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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended June 30, 2002
Commission file number:
ASBURY AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 01-0609375
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
(State or Other Jurisdiction of I.R.S. Employer Identification No.)
Incorporation or Organization)
Three Landmark Square, Suite 500, Stamford, Connecticut 06901, (203) 356-4400
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- -------------------------------------------------------------------------------
(Address of, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices
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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 3 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date (applicable only to
corporate registrants).
The number of shares of common stock outstanding as of August 12, 2002 was
34,000,000.
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ASBURY AUTOMOTIVE GROUP, INC.
June 30, 2002 Form 10-Q Quarterly Report
Table of Contents
Part I - Financial Information
Page
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 2002 and December 31, 2001............................1
Consolidated Statements of Income -
Three Months and Six Months Ended June 30, 2002 and 2001........2
Consolidated Statements of Cash Flows -
Six Months Ended June 30, 2002 and 2001.........................3
Notes to Consolidated Financial Statements......................4
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations.........................................10
Item 3. Quantitative and Qualitative Disclosures About Market Risk........14
Part II - Other Information
Item 2. Application of Proceeds of Initial Public Offering and
Senior Subordinated Notes Issuance................................15
Item 6. Exhibits and Reports on Form 8-K..................................15
Signatures........................................................16
Item 1. Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except for share data)
June 30, December 31,
ASSETS 2002 2001
------
(unaudited)
CURRENT ASSETS:
$
Cash and cash equivalents $ 67,143 60,506
Contracts-in-transit 85,160 93,044
Current portion of restricted marketable securities 1,455 1,410
Accounts receivable (net of allowance of $2,499 and $2,375) 89,888 81,347
Inventories 526,108 496,054
Deferred income taxes 8,838 -
Prepaid and other current assets 26,550 25,253
Total current assets 805,142 757,614
PROPERTY AND EQUIPMENT, net 262,803 256,402
GOODWILL, net 396,223 392,856
RESTRICTED MARKETABLE SECURITIES 5,849 6,807
OTHER ASSETS 62,543 51,334
Total assets $1,532,560 $1,465,013
LIABILITIES AND STOCKHOLDERS'/MEMBERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable $ 456,500 $
451,375
Short-term debt 10,167 10,000
Current maturities of long-term debt 42,418 35,789
Accounts payable 40,040 33,573
Deferred income taxes - 3,876
Accrued liabilities 72,732 75,384
Total current liabilities 621,857 609,997
LONG-TERM DEBT 445,098 492,548
DEFERRED INCOME TAXES 29,327 1,370
OTHER LIABILITIES 20,044 13,191
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS'/MEMBERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized - -
Common stock, $.01 par value, 90,000,000 shares authorized, 34,000,000
issued and outstanding 340 -
Additional paid-in capital 413,584 -
Contributed capital - 305,363
Retained earnings 2,501 40,888
Accumulated other comprehensive income (loss) (191) 1,656
Total stockholders'/members' equity 416,234 347,907
Total liabilities and stockholders'/members' equity $1,532,560 $1,465,013
===============================================================================
See Notes to Consolidated Financial Statements.
1
ASBURY AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
For the Three Months For the Six Months
--------------------------- ------------------------
Ended June 30, Ended June 30,
2002 2001 2002 2001
REVENUES:
New vehicle $ 682,201 $
634,823 $1,313,227 $1,204,428
Used vehicle 311,981 280,608 598,430 561,079
Parts, service and collision repair 131,251 119,350 255,405 235,782
Finance and insurance, net 29,346 25,792 55,910 48,932
Total revenues 1,154,779 1,060,573 2,222,972 2,050,221
cost of sales:
New vehicle 624,845 584,235 1,203,539 1,107,768
Used vehicle 284,541 256,186 543,529 511,826
Parts, service and collision repair 63,658 57,389 122,237 113,770
Total cost of sales 973,044 897,810 1,869,305 1,733,364
GROSS PROFIT 181,735 162,763 353,667 316,857
OPERATING EXPENSES:
Selling, general and administrative 139,650 124,561 272,590 241,432
Depreciation and amortization 6,034 7,662 11,862 14,702
Income from operations 36,051 30,540 69,215 60,723
OTHER INCOME (EXPENSE):
Floor plan interest expense (4,620) (7,575) (8,957) (16,484)
Other interest expense (8,956) (10,988) (18,734) (23,429)
Interest income 349 601 663 1,785
Net losses from unconsolidated affiliates - - (100) (1,000)
Other income (expense), net 55 416 (338) 853
Total other expense, net (13,172) (17,546) (27,466) (38,275)
Income before income taxes, minority interest,
discontinued operations and extraordinary loss 22,879 12,994 41,749 22,448
INCOME TAX PROVISIONS:
Income tax expense 9,106 1,578 11,300 2,746
Tax adjustment upon conversion from an L.L.C. to a corporation - - 11,553 -
MINORITY INTEREST IN SUBSIDIARY EARNINGS - 359 - 502
Income before discontinued operations and extraordinary 13,773 11,057 18,896 19,200
loss
DISCONTINUED OPERATIONS (993) (64) (955) (97)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT - - - (1,433)
Net income $ $ $
12,780 10,993 17,941 17,670
PRO FORMA TAX (BENEFIT) EXPENSE:
Pro forma income tax expense 5,299
Tax adjustment upon conversion from an L.L.C. to a corporation (11,553)
Tax affected pro forma net income $
24,195
EARNINGS PER SHARE:
Basic $.38 $.56
Diluted $.37 $.56
TAX AFFECTED PRO FORMA EARNINGS PER SHARE:
Basic $.75
Diluted $.75
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands):
Basic 34,000 32,210
Diluted 34,084 32,258
===============================================================================
See Notes to Consolidated Financial Statements.
<
2
ASBURY AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
For the Six Months
Ended June 30,
2002 2001
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 17,941 $ 17,670
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization 11,862 14,702
Loss on disposal of discontinued operations, net of related taxes 345 -
Deferred income taxes 13,512 -
Extraordinary loss on early extinguishment of debt - 1,433
Losses from unconsolidated affiliates 100 1,000
Amortization of deferred financing fees 2,128 1,910
Change in operating assets and liabilities, net of effects from
acquisitions and divestiture of assets-
Contracts-in-transit 7,884 (4,996)
Accounts receivable, net (17,490) (22,485)
Proceeds from the sale of accounts receivable 8,862 8,812
Inventories (20,260) 54,660
Floor plan notes payable 3,032 (19,525)
Accounts payable and accrued liabilities 5,109 6,474
Other 948 (716)
Net cash provided by operating activities 33,973 58,939
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures (23,623) (27,148)
Proceeds from the sale of assets 1,077 921
Proceeds from sale of discontinued operations 4,838 -
Acquisitions (net of cash acquired) (9,402) (8,139)
Equity investments - (1,200)
Proceeds from restricted marketable securities 913 392
Net issuance of finance contracts (119) (2,593)
Other investing activities (1,700) -
Net cash used in investing activities (28,016) ( 37,767)
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions to members (11,681) (8,954)
Contributions 800 -
Repayments of debt (311,842) (335,755)
Proceeds from borrowings 265,735 355,182
Proceeds from initial public offering, net 65,543 -
Payment of debt issuance costs (7,875) (12,530)
Net cash provided by (used in) financing activities 680 (2,057)
Net increase in cash and cash equivalents 6,637 19,115
CASH AND CASH EQUIVALENTS, beginning of period 60,506 47,241
CASH AND CASH EQUIVALENTS, end of period $ 67,143 $ 66,356
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-
Interest (net of amounts capitalized) $ 25,008 $ 38,900
Income taxes $ 9,765 $ 2,068
===============================================================================
See Notes to Consolidated Financial Statements.
3
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands, except share data)
(unaudited)
1. summary of significant accounting policies:
Basis of Presentation:
The consolidated balance sheet at June 30, 2002, the consolidated
statements of income for the three-month and six-month periods ended June 30,
2002 and 2001, and the consolidated statements of cash flows for the six-month
periods ended June 30, 2002 and 2001, are unaudited. In the opinion of
management, all adjustments necessary to present fairly the financial position,
results of operations and cash flows for the interim periods were made. Certain
items in the June 30, 2001 financial statements were reclassified to conform to
the classification of the June 30, 2002 financial statements. Due to seasonality
and other factors, the results of operations for interim periods are not
necessarily indicative of the results that will be realized for the entire year.
Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, were omitted. Accordingly, these consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto for the year ended December 31, 2001 which are included in the
Company's Form S-4 filing for its Senior Subordinated Notes issuance.
All significant intercompany balances and transactions have been eliminated in
consolidation.
Recent Accounting Pronouncements-
- --------------------------------
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Correction." This Statement eliminates extraordinary accounting
treatment for reporting gain or loss on debt extinguishment, and amends other
existing authoritative pronouncements to make various technical corrections. The
provisions of this Statement are effective for the Company with the beginning of
fiscal year 2003. Upon adoption of this statement, the Company will reclassify
to recurring operations, debt extinguishments reported as extraordinary items in
prior period ($1,433 for the six months ended June 30, 2001).
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities." This Statement requires recording
costs associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan. Adoption of this Statement
is required with the beginning of fiscal year 2003. The Company has not yet
completed the evaluation of the impact of adopting this Statement.
2. INITIAL PUBLIC OFFERING:
On March 14, 2002, the Company completed an initial public offering ("IPO") of
4,500,000 shares of its common shares at a price of $16.50 per share. The IPO
proceeds received, net of underwriting discount and expenses, were $62.5
million. Pursuant to the terms of the Company's $550 million Committed Credit
Facility, 80% of the net IPO proceeds were used to repay debt under this
facility. The remaining net proceeds will be used for working capital, future
platform or dealership acquisitions and general corporate purposes.
Upon the closing of the IPO on March 19, 2002, Asbury Automotive Group L.L.C.
became a wholly-owned subsidiary of Asbury Automotive Group, Inc. Membership
interests in the limited liability company were exchanged for 29,500,000 shares
of common stock in the new corporation on the basis of 295,000 shares of common
stock for each 1% membership interest.
4
3. INVENTORIES:
Inventories consisted of the following:
June 30, 2002 December 31, 2001
New vehicles $389,631 $381,011
Used vehicles 96,331 74,885
Parts, accessories and other 40,146 40,158
$526,108 $496,054
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Effective March 19, 2002, the Company changed its method of valuing certain
inventories which were on the last-in, first-out ("LIFO") cost method to the
specific identification and the first-in, first-out ("FIFO") cost method. The
Company believes that the specific identification and FIFO methods of inventory
valuation provide a more meaningful presentation of its financial position since
these methods reflect a better matching of revenue and expense and most clearly
reflect periodic income.
The effect of the change in accounting principle was to decrease net income for
the year ended December 31, 2001 by $355. The change has been applied to prior
years through restating the financial statements presented for 2001. The effect
of the change was to increase members' equity as of December 31, 2001, by
$4,356.
4. EARNINGS PER SHARE:
Basic earnings per share is computed by dividing net income by the
weighted-average common shares outstanding during the period. Diluted earnings
per share is computed by dividing net income by the weighted-average common
shares and common share equivalents outstanding during the period.
The following table sets forth the computation of basic and diluted earnings per
share:
For the Three
Months Ended For the Six Months
June 30, 2002 Ended June 30, 2002
Net income applicable to common shares:
Continuing operations $13,773 $18,896
Discontinued operations (993) (955)
------------- --------------
$12,780 $17,941
Earnings per share:
Basic-
Continuing operations $0.41 $0.59
Discontinued operations (0.03) (0.03)
$0.38 $0.56
Diluted-
Continuing operations $0.40 $0.59
Discontinued operations (0.03) (0.03)
$0.37 $0.56
Common shares and common share equivalents:
Weighted-average shares outstanding 34,000 32,210
Basic shares 34,000 32,210
Shares issuable with respect to additional common
share equivalents (stock options) 84 48
Diluted equivalent shares 34,084 32,258
5
5. INCOME TAXES:
Effective March 19, 2002, the Company converted to a corporation and is now
subject to federal, state and local income taxes. In connection with the IPO and
in accordance with SFAS No. 109 "Accounting for Income Taxes," the Company
recorded a one-time, non-recurring charge of $11,553 for deferred taxes upon the
exchange of the limited liability company interest in Asbury Automotive Group
L.L.C. for the Company's stock. This charge relates to a net deferred tax
liability associated with the difference between the financial statement and tax
basis of the assets and liabilities of the Company at the conversion date. Prior
to the conversion to a corporation, Asbury Automotive Group L.L.C. was comprised
primarily of limited liability companies and partnerships (with Asbury
Automotive Group L.L.C. as the parent), which were treated as one partnership
for tax purposes. In addition, Asbury Automotive Group L.L.C. had nine
subsidiaries that were already corporations and followed the provisions of SFAS
No. 109. The tax provision for the six months ended June 30, 2002 relates to
income from continuing operations of the Company's preexisting corporations
(noted above) for the six months ended June 30, 2002, and income from continuing
operations for the remainder of the Company's subsidiaries for the period from
March 19, 2002 through June 30, 2002.
The tax effects of these temporary differences representing deferred tax assets
(liabilities) result principally from the following as of June 30, 2002:
Reserves and accruals not deductible until paid $8,982
Goodwill amortization (15,338)
Depreciation (12,219)
Other (1,914)
Net deferred tax liability ($20,489)
The net deferred tax assets (liabilities) are comprised of the following:
Deferred tax assets:
Current $13,592
Long term 39
Deferred tax liabilities:
Current (4,754)
Long term (29,366)
Net deferred tax liability ($20,489)
The following reconciles the statutory corporate federal income tax rate for the
three months ended June 30, 2002:
Statutory federal income tax rate 35.0%
State income tax, net of federal tax effect 4.0
Other, net 0.8
Effective tax rate 39.8%
6. INTANGIBLE ASSETS AND GOODWILL:
On June 30, 2001, the FASB issued SFAS No. 142 "Goodwill and Other Intangibles."
SFAS No. 142 eliminates goodwill amortization over its estimated useful life.
However, goodwill will be subject to at least an annual assessment for
impairment by applying a fair-value based test. Additionally, acquired
intangible assets should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed, rented or exchanged,
regardless of the acquirer's intent to do so. Intangible assets with definitive
lives will need to be amortized over their useful lives. The statement requires
that by June 30, 2002, a company must establish its fair value benchmarks in
order to test for impairment. The Company adopted this statement effective
January 1, 2002. Such adoption did not result in an impairment of goodwill,
based on the fair value based test; however, changes in the facts and
circumstances relating to the Company's goodwill and other intangible assets
could result in an impairment of intangible assets in the future.
6
Intangible assets consist of the following (included in other assets on the
accompanying consolidated balance sheets):
As of June 30, 2002
Accumulated
Cost Amortization
Amortizable intangible assets-
Noncompete agreements $ 5,331 ($3,036)
Licensing agreements 1,750 (490)
Lease agreements (amortization is included in rent expense) 6,527 (3,592)
$13,608 ($7,118)
Unamortizable intangible assets-
Franchise rights $6,000
Amortization expense-
For the three months ended June 30, 2002 $534
For the six months ended June 30, 2002 $1,039
Estimated amortization expense- For the years ended December 31:
2003 $1,689
2004 849
2005 462
2006 443
2007 409
The changes in the carrying amount of goodwill for the period ended June 30,
2002 are as follows:
Balance as of December 31, 2001 $392,856
Additions 5,318
Goodwill associated with discontinued operations (1,951)
Balance as of June 30, 2002 $396,223
Goodwill amortization expense for the three- and six-month periods ended June
30, 2001 was $2,514 and $5,042, respectively. Income before income taxes,
minority interest, discontinued operations and extraordinary loss would have
been $15,508 and $27,490 for the three and six months ended June 30, 2001,
respectively, if goodwill was not amortized in 2001.
7
7. STOCKHOLDERS'/MEMBERS' EQUITY:
Accumulated
Additional Other
Common Paid-in Contributed Retained Comprehensive
Stock Capital Capital Earnings Income (Loss) Total
Balance, December 31, 2001 $
$ - - $305,363 $40,888 $1,656 $347,907
Contributions - - 800 - - 800
Distributions - - (11,681) - - (11,681)
Net income - - - 17,941 - 17,941
Change in fair value of interest rate
swaps, net of $120 tax effect - - - - (1,847) (1,847)
Stock and stock option compensation - 571 - - - 571
Proceeds from initial public offering,
net 45 62,498 - - - 62,543
Reclassification of members'
equity due to the exchange of
membership interests for shares
of common stock 295 350,515 (294,482) (56,328) - -
Balance, June 30, 2002 $
$340 $413,584 - $ 2,501 ($191) $416,234
8. FINANCIAL INSTRUMENTS:
During the second quarter of 2002, the Company cancelled its three interest rate
swap agreements with a financial institution having a combined notional
principal of $300 million. The swap agreements had been designated and qualified
as cash flow hedges of the Company's forecasted variable interest rate payments.
Upon cancellation of the swaps, the Company realized a $202 loss, net of tax
benefit, in other comprehensive income (loss) which will be reclassified to
earnings as interest expense, over the original term of the related
indebtedness, through November 2003.
9. COMPREHENSIVE INCOME:
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Net income $12,780 $10,993 $17,941 $17,670
Other comprehensive income:
Change in fair value of interest
rate swaps (3,472) - (1,985) -
Income tax benefit 1,357 - 127 -
(2,115) - (1,858) -
Reclassification adjustment of loss
on interest rate swaps included in
net income 18 - 18 -
Income tax benefit (7) - (7) -
11 - 11 -
Comprehensive income $10,676 $10,993 $16,094 $17,670
10. DISCONTINUED OPERATIONS:
Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". SFAS No. 144 supercedes SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to be Disposed of" and the accounting and reporting provisions of Accounting
Principles Board Opinion (APB) No. 30, "Reporting the Results of Operations -
8
Reporting the Effects of the Disposal of a Segment Business and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144
establishes a single accounting model for assets to be disposed of by sale
whether previously held and used or newly acquired. SFAS No. 144 retains the
provisions of APB No. 30 for presentation of discontinued operations in the
income statement, but broadens its application to include a component of an
entity which has separately identifiable cash flows. During the first six months
of 2002, the Company divested four dealerships, one each in Oregon and North
Carolina and two in Mississippi. As a result of adopting this statement, the
results of these operations are accounted for as discontinued operations in the
consolidated statements of income. A summary of statement of income information
relating to the discontinued operations is as follows:
Statement of Income:
For the Three Months For the Six Months
---------------------- ------------------------
Ended June 30, Ended June 30,
2002 2001 2002 2001
Revenues $ 52 $16,987 $2,766 $34,205
Cost of sales 80 14,437 2,558 29,024
Gross profit (28) 2,550 208 5,181
Operating expenses 37 2,493 762 4,921
Income (loss) from operations (65) 57 (554) 260
Other, net (24) (121) (56) (357)
Net loss (89) (64) (610) (97)
Loss on disposition of discontinued operations, net
of related taxes (904) - (345) -
Discontinued operations $(993) $ (64) $ (955) $
(97)
11. LONG-TERM DEBT:
On June 5, 2002, the Company issued 9% Senior Subordinated Notes in the
aggregated principle amount of $250,000 receiving net proceeds of $242,125. The
costs related to the issuance of the notes were capitalized and are amortized to
interest expense over the term of the notes. The net proceeds from the notes
issuance were utilized to repay certain indebtedness under the Company's
Committed Credit Facility. The Company will pay interest on the notes on June 15
and December 15 of each year. The first such payment will be made on December
15, 2002. The notes will mature on June 15, 2012. At any time on or after June
15, 2007, the Company may, at its option, choose to redeem all or a portion of
the notes at the redemption prices set forth in the note indenture. On or before
June 15, 2005, the Company may, at its option, use the net proceeds of one or
more equity offerings to redeem up to 35% of the aggregate principal amount of
the notes at the redemption price set forth in this offering circular. At any
time before June 15, 2007, the Company may, at its own option, choose to redeem
all or a portion of the notes at a price equal to 100% of their principal amount
plus the make-whole premium set forth in the note indenture.
The notes will be guaranteed by substantially all of the Company's current
subsidiaries and all of Asbury's future domestic restricted subsidiaries that
have outstanding, incur or guarantee any other indebtedness. The notes and the
subsidiary guarantees will rank behind all of the Company's and the subsidiary
guarantors' current and future indebtedness, other than trade payables, except
any future indebtedness that expressly provides that it ranks equally with, or
is subordinated in right of payment to, the notes and subsidiary guarantees. The
notes will rank equally with all of Asbury's and the subsidiary guarantors'
future senior subordinated indebtedness. The notes will be effectively
subordinated to all debt of the Company's subsidiaries that do not guarantee the
notes.
9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Three Months Ended June 30, 2002, Compared to Three Months Ended June 30, 2001
Net income from continuing operations for the three months ended June 30, 2002
was $13.8 million or $0.41 per share basic and $0.40 per share diluted. Income
before income taxes, minority interest and discontinued operations of $22.9
million during the three months ended June 30, 2002 was up 48% over the same
period last year, after adjusting for the elimination of goodwill amortization.
Tax effective pro forma net income and per share amounts have not been provided
for the prior year quarter as the Company believes that such comparisons with
the current year quarter would not be meaningful due to changes in its tax
status.
Revenues-
Revenues of $1.155 billion for the three months ended June 30, 2002, represented
a $94.2 million or 9% increase over the three months ended June 30, 2001. The
majority of the increase was from acquisitions as same store retail revenues
(excluding fleet and wholesale) were up $4.1 million or 0.4%.
New vehicle retail revenues were up $48.9 million or 8%, and 0.4% on a same
store basis. New vehicle retail units were up 4% during the quarter and down 3%
on a same store basis in part due to weaker sales in the Texas and Oregon
markets. Average selling prices were up 4% over the same quarter last year,
principally due to the shift in mix to higher priced cars, light trucks and
sport utility vehicles ("SUV's").
Used vehicle retail revenues were up $18.4 million or 8%, but down 2% on a same
store basis. Used vehicle retail units were up 5% during the quarter and down 5%
on a same store basis as manufacturer incentives contributed to stronger than
expected trends in new vehicles at the expense of used vehicles and to a lesser
extent, the tightening of credit standards made it more difficult for certain
customers to obtain financing. As a result of the tightening of credit
standards, together with the introduction of more certified used vehicles,
average selling prices were up 3% over the same quarter last year.
Parts, service and collision repair revenues were up $11.9 million or 10% in the
current quarter versus the same quarter last year and up 4% on a same store
basis. This improvement is primarily attributable to increased customer pay
business, driven by expanded product offerings, such as tires, quick service
centers and paintless dent repair.
Finance and insurance ("F&I") revenues during the three months ended June 30,
2002 increased $3.6 million or 14% over the same period last year, while F&I per
vehicle retailed ("PVR") was $726 during the second quarter of 2002, an 9%
improvement over the second quarter of 2001. On a same store basis, F&I revenues
were up 7% over the prior period. These results principally reflect enhanced
processes, strict adherence to menu selling (a program where all F&I products
and services as well as prices are presented to customers up front) and several
corporate initiatives such as our preferred lender program.
Gross Profit-
Gross profit for the quarter ended June 30, 2002, increased $19.0 million or 12%
over the quarter ended June 30, 2001. Same store retail gross profit (the
Company's preferred productivity measurement) was up 4%.
Gross profit as a percentage of revenues for the current quarter was 15.7% as
compared to 15.3% for the same quarter last year. The Company experienced margin
improvements in new vehicle retail and used vehicle retail, which increased to
8.5% and 11.9%, respectively, principally due to the change in sales mix as
mentioned above to higher margin vehicles. Parts, service and collision repair
margins decreased to 51.5% primarily due to a shift to lower margin, higher
volume service products.
Operating Expenses-
Selling, general and administrative ("SG&A") expenses for the quarter ended June
30, 2002, increased $15.1 million or 12% over the quarter ended June 30, 2001.
SG&A expenses as a percentage of revenues increased to 12.1% in the second
quarter of 2002 from 11.7% in the second quarter of 2001. Contributing to this
increase was increased variable compensation related to higher gross profit
margins, increased insurance and advertising costs and start-up expenses related
to the Price 1 Auto Store used car pilot program ($1.5 million). (The Price 1
Auto Store used car pilot program is a six-month, five-store pilot in Houston,
10
Texas to sell used vehicles on Wal-Mart parking lots. Both the Company and
Wal-Mart intend to evaluate the program at the end of the pilot.) In last year's
quarter, we incurred $4.1 million of charges related to severance payments and
the repurchase of a carried interest. Depreciation and amortization decreased
$1.6 million to $6.0 million as goodwill amortization of $2.5 million in the
three months ended June 30, 2001 did not recur in the current quarter due to
elimination of such amortization pursuant to SFAS No. 142. This was partially
offset by increased amortization related to Price 1 of $0.6 million.
Other Income (Expense)-
Floor plan interest expense decreased to $4.6 million for the quarter ended June
30, 2002 from $7.6 million for the quarter ended June 30, 2001. This decline was
primarily due to lower interest rates in 2002 versus 2001. Other interest
expense decreased by $2.0 million from the prior year, also principally due to
lower interest rates.
Income Tax Provision-
During the three months ended June 30, 2002, the Company's tax rate for the
quarter of approximately 39.8%, is based on the estimated effective tax rate for
the year. During the three months ended June 30, 2001, income tax was provided
in accordance with SFAS No. 109 on only the "C" corporations owned directly or
indirectly by Asbury Automotive Group L.L.C. during that period.
Discontinued Operations-
The $1.0 million loss from discontinued operations in the second quarter this
year resulted primarily from a loss on the real estate associated with a
disposed dealership.
Six Months Ended June 30, 2002, Compared to Six Months Ended June 30, 2001
Tax affected pro forma net income for the six months ended June 30, 2002 was
$24.2 million or $0.75 per share basic and diluted. These pro forma results (i)
exclude a non-recurring charge of $11.6 million related to the establishment of
a net deferred tax liability associated with the Company's conversion to a
corporation and (ii) include a pro forma tax charge of $5.3 million as if the
Company was a corporation for the entire period. Actual net income was $17.9
million, or $0.56 per share basic and diluted.
Income before income taxes, minority interest, discontinued operations and
extraordinary loss of $41.7 million during the six months ended June 30, 2002
was up 52% over the same period last year, after adjusting for the elimination
of goodwill amortization. Tax affected pro forma net income and per share
amounts have not been provided for the prior year as the Company believes that
such comparisons with the current year quarter would not be meaningful due to
changes in its tax status.
Revenues-
Revenues of $2.223 billion for the six months ended June 30, 2002, represented a
$172.8 million or 8% increase over the six months ended June 30, 2001, again
mostly from acquisitions as same store retail revenues (excluding fleet and
wholesale) were up $18.6 million or 1%.
New vehicle retail revenues grew $108.4 million or 9%, and 2% on a same store
basis. New vehicle retail units were up 5% during the first six months of 2002
and down 2% on a same store basis, in part due to soft Texas and Oregon markets.
Average selling prices were up 4% over the first half last year, principally due
to the shift in mix to higher priced cars, light trucks and SUV's.
Used vehicle retail revenues were up $27.5 million or 6%, but down 3% on a same
store basis. Used vehicle retail units were up 3% during the first six months of
2002 and down 6% on a same store basis as manufacturer incentives contributed to
stronger than expected trends in new vehicles at the expense of used vehicles.
As a result of the introduction of more certified used vehicles, average selling
prices were up 3% over the same period last year.
Parts, service and collision repair revenues were up $19.6 million or 8% in the
current year versus the same period last year and up 2% on a same store basis.
This improvement is primarily attributable to increased customer pay business,
driven by expanded product offerings, such as tires, quick service centers and
paintless dent repair.
11
F&I revenues during the six months ended June 30, 2002 increased $7.0 million or
14% over the same period last year. On a same store basis, F&I revenues were up
9% over the prior period, while F&I PVR was $717 during the first half of 2002,
a 10% improvement over the first half of 2001. These results principally reflect
enhanced processes, stricter adherence to menu selling and several corporate
initiatives such as our preferred lender program.
Gross Profit-
Gross profit for the six months ended June 30, 2002, increased $36.8 million or
12% over the six months ended June 30, 2001. Same store retail gross profit (the
Company's preferred productivity measurement) was up 4%.
Gross profit as a percentage of revenues for the current year was 15.9% as
compared to 15.5% for the same period last year as the Company experienced
margin improvements across all product lines. New vehicle and used vehicle
retail margins increased to 8.4% and 12.0%, respectively, principally due to the
change in sales mix as mentioned above to higher margin vehicles. Parts, service
and collision repair margins increased to 52.1% due to a slight shift towards
the higher margin service business.
Operating Expenses-
Selling, general and administrative ("SG&A") expenses for the six months ended
June 30, 2002, increased $31.2 million or 13% over the six months ended June 30,
2001. SG&A expenses as a percentage of revenues increased to 12.3% in the first
half of 2002 from 11.8% in the first half of 2001. Contributing to this increase
was increased variable compensation related to higher gross profit margins,
increased insurance and advertising costs and start-up expenses related to the
Price 1 Auto Store used car pilot program ($2.2 million). During last year, we
incurred $4.1 million of charges related to severance payments and the
repurchase of a carried interest. Depreciation and amortization decreased $2.8
million to $11.9 million as goodwill amortization of $5.0 million in the six
months ended June 30, 2001 did not recur in the current year due to elimination
of such amortization pursuant to SFAS No. 142. This was offset by increased
depreciation principally due to capital expenditures made in 2001 and by
increased amortization related to Price 1 of $0.8 million.
Other Income (Expense)-
Floor plan interest expense decreased to $9.0 million for the six months ended
June 30, 2002 from $16.5 million for the six months ended June 30, 2001. This
decline was primarily due to lower interest rates in 2002 versus 2001 and
slightly lower new vehicle inventory levels in the current year. Other interest
expense decreased by $4.7 million from the prior year principally due to lower
interest rates, partially offset by increased borrowings used to fund
acquisitions completed after January 1, 2001. Net losses from unconsolidated
affiliates for the six months ended June 30, 2002, and June 30, 2001, were
related to the Company's share of losses in an automotive finance company. Other
income (expense) in the first half of 2002 reflected certain non-operating
expenses associated with the IPO of $0.6 million, while the first half of 2001
included a gain on an interest rate swap transaction of $0.4 million.
Income Tax Provision-
During the six months ended June 30, 2002, the Company recorded, in accordance
with SFAS No. 109, a one-time non-recurring charge of $11.6 million related to
the establishment of a net deferred tax liability, in connection with the
Company's conversion from a limited liability company to a corporation. This
liability represented the difference between the financial statement and tax
basis of the assets and liabilities of the Company at the conversion date. The
Company's pro forma tax rate for the first half of 2002 approximately 39.8%, is
based on the estimated effective tax rate for the year. During the first half of
2001, income tax was provided in accordance with SFAS No. 109 on only the "C"
corporations owned directly or indirectly by Asbury Automotive Group L.L.C.
during that period.
Extraordinary Loss on Early Extinguishment of Debt-
In connection with the repayment of certain term notes with borrowings under the
Committed Credit Facility (as defined below), the Company incurred prepayment
penalties and wrote off the unamortized portion of deferred financing fees,
aggregating $1.4 million in the first half of 2001.
Discontinued Operations-
The $1.0 million loss from discontinued operations in the six months ended
June 30, 2002 resulted primarily from a loss on the real estate associated with
a disposed dealership. Liquidity and Capital Resources
12
Liquidity and Capital Resources
The Company requires cash to fund working capital needs, finance acquisitions of
new dealerships and fund capital expenditures. These requirements are met
principally from cash flow from operations, borrowings under the Committed
Credit Facility and the Floor Plan Lines (as defined below), and mortgage notes.
As of June 30, 2002, the Company had cash and cash equivalents of $67.1 million.
Senior Subordinated Notes-
On June 5, 2002, the Company issued 9% Senior Subordinated Notes in the
aggregated principle amount of $250,000 receiving net proceeds of $242,125. The
costs related to the issuance of the notes were capitalized and are amortized to
interest expense over the term of the notes. The net proceeds from the notes
issuance were utilized to repay certain indebtedness under the Company's
Committed Credit Facility. The Company will pay interest on the notes on June 15
and December 15 of each year. The first such payment will be made on December
15, 2002. The notes will mature on June 15, 2012. At any time on or after June
15, 2007, the Company may, at its option, choose to redeem all or a portion of
the notes at the redemption prices set forth in the note indenture. On or before
June 15, 2005, the Company may, at its option, use the net proceeds of one or
more equity offerings to redeem up to 35% of the aggregate principal amount of
the notes at the redemption price set forth in this offering circular. At any
time before June 15, 2007, the Company may, at its own option, choose to redeem
all or a portion of the notes at a price equal to 100% of their principal amount
plus the make-whole premium set forth in the note indenture.
The notes will be guaranteed by substantially all of the Company's current
subsidiaries and all of Asbury's future domestic restricted subsidiaries that
have outstanding, incur or guarantee any other indebtedness. The notes and the
subsidiary guarantees will rank behind all of the Company's and the subsidiary
guarantors' current and future indebtedness, other than trade payables, except
any future indebtedness that expressly provides that it ranks equally with, or
is subordinated in right of payment to, the notes and subsidiary guarantees. The
notes will rank equally with all of Asbury's and the subsidiary guarantors'
future senior subordinated indebtedness. The notes will be effectively
subordinated to all debt of the Company's subsidiaries that do not guarantee the
notes.
Credit Facilities-
The Company has a three-year committed financing agreement (the "Committed
Credit Facility") with total availability of $550 million. Earlier this year,
the Company extended the maturity of the Committed Credit Facility to January
2005. The Committed Credit Facility is primarily used to finance acquisitions.
Borrowings under the Committed Credit Facility bear interest at variable rates
based on LIBOR plus a specified percentage depending on the attainment of
certain leverage ratios and the outstanding balance. As of June 30, 2002,
approximately $452.5 million remained available to the Company for additional
borrowings under the Committed Credit Facility.
Floor Plan Financing-
The Company has uncommitted floor plan financing lines of credit for new and
used vehicles (the "Floor Plan Lines"). The Floor Plan Lines do not have
specified maturities and bear interest at variable rates based on LIBOR or the
prime rate with total availability of $750 million. As of June 30, 2002, the
Company had $456.5 million outstanding under its floor plan financing
agreements.
Cash Flow-
Cash flow from operations totaled $34.0 million for the six months ended June
30, 2002, as net income plus non-cash items of $44.7 million, and increases in
accounts payables and accruals and floor plan notes payable of $6.3 million and
$3.0 million, respectively, offset an increase in inventories of $20.3 million.
Net cash flow used in investing activities was $28.0 million, as spending for
capital expenditures and acquisitions were offset by proceeds from the
dispositions of certain franchises. Net cash flow from financing activities was
$0.7 million, as net proceeds from the IPO and the Subordinated Debt
Refinancing, were offset by a net reduction in borrowings, distributions to
members and payment of debt issuance costs related to the Subordinated Debt
Refinancing.
Cash flow from operations totaled $58.9 million for the six months ended June
30, 2001, as net income plus non-cash items of $36.8 million, a decrease in
inventories of $54.7 million and an increase in accounts payables and accruals
of $6.5 million, offset an increase in floor plan notes payable of $19.5 million
and a net increase in accounts receivable and contracts-in-transit of $18.7
million. Net cash flow used in investing activities was $37.8 million,
principally related to capital expenditures of $27.1, acquisitions of $8.1
13
million and a net increase in finance contracts of $2.6 million. Net cash flow
used in financing activities was $2.1 million due to payment of member
distributions of $9.0 million offset by a net increase in borrowings of $6.9
million.
Capital Expenditures-
Capital spending for the six months ended June 30, 2002 and 2001 was $23.6
million and $27.1 million, respectively. Capital spending other than from
acquisitions is expected to be approximately $60 million during the year ended
December 31, 2002, and will be primarily related to operational improvements and
manufacturer-required spending to upgrade existing dealership facilities
Recent Accounting Pronouncements-
In April 2002, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 145, "Rescission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Correction." This Statement eliminates extraordinary accounting
treatment for reporting gain or loss on debt extinguishment, and amends other
existing authoritative pronouncements to make various technical corrections. The
provisions of this Statement are effective for the Company with the beginning of
fiscal year 2003. Upon adoption of this statement, the Company will reclassify
to recurring operations, debt extinguishments reported as extraordinary items in
prior periods.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement requires recording costs
associated with exit or disposal activities at their fair values when a
liability has been incurred. Under previous guidance, certain exit costs were
accrued upon management's commitment to an exit plan. Adoption of this Statement
is required with the beginning of fiscal year 2003. The Company has not yet
completed the evaluation of the impact of adopting this Statement.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
The Company is exposed to market risk from changes in interest rates on a
significant portion of its outstanding indebtedness. Given amounts outstanding
at June 30, 2002, a 1% change in variable interest rates would result in a
change of approximately $2.3 million to our annual non-floor plan interest
expense. Based on floor plan amounts outstanding at June 30, 2002, a 1% change
in variable interest rates would result in a $4.6 million change to annual floor
plan interest expense.
Interest Rate Swaps
During the second quarter of 2002 and in connection with the Subordinated Debt
Refinancing, the Company terminated three swap agreements, having a combined
total notional principal amount of $300 million, all maturing in November 2003.
In connection with these terminations, the Company incurred a $0.2 million loss,
which is being amortized over the remainder of the original agreements.
. . .
Forward Looking Information
This report contains "forward-looking statements" as that term is defined in the
Private Securities Litigation Reform Act of 1995. The forward-looking statements
include statements relating to goals, plans and projections regarding the
Company's financial position, results of operations, market position, product
development and business strategy. These statements are based on management's
current expectations and involve significant risks and uncertainties that may
cause results to differ materially from those set forth in the statements. These
risks and uncertainties include, among other things, market factors, the
Company's relationships with vehicle manufacturers and other suppliers, risks
associated with the Company's substantial indebtedness, risks related to pending
and potential future acquisitions, general economic conditions both nationally
and locally and governmental regulations and legislation. There can be no
guarantees the Company's plans for future operations will be successfully
implemented or that they will prove to be commercially successful. These and
other risk factors are discussed in the Company's registration statements on
Form S-1 declared effective on March 13, 2002 and Form S-4 declared effective on
July 22, 2002. We undertake no obligation to publicly update any forward-looking
statement, whether as a result of new information, future events or otherwise.
14
PART II - OTHER INFORMAITON
Item 2. Application of Proceeds from Initial Public Offering and Senior
Subordinated Note Issuance
Of the $62.5 million of net proceeds received by the Company from its initial
public offering, the Company applied $50.4 million to repay borrowings under its
Committed Credit Facility and retained $12.1 million for working capital, future
acquisitions and general corporate purposes.
Of the $242.1 million of net proceeds received by the Company from its Senior
Subordinated Notes issuance, all was applied to repay borrowings under its
Committed Credit Facility.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
4 - Indenture, relating to the issuance of $250 million aggregate principal
amount of Senior Subordinated Notes due 2012 (incorporated by reference to
the Registration Statement on Form S-4 (Registration Number 333-91340)
filed June 27, 2002).
10 - Employment and Consulting Agreement of Thomas F. "Mack" McLarty, III.
99.1 - Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief
Executive Officer)
99.2- Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (Chief Financial Officer)
b. Reports on Form 8-K
Report filed May 17, 2002, under Item 4, related to the Company's removal
of Arthur Andersen LLP as its independent public accountants on May 13,
2002. On May 16, 2002, the Company retained Deloitte & Touche LLP as the
Company's new independent public accountants for the fiscal year 2002.
Report filed May 17, 2002, under Item 5, related to the issuance of a press
release announcing a proposed private placement of $200 million principal
amount of Senior Subordinated Notes.
Report filed May 31, 2002, under Item 5, related to the issuance of a press
release announcing the Company's pricing of its $250 million private
placement of Senior Subordinated Notes due 2012 with a 9% interest rate.
Report filed July 25, 2002, under Item 9, related to issuance of press
release announcing earnings for the second quarter ending June 30, 2002.
15
SIGNATURES
Pursuant to the requirements 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.
Asbury Automotive Group, Inc.
--------------------------------------------------
--------------------------------------------------
(Registrant)
Date: August 12, 2002 /s/ Thomas F. Gilman
--------------------------------------------------
--------------------------------------------------
Thomas F. Gilman
Senior Vice President and Chief Financial Officer
16
Index to Exhibits
Exhibit
Number Description
10 Employment and Consulting Agreement of Thomas F. "Mack"
McLarty, III.
99.1 Certificate pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Executive Officer)
99.2 Certificate pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Chief Financial Officer)
Exhibit 10
EMPLOYMENT AND CONSULTING AGREEMENT
EMPLOYMENT AND CONSULTING AGREEMENT, dated as of May 1, 2002 (this
"Agreement"), among ASBURY AUTOMOTIVE ARKANSAS L.L.C., a Delaware limited
liability company (the "Company"), McLARTY COMPANIES, INC., an Arkansas
corporation (the "Consulting Firm"), ASBURY AUTOMOTIVE GROUP L.L.C., a Delaware
limited liability company ("Asbury Group") and Thomas F. McLarty, III
("McLarty").
WITNESSETH:
WHEREAS, the Company owns and operates certain retail motor vehicle
dealerships located in the State of Arkansas (the "Business");
WHEREAS, the Company desires to employ McLarty, and McLarty desires to
accept such employment with the Company, on the terms and conditions set forth
in this Agreement;
WHEREAS, Asbury Group desires to retain the Consulting Firm for the
consulting services of McLarty, and the Consulting Firm and McLarty desire to
provide such consulting services to the Asbury Group, on the terms and
conditions set forth in this Agreement; and
NOW, THEREFORE, in consideration of the premises and mutual covenants
and agreements contained herein and for other good and valuable consideration,
the parties hereto hereby agree as follows:
1. Agreements to Retain. (a) Upon the terms and subject to the conditions
of this Agreement, the Company hereby employs McLarty, and McLarty hereby
accepts such employment.
(b) Upon the terms and subject to the conditions of this
Agreement, Asbury Group hereby retains the Consulting Firm for the purpose of
causing McLarty to provide consulting services to Asbury Group, and McLarty and
the Consulting Firm each hereby accepts the terms of retainer herein by Asbury
Group.
2. Term: Services to be Provided. (a) Term of Agreement. The term of
this Agreement shall commence on the date of this Agreement (the "Effective
Date"), and shall remain in effect for an initial term expiring on the sixth
anniversary of the Effective Date (the "Initial Term"); provided, that this
Agreement may be sooner terminated with respect to the employment arrangement
among the Company, the Consulting Firm and McLarty (the "Company Arrangements"),
or with respect to the consulting arrangements among Asbury Group, the
Consulting Firm and McLarty (the "Asbury Arrangements") (or both), pursuant, in
each case, to the applicable provisions of Section 6 hereof. After the Initial
Term, this Agreement may be renewed for additional one-year terms (each, an
"Extended Term") upon the mutual written consent, in the case of the Company
Arrangements, of the Company and McLarty, and in the case of the Asbury
Arrangements, of Asbury Group, the Consulting Firm and McLarty. The period of
time between the Effective Date and the termination of this Agreement pursuant
to its terms is herein referred to, with respect to the Company Arrangements, as
the "Company Term," and with respect to the Asbury Arrangements, as the "Asbury
Term."
(b) Services to be Provided. (i) During the Company Term,
McLarty agrees to provide to the Company, and, at the Company's request, to any
direct or indirect subsidiary of the Company, part-time management services
equivalent to those services that would be provided by a Chairman of a Delaware
corporation. McLarty will serve as a part-time advisor to the Company's
management and Board of Directors (the "Company Board"), devoting his skill,
knowledge and working time, as necessary, to assist in the overall management of
the Company and in addition, McLarty shall perform such other services, as may
be determined from time to time by or under the authority of the Company Board
or President and Chief Executive Officer of Asbury Group (the "CEO"). All such
services will be referred to as the "Company Services." McLarty agrees to devote
his skill, knowledge and working time sufficient to conscientiously perform the
Company Services to his best ability, subject to the arrangements described in
the following sentence. The Company acknowledges that McLarty is engaged in
various businesses and other interests that require his time, effort and
attention and that McLarty will continue to participate in these interests and
others which require his time, effort and attention.
(ii) During the Asbury Term, the Consulting Firm will cause
McLarty to provide, and McLarty agrees to provide, to Asbury Group, consulting
services as may be determined from time to time by or under the authority of the
Board of Directors of Asbury Group (the "Asbury Board") or the CEO which shall
include, without limitation, acting as an ongoing intermediary between Asbury
Group and automobile manufacturers. All such services will be referred to as the
"Asbury Services". The Consulting Firm will cause McLarty, and McLarty agrees,
to devote his skill, knowledge and working time sufficient to conscientiously
perform the Asbury Services to his best ability, subject to the arrangements
described in the last sentence of Section 2(b)(i), provided that in the event
there is a conflict between the Asbury Services and the Company Services, the
Company Services shall take precedence.
(iii) Each of the Consulting Firm and McLarty hereby
represents that this Agreement and compliance by McLarty with the terms and
conditions of this Agreement will not conflict with or result in the breach of
any agreement to which either McLarty or the Consulting Firm is a party or by
which he or it may be bound.
(iv) Authority of McLarty. The relationship of McLarty and the
Company is that of employer and employee. McLarty shall have the power and
authority to enter into contracts in the name of, and on behalf of, the Company
or any of its subsidiaries. The relationship of Consulting Firm and McLarty to
the Asbury Group is that of an independent contractor, and nothing contained in
this Agreement shall be construed as creating a joint venture, partnership or
employment arrangement among Consulting Firm, McLarty and Asbury Group. Neither
the Consulting Firm nor McLarty shall have the power or authority to enter into
contracts in the name of, or on behalf of, Asbury Group or any of its
affiliates, except as may be expressly stated in a written delegation of such
power or authority from Asbury Group. The Consulting Firm and McLarty (in both
of his capacities as an employee of the Company and independent contractor of
the Asbury Group) agree to discharge all obligations under federal, state, local
or foreign law, regulation or order now or hereafter in force arising out of its
or his provision of services hereunder.
3. Compensation and Consulting Fees. (a) In consideration for all Company
Services to be rendered by McLarty to the Company, the Company shall pay McLarty
an annual salary of $150,000 less applicable payroll deductions ("Company
Salary"), payable in arrears in equal monthly installments.
(b) In consideration for all Asbury Services to be rendered by
McLarty to Asbury Group, Asbury Group shall pay to the Consulting Firm during
the Asbury Term an annual consulting fee of $350,000 ("Asbury Consulting Fee"),
payable in arrears in equal monthly installments.
4. Benefits. During the Company Term, McLarty shall be entitled to
participate in all life insurance, medical insurance, disability insurance and
other benefits that are provided to Company employees, from time to time. During
the Asbury Term, McLarty, as an independent contractor, will not be permitted to
participate in any of the life insurance, medical insurance, disability
insurance and other benefits that may be provided to employees of Asbury Group.
5. Expenses. (a) The Company shall reimburse McLarty for his reasonable
travel, lodging and meal expenses incurred in connection with his performance of
the Company Services upon submission of evidence, satisfactory to the CEO, of
the incurrence and purpose of each such expense.
(b) Asbury Group shall reimburse the Consulting Firm for
reasonable travel, lodging and meal expenses incurred by McLarty in connection
with his performance of the Asbury Services upon submission of evidence,
satisfactory to the CEO, of the incurrence and purpose of each such expense.
6. Termination of Agreement. (a) Termination Due to Death or
Disability. McLarty's provision of Company Services and Asbury Services shall
automatically terminate upon his death or Disability. For purposes of this
Agreement, "Disability" shall mean a physical or mental disability or infirmity
that prevents the performance by McLarty of his duties hereunder lasting (or
likely to last, based on competent medical evidence presented to the CEO,
Company Board and the Asbury Board) for a continuous period of six months or
longer. The reasoned and good faith judgment of the CEO, Company Board or Asbury
Board as to Disability shall be final and shall be based on such competent
medical evidence as shall be presented to it by McLarty or by any physician or
group of physicians or other competent medical experts employed by McLarty or
the Company to advise the CEO, Company Board or Asbury Board, as the case may
be.
(b) Termination for Cause. (i) McLarty's provision of Company
Services may be terminated for "Cause" by the Company Board or CEO.
(ii) McLarty's provision of Asbury Services may be terminated
for "Cause" by the Asbury Board or CEO.
(iii) "Cause," with respect to the termination of the Company
Services or the Asbury Services, shall mean (A) the willful failure by McLarty
to substantially perform his duties with respect to the Company or Asbury Group,
as the case may be, and continuance of such failure for more than 20 days after
the Company or Asbury Group, as applicable, notifies McLarty and the Consulting
Firm in writing that McLarty is failing to substantially perform his duties,
which writing shall specify in reasonable detail sufficient to inform McLarty
and the Consulting Firm of the duties that McLarty is alleged to have failed to
substantially perform and the actions required to cure such failure, (B)
McLarty's or the Consulting Firm's engaging in serious misconduct (including,
without limitation, any criminal, fraudulent or dishonest conduct) that is
injurious to the Company or Asbury Group, as applicable, or any of their
respective affiliates or subsidiaries, (C) McLarty's or the Consulting Firm's
conviction of, or entering a plea of nolo contendere to, any crime that
constitutes a felony or involves moral turpitude, or (D) the breach by McLarty
or Consulting Firm of any written covenant or agreement with the Company or
Asbury Group, as applicable, or any of their respective affiliates not to
disclose any information pertaining to the Company or Asbury Group, as
applicable, or any of their respective affiliates or not to compete or interfere
with the Company or Asbury Group, as applicable, or any of their respective
affiliates, including without limitation the covenants set forth in Sections 7,
8, 9 and 10 hereof.
(c) Termination Without Cause. (i) McLarty's provision of
Company Services may be terminated "Without Cause" by the Company Board or CEO.
(ii) McLarty's provision of Asbury Services may be terminated
"Without Cause" by the Asbury Board or CEO.
(iii) A termination "Without Cause" shall mean, with respect
to the termination of the Company Services of the Asbury Services, a termination
of Company Services or Asbury Services by the CEO, Company Board or the Asbury
Board, as applicable, other than due to death or Disability as described in
Section 6(a) or Cause as defined in Section 6(b).
(d) Termination by McLarty. (i) McLarty may terminate
his provision of Company Services for "Good Reason".
(ii) McLarty may terminate his provision of Asbury Services
for "Good Reason".
(iii) "Good Reason" shall mean, with respect to the
termination of the Company Services or the Asbury Services, a termination by
McLarty of his provision of Company Services or Asbury Services, as applicable,
within 30 days following, (A) any material diminution by the Company Board or
the Asbury Board, as applicable, in McLarty's duties, except in connection with
termination of McLarty's provision of services for Cause as provided in Section
6(b) or death or Disability as provided in Section 6(a); (B) any requirement by
the Company Board or the Asbury Board, as applicable, that McLarty be based
outside of the State of Arkansas; or (C) the failure of the Company or Asbury
Group, as applicable, timely to pay McLarty's salary and benefits or the
Consulting Firm's fees, provided that (x) McLarty shall have given the Company
or Asbury Group, as applicable, written notice of such circumstances and the
Company or Asbury Group, as applicable, shall have failed to cure such
circumstances within 20 days, and (y) McLarty shall not have caused the
occurrence constituting Good Reason through the exercise of his authority as an
employee of the Company or consultant to Asbury Group, as applicable.
(e) Notice and Effect of Termination. Any termination of
McLarty's provision of Company Services or Asbury Services, as applicable, by
the CEO, Company Board or Asbury Board, as applicable, pursuant to Section 6(a)
(in the case of Disability), 6(b) or 6(c), or by McLarty pursuant to Section
6(d), shall be communicated by a written "Notice of Termination" addressed to
McLarty and the Consulting Firm, the Company or Asbury Group, as appropriate. A
"Notice of Termination" shall mean, with respect to the Company or Asbury Group,
as applicable, a notice stating that McLarty's provision of Company Services or
Asbury Services, as applicable, has been or will be terminated, indicating the
specific termination provisions in this Agreement relied upon and setting forth
in reasonable detail the facts and circumstances claimed to provide a basis for
the termination of the provision of such services. At any time that McLarty's
provision of Asbury Services is terminated, the Consulting Firm's obligation
with respect to such services shall also be terminated.
(f) Payments Upon Certain Terminations of the Provision of
Company Services.
(i) Termination Without Cause or for Good Reason. (A) In the
event of a termination of McLarty's provision of Company Services by the CEO or
Company Board Without Cause or a termination by McLarty of the provision of
Company Services for Good Reason, in either case, prior to the last day of the
Company Term, the Company shall continue to provide McLarty with medical
insurance for a period of twelve (12) months after the Date of Termination (as
defined in Section 6(h)) and shall pay to McLarty a lump sum in an amount equal
to the Company Board's good faith determination of the present values of the
Company Remaining Fee Amounts (as defined below), as of the date of such lump
sum payment, calculated using a discount rate equal to the then prevailing
interest rate payable on senior indebtedness of an issuer rated "B" by Moody's
Investors Service or Standard & Poor's (or the then-equivalent rating) having a
term as close as practicable to the period from the Date of Termination of the
provision of Company Services through the last day of the Company Term. "Company
Remaining Fee Amounts" means the Company Salary that would have been payable,
monthly in arrears, between the date on which Notice of Termination is given as
contemplated by Section 6(e) or, if no such Notice is given, the Date of
Termination of the provision of Company Services, and the sixth anniversary of
the Effective Date, assuming no increase in the Company Salary from the rate in
effect immediately prior to the Date of Termination.
(ii) Termination Upon Death or Disability. If McLarty's
provision of Company Services shall terminate upon his death or Disability, the
Company shall pay McLarty two times the full Company Salary at the annual rate
in effect immediately prior to the Date of Termination.
(iii) Termination for Cause or Voluntary Termination by
McLarty. If the CEO or Company Board shall terminate McLarty's provision of
Company Services for Cause or if McLarty shall voluntarily terminate his
provision of Company Services for other than Good Reason, McLarty shall be paid
the Company Salary through the Date of Termination at the annual rate in effect
immediately prior to the Date of Termination.
(g) Payments Upon Certain Terminations of the Provision of
Asbury Services.
(i) Termination Without Cause or for Good Reason. In the event
of a termination of McLarty's provision of Asbury Services by the CEO or Asbury
Board Without Cause, or in the event of a termination by McLarty of the
provision of Asbury Services for Good Reason, in any case prior to the last day
of the Asbury Term, no later than twenty (20) days following the Date of
Termination, Asbury Group shall pay to the Consulting Firm a lump sum in an
amount equal to the Asbury Board's good faith determination of the present
values of the Asbury Remaining Fee Amounts (as defined below), as of the date of
such lump sum payment, calculated using a discount rate equal to the then
prevailing interest rate payable on senior indebtedness of an issuer rated "B"
by Moody's Investors Service or Standard & Poor's (or the then-equivalent
rating) having a term as close as practicable to the period from the Date of
Termination of the provision of Asbury Services through the last day of the
Asbury Term. "Asbury Remaining Fee Amounts" means the Asbury Consulting Fee that
would have been payable, monthly in arrears, between the date on which Notice of
Termination is given as contemplated by Section 6(e) or, if no such Notice is
given, the Date of Termination of the provision of Asbury Services, and the
sixth anniversary of the Effective Date, assuming no increase in the Asbury
Consulting Fee from the rate in effect immediately prior to the Date of
Termination.
(ii) Termination for Death or Disability. If McLarty's
provision of Asbury Services shall terminate upon his death or Disability prior
to the last day of the Asbury Term, no later than twenty (20) days following the
Date of Termination, Asbury Group shall pay to the Consulting Firm in a single
lump sum the full Asbury Consulting Fee as set forth in Section 3(b) for the
year in which such termination occurred.
(iii) Termination for Cause or Voluntary Termination by
McLarty. If the CEO or Asbury Board shall terminate McLarty's provision of
Asbury Services for Cause or if McLarty shall voluntarily terminate his
provision of Asbury Services for other than Good Reason, McLarty shall be paid
the Asbury Consulting Fee through the Date of Termination at the annual rate in
effect immediately prior to the Date of Termination.
(h) Date of Termination. As used in this Agreement, the term
"Date of Termination" with respect to the Company Services or Asbury Services,
as applicable, shall mean (i) if McLarty's provision of Company Services or
Asbury Services is terminated by his death, the date of his death, (ii) if
McLarty's provision of Company Services or Asbury Services is terminated by the
CEO, Company Board or Asbury Board, as applicable, for Cause or by McLarty for
Good Reason, the later of the date on which: (x) the Notice of Termination is
given as contemplated by Section 6(e); and (y) the lapsing of the cure period
described in Section 6(b) or 6( d), as applicable, and (iii) if McLarty's
provision of Company Services or Asbury Services is terminated by the CEO,
Company Board or Asbury Board, as applicable, Without Cause, due to McLarty's
Disability or otherwise, whether or not Notice of Termination is given, thirty
(30) days after the date of termination of such services.
7. Covenant Not to Compete. (a) So long as McLarty's provision of
Company Services or Asbury Services hereunder shall continue, or as otherwise
expressly consented to, approved or otherwise permitted by the Asbury Group or
CEO in writing, and to the fullest extent permitted under applicable law,
McLarty and the Consulting Firm shall not, directly or indirectly engage in,
participate in, represent in any way or be connected with, as an officer,
director, partner, owner, employee, agent, independent contractor, consultant,
proprietor or stockholder (except for the ownership of a less than 5% stock
interest in a publicly traded corporation) or otherwise (the "Restricted
Activities"), any business similar to the Business (as defined in the Exchange
Agreement, dated as of August 4, 1998 (as amended by Amendment No. 1, dated as
of February 23, 1999, among McLarty, the Company and the other persons named
therein (the "Exchange Agreement")) within the State of Arkansas or within 80
miles of any business owned or controlled by the Company, Asbury Group or any of
their respective affiliates, provided, further, that McLarty and the Consulting
Firm shall not, directly or indirectly, engage in or be connected with any
Restricted Activities for any business located anywhere in the United States or
Canada that engages in the sale of used automobiles through an affiliation with
a national retail chain; or
(b) If McLarty's provision of Company Services and Asbury
Services hereunder is terminated, the following provisions shall apply:
(i) The provisions of Section 7(a) shall continue in effect
for the longer of six years after the Effective Date or two years after the
final Date of Termination;
(ii) During the period described under Section 7(b)(i),
McLarty shall disclose in writing to the Company the name, address and type of
business conducted by any proposed employer or contractor of McLarty within ten
business days of commencing employment (or independent contract work) with such
new employer or contractor. In addition, during the period described under
Section 7(b)(i), but only to the extent that McLarty is entitled to and requests
a payment under clause (iii) of this Section 7(b), McLarty shall promptly inform
the Company in writing of receipt of any amount, up to an amount equal to one
hundred percent (100%) of the sum of the Company Salary and the Asbury
Consulting Fee (the "Consulting Fees") per annum, described in sub clause
(iii)(y) below; and
(iii) In the event of a termination of McLarty's provision of
Company Services and Asbury Services: (A) pursuant to Section 6(b); or (B)
voluntarily by McLarty for any reason other than Good Reason; or (C) due to
expiration of both the Company Term and the Asbury Term and any extensions
thereof, so long as this Section 7(b) shall apply, the Company shall pay McLarty
on an annual basis the excess of: (x) an amount equal to one hundred percent
(100%) of the Consulting Fees over (y) the total compensation (whether received
as salary, consulting fee or otherwise and calculated on a pre-tax basis)
accrued, earned or received by McLarty from any new employer, client or
contractor during such period, provided that such excess shall be payable
monthly in arrears, provided further, that the Company shall consider the amount
described in clause (iii)(y) above to be at least one hundred percent (100%) of
the Consulting Fees unless and until McLarty otherwise notifies the Company in
writing;
provided, however, that the Company may at any time, in its sole discretion,
terminate all obligations imposed on the Company, McLarty and Consulting Firm
under this Section 7 by written notice to McLarty and Consulting Firm, provided,
however, that any such termination shall not terminate any other non-competition
agreement between the Company or its affiliates (including Asbury Group) and
McLarty, provided, that notwithstanding such termination the Company shall
continue to make any and all payments required by Section 6(f) hereunder.
McLarty shall be under no obligation to accept any employment during the period
for which McLarty receives continued payments pursuant to Section 7(b)(iii) or
to otherwise attempt to mitigate the payment of such amounts by the Company and
the Company waives any right to allege that McLarty has any duty to mitigate the
payment of such amounts.
(c) For so long as McLarty is a member of the board of
directors of Asbury Automotive Group, Inc., unless expressly consented to by the
CEO in writing, McLarty and the Consulting Firm (a) shall not take
advantage, directly or indirectly, of any business opportunity anywhere in the
world in which AAG, Inc. would be interested if it was made aware of the
opportunity (and will advise the CEO of any such opportunities which come to the
attention of McLarty or the Consulting Firm) and (b)shall not, directly or
indirectly, engage in, participate in, represent in any way or be connected with
any Restricted Activities in any business similar to the Business (as defined in
the Exchange Agreement) anywhere in the United States or Canada.
8. Unauthorized Disclosure. (a) During and after the Company Term and
the Asbury Term, without the written consent of the Asbury Board or CEO, as
applicable, or a person authorized thereby: (i) McLarty and the Consulting Firm
shall not disclose to any person (other than an employee or director of the
Company or Asbury Group, as applicable, or their respective affiliates, or a
person to whom disclosure is reasonably necessary or appropriate in connection
with the performance by McLarty of his duties under this Agreement) or use to
compete with the Company or Asbury Group, as applicable, or any of their
respective affiliates any confidential or proprietary information, knowledge or
data that is not theretofore publicly known and in the public domain obtained by
McLarty while providing Company Services or Asbury Services, as applicable, with
respect to the Company or Asbury Group, as applicable, or any of their
respective affiliates or with respect to any products, improvements, customers,
methods of distribution, sales, prices, profits, costs, contracts (including,
without limitation the terms and provisions of this Agreement), suppliers,
business prospects, business methods, techniques, research, trade secrets or
know-how of the Company or Asbury Group or any of their respective affiliates
(collectively, "Proprietary Information" of the Company or Asbury Group, as
applicable); and (ii) McLarty and Consulting Firm shall use best efforts to keep
confidential any such Proprietary Information and to refrain from making any
such disclosure, in each case except as may be required by law or as may be
required in connection with any judicial or administrative proceedings or
inquiry.
(b) The covenant contained in this Section 8 shall survive the
termination of McLarty's and Consulting Firm's provision of Company Services or
Asbury Services, as applicable, and shall be binding upon McLarty's and
Consulting Firm's heirs, legal representatives, successors and assigns.
9. Non-Solicitation of Employees. During the period commencing on the
Effective Date and ending on the date that is the later of five years after the
Effective Date and two years after the final Date of Termination (the
"Non-Solicitation Restriction Period"), McLarty and Consulting Firm shall not,
directly or indirectly, for their own account or the account of any other person
or entity with which McLarty or Consulting Firm shall become associated in any
capacity or in which either of them shall have any ownership interest: (a)
solicit for employment or employ any person who, at any time during the
preceding 12 months, is or was employed by or otherwise engaged to perform
services for the Company or Asbury Group, or any of their respective affiliates,
regardless of whether such employment or engagement is direct or through an
entity with which such person is employed or associated, or otherwise
intentionally interfere with the relationship of the Company or Asbury Group, or
any of their respective affiliates with any person or entity who or which is at
the time employed by or otherwise engaged to perform services for the Company or
Asbury Group, as applicable, or any such affiliate; or (b) induce any employee
of the Company or Asbury Group, or any of their respective affiliates to engage
in any activity which McLarty or Consulting Firm is prohibited from engaging in
under Sections 7, 8, 9 and 10 hereof or to terminate his or her employment with
the Company or Asbury Group, as applicable, or such affiliate.
10. Return of Documents. In the event of the termination of McLarty's
provision of Company Services or Asbury Services for any reason, McLarty and
Consulting Firm will deliver to the Company or Asbury Group, as applicable, all
documents and data of any nature pertaining to his work with the Company or
Asbury Group, as applicable, and their respective affiliates, and McLarty and
Consulting Firm will not retain any documents or data of any description or any
reproduction thereof, or any documents containing or pertaining to any
Proprietary Information.
11. Injunctive Relief with Respect to Covenants. McLarty and Consulting
Firm acknowledge and agree that the covenants and obligations of each of them
with respect to non-competition, non-disclosure, non-solicitation,
confidentiality and the property of the Company or Asbury Group, as applicable,
and their respective affiliates relate to special, unique and extraordinary
matters and that, notwithstanding any other provision of this Agreement to the
contrary, a violation of any of the terms of such covenants and obligations will
cause the Company or Asbury Group, as applicable, and their respective
affiliates irreparable injury for which adequate remedies are not available at
law. Therefore, McLarty and Consulting Firm expressly agree that the Company or
Asbury Group, as applicable, and their respective affiliates (which shall be
express third-party beneficiaries of such covenants and obligations) shall be
entitled to an injunction (whether temporary or permanent), restraining order or
such other equitable relief (including the requirement to post bond) as a court
of competent jurisdiction may deem necessary or appropriate to restrain McLarty
or Consulting Firm from committing any violation of the covenants and
obligations contained in Sections 7, 8, 9 and 10 hereof. These injunctive
remedies are cumulative and in addition to any other rights and remedies the
Company or Asbury Group or any such affiliate may have at law or in equity.
Further, McLarty represents that his experience and capabilities are such that
the provisions of Sections 7, 8, 9 and 10 hereof will not prevent him from
earning his livelihood.
12. Assumption of Agreement. The Company and Asbury Group will require
any successor (by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company or Asbury Group,
respectively, by agreement in form and substance reasonably satisfactory to
McLarty, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company or Asbury Group, as the case may
be, would be required to perform it if no such succession had taken place.
Failure of the Company or Asbury Group, as the case may be, to obtain such
agreement prior to the effectiveness of any such succession shall constitute
"Good Reason" in accordance with Section 6(d) of this Agreement.
13. Entire Agreement. Except as otherwise expressly provided herein,
this Agreement, the Exchange Agreement and the LLC Agreement constitute the
entire agreements among the parties hereto with respect to the subject matter
hereof, and all promises, representations, understandings, arrangements and
prior agreements relating to such subject matter (including those made to or
with McLarty or the Consulting Firm by any other person or entity) are merged
herein and superseded hereby.
14. Miscellaneous. (a) Binding Effect. This Agreement shall be binding
on and inure to the benefit of the Company, Asbury Group and their respective
successors and permitted assigns. This Agreement shall also be binding on and
inure to the benefit of McLarty and Consulting Firm and their respective heirs,
executors, administrators, legal representatives, successors and assigns. If
McLarty's provision of Company Services or Asbury Services is terminated by
reason of his death, all amounts payable by the Company or Asbury Group pursuant
to Section 6(f)(ii) or 6(g)(ii) (or if McLarty shall die after the provision of
all service hereunder has terminated, any remaining amount payable by the
Company pursuant to Section 6(f)(i)) shall be paid in accordance with the terms
of this Agreement to McLarty's devisee, legatee, or other designee or, if there
be no such designee, to his estate.
(b) Governing Law. (i)(A) THIS AGREEMENT (EXCEPT AS PROVIDED
FOR IN SECTION l4(b)(i)(B) BELOW) SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF ARKANSAS WITHOUT REFERENCE TO
PRINCIPLES OF CONFLICT OF LAWS THEREUNDER. SUBJECT TO SECTION l4(b)(i)(B), ANY
AND ALL SUITS, LEGAL ACTIONS OR PROCEEDINGS AGAINST ANY PARTY HERETO ARISING OUT
OF THIS AGREEMENT SHALL BE BROUGHT IN ANY UNITED STATES FEDERAL COURT SITTING IN
THE STATE OF ARKANSAS OR ANY OTHER COURT OF APPROPRIATE JURISDICTION SITTING IN
THE STATE OF ARKANSAS, AS THE PARTY BRINGING SUCH SUIT MAY ELECT IN ITS SOLE
DISCRETION, AND EACH PARTY HEREBY SUBMITS TO AND ACCEPTS THE EXCLUSIVE
JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF SUCH SUIT, LEGAL ACTION OR
PROCEEDING, EACH PARTY HERETO WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT
OR OTHER PROCESS AND AGREES THAT SERVICE THEREOF MAY BE MADE BY CERTIFIED OR
REGISTERED MAIL. EACH PARTY HERETO HEREBY IRREVOCABL Y WAIVES ANY OBJECTION
WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT,
LEGAL ACTION OR PROCEEDING IN ANY SUCH COURT AND HEREBY FURTHER WAIVES ANY CLAIM
THAT ANY SUCH SUIT, LEGAL ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM.
(B) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS
AGREEMENT, THE PROVISIONS OF SECTIONS 7, 8, 9,10 AND 11 SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE WITHOUT REFERENCE
TO PRINCIPLES OF CONFLICT OF LAWS THEREUNDER ANY AND ALL SUITS, LEGAL ACTIONS OR
PROCEEDINGS AGAINST ANY PARTY HERETO ARISING OUT OF SECTIONS 7, 8, 9, 10 OR 11
HEREOF SHALL BE BROUGHT IN ANY UNITED STATES FEDERAL COURT SITTING IN THE STATE
OF DELAWARE OR ANY OTHER COURT OF APPROPRIATE JURISDICTION SITTING IN THE STATE
OF DELAWARE, AS THE PARTY BRINGING SUCH SUIT MAY ELECT IN ITS SOLE DISCRETION,
AND EACH PARTY HEREBY SUBMITS TO AND ACCEPTS THE EXCLUSIVE JURISDICTION OF SUCH
COURTS FOR THE PURPOSE OF SUCH SUIT, LEGAL ACTION OR PROCEEDING, EACH PARTY
HERETO WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS AND
AGREES THAT SERVICE THEREOF MAY BE MADE BY CERTIFIED OR REGISTERED MAIL. EACH
PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, LEGAL ACTION OR
PROCEEDING IN ANY SUCH COURT AND HEREBY FURTHER WAIVES ANY CLAIM THAT ANY SUCH
SUIT, LEGAL ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM.
(ii) EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY
CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE
COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE SUCH PARTY HEREBY IRREVOCABLY
AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN
RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO
THIS AGREEMENT, OR THE BREACH, TERMINATION OR VALIDITY OF THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT: (W) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER; (X) EACH SUCH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER; (Y) EACH SUCH
PARTY MAKES THIS WAIVER VOLUNTARILY; AND (Z) EACH SUCH PARTY HAS BEEN INDUCED TO
ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 14(b).
(c) Amendments. No provisions of this Agreement may be
modified, waived or discharged unless such modification, waiver or discharge is
approved by both the Company Board and the Asbury Board or a person authorized
thereby and is agreed to in writing by McLarty, the Consulting Firm and such
authorized officers or agents of the Company and Asbury Group, as applicable. No
waiver by any party hereto at any time of any breach by any other party hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time. No
waiver of any provision of this Agreement shall be implied from any course of
dealing between or among the parties hereto, or from any failure by any party
hereto to assert its rights hereunder on any occasion or series of occasions. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement.
(d) Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not be affected thereby.
(e) Notices. Any notice or other communication required or
permitted to be delivered under this Agreement shall be: (i) in writing, (ii)
delivered personally, by nationally recognized overnight courier service or by
certified or registered mail, first-class postage prepaid and return receipt
requested, (iii) deemed to have been received on the date of delivery or on the
third business day after the mailing thereof, and (iv) addressed as follows (or
to such other address as the party entitled to notice shall hereafter designate
in accordance with the terms hereof):
(A) if to the Company or Asbury Group, to it:
c/o Asbury Automotive Group L.L.C.
Three Landmark Square, Suite 500
Stamford, Connecticut 06901
Attention: General Counsel
---------
Telephone: (203) 356-4400
Fax: (203) 356-4450
(B) if to McLarty or the Consulting Firm:
McLarty Companies, Inc.
350 Salem Rd., Suite 8A
Conway, AR 72032
Attention: Thomas F. McLarty, III
---------
Telephone:
Fax:
with a copy to:
Wright, Lindsey & Jennings
200 West Capital Avenue
Suite 2200
Little Rock, AR 72201-3699
Attention: Kevin W. Kennedy, Esq.
-----------
Telephone: (501) 212-1394
Fax: (501) 376-9442
(f) Survival. In the event McLarty's provision of Company
Services but not Asbury Services is terminated, Sections l(b), 2(a), 2(b)(ii),
2(b)(iii), 2(b)(iv), 3(b), 4, 5(b), 6, 7, 8, 9, 10, 11, 12, 13 and 14 shall
survive the termination of the provision by McLarty of the Company Services. In
the event McLarty's provision of Asbury Services but not Company Services is
terminated, Sections 1(a), 2(a), 2(b)(i), 2(b)(iii), 2(b)(iv), 3(a), 4, 5(a), 6,
7, 8, 9, 10, 11, 12, 13 and 14 shall survive the termination of the provision by
McLarty of the Asbury Services. In the event McLarty's provision of both Company
Services and Asbury Services is terminated, Sections 7, 8, 9, 10, 11, 12, 13, 14
and, if McLarty's provision of Company Services and Asbury Services terminates
in a manner giving rise to a payment under Section 6(f), Section 6(f) shall
survive the termination of this Agreement and the termination of the provision
of such services by McLarty.
(g) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(h) Headings. The section and other headings contained in this
Agreement are for the convenience of the parties only and are not intended to be
a part hereof or to affect the meaning or interpretation hereof.
(i) McLarty's Recusal. McLarty shall recuse himself from all
deliberations of the Company Board and its Managing Member and the Asbury Board
regarding this Agreement, McLarty's provision of services hereunder or related
matters.
****
Signatures Appear on Next Page
IN WITNESS WHEREOF, each of the Company, Asbury Group and the
Consulting Firm has duly executed this Agreement by its authorized
representative and McLarty has hereunto set his hand, in each case effective as
of the date first above written.
ASBURY AUTOMOTIVE ARKANSAS L.L.C.
By: /s/ Thomas R. Gibson
-----------------------------------------------
Name: Thomas R. Gibson
Title: Chairman
ASBURY AUTOMOTIVE GROUP L.L.C.
By: /s/ Kenneth B. Gilman
-----------------------------------------------
Name: Kenneth B. Gilman
Title: President and Chief Executive Officer
McLARTY COMPANIES, INC.
By: /s/ Thomas F. McLarty, III
-----------------------------------------------
Name: Thomas F. McLarty
Title: Chief Executive Officer
THOMAS F. McLARTY, III, individually
/s/ Thomas F. McLarty, III
----------------------------------------------------
Exhibit 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Asbury Automotive Group, Inc.
(the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Kenneth B. Gilman, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Kenneth B. Gilman
- -----------------------------------------------------
Kenneth B. Gilman
Chief Executive Officer
August 12, 2002
Exhibit 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Asbury Automotive Group, Inc.
(the "Company") on Form 10-Q for the period ending June 30, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Thomas F. Gilman, Chief Financial Officer of the Company, certify, pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Thomas F. Gilman
- -----------------------------------------------------
Thomas F. Gilman
Chief Financial Officer
August 12, 2002