SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
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240.14a-12
GROUP 1 AUTOMOTIVE, INC.
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GROUP 1 AUTOMOTIVE INC
April 17, 2002
Dear Fellow Stockholder:
You are cordially invited to attend the 2002 Annual Meeting of Stockholders
of Group 1 Automotive, Inc. to be held at 10:00 a.m., central time, on
Wednesday, May 22, 2002, at JPMorgan Chase, Mezzanine Level, 707 Travis Street,
Houston, Texas.
The matters to be acted on at the meeting are set forth in the accompanying
Notice of Annual Meeting and Proxy Statement. Additionally, we will report on
our business and the financial performance of Group 1.
It is important that your shares are represented at the meeting, whether or
not you plan to attend the meeting in person and regardless of the number of
shares you own. To make sure your shares are represented, we urge you to submit
a proxy containing your voting instructions, as soon as possible, by telephone,
through the Internet or by signing, dating and mailing your proxy card. The
Board of Directors unanimously recommends that stockholders vote FOR each of the
matters described in the proxy statement to be presented at the meeting.
We look forward to seeing you on May 22nd at our Annual Meeting in Houston.
Sincerely,
B. B. Hollingsworth, Jr.
Chairman of the Board, President
and Chief Executive Officer
GROUP 1 AUTOMOTIVE INC
Houston, Texas
---------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
WEDNESDAY, MAY 22, 2002
To the Stockholders of Group 1 Automotive, Inc.:
The Annual Meeting of Stockholders of Group 1 Automotive, Inc. will be held
on Wednesday, May 22, 2002 at 10:00 a.m., central time, at JPMorgan Chase,
Mezzanine Level, 707 Travis Street, Houston, Texas. At the meeting, we will
consider and vote upon the following matters:
(1) The election of one director to serve until the 2005 Annual
Meeting of Stockholders.
(2) Any other business that is properly presented at the meeting
or any adjournments or postponements of the meeting.
If you were a stockholder at the close of business on March 25, 2002, you
are entitled to vote at the meeting.
We cordially invite you to attend the Annual Meeting in person. EVEN IF YOU
PLAN TO ATTEND THE MEETING, WE ASK THAT YOU CAST YOUR VOTE AS SOON AS POSSIBLE.
You may revoke your proxy at any time prior to its use.
By Order of the Board of Directors,
John S. Watson
Secretary
Houston, Texas
April 17, 2002
IMPORTANT
PLEASE VOTE BY PROXY CARD, TELEPHONE OR INTERNET
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
TABLE OF CONTENTS
About the Annual Meeting..................................................... 1
Proposal 1 - Election of Directors........................................... 3
Board of Directors........................................................... 4
Nominee for Election to Term Expiring 2005............................ 4
Class I Directors..................................................... 4
Class II Directors.................................................... 5
Ratification of the Appointment of Independent Auditors...................... 5
Voting of Shares Covered by Proxies.......................................... 6
Board Meetings and Committees................................................ 6
Audit Committee Report....................................................... 8
Executive Officers........................................................... 9
Executive Compensation....................................................... 10
Compensation Committee Report on Executive Compensation............... 10
Summary Compensation Table............................................ 12
Stock Options Granted in 2001......................................... 13
Stock Option Exercises and Fiscal Year-End Values..................... 14
Employment Agreements................................................. 14
Performance Graph............................................................ 16
Stock Ownership Information.................................................. 17
Security Ownership of Certain Beneficial Owners and Management........ 17
Compliance with Beneficial Ownership Reporting Requirements........... 18
Compensation Committee Interlocks and Insider Participation.................. 18
Certain Relationships and Related Transactions............................... 18
Other Matters................................................................ 19
Stockholder Proposals for 2003 Annual Meeting................................ 20
Appendix A - Audit Committee Charter.........................................A-1
GROUP 1 AUTOMOTIVE INC
950 Echo Lane, Suite 100
Houston, TX 77024
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PROXY STATEMENT
----------
These proxy materials are furnished to you in connection with the
solicitation of proxies by the Board of Directors of Group 1 Automotive, Inc.,
for use at our 2002 Annual Meeting of Stockholders. The meeting will be held at
JPMorgan Chase, Mezzanine Level, 707 Travis Street, Houston, Texas, on
Wednesday, May 22, 2002, at 10:00 a.m. central time. This proxy statement and
the enclosed proxy card are being mailed to stockholders beginning on or about
April 17, 2002. Because many stockholders are unable to attend the meeting, our
Board of Directors solicits proxies from our stockholders to ensure that each
stockholder has an opportunity to vote on all matters scheduled to come before
the meeting. We urge you to read carefully the material in this proxy statement.
ABOUT THE ANNUAL MEETING
WHAT IS THE PURPOSE OF THE MEETING?
At our annual meeting, stockholders will act upon the matters outlined in
the notice of meeting, including the election of directors and consideration of
any other matters properly presented at the meeting. In addition, senior
management will report on our business and financial performance during fiscal
2001 and respond to your questions.
WHO IS ENTITLED TO VOTE AT THE MEETING?
Only our stockholders as of 5:00 p.m., central time, on March 25, 2002, the
record date, are entitled to receive notice of the annual meeting and to vote at
the meeting, or any postponements or adjournments of the meeting. On March 25,
2002, there were 22,950,982 shares of common stock outstanding.
HOW MANY VOTES CAN I CAST?
You are entitled to one vote for each share of Group 1 common stock you
owned on March 25, 2002 on all matters presented at the meeting.
HOW DO I VOTE MY SHARES?
If you hold your shares as a stockholder of record, you can vote in person
at the annual meeting or you can provide a proxy to be voted at the meeting
either:
o over the telephone by calling 1-800-435-6710;
o electronically, using the Internet, at www.eproxy.com/gpi; or
o by mailing in the enclosed proxy card.
The telephone and Internet voting procedures have been set up for your
convenience and have been designed to authenticate your identity, to allow you
to give voting instructions, and to confirm that those instructions have been
recorded properly. If you are a stockholder of record and you would like to vote
by telephone or by using the Internet, please refer to the specific instructions
set forth on the enclosed proxy card. If you wish to vote using a
paper format and you return your signed proxy to us before the annual meeting,
we will vote your shares as you direct.
If you choose to submit your proxy with voting instructions by telephone or
through the Internet, you will be required to provide your assigned control
number located on the enclosed proxy card before your proxy will be accepted. In
addition to the instructions that appear on the enclosed proxy card and
information sheet, step-by-step instructions will be provided by recorded
telephone message or at the designated Web site on the Internet. Once you have
voted, in accordance with those instructions, you will receive confirmation that
your proxy has been successfully submitted.
If you hold your shares in "street name," you will receive instructions from
your bank, broker or other nominee describing how to vote your shares. If you do
not instruct your broker or nominee how to vote such shares, they may vote your
shares as they decide as to each matter for which they have discretionary
authority under the New York Stock Exchange Rules.
If you vote by granting a proxy, Messrs. Hollingsworth and Thompson will
vote the shares of which you are the stockholder of record in accordance with
your instructions. If you submit a proxy card without giving specific voting
instructions, Messrs. Hollingsworth and Thompson will vote those shares as
recommended by our Board of Directors.
WHAT IS THE DIFFERENCE BETWEEN A STOCKHOLDER OF RECORD AND A "STREET NAME"
HOLDER?
If your shares are registered directly in your name with Mellon Investor
Services, LLC, our stock transfer agent, you are considered the stockholder of
record with respect to those shares. If your shares are held in a stock
brokerage account or by a bank or other nominee, you are considered the
beneficial owner of these shares, and your shares are held in "street name."
HOW DO I VOTE MY SHARES IN PERSON AT THE MEETING?
If you are a stockholder of record, you may vote your shares at the meeting
by completing a ballot at the meeting. If you choose to do so, please bring the
enclosed proxy card or proof of identification. Even if you currently plan to
attend the annual meeting in person, we recommend that you also submit your
proxy as described above so that your vote will be counted if you later decide
not to attend the meeting. If you hold your shares in "street name," you may
only vote those shares in person if you obtain a signed proxy from your broker
or other nominee giving you the right to vote the shares.
CAN I REVOKE MY PROXY?
Yes. You can revoke your proxy at any time before it is exercised by:
o submitting written notice of revocation to our Secretary;
o submitting another proxy by telephone, via the Internet or by
mail that is later dated and, if by mail, that is properly
signed; or
o attending our meeting and voting your shares in person.
WHAT VOTE IS REQUIRED TO APPROVE THE ELECTION OF DIRECTORS?
In the election of directors, you may either vote "FOR" the nominee or
"WITHHOLD" your vote for the nominee. Abstentions and broker non-votes will have
no effect on the outcome of the election of the director. If the nominee
receives a plurality of the votes cast, that is, more votes "FOR" than
"WITHHOLD", he will be elected to the Board of Directors.
Abstentions occur when stockholders are present at the annual meeting but
choose to withhold their vote for any of the matters upon which the stockholders
are voting. "Broker non-votes" occur when nominees (such as banks and
2
brokers) that hold shares on behalf of beneficial owners do not receive voting
instructions from the beneficial owners before the meeting and do not have
discretionary authority to vote those shares.
HOW DOES THE BOARD RECOMMEND I VOTE ON THE PROPOSAL?
The Board recommends that you vote:
o FOR the nominee for director.
WHAT IS A QUORUM?
A quorum is the presence at the meeting, in person or by proxy, of the
holders of a majority of the outstanding shares as of the record date. There
must be a quorum for the meeting to be held. If you submit a valid proxy card or
attend the meeting, your shares will be counted to determine whether there is a
quorum. Abstentions and broker non-votes will be counted toward the quorum.
MAY I PROPOSE ACTIONS FOR CONSIDERATION AT NEXT YEAR'S ANNUAL MEETING OF
STOCKHOLDERS OR NOMINATE INDIVIDUALS TO SERVE AS DIRECTORS?
You may submit proposals for consideration at future stockholder meetings,
including director nominations. In order for a stockholder proposal, including a
director nomination, to be considered for inclusion in our proxy statement for
next year's annual meeting, the written proposal must be received by us no later
than December 16, 2002. The proposal must comply with regulations of the
Securities and Exchange Commission regarding the inclusion of stockholder
proposals in company-sponsored proxy materials and must contain the information
required by our bylaws.
THE PROPOSAL
PROPOSAL 1 - ELECTION OF DIRECTORS
According to our bylaws, nominees for election as directors at our annual
meetings who receive the greatest number of votes cast for election by our
stockholders are elected as directors. As a result, abstentions and broker
non-votes will have no effect on the outcome of the election of directors
assuming a quorum is present or represented by proxy at the annual meeting.
Stockholders may not cumulate their votes in the election of our directors.
Our Certificate of Incorporation provides for a classified Board of
Directors. The directors are divided into three classes, with each class serving
for a period of three years. As a result, the stockholders elect approximately
one-third of the members of our Board of Directors annually. You are being asked
to elect one director at this annual meeting. Our remaining directors will not
be required to stand for election at the annual meeting because their present
terms expire in either 2003 or 2004.
Unless otherwise instructed or unless authority to vote is withheld, the
enclosed proxy will be voted for the election of the nominee listed in this
proxy statement. We have no reason to believe that the nominee will be unable or
unwilling to serve if elected. However, if a nominee should become unable or
unwilling to serve for any reason, proxies may be voted for another person
nominated as a substitute by our Board of Directors, or the Board may reduce the
number of directors.
3
The following table sets forth certain information, as of the date of this
Proxy Statement, regarding the nominee and the other directors of Group 1.
DIRECTOR
POSITION AND OFFICES WITH GROUP 1 SINCE AGE
------------------------------------------------------------ ----------- -------
CLASS III NOMINEE
Stephen D. Quinn........... -- -- 46
CLASS I DIRECTORS
Bennett E. Bidwell......... Director 1997 74
B. B. Hollingsworth, Jr.... Director, Chairman, President and Chief Executive Officer 1996 59
Robert E. Howard II....... Director, President of Bob Howard Auto Group 1997 55
CLASS II DIRECTORS
John L. Adams.............. Director 1999 57
Max P. Watson, Jr.......... Director 2001 56
Kevin H. Whalen............ Director, President of Sterling McCall Automotive Group 2001 43
Our Restated Certificate of Incorporation and Bylaws provide that our
directors shall be divided among the three classes as nearly equal in number as
possible. The two directors who previously served as Class III directors, John
H. Duncan and Charles M. Smith, are not standing for re-election. The Board of
Directors has nominated only one person to serve as a director in Class III,
which leaves a temporary imbalance among the classes of directors. This
imbalance is expected to be addressed at next year's Annual Meeting of
Stockholders.
BOARD OF DIRECTORS
NOMINEE FOR ELECTION TO TERM EXPIRING 2005
STEPHEN D. QUINN
Mr. Quinn, age 46, joined Goldman, Sachs & Co. in August 1981 where he
specialized in Corporate Finance. From 1990 until his retirement in 2001, Mr.
Quinn served as a General Partner and Managing Director of Goldman, Sachs & Co.
Mr. Quinn also serves on the Board of Directors and the Audit Committee of Zions
Bancorporation.
CLASS I DIRECTORS
BENNETT E. BIDWELL
Mr. Bidwell, age 74, has served as one of our directors since June 1997.
Mr. Bidwell joined Chrysler Corporation as Executive Vice President in 1983 and
was elected to its board of directors the same year. In 1985, Mr. Bidwell was
named Vice Chairman of Chrysler Corporation. Mr. Bidwell also served in various
executive positions with Chrysler Motors Corporation, including Vice Chairman in
1987, President - Product and Marketing in 1988, and from 1988 to 1990, as
Chairman of the Board of Chrysler Motors Corporation. Mr. Bidwell retired from
Chrysler Corporation in 1990. Prior to joining Chrysler, Mr. Bidwell spent 27
years with Ford Motor Company, and from 1981 to 1983, he was President and Chief
Operating Officer of The Hertz Corporation. His past directorships include
National Steel Corporation (1981-1983), McDonald Investments (1994-1996) and
Kerr-McGee Corporation (1994-1998). Mr. Bidwell currently serves as a director
for International Management Group, The Budd Company and Kelly Management Group.
Mr. Bidwell's term expires in 2003.
B. B. HOLLINGSWORTH, JR.
Mr. Hollingsworth, age 59, has served as Chairman of the Board since March
1997 and as President, Chief Executive Officer and a director of the Company
since August 1996. Prior to joining the Company, Mr. Hollingsworth spent
nineteen years in various positions with Service Corporation International
("SCI"), which he helped establish as the leading funeral service company in
North America. He served as President and Director of
4
SCI from 1975 until his retirement in 1986. Prior to November 1997, Mr.
Hollingsworth was a stockholder and director of Foyt Motors, Inc., a Group 1
subsidiary acquired in November 1997. He also serves on The Council of Overseers
of Rice University's Jesse H. Jones Graduate School of Management and the Board
of Directors of the Greater Houston Partnership. Mr. Hollingsworth's term
expires in 2003.
ROBERT E. HOWARD II
Mr. Howard, age 55, has served as one of our directors since April 1997.
Mr. Howard has served as President of the Bob Howard Auto Group since November
1997. Mr. Howard has more than 32 years experience in the automotive retailing
industry. From 1969 to 1977, he served in various management positions at
franchised dealerships acquired by Group 1. He was a recipient of the 1997 Time
Magazine Quality Dealer Award and presently serves as a Commissioner of the
Oklahoma Motor Vehicle Commission. Mr. Howard's term expires in 2003.
CLASS II DIRECTORS
JOHN L. ADAMS
Mr. Adams, age 57, has served as one of our directors since November 1999.
Mr. Adams is currently Executive Vice President of Trinity Industries, Inc., one
of North America's largest manufacturers of transportation, construction and
industrial products. Before joining Trinity Industries, Mr. Adams spent 25 years
in various positions with Texas Commerce Bank N.A. and its successor, Chase Bank
of Texas, National Association. From 1997 to 1998, Mr. Adams was Chairman,
President and Chief Executive Officer of Chase Bank of Texas. Mr. Adams serves
as a director to American Express Bank, Ltd., TU Electric Dallas (advisory),
Trustee for the Boys & Girls Clubs of America and the Children's Medical Center
of Dallas. Mr. Adams' term expires in 2004.
MAX P. WATSON, JR.
Mr. Watson, age 56, has served as one of our directors since May 2001.
Mr. Watson served as President and Chief Executive Officer of BMC Software,
Inc., one of the world's largest software vendors from April 1990 to January
2001. He served as Chairman of the Board of BMC from January 1992 to April 2001.
Mr. Watson also serves on the Board of Trustees of Texas Children's Hospital.
Mr. Watson's term expires in 2004.
KEVIN H. WHALEN
Mr. Whalen, age 43, has served as one of our directors since May 2001.
Mr. Whalen has served as President and Chief Operating Officer of the Sterling
McCall Automotive Group since 1997. Mr. Whalen joined the Sterling McCall
Automotive Group as a salesman in 1981 and held several management positions
before being named General Manager in 1984. Mr. Whalen serves on the Advisory
Board of Southwest Bank of Texas and the Boards of the Fellowship of Christian
Athletes and the YMCA, Houston. Mr. Whalen's term expires in 2004.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE ELECTION OF STEPHEN D. QUINN AS A DIRECTOR.
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
We normally submit for ratification by our stockholders the independent
auditors appointed by the Board of Directors. Arthur Andersen LLP has been our
independent audit firm since our inception. We have been pleased with the
services of Arthur Andersen LLP over those many years. Arthur Andersen LLP has
provided us high quality audit services, and its long - term knowledge of our
operations has enabled it to carry out its audits effectively and efficiently.
The Board of Directors had earlier approved the appointment of Arthur
Andersen LLP as our independent auditors for the year ending December 31, 2002.
In accordance with the recommendation of the Audit Committee, the Board of
Directors, in light of recent events, has requested that our management
interview firms other than
5
Arthur Andersen LLP for audit work to be performed for the year ending December
31, 2002. The Audit Committee will review the results of the interview process
with the goal of recommending to the Board of Directors a proposed independent
auditor, which may or may not be Arthur Andersen LLP, during the second quarter
of 2002.
Since this process will not be completed prior to the date we will mail the
proxy statement to our stockholders, the Board of Directors is not recommending
any independent auditors for ratification at the Annual Meeting of Stockholders.
VOTING OF SHARES COVERED BY PROXIES
We are not aware of any other matters that will be properly brought before
the annual meeting. However, if any additional matters are properly brought
before the annual meeting, Messrs. Hollingsworth and Thompson will vote as
recommended by our Board of Directors or, if no recommendation is given, in
accordance with their judgment. The accompanying form of proxy has been prepared
at the direction of our Board of Directors and is being sent to you at the
request of our Board of Directors. Messrs. Hollingsworth and Thompson were
designated to be your proxies by our Board of Directors.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held nine meetings in fiscal year 2001. During the
fiscal year, all directors attended at least 95% of the meetings of the Board of
Directors and of the committees on which each served.
Our Board of Directors has established two standing committees to assist it
in discharging its responsibilities: an Audit Committee and a Compensation
Committee. We do not have a standing nominating committee. The Audit Committee
and the Compensation Committee are comprised entirely of outside directors.
AUDIT COMMITTEE
Our Audit Committee functions in an oversight role to provide reasonable
assurance that the following objectives are achieved:
o Financial Reporting Process -- Our financial statements are presented
fairly in conformity with generally accepted accounting principles.
o System of Internal Controls -- Our system of internal controls provides
reasonable assurance as to the reliability of financial statements and
the protection of assets from unauthorized acquisition, use, or
disposition.
o Corporate Compliance Process -- We are in reasonable compliance with
pertinent laws and regulations, are conducting our affairs ethically,
and are maintaining effective controls against employee conflict of
interest and fraud.
In that connection, the Audit Committee recommends the selection, and
evaluates the performance, of our independent auditors, reviews the Company's
annual and quarterly financial statements and confirms the independence of our
independent auditors. The Audit Committee also meets with our management and
external auditors regarding the adequacy of our financial controls and our
compliance with legal, tax and regulatory matters and significant Company
policies. While the Audit Committee has the responsibilities and powers set
forth in its Charter, it is not the duty of the Audit Committee to plan or
conduct audits, to determine that our financial statements are complete and
accurate or to determine that such statements are in accordance with generally
accepted accounting principles. Our management is responsible for the
preparation of our financial statements in accordance with generally accepted
accounting principles and our internal controls. Our independent auditors are
responsible for the audit work on our financial statements. It is also not the
duty of the Committee to conduct investigations or to assure compliance with
laws and regulations and our policies and procedures. Our management is
responsible for compliance with laws and regulations and compliance with the
Company's policies and procedures.
6
The Board of Directors has adopted the Audit Committee Charter, as amended,
which is attached as Appendix A to this Proxy Statement. During fiscal year
2001, the Audit Committee met six times and consisted of Mr. Adams (Chairman),
Mr. Bidwell and Mr. Duncan. Our Audit Committee is comprised solely of
independent directors who meet the Audit Committee requirements set forth in the
New York Stock Exchange's listing standards. Mr. Duncan has elected not to stand
for re-election to the Board of Directors. As such, his successor on the Audit
Committee will be elected by our Board of Directors following this Annual
Meeting of Stockholders.
The Audit Committee Report is set forth on page 8 of this Proxy Statement.
COMPENSATION COMMITTEE
Our Compensation Committee is comprised solely of independent directors.
The Compensation Committee approves the compensation levels and terms of
employment for our executive officers, including salary and bonus levels. In
addition, the Compensation Committee oversees our stock option, stock purchase
and deferred compensation plans. The Compensation Committee, consisting of Mr.
Duncan (Chairman), Mr. Adams, Mr. Bidwell and Mr. Watson, held five meetings
during fiscal year 2001. Mr. Duncan is a current member of our Board of
Directors whose term of office as a director will expire after this year's
Annual Meeting of Stockholders. Mr. Duncan has elected not to stand for
re-election to the Board of Directors. As such, his successor on the
Compensation Committee will be elected by our Board of Directors following this
Annual Meeting of Stockholders.
The Compensation Committee's Report on Executive Compensation is set forth
on page 10 of this Proxy Statement.
DIRECTOR COMPENSATION
In 2001, each of our non-employee directors, other than Mr. Watson (who was
elected in May), received an annual retainer fee of $12,000. Mr. Watson received
a pro rated retainer fee of $9,000. Our directors also receive a fee of $1,500
for attendance at each Board meeting and a fee of $1,000 for attendance at each
meeting of a committee of the Board. Beginning in March 2002, Chairs of the
committees of the Board will receive an additional $4,000 annual fee for serving
in that capacity. Our directors also receive the use of one company vehicle or
the economic equivalent. Directors are also eligible for grants of stock options
and other awards pursuant to the Group 1 1996 Stock Incentive Plan. The
following table sets forth information concerning stock options granted to our
non-employee directors:
NON-EMPLOYEE DIRECTOR STOCK OPTION GRANTS
--------------------------------------------------------------------------------
GRANT # OF EXERCISE
DIRECTOR DATE SHARES PRICE
-------------------------------- -------- ----------- ------------
John L. Adams.................. 2001 3,000 $28.97
2000 3,000 9.38
1999 10,000 16.47
Bennett E. Bidwell............. 2001 3,000 28.97
2000 3,000 9.38
1999 3,000 16.47
John H. Duncan................. 2001 3,000 28.97
2000 3,000 9.38
1999 3,000 16.47
Max P. Watson, Jr.............. 2001 3,000 28.97
2001 10,000 24.65
7
Mr. Duncan currently holds stock options to purchase 22,000 shares of common
stock, 15,970 of which are vested and 6,030 of which are not vested. The Board
has approved accelerating the vesting of the stock options covering 6,030 shares
of common stock held by Mr. Duncan upon his retirement from the Board at this
Annual Meeting of Stockholders.
AUDIT COMMITTEE REPORT
Our Audit Committee is composed of independent directors and operates under
a written charter adopted by our Board of Directors. A copy of the charter is
included as Appendix A of this Proxy Statement. The Audit Committee recommends
to the Board of Directors the selection of our independent public accountants.
Our management is responsible for our internal controls and the financial
reporting process. The independent public accountants are responsible for
performing an independent audit of our consolidated financial statements and
issuing an opinion on the conformity of those audited financial statements with
generally accepted accounting principles in the United States. The Audit
Committee monitors our financial reporting process and reports to the Board of
Directors on its findings.
Arthur Andersen LLP served as our independent public accountants in 2001.
During fiscal year 2001, the Audit Committee reviewed and discussed with
management and Arthur Andersen LLP the audited financial statements contained in
our Annual Report on Form 10-K for the year ended December 31, 2001. The Audit
Committee also discussed with Arthur Andersen LLP the matters required to be
discussed by Statement on Auditing Standards No. 61 (Communications with Audit
Committees).
Arthur Andersen submitted to the Audit Committee the written disclosures and
the letter required by Independence Standards Board No. 1 (Independence
Discussions with Audit Committees). The Audit Committee discussed with Arthur
Andersen LLP such firm's independence. The Audit Committee has also considered
whether the provision of non-audit services to our company by Arthur Andersen
LLP is compatible with maintaining their independence.
Based on our review with management and the auditors of our audited
consolidated financial statements and the auditors' report on such financial
statements, and based on the discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in our Annual Report on Form 10-K for the year ended December 31, 2001,
for filing with the Securities and Exchange Commission.
Audit Committee:
John L. Adams (Chairman)
Bennett E. Bidwell
John H. Duncan
AUDIT AND OTHER FEES
During fiscal 2001, we paid the following amounts to Arthur Andersen LLP in
connection with audit and other services:
Audit Fees $ 345,000
Financial Information Systems Design and Implementation Fees $ --
All Other Fees, including tax fees $ 303,000
Arthur Andersen does not provide any internal audit services to the Company.
We use a separate firm, Crowe Chizek, for internal audit services.
8
EXECUTIVE OFFICERS
The following table sets forth certain information regarding our executive
officers as of February 28, 2002:
NAME AGE POSITION
------------------------- ------- -----------------------------------------------------------------
B.B. Hollingsworth, Jr. 59 Chairman, President and Chief Executive Officer
John T. Turner 58 Executive Vice President
Scott L. Thompson 43 Executive Vice President, Chief Financial Officer and Treasurer
John S. Bishop 55 Senior Vice President - Operations
B. B. HOLLINGSWORTH, JR.
Mr. Hollingsworth's biographical information may be found on page 4 of
this Proxy Statement.
JOHN T. TURNER
Mr. Turner, age 58, has served as our Executive Vice President since
February 2002. From December 1996 to February 2002, Mr. Turner served, as our
Senior Vice President -- Corporate Development. Prior to joining Group 1, Mr.
Turner functioned in executive corporate development roles at several large,
acquisition oriented public companies for approximately fifteen years. Prior to
this period, he was a partner in a public accounting firm.
SCOTT L. THOMPSON
Mr. Thompson, age 43, has served as our Executive Vice President, Chief
Financial Officer and Treasurer since February 2002, and as our Senior Vice
President, Chief Financial Officer and Treasurer from December 1996 until
February 2002. From 1991 to 1996, Mr. Thompson served as Executive Vice
President, Operations and Finance for KSA Industries, Inc., a diversified
enterprise with interests in automotive retailing, energy and professional
sports. Mr. Thompson's other responsibilities within the KSA group of companies,
included service as a Vice President and director of three automobile
dealerships, and as a director of Adams Resources Energy, Inc., a public oil and
gas company. He is a Certified Public Accountant, and from 1980 to 1991, he held
various positions with a public accounting firm.
JOHN S. BISHOP
Mr. Bishop, age 55, has served as our Senior Vice President -- Operations
since October 1998. Prior to joining Group 1, Mr. Bishop served as Group Vice
President of Sales and Marketing for Gulf States Toyota, an independent
distributor of Toyota vehicles, parts and accessories serving approximately 140
dealers in a five-state area. Mr. Bishop held a number of management and
executive positions with Gulf States between 1981 and 1998. Before joining Gulf
States, Mr. Bishop was employed at both Ford Motor Company and Chrysler
Corporation for a combined eight years.
9
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
BACKGROUND
The executive compensation program is designed to attract, motivate and
retain executives who are key to our long-term success. In this process, we want
to align an executive's compensation with Group 1's attainment of business goals
and an increase in stockholder value. To achieve this goal, we have adopted both
short-term and long-term incentive compensation plans that are dependent upon
our performance. The Compensation Committee reviews executive compensation and
makes appropriate adjustments based on company performance, achievement of
predetermined goals, and changes in an executive's duties and responsibilities.
The compensation of other Group 1 employees is based on a similar philosophy.
Base Salary. Group 1 and the Compensation Committee have established a
pay-for-performance philosophy by providing base salaries that generally fall in
the 50th percentile of companies in the compensation study, with complimentary
incentive compensation programs. Executive salary levels have been and will
continue to be based on market salary levels, individual performance and the
financial performance of Group 1.
Incentive Compensation. The Compensation Committee has adopted an incentive
compensation program for its executive officers that is based on the earnings
per share of Group 1. Dependent upon the earnings per share target achieved, for
the year ended December 31, 2002, these individuals could earn bonuses up to 150
percent of their base compensation, which generally falls in the 75th percentile
of companies in the compensation study.
Deferred Compensation Plan. The deferred compensation plan is designed to
provide key executives with the opportunity to accumulate additional savings for
retirement on a tax-deferred basis. Participants in the plan are allowed to
defer receipt of a portion of their salary and/or bonus compensation earned. The
participants can choose from various defined investment options to determine
their earnings crediting rate; however, Group 1 has complete discretion over how
the funds are utilized and these funds represent an unsecured obligation of
Group 1 to the participants. Participation in this plan is limited to a select
group of management and highly compensated employees.
Stock Option Plan. Stock options are granted to employees, including
executive officers, to align their long-term interests with those of our
stockholders. Additionally, it allows them to develop and maintain a potentially
significant equity ownership position in Group 1.
Employee Stock Purchase Plan. Generally, under this plan, all employees,
including the executive officers, are offered the opportunity to purchase a
limited amount of Group 1 common stock at a 15% discount to market. This is an
additional equity incentive we offer to all of our employees to further promote
the enhancement of stockholder value.
CURRENT YEAR
The Compensation Committee consults from time to time with Towers Perrin, a
consulting firm experienced in executive compensation, and with access to
national compensation surveys and our financial records. The Compensation
Committee reviews each element of compensation to ensure that the total
compensation delivered reflects Company performance with input on market
competitiveness. In the last review, the Compensation Committee confirmed that
the executive compensation program met the targeted objectives.
Chief Executive Officer Compensation. As described above, our executive
compensation philosophy is based on providing competitive base salaries with
complimentary incentive compensation programs, including the compensation of our
Chief Executive Officer, B.B. Hollingsworth, Jr. The following discussion
summarizes Mr. Hollingsworth's compensation for 2001.
10
Base Salary. Mr. Hollingsworth's base salary was increased 26% during 2001
to $600,000. The base salary portion of Mr. Hollingsworth's compensation is
targeted to provide a salary that approximates the 50th percentile of those
provided by peer group companies in the compensation study, after considering
relative performance of the companies.
Incentive Compensation. Mr. Hollingsworth earned incentive compensation of
$712,500 during 2001. Mr. Hollingsworth received the highest level of incentive
compensation achievable, as Group 1's earnings per share for the year exceeded
the highest target for the year. Earnings per share increased 38% from $1.88 in
2000 to $2.59 in 2001. Mr. Hollingsworth's target total cash compensation
(current salary plus target bonus) is designed to fall in the 50th percentile of
the peer group companies in the compensation study. If Group 1 achieves the
highest goal for 2002 as determined by the Compensation Committee of the Board
of Directors, Mr. Hollingsworth's total cash compensation will fall in the 75th
percentile of the peer group companies.
Stock Option Plan. Mr. Hollingsworth was granted options to purchase 50,000
shares of our common stock, under our 1996 Stock Incentive Plan. This award was
given in recognition of our earnings performance in 2001. This award fell below
the 50th percentile of the peer group companies in the compensation study.
Split-Dollar Arrangement. On January 23, 2002, a trust established by Mr.
and Mrs. Hollingsworth entered into a Split-Dollar Arrangement with us whereby
Group 1, with the approval of the Compensation Committee of the Board of
Directors, agreed to make advances of the portion of the premiums not related to
term insurance payable on a life insurance policy purchased by the trust on the
joint lives of Mr. and Mrs. Hollingsworth. We will pay the entire premium on the
policies each year, for a minimum of seven years. Premiums paid by Group 1 will
be approximately $300,000 per year. The face amount of the policy is $7.5
million. The Company is entitled to reimbursement of the amounts advanced,
without interest, upon the first to occur of (a) the death of the survivor of
Mr. and Mrs. Hollingsworth or (b) the termination of the agreement. In no event
will the Company's reimbursement exceed the accumulated cash value, which will
be less than the premiums paid in the early years. The agreement terminates upon
the later to occur of the following: (a) Mr. Hollingsworth ceases to be an
officer, director, consultant or employee of Group 1 for any reason other than
total and permanent disability; or (b) fifteen years from the date of the
agreement. The policy will be assigned to Group 1 as security for repayment of
the amounts which we will contribute towards payments due on such policy.
Tax Deductions for Compensation. In conducting the programs applicable to
executives, the Compensation Committee considers the effects of section 162(m)
of the Internal Revenue Code, which denies publicly held companies a tax
deduction for annual compensation in excess of one million dollars paid to their
chief executive officer or any of their four other most highly compensated
executive officers who are employed on the last day of a given year, unless
their compensation is based on performance criteria that are established by a
committee of outside directors and approved, as to their material terms, by that
company's stockholders. Our stock option plan is generally designed and
implemented so that it qualifies for full deductibility under section 162(m).
However, certain compensation or awards may be granted under this plan that do
not qualify under section 162(m). In addition, the portion of total salary and
bonus compensation that exceeds one million dollars for each of our Chief
Executive Officer and our four other most highly compensated executive officers
does not so qualify and is subject to the limitation on deductibility under
section 162(m). As a result, we may from time to time pay compensation to our
executive officers that is not deductible.
Respectfully submitted by the Compensation Committee of the Board of
Directors of Group 1,
John H. Duncan (Chairman)
John L. Adams
Bennett E. Bidwell
Max P. Watson, Jr.
11
The following table sets forth information regarding compensation of our
Chief Executive Officer and four other most highly compensated executive
officers during 2001.
SUMMARY COMPENSATION TABLE
ANNUAL LONG-TERM
COMPENSATION(1) COMPENSATION
------------------------- ---------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(2)
------------------------------------------------- ------- ----------- ----------- --------------- ------------------
B.B. Hollingsworth, Jr............................ 2001 $490,625 $712,500 50,000 $39,586
Chairman, President and Chief Executive Officer 2000 475,000 475,000 100,000 14,262
1999 435,625 430,000 110,000 --
John T. Turner.................................... 2001 334,375 487,500 25,000 27,221
Executive Vice President 2000 325,000 325,000 50,000 9,894
1999 303,125 300,000 60,000 --
Scott L. Thompson................................. 2001 334,375 487,500 25,000 --
Executive Vice President, Chief Financial 2000 325,000 325,000 50,000 5,717
Officer and Treasurer 1999 259,375 250,000 60,000 --
John S. Bishop.................................... 2001 328,125 487,500 15,000 13,840
Senior Vice President - Operations 2000 325,000 325,000 50,000 4,767
1999 303,125 300,000 60,000 --
Charles M. Smith(3)............................... 2001 300,000 450,000 -- --
Senior Vice President - Industry Relations 2000 300,000 300,000 -- 4,769
1999 300,000 300,000 30,000 --
----------
(1) Amounts exclude perquisites and other personal benefits because such
compensation did not exceed the lesser of $50,000 or 10% of the total
annual salary and bonus reported.
(2) Represents above-market interest earned on amounts deferred under the
Group 1 Deferred Compensation Plan.
(3) Mr. Smith retired and resigned as a director and officer effective
November 2, 2001, but will remain as a consultant to the Company until
November 2004.
12
STOCK OPTIONS GRANTED IN 2001
The following table contains certain information concerning stock options
granted to the executive officers in 2001.
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL
--------------------------------------------- RATES OF
NUMBER % OF STOCK PRICE
OF TOTAL APPRECIATION FOR
SECURITIES OPTIONS EXERCISE OR OPTION TERM(3)
UNDERLYING GRANTED TO BASE PRICE --------------------------
OPTIONS EMPLOYEES PER EXPIRATION
NAME GRANTED(1) DURING 2001 SHARE(2) DATE 5% 10%
--------------------------- ------------- ------------- ------------ ----------- ------------ -----------
B.B. Hollingsworth, Jr.... 50,000 9.3% $ 28.97 11/14/11 $910,954 $2,308,596
John T. Turner............ 25,000 4.6 28.97 11/14/11 455,477 1,154,268
Scott L. Thompson......... 25,000 4.6 28.97 11/14/11 455,477 1,154,268
John S. Bishop............ 15,000 2.8 28.97 11/14/11 273,286 692,560
Charles M. Smith.......... -- -- -- -- -- --
----------
(1) The options expire 10 years from the date of grant. The options awarded to
Messrs. Hollingsworth and Turner vest in 33% increments per year beginning
on November 14, 2002. The options awarded to Mr. Thompson vest in 20%
increments per year beginning on November 14, 2002. The options awarded to
Mr. Bishop vest 40% beginning on November 14, 2003 and thereafter in 20%
increments annually.
(2) The exercise price of the options was based upon the fair market value of
the common stock on the date of grant.
(3) Calculated based upon the indicated rates of appreciation, compounded
annually, from the date of grant to the end of each option term. Actual
gains, if any, on stock option exercises and common stock holdings are
dependent on the future performance of the common stock. There can be no
assurance that the amounts reflected in this table will be achieved. The
calculation does not take into account the effects, if any, of provisions
of the option plan governing termination of options upon employment
termination, transferability or vesting.
13
AGGREGATE STOCK OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table contains certain information concerning the value of
options exercised during 2001 and the value of unexercised options at December
31, 2001.
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE MONEY OPTIONS AT
OPTIONS AT DECEMBER 31, 2001 DECEMBER 31, 2001(2)
SHARES ------------------------------- ------------------------------
ACQUIRED ON VALUE
NAME EXERCISE(#) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
-------------------------- ------------- ------------ ----------- ------------- ----------- -------------
B.B. Hollingsworth, Jr. ... 5,000 $117,300 300,800 214,200 $4,495,659 $2,714,491
John T. Turner............. 20,000 412,000 306,590 148,410 5,577,698 2,260,102
Scott L. Thompson.......... 10,000 91,000 213,200 165,080 3,923,868 2,358,633
John S. Bishop............. -- -- 74,000 151,000 1,001,960 2,102,940
Charles M. Smith........... 6,071 91,429 5,929 18,000 71,385 216,720
----------
(1) The value realized upon the exercise of a stock option is equal to the
difference between the closing price of the common stock on the New York
Stock Exchange on the date of exercise and the exercise price of the stock
option multiplied by the number of shares acquired.
(2) The value of each unexercised in-the-money stock option is equal to the
difference between the closing price of the common stock on the New York
Stock Exchange on December 31, 2001 of $28.51 and the per share exercise
price of the stock option.
EMPLOYMENT AGREEMENTS
Each of our executive officers has entered into employment agreements with
us. As of March 1, 2002, Mr. Hollingsworth entered into a new employment
agreement with us. Messrs. Turner and Thompson entered into employment
agreements with us dated November 3, 1997 and Mr. Bishop entered into an
employment agreement with us dated October 7, 1998. The employment agreements,
as amended, currently provide for the following annual base salaries: B.B.
Hollingsworth, Jr. -- $600,000; John T. Turner -- $400,000; Scott L. Thompson --
$400,000 and John S. Bishop -- $350,000. The employment agreements also provide
that these officers' participation in bonus plans will be governed by the bonus
and incentive plans adopted by the Compensation Committee of our Board of
Directors.
Mr. Hollingsworth's new employment agreement extends through November 2,
2005. The terms of his employment agreement are substantially the same as the
employment agreements of the other executive officers, with the following
exceptions. In the event of an "involuntary termination" of Mr. Hollingsworth's
employment, Mr. Hollingsworth may terminate his employment with Group 1 and
receive his salary plus his incentive bonus for the year prior to his
termination for each year remaining on his employment agreement. An "involuntary
termination" includes termination of Mr. Hollingsworth by Group 1 without cause,
a material breach of Mr. Hollingsworth's employment agreement by Group 1 or the
dissolution, merger, sale of substantially all of the assets or a change of
control of Group 1. In addition, on an involuntary termination, Mr.
Hollingsworth's stock options shall become 100% vested and the exercise of those
stock options shall continue to be permitted as if his employment had continued
for the full term of his employment agreement. Upon Mr. Hollingsworth's death or
disability his stock options shall become 100% vested. Mr. Hollingsworth has
agreed not to compete with Group 1 for a period of two years after termination
of his employment and not to induce any employee of Group 1 to leave his or her
employment with Group 1 or hire any employee of Group 1 for a period of three
years after termination of his employment.
The employment agreements for Messrs. Turner, Thompson and Bishop expire on
November 2, 2002, November 2, 2002 and October 6, 2003, respectively. Unless
terminated or not renewed by us or those persons, the term of
14
each employment agreement will continue thereafter on a month-to-month basis
terminable at any time by either us or any of them, with or without cause, upon
thirty days notice. In the event of a termination of employment by us without
cause or by those persons due to an uncorrected material breach of the
employment agreement by us, those persons shall be entitled to receive their
base salary paid bi-weekly until the end of his contract term.
We are not obligated to pay any amounts to Messrs. Turner, Thompson or
Bishop other than his pro rata base salary through the date of his or her
termination upon:
o voluntary termination of employment by the employee;
o termination of employment by us for cause, as defined in the employment
agreements;
o death of the employee; or
o long-term disability of the employee.
During the period of employment and for a period of three years after
termination of employment, Messrs. Turner, Thompson or Bishop are generally
prohibited from competing or assisting others to compete with Group 1. In
addition, during the period of employment and for a period of five years after
termination of employment, Messrs. Turner, Thompson or Bishop are generally
prohibited from inducing any other employee to terminate employment with Group
1.
Charles Smith retired and resigned as a director and officer of Group 1
effective November 2, 2001. Mr. Smith has entered into a consulting agreement
with Group 1 and under the terms of the agreement, he has agreed to make himself
available to consult on matters involving Group 1 until November 2, 2004. Mr.
Smith's consulting agreement pays $7,652 per month through October 31, 2002.
Beginning in November 2002 through the expiration of his consulting agreement,
Mr. Smith will be paid $9,852 per month. As part of Mr. Smith's retirement and
consulting agreement, the Company accelerated 6,000 of his stock options that
were scheduled to vest on November 9, 2002, and Mr. Smith's remaining 12,000
unvested stock options were cancelled.
15
PERFORMANCE GRAPH
As required by applicable rules of the Securities and Exchange Commission,
the performance graph shown below was prepared based upon the following
assumptions:
o $100 was invested in Group 1's common stock, the S&P 500 and our peer
group described below on October 29, 1997 at the initial public
offering price of Group 1's common stock of $12 per share and the
closing price of the stocks comprising the S&P 500 and our peer group,
respectively, on such date. Our common stock began trading on the New
York Stock Exchange on October 30, 1997;
o Our peer group investment is weighted based upon the market
capitalization of each individual company within our peer group at the
beginning of the period; and
o Dividends are reinvested on the ex-dividend dates.
Our peer group consists of AutoNation, Inc., CarMax Group, Lithia Motors,
Inc., Sonic Automotive, Inc. and United Auto Group, Inc.
COMPARISON OF CUMULATIVE TOTAL RETURNS*
[PERFORMANCE GRAPH]
* TOTAL RETURN BASED ON $100 INITIAL INVESTMENT & REINVESTMENT OF DIVIDENDS
GROUP 1 PEER GROUP
MEASUREMENT DATE AUTOMOTIVE, INC. S&P 500 ONLY
------------------------------------------------- ----------------- ------- ----------
10/97........................................... $100.00 $100.00 $100.00
12/97........................................... 75.52 102.87 70.66
12/98........................................... 216.67 132.27 47.13
12/99........................................... 116.16 160.10 29.90
12/00........................................... 78.13 145.53 20.16
12/01........................................... 237.60 128.23 47.45
16
STOCK OWNERSHIP INFORMATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the amount of our common stock beneficially owned
(unless otherwise indicated) by our directors, our director nominee, our
executive officers named in the Executive Compensation Summary Table, our
directors and executive officers as a group and any 5% stockholders. Except as
otherwise indicated, all information is as of February 28, 2002.
AGGREGATE NUMBER ACQUIRABLE PERCENT
OF SHARES WITHIN 60 OF CLASS
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED DAYS(2) OUTSTANDING(3)
--------------------------------------------------- ------------------ ----------- --------------
B.B. Hollingsworth, Jr. ............................ 544,928 280,800 3.6%
John T. Turner ..................................... 94,991 291,590 1.6
Scott L. Thompson .................................. 60,443 163,200 1.0
John S. Bishop ..................................... 5,920 74,000 *
John L. Adams....................................... 10,000 7,690 *
Bennett E. Bidwell.................................. -- 5,970 *
John H. Duncan ..................................... 173,368 15,970 *
Max P. Watson, Jr. ................................. 10,000 -- *
Robert E. Howard II ................................ 2,631,738 (4) -- 11.5
Kevin H. Whalen .................................... 717,058 19,000 3.2
Stephen D. Quinn .................................. -- -- *
Charles M. Smith ................................... 22,494 (5) 6,000 *
J.L. Kaplan Associates, LLC ........................ 1,097,165 (6) -- 4.8
222 Berkeley Street, Suite 2010
Boston, MA 02116
Barclays Global Investors, N.A. .................... 1,258,351 (7) -- 5.5
45 Fremont Street
San Francisco, CA 94105
All directors and executive officers and director
nominees as a group (11 persons) ................... 4,248,613 883,220 22.3%
----------
* Represents less than 1% of the outstanding common stock
(1) Except as otherwise indicated, the mailing address of each person or entity
named in the table is Group 1 Automotive, Inc., 950 Echo Lane, Suite 100,
Houston, Texas 77024.
(2) Reflects the number of shares that could be purchased upon the exercise of
options held by the named person as of February 28, 2002, or within 60 days
after February 28, 2002, under our stock option plan.
(3) Based on the number of shares outstanding at February 28, 2002.
(4) Includes (a) 780,000 shares held by Howard Investments, L.L.C., which is
controlled by Mr. Howard and (b) 25,450 shares held by Century Reinsurance
Company, Inc., which is controlled by Mr. Howard.
(5) Includes 600 shares owned by his children.
(6) J. L. Kaplan Associates, LLC, is an investment advisor and has sole voting
power of 726,600 share, as reported on Schedule 13G as of December 31, 2001
and filed on February 8, 2002.
(7) Includes (a) 1,118,666 shares owned by Barclays Global Investors, N.A., an
institutional investment manager owned by Barclays PLC and (b) 139,685
shares owned by Barclays Global Fund Advisors, 45 Fremont Street, San
Francisco, CA 94105, which is a subsidiary of Barclays Global Investors,
N.A., as reported on a Schedule 13G as of December 31, 2001 and filed on
February 13, 2002.
17
COMPLIANCE WITH BENEFICIAL OWNERSHIP REPORTING REQUIREMENTS
Our executive officers, directors and any person who owns more than ten
percent of our common stock are required by Section 16(a) of the Securities
Exchange Act of 1934 to file reports regarding their ownership of our stock. To
our knowledge, based solely on a review of the copies of these reports furnished
to us and written representations from these individuals that no other reports
were required, during the year ended December 31, 2001, all of these filing
requirements applicable to these individuals were met.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Max P. Watson, Jr., one of our directors and a member of our Compensation
Committee, is the brother of John S. Watson, the Secretary of Group 1 and a
partner at Vinson & Elkins L.L.P., our legal counsel.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Set forth below is a description of certain transactions entered into
between our company and certain of our officers, directors and large
stockholders.
Bob Howard Dealership Acquisitions
Bob Howard informed Mr. Hollingsworth that upon the expiration of his
current employment agreement on November 1, 2002, he planned to retire as an
employee of the Company, and as part of his retirement plan he would like to
acquire an automobile dealership in Oklahoma City. Mr. Hollingsworth informed
Mr. Howard that, subject to the approval of the Board waiving Group 1's conflict
of interest policy and the non-competition provisions in Mr. Howard's employment
agreement, he would have no objection to Mr. Howard acquiring a limited number
of dealerships in Oklahoma City that Group 1 could not acquire. After the Board
waived the Company's conflict of interest policy and the non-competition
provisions of Mr. Howard's employment agreement with respect to the acquisitions
of those dealerships, Mr. Howard then proceeded to acquire Ford,
Lincoln-Mercury, Jaguar and Volvo dealerships in Oklahoma City, none of which
Group 1 could acquire, as the manufacturer-owner targeted the sale of these
dealerships to individuals. Mr. Howard has agreed to reimburse Group 1 for the
services of Group 1 that he utilizes in connection with those dealerships and to
reimburse Group 1 for the portion of his time that he spends on those
dealerships while he is an employee of Group 1. In addition Mr. Howard will
locate the Jaguar and Volvo dealerships in a vacant building owned by Group 1,
adjacent to our Mercedes dealership, for which Mr. Howard will pay us rent at a
market rate.
Leases
We generally seek to enter into lease agreements that have 30 year terms and
are cancelable at our option at various times during the lease term. As a
result, we lease a majority of our facilities at what are believed to be market
terms.
North Broadway Real Estate, an Oklahoma limited liability company, owned 50%
by Mr. Howard and 50% by an unrelated third party, leases the real estate and
facilities of one of our collision repair centers to us. This lease provides for
a monthly rental rate of $9,000, and requires us to pay all applicable property
taxes, maintain adequate insurance and, if necessary, repair or replace the
leased building. The lease term is month-to-month.
Bob Howard Automall, one of our subsidiaries, leases two properties owned by
Mr. Howard and used by Bob Howard Automall as automobile dealerships in Oklahoma
City, Oklahoma. These leases provide for monthly rental payments of $85,862.
Bob Howard Chevrolet, one of our subsidiaries, leases property owned by Mr.
Howard and used by Bob Howard Chevrolet as an automobile dealership in Oklahoma
City, Oklahoma. The lease relating to this property provides for monthly rental
payments of $48,500.
18
Bob Howard Toyota, one of our subsidiaries, leases property owned by Mr.
Howard and used by Bob Howard Toyota as an automobile dealership in Oklahoma
City, Oklahoma. The lease relating to this property provides for monthly rental
payments of $33,500.
Mike Smith Autoplaza, one of our subsidiaries, leases property owned by a
general partnership, of which the children of Mr. Smith are partners. The
property is used by Mike Smith Autoplaza as an automobile dealership in
Beaumont, Texas. The lease provides for monthly rental payments of $46,500.
Stock Repurchases
During 2000, we were authorized by our Board of Directors to repurchase a
portion of our common stock. The repurchases completed to date have been through
public and private transactions. During 2001, 30,000 shares were repurchased
from Kevin H. Whalen at a market price of $9.50 per share and 200,000 shares
from Sterling B. McCall, Jr. at a market price of $12.54 per share.
Registration Agreement
Mr. Howard has entered into a registration agreement with us. Under the
agreement, we included 700,000 shares of Group 1 common stock owned by Mr.
Howard in a registration statement that we were filing for our benefit, in
return for Mr. Howard's agreement not to sell any shares of Group 1 common stock
owned by him, except for shares of common stock sold pursuant to the
registration statement, until the earlier of (i) the first business day
immediately following the consummation of the sale of all his shares of common
stock covered by the registration statement or (ii) the first business day
immediately following the termination of the registration agreement by Mr.
Howard or us. The registration agreement allows us to defer the sale by Mr.
Howard of any shares of common stock covered by this registration statement
under certain circumstances. We agreed to pay all expenses incurred in
connection with the registration statement, other than expenses directly
attributable to the inclusion of Mr. Howard's shares of our common stock in the
registration statement. In addition, Mr. Howard agreed to pay any underwriters'
discounts and commissions applicable to his shares of common stock covered by
the registration statement as well as the costs for experts or professionals,
including counsel, employed by Mr. Howard or on his behalf in connection with
the registration of his shares under the registration agreement. We have agreed
to indemnify Mr. Howard for liabilities arising under the Securities Act with
respect to any offering of his shares under the registration statement, other
than liabilities arising from information furnished by Mr. Howard. Mr. Howard
has agreed to indemnify us for liabilities arising under the Securities Act with
respect to any such offering as a result of information furnished by him. As of
March 5, 2002, Mr. Howard has sold 300,000 of the 700,000 shares covered in the
registration agreement.
OTHER MATTERS
EXPENSES OF SOLICITATION
We will bear all expenses incurred in connection with the solicitation of
proxies. We will reimburse brokers, nominees, fiduciaries and other custodians
for reasonable expenses incurred by them for sending proxy materials to
beneficial owners of our common stock. In addition to solicitation by mail,
proxies may be solicited in person, or by telephone, facsimile transmission or
other means of electronic communication, by our directors, officers or other
employees.
ANNUAL REPORT
Our annual report, including our financial statements and the financial
statement schedules, accompany this proxy statement. Our stockholders are
referred to the annual report for financial and other information about us.
19
STOCKHOLDER PROPOSALS FOR 2003 ANNUAL MEETING
Pursuant to the various rules promulgated by the Securities and Exchange
Commission, stockholders interested in submitting a proposal for inclusion in
our proxy materials and for presentation at the 2003 Annual Meeting of
Stockholders may do so by following the procedures set forth in Rule 14a-8 under
the Securities Exchange Act of 1934, as amended. To be eligible for inclusion in
such proxy materials, stockholder proposals must be received by our Secretary no
later than December 16, 2002. No stockholder proposal was received for inclusion
in this Proxy Statement.
In addition to the requirements of the Securities and Exchange Commission
described in the preceding paragraph, and as more specifically provided for in
our bylaws, in order for a nomination of persons for election to our Board of
Directors or a proposal of business to be properly brought before our Annual
Meeting of Stockholders, it must be either specified in the notice of the
meeting given by our Secretary or otherwise brought before the meeting by or at
the direction of our Board of Directors or by a stockholder entitled to vote and
who complies with the following notice procedures. A stockholder making a
nomination for election to our Board of Directors or a proposal of business must
deliver proper notice to our Secretary at least 70 days but not more than 90
days prior to the anniversary date of the 2002 Annual Meeting. For a stockholder
nomination for election to our Board of Directors or a proposal of business to
be considered at the 2003 Annual Meeting of Stockholders, it should be properly
submitted to our Secretary no earlier than February 21, 2003 and no later than
March 13, 2003.
For each individual that a stockholder proposes to nominate as a director,
the stockholder must provide notice to our Secretary. Such notice must set forth
all of the information required in solicitations of proxies under the Securities
and Exchange Commission rules or any other law. For any other business that a
stockholder desires to bring before an annual meeting, the stockholder must
provide a brief description of such business, the reasons for conducting such
business and any material interest in such business of the stockholder and any
beneficial owner on whose behalf the stockholder has made the proposal. If a
stockholder provides notice for either event described above, such notice must
include the following information:
o the name and address of the stockholder as it appears on our books;
o the name and address of the beneficial owner, if any, as it appears on
our books; and
o the class or series and the number of shares of our stock that are
owned beneficially and of record by the stockholder and the beneficial
owner.
If we increase the number of directors to be elected at an annual meeting,
we must make a public announcement naming all of the nominees for director and
specifying the size of the increased Board of Directors at least 80 days prior
to the first anniversary of the preceding year's annual meeting. However, if we
fail to make such an announcement, a stockholder's notice regarding the nominees
for the new positions created by such increase will be considered timely if it
is delivered to our Secretary at the address indicated on page 1 of this proxy
statement not later than the close of business on the 10th day following the day
on which the public announcement is first made.
Detailed information for submitting stockholder proposals is available upon
written request to our Secretary at 950 Echo Lane, Suite 100, Houston, Texas
77024. These requirements are separate from and in addition to the Securities
and Exchange Commission's requirements that a stockholder must meet in order to
have a Stockholder proposal included in our Proxy Statement for the 2003 Annual
Meeting of Stockholders.
By Order of the Board of Directors,
John S. Watson
Secretary
Houston, Texas
April 17, 2002
20
APPENDIX A
GROUP 1 AUTOMOTIVE, INC.
AUDIT COMMITTEE CHARTER
The Board of Directors of Group 1 Automotive, Inc. (the "Company") has
heretofore constituted and established an Audit Committee (the "Committee") with
authority, responsibility, and specific duties as described in this Audit
Committee Charter.
COMPOSITION
The Committee will be appointed annually by the Board of Directors (the
"Board"). The Chairman of the Board shall appoint the Chairman of the Committee.
The Committee shall be comprised of at least three directors who are
independent of management and free from any relationship that, in the opinion of
the Board, would interfere with the exercise of independent judgment as a
Committee member. All members of the Committee shall meet the requirements of
the New York Stock Exchange, which includes having a basic understanding of
finance and accounting. The Chairman of the Committee shall have accounting or
related financial management expertise.
MISSION STATEMENT AND PRINCIPAL FUNCTIONS
The Committee's oversight role shall serve to provide reasonable assurance
that the following objectives are achieved:
o Financial Reporting Process -- The Company's financial statements
are presented fairly in conformity with generally accepted accounting
principles.
o System of Internal Controls -- The Company's system of internal
controls provides reasonable assurance as to the reliability of
financial statements and the protection of assets from unauthorized
acquisition, use, or disposition.
o Corporate Compliance Process -- The Company is in reasonable
compliance with pertinent laws and regulations, is conducting its
affairs ethically, and is maintaining effective controls against
employee conflict of interest and fraud.
As such, the Committee will have direct access to financial, legal, and
other staff and consultants of the Company. Such consultants may assist the
Committee in defining its role and responsibilities, consult with Committee
members regarding a specific audit or other issues that may arise in the course
of the Committee's duties, and conduct independent investigations, studies, or
tests. The Committee has the authority to employ such other accountants,
attorneys, or consultants to assist the Committee as it deems advisable. The
Committee may also meet with the Company's investment bankers or financial
analysts who follow the Company.
While the Committee has the responsibilities and powers set forth in this
Charter, it is not the duty of the Committee to plan or conduct audits, to
determine that the Company's financial statements are complete and accurate or
to determine that such statements are in accordance with generally accepted
accounting principles. The Company's management is responsible for the
preparation of the Company's financial statements in accordance with generally
accepted accounting principles and the Company's internal controls. The
Company's independent accountants are responsible for the audit work on the
Company's financial statements. It is also not the duty of the Committee to
conduct investigations or to assure compliance with laws and regulations and the
Company's policies and procedures. The Company's management is responsible for
compliance with laws and regulations and compliance with the Company's policies
and procedures.
A-1
The Committee's principal areas of oversight shall include the following:
Financial Reporting Process
The Audit Committee shall:
o Recommend to the Board the independent accountants to be nominated,
review the compensation of the independent accountants and evaluate
the performance and on-going qualifications of the independent
accountants. If so determined by the Committee, recommend that the
Board replace the independent accountants.
o Review the experience and qualifications of the senior members of
the independent accountants team and the quality control procedures of
the independent accountants.
o Approve the retention of the independent accountants for any
non-audit service and the fee for such service.
o Recommend to the Board guidelines for the Company's hiring of
employees of the independent accountants who were engaged on the
Company's account.
o Discuss with the national office of the independent accountants
issues on which it was consulted by the Company's audit team and
matters of audit quality and consistency.
o Confirm and assure the independence of the independent accountants,
including a review of the nature of all services and related fees
provided by the independent accountants. The independent accountants
will provide a written statement regarding relationships and
independence to the Committee at least annually.
o Review with the independent accountants, prior to the initiation of
the annual audit, the independent accountants' process for identifying
and responding to key audit and internal control risks, and the scope
and approach of the audit to assure completeness of coverage of key
business controls and risk areas.
o Approve the formation of all offshore subsidiaries or affiliates of
the Company.
o Serve as a channel of communication between the independent auditor
and the Board and/or management of the Company. The independent
auditors are ultimately accountable to the Audit Committee of the
Board.
o Instruct the independent accountants to report directly to the
Committee any problems or difficulties incurred in connection with the
audit, including any restrictions on the scope of activities or access
to required information, or any disagreements with management.
o Review the financial statements and footnotes included in the annual
report to shareholders and Form 10-K filings made with the Securities
and Exchange Commission. In addition, review findings of any
examinations by regulatory agencies, such as the Securities and
Exchange Commission.
o Review with management and the independent accountants at the
completion of the annual audit:
o The independent accountants' audit of the financial statements
and their report thereon.
o Any significant changes required in the independent
accountants' audit plan.
A-2
o The existence of significant estimates and judgments underlying
the financial statements, including the rationale behind those
estimates as well as the details on material accruals and
reserves.
o The critical accounting policies used in the financial
statements, an analysis of the effect of alternative methods of
applying generally accepted accounting principles on the
Company's financial statements and a description of any
transactions as to which management obtained Statement on
Auditing Standards No. 50 letters.
o Insider and affiliated party transactions and potential
conflicts of interest.
o Other matters related to the conduct of the audit, which are to
be communicated to the committee under generally accepted
auditing standards.
o Review significant reports prepared by the internal audit department
together with management's response and follow up to these reports.
o Review the appointment, performance and replacement of the senior
internal auditing executive.
o Review with management and the independent accountants the effect of
regulatory and accounting initiatives as well as any off-balance sheet
structures contemplated by the Company on the Company's financial
statements.
o Review with management and the independent accountants the Company's
quarterly financial statements prior to the filing of its Form 10-Q,
including the results of the independent accountants reviews of the
quarterly financial statements.
o Review with management and the independent accountants any
correspondence with regulators or governmental agencies and any
employee complaints or published reports which raise issues regarding
the Company's financial statements or accounting policies.
o Review with the Company's management and/or legal counsel legal
matters that may have a material impact on the financial statements,
the Company's compliance policies and any material reports or
inquiries received from regulators or governmental agencies.
System of Internal Controls
o Review and evaluate the effectiveness of the Company's process for
assessing significant risks or exposures and the steps management has
taken to minimize such risks to the Company. Consider and review with
management and the independent accountants:
o The effectiveness of or weaknesses in the Company's internal
controls including the status and adequacy of management
information systems and other information and security, the
overall control environment and accounting and financial
controls.
o Any related significant findings and recommendations of the
independent accountants, together with management's response
thereto, including the timetable for implementation of
recommendations to correct weaknesses in internal controls.
o Assess internal processes for determining and managing key financial
statement risk areas.
o Ascertain whether the company has an effective process for
determining risks and exposures from asserted and unasserted
litigation and claims and from noncompliance with laws and
regulations.
A-3
Corporate Compliance Process
o Approve for recommendation to the Board the Company's policies and
procedures regarding compliance with the law and with significant
Company policies, including, but not limited to, codes of conduct
expressing principles of business ethics, legal compliance, the
Foreign Corrupt Practices Act, environmental, health, and safety
issues, and other matters relating to business conduct, and programs
of legal compliance designed to prevent and detect violations of law.
o Review compliance with the Company's code of conduct and approve any
waivers under the code of conduct.
o Review with the Company's management and others any legal, tax or
regulatory matters (including compliance with Manufacturer Public
Company Agreements) that may have a material impact on Company
operations and the financial statements, related Company compliance
policies, and programs and reports received from regulators.
o Review policies and procedures with respect to officers' expense
accounts, including their use of corporate assets, and consider the
results of any review of these areas by the independent accountants.
MEETINGS
The Committee will meet at least quarterly, or more frequently as necessary
to carry out its responsibilities. In addition, the Committee, or at a minimum,
the Committee Chairman, will meet with management and the independent auditors
prior to the release of the Company's quarterly or annual earnings to discuss
the results of the quarterly review or audit as applicable. The Chairman of the
Committee and/or management of the Company may call meetings as deemed
necessary. In addition, the Committee will make itself available to the
independent auditors of the Company as requested by such independent auditors.
All meetings of the Committee shall be held pursuant to the Bylaws of the
Company with regard to notice and waiver thereof, and written minutes of each
meeting shall be duly filed in the Company records. Reports of meetings of the
Committee, including committee actions and recommendations, shall be made to the
Board at its next regularly scheduled meeting following the Committee meeting.
OTHER COMMITTEE RESPONSIBILITIES
The Committee will review and reassess the adequacy of this Charter on an
annual basis, and will submit the charter to the Board for approval. The
Committee Charter will be included in the proxy statement as required under
Securities and Exchange Commission regulations.
The Committee will prepare a report to shareholders, to be included in the
proxy statement on an annual basis as required by the Securities and Exchange
Commission. This report will specifically address the following activities
carried out by the Committee during the year:
o The Committee's review of the independence of its members.
o Confirmation of the annual review of this Charter.
o The Committee's review of the Company's audited financial statements
with management.
o The Committee's discussion with the independent auditors of the
matters required to be communicated to audit committees.
A-4
P GROUP 1 AUTOMOTIVE, INC.
R 950 ECHO LANE, SUITE 100
O HOUSTON, TEXAS 77024
X
Y ANNUAL MEETING OF STOCKHOLDERS -- MAY 22, 2002
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY
The undersigned stockholder(s) of Group 1 Automotive, Inc.,
a Delaware corporation (the "Company"), hereby appoints B.B.
Hollingsworth, Jr., and Scott L. Thompson, and each of them,
attorneys-in-fact and proxies of the undersigned, with full
power of substitution, to represent and to vote all shares of
common stock of the Company that the undersigned is entitled to
vote at the Annual Meeting of Stockholders to be held at
JPMorgan Chase, 707 Travis, Mezzanine Level, Houston, Texas
77002, at 10:00 A.M., local time, on Wednesday, May 22, 2002,
and at any adjournment thereof.
(CONTINUED ON REVERSE SIDE)
--------------------------------------------------------------------------------
* FOLD AND DETACH HERE *
Please mark [X]
your votes as
indicated in
this example
This Proxy, when properly executed, will be voted as directed herein by the
undersigned. If no direction is given, this proxy will be voted "FOR" proposal
1. The Board of Directors recommends a vote "FOR" proposal 1.
1. Election of Director In their discretion, such attorneys-in-fact and proxies
Nominee: Stephen D. Quinn are authorized to vote upon such other business as
properly may come before the meeting.
WITHHOLD
FOR the nominee AUTHORITY I will be attending the meeting. [ ]
(except as marked to vote for
to the contrary) the nominee
[ ] [ ]
You are requested to complete,
date, sign, and return this proxy
promptly. All joint owners must
sign. Persons signing as
executors, administrators,
trustees, corporate officers, or
in other representative
capacities should so indicate.
Date:
---------------------------------------
--------------------------------------------
Signature
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Signature
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o FOLD AND DETACH HERE *
o
VOTE BY INTERNET OR TELEPHONE OR MAIL
24 HOURS A DAY, 7 DAYS A WEEK
INTERNET AND TELEPHONE VOTING IS AVAILABLE THROUGH 4PM EASTERN TIME
THE BUSINESS DAY PRIOR TO ANNUAL MEETING DAY.
YOUR TELEPHONE OR INTERNET VOTE AUTHORIZES THE NAMED PROXIES TO VOTE YOUR SHARES IN THE SAME MANNER
AS IF YOU MARKED, SIGNED AND RETURNED YOUR PROXY CARD.
INTERNET TELEPHONE MAIL
http://www.eproxy.com/gpi 1-800-435-6710
Use the Internet to vote your Use any touch-tone telephone to Mark, sign and date
proxy. Have your proxy card in vote your proxy. Have your proxy your proxy card
hand when you access the web OR card in hand when you call. You will OR and
site. You will be prompted to enter be prompted to enter your control return it in the
your control number, located in number, located in the box below, enclosed postage-paid
the box below, to create and and then follow the directions given. envelope.
submit an electronic ballot.
IF YOU VOTE YOUR PROXY BY INTERNET OR BY TELEPHONE,
YOU DO NOT NEED TO MAIL BACK YOUR PROXY CARD.
YOU CAN VIEW THE ANNUAL REPORT AND PROXY STATEMENT
ON THE INTERNET AT: http://www.group1auto.com