The 10 corporate officers and eight general managers of Cross-Continent Auto Retail-ers have agreed to reduce their 1997 base salaries in exchange for more stock options.
'This demonstrates our commitment to the company,' says John Gaines, CFO for the Amarillo, Texas-based publicly held dealership group. 'We exchanged cash to receive additional stock options because we feel this is a vote of confidence for our company's future.'
All of the 18 employees who were offered the salary-for-stock swap accepted the plan, resulting in a $1.3 million reduction in compensation, says Gaines. According to a proxy statement filed with the Securities and Exchange Com-mission on April 7, Cross-Continent granted a total of 492,214 options to purchase common stock in lieu of base salary or bonuses last year.
Bill Gilliland, chairman, received options to purchase 27,907 shares of common stock at an exercise price of $8.06 per share, the market price. His salary was reduced to $225,000, from $300,000, in 1997. In August, Gilliland also was given an option to acquire 100,000 shares of common stock at an exercise price of $8.
'This is very responsible. Gilliland is putting his money where his mouth is,' says Sheldon Sandler, managing director of corporate finance for Ladenburg Thalmann and Co. Inc. in New York.
Gaines says the company's key employees had to send a message to shareholders. Cross-Continent's stock performance has been radically below that of other auto retail stocks.
'We went public at $14 per share, and currently our stock is selling for $7 and change. We missed our estimates in the back half of the year. When you do that, the street (Wall Street) discounts the price of the stock,' Gaines says.
In the proxy, Cross-Continent estimates that if an investor paid $100 for stock at $14 per share when the company went public Sept. 24, 1996, the investment would be worth $41.56 in December 1997.
The return is just less than half that of Cross-Continent's peer group and less than a third of the return for the S&P 500 Index. During the same period, the average return on an initial investment of $100 would be worth $83.14 for the peer group and $144.84 for S&P 500 stocks.
The peer group is an average that includes returns for Lithia Motors Inc., Rush Enterprises Inc., Ugly Duckling Corp., United Auto Group Inc., Circuit City Stores CarMax Group, Group 1 Automotive Inc., Republic Industries Inc., and Sonic Automotive Inc.
In related news, Cross-Continent named Gaines, 37, CFO to replace James Purser, who resigned March 31 to pursue other interests. Purser has entered into a two-year consulting agreement with the company.