thereto, that
we file with the SEC are made available, free of charge, over the Internet
through our website at http://www.group1auto.com as soon as reasonably
practicable after we electronically file them with or furnish them to the SEC.
You may also request copies of our filings with the SEC, which we will provide
at no cost, by writing or telephoning us at Group 1 Automotive, Inc., 950 Echo
Lane, Suite 100, Houston, Texas 77024, Attention: Investor Relations, (713)
647-5700. To obtain timely delivery, you should request this information no
later than November 11, 2003, which is five business days before the expiration
of the offer.
iii
PROSPECTUS SUMMARY
The following summary contains information about us and the offering of the
new notes. It does not contain all of the information that you should consider
in making your investment decision. For a more complete understanding of us and
this offering, you should read and consider carefully all of the information in
this prospectus, particularly the information set forth under "Risk Factors" and
the financial information appearing elsewhere in this prospectus. In addition,
certain statements include forward-looking information which involves risks and
uncertainties. Please read "Forward-Looking Information." Except as otherwise
indicated herein, or as the context may otherwise require, the words "we," "our"
and "us" refer collectively to Group 1 Automotive, Inc. and our consolidated
subsidiaries. References to the "notes" in this prospectus include both the
outstanding notes and the new notes.
THE COMPANY
OVERVIEW
Group 1 Automotive, Inc. is a leading operator in the $1 trillion U.S.
automotive retailing industry. Since our initial public offering in 1997, we
have more than quadrupled our annual revenues and are now one of the top 10
dealership groups in the United States by revenues. We currently own 71
dealerships comprised of 112 franchises, 29 different brands and 25 collision
service centers located in California, Colorado, Florida, Georgia, Louisiana,
Massachusetts, New Mexico, Oklahoma and Texas.
Through our dealerships and Internet sites, we sell new and used cars and
light trucks; arrange related financing, vehicle service and insurance
contracts; provide maintenance and repair services; and sell replacement parts.
In 2002, we sold more than 160,000 retail new and used vehicles.
Our principal executive offices are located at 950 Echo Lane, Suite 100,
Houston, Texas 77024. Our telephone number is (713) 647-5700 and our website is
http://www.group1auto.com. Information contained on our website or that can be
accessed through our website is not incorporated by reference in this prospectus
and you should not consider such information to be part of this prospectus.
THE EXCHANGE OFFER
On August 13, 2003, we completed a private offering of the outstanding
notes. As part of the private offering that closed on August 13, 2003, we
entered into a registration rights agreement with the initial purchasers of the
outstanding notes in which we agreed, among other things, to deliver this
prospectus to you and to use our reasonable best efforts to complete the
exchange offer within 30 business days after the date the SEC declared effective
the registration statement of which this prospectus is a part. The following is
a summary of the exchange offer.
Exchange Offer................ We are offering to exchange new notes for
outstanding notes.
Expiration Time and Date...... The exchange offer will expire at 5:00 p.m. New
York City time, on November 18, 2003, unless we
decide to extend it.
Condition to Exchange Offer... The registration rights agreement does not
require us to accept outstanding notes for
exchange if the exchange offer or the making of
any exchange by a holder of the outstanding
notes would violate any applicable law or
interpretation of the staff of the SEC. A
minimum aggregate principal amount of
outstanding notes being tendered is not a
condition to the exchange offer.
Procedures for Tendering
Outstanding Notes............. To participate in the exchange offer, you must
follow the procedures established by The
Depository Trust Company, which we call "DTC,"
for tendering notes held in book-entry form.
These procedures, which we call "ATOP," require
that the exchange
1
agent receive, prior to the expiration date of
the exchange offer, a computer generated
message known as an "agent's message" that is
transmitted through DTC's automated tender
offer program and that DTC confirm that:
- DTC has received your instructions to
exchange your notes, and
- you agree to be bound by the terms of the
letter of transmittal.
For more details, please read "Exchange
Offer -- Terms of the Exchange Offer" and
"-- Procedures for Tendering."
Guaranteed Delivery
Procedures.................... None.
Withdrawal of Tenders......... You may withdraw your tender of outstanding
notes at any time prior to the expiration date.
To withdraw, you must submit a notice of
withdrawal to the exchange agent using ATOP
procedures before 5:00 p.m. New York City time
on the expiration date of the exchange offer.
Please read "Exchange Offer -- Withdrawal of
Tenders."
Acceptance of Outstanding
Notes and Delivery of New
Notes......................... If you fulfill all conditions required for
proper acceptance of outstanding notes, we will
accept any and all outstanding notes that you
properly tender in the exchange offer on or
before 5:00 p.m. New York City time on the
expiration date. We will return any outstanding
notes that we do not accept for exchange, or
with respect to which all conditions for
acceptance have not been met, to you without
expense as promptly as practicable after the
expiration date. We will deliver the new notes
as promptly as practicable after the expiration
date and acceptance of the outstanding notes
for exchange. Please read "Exchange Offer --
Terms of the Exchange Offer."
Fees and Expenses............. We will bear all expenses related to the
exchange offer. Please read "Exchange
Offer -- Fees and Expenses."
Use of Proceeds............... The issuance of the new notes will not provide
us with any new proceeds. We are making this
exchange offer solely to satisfy our
obligations under the registration rights
agreement with the initial purchasers of the
outstanding notes.
Consequences of Failure to
Exchange Outstanding Notes.... If you do not exchange your outstanding notes
in this exchange offer, you will no longer be
able to require us to register the outstanding
notes under the Securities Act except in the
limited circumstances provided under the
registration rights agreement. In addition, you
will not be able to resell, offer to resell or
otherwise transfer the outstanding notes unless
we have registered the outstanding notes under
the Securities Act, or unless you resell, offer
to resell or otherwise transfer them under an
exemption from the registration requirements
of, or in a transaction not subject to, the
Securities Act.
U.S. Federal Income Tax
Considerations................ The exchange of new notes for outstanding notes
in the exchange offer should not be a taxable
event to you for U.S. federal income
2
tax purposes. Please read "U.S. Federal Income
Tax Considerations."
Exchange Agent................ We have appointed Wells Fargo Bank, N.A. as
exchange agent for the exchange offer. You
should direct questions and requests for
assistance and requests for additional copies
of this prospectus (including the letter of
transmittal) to the exchange agent addressed as
follows: Wells Fargo Bank, N.A., P.O. Box 1517,
Minneapolis, Minnesota 55480-1517, Attention:
Corporate Trust Operations. Eligible
institutions may make requests by facsimile at
(612) 667-4927.
TERMS OF THE NEW NOTES
The new notes will be identical to the outstanding notes except that the
new notes are registered under the Securities Act and will not have restrictions
on transfer, registration rights or provisions for special interest and will
contain different administrative terms. The new notes will evidence the same
debt as the outstanding notes, and the same indenture will govern the new notes
and the outstanding notes.
The following summary contains basic information about the new notes and is
not intended to be complete. It does not contain all the information that is
important to you. For a more complete understanding of the new notes, please
read "Description of New Notes."
Issuer........................ Group 1 Automotive, Inc.
Notes Offered................. $150,000,000 in aggregate principal amount of
8.25% Senior Subordinated Notes due August 15,
2013.
Maturity Date................. August 15, 2013.
Interest on New Notes......... 8.25% annually, accruing from August 13, 2003.
Payment Dates................. Interest will be payable semi-annually in
arrears on February 15 and August 15 of each
year, commencing February 15, 2004.
Subsidiary Guarantees......... The new notes will be fully and unconditionally
guaranteed on a senior subordinated basis by
substantially all of our current and future
U.S. subsidiaries. Substantially all of our
subsidiaries are expected to guarantee the new
notes when they are first issued.
Ranking....................... The new notes and the subsidiary guarantees
will be our senior subordinated obligations,
ranking equally in right of payment with our
10 7/8% Senior Subordinated Notes due March 1,
2009 and the related subsidiary guarantees. The
new notes will rank behind our current and
future senior debt, and the subsidiary
guarantee of each subsidiary guarantor will
rank behind the senior debt of that subsidiary
guarantor.
Optional Redemption........... We may redeem any of the new notes at any time
on or after August 15, 2008, in whole or in
part, in cash, at the redemption prices
described in "Description of New
Notes -- Optional Redemption," plus accrued and
unpaid interest to the date of redemption.
At any time on or prior to August 15, 2006, we
may redeem up to 35% of the aggregate principal
amount of notes issued under the indenture with
the net proceeds of certain public offerings of
our common stock at a redemption price equal to
108.250% of the
3
principal amount of the notes plus accrued and
unpaid interest to the date of redemption. We
may make that redemption only if, after the
redemption, at least 65% of the aggregate
principal amount of notes issued under the
indenture remains outstanding.
In addition, at any time prior to August 15,
2008, we may redeem all or a portion of the new
notes at a redemption price equal to the
principal amount plus the make-whole premium
set forth in the section "Optional Redemption"
under the heading "Description of New Notes,"
plus accrued and unpaid interest to the
redemption date.
Change of Control............. If we experience a Change of Control (as
defined under "Description of New
Notes -- Covenants-Change of Control"), we will
be required to make an offer to repurchase the
new notes at a price equal to 101% of the
principal amount, plus accrued and unpaid
interest to the date of repurchase.
Covenants..................... The terms of the new notes will restrict our
ability and the ability of our restricted
subsidiaries to, among other things:
- become liable for additional indebtedness;
- pay dividends on stock or repurchase stock;
- make certain investments;
- sell certain assets;
- use assets to secure subordinated
indebtedness;
- engage in transactions with affiliated
persons or entities; and
- engage in mergers and consolidations.
These limitations will be subject to a number
of important qualifications and exceptions. See
"Description of New Notes -- Covenants."
Transfer Restrictions; Absence
of a Public Market for the
Notes......................... The new notes generally will be freely
transferable, but will also be new securities
for which there will not initially be a market.
There can be no assurance as to the development
or liquidity of any market for the new notes.
RISK FACTORS
Please read "Risk Factors" beginning on page 7 for a discussion of certain
factors you should consider before participating in the exchange offer.
4
SELECTED HISTORICAL FINANCIAL INFORMATION
We derived the following selected consolidated financial information as of
and for the fiscal year ended December 31, 2002 from our financial statements
audited by Ernst & Young LLP, independent auditors. We derived the following
selected consolidated financial information as of and for the four fiscal years
ended December 31, 2001 from our financial statements audited by Arthur Andersen
LLP, independent public accountants, who have ceased operations. We derived the
following summary consolidated financial information as of and for the six
months ended June 30, 2002 and 2003 from our unaudited consolidated financial
statements which include all normal and recurring adjustments that, in the
opinion of management, are necessary for a fair presentation of the results of
the six month periods presented. Results as of and for the six months ended June
30, 2003 may not be indicative of results for the entire year.
You should read the information set forth below in conjunction with the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements, and the
related notes to those financial statements, included in our most recent Annual
Report on Form 10-K and our most recent Quarterly Report on Form 10-Q, each of
which is incorporated by reference in this prospectus.
<Table>
<Caption>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------------------- -----------------------
1998 1999 2000 2001 2002 2002 2003
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
INCOME STATEMENT DATA:
Revenues:
New vehicle retail
sales................ $ 933,774 $1,469,653 $2,172,786 $2,373,299 $2,526,847 $1,168,055 $1,287,208
Used vehicle retail
sales................ 412,974 609,707 808,698 949,086 921,359 448,641 456,154
Used vehicle wholesale
sales................ 99,127 144,043 199,720 190,565 222,529 107,099 126,449
Parts and service
sales................ 139,144 212,970 306,089 360,201 402,169 187,202 227,392
Retail finance fees.... 21,204 33,235 45,043 56,272 58,869 27,772 31,363
Vehicle service
contract fees........ 16,329 27,020 37,484 44,080 52,346 23,815 30,634
Other finance and
insur-
ance revenues, net... 7,505 11,696 16,326 22,871 30,245 16,594 18,471
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues....... 1,630,057 2,508,324 3,586,146 3,996,374 4,214,364 1,979,178 2,177,671
Cost of sales............ 1,393,547 2,131,967 3,058,709 3,389,122 3,562,069 1,666,906 1,824,007
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit............. 236,510 376,357 527,437 607,252 652,295 312,272 353,664
Selling, general and
administrative
expenses............... 178,038 279,791 393,679 458,546 502,732 237,650 275,017
Depreciation and
amortization
expense(1)............. 6,426 10,616 16,038 17,358 11,940 5,621 6,941
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from
operations........... 52,046 85,950 117,720 131,348 137,623 69,001 71,706
Other income and
(expenses):
Floorplan interest
expense.............. (12,837) (20,395) (37,536) (27,935) (19,371) (8,732) (11,682)
Other interest expense,
net.................. (4,027) (10,052) (15,500) (13,863) (9,925) (5,191) (4,703)
Other income (expense),
net.................. 39 186 1,142 (128) (1,045) (110) (89)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes................ 35,221 55,689 65,826 89,422 107,282 54,968 55,232
Provision for income
taxes.................. 14,502 22,174 25,014 33,980 40,217 20,338 20,436
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............. $ 20,719 $ 33,515 $ 40,812 $ 55,442 $ 67,065 $ 34,630 $ 34,796
========== ========== ========== ========== ========== ========== ==========
Earnings per share:
Basic.................. $ 1.20 $ 1.62 $ 1.91 $ 2.75 $ 2.93 $ 1.50 $ 1.55
Diluted................ $ 1.16 $ 1.55 $ 1.88 $ 2.59 $ 2.80 $ 1.42 $ 1.50
SELECTED RATIOS:
Ratio of earnings to
fixed charges(2)....... 2.6 2.4 2.0 2.5 3.7 3.9 3.6
</Table>
5
<Table>
<Caption>
AS OF
AS OF DECEMBER 31, JUNE 30,
---------------------------------------------------------- ----------
1998 1999 2000 2001 2002 2003
-------- -------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
BALANCE SHEET DATA:
Working capital......... $ 48,251 $ 80,128 $ 54,769 $ 154,713 $ 93,755 $ 122,008
Inventories, net........ 219,176 386,255 527,101 454,961 622,205 699,187
Total assets............ 447,710 842,910 1,099,553 1,054,425 1,423,765 1,474,026
Floorplan debt.......... 193,405 363,489 536,707 364,954 652,538 662,141
Senior subordinated
notes................. -- 97,889 94,444 85,002 74,149 74,220
Other debt.............. 45,787 16,361 47,455 12,184 10,070 9,438
Total debt excluding
floorplan debt........ 45,787 114,250 141,899 97,186 84,219 83,658
Stockholders' equity.... 136,184 232,029 247,416 392,243 443,417 481,293
</Table>
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(1) In January 2002, we adopted Statement of Financial Accounting Standards
(SFAS) No. 142. Under SFAS No. 142, goodwill is no longer subject to
amortization. Prior to January 1, 2002, we included goodwill amortization in
depreciation and amortization expense in our consolidated statements of
operations. Goodwill amortization included in depreciation and amortization
totaled $2.2, $4.5, $6.7 and $7.5 million for the years ended December 31,
1998, 1999, 2000, and 2001, respectively.
(2) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before provision for income taxes plus fixed charges
(excluding capitalized interest); and fixed charges consist of interest
expensed and capitalized, amortization of debt discount and expense related
to indebtedness, and the portion of rental expense deemed to be
representative of the interest factor attributable to leases for rental
property.
6
RISK FACTORS
In addition to the information set forth elsewhere or incorporated by
reference in this prospectus, the following factors relating to us, the exchange
offer and the new notes should be considered carefully in deciding whether to
participate in the exchange offer.
RISKS RELATED TO THE EXCHANGE OFFER AND THE NOTES
IF YOU DO NOT PROPERLY TENDER YOUR OUTSTANDING NOTES, YOU WILL CONTINUE TO
HOLD UNREGISTERED OUTSTANDING NOTES AND YOUR ABILITY TO TRANSFER OUTSTANDING
NOTES WILL BE ADVERSELY AFFECTED.
We will only issue new notes in exchange for outstanding notes that you
timely and properly tender. Therefore, you should allow sufficient time to
ensure timely tender of the outstanding notes and you should carefully follow
the instructions on how to tender your outstanding notes. Neither we nor the
exchange agent is required to tell you of any defects or irregularities with
respect to your tender of outstanding notes.
If you do not exchange your outstanding notes for new notes pursuant to the
exchange offer, the outstanding notes you hold will continue to be subject to
the existing transfer restrictions. In general, you may not offer or sell the
outstanding notes except under an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. We do not
plan to register outstanding notes under the Securities Act unless our
registration rights agreement with the initial purchasers of the outstanding
notes requires us to do so. Further, if you continue to hold any outstanding
notes after the exchange offer is consummated, you may have trouble selling them
because there will be fewer such notes outstanding.
SOME HOLDERS WHO EXCHANGE THEIR OLD NOTES MAY BE DEEMED TO BE UNDERWRITERS AND
THESE HOLDERS WILL BE REQUIRED TO COMPLY WITH THE REGISTRATION AND PROSPECTUS
DELIVERY REQUIREMENTS IN CONNECTION WITH ANY RESALE TRANSACTION.
If you exchange your old notes in the exchange offer for the purpose of
participating in a distribution of the new notes, you may be deemed to have
received restricted securities and, if so, will be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
OUR SUBSTANTIAL LEVEL OF INDEBTEDNESS MAY LIMIT CASH FLOW AVAILABLE TO INVEST
IN THE ONGOING NEEDS OF OUR BUSINESS, WHICH COULD PREVENT US FROM FULFILLING
OUR OBLIGATIONS UNDER THE NOTES.
We have a significant amount of indebtedness and substantial debt service
requirements.
In addition, we will be permitted to incur substantial indebtedness in the
future. The indenture for the notes and our other debt instruments permit us to
incur additional debt under certain circumstances.
Our level of indebtedness could have significant adverse consequences to
you. For example, it could:
- make it more difficult for us to obtain additional financing in the
future for our acquisition program and our operations;
- require us to dedicate a substantial portion of our cash flow from
operations to the payment of debt service, reducing the availability of
our cash flow to fund working capital, capital expenditures, acquisitions
and other general corporate purposes;
- increase our vulnerability to adverse economic or industry conditions;
- limit our ability to obtain additional financing in the future to enable
us to react to changes in our business or industry;
7
- prevent us from raising the funds necessary to repurchase all notes
tendered to us upon the occurrence of specific changes of control in our
ownership, which could constitute a default under the indenture governing
the notes; or
- place us at a competitive disadvantage compared to businesses in our
industry that have less indebtedness.
We may need to refinance all or a portion of our indebtedness, including
our credit facilities, or obtain additional financing in order to meet our
obligations under the notes and our other outstanding debt and to meet our other
liquidity needs. We may not be able to refinance our indebtedness or obtain
additional financing on commercially reasonable terms or at all. Our inability
to obtain such refinancing or additional financing could have a material adverse
effect on us.
Additionally, any failure to comply with covenants in the instruments
governing our debt could result in an event of default which, if not cured or
waived, could have a material adverse effect on us. See "Description of New
Notes."
WE ARE A HOLDING COMPANY AND AS A RESULT ARE DEPENDENT ON OUR SUBSIDIARIES TO
GENERATE SUFFICIENT CASH AND DISTRIBUTE CASH TO US TO SERVICE OUR
INDEBTEDNESS, INCLUDING THE NOTES.
Our ability to make payments on our indebtedness, fund our ongoing
operations and invest in capital expenditures and any acquisitions will depend
on our subsidiaries' ability to generate cash in the future and distribute that
cash to us. It is possible that our subsidiaries may not generate sufficient
cash from operations in an amount sufficient to enable us to service our
indebtedness, including the notes. Many of our subsidiaries are subject to
restrictions on the payment of dividends under certain circumstances pursuant to
their franchise agreements, dealer agreements, other agreements with
manufacturers, mortgages, loan facilities and floor plan agreements. For
example, most of the agreements contain minimum working capital or net worth
requirements, and some manufacturers' dealer agreements specifically prohibit a
distribution to us if the distribution would cause the dealership to fail to
meet such manufacturer's capitalization guidelines, including net working
capital. These restrictions could limit our ability to utilize profits generated
from one subsidiary at other subsidiaries or, in some cases, at the parent
company.
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS JUNIOR TO OUR EXISTING AND
FUTURE SENIOR INDEBTEDNESS AND THE EXISTING AND FUTURE SENIOR INDEBTEDNESS OF
OUR GUARANTORS.
The notes and the guarantees are subordinated to the prior payment in full
of our and the guarantors' respective current and future senior indebtedness to
the extent set forth in the indenture. Because of the subordination provisions
of the notes, in the event of the bankruptcy, liquidation or dissolution of
Group 1 or any guarantor, our assets or the assets of the guarantors would be
available to pay obligations under the notes and our other senior subordinated
obligations only after all payments had been made on our or the guarantors'
senior indebtedness. Sufficient assets may not remain after all these payments
have been made to make required payments on the notes and any other senior
subordinated obligations (which includes the outstanding senior subordinated
notes), including payments of interest when due. As a result, holders of the
notes may receive less, ratably, than our other unsecured general creditors if
we are the subject of a bankruptcy, liquidation, reorganization or similar
proceeding.
In addition, we will be prohibited from making all payments on the notes
and the guarantees in the event of a payment default on our senior indebtedness
(including borrowings under our credit facilities) and, for limited periods,
upon the occurrence of other defaults under our credit facilities. In the event
of a non-payment default under our senior indebtedness, we may not have
sufficient funds to pay all our creditors, including the holders of the notes.
See "Description of New Notes."
8
RESTRICTIONS IMPOSED BY OUR CREDIT FACILITIES AND OUR OTHER DEBT INSTRUMENTS,
INCLUDING THE INDENTURE GOVERNING THE NOTES, LIMIT OUR ABILITY TO OBTAIN
ADDITIONAL FINANCING AND TO PURSUE BUSINESS OPPORTUNITIES.
The operating and financial restrictions and covenants in our debt
instruments, including our credit facilities and the notes, may adversely affect
our ability to finance our future operations or capital needs or to pursue
certain business activities. In particular, our credit facilities require us to
maintain certain financial ratios. Our ability to comply with these ratios may
be affected by events beyond our control. A breach of any of these covenants or
our inability to comply with the required financial ratios could result in a
default under our credit facilities. In the event of any default under our
credit facilities, the lenders under those facilities could elect to declare all
borrowings outstanding, together with accrued and unpaid interest and other
fees, to be due and payable, to require us to apply all of our available cash to
repay these borrowings or to prevent us from making debt service payments on the
notes, any of which would be an event of default under the notes. See
"Description of New Notes."
IT MAY NOT BE POSSIBLE FOR US TO PURCHASE THE NOTES ON THE OCCURRENCE OF A
CHANGE IN CONTROL.
Upon the occurrence of specific change of control events, we will be
required to offer to repurchase all of the notes at 101% of the principal amount
of the notes plus accrued and unpaid interest, including any special interest,
to the date of purchase. We cannot assure you that there will be sufficient
funds available for us to make any required repurchase of the notes upon a
change of control. Our failure to purchase tendered notes would constitute a
default under the indenture governing the notes, which, in turn, would
constitute a default under our credit facilities and other debt instruments. See
"Description of New Notes -- Covenants -- Change of Control."
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE NOTE-HOLDERS TO RETURN PAYMENTS RECEIVED FROM
GUARANTORS.
Under U.S. bankruptcy law and comparable provisions of state fraudulent
transfer laws, a subsidiary guarantee can be voided, or claims under a
subsidiary guarantee may be subordinated to all other debts of that subsidiary
guarantor if, among other things, the subsidiary guarantor, at the time it
incurred the indebtedness evidenced by its guarantee:
- intended to hinder, delay or defraud any present or future creditor or
received less than reasonably equivalent value or fair consideration for
the issuance of the guarantee; and
- the subsidiary guarantor:
- was insolvent or rendered insolvent by reason of issuing the guarantee;
- was engaged in a business or transaction for which the subsidiary
guarantor's remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay those debts as they become due.
In addition, any payment by that subsidiary guarantor under a guarantee
could be voided and required to be returned to the subsidiary guarantor or to a
fund for the benefit of the creditors of the subsidiary guarantor under such
circumstances.
The measures of insolvency for purposes of fraudulent transfer laws will
vary depending upon the governing law. Generally, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair salable value of all of its assets;
9
- the present fair salable value of its assets was less than the amount
that would be required to pay its probable liability on its existing
debts, including contingent liabilities, as they became absolute and
mature; or
- it could not pay its debts as they became due.
In the event the guarantee of the notes by a subsidiary guarantor is voided
as a fraudulent conveyance, holders of the notes would effectively be
subordinated to all indebtedness and other liabilities of that guarantor.
NO PUBLIC MARKET EXISTS FOR THE NEW NOTES. AN ACTIVE TRADING MARKET MAY NOT
DEVELOP FOR THE NEW NOTES, WHICH MAY LIMIT YOUR ABILITY TO RESELL THEM.
The new notes will constitute a new class of securities for which there is
no established trading market. We do not intend to list the new notes on a stock
exchange or seek their admission for trading in the National Association of
Securities Dealers Automated Quotation System. Although the initial purchasers
of the outstanding notes have advised us that they intend to make a market in
the new notes, they are not obligated to do so, and they may cease to do so at
any time without notice. Accordingly, we cannot assure you that an active
trading market for the new notes will develop or, if a trading market develops,
that it will continue. The lack of an active trading market for the new notes
would have a material adverse effect on the market price and liquidity of the
notes. If a market for the notes develops, they may trade at a discount from
par.
RISKS RELATED TO OUR BUSINESS
IF WE FAIL TO OBTAIN A DESIRABLE MIX OF POPULAR NEW VEHICLES FROM
MANUFACTURERS, OUR PROFITABILITY WILL BE NEGATIVELY AFFECTED.
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.
IF WE FAIL TO OBTAIN RENEWALS OF ONE OR MORE OF OUR FRANCHISE AGREEMENTS ON
FAVORABLE TERMS OR SUBSTANTIAL FRANCHISES ARE TERMINATED, OUR OPERATIONS MAY
BE SIGNIFICANTLY IMPAIRED.
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.
MANUFACTURERS' RESTRICTIONS ON ACQUISITIONS MAY LIMIT OUR FUTURE GROWTH.
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
acquisition program. 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,
customer satisfaction index scores and other performance measures of our
dealerships.
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
10
systems at any time. From time to time, we may not meet all of the
manufacturers' requirements to make acquisitions. To date, we have not been
materially adversely affected by these standards and have not been denied
approval of any acquisition based on low CSI scores or other measures. However,
we cannot assure you that all of our proposed future acquisitions will be
approved.
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. If we
reach a limitation imposed by a manufacturer for a particular geographic market,
we will be unable to make additional tuck-in acquisitions in that market of that
manufacturer's franchises, which could limit our ability to grow in that
geographic area. In addition, geographic limitations imposed by manufacturers
could restrict our ability to acquire platforms whose markets overlap with those
already served by us. The following is a summary of the restrictions imposed by
the manufacturers that accounted for 10% or more of our new vehicle retail unit
sales in 2002.
Ford. Ford currently limits the number of dealerships that we may own to
the greater of (1) 15 Ford and 15 Lincoln and Mercury dealerships and (2) that
number of Ford, Lincoln and Mercury dealerships accounting for 5% of the
preceding year's total Ford, Lincoln and Mercury retail sales of those brands in
the United States. Currently, we own a total of 23 Ford, Lincoln and Mercury
dealership franchises, which represented approximately 0.7% of the national
retail sales of Ford, Lincoln and Mercury for the six months ended June 30,
2003. 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, a Ford
franchised dealership when its ownership changes. Currently, Ford is emphasizing
increased sales performance from all of its franchised dealers, including our
Ford dealerships. To this end, Ford has requested that we focus on the
performance of owned dealerships as opposed to acquiring additional Ford
dealerships. We intend to comply with this request.
Toyota/Lexus. Toyota restricts the number of dealerships that we may own
and the time frame over which we may acquire them. Under Toyota's standard
Multiple Ownership Agreement, we may acquire 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 four primary Lexus dealerships or six outlets
nationally, including only two Lexus dealerships in any one of the four Lexus
geographic areas. Our Lexus companion dealership located south of Houston is not
considered by Lexus to be a primary Lexus dealership for purposes of the
restriction on the number of Lexus dealerships we may acquire. Currently, we own
nine Toyota and two primary Lexus dealership franchises, which represented
approximately 1.3% of the national retail sales of Toyota for the six months
ended June 30, 2003.
General Motors. General Motors, or GM, currently evaluates our
acquisitions of GM dealerships on a case-by-case basis. GM, however, 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.
Currently, we own 20 GM dealership franchises and could acquire approximately
7,900 GM dealership franchises nationally, dependent upon franchise line and
restrictions within particular GM-defined geographic market areas. Additionally,
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.
DaimlerChrysler. 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 carefully considers, 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.
Our agreement with Mercedes-Benz, in addition to limitations on the number of
dealership franchises in particular metropolitan markets and regions, limits us
to a maximum of the greater of four Mercedes-Benz dealership franchises or the
number of dealership franchises that would account for up to
11
3% of the preceding year's total Mercedes-Benz retail sales. Currently, we own
22 Chrysler and one Mercedes-Benz dealership franchises.
MANUFACTURERS' RESTRICTIONS COULD NEGATIVELY IMPACT OUR ABILITY TO OBTAIN
CERTAIN TYPES OF FINANCINGS.
Provisions in our agreements with our manufacturers may restrict, in the
future, our ability to obtain certain types of financing. A number of our
manufacturers prohibit pledging the stock of their franchised dealerships. For
example, our agreement 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 our March 1999 senior subordinated notes offering and the subsidiary
guarantees of those notes and has waived that requirement in respect of our
recently completed offering of notes and related subsidiary guarantees. Certain
of our manufacturers require us to meet certain financial ratios, which, if we
fail to meet these ratios the manufacturers may reject proposed acquisitions,
and may give them the right to purchase their franchises for fair value.
CERTAIN RESTRICTIONS RELATING TO OUR MANAGEMENT AND OWNERSHIP OF OUR COMMON
STOCK COULD DETER PROSPECTIVE ACQUIRORS FROM ACQUIRING CONTROL OF US AND
ADVERSELY AFFECT OUR ABILITY TO ENGAGE IN EQUITY OFFERINGS.
As a condition to granting their consent to our previous acquisitions and
our initial public offering, some of our manufacturers have imposed other
restrictions on us. These restrictions prohibit, among other things:
- 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 (ranging from 20% to 50% depending on the particular
manufacturer's restrictions) and this trigger level can fall to as low as
5% if another vehicle manufacturer is the entity acquiring the ownership
interest or voting rights;
- certain material changes in our business or extraordinary corporate
transactions such as a merger or sale of a material amount of our assets;
- change in control of our Board of Directors or management; and
- the removal of a dealership general manager without the consent of the
manufacturer.
Our manufacturers may also impose additional restrictions on us in the
future. If we are unable to comply with these restrictions, we generally must
sell the assets of the dealerships to the manufacturer or to a third party
acceptable to the manufacturer or terminate the dealership agreements with the
manufacturer, which may have a material adverse effect on us.
IF MANUFACTURERS DISCONTINUE SALES INCENTIVES AND OTHER PROMOTIONAL PROGRAMS,
OUR RESULTS OF OPERATIONS MAY BE MATERIALLY AND ADVERSELY AFFECTED.
We depend on our 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 our 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
OUR RELATIONSHIP WITH OUR MANUFACTURERS IMPOSES A NUMBER OF RESTRICTIONS ON
OUR OPERATIONS, WHICH MAY REQUIRE US TO DIVERT OUR FINANCIAL RESOURCES FROM
USES THAT MANAGEMENT BELIEVES MAY BE OF BETTER VALUE TO US.
Our manufacturer agreements 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 as well as other manufacturers may require us to move or sell
some dealerships.
Our manufacturers generally require that the dealership premises meet
defined image standards and may direct us to implement costly capital
improvements to dealerships as a condition for renewing certain franchise
agreements. All of these requirements could impose significant capital
expenditures on us in the future.
Pursuant to the automobile dealership franchise agreements to which our
dealerships are subject, all dealerships are required to maintain a certain
minimum working capital, as determined by the manufacturers. This requirement
could require us to utilize available capital to maintain the working capital
levels of our dealerships at manufacturer-required levels.
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. Our Ford, Toyota/Lexus, DaimlerChrysler and
GM dealerships represented approximately 26.6%, 25.5%, 13.0% and 11.8%,
respectively, of our 2002 total new vehicle retail unit sales. 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.
GROWTH IN OUR REVENUES AND EARNINGS WILL BE IMPACTED BY OUR ABILITY TO ACQUIRE
AND SUCCESSFULLY INTEGRATE AND OPERATE DEALERSHIPS.
We cannot guarantee that we will be able to identify and acquire
dealerships in the future. In addition, we cannot guarantee that such
acquisitions will be successful or will be on terms and conditions consistent
with past acquisitions. 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. Some of our competitors may have greater
financial resources than us.
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 facility, bond issuances and stock offerings and issuances of our common
stock to the sellers of the acquired dealerships.
We currently intend to finance future acquisitions by issuing shares of
common stock as partial consideration for acquired dealerships. The use of
common stock as consideration for acquisitions will depend on two factors: (1)
the market value of our common stock at the time of the acquisition and (2) 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 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 is depressed.
13
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. Acquisitions involve a number of special
risks, including the difficulties of managing operations located in geographic
areas where we have not previously operated, possible diversion of resources and
management's attention, inability to retain key personnel at the acquired entity
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. Although we conduct what we believe to be a prudent
level of investigation regarding the operating condition of the businesses we
purchase, in light of the circumstances of each transaction, an unavoidable
level of risk remains regarding the actual operating condition of these
businesses. Until we actually assume operating control of such business assets,
we may not be able to ascertain the actual value of the acquired entity.
THE LOSS OF KEY PERSONNEL COULD ADVERSELY AFFECT OUR OPERATIONS AND GROWTH.
We depend to a large extent upon the abilities and continued efforts of our
executive officers, senior management and principals of our dealerships.
Furthermore, we will likely be dependent on the senior management of any
dealerships acquired in the future. We have long-term employment agreements with
our Chairman, President and Chief Executive Officer and some of the principals
of our dealerships. Our two Executive Vice Presidents are currently employed
under employment agreements that operate on a month-to-month basis. If any of
those persons leaves or if we fail to attract and retain other qualified
employees, our business could be adversely affected. We currently have no key
man insurance for any of our officers or executive management.
CHANGES IN INTEREST RATES COULD ADVERSELY IMPACT OUR PROFITABILITY.
All of the borrowings under our credit facilities bear interest based on a
floating rate. A significant increase in interest rates could cause a
substantial increase in our cost of borrowing. At times, we manage our exposure
to interest rate volatility through the use of interest rate swaps.
Additionally, a significant increase in interest rates could adversely
impact our ability to arrange financing for vehicle sales at rates acceptable to
our customers and the volume of fees we receive for arranging the financing.
CHANGES IN OUR INSURANCE PROGRAMS COULD ADVERSELY IMPACT OUR PROFITABILITY.
Automobile dealerships require insurance covering a broad variety of risks.
We have insurance on our real property, comprehensive coverage for our vehicle
inventory, general liability insurance, employee dishonesty coverage, employment
practices liability insurance, pollution coverage and errors and omissions
insurance in connection with vehicle sales and financing activities.
Additionally, our insurance includes umbrella policies with a $106.0 million
aggregate limit, which covers losses in excess of our $500,000 self-insured
retention on general liability claims.
Additionally, we retain some risk of loss under our self-insured medical
and property/casualty programs. Changes in the insurance market could impact our
level of retained risk and our results of operations.
WE ARE SUBJECT TO A NUMBER OF RISKS ASSOCIATED WITH IMPORTING INVENTORY.
A portion of our new vehicle business involves the sale of vehicles,
vehicle parts or vehicles composed of parts that are manufactured outside the
United States. As a result, our operations are subject to customary risks
associated with imported 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 our products are imported
may, from time to time, impose new quotas, duties, tariffs or other
restrictions, or adjust presently prevailing quotas, duties or tariffs on
imported merchandise. Any of those impositions or adjustments could affect our
operations and our ability to purchase imported vehicles and parts. This, in
turn, could have an adverse effect on our business.
14
THE CYCLICALITY AND SEASONALITY OF VEHICLE SALES MAY ADVERSELY IMPACT OUR
PROFITABILITY.
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.
Our operations are subject to seasonal variations, with the second and
third quarters generally contributing more operating profit than the first and
fourth quarters. Three primary forces drive this seasonality: (1)
manufacturer-related factors, primarily the historical timing of major
manufacturer incentive programs and model changeovers, (2) weather-related
factors and (3) consumer buying patterns.
THE AUTOMOTIVE RETAILING INDUSTRY IS HIGHLY COMPETITIVE, WHICH MAY REDUCE OUR
PROFITABILITY AND GROWTH.
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 the vehicle serviced. Our
profitability and growth may be materially and adversely affected by our
competitors and the overall competition in the industry.
In the new vehicle market, our dealerships compete with other franchised
dealerships, auto brokers, leasing companies, and internet companies. Our
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 the used vehicle market, our dealerships compete with other
franchised dealers, independent used vehicle dealers, automobile rental agencies
and private parties. In the service market, our dealerships compete against
franchised dealerships, franchised and independent service center chains and
independent repair shops. In the parts market, our dealerships compete with
other automobile dealers, service stores and auto parts retailers.
In the acquisition area, we compete with other national dealer groups and
individual investors for acquisitions. Some of our competitors may have greater
financial resources and competition may increase acquisition pricing. We cannot
guarantee that we will be able to complete acquisitions on terms favorable to
us.
IF STATE DEALER LAWS ARE REPEALED OR WEAKENED, OUR DEALERSHIPS WILL BE MORE
SUSCEPTIBLE TO TERMINATION, NON-RENEWAL OR RE-NEGOTIATION OF THEIR FRANCHISE
AGREEMENTS.
State dealer laws generally provide that a manufacturer may not terminate
or refuse to renew a franchise agreement unless it has first provided the dealer
with written notice setting forth good cause and stating the grounds for
termination or nonrenewal. Some state dealer laws allow dealers to file protests
or petitions or attempt to comply with the manufacturer's criteria within the
notice period to avoid the termination or nonrenewal. Though unsuccessful to
date, manufacturers' lobbying efforts may lead to the repeal or revision of
state dealer laws. If dealer laws are repealed in the states in which we
operate, manufacturers may be able to terminate our franchises without providing
advance notice, an opportunity to cure or a showing of good cause. Without the
protection of state dealer laws, it may also be more difficult for our dealers
to renew their franchise agreements upon expiration. In addition, these laws
restrict the ability of automobile manufacturers to directly enter the retail
market in the future. If manufacturers obtain the ability to directly retail
vehicles and do so in our markets, such competition could have a material
adverse effect on us.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL REGULATION COMPLIANCE COSTS MAY
ADVERSELY AFFECT OUR PROFITABILITY.
We are subject to a wide range of federal, state and local laws and
regulations, 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 those laws and regulations could result in civil and
criminal penalties being levied against us or in a cease and desist order
against operations that are not in compliance. Future acquisition by us may also
be subject to governmental
15
regulation, including antitrust reviews. Although we believe that we
substantially comply with all applicable laws and regulations relating to our
business, future laws and regulations or changes to existing laws or regulations
may be more stringent and require us to incur significant additional costs.
YOUR ABILITY TO RECOVER FROM OUR FORMER AUDITORS, ARTHUR ANDERSEN LLP, FOR ANY
POTENTIAL FINANCIAL MISSTATEMENTS IS LIMITED.
On May 9, 2002, our audit committee and our board of directors dismissed
Arthur Andersen LLP as our independent auditors and engaged Ernst & Young LLP to
serve as our independent auditors for fiscal 2002. Our audited consolidated
financial statements as of December 31, 2001 and for each of the years in the
two-year period ended December 31, 2001, which are incorporated by reference in
this prospectus, have been audited by Arthur Andersen, our former independent
auditors, as set forth in their reports, but Arthur Andersen has not consented
to the incorporation by reference of these reports in this prospectus or in the
registration statement of which this prospectus forms a part.
Arthur Andersen completed its audit of our consolidated financial
statements for the year ended December 31, 2001 and issued its report relating
to those consolidated financial statements on February 14, 2002. Subsequently,
Arthur Andersen has ceased to audit publicly held companies. As a result, you
may not be able to recover against Arthur Andersen for any claims you may have
under securities or other laws as a result of Arthur Andersen's previous role as
our independent public accountants and as author of the audit report for some of
the audited financial statements incorporated by reference in this prospectus.
16
EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
In connection with the issuance of the outstanding notes, we entered into a
registration rights agreement with the initial purchasers of the outstanding
notes. Under the registration rights agreement, we agreed to:
- within 90 days after the original issuance of the outstanding notes on
August 13, 2003, file a registration statement with the SEC with respect
to a registered offer to exchange each outstanding note for a new note
having terms substantially identical in all material respects to such
note except that the new note will not contain terms with respect to
transfer restrictions, registration rights or special interest;
- use our reasonable best efforts to cause the registration statement to be
declared effective under the Securities Act within 180 days after the
original issuance of the outstanding notes;
- following the effectiveness of the registration statement, offer the new
notes in exchange for surrender of the outstanding notes; and
- use our reasonable best efforts to complete the exchange offer within 30
business days of the effective date of the registration statement.
We have fulfilled the agreements described in the first two of the
preceding bullet points and are now offering eligible holders of the outstanding
notes the opportunity to exchange their outstanding notes for new notes
registered under the Securities Act. Holders are eligible if they are not
prohibited by any law or policy of the SEC from participating in this exchange
offer. The new notes will be substantially identical to the outstanding notes
except that the new notes will not contain terms with respect to transfer
restrictions, registration rights or special interest.
Under limited circumstances set forth in the registration rights agreement,
we have agreed to use our reasonable best efforts to cause the SEC to declare
effective under the Securities Act a shelf registration statement for the resale
of the outstanding notes. We also agreed to use our reasonable best efforts to
keep the shelf registration statement effective for up to two years after the
original issuance of the outstanding notes.
We will pay special cash interest on the applicable outstanding notes,
subject to certain exceptions:
(1) if we fail to file a registration statement required by the
registration rights agreement with the SEC on or before the date on which
such registration statement is required to be filed;
(2) if any such registration statement is not declared effective by
the SEC on or before the date on which such registration statement is
required to become or be declared effective;
(3) if the exchange offer is not completed within 30 business days
after the date of the registration statement relating to the exchange offer
is required to be filed with the SEC; or
(4) after any of the registration statements required by the
registration rights agreement has been declared effective but thereafter
ceases to be effective or usable (subject to certain exceptions) in
connection with resales of the notes;
from and including the date on which any such registration default occurs to but
excluding the date on which all registration defaults have been cured.
The rate of the special interest will be 0.25% per annum for the first
90-day period immediately following the occurrence of a registration default,
and such rate will increase by an additional 0.25% per annum with respect to
each subsequent 90-day period until all registration defaults have been cured,
up to a maximum special interest rate of 1.0% per annum. We will pay such
special interest on the regular interest payment dates. This special interest
will be in addition to any other interest payable from time to time with respect
to the outstanding notes and the new notes. Following the cure of all
registration defaults, the accrual of special interest will cease.
17
To exchange your outstanding notes for new notes in the exchange offer, you
will be required to make the following representations:
- any new notes received by you will be acquired in the ordinary course of
your business;
- you have no arrangement or understanding with any person to participate
in the distribution of the outstanding notes or the new notes;
- you are not our "affiliate," as defined in Rule 405 of the Securities
Act, or if you are our affiliate you will comply with any applicable
registration and prospectus delivery requirements of the Securities Act;
- if you are not a broker-dealer, you are not engaged in and do not intend
to engage in the distribution of the new notes; and
- if you are a broker-dealer that will receive new notes for your own
account in exchange for outstanding notes, you acquired those notes as a
result of market-making activities or other trading activities and you
will deliver a prospectus, as required by law, in connection with any
resale of such new notes.
In addition, we may require you to provide information to be used in
connection with the shelf registration statement to have your outstanding notes
included in the shelf registration statement and benefit from the provisions
regarding additional interest described in the preceding paragraphs. We may
exclude you from such registration if you unreasonably fail to furnish the
requested information to us within a reasonable time after receiving our
request. A holder who sells outstanding notes under the shelf registration
statement generally will be required to be named as a selling securityholder in
the related prospectus and to deliver a prospectus to purchasers. Such a holder
will also be subject to the civil liability provisions under the Securities Act
in connection with such sales and will be bound by the provisions of the
registration rights agreement that are applicable to such a holder, including
indemnification obligations.
The description of the registration rights agreement contained in this
section is a summary only. For more information, you should review the
provisions of the registration rights agreement that we filed with the SEC as an
exhibit to the registration statement of which this prospectus is a part.
RESALE OF NEW NOTES
Based on no action letters of the SEC staff issued to third parties, we
believe that new notes may be offered for resale, resold and otherwise
transferred by you without further compliance with the registration and
prospectus delivery provisions of the Securities Act if:
- you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act;
- such new notes are acquired in the ordinary course of your business; and
- you have no arrangements with any person to participate in a distribution
of the new notes.
The SEC, however, has not considered the exchange offer for the new notes
in the context of a no action letter, and the SEC may not make a similar
determination as in the no action letters issued to these third parties.
If you tender your outstanding notes in the exchange offer with the
intention of participating in any manner in a distribution of the new notes, you
- cannot rely on such interpretations by the SEC staff; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
Unless an exemption from registration is otherwise available, any security
holder intending to distribute new notes should be covered by an effective
registration statement under the Securities Act. This registration statement
should contain the selling security holder's information required by Item 507 of
Regulation S-K under the Securities Act. This prospectus may be used for an
offer to resell, resale or other retransfer of new notes only as specifically
described in this prospectus. Only broker-dealers that acquired the outstanding
notes
18
as a result of market-making activities or other trading activities may
participate in the exchange offer. Each broker-dealer that receives new notes
for its own account in exchange for outstanding notes, where such outstanding
notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities, must acknowledge by way of the letter of
transmittal that it will deliver a prospectus in connection with any resale of
the new notes. Please read "Plan of Distribution" for more details regarding the
transfer of new notes.
TERMS OF THE EXCHANGE OFFER
Subject to the terms and conditions described in this prospectus and in the
letter of transmittal, we will accept for exchange any outstanding notes
properly tendered and not withdrawn prior to 5:00 p.m. New York City time on the
expiration date. We will issue new notes in principal amount equal to the
principal amount of outstanding notes surrendered under the exchange offer.
Outstanding notes may be tendered only for new notes and only in integral
multiples of $1,000.
THE EXCHANGE OFFER IS NOT CONDITIONED UPON ANY MINIMUM AGGREGATE PRINCIPAL
AMOUNT OF OUTSTANDING NOTES BEING TENDERED FOR EXCHANGE.
As of the date of this prospectus, $150,000,000 in aggregate principal
amount of the outstanding notes are outstanding. This prospectus is being sent
to DTC, the sole registered holder of the outstanding notes, and to all persons
that we can identify as beneficial owners of the outstanding notes. There will
be no fixed record date for determining registered holders of outstanding notes
entitled to participate in the exchange offer.
We intend to conduct the exchange offer in accordance with the provisions
of the registration rights agreement, the applicable requirements of the
Securities Act and the Exchange Act and the rules and regulations of the SEC.
Outstanding notes whose holders do not tender for exchange in the exchange offer
will remain outstanding and continue to accrue interest. These outstanding notes
will be entitled to the rights and benefits such holders have under the
indenture relating to the notes and the registration rights agreement.
We will be deemed to have accepted for exchange properly tendered
outstanding notes when we have given oral or written notice of the acceptance to
Wells Fargo Bank, N.A., the exchange agent, and complied with the applicable
provisions of the registration rights agreement. The exchange agent will act as
agent for the tendering holders for the purposes of receiving the new notes from
us.
If you tender outstanding notes in the exchange offer, you will not be
required to pay brokerage commissions or fees or, subject to the letter of
transmittal, transfer taxes with respect to the exchange of outstanding notes.
We will pay all charges and expenses, other than certain applicable taxes
described below, in connection with the exchange offer. It is important that you
read "-- Fees and Expenses" for more details regarding fees and expenses
incurred in the exchange offer.
We will return any outstanding notes that we do not accept for exchange for
any reason without expense to their tendering holder as promptly as practicable
after the expiration or termination of the exchange offer.
EXPIRATION DATE
The exchange offer will expire at 5:00 p.m., New York City time on November
18, 2003, unless, in our sole discretion, we extend it.
EXTENSIONS, DELAYS IN ACCEPTANCE, TERMINATION OR AMENDMENT
We expressly reserve the right, at any time or various times, to extend the
period of time during which the exchange offer is open. We may delay acceptance
of any outstanding notes by giving oral or written notice of such extension to
their holders. During any such extension, all outstanding notes previously
tendered will remain subject to the exchange offer, and we may accept them for
exchange.
19
In order to extend the exchange offer, we will notify the exchange agent
orally or in writing of any extension. We will notify the registered holders of
outstanding notes of the extension no later than 9:00 a.m., New York City time,
on the business day after the previously scheduled expiration date.
If any of the conditions described below under "-- Conditions to the
Exchange Offer" have not been satisfied, we reserve the right, in our sole
discretion, up to the expiration of the exchange offer:
- to delay accepting for exchange any outstanding notes,
- to extend the exchange offer, or
- to terminate the exchange offer
by giving oral or written notice of such delay, extension or termination to the
exchange agent. Subject to the terms of the registration rights agreement, we
also reserve the right to amend the terms of the exchange offer in any manner.
Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered holders of outstanding notes. If we amend the exchange offer in a
manner that we determine to constitute a material change, we will promptly
disclose such amendment by means of a prospectus supplement. The supplement will
be distributed to the registered holders of the outstanding notes. Depending
upon the significance of the amendment and the manner of disclosure to the
registered holders, we will extend the exchange offer if the exchange offer
would otherwise expire during such period.
CONDITIONS TO THE EXCHANGE OFFER
We will not be required to accept for exchange, or exchange any new notes
for, any outstanding notes if the exchange offer, or the making of any exchange
by a holder of outstanding notes, would violate applicable law or any applicable
interpretation of the staff of the SEC. Similarly, we may terminate the exchange
offer as provided in this prospectus before accepting outstanding notes for
exchange in the event of such a violation.
In addition, we will not be obligated to accept for exchange the
outstanding notes of any holder that has not made to us the representations
described under "-- Purpose and Effect of the Exchange Offer," "-- Procedures
for Tendering" and "Plan of Distribution" and such other representations as may
be reasonably necessary under applicable SEC rules, regulations or
interpretations to allow us to use an appropriate form to register the new notes
under the Securities Act.
We expressly reserve the right to amend or terminate the exchange offer,
and to reject for exchange any outstanding notes not previously accepted for
exchange, upon the occurrence of any of the conditions to the exchange offer
specified above. We will give oral or written notice of any extension,
amendment, non-acceptance or termination to the holders of the outstanding notes
as promptly as practicable. Such notice, in the case of any extension, will be
issued by means of a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day after the previously
scheduled expiration date.
These conditions are for our sole benefit, and we may assert them or waive
them in whole or in part at any time or at various times in our sole discretion
up to the expiration of the exchange offer. If we fail at any time to exercise
any of these rights, this failure will not mean that we have waived our rights.
Each such right will be deemed an ongoing right that we may assert at any time
or at various times.
In addition, we will not accept for exchange any outstanding notes
tendered, and will not issue new notes in exchange for any such outstanding
notes, if at such time any stop order has been threatened or is in effect with
respect to the registration statement of which this prospectus constitutes a
part or the qualification of the indenture relating to the notes under the Trust
Indenture Act of 1939.
PROCEDURES FOR TENDERING
In order to participate in the exchange offer, you must properly tender
your outstanding notes to the exchange agent as described below. It is your
responsibility to properly tender your notes. We have the right to
20
waive any defects. However, we are not required to waive defects and are not
required to notify you of defects in your exchange.
If you have any questions or need help in exchanging your notes, please
call the exchange agent whose address and phone number are set forth in
"Prospectus Summary -- The Exchange Offer -- Exchange Agent."
All of the outstanding notes were issued in book-entry form, and all of the
outstanding notes are currently represented by global certificates held for the
account of DTC. We have confirmed with DTC that the outstanding notes may be
tendered using the Automated Tender Offer Program, or ATOP, instituted by DTC.
The exchange agent will establish an account with DTC for purposes of the
exchange offer promptly after the commencement of the exchange offer and DTC
participants may electronically transmit their acceptance of the exchange offer
by causing DTC to transfer their outstanding notes to the exchange agent using
the ATOP procedures. In connection with the transfer, DTC will send an "agent's
message" to the exchange agent. The agent's message will state that DTC has
received instructions from the participant to tender outstanding notes and that
the participant agrees to be bound by the terms of the letter of transmittal.
By using the ATOP procedures to exchange outstanding notes, you will not be
required to deliver a letter of transmittal to the exchange agent. However, you
will be bound by its terms just as if you had signed it.
There is no procedure for guaranteed late delivery of the notes.
DETERMINATIONS UNDER THE EXCHANGE OFFER
We will determine in our sole discretion all questions as to the validity,
form, eligibility, time of receipt, acceptance of tendered outstanding notes and
withdrawal of tendered outstanding notes. Our determination will be final and
binding. We reserve the absolute right to reject any outstanding notes not
properly tendered or any outstanding notes our acceptance of which would, in the
opinion of our counsel, be unlawful. We also reserve the right to waive any
defect, irregularity or condition of tender as to particular outstanding notes.
Our interpretation of the terms and conditions of the exchange offer, including
the instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, all defects or irregularities in connection with tenders
of outstanding notes must be cured within such time as we shall determine.
Although we intend to notify holders of defects or irregularities with respect
to tenders of outstanding notes, neither the exchange agent, us nor any other
person will incur any liability for failure to give such notification. Tenders
of outstanding notes will not be deemed made until such defects or
irregularities have been cured or waived. Any outstanding notes received by the
exchange agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned to the tendering
holder as soon as practicable following the expiration date.
WHEN WE WILL ISSUE NEW NOTES
In all cases, we will issue new notes for outstanding notes that we have
accepted for exchange under the exchange offer only after the exchange agent
receives, prior to 5:00 p.m., New York City time, on the expiration date:
- a book-entry confirmation of such outstanding notes into the exchange
agent's account at DTC; and
- a properly transmitted agent's message.
RETURN OF OUTSTANDING NOTES NOT ACCEPTED OR EXCHANGED
If we do not accept any tendered outstanding notes for exchange or if
outstanding notes are submitted for a greater principal amount than the holder
desires to exchange, the unaccepted or non-exchanged outstanding notes will be
returned without expense to their tendering holder. Such non-exchanged
outstanding notes will be credited to an account maintained with DTC. These
actions will occur as promptly as practicable after the expiration or
termination of the exchange offer.
21
YOUR REPRESENTATIONS TO US
By agreeing to be bound by the letter of transmittal, you will represent to
us that, among other things:
- any new notes that you receive will be acquired in the ordinary course of
your business;
- you have no arrangement or understanding with any person to participate
in the distribution of the outstanding notes or the new notes;
- you are not our "affiliate," as defined in Rule 405 of the Securities
Act, or if you are our affiliate you will comply with any applicable
registration and prospectus delivery requirements of the Securities Act;
- if you are not a broker-dealer, you are not engaged in and do not intend
to engage in the distribution of the new notes; and
- if you are a broker-dealer that will receive new notes for your own
account in exchange for outstanding notes, you acquired those notes as a
result of market-making activities or other trading activities and you
will deliver a prospectus, as required by law, in connection with any
resale of such new notes.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, you may withdraw your
tender at any time prior to 5:00 p.m., New York City time, on the expiration
date. For a withdrawal to be effective you must comply with the appropriate
procedures of DTC's ATOP system. Any notice of withdrawal must specify the name
and number of the account at DTC to be credited with withdrawn outstanding notes
and otherwise comply with the procedures of DTC.
We will determine all questions as to the validity, form, eligibility and
time of receipt of notice of withdrawal. Our determination shall be final and
binding on all parties. We will deem any outstanding notes so withdrawn not to
have been validly tendered for exchange for purposes of the exchange offer.
Any outstanding notes that have been tendered for exchange but are not
exchanged for any reason will be credited to an account maintained with DTC for
the outstanding notes. This return or crediting will take place as soon as
practicable after withdrawal, rejection of tender or termination of the exchange
offer. You may retender properly withdrawn outstanding notes by following the
procedures described under "-- Procedures for Tendering" above at any time prior
to 5:00 p.m., New York City time, on the expiration date.
FEES AND EXPENSES
We will bear the expenses of soliciting tenders. The principal solicitation
is being made by mail; however, we may make additional solicitation by
telegraph, telephone or in person by our officers and regular employees and
those of our affiliates.
We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to broker-dealers or others soliciting
acceptances of the exchange offer. We will, however, pay the exchange agent
reasonable and customary fees for its services and reimburse it for its related
reasonable out-of-pocket expenses.
We will pay the cash expenses to be incurred in connection with the
exchange offer. They include:
- SEC registration fees;
- fees and expenses of the exchange agent and trustee;
- accounting and legal fees and printing costs; and
- related fees and expenses.
22
TRANSFER TAXES
We will pay all transfer taxes, if any, applicable to the exchange of
outstanding notes under the exchange offer. The tendering holder, however, will
be required to pay any transfer taxes, whether imposed on the registered holder
or any other person, if a transfer tax is imposed for any reason other than the
exchange of outstanding notes under the exchange offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
If you do not exchange new notes for your outstanding notes under the
exchange offer, you will remain subject to the existing restrictions on transfer
of the outstanding notes. In general, you may not offer or sell the outstanding
notes unless they are registered under the Securities Act, or if the offer or
sale is exempt from the registration under the Securities Act and applicable
state securities laws. Except as required by the registration rights agreement,
we do not intend to register resales of the outstanding notes under the
Securities Act.
ACCOUNTING TREATMENT
We will record the new notes in our accounting records at the same carrying
value as the outstanding notes. This carrying value is the aggregate principal
amount of the outstanding notes less any bond discount, as reflected in our
accounting records on the date of exchange. Accordingly, we will not recognize
any gain or loss for accounting purposes in connection with the exchange offer.
OTHER
Participation in the exchange offer is voluntary, and you should carefully
consider whether to participate. You are urged to consult your financial and tax
advisors in making your own decision on what action to take.
We may in the future seek to acquire untendered outstanding notes in open
market or privately negotiated transactions, through subsequent exchange offers
or otherwise. We have no present plans to acquire any outstanding notes that are
not tendered in the exchange offer or to file a registration statement to permit
resales of any untendered outstanding notes.
RATIO OF EARNINGS TO FIXED CHARGES
For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before provision for income taxes plus fixed charges
(excluding capitalized interest); and fixed charges consist of interest expensed
and capitalized, amortization of debt discount and expense related to
indebtedness, and the portion of rental expense deemed to be representative of
the interest factor attributable to leases for rental property.
<Table>
<Caption>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------- -----------
1998 1999 2000 2001 2002 2002 2003
---- ---- ---- ---- ---- ---- ----
Ratio of earnings to fixed charges............... 2.6 2.4 2.0 2.5 3.7 3.9 3.6
</Table>
USE OF PROCEEDS
The exchange offer is intended to satisfy our obligations under our
registration rights agreement. We will not receive any cash proceeds from the
issuance of the new notes in the exchange offer. In consideration for issuing
the new notes as contemplated by this prospectus, we will receive outstanding
notes in a like principal amount. The form and terms of the new notes are
identical in all respects to the form and terms of the outstanding notes, except
the new notes do not include certain transfer restrictions, registration rights
or provisions for additional interest and contain different administrative
terms. Outstanding notes surrendered in exchange for the new notes will be
retired and cancelled and will not be reissued. Accordingly, the issuance of the
new notes will not result in any change in our outstanding indebtedness.
23
DESCRIPTION OF NEW NOTES
The new notes and the outstanding notes were issued under the Indenture
dated as of August 13, 2003 among the Company, the Subsidiary Guarantors and
Wells Fargo Bank, N.A., as Trustee, and the First Supplemental Indenture dated
as of August 13, 2003 among the Company, the Subsidiary Guarantors and Wells
Fargo Bank, N.A., as Trustee (the Indenture and the First Supplemental
Indenture, collectively the "Indenture"). References to the "notes" in this
"Description of New Notes" include both the outstanding notes and the new notes.
The terms of the notes include those stated in the Indenture and those made part
of the Indenture by reference to the Trust Indenture Act of 1939, as amended.
The aggregate principal amount of notes issuable under the Indenture is
unlimited, although the initial issuance of new notes will be limited to $150.0
million. We may issue an unlimited principal amount of Additional Notes having
identical terms and conditions as the outstanding notes and the new notes,
subject to compliance with the covenant described below under
"-- Covenants -- Limitation on Debt." Any Additional Notes will be part of the
same issue as the notes and will vote on all matters with the holders of such
notes.
The following description is a summary of the material provisions of the
Indenture but does not restate the Indenture in its entirety. We urge you to
read the Indenture because it, and not this description, defines your rights as
holders of the notes. A copy of the Indenture is filed as an exhibit to the
registration statement of which this prospectus forms a part.
The registered Holder of a note will be treated as the owner of it for all
purposes. Only registered Holders will have rights under the Indenture.
You can find the definitions of certain terms used in this description
under the subheading "Certain Definitions." Capitalized terms not otherwise
defined herein have the meanings given to them in the Indenture. In this
description, the word "Company" refers only to Group 1 Automotive, Inc. and not
to any of its subsidiaries.
If the exchange offer contemplated by this prospectus (the "Exchange
Offer") is consummated, holders of outstanding notes who do not exchange those
notes for new notes in the Exchange Offer will vote together with holders of new
notes for all relevant purposes under the Indenture. In that regard, the
Indenture requires that certain actions by the holders thereunder (including
acceleration following an Event of Default) must be taken, and certain rights
must be exercised, by specified minimum percentages of the aggregate principal
amount of the outstanding securities issued under the Indenture. In determining
whether holders of the requisite percentage in principal amount have given any
notice, consent or waiver or taken any other action permitted under the
Indenture, any outstanding notes that remain outstanding after the Exchange
Offer will be aggregated with the new notes, and the holders of such outstanding
notes and the new notes will vote together as a single series for all such
purposes. Accordingly, all references herein to specified percentages in
aggregate principal amount of the notes outstanding will be deemed to mean, at
any time after the Exchange Offer is consummated, such percentages in aggregate
principal amount of the outstanding notes and the new notes then outstanding.
BRIEF DESCRIPTION OF THE NOTES AND THE SUBSIDIARY GUARANTEES
THE NOTES
The notes
- are general unsecured senior subordinated obligations of the Company;
- are equal in right of payment with all existing and future senior
subordinated obligations of the Company, including its 10 7/8% Senior
Subordinated Notes due March 1, 2009;
- are effectively subordinated to all debt of any subsidiaries of the
Company that do not guarantee the notes and to all current and future
Senior Debt of the Company and the Subsidiary Guarantors; and
- are unconditionally guaranteed on a senior subordinated basis by the
Subsidiary Guarantors.
24
The new notes will be issued, and the outstanding notes were issued, in
denominations of $1,000 and integral multiples of $1,000, and will be
represented by one or more registered notes in global form, but in certain
circumstances may be represented by notes in definitive form.
THE SUBSIDIARY GUARANTEES
The notes are guaranteed on a senior subordinated basis by all of the
Company's domestic Restricted Subsidiaries, which constitute all of the
Company's current subsidiaries other than two foreign subsidiaries that are
immaterial to the Company's operations.
Each Subsidiary Guarantee of the notes:
- is a general unsecured senior subordinated obligation of the Subsidiary
Guarantor;
- is equal in right of payment with all existing and future Subordinated
Debt of that Subsidiary Guarantor which is not by its terms expressly
subordinated to the notes; and
- is subordinated to all current and future Senior Debt of the Subsidiary
Guarantors.
RANKING
As of June 30, 2003, we had approximately $745.8 million of indebtedness
outstanding, of which approximately $74.2 million would rank equally in right of
payment with the notes and the Subsidiary Guarantees and the remaining $671.6
million would rank senior in right of payment to the notes and the Subsidiary
Guarantees.
PRINCIPAL, MATURITY AND INTEREST
The notes are limited to $150.0 million aggregate principal amount and will
mature on August 15, 2013. The notes bear interest at the rate of 8.25% per
annum. Interest on the notes is payable semi-annually on February 15 and August
15 of each year, commencing, in the case of the outstanding notes and the new
notes, February 15, 2004. The Company will make each interest payment to the
Holders of record on the immediately preceding February 1 and August 1. The
notes will bear interest on overdue principal and premium, if any, and, to the
extent permitted by law, overdue interest at the rate of 9.25% per annum.
Interest on the notes will be computed on the basis of a 360-day year of twelve
30-day months.
Principal of and premium, if any, and interest on the notes will be
payable, and the notes may be presented for registration of transfer and
exchange, at the office or agency of the Company maintained for that purpose in
the Borough of Manhattan, the City of New York, provided that at the option of
the Company, payment of interest on any notes in certificated form may be made
by check mailed to the address of the Person entitled thereto as it appears in
the Security Register. Until otherwise designated by the Company, such office or
agency will be the corporate trust office of the Trustee, as Paying Agent and
Security Registrar, currently located at 45 Broadway, 12th Floor, New York, New
York 10022.
The Company may issue Additional Notes from time to time after the Exchange
Offer. Any offering of Additional Notes is subject to the covenant described
below under "-- Covenants -- Limitation on Debt." The outstanding notes and any
Additional Notes subsequently issued under the Indenture will be treated as a
single class for all purposes under the Indenture, including, without
limitation, waivers, amendments, redemptions and offers to purchase.
SUBSIDIARY GUARANTEES
Subject to the limitations described below, the Subsidiary Guarantors will,
jointly and severally, fully and unconditionally guarantee on a senior
subordinated basis the punctual payment when due, whether at Stated Maturity, by
acceleration or otherwise, of all obligations of the Company under the Indenture
and the notes, whether for principal of, premium, if any, or interest on the
notes or otherwise (all such obligations guaranteed by a Subsidiary Guarantor
being herein called the "Guaranteed Obligations"). The Subsidiary Guarantors
will also pay, on a senior subordinated basis and in addition to the amount
stated above, any and all expenses
25
(including reasonable counsel fees and expenses) incurred by the Trustee in
enforcing any rights under a Subsidiary Guarantee with respect to a Subsidiary
Guarantor.
A Subsidiary Guarantor's Subsidiary Guarantee will be subordinated in right
of payment to the Senior Debt of such Subsidiary Guarantor on the same basis as
the notes are subordinated to the Senior Debt of the Company. No payment will be
made by any Subsidiary Guarantor under its Subsidiary Guarantee during any
period in which payments by the Company on the notes are suspended by the
subordination provisions of the Indenture.
Each Subsidiary Guarantee will be limited in amount to an amount not to
exceed the maximum amount that can be guaranteed by the relevant Subsidiary
Guarantor without rendering such Subsidiary Guarantee voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally. See "Risk Factors -- Risks Related
to the notes -- Federal and state statutes allow courts, under specific
circumstances, to void guarantees and require note-holders to return payments
received from guarantors."
Each Subsidiary Guarantee will be a continuing guarantee and will:
(1) remain in full force and effect until either (a) payment in full
of all the Guaranteed Obligations (or the notes are defeased in accordance
with the defeasance provisions of the Indenture) or (b) released as
described in the next paragraph under this "-- Subsidiary Guarantees",
(2) be binding upon each Subsidiary Guarantor, and
(3) inure to the benefit of and be enforceable by the Trustee, the
Holders and their respective successors, transferees and assigns.
The Subsidiary Guarantee of a Subsidiary Guarantor will be released and the
Restricted Subsidiary released of all obligations under its Subsidiary
Guarantee:
(1) in connection with any sale or other disposition of all or
substantially all of the assets of that Subsidiary Guarantor (including by
way of merger or consolidation) to a Person that is not (either before or
after giving effect to such transaction) a Restricted Subsidiary, if the
sale or other disposition complies with the "Limitation on Assets
Disposition" covenant;
(2) in connection with any sale of all of the Capital Stock of that
Subsidiary Guarantor to a Person that is not (either before or after giving
effect to such transaction) a Restricted Subsidiary, if the sale complies
with the "Limitation on Assets Disposition" covenant;
(3) upon the legal defeasance or covenant defeasance of the notes in
accordance with the terms of the Indenture; or
(4) if the Company designates such Subsidiary Guarantor as an
Unrestricted Subsidiary in accordance with the applicable provisions of the
Indenture.
All of the Company's Subsidiaries other than two foreign subsidiaries that
are immaterial to the Company's operations are expected to be Subsidiary
Guarantors on the expiration date of the Exchange Offer. Any domestic Subsidiary
of the Company which Incurs any Debt will, simultaneously with Incurrence (or,
if the domestic Subsidiary has outstanding Debt at the time of its creation or
acquisition, at the time of such creation or acquisition), become a Subsidiary
Guarantor and execute and deliver to the Trustee a supplemental indenture
pursuant to which such Subsidiary will agree to guarantee the Company's
obligations under the notes; provided, however, that all Subsidiaries that have
properly been designated as Unrestricted Subsidiaries in accordance with the
Indenture for so long as they continue to constitute Unrestricted Subsidiaries
will not have to comply with the requirements of this covenant.
SUBORDINATION
The indebtedness evidenced by the notes is, to the extent set forth in the
Indenture, subordinate in right of payment to the prior payment in full of all
Senior Debt of the Company.
26
Upon any payment or distribution of assets to creditors upon any
liquidation, dissolution, winding-up, reorganization, assignment for the benefit
of creditors or marshaling of assets of the Company, whether voluntary or
involuntary, or any bankruptcy, insolvency, receivership or similar proceedings
of the Company, the holders of all Senior Debt of the Company will first be
entitled to receive payment in full of such Senior Debt, or provision made for
such payment before the Holders of the notes will be entitled to receive any
payment in respect of the principal of or premium, if any, or interest on, or
any obligation to purchase, the notes. In the event that notwithstanding the
preceding, the Trustee or the Holder of any note receives any payment or
distribution of assets of the Company of any kind or character (including any
such payment or distribution which may be payable or deliverable by the reason
of the payment of any other indebtedness of the Company being subordinated to
the payment of the notes), before all the Senior Debt of the Company is so paid
in full, then such payment or distribution will be required to be paid over or
delivered forthwith to the trustee in bankruptcy or other Person making payment
or distribution of assets of the Company for application to the payment of all
Senior Debt of the Company remaining unpaid, to the extent necessary to pay such
Senior Debt in full. However, notwithstanding the foregoing, Holders of the
notes may receive shares of stock of the Company or securities of the Company
which are subordinate in right of payment to all Senior Debt of the Company to
substantially the same extent as the notes are so subordinated ("subordinated
consideration").
No payments on account of principal of, premium, if any, or interest on, or
in respect of the purchase or other acquisition of, the notes (except for
subordinated consideration), and no defeasance of the notes, may be made if
there shall have occurred and be continuing a Senior Payment Default.
"Senior Payment Default" means any default in the payment of any principal
of or premium, if any, or interest on Senior Debt of the Company when due,
whether at the stated maturity of any such payment or by declaration of
acceleration, call for redemption or otherwise.
Upon the occurrence of a Senior Nonmonetary Default and receipt of written
notice by the Company, the Subsidiary Guarantors and the Trustee of the
occurrence of such Senior Nonmonetary Default from the agent for the Designated
Senior Debt which is the subject of such Senior Nonmonetary Default, the Company
shall make no payments on account of principal of, premium, if any, or interest
on, or in respect of the purchase or other acquisition of, the notes (except for
subordinated consideration), for a period (the "Payment Blockage Period")
commencing on the date of the receipt of such notice and ending the earlier of:
(1) the date on which such Senior Nonmonetary Default has been cured
or waived or ceased to exist or all Designated Senior Debt the subject of
such Senior Nonmonetary Default has been discharged;
(2) the 179th day after the date of the receipt of such notice; and
(3) the date on which the Payment Blockage Period has been terminated
by written notice to the Company, any Subsidiary Guarantor or the Trustee
from the agent for the Designated Senior Debt initiating the Payment
Blockage Period.
In any event, no more than one Payment Blockage Period may be commenced
during any 360-day period and there shall be a period of at least 181 days
during each 360-day period when no Payment Blockage Period is in effect. In
addition, no Senior Nonmonetary Default that existed or was continuing on the
date of the commencement of a Payment Blockage Period may be the basis of the
commencement of a subsequent Payment Blockage Period whether or not within a
period of 360 consecutive days unless such Senior Nonmonetary Default shall have
been cured for a period of not less than 90 consecutive days.
"Senior Nonmonetary Default" means the occurrence or existence and
continuance of an event of default with respect to Designated Senior Debt, other
than a Senior Payment Default, permitting the holders of the Designated Senior
Debt (or a trustee or other agent on behalf of the holders thereof) then to
declare such Designated Senior Debt due and payable prior to the date on which
it would otherwise become due and payable.
The failure to make any payment on the notes by reason of the provisions of
the Indenture described under this "-- Subordination" will not prevent the
occurrence of an Event of Default with respect to the notes
27
arising from any such failure to make payment. Upon termination of any period of
payment blockage, the Company shall resume making any and all required payments
in respect of the notes, including any missed payments.
As a result of this subordination, in the event of insolvency, creditors of
the Company who are not holders of Senior Debt of the Company or of the notes
may recover less, ratably, than holders of Senior Debt of the Company and more,
ratably, than Holders of the notes.
The subordination provisions described above will not be applicable to
payments in respect of the notes from a defeasance trust established in
connection with any defeasance or covenant defeasance of the notes as described
under the subheading "-- Defeasance and Covenant Defeasance" in this prospectus.
In addition, the notes will be effectively subordinated to all indebtedness
and other liabilities of the Company's subsidiaries. Although the notes will be
guaranteed by the Subsidiary Guarantors, the Subsidiary Guarantee of each
Subsidiary Guarantor will be subordinated to the Senior Debt of such Subsidiary
Guarantor on the same basis as the notes are subordinated to the Senior Debt of
the Company, and such Subsidiary Guarantee may be released prior to the payment
of the principal of the notes under certain circumstances. See "-- Subsidiary
Guarantees."
OPTIONAL REDEMPTION
The Company may redeem all or a part of the notes at any time on or after
August 15, 2008 upon not less than 30 nor more than 60 days' notice, at the
following Redemption Prices (expressed as percentages of the principal amount)
plus accrued interest to but excluding the Redemption Date, if redeemed during
the 12-month period beginning August 15 of the years indicated:
<Table>
<Caption>
REDEMPTION YEAR PRICE
- --------------- -------
2008........................................................ 104.125%
2009........................................................ 102.750%
2010........................................................ 101.375%
2011 and thereafter......................................... 100.000%
</Table>
In the event that on or before August 15, 2006 the Company receives net
proceeds from the sale of its Common Stock in one or more Equity Offerings, the
Company may use all or a portion of any such net proceeds to redeem up to 35% of
the aggregate principal amount of the notes (including any Additional Notes)
issued at a redemption price of 108.250% of the principal amount thereof plus
accrued interest to but excluding the Redemption Date; provided that:
(1) at least 65% of the aggregate principal amount of the notes
(including any Additional Notes) issued remains outstanding after each such
redemption; and
(2) the Redemption Date is within 90 days of such sale and the Company
provides not less than 30 and not more than 60 days' notice of the
redemption.
Prior to August 15, 2008, the Company may redeem all or a part of the notes
upon not less than 30 nor more than 60 days' notice, at a redemption price equal
to the greater of:
(1) 100% of the principal amount thereof; or
(2) the present value, as determined by an Independent Investment
Banker, of
(A) 104.125% of the principal amount of the notes being redeemed
calculated as of August 15, 2008 (assuming a 360-day year consisting of
twelve 30-day months), plus
(B) all required interest payments due on such notes through August
15, 2008 (excluding accrued interest), discounted to the redemption date
on a semi-annual basis (assuming a 360-day year consisting of twelve
30-day months) at the Adjusted Treasury Rate, plus in each case accrued
interest to the redemption date.
28
The Company will not be required to (1) issue, register the transfer of or
exchange any note during a period beginning at the opening of business 15 days
before the day of mailing of a notice of redemption of any note that may be
selected for redemption and ending at the close of business on the day of such
mailing or (2) register the transfer of or exchange any note so selected for
redemption, in whole or in part, except the unredeemed portion of any such note
being redeemed in part.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed in connection with any
redemption, the Trustee will select notes (or portions of notes) for redemption
as follows:
(1) if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
(2) if the notes are not listed on any national securities exchange,
on a pro rata basis, by lot or by such method as the Trustee deems fair and
appropriate.
No notes can be redeemed in part. Notices of redemption will be mailed by
first class mail at least 30 but not more than 60 days before the redemption
date to each Holder of notes to be redeemed at its registered address, except
that redemption notices may be mailed more than 60 days prior to a redemption
date if the notice is issued in connection with a defeasance of the notes or a
satisfaction and discharge of the Indenture. Notices of redemption may not be
conditional.
COVENANTS
The Indenture contains, among others, the following covenants:
LIMITATION ON DEBT
The Company may not, and may not permit any Restricted Subsidiary to, Incur
any Debt except that the Company and any Restricted Subsidiary (but not any
Restricted Subsidiary that is not a Subsidiary Guarantor) may Incur Debt if
after giving pro forma effect to the Incurrence of such Debt and the receipt and
application of the proceeds thereof the Consolidated Cash Flow Coverage Ratio of
the Company would be greater than 2.0 to 1.
Notwithstanding the preceding limitation, the following Debt may be
Incurred:
(1) Debt of the Company or any Subsidiary Guarantor, other than Floor
Plan Debt, under the Senior Credit Facility in an aggregate principal
amount at any one time not to exceed the greater of $200 million or 25% of
the Company's Consolidated Net Tangible Assets at the time of such
Incurrence;
(2) Debt of the Company or any Restricted Subsidiary consisting of
Floor Plan Debt or Guarantees of Floor Plan Debt of the Company;
(3) Debt owed by the Company to any Restricted Subsidiary for which
fair value has been received or Debt owed by a Restricted Subsidiary to the
Company or a Restricted Subsidiary; provided, however, that:
(a) any such Debt owing by the Company to a Restricted Subsidiary
shall be Subordinated Debt evidenced by an intercompany promissory note
and
(b) upon either the transfer or other disposition by such
Restricted Subsidiary or the Company of any Debt so permitted to a
Person other than the Company or another Restricted Subsidiary or the
issuance (other than directors' qualifying shares), sale, lease,
transfer or other disposition of shares of Capital Stock (including by
consolidation or merger) of such Restricted Subsidiary to a Person other
than the Company or another such Restricted Subsidiary, the provisions
of this clause (3) shall no longer be applicable to such Debt and such
Debt shall be deemed to have been Incurred at the time of such transfer
or other disposition;
29
(4) Debt consisting of the notes (other than any Additional Notes),
the Subsidiary Guarantees and Guarantees by Restricted Subsidiaries of any
Debt Incurred to refinance or refund the notes;
(5) Debt of the Company or any of its Restricted Subsidiaries
represented by Capital Lease Obligations, mortgage financings or purchase
money obligations, in each case, Incurred for the purpose of financing all
or any part of the purchase price or cost of construction or improvement of
property, plant or equipment used in the business of the Company or such
Restricted Subsidiary, in an aggregate principal amount, including all Debt
Incurred to refund or refinance any Debt Incurred pursuant to this clause
(5), not to exceed, at any time outstanding, $20 million;
(6) Debt of the Company or any Restricted Subsidiary consisting of
Permitted Interest Rate, Currency or Commodity Price Agreements;
(7) Debt which is exchanged for or the proceeds of which are used to
refinance or refund, or any extension or renewal of (each of the foregoing,
a "refinancing"),
(a) the notes,
(b) outstanding Debt that is not described in any other clause
hereof that was outstanding as of the Closing Date (other than the
10 7/8% Senior Subordinated Notes due March 1, 2009),
(c) outstanding Debt Incurred pursuant to the first paragraph of
this "Limitation on Debt" covenant, and
(d) Debt previously Incurred pursuant to this clause (7),
in each case an aggregate principal amount not to exceed the principal
amount of the Debt so refinanced plus the amount of any premium required
to be paid in connection with such refinancing pursuant to the terms of
the Debt so refinanced or the amount of any premium reasonably
determined by the Company as necessary to accomplish such refinancing by
means of a tender offer or privately negotiated repurchase, plus the
expenses of the Company or the Restricted Subsidiary, as the case may
be, incurred in connection with such refinancing; provided, however,
that:
(w) Debt the proceeds of which are used to refinance the notes
or Debt which is pari passu with or subordinate in right of payment
to the notes or the Subsidiary Guarantees, as the case may be, shall
only be permitted if (A) in the case of any refinancing of the notes
or Debt which is pari passu to the notes or the Subsidiary
Guarantees, as the case may be, the refinancing Debt is made pari
passu to the notes or the Subsidiary Guarantees, as the case may be,
or subordinated to the notes or the Subsidiary Guarantees, as the
case may be, and (B) in the case of any refinancing of Debt which is
subordinated to the notes or the Subsidiary Guarantees, as the case
may be, the refinancing Debt constitutes Debt that is subordinated to
the notes or the Subsidiary Guarantees, as the case may be, at least
to the same extent as the Debt being refinanced;
(x) the refinancing Debt by its terms, or by the terms of any
agreement or instrument pursuant to which such Debt is issued, (A)
does not have an Average Life that is less than the remaining Average
Life of the Debt being refinanced and (B) does not permit redemption
or other retirement (including pursuant to an offer to purchase) of
such Debt at the option of the holder thereof prior to the final
stated maturity of the Debt being refinanced, other than a redemption
or other retirement at the option of the holder of such Debt
(including pursuant to an offer to purchase) which is conditioned
upon provisions substantially similar to those described under
"-- Change of Control" and "-- Limitation on Asset Dispositions";
(y) in the case of any refinancing of Debt of the Company, the
refinancing Debt may be Incurred only by the Company, and in the case
of any refinancing of Debt of a Restricted Subsidiary, the
refinancing Debt may be Incurred only by such Restricted Subsidiary
or the Company; and
(z) in the case of any refinancing of Preferred Stock of a
Restricted Subsidiary, such Preferred Stock may be refinanced only
with Preferred Stock of such Restricted Subsidiary; and
30
(8) Debt of the Company or any Subsidiary Guarantor not otherwise
permitted to be Incurred pursuant to clauses (1) through (7) above, which,
together with any other outstanding Debt Incurred pursuant to this clause
(8), and in both such cases including any renewals, extensions,
substitutions, refinancings or replacements of such Debt has an aggregate
principal amount not in excess of $30 million at any time outstanding.
For purposes of determining compliance with, and the outstanding principal
amount of any particular Debt incurred pursuant to and in compliance with, this
covenant:
(1) in the event that Debt meets the criteria of more than one of the
types of Debt described in the first and second paragraphs of this
covenant, the Company, in its sole discretion, will classify such item of
Debt on the date of incurrence (or later classify or reclassify such Debt,
in its sole discretion) and only be required to include the amount and type
of such Debt in one of such clauses;
(2) Guarantees of, or obligations in respect of letters of credit
relating to, Debt which is otherwise included in the determination of a
particular amount of Debt shall not be included;
(3) the principal amount of any Redeemable Stock or Preferred Stock of
the Company or a Restricted Subsidiary will be equal to the greater of the
maximum redemption or repurchase price (not including, in either case, any
redemption or repurchase premium) or the liquidation preference thereof;
(4) Debt permitted by this covenant need not be permitted solely by
reference to one provision permitting such Debt but may be permitted in
part by one such provision and in part by one or more other provisions of
this covenant permitting such Debt;
(5) any Receivables Sale shall be the amount for which there is
recourse to the seller; and
(6) the amount of Debt issued at a price that is less than the
principal amount thereof will be equal to the amount of the liability in
respect thereof determined in accordance with generally accepted accounting
principles.
Accrual of interest, accrual of dividends, the accretion of accreted value,
the payment of interest in the form of additional Debt and the payment of
dividends in the form of additional shares of Preferred Stock or Redeemable
Stock will not be deemed to be an incurrence of Debt for purposes of this
covenant.
For purposes of determining compliance with any U.S. dollar-denominated
restriction on the Incurrence of Debt, the U.S. dollar-equivalent principal
amount of Debt denominated in a foreign currency shall be calculated based on
the relevant currency exchange rate in effect on the date such Debt was
Incurred, in the case of term Debt, or first committed, in the case of revolving
credit Debt; provided that if such Debt is Incurred to refinance other Debt
denominated in a foreign currency, and such refinancing would cause the
applicable U.S. dollar-dominated restriction to be exceeded if calculated at the
relevant currency exchange rate in effect on the date of such refinancing, such
U.S. dollar-dominated restriction shall be deemed not to have been exceeded so
long as the principal amount of such refinancing Debt does not exceed the
principal amount of such Debt being refinanced. Notwithstanding any other
provision of this covenant, the maximum amount of Debt that the Company may
Incur pursuant to this covenant shall not be deemed to be exceeded solely as a
result of fluctuations in the exchange rate of currencies.
LIMITATION ON RESTRICTED PAYMENTS
The Company:
(1) may not, and may not permit any Restricted Subsidiary to, directly
or indirectly, declare or pay any dividend or make any distribution
(including any payment in connection with any merger or consolidation
derived from assets of the Company or any Restricted Subsidiary) in respect
of its Capital Stock or to the holders thereof (in their capacity as
holders of Capital Stock), other than
(a) any dividends or distributions by the Company payable solely in
shares of its Capital Stock (other than Redeemable Stock) or in options,
warrants or other rights to acquire its Capital Stock (other than
Redeemable Stock), and
31
(b) in the case of a Restricted Subsidiary, dividends or
distributions payable to the Company or a Restricted Subsidiary or pro
rata dividends or distributions,
(2) may not, and may not permit any Restricted Subsidiary to,
purchase, redeem, or otherwise acquire or retire for value
(a) any Capital Stock of the Company or any Restricted Subsidiary
or
(b) any options, warrants or other rights to acquire shares of
Capital Stock of the Company or any Restricted Subsidiary but excluding
any debt securities convertible or exchangeable into shares of Capital
Stock of the Company or any Restricted Subsidiary, except in the case of
Capital Stock of a Restricted Subsidiary, from the Company or a
Restricted Subsidiary;
(3) may not make, or permit any Restricted Subsidiary to make, any
Investment in any Unrestricted Subsidiary or any Affiliate or any Person
that would become an Affiliate after giving effect thereto, other than a
Permitted Investment; and
(4) may not, and may not permit any Restricted Subsidiary to, redeem,
repurchase, defease or otherwise acquire or retire for value prior to any
scheduled maturity, repayment or sinking fund payment Debt of the Company
or any Subsidiary Guarantor which is subordinate in right of payment to the
notes or the Subsidiary Guarantee of such Subsidiary Guarantor, as the case
may be (each of clauses (1) through (4) being a "Restricted Payment")
unless:
(a) no Event of Default, or an event that with the passing of time
or the giving of notice, or both, would constitute an Event of Default,
has occurred and is continuing or would result from such Restricted
Payment,
(b) after giving pro forma effect to such Restricted Payment as if
such Restricted Payment had been made at the beginning of the applicable
four-fiscal-quarter period, the Company could Incur at least $1.00 of
additional Debt pursuant to the terms of the first paragraph of the
"Limitation on Debt" covenant above, and
(c) upon giving effect to such Restricted Payment, the aggregate of
all Restricted Payments from the Closing Date does not exceed the sum
of:
(x) 50% of cumulative Consolidated Net Income (or, in the case
Consolidated Net Income shall be negative, less 100% of such deficit)
of the Company since July 1, 2003 through the last day of the last
full fiscal quarter ending immediately preceding the date of such
Restricted Payment for which quarterly or annual financial statements
are available (taken as a single accounting period); plus
(y) 100% of the aggregate net cash proceeds received by the
Company (x) after the Closing Date from contributions of capital or
the issuance and sale (other than to a Subsidiary of the Company) of
Capital Stock (other than Redeemable Stock) of the Company, options,
warrants or other rights to acquire Capital Stock (other than
Redeemable Stock) of the Company and (y) related to Debt of the
Company that has been converted into or exchanged for Capital Stock
(other than Redeemable Stock and other than by or from a Subsidiary
of the Company) of the Company after the Closing Date, provided that
any such net proceeds received by the Company from an employee stock
ownership plan financed by loans from the Company or a Subsidiary of
the Company shall be included only to the extent such loans have been
repaid with cash on or prior to the date of determination; plus
(z) an amount equal to the net reduction in Investments by the
Company and its Restricted Subsidiaries, subsequent to the Closing
Date, in any Person subject to clause (3) above upon the disposition,
liquidation or repayment (including by way of dividends) thereof or
from redesignations of Unrestricted Subsidiaries as Restricted
Subsidiaries, but only to the extent such amounts are not included in
Consolidated Net Income and not to exceed in the case
32
of any one Person the amount of Investments previously made by the
Company and its Restricted Subsidiaries in such Person.
Notwithstanding the preceding, so long as no Event of Default, or event
that with the passing of time or the giving of notice, or both, would constitute
an Event of Default, shall have occurred and is continuing or would result
therefrom:
(1) the Company and any Restricted Subsidiary may pay any dividend on
Capital Stock of any class within 60 days after the declaration thereof if,
on the date when the dividend was declared, the Company or such Restricted
Subsidiary could have paid such dividend in accordance with the preceding
provisions;
(2) the Company may refinance any Debt otherwise permitted by clause
(6) of the second paragraph of the "Limitation on Debt" covenant above or
redeem, acquire or retire any Debt solely in exchange for, by conversion
into or out of the net proceeds of the substantially concurrent sale (other
than from or to a Subsidiary of the Company or from or to an employee stock
ownership plan financed by loans from the Company or a Subsidiary of the
Company) of shares of Capital Stock (other than Redeemable Stock) of the
Company;
(3) the Company may purchase, redeem, acquire or retire any shares of
Capital Stock of the Company solely in exchange for, by conversion into or
out of the net proceeds of the substantially concurrent sale (other than
from or to a Subsidiary of the Company or from or to an employee stock
ownership plan financed by loans from the Company or a Subsidiary of the
Company) of shares of Capital Stock (other than Redeemable Stock) of the
Company;
(4) the Company may purchase or redeem any Debt from Net Available
Proceeds to the extent permitted by the "Limitation on Asset Dispositions"
covenant;
(5) the Company may acquire shares of its Capital Stock in connection
with the exercise of employee or director stock options or stock
appreciation rights by way of cashless exercise;
(6) the Company may acquire shares of its Capital Stock pursuant to
equity repurchases from present or former directors or employees in an
amount of up to $2 million per year; and
(7) the Company may make other Restricted Payments since the Closing
Date in an aggregate amount not to exceed $35 million.
Any payment made pursuant to clauses (1) and (6) of this paragraph shall be
a Restricted Payment for purposes of calculating aggregate Restricted Payments
pursuant to the preceding paragraph and the amount of net proceeds from any
exchange for, conversion into or sale of Capital Stock of the Company pursuant
to clause (2) or (3) of this paragraph shall be excluded from the calculation of
the amount available for Restricted Payments pursuant to clause (c)(y) above.
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES
The Company may not, and may not permit any Restricted Subsidiary to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Restricted
Subsidiary:
(1) to pay dividends (in cash or otherwise) or make any other
distributions in respect of its Capital Stock owned by the Company or any
other Restricted Subsidiary or pay any Debt or other obligation owed to the
Company or any other Restricted Subsidiary;
(2) to make loans or advances to the Company or any other Restricted
Subsidiary; or
(3) to transfer any of its property or assets to the Company or any
other Restricted Subsidiary.
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Notwithstanding the preceding, the Company may, and may permit any
Restricted Subsidiary to, suffer to exist any such encumbrance or restriction:
(1) pursuant to any agreement in effect on the Closing Date (including
the Senior Credit Facility);
(2) pursuant to an agreement relating to any Debt Incurred by a Person
(other than a Restricted Subsidiary existing on the Closing Date or any
Restricted Subsidiary carrying on any of the businesses of any such
Restricted Subsidiary) prior to the date on which such Person became a
Restricted Subsidiary and outstanding on such date and not Incurred in
anticipation of becoming a Restricted Subsidiary, which encumbrance or
restriction is not applicable to any Person, or the properties or assets of
any Person, other than the Person so acquired, provided that the Incurrence
of such Debt is permitted by the "Limitation on Debt" covenant;
(3) pursuant to an agreement effecting a renewal, refunding or
extension of Debt Incurred pursuant to an agreement referred to in clause
(1) or (2) of this paragraph; provided, however, that the provisions
contained in such renewal, refunding or extension agreement relating to
such encumbrance or restriction are not materially more restrictive, taken
as a whole, than the provisions contained in the agreement the subject
thereof;
(4) in the case of a restriction described in clause (3) of the
preceding paragraph, contained in any security agreement (including a
capital lease) securing Debt of a Restricted Subsidiary otherwise permitted
under the Indenture, but only to the extent such restrictions restrict the
transfer of the assets or property subject to such security agreement;
(5) in the case of a restriction described in clause (3) of the
preceding paragraph, consisting of customary nonassignment provisions
entered into in the ordinary course of business in leases and other
contracts to the extent such provisions restrict the transfer or subletting
of any such lease or the assignment of rights under any such contract;
(6) which is contained in a franchise or other agreement entered into
in the ordinary course of business with an automobile manufacturer and
which has terms reasonably customary for such agreements between or among
such automobile manufacturer, its dealers and/or the owners of such
dealers;
(7) with respect to a Restricted Subsidiary, imposed pursuant to an
agreement which has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Restricted
Subsidiary, provided that such restriction terminates if such transaction
is closed or abandoned;
(8) in bona fide contracts for the sale of any property or assets; or
(9) if such encumbrance or restriction is the result of applicable
laws or regulations.
LIMITATION ON RANKING OF CERTAIN DEBT
The Company:
(1) may not Incur any Debt which by its terms is both subordinate in
right of payment to any Senior Debt of the Company and senior in right of
payment to the notes;
(2) may not permit any Subsidiary Guarantor to Incur any Debt which by
its terms is both subordinate in right of payment to any Senior Debt of
such Subsidiary Guarantor and senior in right of payment to the Subsidiary
Guarantee of such Subsidiary Guarantor; and
(3) may not permit any Restricted Subsidiary to Guarantee any Debt of
the Company that is subordinate in right of payment to the notes unless:
(a) the Guarantee by such Restricted Subsidiary of such other Debt
shall be subordinated to such Restricted Subsidiary's Subsidiary
Guarantee at least to the same extent as such Debt of the Company is
subordinated to the notes and
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(b) such Restricted Subsidiary waives, and agrees that it will not
in any manner whatsoever claim or take the benefit or advantage of, any
rights of reimbursement, indemnity or subrogation or any other rights
against the Company or any other Restricted Subsidiary as a result of
any payment by such Restricted Subsidiary under its Guarantee of such
other Debt of the Company until the notes have been paid in full.
For purposes of the Indenture, no Debt shall be deemed subordinate in right
of payment to any other Debt solely by reason of such other Debt having the
benefit of a security interest.
LIMITATION ON LIENS SECURING PARI PASSU OR SUBORDINATED DEBT
The Company may not, and may not permit any Restricted Subsidiary to, Incur
or suffer to exist any Lien on or with respect to any property or assets now
owned or hereafter acquired to secure any Debt that is expressly by its terms
pari passu, subordinate or junior in right of payment to the notes or the
Subsidiary Guarantee of a Restricted Subsidiary without making, or causing such
Restricted Subsidiary to make, effective provision for securing the notes or
such Restricted Subsidiary's Subsidiary Guarantee (1) in the event such Debt is
pari passu with the notes or such Subsidiary Guarantee, equally and ratably with
such Debt as to such property or assets for so long as such Debt will be so
secured or (2) in the event such Debt is subordinate in right of payment to the
notes or such Subsidiary Guarantee, prior to such Debt as to such property or
assets for so long as such Debt will be so secured.
LIMITATION ON ASSET DISPOSITIONS
The Company may not, and may not permit any Restricted Subsidiary to, make
any Asset Disposition in one or more related transactions unless:
(1) the Company or the Restricted Subsidiary, as the case may be,
receives consideration for such disposition at least equal to the fair
market value for the assets sold or disposed of as determined by the Board
of Directors in good faith and evidenced by a resolution of the Board of
Directors filed with the Trustee;
(2) at least 75% of the consideration for such disposition consists
of:
(a) cash or Cash Equivalents;
(b) the assumption of Debt of the Company or such Restricted
Subsidiary (other than Debt that is subordinated to the notes or such
Restricted Subsidiary's Subsidiary Guarantee) relating to such assets
and release from all liability on the Debt assumed;
(c) Replacement Assets; or
(d) a combination of the foregoing;
provided that the amount of any consideration received by the Company or
such Restricted Subsidiary that is converted into cash within 180 days
of the closing of such Asset Disposition shall be deemed to be cash for
purposes of this provision (to the extent of the cash received); and
(3) all Net Available Proceeds, less any amounts invested within 360
days of such disposition in Replacement Assets, are applied within 360 days
of such disposition:
(a) first, to the permanent repayment or reduction of Senior Debt
of the Company or any Subsidiary Guarantor then outstanding under any
agreements or instruments which would require such application or
prohibit payments pursuant to clause (b) following,
(b) second, to the extent of remaining Net Available Proceeds, to
make an Offer to Purchase outstanding notes at 100% of their principal
amount plus accrued interest to the date of purchase and, to the extent
required by the terms thereof, any other Debt of the Company that is
pari passu with the notes at a price no greater than 100% of the
principal amount thereof plus accrued interest to the date of purchase,
35
(c) third, to the extent of any remaining Net Available Proceeds
following the completion of the Offer to Purchase, to the repayment of
other Debt of the Company or Debt of a Restricted Subsidiary, to the
extent permitted under the terms thereof and
(d) fourth, to the extent of any remaining Net Available Proceeds,
to any other use as determined by the Company which is not otherwise
prohibited by the Indenture.
Notwithstanding the preceding, the Company shall not be permitted to make
an Offer to Purchase pursuant to clause 3(b) above if the remaining Net
Available Proceeds after giving effect to the application required by clause
3(a) is less than $10 million.
TRANSACTIONS WITH AFFILIATES
The Company may not, and may not permit any Restricted Subsidiary to, enter
into any transaction (or series of related transactions) with an Affiliate of
the Company or a Restricted Subsidiary, including any Investment, either
directly or indirectly, unless such transaction is on terms no less favorable to
the Company or such Restricted Subsidiary than those that could be obtained in a
comparable arm's-length transaction with an entity that is not an Affiliate and
is in the best interests of such Company or such Restricted Subsidiary. For any
transaction that involves in excess of $5 million, a majority of the
disinterested members of the Board of Directors shall determine that the
transaction satisfies the above criteria and shall evidence such a determination
by a Board Resolution filed with the Trustee. For any transaction that involves
in excess of $15 million, the Company shall also obtain an opinion from a
nationally recognized expert with experience in appraising the terms and
conditions of the type of transaction (or series of related transactions) for
which the opinion is required stating that such transaction (or series of
related transactions) is on terms no less favorable to the Company or such
Restricted Subsidiary than those that could be obtained in a comparable
arm's-length transaction with an entity that is not an Affiliate of the Company,
which opinion shall be filed with the Trustee.
The preceding requirements shall not apply to:
(1) any transaction pursuant to agreements in effect on the date of
issuance of the outstanding notes, August 13, 2003;
(2) any employment agreement or employee benefit arrangements with any
officer or director, including under any stock option or stock incentive
plans, entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business of the Company or such Restricted
Subsidiary or approved by a majority of the disinterested members of the
Board of Directors;
(3) transactions between or among the Company and/or its Restricted
Subsidiaries;
(4) payment of reasonable directors fees to Persons who are not
otherwise employees of the Company;
(5) indemnities of officers, directors and employees of the Company or
any Subsidiary of the Company pursuant to bylaws, or statutory provisions
or indemnification agreements or the purchase of indemnification insurance
for any director or officer;
(6) any Restricted Payment that is permitted to be made by the
"Limitation on Restricted Payments" covenant; and
(7) written agreements entered into or assumed in connection with
acquisitions of other businesses with Persons who were not Affiliates prior
to such transactions.
Notwithstanding the preceding, the requirements set forth in the third
sentence of the first paragraph of this "Transactions with Affiliates" covenant
relating to an opinion from a nationally recognized expert shall not apply to
leases of property or equipment entered into in the ordinary course of business.
36
CHANGE OF CONTROL
Within 30 days of the occurrence of a Change of Control, the Company will
be required to make an Offer to Purchase all outstanding notes at a purchase
price equal to 101% of their principal amount plus accrued interest to the date
of purchase. A "Change of Control" will be deemed to have occurred at such time
as either:
(1) any Person (other than a Permitted Holder) or any Persons acting
together that would constitute a "group" (a "Group") for purposes of
Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act"),
or any successor provision thereto (other than Permitted Holders), shall
beneficially own (within the meaning of Rule 13d-3 under the Exchange Act,
or any successor provision thereto) at least 50% of the aggregate voting
power of all classes of Voting Stock of the Company; or
(2) any Person or Group (other than Permitted Holders) shall succeed
in having a sufficient number of its nominees elected to the Board of
Directors of the Company such that such nominees, when added to any
existing director remaining on the Board of Directors of the Company after
such election who was a nominee of or is an Affiliate of such Person or
Group, will constitute a majority of the Board of Directors of the Company;
provided, that a transaction effected to create a holding company of the
Company, (a) pursuant to which the Company becomes a Wholly Owned Subsidiary of
such holding company, and (b) as a result of which the holders of Capital Stock
of such holding company are substantially the same as the holders of Capital
Stock of the Company immediately prior to such transaction, shall not be deemed
to involve a "Change of Control;" provided further that following such a holding
company transaction, references in this definition of "Change of Control" shall
thereafter be treated as references to such holding company. In the event that
the Company makes an Offer to Purchase the notes, the Company intends to comply
with any applicable securities laws and regulations, including any applicable
requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act.
PAYMENTS FOR CONSENT
The Company may not, and may not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the Indenture,
the notes or any Subsidiary Guarantee unless such consideration is offered to be
paid or is paid to all Holders of the notes that consent, waive or agree to
amend in the time frame set forth in the solicitation documents relating to such
consent, waiver or agreement.
PROVISION OF FINANCIAL INFORMATION
Whether or not the Company is required to be subject to Section 13(a) or
15(d) of the Exchange Act, or any successor provision thereto, the Company shall
file with the Commission the annual reports, quarterly reports and other
documents which the Company would have been required to file with the Commission
pursuant to such Section 13(a) or 15(d) or any successor provision thereto if
the Company were so required, such documents to be filed with the Commission on
or prior to the respective dates (the "Required Filing Dates") by which the
Company would have been required so to file such documents if the Company were
so required. The Company shall also in any event:
(1) within 15 days of each Required Filing Date transmit by mail to
all Holders, as their names and addresses appear in the Security Register,
without cost to such Holders, and file with the Trustee, copies (without
exhibits) of the annual reports, quarterly reports and other documents
which the Company files with the Commission pursuant to such Section 13(a)
or 15(d) or any successor provision thereto or would have been required to
file with the Commission pursuant to such Section 13(a) or 15(d) or any
successor provisions thereto if the Company were required to be subject to
such Sections and
37
(2) if filing such documents by the Company with the Commission is not
permitted under the Exchange Act, promptly upon written request supply
copies of such documents to any prospective Holder and the Trustee.
UNRESTRICTED SUBSIDIARIES
The Company may designate any Restricted Subsidiary to be an "Unrestricted
Subsidiary" as provided below in which event such Subsidiary and each other
Person that is then or thereafter becomes a Subsidiary of such Subsidiary will
be deemed to be an Unrestricted Subsidiary. "Unrestricted Subsidiary" means:
(1) any Subsidiary designated as such by the Board of Directors as set
forth below where
(a) neither the Company nor any of its other Subsidiaries (other
than another Unrestricted Subsidiary) provides credit support for, or
Guarantee of, any Debt of such Subsidiary or any Subsidiary of such
Subsidiary (including any undertaking, agreement or instrument
evidencing such Debt) or is directly or indirectly liable for any Debt
of such Subsidiary or any Subsidiary of such Subsidiary, and
(b) no default with respect to any Debt of such Subsidiary or any
Subsidiary of such Subsidiary (including any right which the holders
thereof may have to take enforcement action against such Subsidiary)
would permit (upon notice, lapse of time or both) any holder of any
other Debt of the Company and its Subsidiaries (other than another
Unrestricted Subsidiary) to declare a default on such other Debt or
cause the payment thereof to be accelerated or payable prior to its
final scheduled maturity and
(2) any Subsidiary of an Unrestricted Subsidiary.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, any other Restricted Subsidiary which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary, provided that the Company could make a Restricted Payment in an
amount equal to the greater of the fair market value and book value of its
Investment in such Subsidiary pursuant to the "Limitation on Restricted
Payments" covenant and such amount is thereafter treated as a Restricted Payment
for the purpose of calculating the aggregate amount available for Restricted
Payments thereunder.
MERGERS, CONSOLIDATIONS AND CERTAIN SALES OF ASSETS
The Company may not, in a single transaction or a series of related
transactions: (1) consolidate with or merge into any other Person or permit any
other Person to consolidate with or merge into the Company or (2) directly or
indirectly, transfer, sell, lease or otherwise dispose of all or substantially
all of its assets unless:
(1) in a transaction in which the Company does not survive or in which
the Company transfers, sells, leases or otherwise disposes of all or
substantially all of its assets, the successor entity to the Company is
organized under the laws of the United States of America or any State
thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture executed and delivered to the Trustee in form
satisfactory to the Trustee, all of the Company's obligations under the
Indenture;
(2) immediately before and after giving pro forma effect to such
transaction and treating any Debt which becomes an obligation of the
Company or a Restricted Subsidiary as a result of such transaction as
having been Incurred by the Company or such Restricted Subsidiary at the
time of the transaction, no Event of Default or event that with the passing
of time or the giving of notice, or both, would constitute an Event of
Default shall have occurred and be continuing; and
(3) except in the case of any such consolidation or merger of the
Company with or into a Restricted Subsidiary, immediately after giving pro
forma effect to such transaction and treating any Debt which becomes an
obligation of the Company or a Restricted Subsidiary as a result of such
transaction as having been Incurred by the Company or such Restricted
Subsidiary at the time of the transaction, the Company
38
(including any successor entity to the Company) could Incur at least $1.00
of additional Debt pursuant to the provisions of the first paragraph of the
"Limitation on Debt" covenant; and
(4) if, as a result of any such transaction, property or assets of the
Company would become subject to a Lien prohibited by the provisions of the
"Limitation on Liens Securing Subordinated Debt" covenant, the Company or
the successor entity to the Company shall have secured the notes as
required by said covenant.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to the
notes:
(1) failure to pay principal of (or premium, if any, on) any note when
due (whether or not prohibited by the subordination provisions of the
Indenture);
(2) failure to pay any interest on any note when due (whether or not
prohibited by the subordination provisions of the Indenture), continued for
30 days;
(3) default in the payment of principal and interest on notes required
to be purchased pursuant to an Offer to Purchase as described under "Change
of Control" and "Limitation on Asset Dispositions" when due and payable
(whether or not prohibited by the subordination provisions of the
Indenture);
(4) failure to perform or comply with the provisions described under
"Mergers, Consolidations and Certain Sales of Assets";
(5) failure to perform any other covenant or agreement of the Company
under the Indenture or the notes (other than a covenant or agreement that
has expressly been included in the Indenture solely for the benefit of
another series of Debt) continued for 60 days after written notice to the
Company by the Trustee or Holders of at least 25% in aggregate principal
amount of outstanding notes;
(6) default under the terms of any instrument evidencing or securing
any Debt of the Company or any Restricted Subsidiary having an outstanding
principal amount of $10 million individually or in the aggregate which
default results in the acceleration of the payment of all or any portion of
such Debt (which acceleration is not rescinded within a period of 10 days
from the occurrence of such acceleration) or constitutes the failure to pay
all or any portion of the principal amount of such Debt when due;
(7) the rendering of a final judgment or judgments (not subject to
appeal) against the Company or any Restricted Subsidiary in an amount in
excess of $10 million which remains undischarged or unstayed for a period
of 60 days after the date on which the right to appeal has expired;
(8) certain events of bankruptcy, insolvency or reorganization
affecting the Company, any Significant Restricted Subsidiary or any group
of Restricted Subsidiaries that together would constitute a Significant
Restricted Subsidiary; and
(9) the Subsidiary Guarantee of any Subsidiary Guarantor is held by a
final non-appealable order or judgment of a court of competent jurisdiction
to be unenforceable or invalid or ceases for any reason to be in full force
and effect (other than in accordance with the terms of the Indenture) or
any Subsidiary Guarantor or any Person acting on behalf of any Subsidiary
Guarantor denies or disaffirms such Subsidiary Guarantor's obligations
under its Subsidiary Guarantee (other than by reason of a release of such
Subsidiary Guarantor from its Subsidiary Guarantee in accordance with the
terms of the Indenture).
If an Event of Default (other than an Event of Default described in clause
(8) above) shall occur and be continuing, either the Trustee or the Holders of
at least 25% in aggregate principal amount of the outstanding notes may
accelerate the maturity of all notes; provided, however, that after such
acceleration, but before a judgment or decree based on acceleration, the Holders
of a majority in aggregate principal amount of outstanding notes may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than the non-payment of accelerated principal, have been cured or
waived as provided in the Indenture. If an Event of Default specified in clause
(8) above occurs, the outstanding notes will
39
automatically become immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder. For information as to waiver
of defaults, see "Modification and Waiver" below.
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless the Holders
shall have offered to the Trustee reasonable indemnity. Subject to such
provisions for the indemnification of the Trustee, the Holders of a majority in
aggregate principal amount of the outstanding notes will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee with respect to the notes or exercising any trust or
power conferred on the Trustee with respect to the notes.
No Holder of a note will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or a trustee, or
for any other remedy thereunder unless (a) such Holder has previously given to
the Trustee written notice of a continuing Event of Default with respect to the
notes, (b) the Holders of at least 25% in aggregate principal amount of the
outstanding notes have made written request, and such Holder or Holders have
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee and (c) the Trustee has failed to institute such proceeding, and has not
received from the Holders of a majority in aggregate principal amount of the
outstanding notes a direction inconsistent with such request, within 60 days
after such notice, request and offer. However, such limitations do not apply to
a suit instituted by a Holder of a note for the enforcement of payment of the
principal of or any premium or interest on such note on or after the applicable
due date specified in such note.
The Company and the Subsidiary Guarantors are required to furnish to the
Trustee annually a statement by certain of their officers as to whether or not
the Company or any Subsidiary Guarantor, to their knowledge, is in default in
the performance or observance of any of the terms, provisions and conditions of
the Indenture and, if so, specifying all such known defaults.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company,
the Subsidiary Guarantors and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the outstanding notes; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each outstanding note affected thereby:
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any note,
(2) reduce the principal amount of, (or the premium) or interest on,
any note,
(3) change the place or currency of payment of principal of (or
premium), or interest on, any note,
(4) impair the right to institute suit for the enforcement of any
payment on or with respect to any note,
(5) reduce the above-stated percentage of outstanding notes necessary
to modify or amend the Indenture,
(6) reduce the percentage of aggregate principal amount of outstanding
notes necessary for waiver of compliance with certain provisions of the
Indenture or for waiver of certain defaults,
(7) modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of past defaults
or covenants, except as otherwise specified,
(8) modify any of the provisions of the Indenture relating to the
subordination of the notes or the Subsidiary Guarantees (including any
release thereof) in a manner adverse to the Holders, or
(9) following the mailing of any Offer to Purchase, modify any Offer
to Purchase for the notes required under the "Limitation on Asset
Dispositions" and the "Change of Control" covenants contained in the
Indenture in a manner adverse to the Holders thereof.
40
The Holders of a majority in aggregate principal amount of the outstanding
notes, on behalf of all Holders of notes, may waive compliance by the Company
with certain restrictive provisions of the Indenture, including those disclosed
under the heading "Covenants" above. Subject to certain rights of the Trustee,
as provided in the Indenture, the Holders of a majority in aggregate principal
amount of the outstanding notes, on behalf of all Holders of notes, may waive
any past default under the Indenture, except a default in the payment of
principal, premium, interest or a default arising from failure to purchase any
note tendered pursuant to an Offer to Purchase or any provisions of the
Indenture which cannot be amended without the consent of the Holder of each
outstanding note.
The Indenture provides that in determining whether the Holders of the
requisite principal amount of the outstanding notes have given or taken any
direction, notice, consent, waiver or other action under such Indenture as of
any date, certain notes, including those for whose payment or redemption money
has been deposited or set aside in trust for the Holders and those that have
been fully defeased, will not be deemed to be Outstanding.
Except in certain limited circumstances, the Company will be entitled to
set any day as a record date for the purpose of determining the Holders of
outstanding notes entitled to give or take any direction, notice, consent,
waiver or other action under the applicable Indenture, in the manner and subject
to the limitations provided in the Indenture. In certain limited circumstances,
the Trustee will be entitled to set a record date for action by Holders. If a
record date is set for any action to be taken by Holders of a note, such action
may be taken only by persons who are Holders of outstanding notes on the record
date. To be effective, such action must be taken by Holders of the requisite
principal amount of such notes within a specified period following the record
date. For any particular record date, this period will be 180 days or such other
period as may be specified by us (or the Trustee, if it set the record date),
and may be shortened or lengthened (but not beyond 180 days) from time to time.
DEFEASANCE AND COVENANT DEFEASANCE
We may elect, at our option at any time, to have the provisions of the
Indenture relating either to defeasance and discharge of indebtedness, or to
defeasance of certain restrictive covenants applied to the notes.
Defeasance and Discharge. Upon the Company's exercise of its option to
have defeasance and discharge applied to the notes, the Company and, if
applicable, each Subsidiary Guarantor will be discharged from their respective
obligations with respect to the notes (except for certain obligations to
exchange or register the transfer of notes, to replace stolen, lost or mutilated
notes, to maintain paying agencies and to hold moneys for payment in trust) upon
the deposit in trust for the benefit of the Holders of the notes of money or
U.S. Government Obligations, or both, which, through the payment of principal
and interest in respect thereof in accordance with their terms, will provide
money in an amount sufficient to pay the principal of and any premium and
interest on the notes on their respective Stated Maturities in accordance with
the terms of the applicable Indenture and the notes. Such defeasance and
discharge may occur only if, among other things,
(1) the Company has delivered to the Trustee an Opinion of Counsel to
the effect that it has received from, or there has been published by, the
United States Internal Revenue Service a ruling, or there has been a change
in tax law, in either case to the effect that Holders of the notes will not
recognize gain or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income tax
on the same amount, in the same manner and at the same times as would have
been the case if such deposit, defeasance and discharge were not to occur;
(2) no Event of Default or event that with the passing of time or the
giving of notice, or both, shall constitute an Event of Default shall have
occurred or be continuing;
(3) such deposit, defeasance and discharge will not result in a breach
or violation of, or constitute a default under, any agreement or instrument
to which the Company or any Restricted Subsidiary is a party or by which
the Company or any Restricted Subsidiary is bound;
41
(4) at the time of such deposit, no default in the payment of all or a
portion of principal of (or premium, if any) or interest on or other
obligations in respect of any of the Senior Debt of the Company or any
Subsidiary Guarantor shall have occurred and be continuing and no other
event of default with respect to any of such Senior Debt shall have
occurred and be continuing permitting after notice or the lapse of time, or
both, the acceleration thereof; and
(5) the Company has delivered to the Trustee an Opinion of Counsel to
the effect that such deposit shall not cause the Trustee or the trust so
created to be subject to the Investment Company Act of 1940.
Defeasance of Certain Covenants. Upon the Company's exercise of its option
to have covenant defeasance applied to the notes, we may omit to comply with
certain restrictive covenants, including those described under "Covenants"
(except for "Change of Control") the occurrence of certain Events of Default,
which are described above in clause (5) (with respect to such restrictive
covenants) and clauses (6), (7) and (9) under "Events of Default" will not be
deemed to either be or result in an Event of Default. In order to exercise such
option, we must deposit, in trust for the benefit of the Holders of the notes,
money or U.S. Government Obligations, or both, which, through the payment of
principal and interest in respect thereof in accordance with their terms, will
provide money in an amount sufficient to pay the principal of and any premium
and interest on the notes on their respective Stated Maturities in accordance
with the terms of the Indenture and the notes. Such covenant defeasance may
occur only if we have delivered to the applicable Trustee an Opinion of Counsel
that in effect says that Holders of the notes will not recognize gain or loss
for federal income tax purposes as a result of such deposit and defeasance of
certain obligations and will be subject to federal income tax on the same
amount, in the same manner and at the same times as would have been the case if
such deposit and defeasance were not to occur and the requirements set forth in
clauses (2), (3), (4) and (5) above are satisfied. If we exercise this option
with respect to the notes and the notes were declared due and payable because of
the occurrence of any Event of Default, the amount of money and U.S. Government
Obligations so deposited in trust would be sufficient to pay amounts due on the
notes at the time of their respective Stated Maturities but may not be
sufficient to pay amounts due on the notes upon any acceleration resulting from
such Event of Default. In such case, we would remain liable for such payments.
BOOK-ENTRY, DELIVERY AND FORM
GLOBAL NOTES
New notes will initially be represented by one or more notes in registered,
global form without interest coupons (collectively, the "Global Notes") and will
be deposited with the Trustee as custodian for The Depository Trust Company
("DTC"), in New York, New York, and will be registered in the name of a nominee
of DTC.
Except as set forth below, the Global Notes will be transferred, in whole
and not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes will not be exchanged for
notes in certificated form except in the limited circumstances described below.
See "-- Exchange of Global Notes for Certificated Notes."
EXCHANGE OF GLOBAL NOTES FOR CERTIFICATED NOTES
A beneficial interest in a Global Note may not be exchanged for a note in
certificated form unless (1) DTC (x) notifies the Company that it is unwilling
or unable to continue as Depository for such Global Note or (y) has ceased to be
a clearing agency registered under the Exchange Act, and in either event the
Company fails to appoint a successor depository within 90 days, (2) there shall
have occurred and be continuing an Event of Default with respect to the notes
and DTC notifies the Trustee of its decision to exchange its Global Note for
certificated notes or (3) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of notes in certificated form. In
all cases, certificated notes delivered in exchange for any Global Note or
beneficial interests therein will be registered in the names, and issued in
approved denominations, requested by or on behalf of DTC (in accordance with its
customary procedures).
42
GLOBAL NOTES
The following description of the operations and procedures of DTC is
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC's settlement system and are subject to changes
by DTC from time to time. The Company and the Subsidiary Guarantors take no
responsibility for these operations and procedures and urge investors to contact
the system or their participants directly to discuss these matters.
Upon the issuance of the Global Notes, DTC will credit, on its internal
system, the respective principal amount of the individual beneficial interests
represented by such Global Notes to the accounts with DTC ("participants") or
persons who hold interests through participants. Ownership or beneficial
interests in the Global Notes will be shown on, and the transfer of that
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interest of persons other than participants).
As long as DTC, or its nominee, is the registered holder of a Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner and
holder of the notes represented by such Global Note for all purposes under the
indenture and the Notes. Except in the limited circumstances described above
under "-- Exchange of Global Notes for Certificated Notes," owners of beneficial
interests in a Global Note will not be entitled to have portions of such Global
Note registered in their names, will not receive or be entitled to receive
physical delivery of notes in certificated form and will not be considered the
owners or Holders of the Global Note (or any notes presented thereby) under the
Indenture or the notes. In addition, no beneficial owner of an interest in a
Global Note will be able to transfer that interest except in accordance with
DTC's applicable procedures. In the event that owners of beneficial interests in
a Global Note become entitled to receive notes in certificated form, such notes
will be issued only in registered form in denominations of $1,000 and integral
multiples thereof.
The laws of some states require that certain persons take physical delivery
in certificated form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such persons may be limited to
that extent. Because DTC can act only on behalf of participants, which in turn
act on behalf of indirect participants and certain banks, the ability of a
person having beneficial interests in a Global Note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise take
action in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests.
All payments on Global Notes will be made to DTC or its nominee as the
registered owner thereof. Neither the Company, the Trustee nor any of their
respective agents will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Notes or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Beneficial interests in the Global Notes will trade in DTC's Same-Day Funds
Settlement System, and secondary market trading activity in such interests will
therefore settle in immediately available funds. The Company expects that DTC or
its nominee, upon receipt of any payment in respect of a Global Note
representing any notes held by it or its nominee, will immediately credit
participants' accounts with payment in amounts proportionate to their respective
beneficial interests in the principal amount of such notes as shown on the
records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Notes held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
registered in "street name." Such payments will be the responsibility of such
participants.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a Holder of notes only at the direction of one or more participants to
whose account with DTC interests in the Global Notes are credited and only in
respect of such portion of the aggregate principal amount of the notes as to
which such
43
participant or participants has or have given such direction. However, if there
is an Event of Default with respect to the notes, DTC reserves the right to
exchange the Global Notes for legended notes in certificated form, and to
distribute such notes to its participants.
DTC has advised the Company as follows:
DTC is
- a limited purpose trust company organized under the laws of the State of
New York,
- a "banking organization" within the meaning of New York Banking Law,
- a member of the Federal Reserve System,
- a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended, and
- a "Clearing Agency" registered pursuant to the provisions of Section 17A
of the Exchange Act.
DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. DTC is
partially owned by some of these participants or their representatives. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of beneficial ownership interests in the Global Notes among
participants of DTC, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. None of
the Company, the Trustee nor any of their respective agents will have any
responsibility for the performance by DTC, its participants or its indirect
participants of their respective obligations under the rules and procedures
governing their operations, including maintaining, supervising or reviewing the
records relating to, or payments made on account of, beneficial ownership
interests in Global Notes.
SAME DAY SETTLEMENT AND PAYMENT
The Company will make payments in respect of the notes represented by the
Global Notes (including principal, premium, if any, and interest) by wire
transfer of immediately available funds to the accounts specified by the Global
Note Holder.
The notes represented by the Global Notes are expected to trade in DTC's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such notes will, therefore, be required by DTC to be settled in
immediately available funds. The Company expects that secondary trading in any
certificated notes will also be settled in immediately available funds.
NOTICES
Notices to Holders of notes will be given by mail to the addresses of such
Holders as they may appear in the Security Register.
CONCERNING THE TRUSTEE
Wells Fargo Bank, N.A. serves as Trustee under the Indenture.
The Indenture will contain certain limitations on the rights of the
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest (as defined
in the Trust Indenture Act) after a default has
44
occurred and is continuing, it must eliminate such conflict within 90 days or
apply to the SEC for permission to continue or resign.
TITLE
The Company, the Subsidiary Guarantors, the Trustee and any agent of the
Company, the Subsidiary Guarantors or a Trustee may treat the Person in whose
name a note is registered as the absolute owner of the note (whether or not such
note may be overdue) for the purpose of making payment and for all other
purposes.
GOVERNING LAW
The Indenture and the notes will be governed by, and construed in
accordance with, the law of the State of New York.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Additional Notes" means 8.25% Senior Subordinated Notes due August 15,
2013 of the Company issued under the Indenture after the Closing Date and having
identical terms (except as to the initial interest payment date) to the
outstanding notes or the new notes issued in exchange for the outstanding notes.
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing; provided that direct or
indirect beneficial ownership of 10% or more of the Voting Stock of a Person
shall be deemed to constitute control.
"Adjusted Treasury Rate" means with respect to any redemption date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue
(expressed as a percentage of its principal amount) equal to the Comparable
Treasury Price for such redemption date, plus 0.50%.
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition (but excluding the creation of any Lien) by such
Person or any of its Restricted Subsidiaries (including a consolidation or
merger or other sale of any such Restricted Subsidiary with, into or to another
Person in a transaction in which such Restricted Subsidiary ceases to be a
Restricted Subsidiary, but excluding a disposition by a Restricted Subsidiary of
such Person to such Person or a Restricted Subsidiary of such Person or by such
Person to a Restricted Subsidiary of such Person) of:
(1) shares of Capital Stock (other than directors' qualifying shares)
or other ownership interests of a Restricted Subsidiary of such Person,
(2) substantially all of the assets of such Person or any of its
Restricted Subsidiaries representing a division or line of business or
(3) other assets or rights of such Person or any of its Restricted
Subsidiaries outside of the ordinary course of business,
provided in each case that the aggregate consideration for such transfer,
conveyance, sale, lease or other disposition is equal to $2.5 million or
more.
45
The term "Asset Disposition" shall not include:
(1) a Restricted Payment that is made in compliance with the
"Limitation on Restricted Payments" covenant,
(2) the designation of any Restricted Subsidiary as an Unrestricted
Subsidiary or the contribution to the capital of any Unrestricted
Subsidiary, in either case in compliance with the applicable provisions of
the Indenture or
(3) any transaction subject to and consummated in compliance with the
covenant described above under "Mergers, Consolidations and Certain Sales
of Assets".
"Average Life" means, as of any date of determination, with respect to any
Debt, the quotient obtained by dividing (1) the sum of the products of the
number of years from such date of determination to the dates of each successive
scheduled principal payments of such Debt by (2) the sum of all such principal
payments.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such Person in accordance with generally accepted accounting
principles. The stated maturity of such obligation shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty. The principal amount of such obligation shall be the capitalized amount
thereof that would appear on the face of a balance sheet of such Person in
accordance with generally accepted accounting principles.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of such Person.
"Cash Equivalents" means:
(1) securities issued or directly and fully guaranteed or insured by
the United States government or any agency or instrumentality thereof
having maturities of not more than six months from the date of acquisition,
(2) certificates of deposit and Eurodollar time deposits with
maturities of six months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any lender party to the Senior Credit Facility
or with any domestic commercial bank having capital and surplus in excess
of $500 million and a Fitch Rating of "B" or better,
(3) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (1) and (2) above
entered into with any financial institution meeting the qualifications
specified in clause (2) above,
(4) commercial paper having a rating of at least P-1 from Moody's and
a rating of at least A-1 from S&P,
(5) deposits available for withdrawal on demand with any commercial
bank not meeting the qualifications specified in clause (2) above, provided
all such deposits do not exceed $5 million in the aggregate at any one time
and
(6) investments in money market or other mutual funds substantially
all of whose assets comprise securities of the types described in clauses
(1) through (4) above.
"Closing Date" means August 13, 2003.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
46
"Comparable Treasury Issue" means the United States Treasury Security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the notes that would be utilized, at the time of selection
and in accordance with customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the remaining term of the
notes.
"Comparable Treasury Price" means, with respect to any redemption date, (1)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (2) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the
Reference Treasury Dealer Quotations for such redemption date, after excluding
the highest and lowest of such Reference Treasury Dealer Quotations, or (B) if
the Trustee obtains fewer than three such Reference Treasury Dealer Quotations,
the average of all such Quotations.
"Consolidated Cash Flow Available for Fixed Charges" for any period means
the Consolidated Net Income for such period increased by the sum of:
(1) Consolidated Interest Expense for such period, plus
(2) the consolidated amount of interest capitalized by the Company and
its Restricted Subsidiaries during such period calculated in accordance
with generally accepted accounting principles, plus
(3) Consolidated Income Tax Expense for such period, plus
(4) the consolidated depreciation and amortization expense included in
the income statement of the Company and its Restricted Subsidiaries for
such period, plus
(5) other non-cash expenses (excluding any such non-cash expense to
the extent that it represents an accrual of or reserve for cash expenses in
any future period or amortization of a prepaid cash expense that was paid
in a prior period) included in the income statement of the Company and its
Restricted Subsidiaries for such period; minus
(6) non-cash items increasing Consolidated Net Income for such period,
other than items that were accrued in the ordinary course of business, in
each case, on a consolidated basis and determined in accordance with
generally accepted accounting principles;
provided, however, that there shall be excluded therefrom the Consolidated Cash
Flow Available for Fixed Charges (if positive) of any Restricted Subsidiary that
is not a Subsidiary Guarantor (calculated separately for such Restricted
Subsidiary in the same manner as provided above for the Company) that is subject
to a restriction which prevents the payment of dividends or the making of
distributions to the Company or another Restricted Subsidiary to the extent of
such restriction.
"Consolidated Cash Flow Coverage Ratio" as of any date of determination
means the ratio of:
(1) Consolidated Cash Flow Available for Fixed Charges for the period
of the most recently completed four consecutive fiscal quarters for which
quarterly or annual financial statements are available to
(2) Consolidated Fixed Charges for such period;
provided, however, that Consolidated Fixed Charges shall be adjusted to give
effect on a pro forma basis to any Debt that has been Incurred by the Company or
any Restricted Subsidiary since the end of such period that remains outstanding
and to any Debt that is proposed to be Incurred by the Company or any Restricted
Subsidiary as if in each case such Debt had been Incurred on the first day of
such period and as if any Debt that is or will no longer be outstanding as the
result of the Incurrence of any such Debt had not been outstanding as of the
first day of such period; provided, however, that in making such computation,
the Consolidated Interest Expense attributable to interest on any proposed Debt
bearing a floating interest rate shall be computed on a pro forma basis as if
the rate in effect on the date of computation had been the
47
applicable rate for the entire period; and provided further that, in the event
the Company or any of its Restricted Subsidiaries has made Asset Dispositions or
acquisitions of assets not in the ordinary course of business (including
acquisitions of other Persons by merger, consolidation or purchase of Capital
Stock) during or after such period, such computation shall be made on a pro
forma basis as if the Asset Dispositions or acquisitions had taken place on the
first day of such period.
"Consolidated Fixed Charges" for any period means the sum of:
(1) Consolidated Interest Expense and
(2) the consolidated amount of interest capitalized by the Company and
its Restricted Subsidiaries during such period calculated in accordance
with generally accepted accounting principles.
"Consolidated Income Tax Expense" for any period means the consolidated
provision for income taxes of the Company and its Restricted Subsidiaries for
such period calculated on a consolidated basis in accordance with generally
accepted accounting principles.
"Consolidated Interest Expense" means for any period the consolidated
interest expense, other than floor plan interest expense, included in a
consolidated income statement (without deduction of interest income) of the
Company and its Restricted Subsidiaries for such period calculated on a
consolidated basis in accordance with generally accepted accounting principles,
including without limitation or duplication (or, to the extent not so included,
with the addition of):
(1) the amortization of Debt discounts;
(2) any payments or fees with respect to letters of credit, bankers'
acceptances or similar facilities;
(3) net fees with respect to interest rate swap or similar agreements
or foreign currency hedge, exchange or similar agreements;
(4) Preferred Stock dividends of the Company and its Restricted
Subsidiaries (other than with respect to Redeemable Stock) declared and
paid or payable;
(5) accrued Redeemable Stock dividends of the Company and its
Restricted Subsidiaries, whether or not declared or paid;
(6) interest on Debt guaranteed by the Company and its Restricted
Subsidiaries; and
(7) the portion of rental expense deemed to be representative of the
interest factor attributable to Capital Lease Obligations.
"Consolidated Net Income" for any period means the consolidated net income
(or loss) of the Company and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with generally accepted
accounting principles; provided that there shall be excluded therefrom:
(1) the net income (or loss) of any Person acquired by the Company or
a Restricted Subsidiary in a pooling-of-interests transaction for any
period prior to the date of such transaction,
(2) the net income (or loss) of any Person that is not a Restricted
Subsidiary except to the extent of the amount of dividends or other
distributions actually paid to the Company or a Restricted Subsidiary by
such Person during such period,
(3) gains or losses on Asset Dispositions by the Company or its
Subsidiaries,
(4) all extraordinary gains and extraordinary losses,
(5) gains or losses from the early retirement or extinguishment of
indebtedness,
(6) the cumulative effect of changes in accounting principles,
(7) non-cash gains or losses resulting from fluctuations in currency
exchange rates and
(8) the tax effect of any of the items described in clauses (1)
through (6) above;
48
provided, further, that for purposes of any determination pursuant to the
provisions of the "Limitation on Restricted Payments" covenant, there shall
further be excluded therefrom the net income (but not net loss) of any
Restricted Subsidiary that is not a Subsidiary Guarantor that is subject to a
restriction which prevents the payment of dividends or the making of
distributions to the Company or another Restricted Subsidiary to the extent of
such restriction.
"Consolidated Net Tangible Assets" of any Person means the total amount of
assets (less applicable reserves and other properly deductible items) which
under generally accepted accounting principles would be included on a
consolidated balance sheet of such Person and its Restricted Subsidiaries after
deducting therefrom:
(1) all goodwill, trade names, trademarks, patents, patent
applications, licenses, non-compete agreements, unamortized debt discount
and expense and other like intangibles, which in each case under generally
accepted accounting principles would be included on such consolidated
balance sheet and
(2) appropriate deductions for any minority interests.
"Debt" means (without duplication), with respect to any Person,
whether recourse is to all or a portion of the assets of such Person and
whether or not contingent:
(1) every obligation of such Person for money borrowed;
(2) every obligation of such Person evidenced by bonds, debentures,
notes or other similar instruments, including obligations Incurred in
connection with the acquisition of property, assets or businesses;
(3) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for
the account of such Person;
(4) every obligation of such Person issued or assumed as the deferred
purchase price of property or services (including securities repurchase
agreements but excluding trade accounts payable or accrued liabilities
arising in the ordinary course of business and with respect to services,
excluding deferred compensation to employees), which purchase price is due
more than six months after the date of placing such property in service or
taking delivery and title thereto or engaging such services, the amount of
such price being that which would be negotiated in an arm's length
transaction for cash between a willing seller and a willing and able buyer,
neither of which is under any compulsion to complete the transaction or
services;
(5) every Capital Lease Obligation of such Person;
(6) all Receivables Sales of such Person which are sold with recourse
to such Person;
(7) all Redeemable Stock issued by such Person;
(8) if such Person is a Restricted Subsidiary, all Preferred Stock
issued by such Person;
(9) every net obligation under Interest Rate, Currency or Commodity
Price Agreements of such Person; and
(10) every obligation of the type referred to in clauses (1) through
(9) of another Person and all dividends of another Person the payment of
which, in either case, (a) such Person has Guaranteed or is responsible or
liable, directly or indirectly, as obligor, Guarantor or otherwise or (b)
is secured by (or for which the holder of such obligation has an existing
right, contingent or otherwise, to be secured by) any Lien upon or with
respect to property (including, without limitation, accounts and contract
rights) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Debt or dividends.
Notwithstanding the foregoing, Debt shall not include any obligation
arising from any agreement entered into in connection with the acquisition of
any business or assets with any seller of such business or assets that (1)
provides for the payment of earn-outs to such seller or (2) guarantees to such
seller a minimum price to
49
be realized by such seller upon the sale of any Common Stock of the Company that
was issued by the Company to such seller in connection with such acquisition.
"Designated Senior Debt" of the Company means:
(1) Debt of the Company under the Senior Credit Facility and
(2) any Senior Debt of the Company
(a) which at the time of determination exceeds $25 million in
aggregate principal amount outstanding or available under a committed
facility,
(b) which is specifically designated in the instrument evidencing
such Senior Debt as "Designated Senior Debt" by the Company and
(c) as to which the Trustee has received an Officers' Certificate
of the Company specifying such Senior Debt as "Designated Senior Debt".
"Equity Offering" means an offering of Common Stock that results in
aggregate cash net proceeds to the Company.
"Floor Plan Debt" means Debt in an aggregate principal amount at any time
not to exceed the value of the Inventory of the Company and its Restricted
Subsidiaries, which Debt is secured primarily by a Lien on Inventory of the
Company and/or its Restricted Subsidiaries.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing, or having the economic effect of guaranteeing, any
Debt of any other Person (the "primary obligor") in any manner, whether directly
or indirectly, and including, without limitation, any obligation of such Person,
(1) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such Debt,
(2) to purchase property, securities or services for the purpose of
assuring the holder of such Debt of the payment of such Debt, or
(3) to maintain working capital, equity capital or other financial
statement condition or liquidity of the primary obligor so as to enable the
primary obligor to pay such Debt (and "Guaranteed", "Guaranteeing" and
"Guarantor" shall have meanings correlative to the foregoing);
provided, however, that the Guarantee by any Person shall not include
endorsements by such Person for collection or deposit, in either case, in the
ordinary course of business.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
including by acquisition of Subsidiaries or the recording, as required pursuant
to generally accepted accounting principles or otherwise, of any such Debt or
other obligation on the balance sheet of such Person (and "Incurrence",
"Incurred", "Incurrable" and "Incurring" shall have meanings correlative to the
foregoing); provided, however, that a change in generally accepted accounting
principles that results in an obligation of such Person that exists at such time
becoming Debt shall not be deemed an Incurrence of such Debt.
"Independent Investment Banker" means any Reference Treasury Dealer
appointed by the Trustee after consultation with the Company.
"Interest Rate, Currency or Commodity Price Agreement" of any Person means
any forward contract, futures contract, swap, option or other financial
agreement or arrangement (including, without limitation, caps, floors, collars
and similar agreements) relating to, or the value of which is dependent upon,
interest rates, currency exchange rates or commodity prices or indices
(excluding contracts for the purchase or sale of goods in the ordinary course of
business).
50
"Inventory" of any Person means the automobile and automobile parts and
supplies inventories of such Person that are held for sale or lease, or are to
be used or consumed by such Person, in the ordinary course of business. The
value of each particular item of inventory shall be the historical purchase
price thereof.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property (other than Capital Stock that is neither Redeemable Stock nor
Preferred Stock of a Restricted Subsidiary) to others or payments for property
or services for the account or use of others, or otherwise) to, or purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidence of Debt issued by, any other Person, including any payment on a
Guarantee of any obligation of such other Person, but shall not include
(1) trade accounts receivable in the ordinary course of business on
credit terms made generally available to the customers of such Person,
(2) any Permitted Interest Rate, Currency or Commodity Price Agreement
and
(3) endorsements of negotiable instruments and documents in the
ordinary course of business.
"Investment Grade" means Baa3 or above in the case of Moody's (or the
equivalent under any successor rating categories of Moody's) and BBB- or above
in the case of S&P (or the equivalent under any successor rating categories of
S&P).
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any sale and leaseback arrangement, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing).
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Available Proceeds" from any Asset Disposition by any Person means
cash or Cash Equivalents received (including by way of sale or discounting of a
note, installment receivable or other receivable, but excluding any other
consideration received in the form of assumption by the acquiree of Debt or
other obligations relating to such properties or assets) therefrom by such
Person, net of:
(1) all legal, title and recording tax expenses, commissions and other
fees and expenses Incurred and all federal, state, foreign and local taxes
required to be accrued as a liability as a consequence of such Asset
Disposition;
(2) all payments made by such Person or its Restricted Subsidiaries on
any Debt which is secured by such assets in accordance with the terms of
any Lien upon or with respect to such assets or which must by the terms of
such Lien, or in order to obtain a necessary consent to such Asset
Disposition or by applicable law, be repaid out of the proceeds from such
Asset Disposition;
(3) all distributions and other payments made to minority interest
holders in Restricted Subsidiaries of such Person or joint ventures as a
result of such Asset Disposition; and
(4) appropriate amounts to be provided by such Person or any
Restricted Subsidiary thereof, as the case may be, as a reserve in
accordance with generally accepted accounting principles against any
liabilities associated with such assets and retained by such Person or any
Restricted Subsidiary thereof, as the case may be, after such Asset
Disposition, including, without limitation, liabilities under any
indemnification obligations and severance and other employee termination
costs associated with such Asset Disposition, in each case as determined by
the Board of Directors, in its reasonable good faith judgment evidenced by
a resolution of the Board of Directors filed with the Trustee; provided,
however, that any reduction in such reserve within twelve months following
the consummation of such Asset Disposition will be treated for all purposes
of the Indenture and the notes as a new Asset Disposition at the time of
such reduction with Net Available Proceeds equal to the amount of such
reduction.
51
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first class mail, postage prepaid, to each Holder at his address appearing in
the Security Register on the date of the Offer offering to purchase up to the
principal amount of notes specified in such Offer at the purchase price
specified in such Offer (as determined pursuant to the Indenture). Unless
otherwise required by applicable law, the Offer shall specify an expiration date
(the "Offer Expiration Date") of the Offer to Purchase which shall be, subject
to any contrary requirements of applicable law, not less than 30 days or more
than 60 days after the date of such Offer and a settlement date (the "Purchase
Date") for purchase of notes within five Business Days after the Offer
Expiration Date. The Company shall notify the Trustee at least 15 Business Days
(or such shorter period as is acceptable to the Trustee) prior to the mailing of
the Offer of the Company's obligation to make an Offer to Purchase, and the
Offer shall be mailed by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company. The Offer shall contain a
description of the events requiring the Company to make the Offer to Purchase
and all instructions and materials necessary to enable such Holders to tender
notes pursuant to the Offer to Purchase. The Offer shall also state:
(1) the section of the Indenture pursuant to which the Offer to
Purchase is being made;
(2) the Offer Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the outstanding notes offered to
be purchased by the Company pursuant to the Offer to Purchase (including,
if less than 100%, the manner by which such has been determined pursuant to
the section of the Indenture requiring the Offer to Purchase) (the
"Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000
aggregate principal amount of notes accepted for payment (as specified
pursuant to the Indenture) (the "Purchase Price");
(5) that the Holder may tender all or any portion of the notes
registered in the name of such Holder and that any portion of a note
tendered must be tendered in an integral multiple of $1,000 principal
amount;
(6) the place or places where notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any note not tendered or tendered but not
purchased by the Company pursuant to the Offer to Purchase will continue to
accrue;
(8) that on the Purchase Date the Purchase Price will become due and
payable upon each note being accepted for payment pursuant to the Offer to
Purchase and that interest thereon shall cease to accrue on and after the
Purchase Date;
(9) that each Holder electing to tender a note pursuant to the Offer
to Purchase will be required to surrender such note at the place or places
specified in the Offer prior to the close of business on the Expiration
Date (such note being, if the Company or the Trustee so requires, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder
thereof or his attorney duly authorized in writing);
(10) that Holders will be entitled to withdraw all or any portion of
notes tendered if the Company (or its Paying Agent) receives, not later
than the close of business on the Expiration Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the note the Holder tendered, the certificate number of
the note the Holder tendered and a statement that such Holder is
withdrawing all or a portion of his tender;
(11) that (a) if notes in an aggregate principal amount less than or
equal to the Purchase Amount are duly tendered and not withdrawn pursuant
to the Offer to Purchase, the Company shall purchase all such notes and (b)
if notes in an aggregate principal amount in excess of the Purchase Amount
are tendered and not withdrawn pursuant to the Offer to Purchase, the
Company shall purchase notes having an aggregate principal amount equal to
the Purchase Amount on a pro rata basis (with such adjustments
52
as may be deemed appropriate so that only notes in denominations of $1,000
or integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose note is purchased only in
part, the Company shall execute, and the Trustee shall authenticate and
deliver to the Holder of such note without service charge, a new note or
notes, of any authorized denomination as requested by such Holder, in an
aggregate principal amount equal to and in exchange for the unpurchased
portion of the note so tendered.
If any of the notes subject to an Offer to Purchase is in global form, then
the Offer shall be modified by the Company to the extent necessary to comply
with the procedures of the Depositary applicable to repurchases. Any Offer to
Purchase shall be governed by and effected in accordance with the Offer for such
Offer to Purchase.
'Permitted Holder" means:
(1) each of B.B. Hollingsworth, Jr., John Turner and Scott Thompson;
(2) the members of the immediate family of any of the persons referred
to in clause (1) above;
(3) any trust created for the benefit of the persons described in
clause (1) or (2) above or any of their estates; or
(4) any other Person that is wholly owned by any one or more of the
Persons described in clause (1), (2) or (3) above.
"Permitted Interest Rate, Currency or Commodity Price Agreement" of any
Person means any Interest Rate, Currency or Commodity Price Agreement entered
into with one or more financial institutions in the ordinary course of business
that is designed to protect such Person against fluctuations in interest rates
or currency exchange rates with respect to Debt Incurred or proposed to be
Incurred and which shall have a notional amount no greater than the payments due
with respect to the Debt being hedged thereby, or in the case of currency or
commodity protection agreements, against currency exchange rate or commodity
price fluctuations in the ordinary course of business relating to then existing
financial obligations or then existing or sold production and not for purposes
of speculation.
"Permitted Investments" means:
(1) any Investment in the Company or a Restricted Subsidiary or a
Person that will become or be merged into or consolidated with a Restricted
Subsidiary as a result of such Investment,
(2) any Investment in a Permitted Joint Venture which, together with
any other outstanding Investment made pursuant to this clause (2), does not
exceed the greater of $10 million or 2.5% of the Company's Consolidated Net
Tangible Assets at the time of such Investment,
(3) any Investment in Cash Equivalents,
(4) any non-cash consideration received in connection with an Asset
Disposition that was made in compliance with the "Limitation on Asset
Dispositions" covenant; and
(5) any other Investment that, when taken together with all other
Investments made pursuant to this clause (5) since the Closing Date and
outstanding on the date such Investment is made, does not exceed $10
million.
"Permitted Joint Venture" means any joint venture arrangement (which may be
structured as a corporation, partnership, trust, limited liability company or
any other Person):
(1) in which the Company and its Restricted Subsidiaries own an equity
interest of at least 25% of the equity interest of all joint venturers
thereof and
(2) which engages only in a business of the type conducted by the
Company and its Subsidiaries on the Closing Date or any business ancillary
thereto or supportive thereof.
53
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends or as to the distribution of assets upon any voluntary or involuntary
liquidation, dissolution or winding up of such Person, to shares of Capital
Stock of any other class of such Person.
"Receivables" means receivables, chattel paper, instruments, documents or
intangibles evidencing or relating to the right to payment of money.
"Receivables Sale" of any Person means any sale of Receivables of such
Person (pursuant to a purchase facility or otherwise), other than in connection
with a disposition of the business operations of such Person relating thereto or
a disposition of defaulted Receivables for purposes of collection and not as a
financing arrangement.
"Redeemable Stock" of any Person means any Capital Stock of such Person
that by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable) or otherwise (including upon the occurrence of
an event) matures or is required to be redeemed (pursuant to any sinking fund
obligation or otherwise) or is convertible into or exchangeable for Debt or is
redeemable at the option of the holder thereof, in whole or in part, at any time
prior to the final Stated Maturity of the notes.
"Reference Treasury Dealer" means Goldman, Sachs & Co. or any of its
affiliates in the United States and their respective successors; provided,
however, that if any of the foregoing shall cease to be a primary U.S.
Government securities dealer in New York City, the Trustee will substitute
another Reference Treasury Dealer.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any redemption date, the average as determined by
the Trustee, of the bid and asked prices of the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such redemption date.
"Replacement Assets" means:
(1) properties and assets (other than cash, Cash Equivalents, or any
Capital Stock or other security) that will be used in the automotive retail
business, the business of the Company and its Restricted Subsidiaries as
conducted on the Closing Date or any business ancillary thereto or
supportive thereof and
(2) Capital Stock of any Person that is engaged in the automotive
retail business, the business of the Company and its Restricted
Subsidiaries as conducted on the Closing Date or any business ancillary
thereto or supportive thereof and that will be merged or consolidated with
or into a Restricted Subsidiary or that will become a Restricted
Subsidiary.
"Restricted Subsidiary" means any Subsidiary of the Company, whether
existing on or after the Closing Date, unless such Subsidiary is an Unrestricted
Subsidiary.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Sale and Leaseback Transaction" of any Person means an agreement with any
lender or investor or to which such lender or investor is a party providing for
the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Senior Credit Facility" means the Fifth Amended and Restated Revolving
Credit Agreement dated as of June 2, 2003 among the Company, its subsidiaries
listed therein, JPMorgan Chase Bank, as administrative
54
agent, Comerica Bank, as floorplan agent, Bank One, NA, as documentation agent,
and other lending institutions party thereto and any amendment, modification,
renewal, extension, refinancing, refunding or replacement thereof.
"Senior Debt" means, with respect to any Person:
(1) the principal of (and premium, if any) and interest (including
interest accruing on or after the filing of any petition in bankruptcy or
for reorganization relating to such Person whether or not such claim for
post-petition interest is allowed in such proceeding) on, and penalties and
any obligation of such Person for reimbursement, indemnities and fees
relating to, the Senior Credit Facility,
(2) the principal of (and premium, if any) and interest on Debt of
such Person for money borrowed, whether Incurred on or prior to the Closing
Date or thereafter, and any amendments, renewals, extensions,
modifications, refinancings and refundings of any such Debt and
(3) Permitted Interest Rate Agreements and Permitted Currency
Agreements entered into with respect to Debt described in clauses (1) and
(2) above.
Notwithstanding the preceding, the following shall not constitute Senior
Debt:
(1) any Debt as to which the terms of the instrument creating or
evidencing the same provide that such Debt is on a parity with, or is not
superior in right of payment to, the notes or, in the case of a Subsidiary
Guarantor, a Subsidiary Guarantee,
(2) any Debt which is subordinated in right of payment in any respect
to any other Debt of such Person, other than Debt under the Senior Credit
Facility that is subordinated to other Debt under the Senior Credit
Facility solely by reason of priority being granted under the Senior Credit
Facility to "swingline", overdraft or similar tranches of Debt,
(3) Debt evidenced by the notes or a Subsidiary Guarantee,
(4) any Debt owed to a Person when such Person is a Subsidiary of such
Person,
(5) any obligation of such Person with respect to any Capital Stock of
such Person,
(6) that portion of any Debt which is Incurred in violation of the
Indenture,
(7) Debt which, when Incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without recourse
to such Person,
(8) any liability for federal, state, local or other taxes owed or
owing by such Person,
(9) any Debt for the purchase of goods, materials or services, or
consisting of operating lease rental payments, in the ordinary course of
business or Debt consisting of trade payables or other current liabilities
(other than current liabilities for money borrowed and the current portion
of long-term Senior Debt),
(10) Debt of or amounts owed by such Person for compensation to
employees or for services rendered; and
(11) Debt issued as a dividend on, or in redemption of or exchange
for, Capital Stock of such Person.
"Significant Restricted Subsidiary" means, at any date of determination,
any Restricted Subsidiary that, together with its Restricted Subsidiaries
represents 10% or more of the Company's total consolidated assets at the end of
the most recent fiscal quarter for which financial information is available or
10% or more of the Company's consolidated net revenues or consolidated operating
income for the most recent four quarters for which financial information is
available.
55
"Subordinated Debt" means Debt of the Company as to which the payment of
principal of (and premium, if any) and interest and other payment obligations in
respect of such Debt shall be subordinate to the prior payment in full of the
notes to at least the following extent:
(1) no payments of principal of (or premium, if any) or interest on or
otherwise due in respect of such Debt may be permitted for so long as any
default in the payment of principal (or premium, if any) or interest on the
notes exists;
(2) in the event that any other default that with the passing of time
or the giving of notice, or both, would constitute an event of default
exists with respect to the notes, upon notice by 25% or more in principal
amount of the notes to the Trustee, the Trustee shall have the right to
give notice to the Company and the holders of such Debt (or trustees or
agents therefor) of a payment blockage, and thereafter no payments of
principal of (or premium, if any) or interest on or otherwise due in
respect of such Debt may be made for a period of 179 days from the date of
such notice; and
(3) such Debt may not
(A) provide for payments of principal of such Debt at the final
stated maturity thereof or by way of a sinking fund applicable thereto
or by way of any mandatory redemption, defeasance, retirement or
repurchase thereof by the Company (including any redemption, retirement
or repurchase which is contingent upon events or circumstances, but
excluding any retirement required by virtue of acceleration of such Debt
upon an event of default thereunder), in each case prior to the final
Stated Maturity of the notes or
(B) permit redemption or other retirement (including pursuant to an
offer to purchase made by the Company) of such other Debt at the option
of the holder thereof prior to the final Stated Maturity of the notes,
other than a redemption or other retirement at the option of the holder
of such Debt (including pursuant to an offer to purchase made by the
Company) which is conditioned upon a change of control of the Company
pursuant to provisions substantially similar to those described under
"Change of Control" (and which shall provide that such Debt will not be
repurchased pursuant to such provisions prior to the Company's
repurchase of the notes required to be repurchased by the Company
pursuant to the provisions described under "Change of Control").
"Subsidiary" of any Person means:
(1) a corporation more than 50% of the combined voting power of the
outstanding Voting Stock of which is owned, directly or indirectly, by such
Person or by one or more other Subsidiaries of such Person or by such
Person and one or more Subsidiaries thereof or
(2) any other Person (other than a corporation) in which such Person,
or one or more other Subsidiaries of such Person or such Person and one or
more other Subsidiaries thereof, directly or indirectly, has at least a
majority ownership and power to direct the policies, management and affairs
thereof.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
56
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a summary of certain federal income tax
considerations relevant to the exchange of outstanding notes for new notes, but
does not purport to be a complete analysis of all potential tax effects. The
discussion is based upon the Internal Revenue Code of 1986, as amended, Treasury
Regulations, Internal Revenue Service rulings and pronouncements and judicial
decisions now in effect, all of which may be subject to change at any time by
legislative, judicial or administrative action. These changes may be applied
retroactively in a manner that could adversely affect a holder of new notes. The
description does not consider the effect of any applicable foreign, state, local
or other tax laws or estate or gift tax considerations.
We believe that the exchange of outstanding notes for new notes should not
be an exchange or otherwise a taxable event to a holder for United States
federal income tax purposes. Accordingly, a holder should have the same adjusted
issue price, adjusted basis and holding period in the new notes as it had in the
outstanding notes immediately before the exchange.
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the SEC in no action letters
issued to third parties, we believe that you may transfer new notes issued under
the exchange offer in exchange for the outstanding notes if:
- you acquire the new notes in the ordinary course of your business; and
- you are not engaged in, and do not intend to engage in, and have no
arrangement or understanding with any person to participate in, a
distribution of such new notes.
You may not participate in the exchange offer if you are:
- our "affiliate" within the meaning of Rule 405 under the Securities Act;
or
- a broker-dealer that acquired outstanding notes directly from us.
Each broker-dealer that receives new notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such new notes. To date, the staff of the SEC has
taken the position that broker-dealers may fulfill their prospectus delivery
requirements with respect to transactions involving an exchange of securities
such as this exchange offer, other than a resale of an unsold allotment from the
original sale of the outstanding notes, with the prospectus contained in this
registration statement. This prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer in connection with resales of
new notes received in exchange for outstanding notes where such outstanding
notes were acquired as a result of market-making activities or other trading
activities. We have agreed that, for a period of up to 180 days after the
effective date of this registration statement, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale. In addition, until such date, all dealers effecting
transactions in new notes may be required to deliver a prospectus.
If you wish to exchange new notes for your outstanding notes in the
exchange offer, you will be required to make representations to us as described
in "Exchange Offer -- Purpose and Effect of the Exchange Offer" and
"-- Procedures for Tendering -- Your Representations to Us" in this prospectus.
As indicated in the letter of transmittal, you will be deemed to have made these
representations by tendering your outstanding notes in the exchange offer. In
addition, if you are a broker-dealer who receives new notes for your own account
in exchange for outstanding notes that were acquired by you as a result of
market-making activities or other trading activities, you will be required to
acknowledge, in the same manner, that you will deliver a prospectus in
connection with any resale by you of such new notes.
We will not receive any proceeds from any sale of new notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the new notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, and at prices related
to such prevailing market prices or negotiated prices.
57
Any such resale may be made directly to purchasers or to or through brokers
or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such new notes.
Any broker-dealer that resells new notes that were received by it for its own
account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such new notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of new notes and any commission or concession received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The letter of transmittal states that, by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the effective date of this registration
statement (or until such time as all of the new notes have been sold), we will
promptly send additional copies of this prospectus and any amendment or
supplement to this prospectus to any broker-dealer that requests such documents
in the letter of transmittal. We have agreed to pay all expenses incident to the
exchange offer (including the expenses of one counsel for the holders of the
outstanding notes) other than commissions or concessions of any broker-dealers
and will indemnify the holders of the outstanding notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the new notes offered in this exchange offer will be passed
upon for us by Vinson & Elkins L.L.P., Houston, Texas. Certain other legal
matters in connection with the issuance of the new notes will be passed upon for
us by Jeffer, Mangels, Butler & Marmaro LLP, Los Angeles, California, Scoggins &
Goodman, P.C., Atlanta, Georgia, Sutin, Thayer & Browne, A Professional
Corporation, Santa Fe, New Mexico and Calvert Law Firm, Oklahoma City, Oklahoma.
EXPERTS
The consolidated financial statements of Group 1 Automotive, Inc. as of and
for the year ended December 31, 2002 appearing in our Annual Report on Form 10-K
for the year ended December 31, 2002, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference (which contains two explanatory paragraphs
describing the adoption of Statement of Financial Accounting Standards No. 142
and audit procedures relating to certain revisions to the 2001 and 2000
financial statements for reclassification adjustments and conforming disclosures
that were applied to revise the 2001 and 2000 financial statements as described
in Notes 5 and 14 to the consolidated financial statements; the 2001 and 2000
financial statements were audited by other auditors who have ceased operations
and for which Ernst & Young LLP has expressed no opinion or other form of
assurance on the 2001 and 2000 financial statements taken as a whole). Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
The financial statements of Group 1 Automotive, Inc. as of and for the
years ended December 31, 2001 and 2000 appearing in our Annual Report on Form
10-K for the year ended December 31, 2001, have been audited by Arthur Andersen
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing. Arthur Andersen
LLP has not consented to the incorporation by reference of their report in this
prospectus or registration statement of which this prospectus forms a part.
Because of Arthur Andersen LLP's current financial position, you may not be able
to recover against Arthur Andersen LLP for any claims you may have under
securities or other laws as a result of Arthur Andersen LLP's activities during
the period in which it acted as our independent public accountants. See "Risk
Factors -- Risks Related to Our Business -- Your ability to recover from our
former auditors, Arthur Andersen LLP, for any potential financial misstatements
is limited."
58
ANNEX A
LETTER OF TRANSMITTAL
to Tender Outstanding 8.25% Senior Notes
due August 15, 2013
of
GROUP 1 AUTOMOTIVE, INC.
Pursuant to the Exchange Offer and Prospectus
dated October 14, 2003
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON NOVEMBER 18, 2003 (THE "EXPIRATION DATE"), UNLESS THE EXCHANGE OFFER IS
EXTENDED BY THE COMPANY.
The Exchange Agent for the Exchange Offer is:
WELLS FARGO BANK, N.A.
P.O. Box 1517
Minneapolis, Minnesota 55480-1517
Attention: Corporate Trust Operations
IF YOU WISH TO EXCHANGE CURRENTLY OUTSTANDING 8.25% SENIOR NOTES DUE AUGUST
15, 2013 (THE "OUTSTANDING NOTES") FOR AN EQUAL AGGREGATE PRINCIPAL AMOUNT OF
NEW 8.25% SENIOR NOTES DUE AUGUST 15, 2013 PURSUANT TO THE EXCHANGE OFFER, YOU
MUST VALIDLY TENDER (AND NOT WITHDRAW) OUTSTANDING NOTES TO THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE BY CAUSING AN
AGENT'S MESSAGE TO BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO SUCH TIME.
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The undersigned hereby acknowledges receipt and review of the Prospectus,
dated October 14, 2003 (the "Prospectus"), of Group 1 Automotive, Inc., a
Delaware corporation (the "Company"), and this Letter of Transmittal (the
"Letter of Transmittal"), which together describe the Company's offer (the
"Exchange Offer") to exchange its 8.25% Senior Notes due August 15, 2013 (the
"New Notes") that have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), for a like principal amount of its issued and
outstanding 8.25% Senior Notes due August 15, 2013 (the "Outstanding Notes").
Capitalized terms used but not defined herein have the respective meaning given
to them in this Prospectus.
The Company reserves the right, at any time or from time to time, to extend
the Exchange Offer at its discretion, in which event the term "Expiration Date"
shall mean the latest date to which the Exchange Offer is extended. The Company
shall notify the Exchange Agent and each registered holder of the Outstanding
Notes of any extension by oral or written notice prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Such notice, in the case of any extension, will be issued by means of a
press release or other public announcement no later than 9:00 a.m., New York
City time, on the next business day after the previously scheduled expiration
date.
This Letter of Transmittal is to be used by holders of the Outstanding
Notes. Tender of Outstanding Notes is to be made according to the Automated
Tender Offer Program ("ATOP") of the Depository Trust Company ("DTC") pursuant
to the procedures set forth in the prospectus under the caption "The Exchange
Offer -- Procedures for Tendering." DTC participants that are accepting the
Exchange Offer must transmit their acceptance to DTC, which will verify the
acceptance and execute a book-entry delivery to the Exchange
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Agent's DTC account. DTC will then send a computer generated message known as an
"agent's message" to the exchange agent for its acceptance. For you to validly
tender your Outstanding notes in the Exchange Offer, the Exchange Agent must
receive prior to the Expiration Date, an agent's message under the ATOP
procedures that confirms that:
- DTC has received your instructions to tender your Outstanding Notes; and
- You agree to be bound by the terms of this Letter of Transmittal.
BY USING THE ATOP PROCEDURES TO TENDER OUTSTANDING NOTES, YOU WILL NOT BE
REQUIRED TO DELIVER THIS LETTER OF TRANSMITTAL TO THE EXCHANGE AGENT. HOWEVER,
YOU WILL BE BOUND BY ITS TERMS, AND YOU WILL BE DEEMED TO HAVE MADE THE
ACKNOWLEDGMENTS AND THE REPRESENTATIONS AND WARRANTIES IT CONTAINS, JUST AS IF
YOU HAD SIGNED IT.
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PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
1. By tendering Outstanding Notes in the Exchange Offer, you acknowledge
receipt of the Prospectus and this Letter of Transmittal.
2. By tendering Outstanding Notes in the Exchange Offer, you represent and
warrant that you have full authority to tender the Outstanding Notes described
above and will, upon request, execute and deliver any additional documents
deemed by the Company to be necessary or desirable to complete the tender of
Outstanding Notes.
3. You understand that the tender of the Outstanding Notes pursuant to all
of the procedures set forth in the Prospectus will constitute an agreement
between you and the Company as to the terms and conditions set forth in the
Prospectus.
4. By tendering Outstanding Notes in the Exchange Offer, you acknowledge
that the Exchange Offer is being made in reliance upon interpretations contained
in no-action letters issued to third parties by the staff of the Securities and
Exchange Commission (the "SEC"), including Exxon Capital Holdings Corp., SEC No-
Action Letter (available April 13, 1989), Morgan Stanley & Co., Inc., SEC
No-Action Letter (available June 5, 1991) and Shearman & Sterling, SEC No-Action
Letter (available July 2, 1993), that the New Notes issued in exchange for the
Outstanding Notes pursuant to the Exchange Offer may be offered for resale,
resold and otherwise transferred by holders thereof (other than a broker-dealer
who purchased Outstanding Notes exchanged for such New Notes directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act of 1933, as amended (the "Securities Act") and any such
holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act), provided that such New Notes are acquired in the
ordinary course of such holders' business and such holders are not participating
in, and have no arrangement with any person to participate in, the distribution
of such New Notes.
5. By tendering Outstanding Notes in the Exchange Offer, you represent and
warrant that:
a. the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of your business, whether or not you are
the holder;
b. neither you nor any such other person is engaging in or intends to
engage in a distribution of such New Notes;
c. neither you nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
New Notes; and
d. neither you nor any such other person is an "affiliate," as such
term is defined under Rule 405 promulgated under the Securities Act, of the
Company or if either you or such other person is an affiliate, you must
comply with the registration and delivery requirements of the Securities
Act in connection with any resale registration.
6. You may, if you are unable to make all of the representations and
warranties contained in Item 5 above and as otherwise permitted in the
Registration Rights Agreement (as defined below), elect to have your Outstanding
Notes registered in the shelf registration statement described in the
Registration Rights Agreement, dated as of August 13, 2003 (the "Registration
Rights Agreement"), by and among the Company, the Guarantors (as defined
therein) and the Initial Purchasers (as defined therein). Such election may be
made only by notifying the Company in writing at 950 Echo Lane, Suite 100,
Houston, Texas 77024, Attention: Chief Financial Officer. By making such
election, you agree, as a holder of Outstanding Notes participating in a shelf
registration, to indemnify and hold harmless the Company, each of the directors
of the Company, each of the officers of the Company who signs such shelf
registration statement, each person who controls the Company within the meaning
of either the Securities Act or the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and each other holder of Outstanding Notes, from and
against any and all losses, claims, damages or liabilities caused by any untrue
statement or alleged untrue statement of a material
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fact contained in any shelf registration statement or prospectus, or in any
supplement thereto or amendment thereof, or caused by the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; but only with respect to information
relating to the undersigned furnished in writing by or on behalf of the
undersigned expressly for use in a shelf registration statement, a prospectus or
any amendments or supplements thereto. Any such indemnification shall be
governed by the terms and subject to the conditions set forth in the
Registration Rights Agreement, including, without limitation, the provisions
regarding notice, retention of counsel, contribution and payment of expenses set
forth therein. The above summary of the indemnification provision of the
Registration Rights Agreement is not intended to be exhaustive and is qualified
in its entirety by the Registration Rights Agreement.
7. If you are a broker-dealer that will receive New Notes for its own
account in exchange for Outstanding Notes that were acquired as a result of
market-making activities or other trading activities, you acknowledge, by
tendering such Outstanding Notes in the Exchange Offer, that you will deliver a
prospectus in connection with any resale of such New Notes; however, by so
acknowledging and by delivering a prospectus, you will not be deemed to admit
that you are an "underwriter" within the meaning of the Securities Act. If you
are a broker-dealer and such Outstanding Notes held for your own account were
not acquired as a result of market-making or other trading activities, such
Outstanding Notes cannot be exchanged pursuant to the Exchange Offer.
8. Any of your obligations hereunder shall be binding upon your successors,
assigns, executors, administrators, trustees in bankruptcy and legal and
personal representatives of the undersigned.
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INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. BOOK-ENTRY CONFIRMATIONS.
Any confirmation of a book-entry transfer to the Exchange Agent's account
at DTC of Outstanding Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as an agent's message, and any other documents required
by this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein prior to 5:00 P.M., New York City time, on the
Expiration Date.
2. PARTIAL TENDERS.
Tenders of Outstanding Notes will be accepted only in integral multiples of
$1,000. The entire principal amount of Outstanding Notes delivered to the
exchange agent will be deemed to have been tendered unless otherwise
communicated to the exchange agent. If the entire principal amount of all
Outstanding Notes is not tendered, then Outstanding Notes for the principal
amount of Outstanding Notes not tendered and notes issued in exchange for any
Outstanding Notes accepted will be delivered to the holder via the facilities of
DTC promptly after the Outstanding Notes are accepted for exchange.
3. VALIDITY OF TENDERS.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, and withdrawal of tendered Outstanding Notes will be
determined by the Company, in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any or all
tenders not in proper form or the acceptance for exchange of any tenders which
may, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive any of the conditions of the Exchange Offer
or any defect or irregularity in the tender of any Outstanding Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions on this Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Outstanding Notes must be cured within such time as
the Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Outstanding Notes, neither
the Company, the Exchange Agent, nor any other person shall be under any duty to
give such notification of any defects or irregularities in tenders or incur any
liability for failure to give such notification. Tenders of Outstanding Notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any Outstanding Notes received by the Exchange Agent that
are not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the Exchange Agent to the tendering
holders via the facilities of DTC, as soon as practicable following the
Expiration Date.
4. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive, in whole or part, up to
the expiration of the exchange offer any of the conditions of the Exchange Offer
set forth in the Prospectus or in this Letter of Transmittal.
5. NO CONDITIONAL TENDER.
No alternative, conditional, irregular or contingent tender of Outstanding
Notes will be accepted.
6. REQUEST FOR ASSISTANCE OR ADDITIONAL COPIES.
Requests for assistance or for additional copies of the Prospectus or this
Letter of Transmittal may be directed to the Exchange Agent at the address or
telephone number set forth on the cover page of this Letter of Transmittal.
Holders may also contact their broker, dealer, commercial bank, trust company or
other nominee for assistance concerning the Exchange Offer.
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7. WITHDRAWAL.
Tenders may be withdrawn only pursuant to the limited withdrawal rights set
forth in the Prospectus under the caption "Exchange Offer -- Withdrawal of
Tenders."
8. NO GUARANTEE OF LATE DELIVERY.
There is no procedure for guarantee of late delivery in the Exchange Offer.
IMPORTANT: BY USING THE ATOP PROCEDURES TO TENDER OUTSTANDING NOTES, YOU
WILL NOT BE REQUIRED TO DELIVER THIS LETTER OF TRANSMITTAL TO THE EXCHANGE
AGENT. HOWEVER, YOU WILL BE BOUND BY ITS TERMS, AND YOU WILL BE DEEMED TO HAVE
MADE THE ACKNOWLEDGEMENTS AND THE REPRESENTATIONS AND WARRANTIES IT CONTAINS,
JUST AS IF YOU HAD SIGNED IT.
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Until January 12, 2004, all broker-dealers that effect transactions in the
new notes, whether or not participating in this offering, may be required to
deliver a prospectus. This is in addition to the broker-dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
Group 1 Automotive, Inc.
Offer to Exchange up to
$150,000,000 of 8.25% Senior Notes due August 15, 2013
For
$150,000,000 of 8.25% Senior Notes due August 15, 2013
that have been registered under the Securities Act of 1933
October 14, 2003
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