-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A8A0DJiDJy66x9ytl2+Wf8Q3eAaqyamYjnfeTuVJn+xx+ruCYitmvpstjQlgUb3F 3WIppZaDZNVTSNKVrtnERg== 0000950129-00-001532.txt : 20000331 0000950129-00-001532.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950129-00-001532 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GROUP 1 AUTOMOTIVE INC CENTRAL INDEX KEY: 0001031203 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 760506313 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13461 FILM NUMBER: 586442 BUSINESS ADDRESS: STREET 1: 950 ECHO LANE STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77024 BUSINESS PHONE: 7134676268 MAIL ADDRESS: STREET 1: 950 ECHO LANE STREET 2: STE 100 CITY: HOUSTON STATE: TX ZIP: 77024 10-K 1 GROUP 1 AUTOMOTIVE, INC. - DATED 12/31/99 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 COMMISSION FILE NUMBER: 1-13461 GROUP 1 AUTOMOTIVE, INC. (Exact name of Registrant as specified in its charter) DELAWARE 76-0506313 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 950 ECHO LANE, SUITE 100, HOUSTON, TEXAS 77024 (Address of principal executive offices) (Zip code) Registrant's telephone number including area code (713) 647-5700 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: Title of Securities Exchanges on which Registered ------------------- ----------------------------- COMMON STOCK, PAR VALUE $.01 PER SHARE NEW YORK STOCK EXCHANGE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 2 The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $216.4 million as of March 21, 2000 (based on the last sale price of such stock as quoted on the New York Stock Exchange). At such date there was no non-voting stock outstanding. As of March 21, 2000, there were 22,369,129 shares of Registrant's Common Stock, par value $.01 per share, outstanding. Documents incorporated by reference: Proxy Statement of Group 1 Automotive, Inc. for the Annual Meeting of Stockholders to be held on May 24, 2000, which is incorporated into Part III of this Form 10-K. 2 3 TABLE OF CONTENTS UNITED STATES................................................................................1 PART I.......................................................................................4 Item 1. Business...........................................................................4 Item 2. Properties........................................................................14 Item 3. Legal Proceedings.................................................................14 Item 4. Submission of Matters to a Vote of Security Holders...............................14 PART II.....................................................................................15 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.............15 Item 6. Selected Consolidated Financial Data..............................................16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................................17 Item 7A.Qualitative and Quantitative Disclosures About Market Risk........................25 Item 8. Financial Statements and Supplementary Data.......................................26 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure........................................................................26 PART III....................................................................................26 Item 10. Directors and Executive Officers of the Registrant...............................26 Item 11. Executive Compensation...........................................................26 Item 12. Security Ownership of Certain Beneficial Owners and Management...................26 Item 13. Certain Relationships and Related Transactions...................................26 PART IV.....................................................................................26 Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................26
3 4 PART I ITEM 1. BUSINESS GENERAL Group 1 Automotive, Inc. ("Group 1", the "Company", "we" or "us") is a leading operator and consolidator in the highly fragmented automotive retailing industry. Through a series of acquisitions, we own 98 dealership franchises. Our automobile dealership franchises are located in Texas, Oklahoma, Florida, New Mexico, Georgia, Colorado, Louisiana and Massachusetts. Through our dealerships, we sell new and used cars and light trucks, provide maintenance and repair services, sell replacement parts and arrange vehicle financing, insurance and service contracts. Additionally, we operate Internet web pages to market our products and services. OPERATING STRATEGY We follow an operating strategy that focuses on decentralized dealership operations, new technology initiatives, expansion of higher margin businesses, customer service and centralization of certain administrative functions. DECENTRALIZED DEALERSHIP OPERATIONS. We believe that by managing our dealerships on a decentralized basis, we provide superior customer service and a focused, market-specific responsiveness to sales, service, marketing and inventory control. Local presence and an in-depth knowledge of customers' needs and preferences are important in generating market share growth. By coordinating certain operations on a platform basis, we believe that we will achieve cost savings in such areas as advertising, vendor consolidation, data processing and personnel utilization. We create incentives for our management teams and sales forces through the use of stock options and cash bonus programs. INTERNET. We use the Internet to more effectively communicate with our customers. Customers can arrange service appointments, search our inventory and receive notice of special offers. Our platform portal web pages provide customers a direct one-stop shopping experience in their local market, providing multiple brands and an extensive inventory of vehicles. Also, as franchised dealerships, we receive Internet leads from manufacturers' e-commerce programs, and through a contractual relationship with an e-commerce software company, we receive Internet leads from several major portals. Lastly, at times, we use automotive Internet referral services to provide incremental sales opportunities. EXPAND HIGHER MARGIN ACTIVITIES. We focus on expanding our higher margin businesses such as used vehicle retail sales, parts and service and arranging vehicle service, finance and insurance contracts. While each of our platforms operates independently in a manner consistent with its specific market's characteristics, they also pursue an integrated company-wide strategy designed to grow each of these higher margin businesses to enhance profitability and stimulate internal growth. With a competitive advantage in sourcing inventory, new vehicle franchises are especially well positioned to capitalize on industry growth in used vehicle sales. In addition, each of our dealerships offers an integrated parts and service department, which provides an important source of recurring higher margin revenues. We also have the opportunity on each new or used vehicle sold to generate incremental revenues from the arranging of vehicle service contracts, credit insurance policies and finance or lease contracts. COMMITMENT TO CUSTOMER SERVICE. We focus on providing high quality service to meet the needs of customers. Our dealerships strive to cultivate lasting relationships with their customers, and we believe these efforts increase our opportunities for significant repeat and referral business. For example, the dealerships regard their service and repair activities as an integral part of their overall approach to customer service. This approach provides us with an opportunity to foster ongoing relationships with customers and deepen customer loyalty. In addition, our dealerships continually review their processes in an effort to better meet the needs of 4 5 their customers. Some of our dealerships utilize the one-price method of pricing their inventory for sale, while the majority of our dealerships utilize non-confrontational variable pricing. NATIONALLY CENTRALIZED ADMINISTRATIVE FUNCTIONS. We believe that by consolidating the purchasing power of our dealerships on a centralized basis we have benefited from significant cost savings. For example, since we began operations, we have reduced the interest rate on our floorplan financing through our consolidated credit facility. Furthermore, we have benefited from the consolidation of administrative functions such as risk management, employee benefits and employee training. GROWTH THROUGH ACQUISITIONS Under our acquisition program, we pursue: (1) "platform" acquisitions of large, profitable and well managed dealerships in large metropolitan and high-growth suburban geographic markets that we do not currently serve and (2) smaller "tuck-in" acquisitions to existing platforms that allow us to increase brand diversity, capitalize on economies of scale and offer a greater breadth of products and services in each of the markets in which we operate. We have used, and may in the future use, our common stock to fund a portion of our acquisitions. In addition, we have a revolving credit facility, which provides us with the ability to borrow up to $220 million for acquisitions. ENTERING NEW GEOGRAPHIC MARKETS. We intend to expand into geographic markets we do not currently serve by acquiring large, profitable and well-established megadealers that are leaders in their regional markets. We pursue megadealers that have superior operational and financial management personnel, which we seek to retain. We believe that by retaining existing high quality management we will be able to effectively operate acquired megadealers with management personnel who understand the local market without having to employ and train new and untested personnel. We believe that we are positioned to pursue larger, well-established acquisition candidates because of our depth of management, our capital structure and the reputation of our principals as leaders in the automotive retailing industry. EXPANDING WITHIN EXISTING MARKETS. We plan to make tuck-in acquisitions of additional dealerships in each of the markets in which we operate, including acquisitions that increase the brands, products and services offered in these markets. We believe that these acquisitions will increase our operating efficiencies and cost savings on a regional level in areas such as advertising, vendor consolidation, data processing and personnel utilization. RECENT ACQUISITIONS. Since December 31, 1999, we have completed acquisitions of 11 dealership franchises. One of these acquisitions is a new platform with 10 dealership franchises in Massachusetts. The remaining acquisition is a tuck-in, which will complement our platform operations in Florida. These acquisitions bring our total number of dealership franchises to 98. The aggregate consideration paid in completing these acquisitions, including real estate acquired, was approximately $29.3 million in cash and 330,000 shares of our Common Stock and the assumption of an estimated $32.6 million of inventory financing and $10.7 million of mortgage and other debt. In connection with these acquisitions, certain of the former owners involved in the management of the dealerships executed long-term employment agreements that contain post-employment non-competition covenants. 5 6 DEALERSHIP OPERATIONS Each of our platforms has an established management structure that promotes and rewards entrepreneurial spirit, and the achievement of team goals. The general manager of each dealership is ultimately responsible for the operation, personnel and financial performance of the dealership. The general manager is complemented with a management team consisting of a new vehicle sales manager, used vehicle sales manager, parts and service managers and finance managers. Each dealership is operated as a distinct profit center, in which dealership general managers are given a high degree of autonomy. The general manager and the other members of the dealership management team, as long-time members of their local communities, are typically best able to judge how to conduct day-to-day operations based on their experience in and familiarity with the local market. NEW VEHICLE SALES. We currently represent 29 American, Asian and European brands of economy, family, sports and luxury cars, light trucks and sport utility vehicles. The following table sets forth for the twelve months ended December 31, 1999, the brands of new vehicles sold at retail by us on an actual and on a pro forma basis assuming that all of our dealerships (acquired by December 31, 1999) were acquired on January 1, 1999. These results may not be indicative of our results after the acquisition of the dealerships by us:
PRO FORMA ACTUAL NUMBER OF NEW PERCENTAGE OF NUMBER OF NEW MANUFACTURER VEHICLES SOLD PRO FORMA TOTAL VEHICLES SOLD ---------------------- --------------------- ------------------ ----------------- Ford................ 26,221 35.4% 17,767 Toyota.............. 9,272 12.5% 7,616 Chevrolet........... 6,354 8.6% 6,354 Dodge............... 5,486 7.4% 4,600 Nissan.............. 4,554 6.1% 4,554 Honda............... 3,533 4.8% 3,533 Lexus............... 2,827 3.8% 2,827 GMC................. 2,169 2.9% 1,699 Plymouth............ 2,051 2.8% 1,807 Chrysler............ 1,900 2.5% 1,695 Mitsubishi.......... 1,751 2.4% 1,409 Jeep................ 1,698 2.3% 1,603 Acura............... 1,491 2.0% 1,491 Pontiac............. 1,471 2.0% 1,140 Isuzu............... 977 1.3% 851 Mercedes-Benz....... 607 0.8% 211 Buick............... 321 0.4% 301 Volkswagen.......... 281 0.4% 196 Cadillac............ 243 0.3% 192 Volvo............... 213 0.3% 59 Other............... 754 1.0% 479 --------------------- ------------------ ----------------- TOTAL.......... 74,174 100.0% 60,384 ===================== ================== =================
Our dealerships' new vehicle retail sales include traditional new vehicle retail lease transactions and lease-type transactions, both of which are arranged by the dealerships. New vehicle leases generally have short terms, bringing the customer back to the market sooner than if the purchase were debt financed. In addition, leases provide our dealerships with a steady source of late-model, off-lease vehicles for their used vehicle inventory. Generally, leased vehicles remain under factory warranty for the term of the lease, allowing the dealerships to provide repair service to the lessee throughout the lease term. Our dealerships seek to provide customer-oriented service designed to meet the needs of its customers and establish lasting relationships that will result in repeat and referral business. 6 7 The dealerships continually evaluate innovative ways to improve the buying experience for their customers. We believe that our ability to share best practices among our dealerships gives us an advantage over smaller dealerships. For example, the dealerships strive to: (1) employ more efficient selling approaches; (2) utilize computer technology that decreases the time necessary to purchase a vehicle; (3) engage in extensive follow-up after a sale in order to develop long-term relationships with customers; and (4) extensively train their sales staffs to be able to meet the needs of the customer. Our dealerships acquire substantially their entire new vehicle inventory from the automobile manufacturers ("Manufacturers"). Manufacturers allocate a limited inventory among their franchised dealers based primarily on sales volume and input from dealers. The dealerships generally finance their inventory purchases through revolving credit arrangements, including a portion of our credit facility, known in the industry as floorplan facilities. USED VEHICLE SALES. We sell used vehicles at each of our franchised dealerships. Sales of used vehicles have become an increasingly significant source of profit for the dealerships. Consumer demand for used vehicles has increased as prices of new vehicles have risen and as more high quality used vehicles have become available. Furthermore, used vehicles typically generate higher gross margins than new vehicles because of their limited comparability and the somewhat subjective nature of their valuation. We intend to continue growing our used vehicle sales operations by maintaining a high quality inventory, providing competitive prices and offering vehicle service contracts for our used vehicles, and continuing to promote used vehicle sales. Profits from sales of used vehicles depend primarily on the dealerships' ability to obtain a high quality supply of used vehicles and effectively manage that inventory. Our new vehicle operations provide the used vehicle operations with a large supply of high quality trade-ins and off-lease vehicles, which are the best sources of high quality used vehicles. The dealerships supplement their used vehicle inventory with used vehicles purchased at auctions. Each of the dealerships generally maintains a 30-day supply of used vehicles and offers to other dealers and wholesalers used vehicles that they do not retail to customers. Trade-ins may be transferred among our dealerships to provide balanced inventories of used vehicles at each of our dealerships. Our dealerships have taken several steps towards building client confidence in their used vehicle inventory, one of which includes their participation in the manufacturer certification processes, which are available only to new vehicle franchises. This process makes these used vehicles eligible for new vehicle benefits such as new vehicle finance rates and extended manufacturer service contracts. In addition, the dealerships offer vehicle service contracts covering the used vehicles that they sell. We believe that our franchised dealerships' strengths in offering used vehicles include: (1) access to trade-ins on new vehicle purchases, which are typically lower mileage and higher quality relative to trade-ins on used car purchases, (2) access to late-model, low mileage off-lease vehicles, and (3) the availability of manufacturer certification programs for our higher quality used vehicles. A supply of high quality trade-ins and off-lease vehicles reduces our dependence on auction vehicles, which are typically a higher cost source of used vehicles. PARTS AND SERVICE SALES. We provide parts and service at each of our franchised dealerships primarily for the vehicle makes sold at that dealership. We perform both warranty and non-warranty service work. In addition to each of our dealerships' parts and service businesses, we currently own 19 collision service centers. 7 8 Historically, the automotive repair industry has been highly fragmented. However, we believe that the increased use of advanced technology in vehicles has made it difficult for independent repair shops to retain the expertise to perform major or technical repairs. Additionally, Manufacturers permit warranty work to be performed only at franchised dealerships. Hence, unlike independent service operations, our franchised dealerships are qualified to perform work covered by Manufacturer warranties. Given the increasing technological complexity of motor vehicles and the trend toward extended manufacturer and dealer warranty periods for new vehicles, we believe that an increasing percentage of repair work will be performed at our franchised dealerships, each of which have the sophisticated equipment and skilled personnel necessary to perform such repairs and offer vehicle service contracts. We attribute our profitability in parts and service to a comprehensive management system, including the use of variable rate pricing structures, cultivation of strong customer relationships through an emphasis on preventive maintenance and the efficient management of parts inventory. In charging for their mechanics' labor, our dealerships use variable rate structures designed to reflect the difficulty and sophistication of different types of repairs. The percentage mark-ups on parts are similarly priced based on market conditions for different parts. We believe that variable rate pricing helps our dealerships achieve overall gross margins in parts and service which are superior to those of certain competitors who rely on fixed labor rates and percentage markups. Additionally, it allows the dealership to be competitive with local service centers that provide discounted pricing on select services. Our dealerships seek to retain each vehicle purchaser as a customer of the dealership's parts and service departments. The dealerships have systems in place that track their customers' maintenance records and notify owners of vehicles purchased or serviced at the dealerships when their vehicles are due for periodic services. The dealerships regard service and repair activities as an integral part of their overall approach to customer service, providing an opportunity to foster ongoing relationships with the dealership's customers and deepen customer loyalty. The dealerships' parts departments support their respective sales and service departments. Each of the dealerships sells factory-approved parts for vehicle makes and models sold by that dealership. These parts are either used in repairs made by the dealership, sold at retail to its customers or at wholesale to independent repair shops and other franchised dealerships. Currently, each of the dealerships employs its own parts manager and independently controls its parts inventory and sales. Our dealerships that sell the same new vehicle makes have access to each other's computerized inventories and frequently obtain unstocked parts from our other dealerships. OTHER DEALERSHIP REVENUES. Other dealership revenues consist primarily of finance, vehicle service contract and insurance income. The dealerships arrange financing for their customers' vehicle purchases, sell vehicle service contracts and arrange selected types of credit insurance in connection with the financing of vehicle sales. The dealerships place heavy emphasis on finance and insurance ("F&I") and offer advanced F&I training to their finance and insurance managers. Typically, the dealerships forward proposed financing contracts to Manufacturers' captive finance companies, selected commercial banks or other financing parties. The dealerships receive a financing fee from the lender for arranging the financing and are typically assessed a chargeback against a portion of the financing fee if the contract is terminated prior to its scheduled maturity for any reason, such as early repayment or default. As a result, the dealerships must arrange financing for a customer that is competitive (i.e., the customer is more likely to accept the financing terms and the loan is less likely to be refinanced) and affordable (i.e., the loan is more likely to be repaid). We do not own a finance company and, generally, do not retain significant credit risk after a loan is made. At the time of a new vehicle sale, the dealerships offer vehicle service contracts to supplement the manufacturer warranty. Additionally, the dealerships sell primary vehicle service contracts for used vehicles. Generally, the dealerships sell service contracts of third party vendors, for which they recognize a commission upon the sale of the contract. 8 9 The dealerships also offer certain types of credit insurance to customers who arrange the financing of their vehicle purchases through the dealerships. The dealerships sell credit life insurance policies to these customers, providing for repayment of the vehicle loan if the obligor dies while the loan is outstanding. The dealerships also sell accident and disability insurance policies, which provide payment of the monthly loan obligations during a period in which the obligor is disabled. The dealerships sell such insurance through third party vendors, for which they recognize a commission upon the sale of the contract. AGREEMENTS WITH MANUFACTURERS The following table sets forth the percentage of our new vehicle retail unit sales attributable to the Manufacturers we represented during 1999 that accounted for 10% or more of new vehicle retail unit sales, on a pro forma basis giving effect to all of our acquisitions in 1999:
PERCENTAGE OF OUR NEW VEHICLE PRO FORMA RETAIL UNITS FOR THE TWELVE MONTHS ENDED MANUFACTURER DECEMBER 31, 1999 ------------ ----------------- Ford.................................. 35.8% Toyota/Lexus.......................... 16.3% DaimlerChrysler....................... 15.8% General Motors........................ 14.4%
FRANCHISE AGREEMENTS. Each of our dealerships operates under a franchise agreement with one of our Manufacturers (or authorized distributors). Under our dealership franchise agreements, the Manufacturers exert considerable influence over the operations of our dealerships. Each of the franchise agreements may be terminated or not renewed by the Manufacturer for a variety of reasons, including any unapproved changes of ownership or management. While we believe that we will be able to renew all of our franchise agreements, we cannot guarantee that all of our franchise agreements will be renewed or that the terms of the renewals will be favorable to us. Our franchise agreements do not give us the exclusive right to sell a Manufacturer's product within a given geographic area. Accordingly, a Manufacturer may, subject to any protection of state law, grant another dealer a franchise to start a new dealership near one of our locations, or an existing dealer may move its dealership to a location which would compete directly with us. Acquisitions. We must obtain the consent of the Manufacturer prior to the acquisition of any of its dealership franchises. Delays in obtaining, or failing to obtain, Manufacturer approvals for dealership acquisitions could adversely affect our growth strategy. Obtaining the consent of a Manufacturer for the acquisition of a dealership could take a significant amount of time or might be rejected entirely. In determining whether to approve an acquisition, Manufacturers may consider many factors, including the moral character and business experience of the dealership principals and the financial condition, ownership structure and customer satisfaction index scores of our dealerships. 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, 9 10 and they may replace them with different systems. In addition, a Manufacturer may limit the number of its dealerships that we may own or the number that we may own in a particular geographic area. The following is a summary of the restrictions imposed by our Manufacturers that accounted for 10% or more of new vehicle retail unit sales. Ford. Ford currently limits the number of dealerships that we may own to the greater of (1) 15 Ford and 15 Lincoln Mercury dealerships and (2) that number of Ford and Lincoln Mercury dealerships accounting for 5% of the preceding year's total Ford, Lincoln and Mercury retail sales of those brands in the United States. In addition, Ford limits us to one Ford dealership in a Ford-defined market area having two or less authorized Ford dealerships and one-third of Ford dealerships in any Ford-defined market area having more than three authorized Ford dealerships. In many of its dealership franchise agreements Ford has the right of first refusal to acquire, subject to applicable state law, the Ford franchised dealership when its ownership changes. Toyota. Toyota restricts the number of dealerships that we may own and the time frame over which they may be acquired. We can acquire no more than two Toyota dealerships in each semi-annual period from January to June and July to December until we acquire a total of seven Toyota dealerships. After we acquire seven Toyota dealerships we can acquire, if we are then qualified, additional dealerships, over a minimum of seven semi-annual periods, up to a maximum number of dealerships equal to 5% of Toyota's aggregate national annual retail sales volume. In addition, Toyota restricts the number of Toyota dealerships that we may acquire in any Toyota-defined region and "Metro" market, as well as any contiguous market. We may acquire only three Lexus dealerships nationally and two Lexus dealerships in any one of the four Lexus geographic areas. While we own a Lexus companion dealership located south of Houston, this dealership is not considered by Lexus to be a new and separate Lexus dealership for purposes of the restriction on the number of Lexus dealerships we may acquire. Chrysler. Currently, we have no agreement with Chrysler restricting our ability to acquire Chrysler dealerships. Chrysler has advised us that in determining whether to approve an acquisition of a Chrysler dealership, Chrysler considers the number of Chrysler dealerships the acquiring company already owns. Chrysler currently considers carefully, on a case-by-case basis, any acquisition that would cause the acquiring company to own more than 10 Chrysler dealerships nationally, six in the same Chrysler-defined zone and two in the same market. General Motors. General Motors currently 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. 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. We currently own 13 Ford, 29 Chrysler, five Toyota and two Lexus dealership franchises. Under current restrictions, we may acquire the maximum number of Toyota dealerships described above based on aggregate national retail sales volume of Toyota, two additional Lexus dealerships and approximately 400 additional Ford, Lincoln and Mercury dealerships. 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 with General Motors contains provisions prohibiting pledging the stock of our GM franchised dealerships. Our agreement with Ford permits pledging our Ford franchised dealerships' stock and assets, but only for Ford dealership-related debt. Moreover, our Ford agreement permits our Ford franchised dealerships to guarantee, and to use Ford franchised dealership assets to secure, our debt, but only for Ford dealership-related debt. Ford waived that requirement with respect to the Notes and the subsidiary guarantees of the Notes. 10 11 Certain 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. OUR OWNERSHIP AND MANAGEMENT. As a condition to granting their consent to our previous acquisitions and our initial public offering, some Manufacturers have imposed other restrictions on us. These restrictions prohibit, among other things: o any one person, who in the opinion of the Manufacturer is unqualified to own its franchised dealership or has interests incompatible with the Manufacturer, from acquiring more than a specified percentage of our common stock (for example, 20% in the case of General Motors and Toyota, and 50% in the case of Ford); o certain material changes in us or extraordinary corporate transactions such as a merger or sale of a material amount of our assets; o the removal of a dealership general manager without the consent of the Manufacturer; o the use of dealership facilities to sell or service new vehicles of other Manufacturers, in certain situations; and o change in control of our Board of Directors or management. If we are unable to comply with these restrictions, we generally must (1) sell the assets of the dealerships to the Manufacturer or to a third party acceptable to the Manufacturer, or (2) terminate the dealership agreements with the Manufacturer. The Manufacturers may impose additional restrictions on us in the future. OPERATIONS. We depend on our Manufacturers for operational support: o We depend on the Manufacturers to provide us with a desirable mix of new vehicles. The most popular vehicles usually produce the highest profit margins and are frequently difficult to obtain from the Manufacturers. If we cannot obtain sufficient quantities of the most popular models, our profitability may be adversely affected. Sales of less desirable models may reduce our profit margins. o We depend on the Manufacturers for sales incentives and other programs that are intended to promote dealership sales or support dealership profitability. Manufacturers historically have made many changes to their incentive programs during each year. A discontinuation or change in Manufacturers' incentive programs could adversely affect our business. Moreover, some Manufacturers use a dealership's CSI scores as a factor for participating in incentive programs. Failure to comply with the CSI standards could adversely affect our participation in dealership incentive programs, which could have a material adverse effect on us. Our Manufacturer agreements also specify that, in certain situations, we cannot operate a dealership franchised by another Manufacturer in the same building as that Manufacturer's franchised dealership. In addition, some Manufacturers, like GM, are in the process of realigning their franchised dealerships along defined "channels", such as combining Pontiac, Buick and GMC in one dealership location. As a result, GM may require us to move or sell some dealerships. Moreover, our Manufacturers generally require that the dealership premises meet defined image standards. All of these requirements could impose significant capital expenditures on us in the future. COMPETITION The automotive retailing industry is highly competitive. In large metropolitan areas consumers have a number of choices in deciding where to purchase a new or used vehicle and where to have such vehicle serviced. 11 12 In the new vehicle area, our dealerships compete with other franchised dealerships in their marketing areas. 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 recent years, automobile dealers have also faced increased competition in the sale or lease of new vehicles from independent leasing companies, on-line purchasing services and warehouse clubs. In addition, Ford has started to acquire and subsequently operate automobile dealerships for the purpose of consolidating Ford dealerships. For example, Ford acquired dealerships in Tulsa, Oklahoma and entered into an agreement with Autonation, Inc. to jointly acquire Ford dealerships in Rochester, New York. In used vehicles, our dealerships compete with other franchised dealers, independent used car dealers, automobile rental agencies and private parties for supply and resale of used vehicles. Our dealerships compete against franchised dealers to perform warranty repairs and against other automobile dealers, franchised and independent service center chains and independent garages for non-warranty repair and routine maintenance business. The dealerships compete with other automobile dealers, service stores and auto parts retailers in their parts operations. We believe that the principal competitive factors in parts and service sales are price, the use of factory-approved replacement parts, the familiarity with a Manufacturer's brands and models and the quality of customer service. A number of regional or national chains offer selected parts and services at prices that may be lower than the dealerships prices. In addition to competition from traditional franchised dealerships, we are facing the threat of competition from start-up Internet-based automotive retailers that sell new and used vehicles. We expect this competition to intensify in the future. Currently, these companies are acquiring new vehicles from franchised dealerships, such as ours, and are attempting to divert a portion of the profits from these sales to themselves. We believe some Internet-based retailers may attempt to acquire dealership franchises in an effort to obtain vehicles directly from the manufacturers. Additional Internet-based retailers may enter our market. Many of these present and potential competitors on the Internet may have greater technical capabilities and access to greater financial resources than we have. This may place us at a disadvantage in responding to the Internet offerings of these competitors, technological changes in the Internet or changes in our customers' requirements. GOVERNMENTAL REGULATIONS A number of regulations affect our business of marketing, selling, financing and servicing automobiles. We are also subject to laws and regulations relating to business corporations generally. Generally, we must obtain a license in order to establish, operate or relocate a dealership or provide certain automotive repair services. These laws also regulate the way we conduct our business, including our advertising and sales practices. Our financing activities with our customers are subject to federal truth in lending, consumer leasing and equal credit opportunity regulations as well as state and local motor vehicle finance laws, installment finance laws, insurance laws, usury laws and other installment sales laws. Some states regulate finance fees that may be paid as a result of vehicle sales. Penalties for violation of any of these laws or regulations may include revocation of certain licenses, assessment of criminal and civil fines and penalties, and in certain instances, create a private cause of action for individuals. We believe that our dealerships comply substantially with all laws and regulations affecting their business and do not have any material liabilities under such laws and regulations and that compliance with all such laws and regulations will not, individually or in the aggregate, have a material adverse effect on its capital expenditures, earnings, or competitive position. 12 13 ENVIRONMENTAL MATTERS We are subject to a wide range of federal, state, and local environmental laws and regulations, including those governing discharges into the air and water, the storage of petroleum substances and chemicals, the handling and disposal of wastes, and the remediation of contamination arising from spills and releases. As with automobile dealerships generally, and parts, service and collision service center operations in particular, our business involves the generation, use, handling, storage, transport and disposal of hazardous or toxic substances or wastes. Operations involving the management of hazardous and nonhazardous wastes are subject to requirements of the federal Resource Conservation and Recovery Act and comparable state statutes. Pursuant to these laws, federal and state environmental agencies have established approved methods for storage, treatment, and disposal of regulated wastes with which we must comply. Our business involves the use of aboveground and underground storage tanks. Under applicable laws and regulations, we are responsible for the proper use, maintenance and abandonment of regulated storage tanks which we own or operate, and for remediation of subsurface soils and groundwater impacted by releases from such existing or abandoned aboveground or underground storage tanks. In addition to these regulated tanks, we own, operate, or have otherwise abandoned, other underground and aboveground devices or containers (e.g., automotive lifts and service pits) that may not be classified as regulated tanks, but which are capable of releasing stored materials into the environment, thereby potentially obligating us to remediate any soils or groundwater resulting from such releases. We are also subject to laws and regulations governing remediation of contamination at facilities we operate or to which we send hazardous or toxic substances or wastes for treatment, recycling or disposal. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without regard to fault or the legality of the original conduct, on certain classes of persons that are considered to have contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that disposed or arranged for the disposal of the hazardous substances released at such sites. Under CERCLA, these "responsible parties" may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the release of hazardous substances. Further, the Federal Water Pollution Control Act, also known as the Clean Water Act, and comparable state laws prohibit discharges of pollutants into regulated waters without authorized National Pollution Discharge Elimination System (NPDES) and similar state permits, require containment of potential discharges of oil or hazardous substances, and require preparation of spill contingency plans. Environmental laws and regulations have become very complex and stringent over the years, and the task of achieving and maintaining full compliance with all applicable environmental laws and regulations has become much more rigorous. We currently own or lease, and in connection with our acquisition program will in the future own or lease, properties that in some instances have been used for auto retailing and servicing for many years. Although we have utilized operating and disposal practices that were standard in the industry at the time, it is possible that environmentally sensitive materials such as new and used motor oil, transmission fluids, antifreeze, lubricants, solvents and motor fuels may have been spilled or released on or under the properties owned or leased by us or on or under other locations where such materials were taken for disposal. Further, we believe that structures found on some of these properties may contain suspect asbestos-containing materials, albeit in nonfriable, undisturbed condition. In addition, many of these properties have been operated by third parties whose use, handling and disposal of such environmentally sensitive materials were not under the Company's control. 13 14 These properties and the waste materials spilled, released or otherwise found thereon may be subject to RCRA, CERCLA, the federal Clean Air Act and analogous state laws. Under such laws, we could be required to remove or remediate previously spilled or released waste materials (including such materials spilled or released by prior owners or operators), or property contamination (including groundwater contamination caused by prior owners or operators), or to perform monitoring or remedial activities to prevent future contamination (including asbestos found to be in a friable and disturbed condition). However, we believe that we are not subject to any material environmental liabilities and that compliance with environmental laws and regulations does not have a material adverse effect on our operations, earnings or competitive position. Moreover, we generally obtain environmental studies on dealerships to be acquired and, as necessary, implement environmental management or remedial activities to reduce the risk of noncompliance with environmental laws and regulations. EMPLOYEES As of December 31, 1999, we employed approximately 4,400 people, of whom approximately 540 were employed in managerial positions, 1,420 were employed in non-managerial sales positions, 2,020 were employed in non-managerial parts and service positions and 420 were employed in administrative support positions. We believe that our relationships with our employees are favorable. None of our employees are represented by a labor union, however, because of our dependence on the Manufacturers we may be affected by labor strikes, work slowdowns and walkouts at the Manufacturers' manufacturing facilities. ITEM 2. PROPERTIES We use a number of facilities to conduct our dealership operations. Each of our dealerships may include facilities for (1) new and used vehicle sales, (2) vehicle service operations, (3) retail and wholesale parts operations, (4) collision service operations, (5) storage and (6) general office use. We try to structure our operations so as to avoid the ownership of real property. In connection with our acquisitions, we generally seek to lease rather than acquire the facilities on which the acquired dealerships are located. We generally enter into lease agreements with respect to such facilities that have 30-year terms and, with respect to third-party leases, are cancelable at our option after an initial 15-year period and at the end of each subsequent five-year period. Related party leases are generally renewable at our option after an initial 15-year period and at the end of each subsequent five-year period, up to a term of 30 years. As a result, we lease the majority of our facilities, and these facilities are subject to long-term leases. ITEM 3. LEGAL PROCEEDINGS From time to time, our dealerships are named in claims involving the manufacture of automobiles, contractual disputes and other matters arising in the ordinary course of business. Currently, no legal proceedings are pending against or involve us that, in our opinion, could be expected to have a material adverse effect on our business, financial condition or results of operations. Because of their vehicle inventory and nature of business, automobile dealerships generally require significant levels of insurance covering a broad variety of risks. Our insurance includes an umbrella policy with a $100 million per occurrence limit as well as insurance on real property, comprehensive coverage for vehicle inventory, general liability insurance, employee dishonesty coverage and errors and omissions insurance in connection with vehicle sales and financing activities. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 14 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is listed on the New York Stock Exchange ("NYSE") under the symbol "GPI". There were 161 holders of record of our Common Stock as of March 21, 2000. The following table presents the quarterly high and low sales prices for our common stock since our initial public offering, as reported on the New York Stock Exchange Composite Tape under the symbol "GPI".
HIGH LOW ---------------- ------------- 1997: Fourth Quarter (commencing October 30, 1997) $13 15/16 $7 3/4 1998: First Quarter 11 1/2 8 5/8 Second Quarter 18 1/2 10 15/16 Third Quarter 18 1/2 11 3/8 Fourth Quarter 26 12 15/16 1999: First Quarter 30 18 5/16 Second Quarter 26 15/16 20 11/16 Third Quarter 25 1/2 17 3/4 Fourth Quarter 18 3/8 12 3/4 2000: First Quarter (through March 21, 2000) 14 5/8 9 1/2
We have never declared or paid dividends on our Common Stock. We intend to retain future earnings, if any, to finance the development and expansion of our business and, therefore, do not anticipate paying any cash dividends on our Common Stock in the foreseeable future. The decision whether to pay dividends will be made by our Board of Directors after considering our results of operations, financial condition, capital requirements, general business conditions and other factors. Certain provisions of the Credit Facility and the senior subordinated notes require us to maintain certain financial ratios and prohibit us from making substantial disbursements outside the ordinary course of business, including limitations on the payment of cash dividends. In addition, pursuant to the automobile franchise agreements to which our dealerships are subject, all dealerships are required to maintain a certain minimum working capital. We have entered into agreements to purchase all of the outstanding capital stock or purchase certain assets and assume certain liabilities of various automobile dealerships for cash and shares of our Common Stock. The following is a summary of the transactions in which stock has been issued:
DATE SECURITIES DATE OF AGREEMENT ISSUED ACQUISITION SHARES - ---------------------- --------------------- ----------------------------- ---------- December 17, 1997 March 24, 1999 Carroll Automotive Group 20,981 February 25, 1998 March 15, 1999 Johns Automotive Group 151,260 November 20, 1998 February 4, 1999 Sunshine Buick, Pontiac, GMC 17,826 November 25, 1998 April 14, 1999 Tidwell Ford 346,558 January 25, 1999 June 9, 1999 Messer Automotive Group 393,226 July 28, 1999 November 12, 1999 Bohn Automotive Group 497,999 July 28, 1999 January 3, 2000 Bohn Automotive Group 300,998 August 10, 1999 February 16, 2000 Ira Automotive Group 332,890 November 4, 1999 November 4, 1999 SMC Investments, Inc. 667,435
15 16 We are relying on Regulation D and Section 4(2) under the Securities Act of 1933, as amended, as an exemption from registration of the Common Stock to be issued in the acquisitions. We believe we are justified in relying on such exemption since all but two stockholders of the groups who have received shares of our Common Stock are "accredited investors" under Regulation D. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA We acquired four automobile dealership groups on November 3, 1997 (the "founding groups"). For financial statement presentation purposes, however, the Howard Group, one of the founding groups, has been identified as the accounting acquirer. As such, the financial data as of December 31, 1996 and 1995, and for each of the two years in the period ended December 31, 1996 represent the historical financial data of the Howard Group on a stand-alone basis. The financial data as of and for the year ended December 31, 1997, includes the operations of Group 1 Automotive, Inc., the parent company, and the founding groups, excluding the Howard Group, beginning October 31, 1997, the effective closing date of the acquisitions for accounting purposes. The Howard Group is included for the entire year ended December 31, 1997. The financial data as of and for the years ended December 31, 1999 and 1998, includes the operations of Group 1 and the founding groups from January 1, 1998 and the dealerships acquired since January 1, 1998, from the effective dates of the acquisitions. The following selected historical financial data as of December 31, 1999, 1998, 1997, 1996 and 1995, and for each of the five years in the period ended December 31, 1999, have been derived from audited financial statements.
YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------------------------------------------------------- (dollars in thousands, except per share amounts) INCOME STATEMENT DATA: Revenues...................... $2,508,324 $1,630,057 $403,967 $281,492 $254,003 Cost of sales................. 2,131,967 1,393,547 349,366 241,898 219,907 ------------------------------------------------------------- Gross profit................ 376,357 236,510 54,601 39,594 34,096 Selling, general and administrative expenses..... 279,791 178,038 43,360 30,027 25,628 Depreciation and amortization. 10,616 6,426 1,020 741 538 ------------------------------------------------------------- Income from operations...... 85,950 52,046 10,221 8,826 7,930 Other income (expense): Floorplan interest expense.. (20,395) (12,837) (3,810) (3,112) (3,410) Other interest expense, net. (10,052) (4,027) (176) (56) (61) Other income (expense), net. 186 39 156 (69) (80) ------------------------------------------------------------- Income before income taxes.. 55,689 35,221 6,391 5,589 4,379 Provision for income taxes.... 22,174 14,502 573 382 744 ------------------------------------------------------------- Net income.................. $33,515 $20,719 $5,818 $5,207 $3,635 ============================================================= Earnings per share: - Basic....................... $1.62 $1.20 - - - Diluted..................... $1.55 $1.16 - - Weighted average shares outstanding: Basic....................... 20,683,308 17,281,165 - - - Diluted..................... 21,558,920 17,904,878 - - -
16 17
AS OF DECEMBER 31, ------------------------------------------------------------ 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ----------- (in thousands) BALANCE SHEET DATA: Working capital................. $ 80,128 $ 48,251 $ 55,475 $ 9,327 $ 7,538 Inventories..................... 386,255 219,176 105,421 47,674 39,573 Total assets.................... 842,910 477,710 213,149 72,874 61,641 Total long-term debt, including current portion............. 114,250 45,787 9,369 344 284 Stockholders' equity............ 232,029 136,184 89,372 12,210 8,620
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW We are a leading operator and consolidator in the highly fragmented automotive retailing industry. We own automobile dealership franchises located in Texas, Oklahoma, Florida, New Mexico, Georgia, Colorado, Louisiana and Massachusetts. Through our dealerships and Internet sites, we sell new and used cars and light trucks, provide maintenance and repair services at all of our dealerships, and operate 19 collision service centers. We expect a significant portion of our future growth to come from acquisitions of additional dealerships. We have diverse sources of revenues, including: new car sales, new truck sales, used car sales, used truck sales, manufacturer remarketed vehicle sales, parts sales, service sales, collision repair services, finance fees, insurance commissions, vehicle service contract commissions, documentary fees and after-market product sales. Sales revenues from new and used vehicle sales and parts and service sales include sales to retail customers, other dealerships and wholesalers. Other dealership revenue includes revenues from arranging financing, insurance and vehicle service contracts, net of a provision for anticipated chargebacks, and documentary fees. Our total gross margin varies as our merchandise mix (the mix between new vehicle sales, used vehicle sales, parts and service sales, collision repair services and other dealership revenues) changes. Our gross margin on the sale of products and services generally varies between approximately 7.0% and 85.0%, with new vehicle sales generally resulting in the lowest gross margin and other dealership revenue sales generally resulting in the highest gross margin. When our new vehicle sales increase or decrease at a rate greater than our other revenue sources, our gross margin responds inversely. Factors such as seasonality, weather, cyclicality and manufacturers' advertising and incentives may impact our merchandise mix, and therefore influence our gross margin. Selling, general and administrative expenses consist primarily of compensation for sales, administrative, finance and general management personnel, rent, marketing, insurance and utilities. Interest expense consists of interest charges on interest-bearing debt, including floorplan inventory financing, net of interest income earned. Until we acquired them, all of the dealerships had been managed as independent private companies and their results of operations reflect different tax structures (S Corporations and C Corporations), which influenced, among other things, their historical levels of owners' compensation. Certain of these owners and key employees agreed to reductions in their compensation and benefits in connection with their acquisition by us. We are integrating certain functions and installing practices that have been successful at other franchises and in other retail segments ("best practices"). This integration of functions and installation of best practices may present opportunities to increase revenues and reduce costs but may also necessitate additional costs and expenditures for corporate administration, including expenses necessary to implement our acquisition strategy. These various costs and possible cost-savings and revenue enhancements may make historical operating results difficult to compare to and not indicative of, future performance. 17 18 RESULTS OF OPERATIONS SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE YEARS ENDED DECEMBER 31, 1999 AND DECEMBER 31, 1998 NEW VEHICLE DATA
(dollars in thousands, except per unit amounts) INCREASE/ PERCENT 1999 1998 (DECREASE) CHANGE ---- ---- ---------- ------ Retail unit sales................... 60,384 39,822 20,562 51.6 % Retail sales revenues............... $1,465,759 $931,205 $534,554 57.4 % Gross profit........................ $121,639 $74,096 $47,543 64.2 % Average gross profit per retail unit sold........................... $2,014 $1,861 $153 8.2 % Gross margin........................ 8.3 % 8.0 % 0.3 % -
USED VEHICLE DATA
(dollars in thousands, except per unit amounts) INCREASE/ PERCENT 1999 1998 (DECREASE) CHANGE ---- ---- ---------- ------ Retail unit sales................... 45,630 31,248 14,382 46.0 % Retail sales revenues (1)........... $606,764 $411,065 $195,699 47.6 % Gross profit........................ $59,308 $38,282 $21,026 54.9 % Average gross profit per retail unit sold........................... $1,300 $1,225 $75 6.1 % Gross margin........................ 9.8 % 9.3 % 0.5 % -
- ------------------ (1) Excludes wholesale revenues PARTS AND SERVICE DATA
(dollars in thousands) INCREASE/ PERCENT 1999 1998 (DECREASE) CHANGE ---- ---- ---------- ------ Sales revenues...................... $212,970 $139,144 $73,826 53.1 % Gross profit........................ $116,622 $74,616 $42,006 56.3 % Gross margin........................ 54.8 % 53.6 % 1.2 % -
OTHER DEALERSHIP REVENUES, NET
(dollars in thousands, except per unit amounts) INCREASE/ PERCENT 1999 1998 (DECREASE) CHANGE ---- ---- ---------- ------ Retail new and used unit sales...... 106,014 71,070 34,944 49.2 % Retail sales revenues............... $78,788 $49,516 $29,272 59.1 % Net revenues per retail unit sold... $743 $697 $46 6.6 %
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998 REVENUES. Revenues increased $878.2 million, or 53.9%, to $2,508.3 million for the year ended December 31, 1999, from $1,630.1 million for the year ended December 31, 1998. New 18 19 vehicle revenues increased primarily due to strong customer acceptance of our products, particularly Chevrolet, Ford, Lexus and Honda, and the acquisitions of additional dealership operations during 1998 and 1999. The growth in used vehicle revenues was primarily attributable to an emphasis on used vehicle sales in the Houston and Oklahoma markets, and the additional dealership operations acquired. The increase in parts and service revenues was due to the additional dealership operations acquired, coupled with strong organic growth in the Denver, Houston and Beaumont markets. Other dealership revenues increased primarily due to the implementation of our vehicle service contract and insurance programs, and related training, which resulted in improved revenues per unit, in addition to an increase in the number of retail new and used vehicle sales. GROSS PROFIT. Gross profit increased $139.9 million, or 59.2%, to $376.4 million for the year ended December 31, 1999, from $236.5 million for the year ended December 31, 1998. The increase was attributable to increased revenues and an increase in gross margin from 14.5% for the year ended December 31, 1998, to 15.0% for the year ended December 31, 1999. The gross margin increased even though lower margin new vehicle revenues increased as a percentage of total revenues, as improvements in other dealership revenues per unit and increases in the gross margin on new and used vehicle sales and parts and service sales offset the change in the merchandising mix. The gross margin on new retail vehicle sales improved to 8.3% from 8.0% due to our dealership managers performing well in a favorable market and our sales training programs. The increase in gross margin on used retail vehicle sales to 9.8% from 9.3% was primarily attributable to our dealership managers performing well in a favorable operating environment and our sales training programs. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $101.8 million, or 57.2%, to $279.8 million for the year ended December 31, 1999, from $178.0 million for the year ended December 31, 1998. The increase was primarily attributable to the additional dealership operations acquired and increased variable expenses, particularly incentive pay to employees, which increased as gross profit increased. Selling, general and administrative expenses decreased as a percentage of gross profit to 74.3% from 75.3% due primarily to increased operating leverage. INTEREST EXPENSE. Floorplan and other interest expense, net, increased $13.5 million, or 79.9%, to $30.4 million for the year ended December 31, 1999, from $16.9 million for the year ended December 31, 1998. The increase was primarily attributable to the floorplan interest expense of the additional dealership operations acquired and borrowings to complete acquisitions. A portion of the increase is due to the completion of our offering of $100 million of senior subordinated notes during the first quarter of 1999. Partially offsetting the increases was a 40 basis point decline in the weighted average interest rate on our floorplan notes payable. Contributing to the rate decline was a rate reduction realized from obtaining a lower interest rate on our floorplan notes payable. SELECTED OPERATIONAL AND FINANCIAL DATA FOR THE YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997 NEW VEHICLE DATA
(dollars in thousands, except per unit amounts) INCREASE/ PERCENT 1998 1997 (DECREASE) CHANGE ---- ---- ---------- ------ Retail unit sales................... 39,822 10,498 29,324 279.3 % Retail sales revenues............... $931,205 $228,044 $703,161 308.3 % Gross profit........................ $74,096 $15,695 $58,401 372.1 % Average gross profit per retail unit sold........................... $1,861 $1,495 $366 24.5 % Gross margin........................ 8.0 % 6.9 % 1.1 % -
19 20 USED VEHICLE DATA
(dollars in thousands, except per unit amounts) INCREASE/ PERCENT 1998 1997 (DECREASE) CHANGE ---- ---- ---------- ------ Retail unit sales................... 31,248 9,990 21,258 212.8 % Retail sales revenues (1)........... $411,065 $117,672 $293,393 249.3 % Gross profit........................ $38,282 $11,575 $26,707 230.7 % Average gross profit per retail unit sold........................... $1,225 $1,159 $66 5.7 % Gross margin........................ 9.3 % 9.8 % -0.5 % -
- ----------------- (1) Excludes wholesale revenues PARTS AND SERVICE DATA
(dollars in thousands) INCREASE/ PERCENT 1998 1997 (DECREASE) CHANGE ---- ---- ---------- ------ Sales revenues...................... $139,144 $30,006 $109,138 363.7 % Gross profit........................ $74,616 $16,921 $57,695 341.0 % Gross margin........................ 53.6 % 56.4 % -2.8 % -
OTHER DEALERSHIP REVENUES, NET
(dollars in thousands, except per unit amounts) INCREASE/ PERCENT 1998 1997 (DECREASE) CHANGE ---- ---- ---------- ------ Retail new and used unit sales...... 71,070 20,488 50,582 246.9 % Retail sales revenues............... $49,516 $10,410 $39,106 375.7 % Net revenues per retail unit sold... $697 $508 $189 37.2 %
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997 REVENUES. Revenues increased $1,226.1 million, or 303.5%, to $1,630.1 million for the year ended December 31, 1998, from $404.0 million for the year ended December 31, 1997. The increases in all revenue categories were due primarily to the inclusion of the dealership operations acquired since October 31, 1997, and our focus on higher margin activities. GROSS PROFIT. Gross profit increased $181.9 million, or 333.2%, to $236.5 million for the year ended December 31, 1998, from $54.6 million for the year ended December 31, 1997. The increase was attributable to increased revenues and an increased gross margin to 14.5% for the year ended December 31, 1998, from 13.5% for the year ended December 31, 1997. The increase in gross margin was caused primarily by improvements in other dealership revenues per unit and increases in the gross margin on new vehicle sales. Additionally, changes in the merchandising mix, higher-margin parts and service sales and other dealership revenues increased as a percentage of total revenues, added to the gross margin improvement. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $134.6 million, or 310.1%, to $178.0 million for the year ended December 31, 1998 from $43.4 million for the year ended December 31, 1997. The increase was primarily attributable to the additional dealership operations acquired and increased variable expenses, particularly incentive pay to employees, which increased as gross profit increased. Selling, general and administrative expenses decreased as a percentage of gross profit to 75.3% from 79.4% due primarily to increased operating leverage. INTEREST EXPENSE. Floorplan and other interest expense, net, increased $12.9 million, or 322.5%, to $16.9 million for the year ended December 31, 1998, from $4.0 million for the year ended December 31, 1997. The increase was primarily attributable to the floorplan interest expense of the additional dealership operations acquired and additional interest expense from borrowings to complete acquisitions. Partially offsetting the increases was a cost reduction realized from obtaining a lower interest rate on our floorplan notes payable. 20 21 22 LIQUIDITY AND CAPITAL RESOURCES Our principal sources of liquidity are cash on hand, cash from operations, our credit facility (which includes the floorplan facility and the acquisition facility) and equity and debt offerings. The following table sets forth historical selected information from our statements of cash flows:
YEAR ENDED DECEMBER 31, -------------------------------------------------- 1999 1998 1997 ---------------- --------------- --------------- (in thousands) Net cash provided by operating activities...... $73,224 $24,277 $6,922 Net cash provided by (used in) investing activities.. (126,944) (58,225) 10,661 Net cash provided by financing activities..... 106,101 65,299 5,830 ---------------- --------------- --------------- Net increase in cash and cash equivalents......... $52,381 $31,351 $23,413 ================ =============== ===============
CASH FLOWS Total cash and cash equivalents at December 31, 1999, were $118.8 million. OPERATING ACTIVITIES. For the three-year period ended December 31, 1999, we generated $104.4 million in net cash from operating activities, primarily driven by net income plus depreciation and amortization. Cash flow provided by operating activities increased $48.9 million from $24.3 million for the year ended December 31, 1998, to $73.2 million for the year ended December 31, 1999. Excluding working capital changes, during 1999 cash flows from operating activities increased $26.1 million over the prior-year period. INVESTING ACTIVITIES. The $126.9 million of cash used for investing activities during 1999 was primarily attributable to cash paid in completing acquisitions, net of cash balances obtained in the acquisitions, and purchases of property and equipment, partially offset by sales of property and equipment. During 1999, we used approximately $27.4 million in purchasing property and equipment, of which, approximately $19.6 million was for the purchase of land and construction of facilities. Partially offsetting these uses of cash, we received $11.7 million from sales of property and equipment. The proceeds were received primarily from the sale of dealership properties to a REIT for approximately $11.2 million, and for which no gain or loss was recognized. During 1998, $58.2 million was used in investing activities, primarily for acquisitions, net of cash received, and purchases of property and equipment, net of sales. Of the $9.7 million used in purchasing property and equipment during 1998, approximately $5.6 million related to the purchase of land and construction of facilities for new or expanded operations. During December 1998, we completed the sale and leaseback of six dealership properties and received $20.0 million in gross proceeds from the sale, for which no gain or loss was recognized. FINANCING ACTIVITIES. We obtained approximately $106.1 million, $65.3 million and $5.8 million from financing activities during the years 1999, 1998 and 1997, respectively. The net cash provided during 1999 was generated primarily from our March 1999 offerings of 2 million shares of common stock and $100 million of senior subordinated notes. The net proceeds from these offerings, approximately $137.7 million, were used to repay $59.0 million borrowed under the acquisition portion of the credit facility, with the remainder of the proceeds being used in completing acquisitions during 1999. Additionally, in connection with the sale of properties to a REIT, we paid off mortgages of approximately $2.5 million. The net cash provided during 1998 was generated primarily from drawings on our credit facility and was utilized in completing acquisitions and supporting increased sales volumes. Partially offsetting the $75.5 million in borrowings was $10.0 million in principal payments on long-term debt, of which $6.6 million was related to the payoff of mortgages in connection with the sale 21 23 and leaseback transaction completed in December 1998. The net cash provided by financing activities for 1997 was primarily attributable to the net proceeds of our initial public offering of approximately $51.8 million, offset primarily by the pay down of floorplan debt in the amount of $33.5 million. WORKING CAPITAL. At December 31, 1999, we had working capital of $80.1 million. Historically, we have funded our operations with internally generated cash flow and borrowings. While we cannot guarantee it, based on current facts and circumstances, management believes we have adequate cash flow coupled with borrowings under our credit facility to fund our current operations. ACQUISITION FINANCING We anticipate that our primary use of cash will be for the completion of acquisitions. We expect the cash needed to complete our acquisitions will come from the operating cash flows of our existing dealerships, borrowings under our current credit facilities, other borrowings or equity or debt offerings. Although we believe that we will be able to obtain sufficient capital to fund acquisitions, we cannot guarantee that such capital will be available to us at the time it is required or on terms acceptable to us. See "Cautionary Statement About Forward-Looking Statements". CAPITAL EXPENDITURES Our capital expenditures include expenditures to extend the useful life of current facilities and expenditures to start or expand operations. Historically, our annual capital expenditures exclusive of new or expanded operations have approximately equaled our annual depreciation charge. Expenditures relating to the construction or expansion of dealership facilities, generally, are driven by new franchises being awarded to us by a manufacturer or significant growth in sales at an existing facility. Although we believe that we will be able to obtain sufficient capital to fund capital expenditures, we cannot guarantee that such capital will be available to us at the time it is required or on terms acceptable to us. CREDIT FACILITY In October 1999, we amended our credit facility to increase the commitment from $500 million to $1 billion and to extend the term of the credit facility from December 2001 to December 2003. The credit facility provides a floorplan facility of $780 million for financing vehicle inventories and an acquisition facility of $220 million for financing acquisitions, general corporate purposes and capital expenditures. Currently, $190 million is available to be drawn under the acquisition facility, subject to a cash flow calculation and the maintenance of certain financial ratios and various covenants. The credit facility also limits the amount we may pay as cash dividends. In January 1998, we entered into a three-year interest rate swap agreement to hedge our exposure to changes in interest rates. This swap converts the interest rate on $75 million of debt to a fixed rate of approximately 6.91%. SALE OF DEALERSHIP PROPERTIES TO A REIT During 1998, we entered into an agreement with a REIT to sell certain of our dealership properties. In connection with the sale of the properties, we have agreed to leaseback the properties under leases with terms of 30 years, with tenant termination options after 15, 20 and 25 years. As of December 31, 1998, we had closed the sale of six properties to the REIT, pursuant to the terms of the agreement, for approximately $20.0 million. During 1999, we sold two additional properties to the REIT for approximately $11.2 million. We generally seek to avoid the ownership of real property. Accordingly we intend to continue to enter into sale and leaseback transactions in order to minimize our investment in acquired and constructed facilities. LEASES We lease various real estate, facilities and equipment under long-term operating lease agreements, including leases with related parties. Generally, the related-party leases have terms 22 24 of 30 years and are renewable at our option 15 years from execution of the lease and at the end of each subsequent five-year period. Typically, the third-party leases also have 30-year terms, but are cancelable after an initial 15-year period and at the end of each subsequent five-year period. CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS This annual report includes certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements appear in a number of places in this annual report and include statements regarding our plans, beliefs or current expectations, including those plans, beliefs and expectations of our officers and directors with respect to, among other things: o future acquisitions; o expected future cost savings; o future capital expenditures; o trends affecting our future financial condition or results of operations; and o our business strategy regarding future operations. Any such forward-looking statements are not assurances of future performance and involve risks and uncertainties. Actual results may differ materially from anticipated results for a number of reasons, including: o industry conditions; o future demand for new and used vehicles; o restrictions imposed on us by automobile manufacturers; o the ability to obtain the consents of automobile manufacturers to our acquisitions; o the availability of capital resources; and o the willingness of acquisition candidates to accept our common stock as currency. The information contained in this annual report, including the information set forth below and under the heading "Business", identifies additional factors that could affect our operating results and performance. We urge you to carefully consider those factors. All forward-looking statements attributable to us are qualified in their entirety by this cautionary statement. DEPENDENCE ON ACQUISITIONS FOR GROWTH Growth in our revenues and earnings will depend significantly on our ability to acquire and successfully operate dealerships. There can be no assurance that we will be able to identify and acquire dealerships in the future. In addition, managing and integrating additional dealerships into our existing mix of dealerships may result in substantial costs, delays or other operational or financial problems. Restrictions by our Manufacturers as well as covenants contained in our debt instruments limit our ability to acquire additional dealerships. In addition, increased competition for acquisition candidates may develop, which could result in fewer acquisition opportunities available to us and/or higher acquisition prices. Further, acquisitions involve a number of special risks, including possible diversion of resources and management's attention, inability to retain key acquired personnel and risks associated with unanticipated events or liabilities, some or all of which could have a material adverse effect on our business, financial condition and results of operations. 23 25 We will continue to need substantial capital in order to acquire additional automobile dealerships. In the past, we have financed these acquisitions with a combination of cash flow from operations, proceeds from borrowings under our credit facilities with banks and issuances of our common stock. We cannot guarantee that these sources of funds will be sufficient to fund our acquisition program and other cash needs, or that we will be able to obtain adequate additional capital from other sources. We expect to utilize our current credit facility to borrow a portion of the funds required for acquisitions. If funds under the credit facility are insufficient to fund our acquisition program, we will be required to obtain alternative financing such as from the issuance of additional debt or equity securities or an expansion or replacement of the credit facility. We currently intend to finance acquisitions by issuing shares of common stock as full or partial consideration for acquired dealerships. The extent to which we will be able or willing to issue common stock for acquisitions will depend on the market value of the common stock from time to time and the willingness of potential acquisition candidates to accept common stock as part of the consideration for the sale of their businesses. If potential acquisition candidates are unwilling to accept our common stock, we will be forced to rely solely on available cash or debt or equity financing, which could adversely affect our acquisition program. Accordingly, our ability to make acquisitions could be adversely affected if our common stock is unfavorably valued by the market. CONTINGENT ACQUISITION PAYMENTS In our early acquisitions in which we issued shares of our common stock as consideration, we guaranteed to the recipients of the shares that they would receive a minimum price for their shares if they sell the shares in the market. In the event that they do not receive the guaranteed price in a sale, we will be required to pay them the difference between the price they receive and the guaranteed price. As of December 31, 1999, there were approximately 3.2 million shares of common stock subject to our guarantee with a weighted average guarantee price of approximately $13.60 per share. These guarantees have terms of three years to ten years with a weighted average term remaining of approximately 4.5 years. If we are required to perform on our guarantees, our liquidity and ability to finance our acquisition program could be adversely affected. In addition, in certain of our acquisitions, we may be required to pay contingent consideration to the former stockholders of the acquired dealerships based on an increase in earnings before taxes of their operations during certain periods of time. We cannot determine whether or how much we will have to pay in the future under these contingent payment arrangements. If we are required to make any of these contingent payments, we will have to pay approximately one-half of each payment in common stock and one-half in cash. If these contingent payments must be paid in full, our liquidity and ability to finance our acquisition program could be adversely affected. DEPENDENCE ON THE SUCCESS OF OUR MANUFACTURERS Our success depends upon the overall success of the line of vehicles that each of our dealerships sells. Demand for our Manufacturers' vehicles as well as the financial condition, management, marketing, production and distribution capabilities of our Manufacturers affect our business. Although we have attempted to lessen our dependence on any one Manufacturer by buying dealerships representing a number of different domestic and foreign Manufacturers, events such as labor disputes and other production disruptions that may adversely affect a Manufacturer may also adversely affect us. Similarly, the late delivery of vehicles from Manufacturers, which sometimes occurs during periods of new product introductions, can lead to reduced sales during those periods. Moreover, any event that causes adverse publicity involving any of our Manufacturers may have an adverse effect on us regardless of whether such event involves any of our dealerships. 24 26 CYCLICALITY Our operations, like the automotive retailing industry in general, can be impacted by a number of factors relating to general economic conditions, including consumer business cycles, consumer confidence, economic conditions, availability of consumer credit and interest rates. Although the above factors, among others, may impact our business, we believe the impact on our operations of future negative trends in such factors will be somewhat mitigated by our (i) strong parts, service and collision repair services, (ii) variable cost salary structure, (iii) geographic diversity and (iv) product diversity. SEASONALITY Our operations are subject to seasonal variations, with the second and third quarters generally contributing more operating profit than the first and fourth quarters. This seasonality is driven by three primary forces: (i) Manufacturer-related factors, primarily the historical timing of major manufacturer incentive programs and model changeovers, (ii) weather-related factors and (iii) consumer buying patterns. ADDITIONAL FACTORS TO CONSIDER Our business is subject to factors in addition to those discussed above. For a discussion of those factors, see "Business - Agreements with Manufacturers", "- Competition", "- Governmental Regulations" and "- Environmental Matters." ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The table below provides information about our market-sensitive financial instruments and constitutes a "forward-looking statement". Our major market-risk exposure is changing interest rates. Our policy is to manage interest rates through use of a combination of fixed and floating rate debt. Interest rate swaps may be used to adjust interest rate exposures when appropriate, based upon market conditions. These swaps are entered into with financial institutions with investment grade credit ratings, thereby minimizing the risk of credit loss. All items described are non-trading.
FAIR VALUE EXPECTED MATURITY DATE DECEMBER 31, 1999 ------------------------------------------------------------------ --------------- (dollars in millions) 2000 2001 2002 2003 2004 Thereafter Total ------ ------ ----- ------ ----- ---------- ------- VARIABLE RATE DEBT Current................. $ 0.4 $ - $ - $363.5 $ - $ - $363.9 $363.9 Average interest rates................ 9.47% - - 7.72% - - Non-current............. - $ 0.5 $ 0.7 $ 10.6 $ 0.6 $ 1.4 $ 13.8 $ 13.8 Average interest rates................ - 9.75% 9.57% 8.34% 9.96% 9.96% ------ ------ ----- ------ ----- -------- ------- Total variable rate debt................... $ 0.4 $0.5 $ 0.7 $374.1 $ 0.6 $ 1.4 $377.7 Interest rate swap...... $ - $ 75.0 $ - $ - $ - $ - $ 75.0 $ (0.3) Average pay rate (fixed).............. - 6.91% - - - - Average receive rate (variable)........... - 7.72% - - - - ------ ------ ----- ------ ----- -------- ------- Net variable rate debt.. $ 0.4 $(74.5) $ 0.7 $374.1 $ 0.6 $ 1.4 $302.7 ====== ====== ===== ====== ===== ======== =======
25 27 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Financial Statements for the information required by this item. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III For information concerning: ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT ITEM 11. EXECUTIVE COMPENSATION ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See the definitive Proxy Statement of Group 1 Automotive, Inc. for the Annual Meeting of Stockholders to be held May 24, 2000, which will be filed with the Securities and Exchange Commission and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements The financial statements listed in the accompanying Index to Financial Statements are filed as part of this Annual Report on Form 10-K. (b) Reports on Form 8-K On October 29, 1999, the Company filed a Current Report of Form 8-K reporting under Item 5 thereof and including exhibits under Item 7 thereof. On November 5, 1999, the Company filed a Current Report of Form 8-K reporting under Item 5 thereof and including exhibits under Item 7 thereof. (c) Exhibits
EXHIBIT NUMBER DESCRIPTION - -------- ----------- 3.1 -- Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 3.2 -- Certificate of Designation of Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.2 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 3.3 -- Bylaws of the Company (Incorporated by reference to Exhibit 3.3 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
26 28
EXHIBIT NUMBER DESCRIPTION ------- ----------- 4.1 -- Specimen Common Stock certificate (Incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 4.2 -- Form of Subordinated Indenture (Incorporated by reference to Exhibit 4.5 of the Company's Registration Statement on Form S-3 Registration No. 333-69693). 4.3 -- Form of Subordinated Debt Securities (included in Exhibit 4.2). 4.4 -- First Supplemental Indenture dated as of March 5, 1999 among Group 1 Automotive, Inc., the Subsidiary Guarantors named therein and IBJ Whitehall Bank & Trust Company (Incorporated by reference to Exhibit 4.1 of the Company's current report of Form 8-K dated March 5, 1999). 4.5 -- Form of 10 7/8% Senior Subordinated Note due March 1, 2009 (included in Exhibit 4.4). 10.1 -- Employment Agreement between the Company and B.B. Hollingsworth, Jr. dated November 3, 1997 (Incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.2 -- Employment Agreement between the Company and Robert E. Howard II dated November 3, 1997 (Incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.3 -- Consulting Agreement between the Company and Sterling B. McCall, Jr. dated November 4, 1999. 10.4 -- Employment Agreement between the Company and Charles M. Smith dated November 3, 1997 (Incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.5 -- Employment Agreement between the Company and John T. Turner dated November 3, 1997 (Incorporated by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.6 -- Employment Agreement between the Company and Scott L. Thompson dated November 3, 1997 (Incorporated by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.7 -- 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.7 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.8 -- First Amendment to 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.9 -- Lease Agreement between Howard Pontiac GMC and Robert E. Howard II (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.10 -- Lease Agreement between Bob Howard Motors and Robert E. Howard II (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.11 -- Lease Agreement between Bob Howard Chevrolet and Robert E. Howard II (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.12 -- Lease Agreement between Bob Howard Automotive-H and North Broadway Real Estate (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.13 -- Lease Agreement between Mike Smith Autoplaza and Olds-Honda Realty (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.14 -- Rights Agreement between Group 1 Automotive, Inc. and ChaseMellon Shareholder Services, L.L.C., as rights agent dated October 3, 1997 (Incorporated by reference to Exhibit 10.10 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.15 -- 1998 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.11 of the Company's Registration Statement on Form S-1 Registration No. 333-29893).
27 29
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10.16 -- Form of Agreement between Toyota Motor Sales, U.S.A., and Group 1 Automotive, Inc. (Incorporated by reference to Exhibit 10.12 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.17 -- Form of Supplemental Agreement to General Motors Corporation Dealer Sales and Service Agreement (Incorporated by reference to Exhibit 10.13 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.18 -- Supplemental Terms and Conditions between Ford Motor Company and Group 1 Automotive, Inc. dated September 4, 1997 (Incorporated by reference to Exhibit 10.16 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.19 -- Toyota Dealer Agreement between Gulf States Toyota, Inc. and Southwest Toyota, Inc. dated April 5, 1993 (Incorporated by reference to Exhibit 10.17 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.20 -- Lexus Dealer Agreement between Toyota Motor Sales, U.S.A., Inc. and SMC Luxury Cars, Inc. dated August 21, 1995 (Incorporated by reference to Exhibit 10.18 of the Company's Registration Statement on Form S-1 Registration No. 333-29893. 10.21 -- Form of General Motors Corporation U.S.A. Sales and Service Agreement (Incorporated by reference to Exhibit 10.25 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.22 -- Fourth Amended and Restated Revolving Credit Agreement, dated as of October 15, 1999, and Effective as of November 1, 1999 (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated October 29, 1999). 10.23 -- Stock Pledge Agreement dated December 19, 1997 (Incorporated by reference to Exhibit 10.54 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.24 -- Swap Transaction Letter Agreement dated January 23, 1998 (Incorporated by reference to Exhibit 10.55 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.25 -- First Amendment to Group 1 Automotive, Inc. 1998 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.35 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998). 10.26 -- Employment Agreement between the Company and Johns S. Bishop dated October 7, 1998 (Incorporated by reference to Exhibit 10.37 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998). 10.27 -- Form of Ford Motor Company Sales and Service Agreement (Incorporated by reference to Exhibit 10.38 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998). 10.28 -- Form of Chrysler Corporation Sales and Service Agreement (Incorporated by reference to Exhibit 10.39 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998). 10.29 -- Lock-up Agreement dated June 24, 1999, between the Company and Robert E. Howard II. 10.30 -- Second Amendment to the 1996 Stock Incentive Plan. (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated May 14, 1999). 10.31 -- Group 1 Automotive, Inc. Deferred Compensation Plan effective November 10, 1999. 11.1 -- Statement re: computation of earnings per share is included under Note 2 to the financial statements. 21.1 -- Group 1 Automotive, Inc. Subsidiary List. 23.1 -- Consent of Arthur Andersen LLP. 27.1 -- Financial Data Schedule.
28 30 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in the city of Houston, Texas, on the 30th day of March, 2000. Group 1 Automotive, Inc. By:/s/ B.B. Hollingsworth, Jr. --------------------------- B.B. Hollingsworth, Jr. Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated on the 30th day of March, 2000.
SIGNATURE TITLE --------- ----- /s/ B.B. Hollingsworth, Jr. Chairman, President and Chief - ----------------------------------------------- Executive Officer and Director (Principal B.B. Hollingsworth, Jr. Executive Officer) /s/ Scott L. Thompson Senior Vice President - Chief Financial - ----------------------------------------------- Officer and Treasurer (Chief Financial and Scott L. Thompson Accounting Officer) /s/ Robert E. Howard, II Director - ----------------------------------------------- Robert E. Howard, II /s/ John L. Adams Director - ----------------------------------------------- John L. Adams /s/ Charles M. Smith Director - ----------------------------------------------- Charles M. Smith /s/ John H. Duncan Director - ----------------------------------------------- John H. Duncan /s/ Bennett E. Bidwell Director - ----------------------------------------------- Bennett E. Bidwell
29 31 INDEX TO FINANCIAL STATEMENTS Group 1 Automotive, Inc. and Subsidiaries -- Consolidated Financial Statements Report of Independent Public Accountants...............................................F-2 Consolidated Balance Sheets............................................................F-3 Consolidated Statements of Operations..................................................F-4 Consolidated Statements of Stockholders' Equity........................................F-5 Consolidated Statements of Cash Flows..................................................F-6 Notes to Consolidated Financial Statements.............................................F-7
F-1 32 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Group 1 Automotive, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of Group 1 Automotive, Inc. and Subsidiaries (a Delaware corporation) (the Company) as of December 31, 1999 and 1998 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with generally accepted accounting principles. Arthur Andersen LLP Houston, Texas February 17, 2000 F-2 33 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, -------------------------------------- ASSETS 1999 1998 ---------------- ---------------- CURRENT ASSETS: (in thousands) Cash and cash equivalents....................... $118,824 $66,443 Accounts and notes receivable, net.............. 35,296 21,373 Inventories..................................... 386,255 219,176 Deferred income taxes........................... 8,619 11,212 Other assets.................................... 4,429 8,718 ---------------- ---------------- Total current assets.......................... 553,423 326,922 ---------------- ---------------- PROPERTY AND EQUIPMENT, net....................... 46,711 21,960 GOODWILL, net..................................... 235,312 123,587 OTHER ASSETS...................................... 7,464 5,241 ---------------- ---------------- Total assets.................................. $842,910 $477,710 ================ ================ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Floorplan notes payable......................... $363,489 $193,405 Current maturities of long-term debt............ 1,076 2,966 Accounts payable and accrued expenses........... 108,730 82,300 ---------------- ---------------- Total current liabilities..................... 473,295 278,671 ---------------- ---------------- DEBT, net of current maturities................... 15,285 42,821 SENIOR SUBORDINATED NOTES......................... 97,889 - DEFERRED INCOME TAXES............................. 3,217 - OTHER LIABILITIES................................. 21,195 20,034 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, 1,000,000 shares authorized, none issued or outstanding.................... - - Common stock, $.01 par value, 50,000,000 shares authorized, 21,801,367 and 18,267,515 issued.. 218 183 Additional paid-in capital...................... 181,398 118,469 Retained earnings............................... 51,705 18,190 Treasury stock, at cost, 78,609 and 37,366 shares. (1,292) (658) ---------------- ---------------- Total stockholders' equity.................... 232,029 136,184 ---------------- ---------------- Total liabilities and stockholders' equity.... $842,910 $477,710 ================ ================
The accompanying notes are an integral part of these consolidated financial statements. F-3 34 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ---------------------------------------------------- 1999 1998 1997 ---------------- ----------------- ----------------- (dollars in thousands, except per share amounts) REVENUES: New vehicle sales................. $1,465,759 $931,205 $228,044 Used vehicle sales................ 750,807 510,192 135,507 Parts and service sales........... 212,970 139,144 30,006 Other dealership revenues, net.... 78,788 49,516 10,410 ---------------- ----------------- ----------------- Total revenues.................. 2,508,324 1,630,057 403,967 COST OF SALES: New vehicle sales................. 1,344,120 857,109 212,349 Used vehicle sales................ 691,499 471,910 123,932 Parts and service sales........... 96,348 64,528 13,085 ---------------- ----------------- ----------------- Total cost of sales............. 2,131,967 1,393,547 349,366 ---------------- ----------------- ----------------- GROSS PROFIT........................ 376,357 236,510 54,601 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES........... 279,791 178,038 43,360 DEPRECIATION EXPENSE................ 4,853 3,783 850 AMORTIZATION EXPENSE................ 5,763 2,643 170 ---------------- ----------------- ----------------- Income from operations 85,950 52,046 10,221 OTHER INCOME AND (EXPENSES): Floorplan interest expense........ (20,395) (12,837) (3,810) Other interest expense, net....... (10,052) (4,027) (176) Other income, net................. 186 39 156 ---------------- ----------------- ----------------- INCOME BEFORE INCOME TAXES.......... 55,689 35,221 6,391 PROVISION FOR INCOME TAXES.......... 22,174 14,502 573 ----------------- ---------------- ----------------- NET INCOME.......................... $33,515 $20,719 $5,818 ================= ================ ================= S Corporation pro forma income taxes (unaudited)....................... 1,465 ----------------- Pro forma net income (unaudited)....................... $4,353 ================= Earnings per share: Basic............................. $1.62 $1.20 Diluted........................... $1.55 $1.16 Weighted average shares outstanding: Basic............................. 20,683,308 17,281,165 Diluted........................... 21,558,920 17,904,878
The accompanying notes are an integral part of these consolidated financial statements. F-4 35 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL RETAINED -------------------------- PAID-IN EARNINGS TREASURY SHARES AMOUNT CAPITAL (DEFICIT) STOCK TOTAL ------------ ----------- -------------- -------------- ----------- ------------- (dollars in thousands) BALANCE, December 31, 1996.................. 3,570,302 $36 $6,270 $5,904 $- $12,210 Net income............. - - - 5,818 - 5,818 Acquisition of founding Companies... 5,954,613 60 33,294 - - 33,354 Initial public offering, net........ 5,148,136 51 51,707 - - 51,758 Purchase of treasury stock................ - - - - (92) (92) Stock transfer by shareholder, net of tax.................. - - 575 - - 575 Dividends, prior to the initial public offering............. - - - (14,251) - (14,251) ------------ ----------- -------------- -------------- ----------- ------------- BALANCE, December 31, 1997.................. 14,673,051 147 91,846 (2,529) (92) 89,372 Net income............. - - - 20,719 - 20,719 Issuance of common stock in acquisitions......... 3,516,805 35 26,770 - - 26,805 Proceeds from sales of common stock under employee benefit plans................ 234,650 1 2,063 - - 2,064 Issuance of treasury stock to employee benefit plan......... (156,991) - (2,210) - 2,210 - Purchase of treasury stock................ - - - - (2,776) (2,776) ------------ ----------- -------------- -------------- ----------- ------------- BALANCE, December 31, 1998................... 18,267,515 183 118,469 18,190 (658) 136,184 Net income............. - - - 33,515 - 33,515 Common stock offering, net.................. 2,000,000 20 42,866 - - 42,886 Issuance of common stock in acquisitions 1,459,852 15 21,069 - - 21,084 Proceeds from sales of common stock under employee benefit plans................ 322,195 3 4,195 - - 4,198 Issuance of treasury stock to employee benefit plan......... (248,195) (3) (5,201) - 5,204 - Purchase of treasury stock................ - - - - (5,838) (5,838) ------------ ----------- -------------- -------------- ----------- ------------- BALANCE, December 31, 1999................... 21,801,367 $218 $181,398 $51,705 $(1,292) $232,029 ============ =========== ============== ============== =========== =============
The accompanying notes are an integral part of these consolidated financial statements. F-5 36 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------------------------- 1999 1998 1997 ------------- ------------- ------------ (dollars in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income........................................... $33,515 $20,719 $5,818 Adjustments to reconcile net income to net cash provided by operating activities - Depreciation and amortization...................... 10,616 6,426 1,020 Non-cash compensation, net of tax.................. - - 575 Deferred income taxes.............................. 4,011 (4,201) (1,015) Provision for doubtful accounts and uncollectible notes.............................................. 1,153 356 270 Gain on sale of assets............................. (53) (115) (112) Changes in assets and liabilities - Accounts receivable................................ (4,717) (4,544) 1,564 Inventories........................................ (49,079) 44 5,686 Prepaid expenses and other assets.................. (3,487) (2,661) 3,609 Due from affiliates, net........................... - - 491 Floorplan notes payable............................ 68,584 (1,730) (5,374) Accounts payable and accrued expenses.............. 12,681 9,983 (5,610) ------------- ------------- ------------ Total adjustments.............................. 39,709 3,558 1,104 ------------- ------------- ------------ Net cash provided by operating activities...... 73,224 24,277 6,922 ------------- ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Increase in notes receivable....................... (2,452) (2,276) (362) Collections on notes receivable.................... 1,040 1,630 88 Purchases of property and equipment................ (27,382) (9,695) (2,164) Proceeds from sale of property and equipment....... 11,705 20,238 1,935 Cash paid in acquisitions, net of cash received.... (109,855) (68,122) 11,164 ------------- ------------- ------------ Net cash provided by (used in) investing activities..................................... (126,944) (58,225) 10,661 ------------- ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings (payments) under floorplan facility for acquisition financing.............................. - 33,523 (33,523) Net borrowings on revolving credit facility........ (32,000) 42,000 - Principal payments of long-term debt............... (3,610) (10,001) (471) Borrowings of long-term debt....................... 5,684 490 109 Proceeds from common stock offering, net........... 42,886 - 51,759 Proceeds from senior subordinated notes offering, net. 94,781 - - Proceeds from issuance of common stock to benefit plans.............................................. 4,198 2,063 - Purchase of treasury stock......................... (5,838) (2,776) (92) Dividends paid in cash............................. - - (11,952) ------------- ------------- ------------ Net cash provided by financing activities...... 106,101 65,299 5,830 ------------- ------------- ------------ NET INCREASE IN CASH AND CASH EQUIVALENTS.............. 52,381 31,351 23,413 CASH AND CASH EQUIVALENTS, beginning of period......... 66,443 35,092 11,679 ------------- ------------- ------------ CASH AND CASH EQUIVALENTS, end of period............... $118,824 $66,443 $35,092 ============= ============= ============ SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for - Interest........................................... $27,156 $15,218 $4,200 Taxes.............................................. $22,812 $17,832 $131
The accompanying notes are an integral part of these consolidated financial statements. F-6 37 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BUSINESS AND ORGANIZATION: Group 1 Automotive, Inc. and Subsidiaries ("Group 1" or the "Company") was founded in December 1995 to become a leading operator in the highly fragmented automobile retailing industry. The Company is engaged in the retail sale of new and used vehicles and the arranging of vehicle finance, insurance and service contracts. In addition, the Company sells automotive parts and provides vehicle servicing and collision repair. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of Presentation For financial statement presentation purposes, Howard Group, one of four groups acquired in 1997 (the "Founding Groups"), has been identified as the accounting acquirer. The acquisition of the remaining Founding Groups and the subsequent acquisitions were accounted for using the purchase method of accounting. The results of operations of the Howard Group are included for all periods presented. The operations of Group 1 Automotive, Inc., the parent company, and the Founding Groups, excluding the Howard Group, are included in the results of operations beginning October 31, 1997, the effective closing date of the acquisitions for accounting purposes. The results of operations of all acquisitions subsequent to October 31, 1997 are included from the effective dates of the closings of the acquisitions. The allocation of purchase price to the assets acquired and liabilities assumed has been initially assigned and recorded based on preliminary estimates of fair value and may be revised as additional information concerning the valuation of such assets and liabilities becomes available. All significant intercompany balances and transactions have been eliminated in consolidation. Revenue Recognition Revenue from vehicle sales, parts sales and vehicle service is recognized upon completion of the sale and delivery to the customer. Finance, Insurance and Service Contract Income Recognition The Company arranges financing for customers through various institutions and receives financing fees equal to the difference between the loan rates charged to customers over predetermined financing rates set by the financing institution. In addition, the Company receives commissions from the sale of credit life and disability insurance and vehicle service contracts to customers. The Company may be charged back ("chargebacks") for unearned financing fees, insurance or vehicle service contract commissions in the event of early termination of the contracts by customers. The revenues from financing fees and commissions are recorded at the time of the sale of the vehicles and a reserve for future chargebacks is established based on historical operating results and the termination provisions of the applicable contracts. Finance, insurance and vehicle service contract revenues, net of estimated chargebacks, are included in other dealership revenue in the accompanying consolidated financial statements. Cash and Cash Equivalents Cash and cash equivalents include highly liquid investments that have an original maturity of three months or less at the date of purchase, as well as contracts in transit. Contracts in transit represent contracts on vehicles sold, for which the proceeds are in transit from financing institutions. Inventories New, used and demonstrator vehicles are stated at the lower of cost or market, determined on a specific-unit basis. Parts and accessories are stated at the lower of cost (determined on a first-in, first-out basis) or market. Property and Equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets. Leasehold improvements are capitalized and amortized over the lesser of the life of the lease or the estimated useful life of the asset. F-7 38 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Expenditures for major additions or improvements, which extend the useful lives of assets, are capitalized. Minor replacements, maintenance and repairs, which do not improve or extend the lives of such assets, are charged to operations as incurred. Disposals are removed at cost less accumulated depreciation, and any resulting gain or loss is reflected in current operations. Goodwill Goodwill represents the excess of the purchase price of dealerships acquired over the fair value of tangible assets acquired at the date of acquisition. Goodwill is amortized on a straight-line basis over 40 years. Amortization expense charged to operations totaled approximately $4.5 million, $2.2 million, and $170,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Accumulated amortization totaled approximately $7.0 million and $2.5 million as of December 31, 1999 and 1998, respectively. Income Taxes The Company follows the liability method of accounting for income taxes in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109. Under this method, deferred income taxes are recorded based upon differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the underlying assets are realized or liabilities are settled. A valuation allowance reduces deferred tax assets when it is more likely than not that some or all of the deferred tax assets will not be realized. Prior to acquisition of the Founding Groups, certain entities of the Howard Group elected S Corporation status, as defined by the Internal Revenue Code, whereby the companies were not subject to taxation for federal purposes. Under S Corporation status, the stockholders report their share of these companies' taxable earnings or losses in their personal tax returns. All S Corporation elections were terminated in conjunction with the acquisitions. Self-Insured Medical Plan The Company is self-insured for a portion of the claims related to its employee medical benefits program. Claims, not subject to stop-loss insurance, are accrued based upon the Company's estimates of the aggregate liability for claims incurred using certain actuarial assumptions and the Company's historical claims experience. Fair Value of Financial Instruments The Company's financial instruments consist primarily of floorplan notes payable and long-term debt. The carrying amount of these financial instruments approximates fair value due either to length of maturity or existence of variable interest rates that approximate market rates. Specifically, the carrying value of the Company's senior subordinated notes approximates fair value as they were trading in the market at prices near book value. In January 1998, the Company entered into a three-year interest rate swap agreement to hedge its exposure to changes in interest rates. The effect of this swap is to convert the interest rate on $75 million of debt to a fixed rate of approximately 6.91%. Advertising The Company expenses production and other costs of advertising as incurred. Advertising expense for the years ended December 31, 1999, 1998, and 1997 totaled $25.9, $16.8 and $5.9 million, respectively. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions in determining the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The significant estimates made by management in the accompanying financial statements relate to reserves for vehicle valuations, retail loan guarantees and future chargebacks on finance, insurance and service contract income. Actual results could differ from those estimates. F-8 39 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Statements of Cash Flows For purposes of the statements of cash flows, cash and cash equivalents include contracts in transit, which are typically collected within one month. Additionally, the net change in floorplan financing of inventory, which is a customary financing technique in the industry, is reflected as an operating activity in the statements of cash flows. Earnings Per Share SFAS No. 128 requires the presentation of basic earnings per share and diluted earnings per share in financial statements of public enterprises. Under the provisions of this statement, basic earnings per share is computed based on weighted average shares outstanding and excludes dilutive securities. Diluted earnings per share is computed including the impacts of all potentially dilutive securities. As the Company was not a public enterprise until October 1997, and the companies included in the statements of operations were under different tax structures (S Corporations and C Corporations), no earnings per share data have been presented for the historical results of operations for the year ended December 31, 1997. The following table sets forth the shares outstanding for the earnings per share calculations for the years ended December 31, 1999 and 1998:
YEAR ENDED DECEMBER 31, ------------------------ 1999 1998 ---------- ---------- Common stock outstanding, beginning of period............... 18,267,515 14,673,051 Weighted average common stock issued in offerings....... 1,664,049 - Weighted average common stock issued in acquisitions.... 739,071 2,591,834 Weighted average common stock issued to employee stock purchase plan........................................... 128,757 90,123 Weighted average common stock issued in stock option exercises............................................... 32,978 15,953 Less: Weighted average treasury shares repurchased...... (149,062) (89,796) ---------- ---------- Shares used in computing basic earnings per share........... 20,683,308 17,281,165 Dilutive effect of stock options, net of assumed repurchase of treasury stock............................ 875,612 623,713 ---------- ---------- Shares used in computing diluted earnings per share......... 21,558,920 17,904,878 ========== ==========
Recent Accounting Pronouncements In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. It requires that an entity recognizes all derivatives as either assets or liabilities in the statement of financial position and measures those instruments at fair value. If certain conditions are met, a derivative may be specifically designated as (a) a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, (b) a hedge of the exposure to variable cash flows of a forecasted transaction or (c) a hedge of the foreign currency exposure of a net investment in a foreign operation, an unrecognized firm commitment, an available-for-sale security or a foreign currency-denominated forecasted transaction. The accounting for changes in the fair value of a derivative (that is, gains or losses) depends on the intended use of the derivative and the resulting designation. SFAS No. 137 amended the effective date to be for all fiscal quarters of fiscal years beginning after June 15, 2000. Management does not believe that the adoption of this statement will have a material impact on the financial position or results of operations of the Company. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". SAB No. 101 is effective for years beginning after December 31, 1999, and provides guidance related to recognizing revenue in circumstances where no specific F-9 40 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS accounting standards exist. Management does not believe that SAB No. 101 will have a material impact on its revenue recognition policies. Reclassifications Certain reclassifications have been made to prior year financial statements to conform them to the current year presentation. 3. BUSINESS COMBINATIONS: During 1999, the Company acquired 32 automobile dealership franchises. These acquisitions were accounted for as purchases. The aggregate consideration paid in completing these acquisitions, including real estate acquired, and satisfying certain contingent acquisition payment arrangements from previous transactions included approximately $109.9 million in cash, net of cash received, approximately 1.5 million shares of restricted/unregistered common stock and the assumption of an estimated $101.5 million of inventory financing and approximately $500,000 of notes payable. Additional consideration may be paid based on the financial performance of certain dealerships, over specified periods. Additional consideration, if any, will be payable in cash and common stock and will result in an increase in goodwill on the balance sheet of the Company. The consolidated balance sheet includes preliminary allocations of the purchase price of the acquisitions, which are subject to final adjustment. These allocations resulted in recording approximately $116.2 million of goodwill, which is being amortized over 40 years. During 1998, the Company acquired 33 automobile dealership franchises. These acquisitions were accounted for as purchases. The aggregate consideration paid in completing these acquisitions, including real estate acquired, included approximately $68.1 million in cash, net of cash received, approximately 3.5 million shares of restricted/unregistered common stock and the assumption of an estimated $103.1 million in inventory financing and $2.9 million of mortgage financing. Additional consideration may be paid based on the financial performance of certain dealerships, over specified periods. Additional consideration, if any, will be payable in cash and common stock and will result in an increase in goodwill on the balance sheet of the Company. The purchase price allocations resulted in recording approximately $98.7 million of goodwill, which is being amortized over 40 years. The following pro forma financial information consists of income statement data from continuing operations as presented in the consolidated financial statements plus (1) unaudited income statement data for all acquisitions completed before December 31, 1999, assuming that they occurred on January 1, 1998, (2) the completion of our March 1999 offerings of 2 million shares of common stock and $100 million of senior subordinated notes, assuming they occurred on January 1, 1998, and (3) certain pro forma adjustments discussed below. F-10 41 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1999 1998 ------------------ ------------------- (in thousands, except per share amounts) (unaudited) Revenues .................... $2,974,422 $2,657,980 Gross profit ................ 438,151 384,773 Income from operations ...... 102,493 86,275 Net income .................. 39,010 31,329 Basic earnings per share .... 1.80 1.46 Diluted earnings per share .. 1.73 1.42
Pro forma adjustments included in the amounts above primarily relate to: (a) increases in revenues related to changes in the contractual commission arrangements on certain third-party products sold by the dealerships; (b) pro forma goodwill amortization expense over an estimated useful life of 40 years; (c) reductions in compensation expense and management fees to the level that certain management employees and owners of the acquired companies will contractually receive; (d) incremental corporate overhead costs related to personnel costs, rents, professional service fees and directors and officers liability insurance premiums; (e) net increases in interest expense resulting from net cash borrowings utilized to complete acquisitions, partially offset by interest rate reductions received; and (f) incremental provisions for federal and state income taxes relating to the compensation differential, S Corporation income and other pro forma adjustments. 4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS: Accounts and notes receivable consist of the following:
DECEMBER 31, --------------------------------- 1999 1998 --------------- ------------ (in thousands) Amounts due from manufacturers........ $17,189 $9,522 Parts and service receivables......... 6,786 3,733 Due from finance companies............ 6,177 4,452 Other................................. 6,783 4,405 --------------- ------------ Total accounts and notes receivable 36,935 22,112 Less - Allowance for doubtful accounts (1,639) (739) --------------- ------------ Accounts and notes receivable, net. $35,296 $21,373 =============== ============
Inventories, net of valuation reserves, consist of the following:
DECEMBER 31, --------------------------------- 1999 1998 -------------- -------------- (in thousands) New vehicles........................... $286,815 $155,088 Used vehicles.......................... 68,287 44,384 Rental vehicles........................ 11,115 7,228 Parts, accessories and other........... 20,038 12,476 -------------- --------------- Total inventories................... $386,255 $219,176 ============== ===============
Accounts payable and accrued expenses consist of the following:
DECEMBER 31, ----------------------------------- 1999 1998 --------------- --------------- (in thousands) Accounts payable, trade............... $46,437 $31,362 Accrued expenses...................... 62,293 50,938 --------------- --------------- Total accounts payable and accrued expenses........................ $108,730 $82,300 =============== ===============
F-11 42 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5. PROPERTY AND EQUIPMENT: Property and equipment consist of the following:
ESTIMATED DECEMBER 31, USEFUL LIVES -------------------------------- IN YEARS 1999 1998 ------------- ------------ --------------- (in thousands) Land........................... - $5,985 $2,130 Buildings...................... 30 to 40 7,701 1,086 Leasehold improvements......... 7 to 15 10,586 6,940 Machinery and equipment........ 3 to 7 16,480 8,186 Furniture and fixtures......... 5 to 7 13,958 8,104 Company vehicles............... 5 2,596 1,556 ------------ --------------- Total 57,306 28,002 Less -- Accumulated depreciation................. (10,595) (6,042) ------------ --------------- Property and equipment, net.. $46,711 $21,960 ============ ===============
6. FLOORPLAN NOTES PAYABLE: Floorplan notes payable reflect amounts payable for the purchase of specific vehicle inventory and consist of the following:
DECEMBER 31, ----------------------------------- 1999 1998 --------------- ---------------- (in thousands) New vehicles.......................... $320,058 $166,650 Used vehicles......................... 32,719 19,452 Rental vehicles....................... 10,712 7,303 --------------- ---------------- Total floorplan notes payable. $363,489 $193,405 =============== ================
During 1999, the Company amended its Revolving Credit Agreement with a bank group (the "Credit Facility"). The maturity date was extended to December 31, 2003, and the interest rate was reduced. The notes payable bear interest at the London Interbank Offered Rate ("LIBOR") plus 125 basis points. As of December 31, 1999 and 1998, the interest rate on floorplan notes payable outstanding was 7.72% and 7.12%, respectively. The floorplan arrangement permits the Company to borrow up to $780 million, dependent upon new and used vehicle inventory levels. As of December 31, 1999, total available borrowings under floorplan agreements were approximately $416.5 million. Vehicle payments on the notes are due when the related vehicles are sold. The notes are collateralized by substantially all of the inventories of the Company. F-12 43 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7. LONG-TERM DEBT:
DECEMBER 31, --------------------------- 1999 1998 ----------- ------------ (in thousands) Credit Facility (described below)........... $10,000 $42,000 Note payable to a bank with monthly principal payments of $41,892, due through March 2004, bearing interest at 7.5%, payable monthly................................... - 2,592 Related party notes payable, maturing in November 2007, bearing interest at LIBOR plus 400 basis points..................... 3,835 - Other notes payable, maturing in varying amounts through October 2004 with a weighted average interest rate of 9.17%... 2,526 1,195 ----------- ------------ Total long-term debt........................ 16,361 45,787 Less - Current portion.................... (1,076) (2,966) ----------- ------------ Long-term portion........................... $15,285 $42,821 =========== ============
The notes payable are secured by the land, buildings or other assets for which the debt was incurred. In addition to floorplan notes payable, the Credit Facility provides an acquisition line of credit of up to $220 million, for the financing of acquisitions, general corporate purposes or capital expenditures. The amount of funds available under the acquisition line is dependent upon a calculation based on the Company's cash flow and maintaining certain financial ratios. The acquisition line of credit of the Credit Facility bears interest based on the LIBOR plus a margin varying from 175 to 325 basis points, dependent upon certain financial ratios. Additionally, the loan agreement contains various covenants including financial ratios and other requirements, which must be maintained by the Company. The agreement also limits the amount the Company may pay as cash dividends. The interest rate on borrowings under the acquisition line of credit of the Credit Facility was 8.21% and 7.37%, at December 31, 1999 and 1998, respectively. The related party debt is owed to the company of an individual who is a current employee and shareholder of the company, from whom certain of the Company's operations were acquired. The debt was incurred to finance and is secured by equipment, furniture and fixtures purchased for a new dealership-facility leased under a long-term agreement by the Company from the related party. Total interest incurred on long-term debt was approximately $2.4 million, $4.5 million and $176,000 for the years ended December 31, 1999, 1998 and 1997, respectively, which included approximately $592,000 of capitalized interest in 1999. The aggregate maturities of long-term debt as of December 31, 1999, were as follows: (in thousands) 2000...................... $1,076 2001...................... 1,066 2002...................... 1,042 2003...................... 11,143 2004...................... 665 Thereafter................ 1,369 ----------- Total long-term debt.... $16,361 =========== 8. SENIOR SUBORDINATED NOTES The Company completed the offering of $100 million of its 10 7/8% Senior Subordinated Notes due 2009 (the "Notes") on March 5, 1999. The Notes pay interest semi-annually on March 1 and September 1 each year beginning September 1, 1999. Before March 1, 2002, the Company may redeem up to $35 million of the Notes with the proceeds of certain public offerings of common stock at a redemption price of 110.875% of the principal amount plus accrued interest to the redemption date. Additionally, the Company may redeem all or part of the Notes at redemption prices of 105.438%, 103.625%, 101.813% and 100.000% of the principal amount plus accrued interest during the 12-month F-13 44 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS periods beginning March 1 of 2004, 2005, 2006, and 2007 and thereafter, respectively. The Notes are jointly and severally guaranteed, on an unsecured senior subordinated basis, by all subsidiaries of the Company (the "Subsidiary Guarantors"), other than certain inconsequential subsidiaries. All of the Subsidiary Guarantors are wholly owned subsidiaries of the Company. Certain manufacturers have minimum working capital guidelines, which, under certain circumstances, may impair a subsidiary's ability to make distributions to the parent company. Separate financial statements of the Subsidiary Guarantors are not included because (i) all Subsidiary Guarantors have jointly and severally guaranteed the Notes on a full and unconditional basis, to the maximum extent permitted by law, (ii) the aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the assets, liabilities, earnings and equity of the parent on a consolidated basis, and (iii) management has determined that such information is not material to investors. Total interest expense on the senior subordinated notes for the year ended December 31, 1999, was approximately $9.1 million. 9. CAPITAL STOCK AND STOCK OPTIONS: In 1996, Group 1 adopted the 1996 Stock Incentive Plan (the "Plan"), which provides for the granting or awarding of stock options, stock appreciation rights and restricted stock to officers and other key employees and directors. During 1999, the number of shares authorized and reserved for issuance under the Plan was increased from 2 million shares to 3 million shares, of which 131,923 are available for future issuance as of December 31, 1999. In general, the terms of the option awards (including vesting schedules) are established by the Compensation Committee of the Company's Board of Directors. All outstanding options are exercisable over a period not to exceed 10 years and vest over three- to six-year periods. The following table summarizes the Company's outstanding stock options:
WEIGHTED AVERAGE EXERCISE NUMBER PRICE -------- -------- Options outstanding, December 31, 1996.... 205,000 $2.90 Grants: First quarter 1997 (all at $2.90 per share)................................ 360,000 2.90 Fourth quarter 1997 (all at $12.00 per share)................................ 682,450 12.00 --------- ------ Options outstanding, December 31, 1997.... 1,247,450 7.88 Grants (exercise prices between $12.00 and $17.88 per share)................. 780,850 16.16 Exercised............................... (49,973) 3.13 Forfeited............................... (99,648) 13.27 --------- ------ Options outstanding, December 31, 1998.... 1,878,679 11.15 Grants (exercise prices between $16.47 and $24.72 per share)................. 1,015,850 19.64 Exercised............................... (75,600) 3.09 Forfeited............................... (76,425) 13.42 --------- ------ Options outstanding, December 31, 1999.... 2,742,504 $14.45 ========= ======
At December 31, 1999 and 1998, 448,544 and 208,460 options, respectively, were exercisable at a weighted average exercise prices of $9.86 and $7.35, respectively. The weighted average exercise price of options granted during the year ended December 31, 1997 was $8.86. The weighted average remaining contractual life of options outstanding at December 31, 1999 is 8.6 years. The weighted average fair value per share of options granted during the years ended December 31, 1999, 1998 and 1997 is $13.40, $9.18 and $5.94, respectively. The fair value of options granted is estimated on the date of grant using the Black-Scholes option pricing model. F-14 45 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the weighted average information used in determining the fair value of the options granted during the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997 ---- ---- ---- Weighted average risk-free interest 5.9% rate............................... 6.2% 5.5% Weighted average expected life of 10 years options............................ 10 years 10 years Weighted average expected volatility 47.4% 42.8% 58.1% Weighted average expected dividends -- -- --
In September 1997, Group 1 adopted the Group 1 Automotive, Inc. 1998 Employee Stock Purchase Plan (the "Purchase Plan"). The Purchase Plan authorizes the issuance of up to 1 million shares of Common Stock and provides that no options may be granted under the Purchase Plan after June 30, 2007. The Purchase Plan is available to all employees of the Company and its participating subsidiaries and is a qualified plan as defined by Section 423 of the Internal Revenue Code. At the end of each fiscal quarter (Option Period) during the term of the Purchase Plan, the employee contributions are used to acquire shares of Common Stock at 85% of the fair market value of the Common Stock on the first or the last day of the Option Period, whichever is lower. During 1999 and 1998, the Company issued 246,595 and 184,677 shares, respectively, of Common Stock to employees participating in the Purchase Plan. In October 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation," which, if fully adopted, requires the Company to record stock-based compensation at fair value. The Company has adopted the disclosure requirements of SFAS No. 123 and has elected to record employee compensation expense in accordance with Accounting Principles Board Opinion No. 25. Accordingly, compensation expense is recorded for stock options based on the excess of the fair market value of the common stock on the date the options were granted over the aggregate exercise price of the options. As the exercise price of options granted under the Plan has been equal to or greater than the market price of the Company's stock on the date of grant, no compensation expense related to the Plan has been recorded. Additionally, no compensation expense is recorded for shares issued pursuant to the Purchase Plan as it is a qualified plan. Had compensation expense for the Plan been determined based on the provisions of SFAS No. 123, the impact on the Company's net income would have been as follows:
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------ 1999 1998 1997 --------- --------- --------- (in thousands, except per share amounts) Net income as reported.................. $33,515 $20,719 $5,818 Pro forma net income under SFAS 123..... 31,254 19,519 5,451 Pro forma basic earnings per share...... 1.51 1.13 - Pro forma diluted earnings per share.... 1.45 1.09 -
10. OPERATING LEASES: The Company leases various facilities and equipment under long-term operating lease agreements, including leases with related parties. The related-party leases expire on various dates through May 2029 and, in general, are renewable, at the Company's option, at various times during the lease term. In general, the third-party leases are cancelable at the Company's option, at various times during the lease term, and expire on various dates through December 2029. During 1998, the Company completed a sale and leaseback transaction related to six of its owned dealerships properties. During 1999, the Company completed a sale and leaseback transaction with respect to two additional properties. F-15 46 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Future minimum lease payments for operating leases are as follows:
RELATED THIRD YEAR ENDED DECEMBER 31, PARTIES PARTIES TOTAL - ---------------------------- ------------ ------------- ------------- (in thousands) 2000...................... $10,893 $14,555 $25,448 2001...................... 10,893 13,488 24,381 2002...................... 10,893 12,940 23,833 2003...................... 10,985 12,883 23,868 2004...................... 10,986 11,956 22,942 Thereafter................ 54,604 94,877 149,481 ------------ ------------- ------------- Total..................... $109,254 $160,699 $269,953 ============ ============= =============
Total rent expense under all operating leases, including operating leases with related parties, was approximately $19.9, $11.1 and $3.3 million for the years ended December 31, 1999, 1998 and 1997, respectively. Rental expense on related-party leases, which is included in the above amounts, totaled approximately $9.6, $8.3 and $2.6 million for the years ended December 31, 1999, 1998 and 1997, respectively. 11. INCOME TAXES: Federal and state income taxes are as follows:
DECEMBER 31, ----------------------------------------- 1999 1998 1997 ------------ ------------- -------------- (in thousands) Federal - Current...... $16,632 $15,478 $1,291 Deferred..... 2,360 (3,465) (762) State - Current...... 1,531 3,225 297 Deferred..... 1,651 (736) (253) ------------ ------------- -------------- Provision for income taxes... $22,174 $14,502 $573 ============ ============= ==============
Actual income tax expense differs from income tax expense computed by applying the U.S. federal statutory corporate tax rate of 35% in 1999 and 1998 and 34% in 1997 to income before income taxes as follows:
DECEMBER 31, ---------------------------------------------- 1999 1998 1997 -------------- ------------- --------------- (in thousands) Provision at the statutory rate.......................... $19,491 $12,327 $2,173 Increase (decrease) resulting from -- Income of S Corporations.... - - (1,269) State income tax, net of benefit for federal deduction................. 2,506 1,618 29 Deferred tax assets realized on conversion of S Corporations to C Corporations.............. - - (403) Non-deductible portion of goodwill amortization..... 407 339 - Other....................... (230) 218 43 -------------- ------------- --------------- Provision for income taxes.... $22,174 $14,502 $573 ============== ============= ===============
Deferred income tax provisions result from temporary differences in the recognition of income and F-16 47 GROUP 1 AUTOMOTIVE, INC. AND SUBSIDARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS expenses for financial reporting purposes and for tax purposes. The tax effects of these temporary differences representing deferred tax assets (liabilities) result principally from the following:
DECEMBER 31, ------------------------------ 1999 1998 -------------- -------------- (in thousands) Inventory (LIFO conversion)....... $(5,401) $(2,981) Reserves and accruals not deductible until paid.......... 18,702 17,828 Goodwill.......................... (3,311) (584) Depreciation...................... (1,950) (1,082) Other............................. (2,638) (186) -------------- -------------- Net deferred tax asset......... $5,402 $12,995 ============== ==============
The net deferred tax assets (liabilities) are comprised of the following:
DECEMBER 31, ----------------------------- 1999 1998 -------------- ------------- (in thousands) Deferred tax assets - Current........................ $12,956 $11,238 Long-term...................... 8,114 7,154 Deferred tax liabilities - Current........................ (4,337) (26) Long-term...................... (11,331) (5,371) -------------- ------------- Net deferred tax asset.......... $5,402 $12,995 ============== =============
12. COMMITMENTS AND CONTINGENCIES: Litigation The Company is a defendant in several lawsuits arising from normal business activities. Management has reviewed pending litigation with legal counsel and believes that the ultimate liability, if any, resulting from such actions will not have a material adverse effect on the Company's financial position or results of operations. Insurance Because of their vehicle inventory and nature of business, automobile dealerships generally require significant levels of insurance covering a broad variety of risks. The Company's insurance includes an umbrella policy with a $100 million per occurrence limit as well as insurance on its real property, comprehensive coverage for its vehicle inventory, general liability insurance, employee dishonesty coverage and errors and omissions insurance in connection with its vehicle sales and financing activities. 13. SUBSEQUENT EVENTS (UNAUDITED): Recent Acquisitions Since December 31, 1999, the Company has completed acquisitions of 11 dealership franchises. One of these acquisitions is a new platform with 10 dealership franchises in Massachusetts. The remaining acquisition is a tuck-in, which will complement platform operations in Florida. These acquisitions bring the Company's total number of dealership franchises to 98. The aggregate consideration paid in completing these acquisitions, including real estate acquired, was approximately $29.3 million in cash and 330,000 shares of Common Stock and the assumption of an estimated $32.6 million of inventory financing and $10.7 million of mortgage and other debt. F-17 48 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - ------ ----------- 3.1 -- Restated Certificate of Incorporation of the Company (Incorporated by reference to Exhibit 3.1 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 3.2 -- Certificate of Designation of Series A Junior Participating Preferred Stock (Incorporated by reference to Exhibit 3.2 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 3.3 -- Bylaws of the Company (Incorporated by reference to Exhibit 3.3 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 4.1 -- Specimen Common Stock certificate (Incorporated by reference to Exhibit 4.1 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 4.2 -- Form of Subordinated Indenture (Incorporated by reference to Exhibit 4.5 of the Company's Registration Statement on Form S-3 Registration No. 333-69693). 4.3 -- Form of Subordinated Debt Securities (included in Exhibit 4.2). 4.4 -- First Supplemental Indenture dated as of March 5, 1999 among Group 1 Automotive, Inc., the Subsidiary Guarantors named therein and IBJ Whitehall Bank & Trust Company (Incorporated by reference to Exhibit 4.1 of the Company's current report of Form 8-K dated March 5, 1999). 4.5 -- Form of 10 7/8% Senior Subordinated Note due March 1, 2009 (included in Exhibit 4.4). 10.1 -- Employment Agreement between the Company and B.B. Hollingsworth, Jr. dated November 3, 1997 (Incorporated by reference to Exhibit 10.1 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.2 -- Employment Agreement between the Company and Robert E. Howard II dated November 3, 1997 (Incorporated by reference to Exhibit 10.2 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.3 -- Consulting Agreement between the Company and Sterling B. McCall, Jr. dated November 4, 1999. 10.4 -- Employment Agreement between the Company and Charles M. Smith dated November 3, 1997 (Incorporated by reference to Exhibit 10.4 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.5 -- Employment Agreement between the Company and John T. Turner dated November 3, 1997 (Incorporated by reference to Exhibit 10.5 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.6 -- Employment Agreement between the Company and Scott L. Thompson dated November 3, 1997 (Incorporated by reference to Exhibit 10.6 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.7 -- 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.7 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.8 -- First Amendment to 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.8 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.9 -- Lease Agreement between Howard Pontiac GMC and Robert E. Howard II (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.10 -- Lease Agreement between Bob Howard Motors and Robert E. Howard II (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.11 -- Lease Agreement between Bob Howard Chevrolet and Robert E. Howard II (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.12 -- Lease Agreement between Bob Howard Automotive-H and North Broadway Real Estate (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.13 -- Lease Agreement between Mike Smith Autoplaza and Olds-Honda Realty (Incorporated by reference to Exhibit 10.9 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.14 -- Rights Agreement between Group 1 Automotive, Inc. and ChaseMellon Shareholder Services, L.L.C., as rights agent dated October 3, 1997 (Incorporated by reference to Exhibit 10.10 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.15 -- 1998 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.11 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.16 -- Form of Agreement between Toyota Motor Sales, U.S.A., and Group 1 Automotive, Inc. (Incorporated by reference to Exhibit 10.12 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.17 -- Form of Supplemental Agreement to General Motors Corporation Dealer Sales and Service Agreement (Incorporated by reference to Exhibit 10.13 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.18 -- Supplemental Terms and Conditions between Ford Motor Company and Group 1 Automotive, Inc. dated September 4, 1997 (Incorporated by reference to Exhibit 10.16 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.19 -- Toyota Dealer Agreement between Gulf States Toyota, Inc. and Southwest Toyota, Inc. dated April 5, 1993 (Incorporated by reference to Exhibit 10.17 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.20 -- Lexus Dealer Agreement between Toyota Motor Sales, U.S.A., Inc. and SMC Luxury Cars, Inc. dated August 21, 1995 (Incorporated by reference to Exhibit 10.18 of the Company's Registration Statement on Form S-1 Registration No. 333-29893. 10.21 -- Form of General Motors Corporation U.S.A. Sales and Service Agreement (Incorporated by reference to Exhibit 10.25 of the Company's Registration Statement on Form S-1 Registration No. 333-29893). 10.22 -- Fourth Amended and Restated Revolving Credit Agreement, dated as of October 15, 1999, and Effective as of November 1, 1999 (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated October 29, 1999). 10.23 -- Stock Pledge Agreement dated December 19, 1997 (Incorporated by reference to Exhibit 10.54 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.24 -- Swap Transaction Letter Agreement dated January 23, 1998 (Incorporated by reference to Exhibit 10.55 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1997). 10.25 -- First Amendment to Group 1 Automotive, Inc. 1998 Employee Stock Purchase Plan (Incorporated by reference to Exhibit 10.35 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998). 10.26 -- Employment Agreement between the Company and Johns S. Bishop dated October 7, 1998 (Incorporated by reference to Exhibit 10.37 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998). 10.27 -- Form of Ford Motor Company Sales and Service Agreement (Incorporated by reference to Exhibit 10.38 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998). 10.28 -- Form of Chrysler Corporation Sales and Service Agreement (Incorporated by reference to Exhibit 10.39 of the Company's Annual Report on Form 10-K for the year-ended December 31, 1998). 10.29 -- Lock-up Agreement dated June 24, 1999, between the Company and Robert E. Howard II. 10.30 -- Second Amendment to the 1996 Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated May 14, 1999). 10.31 -- Group 1 Automotive, Inc. Deferred Compensation Plan effective November 10, 1999. 11.1 -- Statement re: computation of earnings per share is included under Note 2 to the financial statements. 21.1 -- Group 1 Automotive, Inc. Subsidiary List. 23.1 -- Consent of Arthur Andersen LLP. 27.1 -- Financial Data Schedule.
EX-10.3 2 CONSULTING AGREEMENT - STERLING B. MCCALL 1 EXHIBIT 10.3 CONSULTING AGREEMENT This Consulting Agreement ("AGREEMENT") is entered into between Group 1 Automotive, Inc., a Delaware corporation having offices at 950 Echo Lane, Suite 350, Houston, Texas 77024, ("Employer"), and Sterling B. McCall, Jr., an individual currently residing at 37 Saddlebrook, Houston, Texas 77024 ("CONSULTANT"), to be effective as of November 4, 1999. For and in consideration of the mutual promises, covenants, and obligations contained herein, Employer and Consultant agree as follows: WHEREAS, Employer and Consultant entered into an Employment Agreement dated as of November 3, 1997 (the "EMPLOYMENT AGREEMENT"); WHEREAS, the parties to the Employment Agreement have determined it to be in their mutual interests to revise their relationship from employer/employee to employer/consultant; and WHEREAS, from the date first stated above, this Agreement will replace the Employment Agreement in its entirety, and the Employment Agreement shall be terminated and of no further force and effect. 1. DUTIES: 1.1. Employer agrees to employ Consultant, and Consultant agrees to be employed by Employer, beginning November 4, 1999 and continuing throughout the Term (as defined below) of this Agreement, subject to the terms and conditions of this Agreement. 1.2. Consultant shall (i) continue to serve as Chairman of the following subsidiaries of Employer: Southwest Toyota, Inc., SMC Luxury Cars, Inc., and McCall Automotive, Inc. and (ii) from the date of this Agreement, serve as a consultant of Employer. 1.3. Consultant shall, during the term hereof, devote such reasonable amount of time as may be requested from time to time by the Chief Executive Officer of Group 1. 2. COMPENSATION AND BENEFITS: 2.1. Consultant's consulting fee under this Agreement shall be $300,000 per annum and shall be paid in semi-monthly installments in accordance with Employer's standard payroll practice. 2.2. Consultant's participation in bonus plans shall be governed by the bonus and incentive plans adopted by the Board of Directors of Employer in which Consultant is a participant. Consultant's participation in such bonus and incentive plans shall terminate as of December 31, 1999. 2 2.3. While employed by Employer, Consultant shall be allowed to participate, on the same basis generally as other employees of Employer, in all general employee benefit plans and programs, including improvements or modifications of the same, which on the effective date or thereafter are made available by Employer to all or substantially all of Employer's employees. Such benefits, plans, and programs may include, without limitation, medical, health, and dental care, life insurance, disability protection, and pension plans. Nothing in this Agreement is to be construed or interpreted to provide greater rights, participation, coverage, or benefits under such benefit plans or programs than provided to similarly situated employees pursuant to the terms and conditions of such benefit plans and programs. For the term of this Agreement, Employer shall provide Consultant an office and a secretary, such secretary to be selected by Consultant. Consultant's secretary shall be an employee of Employer with a base salary not to exceed $2,000 per month. Consultant shall be responsible for all office and secretarial expenses above the $2,000 per month paid by Employer to Consultant's secretary, except for those direct expenses related to Consultant's services to Employer. In addition, in accordance with Employer's previous arrangement with Consultant and for the term of this Agreement, Employer shall continue to provide Consultant with the use of three (3) Dealer vehicles. 2.4. Employer shall not by reason of this Article 2 be obligated to institute, maintain, or refrain from changing, amending, or discontinuing, any such incentive compensation or employee benefit program or plan, so long as such actions are similarly applicable to covered employees generally. Moreover, unless specifically provided for in a written plan document adopted by the Board of Directors of Employer, none of the benefits or arrangements described in this Article 2 shall be secured or funded in any way, and each shall instead constitute an unfunded and unsecured promise to pay money in the future exclusively from the general assets of Employer and its subsidiaries and affiliates. 2.5. Employer may withhold from any compensation, benefits, or amounts payable under this Agreement all federal, state, city, or other taxes as may be required pursuant to any law or governmental regulation or ruling. 3. TERM OF THIS AGREEMENT, EFFECT OF EXPIRATION OF TERM, AND TERMINATION PRIOR TO EXPIRATION OF TERM AND EFFECTS OF SUCH TERMINATION: 3.1. The term of this Agreement shall be effective from November 4, 1999 through November 2, 2002. 3.2. This Agreement will terminate for the following reasons: (i) upon Consultant's death; or (ii) upon Consultant's becoming incapacitated by accident, sickness, or other circumstance which in the reasonable opinion of a qualified doctor approved by Employer's Board of Directors renders him mentally or physically incapable of performing the duties and services required of Consultant, and which will continue in the reasonable opinion of such doctor for a period of not less than 180 days. 2 3 3.3. Upon termination of the employment relationship as a result of Consultant's death, Consultant's heirs, administrators, or legatees shall be entitled to Consultant's pro rata consulting fee through the date of such termination which has not been paid. 3.4. Upon termination of the consulting relationship as a result of Consultant's incapacity, Consultant shall be entitled to his pro rata consulting fee through the date of such termination. 3.5. In all cases, the compensation and benefits payable to Consultant under this Agreement upon termination of the consulting relationship shall be reduced and offset by any amounts to which Consultant may otherwise be entitled under any and all severance plans (excluding any pension, retirement and profit sharing plans of Employer that may be in effect from time to time) or policies of Employer or its subsidiaries or affiliates or any successor to all or a portion of the business or assets of Employer. 3.6. Termination of the consulting relationship shall not terminate those obligations imposed by this Agreement which are continuing in nature, including, without limitation, Consultant's obligations of confidentiality, non-competition and Consultant's continuing obligations with respect to business opportunities that had been entrusted to Consultant by Employer. 3.7. This Agreement governs the rights and obligations of Employer and Consultant with respect to Consultant's compensation and other perquisites of employment. 4. OWNERSHIP AND PROTECTION OF INFORMATION; COPYRIGHTS: 4.1. Employer owns certain confidential and proprietary information and trade secrets to which Consultant will be given access for the purpose of carrying out his responsibilities hereunder. Furthermore, Employer agrees to provide Consultant with confidential and proprietary information and trade secrets regarding the Employer and its subsidiaries and affiliates, in order to assist Consultant in satisfying his obligations hereunder. Consultant, in turn, agrees that the name "Sterling McCall" is proprietary to Group 1 and that Consultant may not use the name "Sterling McCall" in connection with any automotive business with the exception of the "Sterling McCall Old Car Museum" located in Fayette County, Texas. 4.2. All information, ideas, concepts, improvements, discoveries, and inventions, whether patentable or not, which are conceived, made, developed or acquired by Consultant, individually or in conjunction with others, during the term of this Agreement (whether during business hours or otherwise and whether on Employer's premises or otherwise) which relate to Employer's or any of its subsidiaries' or affiliates' businesses, products or services (including, without limitation, all such information relating to corporate opportunities, research, financial and sales data, pricing and trading terms, evaluations, opinions, interpretations, acquisition prospects, the identity of customers or their requirements, the identity of key contacts within the customer's organizations or within the organization of acquisition prospects, or marketing and merchandising techniques, prospective names, and marks) shall be disclosed to Employer and are and shall be the sole and exclusive property of Employer. Upon termination of Consultant's relationship with Employer, for any reason, Consultant promptly shall deliver the same, and all copies thereof, to Employer. 3 4 4.3. Consultant will not, at any time during or after the term of this Agreement, make any unauthorized disclosure of any confidential business information or trade secrets of Employer or its subsidiaries or affiliates, or make any use thereof, except in the carrying out of his responsibilities hereunder. As a result of Consultant's relationship with Employer, Consultant may also from time to time have access to, or knowledge of, confidential business information or trade secrets of third parties, such as customers, suppliers, partners, joint venturers, and the like, of Employer and its subsidiaries and affiliates. Consultant also agrees to preserve and protect the confidentiality of such third party confidential information and trade secrets to the same extent, and on the same basis, as Employer's or any of its subsidiaries' or affiliates' confidential business information and trade secrets. 4.4. If, during the term of this Agreement, Consultant creates any original work of authorship fixed in any tangible medium of expression which is the subject matter of copyright (such as videotapes, written presentations on acquisitions, computer programs, E-mail, voice mail, electronic databases, drawings, maps, architectural renditions, models, manuals, brochures, or the like) relating to Employer's, or any of its subsidiaries' or affiliates' businesses, products, or services, whether such work is created solely by Consultant or jointly with others, whether during business hours or otherwise and whether on Employer's or any of its subsidiaries' or affiliates' premises or otherwise), Employer shall be deemed the author of such work if the work is prepared by Consultant in the scope of his duties; or, if the work is not prepared by Consultant within the scope of his duties but is specially ordered by Employer or any of its subsidiaries or affiliates as a contribution to a collective work, as a part of a motion picture or other audiovisual work, as a translation, as a supplementary work, as a compilation, or as an instructional text, then the work shall be considered to be work made for hire and Employer or any of its subsidiaries or affiliates shall be the author of the work. If such work is neither prepared by Consultant within the scope of his duties nor a work specially ordered that is deemed to be a work made for hire, then Consultant hereby agrees to assign, and by these presents does assign, to Employer all of Consultant's worldwide right, title, and interest in and to such work and all rights of copyright therein. 4.5. Both during the term of this Agreement and thereafter, Consultant shall assist Employer, or any of its subsidiaries or affiliates and their nominees, at any time, in the protection of Employer's or any of its subsidiaries' or affiliates' worldwide right, title, and interest in and to information, ideas, concepts, improvements, discoveries, and inventions, and its copyrighted works, including without limitation, the execution of all formal assignment documents requested by Employer or any of its subsidiaries or affiliates or their nominees and the execution of all lawful oaths and applications for applications for patents and registration of copyright in the United States and foreign countries. 5. NON-COMPETITION OBLIGATIONS: 5.1. As part of the consideration for the Merger, and as an additional incentive for Group 1 to enter into this Agreement, Sterling B. McCall, Jr. (the "DESIGNATED PERSON") and Group 1 agree to the non-competition provisions of this Article 5. The Designated Person agrees that during the period of the Designated Person's non-competition obligations hereunder, the Designated Person will not, directly or indirectly for the Designated Person or for others: 4 5 (i) engage in the Restricted Area in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates; (ii) render advice or services to, or otherwise assist, including financing, any other Person who is engaged in the Restricted Area, directly or indirectly, in any business competitive with any line of business conducted by Group 1 or any of its subsidiaries or affiliates engaged in automotive retailing; and (iii) induce any employee of Group 1 or any of its subsidiaries or affiliates to terminate his or her employment with Group 1 or any of its subsidiaries or affiliates, or hire or assist in the hiring of any such employee by Person not affiliated with Group 1 or any of its subsidiaries or affiliates. These non-competition obligations shall apply until the later of (i) three (3) years after the Effective Time (as defined in the Plan and Agreement of Reorganization among Group 1 Automotive, Inc., SM Merger, Inc. and SMC Investment, Inc., dated as of November 4, 1999) (ii) the period specified in the Consulting Agreement. If Group 1 and its subsidiaries and affiliates abandon a particular aspect of their business, that is, cease such aspect of their business with the intention to permanently refrain from such aspect of their business, then this non-competition covenant shall not apply to such former aspect of that business. During this non-competition period, the Designated Person will not engage in these restricted activities or assist in the industry consolidation efforts on behalf of any publicly held entity in the automotive retailing industry (nor any entity with the ultimate intention of becoming a publicly held entity or being acquired in any manner by a publicly held entity), regardless of geographic area or market. For the purposes of this Article 5 "RESTRICTED AREA" shall mean (i) Harris County, Texas; and (ii) any county adjacent to Harris County, Texas. (b) The Designated Person understands that the foregoing restrictions may limit his ability to engage in certain businesses during the period provided for above, but acknowledge that the Designated Person will receive sufficiently high remuneration and other benefits under this Agreement to justify such restriction. The Designated Person acknowledges that money damages would not be sufficient remedy for any breach of this Article 5 by the Designated Person, and Group 1 or any of its subsidiaries or affiliates shall be entitled to enforce the provisions of this Article 5 by terminating any payments then owing to the Designated Person under this Agreement and/or to specific performance and injunctive relief as remedies for such breach or any threatened breach, without any requirement for the securing or posting of any bond in connection with such remedies. Such remedies shall not be deemed the exclusive remedies for a breach of this Article 5, but shall be in addition to all remedies available at law or in equity to Group 1 or any of its subsidiaries or affiliates, including, without limitation, the recovery of damages from Group 1 and the Designated Person's agents involved in such breach. 5 6 (c) It is expressly understood and agreed that Group 1 and the Designated Person considers the restrictions contained in this Article 5 to be reasonable and necessary to protect the legitimate business interests of Group 1 and its affiliates, including the confidential and proprietary information and trade secrets of Group 1 and its subsidiaries and affiliates. Nevertheless, if any of the aforesaid restrictions are found by a court having jurisdiction to be unreasonable, or overly broad as to geographic area or time, or otherwise unenforceable, the parties intend for the restrictions therein set forth to be modified by such courts so as to be reasonable and enforceable and, as so modified by the court, to be fully enforced. (d) The parties hereto expressly acknowledge that Group 1's rights under this Article 5 are assignable and that such rights shall be fully enforceable by any of Group 1's assignees or successors in interest. 6. MISCELLANEOUS: 6.1. For purposes of this Agreement the terms "AFFILIATES" or "AFFILIATED" means an entity who directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with Employer. For purposes of this Agreement the term "CONTROL" including the terms "CONTROLLED," "CONTROLLED BY" and "UNDER COMMON CONTROL WITH") means the possession, directly or indirectly or as trustee or executor, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of stock or as trustee or executor, by contract or credit arrangement or otherwise. 6.2. Employer, Group 1 and Consultant shall refrain, both during the consulting relationship and after the consulting relationship terminates, from making any negative or critical statements about each other or any of their respective subsidiaries or affiliates, directors, officers, employees, agents or representatives or disclosing any conflicts with same, or from publishing any oral or written statements about each other or any of their respective subsidiaries or affiliates, directors, officers, employees, agents or representatives that are slanderous, libelous, or defamatory; or that disclose private or confidential information about each other or any of their respective subsidiaries' or affiliates' business affairs, or about their respective directors, officers, employees, agents, or representatives; or that constitute an intrusion into the seclusion or private lives of each other or any of their respective subsidiaries or affiliates, directors, officers, employees, agents, or representatives; or that give rise to unreasonable publicity about the private lives of each other or any of their respective subsidiaries or affiliates, directors, officers, employees, agents, or representatives; or that place each other or any of their respective subsidiaries or affiliates, directors, officers, employees, agents, or representatives in a false light before the public; or that constitute a misappropriation of the name or likeness of each other or any of their respective subsidiaries or affiliates or any of such entities' directors, officers, employees, agents, or representatives. A violation or threatened violation of this prohibition may be enjoined. 6.3. For purposes of this Agreement, notices and all other communications provided for herein shall be in writing and shall be deemed to have been duly given when personally delivered or 6 7 when mailed by United States registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to Employer to: Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, TX 77024 Attn: Chief Executive Officer with a copy to: Vinson & Elkins L.L.P. 2300 First City Tower 1001 Fannin Street Houston, TX 77002-6760 Attn: John S. Watson If to Consultant, to the address shown on the first page hereof with a copy to: Robert D. Remy Two Memorial City Plaza 820 Gessner, Suite 1360 Houston, TX 77024 Either Employer or Consultant may furnish a change of address to the other in writing in accordance herewith, except that notices of changes of address shall be effective only upon receipt. 6.4. This Agreement shall be governed in all respects by the laws of the State of Texas, excluding any conflict-of-law rule or principle that might refer the construction of the Agreement to the laws of another State or country. 6.5. No failure by either party hereto at any time to give notice of any breach by the other party of, or to require compliance with, any condition or provision of this Agreement shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 6.6. It is a desire and intent of the parties that the terms, provisions, covenants, and remedies contained in this Agreement shall be enforceable to the fullest extent permitted by law. If any such term, provision, covenant, or remedy of this Agreement or the application thereof to any person, association, or entity or circumstances shall, to any extent, be construed to be invalid or unenforceable in whole or in part, then such term, provision, covenant, or remedy shall be construed in a manner so as to permit its enforceability under the applicable law to the fullest extent permitted by law. In any case, the remaining provisions of this Agreement or the application thereof to any 7 8 person, association, or entity or circumstances other than those to which they have been held invalid or unenforceable, shall remain in full force and effect. 6.7. Any and all claims, demands, causes of action, disputes, controversies and other matters in question arising out of or relating to this Agreement, any provision hereof, the alleged breach thereof, or in any way relating to the subject matter of this Agreement, involving Employer, its subsidiaries and affiliates and Consultant (all of which are referred to herein as "CLAIMS"), even though some or all of such Claims allegedly are extra-contractual in nature, whether such Claims sound in contract, tort or otherwise, at law or in equity, under state or federal law, whether provided by statute or the common law, for damages or any other relief, including equitable relief and specific performance, shall be resolved and decided by binding arbitration pursuant to the Federal Arbitration Act in accordance with the Commercial Arbitration Rules then in effect with the American Arbitration Association. In the arbitration proceeding the Consultant shall select one arbitrator, the Employer shall select one arbitrator and the two arbitrators so selected shall select a third arbitrator. Should one party fail to select an arbitrator within five days after notice of the appointment of an arbitrator by the other party or should the two arbitrators selected by the Consultant and the Employer fail to select an arbitrator within ten days after the date of the appointment of the last of such two arbitrators, any person sitting as a Judge of the United States District Court of the Southern District of Texas, Houston Division, upon application of the Consultant or the Employer, shall appoint an arbitrator to fill such space with the same force and effect as though such arbitrator had been appointed in accordance with the immediately preceding sentence of this Section 7.7. The decision of a majority of the arbitrators shall be binding on the Consultant, the Employer and its subsidiaries and affiliates. The arbitration proceeding shall be conducted in Houston, Texas. Judgment upon any award rendered in any such arbitration proceeding may be entered by any federal or state court having jurisdiction. This agreement to arbitrate shall be enforceable in either federal or state court. The enforcement of this agreement to arbitrate and all procedural aspects of this Agreement to arbitrate, including but not limited to, the construction and interpretation of this agreement to arbitrate, the scope of the arbitrable issues, allegations of waiver, delay or defenses to arbitrability, and the rules governing the conduct of the arbitration, shall be governed by and construed pursuant to the Federal Arbitration Act. In deciding the substance of any such Claim, the Arbitrators shall apply the substantive laws of the State of Texas; provided, however, that the Arbitrators shall have no authority to award treble, exemplary or punitive type damages under any circumstances regardless of whether such damages may be available under Texas law, the parties hereby waiving their right, if any, to recover treble, exemplary or punitive type damages in connection with any such Claims. 6.8. This Agreement shall be binding upon and inure to the benefit of Employer, its subsidiaries and affiliates and any other person, association, or entity which may hereafter acquire or succeed to all or a portion of the business or assets of Employer by any means, whether direct or indirect, by purchase, merger, consolidation, or otherwise. Consultant's rights and obligations under this Agreement are personal and such rights, benefits, and obligations of Consultant shall not be 8 9 voluntarily or involuntarily assigned, alienated, or transferred, whether by operation of law or otherwise, by Consultant without the prior written consent of Employer. 6.9. Except as provided in (1) written company policies promulgated by Employer dealing with issues such as securities trading, business ethics, governmental affairs and political contributions, consulting fees, commissions and other payments, compliance with law, investments and outside business interests of officers and employees, reporting responsibilities, administrative compliance, and the like, (2) the written benefits, plans, and programs referenced in Sections 2.2, 2.3 and 2.4, or (3) any signed written agreements contemporaneously or hereafter executed by Employer and Consultant, this Agreement constitutes the entire agreement of the parties with regard to such subject matters, and contains all of the covenants, promises, representations, warranties, and agreements between the parties with respect to such subject matters and replaces and merges previous agreements and discussions pertaining to the relationship between Employer and Consultant. Specifically, but not by way of limitation, any other employment agreement or arrangement in existence as of the date hereof between Employer or any of its subsidiaries or affiliates and Consultant is hereby canceled and Consultant hereby irrevocably waives and renounces all of Consultant's rights and claims under any such agreement or arrangement. 6.10. The parties hereto expressly acknowledge that Group 1's and Employer's rights under this Agreement are assignable and that such rights shall be fully enforceable by any of Group 1's or Employer's assignees or successors in interest. [signature page follows] 9 10 IN WITNESS WHEREOF, Employer and Consultant have duly executed this Agreement in multiple originals to be effective on the date first stated above. GROUP 1 AUTOMOTIVE, INC. By: /s/ Scott L. Thompson ---------------------- Name: Scott L. Thompson Title: Senior Vice President /s/ Sterling B. McCall, Jr. --------------------------- Sterling B. McCall, Jr. 10 EX-10.29 3 LOCK-UP AGREEMENT - ROBERT E. HOWARD II 1 EXHIBIT 10.29 LOCK-UP AGREEMENT THIS LOCK-UP AGREEMENT ("Agreement") dated as of June 24, 1999, between Group 1 Automotive, Inc., a Delaware corporation (the "Company") and the undersigned holder ("Stockholder") of Common Stock of the Company. WHEREAS, the Company has requested that the Stockholder agree not to sell any shares of Common Stock of the Company until July 15, 2000, except in an offering registered with the Securities and Exchange Commission ("SEC") initiated by the Company; and WHEREAS, in consideration of Stockholder agreeing not to sell shares of Common Stock of the Company, the Company has agreed to initiate an offering registered with the SEC of a portion of the shares of Common Stock of the Company held by Stockholder. NOW, THEREFORE, for and in consideration of the above premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows. 1. Stockholder is the beneficial owner of the number of shares of Common Stock of the Company set forth after his name on Schedule I attached hereto and desires to sell up to the number of shares of Common Stock of the Company set forth after his name on Schedule I attached hereto in an offering registered with the SEC. 2. Stockholder hereby irrevocably agrees, except for the number of shares of the Company set forth after his name on Schedule I attached hereto to be included in a registration statement to be filed with the SEC and sold in an offering registered with the SEC as shall be determined by the Company, that Stockholder will not, directly or indirectly, sell, lend, offer, contract to sell, transfer the economic risk of ownership in, make any short sale, pledge or otherwise dispose of or transfer any shares of Common Stock or any securities convertible into or exchangeable or exercisable for or any other rights to purchase or acquire Common Stock without the prior written consent of the Company for a period from the date hereof until the earliest of (i) 60 days following the death of Stockholder; (ii) 60 days following the time at which Stockholder is determined to be "permanently disabled" (for purposes of the immediately preceding sentence, "permanently disabled" shall mean a condition (certified by a licensed physician, selected by the Company) rendering Stockholder unable to engage in employment that is substantially similar to Stockholder's current employment); or (iii) July 15, 2000. Notwithstanding the foregoing, if Stockholder is an individual, he or she may transfer any shares of Common Stock or securities convertible into or exchangeable or exercisable for Common Stock either during his or her lifetime or on death by will or intestacy to his or her immediate family or to a trust the beneficiaries of which are exclusively the undersigned and/or a member or members of his or her immediate family; provided, however, that prior to any such transfer each transferee shall execute an agreement, satisfactory to the Company, pursuant to which each transferee shall agree to receive and hold such 2 shares of Common Stock, or securities convertible into or exchangeable or exercisable for the Common Stock, subject to the provisions hereof, and there shall be no further transfer except in accordance with the provisions hereof. For the purposes of this paragraph, "immediate family" shall mean spouse, lineal descendant, father, mother, brother or sister of the transferor. The Stockholder understands that the agreements of the Stockholder are irrevocable and shall be binding upon the Stockholder's heirs, legal representatives, successors and assigns. 3. Whether or not the offering registered with the SEC actually occurs depends on a number of factors, including market conditions. Any offering registered with the SEC will only be made pursuant to one or more agreements (each a "Purchase Agreement"), the terms of which are subject to agreement between the Company and either the underwriters, dealers, agents or direct purchasers (the "Purchasers"), depending on the type of offering. The Stockholder agrees and consents to the entry of stop transfer instructions with the Company's transfer agent against the transfer of Common Stock or other securities of the Company held by the Stockholder except in compliance with this Agreement. 4. Attached hereto as Appendix A is a form of Power of Attorney and Custody Agreement that the Stockholder agrees to execute contemporaneous with the execution of this Agreement. 5. The Company shall, as expeditiously as reasonably possible, and in any case prior to August 1, 1999, prepare and file with the SEC a registration statement with respect to the shares of Common Stock that Stockholder desires to sell as set forth in paragraph 1 and use its best efforts to cause such registration statement to become and remain effective; provided, however, that the Company shall have no obligation to maintain the effectiveness of any registration statement filed hereunder or to cause the information therein to remain current for more that such period as is customary and is required by the Purchaser in the offering registered with the SEC. The Company shall select the Purchaser or Purchasers, as the case may be, with respect to the offering of the shares of Common Stock held by the Stockholder. The Company shall cooperate with the Purchasers as the Purchasers may reasonably request in facilitating the offering registered with the SEC. 6. All expenses incurred in connection with a registration statement pursuant to this Agreement, including without limitation all registration and qualification fees, printing and accounting fees, and fees and disbursements of counsel for the Company and the Stockholder, shall be borne by the Company. The Stockholder shall pay the Purchasers' discounts and commissions applicable to the Common Stock sold by the Stockholder. In addition, the Stockholder shall pay his or her own costs for experts or professionals (other than counsel) employed by the Stockholder or on his or her behalf in connection with the registration of the Common Stock under this Agreement. 7. The Company agrees to indemnify the Stockholder with respect to the offering registered with the SEC of Common Stock pursuant to this Agreement as set forth in Appendix B attached hereto. 3 IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above. STOCKHOLDER GROUP 1 AUTOMOTIVE, INC. /s/ Robert E. Howard II By: /s/ B. B. Hollingsworth, Jr. ------------------- ---------------------------- Robert E. Howard II, Individually B. B. Hollingsworth, Jr. Chairman, President and /s/ Robert E. Howard II Chief Executive Officer ----------------------- Robert E. Howard II, Manager Howard Investments LLC an Oklahoma Limited Liability Company 4 APPENDIX A CUSTODY AGREEMENT AND POWER OF ATTORNEY FOR SALE OF COMMON STOCK OF GROUP 1 AUTOMOTIVE, INC. B.B. Hollingsworth, Jr. Scott L. Thompson As Attorneys-in-Fact c/o Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, Texas 77024 Scott L. Thompson As Custodian c/o Group 1 Automotive, Inc. 950 Echo Lane, Suite 350 Houston, Texas 75024 Gentlemen: Group 1 Automotive, Inc., a Delaware corporation (the "Company"), the undersigned and certain other stockholders of the Company (the undersigned and such other stockholders being hereinafter referred to as the "Selling Stockholders") may sell certain shares of Common Stock, par value $.01 per share, of the Company ("Common Stock") covered by a Registration Statement on Form S-3, as amended from time to time filed with the Securities and Exchange Commission (the "Registration Statement") through underwriters, dealers, agents or directly to one or more purchasers (collectively, the "Purchasers") as contemplated by the Registration Statement. It is understood that at this time there is no commitment on the part of any Purchaser to purchase any shares of Common Stock and the undersigned acknowledges that no assurance can be given that an offering of Common Stock will take place. The number of shares of Common Stock that the undersigned proposes to sell to the Purchasers (the "Shares") are set forth on Schedule I hereto. This Custody Agreement and Power of Attorney is referred to herein as this "Agreement." 1. APPOINTMENT AND POWERS OF ATTORNEYS-IN-FACT. (a) The undersigned hereby irrevocably constitutes and appoints B.B. Hollingsworth, Jr. and Scott L. Thompson (the "Attorneys-in-Fact"), and each of them, his agent and attorney-in-fact, with full power of substitution, with respect to all matters arising in connection with the public offering and sale of the Shares, including, but not limited to, the power and authority on behalf of the undersigned to do or cause to be done any of the following things: (i) determine whether the Purchasers will be underwriters, dealers, agents or direct purchasers and select the particular Purchasers to act in such capacity; 5 (ii) negotiate, determine and agree upon (a) the price at which the Shares will be initially offered to the public by the Purchasers pursuant to the applicable Purchase Agreement, as hereinafter defined, (b) the underwriting discount with respect to the Shares and (c) the price at which the Shares will be sold to the Purchasers by the Selling Stockholders pursuant to the applicable Purchase Agreement; provided, however, that in no event may the Shares be sold to the Purchasers at a price per share less than $20; (iii) prepare, execute and deliver one or more agreements with one or more Purchasers (each, a "Purchase Agreement"), the terms of which are subject to agreement between the Company and the Purchasers, including the making of all representations and agreements provided in the applicable Purchase Agreement to be made by, and the exercise of all authority thereunder vested in, the undersigned; (iv) sell, assign, transfer and deliver the Shares to the Purchasers pursuant to the applicable Purchase Agreement and deliver to the Purchasers certificates for the Shares so sold; (v) take any and all steps deemed necessary or desirable by the Attorneys-in-Fact in connection with the registration of the Shares under the Securities Act of 1933, as amended (the "Securities Act" ), the Securities Exchange Act of 1934, as amended, and under the securities or "blue sky" laws of various states and jurisdictions, including, without limitation, the giving or making of such undertakings, representations and agreements and the taking of such other steps as the Attorneys-in-Fact may deem necessary or advisable; (vi) instruct the Company and the Custodian, as hereinafter defined, on all matters pertaining to the sale of the Shares and delivery of certificates therefor; (vii) provide, in accordance with the applicable Purchase Agreement, for the payment of underwriting discounts and commissions, transfer taxes and other expenses, if any, in connection with the offering and sale of the undersigned's Shares covered by the Registration Statement; (viii) retain such legal counsel as the Attorneys-in-Fact or any of them in their sole discretion deem appropriate (which may be the same as the Company's counsel), to act as counsel for the undersigned in connection with the sale of the Shares, such counsel being hereby authorized to rely upon the representations and warranties of the undersigned contained in the applicable Purchase Agreement and in Section 4 of this Agreement in acting in such capacity; and (ix) otherwise take all actions and do all things necessary or proper, required, contemplated or deemed advisable or desirable by the Attorneys-in-Fact in their discretion, including the execution and delivery of any documents, and generally act for and in the name of the undersigned with respect to the sale of the Shares to the Purchasers and the reoffering of the Shares by the Purchasers as fully as could the undersigned if then personally present and acting. 6 (b) Each Attorney-in-Fact may act alone or in concert in exercising the rights and powers conferred on the Attorneys-in-Fact by this Custody Agreement and Power of Attorney, and the act of any Attorney-in-Fact shall be the act of the Attorneys-in-Fact. Each Attorney-in-Fact is hereby empowered to determine, in his sole and absolute discretion, the time or times when, the purposes for which, and the manner in which, any power herein conferred upon the Attorneys-in-Fact shall be exercised. (c) The Custodian, the Purchasers, the Company and all other persons dealing with the Attorneys-in-Fact as such may rely and act upon any writing believed in good faith to be signed by one or more of the Attorneys-in-Fact. (d) The Attorneys-in-Fact shall not receive any compensation for their services rendered hereunder, except that they shall be entitled to cause the Custodian to pay, from the proceeds payable to the undersigned, the undersigned's proportionate share of any out-of-pocket expenses incurred under this Agreement and similar instruments executed by other Selling Stockholders. 2. APPOINTMENT OF CUSTODIAN; DEPOSIT OF SHARES. (a) In connection with and to facilitate the sale of the Shares to the Purchasers, the undersigned hereby appoints Scott L. Thompson, as custodian (the "Custodian") and herewith deposits with the Custodian one or more certificates for Common Stock. The certificate(s) for Shares deposited hereunder represent currently owned Shares at least equal in number in the aggregate to the total number of Shares to be sold by the undersigned to the Purchasers, which number is set forth on Schedule I hereto. Each such certificate for Shares so deposited hereunder is in negotiable and proper deliverable form endorsed in blank with the signature of the undersigned thereon guaranteed by a commercial bank or trust company in the United States or by a member firm of the New York Stock Exchange, or is accompanied by a duly executed stock power or powers in blank, bearing the signature of the undersigned so guaranteed. The Custodian is hereby authorized and directed, subject to the instructions of the Attorneys-in-Fact, (a) to hold in custody any certificates for Shares deposited herewith, (b) to deliver or to authorize the Company's Transfer Agent to deliver the certificates for Shares deposited hereunder (or replacement certificate(s) for the Shares) to or at the direction of the Attorneys-in-Fact in accordance with the applicable Purchase Agreement and (c) to return or cause the Company's Transfer Agent to return to the undersigned new certificate(s) for the shares of Common Stock represented by any certificate for Common Stock deposited hereunder which are not sold pursuant to the applicable Purchase Agreement. (b) Until the Shares have been delivered to the Purchasers against payment therefor in accordance with the applicable Purchase Agreement, the undersigned shall retain all rights of ownership with respect to the Shares deposited hereunder, including, if applicable, the right to vote and to receive all dividends and payment thereon, except the right to retain custody of or dispose of such Shares (but only to the extent provided herein), which right is subject to this Agreement. 7 3. SALE OF SHARES; REMITTING NET PROCEEDS. (a) The Attorneys-in-Fact are hereby authorized and directed to deliver or cause the Custodian or the Company's Transfer Agent to deliver certificates for the Shares to the Purchasers, in accordance with the applicable Purchase Agreement, against delivery to the Attorneys-in-Fact for the account of the undersigned of the purchase price of the Shares, at the time and in the funds specified in the applicable Purchase Agreement. The Attorneys-in-Fact are authorized, on behalf of the undersigned, to accept and acknowledge receipt of the payment of the purchase price for the Shares and shall promptly deposit such proceeds with the Custodian. After reserving an amount of such proceeds for expenses as provided below, the Custodian shall promptly remit to the undersigned his proportionate share of the proceeds. (b) Before any proceeds of the sale of the Shares are remitted to the undersigned, the Attorneys-in-Fact are authorized and empowered to direct the Custodian to reserve from the proceeds an amount determined by the Attorneys-in-Fact to be sufficient to pay the undersigned's proportionate share of all expenses to be paid by the Selling Stockholders. The Custodian is authorized to pay all of the Selling Stockholders' expenses relating to the offering from the amount reserved for that purpose pursuant to the direction of the Attorneys-in-Fact. After payment of expenses, the Custodian will remit to the undersigned his proportionate share of any balance. To the extent expenses exceed the amount reserved, each Selling Stockholder shall remain liable for his proportionate share of such expenses. The Selling Stockholders' expenses shall include all discounts and commissions applicable to the sale of the Shares and, to the extent applicable to such Selling Stockholder, all costs for experts or professionals (other than counsel) employed by or on behalf of such Selling Stockholder in connection with the registration and sale of the Shares. 4. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The undersigned represents and warrants to, and agrees with, the other Selling Stockholders, the Company, the Attorneys-in-Fact, the Custodian and the Purchasers as follows: (a) The undersigned has and, on each date on which the undersigned consummates the sale of any Shares as contemplated herein, will have full legal right, power and authority to enter into and perform this Agreement and the applicable Purchase Agreement. If the undersigned is acting as a fiduciary, officer, partner, or agent, the undersigned is enclosing with this Agreement certified copies of the appropriate instruments pursuant to which the undersigned is authorized to act hereunder. If the undersigned is an individual and is married, the undersigned is enclosing with this Agreement a duly completed and executed consent of his spouse, in the form attached to this Agreement as Annex A. (b) The undersigned has reviewed a draft of the applicable Purchase Agreement, including without limitation the agreements and representations and warranties to be made by the undersigned as a Selling Stockholder and the indemnification and contribution provisions contained therein insofar as such provisions relate to the undersigned. The undersigned hereby represents, warrants and covenants that each of the representations and warranties of the Selling Stockholders contained in the applicable Purchase Agreement is true and correct with respect to the undersigned as of the date hereof and, except as the undersigned shall have notified the Attorneys-in-Fact pursuant to 8 paragraph I of the attached instructions, will be true and correct at all times from the date hereof through and including each Time of Delivery (as such terms are defined in the applicable Purchase Agreement). The undersigned will promptly notify the Attorneys-in-Fact of any development that would make any such representation and warranty untrue. (c) The undersigned has read Schedule II and Schedule III attached hereto and has supplied the information called for therein, and the information contained in Schedule II and Schedule III attached hereto supplied by the undersigned is true, complete and correct. (d) Upon execution and delivery of the applicable Purchase Agreement by the Attorneys-in-Fact on behalf of the undersigned, the undersigned agrees to be bound by and to perform each of the covenants and agreements (including, without limitation, those relating to indemnification and contribution, as well as the "lockup" provisions contained therein) of the undersigned as a Selling Stockholder in the applicable Purchase Agreement. (e) The undersigned agrees to deliver to the Attorneys-in-Fact such documentation as the Attorneys-in-Fact, the Company, the Selling Stockholders or the Purchasers or any of their respective counsel may reasonably request in order to effectuate any of the provisions hereof or of the applicable Purchase Agreement, all of the foregoing to be in form and substance satisfactory in all respects to the Attorneys-in-Fact. The foregoing representations, warranties and agreements are made for the benefit of, and may be relied upon by, the other Selling Stockholders, the Attorneys-in-Fact, the Company, the Custodian, the Purchasers and their respective representatives, agents and counsel and are in addition to, and not in limitation of, the representations, warranties and agreements of the Selling Stockholders in the applicable Purchase Agreement. 5. IRREVOCABILITY OF INSTRUMENTS; TERMINATION OF THIS AGREEMENT. (a) This Agreement, the deposit of certificates pursuant hereto and all authority hereby conferred, is granted, made and conferred subject to and in consideration of (i) the interests of the Attorneys-in-Fact, the Purchasers, the Company and the other Selling Stockholders who may become parties to the applicable Purchase Agreement in and for the purpose of completing the transactions contemplated hereunder and by the applicable Purchase Agreement and (ii) the completion of the registration of Common Stock pursuant to the Registration Statement and the other acts of the above-mentioned parties from the date hereof to and including the execution and delivery of the applicable Purchase Agreement in anticipation of the sale of Common Stock, including the Shares, to the Purchasers; and the Attorneys-in-Fact are hereby further vested with an estate, right, title and interest in and to the certificates deposited herewith for the purpose of irrevocably empowering and securing to them authority sufficient to consummate said transactions. Accordingly, this Agreement shall be irrevocable prior to the earliest of (b) 60 days following the death of Stockholder, (a) 60 days following the time at which Stockholder is determined to be "permanently disabled" (for purposes of the immediately preceding sentence, "permanently disabled" shall mean a condition (certified by a licensed physician, selected by the Company) rendering Stockholder unable to engage in employment that is substantially similar to Stockholder's current employment), or (c) July 15, 2000, 9 (the "Termination Date"); this Agreement shall remain in full force and effect until the Termination Date, unless prior to such date the applicable Purchase Agreement has been terminated by the Purchasers due to the failure of a condition precedent to the closing of the transactions contemplated thereby, in which case this Agreement shall cease to remain in full force and effect as of such time. The undersigned further agrees that this Agreement shall not be terminated by operation of law or upon the occurrence of any event whatsoever, including the death, disability or incompetence of the undersigned or any other Selling Stockholder or, if the undersigned or any other Selling Stockholder is not a natural person, upon any dissolution, winding up, distribution of assets or other event affecting the legal existence of the undersigned or such Selling Stockholder. If any event referred to in the preceding sentence shall occur, whether with or without notice thereof to the Attorneys-in-Fact, any of the Purchasers or any other person, the Attorneys-in-Fact shall nevertheless be authorized and empowered to deliver and dispose of the certificates deposited under the Agreement by the undersigned in accordance with the terms and provisions of the applicable Purchase Agreement and this Agreement as if such event had not occurred. (b) If the sale of the Shares contemplated by this Agreement is not completed by the Termination Date, this Agreement shall terminate (without affecting any lawful action of the Attorneys-in-Fact or the Custodian prior to such termination), and the Attorneys-in-Fact shall cause the Custodian to return to the undersigned all certificates deposited hereunder representing Shares on or prior to such date, but only after having received payment of the undersigned's proportionate part of any expenses to be paid or borne by the Selling Stockholders. The undersigned hereby covenants with the Attorneys-in-Fact and with all other Selling Stockholders that if for any reason the sale of the Shares contemplated hereby shall not be consummated, the undersigned shall pay the undersigned's proportionate share of all expenses payable by the Selling Stockholders hereunder or under the applicable Purchase Agreement. 6. LIABILITY AND INDEMNIFICATION OF THE ATTORNEYS-IN-FACT AND CUSTODIAN. The Attorneys-in-Fact and the Custodian assume no responsibility or liability to the undersigned or to any other person, other than to hold and dispose of the certificates and Shares, the other documents deposited hereunder, the proceeds from the sale of the Shares and any other shares of Common Stock deposited with the Custodian pursuant to the terms of this Agreement in accordance with the provisions hereof. The undersigned hereby agrees to indemnify and hold harmless the Attorneys-in-Fact and the Custodian, and their respective officers, agents, successors, assigns and personal representatives with respect to any act or omission of or by any of them in good faith in connection with any and all matters contemplated by this Agreement or the applicable Purchase Agreement. THIS SECTION 6 SHALL BE ENFORCEABLE NOTWITHSTANDING THE SOLE, CONCURRENT, ACTIVE OR PASSIVE NEGLIGENCE OF ANY INDEMNIFIED PARTY. 10 7. INTERPRETATION. (a) The representations, warranties and agreements of the undersigned contained herein and in the applicable Purchase Agreement shall survive the sale and delivery of the Shares and the termination of this Agreement. (b) The validity, enforceability, interpretation and construction of this Agreement shall be determined in accordance with the laws of the State of New York applicable to contracts made and to be performed within the State of New York, and this Agreement shall inure to the benefit of, and be binding upon, the undersigned and the undersigned's heirs, executors, administrators, successors and assigns, as the case may be. (c) Wherever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any such provision shall be prohibited by or invalid under applicable law, it shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. (d) The use of the masculine gender in this Agreement includes the feminine and neuter, and the use of the singular includes the plural, wherever appropriate. 8. NOTICES. Any notice or communication shall be in writing and shall be delivered (i) if to the Company, at the office of the Company, at 950 Echo Lane, Suite 350, Houston, Texas 77024, Attention: B.B. Hollingsworth, Jr., President and Chief Executive Officer; (ii) if to the Purchasers, at their customary business address, (iii) if to the Attorneys-in-Fact, c/o the Company, 950 Echo Lane, Houston, Texas 77024, (iv) if to the Custodian, Scott L. Thompson, c/o the Company, 950 Echo Lane, Houston, TX 77024; and (v) if to the undersigned, at the address set forth on the signature page. IN WITNESS WHEREOF, the undersigned has executed this Custody Agreement and Power of Attorney this 30th day of June, 1999. /s/ Robert E. Howard II ----------------------- (Please sign exactly as your name appears on your stock certificate(s)) Name and address to which notices and funds shall be sent. Robert E. Howard II ------------------- (NAME) P.O. Box 14508 -------------- (STREET) Oklahoma City, OK 73113 ----------------------- (CITY) (STATE) (ZIP) 11 ACCEPTED by the Attorneys-in-Fact ACCEPTED by the Custodian as as of the date above set forth: of the date above set forth: - ----------------------------------- ------------------------------------ - ----------------------------------- By - ----------------------------------- ---------------------------------- - ----------------------------------- 12 APPENDIX B INDEMNIFICATION (a) The Company will, if Common Stock held by a Stockholder is included in the securities as to which such registration, qualification or compliance is being effected, indemnify such Stockholder, each of its officers and directors, and each person controlling such Stockholder, with respect to which registration, qualification or compliance has been effected pursuant to this Agreement, and each Purchaser, if any, and each person who controls any Purchaser, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular or other document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements not misleading, or any violation by the Company of any rule or regulation promulgated under the Securities Act of 1933, as amended (the "Act"), or of any other federal, state or common law applicable to the Company and relating to any action or inaction required of the Company in connection with any such registration, qualification or compliance, and will reimburse each such Stockholder, each of its officers and directors, and each person controlling such Stockholder, each such Purchaser and each person who controls any such Purchaser, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability. or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by an instrument duly executed by such Stockholder or Purchaser and stated to be specifically for use therein. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such party and shall survive the subsequent transfer of shares of Common Stock by the seller thereof and the transfer of any shares of Common Stock of the Company which were the subject of such registration, qualification or listing. (b) Each Stockholder will, if Common Stock held by such Stockholder is included in the securities as to which such registration, qualification or compliance is being effected, indemnify the Company, each of its directors and officers, each legal counsel and independent accountant of the Company, each Purchaser, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such Purchaser within the meaning of the Act, and each other Stockholder registering Common Stock, each of its officers and directors and each person controlling such Stockholder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to 13 make the statements therein not misleading, and will reimburse the Company, such Stockholders, such directors, officers, persons, Purchasers or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Stockholder and stated to be specifically for use therein; provided, however, that (i) the obligations of such Stockholders hereunder shall be limited to an amount equal to the proceeds to each such Stockholder of Common Stock sold as contemplated herein and (ii) the indemnity for untrue statements or omissions described above shall not apply if the Stockholder providing such written information provides the Company with such additional written information prior to the effectiveness of the registration as is required to make the previously supplied written information true and complete, together with a description in reasonable detail of the information previously supplied which was untrue or incomplete. (c) Each party entitled to indemnification hereunder (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement. After notice from the Indemnifying Party to the Indemnified Party of its election to assume the defense of such claim or litigation, the Indemnifying Party will not be liable to such Indemnified Party for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than reasonable costs of investigation, unless the Indemnifying Party abandons the defense of such claim or litigation. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. No Indemnified Party shall consent to the entry of any judgment or enter into any settlement without the prior written consent of the Indemnifying Party. EX-10.31 4 DEFERRED COMPENSATION PLAN 1 EXHIBIT 10.31 GROUP 1 AUTOMOTIVE, INC. DEFERRED COMPENSATION PLAN Effective November 10, 1999 2 TABLE OF CONTENTS
ARTICLE PAGE - ------- ---- I - Definitions and Construction ........................ I-1 II - Participation ....................................... II-1 III - Account Credits and Allocations of Income or Loss ... III-1 IV - Deemed Investment of Funds........................... IV-1 V - Determination of Vested Interest and Forfeitures..... V-1 VI - In-Service Distributions ............................ VI-1 VII - Termination Benefits ................................ VII-1 VIII - Administration of the Plan........................... VIII-1 IX - Administration of Funds ............................. IX-1 X - Nature of the Plan .................................. X-1 XI - Miscellaneous ....................................... XI-1
(i) 3 GROUP 1 AUTOMOTIVE, INC. DEFERRED COMPENSATION PLAN W I T N E S S E T H : WHEREAS, Group 1 Automotive, Inc. has decided to adopt the following Group 1 Automotive, Inc. Deferred Compensation Plan, hereinafter referred to as the "Plan," to aid certain of its employees in making more adequate provision for their retirement; NOW THEREFORE, the Plan is hereby adopted as follows, effective as of November 10, 1999: (ii) 4 I. DEFINITIONS AND CONSTRUCTION 1.1 DEFINITIONS. Where the following words and phrases appear in the Plan, they shall have the respective meanings set forth below, unless their context clearly indicates to the contrary. (1) ACCOUNT(S): A Member's Employer Account and/or Deferral Account, including the amounts credited thereto. (2) AFFILIATE: Each trade or business (whether or not incorporated) which together with the Company would be deemed to be a "single employer" within the meaning of subsections (b), or (c) of Section 414 of the Code. (3) BASE SALARY: The base rate of pay paid in cash by the Employer to or for the benefit of a Member for services rendered or labor performed while a Member, including base pay a Member could have received in cash in lieu of (i) Compensation deferrals pursuant to Section 3.1 and (ii) elective contributions made on his behalf by the Employer pursuant to a qualified cash or deferred arrangement (as defined in section 401(k) of the Code) or pursuant to a plan maintained under section 125 of the Code. (4) BOARD: The Board of Directors of the Company. (5) BONUS: Each incentive bonus, if any, paid in cash by the Employer to or for the benefit of a Member for services rendered or labor performed, including the portion thereof that a Member could have received in cash in lieu of (i) Compensation deferrals pursuant to Section 3.1 and (ii) elective contributions made on his behalf by the Employer pursuant to a qualified cash or deferred arrangement (as defined in section 401(k) of the Code) or pursuant to a plan maintained under section 125 of the Code. (6) CHANGE IN CONTROL: A "Change in Control" shall be conclusively deemed to have occurred if (and only if) any of the following events shall have occurred: (1) any merger, consolidation, or reorganization in which the Company is not the surviving entity (or survives only as a subsidiary of an entity), (2) any sale, lease, exchange, or other transfer of all or substantially all of the assets of the Company to any other person or entity other than a wholly-owned subsidiary of the Company (in one transaction or a series of related transactions), (3) dissolution or liquidation of the Company, (4) when any person or entity, including a "group" as contemplated by Section 13(d)(3) of the Exchange Act acquires or gains ownership or control (including, without limitation, power to vote) of more than 50% of the outstanding shares of the Company's voting stock (based upon voting power), or (5) during any two-year period, the persons who were directors of the Company (together with any new directors whose election by the Board or whose nomination for election by the Company's shareholders was approved by a vote of at least three quarters of the directors still in office who were either directors at the beginning of such period or whose election or I-1 5 nomination for election was previously so approved) shall cease for any reason to constitute a majority of the Board; provided, however, that the term "Change in Control" shall not include any reorganization, merger, consolidation, or similar transaction or series of transactions pursuant to which the record holders of the voting stock of the Company immediately prior to such transaction or series of transactions continue to hold immediately following such transaction or series of transactions 50% or more of the voting securities (based upon voting power) of (a) any entity which owns (directly or indirectly) the stock of the Company, (b) any entity with which the Company has merged, or (c) any entity that owns an entity with which the Company has merged. (7) CODE: The Internal Revenue Code of 1986, as amended. (8) COMMITTEE: The administrative committee appointed by the Compensation Committee to administer the Plan. (9) COMPANY: Group 1 Automotive, Inc. (10) COMPENSATION: Base Salary and/or Bonus. (11) COMPENSATION COMMITTEE: The Compensation Committee of the Board. (12) DISABILITY: The term "Disability" shall mean total and permanent disability as determined under the Savings Plan. (13) DEFERRAL ACCOUNT: An individual account for each Member to which is credited his Member Deferrals pursuant to Section 3.1 and which is adjusted to reflect changes in value as provided in Section 3.3. (14) EFFECTIVE DATE: November 10, 1999. (15) ELECTION DATE: The first day of each Plan Year; provided, however, that the Election Date for the first Plan Year shall be December 15, 1999. (16) ERISA: The Employee Retirement Income Security Act of 1974, as amended. (17) EMPLOYER: The Company and any other adopting entity that adopts the Plan pursuant to the provisions of Section 2.3. (18) EMPLOYER ACCOUNT: An individual account for each Member to which is credited the Employer Deferrals made on his behalf pursuant to Section 3.2 and which is adjusted to reflect changes in value as provided in Section 3.3. (19) EMPLOYER DEFERRALS: Deferrals made by the Employer on a Member's behalf pursuant to Section 3.2. I-2 6 (20) EXCHANGE ACT: The Securities Exchange Act of 1934, as amended. (21) FUNDS: The investment funds, if any, designated from time to time for the deemed investment of Accounts pursuant to Section 4.1. (22) MEMBER: Each individual who has been selected by the Committee for participation in the Plan and who has become a Member pursuant to Article II. (23) MEMBER DEFERRALS: Deferrals made by a Member pursuant to Section 3.1. (24) PLAN: The Group 1 Automotive, Inc. Deferred Compensation Plan, as amended from time to time. (25) PLAN YEAR: The twelve-consecutive month period commencing January 1 of each year; provided, however, that the first Plan Year shall commence on the Effective Date and end on December 31, 1999. (26) RETIREMENT DATE: The date upon which a Member attains age 55. (27) SAVINGS PLAN: The Group 1 Automotive, Inc. 401(k) Savings Plan, as amended from time to time. (28) TERMINATION OF SERVICE: The termination of a Member's employment with the Employer and all Affiliates for any reason whatsoever. (29) TRUST: The trust, if any, established under the Trust Agreement. (30) TRUST AGREEMENT: The agreement entered into between the Employer and the Trustee pursuant to Article X. (31) TRUST FUND: The funds and properties, if any, held pursuant to the provisions of the Trust Agreement, together with all income, profits and increments thereto. (32) TRUSTEE: The trustee or trustees qualified and acting under the Trust Agreement at any time. (33) UNFORESEEABLE FINANCIAL EMERGENCY: An unexpected need of a Member for cash that (i) arises from a sudden and unexpected illness or accident of the Member or of a dependent of a Member, loss of the Member's property due to casualty, or similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of such Member and (ii) would result in severe financial hardship to such Member if his Compensation deferral election was not canceled pursuant to Section 3.1(g) and/or if a benefit payment pursuant to Section 6.2 or 7.5(b)(ii) was not permitted. Cash needs arising from foreseeable events, such as the purchase of a house or education expenses for children, shall not be considered to be the result of an Unforeseeable Financial Emergency. Further, cash needs that may be relieved (a) through reimbursement or compensation by insurance or otherwise, I-3 7 (b) by liquidation of the Member's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (c) by cessation of deferrals under the Plan shall not be considered to be Unforeseeable Financial Emergencies. (34) VALUATION DATE: Each day that the New York Stock Exchange is open for business; provided, however, that the Committee shall in its discretion determine the Valuation Dates that will occur during any period for which the provisions of Section 4.2 apply. (35) VESTED INTEREST: The portion of a Member's Accounts which, pursuant to the Plan, is nonforfeitable. 1.2 NUMBER AND GENDER. Wherever appropriate herein, words used in the singular shall be considered to include the plural and words used in the plural shall be considered to include the singular. The masculine gender, where appearing in the Plan, shall be deemed to include the feminine gender. 1.3 HEADINGS. The headings of Articles and Sections herein are included solely for convenience, and if there is any conflict between such headings and the text of the Plan, the text shall control. I-4 8 II. PARTICIPATION 2.1 PARTICIPATION. Prior to each Election Date, the Committee, in its sole discretion, shall select and notify those management or highly compensated employees of the Employer who shall be eligible to become Members as of such Election Date. Any such eligible employee may become a Member on such Election Date by executing and filing with the Committee, prior to such Election Date, the Compensation deferral election prescribed by the Committee for the Plan Year beginning on such date. Subject to the provisions of Section 2.2, a Member shall remain eligible to defer Compensation hereunder and receive an allocation of Employer Deferrals for each Plan Year following his commencement of participation in the Plan. 2.2 CESSATION OF ACTIVE PARTICIPATION. Notwithstanding any provision herein to the contrary, an individual who has become a Member of the Plan shall cease to be entitled to defer Compensation hereunder and/or receive an allocation of Employer Deferrals effective as of any date designated by the Committee. Any such Committee action shall be communicated to the affected individual prior to the effective date of such action. Such an individual may again become entitled to defer Compensation hereunder and receive an allocation of Employer Deferrals beginning on any subsequent Election Date selected by the Committee in its sole discretion. 2.3 ADOPTING ENTITIES. It is contemplated that other entities may adopt this Plan and thereby become an Employer. Any such entity, whether or not presently existing, may become a party hereto by appropriate action of its officers without the need for approval of its board of directors or of the Committee or the Compensation Committee; provided, however, that such entity must be an Affiliate. The provisions of the Plan shall apply separately and equally to each Employer and its employees in the same manner as is expressly provided for the Company and its employees, except that (a) the power to appoint or otherwise affect the Committee and the Trustee and the power to amend or terminate the Plan or amend the Trust Agreement shall be exercised by the Compensation Committee alone and (b) the determination of whether a Change in Control has occurred shall be made based solely on the Company. Transfer of employment among Employers and Affiliates shall not be considered a termination of employment hereunder. Any Employer may, by appropriate action of its officers without the need for approval of its board of directors (or noncorporate counterpart) or the Committee or the Compensation Committee, terminate its participation in the Plan. Moreover, the Compensation Committee may, in its discretion, terminate an Employer's Plan participation at any time. II-1 9 III. ACCOUNT CREDITS AND ALLOCATIONS OF INCOME OR LOSS 3.1 MEMBER DEFERRALS. (a) A Member meeting the eligibility requirements of Section 2.1 may: (i) Elect to defer a portion of such Member's Base Salary for each Plan Year commencing on or after January 1, 2000 in an amount equal to a specific dollar amount per pay period of such Member's Base Salary or an integral percentage of from 1% to 50% of such Member's Base Salary. If a Member elects to defer an integral percentage of such Member's Base Salary, such Member may elect to establish a maximum Base Salary deferral, the dollar amount of which such Member's combined aggregate total of Base Salary deferrals for any Plan Year shall not exceed; and/or (ii) Elect to defer a portion of such Member's Bonus for each Plan Year commencing on or after January 1, 2000 in an amount equal to a specific dollar amount of such Member's Bonus or an integral percentage of from 1% to 100% of such Member's Bonus. In addition, a Member meeting the eligibility requirements of Section 2.1 for the first Election Date may elect to defer a portion of such Member's Bonus for the 1999 calendar year in an amount equal to a specific dollar amount of such Member's Bonus for the 1999 calendar year or an integral percentage of from 1% to 100% of such Member's Bonus for the 1999 calendar year. If a Member elects to defer an integral percentage of such Member's Bonus, including a Member's Bonus for the 1999 calendar year, such Member may elect to establish a maximum Bonus deferral, the dollar amount of which such Member's Bonus deferral for any Plan Year shall not exceed. In the event that a Member elects to defer an amount of Compensation pursuant to both Section 3.1(a)(i) and 3.1(a)(ii) for any Plan Year commencing on or after January 1, 2000, such Member may also elect to establish a maximum combined Base Salary and Bonus deferral, the dollar amount of which such Member's combined aggregate total of Base Salary and Bonus deferrals for such Plan Year shall not exceed. (b) Paragraph (a) above notwithstanding, as of the first day of any Plan Year commencing on or after January 1, 2000, a Member's Member Deferral elections made pursuant to such paragraph must, in the opinion of the Committee, be reasonably expected to result in minimum aggregate Member Deferrals for such Member of $25,000 for such Plan Year. Member Deferral elections determined by the Committee to not be reasonably expected to result in such minimum deferral shall be void. (c) Compensation for a Plan Year not deferred pursuant to elections under Section 3.1(a) shall be received by such Member in cash. A Member's election to defer an amount of his Compensation pursuant to this Section 3.1 shall be made by effecting, in the form prescribed by the III-1 10 Committee, a Member Deferral election pursuant to which the Member authorizes the Employer to reduce his Compensation in the elected amount and the Employer, in consideration thereof, agrees to credit an equal amount to such Member's Deferral Account maintained under the Plan. The reduction in a Member's Compensation pursuant to his Member Deferral election shall be effected by Compensation reductions each payroll period as determined by the Committee following the effective date of such election. Such Compensation reductions shall be within the Plan Year to which the Member Deferral election relates, except that Compensation reductions attributable to elections to defer a Member's Bonus may be made within the next following Plan Year if the Bonus to which the Member Deferral election relates is paid in such next following Plan Year. Member Deferrals made by a Member shall be credited to such Member's Deferral Account as of a date determined in accordance with procedures established from time to time by the Committee; provided, however, that such Member Deferrals shall be credited to the Member's Deferral Account no later than 30 days after the date upon which the Compensation deferred would have been received by such Member in cash if he had not elected to defer such amount pursuant to this Section 3.1. (d) A Member Deferral election pursuant to Section 3.1 shall become effective as of the Election Date which is immediately after the date the election is effected by the Member and filed with the Committee. A Member Deferral election shall remain in force and effect for the entire Plan Year to which such election relates. A Member Deferral election shall remain in force and effect for each subsequent Plan Year (following the Member's initial year of participation in the Plan) for which he satisfies the eligibility requirements set forth in Section 2.1, unless and until such election is changed or revoked by such Member prior to the Election Date of the subsequent Plan Year to which such change or revocation relates; provided, however, that a Member Deferral election with respect to a Member's Bonus for the 1999 calendar year shall not remain in force and effect for any subsequent Plan Year. Plan provisions to the contrary notwithstanding, a Member Deferral election shall be suspended during any period of unpaid leave of absence from the Employer and shall terminate immediately on the date such Member incurs a Termination of Service. (e) A Member who has made a Member Deferral election may change his election, as of the Election Date of any subsequent Plan Year, by effecting a new Member Deferral election prior to such Election Date and within the time period prescribed by the Committee. (f) A Member who has made a Member Deferral election may cancel his election, as of the Election Date of any subsequent Plan Year, by effecting the same in the form prescribed by the Committee prior to such Election Date and within the time period prescribed by the Committee. A Member who so cancels his Member Deferral election may again make a new Member Deferral election for a subsequent Plan Year, if he satisfies the eligibility requirements set forth in Section 2.1, by effecting a new Member Deferral election prior to the Election Date of such Plan Year and within the time period prescribed by the Committee. (g) In the event that the Committee, upon written petition of a Member, determines in its sole discretion that such Member has suffered an Unforeseeable Financial Emergency or that such Member will, absent suspension of such Member's Member Deferral election then in effect, suffer an Unforeseeable Financial Emergency, then the Member Deferral election of such Member then in effect, if any, shall be suspended as soon as administratively practicable after III-2 11 such determination. A Member whose Member Deferral election has been so suspended may again make a new Member Deferral election for a subsequent Plan Year that is at least twelve months after the effective date of such suspension, if he satisfies the eligibility requirements set forth in Section 2.1, by effecting a new Member Deferral election for such Plan Year and within the time period prescribed by the Committee. 3.2 EMPLOYER DEFERRALS. (a) (i) For each Plan Year, the Employer shall defer an amount on behalf of each Member (1) who makes the maximum elective deferrals permitted under the terms of the Savings Plan for such Plan Year, (2) who has an amount forfeited (but does not receive a distribution of such forfeited amount) from his "Employer Contribution Account" under the Savings Plan in order to satisfy the requirements of Code sections 401(k)(3), 401(m)(2), and/or 401(m)(9) for such Plan Year, and (3) who has not incurred a Termination of Service prior to the date such forfeiture occurs under the terms of the Savings Plan. The amount of each such Employer Deferral shall equal 100% of such forfeited amount. (ii) Employer Deferrals made on a Member's behalf pursuant to this Section 3.2(a) for a Plan Year shall be credited to such Member's Employer Account as of the date the related forfeiture for such Plan Year occurs under the terms of the Savings Plan. (b) As of any date selected by the Employer, the Employer may credit a Member's Account(s) with Employer Deferrals in such amount, if any, as the Employer shall determine in its sole discretion. Such credits may be made on behalf of some Members but not others, and such credits may vary among individual Members in amount and/or with respect to the Account to which they are credited. 3.3 VALUATION OF ACCOUNTS. All amounts credited to an Account shall be deemed invested in accordance with Article IV on the date such amount is credited to the Account, and, except as provided in Section 4.2, the balance of each Account shall reflect the result of the daily pricing of the assets in which such Account is deemed invested from the time of such crediting until the time of distribution. III-3 12 IV. DEEMED INVESTMENT OF FUNDS 4.1 MEMBER DIRECTIONS. (a) Each Member shall designate, in accordance with the procedures established from time to time by the Committee, the manner in which the amounts allocated to his Accounts shall be deemed to be invested from among the Funds made available from time to time for such purpose by the Committee. Such Member may designate one of such Funds for the deemed investment of all the amounts allocated to his Accounts or he may split the deemed investment of the amounts allocated to his Accounts between such Funds in such increments as the Committee may prescribe. If a Member fails to make a proper designation, then his Accounts shall be deemed to be invested in the Fund or Funds designated by the Committee from time to time in a uniform and nondiscriminatory manner. In the event that during any Plan Year the Committee does not make available Funds for the investment of the amounts in Members' Accounts, the amounts in each Member's Accounts shall be credited with earnings at a rate of return set by the Committee prior to the start of such Plan Year. (b) A Member may change his deemed investment designation for future deferrals to be allocated to his Accounts. Any such change shall be made in accordance with the procedures established by the Committee, and such changes may only be made on January 1 and July 1 of each Plan Year. (c) A Member may elect to convert his deemed investment designation with respect to the amounts already allocated to his Accounts. Any such conversion shall be made in accordance with the procedures established by the Committee, and such conversions may only be made on January 1 and July 1 of each Plan Year. 4.2 CREDITING RATE IN THE ABSENCE OF FUNDS. Notwithstanding the provisions of Sections 3.3 and 4.1, if for any Plan Year (or portion thereof) the Committee does not make available Funds for the deemed investment of the amounts in Members' Accounts, then the amounts in each Member's Accounts shall be credited with earnings during such period based upon a rate of return set by the Committee prior to the start of such period. The rate of return set by the Committee may be fixed for the entire Plan Year (or portion thereof) or it may vary from time to time based on one or more benchmark rates selected by the Committee. As of each Valuation Date that occurs during a period for which this Section 4.2 applies, each Account of a Member shall be increased to reflect an earnings allocation as described in this Section 4.2 based upon the balance in such Account as of the next preceding Valuation Date; provided, however, that the balance of such Account as of the next preceding Valuation Date shall be reduced by the amount of any withdrawals or distributions made therefrom since the next preceding Valuation Date. IV-1 13 V. DETERMINATION OF VESTED INTEREST AND FORFEITURES 5.1 DEFERRAL ACCOUNT. A Member shall have a 100% Vested Interest in his Deferral Account at all times. 5.2 EMPLOYER ACCOUNT. A Member's Vested Interest in his Employer Account shall equal such Member's Vested Interest in his "Employer Contribution Account" under the Savings Plan. Further, a Member who is employed by the Employer immediately prior to a Change in Control shall have a 100% Vested Interest in his Employer Account upon the occurrence of such Change in Control; provided, however, that such accelerated vesting shall not occur if the consummation of such Change in Control is contingent on using the pooling of interests accounting methodology and the Committee determines that such accelerated vesting will prevent the use of such accounting methodology. 5.3 FORFEITURES. A Member who has a Vested Interest in his Employer Account that is less than 100% as of the date of his Termination of Service shall forfeit to the Employer the nonvested portion of such Account as of the date of such termination. Notwithstanding the preceding provisions of this Article V, the vested portion of a Member's Account may be forfeited to the Employer under Sections 6.3, 7.3(c), 7.5(b)(i), and 7.7. V-1 14 VI. IN-SERVICE DISTRIBUTIONS 6.1 RESTRICTIONS ON IN-SERVICE DISTRIBUTIONS AND LOANS. Except as provided in Sections 6.2 and 6.3, Members shall not be permitted to make withdrawals from the Plan prior to incurring a Termination of Service. Members shall not, at any time, be permitted to borrow from the Trust Fund. Following a Member's Termination of Service, this Article VI shall not be applicable to the Member and the amounts credited to such Member's Accounts shall be payable to such Member in accordance with the provisions of Article VII. 6.2 EMERGENCY BENEFIT. In the event that the Committee, upon written petition of a Member, determines in its sole discretion that such Member has suffered an Unforeseeable Financial Emergency, such Member shall be entitled to a benefit in an amount not to exceed the lesser of (a) the amount determined by the Committee as necessary to meet such Member's needs created by the Unforeseeable Financial Emergency or (b) the then value of such Member's Deferral Account. Such benefit shall be paid in a single lump sum payment as soon as administratively practicable after the Committee has made its determinations with respect to the availability and amount of such benefit. If a Member's Deferral Account is deemed to be invested in more than one Fund, such benefit shall be distributed pro rata from each Fund in which such Account is deemed to be invested. 6.3 ELECTIVE WITHDRAWAL. A Member may elect at any time, by following the election procedure prescribed by the Committee, to withdraw as a benefit all or a portion of his Deferral Account as of any Valuation Date, subject to a withdrawal penalty of 10% of the amount of any such withdrawal. Upon any such withdrawal, the withdrawal penalty referred to in the preceding sentence shall be forfeited to the Employer. Further, upon any such withdrawal, such Member's participation in the Plan shall terminate and no further Compensation deferrals shall be made under the Plan on behalf of such Member until the first Election Date following the date of such withdrawal. If a Member's Deferral Account is deemed to be invested in more than one Fund, such withdrawal shall be distributed pro rata from each Fund in which such Account is deemed to be invested. Notwithstanding the preceding provisions of this Section 6.3, a Member shall not be entitled to a withdrawal under this Section 6.3 if the Committee determines, in its sole discretion, that the primary purpose of such withdrawal is the cessation of Compensation deferrals under the Plan. The Committee shall consider such factors as it deems appropriate in order to make a determination pursuant to the preceding sentence, including, without limitation, the amount of the requested withdrawal, the balance in the Member's Accounts, the Member's Compensation deferral election then in effect, and the timing of such withdrawal request. VI-1 15 VII. TERMINATION BENEFITS 7.1 AMOUNT OF BENEFIT. Upon a Member's Termination of Service, the Member, or, in the event of the death of the Member while employed by the Employer or an Affiliate, the Member's designated beneficiary, shall be entitled to a benefit equal in value to the Member's Vested Interest in the balance in his Accounts as of the Valuation Date next preceding the date the payment of such benefit is to commence pursuant to Section 7.2. 7.2 TIME OF PAYMENT. Payment of a Member's benefit under Section 7.1 shall commence as soon as administratively practicable after the Valuation Date coincident with or next succeeding the date of the Member's Termination of Service; provided, however, that, in a written election on the form prescribed by the Committee, a Member may elect at the time specified in Section 7.3(c) to defer the commencement of the payment of his benefit in the event of his Termination of Service prior to his Retirement Date by reason of Disability to the Valuation Date coincident with or next succeeding the earlier of (a) the date of such Member's death or (b) such Member's Retirement Date. 7.3 ALTERNATIVE FORMS OF BENEFIT PAYMENTS. (a) A Member's benefit under Section 7.1 shall be paid in the form of a single lump sum payment if such Member's Termination of Service occurs prior to his Retirement Date for a reason other than Disability. (b) With respect to a Member whose Termination of Service occurs (i) prior to his Retirement Date by reason of Disability or (ii) on or after his Retirement Date, such Member shall receive his benefit payments in one of the following forms elected by such Member in writing on the form prescribed by the Committee at the time specified in Section 7.3(c): (1) A single lump sum payment; or (2) Annual installments for a period of five, ten, or fifteen years as designated by such Member; provided, however, that in the event of such Member's death prior to the end of such period, the remaining balance in such Member's Account shall be paid as soon as administratively feasible in one lump sum payment to such Member's designated beneficiary as provided in Section 7.4. The amount of each annual installment shall be computed by dividing the Member's Vested Interest in the unpaid balance in his Accounts as of the Valuation Date next preceding the date of payment of such annual installment by the number of annual installments remaining. A separate election shall be made pursuant to this Section 7.3(b) by each Member with respect to the form of distribution to be made in connection with a Termination of Service that occurs (A) prior to such Member's Retirement Date by reason of Disability or (B) on or after such Member's Retirement Date. In the event such Member fails to timely elect in accordance with Section 7.3(c) VII-1 16 the form in which his benefit payments are to be made, such benefit payments shall be in the form of a single lump sum payment. (c) A Member's elections pursuant to Sections 7.2 and 7.3(b) shall be made on or before the date he first becomes a Member of the Plan. Notwithstanding the foregoing, subject to the consent of the Committee in its sole discretion, a Member may, on the form prescribed by the Committee, make one change to each of his original elections made pursuant to Sections 7.2 and 7.3(b); provided, however, that (i) upon making any such change, the aggregate balance in such Member's Accounts as of the Valuation Date coincident with or next succeeding such change shall be reduced by 5% and such amount shall be forfeited to the Employer and (ii) such change shall not be effective (but the penalty described in clause (i) of this sentence shall still apply) if such Member incurs a Termination of Service on or before the date that is thirteen months after such Member delivers the form implementing such change to the Committee. 7.4 DESIGNATION OF BENEFICIARIES. (a) Each Member shall have the right to designate the beneficiary or beneficiaries to receive payment of his benefit in the event of his death. Each such designation shall be made by executing the beneficiary designation form prescribed by the Committee and filing same with the Committee. Any such designation may be changed at any time by execution of a new designation in accordance with this Section. (b) If no such designation is on file with the Committee at the time of the death of the Member or such designation is not effective for any reason as determined by the Committee, then the designated beneficiary or beneficiaries to receive such benefit shall be as follows: (i) If a Member leaves a surviving spouse, his benefit shall be paid to such surviving spouse; (ii) If a Member leaves no surviving spouse, his benefit shall be paid to such Member's executor or administrator, or to his heirs at law if there is no administration of such Member's estate. 7.5 ACCELERATED PAY-OUT OF CERTAIN BENEFITS. (a) Notwithstanding any provision in Section 7.3(b) to the contrary, if a Member's benefit payments are to be paid in a form other than entirely in a single lump sum payment and the aggregate amount to be paid with respect to such Member in any particular calendar year is less than $50,000, then the Committee may, in its sole discretion, elect to cause the entire remaining Vested Interest in the balance in such Member's Accounts to be paid in a single lump sum payment. (b) If a Member incurs a Termination of Service and such Member's benefit payments are being, or are to be, paid in a form other than entirely in a single lump sum payment, then: VII-2 17 (i) Such Member may elect at any time, by following the election procedure prescribed by the Committee, to receive the Vested Interest in the remaining balance in his Accounts (reduced by the 10% penalty described in the following sentence) in a single lump sum payment as soon as administratively feasible after the date such Member delivers to the Committee the form prescribed by the Committee requesting such distribution. Upon such a request, the Vested Interest in the aggregate balance in such Member's Accounts as of the date of such distribution shall be reduced by 10% and such amount shall be forfeited to the Employer; and (ii) In the event that the Committee, upon written petition of such Member, determines in its sole discretion that such Member has suffered an Unforeseeable Financial Emergency, such Member shall be entitled to an emergency benefit in an amount and under conditions similar to those described in Section 6.2. 7.6 PAYMENT OF BENEFITS. To the extent the Trust Fund has sufficient assets, the Trustee shall pay benefits to Members or their beneficiaries, except to the extent the Employer pays the benefits directly and provides adequate evidence of such payment to the Trustee. To the extent the Trustee does not or cannot pay benefits out of the Trust Fund, the benefits shall be paid by the Employer. Any benefit payments made to a Member or for his benefit pursuant to any provision of the Plan shall be debited to such Member's Accounts. All benefit payments shall be made in cash to the fullest extent practicable. 7.7 UNCLAIMED BENEFITS. In the case of a benefit payable on behalf of a Member, if the Committee is unable to locate the Member or beneficiary to whom such benefit is payable, upon the Committee's determination thereof, such benefit shall be forfeited to the Employer. Notwithstanding the foregoing, if subsequent to any such forfeiture the Member or beneficiary to whom such benefit is payable makes a valid claim for such benefit, such forfeited benefit (without any adjustment for earnings or loss after the time of such forfeiture) shall be restored to the Plan by the Employer and paid in accordance with the Plan. VII-3 18 VIII. ADMINISTRATION OF THE PLAN 8.1. APPOINTMENT OF COMMITTEE. The general administration of the Plan shall be vested in the Committee which shall be appointed by the Compensation Committee and shall consist of one or more persons. Any individual, whether or not an employee of the Employer, is eligible to become a member of the Committee. 8.2. TERM, VACANCIES, RESIGNATION, AND REMOVAL. Each member of the Committee shall serve until he resigns, dies, or is removed by the Compensation Committee. At any time during his term of office, a member of the Committee may resign by giving written notice to the Compensation Committee and the Committee, such resignation to become effective upon the appointment of a substitute member or, if earlier, the lapse of thirty days after such notice is given as herein provided. At any time during his term of office, and for any reason, a member of the Committee may be removed by the Compensation Committee with or without cause, and the Compensation Committee may in its discretion fill any vacancy that may result therefrom. Any member of the Committee who is an employee of the Employer or any Affiliate shall automatically cease to be a member of the Committee as of the date he ceases to be employed by the Employer and all Affiliates. 8.3. SELF-INTEREST OF MEMBERS. No member of the Committee shall have any right to vote or decide upon any matter relating solely to himself under the Plan or to vote in any case in which his individual right to claim any benefit under the Plan is particularly involved. In any case in which a Committee member is so disqualified to act and the remaining members cannot agree, the Compensation Committee shall appoint a temporary substitute member to exercise all the powers of the disqualified member concerning the matter in which he is disqualified. 8.4. COMMITTEE POWERS AND DUTIES. The Committee shall supervise the administration and enforcement of the Plan according to the terms and provisions hereof and shall have all powers necessary to accomplish these purposes, including, but not by way of limitation, the right, power, and authority: (a) To make rules, regulations, and bylaws for the administration of the Plan that are not inconsistent with the terms and provisions hereof, and to enforce the terms of the Plan and the rules and regulations promulgated thereunder by the Committee; (b) To construe in its discretion all terms, provisions, conditions, and limitations of the Plan; (c) To correct any defect or to supply any omission or to reconcile any inconsistency that may appear in the Plan in such manner and to such extent as it shall deem in its discretion expedient to effectuate the purposes of the Plan; VIII-1 19 (d) To employ and compensate such accountants, attorneys, investment advisors, and other agents, employees, and independent contractors as the Committee may deem necessary or advisable for the proper and efficient administration of the Plan; (e) To determine in its discretion all questions relating to eligibility; (f) To determine whether and when a Member has incurred a Termination of Service, and the reason for such termination; (g) To make a determination in its discretion as to the right of any person to a benefit under the Plan and to prescribe procedures to be followed by distributees in obtaining benefits hereunder; (h) To receive and review reports from the Trustee as to the financial condition of the Trust Fund, including its receipts and disbursements; and (i) To establish or designate Funds as investment options as provided in Section 4.1. 8.5. CLAIMS REVIEW. In any case in which a claim for Plan benefits of a Member or beneficiary is denied or modified, the Committee shall furnish written notice to the claimant within 90 days (or within 180 days if additional information requested by the Committee necessitates an extension of the 90-day period), which notice shall: (a) State the specific reason or reasons for the denial or modification; (b) Provide specific reference to pertinent Plan provisions on which the denial or modification is based; (c) Provide a description of any additional material or information necessary for the Member, his beneficiary, or representative to perfect the claim and an explanation of why such material or information is necessary; and (d) Explain the Plan's claim review procedure as contained herein. In the event a claim for Plan benefits is denied or modified, if the Member, his beneficiary, or a representative of such Member or beneficiary desires to have such denial or modification reviewed, he must, within 60 days following receipt of the notice of such denial or modification, submit a written request for review by the Committee of its initial decision. In connection with such request, the Member, his beneficiary, or the representative of such Member or beneficiary may review any pertinent documents upon which such denial or modification was based and may submit issues and comments in writing. Within 60 days following such request for review the Committee shall, after providing a full and fair review, render its final decision in writing to the Member, his beneficiary, or the representative of such Member or beneficiary stating specific reasons for such decision and making specific references to pertinent Plan provisions upon which the decision is based. If special VIII-2 20 circumstances require an extension of such 60-day period, the Committee's decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review. If an extension of time for review is required, written notice of the extension shall be furnished to the Member, beneficiary, or the representative of such Member or beneficiary prior to the commencement of the extension period. 8.6. MANDATORY ARBITRATION. If the Member, his beneficiary, or a representative of such Member or beneficiary is not satisfied with the final decision of the Committee pursuant to the Plan's claims review procedure, such Member, his beneficiary, or a representative of such Member or beneficiary may, within 180 days of receipt of the written final decision of the Committee, request by written notice to the Committee, that his claim be submitted to arbitration pursuant to the arbitration procedures then in effect as adopted by the Committee. Such arbitration shall be the sole and exclusive procedure available to the Member, his beneficiary, or a representative of such Member or his beneficiary for review of a final decision of the Committee. In reviewing the decision of the Committee, the arbitrator shall use the standard of review which would be used by a Federal court in reviewing such decision under the provisions of ERISA. The Member, his beneficiary, or a representative of such Member or beneficiary and the Plan shall share equally the cost of such arbitration. The arbitrator's decision shall be final and legally binding on both parties. This Section shall be governed by the provisions of the Federal Arbitration Act. 8.7. EMPLOYER TO SUPPLY INFORMATION. The Employer shall supply full and timely information to the Committee, including, but not limited to, information relating to each Member's Compensation, age, retirement, death, or other cause of Termination of Service and such other pertinent facts as the Committee may require. The Employer shall advise the Trustee of such of the foregoing facts as are deemed necessary for the Trustee to carry out the Trustee's duties under the Plan and the Trust Agreement. When making a determination in connection with the Plan, the Committee shall be entitled to rely upon the aforesaid information furnished by the Employer. 8.8. INDEMNITY. To the extent permitted by applicable law, the Company shall indemnify and save harmless each member of the Committee and the Compensation Committee against any and all expenses, liabilities and claims (including legal fees incurred to defend against such liabilities and claims) arising out of their discharge in good faith of responsibilities under or incident to the Plan. Expenses and liabilities arising out of willful misconduct shall not be covered under this indemnity. This indemnity shall not preclude such further indemnities as may be available under insurance purchased by the Company or provided by the Company under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise, as such indemnities are permitted under applicable law. 8.9. CHANGE IN CONTROL. Notwithstanding any provision in the Plan to the contrary, upon the occurrence of a Change in Control, the Committee's powers and duties under the Plan shall cease to the extent, if any, such powers and duties are vested in the Trustee under the terms of the Trust Agreement. VIII-3 21 IX. ADMINISTRATION OF FUNDS 9.1. PAYMENT OF EXPENSES. All expenses incident to the administration of the Plan and Trust, including but not limited to, legal, accounting, Trustee fees, and expenses of the Committee, may be paid by the Employer and, if not paid by the Employer, shall be paid by the Trustee from the Trust Fund, if any. 9.2. TRUST FUND PROPERTY. All income, profits, recoveries, contributions, forfeitures and any and all moneys, securities and properties of any kind at any time received or held by the Trustee, if any, shall be held for investment purposes as a commingled Trust Fund pursuant to the terms of the Trust Agreement. The Committee shall maintain one or more Accounts in the name of each Member, but the maintenance of an Account designated as the Account of a Member shall not mean that such Member shall have a greater or lesser interest than that due him by operation of the Plan and shall not be considered as segregating any funds or property from any other funds or property contained in the commingled fund. No Member shall have any title to any specific asset in the Trust Fund, if any. IX-1 22 X. NATURE OF THE PLAN The Employer intends and desires by the adoption of the Plan to recognize the value to the Employer of the past and present services of employees covered by the Plan and to encourage and assure their continued service with the Employer by making more adequate provision for their future retirement security. The establishment of the Plan is made necessary by certain benefit limitations which are imposed on the Savings Plan by ERISA and by the Code. The Plan is intended to constitute an unfunded, unsecured plan of deferred compensation for a select group of management or highly compensated employees of the Employer. Plan benefits herein provided are a contractual obligation of the Employer which shall be paid out of the Employer's general assets. Nevertheless, subject to the terms hereof and of the Trust Agreement, the Employer may transfer money or other property to the Trustee to provide Plan benefits hereunder, and the Trustee shall pay Plan benefits to Members and their beneficiaries out of the Trust Fund. To the extent that Employer transfers assets to the Trustee pursuant to the Trust Agreement, the Committee may, but need not, establish procedures for the Trustees to invest the Trust Fund in accordance with each Member's designated deemed investments pursuant to Section 4.1 respecting the portion of the Trust Fund assets equal to such Member's Accounts. The Compensation Committee, in its sole discretion, may establish the Trust and direct the Employer to enter into the Trust Agreement. In such event, the Employer shall remain the owner of all assets in the Trust Fund and the assets shall be subject to the claims of the Employer's creditors if the Employer ever becomes insolvent. For purposes hereof, the Employer shall be considered "insolvent" if (a) the Employer is unable to pay its debts as such debts become due or (b) the Employer is subject to a pending proceeding as a debtor under the United Sates Bankruptcy Code (or any successor federal statute). The chief executive officer of the Employer and its board of directors shall have the duty to inform the Trustee in writing if the Employer becomes insolvent. Such notice given under the preceding sentence by any party shall satisfy all of the parties' duty to give notice. When so informed, the Trustee shall suspend payments to the Members and hold the assets for the benefit of the Employer's general creditors. If the Trustee receives a written allegation that the Employer is insolvent, the Trustee shall suspend payments to the Members and hold the Trust Fund for the benefit of the Employer's general creditors, and shall determine in the manner specified in the Trust Agreement whether the Employer is insolvent. If the Trustee determines that the Employer is not insolvent, the Trustee shall resume payments to the Members. No Member or beneficiary shall have any preferred claim to, or any beneficial ownership interest in, any assets of the Trust Fund, and, upon commencement of participation in the Plan, each Member shall have agreed to waive his priority credit position, if any, under applicable state law with respect to the assets of the Trust Fund. X-1 23 XI. MISCELLANEOUS 11.1 NO CONTRACT OF EMPLOYMENT. The adoption and maintenance of the Plan shall not be deemed to be a contract between the Employer and any person or to be consideration for the employment of any person. Nothing herein contained shall be deemed to (a) give any person the right to be retained in the employ of the Employer, (b) restrict the right of the Employer to discharge any person at any time, (c) give the Employer the right to require any person to remain in the employ of the Employer, or (d) restrict any person's right to terminate his employment at any time. 11.2 ALIENATION OF INTEREST FORBIDDEN. The interest of a Member or his beneficiary or beneficiaries hereunder may not be sold, transferred, assigned, or encumbered in any manner, either voluntarily or involuntarily, and any attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber, or charge the same shall be null and void; neither shall the benefits hereunder be liable for or subject to the debts, contracts, liabilities, engagements or torts of any person to whom such benefits or funds are payable, nor shall they be an asset in bankruptcy or subject to garnishment, attachment or other legal or equitable proceedings. 11.3 WITHHOLDING. All Compensation deferrals and Employer Deferrals and payments provided for hereunder shall be subject to applicable withholding and other deductions as shall be required of the Employer under any applicable local, state or federal law. 11.4 AMENDMENT AND TERMINATION. The Compensation Committee may from time to time, in its discretion, amend, in whole or in part, any or all of the provisions of the Plan; provided, however, that no amendment may be made that would impair the rights of a Member with respect to amounts already allocated to his Accounts. The Compensation Committee may terminate the Plan at any time. In the event that the Plan is terminated, the Vested Interest in the balance in a Member's Accounts shall be paid to such Member or his designated beneficiary in the manner specified by the Compensation Committee, which may include the payment of a single lump sum payment in full satisfaction of all of such Member's or beneficiary's benefits hereunder. 11.5 SEVERABILITY. If any provision of this Plan shall be held illegal or invalid for any reason, said illegality or invalidity shall not affect the remaining provisions hereof; instead, each provision shall be fully severable and the Plan shall be construed and enforced as if said illegal or invalid provision had never been included herein. 11.6 GUARANTY. Notwithstanding any provisions of the Plan to the contrary, in the event any Employer fails to make payment of the benefits due under the Plan on behalf of its Members, whether directly or through the Trust, the Company shall be liable for and shall make payment of such benefits due as a guarantor of such entity's obligations hereunder. The guaranty obligations provided herein shall be satisfied directly and not through the Trust. XI-1 24 11.7 GOVERNING LAWS. All provisions of the Plan shall be construed in accordance with the laws of Texas except to the extent preempted by federal law. XI-2 25 EXECUTED this 9th day of December, 1999. GROUP 1 AUTOMOTIVE, INC. By: /s/ B. B. HOLLINGSWORTH, JR. --------------------------------------- Name: B. B. Hollingsworth, Jr. ---------------------------------- Title: Chairman, Chief Executive Officer and President --------------------------------- (iii) EX-21.1 5 SUBSIDIARY LIST 1 EXHIBIT 21.1 10-K SUBSIDIARY LIST Koons Ford, Inc. D/b/a World Ford Hollywood; World Auto Center; World Automotive Group Florida corporation Courtesy Ford, Inc. D/b/a World Ford Kendall Florida corporation Flamingo Ford, Inc. D/b/a World Ford Homestead Florida corporation Bob Howard Automotive - H, Inc. D/b/a Oklahoma corporation Bob Howard Chevrolet, Inc. D/b/a Bob Howard Subaru Bob Howard Chevrolet-Geo Oklahoma corporation Bob Howard Dodge, Inc. D/b/a N/A Oklahoma corporation Bob Howard Motors, Inc. D/b/a Bob Howard Toyota Oklahoma corporation Bob Howard Nissan, Inc. D/b/a N/A Oklahoma corporation Jim Tidwell Ford, Inc. D/b/a N/A Georgia Corporation Page 1 of 8 2 Howard Pontiac-GMC, Inc. D/b/a Bob Howard GMC Truck Oklahoma corporation Bob Howard Automotive-East, Inc. D/b/a South Pointe Chevrolet Oklahoma corporation Bob Howard German Imports, Inc. D/b/a Benchmark Motors Oklahoma corporation Casa Chevrolet Inc. Dba/ N/A New Mexico corporation Casa Chrysler Plymouth Jeep, Inc. Dba/ Westside Chrysler Plymouth Jeep New Mexico corporation Sunshine Buick Pontiac GMC Truck, Inc. Dba/ New Mexico corporation Chaperral Dodge, Ltd. D/b/a N/A Texas limited partnership Page 2 of 8 3 Colonial Chrysler-Plymouth, Ltd. D/b/a N/A Texas limited partnership Courtesy Nissan, Inc. D/b/a N/A Texas corporation KuTZ-DC, Ltd. (formerly McKinney Dodge, Inc.) D/b/a Texas corporation Kutz Auto Group, Inc. (merged into Group 1 Associates on 2/10/00) D/b/a Texas corporation Luby Chevrolet Co. D/b/a Delaware corporation Highland Autoplex, Inc. D/b/a Maxwell Highland Texas corporation MMK Interests, Inc. (merged into Group 1 Associates on 2/10/00) (Prestige Chrysler Plymouth, Inc. & Maxwell Chrysler Plymouth Dodge, Inc. merged into MMK Interests) D/b/a Texas corporation Maxwell Chrysler Plymouth Dodge Jeep Eagle, Ltd. D/b/a Maxwell Superstore Texas limited partnership Prestige Chrysler Plymouth Northwest, Ltd. D/b/a Maxwell Dodge Texas limited partnership Page 3 of 8 4 Prestige Chrysler Plymouth South, Ltd. D/b/a Maxwell South Texas limited partnership Maxwell Texas Management, Inc. Merged into MMK Interests D/b/a Delaware corporation Group 1 LP Interests-DC, Inc. (formerly Group 1 Holdings-CC, Inc. , formerly Prestige Maxwell, Inc.) D/b/a Delaware corporation Maxwell Ford, Ltd. D/b/a Texas limited partnership Group 1 Holdings - F, Inc. (formerly Maxwell Holdings, Inc.) D/b/a Delaware corporation Group 1 Ford, Inc. D/b/a Maxwell Ford of Elgin Texas corporation Round Rock Nissan, Inc. D/b/a Maxwell Nissan Round Rock Texas corporation Smith, Liu & Kutz, Inc. D/b/a Texas corporation Town North Imports, Inc. D/b/a Town North Mitsubishi Texas corporation Town North Nissan, Inc. D/b/a Maxwell Nissan Mitsubishi North Texas corporation Page 4 of 8 5 Town North Suzuki, Inc. D/b/a Texas corporation Foyt Motors, Inc. D/b/a A.J. Foyt Honda/Isuzu Texas corporation McCall-TL, Ltd. (formerly SMC Luxury Cars, Inc.) D/b/a Sterling McCall Lexus D/b/a Lexus of Clear Lake Texas limited partnership McCall-HA, Ltd. (formerly Smith, Liu & Corbin, Inc.) D/b/a Acura Southwest Texas limited partnership McCall-T, Ltd. (formerly Southwest Toyota, Inc.) D/b/a Sterling McCall Toyota Texas limited partnership Lubbock Motors - F, Ltd. D/b/a Gene Messer Ford Texas limited partnership Lubbock Motors - T, Ltd. D/b/a Gene Messer Toyota Texas limited partnership Lubbock Motors - M, Inc. (formerly Lubbock Automotive - M, Inc.) D/b/aGene Messer Mitsubishi, Gene Messer Volkswagon, Gene Messer Kia Delaware corporation Page 5 of 8 6 Lubbock Motors, Ltd. (formerly Lubbock Motors, Inc.) D/b/a The Credit Connection Texas limited partnership Rockwall Automotive - F, Ltd. D/b/a Rockwall Ford-Mercury Texas limited partnership Amarillo Motors -C, Ltd. D/b/a Gene Messer Cadillac D/b/a Gene Messer Mitsubishi Texas limited partnership Amarillo Motors - F, Ltd. D/b/a Amarillo Ford Gener Messer Ford of Amarillo Texas limited partnership Amarillo Motors - J, Ltd. D/b/a Gene Messer Jeep Gene Messer Chrysler-Plymouth Gene Messer Chrysler-Plymouth Jeep Texas limited partnership Mike Smith Automotive - N, Inc. D/b/a Mike Smith Nissan Texas corporation Mike Smith Autoplaza, Inc. D/b/a Texas corporation Mike Smith Autoplex, Inc. D/b/a Texas corporation Page 6 of 8 7 Mike Smith Autoplex Dodge, Inc. d/b/a Texas corporation Mike Smith Autoplex-German Imports, Inc. D/b/a Texas corporation Mike Smith Autoplex-V, Inc. D/b/a Texas corporation Mike Smith GM, Inc. D/b/a Delaware corporation Mike Smith Motors, Inc. D/b/a Texas corporation Mike Smith Imports, Inc. D/b/a Texas corporation Smith Automotive Group, Inc. (DISSOLVED July 30, 1999) Texas corporation Harvey Holdings, Inc. D/b/a Delaware corporation Harvey -T, Inc. D/b/a Delaware corporation Harvey Ford, LLC D/b/a Don Bohn Ford Delaware corporation Page 7 of 8 8 Harvey GM, LLC McCall-H, Inc. D/b/a Don Bohn Buick-Pontiac-GMC D/b/a N/A Delaware corporation Texas corporation Harvey Operations-T, LLC McCall-SI, Inc. D/b/a Bohn Bros. Toyota D/b/a N/A Delaware corporation Texas corporation Perimeter Ford, Inc. Amarillo Motors-SM, Ltd. D/b/a D/b/a N/A Delaware corporation Texas limited partnership Jim Tidwell Ford, Inc. Lubbock Motors-SH, Ltd. (formerly GPI Atlanta, Inc.) D/b/a N/A D/b/a Texas limited partnership Delaware corporation Lubbock Motors-S, Inc. Key Ford, Inc. D/b/a N/A D/b/a Texas corporation Florida corporation Howard-DC, Inc. Shamrock Chevrolet, Inc. D/b/a N/A D/b/a Delaware corporation Florida corporation Howard-GM, Inc. Group 1 Realty, Inc. D/b/a N/A D/b/a N/A Delaware corporation Delaware corporation Howard-HA, Inc. IRA Automotive Group, LLC D/b/a N/A D/b/a N/A Delaware corporation Delaware corporation Howard-H, Inc. Danvers-DC, Inc. D/b/a N/A D/b/a IRA Jeep Delaware corporation Delaware corporation Howard-SI, Inc. Danvers-DC II, Inc. D/b/a N/A D/b/a IRA-Dodge-Medford Delaware corporation Delaware corporation Group 1 Associates, Inc. Danvers-GM, Inc. (formerly Group 1 Holdings Inc.) D/b/a IRA Pontiac-Buick D/b/a N/A Delaware corporation Delaware corporation Danvers-S, Inc. D/b/a IRA Mazda-Isuzu IRA Porsche-Audi Delaware corporation Danvers-SU, Inc. D/b/a IRA Subaru Delaware corporation Danvers-T, Inc. D/b/a IRA Toyota Delaware corporation Danvers-TL, Inc. D/b/a IRA Lexus Delaware corporation
Page 8 of 8 EX-23.1 6 CONSENT OF ARTHUR ANDERSEN LLP 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report dated February 17, 2000 included in this Annual Report on Form 10-K, into the Company's previously filed registration statements on Form S-3 (File No. 333-83407) and on Form S-8 (File No. 333-42165, File No. 333-70043 and File No. 333-80399). ARTHUR ANDERSEN LLP Houston, Texas March 30, 2000 EX-27.1 7 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 118,824 0 35,296 0 386,255 553,423 46,711 0 842,910 473,295 113,174 0 0 218 231,811 842,910 2,429,536 2,508,324 2,131,967 2,131,967 290,407 0 30,447 55,689 22,174 33,515 0 0 0 33,515 1.62 1.55
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