-----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, Wy+J5SuFuQVPyiad/cSMWhnfFyov1uLDEbTBeOLlTnnFVkCyQfz61KLrJmFeE+o2 0jprdVVjGSa25GEOhmnefg== 0000950168-99-001029.txt : 19990402 0000950168-99-001029.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950168-99-001029 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONIC AUTOMOTIVE INC CENTRAL INDEX KEY: 0001043509 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 562010790 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13395 FILM NUMBER: 99582481 BUSINESS ADDRESS: STREET 1: 5401 EAST INDEPENDENCE BLVD STREET 2: PO BOX 18747 CITY: CHARLOTTE STATE: NC ZIP: 28026 BUSINESS PHONE: 7045323354 MAIL ADDRESS: STREET 1: 5401 EAST INDEPENDENCE BLVD CITY: CHARLOTTE STATE: NC ZIP: 28026 10-K 1 SONIC AUTOMOTIVE, INC. FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ------- to ------- Commission file number 1-13395 SONIC AUTOMOTIVE, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 56-2010790 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 5401 EAST INDEPENDENCE BOULEVARD P.O. BOX 18747 CHARLOTTE, NORTH CAROLINA 28212 (Address of Principle Executive Offices) (Zip Code)
(704) 532-3320 (Registrant's telephone number, including area code) --------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ------------------------------------------- ------------------------ Class A Common Stock, $.01 Par Value New York Stock Exchange
--------------- 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. [X] Yes [ ] 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. [ ] The aggregate market value of the voting common stock held by non-affiliates of the registrant was approximately $165,950,000 based upon the closing sales price of the registrant's Class A common stock on March 29, 1999 of $14.25 per share. As of March 29, 1999, there were 12,155,963 shares of Class A common stock, par value $.01 per share, and 12,400,000 shares of Class B common stock, par value $.01 per share, outstanding. Unless otherwise indicated, all other share and share price information contained herein takes into account the effect of the two for one stock split effected as of January 25, 1999 in the form of a 100% stock dividend payable to stockholders of record as of January 4, 1999 (the "Stock Split"). - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- FORM 10-K TABLE OF CONTENTS
PAGE ----- PART I Item 1. Business .................................................................................. 3 Item 2. Properties ................................................................................ 10 Item 3. Legal Proceedings ......................................................................... 12 Item 4. Submission of Matters to a Vote of Security Holders ....................................... 12 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ................. 13 Item 6. Selected Financial Data ................................................................... 15 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 15 Item 7a. Quantitative and Qualitative Disclosures About Market Risk ................................ 24 Item 8. Financial Statements and Supplementary Data ............................................... 24 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...... 24 PART III Item 10. Directors and Executive Officers of the Registrant ........................................ 25 Item 11. Executive Compensation .................................................................... 27 Item 12. Security Ownership of Certain Beneficial Owners and Management ............................ 32 Item 13. Certain Relationships and Related Transactions ............................................ 34 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......................... 39 SIGNATURES ....................................................................................... 42 INDEX TO FINANCIAL STATEMENTS .................................................................... F-1
The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements (including the Notes thereto) appearing elsewhere herein. Statements in this Annual Report on Form 10-K that reflect projections or expectations of future financial or economic performance of Sonic Automotive, Inc., and statements of Sonic's plans and objectives for future operations, including those contained in the "Business," "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections or relating to Sonic's future acquisitions, are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Words such as "expects," "anticipates," "believes," "intends," and "hopes," variations of such words and similar expressions are intended to identify such forward-looking statements. No assurance can be given that actual results or events will not differ materially from those projected, estimated, assumed or anticipated in any such forward- looking statements. Important factors that could result in such differences, in addition to the other factors noted with such forward-looking statements, include: general economic conditions in Sonic's markets, including inflation, recession, interest rates and other economic factors; the ability of Sonic to finance its acquisition efforts on acceptable terms; and other factors that generally effect the business of automobile retail companies. 2 PART I ITEM 1. BUSINESS Sonic Automotive, Inc. (together with its subsidiaries, "Sonic" or "we") was incorporated in the State of Delaware in February 1997. Sonic originally consisted of five automotive dealerships affiliated through the common ownership and control of Mr. O. Bruton Smith, Sonic's Chairman and Chief Executive Officer. These five dealerships became wholly-owned subsidiaries of Sonic on June 30, 1997 pursuant to a reorganization in which Sonic exchanged approximately 12.5 million shares of its Class B common stock, par value $.01 per share for the common stock or membership interests of the five dealerships. On November 12, 1997, Sonic completed an initial public offering of 10.0 million shares of its Class A common stock, par value $.01 per share. Sonic is one of the top five automotive retailers in the United States, as measured by total revenue, operating 45 dealerships and 17 collision repair centers in 11 metropolitan areas of the southeastern, southwestern and midwestern United States. We sell new and used cars, light trucks and replacement parts and provide vehicle maintenance, warranty, paint and repair services. We also arrange related financing and insurance ("F&I") for our automotive customers. As of March 30, 1999, Sonic operates dealerships in the following metropolitan markets: o Atlanta o Columbus o Montgomery o Birmingham o Daytona Beach o Nashville o Charlotte o Greenville/Spartanburg o Tampa/Clearwater o Chattanooga o Houston
In several of our markets, our dealerships have a significant market share for new cars and light trucks. We sell the following 28 domestic and foreign brands: o Acura o Chevrolet o Hyundai o KIA o Mitsubishi o Subaru o Audi o Chrysler o Infiniti o Lexus o Oldsmobile o Toyota o BMW o Dodge o Isuzu o Lincoln o Plymouth o Volkswagen o Buick o Ford o Jeep o Mercedes o Porsche o Volvo o Cadillac o Honda o Mercury o Range Rover
GROWTH STRATEGY o ACQUIRE SELECTED DEALERSHIPS. We believe that attractive acquisition opportunities exist for dealership groups with significant equity capital and experience in identifying, acquiring and professionally managing dealerships. The automotive retailing industry is highly fragmented, with the largest 100 dealer groups generating approximately 10% of the industry's $673 billion of total sales in 1997 and controlling less than 5% of all new vehicle dealerships in the United States. We believe that these factors, together with the increasing capital costs of operating automobile dealerships, the lack of alternative exit strategies (especially for larger dealerships) and the aging of many dealership owners provide attractive consolidation opportunities. We believe our "hub and spoke" acquisition strategy will allow us to capitalize on economies of scale, offer a greater breadth of products and services and increase brand diversity. Generally, we retain the management of a well-run dealership in order to benefit from its market knowledge, name recognition and local reputation. In addition, we selectively acquire dealerships that have underperformed the industry average but which carry attractive product lines or have attractive locations and which would benefit from our existing infrastructure. o INCREASE SALES OF HIGHER MARGIN PRODUCTS AND SERVICES. Sonic intends to pursue opportunities to increase its sales of higher-margin products and services by, for instance, expanding its collision repair business and increasing sales of used vehicles. Our collision repair business provides favorable margins and is not significantly affected by economic cycles or consumer spending habits. Our strategy is to acquire and develop collision repair businesses near our dealerships in order to capitalize on relationships with existing customers and insurance companies. We also believe that significant opportunities exist to improve our used vehicle departments, which historically have generated higher margins on sales than our new vehicle departments, by (1) increasing the number of used vehicles sold and (2) increasing gross profit margins on sales of used vehicles. For example, our ability to manage inventory levels more effectively created increased gross profit margins on sales of used vehicles to 10.7% for the year ended December 31, 1998 from 8.6% for the year ended December 31, 1997. 3 o CONTROL COSTS. We are focused on controlling expenses and expanding margins at the dealerships we acquire and integrate into our organization. Approximately 73% of our operating costs for the year ended December 31, 1998 were variable. We are able to adjust these expenses as the operating or economic environment impacting our dealerships changes. We manage these variable costs, such as floor plan (8%), advertising (10%) and compensation (50%) expenses, so that they are generally related to vehicle sales and can be adjusted in response to changes in vehicle sales volume. In addition, management compensation is tied to individual dealership profitability and stock price appreciation through stock options. This incentive compensation focuses all levels of our organization on cost reduction. We also focus on controlling components of fixed cost. For example, Sonic has reduced its property and casualty and workers' compensation insurance costs due to the benefits of economies of scale. o ENHANCE PROFIT OPPORTUNITIES IN FINANCE AND INSURANCE. Sonic offers a wide range of financing and leasing alternatives for the purchase of vehicles, as well as credit life, accident and health and disability insurance and extended service contracts. As a result of our size and scale, we have negotiated increased commissions on the origination of customer vehicle financing and insurance policies, which resulted in incremental F&I commissions exclusive of acquisitions of $2.1 million for the year ended December 31, 1998. o TRAIN, DEVELOP AND MOTIVATE QUALIFIED MANAGEMENT. We believe that our well trained dealership personnel is key to our long-term prospects. We require all of our employees, from service technicians to regional vice presidents, to participate in in-house training programs. We believe that our comprehensive training of all employees and the institution of a decentralized, multi-tiered management structure to supervise effectively our dealership operations provide us with a competitive advantage over other dealership groups. This training and organizational structure enables high-level supervision over the dealerships, accurate financial reporting and the ability to maintain good controls as Sonic expands. In order to motivate management, we employ an incentive compensation program for each officer, vice president and dealer/operators, a portion of which is provided in the form of Sonic stock options with additional incentives based on the performance of individual profit centers. We believe that this organizational structure, together with the opportunity for promotion and for equity participation, serve as a strong motivation for our employees. o ACHIEVE HIGH LEVELS OF CUSTOMER SATISFACTION. We focus on maintaining high levels of customer satisfaction. Our personalized sales process is designed to satisfy customers by providing high-quality vehicles in a positive, "consumer friendly" buying environment. Some manufacturers offer specific performance incentives, on a per vehicle basis, if certain customer satisfaction index ("CSI") levels (which vary by manufacturer) are achieved by a dealer. Manufacturers consider CSI scores in approving acquisitions. In order to keep management focused on customer satisfaction, we include CSI results as a component of our incentive compensation program. DEALERSHIP MANAGEMENT Operations of the dealerships are overseen by Regional Vice Presidents, who report to Sonic's Chief Operating Officer. Each of our dealerships is managed by a dealer/operator who is responsible for the operations of the dealership and the dealership's financial and customer satisfaction performance. The dealer/operator is responsible for selecting, training and retaining dealership personnel. All dealer/operators report to Sonic's Regional Vice Presidents, who in turn report to Sonic's senior management on a regular basis. Each dealer/operator is generally complemented by a team which includes two senior managers who aid in the operation of the dealership. The general sales manager is primarily responsible for the operations, personnel, financial performance and customer satisfaction performance of the new vehicle sales, used vehicle sales, and finance and insurance departments. The parts and service director is primarily responsible for the operations, personnel, financial and customer satisfaction performance of the service, parts and collision repair departments (if applicable). Each of the departments of the dealership typically has a manager who reports to the general sales manager or parts and service director. NEW VEHICLE SALES As of December 31, 1998, the Company sold 23 brands of cars, light trucks and sport utility vehicles. The products have a broad range of prices from lower priced, or economy vehicles, to luxury vehicles. We believe that our brand, product and price diversity reduces the risk of changes in customer preferences, product supply shortages and aging products. Approximately 14.1% of new vehicle sales in 1998 were luxury brands (for example, BMW, Cadillac, Infiniti and Volvo). 4 The following table presents information with respect to Sonic's new vehicle sales:
NEW VEHICLE SALES ------------------------------------------------------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------ (DOLLARS IN THOUSANDS) 1994 1995 1996 1997 1998 ------------- -------------- -------------- -------------- ------------- Unit sales .............. 9,686 10,273 11,693 15,715 41,592 Sales revenue ........... $ 164,970 $ 186,859 $ 233,979 $ 343,941 $ 962,939 Gross profit ............ 12,103 13,926 18,001 26,427 75,494 Gross profit margin ..... 7.3% 7.5% 7.7% 7.7% 7.8%
New vehicle sales include retail lease transactions and lease-type transactions, both of which are arranged by Sonic. New vehicle leases generally have short terms. Lease customers, therefore, return to the new vehicle market more frequently. Leases also provide a source of late-model, generally low mileage, vehicles for our used vehicle inventory. Generally, leased vehicles are under warranty for the entire lease term, which allows us to provide repair service to the lessee throughout the term of the lease. USED VEHICLE SALES Sonic sells a broad variety of makes and models of used cars, vans, trucks and sport utility vehicles. We obtain used vehicles through customer trade-ins, at "closed" auctions which may be attended only by new vehicle dealers and which offer off-lease, rental and fleet vehicles, and at "open" auctions which offer repossessed vehicles and vehicles sold by other dealers. We sell our used vehicles to retail customers and, in the case of vehicles in poor condition or vehicles which remain unsold for a specified period of time, to other dealers or wholesalers. Sales to other dealers or wholesalers are frequently close to or below cost and therefore negatively affect our gross margin on used vehicle sales. The following table sets forth information on Sonic's used vehicle sales:
USED CAR SALES --------------------------------------------------------------------- YEAR ENDED DECEMBER 31, --------------------------------------------------------------------- (DOLLARS IN THOUSANDS) 1994 1995 1996 1997 1998 ------------- ------------- ------------- ------------- ------------- Retail unit sales ........................ 4,374 5,172 5,488 6,712 24,591 Retail sales revenue ..................... $ 47,537 $ 60,766 $ 68,054 $ 85,132 $324,740 Retail gross profit ...................... 5,182 5,792 5,748 7,294 34,826 Retail gross profit margin ............... 10.9% 9.5% 8.4% 8.6% 10.7% Wholesale unit sales ..................... 4,656 5,009 5,344 7,287 21,886 Wholesale sales revenue .................. $ 16,062 $ 20,025 $ 25,642 $ 38,785 $119,351 Wholesale gross profit/(loss) ............ 43 (45) (23) (599) (1,166) Wholesale gross profit/(loss) margin ..... 0.3% (0.2)% (0.1)% (1.5)% (1.0)% Total unit sales ......................... 9,030 10,181 10,832 13,999 46,477 Total sales revenue ...................... $ 63,599 $ 80,791 $ 93,696 $123,917 $444,091 Total gross profit ....................... 5,225 5,747 5,725 6,695 33,660 Total gross profit margin ................ 8.2% 7.1% 6.1% 5.5% 7.6%
SERVICE AND PART SALES Sonic provides service and parts at each of our franchised dealerships. We also provide maintenance and repair services at each of our franchised dealerships, offering both warranty and non-warranty services. Service and parts sales provide higher gross margins than vehicle sales. 5 The following table sets forth information regarding Sonic's service and parts sales:
SERVICE AND PARTS ------------------------------------------------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------------------------ (DOLLARS IN THOUSANDS) 1994 1995 1996 1997 1998 ------------ ------------ ------------ ------------ -------------- Sales revenue .............. $ 30,298 $ 31,958 $ 37,132 $ 51,033 $ 146,456 Gross profit ............... 10,344 11,033 12,593 18,118 62,152 Gross profit margin ........ 34.1% 34.4% 33.9% 35.5% 42.4%
COLLISION REPAIR As of December 31, 1998, Sonic operated collision repair centers, or body shops, at fourteen of our dealership locations. Our collision repair business provides favorable margins and, similar to service and parts, is not significantly affected by business cycles or consumer preferences. In addition, because of the higher cost of used vehicles, insurance adjusters are more hesitant to declare a vehicle a total loss, resulting in more significant, and higher cost, repair jobs. The following table sets forth information regarding Sonic's collision repair operations:
COLLISION REPAIR SALES ------------------------------------------------------------ YEAR ENDED DECEMBER 31, ------------------------------------------------------------ (DOLLARS IN THOUSANDS) 1994 1995 1996 1997 1998 ----------- ----------- ----------- ----------- ------------ Sales revenue ............... $ 3,686 $ 3,903 $ 4,942 $ 6,504 $ 16,204 Gross profit ................ 1,870 1,956 2,452 3,092 8,114 Gross profit margin ......... 50.7% 50.1% 49.6% 47.5% 50.0%
FINANCE AND INSURANCE Sonic offers its customers a wide range of financing and leasing alternatives for the purchase of vehicles. In addition, as part of each sale, we also offer customers credit life, accident and health and disability insurance to cover the financing cost of their vehicle, as well as extended service contracts. We assign our vehicle financing contracts and leases to other parties, instead of directly financing sales, which reduces our exposure to loss from financing activities. We receive a commission from the lender for originating and assigning the loan or lease, but are assessed a chargeback fee by the lender if a loan is canceled, in most cases, within 120 days of making the loan. Early cancellation can result from early repayment because of refinancing of the loan, the sale or trade-in of the vehicle, or default on the loan. We establish a reserve to absorb estimated chargebacks and refunds. Finance and insurance commission revenue is recorded net of such chargebacks. Commission expense related to finance and insurance commission revenue is charged to cost of sales upon recognition of such revenue. The following table sets forth information regarding Sonic's finance and insurance operations:
FINANCE AND INSURANCE -------------------------------------------------------------- YEAR ENDED DECEMBER 31, -------------------------------------------------------------- (DOLLARS IN THOUSANDS) 1994 1995 1996 1997 1998 ------------ ----------- ----------- ------------ ------------ Commission revenue .......... $ 5,181 $ 7,813 $ 7,118 $ 10,606 $ 34,011 Gross profit ................ 4,359 6,561 6,043 8,856 28,022 Gross profit margin ......... 84.1% 84.0% 84.9% 83.5% 82.4%
SALES AND MARKETING Sonic's marketing and advertising activities vary among our dealerships and among our markets. We advertise primarily through television, newspapers, radio and direct mail and regularly conduct special promotions designed to focus vehicle buyers on our product offerings. We also utilize computer technology to aid sales people in prospecting for customers. Under arrangements with certain manufacturers, we receive a subsidy for a portion of our advertising expenses incurred in connection with a manufacturer's vehicles. 6 RELATIONSHIPS WITH MANUFACTURERS Each of Sonic's dealerships operates under a separate franchise or dealer agreement which governs the relationship between the dealership and the manufacturer. In general, each dealer agreement specifies the location of the dealership for the sale of vehicles and for the performance of certain approved services in a specified market area. The designation of such areas generally does not guarantee exclusivity within a specified territory. In addition, most manufacturers allocate vehicles on a "turn and earn" basis which rewards high volume. A dealer agreement requires the dealer to meet specified standards regarding showrooms, the facilities and equipment for servicing vehicles, inventories, minimum net working capital, personnel training, and other aspects of the business. The dealer agreement with each dealership also gives the related manufacturer the right to approve the dealership's general manager and any material change in management or ownership of the dealership. Each manufacturer may terminate a dealer agreement under certain circumstances, such as a change in control of the dealership without manufacturer approval, the impairment of the reputation or financial condition of the dealership, the death, removal or withdrawal of the dealership's general manager, the conviction of the dealership or the dealership's owner or general manager of certain crimes, the failure to adequately operate the dealership or maintain wholesale financing arrangements, insolvency or bankruptcy of the dealership or a material breach of other provisions of the dealer agreement. Many automobile manufacturers are still developing their policies regarding public ownership of dealerships. We believe that these policies will continue to change as more dealership groups sell their stock to the public, and as the established, publicly-owned dealership groups acquire more franchises. To the extent that new or amended manufacturer policies restrict the number of dealerships which may be owned by a dealership group, or the transferability of Sonic's common stock, such policies could have a material adverse effect on us. In the course of acquiring Jaguar franchises in Chattanooga and Greenville, Jaguar declined to consent to our proposed acquisitions of these franchises. In settling legal actions brought against Jaguar by the seller of the Chattanooga Jaguar franchise, Sonic agreed with Jaguar not to acquire any Jaguar franchise until August 3, 2001. Under Sonic's agreement with Ford, Ford may force the sale of Sonic's Ford franchises if any investor acquires 15% or more of Sonic's voting securities. Under Sonic's Dealer Agreements with Toyota and Infiniti, Toyota and Infiniti have the right to approve any ownership or voting rights of Sonic of 20% or greater by any individual or entity. Honda may force the sale of Sonic's Honda franchise if any person or entity, other than the current holders of our Class B common stock and their lineal descendants and affiliates, acquires 5% or greater Sonic's common stock (10% or greater if such entity is an institutional investor), and Honda deems such person or entity to be unsatisfactory. Volkswagen has approved the sale of no more than 25% of the voting control of Sonic, and any future changes in ownership or transfers among Sonic's current stockholders that could effect the voting or managerial control of Sonic's Volkswagen franchisee subsidiaries requires the prior approval of Volkswagen. Similarly, Chrysler has approved of the public sale of only 50% of Sonic's common stock and requires prior approval of any future sales that would result in a change in voting or managerial control of Sonic. Mercedes requires 60 days advance notice to approve any acquisition of 20% or more of Sonic's voting securities. Certain state statutes in Florida and other states limit manufacturers' control over dealerships. Under Florida law, notwithstanding any contrary terms in a dealer agreement, manufacturers may not unreasonably withhold approval for the sale of a dealership. Acceptable grounds for disapproval include material shortcomings in the character, financial condition or business experience of the proposed transferee. In addition, dealerships may challenge manufacturers' attempts to establish new dealerships in the dealer's markets, and state regulators may deny applications to establish new dealerships for a number of reasons, including a determination that the manufacturer is adequately represented in the area. Manufacturers must have "good cause" for any termination or failure to renew a dealer agreement, and an automaker's license to distribute vehicles in Florida may be revoked if, among other things, the automaker has forced or attempted to force an automobile dealer to accept delivery of motor vehicles not ordered by that dealer. Under Texas law, despite the terms of contracts between manufacturers and dealers, manufacturers may not unreasonably withhold approval of a transfer of a dealership. It is unreasonable under Texas law for a manufacturer to reject a prospective transferee of a dealership who is of good moral character and who otherwise meets the manufacturer's written, reasonable and uniformly applied standards or qualifications relating to the prospective transferee's business experience and financial qualifications. In addition, under Texas law and the laws of other states, franchised dealerships may challenge manufacturers' attempts to establish new franchises in the franchised dealers' markets, and state regulators may deny applications to establish new dealerships for a number of reasons, including a determination that the manufacturer is adequately represented in the region. Texas law limits the ability of manufacturers 7 to terminate or fail to renew franchises. In addition, other laws in Texas and elsewhere limit the ability of manufacturers to withhold their approval for the relocation of a franchise or require that disputes be arbitrated. In addition, a manufacturer's license to distribute vehicles in Texas may be revoked if, among other things, the manufacturer has forced or attempted to force an automobile dealer to accept delivery of motor vehicles not ordered by that dealer. Georgia law provides that no manufacturer may arbitrarily reject a proposed change of control or sale of an automobile dealership, and any manufacturer challenging such a transfer of a dealership must provide written reasons for its rejection to the dealer. Manufacturers bear the burden of proof to show that any disapproval of a proposed transfer of a dealership is not arbitrary. If a manufacturer terminates a franchise agreement due to a proposed transfer of the dealership or for any other reason not considered to constitute good cause under Georgia law, such termination will be ineffective. As an alternative to rejecting or accepting a proposed transfer of a dealership or terminating the franchise agreement, Georgia law provides that a manufacturer may offer to purchase the dealership on the same terms and conditions offered to the prospective transferee. Under Tennessee law, a manufacturer may not modify, terminate or refuse to renew a franchise agreement with a dealer except for good cause, as defined in the governing Tennessee statutes. Further, a manufacturer may be denied a Tennessee license, or have an existing license revoked or suspended if the manufacturer modifies, terminates, or suspends a franchise agreement due to an event not constituting good cause. Good cause includes material shortcomings in the character, financial condition or business experience of the dealer. A manufacturer's Tennessee license may also be revoked if the manufacturer prevents or attempts to prevent the sale or transfer of the dealership by unreasonably withholding consent to the transfer. Alabama law prohibits manufacturers from terminating or refusing to continue or renew a franchise agreement except for "good cause." "Good cause" to discontinue a relationship may exist if, for example, a dealer violates a material term of, or fails to perform its duties under, a franchise agreement. In addition, a manufacturer is prohibited from interfering with the transfer of a dealership unless the transfer is to a person who would not qualify for a dealer's license under Alabama law. Finally, a manufacturer may not unreasonably establish a new dealership within the market area of an existing dealer. A manufacturer who violates Alabama law may be required to pay the dealer for the damages incurred, as well as the costs of suing the manufacturer for damages including attorneys fees. Under Ohio law, a dealer must obtain manufacturer approval before it can sell or transfer an interest in a dealership. The manufacturer may only prohibit the sale or transfer, however, for "good cause" after considering, among other things, the proposed new owner's business experience and financing. Similarly, a manufacturer may terminate or refuse to continue or renew a franchise agreement only for "good cause" considering, for example, the dealership's sales, the dealer's investment in the business, and the dealer's satisfaction of its warranty obligations. Finally, a manufacturer may not site a new dealership in a relevant market area without either the consent of the local dealers or by showing "good cause." Dealers may protest a manufacturer's actions to the Ohio Motor Vehicle Dealers Board, and eventually the courts, if there is no "good cause" for the transfer restriction or termination or siting of a new dealership. If the manufacturer violates Ohio's automobile franchise law, a dealer may be entitled to double its actual damages, as well as court costs and attorneys fees, from a manufacturer. South Carolina law forbids a manufacturer from imposing unreasonable restrictions on a dealer's rights to transfer, sell, or renew a franchise agreement unless the dealer is compensated. A manufacturer may not terminate or refuse to renew a franchise agreement without due cause. Further, although a dealer must obtain the manufacturer's consent to transfer a dealership, the manufacturer may not unreasonably withhold its consent. Finally, manufacturers are generally prohibited from acting in bad faith or engaging in arbitrary or unconscionable conduct. Manufacturers who violate South Carolina's law may be liable for double the actual damages incurred by the dealer and/or punitive damages in limited circumstances. COMPETITION The retail automotive industry is highly competitive. Depending on the geographic market, Sonic competes with both dealers offering the same brands and product lines as Sonic and dealers offering other automakers' vehicles. We also compete for vehicle sales with auto brokers and leasing companies. We compete with small, local dealerships and with large multi-franchise auto dealerships. Some of our competitors are larger and have greater financial and marketing resources and are more widely known than us. Some of our competitors also may utilize various marketing techniques that are not currently used by us. 8 We also compete with regional and national car rental companies, which sell their used rental cars, and used automobile "superstores," such as AutoNation and CarMax. In addition, Ford and GM have announced that they are entering into joint ventures to acquire dealerships in various cities in the United States, and Saturn is seeking to acquire its dealerships. In addition, other manufacturers may directly enter the retail market in the future, which could have a material adverse effect on us. As we seek to acquire dealerships in new markets, we may face significant competition (including competition from other publicly-owned dealer groups) as we strive to gain market share. We believe that the principal competitive factors in vehicle sales are the marketing campaigns conducted by automakers, the ability of dealerships to offer a wide selection of the most popular vehicles, the location of dealerships and the quality of customer service. Other competitive factors include customer preference for makes of automobiles, pricing (including manufacturer rebates and other special offers) and warranties. In addition to competition for vehicle sales, we also compete with other auto dealers, service stores, auto parts retailers and independent mechanics in providing parts and service. 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 dealer's makes and models and the quality of customer service. A number of regional and national chains offer selected parts and service at prices that may be lower than our prices. In arranging or providing financing for our customers' vehicle purchases, we compete with a broad range of financial institutions. We believe that the principal competitive factors in providing financing are convenience, interest rates and contract terms. Our success depends, in part, on national and regional automobile-buying trends, local and regional economic factors and other regional competitive pressures. We sell our vehicles in the Atlanta, Birmingham, Charlotte, Chattanooga, Columbus, Daytona Beach, Greenville/Spartanburg, Houston, Montgomery, Nashville and Tampa/Clearwater markets. Conditions and competitive pressures affecting these markets, such as price-cutting by dealers in these areas, or in any new markets we enter, could adversely affect us, although the retail automobile industry as a whole might not be affected. GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS A number of regulations affect Sonic's business of marketing, selling, financing and servicing automobiles. Sonic also is subject to laws and regulations relating to business corporations generally. Under North Carolina, South Carolina, Tennessee, Florida, Georgia, Texas, Ohio and Alabama law as well as the laws of other states into which we may expand, we must obtain a license in order to establish, operate or relocate a dealership or operate an automotive repair service. These laws also regulate our conduct of business, including our advertising and sales practices. Other states may have similar requirements. Our operations are also subject to certain consumer protection laws known as "Lemon Laws." These laws typically require a manufacturer or dealer to replace a new vehicle or accept it for a full refund within one year after initial purchase if the vehicle does not conform to the manufacturer's express warranties and the dealer or manufacturer, after a reasonable number of attempts, is unable to correct or repair the defect. Federal laws require certain written disclosures to be provided on new vehicles, including mileage and pricing information. The imported automobiles purchased by us are subject to United States customs duties and, in the ordinary course of our business, we may, from time to time, be subject to claims for duties, penalties, liquidated damages, or other charges. Currently, United States customs duties are generally assessed at 2.5% of the customs value of the automobiles imported, as classified pursuant to the Harmonized Tariff Schedule of the United States. Our financing activities with 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, usury laws and other installment sales laws. Some states regulate finance fees that may be paid as a result of vehicle sales. Federal, state and local environmental regulations, including regulations governing air and water quality, the clean-up of contaminated property and the storage and disposal of gasoline, oil and other materials, also apply to us and our dealership properties. We believe that we comply in all material respects with the laws affecting our business. Possible penalties for violation of any of these laws include revocation of our licenses and fines. In addition, many laws may give customers a private cause of action. As with automobile dealerships generally, and service, parts and body shop operations in particular, our business involves the use, storage, handling and contracting for recycling or disposal of hazardous or toxic substances or wastes and other environmentally sensitive materials. Our business also involves the past and current operation and/or removal of 9 aboveground and underground storage tanks containing such substances or wastes. Accordingly, we are subject to regulation by federal, state and local authorities which establish health and environmental quality standards, provide for liability related to those standards, and in certain circumstances provide penalties for violations of those standards. We are also subject to laws, ordinances 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. We believe that we do not have any material environmental liabilities and that compliance with environmental laws and regulations will not, individually or in the aggregate, have a material adverse effect on our results of operations or financial condition. However, soil and groundwater contamination is known to exist at certain properties used by us. Further, environmental laws and regulations are complex and subject to frequent change. In addition, in connection with our acquisitions, it is possible that we will assume or become subject to new or unforeseen environmental costs or liabilities, some of which may be material. We cannot assure you that compliance with current or amended, or new or more stringent, laws or regulations, stricter interpretations of existing laws or the future discovery of environmental conditions will not require additional expenditures by Sonic, or that such expenditures will not be material. EMPLOYEES As of December 31, 1998, Sonic employed approximately 3,040 people, of whom approximately 430 were employed in managerial positions, 980 were employed in non-managerial sales positions, 1,170 were employed in non-managerial parts and service positions and 460 were employed in administrative support positions. We believe that many dealerships in the retail automobile industry have difficulty in attracting and retaining qualified personnel for a number of reasons, including the historical inability of dealerships to provide employees with an equity interest in the profitability of the dealerships. We provide certain executive officers, managers and other employees with stock options and all employees with a stock purchase plan and we believe this type of equity incentive is attractive to our existing and prospective employees. We believe that our relationship with our employees is good. None of our employees is represented by a labor union. Because of our dependence on the manufacturers, however, we may be affected by labor strikes, work slowdowns and walkouts at the manufacturer's manufacturing facilities. ITEM 2: PROPERTIES Sonic's principal executive offices are located at 5401 East Independence Boulevard, Charlotte, North Carolina 28212, and our telephone number is (704) 532-3320. These executive offices are located on the premises leased by Town & Country Ford. The following table identifies each of the properties utilized by Sonic's operations and their respective locations: ATLANTA MARKET o Dyer & Dyer Volvo, 5260 Peachtree Industrial Blvd., Atlanta, GA o Global Imports, 500 & 550 Interstate North Parkway, N.W., Atlanta, GA(1) BIRMINGHAM MARKET o Tom Williams Buick, 401 S. 20th Street, Birmingham, AL(1) o Tom Williams Cadillac, 325 S. 20th Street, Birmingham, AL(1) o Tom Williams Imports, 2200 34d Avenue South, Birmingham, AL(1) o Tom Williams Lexus, 300 S. 22nd Street, Birmingham, AL(1) CHARLOTTE MARKET o Fort Mill Chrysler-Plymouth-Dodge, 3310 Hwy. 51, Fort Mill, SC o Fort Mill Ford, 788 Gold Hill Rd., Fort Mill, SC o Frontier Oldsmobile-Cadillac, 2501 Roosevelt Blvd., Monroe, NC o Lake Norman Chrysler-Plymouth-Jeep, Chartwell Center Dr., Cornelius, NC o Lake Norman Dodge, I-77 & Torrence Chapel Rd., Cornelius, NC o Town & Country Chrysler-Plymouth-Jeep of Rock Hill, 803 North Anderson Rd., Rock Hill, SC o Town & Country Ford, 5401 East Independence Blvd., Charlotte, NC o Town & Country Toyota, 9101 South Blvd., Charlotte, NC 10 CHATTANOOGA MARKET o BMW/Volvo of Chattanooga, 5949 Brainard Rd., Chattanooga, TN o Cleveland Chrysler-Plymouth-Jeep, 717 South Lee Hwy., Cleveland, TN o Dodge of Chattanooga, 402 West Martin Luther King Blvd., Chattanooga, TN o Economy Honda, Hwy. 153 at Shallowford Rd., Chattanooga, TN(1) o Infiniti of Chattanooga, 5915 Brainard Rd., Chattanooga, TN o KIA/VW of Chattanooga, 6015 International Dr., Chattanooga, TN o Town & Country Ford of Cleveland, 2496 South Lee Hwy., Cleveland, TN COLUMBUS MARKET o Hatfield Hyundai & Hatfield Isuzu & Hatfield Subaru, 1400 Automall Dr., Columbus, OH o Trader Bud's Westside Chrysler-Plymouth-Jeep, 3700 West Broad St., Columbus, OH o Hatfield Lincoln Mercury, 1495 Automall Dr., Columbus, OH o Toyota West, 1500 Automall Dr., Columbus, OH o Trader Bud's Westside Dodge, 4000 West Broad St., Columbus, OH o Hatfield KIA/Volkswagen West & Jeep Eagle West, 1455 Automall Dr., Columbus, OH DAYTONA BEACH MARKET o Halifax Ford-Mercury, 1307 N. Dixie Hwy., New Smyrna Beach, FL o Higginbotham Automobiles, 1720 Mason Ave., Daytona Beach, FL o Higginbotham Chevy-Olds, 1919 N. Dixie Hwy., New Smyrna Beach, FL o HMC Finance, 3741 S. Nova Rd., Port Orange, FL o Sunrise Auto World, 241 Ridgewood Ave., Holly Hill, FL GREENVILLE/SPARTANBURG MARKET o Century BMW, 2752 Laurens Rd., Greenville, SC o Heritage Lincoln Mercury, 2424 Laurens Rd., Greenville, SC HOUSTON MARKET o Casa Ford, 4701 I-10 East, Baytown, TX o Lone Star Ford, 8477 North Freeway, Houston, TX o Ron Craft Chevrolet-Cadillac-Oldsmobile-Geo, 3401 N. Main, Baytown, TX o Ron Craft Chrysler Plymouth Jeep, 5221 I-10 East, Baytown, TX MONTGOMERY MARKET o Capitol Chevrolet, 711 Eastern Blvd., Montgomery, AL o Capitol Hyundai & Capitol Mitsubishi, 190 Eastern Blvd., Montgomery, AL o Capitol KIA, 845 Eastern Blvd., Montgomery, AL NASHVILLE MARKET o BMW of Nashville, 4040 Armory Oaks Drive, Nashville, TN o VW of Nashville, 630 Murfreesboro Pike, Nashville, TN o Rally Mitsubishi, 1620 West End Ave., Nashville, TN(1) TAMPA/CLEARWATER MARKET o Clearwater Collision Center, 2300 Drew Street, Clearwater, FL o Clearwater Mitsubishi, 21699 US Hwy 19N, Clearwater, FL o Clearwater Toyota, 21799 US Hwy 19N, Clearwater, FL o Freedom Ford, 24825 US Hwy. 19 North, Clearwater & 3925 Tampa Rd., Oldsmar, FL o Tampa Volvo, 6008 N. Dale Mabry, Tampa, FL - --------- (1) Represents an acquisition that was completed in the first quarter of 1999. Our dealerships are generally located along major U.S. or interstate highways. One of the principal factors considered by Sonic in evaluating an acquisition candidate is its location. We prefer to acquire dealerships located along major thoroughfares, primarily interstate highways with ease of access, which can be easily visited by prospective customers. At December 31, 1998 we owned the properties of Fort Mill Ford and Town and Country Toyota. All other properties utilized by our dealership operations were leased. In January 1999, we sold the properties of Fort Mill Ford and Town and Country Toyota to MMR Holdings, LLC, a limited liability company owned by Bruton Smith ("MMR Holdings"), and are currently leasing these properties back from MMR Holdings. On July 9, 1998, Sonic entered into a strategic alliance agreement with Mar Mar Realty Trust, a real estate investment trust ("MMRT"). MMRT owns or will own, through its expected acquisition of MMR Holdings, certain real estate 11 associated with various automobile dealerships, automotive aftermarket retailers and other automotive related businesses and leases such properties to the business operators located thereon. Bruton Smith, Sonic's Chairman and Chief Executive Officer, serves as the chairman of MMRT's board of trustees. Under the terms of our franchise agreements, Sonic must maintain an appropriate appearance and design of its facilities and is restricted in its ability to relocate its dealerships. ITEM 3: LEGAL PROCEEDINGS On March 1, 1999, a civil complaint was filed in the Circuit Court of Montgomery County, Alabama in a matter styled "FRANK E. MCGOUGH V. SONIC AUTOMOTIVE, INC., CAPITOL CHEVROLET AND IMPORTS, INC., ET AL." (the "McGough Complaint"). This action arises from Sonic's acquisition by merger of Capitol Chevrolet and Imports, Inc. from plaintiff, who was its former stockholder. The McGough Complaint alleges that Sonic untimely delivered an erroneous post-closing balance sheet to settle outstanding accounts among the parties to the merger and that Sonic made misrepresentations concerning the preparation of this post-closing balance sheet. Plaintiff states that these allegations entitle him to declaratory judgement allowing him to receive all funds escrowed by Sonic for the resolution of post-merger accounts or, alternatively, rescission of the merger. Sonic denies the allegations of the McGough Complaint and will defend itself vigorously. Sonic believes that its post-closing balance sheet was properly prepared and that plaintiff is not entitled to the relief sought. Furthermore, the merger agreement at issue specifically provides for the arbitration of disputes concerning the post-closing balance sheet, and, consequently, Sonic believes that the McGough Complaint was improperly filed. From time to time, Sonic is named in claims involving the manufacture of automobiles, contractual disputes and other matters arising in the ordinary course of our business. Currently, no legal proceedings, other than the proceeding described above, are pending against or involve the Company that, in the opinion of management, could reasonably 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 retail dealerships generally require significant levels of insurance covering a broad variety of risks. Sonic's insurance includes an umbrella policy as well as insurance on our real property, comprehensive coverage for our vehicle inventory, general liability insurance, employee dishonesty coverage and errors and omissions insurance in connection with our vehicle sales and financing activities. ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the annual meeting of stockholders held on December 3, 1998, William P. Benton, William I. Belk and Bryan Scott Smith were elected directors by Sonic's stockholders. Directors whose terms of office continued after the meeting were O. Bruton Smith, Theodore M. Wright, Nelson E. Bowers, II and William R. Brooks. In addition to the election of three directors, the stockholders approved an amendment to increase the authorized number of shares of Class A common stock issuable under the Sonic Employee Stock Purchase Plan from 300,000 to 600,000, approved the adoption of the Sonic Formula Stock Option Plan for Independent Directors, approved and ratified the issuance of up to 600,000 shares of Sonic's Class A convertible preferred stock, par value $.10 per share and ratified the appointment of Deloitte & Touche LLP as Sonic's independent public accountant for the fiscal year ending December 31, 1998.
VOTES VOTES FOR VOTES AGAINST ABSTAINED UNVOTED ------------ --------------- ----------- ------------ Election of William P. Benton ................................... 68,439,855 41,350 679,616 Election of William I. Belk ..................................... 68,439,855 41,350 679,616 Election of Bryan Scott Smith ................................... 68,439,855 41,350 679,616 Approval of amendment to Sonic Employee Stock Purchase Plan ..... 67,295,719 576,250 111,015 1,177,837 Approval of adoption of Sonic Formula Stock Option Plan ......... 67,514,644 357,400 110,940 1,177,837 Approval of issuance of Preferred Stock ......................... 67,946,611 33,635 2,738 1,177,837 Appointment of Deloitte & Touche LLP ............................ 68,479,530 750 925 679,616
12 PART II ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Sonic's Class A common stock is currently traded on the New York Stock Exchange ("NYSE") under the symbol "SAH." As of December 31, 1998, with giving effect to the Stock Split, 11,959,274 shares of Class A common stock and 12,400,000 shares of Sonic's Class B common stock were outstanding. As of March 29, 1999, there were 30 record holders of the Class A common stock and four record holders of the Class B common stock. As of March 29, 1999, the closing stock price for the Class A common stock was $14.25. Sonic intends to retain future earnings to provide funds for operations and future acquisitions. As a holding company, Sonic will depend on dividends and other payments from its subsidiary dealership operations to pay cash dividends to stockholders, as well as to meet debt service and operating expense requirements. We do not anticipate paying any dividends in the foreseeable future. Under an Indenture dated as of July 1, 1998 (the "Indenture") among Sonic and U.S. Bank Trust National Association, as trustee, and under the credit agreement between Sonic and Ford Motor Credit Company ("Ford Motor Credit"), no dividends may be paid by Sonic. Any decision concerning the payment of dividends on the common stock will depend upon the results of operations, financial condition and capital expenditure plans of Sonic, as well as other factors as the Board of Directors, in its sole discretion, may consider relevant. The following table sets forth the high and low closing sales prices for Sonic's Class A common stock for each calendar quarter during the periods indicated as reported by the NYSE Composite Tape, as adjusted to reflect the Stock Split. Prior to November 10, 1997, Sonic was privately held and there was no public market for the Class A common stock.
1998 HIGH LOW - ------------------------------------------------ ----------- ---------- First Quarter ......................... 8 5/8 4 7/8 Second Quarter ........................ 9 3/8 7 11/16 Third Quarter ......................... 11 15/16 8 1/4 Fourth Quarter ........................ 17 9/16 6 11/32 1997 HIGH LOW - ----------------------------------------------- ----------- ---------- Fourth Quarter (from November 10, 1997 through December 31, 1997) .......... 5 31/32 4 13/16
Set forth below is certain information as to all equity securities sold by Sonic during the periods discussed that were not registered under the Securities Act. As to all such transactions, an exemption was claimed under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder ("Regulation D") as transactions not involving a public offering in view of sophistication of the purchasers, their access to material information about Sonic, the disclosures actually made to them by Sonic, the absence of any general solicitation or advertising, the status of the purchasers as "accredited investors" as that term is defined in Rule 501 (a) of Regulation D and the filing by Sonic of the appropriate forms in connection therewith. All such private sales of Sonic's equity securities were made to the owners of assets associated with, or the capital stock of, automobile dealerships acquired by Sonic as a part of Sonic's dealership acquisition strategy. Sonic has privately issued its Class A common stock in the following dealership acquisition transactions: On September 18, 1998, Sonic issued 970,588 shares of its Class A common stock to acquire the assets of HMC Finance Corporation, Inc., Halifax Ford-Mercury, Inc., Higginbotham Automobiles, Inc., Higginbotham Chevrolet- Oldsmobile, Inc., and Sunrise Auto World, Inc. with a value of approximately $8.3 million. Sonic has also privately issued its Class A convertible preferred stock, par value $.10 per share (the "Preferred Stock") in dealership acquisition transactions. The Preferred Stock is divided into three series: the Series I Preferred Stock, the Series II Preferred Stock and the Series III Preferred Stock. Each share of Preferred Stock is convertible into shares of Class A common stock at the holder's option at specified conversion rates. After the second anniversary of the date of issuance, any shares of Preferred Stock which have not yet been converted are subject to mandatory conversion to 13 Class A Common Stock at the option of Sonic. No fractional shares of Class A common stock will be issued upon conversion of any shares of Preferred Stock. Instead, Sonic will pay cash equal to the value of such fractional shares. Generally, each share of Preferred Stock is convertible into that number of shares of Class A common stock that has an aggregate Market Price at the time of conversion equal to $1,000 (with certain adjustments for Series II and Series III Preferred Stock). "Market Price" is defined generally as the average closing price per share of the Class A common stock on the New York Stock Exchange for twenty trading days immediately preceding the date of determination. Before the first anniversary of the date of issuance of the Preferred Stock, each holder of Preferred Stock is unable to convert without first giving Sonic ten business days' notice and an opportunity to redeem such Preferred Stock at the then applicable redemption price. Sonic has privately issued Preferred Stock in the following dealership acquisition transactions: On March 24, 1998, Sonic issued 3,960 shares of its Series III Preferred Stock to acquire the assets of M&S Auto Resources, Inc. (d/b/a Clearwater Toyota), Clearwater Auto Resources, Inc. (d/b/a Clearwater Mitsubishi) and Clearwater Collision Center, Inc. with a value of approximately $3.9 million. On July 8, 1998, Sonic issued 14,025 shares of its Series I Preferred Stock to acquire the assets of Hatfield Jeep Eagle, Inc., Hatfield Lincoln Mercury, Inc., Trader Bud's Westside Dodge, Inc., Toyota West, Inc., and Hatfield Hyundai, Inc. with a value of approximately $12.5 million. On July 14, 1998, Sonic issued 400 shares of Series II Preferred Stock to acquire the assets of Fairway Management Company d/b/a Heritage Lincoln-Mercury with a value of approximately $0.4 million. On July 31, 1998, Sonic issued 2,166.5 shares of Series II Preferred Stock to acquire the assets of Century Auto Sales, Inc. d/b/a Century BMW with a value of approximately $2.3 million. On July 31, 1998, Sonic issued 381.3 shares of Series I Preferred Stock and 3,813 shares of Series II Preferred Stock to acquire the outstanding capital stock of Capitol Chevrolet and Imports, Inc. with a value of approximately $4.0 million. On July 31, 1998, Sonic issued 2,313 shares of Series III Preferred Stock to acquire the outstanding capital stock of Casa Ford of Houston, Inc. with a value of approximately $2.5 million. On December 15, 1998, Sonic issued 3,675 shares of Series II Preferred Stock to acquire the outstanding capital stock of Ron Craft Chevy-Olds with a value of approximately $3.7 million. In addition, Sonic has privately issued warrants to purchase Class A common stock in the following dealership acquisition transactions: On January 15, 1998, Sonic issued warrants to purchase 88,782 shares of its Class A common stock at an exercise price of $6 per share. These warrants are currently exercisable at the option of the holder and expire on January 15, 2003. These warrants were issued as consideration paid by us to acquire the assets of Dyer Volvo having an aggregate fair value of approximately $266,000. On July 31, 1998, Sonic issued warrants to purchase 150,000 shares of its Class A common stock at an exercise price of $10.40 per share. These warrants are currently exercisable at the option of the holder and expire on July 31, 2003. These warrants were issued as consideration paid by us to acquire the assets of Century BMW having an aggregate fair value of approximately $450,000. On November 30, 1998, Sonic issued warrants to purchase 4,000 shares of its Class A common stock at an exercise price of $11.27 per share. These warrants are currently exercisable at the option of the holder and expire on November 30, 2003. These warrants were issued as consideration paid by us to acquire the assets of Tampa Volvo having an aggregate fair value of approximately $12,000. 14 ITEM 6: SELECTED FINANCIAL DATA The selected consolidated statement of operations data for the years ended December 31, 1994, 1995, 1996, 1997 and 1998 and the selected consolidated balance sheet data as of December 31, 1995, 1996, 1997 and 1998 are derived from Sonic's audited financial statements. The selected consolidated balance sheet data as of December 31, 1994 are derived from Sonic's unaudited financial statements. In the opinion of management, these unaudited financial statements reflect all adjustments necessary for a fair presentation of its results of operations and financial condition. All such adjustments are of a normal recurring nature. This selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes included elsewhere herein.
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 1994 1995 1996(1) 1997(1) 1998(1) ----------- ------------ ------------ -------------- --------------- (DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Consolidated Statement of Operations Data: Revenues: Vehicle sales ...................................... $228,569 $ 267,650 $ 327,674 $ 467,858 $ 1,407,030 Parts, service, and collision repair ............... 33,984 35,860 42,075 57,537 162,660 Finance and insurance .............................. 5,181 7,813 7,118 10,606 34,011 -------- --------- --------- ---------- ----------- Total revenues ....................................... 267,734 311,323 376,867 536,001 1,603,701 Cost of sales ........................................ 233,833 272,130 332,122 473,003 1,396,259 -------- --------- --------- ---------- ----------- Gross profit ......................................... 33,901 39,193 44,745 62,998 207,442 Selling, general and administrative expenses ......... 23,810 28,091 32,602 46,770 150,130 Depreciation and amortization ........................ 838 832 1,076 1,322 4,607 -------- --------- --------- ---------- ----------- Operating income ..................................... 9,253 10,270 11,067 14,906 52,705 Interest expense, floor plan ......................... 3,001 4,505 5,968 8,007 14,096 Interest expense, other .............................. 443 436 433 1,199 9,395 Other income ......................................... -- 106 355 298 426 -------- --------- --------- ---------- ----------- Income before income taxes and minority interest ..... 5,809 5,436 5,021 5,998 29,640 Provision for income taxes ........................... 2,118 2,176 1,924 2,249 11,083 -------- --------- --------- ---------- ----------- Income before minority interest ...................... 3,691 3,260 3,097 3,749 18,557 Minority interest in earnings of subsidiary .......... 15 22 114 47 -- -------- --------- --------- ---------- ----------- Net income ........................................... $ 3,676 $ 3,238 $ 2,983 $ 3,702 $ 18,557 ======== ========= ========= ========== =========== Diluted net income per share ......................... $ 0.27 $ 0.74 Weighted average number of shares outstanding ........ 13,898 24,970 Consolidated Balance Sheet Data: Working capital ...................................... $ 13,246 $ 18,140 $ 19,780 $ 44,098 $ 79,155 Total assets ......................................... 69,061 79,462 110,976 291,450 576,103 Long-term debt ....................................... 3,773 3,561 5,286 38,640 131,337 Total liabilities .................................... 57,274 62,956 84,367 207,085 433,674 Minority interest .................................... 177 200 314 -- -- Stockholders' equity ................................. 11,610 16,306 26,295 84,365 142,429
- --------- (1) Selected Financial Data for the years ended December 31, 1996, 1997, and 1998 include the results of operations of certain dealerships acquired during those periods. All such acquisitions were accounted for using the purchase method of accounting and, as a result, the results of operations prior to the date of acquisition have been excluded. Accordingly, the actual financial data for periods after the acquisitions may not be comparable to data presented for periods prior to the acquisitions. ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the results of operations and financial condition as of December 31, 1998 should be read in conjunction with the Sonic Automotive, Inc. and Subsidiaries Consolidated Financial Statements and the related notes thereto included elsewhere herein. 15 OVERVIEW Sonic is one of the top five automotive retailers in the United States, operating 38 dealerships and 14 collision repair centers in the southeastern, southwestern and midwestern United States. We sell new and used cars and light trucks, sells replacement parts, provide vehicle maintenance, warranty, paint and repair services and arrange related F&I for its automotive customers. Our business is geographically diverse, with dealership operations in the Atlanta, Charlotte, Chattanooga, Columbus, Daytona Beach, Greenville/Spartanburg, Houston, Montgomery, Nashville, and Tampa-Clearwater markets. Sonic sells 23 domestic and foreign brands, which consist of Acura, BMW, Cadillac, Chevrolet, Chrysler, Dodge, Ford, Honda, Hyundai, Infiniti, Isuzu, Jeep, KIA, Lincoln, Mercedes, Mercury, Mitsubishi, Oldsmobile, Plymouth, Subaru, Toyota, Volkswagen and Volvo. New vehicle revenues include both the sale and lease of new vehicles. Used vehicle revenues include amounts received for used vehicles sold to retail customers, other dealers and wholesalers. Other operating revenues include parts and services revenues, fees and commissions for arranging F&I and sales of third party extended warranties for vehicles. In connection with vehicle financing contracts, Sonic receives a finance fee from the lender for originating the loan. If, within 90 days of origination, the customer pays off the loans through refinancing or selling/trading in the vehicle or defaults on the loan, the finance company will assess a charge (a "chargeback") for a portion of the original commission. The amount of the chargeback depends on how long the related loan was outstanding. As a result, Sonic has established reserves based on its historical chargeback experience. Sonic also sells warranties provided by third-party vendors, and recognizes a commission at the time of sale. While the automotive retailing business is cyclical, we sell several products and services that are not closely tied to the sale of new and used vehicles. Such products and services include our parts and service and collision repair businesses, both of which are not dependent upon near-term new vehicle sales volume. Our cost of sales and profitability are also affected by the allocations of new vehicles which our dealerships receive from manufacturers. When we do not receive allocations of new vehicle models adequate to meet customer demand, we may purchase additional vehicles from other dealers at a premium to the manufacturer's invoice, reducing the gross margin realized on the sales of such vehicles. In addition, we follow a disciplined approach in selling vehicles to other dealers and wholesalers when the vehicles have been in our inventory longer than the guidelines set by us. Such sales are frequently at or below cost and, therefore, reduce our overall gross margin on vehicle sales. Sonic's salary expense, employee benefits costs and advertising expenses comprise the majority of our selling, general and administrative expenses. Sonic's interest expense fluctuates based primarily on the level of the inventory of new vehicles held at our dealerships, substantially all of which is financed through floor plan financing, as well as the amount of indebtedness incurred for acquisitions. We have accounted for all of our dealership acquisitions using the purchase method of accounting and, as a result, we do not include in our financial statements the results of operations of these dealerships prior to the date they were acquired by us. The Consolidated Financial Statements of Sonic discussed below reflect the results of operations, financial position and cash flows of each of our dealerships acquired prior to December 31, 1998. As a result of the effects of our acquisitions, the historical consolidated financial information described in "Management's Discussion and Analysis of Financial Condition and Results of Operations" is not necessarily indicative of the results of operations, financial position and cash flows of Sonic in the future or the results of operations, financial position and cash flows which would have resulted had such acquisitions occurred at the beginning of the periods presented in the Consolidated Financial Statements. The automobile industry is cyclical and historically has experienced periodic downturns, characterized by oversupply and weak demand. Many factors affect the industry including general economic conditions and consumer confidence, the level of discretionary personal income, interest rates and available credit. Sonic's profit margins are primarily impacted by changes in the percentage of revenues attributed to new vehicle sales. 16 RESULTS OF OPERATIONS The following table summarizes, for the periods presented, the percentages of total revenues represented by certain items reflected in Sonic's statement of operations.
PERCENTAGE OF TOTAL REVENUES FOR YEAR ENDED DECEMBER 31, -------------------------------- 1996 1997 1998 ---------- ---------- ---------- Revenues: New vehicle sales ........................... 62.0% 64.2% 60.0% Used vehicle sales .......................... 24.9% 23.1% 27.8% Parts, service and collision repair ......... 11.2% 10.7% 10.1% Finance and insurance ....................... 1.9% 2.0% 2.1% Total revenues .............................. 100.0% 100.0% 100.0% Cost of sales ............................... 88.1% 88.2% 87.1% Gross profit ................................ 11.9% 11.8% 12.9% Selling, general and administrative ......... 8.9% 9.0% 9.6% Operating income ............................ 2.9% 2.8% 3.3% Interest expense ............................ 1.7% 1.7% 1.5% Income before taxes ......................... 1.3% 1.5% 1.8%
TWELVE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 1997 REVENUES. Revenues grew in each of Sonic's primary revenue areas for 1998 as compared with 1997, causing total revenues to increase 199% to $1.6 billion. This increase was due primarily to revenues contributed by our acquisitions completed in 1997 and 1998 of approximately $994.4 million. New vehicle sales revenue increased 180% to $962.9 million in 1998, compared with $ 343.9 million in 1997. The increase was due primarily to an increase in new vehicle unit sales of 165% to 41,592, as compared with 15,715 in 1997 resulting principally from 24,922 units contributed by the acquisitions completed during 1997 and 1998. The remainder of the increase was due to a 6% increase in the average selling price of new vehicles resulting principally from sales of higher priced luxury and import vehicles contributed by Sonic's acquisitions. Used vehicle revenues from retail sales increased 281% to $324.7 million in 1998 from $85.1 million in 1997. The increase was due primarily to an increase in used vehicle unit sales of 266% to 24,591, as compared with 6,712 in 1997, resulting from additional unit sales contributed by the acquisitions completed in 1997 and 1998. The remainder of the increase was due to a 4% increase in the average selling price of used vehicles, resulting principally from sales of higher priced luxury and import vehicles contributed by our acquisitions, along with an increase in used vehicle revenues from stores owned for longer than one year of 23% in 1998 over 1997. Sonic's parts, service and collision repair revenue increased 183% to $162.7 million in 1998 compared to $57.5 million in 1997, due principally to our acquisitions. Finance and insurance revenue increased $23.4 million, or 221%, due principally to increased new vehicle sales and related financing contributed by the acquisitions completed in 1997 and 1998. GROSS PROFIT. Gross profit increased 229% to $207.4 million in 1998 from $63.0 million in 1997 due principally to increases in revenues contributed by our acquisitions. Gross profit as a percentage of sales increased to 12.9% from 11.8% due to increases in new vehicle gross margins from 7.7% to 7.8% resulting from sales of higher margin import vehicles contributed by our acquisitions, as well as improved gross margins of used vehicles from 8.6% to 10.7% resulting from efforts made to improve management of used vehicle inventories. In addition, because gross margins from used vehicle revenues are higher than gross margins from new vehicle revenues, an increase in used vehicle revenues as a percentage of total revenues from 23.1% in 1997 to 27.8% in 1998, and a decrease in new vehicle revenues as a percentage of total revenues from 64.2% in 1997 to 60.0% in 1998, also contributed to the overall increase in gross profits as a percentage of total revenues. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses, including depreciation and amortization, increased 222% to $154.7 million in 1998 from $48.1 million in 1997. Such expenses as a percentage of revenues increased to 9.6% from 9.0% due principally to expenses inherent with the rapid growth and formation of Sonic. In addition, because sales compensation, which comprises over 50% of total selling, general, and administration 17 expenses, is based on gross profits as opposed to revenues, the increase in gross profit margins resulted in an increase in total selling, general, and administrative expenses as a percent of total revenues. INTEREST EXPENSE, FLOOR PLAN. Interest expense, floor plan increased 76% to $14.1 million from $8.0 million, due primarily to floor plan interest incurred by our acquisitions. As a percentage of total revenues, floor plan interest decreased from 1.5% to 0.9% due to decreased interest rates under Sonic's floor plan financing arrangements, as well as improvement in turnover rates. INTEREST EXPENSE, OTHER. Interest expense, other increased to $9.4 million from $1.2 million, due primarily to interest incurred on Sonic's senior subordinated notes and on acquisition-related indebtedness. NET INCOME. As a result of the factors noted above, Sonic's net income increased by $14.9 million in 1998 compared to 1997. TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 1996 REVENUES. Revenues grew in each of Sonic's primary revenue areas for 1997 as compared with 1996, causing total revenues to increase 42.2% to $536.0 million. New vehicle sales revenue increased 47.0% to $343.9 million, compared with $233.9 million. New vehicle unit sales increased from 11,693 to 15,715, accounting for 34.4% of the increase in vehicle sales revenues. The remainder of the increase was primarily due to a 9.4% increase in the average selling price resulting from changes in vehicle prices, particularly a shift in customer preference to higher cost light trucks and sport utility vehicles, and additional revenues from our 1997 acquisitions. Used vehicle revenues from retail sales increased 25.1% from $68.0 million in 1996 to $85.1 million in 1997. The increase in used vehicle revenues was due principally to additional revenues contributed from dealerships acquired in the fourth quarter of 1997. Sonic's parts, service and collision repair revenue increased 36.7% to $57.5 million from $42.1 million, and declined as a percentage of revenue to 10.7% from 11.2%. The increase in service and parts revenue was due principally to increased parts revenue, including wholesale parts, from our Lone Star Ford and Fort Mill Ford locations and additional revenues from our acquisitions in the fourth quarter of 1997. F&I revenue increased $3.5 million, due principally to increased new vehicle sales and related financings. GROSS PROFIT. Gross profit increased 40.8% in 1997 to $63.0 million from $44.7 million in 1996 due to increases in new vehicle sales revenues principally at our Lone Star Ford and Fort Mill Ford locations and additional revenues from our acquisitions in the third and fourth quarter of 1997. Parts and service revenue increases also contributed to the increase in gross profit. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses, including depreciation and amortization, increased 42.8% from $33.7 million to $48.1 million. These expenses increased due to increases in sales volume as well as expenses inherent with the initial growth and formation of Sonic. INTEREST EXPENSE, FLOOR PLAN. Interest expense, floor plan increased 34.2% to $8.0 million from $6.0 million, primarily due to our 1997 acquisitions. As a percentage of total revenues, floor plan interest decreased from 1.6% to 1.5%. INTEREST EXPENSE, OTHER. Interest expense, other increased 176.9% from $0.4 million to $1.2 million. The increase in interest expense was due to interest incurred on acquisition related indebtedness. NET INCOME. As a result of the factors noted above, Sonic's net income increased by $0.7 million in 1997 compared to 1996. LIQUIDITY AND CAPITAL RESOURCES Sonic's principal needs for capital resources are to finance acquisitions, and fund debt service and working capital requirements. Historically, we have relied on internally generated cash flows from operations, borrowings under its various credit facilities, and borrowings and capital contributions from our stockholders to finance our operations and expansion. On November 10, 1997, Sonic completed its initial public offering of its Class A common stock, providing approximately $53.7 million of additional capital resources for the consummation of certain acquisitions. On July 31, 1998, Sonic completed its private placement of $125 million of its 11% senior subordinated notes which provided an additional $120.6 million of capital resources for the consummation of certain acquisitions, for repayment of borrowings under our revolving line of credit and for future acquisitions. 18 Sonic currently has a standardized floor plan credit facility with Ford Motor Credit for all its dealership subsidiaries (the "Floor Plan Facility") used to finance purchases of new and used vehicle inventory. As of December 31, 1998, there was an aggregate of $228.2 million outstanding under the Floor Plan Facility. The Floor Plan Facility at December 31, 1998 had an effective rate of prime less 1.1% (6.65%) subject to certain incentives and other adjustments. Typically new vehicle floor plan indebtedness exceeds the related inventory balances. The inventory balances are generally reduced by the manufacturer's purchase discounts which are not reflected in the related floor plan liability. These manufacturer purchase discounts are standard in the industry, typically occur on all new vehicle purchases, and are not used to offset the related floor plan liability. These discounts are aggregated and generally paid to Sonic by the manufacturer on a quarterly basis. The related floor plan liability becomes due as vehicles are sold. The Floor Plan Facility includes an available credit line for the purchase of used vehicle inventory. Sonic's general practice is to utilize used vehicle floor plan indebtedness only when purchasing large quantities of used vehicles in bulk. As of December 31, 1998, there was approximately $18.5 million available under Sonic's used vehicle credit line of which approximately $17.4 million was unused. Amounts outstanding under used floor plan indebtedness are due when vehicles are sold. Sonic makes monthly interest payments on the amount financed under the Floor Plan Facility but is not required to make loan principal repayments prior to the sale of the vehicles. The underlying notes are due when the related vehicles are sold and are collateralized by vehicle inventories and other assets of the relevant dealership subsidiary. The Floor Plan Facility contains a number of covenants, including among others, covenants restricting Sonic with respect to the creation of liens and changes in ownership, officers and key management personnel. Sonic generated net cash of $29.8 million from operating activities in 1998, compared to $6.1 million in 1997. The increase was attributable principally to increased net income and decreases in inventory levels. Cash used for investing activities, excluding amounts paid in acquisitions, was approximately $2.7 million for the year ended December 31, 1998 and related primarily to acquisitions of property and equipment. Cash used in investing activities was $6.7 million, $86.8 million and $74.9 million in 1996, 1997 and 1998, respectively, including $1.9 million, $2.0 million and $4.3 million of capital expenditures during such periods. Sonic's principal capital expenditures typically include building improvements and equipment for use in our dealerships. Of the capital expenditures in 1998, 0.6 million related to the construction of new dealerships and a body shop which upon completion is expected to be sold to an affiliate of MMRT and subsequently leased back. Cash provided by financing activities of approximately $78.6 million in 1998 primarily reflected proceeds received from the issuance of our senior subordinated notes, plus borrowings under our revolving credit facility with Ford Motor Credit (the "Revolving Facility"), less repayments of other debt. The purpose of these borrowings was to finance acquisitions in 1998. The Revolving Facility with Ford Motor Credit currently has a borrowing limit of $100 million. Amounts outstanding under the Revolving Facility bear interest at a fluctuating per annum rate equal to 2.75% above the 1 month commercial finance paper rate as reported by the Federal Reserve Board (7.55% at December 31, 1998). The Revolving Facility will mature in March 2001, unless Sonic requests that such term be extended, at the option of Ford Motor Credit, for a number of additional one year terms to be negotiated by the parties. No assurance can be given that such extensions will be granted. On July 31, 1998, all amounts previously outstanding under the Revolving Facility were repaid with a portion of the net proceeds of the sale of senior subordinated notes. The outstanding balance of $8.9 million at December 31, 1998 represents amounts borrowed to finance certain of Sonic's acquisitions completed in 1998. Amounts outstanding under the Revolving Facility as of March 31, 1999 total approximately $53.7 million which reflects additional borrowings used to finance certain acquisitions closed subsequent to December 31, 1998. Additional amounts to be drawn under the Revolving Facility are to be used for the acquisition of additional dealerships and to provide general working capital needs of Sonic not to exceed $10 million. We agreed under the Revolving Facility not to pledge any of our assets to any third party (with the exception of currently encumbered real estate and assets of Sonic's dealership subsidiaries that are subject to previous pledges or liens). In addition, the Revolving Facility contains certain negative covenants, including covenants restricting or prohibiting the payment of dividends, capital expenditures and material dispositions of assets as well as other customary covenants. Additional negative covenants include specified ratios of o total debt to tangible base capital (as defined in the Revolving Facility), o current assets to current liabilities, 19 o earnings before interest, taxes, depreciation and amortization (EBITDA) and rent less capital expenditures to fixed charges, o EBITDA to interest expense, o EBITDA to total debt and o the current lending commitment under the Revolving Facility to scaled assets (as defined in the Revolving Facility). In addition, the loss of voting control over Sonic by Bruton Smith, Scott Smith and their spouses or immediate family members or the failure by Sonic, with certain exceptions, to own all the outstanding equity, membership or partnership interests in its dealership subsidiaries will constitute an event of default under the Revolving Facility. Sonic did not meet the specified total debt to tangible equity ratios required by the Revolving Facility at March 31, 1998 and at June 30, 1998 and obtained a waiver with regard to such requirement from Ford Motor Credit. In connection with Sonic's offering of its senior subordinated notes, Sonic and Ford Motor Credit amended the Revolving Facility to provide that the senior subordinated notes (which are subordinated to the Revolving Facility) will be treated as equity capital for purposes of this ratio. Accordingly, Sonic was in compliance with this and all other restrictive covenants as of December 31, 1998. On July 31, 1998, Sonic completed its private placement of its senior subordinated notes in the aggregate principal amount of $125,000,000. The notes are unsecured, mature on August 1, 2008, and are redeemable at Sonic's option after August 1, 2003. Interest payments are due semi-annually on February 1 and August 1, commencing February 1, 1999. The notes are subordinated to all present and future senior indebtedness of Sonic, including the Revolving Facility. Redemption prices during 12 month periods beginning August 1 are 105.500% in 2003, 103.667% in 2004, 101.833% in 2005 and 100% thereafter. Net proceeds after commissions and discounts, including issuance discount of $937,500, amounted to $120,625,000 and were used to finance certain of our 1998 acquisitions and to repay amounts outstanding under the Revolving Facility. On December 7, 1998, Sonic completed an exchange offer to exchange the senior subordinated notes for identical senior subordinated notes registered under the Securities Act. The indenture governing the senior subordinated notes contains certain specified restrictive and required financial covenants. We have agreed not to pledge our assets to any third party except under certain limited circumstances (for example, floor plan indebtedness). We also have agreed to certain other limitations or prohibitions concerning the incurrence of other indebtedness, capital stock, guaranties, asset sales, investments, cash dividends to shareholders, distributions and redemptions. Under Sonic's Amended and Restated Certificate of Incorporation, 3 million shares of preferred stock are authorized to be issued by Sonic with such designations, rights and preferences as may be determined from time to time by our Board of Directors. In March 1998, our Board of Directors designated 300,000 shares of preferred stock as Class A convertible preferred stock (the "Preferred Stock"), which was divided into 100,000 shares of Series I Preferred Stock, 100,000 shares of Series II Preferred Stock and 100,000 shares of Series III Preferred Stock. The Preferred Stock has a liquidation preference of $1,000 per share. Each share of Preferred Stock is convertible, at the option of the holder, into that number of shares of Class A common stock as is determined by dividing $1,000 by the average closing price for the Class A common stock on the NYSE for the 20 days preceding the date of determination of the shares of Preferred Stock (the "Market Price"). Conversion of Series II Preferred Stock is subject to certain adjustments which have the effect of limiting increases and decreases in the value of the Class A common stock receivable upon conversion by 10% of the original value of the shares of Series II Preferred Stock. Conversion of Series III Preferred Stock is subject to certain adjustments which have the effect of limiting increases in the value of Class A common stock receivable upon conversion by 10% of the original value of the shares of Series III Preferred Stock. The Preferred Stock is redeemable at Sonic's option at any time after the date of issuance. The redemption price of the Series I Preferred Stock is $1,000 per share. The redemption price for the Series II Preferred Stock and Series III Preferred Stock is as follows: (i) prior to the second anniversary of the date of issuance, the redemption price is the greater of $1,000 per share or the aggregate Market Price of the Class A common stock into which it could be converted at the time of redemption, and (ii) after the second anniversary of the date of issuance, the redemption price is the aggregate Market Price of the Class A common stock into which it could be converted at the time of redemption. Each share of Preferred Stock entitles its holder to a number of votes equal to that number of shares of Class A common stock into which it could be converted as of the record date for the vote. Holders of Preferred Stock are entitled 20 to participate in dividends payable on the Class A common stock on an "as-if-converted" basis. The Preferred Stock has no preferential dividends. During 1998, Sonic acquired 19 dealerships for an aggregate purchase price of approximately $134.0 million. The aggregate purchase price was paid with approximately $96.2 million in cash, with 970,588 shares of Class A common stock having an estimated fair value at the time of issuance of approximately $8.3 million, with 30,733.8 shares of Preferred Stock (14,406.3 shares of Series I Preferred Stock, 10,054.5 shares of Series II Preferred Stock, and 6,273 shares of Series III Preferred Stock) having an estimated fair value at the time of issuance of approximately $29.3 million and with warrants to purchase an aggregate of 154,000 shares of Class A common stock having an approximate fair value of $0.5 million. The cash portion of the aggregate purchase price was financed with a combination of cash obtained from the net proceeds of Sonic's private offering on July 31, 1998 of $125 million in aggregate principal amount of its 11% senior subordinated notes, cash obtained from the Revolving Facility, and cash generated from Sonic's existing operations. In addition, Sonic has issued to the sellers of certain of the acquired dealerships warrants to purchase an aggregate of 154,000 shares of Class A common stock having an approximate fair value of $0.5 million. Payables for acquisitions as of December 31, 1998 on the accompanying consolidated balance sheet includes $1.7 million of the cash portion of the aggregate purchase price which was paid subsequent to December 31, 1998. The difference between the aggregate purchase price of $134.0 million and amounts paid of $134.3 represents the net of (i) $1.3 million due from a former owner as a result of a shortage in the actual net book value of assets acquired compared to the minimum net book value required in the purchase agreement, (ii) $0.4 million due to a former owner as a result of an excess in the actual net book value of assets acquired over the minimum net book value required in the purchase agreement, and (iii) $0.6 million due to a former owner on the first and second anniversaries of the acquisition date. The $1.3 million due from a former owner has been included in other current assets on the accompanying balance sheet. The $0.4 million and $0.6 million due to former owners have been included in payable for acquisitions on the accompanying balance sheet. In accordance with terms of certain of the purchase agreements, Sonic may be required to pay additional consideration contingent upon future earnings of certain of the dealerships acquired. As of December 31, 1998, Sonic had recorded approximately $8.0 million relating to such consideration, which has been accounted for as goodwill. Any additional amounts which may be payable in the future will also be accounted for as goodwill. During the first quarter of 1999, Sonic acquired 8 dealerships for approximately $50.9 million in cash and 34,100 shares of Series III Preferred Stock having a liquidation preference of $1,000 per share. The cash portion of the purchase price was financed with a combination of cash borrowed under the Revolving Facility and cash generated from Sonic's existing operations. The acquisitions were accounted for using purchase accounting. Sonic may be required to pay additional amounts based on pre-tax earnings of certain of the dealerships acquired. Any additional amounts paid will be accounted for as goodwill. In connection with the subsequent acquisition of a Honda dealership located in Chattanooga, Tennessee in March 1999, Sonic sold substantially all of the assets of its Honda dealership in Cleveland, Tennessee for approximately $3.6 million. Sonic has signed definitive agreements to acquire 12 dealerships for a minimum of approximately $54.9 million in cash, 11,425 shares of Series II Preferred Stock and 10,525 shares of Series III Preferred Stock having a liquidation value of $1,000 per share. The aggregate purchase price is subject to adjustment based on the actual net book value of the assets acquired. The cash portion of the purchase price will be paid with a combination of borrowings under the Revolving Facility and with cash generated from Sonic's existing operations. Sonic may be required to pay additional amounts based on future pre-tax earnings of certain of these acquired dealerships. These acquisitions are expected to be consummated in the second and third quarters of 1999. Sonic incurred a tax liability of approximately $7.1 million in connection with the change in its tax basis of accounting for inventory from the "last-in, first-out" method of inventory accounting to the "first-in, first-out" method of inventory accounting, which is payable over a six-year period beginning in January 1998. In addition, in connection with certain of our 1998 acquisitions, we incurred an additional tax liability in the amount of approximately $1.9 million as a result of the change in accounting for the inventory from the "last-in, first-out" method of inventory accounting to the "first-in, first-out" method of inventory accounting, which will be payable over a four year period. As of December 31, 1998, the remaining cumulative balance of this tax liability was $5.6 million. We expect to pay such obligation with cash provided by operations. 21 We believe that the net proceeds from the sale of the senior subordinated notes, together with funds generated through future operations and availability of borrowings under our floor plan financing (or any replacements thereof) and our other credit arrangements will be sufficient to fund our debt service and working capital requirements and any seasonal operating requirements, including our currently anticipated internal growth, for the foreseeable future. Sonic expects to fund any future acquisitions from its future cash flow from operations, additional debt financing (including the Revolving Facility) or the issuance of Class A common stock, Preferred Stock or other convertible instruments. SEASONALITY Sonic's operations are subject to seasonal variations. The first quarter generally contributes less revenue and operating profits than the second, third and fourth quarters. Seasonality is principally caused by weather conditions and the timing of manufacturer incentive programs and model changeovers. YEAR 2000 COMPLIANCE GENERAL Due to the limited memory capacity of older computers, many computer systems and software applications in earlier years were programmed to store dates using six digit formats (e.g. mm/dd/yy) versus nine digit formats (e.g. mm/dd/yyyy). Under the six digit format, most computer systems and software applications are limited to recognizing dates within the 20th century only, causing computers to interpret the year "00" as the year "1900" rather than the year "2000." As we approach the beginning of year 2000, there is widespread concern that the inability of computer systems to recognize dates beyond the year 1999 will result in software errors and system failures that could be disruptive to ordinary business operations. We recognize the need to ensure that our operations will not be disrupted by Year 2000 (Y2K) system failures either within our own computer systems or within the computer systems of our primary lenders and suppliers. Each of our dealerships has appointed a team comprised primarily of department managers that, using guides developed by the National Automobile Dealers Association (NADA), is responsible for assessing and resolving potential Year 2000 problems, and developing contingency plans to mitigate the impact of future problems on operations. STATE OF READINESS INTERNAL DEALERSHIP SYSTEMS: Internal systems supporting the dealership's daily operations are comprised of four primary systems: (i) the Dealer Management System (DMS), which supports the critical operations of the dealership including all vehicle sales, vehicle inventory, financing and insurance operations, service and parts operations, and accounting functions; (ii) the Dealer Communication System (DCS), which provides on-line communication with manufacturers necessary for ordering vehicles and parts inventory, submitting warranty claims, submitting dealership financial statements, receiving delivery reports, and receiving technical information used in service department operations; (iii) personal computer systems (PC systems) used in providing information to and communicating with the parent company; and (iv) "embedded systems" which use an electric processor or computer chip to control, monitor, or assist with the operation of equipment, machinery, and building management (e.g. building access, security and fire alarms, automotive diagnostic equipment). DEALER MANAGEMENT SYSTEM: The DMS systems used by our dealerships are obtained from one of four primary vendors: Reynolds & Reynolds, Infiniti Net, ADP and UCS. Each of these vendors has developed upgrades to correct Y2K problems within the DMS systems, and we have completed the process of installing such upgrades to our systems. In addition, we have received written verification from each of these vendors that the DMS systems operating within dealerships currently owned by Sonic are Y2K certified. With respect to dealerships being acquired, dealerships using DMS systems which are not Y2K certified are being transferred to existing systems which are Y2K certified. DEALER COMMUNICATION SYSTEM: The DCS systems used in our dealerships are provided by the respective manufacturers with whom the dealerships communicate. As a result, the manufacturers have assumed responsibility for upgrading DCS systems to Y2K compliant systems. To date, all but 18 of our dealerships have received written verification from their respective manufacturer that their DCS system is Y2K compliant. In addition, we have requested 22 from each manufacturer that status reports be provided to both the dealership and parent company to inform us of remediation efforts at those dealerships that are not yet Y2K compliant, and when such remediation efforts are expected to be completed. PERSONAL COMPUTER SYSTEMS: Most PC systems currently operating in our dealerships were installed within the past year and were determined to be Y2K compliant at the time of installation. PC systems and local and wide area networks used to communicate with our dealerships were also recently installed, and were Y2K certified upon purchase. As a precautionary measure, we have provided all dealerships with diskettes containing programs designed to test PC systems for Y2K capability. All PC systems that have not met certification standards for compliance will be upgraded or replaced with systems that are Y2K compliant. EMBEDDED SYSTEMS: Embedded systems refer to systems that use some sort of electronic process or computer chip to track time and date information used in the operation of that system. For example, security systems, or heating, ventilation, and air-conditioning systems (HVAC) may be programmed to automatically be activated or deactivated at a certain time. If a security system is programmed to lock up a dealership on weekends, then some dealerships may be locked out on Thursday, January 6, 2000 because the computer interprets the date as Saturday, January 6, 1900. All facilities are currently conducting an inventory of such systems, and will contact the manufacturer or supplier to test such systems and obtain verification of Y2K certification. This process has not yet been completed, though these systems are not considered critical and a disruption in these systems is not expected to significantly affect dealerships' daily operations. EXTERNAL SYSTEMS: A dealership's operations may be adversely affected if the lenders, suppliers, or other third parties with whom it regularly conducts business are affected by Y2K problems within their systems. Other than automobile manufacturers, we are primarily concerned about Y2K failures with banks and other financial service providers, companies providing financing and insurance to our customers, and utilities providing electricity and water. We have received verification from our primary banks and lenders that their systems are Y2K compliant and that service is not expected to be interrupted by Y2K problems. We are still in the process of contacting other key vendors and suppliers regarding their Y2K remediation efforts. COSTS The costs associated with converting our internal systems to Y2K compliant systems have not been, and are not expected to be, material to our financial position or results of operations. Costs associated with upgrading and converting the DMS and DCS systems to Y2K compliant systems were covered by monthly maintenance contracts with the respective suppliers and were expensed as incurred. Costs associated with upgrading or replacing PC and embedded systems have not been material and were expensed or capitalized in accordance with our capitalization policy. CONTINGENCY PLANS We cannot state with certainty whether Year 2000 system failures either within our own internal systems or within the systems of third-parties with whom we are involved will have a material adverse impact on our results of operations. In order to mitigate the potential impact of any future Year 2000 problems, each of our dealerships is in the process of developing contingency plans which include the following: 1. Use of pre-printed and pre-numbered forms and checks (including repair orders and parts counter tickets) and manual journals and ledger books to assist in bookkeeping and accounting functions; 2. Use of hand held, battery operated finance computers in order to continue providing finance services to our customers; 3. Establishing emergency reserves of supplies in the event that service from third party lenders and suppliers is disrupted due to Y2K problems within their systems; and 4. Training of employees to manually perform functions that are currently performed on computers. While we believe that we are taking appropriate steps to ensure we are adequately prepared to deal with Year 2000 problems as they arise, we cannot make assurances that Year 2000 problems will not have a material adverse affect on our results of operations or financial condition. In a worst case scenario, Year 2000 problems may delay our ability to sell vehicles, provide financing and insurance to our customers, provide parts and repair service to our customers, complete acquisitions or meet third-party obligations until Year 2000 problems can be resolved in the affected systems. 23 SIGNIFICANT MATERIALITY OF GOODWILL Goodwill represents the excess purchase price over the estimated fair value of the tangible and separately measurable intangible net assets acquired. The cumulative amount of goodwill at December 31, 1997 was $75.0 million and at December 31, 1998 was $182.5 million. As a percentage of total assets and stockholders' equity, goodwill, net of accumulated amortization, represented 25.5% and 88.1%, respectively, at December 31, 1997, and 31.3% and 126.4%, respectively, at December 31, 1998. Generally accepted accounting principles require that goodwill and all other intangible assets be amortized over the period benefited. We have determined that the period benefited by the goodwill will be no less than 40 years. Accordingly, we are amortizing goodwill over a 40 year period. Earnings reported in periods immediately following an acquisition would be overstated if Sonic attributed a 40 year benefit to an intangible asset that should have had a shorter benefit period. In later years, Sonic would be burdened by a continuing charge against earnings without the associated benefit to income valued by management in arriving at the price paid for the businesses acquired. Earnings in later years also could be significantly affected if management then determined that the remaining balance of goodwill was impaired. We periodically compare the carrying value of goodwill with the anticipated undiscounted future cash flows from operations of the businesses we have acquired in order to evaluate the recoverability of goodwill. We have concluded that the anticipated future cash flows associated with intangible assets recognized in our acquisitions will continue indefinitely, and these is no pervasive evidence that any material portion will dissipate over a period shorter than 40 years. We will incur additional goodwill in future acquisitions. EFFECTS OF INFLATION Due to the relatively low levels of inflation in 1996, 1997 and 1998, inflation did not have a significant effect on Sonic's results of operations for those periods. NEW ACCOUNTING STANDARDS In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." This Standard redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a company's operating segments. This Statement became effective for Sonic's fiscal year ending December 31, 1998. The implementation of FAS 131 did not have a significant impact on Sonic's financial statements or related disclosures. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instrument and Hedging Activities." This Standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. The Statement will become effective for Sonic beginning January 1, 2000. We have elected earlier application of all of the provisions of this Statement beginning October 1, 1998. The implementation of the provisions of this Statement did not have an impact on Sonic's financial statements for the year ended December 31, 1998. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK. Sonic's only financial instruments with market risk exposure are variable rate floor plan notes payable, Revolving Facility borrowings and other variable rate notes and mortgages. As of December 31, 1998, the total outstanding balance of such instruments was approximately $243.5 million. A change of one percent in the interest rate would have caused a change in interest expense for the year ended December 31, 1998 of approximately $2.1 million. In addition, a decrease or increase in interest rates would cause a respective increase or decrease in the present value of Sonic's fixed rate senior subordinated notes, which have a carrying value of $120.7 million at December 31, 1998. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Financial Statements which appears on page F-1 herein. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The name, age, present principal occupation or employment and the material occupations, positions, offices or employments for the past five years of each Sonic director, director-nominee, and executive officer are set forth below. O. Bruton Smith, 72, has been the Chairman, Chief Executive Officer and a director of Sonic since its organization in 1997, and he currently is a director and executive officer of each of Sonic's dealerships. Mr. Smith has worked in the retail automobile industry since 1966. Mr. Smith's initial term as a director of Sonic will expire at the 2000 annual stockholders meeting. Mr. Smith is also the chairman and chief executive officer, a director and controlling stockholder of Speedway Motorsports, Inc. ("SMI"). SMI is a public company traded on the NYSE. Among other things, it owns and operates the following NASCAR racetracks: Atlanta Motor Speedway, Bristol Motor Speedway, Lowe's Motor Speedway, Las Vegas Motor Speedway, Sears Point Raceway and Texas Motor Speedway. He is also the executive officer and a director of each of SMI's operating subsidiaries. Additionally, Mr. Smith serves as chairman of the board of trustees of Mar Mar Realty Trust, a privately held real estate investment trust ("MMRT"), and owns and operates Sonic Financial Corporation among other private businesses. Under his employment agreement with Sonic, Mr. Smith is required to devote approximately 50% of his business time to Sonic's business. Bryan Scott Smith, 31, has been the President and Chief Operating Officer of Sonic since April 1997 and a Sonic director since its organization in 1997. Mr. Smith also serves as a director and executive officer of many of Sonic's subsidiaries. Mr. Smith, who is the son of Bruton Smith, has been an executive officer of Town and Country Ford since 1993, and was a minority owner of both Town and Country Ford and Fort Mill Ford before Sonic's acquisition of those dealerships in 1997. Mr. Smith became the General Manager of Town & Country Ford in November 1992 where he remained until his appointment to President and Chief Operating Officer of Sonic in April 1997. Mr. Smith's term as a director of Sonic will expire at the 2001 annual stockholders meeting. Dennis D. Higginbotham, 47, has been the President of Retail Operations of Sonic since September 1998 and a Sonic director since his appointment in December 1998. Before joining Sonic, Mr. Higginbotham owned and was the president of, Higginbotham Chevrolet-Oldsmobile (from 1976), Halifax Ford-Mercury (from 1987) and Higginbotham Automobiles (from 1995), each of which Sonic acquired in September 1998. Mr. Higginbotham has worked in the automobile industry since 1965. Mr. Higginbotham is standing for election as a director of Sonic at the 1999 annual meeting of stockholders. Theodore M. Wright, 36, has been the Chief Financial Officer, Vice President-Finance, Treasurer and Secretary of Sonic since April 1997, and a Sonic director since June 1997. Mr. Wright also serves as a director and executive officer of many of Sonic's subsidiaries. Before joining Sonic, Mr. Wright was a Senior Manager and in charge of the Columbia, South Carolina office of Deloitte & Touche LLP. Before joining the Columbia office, Mr. Wright was a Senior Manager in Deloitte & Touche LLP's National Office Accounting Research and SEC Services Departments from 1994 to 1995. From 1992 to 1994, Mr. Wright was an audit manager with Deloitte & Touche LLP. Mr. Wright is standing for election as a director of Sonic at the 1999 annual meeting of stockholders. William R. Brooks, 49, has been a director of Sonic since its formation. Mr. Brooks also served as Sonic's initial Treasurer, Vice President and Secretary from its organization in February 1997 to April 1997 when Mr. Wright was appointed to those positions. Since December 1994, Mr. Brooks has been the vice president, treasurer, chief financial officer and a director of SMI. Mr. Brooks also serves as an executive officer and a director for various operating subsidiaries of SMI. Before the formation of SMI in December 1994, Mr. Brooks was the vice president of the Lowe's Motor Speedway (formerly the Charlotte Motor Speedway) and a vice president and a director of Atlanta Motor Speedway. Mr. Brooks joined Sonic Financial Corporation, an entity controlled by Bruton Smith, from Price Waterhouse in 1983. At Sonic Financial Corporation, he was promoted from manager to controller in 1985 and again to chief financial officer in 1989. Mr. Brooks' term as a Sonic director will expire at the 2000 annual stockholders meeting. William P. Benton, 75, became a director of Sonic in December 1997. Since January 1997, Mr. Benton has been the executive director of Ogilvy & Mather, a world-wide advertising agency. Mr. Benton has been a director of SMI since February 1995 and a director of Allied Holdings, Inc. since February 1998. He is also a consultant to the chairman and chief executive officer of TI Group. Before his appointment at Ogilvy & Mather, Mr. Benton served as vice chairman of Wells, Rich, Greene/BDDP, Inc., an advertising agency with offices in New York and Detroit. Mr. Benton retired from Ford Motor Company as its vice president of marketing worldwide in 1984 after a 37-year career with that company. Mr. Benton's term as a Sonic director will expire at the 2001 annual stockholders meeting. 25 William I. Belk, 49, became a director of Sonic in March 1998. Mr. Belk is currently the vice president and a director for Monroe Hardware Company, a director for Piedmont Ventures, Inc., and treasurer and a director for Old Well Water, Inc. For more than the previous five years, Mr. Belk previously held the position of chairman and director for certain Belk stores (a privately held retail department store chain). Mr. Belk's term as a Sonic director will expire at the 2001 annual stockholders meeting. Sonic's Board of Directors is divided into three classes, each of which, after a transitional period, will serve for three years, with one class being elected at Sonic's annual stockholders meeting each year. Messrs. Bruton Smith and Brooks belong to the class of directors whose term expires in 2000, Messrs. Wright and Higginbotham belong to the class whose term expires in 1999, and Messrs. Scott Smith, Benton and Belk belong to the class whose term expires in 2001. The executive officers are elected annually by, and serve at the discretion of, Sonic's Board of Directors. COMMITTEES OF THE BOARD There are two standing committees of the Sonic Board of Directors, the Audit Committee and the Compensation Committee. The Audit Committee was appointed on March 20, 1998 and consists of Messrs. Benton, Belk and Brooks. The Compensation Committee was appointed on October 3, 1998 and consists of Messrs. Bruton Smith, Benton and Belk. Set forth below is a summary of the principal functions of each committee. There was one meeting held by the Audit Committee and one meeting held by the Compensation Committee in 1998. AUDIT COMMITTEE. The Audit Committee, which held one meeting in 1998, recommends the appointment of Sonic's independent auditors, determines the scope of the annual audit to be made, reviews the conclusions of the auditors and reports the findings and recommendations thereof to the Board, reviews Sonic's auditors, the adequacy of Sonic's system of internal control and procedures and the role of management in connection therewith, reviews transactions between Sonic and its officers, directors and principal stockholders, and performs such other functions and exercises such other powers as the Board from time to time may determine. COMPENSATION COMMITTEE. The Compensation Committee, which held one meeting in 1998, administers certain compensation and employee benefit plans of Sonic, annually reviews and determines executive officer compensation, including annual salaries, bonus performance goals, bonus plan allocations, stock option grants and other benefits, direct and indirect, of all executive officers and other senior officers of Sonic. The Compensation Committee administers Sonic's 1997 Stock Option Plan, Employee Stock Purchase Plan and Nonqualified Employee Stock Purchase Plan, makes recommendations for individual stock option grants to the full Board of Directors under the plans it administers, and periodically reviews Sonic's executive compensation programs and takes action to modify programs that yield payments or benefits not closely related to Sonic or executive performance. The policy of the Compensation Committee's program for executive officers is to link pay to business strategy and performance to attract, retain and reward key executives while also providing performance incentives and awarding equity-based compensation to align the long-term interests of executive officers with those of Sonic's stockholders. The Compensation Committee's objective is to offer salaries and incentive performance pay opportunities that are competitive in the marketplace. Sonic currently has no standing nominating committee. During 1998, there were 3 meetings of the Board of Directors of Sonic, with each director attending each of the meetings. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Section 16(a) of the Securities Exchange Act of 1934, as amended, requires Sonic's executive officers, directors and persons who own more than ten percent (10%) of Sonic's Voting Stock to file reports on ownership and changes in ownership with the Securities and Exchange Commission (the "SEC"). Additionally, SEC regulations require that Sonic identify any individuals for whom one of the referenced reports was not filed on a timely basis during the most recent fiscal year or prior fiscal years. To Sonic's knowledge, based solely on review of reports furnished to it, all Section 16(a) filing requirements applicable to its executive officers, directors and more than 10% beneficial owners were complied with, except that (i) Messrs. Bruton Smith, Scott Smith, Higginbotham, Wright, Belk, Benton and Brooks inadvertently filed late their Form 5 annual statements of beneficial ownership of securities, and (ii) Mr. Belk inadvertently filed late his Form 4 statement of changes of beneficial ownership of securities pertaining to his January 1999 exercise of options to purchase 20,000 shares of Class A common stock and his January 1999 sale of 15,000 shares of Class A common stock. 26 ITEM 11. EXECUTIVE COMPENSATION The executive officer compensation for Sonic for 1998 was based on compensation established in each individual's respective employment agreement with Sonic as discussed herein. Additionally, certain executive officers in 1998 were granted stock options issued under Sonic's 1997 Stock Option Plan. Executive officers (including the Chief Executive Officer) were also eligible in 1998 to participate in various benefit plans similar to those provided to other employees of Sonic. Such benefit plans are intended to provide a safety net of coverage against various events, such as death, disability and retirement. The employment agreements for the executive officers (including that of the Chief Executive Officer) were established on the basis of non-qualitative factors such as positions of responsibility and authority, years of service and annual performance evaluations. They were targeted to be competitive principally in relation to other automotive retailing companies (such as those included in the Peer Group Index in the performance graph elsewhere herein), although the Board of Directors also considered the base salaries of certain companies not included in the Peer Group Index because the Board of Directors considered those to be relatively comparable industries. Awards of stock options under the 1997 Stock Option Plan are based on a number of factors in the discretion of the Board of Directors, including various subjective factors primarily relating to the responsibilities of the individual officers for and contribution to Sonic's operating results (in relation to Sonic's other optionees), their expected future contributions and the levels of stock options currently held by the executive officers individually and in the aggregate. Stock option awards to executive officers have been at then-current market prices in order to align a portion of an executive's net worth with the returns to Sonic's stockholders. For detail concerning the grant options to the executive officers named in the Summary Compensation Table below, see "Fiscal Year-End Option Values." As noted above, Sonic's compensation policy is primarily based upon the practice of pay-for-performance. Section 162(m) of the Internal Revenue Code imposes a limitation on the deductibility of nonperformance-based compensation in excess of $1 million paid to named executive officers. The 1997 Stock Option Plan was created with the intention that all compensation attributable to stock option exercises should qualify as deductible performance-based compensation. The Board of Directors currently believes that, generally, Sonic should be able to continue to manage its executive compensation program to preserve federal income tax deductions. CHIEF EXECUTIVE OFFICER COMPENSATION The Compensation Committee's members annually review and approve the compensation of Mr. Smith, Sonic's Chief Executive Officer. Mr. Smith's salary has been established through an employment agreement, as discussed herein. The Board of Directors believes that Mr. Smith is paid a reasonable salary. O. Bruton Smith, Chairman William P. Benton William I. Belk 27 COMPENSATION OF OFFICERS The following table sets forth compensation paid by or on behalf of Sonic to the Chief Executive Officer of Sonic and to its other executive officers for services rendered during Sonic's fiscal years ended December 31, 1996, 1997 and 1998: SUMMARY COMPENSATION TABLE
LONG-TERM COMPENSATION AWARDS NUMBER OF ANNUAL COMPENSATION OTHER SHARES -------------------------------------- ANNUAL UNDERLYING ALL OTHER NAME AND PRINCIPAL POSITION(S) YEAR SALARY (1) BONUS (2) COMPENSATION (3) OPTIONS (4) COMPENSATION (5) - -------------------------------- ------ --------------- --------------- ------------------ -------------------- ----------------- O. Bruton Smith 1998 $385,772 $350,000 $ (5) 200,000 -- Chairman, Chief Executive 1997 326,704 -- -- (5) -- -- Officer and Director 1996 164,750 -- 33,350 -- -- Bryan Scott Smith 1998 $325,560 $250,000 $ -- (5) 100,000 -- President, Chief Operating 1997 273,767 18,331 -- (5) 199,750 -- Officer and Director 1996 48,000 230,714 -- (5) -- -- Theodore M. Wright 1998 $211,551 $150,000 $ -- (5) 100,620 -- Chief Financial Officer, 1997 (6) (6) -- (5) 76,376 -- Vice President-Finance, 1996 (7) (7) -- -- -- Treasurer and Secretary Dennis D. Higginbotham 1998 $116,667 $ -- $ -- (5) 150,000 -- President of Retail 1997 (7) (7) -- -- Operations and Director 1996 (7) (7) -- -- -- Nelson E. Bowers, II 1998 $383,333 $150,000 $ -- (5) -- -- Executive Vice President 1997 (6) (6) -- (5) -- -- and Director (8) 1996 (7) (7) -- -- --
- --------- (1) Does not include the dollar value of perquisites and other personal benefits. (2) The amounts shown are cash bonuses earned and paid in the specified year. (3) Sonic provides Bruton Smith with the use of automobiles for personal use, the annual cost of which is reflected as Other Annual Compensation. (4) Sonic's 1997 Stock Option Plan was adopted in October 1997. Therefore, no options were granted under the 1997 Stock Option Plan to any of Sonic's executive officers in 1996. (5) The aggregate amount of perquisites and other personal benefits received did not exceed the lesser of $50,000 or 10% of the total annual salary and bonus reported for such executive officer. (6) The amount of salary and bonus earned by the named executive officer in 1997 did not exceed $100,000. (7) The named executive officer was not employed by Sonic during the year indicated. (8) Mr. Bowers resigned as Executive Vice President and as a Director of Sonic in November 1998. EMPLOYMENT AGREEMENTS Sonic has employment agreements with Messrs. Bruton Smith, Scott Smith, Higginbotham and Wright (the "Employment Agreements"), which provide for an annual base salary and certain other benefits. Pursuant to the Employment Agreements, the 1999 base salaries of Messrs. Bruton Smith, Scott Smith, Wright and Higginbotham will be $500,000, $400,000, $300,000 and $400,000, respectively. The executives will also receive such additional increases as may be determined by the Compensation Committee. The Employment Agreements, except that of Mr. Higginbotham, provide for the payment of annual performance-based bonuses equal to a percentage of the executive's base salary, upon achievement by Sonic of certain performance objectives, based on Sonic's pre-tax income, to be established by the Compensation Committee. The Employment Agreement for Mr. Higginbotham provides for the payment of bonuses as may be determined and ratified from time to time by the Compensation Committee. Under the terms of their respective Employment Agreements, Sonic will employ Messrs. Bruton Smith, Scott Smith and Wright through November 2000. Under the terms of his Employment Agreement, Sonic will employ Mr. Higginbotham through September 2001 or until 28 his Employment Agreement is terminated by Sonic or by him. Messrs. Scott Smith and Wright also received in October 1997, pursuant to their Employment Agreements, options pursuant to Sonic's 1997 Stock Option Plan, for 199,750 shares and 76,376 shares of Class A common stock, respectively, exercisable at $6.00 per share, vesting in three equal annual installments beginning October 1998 and expiring in October 2007. Mr. Higginbotham's Employment Agreement provides that he will receive options to purchase Class A common stock in an amount and on terms consistent with the grants of options for similar employees of Sonic. In October 1998, Mr. Higginbotham was granted options to purchase 150,000 shares of Class A common stock at an exercise price of $9.19 per share under the 1997 Stock Option Plan. Each of the Employment Agreements contain similar noncompetition provisions. These provisions, during the term of the Employment Agreement, (i) prohibit the disclosure or use of confidential Sonic information, and (ii) prohibit competition with Sonic for Sonic's employees and its customers, interference with Sonic's relationships with its vendors, and employment with any competitor of Sonic in specified territories. The provisions referred to in (ii) above shall also apply for a period of two years following the expiration or termination of an Employment Agreement. With respect to Messrs. Bruton Smith, Scott Smith and Wright, the geographic restrictions apply in any Standard Metropolitan Statistical Area ("SMSA") or county in which Sonic has a place of business at the time their employment ends. With respect to Mr. Higginbotham, the territorial restrictions apply only in the SMSAs for Atlanta, Charlotte, Chattanooga, Columbus, Daytona Beach, Houston, Montgomery, Nashville and Tampa-St. Petersburg-Clearwater. OPTION GRANTS IN 1998 OPTION/SAR GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE -------------------------------------------------------------- AT ASSUMED ANNUAL RATES OF PERCENT OF STOCK NUMBER OF TOTAL PRICE APPRECIATION FOR SECURITIES OPTIONS/ OPTION UNDERLYING SARS GRANTED EXERCISE OR TERM OPTION/SARS TO EMPLOYEES BASE PRICE EXPIRATION ---------------------------- NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($) - -------------------------------- ------------- ---------------- ------------ ------------------ ------------- ------------- O. Bruton Smith ................ 200,000 14.6% $ 9.19 October, 2008 $1,155,908 $2,929,299 Bryan Scott Smith .............. 100,000 7.3% 9.19 October, 2008 577,954 1,464,649 Theodore M. Wright ............. 100,620 7.3% (1) (1) 581,537 1,473,730 Dennis D. Higginbotham ......... 150,000 10.9% 9.19 October, 2008 866,931 2,196,974
(1) The exercise price and expiration date for options to purchase 100,000 shares of Class A common stock under the 1997 Stock Option Plan is $9.19 and October 2008, respectively, and the exercise price and expiration date for options to purchase 620 shares of Class A common stock under Sonic's Employee Stock Purchase Plan was $4.10 and December 1998, respectively. FISCAL YEAR-END OPTION VALUES The following table sets forth information concerning outstanding options to purchase Class A common stock held by executive officers of Sonic as of December 31, 1998:
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED SHARES UNEXERCISED IN-THE-MONEY ACQUIRED VALUE OPTIONS/SARS AT OPTIONS/SARS AT ON EXERCISE (#)(1) REALIZED ($) FY-END (#)(1) FY-END ($)(2) -------------------- -------------- ----------------------------- ---------------------------- NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE - ------------------------ ------------- --------------- ------------- -------------- O. Bruton Smith -- $ -- -- 200,000 $ -- $1,612,000 Bryan Scott Smith -- -- 66,583 233,167 749,063 2,304,125 Theodore M. Wright 620 8,153 25,459 150,917 286,410 1,378,820 Dennis D. Higginbotham -- -- -- 150,000 -- 1,209,000
29 - --------- (1) Sonic effected a 2-for-1 split of its Class A common stock on January 25, 1999. Pursuant to the terms of the 1997 Stock Option Plan, this stock split resulted in an adjustment to the number of options and exercise price for options outstanding prior to the effective date of such stock split. The figures represented above reflect the effect of such adjustment. (2) Grant date value based on market price at date of grant. STOCK OPTION PLANS Sonic currently has in place the 1997 Stock Option Plan with respect to Class A common stock in order to attract and retain key personnel. The 1997 Stock Option Plan, as adopted in October 1997 and thereafter amended, provides for options to purchase up to an aggregate of 2,250,000 shares of Class A common stock that may be granted to key employees of Sonic and its subsidiaries and to officers, directors, consultants and other individuals providing services to Sonic. In 1998, Sonic granted options to purchase 1,373,000 shares of Class A common stock to employees. Messrs. Bruton Smith, Scott Smith, Wright and Higginbotham were granted aggregate non-statutory stock options (NSO's) and Incentive Stock Options (ISO's) for 200,000, 100,000, 100,000 and 150,000 shares, respectively, at an exercise price of $18.38 per share. In October 1997, the Board of Directors and stockholders of Sonic adopted the Sonic Automotive, Inc. Employee Stock Purchase Plan (the "Employee Plan"). The Employee Plan provides employees of Sonic and its subsidiaries with the opportunity to purchase Class A common stock. Under the terms of the Employee Plan, on January 1 of each year all eligible employees electing to participate are granted an option to purchase shares of Class A common stock. Sonic's Compensation Committee annually determines the number of shares of Class A common stock available for purchase under each option. The purchase price at which Class A common stock will be purchased through the Employee Plan will be 85% of the lesser of (i) the fair market value of the Class A common stock on the applicable grant date and (ii) the fair market value of the Class A common stock on the applicable exercise date. The grant dates are January 1 of each year plus any other interim dates designated by the Compensation Committee. The exercise dates are the last trading days on the New York Stock Exchange for March, June, September and December, plus any other interim dates designated by the Compensation Committee. Options will expire under the Employee Plan on the last exercise date of the calendar year in which granted. Options to purchase 298,740 shares of Class A common stock under the Employee Plan were issued in 1998, and 180,730 shares of Class A common stock were purchased as of December 31, 1998. On March 20, 1998, the Board of Directors approved an amendment to the Employee Plan increasing the number of options to purchase Class A common stock authorized for issuance under the Employee Plan from 300,000 to 600,000. Sonic's stockholders approved the increase of shares authorized for issuance under the Employee Plan at the 1998 annual meeting of stockholders. On March 20, 1998, the Board of Directors adopted the Sonic Automotive, Inc. Formula Stock Option Plan for Independent Directors (the "Directors Plan") for the benefit of Sonic's outside directors. Sonic's stockholders approved the Directors Plan at the 1998 annual meeting of stockholders. The Directors Plan authorizes the issuance of options to purchase up to an aggregate of 600,000 shares of Class A common stock. Under the Directors Plan, each outside director is awarded on or before March 31st of each year an option to purchase 20,000 shares at an exercise price equal to the fair market value of the Class A common stock at the date of the award. Options granted under the Directors Plan become exercisable in six months, and expire ten years, after their date of grant. In December 1998, the Board of Directors of Sonic adopted the Sonic Automotive, Inc. Nonqualified Employee Stock Purchase Plan (the "Nonqualified ESPP"). The purpose of the Nonqualified ESPP is to provide options to purchase Class A common stock to employees of Sonic's subsidiaries that are not eligible to participate in the Employee Plan; employees of Sonic who are eligible to participate in the Employee Plan are not eligible to participate in the Nonqualified ESPP. Under the terms of the Nonqualified ESPP, on January 1 of each year all employees eligible to participate in the Nonqualified ESPP and who elect to participate in the Nonqualified ESPP will be granted an option to purchase shares of Class A common stock. Sonic's Compensation Committee will annually determine the number of Class A common stock available for purchase under each option. The purchase price at which Class A common stock will be purchased through the Nonqualified ESPP will be 85% of the lesser of (i) the fair market value of the Class A common stock on the applicable grant date and (ii) the fair market value of the Class A common stock on the appplicable exercise date. The grant dates are January 1 of each year plus any other interim dates designated by the Compensation Committee. The exercise dates are the last trading days on the New 30 York Stock Exchange for March, June, September and December, plus any other interim dates designated by the Compensation Committee. Options will expire on the last exercise date of the calendar year in which granted. In adopting the Nonqualified ESPP in December 1998, the Board of Directors authorized options to be granted under the Nonqualified ESPP for 300,000 shares of Class A common stock, which options may be issued effective January 1, 1999. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION DECISIONS From Sonic's organization in February 1997 through March 20, 1998, all matters concerning executive officer compensation were addressed by the entire Board of Directors. On March 20, 1998, the Board of Directors established the Compensation Committee and elected Messrs. Bruton Smith, Benton and Belk to serve as the initial members of the Compensation Committee. Bruton Smith serves as the Chief Executive Officer of Sonic and serves as an officer for a substantial majority of Sonic's subsidiaries. Scott Smith serves as Sonic's President and Chief Operating Officer and serves as an officer for each of Sonic's subsidiaries. Mr. Wright serves as Sonic's Chief Financial Officer, Vice President-Finance, Treasurer and Secretary and serves as an officer for a substantial majority of Sonic's subsidiaries. Mr. Brooks served from February to April 1997 as Sonic's Treasurer, Vice President and Secretary. Bruton Smith is the only executive officer to have served on the Compensation Committee of another entity during 1998. He served as Chairman, Chief Executive Officer, a Director and a member of the Compensation Committee of Speedway Motorsports, Inc. ("SMI"). Mr. Brooks is also an executive officer of SMI. Bruton Smith received aggregate salary, bonus and other compensation of $1,545,000 during 1998 from SMI. DIRECTOR COMPENSATION Members of the Board of Directors who are not employees of Sonic will be compensated for their services under the Directors Plan. Sonic will also reimburse all directors for their expenses incurred in connection with their activities as directors of Sonic. Directors who are also employees of Sonic receive no compensation for serving on the Board of Directors. 31 STOCKHOLDER PERFORMANCE GRAPH Set forth below is a line graph comparing the cumulative stockholder return on Sonic's Class A common stock against the cumulative total return of each of the Standard and Poor's 500 Stock Index and a Peer Group Index for the time period commencing November 11, 1997 and ending December 31, 1998. The companies used in the Peer Group Index include Republic Industries, Group 1 Automotive, United Auto Group, Car Max and Lithia Motors, which are all publicly traded companies known by Sonic to be involved in the automobile industry. The graph assumes that $100 was invested on November 11, 1997 in each of Sonic's Class A common stock, the Standard & Poor's 500 Stock Index and the Peer Group Index companies and that all dividends were reinvested. [STOCKHOLDER PERFORMANCE GRAPH APPEARS HERE] 11/11/97 12/31/97 12/31/98 -------- -------- -------- SONIC AUTOMOTIVE............. 100.00 79.79 286.01 PEER GROUP INDEX............. 100.00 79.46 52.89 S&P.......................... 100.00 106.43 136.84 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OWNERSHIP OF CAPITAL SECURITIES The following table sets forth certain information regarding the beneficial ownership of Sonic's Class A common stock, Class B common stock and Preferred Stock (collectively, the "Voting Stock") as of March 30, 1999, by (i) each stockholder who is known to Sonic to own beneficially five percent or more of each class of the outstanding Voting Stock, (ii) each director and nominee to the Board of Directors of Sonic, (iii) each executive officer of Sonic (including the Chief Executive Officer), and (iv) all directors and executive officers of Sonic as a group. Holders of Class A common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders of Sonic. Holders of Class B common stock are entitled to ten votes per share on all matters submitted to a vote of the stockholders, except that the Class B common stock is entitled to only one vote per share with respect to any transaction proposed or approved by the Board of Directors of Sonic or proposed by all the holders of the Class B common stock or as to which any holder of Class B common stock (the "Smith Group") or any affiliate thereof has a material financial interest other than as a then existing stockholder of Sonic constituting a (a) "going private" transaction (as defined herein),(b) disposition of substantially all of Sonic's assets, (c) transfer resulting in a change in the nature of Sonic's business, or (d) merger or consolidation in which current holders of common stock would own less than 50% of the common stock following such transaction. In the event of any transfer outside of the Smith Group or the Smith Group holds less than 15% of the total number of shares of common stock outstanding, such transferred shares or all shares, respectively, of Class B common stock will automatically convert into an equal number of shares of Class A common stock. Holders of Preferred Stock are entitled to one vote per each share of Class A common stock into which such shares of Preferred Stock are convertible into as of the record date of the annual meeting or any special meeting of the stockholders of Sonic on all matters submitted to a vote of the stockholders of 32 Sonic. Except as otherwise indicated below, each of the persons named in the table has sole voting and investment power with respect to the securities beneficially owned by him or it as set forth opposite his or its name subject to community property laws where applicable.
NUMBER OF NUMBER OF SHARES OF PERCENTAGE OF SHARES OF CLASS A OUTSTANDING CLASS B COMMON CLASS A COMMON STOCK COMMON STOCK BENEFICIAL OWNER OWNED STOCK OWNED - ---------------------------------------- ---------------------- --------------- ------------ O. Bruton Smith (2)(3) ................. 225,500(4) 1.8% 10,952,500 Sonic Financial Corporation (2) ........ -- -- 8,881,250 Bryan Scott Smith (2) .................. 166,584(4)(5) 1.4% 956,250 Dennis D. Higginbotham (6) ............. 962,088(7) 7.9% -- Theodore M. Wright ..................... 126,079(4)(8) 1.0% -- William R. Brooks ...................... 20,000(9) * -- William P. Benton ...................... 20,000(9) * -- William I. Belk ........................ 5,000 * -- Citicorp (10)(11) ...................... 1,000,000 8.2% -- Citibank, N.A. (11)(12) ................ 1,000,000 8.2% -- Wellington Management Company, LLP (13)(14) .......................... 994,000 8.2% -- Wellington Trust Company, N.A. (14)(15) .............................. 616,600 5.1% -- Dan E. Hatfield (16) ................... -- -- -- Bud C. Hatfield (16) ................... -- -- -- Frank McGough (17) ..................... -- -- -- William M. Whitmire (18) ............... -- -- -- Thomas P. Williams, Sr. (19) ........... -- -- -- All directors and executive officers as a group (7 persons) ................ 1,525,151 12.5% 11,908,750 PERCENTAGE OF NUMBER OF PERCENTAGE OUTSTANDING SHARES OF PERCENTAGE OF OF ALL CLASS B PREFERRED OUTSTANDING OUTSTANDING COMMON STOCK PREFERRED VOTING BENEFICIAL OWNER STOCK OWNED STOCK STOCK (1) - ---------------------------------------- --------------- ----------- --------------- ------------ O. Bruton Smith (2)(3) ................. 88.3% -- -- 45.1% Sonic Financial Corporation (2) ........ 71.6% -- -- 36.1% Bryan Scott Smith (2) .................. 7.7% -- -- 4.5% Dennis D. Higginbotham (6) ............. -- -- -- 3.9% Theodore M. Wright ..................... -- -- -- * William R. Brooks ...................... -- -- -- * William P. Benton ...................... -- -- -- * William I. Belk ........................ -- -- -- * Citicorp (10)(11) ...................... -- -- -- 4.1% Citibank, N.A. (11)(12) ................ -- -- -- 4.1% Wellington Management Company, LLP (13)(14) .......................... -- -- -- 4.0% Wellington Trust Company, N.A. (14)(15) .............................. -- -- -- 2.5% Dan E. Hatfield (16) ................... -- 3,750 6.7% * Bud C. Hatfield (16) ................... -- 8,971 15.9% * Frank McGough (17) ..................... -- 4,194.3 7.5% * William M. Whitmire (18) ............... -- 15,013 26.7% * Thomas P. Williams, Sr. (19) ........... -- 13,938 24.8% * All directors and executive officers as a group (7 persons) ................ 96.0% -- -- 54.2%
- --------- * Less than one percent (1) The percentage of total voting power of Sonic is as follows: O. Bruton Smith, 78.4%, Sonic Financial Corporation, 63.6%, Bryan Scott Smith, 7.0%, and less than 1% for all other stockholders shown. (2) The address of such person or group is 5401 East Independence Boulevard, Charlotte, North Carolina 28212. (3) The Schedule 13D filed by the beneficial owner indicates that the shares of Class B common stock shown as owned by such person or group include all of the shares shown as owned by Sonic Financial Corporation elsewhere in the table. Bruton Smith owns the substantial majority Sonic Financial Corporation's outstanding capital stock. (4) In October 1998, Messrs. Bruton Smith, Scott Smith and Wright received grants of options to purchase 200,000, 100,000 and 100,000 shares of Class A common stock, respectively, pursuant to Sonic's 1997 Stock Option Plan. All of such options will become exercisable in April 1999. The number of shares of Class A common stock listed as owned by each such person above includes these respective grants of options. (5) Includes one-third of 199,750 shares that underlie options to purchase shares of Class A common stock granted by Sonic pursuant to the 1997 Stock Option Plan in October 1997, which became exercisable in three equal annual installments beginning in October 1998. (6) The address of such person is 104 South Riverside Dr., New Smyrna Beach, Florida 32168. (7) Does not include options to purchase 150,000 shares of Class A common stock granted to Mr. Higginbotham under the 1997 Stock Option Plan, which options become exercisable in three equal annual installments beginning in October 1999. (8) Includes one-third of 76,376 shares that underlie options to purchase shares of Class A common stock granted by Sonic pursuant to the 1997 Stock Option Plan in October 1997, which became exercisable in three equal annual installments beginning in October 1998. (9) Represents 20,000 shares that underlie options to purchase shares of Class A common stock granted by Sonic pursuant to the Directors Plan, which became exercisable in December 1998. (10) The Schedule 13D filed by the beneficial owner indicates that the shares of Class A common stock shown as owned by such entity or group include all the shares shown as owned by Citibank, N.A. elsewhere in the table. Citicorp owns all of the outstanding capital stock of Citibank, N.A. (11) The address of such entity is 399 Park Avenue, New York, New York 10043. (12) The Schedule 13D filed by the beneficial owner indicates that Citibank, N.A. has sole voting power as to 144,000 shares of the 1,000,000 shares shown with no voting power as to the remainder and has shared dispositive power over all 1,000,000 shares. 33 (13) The Schedule 13D filed by the beneficial owner indicates that Wellington Management Company has shared voting power as to 447,400 shares of the 994,000 shares shown with no voting power as to the remainder and has shared dispositive power over all 994,000 shares. (14) The address of such entity is 75 State Street, Boston, Massachusetts 02109. (15) The Schedule 13D filed by the beneficial owner indicates that Wellington Trust Company, N.A. has shared voting power as to 169,200 shares of the 616,600 shares shown with no voting power as to the remainder and has shared dispositive power over all 616,600 shares. (16) The address of such person is 1500 Automall Drive, Columbus, Ohio 43228. (17) The address of such person is 711 Eastern Blvd., Montgomery, Alabama 36117. (18) The address of such person is 4412 Paces Battle, Atlanta, GA 30327. (19) The address of such person is 401 South 20th Street, Birmingham, AL 35233. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS REGISTRATION RIGHTS AGREEMENT When Sonic acquired Town & Country Ford, Lone Star Ford, Fort Mill Ford, Town & Country Toyota and Frontier Oldsmobile-Cadillac in 1997, Sonic signed a Registration Rights Agreement dated as of June 30, 1997 with Sonic Financial Corporation ("SFC"), Bruton Smith, Scott Smith and William S. Egan (collectively, the "Class B Registration Rights Holders"). SFC currently owns 8,881,250 shares of Class B common stock; Bruton Smith, 2,071,250 shares; Scott Smith, 956,250 shares; and Egan Group, LLC, an assignee of Mr. Egan (the "Egan Group"), 491,250 shares, all of which are covered by the Registration Rights Agreement. The Egan Group also owns 100,000 shares of Class A common stock to which the Registration Rights Agreement applies. If, among other things provided in Sonic's charter, offers and sales of shares Class B common stock are registered with the Commission, then such shares will automatically convert into a like number of shares of Class A common stock. The Class B Registration Rights Holders have certain limited piggyback registration rights under the Registration Rights Agreement. These rights permit them to have their shares of Sonic's common stock included in any Sonic registration statement registering Class A common stock, except for registrations on Form S-4, relating to exchange offers and certain other transactions, and Form S-8, relating to employee stock compensation plans. The Registration Rights Agreement expires in November 2007. SFC is controlled by Bruton Smith. The Class B Registration Rights Holders have agreed to waive their registration rights in this offering. THE SMITH SUBORDINATED LOAN In December 1997, Mr. Smith was required by Ford Motor Credit to lend the $5.5 million to Sonic on a subordinated basis to increase Sonic's capitalization (the "Subordinated Smith Loan"). Ford Motor Credit required the Subordinated Smith Loan as a condition to increasing the Revolving Facility borrowing limit because the net offering proceeds from Sonic's November 1997 initial public offering were significantly less than expected by Sonic and Ford Motor Credit. The Subordinated Smith Loan bears interest at NationsBank's (now Bank of America's) announced prime rate plus 0.5% and matures on November 30, 2000. All amounts owed by Sonic to Mr. Smith under the Subordinated Smith Loan are to be paid after all amounts owed by Sonic under the Ford Credit Facilities and Sonic's senior subordinated notes are paid. For further discussion of these lending arrangements. TRANSACTIONS WITH MMRT In 1998, Sonic entered into a Strategic Alliance Agreement and Agreement for the Mutual Referral of Acquisition Opportunities (the "Strategic Alliance Agreement") with MMRT. Bruton Smith serves as the chairman of MMRT's board of trustees. Under the Alliance Agreement, Sonic agreed to refer to MMRT real estate acquisition opportunities arising with Sonic's dealership acquisitions. In exchange, MMRT agreed to refer to Sonic dealership acquisition opportunities and to provide certain real estate development and maintenance services to Sonic. MMRT will also arrange for property inspections and environmental reports for prospective dealership properties at Sonic's cost. In addition, the Alliance Agreement provides for a form of lease to be used when MMRT leases to Sonic real estate MMRT acquires in the future. Under terms substantially similar to those of this form lease, Sonic leases or will lease 34 certain properties from MMR Holdings, LLC ("MMR Holdings"), which is a limited liability company currently owned by Bruton Smith and SFC that Sonic expects to be acquired by MMRT. Sonic entered into the Alliance Agreement with MMRT rather than with an unaffiliated third party for purposes consistent with Sonic's acquisition strategy. Sonic is familiar with MMRT's growth and operating strategy and believes that MMRT is well-positioned to identify and refer attractive dealership acquisition opportunities for Sonic in the course of MMRT's acquisitions of real property. In addition, Sonic's relationship with MMRT will assist Sonic in negotiating transactions with sellers of dealerships that Sonic has identified for acquisition. Many dealership sellers who own their dealership's real property wish to sell the dealership real property as well as dealership businesses. Inclusion of real estate in a transaction may allow Sonic to negotiate an acquisition on more favorable terms. Finally, MMRT will provide development assistance to Sonic which will enable Sonic to avoid additional costs associated with hiring employees with real estate development expertise. For these reasons, Sonic feels that MMRT's growth and operating strategies are closely-aligned with Sonic's dealership acquisition strategy and that the Alliance Agreement will provide significant future benefits to Sonic. For acquisitions identified by Sonic, the Alliance Agreement is intended to operate in two different contexts, depending on whether the dealership seller owns the dealership real property or leases the dealership real property from an unaffiliated third party. For acquisitions where the dealership seller owns the dealership real property, Sonic will negotiate acquisition of the real property from the seller on an arms'-length basis and will assign its negotiated purchase rights to MMRT. MMRT will then acquire the real property from the seller. Sonic and MMRT will subsequently enter into a lease agreement regarding the dealership real property using the lease form attached to the Alliance Agreement to satisfy all non-economic terms of the lease agreement. The economic terms of the lease will be negotiated between Sonic and MMRT and will depend on several factors, including: o the projected earnings capacity of the dealership, o the quality, age and condition of the dealership structure(s), o the location of the dealership property, and o the rent paid for comparable commercial properties. As required by Sonic's Charter, the terms of any lease agreement with MMRT involving total payments of more than $500,000 will be subject to the approval of Sonic's Board of Directors and of Sonic's independent directors to ensure that such terms are no less favorable to Sonic than would be available to Sonic in a transaction with an unrelated third party. When necessary, Sonic will also obtain independent appraisals to determine the fairness of lease terms to Sonic. For acquisitions where the dealership real property is owned by an unaffiliated third party and is leased to the dealership seller, MMRT will negotiate with the unaffiliated third party to acquire the dealership real property. If MMRT is successful in acquiring the dealership real property and Sonic completes its acquisition of the dealership business, then Sonic and MMRT will enter into a lease agreement regarding the dealership real property using the Alliance Agreement's lease form and will determine the economic terms of the lease according to the principles described in the paragraph above. Sonic has sold to MMR Holdings the Town and Country Toyota real estate for approximately $5.7 million and the Fort Mill Ford real estate for approximately $4.6 million. The sales price for each of these parcels of real property was determined in negotiations between Sonic and MMRT based on the projected earnings capacity of the dealership, from which a monthly lease payment was calculated. Using this rent calculation, Sonic and MMRT agreed to a capitalization rate for the lease payments in order to determine a purchase price for the properties themselves. This capitalization rate was based on several factors, including: o the quality, age and condition of the dealership structure(s), o the location of the dealership property, o the value of the properties for alternative uses, o the availability of similar properties in the area, and o recent sales prices for comparable commercial properties in the area. An additional factor in determining Sonic's sales price for each of the properties were independent appraisals obtained by Sonic for the Town and Country Toyota property in December 1997 and Fort Mill Ford property in February 1996. These 35 appraisals, after giving effect to the passage of time, indicate that the sales price payable to Sonic by MMRT for each of the properties exceeds the appraised fair value of such properties determined in the independent appraisals. Bruton Smith determined the sales price for each of these two properties, and such determination was approved by Sonic's Board of Directors and Sonic's independent directors. In giving their approval for these sales, Sonic's directors evaluated the earning capacities of the dealerships and the capitalization rates for the related leases through an analysis of the factors stated above as well as the previously mentioned independent appraisals. CERTAIN DEALERSHIP LEASES Certain properties leased by Sonic's dealerships are, or since the beginning of the last fiscal year were, owned by Sonic's officers or directors or their affiliates. These leases contain terms comparable to, or more favorable to Sonic than, terms that would be obtained from unaffiliated third parties. Many of these properties as well as others are now owned or are under contract to be acquired by MMR Holdings, which Sonic expects will become a subsidiary of MMRT. Sonic leases or will lease 36 properties for 27 of its dealerships, described in the following table, from MMR Holdings. Sonic's directors have approved these "triple net leases," which require Sonic to pay all costs of operating the properties, as well as all taxes, utilities, insurance, repairs, maintenance and other property related expenses. These leases generally provide Sonic with options to renew the lease for two additional five year terms after the expiration of the initial lease term. The rental rates indicated below reflect minimum or "base" annual rents payable by Sonic in the first year of the applicable leases. Such rental rates generally are subject to increases either at renewal or every five years based on factors such as increases in the consumer price index or an evaluation of fair market rents.
INITIAL INITIAL LEASE PROPERTY LOCATION BASE RENT TERM EXPIRATION - -------------------------------------------------------- ---------------------- ---------------------- ---------------- Higginbotham Acura-Mercedes .......................... Daytona Beach, FL $ 221,288 2008 Halifax Ford-Mercury ................................. New Smyrna Beach, FL 536,675(1) 2008 Halifax Ford Used Cars ............................... Edgewater, FL 72,875 2008 Higginbotham Chevy-Olds .............................. New Smyrna Beach, FL 775,131(2) 2009 Infiniti of Charlotte ................................ Charlotte, NC 432,000 2008 Town & Country Ford (Parcel #1) ...................... Charlotte, NC 409,200(3) 2009(3) Town & Country Ford (Parcel #2) ...................... Charlotte, NC 108,513(4) 2008 Town & Country Toyota ................................ Charlotte, NC 600,000 2008 Lake Norman Chrysler-Plymouth-Jeep ................... Cornelius, NC 480,000 2007 Lake Norman Chrysler-Plymouth-Jeep (Parcel #2) ....... Cornelius, NC 110,250 2008 Lake Norman Dodge .................................... Cornelius, NC 480,000(1) 2007 Westside Dodge ....................................... Columbus, OH 600,000 2009 Toyota West .......................................... Columbus, OH 480,000 2009 Hatfield Hyundai ..................................... Columbus, OH 480,000 2009 Hatfield Lincoln-Mercury ............................. Columbus, OH 300,000 2009 VW & Jeep-Eagle West ................................. Columbus, OH 300,000 2009 Westside Chrysler-Plymouth ........................... Columbus, OH 300,000 2009 Fort Mill Ford ....................................... Fort Mill, SC 480,000 2008 Century BMW .......................................... Greenville, SC 420,000(5) 2008 Heritage Lincoln-Mercury ............................. Greenville, SC 313,898(5) 2008 Century BMW .......................................... Spartanburg, SC 112,805(5) 2008 Infiniti of Chattanooga .............................. Chattanooga, TN 344,224(1)(6) 2007 BMW/Volvo of Chattanooga ............................. Chattanooga, TN 279,840(1)(6) 2007 KIA/Volkswagon of Chattanooga ........................ Chattanooga, TN 132,840(6) 2007 Town & Country Ford of Cleveland ..................... Cleveland, TN 281,424(1)(6) 2007 Cleveland Honda ...................................... Cleveland, TN 154,296(6) 2007 Volkswagen of Nashville .............................. Nashville, TN 147,000 2008 Ron Craft Chrysler Plymouth Jeep ..................... Baytown, TX 210,000 2008 Lone Star Ford ....................................... Houston, TX 360,000(7) 2009(7) ------------- Total Initial Base Rent Payable to MMR Holdings ..... $ 9,922,259 =============
- --------- (1) Initial base rent indicated is the total rent payable on more than one property parcel utilized by the dealership. 36 (2) The Higginbotham Chevy-Olds dealership is presently under construction and is expected to be completed and available for leasing in 1999. MMR Holdings will acquire this property after the completion of construction. (3) The rent on Town & Country Ford (Parcel #1) is currently below market rates, as supported by independent appraisal. This lease will terminate by December 31, 1999. As a condition to MMRT's ultimate acquisition of this property, Sonic and MMRT have signed a new lease taking effect on January 1, 2000, providing for fair market annual rent of $1,140,000 and expiring on December 31, 2009. Town & Country Ford (Parcel #2) was owned by STC Properties ("STC"), which was a joint venture in which Town & Country Ford maintained a 5% undivided interest and SFC owned the remaining 95%. In October 1998, MMR Holdings acquired this property by issuing its membership interests to SFC and paying $425,000 to Town & Country Ford. STC leased this property in 1998 to Sonic at the annual rent indicated. (4) Until its acquisition by MMR Holdings in October 1998, Town & Country Ford (Parcel #2) was owned by Bruton Smith and, in 1998, was leased to Sonic at the annual base rent indicated. (5) In July 1998, Chartown, a general partnership controlled by Bruton Smith ("Chartown"), acquired the real property on which this dealership operated. Chartown then leased the property to the Sonic subsidiary that acquired the assets of the dealership at the annual rental rate indicated. In December 1998, MMR Holdings acquired this property from Chartown subject to the existing lease. (6) This dealership previously leased its property from Nelson Bowers, Sonic's former Executive Vice President and a former director, or his affiliates. In November 1998, MMR Holdings acquired this property subject to the existing lease. Sonic negotiated this lease in connection with acquisition of the dealership from Nelson Bowers in 1997 and paid 1998 rent to Mr. Bowers or his affiliates at the indicated rate. (7) The rent on Lone Star Ford is currently below market rates, as supported by independent appraisal. This lease will terminate by December 31, 1999. As a condition to MMRT's ultimate acquisition of this property, Sonic and MMRT have signed a new lease taking effect on January 1, 2000, providing for fair market annual rent of $1,140,000 and expiring on December 31, 2009. The Lone Star Ford property was owned by Viking Investments Associates, a Texas association controlled by Bruton Smith ("Viking"). In October 1998, MMR Holdings acquired the Lone Star Ford property. Viking leased this property in 1998 to Sonic at the annual rent indicated. CHARTOWN TRANSACTIONS Chartown is a general partnership engaged in real estate development and management. Before Sonic's reorganization before its initial public offering, Town & Country Ford maintained a 49% partnership interest in Chartown with the remaining 51% held by SMDA Properties, LLC, a North Carolina limited liability company ("SMDA"). Bruton Smith owns an 80% direct membership interest in SMDA with the remaining 20% owned indirectly through SFC. In addition, SFC also held a demand promissory note for approximately $1.6 million issued by Chartown (the "Chartown Note"), which was uncollectible due to insufficient funds. As part of Sonic's reorganization, the Chartown Note was canceled and Town & Country Ford transferred its partnership interest in Chartown to SFC for nominal consideration. SFC then agreed to indemnify Town & Country Ford for any and all obligations and liabilities, whether known or unknown, relating to Chartown and Town & Country Ford's ownership of Chartown. THE BOWERS VOLVO NOTE In connection with Volvo's approval of Sonic's acquisition of a Volvo franchise from Nelson Bowers in 1997, Volvo, among other things, conditioned its approval upon Nelson Bowers acquiring and maintaining a 20% interest in Sonic's Chattanooga Volvo subsidiary operating the Volvo franchise. Mr. Bowers financed all of the purchase price for this 20% interest by issuing a promissory note (the "Bowers Volvo Note") in favor of Sonic Automotive of Nevada, Inc., the wholly owned subsidiary of Sonic that controls a majority interest in Chattanooga Volvo. The Bowers Volvo Note is secured by Mr. Bowers' interest in Chattanooga Volvo. The Bowers Volvo Note is for a principal amount of $900,000 and bears interest at the lowest applicable federal rate as published by the U.S. Treasury Department in effect on November 17, 1997. Accrued interest is payable annually. The operating agreement of Chattanooga Volvo provides that profits and distributions are to be allocated first to Mr. Bowers to the extent of interest to be paid on the Bowers Volvo Note and next to the other members of Chattanooga Volvo according to their percentages of ownership. No other profits or any losses of Chattanooga Volvo will be allocated to Mr. 37 Bowers under this arrangement. Volvo has removed its requirement that Mr. Bowers maintain his interest in Chattanooga Volvo. Sonic and Mr. Bowers are in the process of redeeming his interest in Chattanooga Volvo and satisfying the Bowers Volvo Note. OTHER TRANSACTIONS o Town & Country Ford and Lone Star Ford had each made several non-interest bearing advances to SFC, a company controlled by Bruton Smith. In preparation for Sonic's 1997 reorganization, a demand promissory note by SFC evidencing $2.1 million of these advances was canceled in June 1997 in exchange for the redemption of certain shares of the capital stock of Town & Country Ford held by SFC. In addition, a demand promissory note by SFC evidencing of $0.5 million of these advances was canceled in June 1997 pursuant to a dividend. o Sonic had amounts receivable from affiliates of $1.0 million and $1.5 million at December 31, 1997 and 1998, respectively. Of this amount, $622,000 relates to advances made by Sonic to SFC at December 31, 1997 and $1.5 million relates to advances made by Sonic to SFC and MMRT at December 31, 1998. The remaining $425,000 at December 31, 1997 primarily relates to receivables from executives of Sonic who were former owners of certain dealerships acquired. These receivables resulted from differences in the negotiated and actual net book value of the dealerships at the date of acquisitions. The amounts receivable from affiliates are non-interest bearing and are classified as current based on the expected repayment dates. o As part of the purchase price in connection with Sonic's acquisition of the Bowers Automotive Group in November 1997, Sonic issued its promissory note in the principal amount of $4.0 million in favor of Nelson Bowers (the "Bowers Acquisition Note"). The Bowers Acquisition Note is payable in 28 equal quarterly installments and bears interest at the prime rate less 0.5%. The balance outstanding under this note at December 31, 1998 was $3.4 million. o Town and Country Toyota has an amount payable to Bruton Smith, which payable totals approximately $0.7 million as of December 31, 1998. This loan bears interest at 8.75% per annum. o Certain subsidiaries of Sonic (such subsidiaries together with Sonic and SFC are referred to as the "Sonic Group") filed consolidated federal income tax returns with SFC for several years before our reorganization. These joint filings were for 1996 and for the period ending on June 30, 1997. Under applicable federal tax law, each corporation included in SFC's consolidated return is jointly and severally liable for any resultant tax. Under a tax allocation agreement dated as of June 30, 1997, however, Sonic agreed to pay to SFC, in the event that additional federal income tax is determined to be due, an amount equal to Sonic's separate federal income tax liability computed for all periods in which any member of the Sonic Group has been a member of SFC's consolidated group less amounts previously recorded by Sonic. Also pursuant to such agreement, SFC agreed to indemnify Sonic for any additional amount determined to be due from SFC's consolidated group in excess of the federal income tax liability of the Sonic Group for such periods. The tax allocation agreement establishes procedures with respect to tax adjustments, tax claims, tax refunds, tax credits and other tax attributes relating to periods ending prior to the time that the Sonic Group shall leave SFC's consolidated group. o Sonic acquired Town & Country Ford, Lone Star Ford, Town & Country Toyota, Fort Mill Ford and Frontier Oldsmobile-Cadillac in its 1997 reorganization pursuant to four separate stock subscription agreements. These subscription agreements allowed the acquisition of 100% of the capital stock or membership interests, as the case may be, of each of the five dealerships from Sonic Financial, Bruton Smith, the Egan Group (an assignee of Mr. Egan) and Bryan Scott Smith in exchange for certain amounts of Sonic's Class B common stock. 38 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K The exhibits and other documents filed as a part of this Annual Report on Form 10-K, including those exhibits which are incorporated by reference herein, are: (a)(1) Financial Statements: See the Index to Financial Statements which appears on page F-1 hereof. (2) Financial Statement Schedules: No financial statement schedules are required to be filed as part of this Annual Report on Form 10-K. (3) Exhibits: Exhibits required in connection with this Annual Report on Form 10-K are listed below. Certain of such exhibits, indicated by an asterisk, are hereby incorporated by reference to other documents on file with the Securities and Exchange Commission with which they are physically filed, to be a part hereof as of their respective dates.
EXHIBIT NO. DESCRIPTION - ------------- ------------------------------------------------------------------------------------------------------------ 3.1* Amended and Restated Certificate of Incorporation of Sonic (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (Registration No. 333-33295) of Sonic (the "Form S-1")). 3.2* Certificate of Designation, Preferences and Rights of Class A Convertible Preferred Stock (incorporated by reference to Exhibit 4.1 to Sonic's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). 3.3* Bylaws of Sonic (incorporated by reference to Exhibit 3.2 to the Form S-1). 4.1* Form of 11% Senior Subordinated Note due 2008, Series B (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-4 (Registration Nos. 333-64397 and 333-64397-001 through 333-64397-044) of Sonic (the "Form S-4")). 4.2* Indenture dated as of July 1, 1998 between Sonic, as issuer, the subsidiaries of Sonic named therein, as guarantors, and U.S. Bank Trust National Association, as trustee, relating to the 11% Senior Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.2 to the Form S-4). 4.3* Registration Rights Agreement dated as of June 30, 1997 among Sonic, O. Bruton Smith, Bryan Scott Smith, William S. Egan and Sonic Financial Corporation (incorporated by reference to Exhibit 4.2 to the Form S-1). 10.1* Employment Agreement between Sonic and O. Bruton Smith (incorporated by reference to Exhibit 10.29 to the Form S-1). 10.2* Employment Agreement between Sonic and Bryan Scott Smith (incorporated by reference to Exhibit 10.30 to the Form S-1). 10.3* Employment Agreement between Sonic and Theodore M. Wright (incorporated by reference to Exhibit 10.31 to the Form S-1). 10.4* Employment Agreement between Sonic and Nelson E. Bowers, II (incorporated by reference to Exhibit 10.32 to the Form S-1). 10.5* Employment Agreement between Sonic and Dennis D. Higginbotham (incorporated by reference to Exhibit 10.90 to the Form S-4). 10.6* Tax Allocation Agreement dated as of June 30, 1997 between Sonic and Sonic Financial Corporation (incorporated by reference to Exhibit 10.33 to the Form S-1). 10.7* Assignment of Joint Venture Interest in Chartown dated as of June 30, 1997 among Town and Country Ford, Inc., SMDA LLC and Sonic Financial Corporation (incorporated by reference to Exhibit 10.28 to the Form S-1). 10.8* Sonic Automotive, Inc. 1997 Stock Option Plan (incorporated by reference to Exhibit 10.34 to the Form S-1). 10.9* Sonic Automotive, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.35 to the Form S-1). 10.9a* Sonic Automotive, Inc. Employee Stock Purchase Plan Amended and Restated as of December 3, 1998 (incorporated by reference to Sonic's Registration Statement on Form S-8 (Registration No. 333-69907)). 10.10* Sonic Automotive, Inc. Formula Stock Option Plan for Independent Directors (incorporated by reference to Exhibit 10.69 to Sonic's Amended Annual Report on Form 10-K/A for the year ended December 31, 1997 (the "1997 Form 10-K/A")). 10.11* Sonic Automotive, Inc. Nonqualified Employee Stock Purchase Plan (incorporated by reference to Sonic's Registration Statement on Form S-8 (Registration No. 333-69899)). 10.12* Subscription Agreement dated as of June 30, 1997 between O. Bruton Smith and Sonic (incorporated by reference to Exhibit 10.36 to the Form S-1). 10.13* Subscription Agreement dated as of June 30, 1997 between Sonic Financial Corporation and Sonic (incorporated by reference to Exhibit 10.37 to the Form S-1).
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EXHIBIT NO. DESCRIPTION - ------------- ----------------------------------------------------------------------------------------------------------------- 10.14* Subscription Agreement dated as of June 30, 1997 between Bryan Scott Smith and Sonic (incorporated by reference to Exhibit 10.38 to the Form S-1). 10.15* Subscription Agreement dated as of June 30, 1997 between William S. Egan and Sonic (incorporated by reference to Exhibit 10.39 to the Form S-1). 10.16* Credit Agreement dated October 15, 1997 by and between Sonic and Ford Motor Credit Company (incorporated by reference to Exhibit 10.46 to the Form S-1). 10.17* Amended and Restated Credit Agreement dated as of December 15, 1997 (the "Credit Agreement") between Sonic, as borrower, and Ford Motor Credit Company, as lender (incorporated by reference to Exhibit 10.70 to the 1997 Form 10-K/A). 10.18* Amended and Restated Promissory Note dated December 15, 1997 in the amount of $75 million by Sonic, as borrower, in favor of Ford Motor Credit Company, as lender, under the Credit Agreement (incorporated by reference to Exhibit 10.71 to the 1997 Form 10-K/A). 10.19* Subordinated Promissory Note dated December 1, 1997 (the "Smith Subordinated Note") in the amount of $5.5 million by Sonic, as borrower, in favor of O. Bruton Smith, as lender (incorporated by reference to Exhibit 10.72 to the 1997 Form 10-K/A). 10.20* Subordination Agreement dated as of December 15, 1997 between O. Bruton Smith and Ford Motor Credit Company and acknowledged by Sonic re: the Smith Subordinated Note (incorporated by reference to Exhibit 10.73 to the 1997 Form 10-K/A) 10.21* Subordination Agreement dated as of July 31, 1998 between O. Bruton Smith and U.S. Bank Trust National Association, as trustee under the Indenture relating to the 11% Senior Subordinated Notes re: the Smith Subordinated Note (incorporated by reference to Exhibit 10.89 to the Form S-4). 10.22 Amendment to the Credit Agreement dated March 2, 1999 . 10.23 Second Amended and Restated Promissory Note dated March 2, 1999 in the amount of $100 million by Sonic, as borrower, in favor of Ford Motor Credit Company, as lender, under the Credit Agreement, as amended. 10.24* Strategic Alliance Agreement and Agreement for the Mutual Referral of Acquisition Opportunities dated July 9, 1998 between Sonic and Mar Mar Realty Trust (incorporated by reference to Exhibit 99.7 to Sonic's Current Report on Form 8-K dated July 24, 1998). 10.25* Supplemental Agreement between Sonic and Ford Motor Company (incorporated by reference to Exhibit 10.48 to the Form S-1). 10.26* Agreement between Toyota Motors Sales USA and Sonic (incorporated by reference to Exhibit 10.49 to the Form S-1). 10.27* Asset Purchase Agreement dated as of May 27, 1997 by and among Sonic, Lake Norman Dodge, Inc., Lake Norman Chrysler-Plymouth-Jeep-Eagle LLC, Quinton M. Gandy and Phil M. Gandy, Jr. (confidential portions omitted and filed separately with the SEC) (incorporated by reference to Exhibit 10.40 to the Form S-1). 10.28* Asset Purchase Agreement dated as of June 24, 1997 by and among Sonic, Kia of Chattanooga, LLC, European Motors of Nashville, LLC, European Motors, LLC, Jaguar of Chattanooga LLC, Cleveland Chrysler-Plymouth-Jeep-Eagle LLC, Nelson Bowers Dodge, LLC, Cleveland Village Imports, Inc., Saturn of Chattanooga, Inc., Nelson Bowers Ford, L.P., Nelson E. Bowers II, Jeffrey C. Rachor, and the other shareholders named herein (confidential portions omitted and filed separately with the SEC) (incorporated by reference to Exhibit 10.41 to the Form S-1). 10.29* Amendment to Asset Purchase Agreement dated October 16, 1997 re: Bowers Acquisition (incorporated by reference to Exhibit 10.41a to the Form S-1). 10.30* Stock Purchase Agreement dated as of July 29, 1997 between Sonic and Ken Marks, Jr., O.K. Marks, Sr. and Michael J. Marks (confidential portions omitted and filed separately with the SEC) (incorporated by reference to Exhibit 10.42 to the Form S-1). 10.31* Asset Purchase Agreement dated as of August 1997 by and among Sonic, Dyer & Dyer, Inc. and Richard Dyer (confidential portions omitted and filed separately with the SEC) (incorporated by reference to Exhibit 10.43 to the Form S-1). 10.32* Amendment to Asset Purchase Agreement dated October 16, 1997 re: Dyer Acquisition (incorporated by reference to Exhibit 10.43a to the Form S-1). 10.33* Asset Purchase Agreement dated as of February 4, 1998 between Sonic, as buyer, Hatfield Jeep Eagle, Inc., Hatfield Lincoln Mercury, Inc, Trader Bud's Westside Dodge, Inc., Toyota West, Inc. and Hatfield Hyundai, Inc., as sellers, and Bud C. Hatfield, Dan E. Hatfield and Dan E. Hatfield, as Trustee of The Bud C. Hatfield, Sr. Special Irrevocable Trust, as shareholders of the sellers (the "Hatfield Purchase Agreement") (incorporated by reference to Exhibit 10.3 to Sonic's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). 10.33a* Amendment No. 1 and Supplement to the Hatfield Purchase Agreement (incorporated by reference to Exhibit 99.6 to Sonic's Current Report on Form 8-K dated July 9, 1998 (the "July 9, 1998 Form 8-K")).
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EXHIBIT NO. DESCRIPTION - ------------- ---------------------------------------------------------------------------------------------------------- 10.33b* Amendment No. 2 and Supplement to the Hatfield Purchase Agreement (incorporated by reference to Exhibit 99.3 to Sonic's Current Report on Form 8-K dated July 24, 1998). 10.34* Asset Purchase Agreement dated as of July 7, 1998 by and among Sonic, HMC Finance Corporation, Inc., Halifax Ford-Mercury, Inc., Higginbotham Automobiles, Inc., Higginbotham Chevrolet-Oldsmobile, Inc. Sunrise Auto World, Inc. and Dennis D. Higginbotham (the "Higginbotham Purchase Agreement") (incorporated by reference to Exhibit 99.14 to the July 9, 1998 Form 8-K). 10.34a* Amendment No. 1 and Supplement to the Higginbotham Purchase Agreement dated as of September 16, 1998 (incorporated by reference to Exhibit 10.85a to the Form S-4). 10.35 Amended and Restated Asset Purchase Agreement dated as of March 16, 1999 by and among Sonic, Tom Williams Buick, Inc., Williams Cadillac, Inc., Tom Williams Motors, Inc., Tom Williams Auto, Inc., Thomas P. Williams, Sr., Charles Clark Williams and Thomas P. Williams, Jr. 10.35a Agreement and Plan of Merger dated as of March 16, 1999 by and among Sonic, Williams Cadillac Company, Inc., Thomas P. Williams, Sr., Charles Clark Williams, Thomas P. Williams, Jr. and Catherine D. Ward. 10.36 Asset Purchase Agreement by and among Sonic, Global Imports, Inc. and William Morris Whitmire (the "Global Purchase Agreement"). 10.36a Amendment No. 1 and Supplement to the Global Purchase Agreement dated as of February 18, 1999. 10.37 Asset Purchase Agreement dated February 26, 1999 by and among Sonic, Lute Riley Motors, Inc. and L.S. Riley. 21.1 Subsidiaries of the Company. 23.1 Consent of Deloitte & Touche LLP. 27 Financial Data Schedule
- --------- * Filed previously (b) Reports on Form 8-K No Current Reports on Form 8-K were filed during the quarter ended December 31, 1998. 41 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. SONIC AUTOMOTIVE, INC. BY /S/ O. BRUTON SMITH ------------------------------------ O. BRUTON SMITH CHIEF EXECUTIVE OFFICER AND CHAIRMAN Date: March 31, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on its behalf by the registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - ---------------------------------------- --------------------------------------------- --------------- /s/ O. BRUTON SMITH Chief Executive Officer (principal March 31, 1999 - ------------------------------------ executive officer) and Chairman O. BRUTON SMITH /s/ B. SCOTT SMITH President, Chief Operating Officer and March 31, 1999 - ------------------------------------ Director B. SCOTT SMITH /s/ DENNIS D. HIGGINBOTHAM President of Retail Operations and Director March 31, 1999 - ------------------------------------ DENNIS D. HIGGINBOTHAM /s/ THEODORE M. WRIGHT Chief Financial Office, Vice President- March 31, 1999 - ------------------------------------ Finance, Treasurer, Secretary (Principal THEODORE M. WRIGHT Financial and Accounting Officer) and Director /s/ WILLIAM R. BROOKS Director March 31, 1999 - ------------------------------------ WILLIAM R. BROOKS /s/ WILLIAM P. BENTON Director March 31, 1999 - ------------------------------------ WILLIAM P. BENTON /s/ WILLIAM I. BELK Director March 31, 1999 - ------------------------------------ WILLIAM I. BELK
42 INDEX TO FINANCIAL STATEMENTS
PAGE ----- SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES INDEPENDENT AUDITORS' REPORT .............................................................. F-2 CONSOLIDATED FINANCIAL STATEMENTS: Consolidated Balance Sheets at December 31, 1997 and 1998 ................................ F-3 Consolidated Statements of Income for the years ended December 31, 1996, 1997 and 1998.... F-4 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1997 and 1998........................................................................... F-5 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998.................................................................................... F-6 Notes to Consolidated Financial Statements ............................................... F-7
F-1 INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF SONIC AUTOMOTIVE, INC. Charlotte, North Carolina We have audited the accompanying consolidated balance sheets of Sonic Automotive, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1998. 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 1997 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Charlotte, North Carolina February 16, 1999 F-2 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1998 (DOLLARS IN THOUSANDS)
DECEMBER 31, --------------------- 1997 1998 ---------- ---------- ASSETS (Note 5) CURRENT ASSETS: Cash and cash equivalents (Note 1) ..................................................... $ 18,304 $ 51,834 Receivables (net of allowance for doubtful accounts of $523 and $700 at December 31, 1997 and 1998, respectively) .......................................................... 19,784 39,902 Inventories (Notes 1 and 3) ............................................................ 156,514 264,971 Deferred income taxes (Note 6) ......................................................... 405 1,702 Due from affiliates (Note 7) ........................................................... 1,047 1,471 Other current assets (Note 2) .......................................................... 1,318 4,961 -------- -------- Total current assets .................................................................. 197,372 364,841 PROPERTY AND EQUIPMENT, NET (Notes 4 and 5) ............................................. 19,081 26,250 GOODWILL, NET (Note 1) .................................................................. 74,362 180,081 OTHER ASSETS ............................................................................ 635 4,931 -------- -------- TOTAL ASSETS ............................................................................ $291,450 $576,103 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable -- floor plan (Note 3) ................................................... $133,236 $228,158 Trade accounts payable ................................................................. 6,612 14,994 Accrued interest ....................................................................... 1,071 7,058 Other accrued liabilities (Note 6) ..................................................... 10,748 27,763 Payable to affiliates (Note 7) ......................................................... 445 628 Payable for acquisitions (Note 2) ...................................................... -- 2,385 Current maturities of long-term debt (Note 5) .......................................... 584 4,700 -------- -------- Total current liabilities ............................................................. 152,696 285,686 LONG-TERM DEBT (Note 5) ................................................................. 38,640 131,337 PAYABLE FOR ACQUISITIONS (Note 2) ....................................................... 275 PAYABLE TO THE COMPANY'S CHAIRMAN (Note 7) .............................................. 5,500 5,500 PAYABLE TO AFFILIATES (Note 7) .......................................................... 4,394 3,625 DEFERRED INCOME TAXES (Note 6) .......................................................... 1,079 4,066 INCOME TAX PAYABLE (Note 6) ............................................................. 4,776 3,185 COMMITMENTS AND CONTINGENCIES (Notes 7 and 10) STOCKHOLDERS' EQUITY (Notes 1, 8 and 9): Preferred Stock, $.10 par, 3.0 million shares authorized; 300,000 shares designated as Class A Convertible Preferred Stock, liquidation preference $1,000 per share, of which 22,179 shares are issued and outstanding at December 31, 1998 ......................... -- 20,431 Class A Common Stock, $.01 par, 50.0 million shares authorized; 5,000,000 shares issued and outstanding at December 31, 1997 and 11,959,274 shares issued and outstanding at December 31, 1998 ........................................... 100 120 Class B Common Stock, $.01 par (convertible into Class A Common Stock), 15.0 million shares authorized; 12,500,000 shares issued and outstanding at December 31, 1997 and 12,400,000 shares issued and outstanding at December 31, 1998 ......................... 125 124 Paid-in capital ........................................................................ 67,933 87,011 Retained earnings ...................................................................... 16,186 34,743 Accumulated other comprehensive income ................................................. 21 -- -------- -------- Total stockholders' equity ............................................................ 84,365 142,429 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................................. $291,450 $576,103 ======== ========
See notes to consolidated financial statements. F-3 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEARS ENDED DECEMBER 31, 1996 1997 1998 ----------- ------------- --------------- REVENUES: Vehicle sales ........................................... $327,674 $ 467,858 $ 1,407,030 Parts, service and collision repair ..................... 42,075 57,537 162,660 Finance and insurance (Note 1) .......................... 7,118 10,606 34,011 -------- --------- ----------- Total revenues ........................................ 376,867 536,001 1,603,701 COST OF SALES (Note 1) ................................... 332,122 473,003 1,396,259 -------- --------- ----------- GROSS PROFIT ............................................. 44,745 62,998 207,442 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ................................................ 32,602 46,770 150,130 DEPRECIATION AND AMORTIZATION ............................ 1,076 1,322 4,607 -------- --------- ----------- OPERATING INCOME ......................................... 11,067 14,906 52,705 OTHER INCOME AND EXPENSE: Interest expense, floor plan (Note 3) ................... 5,968 8,007 14,096 Interest expense, other ................................. 433 1,199 9,395 Other income ............................................ 355 298 426 -------- --------- ----------- Total other expense ................................... 6,046 8,908 23,065 -------- --------- ----------- INCOME BEFORE INCOME TAXES AND MINORITY INTEREST ......... 5,021 5,998 29,640 PROVISION FOR INCOME TAXES (Note 6) ...................... 1,924 2,249 11,083 -------- --------- ----------- INCOME BEFORE MINORITY INTEREST .......................... 3,097 3,749 18,557 MINORITY INTEREST IN EARNINGS OF SUBSIDIARY (Note 1) ..... 114 47 -- -------- --------- ----------- NET INCOME ............................................... $ 2,983 $ 3,702 $ 18,557 ======== ========= =========== BASIC NET INCOME PER SHARE (Note 8) ...................... $ 0.27 $ 0.81 ========= =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING ............ 13,898 22,852 ========= =========== DILUTED NET INCOME PER SHARE (Note 8) .................... $ 0.27 $ 0.74 ========= =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING ............ 13,898 24,970 ========= ===========
See notes to consolidated financial statements. F-4 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (DOLLARS AND SHARES IN THOUSANDS)
PREFERRED CLASS A CLASS B STOCK COMMON STOCK COMMON STOCK SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT -------- ----------- -------- -------- ---------- ---------- BALANCE AT DECEMBER 31, 1995 ................. -- -- -- -- 12,500 $125 Capital contributions ............. -- -- -- -- -- -- Comprehensive income: Net income ....................... -- -- -- -- -- -- Net unrealized loss on marketable equity securities net of tax benefit of $35,488 .............. -- -- -- -- -- -- --- -- -- -- ------ ---- Total comprehensive income ......................... BALANCE AT DECEMBER 31, 1996 ................. -- -- -- -- 12,500 125 Capital contribution (Note 1) -- -- -- -- -- -- Public offering of common stock (Note 8) ................... -- -- 10,000 100 -- -- Stock redemption (Note 7) ......... -- -- -- -- -- -- Dividend (Note 7) ................. -- -- -- -- -- -- Comprehensive income: Net income ....................... -- -- -- -- -- -- Net unrealized gain on marketable equity securities net of tax of $73,864.......................... -- -- -- -- -- -- --- -- ------ --- ------ ---- Total comprehensive income ......................... BALANCE AT DECEMBER 31, 1997 ................. -- -- 10,000 100 12,500 125 Issuance of Preferred Stock (Note 2) ......................... 31 29,342 -- -- -- -- Issuance of Common Stock .......... 975 10 Shares awarded under stock compensation plans ............... 252 3 -- Issuance of warrants (Note 8) ......................... -- Conversion of preferred stock (Note 8) ......................... (9) (8,911) 632 6 -- -- Conversion of Class B Common stock ..................... -- -- 100 1 (100) (1) Comprehensive income: Net income ....................... -- -- -- -- -- -- Net unrealized loss on marketable equity securities ...................... -- -- -- -- -- -- ---- ------ ------ --- ------ ----- Total comprehensive income ......................... BALANCE AT DECEMBER 31, 1998 ................. 22 $ 20,431 11,959 $120 12,400 $124 ==== ======== ====== ==== ====== ===== ACCUMULATED OTHER TOTAL PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS' CAPITAL EARNINGS INCOME (LOSS) EQUITY ----------- ---------- --------------- -------------- BALANCE AT DECEMBER 31, 1995 ................. $ 6,207 $10,010 $ (35) $ 16,307 Capital contributions ............. 7,064 -- -- 7,064 Comprehensive income: Net income ....................... -- 2,983 -- 2,983 Net unrealized loss on marketable equity securities net of tax benefit of $35,488 .............. -- -- (59) (59) -------- ------- ----- -------- Total comprehensive income ......................... 2,924 -------- BALANCE AT DECEMBER 31, 1996 ................. 13,271 12,993 (94) 26,295 Capital contribution (Note 1) 3,208 -- -- 3,208 Public offering of common stock (Note 8) ................... 53,577 -- -- 53,677 Stock redemption (Note 7) ......... (2,123) -- -- (2,123) Dividend (Note 7) ................. -- (509) -- (509) Comprehensive income: Net income ....................... -- 3,702 -- 3,702 Net unrealized gain on marketable equity securities net of tax of $73,864.......................... -- -- 115 115 -------- ------- ----- -------- Total comprehensive income ......................... 3,817 -------- BALANCE AT DECEMBER 31, 1997 ................. 67,933 16,186 21 84,365 Issuance of Preferred Stock (Note 2) ......................... -- -- -- 29,342 Issuance of Common Stock .......... 8,283 8,293 Shares awarded under stock compensation plans ............... 1,162 1,165 Issuance of warrants (Note 8) ......................... 728 728 Conversion of preferred stock (Note 8) ......................... 8,905 -- -- -- Conversion of Class B Common stock ..................... -- -- -- -- Comprehensive income: Net income ....................... -- 18,557 -- 18,557 Net unrealized loss on marketable equity securities ...................... -- -- (21) (21) -------- ------- ----- -------- Total comprehensive income ......................... 18,536 -------- BALANCE AT DECEMBER 31, 1998 ................. $ 87,011 $34,743 $ -- $142,429 ======== ======= ===== ========
See notes to consolidated financial statements. F-5 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998 (DOLLARS IN THOUSANDS)
YEARS ENDED DECEMBER 31, ------------- 1996 ------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................................................ $ 2,983 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ....................................................... 1,076 Minority interest ................................................................... 114 Loss on disposal of property and equipment .......................................... 80 (Gain) loss on sale of marketable equity securities ................................. (355) Change in deferred income taxes ..................................................... (241) Changes in assets and liabilities that relate to operations: Receivables ........................................................................ (2,421) Inventories ........................................................................ (14,013) Other assets ....................................................................... (80) Accounts payable and other current liabilities ..................................... 1,439 Income tax payable ................................................................. 524 ----------- Total adjustments ................................................................. (13,877) ----------- Net cash provided by (used in) operating activities ................................. (10,894) ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of businesses, net of cash acquired .......................................... (5,127) Purchases of property and equipment ................................................... (1,907) Proceeds from sales of property and equipment ......................................... 4 Purchase of marketable equity securities .............................................. (207) Proceeds from sales of marketable equity securities ................................... 515 ----------- Net cash used in investing activities ............................................... (6,722) ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital contributions ................................................................. 7,064 Proceeds from notes payable -- floor plan ............................................. 306,584 Payments from notes payable -- floor plan ............................................. (293,599) Proceeds from long-term debt .......................................................... 599 Payments of long-term debt ............................................................ (576) Public offering of common stock ....................................................... -- Issuance of shares under stock compensation plans ..................................... -- Receipts from (advances to) affiliate companies ....................................... (4,771) Advances from the Company's Chairman (Note 7) ......................................... -- ----------- Net cash provided by financing activities ........................................... 15,301 ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................... (2,315) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......................................... 8,994 ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................... $ 6,679 =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -- Cash paid during the period for: Interest .............................................................................. $ 6,489 Income taxes .......................................................................... $ 2,042 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: Purchase of minority interest in connection with the reorganization (Note 1) .......... -- Cancellation of notes payable from affiliates in connection with the reorganization (Note 7).............................................................................. -- Cancellation of notes payable from affiliates pursuant to dividend (Note 7) ........... -- Preferred Stock issued pursuant to acquisitions ....................................... -- Conversion of preferred stock ......................................................... -- Common Stock issued to an affiliate pursuant to an acquisition ........................ Payable for acquisitions (Note 2) ..................................................... -- Issuance of warrants (Notes 2 and 8) .................................................. -- YEARS ENDED DECEMBER 31, ----------------------------- 1997 1998 ------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ............................................................................ $ 3,702 $ 18,557 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization ....................................................... 1,322 4,607 Minority interest ................................................................... 47 -- Loss on disposal of property and equipment .......................................... 110 278 (Gain) loss on sale of marketable equity securities ................................. (298) 21 Change in deferred income taxes ..................................................... (27) 2,164 Changes in assets and liabilities that relate to operations: Receivables ........................................................................ (594) (11,018) Inventories ........................................................................ 1,430 12,030 Other assets ....................................................................... (788) (4,190) Accounts payable and other current liabilities ..................................... 1,694 11,026 Income tax payable ................................................................. (504) (3,682) ----------- ------------- Total adjustments ................................................................. 2,392 11,236 ----------- ------------- Net cash provided by (used in) operating activities ................................. 6,094 29,793 ----------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of businesses, net of cash acquired .......................................... (85,650) (72,205) Purchases of property and equipment ................................................... (2,007) (4,335) Proceeds from sales of property and equipment ......................................... 43 1,655 Purchase of marketable equity securities .............................................. -- -- Proceeds from sales of marketable equity securities ................................... 784 ----------- Net cash used in investing activities ............................................... (86,830) (74,885) ----------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Capital contributions ................................................................. -- Proceeds from notes payable -- floor plan ............................................. 459,678 1,149,497 Payments from notes payable -- floor plan ............................................. (458,046) (1,166,303) Proceeds from long-term debt .......................................................... 45,892 179,851 Payments of long-term debt ............................................................ (13,353) (84,594) Public offering of common stock ....................................................... 53,677 -- Issuance of shares under stock compensation plans ..................................... -- 1,165 Receipts from (advances to) affiliate companies ....................................... (987) (994) Advances from the Company's Chairman (Note 7) ......................................... 5,500 -- ----------- ------------- Net cash provided by financing activities ........................................... 92,361 78,622 ----------- ------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................... 11,625 33,530 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......................................... 6,679 18,304 ----------- ------------- CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................... $ 18,304 $ 51,834 =========== ============= SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -- Cash paid during the period for: Interest .............................................................................. $ 8,761 $ 17,504 Income taxes .......................................................................... $ 1,392 $ 10,919 SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: Purchase of minority interest in connection with the reorganization (Note 1) .......... $ 3,208 -- Cancellation of notes payable from affiliates in connection with the reorganization (Note 7).............................................................................. $ 2,123 -- Cancellation of notes payable from affiliates pursuant to dividend (Note 7) ........... $ 509 -- Preferred Stock issued pursuant to acquisitions ....................................... -- $ 29,342 Conversion of preferred stock ......................................................... -- $ 8,911 Common Stock issued to an affiliate pursuant to an acquisition ........................ $ 8,250 Payable for acquisitions (Note 2) ..................................................... -- $ 2,685 Issuance of warrants (Notes 2 and 8) .................................................. -- $ 728
See notes to consolidated financial statements. F-6 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION AND BUSINESS -- Sonic Automotive, Inc ("Sonic") is one of the top five automotive retailers in the United States, operating 38 new car dealerships and 14 collision repair centers in 10 metropolitan areas of the Midwestern, Southeastern, and Southwestern United States as of December 31, 1998. Sonic sells new and used cars and light trucks, sells replacement parts, provides vehicle maintenance, warranty, paint and repair services, and arranges related financing and insurance for its automotive customers. As of December 31, 1998, Sonic sold a total 23 foreign and domestic brands of new vehicles. Sonic was incorporated in the State of Delaware in February 1997. Pursuant to a reorganization on June 30, 1997 (the "Reorganization"), five dealerships which were affiliated through the common ownership and control of Mr. O. Bruton Smith, Sonic's Chairman and Chief Executive Officer, became the first wholly-owned subsidiaries of the Company through the exchange of their common stock or membership interests for 12.5 million shares of Sonic's Class B common stock, par value $.01 per share. The Reoganization was accounted for at historical cost in a manner similar to a pooling-of-interests as the entities were under common management and control. The financial statements for the periods through the effective date of the Reorganization represent the combined data for these five dealerships. On November 12, 1997, Sonic completed an initial public offering of 10.0 million shares of its Class A common stock, par value $.01 per share which is currently traded on the New York Stock Exchange under the symbol SAH. During 1997 and 1998, Sonic completed the acquisitions of 19 dealerships (see Note 2). Each of these acquisitions has been accounted for using the purchase method of accounting, and the accompanying financial statements include the results of operations of the dealerships acquired from their respective dates of acquisition. PRINCIPLES OF CONSOLIDATION -- All material intercompany transactions have been eliminated in the consolidated financial statements. REVENUE RECOGNITION -- Sonic records revenue when vehicles are delivered to customers, and when vehicle service work is performed. Sonic arranges financing for customers through various financial institutions and receives a commission from the lender equal to the difference between the interest rates charged to customers over the predetermined interest rates set by the financing institution. Sonic also receives commissions from the sale of credit life, accident, health and disability insurance and extended service contracts to customers. Sonic may be assessed a chargeback fee in the event of early cancellation of a loan, insurance contract, or service contract by the customer. Finance and insurance commission revenue is recorded net of estimated chargebacks at the time the related contract is placed with the financial institution. Commissions expense related to finance and insurance commission revenue is charged to cost of sales upon recognition of such revenue, net of estimated chargebacks. Commission expense charged to cost of sales was approximately $1.1 million, $1.8 million and $6.0 million for the years ended December 31, 1996, 1997, and 1998, respectively. DEALER AGREEMENTS -- Sonic purchases substantially all of its new vehicles from manufacturers at the prevailing prices charged by the manufacturer to its franchised dealers. Sonic's sales could be unfavorably impacted by the manufacturer's unwillingness or inability to supply the dealership with an adequate supply of new vehicle inventory. Each dealership operates under a dealer agreement with the manufacturer which generally restricts the location, management and ownership of the respective dealership. The ability of Sonic to acquire additional franchises from a particular manufacturer may be limited due to certain restrictions imposed by manufacturers. Additionally, Sonic's ability to enter into other significant acquisitions may be restricted and the acquisition of Sonic's stock by third parties may be limited by the terms of the franchise agreements. F-7 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued) CASH AND CASH EQUIVALENTS -- Sonic considers contracts in transit and all highly liquid debt instruments with an initial maturity of three months or less to be cash equivalents. Contracts in transit represent cash in transit to Sonic from finance companies related to vehicle purchases, and was $12.1 million and $36.6 million at December 31, 1997 and 1998, respectively. INVENTORIES -- Inventories of new and used vehicles, including demonstrators, are stated at the lower of specific cost or market. Inventories of parts and accessories are accounted for using the "first-in, first-out" method of inventory accounting ("FIFO") and are stated at the lower of FIFO cost or market. PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost. Depreciation is computed using straight-line methods over the estimated useful lives of the assets. The range of estimated useful lives is as follows:
USEFUL LIVES ------------- Building and improvements .............. 5-40 Office equipment and fixtures .......... 5-15 Parts and service equipment ............ 15 Company vehicles ....................... 5
GOODWILL -- Goodwill represents the excess purchase price over the estimated fair value of the tangible and separately measurable intangible net assets acquired. The cumulative amount of goodwill at December 31, 1997 was $75.0 million and at December 31, 1998 was $182.5 million. As a percentage of total assets and stockholders' equity, goodwill, net of accumulated amortization, represented 25.5% and 88.1%, respectively, at December 31, 1997, and 31.3% and 126.4%, respectively, at December 31, 1998. Generally accepted accounting principles require that goodwill and all other intangible assets be amortized over the period benefited. Sonic has determined that the period benefited by the goodwill will be no less than 40 years. Accordingly Sonic is amortizing goodwill over a 40 year period. Earnings reported in periods immediately following an acquisition would be overstated if Sonic attributed a 40 year benefit to an intangible asset that should have had a shorter benefit period. In later years, Sonic would be burdened by a continuing charge against earnings without the associated benefit to income valued by management in arriving at the price paid for the businesses acquired. Earnings in later years also could be significantly affected if management then determined that the remaining balance of goodwill was impaired. Sonic periodically compares the carrying value of goodwill with the anticipated undiscounted future cash flows from operations of the businesses acquired in order to evaluate the recoverability of goodwill. Sonic has concluded that the anticipated future cash flows associated with intangible assets recognized in its acquisitions will continue indefinitely, and there is no pervasive evidence that any material portion will dissipate over a period shorter than 40 years. Sonic will incur additional goodwill in future acquisitions. INCOME TAXES -- Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to the capitalization of additional inventory costs for income tax purposes, the recording of chargebacks and repossession losses on the direct write-off method for income tax purposes, the direct write-off of uncollectible accounts for income tax purposes, and the accelerated depreciation method used for income tax purposes. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. In addition, deferred tax assets are recognized for state operating losses that are available to offset future taxable income. STOCK-BASED COMPENSATION -- Sonic measures the compensation cost of its stock-based compensation plans under the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," as permitted under Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation." Under the provisions of APB No. 25, compensation cost is measured based on the intrinsic value of the equity instrument awarded. CONCENTRATIONS OF CREDIT RISK -- Financial instruments which potentially subject Sonic to concentrations of credit risk consist principally of cash on deposit with financial institutions. At times, amounts invested with financial institutions may exceed FDIC insurance limits. Concentrations of credit risk with respect to receivables are limited primarily to F-8 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued) automobile manufacturers and financial institutions. Credit risk arising from trade receivables from commercial customers is reduced by the large number of customers comprising the trade receivables balances. FAIR VALUE OF FINANCIAL INSTRUMENTS -- As of December 31, 1997 and 1998 the fair values of Sonic's financial instruments including receivables, due from affiliates, notes payable-floor plan, trade accounts payable, payables to affiliated companies and Sonic's Chairman and long-term debt excluding Sonic's senior subordinated notes, approximate their carrying values due either to length of maturity or existence of variable interest rates that approximate prevailing market rates. The carrying value of Sonic's senior subordinated notes as of December 31, 1998 was a reasonable approximation of its fair value. USE OF ESTIMATES -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect 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. Actual results could differ from those estimates. ADVERTISING -- Sonic expenses advertising costs in the period incurred. Advertising expense amounted to $5.0 million, $7.0 million and $17.4 million for the years ended December 31, 1996, 1997 and 1998, respectively. MINORITY INTEREST -- Prior to the Reorganization, Sonic owned only a 69% interest in Town and Country Toyota. In connection with the Reorganization, Sonic purchased the remaining 31% minority interest in Town and Country Toyota, Inc. for $3.2 million in a transaction accounted for using the purchase method of accounting. On a pro forma basis for the years ended December 31, 1996 and 1997, revenue would have been unchanged and net income and net income per share would not be materially different had the acquisition of this minority interest occurred on January 1, 1996 and January 1, 1997, respectively. IMPACT OF NEW ACCOUNTING STANDARDS -- In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information." This Standard redefines how operating segments are determined and requires disclosure of certain financial and descriptive information about a company's operating segments. This Statement became effective for Sonic's fiscal year ending December 31, 1998. The implementation of FAS 131 did not have an impact on Sonic's financial statements or related disclosures. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instrument and Hedging Activities." This Standard establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activites. The Statement will become effective for Sonic beginning January 1, 2000. Sonic has elected earlier application of all of the provisions of this Statement beginning October 1, 1998. The implementation of the provisions of this Statement did not have an impact on Sonic's financial statements for the year ended December 31, 1998. RECLASSIFICATION -- Certain prior year amounts have been reclassified to conform with current year presentation. 2. BUSINESS ACQUISITIONS PENDING ACQUISITIONS (UNAUDITED) The Company has signed definitive agreements to acquire 12 dealerships for a minimum of approximately $54.9 million in cash, 11,425 shares of Class A Convertible Preferred Stock, Series II, and 10,525 shares of Class A Convertible Preferred Stock, Series III having a liquidation value of $1,000 per share. The aggregate purchase price is subject to adjustment based on the actual net book value of the assets acquired. The cash portion of the purchase price will be paid with a combination of borrowings under the Company's $100 million acquisition line of credit with Ford Motor Credit Company (the "Revolving Facility") and with cash generated from the Company's existing operations. The Company may be required to pay additional amounts based on future pre-tax earnings of certain of these acquired dealerships. These acquisitions are expected to be consummated in the second and third quarters of 1999. F-9 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. BUSINESS ACQUISITIONS -- (Continued) ACQUISITIONS COMPLETED SUBSEQUENT TO DECEMBER 31, 1998 (THROUGH MARCH 29, 1999) (UNAUDITED) Subsequent to December 31, 1998, Sonic acquired 8 dealerships for approximately $50.9 million in cash, and the issuance of 34,100 shares of Sonic's Class A Convertible preferred stock, Series III, par value $.10 per share having a liquidation preference of $1,000 per share. The cash portion of the purchase price was financed with a combination of cash borrowed under the Revolving Facility and cash generated from Sonic's existing operations. The acquisitions were accounted for using the purchase method of accounting. Sonic may be required to pay additional amounts based on future pre-tax earnings of certain of the dealerships acquired. Any additional amounts paid will be accounted for as goodwill. In connection with the subsequent acquisition of a Honda dealership in Chattanooga, Tennessee, the Company sold substantially all of the assets of its Honda dealership in Cleveland, Tennessee in March, 1999 for approximately $3.6 million. There was no material gain or loss as a result of the sale. ACQUISITIONS COMPLETED DURING THE YEAR ENDED DECEMBER 31, 1998 During 1998, Sonic acquired 19 dealerships for an aggregate purchase price of approximately $134.0 million. The aggregate purchase price was paid with approximately $96.2 million in cash, with 970,588 shares of Class A common stock having an estimated fair value at the time of issuance of approximately $8.3 million, with 30,733.8 shares of Preferred Stock (14,406.3 shares of Class A convertible preferred stock, Series I (the "Series I Preferred Stock"), 10,054.5 shares of Series II Preferred Stock, and 6,273 shares of Class A convertible preferred stock, Series III (the "Series III Preferred Stock")) having an estimated fair value at the time of issuance of approximately $29.3 million and with warrants to purchase an aggregate of 154,000 shares of Class A common stock having an approximate fair value of $0.5 million. The cash portion of the aggregate purchase price was financed with a combination of cash obtained from the net proceeds of Sonic's private offering on July 31, 1998 of $125 million in aggregate principal amount of its 11% senior subordinated notes, cash obtained from the Revolving Facility, and cash generated from Sonic's existing operations. Payables for acquisitions as of December 31, 1998 on the accompanying consolidated balance sheet includes $1.7 million of the cash portion of the aggregate purchase price which was paid subsequent to December 31, 1998. The difference between the aggregate purchase price of $134.0 million and amounts paid of $134.3 represents the net of (i) $1.3 million due from a former owner as a result of a shortage in the actual net book value of assets acquired compared to the minimum net book value required in the purchase agreement, (ii) $0.4 million due to a former owner as a result of an excess in the actual net book value of assets acquired over the minimum net book value required in the purchase agreement, and (iii) $0.6 million due to a former owner on the first and second anniversaries of the acquisition date. The $1.3 million due from a former owner has been included in other current assets on the accompanying balance sheet. The $0.4 million and $0.6 million due to former owners have been included in payable for acquisitions on the accompanying balance sheet. In accordance with terms of certain of the purchase agreements, Sonic may be required to pay additional consideration contingent upon future earnings of certain of the dealerships acquired. As of December 31, 1998, Sonic had recorded approximately $8.0 million relating to such consideration, which has been accounted for as goodwill. Any additional amounts which may be payable in the future will also be accounted for as goodwill. All of the acquisitions completed in 1998 have been accounted for using the purchase method of accounting, and the results of operations of such acquisitions have been included in the accompanying consolidated financial statements from their respective acquisition dates. The purhcase price of these acquisitions has been allocated to the assets and liabilities acquired based on their estimated fair market value at acquisition date as shown in the table below. The purchase price and corresponding goodwill may ultimately be different than amounts recorded depending on the actual fair value of the tangible net assets acquired. F-10 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. BUSINESS ACQUISITIONS -- (Continued) Working capital ...................... $ 30,341 Property and equipment ............... 5,690 Goodwill ............................. 101,323 Non-current liabilities assumed ...... (3,365) -------- Total purchase price ................. $133,989 ========
ACQUISITIONS COMPLETED DURING YEAR ENDED DECEMBER 31, 1997 During 1997, Sonic acquired 13 dealerships for an aggregate purchase price of approximately $98.8 million. The aggregate purchase price was paid with approximately $94.8 million in cash and with a $4.0 million promissory note bearing interest at prime less 0.5% and payable in 28 equal quarterly installments to a former owner of certain of the acquired dealerships. The cash portion of the aggregate purchase price was financed with a combination of cash obtained from the net proceeds of Sonic's initial public offering, cash obtained from the Revolving Facility, and cash generated from Sonic's existing operations. In addition, Sonic issued to the seller of one of the acquired dealerships warrants to purchase an aggregate of 88,782 shares of Class A common stock having an approximate fair value of $0.3 million. All of the acquisitions completed in 1997 have been accounted for using the purchase method of accounting, and the results of operations of such acquisitions have been included in the accompanying consolidated financial statements from their respective dates of acquisition. The purchase price of these acquisitions has been allocated to the assets and liabilities acquired based on their estimated fair market value at acquisition date as follows: Working capital ...................... $ 28,247 Property and equipment ............... 3,969 Goodwill ............................. 69,528 Non-current liabilities assumed ...... (2,940) -------- Total purchase price ................. $ 98,804 ========
ACQUISITIONS COMPLETED DURING THE YEAR ENDED DECEMBER 31, 1996 On February 1, 1996, Sonic acquired Fort Mill Ford for a total purchase price of $5.7 million. The acquisition has been accounted for using the purchase method of accounting and the results of operations of Fort Mill Ford have been included in the accompanying consolidated financial statements from the date of acquisition. The purchase price has been allocated to the assets and liabilities acquired based on their estimated fair market value at the acquisition date as follows: Working capital ...................... $ 822 Property and equipment ............... 3,022 Goodwill ............................. 4,364 Non-current liabilities assumed ...... (2,467) -------- Total purchase price ................. $ 5,741 ========
PRO FORMA RESULTS OF OPERATIONS The following unaudited pro forma financial information presents a summary of consolidated results of operations as if the above acquisition transactions had occurred as of the beginning of the period in which the acquisitions were completed, and at the beginning of the immediately preceeding period, after giving effect to certain adjustments, including amortization of goodwill, interest expense on acquisition debt and related income tax effects. The pro forma financial information does not give effect to adjustments relating to net reductions in floorplan interest expense resulting from re-negotiated floorplan financing agreements or to reductions in salaries and fringe benefits of former owners or officers of acquired dealerships who have not been retained by Sonic or whose salaries have been reduced pursuant to employment agreements with Sonic. The pro forma results have been prepared for comparative purposes only and are not necessarily F-11 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2. BUSINESS ACQUISITIONS -- (Continued) indicative of the results of operations that would have occurred had the acquisitions been completed at the beginning of the periods presented. These results are also not necessarily indicative of the results of future operations.
YEAR ENDED DECEMBER 31, ------------------------------- 1997 1998 --------------- --------------- Total revenues ....................... $ 1,855,254 $ 1,996,222 Gross profit ......................... $ 225,374 $ 255,721 Net income ........................... $ 8,198 $ 18,878 Diluted net income per share ......... $ 0.43 $ 0.73
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN Inventories consist of the following:
DECEMBER 31, ----------------------- 1997 1998 ----------- ----------- New vehicles .................. $118,751 $190,139 Used vehicles ................. 27,990 47,033 Parts and accessories ......... 9,085 16,012 Other ......................... 688 11,787 -------- -------- Total ......................... $156,514 $264,971 ======== ========
The inventory balance is generally reduced by manufacturer's purchase discounts, and such reduction is not reflected in the related floor plan liability. All new and certain used vehicles are pledged to collateralize floor plan notes payable to financial institutions in the amount of $133.2 million and $228.2 million at December 31, 1997 and 1998, respectively. The floor plan notes bear interest payable monthly on the outstanding balance. Prior to November 15, 1998, the effective interest rate was prime less 0.9%, subject to certain incentives and other adjustments. Effective November 15, 1998, the interest rate was reduced to an effective rate of prime less 1.1% subject to certain incentives and other adjustments (6.65% at December 31, 1998). Total floor plan interest expense amounted to $6.0 million, $8.0 million and $14.1 million in 1996, 1997 and 1998, respectively. Sonic's floor plan financing arrangements include an available line of credit for the purchase of used vehicle inventory. As of December 31, 1998, there was approximately $18.5 million available under Sonic's used vehicle credit line, of which approximately $17.4 million was unused. Floor plan notes payable are due when the related vehicle is sold. As such, these floor plan notes payable are shown as a current liability in the accompanying consolidated balance sheets. 4. PROPERTY AND EQUIPMENT Property and equipment is comprised of the following:
DECEMBER 31, ----------------------- 1997 1998 ----------- ----------- Land .................................. $ 4,330 $ 4,330 Building and improvements ............. 11,904 14,085 Office equipment and fixtures ......... 4,102 6,739 Parts and service equipment ........... 4,229 6,495 Company vehicles ...................... 727 1,300 Construction in progress .............. -- 645 -------- -------- Total, at cost ........................ 25,292 33,594 Less accumulated depreciation ......... (6,211) (7,344) -------- -------- Property and equipment, net ........... $ 19,081 $ 26,250 ======== ========
F-12 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. LONG-TERM DEBT Long-term debt consists of the following:
DECEMBER 31, ----------------------- 1997 1998 ----------- ----------- $125.0 million Senior Subordinated Notes bearing interest at 11%, maturing August 1, 2008, net of unamortized discount of $4.3 million....................................... $ -- $120,726 Amounts outstanding under $100 million revolving credit facility with Ford Motor Credit bearing interest at 2.75% above the 1 month commercial finance paper rate (7.55% at December 31, 1998) and maturing in March 2001, collateralized by all assets of the Company ................................................................................ 25,070 8,887 Amounts outstanding under $20.0 million line of credit from NationsBank bearing interest at 7.75% and maturing February 15, 1998 ................................................ 8,200 -- Mortgage notes payable .................................................................. 4,322 4,091 Other notes payable ..................................................................... 1,632 2,333 ------- -------- 39,224 136,037 Less current maturities ................................................................. (584) (4,700) ------- -------- Long-term debt .......................................................................... $38,640 $131,337 ======= ========
Future maturities of debt at December 31, 1998 are as follows: Year ending December 31, 1999 ................... $ 4,700 2000 ................... 9,464 2001 ................... 530 2002 ................... 347 2003 ................... 135 Thereafter ............. 120,861 -------- Total .................. $136,037 ========
In connection with the sale of real estate at Town and Country Toyota and Fort Mill Ford in January 1999, the Company repaid all amounts outstanding under the related mortgages. As a result, the aggregate balance of these mortgages of $4.1 million as of December 31, 1998 has been included in current maturities of long-term debt. SENIOR SUBORDINATED NOTES On July 31, 1998, Sonic completed its private placement of its 11% senior subordinated notes in the aggregate principal amount of $125,000,000. The senior subordinated notes are unsecured, mature on August 1, 2008, and are redeemable at Sonic's option after August 1, 2003. Interest payments are due semi-annually on February 1 and August 1, commencing February 1, 1999. The senior subordinated notes are subordinated to all present and future senior indebtedness of Sonic, including the Revolving Facility. Redemption prices during 12 month periods beginning August 1 are 105.500% in 2003, 103.667% in 2004, 101.833% in 2005 and 100% thereafter. Net proceeds after commissions and discounts, including issuance discount of $937,500, amounted to $120,625,000 and were used to finance certain of Sonic's acquisitions and to repay amounts outstanding under the Revolving Facility. The discount on the senior subordinated notes is being amortized over the term of the notes using the effective interest method. On December 7, 1998, Sonic completed an exchange offer to exchange the senior subordinated notes for identical senior subordinated notes registered under the Securities Act of 1933. The indenture governing the senior subordinated notes contains certain specified restrictive and required financial covenants. Sonic has agreed not to pledge its assets to any third party except under certain limited circumstances. Sonic also has agreed to certain other limitations or prohibitions concerning the incurrence of other indebtedness, capital stock, guaranties, asset sales, investments, cash dividends to shareholders, distributions and redemptions. F-13 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. LONG-TERM DEBT -- (Continued) THE REVOLVING FACILITY In 1997, Sonic obtained the Revolving Facility with a $75.0 million borrowing limit from Ford Motor Credit. Effective November 15, 1998, the aggregate amount available for borrowing under the Revolving Facility was increased from $75.0 million to $100.0 million. Prior to November 14, 1998, amounts outstanding under the Revolving Facility bore interest at a fluctuating per annum rate equal to the "prime" or "base" rate announced by a majority (or if there was no majority, the median rate announced by three) of the following banks: The Chase Manhattan Bank, NationsBank, N.A., Citibank, N.A., Bank of America National Trust and Savings Association and Morgan Guaranty Trust Company of New York (the "Revolving Facility Prime Rate"). The Revolving Facility Prime Rate as of November 15, 1998 was 7.75%. Subsequent to November 15, 1998, amounts outstanding under the Revolving Facility bear interest at a fluctuating per annum rate equal to 2.75% above the 1 month commercial finance paper rate as reported by the Federal Reserve Board (7.55% at December 31, 1998). The Revolving Facility will mature in March 2001, unless Sonic requests that such term be extended, at the option of Ford Motor Credit, for a number of additional one year terms to be negotiated by the parties. No assurance can be given that such extensions will be granted. On July 31, 1998, all amounts previously outstanding under the Revolving Facility were repaid with a portion of the net proceeds of the sale of senior subordinated notes. The outstanding balance of $8.9 million at December 31, 1998 represents amounts borrowed to finance certain of Sonic's acquisitions completed in 1998. Additional amounts to be drawn under the Revolving Facility are to be used for the acquisition of additional dealerships and to provide general working capital needs of Sonic not to exceed $10 million. Sonic agreed under the Revolving Facility not to pledge any of its assets to any third party (with the exception of currently encumbered real estate and assets of Sonic's dealership subsidiaries that are subject to previous pledges or liens). In addition, the Revolving Facility contains certain negative covenants, including covenants restricting or prohibiting the payment of dividends, capital expenditures and material dispositions of assets as well as other customary covenants. Additional negative covenants include specified ratios of o total debt to tangible base capital (as defined in the Revolving Facility), o current assets to current liabilities, o earnings before interest, taxes, depreciation and amortization (EBITDA) and rent less capital expenditures to fixed charges, o EBITDA to interest expense, o EBITDA to total debt and o the current lending commitment under the Revolving Facility to scaled assets (as defined in the Revolving Facility). In addition, the loss of voting control over Sonic by Bruton Smith, Scott Smith, President and Chief Operating Officer, and their spouses or immediate family members or the failure by Sonic, with certain exceptions, to own all the outstanding equity, membership or partnership interests in its dealership subsidiaries will constitute an event of default under the Revolving Facility. Sonic did not meet the specified total debt to tangible equity ratios required by the Revolving Facility at March 31, 1998 and at June 30, 1998 and obtained a waiver with regard to such requirement from Ford Motor Credit. In connection with Sonic's offering of its senior subordinated notes, Sonic and Ford Motor Credit amended the Revolving Facility to provide that the senior subordinated notes (which are subordinated to the Revolving Facility) will be treated as equity capital for purposes of this ratio. Accordingly, Sonic was in compliance with this and all other restrictive covenants as of December 31, 1998. THE SIX-MONTH FACILITY On August 28, 1997, Sonic obtained from NationsBank, N.A. a short-term line of credit in an aggregate principal amount of up to $20 million ( the "Six-Month Facility"). Under the terms of the Six-Month Facility, amounts outstanding bore interest at 7.75% and matured on February 15, 1998. Proceeds from the Six-Month Facility were used to F-14 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. LONG-TERM DEBT -- (Continued) consummate the acquisitions of Lake Norman Dodge and Affiliates and Williams Motors, Inc. Amounts outstanding at December 31, 1997 have been classified as long-term as such amounts have been subsequently refinanced with funds obtained from the Revolving Facility. 6. INCOME TAXES The provision for income taxes consists of the following components:
1996 1997 1998 --------- ------------ ----------- Current: Federal ............................. $1,857 $1,890 $ 8,145 State ............................... 308 391 756 ------ ------ ------- 2,165 2,281 8,901 Deferred .............................. (190) (27) 2,252 Change in valuation allowance ......... (51) (5) (70) ------ -------- ------- Total ................................. $1,924 $2,249 $11,083 ====== ======= =======
The reconciliation of the statutory federal income tax rate with Sonic's federal and state overall effective income tax rate is as follows:
1996 1997 1998 ----------- ----------- ----------- Statutory federal rate .......... 34.00% 34.00% 35.00% State income taxes .............. 3.60 3.70 1.46 Miscellaneous ................... 0.71 (0.21) 0.93 ----- ----- ----- Effective tax rates ............. 38.31% 37.49% 37.39% ===== ===== =====
Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Significant components of Sonic's deferred tax assets and liabilities as of December 31 are as follows:
1997 1998 ---------- ----------- Deferred tax assets: Allowance for bad debts ................... $ 81 $ 69 Inventory reserves ........................ 40 631 Net operating loss carryforwards .......... 120 517 Other ..................................... 151 746 ------ -------- Total deferred tax assets ................. 392 1,963 Valuation allowance ....................... (70) -- ------ -------- Deferred tax assets, net .................. 322 1,963 ------ -------- Deferred tax liabilities: Basis difference in property and equipment (799) (1,276) Basis difference in goodwill .............. (172) (2,757) Other ..................................... (25) (294) ------ -------- Total deferred tax liability ............... (996) (4,327) ------ -------- Net deferred tax liability ................. $ (674) $ (2,364) ====== ========
The net changes in the valuation allowance against deferred tax assets were a decrease of $5,000 for the year ended December 31, 1997 and a decrease of $70,000 for the year ended December 31, 1998. The decrease in 1997 was related primarily to the expiration of state net operating loss carryforwards. The decrease in 1998 was primarily related to the implementation of tax strategies which will allow utilization of the state net operating loss carryforwards prior to expiration. At December 31, 1998, Sonic had state net operating loss carryforwards of $7.1 million which will expire primarily between 1999 and 2003. F-15 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 6. INCOME TAXES -- (Continued) Certain of Sonic's dealerships changed their method of accounting for inventories of new vehicles for income tax purposes from the "last-in, first-out" method of inventory accounting to the "first-in, first-out" method of inventory accounting which resulted in an additional income tax liability. At December 31, 1997 and 1998, this liability was recorded as $7.1 million and $5.6 million, respectively. The remaining portion of the liability is generally payable from 1999 to 2002. The current portion of the liability as of December 31, 1998 was $2.4 million and is included in other accrued liabilities. Certain subsidiaries of Sonic (such subsidiaries together with Sonic and Sonic Financial Corporation ("SFC") being hereinafter referred to as the "Sonic Group") have joined with SFC in filing consolidated federal income tax returns for several years. Under applicable federal tax law, each corporation included in SFC's consolidated return is jointly and severally liable for any resultant tax. Under a tax allocation agreement dated as of June 30, 1997, however, Sonic agreed to pay to SFC, in the event that additional federal income tax is determined to be due, an amount equal to Sonic's separate federal income tax liability computed for all periods in which any member of the Sonic Group has been a member of SFC's consolidated group, less amounts previously recorded by Sonic. Also pursuant to such agreement, SFC agreed to indemnify Sonic for any additional amount determined to be due from SFC's consolidated group in excess of the federal income tax liability of the Sonic Group for such periods. The tax allocation agreement establishes procedures with respect to tax adjustments, tax claims, tax refunds, tax credits and other tax attributes relating to periods ending prior to the time that the Sonic Group shall leave SFC's consolidated group. 7. RELATED PARTIES REGISTRATION RIGHTS AGREEMENT When Sonic acquired Town & Country Ford, Lone Star Ford, Fort Mill Ford, Town & Country Toyota and Frontier Oldsmobile-Cadillac in 1997, Sonic signed a Registration Rights Agreement dated as of June 30, 1997 with SFC, Bruton Smith, Scott Smith and William S. Egan (collectively, the "Class B Registration Rights Holders"). SFC currently owns 8,881,250 shares of Class B common stock; Bruton Smith, 2,071,250 shares; Scott Smith, 956,250 shares; and Egan Group, LLC, an assignee of Mr. Egan (the "Egan Group"), 491,250 shares, all of which are covered by the Registration Rights Agreement. The Egan Group also owns 32,000 shares of Class A common stock to which the Registration Rights Agreement applies. If, among other things provided in Sonic's charter, offers and sales of shares Class B common stock are registered with the Securities and Exchange Commission, then such shares will automatically convert into a like number of shares of Class A common stock. The Class B Registration Rights Holders have certain limited piggyback registration rights under the Registration Rights Agreement. These rights permit them to have their shares of Sonic's common stock included in any Sonic registration statement registering Class A common stock, except for registrations on Form S-4, relating to exchange offers and certain other transactions, and Form S-8, relating to employee stock compensation plans. The Registration Rights Agreement expires in November 2007. SFC is controlled by Bruton Smith. THE SMITH GUARANTIES, PLEDGES, ADVANCE AND SUBORDINATED LOAN In December 1997, Mr. Smith was required by Ford Motor Credit to lend $5.5 million (the "Subordinated Smith Loan") to Sonic to increase Sonic's capitalization. Ford Motor Credit required the Subordinated Smith Loan as a condition to increasing the Revolving Facility borrowing limit because the net offering proceeds from Sonic's November 1997 initial public offering were significantly less than expected by Sonic and Ford Motor Credit. The Subordinated Smith Loan bears interest at NationsBank's announced prime rate plus 0.5% and matures on November 30, 2000. All amounts owed by Sonic to Mr. Smith under the Subordinated Smith Loan are to be paid after all amounts owed by Sonic under the Revolving Facility, Sonic's floor plan financing facility with Ford Motor Credit and Sonic's senior subordinated notes are paid. F-16 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. RELATED PARTIES -- (Continued) CHARTOWN TRANSACTIONS Chartown is a general partnership engaged in real estate development and management. Before Sonic's reorganization before its initial public offering, Town & Country Ford maintained a 49% partnership interest in Chartown with the remaining 51% held by SMDA Properties, LLC, a North Carolina limited liability company ("SMDA"). Mr. Smith owns an 80% direct membership interest in SMDA with the remaining 20% owned indirectly through SFC. In addition, SFC also held a demand promissory note for approximately $1.6 million issued by Chartown (the "Chartown Note"), which was uncollectible due to insufficient funds. As part of Sonic's reorganization, the Chartown Note was canceled and Town & Country Ford transferred its partnership interest in Chartown to SFC for nominal consideration. In connection with that transfer, SFC then agreed to indemnify Town & Country Ford for any and all obligations and liabilities, whether known or unknown, relating to Chartown and Town & Country Ford's ownership of Chartown. THE BOWERS VOLVO NOTE In connection with Volvo's approval of Sonic's acquisition of a Volvo franchise from Nelson Bowers in 1997, Volvo, among other things, conditioned its approval upon Nelson Bowers acquiring and maintaining a 20% interest in Sonic's Chattanooga Volvo subsidiary operating the Volvo franchise. Mr. Bowers financed all of the purchase price for this 20% interest by issuing a promissory note (the "Bowers Volvo Note") in favor of Sonic Automotive of Nevada, Inc., the wholly-owned subsidiary of Sonic that controls a majority interest in Chattanooga Volvo. The Bowers Volvo Note is secured by Mr. Bowers' interest in Chattanooga Volvo. The Bowers Volvo Note is for a principal amount of $900,000 and bears interest at the lowest applicable federal rate as published by the U.S. Treasury Department in effect on November 17, 1997. Accrued interest is payable annually. The operating agreement of Chattanooga Volvo provides that profits and distributions are to be allocated first to Mr. Bowers to the extent of interest to be paid on the Bowers Volvo Note and next to the other members of Chattanooga Volvo according to their percentages of ownership. No other profits or any losses of Chattanooga Volvo will be allocated to Mr. Bowers under this arrangement. Volvo has removed its requirement that Mr. Bowers maintain his interest in Chattanooga Volvo. Sonic and Mr. Bowers are in the process of redeeming his interest in Chattanooga Volvo and satisfying the Bowers Volvo Note. TRANSACTIONS WITH MMRT In 1998, Sonic entered into a Strategic Alliance Agreement (the "Alliance Agreement") with Mar Mar Realty Trust, a real estate investment trust ("MMRT"). Bruton Smith serves as the chairman of MMRT's board of trustees. Under the Alliance Agreement, Sonic agreed to refer to MMRT real estate acquisition opportunities arising with Sonic's dealership acquisitions. In exchange, MMRT agreed to refer to Sonic dealership acquisition opportunities and to provide certain real estate development and maintenance services to Sonic. MMRT will also arrange for property inspections and environmental reports for prospective dealership properties at Sonic's cost. In addition, the Alliance Agreement provides for a form of lease to be used when MMRT leases to Sonic real estate MMRT acquires in the future. Under terms substantially similar to those of this form lease, Sonic leases or will lease certain properties from MMR Holdings, LLC ("MMR Holdings"), which is a limited liability company currently owned by Bruton Smith and SFC that Sonic expects to be acquired by MMRT. For acquisitions where the dealership real property is owned by an unaffiliated third party and is leased to the dealership seller, MMRT will negotiate with the unaffiliated third party to acquire the dealership real property. If MMRT is successful in acquiring the dealership real property and Sonic completes its acquisition of the dealership business, then Sonic and MMRT will enter into a lease agreement regarding the dealership real property using the Alliance Agreement's lease form. Subsequent to year end, Sonic has sold to MMR Holdings the Town and Country Toyota real estate for approximately $5.7 million and the Fort Mill Ford real estate for approximately $4.6 million and entered into an agreement with MMRT to lease back the real estate over a term of 10 years. The gain on the sale has been deferred and will be amortized against the rent expense over the term of the lease. F-17 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. RELATED PARTIES -- (Continued) CERTAIN DEALERSHIP LEASES Certain properties leased by Sonic's dealerships are, or since the beginning of the last fiscal year were, owned by Sonic's officers or directors or their affiliates. These leases contain terms comparable to, or more favorable to Sonic than, terms that would be obtained from unaffiliated third parties. Many of these properties as well as others are now owned or are under contract to be acquired by MMR Holdings, which Sonic expects will become a subsidiary of MMRT. Sonic presently leases 36 properties for 27 of its dealerships from MMR Holdings 34 of which were entered into in 1998. Sonic's directors have approved these "triple net leases," which require Sonic to pay all costs of operating the properties, as well as all taxes, utilities, insurance, repairs, maintenance and other property related expenses. These leases generally provide Sonic with options to renew the lease for two additional five year terms after the expiration of the initial lease term. The rental rates indicated in Note 10 reflect minimum or "base" annual rents payable by Sonic in the first year of the applicable leases. Such rental rates generally are subject to increases either at renewal or every five years based on factors such as increases in the consumer price index or an evaluation of fair market rents. OTHER RELATED PARTY TRANSACTIONS o Town & Country Ford and Lone Star Ford had each made several non-interest bearing advances to SFC, a company controlled by Bruton Smith. In preparation for Sonic's 1997 reorganization, a demand promissory note by SFC evidencing $2.1 million of these advances was canceled in June 1997 in exchange tor the redemption of certain shares of the capital stock of Town & Country Ford held by SFC. In addition, a demand promissory note by SFC evidencing of $0.5 million of these advances was canceled in June 1997 pursuant to a dividend. o Sonic had amounts receivable from affiliates of $1.0 million and $1.5 million at December 31, 1997 and 1998, respectively. Of this amount, $622,000 relates to advances made by Sonic to SFC at December 31, 1997 and $1.5 million relates to advances made by Sonic to SFC and MMRT at December 31, 1998. The remaining $425,000 at December 31, 1997 primarily relates to receivables from executives of Sonic who were former owners of certain dealerships acquired. These receivables resulted from differences in the negotiated and actual net book value of the dealerships at the date of acquisitions. The amounts receivable from affiliates are non-interest bearing and are classified as current based on the expected repayment dates. o As part of the purchase price in connection with Sonic's acquisition of the Bowers Automotive Group in November 1997, Sonic issued its promissory note in the principal amount of $4.0 million in favor of Nelson Bowers (the "Bowers Acquisition Note"). The Bowers Acquisition Note is payable in 28 equal quarterly installments and bears interest at the prime rate less 0.5%. The balance outstanding under this Note was $4.0 million at December 31, 1997, the current portion of which was $445,000. The balance outstanding under this Note at December 31, 1998 was $3.4 million, the current portion of which was $572,000. o Town and Country Toyota has an amount payable to Bruton Smith, which payable totals approximately $0.8 million as of December 31, 1997 and $0.7 million as of December 31, 1998. This loan bears interest at 8.75% per annum and is classified as non-current based on the expected repayment dates. o Certain subsidiaries of Sonic (such subsidiaries together with Sonic and SFC are referred to as the "Sonic Group") filed consolidated federal income tax returns with SFC for several years before our reorganization. These joint filings were for 1996 and for the period ending on June 30, 1997. Under applicable federal tax law, each corporation included in SFC's consolidated return is jointly and severally liable for any resultant tax. Under a tax allocation agreement dated as of June 30, 1997, however, Sonic agreed to pay to SFC, in the event that additional federal income tax is determined to be due, an amount equal to Sonic's separate federal income tax liability computed for all periods in which any member of the Sonic Group has been a member of SFC's consolidated group less amounts previously recorded by Sonic. Also pursuant to such agreement, SFC agreed to indemnify Sonic for any additional amount determined to be due from SFC's consolidated group in excess of the federal income tax liability of the Sonic Group for such periods. The tax allocation agreement establishes procedures with respect to tax adjustments, tax claims, tax refunds, tax credits and other tax attributes relating to periods ending prior to the time that the Sonic Group shall leave SFC's consolidated group. F-18 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 7. RELATED PARTIES -- (Continued) o Sonic acquired Town & Country Ford, Lone Star Ford, Town & Country Toyota, Fort Mill Ford and Frontier Oldsmobile-Cadillac in its 1997 reorganization pursuant to four separate stock subscription agreements. These subscription agreements allowed the acquisition of 100% of the capital stock or membership interests, as the case may be, of each of the five dealerships from Sonic Financial, Bruton Smith, the Egan Group (an assignee of Mr. Egan) and Bryan Scott Smith in exchange for certain amounts of Sonic's Class B Common Stock. 8. CAPITAL STRUCTURE, PUBLIC OFFERING OF COMMON STOCK, AND PER SHARE DATA PREFERRED STOCK -- In 1997, Sonic authorized 3 million shares of "blank check" preferred stock with such designations, rights and preferences as may be determined from time to time by the Board of Directors. No preferred shares were issued and outstanding as of December 31, 1997. In March 1998, the Board of Directors designated 300,000 shares of preferred stock as Class A convertible preferred stock, par value $0.10 per share, the "Preferred Stock", which was divided into 100,000 shares of Series I Preferred Stock, 100,000 shares of Series II Preferred Stock, and 100,000 shares of Series III Preferred Stock. The Preferred Stock has a liquidation preference of $1,000 per share. Each share of Preferred Stock is convertible, at the option of the holder, into that number of shares of Class A common stock as is determined by dividing $1,000 by the average closing price for the Class A common stock on the NYSE for the 20 days preceding the date of determination of the shares of Preferred Stock (the "Market Price"). Conversion of Series II Preferred Stock is subject to certain adjustments which have the effect of limiting increases and decreases in the value of the Class A common stock receivable upon conversion by 10% of the original value of the shares of Series II Preferred Stock. Conversion of Series III Preferred Stock is subject to certain adjustments which have the effect of limiting increases in the value of Class A common stock receivable upon conversion by 10% of the original value of the shares of Series III Preferred Stock. The Preferred Stock is redeemable at Sonic's option at any time after the date of issuance. The redemption price of the Series I Preferred Stock is $1,000 per share. The redemption price for the Series II Preferred Stock and Series III Preferred Stock is as follows: (i) prior to the second anniversary of the date of issuance, the redemption price is the greater of $1,000 per share or the aggregate Market Price of the Class A common stock into which it could be converted at the time of redemption, and (ii) after the second anniversary of the date of issuance, the redemption price is the aggregate Market Price of the Class A common stock into which it could be converted at the time of redemption. Each share of Preferred Stock entitles its holder to a number of votes equal to that number of shares of Class A common stock into which it could be converted as of the record date for the vote. Holders of preferred stock are entitled to participate in dividends payable on the Class A common stock on an "as-if-converted" basis. The Preferred Stock has no preferential dividends. During 1998, Sonic issued 14,406.3 shares of Series I Preferred Stock, 10,545.5 shares of Series II Preferred Stock and 6,273 shares of Series III Preferred Stock. These shares were recorded at their estimated fair value on the date of issuance. In December 1998, 6,241.5 shares of Series II Preferred Stock and 2,313 shares of Series III Preferred Stock having an estimated fair value of approximately $8.9 million were converted into 632,244 shares of Class A common stock. As of December 31, 1998 there were 14,406.3 shares of Series I Preferred Stock, 3,813 shares of Series II Preferred Stock and 3,960 shares of Series III Preferred Stock issued and outstanding. CLASS B COMMON STOCK -- Each share of Class B common stock is convertible into one share of Class A common stock either upon the voluntary conversion of the Class B common stock at the option of the holder, or automatically upon the occurrence of certain events, as provided in Sonic's charter. Holders of Class B common stock are entitled to ten votes per share, except in certain circumstances. STOCK SPLIT -- All share and per share amounts included in the accompanying consolidated financial statements for all periods presented have been adjusted to reflect a 2 for 1 stock split of the Class A common stock and Class B common stock effective January 25, 1999. PUBLIC OFFERING OF COMMON STOCK -- Sonic completed an initial public offering of 10.0 million shares of its Class A common stock on November 12, 1997 at a price of $6 per share. Net proceeds of the initial public offering of F-19 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. CAPITAL STRUCTURE, PUBLIC OFFERING OF COMMON STOCK, AND PER SHARE DATA -- (Continued) approximately $53.7 million were used to finance acquisitions (see Note 2) and to repay amounts borrowed under lines of credit related to the acquisitions. Class A common stock entitles its holder to one vote per share. WARRANTS -- In connection with Sonic's acquisitions, Sonic has issued warrants to purchase 242,782 shares of Class A common stock at exercise prices ranging from $6.00 per share to $11.27 per share. The warrants expire on various dates from January 15, 2003 to November 30, 2003. Sonic has recorded the issuance of such warrrants at their estimated fair value on the date of issuance. PER SHARE DATA -- The calculation of diluted net income per share considers the potential dilutive effect of options and shares under Sonic's stock compensation plans, Class A common stock purchase warrants, and Class A convertible preferred stock. The following table illustrates the dilutive effect of such items on EPS:
FOR THE TWELVE MONTHS ENDED FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997 DECEMBER 31, 1998 ----------------------------- ------------------------------ PER-SHARE PER-SHARE INCOME SHARES AMOUNT INCOME SHARES AMOUNT -------- -------- ----------- ---------- -------- ---------- (DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) BASIC EPS .......................... $3,702 13,898 $ 0.27 $18,557 22,852 $ 0.81 ====== ====== EFFECT OF DILUTIVE SECURITIES Stock compensation plans ........... -- -- -- 630 Warrants ........................... -- -- -- 32 Convertible Preferred Stock ........ -- -- -- 1,456 ------ ------ ------- ------ DILUTED EPS ........................ $3,702 13,898 $ 0.27 $18,557 24,970 $ 0.74 ====== ====== ====== ======= ====== ======
Options to purchase 1,176,000 shares of Class A common stock at $6.00 per share were outstanding in November and December of 1997, but were not included in the computation of diluted EPS because the options were anti-dilutive. 9. EMPLOYEE BENEFIT PLANS Substantially all of the employees of Sonic are eligible to participate in a 401(k) plan. Contributions by Sonic to the plan were not significant in any period presented. STOCK OPTION PLANS Sonic currently has two option plans. In October 1997, the Board of Directors adopted the Sonic Automotive, Inc. 1997 Stock Option Plan (the "Stock Option Plan") in order to attract and retain key personnel. Under the Stock Option Plan, options to purchase up to an aggregate of 2.25 million shares of Class A common stock may be granted to key employees of Sonic and its subsidiaries and to officers, directors, consultants and other individuals providing services to Sonic. The options generally are granted at the fair market value of Sonic's Class A common stock at the date of grant, vest over a three year period, are exercisable upon vesting and expire ten years from the date of grant. In March 1998, the Board of Directors adopted the Sonic Automotive, Inc. Formula Stock Option Plan for Independent Directors (the "Directors Plan") for the benefit of Sonic's outside directors, subject to shareholder approval. The Directors Plan was approved by the stockholders of Sonic at its annual meeting of stockholders on December 3, 1998. The plan authorized options to purchase up to an aggregate of 600,000 shares of Class A common stock. Under the plan, each outside director shall be awarded on or before March 31st of each year an option to purchase 20,000 shares at an exercise price equal to the fair market value of the Class A common stock at the date of the award. Options granted under the Directors Plan become exercisable six months, and expire ten years, after their date of grant. F-20 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. EMPLOYEE BENEFIT PLANS -- (Continued) A summary of the status of Sonic's stock option plans as of December 31, 1997 and 1998 and changes during the years ended on those dates is presented below.
DECEMBER 31, 1997 DECEMBER 31, 1998 ---------------------------------------- ----------------------------------------- EXERCISE WEIGHTED- EXERCISE WEIGHTED- NUMBER OF PRICE AVERAGE NUMBER OF PRICE AVERAGE OPTIONS PER SHARE EXERCISE PRICE OPTIONS PER SHARE EXERCISE PRICE ----------- ----------- ---------------- ----------- ------------- --------------- Outstanding at beginning of year -- $ -- $ -- 1,176 $ 6.00 $ 6.00 Granted-priced at fair value 1,176 6.00 6.00 1,433 7.25-9.19 8.61 Exercised -- -- -- (72) 6.00 6.00 ----- ------ ----- ----- ------------ -------- Outstanding at end of year 1,176 $ 6.00 $ 6.00 2,537 $ 6.00-9.19 $ 7.48 ===== ======= ====== ===== ============ ========
Of the options outstanding as of December 31, 1998, 486,000 are currently exercisable and have a weighted average exercise price of $3.53 per share. The weighted average remaining contractual life of the options outstanding at December 31, 1998 is 7.78 years. The weighted average fair value of options granted was $2.89 per share in 1997 and $4.63 per share in 1998. The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: expected volatility of 50% in 1997 and 61% in 1998; risk-free interest rate of 5.6% in 1997 and 4.6% in 1998; and expected lives of 5 years in 1997 and 1998. The model reflects that no dividends were declared in 1997 and 1998 and assumes that no dividends will be declared in the future. EMPLOYEE STOCK PURCHASE PLAN In October 1997, the Board of Directors and stockholders of Sonic adopted the Sonic Automotive, Inc. Employee Stock Purchase Plan (the "ESPP"). Under the terms of the ESPP, on January 1 of each year all eligible employees electing to participate will be granted an option to purchase shares of Class A common stock. Sonic's Compensation Committee will annually determine the number of shares of Class A common stock available for purchase under each option. The purchase price at which Class A common stock will be purchased through the ESPP will be 85% of the lesser of (i) the fair market value of the Class A common stock on the applicable grant date and (ii) the fair market value of the Class A common stock on the applicable exercise date. The grant dates are January 1 of each year plus any other interim dates designated by the Compensation Committee. The exercise dates are the last trading days on the New York Stock Exchange for March, June, September and December, plus any other interim dates designated by the Compensation Committee. Options will expire on the last exercise date of the calendar year in which granted. On March 20, 1998, the Board of Directors, pursuant to Sonic's ESPP, increased the authorized shares from 300,000 to 600,000 and issued options exercisable for 300,000 shares of Class A common stock granting 620 shares per participant participating in the ESPP. This increase in the number of options issuable under the ESPP was approved by the stockholders of Sonic at its annual meeting of stockholders on December 3, 1998. Under the ESPP, Sonic issued 180,730 shares to employees in 1998 at a purchase price of $4.10 per share. The weighted average fair value of shares granted under the ESPP was $1.97 per share in 1998. The fair value of the employees' purchase rights are estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: expected volatility of 61%; risk-free interest rate of 4.6%; and an expected life of one year. The model reflects that no dividends were declared in 1997 and 1998 and assumes that no dividends will be declared in the future. Sonic has adopted the disclosure-only provisions of SFAS No. 123. No compensation cost has been recognized for Sonic's stock-based compensation plans. Had compensation cost for the stock-based compensation plans been determined based on their fair value as prescribed by SFAS No. 123, Sonic's pro forma net income and diluted net income per share would have been $3.6 million and $0.26, respectively for 1997 and $16.8 million and $0.67, respectively for 1998. F-21 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. EMPLOYEE BENEFIT PLANS -- (Continued) NONQUALIFIED EMPLOYEE STOCK PURCHASE PLAN In December 1998, the Board of Directors of Sonic adopted the Sonic Automotive, Inc. Nonqualified Employee Stock Purchase Plan (the "Nonqualified ESPP"). The purpose of the Nonqualified ESPP is to provide options to purchase Class A common stock to employees of Sonic's subsidiaries that are not eligible to participate in the ESPP; employees of Sonic who are eligible to participate in the ESPP are not eligible to participate in the Nonqualified ESPP. Under the terms of the Nonqualified ESPP, on January 1 of each year all employees eligible to participate in the Nonqualified ESPP and who elect to participate in the Nonqualified ESPP will be granted an option to purchase shares of Class A common stock. Sonic's Compensation Committee will annually determine the number of shares of Class A common stock available for purchase under each option. The purchase price at which Class A common stock will be purchased through the Nonqualified ESPP will be 85% of the lesser of (i) the fair market value of the Class A common stock on the applicable grant date and (ii) the fair market value of the Class A common stock on the applicable exercise date. The grant dates are January 1 of each year plus any other interim dates designated by the Compensation Committee. The exercise dates are the last trading days on the New York Stock Exchange for March, June, September and December, plus any other interim dates designated by the Compensation Committee. Options will expire on the last exercise date of the calendar year in which granted. In adopting the Nonqualified ESPP in December 1998, the Board of Directors authorized options to be granted under the Nonqualified ESPP for 300,000 shares of Class A common stock. These options may be issued effective January 1, 1999. 10. COMMITMENTS AND CONTINGENCIES FACILITY LEASES Certain properties leased by Sonic's dealerships are, or since the beginning of the last fiscal year were, owned by Sonic's officers or directors or their affiliates. These leases contain terms comparable to, or more favorable to Sonic than, terms that would be obtained from unaffiliated third parties. Many of these properties as well as others are not owned or are under contract to be acquired by MMR Holdings, which Sonic expects will become a subsidiary of MMRT. Minimum future rental payments required under noncancelable operating leases are as follows:
RELATED PARTIES THIRD PARTIES TOTAL Year ending December 31, ----------------- --------------- ---------- 1999 ..................... $ 13,660 $ 2,820 $ 16,480 2000 ..................... 13,595 2,479 16,074 2001 ..................... 13,257 2,456 15,713 2002 ..................... 13,147 2,123 15,270 2003 ..................... 13,091 1,997 15,088 Thereafter ............... 60,963 7,645 68,608 -------- ------- -------- Total .................... $127,713 $19,520 $147,233 ======== ======= ========
Total rent expense for the years ended December 31, 1996, 1997, and 1998 was approximately, $870,000, $2.4 million and $10.5 million, respectively. Of these amounts, $870,000, $1.3 million and $7.5 million, respectively, were paid to related parties. OTHER CONTINGENCIES (UNAUDITED) On March 1, 1999, Frank McGough filed a civil action in the Circuit Court of Montgomery County, Alabama against Sonic, its subsidiary, Capitol Chevrolet and Imports, Inc. and certain other defendants, which is Civil Action No. CV- 1999-707R. This suit arises in connection with Sonic's acquisition of Capitol Chevrolet and Imports from Mr. McGough. In the suit, Mr. McGough alleges that he is entitled to a larger post-closing payment of funds held in escrow than Sonic has shown on the closing balance sheet prepared in connection with the acquisition, that the closing balance sheet was delivered late, that the closing balance sheet was improperly prepared, and that certain respresentations were made to him concerning the post-closing release of funds from escrow and the closing balance sheet. The complaint alleges causes of action for (1) declaratory judgment concerning the closing balance sheet and release of funds from escrow; and (2) F-22 SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. COMMITMENTS AND CONTINGENCIES -- (Continued) rescission of Sonic's acquisition through merger of Capitol Chevrolet and Imports. Sonic believes that this suit is without merit and intends to vigorously defend this action. Sonic is involved in various other legal proceedings. Management believes based on advice of counsel that the outcome of such proceedings will not have a materially adverse effect on Sonic's financial position or future results of operations and cash flows. 11. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED) The following table summarizes the Company's results of operations as presented in the Consolidated Statements of Income by quarter for 1997 and 1998. Amounts below reflect reclassifications of previously reported amounts to conform with current year presentation and exclude net income per share for those periods prior to the completion of the initial public offering.
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------------- -------------- -------------- -------------- Year Ended December 31, 1997: Total revenues ........................... $ 98,785 $ 114,101 $ 127,356 $ 195,759 Gross profit ............................. $ 10,842 $ 12,790 $ 14,755 $ 24,611 Operating income ......................... $ 2,286 $ 3,417 $ 3,469 $ 5,734 Income before taxes and minority interest. $ 926 $ 1,577 $ 1,526 $ 1,969 Net income ............................... $ 541 $ 999 $ 911 $ 1,251 Diluted net income per share ............. $ 0.07 $ 0.07 Year Ended December 31, 1998: Total revenues ........................... $ 263,979 $ 386,132 $ 504,110 $ 449,480 Gross profit ............................. $ 34,158 $ 48,264 $ 63,974 $ 61,046 Operating income ......................... $ 7,426 $ 12,779 $ 15,646 $ 16,854 Income before taxes ...................... $ 3,474 $ 7,430 $ 8,876 $ 9,860 Net income ............................... $ 2,136 $ 4,668 $ 5,426 $ 6,327 Diluted net income per share ............. $ 0.09 $ 0.20 $ 0.21 $ 0.24
12. SUBSEQUENT EVENTS (UNAUDITED) On February 4, 1999, Sonic filed a preliminary registration statement for the issuance of approximately 7.0 million shares of Class A common stock. Sonic expects to complete this public offering in the second quarter of 1999. F-23 EX-22 2 EXHIBIT 10.22 Exhibit 10.22 AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT THIS AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this "Amendment"), dated March 2, 1999, is entered into between SONIC AUTOMOTIVE, INC., a Delaware corporation ("Borrower"), whose address is 5401 East Independence Boulevard, P.O. Box 18747, Charlotte, North Carolina 28218, and FORD MOTOR CREDIT COMPANY, a Delaware corporation ("Lender"), whose address is 6302 Fairview Road, Suite 500, Charlotte, North Carolina 28210. WHEREAS, pursuant to the terms of a certain Credit Agreement dated as of October 15, 1997, as amended by that certain Credit Agreement Amendment dated November 12, 1997, as amended by that certain Amended and Restated Credit Agreement dated as of December 15, 1997, as amended by that certain Letter Agreement dated July 28, 1998, as amended by that certain Letter Agreement dated September 21, 1998, as further amended by that certain Letter Agreement dated October 15, 1998 (collectively, the "Agreement") Lender extended to Borrower a revolving credit facility in an amount not to exceed $75,000,000.00 (the "Original Loan Facility"); and WHEREAS, the Original Loan Facility is evidenced by a certain Promissory Note dated as of October 15, 1997, made by Borrower to the order of Lender in the original principal amount of $26,000,000.00, as amended by that certain Amended and Restated Promissory Note dated December 15, 1997, made by Borrower to the order of Lender in the original principal amount of $75,000,000.00 (the "Original Note"); and WHEREAS, Borrower has requested that Lender amend certain provisions of the Original Loan Facility and increase in the principal balance of the Original Note to $100,000,000.00 to purchase dealership assets, pursuant to the terms of a certain Amended and Restated Promissory Note in the principal amount of $100,000,000.00 dated as of even date herewith and made by Borrower to the order of Lender (the "Amended Note" and with the Original Note collectively referred to as the "Note"); and WHEREAS, Lender is willing to amend and increase the Original Loan Facility if and only if (a) Borrower executes this Amendment and the Amended Note, (b) Sonic Automotive of Nevada, Inc., a Nevada corporation, Sonic Automotive of Georgia, Inc., a Georgia corporation, Sonic Automotive of Tennessee, Inc., a Tennessee corporation, and Sonic Peachtree Industrial Blvd., L.P., a Georgia limited partnership, each execute a guaranty guaranteeing the obligations of the Borrower and each Dealership Guarantor under the Original Loan Facility, as increased, and the Wholesale Lines and (c) Sonic of Texas, Inc., a Texas corporation, and each of the Dealership Guarantors execute a guaranty and reaffirmation of guaranty reaffirming their guaranty of the obligations of the Borrower and each other Dealership Guarantor under the Original Loan Facility, as increased and the Wholesale Lines; NOW THEREFORE, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, Borrower and Lender agree as follows: 1. Incorporation by Reference and Defined Terms. The parties hereby incorporate the foregoing recitals in this Amendment as though fully set forth herein, agreeing that such -1- recitals are material, true and correct. Except as modified herein, all capitalized terms shall have the meanings set forth in the Agreement and the Note. 2. Loan Facility. The term "Loan Facility" shall mean the Original Loan Facility, as amended by this Amendment. 3. Amendment of Agreement. The Agreement is hereby amended to provide as follows: (a) The definition of "Applicable Prime Rate" set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety and the following shall be substituted therefor: "APPLICABLE COMMERCIAL PAPER RATE" means as of any Payment Date, the Commercial Paper Rate plus two and seventy-five hundredths percent (2.75%) per annum." (b) The definition of "Average Applicable Interest Rate" set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety. (c) The definition of "Commitment" set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety and the following shall be substituted therefor: "COMMITMENT" means $100,000,000.00 minus the amount of any Decision Reserve, if any, in effect from time to time." (d) The definition of "Commitment Letter" set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety and the following shall be substituted therefor: "COMMITMENT LETTER" means that certain Commitment Letter dated October 3, 1997 between the Borrower and the Lender, as amended by the Letter Agreement dated October 20, 1997, as further modified by the Commitment Letter dated December 17, 1998." (e) The definition of "Contribution Agreement" set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety and the following shall be substituted therefor: "CONTRIBUTION AGREEMENT" means that certain Amended and Restated Contribution Agreement, dated as of October 20, 1997, as amended by the Second Amended and Restated Contribution Agreement, dated as of December 15, 1997, as amended by the Third Amended and Restated Contribution Agreement, dated as of March 24, 1998, as amended and restated by the Fourth Amended and Restated Contribution Agreement, dated as of December 1, 1998, as amended and restated by the Fifth Amended and Restated Contribution Agreement dated March 2, 1999, as such agreement may be further amended, restated or otherwise modified and in effect from -2- time to time." (f) The definition of "Current Liabilities" set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety and the following shall be substituted therefor: "CURRENT LIABILITIES" means, at a particular date, all amount which would, in conformity with Agreement Accounting Principles, be included under current liabilities on a balance sheet as at such date." (g) The definition of "Extension Notice" set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety. (h) The definition of "Note" as set forth in Article I, Section 1.1 of the Agreement, entitled, Certain Defined Terms is hereby deleted in its entirety and the following shall be substituted therefor: "NOTE" means that Promissory Note dated October 15, 1997 duly executed by the Borrower and payable to the order of the Lender in the original principal amount of $26,000,000.00, as amended and restated by that certain Amended and Restated Promissory Note dated December 15, 1997 duly executed by the Borrower and payable to the order of Lender in the principal amount of $75,000,000.00, as further amended and restated by that certain Second Amended and Restated Promissory Note dated March 2, 1999 duly executed by the Borrower and payable to the order of lender in the original principal amount of $100,000,000.00, including any amendment, restatement, modification, renewal or replacement of such Note." (i) The definition of "Prime Rate" as set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety and the following shall be substituted therefor: "COMMERCIAL PAPER RATE" means a fluctuating per annum rate of interest equal to the interest rate for commercial paper with a 30-day term, as specified under the column entitled "Week Ending" for "1-Month Finance Paper Placed Directly" as set forth in the Federal Reserve Statistical Release No. H.15 (519) issued by the Federal Reserve Board on the last Monday of a calendar month. In the event such Release is discontinued or modified to eliminate the reporting of a 30-day commercial paper rate, then Lender will substitute, in its sole discretion, a comparable report or release of the 30-day commercial paper rate published by a comparable source." (j) The definition of "Quarterly Payment Date" as set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety. -3- (k) Subsection (E) of the definition of "Scaled Assets" as set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety and the following shall be substituted therefor: "(E) an amount equal to 80% of that portion of the Sonic Group's Inventory which constitutes used vehicles, less the amount of any outstanding Floor Plan Indebtedness of any member of the Sonic Group incurred in connection with such used vehicles, and" (l) The definition of "Scaled Assets Adjustment Amount" as set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety. (m) The definition of "Subsidiary Holding Companies" as set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety and the following shall be substituted therefor: "SUBSIDIARY HOLDING COMPANIES" means each of Sonic Automotive of Tennessee, Inc., a corporation organized under the laws of the State of Tennessee, Sonic Automotive of Nevada, Inc., a corporation organized under the laws of the State of Nevada, Sonic Automotive of Georgia, Inc., a corporation organized under the laws of the State of Georgia, and Sonic of Texas, Inc., a corporation organized under the laws of the State of Texas, in each case together with its successors and assigns. (n) The definition of "Subsidiary Holding Company Pledges" as set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety and the following shall be substituted therefor: "SUBSIDIARY HOLDING COMPANY PLEDGES" means each Pledge Agreement delivered by the Subsidiary Holding Companies to the Lender pursuant to which such Persons pledge their ownership interests of certain corporate, limited liability company and/or limited partnership Subsidiaries, as such agreements may be amended, restated or otherwise modified and in effect from time to time." (o) The definition of "Termination Date" as set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety and the following shall be substituted therefor: "TERMINATION DATE" means the earlier of (a) March 2, 2001 and (b) the date of termination of the Commitment pursuant to either of Section 2.3 or Section 7.1 hereof." (p) The definition of "Total Adjusted Debt" as set forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted in its entirety and the following shall be substituted therefor: "TOTAL ADJUSTED DEBT" means, for any period, on a consolidated basis for the Borrower and its Subsidiaries, the amount of Total Debt less any Floor Plan Indebtedness, less the outstanding principal balance of the Subordinated Promissory Note, less the outstanding principal balance of the Debt Offering Notes, and less the amount of any Additional Subordinate Debt. -4- (q) The definition of "Additional Subordinated Debt" is hereby added to Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms to state as follows: "ADDITIONAL SUBORDINATED DEBT" means indebtedness of the Borrower which (i) Lender has determined to be sufficiently subordinate to the payment of the Obligations, (ii) Lender has consented to in writing, and (iii) Lender has agreed to deduct from the calculation of Total Adjusted Debt (as defined herein)." (r) Section 2.4 of the Agreement entitled "Method of Borrowing" is hereby deleted in its entirety and the following shall be substituted therefor: "Method of Borrowing. The Borrower shall give the Lender irrevocable notice in substantially the form of Exhibit B hereto (a "Borrowing Notice") not later than 10:00 a.m. (Eastern Standard Time) on the Business Day preceding the Borrowing Date of each Advance, specifying: (i) the Borrowing Date (which shall be a Business Day) of such Advance; (ii) the aggregate amount of such Advance; (iii) the use of proceeds of such Advance, and (iv) the account or accounts into which the Advances should be funded. Not later than 2:00 p.m. (Eastern Standard Time) on each Borrowing Date, the Lender shall make available its Advance, in funds immediately available to the Borrower at such account or accounts as shall have been notified to the Lender. Each Advance shall bear interest from and including the date of the making of such Advance to (but not including) the date or repayment thereof at the Applicable Commercial Paper Rate, changing when and as the underlying Commercial Paper Rate changes, which such interest shall be payable in accordance with Section 2.9(B)." (s) Section 2.6 of the Agreement, entitled "Default Rate: Late Payment Fee" is hereby deleted in its entirety and the following shall be substituted therefor: "Default Rate: Late Payment Fee. After the occurrence and during the continuation of an Event of Default, at the option of the Lender, the interest rate(s) applicable to the Advances shall be equal to the Applicable Commercial Paper Rate plus three percent (3.0%) per annum. To the extent not in excess of the Maximum Rate and in accordance with applicable law, any amount not paid by the Borrower when due shall accrue interest at an additional five percent (5.0%) per annum above the rate applicable thereto until such amounts have been paid in full and shall be payable on demand by the Lender and at any rate no later than the next succeeding Payment Date." (t) Section 2.9 (B)(i) of the Agreement, entitled "Interest payable on Advances" is hereby deleted in its entirety and the following shall be substituted therefor: "Interest Payable on Advances. Interest accrued on each Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof and at maturity (whether by acceleration or otherwise). On each Payment Date from and after November 15, 1998 to maturity, the Borrower shall pay interest at the Applicable Commercial Paper Rate on each Advance outstanding on such date." -5- (u) Section 2.10 of the Agreement, entitled "Termination Date" is hereby deleted in its entirety and the following shall be substituted therefor: "Termination Date. This Agreement shall be effective until the Termination Date. Notwithstanding the termination of this Agreement on the Termination Date, until all of the Obligations (other than contingent indemnity obligations, but including all Floor Plan Indebtedness) shall have been fully and indefeasibly paid and satisfied and all financing arrangements between the Borrower and the Lender in connection with this Agreement shall have been terminated (other than with respect to Hedging Obligations), all of the rights and remedies under this Agreement and the other Loan Documents shall survive and the Lender shall be entitled to retain its security interest in and to all existing and future Collateral." (v) Section 5.4(B) of the Agreement, entitled "Total Adjusted Debt to Tangible Base Capital Ratio" is hereby deleted in its entirety and the following shall be substituted therefor: "Total Adjusted Debt to Tangible Base Capital Ratio. The Borrower shall not, any time, permit the ratio ("ADJUSTED TBC RATIO") of Total Adjusted Debt of the Sonic Group on a consolidated basis to Tangible Base Capital of the Sonic Group on a consolidated basis to be greater than 15:1." 4. Warranties and Representations of Borrower. Borrower represents and warrants to Lender that Borrower is not in default under the Original Note, the Agreement or any other loan document delivered to lender in connection therewith, nor is there a circumstance which, upon the giving of notice or the passage of time or both, would constitute an default under any provision thereof. Borrower stipulates and declares to Lender that Borrower has no charge, claim, demand, plea or set-off upon, for or against the Original Note, the Agreement or any other loan documents delivered in connection therewith. 5. Rights Granted Lender. All rights granted to Lender under this Amendment shall be in addition to any rights granted to Lender under the Note, the Agreement or any other loan document delivered in connection therewith. 6. Amendment. The terms and conditions of the Agreement shall apply equally to the indebtedness evidenced by the Note, and the covenants of the Agreement, as amended by this Amendment shall remain in full force and effect until the Principal Balance of the Note and interest thereon is paid in full and all of the obligations of Borrower to Lender under the Agreement, as amended, and the Note are fully performed and observed. Except as otherwise amended in this Amendment, the terms and conditions of the Agreement shall remain in full force and effect in accordance with the provisions thereof. The Loan Facility may be further renewed or extended only upon such terms and conditions and at such rate of interest as the parties hereby may agree upon in writing. -6- IN WITNESS WHEREOF, Borrower and Lender have executed this Amendment under seal as of the date set forth above intending to be legally bound hereby. Signed, sealed and delivered in the presence of: FORD MOTOR CREDIT COMPANY, a Delaware corporation /s/ Suzanne M. Thill By: /s/ R. K. Henderson (SEAL) - ---------------------- ------------------------ Name: R.K. Henderson Title: Branch Operations Manager SONIC AUTOMOTIVE, INC., a Delaware corporation /s/ Gates Grainger By: /s/ B. Scott Smith (SEAL) - -------------------- ------------------------ Name: B. Scott Smith Title: President -7- EX-10 3 EXHIBIT 10.23 Exhibit 10.23 SECOND AMENDED AND RESTATED PROMISSORY NOTE (ACQUISITION/REVOLVING LINE OF CREDIT) (Commercial Paper Rate) $100,000,000.00 Charlotte, North Carolina March 2, 1999 FOR VALUE RECEIVED, SONIC AUTOMOTIVE, INC., a Delaware corporation ("Borrower"), whose address is 5401 East Independence Blvd., P.O. Box 18747, Charlotte, North Carolina 28218, promises to pay to FORD MOTOR CREDIT COMPANY, a Delaware corporation ("Lender"), or order, at 6302 Fairview Road, Suite 500, Charlotte, North Carolina 28210, or at such other place as Lender may from time to time in writing designate, in lawful money of the United States of America, the principal sum of ONE HUNDRED MILLION AND 00/100 DOLLARS ($100,000,000.00), or so much as is advanced to Borrower, together with interest, adjusted monthly, on the principal balance outstanding from time to time (the "Principal Balance"), in like money, from the date of this Amended and Restated Promissory Note (this "Note"), to and including the Maturity Day, at the rate of two and seventy-five hundredths percent (2.75%) per annum above the Commercial Paper Rate (as defined herein) in effect from time to time (the "Applicable Interest Rate"). Capitalized terms used herein and not otherwise defined herein shall have the meaning given to such terms in the Agreement. For purposes of computing interest during the term of this Note, the Applicable Interest Rate for each month shall be based on the Commercial Paper Rate in effect on the last day of the prior month. All changes in the Applicable Interest Rate shall become effective on the first day of a month following a change in the Commercial Paper Rate and shall be deemed in effect throughout such month. The Principal Balance and interest thereon at the Applicable Interest Rate shall be due and payable as hereinafter set forth. This Note amends, restates, replaces and supersedes the Promissory Note dated as of October 15, 1997 in the original principal amount of $26,000,000.00, as amended and restated by that certain Amended and Restated Promissory Note dated December 15, 1997, in the original principal amount of $75,000,000.00 from Borrower to Lender (the "Original Note"). Any interest accrued on such promissory note as of the date hereof will be included in the next monthly payment due hereunder. The term "Agreement" shall mean the Credit Agreement dated as of October 15, 1997, as amended by that certain Credit Agreement Amendment dated November 12, 1997, as amended and restated by that certain Amended and Restated Credit Agreement dated as of December 15, 1997, as amended by that certain Letter Agreement dated July 28, 1998, as amended by that certain Letter Agreement dated September 21, 1998, as amended by that certain Letter Agreement dated October 15, 1998, as further amended by that certain Amendment to Amended and Restated Credit Agreement dated as of even date herewith. The term "Commercial Paper Rate" shall mean the interest rate for "1-Month Finance Paper Placed Directly" under the column entitled "Week Ending" for the Friday preceding the last Monday of a calendar month as reported in the Federal Reserve Statistical Release No. H.15 (519) issued by the Federal Reserve Board. In the event such Release is discontinued or modified to eliminate the reporting of a 30-day commercial paper rate, then Lender will substitute, in its sole discretion, a comparable report or release of the 30-day commercial paper rate published by a comparable source. The term "Maturity Day" shall mean the earlier of (a) March 2, 2001 and (b) the date of the termination of the Commitment pursuant to either of Section 2.3 or Section 7.1 of the Agreement. The term "Security Documents" shall mean the Agreement and any and all of the documents now or hereafter executed by Borrower and/or others, and by or in favor of Lender, which wholly or partially guarantee or secure this Note or are executed in connection with this Note. From November 15, 1998 through and including the Maturity Date, interest on the unpaid Principal Balance outstanding shall be due and shall be payable in consecutive monthly installments at the Applicable Interest Rate on the fifteenth day of each month. On the Maturity Day, a final installment which shall include all unpaid amounts of the Principal Balance and interest accrued and unpaid thereon and any and all other payments due under this Note and the Security Documents. Each of such payments shall be applied first to interest at the Applicable Interest Rate and the balance to reduction of the Principal Balance. Borrower may prepay the unpaid Principal Balance in whole or from time to time in part, upon payment of interest accrued on the unpaid Principal Balance outstanding through the day of prepayment and all other charges, without premium. Prepayments of the Principal Balance shall be applied to installments of the Principal Balance remaining unpaid in the inverse order of their maturity and shall be credited to the Principal Balance as of the date of receipt by Lender. Provided however, that the Borrower may not so prepay the unpaid Principal Balance unless it shall have provided at least one Business Day's notice to the Lender of such prepayment. Payment of this Note is secured by the Security Documents. All of the agreements, conditions, covenants, provisions and stipulations contained in the Security Documents which are to be kept and performed by Borrower are hereby made a part of this Note to the same extent and with the same force and effect as if they were fully set forth herein, and Borrower covenants and agrees to keep and perform them, or cause them to be kept and performed, strictly in accordance with their terms. Time is of the essence hereof and if any of the Principal Balance or interest on this Note or other sum due hereunder is not paid when due, to the extent not in excess of the Maximum Rate (as such term is defined in the Agreement) and in accordance with applicable law, any amount not paid by the Borrower when due shall accrue interest at an additional five percent (5.0%) per annum above the Applicable Rate until such amounts have been paid in full and shall be payable on demand by the Lender and at any rate not later than the next succeeding monthly payment date. If any Event of Default shall occur, then Lender, at its option and without further notice, demand or presentment for payment to Borrower or others, may declare immediately due and payable the unpaid Principal Balance and interest accrued thereon to the date of such Event of Default and thereafter at the rate of three percent (3%) per annum over the Applicable Interest Rate, together with all other sums owed by Borrower under this Note and the Security Documents. This Note is the "Note" referred to in, and is entitled to the benefits of, the Agreement. The Agreement, among other things, (i) provides for the making of Advances by the Lender to the Borrower from time to time in an aggregate amount not to exceed at any time outstanding the U.S. Dollar amount first above mentioned, the indebtedness of the Borrower resulting from each such advance being evidenced by this Note and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for the prepayments of the principal hereof prior to the Maturity Date upon the terms and conditions therein specified. Principal and interest are payable in lawful money of the United States of America to the Lender, so such domestic account as the Lender may designate, in same day funds. At the time of each Advance, and upon each payment or prepayment of principal of each Advance, the Lender shall make a notation either on the schedule attached hereto and made a part hereof, or in such Lender's own books and records, in each case specifying the amount of such Advance, or the amount of principal paid or prepaid with respect to such Advance, as the case may be; PROVIDED that the failure of the Lender to make any such recordation or notation shall not affect the Obligations of the Borrower hereunder or under the Agreement. The remedies of Lender, as provided in this Note and the Security Documents, shall be cumulative and concurrent and may be pursued singularly, successively or together, at the sole discretion of Lender, and may be exercised as often as occasion therefor shall occur; and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof. Borrower waives presentment for payment, demand, notice of demand, notice of nonpayment or dishonor, protest and notice of protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Note. Lender shall not be deemed, by any act of omission or commission, to have waived any of its rights or remedies hereunder unless such waiver is in writing and signed by Lender and, then, only to the extent specifically set forth in the writing. A waiver with reference to one event shall not be construed as continuing or as a bar to or waiver of any right or remedy as to a subsequent event. This instrument shall be interpreted, and the rights and liabilities of the parties hereto determined, in accordance with the internal laws (as distinguished from the conflicts of law provisions) of the State of North Carolina. Whenever used, the singular shall include the plural, the plural shall include the singular, and the words "Lender" and "Borrower" shall be deemed to include their respective heirs, administrators, executors, successors and assigns. The provisions of this Note shall be binding upon and inure to the benefit of said heirs, administrators, executors, successors and assigns. Borrower's successors and assigns shall include, without limitation, a receiver, trustee or debtor in possession of or for Borrower. In the event any one or more of the provisions hereof shall be invalid, illegal or unenforceable in any respect, the validity of the remaining provisions hereof shall be in no way affected, prejudiced or disturbed hereby. This Note amends and restated in full the Original Note and is issued in substitution for and not in payment of such prior Original Note and is not intended to constitute a novation thereof. IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has duly executed this Note under seal, the day and year first above written. SONIC AUTOMOTIVE, INC., a Delaware corporation By: /s/ B. Scott Smith (SEAL) --------------------- Name: B. Scott Smith Title: President EX-10 4 EXHIBIT 10.35 Exhibit 10.35 - -------------------------------------------------------------------------------- AMENDED AND RESTATED ASSET PURCHASE AGREEMENT BY AND AMONG SONIC AUTOMOTIVE, INC., TOM WILLIAMS BUICK, INC., WILLIAMS CADILLAC, INC., TOM WILLIAMS MOTORS, INC., TOM WILLIAMS AUTO, INC., THOMAS P. WILLIAMS, SR., CHARLES CLARK WILLIAMS, AND THOMAS P. WILLIAMS, JR. Dated as of March 16, 1999 1 TABLE OF CONTENTS Page ARTICLE I CERTAIN DEFINITIONS..................................................................2 ARTICLE II SALE AND PURCHASE OF THE ASSETS......................................................4 2.1 SALE AND PURCHASE; PURCHASE PRICE.............................................4 2.2 INITIAL PURCHASE PRICE........................................................4 2.3 CONTINGENT PURCHASE PRICE.....................................................7 2.4 ASSUMPTION OF LIABILITIES.....................................................9 2.5 INDUCEMENT FEE................................................................9 2.6 NON-COMPETITION AGREEMENTS...................................................10 2.7 EMPLOYMENT AGREEMENTS........................................................10 2.8 [INTENTIONALLY LEFT BLANK]...................................................10 ARTICLE III NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES.......................................11 3.1 NEW VEHICLES.................................................................11 3.2 DEMONSTRATORS................................................................12 3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR PURCHASE PRICES...................12 3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS...........................12 3.5 USED VEHICLES................................................................13 ARTICLE IV PARTS/ACCESSORIES...................................................................13 4.1 THE INVENTORY................................................................13 4.2 RETURNABLE AND NONRETURNABLE PARTS AND ACCESSORIES...........................13 4.3 PARTS; PARTS PURCHASE PRICE..................................................14 4.4 PARTS RETURN PRIVILEGES......................................................14 ARTICLE V MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES AND EQUIPMENT.......................................................................14 5.1 MISCELLANEOUS INVENTORIES....................................................14 5.2 MISCELLANEOUS ITEMS NOT INCLUDED IN THE INVENTORY............................15 5.3 WORK IN PROGRESS.............................................................15
5.4 FIXTURES AND EQUIPMENT.......................................................15 5.5 MISCELLANEOUS ASSETS.........................................................15 5.6 CERTAIN RECORDS OF THE SELLER................................................16 5.7 WARRANTY OBLIGATIONS OF THE SELLER...........................................16 5.8 ACCOUNTS RECEIVABLE..........................................................16 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BUYER.........................................16 6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION.............................16 6.2 NON-VIOLATION; CONSENTS......................................................17 6.3 LITIGATION...................................................................17 6.4 AUTHORIZATION OF PREFERRED STOCK.............................................17 6.5 CAPITALIZATION...............................................................17 6.6 DISCLOSURE MATERIALS.........................................................18 6.7 MISSTATEMENTS AND OMISSIONS..................................................18 6.8 ORIGINAL ASSET PURCHASE AGREEMENT............................................18 ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE SELLERS.......................................18 7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION.............................19 7.2 NO VIOLATION; CONSENTS.......................................................19 7.3 LITIGATION...................................................................19 7.4 TITLE TO ASSETS; ENCUMBRANCES................................................20 7.5 PERMITS AND APPROVALS........................................................20 7.6 TAXES........................................................................20 7.7 EMPLOYEES....................................................................20 7.8 FINANCIAL STATEMENTS.........................................................20 7.9 BROKERS AND FINDERS..........................................................21 7.10 COMPLIANCE WITH LAWS.........................................................21 7.11 FIXTURES AND EQUIPMENT.......................................................22 7.12 CONTRACTS....................................................................22 7.13 ADEQUACY OF ASSETS...........................................................22 7.15 MISSTATEMENTS AND OMISSIONS..................................................23 7.16 ORIGINAL ASSET PURCHASE AGREEMENT............................................23 ARTICLE VIII CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS.....................................23 8.1 REPRESENTATIONS AND WARRANTIES...............................................23 8.2 COMPLIANCE WITH AGREEMENTS...................................................23 8.3 NO LITIGATION................................................................23 8.4 INVENTORY....................................................................24
8.5 CORPORATE ORGANIZATION; ENCUMBRANCES.........................................24 8.6 BOARD RESOLUTIONS............................................................24 8.7 NO DAMAGE....................................................................24 8.8 MOTOR VEHICLE LICENSES.......................................................24 8.9 CONSENT AND APPROVALS........................................................24 8.10 CERTIFICATES OF ORIGIN, ETC..................................................24 8.11 TERMINATION OF SELLERS' AGREEMENTS WITH MANUFACTURERS........................25 8.12 BILLS OF SALE, ETC...........................................................25 8.13 MANUFACTURER APPROVAL........................................................25 8.14 OTHER BASIC AGREEMENTS.......................................................25 8.15 OPINION OF COUNSEL...........................................................25 8.16 NON-COMPETITION AGREEMENT AND EMPLOYMENT AGREEMENTS..........................25 8.17 CHANGE OF NAMES..............................................................25 8.18 NO MATERIAL ADVERSE CHANGE...................................................25 8.19 FORMS SATISFACTORY...........................................................25 8.20 HSR ACT......................................................................26 8.21 AUDITED FINANCIAL STATEMENTS OF BUYER........................................26 ARTICLE IX CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS....................................26 9.1 REPRESENTATIONS AND WARRANTIES...............................................26 9.2 COMPLIANCE WITH AGREEMENTS...................................................26 9.3 NO LITIGATION................................................................26 9.4 INVENTORY....................................................................26 9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS....................................26 9.6 INITIAL PURCHASE PRICE.......................................................27 9.7 OTHER BASIC AGREEMENTS.......................................................27 9.8 OPINION OF COUNSEL...........................................................27 9.9 FORMS SATISFACTORY...........................................................27 9.10 EMPLOYMENT AGREEMENTS........................................................27 9.11 HSR ACT......................................................................27 ARTICLE X COVENANTS AND AGREEMENTS............................................................27 10.1 FURTHER ASSURANCES...........................................................27 10.2 SATISFACTION OF CLOSING CONDITIONS...........................................28 10.3 OPERATION OF THE BUSINESSES..................................................28 10.4 ACCESS.......................................................................28 10.5 ENVIRONMENTAL AUDIT..........................................................28 10.6 INDEMNIFICATION BY SELLERS AND STOCKHOLDERS..................................28 10.7 INDEMNIFICATION BY BUYER.....................................................29 10.8 CERTAIN TAXES................................................................29
10.9 NO PUBLICITY.................................................................29 10.10 NO NEGOTIATIONS OR DISCUSSIONS...............................................30 10.11 MANUFACTURERS................................................................30 10.12 SELLERS' EMPLOYEES...........................................................30 10.13 HSR ACT COMPLIANCE...........................................................30 10.14 BUYER'S FINANCIAL STATEMENTS.................................................30 10.15 TERMINATION..................................................................30 ARTICLE XI MISCELLANEOUS.......................................................................32 11.1 ASSIGNMENT...................................................................33 11.2 GOVERNING LAW................................................................33 11.3 ACCOUNTING MATTERS...........................................................33 11.4 FEES AND EXPENSES............................................................33 11.5 AMENDMENT; MERGER CLAUSE.....................................................33 11.6 WAIVER.......................................................................33 11.7 NOTICES......................................................................34 11.8 COUNTERPARTS.................................................................34 11.9 SELLERS' KNOWLEDGE...........................................................35 11.10 ARBITRATION..................................................................35 11.11 SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES.........................35 11.12 HEADINGS.....................................................................36 11.13 SEVERABILITY.................................................................36
AMENDED AND RESTATED ASSET PURCHASE AGREEMENT THIS AMENDED AND RESTATED ASSET PURCHASE AGREEMENT is made and entered into as of this 16th day of March, 1999, by and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the "BUYER"), TOM WILLIAMS BUICK, INC., an Alabama corporation ("BUICK"), WILLIAMS CADILLAC, INC., an Alabama corporation ("CADILLAC"), TOM WILLIAMS AUTO, INC., an Alabama corporation d/b/a "Tom Williams Imports" ("IMPORTS"), TOM WILLIAMS MOTORS, INC., an Alabama corporation, ("MOTORS", and together with Buick and Imports, collectively, the "SELLERS" and each, individually, a "SELLER"), and Thomas P. Williams, Sr., Charles Clark Williams and Thomas P. Williams, Jr. (collectively, the "STOCKHOLDERS" and each, individually, a "STOCKHOLDER"). W I T N E S S E T H: WHEREAS, the parties hereto have entered into that certain Asset Purchase Agreement dated as of November 3, 1998 (the "ORIGINAL ASSET PURCHASE AGREEMENT"); and WHEREAS, the Original Asset Purchase Agreement, as the same is amended and restated hereby, is hereafter referred to as this "AGREEMENT"; and WHEREAS, pursuant to Section 2.2(c) of the Original Asset Purchase Agreement the "Sellers" thereunder could elect to structure the acquisition of Cadillac as an acquisition of all of the issued and outstanding shares of Cadillac's capital stock (the "ELECTION"), such acquisition to be made according to the rules set forth in such Section 2.2(c) of the Original Asset Purchase Agreement; and WHEREAS, by a notice given to the Buyer by the "Sellers" under the Original Asset Purchase Agreement on January 14, 1999, such "Sellers" have made the Election and, as a result of the Election, Cadillac shall no longer be a Seller under this Agreement; and WHEREAS, contemporaneously herewith, the Buyer, the Stockholders, Cadillac, and Ms. Catherine D. Ward, are executing an Agreement and Plan of Merger (the "MERGER AGREEMENT") pursuant to which the Buyer shall acquire all of the issued and outstanding shares of Cadillac's capital stock from the Stockholders and Ms. Ward; and WHEREAS, the parties have reached agreement on certain of the Schedules to the Original Asset Purchase Agreement and such Schedules are appended to this Agreement; and WHEREAS, pursuant to a letter agreement dated as of February 28, 1999 (the "AGREEMENT IN PRINCIPLE"), the parties to the Original Asset Purchase Agreement have agreed in principle upon the manner in which the Stock Component (as defined in the Original Asset Purchase Agreement) will be both (a) allocated as between the Merger Agreement and this Agreement, and (b) registered pursuant to applicable securities laws; and WHEREAS, the parties hereto wish to amend and restate the Original Asset Purchase Agreement to reflect, among other things, (a) the Election, (b) the execution of the Merger Agreement, and (c) the agreement set forth in the Agreement in Principle; and WHEREAS, the Sellers are the owners of certain assets used in connection with the Sellers' three automobile dealership businesses (collectively, the "BUSINESSES" and, individually as to each Seller, as applicable, the "BUSINESS"); and WHEREAS, the Sellers desire to sell and the Buyer desires to buy, or to cause one or more subsidiaries or affiliates of the Buyer to buy, certain assets pertaining to the Businesses, subject to the terms and conditions of this Agreement; and WHEREAS, contemporaneously with the execution of the Original Asset Purchase Agreement, the Buyer has entered into two Contracts to Purchase and Sell Property (the "REAL PROPERTY PURCHASE AGREEMENTS"), one with TOM-JO, L.L.C. and one with WILLIAMS REALTY VENTURES, L.L.C. (respectively, the "OWNERS"), whereby the Buyer has agreed to buy, and the Owners have agreed to sell, the land, buildings and improvements located at the Real Property where the Buick Business is conducted; and WHEREAS, the consummation of the transactions contemplated by this Agreement is subject to the consummation of the transactions contemplated by each of the Real Property Purchase Agreements and the Merger Agreement (collectively, the "OTHER BASIC AGREEMENTS"); NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS "ASSETS" shall mean: the New Vehicles (as defined in Section 3.1 hereof); the Demonstrators (as defined in Section 3.2 hereof); the Used Vehicles (as defined in Section 3.5 hereof); the Parts (as defined in Section 4.3 hereof); the Miscellaneous Inventories (as defined in Section 5.1 hereof); the Work in Progress (as defined in Section 5.3 hereof); the Fixtures and Equipment (as defined in Section 5.4 hereof); the Miscellaneous Assets (as defined in Section 5.5 hereof); and all the goodwill of the Businesses. "CLOSING DATE" shall mean the date, not later than the Closing Date Deadline (as hereinafter defined), of the closing of the purchase and sale of the Assets (the "CLOSING") which shall 2 be a date designated by the Buyer not sooner than January 1, 1999 and not later than fifteen (15) days after the approvals set forth in Sections 8.13 hereof have been obtained, or such other date as is mutually agreed upon by the parties hereto. The Closing shall be held at the offices of Williams & Ledbetter, 2140 Eleventh Avenue South, Birmingham, Alabama at 9:00 a.m. on the Closing Date. "CLOSING DATE DEADLINE" shall mean March 2, 1999 (unless otherwise mutually agreed in writing by the parties hereto). "INVENTORY DATE" shall mean the date of completion of the Inventory (as defined in Section 4.1 hereof), which shall be not more than three (3) days prior to the Closing Date, or such other date prior to the Closing as is mutually agreed by the Sellers' Agent and the Buyer; provided, however, with respect to Used Vehicles, the Inventory Date shall be a date approximately two (2) weeks prior to the Closing Date, as mutually agreed by the parties. "LIABILITIES" shall mean: (i) all continuing obligations of the Sellers, arising in the ordinary course of business after the Closing Date and not as a result of any breach or default, under (A) those contracts and leases of real and personal property of the Sellers set forth in Part I of Schedule 2.4 attached hereto, and (B) all other contracts and leases of the Sellers that are entered into in connection with the Businesses in the ordinary course thereof after the date hereof, but only if the Buyer has, in its discretion, agreed to assume such other contracts and leases pursuant to the Assumption Agreements (as defined in Section 2.4 below); and (ii) the Inducement Fee as provided for in Section 2.5 hereof. "MANUFACTURERS" shall mean: (i) Audi of America Inc., (ii) BMW of North America Inc., (iii) General Motors Corporation, (iv) Land Rover North America Inc., (v) Lexus Division of Toyota Motor Sales (U.S.A.), and (vi) Porsche Cars North America Inc. "REAL PROPERTY" shall mean the land, buildings and improvements where the respective Businesses are currently operated, including, without limitation, the land, buildings and improvements to be sold pursuant to the Real Property Purchase Agreements. "RETAINED LIABILITIES" shall have the meaning assigned to it in Section 2.4 hereof. "SELLERS" shall mean Buick, Imports and Motors. "SELLERS' AGENT" shall mean Thomas P. Williams, Sr., as agent for the Sellers hereunder. 3 ARTICLE II SALE AND PURCHASE OF THE ASSETS 2.1 SALE AND PURCHASE; PURCHASE PRICE. (a) Upon the terms and subject to the conditions hereinafter set forth, at the Closing, the Sellers will sell, transfer and convey the Assets to the Buyer and the Buyer will purchase the Assets from the Sellers for the consideration set forth in this Agreement. The sale, transfer and conveyance of the Assets will be made by execution and delivery at the Closing of bills of sale in substantially the form of Exhibit A hereto (the "BILLS OF SALE") and such other instruments of assignment, transfer and conveyance as the Buyer shall reasonably request. Except to the extent specifically included within the Assets, the Sellers will not sell, and the Buyer will not purchase, any other tangible or intangible assets of the Sellers. (b) The aggregate purchase price to be paid for the Assets (the "PURCHASE PRICE") shall consist of the Initial Purchase Price (as defined in Section 2.2 below) and the Contingent Purchase Price (as defined in Section 2.3 below). 2.2 INITIAL PURCHASE PRICE. (a) The purchase price to be paid for the Assets at the Closing (the "INITIAL PURCHASE PRICE") shall consist of Twenty Five Million Four Hundred and Eighty-Six Thousand Dollars ($25,486,000), as the purchase price for the Businesses and intangible assets included in the Assets (the "BUSINESS AND INTANGIBLE ASSETS PURCHASE PRICE"), which shall be allocated among the Sellers in accordance with Part I of Schedule 2.2 hereto, plus the sum of: (i) the New Vehicle Purchase Price (as defined in Section 3.1 hereof); (ii) the Demonstrator Purchase Price (as defined in Section 3.2 hereof); (iii) the Used Vehicle Purchase Price, (as defined in Section 3.5 hereof); (iv) the Parts Purchase Price (as defined in Section 4.3 hereof); (v) the Miscellaneous Inventories Purchase Price (as defined in Section 5.1 hereof); (vi) the Work in Progress Purchase Price (as defined in Section 5.3 hereof); and (vii) the F&E Purchase Price (as defined in Section 5.4 hereof). Each of the components of the Initial Purchase Price, other than the Business and Intangible Assets Purchase Price, shall be allocated among the Sellers in accordance with their respective Assets upon which such components are based, as reflected in a revised Part I of Schedule 2.2 hereto, to be completed by the Buyer and the Sellers at least three (3) days prior to the Closing Date. The parties acknowledge that the New Vehicle Purchase Price, the Parts Purchase Price and the Miscellaneous Inventories Purchase Price will be based upon information contained in Schedule 3.1 and the Inventory (as defined in Section 4.1), both of which are to be delivered prior to the Closing Date. The parties also acknowledge that adjustments to those categories of Assets will have to be made to reflect ordinary course increases or decreases in those assets between the time of delivery of such Schedules and the Inventory and the Closing Date, and that the related components of the Purchase Price will have to be adjusted to reflect any such adjustments to those Assets. All of the foregoing adjustments (with appropriate payments by the parties) will be made as promptly as possible after the Closing. Each party will use the Purchase Price and Liabilities allocations described in Part II 4 of Schedule 2.2 hereto in all reporting to, and tax returns filed with, the Internal Revenue Service and other state and local taxing authorities. (b) At the Closing, the Buyer shall, subject to the provisions of Section 2.2(c) below, pay the Initial Purchase Price as follows: (i) The Buyer shall deliver to Sellers' Agent cash, by a certified check or by wire transfer to an account or accounts designated by Sellers' Agent one day prior to Closing, in an amount equal to the sum of: (A) 65% of the Business and Intangible Assets Purchase Price; (B) 100% of the New Vehicle Purchase Price; (C) 100% of the Demonstrator Purchase Price; (D) 65% of the Used Vehicle Purchase Price; (E) 65% of the Parts Purchase Price; (F) 65% of the Miscellaneous Inventory Purchase Price; (G) 65% of the Work in Progress Purchase Price; and (H) 65% of the F&E Purchase Price. Such cash shall be paid to the Sellers in the respective amounts set forth opposite their names on Part III of Schedule 2.2 hereto, to be delivered to the Buyer by the Sellers' Agent at least three (3) days prior to the Closing Date. (ii) (A) In payment of the balance of the Initial Purchase Price (the "STOCK COMPONENT"), the Buyer shall issue and deliver to the Sellers, in the respective amounts set forth opposite their names on Part III of Schedule 2.2 hereto, that number of whole shares of the Buyer's Class A Convertible Preferred Stock, Series III (the "PREFERRED STOCK"), obtained by dividing the Stock Component by $1,000. No fractional shares of Preferred Stock shall be issued; any such fraction of a share of Preferred Stock shall be paid in cash at the rate of $1,000 per whole share of Preferred Stock. The Preferred Stock shall have such rights and preferences as are set forth in the Statement of Rights and Preferences of Preferred Stock attached hereto as Exhibit B (the "STATEMENT OF RIGHTS AND PREFERENCES"). (B) (I) The Buyer will use its best reasonable efforts to include all of the shares of the Buyer's Class A Common Stock, $.01 par value per share (the "COMMON STOCK") issuable on conversion of the Preferred Stock, in an underwritten public offering of the Buyer's Common Stock (the "PUBLIC OFFERING"), in accordance with the Securities Act of 1933, as amended (the "SECURITIES ACT"), on a "piggyback" registration basis on or prior to April 30, 1999. In this regard, the provisions of Subsection 2.2(b)(ii)(C) below will apply. The Stockholders shall sell in the Public Offering all shares of Common Stock which are issuable upon conversion of all of the shares of the Preferred Stock and which the Buyer is able to register in the Public Offering, unless the underwriters in the Public Offering require that the Stockholders sell fewer than all of such shares of Common Stock or the Buyer and the Stockholders mutually agree that a fewer number of such shares of Common Stock will be registered and sold. (II) Any shares of Common Stock issuable to the Stockholders on conversion of the Preferred Stock and which have not been registered and sold pursuant to the Public Offering by April 30, 1999 (other than as a result of the Stockholders' failure to participate in the Public Offering), will be registered by the Buyer in a "shelf" registration statement under the Securities Act as promptly as possible after April 30, 1999 and taking into account the period of time required by applicable law for the Buyer to deliver to the Sellers and the 5 Stockholders a prospectus with respect to the offer and sale of such shares of Common Stock; provided, however, the Buyer may delay the effectiveness of any such shelf registration statement until the expiration of any "lock-up" period required by the underwriters in the Public Offering; and provided, further, the Stockholders agree that they will not offer, sell, contract to sell, pledge, or otherwise dispose of any of the shares of Common Stock which are registered pursuant to such registration statement (the "REGISTERED COMMON SHARES") for an additional ninety (90) days from the date of issuance. Upon the effectiveness of such registration statement, the Sellers and/or the Stockholders will promptly convert all shares of the Preferred Stock held by them into Registered Common Stock. (III) The Buyer shall deliver to the Sellers and the Stockholders, at least thirty (30) days prior to the payment of the Contingent Stock Component (as defined in Section 2.3(b) below) a prospectus with respect to the Buyer's offer and sale to the Sellers of the shares of Common Stock contemplated by this clause (III). The Sellers' Agent may, by notice (the "FURTHER REGISTRATION NOTICE") to the Buyer at least seven (7) days prior to the payment of the Contingent Stock Component, elect to receive up to fifty percent (50%) of the Contingent Stock Component in shares of registered Common Stock which have also been registered in a shelf registration statement under the Securities Act, in which case the term "Registered Common Shares" as used in this Agreement shall also include the applicable number of registered shares of Common Stock issued as part of the Contingent Stock Component. Provided that the Sellers' Agent shall have timely delivered the Further Registration Notice, at the time of payment of the Contingent Purchase Price the Buyer shall issue and deliver to the Sellers, pro rata according to the numbers of shares of Preferred Stock set forth opposite their names on Part III of Schedule 2.2 hereto, that number of whole shares of Common Stock obtained by dividing the portion of the Contingent Stock Component specified in the Further Registration Notice (not to exceed 50% thereof) by the Market Price (as defined in the Statement of Rights and Preferences) as of the date of such payment of the Contingent Purchase Price. No fractional shares of Common Stock shall be issued in connection with the foregoing payments of a portion of the Contingent Stock Component. To the extent that such fractional shares would otherwise be issued, the Buyer shall pay cash in lieu of such fractional shares based upon the applicable Market Price. The Sellers and the Stockholders hereby agree that they will not offer, sell, contract to sell, or otherwise dispose of any of the Registered Common Shares included in the Contingent Stock Component for a period of one hundred eighty (180) days from the date of delivery thereof by the Buyer. (C) If requested by the managing or lead managing underwriter in the Public Offering contemplated by clause (B)(I) above, the Sellers and the Stockholders shall execute and deliver such customary documentation as is utilized by such underwriter for selling stockholders in underwritten public offerings including, without limitation, an underwriting agreement and a "lock-up" agreement with the managing or lead managing underwriter in such forms as are customarily used by such underwriter with any modifications as the parties thereto shall agree. In connection with any such registration, the Sellers and the Stockholders shall supply to the Buyer such information as may be reasonably requested by the Buyer in connection with the preparation and filing of a registration statement with the Securities and Exchange Commission (the "SEC"). The Sellers and the Stockholders shall not supply any information to the Buyer for 6 inclusion in such registration statement that will, taken as a whole, at the time the registration statement becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (D) The obligations of the parties with respect to the Registered Common Shares will be subject to the additional provisions relating thereto set forth in Section 2.8 below. (E) In the event that the Buyer shall, for any reason, fail to deliver the Registered Common Shares to the Sellers in connection with the payment of the Contingent Purchase Price, the Buyer shall be obligated to deliver to the respective Sellers cash in the amount of the Market Price with respect to such Registered Common Shares as of the date of payment of such Contingent Purchase Price, and such payment in cash shall be in full satisfaction of the Buyer's obligation to deliver such Registered Common Shares. (F) To the extent that the Sellers' Agent does not timely deliver a Further Registration Notice, the Buyer shall have no obligation to the Sellers or the Stockholders to deliver any registered shares of Common Stock. Thereafter, the Buyer's sole obligation with respect to the Preferred Stock and the shares of Common Stock issuable upon conversion of the Preferred Stock (the "COMMON SHARES") shall be to use its best reasonable efforts to make available current public information with respect to the Buyer within the meaning of Subsection (c)(1) of SEC Rule 144 ("RULE 144") to the extent necessary to facilitate public resales by the Sellers of the Common Shares, pursuant to Rule 144. 2.3 CONTINGENT PURCHASE PRICE. (a) As used in this Agreement, (i) the term "CONTINGENT PURCHASE PRICE" shall mean an amount equal to the amounts payable pursuant to Section 2.3(b) below; (ii) the term "CALCULATION PERIOD" shall mean the twelve (12) month period commencing with the first full month after the Closing Date; (iii) the term "EARNINGS BEFORE TAXES" shall mean the earnings before taxes of each of the Buick Dealership Business, the Imports Dealership Business and the Motors Dealership Business, in each case for the Calculation Period, calculated as provided in Section 2.3(c) below; (iv) the terms "BUICK DEALERSHIP BUSINESS", "IMPORTS DEALERSHIP BUSINESS" and "MOTORS DEALERSHIP BUSINESS" shall mean the respective automobile dealership businesses of each of Buick, Imports and Motors acquired by the Buyer pursuant to this Agreement; (v) the term "DEALERSHIP BUSINESSES" shall mean the Buick Dealership Business, the Imports Dealership Business and the Motors Dealership Business; and (vi) the term "AGGREGATE EARNINGS BEFORE TAXES" shall mean the sum total of the Earnings Before Taxes of the Dealership Businesses and the Earnings Before Taxes of the Cadillac Dealership Business (each as defined and calculated pursuant to the Merger Agreement). (b) Subject to the provisions of Section 2.3(c) below, not later than 90 days after the end of the Calculation Period the Buyer shall pay to the respective Sellers their respective 7 installments, if any, of the Contingent Purchase Price, calculated as follows: (i) The installment of the Contingent Purchase Price payable to Buick shall be an amount equal to three (3) times the Earnings Before Taxes of the Buick Dealership Business in excess of $186,000; (ii) The installment of the Contingent Purchase Price payable to Imports shall be an amount equal to three and one-half (3.5) times the Earnings Before Taxes of the Imports Dealership Business in excess of $1,688,000; and (iii) The installment of the Contingent Purchase Price payable to Motors shall be an amount equal to four (4) times the Earnings Before Taxes of the Motors Dealership Business in excess of $4,710,000; provided, however, that the Buyer shall be under no obligation to pay any of the Contingent Purchase Price unless the Aggregate Earnings Before Taxes exceed $7,564,000. The Contingent Purchase Price shall be paid to the respective Sellers 65% in cash and 35% (the "CONTINGENT STOCK COMPONENT") by the issuance and delivery to the respective Sellers of shares of Preferred Stock at the rate of one share of Preferred Stock for every $1,000 of such Contingent Purchase Price, subject, however, to any rights of the Sellers to receive a percentage of the Contingent Stock Component in registered shares of Common Stock pursuant to Section 2.2(b) above. Fractional shares of Preferred Stock may be issued in connection with the payment of the Contingent Purchase Price; however, no fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. At the request of Sellers' Agent, the Buyer shall furnish the Sellers' Agent with copies of the Buyer's factory financial statements for each month during the Calculation Period. (c) Earnings Before Taxes shall be calculated by the Buyer in accordance with GAAP (as defined in Section 11.3) and subject to the following special rules: (i) No deduction shall be taken for federal and state income taxes, or for state franchise taxes based on corporate income, owed by the respective Dealership Businesses; (ii) No deduction shall be taken for any interest expenses (including acquisition debt) of the respective Dealership Businesses other than floor plan financing interest attributable to the Businesses and other interest expenses directly attributable to the operations of the respective Dealership Businesses; (iii) Earnings Before Taxes shall be determined before (A) any expense chargeable with respect to the Non-Competition Agreement, or (B) any management fee expense allocation from the Buyer in respect of management fees payable to the Buyer; (iv) No deduction shall be taken for any amortization of goodwill included in the Purchase Price; and 8 (v) Overhead expenses or other expenses which have been incurred by the respective Dealership Businesses which are allocated to the respective Dealership Businesses but do not directly relate to the operation of the respective Dealership Businesses, or that portion so allocated which is not reasonably related to the operation of the respective Dealership Businesses, shall not be deducted in determining Earnings Before Taxes. At the time of the payment of the Contingent Purchase Price, the Buyer shall deliver to the Sellers' Agent a statement in writing setting forth in reasonable detail the manner in which the Contingent Purchase Price was determined. The Sellers' Agent shall have a period of thirty (30) days from the date of delivery of the Buyer's statement of the Contingent Purchase Price to object in writing to the calculation of the Contingent Purchase Price set forth therein; failing such objection within such period by the Sellers' Agent, the Sellers shall be deemed to have accepted the Buyer's calculation of the Contingent Purchase Price. If the Sellers' Agent shall have timely objected to the Buyer's calculation of the Contingent Purchase Price, the parties shall negotiate in good faith in an effort to resolve any dispute regarding the Contingent Purchase Price. If the parties are unable to resolve such dispute within a period of thirty (30) days after the Buyer's receipt of the Sellers' objection, the matter shall be submitted to a "big six" accounting firm mutually acceptable to the parties, which shall be instructed to resolve such dispute as promptly as possible. The costs and expenses of such accounting firm shall be shared equally between the Buyer and the Sellers. Upon the final determination of the Contingent Purchase Price, the Buyer or the Sellers, as the case may be, shall make appropriate payment to the other, as the case may be, in the amount of the Contingent Purchase Price as finally determined. The party making the payment shall also pay interest on the amount of such payment at an amount of such payment at an annual rate of interest equal to the Buyer's floor plan financing rate from time to time in effect from the original date of payment of the Contingent Purchase Price by the Buyer to the date of such payment. 2.4 ASSUMPTION OF LIABILITIES. At the Closing, the Sellers will assign to the Buyer and the Buyer will assume and agree to perform and discharge the Liabilities pursuant to separate assignment and assumption agreements with the respective Sellers in a form reasonably satisfactory to the Sellers' counsel (the "ASSUMPTION AGREEMENTS"). Notwithstanding any of the foregoing, except as expressly provided in this Section 2.4 and in Section 2.5, the Buyer does not and will not assume or become liable for any obligations or liabilities of the Sellers or the Stockholders of any kind whatsoever, fixed or contingent, known or unknown as a result of the transactions contemplated by this Agreement (collectively, the "RETAINED LIABILITIES"). The Sellers shall retain, and hereby agree to satisfy and discharge, all of the Retained Liabilities, including those set forth on Part II of Schedule 2.4 hereto. 2.5 INDUCEMENT FEE. As an inducement to the Buyer to negotiate and enter into this Agreement and to undertake the further cost and expense of conducting its due diligence investigation and preparing to satisfy its obligations at the Closing, the Sellers hereby agree, jointly and severally, to pay to the Buyer not later than April 30, 1999, the sum of $500,000 (the "INDUCEMENT FEE"). The Inducement Fee will be included in the Liabilities and will become an obligation of the Buyer or any other person (including any holder of a right of first refusal, preemptive right or other similar right, with respect to any of the Assets) who purchases the Assets, 9 or any portion thereof, as a result of the execution and delivery by the Sellers of this Agreement. The Inducement Fee will be canceled if this Agreement is terminated for any reason other than the exercise of a right of first refusal, preemptive right or other similar right, by an applicable automobile manufacturer or distributor or any person claiming by, through or under it. 2.6 NON-COMPETITION AGREEMENTS. At the Closing, Thomas P. Williams, Sr. shall enter into a non-competition agreement with the Buyer in substantially the form of Exhibit C hereto (the "NON-COMPETITION AGREEMENT"). In addition to the Business and Intangible Assets Purchase Price, the Buyer shall pay to Thomas P. Williams, Sr. the sum of $10,000 as further consideration for such Non-Competition Agreement. 2.7 EMPLOYMENT AGREEMENTS. At the Closing, Thomas P. Williams, Sr., Thomas P. Williams, Jr. and Clark Williams will enter into Employment Agreements with the Buyer in substantially the forms of Exhibits D-1, D-2 and D-3, respectively, hereto (the "EMPLOYMENT AGREEMENTS"). 2.8 ADDITIONAL TERMS RELATING TO THE REGISTERED COMMON SHARES. (a) The Buyer shall have no obligation to maintain the currency of any prospectus, permit the use of any prospectus or maintain the effectiveness of any registration statement for the resale of the Registered Common Shares once all of the Registered Common Shares that remain unsold may be sold without restriction pursuant to Rule 144. (b) The Sellers and the Stockholders agree that they shall effect each resale of Registered Common Shares only pursuant to a current prospectus or supplements thereto that is a part of the applicable registration statement of the Buyer (the "RESALE PROSPECTUS"). (c) Any offering of any of the Registered Common Shares under the Resale Prospectus will be effected in an orderly manner through a securities dealer, acting as broker or dealer, reasonably acceptable to the Buyer (the "DESIGNATED BROKER"). (d) The Sellers and the Stockholders will make resales of Registered Common Shares only by one or more methods described in the Resale Prospectus, as appropriately supplemented or amended when required. (e) Since the Registered Common Shares are "restricted securities" within the meaning of Rule 145 promulgated by the SEC under the Securities Act, the certificates representing the Registered Common Shares will be issued by the Buyer with such legends as the Buyer may reasonably require until such shares are offered pursuant to the foregoing terms under the Resale Prospectus, at which time such certificates shall be tendered to the Buyer and a new certificate or certificates without legends shall be issued by the Buyer to the Designated Broker in order to settle any resales by the Sellers or the Stockholders. (f) The Sellers and the Stockholders shall provide the Buyer, in writing, with all 10 information concerning the Sellers and the Stockholders and their resale of the Registered Common Shares as may reasonably be requested by the Buyer in order to comply with the Securities Act, and the Sellers and the Stockholders shall indemnify the Buyer for any liabilities (the "Seller's Liabilities") arising under the Securities Act, the Securities Exchange Act of 1934 or any state securities or blue sky laws resulting from any material misstatements in, or omissions of material information from, such information provided by the Sellers and the Stockholders to the Buyer. (g) The Sellers and the Stockholders shall pay any and all expenses directly related to the resale of the Registered Common Shares, including, but not limited to, the commissions or fees of the Designated Broker, but excluding the fees and expenses of the custodial bank or banks holding the Registered Common Shares, if applicable, which shall be borne by Buyer. (h) The Buyer shall use its best reasonable efforts to list the Registered Common Shares for trading on the New York Stock Exchange; (i) The Buyer shall pay all expenses, including legal and accounting fees, in connection with the preparation, filing and maintenance of the applicable registration statement, including amendments thereto and the Resale Prospectus, including supplements thereto, and the issuance of certificates representing the Registered Common Shares. (j) The Buyer shall indemnify the Sellers and the Stockholders for any liabilities arising under the Securities Act, the Securities Exchange Act of 1934 or any state securities or blue sky laws resulting from any material misstatements in, or omissions of material information from, the Resale Prospectus or the Acquisition Shelf Registration Statement, including the information incorporated by reference therein, except for the Seller's Liabilities. (k) Notwithstanding any provision of this Agreement to the contrary, the Sellers and the Stockholders shall not have any right to take any action (and the Sellers and the Stockholders hereby agree that none of them shall take any action) to restrain, enjoin or otherwise delay any registration as a result of any controversy that might arise with respect to the interpretation or implementation of this Agreement. Nothing contained in this Section 2.8 shall prevent the making of a claim for monetary relief. ARTICLE III NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES 3.1 NEW VEHICLES. At the Closing, the Buyer shall purchase all of the Sellers' untitled new 1999 and 1998 motor vehicles in the Sellers' inventories as of the Closing Date and which are listed on Schedule 3.1 hereto, which the Sellers' Agent shall deliver to the Buyer not more than three (3) days prior to the Closing (all such vehicles are collectively referred to hereinafter as the "NEW VEHICLES"). The purchase price to be paid by the Buyer for each New Vehicle shall be the price at 11 which the New Vehicle was invoiced to the respective Seller by the applicable Manufacturer, as adjusted pursuant to this Article III (the sum of all such amounts to be paid for New Vehicles as determined by this Article III is herein referred to as the "NEW VEHICLE PURCHASE PRICE"). Schedule 3.1 shall set forth each New Vehicle's model, invoice cost, odometer reading and all other information necessary to calculate the New Vehicle Purchase Price with respect to such New Vehicle. At the Closing, the Sellers shall assign to the Buyer, without any additional consideration therefor, by appropriate documents reasonably satisfactory to the Buyer, all unfilled retail orders and deposits made thereon. Any proceeds or profits derived from retail orders filled by the Buyer after the Closing shall belong to the Buyer. 3.2 DEMONSTRATORS. At the Closing, the Buyer shall purchase all of the Sellers' untitled new 1999 and 1998 motor vehicles in Sellers' inventories as of the Closing Date which are used in the ordinary course of business for the purpose of demonstration and which are listed on Schedule 3.2 hereto, which the Sellers' Agent shall deliver to the Buyer not more than three (3) days prior to the Closing (all such vehicles are collectively referred to herein as the "DEMONSTRATORS"). The purchase price to be paid by the Buyer for each Demonstrator shall be the price at which the Demonstrator was invoiced to the respective Seller by the applicable Manufacturer, as adjusted pursuant to this Article III and as reduced by an amount equal to ten cents ($.10) multiplied by the total mileage on such Demonstrator's odometer up to 6,000 miles and thirty-two cents ($.32) multiplied by the total mileage on such Demonstrator's odometer in excess of 6,000 miles (the sum of all such amounts to be paid for Demonstrators hereunder is herein referred to as the "DEMONSTRATOR PURCHASE PRICE"). Schedule 3.2 shall set forth each Demonstrator's model, invoice cost, odometer reading and all other information necessary to calculate the Demonstrator Purchase Price with respect to such Demonstrator. 3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR PURCHASE PRICES. The purchase price paid for each New Vehicle and each Demonstrator purchased under this Article III shall be: (a) increased by the dealer cost of any equipment and accessories which have been installed by the respective Seller; and (b) decreased by (i) the dealer cost of any equipment and accessories which have been removed from such vehicles, (ii) all paid or unpaid rebates, discounts, holdback for dealer account and other factory incentives (including without limitation rebates applied for and paid but unearned, incentive monies claimed on pre-reported units and carryover allowances on 1997 models), and (iii) any refundable advertising allowances. To the extent that any such rebates, discounts, holdbacks, incentives or allowances which have reduced the price shall be paid to the Buyer, the Buyer shall promptly pay them to the applicable Sellers. 3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS. In the event any New Vehicle or Demonstrator shall have been damaged prior to the Closing Date, or is otherwise in a condition such that it cannot reasonably be presented as being in a first-class saleable condition, the Sellers' Agent and the Buyer will attempt to agree on the cost to cover such repairs or some other equitable reduction in value to reflect such condition, which amount shall be deducted from the price to be paid for such New Vehicle or Demonstrator. In the event that the Buyer and the Sellers' Agent cannot agree on the cost of repairs or the amount of reduction, the Buyer shall have no obligation to purchase any such damaged New Vehicle or Demonstrator. With respect to any New Vehicle or 12 Demonstrator which has been damaged and repaired prior to the Closing Date, the Sellers' Agent and the Buyer will attempt to agree on an adjustment to the price to reflect any decrease in the wholesale value of such New Vehicle or Demonstrator resulting from such damage and repair. In the event that the Buyer and the Sellers' Agent cannot agree on such adjustment, the Buyer shall have no obligation to purchase such New Vehicle or Demonstrator. The Sellers' Agent shall notify the Buyer on or prior to the Closing Date if any New Vehicles or Demonstrators shall have suffered any damage which is not reflected on Schedule 3.1 or Schedule 3.2. 3.5 USED VEHICLES. The Sellers' Agent and the Buyer shall perform an inventory of the Sellers' used vehicles as of the Inventory Date and, in connection with such inventory, the Sellers' Agent and the Buyer shall attempt to assign a mutually agreed price to each used vehicle owned by the Sellers as of the Inventory Date. Any such vehicles as to which the Sellers' Agent and the Buyer are unable to agree upon a price shall not be purchased by the Buyer in connection herewith. All used vehicles acquired by the Sellers after the Inventory Date with respect to used vehicles shall be valued at the respective Sellers' book value therefor; provided, however, the acquisition and valuation thereof shall be subject to prior approval by the Buyer so long as the Buyer shall have a representative present at the Sellers' dealerships at the time such used vehicles are proposed to be accepted. Any such used vehicles as to which the Sellers' Agent and the Buyer shall agree upon a price as of the Inventory Date, as well as all used vehicles acquired thereafter by the Sellers in accordance with this Section 3.5 are collectively referred to herein as the "USED VEHICLES." At the Closing, the Buyer shall purchase from the respective Sellers all Used Vehicles owned by the respective Sellers as of the Closing Date. The sum of all prices assigned to such Used Vehicles purchased by the Buyer pursuant to the terms of this Section 3.5 shall be referred to herein as the "USED VEHICLE PURCHASE PRICE". ARTICLE IV PARTS/ACCESSORIES 4.1 THE INVENTORY. The Buyer and the Sellers' Agent shall engage a mutually acceptable third party engaged in the business of appraising, valuing and preparing inventories for automobile dealerships (hereinafter referred to as the "INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the parts and accessories, as well as the Miscellaneous Inventories, used by the Sellers in the Businesses. The Inventory (insofar as it relates to parts and accessories) shall be posted to the respective Manufacturers' approved systems of inventory control. The cost of the Inventory shall be borne one-half by the Buyer and one-half by the Sellers. The Buyer shall have the right to deduct the Sellers' portion of such expense from the cash consideration to be paid to the Sellers under the terms of this Agreement and to remit such sum directly to the Inventory Service. The Inventory shall be completed by the Inventory Date. 4.2 RETURNABLE AND NONRETURNABLE PARTS AND ACCESSORIES. The Inventory shall classify parts and accessories as "returnable" or "nonreturnable". For purposes of this Agreement, the terms "returnable parts" and "returnable accessories" shall describe and include only those new 13 parts and new accessories for vehicles which are listed (coded) in the latest current Master Parts Price List Suggested List Prices and Dealer Prices, or other applicable similar price lists, of the respective Manufacturers, with any applicable supplements, in effect as of the Inventory Date (as applicable to each Manufacturer, the "MASTER PRICE LIST") as returnable to the respective Manufacturer at not less than the purchase price reflected in the Master Price List. The purchase price for each "returnable part" and "returnable accessory" will be the price listed in the Master Price List. All parts and accessories listed (coded) in the Master Price List as nonreturnable to the respective Manufacturer shall be classified as "nonreturnable". The purchase price for each "nonreturnable" part and accessory, of which type a Seller has made no sales during the ninety (90) day period prior to the Inventory Date (or such longer period of time as is commercially reasonable in the case of "big ticket" parts such as engine blocks and transmissions), shall be sixty percent (60%) of the price listed therefor in the Master Price List. The purchase price for each "nonreturnable" part and accessory, of which type a Seller has made retail sales to one or more customers during the ninety (90) day period prior to the Inventory Date, shall be one hundred percent (100%) of the price therefor listed in the Master Price List. The purchase price for all "Jobber" and/or "NPN" parts shall be equal to the respective Seller's original cost of such parts. The purchase price for all nuts, bolts and any other parts not addressed in this Section 4.2 shall equal the fair market value thereof as determined by the Inventory Service. 4.3 PARTS; PARTS PURCHASE PRICE. At the Closing, the Buyer shall purchase all parts and accessories owned by the respective Sellers at the Closing Date and listed on the Inventory (the "PARTS"); provided, however, that Buyer shall not be obligated to purchase any damaged parts or accessories, parts and accessories with component parts missing, superseded or obsolete parts or accessories, or used parts or accessories. The Sellers agree that if parts and accessories that the Buyer is not obligated to purchase hereunder are not removed from the Real Property within thirty (30) days after the Closing Date, they shall become the property of the Buyer without the payment of any consideration in addition to the consideration otherwise provided herein. The purchase price for the Parts will equal the value of such items shown on the Inventory (the "PARTS PURCHASE PRICE"). 4.4 PARTS RETURN PRIVILEGES. The Sellers shall assign to the Buyer at the Closing any net parts return privileges under the respective Manufacturers' parts return plans that may have accrued to the Sellers prior to the Closing (and any other special parts return authorizations which may have been granted to the Sellers by the respective Manufacturers). ARTICLE V MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES AND EQUIPMENT 5.1 MISCELLANEOUS INVENTORIES. At the Closing, the Buyer shall purchase all useable gas, oil and grease, all undercoat material and body materials in unopened cans and such miscellaneous useable and saleable articles in unbroken lots (including boutique accessories and pro shop items) 14 which (i) are on the respective Sellers' dealership premises, (ii) are owned by the respective Sellers on the Closing Date, and (iii) are identified in the Inventory taken by the Inventory Service on the Inventory Date (the foregoing being, collectively, "MISCELLANEOUS INVENTORIES"). The purchase price for the Miscellaneous Inventories shall be equal to the replacement cost of the Miscellaneous Inventories as determined by the Inventory Service and set forth on the Inventory (the sum of all prices of the Miscellaneous Inventories pursuant to the terms of this Section 5.1 shall be referred to herein as the "MISCELLANEOUS INVENTORIES PURCHASE PRICE"). 5.2 MISCELLANEOUS ITEMS NOT INCLUDED IN THE INVENTORY. The Buyer shall have no obligation to purchase any such miscellaneous inventory items that are not included in the Miscellaneous Inventories. The Sellers agree that any miscellaneous inventory items that are not included in the Miscellaneous Inventories and are not removed from the Real Property within the thirty (30) days after the Closing Date, shall become the property of the Buyer without the payment of any consideration in addition to the consideration otherwise provided herein. 5.3 WORK IN PROGRESS. At the Closing, the Buyer shall buy at the Sellers' cost for parts and labor such shop labor and sublet repairs as the respective Sellers shall have caused to be performed on any repair orders which are in process at the close of business on the Closing Date for which there are adequate credit arrangements (the "WORK IN PROGRESS") (the sum of all costs of the Sellers for the Work in Progress pursuant to the terms of this Section 5.3 shall be referred to herein as the "WORK IN PROGRESS PURCHASE PRICE"). The Buyer shall complete such repair work and shall be entitled to the entire proceeds to be collected for such services. 5.4 FIXTURES AND EQUIPMENT. At the Closing, the Buyer shall purchase all fixtures, machinery, equipment (including company owned vehicles, wreckers, service loaners and vans and special tools and shop equipment), furniture, signs and office equipment, and leasehold improvements (excluding those at the Buick facility) owned by the Sellers as of the Closing Date and used or held for use in connection with the Businesses, including the items listed on the Book Depreciation Schedule included as Schedule 5.4 attached hereto, which the Sellers' Agent shall deliver to the Buyer not later than five (5) days prior to the Closing (collectively referred to herein as the "FIXTURES AND EQUIPMENT"); provided, however, the Fixtures and Equipment shall not include leasehold improvements at the Buick facility. The purchase price for each item of Fixtures and Equipment shall equal the depreciated book value of such item, determined in accordance with GAAP (as defined in Section 11.3 hereof), and based upon Schedule 5.4 (the sum of all prices assigned to the Fixtures and Equipment pursuant to the terms of this Section 5.4 shall be referred to herein as the "F&E PURCHASE PRICE"). 5.5 MISCELLANEOUS ASSETS. At the Closing, and without payment of any additional consideration, the Buyer shall acquire all of the Sellers' (i) unused shop repair orders, parts sales tickets, accounting forms, binders, office and shop supplies and such shop reference manuals, parts reference catalogs, non-accounting file copies for all sales of the Sellers for the three (3) years preceding the Closing Date, (ii) copies of new and used car sales records and specifically wholesale parts sales records, new and used parts sales records, and service sales records for the three (3) years preceding the Closing Date, (iii) product sales training material and reference books on hand as of 15 the Closing Date, (iv) customer and registration lists pertaining to the sale of motor vehicles, service files, repair orders, owner follow-up lists and similar records relating to the operation of the Businesses, (v) telephone numbers and listings used by the Sellers in connection with the Businesses, (vi) names and addresses of the Sellers' service customers and prospective purchasers, (vii) all lawfully transferrable licenses and permits of the Businesses, and (viii) the Sellers' rights to the trade names listed on Schedule 5.5 hereto or any similar variation thereof (such items being collectively the "MISCELLANEOUS ASSETS"). 5.6 CERTAIN RECORDS OF THE SELLER. The Sellers may retain all corporate records, financial records and correspondence which are not necessary for the continued operation of the Businesses by the Buyer, and all derivations and extensions thereof. 5.7 WARRANTY OBLIGATIONS OF THE SELLER. The Buyer shall have no responsibility to perform any services required under any warranties issued by the Sellers on the vehicles sold by the Sellers on or prior to the Closing Date, unless authorized in writing by the respective Sellers accompanied by arrangements in writing satisfactory to the Buyer to assure the Buyer of payment for all work performed by the Buyer, and, if so authorized by a Seller, such Seller shall reimburse the Buyer for all of the Buyer's costs for parts and labor in connection therewith at established internal rates for parts and labor. At the Closing Date, the Sellers shall supply the Buyer with a list to which such warranties and guaranties are applicable, which list shall include the names of the purchasers, the make and year model of the vehicles purchased and the date of purchase. The Sellers shall also supply to the Buyer at or prior to the Closing Date an address for and a designation of the person or persons who will be responsible for authorizing Buyer to perform any services under any warranties issued by the Sellers on vehicles sold by them prior to the Closing Date. The respective Sellers shall reimburse the Buyer promptly upon demand for all sums due or payable by the respective Sellers to the Buyer hereunder. 5.8 ACCOUNTS RECEIVABLE. The Sellers shall retain all accounts receivable of the Sellers as of the Closing Date and the Buyer shall retain all accounts receivable arising out of sales and/or services of the Businesses after the Closing Date. The Buyer shall have no responsibilities or obligations with respect to the documentation or collection of the Sellers' accounts receivable, except that the Buyer, on the Sellers' behalf, shall accept payment of the Sellers' accounts receivable arising out of the operation of the Businesses prior to the Closing Date, at no charge to the Sellers, for a period of six (6) months after the Closing, and the Buyer shall forward to the Sellers' Agent, or to such of the Sellers designated by him, from time to time during said period, all of the money so accepted on said accounts receivable. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BUYER The Buyer represents and warrants to the Sellers as follows: 16 6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Buyer is a corporation duly organized and existing and in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business makes such qualification necessary and has the corporate power to own its properties and to carry on its business as now being conducted. The Board of Directors of the Buyer has duly approved this Agreement, all other agreements, certificates and documents executed or to be executed by the Buyer in connection herewith, and the transactions contemplated hereby and thereby. The Buyer has full corporate power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by the Buyer in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. This Agreement, and all other agreements, certificates and documents executed or to be executed by the Buyer in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of the Buyer enforceable against the Buyer in accordance with their respective terms. 6.2 NON-VIOLATION; CONSENTS. Except as set forth on Schedule 6.2 attached hereto, the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof do not and will not: (a) conflict with or violate any of the provisions of the Buyer's restated certificate of incorporation or by-laws, each as amended, or any resolution of the Board of Directors or the stockholders of the Buyer; (b) violate any law, ordinance, rule or regulation or any judgment, order, writ, injunction or decree or similar command of any court, administrative or governmental agency or other body applicable to the Buyer; (c) violate or conflict with or result in a breach of, or constitute a default under, any material instrument, agreement or indenture or any mortgage, deed of trust or similar contract to which the Buyer is a party or by which the Buyer is bound or affected; or (d) require the consent, authorization or approval of, or notice to, or filing or registration with, any governmental body or authority, or any other third party. 6.3 LITIGATION. There are no actions, suits or proceedings pending, or, to the knowledge of the Buyer, threatened against or affecting the Buyer which might adversely affect the power or authority of the Buyer to carry out the transactions to be performed by it hereunder. 6.4 AUTHORIZATION OF PREFERRED STOCK. The issuance of the Preferred Stock, as well as the shares of Common Stock issuable upon conversion of the Preferred Stock, has been duly authorized by all necessary corporate action of the Buyer. Upon the issuance of the Preferred Stock pursuant to this Agreement, and upon the issuance of shares of Common Stockupon conversion of any of the Preferred Stock, such Preferred Stock and/or Common Stock, as the case may be, shall be validly issued, fully paid and non-assessable. 6.5 CAPITALIZATION. The authorized capital stock of the Buyer consists of: (a) 3,000,000 shares of Preferred Stock, par value $0.10 per share, of which 300,000 shares are designated Class A Convertible Preferred Stock and are, in turn, divided into 100,000 shares of Series I (the "SERIES I PREFERRED STOCK"), 100,000 shares of Series II (the "SERIES 17 II PREFERRED STOCK") and 100,000 shares of Series III (the "SERIES III PREFERRED STOCK"); as of October 15, 1998, approximately 19,500 shares of Series I Preferred Stock are issued and outstanding and/or are committed to be issued by the Buyer, approximately 13,910 shares of Series II Preferred Stock are issued and outstanding and/or are committed to be issued by the Buyer, and approximately 31,248 shares of Series III Preferred Stock are issued and outstanding and/or are committed to be issued by the Buyer; (b) 50,000,000 shares of Class A Common Stock, par value $0.01 per share, of which 5,588,888 shares are issued and outstanding; and (c) 15,000,000 shares of Class B Common Stock, par value $0.01 per share, of which 6,200,000 shares are issued and outstanding. All outstanding capital stock of the Buyer is duly authorized, validly issued, fully paid and non-assessable and has been issued in conformity with all applicable federal and state securities laws. 6.6 DISCLOSURE MATERIALS. The Buyer has delivered to the Sellers' Agent copies of (i) the Prospectus dated November 10, 1997 (the "PROSPECTUS"), (ii) the Buyer's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1997, (iii) the Buyer's Quarterly Reports on Form 10-Q for the three-month periods ended March 31, 1998, June 30, 1998 and September 30, 1998, and (iv) any Current Reports on Form 8-K, filed in 1998, each in the form (excluding exhibits) filed with the SEC (collectively, such Forms 10-K, 10-Q and 8-K being hereinafter referred to as its "REPORTS"). Neither the Prospectus nor any of the Reports contained, at the time of filing thereof with the SEC, any untrue statement of any material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. 6.7 MISSTATEMENTS AND OMISSIONS. No representation or warranty made by the Buyer in this Agreement, and no statement contained in any agreement, instrument, certificate or schedule furnished or to be furnished by the Buyer pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading. The representations and warranties of Buyer contained in the Real Property Purchase Agreement are true and correct. 6.8 ORIGINAL ASSET PURCHASE AGREEMENT. The representations and warranties of the Buyer in the Original Asset Purchase Agreement were true and correct when made. 18 ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE STOCKHOLDERS The Sellers and the Stockholders, jointly and severally, represent and warrant to the Buyer as follows: 7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. Each Seller (a) is a corporation duly organized and existing and in good standing under the laws of the State of Alabama, (b) is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business makes such qualification necessary, and (c) has the corporate power to own its properties and to carry on its business as now being conducted. Except as set forth on Schedule 7.1 attached hereto, the Stockholders are the only persons or entities owning shares of the Sellers. The Board of Directors and the shareholders of each Seller have duly approved this Agreement, all other agreements, certificates and documents executed or to be executed by such Seller in connection herewith, and the transactions contemplated hereby and thereby. Each Seller has full corporate power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by such Seller in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. This Agreement, and all other agreements, certificates and documents executed or to be executed by each Seller in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of such Seller enforceable against such Seller in accordance with their respective terms. This Agreement, and all other agreements, certificates and documents executed or to be executed by each Stockholder in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of such Stockholder enforceable against such Stockholder in accordance with their respective terms. 7.2 NO VIOLATION; CONSENTS. Except as set forth in Schedule 7.2 attached hereto, the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof do not and will not: (a) conflict with or violate any of the provisions of Sellers' articles of incorporation or by-laws, each as amended, or any resolution of the Board of Directors or the shareholders of the Sellers; (b) violate any law, ordinance, rule or regulation or any judgment, order, writ, injunction or decree or similar command of any court, administrative or governmental agency or other body applicable to any of the Sellers, the Assets, the Businesses or the Liabilities; (c) violate or conflict with or result in a breach of, or constitute a default under, or an event giving rise to a right of termination of, any Contract (as defined in Section 7.12), any material instrument, agreement or indenture or any mortgage, deed of trust or similar contract to which any Seller or any Stockholder is a party or by which any Seller, any Stockholder or any of the Assets are bound or affected; (d) result in the creation or imposition of any Encumbrance upon any of the Assets; or (e) require the consent, authorization or approval of, or notice to, or filing or registration with, any governmental body or authority, or any other third party. 7.3 LITIGATION. There are no actions, suits or proceedings pending or, to the knowledge 19 of the Sellers and the Stockholders, threatened against any Seller or Stockholder which might adversely affect the power or authority of any of them to carry out the transactions to be performed by such party hereunder. There are no actions, suits or proceedings pending, or, to the knowledge of the Sellers and the Stockholders, threatened, against or affecting any Seller, other than those disclosed on Schedule 7.3 attached hereto, and none of the actions, suits or proceedings described on Schedule 7.3, if determined adversely to any Seller, would have a material adverse effect on the business, assets or financial condition of such Seller. 7.4 TITLE TO ASSETS; ENCUMBRANCES. Except as disclosed on Schedule 7.4 attached hereto, the Sellers have good title to the Assets, free and clear of all liens (including tax liens), encumbrances, actions, claims, payments or demands of any kind and character (collectively, "ENCUMBRANCES"), except Encumbrances for ad valorem personal property taxes not yet due and payable. All of the Assets to be transferred hereunder conform, as to condition and character, to the descriptions of such Assets contained herein and will be transferred at the Closing free and clear of all Encumbrances, except Encumbrances for ad valorem personal property taxes not yet due and payable. To the knowledge of the Sellers and the Stockholders, the ownership and use of the Assets, and the operation of the Businesses, do not infringe upon the intellectual property rights of any other person or entity. 7.5 PERMITS AND APPROVALS. Except as disclosed on Schedule 7.5 attached hereto, there are no permits or approvals used or obtained for use by any of the Sellers which are required under applicable law in connection with the ownership or operation of the Businesses. 7.6 TAXES. Each of the Sellers has filed all federal, state and local governmental tax returns required to be filed by it in accordance with the provisions of law pertaining thereto and has paid all taxes and assessments (including, without limitation of the foregoing, income, excise, unemployment, social security, occupation, franchise, property and import taxes, duties or charges and all penalties and interest in respect thereof) required by it to have been paid to date. 7.7 EMPLOYEES. Schedule 7.7 attached hereto discloses, as of the date hereof, all of Sellers' employees, as well as each employee's compensation (including, separately, base pay and any incentive or commission pay), title, length of employment, employment contract, if any, and accrued vacation time. Except as disclosed on Schedule 7.7, none of the Sellers has any "employee benefit plan" ("EMPLOYEE BENEFIT PLAN") (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), including without limitation, any bonus, deferred compensation, pension, profit-sharing, stock option, employee stock purchase, secrecy agreement or covenant not to compete with any employee. None of the Sellers is a party to any collective bargaining agreement or other labor contract, and there has not been nor is there pending or, to the knowledge of the Sellers and the Stockholders, threatened any union organizational drive or application for certification of a collective bargaining agent. Each of the Sellers has been and is now in material compliance with the "COBRA" health care continuation coverage requirements of Section 4980B of the Internal Revenue Code of 1986, as amended, and Sections 601-608 of ERISA and any applicable state health care continuation coverage requirements. None of the Sellers has made any promises or incurred any liability, pursuant to an Employee Benefit Plan or otherwise, to 20 provide medical or other welfare benefits to retired or former employees of the Sellers (other than COBRA or state mandated continuation coverage, where applicable). Except as disclosed on Schedule 7.7, none of Sellers' employees or former employees has elected COBRA continuation coverage or has incurred a COBRA qualifying event since June 1, 1996. 7.8 FINANCIAL STATEMENTS. The Sellers have delivered to the Buyer the financial statements of the Sellers described in Schedule 7.8 hereto (the "FINANCIAL STATEMENTS"). The Financial Statements have been prepared in accordance with GAAP consistently applied, except as specified in Schedule 7.8 hereto. The Financial Statements are in accordance with the books and records of the respective Sellers, which books and records are true, correct and complete in all material respects. The balance sheet of each Seller included in the Financial Statements fairly presents the financial condition of such Seller as of the date thereof, and the related statement of income of each Seller included in the Financial Statements fairly presents the results of the operations of such Seller and the changes in its financial position for the period indicated, all in accordance with GAAP consistently applied. Each of the Sellers has no outstanding material claims, liabilities, obligations or indebtedness of any nature, fixed or contingent, except as set forth in the Financial Statements or in the Schedules to this Agreement, and except for liabilities incurred in the ordinary course of business and of the kind and type reflected in the Financial Statements. To the knowledge of the Sellers and the Stockholders, the Financial Statements contain adequate reserves for all reasonably anticipated claims relating to matters with respect to which the Sellers are self-insured. 7.9 BROKERS AND FINDERS. No Seller or Stockholder has engaged any broker or any other person or entity who would be entitled to any brokerage commission or finder's fee in respect of the execution of this Agreement and/or the consummation of the transactions contemplated hereby. 7.10 COMPLIANCE WITH LAWS. (a) Except as set forth on Schedule 7.10(a) attached hereto, the Assets comply with, and the Business has been conducted in all material respects in compliance with, all laws, rules and regulations (including all worker safety and all Environmental Laws (as defined in the Real Property Purchase Agreements), rules and regulations), applicable zoning and other laws, ordinances, regulations and building codes, and no Seller or Stockholder has received any notice of any violation thereof which has not been adequately remedied. All Demonstrators have been operated in the ordinary course of business with dealer tags and have not had certificates of title issued with respect to them. (b) Except as set forth on Schedule 7.10(b) attached hereto, (i) no Seller has at any time generated, used, treated or stored Hazardous Materials on, or transported Hazardous Materials to or from, the Real Property or any property adjoining or adjacent to the Real Property and, to the knowledge of the Sellers and the Stockholders, no party other than the Sellers has taken such actions on or with respect to the Real Property, (ii) no Seller has at any time released or disposed of Hazardous Materials on the Real Property or any property adjoining or adjacent to the Real Property, and, to the knowledge of the Sellers and the Stockholders, no party other than the 21 Sellers has taken any such actions on the Real Property, (iii) the Sellers have at all times been in compliance with all Environmental Laws and the requirements of any permits issued under such Environmental Laws with respect to the Real Property, the Assets and the operation of the Businesses, except where failure to comply has not had and will not have, and could not reasonably be expected to have, a material adverse effect on the Assets or the Liabilities or the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Businesses, (iv) there are no past, pending or, to the knowledge of the Sellers and the Stockholders, threatened environmental claims against any Seller, the Real Property, the Assets or the Businesses, (v) to the knowledge of the Sellers and the Stockholders, there are no facts or circumstances, conditions or occurrences regarding the Sellers, the Real Property, the Assets or the Businesses that could reasonably be anticipated to form the basis of an environmental claim against any Seller, the Real Property, the Assets or the Businesses or to cause the Real Property, the Assets or any of the Businesses to be subject to any restrictions on its ownership, occupancy, use or transferability under any Environmental Law, (vi) there are not now and, to the knowledge of the Sellers and the Stockholders, never have been any underground storage tanks located on the Real Property, (vii) no Seller has transported or arranged for the transportation of any Hazardous Materials to any site other than the Real Property and (viii) none of the Sellers or the Stockholder has operated any Business at any location other than the Real Property. As used herein, the term "HAZARDOUS MATERIALS" means any waste, pollutant, chemical, hazardous substance, toxic substance, hazardous waste, special waste, solid waste petroleum or petroleum-derived substance or waste, or any constituent or decomposition product of any such pollutant, material, substance or waste, regulated under or as defined by any Environmental Law. (c) Neither the Sellers nor any stockholder, director, officer, agent or employee of the Sellers or, to the knowledge of the Sellers and the Stockholders, any other person or entity associated with or acting for or on behalf of the Sellers, has, directly or indirectly: made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any person or entity, regardless of form, whether in money, property or services: (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured or (iii) to obtain special concessions or for special concessions already obtained, for or in respect of any Seller. 7.11 FIXTURES AND EQUIPMENT. The Fixtures and Equipment are in good condition, ordinary wear and tear excepted, and constitute all of the fixtures, machinery, equipment, furniture, signs and office equipment used or intended for use by the Sellers in the Businesses. 7.12 CONTRACTS. Each of the Sellers has in all material respects performed all of its obligations required to be performed by it to the date hereof, and is not in default or alleged to be in default in any material respect, under any contract or lease to be assigned to the Buyer hereunder, including without limitation the contracts and leases set forth on Part I of Schedule 2.4 (collectively, the "CONTRACTS"), and there exists no event, condition or occurrence which, after notice or lapse of time or both, would constitute such a default. To the knowledge of the Sellers and the Stockholders, no other party to any Contract is in default in any respect of any of its obligations thereunder. Each of the Contracts is valid and in full force and effect and enforceable against the applicable Seller in 22 accordance with its terms, and, to the knowledge of the Sellers and the Stockholders, enforceable against the other parties thereto in accordance with their respective terms. 7.13 ADEQUACY OF ASSETS. Except for the Sellers' cash and accounts receivable and Sellers' rights under their respective dealership agreements with the Manufacturers, the Assets, together with the Real Property and the contracts and leases set forth on Part I of Schedule 2.4 hereto, comprise all of the assets, properties and rights necessary for the Buyer to operate the Businesses substantially in the manner operated by the Sellers prior to the Closing. 7.14 YEAR 2000. The Sellers have (i) initiated a review and assessment of all areas within their Businesses and operations (including those affected by the Manufacturer, suppliers, vendors and customers) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by the Sellers may be unable to recognize and perform properly date- sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and time line as described on Schedule 7.14 for addressing the Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan and timetable, except as set forth in said Schedule 7.14. 7.15 MISSTATEMENTS AND OMISSIONS. No representation or warranty made by the Sellers or the Stockholders in this Agreement, and no statement contained in any agreement, instrument, certificate or schedule furnished or to be furnished by any Seller or any Stockholder pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading. The representations and warranties of the Owners contained in the Real Property Purchase Agreements are true and correct. 7.16 ORIGINAL ASSET PURCHASE AGREEMENT. the representations and warranties of the Sellers and the Stockholders in the Original Asset Purchase Agreement were true and correct when made. ARTICLE VIII CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS The obligations of the Buyer to perform this Agreement at the Closing are subject to the following conditions precedent which shall be fully satisfied at or before the Closing, unless waived in writing by the Buyer: 8.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Sellers and the Stockholders herein contained shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, and the Buyer shall have received a certificate from a duly authorized officer of each of the Sellers and from each of the Stockholders, dated the Closing Date, to such effect. 23 8.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations required by this Agreement to be performed or complied with by the Sellers or the Stockholders at or before the Closing shall have been duly performed or complied with, and the Buyer shall have received a certificate from a duly authorized officer of each of the Sellers and from each of the Stockholders, dated the Closing Date, to such effect. 8.3 NO LITIGATION. No action, suit or proceeding shall have been instituted by a governmental agency or any other third party (a) to prohibit or restrain the sale contemplated by this Agreement or otherwise challenge the power and authority of the parties to enter into this Agreement or to carry out their obligations hereunder or the legality or validity of the sale contemplated by this Agreement, or (b) which would have a materially adverse effect on the conduct of an automobile dealership business by the Buyer at any of the Real Property. 8.4 INVENTORY. The Inventory and Used Vehicle valuations shall have been completed to the reasonable satisfaction of the Buyer. 8.5 CORPORATE ORGANIZATION; ENCUMBRANCES. The Sellers shall have furnished to the Buyer (a) evidence to the reasonable satisfaction of the Buyer and its counsel with respect to the corporate organization and existence of the Sellers, and (b) UCC-11 search reports or other evidence reasonably satisfactory to the Buyer and its counsel that the Assets are free and clear of all Encumbrances. 8.6 BOARD RESOLUTIONS. Each of the Sellers shall have furnished to the Buyer a copy of the resolutions duly adopted by such Seller's Board of Directors and stockholder authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, certified by an authorized officer of such Seller as of the Closing Date. 8.7 NO DAMAGE. As of the Closing Date, there shall not have been any fire, accident or other casualty or any labor disturbance, civil commotion, riot, act of God or the public enemy, or any change in the Businesses or the Assets or which would have a material adverse effect on the conduct of an automobile dealership business using the Assets at any of the Real Property or which would interfere with the use by the Buyer of such Assets in connection with the conduct of an automobile dealership business at any of the Real Property. 8.8 MOTOR VEHICLE LICENSES. The Buyer shall have been licensed as a Motor Vehicle Dealer under applicable Alabama motor vehicle dealer registration laws and shall have obtained all other authorizations, consents, licenses and permits from applicable governmental agencies having or asserting jurisdiction, which the Buyer deems necessary or appropriate to conduct business as an automobile dealer at the Real Property. 8.9 CONSENT AND APPROVALS. The Sellers shall have obtained all other authorizations, consents and approvals from third persons and entities as are (a) required to assign those contracts and leases that the Buyer is to assume at the Closing, including, without limitation, all leases of the Real Property which is not being sold pursuant to the Real Property Purchase Agreements, or 24 (b) otherwise required to consummate the transactions contemplated by this Agreement. 8.10 CERTIFICATES OF ORIGIN, ETC. The Sellers shall have transferred to the Buyer certificates of title or origin for all New Vehicles, Demonstrators and Used Vehicles, and all of their respective registration lists, owner follow-up lists and service files on hand as of the Closing Date with respect to the Businesses. 8.11 TERMINATION OF SELLERS' AGREEMENTS WITH MANUFACTURERS. The Sellers shall have terminated in writing the Sellers' respective Sales and Service Agreements with the Manufacturers. 8.12 BILLS OF SALE, ETC. The Sellers and the Stockholders shall have executed, as appropriate, and delivered to the Buyer the Bills of Sale, other documents of transfer of title contemplated hereby and any and all other documents necessary or desirable in connection with the transfer of the Assets, which documents shall warrant title to the Buyer consistent with this Agreement and shall in all respects be in such form as may be reasonably required by the Buyer and its counsel. 8.13 MANUFACTURER APPROVAL. Each of the Manufacturers shall have approved the Buyer or the Buyer's affiliate as an authorized dealer at each parcel of the Real Property and O. Bruton Smith or O. Bruton Smith's designee, as the authorized Dealer Operator, and the respective Manufacturers shall have executed Dealer Agreements on terms reasonably satisfactory to the Buyer. 8.14 OTHER BASIC AGREEMENTS. All conditions to Buyer's obligations under the Other Basic Agreements shall have been satisfied or fulfilled unless waived in writing by the Buyer hereunder. 8.15 OPINION OF COUNSEL. The Buyer shall have received an opinion of Williams & Ledbetter counsel to the Sellers and the Stockholders, dated the Closing Date, in form and substance reasonably satisfactory to the Buyer and its counsel. 8.16 NON-COMPETITION AGREEMENT AND EMPLOYMENT AGREEMENTS. The Buyer shall have received the Non-Competition Agreement and the Employment Agreements, duly executed by the relevant parties thereto. 8.17 CHANGE OF NAMES. The Sellers shall have delivered to the Buyer all documents, including, without limitation, resolutions of the respective Board of Directors and the shareholders of each of the Sellers, necessary to effect a change of names of each of the Sellers after the Closing to names other than the corporate names and the trade names referred to in Section 5.5 hereof or any variation thereof. 8.18 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change or development in the business, prospects, properties, earnings, results of operations or financial condition of any of the Sellers or any of the Assets or the Liabilities. 25 8.19 FORMS SATISFACTORY. The form of all instruments, certificates and documents to be executed and delivered by the Sellers to the Buyers pursuant to this Agreement and all legal matters in respect of the transactions as herein contemplated shall be reasonably satisfactory to the Buyer and its counsel, none of whose approval shall be unreasonably withheld or delayed. 8.20 HSR ACT. All applicable waiting periods under the HSR Act (as defined in Section 10.13 hereof) shall have expired without any indication by the Antitrust Division or the FTC (each as defined in Section 10.13 hereof) that either of them intends to challenge the transactions contemplated hereby or, if any such challenge or investigation is made or commenced, the conclusion of such challenge or investigation permits the transactions contemplated hereby in all material respects. 8.21 AUDITED FINANCIAL STATEMENTS OF BUYER. The Buyer shall have completed preparation of such audited financial statements o the Sellers as may be required by applicable regulations of the Securities and Exchange Commission. ARTICLE IX CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS The obligations of the Sellers to perform this Agreement at the Closing are subject to the following conditions precedent which shall be fully satisfied on or before the Closing, unless waived in writing by the Sellers' Agent: 9.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Buyer herein contained shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, and the Sellers shall have received a certificate from the President or a Vice President of the Buyer, dated the Closing Date, to such effect. 9.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations required by this Agreement to be performed or complied with by the Buyer at or before the Closing shall have been duly performed or complied with, and the Sellers shall have received a certificate from the President or a Vice President of the Buyer, dated the Closing Date, to such effect. 9.3 NO LITIGATION. No action, suit or proceeding shall have been instituted by a governmental agency or any third party to prohibit or restrain the sale contemplated by this Agreement or otherwise challenge the power and authority of the parties to enter into this Agreement or to carry out their obligations hereunder or the legality or validity of the sale contemplated by this Agreement. 9.4 INVENTORY. The Inventory and Used Vehicle valuations shall have been completed to the reasonable satisfaction of the Sellers' Agent. 26 9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS. The Buyer shall have furnished the Sellers and the Stockholder with (a) evidence to the reasonable satisfaction of the Sellers' Agent and its counsel with respect to the corporate organization and existence and (b) a copy of the resolutions duly adopted by the Board of Directors of the Buyer authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, certified by an officer of the Buyer as of the Closing Date. 9.6 INITIAL PURCHASE PRICE. The Buyer shall have tendered to the Sellers the cash portion of the Initial Purchase Price and the Stock Component and shall have duly executed and delivered to the respective Sellers the Assumption Agreements. 9.7 OTHER BASIC AGREEMENTS. All conditions to the obligations of the parties under the Other Basic Agreements, other than the Buyer or it assignees, shall have been satisfied or fulfilled, unless waived in writing by the Sellers' Agent. 9.8 OPINION OF COUNSEL. The Sellers shall have received an opinion of Parker, Poe, Adams & Bernstein L.L.P., counsel to the Buyer, dated the Closing Date, in form and substance reasonably satisfactory to the Sellers and their counsel. 9.9 FORMS SATISFACTORY. The form of all certificates, instruments and documents to be executed and/or delivered by the Buyer to the Sellers pursuant to this Agreement and all legal matters in respect of the transactions as herein contemplated shall be reasonably satisfactory to the Sellers and its counsel, none of whose approval shall be unreasonably withheld or delayed. 9.10 EMPLOYMENT AGREEMENTS. The Sellers' Agent shall have received the Employment Agreement with Thomas P. Williams, Sr., duly executed by the Buyer, and the Buyer shall have offered employment to each of Thomas P. Williams, Jr. and Charles Clark Williams pursuant to the Employment Agreements in the form of Exhibits D-2 and D-3, respectively, hereto. 9.11 HSR ACT. All applicable waiting periods under the HSR Act shall have expired without any indication by the Antitrust Division or the FTC that either of them intends to challenge the transactions contemplated hereby, or, if any such challenge or investigation is made or commenced, the conclusion of such challenge or investigation permits the transactions contemplated hereby in all material respects. ARTICLE X COVENANTS AND AGREEMENTS 10.1 FURTHER ASSURANCES. Each of the Sellers agrees that it will, at any time and from time to time, after the Closing, upon request of the Buyer, do, execute, acknowledge and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably required to convey and transfer to and vest in the Buyer and protect its rights, 27 title and interest in and enjoyment of all the Assets. 10.2 SATISFACTION OF CLOSING CONDITIONS. The parties hereto shall use their reasonable best efforts to obtain, and to cooperate with each other in obtaining, all authorizations, approvals, licenses, permits and other consents contemplated by Articles VIII and IX. 10.3 OPERATION OF THE BUSINESSES. During the period from the date of this Agreement through the Closing Date, the Sellers will conduct the operation of their respective Businesses in the ordinary course and in accordance with past practices. 10.4 ACCESS. From the date hereof until the Closing, each of the Sellers shall afford to the Buyer, its attorneys, accountants and such other representatives of the Buyer as the Buyer shall designate to such Seller, free and full access at all reasonable times, and upon reasonable prior notice, to the Assets and the properties, books and records of such Seller, and to interview personnel, suppliers and customers of such Seller, in order that the Buyer may have full opportunity to make such due diligence investigation as it shall reasonably desire of the Assets and the Businesses. 10.5 ENVIRONMENTAL AUDIT. In connection with the Buyer's due diligence investigation, the Sellers shall allow an environmental consulting firm selected by the Buyer (the "ENVIRONMENTAL AUDITOR") to have prompt access to the Real Property in order to conduct an environmental investigation, satisfactory to the Buyer in scope (such scope being sufficient to result in a Phase I environmental audit report and a Phase II environmental audit report, if desired by the Buyer), of, and to prepare a report with respect to, the Real Property (the "ENVIRONMENTAL AUDIT"). Each of the Sellers shall provide to the Environmental Auditor: (i) reasonable access to all of its existing records concerning the matters which are the subject of the Environmental Audit; and (ii) reasonable access to the employees of such Seller and the last known addresses of former employees of such Seller who are most familiar with the matters which are the subject of the Environmental Audit (such Seller agreeing to use reasonable efforts to have such former employees respond to any reasonable requests or inquiries by the Environmental Auditor). The Sellers shall otherwise cooperate with the Environmental Auditor in connection with the Environmental Audit. The Buyer, on the one hand, and the Sellers, on the other hand, shall each bear 50% of the costs, fees and expenses in connection with the Environmental Audit. To the extent that the Environmental Auditor shall conduct a Phase II environmental audit, the Buyer's selection of the Environmental Auditor must be reasonably acceptable to the Sellers. 10.6 INDEMNIFICATION BY SELLERS AND STOCKHOLDERS. All representations and warranties of the Sellers and the Stockholders contained herein, or in any agreement, certificate or document executed by the respective Sellers and the Stockholders in connection herewith, shall survive the Closing. All information contained in any Schedule furnished hereunder by the Sellers or the Sellers' Agent shall be deemed a representation and warranty by the Sellers and the Stockholders made in this Agreement as to the accuracy of such information. The Sellers and the Stockholders, jointly and severally, agree to indemnify and hold harmless the Buyer and its stockholders, officers, directors, employees and agents, and their respective successors and assignees, from and against any and all losses, liabilities, obligations, assessments, suits, actions, proceedings, claims or demands, 28 including costs, expenses and fees (including reasonable attorneys' fees and expert witness fees) incurred in connection therewith, suffered by any of them or asserted against any of them or the Assets, arising out of or based upon (a) the failure of any representation or warranty of the Sellers and the Stockholders contained herein, or in any agreement, certificate or document executed by any Seller or Stockholder in connection herewith, to be true and correct, (b) the breach of any covenant or agreement of any Seller or Stockholder contained in this Agreement or in any agreement, instrument or document executed by any Seller or Stockholder in connection herewith, (c) the Retained Liabilities or any liability or obligation of any Stockholder not expressly assumed by the Buyer pursuant to this Agreement, or (d) any arrangements or agreements made or alleged to have been made by the Sellers or the Stockholders with any broker, finder or other agent in connection with the transactions contemplated hereby. 10.7 INDEMNIFICATION BY BUYER. All representations and warranties of the Buyer contained herein or in any agreement, certificate or document executed by the Buyer in connection herewith, shall survive the Closing. All information contained in any Schedule furnished hereunder by the Buyer shall be deemed a representation and warranty by the Buyer made in this Agreement as to the accuracy of such information. The Buyer agrees to indemnify and hold harmless each of the Sellers and its stockholders, officers, directors, employees and agents, and their respective successors and assignees, from and against any and all losses, liabilities, obligations, assessments, suits, actions, proceedings, claims or demands, including costs, expenses and fees (including reasonable attorneys' fees and expert witness fees) incurred in connection therewith, suffered by any of them, or asserted against any of them, arising out of or based upon (a) the failure of any representation or warranty of the Buyer contained herein, or in any agreement, certificate or document executed by the Buyer in connection herewith, to be true and correct, (b) the breach of any covenant or agreement of the Buyer contained in this Agreement or in any agreement, instrument or document executed by the Buyer in connection herewith, or (c) any arrangements or agreements made or alleged to have been made by the Buyer with any broker, finder or other agent in connection with the transactions contemplated hereby. 10.8 CERTAIN TAXES. Personal property, use and intangible taxes and assessments with respect to the Assets shall be prorated on a per diem basis and apportioned between the Sellers and the Buyer as of the date of the Closing. The Sellers shall be liable for that portion of such taxes and assessments relating to, or arising in respect of, periods on or prior to the Closing Date, and the Buyer shall be liable for that portion of such taxes and assessments relating to, or arising in respect of, any period after the Closing Date. Any taxes attributable to the sale or transfer of the Assets to the Buyer hereunder shall be paid by the Sellers. 10.9 NO PUBLICITY. Except as may be required by law or the rules of the New York Stock Exchange or as necessary in connection with the transactions contemplated hereby, no party hereto shall (a) make any press release or other public announcement relating to this Agreement or the transactions contemplated hereby, without the prior approval of the other parties hereto or (b) otherwise disclose the existence and nature of negotiations regarding the transactions contemplated hereby to any person or entity other than such party's accountants, attorneys, agents and representatives, all of whom shall be subject to this nondisclosure obligation as agents of such 29 party. The parties shall cooperate with each other in the preparation and dissemination of any public announcements of the transactions contemplated by this Agreement. 10.10 NO NEGOTIATIONS OR DISCUSSIONS. None of the Sellers or the Stockholders shall pursue, initiate, encourage or engage in, any negotiations or discussions with, or provide any information to, any person or entity (other than the Buyer and its representatives and affiliates) regarding the sale or possible sale to any such person or entity of any of the Assets or capital stock of any of the Sellers or any merger or consolidation or similar transaction involving any of the Sellers. 10.11 MANUFACTURERS. The Sellers shall promptly notify the Manufacturers regarding the transactions contemplated by this Agreement. The Buyer shall promptly apply to the Manufacturers for, or cause an affiliate of the Buyer to apply to the Manufacturers for, the issuance of franchises to operate the respective automobile dealerships upon the Real Property. Effective as of the Closing, each of the Sellers shall terminate its Dealer Sales and Service Agreements with the Manufacturers. The Sellers shall fully cooperate with the Buyer, and take all reasonable steps to assist the Buyer, in the Buyer's efforts to obtain its own similar Dealer Sales and Service Agreements with the Manufacturers. The parties acknowledge that the Buyer's Dealer Agreements are subject to the approval of the Manufacturers and that the Buyer would be unable to obtain its own, similar Dealer Sales and Service Agreement absent the Sellers' termination of their respective agreements with the Manufacturers. 10.12 SELLERS' EMPLOYEES. The Buyer shall have the right, but not the obligation, to employ any or all of the Sellers' employees. If permitted by law and applicable regulations, each Seller shall, in consideration for the sale of substantially all of such Sellers' assets in bulk, assign and transfer to the Buyer, without additional charge therefor, the amount of reserve in such Seller's State Unemployment Compensation Fund with respect to the Businesses and the corresponding experience rate. 10.13 HSR ACT COMPLIANCE. Subject to the determination by the Buyer that any of the following actions is not required, the Sellers and the Buyer shall promptly prepare and file Notification and Report Forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT") with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION") and respond as promptly as practicable to all inquiries received from the FTC or the Antitrust Division for additional information or documentation. 10.14 BUYER'S FINANCIAL STATEMENTS. The Sellers shall allow, cooperate with and assist the Buyer's accountants, and shall instruct the Sellers' accountants to cooperate, in the preparation of audited financial statements of the Sellers as necessary for any required filings by the Buyer with the Securities and Exchange Commission or with the Buyer's lenders; provided, however, that the expense of such audit shall be borne by the Buyer. 10.15 TERMINATION. 30 (a) Notwithstanding any other provision herein contained to the contrary, this Agreement may be terminated at any time prior to the Closing Date: (i) By written consent of the Buyer and the Sellers' Agent; (ii) By the Buyer prior to the Closing Date Deadline (as the same may have been extended pursuant to Article I hereof) in the event of any breach by the Sellers or the Stockholders of any of their respective material representations, warranties, covenants or agreements contained herein; (iii) By the Seller's Agent prior to the Closing Date Deadline (as the same may have been extended pursuant to Article I hereof) in the event of any breach by the Buyer of any of its material representations, warranties, covenants or agreements contained herein; (iv) At any time after the Closing Date Deadline (as the same may have been extended pursuant to Article I hereof), by written notice by the Buyer or the Sellers' Agent to the other party(ies) hereto if the Closing shall not have been completed on or before the Closing Date Deadline (as the same may have been extended pursuant to Article I hereof); (v) By the Buyer if, after any initial HSR Act filing, the FTC makes a "second request" for information, or the FTC or the Antitrust Division challenges the transactions contemplated hereby; provided that the Buyer delivers a written notice to the Sellers of its termination hereunder within 30 days of the Buyer's receipt of such second request or of notice of such challenge; (vi) By the Buyer not later than thirty (30) days after all due diligence materials described on Schedule 10.15 have been furnished to the Buyer by the Sellers, if the Buyer is not satisfied, in its sole discretion, with the results of the Buyer's due diligence investigation; (vii) Subject to the last paragraph of this Section 10.15(a), by the Buyer, by written notice to the Sellers' Agent, in the event that approval by any applicable automobile manufacturer or distributor of the transactions contemplated by this Agreement is not received prior to the Closing Date Deadline (as the same may have been extended pursuant to Article I hereof); or (viii) Subject to the last paragraph of this Section 10.15(a), by the Buyer, by written notice to the Sellers' Agent, in the event that any Manufacturer shall exercise any right of first refusal, preemptive right or other similar right, with respect to any of the Assets; provided, however, no party may terminate this Agreement pursuant to clauses (ii), (iii) or (iv) above if such party is in breach of any material representation, warranty, covenant or agreement of such party contained in this Agreement. Notwithstanding the provisions of Subsections 10.15(a)(vii) and (viii) above, the Buyer may elect to terminate this Agreement only as to the Assets with respect to the dealership franchise from 31 the Manufacturer referred to in such Subsection; in such event, the Business and Intangible Assets Purchase Price shall be reduced by the applicable amount opposite the name of the applicable Seller on Schedule 2.2 hereto and the other components of the Purchase Price shall be appropriately reduced. (b) In the event of termination of this Agreement pursuant to Section 10.15(a), this Agreement shall be of no further force or effect; provided, however, that any termination pursuant to Section 10.15(a) shall not relieve (a) the Buyer of any liability under Section 10.15(c) below, (b) the Sellers of any liability under Section 2.5 above or Section 10.15(d) below, or (c) subject to Section 10.15(e) below, any party hereto of any liability for breach of any representation and warranty, covenant or agreement hereunder occurring prior to such termination. In addition, in the event of any such termination, all filings, applications and other submissions made pursuant to this Agreement or prior to the execution of this Agreement in contemplation thereof shall, to the extent practicable, be withdrawn from the agency or other entity to which made. (c) If this Agreement is terminated by the Sellers' Agent pursuant to Section 10.15(a)(iv) above and the failure to complete the Closing on or before the Closing Date Deadline shall have been due to the Buyer's breach of its material representations and warranties or its material covenants or agreements under this Agreement, then the Buyer shall, within ten (10) days after receipt of demand of the Sellers, promptly pay to the Sellers in immediately available funds, as liquidated damages for the loss of the transaction, a termination fee of $1,000,000 (the "BUYER'S TERMINATION FEE"). (d) If this Agreement is terminated by the Buyer pursuant to Section 10.15(a)(iv) above and the failure to complete the Closing on or before the Closing Date Deadline shall have been due to the Sellers' breach of any of their material representations and warranties or any of their material covenants or agreements under this Agreement, then the Sellers, jointly and severally, shall, within ten (10) days after receipt of demand of the Buyer, promptly pay to the Buyer in immediately available funds, as liquidated damages for the loss of the transaction, a termination fee of $1,000,000 (the "SELLERS' TERMINATION FEE"). (e) In the case of termination of this Agreement pursuant to Section 10.15(a)(iv) hereof, the rights of the terminating party to be paid the Sellers' Termination Fee or the Buyer's Termination Fee, as the case may be, shall be the respective parties' sole and exclusive remedies for damages; in the event of such termination by either party, such party shall have no right to equitable relief for any breach or alleged breach of this Agreement, other than for specific performance for the payment of the Sellers' Termination Fee or the Buyer's Termination Fee, as the case may be. Nothing contained in this Agreement shall prevent any party from electing not to exercise any right it may have to terminate this Agreement and, instead, seeking any equitable relief (including specific performance) to which it would otherwise be entitled in the event of breach by any other party hereto. ARTICLE XI 32 MISCELLANEOUS 11.1 ASSIGNMENT. Except as provided in this Section, this Agreement shall not be assignable by any party hereto without the prior written consent of the other parties. The Buyer may assign this Agreement, without the consent of the other parties hereto, to a corporation, partnership or limited liability company controlled by the Buyer, including a corporation, partnership or limited liability company to be formed at any time prior to the Closing Date, and to any person or entity who shall acquire all or substantially all of the assets of the Buyer or of such corporation, partnership or limited liabilities company controlled by the Buyer (including any such acquisition by merger or consolidation); provided said assignment shall be in writing and the assignee shall assume all obligations of the Buyer hereunder, whereupon the assignee shall be substituted in lieu of the Buyer named herein for all purposes, provided, however, that the Buyer originally named herein shall continue to be liable with respect to its obligations hereunder. The Buyer may assign this Agreement, without the consent of the other parties hereto, as collateral security, and the other parties hereto agree to execute and deliver any acknowledgment of such assignment by the Buyer as may be required by any lender to the Buyer. 11.2 GOVERNING LAW. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of North Carolina. 11.3 ACCOUNTING MATTERS. All accounting matters required or contemplated by this Agreement shall be in accordance with generally accepted accounting principles ("GAAP"). 11.4 FEES AND EXPENSES. Except as otherwise specifically provided in this Agreement, each of the parties hereto shall be responsible for the payment of such party's fees, costs and expenses incurred in connection with the negotiation and consummation of the transactions contemplated hereby. 11.5 AMENDMENT; MERGER CLAUSE. This Agreement, including the schedules and other documents referred to herein which form a part hereof, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement may not be amended except by a writing executed by all of the parties hereto. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 11.6 WAIVER. To the extent permitted by applicable law, no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party. Any waiver by a party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision of this Agreement. Neither the failure nor any delay by any party hereto in exercising any right or power under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right or power, and no single or partial exercise of any such right or power will 33 preclude any other or further exercise of such right or power or the exercise of any other right or power. 11.7 NOTICES. All notices, claims, certificates, requests, demands and other communications hereunder shall be given in writing and shall be delivered personally or sent by facsimile or by a nationally recognized overnight courier, postage prepaid, and shall be deemed to have been duly given when so delivered personally or by confirmed facsimile or one (1) business day after the date of deposit with such nationally recognized overnight courier. All such notices, claims, certificates, requests, demands and other communications shall be addressed to the respective parties at the addresses set forth below or to such other address as the person to whom notice is to be given may have furnished to the others in writing in accordance herewith. If to the Buyer, to: Sonic Automotive, Inc. 5401 E. Independence Boulevard Charlotte, North Carolina 28212 Telecopy No.: (704) 563-5116 Attention: Theodore M. Wright, Chief Financial Officer With a copy to: Parker, Poe, Adams & Bernstein L.L.P. 2500 Charlotte Plaza Charlotte, North Carolina 28244 Telecopy No.: (704) 334-4706 Attention: Edward W. Wellman, Jr. If to the Sellers or the Stockholders, to: Mr. Thomas P. Williams, Sr. Tom Williams Automotive Group P.O. Box 2643 Birmingham, Alabama 35202-2643 With a copy to: Williams & Ledbetter 2140 Eleventh Avenue South, Suite 410 The Park Building Birmingham, Alabama 35205 Attn: C. Crawford Williams, Jr., Esq. 11.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts. 34 Each such counterpart hereof shall be deemed to be an original instrument, and all such counterparts together shall constitute but one agreement. 11.9 SELLERS' KNOWLEDGE. Whenever any representation or warranty of the Sellers or the Stockholders contained herein or in any other document executed and delivered in connection herewith is based upon the knowledge of the Sellers or the Stockholders, (a) such knowledge shall be deemed to include (i) the best actual knowledge, information and belief of any of the Sellers or the Stockholders, and (ii) any information which any Stockholder would reasonably be expected to be aware of in the prudent discharge of his or her duties in the ordinary course of business (including consultation with legal counsel) on behalf of any Seller, and (ii) the knowledge of any Seller or Stockholder shall be deemed to be the knowledge of all of the Sellers and the Stockholders. 11.10 ARBITRATION. (a) Any dispute, claim or controversy arising out of or relating to this Agreement or the interpretation or breach hereof shall be resolved by binding arbitration under the commercial arbitration rules of the American Arbitration Association (the "AAA RULES") to the extent such AAA Rules are not inconsistent with this Agreement. Judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof or such court may be asked to judicially confirm the award and order its enforcement, as the case may be. The demand for arbitration shall be made by any party hereto within a reasonable time after the claim, dispute or other matter in question has arisen, and in any event shall not be made after the date when institution of legal proceedings, based on such claim, dispute or other matter in question, would be barred by the applicable statute of limitations. The arbitration panel shall consist of three (3) arbitrators, one of whom shall be appointed by each of the Buyer and the Sellers within thirty (30) days after any request for arbitration hereunder. The two arbitrators thus appointed shall choose the third arbitrator within thirty (30) days after their appointment; provided, however, that if the two arbitrators are unable to agree on the appointment of the third arbitrator within 30 days after their appointment, either arbitrator may petition the American Arbitration Association to make the appointment. The place of arbitration shall be Atlanta, Georgia. The arbitrators shall be instructed to render their decision within sixty (60) days after their selection and to allocate all costs and expenses of such arbitration (including legal and accounting fees and expenses of the respective parties) to the parties in the proportions that reflect their relative success on the merits (including the successful assertion of any defenses). (b) Nothing contained in this Section 11.10 shall prevent any party hereto from seeking any equitable relief to which it would otherwise be entitled from a court of competent jurisdiction. 11.11 SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES. Subject to Section 11.1 hereof, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto. Nothing in this Agreement, expressed or implied, is intended or shall be construed to confer upon or give to any employee of the Sellers, or any other person, firm, corporation or legal entity, other than the parties hereto and their successors 35 and permitted assigns, any rights, remedies or other benefits under or by reason of this Agreement. 11.12 HEADINGS. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.13 SEVERABILITY. In the event that any provision, or part thereof, of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions, or parts thereof, shall not in any way be affected or impaired thereby. 36 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day, month and year first above written. THE BUYER: SONIC AUTOMOTIVE, INC. By: /s/ O. Bruton Smith -------------------------------- Name: O. Bruton Smith Title: Chief Executive Officer THE SELLERS: TOM WILLIAMS BUICK, INC. By: /s/ Thomas P. Williams -------------------------------- Name: Thomas P. Williams, Sr. Title: President WILLIAMS CADILLAC, INC. By: /s/ Thomas P. Williams -------------------------------- Name: Thomas P. Williams, Sr. Title: President TOM WILLIAMS MOTORS, INC. By: /s/ Thomas P. Williams -------------------------------- Name: Thomas P. Williams, Sr. Title: President TOM WILLIAMS AUTO, INC. By: /s/ Thomas P. Williams -------------------------------- Name: Thomas P. Williams, Sr. Title: President 37 THE SHAREHOLDERS: /s/ Thomas P. Williams (SEAL) ----------------------- Thomas P. Williams, Sr. /s/ Thomas P. Williams, Jr. (SEAL) --------------------------- Thomas P. Williams, Jr. /s/ Charles Clark Williams (SEAL) -------------------------- Charles Clark Williams 38 EX-10 5 EXHIBIT 10.35A Exhibit 10.35a AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER dated as of March 16, 1999 (this "AGREEMENT") by and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the "BUYER"), WILLIAMS CADILLAC COMPANY, INC., an Alabama corporation (the "COMPANY"), and THOMAS P. WILLIAMS, SR., CHARLES CLARK WILLIAMS, THOMAS P. WILLIAMS, JR., and CATHERINE D. WARD (being collectively, the "SELLERS"). W I T N E S S E T H: WHEREAS, the Sellers own in the aggregate 5,000 shares of common stock of the Company, par value $100 per share (the "SHARES"), which shares represent all of the issued and outstanding shares of capital stock of the Company and are owned of record and beneficially by the Sellers in the amounts set forth opposite their respective names on Exhibit A hereto; and WHEREAS, pursuant to that certain Asset Purchase Agreement dated as of November 3, 1998, by and between the Buyer, the Company, and Thomas P. Williams, Sr., Charles Clark Williams, Thomas P. Williams, Jr. (the "ORIGINAL SELLERS"), and the other parties named therein (the "ORIGINAL ASSET PURCHASE AGREEMENT"), the Buyer agreed to purchase, and the Original Sellers agreed to sell, certain assets used in connection with the Original Sellers' four automobile dealership businesses, including the Cadillac dealership business of the Company (the "CADILLAC DEALERSHIP BUSINESS"); and WHEREAS, pursuant to the terms and in accordance with the conditions of Section 2.2(c) of the Original Asset Purchase Agreement, the Original Sellers have elected to structure the acquisition by Buyer of the Cadillac Dealership Business as an acquisition of the Shares pursuant to a merger (the "MERGER") of the Company with and into a wholly-owned Alabama subsidiary of the Buyer (the "SUB"), to be formed by the Buyer prior to the consummation of the transactions contemplated hereby, on the terms and subject to the conditions set forth herein; and WHEREAS, contemporaneously herewith, the Buyer, the Original Sellers, and the other parties to the Original Asset Purchase Agreement are executing an Amended and Restated Asset Purchase Agreement (the "AMENDMENT") to reflect, among other things, certain changes to the terms of the Original Asset Purchase Agreement as a result of the Original Sellers' election under Section 2.2(c) of the Original Asset Purchase Agreement to structure the sale of the Cadillac Dealership Business as a stock acquisition pursuant to the Merger (the Original Asset Purchase Agreement, as amended and restated pursuant to the Amendment, being the "AMENDED ASSET PURCHASE AGREEMENT"); and WHEREAS, the Buyer has entered into those certain Contracts to Purchase and Sell Property (the "REAL PROPERTY PURCHASE AGREEMENTS") with (i) Tom-Jo, L.L.C. and (ii) Williams Realty Ventures, L.L.C. (collectively, the "OWNERS"), whereby the Buyer has agreed to buy, and the Owners have agreed to sell, the land, buildings and improvements located at the Real Property (as defined therein); and WHEREAS, the consummation of the transactions contemplated by this Agreement is subject to the consummation of the transactions contemplated by each of the Real Property Purchase Agreements and the Amended Asset Purchase Agreement (collectively, the "OTHER BASIC AGREEMENTS"); and WHEREAS, the Buyer desires to acquire the Shares from the Sellers pursuant to the Merger, and the Sellers are willing to transfer the Shares to the Buyer pursuant to the Merger, upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows: ARTICLE I. CERTAIN DEFINITIONS "ASSETS" shall mean: the New Vehicles (as defined in Section 3.1 hereof); the Demonstrators (as defined in Section 3.2 hereof); the Used Vehicles (as defined in Section 3.5 hereof); the Parts (as defined in Section 4.3 hereof); the Miscellaneous Inventories (as defined in Section 5.1 hereof); the Work in Progress (as defined in Section 5.3 hereof); and the Fixtures and Equipment. "CLOSING DATE" shall mean the date, not later than the Closing Date Deadline (as hereinafter defined), of the closing of the transactions contemplated by this Agreement (the "CLOSING"). The Closing shall be held at the offices of Williams & Ledbetter, 2140 Eleventh Avenue South, Birmingham, Alabama at 9:00 a.m. on the Closing Date. "CLOSING DATE DEADLINE" shall mean the "Closing Date Deadline" under the Amended Asset Purchase Agreement. "INVENTORY DATE" shall mean December 31, 1998. "MANUFACTURER" shall mean General Motors Corporation. "REAL PROPERTY" shall mean the land, buildings and improvements where the Cadillac Dealership Business is currently operated. "SELLERS' AGENT" shall mean Thomas P. Williams, Sr., as agent for the Sellers hereunder. ARTICLE II. THE MERGER & THE MERGER CONSIDERATION 2.1 THE MERGER. (a) Subject to the provisions of this Agreement and the Articles of Merger substantially in the form of Exhibit B attached hereto (the "Certificate of Merger""ARTICLES OF MERGER"), the Company shall be merged with and into the Sub in accordance with the provisions of the Alabama Business Corporation Act (the "Georgia Law""MERGER LAW"), whereupon the existence of the Company shall cease and the Sub shall be the surviving corporation (the Sub and the Company are sometimes herein referred to as the "Constituent Corporations""MERGING COMPANIES" and the Sub after the Merger is sometimes herein referred to as the "Surviving Corporation""SURVIVING COMPANY"). (b) As soon as practicable after satisfaction of, or, to the extent permitted hereunder, waiver of all conditions to the Merger, the Merging Companies shall execute and file the Articles of Merger with the Secretary of State of the State of Alabama in accordance with the Merger Law, and shall otherwise make all other filings or recordings required by the Merger Law in connection with the Merger. The Merger shall become effective at such date and time as the Articles of Merger are duly filed with, and accepted by, the Secretary of State of the State of Alabama (the "Effective Time""EFFECTIVE TIME"). (c) At the Effective Time, the separate existence of the Company shall cease and the Company shall be merged with and into the Sub and the Sub shall be the Surviving Company, whose name thereafter shall be "SONIC - WILLIAMS CADILLAC, INC.." (d) From and after the Effective Time: (i) the Articles of Incorporation and the Bylaws of the Sub, both as in effect immediately prior to the Effective Time, shall be the Articles of Incorporation and the Bylaws of the Surviving Company, until thereafter amended in accordance with applicable law; (ii) the directors of the Sub at the Effective Time shall become the directors of the Surviving Company, until their successors are duly elected or appointed and qualified in accordance with applicable law; and (iii) the officers of the Sub at the Effective Time shall become the initial officers of the Surviving Company, to serve at the pleasure of the board of directors of the Surviving Company. (e) At the Effective Time, by virtue of the Merger and the applicable provisions of the Merger Law and without any further action on the part of the Merging Companies or on the part of the Company's shareholders: (i) each share of common stock of the Sub outstanding immediately prior to the Effective Time shall, automatically and without any action on the part of the holder thereof, be converted into one share of common stock of the Surviving Company; and (ii) all of the Shares shall, automatically and without any action on the part of the Sellers, cease to be outstanding and shall be converted into the right to receive the Merger Consideration (as defined in Section 2.2 below) in accordance with the provisions of said Section 2.2. All Shares, when so converted, shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and the Sellers holding Shares shall cease to have any rights with respect thereto, except the right to receive the Merger Consideration in accordance with provisions of said Section 2.2. 2.2 THE MERGER CONSIDERATION. (a) The consideration to be paid by the Buyer for the Shares pursuant to the Merger (the "MERGER CONSIDERATION") shall consist of the Basic Merger Consideration (as defined in Section 2.2(b) below) and the Contingent Merger Considerations (as defined in Section 2.3(a) below). (b) For the purposes of this Agreement, the term "BASIC MERGER CONSIDERATION" shall consist of the sum of (i) Three Million Two Hundred Thirty-Four Thousand One Hundred Fifty-Six Dollars ($3,234,156), plus the Net Book Value (as defined in Section 2.2(g) below). (c) (i) At the Closing, the Sellers' Agent shall deliver to the Buyer a certificate setting forth the Sellers' estimate of the Net Book Value (the "ESTIMATED NET BOOK VALUE"). Subject to the provisions of Section 2.2(g) below, at the Closing, provided that such estimate of the Net Book Value shall be acceptable to the Buyer (such estimate and the Buyer's acceptance thereof to be without prejudice to the rights of the parties under Section 2.2(g) below), the Buyer shall issue and deliver to the Sellers, pro rata according to the respective numbers of the Shares set forth opposite their names on Exhibit A hereto, that number of whole shares of the Buyer's Class A Convertible Preferred Stock, Series III (the "PREFERRED STOCK"), obtained by dividing the Basic Merger Consideration (for this purpose only, calculated with reference to the Estimated Net Book Value) by $1,000. No fractional shares of Preferred Stock shall be issued; any such fraction of a share of Preferred Stock shall be paid in cash at the rate of $1,000 per whole share of Preferred Stock. The Preferred Stock shall have such rights and preferences as are set forth in the Statement of Rights and Preferences of Preferred Stock attached as Exhibit B to the Amended Asset Purchase Agreement (the "STATEMENT OF RIGHTS AND PREFERENCES"). No portion of the Basic Merger Consideration shall be paid in cash, except for any fractional shares of Preferred Stock and any adjustments based upon the Net Book Value pursuant to Subsection 2.2(g) below. (ii) (A) The Buyer will use its best reasonable efforts to include all of the shares of the Buyer's Class A Common Stock, $.01 par value per share (the "COMMON STOCK") which are issuable upon conversion of the shares of Preferred Stock held by certain of the Sellers (the "PIGGYBACK SELLERS"), as set forth in subparagraphs (I) - (III) below (the "PIGGYBACK COMMON SHARES"), in an underwritten public offering of the Buyer's Common Stock (the "PUBLIC OFFERING"), in accordance with the Securities Act of 1933, as amended (the "SECURITIES ACT"), on a "piggyback" registration basis on or prior to April 30, 1999. Each of the Piggyback Sellers shall sell in the Public Offering all of his/her Piggyback Common Shares which the Buyer is able to register in the Public Offering (unless the managing or lead managing underwriter in the Public Offering requires that the Piggyback Sellers, individually or in the aggregate, sell fewer than all of the shares they have elected to sell (as set forth in subparagraphs (I) - (III) below) or unless the Buyer and the Piggyback Sellers mutually agree that a fewer number of such shares of Common Stock will be registered and sold). The Piggyback Common shares shall be determined as follows: (I) Thomas P. Williams, Jr. -- all shares of Common Stock issuable upon conversion of all shares of Preferred Stock held by him in excess of Three Hundred and Fifty (350) shares of Preferred Stock; (II) Charles Clark Williams -- all shares of Common Stock issuable upon conversion of all shares of Preferred Stock held by him in excess of Three Hundred and Fifty (350) shares of Preferred Stock; and (III) Catherine D. Ward -- all shares of Common Stock issuable upon conversion of all shares of Preferred Stock held by her in excess of One Hundred (100) shares of Preferred Stock. (B) If requested by the managing or lead managing underwriter in the Public Offering, each of the Piggyback Sellers shall execute and deliver such customary documentation as is utilized by such underwriter for selling stockholders in underwritten public offerings including, without limitation, an underwriting agreement and a "lock-up" agreement with the managing or lead managing underwriter in such forms as are customarily used by such underwriter. In connection with any such registration, each of the Piggyback Sellers shall supply to the Buyer such information as may be reasonably requested by the Buyer in connection with the preparation and filing of a registration statement with the Securities and Exchange Commission (the "SEC"). The Piggyback Sellers shall not supply any information to the Buyer for inclusion in such registration statement that will, taken as a whole, at the time the registration statement becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (C) Any Piggyback Common Shares which have not been registered and sold pursuant to the Public Offering by April 30, 1999 for whatever reason (other than as a result of any Piggyback Seller's failure to participate in the Public Offering), will be registered by the Buyer in the "shelf" registration statement referred to in Subsection (iii) immediately below. (iii) As promptly as possible after the earlier of (A) the closing of the Public Offering, or (B) April 30, 1999, the Buyer shall cause all shares of Common Stock issuable upon conversion of the Preferred Stock (including any Piggyback Common Shares which were not sold in the Public Offering other than as a result of any Piggyback Seller's failure to participate in the Public Offering) to be registered under a "shelf" registration statement filed with the SEC under the Securities Act; provided, however, the Buyer may either (C) delay the effectiveness of any such shelf registration statement until the expiration of any "lock-up" period (not to exceed 90 days) required by the underwriters in the Public Offering, or (D) not delay such effectiveness, in which case the Sellers hereby agree to be bound by any such "lock-up" as fully as if the Sellers had signed the applicable lock-up agreement required by such underwriters. All shares of Common Stock registered pursuant to this Subsection (iii) are hereinafter called the "REGISTERED COMMON SHARES." Upon the effectiveness of such "shelf" registration statement, the Sellers will promptly convert all shares of the Preferred Stock held by them into Registered Common Shares. (d) The Buyer shall deliver to the Sellers, at least thirty (30) days prior to the payment of the Contingent Stock Component (as defined in Section 2.3(b) below) a prospectus with respect to the Buyer's offer and sale to the Sellers of the shares of Common Stock contemplated by this Subsection (d). The Sellers' Agent may, by notice (the "FURTHER REGISTRATION NOTICE") to the Buyer at least seven (7) days prior to the payment of the Contingent Stock Component, elect to receive up to fifty percent (50%) of the Contingent Stock Component in shares of registered Common Stock, in which case the term "Registered Common Shares" shall also include the applicable number of registered shares of Common Stock issued as part of the Contingent Stock Component. Provided that the Sellers' Agent shall have timely delivered the Further Registration Notice, at the time of payment of the Contingent Purchase Price the Buyer shall issue and deliver to the Sellers, pro rata according to the numbers of shares of Preferred Stock issued to the respective Sellers as the Basic Merger Consideration that number of whole shares of Common Stock obtained by dividing the portion of the Contingent Stock Component specified in the Further Registration Notice (not to exceed 50% thereof) by the Market Price (as defined in the Statement of Rights and Preferences) as of the date of such payment of the Contingent Purchase Price. No fractional shares of Common Stock shall be issued in connection with the foregoing payments of a portion of the Contingent Stock Component. To the extent that such fractional shares would otherwise be issued, the Buyer shall pay cash in lieu of such fractional shares based upon the applicable Market Price. The Sellers and the Stockholders hereby agree that they will not offer, sell, contract to sell, or otherwise dispose of any of the Registered Common Shares included in the Contingent Stock Component for a period of one hundred eighty (180) days from the date of delivery thereof by the Buyer. (e) The obligations of the parties with respect to the Registered Common Shares will be subject to the additional provisions relating thereto set forth in Section 2.8 below. (f) To the extent that the Sellers' Agent does not timely deliver a Further Registration Notice, the Buyer shall have no obligation to the Sellers or the Stockholders to deliver any registered shares of Common Stock. Thereafter, the Buyer's sole obligation with respect to the Preferred Stock and the shares of Common Stock issuable upon conversion of the Preferred Stock (the "COMMON SHARES") shall be (i) to use its best reasonable efforts to make available current public information with respect to the Buyer within the meaning of Subsection (c)(1) of SEC Rule 144 ("RULE 144") to the extent necessary to facilitate public resales by the Sellers of the Common Shares, pursuant to Rule 144. (g) (i) Not later than 60 days after the Closing Date, the Buyer will prepare and deliver to the Sellers' Agent an unaudited balance sheet (the "CLOSING BALANCE SHEET") of the Company as of the close of business on December 31, 1998 (the "EFFECTIVE CLOSING DATE"), consisting of a computation of the consolidated net book value of the tangible assets of the Company as of the Effective Closing Date less the consolidated book value of the liabilities of the Company as of the Effective Closing Date, all in accordance with GAAP (as defined in Section 11.3 below), except as provided below. The tangible net book value reflected on the Closing Balance Sheet is hereinafter called the "NET BOOK VALUE." The Closing Balance Sheet will be prepared in accordance with the following principles: (A) it will utilize the first in-first out (FIFO) method of inventory accounting; (B) the liabilities of the Company shall include a $540,312 tax liability associated with the conversion from the last in-first out (LIFO) method of accounting to the FIFO method of accounting; (C) there shall be included appropriate write-offs for doubtful accounts receivable and bad debts and for damaged, spoiled, obsolete or slow-moving inventory; (D) any receivables due the Company from any of the Sellers or any of the directors, officers, employees or Affiliates (as hereinafter defined) of the Company shall be excluded as assets; (E) the liabilities of the Company shall include appropriate accruals for all tax liabilities of the Company; and (F) the values of the respective Assets shall be: the New Vehicle Value (as defined in Section 3.1 hereof); the Demonstrator Value (as defined in Section 3.2 hereof); the Used Vehicle Value (as defined in Section 3.5 hereof); the Parts Value (as defined in Section 4.3 hereof); the Miscellaneous Inventories Value (as defined in Section 5.1 hereof); the Work in Progress Value (as defined in Section 5.3 hereof); and the F&E Value (as defined in Section 5.4 hereof). For purposes of this Agreement, the term "AFFILIATE" shall mean any entity directly or indirectly controlling, controlled by or under common control with the specified person, whether by stock ownership, agreement or otherwise, or any parent, child, spouse or sibling of such person and the concept of "CONTROL" shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting securities, by contract or otherwise. (ii) If within 30 days following delivery of the Closing Balance Sheet, the Sellers' Agent has not given the Buyer notice of the Sellers' objection to the computation of the Net Book Value as set forth in the Closing Balance Sheet (such notice to contain a statement in reasonable detail of the nature of the Sellers' objection), then the Net Book Value reflected in the Closing Balance Sheet will be deemed mutually agreed by the Buyer and the Sellers. If the Sellers' Agent shall have given such notice of objection in a timely manner, then the issues in dispute will be submitted to a "Big Five" accounting firm mutually acceptable to the Buyer and the Sellers' Agent (the "ACCOUNTANTS") for resolution. If issues in dispute are submitted to the Accountants for resolution: (A) each party will furnish to the Accountants such work papers and other documents and information relating to the disputed issues as the Accountants may request and are available to the party or its subsidiaries (or its independent public accountants), and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (B) the Accountants will be instructed to determine the Net Book Value based upon their resolution of the issues in dispute; (C) such determination by the Accountants of the Net Book Value, as set forth in a notice delivered to both parties by the Accountants, will be binding and conclusive on the parties; and (D) the Buyer and the Sellers shall each bear 50% of the fees and expenses for the Accountants for such determination. (iii) To the extent that the Net Book Value, as deemed mutually agreed by the parties or as determined by the Accountants, as aforesaid, is greater than the Estimated Net Book Value, the Buyer shall be obligated to pay the amount of such excess (the "NET BOOK VALUE EXCESS"), together with interest on the amount of the Net Book Value Excess at the Buyer's floor plan financing rate from time to time in effect (the "INTEREST RATE") from the Closing Date to the date of such payment, promptly to the Sellers. The payment of the Net Book Value Excess, plus interest as aforesaid, shall be made, in cash, to the Sellers, pro rata according to the number of shares of Preferred Stock issued to the respective Sellers as the Basic Merger Consideration. To the extent that the Net Book Value, as deemed mutually agreed by the parties or as determined by the Accountants, as aforesaid, is less than the Estimated Net Book Value, the Sellers shall be obligated, jointly and severally, to pay the amount of such shortfall (the "NET BOOK VALUE SHORTFALL"), together with interest on the amount of the Net Book Value Shortfall at the Interest Rate from the Closing Date to the date of such payment, in cash, promptly to the Buyer. 2.3 CONTINGENT MERGER CONSIDERATION. (a) As used in this Agreement, (i) the term "CONTINGENT MERGER CONSIDERATION" shall mean the amount payable pursuant to Section 2.3(b) below; (ii) the term "CALCULATION PERIOD" shall mean the twelve (12) month period commencing with the first full month after the Closing Date; (iii) the term "EARNINGS BEFORE TAXES" shall mean the earnings before taxes of the Cadillac Dealership Business for the Calculation Period, calculated as provided in Section 2.3(c) below; (iv) the term "CADILLAC DEALERSHIP BUSINESS" shall mean the automobile dealership business of Cadillac acquired by the Buyer pursuant to this Agreement; and (v) the term "AGGREGATE EARNINGS BEFORE TAXES" shall mean the sum total of the Earnings Before Taxes of the Cadillac Dealership Business and Dealership Businesses (as defined in the Amended Asset Purchase Agreement). (b) Subject to the provisions of Section 2.3(c) below, not later than 90 days after the end of the Calculation Period the Buyer shall pay to the Sellers, pro rata according to the number of shares of Preferred Stock issued to the respective Sellers as the Basic Merger Consideration, the Contingent Merger Consideration in an amount equal to (i) three (3) times the Earnings Before Taxes of the Cadillac Dealership Business in excess of $988,000, LESS (ii) $270,156; provided, however, that the Buyer shall be under no obligation to pay any of the Contingent Merger Consideration unless the Aggregate Earnings Before Taxes exceed $7,564,000. The Contingent Merger Consideration shall be paid to the respective Sellers 65% in cash and 35% (the "CONTINGENT STOCK COMPONENT") by the issuance and delivery to the respective Sellers of shares of Preferred Stock at the rate of one share of Preferred Stock for every $1,000 of such Contingent Stock Component, subject, however, to any rights of the Sellers to receive a percentage of the Contingent Stock Component in registered shares of Common Stock pursuant to Section 2.2(d) above. Fractional shares of Preferred Stock may be issued in connection with the payment of the Contingent Purchase Price; however, no fractional shares of Common Stock shall be issued upon conversion of the Preferred Stock. At the request of Sellers' Agent, the Buyer shall furnish the Sellers' Agent with copies of the Buyer's factory financial statements for each month during the Calculation Period. (c) Earnings Before Taxes shall be calculated by the Buyer in accordance with GAAP (as defined in Section 11.3) and subject to the following special rules: (i) No deduction shall be taken for federal and state income taxes, or for state franchise taxes based on corporate income, owed by the Cadillac Dealership Business; (ii) No deduction shall be taken for any interest expenses (including acquisition debt) of the Cadillac Dealership Business other than floor plan financing interest attributable to such Business and other interest expenses directly attributable to the operations of the Cadillac Dealership Business; (iii) Earnings Before Taxes shall be determined before (A) any expense chargeable with respect to the Non-Competition Agreement (as hereinafter defined), or (B) any management fee expense allocation from the Buyer in respect of management fees payable to the Buyer; (iv) No deduction shall be taken for any amortization of goodwill included in the Merger Consideration; and b. Overhead expenses or other expenses which have been incurred by the Cadillac Dealership Business which are allocated to the Cadillac Dealership Business but do not directly relate to the operation of the Cadillac Dealership Business, or that portion so allocated which is not reasonably related to the operation of the Cadillac Dealership Business, shall not be deducted in determining Earnings Before Taxes. At the time of the payment of the Contingent Merger Consideration, the Buyer shall deliver to the Sellers' Agent a statement in writing setting forth in reasonable detail the manner in which the Contingent Merger Consideration was determined. The Sellers' Agent shall have a period of thirty (30) days from the date of delivery of the Buyer's statement of the Contingent Merger Consideration to object in writing to the calculation of the Contingent Merger Consideration set forth therein; failing such objection within such period by the Sellers' Agent, the Sellers shall be deemed to have accepted the Buyer's calculation of the Contingent Merger Consideration. If the Sellers' Agent shall have timely objected to the Buyer's calculation of the Contingent Merger Consideration, the parties shall negotiate in good faith in an effort to resolve any dispute regarding the Contingent Merger Consideration. If the parties are unable to resolve such dispute within a period of thirty (30) days after the Buyer's receipt of the Sellers' objection, the matter shall be submitted to a "big six" accounting firm mutually acceptable to the parties, which shall be instructed to resolve such dispute as promptly as possible. The costs and expenses of such accounting firm shall be shared equally between the Buyer and the Sellers. Upon the final determination of the Contingent Merger Consideration, the Buyer or the Sellers, as the case may be, shall make appropriate payment to the other, as the case may be, in the amount of the Contingent Merger Consideration as finally determined. The party making the payment shall also pay interest on the amount of such payment at an amount of such payment at an annual rate of interest equal to the Buyer's floor plan financing rate from time to time in effect from the original date of payment of the Contingent Merger Consideration by the Buyer to the date of such payment. 2.4 DELIVERY OF THE SHARES. (a) At the Closing, each Seller shall deliver to the Buyer a certificate or certificates representing the number of Shares set forth opposite such Seller's name on Exhibit A hereto, duly endorsed in blank or with a fully executed stock power attached, all in proper form for transfer with all transfer taxes, if any, paid by such Seller. If such certificate or certificates cannot, after a diligent search, be located, in lieu of such certificate or certificates, such Seller shall provide an affidavit of lost certificate and indemnity in a form reasonably satisfactory to the Buyer. Upon such surrender by all the Sellers, the Sellers shall be entitled to the Merger Consideration, as more fully provided in Section 2.2 above. Until surrendered in accordance with this Section 2.4, each such certificate for the Shares shall be deemed for all purposes to evidence only the right to receive the Merger Consideration payable pursuant to Section 2.2. (b) The Shares shall be delivered to the Buyer free and clear of all liens, pledges, encumbrances, claims, security interests, charges, voting trusts, voting agreements, other agreements, rights, options, warrants or restrictions or claims of any kind, nature or description (collectively, "ENCUMBRANCES"). 2.5 THE SELLERS' COVENANT TO CLOSE. The Sellers further covenant and agree to vote all of the Shares held by them in favor of the Merger, and otherwise to take all officer, director, or shareholder actions necessary to cause the Company to adopt, approve and consummate, the Merger. 2.6 NON-COMPETITION AGREEMENT. At the Closing, Thomas P. Williams, Sr. shall enter into a non-competition agreement with the Buyer in substantially the form of Exhibit C to the Amended Asset Purchase Agreement (the "NON- COMPETITION AGREEMENT"). 2.7 EMPLOYMENT AGREEMENTS. At the Closing, Thomas P. Williams, Sr., Thomas P. Williams, Jr. and Clark Williams will enter into Employment Agreements with the Buyer in substantially the forms of Exhibits D-1, D-2 and D-3, respectively, to the Amended Asset Purchase Agreement (the "EMPLOYMENT AGREEMENTS"). 2.8 ADDITIONAL TERMS RELATING TO THE REGISTERED COMMON SHARES. (a) The Buyer shall have no obligation to maintain the currency of any prospectus, permit the use of any prospectus or maintain the effectiveness of any registration statement for the resale of the Registered Common Shares once all of the Registered Common Shares that remain unsold may be sold without restriction pursuant to Rule 144. (b) The Sellers agree that they shall effect each resale of Registered Common Shares only pursuant to a current prospectus or supplements thereto that is a part of the applicable registration statement of the Buyer (the "RESALE PROSPECTUS"). (c) Any offering of any of the Registered Common Shares under the Resale Prospectus will be effected in an orderly manner through a securities dealer, acting as broker or dealer, reasonably acceptable to the Buyer (the "DESIGNATED BROKER"). (d) The Sellers will make resales of Registered Common Shares only by one or more methods described in the Resale Prospectus, as appropriately supplemented or amended when required. (e) Since the Registered Common Shares are "restricted securities" within the meaning of Rule 145 promulgated by the SEC under the Securities Act, the certificates representing the Registered Common Shares will be issued by the Buyer with such legends as the Buyer may reasonably require until such shares are offered pursuant to the foregoing terms under the Resale Prospectus, at which time such certificates shall be tendered to the Buyer and a new certificate or certificates without legends shall be issued by the Buyer to the Designated Broker in order to settle any resales by the Sellers. (f) The Sellers shall provide the Buyer, in writing, with all information concerning the Sellers and their resale of the Registered Common Shares as may reasonably be requested by the Buyer in order to comply with the Securities Act, and the Sellers shall indemnify the Buyer for any liabilities (the "SELLERS' LIABILITIES") arising under the Securities Act, the Securities Exchange Act of 1934 or any state securities or blue sky laws resulting from any material misstatements in, or omissions of material information from, such information provided by the Sellers to the Buyer. (g) The Sellers shall pay any and all expenses directly related to the resale of the Registered Common Shares, including, but not limited to, the commissions or fees of the Designated Broker. (h) The Buyer shall use its best reasonable efforts to list the Registered Common Shares for trading on the New York Stock Exchange. (i) The Buyer shall pay all expenses, including legal and accounting fees, in connection with the preparation, filing and maintenance of the applicable registration statement, including amendments thereto and the Resale Prospectus, including supplements thereto, and the issuance of certificates representing the Registered Common Shares. (j) The Buyer shall indemnify the Sellers for any liabilities arising under the Securities Act, the Securities Exchange Act of 1934 or any state securities or blue sky laws resulting from any material misstatements in, or omissions of material information from, the Resale Prospectus or the applicable registration statement, including the information incorporated by reference therein, except for the Sellers' Liabilities. (k) Notwithstanding any provision of this Agreement to the contrary, the Sellers shall not have any right to take any action (and the Sellers hereby agree that none of them shall take any action) to restrain, enjoin or otherwise delay any registration as a result of any controversy that might arise with respect to the interpretation or implementation of this Agreement. Nothing contained in this Section 2.8 shall prevent the making of a claim for monetary relief. ARTICLE III. NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES 3.1 NEW VEHICLES. For purposes of the Closing Balance Sheet, the Assets shall include all of the Company's untitled new 1999 and 1998 motor vehicles in the Company's inventory as of the Effective Closing Date and which are listed on Schedule 3.1 hereto, which the Sellers' Agent shall deliver to the Buyer not more than three (3) days prior to the Closing (all such vehicles are collectively referred to hereinafter as the "NEW VEHICLES"). For purposes of calculating the Net Book Value, the value of each New Vehicle shall be the price at which the New Vehicle was invoiced to the Company by the Manufacturer, as adjusted pursuant to this Article III (the sum of all such values for New Vehicles as determined by this Article III is herein referred to as the "NEW VEHICLE VALUE"). Schedule 3.1 shall set forth each New Vehicle's model, invoice cost, odometer reading and all other information necessary to calculate the New Vehicle Value with respect to such New Vehicle. 3.2 DEMONSTRATORS. For purposes of the Closing Balance Sheet, the Assets shall include all of the Company's untitled new 1999 and 1998 motor vehicles in the Company's inventory as of the Effective Closing Date which are used in the ordinary course of business for the purpose of demonstration and which are listed on Schedule 3.2 hereto, which the Sellers' Agent shall deliver to the Buyer not more than three (3) days prior to the Closing (all such vehicles are collectively referred to herein as the "DEMONSTRATORS"). For purposes of calculating the Basic Merger Consideration, the value of each Demonstrator shall be the price at which the Demonstrator was invoiced to the Company by the Manufacturer, as adjusted pursuant to this Article III and as reduced by an amount equal to ten cents ($.10) multiplied by the total mileage on such Demonstrator's odometer up to 6,000 miles and thirty-two cents ($.32) multiplied by the total mileage on such Demonstrator's odometer in excess of 6,000 miles (the sum of all such values for Demonstrators hereunder is herein referred to as the "DEMONSTRATOR VALUE"). Schedule 3.2 shall set forth each Demonstrator's model, invoice cost, odometer reading and all other information necessary to calculate the Demonstrator Value with respect to such Demonstrator. 3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR VALUES. The value of each New Vehicle and each Demonstrator shall be: (a) increased by the dealer cost of any equipment and accessories which have been installed by the Company; and (b) decreased by (i) the dealer cost of any equipment and accessories which have been removed from such vehicles. 3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS. In the event any New Vehicle or Demonstrator shall have been damaged prior to the Closing Date, or is otherwise in a condition such that it cannot reasonably be presented as being in a first-class saleable condition, the Sellers' Agent and the Buyer will attempt to agree on the cost to cover such repairs or some other equitable reduction in value to reflect such condition, which amount shall be deducted from the value of such New Vehicle or Demonstrator. In the event that the Buyer and the Sellers' Agent cannot agree on the cost of repairs or the amount of reduction, such dispute shall be submitted to the Inventory Service (as defined in Section 4.1) for resolution. With respect to any New Vehicle or Demonstrator which has been damaged and repaired prior to the Closing Date, the Sellers' Agent and the Buyer will attempt to agree on an adjustment to the value to reflect any decrease in the wholesale value of such New Vehicle or Demonstrator resulting from such damage and repair. In the event that the Buyer and the Sellers' Agent cannot agree on such adjustment, such dispute shall be submitted to the Inventory Service (as defined in Section 4.1) for resolution. The Sellers' Agent shall notify the Buyer on or prior to the Closing Date if any New Vehicles or Demonstrators shall have suffered any damage which is not reflected on Schedule 3.1 or Schedule 3.2. 3.5 USED VEHICLES. The Sellers' Agent and the Buyer shall perform an inventory of the Company's used vehicles as of the Inventory Date and, in connection with such inventory, the Sellers' Agent and the Buyer shall attempt to assign a mutually agreed price to each used vehicle owned by the Sellers as of the Inventory Date. The value of any such vehicles as to which the Sellers' Agent and the Buyer are unable to agree upon a price shall be submitted to the Inventory Service (as defined in Section 4.1) for resolution. All used vehicles acquired by the Sellers after the Inventory Date with respect to used vehicles shall be valued at the Company's book value thereof; provided, however, the acquisition and valuation thereof shall be subject to prior approval by the Buyer so long as the Buyer shall have a representative present at the Company's dealership at the time such used vehicles are proposed to be accepted. All used vehicles included in the Company's inventory as of the Closing Date are collectively referred to herein as the "USED VEHICLES." For purposes of calculating the Net Book Value, the sum of all prices assigned to the Used Vehicles pursuant to the terms of this Section 3.5 shall be referred to herein as the "USED VEHICLE VALUE". ARTICLE IV. PARTS/ACCESSORIES 4.1 THE INVENTORY. The Buyer and the Sellers' Agent shall engage a mutually acceptable third party engaged in the business of appraising, valuing and preparing inventories for automobile dealerships (hereinafter referred to as the "INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the parts and accessories, as well as the Miscellaneous Inventories, used by the Company in the Cadillac Dealership Business. The Inventory (insofar as it relates to parts and accessories) shall be posted to the Manufacturer's approved systems of inventory control. The cost of the Inventory shall be borne one-half by the Buyer and one-half by the Sellers. The Buyer shall have the right to deduct the Sellers' portion of such expense from the cash consideration to be paid to the Sellers under the terms of this Agreement and to remit such sum directly to the Inventory Service. The Inventory shall be completed by the Inventory Date. 4.2 RETURNABLE AND NONRETURNABLE PARTS AND ACCESSORIES. The Inventory shall classify parts and accessories as "returnable" or "nonreturnable". For purposes of this Agreement, the terms "returnable parts" and "returnable accessories" shall describe and include only those new parts and new accessories for vehicles which are listed (coded) in the latest current Master Parts Price List Suggested List Prices and Dealer Prices, or other applicable similar price lists, of the Manufacturer, with any applicable supplements, in effect as of the Inventory Date (the "MASTER PRICE LIST") as returnable to the Manufacturer at not less than the purchase price reflected in the Master Price List. The value for each "returnable part" and "returnable accessory" will be the price listed in the Master Price List. All parts and accessories listed (coded) in the Master Price List as nonreturnable to the Manufacturer shall be classified as "nonreturnable". The value for each "nonreturnable" part and accessory, of which type the Company has made no sales during the ninety (90) day period prior to the Inventory Date (or such longer period of time as is commercially reasonable in the case of "big ticket" parts such as engine blocks and transmissions), shall be sixty percent (60%) of the price listed therefor in the Master Price List. The value for each "nonreturnable" part and accessory, of which type the Company has made retail sales to one or more customers during the ninety (90) day period prior to the Inventory Date, shall be one hundred percent (100%) of the price therefor listed in the Master Price List. The value for all "Jobber" and/or "NPN" parts shall be equal to the Company's original cost of such parts. The value for all nuts, bolts and any other parts not addressed in this Section 4.2 shall equal the fair market value thereof as determined by the Inventory Service. 4.3 PARTS; PARTS VALUE. For purposes of the Closing Balance Sheet, the Assets shall include all parts and accessories owned by the Company at the Effective Closing Date and listed on the Inventory, including, without limitation, the Vogue tire line and rims sold by the Company (the "PARTS"); provided, however, that no value shall be given to any damaged parts or accessories, parts and accessories with component parts missing, superseded or obsolete parts or accessories, or used parts or accessories. Any dispute with respect to such parts or accessories shall be submitted to the Inventory Service for resolution. For purposes of calculating the Net Book Value, the value for the Parts will equal the value of such items shown on the Inventory (the "PARTS VALUE"). ARTICLE V. MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES AND EQUIPMENT 5.1 MISCELLANEOUS INVENTORIES. For purposes of the Closing Balance Sheet, the Assets shall include all useable gas, oil and grease, all undercoat material and body materials in unopened cans and such miscellaneous useable and saleable articles in unbroken lots (including boutique accessories and pro shop items) which (i) are on the Company's dealership premises, (ii) are owned by the Company on the Effective Closing Date, and (iii) are identified in the Inventory taken by the Inventory Service on the Inventory Date (the foregoing being, collectively, "MISCELLANEOUS INVENTORIES"). For purposes of calculating the Net Book Value, the value of the Miscellaneous Inventories shall be equal to the replacement cost of the Miscellaneous Inventories as determined by the Inventory Service and set forth on the Inventory (the sum of all values of the Miscellaneous Inventories pursuant to the terms of this Section 5.1 shall be referred to herein as the "MISCELLANEOUS INVENTORIES VALUE"). 5.2 [INTENTIONALLY LEFT BLANK]. 5.3 WORK IN PROGRESS. For purposes of the Closing Balance Sheet, the Assets shall include the Company's cost for parts and labor for such shop labor and sublet repairs as the Company shall have caused to be performed on any repair orders which are in process at the close of business on the Effective Closing Date for which there are adequate credit arrangements (the "WORK IN PROGRESS") (the sum of all costs of the Company for the Work in Progress pursuant to the terms of this Section 5.3 shall be referred to herein as the "WORK IN PROGRESS VALUE"). 5.4 FIXTURES AND EQUIPMENT. For purposes of the Closing Balance Sheet, the Assets shall include all fixtures, machinery, equipment (including company owned vehicles, wreckers, service loaners and vans and special tools and shop equipment), furniture, signs and office equipment, and leasehold improvements owned by the Company as of the Effective Closing Date and used or held for use in connection with the Cadillac Dealership Business, including the items listed on the Book Depreciation Schedule included as Schedule 5.4 attached hereto, which the Sellers' Agent shall deliver to the Buyer not later than five (5) days prior to the Closing (collectively referred to herein as the "FIXTURES AND EQUIPMENT"). For purposes of calculating the Net Book Value, the value of each item of Fixtures and Equipment shall equal the depreciated book value of such item, determined in accordance with GAAP (as defined in Section 11.3 hereof), and based upon Schedule 5.4 (the sum of all values assigned to the Fixtures and Equipment pursuant to the terms of this Section 5.4 shall be referred to herein as the "F&E VALUE"). ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF THE BUYER The Buyer represents and warrants to the Sellers as follows: 6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Buyer is a corporation duly organized and existing and in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business makes such qualification necessary and has the corporate power to own its properties and to carry on its business as now being conducted. The Board of Directors of the Buyer has duly approved this Agreement, all other agreements, certificates and documents executed or to be executed by the Buyer in connection herewith, and the transactions contemplated hereby and thereby. The Buyer has full corporate power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by the Buyer in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. This Agreement, and all other agreements, certificates and documents executed or to be executed by the Buyer in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of the Buyer enforceable against the Buyer in accordance with their respective terms. 6.2 NON-VIOLATION; CONSENTS. Except as set forth on Schedule 6.2 attached hereto, the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof do not and will not: (a) conflict with or violate any of the provisions of the Buyer's restated certificate of incorporation or by-laws, each as amended, or any resolution of the Board of Directors or the stockholders of the Buyer; (b) violate any law, ordinance, rule or regulation or any judgment, order, writ, injunction or decree or similar command of any court, administrative or governmental agency or other body applicable to the Buyer; (c) violate or conflict with or result in a breach of, or constitute a default under, any material instrument, agreement or indenture or any mortgage, deed of trust or similar contract to which the Buyer is a party or by which the Buyer is bound or affected; or (d) require the consent, authorization or approval of, or notice to, or filing or registration with, any governmental body or authority, or any other third party. 6.3 LITIGATION. There are no actions, suits or proceedings pending, or, to the knowledge of the Buyer, threatened against or affecting the Buyer which might adversely affect the power or authority of the Buyer to carry out the transactions to be performed by it hereunder. 6.4 AUTHORIZATION OF PREFERRED STOCK. The issuance of the Preferred Stock, as well as the shares of Common Stock issuable upon conversion of the Preferred Stock, has been duly authorized by all necessary corporate action of the Buyer. Upon the issuance of the Preferred Stock pursuant to this Agreement, and upon the issuance of shares of Common Stock upon conversion of any of the Preferred Stock, such Preferred Stock and/or Common Stock, as the case may be, shall be validly issued, fully paid and non-assessable. 6.5 CAPITALIZATION. The authorized capital stock of the Buyer consists of: (a) 3,000,000 shares of Preferred Stock, par value $0.10 per share, of which 300,000 shares are designated Class A Convertible Preferred Stock and are, in turn, divided into 100,000 shares of Series I (the "SERIES I PREFERRED STOCK"), 100,000 shares of Series II (the "SERIES II PREFERRED STOCK") and 100,000 shares of Series III (the "SERIES III PREFERRED STOCK"); as of October 15, 1998, approximately 19,500 shares of Series I Preferred Stock are issued and outstanding and/or are committed to be issued by the Buyer, approximately 13,910 shares of Series II Preferred Stock are issued and outstanding and/or are committed to be issued by the Buyer, and approximately 31,248 shares of Series III Preferred Stock are issued and outstanding and/or are committed to be issued by the Buyer; (b) 50,000,000 shares of Class A Common Stock, par value $0.01 per share, of which 5,588,888 shares are issued and outstanding; and (c) 15,000,000 shares of Class B Common Stock, par value $0.01 per share, of which 6,200,000 shares are issued and outstanding. All outstanding capital stock of the Buyer is duly authorized, validly issued, fully paid and non-assessable and has been issued in conformity with all applicable federal and state securities laws. 6.6 DISCLOSURE MATERIALS. The Buyer has delivered to the Sellers' Agent copies of (i) the Prospectus dated November 10, 1997 (the "PROSPECTUS"), (ii) the Buyer's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1997, (iii) the Buyer's Quarterly Reports on Form 10-Q for the three-month periods ended March 31, 1998, June 30, 1998 and September 30, 1998, and (iv) any Current Reports on Form 8-K, filed in 1998, each in the form (excluding exhibits) filed with the SEC (collectively, such Forms 10-K, 10-Q and 8-K being hereinafter referred to as its "REPORTS"). Neither the Prospectus nor any of the Reports contained, at the time of filing thereof with the SEC, any untrue statement of any material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. 6.7 MISSTATEMENTS AND OMISSIONS. No representation or warranty made by the Buyer in this Agreement, and no statement contained in any agreement, instrument, certificate or schedule furnished or to be furnished by the Buyer pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading. The representations and warranties of Buyer contained in the Real Property Purchase Agreement are true and correct. ARTICLE VII. REPRESENTATIONS AND WARRANTIES OF THE SELLERS The Sellers, jointly and severally, represent and warrant to the Buyer as follows: 7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Company (a) is a corporation duly organized and existing and in good standing under the laws of the State of Alabama, (b) is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business makes such qualification necessary, and (c) has the corporate power to own its properties and to carry on its business as now being conducted. Except as set forth on Schedule 7.1 attached hereto, the Sellers are the only persons or entities owning shares of the Company. The Board of Directors and the shareholders of the Company have duly approved this Agreement, all other agreements, certificates and documents executed or to be executed by the Company in connection herewith, and the transactions contemplated hereby and thereby. The Company has full corporate power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by the Company in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. This Agreement, and all other agreements, certificates and documents executed or to be executed by the Company in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of the Company enforceable against the Company in accordance with their respective terms. This Agreement, and all other agreements, certificates and documents executed or to be executed by each Seller in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of such Seller enforceable against such Seller in accordance with their respective terms. 7.2 NO VIOLATION; CONSENTS. Except as set forth in Schedule 7.2 attached hereto, the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof do not and will not: (a) conflict with or violate any of the provisions of the Company's articles of incorporation or by-laws, each as amended, or any resolution of the Board of Directors or the shareholders of the Company; (b) violate any law, ordinance, rule or regulation or any judgment, order, writ, injunction or decree or similar command of any court, administrative or governmental agency or other body applicable to the Company, the Assets or the Cadillac Dealership Business; (c) violate or conflict with or result in a breach of, or constitute a default under, or an event giving rise to a right of termination of, any Contract (as defined in Section 7.12), any material instrument, agreement or indenture or any mortgage, deed of trust or similar contract to which the Company or any Seller is a party or by which the Company, any Seller or any of the Assets are bound or affected; (d) result in the creation or imposition of any Encumbrance upon any of the Assets; or (e) require the consent, authorization or approval of, or notice to, or filing or registration with, any governmental body or authority, or any other third party. 7.3 LITIGATION. There are no actions, suits or proceedings pending or, to the knowledge of the Sellers threatened against the Company or any Seller which might adversely affect the power or authority of any of them to carry out the transactions to be performed by such party hereunder. There are no actions, suits or proceedings pending, or, to the knowledge of the Sellers, threatened, against or affecting the Company, other than those disclosed on Schedule 7.3 attached hereto, and none of the actions, suits or proceedings described on Schedule 7.3, if determined adversely to any Seller, would have a material adverse effect on the business, assets or financial condition of the Company. 7.4 TITLE TO ASSETS; ENCUMBRANCES. Except as disclosed on Schedule 7.4 attached hereto, the Sellers have good title to the Assets, free and clear of all Encumbrances, except Encumbrances for ad valorem personal property taxes not yet due and payable. All of the Assets conform, as to condition and character, to the descriptions of such Assets contained herein and, at the Closing, will be free and clear of all Encumbrances, except Encumbrances for ad valorem personal property taxes not yet due and payable. To the knowledge of the Sellers, the ownership and use of the Assets, and the operation of the Cadillac Dealership Business, do not infringe upon the intellectual property rights of any other person or entity. 7.5 PERMITS AND APPROVALS. Except as disclosed on Schedule 7.5 attached hereto, there are no licenses, permits or approvals or other authorizations (collectively, the "PERMITS") used or obtained for use by the Company which are required under applicable law in connection with the ownership or operation of the Cadillac Dealership Business. All Permits have been duly and lawfully secured or made by the Company and are in full force and effect. There is no proceeding pending, or, to the Seller's knowledge, threatened or probable of assertion, to revoke or limit any Permit. None of the transactions contemplated by this Agreement will terminate, violate or limit the effectiveness of any Permit. 7.6 TAXES. (a) The Company has filed all federal, state and local governmental tax returns required to be filed by it in accordance with the provisions of law pertaining thereto and has paid all taxes and assessments (including, without limitation of the foregoing, income, excise, unemployment, social security, occupation, franchise, property and import taxes, duties or charges and all penalties and interest in respect thereof) (collectively "TAXES")required by it to have been paid to date. (b) Except as set forth on Schedule 7.6 hereto, the federal and state income tax returns of the Company have been audited by the Internal Revenue Service ("IRS") or are closed by the applicable statutes of limitations. Except as set forth on Schedule 7.6 hereto, the Company has not received any notice of any assessed or proposed claim or deficiency against it in respect of, or of any present dispute between it and any governmental agency concerning, any Taxes. Except as set forth on Schedule 7.6 hereto, no examination or audit of any tax return or report of the Company by any applicable taxing authority is currently in progress and there are no outstanding agreements or waivers extending the statutory period of limitation applicable to any tax return or report of the Company. Copies of all federal, state and local tax returns and reports required to be filed by the Company for the years ended 1997, 1996, 1995, 1994 and 1993, together with all schedules and attachments thereto, have been delivered by the Sellers to the Buyer. (c) The Company is not now, nor has it ever been, a member of a consolidated group for federal income tax purposes or a consolidated, combined or similar group for state tax purposes. No consent under Section 341 of the Internal Revenue Code of 1986, as amended (the "CODE") has been made affecting the Company. The Company is not a party to any agreement or arrangement that would result in the payment of any "excess parachute payments" under Code Section 280G. The Company is not required to make any adjustment under Code Section 481(a). No power of attorney relating to Taxes is currently in effect affecting the Company. 7.7 EMPLOYEES. Schedule 7.7 attached hereto discloses, as of the date hereof, all of the Company's employees, as well as each employee's compensation (including, separately, base pay and any incentive or commission pay), title, length of employment, employment contract, if any, and accrued vacation time. Except as disclosed on Schedule 7.7, the Company does not have any "employee benefit plan" ("EMPLOYEE BENEFIT PLAN") (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), including without limitation, any bonus, deferred compensation, pension, profit-sharing, stock option, employee stock purchase, secrecy agreement or covenant not to compete with any employee. The Company is not a party to any collective bargaining agreement or other labor contract, and there has not been nor is there pending or, to the knowledge of the Sellers, threatened any union organizational drive or application for certification of a collective bargaining agent. The Company has been and is now in material compliance with the "COBRA" health care continuation coverage requirements of Section 4980B of the Code and Sections 601-608 of ERISA and any applicable state health care continuation coverage requirements. The Company has not made any promises or incurred any liability, pursuant to an Employee Benefit Plan or otherwise, to provide medical or other welfare benefits to retired or former employees of the Company (other than COBRA or state mandated continuation coverage, where applicable). Except as disclosed on Schedule 7.7, none of the Company's employees or former employees has elected COBRA continuation coverage or has incurred a COBRA qualifying event since June 1, 1996. 7.8 FINANCIAL STATEMENTS. The Sellers have delivered to the Buyer the financial statements of the Company described in Schedule 7.8 hereto (the "FINANCIAL STATEMENTS"). The Financial Statements have been prepared in accordance with GAAP consistently applied, except as specified in Schedule 7.8 hereto. The Financial Statements are in accordance with the books and records of the Company, which books and records are true, correct and complete in all material respects. The balance sheet of the Company included in the Financial Statements fairly presents the financial condition of the Company as of the date thereof, and the related statement of income of the Company included in the Financial Statements fairly presents the results of the operations of the Company and the changes in its financial position for the period indicated, all in accordance with GAAP consistently applied. The Company has no material claims, liabilities, obligations or indebtedness of any nature, fixed or contingent, known or unknown, except as set forth in the Financial Statements or in the Schedules to this Agreement, and except for liabilities incurred in the ordinary course of business and of the kind and type reflected in the Financial Statements. To the knowledge of the Sellers, the Financial Statements contain adequate reserves for all reasonably anticipated claims relating to matters with respect to which the Sellers are self-insured. 7.9 BROKERS AND FINDERS. Neither the Company nor any Seller has engaged any broker or any other person or entity who would be entitled to any brokerage commission or finder's fee in respect of the execution of this Agreement and/or the consummation of the transactions contemplated hereby. 7.10 COMPLIANCE WITH LAWS. (a) Except as set forth on Schedule 7.10(a) attached hereto, the Assets comply with, and the Cadillac Dealership Business has been conducted in all material respects in compliance with, all laws, rules and regulations (including all worker safety and all Environmental Laws (as defined in the Real Property Purchase Agreements), rules and regulations), applicable zoning and other laws, ordinances, regulations and building codes, neither the Company nor any Seller has received any notice of any violation thereof which has not been adequately remedied. All Demonstrators have been operated in the ordinary course of business with dealer tags and have not had certificates of title issued with respect to them. (b) Except as set forth on Schedule 7.10(b) attached hereto, (i) the Company has not at any time generated, used, treated or stored Hazardous Materials on, or transported Hazardous Materials to or from, the Real Property or any property adjoining or adjacent to the Real Property and, to the knowledge of the Sellers, no party other than the Company has taken such actions on or with respect to the Real Property, (ii) the Company has not at any time released or disposed of Hazardous Materials on the Real Property or any property adjoining or adjacent to the Real Property, and, to the knowledge of the Sellers, no party other than the Company has taken any such actions on the Real Property, (iii) the Company has at all times been in compliance with all Environmental Laws and the requirements of any permits issued under such Environmental Laws with respect to the Real Property, the Assets and the operation of the Cadillac Dealership Business, except where failure to comply has not had and will not have, and could not reasonably be expected to have, a material adverse effect on the Assets or the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Cadillac Dealership Business, (iv) there are no past, pending or, to the knowledge of the Sellers, threatened environmental claims against the Company, the Real Property, the Assets or the Cadillac Dealership Business, (v) to the knowledge of the Sellers, there are no facts or circumstances, conditions or occurrences regarding the Company, the Real Property, the Assets or the Cadillac Dealership Business that could reasonably be anticipated to form the basis of an environmental claim against the Company, the Real Property, the Assets or the Cadillac Dealership Business or to cause the Real Property, the Assets or the Cadillac Dealership Business to be subject to any restrictions on its ownership, occupancy, use or transferability under any Environmental Law, (vi) there are not now and, to the knowledge of the Sellers, never have been any underground storage tanks located on the Real Property, (vii) the Company has not transported or arranged for the transportation of any Hazardous Materials to any site other than the Real Property, and (viii) neither the Company nor any of the Sellers has operated the Cadillac Dealership Business at any location other than the Real Property. As used herein, the term "HAZARDOUS MATERIALS" means any waste, pollutant, chemical, hazardous substance, toxic substance, hazardous waste, special waste, solid waste petroleum or petroleum-derived substance or waste, or any constituent or decomposition product of any such pollutant, material, substance or waste, regulated under or as defined by any Environmental Law. (c) Neither the Company or the Sellers, nor any stockholder, director, officer, agent or employee of the Company or, to the knowledge of the Sellers, any other person or entity associated with or acting for or on behalf of the Company, has, directly or indirectly: made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any person or entity, regardless of form, whether in money, property or services: (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured or (iii) to obtain special concessions or for special concessions already obtained, for or in respect of the Company. 7.11 FIXTURES AND EQUIPMENT. The Fixtures and Equipment are in good condition, ordinary wear and tear excepted, and constitute all of the fixtures, machinery, equipment, furniture, signs and office equipment used or intended for use by the Company in the Cadillac Dealership Business. 7.12 CONTRACTS. (a) Set forth on Schedule 7.12 hereto is a list or, where indicated, a brief description of all leases and all other contracts, agreements, documents, instruments, guarantees, plans, understandings or arrangements, written or oral, which are material to the Company or its business or assets (collectively, the "CONTRACTS"). True copies of all Contracts have been furnished to the Buyer. (b) The Company has in all material respects performed all of its obligations required to be performed by it to the date hereof, and is not in default or alleged to be in default in any material respect, under any of the Contracts. There exists no event, condition or occurrence which, after notice or lapse of time or both, would constitute a default under any of the Contracts. To the knowledge of the Sellers, no other party to any Contract is in default in any respect of any of its obligations thereunder. Each of the Contracts is valid and in full force and effect and enforceable against the Company in accordance with its terms, and, to the knowledge of the Sellers, enforceable against the other parties thereto in accordance with their respective terms. Except as set forth in Schedule 7.12 or Schedule 7.2 hereto, the consummation of the Merger will not require the consent of any party to any of the Contracts. 7.13 ADEQUACY OF ASSETS. The Assets, together with the Real Property, the Contracts, and the Company's cash and accounts receivable comprise all of the assets, properties and rights necessary for the Buyer to operate the Cadillac Dealership Business substantially in the manner operated by the Company prior to the Closing. 7.14 YEAR 2000. The Company has (i) initiated a review and assessment of all areas within its businesses and operations (including those affected by the Manufacturer, suppliers, vendors and customers) that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by the Company may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999), (ii) developed a plan and timeline as described on Schedule 7.14 for addressing the Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan and timetable, except as set forth in said Schedule 7.14. 7.15 OWNERSHIP OF SHARES. Each Seller owns of record and beneficially the number of Shares set forth opposite such Seller's name on Exhibit A hereto. Each Seller has, and will have at the time of the Closing, good and valid title to the Shares to be sold by such Seller hereunder, free and clear of all Encumbrances. 7.16 RELATED PARTY TRANSACTIONS. There are no transactions between the Company and any of the Sellers or any entities directly or indirectly controlled by any of the Sellers including, without limitation, any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from, any of the Sellers, or any such entity. 7.17 CAPITALIZATION. All of the Shares are duly authorized, validly issued, fully paid and non-assessable and are held by the Sellers in the amounts indicated on Exhibit A hereto. There are no preemptive rights, whether at law or otherwise, to purchase any of the securities of the Company, and there are no outstanding options, warrants, "phantom" stock plans, subscriptions, agreements, plans or other commitments pursuant to which the Company is or may become obligated to sell or issue any shares of its capital stock or any other debt or equity security, and there are no outstanding securities convertible into shares of such capital stock or any other debt or equity security. 7.18 SUBSIDIARIES AND INVESTMENTS. The Company does not own or maintain, directly or indirectly, any capital stock of or other equity or ownership or proprietary interest in any other corporation, partnership, association, trust, joint venture or other entity and does not have any commitment to contribute to the capital of, make loans to, or share in the losses of, any such entity. 7.19 REAL PROPERTY. Except for any Real Property which is being sold pursuant to either of the Real Property Purchase Agreements, the Company does not own or lease (as landlord or tenant) any real property including any land, buildings and improvements. 7.20 PATENTS; TRADEMARKS; TRADE NAMES; COPYRIGHTS; LICENSES, ETC. (a) Except as set forth on Schedule 7.20 hereto, there are no patents, trademarks, trade names, service marks, service names and copyrights, and there are no applications therefor or licenses thereof, inventions, trade secrets, computer software, logos, slogans, proprietary processes and formulae or other proprietary information, know-how and intellectual property rights, whether patentable or unpatentable, that are owned or leased by the Company or used in the conduct of the Company's business. The Company is not a party to, and the Company pays no royalty to anyone under, any license or similar agreement. There is no existing claim, or, to the knowledge of the Sellers, any basis for any claim, against the Company that any of its operations, activities or products infringe the patents, trademarks, trade names, copyrights or other property rights of others or that the Company is wrongfully or otherwise using the property rights of others. (b) The Company has the right to use the names "Williams Cadillac" in the State of Alabama and, to the knowledge of the Sellers, no person uses, or has the right to use, such name or any derivation thereof in connection with the manufacture, sale, marketing or distribution of products or services commonly associated with an automobile dealership. 7.21 CERTAIN LIABILITIES. 1. All accounts payable by the Company to third parties as of the date hereof arose in the ordinary course of business and none are delinquent or past- due. (a) Schedule 7.21 hereto sets forth a list of all indebtedness of the Company, other than accounts payable, as of the close of business on the day preceding the date hereof, including, without limitation, money borrowed, indebtedness of the Company owed to stockholders and former stockholders, the deferred purchase price of assets, letters of credit and capitalized leases, indicating, in each case, the name or names of the lender, the date of maturity, the rate of interest, any prepayment penalties or premiums and the unpaid principal amount of such indebtedness as of such date. 7.22 POWERS OF ATTORNEY. There are no persons, firms, associations, corporations or business organizations or entities holding general or special powers of attorney from the Company. 7.23 BANK ACCOUNTS, CREDIT CARDS, SAFE DEPOSIT BOXES AND CELLULAR TELEPHONES. Schedule 7.23 hereto lists all bank accounts, credit cards and safe deposit boxes in the name of, or controlled by, the Company, and all cellular telephones provided and/or paid for by the Company, and details about the persons having access to or authority over such accounts, credit cards, safe deposit boxes and cellular telephones. 7.24 INSURANCE. (a) Schedule 7.24 hereto contains a list of all policies of liability, theft, fidelity, life, fire, product liability, workmen's compensation, health and any other insurance and bonds maintained by, or on behalf of, the Company on their respective properties, operations, inventories, assets, business or personnel (specifying the insurer, amount of coverage, type of insurance, policy number and any pending claims in excess of $5,000 thereunder). Each such insurance policy identified therein is and shall remain in full force and effect on and as of the Closing Date and the Company is not in default with respect to any provision contained in any such insurance policy and has not failed to give any notice or present any claim under any such insurance policy in a due and timely fashion. The insurance maintained by, or on behalf of, the Company is adequate in accordance with the standards of business of comparable size in the industry in which the Company operates and no notice of cancellation or termination has been received with respect to any such policy. The Company has not, during the last three (3) fiscal years, been denied or had revoked or rescinded any policy of insurance. (b) Set forth on Schedule 7.24 hereto is a summary of information pertaining to material property damage and personal injury claims in excess of $5,000 against the Company during the past five (5) years, all of which are fully satisfied or are being defended by the insurance carrier and involve no exposure to the Company. 7.25 WARRANTIES. Set forth on Schedule 7.25 hereto are descriptions or copies of the forms of all express warranties and disclaimers of warranty made by the Company (separate and distinct from any applicable manufacturers', suppliers' or other third-parties' warranties or disclaimers of warranties) during the past five (5) years to customers or users of the vehicles, parts, products or services of the Company. There have been no breach of warranty or breach of representation claims against the Company during the past five (5) years which have resulted in any cost, expenditure or exposure to the Company of more than $50,000 individually or in the aggregate. 7.26 SUPPLIERS AND CUSTOMERS. The Company is not required to provide bonding or any other security arrangements in connection with any transactions with any of its respective customers and suppliers. To the knowledge of the Sellers, no such supplier, customer or creditor intends or has threatened, or reasonably could be expected, to terminate or modify any of its relationships with the Company. 7.27 MISSTATEMENTS AND OMISSIONS. No representation or warranty made by the Sellers or the Stockholders in this Agreement, and no statement contained in any agreement, instrument, certificate or schedule furnished or to be furnished by any Seller pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading. ARTICLE VIII. CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS The obligations of the Buyer to perform this Agreement at the Closing are subject to the following conditions precedent which shall be fully satisfied at or before the Closing, unless waived in writing by the Buyer: 8.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Sellers herein contained shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, and the Buyer shall have received a certificate from of each of the Sellers, dated the Closing Date, to such effect. 8.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations required by this Agreement to be performed or complied with by the Company or the Sellers at or before the Closing shall have been duly performed or complied with, and the Buyer shall have received a certificate from each of the Sellers, dated the Closing Date, to such effect. 8.3 NO LITIGATION. No action, suit or proceeding shall have been instituted by a governmental agency or any other third party (a) to prohibit or restrain the transactions contemplated by this Agreement or otherwise challenge the power and authority of the parties to enter into this Agreement or to carry out their obligations hereunder or the legality or validity of the transactions contemplated by this Agreement, or (b) which would have a materially adverse effect on the conduct of an automobile dealership business by the Buyer at any of the Real Property. 8.4 INVENTORY. The Inventory and Used Vehicle valuations shall have been completed to the reasonable satisfaction of the Buyer. 8.5 CORPORATE ORGANIZATION; ENCUMBRANCES; ESTOPPEL LETTERS; ETC. The Sellers shall have furnished to the Buyer: (a) certificates dated as of a recent date from the Secretary of State of the State of Alabama to the effect that the Company is duly incorporated and in good standing in such state and stating that the Company owes no franchise taxes in such state and listing all documents of the Company on file with said Secretary of State; (b) a copy of the Articles of Incorporation of the Company, including all amendments thereto, certified as of a recent date by the Secretary of State of the State of Alabama; (c) evidence, reasonably satisfactory to the Buyer, of the authority and incumbency of the persons acting on behalf of the Company in connection with the execution of any document delivered in connection with this Agreement; (d) Uniform Commercial Code Search Reports on Form UCC- 11 with respect to the Company from the states and local jurisdictions where the principal place of business of the Company and its assets are located; (e) the corporate minute books and stock record books of the Company, and all other books and records of, or pertaining to, the businesses and operations of the Company; (f) estoppel letters of lenders to the Company, in form and substance reasonably satisfactory to the Buyer, with respect to amounts owing by the Company as of the Closing; and (g) such other instruments and documents as the Buyer shall reasonably request not inconsistent with the provisions hereof. 8.6 BOARD RESOLUTIONS. The Company shall have furnished to the Buyer a copy of the resolutions duly adopted by the Company's Board of Directors and stockholders authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, certified by an authorized officer of the Company as of the Closing Date. 8.7 NO DAMAGE. As of the Closing Date, there shall not have been any fire, accident or other casualty or any labor disturbance, civil commotion, riot, act of God or the public enemy, or any change in the Cadillac Dealership Business or the Assets or which would have a material adverse effect on the conduct of an automobile dealership business using the Assets at any of the Real Property or which would interfere with the use by the Buyer of such Assets in connection with the conduct of an automobile dealership business at any of the Real Property. 8.8 MOTOR VEHICLE LICENSES. The Buyer shall have been licensed as a Motor Vehicle Dealer under applicable Alabama motor vehicle dealer registration laws and shall have obtained all other authorizations, consents, licenses and permits from applicable governmental agencies having or asserting jurisdiction, which the Buyer deems necessary or appropriate to conduct business as an automobile dealer at the Real Property. 8.9 CONSENT AND APPROVALS. The Sellers shall have obtained all other authorizations, consents and approvals from third persons and entities as are (a) contemplated by Schedules 7.2 and 7.12 hereto, or (b) otherwise required to consummate the transactions contemplated by this Agreement. 8.10 CERTIFICATES OF ORIGIN, ETC. The Company shall have transferred to the Buyer certificates of title or origin for all New Vehicles, Demonstrators and Used Vehicles, and all of their respective registration lists, owner follow-up lists and service files on hand as of the Closing Date with respect to the Cadillac Dealership Business. 8.11 APPRAISAL/DISSENTERS' RIGHTS. No holder of capital stock of the Company shall have any appraisal or dissenters' rights under applicable law. 8.12 [INTENTIONALLY LEFT BLANK] 8.13 MANUFACTURER APPROVAL. The Manufacturer shall have approved the transfer of the Shares to the Buyer and shall have given any required approval of the Buyer or the Buyer's affiliate as an authorized dealer at each parcel of the Real Property and O. Bruton Smith or O. Bruton Smith's designee, as the authorized Dealer Operator, and the Manufacturer shall have executed a Dealer Agreement on terms reasonably satisfactory to the Buyer. 8.14 OTHER BASIC AGREEMENTS. All conditions to Buyer's obligations under the Other Basic Agreements shall have been satisfied or fulfilled unless waived in writing by the Buyer hereunder. 8.15 OPINION OF COUNSEL. The Buyer shall have received an opinion of Williams & Ledbetter counsel to the Sellers and the Company, dated the Closing Date, in form and substance reasonably satisfactory to the Buyer and its counsel. 8.16 NON-COMPETITION AGREEMENT AND EMPLOYMENT AGREEMENTS. The Buyer shall have received the Non-Competition Agreement and the Employment Agreements, duly executed by the relevant parties thereto. 8.17 [INTENTIONALLY LEFT BLANK] 8.18 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change or development in the business, prospects, properties, earnings, results of operations or financial condition of the Company or any of the Assets. 8.19 FORMS SATISFACTORY. The form of all instruments, certificates and documents to be executed and delivered by the Sellers to the Buyer pursuant to this Agreement and all legal matters in respect of the transactions as herein contemplated shall be reasonably satisfactory to the Buyer and its counsel, none of whose approval shall be unreasonably withheld or delayed. 8.20 HSR ACT. All applicable waiting periods under the HSR Act (as defined in Section 10.13 hereof) shall have expired without any indication by the Antitrust Division or the FTC (each as defined in Section 10.13 hereof) that either of them intends to challenge the transactions contemplated hereby or, if any such challenge or investigation is made or commenced, the conclusion of such challenge or investigation permits the transactions contemplated hereby in all material respects. 8.21 AUDITED FINANCIAL STATEMENTS OF BUYER. The Buyer shall have completed preparation of such audited financial statements of the Company as may be required by applicable regulations of the Securities and Exchange Commission or by the Buyer's lenders. ARTICLE IX CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS The obligations of the Sellers to perform this Agreement at the Closing are subject to the following conditions precedent which shall be fully satisfied on or before the Closing, unless waived in writing by the Sellers' Agent: 9.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Buyer herein contained shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, and the Sellers shall have received a certificate from the President or a Vice President of the Buyer, dated the Closing Date, to such effect. 9.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations required by this Agreement to be performed or complied with by the Buyer at or before the Closing shall have been duly performed or complied with, and the Sellers shall have received a certificate from the President or a Vice President of the Buyer, dated the Closing Date, to such effect. 9.3 NO LITIGATION. No action, suit or proceeding shall have been instituted by a governmental agency or any third party to prohibit or restrain the transactions contemplated by this Agreement or otherwise challenge the power and authority of the parties to enter into this Agreement or to carry out their obligations hereunder or the legality or validity of the transactions contemplated by this Agreement. 9.4 INVENTORY. The Inventory and Used Vehicle valuations shall have been completed to the reasonable satisfaction of the Sellers' Agent. 9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS. The Buyer shall have furnished the Sellers: (a) a copy of the resolutions duly adopted by the Board of Directors of the Buyer authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, certified by an officer of the Buyer as of the Closing Date; (b) certificates dated as of a recent date from the Secretary of State of the State of Delaware to the effect that the Buyer is duly incorporated and in good standing in such State; (c) certificates dated as of a recent date from the Secretary of State of the State of Alabama to the effect that the Sub is duly incorporated and in good standing in such State; (d) a copy of the Buyer's Certificate of Incorporation, including all amendments thereto, certified by the Secretary of State of the State of Delaware; (e) a copy of the Sub's Articles of Incorporation, including all amendments thereto, certified by the Secretary of State of the State of Alabama; (f) evidence, reasonably satisfactory to the Sellers, of the authority and incumbency of the persons acting on behalf of the Buyer in connection with the execution of any document delivered in connection with this Agreement; and (g) such other instruments and documents as the Sellers shall reasonably request not inconsistent with the provisions hereof. 9.6 BASIC MERGER CONSIDERATION. The Buyer shall have tendered to the Sellers the Basic Merger Consideration. 9.7 OTHER BASIC AGREEMENTS. All conditions to the obligations of the parties other than the Buyer or its assignee under the Other Basic Agreements shall have been satisfied or fulfilled, unless waived in writing by the Sellers' Agent. 9.8 OPINION OF COUNSEL. The Sellers shall have received an opinion of Parker, Poe, Adams & Bernstein L.L.P., counsel to the Buyer, dated the Closing Date, in form and substance reasonably satisfactory to the Sellers and their counsel. 9.9 FORMS SATISFACTORY. The form of all certificates, instruments and documents to be executed and/or delivered by the Buyer to the Sellers pursuant to this Agreement and all legal matters in respect of the transactions as herein contemplated shall be reasonably satisfactory to the Sellers and its counsel, none of whose approval shall be unreasonably withheld or delayed. 9.10 EMPLOYMENT AGREEMENTS. The Sellers' Agent shall have received the Employment Agreement with Thomas P. Williams, Sr., duly executed by the Buyer, and the Buyer shall have offered employment to each of Thomas P. Williams, Jr. and Charles Clark Williams pursuant to the Employment Agreements in the form of Exhibits D-2 and D-3, respectively, to the Amended Asset Purchase Agreement. 9.11 HSR ACT. All applicable waiting periods under the HSR Act shall have expired without any indication by the Antitrust Division or the FTC that either of them intends to challenge the transactions contemplated hereby, or, if any such challenge or investigation is made or commenced, the conclusion of such challenge or investigation permits the transactions contemplated hereby in all material respects. ARTICLE X COVENANTS AND AGREEMENTS 10.1 FURTHER ASSURANCES. Each of the Sellers agrees that it will, at any time and from time to time, after the Closing, upon request of the Buyer, do, execute, acknowledge and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances as may be reasonably required to convey and transfer to and vest in the Buyer and protect its rights, title and interest in and enjoyment of all the Assets. 10.2 SATISFACTION OF CLOSING CONDITIONS. The parties hereto shall use their reasonable best efforts to obtain, and to cooperate with each other in obtaining, all authorizations, approvals, licenses, permits and other consents contemplated by Articles VIII and IX. 10.3 OPERATION OF THE BUSINESSES. During the period from the date of this Agreement through the Closing Date, the Company will conduct, and the Sellers will use their best reasonable efforts to cause the Company to conduct, the operation of the Cadillac Dealership Business in the ordinary course and in accordance with past practices. 10.4 ACCESS. From the date hereof until the Closing, each of the Sellers shall afford to the Buyer, its attorneys, accountants and such other representatives of the Buyer as the Buyer shall designate to such Seller, free and full access at all reasonable times, and upon reasonable prior notice, to the Assets and the properties, books and records of the Company, and to interview personnel, suppliers and customers of the Company, in order that the Buyer may have full opportunity to make such due diligence investigation as it shall reasonably desire of the Assets and the Cadillac Dealership Business. 10.5 ENVIRONMENTAL AUDIT. In connection with the Buyer's due diligence investigation, the Company and the Sellers shall allow an environmental consulting firm selected by the Buyer (the "ENVIRONMENTAL AUDITOR") to have prompt access to the Real Property in order to conduct an environmental investigation, satisfactory to the Buyer in scope (such scope being sufficient to result in a Phase I environmental audit report and a Phase II environmental audit report, if desired by the Buyer), of, and to prepare a report with respect to, the Real Property (the "ENVIRONMENTAL AUDIT"). The Company and each of the Sellers shall provide to the Environmental Auditor: (i) reasonable access to all of the Company's existing records concerning the matters which are the subject of the Environmental Audit; and (ii) reasonable access to the employees of the Company and the last known addresses of former employees of the Company who are most familiar with the matters which are the subject of the Environmental Audit (each Seller agreeing to use reasonable efforts to have such former employees respond to any reasonable requests or inquiries by the Environmental Auditor). The Company and the Sellers shall otherwise cooperate with the Environmental Auditor in connection with the Environmental Audit. The Buyer, on the one hand, and the Sellers, on the other hand, shall each bear 50% of the costs, fees and expenses in connection with the Environmental Audit. To the extent that the Environmental Auditor shall conduct a Phase II environmental audit, the Buyer's selection of the Environmental Auditor must be reasonably acceptable to the Sellers. 10.6 INDEMNIFICATION BY SELLERS. All representations and warranties of the Sellers contained herein, or in any agreement, certificate or document executed by the respective Sellers in connection herewith, shall survive the Closing. All information contained in any Schedule furnished hereunder by the Sellers or the Sellers' Agent shall be deemed a representation and warranty by the Sellers made in this Agreement as to the accuracy of such information. The Sellers, jointly and severally, agree to indemnify and hold harmless the Buyer and its stockholders, officers, directors, employees and agents, and their respective successors and assignees, from and against any and all losses, liabilities, obligations, assessments, suits, actions, proceedings, claims or demands, including costs, expenses and fees (including reasonable attorneys' fees and expert witness fees) incurred in connection therewith, suffered by any of them or asserted against any of them or the Assets, arising out of or based upon (a) the failure of any representation or warranty of the Sellers contained herein, or in any agreement, certificate or document executed by any Seller in connection herewith, to be true and correct, (b) the breach of any covenant or agreement of any Seller contained in this Agreement or in any agreement, instrument or document executed by any Seller in connection herewith, or (c) any arrangements or agreements made or alleged to have been made by the Company or the Sellers with any broker, finder or other agent in connection with the transactions contemplated hereby. 10.7 INDEMNIFICATION BY BUYER. All representations and warranties of the Buyer contained herein or in any agreement, certificate or document executed by the Buyer in connection herewith, shall survive the Closing. All information contained in any Schedule furnished hereunder by the Buyer shall be deemed a representation and warranty by the Buyer made in this Agreement as to the accuracy of such information. The Buyer agrees to indemnify and hold harmless each of the Sellers and their respective successors and assignees, from and against any and all losses, liabilities, obligations, assessments, suits, actions, proceedings, claims or demands, including costs, expenses and fees (including reasonable attorneys' fees and expert witness fees) incurred in connection therewith, suffered by any of them, or asserted against any of them, arising out of or based upon (a) the failure of any representation or warranty of the Buyer contained herein, or in any agreement, certificate or document executed by the Buyer in connection herewith, to be true and correct, (b) the breach of any covenant or agreement of the Buyer contained in this Agreement or in any agreement, instrument or document executed by the Buyer in connection herewith, or (c) any arrangements or agreements made or alleged to have been made by the Buyer with any broker, finder or other agent in connection with the transactions contemplated hereby. 10.8 CERTAIN TAXES. Personal property, use and intangible taxes and assessments with respect to the Assets shall be prorated on a per diem basis and apportioned between the Sellers and the Buyer as of the date of the Closing. The Sellers shall be liable for that portion of such taxes and assessments relating to, or arising in respect of, periods on or prior to the Closing Date, and the Buyer shall be liable for that portion of such taxes and assessments relating to, or arising in respect of, any period after the Closing Date. Any sales, use, transfer, intangible, excise, stamp or other taxes attributable to the sale or transfer of the Shares to the Buyer hereunder shall be paid by the Sellers. 10.9 NO PUBLICITY. Except as may be required by law or the rules of the New York Stock Exchange or as necessary in connection with the transactions contemplated hereby, no party hereto shall (a) make any press release or other public announcement relating to this Agreement or the transactions contemplated hereby, without the prior approval of the other parties hereto or (b) otherwise disclose the existence and nature of negotiations regarding the transactions contemplated hereby to any person or entity other than such party's accountants, attorneys, agents and representatives, all of whom shall be subject to this nondisclosure obligation as agents of such party. The parties shall cooperate with each other in the preparation and dissemination of any public announcements of the transactions contemplated by this Agreement. 10.10 NO NEGOTIATIONS OR DISCUSSIONS. Neither the Company nor any of the Sellers shall pursue, initiate, encourage or engage in, any negotiations or discussions with, or provide any information to, any person or entity (other than the Buyer and its representatives and affiliates) regarding the sale or possible sale to any such person or entity of any of the Assets or capital stock of the Company or any merger or consolidation or similar transaction involving the Company. 10.11 MANUFACTURER. The Sellers shall promptly notify the Manufacturer regarding the transactions contemplated by this Agreement. The Buyer shall promptly apply to the Manufacturer for, or cause an affiliate of the Buyer to apply to the Manufacturer for, the issuance of franchises to operate the respective automobile dealerships upon the Real Property. The Sellers shall fully cooperate with the Buyer, and take all reasonable steps to assist the Buyer, in the Buyer's efforts to obtain its own Dealer Sales and Service Agreement with the Manufacturer. 10.12 [INTENTIONALLY LEFT BLANK]. 10.13 HSR ACT COMPLIANCE. Subject to the determination by the Buyer that any of the following actions is not required, the Sellers and the Buyer shall promptly prepare and file Notification and Report Forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT") with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION") and respond as promptly as practicable to all inquiries received from the FTC or the Antitrust Division for additional information or documentation. 10.14 BUYER'S FINANCIAL STATEMENTS. The Sellers shall allow, cooperate with and assist the Buyer's accountants, and shall instruct the Sellers' accountants to cooperate, in the preparation of audited financial statements of the Sellers as necessary for any required filings by the Buyer with the Securities and Exchange Commission or with the Buyer's lenders; provided, however, that the expense of such audit shall be borne by the Buyer. 10.15 TERMINATION. (a) Notwithstanding any other provision herein contained to the contrary, this Agreement may be terminated at any time prior to the Closing Date: (i) By written consent of the Buyer and the Sellers' Agent; (ii) By the Buyer prior to the Closing Date Deadline (as the same may have been extended pursuant to Article I hereof) in the event of any breach by the Sellers of any of their respective material representations, warranties, covenants or agreements contained herein; (iii) By the Seller's Agent prior to the Closing Date Deadline (as the same may have been extended pursuant to Article I hereof) in the event of any breach by the Buyer of any of its material representations, warranties, covenants or agreements contained herein; (iv) At any time after the Closing Date Deadline (as the same may have been extended pursuant to Article I hereof), by written notice by the Buyer or the Sellers' Agent to the other party(ies) hereto if the Closing shall not have been completed on or before the Closing Date Deadline (as the same may have been extended pursuant to Article I hereof); (v) By the Buyer if, after any initial HSR Act filing, the FTC makes a "second request" for information, or the FTC or the Antitrust Division challenges the transactions contemplated hereby; provided that the Buyer delivers a written notice to the Sellers of its termination hereunder within 30 days of the Buyer's receipt of such second request or of notice of such challenge; (vi) By the Buyer not later than thirty (30) days after all due diligence materials described on Schedule 10.15 have been furnished to the Buyer by the Sellers, if the Buyer is not satisfied, in its sole discretion, with the results of the Buyer's due diligence investigation; (vii) Subject to the last paragraph of this Section 10.15(a), by the Buyer, by written notice to the Sellers' Agent, in the event that approval by the Manufacturer of the transactions contemplated by this Agreement is not received prior to the Closing Date Deadline (as the same may have been extended pursuant to Article I hereof); or (viii) Subject to the last paragraph of this Section 10.15(a), by the Buyer, by written notice to the Sellers' Agent, in the event that the Manufacturer shall exercise any right of first refusal, preemptive right or other similar right, with respect to any of the Assets; provided, however, no party may terminate this Agreement pursuant to clauses (ii), (iii) or (iv) above if such party is in breach of any material representation, warranty, covenant or agreement of such party contained in this Agreement. (b) In the event of termination of this Agreement pursuant to Section 10.15(a), this Agreement shall be of no further force or effect; provided, however, that any termination pursuant to Section 10.15(a) shall not relieve (a) the Buyer of any liability under Section 10.15(c) below, (b) the Sellers of any liability under Section 2.5 above or Section 10.15(d) below, or (c) subject to Section 10.15(e) below, any party hereto of any liability for breach of any representation and warranty, covenant or agreement hereunder occurring prior to such termination. In addition, in the event of any such termination, all filings, applications and other submissions made pursuant to this Agreement or prior to the execution of this Agreement in contemplation thereof shall, to the extent practicable, be withdrawn from the agency or other entity to which made. (c) If this Agreement is terminated by the Sellers' Agent pursuant to Section 10.15(a)(iv) above and the failure to complete the Closing on or before the Closing Date Deadline shall have been due to the Buyer's breach of its material representations and warranties or its material covenants or agreements under this Agreement, then the Buyer shall, within ten (10) days after receipt of demand of the Sellers, promptly pay to the Sellers in immediately available funds, as liquidated damages for the loss of the transaction, a termination fee of $1,000,000 (the "BUYER'S TERMINATION FEE"); provided, however, the obligation to pay such Termination Fee shall be reduced to the extent a similar Termination Fee is paid under Section 10.15 of the Amended Asset Purchase Agreement. (d) If this Agreement is terminated by the Buyer pursuant to Section 10.15(a)(iv) above and the failure to complete the Closing on or before the Closing Date Deadline shall have been due to the Sellers' breach of any of their material representations and warranties or any of their material covenants or agreements under this Agreement, then the Sellers, jointly and severally, shall, within ten (10) days after receipt of demand of the Buyer, promptly pay to the Buyer in immediately available funds, as liquidated damages for the loss of the transaction, a termination fee of $1,000,000 (the "SELLERS' TERMINATION FEE"); provided, however, the obligation to pay such Termination Fee shall be reduced to the extent a similar Termination Fee is paid under Section 10.15 of the Amended Asset Purchase Agreement. (e) In the case of termination of this Agreement pursuant to Section 10.15(a)(iv) hereof, the rights of the terminating party to be paid the Sellers' Termination Fee or the Buyer's Termination Fee, as the case may be, shall be the respective parties' sole and exclusive remedies for damages; in the event of such termination by either party, such party shall have no right to equitable relief for any breach or alleged breach of this Agreement, other than for specific performance for the payment of the Sellers' Termination Fee or the Buyer's Termination Fee, as the case may be. Nothing contained in this Agreement shall prevent any party from electing not to exercise any right it may have to terminate this Agreement and, instead, seeking any equitable relief (including specific performance) to which it would otherwise be entitled in the event of breach by any other party hereto. ARTICLE XI MISCELLANEOUS 11.1 ASSIGNMENT. Except as provided in this Section, this Agreement shall not be assignable by any party hereto without the prior written consent of the other parties. The Buyer may assign this Agreement, without the consent of the other parties hereto, to a corporation, partnership or limited liability company controlled by the Buyer, including a corporation, partnership or limited liability company to be formed at any time prior to the Closing Date, and to any person or entity who shall acquire all or substantially all of the assets of the Buyer or of such corporation, partnership or limited liabilities company controlled by the Buyer (including any such acquisition by merger or consolidation); provided said assignment shall be in writing and the assignee shall assume all obligations of the Buyer hereunder, whereupon the assignee shall be substituted in lieu of the Buyer named herein for all purposes, provided, however, that the Buyer originally named herein shall continue to be liable with respect to its obligations hereunder. The Buyer may assign this Agreement, without the consent of the other parties hereto, as collateral security, and the other parties hereto agree to execute and deliver any acknowledgment of such assignment by the Buyer as may be required by any lender to the Buyer. 11.2 GOVERNING LAW. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of North Carolina. 11.3 ACCOUNTING MATTERS. All accounting matters required or contemplated by this Agreement shall be in accordance with generally accepted accounting principles ("GAAP"). 11.4 FEES AND EXPENSES. Except as otherwise specifically provided in this Agreement, each of the parties hereto shall be responsible for the payment of such party's fees, costs and expenses incurred in connection with the negotiation and consummation of the transactions contemplated hereby. 11.5 AMENDMENT; MERGER CLAUSE. This Agreement, including the schedules and other documents referred to herein which form a part hereof, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement may not be amended except by a writing executed by all of the parties hereto. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 11.6 WAIVER. To the extent permitted by applicable law, no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party. Any waiver by a party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision of this Agreement. Neither the failure nor any delay by any party hereto in exercising any right or power under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right or power, and no single or partial exercise of any such right or power will preclude any other or further exercise of such right or power or the exercise of any other right or power. 11.7 NOTICES. All notices, claims, certificates, requests, demands and other communications hereunder shall be given in writing and shall be delivered personally or sent by facsimile or by a nationally recognized overnight courier, postage prepaid, and shall be deemed to have been duly given when so delivered personally or by confirmed facsimile or one (1) business day after the date of deposit with such nationally recognized overnight courier. All such notices, claims, certificates, requests, demands and other communications shall be addressed to the respective parties at the addresses set forth below or to such other address as the person to whom notice is to be given may have furnished to the others in writing in accordance herewith. If to the Buyer, to: Sonic Automotive, Inc. 5401 E. Independence Boulevard Charlotte, North Carolina 28212 Telecopy No.: (704) 563-5116 Attention: Theodore M. Wright, Chief Financial Officer With a copy to: Parker, Poe, Adams & Bernstein L.L.P. 2500 Charlotte Plaza Charlotte, North Carolina 28244 Telecopy No.: (704) 334-4706 Attention: Edward W. Wellman, Jr. If to the Sellers, to: Mr. Thomas P. Williams, Sr. Tom Williams Automotive Group 401 South 20th Street Birmingham, Alabama 35205 With a copy to: Williams & Ledbetter 2140 Eleventh Avenue South, Suite 410 The Park Building Birmingham, Alabama 35205 Attn: C. Crawford Williams, Jr., Esq. 11.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts. Each such counterpart hereof shall be deemed to be an original instrument, and all such counterparts together shall constitute but one agreement. 11.9 SELLERS' KNOWLEDGE. Whenever any representation or warranty of the Sellers contained herein or in any other document executed and delivered in connection herewith is based upon the knowledge of the Sellers, (a) such knowledge shall be deemed to include (i) the best actual knowledge, information and belief of any of the Sellers, and (ii) any information which any Seller would reasonably be expected to be aware of in the prudent discharge of his or her duties in the ordinary course of business (including consultation with legal counsel) on behalf of the Company, and (ii) the knowledge of any Seller shall be deemed to be the knowledge of all of the Sellers. 11.10 ARBITRATION. (a) Any dispute, claim or controversy arising out of or relating to this Agreement or the interpretation or breach hereof shall be resolved by binding arbitration under the commercial arbitration rules of the American Arbitration Association (the "AAA RULES") to the extent such AAA Rules are not inconsistent with this Agreement. Judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof or such court may be asked to judicially confirm the award and order its enforcement, as the case may be. The demand for arbitration shall be made by any party hereto within a reasonable time after the claim, dispute or other matter in question has arisen, and in any event shall not be made after the date when institution of legal proceedings, based on such claim, dispute or other matter in question, would be barred by the applicable statute of limitations. The arbitration panel shall consist of three (3) arbitrators, one of whom shall be appointed by each of the Buyer and the Sellers within thirty (30) days after any request for arbitration hereunder. The two arbitrators thus appointed shall choose the third arbitrator within thirty (30) days after their appointment; provided, however, that if the two arbitrators are unable to agree on the appointment of the third arbitrator within 30 days after their appointment, either arbitrator may petition the American Arbitration Association to make the appointment. The place of arbitration shall be Atlanta, Georgia. The arbitrators shall be instructed to render their decision within sixty (60) days after their selection and to allocate all costs and expenses of such arbitration (including legal and accounting fees and expenses of the respective parties) to the parties in the proportions that reflect their relative success on the merits (including the successful assertion of any defenses). (b) Nothing contained in this Section 11.10 shall prevent any party hereto from seeking any equitable relief to which it would otherwise be entitled from a court of competent jurisdiction. 11.11 SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES. Subject to Section 11.1 hereof, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto. Nothing in this Agreement, expressed or implied, is intended or shall be construed to confer upon or give to any employee of the Sellers, or any other person, firm, corporation or legal entity, other than the parties hereto and their successors and permitted assigns, any rights, remedies or other benefits under or by reason of this Agreement. 11.12 HEADINGS. The article, section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.13 SEVERABILITY. In the event that any provision, or part thereof, of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions, or parts thereof, shall not in any way be affected or impaired thereby. 11.14 CERTAIN TAX RETURNS. The Sellers shall cooperate with and provide assistance to the Buyer and the Surviving Company in connection with the preparation and filing of all federal, state, local and foreign income tax returns which relate to the Surviving Company and to periods prior to Closing but which are not required to be filed until after the Closing. 11.15 REGARDING THE COMPANY'S NAME. Any references to the Company as "Williams Cadillac, Inc." in the other agreements, certificates, documents and instruments executed and delivered in connection with the transactions contemplated by this Agreement and the Amended Asset Purchase Agreement shall be deemed references to the Company under its current name, which is "Williams Cadillac Company, Inc." [SIGNATURES ARE ON NEXT PAGE] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered on the date first above written. THE BUYER: SONIC AUTOMOTIVE, INC. By: /s/ B. Scott Smith ------------------------------------- Name: B. Scott Smith Title: President THE COMPANY: WILLIAMS CADILLAC COMPANY, INC. By: /s/ Thomas P. Williams ------------------------------------- Name: Thomas P. Williams, Sr. Title: President THE SELLERS: /s/ Thomas P. Williams (SEAL) ------------------------------------- Thomas P. Williams, Sr. /s/ Thomas P. Williams (SEAL) ------------------------------------- Thomas P. Williams, Jr. /s/ Charles Clark Williams (SEAL) ------------------------------------- Charles Clark Williams /s/ Catherine D. Ward (SEAL) ------------------------------------- Catherine D. Ward EX-10 6 EXHIBIT 10.36 Exhibit 10.36 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made this 25th day of November, 1998 by and among SONIC AUTOMOTIVE, INC., a Delaware corporation ("BUYER"), GLOBAL IMPORTS, INC., a Georgia corporation (the "SELLER"), and WILLIAM MORRIS WHITMIRE (the "STOCKHOLDER"). WITNESSETH: WHEREAS, Seller is engaged in a BMW automobile and motorcycle dealership business located at 550 and 500 Interstate North Parkway, N.W., Atlanta, Georgia 30339 (the "BUSINESS"); and WHEREAS, Seller desires to sell and Buyer desires to buy, or to cause one or more subsidiaries or affiliates of Buyer to buy, certain assets pertaining to the Business, subject to the terms and conditions of this Agreement; and WHEREAS, contemporaneously with the execution of this Agreement, Buyer has entered into a Contract to Purchase and Sell Property (the "REAL PROPERTY PURCHASE AGREEMENT") with the Stockholder, Susan Whitmire Ott, Donald Scott Whitmire, Dean Keith Whitmire, Dana Whitmire Fortner, and Davis Stanton Whitmire (the foregoing being, collectively, the "OWNER"), whereby Buyer has agreed to buy, and the Owner has agreed to sell, the property at 550 and 500 Interstate North Parkway, N.W., Atlanta, Georgia 30339 (the "REAL PROPERTY"); and WHEREAS, the consummation of the transactions contemplated by this Agreement is subject to the consummation of the transactions contemplated by the Real Property Purchase Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows: 2 ARTICLE I CERTAIN DEFINITIONS 1.1 "ASSETS" shall mean: the New Vehicles (as defined in Section 3.1); the Demonstrators (as defined in Section 3.2); the Used Vehicles (as defined in Section 3.5), if any; the Parts (as defined in Section 4.3); the Miscellaneous Inventories (as defined in Section 5.1); the Work in Progress and Prepaid Expenses (both as defined in Section 5.3); the Fixtures and Equipment (which includes leasehold improvements) (as defined in Section 5.4); the Miscellaneous Assets (as defined in Section 5.5); and the goodwill of the Business. 1.2 "CLOSING DATE" shall mean the date, not sooner than January 1, 1999 and not later than the Closing Date Deadline (as hereinafter defined), of the closing of the purchase and sale of the Assets (the "CLOSING") which shall be a date designated by Buyer not later than fifteen (15) days after receipt by Buyer of the approvals, and the satisfaction of the other conditions, set forth in Sections 8.8 and 8.13 or such other date as is mutually agreed upon by the parties hereto. The Closing shall be held at the offices of Smith, Gambrell & Russell, LLP, Suite 3100, Promenade II, 1230 Peachtree Street, N.E., Atlanta, Georgia 30309-3592 at 9:00 a.m. on the Closing Date. 1.3 "CLOSING DATE DEADLINE" shall mean January 4, 1999; provided, however, if, as of such date, any of the conditions set forth in Sections 8.8 or 8.13 shall not have been satisfied or audited financial statements contemplated by Section 8.19 shall not have been completed, Buyer may elect to extend the Closing Date Deadline for up to an additional thirty (30) days. 1.4 "INVENTORY DATE" shall mean the close of business on the date of completion of the Inventory (as defined in Section 4.1), which date shall not be more than three (3) days prior to the Closing Date, or such later date prior to the Closing as is mutually agreed by Seller and Buyer. 1.5 "LIABILITIES" shall mean: (i) all obligations of Seller, arising in the ordinary course of business after the Closing Date, and not as a result of any breach or default prior to the Closing Date, under (A) all contracts and leases of Seller that are set forth on Annex A of Schedule 2.4 attached hereto, and (B) all other contracts and leases of Seller that are entered into in connection with the Business in the ordinary course of business at any time after the date hereof and on or prior to the Closing Date, but only if Buyer has agreed to assume such other contracts or leases pursuant to the Assumption Agreement (as defined in Section 2.4 below); (ii) Seller's obligations under all unfilled retail orders assigned to Buyer pursuant to Section 3.1 below; (iii) Seller's obligations with respect to open purchase orders as of the Closing Date for new vehicles, parts, accessories, miscellaneous assets, inventories and similar items ordered in the ordinary course of business which are not included in New Vehicles or Parts and which are delivered after the Closing Date; and (iv) the Inducement Fee as provided in Section 2.5 hereof. 1.6 "MANUFACTURER" shall mean BMW of North America, Inc. 3 ARTICLE II SALE AND PURCHASE OF THE ASSETS 2.1 SALE AND PURCHASE; PURCHASE PRICE. (a) Upon the terms and subject to the conditions hereinafter set forth, at the Closing, Seller will sell, transfer and convey the Assets to Buyer and Buyer will purchase the Assets from Seller for the consideration set forth in this Agreement. The sale, transfer and conveyance of the Assets will be made by execution and delivery at the Closing of a bill of sale in a form reasonably satisfactory to Buyer's counsel (the "BILL OF SALE") and such other instruments of assignment, transfer and conveyance as Buyer shall reasonably request. The Assets will be sold to Buyer free and clear of all Encumbrances (as defined in Section 7.4 below), except for ad valorem personal property taxes not yet due and payable, liens securing the claims or demands of materialmen, mechanics, carriers, warehousemen, landlords and other like persons for labor, materials, supplies or rentals incurred in the ordinary course of business where payment thereof is not yet required, and liens and security interests which secure only the Liabilities (the foregoing exceptions being, collectively, the "Permitted Encumbrances"). To the extent that the Assets include Seller's rights to the name "Global Imports," such rights will also be transferred subject to the rights, if any, of third parties to use such name outside of the Atlanta Standard Metropolitan Statistical Area (as determined by the United States Office of Management and Budget) or to use such name within such Standard Metropolitan Statistical Area in any business other than an automobile dealership business. Except to the extent specifically included within the Assets, Seller will not sell, and Buyer will not purchase, any other tangible or intangible assets of Seller. (b) The aggregate purchase price to be paid for the Assets (the "PURCHASE PRICE" shall consist of the Initial Purchase Price (as defined in Section 2.2 below) and the Contingent Purchase Price (as defined in Section 2.3 below). 2.2 INITIAL PURCHASE PRICE. (a) The aggregate purchase price (the "PURCHASE PRICE") to be paid for the Assets shall consist of Twelve Million Three Hundred Thousand Dollars ($12,300,000), as the purchase price for the Business and intangible assets included in the Assets (the "BUSINESS AND INTANGIBLE ASSETS PURCHASE PRICE"), plus the sum of: (a) the New Vehicle Purchase Price (as defined in Section 3.1); (b) the Demonstrator Purchase Price (as defined in Section 3.2); (c) the Used Vehicle Purchase Price (as defined in Section 3.5), if applicable; (d) the Parts Purchase Price (as defined in Section 4.3); (e) the Miscellaneous Inventories Purchase Price (as defined in Section 5.1); (f) the Work in Progress and Prepaid Expenses Purchase Price (as defined in Section 5.3); and (g) the Fixtures and Equipment Purchase Price (as defined in Section 5.4). The parties acknowledge that the New Vehicle Purchase Price, the Parts Purchase Price, and the Miscellaneous Inventories Purchase Price will be based upon information contained in Schedule 3.1 and the Inventory (as defined in Section 4.1), both of which are to be delivered prior to the Closing Date. The parties also acknowledge that adjustments to those categories of Assets will have to be made to reflect ordinary course increases 4 or decreases in those assets between the time of delivery of such Schedule 3.1 and the Inventory and the Closing Date, and that the related components of the Purchase Price will have to be adjusted to reflect any such adjustments to those Assets. All of the foregoing adjustments (with appropriate payments by the parties) will be made as promptly as possible after the Closing. Each party will use the Purchase Price allocation described in Schedule 2.2 hereto in all reporting to, and tax returns filed with, the Internal Revenue Service and other state and local taxing authorities. (b) At the Closing, Buyer shall deliver to Seller by a certified check or by wire transfer to an account or accounts designated by Seller one day prior to Closing, in an amount equal to Four Million One Hundred Fifty Thousand Dollars ($4,150,000) plus the sum of: (i) the New Vehicle Purchase Price; (ii) the Demonstrator Purchase Price; (iii) the Used Vehicle Purchase Price; (iv) the Parts Purchase Price; (v) the Miscellaneous Inventories Purchase Price; (vi) the Work in Progress and Prepaid Expenses Purchase Price; and (vii) the Fixtures and Equipment Purchase Price. (c) At the option of Seller, exercisable by written notice to Buyer no later than fifteen (15) days after the Closing (the "STOCK COMPONENT NOTICE"), Seller shall elect to receive payment of the balance of the Initial Purchase Price (such balance being called the "STOCK COMPONENT") by one of two methods, as follows: (i) Seller may elect to receive the Stock Component by the issuance and delivery by Buyer to Seller of 452,778 shares (the "REGISTERED COMMON SHARES") of Buyer's Class A Common Stock, $.01 par value per share (the "COMMON STOCK"), which Registered Common Shares shall have been registered pursuant to a "shelf" registration under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and shall be subject to the filing and effectiveness of any required post-effective amendment to such "shelf" registration with respect to Seller which amendment Buyer agrees to file within five (5) business days after the Common Stock is delivered to Seller and to diligently endeavor to cause such post-effective amendment to be declared effective; or (ii) Seller may elect to receive the Stock Component by the issuance and delivery by Buyer to Seller of that number of whole shares of Buyer's Class A Convertible Preferred Stock, Series III (the "PREFERRED STOCK"), obtained by (A) multiplying 452,778 by the Market Price (as defined in the Statement of Rights and Preferences of the Preferred Stock attached hereto as Exhibit A (the "STATEMENT OF RIGHTS AND PREFERENCES")) as of the Closing Date, and (B) dividing the product obtained from such multiplication by $1,000. No fractional shares of Preferred Stock shall be issued; any such fraction of a share of Preferred Stock shall be paid in cash at the rate of $1,000 per whole share of Preferred Stock. The Preferred Stock shall have such rights and preferences as are set forth in the Certificate of Designation, Preferences and Rights of Class A Convertible Preferred Stock referred to in the Statement of Rights and Preferences. (iii) If Seller shall elect to receive the Stock Component in shares of Preferred Stock, Buyer's sole obligation with respect to the Preferred Stock and the shares of Common Stock issuable upon conversion of the Preferred Stock (the "COMMON SHARES") shall be (A) to use its best reasonable efforts to make available current public information with respect to 5 Buyer within the meaning of Subsection (c)(1) of Rule 144 ("RULE 144") promulgated by the Securities and Exchange Commission (the "SEC") to the extent necessary to facilitate public resales by the Seller of the Common Shares, pursuant to Rule 144, (B) to remove stop transfer instructions and restrictive legends, as provided in subsection (vi) below, and (C) to use its best reasonable efforts to provide "piggyback" registration rights with respect to the Common Shares in the event that Buyer shall undertake a registered public offering of the Common Stock utilizing a registration statement on SEC Forms S-1 or S-3 (or any successor form thereto). In such case, the provisions of subsection (iv) immediately below shall be applicable. Furthermore, such piggyback registration rights shall be subject to customary provisions, including those regarding expenses (which shall be paid by Buyer except for the fees of separate counsel, if any, engaged by Seller, underwriter discounts and allowances for the sale of such shares, and blue sky fees to the extent applicable state laws require payment by Seller), underwriter cut-backs and pro-rations with other holders of registration rights, and shall terminate at such time as the holder of such piggyback registration rights shall be free to sell all of such holder's Common Shares under Rule 144. (iv) If requested by the managing or lead managing underwriter for any registration of shares of Common Stock which includes the Common Shares on a piggyback basis and which is an underwritten registered public offering, Seller and the Stockholder shall execute and deliver an underwriting agreement with the managing or lead managing underwriter in such form as is customarily used by such underwriter with any modifications as the parties thereto shall agree. In connection with any such registration, Seller and the Stockholder shall supply to Buyer such information as may be reasonably requested by Buyer in connection with the preparation and filing of a registration statement with the SEC. Seller and the Stockholder shall not supply any information to Buyer for inclusion in such registration statement that will, taken as a whole, at the time the registration statement becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. (v) The Stock Component shall be paid to Seller by the issuance and delivery to Seller, not later than fifteen (15) days after the receipt by Buyer of the Stock Component Notice, of the Registered Common Shares or the Preferred Stock, as the case may be. (vi) Buyer shall remove any and all stop transfer instructions and shall remove any restrictive legend on the certificates with respect to the Preferred Stock and any Common Shares then owned by Seller to the extent that either (A) such Preferred Stock or Common Shares may hereafter be registered under the Securities Act of 1933, as amended, and under any applicable state securities or blue sky laws, or (B) Buyer has received an opinion of counsel, in form and substance reasonably satisfactory to the Buyer, that such registration is not required. Upon receipt of reasonable evidence that the requirements of Rule 144(k) have been complied with (including an opinion of counsel reasonably satisfactory to Buyer to such effect), Buyer shall remove any and all stop transfer instructions and shall remove any restrictive legend on such certificates. 2.3 CONTINGENT PURCHASE PRICE. 6 (a) As used in this Agreement, (i) the term "CONTINGENT PURCHASE PRICE" shall mean an amount, not to exceed an aggregate total of $1,000,000, equal to five (5) times the Earnings Before Taxes of Buyer, or any successor to or assignee of Buyer, between $2,800,000 and $3,000,000 during the Overall Calculation Period, as more fully provided in paragraph (b) below, (ii) the term "SUBJECT BUSINESS" shall mean the business of the Seller acquired pursuant to this Agreement, (iii) the term "CALCULATION PERIOD" shall mean each of the three consecutive twelve calendar month periods which collectively comprise the Overall Calculation Period; (iv) the "OVERALL CALCULATION PERIOD" shall mean the thirty-six consecutive calendar month period beginning with the first full calendar month after the Closing Date, (v) the term "EARNINGS BEFORE TAXES" shall mean the combined earnings before taxes of Buyer or any successor to or assignee of Buyer from the Subject Business, as more fully provided in paragraph (d) below; and (vi) the term "QUALIFIED EARNINGS BEFORE TAXES" shall mean, for any Calculation Period, Earnings Before Taxes for such Calculation Period of $2,800,000 up to and including $3,000,000. (b) Not later than 120 days after each of the first through the third anniversaries of the Closing Date, Buyer shall pay to Seller an installment of the Contingent Purchase Price, calculated as follows: (i) The installment of Contingent Purchase Price for the first Calculation Period shall be calculated based upon the excess, if any, of Qualified Earnings Before Taxes, for such Calculation Period over $2,800,000, but less than $3,000,000 (any such excess being called the "FIRST PERIOD EXCESS"); (ii) The installment of Contingent Purchase Price for the second Calculation Period shall be calculated based upon the excess, if any, of Qualified Earnings Before Taxes for such Calculation Period over the sum of (A) $2,800,00 plus (B) the First Period Excess, but less than $3,000,000 (any such excess being called the "SECOND PERIOD EXCESS"); and (iii) The installment of Contingent Purchase Price for the third Calculation Period shall be calculated based upon the excess, if any, of Qualified Earnings Before Taxes for such Calculation Period over the sum of (A) $2,800,000 plus (B) the First Period Excess, plus (C) the Second Period Excess, but less than $3,000,000 (any such excess being called the "THIRD PERIOD EXCESS"); provided, however, the Contingent Purchase Price payable in respect of all three Calculation Periods shall not exceed an aggregate total of $1,000,000. (c) In the event that the Earnings Before Taxes for any Calculation Period exceed $3,000,000, Buyer shall make a one-time payment to Seller of $1,000,000, less the amount of any installments of Contingent Purchase Price which have already been paid to Seller, and Buyer shall have no further obligations to make any current or future payments of Contingent Purchase Price to Seller. An amount equal to 100% of each installment of the Contingent Purchase Price (if any) shall 7 be paid to Seller in cash by wire transfer of immediately available funds to the account of Seller, which shall be designated by Seller in writing at least one (1) Business Day prior to the date of payment. (d) For purposes of calculating Earnings Before Taxes, the following rules shall apply: (i) no deduction shall be taken for federal and state income taxes owed by the Subject Business; (ii) no deduction shall be taken for any interest expense of the Subject Business other than floor plan financing interest attributable to the Subject Business; (iii) Earnings Before Taxes shall be determined before (A) any expense chargeable with respect to the Non-Competition Agreement (as defined in Section 2.7 below) or (B) any management fee expense allocation from Buyer in respect of management fees payable to Buyer or any affiliate of Buyer; (iv) no deduction shall be taken for any amortization of goodwill included in the Initial Purchase Price; (v) overhead expenses or other expenses which have been incurred by the Subject Business which are allocated to the Subject Business but which do not directly relate to the operation of the Subject Business, shall not be deducted in determining Earnings Before Taxes; (vi) Earnings Before Taxes shall be determined without reference to any income or expense attributable to business operations of the Business other than the Subject Business; and (vii) no deduction shall be taken for rent payable in respect of any leases of real property at the Subject Business in excess of an aggregate total of $105,000 a month. At the time of, and with the payment of, the Contingent Purchase Price, Buyer shall deliver to Seller a statement in writing setting forth in reasonable detail the manner in which the Contingent Purchase Price was determined. Seller shall have a period of thirty (30) days from the date of delivery of Buyer's statement of the Contingent Purchase Price to object in writing to the calculation of the Contingent Purchase Price set forth therein; failing such objection within such period by Seller Seller shall be deemed to have accepted Buyer's calculation of the Contingent Purchase Price. If Seller shall have timely objected to Buyer's calculation of the Contingent Purchase Price, the parties shall negotiate in good faith in an effort to resolve any dispute regarding the Contingent Purchase Price. If the parties are unable to resolve such dispute within a period of thirty (30) days after Buyer's receipt of Seller's objection, the matter shall be submitted to a "big five" accounting firm mutually acceptable to the parties, which shall be instructed to resolve such dispute as promptly as possible. The costs and expenses of such accounting firm shall be shared equally between Buyer 8 and Seller. Upon the final determination of the Contingent Purchase Price, Buyer or Seller, as the case may be, shall make appropriate payment to the other, as the case may be, in the amount of the Contingent Purchase Price as finally determined. The party making the payment shall also pay interest on the amount of such payment at an amount of such payment at an annual rate of interest equal to Buyer's floor plan financing rate from time to time in effect from the original date of payment of the Contingent Purchase Price by Buyer to the date of such payment. 2.4 ASSUMPTION OF LIABILITIES. At the Closing, Seller will assign to Buyer and Buyer will assume and agree to perform and discharge the Liabilities pursuant to an assignment and assumption agreement in a form reasonably acceptable to Seller's counsel (the "ASSUMPTION AGREEMENT"). Notwithstanding anything herein to the contrary, except as expressly provided in this Section 2.4 and in Section 2.5 and in the Assumption Agreement, Buyer does not and will not assume or become liable for any obligations or liabilities of Seller, of any kind whatsoever, fixed or contingent, known or unknown (collectively, the "RETAINED LIABILITIES"). Seller shall retain and agrees to satisfy and discharge all of the Retained Liabilities, including, without limitation, any Retained Liabilities which are secured by Permitted Encumbrances and the Retained Liabilities set forth on Part II of Schedule 2.4. 2.5 INDUCEMENT FEE. As an inducement to Buyer to negotiate and enter into this Agreement and to undertake the further cost and expense of conducting its due diligence investigation and preparing to satisfy its obligations at the Closing, Seller hereby agrees to pay to Buyer not later than April 30, 1999 the sum of $500,000 (the "INDUCEMENT FEE"). The Inducement Fee will be included in the Liabilities and will become an obligation of Buyer or any other person (including any holder of a right of first refusal, preemptive right or other similar right), with respect to any of the Assets who purchases the Assets, or any portion thereof, as a result of the execution and delivery by Seller of this Agreement. The Inducement Fee will be canceled if this Agreement is terminated for any reason other than the exercise of a right of first refusal, preemptive right or other similar right, by an applicable automobile manufacturer or distributor or any person claiming by, through or under it. 2.6 EMPLOYMENT AGREEMENT. At the Closing, Buyer and Donald Scott Whitmire shall enter an employment agreement in substantially the form of Exhibit B attached hereto (the "EMPLOYMENT AGREEMENT"). 2.7 NON-COMPETITION AGREEMENT. At the Closing, William Morris Whitmire shall enter into a non-competition agreement with Buyer in substantially the form of Exhibit C attached hereto (the "NON-COMPETITION AGREEMENT"). $10,000 of the Business and Intangible Assets Purchase Price shall be allocated to the non-compete covenant set forth in the Non-Competition Agreement. 9 ARTICLE III NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES 3.1 NEW VEHICLES. At the Closing, Buyer shall purchase all of Seller's untitled new 1999 and 1998 BMW automobiles and motorcycles in Seller's stock and unsold by Seller as of the Closing Date and which are listed on Schedule 3.1 hereto, which Seller shall deliver to Buyer not more than three (3) days prior to the Closing (all such BMW automobiles and motorcycles are collectively referred to hereinafter as the "NEW VEHICLES"). The purchase price to be paid by Buyer for each New Vehicle shall be the price at which the New Vehicle was invoiced to Seller by the Manufacturer, as adjusted pursuant to this Article III (the sum of all such amounts to be paid for New Vehicles as determined by this Article III is herein referred to as the "NEW VEHICLE PURCHASE PRICE"). Schedule 3.1 shall set forth the model, invoice cost, and all other information necessary to calculate the New Vehicle Purchase Price with respect to each New Vehicle listed in such Schedule 3.1. At the Closing, Seller shall assign to Buyer, without any additional consideration therefor, by appropriate documents reasonably satisfactory to Buyer, all unfilled retail orders and deposits made thereon. Any profits or proceeds derived from such unfilled retail orders shall belong to Buyer. Notwithstanding the foregoing, however, Buyer agrees to refund deposits for all retail buyer orders that are terminated for any reason consistent with reasonable business practice of Seller as of the Closing. 3.2 DEMONSTRATORS. At the Closing, Buyer shall purchase all of Seller's untitled 1999 and 1998 BMW automobiles and motorcycles in Seller's stock and unsold by Seller as of the Closing Date which are used in the ordinary course of business for the purpose of demonstration and that are listed on Schedule 3.2, which Seller shall deliver to Buyer no more than three (3) days prior to the Closing (all such BMW automobiles and motorcycles are collectively referred to herein as the "DEMONSTRATORS"). For purposes of this Agreement, any motor vehicle with more than 6,000 miles on its odometer shall be deemed to be "used" rather than a "Demonstrator." The purchase price to be paid by Buyer for each Demonstrator shall be the price at which the Demonstrator was invoiced to Seller by the Manufacturer, as adjusted pursuant to this Article III, and as reduced by an amount equal to ten cents ($.10) multiplied by the total mileage on such odometer in excess of 1,000 miles (the sum of all such amounts to be paid for Demonstrators hereunder is herein referred to as the "DEMONSTRATOR PURCHASE PRICE"). Schedule 3.2 shall set forth each Demonstrator's model, invoice cost, odometer reading and all other information necessary to calculate the Demonstrator Purchase Price with respect to such Demonstrator. 3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR PURCHASE PRICE. The purchase price paid for each New Vehicle and each Demonstrator purchased under this Article III shall be: (a) increased by the dealer cost (parts and labor) of any equipment and accessories which have been installed by Seller; and (b) decreased by (i) the dealer cost (parts and labor) of any equipment and accessories which have been removed from such vehicles, and (ii) all paid or unpaid rebates, discounts, holdback for dealer account and other factory incentives (including without limitation rebates applied for and paid but not earned, incentive monies claimed on pre-reported units and carryover allowances on 1998 models), and (iii) all refundable advertising allowances, if any. Seller 10 shall be entitled to retain all such rebates, discounts, holdback, factory inventories, carryovers refundable advertising allowances, and incentive monies claimed on pre-reported units and carryovers. 3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS. In the event any New Vehicle or Demonstrator shall have been damaged prior to the Closing Date, Seller and Buyer will attempt to agree on the cost to cover such repairs or some other equitable reduction in value to reflect such condition, which amount shall be deducted from the price to be paid for such New Vehicle or Demonstrator. In the event Buyer and Seller cannot agree on the cost of repairs or the amount of reduction, Buyer shall have no obligation to purchase, and Seller shall have no obligation to sell, any such damaged New Vehicle or Demonstrator. With respect to any New Vehicle or Demonstrator which shall have been damaged and repaired prior to the Closing Date, Seller and Buyer will attempt to agree on an adjustment to the price to reflect the decrease, if any, in the wholesale value of such New Vehicle or Demonstrator resulting from such damage and repair, which amount shall be deducted from the price to be paid for such New Vehicle or Demonstrator. In the event Buyer and Seller cannot agree on such adjustment, Buyer shall have no obligation to purchase, and Seller shall have no obligation to sell, such New Vehicle or Demonstrator. Seller shall notify Buyer on or prior to the Closing Date if any New Vehicles or Demonstrators shall have suffered any damage which is not reflected on Schedules 3.1 and 3.2. 3.5 USED VEHICLES. Buyer shall have no obligation to purchase any vehicle from Seller other than its obligation hereunder to purchase the New Vehicles and the Demonstrators. Seller and Buyer shall perform an inventory of Seller's motor vehicles (including motorcycles) that are not New Vehicles or Demonstrators as of the Inventory Date and, in connection with such inventory, Seller and Buyer shall attempt to assign a mutually agreed price to each such vehicle owned by Seller as of the Closing Date. Any such vehicles as to which Seller or Buyer are unable to agree upon a price as of the Closing Date shall not be purchased by Buyer in connection herewith. Any such vehicles as to which Seller and Buyer shall agree upon a price are collectively referred to herein as the "USED VEHICLES" and shall be purchased by Buyer at the Closing. The sum of all prices assigned to such Used Vehicles to be purchased by Buyer pursuant to the terms of this Section 3.5 shall be referred to herein as the "USED VEHICLE PURCHASE PRICE." ARTICLE IV PARTS/ACCESSORIES 4.1 THE INVENTORY. Buyer and Seller shall engage a mutually acceptable third party engaged in the business of appraising, valuing and preparing inventories for automobile dealerships (hereinafter referred to as the "INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the Parts (as defined in Section 4.3 below), as well as the Miscellaneous Inventories (as defined in Section 5.1 below), owned by, and either used or held for use by, Seller in the Business. The Inventory (insofar as it relates to Parts) shall be posted to the Manufacturer's approved system of inventory control. The cost of the Inventory shall be borne one-half by Buyer and one-half by 11 Seller. Buyer shall have the right to deduct Seller's portion of such expense from the consideration to be paid to Seller under the terms of this Agreement and in such event shall promptly remit such sum directly to the Inventory Service. The Inventory shall be completed by the Inventory Date. The Inventory shall identify each Part and each item of Miscellaneous Inventory and its purchase price. 4.2 RETURNABLE AND NONRETURNABLE PARTS AND ACCESSORIES. The Inventory shall classify parts and accessories as "returnable" or "nonreturnable." For purposes of this Agreement, the terms "returnable parts" and "returnable accessories" shall describe and include only those new parts and new accessories for vehicles which are listed (coded) in the latest current Master Parts Price List Suggested List Prices and Dealer Prices, or other applicable similar price lists, of the Manufacturer, with supplements or the equivalent in effect as of the Inventory Date (the "MASTER PRICE LIST"), as returnable to the Manufacturer at not less than the purchase price reflected in the Master Price List. The purchase price for each "returnable part" and "returnable accessory" will be the price listed in the Master Price List. All parts and accessories listed (coded) in the Master Price List as non-returnable to the Manufacturer shall be classified as "nonreturnable." The purchase price for each "nonreturnable" part and accessory, of which type Seller has made no sales during the ninety (90) day period prior to the Inventory Date, shall be sixty percent (60%) of the price listed therefor in the Master Price List. The purchase price for each "nonreturnable" part and accessory, of which type Seller has made retail sales to one or more customers during the ninety (90) day period prior to the Inventory Date, shall be one hundred percent (100%) of the price therefor listed in the Master Price List. The purchase price for all "Jobber" and/or "NPN" parts shall be equal to Seller's original cost of such parts. The purchase price for all nuts, bolts and any other parts not addressed in this Section 4.2 shall equal the fair market value thereof as determined by the Inventory Service. 4.3 PARTS; PARTS PURCHASE PRICE. (a) At the Closing, Buyer shall purchase all parts and accessories owned by Seller at the Closing Date and listed on the Inventory (the "PARTS") provided, however, that Buyer shall not be obligated to purchase any damaged parts or accessories, parts and accessories with component parts missing, superseded or obsolete parts or accessories, or used parts or accessories. Seller agrees that if parts and accessories that Buyer is not obligated to purchase hereunder are not removed from the Real Property within sixty (60) days after the Closing Date, they shall become the property of Buyer without the payment of any consideration in addition to the consideration otherwise provided herein. Buyer agrees to provide access to Seller for the purpose of removing such property during such sixty (60) day period. (b) The purchase price for the Parts will equal the value of such items shown on the Inventory (the "PARTS PURCHASE PRICE"). 4.4 PARTS RETURN PRIVILEGE. Seller shall assign to Buyer at Closing any net parts return privileges under the Manufacturer's Parts Return Plans that may have accrued to Seller prior to the Closing in respect of the Parts (and any other special parts return authorizations in respect of the Parts which may have been granted to Seller by the Manufacturer). 12 ARTICLE V MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES AND EQUIPMENT; LEASEHOLD IMPROVEMENTS. 5.1 MISCELLANEOUS INVENTORIES. At the Closing, Buyer shall purchase all useable gas, oil and grease, all undercoat material and body materials in unopened cans, drums or other unopened containers and such other miscellaneous useable and saleable articles in unbroken lots which (i) are on the dealership premises, (ii) are owned by Seller on the Closing Date, (iii) were purchased during the thirty (30) day period prior to the Closing Date, and (iv) are identified in the Inventory taken by the Inventory Service on the Inventory Date (collectively referred to herein as the "MISCELLANEOUS INVENTORIES"). The purchase price for the Miscellaneous Inventories shall be equal to the replacement cost of the Miscellaneous Inventories as determined by the Inventory Service and set forth on the Inventory (the sum of all prices of the Miscellaneous Inventories pursuant to the terms of this Section 5.1 shall be referred to herein as the "MISCELLANEOUS INVENTORIES PURCHASE PRICE"). 5.2 MISCELLANEOUS ITEMS NOT INCLUDED IN THE INVENTORY. Buyer shall have no obligation to purchase any such miscellaneous items that are not included in the Miscellaneous Inventories. Seller agrees that any miscellaneous items that are not included in the Miscellaneous Inventories and are not removed from the Real Property within sixty (60) days after the Closing Date shall become the property of Buyer without the payment of any consideration in addition to the consideration otherwise provided herein. Buyer agrees to provide access to Seller for the purpose of removing such property during such sixty (60) day period. 5.3 WORK IN PROGRESS AND PREPAID EXPENSES. (a) At the Closing, Buyer shall buy at Seller's actual cost for parts and labor such shop labor and sublet repairs as Seller shall have caused to be performed on any repair orders which are in process at the close of business on the Closing Date for which there are adequate credit arrangements (the "WORK IN PROGRESS") (the sum of all costs of Seller for the Work in Progress pursuant to the terms of this Section 5.3(a) and the book value of all Prepaid Expenses (as defined in Subsection 5.3(b) below) shall be referred to herein as the "WORK IN PROGRESS AND PREPAID EXPENSES PURCHASE PRICE"). Buyer shall complete such repair work and shall be entitled to the entire proceeds to be collected for such services. (b) At the Closing, Buyer shall purchase from Seller, at Seller's book value therefor, all bona fide prepaid expenses of Seller with respect to obligations to non-affiliated parties in the ordinary course of business, as set forth in Schedule 5.3 hereto to be delivered to Buyer not later than five (5) days prior to the Closing (the "PREPAID EXPENSES"). 5.4 FIXTURES AND EQUIPMENT; LEASEHOLD IMPROVEMENTS. At the Closing, Buyer shall purchase all leasehold improvements, fixtures, machinery, equipment (including special tools and 13 shop equipment), furniture and all signs and office equipment owned by Seller and used or held for use in connection with the Business (but excluding the Stockholder's office furniture) listed on Schedule 5.4 hereto, which Seller shall deliver to Buyer not later than five (5) days prior to the Closing (collectively referred to herein as the "FIXTURES AND EQUIPMENT"). The purchase price for the Fixtures and Equipment shall be Seller's depreciated book value thereof, as reflected in said Schedule 5.4 attached hereto (the "FIXTURES AND EQUIPMENT PURCHASE PRICE"). 5.5 MISCELLANEOUS ASSETS. At the Closing, and without payment of any additional consideration (other than the assumption of liabilities, if any, associated therewith), Buyer shall purchase all of Seller's (i) unused shop repair orders, parts sales tickets, accounting forms, binders, office and shop supplies and such shop reference manuals, parts reference catalogs, non-accounting file copies for all sales of Seller for the three (3) years preceding the Closing Date, (ii) copies of new and used car sales records and specifically wholesale parts sales records, new and used parts sales records, and service sales records for the three (3) years preceding the Closing Date, (iii) product sales training material and reference books on hand as of the Closing Date, (iv) customer and registration lists pertaining to the sale of motor vehicles, service files, repair orders, owner follow-up lists and similar records relating to the operation of the Business, (v) telephone numbers and listings used by Seller in connection with the Business, (vi) names and addresses of Seller's service customers and prospective purchasers, (vii) all lawfully transferrable licenses and permits of the Business, (viii) Seller's rights to the tradename "Global Imports," and any similar variation, and (ix) rights under contracts, leases, and agreements included in the Liabilities (the foregoing being collectively referred to herein as the "MISCELLANEOUS ASSETS"). 5.6 CERTAIN RECORDS OF THE SELLER. Seller shall retain all corporate records, financial records and correspondence which are not necessary for the continued operation of the Business by Buyer. 5.7 WARRANTY OBLIGATIONS OF THE SELLER. To the extent that Seller may have issued warranties on the vehicles sold by Seller on or prior to the Closing Date, Buyer shall have no responsibility to perform any services required under such warranties, unless authorized in writing by Seller accompanied by arrangements in writing satisfactory to Buyer to assure Buyer of payment for all work performed by Buyer, and, if such warranty services are so authorized by Seller, Seller shall reimburse Buyer for all of Buyer's costs for parts and labor in connection therewith at dealer cost for parts and labor. At the Closing Date, Seller shall supply Buyer with a list to which such warranties and guaranties, if any, are applicable, which list shall include the names of the purchasers, the make and year model of the vehicles purchased and the date of purchase. Seller shall also supply to Buyer at or prior to the Closing Date an address for and a designation of the person who will be responsible for authorizing Buyer to perform any services under such warranties, if any, issued by Seller on vehicles sold by it on or prior to the Closing Date. Seller shall reimburse Buyer promptly upon demand for all sums due or payable by Seller to Buyer hereunder. 5.8 ACCOUNTS RECEIVABLE. Seller shall retain all accounts receivable arising out of the operation of the Business by Seller prior to the Closing Date and Buyer shall retain all accounts receivable arising out of sales and/or services of the Business after the Closing Date. After the 14 Closing Date, Buyer shall cooperate with Seller and shall use reasonable efforts to assist Seller in Seller's efforts to collect Seller's accounts receivable for a period of six (6) months after the Closing. Buyer shall accept payment of Seller's accounts receivable, at no charge to Seller for a period of six (6) months after the Closing, and shall forward to Seller, promptly upon receipt, all the money so received on said accounts. Notwithstanding anything to the contrary, Buyer shall have no responsibility to actually collect any of Seller's accounts receivable. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller and the Stockholder as follows: 6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business makes such qualification necessary and has full corporate power and authority to own or use the properties it purports to own and use and to carry on its business as now being conducted. The Board of Directors of Buyer has duly approved this Agreement, all other agreements, certificates and documents executed or to be executed by Buyer in connection herewith, and the transactions contemplated hereby and thereby. Buyer has full corporate power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by Buyer in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. This Agreement, and all other agreements, certificates and documents executed or to be executed by Buyer in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of Buyer enforceable against Buyer in accordance with their respective terms, except as may be otherwise limited by bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect affecting creditors' rights generally and equitable relief may be subject to equitable defenses and the discretion of any court before which any proceeding may be brought. 6.2 NON-VIOLATION; CONSENTS. Except as set forth on Schedule 6.2 attached hereto, the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof do not and will not: (a) conflict with or violate any of the provisions of Buyer's restated certificate of incorporation or by-laws, each as amended, or any resolution of the Board of Directors or the stockholders of Buyer, (b) violate any law, ordinance, rule or regulation or any judgment, order, writ, injunction or decree or similar command of any court, administrative or governmental agency or other body applicable to Buyer, (c) violate or conflict with or result in a breach of, or constitute a default under, any material instrument, agreement or indenture or any mortgage, deed of trust or similar contract to which Buyer is a party or by which Buyer is bound or affected, or (d) (other than clearance under the HSR Act, as defined in Section 10.18 below) require the consent, authorization or approval of, or notice to, or filing or registration with, any governmental body or authority, or any other third party. 15 6.3 LITIGATION. There are no actions, suits or proceedings pending, or, to the knowledge of Buyer, threatened against or affecting Buyer which might adversely affect the power or authority of Buyer to carry out the transactions to be performed by it hereunder. 6.4 BROKER'S AND FINDER'S FEES. Buyer has not incurred any liability to any broker, finder or agent or any other person or entity for any fees or commissions with respect to the transactions contemplated by this Agreement, other than for fees or expenses regarding Presidio Strategies (as more specifically provided in a letter agreement between Presidio Strategies and Buyer) and Buyer hereby agrees to assume all liability to Presidio Strategies, as provided in such letter. 6.5 FINANCING. As of the date hereof and as of the Closing Date, Buyer has and will have sufficient funds, or sources of financing available to it, to enable it to perform its obligations at the Closing. 6.6 STOCK COMPONENT. All shares of the Common Stock or the Preferred Stock to be furnished by Buyer to Seller as consideration under this Agreement, as well as any of the Common Shares issuable upon conversion of any of the Preferred Stock have been duly authorized and when issued in accordance with the terms of this Agreement will be fully paid and nonassessable and will be transferred and issued to Seller free and clear of all Encumbrances other than any restriction on the resale of the Common Stock, the Preferred Stock or the Common Shares imposed by applicable federal and state securities laws and regulations. 6.7 CAPITALIZATION. The authorized capital stock of Buyer consists of: (a) 3,000,000 shares of Preferred Stock, par value $0.10 per share, of which 300,000 shares are designated Class A Convertible Preferred Stock and are, in turn, divided into 100,000 shares of Series I (the "SERIES I PREFERRED STOCK"), 100,000 shares of Series II (the "SERIES II PREFERRED STOCK") and 100,000 shares of Series III (the "SERIES III PREFERRED STOCK"); as of October 15, 1998, approximately 19,500 shares of Series I Preferred Stock are issued and outstanding and/or are committed to be issued by Buyer, approximately 13,910 shares of Series II Preferred Stock are issued and outstanding and/or are committed to be issued by Buyer, and approximately 31,248 shares of Series III Preferred Stock are issued and outstanding and/or are committed to be issued by Buyer; (b) 50,000,000 shares of Class A Common Stock, par value $0.01 per share, of which 5,588,888 shares are issued and outstanding; and (c) 15,000,000 shares of Class B Common Stock, par value $0.01 per share, of which 6,200,000 shares are issued and outstanding. All outstanding capital stock of Buyer is duly authorized, validly issued, fully paid and non assessable and has been issued in conformity with all applicable federal and state securities laws. 16 6.8 DELIVERY OF PUBLIC INFORMATION. Buyer has delivered to Seller copies of (i) the Prospectus dated November 10, 1997 (the "PROSPECTUS"), (ii) Buyer's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1997, (iii) Buyer's Quarterly Report on Form 10-Q for the three-month period ended March 31, 1998, June 30, 1998, and September 30, 1998 and (iv) any Current Reports on Form 8-K, filed in 1998, each in the form (excluding exhibits) filed with the SEC (collectively, such Forms 10-K, 10-Q and 8-K being hereinafter referred to as its "REPORTS"). Neither the Prospectus nor any of the Reports contained, at the time of filing thereof with the SEC, any untrue statement of any material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. 6.9 LITIGATION. There are no actions, suits, claims, investigations or legal or administrative or arbitration proceedings pending or, to Buyer's knowledge, threatened or probable of assertion, against Buyer before any court, governmental or administrative agency or other body relating to this Agreement and/or the transactions contemplated hereby. Buyer is not now under any judgment, order, writ, injunction, decree or other similar command of any court, administrative agency or other governmental agency which relate to this Agreement and/or the transactions contemplated hereby. 6.10 MISSTATEMENTS AND OMISSIONS. To the knowledge of Buyer, no representation or warranty made by Buyer in this Agreement, and no statement contained in any agreement, instrument, certificate or schedule furnished or to be furnished by Buyer pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDER Seller and the Stockholder, jointly and severally, represent and warrant to Buyer, as follows: 7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Georgia, is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business makes such qualification necessary and has full corporate power and authority to own or use the properties it purports to own and use and to carry on its business as now being conducted. The Stockholder is the only person or entity owning shares of Seller. Seller has full corporate power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by Seller in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. This Agreement, and all other agreements, certificates and documents executed or to be executed by Seller in connection herewith, have been duly authorized by all necessary corporate action and constitute or, when executed and delivered, will constitute legal, valid and binding 17 agreements of Seller enforceable against Seller in accordance with their respective terms, except as may be otherwise limited by bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect affecting creditors' rights generally and equitable relief may be subject to equitable defenses and the discretion of any court before which any proceeding may be brought. This Agreement, and all other agreements, certificates and documents executed or to be executed by the Stockholder in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of the Stockholder enforceable against the Stockholder in accordance with their respective terms, except as may be otherwise limited by bankruptcy, insolvency, reorganization, moratorium or similar laws now or hereafter in effect affecting creditors' rights generally and equitable relief may be subject to equitable defenses and the discretion of any court before which any proceeding may be brought. Seller has never operated the Business under any tradenames other than the tradenames listed in Section 5.5. 7.2 NO VIOLATION; CONSENTS. Except as set forth in Schedule 7.2 attached hereto, the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof do not and will not: (a) conflict with or violate any of the provisions of Seller's Articles of Incorporation or Bylaws, each as amended, or any resolution of the Directors of Seller, (b) violate any law, ordinance, rule or regulation or any judgment, order, writ, injunction or decree or similar command of any court, administrative or governmental agency or other body applicable to any of Seller, the Assets, the Business or the Liabilities, (c) violate or conflict with or result in a breach of, or constitute a default under, or an event giving rise to a right of termination of, any Contract (as defined in Section 7.10), any material instrument, agreement or indenture or any mortgage, deed of trust or similar contract to which Seller or Stockholder is a party or by which any of Seller, the Stockholder or any of the Assets are bound or affected, (d) result in the creation or imposition of any Encumbrance upon any of the Assets, or (e) require the consent, authorization or approval of, or notice to, or filing or registration with, any governmental body or authority, or any other third party (other than clearance under the HSR Act). 7.3 LITIGATION. Except as disclosed on Schedule 7.3 hereto, there are no actions, suits or proceedings pending or, to the knowledge of Seller and the Stockholder, threatened against Seller or Stockholder which might adversely affect the power or authority of any of them to carry out the transactions to be performed by such party hereunder. There are no actions, suits or proceedings pending, or, to the knowledge of Seller and the Stockholder, threatened against or affecting Seller, other than those adequately covered by insurance, and those disclosed on Schedule 7.3 attached hereto, and none of the actions, suits or proceedings described on Schedule 7.3, if determined adversely to Seller could reasonably be expected to have, a material adverse effect upon the Assets or the Liabilities or the business, prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business. 7.4 TITLE TO ASSETS; ENCUMBRANCES. Except as disclosed on Schedule 7.4 attached hereto, Seller has good title to the Assets, free and clear of all liens (including tax liens), security interests, encumbrances, actions, claims, payments or demands of any kind and character (collectively, "ENCUMBRANCES"), except Encumbrances disclosed on Schedule 7.4 hereto and Encumbrances for ad valorem personal property taxes not yet due and payable. All of the Assets 18 to be transferred hereunder conform, as to condition and character, to the descriptions of such Assets contained herein and will be transferred at the Closing free and clear of all Encumbrances, except for Permitted Encumbrances and the rights, if any, of third parties to use the name "Global Imports" outside of the Atlanta Standard Metropolitan Statistical Area or to use such name within such Standard Metropolitan Statistical Area in any business other than an automobile dealership business. To the knowledge of Seller and the Stockholder (i) no person uses the name "Global Imports" in the Atlanta Standard Metropolitan Statistical Area, and (ii) the ownership and use of the Assets (including, without limitation, Seller's use of the name "Global Imports"), and the operation of the Business, do not infringe upon the intellectual property rights of any other person or entity. 7.5 PERMITS AND APPROVALS. Except as disclosed on Schedule 7.5 attached hereto, there are no material permits or material approvals used or obtained for use by Seller which are required under applicable law in connection with the ownership or operation of the Business. 7.6 FINANCIAL STATEMENTS. Seller has delivered to Buyer the financial statements of Seller described in Schedule 7.6(a) attached hereto (the "FINANCIAL STATEMENTS"). The Financial Statements (i) are in accordance with the books and records of Seller, which books and records are true, correct and complete, (ii) fully and fairly present the financial condition and results of the operations of Seller as of and for the periods indicated, and (iii) have been prepared in accordance with generally accepted accounting principles consistently applied, except as set forth on Schedule 7.6(b). Seller has no outstanding material claims, liabilities, obligations or indebtedness of any nature, fixed or contingent, except as set forth in the Financial Statements, or in the Schedules to this Agreement, and except for liabilities incurred in the ordinary course of business and of the kind and type reflected in the Financial Statements. To the knowledge of Seller and the Stockholder, the Financial Statements contain adequate reserves for all reasonably anticipated claims relating to matters with respect to which Seller is self-insured. 7.7 BROKERS AND FINDERS. Neither Seller nor Stockholder has engaged any broker or any other person or entity who would be entitled to any brokerage commission or finder's fee in respect of the execution of this Agreement and/or the consummation of the transactions contemplated hereby, other than such fee or commission the entire cost of which will be borne by Seller. This representation and warranty does not apply to the fees of Presidio Strategies to the extent such fees are specified in the letter agreement between Buyer and Presidio Strategies referred to in Section 6.4 above. 7.8 COMPLIANCE WITH LAWS. (a) Except as set forth on Schedule 7.8 (a) attached hereto, the Assets and the Real Property comply in all material respects with, and the Business has been conducted in all material respects in compliance with, all laws, rules and regulations (including all worker safety and all Environmental Laws (as hereinafter defined)) applicable zoning and other laws, ordinances, regulations and building codes, and neither Seller nor the Stockholder have received any notice of any material violation thereof which has not been remedied. 19 (b) Except as set forth on Schedule 7.8(b) attached hereto, (i) Seller has not at any time generated, used, treated or stored Hazardous Materials (as hereinafter defined) on, or transported Hazardous Materials to or from, the Real Property or any property adjoining or adjacent to the Real Property and, to the knowledge of Seller and the Stockholder, no party other than Seller has taken such actions on or with respect to the Real Property, provided, however, certain petroleum products are stored and handled by Seller in the ordinary course of business in compliance in all material respects with all Environmental Laws, (ii) Seller has not at any time released or disposed of Hazardous Materials on the Real Property or any property adjoining or adjacent to the Real Property, and, to the knowledge of Seller and the Stockholder, no party other than Seller has taken any such actions on the Real Property, (iii) Seller has at all times been in compliance with all Environmental Laws and the requirements of any permits issued under such Environmental Laws with respect to the Real Property, the Assets and the operation of the Business, except where failure to comply has not had and could not reasonably be expected to have, a material adverse effect on the Assets or the Liabilities or the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business, (iv) there are no pending or, to the knowledge of Seller and the Stockholder, threatened environmental claims against Seller, the Real Property, the Assets or the Business, (v) to the knowledge of Seller and the Stockholder, there are no facts or circumstances, conditions or occurrences regarding Seller, the Real Property, the Assets or the Business that could reasonably be anticipated to form the basis of an environmental claim against Seller, the Real Property, the Assets or the Business or to cause the Real Property, the Assets or the Business to be subject to any restrictions on its ownership, occupancy, use or transferability under any environmental law, (vi) there are not now and, to the knowledge of Seller and the Stockholder, there never have been any underground storage tanks located on the Real Property, (vii) Seller has not transported or arranged for the transportation of any Hazardous Materials to any site other than the Real Property and (viii) except as set forth on Schedule 7.8(b), neither Seller nor the Stockholder has operated the Business at any location other than the Real Property. As used herein, the term "ENVIRONMENTAL LAWS" means all present and future federal, state and local laws, statutes, regulations, rules, ordinances and common law, and all judgments, decrees, orders, agreements or permits, issued, promulgated, approved or entered thereunder by any governmental authority relating to pollution or Hazardous Materials or protection of human health or the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as amended. As used herein, the term "HAZARDOUS MATERIALS" means any waste, pollutant, chemical, hazardous substance, toxic substance, hazardous waste, special waste, solid waste petroleum or petroleum-derived substance or waste, or any constituent or decomposition product of any such pollutant, material, substance or waste, regulated under or as defined by any environmental law. (c) Neither Seller nor the Stockholder or any director, officer, agent or employee of Seller or, to the knowledge of Seller and the Stockholder, any other person or entity associated with or acting for or on behalf of Seller, has, directly or indirectly: made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any person or entity, regardless of form, whether in money, property or services: (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured or (iii) to obtain special concessions or for special concessions already obtained, for or in respect of Seller. 20 7.9 FIXTURES AND EQUIPMENT. Except as set forth on Schedule 7.9 attached hereto, the Fixtures and Equipment are in good condition, ordinary wear and tear excepted, and constitute all of the fixtures, machinery, equipment, furniture, signs and office equipment used or intended for use by Seller in the Business. All Demonstrators have been operated in the ordinary course of business, are operated with dealer tags and have not had certificates of title issued with respect to them. 7.10 CONTRACTS. Seller has in all material respects performed all of its obligations required to be performed by it to the date hereof, and is not in default or alleged to be in default in any material respect, under any contract or lease to be assigned to Buyer hereunder (collectively, the "CONTRACTS"), including without limitation the contracts and leases set forth on Part I of Schedule 2.4 and there exists no event, condition or occurrence which, after notice or lapse of time or both, would constitute such a default by Seller. To the knowledge of Seller and the Stockholder, no other party to any Contract is in default in any respect of any of its obligations thereunder. Each of the Contracts is valid and in full force and effect and enforceable against Seller in accordance with their respective terms, and, to the knowledge of Seller and the Stockholder, enforceable against the other parties thereto in accordance with their respective terms. 7.11 ADEQUACY OF ASSETS. Except for Seller's cash and accounts receivable, any used vehicles, miscellaneous inventories or parts which Buyer elects not to purchase, and Seller's rights under its dealership agreements with the Manufacturer, the Assets, together with the Real Property and the Contracts (including all equipment leased pursuant to the equipment leases included in the Contracts), comprise all of the assets, properties, contracts, leases and rights necessary for Buyer to operate the Business substantially in the manner operated by Seller prior to the Closing. 7.12 TAXES. Except as set forth on Schedule 7.12, Seller has filed all federal, state and local governmental tax returns required to be filed by it in accordance with the provisions of law pertaining thereto and has paid all taxes and assessments (including, without limitation of the foregoing, income, excise, unemployment, social security, occupation, franchise, property and import taxes, duties or charges and all penalties and interest in respect thereof) required by such tax returns to have been paid to date. 7.13 EMPLOYEES. Schedule 7.13 attached hereto discloses, as of the date hereof, all of Seller's employees, as well as each employee's compensation (including, separately, base pay and any incentive or commission pay), title, length of employment, employment contract, if any, and accrued vacation time. Except as disclosed on Schedule 7.13, Seller has no "employee benefit plan" ("EMPLOYEE BENEFIT PLAN") (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), including without limitation, any bonus, deferred compensation, pension, profit-sharing, stock option, employee stock purchase, secrecy agreement or covenant not to compete with any employee. Seller is neither currently nor has ever been a party to any collective bargaining agreement or other labor contract, and there has not been nor is there pending or, to the knowledge of Seller and the Stockholder, threatened any union organizational drive or application for certification of a collective bargaining agent. Seller has been and is now in material compliance with the "COBRA" health care continuation coverage requirements of Section 4980B of the Internal Revenue Code of 1986, as amended, and Sections 601-608 of ERISA and any 21 applicable state health care continuation coverage requirements. Seller has neither made any promises nor incurred any liability, pursuant to an Employee Benefit Plan or otherwise, to provide medical or other welfare benefits to retired or former employees of the Seller (other than COBRA or state mandated continuation coverage, where applicable). Except as disclosed on Schedule 7.13, none of Seller's employees or former employees has elected COBRA continuation coverage or has incurred a COBRA qualifying event since January 1, 1997. 7.14 [INTENTIONALLY LEFT BLANK] 7.15 MISSTATEMENTS AND OMISSIONS. No representation or warranty made by Seller or the Stockholder in this Agreement, and no statement contained in any agreement, instrument, certificate or schedule furnished or to be furnished by Seller or the Stockholder pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading. ARTICLE VIII CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS The obligations of Buyer to perform this Agreement at the Closing are subject to the following conditions precedent which shall be fully satisfied at or before the Closing, unless waived in writing by Buyer. 8.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of Seller and the Stockholder herein contained shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, and Buyer shall have received a certificate from the Stockholder and a duly authorized officer of Seller, dated the Closing Date, to such effect. 8.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations required by this Agreement to be performed or complied with by Seller or the Stockholder at or before the Closing shall have been duly performed or complied with in all material respects, and Buyer shall have received a certificate from the Stockholder and a duly authorized officer of Seller, dated the Closing Date, to such effect. 8.3 NO LITIGATION. No action, suit or proceeding shall have been instituted by a governmental agency or any other third party to prohibit or restrain the sale contemplated by this Agreement or otherwise challenge the power and authority of the parties to enter into this Agreement or to carry out their obligations hereunder or the legality or validity of the sale contemplated by this Agreement. 8.4 INVENTORY. The Inventory shall have been completed to the reasonable satisfaction of Buyer. 22 8.5 CORPORATE ORGANIZATION; ENCUMBRANCES. Seller shall have furnished to Buyer: (a) a certificate of good standing of Seller issued by the Secretary of State of the State of Georgia dated no earlier than 15 business days prior to the Closing Date; (b) a copy of the Articles of Incorporation of Seller certified by the Secretary of State of the State of Georgia dated no earlier than 15 business days prior to the Closing Date; (c) a certificate of Seller, dated the Closing Date, in form and substance reasonably satisfactory to Buyer, certifying as to (i) no amendments to the Articles of Incorporation of Seller since the date of the certificate delivered in accordance with Section 8.5(b); (ii) the Bylaws of Seller; and (iii) the incumbency and signatures of the officers of Seller executing this Agreement and any other agreements, instruments or documents to be executed by Seller in connection herewith; and (d) UCC-11 search reports or other evidence reasonably satisfactory to Buyer and its counsel that the Assets are free and clear of all Encumbrances other than Permitted Encumbrances. 8.6 BOARD RESOLUTIONS. Seller shall have furnished to Buyer a copy of the resolutions duly adopted by the Board of Directors and shareholders of Seller authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, certified by an authorized officer of Seller as of the Closing Date. 8.7 NO DAMAGE. There shall have been no material adverse change or development in the Assets, the Liabilities or in the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business, and no event shall have occurred or circumstance shall exist that may, or could reasonably be expected to, result in such a material adverse change. 8.8 MOTOR VEHICLE LICENSES. Buyer shall have been licensed as a Motor Vehicle Dealer under applicable Georgia motor vehicle dealer registration laws and shall have obtained all other authorizations, consents, licenses and permits from applicable governmental agencies having or asserting jurisdiction, which Buyer deems necessary or appropriate to conduct business as an automobile dealer at each dealership location included in the Real Property. 8.9 CONSENTS AND APPROVALS. Seller shall have obtained all other authorizations, consents and approvals from third persons and entities as are (a) required to assign those material contracts and leases that Buyer is to assume at Closing or (b) otherwise required of Seller to consummate the transactions contemplated hereby. 8.10 CERTIFICATES OF ORIGIN; ETC. Seller shall have transferred to Buyer certificates of title or origin for all New Vehicles, Demonstrators and, if applicable, Used Vehicles and all of its registration lists, owner follow-up lists and service files on hand as of the Closing Date with respect to the Business. 8.11 TERMINATION OF SELLER'S AGREEMENT WITH MANUFACTURER. Seller shall have terminated in writing Seller's dealer agreement and any other applicable sales and service agreements with the Manufacturer. 8.12 BILL OF SALE; ETC. Seller and the Stockholder shall have executed, as appropriate, and 23 delivered to Buyer the Bill of Sale, other documents of transfer of title contemplated hereby and any and all other documents necessary or desirable in connection with the transfer of the Assets, which documents shall warrant title to Buyer consistent with this Agreement and shall in all respects be in such form as may be reasonably required by Buyer and its counsel. 8.13 MANUFACTURE APPROVAL. The Manufacturer shall have approved Buyer or Buyer's affiliate as an authorized dealer of automobiles and motorcycles and O. Bruton Smith or O. Bruton Smith's designee, as the authorized Dealer Operator, and the Manufacturer shall have executed a dealer agreement, and any other applicable sales and service agreements, on terms reasonably satisfactory to Buyer. 8.14 REAL PROPERTY PURCHASE AGREEMENT. All conditions to Buyer's obligations under the Real Property Purchase Agreement shall have been satisfied or fulfilled unless waived in writing by Buyer and the closing of such transaction shall take place simultaneously with the Closing. 8.15 CHANGE OF NAMES. Seller shall have delivered to Buyer all documents, including, without limitation, resolutions of the Board of Directors and the Stockholder of Seller, necessary to effect a change of name of Seller after the Closing to names other than the corporate name and trade names referred to in Section 5.5 hereof or any variation thereof. 8.16 HSR ACT. All applicable waiting periods, if any, under the HSR Act (as defined in Section 10.18 below) shall have expired without any indication by the Antitrust Division (as defined in Section 10.18 below) or the FTC (as defined in Section 10.18 below) that either of them intends to challenge the transactions contemplated hereby or, if any such challenge or investigation is made or commenced, there shall have occurred the conclusion of such challenge or investigation which permits the transactions contemplated hereby in all material respects. 8.17 EMPLOYMENT AGREEMENT. Donald Scott Whitmire shall have executed and delivered the Employment Agreement to Buyer. 8.18 NON-COMPETITION AGREEMENT. Seller and William Morris Whitmire shall have executed and delivered the Non-Competition Agreement to Buyer. 8.19 FINANCIAL STATEMENTS. Buyer shall have completed (at Buyer's expense) preparation of such audited financial statements of Seller as may be required by applicable regulations of the SEC or by Buyer's lenders. ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND THE STOCKHOLDER The obligations of Seller and the Stockholder to perform this Agreement at the Closing are subject to the following conditions precedent which shall be fully satisfied at or before the Closing, unless waived in writing by Seller: 24 9.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of Buyer herein contained shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, and Seller shall have received a certificate from a duly authorized officer of Buyer, dated the Closing Date, to such effect. 9.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations required by this Agreement to be performed or complied with by Buyer at or before the Closing shall have been duly performed or complied with in all material respects, and Seller shall have received a certificate from a duly authorized officer of Buyer, dated the Closing Date, to such effect. 9.3 NO LITIGATION. No action, suit or proceeding shall have been instituted by a governmental agency or any third party to prohibit or restrain the sale contemplated by this Agreement or otherwise challenge the power and authority of the parties to enter into this Agreement or to carry out their obligations hereunder or the legality or validity of the sale contemplated by this Agreement. 9.4 INVENTORY. The Inventory shall have been completed to the reasonable satisfaction of Seller. 9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS. Buyer shall have furnished to Seller and the Stockholder: (a) a certificate of good standing of Buyer issued by the Secretary of State of the State of Delaware dated no earlier than 15 business days prior to the Closing Date; (b) a copy of the Articles of Incorporation of Buyer, certified by the Secretary of State of the State of Delaware dated no earlier than 15 business days prior to the Closing Date; (c) a certificate of Buyer, dated the Closing Date, in form and substance reasonably satisfactory to Seller, certifying as to (i) no amendments to the Articles of Incorporation of Buyer since the date of the certificate delivered in accordance with Section 9.5(b); (ii) the Bylaws of Buyer; and (iii) the incumbency and signatures of the officers of Buyer executing this Agreement and any other agreements, instruments or documents to be executed by Buyer in connection herewith; and (d) a copy of the resolutions duly adopted by the Board of Directors of Buyer authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, certified by an officer of Buyer as of the Closing Date. 9.6 INITIAL PURCHASE PRICE. Buyer shall have tendered to Seller the Initial Purchase Price in accordance with Section 2.2 and shall have executed and delivered the Assumption Agreement to Seller. 9.7 REAL PROPERTY PURCHASE AGREEMENT. All conditions to the obligations of the Owner under the Real Property Purchase Agreement shall have been satisfied or fulfilled, unless waived in writing by the Owner and the closing of such transaction shall take place simultaneously with the Closing. 9.8 BOARD RESOLUTIONS. Buyer shall have furnished to Seller a copy of the resolutions duly adopted by the Board of Directors of Buyer authorizing the execution and delivery of this 25 Agreement and the consummation of the transactions contemplated hereby, certified by an authorized officer of Buyer as of the Closing Date. 9.9 HSR ACT. All applicable waiting periods, if any, under the HSR Act shall have expired without any indication of the Antitrust Division or the Federal Trade Commission that either of them intends to challenge the transactions contemplated hereby, or, if any such challenge or investigation is made or commenced, there shall have occurred the conclusion of such challenge or investigation which permits the transactions contemplated hereby in all material respects. 9.10 EMPLOYMENT AGREEMENT. Buyer shall have executed and delivered the Employment Agreement to Donald Scott Whitmire. 9.11 MOTOR VEHICLE LICENSES. Buyer shall have been licensed as a Motor Vehicle Dealer as contemplated by Section 8.8. 9.12 MANUFACTURER APPROVAL. Buyer shall have obtained Manufacturer approval as contemplated by Section 8.13. 9.13 CONSENTS & APPROVALS. Seller shall have obtained all authorizations, consents and approvals as are (a) required to assign those contracts and leases that Buyer is assuming at Closing or (b) otherwise required of Seller to consummate the transactions contemplated hereby; provided, however, that, with respect to any such authorization, consent or approval not obtained, the obtaining thereof shall not be a condition pursuant to this Section 9.13 if Buyer elects to waive in writing the requirement that such authorization, consent or approval be obtained; in such event, Buyer shall have no claim for liability against Seller or the Stockholder for failing to obtain such authorization, consent or approval and such waiver shall constitute Buyer's agreement that any such contract or lease requiring such authorization, consent or approval shall be included in the Liabilities, notwithstanding the failure to obtain such authorization, consent or approval. 9.14 LIABILITIES. Buyer shall have agreed to assume Seller's obligations under all contracts and agreements entered into by Seller in the ordinary course of business between the date hereof and the Closing and which relate to the Business; provided, however, that Buyer shall not be obligated to assume any such contract or agreement which involves the payment of more than $50,000 during the life of such contract or agreement unless Buyer shall have given its written consent thereto prior to Seller's entering into such contract or agreement. ARTICLE X COVENANTS AND AGREEMENTS 10.1 ADDITIONAL INFORMATION. Seller and Buyer shall each furnish to the other such additional information with respect to any matters or events arising or discovered subsequent to the date hereof which, if existing or known on the date hereof, would have rendered any representation 26 or warranty made by Seller or Buyer, as the case may be, or any information contained in any Schedule hereto or any other information supplied in connection herewith by Seller or Buyer, as the case may be, then inaccurate or incomplete. The receipt of such additional information by Buyer or Seller, as the case may be, shall not operate as a waiver by Buyer or Seller, as the case may be, of the obligation of Seller or Buyer, as the case may be, to satisfy the conditions to Closing set forth in Section 8.1 or Section 9.1, as the case may be, hereof; provided, however, if such information shall be furnished to Buyer or Seller, as the case may be, in a writing which shall also specifically refer to one or more representations and warranties of Seller or Buyer, as the case may be, contained herein which in the absence of such information is inaccurate or incomplete, then if Buyer or Seller, as the case may be, waives the condition to Closing set forth in Section 8.1 or Section 9.1, as the case may be, hereof and elects to close the transactions contemplated hereunder, the furnishing of such additional information shall be deemed to have amended as of the Closing any such representation and warranty so specifically referred to by Seller or Buyer, as the case may be. 10.2 FURTHER ASSURANCES. Seller and the Stockholder agree that they will, at any time and from time to time, after the Closing, upon request of Buyer, do, execute, acknowledge and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances, in a form reasonably satisfactory to Buyer's counsel, as may be reasonably required to convey and transfer to and vest in Buyer, and protect its rights, title and interest in and enjoyment of, all the Assets. 10.3 SATISFACTION OF CLOSING CONDITIONS. The parties hereto shall use their reasonable best efforts to obtain, and to cooperate with each other in obtaining, at or prior to the Closing, all authorizations, approvals, licenses, permits and other consents contemplated by Articles VIII and IX, and otherwise shall use their reasonable best efforts to cause the conditions to their obligations at Closing, insofar as such conditions are within their control, to be satisfied at or prior to the Closing. 10.4 NO MATERIAL ADVERSE CHANGES. During the period from the date of this Agreement through the Closing Date, Seller will operate the Business only in the ordinary course of business and in accordance with past practices. Seller shall promptly notify Buyer of any material adverse change or development in the Assets, the Liabilities or in the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business, and of the occurrence of any event or circumstance that will, or could reasonably be expected to, result in such a material adverse change. 10.5 ACCESS; ENVIRONMENTAL AUDIT. Until the Closing Seller shall afford to Buyer, its attorneys, accountants and such other representatives of Buyer as Buyer shall designate to Seller, free and full access at all reasonable times, and upon reasonable prior notice, to the Assets and the properties, books and records of Seller, and to interview personnel, suppliers and customers of Seller, in order that Buyer may have full opportunity to make such due diligence investigation as it shall reasonably desire of the Assets, the Liabilities and the Business. Seller and the Stockholder shall, promptly after the date hereof, furnish to Buyer the due diligence materials set forth in Schedule 10.5 hereto. Seller shall allow an environmental consulting firm selected by Buyer (the 27 "ENVIRONMENTAL AUDITOR") to have prompt access to the Real Property in order to conduct an environmental investigation satisfactory to Buyer in scope and reasonably acceptable to Seller (such scope being sufficient to result in a Phase I environmental audit report and a Phase II environmental audit report, if desired by Buyer) of, and to prepare a report with respect to, the Real Property (the "ENVIRONMENTAL AUDIT"). Seller shall provide to the Environmental Auditor: (a) reasonable access to all of its existing records concerning the matters which are the subject of the Environmental Audit; and (b) reasonable access to the employees of Seller and the last known addresses of former employees of Seller who are most familiar with the matters which are the subject of the Environmental Audit (Seller agreeing to use reasonable efforts to have such former employees respond to any reasonable requests or inquiries by the Environmental Auditor). The Environmental Auditor shall coordinate all visits to the Real Property and conversations with employees of Seller with the Stockholder or his designee and shall use reasonable efforts to minimize any disruption of Seller's business in performing such investigations. Seller shall otherwise cooperate with the Environmental Auditor in connection with the Environmental Audit. Buyer and Seller shall each bear 50% of the costs, fees and expenses in connection with the Environmental Audit. Buyer shall bear 100% of the costs, fees and expenses in connection with any financial audit. 10.6 INDEMNIFICATION BY SELLER AND STOCKHOLDER. All representations and warranties of Seller and the Stockholder contained herein, or in any agreement, certificate or document executed by Seller or the Stockholder in connection herewith, shall survive the Closing for a period of two years, except for the representations and warranties contained in Section 7.12, which shall survive the Closing for the applicable tax statutes of limitation plus 60 days, and the representations and warranties contained in Section 7.4 which shall survive for the applicable statute of limitations for the breach thereof. The foregoing limitations of survival shall not in any way reduce Seller's obligations with respect to the Retained Liabilities. All information contained in Schedules 3.1, 3.2, 5.3 and 5.4 furnished hereunder by Seller shall be deemed a representation and warranty by Seller and the Stockholder made in this Agreement as to the accuracy of such information. Subject to the provisions of this Agreement, Seller and the Stockholder, jointly and severally, agree to indemnify and hold harmless Buyer and its stockholders, officers, directors, employees and agents, and their respective successors and assignees (the "SELLER INDEMNITEES"), from and against any and all losses, damages, liabilities, obligations, assessments, suits, actions, proceedings, claims or demands, including costs, expenses and fees (including reasonable attorneys' fees and expert witness fees) (collectively, "LOSSES") incurred in connection therewith, suffered by any of them or asserted against any of them or the Assets, arising out of or based upon (a) the breach or failure of any representation or warranty of Seller or the Stockholder contained herein, or in any agreement, certificate or document executed by Seller or the Stockholder in connection herewith, to be true and correct, (b) the breach of any covenant or agreement of Seller or the Stockholder contained in this Agreement, (c) Seller's failure to discharge the Retained Liabilities, (d) the parties' failure to comply with applicable bulk sales laws, or (e) any arrangements or agreements made or alleged to have been made by Seller or the Stockholder with any broker, finder or other agent in connection with the transactions contemplated hereby (except as with regard to Buyer's obligations to Presidio Strategies referred to in Section 6.4 above). 10.7 INDEMNIFICATION BY BUYER. All representations and warranties of Buyer contained 28 herein, or in any agreement, certificate or document executed by Buyer in connection herewith, shall survive the Closing for a period of two years except for the representations and warranties in Section 6.6 which shall survive for the applicable statute of limitations. The foregoing limitation of survival shall not in any way reduce Buyer's obligations with respect to the Liabilities. Buyer agrees to indemnify and hold harmless Seller, the Stockholder, and Seller's officers, directors, employees, agents, and their respective heirs and/or personal representatives, as the case may be, and successors and assigns (the "BUYER INDEMNITEES"), from and against any and all Losses incurred in connection with, suffered by any of them, or asserted against any of them, arising out of or based upon (a) the breach or failure of any representation or warranty of Buyer contained herein, or in any agreement, certificate or document executed by Buyer in connection herewith, to be true and correct, (b) the breach of any covenant or agreement of Buyer contained in this Agreement, (c) Buyer's failure to discharge the Liabilities, or (d) any arrangements or agreements made or alleged to have been made by Buyer with any broker, finder or other agent in connection with the transactions contemplated hereby. 10.8 INDEMNIFICATION PROCEDURES. If any party to this Agreement becomes aware of or receives notice of any third party claim or the commencement of any third party action or proceeding with respect to which another party (the "INDEMNITOR") is obligated to provide indemnification under this Article X, the party entitled to indemnification (the "INDEMNITEE") shall promptly give the Indemnitor notice thereof. Such notice shall not be a condition precedent to any liability of the Indemnitor under the provisions for indemnification contained in this Agreement, unless (and only to the extent that) failure to give such notice materially prejudices the rights of the Indemnitor with respect to such claims, actions, or proceedings. The Indemnitor may compromise or defend, at the Indemnitor's own expense, and by the Indemnitor's own counsel, any such matter involving the asserted liability of the Indemnitee; provided, however, that no compromise or settlement thereof may be effected by the Indemnitor without the Indemnitee's prior written consent (which shall in any event not be unreasonably withheld or delayed); and further provided that an Indemnitor may not undertake the defense of any such third party claim (including any compromise or settlement thereof) unless (i) the claim is solely for monetary damages, and (ii) the Indemnitor confirms in writing to the Indemnitee, prior to undertaking such defense or prior to making such compromise or settlement, that the matter is indemnifiable by the Indemnitor. If the Indemnitor elects not to compromise or defend such matter, then the Indemnitee, at the Indemnitor's expense and by the Indemnitee's own counsel, may defend such matter, but regardless of whether or not the Indemnitor elects to assume the defense of any such matter the Indemnitee may not compromise the defense thereof without the prior written consent of the Indemnitor, which consent shall not be unreasonably withheld or delayed. In any event, the Indemnitee, the Indemnitor and the Indemnitor's counsel (and, if applicable, the Indemnitee's counsel) shall cooperate in the compromise of, or the defense against, any such asserted liability. If the Indemnitor chooses to defend any claim, the Indemnitee shall make available to the Indemnitor any books, records, or other documents within its control that are reasonably necessary or appropriate for such defense. The foregoing indemnity procedures shall not be read as a limitation on either party's right to seek indemnification under this Article X for matters other than third party initiated claims or demands. 10.9 PAYMENT. The Indemnitor shall promptly pay the Indemnitee any amount due under 29 this Article X, which payment may be accomplished in whole or in part, at the option of the Indemnitee, by the Indemnitee setting off against any amount owed to any Indemnitor by the Indemnitee. To the extent set-off is made by an Indemnitee in satisfaction or partial satisfaction of an indemnity obligation under this Article X that is disputed by the Indemnitor, upon a subsequent determination by final judgment not subject to appeal that all or a portion of such indemnity obligation was not owed to the Indemnitee, the Indemnitee shall pay the Indemnitor the amount which was set off and not owed together with interest from the date of set-off until the date of such payment at an annual rate equal to the Buyer's floor plan financing rate as in effect from time to time. Upon judgment, determination, settlement or compromise of any third party claim, the Indemnitor shall pay promptly on behalf of the Indemnitee, and/or to the Indemnitee in reimbursement of any amount theretofore required to be paid by it, the amount so determined by judgment, determination, settlement or compromise and all other claims of the Indemnitee with respect thereto, unless in the case of a judgment an appeal is made from the judgment. If the Indemnitor desires to appeal from an adverse judgment, then the Indemnitor shall post and pay the cost of the security or bond to stay execution of the judgment pending appeal. Upon the payment in full by the Indemnitor of such amounts, the Indemnitor shall succeed to the rights of such Indemnitee, to the extent not waived in settlement, against the third party who made such third party claim, but shall continue to defend and indemnify the Indemnitee in any subsequent proceedings against such third party. 10.10 LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding anything herein to the contrary, but subject to paragraph (c) below, the aggregate liability of Seller and the Stockholder under Section 10.6 to all Seller Indemnitees shall not exceed the Purchase Price. (b) No Indemnitee pursuant to Section 10.6 or 10.7, as the case may be, shall be entitled to any recovery for any Losses suffered by such Indemnitee as a result of a breach of a representation and warranty hereunder by the Indemnitor, unless and until the aggregate amount of all Losses suffered by such Indemnitee as a result of all breaches of representations and warranties hereunder by the Indemnitor exceeds $100,000 (the "BASKET"), in which event the Losses may be claimed, but only to the extent that they exceed the Basket. For purposes of this Section, the Seller Indemnitees shall be considered as one Indemnitee and the Buyer Indemnitees shall be considered as one Indemnitee. (c) Absent a showing of fraud by a party, and assuming the Closing has occurred, the obligation of a party under this Article X shall be the sole remedy of any other party against such party for monetary damages for breach of any representation or warranty or covenant contained in this Agreement. Nothing herein shall limit a party's right to seek injunctive or other equitable relief in connection with the enforcement of this Agreement. 10.11 CERTAIN TAXES. Personal property, use and intangible taxes and assessments and utility charges with respect to the Assets shall be prorated on a per diem basis and apportioned 30 between Seller and Buyer as of the date of the Closing. Seller shall be liable for that portion of such taxes and assessments relating to, or arising in respect of, periods on or prior to the Closing Date, and Buyer shall be liable for that portion of such taxes and assessments relating to, or arising in respect of, any period after the Closing Date. Any taxes attributable to the sale or transfer of the Assets to Buyer hereunder shall be paid by Seller. 10.12 NO PUBLICITY. Except as may be required by law or the rules of the New York Stock Exchange or as necessary in connection with the transactions contemplated hereby, no party hereto shall (a) make any press release or other public announcement relating to this Agreement or the transactions contemplated hereby, without the prior approval of the other parties hereto or (b) otherwise disclose the existence and nature of the transactions contemplated hereby to any person or entity other than such party's accountants, attorneys, agents and representatives, all of whom shall be subject to this nondisclosure obligation as agents of such party. The parties shall cooperate with each other in the preparation and dissemination of any public announcements of the transactions contemplated by this Agreement. 10.13 NO NEGOTIATIONS OR DISCUSSIONS. Neither Seller nor the Stockholder shall, directly or indirectly, at any time on or prior to the Closing Date or termination of this Agreement (as provided herein), pursue, initiate, encourage or engage in, any negotiations or discussions with, or provide any information to, any person or entity (other than Buyer and its representatives and affiliates) regarding the sale or possible sale to any such person or entity of any of the Assets or capital stock of Seller or any merger or consolidation or similar transaction involving Seller. 10.14 MANUFACTURER. Seller shall promptly notify the Manufacturer regarding the transactions contemplated by this Agreement. Buyer shall promptly apply to the Manufacturer for, or cause an affiliate of Buyer to apply to the Manufacturer for, the issuance of franchises to operate automobile dealerships upon the Real Property. Effective as of the Closing, Seller shall terminate its Dealer Sales and Service Agreements with the Manufacturer. Seller shall fully cooperate with Buyer, and take all reasonable steps to assist Buyer, in Buyer's efforts to obtain its own similar Dealer Sales and Service Agreements with the Manufacturer. The parties acknowledge that Buyer's Dealer Agreements are subject to the approval of the Manufacturer and that Buyer would be unable to obtain its own, similar Dealer Sales and Service Agreements absent Seller's termination of its agreements. 10.15 SELLER'S EMPLOYEES. Buyer shall have the right, but not the obligation, to employ any or all of Seller's employees; provided, however, Buyer agrees to offer employment to a sufficient number of Seller's employees to avoid triggering any notice requirements under the Worker Adjustment Retraining Notification Act, 29 U.S.C. ss. 2101 et seq. If permitted by law and applicable regulations, Seller shall, in consideration for the sale of substantially all of such Seller's assets in bulk, assign and transfer to Buyer, without additional charge therefor, the amount of reserve in such Seller's State Unemployment Compensation Fund with respect to the Subject Business and the corresponding experience rate. 10.16 TERMINATION 31 (a) Notwithstanding any other provision herein contained to the contrary, this Agreement may be terminated at any time prior to the Closing: (i) by the written mutual consent of the parties hereto prior to the Closing Date Deadline; (ii) by Buyer prior to the Closing Date Deadline in the event of any breach by Seller or the Stockholder of any of their respective material representations, warranties, covenants or agreements contained herein; (iii) by Seller prior to the Closing Date Deadline in the event of any breach by Buyer of any of Buyer's material representations, warranties, covenants or agreements contained herein; (iv) at any time after the Closing Date Deadline, by written notice by Buyer or Seller (subject to Buyer's option to elect to extend the Closing Date Deadline in accordance with Section 1.3) to the other parties hereto if the Closing shall not have occurred on or before the Closing Date Deadline (as the same may have been extended in accordance with Section 1.3); (v) by Buyer, not later than January 11, 1999 if Buyer is not satisfied, in its sole discretion, with the results of its due diligence investigation; provided, however, if Seller has not complied in all material respects with its obligations under Section 10.5 by December 5, 1998, such January 4, 1999 date shall be extended by one day for each day after December 5, 1998 until Seller has so complied. (vi) by Buyer, by written notice to Seller, or by Seller by written notice to Buyer in the event that the Manufacturer, or any other person claiming by, through or under the Manufacturer, shall exercise any right of first refusal, preemptive right or other similar right, with respect to any of the Assets; or (vii) by Buyer, by written notice to Seller if, after any initial HSR Act filing, the FTC makes a "second request" for information, or if the FTC or the Antitrust Division challenges the transactions contemplated hereby; provided, however, no party may terminate this Agreement pursuant to clauses (ii), (iii), or (iv) above if such party is in breach of any of its material representations, warranties, covenants or agreements contained herein. (b) In the event of termination of this Agreement pursuant to Section 10.16(a), this Agreement shall be of no further force or effect; provided, however, that any termination pursuant to Section 10.16(a) shall not relieve: (i) Buyer of any liability under Section 10.16(c) below; (ii) Seller and the Stockholder of any liability under Section 2.5 above or Section 10.16(d) below; or (iii) subject to Section 10.16(e) below, any party hereto of any liability for breach of any 32 representation, warranty, covenant or agreement hereunder occurring prior to such termination. (c) If this Agreement is terminated by Seller pursuant to Section 10.16(a)(iv) hereof and the failure to complete the Closing on or before the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3) shall have been due to the Buyer's breach of its material representations, warranties, covenants or agreements under this Agreement, then Buyer shall, upon demand of Seller, promptly pay to Seller in immediately available funds, as liquidated damages for the loss of the transaction, a termination fee of $2,000,000 (the "BUYER TERMINATION FEE"). (d) If this Agreement is terminated by Buyer pursuant to Section 10.16(a)(iv) hereof and the failure to complete the Closing on or before the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3) shall have been due to the Stockholder's or Seller's breach of any of their respective material representations, warranties, covenants or agreements under this Agreement, then Seller and the Stockholder, jointly and severally, shall, upon demand of Buyer, promptly pay to Buyer in immediately available funds, as liquidated damages for the loss of the transaction, a termination fee of $2,000,000 (the "SELLER TERMINATION FEE"). (e) In the case of termination of this Agreement pursuant to Section 10.16(a)(iv) hereof, the rights of the terminating party to be paid the Seller Termination Fee or the Buyer Termination Fee, as the case may be, shall be such party's sole and exclusive remedy for damages; in the event of such termination by either party, such party shall have no right to equitable relief for any breach or alleged breach of this Agreement, other than for specific performance for the payment of the Seller Termination Fee or the Buyer Termination Fee, as the case may be. Nothing contained in this Agreement shall prevent any party from electing not to exercise any right it may have to terminate this Agreement and, instead, seeking any equitable relief (including specific performance) to which it would otherwise be entitled in the event of breach of any other party hereto. (f) Seller and the Stockholder acknowledge and agree that Buyer's due diligence investigation of Seller and the Business, including without limitation, its review of the Schedules attached hereto and the information and documentation received from Seller, shall not constitute a waiver of, or otherwise modify, Buyer's right to terminate this Agreement under Section 10.16(a)(v) hereof. 10.17 REAL PROPERTY PURCHASE AGREEMENT. The parties hereto acknowledge and agree that the consummation of the transactions contemplated by this Agreement is subject to the consummation of the transactions contemplated by the Real Property Purchase Agreement, and the parties intend that the closings of both such transactions shall occur contemporaneously. 10.18 HSR ACT. Subject to the mutual determination by Buyer and Seller that compliance by Seller and Buyer with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), is not required, Seller and Buyer shall each prepare and file with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION"), and respond as promptly as practicable to all inquiries received from the FTC or the 33 Antitrust Division for additional information or documentation. Buyer shall pay any HSR Act filing fee. The parties shall request early termination of the applicable waiting period. ARTICLE XI MISCELLANEOUS 11.1 ASSIGNMENT. Except as provided in this Section, this Agreement shall not be assignable by any party hereto without the prior written consent of the other parties. Buyer may assign this Agreement, without the consent of the other parties hereto, to a corporation, partnership, limited liability company or other entity controlled by Buyer, including a corporation, partnership, limited liability company or other entity to be formed at any time prior to the Closing Date, and to any person or entity who shall acquire all or substantially all of the assets of Buyer or of such corporation, partnership, limited liability company or other entity, controlled by Buyer (including any such acquisition by merger or consolidation); provided said assignment shall be in writing and the assignee shall assume all obligations of Buyer hereunder, whereupon the assignee shall be substituted in lieu of Buyer named herein for all purposes, provided, however, that Buyer originally named herein shall continue to be liable with respect to its obligations hereunder. Buyer may assign this Agreement, without the consent of the other parties hereto, as collateral security, and the other parties hereto agree to execute and deliver any acknowledgment of such assignment by Buyer as may be required by any lender to Buyer. No provision of this Agreement, including this Section 11.1, shall be construed to limit the right of Seller or Stockholder to assign any of his or its rights under this Agreement, including, without limitation, all rights to indemnification under Article X, at any time after Closing; provided, however, that no such assignment shall be construed as relieving Seller or Stockholder of any obligations under this Agreement. 11.2 GOVERNING LAW. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of Georgia. 11.3 ACCOUNTING MATTERS. Except as specifically contemplated by this Agreement, all accounting matters required or contemplated by this Agreement shall be in accordance with generally accepted accounting principles. 11.4 FEES & EXPENSES. Except as otherwise specifically provided in this Agreement, each of the parties hereto shall be responsible for the payment of such party's fees, costs and expenses incurred in connection with the negotiation and consummation of the transactions contemplated hereby. 11.5 AMENDMENTS; MERGER CLAUSE. This Agreement, including the schedules and other documents referred to herein which form a part hereof, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement may not be amended except by a writing executed by all of the parties hereto. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject 34 matter. 11.6 WAIVER. To the extent permitted by applicable law, no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party. Any waiver by a party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision of this Agreement. Neither the failure nor any delay by any party hereto in exercising any right or power under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right or power, and no single or partial exercise of any such right or power will preclude any other or further exercise of such right or power or the exercise of any other right or power. 11.7 NOTICES. All notices, claims, certificates, requests, demands and other communications hereunder shall be given in writing and shall be delivered personally or sent by facsimile or by a nationally recognized overnight courier, postage prepaid, and shall be deemed to have been duly given when so delivered personally or by confirmed facsimile or one (1) business day after the date of deposit with such nationally recognized overnight courier. All such notices, claims, certificates, requests, demands and other communications shall be addressed to the respective parties at the addresses set forth below or to such other address as the person to whom notice is to be given may have furnished to the others in writing in accordance herewith. If to Buyer, to: Sonic Automotive, Inc. 5401 E. Independence Boulevard Charlotte, North Carolina 28212 Telecopy No.: (704) 563-5116 Attention: Chief Financial Officer With a copy to: Parker, Poe, Adams & Bernstein L.L.P. 2500 Charlotte Plaza Charlotte, North Carolina 28244 Telecopy No.: (704) 334-4706 Attention: Edward W. Wellman, Jr. 35 If to Seller or the Stockholder, to: William Morris Whitmire 4412 Paces Battle Atlanta, Georgia 30327 With a copy to: Smith, Gambrell & Russell, LLP Suite 3100, Promenade II 1230 Peachtree Street, N.E. Atlanta, Georgia 30309-3592 Telecopy No.: (404) 685-6983 Attention: James H. Morgan, Jr. 11.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts. Each such counterpart hereof shall be deemed to be an original instrument, and all such counterparts together shall constitute but one agreement. 11.9 KNOWLEDGE. Whenever any representation or warranty of Seller or the Stockholder contained herein or in any other document executed and delivered in connection herewith is based upon the knowledge of Seller or the Stockholder, (a) such knowledge shall be deemed to include (i) the best actual knowledge, information and belief of Seller and the Stockholder and (ii) any information which the Stockholder would reasonably be expected to be aware of in the prudent discharge of his duties in the ordinary course of business (including consultation with legal counsel) as an officer of Seller, and (b) the knowledge of the Stockholder shall be deemed to be the knowledge of Seller. 11.10 ARBITRATION. (a) Any dispute, claim or controversy arising out of or relating to this Agreement or the interpretation or breach hereof shall be resolved by binding arbitration under the commercial arbitration rules of the American Arbitration Association (the "AAA RULES") to the extent such AAA Rules are not inconsistent with this Agreement. Judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof or such court may be asked to judicially confirm the award and order its enforcement, as the case may be. The demand for arbitration shall be made by any party hereto within a reasonable time after the claim, dispute or other matter in question has arisen, and in any event shall not be made after the date when institution of legal proceedings, based on such claim, dispute or other matter in question, would be barred by the applicable statute of limitations. The arbitration panel shall consist of three (3) arbitrators, one of whom shall be appointed by each of Buyer and Stockholder within thirty (30) days after any request for arbitration hereunder. The two arbitrators thus appointed shall choose the third arbitrator within thirty (30) days after their appointment; provided, however, that if the two arbitrators are unable to agree on the appointment of the third arbitrator within thirty (30) days after their appointment, either 36 arbitrator may petition the American Arbitration Association to make the appointment. The place of arbitration shall be Atlanta, Georgia. The arbitrators shall be instructed to render their decision within sixty (60) days after their selection and to allocate all costs and expenses of such arbitration (including legal and accounting fees and expenses of the respective parties) to the parties in the proportions that reflect their relative success on the merits (including the successful assertion of any defenses). (b) Nothing contained in this Section 11.10 shall prevent any party hereto from seeking any equitable relief to which it would otherwise be entitled from a court of competent jurisdiction. 11.11 PERMITTED SUCCESSORS; ASSIGNS; NO THIRD PARTY BENEFICIARIES. Subject to Section 11.1, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the respective successors heirs, personal representatives and permitted assigns of the parties hereto. Nothing in this Agreement, expressed or implied, is intended or shall be construed to confer upon or give to any employee of Seller, or any other person, firm, corporation or legal entity, other than the parties hereto and their heirs, personal representatives, successors and permitted assigns, any rights, remedies or other benefits under or by reason of this Agreement. 11.12 HEADINGS. The article headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. This Agreement shall be construed without regard to the degree to which any of the parties hereto has participated in the drafting of this Agreement. 11.13 SEVERABILITY. In the event that any provision, or part thereof, of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions, or parts thereof, shall not in any way be affected or impaired thereby. 11.14 ASSISTANCE IN WINDING UP. Buyer shall provide to Seller and the Stockholder reasonable assistance in connection with Seller's winding up its affairs after the Closing. The foregoing assistance shall include, without limitation, reasonable access to computer records through employees of Buyer, and otherwise making available, at Seller's reasonable expense, the appropriate employees of Buyer who were employees of Seller prior to the Closing. 11.15 DEMONSTRATORS; STOCKHOLDER'S OFFICE FURNITURE. Buyer will furnish, at Buyer's expense, the Stockholder with the use of two demonstrator vehicles, one VII series BMW and one V series BMW, for a period of three years after the Closing. The Stockholder shall also be entitled to keep his office furniture identified on Schedule 11.15. [SIGNATURES ON FOLLOWING PAGE] 37 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first above written. BUYER: SONIC AUTOMOTIVE, INC. /s/ O. Bruton Smith ----------------------------------- By: O. Bruton Smith Its: Chief Executive Officer SELLER: GLOBAL IMPORTS, INC. /s/ William Morris Whitmore ----------------------------------- By: William Morris Whitmire Its: President THE STOCKHOLDER: /s/ William Morris Whitmore (SEAL) --------------------------- William Morris Whitmire 38 EX-10 7 EXHIBIT 10.36A Exhibit 10.36a AMENDMENT NO. 1 AND SUPPLEMENT TO ASSET PURCHASE AGREEMENT THIS AMENDMENT NO. 1 AND SUPPLEMENT TO ASSET PURCHASE AGREEMENT (this "AMENDMENT") is made and entered into as of this 18th day of February, 1999, by and among SONIC AUTOMOTIVE, INC., a Delaware corporation ("BUYER"), GLOBAL IMPORTS, INC., a Georgia corporation ("SELLER"), and WILLIAM MORRIS WHITMIRE (the "STOCKHOLDER"). W I T N E S S E T H: WHEREAS, the parties hereto have entered into that certain Asset Purchase Agreement dated as of November 25, 1998 (the "ASSET PURCHASE AGREEMENT") (capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to them in the Asset Purchase Agreement); and WHEREAS, the parties hereto wish to amend and supplement the Asset Purchase Agreement as hereinafter provided; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, and intending to be legally bound, the parties hereto hereby agree as follows: 1. SCHEDULES. The following Schedules to the Asset Purchase Agreement have been agreed to by the parties and are attached to this Amendment: Schedule Description -------- ------------ 2.4, Part I, Annex A Contracts and Leases 7.2 Compliance re: Seller and Stockholder 7.3 Pending or Threatened Actions, Suits or Proceedings 7.4 Encumbrances on the Assets 7.5 Permits and Approvals 7.6(a) Financial Statements 7.6(b) Exceptions to GAAP 1 7.8(a) Compliance with Laws 7.8(b) Environmental Matters 2 7.9 Fixtures & Equipment 7.12 Taxes 7.13 Employee Matters 11.15 Office Furniture 2. AMENDMENTS. (a) Section 1.3 of the Asset Purchase Agreement is hereby amended by deleting the existing Section 1.3 in its entirety and inserting in lieu thereof the following: "1.3 "CLOSING DATE DEADLINE" shall mean March 1, 1999." (b) The Business and Intangible Assets Purchase Price, as the same appears in the first sentence of Section 2.2(a) of the Asset Purchase Agreement, is hereby amended to read "Eleven Million Three Hundred Thousand Dollars ($11,300,000)". (c) The term "Four Million One Hundred Fifty Thousand Dollars ($4,150,000)", as the same appears in Section 2.2(b) of the Asset Purchase Agreement, is hereby amended to read "Three Million One Hundred Fifty Thousand Dollars ($3,150,000)". (d) Subsection 2.2(c) of the Asset Purchase Agreement is hereby deleted in its entirety and a new Subsection 2.2(c), as well as new Subsections 2.2(d), (e), (f), (g), (h), (i) and (j) are hereby inserted as follows: "(c) In payment of the balance of the Initial Purchase Price (the "STOCK COMPONENT"), Buyer shall issue and deliver to Seller that number of whole shares of Buyer's Class A Convertible Preferred Stock, Series III (the "PREFERRED STOCK"), obtained by (A) multiplying (I) 452,778, as proportionately increased for any increase after November 25, 1998 and prior to the Closing in the number of outstanding shares of Buyer's Class A Common Stock, $.01 par value per share (the "COMMON STOCK"), by way of stock dividend, stock distribution or subdivision or as proportionately decreased for any decrease after November 25, 1998 and prior to the Closing in the number of outstanding shares of Common Stock by way of combination, consolidation, reclassification or otherwise, by (II) the Market Price (as defined in the Statement of Rights and Preferences of Preferred Stock attached hereto as Exhibit A (the "STATEMENT OF RIGHTS AND PREFERENCES")) as of the Closing Date, and (B) dividing the product obtained from such multiplication by $1,000. No fractional shares of Preferred Stock shall be issued; any such fraction of a share of Preferred Stock shall be paid in cash at the rate of $1,000 per whole share of Preferred Stock. The Preferred Stock shall have such rights and preferences as are set forth in the Certificate of Designation, Preferences and Rights of Class A Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATION") referred to in the Statement of Rights and Preferences. 3 (d) Buyer will use its best reasonable efforts to include all of the shares of Common Stock issuable upon conversion of the Preferred Stock, plus any 4 Special Additional Shares (as defined and as provided in Subsection 2.2(g) below (collectively, the "PIGGYBACK COMMON SHARES")), in an underwritten public offering of Buyer's Common Stock (the "PUBLIC OFFERING") in accordance with the Securities Act of 1933, as amended (the "SECURITIES ACT"), on a "piggyback" registration basis on or prior to April 30, 1999. Seller shall sell in the Public Offering all Piggyback Common Shares which Buyer is able to register in the Public Offering, unless the managing or lead managing underwriter in the Public Offering requires that Seller sell fewer than all of the Piggyback Common Shares or Buyer and Seller mutually agree that a fewer number of Piggyback Common Shares will be registered and sold. (e) If requested by the managing or lead managing underwriter in the Public Offering, Seller and the Stockholder shall execute and deliver such customary documentation as is utilized by such underwriter for selling stockholders in underwritten public offerings including, without limitation, an underwriting agreement and a "lock-up" agreement with the managing or lead managing underwriter in such forms as are customarily used by such underwriter. In connection with any such registration, Seller and the Stockholder shall supply to Buyer such information as may be reasonably requested by Buyer in connection with the preparation and filing of a registration statement with the Securities and Exchange Commission (the "SEC"). Seller and the Stockholder shall not supply any information to Buyer for inclusion in such registration statement that will, taken as a whole, at the time the registration statement becomes effective under the Securities Act, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Buyer shall pay all expenses of registration of the Piggyback Common Shares except for the fees and expenses of separate counsel, if any, engaged by Seller, underwriter discounts and allowances for the sale of such Shares, and blue sky fees to the extent the applicable state laws require payment by Seller. (f) Any of the Piggyback Common Shares which have not been registered and sold pursuant to the Public Offering by April 30, 1999 (other than as a result of a failure by Seller to participate in the Public Offering) will be registered by Buyer in a "shelf" registration statement (including any required post-effective amendment) under the Securities Act as promptly as possible after April 30, 1999 but in no event later than May 31, 1999; provided, however, Buyer may either (i) delay the effectiveness of any such shelf registration statement until the expiration of any "lock-up" period required by the underwriters in the Public Offering or (ii) not delay such effectiveness, in which case Seller hereby agrees to be bound by any such "lock-up" as fully as if Seller had signed the applicable lock-up agreement required by such underwriters. Upon notice by Buyer to Seller that such shelf registration statement is effective (including any required post-effective amendment) and that any such "lock-up" has expired, Seller shall have a period of ten (10) days from the 5 date of such notice (the "SHELF REGISTRATION CONVERSION PERIOD") to surrender to Buyer for conversion into shares of Common Stock up to all shares of Preferred Stock held by Seller, and such shares of Common Stock issued upon such conversion shall be included in such shelf registration. Any shares of Common Stock issued upon conversion of shares of Preferred Stock which are surrendered for conversion after the expiration of the Shelf Registration Conversion Period shall not be included in such shelf registration. All shares of Common Stock which are included in such "shelf" registration in accordance with the foregoing provisions, as well as any Special Additional Shares issued pursuant to Subsection 2.2(g) below are hereinafter collectively called the "REGISTERED COMMON SHARES". (g) (i) Seller shall not be obligated to convert any shares of the Preferred Stock until either (A) in the case of the Public Offering, Seller is notified by Buyer that such conversion is necessary in order for Seller to participate in the Public Offering (which notice Buyer agrees to give to Seller in a timely fashion to enable Seller to convert the applicable number of shares of Preferred Stock), or (B) in the case of a "shelf" registration statement under Subsection 2.2(f) above, the time required by said Subsection 2.2(f). If Seller elects to convert any shares of Preferred Stock prior to the time(s) required in clauses (A) or (B) of the immediately preceding sentence or after the expiration of the Shelf Registration Conversion Period, the provisions of this Subsection 2.2(g) shall not apply with respect to such shares of Preferred Stock so elected to be converted. (ii) With respect to any shares of Preferred Stock as to which the provisions of this Subsection 2.2(g) shall apply, Seller shall receive the number of shares of Common Stock issuable upon conversion of such shares of Preferred Stock in accordance with Subsection 2(a)(iv) of the Certificate of Designation, subject to the following: (A) If, as a result of the provisions of the third sentence of Subsection 2(a)(iv) of the Certificate of Designation, the number of shares of Common Stock to be issued upon conversion of each of such shares of Preferred Stock would be less than the Series III Conversion Amount (as defined in said Subsection 2(a)(iv)) as of the date of issuance of such shares of Preferred Stock (the "ORIGINAL CONVERSION AMOUNT"), Buyer shall issue to Seller, at no additional cost to Seller, such number of additional shares of Common Stock, if any, which, when added to the number of shares of Common Stock to be issued upon such conversion, will result in Seller receiving, in connection with such conversion, the number of shares of Common Stock Seller would have received had the number of shares of Common Stock issued upon such conversion been determined solely based upon the Original Conversion Amount; 6 (B) With respect to any shares of Preferred Stock converted by Seller in order for Seller to participate in the Public Offering (the "PUBLIC OFFERING PREFERRED STOCK"), if the closing price for a share of Common Stock on the New York Stock Exchange for the trading day immediately preceding the date of the effectiveness of the registration statement in the Public Offering (the "PUBLIC OFFERING REGISTRATION PRICE") is less than the Market Price (as hereinafter defined) as of the date of the issuance of the shares of Public Offering Preferred Stock, then Buyer shall issue and deliver to Seller, at no additional cost to Seller, that number of additional shares of Common Stock, if any, which, when added to the number of shares of Common Stock issued or to be issued upon the conversion of the Public Offering Preferred Stock, would result in Seller receiving, in connection with such conversion, the number of shares of Common Stock Seller would have received had the number of shares of Common Stock issued upon such conversion of each share of Public Offering Preferred Stock converted been determined by dividing $1,000 by the Public Offering Registration Price. Any such additional shares of Common Stock which are not included in the Public Offering (other than as a result of a failure by Seller to participate in the Public Offering) will be "Special Additional Shares" for purposes of the "shelf" registration statement under Subsection 2.2 (f) above. (C) With respect to any shares of Preferred Stock converted by Seller in connection with a "shelf" registration statement under Subsection 2.2(f) above (the "SHELF REGISTRATION PREFERRED STOCK"), if the closing price for a share of Common Stock on the New York Stock Exchange for the trading day immediately preceding the later of (x) the date of the effectiveness of such "shelf" registration statement (including any required post-effective amendment) or (y) the date of any "lock-up" referred to in Subsection 2.2(f) (the "SHELF REGISTRATION PRICE") is less than the Market Price as of the date of the issuance of the shares of Shelf Registration Preferred Stock, then Buyer shall issue and deliver to Seller, at no additional cost to Seller, that number of additional shares of Common Stock, if any, which, when added to the number of shares of Common Stock issued or to be issued upon the conversion of the Shelf Registration Preferred Stock, would result in Seller receiving, in connection with such conversion, the number of shares of Common Stock Seller would have received had the number of shares of Common Stock issued upon such conversion of each share of the Shelf Registration Preferred Stock converted been determined by dividing $1,000 by the Shelf Registration Price. 7 (iii) Any additional shares of Common Stock to be issued and delivered by Buyer to Seller pursuant to Subsection 2.2(g)(ii) above are herein referred to as the "SPECIAL ADDITIONAL SHARES". (h) If Seller shall elect not to convert any shares of Preferred Stock within the Shelf Registration Conversion Period, Buyer's sole obligation with respect to such shares of Preferred Stock and the shares of Common Stock issuable upon conversion of such shares of Preferred Stock (the "UNREGISTERED COMMON SHARES") shall be (A) to use its best reasonable efforts to make available current public information with respect to Buyer within the meaning of Subsection (c)(1) of Rule 144 ("RULE 144") promulgated by the SEC to the extent necessary to facilitate public resales by the Seller of the Unregistered Common Shares, pursuant to Rule 144, and (B) to remove stop transfer instructions and restrictive legends, as provided in subsection (j) below. (i) Buyer shall not exercise any rights of redemption it has regarding the Preferred Stock, as such rights are more fully set forth in the Certificate of Designation, until the later of (A) the closing of the Public Offering, or (B) the expiration of the Shelf Registration Conversion Period. (j) Buyer shall remove any and all stop transfer instructions and shall remove any restrictive legend on the certificates with respect to the Preferred Stock and any Unregistered Common Shares then owned by Seller to the extent that either (A) such Preferred Stock or Unregistered Common Shares may hereafter be registered under the Securities Act and under any applicable state securities or blue sky laws, or (B) Buyer has received an opinion of counsel, in form and substance reasonably satisfactory to the Buyer, that such registration is not required. Upon receipt of reasonable evidence that the requirements of Rule 144(k) have been complied with (including an opinion of counsel reasonably satisfactory to Buyer to such effect), Buyer shall remove any and all stop transfer instructions and shall remove any restrictive legend on such certificates." (e) The term "$1,000,000, equal to five (5)", as the same appears in the first sentence, second line, of Section 2.3(a) of the Asset Purchase Agreement, is hereby amended to read "$2,000,000, equal to ten (10)". (f) The number "$1,000,000", as the same appears in the "provided, however," clause at the end of Section 2.3(b) of the Asset Purchase Agreement, is hereby amended to read "$2,000,000". (g) The number "$1,000,000", as the same appears in Section 2.3(c) of the Asset Purchase Agreement, is hereby amended to read "$2,000,000". (h) Section A of Exhibit A to the Asset Purchase Agreement is hereby amended 8 by deleting the existing Section A in its entirety and inserting in lieu thereof the following: "A. General The Preferred Stock will consist of that number of whole shares of the Buyer's Class A Convertible Preferred Stock, Series III, having a par value of $.10 per share (the "Preferred Stock"), obtained by (a) multiplying (I) 452,778, as proportionately increased for any increase after November 25, 1998 and prior to the Closing in the number of outstanding shares of Common Stock by way of stock dividend, stock distribution or subdivision or as proportionately decreased for any decrease after November 25, 1998 and prior to the Closing in the number of outstanding shares of Common Stock by way of combination, consolidation, reclassification or otherwise, by (II) the Market Price (as defined below) as of the Closing Date, and (b) dividing the product obtained from such multiplication by $1,000." (i) The definition of "Market Price", as the same appears in the sixth paragraph of Section C of Exhibit A to the Asset Purchase Agreement, is hereby amended by deleting such paragraph in its entirety and inserting in lieu thereof the following: "The "Market Price" will be defined as the average closing price per share of Common Stock on the New York Stock Exchange for the twenty trading days immediately preceding the date of determination, adjusted (as reported by the New York Stock Exchange) for any increase in the number of outstanding shares of Common Stock by way of stock dividend, stock distribution or subdivision or any decrease in the number of outstanding shares of Common Stock by way of combination, consolidation, reclassification or otherwise." 3. ADDITIONAL TERMS RELATING TO THE REGISTERED COMMON SHARES. The parties agree, with respect to the issuance and delivery of the Registered Common Shares to Seller, as follows: (a) Buyer shall have no obligation to maintain the currency of any prospectus, permit the use of any prospectus or maintain the effectiveness of any registration statement for the resale of the Registered Common Shares once all of the Registered Common Shares that remain unsold may be sold without restriction pursuant to Rule 144. (b) Seller and the Stockholder agree and acknowledge, with regard to the offer or resale by either of them of any of the Registered Common Shares, that: (i) Seller and the Stockholder agree that they shall effect each resale of Registered Common Shares only pursuant to a current prospectus or supplements thereto that is a part of the shelf registration statement under Subsection 2.2(f) above (the "RESALE PROSPECTUS"); (ii) Any offering of any of the Registered Common Shares under the 9 Resale Prospectus by either of them will be effected in an orderly manner through a securities dealer, acting as broker or dealer, selected by Seller or the Stockholder and reasonably acceptable to Buyer (the "DESIGNATED BROKER"); (iii) Seller and the Stockholder will make resales of Registered Common Shares only by one or more methods described in the Resale Prospectus, as appropriately supplemented or amended when required; (iv) Since the Registered Common Shares are "restricted securities" within the meaning of Rule 145 promulgated by the SEC under the Securities Act, the certificates representing the Registered Common Shares will be issued by Buyer with such legends as Buyer may reasonably require until such shares are offered pursuant to the foregoing terms under the Resale Prospectus, at which time such certificates shall be tendered to Buyer and a new certificate or certificates without legends shall be issued by Buyer to the Designated Broker in order to settle any resales by Seller or the Stockholder; (v) Seller and the Stockholder shall provide Buyer, in writing, with all information concerning Seller and the Stockholder and their resale of the Registered Common Shares as may reasonably be requested by Buyer in order to comply with the Securities Act, and the Seller and the Stockholder shall indemnify Buyer for any liabilities (the "SELLER'S LIABILITIES") arising under the Securities Act, the Securities Exchange Act of 1934 or any state securities or blue sky laws resulting from any material misstatements in, or omissions of material information from, such information provided by Seller and the Stockholder to Buyer pursuant to this clause (v); and (vi) Seller and the Stockholder shall pay any and all expenses directly related to the resale of the Registered Common Shares, including, but not limited to, the commissions or fees of the Designated Broker. (c) Buyer agrees that: (i) Buyer shall use its best reasonable efforts to list the Registered Common Shares for trading on the New York Stock Exchange; (ii) Buyer shall pay all expenses, including legal and accounting fees, in connection with the preparation, filing and maintenance of the shelf registration statement under Subsection 2.2(f) above, including amendments thereto, the Resale Prospectus, including supplements thereto, the issuance of certificates representing the Registered Common Shares, and other expenses incurred by Buyer in meeting its obligations set forth in Section 2.2(c) of the Asset Purchase Agreement, as amended hereby, and in this Section 3; and (iii) Buyer shall indemnify Seller and the Stockholder for any liabilities arising under the Securities Act, the Securities Exchange Act of 1934 or any state securities or blue sky laws resulting from any material misstatements in, or omissions of material information from, the Resale Prospectus or the shelf registration statement under Subsection 2.2(f) above, including 10 the information incorporated by reference therein, except for the Seller's Liabilities. (d) Notwithstanding any provision of the Asset Purchase Agreement, as amended hereby, to the contrary, Seller and the Stockholder shall not have any right to take any action (and Seller and the Stockholder hereby agree that neither of them shall take any action) to restrain, enjoin or otherwise delay any registration as a result of any controversy that might arise with respect to the interpretation or implementation of the Asset Purchase Agreement, as amended hereby. Nothing contained in this Section 3(d) shall prevent the making of a claim for monetary relief. 4. ASSET PURCHASE AGREEMENT CONFIRMED. Except as provided in this Amendment, the Asset Purchase Agreement is hereby confirmed, as amended hereby, and shall continue in full force and effect. [SIGNATURES ON NEXT PAGE] 11 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day, month and year first above written. BUYER: SONIC AUTOMOTIVE, INC. By: /s/ O. Bruton Smith -------------------------------- Name: O. Bruton Smith Title: Chief Executive Officer SELLER: GLOBAL IMPORTS, INC. By: /s/ William Morris Whitmire -------------------------------- Name: William Morris Whitmire Title: President THE STOCKHOLDER: /s/ William Morris Whitmire (SEAL) ------------------------------------ Name: William Morris Whitmire 12 EX-10 8 EXHIBIT 10.37 Exhibit 10.37 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made this 26th day of February, 1999 by and among SONIC AUTOMOTIVE, INC., a Delaware corporation ("BUYER"), LUTE RILEY MOTORS, INC., a Texas corporation ("SELLER"), and L. S. RILEY ("STOCKHOLDER"). WITNESSETH: WHEREAS, Seller is engaged in the business (the "BUSINESS") of owing and operating a Honda automobile dealership business at 1331 N. Central Expressway, Richardson, Texas and 330 Melrose, Richardson, Texas and an automobile repair body shop located at 2345 West Mockingbird, Dallas, Texas; WHEREAS, Seller desires to sell and Buyer desires to buy, or to cause one or more subsidiaries or affiliates of Buyer to buy, certain assets pertaining to the Business, subject to the terms and conditions of this Agreement; WHEREAS, contemporaneously with the execution of this Agreement, Buyer has entered into a Contract to Purchase and Sell Property (the "REAL PROPERTY PURCHASE AGREEMENT") with L. S. Riley, R. Leona Riley and the Lucien S. Riley and R. Leona Riley Family Partnership, Ltd., a Texas limited partnership (the "OWNERS"), whereby Buyer has agreed to buy, and the Owners have agreed to sell the Real Property (used herein as defined in the Real Property Purchase Agreement); and WHEREAS, the consummation of the transactions contemplated by this Agreement is subject to the consummation of the transactions contemplated by the Real Property Purchase Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS 1.1 "ASSETS" shall mean: the New Vehicles (as defined in Section 3.1); the Demonstrators (as defined in Section 3.2); the Used Vehicles (as defined in Section 3.5), if any; the Parts (as defined in Section 4.3); the Miscellaneous Inventories (as defined in Section 5.1); the Work in Progress (as defined in Section 5.3(a)); the Prepaid Expenses (as defined in Section 1 5.3(b)); the Fixtures and Equipment (as defined in Section 5.4); the Miscellaneous Assets (as defined in Section 5.5); and the goodwill of the Business. 1.2 "CLOSING DATE" shall mean the date, not later than the Closing Date Deadline (as hereinafter defined), of the closing of the purchase and sale of the Assets (the "CLOSING") which shall be a date designated by Buyer, after receipt by Buyer of the approvals, and the satisfaction of the other conditions, set forth in Sections 8.8, 8.13 and 8.16, or such other date as is mutually agreed upon by the parties hereto. The Closing shall be held at the offices of Parker, Poe, Adams & Bernstein L.L.P., 2500 Charlotte Plaza, Charlotte, North Carolina, at 9:00 a.m. on the Closing Date. 1.3 "CLOSING DATE DEADLINE" shall mean the date that is the ninetieth (90th) day after the date of this Agreement first set forth above; provided, however, if, as of such date, the approvals set forth in Sections 8.8, 8.13 and 8.16 of this Agreement shall not have been obtained and/or audited financial statements contemplated by Section 8.18 hereof shall not have been completed, Buyer may elect to extend the Closing Date Deadline for an additional thirty (30) days. In addition to the foregoing, if Seller shall have failed to furnish to Buyer the due diligence materials set forth in Schedule 10.5 and in Paragraph 7(a) of the Real Property Agreement by the eighth (8th) day after the date of this Agreement (the "Due Diligence Delivery Date"), Buyer may also elect to extend (or further extend) the Closing Date Deadline one (1) additional day for each day after the Due Diligence Delivery Date the Seller fails to send such materials to Buyer. In addition to the foregoing, Buyer may also elect to extend (or further extend) the Closing Date Deadline in accordance with Paragraph 7(d) of the Real Property Purchase Agreement. Any reference herein to the term "Closing Date Deadline" shall mean the Closing Date Deadline, as the same may have been so extended. 1.4 "INVENTORY DATE" shall mean the close of business on the date of completion of the Inventory (as defined in Section 4.1), which date shall not be more than three (3) days prior to the Closing Date, or such later date prior to the Closing as is mutually agreed by Seller and Buyer. 1.5 "LIABILITIES" shall mean (i) all obligations of Seller, arising in the ordinary course of business after the Closing Date, and not as a result of any breach or default, under (A) each contract or lease of Seller set forth on Annex A of Schedule 2.4 attached hereto, and (B) each other contract or lease of Seller that is entered into in connection with the Business in the ordinary course of business at any time after the date hereof and on or prior to the Closing Date, but only if, in the case of clauses (A) and (B), Buyer has agreed to assume such contract or lease pursuant to the Assumption Agreement (as defined in Section 2.4 below); (ii) Seller's chargeback liability to Honda Auto Credit for losses on applicable finance chargebacks, including with respect to the cancellation of any extended warranties issued by Honda; and (iii) the Inducement Fee as provided in Section 2.5 hereof. 1.6 "MANUFACTURER" shall mean American Honda Motor Co., Inc. 2 ARTICLE II SALE AND PURCHASE OF THE ASSETS 2.1 SALE AND PURCHASE. Upon the terms and subject to the conditions hereinafter set forth, at the Closing, Seller will sell, transfer and convey the Assets to Buyer and Buyer will purchase the Assets from Seller for the consideration set forth in this Agreement. The sale, transfer and conveyance of the Assets will be made by execution and delivery at the Closing of a bill of sale in a form reasonably satisfactory to Buyer's counsel (the "BILL OF SALE") and such other instruments of assignment, transfer and conveyance as Buyer shall reasonably request. Except to the extent specifically included within the Assets, Seller will not sell, and Buyer will not purchase, any other tangible or intangible assets of Seller. 2.2 PURCHASE PRICE. The aggregate purchase price (the "PURCHASE PRICE") to be paid for the Assets shall consist of Forty-Two Million One Hundred Thousand Dollars ($42,100,000), as the purchase price for the Business and intangible assets included in the Assets (the "BUSINESS AND INTANGIBLE ASSETS PURCHASE PRICE"), plus the sum of: (a) the New Vehicle Purchase Price (as defined in Section 3.1); (b) the Demonstrator Purchase Price (as defined in Section 3.2); (c) the Used Vehicle Purchase Price (as defined in Section 3.5), if applicable; (d) the Parts Purchase Price (as defined in Section 4.4); (e) the Miscellaneous Inventories Purchase Price (as defined in Section 5.1); (f) the Work in Progress and Prepaid Expenses Purchase Price (as defined in Section 5.3(a)); and (g) the Fixtures and Equipment Purchase Price (as defined in Section 5.4). The parties acknowledge that the New Vehicle Purchase Price, the Parts Purchase Price and the Miscellaneous Inventories Purchase Price will be based upon information contained in Schedule 3.1 and the Inventory (as defined in Section 4.1), all of which are to be delivered prior to the Closing Date. The parties also acknowledge that adjustments to those categories of Assets will have to be made to reflect ordinary course increases or decreases in those assets between the time of delivery of such Schedule 3.1 and the Inventory and the Closing Date, and that the related components of the Purchase Price will have to be adjusted to reflect any such adjustments to those Assets. All of the foregoing adjustments (with appropriate payments by the parties in cash) will be made as promptly as possible after the Closing. Each party will use the Purchase Price allocation described in Schedule 2.2 in all reporting to, and tax returns filed with, the Internal Revenue Service and other state and local taxing authorities. 2.3 PAYMENT. At the Closing, Buyer shall pay the Purchase Price as follows: (a) The Buyer shall deliver to Seller cash, by a certified check or by wire transfer, to an account or accounts designated by Seller one Business Day prior to Closing, in an amount equal to 75% of the Purchase Price. As used herein, the term "BUSINESS DAY" is a day other than a Saturday, a Sunday or a day on which banks are required to be closed in the State of Texas. (b) In payment of the balance of the Purchase Price, Buyer shall issue and deliver to Seller, that number of whole shares (the "SHARES") of Buyer's Class A Convertible Preferred Stock, Series III (the "PREFERRED STOCK"), obtained by dividing such balance of the Purchase Price 3 by $1,000. No fractional shares of Preferred Stock shall be issued; any such fraction of a share of Preferred Stock shall be paid in cash at the rate of $1,000 per whole share of Preferred Stock. The Shares shall be convertible into shares of Buyer's Class A Common Stock, par value $.01 per share (the "COMMON STOCK"), and shall have such other rights and preferences as are set forth in the Statement of Rights and Preferences of Preferred Stock attached hereto as Exhibit A. After the Closing, Buyer's sole obligation with respect to the Shares and the Common Stock issuable upon conversion thereof (the "CONVERSION STOCK") shall be as follows: (i) Buyer shall use its best reasonable efforts to make available "current public information" about itself within the meaning of subsection (c)(1) of Rule 144 promulgated by the SEC under the Securities Act ("RULE 144") to the extent necessary to facilitate resales of the Conversion Stock pursuant to Rule 145(d) of the Securities Act of 1933, as amended (the "SECURITIES ACT"); and (ii) Buyer shall remove stock transfer instructions on and restrictive legends from certificates representing the Conversion Stock to the extent that either (A) the offer and sale of the Shares or the Conversion Stock may hereafter be registered under the Securities Act and under any applicable state securities laws or (B) Buyer has received an opinion of counsel, in form and substance reasonably satisfactory to Buyer, that registration of such offer and sale is not required. 2.4 ASSIGNMENT AND ASSUMPTION. At the Closing, Seller will assign to Buyer its Liabilities, and Buyer will assume and agree to perform and discharge the Liabilities pursuant to an assignment and assumption agreement in a form reasonably acceptable to Seller's counsel (the "ASSUMPTION AGREEMENT"). Notwithstanding anything herein to the contrary, except as expressly provided in this Section 2.4 and elsewhere in this Agreement and in the Assumption Agreement, Buyer does not and will not assume or become liable for any obligations or liabilities of Seller, of any kind whatsoever, fixed or contingent, known or unknown (collectively, the "RETAINED LIABILITIES"), as a result of the transactions contemplated in this Agreement. Seller shall retain and agrees to satisfy and discharge all of the Retained Liabilities, including the Retained Liabilities set forth on Part II of Schedule 2.4. 2.5 INDUCEMENT FEE. As an inducement to Buyer to negotiate and enter into this Agreement and to undertake the further cost and expense of conducting its due diligence investigation and preparing to satisfy its obligations at the Closing, Seller hereby agrees to pay to Buyer not later than July 15, 1999 the sum of $500,000 (the "INDUCEMENT FEE"). The Inducement Fee will be included in the Liabilities and will become an obligation of Buyer or any other person (including any holder of a right of first refusal, preemptive right or other similar right), with respect to any of the Assets who purchases the Assets, or any portion thereof, as a result of the execution and delivery by Seller of this Agreement. The Inducement Fee will be canceled if this Agreement is terminated for any reason other than the exercise of a right of first refusal, preemptive right or other similar right, by an applicable automobile manufacturer or distributor or any person claiming by, through or under it. 4 2.6 NON-COMPETITION AGREEMENT. At the Closing, Seller and L. S. Riley shall enter into a non-competition agreement with Buyer in substantially the form of Exhibit B attached hereto (the "NON-COMPETITION AGREEMENT"). $10,000 of the Business and Intangible Assets Purchase Price shall be allocated to the non-compete covenant set forth in the Non-Competition Agreement. ARTICLE III NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES 3.1 NEW VEHICLES. At the Closing, Buyer shall purchase all of Seller's untitled new 1999 and 1998 motor vehicles in Seller's stock and unsold by Seller as of the Closing Date and which are listed on Schedule 3.1 hereto, which Seller shall deliver to Buyer not more than three (3) days prior to the Closing (all such vehicles are collectively referred to hereinafter as the "NEW VEHICLES"). The purchase price to be paid by Buyer for each New Vehicle shall be the price at which the New Vehicle was invoiced to Seller by the Manufacturer, as adjusted pursuant to this Article III (the sum of all such amounts to be paid for New Vehicles as determined by this Article III is herein referred to as the "NEW VEHICLE PURCHASE PRICE"). Schedule 3.1 shall set forth the model, invoice cost, and all other information necessary to calculate the New Vehicle Purchase Price with respect to each New Vehicle listed in such Schedule 3.1. At the Closing, Seller shall assign to Buyer, and Buyer shall assume, without any additional consideration therefor, by appropriate documents reasonably satisfactory to Buyer, all unfilled retail orders and deposits made thereon. Any profits or proceeds derived from such unfilled retail orders shall belong to Buyer. In the event any such retail order shall be canceled or terminated, Buyer shall be responsible for refunding any deposit made thereon provided such deposit has been assigned to Buyer. 3.2 DEMONSTRATORS. At the Closing, Buyer shall purchase all of Seller's untitled 1999 and 1998 motor vehicles in Seller's stock and unsold by Seller as of the Closing Date which are used in the ordinary course of business for the purpose of demonstration and that are listed on Schedule 3.2, which Seller shall deliver to Buyer no more than three (3) days prior to the Closing (all such vehicles are collectively referred to herein as the "DEMONSTRATORS"). For purposes of this Agreement, any motor vehicle with more than 6,000 miles on its odometer shall be deemed to be "used" rather than a "Demonstrator." The purchase price to be paid by Buyer for each Demonstrator shall be the price at which the Demonstrator was invoiced to Seller by the Manufacturer, as adjusted pursuant to this Article III, and as reduced by an amount equal to ten cents ($.10) multiplied by the amount equal to (i) the total mileage on such odometer, less (ii) 200 miles (the sum of all such amounts to be paid for Demonstrators hereunder is herein referred to as the "DEMONSTRATOR PURCHASE PRICE"). Schedule 3.2 shall set forth each Demonstrator's model, invoice cost, odometer reading and all other information necessary to calculate the Demonstrator Purchase Price with respect to such Demonstrator. 3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR PURCHASE PRICE. The purchase price paid for each New Vehicle and each Demonstrator purchased under this Article III shall be: (a) increased by the dealer cost (including labor) of any equipment and accessories which have been installed by Seller; and (b) decreased by (i) the dealer cost (including labor) of any equipment and 5 accessories which have been removed from such vehicles, (ii) all paid or unpaid rebates, discounts, holdback for dealer account and other factory incentives with respect to such New Vehicle or Demonstrator (including without limitation rebates applied for and paid but not earned, incentive monies claimed on pre-reported units and carryover allowances on 1997 models), and (iii) all refundable advertising allowances, if any. 3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS. In the event any New Vehicle or Demonstrator shall have been damaged prior to the Closing Date which is not reflected on Schedule 3.1 or Schedule 3.2, or is otherwise in a condition such that it cannot reasonably be presented as being in a first class saleable condition, Seller and Buyer will attempt to agree on the cost to cover such repairs or some other equitable reduction in value to reflect such condition, which amount shall be deducted from the price to be paid for such New Vehicle or Demonstrator. In the event Buyer and Seller cannot agree on the cost of repairs or the amount of reduction, Buyer shall have no obligation to purchase any such damaged New Vehicle or Demonstrator. With respect to any New Vehicle or Demonstrator which shall have been damaged and repaired prior to the Closing Date, Seller and Buyer will attempt to agree on an adjustment to the price to reflect the decrease, if any, in the wholesale value of such New Vehicle or Demonstrator resulting from such damage and repair, which amount shall be deducted from the price to be paid for such New Vehicle or Demonstrator. In the event Buyer and Seller cannot agree on such adjustment, Buyer shall have no obligation to purchase such New Vehicle or Demonstrator. Seller shall notify Buyer on or prior to the Closing Date if any New Vehicles or Demonstrators shall have suffered any damage which is not reflected on Schedules 3.1 and 3.2. 3.5 USED VEHICLES. Buyer shall have no obligation to purchase any vehicle from Seller other than its obligation hereunder to purchase the New Vehicles and the Demonstrators. Seller and Buyer shall perform an inventory of Seller's motor vehicles that are not New Vehicles or Demonstrators as of the Inventory Date (including, without limitation, Seller's "rental fleet"), and, in connection with such inventory, Seller and Buyer shall attempt to assign a mutually agreed price to each such vehicle owned by Seller as of the Closing Date. Any such vehicles as to which Seller or Buyer are unable to agree upon a price shall not be purchased by Buyer in connection herewith. Any such vehicles as to which Seller and Buyer shall agree upon a price are collectively referred to herein as the "USED VEHICLES" and shall be purchased by Buyer at the Closing. The sum of all prices assigned to such Used Vehicles to be purchased by Buyer pursuant to the terms of this Section 3.5 shall be referred to herein as the "USED VEHICLE PURCHASE PRICE." ARTICLE IV PARTS/ACCESSORIES 4.1 THE INVENTORY. Buyer and Seller shall engage a mutually acceptable third party engaged in the business of appraising, valuing and preparing inventories for automobile dealerships (hereinafter referred to as the "INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the parts and accessories, as well as the Miscellaneous Inventories, and either used or held for use 6 by, Seller in the Business. The Inventory (insofar as it relates to parts and accessories) shall be posted to the Manufacturer's approved system of inventory control. The cost of the Inventory shall be borne by Buyer. The Inventory shall be completed by the Inventory Date. The Inventory shall identify each part and accessory and its purchase price. 4.2 RETURNABLE AND NON-RETURNABLE PARTS AND ACCESSORIES. The Inventory shall classify parts and accessories as "returnable" or "nonreturnable." For purposes of this Agreement, the terms "returnable parts" and "returnable accessories" shall describe and include only those new parts and new accessories for vehicles which are listed (coded) in the latest current Master Parts Price List Suggested List Prices and Dealer Prices, or other applicable similar price lists, of the Manufacturer, with supplements or the equivalent in effect as of the Inventory Date (the "MASTER PRICE LIST"), as returnable to the Manufacturer at not less than the purchase price reflected in the Master Price List. The purchase price for each "returnable part" and "returnable accessory" will be the price listed in the Master Price List. All parts and accessories listed (coded) in the Master Price List as non-returnable to the Manufacturer shall be classified as "nonreturnable." The purchase price for each "nonreturnable" part and accessory, of which type Seller has made no sales during the ninety (90) day period prior to the Inventory Date, shall be sixty percent (60%) of the price listed therefor in the Master Price List. The purchase price for each "nonreturnable" part and accessory, of which type Seller has made retail sales to one or more customers during the ninety (90) day period prior to the Inventory Date, shall be one hundred percent (100%) of the price therefor listed in the Master Price List. The purchase price for all "Jobber" and/or "NPN" parts shall be equal to Seller's original cost of such parts. The purchase price for all nuts, bolts and any other parts not addressed in this Section 4.2 shall equal the fair market value thereof as determined by the Inventory Service. 4.3 PARTS. At the Closing, Buyer shall purchase all parts and accessories owned by Seller at the Closing Date and listed on the Inventory (the "PARTS") provided, however, that Buyer shall not be obligated to purchase any damaged parts or accessories, parts and accessories with component parts missing, superseded or otherwise obsolete parts or accessories, or used parts or accessories. Seller agrees that if parts and accessories that Buyer is not obligated to purchase hereunder are not removed from the Real Property within sixty (60) days after the Closing Date, they shall become the property of Buyer without the payment of any consideration in addition to the consideration otherwise provided herein. Buyer agrees to provide access to Seller for the purpose of removing such property during such sixty (60) day period. 4.4 PARTS AND PURCHASE PRICE. The purchase price for the Parts will equal the value of such items shown on the Inventory (the "PARTS PURCHASE PRICE"). 4.5 PARTS RETURN PRIVILEGES. Seller shall assign to Buyer at Closing any net parts return privileges under the Manufacturer's Parts Return Plans that may have accrued to Seller prior to the Closing in respect of the Parts (and any other special parts return authorizations in respect of the Parts which may have been granted to Seller by the Manufacturer). 7 ARTICLE V MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES AND EQUIPMENT 5.1 MISCELLANEOUS INVENTORIES. At the Closing, Buyer shall purchase all useable gas, oil and grease, all undercoat material and body materials in unopened cans and such other miscellaneous useable and saleable articles in unbroken lots (including office supplies) which (i) are on the dealership premises, (ii) are owned by Seller on the Closing Date, (iii) do not represent more than a sixty (60) day supply of the item(s) in question, and (iv) are identified in the Inventory taken by the Inventory Service on the Inventory Date (collectively referred to herein as the "MISCELLANEOUS INVENTORIES"). The purchase price for the Miscellaneous Inventories shall be equal to the replacement cost of the Miscellaneous Inventories as determined by the Inventory Service and set forth on the Inventory (the sum of all prices of the Miscellaneous Inventories pursuant to the terms of this Section 5.1 shall be referred to herein as the "MISCELLANEOUS INVENTORIES PURCHASE PRICE"). 5.2 MISCELLANEOUS ITEMS NOT INCLUDED IN THE INVENTORY. Buyer shall have no obligation to purchase any such miscellaneous items that are not included in the Miscellaneous Inventories. Seller agrees that any miscellaneous items that are not included in the Miscellaneous Inventories and are not removed from the Real Property within sixty (60) days after the Closing Date shall become the property of Buyer without the payment of any consideration in addition to the consideration otherwise provided herein. Buyer agrees to provide access to Seller for the purpose of removing such property during such sixty (60) day period. 5.3 WORK IN PROGRESS AND PREPAID EXPENSES. (a) At the Closing, Buyer shall buy at Seller's actual cost for parts and labor such shop labor and sublet repairs as Seller shall have caused to be performed on any repair orders which are in process at the close of business on the Closing Date for which there are adequate credit arrangements (the "WORK IN PROGRESS") (the sum of all costs of Seller for the Work in Progress pursuant to the terms of this Section 5.3(a) and the book value of all Prepaid Expenses (as defined in Subsection 5.3(b) below) shall be referred to herein as the "WORK IN PROGRESS AND PREPAID EXPENSES PURCHASE PRICE"). Buyer shall complete such repair work and shall be entitled to the entire proceeds to be collected for such services. (b) At the Closing, Buyer shall purchase from Seller, at Seller's book value therefor, all bona fide prepaid expenses of Seller, provided that such expenses are in respect of obligations to non-affiliated parties in the ordinary course of business and will inure to the benefit of Buyer, as set forth in Schedule 5.3(b) hereto to be delivered to Buyer not later than five (5) days prior to the Closing (the "PREPAID EXPENSES"). 5.4 FIXTURES AND EQUIPMENT. At the Closing, Buyer shall purchase all fixtures, machinery, equipment (including special tools and shop equipment), furniture and all signs and 8 office equipment owned by Seller and used or held for use in connection with the Business, including the items listed on Schedule 5.4 hereto (which Seller shall deliver to Buyer not later than five (5) days prior to the Closing) but excluding the items set forth on Schedule 5.4(a) (collectively referred to herein as the "FIXTURES AND EQUIPMENT"). The purchase price for the Fixtures and Equipment shall be Seller's depreciated book value thereof, as reflected in said Schedule 5.4 attached hereto (the "FIXTURES AND EQUIPMENT PURCHASE PRICE"). 5.5 MISCELLANEOUS ASSETS. At the Closing, and without payment of any additional consideration, Buyer shall purchase all of Seller's (i) unused shop repair orders, parts sales tickets, accounting forms, binders, office and shop supplies and such shop reference manuals, parts reference catalogs, non-accounting file copies for all sales of Seller for the three (3) years preceding the Closing Date, (ii) copies of new and used car sales records and specifically wholesale parts sales records, new and used parts sales records, and service sales records for the three (3) years preceding the Closing Date, (iii) product sales training material and reference books on hand as of the Closing Date, (iv) customer and registration lists pertaining to the sale of motor vehicles, service files, repair orders, owner follow-up lists and similar records relating to the operation of the Business, (v) telephone numbers and listings used by Seller in connection with the Business, (vi) names and addresses of Seller's service customers and prospective purchasers, (vii) all lawfully transferrable licenses and permits of the Business, (viii) Seller's rights to the tradename[s] listed in Schedule 5.5 hereto and any similar variations thereof, and (ix) all rights and claims of Seller under or arising out of the contracts and leases included in the Liabilities (all of the foregoing items collectively referred to herein as the "MISCELLANEOUS ASSETS"). 5.6 CERTAIN RECORDS OF SELLER; ACCESS BY SELLER. Seller may retain all corporate records, financial records and correspondence which are not necessary for the continued operation of the Business by Buyer. For a period of three (3) years following the Closing Date, Buyer will allow Seller, their authorized agents and representatives access, upon reasonable notice during business hours, to the books and records regarding post Closing adjustments arising during the three day period prior to Closing. 5.7 WARRANTY OBLIGATIONS OF SELLER. To the extent that Seller may have issued warranties on the vehicles sold by Seller on or prior to the Closing Date and to the extent such warranties are not included in the Work in Progress, Buyer shall have no responsibility to perform any services required under such warranties, unless authorized in writing by Seller accompanied by arrangements in writing satisfactory to Buyer to assure Buyer of payment for all work performed by Buyer, and, if such warranty services are so authorized by Seller, Seller shall reimburse Buyer for all of Buyer's costs for parts and labor in connection therewith at Buyer's actual cost for parts and labor. At the Closing Date, Seller shall supply Buyer with a list to which such warranties and guaranties, if any, are applicable, which list shall include the names of the purchasers, the make and year model of the vehicles purchased and the date of purchase. Seller shall also supply to Buyer at or prior to the Closing Date an address for and a designation of the person who will be responsible for authorizing Buyer to perform any services under such warranties, if any, issued by Seller on vehicles sold by it on or prior to the Closing Date. Seller shall reimburse Buyer promptly upon 9 demand for all sums due or payable by Seller to Buyer hereunder and submission of adequate supporting documentation. 5.8 ACCOUNTS RECEIVABLE. Seller shall retain all accounts receivable arising out of the operation of the Business by Seller prior to the Closing Date and Buyer shall retain all accounts receivable arising out of sales and/or services of the Business after the Closing Date. After the Closing Date, Buyer shall cooperate with Seller and shall use reasonable efforts to assist Seller in Seller's efforts to collect Seller's accounts receivable for a period of six (6) months after the Closing. Buyer shall accept payment of Seller's accounts receivable, at no charge to Seller for a period of six (6) months after the Closing, and shall forward to Seller, promptly upon receipt, all the money so received on said accounts. Notwithstanding anything to the contrary, Buyer shall have no responsibility to actually collect any of Seller's accounts receivable. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF BUYER Buyer represents and warrants to Seller and the Stockholder as follows: 6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business makes such qualification necessary and has full corporate power and authority to own or use the properties it purports to own and use and to carry on its business as now being conducted. The Board of Directors of Buyer has duly approved this Agreement, all other agreements, certificates and documents executed or to be executed by Buyer in connection herewith, and the transactions contemplated hereby and thereby. Buyer has full corporate power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by Buyer in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. This Agreement, and all other agreements, certificates and documents executed or to be executed by Buyer in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of Buyer enforceable against Buyer in accordance with their respective terms. 6.2 NO VIOLATION. Except as set forth on Schedule 6.2 attached hereto, the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof do not and will not: (a) conflict with or violate any of the provisions of Buyer's restated certificate of incorporation or by-laws, each as amended, or any resolution of the Board of Directors or the stockholders of Buyer, (b) violate any law, ordinance, rule or regulation or any judgment, order, writ, injunction or decree or similar command of any court, administrative or governmental agency or other body applicable to Buyer, (c) violate or conflict with or result in a breach of, or constitute a default under, any material instrument, agreement or indenture or any mortgage, deed of trust or similar contract to which Buyer is a party or by which 10 Buyer is bound or affected, or (d) require the consent, authorization or approval of, or notice to, or filing or registration with, any governmental body or authority, or any other third party. 6.3 LITIGATION. There are no actions, suits or proceedings pending, or, to the knowledge of Buyer, threatened against or affecting Buyer which might adversely affect the power or authority of Buyer to carry out the transactions to be performed by it hereunder. 6.4 NO MISSTATEMENTS OF OMISSIONS. To the knowledge of Buyer, no representation or warranty made by Buyer in this Agreement, and no statement contained in any agreement, instrument, certificate or schedule furnished or to be furnished by Buyer pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading. 6.5 BROKER'S AND FINDER'S FEES. Buyer has not incurred any liability to any broker, finder or agent or any other person or entity for any fees or commissions with respect to the transactions contemplated by this Agreement, other than as set forth in Schedule 6.5. 6.6 CAPITALIZATION. The authorized capital stock of the Buyer, as of February 1, 1999, consists of: (a) 3,000,000 shares of Preferred Stock, par value $0.10 per share, of which 300,000 shares are designated Class A Convertible Preferred Stock and are, in turn, divided into 100,000 shares of Series I, 100,000 shares of Series II and 100,000 shares of Series III; of which approximately 19,500 shares of Series I Preferred Stock were issued and outstanding and /or were committed to be issued by the Buyer, approximately 20,238 shares of Series II Preferred Stock were issued and outstanding and/or are committed to be issued by the Buyer, and approximately 31,922 shares of Series III Preferred Stock were issued and outstanding and/or committed to be issued by the Buyer. (b) 50,000,000 shares of Class A Common Stock, par value $0.01 per share, of which 11,461,118 shares are issued and outstanding; and (c) 15,000,000 shares of Class B Common Stock, par value $0.01 per share, of which 12,400,000 shares are issued and outstanding. All outstanding capital stock of the Buyer is duly authorized, validly issued, fully paid and non-assessable. 6.7 DISCLOSURE MATERIALS. The Buyer has delivered to Seller copies of (a) the Prospectus dated November 10, 1997 (the "PROSPECTUS"), (b) Buyer's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1997, (c) Buyer's Quarterly Report on Form 10-Q for the three-month period ended March 31, 1998, June 30, 1998 and September 30, 1998 and (d) any Current Reports on Form 8-K, filed in 1998, each in the form (excluding exhibits) filed with the SEC (collectively, such Forms 10-K, 10-Q and 8-K being hereinafter referred to as its "REPORTS"). 11 Neither the Prospectus nor any of the Reports contained, at the time of filing thereof with the SEC, any untrue statement of any material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. 6.8 AUTHORIZATION OF SHARES. The issuance of the Shares has been or prior to Closing shall have been, duly authorized by all necessary corporate action of the Buyer. Upon the issuance of Shares pursuant to this Agreement, such Shares shall be validly issued, fully paid and non-assessable. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDER Seller and the Stockholder, jointly and severally, represent and warrant to Buyer, as follows: 7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas, is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business makes such qualification necessary and has full corporate power and authority to own or use the properties it purports to own and use and to carry on its business as now being conducted. Except for the Stockholder, no person or entity has a beneficial or legal ownership interest in Seller. Seller has full corporate power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by Seller in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. The Stockholder has full capacity, power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by the Stockholder in connection herewith, to consummate the transactions contemplated hereby and hereby and to perform his obligations hereunder and thereunder. This Agreement, and all other agreements, certificates and documents executed or to be executed by Seller in connection herewith, have been duly authorized by all necessary corporate action and constitute or, when executed and delivered, will constitute legal, valid and binding agreements of Seller enforceable against Seller in accordance with their respective terms. This Agreement, and all other agreements, certificates and documents executed or to be executed by the Stockholder in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of the Stockholder enforceable against the Stockholder in accordance with their respective terms. Seller has never operated the Business under any tradenames other than the tradenames listed in Section 5.5. 7.2 NO VIOLATION; CONSENTS. Except as set forth in Schedule 7.2 attached hereto, the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof do not and will not: (a) conflict with or violate any of the provisions of Seller's articles of incorporation and bylaws, each as amended, or any resolution of the Directors of Seller, (b) violate any law, ordinance, rule or regulation or any 12 judgment, order, writ, injunction or decree or similar command of any court, administrative or governmental agency or other body applicable to any of Seller, the Assets, the Business or the Liabilities, (c) violate or conflict with or result in a breach of, or constitute a default under, or an event giving rise to a right of termination of, any Contract (as defined in Section 7.10), any material instrument, agreement or indenture or any mortgage, deed of trust or similar contract to which Seller or the Stockholder is a party or by which any of Seller, the Stockholder or any of the Assets are bound or affected, (d) result in the creation or imposition of any Encumbrance upon any of the Assets, or (e) require the consent, authorization or approval of, or notice to, or filing or registration with, any governmental body or authority, or any other third party. 7.3 LIABILITIES. There are no actions, suits or proceedings pending or, to the knowledge of Seller and the Stockholder, threatened against Seller or the Stockholder which might adversely affect the power or authority of either of them to carry out the transactions to be performed by such party hereunder. There are no actions, suits or proceedings pending, or, to the knowledge of Seller and the Stockholder, threatened against or affecting Seller, other than those adequately covered by insurance, and those disclosed on Schedule 7.3 attached hereto, and none of the actions, suits or proceedings described on Schedule 7.3, if determined adversely to Seller, will have, or could reasonably be expected to have, a material adverse effect upon the Assets or the Liabilities or the business, prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business. 7.4 TITLE TO ASSETS; ENCUMBRANCES. Except as disclosed on Schedule 7.4 attached hereto, Seller has good title to the Assets, free and clear of all liens (including tax liens), security interests, encumbrances, actions, claims, payments or demands of any kind and character (collectively, "ENCUMBRANCES"), except Encumbrances disclosed on Schedule 7.4 hereto and Encumbrances for ad valorem personal property taxes not yet due and payable. All of the Assets to be transferred hereunder conform, as to condition and character, to the descriptions of such Assets contained herein and will be transferred at the Closing free and clear of all Encumbrances, except Encumbrances for ad valorem personal property taxes not yet due and payable and Encumbrances to be satisfied and released at the Closing. To the knowledge of Seller and the Stockholder, the ownership and use of the Assets, and the operation of the Business, do not infringe upon the intellectual property rights of any other person or entity. 7.5 PERMITS AND APPROVALS. Except as disclosed on Schedule 7.5 attached hereto, there are no permits or approvals used or obtained for use by Seller which are required under applicable law in connection with the ownership or operation of the Business. 7.6 FINANCIAL STATEMENTS. (a) Seller has delivered to Buyer the financial statements of Seller described in Schedule 7.6 attached hereto (the "FINANCIAL STATEMENTS"). Except as set forth on Schedule 7.6(a), the Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied. Each balance sheet included in the Financial Statements fairly presents the financial condition of Seller as of the date thereof and all debts and liabilities of Seller, 13 fixed or contingent, as of the date thereof, and each related statement of income included in the Financial Statements fairly presents the results of the operations of Seller and the changes in its financial position for the period indicated, all in accordance with generally accepted accounting principles consistently applied. To the knowledge of Seller and the Stockholder, the Financial Statements contain adequate reserves for all reasonably anticipated claims relating to matters with respect to which Seller is self-insured. The Financial Statements fairly present the financial condition of Seller for the dates and periods indicated and are in accordance with the books and records of Seller, which books and records are true, correct and complete. (b) Seller has no outstanding material claims, liabilities, obligations or indebtedness of any nature, fixed or contingent, except as set forth in the Financial Statements, or in the Schedules to this Agreement, and except for liabilities incurred in the ordinary course of business and of the kind and type reflected in the Financial Statements. 7.7 BROKERS AND FINDER. Except as set forth on Schedule 6.5, neither Seller nor the Stockholder has engaged any broker or any other person or entity who would be entitled to any brokerage commission or finder's fee in respect of the execution of this Agreement and/or the consummation of the transactions contemplated hereby, other than such fee or commission the entire cost of which will be borne by Seller. 7.8 COMPLIANCE WITH LAWS. (a) Except as set forth on Schedule 7.8 (a) attached hereto, the Assets and the Real Property comply in all material respects with, and the Business has been conducted in all material respects in compliance with, all laws, rules and regulations (including all worker safety and all Environmental Laws (as hereinafter defined)), applicable zoning and other laws, ordinances, regulations and building codes, and neither Seller nor the Stockholder has received any notice of any violation thereof which has not been remedied. (b) Except as set forth on Schedule 7.8(b) attached hereto, (i) Seller has not at any time generated, used, treated or stored Hazardous Materials (as hereinafter defined) on, or transported Hazardous Materials to or from, the Real Property or any property adjoining or adjacent to the Real Property and, to the knowledge of Seller and the Stockholder, no party other than Seller has taken such actions on or with respect to the Real Property, provided, however, certain petroleum products are stored and handled by Seller in the ordinary course of business in compliance in all material respects with all Environmental Laws, (ii) Seller has not at any time released or disposed of Hazardous Materials on the Real Property or any property adjoining or adjacent to the Real Property, and, to the knowledge of Seller and the Stockholder, no party other than Seller has taken any such actions on the Real Property, (iii) Seller has at all times been in compliance in all material respects with all Environmental Laws and the requirements of any permits issued under such Environmental Laws with respect to the Real Property, the Assets and the operation of the Business, except where failure to comply has not had and will not have, and could not reasonably be expected to have, a material adverse effect on the Assets or the Liabilities or the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business, (iv) there are 14 no past, pending or, to the knowledge of Seller and the Stockholder, threatened environmental claims against Seller, the Real Property, the Assets or the Business, (v) to the knowledge of Seller and the Stockholder, there are no facts or circumstances, conditions or occurrences regarding Seller, the Real Property, the Assets or the Business that could reasonably be anticipated to form the basis of an environmental claim against Seller, the Real Property, the Assets or the Business or to cause the Real Property, the Assets or the Business to be subject to any restrictions on its ownership, occupancy, use or transferability under any Environmental Law, (vi) there are not now and, to the knowledge of Seller and the Stockholder, never have been, any underground storage tanks located on the Real Property, (vii) Seller has not transported or arranged for the transportation of any Hazardous Materials to any site other than the Real Property, and (viii) except as set forth on Schedule 7.8(b), neither Seller nor the Stockholder has operated the Business at any location other than the Real Property. As used herein, the term "ENVIRONMENTAL LAWS" means all present federal, state and local laws, statutes, regulations, rules, ordinances and common law, and all judgments, decrees, orders, agreements or permits, issued, promulgated, approved or entered thereunder by any governmental authority relating to pollution or Hazardous Materials or protection of human health or the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as amended. As used herein, the term "HAZARDOUS MATERIALS" means any waste, pollutant, chemical, hazardous substance, toxic substance, hazardous waste, special waste, solid waste, petroleum or petroleum-derived substance or waste, or any constituent or decomposition product of any such pollutant, material, substance or waste, regulated under or as defined by any presently existing environmental law. (c) Neither Seller nor the Stockholder or any director, officer, agent or employee of Seller or, to the knowledge of Seller and the Stockholder, any other person or entity associated with or acting for or on behalf of Seller, has, directly or indirectly: made any contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any person or entity, regardless of form, whether in money, property or services: (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured or (iii) to obtain special concessions or for special concessions already obtained, for or in respect of Seller. 7.9 FIXTURES AND EQUIPMENT; REAL PROPERTY. The Fixtures and Equipment constitute in the aggregate all of the fixtures, machinery, equipment, furniture, signs and office equipment used or intended for use by Seller in the Business and are in good operating condition, normal wear and tear excepted. All Demonstrators have been operated in the ordinary course of business, are operated with dealer tags and have not had certificates of title issued with respect to them. The structures and building systems included in the Real Property are in good condition, maintenance and repair, normal wear and tear excepted. 7.10 CONTRACTS. Except as disclosed on Schedule 7.10, Seller has in all material respects performed all of its obligations required to be performed by it to the date hereof, and is not in default or alleged to be in default in any material respect, under any of the contracts and leases set forth on or referred to in Part I of Schedule 2.4 (collectively, the "Contracts"), including without limitation any contract or lease to be assumed by Buyer hereunder, and there exists no event, condition or occurrence which, after notice or lapse of time or both, would constitute such a default. To the 15 knowledge of Seller and the Stockholder, no other party to any Contract is in default in any respect of any of its obligations thereunder. Each of the Contracts is valid and in full force and effect and enforceable against Seller in accordance with their respective terms, and, to the knowledge of Seller and the Stockholder, enforceable against the other parties thereto in accordance with their respective terms. 7.11 ADEQUACY OF ASSETS. Except for Seller's cash and accounts receivable, and except for any of Seller's used vehicles, miscellaneous inventories or parts which Buyer elects not to purchase hereunder, and Seller's rights under its dealership agreements with the Manufacturer, the Assets, together with the Real Property and the Contracts (including all equipment leased pursuant to the equipment leases included in the Contracts), comprise all of the assets, properties, contracts, leases and rights necessary for Buyer to operate the Business substantially in the manner operated by Seller prior to the Closing. The failure by Seller to satisfy and discharge in full any of the Retained Liabilities will not have, and could not reasonably be expected to have, a material adverse effect upon the Assets or the Liabilities or the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business. 7.12 TAXES. Seller has filed all federal, state and local governmental tax returns required to be filed by it in accordance with the provisions of law pertaining thereto and has paid all taxes and assessments (including, without limitation of the foregoing, income, excise, unemployment, social security, occupation, franchise, property and import taxes, duties or charges and all penalties and interest in respect thereof) required by such tax returns or otherwise to have been paid to date. 7.13 EMPLOYEES. Schedule 7.13 attached hereto discloses, as of the date hereof, all of Seller's employees, as well as each employee's compensation (including, separately, base pay and any incentive or commission pay), title, length of employment, employment contract, if any, and accrued vacation time. Except as disclosed on Schedule 7.13, Seller has no "employee benefit plan" ("EMPLOYEE BENEFIT PLAN") (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")), including without limitation, any bonus, deferred compensation, pension, profit-sharing, stock option, employee stock purchase, secrecy agreement or covenant not to compete with any employee. Seller is neither currently nor has ever been a party to any collective bargaining agreement or other labor contract, and there has not been nor is there pending or, to the knowledge of Seller and the Stockholder, threatened any union organizational drive or application for certification of a collective bargaining agent. Seller has been and is now in material compliance with the "COBRA" health care continuation coverage requirements of Section 4980B of the Internal Revenue Code of 1986, as amended, and Sections 601-608 of ERISA and any applicable state health care continuation coverage requirements. Seller has neither made any promises nor incurred any liability, pursuant to an Employee Benefit Plan or otherwise, to provide medical or other welfare benefits to retired or former employees of the Seller (other than COBRA or state mandated continuation coverage, where applicable). Except as disclosed on Schedule 7.13, none of Seller's employees or former employees has elected COBRA continuation coverage or has incurred a COBRA qualifying event since June 1, 1996. 16 7.14 YEAR 2000. To the knowledge of Seller and Stockholder, without any independent investigation, no area within its business and operations (including those affected by the Manufacturer, suppliers, vendors and customers) will be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by Seller may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999). 7.15 NO MISSTATEMENTS OR OMISSIONS. No representation or warranty made by Seller or the Stockholder in this Agreement, and no statement contained in any agreement, instrument, certificate or schedule furnished or to be furnished by Seller or the Stockholder pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading. ARTICLE VIII CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS The obligations of Buyer to perform this Agreement at the Closing are subject to the following conditions precedent which shall be fully satisfied at or before the Closing, unless waived in writing by Buyer. 8.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of Seller and the Stockholder herein contained shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, and Buyer shall have received a certificate from the Stockholder and a duly authorized officer of Seller, dated the Closing Date, to such effect. 8.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations required by this Agreement to be performed or complied with by Seller or the Stockholder at or before the Closing shall have been duly performed or complied with in all material respects, and Buyer shall have received a certificate from the Stockholder and a duly authorized officer of Seller, dated the Closing Date, to such effect. 8.3 NO LITIGATION. No action, suit or proceeding shall have been instituted by a governmental agency or any other third party to prohibit or restrain the sale contemplated by this Agreement or otherwise challenge the power and authority of the parties to enter into this Agreement or to carry out their obligations hereunder or the legality or validity of the sale contemplated by this Agreement. 8.4 INVENTORY. The Inventory shall have been completed. 17 8.5 CORPORATE ORGANIZATION; ENCUMBRANCES. Seller shall have furnished to Buyer: (a) a certificate of good standing of Seller issued by the Comptroller of Public Accounts of the State of Texas dated no earlier than fifteen (15) business days prior to the Closing Date; (b) a copy of the Articles of Incorporation of Seller certified by the Secretary of State of the State of Texas dated no earlier than fifteen (15) business days prior to the Closing Date; (c) a certificate of Seller, dated the Closing Date, in form and substance reasonably satisfactory to Buyer, certifying as to (i) no amendments to the respective Articles of Incorporation of Seller since the date of the certificate delivered in accordance with Section 8.5(b); (ii) the respective Bylaws of Seller; and (iii) the incumbency and signatures of the officers of Seller executing this Agreement and any other agreements, instruments or documents to be executed by Seller in connection herewith; (d) UCC-11 search reports or other evidence reasonably satisfactory to Buyer and its counsel that the Assets are free and clear of all Encumbrances; and (e) such other documentation as Buyer shall reasonably request. 8.6 BOARD RESOLUTIONS. Seller shall have furnished to Buyer a copy of the resolutions duly adopted by the Board of Directors and the Stockholder of Seller authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, certified by an authorized officer of Seller as of the Closing Date. 8.7 NO DAMAGE. There shall have been no material adverse change or development in the Assets, the Liabilities or in the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business, and no event shall have occurred or circumstance shall exist that will, or could reasonably be expected to, result in such a material adverse change. 8.8 MOTOR VEHICLE LICENSES. Buyer shall have been licensed as a Motor Vehicle Dealer under applicable Texas motor vehicle dealer registration laws and shall have obtained all other authorizations, consents, licenses and permits from applicable governmental agencies having or asserting jurisdiction, which Buyer deems necessary or appropriate to conduct business as an automobile dealer at each dealership location included in the Real Property. 8.9 CONSENTS AND APPROVALS. Seller shall have obtained all other authorizations, consents and approvals from third persons and entities as are (a) required to assign those material contracts and leases that Buyer is to assume at Closing or (b) otherwise required of Seller to consummate the transactions contemplated hereby. 8.10 CERTIFICATES OF ORIGIN; ETC. Seller shall have transferred to Buyer certificates of title or origin for all New Vehicles, Demonstrators and, if applicable, Used Vehicles and all of its registration lists, owner follow-up lists and service files on hand as of the Closing Date with respect to the Business. 8.11 TERMINATION OF SELLER'S AGREEMENTS WITH MANUFACTURER. Seller shall have terminated in writing Seller's dealer agreement and any other applicable sales and service agreements with the Manufacturer. 18 8.12 BILL OF SALE; ETC. Seller shall have executed, as appropriate, and delivered to Buyer the Bill of Sale, other documents of transfer of title contemplated hereby and any and all other documents necessary or desirable in connection with the transfer of the Assets, which documents shall warrant title to Buyer consistent with this Agreement and shall in all respects be in such form as may be reasonably required by Buyer and its counsel. 8.13 MANUFACTURER APPROVAL. The Manufacturer shall have approved Buyer or Buyer's affiliate as an authorized dealer and O. Bruton Smith or O. Bruton Smith's designee, as the authorized Dealer Operator, and the Manufacturer shall have executed a dealer agreement, and any other applicable sales and service agreements, on terms reasonably satisfactory to Buyer. 8.14 OTHER BASIC AGREEMENTS. All conditions to Buyer's obligations under the Real Property Purchase Agreement shall have been satisfied or fulfilled unless waived in writing by Buyer. 8.15 CHANGE OF NAME. Seller shall have delivered to Buyer all documents, including, without limitation, resolutions of the Board of Directors and the Stockholder of Seller, necessary to effect a change of name of Seller after the Closing to names other than the corporate name and trade names referred to in Section 5.5 hereof or any variation thereof. 8.16 HSR. All applicable waiting periods, if any, under the HSR Act (as defined in Section 10.16 below) shall have expired without any indication by the Antitrust Division (as defined in Section 10.16 below) or the FTC (as defined in Section 10.16 below) that either of them intends to challenge the transactions contemplated hereby or, if any such challenge or investigation is made or commenced, there shall have occurred the conclusion of such challenge or investigation which permits the transactions contemplated hereby in all material respects. 8.17 NON-COMPETITION AGREEMENT. Seller and L. S. Riley shall have executed and delivered the Non-Competition Agreement to Buyer. 8.18 AUDITED FINANCIAL STATEMENTS OF BUYER. Buyer shall have completed preparation of such audited financial statements of Seller as may be required by applicable regulations of the Securities and Exchange Commission or by Buyer's lenders. 8.19 OPINION OF COUNSEL. Buyer shall have received an opinion of Robert D. Remy, Esq., counsel to Seller and the Stockholder, dated the Closing Date, in form and substance reasonably satisfactory to Buyer and its counsel. 8.20 EMPLOYMENT AGREEMENT. Rene Isip shall have executed and delivered to Buyer an Employment Agreement upon terms satisfactory to Buyer and Rene Isip. 19 ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND THE STOCKHOLDER The obligations of Seller and the Stockholder to perform this Agreement at the Closing are subject to the following conditions precedent which shall be fully satisfied at or before the Closing, unless waived in writing by Seller: 9.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of Buyer herein contained shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, and Seller shall have received a certificate from a duly authorized officer of Buyer, dated the Closing Date, to such effect. 9.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations required by this Agreement to be performed or complied with by Buyer at or before the Closing shall have been duly performed or complied with in all material respects, and Seller shall have received a certificate from a duly authorized officer of Buyer, dated the Closing Date, to such effect. 9.3 NO LITIGATION. No action, suit or proceeding shall have been instituted by a governmental agency or any third party to prohibit or restrain the sale contemplated by this Agreement or otherwise challenge the power and authority of the parties to enter into this Agreement or to carry out their obligations hereunder or the legality or validity of the sale contemplated by this Agreement. 9.4 INVENTORY. The Inventory shall have been completed. 9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS. Buyer shall have furnished to Seller and the Stockholder: (a) a certificate of good standing of Buyer issued by the Secretary of State of the State of Delaware dated no earlier than fifteen (15) business days prior to the Closing Date; and (b) a certificate of Buyer, dated the Closing Date, in form and substance reasonably satisfactory to Seller, certifying as to (i) the Certificate of Incorporation of Buyer; (ii) the By-laws of Buyer; (iii) the incumbency and signatures of the officers of Buyer executing this Agreement and any other agreements, instruments or documents to be executed by Buyer in connection herewith; (iv) the resolutions of the Board of Directors of Buyer authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby; and (v) Certificate of Designation for Class A Preferred Stock Series III. 9.6 PAYMENT OF PURCHASE PRICE; ASSUMPTION AGREEMENTS. Buyer shall have tendered to Seller the Purchase Price in accordance with Section 2.3 and shall have executed and delivered the Assumption Agreement to Seller. 9.7 OTHER BASIC AGREEMENTS. All conditions to the obligations of the Owner under the Real Property Purchase Agreement shall have been satisfied or fulfilled, unless waived in writing by the Owner. 20 9.8 HSR. All applicable waiting periods, if any, under the HSR Act shall have expired without any indication of the Antitrust Division or the FTC that either of them intends to challenge the transactions contemplated hereby, or, if any such challenge or investigation is made or commenced, there shall have occurred the conclusion of such challenge or investigation which permits the transactions contemplated hereby in all material respects. 9.9 OPINION OF COUNSEL. Seller shall have received an opinion of Parker, Poe, Adams & Bernstein, L.L.P., counsel to Buyer, dated the Closing Date, in form and substance reasonably satisfactory to Seller and its counsel. ARTICLE X COVENANTS AND AGREEMENTS 10.1 [INTENTIONALLY LEFT BLANK] 10.2 FURTHER ASSURANCES. Seller and the Stockholder agree that they will, at any time and from time to time, after the Closing, upon request of Buyer, do, execute, acknowledge and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances, in a form reasonably satisfactory to Buyer's counsel, as may be reasonably required to convey and transfer to and vest in Buyer, and protect its rights, title and interest in and enjoyment of, all the Assets. 10.3 SATISFACTION OF CLOSING CONDITIONS. The parties hereto shall use their reasonable best efforts to obtain, and to cooperate with each other in obtaining, all authorizations, approvals, licenses, permits and other consents contemplated by Articles VIII and IX. 10.4 NO MATERIAL ADVERSE CHANGES. During the period from the date of this Agreement through the Closing Date, Seller will operate the Business only in the ordinary course of business and in accordance with past practices. Seller shall promptly notify Buyer of any material adverse change or development in the Assets, the Liabilities or in the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business, and of the occurrence of any event or circumstance that will, or could reasonably be expected to, result in such a material adverse change. 10.5 ACCESS; ENVIRONMENTAL AUDIT. Until the Closing Seller shall afford to Buyer, its attorneys, accountants and such other representatives of Buyer as Buyer shall designate to Seller, free and full access at all reasonable times, and upon reasonable prior notice, to the Assets and the properties, books and records of Seller, and to interview personnel, suppliers and customers of Seller, in order that Buyer may have full opportunity to make such due diligence investigation as it shall reasonably desire of the Assets, the Liabilities and the Business. Seller and the Stockholder shall, promptly after the date hereof, furnish to Buyer the due diligence materials set forth in Schedule 10.5 hereto. Seller shall allow an environmental consulting firm selected by Buyer (the 21 "ENVIRONMENTAL AUDITOR") to have prompt access to the Real Property in order to conduct an environmental investigation satisfactory to Buyer in scope and reasonably acceptable to Seller (such scope being sufficient to result in a Phase I environmental audit report and a Phase II environmental audit report, if desired by Buyer) of, and to prepare a report with respect to, the Real Property (the "ENVIRONMENTAL AUDIT"). Seller shall provide to the Environmental Auditor: (a) reasonable access to all of its existing records concerning the matters which are the subject of the Environmental Audit; and (b) reasonable access to the employees of Seller and the last known addresses of former employees of Seller who are most familiar with the matters which are the subject of the Environmental Audit (Seller agreeing to use reasonable efforts to have such former employees respond to any reasonable requests or inquiries by the Environmental Auditor). The Environmental Auditor shall coordinate all visits to the Real Property and conversations with employees of Seller with the Stockholder or their designee and shall use reasonable efforts to minimize any disruption of Seller's business in performing such investigations. Seller shall otherwise cooperate with the Environmental Auditor in connection with the Environmental Audit. Buyer shall bear the costs, fees and expenses in connection with the Environmental Audit. Buyer shall bear the costs, fees and expenses in connection with any financial audit. 10.6 INDEMNIFICATION BY SELLERS AND THE STOCKHOLDER. (a) All representations and warranties of Seller and the Stockholder contained herein, or in any agreement, certificate or document executed by Seller or the Stockholder in connection herewith, shall survive the Closing for a period of two (2) years, with the exception of the representations and warranties contained in Section 7.12, which shall survive the Closing for the applicable tax statutes of limitation plus 60 days and the representations and warranties contained in Sections 7.4 and 7.8 which shall survive the Closing indefinitely. The foregoing limitations of survival shall not in any way reduce Seller's obligations with respect to the Retained Liabilities. All information contained in any Schedule furnished hereunder by Seller shall be deemed a representation and warranty by Seller and the Stockholder made in this Agreement as to the accuracy of such information in all material respects. (b) Seller and the Stockholder, jointly and severally, agree to indemnify and hold harmless Buyer and its stockholders, officers, directors, employees and agents, and their respective successors and assignees, from and against any and all out-of-pocket (net of insurance proceeds) losses, damages, liabilities, obligations, assessments, suits, actions, proceedings, claims or demands, including costs, expenses and fees (including reasonable attorneys' fees and expert witness fees) (collectively, the "LOSSES") incurred in connection therewith, suffered by any of them or asserted against any of them or the Assets, arising out of or based upon (i) the breach or failure of any representation or warranty of Seller or the Stockholder contained herein, or in any agreement, certificate or document executed by Seller or the Stockholder in connection herewith, to be true and correct, (ii) the breach of any covenant or agreement of Seller or the Stockholder contained in this Agreement, (iii) the Retained Liabilities or any liability or obligation of the Stockholder, or (iv) any arrangements or agreements made or alleged to have been made by Seller or the Stockholder with any broker, finder or other agent in connection with the transactions contemplated hereby (other than as described in Schedule 6.5). Neither Seller nor the Stockholder shall be required to indemnify 22 under clause (i) of this Section 10.6(b) unless the amount of all indemnified liabilities (including claims for indemnified liabilities) under said clause (i) exceeds a cumulative aggregate total of $100,000, at which time rights to indemnification for indemnified liabilities may be asserted for any amounts in excess of such cumulative aggregate total of $100,000. The aggregate amount of indemnification obligations of Seller and the Stockholder under clauses (i) or (ii) of this Section 10.6(b) shall not exceed the Purchase Price. 10.7 INDEMNIFICATION BY BUYER. (a) All representations and warranties of Buyer contained herein, or in any agreement, certificate or document executed by Buyer in connection herewith, shall survive the Closing for a period of two (2) years. The foregoing limitation of survival shall not in any way reduce Buyer's obligations with respect to the Liabilities. All information contained in any Schedule furnished hereunder by Buyer shall be deemed a representation and warranty by Buyer made in this Agreement as to the accuracy of such information in all material respects. (b) Buyer agrees to indemnify and hold harmless Seller and its Stockholder, officers, managers, employees, agents, successors and assigns, from and against any and all out-of-pocket (net of insurance proceeds) Losses incurred in connection with, suffered by any of them, or asserted against any of them, arising out of or based upon (i) the breach or failure of any representation or warranty of Buyer contained herein, or in any agreement, certificate or document executed by Buyer in connection herewith, to be true and correct, (ii) the breach of any covenant or agreement of Buyer contained in this Agreement, (iii) Buyer's failure to discharge the Liabilities, or (iv) any arrangements or agreements made or alleged to have been made by Buyer with any broker, finder or other agent in connection with the transactions contemplated hereby. The aggregate amount of indemnification obligations under clauses (i) or (ii) of this Section 10.7(b) shall not exceed the Purchase Price. 10.8 INDEMNIFICATION PROCEDURES. The indemnification provisions of Sections 10.6 and 10.7 shall be subject to the following additional rules: (a) Provided that the Closing shall have been completed, the provisions of Sections 10.6 and 10.7 shall be the exclusive remedy of the parties hereto with respect to the performance or breach of any covenant, representation, or warranty under this Agreement or any of the documents herein contemplated, whether based in contract, tort or otherwise. In no event shall any party hereto be liable for punitive or exemplary damages as the result of any matter or occurrence in connection herewith or the transactions contemplated or permitted hereby or therein. Notwithstanding the foregoing, nothing contained herein is intended to or shall be construed to impair or restrict each party's right to sue the other party for fraud or to seek equitable relief in any court of competent jurisdiction. (b) Each party agrees that, promptly after it becomes aware of facts giving rise to a claim by it for indemnification pursuant to Section 10.6 or Section 10.7, as the case may be, such party will provide notice (a "CLAIM NOTICE") thereof in writing to the each indemnifying party, 23 specifying the nature and basis for such claim and a copy of all papers served with respect to such claim (if any). An indemnified party's failure to send or delay in sending a Claim Notice shall not relieve an indemnifying party from liability hereunder with respect to such claim except to the extent and only to the extent the indemnifying party is prejudiced by such failure or delay. (c) Any indemnifying party or parties may elect to compromise or contest, at its own expense and by its own counsel, any liability asserted by a third party so long as (i) the matter involves solely a claim for money, (ii) the indemnifying party shall first acknowledge and agree in writing that the indemnifying party is obligated to indemnify the indemnified party for such matter hereunder, and (iii) counsel to the indemnifying party shall be reasonably acceptable to the indemnified party. If the indemnifying party or parties elect to compromise or contest such asserted liability, they shall within thirty (30) days (or sooner, if the nature of the asserted liability so requires) notify the indemnified party or parties of its intent to do so by sending a notice to the indemnified party or parties, and each indemnified party shall cooperate in the compromise or contest of such asserted liability. If the indemnifying party or parties elect not to compromise or contest the asserted liability, fails to notify the indemnified party or parties of its election as herein provided or contests its obligation to indemnify under this Agreement, any indemnified party (upon further notice to the indemnifying party or parties and any other indemnified party) shall have the right to pay, compromise or contest such asserted liability on behalf of and for the account and risk of the indemnifying party or parties. Anything in this Section 10.8 to the contrary, notwithstanding items (i) through (iii) above in this paragraph (c), no indemnifying party shall, without each indemnified party's written consent, which shall not be unreasonably withheld or delayed, settle or compromise any asserted liability or consent to entry of any judgment which does not include an unconditional term releasing the indemnified parties from all liability in respect of such asserted liability. In any event, each indemnified party and indemnifying party may participate, at their own expense, in the contest of any asserted liability. If an indemnifying party chooses in accordance with the provisions of this Section 10.8(c) to contest any asserted liability, the indemnified parties shall make available to such indemnifying party any books, records or other documents within its control that are necessary or appropriate for, shall make its officers and employees available, on a basis reasonably consistent with their other duties, in connection with, and shall otherwise cooperate with, such defense. (d) In the event that an indemnifying party shall be obligated to indemnify an indemnified party pursuant to Sections 10.6 or 10.7, the indemnifying party shall, upon payment of such indemnity in full, be subrogated to all rights of the indemnified party with respect to the loss to which such indemnification relates. 10.9 CERTAIN TAXES. Personal property, use and intangible taxes and assessments and utility charges with respect to the Assets shall be prorated on a per diem basis and apportioned between Seller and Buyer as of the date of the Closing. Seller shall be liable for that portion of such taxes and assessments relating to, or arising in respect of, periods on or prior to the Closing Date, and Buyer shall be liable for that portion of such taxes and assessments relating to, or arising in respect of, any period after the Closing Date. Any taxes attributable to the sale or transfer of the Assets to Buyer hereunder shall be paid by Seller. 24 10.10 PRESS RELEASES. Except as may be required by law or the rules of the New York Stock Exchange or as necessary in connection with the transactions contemplated hereby, no party hereto shall (a) make any press release or other public announcement relating to this Agreement or the transactions contemplated hereby, without the prior approval of the other parties hereto or (b) otherwise disclose the existence and nature of the transactions contemplated hereby to any person or entity other than such party's accountants, attorneys, agents and representatives, all of whom shall be subject to this nondisclosure obligation as agents of such party. The parties shall cooperate with each other in the preparation and dissemination of any public announcements of the transactions contemplated by this Agreement. 10.11 NO NEGOTIATION OR DISCUSSIONS. Neither Seller nor the Stockholder shall, directly or indirectly, at any time on or prior to the Closing Date or the earlier termination of this Agreement, pursue, initiate, encourage or engage in, any negotiations or discussions with, or provide any information to, any person or entity (other than Buyer and its representatives and affiliates) regarding the sale or possible sale to any such person or entity of any of the Assets or capital stock of Seller or any merger or consolidation or similar transaction involving Seller. 10.12 REGARDING THE MANUFACTURER. Seller shall promptly notify the Manufacturer regarding the transactions contemplated by this Agreement. Buyer shall promptly apply to the Manufacturer for, or cause an affiliate of Buyer to apply to the Manufacturer for, the issuance of franchises to operate automobile dealerships upon the Real Property. Effective as of the Closing, Seller shall terminate its Dealer Sales and Service Agreements with the Manufacturer. Seller shall fully cooperate with Buyer, and take all reasonable steps to assist Buyer, in Buyer's efforts to obtain its own similar Dealer Sales and Service Agreements with the Manufacturer. The parties acknowledge that Buyer's Dealer Agreements are subject to the approval of the Manufacturer and that Buyer would be unable to obtain its own, similar Dealer Sales and Service Agreements absent Seller's termination of its agreements. 10.13 SELLER'S EMPLOYEES. Buyer shall have the right, but not the obligation, to employ any or all of Seller's employees. If permitted by law and applicable regulations, Seller shall, in consideration for the sale of substantially all of such Seller's assets in bulk, assign and transfer to Buyer, without additional charge therefor, the amount of reserve in such Seller's State Unemployment Compensation Fund with respect to the Business and the corresponding experience rate. 10.14 TERMINATION. (a) Notwithstanding any other provision herein contained to the contrary, this Agreement may be terminated at any time prior to the Closing: (i) by the written mutual consent of the parties hereto prior to the Closing Date Deadline; 25 (ii) by Buyer prior to the Closing Date Deadline in the event of any material breach by Seller or the Stockholder of any of their respective representations, warranties, covenants or agreements contained herein; (iii) by Seller prior to the Closing Date Deadline in the event of any material breach by Buyer of any of Buyer's representations, warranties, covenants or agreements contained herein; (iv) at any time after the Closing Date Deadline, by written notice by Buyer or Seller (subject to Buyer's option to elect to extend the Closing Date Deadline in accordance with Section 1.3) to the other parties hereto if the Closing shall not have occurred on or before the Closing Date Deadline (as the same may have been extended in accordance with Section 1.3); (v) by Buyer (no later than the thirtieth (30th) day after the later of (1) the date the parties have reached agreement with respect to Schedule 2.4, Part I - Annex A, Schedule 5.4(a), Schedule 5.5 and all Schedules to be delivered by Seller to Buyer pursuant to Article VII hereof, and (2) all due diligence materials described on Schedule 10.5 have been furnished to Buyer) if Buyer is not satisfied, in its sole discretion, with the results of its due diligence investigation; (vi) by Buyer, by written notice to Seller, in the event that the Manufacturer, or any other person claiming by, through or under the Manufacturer, shall exercise any right of first refusal, preemptive right or other similar right, with respect to any of the Assets; or (vii) by Buyer, by written notice to Seller if, after any initial HSR Act filing, the FTC makes a "second request" for information, or if the FTC or the Antitrust Division challenges the transactions contemplated hereby; provided, however, no party may terminate this Agreement pursuant to clauses (ii), (iii), or (iv) above if such party is in material breach of any of its representations, warranties, covenants or agreements contained herein. (b) In the event of termination of this Agreement pursuant to Section 10.14(a), this Agreement shall be of no further force or effect; provided, however, that any termination pursuant to Section 10.14(a) (other than 10.14(a)(vi)) shall not relieve: (i) Buyer of any liability under Section 10.14(c) below; (ii) Seller and the Stockholder of any liability under Section 10.14(d) below; (iii) subject to Section 10.14(e) below, any party hereto of any liability for breach of any representation, warranty, covenant or agreement hereunder occurring prior to such termination; or (iv) any party hereto of its or his obligations hereunder to pay the fees and expenses of third parties; provided, further, that any termination pursuant to Section 10.14(a)(vi) shall not relieve Seller and the Stockholder of any liability under Section 2.5 above or any party hereto of its or his obligations hereunder to pay the fees and expenses of third parties. 26 (c) If this Agreement is terminated by Seller pursuant to Section 10.14(a)(iv) hereof and the failure to complete the Closing on or before the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3) shall have been due to the Buyer's material breach of its representations, warranties, covenants or agreements under this Agreement, then Buyer shall, upon demand of Seller, promptly pay to Seller in immediately available funds, as liquidated damages for the loss of the transaction, a termination fee of $2,500,000 (the "BUYER TERMINATION FEE"). (d) If this Agreement is terminated by Buyer pursuant to Section 10.14(a)(iv) hereof and the failure to complete the Closing on or before the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3) shall have been due to the Stockholder's or Seller's material breach of any of their respective representations, warranties, covenants or agreements under this Agreement, then Seller and the Stockholder, jointly and severally, shall, upon demand of Buyer, promptly pay to Buyer in immediately available funds, as liquidated damages for the loss of the transaction, a termination fee of $2,500,000 (the "SELLER TERMINATION FEE"). (e) In the case of termination of this Agreement pursuant to Section 10.14(a)(iv) hereof, the rights of the terminating party to be paid the Seller Termination Fee or the Buyer Termination Fee, as the case may be, shall be such party's sole and exclusive remedy for damages; in the event of such termination by either party, such party shall have no right to equitable relief for any breach or alleged breach of this Agreement, other than for specific performance for the payment of the Seller Termination Fee or the Buyer Termination Fee, as the case may be. Nothing contained in this Agreement shall prevent any party from electing not to exercise any right it may have to terminate this Agreement and, instead, seeking any equitable relief (including specific performance) to which it would otherwise be entitled in the event of breach of any other party hereto. (f) Seller and the Stockholder acknowledge and agree that Buyer's due diligence investigation of Seller and the Business, including without limitation, its review of the Schedules attached hereto and the information and documentation received from Seller, shall not constitute a waiver of, or otherwise modify, Buyer's right to terminate this Agreement under Section 10.14(a)(v) hereof. 10.15 CONTEMPORANEOUS CLOSINGS. The parties hereto acknowledge and agree that the consummation of the transactions contemplated by this Agreement is subject to the consummation of the transactions contemplated by the Real Property Purchase Agreement, and the parties intend that the closings of both such transactions shall occur contemporaneously. 10.16 HSR. Subject to the determination by Buyer that compliance by Seller and Buyer with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), is not required, Seller and Buyer shall each prepare and file with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION"), and respond as promptly as practicable to all inquiries received from the FTC or the Antitrust Division for additional information or documentation. Buyer shall pay any HSR Act filing fee. 27 10.17 BUYER'S FINANCIAL STATEMENTS. Seller shall allow, cooperate with and assist Buyer's accountants, and shall instruct Seller's accountants to cooperate, in the preparation of audited financial statements of Seller as necessary for any required filings by Buyer with the Securities and Exchange Commission or as required by Buyer's lenders; provided, however, that the expense of such audit shall be borne by Buyer. 10.18 BROKER'S COMMISSION. At the Closing, Buyer shall pay the fee to Presidio Strategies as set forth on Schedule 6.5. ARTICLE XI MISCELLANEOUS 11.1 ASSIGNMENT. Except as provided in this Section, this Agreement shall not be assignable by any party hereto without the prior written consent of the other parties. Buyer may assign this Agreement, without the consent of the other parties hereto, to a corporation, partnership, limited liability company or other entity controlled by Buyer, including a corporation, partnership, limited liability company or other entity to be formed at any time prior to the Closing Date, and to any person or entity who shall acquire all or substantially all of the assets of Buyer or of such corporation, partnership, limited liability company or other entity, controlled by Buyer (including any such acquisition by merger or consolidation); provided said assignment shall be in writing and the assignee shall assume all obligations of Buyer hereunder, whereupon the assignee shall be substituted in lieu of Buyer named herein for all purposes, provided, however, that Buyer originally named herein shall continue to be liable with respect to its obligations hereunder. Buyer may assign this Agreement, without the consent of the other parties hereto, as collateral security, and the other parties hereto agree to execute and deliver any acknowledgment of such assignment by Buyer as may be required by any lender to Buyer. 11.2 GOVERNING LAW. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of Texas. 11.3 ACCOUNTING MATTERS. Except as provided in Section 7.6(a) and Schedule 7.6(a), all accounting matters required or contemplated by this Agreement shall be in accordance with generally accepted accounting principles. 11.4 FEES AND EXPENSES. Except as otherwise specifically provided in this Agreement, each of the parties hereto shall be responsible for the payment of such party's fees, costs and expenses incurred in connection with the negotiation and consummation of the transactions contemplated hereby. 11.5 AMENDMENTS; MERGER CLAUSE. This Agreement, including the schedules and other documents referred to herein which form a part hereof, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement may 28 not be amended except by a writing executed by all of the parties hereto. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 11.6 WAIVER. To the extent permitted by applicable law, no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by one party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by the other party. Any waiver by a party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision of this Agreement. Neither the failure nor any delay by any party hereto in exercising any right or power under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right or power, and no single or partial exercise of any such right or power will preclude any other or further exercise of such right or power or the exercise of any other right or power. 11.7 NOTICES. All notices, claims, certificates, requests, demands and other communications hereunder shall be given in writing and shall be delivered personally or sent by facsimile or by a nationally recognized overnight courier, postage prepaid, and shall be deemed to have been duly given when so delivered personally or by confirmed facsimile or one (1) business day after the date of deposit with such nationally recognized overnight courier. All such notices, claims, certificates, requests, demands and other communications shall be addressed to the respective parties at the addresses set forth below or to such other address as the person to whom notice is to be given may have furnished to the others in writing in accordance herewith. If to Buyer, to: Sonic Automotive, Inc. 5401 E. Independence Boulevard Charlotte, North Carolina 28212 Telecopy No.: (704) 563-5116 Attention: Chief Financial Officer With a copy to: Parker, Poe, Adams & Bernstein L.L.P. 2500 Charlotte Plaza Charlotte, North Carolina 28244 Telecopy No.: (704) 334-4706 Attention: Edward W. Wellman, Jr. 29 If to Seller or the Stockholder, to: L. S. Riley 6210 Willow Lane Dallas, Texas 75230 Telecopy No.: (972) 960-9919 With a copy to: Robert D. Remy Two Memorial City Plaza 820 Gessner, Suite 1360 Houston, Texas 77024 Telecopy No.: (713) 465-8018 11.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts. Each such counterpart hereof shall be deemed to be an original instrument, and all such counterparts together shall constitute but one agreement. 11.9 KNOWLEDGE. Whenever any representation or warranty of Seller or the Stockholder contained herein or in any other document executed and delivered in connection herewith is based upon the knowledge of Seller or the Stockholder, (a) such knowledge shall be deemed to include (i) the best actual knowledge, information and belief of Seller and the Stockholder and (ii) any information which the Stockholder would reasonably be expected to be aware of in the prudent discharge of his duties in the ordinary course of business (including consultation with legal counsel) on behalf of Seller, and (b) the knowledge of the Stockholder shall be deemed to be the knowledge of Seller. 11.10 ARBITRATION. (a) Any dispute, claim or controversy arising out of or relating to this Agreement or the interpretation or breach hereof shall be resolved by binding arbitration under the commercial arbitration rules of the American Arbitration Association (the "AAA RULES") to the extent such AAA Rules are not inconsistent with this Agreement. Judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof or such court may be asked to judicially confirm the award and order its enforcement, as the case may be. The demand for arbitration shall be made by any party hereto within a reasonable time after the claim, dispute or other matter in question has arisen, and in any event shall not be made after the date when institution of legal proceedings, based on such claim, dispute or other matter in question, would be barred by the applicable statute of limitations. The arbitration panel shall consist of three (3) arbitrators, one of whom shall be appointed by each of Buyer and Seller within thirty (30) days after any request for arbitration hereunder. The two arbitrators thus appointed shall choose the third arbitrator within thirty (30) days after their appointment; provided, however, that if the two arbitrators are unable to agree on the appointment of the third arbitrator within thirty (30) days after their appointment, either 30 arbitrator may petition the American Arbitration Association to make the appointment. The place of arbitration shall be Dallas, Texas. The arbitrators shall be instructed to render their decision within sixty (60) days after their selection and to allocate all costs and expenses of such arbitration (including legal and accounting fees and expenses of the respective parties) to the parties in the proportions that reflect their relative success on the merits (including the successful assertion of any defenses). (b) Nothing contained in this Section 11.10 shall prevent any party hereto from seeking any equitable relief to which it would otherwise be entitled from a court of competent jurisdiction. 11.11 PERMITTED SUCCESSORS; ASSIGNS; NO THIRD PARTY BENEFICIARIES. Subject to Section 11.1, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the respective successors and assigns of the parties hereto. Nothing in this Agreement, expressed or implied, is intended or shall be construed to confer upon or give to any employee of Seller, or any other person, firm, corporation or legal entity, other than the parties hereto and their successors and permitted assigns, any rights, remedies or other benefits under or by reason of this Agreement. 11.12 HEADINGS. The article headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.13 SEVERABILITY. In the event that any provision, or part thereof, of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions, or parts thereof, shall not in any way be affected or impaired thereby. 11.14 TIME IS OF THE ESSENCE. Time is of the essence for all purposes in this Agreement. [SIGNATURES ON FOLLOWING PAGE] 31 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first above written. BUYER: SONIC AUTOMOTIVE, INC. By: /s/ Bryan Scott Smith --------------------------- Its: President -------------------------- SELLER: LUTE RILEY MOTORS, INC. By: /s/ L.S. Riley -------------------------- Its: -------------------------- EX-21 9 EXHIBIT 21.1 EXHIBIT 21.1 Subsidiaries
Name of Entity State of Assumed Name Incorporation or Organization - ---------------------------------------------------------------------------------------- Capitol Chevrolet and Imports, Inc. Alabama - ---------------------------------------------------------------------------------------- Casa Ford of Houston, Inc. Texas - ---------------------------------------------------------------------------------------- Fort Mill Chrysler-Plymouth-Dodge Inc. South Carolina - ---------------------------------------------------------------------------------------- Fort Mill Ford, Inc. South Carolina - ---------------------------------------------------------------------------------------- Freedom Ford, Inc. Florida - ---------------------------------------------------------------------------------------- Frontier Oldsmobile-Cadillac, Inc. North Frontier Hyundai Carolina - ---------------------------------------------------------------------------------------- Lone Star Ford, Inc. Texas - ---------------------------------------------------------------------------------------- Marcus David Corporation North Town & Country Toyota Carolina - ---------------------------------------------------------------------------------------- Sonic Automotive of Chattanooga, LLC Tennessee Town and Country Volvo of Chattanooga BMW of Chattanooga Volvo of Chattanooga - ---------------------------------------------------------------------------------------- Sonic Automotive-Clearwater, Inc. Florida Clearwater Toyota - ---------------------------------------------------------------------------------------- Sonic Automotive Collision Center of Florida Clearwater, Inc. - ---------------------------------------------------------------------------------------- Sonic Automotive Finance, LLC North Carolina - ---------------------------------------------------------------------------------------- Sonic Automotive of Georgia, Inc. Georgia - ---------------------------------------------------------------------------------------- Sonic Automotive-Hwy. 153 at Shallowford Tennessee Road, Chattanooga, Inc. - ----------------------------------------------------------------------------------------
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Name of Entity State of Assumed Name Incorporation or Organization - ---------------------------------------------------------------------------------------------- Sonic Automotive of Nashville, LLC Tennessee BMW of Nashville Town and Country Volkswagen of Nashville Volkswagen of Nashville - ---------------------------------------------------------------------------------------------- Sonic Automotive of Nevada, Inc. Nevada - ---------------------------------------------------------------------------------------------- Sonic Automotive of Tennessee, Inc. Tennessee - ---------------------------------------------------------------------------------------------- Sonic Automotive of Texas, L.P. Texas - ---------------------------------------------------------------------------------------------- Sonic Automotive - 1307 N. Dixie Hwy., Florida Halifax Ford-Mercury NSB, Inc. Halifax Ford Truck Center - ---------------------------------------------------------------------------------------------- Sonic Automotive-1400 Automall Drive, Ohio Columbus, Inc. - ---------------------------------------------------------------------------------------------- Sonic Automotive-1455 Automall Drive, Ohio Columbus, Inc. - ---------------------------------------------------------------------------------------------- Sonic Automotive-1495 Automall Drive, Ohio Columbus, Inc. - ---------------------------------------------------------------------------------------------- Sonic Automotive-1500 Automall Drive, Ohio Columbus, Inc. - ---------------------------------------------------------------------------------------------- Sonic Automotive - 1720 Mason Ave., DB, Florida Higginbotham Automobiles Inc. - ---------------------------------------------------------------------------------------------- Sonic Automotive - 1720 Mason Ave., DB, Florida Higginbotham Automobiles LLC - ---------------------------------------------------------------------------------------------- Sonic Automotive - 1919 N. Dixie Hwy., Florida Higginbotham Chevrolet-Oldsmobile NSB, Inc. - ---------------------------------------------------------------------------------------------- Sonic Automotive - 21699 U.S. Hwy 19 N., Florida Clearwater Mitsubishi Inc. - ---------------------------------------------------------------------------------------------- Sonic Automotive - 241 Ridgewood Ave., HH, Florida Inc. - ---------------------------------------------------------------------------------------------- Sonic Automotive 2424 Laurens Rd., South Greenville, Inc. Carolina - ----------------------------------------------------------------------------------------------
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Name of Entity State of Assumed Name Incorporation or Organization - -------------------------------------------------------------------------------------------- Sonic Automotive - 2490 South Lee Highway, Tennessee Town and Country Honda of LLC Cleveland Racetrack Motors Cleveland Honda - -------------------------------------------------------------------------------------------- Sonic Automotive 2752 Laurens Rd., South Century BMW Greenville, Inc. Carolina - -------------------------------------------------------------------------------------------- Sonic Automotive - 3401 N. Main, TX, L.P. Texas Ron Craft Chevrolet-Cadillac- Oldsmobile - -------------------------------------------------------------------------------------------- Sonic Automotive-3700 West Broad Street, Ohio Columbus, Inc. - -------------------------------------------------------------------------------------------- Sonic Automotive - 3741 S. Nova Rd., PO, Florida Inc. - -------------------------------------------------------------------------------------------- Sonic Automotive-4000 West Broad Street, Ohio Columbus, Inc. - -------------------------------------------------------------------------------------------- Sonic Automotive - 4701 I-10 East, TX, L.P. Texas - -------------------------------------------------------------------------------------------- Sonic Automotive - 5221 I-10 East, TX, L.P. Texas Ron Craft Chrysler Plymouth Jeep - -------------------------------------------------------------------------------------------- Sonic Automotive 5260 Peachtree Industrial Georgia Dyer and Dyer Blvd., LLC - -------------------------------------------------------------------------------------------- Sonic Automotive-5585 Peachtree Industrial Georgia Blvd., LLC - -------------------------------------------------------------------------------------------- Sonic Automotive - 6008 N. Dale Mabry, FL, Florida Volvo of Tampa Inc. - -------------------------------------------------------------------------------------------- Sonic Automotive - 6008 N. Dale Mabry, FL, Florida LLC - ----------------------------------------------------------------------------------------
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Name of Entity State of Assumed Name Incorporation or Organization - ------------------------------------------------------------------------------------------- Sonic Automotive - 6025 International Drive, Tennessee Town and Country KIA of LLC Chattanooga Town and Country Volkswagen of Chattanooga Volkswagen of Chattanooga KIA of Chattanooga - ------------------------------------------------------------------------------------------- Sonic Automotive - 9103 E. Independence, North Infiniti of Charlotte NC, LLC Carolina - ------------------------------------------------------------------------------------------- Sonic Chrysler-Plymouth-Jeep-Eagle, LLC North Lake Norman Chrysler-Plymouth- Carolina Jeep - ------------------------------------------------------------------------------------------- Sonic Dodge, LLC North Lake Norman Dodge Carolina - ------------------------------------------------------------------------------------------- Sonic - Global Imports, L.P. Georgia - ------------------------------------------------------------------------------------------- Sonic Peachtree Industrial Blvd., L.P. Georgia - ------------------------------------------------------------------------------------------- Sonic of Texas, Inc. Texas - ------------------------------------------------------------------------------------------- Sonic - Williams Buick, Inc. Alabama - ------------------------------------------------------------------------------------------- Sonic - Williams Cadillac, Inc. Alabama - ------------------------------------------------------------------------------------------- Sonic - Williams Imports, Inc. Alabama - ------------------------------------------------------------------------------------------- Sonic - Williams Motors, LLC Alabama - ------------------------------------------------------------------------------------------- Town and Country Chrysler-Plymouth-Jeep, Tennessee Cleveland Chrysler-Plymouth-Jeep LLC - ------------------------------------------------------------------------------------------- Town and Country Chrysler-Plymouth-Jeep of South Rock Hill, Inc. Carolina - ------------------------------------------------------------------------------------------- Town and Country Dodge of Chattanooga, Tennessee Dodge of Chattanooga LLC - ------------------------------------------------------------------------------------------- Town and Country Ford, Incorporated North Carolina - ------------------------------------------------------------------------------------------- Town and Country Ford of Cleveland, LLC Tennessee
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Name of Entity State of Assumed Name Incorporation or Organization - ---------------------------------------------------------------------------------------- Town and Country Jaguar, LLC Tennessee Town and Country Infiniti of Chattanooga Town and Country Jaguar of Chattanooga Jaguar of Chattanooga Infiniti of Chattanooga
5 THE STOCKHOLDER: /s/ L.S. Riley -------------------------------- L. S. Riley EX-23 10 EXHIBIT 23.1 Exhibit 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-69901, 333-69899, 333-69907 and 333-65447 of Sonic Automotive, Inc. on Form S-8 and No. 333-68183 of Sonic Automotive, Inc. on Form S-3 of our report dated February 16, 1999, appearing in this Annual Report on Form 10-K of Sonic Automotive, Inc. for the year ended December 31, 1998. DELOITTE & TOUCHE LLP Charlotte, North Carolina March 31, 1999 EX-27 11 FDS -- SONIC AUTOMOTIVE, INC.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDING DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1998 JAN-01-1998 DEC-31-1998 51,834 0 39,902 700 264,971 364,841 26,250 0 576,103 285,686 131,337 0 20,431 244 121,754 576,103 1,407,030 1,603,701 1,396,259 1,396,259 154,737 0 23,491 29,640 11,083 18,557 0 0 0 18,557 0.81 0.74
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