-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BkG9s05XNVKfUtmFV/NvIBtbcAU7GD1RPsqgZ3WReoqhs9dK+dRXVZ7m+AZZHavq CpPRKt5JcNy6ibnsfob8UQ== 0000950168-99-002956.txt : 19991117 0000950168-99-002956.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950168-99-002956 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONIC AUTOMOTIVE INC CENTRAL INDEX KEY: 0001043509 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-AUTO DEALERS & GASOLINE STATIONS [5500] IRS NUMBER: 562010790 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13395 FILM NUMBER: 99754770 BUSINESS ADDRESS: STREET 1: 5401 EAST INDEPENDENCE BLVD STREET 2: PO BOX 18747 CITY: CHARLOTTE STATE: NC ZIP: 28026 BUSINESS PHONE: 7045323354 MAIL ADDRESS: STREET 1: 5401 EAST INDEPENDENCE BLVD CITY: CHARLOTTE STATE: NC ZIP: 28026 10-Q 1 SONIC AUTOMOTIVE, INC. 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 - -------------------------------------------------------------------------------- FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-13395 SONIC AUTOMOTIVE, INC. (Exact name of registrant as specified in its charter) DELAWARE 56-201079 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5401 E. Independence Blvd., Charlotte, North Carolina 28212 (Address of principal executive offices) (Zip Code) (704) 532-3320 (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No - As of November 12, 1999, there were 23,820,355 shares of Class A Common Stock and 12,250,000 shares of Class B Common Stock outstanding. INDEX TO FORM 10-Q PAGE ---- PART I - FINANCIAL INFORMATION ITEM 1. Consolidated Financial Statements (Unaudited) 3 Consolidated Statements of Income - Three-month periods ended September 30, 1998 and September 30, 1999 Consolidated Statements of Income - Nine-month periods ended September 30, 1998 and September 30, 1999 Consolidated Balance Sheets - December 31, 1998 and September 30, 1999 Consolidated Statement of Stockholders' Equity - Nine-month period ended September 30, 1999 Consolidated Statements of Cash Flows - Nine-month periods ended September 30, 1998 and September 30, 1999 Notes to Unaudited Consolidated Financial Statements ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 15 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 22 PART II - OTHER INFORMATION ITEM 2. Changes in Securities and Use of Proceeds 23 ITEM 6. Exhibits and Reports on Form 8-K 24 SIGNATURES 25 PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements. SONIC AUTOMOTIVE, INC. CONSOLIDATED STATEMENTS OF INCOME (Dollars and shares in thousands except per share amounts) (Unaudited) THREE MONTHS ENDED SEPTEMBER 30, 1998 1999 ---------- ----------- REVENUES: Vehicle sales $ 443,043 $ 751,181 Parts, service and collision repair 50,803 96,223 Finance and insurance (Note 1) 10,264 22,560 ---------- ----------- Total revenues 504,110 869,964 COST OF SALES (Note 1) 440,136 753,310 ---------- ----------- GROSS PROFIT 63,974 116,654 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 46,793 82,650 DEPRECIATION AND AMORTIZATION 1,535 2,992 ---------- ----------- OPERATING INCOME 15,646 31,012 OTHER INCOME AND EXPENSE: Interest expense, floor plan 3,992 5,721 Interest expense, other 2,787 4,786 Other income 9 38 ---------- ----------- Total other expense 6,770 10,469 ---------- ----------- INCOME BEFORE INCOME TAXES 8,876 20,543 PROVISION FOR INCOME TAXES 3,450 7,960 ---------- ----------- NET INCOME $ 5,426 $ 12,583 ========== =========== BASIC EARNINGS PER SHARE (Note 6) $ 0.24 $ 0.36 ========== =========== WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 22,730 35,208 ========== =========== DILUTED EARNINGS PER SHARE (Note 6) $ 0.21 $ 0.33 ========== =========== WEIGHTED AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING 26,126 38,268 ========== =========== See notes to unaudited consolidated financial statements. 3 SONIC AUTOMOTIVE, INC. CONSOLIDATED STATEMENTS OF INCOME (Dollars and shares in thousands except per share amounts) (Unaudited) NINE MONTHS ENDED SEPTEMBER 30, 1998 1999 ----------- ------------ REVENUES: Vehicle sales $ 1,012,153 $ 1,904,602 Parts, service and collision repair 119,114 230,249 Finance and insurance (Note 1) 22,954 52,095 ------------ ------------ Total revenues 1,154,221 2,186,946 COST OF SALES (Note 1) 1,007,825 1,897,956 ------------ ------------ GROSS PROFIT 146,396 288,990 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 107,185 207,293 DEPRECIATION AND AMORTIZATION 3,360 7,143 ------------ ------------ OPERATING INCOME 35,851 74,554 OTHER INCOME AND EXPENSE: Interest expense, floor plan 10,547 15,118 Interest expense, other 5,548 12,177 Other income 24 362 ------------ ------------ Total other expense 16,071 26,933 ------------ ------------ INCOME BEFORE INCOME TAXES 19,780 47,621 PROVISION FOR INCOME TAXES 7,550 18,250 ------------ ------------ NET INCOME $ 12,230 $ 29,371 ============ ============ BASIC EARNINGS PER SHARE (Note 6) $ 0.54 $ 0.98 ============ ============ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 22,596 29,948 ============ ============ DILUTED EARNINGS PER SHARE (Note 6) $ 0.50 $ 0.88 ============ ============ WEIGHTED AVERAGE NUMBER OF DILUTED SHARES OUTSTANDING 24,280 33,489 ============ ============ See notes to unaudited consolidated financial statements. 4 SONIC AUTOMOTIVE, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 1999 1998 (UNAUDITED) ------------ ------------- (IN THOUSANDS) ASSETS CURRENT ASSETS: Cash and cash equivalents $ 51,834 $ 69,865 Receivables (net of allowance for doubtful accounts of $700,000 and $1,465,000 at December 31, 1998 and September 30, 1999, respectively) 39,902 54,831 Inventories (Note 3) 264,971 362,645 Deferred income taxes 1,702 1,762 Due from affiliates (Note 5) 1,471 4,932 Other current assets 4,961 5,894 ------------- ----------- Total current assets 364,841 499,929 PROPERTY AND EQUIPMENT, NET 26,250 42,315 GOODWILL, NET (Notes 1 and 2) 180,081 360,421 OTHER ASSETS 4,931 7,485 ------------- ----------- TOTAL ASSETS $ 576,103 $ 910,150 ============== =========== See notes to unaudited consolidated financial statements. 5 SONIC AUTOMOTIVE, INC. CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 1999 1998 (UNAUDITED) ------------ ------------ (DOLLARS IN THOUSANDS) LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Notes payable - floor plan $ 228,158 $ 276,915 Trade accounts payable 14,994 22,215 Accrued interest 7,058 4,469 Other accrued liabilities 27,763 39,900 Payable to affiliates (Note 5) 628 - Payable for acquisitions 2,385 275 Current maturities of long-term debt 4,700 1,176 ----------- ----------- Total current liabilities 285,686 344,950 LONG-TERM DEBT (Note 4) 131,337 214,235 PAYABLE FOR ACQUISITIONS 275 275 PAYABLE TO THE COMPANY'S CHAIRMAN (Note 5) 5,500 5,500 PAYABLE TO AFFILIATES (Note 5) 3,625 766 DEFERRED INCOME TAXES 4,066 6,653 INCOME TAX PAYABLE 3,185 3,906 COMMITMENTS AND CONTINGENCIES (Note 7) STOCKHOLDERS' EQUITY (Note 6): Preferred Stock, $.10 par, 3.0 million shares authorized; 300,000 shares designated as Class A Convertible Preferred Stock, liquidation 20,431 27,254 preference $1,000 per share, of which 22,179 shares are issued and outstanding at December 31, 1998 and 28,718 shares are issued and outstanding at September 30, 1999 Class A Common Stock, $.01 par, 100.0 million shares authorized; 11,959,274 shares issued and outstanding at December 31, 1998 and 23,749,310 120 237 shares issued and outstanding at September 30, 1999 Class B Common Stock, $.01 par (convertible into Class A Common Stock), 30.0 million shares authorized; 12,400,000 shares issued and 124 123 outstanding at December 31, 1998 and 12,250,000 shares issued and outstanding at September 30, 1999 Paid-in capital 87,011 242,137 Retained earnings 34,743 64,114 ----------- ---------- Total stockholders' equity 142,429 333,865 ----------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 576,103 $ 910,150 =========== ========== See notes to unaudited consolidated financial statements. 6 SONIC AUTOMOTIVE, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (Dollars and shares in thousands) (Unaudited)
PREFERRED CLASS A CLASS B TOTAL STOCK COMMON STOCK COMMON STOCK PAID-IN RETAINED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY ------ --------- --------- -------- ---------- -------- ---------- --------- ------------ BALANCE AT DECEMBER 31, 1998 22 $ 20,431 11,959 $120 12,400 $124 $ 87,011 $34,743 $ 142,429 Issuance of Preferred Stock (Note 2) 59 53,152 - - - - - - 53,152 Issuance of Common Stock (Note 2) - - 7,642 76 - - 107,243 - 107,319 Shares awarded under stock compensation plans - - 213 2 - - 1,592 - 1,594 Conversion of Class A Preferred Stock (52) (46,329) 3,785 38 - - 46,291 - - Conversion of Class B Common Stock - - 150 1 (150) (1) - - - Net income - - - - - - - 29,371 29,371 BALANCE AT ------ --------- --------- -------- ----------- -------- ---------- -------- ----------- SEPTEMBER 30, 1999 29 $ 27,254 23,749 $237 12,250 $123 $242,137 $64,114 $ 333,865 ====== ========= ========== ======= =========== ======== ========== ======== ===========
See notes to unaudited consolidated financial statements. 7 SONIC AUTOMOTIVE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) NINE MONTHS ENDED SEPTEMBER 30, 1998 1999 --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 12,230 $ 29,371 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 3,364 7,143 Amortization of discount on senior notes - 194 Loss on disposal of property and equipment 141 72 Changes in assets and liabilities that relate to operations: Receivables (3,978) (8,747) Inventories 44,026 30,739 Other assets (3,736) (589) Accounts payable and other current liabilities 2,002 4,930 --------- --------- Total adjustments 41,819 33,742 --------- --------- Net cash provided by operating activities 54,049 63,113 --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of businesses, net of cash acquired (66,883) (164,306) Purchases of property and equipment (2,614) (11,171) Proceeds from sales of property and equipment (Note 5) - 10,594 ---------- --------- Net cash used in investing activities (69,497) (164,883) ---------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net payments of notes payable - floor plan (49,842) (40,714) Proceeds from long-term debt 171,182 159,732 Payments on long-term debt (83,897) (86,014) Public offering of common stock - 85,069 Issuance of shares under stock compensation plans 341 1,594 Advances (to) from affiliated companies (549) 134 ---------- --------- Net cash provided by financing activities 37,235 119,801 ---------- --------- NET INCREASE IN CASH AND CASH EQUIVALENTS 21,787 18,031 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 18,304 51,834 ---------- --------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 40,091 $ 69,865 ========== ========= SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES: Preferred Stock issued for acquisitions and contingent consideration (Note 2) $ 25,788 $ 53,150 Common Stock issued for acquisitions (Note 2) $ 8,250 $ 22,250 See notes to unaudited consolidated financial statements. 8 The following Notes to Unaudited Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations contain estimates and forward-looking statements as indicated herein by the use of such terms as "estimated", "expects", "approximate", "projected" or similar terms. Such statements reflect management's current views, are based on certain assumptions and are subject to risks and uncertainties. No assurance can be given that actual results or events will not differ materially from those projected, estimated, assumed, or anticipated in any such forward-looking statements. Important factors that could cause actual results to differ from those projected or estimated are discussed herein and in other filings with the Securities and Exchange Commission. SONIC AUTOMOTIVE, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION - The accompanying unaudited financial information for the three and nine months ended September 30, 1998 and 1999 has been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. All significant intercompany accounts and transactions have been eliminated. These unaudited consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and the results of operations for the periods presented. The results for interim periods are not necessarily indicative of the results to be expected for the entire fiscal year. These interim financial statements should be read in conjunction with the audited consolidated financial statements of Sonic Automotive, Inc. and its subsidiaries (collectively, "Sonic") for the year ended December 31, 1998. REVENUE RECOGNITION - Sonic records revenue when vehicles are delivered to customers, and when vehicle service work is performed. Sonic arranges financing for customers through various financial institutions and receives a commission from the lender equal to the difference between the interest rates charged to customers over the predetermined interest rates set by the financing institution. Sonic also receives commissions from the sale of credit life, accident, health and disability insurance and extended service contracts to customers. Sonic may be assessed a chargeback fee in the event of early cancellation of a loan, insurance contract, or service contract by the customer. Finance and insurance commission revenue is recorded net of estimated chargebacks at the time the related contract is placed with the financial institution. Commissions expense related to finance and insurance commission revenue is charged to cost of sales upon recognition of such revenue, net of estimated chargebacks. Estimated commission expense charged to cost of sales was approximately $1.8 million and $3.3 million for the three months ended September 30, 1998 and September 30, 1999, respectively, and approximately $4.0 million and $8.5 million for the nine months ended September 30, 1998 and September 30, 1999, respectively. RECLASSIFICATION - Certain balances reported in 1998 have been reclassified to conform with current period presentation. GOODWILL - Goodwill represents the excess purchase price over the estimated fair value of the tangible and separately measurable intangible net assets acquired. The cumulative gross goodwill balance at December 31, 1998 was $182.5 million and at September 30, 1999 was $369.5 million. As a percentage of total assets and stockholders' equity, goodwill, net of accumulated amortization, represented 31.3% and 126.4%, respectively, at December 31, 1998, and 39.6% and 108.0%, respectively, at September 30, 1999. Generally accepted accounting principles require that goodwill and all other intangible assets be amortized over the period benefited. We have determined that the period benefited by the goodwill will be no less than 40 years. Accordingly, we are amortizing goodwill over a 40 year period. Earnings reported in periods immediately following an acquisition would be overstated if we attributed a 40 year benefit to an intangible asset that should have had a shorter benefit period. In later years, we would be burdened by a continuing charge against earnings without the associated benefit to income valued by management in arriving at the consideration paid for the businesses acquired. Earnings in later years also could be significantly affected if management then determined that the remaining balance of goodwill was impaired. We periodically compare the carrying value of goodwill with the anticipated undiscounted future cash flows from operations of the business we have acquired in order to evaluate the recoverability of goodwill. We have concluded that the anticipated future cash flows associated with intangible assets recognized in our acquisitions will continue indefinitely, and there is no pervasive evidence that any material portion will dissipate over a period shorter than 40 years. We will incur additional goodwill in future acquisitions. 9 SONIC AUTOMOTIVE, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2. BUSINESS ACQUISITIONS PENDING ACQUISITIONS Sonic has signed definitive agreements to acquire 38 dealerships for an estimated $224.6 million in cash, approximately 13,600 shares of Sonic's Class A convertible preferred stock and approximately 5,100,000 shares of Class A common stock. The aggregate purchase price is subject to adjustment based on the actual net book value of the assets acquired. The cash portion of the purchase price will be paid with a combination of borrowings under Sonic's $350 million acquisition line of credit with Ford Motor Credit Company (the "Revolving Facility") and with cash generated from Sonic's existing operations. These acquisitions are expected to be consummated in the fourth quarter of 1999 and first quarter of 2000. ACQUISITIONS COMPLETED SUBSEQUENT TO SEPTEMBER 30, 1999 (THROUGH NOVEMBER 12, 1999): Subsequent to September 30, 1999, Sonic acquired 9 dealerships for approximately $57.8 million in cash financed with a combination of cash borrowed under the Revolving Facility and cash generated from Sonic's existing operations. The acquisitions were accounted for using the purchase method of accounting. ACQUISITIONS COMPLETED DURING THE NINE MONTHS ENDED SEPTEMBER 30, 1999: During the first nine months of 1999, Sonic acquired 30 dealerships for approximately $173.8 million in cash, 6,282 shares of Sonic's Class A convertible preferred stock, Series II, having an estimated fair value at the time of issuance of approximately $6.1 million, 45,783 shares of Sonic's Class A convertible preferred stock, Series III, having an estimated fair value at the time of issuance of approximately $40.3 million, and 1,574,932 shares of Sonic's Class A common stock having an estimated fair value at the time of issuance of approximately $22.3 million. The cash portion of the purchase price was financed with a combination of a portion of the net proceeds from Sonic's recent public offering of Class A common stock, cash borrowed under the Revolving Facility and cash generated from Sonic's existing operations. The acquisitions were accounted for using the purchase method of accounting, and the results of operations of such acquisitions have been included in the accompanying unaudited consolidated financial statements from their respective acquisition dates. The aggregate purchase price of these acquisitions has been allocated to the assets and liabilities acquired based on their estimated fair market value at the acquisition date as shown in the table below. The purchase price and corresponding goodwill may ultimately be different than amounts recorded depending on the actual fair value of tangible net assets acquired. Working capital $ 49,010 Property and equipment 14,808 Goodwill 181,509 Non-current liabilites assumed (2,840) ------------ Total purchase price $242,487 ============ In connection with the subsequent acquisition of a Honda dealership in Chattanooga, Tennessee, Sonic sold substantially all of the assets of its existing Honda dealership in Cleveland, Tennessee in March 1999 for approximately $1.7 million, net of repayment of floor plan liabilities. There was no material gain or loss as a result of the sale. The following unaudited pro forma financial information presents a summary of consolidated results of operations as if the above acquisition transactions had occurred as of the beginning of the year in which the acquisitions were completed, and at the beginning of the immediately preceding year, after giving effect to certain adjustments, including amortization of goodwill, interest expense on acquisition debt and related income tax effects. The pro forma financial information does not give effect to adjustments relating to net reductions in floor plan interest expense resulting from re-negotiated floor plan financing agreements or to reductions in salaries and fringe benefits of former owners or officers of acquired dealerships who have not been retained by Sonic or whose salaries have been reduced pursuant to employment agreements with Sonic. The pro forma results have been prepared for comparative purposes only and are not necessarily indicative of the results of operations that would have occurred had the acquisitions been completed at the beginning of the period presented. These results are also not necessarily indicative of the results of future operations. 10 SONIC AUTOMOTIVE, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 2. BUSINESS ACQUISITIONS - CONTINUED
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30, 1998 1999 1998 1999 --------- --------- ----------- ----------- Total revenues $ 814,327 $ 893,828 $ 2,368,658 $ 2,575,119 Gross profit $ 102,690 $ 119,085 $ 292,504 $ 333,665 Net Income $ 8,500 $ 13,462 $ 19,152 $ 35,956 Diluted income per share $ 0.22 $ 0.35 $ 0.50 $ 0.90
3. INVENTORIES Inventories consist of the following: DECEMBER 31, SEPTEMBER 30, 1998 1999 ------------ ------------- New vehicles $ 190,139 $ 242,679 Used vehicles 47,033 78,915 Parts and accessories 16,012 30,637 Other 11,787 10,414 ------------ ------------- Total $ 264,971 $ 362,645 ============= ============ 4. LONG-TERM DEBT MORTGAGES: In January 1999, in connection with the sale of real estate at two of its dealership subsidiaries to MMR Holdings, LLC (See Note 5), a limited liability company owned by Bruton Smith, Sonic's Chairman and Chief Executive Officer, and Sonic Financial Corporation ("SFC"), Sonic repaid all amounts outstanding under mortgages encumbering such property. REVOLVING FACILITY: Effective November 1, 1999, the total amount available under Sonic's Revolving Facility was increased from $150 million to $350 million. Prior to November 1, 1999, amounts outstanding under the Revolving Facility bore interest at a fluctuating per annum rate equal to 2.75% above the 1 month commercial finance paper rate as reported by the Federal Reserve Board (8.01% at September 30, 1999). Subsequent to November 1, 1999, amounts outstanding bear interest at 2.50% above LIBOR. The Revolving Facility will mature in October 2002, unless Sonic requests that such term be extended, at the option of Ford Motor Credit, for a number of additional one year terms to be negotiated by the parties. On May 5, 1999, in connection with the public offering by Sonic of 6,067,230 shares of Class A common stock, all amounts previously outstanding under the Revolving Facility were repaid. Amounts outstanding under the Revolving Facility as of September 30, 1999 total approximately $88.3 million and were used to finance acquisitions completed in the third quarter of 1999. Future amounts to be drawn under the Revolving Facility are to be used for the acquisition of additional dealerships and to provide general working capital needs of Sonic not to exceed $35 million. 5. RELATED PARTIES THE SMITH SUBORDINATED LOAN: In December 1997, Mr. Smith was required by Ford Motor Credit Company ("Ford Motor Credit") to lend $5.5 million (the "Subordinated Smith Loan") to Sonic to increase Sonic's capitalization. Ford Motor Credit required the Subordinated Smith Loan as a condition to increasing the Revolving Facility borrowing limit because the net offering proceeds from Sonic's November 1997 initial public offering were significantly less than expected by Sonic and Ford Motor Credit. The Subordinated Smith Loan bears interest at Bank of America's announced prime rate plus 0.5% and matures on November 30, 2000. All amounts owed by Sonic to Mr. Smith under the Subordinated Smith Loan are to be paid after all amounts owed by Sonic under the Revolving Facility, Sonic's floor plan financing facility with Ford Motor Credit and Sonic's senior subordinated notes are paid. 11 SONIC AUTOMOTIVE, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 5. RELATED PARTIES - CONTINUED REGISTRATION RIGHTS AGREEMENT: When Sonic acquired Town & Country Ford, Lone Star Ford, Fort Mill Ford, Town & Country Toyota and Frontier Oldsmobile-Cadillac in 1997, Sonic signed a Registration Rights Agreement dated as of June 30, 1997 (the "Registration Rights Agreements") with SFC, Bruton Smith, Scott Smith and William S. Egan (collectively, the "Class B Registration Rights Holders"). SFC, which is controlled by Bruton Smith, currently owns 8,881,250 shares of Class B common stock; Bruton Smith, 2,071,250 shares; Scott Smith, 956,250 shares; and Egan Group, LLC, an assignee of Mr. Egan (the "Egan Group"), 341,250 shares, all of which are covered by the Registration Rights Agreement. The Egan Group also owns 125,000 shares of Class A common stock to which the Registration Rights Agreement applies. If, among other things provided in Sonic's charter, offers and sales of shares of Class B common stock are registered with the Securities and Exchange Commission, then such shares will automatically convert into a like number of shares of Class A common stock. The Class B Registration Rights Holders have certain limited piggyback registration rights under the Registration Rights Agreement. These rights permit them to have their shares of Sonic's common stock included in any Sonic registration statement registering Class A common stock, except for registrations on Form S-4, relating to exchange offers and certain other transactions, and Form S-8, relating to employee stock compensation plans. The Registration Rights Agreement expires on November 17, 2007. SFC is controlled by Bruton Smith. THE BOWERS VOLVO NOTE: In connection with Volvo's approval of Sonic's acquisition of a Volvo franchise from Nelson Bowers in 1997, Volvo, among other things, conditioned its approval upon Nelson Bowers acquiring and maintaining a 20% interest in Sonic's Chattanooga Volvo subsidiary operating the Volvo franchise. Mr. Bowers financed all of the purchase price for this 20% interest by issuing a promissory note (the "Bowers Volvo Note") in favor of Sonic Automotive of Nevada, Inc., the wholly-owned subsidiary of Sonic that controls a majority interest in Chattanooga Volvo. The Bowers Volvo Note is secured by Mr. Bowers' interest in Chattanooga Volvo. The Bowers Volvo Note is for a principal amount of $900,000 and bears interest at the lowest applicable federal rate as published by the U.S. Treasury Department in effect on November 17, 1997. Accrued interest is payable annually. The operating agreement of Chattanooga Volvo provides that profits and distributions are to be allocated first to Mr. Bowers to the extent of interest to be paid on the Bowers Volvo Note and next to the other members of Chattanooga Volvo according to their percentages of ownership. No other profits or any losses of Chattanooga Volvo will be allocated to Mr. Bowers under this arrangement. Volvo has removed its requirement that Mr. Bowers maintain his interest in Chattanooga Volvo. Sonic and Mr. Bowers are in the process of redeeming his interest in Chattanooga Volvo and satisfying the Bowers Volvo Note. This transaction is not expected to have a material impact on Sonic's future results of operations or cash flows. As of November 1998 Mr. Bowers was no longer an affiliate of Sonic. DEALERSHIP LEASES: In January 1999, Sonic sold to MMR Holdings, L.L.C., a limited liability company then owned by Bruton Smith and SFC, the real estate at two of its dealership subsidiaries for an aggregate purchase price of approximately $10.6 million and entered into an agreement with MMR Holdings, L.L.C. to lease back the real estate over a term of ten years. Sonic realized a gain on the sale of approximately $3.8 million which was deferred and is currently being amortized against the rent expense over the term of the lease. On August 13, 1999, CAR MMR L.L.C., an affiliate of Capital Automotive REIT, which is not affiliated with Sonic, acquired all of the ownership interests of MMR Holdings, L.L.C., and two of its affiliates, MMR Viking Investment Associates, L.P. and MMR Tennessee, L.L.C (collectively, the "MMR Group). As of that date, Sonic leased 48 properties for 38 of its dealerships from the MMR Group under "triple net leases" which required Sonic to pay all costs of operating the properties, as well as all taxes, utilities, insurance, repairs, maintenance and other property related expenses. Sonic has entered into new leases with CAR MMR L.L.C. with terms similar to those under Sonic's former leases with the MMR Group. These leases generally provide Sonic with options to renew the lease for two additional five year terms after the expiration of the initial lease term. Sonic has agreed to renew approximately 75% of its lease rental stream for an additional five year period after the expiration of the initial lease terms. In connection with the acquisition, Sonic, MMR Holdings and Mar Mar Realty Trust, an affiliate of the MMR Group, terminated the strategic alliance agreement whereby Mar Mar Realty Trust had provided Sonic with real estate financing, acquisition referral and related services. In connection with the above transaction, CAR MMR L.L.C. has agreed to provide Sonic with up to $75 million in real estate sale-leaseback financing through December 31, 1999. 12 SONIC AUTOMOTIVE, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 5. RELATED PARTIES - CONTINUED OTHER RELATED PARTY TRANSACTIONS: o Sonic had amounts receivable from affiliates of $1.5 million and $4.9 million at December 31, 1998 and September 30, 1999, respectively. Of the $4.9 million balance at September 30, 1999, approximately $3.5 million represents amounts owed by Mar Mar Realty Trust. The remaining balances at December 31, 1998 and September 30, 1999 primarily represent advances made by Sonic to SFC and Mar Mar Realty Trust. The amounts receivable from affiliates are non-interest bearing and are classified as current based on the expected repayment dates. o As part of the purchase price in connection with Sonic's acquisition of the Bowers Automotive Group in November 1997, Sonic issued its promissory note in the principal amount of $4.0 million in favor of Nelson Bowers (the "Bowers Acquisition Note"). The Bowers Acquisition Note is payable in 28 equal quarterly installments and bears interest at the prime rate less 0.5%. The balance outstanding under this note at September 30, 1999 was $3.0 million, the current portion of which was $572,000. As noted above, Mr. Bowers was no longer affiliated with Sonic after November 1998. As a result, the outstanding balance at September 30, 1999 has been classified as long term debt, the current portion of which has been classified in current maturities of long-term debt. o Town and Country Toyota has an amount payable to Bruton Smith in the amount of $0.7 million at December 31, 1998 and September 30, 1999. This loan bears interest at 8.75% per annum and is classified as non-current based on the expected repayment date. 6. CAPITAL STRUCTURE AND PER SHARE DATA PUBLIC OFFERING OF COMMON STOCK - Sonic completed a public offering of 8,500,000 shares of its Class A common stock on May 5, 1999 at a price of $14.9375 per share. Of the 8,500,000 shares sold in the offering, 6,067,230 shares were sold by Sonic and 2,432,770 shares were sold by certain stockholders of Sonic. Of the $86.1 million in net proceeds to Sonic from the public offering, approximately $75.5 million was used to repay the outstanding balance under the Revolving Facility. The remaining net proceeds were used to finance acquisitions which closed in the second quarter of 1999. SHARE REPURCHASE PROGRAM - On November 1, 1999, Sonic's Board of Directors authorized Sonic to expend up to $25 million to repurchase shares of its Class A common stock or redeem securities convertible into Class A common stock. Shares will be repurchased from time to time in the open market subject to market conditions. INCREASE TO AUTHORIZED SHARES OF COMMON STOCK - At the annual meeting of stockholders held on June 8, 1999, Sonic's stockholders approved an amendment to Sonic's Amended and Restated Certificate of Incorporation to increase the number of shares of Class A common stock authorized to be issued thereunder from 50 million to 100 million, and to increase the number of shares of Class B common stock authorized to be issued thereunder from 15 million to 30 million. PER SHARE DATA - The calculation of diluted net income per share considers the potential dilutive effect of options and shares under Sonic's stock compensation plans, Class A common stock purchase warrants, and Class A convertible preferred stock. The following table illustrates the dilutive effect of such items on EPS.
For the nine months ended For the nine months ended September 30, 1998 September 30, 1999 ---------------------------------------- ---------------------------------------- Per-Share Per-Share Income Shares Amount Income Shares Amount ------------ ------------ ------------ ------------- ------------- ----------- (DOLLARS AND SHARES IN THOUSANDS (DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) EXCEPT PER SHARE AMOUNTS) BASIC EPS $12,230 22,596 $ 0.54 $29,371 29,948 $ 0.98 ============ =========== EFFECT OF DILUTIVE SECURITIES Stock compensation plans - 531 - 1,102 Warrants - 26 - 92 Convertible Preferred Stock - 1,127 - 2,347 ------------ ------------ ------------- ------------- DILUTED EPS $12,230 24,280 $ 0.50 $29,371 33,489 $ 0.88 ============ ============ ============ ============= ============= ===========
13 SONIC AUTOMOTIVE, INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED (ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 6. CAPITAL STRUCTURE AND PER SHARE DATA - CONTINUED
For the three months ended For the three months ended September 30, 1998 September 30, 1999 ---------------------------------------- ---------------------------------------- Per-Share Per-Share Income Shares Amount Income Shares Amount ------------ ------------ ------------ ------------- ------------- ----------- (DOLLARS AND SHARES IN THOUSANDS (DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS) EXCEPT PER SHARE AMOUNTS) BASIC EPS $ 5,426 22,730 $ 0.24 $12,583 35,208 $ 0.36 ============ =========== EFFECT OF DILUTIVE SECURITIES Stock compensation plans - 718 - 736 Warrants - 36 - 76 Convertible Preferred Stock - 2,642 - 2,248 ------------ ------------ ------------- ------------- DILUTED EPS $ 5,426 26,126 $ 0.21 $12,583 38,268 $ 0.33 ============ ============ ============ ============= ============= ===========
7. COMMITMENTS AND CONTINGENCIES Sonic is involved in various legal proceedings. Management believes based on advice of counsel that the outcome of such proceedings will not have a materially adverse effect on Sonic's financial position or future results of operations and cash flows. 14 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of the results of operations and financial condition should be read in conjunction with the Unaudited Consolidated Financial Statements and the related notes thereto. RESULTS OF OPERATIONS The following table summarizes, for the periods presented, the percentages of total revenues represented by certain items reflected in Sonic's statements of income.
Percentage of Total Revenues for Percentage of Total Revenues for Three Months Ended Nine Months Ended September 30, September 30, 1998 1999 1998 1999 ------- ------- -------- --------- Revenues: New vehicle sales.................................... 60.4% 58.4% 59.8% 58.3% Used vehicle sales................................... 27.5% 27.9% 27.9% 28.8% Parts, service, and collision repair................. 10.1% 11.1% 10.3% 10.5% Finance and insurance................................ 2.0% 2.6% 2.0% 2.4% ------ ------ ------ ------ Total revenues....................................... 100.0% 100.0% 100.0% 100.0% Cost of sales........................................ 87.3% 86.6% 87.3% 86.8% ----- ----- ----- ----- Gross profit......................................... 12.7% 13.4% 12.7% 13.2% Selling, general, and administrative................. 9.6% 9.8% 9.6% 9.8% ------ ------ ------ ------ Operating income..................................... 3.1% 3.6% 3.1% 3.4% Interest expense..................................... 1.3% 1.2% 1.4% 1.2% ------ ------ ------ ------ Income before income taxes........................... 1.8% 2.4% 1.7% 2.2% ====== ====== ====== ======
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998 REVENUES. Revenues grew in each of our primary revenue areas for the first nine months of 1999 as compared with the first nine months of 1998, causing total revenues to increase 89.5% to $2.2 billion. New vehicle sales revenue increased 84.8% to $1.3 billion in the first nine months of 1999, compared with $690.5 million in the first nine months of 1998. The increase was due primarily to an increase in new vehicle unit sales of 79.4% to 52,509, as compared with 29,262 in the first nine months of 1998 resulting from 21,821 additional units contributed by acquisitions. The remainder of the increase was due to a 3.0% increase in the average selling price of new vehicles as well as an increase in new vehicle revenues from stores owned for longer than one year of 14.5% in the first nine months of 1999 over the first nine months of 1998. Used vehicle revenues from retail sales increased 94.7% to $458.8 million in the first nine months of 1999 from $235.6 million in the first nine months of 1998. The increase was primarily due to an increase in used vehicle unit sales of 88.2% to 32,392, as compared with 17,211 in the first nine months of 1998, resulting from additional unit sales contributed by acquisitions. The remainder of the increase was due to a 3.5% increase in the average selling price of used vehicles as well as an increase in used vehicle revenues from stores owned for longer than one year of 16.6% in the first nine months of 1999 over the first nine months of 1998. Parts, service and collision repair revenue increased 93.3% to $230.2 million in the first nine months of 1999 compared to $119.1 million in the first nine months of 1998, principally due to our acquisitions. Finance and insurance revenue increased $29.1 million, or 127%, principally due to vehicle sales and related financing contributed by our acquisitions, as well as a 24% improvement in finance and insurance revenues per vehicle resulting from newly implemented programs designed to improve training and development of finance and insurance sales people. GROSS PROFIT. Gross profit increased 97.4% to $289.0 million in the first nine months of 1999 from $146.4 million in the first nine months of 1998 principally due to increases in revenues contributed by dealerships acquired. Gross profit as a percentage of sales increased to 13.2% from 12.7% due primarily to an increase in revenues of higher margin used vehicles and finance and insurance products. Used vehicle revenues as a percentage of total revenues increased from 27.9% in the first nine months of 1998 to 28.8% in the first nine months of 1999. Finance and insurance revenues as a percentage of total revenues increased from 2.0% in the first nine months of 1998 to 2.4% in the first nine months of 1999. 15 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses, excluding depreciation and amortization, increased 93.4% to $207.3 million in the first nine months of 1999 from $107.2 million in the first nine months of 1998 resulting principally from acquisitions. Such expenses as a percentage of revenues increased to 9.5% from 9.3% resulting from two primary factors. First, because compensation programs, which represent over 50% of a dealership's selling, general and administrative expenses, are primarily based on gross profits, the improvement in gross profit margins resulted in an increase in compensation expense as a percentage of total revenues from 5.7% in the first nine months of 1998 to 5.9% in the first nine months of 1999. Second, an adjustment in monthly lease rates at certain dealerships to fair market rates during the period resulted in an increase in rent expense as a percentage of total revenues from 0.7% in the first nine months of 1998 to 0.8% in the first nine months of 1999. As a percentage of gross profits, selling, general and administrative expenses decreased to 71.7% from 73.2%, resulting primarily from benefits of scale which has allowed us to recognize cost savings, especially in the areas of advertising costs and insurance premiums. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense increased 113% to $7.1 million in the first nine months of 1999 from $3.4 million in the first nine months of 1998, resulting principally from additional goodwill amortization expense associated with our acquisitions. INTEREST EXPENSE, FLOOR PLAN. Interest expense, floor plan increased 43.3% to $15.1 million in the first nine months of 1999 from $10.5 million in the first nine months of 1998, due primarily to floor plan interest expense incurred by dealerships acquired. As a percentage of total revenues, floor plan interest decreased from 0.9% in the first nine months of 1998 to 0.7% in the first nine months of 1999 due to a decrease in the average interest rate under our floor plan financing arrangement, as well as improvement in inventory turnover rates. INTEREST EXPENSE, OTHER. Interest expense, other increased to $12.2 million in the first nine months of 1999 from $5.5 million in the first nine months of 1998 due primarily to interest incurred on our senior subordinated notes issued on July 31, 1998. NET INCOME. As a result of the factors noted above, our net income increased by $17.1 million in the first nine months of 1999 compared to the first nine months of 1998. THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1998 REVENUES. Revenues grew in each of our primary revenue areas for the third quarter of 1999 as compared with the third quarter of 1998, causing total revenues to increase 72.6% to $870.0 million. New vehicle sales revenue increased 67.0% to $508.1 million in the third quarter of 1999, compared with $304.3 million in the third quarter of 1998. The increase was due primarily to an increase in new vehicle unit sales of 64.1% to 20,778, as compared with 12,661 in the third quarter of 1998 resulting from 8,068 additional units contributed by acquisitions. The remainder of the increase was due to a 1.7% increase in the average selling price of new vehicles as well as an increase in new vehicle revenues from stores owned for longer than one year of 11.7% in the third quarter of 1999 over the third quarter of 1998. Used vehicle revenues from retail sales increased 72% to $173.6 million in the third quarter of 1999 from $100.9 million in the third quarter of 1998. The increase was primarily due to an increase in used vehicle unit sales of 61.5% to 12,098, as compared with 7,492 in the third quarter of 1998, resulting from additional unit sales contributed by acquisitions. The remainder of the increase was due to an increase in used vehicle revenues from stores owned for longer than one year of 16.8% in the third quarter of 1999 over the third quarter of 1998. Parts, service and collision repair revenue increased 89.4% to $96.2 million in the third quarter of 1999 compared to $50.8 million in the third quarter of 1998, principally due to our acquisitions. Finance and insurance revenue increased $12.3 million, or 119.8%, principally due to vehicle sales and related financing contributed by our acquisitions, as well as a 34.7% improvement in finance and insurance revenues per vehicle resulting from newly implemented programs designed to improve training and development of finance and insurance sales people. GROSS PROFIT. Gross profit increased 82.3% to $116.7 million in the third quarter of 1999 from $64.0 million in the third quarter of 1998 principally due to increases in revenues contributed by dealerships acquired. Gross profit as a percentage of sales increased to 13.4% from 12.7% due primarily to an increase in revenues of higher margin used vehicles and finance and insurance products. Used vehicle revenues as a percentage of total revenues increased from 27.5% in the third quarter of 1998 to 27.9% in the third quarter of 1999. Finance and insurance revenues as a percentage of total revenues increased from 2.0% in the third quarter of 1998 to 2.6% in the third quarter of 1999. 16 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses, excluding depreciation and amortization, increased 76.6% to $82.6 million in the third quarter of 1999 from $46.8 million in the third quarter of 1998 resulting principally from the expenses of dealerships acquired. Such expenses as a percentage of revenues increased to 9.5% from 9.3% resulting from two primary factors. First, because compensation programs, which represent over 50% of a dealership's selling, general and administrative expenses, are primarily based on gross profits, the improvement in gross profit margins resulted in an increase in compensation expense as a percentage of total revenues from 5.6% in the third quarter of 1998 to 5.8% in the third quarter of 1999. Second, an adjustment in monthly lease rates at certain dealerships to fair market rates resulted in an increase in rent expense as a percentage of total revenues from 0.7% in the third quarter of 1998 to 0.8% in the third quarter of 1999. As a percentage of gross profits, selling, general and administrative expenses decreased to 70.9% from 73.1%, resulting primarily from benefits of scale which has allowed us to recognize cost savings, especially in the areas of advertising costs and insurance premiums. DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense increased 94.9% to $3.0 million in the third quarter of 1999 from $1.5 million in the third quarter of 1998, resulting principally from additional goodwill amortization expense associated with our acquisitions. INTEREST EXPENSE, FLOOR PLAN. Interest expense, floor plan increased 43.3% to $5.7 million in the third quarter of 1999 from $4.0 million in the third quarter of 1998, due primarily to floor plan interest expense incurred by dealerships acquired. As a percentage of total revenues, floor plan interest decreased from 0.8% in the third quarter of 1998 to 0.7% in the third quarter of 1999 due to decreased interest rates under our floor plan financing arrangement, as well as improvement in inventory turnover rates. INTEREST EXPENSE, OTHER. Interest expense, other increased to $4.8 million in the third quarter of 1999 from $2.8 million in the third quarter of 1998 due primarily to interest incurred on our senior subordinated notes. NET INCOME. As a result of the factors noted above, our net income increased by $7.2 million in the third quarter of 1999 compared to the third quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES: Our principal needs for capital resources are to finance acquisitions and fund debt service and working capital requirements. Historically, we have relied on internally generated cash flows from operations, borrowings under our various credit facilities, and borrowings and capital contributions from our stockholders to finance our operations and expansion. On May 5, 1999, we completed a public offering of Class A common stock which provided approximately $86.1 million of additional capital resources for the consummation of acquisitions and repayment of borrowings under our $350 million acquisition line of credit with Ford Motor Credit Company (the "Revolving Facility"). During the first nine months of 1999, net cash provided by operating activities was approximately $63.1 million. During the first nine months of 1998, net cash provided by operating activities was approximately $54.0 million. The increase was attributable principally to higher net income as well as improved turnover rates in inventory and receivables. Cash used for investing activities in the first nine months of 1999 was approximately $164.9 million, including $164.3 million paid for acquisitions, net of cash received, and $11.2 million in capital expenditures. Cash used for investing activities in the first nine months of 1999 was offset by proceeds received from the sale of real estate at Town and Country Toyota and Fort Mill Ford of approximately $10.6 million. Cash used for investing activities in the first nine months of 1998 was approximately $69.5 million, including $66.9 million paid for acquisitions, net of cash received, and $2.6 million in capital expenditures. Our principal capital expenditures typically include building improvements and equipment for use in our dealerships. Of the capital expenditures in the first nine months of 1999, approximately $3.0 million related to the construction of new dealerships and a body shop, which were subsequently sold to MMR Holdings, LLC, a limited liability company owned by Bruton Smith and Sonic Financial Corporation ("SFC"). There was no gain or loss on the sale. As noted below, MMR Holdings was subsequently acquired by CAR MMR L.L.C., an affiliate of Capital Automotive REIT which is not affiliated with Sonic. On August 13, 1999, CAR MMR L.L.C. acquired all of the ownership interests of MMR Holdings, L.L.C., and two of its affiliates, MMR Viking Investment Associates, L.P. and MMR Tennessee, L.L.C (collectively, the "MMR Group). As of that date, Sonic leased 48 properties for 38 of its dealerships from the MMR Group under "triple net leases" which required Sonic to pay all costs of operating the properties, as well as all taxes, utilities, insurance, repairs, maintenance and other property related expenses. Sonic has entered into new leases with CAR MMR L.L.C. with terms similar to those under Sonic's former leases with the MMR Group. These leases generally provide Sonic with options to renew the lease for two additional five year terms after the expiration of the initial lease term. Sonic has agreed to renew approximately 75% of its lease rental stream for an additional five year period after the expiration of the initial lease terms. In connection with the acquisition, Sonic, MMR Holdings and Mar Mar Realty Trust, an affiliate of the MMR Group, terminated the strategic alliance agreement whereby Mar Mar Realty Trust had provided Sonic with real estate sale-leaseback financing, acquisition referral and related services. 17 In connection with the above transaction, CAR MMR L.L.C. has agreed to provide Sonic with up to $75 million in real estate sale-leaseback financing through December 31, 1999. During the first nine months of 1999, we acquired 30 dealerships for approximately $173.8 million in cash, 6,282 shares of Sonic's Class A convertible preferred stock, Series II, having an estimated fair value at the time of issuance of approximately $6.1 million, 45,783 shares of Sonic's Class A convertible preferred stock, Series III, having an estimated fair value at the time of issuance of approximately $40.3 million, and 1,574,932 shares of Sonic's Class A common stock having an estimated fair value at the time of issuance of approximately $22.3 million. The cash portion of the purchase price was financed with a combination of a portion of the proceeds from our recent public offering of Class A common stock, cash borrowed under our Revolving Facility and cash generated from our existing operations. The acquisitions were accounted for using the purchase method of accounting, and the results of operations of such acquisitions have been included in the accompanying unaudited consolidated financial statements from their respective acquisition dates. Subsequent to September 30, 1999, we acquired 9 dealerships for approximately $57.8 million in cash financed with a combination of cash borrowed under the Revolving Facility and cash generated from Sonic's existing operations. The acquisitions were accounted for using the purchase method of accounting. We have signed definitive agreements to acquire 38 dealerships for an estimated $224.6 million in cash, approximately 13,600 shares of Class A convertible preferred stock and approximately 5,100,000 shares of Class A common stock. The aggregate purchase price is subject to adjustment based on the actual net book value of the assets acquired. The cash portion of the purchase price will be paid with a combination of borrowings under Sonic's $350 million Revolving Facility and with cash generated from Sonic's existing operations. These acquisitions are expected to be consummated in the fourth quarter of 1999 and first quarter of 2000. Cash provided by financing activities of approximately $119.8 million in the first nine months of 1999 primarily reflects net proceeds received from our public offering of common stock completed on May 5, 1999 as well as additional borrowings for acquisitions on the Revolving Facility, offset by net payments made on our floorplan borrowings. On November 1, 1999, the total borrowing limit under the Revolving Facility was increased from $150 million to $350 million. Prior to that date, amounts outstanding under the Revolving Facility bore interest at a fluctuating per annum rate equal to 2.75% above the 1 month commercial finance paper rate as reported by the Federal Reserve Board (8.01% at September 30, 1999). Subsequent to November 1, 1999, amounts outstanding under the Revolving Facility bear interest at 2.50% above LIBOR. The Revolving Facility will mature in October 2002, unless we request that such term be extended, at the option of Ford Motor Credit Company ("Ford Motor Credit"), for a number of additional one year terms to be negotiated by us and Ford Motor Credit. On May 5, 1999, in connection with the public offering by Sonic of 6,067,230 shares of Class A common stock, all amounts outstanding under the Revolving Facility were repaid. Amounts outstanding under the Revolving Facility as of September 30, 1999 total approximately $88.3 million and were used to finance acquisitions completed in the third quarter of 1999. Future amounts to be drawn under the Revolving Facility are to be used for the acquisition of additional dealerships and to provide general working capital needs not to exceed $35 million. We agreed under the Revolving Facility not to pledge any of our assets to any third party (with the exception of currently encumbered real estate and assets of our dealership subsidiaries that are subject to previous pledges or liens). In addition, the Revolving Facility contains certain negative covenants, including covenants restricting or prohibiting the payment of dividends, capital expenditures and material dispositions of assets as well as other customary covenants. Additional negative covenants include specified ratios of o current assets to current liabilities, o earnings before interest, taxes, depreciation and amortization (EBITDA) and rent less capital expenditures to fixed charges, o EBITDA to interest expense and o EBITDA to total debt In addition, the loss of voting control over Sonic by Bruton Smith, Scott Smith and their spouses or immediate family members or the failure by Sonic, with certain exceptions, to own all the outstanding equity, membership or partnership interests in its dealership subsidiaries will constitute an event of default under the Revolving Facility. Sonic is in compliance with all restrictive covenants as of September 30, 1999. 18 We currently have an aggregate principal balance of $125 million in our senior subordinated notes which mature on August 1, 2008 and bear interest at a stated rate of 11.0%. The notes are unsecured and are redeemable at our option after August 1, 2003. Interest payments are due semi-annually on August 1 and February 1 and commenced February 1, 1999. The notes are subordinated to all of our present and future senior indebtedness, including the Revolving Facility. Redemption prices during 12 month periods beginning August 1 are 105.500% in 2003, 103.667% in 2004, 101.833% in 2005 and 100% thereafter. The indenture governing the senior subordinated notes contains certain specified restrictive and required financial covenants. We have agreed not to pledge our assets to any third party except under certain limited circumstances (for example, floor plan indebtedness). We have also agreed to certain other limitations or prohibitions concerning the incurrence of other indebtedness, capital stock, guaranties, asset sales, investments, cash dividends to shareholders, distributions and redemptions. Sonic is in compliance with all restrictive covenants as of September 30, 1999. We currently have a standardized floor plan credit facility with Ford Motor Credit for all our dealership subsidiaries (the "Floor Plan Facility"). As of September 30, 1999, there was an aggregate of approximately $276.9 million outstanding under the Floor Plan Facility. The Floor Plan Facility at September 30, 1999 had an effective interest rate of prime less 1.1% (7.15% at September 30, 1999), subject to certain incentives and other adjustments. Typically new vehicle floor plan indebtedness exceeds the related inventory balances. The inventory balances are generally reduced by the manufacturer's purchase discounts, which are not reflected in the related floor plan liability. These manufacturer purchase discounts are standard in the industry, typically occur on all new vehicle purchases, and are not used to offset the related floor plan liability. These discounts are aggregated and generally paid to us by the manufacturers on a quarterly basis. We make monthly interest payments on the amount financed under the Floor Plan Facility but are not required to make loan principal repayments prior to the sale of the vehicles. The underlying notes are due when the related vehicles are sold and are collateralized by vehicle inventories and other assets of the relevant dealership subsidiary. The Floor Plan Facility contains a number of covenants, including among others, covenants restricting us with respect to the creation of liens and changes in ownership, officers and key management personnel. On November 1, 1999, we obtained a separate floor plan credit facility from Chrysler Financial Company which provides up to $750 million available for the purchase of inventories at our Chrysler dealerships. Amounts outstanding under this facility will bear interest at 1.25% above LIBOR. As a result of the change in our tax basis of accounting for inventory from the "last-in, first-out" method of inventory accounting (LIFO) to the "first-in, first-out" method of inventory accounting (FIFO) at certain of our dealerships, we incurred additional income tax liabilities. As of September 30, 1999 the aggregate balance of such income tax liabilities was approximately $4.4 million, which is payable in quarterly installments through the year 2002, as follows: Year ending December 31, 1999............................................. $ 512 2000............................................. 1,598 2001............................................. 1,597 2002............................................. 711 ------- Total............................................ $ 4,418 ======= We expect to pay such obligations with cash provided by operations. We believe that funds generated from our recent offering of Class A common stock, together with funds generated through future operations and availability of borrowings under our floor plan financing (or any replacements thereof) and other credit arrangements will be sufficient to fund our debt service and working capital requirements and any seasonal operating requirements, including our currently anticipated internal growth for our existing businesses, for the foreseeable future. We expect to fund any future acquisitions from future cash flow from operations, additional debt financing (including the Revolving Facility) or the issuance of Class A common stock, preferred stock or other convertible instruments. SEASONALITY Our operations are subject to seasonal variations. The first quarter generally contributes less revenue and operating profits than the second, third and fourth quarters. Seasonality is principally caused by weather conditions and the timing of manufacturer incentive programs and model changeovers. 19 YEAR 2000 COMPLIANCE GENERAL Due to the limited memory capacity of older computers, many computer systems and software applications in early years were programmed to store dates using six digit formats (e.g. mm/dd/yy) versus eight digit formats (e.g. mm/dd/yyyy). Under the six digit format, most computer systems and software applications are limited to recognizing dates within the 20th century only, causing computers to interpret the year "00" as the year "1900" rather than the year "2000." As we approach the beginning of year 2000, there is widespread concern that the inability of computer systems to recognize dates beyond the year 1999 will result in software errors and system failures that could be disruptive to ordinary business operations. We recognize the need to ensure that our operations will not be disrupted by Year 2000 system failures either within our own computer systems or within the computer systems of our primary lenders and suppliers. Each of our dealerships has appointed a team comprised primarily of department managers that, using guides developed by the National Automobile Dealers Association (NADA), is responsible for assessing and resolving potential Year 2000 problems, and developing contingency plans to mitigate the impact of future problems on operations. STATE OF READINESS INTERNAL DEALERSHIP SYSTEMS: Internal systems supporting the dealership's daily operations are comprised of four primary systems: (i) the Dealer Management System ("DMS") which supports the critical operations of the dealership including all vehicle sales, vehicle inventory, financing and insurance operations, service and parts operations, and accounting functions; (ii) the Dealer Communication System ("DCS") which provides on-line communication with manufacturers necessary for ordering vehicles and parts inventory, submitting warranty claims, submitting dealership financial statements, receiving delivery reports, and receiving technical information used in service department operations; (iii) personal computer systems ("PC systems") used in providing information to and communicating with the parent company; and (iv) "embedded systems" which use an electric processor or computer chip to control, monitor, or assist with the operation of equipment, machinery, and building management (e.g. building access, security and fire alarms, automotive diagnostic equipment). DEALER MANAGEMENT SYSTEM: The DMS systems used by our dealerships are obtained from one of four primary vendors, Reynolds & Reynolds, Infiniti Net, ADP, and UCS. Each of these vendors has developed upgrades to correct Year 2000 problems within the DMS systems, and we have completed the process of installing such upgrades to our systems. In addition, we have received written verification from each of these vendors that the DMS systems operating within dealerships currently owned by Sonic are Year 2000 certified. With respect to dealerships being acquired, dealerships using DMS systems which are not Year 2000 certified are being transferred to existing systems which are Year 2000 certified. DEALER COMMUNICATION SYSTEM: The DCS systems used in our dealerships are provided by the respective manufacturers with whom the dealerships communicate. As a result, the manufacturers have assumed responsibility for upgrading DCS systems to Year 2000 compliant systems. To date, approximately 80 percent of our dealerships have received written verification from their respective manufacturer that their DCS system is Year 2000 compliant. In addition, we have requested from each manufacturer that status reports be provided to both the dealership and parent company to inform us of remediation efforts at those dealerships that are not yet Year 2000 compliant, and when such remediation efforts are expected to be completed. PERSONAL COMPUTER SYSTEMS: PC systems and local and wide area networks currently operating in our corporate offices were installed within the past year and were determined to be Year 2000 compliant at the time of installation. While not all PC systems operating in our dealerships are known to be Year 2000 compliant, such systems do not conduct mission critical operations and may not be upgraded or replaced by the end of the year. A disruption in these systems will not significantly affect dealerships' daily operations. EMBEDDED SYSTEMS: Embedded systems refer to systems that use some sort of electronic process or computer chip to track time and date information used in the operation of that system. For example, security systems, or heating, ventilation, and air-conditioning systems (HVAC) may be programmed to automatically be activated or deactivated at a certain time. If a security system is programmed to lock up a dealership on weekends, then some dealerships may be locked out on Thursday, January 6, 2000 because the computer interprets the date as Saturday, January 6, 1900. The dealerships are conducting an inventory of such systems, and are contacting the manufacturers or suppliers to test such systems and obtain verification of Year 2000 certification. This process has not yet been completed, and some systems may not be Year 2000 certified by the end of the year. However, these systems are not considered critical and a disruption in these systems is not expected to significantly affect dealerships' daily operations. 20 EXTERNAL SYSTEMS: A dealership's operations may be adversely affected if the lenders, suppliers, or other third parties with whom it regularly conducts business are affected by Year 2000 problems within their systems. Other than automobile manufacturers, we are primarily concerned about Year 2000 failures with banks and other financial service providers, companies providing financing and insurance to our customers, and utilities providing electricity and water. We have received verification from our primary banks and lenders that their systems are Year 2000 compliant and that service is not expected to be interrupted by Year 2000 problems. We have contacted other key vendors and suppliers and are awaiting their responses concerning their Year 2000 remediation efforts. COSTS The costs associated with converting our internal systems to Year 2000 compliant systems have not been, and are not expected to be, material to our financial position or results of operations. Costs associated with upgrading and converting the DMS and DCS systems to Year 2000 compliant systems were covered by monthly maintenance contracts with the respective suppliers and were expensed as incurred. Costs associated with upgrading or replacing PC and embedded systems have not been material and were expensed or capitalized in accordance with our capitalization policy. CONTINGENCY PLANS We cannot state with certainty whether Year 2000 system failures either within our own internal systems or within the systems of third-parties with whom we are involved will have a material adverse impact on our results of operations. In order to mitigate the potential impact of any future Year 2000 problems, each of our dealerships is continuing to develop contingency plans which include the following: 1. Use of pre-printed and pre-numbered forms and checks (including repair orders and parts counter tickets) and manual journals and ledger books to assist in bookkeeping and accounting functions; 2. Use of hand held, battery operated finance computers in order to continue providing finance services to our customers; 3. Establishing emergency reserves of supplies in the event that service from third party lenders and suppliers is disrupted due to Year 2000 problems within their systems; and 4. Training of employees to manually perform functions that are currently performed on computers. While we believe that we are taking appropriate steps to ensure we are adequately prepared to deal with Year 2000 problems as they arise, we cannot make assurances that Year 2000 problems will not have a material adverse affect on our results of operations or financial condition. In a most reasonably likely worst case scenario, Year 2000 problems may delay our ability to sell vehicles, provide financing and insurance to our customers, provide parts and repair service to our customers, complete acquisitions, or meet third-party obligations until Year 2000 problems can be resolved in the affected systems. SIGNIFICANT MATERIALITY OF GOODWILL Goodwill represents the excess purchase price over the estimated fair value of the tangible and separately measurable intangible net assets acquired. The cumulative gross goodwill balance at December 31, 1998 was $182.5 million and at September 30, 1999 was $369.5 million. As a percentage of total assets and stockholders' equity, goodwill, net of accumulated amortization, represented 31.3% and 126.4%, respectively, at December 31, 1998, and 39.6% and 108.0%, respectively, at September 30, 1999. Generally accepted accounting principles require that goodwill and all other intangible assets be amortized over the period benefited. We have determined that the period benefited by the goodwill will be no less than 40 years. Accordingly, we are amortizing goodwill over a 40 year period. Earnings reported in periods immediately following an acquisition would be overstated if we attributed a 40 year benefit to an intangible asset that should have had a shorter benefit period. In later years, we would be burdened by a continuing charge against earnings without the associated benefit to income valued by management in arriving at the consideration paid for the businesses acquired. Earnings in later years also could be significantly affected if management then determined that the remaining balance of goodwill was impaired. We periodically compare the carrying value of goodwill with the anticipated undiscounted future cash flows from operations of the business we have acquired in order to evaluate the recoverability of goodwill. We have concluded that the anticipated future cash flows associated with intangible assets recognized in our acquisitions will continue indefinitely, and there is no pervasive evidence that any material portion will dissipate over a period shorter than 40 years. We will incur additional goodwill in future acquisitions. 21 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK INTEREST RATE RISK. Sonic's only financial instruments with market risk exposure are variable rate floor plan notes payable, Revolving Facility borrowings and other variable rate notes. As of September 30, 1999, the total outstanding balance of such instruments was approximately $377.7 million. A change of one percent in the interest rate would have caused a change in interest expense for the nine months ended September 30, 1999 of approximately $2.7 million. In addition, a decrease or increase in interest rates would cause a respective increase or decrease in the present value of Sonic's fixed rate senior subordinated notes, which have a carrying value of $120.9 million at September 30, 1999. 22 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. The following sets forth certain information as to all equity securities sold by Sonic during the periods discussed that were not registered under the Securities Act of 1933, as amended (the "Securities Act"). As to all such transactions, an exemption was claimed under Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated thereunder ("Regulation D") as transactions not involving a public offering in view of sophistication of the purchasers, their access to material information about Sonic, the disclosures actually made to them by Sonic, the absence of any general solicitation or advertising, the status of the purchasers as "accredited investors" as that term is defined in Rule 501(a) of Regulation D and the filing by Sonic of the appropriate forms in connection therewith. All such private sales of Sonic's equity securities were made to the owners of assets associated with, or the capital stock of, automobile dealerships acquired by Sonic as a part of Sonic's dealership acquisition strategy. Sonic has privately issued its Class A common stock in the following dealership acquisition transactions: On August 3, 1999, Sonic issued an aggregate 1,398,902 shares of its Class A common stock to Joseph L. Herson, Mollye H. Mills, Richard Mills and John Jaffee to acquire via merger with a subsidiary of Sonic the outstanding capital stock of BMW of Fairfax, Inc. with a value of approximately $20.0 million. Sonic has also privately issued its Class A convertible preferred stock (the "Preferred Stock") in dealership acquisition transactions. The Preferred Stock is divided into three series: the Series I Preferred Stock, the Series II Preferred Stock and the Series III Preferred Stock. Each share of Preferred Stock is convertible into shares of Class A common stock at the holder's option at specified conversion rates. After the second anniversary of the date of issuance, any shares of Preferred Stock which have not yet been converted are subject to mandatory conversion to Class A common stock at the option of Sonic. No fractional shares of Class A common stock will be issued upon conversion of any shares of Preferred Stock. Instead, Sonic will pay cash equal to the value of such fractional shares. Generally each share of Preferred Stock is convertible into that number of shares of Class A common stock that has an aggregate Market Price at the time of conversion equal to $1,000 (with certain adjustments for Series II and Series III Preferred Stock). "Market Price" is defined generally as the average closing price per share of the Class A common stock on the New York Stock Exchange for twenty trading days immediately preceding the date of determination. Before the first anniversary of the date of issuance of Preferred Stock, each holder of Preferred Stock is unable to convert without first giving Sonic ten business days' notice and an opportunity to redeem such Preferred Stock at the then applicable redemption price. Sonic has privately issued Preferred Stock in the following dealership acquisition transactions: On July 8, 1999, Sonic issued 11,683 shares of its Series II Preferred Stock to L.R. Motors, Ltd. to acquire the assets of Lute Riley Honda with a value of approximately $11.4 million. On August 9, 1999, Sonic issued 2,925 shares of its Series II Preferred Stock with a value of approximately $2.9 million to Frank McGough as additional consideration for the acquisition of the outstanding capital stock of Capital Chevrolet and Imports, Inc. which closed in April of 1998. 23 ITEM 6. EXHIBITS (a) Exhibits: 3.1* Amended and Restated Certificate of Incorporation of Sonic (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (Registration No. 333-33295) of Sonic (the "Form S-1")). 3.2* Certificate of Designation, Preferences and Rights of Class A Convertible Preferred Stock (incorporated by reference to Exhibit 4.1 to Sonic's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). 3.3* Bylaws of Sonic (incorporated by reference to Exhibit 3.2 to the Form S-1). 4.1* Form of 11% Senior Subordinated Note due 2008, Series B (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-4 (Registration Nos. 333-64397 and 333-64397-001 through 333-64397-044) of Sonic (the "Form S-4")). 4.2* Indenture dated as of July 1, 1998 between Sonic, as issuer, the subsidiaries of Sonic named therein, as guarantors, and U.S. Bank Trust National Association, as trustee, relating to the 11% Senior Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.2 to the Form S-4). 4.3* Registration Rights Agreement dated as of June 30, 1998 among Sonic, O. Bruton Smith, Bryan Scott Smith, William S. Egan and Sonic Financial Corporation (incorporated by reference to Exhibit 4.2 to the Form S-1). 10.1* Letter Agreement dated as of August 3, 1999 regarding amendment to the Agreement and Plan of Merger dated as of April 6, 1999 by and among Sonic, Manhattan Auto, Inc., Joseph Herson, Mollye Mills, John Jaffe and Richard Mills (the "Manhattan Merger Agreement") (incorporated by reference to Exhibit 4.11 to Sonic's Registration Statement on Form S-3 (Registration No. 333-82615)). 10.2* Agreement dated as of August 5, 1999 by and among Sonic, O. Bruton Smith and Sonic Financial Corporation relating to transactions contemplated by the Sonic Agreement dated as of June 30, 1999 by and among Sonic, certain subsidiaries of Sonic listed on Schedule A thereto and CAR MMR L.L.C (incorporated by reference to Exhibit 10.5 to Sonic's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 10.3 Second Amended and Restated Credit Agreement dated as of July 28, 1999 (the "Credit Agreement") by and among Sonic, as borrower, and Ford Motor Credit Company, as lender. 10.4 Third Amended and Restated Promissory Note dated as of July 29, 1999 in the amount of $150 million by Sonic, as borrower, in favor of Ford Motor Credit Company, as lender under the Credit Agreement. 10.5 Asset Purchase Agreement dated September 30, 1999 by and among Sonic, Riverside Chevrolet, Inc. and the stockholders of Riverside Chevrolet, Inc. listed on the signature page thereto. 10.6 Asset Purchase Agreement dated September 30, 1999 by and among Sonic, Jim Glover Dodge, Inc. and the stockholders of Jim Glover Dodge, Inc. listed on the signature page thereto. 10.7 Stock Purchase Agreement dated September 30, 1999 by and among Sonic, Riverside Nissan, Inc. and the stockholders of Riverside Nissan, Inc. listed on the signature page thereto. 10.8 Agreement and Plan of Merger and Reorganization dated as of October 31, 1999 by and among Sonic, FAA Acquisition Corp., FirstAmerica Automotive, Inc. and certain stockholders of FirstAmerica Automotive, Inc. listed on the signature page therein. 27 Financial data schedule for the nine month period ended September 30, 1999 (filed electronically). (b) Reports on Form 8-K. We have not filed any reports on Form 8-K during the quarter for which this report is filed. * Filed Previously 24 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. SONIC AUTOMOTIVE, INC. Date: November 15, 1999 By: /s/ O. Bruton Smith ----------------- ------------------------------------- O. Bruton Smith CHAIRMAN AND CHIEF EXECUTIVE OFFICER Date: November 15, 1999 By: /s/ Theodore M. Wright ----------------- ------------------------------------ Theodore M. Wright VICE PRESIDENT-FINANCE, CHIEF FINANCIAL OFFICER, TREASURER AND SECRETARY (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) 25 INDEX TO EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q FOR SONIC AUTOMOTIVE, INC. FOR THE QUARTER ENDED September 30, 1999 EXHIBIT NUMBER DESCRIPTION OF EXHIBITS - ------- ----------------------- 3.1* Amended and Restated Certificate of Incorporation of Sonic (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 (Registration No. 333-33295) of Sonic (the "Form S-1")). 3.2* Certificate of Designation, Preferences and Rights of Class A Convertible Preferred Stock (incorporated by reference to Exhibit 4.1 to Sonic's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). 3.3* Bylaws of Sonic (incorporated by reference to Exhibit 3.2 to the Form S-1). 4.1* Form of 11% Senior Subordinated Note due 2008, Series B (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-4 (Registration Nos. 333-64397 and 333-64397-001 through 333-64397-044) of Sonic (the "Form S-4")). 4.2* Indenture dated as of July 1, 1998 between Sonic, as issuer, the subsidiaries of Sonic named therein, as guarantors, and U.S. Bank Trust National Association, as trustee, relating to the 11% Senior Subordinated Notes due 2008 (incorporated by reference to Exhibit 4.2 to the Form S-4). 4.3* Registration Rights Agreement dated as of June 30, 1998 among Sonic, O. Bruton Smith, Bryan Scott Smith, William S. Egan and Sonic Financial Corporation (incorporated by reference to Exhibit 4.2 to the Form S-1). 10.1* Letter Agreement dated as of August 3, 1999 regarding amendment to the Agreement and Plan of Merger dated as of April 6, 1999 by and among Sonic, Manhattan Auto, Inc., Joseph Herson, Mollye Mills, John Jaffe and Richard Mills (the "Manhattan Merger Agreement") (incorporated by reference to Exhibit 4.11 to Sonic's Registration Statement on Form S-3 (Registration No. 333-82615)). 10.2* Agreement dated as of August 5, 1999 by and among Sonic, O. Bruton Smith and Sonic Financial Corporation relating to transactions contemplated by the Sonic Agreement dated as of June 30, 1999 by and among Sonic, certain subsidiaries of Sonic listed on Schedule A thereto and CAR MMR L.L.C (incorporated by reference to Exhibit 10.5 to Sonic's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999). 10.3 Second Amended and Restated Credit Agreement dated as of July 28, 1999 (the "Credit Agreement") by and among Sonic, as borrower, and Ford Motor Credit Company, as lender. 10.4 Third Amended and Restated Promissory Note dated as of July 29, 1999 in the amount of $150 million by Sonic, as borrower, in favor of Ford Motor Credit Company, as lender under the Credit Agreement. 10.5 Asset Purchase Agreement dated September 30, 1999 by and among Sonic, Riverside Chevrolet, Inc. and the stockholders of Riverside Chevrolet, Inc. listed on the signature page thereto. 10.6 Asset Purchase Agreement dated September 30, 1999 by and among Sonic, Jim Glover Dodge, Inc. and the stockholders of Jim Glover Dodge, Inc. listed on the signature page thereto. 10.7 Stock Purchase Agreement dated September 30, 1999 by and among Sonic, Riverside Nissan, Inc. and the stockholders of Riverside Nissan, Inc. listed on the signature page thereto. 10.8 Agreement and Plan of Merger and Reorganization dated as of October 31, 1999 by and among Sonic, FAA Acquisition Corp., FirstAmerica Automotive, Inc. and certain stockholders of FirstAmerica Automotive, Inc. listed on the signature page therein. 27 Financial data schedule for the nine month period ended September 30, 1999 (filed electronically). * Filed Previously 26 EX-10 2 EXHIBIT 10.3 EXHIBIT 10.3 SECOND AMENDED AND RESTATED CREDIT AGREEMENT This Second Amended and Restated Credit Agreement dated as of July 28, 1999 is entered into between SONIC AUTOMOTIVE, INC., a Delaware corporation, and FORD MOTOR CREDIT COMPANY, a Delaware corporation, and amends and restates that certain Credit Agreement, dated as of October 15, 1997, as amended by that certain Credit Agreement Amendment dated November 12, 1997, as amended by that certain Amended and Restated Credit Agreement dated as of December 15, 1997, as amended by that certain Letter Agreement dated July 28, 1998, as amended by that certain Letter Agreement dated September 21, 1998, as amended by that certain Letter Agreement dated October 15, 1998, as further amended by that certain Amendment to Amended and Restated Credit Agreement dated March 2, 1999, (collectively, the "ORIGINAL CREDIT AGREEMENT") among the parties hereto. The parties hereto agree as follows: ARTICLE I: DEFINITIONS 1.1 Certain Defined Terms. The following terms used in this Agreement shall have the following meanings, applicable both to the singular and the plural forms of the terms defined. As used in this Agreement: "ACQUISITION" means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which the Borrower or a Subsidiary Holding Company (i) acquires any going business or all or substantially all of the assets of any automobile dealership and/or related operations (e.g. body shop and service repair centers), whether through purchase of assets, merger or otherwise or (ii) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of such a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage of voting power) of the outstanding equity interests of such an entity. "ACQUISITION DOCUMENTS" means all documents, instruments and agreements entered into in connection with any Acquisition and the Initial Acquisitions. "ADDITIONAL SUBORDINATED DEBT" means indebtedness of the Borrower which (i) Lender has determined to be sufficiently subordinate to the payment of the Obligations, (ii) Lender has consented to in writing, and (iii) Lender has agreed to deduct from the calculation of Total Adjusted Debt (as defined herein). "ADVANCE" means any loan made by the Lender under Section 2.1 hereof. "ADJUSTED LEVERAGE RATIO" is defined in Section 5.4(F) hereof. "ADJUSTED TBC RATIO" is defined in Section 5.4(B) hereof. "AFFILIATE" of any Person means any other Person directly or indirectly controlling, controlled by or under common control with such Person. A Person shall be deemed to control another Person if the controlling Person is the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of greater than five percent (5%) or more of any class of voting securities (or other voting interests) of the controlled Person or possesses, directly or indirectly, the power to direct or cause the direction of the management or policies of the controlled Person, whether through ownership of Capital Stock, by contract or otherwise. "AGREEMENT" means this Second Amended and Restated Credit Agreement, as it may be amended, restated or otherwise modified and in effect from time to time. "AGREEMENT ACCOUNTING PRINCIPLES" means generally accepted accounting principles in effect from time to time, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.1(A) hereof, provided, however, that with respect to the calculation of financial ratios and other financial tests required by this Agreement, "Agreement Accounting Principles" means generally accepted accounting principles as in effect as of the date of the Original Credit Agreement, applied in a manner consistent with that used in preparing the financial statements referred to in Section 5.1(A) hereof; provided, further, however, all pro forma financial statements reflecting Acquisitions shall be prepared in accordance with the requirements established by the Commission for acquisition accounting for reporting acquisitions by public companies (whether or not such Acquisitions are required to be publicly reported). "APPLICABLE COMMERCIAL PAPER RATE" means as of any Quarterly Payment Date, (a) with respect to that portion of the Obligations the principal amount of which is less than the value of the Sonic Group's Scaled Assets on such Quarterly Payment Date, the Commercial Paper Rate plus two and seventy-five hundredths percent (2.75%) per annum, and (b) with respect to that portion of the Obligations the principal amount of which equals or exceeds the value of the Sonic Group's Scaled Assets on such Quarterly Payment Date, the Commercial Paper Rate plus three and seventy-five hundredths percent (3.75%) per annum. As of the Effective Date, the Applicable Commercial Paper Rate is the Commercial Paper Rate plus 2.75%, or _______%. "ASSET SALE" means, with respect to any Person, the sale, lease, conveyance, disposition or other transfer by such Person of any of its assets (including by way of a sale-leaseback transaction and including the sale or other transfer of any of the Equity Interests of any Subsidiary of such Person). "AUTHORIZED OFFICER" means any of the chief executive officer, president, chief financial officer, treasurer or assistant treasurer of the Borrower, acting singly. "AVERAGE SCALED ASSETS" means, as of any Quarterly Payment Date, the average of (a) the Sonic Group's Scaled Assets on the first day of the immediately preceding Quarter, and (b) the Sonic Group's Scaled Assets on the last day of the immediately preceding Quarter. "BENEFIT PLAN" means a defined benefit plan as defined in Section 3(35) of ERISA (other than a Multi-employer Plan) in respect of which the Borrower or any other member of the Controlled Group is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA. 1 "BORROWER" means Sonic Automotive, Inc., a Delaware corporation, together with its successors and assigns, including a debtor-in-possession on behalf of the Borrower. "BORROWER GUARANTY" means that certain Guaranty, dated as of October 15, 1997, pursuant to which the Borrower guaranties all Sonic Dealership obligations arising under any Wholesale Line, as it may be amended, restated or otherwise modified and in effect from time to time. "BORROWER PLEDGES" means each of (i) that certain Pledge Agreement, dated as of October 15, 1997, from the Borrower to the Lender pursuant to which the Borrower pledges the Capital Stock of certain corporate Subsidiaries, as it may be amended, restated or otherwise modified and in effect from time to time, (ii) that certain Pledge Agreement, dated as of October 15, 1997, from the Borrower to the Lender pursuant to which the Borrower pledges the Capital Stock of certain limited liability company Subsidiaries, as it may be amended, restated or otherwise modified and in effect from time to time and (iii) any other pledge of Capital Stock delivered by a member of the Sonic Group from time to time to the Lender. "BORROWER SECURITY AGREEMENT" means that certain Security Agreement, dated as of October 15, 1997 from the Borrower to the Lender pursuant to which the Borrower pledged all of its assets to secure its obligations under the Bridge Facility and the Obligations hereunder and the obligations of each Sonic Dealership under any Wholesale Line provided by the Lender to such Sonic Dealership, as it may be amended, restated or otherwise modified and in effect from time to time. "BORROWING DATE" means a date on which an Advance is made hereunder. "BORROWING NOTICE" is defined in Section 2.4 hereof. "BRIDGE FACILITY" means the credit facility made available by the Lender to the Borrower pursuant to the Credit Agreement dated as of November 12, 1997. "BUSINESS DAY" means a day (other than a Saturday or Sunday) on which banks are open for business in Dearborn, Michigan, Atlanta, Georgia and Charlotte, North Carolina. "CAPITAL EXPENDITURES" means, for any period, the aggregate of all expenditures (other than in connection with Permitted Acquisitions), whether paid in cash or accrued as liabilities, including Capitalized Lease Obligations, by the Borrower and its Subsidiaries during that period that, in conformity with Agreement Accounting Principles, are required to be included in or reflected by the property, plant, equipment or similar fixed asset accounts reflected in the consolidated balance sheet of the Borrower and its Subsidiaries. "CAPITAL STOCK" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership, partnership interests (whether general or limited), (iv) in the case of a limited liability company, any and all membership interests or other equivalents (however designated) and (v) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person. "CAPITALIZED LEASE" of a Person means any lease of property by such Person as lessee 2 which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "CAPITALIZED LEASE OBLIGATIONS" of a Person means the amount of the obligations of such Person under Capitalized Leases which would be capitalized on a balance sheet of such Person prepared in accordance with Agreement Accounting Principles. "CASH EQUIVALENTS" means (i) marketable direct obligations issued or unconditionally guaranteed by the United States government and backed by the full faith and credit of the United States government; (ii) domestic and Eurodollar certificates of deposit and time deposits, bankers' acceptances and floating rate certificates of deposit issued by any commercial bank organized under the laws of the United States, any state thereof, the District of Columbia, or its branches or agencies; (iii) shares of money market, mutual or similar funds having assets in excess of $100,000,000.00 and the investments of which are limited to investment grade securities (i.e., securities rated at least Baa by Moody's Investors Service, Inc. or at least BBB by Standard & Poor's Corporation); (iv) commercial paper of United States and foreign banks and bank holding companies and their subsidiaries and United States and foreign finance, commercial industrial or utility companies which, at the time of acquisition, are rated A-1 (or better) by Standard & Poor's Ratings Group or P-1 (or better) by Moody's Investors Services, Inc.; (v) corporate bonds, mortgage-backed securities and municipal bonds in each case of a domestic issuer rated at the date of acquisition not less than Aaa by Moody's Investor Services, Inc. or AAA by Standard & Poor's Corporation with maturities of no more than two (2) years from the date of acquisition; and (vi) money market funds with respect to which not less than 90% of such funds are invested in the type of investments specified in clauses (i) through (v) above; provided, unless the context otherwise requires, that the maturities of such Cash Equivalents shall not exceed 365 days. "CASH MANAGEMENT AGREEMENT" means any cash management agreement to be entered into between the Lender and the Borrower and its Subsidiaries, pursuant to which the Borrower and such Subsidiaries may participate in a sweep-account program managed by the Lender. "CHANGE OF CONTROL" means an event or series of events by which: (i) the Principals and their Related Parties cease to own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the Borrower's Capital Stock ordinarily having the right to vote at an election of directors; (ii) during any period of 24 consecutive calendar months, individuals: (a) who were directors of the Borrower on the first day of such period, or (b) whose election or nomination for election to the board of directors of the Borrower was recommended or approved by at least a majority of the directors then still in office who were directors of the Borrower on the first day of such period, or whose election or nomination for election was so approved, shall cease to constitute a majority of the board of directors of the Borrower; and (iii) the Borrower consolidates with or merges into another corporation or 3 conveys, transfers or leases all or substantially all of its property to any Person, or any corporation consolidates with or merges into the Borrower, in either event pursuant to a transaction in which the outstanding Capital Stock of the Borrower is reclassified or changed into or exchanged for (A) cash or Cash Equivalents or (B) securities, and the holders of the Capital Stock in the Borrower immediately prior to such transaction do not, as a result of such transaction, own, directly or indirectly, more than fifty percent (50%) of the combined voting power of the Borrower's Capital Stock or the Capital Stock of its successor entity in such transaction. "CHARTER DOCUMENTS" means (i) in the case of a corporation, such entity's articles of incorporation and by-laws, (ii) in the case of a limited liability company, such entity's articles of organization and operating agreement or equivalent (however designated), (iii) in the case of a partnership, such entity's partnership agreement or equivalent (however designated) and (iv) in the case of an association or other business entity not described above, such entity's founding documents (however designated). "CODE" means the Internal Revenue Code of 1986, as amended, reformed or otherwise modified from time to time, or any successor statute. "COLLATERAL" means all property and interests in property now owned or hereafter acquired by the Borrower or any of its Subsidiaries in or upon which a security interest, lien or mortgage is granted to the Lender, whether under the Borrower Security Agreement, under any of the other Collateral Documents or under any of the other Loan Documents. "COLLATERAL DOCUMENTS" means all agreements, instruments and documents executed in connection with this Agreement, the Original Agreement or the Bridge Facility that are intended to create or evidence Liens to secure the Obligations and all Floor Plan Indebtedness, including, without limitation, the Borrower Security Agreement, the Borrower Pledges, the Subsidiary Holding Company Pledges, the Cross Agreement, the Waiver, Guaranty and Disbursement Agreement, the Reaffirmation of Guaranty, each Dealership Security Agreement, Subsidiary Holding Company Security Agreement and all other security agreements, mortgages, deeds of trust, loan agreements, notes, guaranties, subordination agreements, pledges, powers of attorney, consents, assignments, contracts, fee letters, notices, leases, financing statements and all other written matter whether heretofore, now, or hereafter executed by or on behalf of the Borrower or any of its Subsidiaries and delivered to the Lender, together with all agreements and documents referred to therein or contemplated thereby. "COMMERCIAL PAPER RATE" means a fluctuating per annum rate of interest equal to the interest rate for commercial paper with a 30-day term, as specified under the column entitled "Week Ending" for "1-Month Finance Paper Placed Directly" as set forth in the Federal Reserve Board on the last Monday of a calendar month. In the event such release is discontinued or modified to eliminate the reporting of a 30-day commercial paper rate, then Lender will substitute, in its sole discretion, a comparable report or release of the 30-day commercial paper rate published by a comparable source. "COMMISSION" means the Securities and Exchange Commission and any Person succeeding to the functions thereof. "COMMITMENT" means the lesser of (a) $150,000,000.00 and (b) the Scaled Assets of 4 the Sonic Group plus $25,000,000.00. "COMMITMENT LETTER" means that certain commitment letter dated October 3, 1997 between the Borrower and the Lender as amended by the Letter Agreement dated October 20, 1997, as further modified by the Commitment Letter dated December 17, 1998. "CONSOLIDATED NET WORTH" means, at a particular date, the amount by which the total consolidated assets of the Borrower and its consolidated Subsidiaries exceeds the total consolidated liabilities of the Borrower and its consolidated Subsidiaries. "CONTAMINANT" means any waste, pollutant, hazardous substance, toxic substance, hazardous waste, special waste, petroleum or petroleum-derived substance or waste, asbestos, polychlorinated biphenyls ("PCBS"), or any constituent of any such substance or waste, and includes but is not limited to these terms as defined in Environmental, Health or Safety Requirements of Law. "CONTINGENT OBLIGATION", as applied to any Person, means any Contractual Obligation, contingent or otherwise, of that Person with respect to any Indebtedness of another or other obligation or liability of another, including, without limitation, any such Indebtedness, obligation or liability of another directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable, including Contractual Obligations (contingent or otherwise) arising through any agreement to purchase, repurchase, or otherwise acquire such Indebtedness, obligation or liability or any security therefor, or to provide funds for the payment or discharge thereof (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, or other financial condition, or to make payment other than for value received. "CONTRACTUAL OBLIGATION", as applied to any Person, means any material provision of any equity or debt securities issued by that Person or any material indenture, mortgage, deed of trust, security agreement, pledge agreement, guaranty, contract, undertaking, agreement or instrument, in each case in writing, to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject. "CONTRIBUTION AGREEMENT" means that certain Amended and Restated Contribution Agreement, dated as of October 20, 1997, as amended by the Second Amended and Restated Contribution Agreement, dated as of December 15, 1997, as amended by the Third Amended and Restated Contribution Agreement, dated as of March 24, 1998, as amended and restated by the Fourth Amended and Restated Contribution Agreement, dated as of December 1, 1998, as amended and restated by the Fifth Amended and Restated Contribution Agreement dated March 2, 1999, as further amended and restated by the Sixth Amended and Restated Contribution Agreement dated _____________, 1999, as such agreement may be amended, restated or otherwise modified and in effect from time to time. 5 "CONTROLLED GROUP" means the group consisting of (i) any corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Borrower; (ii) a partnership or other trade or business (whether or not incorporated) which is under common control (within the meaning of Section 414(c) of the Code) with the Borrower; and (iii) a member of the same affiliated service group (within the meaning of Section 414(m) of the Code) as the Borrower, any corporation described in clause (i) above or any partnership or trade or business described in clause (ii) above. "CONTROLLED SUBSIDIARY" of any Person means a Subsidiary of such Person (i) 80% or more of the total Equity Interests or other ownership interests of which (other than directors' qualifying shares) shall at the time be owned by such Person or by one or more wholly-owned Subsidiaries of such Person and (ii) of which such Person possesses, directly or indirectly, the power to direct or cause the direction of the management or policies, whether through the ownership of voting securities, by agreement or otherwise. "CROSS AGREEMENT" means that certain Cross Default and Cross Collateralization Agreement dated as of even date herewith, as such agreement may be amended, restated or otherwise modified from time to time. "CURRENT ASSETS" means, at a particular date, all amounts which would, in conformity with Agreement Accounting Principles, be included under current assets on a balance sheet as at such date. "CURRENT LIABILITIES" means, at a particular date, all amounts which would, in conformity with Agreement Accounting Principles, be included under current liabilities on a balance sheet as at such date. "CURRENT RATIO" is defined in Section 5.4(C) hereof. "CUSTOMARY PERMITTED LIENS" means: (i) Liens (other than Environmental Liens, Liens in favor of the IRS and Liens in favor of the PBGC) with respect to the payment of taxes, assessments or governmental charges in all cases which are not yet due or (if foreclosure, distraint, sale or other similar proceedings shall not have been commenced) which are being contested in good faith by appropriate proceedings properly instituted and diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Agreement Accounting Principles; (ii) statutory Liens of landlords and Liens of suppliers, mechanics, carriers, materialmen, warehousemen or workmen and other similar Liens imposed by law created in the ordinary course of business for amounts not yet due or which are being contested in good faith by appropriate proceedings properly instituted and diligently conducted and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Agreement Accounting Principles; (iii) Liens (other than Environmental Liens, Liens in favor of the IRS and Liens in favor of the PBGC) incurred or deposits made, in each case, in the ordinary course of business in connection with worker's compensation, unemployment insurance or other 6 types of social security benefits or to secure the performance of bids, tenders, sales, contracts (other than for the repayment of borrowed money), surety, appeal and performance bonds; provided that (A) all such Liens do not in the aggregate materially detract from the value of the Borrower's or such Subsidiary's assets or property taken as a whole or materially impair the use thereof in the operation of the businesses taken as a whole, and (B) with respect to Liens securing bonds to stay judgments or in connection with appeals do not secure at any time an aggregate amount exceeding $250,000.00; (iv) Liens arising with respect to zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility easements, building restrictions and other similar charges or encumbrances on the use of real property which do not in any case materially detract from the value of the property subject thereto or interfere with the ordinary conduct of the business of the Borrower or any of its Subsidiaries; (v) Liens of attachment or judgment with respect to judgments, writs or warrants of attachment, or similar process against the Borrower or any of its Subsidiaries which do not constitute an Event of Default under Section 6.1(h) hereof; and (vi) any interest or title of the lessor in the property subject to any operating lease entered into by the Borrower or any of its Subsidiaries in the ordinary course of business. "DAILY ADJUSTMENT AMOUNT" means, as of each day during a Quarter, the difference between (a) the Average Scaled Assets for such Quarter, and (b) the Revolving Credit Obligations for each such day, multiplied by 100 basis points per annum. "DEALERSHIP GUARANTORS" means each Sonic Dealership providing a Dealership Guaranty and a Dealership Security Agreement to the Lender, and their respective successors and assigns. "DEALERSHIP GUARANTY" means each Guaranty and/or Guaranty and Reaffirmation of Guaranty in the forms attached hereto as Exhibit C-1, provided by a Sonic Dealership to the Lender, as the same may be amended, modified, supplemented and/or restated, and as in effect from time to time. "DEALERSHIP SECURITY AGREEMENT" means any Security Agreement in the form attached hereto as Exhibit D-1, pursuant to which a Sonic Dealership grants the Lender a security interest in all of its assets, as the same may be amended, modified, supplemented and/or restated, and as in effect from time to time. "DEBT OFFERING NOTES" means, collectively, each of these certain promissory notes from the Borrower to various investors issued in accordance with and pursuant to the terms of the Indenture dated as of July 1, 1998 and entered into by and among Borrower, its Subsidiaries and U.S. Bank Trust National Association, as trustee. "DECISION PERIOD" is defined in Section 5.2(G) hereof. "DECISION RESERVE" is defined in Section 5.2(G) hereof. "DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the terms of any 7 security into which it is convertible or for which it is exchangeable), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder thereof, in whole or in part, on or prior to the date that is 91 days after the Termination Date. "DOL" means the United States Department of Labor and any Person succeeding to the functions thereof. "DOLLAR" and "$" means dollars in the lawful currency of the United States. "EBITDA" means, for any period, on a consolidated basis for the Borrower and its Subsidiaries, the sum of the amounts for such period, without duplication, of: (i) Net Income, plus (ii) Interest Expense, plus (iii) charges against income for foreign, federal, state and local taxes, to the extent deducted in computing Net Income, plus (iv) depreciation expense, to the extent deducted in computing Net Income, plus (v) amortization expense, including, without limitation, amortization of goodwill, other intangible assets and Transaction Costs, to the extent deducted in computing Net Income, plus (vi) other non-cash charges classified as long-term deferrals in accordance with Agreement Accounting Principles, to the extent deducted in computing Net Income, minus (vii) all extraordinary gains (and any nonrecurring unusual gains arising in or outside of the ordinary course of business not included in extraordinary gains determined in accordance with Agreement Accounting Principles which have been included in the determination of Net Income). EBITDA shall be calculated for any period by including the actual amount for the applicable period ending on such day, including the EBITDA attributable to Permitted Acquisitions occurring during such period on a pro forma basis for the period from the first day of the applicable period through the date of the closing of each Permitted Acquisition, utilizing (a) where available or required pursuant to the terms of this Agreement, historical audited and/or reviewed unaudited financial statements obtained from the seller, broken down by fiscal quarter in the Borrower's reasonable judgment or (b) unaudited financial statements (where no audited or reviewed financial statements are required pursuant to the terms of this Agreement) reviewed internally by the Borrower, broken down in the Borrower's reasonable judgment. "EBITDAR" means, for any period, on a consolidated basis for the Borrower and its Subsidiaries, the sum of the amounts for such period, without duplication, of (i) EBITDA and (ii) Rentals. 8 "EFFECTIVE DATE" is defined in Section 1.3 hereof. "ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" means all Requirements of Law derived from or relating to federal, state and local laws or regulations relating to or addressing pollution or protection of the environment, or protection of worker health or safety, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq., the Occupational Safety and Health Act of 1970, 29 U.S.C. ss. 651 et seq., and the Resource Conservation and Recovery Act of 1976, 42 U.S.C. ss. 6901 et seq., in each case including any amendments thereto, any successor statutes, and any regulations or guidance promulgated thereunder, and any state or local equivalent thereof. "ENVIRONMENTAL PROPERTY TRANSFER ACT" means any applicable requirement of law that conditions, restricts, prohibits or requires any notification or disclosure triggered by the closure of any property or the transfer, sale or lease of any property or deed or title for any property for environmental reasons, including, but not limited to, any so-called "Industrial Site Recovery Act" or "Responsible Property Transfer Act." "EQUIPMENT" means all of the Borrower's and each Dealership Guarantor's present and future furniture, machinery, service vehicles, supplies and other equipment and any and all accessions, parts and appurtenances attached to any of the foregoing or used in connection therewith, and any substitutions therefor and replacements, products and proceeds thereof. "EQUITY INTERESTS" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time including (unless the context otherwise requires) any rules or regulations promulgated thereunder. "EVENT OF DEFAULT" means an event described in Article VI hereof. "EXCLUDED REAL PROPERTY" means any real property owned by Town & Country Toyota, Inc., a North Carolina corporation, and Ford Mill Ford, Inc. (f/k/a FMF Management, Inc.), a South Carolina corporation if and to the extent such real property is mortgaged to secure Indebtedness of such entities. "FAIR VALUE" means (a) with respect to the Capital Stock of the Borrower, the closing price for such Capital Stock on the trading date immediately preceding the date of the applicable acquisition agreement; and (b) with respect to other assets, the value of the relevant asset as of the date of acquisition or sale determined in an arm's-length transaction conducted in good faith between an informed and willing buyer and an informed and willing seller under no compulsion to buy. "FIXED CHARGE COVERAGE RATIO" is defined in Section 5.4(D) hereof. "FLOOR PLAN INDEBTEDNESS" means any and all loans, advances, debts, liabilities and obligations owing by a Sonic Dealership to the Lender of any kind or nature, present or future, arising under a Wholesale Line or any other Loan Document, whether or not evidenced by any 9 note, guaranty or other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification, or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements, paralegals' fees (in each case whether or not allowed), and any other sum chargeable to the Borrower, a Sonic Dealership or Sonic Financial under this Agreement or any other Loan Document. "GOVERNMENTAL AUTHORITY" means any nation or government, any federal, state, local or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "GROSS NEGLIGENCE" means recklessness, the absence of the slightest care or the complete disregard of consequences. Gross Negligence does not mean the absence of ordinary care or diligence, or an inadvertent act or inadvertent failure to act. If the term "gross negligence" is used with respect to the Lender or any indemnitee in any of the other Loan Documents, it shall have the meaning set forth herein. "HEDGING OBLIGATIONS" of a Person means any and all obligations of such Person, whether absolute or contingent and howsoever and whensoever created, arising, evidenced or acquired (including all renewals, extensions and modifications thereof and substitutions therefor), under (i) any and all agreements, devices or arrangements designed to protect at least one of the parties thereto from the fluctuations of interest rates, exchange rates or forward rates applicable to such party's assets, liabilities or exchange transactions, including, but not limited to, dollar-denominated or cross-currency interest rate exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options, puts and warrants, and (ii) any and all cancellations, buy backs, reversals, terminations or assignments of any of the foregoing. "INDEBTEDNESS" of any Person means, without duplication, such Person's (a) obligations for borrowed money, (b) obligations representing the deferred purchase price of property or services (other than accounts payable arising in the ordinary course of such Person's business payable on terms customary in the trade), (c) obligations, whether or not assumed, secured by Liens or payable out of the proceeds or production from property or assets now or hereafter owned or acquired by such Person, (d) obligations which are evidenced by notes, acceptances or other instruments, (e) Capitalized Lease Obligations, (f) reimbursement obligations with respect to letters of credit (other than commercial letters of credit) issued for the account of such Person, (g) Hedging Obligations, (h) Off Balance Sheet Liabilities and (i) Contingent Obligations in respect of obligations of another Person of the type described in the foregoing clauses (a) through (h). The amount of Indebtedness of any Person at any date shall be without duplication (i) the outstanding balance at such date of all unconditional obligations as described above and the maximum liability of any such Contingent Obligations at such date and 10 (ii) in the case of Indebtedness of others secured by a Lien to which the property or assets owned or held by such Person is subject, the lesser of the fair market value at such date of any asset subject to a Lien securing the Indebtedness of others and the amount of the Indebtedness secured. "INDEMNIFIED MATTERS" is defined in Section 8.6(B) hereof. "INDEMNITEES" is defined in Section 8.6(B) hereof. "INTEREST EXPENSE" means, for any period, the total interest expense of the Borrower and its consolidated Subsidiaries, whether paid or accrued (including the interest component of Capitalized Leases, commitment and letter of credit fees), but excluding interest expense not payable in cash (including amortization of discount), all as determined in conformity with Agreement Accounting Principles. "INVENTORY" shall mean any and all motor vehicles, tractors, trailers, service parts and accessories and other inventory of the Borrower and each Dealership Guarantor. "INVESTMENT" means, with respect to any Person, (i) any purchase or other acquisition by that Person of any Indebtedness, Equity Interests or other securities, or of a beneficial interest in any Indebtedness, Equity Interests or other securities, issued by any other Person, (ii) any purchase by that Person of all or substantially all of the assets of a business conducted by another Person, and (iii) any loan, advance (other than deposits with financial institutions available for withdrawal on demand, prepaid expenses, accounts receivable, advances to employees and similar items made or incurred in the ordinary course of business) or capital contribution by that Person to any other Person, including all Indebtedness to such Person arising from a sale of property by such Person other than in the ordinary course of its business. "IRREGULAR FRANCHISE AGREEMENT" means any franchise agreement listed on Schedule 1.1.0. "IRS" means the Internal Revenue Service and any Person succeeding to th functions thereof. "LENDER" means Ford Motor Credit Company, a Delaware corporation and its successors and assigns. "LIEN" means any lien (statutory or other), mortgage, pledge, hypothecation, assignment, encumbrance or security agreement or preferential arrangements of any kind or nature whatsoever (including, without limitation, the interest of a vendor or lessor under any conditional sale, Capitalized Lease or other title retention agreement). "LOAN DOCUMENTS" means this Agreement, the Note, the Sonic Guaranties, the Collateral Documents and all other documents, instruments and agreements executed in connection therewith or contemplated thereby, as the same may be amended, restated or otherwise modified and in effect from time to time. "LOAN TO VALUE RATIO" is defined in Section 5.4(G) hereof. 11 "MARGIN STOCK" shall have the meaning ascribed to such term in Regulation U. "MATERIAL ADVERSE EFFECT" means a material adverse effect upon (a) the business, condition (financial or otherwise), operations, performance, properties or prospects of the Borrower, any Material Subsidiary of the Borrower, or the Borrower and its Subsidiaries, taken as a whole, (b) the ability of the Borrower or any of its Subsidiaries to perform their respective obligations under the Loan Documents in any material respect, or (c) the ability of the Lender to enforce in any material respect the Obligations or its rights with respect to the Collateral. "MATERIAL SUBSIDIARY" means (a) any "Significant Subsidiary" as defined in Regulation S-X issued pursuant to the Securities Act and the Exchange Act and (b) any other Subsidiary of the Borrower which at any time comprises five percent (5%) or more of the Borrower's Tangible Base Capital. "MAXIMUM RATE" means the maximum nonusurious interest rate under applicable law. "MINORITY HOLDER" means any holder of an Equity Interest in a Subsidiary which such Equity Interest may not exceed 20% of the Capital Stock of such Subsidiary. "MULTI-EMPLOYER PLAN" means a "Multi-employer Plan" as defined in Section 4001(a)(3) of ERISA which is, or within the immediately preceding six (6) years was, contributed to by either the Borrower or any member of the Controlled Group. "NET CASH PROCEEDS" means the net cash proceeds (net of underwriting discount and Transaction Costs) received by the Borrower in connection with the Public Offering. "NET INCOME" means, for any period, the net earnings (or loss) after taxes of the Borrower and its Subsidiaries on a consolidated basis for such period taken as a single accounting period determined in conformity with Agreement Accounting Principles. "NEW SUBSIDIARY" is defined in Section 5.3(F)(ii). "NOTE" means that Promissory Note dated October 15, 1997 duly executed by the Borrower and payable to the order of Lender in the original principal amount of $26,000,000.00, as amended and restated by that certain Amended and Restated Promissory Note dated December 15, 1997, duly executed by the Borrower and payable to the order of Lender in the principal amount of $75,000,000.00, as amended and restated by that certain Second Amended and Restated Promissory Note dated March 2, 1999, duly executed by the Borrower and payable to the order of Lender in the principal amount of $100,000,000.00, as further amended and restated by that certain Third Amended and Restated Promissory Note dated ____________, 1999, duly executed by the Borrower and payable to the order of Lender in the principal amount of $150,000,000.00, in substantially the form of Exhibit A hereto, duly executed by the Borrower and payable to the order of Lender in the amount of the Commitment, including any amendment, restatement, modification, renewal, increase or replacement of such Note. "OBLIGATIONS" means all Advances, debts, liabilities, obligations, covenants and duties owing by the Borrower, a Sonic Dealership or Sonic Financial to the Lender or any Indemnitee, of any kind or nature, present or future, arising under this Agreement, the Note, the Collateral Documents or any other Loan Document, whether or not evidenced by any note, guaranty or 12 other instrument, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, guaranty, indemnification, or in any other manner, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however acquired. The term includes, without limitation, all interest, charges, expenses, fees, attorneys' fees and disbursements, paralegals' fees (in each case whether or not allowed), and any other sum chargeable to the Borrower, a Sonic Dealership or Sonic Financial under this Agreement or any other Loan Document. "OFF BALANCE SHEET LIABILITIES" of a Person means (a) any repurchase obligation or liability of such Person or any of its Subsidiaries with respect to accounts or notes receivable sold by such Person or any of its Subsidiaries, (b) any liability under any sale and leaseback transactions which do not create a liability on the consolidated balance sheet of such Person, (c) any liability under any financing lease or so-called "synthetic" lease transaction, or (d) any obligations arising with respect to any other transaction which is the functional equivalent of or takes the place of borrowing but which does not constitute a liability on the consolidated balance sheets of such Person and its Subsidiaries. "ORIGINAL CREDIT AGREEMENT" is defined in the first paragraph hereof. "OTHER TAXES" is defined in Section 2.11(B) hereof. "PARTICIPANTS" is defined in Section 9.2(A) hereof. "PAYMENT DATE" means the fifteenth day of each calendar month, provided, however if such day is not a Business Day, then the Payment Date shall be the next succeeding Business Day following such fifteenth day. "PBGC" means the Pension Benefit Guaranty Corporation, or any successo thereto. "PERMITTED ACQUISITION" is defined in Section 5.3(F)(iii) hereof. "PERMITTED EXISTING INDEBTEDNESS" means the Indebtedness of the Borrower and its Subsidiaries identified as such on Schedule 1.1.1 to this Agreement. "PERMITTED EXISTING INVESTMENTS" means the Investments of the Borrower and its Subsidiaries identified as such on Schedule 1.1.2 to this Agreement. "PERMITTED EXISTING LIENS" means the Liens on assets of the Borrower and its Subsidiaries identified as such on Schedule 1.1.3 to this Agreement. "PERMITTED REFINANCING INDEBTEDNESS" means any replacement, renewal, refinancing or extension of any Indebtedness permitted by this Agreement that (i) does not exceed the aggregate principal amount (plus associated fees and expenses) of the Indebtedness being replaced, renewed, refinanced or extended, (ii) does not rank at the time of such replacement, renewal, refinancing or extension senior to the Indebtedness being replaced, renewed, refinanced or extended, and (iii) does not contain terms (including, without limitation, terms relating to security, amortization, interest rate, premiums, fees, covenants, event of default and remedies) materially less favorable to the Borrower or to the Lender than those applicable to the Indebtedness being replaced, renewed, refinanced or extended. 13 "PERSON" means any individual, corporation, firm, enterprise, partnership, trust, incorporated or unincorporated association, joint venture, joint stock company, limited liability company or other entity of any kind, or any government or political subdivision or any agency, department or instrumentality thereof. "PLAN" means an employee benefit plan defined in Section 3(3) of ERISA in respect of which the Borrower or any member of the Controlled Group is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA. "PRINCIPALS" means O. Bruton Smith and B. Scott Smith. "QUARTER" means each three-month period commencing January 1, April 1, July 1, and October 1, beginning July 1, 1999. "QUARTERLY PAYMENT DATE" means each Payment Date occurring on January 15, April 15, July 15 and October 15, commencing with April 15, 1998. "REAFFIRMATION OF GUARANTY" means that certain Reaffirmation of Guaranty dated as of even date herewith from each Dealership Guarantor and each Subsidiary Holding Company Guarantor to Lender, pursuant to which each Dealership Guarantor and each Subsidiary Holding Company Guarantor reaffirms its guaranty of the Obligations as such Obligations have been amended, restated and increased by this Agreement. "RECEIVABLE(S)" means and includes all of the Borrower's and each Dealership Guarantor's presently existing and hereafter arising or acquired accounts, contract rights, chattel paper, instruments, notes, letters of credit, documents, documents of title, investment property, deposit accounts, other bank accounts, general intangibles, tax refunds and other obligations of third persons of any kind, now or hereafter existing, whether arising out of or in connection with the sale or lease of goods, the rendering of services or otherwise, and all rights now or hereafter existing in and to all security agreements, leases, and other contracts securing or otherwise relating to any such accounts, contract rights, chattel paper, instruments, notes, letters of credit, documents, documents of title, investment property, deposit accounts, other bank accounts, general intangibles, tax refunds or obligations of third persons. "REGULATION G" means Regulation G of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by nonbank, nonbroker lenders for the purpose of purchasing or carrying margin stock (as defined therein). "REGULATION T" means Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by and to brokers and dealers of securities for the purpose of purchasing or carrying margin stock (as defined therein). 14 "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying Margin Stock applicable to member banks of the Federal Reserve System. "REGULATION X" means Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by foreign lenders for the purpose of purchasing or carrying margin stock (as defined therein). "RELATED PARTY" with respect to any Principal means (i) any spouse or immediate family member of such Principal or (ii) any trust, corporation, partnership or other entity, the beneficiaries, stockholders, partners, owners or Persons beneficially holding the outstanding Equity Interest of which consist of such Principal and/or such other Persons referred to in the immediately preceding clause (i). "RELEASE" means any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration into the indoor or outdoor environment, including the movement of Contaminants through or in the air, soil, surface water or groundwater. "RENTALS" of a Person means the aggregate fixed amounts payable by such Person under any lease of real or personal property but does not include any amounts payable under Capitalized Leases of such Person. "REPORTABLE EVENT" means a reportable event as defined in Section 4043 of ERISA and the regulations issued under such section, with respect to a Plan, excluding, however, such events as to which the PBGC by regulation waived the requirement of Section 4043(a) of ERISA that it be notified within 30 days after such event occurs, provided, however, that a failure to meet the minimum funding standards of Section 412 of the Code and of Section 302 of ERISA shall be a Reportable Event regardless of the issuance of any such waiver of the notice requirement in accordance with either Section 4043(a) of ERISA or Section 412(d) of the Code. "REQUIREMENTS OF LAW" means, as to any Person, the charter and by-laws or other organizational or governing documents of such Person, and any law, rule or regulation, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject including, without limitation, the Securities Act of 1933, the Securities Exchange Act of 1934, Regulations G, T, U and X, ERISA, the Fair Labor Standards Act, the Worker Adjustment and Retraining Notification Act, Americans with Disabilities Act of 1990, and any certificate of occupancy, zoning ordinance, building, environmental or land use requirement or permit or environmental, labor, employment, occupational safety or health law, rule or regulation, including Environmental, Health or Safety Requirements of Law. 15 "RESTRICTED PAYMENT" means (i) any dividend or other distribution, direct or indirect, on account of any Equity Interests of the Borrower now or hereafter outstanding, except a dividend payable solely in the Borrower's Capital Stock (other than Disqualified Stock) or in options, warrants or other rights to purchase such Capital Stock, (ii) any redemption, retirement, purchase or other acquisition for value, direct or indirect, of any Equity Interests of the Borrower or any of its Subsidiaries now or hereafter outstanding, other than in exchange for, or out of the proceeds of, the substantially concurrent sale (other than to a Subsidiary of the Borrower) of other Equity Interests of the Borrower (other than Disqualified Stock), and (iii) any payment of a claim for the rescission of the purchase or sale of, or for material damages arising from the purchase or sale of any Equity Interests of the Borrower or any of the Borrower's Subsidiaries, or of a claim for reimbursement, indemnification or contribution arising out of or related to any such claim for damages or rescission. "RESTRICTED FRANCHISE AGREEMENT" is defined in Section 5.3(F)(iii)(b). "REVOLVING CREDIT AVAILABILITY" means, at any particular time, the amount by which the Commitment at such time exceeds the Revolving Credit Obligations at such time. "REVOLVING CREDIT OBLIGATIONS" means, at any particular time, the sum of the outstanding principal amount of all Advances (including the loans made under the Original Credit Agreement) at such time. "SCALED ASSETS" means with respect to the Sonic Group, the sum of (A) an amount equal to 75% of the Sonic Group's Receivables which constitute factory receivables, (B) an amount equal to 60% of the Sonic Group's Receivables which constitute current finance receivables, (C) an amount equal to 60% of the Sonic Group's Receivables which constitute receivables for parts and services (after netting any amounts payable in connection with such parts and services by any member of the Sonic Group), (D) an amount equal to 55% of the Sonic Group's Inventory which constitutes parts and accessories, (E) an amount equal to 80% of the that portion of the Sonic Group's Inventory which constitutes used vehicles less the amount of any outstanding Floor Plan Indebtedness of any member of the Sonic Group incurred in connection with such used vehicles, and (F) an amount equal to 45% of the difference between (i) the value of the Sonic Group's Equipment and (ii) the amount of Indebtedness of any member of the Sonic Group incurred in connection with such Equipment. The value of the Sonic Group's Scaled Assets shall be calculated by the Lender and shall be determined based on the financial statements and monthly factory statements delivered to the Lender pursuant to Section 5.1(A). Scaled Assets shall be measured as of the Effective Date and as of the end of each calendar quarter. "SCALED ASSETS ADJUSTMENT AMOUNT" means, as of any Quarterly Payment Date, the sum of the Daily Adjustment Amounts for each day of the immediately preceding Quarter. "SECRETARY'S CERTIFICATE" with respect to any entity in the Sonic Group, means any certificate, delivered by a secretary, assistant secretary, managing member, general partner or governor of such entity which certifies (i) the names and true signatures of the incumbent officers or managers of such entity authorized to sign each Transaction Document to which it is a party and the other documents to be executed thereunder, (ii) a true and correct copy of such entity's Certificate of Incorporation, or similar charter document and all amendments thereto, (iii) a true and correct copy of the by-laws or similar governing document of such entity and all amendments thereto, and (iv) a true and correct copy of the resolutions of such entity's board 16 of directors or members approving and authorizing the execution, delivery and performance by such entity of each Transaction Document to which it is a party and the other documents to be executed thereunder; "SINGLE EMPLOYER PLAN" means a Plan maintained by the Borrower or any member of the Controlled Group for employees of the Borrower or any member of the Controlled Group. "SONIC DEALERSHIP" means any Subsidiary dealership and/or related body shop or service repair center owned, operated or acquired by the Borrower or any Subsidiary of the Borrower. "SONIC FINANCIAL" means Sonic Financial Corporation, a Delaware corporation. "SONIC GROUP" means each of the Borrower and each Subsidiary of th Borrower. "SONIC GUARANTIES" means each of the Borrower Guaranty, each Subsidiary Holding Company Guaranty, each Dealership Guaranty and the Contribution Agreement. "SUBSIDIARY" of a Person means (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any partnership, association, joint venture or similar business organization more than 50% of the ownership interests having ordinary voting power of which shall at the time be so owned or controlled. Unless otherwise expressly provided, all references herein to a "Subsidiary" shall mean a Subsidiary of the Borrower. "SUBSIDIARY HOLDING COMPANIES" means each of Sonic Automotive of Tennessee, Inc., a corporation organized under the laws of the State of Tennessee, Sonic Automotive of Nevada, Inc., a corporation organized under the laws of the State of Nevada, Sonic Automotive of Georgia, Inc., a corporation organized under the laws of the State of Georgia, Sonic of Texas, Inc., a corporation organized under the laws of the State of Texas, and any other Subsidiary of Borrower which owns any Capital Stock in any other entity in the Sonic Group, in each case together with its successors and assigns. "SUBSIDIARY HOLDING COMPANY PLEDGES" means each Pledge Agreement delivered by any Subsidiary Holding Company to Lender, pursuant to which such Persons pledge their Capital Stock of certain corporation, limited liability company and/or partnership subsidiaries, as such pledge agreement may be amended, restated or otherwise modified from time to time. "SUBSIDIARY HOLDING COMPANY GUARANTY" means each Guaranty and/or Guaranty and Reaffirmation of Guaranty in the forms attached hereto as Exhibit C-2, provided by a Subsidiary Holding Company to Lender, as the same may be amended, modified, supplemented and/or restated, and in effect from time to time. "SUBSIDIARY HOLDING COMPANY SECURITY AGREEMENTS" means any Security Agreement in the form attached hereto as exhibit D-2, pursuant to which a Subsidiary Holding company grants the Lender a security interest in all of its assets, as the same may be amended, modified, supplemented and/or restated, and in effect from time to time. "TANGIBLE BASE CAPITAL" means, at a particular date of calculation, the amount 17 determined by the Lender to be equal to : (i) Consolidated Net Worth PLUS (ii) the sum of (A) Indebtedness of the Borrower or its Subsidiaries to officers of the Borrower, which Indebtedness is subordinated in writing to the Obligations on terms and conditions acceptable to the Lender; and (B) an amount equal to 64% of the LIFO reserve (as determined in accordance with Agreement Accounting Principles) reflected on the Borrower's balance sheet; (C) Indebtedness of the Borrower and/or its Subsidiaries evidenced by the Debt Offering Notes; MINUS (iii) the sum of (A) Receivables with respect to which the account debtor is a director, officer, employee, Subsidiary or Affiliate of the Borrower or other amounts (whether or not classified as Receivables) from Affiliates of the Borrower or its Subsidiaries (other than those payable within 30 days and incurred in the ordinary course of business); and (B) the value of leasehold improvements after deductions for depreciation of the Borrower and its Subsidiaries on a consolidated basis; (C) that part of the Borrower's and its Subsidiaries (on a consolidated basis) capitalization or reserves attributable to any writing up of book values on any fixed assets after the date of the most recently delivered financial statements of the Borrower and its Subsidiaries; (D) the aggregate amount of the Borrower's and its Subsidiaries Investments in Affiliates (other than the Borrower's Subsidiaries); (E) organizational expenses related to start-up of operations with respect to the Borrower and its Subsidiaries; (F) goodwill and other intangible assets (as determined in accordance with Agreement Accounting Principles); (G) any amount paid to a third-party as consideration for no-competition agreements; 18 (H) the value of daily rental franchise payments made by the Borrower or its Subsidiaries under any franchise agreements (net of any amounts owed by a franchisor to Borrower or its Subsidiaries); and (I) other assets (including, without limitation, airplanes, cattle, etc.) not related to the operations of the Dealerships as automobile dealerships. "TAXES" is defined in Section 2.11(A) hereof. "TBC RATIO" is defined in Section 5.4(A) hereof. "TERMINATION DATE" means the earlier of (a) March 2, 2001or such other "Termination Date" specified in an Extension Notice and agreed to by the Lender and (b) the date of termination of the Commitment pursuant to either of Section 2.3 or Section 7.1 hereof. "TERMINATION EVENT" means (i) a Reportable Event with respect to any Benefit Plan; (ii) the withdrawal of the Borrower or any member of the Controlled Group from a Benefit Plan during a plan year in which the Borrower or such Controlled Group member was a "substantial employer" as defined in Section 4001(a)(2) of ERISA or the cessation of operations which results in the termination of employment of twenty percent (20%) of Benefit Plan participants who are employees of the Borrower or any member of the Controlled Group; (iii) the imposition of an obligation on the Borrower or any member of the Controlled Group under Section 4041 of ERISA to provide affected parties written notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to terminate a Benefit Plan; (v) any event or condition which might constitute grounds under Section 4042 of ERISA for the Termination of, or the appointment of a trustee to administer, any Benefit Plan; or (vi) the partial or complete withdrawal of the Borrower or any member of the Controlled Group from a Multi-employer Plan. "TOTAL ADJUSTED DEBT" means, for any period, on a consolidated basis for the Borrower and its Subsidiaries, the amount of Total Debt less any Floor Plan Indebtedness, less the outstanding principal balance of the Debt Offering Notes, and less the outstanding principal balance of any Additional Subordinated Debt. "TOTAL DEBT" means, for any period, on a consolidated basis for the Borrower and its Subsidiaries, the sum of Indebtedness of the Borrower and its Subsidiaries, other than Hedging Obligations. "TRANSACTION COSTS" means the fees, costs and expenses payable by the Borrower in connection with the execution, delivery and performance of the Transaction Documents. "TRANSACTION DOCUMENTS" means the Loan Documents and the Acquisition Documents. 19 "UNFUNDED LIABILITIES" means (i) in the case of Single Employer Plans, the amount (if any) by which the present value of all vested nonforfeitable benefits under all Single Employer Plans exceeds the fair market value of all such Plan assets allocable to such benefits, all determined as of the then most recent valuation date for such Plans, and (ii) in the case of Multi- employer Plans, the withdrawal liability that would be incurred by the Controlled Group if all members of the Controlled Group completely withdrew from all Multi-employer Plans. "UNMATURED DEFAULT" means an event which, but for the lapse of time or the giving of notice, or both, would constitute an Event of Default. "WAIVER, GUARANTY AND DISBURSEMENT AGREEMENT" means each Waiver, Guaranty and Disbursement Agreement delivered by Borrower or any Subsidiary Holding Company in the form attached hereto as Exhibit G to Lender, as the same may be amended, restated, or otherwise modified from time to time. "WHOLESALE LINE" means any wholesale credit line made by the Lender to a Sonic Dealership. Any accounting terms used in this Agreement which are not specifically defined herein shall have the meanings customarily given them in accordance with generally accepted accounting principles in existence as of the date hereof. 1.2 References. The existence throughout the Agreement of references to the Borrower's Subsidiaries is for a matter of convenience only. Any references to Subsidiaries of the Borrower set forth herein shall (i) with respect to representations and warranties which deal with historical matters be deemed to include each of the Subsidiaries existing on the date hereof; and (ii) shall not in any way be construed as consent by the Lender to the establishment, maintenance or acquisition of any Subsidiary, except as may otherwise be permitted hereunder. 1.3 Effectiveness of this Agreement. Upon the satisfaction of all of the conditions precedent set forth in Section 3.1 of this Agreement (the date upon which such conditions precedent are satisfied being hereinafter referred to as the "EFFECTIVE DATE"), this Agreement shall become effective and the Original Credit Agreement be amended and restated in its entirety in accordance with the provisions of Article XI hereof. ARTICLE II: THE LOAN FACILITIES 2.1 Advances. Upon the satisfaction of the conditions precedent set forth in Sections 3.1 and 3.2, from and including the date of this Agreement and prior to the Termination Date, the Lender shall, on the terms and conditions set forth in this Agreement, make Advances to the Borrower from time to time, in Dollars, in an amount not to exceed the Revolving Credit Availability at such time; provided, however, at no time shall the Revolving Credit Obligations exceed the Commitment at such time. Subject to the terms of this Agreement, the Borrower may borrow, repay and re-borrow Advances at any time prior to the Termination Date. The Borrower shall repay in full the outstanding principal balance of each Advance on the earlier to occur of (a) the date that is 24 months from the Borrowing Date applicable to such Advance and (b) the Termination Date. 20 2.2 Optional Payments; Mandatory Prepayments (A) Optional Payments. The Borrower may from time to time repay or prepay, without penalty or premium all or any part of outstanding Advances; provided, that the Borrower may not so prepay Advances unless it shall have provided at least one Business Day's written notice to the Lender of such prepayment. (B) Mandatory Prepayments. If at any time and for any reason the Revolving Credit Obligations are greater than the Commitment, the Borrower shall immediately make a mandatory prepayment of the Obligations in an amount equal to such excess. Amounts equal to a Decision Reserve or net cash proceeds of an Asset Sale in connection with or following restoration, rebuilding or replacement of insured property shall be mandatorily applied against the Revolving Credit Obligations in the amounts and in the manner set forth in Section 5.2(G) hereof. All of the mandatory prepayments made under this Section 2.2(B) shall be applied first to Advances maturing on such date and then to subsequently maturing Advances in order of maturity. 2.3 Changes in the Commitment. Reduction of Commitment. The Borrower may permanently reduce the Commitment in whole, or in part, in an aggregate minimum amount of $5,000,000.00 and integral multiples of $1,000,000.00 in excess of that amount (unless the Commitment is reduced in whole), upon at least three (3) Business Days' written notice to the Lender, which notice shall specify the amount of any such reduction; provided, however, that the amount of the Commitment may not be reduced below the aggregate principal amount of the outstanding Revolving Credit Obligations. All accrued commitment fees shall be payable on the effective date of any partial or complete termination of the obligations of the Lender to make Advances hereunder. 2.4 Method of Borrowing. The Borrower shall give the Lender irrevocable notice in substantially the form of Exhibit B hereto (a "BORROWING NOTICE") not later than 10:00 a.m. (Eastern Standard Time) on the Business Day preceding the Borrowing Date of each Advance, specifying: (i) the Borrowing Date (which shall be a Business Day) of such Advance; (ii) the aggregate amount of such Advance; (iii) the use of proceeds of such Advance, and (iv) the account or accounts into which the Advances should be funded. Not later than 2:00 p.m. (Eastern Standard Time) on each Borrowing Date, the Lender shall make available its Advance, in funds immediately available to the Borrower at such account or accounts as shall have been notified to the Lender. Each Advance shall bear interest from and including the date of the making of such Advance to (but not including) the date of repayment thereof at the Applicable Commercial Paper Rate, changing when and as the underlying Commercial Paper Rate changes, which such interest shall be payable in accordance with Section 2.9(B). 2.5 Minimum Amount of Each Advance. Each Advance shall be in the minimum amount of $250,000.00 (and in multiples of $50,000.00 if in excess thereof), provided, however, that any Advance may be in the amount of the unused Commitment. 2.6 Default Rate; Late Payment Fee. After the occurrence and during the continuance of an Event of Default, at the option of the Lender, the interest rate(s) applicable to the Advances shall be equal to the Applicable Commercial Paper Rate plus three percent (3.0%) per annum. To the extent not in excess of the Maximum Rate and in accordance with applicable law, any amount not paid by the Borrower when due shall accrue interest at an additional five percent (5.0%) per annum above the rate applicable thereto until such amounts have been paid in full 21 and shall be payable on demand by the Lender and at any rate no later than the next succeeding Payment Date. 2.7 Method of Payment. All payments of principal, interest, and fees hereunder shall be made, without setoff, deduction or counterclaim, in immediately available funds to the Lender at the Lender's address specified pursuant to Article X, or at any other address specified in writing by the Lender to the Borrower, by 2:00 p.m. (Eastern Standard Time) on the date when due. 2.8 Advances, Telephonic Notices. The Lender is authorized to record the principal amount of each Advance and each repayment with respect to its Advances on the schedule attached to the Note; provided, however, that the failure to so record shall not affect the Borrower's obligations under the Note. The Borrower authorizes the Lender to extend Advances and to transfer funds based on telephonic notices made by any person or persons the Lender in good faith believes to be acting on behalf of the Borrower. The Borrower agrees to deliver promptly to the Lender a written confirmation, signed by an Authorized Officer, if such confirmation is requested by the Lender, of each telephonic notice. If the written confirmation differs in any material respect from the action taken by the Lender, (i) the telephonic notice shall govern absent manifest error and (ii) the Lender shall promptly notify the Authorized Officer who provided such confirmation of such difference. 2.9 Promise to Pay; Interest and Commitment Fees; Interest Payment Dates; Interest and Fee Basis; Taxes. (A) Promise to Pay. The Borrower unconditionally promises to pay when due the principal amount of each Advance and all other Obligations incurred by it, and to pay all unpaid interest accrued thereon, in accordance with the terms of this Agreement and the Note. (B) Interest Payment Date. (i) Interest payable on Advances. Interest accrued on each Advance shall be payable on each Payment Date, commencing with the first such date to occur after the date hereof and at maturity (whether by acceleration or otherwise). On each Payment Date other than a Quarterly Payment Date, the Borrower shall pay interest at the Commercial Paper Rate plus 2.75% per annum (the "Collection Rate") on each Advance outstanding on such date. On each Payment Date which is a Quarterly Payment Date, the Borrower shall pay, in addition to interest at the Collection Rate, an amount equal to the Scaled Assets Adjustment Amount to the Lender. (ii) Interest on other Obligations. Interest accrued on the principal balance of all other Obligations shall be payable in arrears (i) on the last day of each calendar month, commencing on the first such day following the incurrence of such Obligation, (ii) upon repayment thereof in full or in part, and (iii) if not theretofore paid in full, at the time such other Obligation becomes due and payable (whether by acceleration or otherwise). 22 (C) Commitment Fees. The Borrower shall pay to the Lender, from and after the date hereof until the date on which the Commitment shall be terminated in whole, a commitment fee equal to one-quarter of one percent (0.25%) per annum, on the amount by which (A) the Commitment in effect from time to time exceeds (B) the Revolving Credit Obligations in effect from time to time. All such commitment fees payable under this clause (C) shall be payable annually in arrears on each anniversary occurring after the Effective Date and, in addition, on the date on which the Commitment shall be terminated in whole. (D) Interest and Fee Basis. Interest and fees shall be calculated for actual days elapsed on the basis of a 365 or when appropriate 366, day year. Interest shall be payable for the day an Obligation is incurred but not for the day of any payment on the amount paid if payment is received prior to 2:00 p.m. (Eastern Standard Time) at the place of payment. If any payment of principal of or interest on an Advance or any payment of any other Obligations shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.10 Termination Date. This Agreement shall be effective until the Termination Date. The Borrower shall have the right, exercisable no more than 3 (three) times, to submit a notice (an "EXTENSION NOTICE") requesting an extension of the initial Termination Date for additional one-year periods. The Borrower shall deliver the Extension Notice on or before the date that is at least 45 and not more than 90 days prior to the first anniversary of the Effective Date (and each like period in each subsequent year thereafter in which such option is available). The Lender shall, on or before the date that is 30 days after receipt of any such Extension Notice notify the Borrower in writing whether or not the then applicable Termination Date is extended for one year; provided, however, failure to give such notice shall mean that no such extension shall have been granted; and PROVIDED FURTHER, NOTHING HEREIN SHALL OBLIGATE THE LENDER TO EXTEND THE INITIAL TERMINATION DATE OR ANY OTHER TERMINATION DATE AND ANY DETERMINATION WHETHER OR NOT TO SO EXTEND THE TERMINATION DATE SHALL BE MADE BY THE LENDER IN ITS SOLE DISCRETION. Notwithstanding the termination of this Agreement on the Termination Date, until all of the Obligations (other than contingent indemnity obligations, but including all Floor Plan Indebtedness) shall have been fully and indefeasibly paid and satisfied and all financing arrangements between the Borrower and the Lender in connection with this Agreement shall have been terminated (other than with respect to Hedging Obligations), all of the rights and remedies under this Agreement and the other Loan Documents shall survive and the Lender shall be entitled to retain its security interest in and to all existing and future Collateral. 2.11 Taxes. (A) Any and all payments by the Borrower hereunder shall be made free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings or any liabilities with respect thereto including those arising after the date hereof as a result of the adoption of or any change in any law, treaty, rule, regulation, guideline or determination of a Governmental Authority or any change in the interpretation or application thereof by a Governmental Authority but excluding such taxes (including income taxes, franchise taxes and branch profit taxes) as are imposed on or measured by the Lender's income by the United States of America or any Governmental Authority of the jurisdiction under the laws of which the Lender is organized or having jurisdiction over the Lender by virtue of the Lender's location(s) (other than solely as a result of the transaction evidenced by this Agreement) (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings, and liabilities which the Lender determines to be applicable to this Agreement, the 23 other Loan Documents, the Commitment or the Advances being hereinafter referred to as "TAXES"). If the Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under the other Loan Documents to the Lender, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.11(A)) the Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, and (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (B) In addition, the Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges, or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the other Loan Documents, the Commitment or the Advances (hereinafter referred to as "OTHER TAXES"). (C) The Borrower indemnifies the Lender for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any Governmental Authority on amounts payable under this Section 2.11 paid by the Lender and any liability (including penalties, interest, and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within thirty (30) days after the date the Lender makes written demand therefor. A certificate as to any additional amount payable to the Lender under this Section 2.11 submitted to the Borrower by the Lender shall show in reasonable detail the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon each of the parties hereto. With respect to such deduction or withholding for or on account of any Taxes and to confirm that all such Taxes have been paid to the appropriate Governmental Authorities, the Borrower shall promptly (and in any event not later than thirty (30) days after receipt) furnish to the Lender such certificates, receipts and other documents as may be required (in the judgment of the Lender) to establish any tax credit to which the Lender may be entitled. (D) Within thirty (30) days after the date of any payment of Taxes or Other Taxes by the Borrower, the Borrower shall furnish to the Lender the original or a certified copy of a receipt evidencing payment thereof. (E) Without prejudice to the survival of any other agreement of the Borrower hereunder, the agreements and obligations of the Borrower contained in this Section 2.11 shall survive the payment in full of principal and interest hereunder and the termination of this Agreement. 2.12 Loan Account. The Lender shall maintain in accordance with its usual practice an account or accounts (a "LOAN ACCOUNT") evidencing the Obligations of the Borrower to the Lender owing to the Lender from time to time, including the amount of principal and interest payable and paid to the Lender from time to time hereunder and under the Note. The entries made in the Loan Account shall be conclusive and binding for all purposes, absent manifest error, unless the Borrower objects to information contained in the Loan Account within thirty (30) days of the Borrower's receipt of such information. 24 ARTICLE III: CONDITIONS PRECEDENT 3.1 Conditions of Effectiveness. The Effective Date of this Agreement shall be on the date on which all of the following conditions shall have been satisfied: (A) no law, regulation, order, judgment or decree of any Governmental Authority shall, and the Lender shall not have received any notice that litigation is pending or threatened which is likely to, (a) enjoin, prohibit or restrain the making of an Advance hereunder or (b) impose or result in the imposition of a Material Adverse Effect; (B) all due diligence materials requested by the Lender from the Borrower shall have been delivered to the Lender and such due diligence materials shall be in form and substance satisfactory to the Lender; (C) the Borrower has furnished to the Lender each of the following, all in form and substance satisfactory to the Lender: (i) this Agreement, duly executed by the Borrower; (ii) the Note, duly executed by the Borrower in favor of the Lender; the Cross Agreement executed by Borrower, each Dealership Guaranto and each Subsidiary Holding Company; (iv) a Dealership Guaranty executed by each Sonic Dealership which has not heretofore provided a Dealership Guaranty to the Lender; (v) a Dealership Security Agreement executed by each Sonic Dealership which has not heretofore provided a Dealership Security Agreement to the Lender; (vi) a Subsidiary Holding Company Guaranty executed by each Subsidiary Holding Company which has not heretofore provided a Subsidiary Holding Company Guaranty to Lender. (vii) a Subsidiary Holding Company Security Agreement executed by each Subsidiary Holding Company which has not heretofore provided a Subsidiary Holding Company Security Agreement to Lender. (viii) with respect to each Dealership/Subsidiary Holding Company Security Agreement delivered by a Sonic Dealership/Subsidiary Holding Company, an amendment to such Security Agreement attaching a revised exhibit thereto, which such revised exhibit shall reflect only Permitted Existing Liens; the Reaffirmation of Guaranty duly executed by each Dealership Guarantor and each Subsidiary Holding Company Guarantor which has previously provided either a Dealership Guaranty or a Subsidiary Holding Company Guaranty; (x) an amendment of each of the Borrower Pledges and the Subsidiary Holding 25 Company Pledges attaching a revised exhibit thereto, which such revised exhibit shall reflect a pledge of any Sonic Dealership/Subsidiary Holding Company not heretofore pledged, together with, for each corporate entity so acquired, a stock certificate evidencing the issued and outstanding pledged stock and undated stock powers executed in blank; (xi) To the extent any Sonic Dealership or Subsidiary Holding Company has any Indebtedness other than Permitted Indebtedness, pay-out letters, releases and UCC-3 Termination Statements, where applicable, from all third-party creditors releasing all Liens securing any such Indebtedness; (xii) Certificates of good standing for the Borrower, and if requested by Lender, each Subsidiary Holding Company and each Dealership Guarantor from its jurisdiction of incorporation and each other jurisdiction where the nature of its business requires it to be qualified as a foreign corporation; (xiii) a Secretary's Certificate from the Borrower, each Subsidiary Holding Company and each Sonic Dealership acquired by the Borrower on or prior to the date hereof, provided, however that the Borrower, any Subsidiary Holding Company and any Sonic Dealership which provided a Secretary's Certificate in connection with the Amendment to Amended and Restated Credit Agreement dated March 2, 1999 (the "Amendment") or thereafter may deliver a bring-down certificate of such previously delivered Secretary's Certificate, certifying that as of March 2, 1999 or earlier, there has been no change to any of the information provided therein and, in the case of any such Subsidiary Holding Companies or Sonic Dealerships, that the representations and warranties contained in any Collateral Document delivered by such Subsidiary Holding Company or Sonic Dealership in connection with the Amendment or other later Acquisition continues to be true and correct with full force and effect as if made on the Effective Date. (xiv) A certificate, in form and substance satisfactory to the Lender, signed by the chief financial officer of the Borrower stating that as of the Effective Date, no Event of Default or Unmatured Default has occurred and is continuing and setting forth the calculation of the Sonic Group's Scaled Assets as of the Effective Date, and the representations and warranties of the Borrower are true and correct with full force and effect as if made on the Effective Date; (xv) To the extent not included in the foregoing, the documents, instruments and agreements set forth on the closing list attached as Exhibit E hereto; and (xvi) Such other documents as the Lender or its counsel may have reasonably requested. 3.2 Conditions Precedent to Each Advance. The Lender shall not be required to make any Advance, unless on the applicable Borrowing Date: (i) There exists no Event of Default or Unmatured Default; and (ii) The representations and warranties contained in Article IV are true and correct 26 as of such Borrowing Date (unless such representation and warranty expressly relates to an earlier date or is no longer true solely as a result of transactions permitted by this Agreement). Each Borrowing Notice with respect to each such Advance shall constitute a representation and warranty by the Borrower that the conditions contained in Sections 3.2(i) and (ii) have been satisfied. If the Lender has a reasonable basis for believing an Event of Default or Unmatured Default may have occurred and is continuing or that the Borrower is not able to make one or more of the representations and warranties set forth in Article IV, the Lender may require a duly completed officer's certificate in substantially the form of Exhibit F hereto as a condition to making an Advance. 3.3 Condition Precedent to Additional Advance. Notwithstanding anything to the contrary in this Agreement, the Lender shall be under no obligation to make an Advance to the Borrower hereunder, until and unless the following requirements shall have been satisfied: (i) There shall exist no Liens on the Collateral other than Permitted Existing Liens and those Permitted Existing Liens appearing on Schedule 1.1.3 marked with an asterisk shall have been released and or terminated, and the Borrower shall have confirmed delivery of such releases, UCC-3 termination statements or other documentation reasonably requested by the Lender evidencing such release or termination; and (ii) The loss payable endorsements referenced in Section 5.2(G) shall have been delivered to the Lender. ARTICLE IV: REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants as follows to the Lender as of the date hereof and as of the Effective Date: 4.1 Organization; Corporate Powers. The Borrower and each of its Subsidiaries (i) is a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified to do business and is in good standing under the laws of each jurisdiction in which failure to be so qualified and in good standing could not reasonably be expected to have a Material Adverse Effect and (iii) has all requisite corporate, company or partnership power and authority to own, operate and encumber its property and to conduct its business as presently conducted and as proposed to be conducted. 4.2 Authority. (A) The execution, delivery, performance and filing, as the case may be, of each of the Transaction Documents which must be executed or filed by the Borrower or any of its Subsidiaries in connection with the Related Transactions or which have been executed or filed as required by this Agreement on or prior to the Effective Date and to which the Borrower or any of its Subsidiaries is party, and the consummation of the transactions contemplated thereby, have been duly approved by the respective boards of directors or managers, or by the partners, as applicable, and, if necessary, the shareholders, members or partners, as applicable, of the Borrower and its Subsidiaries, and such approvals have not been rescinded. No other corporate, 27 company or partnership action or proceedings on the part of the Borrower or its Subsidiaries are necessary to consummate such transactions. (B) Each of the Transaction Documents to which the Borrower or any of its Subsidiaries is a party has been duly executed, delivered or filed, as the case may be, by it and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms, is in full force and effect and no material term or condition thereof has been amended, modified or waived without the prior written consent of the Lender, and the Borrower and its Subsidiaries have, and, to the best of the Borrower's and its Subsidiaries' knowledge, all other parties thereto have, performed and complied with all the material terms, provisions, agreements and conditions set forth therein and required to be performed or complied with by such parties on or before the date hereof, and no unmatured default, default or breach of any material covenant by any such party exists thereunder. 4.3 No Conflict; Governmental Consents. The execution, delivery and performance of each of the Loan Documents and other Transaction Documents to which the Borrower or any of its Subsidiaries is a party do not and will not (i) conflict with the Charter Documents of the Borrower or any such Subsidiary, (ii) constitute a tortious interference with any Contractual Obligation of any Person or conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under any Requirement of Law (including, without limitation, any Environmental Property Transfer Act) or Contractual Obligation of the Borrower or any such Subsidiary, or require termination of any Contractual Obligation, (iii) result in or require the creation or imposition of any Lien whatsoever upon any of the property or assets of the Borrower or any such Subsidiary, other than Liens permitted by the Loan Documents, or (iv) require any approval of the Borrower's or any such Subsidiary's shareholders except such as have been obtained. The execution, delivery and performance of each of the Transaction Documents to which the Borrower or any of its Subsidiaries is a party do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by any Governmental Authority, including under any Environmental Property Transfer Act, except (i) filings, consents or notices which have been made, obtained or given, or which, if not made, obtained or given, individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect and (ii) filings necessary to create or perfect security interests in the Collateral. 4.4 Financial Statements. All balance sheets, statements of profit and loss and other financial data that have been given to Lender by or on behalf of Borrower and the Subsidiaries (the "Financial Information") are complete and correct in all material respects, accurately present the financial condition of Borrower and the Subsidiaries as of the dates, and the results of its operations for the periods specified in the Financial Information, and have been prepared in accordance with generally accepted accounting principles consistently followed throughout the periods covered thereby. Except as specifically disclosed as to creditor, debtor, amount and security) by the Financial Information, Borrower and Subsidiaries do not have outstanding any loan or indebtedness, direct or contingent, to any party, other than the indebtedness due and owing to Lender, and none of its assets is subject to any security interest, lien or other encumbrance in favor of anyone other than Lender (except for the Permitted Existing Liens). There has been no change in the assets, liabilities or financial condition of Borrower from that set forth in the Financial Information other than changes in the ordinary course of affairs, none of which changes has been materially adverse to Borrower. After giving effect to the Acquisitions, neither Borrower nor any of the Guarantors are or will be rendered insolvent by the indebtedness incurred in connection 28 therewith, will be left with unreasonably small capital with which to engage its business or will have incurred debts beyond its ability to pay such debts as they mature. 4.5 No Material Adverse Change Since the date hereof, there has occurred no event or circumstance which has had or could reasonably be expected to have a Material Adverse Effect. 4.6 Taxes. (A) Tax Examinations. All material deficiencies which have been asserted against the Borrower or any of the Borrower's Subsidiaries as a result of any federal, state, local or foreign tax examination for each taxable year in respect of which an examination has been conducted have been fully paid or finally settled or are being contested in good faith, and as of the date hereof no issue has been raised by any taxing authority in any such examination which, by application of similar principles, reasonably can be expected to result in assertion by such taxing authority of a material deficiency for any other year not so examined which has not been reserved for in the Borrower's consolidated financial statements to the extent, if any, required by Agreement Accounting Principles. (B) Payment of Taxes. All tax returns and reports of the Borrower and its Subsidiaries required to be filed have been timely filed, and all taxes, assessments, fees and other governmental charges thereupon and upon their respective property, assets, income and franchises which are shown in such returns or reports to be due and payable have been paid except those items which are being contested in good faith and have been reserved for in accordance with Agreement Accounting Principles or for which the failure to file could not be reasonably expected to result in the payment of amounts by the Borrower and its Subsidiaries in the aggregate in excess of $250,000.00. The Borrower has no knowledge of any proposed tax assessment against the Borrower or any of its Subsidiaries that will have or could reasonably be expected to have a Material Adverse Effect. 4.7 Litigation; Loss Contingencies and Violations. There is no action, suit, proceeding, arbitration or (to the Borrower's knowledge after diligent inquiry) investigation before or by any Governmental Authority or private arbitrator pending or, to the Borrower's knowledge after diligent inquiry, threatened against the Borrower or any of its Subsidiaries or any property of any of them (i) challenging the validity or the enforceability of any material provision of the Transaction Documents or (ii) which will have or could reasonably be expected to have a Material Adverse Effect. There is no material loss contingency within the meaning of Agreement Accounting Principles which has not been reflected in the consolidated financial statements of the Borrower and its Subsidiaries prepared and delivered pursuant to Section 5.1(A) for the fiscal period during which such material loss contingency was incurred. Neither the Borrower nor any of its Subsidiaries is (A) in violation of any applicable Requirements of Law which violation will have or could reasonably be expected to have a Material Adverse Effect, or (B) subject to or in default with respect to any final judgment, writ, injunction, restraining order or order of any nature, decree, rule or regulation of any court or Governmental Authority which will have or could reasonably be expected to have a Material Adverse Effect. 4.8 Subsidiaries. Schedule 4.8 to this Agreement (i) contains a description as of the Effective Date (or as of the date of any supplement thereto) of the corporate structure of, the Borrower and its Subsidiaries and any other Person in which the Borrower or any of its 29 Subsidiaries holds an Equity Interest; and (ii) accurately sets forth as of the Effective Date (or as of the date of any supplement thereto) (A) the correct legal name, the jurisdiction of incorporation or formation and the jurisdictions in which each of the Borrower and the Subsidiaries of the Borrower is qualified to transact business as a foreign corporation or other foreign entity and (B) a summary of the direct and indirect partnership, joint venture, or other Equity Interests, if any, of the Borrower and each Subsidiary of the Borrower in any Person that is not a corporation. After the formation or acquisition of any New Subsidiary permitted under Section 5.3(F)(ii), if requested by the Lender, the Borrower shall provide a supplement to Schedule 4.8 to this Agreement. None of the issued and outstanding Capital Stock of the Borrower or any of its Subsidiaries is subject to any redemption or repurchase agreement. The outstanding Capital Stock of the Borrower and each of the Borrower's Subsidiaries is duly authorized, validly issued, fully paid and nonassessable. The Borrower has no Subsidiaries other (i) the Subsidiaries set forth on Schedule 4.8 and (ii) any Subsidiaries acquired in connection with a Permitted Acquisition, in connection with which the Borrower shall have provided all of the documents, instruments and agreements as required by this Agreement. 4.9 ERISA. No Benefit Plan has incurred any material accumulated funding deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the Code) whether or not waived. Neither the Borrower nor any member of the Controlled Group has incurred any material liability to the PBGC which remains outstanding other than the payment of premiums, and there are no premium payments which have become due which are unpaid. Schedule B to the most recent annual report filed with the IRS with respect to each Benefit Plan and, if so requested, furnished to the Lender, is complete and accurate. Since the date of each such Schedule B, there has been no material adverse change in the funding status or financial condition of the Benefit Plan relating to such Schedule B. Neither the Borrower nor any member of the Controlled Group has (i) failed to make a required contribution or payment to a Multiemployer Plan or (ii) made a complete or partial withdrawal under Sections 4203 or 4205 of ERISA from a Multiemployer Plan, in either event which could result in any material liability. Neither the Borrower nor any member of the Controlled Group has failed to make a required installment or any other required payment under Section 412 of the Code, in either case involving any material amount, on or before the due date for such installment or other payment. Neither the Borrower nor any member of the Controlled Group is required to provide security to a Benefit Plan under Section 401(a)(29) of the Code due to a Plan amendment that results in an increase in current liability for the plan year. Neither the Borrower nor any of its Subsidiaries maintains or contributes to any employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to employees after termination of employment other than as required by Section 601 of ERISA. Each Plan which is intended to be qualified under Section 401(a) of the Code as currently in effect is so qualified, and each trust related to any such Plan is exempt from federal incometax under Section 501(a) of the Code as currently in effect. The Borrower and all Subsidiaries are in compliance in all material respects with the responsibilities, obligations and duties imposed on them by ERISA and the Code with respect to all Plans. Neither the Borrower nor any of its Subsidiaries nor any fiduciary of any Plan has engaged in a nonexempt prohibited transaction described in Sections 406 of ERISA or 4975 of the Code which could reasonably be expected to subject the Borrower or any Dealership Guarantor to material liability. Neither the Borrower nor any member of the Controlled Group has taken or failed to take any action which would constitute or result in a Termination Event, which action or inaction could reasonably be expected to subject the Borrower to material liability. Neither the Borrower nor any Subsidiary is subject to any liability under Sections 4063, 4064, 4069, 4204 or 4212(c) of ERISA and no other member of the Controlled Group is subject to any liability under Sections 4063, 4064, 4069, 4204 or 30 4212(c) of ERISA which could reasonably be expected to subject the Borrower or any Dealership Guarantor to material liability. Neither the Borrower nor any of its Subsidiaries has, by reason of the transactions contemplated hereby, any obligation to make any payment to any employee pursuant to any Plan or existing contract or arrangement. For purposes of this Section 4.9 "material" means any noncompliance or basis for liability which could reasonably be likely to subject the Borrower or any of its Subsidiaries to liability individually or in the aggregate for all such matters in excess of $250,000.00. 4.10 Accuracy of Information. The information, exhibits and reports furnished by or on behalf of the Borrower and any of its Subsidiaries to the Lender in connection with the negotiation of, or compliance with, the Loan Documents, the representations and warranties of the Borrower and its Subsidiaries contained in the Transaction Documents, and all certificates and documents delivered to the Lender pursuant to the terms thereof, taken as a whole, do not contain as of the date furnished any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein, taken as a whole, in light of the circumstances under which they were made, not misleading. 4.11 Securities Activities. Neither the Borrower nor any of its Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock. 4.12 Material Agreements. Neither the Borrower nor any of its Subsidiaries is a party to any Contractual Obligation or subject to any charter or other corporate restriction which individually or in the aggregate will have or could reasonably be expected to have a Material Adverse Effect. Neither the Borrower nor any of its Subsidiaries has received notice or has knowledge that (i) it is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Contractual Obligation applicable to it, or (ii) any condition exists which, with the giving of notice or the lapse of time or both, would constitute a default with respect to any such Contractual Obligation, in each case, except where such default or defaults, if any, individually or in the aggregate will not have or could not reasonably be expected to have a Material Adverse Effect. 4.13 Compliance with Laws; Compliance with Franchise Agreements. The Borrower and its Subsidiaries are in compliance with all Requirements of Law applicable to them and their respective businesses, in each case where the failure to so comply individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. The execution, delivery and performance by each Sonic Dealership of any Loan Document to which it is a party does not and will not conflict with the franchise agreement to which it is a party. Each Sonic Dealership is, other than with respect to any Sonic Dealership operating under an Irregular Franchise Agreement from the date hereof until the condition set forth in Section 3.3(i) has been satisfied, operating under a valid and enforceable franchise agreement. 4.14 Assets and Properties. The Borrower and each of its Subsidiaries has good and marketable title to all of its assets and properties (tangible and intangible, real or personal) owned by it or a valid leasehold interest in all of its leased assets (except insofar as marketability may be limited by any laws or regulations of any Governmental Authority affecting such assets), except where the failure to have any such title will not have or could not reasonably be expected to have a Material Adverse Effect, and all such assets and property are free and clear of all Liens, except Liens permitted under Section 5.3(C). Substantially all of the assets and properties owned by, leased to or used by the Borrower and/or each such Subsidiary of the Borrower are 31 in adequate operating condition and repair, ordinary wear and tear excepted. Neither this Agreement nor any other Transaction Document, nor any transaction contemplated under any such agreement, will affect any right, title or interest of the Borrower or such Subsidiary in and to any of its assets in a manner that will have or could reasonably be expected to have a Material Adverse Effect. 4.15 Statutory Indebtedness Restrictions. Neither the Borrower nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, or the Investment Company Act of 1940, or any other federal, state or local statute, ordinance or regulation which limits its ability to incur indebtedness or its ability to consummate the transactions contemplated hereby. 4.16 Insurance. The Borrower's and its Subsidiaries' insurance policies and programs reflect coverage that is reasonably consistent with prudent industry practice. 4.17 Labor Matters. As of the date hereof, to the Borrower's and its Subsidiaries' knowledge, there are no material labor disputes to which the Borrower or any of its Subsidiaries may become a party, including, without limitation, any strikes, lockouts or other disputes relating to such Persons' plants and other facilities. 4.18 Acquisitions. As of the Effective Date and as of the date of each Acquisition, all material conditions precedent to, all consents from applicable Governmental Authorities, and all other material consents necessary to permit, the Acquisitions pursuant to the Acquisition Documents have been or will be satisfied or waived by the Borrower with the prior written consent of the Lender. 4.19 Environmental Matters. (a)(i) The operations of the Borrower and its Subsidiaries comply in all material respects with Environmental, Health or Safety Requirements of Law; (ii) the Borrower and its Subsidiaries have all material permits, licenses or other authorizations required under Environmental, Health or Safety Requirements of Law and are in material compliance with such permits; (iii) neither the Borrower, any of its Subsidiaries nor any of their respective present property or operations, or, to the best of, the Borrower's or any of its Subsidiaries' knowledge, any of their respective past property or operations, are subject to or the subject of, any investigation known to the Borrower or any of its Subsidiaries, any judicial or administrative proceeding, order, judgment, decree, settlement or other agreement respecting: (A) any material violation of Environmental, Health or Safety Requirements of Law; (B) any material remedial action; or (C) any material claims or liabilities arising from the Release or threatened Release of a Contaminant into the environment; (iv) there is not now, nor to the best of the Borrower's or any of its Subsidiaries' knowledge has there ever been on or in the property of the Borrower or any of its Subsidiaries any landfill, waste pile, underground storage tanks, aboveground storage tanks, surface impoundment or hazardous waste storage facility of any kind, any polychlorinated biphenyls (PCBs) used in hydraulic oils, electric transformers or other equipment, or any asbestos containing material that in the case of any of the foregoing 32 could be reasonably expected to result in any material claims or liabilities; and (v) neither the Borrower nor any of its Subsidiaries has any material Contingent Obligation in connection with any Release or threatened Release of a Contaminant into the environment. (b) For purposes of this Section 4.19 "material" means any noncompliance or basis for liability which could reasonably be likely to subject the Borrower or any of its Subsidiaries to liability individually or in the aggregate in excess of $500,000.00. 4.20 Benefits. Each of the Borrower and its Subsidiaries will benefit from the financing arrangement established by this Agreement. The Lender has stated and the Borrower acknowledges that, but for the agreement by each of the Subsidiary Holding Companies and the Dealership Guarantors to execute and deliver their respective Subsidiary Holding Company Guaranty, Dealership Guaranty, Subsidiary Holding Company Security Agreement, and Dealership Security Agreement, the Lender would not have made available the credit facilities established hereby on the terms set forth herein. ARTICLE V: COVENANTS The Borrower covenants and agrees that so long as any Commitment is outstanding and thereafter until payment in full of all of the Obligations (other than contingent indemnity obligations, but including Floor Plan Indebtedness), unless the Lender shall otherwise give its prior written consent: 5.1 Reporting. The Borrower shall: (A) Financial Reporting. Furnish to the Lender: (i) Quarterly Reports. As soon as practicable, and in any event within thirty (30) days after the end of each fiscal quarter in each fiscal quarter, the consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such period and the related consolidated and consolidating statements of income and cash flows of the Borrower and its Subsidiaries for such fiscal quarter and for the period from the beginning of the then current fiscal year to the end of such fiscal quarter, certified by the chief financial officer of the Borrower on behalf of the Borrower as fairly presenting the consolidated and consolidating financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flows for the periods indicated in accordance with Agreement Accounting Principles, subject to normal year end adjustments. (ii) Annual Reports. As soon as practicable, and in any event within ninety (90) days after the end of each fiscal year, (a) the consolidated and consolidating balance sheet of the Borrower and its Subsidiaries as at the end of such fiscal year and the related consolidated and consolidating statements of income, stockholders' equity and cash flows of the Borrower and its Subsidiaries for such fiscal year, and in comparative form the corresponding figures for the previous fiscal year and (b) an audit report on the items listed in clause (a) hereof (other than the consolidating statements) of independent certified public accountants of recognized national standing, which audit report shall be 33 unqualified and shall state that such financial statements fairly present the consolidated financial position of the Borrower and its Subsidiaries as at the dates indicated and the results of their operations and cash flows for the periods indicated in conformity with Agreement Accounting Principles and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards. The deliveries made pursuant to this clause (ii) shall be accompanied by any management letter prepared by the above-referenced accountants. (iii) Monthly Statements. As soon as practicable, and in any event within five (5) Business Days after receipt thereof, certified copies of direct (factory) statements provided by a manufacturer to any Sonic Dealership. (iv) Officer's Certificate. Together with each delivery of any financial statement pursuant to clauses (i) and (ii) of this Section 5.1(A), an Officer's Certificate of the Borrower, substantially in the form of Exhibit F attached hereto and made a part hereof, stating that no Event of Default or Unmatured Default exists, or if any Event of Default or Unmatured Default exists, stating the nature and status thereof and setting forth (X) such financial statements and information as shall be reasonably acceptable to the Lender and (Y) a valuation of the Collateral. (B) Notice of Event of Default. Promptly upon any of the chief executive officer, chief operating officer, chief financial officer, treasurer or controller of the Borrower or any of its Subsidiaries obtaining knowledge (i) of any condition or event which constitutes an Event of Default or Unmatured Default, or (ii) that any Person has given any written notice to the Borrower or any Subsidiary of the Borrower or taken any other action with respect to a claimed default or event or condition of the type referred to in Section 6.1(e), deliver to the Lender a notice specifying (a) the nature and period of existence of any such claimed default, Event of Default, Unmatured Default, condition or event, (b) the notice given or action taken by such Person in connection therewith, and (c) what action the Borrower has taken, is taking and proposes to take with respect thereto. (C) Lawsuits. (i) Promptly upon the Borrower obtaining knowledge of the institution of, or written threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting the Borrower or any of its Subsidiaries or any property of the Borrower or any of its Subsidiaries, which action, suit, proceeding, governmental investigation or arbitration exposes, or in the case of multiple actions, suits, proceedings, governmental investigations or arbitrations arising out of the same general allegations or circumstances which expose, in the Borrower's reasonable judgment, the Borrower or any of its Subsidiaries to liability in an amount aggregating $500,000.00 or more, give written notice thereof to the Lender and provide such other information as may be reasonably available to enable the Lender and its counsel to evaluate such matters; and (ii) in addition to the requirements set forth in clause (i) of this Section 5.1(C), upon request of the Lender, promptly give written notice of the status of any action, suit, proceeding, governmental investigation or arbitration covered by a report delivered pursuant to clause (i) above or disclosed in any filing with the Commission and provide such other information as may be reasonably available to it that would not violate any attorney-client privilege by disclosure to the Lender to enable the Lender and its counsel to evaluate such matters. 34 (D) ERISA Notices. Deliver or cause to be delivered to the Lender, at the Borrower's expense, the following information and notices as soon as reasonably possible, and in any event: (i) (a) within ten (10) Business Days after the Borrower obtains knowledge that a Termination Event has occurred, a written statement of the chief financial officer of the Borrower describing such Termination Event and the action, if any, which the Borrower has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by the IRS, DOL or PBGC with respect thereto and (b) within ten (10) Business Days after any member of the Controlled Group obtains knowledge that a Termination Event has occurred which could reasonably be expected to subject the Borrower or any member of the Controlled Group to liability individually or in the aggregate in excess of $250,000.00, a written statement of the chief financial officer of the Borrower describing such Termination Event and the action, if any, which the member of the Controlled Group has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by the IRS, DOL or PBGC with respect thereto; (ii) within ten (10) Business Days after the Borrower or any of its Subsidiaries obtains knowledge that a prohibited transaction (defined in Sections 406 of ERISA and Section 4975 of the Code) has occurred, a statement of the chief financial officer of the Borrower describing such transaction and the action which the Borrower or such Subsidiary has taken, is taking or proposes to take with respect thereto; (iii) within ten (10) Business Days after the Borrower or any of its Subsidiaries receives notice of any unfavorable determination letter from the IRS regarding the qualification of a Plan under Section 401(a) of the Code, copies of each such letter; (iv) within ten (10) Business Days after the filing thereof with the IRS, a copy of each funding waiver request filed with respect to any Benefit Plan and all communications received by the Borrower or a member of the Controlled Group with respect to such request; (v) within ten (10) Business Days after receipt by the Borrower or any member of the Controlled Group of the PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to administer a Benefit Plan, copies of each such notice; (vi) within ten (10) Business Days after receipt by the Borrower or any member of the Controlled Group of a notice from a Multi-employer Plan regarding the imposition of withdrawal liability, copies of each such notice; (vii) within ten (10) Business Days after the Borrower or any member of the Controlled Group fails to make a required installment or any other required payment under Section 412 of the Code on or before the due date for such installment or payment, a notification of such failure; and (viii) within ten (10) Business Days after the Borrower or any member of the Controlled Group knows or has reason to know that (a) a Multi-employer Plan has been terminated, (b) the administrator or plan sponsor of a Multi-employer Plan intends to terminate a Multi-employer Plan, or (c) the PBGC has instituted or will institute 35 proceedings under Section 4042 of ERISA to terminate a Multi-employer Plan. For purposes of this Section 5.1(D), the Borrower, any of its Subsidiaries and any member of the Controlled Group shall be deemed to know all facts known by the Administrator of any Plan of which the Borrower or any member of the Controlled Group or such Subsidiary is the plan sponsor. (E) Labor Matters. Notify the Lender in writing, promptly upon the Borrower's learning thereof, of (i) any material labor dispute to which the Borrower or any of its Subsidiaries may become a party, including, without limitation, any strikes, lockouts or other disputes relating to such Persons' plants and other facilities and (ii) any material liability incurred under the Worker Adjustment and Retraining Notification Act with respect to the closing of any plant or other facility of the Borrower or any of its Subsidiaries. (F) Other Indebtedness. Deliver to the Lender (i) a copy of each notice or communication regarding potential or actual defaults (including any accompanying officer's certificate) delivered by or on behalf of the Borrower or any of its Subsidiaries to the holders of funded Indebtedness pursuant to the terms of the agreements governing such Indebtedness, such delivery to be made at the same time and by the same means as such notice or other communication is delivered to such holders, and (ii) a copy of each notice or other communication regarding potential or actual defaults received by the Borrower or any of its Subsidiaries from the holders of funded Indebtedness pursuant to the terms of such Indebtedness, such delivery to be made promptly after such notice or other communication is received by the Borrower or any such Subsidiary. (G) Other Reports. Deliver or cause to be delivered to the Lender copies of all financial statements, reports and notices, if any, sent or made available generally by the Borrower to its securities holders or filed with the Commission by the Borrower, all press releases made available generally by the Borrower or any of the Borrower's Subsidiaries to the public concerning material developments in the business of the Borrower or any such Subsidiary and all notifications received from the Commission by the Borrower or its Subsidiaries pursuant to the Securities Exchange Act of 1934 and the rules promulgated thereunder (other than customary comment letters received in connection with registration statements or other routine communications between the Commission and the Borrower). (H) Environmental Notices. As soon as possible and in any event within ten (10) days after receipt by the Borrower or any of its Subsidiaries, a copy of (i) any notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the Release by the Borrower, any of its Subsidiaries, or any other Person of any Contaminant into the environment, and (ii) any notice alleging any violation of any Environmental, Health or Safety Requirements of Law by the Borrower or any of its Subsidiaries if, in either case, such notice or claim relates to an event which could reasonably be expected to subject the Borrower or any Subsidiary to liability individually or in the aggregate in excess of $500,000.00. (I) Other Information. Promptly upon receiving a request therefor from the Lender, prepare and deliver to the Lender such other information with respect to the Borrower, any of its Subsidiaries, or the Collateral, including, without limitation, schedules identifying and describing the Collateral and any dispositions thereof, as from time to time may be reasonably requested by the Lender. 36 5.2 Affirmative Covenants. (A) Existence, Etc. Except for mergers permitted pursuant to Section 5.3(H), the Borrower shall, and shall cause each of its Subsidiaries to, at all times maintain its corporate company or partnership existence, as applicable, and preserve and keep, or cause to be preserved and kept, in full force and effect its rights and franchises material to its businesses. (B) Powers; Conduct of Business. The Borrower shall, and shall cause each of its Subsidiaries to, qualify and remain qualified to do business in each jurisdiction in which the nature of its business requires it to be so qualified and where the failure to be so qualified will have or could reasonably be expected to have a Material Adverse Effect. The Borrower will, and will cause each Subsidiary to, carry on and conduct its business in substantially the same manner and in substantially the same fields of enterprise as it is presently conducted. (C) Compliance with Laws, Etc The Borrower shall, and shall cause its Subsidiaries to, (a) comply with all Requirements of Law and all restrictive covenants affecting such Person or the business, properties, assets or operations of such Person, and (b) obtain as needed all permits necessary for its operations and maintain such permits in good standing, unless failure to comply or obtain could not reasonably be expected to have a Material Adverse Effect. (D) Payment of Taxes and Claims; Tax Consolidation. The Borrower shall pay, and cause each of its Subsidiaries to pay, (i) all taxes, assessments and other governmental charges imposed upon it or on any of its properties or assets or in respect of any of its franchises, business, income or property before any penalty or interest accrues thereon, and (ii) all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien (other than a Lien permitted by Section 5.3(C)) upon any of the Borrower's or such Subsidiary's property or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided, however, that no such taxes, assessments and governmental charges referred to in clause (i) above or claims referred to in clause (ii) above (and interest, penalties or fines relating thereto) need be paid if being contested in good faith by appropriate proceedings diligently instituted and conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with Agreement Accounting Principles shall have been made therefor. The Borrower will not, nor will it permit any of its Subsidiaries to, file or consent to the filing of any consolidated income tax return with any other Person other than the consolidated return of the Borrower. (E) Insurance. The Borrower shall maintain for itself and its Subsidiaries, or shall cause each of its Subsidiaries to maintain in full force and effect, insurance policies and programs reflecting coverage that is reasonably consistent with prudent industry practice. (F) Inspection of Property; Books and Records; Discussions. The Borrower shall permit and cause each of the Borrower's Subsidiaries to permit, any authorized representative(s) designated by the Lender to visit and inspect any of the properties of the Borrower or any of its Subsidiaries, to examine, audit, check and make copies of their respective financial and accounting records, books, journals, orders, receipts and any correspondence and other data relating to their respective businesses or the transactions contemplated hereby or by the Acquisitions (including, without limitation, in connection with environmental compliance, hazard or liability), and to discuss their affairs, finances and accounts with their officers and independent certified public accountants, all upon reasonable notice and at such reasonable times during 37 normal business hours, as often as may be reasonably requested; provided, that while no Event of Default exists, all of the foregoing shall be at the expense of the Lender. The Borrower shall keep and maintain, and cause each of the Borrower's Subsidiaries to keep and maintain, in all material respects, proper books of record and account in which entries in conformity with Agreement Accounting Principles shall be made of all dealings and transactions in relation to their respective businesses and activities, including, without limitation, transactions and other dealings with respect to the Collateral. If an Event of Default has occurred and is continuing, the Borrower, upon the Lender's request, shall turn over any such records to the Lender or its representatives. (G) Insurance and Condemnation Proceeds. The Borrower directs (and, if applicable, shall cause its Subsidiaries to direct) all insurers under policies of property damage, boiler and machinery and business interruption insurance and payors of any condemnation claim or award relating to the property to pay all proceeds payable under such policies or with respect to such claim or award for any loss with respect to the Collateral directly to the Lender; provided, however, in the event that such proceeds or award are less than $250,000.00 ("EXCLUDED PROCEEDS"), unless an Event of Default shall have occurred and be continuing, the Lender shall remit such Excluded Proceeds to the Borrower or Subsidiary, as applicable. Each such policy shall contain a long-form loss-payable endorsement naming the Lender as loss payee, which endorsement shall be in form and substance acceptable to the Lender. The Lender shall, upon receipt of such proceeds (other than Excluded Proceeds) and at the Borrower's direction, either apply the same to the principal amount of the Advances outstanding at the time of such receipt and create a corresponding reserve against the Commitment in an amount equal to such application (the "DECISION RESERVE") or hold them as cash collateral for the Obligations in an interest bearing account. For up to 150 days from the date of any loss (the "DECISION PERIOD"), the Borrower may notify the Lender that it intends to restore, rebuild or replace the property subject to any insurance payment or condemnation award and shall, as soon as practicable thereafter, provide the Lender detailed information, including a construction schedule and cost estimates. Should an Event of Default occur at any time during the Decision Period, should the Borrower notify the Lender that it has decided not to rebuild or replace such property during the Decision Period, or should the Borrower fail to notify the Lender of the Borrower's decision during the Decision Period, then the amounts held as cash collateral pursuant to this Section 5.2(G) or as the Decision Reserve shall be applied as a mandatory prepayment of the Advances pursuant to Section 2.2(B). Proceeds held as cash collateral pursuant to this Section 5.2(G) or constituting the Decision Reserve shall be disbursed as payments for restoration, rebuilding or replacement of such property become due; provided, however, should an Event of Default occur after the Borrower has notified the Lender that it intends to rebuild or replace the property, the Decision Reserve or amounts held as cash collateral shall be applied as a mandatory prepayment of the Advances pursuant to Section 2.2(B). In the event the Decision Reserve is to be applied as a mandatory prepayment to the Advances, the Borrower shall be deemed to have requested Advances in an amount equal to the Decision Reserve, and such Advances shall be made regardless of any failure of the Borrower to meet the conditions precedent set forth in Article III. Upon completion of the restoration, rebuilding or replacement of such property, the unused proceeds shall constitute net cash proceeds of an Asset Sale and shall be applied as a mandatory prepayment of the Advances pursuant to Section 2.2(B). (H) ERISA Compliance. The Borrower shall, and shall cause each of the Borrower's Subsidiaries to, establish, maintain and operate all Plans, if any, to comply in all material respects with the provisions of ERISA, the Code, all other applicable laws, and the regulations 38 and interpretations thereunder and the respective requirements of the governing documents for such Plans, except where the failure to comply will not or could not reasonably be expected to subject the Borrower and its Subsidiaries to liability individually or in the aggregate in excess of $250,000.00. (I) Maintenance of Property. The Borrower shall cause all property used or useful in the conduct of its business or the business of any Subsidiary to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and shall cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Borrower may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section 5.2(H) shall prevent the Borrower from discontinuing the operation or maintenance of any of such property if such discontinuance is, in the judgment of the Borrower, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Lender. (J) Environmental Complianc. The Borrower and its Subsidiaries shall comply with all Environmental, Health or Safety Requirements of Law, except where noncompliance could not reasonably be expected to subject the Borrower and its Subsidiaries to liability individually or in the aggregate in excess of $500,000.00. Neither the Borrower nor any of its Subsidiaries shall be the subject of any proceeding or investigation pertaining to (i) the Release by the Borrower or any of its Subsidiaries of any Contaminant into the environment or (ii) the liability of the Borrower or any of its Subsidiaries arising from the Release by any other Person of any Contaminant into the environment, which, in either case, subjects or is reasonably likely to subject the Borrower and its Subsidiaries individually or in the aggregate to liability in excess of the amount set forth above. (K) Use of Proceeds. The Borrower shall use the proceeds of the Advances to (i) to fund Permitted Acquisitions, and (ii) provide funds for working capital needs and other general corporate purposes of the Borrower in an amount not to exceed $15,000,00.00. The proceeds of Advances hereunder may not be used to make any mandatory prepayment under Section 2.2(B). The Borrower will not nor will it permit any Subsidiary to, use any of the proceeds of the Loans to purchase or carry any "Margin Stock" or to make any Acquisition, other than any Permitted Acquisition pursuant to Section 5.3(F). (L) Addition of Guarantors. The Borrower shall cause each Subsidiary Holding Company and each Sonic Dealership which has not heretofore provided a Subsidiary Holding Company Guaranty or a Dealership Guaranty to the Lender, to deliver to the Lender a Subsidiary Holding Company Guaranty, in the form of Exhibit C-2, or a Dealership Guaranty, in the form of Exhibit C-1, a Subsidiary Holding Company Security Agreement, in the form of Exhibit D-2, or a Dealership Security Agreement, in the form of Exhibit D-1, UCC-1 Financing Statements, an acknowledgment to be bound by the Cross Agreement, and an acknowledgment to be bound by the Contribution Agreement, together with appropriate corporate resolutions, opinions and other documentation in form and substance reasonably satisfactory to the Lender. Each Subsidiary Holding Company and each Sonic Dealership shall provide such Subsidiary Holding Company Guaranty or Dealership Guaranty and Collateral Documents prior to or simultaneously with its Acquisition. (M) Future Liens on Real Property. The Borrower shall, and shall cause each of its 39 Subsidiaries that is required to guarantee the Obligations to, execute and deliver to the Lender, immediately upon its acquisition or leasing of any real property after the date hereof, a mortgage, deed of trust, collateral assignment or other appropriate instrument evidencing a Lien upon any such acquired property, lease or interest, to be in form and substance reasonably acceptable to the Lender and subject only to such Liens as otherwise shall be permitted by this Agreement and the Borrower or the applicable Subsidiary, as the case may be, shall have provided the Lender with such opinions, landlord and mortgagee waivers or title insurance as the Lender shall have reasonably requested in connection with such acquisition or leasing of real property. The foregoing provision shall not apply to Excluded Real Property and shall apply to the leasing of any real property only if (i) the term of such lease (without regard to any extension thereof at then current market rent) is more than five years or (ii) such lease has a material value by reason of a purchase option, below-market rent or otherwise. (N) Franchise Agreements. The Borrower shall use its reasonable best efforts to obtain waivers under existing and future franchise agreements on terms and conditions acceptable to the Lender sufficient to permit the security interests and liens contemplated hereunder. To the extent any franchise agreement materially limits the security interests and liens contemplated hereunder or under any Collateral Document, the Borrower shall notify the Lender of such restriction or limitation and to the extent such franchise agreement relates to an Acquisition to be effected by the Borrower, prior to such Acquisition becoming a Permitted Acquisition, the Lender shall have provided its written approval of such franchise agreement. (O) Pledge of Capital Stock. The Borrower shall, and shall cause each of the Subsidiary Holding Companies to pledge to and grant Lender a first perfected security interest in all of its Capital Stock in each Sonic Dealership and/or other Subsidiary Holding Company, as the case may be; provided, however, such Capital Stock will be required to be pledged only to the extent permitted by the manufacturer under the applicable franchise agreement. In the event that a manufacturer refuses to consent to the pledge by the Borrower or a Subsidiary Holding Company of the Borrower's or Subsidiary Holding Companies' Capital Stock in a Sonic Dealership, the Borrower and/or Subsidiary Holding Company must execute a Waiver, Guaranty and Disbursement Agreement. 5.3 Negative Covenants. (A) Indebtedness. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except: (i) the Obligations; (ii) Permitted Existing Indebtedness and Permitted Refinancing Indebtedness; (iii) Indebtedness in respect of obligations secured by Customary Permitted Liens; (iv) Indebtedness constituting Contingent Obligations in respect of Indebtedness otherwise permitted hereunder; (v) Indebtedness arising from intercompany loans from the Borrower to any Guarantor Dealership or from any Subsidiary to the Borrower or any Guarantor 40 Dealership; provided that in each case such Indebtedness is subordinated upon terms satisfactory to the Lender to the obligations of the Borrower and its Subsidiaries with respect to the Obligations; (vi) Guaranties by the Borrower of Indebtedness permitted to be incurred by any Subsidiary; (vii) Indebtedness with respect to surety, appeal and performance bonds obtained by the Borrower or any of its Subsidiaries in the ordinary course of business; (viii) Indebtedness arising under the Borrower Guaranty, any Subsidiary Holding Company Guaranty, or any Dealership Guaranty; (ix) Indebtedness constituting that portion of the deferred purchase price payable by the Borrower in connection with an Acquisition, which such Indebtedness shall not be secured by any of the Collateral; and (x) Indebtedness not in excess of $250,000.00 in connection with the Liens set forth in Section 5.3(C)(iv). . (B) Sales of Assets. Neither the Borrower nor any of its Subsidiaries shall sell, assign, transfer, lease, convey or otherwise dispose of any property (including the Capital Stock of any Subsidiary), whether now owned or hereafter acquired, or any income or profits therefrom, or enter into any agreement to do so, except: (i) sales of inventory in the ordinary course of business; (ii) the disposition in the ordinary course of business of equipment that is obsolete, excess or no longer useful in the Borrower's or its Subsidiaries' business; and (iii) sales, assignments, transfers, leases, conveyances or other dispositions of other assets (including sales of Capital Stock of a Subsidiary) if such transaction (a) is for all cash consideration, (b) is for not less than Fair Value, (c) when combined with all such other transactions (each such transaction being valued at book value) (i) during the immediately preceding twelve-month period, represents the disposition of not greater than $250,000.00, and (ii) during the period from the date hereof to the date of such proposed transaction, represents the disposition of not greater than $500,000.00 and (d) is a sale by the Borrower of Capital Stock in any Subsidiary, except as provided in 41 subclause (c) above, the Borrower shall continue to own, of record and beneficially, with sole voting and dispositive power, 100% (unless required by the Subsidiary's franchise agreement to be less, in which event at least 80%) of the outstanding shares of Capital Stock of any such Subsidiary. (C) Liens. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any of their respective property or assets, except: (i) Permitted Existing Liens; (ii) Customary Permitted Liens; (iii) Liens securing the Obligations; and (iv) Liens (other than on the stock of any Subsidiaries) securing other obligations not exceeding $250,000.00 in the aggregate at any time outstanding. In addition, neither the Borrower nor any of its Subsidiaries shall become a party to any agreement, note, indenture or other instrument, or take any other action, which would prohibit the creation of a Lien on any of its properties or other assets in favor of the Lender, as collateral for the Obligations; provided that any agreement, note, indenture or other instrument in connection with Liens permitted pursuant to clause (i) above may prohibit the creation of a Lien in favor of the Lender on the items of property subject to such Lien. (D) Investments. Except to the extent permitted pursuant to paragraph (G) below, neither the Borrower nor any of its Subsidiaries shall directly or indirectly make or own any Investment except: (i) Investments in Cash Equivalents; (ii) Permitted Existing Investments in an amount not greater than the amount thereof on the date hereof; (iii) Investments in trade receivables or received in connection with the bankruptcy or reorganization of suppliers and customers and in settlement of delinquent obligations of, and other disputes with, customers and suppliers arising in the ordinary course of business; (iv) Investments consisting of deposit accounts maintained by the Borrower or its Subsidiaries in the ordinary course of business in connection with the Cash Management Agreement entered into with the Lender; (v) Investments consisting of intercompany loans from any Subsidiary to the Borrower or any other Subsidiary permitted by Section 5.3(A)(v); (vi) Investments in any Guarantor Dealership; (vii) Investments constituting Permitted Acquisitions; and 42 (viii) Investments in addition to those referred to elsewhere in this Section 5.3(D) in an amount not to exceed $500,000.00 in the aggregate at any time outstanding; provided, however, that the Investments described in clauses (vii) and (viii) above shall not be permitted if either an Event of Default or Unmatured Default shall have occurred and be continuing on the date thereof or would result therefrom. (E) Restricted Payments. Neither the Borrower nor any of its Subsidiaries shall declare or make any Restricted Payment, except: (i) where the consideration therefor consists solely of Equity Interests (but excluding Disqualified Stock) of the Borrower or its Subsidiaries provided no Change of Control would occur as a result thereof; and (ii) in connection with the payment of dividends by a Subsidiary to the Borrower. (F) Conduct of Business; Subsidiaries; Acquisitions. (i) Neither the Borrower nor any of its Subsidiaries shall engage in any business other than the businesses engaged in by the Borrower on the date hereof and any business or activities which are substantially similar, related or incidental thereto. (ii) The Borrower may create, acquire and/or capitalize any Subsidiary (a "NEW SUBSIDIARY") after the date hereof pursuant to any transaction that is permitted by or not otherwise prohibited by this Agreement; provided that upon the creation or acquisition of each New Subsidiary, the requirements set forth in Section 5.2(L) hereof shall have been satisfied and all New Subsidiaries that are Material Subsidiaries shall be Controlled Subsidiaries. To the extent any Subsidiary has Equity Interests issued to a Minority Holder, the franchise agreement under which such Subsidiary operates shall be limited to a Restricted Franchise Agreement. (iii) The Borrower shall not make any Acquisitions, other than Acquisitions meeting the following requirements (each such Acquisition constituting a "PERMITTED ACQUISITION"): (a) no Event of Default or Unmatured Default shall have occurred and be continuing or would result from such Acquisition or the incurrence of any Indebtedness in connection therewith; (b) in the case of an Acquisition of Equity Interests of an entity, such Acquisition shall be of one hundred percent (100%) of the Equity Interests of such entity or if so restricted by such entity's franchise agreement (a "RESTRICTED FRANCHISE AGREEMENT"), such Acquisition shall be of at least eighty percent (80%) of the Equity Interests of such entity, provided, however, that such Equity Interests of Minority Holders will be required to be pledged directly to the Lender as a precondition to such Acquisition; (c) the businesses being acquired shall be substantially similar, related or incidental to the businesses or activities engaged in by the Borrower and its Subsidiaries on the date hereof; (d) after the end of each Quarter, or at such other frequency as Lender may 43 request, the Borrower shall deliver to the Lender a certificate from one of the Authorized Officers, demonstrating to the reasonable satisfaction of the Lender that after giving effect to such Acquisition and the incurrence of any Indebtedness hereunder and in connection herewith, on a pro forma basis (both historically and on a projected basis), as if the Acquisition and such incurrence of Indebtedness had occurred on the first day of the twelve-month period ending on the last day of the Borrower's most recently completed fiscal quarter, the Borrower would have been in compliance with all of the covenants contained in this Agreement, including, without limitation, the financial covenants set forth in Section 5.4; (f) the purchase is consummated pursuant to a negotiated acquisition agreement on a non-hostile basis; (g) after giving effect to such Acquisition, the representations and warranties set forth in Article IV hereof shall be true and correct in all material respects on and as of the date of such Acquisition with the same effect as though made on and as of such date; and (h) the written consent of the Lender shall have been obtained, which such consent shall not be unreasonably withheld, in connection with any Acquisition if the acquisition price therefore (including the maximum amount of any deferred portion thereof or contingency payments payable in connection therewith) (computed with any non-cash portion of the acquisition price being valued at the fair value thereof as of the date of computation) exceeds $3,000,000.00 for such Acquisition or series of related Acquisitions. (i) the Borrower shall have obtained (and shall have based the calculations set forth above on) historical audited financial statements for the target and/or reviewed unaudited financial statements for the target for a period of not less than (A) two (2) years for Acquisitions in excess of $20,000,000.00 and (B) one (1) year for any other Acquisition, together with tax returns for the one year prior to such year, in each case obtained from the seller or provided by independent certified public accountants retained for the purposes of such Acquisition, broken down by fiscal quarter in the Borrower's reasonable judgment, copies of which shall be provided to the Lender. (j) the Borrower shall have obtained either (i) a new franchise agreement between the Sonic Dealership and the manufacturer on substantially the same terms as the franchise agreement entered into between the manufacturer and the entity to be acquired in such Permitted Acquisition or (ii) any consent required from a manufacturer for the continued enforceability and validity of such franchise agreement after the completion of a Permitted Acquisition shall have been obtained. (G) Transactions with Shareholders and Affiliates. Neither the Borrower nor any of its Subsidiaries shall directly or indirectly enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any holder or holders of any of the Equity Interests of the Borrower, or with any Affiliate of the Borrower which is not a Guarantor Dealership, on terms that are less favorable to the Borrower or any of its Subsidiaries, as applicable, than those that might be obtained in an arm's length transaction at the time from Persons who are not such a holder or Affiliate. 44 (H) Restriction on Fundamental Changes. Neither the Borrower nor any of its Subsidiaries shall enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution), or convey, lease, sell, transfer or otherwise dispose of, in one transaction or series of transactions, all or substantially all of the Borrower's or any such Subsidiary's business or property, whether now or hereafter acquired, except (i) transactions permitted under Sections 5.3(B) or 5.3(G) (ii) the merger of a Subsidiary of the Borrower into a Person acquired in connection with a Permitted Acquisition; (iii) the merger of a wholly-owned Subsidiary of the Borrower with and into the Borrower; and (iv) the merger of a Subsidiary of the Borrower with another Subsidiary of the Borrower; provided, however, (i) with respect to any such permitted mergers involving any Dealership Guarantor, the surviving corporation in the merger shall also be or become a Dealership Guarantor; and (ii) after the consummation of any such transaction, the Borrower shall be in compliance with the provisions of Sections 5.2(K) and 5.3(E). (I) Sales and Leasebacks. Neither the Borrower nor any of its Subsidiaries shall become liable, directly, by assumption or by Contingent Obligation, with respect to any lease, whether an operating lease or a Capitalized Lease, of any property (whether real or personal or mixed) (i) which it or one of its Subsidiaries sold or transferred or is to sell or transfer to any other Person, or (ii) which it or one of its Subsidiaries intends to use for substantially the same purposes as any other property which has been or is to be sold or transferred by it or one of its Subsidiaries to any other Person in connection with such lease. Notwithstanding the above, the Borrower may, in connection with a refinancing of indebtedness secured by Excluded Real Property effect the type of transaction described in the preceding sentence. (J) Margin Regulations. Neither the Borrower nor any of its Subsidiaries, shall use all or any portion of the proceeds of any credit extended under this Agreement to purchase or carry Margin Stock. (K) ERISA. The Borrower shall not (i) engage, or permit any of its Subsidiaries to engage, in any prohibited transaction described in Sections 406 of ERISA or 4975 of the Code for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the DOL; (ii) permit to exist any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the Code), with respect to any Benefit Plan, whether or not waived; (iii) fail, or permit any Controlled Group member to fail, to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Benefit Plan; (iv) terminate, or permit any Controlled Group member to terminate, any Benefit Plan which would result in any liability of the Borrower or any Controlled Group member under Title IV of ERISA; (v) fail to make any contribution or payment to any Multiemployer Plan which the Borrower or any Controlled Group member may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto; 45 (vi) fail, or permit any Controlled Group member to fail, to pay any required installment or any other payment required under Section 412 of the Code on or before the due date for such installment or other payment; or (vii) amend, or permit any Controlled Group member to amend, a Plan resulting in an increase in current liability for the plan year such that the Borrower or any Controlled Group member is required to provide security to such Plan under Section 401(a)(29) of the Code, except where such transactions, events, circumstances, or failures will not have or is not reasonably likely to subject the Borrower and its Subsidiaries to liability individually or in the aggregate in excess of $250,000.00. (L) Issuance of Equity Interests. The Borrower shall not issue any Equity Interests if as a result of such issuance a Change of Control shall occur. None of the Borrower's Subsidiaries shall issue any Equity Interests other than to the Borrower or if required by the applicable manufacturer in connection with a Restricted Franchise Agreement or the state motor vehicle dealer licensing authority, to Minority Holders whose Equity Interests (i) do not exceed 20% of the Equity Interests of such Subsidiary and (ii) have been pledged to the Lender (other than with respect to Equity Interests held by Minority Holders as of the Effective Date); provided, however, that no such issuance of Equity Interests shall be permitted hereunder unless the Subsidiary with respect to which operates only under a Restricted Franchise Agreement. (M) Corporate Documents; Franchise Agreements. Neither the Borrower nor any of its Subsidiaries shall amend, modify or otherwise change any of the terms or provisions in any of their respective constituent documents as in effect on the date hereof in any manner adverse in any material respect to the interests of the Lender without the prior written consent of the Lender. The Borrower shall not permit any Sonic Dealership to amend, modify or otherwise change any of the terms or provisions of such Sonic Dealership's franchise agreement in any manner adverse in any material respect to the interests of the Lender without the prior written consent of the Lender. (N) Fiscal Year. Neither the Borrower nor any of its consolidated Subsidiaries shall change its fiscal year for accounting or tax purposes from a period consisting of the 12-month period ending on December 31 of each calendar year. (O) Subsidiary Covenants. The Borrower will not, and will not permit any Subsidiary to, create or otherwise cause to become effective any consensual encumbrance or restriction of any kind on the ability of any Subsidiary to pay dividends or make any other distribution on its stock, or make any other Restricted Payment, pay any Indebtedness or other Obligation owed to the Borrower or any other Subsidiary, make loans or advances or other Investments in the Borrower or any other Subsidiary, or sell, transfer or otherwise convey any of its property to the Borrower or any other Subsidiary. (P) Hedging Obligations. The Borrower shall not and shall not permit any of its Subsidiaries to enter into any interest rate, commodity or foreign currency exchange, swap, collar, cap or similar agreements evidencing Hedging Obligations, other than interest rate, foreign currency or commodity exchange, swap, collar, cap or similar agreements entered into by the 46 Borrower or a Subsidiary pursuant to which the Borrower or such Subsidiary has hedged its actual interest rate, foreign currency or commodity exposure. (R) Payments on Subordinated Debt. The Borrower shall not make any payments on the Debt Offering Notes except in accordance with the Indenture dated as of July 1, 1998 entered into by and among Borrower, its Subsidiaries and U.S. Bank Trust National Association, as trustee (the "Indenture"). 5.4 Financial Covenants. The Borrower shall comply with the following: (A) Total Adjusted Debt to Tangible Base Capital Ratio. The Borrower shall not at any time permit the ratio ("ADJUSTED TBC RATIO") of Total Adjusted Debt of the Sonic Group on a consolidated basis to Tangible Base Capital of the Sonic Group on a consolidated basis to be greater than 15:1. (B) Current Ratio. The Borrower shall not at any time permit the ratio (the "CURRENT RATIO") of Current Assets of the Sonic Group on a consolidated basis to Current Liabilities of the Sonic Group on a consolidated basis to be less than 1.25: 1. (C) Fixed Charge Coverage Ratio. The Borrower shall maintain a ratio ("FIXED CHARGE COVERAGE RATIO") of (i) EBITDAR less Capital Expenditures, to (ii) (a) Interest Expense plus (b) scheduled amortization of the principal portion of all Indebtedness for money borrowed plus (c) Rentals plus (d) taxes paid in cash during such period of the Borrower and its consolidated Subsidiaries of at least 1.3: 1 for each fiscal quarter ending from and after the Effective Date. In each case the Fixed Charge Coverage Ratio shall be determined as of the last day of each fiscal quarter for the four-quarter period ending on such day. (D) Interest Coverage Ratio. The Borrower shall maintain a ratio (the "INTEREST COVERAGE RATIO") of EBITDA to Interest Expense of at least 2: 1 for each fiscal quarter ending from and after the Effective Date. In each case the Interest Coverage Ratio shall be determined as of the last day of each fiscal quarter for the four-quarter period ending on such day. (E) Total Adjusted Debt to EBITDA Ratio. The Borrower shall not at any time permit the ratio (the "ADJUSTED LEVERAGE RATIO") of (i) Total Adjusted Debt of the Borrower and its consolidated Subsidiaries to (ii) EBITDA of the Borrower and its consolidated Subsidiaries, to be greater than 2.25: 1. The Adjusted Leverage Ratio shall be calculated, in each case, determined as of the last day of each fiscal quarter based upon (a) for Total Adjusted Debt, Total Adjusted Debt as of the last day of each such fiscal quarter; and (b) for EBITDA, EBITDA for the twelve-month period ending on such day calculated as set forth in the definition thereof provided however, (a) for the fiscal quarter ending December 31, 1997, the Adjusted Leverage Ratio shall be calculated using EBITDA for the fiscal quarter ending December 31, 1997 multiplied by four (4), (b) for the fiscal quarter ending March 31, 1998, the Adjusted Leverage Ratio shall be calculated using EBITDA for the two fiscal quarters ending March 31, 1998 multiplied by two (2), and (c) for the fiscal quarter ending June 30, 1998, the Adjusted Leverage Ratio shall be calculated using EBITDA for the three fiscal quarters ending June 30, 1998 multiplied by four- thirds (4/3). All financial covenants set forth in this Section 5.4 shall be calculated by the Lender based on the calculations set forth in and the financial statements attached to Officer's 47 Certificates delivered hereunder and shall be binding on the Borrower for all purposes of this Agreement absent manifest error. ARTICLE VI: EVENT OF DEFAULTS 6.1 Event of Defaults. Each of the following occurrences shall constitute an Event of Default under this Agreement: (a) Failure to Make Payments When Due. The Borrower shall (i) fail to pay when due any of the Obligations consisting of principal with respect to the Advances or (ii) shall fail to pay within ten (10) days of the date when due any of the other Obligations under this Agreement or the other Loan Documents. (b) Breach of Certain Covenants. The Borrower shall fail duly and punctually to perform or observe any agreement, covenant or obligation binding on the Borrower under Sections 5.2(F), 5.2(K), 5.3 or 5.4. (c) Breach of Representation or Warranty. Any representation or warranty made or deemed made by the Borrower to the Lender herein or by the Borrower or any of its Subsidiaries in any of the other Loan Documents or in any written statement or certificate at any time given by any such Person pursuant to any of the Loan Documents shall be false or misleading in any material respect on the date as of which made (or deemed made). (d) Other Defaults. The Borrower shall default in the performance of or compliance with any term contained in this Agreement (other than as covered by paragraphs (a), (b) or (c) of this Section 6.1), or the Borrower or any of its Subsidiaries shall default in the performance of or compliance with any term contained in any of the other Loan Documents, and such default shall continue for thirty (30) days after the occurrence thereof. (e) Default as to Other Indebtedness. The Borrower or any of its Subsidiaries shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) with respect to any Indebtedness (other than Indebtedness constituting the deferred portion of the purchase price of an asset which is subject to a good faith dispute, which, together with all such other outstanding disputed Indebtedness, is not in excess of $500,000.00 and which is being contested by the Borrower, and provided that the Borrower has set aside adequate reserves covering such disputed Indebtedness) the outstanding principal amount of which Indebtedness is in excess of $100,000.00; or any breach, default or event of default shall occur, or any other condition shall exist under any instrument, agreement or indenture pertaining to any such Indebtedness, if the effect thereof is to cause an acceleration, mandatory redemption, a requirement that the Borrower offer to purchase such Indebtedness or other required repurchase of such Indebtedness, or permit the holder(s) of such Indebtedness to accelerate the maturity of any such Indebtedness or require a redemption or other repurchase of such Indebtedness; or any such Indebtedness shall be otherwise declared to be due and payable (by acceleration or otherwise) or required to be prepaid, redeemed or otherwise repurchased by the Borrower or any of its Subsidiaries (other than by a regularly scheduled required prepayment) prior to the stated maturity thereof. (f) Involuntary Bankruptcy; Appointment of Receiver, Etc. 48 (i) An involuntary case shall be commenced against the Borrower or any of the Borrower's Subsidiaries and the petition shall not be dismissed, stayed, bonded or discharged within sixty (60) days after commencement of the case; or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of the Borrower or any of the Borrower's Subsidiaries in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state, local or foreign law. (ii) A decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over the Borrower or any of the Borrower's Subsidiaries or over all or a substantial part of the property of the Borrower or any of the Borrower's Subsidiaries shall be entered; or an interim receiver, trustee or other custodian of the Borrower or any of the Borrower's Subsidiaries or of all or a substantial part of the property of the Borrower or any of the Borrower's Subsidiaries shall be appointed or a warrant of attachment, execution or similar process against any substantial part of the property of the Borrower or any of the Borrower's Subsidiaries shall be issued and any such event shall not be stayed, dismissed, bonded or discharged within sixty (60) days after entry, appointment or issuance. (g) Voluntary Bankruptcy; Appointment of Receiver, Etc. The Borrower or any of the Borrower's Subsidiaries shall (i) commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, (ii) consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, (iii) consent to the appointment of or taking possession by a receiver, trustee or other similar custodian for the benefit of creditors for all or a substantial part of its property, (iv) make any assignment for the benefit of creditors or (v) take any corporate action to authorize any of the foregoing. (h) Judgments and Attachments. Any money judgment(s) (other than a money judgment covered by insurance as to which the insurance company has not disclaimed coverage or if it has reserved the right to disclaim coverage, such letter reserving the right to disclaim coverage is outstanding twelve months after such money judgment was rendered), writ or warrant of attachment, or similar process against the Borrower or any of its Subsidiaries or any of their respective assets involving in any single case or in the aggregate an amount in excess of $250,000.00 is or are entered and shall remain undischarged, unvacated, unbonded or unstayed for a period of sixty (60) days or in any event later than fifteen (15) days prior to the date of any proposed sale thereunder. (i) Dissolution. Any order, judgment or decree shall be entered against the Borrower or any of its Subsidiaries decreeing its involuntary dissolution or split up and such order shall remain undischarged and unstayed for a period in excess of sixty (60) days; or the Borrower or any of its Subsidiaries shall otherwise dissolve or cease to exist except as specifically permitted by this Agreement. (j) Loan Documents; Failure of. At any time, for any reason, (i) any Loan Document as a whole that materially affects the ability of the Lender to enforce the Obligations or enforce its rights against the Collateral ceases to be in full force and effect or the Borrower or any of the 49 Borrower's Subsidiaries party thereto seeks to repudiate its obligations thereunder and the Liens intended to be created thereby are, or the Borrower or any such Subsidiary seeks to render such Liens, invalid or unperfected, or (ii) any Lien on Collateral in favor of the Lender contemplated by the Loan Documents shall, at any time, for any reason, be invalidated or otherwise cease to be in full force and effect or such Lien shall not have the priority contemplated by this Agreement or the Loan Documents and such failure shall continue for three (3) days after the occurrence thereof. (k) Termination Event. Any Termination Event occurs which is reasonably likely to subject the Borrower or any of its Subsidiaries to liability individually or in the aggregate in excess of $250,000.00, and such Termination Event shall continue for three (3) days after the occurrence thereof, provided however, if such Termination Event is a Reportable Event, then prior to such Termination Event causing an Event of Default under this Section 6.1(k), such Termination Event shall continue for ten (10) days after the occurrence thereof. (l) Waiver of Minimum Funding Standard. If the plan administrator of any Plan applies under Section 412(d) of the Code for a waiver of the minimum funding standards of Section 412(a) of the Code and the Lender believes the substantial business hardship upon which the application for the waiver is based could reasonably be expected to subject either the Borrower or any Controlled Group member to liability individually or in the aggregate in excess of $250,000.00. (m) Change of Control. A Change of Control shall occur. (n) Hedging Agreements. Nonpayment by the Borrower or any Subsidiary of any obligation under any contract with respect to Hedging Obligations entered into by the Borrower or such Subsidiary with the Lender (or Affiliate thereof) or the breach by the Borrower or Subsidiary of any other term, provision or condition contained in any agreement and such nonpayment or breach shall continue for ten (10) days after the occurrence thereof. (o) Guarantor Default or Revocation. Any Sonic Guaranty shall fail to remain in full force or effect or any action shall be taken by the Borrower or any Dealership Guarantor to discontinue or to assert the invalidity or unenforceability of any Sonic Guaranty or the Borrower or any Dealership Guarantor shall fail to comply with any of the terms or provisions of any Sonic Guaranty to which it is a party, or the Borrower or any Dealership Guarantor denies that it has any further liability under any Sonic Guaranty to which it is a party, or gives notice to such effect. (p) Environmental Matters. The Borrower or any of its Subsidiaries shall be the subject of any proceeding or investigation pertaining to (i) the Release by the Borrower or any of its Subsidiaries of any Contaminant into the environment, (ii) the liability of the Borrower or any of its Subsidiaries arising from the Release by any other person of any Contaminant into the environment, or (iii) any violation of any Environmental, Health or Safety Requirements of Law by the Borrower or any of its Subsidiaries, which, in any case, has subjected or is reasonably likely to subject the Borrower or any of its Subsidiaries to liability individually or in the aggregate in excess of $250,000.00. An Event of Default shall be deemed "continuing" until cured or until waived in writing in accordance with Section 7.3. 50 ARTICLE VII: ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 7.1 Termination of Commitments; Acceleration. If any Event of Default described in Section 6.1(f) or 6.1(g) occurs with respect to the Borrower, the obligation of the Lender to make Advances hereunder shall automatically terminate and the Obligations shall immediately become due and payable without any election or action on the part of the Lender. If any other Event of Default occurs, the Lender may terminate or suspend its obligations to make Advances hereunder, or declare the Obligations to be due and payable, or both, whereupon, after written notice to the Borrower, the Obligations shall become immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which the Borrower expressly waives. 7.2 Amendments. No amendment, waiver or modification of any provision of this Agreement shall be effective unless signed by each of the parties hereto and then only to the extent in such writing specifically set forth. 7.3 Preservation of Rights. No delay or omission of the Lender to exercise any right under the Loan Documents shall impair such right or be construed to be a waiver of any Event of Default or an acquiescence therein, and the making of an Advance notwithstanding the existence of an Event of Default or the inability of the Borrower to satisfy the conditions precedent to such Advance shall not constitute any waiver or acquiescence. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents whatsoever shall be valid unless in writing signed by the Lender, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents or by law afforded shall be cumulative and all shall be available to the Lender until the Obligations have been paid in full. ARTICLE VIII: GENERAL PROVISIONS 8.1 Survival of Representations. All representations and warranties of the Borrower contained in this Agreement shall survive delivery of the Note and the making of the Advances herein contemplated. 8.2 Governmental Regulation. Anything contained in this Agreement to the contrary notwithstanding, the Lender shall not be obligated to extend credit to the Borrower in violation of any limitation or prohibition provided by any applicable statute or regulation. 8.3 Performance of Obligations. The Borrower agrees that the Lender may, but shall have no obligation to (i) at any time, pay or discharge taxes, liens, security interests or other encumbrances levied or placed on or threatened against any Collateral, unless such claims are being contested in good faith by the Borrower and the Borrower has set aside adequate reserves covering such tax, lien, security interest or other encumbrance and no Event of Default has occurred and is outstanding and (ii) after the occurrence and during the continuance of an Event of Default to make any payment or perform any act required of the Borrower under any Loan Document or take any other action which the Lender in its reasonable discretion deems necessary or desirable to protect or preserve the Collateral, including, without limitation, any action to (y) effect any repairs or obtain any insurance called for by the terms of any of the Loan Documents and to pay all or any part of the premiums therefor and the costs thereof and (z) pay 51 any rents payable by the Borrower which are more than 30 days past due, or as to which the landlord has given notice of termination, under any lease. The Lender shall use its reasonable efforts to give the Borrower notice of any action taken under this Section 8.3 prior to the taking of such action or promptly thereafter provided the failure to give such notice shall not affect the Borrower's obligations in respect thereof. The Borrower agrees to pay the Lender, upon demand, the principal amount of all funds advanced by the Lender under this Section 8.3, together with interest thereon at the rate from time to time applicable to Advances (in excess of the Scaled Assets) from the date of such advance until the outstanding principal balance thereof is paid in full. All outstanding principal of, and interest on, advances made under this Section 8.3 shall constitute Obligations for purposes hereof. 8.4 Headings. Section headings in the Loan Documents are for convenience of reference only, and shall not govern the interpretation of any of the provisions of the Loan Documents. 8.5 Entire Agreement. The Loan Documents embody the entire agreement and understanding among the Borrower and the Lender and the Loan Documents delivered on the Effective Date supersede all prior agreements and understandings among the Borrower and the Lender relating to the subject matter thereof. 8.6 Expenses; Indemnification. (A) Expenses. The Borrower shall reimburse the Lender for any reasonable costs, internal charges and out-of-pocket expenses (including reasonable attorneys' and paralegals' fees and time charges of attorneys and paralegals for the Lender, which attorneys and paralegals may be employees of the Lender) paid or incurred by the Lender in connection with the preparation, negotiation, execution, delivery, review, amendment, modification, and administration of the Loan Documents. The Borrower also agrees to reimburse the Lender for any reasonable costs, internal charges and out-of-pocket expenses (including attorneys' and paralegals' fees and time charges of attorneys and paralegals for the Lender, which attorneys and paralegals may be employees of the Lender) paid or incurred by the Lender in connection with the collection of the Obligations and enforcement of the Loan Documents. In addition to expenses set forth above, the Borrower agrees to reimburse the Lender, promptly after the Lender's request therefor, for each audit or other business analysis performed by it in connection with this Agreement or the other Loan Documents at a time when an Event of Default exists in an amount equal to the Lender's then reasonable and customary charges for each person employed to perform such audit or analysis, plus all costs and expenses (including without limitation, travel expenses) incurred by the Lender in the performance of such audit or analysis. Lender shall provide the Borrower with a detailed statement of all reimbursements requested under this Section 8.6(A). (B) Indemnity. The Borrower further agrees to defend, protect, indemnify, and hold harmless the Lender and each of its Affiliates, and each of the Lender's, or Affiliate's respective officers, directors, employees, attorneys and agents (including, without limitation, those retained in connection with the satisfaction or attempted satisfaction of any of the conditions set forth in Article III) (collectively, the "INDEMNITEES") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for such Indemnitees in connection with any investigative, administrative or judicial proceeding, whether 52 or not such Indemnitees shall be designated a party thereto), imposed on, incurred by, or asserted against such Indemnitees in any manner relating to or arising out of: (i) this Agreement, the other Loan Documents or any of the Transaction Documents, or any act, event or transaction related or attendant thereto, the making of the Advances, hereunder, the management of such Advances, the use or intended use of the proceeds of the Advances hereunder, or any of the other transactions contemplated by the Transaction Documents; or (ii) any liabilities, obligations, responsibilities, losses, damages, personal injury, death, punitive damages, economic damages, consequential damages, treble damages, intentional, willful or wanton injury, damage or threat to the environment, natural resources or public health or welfare, costs and expenses (including, without limitation, attorney, expert and consulting fees and costs of investigation, feasibility or remedial action studies), fines, penalties and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future relating to violation of any Environmental, Health or Safety Requirements of Law arising from or in connection with the past, present or future operations of the Borrower, its Subsidiaries or any of their respective predecessors in interest, or, the past, present or future environmental, health or safety condition of any respective property of the Borrower or its Subsidiaries, the presence of asbestos-containing materials at any respective property of the Borrower or its Subsidiaries or the Release or threatened Release of any Contaminant into the environment (collectively, the "INDEMNIFIED MATTERS"); provided, however, the Borrower shall have no obligation to an Indemnitee hereunder with respect to Indemnified Matters caused by or resulting from the willful misconduct or Gross Negligence of such Indemnitee as determined by the final non-appealed judgment of a court of competent jurisdiction. If the undertaking to indemnify, pay and hold harmless set forth in the preceding sentence may be unenforceable because it is violative of any law or public policy, the Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. (C) Notwithstanding anything else in this Agreement to the contrary, no party shall have any obligation to reimburse any person for attorneys' fees and expenses unless such fees and expenses are (i) reasonable in amount, (ii) determined without reference to any statutory presumption and (iii) calculated using the actual time expended and the standard hourly rate for the attorneys and paralegals performing the tasks in question and the actual out-of-pocket expenses incurred. 53 (D) Waiver of Certain Claims; Settlement of Claims. The Borrower further agrees to assert no claim against any of the Indemnitees on any theory of liability for consequential, special, indirect, exemplary or punitive damages. No settlement shall be entered into by the Borrower or any if its Subsidiaries with respect to any claim, litigation, arbitration or other proceeding relating to or arising out of the transactions evidenced by this Agreement, the other Loan Documents (whether or not the Lender or any Indemnitee is a party thereto) unless such settlement releases all Indemnitees from any and all liability with respect thereto. (E) Survival of Agreements. The obligations and agreements of the Borrower under this Section 8.6 shall survive the termination of this Agreement. 8.7 Accounting. Except as provided to the contrary herein, all accounting terms used herein shall be interpreted and all accounting determinations hereunder shall be made in accordance with Agreement Accounting Principles. 8.8 Severability of Provisions. Any provision in any Loan Document that is held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of all Loan Documents are declared to be severable. 8.9 Nonliability of Lender. The relationship between the Borrower and the Lender shall be solely that of borrower and lender. The Lender shall have no fiduciary responsibilities to the Borrower and the Lender does not take any responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower's business or operations. 8.10 GOVERNING LAW. ANY DISPUTE BETWEEN THE BORROWER AND THE LENDER, OR ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS) OF THE STATE OF NORTH CAROLINA. 8.11 CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN NORTH CAROLINA, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NORTH CAROLINA. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION (A) ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (B) OTHER JURISDICTIONS. THE BORROWER AGREES THAT THE LENDER OR ANY INDEMNITEE SHALL HAVE THE RIGHT TO PROCEED AGAINST THE BORROWER OR 54 ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER THE BORROWER OR (2) REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. THE BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION (B). (C) SERVICE OF PROCESS. THE BORROWER WAIVES PERSONAL SERVICE OF ANY PROCESS UPON IT AND IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY WRITS, PROCESS OR SUMMONSES IN ANY SUIT, ACTION OR PROCEEDING BY THE MAILING THEREOF BY THE LENDER BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE BORROWER ADDRESSED AS PROVIDED HEREIN. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF THE LENDER TO SERVE ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW THE BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE. (D) WAIVER OF JURY TRIAL. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 55 (E) WAIVER OF BOND. TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. (F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF THIS SECTION 8.11, WITH ITS COUNSEL. 8.12 No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. 8.13 Subordination of Intercompany Indebtedness. The Borrower agrees that any and all claims of the Borrower against any Subsidiary Holding Company Guarantor or any Dealership Guarantor, any endorser or any other guarantor of all or any part of the Obligations, or against any of its properties, including, without limitation, pursuant to the any intercompany Indebtedness permitted under Section 5.3(A)(vi), shall be subordinate and subject in right of payment to the prior payment, in full and in cash, of all Obligations. Notwithstanding any right of the Borrower to ask, demand, sue for, take or receive any payment from any Subsidiary Holding Company Guarantor or any Dealership Guarantor, all rights, liens and security interests of the Borrower, whether now or hereafter arising and howsoever existing, in any assets of any Subsidiary Holding Company Guarantor or any Dealership Guarantor shall be and are subordinated to the rights, if any, of the Lender in those assets. The Borrower shall have no right to possession of any such asset or to foreclose upon any such asset, whether by judicial action or otherwise, unless and until all of the Obligations shall have been paid in full in cash and satisfied and all financing arrangements under this Agreement and the other Loan Documents between the Borrower and the Lender have been terminated. If, during the continuance of an Event of Default, all or any part of the assets of any Subsidiary Holding Company Guarantor or any Dealership Guarantor, or the proceeds thereof, are subject to any distribution, division or application to the creditors of any Subsidiary Holding Company Guarantor or any Dealership Guarantor, whether partial or complete, voluntary or involuntary, and whether by reason of liquidation, bankruptcy, arrangement, receivership, assignment for the benefit of creditors or any other action or proceeding, then, and in any such event, any payment or distribution of any kind or character, either in cash, securities or other property, which shall be payable or deliverable upon or with respect to any indebtedness of any Subsidiary Holding Company Guarantor or any Dealership Guarantor to the Borrower, including, without limitation, pursuant to the any intercompany Indebtedness permitted under Section 5.3(A)(vi) ("INTERCOMPANY INDEBTEDNESS") shall be paid or delivered directly to the Lender for application on any of the Obligations, due or to become due, until such Obligations shall have first been paid in full in cash and satisfied; provided, however, ordinary course payments or distributions made by any Subsidiary Holding Company Guarantor or any Dealership Guarantor to the Borrower shall be required to be paid or delivered to the Lender only upon the Lender's request. The Borrower irrevocably authorizes 56 and empowers the Lender to demand, sue for, collect and receive every such payment or distribution and give acquittance therefor and to make and present for and on behalf of the Borrower such proofs of claim and take such other action, in the Lender's own name or in the name of the Borrower or otherwise, as the Lender may deem necessary or advisable for the enforcement of this Section 8.13. The Lender may vote such proofs of claim in any such proceeding, receive and collect any and all dividends or other payments or disbursements made thereon in whatever form the same may be paid or issued and apply the same on account of any of the Obligations. Should any payment, distribution, security or instrument or proceeds thereof be received by the Borrower upon or with respect to the Intercompany Indebtedness during the continuance of an Event of Default and prior to the satisfaction of all of the Obligations and the termination of all financing arrangements under this Agreement and the other Loan Documents between the Borrower and the Lender, the Borrower shall receive and hold the same in trust, as trustee, for the benefit of the Lender and shall forthwith deliver the same to the Lender, in precisely the form received (except for the endorsement or assignment of the Borrower where necessary), for application to any of the Obligations, due or not due, and, until so delivered, the same shall be held in trust by the Borrower as the property of the Lender; provided, however, ordinary course payments or distributions made to or by any Subsidiary Holding Company Guarantor or any Dealership Guarantor to the Borrower shall be required to be paid or delivered to the Lender only upon the Lender's request after the occurrence and Continuance of an Event of Default. If the Borrower fails to make any such endorsement or assignment to the Lender, the Lender or any of its officers or employees are irrevocably authorized to make the same. The Borrower agrees that until the Obligations have been paid in full in cash and satisfied and all financing arrangements under this Agreement and the other Loan Documents between the Borrower and the Lender have been terminated, the Borrower will not assign or transfer to any Person (other than the Lender) any claim the Borrower has or may have against any Subsidiary Holding Company Guarantor or any Dealership Guarantor. 8.14 Usury Not Intended. It is the intent of the Borrower and the Lender in the execution and performance of this Agreement and the other Loan Documents to contract in strict compliance with applicable usury laws, including conflicts of law concepts, governing the Advances of the Lender including such applicable laws of the State of North Carolina and the United States of America from time-to-time in effect. In furtherance thereof, the Lender and the Borrower stipulate and agree that none of the terms and provisions contained in this Agreement or the other Loan Documents shall ever be construed to create a contract to pay, as consideration for the use, forbearance or detention of money, interest at a rate in excess of the Maximum Rate and that for purposes hereof "interest" shall include the aggregate of all charges which constitute interest under such laws that are contracted for, charged or received under this Agreement; and in the event that, notwithstanding the foregoing, under any circumstances the aggregate amounts taken, reserved, charged, received or paid on the Advances, include amounts which by applicable law are deemed interest which would exceed the Maximum Rate, then such excess shall be deemed to be a mistake and the Lender receiving same shall credit the same on the principal of its Note (or if the Note shall have been paid in full, refund said excess to the Borrower). In the event that the maturity of the Note is accelerated by reason of any election of the holder thereof resulting from any Event of Default under this Agreement or otherwise, or in the event of any required or permitted prepayment, then such consideration that constitutes interest may never include more than the Maximum Rate and excess interest, if any, provided for in this Agreement or otherwise shall be canceled automatically as of the date of such acceleration or prepayment and, if theretofore paid, shall be credited on the applicable Note (or, if the Note shall have been paid in full, refunded to the Borrower of such interest). In 57 determining wheher or not the interest paid or payable under any specific contingencies exceeds the Maximum Rate, the Borrower and the Lender shall to the maximum extent permitted under applicable law amortize, prorate, allocate and spread in equal parts during the period of the full stated term of the Note all amounts considered to be interest under applicable law at any time contracted for, charged, received or reserved in connection with the Obligations. The provisions of this Section shall control over all other provisions of this Agreement or the other Loan Documents which may be in apparent conflict herewith. ARTICLE IX: BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 9.1 Successors and Assigns. The terms and provisions of the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights or obligations under the Loan Documents. 9.2 Participations. (A) Permitted Participants; Effect. Subject to the terms set forth in this Section 9.2, the Lender may, in the ordinary course of its business and in accordance with applicable law, at any time sell to one or more banks or other financial institutions ("PARTICIPANTS") participating interests in any Advance owing to the Lender, the Note, the Commitment or any other interest of the Lender under the Loan Documents on a pro rata or non-pro rata basis. Notice of such participation to the Borrower shall be required prior to any participation becoming effective. In the event of any such sale by the Lender of participating interests to a Participant, the Lender's obligations under the Loan Documents shall remain unchanged, the Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, the Lender shall remain the holder of the Note for all purposes under the Loan Documents, all amounts payable by the Borrower under this Agreement shall be determined as if the Lender had not sold such participating interests, and the Borrower shall continue to deal solely and directly with the Lender in connection with the Lender's rights and obligations under the Loan Documents. (B) Voting Rights. The Lender shall retain the sole right to approve, without the consent of any Participant, any amendment, modification or waiver of any provision of the Loan Documents other than any amendment, modification or waiver with respect to any Advance or Commitment in which such Participant has an interest. 9.3 Assignments. The Lender may, in the ordinary course of its business and in accordance with applicable law, at any time assign to one or more banks or other financial institutions approved by the Borrower within 10 days of notice to the Borrower by the Lender of such assignment (which such approval shall not be unreasonably withheld) all or a portion of its rights and obligations under this Agreement (including, without limitation, its Commitment and all Advances owing to it) pursuant to an assignment agreement in form and substance satisfactory to the Lender. Notwithstanding the foregoing, the Borrower shall not have any right to approve an assignee under this Section 9.3, after the occurrence and continuance of an Event of Default or to the extent such assignee is an Affiliate of the Lender, provided, however, that to the extent the Lender assigns its obligations hereunder, such Affiliate shall be a United States Person and the Lender shall have provided such financial statements as the Borrower shall have reasonably requested. 58 9.4 Confidentiality. Subject to Section 9.5, the Lender shall hold all nonpublic information obtained pursuant to the requirements of this Agreement and identified as such by the Borrower in accordance with the Lender's customary procedures for handling confidential information of this nature and in accordance with safe and sound banking practices and in any event may make disclosure reasonably required by a prospective Transferee in connection with the contemplated participation or as required or requested by any Governmental Authority or representative thereof or pursuant to legal process and shall require any such Transferee to agree (and require any of its Transferees to agree) to comply with this Section 9.4. In no event shall the Lender be obligated or required to return any materials furnished by the Borrower; provided, however, each prospective Transferee shall be required to agree that if it does not become a participant it shall return all materials furnished to it by or on behalf of the Borrower in connection with this Agreement. 9.5 Dissemination of Information. The Borrower authorizes the Lender to disclose to any Participant or Purchaser or any other Person acquiring an interest in the Loan Documents by operation of law (each a "TRANSFEREE") and any prospective Transferee any and all information in the Lender's possession concerning the Borrower and its Subsidiaries; provided that prior to any such disclosure, such prospective Transferee shall agree to preserve in accordance with Section 9.4 the confidentiality of any confidential information described therein. ARTICLE X: NOTICES 10.1 Giving Notice. Except as otherwise permitted by Section 2.8 with respect to borrowing notices, all notices and other communications provided to any party hereto under this Agreement or any other Loan Documents shall be in writing or by telex or by facsimile and addressed or delivered to such party at its address set forth below its signature hereto or at such other address as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received; any notice, if transmitted by telex or facsimile, shall be deemed given when transmitted (answerback confirmed in the case of telexes). 10.2 Change of Address. The Borrower and the Lender may each change the address for service of notice upon it by a notice in writing to the other parties hereto. ARTICLE XI: COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower and the Lender. 59 ARTICLE XII: RESTATEMENT OF ORIGINAL CREDIT AGREEMENT Effective as of the Effective Date, this Agreement amends and restates the Original Credit Agreement in its entirety. It is the intent of the parties hereto that this Agreement not constitute a novation, that this Agreement replace in its entirety the Original Credit Agreement, and that from and after the Effective Date the Original Credit Agreement be of no further force or effect. Upon and as of the Effective Date, all references in any Loan Document to the "Credit Agreement" shall mean and be a reference to this Agreement. IN WITNESS WHEREOF, the Borrower and the Lender have executed this Agreement as of the date first above written. SONIC AUTOMOTIVE, INC., as the Borrower By: /s/ B. Scott Smith Name: B. Scott Smith Title:President Address: 5401 East Independence Boulevard P.O. Box 18747 Charlotte, North Carolina 28218 Attention: O. Bruton Smith Telephone No.: Facsimile No.: FORD MOTOR CREDIT COMPANY, as Lender By: /s/ William J. Beck IV Name: William J. Beck IV Title: National Account Manager Address: 6302 Fairview Road Suite 500 Charlotte, North Carolina 28210 Attention: Nancy Carner Telephone No.: (704) 442-9220 Facsimile No.: (704) 442-1909 60 EX-10 3 EXHIBIT 10.4 EXHIBIT 10.4 THIRD AMENDED AND RESTATED PROMISSORY NOTE (ACQUISITION/REVOLVING LINE OF CREDIT) (Commercial Paper Rate) $150,000,000.00 ______________, North Carolina July 28, 1999 FOR VALUE RECEIVED, SONIC AUTOMOTIVE, INC., a Delaware corporation ("Borrower"), whose address is 5401 East Independence Blvd., P.O. Box 18747, Charlotte, North Carolina 28218, promises to pay to FORD MOTOR CREDIT COMPANY, a Delaware corporation ("Lender"), or order, at 6302 Fairview Road, Suite 500, Charlotte, North Carolina 28210, or at such other place as Lender may from time to time in writing designate, in lawful money of the United States of America, the principal sum of ONE HUNDRED FIFTY MILLION AND 00/100 DOLLARS ($150,000,000.00), or so much thereof as may be advanced from time to time, together with interest, adjusted monthly, on the principal balance outstanding from time to time (the "Principal Balance"), in like money, from the date of this Third Amended and Restated Promissory Note (this "Note"), to and including the Termination Date, at the following rate (the "Applicable Interest Rate"): (a) with respect to that portion of the obligations the principal amount of which is less than the value of the Sonic Group's Scaled Assets (as defined in the Agreement), two and seventy-five hundredths percent (2.75%) per annum above the Commercial Paper Rate (as defined herein) in effect from time to time; and (b) with respect to that portion of the Obligations the principal amount of which is equal to or exceeds the value of the Sonic Group's Scaled Assets, three and seventy-five hundredths percent (3.75%) per annum above the Commercial Paper Rate in effect from time to time. Capitalized terms used herein and not otherwise defined herein shall have the meaning given to such terms in the Agreement. For purposes of computing interest during the term of this Note, the Applicable Interest Rate for each month shall be based on the Commercial Paper Rate in effect on the last day of the prior month. All changes in the Applicable Interest Rate shall become effective on the first day of a month following a change in the Commercial Paper Rate and shall be deemed in effect throughout such month. The Principal Balance and interest thereon at the Applicable Interest Rate shall be due and payable as hereinafter set forth. The outstanding Principal Balance hereunder may fluctuate up and down from time to time as Advances (as defined in the Agreement) are made, and Borrower repays the Principal Balance, or any portion thereof; PROVIDED, HOWEVER, that at any one time, the aggregate of all Advances made hereunder may not exceed the lesser of (a) $150,000,000.00 and (b) the Scaled Assets of the Sonic Group plus $25,000,000.00. This Note amends, restates, replaces and supersedes the Promissory Note dated as of October 15, 1997 in the original principal amount of $26,000,000.00, as amended and restated by that certain Amended and Restated Promissory Note dated December 15, 1997, in the original principal amount of $75,000,000.00, as amended and restated by that certain Second Amended and Restated Promissory Note dated March 2, 1999 in the principal amount of $100,000,000.00 from Borrower to Lender (collectively, the "Original Note"). Any interest accrued on such promissory note as of the date hereof will be included in the next monthly payment due hereunder. The term "AGREEMENT" shall mean the Credit Agreement dated as of October 15, 1997, as amended by that certain Credit Agreement Amendment dated November 12, 1997, as amended and restated by that certain Amended and Restated Credit Agreement dated as of December 15, 1997, as amended by that certain Letter Agreement dated July 28, 1998, as amended by that certain Letter Agreement dated September 21, 1998, as amended by that certain Letter Agreement dated October 15, 1998, as amended by that certain Amendment to Amended and Restated Credit Agreement dated March 2, 1999, as further amended and restated by that certain Second Amended and Restated Credit Agreement dated as of even date herewith between Borrower and Lender. The term "AVERAGE SCALED ASSETS" shall mean, as of any Quarterly Payment Date, the average of (a) the Sonic Group's Scaled Assets on the first day of the immediately preceding Quarter, and (b) the Sonic Group's Scaled Assets on the last day of the immediately preceding Quarter. The term "COLLECTION RATE" shall mean two and seventy-five hundredths percent (2.75%) per annum above the Commercial Paper Rate in effect from time to time. The term "COMMERCIAL PAPER RATE" shall mean the interest rate for "1-Month Finance Paper Placed Directly" under the column entitled "Week Ending" for the Friday preceding the last Monday of a calendar month as reported in the Federal Reserve Statistical Release No. H.15 (519) issued by the Federal Reserve Board. In the event such Release is discontinued or modified to eliminate the reporting of a 30-day commercial paper rate, then Lender will substitute, in its sole discretion, a comparable report or release of the 30-day commercial paper rate published by a comparable source. The term "DAILY ADJUSTMENT AMOUNT" means, as of each day during a Quarter, the difference between (a) the Average Scaled Assets for such Quarter, and (b) the Revolving Credit Obligations (as defined in the Agreement) for each such day, multiplied by 100 basis points per annum. The term "TERMINATION DATE" shall mean the earlier of (a) March 2, 2001 or such other Termination Date specified in an Extension Notice and agreed to by Lender and (b) the date of the termination of the Commitment pursuant to either of Section 2.3 or Section 7.1 of the Agreement. The term "PAYMENT DATE" shall mean the fifteenth day of each calendar month, provided, however, if such day is not a Business Day, then the Payment Date shall be the next succeeding Business Day following such fifteenth day. -2- The term "QUARTER" means each three-month period commencing January 1, April 1, July 1, and October 1, beginning July 1, 1999. The term "QUARTERLY PAYMENT DATE" shall mean each Payment Date occurring on January 15, April 15, July 15, and October 15, commencing with July 15, 1999. The term "SCALED ASSETS ADJUSTMENT AMOUNT" means, as of any Quarterly Payment Date, the sum of the Daily Adjustment Amounts for each day of the immediately preceding Quarter. The term "SECURITY DOCUMENTS" shall mean the Agreement and any and all of the documents now or hereafter executed by Borrower and/or others, and by or in favor of Lender, which wholly or partially guarantee or secure this Note or are executed in connection with this Note. From the date hereof to and including the Termination Date, the Principal Balance and interest thereon shall be due and shall be payable as follows: consecutive monthly installments of interest at the Collection Rate on the unpaid Principal Balance outstanding commencing on the first Payment Date following the date hereof and continuing thereafter on each Payment Date through and including the Termination Date; and on each Payment Date which is a Quarterly Payment Date, the Borrower shall pay, in addition to interest at the Collection Rate, an amount equal to the Scaled Assets Adjustment Amount to the Lender; and if at any time and for any reason the outstanding Principal Balance exceeds the lesser of (i) $150,000,000.00, and (ii) the Scaled Assets of Sonic Group plus $25,000,000.00, the Borrower shall immediately make a mandatory prepayment in an amount equal to such excess; and on the Termination Date, a final installment which shall include all unpaid amounts of the Principal Balance and interest accrued and unpaid thereon and any and all other payments due under this Note and the Security Documents. Each of such payments shall be applied first to interest at the Applicable Interest Rate and the balance to reduction of the Principal Balance. Borrower may prepay the unpaid Principal Balance in whole or from time to time in part, upon payment of interest accrued on the unpaid Principal Balance outstanding through the day of prepayment and all other charges, without premium. Prepayments of the Principal Balance shall be applied to installments of the Principal Balance remaining unpaid in the inverse order of their maturity and shall be credited to the Principal Balance as of the date of receipt by Lender. PROVIDED HOWEVER, THAT THE BORROWER MAY NOT SO PREPAY THE UNPAID PRINCIPAL BALANCE UNLESS IT SHALL HAVE PROVIDED AT LEAST ONE BUSINESS DAY'S NOTICE TO THE LENDER OF SUCH PREPAYMENT. -3- Payment of this Note is secured by the Security Documents. All of the agreements, conditions, covenants, provisions and stipulations contained in the Security Documents which are to be kept and performed by Borrower are hereby made a part of this Note to the same extent and with the same force and effect as if they were fully set forth herein, and Borrower covenants and agrees to keep and perform them, or cause them to be kept and performed, strictly in accordance with their terms. Time is of the essence hereof and if any of the Principal Balance or interest on this Note or other sum due hereunder is not paid when due, to the extent not in excess of the Maximum Rate (as such term is defined in the Agreement) and in accordance with applicable law, any amount not paid by the Borrower when due shall accrue interest at an additional five percent (5.0%) per annum above the rate applicable thereto until such amounts have been paid in full and shall be payable on demand by the Lender and at any rate not later than the next succeeding Payment Date. If any Event of Default shall occur, then Lender, at its option and without further notice, demand or presentment for payment to Borrower or others, may declare immediately due and payable the unpaid Principal Balance and interest accrued thereon to the date of such Event of Default and thereafter at the Applicable Rate plus three percent (3%) per annum, together with all other sums owed by Borrower under this Note and the Security Documents. This Note is the "Note" referred to in, and is entitled to the benefits of, the Agreement. The Agreement, among other things, (i) provides for the making of Advances by the Lender to the Borrower from time to time in an aggregate amount not to exceed at any time outstanding the U.S. Dollar amount first above mentioned, the indebtedness of the Borrower resulting from each such advance being evidenced by this Note, and (ii) contains provisions for acceleration of the maturity hereof upon the happening of certain stated events and also for the prepayments of the principal hereof prior to the Termination Date upon the terms and conditions therein specified. Principal and interest are payable in lawful money of the United States of America to the Lender, so such domestic account as the Lender may designate, in same day funds. At the time of each Advance, and upon each payment or prepayment of principal of each Advance, the Lender shall make a notation either on the schedule attached hereto and made a part hereof, or in such Lender's own books and records, in each case specifying the amount of such Advance, or the amount of principal paid or prepaid with respect to such Advance, as the case may be; PROVIDED that the failure of the Lender to make any such recordation or notation shall not affect the Obligations of the Borrower hereunder or under the Agreement. The remedies of Lender, as provided in this Note and the Security Documents, shall be cumulative and concurrent and may be pursued singularly, successively or together, at the sole discretion of Lender, and may be exercised as often as occasion therefor shall occur; and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof. Borrower waives presentment for payment, demand, notice of demand, notice of nonpayment or dishonor, protest and notice of protest of this Note, and all other notices in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Note. -4- Lender shall not be deemed, by any act of omission or commission, to have waived any of its rights or remedies hereunder unless such waiver is in writing and signed by Lender and, then, only to the extent specifically set forth in the writing. A waiver with reference to one event shall not be construed as continuing or as a bar to or waiver of any right or remedy as to a subsequent event. This instrument shall be interpreted, and the rights and liabilities of the parties hereto determined, in accordance with the internal laws (as distinguished from the conflicts of law provisions) of the State of North Carolina. Whenever used, the singular shall include the plural, the plural shall include the singular, and the words "Lender" and "Borrower" shall be deemed to include their respective heirs, administrators, executors, successors and assigns. The provisions of this Note shall be binding upon and inure to the benefit of said heirs, administrators, executors, successors and assigns. Borrower's successors and assigns shall include, without limitation, a receiver, trustee or debtor in possession of or for Borrower. In the event any one or more of the provisions hereof shall be invalid, illegal or unenforceable in any respect, the validity of the remaining provisions hereof shall be in no way affected, prejudiced or disturbed hereby. This Note amends and restates in full the Original Note and is issued in substitution for and not in payment of such prior Original Note and is not intended to constitute a novation thereof. IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has duly executed this Note under seal, the day and year first above written. SONIC AUTOMOTIVE, INC., a Delaware corporation By: /s/ B. Scott Smith ------------------------ (SEAL) Name: B. Scott Smith Title: President -5- EX-10 4 EXHIBIT 10.5 EXHIBIT 10.5 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made this 30th day of September, 1999 by and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the "BUYER"), RIVERSIDE CHEVROLET, INC., an Oklahoma corporation (the "SELLER"), and the stockholders of the Seller set forth on the signature page hereto (individually, a "STOCKHOLDER" and, collectively, the "STOCKHOLDERS"). W I T N E S S E T H: WHEREAS, the Seller is engaged in the ownership and operation of a Chevrolet automobile dealership business located at 707 W. 51st Street, Tulsa, Oklahoma 74107 (the "BUSINESS"); and WHEREAS, the Seller desires to sell and the Buyer desires to buy, or to cause one or more subsidiaries or affiliates of the Buyer to buy, substantially all of the assets pertaining to the Business, upon the terms and subject to the conditions of this Agreement; and WHEREAS, at the closing of the transactions contemplated by this Agreement, the Landlords (as defined in Section 1.4 below) and the Buyer, as the Tenant, shall enter into the Dealership Lease (as defined in Section 1.4 below); and WHEREAS, concurrently with the execution and delivery of this Agreement, the Seller is notifying the Manufacturer (as defined in Article I below) of the transactions contemplated by this Agreement; WHEREAS, contemporaneously with the execution of this Agreement, the Buyer has entered into an Asset Purchase Agreement dated as of the date hereof (the "JIM GLOVER PURCHASE AGREEMENT") with Jim Glover Dodge, Inc. ("JIM GLOVER DODGE") and certain stockholders of Jim Glover Dodge, with respect to the acquisition by the Buyer of the Dodge automobile dealership business owned by Jim Glover Dodge, and the Buyer has entered into a Stock Purchase Agreement dated as of the date hereof (the "RIVERSIDE NISSAN PURCHASE AGREEMENT") with Riverside Nissan, Inc. ("RIVERSIDE NISSAN") and the stockholders of Riverside Nissan, with respect to the acquisition by the Buyer of the Nissan automobile dealership business owned by Riverside Nissan; WHEREAS, the consummation of the transactions contemplated by this Agreement is subject to the consummation of the transactions contemplated by the Jim Glover Purchase Agreement and the Riverside Nissan Purchase Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS 1.1 "ASSETS" shall mean: the New Vehicles (as defined in Section 3.1); the Demonstrators (as defined in Section 3.2); the Used Vehicles (as defined in Section 3.5); the Parts (as defined in Section 4.3); the Miscellaneous Inventories (as defined in Section 5.1); the Work in Progress (as defined in Section 5.3); the Fixtures and Equipment (as defined in Section 5.4); the Miscellaneous Assets (as defined in Section 5.5); the goodwill of the Business; and any other assets and properties of the Seller to be transferred to the Buyer hereunder. 1.2 "CLOSING DATE" shall mean the date, not later than the Closing Date Deadline (as hereinafter defined), of the closing of the purchase and sale of the Assets (the "CLOSING"), which shall be a date designated by the Buyer not later than fifteen (15) days after receipt by the Buyer of the approvals, and the satisfaction of the other conditions, set forth in Sections 8.8, 8.13, 8.17, and 8.19, or such other date as is mutually agreed upon by the parties hereto. The Closing shall be held at the offices of Parker, Poe, Adams & Bernstein L.L.P., 2500 Charlotte Plaza, Charlotte, North Carolina at 9:00 a.m. on the Closing Date. The Closing shall be deemed to be effective as of the opening of business on the Closing Date. 1.3 "CLOSING DATE DEADLINE" shall mean December 31, 1999; provided, however, if, as of December 31, 1999, the approvals or other conditions set forth in Sections 8.13, 8.17 or 8.19 of this Agreement shall not have been obtained, the Buyer may elect to extend the Closing Date Deadline for up to an additional thirty (30) days. 1.4 "DEALERSHIP LEASE" shall mean that certain Lease Agreement substantially in the form of Exhibit 1.4 hereto, to be dated as of the Closing Date between the Buyer and the other persons and entities set forth on the signature page thereto (collectively, the "LANDLORDS") pursuant to which the Buyer will lease the real property, buildings and other improvements located at the real property described on Schedule 7.9(b). 1.5 "INVENTORY DATE" shall mean the close of business on the date of completion of the Inventory (as defined in Section 4.1), which date shall not be more than three (3) days prior to the Closing Date, or such other date prior to the Closing as is mutually agreed by the Seller and the Buyer. 1.6 "LIABILITIES" shall mean: (a) all obligations of the Seller arising in the ordinary course of business after the Closing Date, and not as a result of any breach or default, under (i) all contracts and leases of the Seller that are set forth on Annex A of Part I of Schedule 2.4 attached hereto, and (ii) all other contracts and leases of the Seller that are entered into in connection with the Business in the ordinary course of business at any time after the date hereof and on or prior to the Closing Date, but only if, in the case of both clauses (i) and (ii) above, the Buyer has agreed to assume such contracts and leases pursuant to the Assumption Agreement (as 2 defined in Section 2.4 below); (b) the Inducement Fee as provided in Section 2.6 below; and (c) any floor plan indebtedness of the Seller assumed by the Buyer pursuant to Section 2.4(b) hereof. 1.7 "MANUFACTURER" shall mean General Motors Corporation. For purposes of the Buyer's application to the Manufacturer, as contemplated by Section 10.11 below, the address of the Manufacturer and the relevant contact person at the Manufacturer are: Bill Albert (Zone Manager) (913/469-3009) and Mike Hudnell (Dealer Placement Manager) (913/469-3012) at 7500 College Boulevard, Suite 1000, Overland Park, Kansas 66210. ARTICLE II SALE AND PURCHASE OF THE ASSETS; OTHER AGREEMENTS 2.1 SALE AND PURCHASE. Upon the terms and subject to the conditions hereinafter set forth, at the Closing, the Seller will sell, transfer and convey the Assets to the Buyer and the Buyer will purchase the Assets from the Seller for the consideration set forth in this Agreement. The sale, transfer and conveyance of the Assets shall be made by the execution and delivery at the Closing of a bill of sale from the Seller in a form reasonably satisfactory to the Buyer's counsel (the "BILL OF SALE") and such other instruments of assignment, transfer and conveyance as the Buyer shall reasonably request. Except to the extent specifically included within the Assets, the Seller will not sell, and the Buyer will not purchase, any other tangible or intangible assets of the Seller including, but not limited to, the assets of the Seller listed on Schedule 2.1 attached hereto. 2.2 AGGREGATE PURCHASE PRICE. (a) The purchase price (the "INITIAL PURCHASE PRICE") to be paid for the Assets shall consist of the sum of (i) Seventeen Million Five Hundred Thousand Dollars ($17,500,000), as the purchase price for the Business and the intangible assets included in the Assets (the "BUSINESS AND INTANGIBLE ASSETS PURCHASE PRICE"); (ii) the New Vehicle Purchase Price (as defined in Section 3.1); (iii) the Demonstrator Purchase Price (as defined in Section 3.2); (iv) the Used Vehicle Purchase Price (as defined in Section 3.5); (v) the Parts Purchase Price (as defined in Section 4.4); (vi) the Miscellaneous Inventories Purchase Price (as defined in Section 5.1); (vii) the Work in Progress Purchase Price (as defined in Section 5.3); and (viii) the Fixtures and Equipment Purchase Price (as defined in Section 5.4). The parties acknowledge that the New Vehicle Purchase Price, the Parts Purchase Price, the Miscellaneous Inventories Purchase Price and the Work in Progress Purchase Price will be based upon information contained in Schedule 3.1 and the Inventory (as defined in Section 4.1), both of which are to be completed and delivered prior to the Closing Date. The parties also acknowledge that adjustments to those categories of Assets will have to be made after the Closing to reflect ordinary course increases or decreases in those assets between the time of delivery of such Schedule 3.1 and the Inventory and the Closing Date, and that the related components of the Initial Purchase Price will have to be adjusted to reflect any such adjustments to those Assets. All of the foregoing adjustments (with appropriate payments by the parties) will be made as promptly as possible after the Closing, the parties hereby agreeing to cooperate with each other in making such adjustments. Each party will use the Aggregate Purchase 3 Price (as defined below) and Liabilities allocation described in Schedule 2.2 hereto in all reporting to, and all tax returns filed with, the Internal Revenue Service and other state and local taxing authorities. The Seller and the Buyer will execute and deliver to each other at Closing a declaration under Section 1060 of the Internal Revenue Code of 1986, as amended (the "CODE"), in the form set forth in the regulations promulgated thereunder, which declaration shall reflect the allocation on Schedule 2.2. (b) In addition to the Initial Purchase Price as hereinabove provided, the Buyer shall pay to the Seller an amount equal to Five Hundred Thousand Dollars ($500,000) (the "CONTINGENT PURCHASE PRICE" and sometimes referred to herein, together with the Initial Purchase Price, as the "AGGREGATE PURCHASE PRICE") in the event that the Business acquired pursuant to this Agreement (the "DEALERSHIP BUSINESS") generates Pre-Tax Profits (as defined in Section 2.8 below) of at least Four Million Five Hundred Thousand Dollars ($4,500,000) during the one (1) year period commencing on the later to occur of (i) January 1, 2000 and (ii) the first day of the calendar month immediately following the month during which the Closing shall occur. 2.3 PAYMENT OF PURCHASE PRICE. At the Closing, the Buyer shall pay the Initial Purchase Price and, if due and payable, the Contingent Purchase Price as follows: (a) PAYMENT OF CASH. The Buyer shall deliver to the Seller cash, by wire transfer to an account or accounts designated by the Seller at least one Business Day prior to the Closing, in an amount equal to the sum of: (i) one hundred percent (100%) of the New Vehicle Purchase Price; plus (ii) eighty percent (80%) of each of (A) the Demonstrator Purchase Price, (B) the Used Vehicle Purchase Price, (C) the Parts Purchase Price, (D) the Miscellaneous Inventories Purchase Price, (E) the Work in Progress Purchase Price, (F) the Fixtures and Equipment Purchase Price and (G) the Business and Intangibles Assets Purchase Price. As used herein, the term "BUSINESS DAY" shall mean a day other than a Saturday, Sunday or a day on which banks are required to be closed in the State of North Carolina. (b) ISSUANCE OF PREFERRED STOCK. (i) In payment of the balance of the Initial Purchase Price (such balance being hereinafter called the "STOCK COMPONENT"), the Buyer shall issue and deliver to the Seller that number of whole shares of the Buyer's Class A Convertible Preferred Stock, Series II, obtained by dividing the Stock Component by $1,000 (the "PREFERRED STOCK"). No fractional shares of Preferred Stock shall be issued; any such fraction of a share of Preferred Stock shall be paid in cash at the rate of $1,000 per whole share of Preferred Stock. The Preferred Stock shall be convertible into shares of the Buyer's Class A Common Stock, par value $.01 per share (the "COMMON STOCK"), and shall have such rights and preferences, all as set forth in the Certificate of Designation, Preferences and Rights with respect to the Preferred Stock, a copy of which is attached as Exhibit 2.3(b) hereto (the "CERTIFICATE OF DESIGNATION"). Inasmuch as the Seller intends to distribute the Preferred Stock to certain of its stockholders at Closing, the Buyer shall issue and deliver the Preferred Stock to such stockholders in accordance with any written instructions delivered by the Seller to the Buyer at least five (5) Business Days prior to the Closing Date. Notwithstanding the foregoing or any such written 4 instructions, no stockholder of the Seller shall be issued any Preferred Stock by the Buyer unless (A) such stockholder is an "accredited investor" within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended (the "SECURITIES ACT"), (B) such stock holder shall have completed, executed and delivered to the Buyer an investor qualification questionaire in form and substance reasonably acceptable to the Buyer, (C) such stockholder shall have delivered to the Buyer such balance sheets and income tax returns reasonably requested by the Buyer to confirm such stockholder's status as an "accredited investor" and (D) if such stockholder is not a party to this Agreement, such stockholder shall have executed and delivered to the Buyer a certificate, in form and substance reasonably acceptable to the Buyer, whereby such stockholder shall make the representations and warranties contained in Section 7.16. (ii) Upon the issuance and delivery of the Preferred Stock to the Seller at the Closing, the Buyer's sole obligations with respect to the Preferred Stock and the Common Stock issuable upon conversion thereof (the "CONVERSION STOCK") shall be as follows: (A) The Buyer shall use its best reasonable efforts to make available "current public information" about itself within the meaning of subsection (c)(1) of Rule 144 ("RULE 144") promulgated by the Securities and Exchange Commission (the "SEC") under the Securities Act, to the extent necessary to facilitate resales of the Conversion Stock pursuant to Rule 144 or any successor rule; and (B) The Buyer shall remove stop transfer instructions on and restrictive legends from certificates representing the Conversion Stock to the extent that either (I) the offer and sale of the Preferred Stock or the Conversion Stock may hereafter be registered under the Securities Act and under any applicable state securities or blue sky laws, (II) the Buyer has received an opinion of counsel, in form and substance reasonably satisfactory to the Buyer, that registration of such offer and sale is not required, or (III) the Sellers are eligible to sell the Conversion Stock pursuant to Rule 144 or any successor rule. (iii) Except as set forth in the last sentence of this subsection (iii), during the Lock-Up Period (as defined below), the Seller and the Stockholders covenant and agree that none of them shall, without the prior written consent of the Buyer, directly or indirectly, (A) offer, pledge, sell, sell short, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of the Conversion Stock, the Preferred Stock or any securities convertible into or exchangeable or exercisable for the Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or file any registration statement under the Securities Act, with respect to any of the foregoing, or (B) enter into any swap or any other agreement or hedging arrangement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Conversion Stock or the Preferred Stock, whether any such swap or transaction is to be settled by delivery of Conversion Stock or other securities, in cash or otherwise. The "LOCKUP PERIOD" shall be for a period beginning on the Closing Date and ending on the date that is one (1) year after the date on which all of such shares of Preferred Stock have been converted into 5 Conversion Stock. Notwithstanding the foregoing, the provisions of this Section 2.3(b)(iii) shall not prevent the Seller and the Stockholders from selling any shares of Conversion Stock pursuant to Rule 144 or any successor rule or from converting any shares of Preferred Stock. (c) PAYMENT OF CONTINGENT PURCHASE PRICE. As soon as reasonably practicable after December 31, 2000, the Buyer shall calculate the Pre-Tax Profits and determine whether the Contingent Purchase Price is due and payable. The Buyer shall deliver to the Seller a statement in writing setting forth in reasonable detail the determination of the Pre-Tax Profits. Provided that the condition set forth in Section 2.2(b) hereof shall have been met, the Buyer shall deliver to the Seller, in immediately available funds, by wire transfer to an account or accounts designated by the Seller, an amount equal to the Contingent Purchase Price. The Contingent Purchase Price shall be due and payable no later than the tenth (10th) business day after the date upon which the Pre-Tax Profits shall be determined by the Buyer. 2.4 ASSIGNMENT AND ASSUMPTION. (a) At the Closing, the Seller will assign to the Buyer the Liabilities, and the Buyer will assume and agree to perform and discharge the Liabilities, pursuant to an assignment and assumption agreement with the Seller in a form reasonably acceptable to the Seller's counsel (the "ASSUMPTION AGREEMENT"). At the option of the Buyer, the Buyer may assume the Seller's liabilities with regard to accrued vacation and sick leave, as of the Closing, for all employees of the Business. If the Buyer assumes such liabilities, the Buyer will receive, at closing, a credit against the Purchase Price in the aggregate amount of such liabilities. Notwithstanding anything herein to the contrary, except as expressly provided in this Section 2.4 and in the Assumption Agreement, the Buyer does not and will not assume or become liable, or otherwise be responsible, for any obligations or liabilities of the Seller, of any kind whatsoever, fixed or contingent, known or unknown, and whether or not any of such liabilities or obligations are the subject matter of any of the representations and warranties of the Seller in this Agreement (collectively, the "RETAINED LIABILITIES"), as a result of the transactions contemplated in this Agreement. The Seller shall retain and agrees to satisfy and discharge, and otherwise be responsible for, all of the Retained Liabilities, including without limitation the Retained Liabilities set forth on Part II of Schedule 2.4. (b) Notwithstanding the provisions of Section 2.4(a) above, at the Closing, the Buyer may, if reasonably necessary, elect to assume the Seller's floor plan indebtedness outstanding as of the Closing and/or other indebtedness outstanding as of the Closing, in which case the Initial Purchase Price payable in cash at the Closing will be reduced by the unpaid principal of, and accrued interest on, such indebtedness outstanding as of the Closing, as set forth in estoppel and/or payoff letters from the respective lenders, or as otherwise mutually agreed by the Buyer and the Seller. In the event of such assumption, such indebtedness shall become part of the "Liabilities" for all purposes of this Agreement (including, without limitation, the indemnification obligations of the Buyer under Section 10.6 below); provided, however that the Seller and the Stockholders shall indemnify the Buyer for any breaches or defaults of the Seller with respect to such floor plan arrangements and agreements. 6 2.5 DEALERSHIP LEASE. At the Closing, the Buyer and the Landlords will execute and deliver the Dealership Lease. 2.6 INDUCEMENT FEE. As an inducement to the Buyer to negotiate and enter into this Agreement and to undertake the further cost and expense of conducting its due diligence investigation and preparing to satisfy its obligations at the Closing, the Seller hereby agrees to pay to the Buyer not later than January 29, 2000, the sum of $500,000 (the "Inducement Fee"). The Inducement Fee will be included in the Liabilities and will become an obligation of the Buyer or any other person (including any holder of a right of first refusal, preemptive right or other similar right, with respect to any of the Assets) who acquires, directly or indirectly, the Assets, or any portion thereof, as a result of the execution and delivery by the Seller of this Agreement. The Inducement Fee will be canceled if this Agreement is terminated for any reason other than the exercise of a right of first refusal, preemptive right or other similar right, by the Manufacturer or any person claiming by, through or under it. Subject to the foregoing, the obligation to pay the Inducement Fee shall survive the termination of this Agreement. 2.7 EMPLOYMENT AGREEMENT. At the Closing, Rod Maupin shall enter into an employment agreement with the Buyer substantially in the form of Exhibit 2.7 attached hereto (the "EMPLOYMENT AGREEMENT"). 2.8 PRE-TAX PROFITS. For purposes of this Agreement, "PRE-TAX PROFITS" shall be the pre-tax profits as determined from the Manufacturer's annual financial statement for the Dealership Business, subject to the following special rules: (a) no deduction shall be taken for federal and state income taxes owed by the Dealership Business; (b) Pre-Tax Profits shall be determined before any management fee expense allocation from the Buyer; (c) overhead expenses which are allocated to the Dealership Business but do not directly relate to the operation of the Dealership Business shall not be deducted in determining Pre- Tax Profits; (d) no deduction shall be taken for goodwill amortization of the Dealership Business; (e) no deduction shall be taken for any interest expense of the Dealership Business other than floor plan financing interest attributable to the Dealership Business and other interest expense directly attributable to the operation of the Dealership Business; and (f) Pre-Tax Profits shall be determined before calculation of Rod Maupin's monthly special bonus pursuant to his employment agreement with the Buyer, but after calculation of bonuses for all other employees of the Dealership Business. 7 ARTICLE III NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES 3.1 NEW VEHICLES. At the Closing, the Buyer shall purchase all of the Seller's untitled new motor vehicles (meaning (i) current model year vehicles as of the Closing Date and (ii) if the Closing occurs on or before January 31, 1999, 1999 model year vehicles but excluding from clauses (i) and (ii) conversion vans or similar-type vehicles that have been in inventory longer than 180 days, rental cars and company vehicles) in the Seller's stock and unsold by the Seller as of the Closing Date and which are listed on Schedule 3.1 hereto, which schedule the Seller shall deliver to the Buyer not more than three (3) days prior to the Closing (the "NEW VEHICLES"). The purchase price to be paid by the Buyer for each New Vehicle shall be the price at which the New Vehicle was invoiced to the Seller by the Manufacturer, as adjusted pursuant to this Article III (the sum of all such amounts to be paid for New Vehicles as determined by this Article III is herein referred to as the "NEW VEHICLE PURCHASE PRICE"); provided, however, the purchase price of any pre-reported sold vehicles for which the sale cannot be reversed shall be as mutually agreed by the Buyer and the Seller. In the event the Buyer and the Seller cannot agree upon a price with respect to any such pre- reported sold vehicle, the Buyer shall not be obligated to purchase, and the Seller shall not be obligated to sell, such vehicle. Schedule 3.1 shall set forth the model, invoice cost, and all other information necessary to calculate the New Vehicle Purchase Price with respect to each New Vehicle listed in such Schedule 3.1. At the Closing, the Seller shall assign to the Buyer, without any additional consideration therefor, by appropriate documents reasonably satisfactory to the Buyer, all unfilled retail orders and deposits made thereon. Any profits or proceeds derived from such unfilled retail orders shall belong to the Buyer. 3.2 DEMONSTRATORS. At the Closing, the Buyer shall purchase all of the Seller's untitled new motor vehicles (meaning (i) current model year vehicles as of the Closing Date and (ii) if the Closing occurs on or before January 31, 1999, 1999 model year vehicles but excluding from clauses (i) and (ii) conversion vans or similar-type vehicles that have been in inventory longer than 180 days, rental cars and company vehicles) in the Seller's stock and unsold by the Seller as of the Closing Date which are used in the ordinary course of business for the purpose of demonstration, and that are listed on Schedule 3.2, which schedule the Seller shall deliver to the Buyer no more than three (3) days prior to the Closing (the "DEMONSTRATORS"). For purposes of this Agreement, (a) each motor vehicle with more than 6,000 miles on its odometer and (b) each vehicle which is used for the purpose of demonstration and which is not a current model year vehicle as of the Closing Date shall be deemed to be "used" rather than a "Demonstrator" or "New Vehicle". The purchase price to be paid by the Buyer for each Demonstrator shall be the price at which the Demonstrator was invoiced to the Seller by the Manufacturer, as adjusted pursuant to this Article III, and, if such Demonstrator has an odometer reading in excess of 500 miles, as reduced by an amount equal to ten cents ($.10) multiplied by the total mileage on the odometer (the sum of all such amounts to be paid for Demonstrators hereunder is herein referred to as the "DEMONSTRATOR PURCHASE PRICE"). Schedule 3.2 shall set forth each Demonstrator's model, invoice cost, odometer reading and all other 8 information necessary to calculate the Demonstrator Purchase Price with respect to such Demonstrator. 3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR PURCHASE PRICE. The purchase price paid for each New Vehicle and each Demonstrator purchased under this Article III shall be: (a) increased by the dealer cost of any equipment and accessories which have been installed in such vehicle; and (b) decreased by the sum of (i) the dealer cost of any equipment and accessories which have been removed from such vehicle, (ii) if such vehicle shall have been in inventory for less than thirty (30) days as of the Closing Date, any factory floor plan assistance and advertising credits relative to such vehicle, and (iii) all paid or unpaid rebates, discounts, holdback for dealer account and other factory incentives (including without limitation rebates applied for and paid but not earned and incentive monies claimed on pre-reported units). Notwithstanding clause (ii) above, in the event that the amount of advertising funds which are held by the Manufacturer and are transferable to the Buyer exceed the amount of the advertising credits taken by the Buyer in clause (ii) above, then the purchase price paid for each New Vehicle and Demonstrator purchased under this Article III shall be increased by the sum of (A) one hundred percent (100%) of such excess advertising funds which are withheld by the Manufacturer relative to such vehicle and (B) fifty percent (50%) of such excess advertising funds which are matched by the Manufacturer relative to such vehicle . 3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS. If any New Vehicles or Demonstrators shall have suffered any damage prior to the Closing Date which is not reflected on Schedule 3.1 or Schedule 3.2, the Seller shall notify the Buyer in writing on or prior to the Closing Date. In such case, the Seller and the Buyer will attempt to agree on the cost to cover such repairs or some other equitable reduction in value to reflect such condition, which amount shall be deducted from the price to be paid for such New Vehicle or Demonstrator. In the event the Buyer and the Seller cannot agree on the cost of repairs or the amount of reduction, the Buyer shall have no obligation to purchase any such damaged New Vehicle or Demonstrator and the Seller shall have no obligation to sell such damaged New Vehicle or Demonstrator. With respect to any New Vehicle or Demonstrator which shall have been damaged and repaired prior to the Closing Date, the Seller and the Buyer will attempt to agree on an adjustment to the price to reflect the decrease, if any, in the wholesale value of such New Vehicle or Demonstrator resulting from such damage and repair, which amount shall be deducted from the price to be paid for such New Vehicle or Demonstrator. In the event the Buyer and the Seller cannot agree on such adjustment, the Buyer shall have no obligation to purchase such New Vehicle or Demonstrator and the Seller shall have no obligation to sell such New Vehicle or Demonstrator. 3.5 USED VEHICLES. The Buyer shall have no obligation to purchase any vehicle from the Seller other than its obligation hereunder to purchase the New Vehicles and the Demonstrators. The Seller and the Buyer shall perform an inventory of the Seller's motor vehicles that are not New Vehicles or Demonstrators (including conversion vans or similar-type vehicles that have been in inventory longer than 180 days, rental cars and company vehicles) as of the Inventory Date and, in connection with such inventory, the Seller and the Buyer shall attempt to assign a mutually agreed price to each such vehicle owned by the Seller as of the Closing Date. Any such vehicles as to which the Seller and the Buyer are unable to agree upon a price shall not be purchased by the Buyer 9 in connection herewith. Any such vehicles as to which the Seller and the Buyer shall agree upon a price are collectively referred to herein as the "USED VEHICLES," and shall be purchased by the Buyer, and sold by the Seller, at the Closing. The aggregate sum of all prices assigned to such Used Vehicles to be purchased by the Buyer pursuant to the terms of this Section 3.5 shall be referred to herein as the "USED VEHICLE PURCHASE PRICE." ARTICLE IV PARTS/ACCESSORIES 4.1 THE INVENTORY. The Buyer and the Seller shall engage a mutually acceptable third party engaged in the business of appraising, valuing and preparing inventories for automobile dealerships (hereinafter referred to as the "INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the parts and accessories, as well as of the Miscellaneous Inventories (as defined in Section 5.1), owned by and either used or held for use by the Seller in the Business. The Inventory (insofar as it relates to parts and accessories) shall be posted to the Manufacturer's approved system of inventory control. The cost of the Inventory shall be borne 50% by the Buyer and 50% by the Seller. The Buyer shall have the right to deduct the Seller's portion of such expense from the consideration to be paid to the Seller under the terms of this Agreement and to remit such sums directly to the Inventory Service. The Inventory shall be completed by the Inventory Date. The Inventory shall identify each part and accessory and its purchase price. 4.2 RETURNABLE AND NON-RETURNABLE REPLACEMENT PARTS AND ACCESSORIES. The Inventory shall classify replacement parts and accessories as "returnable" or "nonreturnable." For purposes of this Agreement, the terms "returnable parts" and "returnable accessories" shall describe and include only those new replacement parts and new accessories (excluding prior model year vehicle parts and accessories) for vehicles which are listed (coded) in the latest current Master Parts Price List Suggested List Prices and Dealer Prices, or other applicable similar price lists, of the Manufacturer, with supplements or the equivalent in effect as of the Closing Date (the "MASTER PRICE LIST"), as returnable to the Manufacturer at not less than the purchase price reflected in the Master Price List or in the most recent applicable price list. All parts and accessories listed (coded) in the Master Price List as non-returnable to the Manufacturer shall be classified as "nonreturnable." The purchase price for each "returnable part" and "returnable accessory" will be the price therefor listed in the Master Price List. The purchase price of each "nonreturnable" part and accessory shall be equal to a value mutually agreed upon by Buyer and the Seller. Any such "nonreturnable" part or accessory as to which the Buyer and the Seller are unable to agree upon a price shall not be purchased by the Buyer in connection herewith. The purchase price of all special order, non-stock, "Jobber" or "NPN" parts shall be equal to the Seller's original cost of such parts. The purchase price of all nuts, bolts and any other parts not addressed in this Section 4.2 shall equal the fair market value thereof as determined by the Inventory Service. The Buyer shall not be required to purchase any damaged parts or accessories, parts and accessories with component parts missing, superseded or obsolete parts or accessories, or used parts or accessories. 10 4.3 PARTS. At the Closing, the Buyer shall purchase all parts and accessories owned by the Seller on the Closing Date and listed on the Inventory (the "PARTS") provided, however, that the Buyer shall not be obligated to purchase any damaged parts or accessories, parts and accessories with component parts missing, superseded or obsolete parts or accessories, or used parts or accessories. The Seller agrees that if parts and accessories that the Buyer is not obligated to purchase hereunder are not removed from the Leased Premises within thirty (30) days after the Closing Date, they shall become the property of the Buyer without the payment of any consideration in addition to the consideration otherwise provided herein. The Buyer agrees to provide access to the Seller for the purpose of removing such property during such thirty (30) day period. 4.4 PARTS PURCHASE PRICE. The purchase price for the Parts will equal the value of such items shown on the Inventory, subject to the provisions of Section 4.2 above (the "PARTS PURCHASE PRICE"). 4.5 PARTS RETURN PRIVILEGES. The Seller shall assign to the Buyer at Closing any net parts return privileges under the Manufacturer's Parts Return Plans that may have accrued to the Seller prior to the Closing (and any other special parts return authorizations which may have been granted to the Seller by Manufacturer). At the request of the Buyer, the Seller shall use its reasonable best efforts to assist the Buyer in effecting any one-time parts return offered by the Manufacturer, and will promptly pay over to the Buyer any monies received from the Manufacturer related thereto. ARTICLE V MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES AND EQUIPMENT 5.1 MISCELLANEOUS INVENTORIES. At the Closing, the Buyer shall purchase (a) all useable gas, oil and grease, all undercoat material and body materials in unopened cans and such other miscellaneous useable and saleable articles in unbroken lots (including office supplies) which (i) are on the Seller's dealership premises, (ii) are owned by the Seller on the Closing Date, (iii) do not represent more than a sixty (60) day supply of any particular item(s), and (iv) are identified in the Inventory taken by the Inventory Service on the Inventory Date and (b) all t-shirts, caps and other clothing items which bear the Seller's logo and are not defective or damaged in any manner (the "MISCELLANEOUS INVENTORIES"). The purchase price for the Miscellaneous Inventories shall be the sum of the replacement cost of the items set forth in clause (a) above, as determined by the Inventory Service and set forth on the Inventory, plus the actual cost incurred by the Seller for the items set forth in clause (b) above (the sum of all prices of the Miscellaneous Inventories pursuant to the terms of this Section 5.1 shall be referred to herein as the "MISCELLANEOUS INVENTORIES PURCHASE PRICE"). 5.2 MISCELLANEOUS ITEMS NOT INCLUDED IN THE INVENTORY. The Buyer shall have no obligation to purchase any miscellaneous items that are not included in the Miscellaneous Inventories. The Seller agrees that any miscellaneous items that are not included in the 11 Miscellaneous Inventories and are not removed from the Leased Premises within thirty (30) days after the Closing Date shall become the property of the Buyer without the payment of any consideration in addition to the consideration otherwise provided herein. The Buyer agrees to provide access to the Seller for the purpose of removing such property during such thirty (30) day period. 5.3 WORK IN PROGRESS. At the Closing, the Buyer shall buy at the Seller's actual cost for parts and labor such shop labor and sublet repairs as the Seller shall have caused to be performed on any repair orders which are in process at the opening of business on the Closing Date for which there are adequate credit arrangements (the "WORK IN PROGRESS") (the aggregate sum of all costs of the Seller for the Work in Progress pursuant to the terms of this Section 5.3 shall be referred to herein as the "WORK IN PROGRESS PURCHASE PRICE"). The Buyer shall complete such repair work and shall be entitled to the entire proceeds to be collected for such services. 5.4 FIXTURES AND EQUIPMENT. At the Closing, the Buyer shall purchase all fixtures, machinery, equipment (including special tools and shop equipment, but excluding leasehold improvements), furniture and all signs and office equipment (including, without limitation, computer equipment used in normal dealership operations) owned by the Seller and used or held for use by the Seller in connection with the Business, including the items listed on Schedule 5.4 hereto, which the Seller shall deliver to the Buyer not later than five (5) days prior to the Closing (collectively referred to herein as the "FIXTURES AND EQUIPMENT"). The purchase price for all Fixtures and Equipment which have been purchased by the Seller on or after January 1, 1999 shall be the actual cost thereof as depreciated by the modified accelerated costs recovery system depreciation method as reflected in Schedule 5.4. The purchase price for all Fixtures and Equipment which were purchased by the Seller prior to January 1, 1999 shall be equal to the depreciated book value thereof as of December 31, 1998 less an amount equal to seventy-five percent (75%) of the book depreciation thereof from January 1, 1999 through the Closing Date as reflected in Schedule 5.4. The aggregate purchase price for all Fixtures and Equipment shall be referred to herein as the "FIXTURES AND EQUIPMENT PURCHASE PRICE"; provided, however, the Fixtures and Equipment Purchase Price shall not include the value of any items of Fixtures and Equipment which are leased pursuant to contracts or leases included in the Assumed Liabilities. 5.5 MISCELLANEOUS ASSETS. At the Closing, and without payment of any additional consideration, the Buyer shall purchase all of the Seller's (i) unused shop repair orders, parts sales tickets, accounting forms, binders, office and shop supplies (not in unbroken lots) and such shop reference manuals, parts reference catalogs, non-accounting file copies for all sales of the Seller for the three (3) years preceding the Closing Date, (ii) copies of new and used car sales records and specifically wholesale parts sales records, new and used parts sales records, and service sales records for the three (3) years preceding the Closing Date, (iii) product sales training material and reference books on hand as of the Closing Date, (iv) customer and registration lists pertaining to the sale of motor vehicles, service files, repair orders, owner follow-up lists and similar records relating to the operation of the Business, (v) telephone numbers and listings used by the Seller in connection with the Business, (vi) names and addresses of the Seller's service customers and prospective purchasers, (vii) all lawfully transferrable licenses and permits of the Business, (viii) all rights and claims under 12 or arising out of the contracts and leases included in the Liabilities, and (ix) the Seller's rights to the tradename "Riverside" and any other tradename used by the Seller, all of which are listed on Schedule 5.5 hereto, and any similar variations thereof (all the foregoing items collectively referred to herein as the "MISCELLANEOUS ASSETS"). 5.6 CERTAIN RECORDS OF THE SELLER; ACCESS BY THE SELLER. The Seller may retain all corporate records, financial records and correspondence which are not necessary for the continued operation of the Business by the Buyer. All records not retained by the Seller shall be referred to as the "TRANSFERRED RECORDS." Buyer agrees to maintain the Transferred Records for a period not less than six (6) years after the Closing Date. The Seller and the Seller's representatives may have access to review and copy such information during the Buyer's regular business hours, upon reasonable notice, if such information is necessary to wind up the Seller's business affairs. 5.7 WARRANTY OBLIGATIONS OF THE SELLER. To the extent that the Seller may have issued warranties on the vehicles sold by the Seller on or prior to the Closing Date and to the extent such warranties are not included in the Work in Progress, the Buyer shall have no responsibility to perform any services required under such warranties, unless authorized in writing by the Seller accompanied by arrangements in writing satisfactory to the Buyer to assure the Buyer of payment for all work performed by the Buyer, and, if so authorized by the Seller, the Seller shall reimburse the Buyer for all of the Buyer's costs for parts and labor in connection therewith at established internal rates for parts and labor. At the Closing Date, the Seller shall supply the Buyer with a list to which such warranties and guaranties, if any, are applicable, which list shall include the names of the purchasers, the make and year model of the vehicles purchased and the date of purchase. The Seller shall also supply to the Buyer at or prior to the Closing Date an address for and a designation of the person who will be responsible for authorizing the Buyer to perform any services under such warranties, if any, issued by the Seller on vehicles sold by it on or prior to the Closing Date. The Seller shall reimburse the Buyer promptly upon demand for all sums due or payable by the Seller to the Buyer hereunder. 5.8 ACCOUNTS RECEIVABLE. The Seller shall retain all accounts receivable arising out of the operation of the Business prior to the Closing Date and the Buyer shall retain all accounts receivable arising out of sales and/or services of the Business on or after the Closing Date. After the Closing Date, the Buyer shall cooperate with the Seller and shall use reasonable and ordinary efforts, including providing the Seller access to the Buyer's books, records and employees (at the Seller's expense) to assist the Seller in its efforts to collect its accounts receivable for a period of six (6) months after the Closing. The Buyer shall accept payment of the Seller's accounts receivable at no charge to the Seller for a period of six (6) months after the Closing, and shall forward to the Seller, promptly upon receipt, all the money so received on said accounts. Notwithstanding anything to the contrary stated herein, the Buyer shall have no responsibility to collect any of the Seller's accounts receivable. ARTICLE VI 13 REPRESENTATIONS AND WARRANTIES OF THE BUYER The Buyer represents and warrants to the Seller and the Stockholders as follows: 6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business makes such qualification necessary and has full corporate power and authority to own or use the properties it purports to own and use and to carry on its business as now being conducted. The Board of Directors of the Buyer has, or prior to the Closing will have, duly approved this Agreement, all other agreements, certificates and documents executed or to be executed by the Buyer in connection herewith, and the transactions contemplated hereby and thereby. The Buyer has full corporate power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by the Buyer in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. This Agreement, and all other agreements, certificates and documents executed or to be executed by the Buyer in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of the Buyer enforceable against the Buyer in accordance with their respective terms. 6.2 NON-VIOLATION; CONSENTS. Except as set forth on Schedule 6.2 attached hereto, the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof do not and will not: (a) conflict with or violate any of the provisions of the Buyer's Restated Certificate of Incorporation or Bylaws, each as amended, or any resolution of the Board of Directors or the stockholders of the Buyer; (b) violate any law, ordinance, rule or regulation or any judgment, order, writ, injunction or decree or similar command of any court, administrative or governmental agency or other body applicable to the Buyer; (c) violate or conflict with or result in a breach of, or constitute a default under, any material instrument, agreement or indenture or any mortgage, deed of trust or similar contract to which the Buyer is a party or by which the Buyer is bound or affected; or (d) require the consent, authorization or approval of, or notice to, or filing or registration with, any governmental body or authority, or any other third party. 6.3 LITIGATION. There are no actions, suits or proceedings pending, or, to the knowledge of the Buyer, threatened against or affecting the Buyer which might adversely affect the power or authority of the Buyer to carry out the transactions to be performed by it hereunder. 6.4 AUTHORIZATION OF PREFERRED STOCK. The issuance of the Preferred Stock, as well as the shares of Conversion Stock, has been duly authorized by all necessary corporate action of the Buyer. Upon the issuance of the Preferred Stock pursuant to this Agreement, and upon the issuance of shares of Conversion Stock, such Preferred Stock and/or Conversion Stock, as the case may be, shall be validly issued, fully paid and non-assessable. 6.5 CAPITALIZATION. The authorized capital stock of the Buyer consists of: 14 (a) 3,000,000 shares of Preferred Stock, par value $0.10 per share, of which 300,000 shares are designated Class A Convertible Preferred Stock and are, in turn, divided into 100,000 shares of Series I (the "SERIES I PREFERRED STOCK"), 100,000 shares of Series II (the "SERIES II PREFERRED STOCK") and 100,000 shares of Series III (the "SERIES III PREFERRED STOCK"); as of August 23, 1999, approximately 12,947 shares of Series I Preferred Stock are issued and outstanding and/or are committed to be issued by the Buyer, approximately 6,775 shares of Series II Preferred Stock are issued and outstanding and/or are committed to be issued by the Buyer, and approximately 11,683 shares of Series III Preferred Stock are issued and outstanding and/or are committed to be issued by the Buyer; (b) 100,000,000 shares of Class A Common Stock, par value $0.01 per share, of which 23,447,763 shares are issued and outstanding as of August 23, 1999; and (c) 30,000,000 shares of Class B Common Stock, par value $0.01 per share, of which 12,300,000 shares are issued and outstanding as of August 23, 1999. All outstanding capital stock of the Buyer is duly authorized, validly issued, fully paid and non-assessable and has been issued in conformity with all applicable federal and state securities laws. 6.6 DISCLOSURE MATERIALS. The Buyer has delivered to the Sellers' Agent copies of (i) the Buyer's Prospectus dated April 29, 1999 (the "PROSPECTUS"), (ii) the Buyer's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1998, (iii) the Buyer's Quarterly Report on Form 10-Q for the three-month period ended on each of March 31, 1999 and June 30, 1999, (iv) any Current Reports on Form 8-K, filed after January 1, 1999, each in the form (excluding exhibits) filed with the SEC, and (v) the Buyer's proxy statement dated May 19, 1999 (collectively, such Forms 10-K, 10-Q and 8-K and the proxy statement being hereinafter referred to as its "REPORTS"). Neither the Prospectus nor any of the Reports contained, at the time of filing thereof with the SEC, any untrue statement of any material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. 6.7 NO MISSTATEMENTS OR OMISSIONS. No representation or warranty made by the Buyer in this Agreement, and no statement contained in any agreement, instrument, certificate or schedule furnished or to be furnished by the Buyer pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading. 15 ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE STOCKHOLDERS The Seller and each of the Stockholders, jointly and severally, represent and warrant to the Buyer, as follows: 7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma, is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business makes such qualification necessary and has full corporate power and authority to own or use the properties it purports to own and use and to carry on its business as now being conducted. The Stockholders own all of the issued and outstanding stock of the Seller. Schedule 7.1 sets forth each person or entity which has an ownership interest in the Seller and the extent and nature of such ownership interest held by such owner. There are no outstanding options or warrants with respect to the capital stock of the Seller, nor are there any outstanding securities which are convertible or exchangeable into capital stock of the Seller. There are no voting trusts, shareholder agreements or other agreements, instrument or rights of any kind or nature whatsoever outstanding with respect to shares of capital stock of the Seller. The Seller has full corporate power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by the Seller in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. The Stockholders have full capacity, power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by the Stockholders in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform their obligations hereunder and thereunder. This Agreement, and all other agreements, certificates and documents executed or to be executed by the Seller in connection herewith, have been duly authorized by all necessary corporate action and constitute or, when executed and delivered, will constitute legal, valid and binding agreements of the Seller enforceable against the Seller in accordance with their respective terms. This Agreement, and all other agreements, certificates and documents executed or to be executed by the Stockholders in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of the Stockholders enforceable against the Stockholders in accordance with their respective terms. The Seller has never operated the Business under any tradenames other than the tradenames listed or referred to in Section 5.5. 7.2 NO VIOLATION; CONSENTS. Except as set forth in Schedule 7.2 attached hereto, the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof do not and will not: (a) conflict with or violate any of the provisions of the Seller's Articles of Incorporation or Bylaws, each as amended, or any resolution of the Board of Directors or stockholders of the Seller; (b) violate any law, ordinance, rule or regulation or any judgment, order, writ, injunction or decree or similar command of any court, administrative or governmental agency or other body applicable to the Seller, any of the Assets, the Business or any of the Liabilities; (c) violate or conflict with or result in a breach of, or constitute a default under, or an event giving rise to a right of termination of, any Contract (as 16 defined in Section 7.10), any material instrument, agreement or indenture or any mortgage, deed of trust or similar contract to which the Seller or any of the Stockholders is a party or by which the Seller, any of the Stockholders or any of the Assets are bound or affected; (d) result in the creation or imposition of any Encumbrance upon any of the Assets; or (e) require the consent, authorization or approval of, or notice to, or filing or registration with, any governmental body or authority, or any other third party. 7.3 LITIGATION. There are no actions, suits or proceedings pending or, to the knowledge of the Seller and the Stockholders, threatened against the Seller or any of the Stockholders which might adversely affect the power or authority of any of them to carry out the transactions to be performed by any of them hereunder. There are no actions, suits or proceedings pending, or, to the knowledge of the Seller and the Stockholders, threatened against or affecting the Seller, other than those disclosed on Schedule 7.3 attached hereto, and none of the actions, suits or proceedings described on Schedule 7.3, if determined adversely to the Seller, will have, or could reasonably be expected to have, a material adverse effect upon the Assets or the Liabilities of the Seller or the business, prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business. All actions, suits or proceedings pending, or, to the knowledge of the Seller and the Stockholders, threatened against or affecting the Seller are covered in full by insurance, without any reservation of rights, subject only to the payment of applicable deductibles. 7.4 TITLE TO ASSETS; ENCUMBRANCES. Except as disclosed on Schedule 7.4 attached hereto, the Seller has good title to the Assets, free and clear of all liens (including tax liens), security interests, encumbrances, actions, claims, payments or demands of any kind and character (collectively, "ENCUMBRANCES"), except Encumbrances disclosed on Schedule 7.4 hereto and Encumbrances for ad valorem personal property taxes not yet due and payable. All of the Assets to be transferred hereunder conform, as to condition and character, to the descriptions of such Assets contained herein and will be transferred at the Closing free and clear of all Encumbrances, except Encumbrances for ad valorem personal property taxes not yet due and payable. There is no existing claim, or, to the knowledge of the Seller and the Stockholders, any basis for any claim, against the Seller that the Business or any of its operations, activities or products infringe the patents, trademarks, trade names, copyrights or other property rights of others or that the Seller is wrongfully or otherwise using the property rights of others. There is no existing claim, or, to the knowledge of the Seller and the Stockholders, any basis for any claim, by the Seller against any third party that the operations, activities or products of such third party infringe the patents, trademarks, trade names, copyrights or other property rights of the Seller or that such other third party is wrongfully or otherwise using the property rights of the Seller. 7.5 PERMITS AND APPROVALS. Except as disclosed on Schedule 7.5 attached hereto, there are no permits or approvals used or obtained for use by the Seller which are required under applicable law in connection with the ownership or operation of the Business. 7.6 FINANCIAL STATEMENTS. 17 (a) The Seller has delivered to the Buyer the Seller's annual financial statements for each of the last two fiscal years of the Seller, as well as the monthly year-to-date financial statements of the Seller, all as described in Schedule 7.6(a)(i) attached hereto (the "FINANCIAL STATEMENTS"). The Financial Statements have been prepared in accordance with the Manufacturer's published accounting manual and generally accepted industry accounting standards, each consistently applied. Each balance sheet included in the Financial Statements fairly presents the financial condition of the Seller as of the date thereof, and each related statement of income included in the Financial Statements fairly presents the results of the operations of the Seller for the period indicated, all in accordance with the Manufacturer's published accounting manual and generally accepted industry accounting standards, each consistently applied. Except as set forth on Schedule 7.6(a)(ii), to the knowledge of the Seller and the Stockholders, the Financial Statements contain adequate reserves for all reasonably anticipated claims relating to matters with respect to which the Seller is self insured. The Financial Statements are in accord with the books and records of the Seller, which books and records are true, correct and complete in all material respects. (b) The Seller has no outstanding material claims, liabilities, obligations or indebtedness of any nature, fixed or (to the knowledge of the Seller or the Stockholders) contingent, of a kind or type required by the Manufacturer's published accounting manual or generally accepted industry accounting standards to be reflected in the Financial Statements other than those which are (i) set forth in the Financial Statements; (ii) specified in the Schedules to this Agreement; or (iii) incurred in the ordinary course of business since the date of the Financial Statements and are of the kind and type reflected in the Financial Statements. 7.7 BROKERS AND FINDERS. Neither the Seller nor any of the Stockholders has engaged any broker or any other person or entity who would be entitled to any brokerage commission or finder's fee in respect of the execution of this Agreement and/or the consummation of the transactions contemplated hereby, other than Ben Hicks & Associates, Inc., which fee or commission the entire cost will be borne by the Seller. 7.8 COMPLIANCE WITH LAWS. (a) Except as set forth on Schedule 7.8(a) attached hereto, the Assets and the Leased Premises comply in all material respects with, and the Business has been conducted in all material respects in compliance with, all laws, rules and regulations (including all worker safety and all Environmental Laws (as hereinafter defined)), applicable zoning and other laws, ordinances, regulations and building codes, and neither the Seller nor any of the Stockholders has received any notice of any violation thereof which has not been remedied. (b) Except as set forth on Schedule 7.8(b) attached hereto, (i) the Seller has not at any time generated, used, treated or stored Hazardous Materials (as hereinafter defined) on, or transported Hazardous Materials to or from, the Leased Premises or any property adjoining or adjacent to the Leased Premises and, to the knowledge of the Seller and the Stockholders, no party has taken such actions on or with respect to the Leased Premises, provided, however, certain petroleum products are stored and handled by the Seller in the ordinary course of business in 18 compliance in all material respects with all Environmental Laws, (ii) the Seller has not at any time released or disposed of Hazardous Materials on the Leased Premises or any property adjoining or adjacent to the Leased Premises, and, to the knowledge of the Seller and the Stockholders, no party has taken any such actions on the Leased Premises, (iii) the Seller has at all times been in compliance in all material respects with all Environmental Laws and the requirements of any permits issued under such Environmental Laws with respect to the Leased Premises, the Assets and the operation of the Business, (iv) there are no past, pending or, to the knowledge of the Seller and the Stockholders, threatened environmental claims against the Seller, the Leased Premises, any of the Assets or the Business, (v) to the knowledge of the Seller and the Stockholders, there are no facts or circumstances, conditions or occurrences regarding the Seller, the Leased Premises, any of the Assets or the Business that could reasonably be anticipated to form the basis of an environmental claim against the Seller, any of the Assets or the Business or to cause the Leased Premises, Assets or Business to be subject to any restrictions on its ownership, occupancy, use or transferability under any Environmental Law, (vi) there are not now and, to the knowledge of the Seller and the Stockholders, never have been any underground storage tanks located on the Leased Premises, (vii) the Seller has not, nor to the knowledge of the Seller and the Stockholders has any other person, ever transported or arranged for the transportation of any Hazardous Materials to any site other than the Leased Premises, and (viii) except as set forth on Schedule 7.8(b), neither the Seller nor any Stockholder has operated the Business at any location other than the Leased Premises. The Seller has not received any notice, claim or demand from governmental entity or other person regarding the presence of Hazardous Materials at, on, under or around the Leased Premises or alleging that the Leased Premises is in violation of any Environmental Laws. As used herein, the term "ENVIRONMENTAL LAWS" shall mean all present and future federal, state and local laws, statutes, regulations, rules, ordinances and common law, and all judgments, decrees, orders, agreements or permits, issued, promulgated, approved or entered thereunder by any governmental authority relating to pollution or Hazardous Materials or protection of human health or the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), as amended. As used herein, the term "HAZARDOUS MATERIALS" means any waste, pollutant, chemical, hazardous substance, toxic substance, hazardous waste, special waste, solid waste, asbestos, radioactive materials, polychlorinated biphenyls, petroleum or petroleum-derived substance or waste (regardless of specific gravity), or any constituent or decomposition product of any such pollutant, material, substance or waste, regulated under or as defined by any Environmental Law. (c) Neither the Seller nor any of the Stockholders, nor any director, officer, agent or employee of the Seller or, to the knowledge of the Seller and the Stockholders, any other person or entity associated with or acting for or on behalf of the Seller, has, directly or indirectly, made any unlawful contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any person or entity, regardless of form, whether in money, property or services: (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, or (iii) to obtain special concessions or for special concessions already obtained from the Seller. 7.9 FIXTURES AND EQUIPMENT; LEASED PREMISES. (a) The Fixtures and Equipment constitute in the aggregate all of the fixtures, machinery, equipment, furniture, signs and office 19 equipment used or intended for use by the Seller in the Business. All Demonstrators have been operated in the ordinary course of business, are operated with dealer tags and have not had certificates of title issued with respect to them. (b) The Seller does not have any rights, title or interest in or to any real property other than its leasehold interests in the Leased Premises, and the only real property used by the Seller in connection with the Business is the Leased Premises. Schedule 7.9(b) hereto contains a complete list and description (including buildings and other structures thereon and the name of the owner thereof) of all real property of which the Seller is a tenant (herein collectively referred to as the "LEASED PREMISES,"). True, correct and complete copies of all leases of all Leased Premises (the "LEASES") have been delivered to the Buyer. The Fixtures and Equipment and the Leased Premises (including, without limitation, the roof, the walls and all plumbing, wiring, electrical, heating, air conditioning, fire protection and other systems, as well as all paved areas, included therein or located thereat) are in good working order, condition and repair and are not in need of maintenance or repairs except for maintenance and repairs which are routine, ordinary and not material in nature or cost. The Seller and the Stockholders do not have any knowledge of any event or condition which currently exists which would create a legal or other impediment to the use of the Leased Premises as currently used, or would increase the additional charges or other sums payable by the tenant under any of the Leases (including, without limitation, any pending tax reassessment or other special assessment affecting the Leased Premises). (c) There has been no work performed, services rendered or materials furnished in connection with repairs, improvements, construction, alteration, demolition or similar activities with respect to the Leased Premises for at least ninety (90) days before the date hereof; there are no outstanding claims or persons entitled to any claim or right to a claim for a mechanics' or materialman's lien against the Leased Premises; and there is no person or entity other than the Seller in or entitled to possession of the Leased Premises. (d) The Seller has all easements and rights, including, but not limited to, easements for power lines, water lines, sewers, roadways and other means of ingress and egress, necessary to conduct the Business, all such easements and rights are perpetual, unconditional appurtenant rights to the Leased Premises, and none of such easements or rights are subject to any forfeiture or divestiture rights. (e) Neither the whole nor any portion of any of the Leased Premises has been condemned, expropriated, ordered to be sold or otherwise taken by any public authority, with or without payment or compensation therefor, and the Seller and the Stockholders do not know of any such condemnation, expropriation, sale or taking, or have any grounds to anticipate that any such condemnation, expropriation, sale or taking is threatened or contemplated. The Seller and the Stockholders have no knowledge of any pending assessments which would affect the Leased Premises. (f) None of the Leased Premises is in violation of any public or private restriction or any federal, state or local laws, rules, ordinances, codes or regulations, including without 20 limitation, any building, zoning, health, safety or fire laws, rules, ordinances, codes or regulations, and no notice from any governmental body has been served upon the Seller or upon any of the Leased Premises claiming any violation of any such law, ordinance, code or regulation or requiring or calling to the attention of the Seller the need for any work, repair, construction, alterations or installation on or in connection with said properties which has not been complied with. All improvements which comprise a part of the Leased Premises are located within the record lines of the Leased Premises and none of the improvements located on the Leased Premises encroach upon any adjoining property or any easements or rights of way and no improvements located on any adjoining property encroach upon any of the Leased Premises or any easements or rights of way servicing the Leased Premises. 7.10 CONTRACTS. The Seller has in all material respects performed all of its obligations required to be performed by it to the date hereof, and is not in default or alleged to be in default in any material respect, under any contract or lease to be assigned to the Buyer hereunder (collectively, the "CONTRACTS"), and there exists no event, condition or occurrence which, after notice or lapse of time or both, would constitute such a default. To the knowledge of the Seller and the Stockholders, no other party to any Contract is in default in any respect of any of its obligations thereunder. Each of the Contracts is valid and in full force and effect and enforceable against the Seller in accordance with its terms, and, to the knowledge of the Seller and the Stockholders, enforceable against the other parties thereto in accordance with its terms. Except as set forth in Schedule 7.2 hereto, each Contract is assignable to the Buyer without the consent of the other party(ies) thereto. 7.11 ADEQUACY OF ASSETS. Except for the Seller's cash and accounts receivable and rights under its dealership agreements with the Manufacturer, the Assets of the Seller, together with the Leased Premises and the Contracts (including all equipment leased pursuant to the equipment leases included in the Contracts) of the Seller, comprise all of the assets, properties, contracts, leases and rights necessary for the Buyer to operate the Business substantially in the manner operated by the Seller prior to the Closing. The failure by the Seller to satisfy and discharge in full any of the Retained Liabilities will not have, and could not reasonably be expected to have, a material adverse effect upon any of the Assets or Liabilities or the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business. 7.12 TAXES. The Seller has filed all federal, state and local governmental tax returns required to be filed by it in accordance with the provisions of law pertaining thereto and has paid all taxes and assessments (including, without limitation of the foregoing, income, excise, unemployment, social security, occupation, franchise, property and import taxes, duties or charges and all penalties and interest in respect thereof) required by such tax returns or otherwise to have been paid to date. 7.13 EMPLOYEES; EMPLOYEE BENEFIT PLANS. (a) Schedule 7.13(a) attached hereto discloses, as of the date hereof, all of the Seller's employees, as well as each employee's compensation (including, separately, base pay and any incentive or commission pay), title, length of employment, employment contract, if any, and 21 accrued vacation time. The Seller is not currently, nor has it ever been, a party to any collective bargaining agreement or other labor contract, and there has not been, nor is there pending or, to the knowledge of the Seller and the Stockholders, threatened, any union organizational drive or application for certification of a collective bargaining agent with respect to the Seller's employees. (b) The Seller has listed on Schedule 7.13(b) and has delivered to the Buyer true and complete copies of all Employee Benefit Plans (as defined below) and related documents, established, maintained or contributed to by the Seller. For the purpose of all of the representations in this Section 7.13(b), the term "Seller" shall include the Seller and all employers, whether or not incorporated, that are treated together with the Seller as a single employer within the meaning of Section 414 of the Code. The term "EMPLOYEE BENEFIT PLAN" shall include all plans described in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and also shall include, without limitation, any deferred compensation, stock, employee or retiree pension benefit, welfare benefit or other similar fringe or employee benefit plan, program, policy, contract or arrangement, written or oral, qualified or nonqualified, funded or unfunded, foreign or domestic, covering employees or former employees of the Seller and maintained or contributed to by the Seller. Where applicable, each Employee Benefit Plan (i) has been administered in material compliance with the terms of such Employee Benefit Plan and the requirements of ERISA and the Code, and (ii) is in material compliance with the reporting and disclosure requirements of ERISA and the Code. The Seller neither maintains nor contributes to, and has never maintained or contributed to, an Employee Benefit Plan subject to Title IV of ERISA or a "multiemployer plan." There are no facts relating to any Employee Benefit Plan that (i) have resulted in a "prohibited transaction" of a material nature or have resulted or are reasonably likely to result in the imposition of a material excise tax, penalty or liability pursuant to Section 4975 of the Code, (ii) have resulted in a material breach of fiduciary duty or violation of Part 4 of Title I of ERISA, or (iii) have resulted in or are reasonably likely to result in any material liability (whether or not asserted as of the date hereof) of the Seller or any ERISA affiliate pursuant to Section 412 of the Code arising under or related to any event, act or omission occurring on or prior to the date hereof. Each Employee Benefit Plan that is intended to qualify under Section 401(a) or to be exempt under Section 501(c) of the Code is so qualified or exempt as of the date hereof in each case, and such Employee Benefit Plan has received favorable determination letters from the Internal Revenue Service with respect thereto. To the knowledge of the Seller and the Stockholders, the amendments to and operation of any Employee Benefit Plan subsequent to the issuance of such determination letters do not adversely affect the qualified status of any such Employee Benefit Plan. No Employee Benefit Plan has an "accumulated funding deficiency" as of the date hereof, whether or not waived, and no waiver has been applied for. The Seller has not made any promises or incurred any liability under any Employee Benefit Plan or otherwise to provide health or other welfare benefits to current or future retirees or other former employees of the Seller, except as specifically required by law. There are no pending or, to the knowledge of the Seller and the Stockholders, threatened, claims (other than routine claims for benefit) or lawsuits with respect to the Employee Benefit Plans. Except as disclosed on Schedule 7.13(b), none of the Seller's employees or former employees has elected COBRA continuation coverage or has incurred a COBRA qualifying event since January 1, 1997. 7.14 [INTENTIONALLY DELETED] 22 7.15 MANUFACTURER COMMUNICATIONS. Except as set forth on Schedule 7.15, the Manufacturer has not (a) notified the Seller or any of the Stockholders of any deficiency in dealership operations, including, but not limited to, the following areas: (i) brand imaging, (ii) facility conditions, (iii) sales efficiency, (iv) customer satisfaction, (v) warranty work and reimbursement, or (vi) sales incentives; (b) otherwise advised the Seller or any of the Stockholders of a present or future need for facility improvements or upgrades in connection with the Business; or (c) notified the Seller or any of the Stockholders of the awarding or possible awarding of its franchise to any person or entity in the Metropolitan Statistical Areas in which the Business operates. 7.16 SPECIAL REPRESENTATIONS REGARDING THE PREFERRED STOCK AND THE CONVERSION STOCK: (a) The Seller and the Stockholders are individually referred to in this Section as an "INVESTOR". Each Investor understands that the Preferred Stock and the Conversion Stock (collectively, the "SECURITIES") will not be registered under the Securities Act or applicable state securities laws on the basis that the sale provided for in this Agreement and the issuance of the Securities hereunder is exempt from registration under the Securities Act pursuant to Section 4(2) thereof, and that the Buyer's reliance on such exemption is predicated on the representations and warranties of such Investor. (b) The Securities are being acquired for the account of the Investor for the purposes of investment and not with a view to the distribution thereof, as those terms are used in the Securities Act and the rules and regulations promulgated thereunder. (c) Each Investor is an "accredited investor" within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act; and each Investor has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of acquiring the Securities; each Investor has delivered to the Buyer an Investor Qualification Questionnaire and any balance sheets and income tax returns reasonably requested by the Buyer to confirm such Investor's status as an "accredited investor." (d) Each Investor has received copies of: (i) the Prospectus dated April 29, 1999; (ii) the Form 10-K filing of Buyer for the year ended December 31, 1998 (without exhibits); (iii) the Form 10-Q filing of Buyer for the first and second quarters of 1999 (without exhibits); (iv) all Form 8-K filings of the Buyer filed after January 1, 1999 (without exhibits); and has been furnished such other information, and has had an opportunity to ask such questions and have them answered by the Buyer, as such Investor has deemed necessary in order to make an informed investment decision with respect to the acquisition of the Securities. (e) Each Investor understands, and has the financial capability of assuming, the economic risk of an investment in the Securities for an indefinite period of time. 23 (f) Each Investor has been advised that such Investor will not be able to sell, pledge or otherwise dispose of the Securities, or any interest therein, without first complying with the relevant provisions of the Securities Act and any applicable state securities laws, and that the provisions of Rule 144, permitting routine sales of securities of certain issuers subject to the terms and conditions thereof, may not currently be available to such Investor with respect to the Securities. (g) Each Investor has, to the extent such Investor has deemed necessary, consulted with such Investor's own investment advisors, legal counsel and tax advisors regarding an investment in the Securities. (h) Each Investor acknowledges that the Buyer is under no obligation to (i) register the Securities or (ii) except as specifically set forth in this Agreement, to furnish any information or to take any other action to assist the Investor in complying with the terms and conditions of any exemption which might be available under the Securities Act or any state securities laws with respect to sales of the Securities by the Investor in the future; provided, however, that the Buyer will, at the Stockholders request and expense, provide such legal opinions and secretary certificates as are reasonably necessary for the Stockholders to sell or dispose of the Securities under Rule 144. 7.17 NO MISSTATEMENTS OR OMISSIONS. No representation or warranty made by the Seller or the Stockholders in this Agreement, and no statement contained in any agreement, instrument, certificate or schedule furnished or to be furnished by the Seller or the Stockholders pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading. ARTICLE VIII CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS The obligations of the Buyer to perform this Agreement at Closing are subject to the following conditions precedent which shall be fully satisfied at or before the Closing, unless waived in writing by the Buyer. 8.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Seller and the Stockholders herein contained shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, and the Buyer shall have received a certificate from the Stockholders and a duly authorized officer of the Seller, dated the Closing Date, to such effect. 8.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations required by this Agreement to be performed or complied with by the Seller or the Stockholders at or before the Closing shall have been duly performed or complied with in all material respects, and the Buyer 24 shall have received a certificate from the Stockholders and a duly authorized officer of the Seller, dated the Closing Date, to such effect. 8.3 NO LITIGATION. No action, suit or proceeding shall have been instituted by a governmental agency or any other third party to prohibit or restrain the sale contemplated by this Agreement or otherwise challenge the power and authority of the parties to enter into this Agreement or to carry out their obligations hereunder or the legality or validity of the sale contemplated by this Agreement. 8.4 INVENTORY. The Inventory shall have been completed to the reasonable satisfaction of the Buyer. 8.5 CORPORATE ORGANIZATION; ENCUMBRANCES. The Seller shall have furnished to the Buyer: (a) a certificate of good standing of the Seller issued by the Secretary of State of the State of Oklahoma dated no earlier than fifteen (15) business days prior to the Closing Date; (b) a copy of the Articles of Incorporation of the Seller certified by the Secretary of State of the State of Oklahoma dated no earlier than fifteen (15) business days prior to the Closing Date; (c) a certificate of the Seller, dated the Closing Date, in form and substance reasonably satisfactory to the Buyer, certifying as to (i) no amendments to the Articles of Incorporation of the Seller since the date of the certificate delivered in accordance with Section 8.5(b); (ii) the Bylaws of the Seller attached to such certificate being true and correct; and (iii) the incumbency and signatures of the officers of the Seller executing this Agreement and any other agreements, instruments or documents to be executed by the Seller in connection herewith; and (d) recent UCC-11 search reports for the Seller (including reports for each of the trade names required to be listed under Section 5.5) or other evidence reasonably satisfactory to the Buyer and its counsel that the Assets are free and clear of all Encumbrances. 8.6 BOARD RESOLUTIONS. The Seller shall have furnished to the Buyer a copy of the resolutions duly adopted by the directors and the stockholders of the Seller authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, certified by an authorized officer of the Seller as of the Closing Date. 8.7 NO DAMAGE. There shall have been no material adverse change or development in any of the Assets or the Liabilities of the Seller or in the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business, and no event shall have occurred or circumstance exist that may, or could reasonably be expected to, result in such a material adverse change. 8.8 MOTOR VEHICLE LICENSES. The Buyer shall have been licensed as a Motor Vehicle Dealer under applicable Oklahoma motor vehicle dealer registration laws and shall have obtained all other authorizations, consents, licenses and permits from applicable governmental agencies having or asserting jurisdiction, which the Buyer deems necessary or appropriate to conduct business as an automobile dealer at the Leased Premises or such other location as the Buyer may determine. 25 8.9 CONSENTS AND APPROVALS. The Seller shall have obtained and delivered to the Buyer all other authorizations, consents and approvals from third persons and entities as are (a) required to assign the Contracts or (b) otherwise required of the Seller to consummate the transactions contemplated hereby. 8.10 CERTIFICATES OF ORIGIN; ETC. The Seller shall have transferred to the Buyer certificates of title or origin for all New Vehicles, Demonstrators and, if applicable, Used Vehicles and all of its registration lists, owner follow-up lists and service files on hand as of the Closing Date with respect to the Business. 8.11 TERMINATION OF THE SELLER'S AGREEMENTS WITH MANUFACTURER. The Seller shall have terminated in writing the Seller's dealer agreement and any other applicable sales and service agreements with the Manufacturer. 8.12 BILL OF SALE; ETC. The Seller shall have executed and delivered to the Buyer a Bill of Sale, other documents of transfer of title contemplated hereby and any and all other documents necessary or desirable in connection with the transfer of the Assets, which documents shall warrant title to the Buyer consistent with this Agreement and shall in all respects be in such form as may be reasonably required by the Buyer and its counsel. 8.13 MANUFACTURER APPROVAL. The Manufacturer shall have approved (a) the Buyer or the Buyer's affiliate as an authorized dealer at the present dealership locations in the Seller's existing facilities as currently configured for dealership operations, and (b) O. Bruton Smith or O. Bruton Smith's designee as the authorized dealer operator; and the Manufacturer shall have executed a dealer agreement, and any other applicable sales and service agreements, on terms reasonably satisfactory to the Buyer. 8.14 CONSENTS; RELEASES OF ENCUMBRANCES. All consents, approvals, notices, filings and/or registrations set forth on Schedule 7.2 hereto shall have been obtained or made and the Seller shall have delivered to the Buyer evidence thereof reasonably satisfactory to the Buyer. The Seller shall have obtained releases or discharges of, or shall otherwise have made provision satisfactory to the Buyer for the release or discharge of, all Encumbrances set forth on Schedule 7.4 hereto, except for Encumbrances which secure only the Liabilities. 8.15 DEALERSHIP LEASE. The Landlords shall have executed and delivered the Dealership Lease to the Buyer. Any outstanding Leases shall have been terminated. 8.16 CHANGE OF NAME. The Seller shall have delivered to the Buyer all documents, including, without limitation, resolutions of the directors and the Stockholders of the Seller, necessary to effect a change of name of the Seller after the Closing to names other than the corporate name and trade names referred to in Section 5.5 hereof or any variation thereof. 8.17 HSR. All applicable waiting periods under the HSR Act (as defined in Section 10.14 below) shall have expired without any indication by the Antitrust Division (as defined in Section 26 10.14 below) or the FTC (as defined in Section 10.14 below) that either of them intends to challenge the transactions contemplated hereby or, if any such challenge or investigation is made or commenced, such challenge or investigation shall have been concluded in a way which lawfully permits the transactions contemplated hereby in all material respects. 8.18 EMPLOYMENT AGREEMENT. Rod Maupin shall have executed and delivered to the Buyer the Employment Agreement. 8.19 AUDITED FINANCIAL STATEMENTS OF THE BUYER. The Buyer shall have completed preparation of such audited financial statements of the Seller as may be required by applicable regulations of the SEC or by the Buyer's lenders. 8.20 OPINION OF COUNSEL. The Buyer shall have received an opinion, reasonably acceptable in form and substance to Buyer's counsel, of Randall K. Calvert, Calvert Law Firm, counsel to the Seller and the Stockholders. 8.21 OTHER BASIC AGREEMENTS. All conditions to the obligations of the Buyer under the Jim Glover Purchase Agreement and the Riverside Nissan Purchase Agreement shall have been satisfied or fulfilled unless waived in writing by the Buyer, and the closings under the Jim Glover Purchase Agreement and the Riverside Nissan Purchase Agreement shall have occurred or shall be occurring contemporaneously with the Closing of the transactions contemplated by this Agreement. 8.22 COMPUTER SERVER ACCESSIBILITY. Hudiburg Chevrolet, Inc. shall have entered into a lease agreement with the Buyer in accordance with Section 10.20. ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER AND THE STOCKHOLDERS The obligations of the Seller and the Stockholders to perform this Agreement at Closing are subject to the following conditions precedent which shall be fully satisfied at or before the Closing, unless waived in writing by the Seller: 9.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Buyer herein contained shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, and the Seller shall have received a certificate from a duly authorized officer of the Buyer, dated the Closing Date, to such effect. 9.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations required by this Agreement to be performed or complied with by the Buyer at or before the Closing shall have been duly performed or complied with in all material respects, and the Seller shall have received a certificate from a duly authorized officer of the Buyer, dated the Closing Date, to such effect. 27 9.3 NO LITIGATION. No action, suit or proceeding shall have been instituted by a governmental agency or any third party to prohibit or restrain the sale contemplated by this Agreement or otherwise challenge the power and authority of the parties to enter into this Agreement or to carry out their obligations hereunder or the legality or validity of the sale contemplated by this Agreement. 9.4 INVENTORY. The Inventory shall have been completed to the reasonable satisfaction of the Seller. 9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS. The Buyer shall have furnished to the Seller: (a) a certificate of good standing of the Buyer issued by the Secretary of State of the State of Delaware dated no earlier than fifteen (15) business days prior to the Closing Date; and (b) a certificate of the Secretary or an Assistant Secretary of the Buyer, dated the Closing Date, in form and substance reasonably satisfactory to the Seller, certifying as to (i) the Restated Certificate of Incorporation of the Buyer attached to such certificate being true and correct; (ii) the Bylaws of the Buyer attached to such certificate being true and correct; (iii) the incumbency and signatures of the officers of the Buyer executing this Agreement and any other agreements, instruments or documents to be executed by the Buyer in connection herewith; and (iv) the resolutions of the Board of Directors of the Buyer authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 9.6 PAYMENT OF INITIAL PURCHASE PRICE; ASSUMPTION AGREEMENT. The Buyer shall have tendered to the Seller the Initial Purchase Price and shall have executed and delivered the Assumption Agreement. 9.7 DEALERSHIP LEASE. The Buyer shall have executed and delivered the Dealership Lease to the Landlords. 9.8 HSR. All applicable waiting periods under the HSR Act shall have expired without any indication of the Antitrust Division or the FTC that either of them intends to challenge the transactions contemplated hereby, or, if any such challenge or investigation is made or commenced, such challenge or investigation shall have been concluded in a way which lawfully permits the transactions contemplated hereby in all material respects. 9.9 EMPLOYMENT AGREEMENT. The Buyer shall have executed and delivered the Employment Agreement to Rod Maupin. 9.10 OPINION OF COUNSEL. The Seller and the Stockholders shall have received an opinion of Parker, Poe, Adams & Bernstein, L.L.P., counsel to the Buyer, reasonably acceptable in form and substance to Seller's counsel. 9.11 OTHER BASIC AGREEMENTS. All conditions to the obligations of the Seller (as defined in the Jim Glover Purchase Agreement) under the Jim Glover Purchase Agreement and all the conditions to the obligations of the Sellers (as defined in the Riverside Nissan Purchase Agreement) 28 under the Riverside Nissan Purchase Agreement shall have been satisfied or fulfilled unless waived in writing by such party, and the closings under the Jim Glover Purchase Agreement and the Riverside Nissan Purchase Agreement shall have occurred or shall be occurring contemporaneously with the Closing of the transactions contemplated by this Agreement. ARTICLE X COVENANTS AND AGREEMENTS 10.1 [INTENTIONALLY DELETED] 10.2 FURTHER ASSURANCES. The Seller and the Stockholders agree that they will, at any time and from time to time, after the Closing, upon request of the Buyer, do, execute, acknowledge and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances, in a form reasonably satisfactory to the Buyer's counsel, as may be reasonably required to convey and transfer to and vest in the Buyer, and protect its rights, title and interest in and enjoyment of, all the Assets. 10.3 SATISFACTION OF CLOSING CONDITIONS. The parties hereto shall use their reasonable best efforts to obtain, and to cooperate with each other in obtaining, all authorizations, approvals, licenses, permits and other consents contemplated by Articles VIII and IX. 10.4 NO MATERIAL ADVERSE CHANGES. During the period from the date of this Agreement through the Closing Date, the Seller will operate the Business only in the ordinary course of business and in accordance with past practices. The Seller shall promptly notify the Buyer of any material adverse change or development in any of the Assets or the Liabilities or in the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business, and of the occurrence of any event or circumstance that will, or could reasonably be expected to, result in such a material adverse change. 10.5 ACCESS; ENVIRONMENTAL AUDIT. Until Closing, the Seller shall afford to the Buyer, its officers, employees, attorneys, accountants and such other representatives of the Buyer as the Buyer shall designate to the Seller, free and full access at all reasonable times, and upon reasonable prior notice, to the Assets and the properties, books and records of the Seller, and to interview personnel, suppliers and customers of the Seller, in order that the Buyer may have full opportunity to make such further investigation as it shall reasonably desire of the Assets, the Liabilities and the Business. The Seller and the Stockholders shall furnish to the Buyer the due diligence materials set forth in Schedule 10.5 hereto as soon as practicable, and shall provide to the Buyer and its representatives, including, without limitation, the aforementioned individuals, such additional information as the Buyer may reasonably request. The contact person(s) of the Seller for purposes of arranging such access and requesting such additional information is Rod Maupin. The Seller shall allow Dames & Moore (the "ENVIRONMENTAL AUDITOR") to have prompt access to the Leased Premises in order to conduct an environmental investigation satisfactory to the Buyer in scope and 29 reasonably acceptable to the Seller (such scope being sufficient to result in a Phase I environmental audit report and a Phase II environmental audit report, if desired by the Buyer) of, and to prepare a report with respect to, the Leased Premises (the "ENVIRONMENTAL AUDIT"). The Seller shall provide to the Environmental Auditor: (a) reasonable access to all of its existing records concerning the matters which are the subject of the Environmental Audit; and (b) reasonable access to the employees of the Seller and the last known addresses of former employees of the Seller who are most familiar with the matters which are the subject of the Environmental Audit (the Seller agreeing to use reasonable efforts to have such former employees respond to any reasonable requests or inquiries by the Environmental Auditor). The Environmental Auditor shall coordinate all visits to the Leased Premises and conversations with employees of the Seller with the Stockholders or their designee and shall use reasonable efforts to minimize any disruption of the Seller's business in performing such investigations. The Seller shall otherwise cooperate with the Environmental Auditor in connection with the Environmental Audit. The Buyer shall pay 50% of the costs, fees and expenses in connection with the Environmental Audit and the Seller shall pay 50% of the costs, fees and expenses in connection with the Environmental Audit. The Buyer shall bear the costs, fees and expenses in connection with any financial audit. 10.6 INDEMNIFICATION BY THE SELLER AND THE STOCKHOLDERS. (a) All representations and warranties of the Seller and the Stockholders contained herein, or in any agreement, certificate or document executed by either the Seller or the Stockholders in connection herewith, shall survive the Closing for a period of three (3) years with the exception of (i) the representations and warranties of the Seller and the Stockholders contained in Section 7.12, which shall survive the Closing until the expiration of the applicable tax statutes of limitation plus a period of sixty (60) days; (ii) the representations and warranties of the Seller and the Stockholders contained in Sections 7.6(b) and 7.8, which shall survive the Closing for a period of seven (7) years; and (iii) the representations and warranties of the Seller and the Stockholders contained in Section 7.4, which shall survive the Closing for a period of five (5) years. The foregoing limitations of survival shall not in any way reduce the Seller's obligations with respect to the Retained Liabilities. As to each representation and warranty of the parties to this Agreement, the date to which such representation and warranty shall survive is hereinafter referred to as the "SURVIVAL DATE." All information contained in any Schedule furnished hereunder by the Seller shall be deemed a representation and warranty by the Seller and the Stockholders made in this Agreement as to the accuracy of such information. (b) The Seller and the Stockholders, jointly and severally, agree to indemnify and hold harmless the Buyer and its stockholders, officers, directors, employees and agents, and their respective successors and assignees (collectively, the "BUYER INDEMNITEES"), from and against any and all losses, damages, liabilities, obligations, assessments, suits, actions, proceedings, claims or demands, including costs, expenses and fees (including reasonable attorneys' fees and expert witness fees incurred in connection therewith) ("LOSSES"), suffered by any of them or asserted against any of them or any of the Assets, arising out of or based upon (i) the breach or failure of any representation or warranty of the Seller or any Stockholder contained herein, or in any agreement, certificate or document executed by the Seller or any Stockholder in connection herewith, to be true 30 and correct (regardless of any investigation made by or on behalf of the Buyer and regardless of any knowledge or information the Buyer may have), (ii) the breach of any covenant or agreement of the Seller or any Stockholder contained in this Agreement, (iii) the Retained Liabilities or any liability or obligation of any Stockholder, (iv) any arrangements or agreements made or alleged to have been made by the Seller or any Stockholder with any broker, finder or other agent in connection with the transactions contemplated hereby, (v) any waiver by the Buyer of the provisions of any applicable bulk sales laws, (vi) any breach or default by the Seller under any of its floor plan arrangements and agreements, (vii) any matter, item, circumstance or condition listed, contained or otherwise referred to on Schedule 7.8(a) or Schedule 7.8(b), (viii) any loss of life, injury to persons or property, or damage to natural resources caused by the actual, alleged, or threatened release, storage, transportation, treatment or generation, of Hazardous Materials generated, stored, used, disposed of, treated, handled or shipped by the Seller before the Closing Date, (ix) any cleanup of Hazardous Materials released, disposed of or discharged: (A) on, in, beneath or around to the Real Property prior to the date of the Closing; or (B) at any other location if such substances were generated, used, stored, treated, transported or released by the Seller prior to the Closing Date; (x) any and all costs of installing pollution control equipment or other equipment to bring any of the Leased Premises into compliance with any Environmental Law if such equipment is installed because any of the Leased Premises were not in compliance with any Environmental Laws as of the date of the Closing; or (xi) the use by the Stockholders of the "Riverside" tradename at the Riverside Autoplex Dodge, Jeep, Chrysler, Mazda and Honda automobile dealership operated by certain of the Stockholders in McAlester, Oklahoma. Neither the Seller nor the Stockholders shall be required to indemnify under Section 10.6(b)(i) unless the amount of all Losses (including claims for Losses) thereunder exceeds a cumulative aggregate total of $175,000, at which time rights to indemnification for Losses may be asserted for any amounts in excess of such cumulative aggregate total of $175,000. The aggregate amount of indemnification obligations of the Seller and the Stockholders under this Section 10.6(b) shall not exceed the Purchase Price. (c) No claim for indemnification with respect to a breach of a representation and warranty shall be made by a Buyer Indemnitee after the applicable Survival Date unless prior to such Survival Date the Buyer Indemnitee shall have given an indemnifying party written notice of such claim for indemnification based upon actual loss sustained, or potential loss anticipated, as a result of the existence of any claim, demand, suit, or cause of action against such Buyer Indemnitee. The provisions of this Section 10.6 shall be effective upon consummation of the Closing, and prior to the Closing, shall have no force and effect. 10.7 INDEMNIFICATION BY THE BUYER. (a) All representations and warranties of the Buyer contained herein, or in any agreement, certificate or document executed by the Buyer in connection herewith, shall survive the Closing for a period of three years. All information contained in any Schedule furnished hereunder by the Buyer shall be deemed a representation and warranty by the Buyer made in this Agreement as to the accuracy of such information. 31 (b) The Buyer agrees to indemnify and hold harmless the Seller and its stockholders, officers, employees, agents, successors and assigns (the "SELLER INDEMNITEES"), from and against any and all Losses incurred in connection with, suffered by any of them, or asserted against any of them, arising out of or based upon (i) the breach or failure of any representation or warranty of the Buyer contained herein, or in any agreement, certificate or document executed by the Buyer in connection herewith, to be true and correct (regardless of any investigation made by or on behalf of the Seller and regardless of any information the Seller may have), (ii) the breach of any covenant or agreement of the Buyer contained in this Agreement, (iii) the Buyer's failure to discharge the Liabilities, or (iv) any arrangements or agreements made or alleged to have been made by the Buyer with any broker, finder or other agent in connection with the transactions contemplated hereby. The Buyer shall not be required to indemnify under Section 10.7(b)(i) unless the amount of all Losses (including claims for Losses) thereunder exceeds a cumulative aggregate total of $175,000, at which time rights to indemnification for Losses may be asserted for any amounts in excess of such cumulative aggregate total of $175,000. The aggregate amount of indemnification obligations of the Buyer under this Section 10.7(b) shall not exceed the Purchase Price. (c) No claim for indemnification with respect to a breach of a representation and warranty shall be made by any Seller Indemnitee under this Agreement after the applicable Survival Date unless prior to such Survival Date the Seller Indemnitee shall have given the Buyer written notice of such claim for indemnification based upon actual loss sustained, or potential loss anticipated, as a result of the existence of any claim, demand, suit, or cause of action against such Seller Indemnitee. The provisions of this Section 10.7 shall be effective upon consummation of the Closing, and prior to the Closing, shall have no force and effect. 10.8 CERTAIN TAXES. Personal property, use and intangible taxes and assessments and utility charges with respect to the Assets shall be prorated on a per diem basis and apportioned on a calendar year basis between the Seller, on the one hand, and the Buyer, on the other hand, as of the date of the Closing. The Seller shall be liable for that portion of such taxes and assessments relating to, or arising in respect of, periods prior to the Closing Date and, with respect to any period commencing prior to the Closing Date and ending on or after the Closing Date (a "STRADDLE PERIOD"), the portion of the Straddle Period prior to the Closing Date. The Buyer shall be liable for that portion of such taxes and assessments relating to, or arising in respect of, any period after the Closing Date and, with respect to any Straddle Period, the portion of the Straddle Period on or after the Closing Date. Any taxes attributable to the sale or transfer of the Assets to the Buyer hereunder shall be paid by the Seller. 10.9 NO PUBLICITY. Except as may be required by law or the rules of the New York Stock Exchange or as necessary in connection with the transactions contemplated hereby, no party hereto shall (a) make any press release or other public announcement relating to this Agreement or the transactions contemplated hereby, without the prior approval of the other parties hereto or (b) otherwise disclose the existence and nature of the transactions contemplated hereby to any person or entity other than such party's accountants, attorneys, agents and representatives, all of whom shall be subject to this nondisclosure obligation as agents of such party. The parties shall cooperate with 32 each other in the preparation and dissemination of any public announcements of the transactions contemplated by this Agreement. 10.10 NO NEGOTIATIONS OR DISCUSSIONS. Neither the Seller nor any of the Stockholders shall, directly or indirectly, at any time on or prior to the Closing Date, pursue, initiate, encourage or engage in any negotiations or discussions with, or provide any information to, any person or entity (other than the Buyer and its representatives and affiliates) regarding the sale or possible sale to any such person or entity of the Assets of the Seller or capital stock of the Seller or any merger or consolidation or similar transaction involving the Seller. 10.11 REGARDING THE MANUFACTURER. Immediately upon the execution of this Agreement, the Seller will notify the Manufacturer regarding the transactions contemplated by this Agreement, utilizing a form of notification acceptable to the Buyer. The Buyer shall promptly apply to the Manufacturer for, or cause an affiliate of the Buyer to apply to the Manufacturer for, the issuance of a franchise to operate an automobile dealership upon the Leased Premises or at such other location the Buyer shall determine in its sole discretion. Effective as of the Closing, the Seller shall terminate its Dealer Sales and Service Agreements with the Manufacturer. The Seller shall fully cooperate with the Buyer, and take all reasonable steps to assist the Buyer, in the Buyer's efforts to obtain its own similar Dealer Sales and Service Agreements with the Manufacturer. The contact person(s) of the Seller for purposes of requests by the Buyer for such assistance are Bill Albert (Zone Manager) (913/469-3009) and Mike Hudnell (Dealer Placement Manager) (913/469-3012) at 7500 College Boulevard, Suite 1000, Overland Park, Kansas 66210. The parties acknowledge that the Buyer's Dealer Agreements are subject to the approval of the Manufacturer and that the Buyer would be unable to obtain its own, similar Dealer Sales and Service Agreements absent the Seller's termination of its agreements. Notwithstanding the foregoing, at the request of the Buyer, the Seller shall allow the Buyer, if reasonably necessary, for a period not to exceed thirty (30) days after the Closing, to utilize the Seller's dealer code with the Manufacturer until the Manufacturer has issued a new dealer code to the Buyer. The Buyer hereby agrees to indemnify the Seller from any and all liabilities arising out of the use by the Buyer of the Seller's dealer code including, without limitation, liabilities and obligations to the Manufacturer and to any floor plan lender or other creditor providing financing for products purchased under the Seller's dealer code by the Buyer (or by the Seller on behalf of the Buyer) after the Closing. 10.12 THE SELLER'S EMPLOYEES. The Buyer shall have the right, but not the obligation, to employ any or all of the Seller's employees. If permitted by law and applicable regulations, the Seller shall, in consideration for the sale of substantially all of the Seller's assets in bulk, assign and transfer to the Buyer, without additional charge therefor, the amount of reserve in the Seller's State Unemployment Compensation Fund with respect to the Business and the corresponding experience rate. The Seller shall terminate its 401(k) plan prior to the Closing Date and in connection therewith shall amend the 401(k) plan to fully vest all accounts of all participants in the 401(k) plan and to provide for the distribution of all such accounts. The Seller shall deliver to the Buyer at Closing a duly executed plan amendment and resolutions of the Board of Directors and, if necessary, the Seller's stockholders reflecting the termination of the 401(k) Plan and related amendments to the 401(k) plan. The Seller also shall terminate all other Employee Plans as of the Closing Date and 33 shall provide the Buyer with formal documentation evidencing such terminations and the Seller shall indemnify and reimburse the Buyer for all Losses (as defined in Section 10.6(b)) incurred by the Buyer in connection with the termination and winding up of the Employee Plans. The Seller shall retain all liability and responsibility for its Employee Plans and shall promptly take any and all actions necessitated by or related to the amendment and/or termination of any Employee Plan, including but not limited to liquidation of plan assets and processing distributions to participants; filing of determination letter applications, final Forms 5500, and/or other notices with governmental authorities; and cancellation of insurance policies. Notwithstanding the foregoing, the Buyer shall have the option, in its sole discretion and exercised by the delivery to the Seller of a written request, to require the Seller to transfer any or all of the Seller's plans or related insurance policies to the Buyer (or other related entity which will continue the Seller's business). 10.13 TERMINATION. (a) Notwithstanding any other provision herein contained to the contrary, this Agreement may be terminated at any time prior to the Closing: (i) by the written mutual consent of the parties heret prior to the Closing Date Deadline; (ii) by the Buyer prior to the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3 hereof) in the event of any material breach by the Seller or any of the Stockholders of any of their respective representations, warranties, covenants or agreements contained herein; (iii) by the Seller prior to the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3 hereof) in the event of any material breach by the Buyer of any of the Buyer's representations, warranties, covenants or agreements contained herein; (iv) at any time after the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3 hereof), by written notice by the Buyer or the Seller to the other parties hereto if the Closing shall not have occurred on or before the Closing Date Deadline (as the same may have been extended in accordance with Section 1.3); (v) by the Buyer, by written notice to the Seller, if the Buyer in its sole discretion is not satisfied with its due diligence investigation of the Seller, at any time during the period (the "DUE DILIGENCE PERIOD") commencing on the date hereof and ending on the close of business on the thirtieth (30th) day after the later to occur of: (A) the date upon which the Seller and the Buyer agree upon the form and substance of Schedule 5.5 and the Schedules delivered by the Seller pursuant to Article VII hereof and (B) the date of delivery by the Seller to the Buyer of the due diligence materials listed on Schedule 10.5 attached hereto; 34 (vi) by the Seller, by written notice to the Buyer, if the Seller in its sole discretion is not satisfied with its due diligence investigation of the Buyer, at any time during the Due Diligence Period. (vii) by the Buyer, by written notice to the Seller, in the event that the Manufacturer, or any other person claiming by, through or under the Manufacturer, shall exercise any right of first refusal, preemptive right or other similar right, with respect to any of the Assets; (viii)by the Buyer, by written notice to the Seller if, after any initial HSR Act filing, the FTC makes a "second request" for information pursuant to 16 C.F.R. ss.803.20, or if the FTC or the Antitrust Division challenges the transactions contemplated hereby; or (ix) by the Buyer, by written notice to the Seller, in the event that approval by the Manufacturer of the transactions contemplated hereby is not received by the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3 hereof); provided, however, no party may terminate this Agreement pursuant to clauses (ii), (iii), or (iv) above if such party is in material breach of any of its representations, warranties, covenants or agreements contained herein. (b) In the event of termination of this Agreement pursuant to Section 10.13(a), this Agreement shall be of no further force or effect; provided, however, that any termination pursuant to Section 10.13(a) shall not relieve: (i) the Buyer of any liability under Section 10.13(c) below; (ii) the Seller and the Stockholders of any liability under Section 10.13(d) below; (iii) subject to Section 10.13(e) below, any party hereto of any liability for breach of any representation, warranty, covenant or agreement hereunder occurring prior to such termination; or (iv) any party hereto of its or his obligations hereunder to pay the fees and expenses of third parties; provided, further, that all filings, applications and other submissions made pursuant to this Agreement or prior to the execution of this Agreement in contemplation hereof shall, to the extent practicable, be withdrawn from the agency or other entity to which made. (c) If this Agreement is terminated by the Seller pursuant to Section 10.13(a)(iv) hereof and the failure to complete the Closing on or before the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3) shall have been due to the Buyer's material breach of its representations, warranties, covenants or agreements under this Agreement, then the Buyer shall, upon demand of the Seller, promptly pay to the Seller in immediately available funds, as liquidated damages for the loss of the transaction, an aggregate termination fee of $1,750,000 ("the BUYER TERMINATION FEE"). (d) If this Agreement is terminated by the Buyer pursuant to Section 10.13(a)(iv) hereof and the failure to complete the Closing on or before the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3) shall have been due to a material breach by any of the Stockholders or the Seller of a representation, warranty, covenant or agreement of such party under this Agreement, then the Seller shall, upon demand of the Buyer, promptly pay to the Buyer 35 in immediately available funds, as liquidated damages for the loss of the transaction, a termination fee of $1,750,000 (the "SELLER TERMINATION FEE"). (e) In the case of termination of this Agreement pursuant to Section 10.13(a)(iv) hereof, the rights of the terminating party to be paid the Seller Termination Fee or the Buyer Termination Fee, as the case may be, shall be such party's sole and exclusive remedy for damages; in the event of such termination by either party, such party shall have no right to equitable relief for any breach or alleged breach of this Agreement, other than for specific performance for the payment of the Seller Termination Fee or the Buyer Termination Fee, as the case may be. Nothing contained in this Agreement shall prevent any party from electing not to exercise any right it may have to terminate this Agreement and, instead, seeking any equitable relief (including specific performance) to which it would otherwise be entitled in the event of breach of any other party hereto. (f) The Seller and the Stockholders acknowledge and agree that the Buyer's due diligence investigation of the Seller and the Business, including, without limitation, its review of the Schedules attached hereto and the information and documentation received from the Seller, shall not constitute a waiver of, or otherwise modify, the Buyer's right to terminate this Agreement under Section 10.13(a)(v) hereof. 10.14 HSR. Subject to the determination by the Buyer that compliance by the Seller and the Buyer with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), is not required, the Seller and the Buyer shall each prepare and file with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION"), and respond as promptly as practicable to all inquiries received from the FTC or the Antitrust Division for additional information or documentation. The Buyer shall pay any HSR Act filing fees. 10.15 THE BUYER'S FINANCIAL STATEMENTS. The Seller shall allow, cooperate with and assist the Buyer's accountants, and shall instruct the Seller's accountants to cooperate, in the preparation of audited financial statements of the Seller as necessary for any required filings by the Buyer with the SEC or as required by the Buyer's lenders; provided, however, that the expense of such audit shall be borne by the Buyer. 10.16 CURING BREACHES OF REPRESENTATIONS AND WARRANTIES. Upon written notice by the Buyer of the discovery by the Buyer prior to the Closing of a breach of any representation and warranty of the Seller contained in this Agreement, the Seller will, if requested by the Buyer, at its expense, undertake to cure such breach prior to the Closing. In the event that such breach cannot, despite reasonable efforts, be fully cured prior to the Closing, the Seller shall diligently prosecute such efforts to effect such cure before and after the Closing until so cured. If the Buyer shall have requested the Seller to cure any such breach pursuant to this Section 10.16, the Buyer shall not be entitled to claim such breach as a failure of the Buyer's condition to close under Section 8.1 of the Agreement provided that (a) the Seller shall have cured such breach prior to the Closing or (b) in the event that such breach cannot, despite reasonable efforts, be fully cured prior to the Closing, the Seller shall be diligently prosecuting such efforts to effect such cure before the Closing. 36 10.17 RIGHT OF FIRST OFFER. (a) If, at any time prior to the fifth (5th) anniversary of the Closing Date, the Buyer shall propose to sell the Business acquired from the Seller pursuant to this Agreement, the Buyer shall first give notice in writing to Rod Maupin, as agent for the Seller and the Stockholders (the "SELLER'S AGENT"), of its intention to do so, which notice (the "FIRST OFFER") shall constitute an offer to the Seller and the Stockholders to purchase the Business from the Buyer at the price and upon payment terms set forth in such notice. The Seller and the Stockholders, acting through the Seller's Agent, shall have a period of thirty (30) days after the giving of such notice by the Buyer to accept in writing (the "FIRST OFFER ACCEPTANCE") the Buyer's offer set forth in the First Offer. If the Seller and the Stockholders, acting through the Seller's Agent, shall have delivered the First Offer Acceptance to the Buyer prior to the expiration of such thirty (30) day period, the parties shall negotiate in good faith in an effort to finalize, execute and deliver a definitive purchase agreement containing customary terms with respect to such proposed sale. If the parties are unable to execute and deliver such definitive purchase agreement within a period of thirty (30) days after receipt by the Buyer of the First Offer Acceptance (the last day of such thirty (30) day period at 5:00 p.m., Eastern Time, being the "FIRST OFFER AGREEMENT DEADLINE"), the Buyer shall be free to sell the Business to any other person or entity during the one (1) year period commencing with the expiration of the First Offer Agreement Deadline at a price that is not less than 90% of the price proposed by the Buyer in the First Offer, and on payment terms which, overall, are no less favorable than such payment terms proposed by the Buyer in the First Offer. (b) The parties hereto acknowledge and agree that any rights granted to the Seller and the Stockholders pursuant to Section 10.17(a) are subject to the Manufacturer's (or any person claiming by, through or under the Manufacturer) right of first refusal, preemptive right or other similar right, with respect to the Business, and that any exercise of such right by a Manufacturer shall not be subject to Section 10.17(a). Accordingly, the parties hereto acknowledge that any potential closing of a purchase transaction pursuant to Section 10.17(a) will be contingent upon a determination by the Manufacturer that it does not wish to exercise its right of first refusal, preemptive right or other similar right with respect to the Business. 10.18 CERTAIN INDEMNIFICATION PROCEDURES. The procedures to be followed by the Buyer and the Seller with respect to indemnification hereunder regarding claims by third persons which could give rise to an indemnification obligation hereunder shall be as follows: (a) Promptly after receipt by any Buyer Indemnitee or Seller Indemnitee, as the case may be, of notice of the commencement of any action or proceeding (including, without limitation, any notice relating to a tax audit) or the assertion of any claim by a third person which the person receiving such notice has reason to believe may result in a claim by it for indemnity pursuant to this Agreement, such person (the "INDEMNIFIED PARTY") shall give a written notice of such action, proceeding or claim to the party against whom indemnification pursuant hereto is sought (the "INDEMNIFYING PARTY"), setting forth in reasonable detail the nature of such action, proceeding or claim, including copies of any documents and written correspondence from such third person to such Indemnified Party. 37 (b) The Indemnifying Party shall be entitled, at its own expense, to participate in the defense of such action, proceeding or claim, and, if (i) the action, proceeding or claim involved seeks (and continues to seek) solely monetary damages, (ii) the Indemnifying Party confirms and agrees, in writing, that it is obligated hereunder to indemnify and hold harmless the Indemnified Party with respect to such damages in their entirety pursuant to Sections 10.6 or 10.7 hereof, as the case may be, and (iii) the Indemnifying Party shall have made provision which, in the reasonable judgment of the Indemnified Party, is adequate to satisfy any adverse judgment as a result of its indemnification obligation with respect to such action, proceeding or claim, then the Indemnifying Party shall be entitled to assume and control such defense with counsel chosen by the Indemnifying Party and approved by the Indemnified Party, which approval shall not be unreasonably withheld or delayed. The Indemnified Party shall be entitled to participate therein after such assumption, the costs of such participation following such assumption to be at its own expense. Upon assuming such defense, the Indemnifying Party shall have full rights to enter into any monetary compromise or settlement which is dispositive of the matters involved; PROVIDED, that such settlement is paid in full by the Indemnifying Party and will not have any direct or indirect continuing material adverse effect upon the Indemnified Party. Notwithstanding the foregoing, the Indemnified Party shall have the right to pay, settle or compromise any such action, proceeding or claim, provided that in such event the Indemnified Party shall waive any right to indemnity therefor hereunder unless the Indemnified Party shall have sought the consent of the Indemnifying Party to such payment, settlement or compromise and such consent was unreasonably withheld or delayed, in which event no claim for indemnity therefor hereunder shall be waived. (c) With respect to any action, proceeding or claim as to which (i) the Indemnifying Party does not have the right to assume the defense, (ii) the Indemnifying Party shall not have exercised its right to assume the defense or (iii) the Indemnifying Party shall have lost its right to continue the defense, the Indemnified Party shall assume and control the defense of and contest such action, proceeding or claim with counsel chosen by it and approved by the Indemnifying Party, which approval shall not be unreasonably withheld. The Indemnifying Party shall be entitled to participate in the defense of such action, proceeding or claim, the cost of such participation to be at its own expense. The Indemnifying Party shall be obligated to pay the reasonable attorneys' fees and expenses of the Indemnified Party to the extent that such fees and expenses relate to claims as to which indemnification is due under Sections 10.6 or 10.7 hereof, as the case may be. The Indemnified Party shall have full rights to dispose of such action, proceeding or claim and enter into any monetary compromise or settlement; PROVIDED, HOWEVER, in the event that the Indemnified Party shall settle or compromise any action, proceeding or claim for which indemnification is due under Sections 10.6 or 10.7 hereof, as the case may be, it shall act reasonably and in good faith in doing so. (d) Both the Indemnifying Party and the Indemnified Party shall cooperate fully with one another in connection with the defense, compromise or settlement of any such action, proceeding or claim, including, without limitation, by making available to the other all pertinent information and witnesses within its control. 38 10.19 USE OF RIVERSIDE NAME. The Buyer agrees not to institute any legal action to prevent the limited use by the Stockholders of the "Riverside" tradename at the Riverside Autoplex Dodge, Jeep, Chrysler, Mazda and Honda automobile dealership operated by certain of the Stockholders in McAlester, Oklahoma; provided, that, the use of the Riverside tradename shall not be used in any manner other than in connection with such automobile dealership at its present location and such automobile dealership shall not operate as a Nissan or Chrysler motor vehicle franchise. It is stipulated that any improper use by the Stockholders of the Riverside tradename would cause irreparable damage to the Buyer. The Buyer, in addition to any other rights or remedies which the Buyer may have, shall be entitled to an injunction restraining the Stockholders from violating or continuing any violation of this section. Such right to obtain injunctive relief may be exercised, at the option of the Buyer, concurrently with, prior to, after or in lieu of the exercise of any other rights or remedies which the Buyer may have as a result of any such breach or threatened breach. 10.20 COMPUTER MATTERS. The Buyer acknowledges that the Seller does not own the computer hardware server currently used in the Business and that, pursuant to a lease, Hudiburg Chevrolet, Inc. provides access to its computer hardware server to the Seller. The Seller acknowledges that the Buyer is not purchasing the computer hardware server from the Seller and that the Buyer will not be able to have its own server in place at the Closing. The Seller and the Stockholders agree to take such steps as are necessary to permit the Buyer, upon reasonable terms and conditions, to access and utilize the computer hardware server owned by Hudiburg Chevrolet, Inc. and to cause Hudiburg Chevrolet, Inc. to enter into an agreement with the Buyer to such effect. The Buyer will use commercially reasonable efforts to obtain its own server as soon as reasonably practicable. ARTICLE XI MISCELLANEOUS 11.1 ASSIGNMENT. Except as provided in this Section, this Agreement shall not be assignable by any party hereto without the prior written consent of the other parties. The Buyer may assign this Agreement, without the consent of the other parties hereto, to a corporation, partnership, limited liability company or other entity controlled by the Buyer, including a corporation, partnership, limited liability company or other entity to be formed at any time prior to the Closing Date, and to any person or entity who shall acquire all or substantially all of the assets of the Buyer or of such corporation, partnership, limited liability company or other entity controlled by the Buyer (including any such acquisition by merger or consolidation); provided said assignment shall be in writing and the assignee shall assume all obligations of the Buyer hereunder, whereupon the assignee shall be substituted in lieu of the Buyer named herein for all purposes, and provided further, that the Buyer originally named herein shall continue to be liable with respect to its obligations hereunder. The Buyer may assign this Agreement, without the consent of the other parties hereto, as collateral security, and the other parties hereto agree to execute and deliver any acknowledgment of such assignment by the Buyer as may be required by any lender to the Buyer. 39 11.2 GOVERNING LAW. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of Oklahoma. 11.3 ACCOUNTING MATTERS. All accounting matters required or contemplated by this Agreement shall be in accordance with generally accepted accounting principles. 11.4 FEES AND EXPENSES. Except as otherwise specifically provided in this Agreement, each of the parties hereto shall be responsible for the payment of such party's fees, costs and expenses incurred in connection with the negotiation and consummation of the transactions contemplated hereby. 11.5 AMENDMENTS; MERGER CLAUSE. This Agreement, including the schedules and other documents referred to herein which form a part hereof, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement may not be amended except by a writing executed by all of the parties hereto. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 11.6 WAIVER. To the extent permitted by applicable law, no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by a party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by all the parties hereto. Any waiver by a party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision of this Agreement. Neither the failure nor any delay by any party hereto in exercising any right or power under this Agreement or the documents referred to in this Agreement will operate as a waiver of such right or power, and no single or partial exercise of any such right or power will preclude any other or further exercise of such right or power or the exercise of any other right or power. 11.7 NOTICES. All notices, claims, certificates, requests, demands and other communications hereunder shall be given in writing and shall be delivered personally or sent by facsimile or by a nationally recognized overnight courier, postage prepaid, and shall be deemed to have been duly given when so delivered personally or by confirmed facsimile or one (1) business day after the date of deposit with such nationally recognized overnight courier. All such notices, claims, certificates, requests, demands and other communications shall be addressed to the respective parties at the addresses set forth below or to such other address as the person to whom notice is to be given may have furnished to the others in writing in accordance herewith. 40 If to the Buyer, to: Sonic Automotive, Inc. 5401 E. Independence Boulevard Charlotte, North Carolina 28212 Fax No.: (704) 563-5116 Attention: Chief Financial Officer With a copy to: Parker, Poe, Adams & Bernstein L.L.P. 2500 Charlotte Plaza Charlotte, North Carolina 28244 Fax No.: (704) 334-4706 Attention: John R. Hairr III If to the Seller or the Stockholders, to: David Hudiburg 6000 Tinker Diagonal Midwest City, OK 73110 Fax No.: (405) 733-8041 With a copy to: Randall Calvert Calvert Law Firm 6520 N. Western, Suite 100 Oklahoma City, OK 73116 Fax No.: (405) 848-5052 11.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts. Each such counterpart hereof shall be deemed to be an original instrument, and all such counterparts together shall constitute but one agreement. 11.9 KNOWLEDGE. Whenever any representation or warranty of the Seller or any of the Stockholders contained herein or in any other document executed and delivered in connection herewith is based upon the knowledge of the Seller or any of the Stockholders, (a) such knowledge shall be deemed to include (i) the best actual knowledge, information and belief of the Seller and each Stockholder and (ii) any information which any of the Stockholders would reasonably be expected to be aware of in the prudent discharge of his duties in the ordinary course of business (including consultation with legal counsel) on behalf of the Seller, and (b) the knowledge of the Seller or any of the Stockholders shall be deemed to be the knowledge of the Seller and all the Stockholders. 41 11.10 ARBITRATION. (a) [Intentionally Deleted] (b) Except as otherwise provided herein, any dispute, claim or controversy arising out of or relating to this Agreement or the interpretation or breach hereof shall be resolved by binding arbitration under the commercial arbitration rules of the American Arbitration Association (the "AAA RULES") to the extent such AAA Rules are not inconsistent with this Agreement. Judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof or such court may be asked to judicially confirm the award and order its enforcement, as the case may be. The demand for arbitration shall be made by any party hereto within a reasonable time after the claim, dispute or other matter in question has arisen, and in any event shall not be made after the date when institution of legal proceedings, based on such claim, dispute or other matter in question, would be barred by the applicable statute of limitations. The arbitration panel shall consist of three (3) arbitrators, one of whom shall be appointed by the Buyer and one of whom shall be appointed by the Seller within thirty (30) days after any request for arbitration hereunder. The two arbitrators thus appointed shall choose the third arbitrator within thirty (30) days after their appointment; provided, however, that if the two arbitrators are unable to agree on the appointment of the third arbitrator within thirty (30) days after their appointment, either arbitrator may petition the American Arbitration Association to make the appointment. The place of arbitration shall be Charlotte, North Carolina. The arbitrators shall be instructed to render their decision within sixty (60) days after their selection and to allocate all costs and expenses of such arbitration (including legal and accounting fees and expenses of the respective parties) to the parties in the proportions that reflect their relative success on the merits (including the successful assertion of any defenses). (c) Notwithstanding the provisions of Section 11.10(b), any dispute relating to accounting matters shall be resolved as provided in this Section 11.10(c). The parties first shall use reasonable efforts to resolve any such accounting dispute. In the event the dispute has not been resolved within a reasonable amount of time, either the Buyer, on the one hand, or the Seller, on the other hand, may provide written notice to the other party that the matter will be submitted to a "Big Five" accounting firm mutually acceptable to the Buyer and the Seller (the "ACCOUNTANTS") for resolution. If issues in dispute are submitted to the Accountants for resolution: (i) each party will furnish to the Accountants such work papers and other documents and information relating to the disputed issues as the Accountants may request and are available to the party or its subsidiaries (or its independent public accountants), and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (ii) such determination by the Accountants, as set forth in a notice delivered to both parties by the Accountants, will be binding and conclusive on the parties; and (iii) the Buyer and the Seller shall each bear 50% of the fees and expenses of the Accountants for such determination. (d) Nothing contained in this Section 11.10 shall prevent any party hereto from seeking any equitable relief to which it would otherwise be entitled from a court of competent jurisdiction. 42 11.11 PERMITTED SUCCESSORS; ASSIGNS; NO THIRD PARTY BENEFICIARIES. Subject to Section 11.1, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the respective successors, heirs and assigns of the parties hereto. Nothing in this Agreement, expressed or implied, is intended or shall be construed to confer upon or give to any employee of the Seller, or any other person, firm, corporation or legal entity, other than the parties hereto and their successors and permitted assigns, any rights, remedies or other benefits under or by reason of this Agreement. 11.12 HEADINGS. The article headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.13 SEVERABILITY; CONSTRUCTION. (a) In the event that any provision, or part thereof, of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions, or parts thereof, shall not in any way be affected or impaired thereby. (b) This Agreement shall be construed equitably, in accordance with its terms, without regard to the degree which the Seller or the Buyer, or their respective legal counsel, have participated in the drafting of this Agreement. 11.14 COOPERATION IN SEC FILINGS. At the request of the Buyer and at the Buyer's expense, the Seller and the Stockholders shall cooperate in the preparation by the Buyer of any filings to be made by the Buyer with the SEC including, without limitation, any filing with respect to a registered offering of its securities by the Buyer and the closing of the offering registered thereby. [SIGNATURE PAGE FOLLOWS] 43 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first above written. BUYER: SONIC AUTOMOTIVE, INC. By: /s/ O. Bruton Smith ------------------------------------- Its: Chairman and CEO SELLER: RIVERSIDE CHEVROLET, INC. By: /s/ David Hudiburg ------------------------------------- Its: Vice President STOCKHOLDERS: /s/ Rod Maupin -------------------------------------(SEAL) Rod Maupin /s/ David Hudiburg -------------------------------------(SEAL) David Hudiburg /s/ Steven Hudiburg -------------------------------------(SEAL) Steven Hudiburg /s/ Donna Dodson -------------------------------------(SEAL) Donna Dodson /s/ Paula Tate -------------------------------------(SEAL) Paula Tate /s/ Leslie Hudiburg -------------------------------------(SEAL) Leslie Hudiburg Paul Hudiburg 1997 Dynasty Trust (dated December 26, 1997) By: /s/ David Hudiburg ------------------------------------- David Hudiburg, Co-Trustee By: /s/ Steven Hudiburg ------------------------------------- Steven Hudiburg, Co-Trustee By: /s/ Donna Dodson ------------------------------------- Donna Dodson, Co-Trustee By: /s/ Paula Tate ------------------------------------- Paula Tate, Co-Trustee EX-10 5 EXHIBIT 10.6 EXHIBIT 10.6 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made this 30th day of September, 1999 by and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the "BUYER"), JIM GLOVER DODGE, INC., an Oklahoma corporation (the "SELLER"), and the stockholders of the Seller set forth on the signature page hereto (individually, a "STOCKHOLDER" and, collectively, the "STOCKHOLDERS"). W I T N E S S E T H: WHEREAS, the Seller is engaged in the ownership and operation of a Dodge automobile dealership business located at 2920 N. Aspen, Broken Arrow, Oklahoma 74012 (the "BUSINESS"); and WHEREAS, the Seller desires to sell and the Buyer desires to buy, or to cause one or more subsidiaries or affiliates of the Buyer to buy, substantially all of the assets pertaining to the Business, upon the terms and subject to the conditions of this Agreement; and WHEREAS, at the closing of the transactions contemplated by this Agreement, the Landlords (as defined in Section 1.4 below) and the Buyer, as the Tenant, shall enter into the Dealership Lease (as defined in Section 1.4 below); and WHEREAS, concurrently with the execution and delivery of this Agreement, the Seller is notifying the Manufacturer (as defined in Article I below) of the transactions contemplated by this Agreement; WHEREAS, contemporaneously with the execution of this Agreement, the Buyer has entered into an Asset Purchase Agreement dated as of the date hereof (the "RIVERSIDE CHEVROLET PURCHASE AGREEMENT") with Riverside Chevrolet, Inc. ("RIVERSIDE CHEVROLET") and certain stockholders of Riverside Chevrolet, with respect to the acquisition by the Buyer of the Chevrolet automobile dealership business owned by Riverside Chevrolet, and the Buyer has entered into a Stock Purchase Agreement dated as of the date hereof (the "RIVERSIDE NISSAN PURCHASE AGREEMENT") with Riverside Nissan, Inc. ("RIVERSIDE NISSAN") and the stockholders of Riverside Nissan, with respect to the acquisition by the Buyer of the Nissan automobile dealership business owned by Riverside Nissan; WHEREAS, the consummation of the transactions contemplated by this Agreement is subject to the consummation of the transactions contemplated by the Riverside Chevrolet Purchase Agreement and the Riverside Nissan Purchase Agreement; NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound, the parties hereby agree as follows: ARTICLE I CERTAIN DEFINITIONS 1.1 "ASSETS" shall mean: the New Vehicles (as defined in Section 3.1); the Demonstrators (as defined in Section 3.2); the Used Vehicles (as defined in Section 3.5); the Parts (as defined in Section 4.3); the Miscellaneous Inventories (as defined in Section 5.1); the Work in Progress (as defined in Section 5.3); the Fixtures and Equipment (as defined in Section 5.4); the Miscellaneous Assets (as defined in Section 5.5); the goodwill of the Business; and any other assets and properties of the Seller to be transferred to the Buyer hereunder. 1.2 "CLOSING DATE" shall mean the date, not later than the Closing Date Deadline (as hereinafter defined), of the closing of the purchase and sale of the Assets (the "CLOSING"), which shall be a date designated by the Buyer not later than fifteen (15) days after receipt by the Buyer of the approvals, and the satisfaction of the other conditions, set forth in Sections 8.8, 8.13, 8.17, and 8.19, or such other date as is mutually agreed upon by the parties hereto. The Closing shall be held at the offices of Parker, Poe, Adams & Bernstein L.L.P., 2500 Charlotte Plaza, Charlotte, North Carolina at 9:00 a.m. on the Closing Date. The Closing shall be deemed to be effective as of the opening of business on the Closing Date. 1.3 "CLOSING DATE DEADLINE" shall mean December 31, 1999; provided, however, if, as of December 31, 1999, the approvals or other conditions set forth in Sections 8.13, 8.17 or 8.19 of this Agreement shall not have been obtained, the Buyer may elect to extend the Closing Date Deadline for up to an additional thirty (30) days. 1.4 "DEALERSHIP LEASE" shall mean that certain Lease Agreement substantially in the form of Exhibit 1.4 hereto, to be dated as of the Closing Date between the Buyer and the other persons and entities set forth on the signature page thereto (collectively, the "LANDLORDS"), pursuant to which the Buyer will lease the real property, buildings and other improvements located at the real property described on Schedule 7.9(b). 1.5 "INVENTORY DATE" shall mean the close of business on the date of completion of the Inventory (as defined in Section 4.1), which date shall not be more than three (3) days prior to the Closing Date, or such other date prior to the Closing as is mutually agreed by the Seller and the Buyer. 1.6 "LIABILITIES" shall mean: (a) all obligations of the Seller arising in the ordinary course of business after the Closing Date, and not as a result of any breach or default, under (i) all contracts and leases of the Seller that are set forth on Annex A of Part I of Schedule 2.4 attached hereto, and (ii) all other contracts and leases of the Seller that are entered into in connection with the Business in the ordinary course of business at any time after the date hereof and on or prior to the Closing Date, but only if, in the case of both clauses (i) and (ii) above, the Buyer has agreed to assume such contracts and leases pursuant to the Assumption Agreement (as 2 defined in Section 2.4 below); (b) the Inducement Fee as provided in Section 2.6 below; and (c) any floor plan indebtedness of the Seller assumed by the Buyer pursuant to Section 2.4(b) hereof. 1.7 "MANUFACTURER" shall mean Daimler-Chrysler Corporation. For purposes of the Buyer's application to the Manufacturer, as contemplated by Section 10.11 below, the address of the Manufacturer and the relevant contact person at the Manufacturer are: Bill Albert (Zone Manager) (913/469-3009) and Mike Hudnell (Dealer Placement Manager) (913/469-3012) at 7500 College Boulevard, Suite 1000, Overland Park, Kansas 66210. ARTICLE II SALE AND PURCHASE OF THE ASSETS; OTHER AGREEMENTS 2.1 SALE AND PURCHASE. Upon the terms and subject to the conditions hereinafter set forth, at the Closing, the Seller will sell, transfer and convey the Assets to the Buyer and the Buyer will purchase the Assets from the Seller for the consideration set forth in this Agreement. The sale, transfer and conveyance of the Assets shall be made by the execution and delivery at the Closing of a bill of sale from the Seller in a form reasonably satisfactory to the Buyer's counsel (the "BILL OF SALE") and such other instruments of assignment, transfer and conveyance as the Buyer shall reasonably request. Except to the extent specifically included within the Assets, the Seller will not sell, and the Buyer will not purchase, any other tangible or intangible assets of the Seller including, but not limited to, the assets of the Seller listed on Schedule 2.1 attached hereto. 2.2 AGGREGATE PURCHASE PRICE. The aggregate purchase price (the "AGGREGATE PURCHASE PRICE") to be paid for the Assets shall consist of the sum of (i) Thirteen Million Seven Hundred Fifty Thousand Dollars ($13,750,000), as the purchase price for the Business and the intangible assets included in the Assets (the "BUSINESS AND INTANGIBLE ASSETS PURCHASE PRICE"); (ii) the New Vehicle Purchase Price (as defined in Section 3.1); (iii) the Demonstrator Purchase Price (as defined in Section 3.2); (iv) the Used Vehicle Purchase Price (as defined in Section 3.5); (v) the Parts Purchase Price (as defined in Section 4.4); (vi) the Miscellaneous Inventories Purchase Price (as defined in Section 5.1); (vii) the Work in Progress Purchase Price (as defined in Section 5.3); and (viii) the Fixtures and Equipment Purchase Price (as defined in Section 5.4). The parties acknowledge that the New Vehicle Purchase Price, the Parts Purchase Price, the Miscellaneous Inventories Purchase Price and the Work in Progress Purchase Price will be based upon information contained in Schedule 3.1 and the Inventory (as defined in Section 4.1), both of which are to be completed and delivered prior to the Closing Date. The parties also acknowledge that adjustments to those categories of Assets will have to be made after the Closing to reflect ordinary course increases or decreases in those assets between the time of delivery of such Schedule 3.1 and the Inventory and the Closing Date, and that the related components of the Aggregate Purchase Price will have to be adjusted to reflect any such adjustments to those Assets. All of the foregoing adjustments (with appropriate payments by the parties) will be made as promptly as possible after the Closing, the parties hereby agreeing to cooperate with each other in making such adjustments. 3 Each party will use the Aggregate Purchase Price and Liabilities allocation described in Schedule 2.2 hereto in all reporting to, and all tax returns filed with, the Internal Revenue Service and other state and local taxing authorities. The Seller and the Buyer will execute and deliver to each other at Closing a declaration under Section 1060 of the Internal Revenue Code of 1986, as amended (the "CODE"), in the form set forth in the regulations promulgated thereunder, which declaration shall reflect the allocation on Schedule 2.2. 2.3 PAYMENT OF AGGREGATE PURCHASE PRICE. At the Closing, the Buyer shall pay the Aggregate Purchase Price as follows: (a) PAYMENT OF CASH. The Buyer shall deliver to the Seller cash, by wire transfer to an account or accounts designated by the Seller at least one Business Day prior to the Closing, in an amount equal to the sum of: (i) one hundred percent (100%) of the New Vehicle Purchase Price; plus (ii) eighty percent (80%) of each of (A) the Demonstrator Purchase Price, (B) the Used Vehicle Purchase Price, (C) the Parts Purchase Price, (D) the Miscellaneous Inventories Purchase Price, (E) the Work in Progress Purchase Price, (F) the Fixtures and Equipment Purchase Price and (G) the Business and Intangibles Assets Purchase Price. As used herein, the term "BUSINESS DAY" shall mean a day other than a Saturday, Sunday or a day on which banks are required to be closed in the State of North Carolina. (b) ISSUANCE OF PREFERRED STOCK. (i) In payment of the balance of the Aggregate Purchase Price (such balance being hereinafter called the "STOCK COMPONENT"), the Buyer shall issue and deliver to the Seller that number of whole shares of the Buyer's Class A Convertible Preferred Stock, Series II, obtained by dividing the Stock Component by $1,000 (the "PREFERRED STOCK"). No fractional shares of Preferred Stock shall be issued; any such fraction of a share of Preferred Stock shall be paid in cash at the rate of $1,000 per whole share of Preferred Stock. The Preferred Stock shall be convertible into shares of the Buyer's Class A Common Stock, par value $.01 per share (the "COMMON STOCK"), and shall have such rights and preferences, all as set forth in the Certificate of Designation, Preferences and Rights with respect to the Preferred Stock, a copy of which is attached as Exhibit 2.3(b) hereto (the "CERTIFICATE OF DESIGNATION"). Inasmuch as the Seller intends to distribute the Preferred Stock to certain of its stockholders at Closing, the Buyer shall issue and deliver the Preferred Stock to the Seller's stockholders in accordance with any written instructions delivered by the Seller to the Buyer at least five (5) Business Days prior to the Closing Date. Notwithstanding the foregoing or any such written instructions, no stockholder of the Seller shall be issued any Preferred Stock by the Buyer unless (A) such stockholder is an "accredited investor" within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act of 1933, as amended (the "SECURITIES ACT"), (B) such stockholder shall have completed, executed and delivered to the Buyer an investor qualification questionaire in form and substance reasonably acceptable to the Buyer, (C) such stockholder shall have delivered to the Buyer such balance sheets and income tax returns reasonably requested by the Buyer to confirm such stockholder's status as an "accredited investor" and (D) if such stockholder is not a party to this Agreement, such stockholder shall have executed and delivered to the Buyer a certificate, in form and substance 4 reasonably acceptable to the Buyer, whereby such stockholder shall make the representations and warranties contained in Section 7.16. (ii) Upon the issuance and delivery of the Preferred Stock to the Seller at the Closing, the Buyer's sole obligations with respect to the Preferred Stock and the Common Stock issuable upon conversion thereof (the "CONVERSION STOCK") shall be as follows: (A) The Buyer shall use its best reasonable efforts to make available "current public information" about itself within the meaning of subsection (c)(1) of Rule 144 ("RULE 144") promulgated by the Securities and Exchange Commission (the "SEC") under the Securities Act, to the extent necessary to facilitate resales of the Conversion Stock pursuant to Rule 144 or any successor rule; and (B) The Buyer shall remove stop transfer instructions on and restrictive legends from certificates representing the Conversion Stock to the extent that either (I) the offer and sale of the Preferred Stock or the Conversion Stock may hereafter be registered under the Securities Act and under any applicable state securities or blue sky laws, (II) the Buyer has received an opinion of counsel, in form and substance reasonably satisfactory to the Buyer, that registration of such offer and sale is not required, or (III) the Sellers are eligible to sell the Conversion Stock pursuant to Rule 144 or any successor rule. (iii) Except as set forth in the last sentence of this subsection (iii), during the Lock-Up Period (as defined below), the Seller and the Stockholders covenant and agree that none of them shall, without the prior written consent of the Buyer, directly or indirectly, (A) offer, pledge, sell, sell short, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of the Conversion Stock, the Preferred Stock or any securities convertible into or exchangeable or exercisable for the Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or file any registration statement under the Securities Act, with respect to any of the foregoing, or (B) enter into any swap or any other agreement or hedging arrangement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Conversion Stock or the Preferred Stock, whether any such swap or transaction is to be settled by delivery of Conversion Stock or other securities, in cash or otherwise. The "LOCKUP PERIOD" shall be for a period beginning on the Closing Date and ending on the date that is one (1) year after the date on which all of such shares of Preferred Stock have been converted into Conversion Stock. Notwithstanding the foregoing, the provisions of this Section 2.3(b)(iii) shall not prevent the Seller and the Stockholders from selling any shares of Conversion Stock pursuant to Rule 144 or any successor rule or from converting any shares of Preferred Stock. 2.4 ASSIGNMENT AND ASSUMPTION. (a) At the Closing, the Seller will assign to the Buyer the Liabilities, and the Buyer will assume and agree to perform and discharge the Liabilities, pursuant to an assignment and 5 assumption agreement with the Seller in a form reasonably acceptable to the Seller's counsel (the "ASSUMPTION AGREEMENT"). At the option of the Buyer, the Buyer may assume the Seller's liabilities with regard to accrued vacation and sick leave, as of the Closing, for all employees of the Business. If the Buyer assumes such liabilities, the Buyer will receive, at closing, a credit against the Purchase Price in the aggregate amount of such liabilities. Notwithstanding anything herein to the contrary, except as expressly provided in this Section 2.4 and in the Assumption Agreement, the Buyer does not and will not assume or become liable, or otherwise be responsible, for any obligations or liabilities of the Seller, of any kind whatsoever, fixed or contingent, known or unknown, and whether or not any of such liabilities or obligations are the subject matter of any of the representations and warranties of the Seller in this Agreement (collectively, the "RETAINED LIABILITIES"), as a result of the transactions contemplated in this Agreement. The Seller shall retain and agrees to satisfy and discharge, and otherwise be responsible for, all of the Retained Liabilities, including without limitation the Retained Liabilities set forth on Part II of Schedule 2.4. (b) Notwithstanding the provisions of Section 2.4(a) above, at the Closing, the Buyer may, if reasonably necessary, elect to assume the Seller's floor plan indebtedness outstanding as of the Closing and/or other indebtedness outstanding as of the Closing, in which case the Aggregate Purchase Price payable in cash at the Closing will be reduced by the unpaid principal of, and accrued interest on, such indebtedness outstanding as of the Closing, as set forth in estoppel and/or payoff letters from the respective lenders, or as otherwise mutually agreed by the Buyer and the Seller. In the event of such assumption, such indebtedness shall become part of the "Liabilities" for all purposes of this Agreement (including, without limitation, the indemnification obligations of the Buyer under Section 10.6 below); provided, however that the Seller and the Stockholders shall indemnify the Buyer for any breaches or defaults of the Seller with respect to such floor plan arrangements and agreements. 2.5 DEALERSHIP LEASE. At the Closing, the Buyer and the Landlords will execute and deliver the Dealership Lease. 2.6 INDUCEMENT FEE. As an inducement to the Buyer to negotiate and enter into this Agreement and to undertake the further cost and expense of conducting its due diligence investigation and preparing to satisfy its obligations at the Closing, the Seller hereby agrees to pay to the Buyer not later than January 29, 2000, the sum of $500,000 (the "Inducement Fee"). The Inducement Fee will be included in the Liabilities and will become an obligation of the Buyer or any other person (including any holder of a right of first refusal, preemptive right or other similar right, with respect to any of the Assets) who acquires, directly or indirectly, the Assets, or any portion thereof, as a result of the execution and delivery by the Seller of this Agreement. The Inducement Fee will be canceled if this Agreement is terminated for any reason other than the exercise of a right of first refusal, preemptive right or other similar right, by the Manufacturer or any person claiming by, through or under it. Subject to the foregoing, the obligation to pay the Inducement Fee shall survive the termination of this Agreement. 6 2.7 EMPLOYMENT AGREEMENT. At the Closing, Jim Glover shall enter into an employment agreement with the Buyer substantially in the form of Exhibit 2.7 attached hereto (the "EMPLOYMENT AGREEMENT"). ARTICLE III NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES 3.1 NEW VEHICLES. At the Closing, the Buyer shall purchase all of the Seller's untitled new motor vehicles (meaning (i) current model year vehicles as of the Closing Date and (ii) if the Closing occurs on or before January 31, 1999, 1999 model year vehicles but excluding from clauses (i) and (ii) conversion vans or similar-type vehicles that have been in inventory longer than 180 days, rental cars and company vehicles) in the Seller's stock and unsold by the Seller as of the Closing Date and which are listed on Schedule 3.1 hereto, which schedule the Seller shall deliver to the Buyer not more than three (3) days prior to the Closing (the "NEW VEHICLES"). The purchase price to be paid by the Buyer for each New Vehicle shall be the price at which the New Vehicle was invoiced to the Seller by the Manufacturer, as adjusted pursuant to this Article III (the sum of all such amounts to be paid for New Vehicles as determined by this Article III is herein referred to as the "NEW VEHICLE PURCHASE PRICE"); provided, however, the purchase price of any pre-reported sold vehicles for which the sale cannot be reversed shall be as mutually agreed by the Buyer and the Seller. In the event the Buyer and the Seller cannot agree upon a price with respect to any such pre- reported sold vehicle, the Buyer shall not be obligated to purchase, and the Seller shall not be obligated to sell, such vehicle. Schedule 3.1 shall set forth the model, invoice cost, and all other information necessary to calculate the New Vehicle Purchase Price with respect to each New Vehicle listed in such Schedule 3.1. At the Closing, the Seller shall assign to the Buyer, without any additional consideration therefor, by appropriate documents reasonably satisfactory to the Buyer, all unfilled retail orders and deposits made thereon. Any profits or proceeds derived from such unfilled retail orders shall belong to the Buyer. 3.2 DEMONSTRATORS. At the Closing, the Buyer shall purchase all of the Seller's untitled new motor vehicles (meaning (i) current model year vehicles as of the Closing Date and (ii) if the Closing occurs on or before January 31, 1999, 1999 model year vehicles but excluding from clauses (i) and (ii) conversion vans or similar-type vehicles that have been in inventory longer than 180 days, rental cars and company vehicles) in the Seller's stock and unsold by the Seller as of the Closing Date which are used in the ordinary course of business for the purpose of demonstration, and that are listed on Schedule 3.2, which schedule the Seller shall deliver to the Buyer no more than three (3) days prior to the Closing (the "DEMONSTRATORS"). For purposes of this Agreement, (a) each motor vehicle with more than 6,000 miles on its odometer and (b) each vehicle which is used for the purpose of demonstration and which is not a current model year vehicle as of the Closing Date shall be deemed to be "used" rather than a "Demonstrator" or "New Vehicle". The purchase price to be paid by the Buyer for each Demonstrator shall be the price at which the Demonstrator was invoiced to the Seller by the Manufacturer, as adjusted pursuant to this Article III, and, if such Demonstrator has an odometer reading in excess of 500 miles, as reduced by an amount equal to ten cents ($.10) 7 multiplied by the total mileage on the odometer (the sum of all such amounts to be paid for Demonstrators hereunder is herein referred to as the "DEMONSTRATOR PURCHASE PRICE"). Schedule 3.2 shall set forth each Demonstrator's model, invoice cost, odometer reading and all other information necessary to calculate the Demonstrator Purchase Price with respect to such Demonstrator. 3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR PURCHASE PRICE. The purchase price paid for each New Vehicle and each Demonstrator purchased under this Article III shall be: (a) increased by the dealer cost of any equipment and accessories which have been installed in such vehicle; and (b) decreased by the sum of (i) the dealer cost of any equipment and accessories which have been removed from such vehicle, (ii) if such vehicle shall have been in inventory for less than thirty (30) days as of the Closing Date, any factory floor plan assistance and advertising credits relative to such vehicle, and (iii) all paid or unpaid rebates, discounts, holdback for dealer account and other factory incentives (including without limitation rebates applied for and paid but not earned and incentive monies claimed on pre-reported units). 3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS. If any New Vehicles or Demonstrators shall have suffered any damage prior to the Closing Date which is not reflected on Schedule 3.1 or Schedule 3.2, the Seller shall notify the Buyer in writing on or prior to the Closing Date. In such case, the Seller and the Buyer will attempt to agree on the cost to cover such repairs or some other equitable reduction in value to reflect such condition, which amount shall be deducted from the price to be paid for such New Vehicle or Demonstrator. In the event the Buyer and the Seller cannot agree on the cost of repairs or the amount of reduction, the Buyer shall have no obligation to purchase any such damaged New Vehicle or Demonstrator and the Seller shall have no obligation to sell such damaged New Vehicle or Demonstrator. With respect to any New Vehicle or Demonstrator which shall have been damaged and repaired prior to the Closing Date, the Seller and the Buyer will attempt to agree on an adjustment to the price to reflect the decrease, if any, in the wholesale value of such New Vehicle or Demonstrator resulting from such damage and repair, which amount shall be deducted from the price to be paid for such New Vehicle or Demonstrator. In the event the Buyer and the Seller cannot agree on such adjustment, the Buyer shall have no obligation to purchase such New Vehicle or Demonstrator and the Seller shall have no obligation to sell such New Vehicle or Demonstrator. 3.5 USED VEHICLES. The Buyer shall have no obligation to purchase any vehicle from the Seller other than its obligation hereunder to purchase the New Vehicles and the Demonstrators. The Seller and the Buyer shall perform an inventory of the Seller's motor vehicles that are not New Vehicles or Demonstrators (including conversion vans or similar-type vehicles that have been in inventory longer than 180 days, rental cars and company vehicles) as of the Inventory Date and, in connection with such inventory, the Seller and the Buyer shall attempt to assign a mutually agreed price to each such vehicle owned by the Seller as of the Closing Date. Any such vehicles as to which the Seller and the Buyer are unable to agree upon a price shall not be purchased by the Buyer in connection herewith. Any such vehicles as to which the Seller and the Buyer shall agree upon a price are collectively referred to herein as the "USED VEHICLES," and shall be purchased by the Buyer, and sold by the Seller, at the Closing. The aggregate sum of all prices assigned to such Used 8 Vehicles to be purchased by the Buyer pursuant to the terms of this Section 3.5 shall be referred to herein as the "USED VEHICLE PURCHASE PRICE." ARTICLE IV PARTS/ACCESSORIES 4.1 THE INVENTORY. The Buyer and the Seller shall engage a mutually acceptable third party engaged in the business of appraising, valuing and preparing inventories for automobile dealerships (hereinafter referred to as the "INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the parts and accessories, as well as of the Miscellaneous Inventories (as defined in Section 5.1), owned by and either used or held for use by the Seller in the Business. The Inventory (insofar as it relates to parts and accessories) shall be posted to the Manufacturer's approved system of inventory control. The cost of the Inventory shall be borne 50% by the Buyer and 50% by the Seller. The Buyer shall have the right to deduct the Seller's portion of such expense from the consideration to be paid to the Seller under the terms of this Agreement and to remit such sums directly to the Inventory Service. The Inventory shall be completed by the Inventory Date. The Inventory shall identify each part and accessory and its purchase price. 4.2 RETURNABLE AND NON-RETURNABLE REPLACEMENT PARTS AND ACCESSORIES. The Inventory shall classify replacement parts and accessories as "returnable" or "nonreturnable." For purposes of this Agreement, the terms "returnable parts" and "returnable accessories" shall describe and include only those new replacement parts and new accessories (excluding prior model year vehicle parts and accessories) for vehicles which are listed (coded) in the latest current Master Parts Price List Suggested List Prices and Dealer Prices, or other applicable similar price lists, of the Manufacturer, with supplements or the equivalent in effect as of the Closing Date (the "MASTER PRICE LIST"), as returnable to the Manufacturer at not less than the purchase price reflected in the Master Price List or in the most recent applicable price list. All parts and accessories listed (coded) in the Master Price List as non-returnable to the Manufacturer shall be classified as "nonreturnable." The purchase price for each "returnable part" and "returnable accessory" will be the price therefor listed in the Master Price List. The purchase price of each "nonreturnable" part and accessory shall be equal to a value mutually agreed upon by Buyer and the Seller. Any such "nonreturnable" part or accessory as to which the Buyer and the Seller are unable to agree upon a price shall not be purchased by the Buyer in connection herewith. The purchase price of all special order, non-stock, "Jobber" or "NPN" parts shall be equal to the Seller's original cost of such parts. The purchase price of all nuts, bolts and any other parts not addressed in this Section 4.2 shall equal the fair market value thereof as determined by the Inventory Service. The Buyer shall not be required to purchase any damaged parts or accessories, parts and accessories with component parts missing, superseded or obsolete parts or accessories, or used parts or accessories. 4.3 PARTS. At the Closing, the Buyer shall purchase all parts and accessories owned by the Seller on the Closing Date and listed on the Inventory (the "PARTS") provided, however, that the Buyer shall not be obligated to purchase any damaged parts or accessories, parts and accessories with component parts missing, superseded or obsolete parts or accessories, or used parts or 9 accessories. The Seller agrees that if parts and accessories that the Buyer is not obligated to purchase hereunder are not removed from the Leased Premises within thirty (30) days after the Closing Date, they shall become the property of the Buyer without the payment of any consideration in addition to the consideration otherwise provided herein. The Buyer agrees to provide access to the Seller for the purpose of removing such property during such thirty (30) day period. 4.4 PARTS PURCHASE PRICE. The purchase price for the Parts will equal the value of such items shown on the Inventory, subject to the provisions of Section 4.2 above (the "PARTS PURCHASE PRICE"). 4.5 PARTS RETURN PRIVILEGES. The Seller shall assign to the Buyer at Closing any net parts return privileges under the Manufacturer's Parts Return Plans that may have accrued to the Seller prior to the Closing (and any other special parts return authorizations which may have been granted to the Seller by Manufacturer). At the request of the Buyer, the Seller shall use its reasonable best efforts to assist the Buyer in effecting any one-time parts return offered by the Manufacturer, and will promptly pay over to the Buyer any monies received from the Manufacturer related thereto. ARTICLE V MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES AND EQUIPMENT 5.1 MISCELLANEOUS INVENTORIES. At the Closing, the Buyer shall purchase all useable gas, oil and grease, all undercoat material and body materials in unopened cans and such other miscellaneous useable and saleable articles in unbroken lots (including office supplies) which (i) are on the Seller's dealership premises, (ii) are owned by the Seller on the Closing Date, (iii) do not represent more than a sixty (60) day supply of any particular item(s), and (iv) are identified in the Inventory taken by the Inventory Service on the Inventory Date the ("MISCELLANEOUS INVENTORIES"). The purchase price for the Miscellaneous Inventories shall be equal to the replacement cost of the Miscellaneous Inventories as determined by the Inventory Service and set forth on the Inventory (the sum of all prices of the Miscellaneous Inventories pursuant to the terms of this Section 5.1 shall be referred to herein as the "MISCELLANEOUS INVENTORIES PURCHASE PRICE"). 5.2 MISCELLANEOUS ITEMS NOT INCLUDED IN THE INVENTORY. The Buyer shall have no obligation to purchase any miscellaneous items that are not included in the Miscellaneous Inventories. The Seller agrees that any miscellaneous items that are not included in the Miscellaneous Inventories and are not removed from the Leased Premises within thirty (30) days after the Closing Date shall become the property of the Buyer without the payment of any consideration in addition to the consideration otherwise provided herein. The Buyer agrees to provide access to the Seller for the purpose of removing such property during such thirty (30) day period. 10 5.3 WORK IN PROGRESS. At the Closing, the Buyer shall buy at the Seller's actual cost for parts and labor such shop labor and sublet repairs as the Seller shall have caused to be performed on any repair orders which are in process at the opening of business on the Closing Date for which there are adequate credit arrangements (the "WORK IN PROGRESS") (the aggregate sum of all costs of the Seller for the Work in Progress pursuant to the terms of this Section 5.3 shall be referred to herein as the "WORK IN PROGRESS PURCHASE PRICE"). The Buyer shall complete such repair work and shall be entitled to the entire proceeds to be collected for such services. 5.4 FIXTURES AND EQUIPMENT. At the Closing, the Buyer shall purchase all fixtures, machinery, equipment (including special tools and shop equipment, but excluding leasehold improvements), furniture and all signs and office equipment (including, without limitation, computer equipment used in normal dealership operations) owned by the Seller and used or held for use by the Seller in connection with the Business, including the items listed on Schedule 5.4 hereto, which the Seller shall deliver to the Buyer not later than five (5) days prior to the Closing (collectively referred to herein as the "FIXTURES AND EQUIPMENT"). The purchase price for all Fixtures and Equipment which have been purchased by the Seller on or after December 1, 1998 shall be the actual cost thereof as depreciated by the modified accelerated costs recovery system depreciation method as reflected in Schedule 5.4. The purchase price for all Fixtures and Equipment which were purchased by the Seller prior to December 1, 1998 shall be equal to the depreciated book value thereof as of November 30, 1998 less an amount equal to seventy-five percent (75%) of the book depreciation thereof from December 1, 1998 through the Closing Date as reflected in Schedule 5.4. The aggregate purchase price for all Fixtures and Equipment shall be referred to herein as the "FIXTURES AND EQUIPMENT PURCHASE PRICE"; provided, however, the Fixtures and Equipment Purchase Price shall not include the value of any items of Fixtures and Equipment which are leased pursuant to contracts or leases included in the Assumed Liabilities. 5.5 MISCELLANEOUS ASSETS. At the Closing, and without payment of any additional consideration, the Buyer shall purchase all of the Seller's (i) unused shop repair orders, parts sales tickets, accounting forms, binders, office and shop supplies (not in unbroken lots) and such shop reference manuals, parts reference catalogs, non-accounting file copies for all sales of the Seller for the three (3) years preceding the Closing Date, (ii) copies of new and used car sales records and specifically wholesale parts sales records, new and used parts sales records, and service sales records for the three (3) years preceding the Closing Date, (iii) product sales training material and reference books on hand as of the Closing Date, (iv) customer and registration lists pertaining to the sale of motor vehicles, service files, repair orders, owner follow-up lists and similar records relating to the operation of the Business, (v) telephone numbers and listings used by the Seller in connection with the Business, (vi) names and addresses of the Seller's service customers and prospective purchasers, (vii) all lawfully transferrable licenses and permits of the Business, (viii) all rights and claims under or arising out of the contracts and leases included in the Liabilities, and (ix) the Seller's rights to the tradenames listed on Schedule 5.5 hereto, and any similar variations thereof (all the foregoing items collectively referred to herein as the "MISCELLANEOUS ASSETS"). 5.6 CERTAIN RECORDS OF THE SELLER; ACCESS BY THE SELLER. The Seller may retain all corporate records, financial records and correspondence which are not necessary for the continued 11 operation of the Business by the Buyer. All records not retained by the Seller shall be referred to as the "TRANSFERRED RECORDS." The Buyer agrees to maintain the Transferred Records for a period not less than six (6) years after the Closing Date. The Seller and the Seller's representatives may have access to review and copy such information during the Buyer's regular business hours, upon reasonable notice, if such information is necessary to wind up the Seller's business affairs. 5.7 WARRANTY OBLIGATIONS OF THE SELLER. To the extent that the Seller may have issued warranties on the vehicles sold by the Seller on or prior to the Closing Date and to the extent such warranties are not included in the Work in Progress, the Buyer shall have no responsibility to perform any services required under such warranties, unless authorized in writing by the Seller accompanied by arrangements in writing satisfactory to the Buyer to assure the Buyer of payment for all work performed by the Buyer, and, if so authorized by the Seller, the Seller shall reimburse the Buyer for all of the Buyer's costs for parts and labor in connection therewith at established internal rates for parts and labor. At the Closing Date, the Seller shall supply the Buyer with a list to which such warranties and guaranties, if any, are applicable, which list shall include the names of the purchasers, the make and year model of the vehicles purchased and the date of purchase. The Seller shall also supply to the Buyer at or prior to the Closing Date an address for and a designation of the person who will be responsible for authorizing the Buyer to perform any services under such warranties, if any, issued by the Seller on vehicles sold by it on or prior to the Closing Date. The Seller shall reimburse the Buyer promptly upon demand for all sums due or payable by the Seller to the Buyer hereunder. 5.8 ACCOUNTS RECEIVABLE. The Seller shall retain all accounts receivable arising out of the operation of the Business prior to the Closing Date and the Buyer shall retain all accounts receivable arising out of sales and/or services of the Business on or after the Closing Date. After the Closing Date, the Buyer shall cooperate with the Seller and shall use reasonable and ordinary efforts, including providing the Seller access to the Buyer's books, records and employees (at the Seller's expense) to assist the Seller in its efforts to collect its accounts receivable for a period of six (6) months after the Closing. The Buyer shall accept payment of the Seller's accounts receivable at no charge to the Seller for a period of six (6) months after the Closing, and shall forward to the Seller, promptly upon receipt, all the money so received on said accounts. Notwithstanding anything to the contrary stated herein, the Buyer shall have no responsibility to collect any of the Seller's accounts receivable. ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE BUYER The Buyer represents and warrants to the Seller and the Stockholders as follows: 6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Buyer is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business makes such qualification necessary and has full corporate power and authority to own or 12 use the properties it purports to own and use and to carry on its business as now being conducted. The Board of Directors of the Buyer has, or prior to the Closing will have, duly approved this Agreement, all other agreements, certificates and documents executed or to be executed by the Buyer in connection herewith, and the transactions contemplated hereby and thereby. The Buyer has full corporate power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by the Buyer in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. This Agreement, and all other agreements, certificates and documents executed or to be executed by the Buyer in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of the Buyer enforceable against the Buyer in accordance with their respective terms. 6.2 NON-VIOLATION; CONSENTS. Except as set forth on Schedule 6.2 attached hereto, the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof do not and will not: (a) conflict with or violate any of the provisions of the Buyer's Restated Certificate of Incorporation or Bylaws, each as amended, or any resolution of the Board of Directors or the stockholders of the Buyer; (b) violate any law, ordinance, rule or regulation or any judgment, order, writ, injunction or decree or similar command of any court, administrative or governmental agency or other body applicable to the Buyer; (c) violate or conflict with or result in a breach of, or constitute a default under, any material instrument, agreement or indenture or any mortgage, deed of trust or similar contract to which the Buyer is a party or by which the Buyer is bound or affected; or (d) require the consent, authorization or approval of, or notice to, or filing or registration with, any governmental body or authority, or any other third party. 6.3 LITIGATION. There are no actions, suits or proceedings pending, or, to the knowledge of the Buyer, threatened against or affecting the Buyer which might adversely affect the power or authority of the Buyer to carry out the transactions to be performed by it hereunder. 6.4 AUTHORIZATION OF PREFERRED STOCK. The issuance of the Preferred Stock, as well as the shares of Conversion Stock, has been duly authorized by all necessary corporate action of the Buyer. Upon the issuance of the Preferred Stock pursuant to this Agreement, and upon the issuance of shares of Conversion Stock, such Preferred Stock and/or Conversion Stock, as the case may be, shall be validly issued, fully paid and non-assessable. 6.5 CAPITALIZATION. The authorized capital stock of the Buyer consists of: (a) 3,000,000 shares of Preferred Stock, par value $0.10 per share, of which 300,000 shares are designated Class A Convertible Preferred Stock and are, in turn, divided into 100,000 shares of Series I (the "SERIES I PREFERRED STOCK"), 100,000 shares of Series II (the "SERIES II PREFERRED STOCK") and 100,000 shares of Series III (the "SERIES III PREFERRED STOCK"); as of August 23, 1999, approximately 12,947 shares of Series I Preferred Stock are issued and outstanding and/or are committed to be issued by the Buyer, approximately 6,775 shares of Series II Preferred Stock are issued and outstanding and/or are committed to be issued by the Buyer, and approximately 13 11,683 shares of Series III Preferred Stock are issued and outstanding and/or are committed to be issued by the Buyer; (b) 100,000,000 shares of Class A Common Stock, par value $0.01 per share, of which 23,447,763 shares are issued and outstanding as of August 23, 1999; and (c) 30,000,000 shares of Class B Common Stock, par value $0.01 per share, of which 12,300,000 shares are issued and outstanding as of August 23, 1999. All outstanding capital stock of the Buyer is duly authorized, validly issued, fully paid and non-assessable and has been issued in conformity with all applicable federal and state securities laws. 6.6 DISCLOSURE MATERIALS. The Buyer has delivered to the Sellers' Agent copies of (i) the Buyer's Prospectus dated April 29, 1999 (the "PROSPECTUS"), (ii) the Buyer's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1998, (iii) the Buyer's Quarterly Report on Form 10-Q for the three-month period ended on each of March 31, 1999 and June 30, 1999, (iv) any Current Reports on Form 8-K, filed after January 1, 1999, each in the form (excluding exhibits) filed with the SEC, and (v) the Buyer's proxy statement dated May 19, 1999 (collectively, such Forms 10-K, 10-Q, and 8-K and the proxy statement being hereinafter referred to as its "REPORTS"). Neither the Prospectus nor any of the Reports contained, at the time of filing thereof with the SEC, any untrue statement of any material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. 6.7 NO MISSTATEMENTS OR OMISSIONS. No representation or warranty made by the Buyer in this Agreement, and no statement contained in any agreement, instrument, certificate or schedule furnished or to be furnished by the Buyer pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE STOCKHOLDERS The Seller and each of the Stockholders, jointly and severally, represent and warrant to the Buyer, as follows: 7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma, is duly qualified to do business and is in good standing in every jurisdiction in which the nature of its business makes such qualification necessary and has full corporate power and authority to own or use the properties it purports to own and use and to carry on its business as now being conducted. The Stockholders own all of the issued and outstanding stock of the Seller. Schedule 7.1 sets forth each person or entity which has an ownership interest in the Seller and the extent and nature of such 14 ownership interest held by such owner. There are no outstanding options or warrants with respect to the capital stock of the Seller, nor are there any outstanding securities which are convertible or exchangeable into capital stock of the Seller. There are no voting trusts, shareholder agreements or other agreements, instrument or rights of any kind or nature whatsoever outstanding with respect to shares of capital stock of the Seller. The Seller has full corporate power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by the Seller in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. The Stockholders have full capacity, power and authority to execute and deliver this Agreement and all other agreements, certificates and documents executed or to be executed by the Stockholders in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform their obligations hereunder and thereunder. This Agreement, and all other agreements, certificates and documents executed or to be executed by the Seller in connection herewith, have been duly authorized by all necessary corporate action and constitute or, when executed and delivered, will constitute legal, valid and binding agreements of the Seller enforceable against the Seller in accordance with their respective terms. This Agreement, and all other agreements, certificates and documents executed or to be executed by the Stockholders in connection herewith, constitute or, when executed and delivered, will constitute legal, valid and binding agreements of the Stockholders enforceable against the Stockholders in accordance with their respective terms. The Seller has never operated the Business under any tradenames other than the tradenames listed or referred to in Section 5.5. 7.2 NO VIOLATION; CONSENTS. Except as set forth in Schedule 7.2 attached hereto, the execution and delivery of this Agreement, the consummation of the transactions contemplated by this Agreement and compliance with the provisions hereof do not and will not: (a) conflict with or violate any of the provisions of the Seller's Articles of Incorporation or Bylaws, each as amended, or any resolution of the Board of Directors or stockholders of the Seller; (b) violate any law, ordinance, rule or regulation or any judgment, order, writ, injunction or decree or similar command of any court, administrative or governmental agency or other body applicable to the Seller, any of the Assets, the Business or any of the Liabilities; (c) violate or conflict with or result in a breach of, or constitute a default under, or an event giving rise to a right of termination of, any Contract (as defined in Section 7.10), any material instrument, agreement or indenture or any mortgage, deed of trust or similar contract to which the Seller or any of the Stockholders is a party or by which the Seller, any of the Stockholders or any of the Assets are bound or affected; (d) result in the creation or imposition of any Encumbrance upon any of the Assets; or (e) require the consent, authorization or approval of, or notice to, or filing or registration with, any governmental body or authority, or any other third party. 7.3 LITIGATION. There are no actions, suits or proceedings pending or, to the knowledge of the Seller and the Stockholders, threatened against the Seller or any of the Stockholders which might adversely affect the power or authority of any of them to carry out the transactions to be performed by any of them hereunder. There are no actions, suits or proceedings pending, or, to the knowledge of the Seller and the Stockholders, threatened against or affecting the Seller, other than those disclosed on Schedule 7.3 attached hereto, and none of the actions, suits or proceedings described on Schedule 7.3, if determined adversely to the Seller, will have, or could reasonably be 15 expected to have, a material adverse effect upon the Assets or the Liabilities of the Seller or the business, prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business. All actions, suits or proceedings pending, or, to the knowledge of the Seller and the Stockholders, threatened against or affecting the Seller are covered in full by insurance, without any reservation of rights, subject only to the payment of applicable deductibles. 7.4 TITLE TO ASSETS; ENCUMBRANCES. Except as disclosed on Schedule 7.4 attached hereto, the Seller has good title to the Assets, free and clear of all liens (including tax liens), security interests, encumbrances, actions, claims, payments or demands of any kind and character (collectively, "ENCUMBRANCES"), except Encumbrances disclosed on Schedule 7.4 hereto and Encumbrances for ad valorem personal property taxes not yet due and payable. All of the Assets to be transferred hereunder conform, as to condition and character, to the descriptions of such Assets contained herein and will be transferred at the Closing free and clear of all Encumbrances, except Encumbrances for ad valorem personal property taxes not yet due and payable. There is no existing claim, or, to the knowledge of the Seller and the Stockholders, any basis for any claim, against the Seller that the Business or any of its operations, activities or products infringe the patents, trademarks, trade names, copyrights or other property rights of others or that the Seller is wrongfully or otherwise using the property rights of others. There is no existing claim, or, to the knowledge of the Seller and the Stockholders, any basis for any claim, by the Seller against any third party that the operations, activities or products of such third party infringe the patents, trademarks, trade names, copyrights or other property rights of the Seller or that such other third party is wrongfully or otherwise using the property rights of the Seller. 7.5 PERMITS AND APPROVALS. Except as disclosed on Schedule 7.5 attached hereto, there are no permits or approvals used or obtained for use by the Seller which are required under applicable law in connection with the ownership or operation of the Business. 7.6 FINANCIAL STATEMENTS. (a) The Seller has delivered to the Buyer the Seller's annual financial statements for each of the last two fiscal years of the Seller, as well as the monthly year-to-date financial statements of the Seller, all as described in Schedule 7.6(a)(i) attached hereto (the "FINANCIAL STATEMENTS"). The Financial Statements have been prepared in accordance with the Manufacturer's published accounting manual and generally accepted industry accounting standards, each consistently applied. Each balance sheet included in the Financial Statements fairly presents the financial condition of the Seller as of the date thereof, and each related statement of income included in the Financial Statements fairly presents the results of the operations of the Seller for the period indicated, all in accordance with the Manufacturer's published accounting manual and generally accepted industry accounting standards, each consistently applied. Except as set forth on Schedule 7.6(a)(ii), to the knowledge of the Seller and the Stockholders, the Financial Statements contain adequate reserves for all reasonably anticipated claims relating to matters with respect to which the Seller is self insured. The Financial Statements are in accord with the books and records of the Seller, which books and records are true, correct and complete in all material respects. 16 (b) The Seller has no outstanding material claims, liabilities, obligations or indebtedness of any nature, fixed or (to the knowledge of the Seller or the Stockholders) contingent, of a kind or type required by the Manufacturer's published accounting manual or generally accepted industry accounting standards to be reflected in the Financial Statements other than those which are (i) set forth in the Financial Statements; (ii) specified in the Schedules to this Agreement; or (iii) incurred in the ordinary course of business since the date of the Financial Statements and are of the kind and type reflected in the Financial Statements. 7.7 BROKERS AND FINDERS. Neither the Seller nor any of the Stockholders has engaged any broker or any other person or entity who would be entitled to any brokerage commission or finder's fee in respect of the execution of this Agreement and/or the consummation of the transactions contemplated hereby, other than Ben Hicks & Associates, Inc., which fee or commission the entire cost will be borne by the Seller. 7.8 COMPLIANCE WITH LAWS. (a) Except as set forth on Schedule 7.8(a) attached hereto, the Assets and the Leased Premises comply in all material respects with, and the Business has been conducted in all material respects in compliance with, all laws, rules and regulations (including all worker safety and all Environmental Laws (as hereinafter defined)), applicable zoning and other laws, ordinances, regulations and building codes, and neither the Seller nor any of the Stockholders has received any notice of any violation thereof which has not been remedied. (b) Except as set forth on Schedule 7.8(b) attached hereto, (i) the Seller has not at any time generated, used, treated or stored Hazardous Materials (as hereinafter defined) on, or transported Hazardous Materials to or from, the Leased Premises or any property adjoining or adjacent to the Leased Premises and, to the knowledge of the Seller and the Stockholders, no party has taken such actions on or with respect to the Leased Premises, provided, however, certain petroleum products are stored and handled by the Seller in the ordinary course of business in compliance in all material respects with all Environmental Laws, (ii) the Seller has not at any time released or disposed of Hazardous Materials on the Leased Premises or any property adjoining or adjacent to the Leased Premises, and, to the knowledge of the Seller and the Stockholders, no party has taken any such actions on the Leased Premises, (iii) the Seller has at all times been in compliance in all material respects with all Environmental Laws and the requirements of any permits issued under such Environmental Laws with respect to the Leased Premises, the Assets and the operation of the Business, (iv) there are no past, pending or, to the knowledge of the Seller and the Stockholders, threatened environmental claims against the Seller, the Leased Premises, any of the Assets or the Business, (v) to the knowledge of the Seller and the Stockholders, there are no facts or circumstances, conditions or occurrences regarding the Seller, the Leased Premises, any of the Assets or the Business that could reasonably be anticipated to form the basis of an environmental claim against the Seller, any of the Assets or the Business or to cause the Leased Premises, Assets or Business to be subject to any restrictions on its ownership, occupancy, use or transferability under any Environmental Law, (vi) there are not now and, to the knowledge of the Seller and the Stockholders, never have been any underground storage tanks located on the Leased Premises, (vii) 17 the Seller has not, nor to the knowledge of the Seller and the Stockholders has any other person, ever transported or arranged for the transportation of any Hazardous Materials to any site other than the Leased Premises, and (viii) except as set forth on Schedule 7.8(b), neither the Seller nor any Stockholder has operated the Business at any location other than the Leased Premises. The Seller has not received any notice, claim or demand from governmental entity or other person regarding the presence of Hazardous Materials at, on, under or around the Leased Premises or alleging that the Leased Premises is in violation of any Environmental Laws. As used herein, the term "ENVIRONMENTAL LAWS" shall mean all present and future federal, state and local laws, statutes, regulations, rules, ordinances and common law, and all judgments, decrees, orders, agreements or permits, issued, promulgated, approved or entered thereunder by any governmental authority relating to pollution or Hazardous Materials or protection of human health or the environment, including, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), as amended. As used herein, the term "HAZARDOUS MATERIALS" means any waste, pollutant, chemical, hazardous substance, toxic substance, hazardous waste, special waste, solid waste, asbestos, radioactive materials, polychlorinated biphenyls, petroleum or petroleum-derived substance or waste (regardless of specific gravity), or any constituent or decomposition product of any such pollutant, material, substance or waste, regulated under or as defined by any Environmental Law. (c) Neither the Seller nor any of the Stockholders, nor any director, officer, agent or employee of the Seller or, to the knowledge of the Seller and the Stockholders, any other person or entity associated with or acting for or on behalf of the Seller, has, directly or indirectly, made any unlawful contribution, gift, bribe, rebate, payoff, influence payment, kickback, or other payment to any person or entity, regardless of form, whether in money, property or services: (i) to obtain favorable treatment in securing business, (ii) to pay for favorable treatment for business secured, or (iii) to obtain special concessions or for special concessions already obtained from the Seller. 7.9 FIXTURES AND EQUIPMENT; LEASED PREMISES. (a) The Fixtures and Equipment constitute in the aggregate all of the fixtures, machinery, equipment, furniture, signs and office equipment used or intended for use by the Seller in the Business. All Demonstrators have been operated in the ordinary course of business, are operated with dealer tags and have not had certificates of title issued with respect to them. (b) The Seller does not have any rights, title or interest in or to any real property other than its leasehold interests in the Leased Premises, and the only real property used by the Seller in connection with the Business is the Leased Premises. Schedule 7.9(b) hereto contains a complete list and description (including buildings and other structures thereon and the name of the owner thereof) of all real property of which the Seller is a tenant (herein collectively referred to as the "LEASED PREMISES,"). True, correct and complete copies of all leases of all Leased Premises (the "LEASES") have been delivered to the Buyer. The Fixtures and Equipment and the Leased Premises (including, without limitation, the roof, the walls and all plumbing, wiring, electrical, heating, air conditioning, fire protection and other systems, as well as all paved areas, included therein or located thereat) are in good working order, condition and repair and are not in need of maintenance or repairs except for maintenance and repairs which are routine, ordinary and not 18 material in nature or cost. The Seller and the Stockholders do not have any knowledge of any event or condition which currently exists which would create a legal or other impediment to the use of the Leased Premises as currently used, or would increase the additional charges or other sums payable by the tenant under any of the Leases (including, without limitation, any pending tax reassessment or other special assessment affecting the Leased Premises). (c) There has been no work performed, services rendered or materials furnished in connection with repairs, improvements, construction, alteration, demolition or similar activities with respect to the Leased Premises for at least ninety (90) days before the date hereof; there are no outstanding claims or persons entitled to any claim or right to a claim for a mechanics' or materialman's lien against the Leased Premises; and there is no person or entity other than the Seller in or entitled to possession of the Leased Premises. (d) The Seller has all easements and rights, including, but not limited to, easements for power lines, water lines, sewers, roadways and other means of ingress and egress, necessary to conduct the Business, all such easements and rights are perpetual, unconditional appurtenant rights to the Leased Premises, and none of such easements or rights are subject to any forfeiture or divestiture rights. (e) Neither the whole nor any portion of any of the Leased Premises has been condemned, expropriated, ordered to be sold or otherwise taken by any public authority, with or without payment or compensation therefor, and the Seller and the Stockholders do not know of any such condemnation, expropriation, sale or taking, or have any grounds to anticipate that any such condemnation, expropriation, sale or taking is threatened or contemplated. The Seller and the Stockholders have no knowledge of any pending assessments which would affect the Leased Premises. (f) None of the Leased Premises is in violation of any public or private restriction or any federal, state or local laws, rules, ordinances, codes or regulations, including without limitation, any building, zoning, health, safety or fire laws, rules, ordinances, codes or regulations, and no notice from any governmental body has been served upon the Seller or upon any of the Leased Premises claiming any violation of any such law, ordinance, code or regulation or requiring or calling to the attention of the Seller the need for any work, repair, construction, alterations or installation on or in connection with said properties which has not been complied with. All improvements which comprise a part of the Leased Premises are located within the record lines of the Leased Premises and none of the improvements located on the Leased Premises encroach upon any adjoining property or any easements or rights of way and no improvements located on any adjoining property encroach upon any of the Leased Premises or any easements or rights of way servicing the Leased Premises. 7.10 CONTRACTS. The Seller has in all material respects performed all of its obligations required to be performed by it to the date hereof, and is not in default or alleged to be in default in any material respect, under any contract or lease to be assigned to the Buyer hereunder (collectively, the "CONTRACTS"), and there exists no event, condition or occurrence which, after notice or lapse of 19 time or both, would constitute such a default. To the knowledge of the Seller and the Stockholders, no other party to any Contract is in default in any respect of any of its obligations thereunder. Each of the Contracts is valid and in full force and effect and enforceable against the Seller in accordance with its terms, and, to the knowledge of the Seller and the Stockholders, enforceable against the other parties thereto in accordance with its terms. Except as set forth in Schedule 7.2 hereto, each Contract is assignable to the Buyer without the consent of the other party(ies) thereto. 7.11 ADEQUACY OF ASSETS. Except for the Seller's cash and accounts receivable and rights under its dealership agreements with the Manufacturer, the Assets of the Seller, together with the Leased Premises and the Contracts (including all equipment leased pursuant to the equipment leases included in the Contracts) of the Seller, comprise all of the assets, properties, contracts, leases and rights necessary for the Buyer to operate the Business substantially in the manner operated by the Seller prior to the Closing. The failure by the Seller to satisfy and discharge in full any of the Retained Liabilities will not have, and could not reasonably be expected to have, a material adverse effect upon any of the Assets or Liabilities or the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business. 7.12 TAXES. The Seller has filed all federal, state and local governmental tax returns required to be filed by it in accordance with the provisions of law pertaining thereto and has paid all taxes and assessments (including, without limitation of the foregoing, income, excise, unemployment, social security, occupation, franchise, property and import taxes, duties or charges and all penalties and interest in respect thereof) required by such tax returns or otherwise to have been paid to date. 7.13 EMPLOYEES; EMPLOYEE BENEFIT PLANS. (a) Schedule 7.13(a) attached hereto discloses, as of the date hereof, all of the Seller's employees, as well as each employee's compensation (including, separately, base pay and any incentive or commission pay), title, length of employment, employment contract, if any, and accrued vacation time. The Seller is not currently, nor has it ever been, a party to any collective bargaining agreement or other labor contract, and there has not been, nor is there pending or, to the knowledge of the Seller and the Stockholders, threatened, any union organizational drive or application for certification of a collective bargaining agent with respect to the Seller's employees. (b) The Seller has listed on Schedule 7.13(b) and has delivered to the Buyer true and complete copies of all Employee Benefit Plans (as defined below) and related documents, established, maintained or contributed to by the Seller. For the purpose of all of the representations in this Section 7.13(b), the term "Seller" shall include the Seller and all employers, whether or not incorporated, that are treated together with the Seller as a single employer within the meaning of Section 414 of the Code. The term "EMPLOYEE BENEFIT PLAN" shall include all plans described in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and also shall include, without limitation, any deferred compensation, stock, employee or retiree pension benefit, welfare benefit or other similar fringe or employee benefit plan, program, policy, contract or arrangement, written or oral, qualified or nonqualified, funded or unfunded, foreign or domestic, 20 covering employees or former employees of the Seller and maintained or contributed to by the Seller. Where applicable, each Employee Benefit Plan (i) has been administered in material compliance with the terms of such Employee Benefit Plan and the requirements of ERISA and the Code, and (ii) is in material compliance with the reporting and disclosure requirements of ERISA and the Code. The Seller neither maintains nor contributes to, and has never maintained or contributed to, an Employee Benefit Plan subject to Title IV of ERISA or a "multiemployer plan." There are no facts relating to any Employee Benefit Plan that (i) have resulted in a "prohibited transaction" of a material nature or have resulted or are reasonably likely to result in the imposition of a material excise tax, penalty or liability pursuant to Section 4975 of the Code, (ii) have resulted in a material breach of fiduciary duty or violation of Part 4 of Title I of ERISA, or (iii) have resulted in or are reasonably likely to result in any material liability (whether or not asserted as of the date hereof) of the Seller or any ERISA affiliate pursuant to Section 412 of the Code arising under or related to any event, act or omission occurring on or prior to the date hereof. Each Employee Benefit Plan that is intended to qualify under Section 401(a) or to be exempt under Section 501(c) of the Code is so qualified or exempt as of the date hereof in each case, and such Employee Benefit Plan has received favorable determination letters from the Internal Revenue Service with respect thereto. To the knowledge of the Seller and the Stockholders, the amendments to and operation of any Employee Benefit Plan subsequent to the issuance of such determination letters do not adversely affect the qualified status of any such Employee Benefit Plan. No Employee Benefit Plan has an "accumulated funding deficiency" as of the date hereof, whether or not waived, and no waiver has been applied for. The Seller has not made any promises or incurred any liability under any Employee Benefit Plan or otherwise to provide health or other welfare benefits to current or future retirees or other former employees of the Seller, except as specifically required by law. There are no pending or, to the knowledge of the Seller and the Stockholders, threatened, claims (other than routine claims for benefit) or lawsuits with respect to the Employee Benefit Plans. Except as disclosed on Schedule 7.13(b), none of the Seller's employees or former employees has elected COBRA continuation coverage or has incurred a COBRA qualifying event since January 1, 1997. 7.14 [INTENTIONALLY DELETED] 7.15 MANUFACTURER COMMUNICATIONS. Except as set forth on Schedule 7.15, the Manufacturer has not (a) notified the Seller or any of the Stockholders of any deficiency in dealership operations, including, but not limited to, the following areas: (i) brand imaging, (ii) facility conditions, (iii) sales efficiency, (iv) customer satisfaction, (v) warranty work and reimbursement, or (vi) sales incentives; (b) otherwise advised the Seller or any of the Stockholders of a present or future need for facility improvements or upgrades in connection with the Business; or (c) notified the Seller or any of the Stockholders of the awarding or possible awarding of its franchise to any person or entity in the Metropolitan Statistical Areas in which the Business operates. 7.16 SPECIAL REPRESENTATIONS REGARDING THE PREFERRED STOCK AND THE CONVERSION STOCK: 21 (a) The Seller and the Stockholders are individually referred to in this Section as an "INVESTOR". Each Investor understands that the Preferred Stock and the Conversion Stock (collectively, the "SECURITIES") will not be registered under the Securities Act or applicable state securities laws on the basis that the sale provided for in this Agreement and the issuance of the Securities hereunder is exempt from registration under the Securities Act pursuant to Section 4(2) thereof, and that the Buyer's reliance on such exemption is predicated on the representations and warranties of such Investor. (b) The Securities are being acquired for the account of the Investor for the purposes of investment and not with a view to the distribution thereof, as those terms are used in the Securities Act and the rules and regulations promulgated thereunder. (c) Each Investor is an "accredited investor" within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act; and each Investor has sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of acquiring the Securities; each Investor has delivered to the Buyer an Investor Qualification Questionnaire and any balance sheets and income tax returns reasonably requested by the Buyer to confirm such Investor's status as an "accredited investor." (d) Each Investor has received copies of: (i) the Prospectus dated April 29, 1999; (ii) the Form 10-K filing of Buyer for the year ended December 31, 1998 (without exhibits); (iii) the Form 10-Q filing of Buyer for the first and second quarters of 1999 (without exhibits); (iv) all Form 8-K filings of the Buyer filed after January 1, 1999 (without exhibits); and has been furnished such other information, and has had an opportunity to ask such questions and have them answered by the Buyer, as such Investor has deemed necessary in order to make an informed investment decision with respect to the acquisition of the Securities. (e) Each Investor understands, and has the financial capability of assuming, the economic risk of an investment in the Securities for an indefinite period of time. (f) Each Investor has been advised that such Investor will not be able to sell, pledge or otherwise dispose of the Securities, or any interest therein, without first complying with the relevant provisions of the Securities Act and any applicable state securities laws, and that the provisions of Rule 144, permitting routine sales of securities of certain issuers subject to the terms and conditions thereof, may not currently be available to such Investor with respect to the Securities. (g) Each Investor has, to the extent such Investor has deemed necessary, consulted with such Investor's own investment advisors, legal counsel and tax advisors regarding an investment in the Securities. (h) Each Investor acknowledges that the Buyer is under no obligation to (i) register the Securities or (ii) except as specifically set forth in this Agreement, to furnish any information or to take any other action to assist the Investor in complying with the terms and conditions of any exemption which might be available under the Securities Act or any state 22 securities laws with respect to sales of the Securities by the Investor in the future; provided, however, that the Buyer will, at the Stockholders request and expense, provide such legal opinions and secretary certificates as are reasonably necessary for the Stockholders to sell or dispose of the Securities under Rule 144. 7.17 NO MISSTATEMENTS OR OMISSIONS. No representation or warranty made by the Seller or the Stockholders in this Agreement, and no statement contained in any agreement, instrument, certificate or schedule furnished or to be furnished by the Seller or the Stockholders pursuant hereto, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation or warranty or such statement not misleading. ARTICLE VIII CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS The obligations of the Buyer to perform this Agreement at Closing are subject to the following conditions precedent which shall be fully satisfied at or before the Closing, unless waived in writing by the Buyer. 8.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Seller and the Stockholders herein contained shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, and the Buyer shall have received a certificate from the Stockholders and a duly authorized officer of the Seller, dated the Closing Date, to such effect. 8.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations required by this Agreement to be performed or complied with by the Seller or the Stockholders at or before the Closing shall have been duly performed or complied with in all material respects, and the Buyer shall have received a certificate from the Stockholders and a duly authorized officer of the Seller, dated the Closing Date, to such effect. 8.3 NO LITIGATION. No action, suit or proceeding shall have been instituted by a governmental agency or any other third party to prohibit or restrain the sale contemplated by this Agreement or otherwise challenge the power and authority of the parties to enter into this Agreement or to carry out their obligations hereunder or the legality or validity of the sale contemplated by this Agreement. 8.4 INVENTORY. The Inventory shall have been completed to the reasonable satisfaction of the Buyer. 8.5 CORPORATE ORGANIZATION; ENCUMBRANCES. The Seller shall have furnished to the Buyer: (a) a certificate of good standing of the Seller issued by the Secretary of State of the State of Oklahoma dated no earlier than fifteen (15) business days prior to the Closing Date; (b) a copy 23 of the Articles of Incorporation of the Seller certified by the Secretary of State of the State of Oklahoma dated no earlier than fifteen (15) business days prior to the Closing Date; (c) a certificate of the Seller, dated the Closing Date, in form and substance reasonably satisfactory to the Buyer, certifying as to (i) no amendments to the Articles of Incorporation of the Seller since the date of the certificate delivered in accordance with Section 8.5(b); (ii) the Bylaws of the Seller attached to such certificate being true and correct; and (iii) the incumbency and signatures of the officers of the Seller executing this Agreement and any other agreements, instruments or documents to be executed by the Seller in connection herewith; and (d) recent UCC-11 search reports for the Seller (including reports for each of the trade names required to be listed under Section 5.5) or other evidence reasonably satisfactory to the Buyer and its counsel that the Assets are free and clear of all Encumbrances. 8.6 BOARD RESOLUTIONS. The Seller shall have furnished to the Buyer a copy of the resolutions duly adopted by the directors and the stockholders of the Seller authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, certified by an authorized officer of the Seller as of the Closing Date. 8.7 NO DAMAGE. There shall have been no material adverse change or development in any of the Assets or the Liabilities of the Seller or in the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business, and no event shall have occurred or circumstance exist that may, or could reasonably be expected to, result in such a material adverse change. 8.8 MOTOR VEHICLE LICENSES. The Buyer shall have been licensed as a Motor Vehicle Dealer under applicable Oklahoma motor vehicle dealer registration laws and shall have obtained all other authorizations, consents, licenses and permits from applicable governmental agencies having or asserting jurisdiction, which the Buyer deems necessary or appropriate to conduct business as an automobile dealer at the Leased Premises or such other location as the Buyer may determine. 8.9 CONSENTS AND APPROVALS. The Seller shall have obtained and delivered to the Buyer all other authorizations, consents and approvals from third persons and entities as are (a) required to assign the Contracts or (b) otherwise required of the Seller to consummate the transactions contemplated hereby. 8.10 CERTIFICATES OF ORIGIN; ETC. The Seller shall have transferred to the Buyer certificates of title or origin for all New Vehicles, Demonstrators and, if applicable, Used Vehicles and all of its registration lists, owner follow-up lists and service files on hand as of the Closing Date with respect to the Business. 8.11 TERMINATION OF THE SELLER'S AGREEMENTS WITH MANUFACTURER. The Seller shall have terminated in writing the Seller's dealer agreement and any other applicable sales and service agreements with the Manufacturer. 24 8.12 BILL OF SALE; ETC. The Seller shall have executed and delivered to the Buyer a Bill of Sale, other documents of transfer of title contemplated hereby and any and all other documents necessary or desirable in connection with the transfer of the Assets, which documents shall warrant title to the Buyer consistent with this Agreement and shall in all respects be in such form as may be reasonably required by the Buyer and its counsel. 8.13 MANUFACTURER APPROVAL. The Manufacturer shall have approved (a) the Buyer or the Buyer's affiliate as an authorized dealer at the present dealership locations in the Seller's existing facilities as currently configured for dealership operations, and (b) O. Bruton Smith or O. Bruton Smith's designee as the authorized dealer operator; and the Manufacturer shall have executed a dealer agreement, and any other applicable sales and service agreements, on terms reasonably satisfactory to the Buyer. 8.14 CONSENTS; RELEASES OF ENCUMBRANCES. All consents, approvals, notices, filings and/or registrations set forth on Schedule 7.2 hereto shall have been obtained or made and the Seller shall have delivered to the Buyer evidence thereof reasonably satisfactory to the Buyer. The Seller shall have obtained releases or discharges of, or shall otherwise have made provision satisfactory to the Buyer for the release or discharge of, all Encumbrances set forth on Schedule 7.4 hereto, except for Encumbrances which secure only the Liabilities. 8.15 DEALERSHIP LEASE. The Landlords shall have executed and delivered the Dealership Lease to the Buyer. All Leases shall have been terminated. 8.16 CHANGE OF NAME. The Seller shall have delivered to the Buyer all documents, including, without limitation, resolutions of the directors and the Stockholders of the Seller, necessary to effect a change of name of the Seller after the Closing to names other than the corporate name and trade names referred to in Section 5.5 hereof or any variation thereof. 8.17 HSR. All applicable waiting periods under the HSR Act (as defined in Section 10.14 below) shall have expired without any indication by the Antitrust Division (as defined in Section 10.14 below) or the FTC (as defined in Section 10.14 below) that either of them intends to challenge the transactions contemplated hereby or, if any such challenge or investigation is made or commenced, such challenge or investigation shall have been concluded in a way which lawfully permits the transactions contemplated hereby in all material respects. 8.18 EMPLOYMENT AGREEMENT. Jim Glover shall have executed and delivered to the Buyer the Employment Agreement. 8.19 AUDITED FINANCIAL STATEMENTS OF THE BUYER. The Buyer shall have completed preparation of such audited financial statements of the Seller as may be required by applicable regulations of the SEC or by the Buyer's lenders. 25 8.20 OPINION OF COUNSEL. The Buyer shall have received an opinion, reasonably acceptable in form and substance to Buyer's counsel, of Randall K. Calvert, Calvert Law Firm, counsel to the Seller and the Stockholders. 8.21 OTHER BASIC AGREEMENTS. All conditions to the obligations of the Buyer under the Riverside Chevrolet Purchase Agreement and the Riverside Nissan Purchase Agreement shall have been satisfied or fulfilled unless waived in writing by the Buyer, and the closings under the Riverside Chevrolet Purchase Agreement and the Riverside Nissan Purchase Agreement shall have occurred or shall be occurring contemporaneously with the Closing of the transactions contemplated by this Agreement. 8.22 COMPUTER SERVER ACCESSIBILITY. Jim Glover shall have entered into a lease agreement with the Buyer in accordance with Section 10.19. ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF THE SELLER AND THE STOCKHOLDERS The obligations of the Seller and the Stockholders to perform this Agreement at Closing are subject to the following conditions precedent which shall be fully satisfied at or before the Closing, unless waived in writing by the Seller: 9.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of the Buyer herein contained shall be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date, and the Seller shall have received a certificate from a duly authorized officer of the Buyer, dated the Closing Date, to such effect. 9.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations required by this Agreement to be performed or complied with by the Buyer at or before the Closing shall have been duly performed or complied with in all material respects, and the Seller shall have received a certificate from a duly authorized officer of the Buyer, dated the Closing Date, to such effect. 9.3 NO LITIGATION. No action, suit or proceeding shall have been instituted by a governmental agency or any third party to prohibit or restrain the sale contemplated by this Agreement or otherwise challenge the power and authority of the parties to enter into this Agreement or to carry out their obligations hereunder or the legality or validity of the sale contemplated by this Agreement. 9.4 INVENTORY. The Inventory shall have been completed to the reasonable satisfaction of the Seller. 26 9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS. The Buyer shall have furnished to the Seller: (a) a certificate of good standing of the Buyer issued by the Secretary of State of the State of Delaware dated no earlier than fifteen (15) business days prior to the Closing Date; and (b) a certificate of the Secretary or an Assistant Secretary of the Buyer, dated the Closing Date, in form and substance reasonably satisfactory to the Seller, certifying as to (i) the Restated Certificate of Incorporation of the Buyer attached to such certificate being true and correct; (ii) the Bylaws of the Buyer attached to such certificate being true and correct; (iii) the incumbency and signatures of the officers of the Buyer executing this Agreement and any other agreements, instruments or documents to be executed by the Buyer in connection herewith; and (iv) the resolutions of the Board of Directors of the Buyer authorizing the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 9.6 PAYMENT OF AGGREGATE PURCHASE PRICE; ASSUMPTION AGREEMENT. The Buyer shall have tendered to the Seller the Aggregate Purchase Price and shall have executed and delivered the Assumption Agreement. 9.7 DEALERSHIP LEASE. The Buyer shall have executed and delivered the Dealership Lease to the Landlords. 9.8 HSR. All applicable waiting periods under the HSR Act shall have expired without any indication of the Antitrust Division or the FTC that either of them intends to challenge the transactions contemplated hereby, or, if any such challenge or investigation is made or commenced, such challenge or investigation shall have been concluded in a way which lawfully permits the transactions contemplated hereby in all material respects. 9.9 EMPLOYMENT AGREEMENT. The Buyer shall have executed and delivered the Employment Agreement to Jim Glover. 9.10 OPINION OF COUNSEL. The Seller and the Stockholders shall have received an opinion, reasonably acceptable in form and substance to Seller's counsel, of Parker, Poe, Adams & Bernstein, L.L.P., counsel to the Buyer. 9.11 OTHER BASIC AGREEMENTS. All conditions to the obligations of the Seller (as defined in the Riverside Chevrolet Purchase Agreement) under the Riverside Chevrolet Purchase Agreement and all the conditions to the obligations of the Sellers (as defined in the Riverside Nissan Purchase Agreement) under the Riverside Nissan Purchase Agreement shall have been satisfied or fulfilled unless waived in writing by such party, and the closings under the Riverside Chevrolet Purchase Agreement and the Riverside Nissan Purchase Agreement shall have occurred or shall be occurring contemporaneously with the Closing of the transactions contemplated by this Agreement. 27 ARTICLE X COVENANTS AND AGREEMENTS 10.1 [INTENTIONALLY DELETED] 10.2 FURTHER ASSURANCES. The Seller and the Stockholders agree that they will, at any time and from time to time, after the Closing, upon request of the Buyer, do, execute, acknowledge and deliver all such further acts, deeds, assignments, transfers, conveyances, powers of attorney and assurances, in a form reasonably satisfactory to the Buyer's counsel, as may be reasonably required to convey and transfer to and vest in the Buyer, and protect its rights, title and interest in and enjoyment of, all the Assets. 10.3 SATISFACTION OF CLOSING CONDITIONS. The parties hereto shall use their reasonable best efforts to obtain, and to cooperate with each other in obtaining, all authorizations, approvals, licenses, permits and other consents contemplated by Articles VIII and IX. 10.4 NO MATERIAL ADVERSE CHANGES. During the period from the date of this Agreement through the Closing Date, the Seller will operate the Business only in the ordinary course of business and in accordance with past practices. The Seller shall promptly notify the Buyer of any material adverse change or development in any of the Assets or the Liabilities or in the prospects, properties, earnings, results of operations or condition (financial or otherwise) of the Business, and of the occurrence of any event or circumstance that will, or could reasonably be expected to, result in such a material adverse change. 10.5 ACCESS; ENVIRONMENTAL AUDIT. Until Closing, the Seller shall afford to the Buyer, its officers, employees, attorneys, accountants and such other representatives of the Buyer as the Buyer shall designate to the Seller, free and full access at all reasonable times, and upon reasonable prior notice, to the Assets and the properties, books and records of the Seller, and to interview personnel, suppliers and customers of the Seller, in order that the Buyer may have full opportunity to make such further investigation as it shall reasonably desire of the Assets, the Liabilities and the Business. The Seller and the Stockholders shall furnish to the Buyer the due diligence materials set forth in Schedule 10.5 hereto as soon as practicable, and shall provide to the Buyer and its representatives, including, without limitation, the aforementioned individuals, such additional information as the Buyer may reasonably request. The contact person(s) of the Seller for purposes of arranging such access and requesting such additional information is Jim Glover. The Seller shall allow Dames & Moore (the "ENVIRONMENTAL AUDITOR") to have prompt access to the Leased Premises in order to conduct an environmental investigation satisfactory to the Buyer in scope and reasonably acceptable to the Seller (such scope being sufficient to result in a Phase I environmental audit report and a Phase II environmental audit report, if desired by the Buyer) of, and to prepare a report with respect to, the Leased Premises (the "ENVIRONMENTAL AUDIT"). The Seller shall provide to the Environmental Auditor: (a) reasonable access to all of its existing records concerning the matters which are the subject of the Environmental Audit; and (b) reasonable access to the employees of the Seller and the last known addresses of former employees of the Seller who are 28 most familiar with the matters which are the subject of the Environmental Audit (the Seller agreeing to use reasonable efforts to have such former employees respond to any reasonable requests or inquiries by the Environmental Auditor). The Environmental Auditor shall coordinate all visits to the Leased Premises and conversations with employees of the Seller with the Stockholders or their designee and shall use reasonable efforts to minimize any disruption of the Seller's business in performing such investigations. The Seller shall otherwise cooperate with the Environmental Auditor in connection with the Environmental Audit. The Buyer shall pay 50% of the costs, fees and expenses in connection with the Environmental Audit and the Seller shall pay 50% of the costs, fees and expenses in connection with the Environmental Audit. The Buyer shall bear the costs, fees and expenses in connection with any financial audit. 10.6 INDEMNIFICATION BY THE SELLER AND THE STOCKHOLDERS. (a) All representations and warranties of the Seller and the Stockholders contained herein, or in any agreement, certificate or document executed by either the Seller or the Stockholders in connection herewith, shall survive the Closing for a period of three (3) years with the exception of (i) the representations and warranties of the Seller and the Stockholders contained in Section 7.12, which shall survive the Closing until the expiration of the applicable tax statutes of limitation plus a period of sixty (60) days; (ii) the representations and warranties of the Seller and the Stockholders contained in Sections 7.6(b) and 7.8, which shall survive the Closing for a period of seven (7) years; and (iii) the representations and warranties of the Seller and the Stockholders contained in Section 7.4, which shall survive the Closing for a period of five (5) years. The foregoing limitations of survival shall not in any way reduce the Seller's obligations with respect to the Retained Liabilities. As to each representation and warranty of the parties to this Agreement, the date to which such representation and warranty shall survive is hereinafter referred to as the "SURVIVAL DATE." All information contained in any Schedule furnished hereunder by the Seller shall be deemed a representation and warranty by the Seller and the Stockholders made in this Agreement as to the accuracy of such information. (b) The Seller and the Stockholders, jointly and severally, agree to indemnify and hold harmless the Buyer and its stockholders, officers, directors, employees and agents, and their respective successors and assignees (collectively, the "BUYER INDEMNITEES"), from and against any and all losses, damages, liabilities, obligations, assessments, suits, actions, proceedings, claims or demands, including costs, expenses and fees (including reasonable attorneys' fees and expert witness fees incurred in connection therewith) ("LOSSES"), suffered by any of them or asserted against any of them or any of the Assets, arising out of or based upon (i) the breach or failure of any representation or warranty of the Seller or any Stockholder contained herein, or in any agreement, certificate or document executed by the Seller or any Stockholder in connection herewith, to be true and correct (regardless of any investigation made by or on behalf of the Buyer and regardless of any knowledge or information the Buyer may have), (ii) the breach of any covenant or agreement of the Seller or any Stockholder contained in this Agreement, (iii) the Retained Liabilities or any liability or obligation of any Stockholder, (iv) any arrangements or agreements made or alleged to have been made by the Seller or any Stockholder with any broker, finder or other agent in connection with the transactions contemplated hereby, (v) any waiver by the Buyer of the provisions of any applicable 29 bulk sales laws, (vi) any breach or default by the Seller under any of its floor plan arrangements and agreements, (vii) any matter, item, circumstance or condition listed, contained or otherwise referred to on Schedule 7.8(a) or Schedule 7.8(b), (viii) any loss of life, injury to persons or property, or damage to natural resources caused by the actual, alleged, or threatened release, storage, transportation, treatment or generation, of Hazardous Materials generated, stored, used, disposed of, treated, handled or shipped by the Seller before the Closing Date, (ix) any cleanup of Hazardous Materials released, disposed of or discharged: (A) on, in, beneath or around to the Real Property prior to the date of the Closing; or (B) at any other location if such substances were generated, used, stored, treated, transported or released by the Seller prior to the Closing Date; or (x) any and all costs of installing pollution control equipment or other equipment to bring any of the Leased Premises into compliance with any Environmental Law if such equipment is installed because any of the Leased Premises were not in compliance with any Environmental Laws as of the date of the Closing. Neither the Seller nor the Stockholders shall be required to indemnify under Section 10.6(b)(i) unless the amount of all Losses (including claims for Losses) thereunder exceeds a cumulative aggregate total of $137,500, at which time rights to indemnification for Losses may be asserted for any amounts in excess of such cumulative aggregate total of $137,500. The aggregate amount of indemnification obligations of the Seller and the Stockholders under this Section 10.6(b) shall not exceed the Purchase Price. (c) No claim for indemnification with respect to a breach of a representation and warranty shall be made by a Buyer Indemnitee after the applicable Survival Date unless prior to such Survival Date the Buyer Indemnitee shall have given an indemnifying party written notice of such claim for indemnification based upon actual loss sustained, or potential loss anticipated, as a result of the existence of any claim, demand, suit, or cause of action against such Buyer Indemnitee. The provisions of this Section 10.6 shall be effective upon consummation of the Closing, and prior to the Closing, shall have no force and effect. 10.7 INDEMNIFICATION BY THE BUYER. (a) All representations and warranties of the Buyer contained herein, or in any agreement, certificate or document executed by the Buyer in connection herewith, shall survive the Closing for a period of three years. All information contained in any Schedule furnished hereunder by the Buyer shall be deemed a representation and warranty by the Buyer made in this Agreement as to the accuracy of such information. (b) The Buyer agrees to indemnify and hold harmless the Seller and its stockholders, officers, employees, agents, successors and assigns (the "SELLER INDEMNITEES"), from and against any and all Losses incurred in connection with, suffered by any of them, or asserted against any of them, arising out of or based upon (i) the breach or failure of any representation or warranty of the Buyer contained herein, or in any agreement, certificate or document executed by the Buyer in connection herewith, to be true and correct (regardless of any investigation made by or on behalf of the Seller and regardless of any information the Seller may have), (ii) the breach of any covenant or agreement of the Buyer contained in this Agreement, (iii) the Buyer's failure to discharge the Liabilities, or (iv) any arrangements or agreements made or alleged to have been made 30 by the Buyer with any broker, finder or other agent in connection with the transactions contemplated hereby. The Buyer shall not be required to indemnify under Section 10.7(b)(i) unless the amount of all Losses (including claims for Losses) thereunder exceeds a cumulative aggregate total of $137,500, at which time rights to indemnification for Losses may be asserted for any amounts in excess of such cumulative aggregate total of $137,500. The aggregate amount of indemnification obligations of the Buyer under this Section 10.7(b) shall not exceed the Purchase Price. (c) No claim for indemnification with respect to a breach of a representation and warranty shall be made by any Seller Indemnitee under this Agreement after the applicable Survival Date unless prior to such Survival Date the Seller Indemnitee shall have given the Buyer written notice of such claim for indemnification based upon actual loss sustained, or potential loss anticipated, as a result of the existence of any claim, demand, suit, or cause of action against such Seller Indemnitee. The provisions of this Section 10.7 shall be effective upon consummation of the Closing, and prior to the Closing, shall have no force and effect. 10.8 CERTAIN TAXES. Personal property, use and intangible taxes and assessments and utility charges with respect to the Assets shall be prorated on a per diem basis and apportioned on a calendar year basis between the Seller, on the one hand, and the Buyer, on the other hand, as of the date of the Closing. The Seller shall be liable for that portion of such taxes and assessments relating to, or arising in respect of, periods prior to the Closing Date and, with respect to any period commencing prior to the Closing Date and ending on or after the Closing Date (a "STRADDLE PERIOD"), the portion of the Straddle Period prior to the Closing Date. The Buyer shall be liable for that portion of such taxes and assessments relating to, or arising in respect of, any period after the Closing Date and, with respect to any Straddle Period, the portion of the Straddle Period on or after the Closing Date. Any taxes attributable to the sale or transfer of the Assets to the Buyer hereunder shall be paid by the Seller. 10.9 NO PUBLICITY. Except as may be required by law or the rules of the New York Stock Exchange or as necessary in connection with the transactions contemplated hereby, no party hereto shall (a) make any press release or other public announcement relating to this Agreement or the transactions contemplated hereby, without the prior approval of the other parties hereto or (b) otherwise disclose the existence and nature of the transactions contemplated hereby to any person or entity other than such party's accountants, attorneys, agents and representatives, all of whom shall be subject to this nondisclosure obligation as agents of such party. The parties shall cooperate with each other in the preparation and dissemination of any public announcements of the transactions contemplated by this Agreement. 10.10 NO NEGOTIATIONS OR DISCUSSIONS. Neither the Seller nor any of the Stockholders shall, directly or indirectly, at any time on or prior to the Closing Date, pursue, initiate, encourage or engage in any negotiations or discussions with, or provide any information to, any person or entity (other than the Buyer and its representatives and affiliates) regarding the sale or possible sale to any such person or entity of the Assets of the Seller or capital stock of the Seller or any merger or consolidation or similar transaction involving the Seller. 31 10.11 REGARDING THE MANUFACTURER. Immediately upon the execution of this Agreement, the Seller will notify the Manufacturer regarding the transactions contemplated by this Agreement, utilizing a form of notification acceptable to the Buyer. The Buyer shall promptly apply to the Manufacturer for, or cause an affiliate of the Buyer to apply to the Manufacturer for, the issuance of a franchise to operate an automobile dealership upon the Leased Premises or at such other location the Buyer shall determine in its sole discretion. Effective as of the Closing, the Seller shall terminate its Dealer Sales and Service Agreements with the Manufacturer. The Seller shall fully cooperate with the Buyer, and take all reasonable steps to assist the Buyer, in the Buyer's efforts to obtain its own similar Dealer Sales and Service Agreements with the Manufacturer. The contact person(s) of the Seller for purposes of requests by the Buyer for such assistance are Bill Albert (Zone Manager) (913/469-3009) and Mike Hudnell (Dealer Placement Manager) (913/469-3012) at 7500 College Boulevard, Suite 1000, Overland Park, Kansas 66210. The parties acknowledge that the Buyer's Dealer Agreements are subject to the approval of the Manufacturer and that the Buyer would be unable to obtain its own, similar Dealer Sales and Service Agreements absent the Seller's termination of its agreements. Notwithstanding the foregoing, at the request of the Buyer, the Seller shall allow the Buyer, if reasonably necessary, for a period not to exceed thirty (30) days after the Closing, to utilize the Seller's dealer code with the Manufacturer until the Manufacturer has issued a new dealer code to the Buyer. The Buyer hereby agrees to indemnify the Seller from any and all liabilities arising out of the use by the Buyer of the Seller's dealer code including, without limitation, liabilities and obligations to the Manufacturer and to any floor plan lender or other creditor providing financing for products purchased under the Seller's dealer code by the Buyer (or by the Seller on behalf of the Buyer) after the Closing. 10.12 THE SELLER'S EMPLOYEES. The Buyer shall have the right, but not the obligation, to employ any or all of the Seller's employees. If permitted by law and applicable regulations, the Seller shall, in consideration for the sale of substantially all of the Seller's assets in bulk, assign and transfer to the Buyer, without additional charge therefor, the amount of reserve in the Seller's State Unemployment Compensation Fund with respect to the Business and the corresponding experience rate. The Seller shall terminate its 401(k) plan prior to the Closing Date and in connection therewith shall amend the 401(k) plan to fully vest all accounts of all participants in the 401(k) plan and to provide for the distribution of all such accounts. The Seller shall deliver to the Buyer at Closing a duly executed plan amendment and resolutions of the Board of Directors and, if necessary, the Seller's stockholders reflecting the termination of the 401(k) Plan and related amendments to the 401(k) plan. The Seller also shall terminate all other Employee Plans as of the Closing Date and shall provide the Buyer with formal documentation evidencing such terminations and the Seller shall indemnify and reimburse the Buyer for all Losses (as defined in Section 10.6(b)) incurred by the Buyer in connection with the termination and winding up of the Employee Plans. The Seller shall retain all liability and responsibility for its Employee Plans and shall promptly take any and all actions necessitated by or related to the amendment and/or termination of any Employee Plan, including but not limited to liquidation of plan assets and processing distributions to participants; filing of determination letter applications, final Forms 5500, and/or other notices with governmental authorities; and cancellation of insurance policies. Notwithstanding the foregoing, the Buyer shall have the option, in its sole discretion and exercised by the delivery to the Seller of a written request, to require the Seller to transfer any or all of the Seller's plans or related insurance policies to the 32 Buyer (or other related entity which will continue the Seller's business). 10.13 TERMINATION. (a) Notwithstanding any other provision herein contained to the contrary, this Agreement may be terminated at any time prior to the Closing: (i) by the written mutual consent of the parties hereto prior to the Closing Date Deadline; (ii) by the Buyer prior to the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3 hereof) in the event of any material breach by the Seller or any of the Stockholders of any of their respective representations, warranties, covenants or agreements contained herein; (iii) by the Seller prior to the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3 hereof) in the event of any material breach by the Buyer of any of the Buyer's representations, warranties, covenants or agreements contained herein; (iv) at any time after the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3 hereof), by written notice by the Buyer or the Seller to the other parties hereto if the Closing shall not have occurred on or before the Closing Date Deadline (as the same may have been extended in accordance with Section 1.3); (v) by the Buyer, by written notice to the Seller, if the Buyer in its sole discretion is not satisfied with its due diligence investigation of the Seller, at any time during the period (the "DUE DILIGENCE PERIOD") commencing on the date hereof and ending on the close of business on the thirtieth (30th) day after the later to occur of: (A) the date upon which the Seller and the Buyer agree upon the form and substance of Schedule 5.5 and the Schedules delivered by the Seller pursuant to Article VII hereof and (B) the date of delivery by the Seller to the Buyer of the due diligence materials listed on Schedule 10.5 attached hereto; (vi) by the Seller, by written notice to the Buyer, if the Seller in its sole discretion is not satisfied with its due diligence investigation of the Buyer, at any time during the Due Diligence Period. (vii) by the Buyer, by written notice to the Seller, in the event that the Manufacturer, or any other person claiming by, through or under the Manufacturer, shall exercise any right of first refusal, preemptive right or other similar right, with respect to any of the Assets; (viii) by the Buyer, by written notice to the Seller if, after any initial HSR Act filing, the FTC makes a "second request" for information pursuant to 16 C.F.R. ss.803.20, or if the FTC or the Antitrust Division challenges the transactions contemplated hereby; or 33 (ix) by the Buyer, by written notice to the Seller, in the event that approval by the Manufacturer of the transactions contemplated hereby is not received by the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3 hereof); provided, however, no party may terminate this Agreement pursuant to clauses (ii), (iii), or (iv) above if such party is in material breach of any of its representations, warranties, covenants or agreements contained herein. (b) In the event of termination of this Agreement pursuant to Section 10.13(a), this Agreement shall be of no further force or effect; provided, however, that any termination pursuant to Section 10.13(a) shall not relieve: (i) the Buyer of any liability under Section 10.13(c) below; (ii) the Seller and the Stockholders of any liability under Section 10.13(d) below; (iii) subject to Section 10.13(e) below, any party hereto of any liability for breach of any representation, warranty, covenant or agreement hereunder occurring prior to such termination; or (iv) any party hereto of its or his obligations hereunder to pay the fees and expenses of third parties; provided, further, that all filings, applications and other submissions made pursuant to this Agreement or prior to the execution of this Agreement in contemplation hereof shall, to the extent practicable, be withdrawn from the agency or other entity to which made. (c) If this Agreement is terminated by the Seller pursuant to Section 10.13(a)(iv) hereof and the failure to complete the Closing on or before the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3) shall have been due to the Buyer's material breach of its representations, warranties, covenants or agreements under this Agreement, then the Buyer shall, upon demand of the Seller, promptly pay to the Seller in immediately available funds, as liquidated damages for the loss of the transaction, an aggregate termination fee of $1,375,000 ("the BUYER TERMINATION FEE"). (d) If this Agreement is terminated by the Buyer pursuant to Section 10.13(a)(iv) hereof and the failure to complete the Closing on or before the Closing Date Deadline (as the same may have been extended pursuant to Section 1.3) shall have been due to a material breach by any of the Stockholders or the Seller of a representation, warranty, covenant or agreement of such party under this Agreement, then the Seller shall, upon demand of the Buyer, promptly pay to the Buyer in immediately available funds, as liquidated damages for the loss of the transaction, a termination fee of $1,375,000 (the "SELLER TERMINATION FEE"). (e) In the case of termination of this Agreement pursuant to Section 10.13(a)(iv) hereof, the rights of the terminating party to be paid the Seller Termination Fee or the Buyer Termination Fee, as the case may be, shall be such party's sole and exclusive remedy for damages; in the event of such termination by either party, such party shall have no right to equitable relief for any breach or alleged breach of this Agreement, other than for specific performance for the payment of the Seller Termination Fee or the Buyer Termination Fee, as the case may be. Nothing contained in this Agreement shall prevent any party from electing not to exercise any right it may have to terminate this Agreement and, instead, seeking any equitable relief (including specific performance) to which it would otherwise be entitled in the event of breach of any other party hereto. 34 (f) The Seller and the Stockholders acknowledge and agree that the Buyer's due diligence investigation of the Seller and the Business, including, without limitation, its review of the Schedules attached hereto and the information and documentation received from the Seller, shall not constitute a waiver of, or otherwise modify, the Buyer's right to terminate this Agreement under Section 10.13(a)(v) hereof. 10.14 HSR. Subject to the determination by the Buyer that compliance by the Seller and the Buyer with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), is not required, the Seller and the Buyer shall each prepare and file with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION"), and respond as promptly as practicable to all inquiries received from the FTC or the Antitrust Division for additional information or documentation. The Buyer shall pay any HSR Act filing fees. 10.15 THE BUYER'S FINANCIAL STATEMENTS. The Seller shall allow, cooperate with and assist the Buyer's accountants, and shall instruct the Seller's accountants to cooperate, in the preparation of audited financial statements of the Seller as necessary for any required filings by the Buyer with the SEC or as required by the Buyer's lenders; provided, however, that the expense of such audit shall be borne by the Buyer. 10.16 CURING BREACHES OF REPRESENTATIONS AND WARRANTIES. Upon written notice by the Buyer of the discovery by the Buyer prior to the Closing of a breach of any representation and warranty of the Seller contained in this Agreement, the Seller will, if requested by the Buyer, at its expense, undertake to cure such breach prior to the Closing. In the event that such breach cannot, despite reasonable efforts, be fully cured prior to the Closing, the Seller shall diligently prosecute such efforts to effect such cure before and after the Closing until so cured. If the Buyer shall have requested the Seller to cure any such breach pursuant to this Section 10.16, the Buyer shall not be entitled to claim such breach as a failure of the Buyer's condition to close under Section 8.1 of the Agreement provided that (a) the Seller shall have cured such breach prior to the Closing or (b) in the event that such breach cannot, despite reasonable efforts, be fully cured prior to the Closing, the Seller shall be diligently prosecuting such efforts to effect such cure before the Closing. 10.17 RIGHT OF FIRST OFFER. (a) If, at any time prior to the fifth (5th) anniversary of the Closing Date, the Buyer shall propose to sell the Business acquired from the Seller pursuant to this Agreement, the Buyer shall first give notice in writing to Jim Glover, as agent for the Seller and the Stockholders (the "SELLER'S AGENT"), of its intention to do so, which notice (the "FIRST OFFER") shall constitute an offer to the Seller and the Stockholders to purchase the Business from the Buyer at the price and upon payment terms set forth in such notice. The Seller and the Stockholders, acting through the Seller's Agent, shall have a period of thirty (30) days after the giving of such notice by the Buyer to accept in writing (the "FIRST OFFER ACCEPTANCE") the Buyer's offer set forth in the First Offer. If the Seller and the Stockholders, acting through the Seller's Agent, shall have delivered the First 35 Offer Acceptance to the Buyer prior to the expiration of such thirty (30) day period, the parties shall negotiate in good faith in an effort to finalize, execute and deliver a definitive purchase agreement containing customary terms with respect to such proposed sale. If the parties are unable to execute and deliver such definitive purchase agreement within a period of thirty (30) days after receipt by the Buyer of the First Offer Acceptance (the last day of such thirty (30) day period at 5:00 p.m., Eastern Time, being the "FIRST OFFER AGREEMENT DEADLINE"), the Buyer shall be free to sell the Business to any other person or entity during the one (1) year period commencing with the expiration of the First Offer Agreement Deadline at a price that is not less than 90% of the price proposed by the Buyer in the First Offer, and on payment terms which, overall, are no less favorable than such payment terms proposed by the Buyer in the First Offer. (b) The parties hereto acknowledge and agree that any rights granted to the Seller and the Stockholders pursuant to Section 10.17(a) are subject to the Manufacturer's (or any person claiming by, through or under the Manufacturer) right of first refusal, preemptive right or other similar right, with respect to the Business, and that any exercise of such right by a Manufacturer shall not be subject to Section 10.17(a). Accordingly, the parties hereto acknowledge that any potential closing of a purchase transaction pursuant to Section 10.17(a) will be contingent upon a determination by the Manufacturer that it does not wish to exercise its right of first refusal, preemptive right or other similar right with respect to the Business. 10.18 CERTAIN INDEMNIFICATION PROCEDURES. The procedures to be followed by the Buyer and the Seller with respect to indemnification hereunder regarding claims by third persons which could give rise to an indemnification obligation hereunder shall be as follows: (a) Promptly after receipt by any Buyer Indemnitee or Seller Indemnitee, as the case may be, of notice of the commencement of any action or proceeding (including, without limitation, any notice relating to a tax audit) or the assertion of any claim by a third person which the person receiving such notice has reason to believe may result in a claim by it for indemnity pursuant to this Agreement, such person (the "INDEMNIFIED PARTY") shall give a written notice of such action, proceeding or claim to the party against whom indemnification pursuant hereto is sought (the "INDEMNIFYING PARTY"), setting forth in reasonable detail the nature of such action, proceeding or claim, including copies of any documents and written correspondence from such third person to such Indemnified Party. (b) The Indemnifying Party shall be entitled, at its own expense, to participate in the defense of such action, proceeding or claim, and, if (i) the action, proceeding or claim involved seeks (and continues to seek) solely monetary damages, (ii) the Indemnifying Party confirms and agrees, in writing, that it is obligated hereunder to indemnify and hold harmless the Indemnified Party with respect to such damages in their entirety pursuant to Sections 10.6 or 10.7 hereof, as the case may be, and (iii) the Indemnifying Party shall have made provision which, in the reasonable judgment of the Indemnified Party, is adequate to satisfy any adverse judgment as a result of its indemnification obligation with respect to such action, proceeding or claim, then the Indemnifying Party shall be entitled to assume and control such defense with counsel chosen by the Indemnifying Party and approved by the Indemnified Party, which approval shall not be 36 unreasonably withheld or delayed. The Indemnified Party shall be entitled to participate therein after such assumption, the costs of such participation following such assumption to be at its own expense. Upon assuming such defense, the Indemnifying Party shall have full rights to enter into any monetary compromise or settlement which is dispositive of the matters involved; PROVIDED, that such settlement is paid in full by the Indemnifying Party and will not have any direct or indirect continuing material adverse effect upon the Indemnified Party. Notwithstanding the foregoing, the Indemnified Party shall have the right to pay, settle or compromise any such action, proceeding or claim, provided that in such event the Indemnified Party shall waive any right to indemnity therefor hereunder unless the Indemnified Party shall have sought the consent of the Indemnifying Party to such payment, settlement or compromise and such consent was unreasonably withheld or delayed, in which event no claim for indemnity therefor hereunder shall be waived. (c) With respect to any action, proceeding or claim as to which (i) the Indemnifying Party does not have the right to assume the defense, (ii) the Indemnifying Party shall not have exercised its right to assume the defense or (iii) the Indemnifying Party shall have lost its right to continue the defense, the Indemnified Party shall assume and control the defense of and contest such action, proceeding or claim with counsel chosen by it and approved by the Indemnifying Party, which approval shall not be unreasonably withheld. The Indemnifying Party shall be entitled to participate in the defense of such action, proceeding or claim, the cost of such participation to be at its own expense. The Indemnifying Party shall be obligated to pay the reasonable attorneys' fees and expenses of the Indemnified Party to the extent that such fees and expenses relate to claims as to which indemnification is due under Sections 10.6 or 10.7 hereof, as the case may be. The Indemnified Party shall have full rights to dispose of such action, proceeding or claim and enter into any monetary compromise or settlement; PROVIDED, HOWEVER, in the event that the Indemnified Party shall settle or compromise any action, proceeding or claim for which indemnification is due under Sections 10.6 or 10.7 hereof, as the case may be, it shall act reasonably and in good faith in doing so. (d) Both the Indemnifying Party and the Indemnified Party shall cooperate fully with one another in connection with the defense, compromise or settlement of any such action, proceeding or claim, including, without limitation, by making available to the other all pertinent information and witnesses within its control. 10.19 COMPUTER MATTERS. The Buyer acknowledges that it will not purchase the computer hardware server and peripheral computer equipment owned by Jim Glover and currently used in the Business. The Seller and the Stockholders acknowledge that the Buyer will not be able to have its own server in place at the Closing. Jim Glover agrees to take such steps as are necessary to permit the Buyer, upon reasonable terms and conditions, to access and utilize the computer hardware server and peripheral equipment owned by him and to enter into an agreement with the Buyer to such effect. The Buyer will use commercially reasonable efforts to obtain its own server as soon as reasonably practicable. 37 ARTICLE XI MISCELLANEOUS 11.1 ASSIGNMENT. Except as provided in this Section, this Agreement shall not be assignable by any party hereto without the prior written consent of the other parties. The Buyer may assign this Agreement, without the consent of the other parties hereto, to a corporation, partnership, limited liability company or other entity controlled by the Buyer, including a corporation, partnership, limited liability company or other entity to be formed at any time prior to the Closing Date, and to any person or entity who shall acquire all or substantially all of the assets of the Buyer or of such corporation, partnership, limited liability company or other entity controlled by the Buyer (including any such acquisition by merger or consolidation); provided said assignment shall be in writing and the assignee shall assume all obligations of the Buyer hereunder, whereupon the assignee shall be substituted in lieu of the Buyer named herein for all purposes, and provided further, that the Buyer originally named herein shall continue to be liable with respect to its obligations hereunder. The Buyer may assign this Agreement, without the consent of the other parties hereto, as collateral security, and the other parties hereto agree to execute and deliver any acknowledgment of such assignment by the Buyer as may be required by any lender to the Buyer. 11.2 GOVERNING LAW. The interpretation and construction of this Agreement, and all matters relating hereto, shall be governed by the laws of the State of Oklahoma. 11.3 ACCOUNTING MATTERS. All accounting matters required or contemplated by this Agreement shall be in accordance with generally accepted accounting principles. 11.4 FEES AND EXPENSES. Except as otherwise specifically provided in this Agreement, each of the parties hereto shall be responsible for the payment of such party's fees, costs and expenses incurred in connection with the negotiation and consummation of the transactions contemplated hereby. 11.5 AMENDMENTS; MERGER CLAUSE. This Agreement, including the schedules and other documents referred to herein which form a part hereof, contains the entire understanding of the parties hereto with respect to the subject matter contained herein and therein. This Agreement may not be amended except by a writing executed by all of the parties hereto. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 11.6 WAIVER. To the extent permitted by applicable law, no claim or right arising out of this Agreement or the documents referred to in this Agreement can be discharged by a party, in whole or in part, by a waiver or renunciation of the claim or right unless in writing signed by all the parties hereto. Any waiver by a party hereto of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach of such provision or any other provision of this Agreement. Neither the failure nor any delay by any party hereto in exercising any right or power under this Agreement or the documents referred to in this Agreement will operate as 38 a waiver of such right or power, and no single or partial exercise of any such right or power will preclude any other or further exercise of such right or power or the exercise of any other right or power. 11.7 NOTICES. All notices, claims, certificates, requests, demands and other communications hereunder shall be given in writing and shall be delivered personally or sent by facsimile or by a nationally recognized overnight courier, postage prepaid, and shall be deemed to have been duly given when so delivered personally or by confirmed facsimile or one (1) business day after the date of deposit with such nationally recognized overnight courier. All such notices, claims, certificates, requests, demands and other communications shall be addressed to the respective parties at the addresses set forth below or to such other address as the person to whom notice is to be given may have furnished to the others in writing in accordance herewith. If to the Buyer, to: Sonic Automotive, Inc. 5401 E. Independence Boulevard Charlotte, North Carolina 28212 Fax No.: (704) 563-5116 Attention: Chief Financial Officer With a copy to: Parker, Poe, Adams & Bernstein L.L.P. 2500 Charlotte Plaza Charlotte, North Carolina 28244 Fax No.: (704) 334-4706 Attention: John R. Hairr III If to the Seller or the Stockholders, to: David Hudiburg 6000 Tinker Diagonal Midwest City, Oklahoma 73110 Fax No.: (405) 733-8041 Jim Glover 1724 East 151st Bixby, Oklahoma 74008 With a copy to: Randall Calvert Calvert Law Firm 39 6520 N. Western, Suite 100 Oklahoma City, OK 73116 Fax No.: (405) 848-5052 11.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts. Each such counterpart hereof shall be deemed to be an original instrument, and all such counterparts together shall constitute but one agreement. 11.9 KNOWLEDGE. Whenever any representation or warranty of the Seller or any of the Stockholders contained herein or in any other document executed and delivered in connection herewith is based upon the knowledge of the Seller or any of the Stockholders, (a) such knowledge shall be deemed to include (i) the best actual knowledge, information and belief of the Seller and each Stockholder and (ii) any information which any of the Stockholders would reasonably be expected to be aware of in the prudent discharge of his duties in the ordinary course of business (including consultation with legal counsel) on behalf of the Seller, and (b) the knowledge of the Seller or any of the Stockholders shall be deemed to be the knowledge of the Seller and all the Stockholders. 11.10 ARBITRATION. (a) [INTENTIONALLY DELETED] (b) Except as otherwise provided herein, any dispute, claim or controversy arising out of or relating to this Agreement or the interpretation or breach hereof shall be resolved by binding arbitration under the commercial arbitration rules of the American Arbitration Association (the "AAA RULES") to the extent such AAA Rules are not inconsistent with this Agreement. Judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof or such court may be asked to judicially confirm the award and order its enforcement, as the case may be. The demand for arbitration shall be made by any party hereto within a reasonable time after the claim, dispute or other matter in question has arisen, and in any event shall not be made after the date when institution of legal proceedings, based on such claim, dispute or other matter in question, would be barred by the applicable statute of limitations. The arbitration panel shall consist of three (3) arbitrators, one of whom shall be appointed by the Buyer and one of whom shall be appointed by the Seller within thirty (30) days after any request for arbitration hereunder. The two arbitrators thus appointed shall choose the third arbitrator within thirty (30) days after their appointment; provided, however, that if the two arbitrators are unable to agree on the appointment of the third arbitrator within thirty (30) days after their appointment, either arbitrator may petition the American Arbitration Association to make the appointment. The place of arbitration shall be Charlotte, North Carolina. The arbitrators shall be instructed to render their decision within sixty (60) days after their selection and to allocate all costs and expenses of such arbitration (including legal and accounting fees and expenses of the respective parties) to the parties in the proportions that reflect their relative success on the merits (including the successful assertion of any defenses). 40 (c) Notwithstanding the provisions of Section 11.10(b), any dispute relating to accounting matters shall be resolved as provided in this Section 11.10(c). The parties first shall use reasonable efforts to resolve any such accounting dispute. In the event the dispute has not been resolved within a reasonable amount of time, either the Buyer, on the one hand, or the Seller, on the other hand, may provide written notice to the other party that the matter will be submitted to a "Big Five" accounting firm mutually acceptable to the Buyer and the Seller (the "ACCOUNTANTS") for resolution. If issues in dispute are submitted to the Accountants for resolution: (i) each party will furnish to the Accountants such work papers and other documents and information relating to the disputed issues as the Accountants may request and are available to the party or its subsidiaries (or its independent public accountants), and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (ii) such determination by the Accountants, as set forth in a notice delivered to both parties by the Accountants, will be binding and conclusive on the parties; and (iii) the Buyer and the Seller shall each bear 50% of the fees and expenses of the Accountants for such determination. (d) Nothing contained in this Section 11.10 shall prevent any party hereto from seeking any equitable relief to which it would otherwise be entitled from a court of competent jurisdiction. 11.11 PERMITTED SUCCESSORS; ASSIGNS; NO THIRD PARTY BENEFICIARIES. Subject to Section 11.1, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the respective successors, heirs and assigns of the parties hereto. Nothing in this Agreement, expressed or implied, is intended or shall be construed to confer upon or give to any employee of the Seller, or any other person, firm, corporation or legal entity, other than the parties hereto and their successors and permitted assigns, any rights, remedies or other benefits under or by reason of this Agreement. 11.12 HEADINGS. The article headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 11.13 SEVERABILITY; CONSTRUCTION. (a) In the event that any provision, or part thereof, of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions, or parts thereof, shall not in any way be affected or impaired thereby. (b) This Agreement shall be construed equitably, in accordance with its terms, without regard to the degree which the Seller or the Buyer, or their respective legal counsel, have participated in the drafting of this Agreement. 11.14 COOPERATION IN SEC FILINGS. At the request of the Buyer and at the Buyer's expense, the Seller and the Stockholders shall cooperate in the preparation by the Buyer of any filings to be made by the Buyer with the SEC including, without limitation, any filing with respect 41 to a registered offering of its securities by the Buyer and the closing of the offering registered thereby. [SIGNATURE PAGE FOLLOWS] 42 IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the day and year first above written. BUYER: SONIC AUTOMOTIVE, INC. /s/ O. Bruton Smith By: O. Bruton Smith Its: Chairman and CEO SELLER: JIM GLOVER DODGE, INC. /s/ James E. Glover -------------------------------- By: James E. Glover Its: President STOCKHOLDERS: /s/ James E. Glover ------------------------------ (SEAL) James E. Glover /s/ Steven Hudiburg ------------------------------ (SEAL) Steven Hudiburg /s/ Paula Tate ------------------------------ (SEAL) Paula Tate /s/ Karen Stevens ------------------------------ (SEAL) Karen Stevens /s/ Daniel Dodson ------------------------------ (SEAL) Daniel Dodson /s/ Timothy Dodson ------------------------------ (SEAL) Timothy Dodson EX-10 6 EXHIBIT 10.7 EXHIBIT 10.7 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT dated as of September 30, 1999 (this "AGREEMENT") by and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the "BUYER"), RIVERSIDE NISSAN, INC., an Oklahoma corporation (the "COMPANY"), and the shareholders of the Company set forth on the signature page hereto (collectively, the "SELLERS"). W I T N E S S E T H: WHEREAS, the Company is engaged in a Nissan automobile dealership business located at 8190 E. Skelly Drive, Tulsa, Oklahoma 74129; WHEREAS, the Sellers own in the aggregate 245,500 shares of common stock of the Company (the "SHARES"), which shares represent all of the issued and outstanding shares of capital stock of the Company and are owned of record and beneficially by the Sellers in the amounts set forth opposite their respective names on Exhibit 3.1 hereto; WHEREAS, the Buyer desires to purchase the Shares from the Sellers, and the Sellers are willing to sell the Shares to the Buyer, upon the terms and conditions hereinafter set forth; and WHEREAS, concurrently with the execution and delivery of this Agreement, the Sellers are notifying the Manufacturer (as defined in Article 2 below) of the transactions contemplated by this Agreement; WHEREAS, contemporaneously with the execution of this Agreement, the Buyer has entered into an Asset Purchase Agreement dated as of the date hereof (the "RIVERSIDE CHEVROLET PURCHASE AGREEMENT") with Riverside Chevrolet, Inc. ("RIVERSIDE CHEVROLET") and certain stockholders of Riverside Chevrolet, with respect to the acquisition by the Buyer of the Chevrolet automobile dealership business owned by Riverside Chevrolet, and the Buyer has also entered into an Asset Purchase Agreement dated as of the date hereof (the "GLOVER DODGE PURCHASE AGREEMENT") with Jim Glover Dodge, Inc. ("GLOVER DODGE") and certain stockholders of Glover Dodge, with respect to the acquisition by the Buyer of the Dodge automobile dealership business owned by Glover Dodge; and WHEREAS, the consummation of the transactions contemplated by this Agreement is subject to the consummation of the transactions contemplated by the Riverside Chevrolet Purchase Agreement and the Glover Dodge Purchase Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants and representations hereinafter stated, and intending to be legally bound hereby, the parties agree as follows: ARTICLE 1 PURCHASE AND SALE 1.1 AGREEMENT OF PURCHASE AND SALE. Upon the terms and subject to the conditions of this Agreement and in reliance upon the representations and warranties of the parties herein, at the closing referred to in Article 2 hereof (the "CLOSING"), the Sellers shall sell, transfer, convey and deliver to the Buyer, and the Buyer shall purchase from the Sellers, the Shares. 1.2 THE PURCHASE PRICE. (a) THE PURCHASE PRICE. The purchase price to be paid by the Buyer for the Shares (the "PURCHASE PRICE") shall be an aggregate amount consisting of the sum of (i) Five Million Three Hundred Fifty Thousand Dollars ($5,350,000), plus (ii) the Net Book Value (as defined in Section 1.2(c)(i) below). (b) PAYMENT OF THE PURCHASE PRICE. The Purchase Price shall be paid as follows: (i) At the Closing, Bob Hurley and David Hudiburg, as agent for the Sellers (the "SELLERS' AGENT"), shall deliver to the Buyer a certificate setting forth the Sellers' estimate of the Net Book Value as of the Closing (the "ESTIMATED NET BOOK VALUE"). Provided that the Buyer, in its sole discretion, shall determine that the Estimated Net Book Value is acceptable (such determination to be without prejudice to the rights of the parties hereunder with respect to the determination of the Net Book Value pursuant to Section 1.2(c) below), the Buyer shall pay an amount equal to the sum of (i) Four Million Eight Hundred Fifty Thousand Dollars ($4,850,000) plus (ii) the Estimated Net Book Value, to the Sellers, in the respective amounts set forth opposite their names on Exhibit 3.1 hereto, by wire transfer to an account or accounts designated to the Buyer by the Sellers' Agent at least one Business Day prior to the Closing Date (as defined in Article 2 below). For purposes of this Agreement, a "BUSINESS DAY" is a day other than a Saturday, a Sunday or a day on which banks are required to be closed in the State of North Carolina. (ii) At the Closing, the Buyer shall place into escrow with First Union National Bank or another escrow agent mutually acceptable to the parties hereto (the "ESCROW AGENT") the sum of Five Hundred Thousand Dollars ($500,000) (the "ESCROWED AMOUNT"), all in accordance with the escrow agreement in the form of Exhibit 1.2(b) hereto, with such other changes thereto as the Escrow Agent shall reasonably request (the "ESCROW AGREEMENT"). The term of the Escrow Agreement shall be for a period of one hundred twenty (120) days from the Closing Date (or such shorter or longer period of time as shall be necessary to complete the determination of Net Book Value pursuant to Section 1.2(c) below). Interest on the Escrowed Amount shall be paid to the Buyer and the Sellers in the proportions of the Escrowed Amount paid to them. (c) ADJUSTMENT PROCEDURES. (i) Not later than 120 days after the Closing Date, the Buyer will prepare and deliver to the Sellers' Agent an unaudited balance sheet (the "CLOSING BALANCE 2 SHEET") of the Company as of the Closing Date, consisting of a computation of the net book value of the tangible assets of the Company (including leasehold improvements excluding and the Distributed Assets (as defined in Section 1.5 hereof)) as of the Closing Date, less the book value of the liabilities of the Company as of the Closing Date, all in accordance with generally accepted accounting principles consistently applied ("GAAP"), subject to the additional principles set forth below. The tangible net book value reflected on the Closing Balance Sheet is hereinafter called the "NET BOOK VALUE." The Closing Balance Sheet will be prepared in accordance with the following additional principles: (A) it will utilize the last in-first out (LIFO) method of inventory accounting provided that sixty percent (60%) of the LIFO reserve will be added to the Net Book Value; (B) there shall be included appropriate write-offs for doubtful accounts receivable and bad debts and for damaged, spoiled, obsolete or slow-moving inventory; (C) any receivables due the Company from any of the Sellers or any of the directors, officers, employees or Affiliates (as defined in Section 3.5 below) of the Company shall be excluded as assets; (D) the liabilities of the Company shall include appropriate accruals for all Tax liabilities of the Company associated with the distribution of the Distributed Assets; and (E) the values of the following asset categories shall be calculated as follows: (I) NEW VEHICLES. The value of each of the Company's untitled new motor vehicles (meaning (i) current model year vehicles as of the Closing Date and, (ii) if the Closing occurs on or before December 31, 1999, 1999 model year vehicles, but excluding from clauses (i) and (ii) conversion vans or similar-type vehicles that have been in inventory longer than 180 days, rental cars and company vehicles) in stock and unsold as of the Closing Date (collectively, the "NEW VEHICLES") shall be the price at which the New Vehicle was invoiced to the Company by the Manufacturer (as defined in Article 2 below), as adjusted pursuant to clauses (III) and (IV) below; provided, however, the value of any pre-reported sold vehicles for which the sale cannot be reversed shall be as mutually agreed by the Buyer and the Sellers' Agent. In the event the Buyer and the Sellers' Agent cannot agree upon a value with respect to any such pre-reported sold vehicle, then such vehicle shall be considered an Excluded Asset (as defined in Section 1.2(c)(i)(xi)), and such vehicle shall be valued on the Closing Balance Sheet and disposed of in accordance with Subsection XI. (II) DEMONSTRATORS. The value of each of the Company's untitled new motor vehicles (meaning current model year vehicles as of the Closing Date in stock and unsold as of the Closing Date which is used in the ordinary course of business for the purpose of demonstration provided that it has, as of the Closing Date, less than 6,000 miles on its odometer (collectively, the "DEMONSTRATORS") shall be the price at which the Demonstrator was invoiced to the Company by the Manufacturer, as adjusted pursuant to clauses (III) and (IV) below and, if such Demonstrator has an odometer reading in excess of 500 miles, as reduced by an amount equal to ten cents ($.10) multiplied by the total mileage on such odometer. Any demonstrator having an odometer reading in excess of 6,000 miles or which is not a current model year vehicle as of the Closing Date shall be treated as a used vehicle under Clause V below. (III) ADJUSTMENT TO VALUE OF NEW VEHICLES AND DEMONSTRATORS. The value of each New Vehicle and each Demonstrator shall be: (x) increased by the dealer cost of any equipment and accessories which have been installed by the Company; and (y) decreased by the sum of (1) the dealer cost of any equipment and accessories which have been removed 3 from such vehicle, (2) all paid or unpaid rebates, discounts, holdback for dealer account and other factory incentives (including without limitation rebates applied for and paid but not earned and incentive monies claimed on pre-reported units), and (3) if such vehicle shall have been in inventory for less than thirty (30) days as of the Closing Date, any factory floor plan assistance and advertising credits relative to such vehicle. (IV) DAMAGED NEW VEHICLES AND DEMONSTRATORS. If any New Vehicles or Demonstrators shall have suffered any damage on or prior to the Closing Date, the Sellers' Agent and the Buyer will attempt to agree on the cost to cover such repairs or some other equitable reduction in value to reflect such condition, which amount shall be deducted from the value of such New Vehicle or Demonstrator. With respect to any New Vehicle or Demonstrator which shall have been damaged and repaired prior to the Closing Date, the Sellers' Agent and the Buyer will attempt to agree on an adjustment to the price to reflect the decrease, if any, in the wholesale value of such New Vehicle or Demonstrator resulting from such damage and repair, which amount shall be deducted from the value of such New Vehicle or Demonstrator. In the event the Buyer and the Sellers' Agent cannot agree on the cost of repairs, the amount of reduction or such adjustment with respect to a vehicle, then such vehicle shall be considered an Excluded Asset, and such vehicle shall be valued on the Closing Balance Sheet and disposed of in accordance with Subsection XI below. (V) USED VEHICLES. The value of each motor vehicle owned by the Company that is not a New Vehicle or a Demonstrator as of the Closing Date, including conversion vans and similar-type vehicles that have been in inventory for longer than 180 days, rental cars and company vehicles (collectively, the "USED VEHICLES"), shall be equal to a value mutually agreed upon by Buyer and the Sellers' Agent. In the event the Buyer and the Sellers' Agent cannot agree upon a value with respect to any Used Vehicle, then such Used Vehicle shall be considered an Excluded Asset, and such Used Vehicle shall be valued on the Closing Balance Sheet and disposed of in accordance with Subsection XI below. (VI) INVENTORY. The Buyer and the Sellers' Agent shall engage a mutually acceptable third party engaged in the business of appraising, valuing and preparing inventories for automobile dealerships (hereinafter referred to as the "INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the parts and accessories, as well as the Miscellaneous Inventories (as defined in Clause VIII below), owned by the Company. The Inventory (insofar as it relates to parts and accessories) shall be posted to the Manufacturer's approved system of inventory control. The Inventory shall be completed as of the Closing Date. The Inventory shall identify each part and accessory and its purchase price. The cost of the Inventory shall be borne equally by the Buyer, on the one hand, and the Sellers, on the other hand. (VII) RETURNABLE AND NON-RETURNABLE REPLACEMENT PARTS AND ACCESSORIES. The Inventory shall classify replacement parts and accessories as "returnable" or "nonreturnable." For purposes of this Agreement, the terms "returnable parts" and "returnable accessories" shall describe and include only those new replacement parts and new accessories (excluding prior model year vehicle accessories) for vehicles which are listed (coded) in the latest current Master Parts Price List Suggested List Prices and Dealer Prices, or other applicable similar price lists, of the Manufacturer, with supplements or the equivalent in effect as of the 4 Closing Date (the "MASTER PRICE LIST"), as returnable to the Manufacturer at not less than the purchase price reflected in the Master Price List or in the most recent applicable price list. All parts and accessories listed (coded) in the Master Price List as non-returnable to the Manufacturer shall be classified as "nonreturnable." The value of each "returnable part" and "returnable accessory" will be the price therefor listed in the Master Price List. The value of each "nonreturnable" part and accessory shall be equal to a value mutually agreed upon by Buyer and the Sellers' Agent. In the event the Buyer and the Sellers' Agent cannot agree upon a price with respect to any "nonreturnable" part or accessory, the Closing Balance Sheet shall allocate no value to such "nonreturnable" part or accessory, and the Sellers may cause the Company to divest any such "nonreturnable" part or accessory prior to Closing in accordance with Section 1.5. The value of all special order, non-stock, "Jobber" or "NPN" parts shall be equal to the Company's original cost of such parts. The value of all nuts, bolts and any other parts not addressed in this Subsection shall equal the fair market value thereof as determined by the Inventory Service. The value of the Company's core deposits, if any, with the Manufacturer shall be included as an asset on the Closing Balance Sheet. Any damaged parts or accessories, parts and accessories with component parts missing, superseded or obsolete parts or accessories, or used parts or accessories, shall be, unless the Buyer and the Sellers' Agent agree upon a value therefor, considered Excluded Assets and valued on the Closing Balance Sheet and disposed of in accordance with Subsection XI below. (VIII) MISCELLANEOUS INVENTORIES. "MISCELLANEOUS INVENTORIES" shall include (a) all useable gas, oil and grease, all undercoat material and body materials in unopened cans and such other miscellaneous useable and saleable articles in unbroken lots (including office supplies) which are owned by the Company on the Closing Date provided that Miscellaneous Inventories shall not include any miscellaneous inventories which represent more than a sixty (60) day supply of any particular item(s) and (b) all t-shirts, caps and other clothing items which bear the Company's logo and are not defective or damaged in any manner. The value of the Miscellaneous Inventories shall be equal to the current replacement cost of the Miscellaneous Inventories as determined by the Inventory Service and set forth on the Inventory; provided, however, the value of such shirts, caps and other clothing items shall be equal to the Company's actual cost thereof. In the event that the Buyer and the Sellers' Agent cannot agree upon a value with respect to any particular miscellaneous items, then such items shall not be included in the Miscellaneous Inventories. Such miscellaneous items shall be considered Excluded Assets, and such miscellaneous items shall be valued on the Closing Balance Sheet and disposed of in accordance with Subsection XI. (IX) WORK IN PROCESS. The value of any repair orders which are in process at the opening of business on the Closing Date shall be the Company's actual cost for parts and labor for such orders as the Company shall have caused to be performed. (X) FIXTURES AND EQUIPMENT. The value of all fixtures, machinery, equipment (including special tools and shop equipment reasonably necessary to the servicing of motor vehicles), furniture and all signs and office equipment (including, without limitation, computer equipment used in normal dealership operations) owned by the Company (collectively, "FIXTURES AND EQUIPMENT") which (a) were purchased by the Company on or after January 1, 1999 shall be the actual cost thereof as depreciated by the modified accelerated costs recovery system depreciation method and (b) which were purchased by the Company prior 5 to January 1, 1999 shall be equal to the depreciated book value thereof of December 31, 1998 less an amount equal to seventy-five percent (75%) of the book depreciation thereof from January 1, 1999 through the Closing Date; PROVIDED, HOWEVER, the Closing Balance Sheet shall allocate no value to any items of Fixtures and Equipment which are leased. (XI) EXCLUDED ASSETS. As used herein, the term "EXCLUDED ASSETS" shall refer to any assets of the Company with respect to which the terms of this Section 1.2 do not specify a value and the Buyer and the Sellers' Agent are otherwise unable to agree upon such a value at or in connection with the Closing. The Closing Balance Sheet shall allocate to each Excluded Asset the value of such Excluded Asset as determined by the Buyer. Immediately following the Closing, the Buyer will cause the company to transfer all Excluded Assets to the Sellers at a purchase price equal to the aggregate value allocated to the Excluded Assets on the Closing Balance Sheet. (XII) CHARGEBACKS. With respect to each of the Company's finance arrangements which provide for no chargeback after the initial three (3) payments have been made on such arrangement, and with respect to all vehicle service contracts, the Closing Balance Sheet shall reflect the actual chargeback on such arrangement. (ii) If within 30 days following delivery of the Closing Balance Sheet (or the next Business Day if such 30th day is not a Business Day), the Sellers' Agent has not given the Buyer notice of the Sellers' objection to the computation of the Net Book Value as set forth in the Closing Balance Sheet (such notice to contain a statement in reasonable detail of the nature of the Sellers' objection), then the Net Book Value reflected in the Closing Balance Sheet will be deemed mutually agreed by the Buyer and the Sellers. If the Sellers' Agent shall have given such notice of objection in a timely manner, then the issues in dispute will be resolved pursuant to Section 12.13(c) below. (iii) If the Net Book Value, as deemed mutually agreed by the parties or as determined by the Accountants, as aforesaid, is at least equal to the Estimated Net Book Value, the Buyer and the Sellers shall promptly execute and deliver to the Escrow Agent a joint instruction to deliver the entire Escrow Amount, including all interest accrued thereon under the Escrow Agreement, to the Sellers in the respective percentages set forth opposite their name on Exhibit 3.1. To the extent that the Net Book Value, as deemed mutually agreed by the parties or as determined by the Accountants, as aforesaid, is greater than the Estimated Net Book Value, the Buyer shall be obligated to pay the amount of such excess (the "NET BOOK VALUE EXCESS"), together with interest on the amount of the Net Book Value Excess at the Buyer's floor plan financing rate from time to time in effect (the "INTEREST RATE") from the Closing Date to the date of such payment, promptly to the Sellers in the respective percentages set forth opposite their names on Exhibit 3.1. The payment of the Net Book Value Excess, plus interest as aforesaid, shall be made by wire transfer to the Sellers in the manner specified in Section 1.2(b)(i) above. To the extent that the Net Book Value, as deemed mutually agreed by the parties or as determined by the Accountants, as aforesaid, is less than the Estimated Net Book Value, the Sellers shall be obligated, jointly and severally, to pay the amount of such shortfall (the "NET BOOK VALUE SHORTFALL"), together with interest on the amount of the Net Book Value Shortfall at the Interest Rate from the Closing Date to the date of such payment, in cash, promptly to the Buyer. In furtherance of such obligation of the Sellers, the parties shall execute and deliver to 6 the Escrow Agent a joint instruction to deliver up to all of the Escrowed Amount, plus interest earned on the Escrow Amount, to the Buyer. To the extent that the Net Book Value Shortfall, plus interest at the Interest Rate as aforesaid, exceeds the value of the Escrowed Amount plus interest earned on the Escrow Amount, the Sellers shall be obligated, jointly and severally, to pay in cash or by wire transfer the amount of such excess promptly to the Buyer. 1.3 DELIVERY OF THE SHARES. At the Closing, each Seller shall deliver to the Buyer a certificate or certificates representing the number of Shares set forth opposite such Seller's name on Exhibit 3.1 hereto, duly endorsed in blank or with a fully executed stock power attached, all in proper form for transfer with all transfer taxes, if any, paid by such Seller. The Shares shall be delivered to the Buyer free and clear of all liens, pledges, encumbrances, claims, security interests, charges, voting trusts, voting agreements, other agreements, rights, options, warrants or restrictions or claims of any kind, nature or description (collectively, "ENCUMBRANCES"). 1.4 EMPLOYMENT AGREEMENT. At the Closing, Bob Hurley will enter into an employment agreement with the Buyer and the Company in the form of Exhibit 1.4 hereto (the "EMPLOYMENT AGREEMENT"). 1.5 CERTAIN DIVESTITURES PRIOR TO CLOSING. Prior to the Closing, the Sellers shall cause the Company to distribute to the Sellers all of its rights, title and interests in and to the Real Property (as defined in Section 3.16(b)) by a written instrument(s) in form and substance reasonably satisfactory to the Buyer. All such distributed Real Property is referred to herein as the "DISTRIBUTED ASSETS". 1.6 REAL PROPERTY LEASE. At the Closing, the Landlords (as defined below) will enter into a lease agreement with the Company in the form of Exhibit 1.6 hereto (the "DEALERSHIP LEASE"). As used herein, the term "LANDLORDS" shall mean all of the other persons and entities set forth on the signature page of the Dealership Lease other than the Company. ARTICLE 2 CLOSING The Closing shall take place at the offices of Parker, Poe, Adams & Bernstein L.L.P., 2500 Charlotte Plaza, Charlotte, North Carolina at 9:30 a.m., local time, on the Closing Date. The Closing Date shall be the date designated by the Buyer, which date shall be no later than fifteen (15) days after the date of receipt by Buyer of the approvals of Nissan Motor Corporation (the "MANUFACTURER") contemplated in Section 7.10, and the satisfaction of the other conditions set forth in Sections 7.13 and 7.14. In no event shall the Closing Date be later than December 31, 1999 (the "CLOSING DATE DEADLINE"); PROVIDED, HOWEVER, if, as of December 31, 1999, any of the conditions set forth in Sections 7.10, 7.13 or 7.14 shall not have been satisfied, the Buyer may elect to extend the Closing Date Deadline for up to an additional thirty (30) days. The date upon which the Closing shall take place is hereinafter called the "CLOSING DATE." 7 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SELLERS Each of the Sellers, jointly and severally, hereby represents and warrants to the Buyer as follows: 3.1 OWNERSHIP OF SHARES. Each Seller owns of record and beneficially the number and percentage of Shares set forth opposite such Seller's name on Exhibit 3.1 hereto. Each Seller has, and will have at the time of the Closing, good and valid title to the Shares to be sold by such Seller hereunder, free and clear of all Encumbrances. There are no outstanding options or warrants with respect to the capital stock of the Company, nor are there any outstanding securities which are convertible or exchangeable into capital stock of the Company. There are no voting trusts, shareholder agreements or other agreements, instruments or rights of any kind or nature whatsoever outstanding with respect to shares of capital stock of the Company. 3.2 THE SELLERS' POWER AND AUTHORITY; CONSENTS AND APPROVALS. (a) Each Seller has full capacity, right, power and authority to execute and deliver this Agreement and the other agreements, documents and instruments to be executed and delivered by such Seller in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its, his or her obligations hereunder and thereunder. (b) Except as set forth on Schedule 3.2(b) hereto, no authorization, approval or consent of, or notice to or filing or registration with, any governmental agency or body, or any other third party, is required in connection with the execution and delivery by each Seller of this Agreement and the other agreements, documents and instruments to be executed and delivered by each Seller in connection herewith, the consummation of the transactions contemplated hereby and thereby and the performance by each Seller of its, his or her obligations hereunder and thereunder. 3.3 EXECUTION AND ENFORCEABILITY. This Agreement and the other agreements, documents and instruments to be executed by the Sellers in connection herewith, and the consummation by each Seller of the transactions contemplated hereby and thereby, have been duly authorized, executed and delivered by each Seller and constitute, and the other agreements, documents and instruments contemplated hereby, when executed and delivered by each Seller, shall constitute, the legal, valid and binding obligations of each Seller, enforceable against each such Seller in accordance with their respective terms. 3.4 LITIGATION REGARDING THE SELLERS. There are no actions, suits, claims, investigations or legal, administrative or arbitration proceedings pending or, to each of the Sellers' knowledge, threatened or probable of assertion, against such Seller relating to the Shares, this Agreement or the transactions contemplated hereby before any court, governmental or administrative agency or other body. None of the Sellers knows of any basis for the institution of any such suit or proceeding. No judgment, order, writ, injunction, decree or other similar command of any court or governmental or administrative agency or other body has been entered against or served upon any Seller relating to the Shares, this Agreement or the transactions contemplated hereby. 8 3.5 INTEREST IN COMPETITORS AND RELATED ENTITIES; CERTAIN TRANSACTIONS. (a) Except as set forth on Schedule 3.5 hereto, neither any Seller nor any Affiliate of any Seller (i) has any direct or indirect interest in any person or entity engaged or involved in any business which is similar to or competitive with the Company's business, (ii) has any direct or indirect interest in any person or entity which is a lessor of assets or properties to, material supplier of, or provider of services to, the Company, or (iii) has a beneficial interest in any contract or agreement to which the Company is a party; PROVIDED, HOWEVER, that the foregoing representation and warranty shall not apply to any person or entity, or any interest or agreement with any person or entity, which is a publicly held corporation in which the Sellers, on an aggregate basis, own less than 3% of the issued and outstanding voting stock. For purposes of this Agreement, the term "AFFILIATE" shall mean any entity directly or indirectly controlling, controlled by or under common control with the specified person, whether by stock ownership, agreement or otherwise, or any parent, child or sibling of such specified person and the concept of "CONTROL" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such person or entity, whether through the ownership of voting securities, by contract or otherwise. (b) Except as set forth in Schedule 3.5 hereto, there are no transactions between the Company and any of the Sellers (including the Sellers' Affiliates), or any of the directors, officers or salaried employees of the Company, or the family members or Affiliates of any of the above (other than for services as employees, officers and directors), including, without limitation, any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from, any of the Sellers, or any such officer, director or salaried employee, family member, or Affiliate or any corporation, partnership, trust or other entity in which such family member, Affiliate, officer, director or employee has a substantial interest or is a shareholder, officer, director, trustee or partner. 3.6 THE SELLERS NOT FOREIGN PERSONS. Each Seller is a "United States person" as that term is defined in Section 7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "CODE"), and the regulations promulgated thereunder. 3.7 ORGANIZATION; GOOD STANDING, ETC. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Oklahoma and has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted. The Company is not qualified, and the nature of its business does not require it to be qualified, to do business as a foreign corporation in any other jurisdictions. 3.8 CAPITALIZATION. The authorized capital stock of the Company consists of 245,500 shares of common stock, par value $1.00 per share, of which 245,500 shares are issued and outstanding and constitute all of the Shares. All of the Shares are duly authorized, validly issued, fully paid and non-assessable and are held by the Sellers in the amounts indicated on Exhibit 3.1 hereto. Except as set forth on Schedule 3.8 hereto, there are no preemptive rights, whether at law or otherwise, to purchase any of the securities of the Company, and there are no 9 outstanding options, warrants, "phantom" stock plans, subscriptions, agreements, plans or other commitments pursuant to which the Company is or may become obligated to sell or issue any shares of its capital stock or any other debt or equity security, and there are no outstanding securities convertible or exchangeable into shares of such capital stock or any other debt or equity security. There are no voting trusts, shareholder agreements or other agreements, instruments or rights of any kind or nature whatsoever outstanding with respect to shares of capital stock of the Seller. 3.9 SUBSIDIARIES AND INVESTMENTS. The Company does not own or maintain, directly or indirectly, any capital stock of or other equity or ownership or proprietary interest in any other corporation, partnership, association, trust, joint venture or other entity and does not have any commitment to contribute to the capital of, make loans to, or share in the losses of, any such entity. 3.10 NO VIOLATION; CONFLICTS. Except as set forth on Schedule 3.10 hereto, the execution and delivery by the Sellers and the Company of this Agreement and the other agreements, documents and instruments to be executed and delivered by the Sellers in connection herewith, the consummation by the Sellers of the transactions contemplated hereby and thereby and the performance by the Sellers of their respective obligations hereunder and thereunder do not and will not (a) conflict with or violate any of the terms of the Articles of Incorporation or By-Laws of the Company, (b) violate or conflict with any law, ordinance, rule or regulation, or any judgment, order, writ, injunction, decree or similar command of any court, administrative or governmental agency or other body, applicable to the Company, (c) violate or conflict with the terms of, or result in the acceleration of, any indebtedness or obligation of the Company under, or violate or conflict with or result in a breach of, or constitute a default under, any indenture, mortgage, deed of trust, agreement or instrument to which the Company is a party or by which the Company or any of its assets or properties is bound or affected, (d) result in the creation or imposition of any Encumbrance of any nature upon any of the assets or properties of the Company, (e) constitute an event permitting termination of any material agreement, license or other right of the Company, or (f) require any authorization, approval or consent of, or any notice to or filing or registration with, any governmental agency or body, or any other third party, applicable to the Company or any of its properties or assets. 3.11 TITLE TO ASSETS; RELATED MATTERS. The Company has good and valid title to all assets, rights, interests and other properties, real, personal and mixed, tangible and intangible, owned by it, other than the Distributed Assets (collectively, the "ASSETS"), free and clear of all Encumbrances, except those specified on Schedule 3.11 and liens for taxes not yet due and payable. The Assets (a) include all properties and assets (real, personal and mixed, tangible and intangible) owned by the Company and used or held for use in the conduct of its business; and (b) do not include (i) any contracts for future services, prepaid items or deferred charges the full value or benefit of which will not be usable by or transferrable to the Buyer, or (ii) any goodwill, organizational expense or other similar intangible asset. 3.12 POSSESSION. The tangible assets included within the Assets are in the possession or control of the Company and no other person or entity has a right to possession or claims possession of all or any part of such Assets, except the rights of lessors of Leased Equipment and 10 Leased Premises (each as defined in Section 3.16 hereof) under their respective contracts and leases. 3.13 FINANCIAL STATEMENTS. (a) The Sellers have delivered to the Buyer prior to the date hereof: (i) the unaudited balance sheet of the Company as of December 31, 1997 and December 31, 1998 and the related unaudited statements of income for the fiscal years then ended (including the notes thereto and any other information included therein) (collectively, the "ANNUAL FINANCIAL STATEMENTS"); and (ii) the most recent unaudited balance sheet of the Company and the related unaudited statements of income for the year-to-date period then ended, as certified by the Company's President (collectively, the "INTERIM FINANCIAL STATEMENTS"; the Annual Financial Statements and the Interim Financial Statements are hereinafter collectively referred to as the "FINANCIAL STATEMENTS"). (b) The Financial Statements are in accordance with the books and records of the Company, which books and records are true, correct and complete, in all material respects. The Financial Statements have been prepared in accordance with the Manufacturer's published accounting manual and generally accepted industry accounting standards, each consistently applied. Each balance sheet included in the Financial Statements fairly presents the financial condition of the Company as of the date thereof, and each related statement of income included in the Financial Statements fairly presents the results of the operations of the Company for the period indicated, all in accordance with the Manufacturer's published accounting manual and generally accepted industry accounting standards, each consistently applied. Except as set forth on Schedule 3.13(b), to the knowledge of the Sellers, the Financial Statements contain adequate reserves for all reasonably anticipated claims relating to matters with respect to which the Company is self-insured. 3.14 ACCOUNTS RECEIVABLE. All accounts receivable of the Company are collectible at the aggregate recorded amounts thereof, subject to the reserve for doubtful accounts maintained by the Company in the ordinary course of business, and are not subject to any known counterclaims or setoffs. An adequate reserve for doubtful accounts for the Company has been established and such reserve is consistent with the operation of the Company in both the ordinary course of business and past practice. 3.15 INVENTORIES. All inventories of the Company consist of items of a quality and quantity usable and saleable in the ordinary course of business of the Company, and the levels of inventories are consistent with the levels maintained by the Company in the ordinary course consistent with past practice and the Company's obligations under its agreements with the Manufacturer and all applicable distributors. The values at which such inventories are carried are based on the FIFO method and are stated in accordance with GAAP by the Sellers at the lower of historic cost or market. An adequate reserve has been established by the Company for damaged, spoiled, obsolete, defective, or slow-moving goods and such reserve is consistent with both the operation of the Company in the ordinary course of business and past practice. 11 3.16 REAL PROPERTY; MACHINERY AND EQUIPMENT. (a) OWNED REAL PROPERTY. Schedule 3.16(a) hereto contains a complete list and brief description of all real property (including leasehold improvements) owned by the Company and a summary description of the improvements (including buildings and other structures) located thereon (collectively, the "OWNED REAL PROPERTY"). True and correct copies of the deeds with respect to the Owned Real Property have been delivered to the Buyer. The Company is the sole owner of the Owned Real Property and holds the Owned Real Property in fee simple or its equivalent under local law, free and clear of all building use restrictions, exceptions, variances, limitations or other title defects of any nature whatsoever, except those set forth in Schedule 3.16(a) hereto (the "PERMITTED ENCUMBRANCES"). There are no leases, written or oral, affecting all or any part of the Owned Real Property. The only real property (other than the Leased Premises) used by the Company in connection with the Company's business is the Owned Real Property. The Owned Real Property (including, without limitation, the roof, the walls and all plumbing, wiring, electrical, heating, air conditioning, fire protection and other systems, as well as all paved areas, included therein or located thereat) is in good working order, condition and repair and is not in need of maintenance or repairs except for maintenance and repairs which are routine, ordinary and not material in nature or cost. (b) LEASED PREMISES. Schedule 3.16(b)(i) hereto contains a complete list and description (including buildings and other structures thereon and the name of the owner thereof) of all real property of which the Company is a tenant (herein collectively referred to as the "LEASED PREMISES," and, together with the Owned Real Property, sometimes collectively referred to as the "REAL PROPERTY"). True, correct and complete copies of all leases of all Leased Premises (the "LEASES") have been delivered to the Buyer. Except as provided in Schedule 3.16(b)(ii), the Leased Premises (including, without limitation, the roof, the walls and all plumbing, wiring, electrical, heating, air conditioning, fire protection and other systems, as well as all paved areas, included therein or located thereat) are in good working order, condition and repair and are not in need of maintenance or repairs except for maintenance and repairs which are routine, ordinary and not material in nature or cost. With respect to each Lease, no event or condition currently exists which would give rise to a material repair or restoration obligation if such Lease were to terminate. The Sellers have no knowledge of any event or condition which currently exists which would create a legal or other impediment to the use of the Leased Premises as currently used, or would increase the additional charges or other sums payable by the tenant under any of the Leases (including, without limitation, any pending tax reassessment or other special assessment affecting the Leased Premises). (c) CLAIMS. There has been no work performed, services rendered or materials furnished in connection with repairs, improvements, construction, alteration, demolition or similar activities with respect to the Real Property for at least ninety (90) days before the date hereof; there are no outstanding claims or persons entitled to any claim or right to a claim for a mechanics' or materialman's lien against the Real Property; and there is no person or entity other than the Company in or entitled to possession of the Real Property. (d) EASEMENTS, ETC. The Company has all easements and rights, including, but not limited to, easements for power lines, water lines, sewers, roadways and other means of 12 ingress and egress, necessary to conduct the business the Company now conducts, all such easements and rights are perpetual, unconditional appurtenant rights to the Real Property, and none of such easements or rights are subject to any forfeiture or divestiture rights. Insofar as the representations and warranties in this Subsection are made with respect to the Leased Premises, they are made to the Sellers' knowledge. (e) CONDEMNATION. Neither the whole nor any portion of any of the Real Property has been condemned, expropriated, ordered to be sold or otherwise taken by any public authority, with or without payment or compensation therefor, and the Sellers do not know of any such condemnation, expropriation, sale or taking, or have any grounds to anticipate that any such condemnation, expropriation, sale or taking is threatened or contemplated. The Sellers have no knowledge of any pending assessments which would affect the Real Property. (f) ZONING, ETC. None of the Real Property is in violation of any public or private restriction or any federal, state or local laws, rules, ordinances, codes or regulations, including without limitation, any building, zoning, health, safety, or fire laws, rules, ordinances, codes or regulations, and no notice from any governmental body has been served upon the Company or upon any of the Real Property claiming any violation of any such law, ordinance, code or regulation or requiring or calling to the attention of the Company the need for any work, repair, construction, alterations or installation on or in connection with said properties which has not been complied with. All improvements which comprise a part of the Real Property are located within the record lines of the Real Property and none of the improvements located on the Real Property encroach upon any adjoining property or any easements or rights of way and no improvements located on any adjoining property encroach upon any of the Real Property or any easements or rights of way servicing the Real Property. (g) OWNED EQUIPMENT. Schedule 3.16(g) hereto sets forth a list of all material machinery, equipment, motor vehicles, furniture and fixtures owned by the Company (collectively, the "OWNED EQUIPMENT"). (h) LEASED EQUIPMENT. Schedule 3.16(h) hereto contains a list of all leases or other agreements, whether written or oral, under which the Company is lessee of or holds or operates any items of machinery, equipment, motor vehicles, furniture and fixtures or other property (other than real property) owned by any third party (collectively, the "LEASED EQUIPMENT"). (i) MAINTENANCE OF EQUIPMENT. The Owned Equipment and the Leased Equipment are in good operating condition, maintenance and repair in accordance with industry standards taking into account the age thereof. 3.17 PATENTS; TRADEMARKS; TRADE NAMES; COPYRIGHTS; LICENSES, ETC. (a) Except as set forth on Schedule 3.17 hereto, there are no patents, trademarks, trade names, service marks, service names and copyrights, and there are no applications therefor or licenses thereof, inventions, trade secrets, computer software, logos, slogans, proprietary processes and formulae or other proprietary information, know-how and intellectual property rights, whether patentable or unpatentable, that are owned or leased by the 13 Company or used in the conduct of the Company's business. The Company is not a party to, and the Company pays no royalty to anyone under, any license or similar agreement. There is no existing claim, or, to the knowledge of the Sellers, any basis for any claim, against the Company that any of its operations, activities or products infringe the patents, trademarks, trade names, copyrights or other property rights of others or that the Company is wrongfully or otherwise using the property rights of others. There is no existing claim, or, to the knowledge of the Sellers, any basis for any claim, by the Company against any third party that the operations, activities or products of such third party infringe the patents, trademarks, trade names, copyrights or other property rights of the Company or that such other third party is wrongfully or otherwise using the property rights of the Company. (b) The Company has the right to use the name Riverside Nissan in the State of Oklahoma and, to the knowledge of the Sellers, no person uses, or has the right to use, such name or any derivation thereof in connection with the manufacture, sale, marketing or distribution of products or services commonly associated with an automobile dealership. 3.18 CERTAIN LIABILITIES. (a) All accounts payable by the Company to third parties as of the date hereof arose in the ordinary course of business and none are delinquent or past-due. (b) Schedule 3.18 hereto sets forth a list of all indebtedness of the Company, other than accounts payable, as of the close of business on the day preceding the date hereof, including, without limitation, money borrowed, indebtedness of the Company owed to stockholders and former stockholders, the deferred purchase price of assets, letters of credit and capitalized leases, indicating, in each case, the name or names of the lender, the date of maturity, the rate of interest, any prepayment penalties or premiums and the unpaid principal amount of such indebtedness as of such date. 3.19 NO UNDISCLOSED LIABILITIES. The Company has no material liabilities or obligations of any nature, known or unknown, fixed or contingent, matured or unmatured, other than those (a) reflected in the Financial Statements, (b) incurred in the ordinary course of business since the date of the Financial Statements and of the type and kind reflected in the Financial Statements, or (c) disclosed specifically on Schedule 3.19 hereto or otherwise reasonably disclosed in this Agreement or the other schedules hereto. 3.20 ABSENCE OF CHANGES. Since December 31, 1998, the business of the Company has been operated in the ordinary course, consistent with past practices and, except as set forth on Schedule 3.20 hereto, there has not been incurred, nor has there occurred: (a) any damage, destruction or loss (whether or not covered by insurance), adversely affecting the business or assets of the Company in excess of $50,000; (b) any strikes, work stoppages or other labor disputes involving the employees of the Company; (c) any sale, transfer, pledge or other disposition of any of the assets of the Company having an aggregate book value of $50,000 or more (except sales of vehicles and parts inventory in the ordinary course of business); (d) any declaration or payment of any dividend or other distribution in respect of its capital stock or any redemption, repurchase or other acquisition of its capital stock; (e) any amendment, termination, waiver or cancellation of any Material Agreement (as defined in Section 3.29 hereof) or any 14 termination, amendment, waiver or cancellation of any material right or claim of the Company under any Material Agreement (except in each case in the ordinary course of business and consistent with past practice); (f) any (1) general uniform increase in the compensation of the employees of the Company (including, without limitation, any increase pursuant to any bonus, pension, profit-sharing, deferred compensation or other plan or commitment), (2) increase in any such compensation payable to any individual officer, director, consultant or agent thereof, or (3) loan or commitment therefor made by the Company to any officer, director, stockholder, employee, consultant or agent of the Company; (g) any change in the accounting methods, procedures or practices followed by the Company or any change in depreciation or amortization policies or rates theretofore adopted by the Company; (h) any material change in policies, operations or practices of the Company with respect to business operations followed by the Company, including, without limitation, with respect to selling methods, returns, discounts or other terms of sale, or with respect to the policies, operations or practices of the Company concerning the employees of the Company; (i) any capital appropriation or expenditure or commitment therefor on behalf of the Company in excess of $50,000 individually or $100,000 in the aggregate; (j) any write-down or write-up of the value of any inventory or equipment of the Company or any increase in inventory levels in excess of historical levels for comparable periods; (k) any account receivable in excess of $50,000 or note receivable in excess of $50,000 owing to the Company which (1) has been written off as uncollectible, in whole or in part, (2) has had asserted against it any claim, refusal or right of setoff, or (3) the account or note debtor has refused to, or threatened not to, pay for any reason, or such account or note debtor has become insolvent or bankrupt; (l) any other change in the condition (financial or otherwise), business operations, assets, earnings, business or prospects of the Company which has, or could reasonably be expected to have, a material adverse effect on the assets, business or operations of the Company; or (m) any agreement, whether in writing or otherwise, for the Company to take any of the actions enumerated in this Section 3.20. 3.21 TAX MATTERS. (a) All federal, state and local tax returns and tax reports required as of the date hereof to be filed by the Company for taxable periods ending prior to the date hereof have been duly and timely filed prior to the due date thereof (as such due date may have been lawfully extended) by the Company with the appropriate governmental agencies, and all such returns and reports are true, correct and complete. (b) All federal, state and local income, profits, franchise, sales, use, occupation, property, excise, payroll, withholding, employment, estimated and other taxes of any nature, including interest, penalties and other additions to such taxes ("TAXES"), payable by, or due from, the Company for all periods prior to the date hereof have been fully paid or adequately reserved for by the Company or, with respect to Taxes required to be accrued, the Company has properly accrued or will properly accrue such Taxes in the ordinary course of business consistent with past practice of the Company. (c) The federal and state income tax returns of the Company have been audited by the Internal Revenue Service ("IRS") or are closed by the applicable statutes of limitations for all taxable years through 1995. Except as set forth on Schedule 3.21 hereto, the Company has not received any notice of any assessed or proposed claim or deficiency against it 15 in respect of, or of any present dispute between it and any governmental agency concerning, any Taxes. Except as set forth on Schedule 3.21 hereto, no examination or audit of any tax return or report of the Company by any applicable taxing authority is currently in progress and there are no outstanding agreements or waivers extending the statutory period of limitation applicable to any tax return or report of the Company. Copies of all federal, state and local tax returns and reports required to be filed by the Company for the years ended 1998, 1997, 1996, 1995, 1994 and 1993, together with all schedules and attachments thereto, have been delivered by the Sellers to the Buyer. (d) The Company is not now, nor has it ever been, a member of a consolidated group for federal income tax purposes or a consolidated, combined or similar group for state tax purposes. No consent under Code Section 341 has been made affecting the Company. The Company is not a party to any agreement or arrangement that would result in the payment of any "excess parachute payments" under Code Section 280G. The Company is not required to make any adjustment under Code Section 481(a). No power of attorney relating to Taxes is currently in effect affecting the Company. 3.22 COMPLIANCE WITH LAWS, ETC. The Company has conducted its operations and business in compliance with, and all of the Assets (including all of the Real Property) comply with, (i) all applicable laws, rules, regulations and codes (including, without limitation, any laws, rules, regulations and codes relating to anticompetitive practices, contracts, discrimination, employee benefits, employment, health, safety, fire, building and zoning, but excluding Environmental Laws which are the subject of Section 3.36 hereof) and (ii) all applicable orders, rules, writs, judgments, injunctions, decrees and ordinances. The Company has not received any notification of any asserted present or past failure by it to comply with such laws, rules or regulations, or such orders, writs, judgments, injunctions, decrees or ordinances. Set forth on Schedule 3.22 hereto are all orders, writs, judgments, injunctions, decrees and other awards of any court or governmental agency applicable to the Company and/or its business or operations. The Sellers have delivered to the Buyer copies of all reports, if any, of the Company required to be submitted under the Federal Occupational Safety and Health Act of 1970, as amended, and under all other applicable health and safety laws and regulations. The deficiencies, if any, noted on such reports have been corrected by the Company and any deficiencies noted by inspection through the Closing Date will have been corrected by the Company by the Closing Date. 3.23 LITIGATION REGARDING THE COMPANY. Except as set forth on Schedule 3.23 hereto, there are no actions, suits, claims, investigations or legal, administrative or arbitration proceedings pending, or, to the Sellers' knowledge, threatened or probable of assertion, against the Company or relating to any of its assets, business or operations or the transactions contemplated by this Agreement, and the Sellers do not know of any basis for the institution of any such suit or proceeding. All actions, suits or proceedings pending, or, to the knowledge of the Sellers, threatened against or affecting the Company are covered in full by insurance, without any reservation of rights, subject only to the payment of applicable deductibles. No order, writ, judgment, injunction, decree or similar command of any court or any governmental or administrative agency or other body has been entered against or served upon the Company relating to the Company or any of its assets, business or operations. 16 3.24 PERMITS, ETC. Set forth on Schedule 3.24 hereto is a list of all governmental licenses, permits, approvals, certificates of inspection and other authorizations, filings and registrations that are necessary for the Company to own and operate its business as presently conducted (collectively, the "PERMITS"). All such Permits have been duly and lawfully secured or made by the Company and are in full force and effect. There is no proceeding pending, or, to the Sellers' knowledge, threatened or probable of assertion, to revoke or limit any such Permit. Except as set forth on Schedule 3.24 hereto, none of the transactions contemplated by this Agreement will terminate, violate or limit the effectiveness of any such Permit. 3.25 EMPLOYEES; LABOR RELATIONS. As of the date hereof, the Company employs a total of approximately 95 employees. As of the date hereof: (a) the Company is not delinquent in the payment (i) to or on behalf of its past or present employees of any wages, salaries, commissions, bonuses, benefit plan contributions or other compensation for all periods prior to the date hereof, or (ii) of any amount which is due and payable to any state or state fund pursuant to any workers' compensation statute, rule or regulation or any amount which is due and payable to any workers' compensation claimant; (b) there are no collective bargaining agreements currently in effect between the Company and labor unions or organizations representing any employees of the Company; (c) no collective bargaining agreement is currently being negotiated by the Company; (d) to the knowledge of the Sellers, there are no union organizational drives in progress and there has been no formal or informal request to the Company for collective bargaining or for an employee election from any union or from the National Labor Relations Board; and (e) no dispute exists between the Company and any of its sales representatives or, to the knowledge of the Sellers, between any such sales representatives with respect to territory, commissions, products or any other terms of their representation. 3.26 COMPENSATION. Schedule 3.26 contains a schedule of all employees (including sales representatives) and consultants of the Company whose individual cash compensation for the year ended December 31, 1998, is in excess of $100,000, together with the amount of total compensation paid to each such person for the twelve month period ended December 31, 1998 and the current aggregate base salary or hourly rate (including any bonus or commission) for each such person. 3.27 EMPLOYEE BENEFITS. (a) The Sellers have listed on Schedule 3.27 and have delivered to the Buyer true and complete copies of all Employee Plans (as defined below) and related documents, established, maintained or contributed to by the Company (which shall include for this purpose and for the purpose of all of the representations in this Section 3.27, the Sellers and all employers, whether or not incorporated, that are treated together with the Company as a single employer within the meaning of Section 414 of the Code). The term "EMPLOYEE PLAN" shall include all plans described in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") and also shall include, without limitation, any deferred compensation, stock, employee or retiree pension benefit, welfare benefit or other similar fringe or employee benefit plan, program, policy, contract or arrangement, written or oral, qualified or nonqualified, funded or unfunded, foreign or domestic, covering employees or former employees of the Company and maintained or contributed to by the Company. 17 (b) Where applicable, each Employee Plan (i) has been administered in material compliance with the terms of such Employee Plan and the requirements of ERISA, the Code and all other applicable laws; and (ii) is in material compliance with the reporting and disclosure requirements of ERISA and the Code. The Company neither maintains nor contributes to, and has never maintained or contributed to, an Employee Plan subject to Title IV of ERISA or a "multiemployer plan." There are no facts relating to any Employee Plan that (i) have resulted in a "prohibited transaction" of a material nature or have resulted or is reasonably likely to result in the imposition of a material excise tax, penalty or liability pursuant to Section 4975 of the Code, (ii) have resulted in a material breach of fiduciary duty or violation of Part 4 of Title I of ERISA, or (iii) have resulted or is reasonably likely to result in any material liability (whether or not asserted as of the date hereof) of the Company or any ERISA affiliate pursuant to Section 412 of the Code arising under or related to any event, act or omission occurring on or prior to the date hereof. Each Employee Plan that is intended to qualify under Section 401(a) or to be exempt under Section 501(c) of the Code is so qualified or exempt as of the date hereof in each case as such Employee Plan has received favorable determination letters from the Internal Revenue Service with respect thereto. To the knowledge of the Sellers, the amendments to and operation of any Employee Plan subsequent to the issuance of such determination letters do not adversely affect the qualified status of any such Employee Plan. No Employee Plan has an "accumulated funding deficiency" as of the date hereof, whether or not waived, and no waiver has been applied for. The Company has not made any promises or incurred any liability under any Employee Plan or otherwise to provide health or other welfare benefits to current or future retirees or other former employees of the Company, except as specifically required by law. There are no pending or, to the best knowledge of the Sellers, threatened, claims (other than routine claims for benefit) or lawsuits with respect to the Company's Employee Plans. As used in this Section 3.27, all technical terms enclosed in quotation marks shall have the meaning set forth in ERISA or the Code, as the case may be. 3.28 POWERS OF ATTORNEY. There are no persons, firms, associations, corporations or business organizations or entities holding general or special powers of attorney from the Company. 3.29 MATERIAL AGREEMENTS. (a) LIST OF MATERIAL AGREEMENTS. Set forth on Schedule 3.29(a) hereto is a list or, where indicated, a brief description of all leases and all other contracts, agreements, documents, instruments, guarantees, plans, understandings or arrangements, written or oral, which are material to the Company or its business or assets (collectively, the "MATERIAL AGREEMENTS"). True copies of all written Material Agreements and written summaries of all oral Material Agreements described or required to be described on Schedule 3.29(a) have been furnished to the Buyer. (b) PERFORMANCE, DEFAULTS, ENFORCEABILITY. The Company has in all material respects performed all of its obligations required to be performed by it to the date hereof, and is not in default or alleged to be in default in any material respect, under any Material Agreement, and there exists no event, condition or occurrence which, after notice or lapse of time or both, would constitute such a default. To the knowledge of the Sellers, no other party to any Material Agreement is in default in any material respect of any of its obligations thereunder. Each of the 18 Material Agreements is valid and in full force and effect and enforceable against the parties thereto in accordance with their respective terms, and, except as set forth in Schedule 3.29(b) hereto, the consummation of the transactions contemplated by this Agreement will not (i) require the consent of any party thereto or (ii) constitute an event permitting termination thereof. 3.30 BROKERS' OR FINDERS' FEES, ETC. No agent, broker, investment banker, person or firm acting on behalf of the Company or any of the Sellers or any person, firm or corporation affiliated with any of the Sellers or under their authority is or will be entitled to any brokers' or finders' fee or any other commission or similar fee directly or indirectly from any of the parties hereto in connection with the sale of the Shares contemplated hereby, other than Ben Hicks & Associates, Inc., which such fee or commission the entire cost of which will be borne by the Sellers. 3.31 BANK ACCOUNTS, CREDIT CARDS, SAFE DEPOSIT BOXES AND CELLULAR TELEPHONES. Schedule 3.31 hereto lists all bank accounts, credit cards and safe deposit boxes in the name of, or controlled by, the Company, and all cellular telephones provided and/or paid for by the Company, and details about the persons having access to or authority over such accounts, credit cards, safe deposit boxes and cellular telephones. 3.32 INSURANCE. (a) Schedule 3.32(a) hereto contains a list of all policies of liability, theft, fidelity, life, fire, product liability, workmen's compensation, health and any other insurance and bonds maintained by, or on behalf of, the Company on their respective properties, operations, inventories, assets, business or personnel (specifying the insurer, amount of coverage, type of insurance, policy number and any pending claims in excess of $5,000 thereunder). Each such insurance policy identified therein is and shall remain in full force and effect on and as of the Closing Date and the Company is not in default with respect to any provision contained in any such insurance policy and has not failed to give any notice or present any material claim under any such insurance policy in a due and timely fashion. The insurance maintained by, or on behalf of, the Company is adequate in accordance with the standards of business of comparable size in the location and industry in which the Company operates and no notice of cancellation or termination has been received with respect to any such policy. The Company has not, during the last three (3) fiscal years, been denied or had revoked or rescinded any policy of insurance. (b) Set forth on Schedule 3.32(b) hereto is a summary of information pertaining to material property damage and personal injury claims in excess of $5,000 against the Company during the past five (5) years, all of which are fully satisfied or are being defended by the insurance carrier and involve no exposure to the Company. 3.33 WARRANTIES. Set forth on Schedule 3.33 hereto are descriptions or copies of the forms of all express warranties and disclaimers of warranty made by the Company (separate and distinct from any applicable manufacturers', suppliers' or other third-parties' warranties or disclaimers of warranties) during the past five (5) years to customers or users of the vehicles, parts, products or services of the Company. There have been no breach of warranty or breach of representation claims against the Company during the past five (5) years which have resulted in 19 any cost, expenditure or exposure to the Company of more than $50,000 individually or in the aggregate. 3.34 DIRECTORS AND OFFICERS. Set forth on Schedule 3.34 hereto is a true and correct list of the names and titles of each director and officer of the Company. 3.35 SUPPLIERS AND CUSTOMERS. The Company is not required to provide bonding or any other security arrangements in connection with any transactions with any of its respective customers and suppliers. To the knowledge of the Sellers, no such supplier, customer or creditor intends or has threatened, or reasonably could be expected, to terminate or modify any of its relationships with the Company. 3.36 ENVIRONMENTAL MATTERS. (a) For purposes of this Section 3.36, the following terms shall have the following meaning: (i) "ENVIRONMENTAL LAW" means all present and future federal, state and local laws, statutes, regulations, rules, ordinances and common law, and all judgments, decrees, orders, agreements, or permits, issued, promulgated, approved or entered thereunder by any government authority relating to pollution, Hazardous Materials, worker safety or protection of human health or the environment; (ii) "HAZARDOUS MATERIALS" means any waste, pollutant, chemical, hazardous material, hazardous substance, toxic substance, hazardous waste, special waste, solid waste, asbestos, radioactive materials, polychlorinated biphenyls, petroleum or petroleum-derived substance or waste (regardless of specific gravity), or any constituent or decomposition product of any such pollutant, material, substance or waste, including, but not limited to, any hazardous substance or constituent contained within any waste and any other pollutant, material, substance or waste regulated under or as defined by any Environmental Law. (b) The Company has obtained all permits, licenses and other authorizations or approvals required under Environmental Laws for the conduct and operation of the Assets and the business of the Company ("ENVIRONMENTAL PERMITS"). All such Environmental Permits are in good standing, the Company is and has been in compliance in all material respects with the terms and conditions of all such Environmental Permits, and no appeal or any other action is pending or threatened to revoke any such Environmental Permit. (c) The Company and its business, operations and assets are and have been in compliance in all material respects with all Environmental Laws. (d) Neither the Company nor any of the Sellers has received any written or oral order, notice, complaint, request for information, claim, demand or other communication from any government authority or other person, whether based in contract, tort, implied or express warranty, strict liability, or any other common law theory, or any criminal or civil statute, arising from or with respect to (i) the presence, release or threatened release of any Hazardous Material or any other environmental condition on, in or under the Real Property or any other property formerly owned, used or leased by the Company, (ii) any other circumstances forming the basis of any actual or alleged violation by the Company or the Sellers of any Environmental Law or any liability of the Company or the Sellers under any Environmental Law, (iii) any remedial or removal action required to be taken by the Company or the Sellers 20 under any Environmental Law, or (iv) any harm, injury or damage to real or personal property, natural resources, the environment or any person alleged to have resulted from the foregoing, nor are the Sellers aware of any facts which might reasonably give rise to such notice or communication. Neither the Company nor any of the Sellers has entered into any agreements concerning any removal or remediation of Hazardous Materials. (e) No lawsuits, claims, civil actions, criminal actions, administrative proceedings, investigations or enforcement or other actions are pending or threatened under any Environmental Law with respect to the Company, the Sellers or the Real Property. (f) No Hazardous Materials are or have been released, discharged, spilled or disposed of or have migrated onto, the Real Property or any other property previously owned, operated or leased by the Company, and no environmental condition exists (including, without limitation, the presence, release, threatened release or disposal of Hazardous Materials) related to the Real Property, to any property previously owned, operated or leased by the Company, or to the Company's past or present operations, which would constitute a violation of any Environmental Law or otherwise give rise to costs, liabilities or obligations under any Environmental Law. (g) Neither the Company or the Sellers, nor, to the knowledge of the Sellers, any of their respective predecessors in interest, has transported or disposed of, or arranged for the transportation or disposal of, any Hazardous Materials to any location (i) which is listed on the National Priorities List, the CERCLIS list under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or any similar federal, state or local list, (ii) which is the subject of any federal, state or local enforcement action or other investigation, or (iii) about which the Company or the Sellers has received or has reason to expect to receive a potentially responsible party notice or other notice under any Environmental Law. (h) No environmental lien has attached or is threatened to be attached to the Real Property. (i) No employee of the Company in the course of his or her employment with the Company has been exposed to any Hazardous Materials or other substance, generated, produced or used by the Company which could give rise to any claim (whether or not such claim has been asserted) against the Company. (j) Except as set forth on Schedule 3.36 hereto, the Real Property does not contain any: (i) septic tanks into which process wastewater or any Hazardous Materials have been disposed; (ii) asbestos; (iii) polychlorinated biphenyls (PCBs); (iv) underground injection or monitoring wells; or (v) underground storage tanks. (k) Except as set forth on Schedule 3.36, there have been no environmental studies or reports made relating to the Real Property or any other property or facility previously owned, operated or leased by the Company. 21 (l) The Company has not agreed to assume, defend, undertake, guarantee, or provide indemnification for, any liability, including, without limitation, any obligation for corrective or remedial action, of any other person or entity under any Environmental Law for environmental matters or conditions. 3.37 [INTENTIONALLY DELETED] 3.38 BUSINESS GENERALLY. None of the Sellers is aware of the existence of any conditions, including, without limitation, any actual or potential competitive factors in the markets in which the Company participates, which have not been disclosed in writing to the Buyer and which could reasonably be expected to have a material adverse effect on the business and operations of the Company, other than general business and economic conditions generally affecting the industry and markets in which the Company participates. 3.39 MANUFACTURER COMMUNICATIONS. Except as set forth on Schedule 3.39, the Manufacturer has not (a) notified the Sellers of any deficiency in dealership operations, including, but not limited to, the following areas: (i) brand imaging, (ii) facility conditions, (iii) sales efficiency, (iv) customer satisfaction, (v) warranty work and reimbursement, or (vi) sales incentives; (b) otherwise advised the Sellers of a present or future need for facility improvements or upgrades in connection with the Company's business; or (c) notified the Sellers of the awarding or possible awarding of its franchise to an entity or entities other than the Company in the Metropolitan Statistical Area in which the Company operates. 3.40 MISSTATEMENTS AND OMISSIONS. No representation and warranty by the Sellers contained in this Agreement, and no statement contained in any certificate or Schedule furnished or to be furnished by the Sellers to the Buyer in connection with this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation and warranty or such statement not misleading. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE BUYER The Buyer hereby represents and warrants to the Sellers as follows: 4.1 ORGANIZATION AND GOOD STANDING. The Buyer is a corporation duly organized and validly existing and in good standing under the laws of the State of Delaware. 4.2 BUYER'S POWER AND AUTHORITY; CONSENTS AND APPROVALS. (a) The Buyer has, or will have prior to Closing, all requisite corporate power and authority to execute and deliver this Agreement and the other agreements, documents and instruments to be executed and delivered by the Buyer in connection herewith, to consummate the transactions contemplated hereby and thereby and to perform its obligations hereunder and thereunder. 22 (b) Except as set forth in Schedule 4.2(b) hereto, no authorization, approval or consent of, or notice to or filing or registration with, any governmental agency or body, or any other third party, is required in connection with the execution and delivery by the Buyer of this Agreement and the other agreements, documents and instruments to be executed by the Buyer in connection herewith, the consummation by the Buyer of the transactions contemplated hereby or thereby or the performance by the Buyer of its obligations hereunder and thereunder. 4.3 EXECUTION AND ENFORCEABILITY. This Agreement and the other agreements, documents and instruments to be executed and delivered by the Buyer in connection herewith, and the consummation by the Buyer of the transactions contemplated hereby and thereby, have been, or will be prior to Closing, duly and validly authorized, executed and delivered by all necessary corporate action on the part of the Buyer and this Agreement constitutes, and the other agreements, documents and instruments to be executed and delivered by the Buyer in connection herewith, when executed and delivered by the Buyer, shall constitute the legal, valid and binding obligations of the Buyer, enforceable against the Buyer in accordance with their respective terms, except to the extent that enforceability may be limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditor's rights generally and general equity principles. 4.4 LITIGATION REGARDING BUYER. There are no actions, suits, claims, investigations or legal, administrative or arbitration proceedings pending or, to the Buyer's knowledge, threatened or probable of assertion against the Buyer relating to this Agreement or the transactions contemplated hereby before any court, governmental or administrative agency or other body, and no judgment, order, writ, injunction, decree or other similar command of any court or governmental or administrative agency or other body has been entered against or served upon the Buyer relating to this Agreement or the transactions contemplated hereby. 4.5 NO VIOLATION; CONFLICTS. The execution and delivery by the Buyer of this Agreement and the other agreements, documents and instruments to be executed and delivered by the Buyer in connection herewith, the consummation by the Buyer of the transactions contemplated hereby and thereby and the performance by the Buyer of its obligations hereunder and thereunder do not and will not (a) conflict with or violate any of the terms of the Certificate of Incorporation or By-Laws of the Buyer, or (b) violate or conflict with any domestic law, ordinance, rule or regulation, or any judgement, order, writ, injunction or decree of any court, administrative or governmental agency or other body, material to the Buyer. 4.6 BROKERS' OR FINDERS' FEES, ETC. No agent, broker, investment banker, person or firm acting on behalf of the Buyer or any person, firm or corporation affiliated with the Buyer or under its authority is or will be entitled to any brokers' or finders' fee or any other commission or similar fee directly or indirectly from any of the parties hereto in connection with the sale of the Shares contemplated hereby. 4.7 MISSTATEMENTS AND OMISSIONS. No representation and warranty by the Buyer contained in this Agreement, and no statement contained in any certificate or Schedule furnished or to be furnished by the Buyer to the Sellers in connection with this Agreement, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make such representation and warranty or such statement not misleading. 23 ARTICLE 5 PRE-CLOSING COVENANTS OF THE SELLERS The Sellers hereby jointly and severally covenant and agree that, from and after the date hereof until the Closing: 5.1 PROVIDE ACCESS TO INFORMATION; COOPERATION WITH BUYER. (a) ACCESS. As promptly as possible after the date hereof, the Sellers shall deliver to the Buyer all of the due diligence materials described on Schedule 5.1 hereto. The Sellers shall afford, and cause the Company to afford, to the Buyer, its employees, attorneys, accountants, and representatives free and full access at all reasonable times, and upon reasonable prior notice, to the properties, books and records of the Company, and to interview personnel, suppliers and customers of the Company, in order that the Buyer may have a full opportunity to make such investigation (including the Environmental Audit contemplated by Section 5.11 below) as it shall reasonably desire of the assets, businesses and operations of the Company (including, without limitation, any appraisals or inspections thereof), and provide to the Buyer and its representatives, including, without limitation, the aforementioned individuals, such additional financial and operating data and other information as to the businesses and properties of the Company as the Buyer shall from time to time reasonably request. The contact person(s) at the Seller for purposes of arranging such access and requesting such additional information are Bob Hurley and David Hudiburg. (b) COOPERATION IN OBTAINING MANUFACTURER APPROVAL; PARTS RETURN. The Sellers shall promptly notify the Manufacturer of the execution and delivery of this Agreement, and thereafter shall use reasonable best efforts in cooperating with the Buyer in the preparation of and delivery to the Manufacturer, as soon as practicable after the date hereof, of applications and any other information necessary to obtain the Manufacturer's consent to or the approval of the transactions contemplated by this Agreement. At the request of the Buyer, the Sellers shall use their reasonable best efforts to assist the Buyer in effecting any one-time parts return offered by the Manufacturer, and will promptly pay over to the Buyer any monies received from the Manufacturer related thereto. For purposes of the Buyer's application to the Manufacturer, as contemplated by Section 7.10 below, the address of the Manufacturer and the relevant contact person at the Manufacturer are: Michael R. Liddell (Dealer Operations Manager) and Mark Igo (Regional Vice President) at 4400 Regent Boulevard, Irving, Texas 75063 (Post Office Box 167728, Irving, Texas 75016). The contact person at the Company for purposes of requests by the Buyer for such assistance are Bob Hurley and David Hudiburg. 5.2 OPERATION OF BUSINESSES OF THE COMPANY. The Sellers shall cause the Company to (a) maintain its corporate existence in good standing, (b) operate its business substantially as presently operated and only in the ordinary course and consistent with past operations and its obligations under any existing agreements with all applicable automobile manufacturers or distributors, (c) use its reasonable best efforts to preserve intact its present business organizations and employees and its relationships with persons having business dealings with them, including, but not limited to, all applicable automobile manufacturers or distributors and 24 any floor plan financing creditors, (d) comply in all respects with all applicable laws, rules and regulations, (e) maintain its insurance coverages, (f) pay all Taxes, charges and assessments when due, subject to any valid objection or contest of such amounts asserted in good faith and adequately reserved against, (g) make all debt service payments when contractually due and payable, (h) pay all accounts payable and other current liabilities when due, (i) maintain the Employee Plans and each plan, agreement and arrangement listed on Schedule 3.27, and (j) maintain its property, plant and equipment in good operating condition in accordance with industry standards taking into account the age thereof. 5.3 BOOKS OF ACCOUNT. The Sellers shall cause the Company to maintain its books and records of account in the usual, regular and ordinary manner. 5.4 EMPLOYEES. The Sellers shall (i) use their reasonable best efforts to encourage such personnel of the Company as the Buyer may designate in writing to remain employees of the Company after the date of the Closing, and (ii) not take any action, or permit the Company to take any action, to encourage any of the personnel of the Company to leave their positions with the Company. 5.5 CERTAIN PROHIBITIONS. The Sellers shall not permit the Company to (i) issue any equity or debt security or any options or warrants, (ii) enter into any subscriptions, agreements, plans or other commitments pursuant to which the Company is or may become obligated to issue any of its debt or equity securities, (iii) otherwise change or modify its capital structure, (iv) engage in any reorganization or similar transaction or sell or otherwise dispose of any of its assets, other than sales of inventory in the ordinary course of business, (v) declare or make payment of any dividend or other distribution in respect of its capital stock or redeem, repurchase or otherwise acquire any of its capital stock, or (vi) agree to take any of the foregoing actions. 5.6 OTHER CHANGES. The Sellers shall not permit the Company to take, cause, agree to take or cause to occur any of the actions or events set forth in Section 3.20 of this Agreement. 5.7 ADDITIONAL INFORMATION. The Sellers shall furnish and cause the Company to furnish to the Buyer such additional information with respect to any matters or events arising or discovered subsequent to the date hereof which, if existing or known on the date hereof, would have rendered any representation or warranty made by the Sellers or any information contained in any Schedule hereto or in other information supplied in connection herewith then inaccurate or incomplete. The receipt of such additional information by the Buyer shall not operate as a waiver by the Buyer of the obligations of the Sellers to satisfy the conditions to Closing set forth in Section 7.1 hereof. 5.8 PUBLICITY. Except as may be required by law or the applicable rules or regulations of any securities exchange, the Sellers shall not (i) make or permit the Company to make any press release or other public announcement relating to this Agreement or the transactions contemplated hereby, without the prior written approval of the Buyer, and (ii) otherwise disclose the existence and nature of their discussions or negotiations regarding the transactions contemplated hereby to any person or entity other than their accountants, attorneys and similar professionals, all of whom shall be subject to this nondisclosure obligation as agents 25 of the Sellers, as the case may be. The Sellers shall cooperate with the Buyer in the preparation and dissemination of any public announcements of the transactions contemplated by this Agreement. 5.9 OTHER NEGOTIATIONS. The Sellers shall not pursue, initiate, encourage or engage in, nor shall any of their respective Affiliates or agents pursue, initiate, encourage or engage in, and the Sellers shall cause the Company and its Affiliates, directors, officers and agents not to pursue, initiate, encourage or engage in, any negotiations or discussions with, or provide any information to, any other person or entity (other than the Buyer and its representatives and Affiliates) regarding the sale of the assets or capital stock of the Company or any merger or similar transaction involving the Company. 5.10 CLOSING CONDITIONS. The Sellers shall use all reasonable best efforts to satisfy promptly the conditions to Closing set forth in Article 7 hereof required herein to be satisfied by the Sellers prior to the Closing. 5.11 ENVIRONMENTAL AUDIT. The Sellers shall cause the Company to allow the environmental consulting firm Dames & Moore (the "ENVIRONMENTAL AUDITOR") to have prompt access to the Real Property in order to conduct an environmental investigation, satisfactory to the Buyer in scope (such scope being sufficient to result in a Phase I environmental audit report and a Phase II environmental audit report, if desired by the Buyer), of, and to prepare a report with respect to, the Real Property (the "ENVIRONMENTAL AUDIT"). The Sellers shall cause the Company to provide to the Environmental Auditor: (i) reasonable access to all its existing records concerning the matters which are the subject of the Environmental Audit; and (ii) reasonable access to the employees of the Company and the last known addresses of former employees of the Company who are most familiar with the matters which are the subject of the Environmental Audit (the Sellers agreeing to use reasonable efforts to have such former employees respond to any reasonable requests or inquiries by the Environmental Auditor). The Environmental Auditor shall coordinate visits to the Real Property and conversations with employees of the Company with the Sellers' Agent, who shall reasonably cooperate with the Buyer in such regard, and shall use reasonable efforts to minimize disruption of the Company's business performing such investigations. The Sellers shall otherwise cooperate and cause the Company to cooperate with the Environmental Auditor in connection with the Environmental Audit. The Buyer and the Seller shall each bear 50% of the costs, fees and expenses incurred in connection with the Environmental Audit. 5.12 AUDITED FINANCIAL STATEMENTS. The Sellers shall allow, cooperate with and assist Buyer's accountants, and shall instruct the Company's accountants to cooperate, in the preparation of audited financial statements of the Company as necessary for any required filings by the Buyer with the SEC or with the Buyer's lenders; PROVIDED that the expense of such audit shall be borne by the Buyer. 5.13 HART-SCOTT-RODINO. Subject to the determination by the Buyer that any of the following actions is not required, the Sellers shall promptly prepare and file Notification and Report Forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT") with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "ANTITRUST DIVISION"), and respond as promptly as practicable to 26 all inquiries received from the FTC or the Antitrust Division for additional information or documentation. 5.14 CURING BREACHES OF REPRESENTATIONS AND WARRANTIES. Upon written notice by the Buyer of the discovery by the Buyer prior to the Closing of a breach of any representation and warranty of the Sellers contained in this Agreement, the Sellers will, if requested by the Buyer, at their expense, undertake to cure such breach prior to the Closing. In the event that such breach cannot, despite reasonable efforts, be fully cured prior to the Closing, the Sellers shall continue their efforts to complete such cure after the Closing. If the Buyer shall have requested the Sellers to cure any such breach pursuant to this Section 5.14, the Buyer shall not be entitled to claim such breach as a failure of the Buyer's condition to close under Section 7.1 below provided that (a) the Sellers shall have cured such breach prior to the Closing or (b) in the event that such breach cannot, despite reasonable efforts, be fully cured prior to the Closing, the Sellers shall be diligently prosecuting such efforts to effect such cure before the Closing. 5.15 CONCERNING EMPLOYEE PLANS. (a) The Sellers shall cause the Company to terminate its 401(k) plan not later than the day prior to the Closing Date and, in connection therewith, the Company shall amend such 401(k) plan to fully vest all accounts of all participants in such 401(k) plan and to provide for the distribution of all such accounts. At the Closing, the Sellers shall deliver to the Buyer a duly executed plan amendment and resolutions of the Company's Board of Directors reflecting the termination of such 401(k) plan and such related amendments to such 401(k) plan. The Seller shall also cause the Company to terminate all other Employee Plans as of the Closing Date and shall provide the Buyer at Closing with documentation satisfactory to the Buyer evidencing such terminations. The Sellers shall reimburse the Buyer for all fees and expenses (including but not limited to attorneys' fees) paid or incurred by the Company or the Buyer in connection with the termination and winding up of the Employee Plans. Notwithstanding the foregoing, the Buyer shall have the option, in its sole discretion and exercised by the delivery to the Sellers of a written request, to require the Sellers to cause the Company to transfer any or all of the Company's plans or related insurance policies to the Buyer (or other related entity which will continue the Company's business). (b) If the Company participates in any Employee Plans in which other entities owned or controlled by the Sellers will continue to participate after the Closing (hereinafter called "OTHER PLANS"), the Sellers shall cause the Company to terminate its participation in any or all of such Other Plans as of the Closing Date (such Other Plans as to which the Company's participation shall be terminated being hereinafter called the "TERMINATED OTHER PLANS"), with no resulting cost, liability or expense to the Company or its employees, except to the extent provided by this Agreement. To the extent permitted by Code Section 401(k)(10) and the regulations thereunder, all employees of the Company as of the Closing Date shall be treated as having incurred a separation from service for purposes of the Terminated Other Plans and shall be entitled to receive distributions of their accounts under the Terminated Other Plans. At the Closing, the Sellers shall deliver to the Buyer resolutions of the Company's Board of Directors and any related plan amendments reflecting the termination of the Company's participation in the Terminated Other Plans. 27 ARTICLE 6 PRE-CLOSING COVENANTS OF BUYER The Buyer hereby covenants and agrees that, from and after the date hereof until the Closing: 6.1 PUBLICITY. Except as may be required by law or by the rules of the New York Stock Exchange, or as necessary in connection with the transactions contemplated hereby, the Buyer shall not (i) make any press release or other public announcement relating to this Agreement or the transactions contemplated hereby, without the prior written approval of the Sellers' Agent, or (ii) otherwise disclose the existence and nature of its discussions or negotiations regarding the transactions contemplated hereby to any person or entity other than its accountants, attorneys and similar professionals, all of whom shall be subject to this nondisclosure obligation as agents of the Buyer. 6.2 CLOSING CONDITIONS. The Buyer shall use all reasonable best efforts to satisfy promptly the conditions to Closing set forth in Article 8 hereof required herein to be satisfied by the Buyer prior to the Closing. 6.3 APPLICATION TO MANUFACTURER. Subject to the reasonable cooperation of the Sellers, the Buyer shall provide to the Manufacturer as promptly as practicable after the execution and delivery of this Agreement any application or other information with respect to such application necessary in connection with the seeking of the consent of the Manufacturer to the transactions contemplated by this Agreement. For purposes of the Buyer's application to the Manufacturer, as contemplated herein, the address of the Manufacturer and the relevant contact person at the Manufacturer are: Michael R. Liddell (Dealer Operations Manager) and Mark Igo (Regional Vice President) at 4400 Regent Boulevard, Irving, Texas 75063 (Post Office Box 167728, Irving, Texas 75016) 6.4 HART-SCOTT-RODINO. Subject to the determination by the Buyer that any of the following actions is not required, the Buyer shall promptly prepare and file Notification and Report Forms under the HSR Act with the FTC and the Antitrust Division, respond as promptly as practicable to all inquiries received from the FTC or the Antitrust Division for additional information or documentation, and the Buyer shall pay all filing fees in connection therewith. ARTICLE 7 CONDITIONS TO OBLIGATIONS OF THE BUYER AT THE CLOSING The obligations of the Buyer to perform this Agreement at the Closing are subject to the satisfaction at or prior to the Closing of the following conditions, unless waived in writing by the Buyer: 7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties made by the Sellers in this Agreement shall be true and correct in all material respects at and as of the date of this Agreement and at and as of the Closing as though made at and as of the Closing. 28 7.2 PERFORMANCE OF OBLIGATIONS OF THE SELLERS. The Sellers shall have performed all obligations required to be performed by the Sellers under this Agreement, and complied with all covenants for which compliance by the Sellers is required under this Agreement, prior to or at the Closing, including, without limitation, delivery of the stock certificates and stock powers for the Shares described in Section 1.3 hereof. 7.3 CLOSING DOCUMENTATION. The Buyer shall have received the following documents, agreements and instruments from the Sellers: (a) a certificate signed by the Sellers and dated the date of the Closing certifying as to the satisfaction of the conditions set forth in Sections 7.1 and 7.2 hereof; (b) such duly signed resignations of the directors and officers of the Company as the Buyer shall have previously requested; (c) wire transfer instructions from the Sellers' Agent, with respect to the payment at the Closing of the Purchase Price; (d) an opinion of Randall K. Calvert, P.C., dated the date of the Closing and addressed to the Buyer, reasonably acceptable in form and substance to Buyer's counsel; (e) copies of all authorizations, approvals, consents, notices, registrations and filings referred to in Schedules 3.2(b), 3.10 and 3.29(b) hereof, specifically including any consents required under the Leases, other than from the Manufacturers; (f) certificates dated as of a recent date from the Secretary of State of the State of Oklahoma to the effect that the Company is duly incorporated and in good standing in such state and stating that the Company owes no franchise taxes in such state and listing all documents of the Company on file with said Secretary of State; (g) a copy of the Articles of Incorporation of the Company, including all amendments thereto, certified as of a recent date by the Secretary of State of the State of Oklahoma; (h) evidence, reasonably satisfactory to the Buyer, of the authority and incumbency of the persons acting on behalf of the Company in connection with the execution of any document delivered in connection with this Agreement; (i) Uniform Commercial Code Search Reports on Form UCC-11 with respect to the Company from the states and local jurisdictions where the principal place of business of the Company and its assets are located; (j) a certificate of each of the Sellers as to such Seller's non-foreign status in appropriate form; 29 (k) the corporate minute books and stock record books of the Company, and all other books and records of, or pertaining to, the businesses and operations of the Company; (l) estoppel letters of lenders to the Company, in form and substance reasonably satisfactory to the Buyer, with respect to amounts owing by the Company as of the Closing; and (m) such other instruments and documents as the Buyer shall reasonably request not inconsistent with the provisions hereof. 7.4 APPROVAL OF LEGAL MATTERS. The form of all instruments, certificates and documents to be executed and delivered by the Sellers to the Buyer pursuant to this Agreement and all legal matters in respect of the transactions as herein contemplated shall be reasonably satisfactory to the Buyer and its counsel, none of whose approval shall be unreasonably withheld or delayed. 7.5 NO LITIGATION. No action, suit or other proceeding shall be pending or threatened before any court, tribunal or governmental authority seeking or threatening to restrain or prohibit the consummation of the transactions contemplated by this Agreement, or seeking to obtain damages in respect thereof, or involving a claim that consummation thereof would result in the violation of any law, decree or regulation of any governmental authority having appropriate jurisdiction, and no order, decree or ruling of any governmental authority or court shall have been entered challenging the legality, validity or propriety of, or otherwise relating to, this Agreement or the transactions contemplated hereby, or prohibiting, restraining or otherwise preventing the consummation of the transactions contemplated hereby. 7.6 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse change or development in the business, prospects, properties, earnings, results of operations or financial condition of the Company, or any of its assets. 7.7 NO ADVERSE LAWS. There shall not have been enacted, adopted or promulgated any statute, rule, regulation or order which materially adversely affects the business or assets of the Company. 7.8 AFFILIATE AND OTHER TRANSACTIONS. All amounts owing to the Company from the Sellers or any Affiliate of the Company or any Seller or from any of the Company's officers and employees shall have been paid in full on or prior to the Closing Date. 7.9 ESCROW AGREEMENT. The Sellers and the Escrow Agent shall have duly executed and delivered to the Buyer the Escrow Agreement. 7.10 MANUFACTURER APPROVAL. The Manufacturer shall have given any required approval of the transfer of the Shares to the Buyer and shall have given any required approval of O. Bruton Smith or his designee as the authorized dealer operator of the Company's dealership franchise with the Manufacturer at the present dealership locations in their existing facilities as currently configured for dealership operations, and the Manufacturer shall have executed any 30 required dealer agreements and/or amendments or supplements thereto in connection with the foregoing. 7.11 EMPLOYMENT AGREEMENT. Bob Hurley shall have executed and delivered to the Buyer and the Company the Employment Agreement. 7.12 CANCELLATION OF STOCK OPTIONS. All outstanding options, warrants, "phantom" stock options and other plans, agreements or arrangements of the Company with respect to the purchase, or the issuance of, or otherwise relating to, any capital stock or other securities of the Company shall have been canceled and terminated prior to the Closing at no expense to the Buyer, and the Buyer shall have received reasonably satisfactory evidence thereof. 7.13 AUDITED FINANCIAL STATEMENTS. The Buyer shall have completed preparation of such audited financial statements of the Company as may be required by applicable regulations of the SEC or by any of the Buyer's lenders. 7.14 HART-SCOTT-RODINO WAITING PERIOD. All applicable waiting periods under the HSR Act shall have expired without any indication by the Antitrust Division or the Federal Trade Commission that either of them intends to challenge the transactions contemplated hereby or, if any such challenge or investigation is made or commenced, the conclusion of such challenge or investigation permits the transactions contemplated hereby in all material respects. 7.15 DEALERSHIP LEASE. The Landlords shall have executed and delivered to the Buyer and the Company the Dealership Lease. All Leases shall have been terminated. 7.16 OTHER BASIC AGREEMENTS. All conditions to the obligations of the Buyer under the Riverside Chevrolet Purchase Agreement and the Glover Dodge Purchase Agreement shall have been satisfied or fulfilled unless waived in writing by the Buyer, and the closings under the Riverside Chevrolet Purchase Agreement and the Glover Dodge Purchase Agreement shall have occurred or shall be occurring contemporaneously with the Closing of the transactions contemplated by this Agreement. 7.17 COMPUTER SERVER ASSESSIBILITY. The Sellers shall have caused the Company and Hudiburg Chevrolet, Inc. to have entered into a lease agreement in accordance with Section 11.3. 7.18 RENOVATIONS. The Company shall have completed the renovations it is undertaking on the Leased Premises with regard to (a) the asphalt lot overlay; (b) the remodeling of the service drive; and (c) the replacement of the roof on the "old" building. ARTICLE 8 CONDITIONS TO OBLIGATIONS OF THE SELLERS AT THE CLOSING The obligations of the Sellers to perform this Agreement at the Closing are subject to the satisfaction at or prior to the Closing of the following conditions, unless waived in writing by the Sellers: 31 8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties made by the Buyer in this Agreement shall be true and correct in all material respects at and as of the date of this Agreement and at and as of the Closing as though made at and as of the Closing. 8.2 PERFORMANCE OF OBLIGATIONS OF THE BUYER. The Buyer shall have performed all obligations required to be performed by it under this Agreement, and complied with all covenants for which compliance by it is required under this Agreement, prior to or at the Closing, including, without limitation, payment of the Purchase Price pursuant to Section 1.2(b) hereof. 8.3 CLOSING DOCUMENTATION. The Sellers shall have received the following documents, agreements and instruments from the Buyer: (a) a certificate signed by a duly authorized signatory of the Buyer and dated as of the Closing Date certifying as to the satisfaction of the conditions set forth in Sections 8.1 and 8.2 hereof; (b) payment of the Purchase Price pursuant to Section 1.2 hereof; (c) an opinion of Parker, Poe, Adams & Bernstein L.L.P., counsel for the Buyer, dated as of the Closing Date and addressed to the Sellers, reasonably acceptable in form and substance to Sellers' counsel; (d) certificates dated as of a recent date from the Secretary of State of the State of Delaware to the effect that the Buyer is duly incorporated and in good standing in such State; (e) a copy of the Buyer's Certificate of Incorporation, including all amendments thereto, certified by the Secretary of State of the State of Delaware; (f) a certificate of the Secretary or an Assistant Secretary of the Buyer as to (i) the bylaws of the Buyer, (ii) the resolutions of the Buyer's Board of Directors authorizing this Agreement and the transactions contemplated hereby, and (iii) the authority and incumbency of the persons acting on behalf of the Buyer in connection with the execution of any document delivered in connection with this Agreement; and (g) such other instruments and documents as the Sellers shall reasonably request not inconsistent with the provisions hereof. 8.4 APPROVAL OF LEGAL MATTERS. The form of all certificates, instruments and documents to be executed or delivered by the Buyer to the Sellers pursuant to this Agreement and all legal matters in respect of the transactions as herein contemplated shall be reasonably satisfactory to the Sellers and their counsel, none of whose approval shall be unreasonably withheld or delayed. 8.5 NO LITIGATION. No action, suit or other proceeding shall be pending or threatened before any court, tribunal or governmental authority seeking or threatening to restrain or prohibit 32 the consummation of the transactions contemplated by this Agreement, or seeking to obtain substantial damages in respect thereof, or involving a claim that consummation thereof would result in the violation of any law, decree or regulation of any governmental authority having appropriate jurisdiction, and no order, decree or ruling of any governmental authority or court shall have been entered challenging the legality, validity or propriety of, or otherwise relating to, this Agreement or the transactions contemplated hereby, or prohibiting, restraining or otherwise preventing the consummation of the transactions contemplated hereby. 8.6 ESCROW AGREEMENT. The Buyer and the Escrow Agent shall have duly executed and delivered the Escrow Agreement to the Sellers. 8.7 HART-SCOTT-RODINO WAITING PERIOD. All applicable waiting periods under the HSR Act shall have expired without any indication of the Antitrust Division or the Federal Trade Commission that either of them intends to challenge the transactions contemplated hereby, or, if any such challenge or investigation is made or commenced, the conclusion of such challenge or investigation permits the transactions contemplated hereby in all material respects. 8.8 OTHER BASIC AGREEMENTS. All conditions to the obligations of the Seller (as defined in the Riverside Chevrolet Purchase Agreement) under the Riverside Chevrolet Purchase Agreement and all the conditions to the obligations of the Seller (as defined in the Glover Dodge Purchase Agreement) under the Glover Dodge Purchase Agreement shall have been satisfied or fulfilled unless waived in writing by such party, and the closings under the Riverside Chevrolet Purchase Agreement and the Glover Dodge Purchase Agreement shall have occurred or shall be occurring contemporaneously with the Closing of the transactions contemplated by this Agreement. ARTICLE 9 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION, ETC. 9.1 SURVIVAL. All statements contained in any Schedule or certificate delivered hereunder or in connection herewith by or on behalf of any of the parties pursuant to this Agreement shall be deemed representations and warranties by the respective parties hereunder unless otherwise expressly provided herein. The representations and warranties of the Sellers or the Buyer contained in this Agreement, including those contained in any Schedule or certificate delivered hereunder or in connection herewith, shall survive the Closing for a period of three years with the exception of (i) the representations and warranties of the Sellers contained in Section 3.21, which shall survive the Closing until the expiration of the applicable tax statutes of limitation plus a period of sixty (60) days; (ii) the representations and warranties of the Sellers contained in Section 3.36 shall survive the Closing for a period of seven (7) years; and (iii) the representations and warranties of the Sellers contained in Section 3.11, which shall survive the Closing indefinitely. As to each representation and warranty of the parties hereto, the date to which such representation and warranty shall survive is hereinafter referred to as the "SURVIVAL DATE". 9.2 AGREEMENT TO INDEMNIFY BY THE SELLERS. Subject to the terms and conditions of Sections 9.4 and 9.5 hereof, the Sellers hereby, jointly and severally, agree to indemnify and 33 save the Buyer, the Company, their respective shareholders, officers, directors and employees, and the successors and assigns of each of the foregoing (each, a "BUYER INDEMNITEE") harmless from and against, for and in respect of, any and all damages, losses, obligations, liabilities, demands, judgments, injuries, penalties, claims, actions or causes of action, encumbrances, costs, and expenses (including, without limitation, reasonable attorneys' fees and expert witness fees), suffered, sustained, incurred or required to be paid by any Buyer Indemnitee (collectively, "BUYER'S DAMAGES") arising out of, based upon, in connection with, or as a result of: (a) the untruth, inaccuracy or breach of any representation and warranty of the Sellers (regardless of any knowledge thereof by the Buyer at or prior to the Closing) contained in or made pursuant to this Agreement, including in any Schedule or certificate delivered hereunder or in connection herewith; (b) the breach or nonfulfillment of any covenant or agreement of any Seller contained in this Agreement or in any other agreement, document or instrument delivered hereunder or pursuant hereto; (c) any loss of life, injury to persons or property, or damage to natural resources caused by the actual, alleged, or threatened release, storage, transportation, treatment or generation, of Hazardous Materials generated, stored, used, disposed of, treated, handled or shipped by the Company on or before the Closing Date; (d) any cleanup of Hazardous Materials released, disposed of or discharged: (i) on, in, beneath or around to the Real Property prior to or on the date of the Closing; or (ii) at any other location if such substances were generated, used, stored, treated, transported or released by the Company prior to or on the Closing Date; (e) all known or unknown environmental liabilities and claims of or against the Company or arising out of the ownership the Shares prior to the Closing, including, without limitation, the presence, release or threatened release of Hazardous Materials and any liabilities or obligations arising under any Environmental Law, including but not limited to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), as amended; (f) any and all costs of installing pollution control equipment or other equipment to bring any of the Real Property into compliance with any Environmental Law if such equipment is installed because any of the Real Property was not in compliance with any Environmental Laws as of the date of the Closing; or (g) any and all Taxes arising out of or based upon the Distributed Assets or the distribution thereof as contemplated by Section 1.5; With respect to the Sellers' obligations to pay Buyer's damages pursuant to Section 9.2 of this Agreement, the Buyer shall be entitled (but not obligated) to make demand for payment under the Escrow Agreement. 34 9.3 AGREEMENT TO INDEMNIFY BY BUYER. Subject to the terms and conditions of Sections 9.4 and 9.5 hereof, the Buyer hereby agrees to indemnify and save the Sellers and their successors and assigns (each, a "SELLER INDEMNITEE") harmless from or against, for and in respect of, any and all damages, losses, obligations, liabilities, demands, judgments, injuries, penalties, claims, actions or causes of action, encumbrances, costs, and expenses (including, without limitation, reasonable attorneys' fees and expert witness fees) suffered, sustained, incurred or required to be paid by any Seller Indemnitee (collectively, "SELLERS' DAMAGES") arising out of, based upon or in connection with or as a result of: (a) the untruth, inaccuracy or breach of any representation and warranty of the Buyer (regardless of any knowledge thereof by the Sellers at or prior to the Closing) contained in or made pursuant to this Agreement, including in any Schedule or certificate delivered hereunder or in connection herewith; (b) the breach or nonfulfillment of any covenant or agreement of the Buyer contained in this Agreement or in any other agreement, document or instrument delivered hereunder or pursuant hereto. 9.4 CLAIMS FOR INDEMNIFICATION. No claim for indemnification with respect to a breach of a representation and warranty shall be made under this Agreement after the applicable Survival Date unless prior to such Survival Date the Buyer Indemnitee or the Seller Indemnitee, as the case may be, shall have given the Sellers or the Buyer, respectively, written notice of such claim for indemnification based upon actual loss sustained, or potential loss anticipated, as a result of the existence of any claim, demand, suit, or cause of action against such Buyer Indemnitee or Seller Indemnitee, as the case may be. None of the Sellers shall be required to indemnify under this Section 9.2(a) unless the amount of all Buyer's Damages (including claims for Buyer's Damages) under Section 9.2 (a) exceeds a cumulative aggregate total of $53,500, at which time rights to indemnification for Buyer's Damages may be asserted for any amounts in excess of such cumulative aggregate total of $53,500. The Buyer not shall be required to indemnify under this Section 9.3(a) unless the amount of all Seller's Damages (including claims for Seller's Damages) under Section 9.3 (a) exceeds a cumulative aggregate total of $53,500, at which time rights to indemnification for Sellers' Damages may be asserted for any amounts in excess of such cumulative aggregate total of $53,500. Notwithstanding any other provision hereof, the aggregate amount of indemnification obligations of the Sellers, under Section 9.2, and the Buyer, under Section 9.3, shall in either case not exceed the Purchase Price. 9.5 PROCEDURES REGARDING THIRD PARTY CLAIMS. The procedures to be followed by the Buyer and the Sellers with respect to indemnification hereunder regarding claims by third persons which could give rise to an indemnification obligation hereunder shall be as follows: (a) Promptly after receipt by any Buyer Indemnitee or Seller Indemnitee, as the case may be, of notice of the commencement of any action or proceeding (including, without limitation, any notice relating to a tax audit) or the assertion of any claim by a third person which the person receiving such notice has reason to believe may result in a claim by it for indemnity pursuant to this Agreement, such person (the "INDEMNIFIED PARTY") shall give a written notice of such action, proceeding or claim to the party against whom indemnification pursuant hereto is sought (the "INDEMNIFYING PARTY"), setting forth in reasonable detail the nature of such action, 35 proceeding or claim, including copies of any documents and written correspondence from such third person to such Indemnified Party. (b) The Indemnifying Party shall be entitled, at its own expense, to participate in the defense of such action, proceeding or claim, and, if (i) the action, proceeding or claim involved seeks (and continues to seek) solely monetary damages, (ii) the Indemnifying Party confirms and agrees, in writing, that it is obligated hereunder to indemnify and hold harmless the Indemnified Party with respect to such damages in their entirety pursuant to Sections 9.2 or 9.3 hereof, as the case may be, and (iii) the Indemnifying Party shall have made provision which, in the reasonable judgment of the Indemnified Party, is adequate to satisfy any adverse judgment as a result of its indemnification obligation with respect to such action, proceeding or claim, then the Indemnifying Party shall be entitled to assume and control such defense with counsel chosen by the Indemnifying Party and approved by the Indemnified Party, which approval shall not be unreasonably withheld or delayed. The Indemnified Party shall be entitled to participate therein after such assumption, the costs of such participation following such assumption to be at its own expense. Upon assuming such defense, the Indemnifying Party shall have full rights to enter into any monetary compromise or settlement which is dispositive of the matters involved; PROVIDED, that such settlement is paid in full by the Indemnifying Party and will not have any direct or indirect continuing material adverse effect upon the Indemnified Party. Notwithstanding the foregoing, the Indemnified Party shall have the right to pay, settle or compromise any such action, proceeding or claim, provided that in such event the Indemnified Party shall waive any right to indemnity therefor hereunder unless the Indemnified Party shall have sought the consent of the Indemnifying Party to such payment, settlement or compromise and such consent was unreasonably withheld or delayed, in which event no claim for indemnity therefor hereunder shall be waived. (c) With respect to any action, proceeding or claim as to which (i) the Indemnifying Party does not have the right to assume the defense, (ii) the Indemnifying Party shall not have exercised its right to assume the defense, or (iii) the Indemnifying Party shall have lost its right to continue the defense, the Indemnified Party shall assume and control the defense of and contest such action, proceeding or claim with counsel chosen by it and approved by the Indemnifying Party, which approval shall not be unreasonably withheld. The Indemnifying Party shall be entitled to participate in the defense of such action, proceeding or claim, the cost of such participation to be at its own expense. The Indemnifying Party shall be obligated to pay the reasonable attorneys' fees and expenses of the Indemnified Party to the extent that such fees and expenses relate to claims as to which indemnification is due under Sections 9.2 or 9.3 hereof, as the case may be. The Indemnified Party shall have full rights to dispose of such action, proceeding or claim and enter into any monetary compromise or settlement; PROVIDED, HOWEVER, in the event that the Indemnified Party shall settle or compromise any action, proceeding or claim for which indemnification is due under Sections 9.2 or 9.3 hereof, as the case may be, it shall act reasonably and in good faith in doing so. (d) Both the Indemnifying Party and the Indemnified Party shall cooperate fully with one another in connection with the defense, compromise or settlement of any such action, proceeding or claim, including, without limitation, by making available to the other all pertinent information and witnesses within its control. 36 9.6 EFFECTIVENESS. The provisions of this Article 9 shall be effective upon consummation of the Closing, and prior to the Closing, shall have no force and effect. ARTICLE 10 TERMINATION 10.1 TERMINATION. Notwithstanding any other provision herein contained to the contrary, this Agreement may be terminated at any time prior to the Closing Date: (a) By the written mutual consent of the Buyer and the Sellers; (b) At any time prior to the Closing Date Deadline (as the same may have been extended pursuant to Article 2 hereof) by the Buyer (by written notice to the Sellers' Agent) or the Sellers (by written notice to the Buyer), as the case may be, in the event of a breach in any material respect by any of the Sellers or the Buyer, respectively, of any of their or its, as the case may be, representations, warranties or covenants contained in this Agreement; (c) At any time after the Closing Date Deadline (as the same may have been extended pursuant to Article 2 hereof), by written notice by the Buyer or the Sellers' Agent to the other party(ies) hereto if the Closing shall not have been completed on or before the Closing Date Deadline (as the same may have been extended pursuant to Article 2 hereof); (d) By written notice by the Buyer to the Seller's Agent if, after any initial HSR Act filing, the FTC makes a "second request" for information pursuant to 16 C.F.R. ss.803.20 , or if the FTC or the Antitrust Division challenges the transactions contemplated hereby; (e) By the Buyer, by written notice to the Sellers' Agent, in the event that approval by the Manufacturer and/or floor plan financing provider of the transactions contemplated by this Agreement is not received by the Closing Date Deadline (as the same may have been extended pursuant to Article 2 hereof); (f) By the Buyer, by written notice to the Sellers' Agent, in the event that the Manufacturer (or any person claiming by, through or under the Manufacturer) shall exercise any right of first refusal, preemptive right or other similar right, with respect to the dealership business of the Company; or (g) By the Buyer, by written notice to the Sellers' Agent, if the Buyer in its sole discretion is not satisfied with its due diligence investigation of the Company, at any time during the period (the "DUE DILIGENCE PERIOD") commencing on the date hereof and ending on the close of business on the thirtieth (30th) day after the later to occur of: (A) the date upon which the Sellers and the Buyer agree upon the form and substance of all Schedules delivered by the Sellers pursuant to Article III hereof; and (B) the date of delivery by the Sellers to the Buyer of the due diligence materials listed on Schedule 5.1 hereto; 37 provided, however, no party may terminate this Agreement pursuant to Section 10.1(b) or (c) above if such party is in breach in any material respect of any representation, warranty, covenant or obligation of such party contained in this Agreement. 10.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination of this Agreement pursuant to Section 10.1, this Agreement shall be of no further force or effect; PROVIDED, HOWEVER, that any termination pursuant to Section 10.1 shall not relieve (a) the Buyer of any liability under Section 10.3 below, (b) the Sellers of any liability under Section 10.4 below, (c) the Company of any liability under Section 10.6 below, (d) except as provided in Section 10.5 below, any party hereto of any liability for breach of any representation and warranty, covenant or agreement hereunder occurring prior to such termination or (e) any party hereto of its, his or her obligations hereunder to pay the fees and expenses of third parties. In addition, in the event of any such termination, all filings, applications and other submissions made pursuant to this Agreement or prior to the execution of this Agreement in contemplation thereof shall, to the extent practicable, be withdrawn from the agency or other entity to which made. 10.3 PAYMENT OF BUYER'S TERMINATION FEE. If this Agreement is terminated by the Sellers pursuant to Section 10.1(c) above and the failure to complete the Closing on or before the Closing Date Deadline shall have been due to the Buyer's breach in any material respect of any of its representations, warranties, covenants or obligations under this Agreement, then the Buyer shall, within ten days after receipt by the Buyer of written notice from the Seller's Agent, promptly pay to the Sellers in immediately available funds, as liquidated damages for the loss of the transaction and not as a penalty, a termination fee of Five Hundred Thirty-Five Thousand Dollars ($535,000) (the "BUYER'S TERMINATION FEE"). 10.4 PAYMENT OF THE SELLERS' TERMINATION FEE. If this Agreement is terminated by the Buyer pursuant to Section 10.1(c) above and the failure to complete the Closing on or before the Closing Date Deadline shall have been due to the Sellers' breach in any material respect of any of their representations, warranties, covenants or obligations under this Agreement, then the Sellers, jointly and severally, shall, within ten days after receipt by the Sellers' Agent of written notice by the Buyer, promptly pay to the Buyer in immediately available funds, as liquidated damages for the loss of the transaction and not as a penalty, a termination fee of Five Hundred Thirty-Five Thousand Dollars ($535,000) (the "SELLERS' TERMINATION FEE"). 10.5 TERMINATION FEES EXCLUSIVE REMEDIES FOR DAMAGES. In the case of a termination of this Agreement pursuant to 10.1(c) above, the rights of the terminating party to be paid the Sellers' Termination Fee or the Buyer's Termination Fee, as the case may be, shall be such party's sole and exclusive remedy for damages; in the event of such termination by either party, such party shall have no right to equitable relief for any breach or alleged breach of this Agreement, other than for specific performance for the payment of the Sellers' Termination Fee or the Buyers' Termination Fee, as the case may be. Nothing contained in this Agreement shall prevent any party from electing not to exercise any right it may have to terminate this Agreement and, instead, seeking any equitable relief to which it would otherwise be entitled in the event of breach by any other party hereto. 10.6 SPECIAL TERMINATION PAYMENT. As an inducement to the Buyer to negotiate and enter into this Agreement and to undertake the further cost and expense of conducting its due diligence investigation and preparing to satisfy its obligations at the Closing, the Company 38 hereby agrees to pay to the Buyer the sum of Five Hundred Thousand Dollars ($500,000) in the event that this Agreement is terminated by the Buyer pursuant to Section 10.1(f) above. Such payment shall be made promptly upon demand by the Buyer therefor in immediately available funds. The Company is a party to this Agreement solely for the purpose of this Section 10.6. ARTICLE 11 OTHER COVENANTS 11.1 CERTAIN TAXES AND EXPENSES. (a) All sales, use, transfer, intangible, excise, documentary stamp, recording, gross income, gross receipts and other similar taxes or fees which may be due or payable in connection with the consummation of the transactions contemplated hereby shall be paid by the Sellers. (b) Except as otherwise herein provided, the Sellers and the Buyer shall be responsible for the payment of their respective fees, costs and expenses incurred in connection with the negotiation and consummation of the transactions contemplated hereby and shall not be liable to the other party or parties for the payment of any such fees, costs and expenses. 11.2 RIGHT OF FIRST OFFER ON RESALE. (a) If, at any time prior to the fifth (5th) anniversary of the Closing Date, the Buyer shall propose to sell the Company's business, the Buyer shall first give notice in writing to the Sellers Agent of its intention to do so, which notice (the "FIRST OFFER") shall constitute an offer to the Sellers to purchase such dealership business from the Buyer at the price and upon payment terms set forth in such notice. The Sellers, acting through the Sellers' Agent, shall have a period of thirty (30) days after the giving of such notice by the Buyer to accept in writing (the "FIRST OFFER ACCEPTANCE") the Buyer's offer set forth in the First Offer. If the Sellers, acting through the Sellers' Agent, shall have delivered the First Offer Acceptance to the Buyer prior to the expiration of such thirty (30) day period, the parties shall negotiate in good faith in an effort to finalize, execute and deliver a definitive purchase agreement containing customary terms with respect to such proposed sale. If the parties are unable to execute and deliver such definitive purchase agreement within a period of thirty (30) days after receipt by the Buyer of the First Offer Acceptance (the last day of such thirty (30) day period at 5:00 p.m., Eastern Time, being the "FIRST OFFER AGREEMENT DEADLINE"), the Buyer shall be free to sell the dealership business to any other person or entity during the one (1) year period commencing with the expiration of the First Offer Agreement Deadline at a price that is not less than 90% of the price proposed by the Buyer in the First Offer, and on payment terms which, in the overall, are no less favorable than such payment terms proposed by the Buyer in the First Offer. (b) The parties hereto acknowledge and agree that any rights granted to the Sellers pursuant to this Section 11.2 are subject to the Manufacturer's (or any person claiming by, through or under the Manufacturer) right of first refusal, preemptive right or other similar right, with respect to the Company's business, and that any exercise of such right by the Manufacturer shall not be subject to this Section 11.2. Accordingly, the parties hereto acknowledge that any potential closing of a purchase transaction pursuant to this Section 11.2 will be contingent upon a determination by the Manufacturer that it does not wish to exercise its 39 right of first refusal, preemptive right or other similar right with respect to the Company's business. 11.3 COMPUTER MATTERS. The Buyer acknowledges that the Company does not own the computer hardware server currently used in the Business and that, pursuant to a lease, Hudiburg Chevrolet, Inc. provides access to its computer hardware server to the Company. The Sellers acknowledge that the Buyer is not purchasing the computer hardware server from the Sellers and that the Buyer will not be able to have its own server in place at Closing. The Sellers agree to take such steps as are necessary to permit the Buyer, upon reasonable terms and conditions, to access and utilize the computer hardware server owned by Hudiburg Chevrolet, Inc. and to cause Hudiburg Chevrolet, Inc. to enter into an agreement with the Buyer to such effect. The Buyer will use commercially reasonable efforts to obtain its own server as soon as reasonably practicable. ARTICLE 12 MISCELLANEOUS 12.1 CERTAIN TAX RETURNS. The Sellers shall cooperate with and provide assistance to the Buyer and the Company in connection with the preparation and filing of all federal, state, local and foreign income tax returns which relate to the Company and to periods prior to Closing but which are not required to be filed until after the Closing. 12.2 PARTIES IN INTEREST; NO THIRD-PARTY BENEFICIARIES. Subject to Section 12.4 hereof, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the respective successors and assigns of the parties hereto. Nothing in this Agreement, expressed or implied, is intended or shall be construed to confer upon or give to any employee of the Company or the Buyer, or any other person, firm, corporation or legal entity, other than the parties hereto and their successors and assigns, any rights, remedies or other benefits under or by reason of this Agreement. 12.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement (including all Exhibits and Schedules hereto, which Schedules are hereby incorporated herein by reference) and the other writings referred to herein or delivered pursuant hereto contain the entire understanding of the parties hereto with respect to its subject matter. There are no representations, promises, warranties, covenants or undertakings other than as expressly set forth herein or therein. This Agreement supersedes all prior agreements and understandings between the parties hereto with respect to its subject matter. This Agreement may be amended or modified only by a written instrument duly executed by the parties hereto. 12.4 ASSIGNMENT. This Agreement shall not be assignable by any party hereto without the prior written consent of the other parties; PROVIDED, HOWEVER, the Buyer may, without the consent of the other parties, assign its rights and obligations hereunder to any Affiliate of the Buyer presently existing or hereafter formed and to any person or entity that shall acquire all or substantially all of the assets of the Buyer or the Company (including any such acquisition by merger or consolidation); PROVIDED, FURTHER, that no such assignment shall release the Buyer from its obligations hereunder without the consent of the Sellers. Nothing contained in this Agreement shall prohibit its assignment by the Buyer as collateral security and the Sellers hereby 40 agree to execute any acknowledgment of such assignment by the Buyer as may be required by any lender to the Buyer. 12.5 REMEDIES. Except as expressly provided in this Agreement to the contrary, each of the parties to this Agreement is entitled to all remedies in the event of breach provided at law or in equity, specifically including, but not limited to, specific performance. 12.6 HEADINGS. The Article and Section headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 12.7 NOTICES. All notices, claims, certificates, requests, demands and other communications hereunder shall be given in writing and shall be delivered personally, sent by facsimile or by a nationally recognized overnight courier, postage prepaid, and shall be deemed to have been duly given when so delivered personally, or by confirmed facsimile or one (1) Business Day after the date of deposit with such nationally recognized overnight courier. All such notices, claims, certificates, requests, demands and other communications shall be addressed to the respective parties at the addresses set forth below or to such other address as the person to whom notice is to be given may have furnished to the others in writing in accordance herewith. If to the Buyer, to: Sonic Automotive, Inc. 5401 E. Independence Boulevard Charlotte, North Carolina 28212 Attention: Theodore M. Wright, Chief Financial Officer Telecopier No.: (704) 536-5116 With a copy to: Parker, Poe, Adams & Bernstein L.L.P. 2500 Charlotte Plaza Charlotte, North Carolina 28244 Attention: Edward W. Wellman, Jr. Telecopier No.: (704) 334-4706 If to the Sellers or the Company, to the Sellers' Agent at: David Hudiburg 6000 Tinker Diagonal Midwest City, Oklahoma 73110 Telecopier No.: (405) 739-6343 41 With a copy to: Randall Calvert Calvert Law Firm 6520 N. Western, Suite 100 Oklahoma City, OK 73116 Attention: Randall K. Calvert Telecopier No.: (405) 848-5052 12.8 COUNTERPARTS. This Agreement may be executed in any number of counterparts, and each such counterpart hereof shall be deemed to be an original instrument, and all such counterparts together shall constitute but one agreement. 12.9 GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Oklahoma, without giving effect to its rules governing conflict of laws. 12.10 WAIVERS. Any party to this Agreement may, by written notice to the other parties hereto, waive any provision of this Agreement from which such party is entitled to receive a benefit. The waiver by any party hereto of a breach by another party of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach by such other party of such provision or any other provision of this Agreement. 12.11 SEVERABILITY; CONSTRUCTION. (a) In the event that any provision, or part thereof, in this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions, or parts thereof, shall not in any way be affected or impaired thereby. (b) This Agreement shall be construed equitably in accordance with its terms, without regard to the degree to which the Sellers or the Buyer, or their respective legal counsel, have participated in the drafting of this Agreement. 12.12 KNOWLEDGE. Whenever any representation or warranty of any Seller contained herein or in any other document executed and delivered in connection herewith is based upon the knowledge of such Seller, (i) such knowledge shall be deemed to include (A) the best actual knowledge, information and belief of such Seller and (B) any information which such Seller would reasonably be expected to be aware of in the prudent discharge of his or her duties in the ordinary course of business (including consultation with legal counsel) on behalf of the Company, and (ii) the knowledge of any Seller shall be deemed to be the knowledge of all of the Sellers. 12.13 JURISDICTION; ARBITRATION. (a) [Intentionally Deleted] (b) Any dispute, claim or controversy arising out of or relating to this Agreement (except for accounting matters provided for in subsection (c) below), or the interpretation or breach hereof (including, without limitation, any of the foregoing based upon a 42 claim to any termination fee hereunder), shall be resolved by binding arbitration under the commercial arbitration rules of the American Arbitration Association (the "AAA RULES") to the extent such AAA Rules are not inconsistent with this Agreement. Judgment upon the award of the arbitrators may be entered in any court having jurisdiction thereof or such court may be asked to judicially confirm the award and order its enforcement, as the case may be. The demand for arbitration shall be made by any party hereto within a reasonable time after the claim, dispute or other matter in question has arisen, and in any event shall not be made after the date when institution of legal proceedings, based on such claim, dispute or other matter in question, would be barred by the applicable statute of limitations. The arbitration panel shall consist of three (3) arbitrators, one of whom shall be appointed by the Buyer and one of whom shall be appointed by the Seller within thirty (30) days after any request for arbitration hereunder. The two arbitrators thus appointed shall choose the third arbitrator within thirty (30) days after their appointment; PROVIDED, HOWEVER, that if the two arbitrators are unable to agree on the appointment of the third arbitrator within 30 days after their appointment, either arbitrator may petition the American Arbitration Association to make the appointment. The place of arbitration shall be Charlotte, North Carolina. The arbitrators shall be instructed to render their decision within sixty (60) days after their selection and to allocate all costs and expenses of such arbitration (including legal and accounting fees and expenses of the respective parties) to the parties in the proportions that reflect their relative success on the merits (including the successful assertion of any defenses). (c) Notwithstanding the provisions of Sections 12.13(a) or 12.13(b), any dispute relating to accounting matters shall be resolved as provided in this Section 12.13(c). The parties first shall use reasonable efforts to resolve any such accounting dispute. In the event the dispute has not been resolved within a reasonable amount of time, either the Buyer, on the one hand, or the Seller, on the other hand, may provide written notice to the other party that the matter will be submitted to a "Big Five" accounting firm mutually acceptable to the Buyer and the Seller (the "ACCOUNTANTS") for resolution. If issues in dispute are submitted to the Accountants for resolution: (i) each party will furnish to the Accountants such work papers and other documents and information relating to the disputed issues as the Accountants may request and are available to the party or its subsidiaries (or its independent public accountants), and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (ii) such determination by the Accountants, as set forth in a notice delivered to both parties by the Accountants, will be binding and conclusive on the parties; and (iii) the Buyer and the Seller shall each bear 50% of the fees and expenses of the Accountants for such determination. (d) Nothing contained in this Section 12.13 shall prevent any party hereto from seeking any equitable relief to which it would otherwise be entitled from a court of competent jurisdiction. 12.14 COOPERATION IN SEC FILINGS. At the request of the Buyer and at the Buyer's expense, the Sellers shall cooperate in the preparation by the Buyer of all filings to be made by the Buyer with the SEC including, without limitation any filing with respect to a registered offering of its securities by the Buyer and the closing of the offering registered thereby. [SIGNATURES APPEAR ON FOLLOWING PAGE] 43 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered on the date first above written. BUYER: SONIC AUTOMOTIVE, INC. By: /s/ O. Bruton Smith ------------------------------ Name: O. Bruton Smith Title: Chairman and CEO SELLERS: /s/ David Hudiburg ------------------------------ David Hudiburg /s/ Steven Hudiburg ------------------------------ Steven Hudiburg /s/ Paula Tate ------------------------------ Paula Tate /s/ Donna Dodson ------------------------------ Donna Dodson /s/ Bob Hurley ------------------------------ Bob Hurley /s/ Cruse Collins ------------------------------ Cruse Collins /s/ Randy Grady ------------------------------ Randy Grady Kenna Beth Tate Irrevocable Trust (dated November 11, 1985) By: /s/ David Hudiburg ------------------------------ David Hudiburg, Trustee By: /s/ Donna Dodson ------------------------------ Donna Dodson, Trustee Kyle Nicholas Tate Irrevocable Trust (dated July 25, 1988) By: /s/ David Hudiburg ------------------------------ David Hudiburg, Trustee By: /s/ Donna Dodson ------------------------------ Donna Dodson, Trustee Kaylan Louise Hudiburg Irrevocable Trust (dated July 25, 1988) By: /s/ Paula Tate ------------------------------ Paula Tate, Trustee By: /s/ Donna Dodson ------------------------------ Donna Dodson, Trustee COMPANY: RIVERSIDE NISSAN, INC. (solely for purposes of Section 10.6) By: /s/ David Hudiburg ------------------------------ Name: David Hudiburg Title: Vice President EX-10 7 EXHIBIT 10.8 AGREEMENT AND PLAN OF MERGER AND REORGANIZATION Dated as of October 31, 1999, Among SONIC AUTOMOTIVE, INC. FAA ACQUISITION CORP. FIRSTAMERICA AUTOMOTIVE, INC. And CERTAIN OF THE STOCKHOLDERS OF FIRSTAMERICA AUTOMOTIVE, INC. TABLE OF CONTENTS ARTICLE I SECURITIES PURCHASE ...................................................................................2 Section 1.1 The Securities Purchase ............................................................2 Section 1.2 Purchase Price .....................................................................2 Section 1.3 Registration, Offer or Sale of Parent Common Stocks ................................4 Section 1.4 The Closing ........................................................................6 Section 1.5 Record Transfer of Company Securities; Parent as Purchaser .........................6 Section 1.6 Treatment of Options ...............................................................6 ARTICLE II THE MERGER............................................................................................7 Section 2.1 The Merger .........................................................................7 Section 2.2 Effective Time .....................................................................7 Section 2.3 Effects of the Merger ..............................................................8 Section 2.4 Certificate of Incorporation; By-Laws ..............................................8 Section 2.5 Directors ..........................................................................8 Section 2.6 Officers ...........................................................................8 Section 2.7 Effect on Capital Stock ............................................................8 Section 2.8 Exchange of Certificates ...........................................................9 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................................................11 Section 3.1 Organization, Standing and Corporate Power ........................................11 Section 3.2 Subsidiaries; Investments .........................................................12 Section 3.3 Capital Structure .................................................................12 Section 3.4 Authority; Noncontravention .......................................................12 Section 3.5 SEC Documents .....................................................................14 Section 3.6 [INTENTIONALLY LEFT BLANK] ........................................................14 Section 3.7 Litigation ........................................................................14 Section 3.8 Labor Matters .....................................................................14 i Section 3.9 Employee Benefit Plans ............................................................15 Section 3.10 Tax Returns and Tax Payments ......................................................17 Section 3.11 Brokers ...........................................................................18 Section 3.12 [INTENTIONALLY LEFT BLANK] ........................................................18 Section 3.13 [INTENTIONALLY LEFT BLANK] ........................................................18 Section 3.14 [INTENTIONALLY LEFT BLANK] ........................................................18 Section 3.15 Title to Assets; Related Matters ..................................................18 Section 3.16 Accounts Receivable ...............................................................19 Section 3.17 Inventories .......................................................................19 Section 3.18 1999 Pro Forma Pre-Tax Earnings ...................................................19 Section 3.19 Real Property; Machinery and Equipment ............................................19 Section 3.20 Patents; Trademarks; Trade Names; Copyrights; Licenses; Etc. ......................20 Section 3.21 Certain Liabilities ...............................................................21 Section 3.22 No Undisclosed Liabilities ........................................................21 Section 3.23 Absence of Changes ................................................................21 Section 3.24 Compliance with Laws, Etc .........................................................22 Section 3.25 Permits, Etc ......................................................................22 Section 3.26 Compensation ......................................................................23 Section 3.27 Powers of Attorney ................................................................23 Section 3.28 Material Agreements ...............................................................23 Section 3.29 [INTENTIONALLY LEFT BLANK] ........................................................23 Section 3.30 Insurance .........................................................................23 Section 3.31 Warranties ........................................................................24 Section 3.32 Directors and Officers ............................................................24 Section 3.33 Suppliers and Customers ...........................................................24 Section 3.34 Environmental Matters .............................................................24 Section 3.35 Year 2000 Matters .................................................................26 Section 3.36 Business Generally ................................................................26 Section 3.37 Manufacturer Communications .......................................................27 Section 3.38 Pending Acquisitions ..............................................................27 Section 3.39 Related Party Transactions ........................................................27 ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS........................................28 Section 3A.1 Power and Authority; Validity of Agreement ........................................28 Section 3A.2 No Conflicts; Consents and Approvals ..............................................28 Section 3A.3 Ownership of Shares ...............................................................28 Section 3A.4 No Encumbrances ...................................................................29 Section 3A.5 Brokers and Intermediaries ........................................................29 Section 3A.6 Special Representations Regarding the Reorganization Common Stock .................29 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT AND NEWCO...............................................30 Section 4.1 Organization, Standing and Corporate Power ........................................30 Section 4.2 Subsidiaries ......................................................................31 Section 4.3 Capital Structure .................................................................31 Section 4.4 Authority; Noncontravention .......................................................31 Section 4.5 SEC Documents .....................................................................32 Section 4.6 [INTENTIONALLY LEFT BLANK.] .......................................................33 Section 4.7 Litigation ........................................................................33 Section 4.8 Brokers ...........................................................................33 Section 4.9 Interim Operations of Newco .......................................................33 Section 4.10 Absence of Certain Changes or Events ..............................................33 Section 4.11 Compliance with Laws, Etc. ........................................................34 ARTICLE V COVENANTS OF THE COMPANY..............................................................................34 Section 5.1 Conduct of Business of the Company ................................................34 Section 5.2 Cooperation Regarding Notice of Appraisal Rights ..................................36 Section 5.3 Access to Information; Confidentiality ............................................36 Section 5.4 No Solicitation ...................................................................37 Section 5.5 Public Announcements ..............................................................38 Section 5.6 Cooperation in Obtaining Manufacturer Approval; Parts Return ......................38 Section 5.7 Closing Conditions ................................................................38 Section 5.8 HSR Act ...........................................................................38 Section 5.9 Concerning Company Plans ..........................................................39 Section 5.10 Bridge Financing ..................................................................39 Section 5.11 280G Consent ......................................................................40 Section 5.12 Tax Free Reorganization ...........................................................40 ARTICLE VA COVENANTS OF THE STOCKHOLDERS........................................................................41 Section 5A.1 Agreement to Vote; Proxy ..........................................................41 Section 5A.2 No Solicitation ...................................................................42 Section 5A.3 Restriction on Transfer, Proxies and Non-Interference .............................42 Section 5A.4 Additional Shares .................................................................43 Section 5A.5 Waiver of Appraisal and Dissenter's Rights ........................................43 Section 5A.6 Actions Regarding Company Expenses ................................................43 Section 5A.7 Indemnity; Escrow Agreement .......................................................43 Section 5A.8 Further Assurances ................................................................46 Section 5A.9 Certain Events ....................................................................46 Section 5A.10 Stop Transfer .....................................................................46 Section 5A.11 Termination .......................................................................46 ARTICLE VI COVENANTS OF THE PARENT..............................................................................46 Section 6.1 Conduct of Business of Parent .....................................................46 Section 6.2 [INTENTIONALLY LEFT BLANK] ........................................................47 Section 6.3 Access to Information; Confidentiality ............................................47 Section 6.4 Indemnification ...................................................................47 Section 6.5 Public Announcements ..............................................................49 Section 6.6 Newco Obligations .................................................................49 Section 6.7 Application to Manufacturers ......................................................49 Section 6.8 Closing Conditions ................................................................49 Section 6.9 HSR Act ...........................................................................49 Section 6.10 Tax Free Reorganization ...........................................................49 Section 6.11 Additional Agreements of Parent ...................................................49 Section 6.12 Employee Benefits .................................................................50 ARTICLE VII CONDITIONS PRECEDENT................................................................................50 Section 7.1 Conditions to Each Party's Obligation To Effect the Reorganization ................50 Section 7.2 Conditions to Obligations of the Parent and Newco .................................51 Section 7.3 Conditions to Obligation of the Company and the Stockholders ......................53 ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER..................................................................55 Section 8.1 Termination .......................................................................55 Section 8.2 Effect of Termination .............................................................56 Section 8.3 Amendment .........................................................................56 Section 8.4 Extension; Waiver .................................................................56 Section 8.5 Procedure for Termination, Amendment, Extension or Waiver .........................56 ARTICLE IX GENERAL PROVISIONS...................................................................................57 Section 9.1 Best Reasonable Efforts ...........................................................57 Section 9.2 Survival of Representations and Warranties ........................................57 Section 9.3 Fees and Expenses .................................................................57 Section 9.4 Notices ...........................................................................58 Section 9.5 Certain Definitions ...............................................................59 Section 9.6 Interpretation ....................................................................60 Section 9.7 Counterparts ......................................................................60 Section 9.8 Entire Agreement; No Third-Party Beneficiaries ....................................60 Section 9.9 Governing Law .....................................................................61 Section 9.10 Assignment ........................................................................61 Section 9.11 Enforcement .......................................................................61 Section 9.12 Consent to Jurisdiction ...........................................................61 Section 9.13 Severability ......................................................................61 Section 9.14 Construction ......................................................................61 Section 9.15 Effectiveness of this Agreement; Merger Agreement and Stockholder Agreement Superseded ..............................................................61 Section 9.16 Concerning the Stockholders' Agent ................................................62 EXHIBIT A - CALCULATION OF CONVERSION NUMBER EXHIBIT B - CALCULATION OF PRO FORMA PRE-TAX EARNINGS FOR CALENDAR YEAR 1999 EXHIBIT BB WARRANT EXCHANGE FACTORS CALCULATION EXHIBIT C PRO FORMA PRETAX EARNINGS EXHIBIT D ESCROW AGREEMENT EXHIBIT E ONE TIME CHARGES AND ADJUSTMENTS EXHIBIT F GRAY CARY OPINION EXHIBIT G PARKER POE OPINION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION AGREEMENT AND PLAN OF MERGER AND REORGANIZATION, dated as of October 31, 1999 (this "Agreement"), by and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the "Parent"), FAA ACQUISITION CORP., a Delaware corporation and a wholly-owned subsidiary of the Parent ("Newco"), FIRSTAMERICA AUTOMOTIVE, INC., a Delaware corporation (the "Company"), and the stockholders and warrant holders of the Company listed on Exhibit A hereto, and any other holders of securities of the Company who shall become a party to this Agreement after the date hereof (and such stockholders, warrant holders and other security holders being collectively, the "Stockholders" and each, individually, a "Stockholder"). WHEREAS, the respective Boards of Directors of the Parent, Newco and the Company have approved, and deem it fair, advisable and in the best interests of their respective stockholders to consummate, the business combination contemplated hereby upon the terms and subject to the conditions set forth herein; WHEREAS, it is intended that the business combination contemplated hereby be accomplished by (i) a purchase (the "Securities Purchase") by Newco from the Stockholders of all of the following securities of the Company held by them: (A) all shares of Class A, Class B and Class C Common Stock, par value $.00001 (collectively, the "Company Common Stock"); (B) all shares of the Company's Redeemable Preferred Stock due 2005 and all shares of the Company's 8% Cumulative Redeemable Preferred Stock due 2005 (collectively, the "Company Preferred Stock"); and (C) all of the Warrants to Purchase Class A Common Stock of the Company (the "Company Warrants" and, together with the Company Common Stock and the Company Preferred Stock, sometimes hereinafter collectively called the "Company Securities"), to be followed by a merger (the "Merger") of Newco with and into the Company, with the Company being the surviving corporation and a wholly-owned subsidiary of the Parent, all upon the terms and subject to the conditions set forth herein (the Securities Purchase and the Merger being sometimes hereinafter collectively called the "Reorganization"); WHEREAS, the Parent, Newco and the Company are parties to an Agreement and Plan of Merger dated as of August 25, 1999 (the "Merger Agreement"); WHEREAS, the Parent and certain of the Stockholders are parties to a Stockholder Agreement dated as of August 25, 1999 (the "Stockholder Agreement"); WHEREAS, it is intended that this Agreement shall supersede and replace the Merger Agreement and the Stockholder Agreement; WHEREAS, the Parent, Newco, the Company and the Stockholders desire to make certain representations, warranties, covenants and agreements in connection with the transactions contemplated hereby and also to prescribe various conditions to the Reorganization; NOW, THEREFORE, in consideration of the premises and the representations, warranties, covenants and agreements herein contained, the parties agree as follows: ARTICLE I SECURITIES PURCHASE Section 1.1 The Securities Purchase. Upon the terms and subject to the conditions set forth in this Agreement, at the Closing (as defined in Section 1.4 below), the Stockholders shall sell, transfer, convey and deliver to Newco, and Newco shall purchase from the Stockholders, all of the Company Securities held by the Stockholders as of the Closing. At the Closing each Stockholder shall deliver to Newco a certificate or certificates representing the number of Company Securities set forth opposite such Stockholders name on Exhibit A hereto and any other Company Securities acquired by such Stockholder after the date hereof, duly endorsed in blank or with one or more fully executed stock powers or other appropriate instruments of assignment and conveyance attached, all in proper form for transfer with all transfer taxes, if any, paid by such Stockholder. All Company Securities shall be delivered to Newco free and clear of all liens, pledges, encumbrances, claims, security interests, charges, voting trusts, voting agreements, other agreements, rights, options, warrants or restrictions of any kind, nature or description. Section 1.2 Purchase Price. As the full purchase price to be paid by Newco to the respective Stockholders for the respective Company Securities to be purchased hereunder, at the Closing, Newco shall deliver to the Stockholders securities of the Parent as follows: (a) For each share of Company Common Stock held by a Stockholder, Newco shall deliver to such Stockholder .31246, as such number may be adjusted as provided in Section 1.2(e) below (as so adjusted, the Conversion Number), fully paid and non-assessable shares of Class A Common Stock, par value $.01 per share, of the Parent (the Parent Common Stock). (b) For each share of Company Preferred Stock held by a Stockholder, Newco shall deliver to such Stockholder that number of fully paid and non-assessable shares of Parent Common Stock (collectively, the Preferred Stock Consideration Shares) obtained by dividing (i) One Thousand Dollars ($1,000) by (ii)the average closing price per share of Parent Common Stock as reported on the Composite Tape for the New York Stock Exchange (the NYSE) for the twenty (20) consecutive trading days ending on and including the trading day immediately preceding the Closing Date (as defined in Section 1.4 below). If, as of the Recalculation Date (as defined below), the Recalculation Market Value (as defined below) of the Preferred Stock Consideration Shares is less than One Thousand and Thirty Dollars ($1,030), the Parent shall issue and deliver to each of the Stockholders who sold shares of Company Preferred Stock, for each share of Company Preferred Stock sold by such Stockholder hereunder, that number of additional shares of Parent Common Stock which, together with the Preferred Stock Consideration Shares, have an aggregate Recalculation Market Value equal to One Thousand and Thirty Dollars ($1,030). As used in this Subsection(b) the following terms shall have the following meanings: (A) Recalculation Date shall mean the date which is ninety (90) days after the Closing Date; and (B) Recalculation Market Value shall mean the average closing price share of Parent Common Stock as reported on the NYSE for the twenty (20) consecutive trading days ending on and including the trading day immediately preceding the Recalculation Date. No fractional shares of such additional Parent Common Stock shall be issued; any such 2 portion of a share shall be paid in cash in an amount (rounded to the nearest whole cent) equal to the product of such fraction multiplied by the Recalculation Market Value. (c) For each Company Warrant held by a Stockholder, Newco shall deliver to such Stockholder that number of fully paid and non-assessable shares of Parent Common Stock determined as follows: (i) for each Company Warrant with an exercise price of $0.92 per share of Company Common Stock, Newco shall deliver .2455 shares of Parent Common Stock for each share of Company Common Stock issuable upon exercise of such Company Warrant in full; and (ii) for each Company Warrant with an exercise price of $2.00 per share of Company Common Stock, Newco shall deliver .1667 shares of Parent Common Stock for each share of Company Common Stock issuable upon exercise of such Company Warrant in full. The numbers of shares of Parent Common Stock set forth in clauses (i) and (ii) immediately above (the "Warrant Exchange Factors") are determined in accordance with the provisions of Exhibit BB hereto, which reflects a Conversion Number of .30769. In the event that the Conversion Number is adjusted as provided in Section 1.2(e) below, the respective Warrant Exchange Factors shall be correspondingly adjusted. (d) Except as set forth in Subsection(b) above, no fractional shares of Parent Common Stock shall be delivered with respect to the purchase hereunder of any Company Common Stock or Company Warrants; any such fraction of a share of Parent Common Stock shall be paid in cash in an amount (rounded to the nearest whole cent) equal to the product of (i) such fraction multiplied by (ii) the average closing price per share of Parent Common Stock as reported on the Composite Tape for the NYSE for the five (5) consecutive trading days ending on and including the trading day immediately preceding the Closing Date. (e) The Conversion Number set forth in Section 1.2(a) above has been determined in accordance with Exhibit B hereto. If between the date of this Agreement and the Closing the outstanding shares of Company Common Stock or Parent Common Stock shall have been changed (subject to compliance with any other applicable provisions of this Agreement) into a different number of shares or a different class, by reason of any stock dividend, subdivision, reclassification, split-up, combination, or the like, the Conversion Number shall be correspondingly adjusted. If between the date of this Agreement and the Closing, the outstanding shares of Company Common Stock shall have been reduced (subject to compliance with any other applicable provisions of this Agreement) as a result of any transaction that does not involve an expenditure or disposition of assets of the Company (other than the disposition of shares of DSW Associates, Inc., d/b/a "Auto Town" in connection with the divestiture or liquidation thereof contemplated by Section 7.2(m) below), or an increase in liabilities of the Company, or which otherwise reduces the net assets of the Company, the Conversion Number shall be recalculated in accordance with Exhibit B hereto utilizing such reduced number of outstanding shares of Company Common Stock. 3 Section 1.3 Registration, Offer or Sale of Parent Common Stocks. ---------------------------------------------------- (a) Not later than one hundred eighty (180) days after the Closing, the Parent shall cause the resale by the Stockholders of the shares of Parent Common Stock issued pursuant to Section 1.2 above (the "Reorganization Common Stock") to be registered under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to an effective shelf registration statement on Form S-3 (the "Registration Statement") filed by the Parent with the Securities Exchange Commission (the "SEC"). The Parent shall use its best reasonable efforts to cause the Registration Statement to be filed and to become effective by the ninetieth (90th) day after the Closing. In connection with the Registration Statement, the Parent shall: (i) deliver to the Stockholders such number of copies of a prospectus, and supplements thereto, that is part of the Registration Statement (the "Resale Prospectus") to enable the Stockholders to offer and sell the shares of the Reorganization Common Stock received by them pursuant to this Agreement; (ii) maintain the effectiveness of the Registration Statement and the currency of the Resale Prospectus until such time as all shares of the Reorganization Common Stock may be sold by the Stockholders without restriction pursuant to Rule 144 under the Securities Act or any successor rule or regulation thereto ("Rule 144"); (iii) cause the Reorganization Common Stock to be listed for trading on the NYSE not later than the date of the effectiveness of the Registration Statement; (iv) pay all expenses, including legal and accounting fees, in connection with the preparation, filing and maintenance of the Registration Statement, including any amendments thereto, the Resale Prospectus, including any supplements thereto, and any other expenses incurred by the Parent in meeting its obligations under this Section 1.3; and (v) indemnify the Stockholders for any liabilities arising under he Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any state securities or blue sky laws resulting from any material misstatements in, or omissions of material information from, the Resale Prospectus or the Registration Statement, including the information incorporated by reference therein, except for the Stockholders Liabilities (as defined in Section 1.3(b)(vi) below). (b) In connection with the Registration Statement, the Stockholders agree as follows: (i) the Stockholders shall effect each resale of the Reorganization Common Stock only pursuant to the Resale Prospectus and the methods described therein and subject to the provisions of Section 1.3(d) below; (ii) any offering of any Reorganization Common Stock by a Stockholder will be effected in an orderly manner through a securities dealer acting as broker or dealer, selected by the Stockholder and reasonably acceptable to the Parent (the "Designated Broker"); 4 (iii) if requested by the Parent, the Stockholders will enter into one or more custody agreements with one or more banks (the "Custodial Banks") with respect to the Reorganization Common Stock so that all such shares of Reorganization Common Stock are held in the custody of such Custodial Banks until offered pursuant to clause (ii) immediately above; (iv) each of the Stockholders shall pay any and all expenses directly related to the sale of the Reorganization Common Stock by it, including, but not limited to, the commissions or fees of the Designated Broker, but excluding the fees and expenses of the Custodial Banks holding the Reorganization Common Stock, if applicable, which shall be borne by the Parent; (v) because the shares of Reorganization Common Stock will be "restricted securities" within the meaning of Rule 144, the certificates representing the Reorganization Common Stock will be issued by the Parent to the Stockholders with such legends as the Parent may reasonably require until such shares are offered pursuant to the foregoing terms under the Resale Prospectus, at which time such certificates shall be tendered to the Parent by the Stockholder and a new certificate or certificates without legends shall be issued by the Parent to the Designated Broker in order to settle any resales by the Stockholders; (vi) the Stockholders shall provide the Parent with all information concerning the Stockholders and their resale of the Reorganization Common Stock as may then be required by the Securities Act, and the Stockholders shall indemnify the Parent for any liabilities (the "Stockholders Liabilities") arising under the Securities Act, the Exchange Act or any state securities or blue sky laws resulting from any material misstatements in, or omissions of any material information from, such information provided by the Stockholders to the Parent pursuant to this Section 1.3(b)(vi). (c) Lock-Up. During the Lock-Up Period (as defined below), the Stockholders agree that they will not, without the prior written consent of the Parent, directly or indirectly, (i) offer, pledge, sell, sell short, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right to warrant for the sale of, or otherwise dispose of or transfer any shares of Reorganization Common Stock or any shares of the Parent Common Stock issuable upon exercise of Parent Options (as defined in Section 1.6 below) (all of the foregoing shares being, collectively, the "Lock-Up Shares"), or file any registration statement under the Securities Act, with respect to any Lock-Up Shares, or (ii) enter into any swap or any other agreement or hedging arrangement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of Lock-Up Shares, whether any such swap or transaction is to be settled by delivery of Parent Common Stock or other securities, in cash or otherwise provided, however, that, other than with respect to shares of Parent Common Stock constituting any part of the Escrow Shares (as defined in Section 5A.7(b) below), a Stockholder may (i)transfer Lock-Up Shares to such Stockholders spouse or lineal descendant (natural or adopted) or an executor, administrator or testamentary trustee (in their capacity as such) of such Stockholder or to a trust the beneficiaries of which include only such Stockholder and his or her spouse or lineal descendants (natural or adopted); provided, however, it shall be a condition precedent to such transfer that the transferee agree in a writing reasonably satisfactory to the Parent to be bound by the terms of this Section1.3(c), (ii)purchase at its own expense one or several European style put options, at exercise prices not 5 to exceed 80% of the then current market value and with expiration dates not earlier than the first anniversary of the Effective Time, (iii) sell at their own expense one or several European style call options at exercise prices no less than 120% of the then current market value and with expiration dates not earlier than the first anniversary of the Effective Time, and (iv) pledge shares of Parent Common Stock as security for loans so long as the pledgee agrees in a writing reasonably satisfactory to the Parent that (A) such shares in the hands of the pledgee remain subject to the provisions of this Section 1.3(c) and (B) are restricted securities under applicable federal securities laws. The "Lock-Up Period" shall be for a period beginning on the Closing Date and (i) for 15% of each of the Stockholders Lock-Up Shares, ending on the date that is 180 days following the Closing Date, and (ii) for 85% of each of the Stockholders Lock-Up Shares, ending on the date that is one (1) year following the Closing Date. Nothing contained in this Section 1.3(c) shall prevent the Parent and the holders of the Preferred Stock Consideration Shares from entering into a different lock-up agreement with respect to the shares of Parent Common Stock delivered to such holders pursuant to Section 1.2(b) above, in which case the provisions of this Section 1.3(c) shall be deemed modified by such different lock-up agreement with respect to such holders and such shares of Parent Common Stock only. (d) Concerning Rule 144 Sales. For a period of four (4) years from the Closing Date, any sales by the Stockholders of Reorganization Common Stock pursuant to Rule 144, shall be effected through the Designated Broker and, if requested by the Parent, the Custodial Banks. The Parent shall use its best reasonable efforts to obtain favorable commission rates (similar to large institutional rates) from the Designated Broker. Section 1.4 The Closing. Unless this Agreement shall have been terminated and the transactions herein contemplated shall have been abandoned pursuant to Section 8.1, and subject to the satisfaction or waiver of the conditions set forth in Article VII, the closing of the Securities Purchase shall take place at a closing (the "Closing") to be held at 10:00 a.m., California time no later than the second business day after satisfaction (or waiver if permissible) of the conditions set forth in Article VII (the "Closing Date"), at the offices of Gray Cary Ware & Freidenrich LLP, 139 Townsend Street, Suite 400, San Francisco, California, unless another date, time or place is agreed to in writing by the parties hereto. Section 1.5 Record Transfer of Company Securities; Parent as Purchaser. As promptly as possible after the Closing, the Company shall cause the respective Company Securities to be transferred of record into the name of Newco on the books and records of the Company. Promptly thereafter, Newco shall take the necessary board of director action to authorize the Merger under Section 253 of the Delaware General Corporation Law (the "DGCL"). Notwithstanding the other provisions of this Article I, the Parent may elect to purchase the Company Securities (in lieu of Newco purchasing the Company Securities) in accordance with the provisions of this Article I. In such event, the Parent shall promptly contribute the Company Securities to the capital of Newco, so that they may be transferred of record into the name of Newco. Section 1.6 Treatment of Options. (a) Effective upon the Closing, each unexpired and unexercised option to purchase shares of Company Common Stock (each a "Company Option") under the Company's 6 1997 Stock Option Plan, as amended through April 7, 1999 (the "Company Stock Option Plan") shall be deemed to be automatically converted into an option (a "Parent Option") to purchase a number of shares of Parent Common Stock equal to the number of shares of Company Common Stock that could have been purchased under the Company Option multiplied by the Conversion Number (with the resulting number of shares being rounded to the nearest whole share), at a price per share of Parent Common Stock equal to the option exercise price of the Company Option, divided by the Conversion Number provided, that there shall be no accelerated exercisability of any Company Option solely as a result of consummation of the Merger except as provided in employment contracts in effect as of the date hereof and, provided further, the shares of Parent Common Stock issuable upon exercise of the Parent Option thereof shall be subject to a "lock-up" period of 180 days after the Closing, wherein such shares may not be sold or otherwise disposed, and such "lock up" period shall be provided for under each of the Company Option holder's stock option agreements. The date of grant of the applicable Parent Option shall be the date on which the corresponding Company Option was granted. (b) Effective upon the Closing, the Parent shall (i) assume all of the Company's obligations with respect to Company Options as contemplated by Section 1.6(a) above, (ii) reserve for issuance the number of shares of Parent Common Stock that will become subject to Parent Options in accordance with the terms thereof, and (iii) make available for issuance all shares of Parent Common Stock covered thereby. (c) Not later than one hundred eighty (180) days after the Closing, the Parent shall prepare and file with the SEC a registration statement on Form S-8 (or another appropriate form) registering the number of shares of Parent Common Stock issuable upon the exercise of all Company Options assumed by Parent with Parent Options pursuant to Section 1.6(a) above, and shall use its best efforts to cause the offer and sale of such shares to be registered under the Securities Act and to maintain such registration in effect until the exercise or termination of the Company Options and the termination of all of the Company Stock Option Plan. ARTICLE II THE MERGER Section 2.1 The Merger. As promptly as possible after the Closing and the completion of the matters described in Section 1.5 above but in no event later than thirty (30) days after the Closing, upon the terms and subject to the conditions set forth in this Agreement, and in accordance with Section 253 of the DGCL, Newco shall be merged with and into the Company at the Effective Time (as defined in Section 2.2 below). At the Effective Time, the separate existence of Newco shall cease, and the Company shall continue as the surviving corporation under the name "FIRSTAMERICA AUTOMOTIVE, INC." and as a wholly-owned Subsidiary (as defined in Section 9.5) of the Parent (the Company and Newco are sometimes herein referred to as the "Constituent Corporations" and the Company as the surviving corporation in the Merger is sometimes referred to herein as the "Surviving Corporation"). Section 2.2 Effective Time. As promptly as possible after the Closing and the completion of the matters described in Section 1.5 above but in no event later than thirty (30) days after the Closing, Newco shall file with the Secretary of State of the State of Delaware a 7 certificate of ownership and merger (the "Certificate of Merger") in accordance with the relevant provisions of the DGCL, and shall make all other filings or recordings required under the DGCL. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware, or at such other time as is permissible in accordance with the DGCL and as Newco and Thomas A. Price as agent for the Stockholders (the "Stockholders' Agent") shall agree, as specified in the Certificate of Merger (the time the Merger becomes effective being herein called the "Effective Time"). Section 2.3 Effects of the Merger. The Merger shall have the effects set forth in the applicable provisions of the DGCL. Section 2.4 Certificate of Incorporation; By-Laws. (a) At the Effective Time, and without any further action on the part of the Company or Newco, the Certificate of Incorporation of the Surviving Corporation shall be amended and restated in its entirety to read the same as the certificate of incorporation of Newco immediately prior to the Merger, until thereafter amended as provided therein and under the DGCL. (b) At the Effective Time, and without any further action on the part of the Company or Newco, the By-laws of Newco as in effect at the Effective Time shall be the By-laws of the Surviving Corporation following the Merger, until thereafter amended as provided therein and under the DGCL. Section 2.5 Directors. The directors of Newco at the Effective Time shall be the directors of the Surviving Corporation following the Merger, until the earlier of their resignation or removal or until their respective successors are duly elected and qualified, as the case may be. Section 2.6 Officers. The officers of Newco at the Effective Time shall be the officers of the Surviving Corporation following the Merger, until the earlier of their resignation or removal or until their respective successors are duly elected or appointed and qualified, as the case may be. Section 2.7 Effect on Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of the Company, Newco or any holder of any shares of capital stock of the Company or any shares of capital stock of Newco: (a) Each share of common stock of Newco issued and outstanding immediately prior to the Effective Time shall be converted into one fully paid and non-assessable share of common stock, par value $1.00, of the Surviving Corporation. (b) Each share of Company Common Stock as well as each share of Company Preferred Stock that is owned by the Company or by any Subsidiary of the Company, and each share of the Company Common Stock and Company Preferred Stock that is owned by the Parent, Newco or any other Subsidiary of the Parent, shall automatically be canceled and retired and shall cease to exist, and no cash or other consideration shall be delivered or deliverable in exchange therefor. 8 (c) Except as otherwise provided herein, each issued and outstanding share of the Company Common Stock (other than shares canceled pursuant to Section 2.7(b) and Dissenting Shares (as defined in Section 2.7(d) below) shall be converted into the right to receive, without interest, an amount in cash, without interest, equal to (i) the greater of (A) the average closing price per share of Parent Common Stock as reported on the Composite Tape for the NYSE for the twenty (20) consecutive trading days ending on and including the trading day immediately preceding the day upon which the Effective Time occurs or (B) $13.72, (ii) in either case multiplied by the Conversion Number (the "Merger Consideration"). (d) Notwithstanding anything in this Agreement to the contrary, shares of the Company Common Stock issued and outstanding immediately prior to the Effective Time and held by a holder (if any) who has the right to demand payment for and an appraisal of such shares in accordance with Section 262 of the DGCL, or any successor provision, or Chapter 13 of the California General Corporation Law (the "CGCL"), or any successor provision ("Dissenting Shares"), shall not be converted into a right to receive any Merger Consideration (but shall have the rights set forth in Section 262 of the DGCL (or any successor provision) or Chapter 13 of the CGCL (or any successor provision)) unless such holder fails to perfect or otherwise loses such holder's right to such payment or appraisal, if any. If, after the Effective Time, such holder fails to perfect or loses any such right to appraisal, each such share of such holder shall be treated as a share that had been converted as of the Effective Time into the right to receive Merger Consideration in accordance with this Section 2.7. The Company shall give prompt notice to the Parent of any demands received by the Company for appraisal of shares of the Company Common Stock, and the Parent shall have the right to participate in and approve all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of the Parent, make any payment with respect to, or settle or offer to settle, any such demands or appraisal actions related thereto. Promptly after the Closing, the Parent and Newco shall cause the Company to comply with the notice requirements of Section 262 of the DGCL and/or Chapter 13 of the CGCL (or, in either case, any successor provision). (e) As of the Effective Time, all shares of the Company Common Stock and Company Preferred Stock (other than shares referred to in Section 2.7(d)) issued and outstanding immediately prior to the Effective Time shall no longer be outstanding and shall automatically be canceled and retired and shall cease to exist, and each holder of a certificate representing any such shares of the Company Common Stock shall, to the extent such certificate represents such shares, cease to have any rights with respect thereto, except the right to receive the Merger Consideration to be paid in consideration therefor upon surrender of such certificate in accordance with Section 2.8. Section 2.8 Exchange of Certificates. (a) Prior to the Closing, the Company shall appoint First Union National Bank or another bank or trust company located in the United States which is reasonably satisfactory to the Company to act as exchange agent (the "Exchange Agent") for the payment of the Merger Consideration. At the Closing, the Stockholders shall cause the Company to deposit with the Exchange Agent, for the benefit of the holders of shares of the Company Common Stock, other than the Company or any Subsidiary of the Company or the Parent, Newco or any other 9 Subsidiary of the Parent, for exchange in accordance with this Section 2.8, cash in an amount equal to the aggregate Merger Consideration projected to be paid hereunder (the "Exchange Fund"). (b) As soon as practicable after the Effective Time, each holder of an outstanding certificate or certificates which prior thereto represented shares of the Company Common Stock shall, upon surrender of such certificate or certificates to the Exchange Agent, be entitled to the amount of cash into which the shares of Company Common Stock previously represented by such certificate or certificates surrendered shall have been converted pursuant to this Agreement. The Exchange Agent shall accept such certificates upon compliance with such reasonable terms and conditions as the Exchange Agent may impose to effect an orderly exchange thereof in accordance with normal exchange practices. After the Effective Time, there shall be no further transfer on the records of the Company or its transfer agent of certificates representing shares of the Company Common Stock and if such certificates are presented to the Company for transfer, they shall be canceled against delivery of the applicable Merger Consideration. If any Merger Consideration is to be remitted to a name other than that in which the certificate for the Company Common Stock surrendered for exchange is registered, it shall be a condition of such exchange that the certificate so surrendered shall be properly endorsed, with signature guaranteed, or otherwise in proper form for transfer and that the Person (as defined in Section 9.5) requesting such exchange shall pay to the Company or its transfer agent any transfer or other taxes required by reason of the payment of Merger Consideration to a name other than that of the registered holder of the certificate surrendered, or establish to the satisfaction of the Parent or its transfer agent that such tax has been paid or is not applicable. Until surrender as contemplated by this Section 2.3(b), each certificate for shares of the Company Common Stock shall be deemed at any time after the Effective Time to represent only the right to receive upon surrender the applicable Merger Consideration as contemplated by Section 2.7. No interest will be paid or will accrue on any amount payable as Merger Consideration. (c) Merger Consideration paid upon the surrender for exchange of certificates representing shares of the Company Common Stock in accordance with the terms of this Section 2.8 shall be deemed to have been paid in full satisfaction of all rights pertaining to the shares of the Company Common Stock represented by such certificates. (d) Any portion of the Exchange Fund (including any interest and other income received by the Exchange Agent in respect of all such funds) which remains undistributed to the holders of the certificates representing shares of the Company Common Stock for one year after the Effective Time shall be delivered to the Surviving Corporation, upon demand, and any holders of shares of the Company Common Stock prior to the Merger who have not theretofore complied with this Section 2.8 shall thereafter look only to the Surviving Corporation for payment of their claim for Merger Consideration to which such holders may be entitled. (e) No party to this Agreement shall be liable to any Person (as defined in Section 9.5) in respect of any amount from the Exchange Fund delivered to a public official pursuant to any applicable abandoned property, escheat or similar law, if any certificates representing shares of the Company Common Stock shall not have been surrendered in exchange for Merger Consideration prior to one year after the Effective Time (or immediately prior to such 10 earlier date on which any Merger Consideration would otherwise escheat to or become the property of any governmental entity), and any such amount shall, to the extent permitted by applicable law, become the property of the Surviving Corporation, free and clear of all claims or interest of any Person previously entitled thereto. (f) The Exchange Agent shall invest the cash, included in the Exchange Fund as directed by the Parent, and any interest and other income resulting from such investment shall be the property of, and paid to the Parent. (g) In the event any certificate or certificates representing shares of the Company Common Stock or shall have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such certificate or certificates to be lost, stolen or destroyed, the Exchange Agent will issue in exchange for such lost, stolen or destroyed certificate the Merger Consideration deliverable in respect thereof as determined in accordance with this Section 2.8, provided that the Person to whom the Merger Consideration is paid shall, if requested by the Surviving Corporation and as a condition precedent to the payment thereof, give the Surviving Corporation a bond in such reasonable amount as it may direct or otherwise indemnify the Surviving Corporation in a manner satisfactory to it against any claim that may be made against the Surviving Corporation with respect to the certificate claimed to have been lost, stolen or destroyed. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY Except as disclosed in the Company Disclosure Schedule attached hereto and referring to the representations and warranties in this Agreement (the "Company Disclosure Schedule"), the Company represents and warrants to the Parent and Newco with respect to itself and its Subsidiaries as of the date of this Agreement and, with respect to the Pending Acquisitions, to the Company's knowledge, as follows: Section 3.1 Organization, Standing and Corporate Power. Each of the Company and its Subsidiaries is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to carry on its business as now being conducted. Each of the Company and its Subsidiaries is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) would not have a Material Adverse Effect (as defined in Section 9.5) with respect to the Company. Prior to the date hereof, the Company has delivered to the Parent or its representative complete and correct copies of the respective Certificates of Incorporation and By-laws (or other organizational documents) of the Company and its Subsidiaries as currently in effect. All of the outstanding capital stock of, or other ownership interests in, each of the Subsidiaries is owned of record and beneficially by the Company, free and clear of all Liens. 11 Section 3.2 Subsidiaries; Investments. The Company does not own, directly or indirectly, any capital stock or other ownership interest in any other corporation, partnership, business association, joint venture or other entity. Section 3.3 Capital Structure. The authorized capital stock of the Company consists of (i) 65,000,000 shares of the Company Common Stock and (ii) 10,000 shares of Company Preferred Stock. Subject to any Permitted Changes (as defined in Section 5.1(a)(ii)) there are: (i) 15,207,711 shares of Company Common Stock issued and outstanding (excluding shares held in the treasury of the Company) and held by the stockholders listed on Attachment BB to the Disclosure Schedule; (ii) no shares of Company Common Stock held in the treasury of the Company; (iii) 1,689,867 shares of the Company Common Stock reserved for issuance upon exercise of authorized but unawarded Company Options pursuant to the Company Stock Option Plan; (iv) 1,310,133 shares of Company Common Stock issuable upon exercise of outstanding Company Options, with an exercise price per each awarded but unexercised Company Option as is set forth in Section 3.3 of the Company Disclosure Schedule hereto; (v) 100,000 shares of Company Common Stock reserved for issuance upon conversion of outstanding promissory notes; (vi) 371,700 shares of Company Common Stock reserved for issuance upon exercise of outstanding warrants; (vii) 4,000 shares of Company Preferred Stock issued and outstanding; and (viii) no shares of Company Preferred Stock are held in the treasury of the Company. Except as set forth above, no shares of capital stock or other equity securities of the Company are issued, reserved for issuance or outstanding. All outstanding shares of capital stock of the Company are, and all shares which may be issued pursuant to the Company Stock Option Plan will be, when issued, duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. Except as set forth above, there are no outstanding bonds, debentures, notes or other indebtedness or other securities of the Company having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which stockholders of the Company may vote. Except as set forth above, there are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Company is a party or by which it is bound obligating the Company to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of capital stock or other equity or voting securities of the Company or obligating the Company to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. There are no outstanding contractual obligations, commitments, understandings or arrangements of the Company to repurchase, redeem or otherwise acquire or make any payment in respect of any shares of capital stock of the Company and, except as set forth in the Stockholder Agreement and this Agreement, there are no irrevocable proxies with respect to shares of capital stock of the Company. There are no agreements or arrangements pursuant to which the Company is or could be required to register shares of the Company Common Stock or other securities under the Securities Act, or other agreements or arrangements with or, to the knowledge of Company, among any security holders of the Company ith respect to securities of the Company. The Company has no rights plan or similar preferred stock purchase plan or arrangement. Section 3.4 Authority; Noncontravention. (a) The Company has the requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated hereby. The execution and 12 delivery of this Agreement by the Company and the consummation by the Company of the transactions contemplated hereby, including the Reorganization, have been duly authorized by the Board of Directors of the Company. (b) This Agreement has been duly executed and delivered by the Company and constitutes a valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or similar laws, now or hereafter in effect, affecting creditors, rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) The execution and delivery of this Agreement does not, and the consummation by the Company of the transactions contemplated by this Agreement and compliance by the Company with the provisions hereof will not, conflict with, or result in any breach or violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation, or any loss of a material benefit under, or result in the creation of any Lien (as defined in Section 9.5) upon any of the properties or assets of the Company or any of its Subsidiaries under (i) the Certificate of Incorporation or By-laws (or other organizational documents) of the Company or any of its Subsidiaries, (ii) any loan or credit agreement, note, note purchase agreement, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to the Company or any of its Subsidiaries or any of their respective properties or assets, or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule, regulation or arbitration award applicable to the Company or any of its Subsidiaries or any of their properties or assets, other than, in the case of clauses (ii) and (iii), any such conflicts, breaches, violations, defaults, rights, losses or Liens that individually or in the aggregate would not have a Material Adverse Effect with respect to the Company or could not prevent, materially hinder or materially delay the ability of the Company to consummate the transactions contemplated by this Agreement. (d) No consent, approval, order or authorization of, or registration, declaration or filing with, or notice to, any federal, state or local government or any court, administrative agency or commission or other governmental authority or agency, domestic or foreign (a "Governmental Entity"), is required by or with respect to the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement by the Company or the consummation by the Company of the transactions contemplated hereby, except for (i) the filing of a pre-merger notification and report form by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), (ii) the filing with the SEC of such reports under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated by this Agreement, (iii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business, and (iv) such other consents, approvals, orders, authorizations, registrations, declarations, filings or notices the failure of which to make or obtain, individually or in the aggregate, would not (x) prevent or materially delay consummation of the Reorganization or (y) have a Material Adverse Effect with respect to the Company. 13 Section 3.5 SEC Documents. The Company has filed with the SEC all reports, schedules, forms, statements and other documents required pursuant to the Securities Act and the Exchange Act since January 1, 1998, including, without limitation, the Amendment No. 4 to the Company's Registration Statement on Form S-1 (Registration No. 333-75907) (such Amendment No. 4 being herein called the "Form S-1") and the Company's quarterly report on Form 10-Q for the period ended June 30, 1999 (collectively, and in each case including all exhibits and schedules thereto and documents incorporated by reference therein, the "SEC Documents"). As of their respective dates, the Form S-1 and the other SEC Documents complied in all material respects with the requirements of the Securities Act, or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such SEC Documents, and none of the SEC Documents (including any and all financial statements included therein) as of such dates contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The consolidated financial statements of the Company included in all SEC Documents filed since January 1, 1998 (the "SEC Financial Statements") and the Company's pro-forma consolidated financial statements set forth in the Form S-1 comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited consolidated quarterly statements, as permitted by Form 10-Q of the SEC), applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in accordance with generally accepted accounting principles the consolidated financial position of the Company (and its Subsidiaries) as of the dates thereof and the consolidated results of its operations and cash flows for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end audit adjustments). Section 3.6 [INTENTIONALLY LEFT BLANK] Section 3.7 Litigation. There is (i) no suit, action or proceeding pending, and (ii) to the knowledge of the Company, no suit, action or proceeding threatened against or investigation pending with respect to the Company or any of its Subsidiaries that, individually or in the aggregate, would have a Material Adverse Effect with respect to the Company or prevent, materially hinder or materially delay the ability of the Company to consummate the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Company which, individually or in the aggregate, would have any such Material Adverse Effect. Section 3.8 Labor Matters. (i) There are no labor strikes, disputes, slowdowns, stoppages or lockouts actually pending, or, to the knowledge of the Company, threatened against or affecting Company or any of its Subsidiaries and during the past five years there have been no such actions; (ii) the Company is not a party to or bound by any collective bargaining or similar agreement with any labor organization, or by any work rules or practices agreed to with any labor organization or employee association applicable to employees of the Company or any of its Subsidiaries; (iii) to the knowledge of the Company, there are no current union organizing activities among the employees of the Company or any of its Subsidiaries; (iv) true, correct and complete copies of all written personnel policies, rules or procedures applicable to employees of 14 the Company and its Subsidiaries have been made available to the Parent; (v) there are no material complaints, charges, arbitrations, controversies, lawsuits or other proceedings pending or, to the knowledge of the Company, threatened in any forum against the Company or any of its Subsidiaries alleging breach of any express or implied contract of employment, any law or regulation governing employment or the termination thereof or other discriminatory, wrongful or tortious conduct in connection with the employment relationship; (vi) there are no employment contracts or severance agreements with any employees of the Company or any of its Subsidiaries; and (vii) since the enactment of the Worker Adjustment and Retraining Notification Act of 1988 (the "WARN Act"), the Company has not effectuated (A) a "plant closing" (as defined in the WARN Act) affecting any site of employment or one or more facilities or operating units within any site of employment or facility of the Company or any of its Subsidiaries, or (B) a "mass layoff" (as defined in the WARN Act) affecting any site of employment or facility of the Company or any of its Subsidiaries; nor has the Company or any of its Subsidiaries engaged in layoffs or employment terminations sufficient in number to trigger application of any similar state or local law. Section 3.9 Employee Benefit Plans. (a) Section 3.9 of the Company Disclosure Schedule hereto contains a true and complete list of each written and material unwritten "employee benefit plan" (within the meaning of section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") (including, without limitation, multiemployer plans within the meaning of ERISA Section 3(37)), stock purchase, stock option, severance, employment, change-in-control, fringe benefit, collective bargaining, bonus, incentive, deferred compensation and all other employee benefit plans, agreements, programs, policies or other arrangements relating to employment, benefits or entitlements, whether or not subject to ERISA (including any funding mechanism therefor now in effect or required in the future as a result of the transaction contemplated by this Agreement or otherwise), under which any employee or former employee of the Company or any of its Subsidiaries has any present or future right to benefits or under which the Company or any of its Subsidiaries has any present or future liability. All such plans, agreements, programs, policies and arrangements shall be collectively referred to as the "Company Plans." (b) With respect to each Company Plan, the Company has made available to the Parent a current, accurate and complete copy (or, to the extent no such copy exists, an accurate description) thereof and, to the extent applicable, (i) any related trust agreement, annuity contract or other funding instrument; (ii) the most recent determination letter; (iii) any summary plan description and other written communications by the Company to its employees concerning the extent of the benefits provided under a Company Plan; and (iv) for the three most recent years (I) the Form 5500 and attached schedules; (II) audited financial statements; and (III) actuarial valuation reports. (c) (i) Each Company Plan has been established and administered in accordance with its terms, and in compliance with the applicable provisions of ERISA, the Code and other applicable federal and state laws, rules and regulations, in each case, in all material respects; (ii) each Company Plan which is intended to be qualified within the meaning of Code Section 401(a) has received a favorable determination letter as to its qualification and to the knowledge of the Company nothing has occurred, whether by action or failure to act, which 15 would cause the loss of such qualification; (iii) with respect to any Company Plan, no material actions, suits or claims (other than routine claims for benefits in the ordinary course) are pending or, to the knowledge of the Company, threatened, and, to the knowledge of the Company, no facts or circumstances exist which could give rise to any such material actions, suits or claims, and the Company will promptly notify the Parent in writing of any pending claims or, to the knowledge of the Company, any threatened claims arising between the date hereof and the Effective Time; (iv) neither the Company or any of its Subsidiaries nor, to the knowledge of the Company, any other party has engaged in a prohibited transaction, as such term is defined under Code Section 4975 or ERISA Section 406, which would subject the Company or the Parent to any material taxes, penalties or other liabilities under the Code or ERISA; (v) no event has occurred and no condition exists that would subject the Company, either directly or by reason of its affiliation with any member of its "Controlled Group" (defined as any organization which is a member of a controlled group of organizations within the meaning of Code Sections 414(b), (c), or (m)), to any material tax, fine or penalty imposed by ERISA, the Code or other applicable federal and state laws, rules and regulations; (vi) all insurance premiums required to be paid and all contributions required to be made under the terms of any Company Plan, the Code, ERISA or other applicable federal and state laws, rules and regulations (including the applicable laws, rules and regulations of any foreign jurisdiction) as of the Effective Time have been or will be timely paid or made prior thereto and adequate reserves have been provided for on the Company's balance sheet for any premiums (or portions thereof) and for all benefits attributable to service on or prior to the Effective Time; (vii) for each Company Plan with respect to which a Form 5500 has been filed, to the knowledge of the Company, no material change has occurred with respect to the matters covered by the most recent Form 5500 since the date thereof; and (viii) no Company Plan provides for a material increase in benefits on or after the Effective Time. (d) The Company does not now, nor has it ever, maintained, established, sponsored, participated in, or contributed to any pension plan which is subject to Title IV of ERISA or Section 412 of the Code. (e) With respect to any multiemployer plan (within the meaning of Section 4001(a)(3) of ERISA) to which the Company or any member of its Controlled Group has any liability or contributes (or has at any time contributed or had an obligation to contribute): (i) the Company and each member of its Controlled Group has or will have, as of the Effective Time, made all contributions to each such multiemployer plan required by the terms of such multiemployer plan or any collective bargaining agreement; (ii) neither the Company nor any member of its Controlled Group has incurred any material withdrawal liability under Title IV of ERISA or would be subject to such liability if, as of the Closing, the Company or any member of its Controlled Group were to engage in a complete withdrawal (as defined in ERISA Section 4203) or partial withdrawal (as defined in ERISA Section 4205) from any such multiemployer plan; (iii) no such multiemployer plan is in reorganization or is insolvent (as those terms are defined in ERISA Sections 4241 and 4245, respectively); and (iv) neither the Company nor any member of its Controlled Group has engaged in a transaction which could subject it to liability under ERISA Section 4212(c). (f) (i) Each Company Plan which is intended to meet the requirements for tax-favored treatment under Subchapter B of Chapter 1 of Subtitle A of the Code meets such 16 requirements; and (ii) the Company has received a favorable determination from the Internal Revenue Service with respect to any trust intended to be qualified within the meaning of Code Section 501(c)(9). (g) Section 3.9 of the Company Disclosure Schedule hereto sets forth, on a plan by plan basis, the present value of benefits payable presently or in the future to present or former employees of the Company under each unfunded Company Plan that must be accounted for in accordance with SFAS No. 87 or 106. (h) No Company Plan exists which could result in the payment to any Company employee of any money or other property or rights or accelerate or provide any other rights or benefits to any Company employee as a result of the transaction contemplated by this Agreement, whether or not such payment would constitute a parachute payment within the meaning of Code Section 280G. Section 3.10 Tax Returns and Tax Payments. (a) The Company and each of its Subsidiaries, and any consolidated, combined, unitary or aggregate group for Tax purposes of which the Company or any of its Subsidiaries is or has been a member (a "Consolidated Group") has timely filed all Tax Returns required to be filed by it, in material compliance with all applicable laws, and such Tax Returns are complete and correct in all material respects, has timely paid all Taxes required to be shown thereon to be due and has provided adequate reserves in its financial statements for any Taxes that have not been paid, whether or not shown as being due on any Tax Returns. Additionally, (i) no material claim for unpaid Taxes has become a lien against the property of the Company or a member of any Consolidated Group or is being asserted against the Company or a member of any Consolidated Group except for liens for Taxes not yet due and payable; (ii) no audit of any Tax Return of the Company or a member of any Consolidated Group is pending, being conducted or, to the knowledge of the Company, threatened by a Tax authority; (iii) no extension of the statute of limitations on the assessment of any Taxes has been granted by the Company or a member of any Consolidated Group and is currently in effect; (iv) no consent under Section 341(f) of the Code has been filed with respect to the Company; (v) the Company is not a party to any agreement or arrangement that would result, separately or in the aggregate, in the actual or deemed payment by the Company of any "excess parachute payments" within the meaning of Section 280G of the Code; (vi) no acceleration of the vesting schedule for any property that is substantially unvested within the meaning of the regulations under Section 83 of the Code will occur in connection with the transactions contemplated by this Agreement; (vii) the Company is not and has not been at any time a member of any partnership or joint venture or the holder of a beneficial interest in any trust for any period for which the statute of limitations for any Tax has not expired; (viii) the Company has not been at any time a member of an affiliated group of corporations for purposes of Section 1501 of the Code that have filed consolidated returns except as a member of a Consolidated Group of which the Company is the common parent; (ix) the Company is not a party to any tax sharing or allocation agreement, nor has it given any indemnity against Taxes imposed on any other Person, that has not expired by its terms or otherwise have been terminated and for which no amount is claimed to be owed; (x) the Company has not been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) 17 of the Code; (xi) the Company is neither doing business in nor engaged in a trade or business in any jurisdiction in which it has not filed all required income or franchise tax returns; (xii) the Company has made all payments of estimated Taxes required to be made under Section 6655 of the Code and any comparable state, local or foreign Tax provision; (xiii) all Taxes required to be withheld, collected or deposited by or with respect to the Company have been timely withheld, collected or deposited, as the case may be, and, to the extent required, have been paid to the relevant taxing authority; (xiv) the Company has not issued or assumed (A) any obligations described in Section 279(a) of the Code, (B) any applicable high yield discount obligations, as defined in Section 163(i) of the Code, or (C) any registration-required obligations, within the meaning of Section 163(f)(2) of the Code, that are not in registered form; (xv) there are no proposed reassessments of any property owned by the Company or other proposals that could materially increase the amount of any Tax to which the Company would be subject, except any reassessment of property required as a result of the Reorganization; and (xvi) there is no power of attorney currently in force with respect to any matter relating to Taxes that could materially affect the Tax liability of the Company. As used herein, "Taxes" shall mean all taxes of any kind, including, without limitation, those on or measured by or referred to as income, gross receipts, sales, use, ad valorem, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, value added, property or windfall profits taxes, customs, duties or similar fees, assessments or charges of any kind whatsoever, or combination of two or more of the foregoing, together with any interest and any penalties, additions to tax or additional amounts imposed by any governmental authority, domestic or foreign. As used herein, "Tax Return" shall mean any return, report or statement required to be filed with any governmental authority with respect to Taxes. Section 3.11 Brokers. No broker, investment banker, financial advisor or other Person, other than Merrill Lynch Pierce Fenner & Smith Incorporated and NCM Associates, Inc., the fees and expenses of which will be paid by the Company (pursuant to fee agreements, copies of which have been provided to the Parent), is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company. Section 3.12 [INTENTIONALLY LEFT BLANK] Section 3.13 [INTENTIONALLY LEFT BLANK] Section 3.14 [INTENTIONALLY LEFT BLANK] Section 3.15 Title to Assets; Related Matters. Each of the Company and its Subsidiaries has good and valid title to all assets, rights, interests and other properties, real, personal and mixed, tangible and intangible, owned by it (collectively, the "Assets"), free and clear of all Liens, except those Liens which, individually or in the aggregate, would not have a Material Adverse Effect on the Company. The Assets include all properties and assets (real, personal and mixed, tangible and intangible) owned by the Company and its Subsidiaries and used in the conduct of their respective businesses. The tangible assets included within the Assets are in the possession or control of the Company and its Subsidiaries and no other person or entity has a right to possession or claims possession of all or a material part of such Assets. 18 Section 3.16 Accounts Receivable. All accounts receivable of the Company and its Subsidiaries are collectible at the aggregate recorded amounts thereof, subject to the reserve for doubtful accounts maintained by the Company and its Subsidiaries in the ordinary course of business, and are not subject to any known counterclaims or setoffs. An adequate reserve for doubtful accounts for the Company and its Subsidiaries has been established and such reserve is consistent with the operation of the Company in both the ordinary course of business and past practice. Section 3.17 Inventories. All inventories of the Company and its Subsidiaries consist of items of a quality and quantity usable and saleable in the ordinary course of business of the Company and its Subsidiaries, and the levels of inventories are consistent with the levels maintained by the Company and its Subsidiaries in the ordinary course consistent with past practice and the Company's obligations under its agreements with the Manufacturers and all applicable distributors. An adequate reserve has been established by the Company for damaged, spoiled, obsolete, defective, or slow-moving goods and such reserve is consistent with both the operation of the Company in the ordinary course of business and past practice. Section 3.18 1999 Pro Forma Pre-Tax Earnings. The consolidated pro forma pre-tax earnings of the Company and its Subsidiaries for the calendar year 2000, subject to the adjustments enumerated and described in Exhibit C hereto, shall be at least Forty-Five Million Dollars ($45,000,000). Section 3.19 Real Property; Machinery and Equipment. (a) Owned Real Property. None of the Company or its Subsidiaries own, or has owned, any real property. (b) Leased Premises. Schedule 3.19(b) hereto contains a complete list and brief description of all real property of which the Company or any of its Subsidiaries is a tenant (herein collectively referred to as the "Leased Premises" or the "Real Property." True, correct and complete copies of all leases of all Leased Premises (the "Leases") have been made available to the Parent. To the Company's knowledge, the Leased Premises (including, without limitation, the roof, the walls and all plumbing, wiring, electrical, heating, air conditioning, fire protection and other systems, as well as all paved areas, included therein or located thereat) are in good working order, condition and repair, except for such exceptions as would not be material to the business of the Company and its Subsidiaries. To the Company's knowledge, with respect to each Lease, no event or condition currently exists which would give rise to a material repair or restoration obligation of the Company or any Subsidiary if such Lease were to terminate. The Company has no knowledge of any event or condition which currently exists which would create a legal or other material impediment to the use of the Leased Premises as currently used, or would increase the additional charges or other sums payable by the tenant under any of the Leases other than as set forth in such Leases (including, without limitation, any pending tax reassessment or other special assessment affecting the Leased Premises). (c) Claims. There has been no work performed, services rendered or materials furnished in connection with repairs, improvements, construction, alteration, demolition or similar activities with respect to the Leased Premises by or on behalf of the 19 Company or its Subsidiaries for at least ninety (90) days before the date hereof; there are no outstanding claims or persons entitled to any claim or right to a claim for a mechanics' or materialman's lien against the Leased Premises with respect to work performed for the Company or its Subsidiaries; and there is no person or entity other than the Company and its Subsidiaries in, or, to the Company's knowledge, entitled to, possession of the Leased Premises. (d) Easements, Etc. The Company and its Subsidiaries have all rights under the various Leases concerning utilities, access, ingress and egress, necessary to conduct the business the Company and its Subsidiaries now conduct. (e) Condemnation. To the Company's knowledge, neither the whole nor any portion of any of the Leased Premises has been condemned, expropriated, ordered to be sold or otherwise taken by any public authority, with or without payment or compensation therefor, and the Company has not received notice that any such condemnation, expropriation, sale or taking is threatened or contemplated. (f) Zoning, Etc. None of the Leased Premises is in material violation of any applicable recorded covenant, condition or restriction or other deed restriction, or any applicable government building, zoning, health, safety, fire or other law, ordinance, code or regulation that would materially and adversely affect the ability of the Company or its Subsidiaries to conduct their respective business as presently conducted, and no notice from any governmental body has been served upon the Company or any of its Subsidiaries or, to the Company's knowledge, upon any of the landlords of the Leased Premises claiming any violation of any such law, ordinance, code or regulation or requiring or calling to the attention of the Company or any of its Subsidiaries the need for any work, repair, construction, alterations or installation on or in connection with said properties which has not been complied with. (g) Maintenance of Equipment. All material machinery, equipment, motor vehicles, furniture and fixtures, whether owned or leased by the Company and its Subsidiaries, and used in the conduct of its business, are in reasonably good operating condition, maintenance and repair in accordance with applicable industry standards taking into account the age thereof. Section 3.20 Patents; Trademarks; Trade Names; Copyrights; Licenses; Etc. (a) Excluding "off the shelf" or other software available through regular commercial distribution channels on standard terms and conditions as modified for the Company's operations, there are no patents, trademarks, trade names, service marks, service names and copyrights, and there are no applications therefor or licenses thereof, inventions, trade secrets, computer software, logos, slogans, proprietary processes and formulae or other proprietary information, know-how and intellectual property rights, whether patentable or unpatentable, that are owned or leased by the Company or any of its Subsidiaries or used in the conduct of the Company's or any of its Subsidiaries' businesses. Neither the Company nor any of its Subsidiaries is a party to, and the Company and its Subsidiaries pay no royalty to anyone under, any license or similar agreement. There is no existing claim, or, to the knowledge of the Company, any basis for any claim, against the Company or any of its Subsidiaries that any of its operations, activities or products infringe the patents, trademarks, trade names, copyrights or 20 other intellectual property rights of others or that the Company or any of its Subsidiaries is wrongfully or otherwise using the intellectual property rights of others. (b) The Company and its Subsidiaries have the right to use their respective names in the States in which they conduct their businesses, and to the knowledge of the Company, no person uses, or has the right to use, such name or any derivation thereof in connection with the manufacture, sale, marketing or distribution of products or services commonly associated with an automobile dealership. Section 3.21 Certain Liabilities. (a) All accounts payable by the Company and its Subsidiaries to third parties as of the date hereof arose in the ordinary course of business and none are delinquent or past-due. (b) Section 3.21 of the Company Disclosure Schedule hereto sets forth a list and brief description of all indebtedness of the Company and its Subsidiaries, other than accounts payable, as of June 30, 1999 the close of business on the day preceding the date hereof, including, without limitation, money borrowed, indebtedness of the Company or its Subsidiaries owed to stockholders and former stockholders, the deferred purchase price of assets, letters of credit and capitalized leases. Section 3.22 No Undisclosed Liabilities. Neither the Company nor any of its Subsidiaries has any material liabilities or obligations of any nature, known or unknown, fixed or contingent, matured or unmatured, other than those (a) reflected in the SEC Financial Statements, (b) incurred in the ordinary course of business since June 30, 1999, and of the type and kind reflected in the SEC Financial Statements, or (c) disclosed specifically on Section 3.22 of the Company Disclosure Schedule hereto or otherwise specifically disclosed in this Agreement or the other schedules hereto. Section 3.23 Absence of Changes. Since June 30, 1999, the business of the Company and its Subsidiaries has been operated in the ordinary course, consistent with past practices and hereto, there has not been incurred, nor has there occurred: (a) Any damage, destruction or loss to the property of the Company or its Subsidiaries or the Leased Premises (whether or not covered by insurance), adversely affecting the business or assets of the Company or its Subsidiaries in excess of $50,000; (b) Any strikes, work stoppages or other labor disputes involving the employees of the Company or its Subsidiaries; (c) Any sale, transfer, pledge or other disposition of any of the assets of the Company or its Subsidiaries having an aggregate book value of $50,000 or more (except sales of vehicles and parts inventory in the ordinary course of business); (d) Any declaration or payment of any dividend or other distribution in respect of its capital stock or any redemption, repurchase or other acquisition of its capital stock; (e) Any amendment, termination, waiver or cancellation of any Material Agreement (as defined in Section 3.28 hereof) or any termination, amendment, waiver or cancellation of any material right or claim of the Company or any of its Subsidiaries under any Material Agreement (except in each case in the ordinary course of business and consistent with past practice); (f) Any (1) general uniform increase in the compensation of the employees of the Company or any of its Subsidiaries (including, without limitation, any increase pursuant to any bonus, pension, profit-sharing, deferred compensation or other plan or commitment), (2) increase in any such 21 compensation payable to any individual officer, director, consultant or agent thereof, or (3) loan or commitment therefor made by the Company or any of its Subsidiaries to any officer, director, stockholder, employee, consultant or agent of the Company or any of its Subsidiaries; (g) Any change in the accounting methods, procedures or practices followed by the Company and its Subsidiaries or any change in depreciation or amortization policies or rates theretofore adopted by the Company; (h) Any material change in policies, operations or practices of the Company and its Subsidiaries with respect to business operations followed by the Company and its Subsidiaries, including, without limitation, with respect to selling methods, returns, discounts or other terms of sale, or with respect to the policies, operations or practices of the Company and its Subsidiaries concerning the employees of the Company and its Subsidiaries; (i) Any capital appropriation or expenditure or commitment therefor on behalf of the Company or any of its Subsidiaries in excess of $50,000 individually or $100,000 in the aggregate; (j) Any write-down or write-up of the value of any inventory or equipment of the Company or any of its Subsidiaries or any increase in inventory levels in excess of historical levels for comparable periods; (k) Any account receivable in excess of $50,000 or note receivable in excess of $50,000 owing to the Company or any of its Subsidiaries which (1) has been written off as uncollectible, in whole or in part, (2) has had asserted against it any claim, refusal or right of setoff, or (3) the account or note debtor has refused to, or threatened not to, pay for any reason, or such account or note debtor has become insolvent or bankrupt; (l) Any other change in the condition (financial or otherwise), business operations, assets, earnings, business or prospects of the Company or any of its Subsidiaries which has, or could reasonably be expected to have, a Material Adverse Effect on the assets, business or operations of the Company or any of its Subsidiaries; or (m) Any agreement, whether in writing or otherwise, for the Company or any of its Subsidiaries to take any of the actions enumerated in this Section 3.23. Section 3.24 Compliance with Laws, Etc. Each of the Company and its Subsidiaries has conducted its operations and business in compliance in all material respects, with, and all of the Assets (including the Leased Premises) comply with, (i) all laws, rules, regulations and codes (including, without limitation, any laws, rules, regulations and codes relating to anticompetitive practices, contracts, discrimination, employee benefits, employment, health, safety, fire, building and zoning, but excluding Environmental Laws which are the subject of Section 3.34 hereof) which are material to the Company and its Subsidiaries and its operations and (ii) all applicable orders, rules, writs, judgments, injunctions, decrees and ordinances which are material to the Company and its Subsidiaries and its operations. The Company and its Subsidiaries have not received any notification of any asserted present or past failure by it to comply with such laws, rules or regulations, or such orders, writs, judgments, injunctions, decrees or ordinances. Set forth in Section 3.24 of the Company Disclosure Schedule hereto are all orders, writs, judgments, injunctions, decrees and other awards of any court or governmental agency applicable to the Company and/or its Subsidiaries and/or their respective businesses or operations. The Company has made available to the Parent copies of all reports, if any, of the Company required to be submitted under the Federal Occupational Safety and Health Act of 1970, as amended, and under all other applicable health and safety laws and regulations. The deficiencies, if any, noted on such reports have been corrected by the Company and any deficiencies noted by inspection through the Closing Date will have been corrected by the Company by the Closing Date. Section 3.25 Permits, Etc. Each of the Company and its Subsidiaries has all material governmental licenses, permits, approvals, certificates of inspection and other authorizations, 22 filings and registrations (collectively "Permits") that are necessary for the Company and its Subsidiaries to own and operate their respective businesses as presently conducted in all material respects. All such Permits have been duly and lawfully secured or made by the Company and its Subsidiaries and are in full force and effect. There is no proceeding pending, or, to the Company's knowledge, threatened or probable of assertion, to revoke or limit any Permit. Section 3.26 Compensation. Section 3.26 of the Company Disclosure Schedule contains a list of employees (1) whose base salary for 1999 is in excess of $100,000, (2) whose base salary for 1999 is less than $100,000, but who have earned more than $100,000 in 1999 to date, and (3) whose earnings to date in 1999, when annualized for the full year, would equal or exceed $100,000. Section 3.27 Powers of Attorney. There are no persons, firms, associations, corporations or business organizations or entities holding general or special powers of attorney from the Company or any of its Subsidiaries. Section 3.28 Material Agreements. (a) List of Material Agreements. Set forth in Section 3.28(a) of the Company Disclosure Schedule hereto is a list of all leases and all other contracts, agreements, documents, instruments, guarantees, plans, understandings or arrangements, written or oral, which are material to the Company and its Subsidiaries or their respective businesses or assets (collectively, the "Material Agreements"). True copies of all written Material Agreements and written summaries of all oral Material Agreements described or required to be described in Section 3.28(a) of the Company Disclosure Schedule have been made available to Parent. (b) Performance, Defaults, Enforceability. Each of the Company and its Subsidiaries has in all material respects performed all of its obligations required to be performed by it to the date hereof, and is not in default or alleged to be in default in any material respect, under any Material Agreement, and there exists no event, condition or occurrence which, after notice or lapse of time or both, would constitute such a default. To the knowledge of the Company, no other party to any Material Agreement is in default in any material respect of any of its obligations thereunder. Each of the Material Agreements is valid and in full force and effect and enforceable against the parties thereto in accordance with their respective terms, and the consummation of the transactions contemplated by this Agreement will not (i) require the consent of any party thereto or (ii) constitute an event permitting termination thereof. (c) Schedule of Acceleration. Section 3.28(c) of the Company Disclosure Schedule sets forth all Material Agreements which contain terms requiring the acceleration of payments upon a change of control of the Company. All of such amounts other than principal and interest on debt will be included in the one-time charges referred to in Section 5A.7(d). Section 3.29 [INTENTIONALLY LEFT BLANK] Section 3.30 Insurance. (a) Section 3.30(a) of the Company Disclosure Schedule hereto contains a list of all policies of liability, theft, fidelity, life, fire, product liability, workmen's compensation, 23 health and any other insurance and bonds maintained by, or on behalf of, the Company and its Subsidiaries on their respective properties, operations, inventories, assets, business or personnel (specifying the insurer, amount of coverage, type of insurance, policy number and any pending claims in excess of $5,000 thereunder). Each such insurance policy identified therein is and shall remain in full force and effect on and as of the Closing Date and the Company and its Subsidiaries are not in default in any material respect to any provision contained in any such insurance policy and has not failed to give any notice or present any material claim under any such insurance policy in a due and timely fashion. To the knowledge of the Company, the insurance maintained by, or on behalf of, the Company and its Subsidiaries is adequate in accordance with the standards of business of comparable size in the location and industry in which the Company operates and no notice of cancellation or termination has been received with respect to any such policy. The Company and its Subsidiaries have not, since July 1997, been denied or had revoked or rescinded any policy of insurance. (b) Set forth in Section 3.30(b) of the Company Disclosure Schedule hereto is a summary of information pertaining to material property damage and personal injury claims in excess of $5,000 against the Company since July 1997, all of which are fully satisfied or are being defended by the insurance carrier and, to the knowledge of the Company, involve no exposure to the Company. Section 3.31 Warranties. Set forth in Section 3.31 of the Company Disclosure Schedule hereto are descriptions or copies of the forms of all express warranties and disclaimers of warranty made by the Company and its Subsidiaries (separate and distinct from any applicable manufacturers', suppliers' or other third-parties' warranties or disclaimers of warranties) since July 1997 to customers or users of the vehicles, parts, products or services of the Company and its Subsidiaries. There have been no breach of warranty or breach of representation claims against the Company and its Subsidiaries since July 1997 which have resulted in any cost, expenditure or exposure to the Company and its Subsidiaries of more than $50,000 individually or $200,000 in the aggregate. Section 3.32 Directors and Officers. Set forth in Section 3.32 of the Company Disclosure Schedule hereto is a true and correct list of the names and titles of each director and officer of the Company. Section 3.33 Suppliers and Customers. The Company and its Subsidiaries are not required to provide bonding or any other security arrangements in connection with any transactions with any of its respective customers and suppliers. To the knowledge of the Company, no such supplier, customer or creditor intends or has threatened, or reasonably could be expected, to terminate or modify any of its relationships with the Company or any of its Subsidiaries. Section 3.34 Environmental Matters. (a) For purposes of this Section 3.34, the following terms shall have the following meaning: (i) "Environmental Law" means all applicable present federal, state and local laws, statutes, regulations, rules, ordinances and common law, and all applicable judgments, decrees, orders, agreements, or permits, issued, promulgated, approved or entered 24 thereunder by any government authority relating to pollution, Hazardous Materials, worker safety or protection of human health or the environment; (ii) "Hazardous Materials" means any waste, pollutant, chemical, hazardous material, hazardous substance, toxic substance, hazardous waste, special waste, solid waste, asbestos, radioactive materials, polychlorinated biphenyls, petroleum or petroleum-derived substance or waste (regardless of specific gravity), or any constituent or decomposition product of any such pollutant, material, substance or waste, including, but not limited to, any hazardous substance or constituent contained within any waste and any other pollutant, material, substance or waste regulated under or as defined by any Environmental Law. (b) The Company and its Subsidiaries have obtained all permits, licenses and other authorizations or approvals required under Environmental Laws for the conduct and operation of the Assets and the business of the Company ("Environmental Permits"). All such Environmental Permits are in good standing, the Company and its Subsidiaries are and, during the period the Company and its Subsidiaries have held such Environmental Permits, have been, in compliance in all material respects with the terms and conditions of all such Environmental Permits, and no appeal or any other action is pending or, to the Company's knowledge, threatened to revoke any such Environmental Permit. (c) The Company and its Subsidiaries and their respective businesses, operations and assets are, and, during the period the Company and its Subsidiaries have owned, leased, or conducted such business, operations and assets, have been in compliance in all material respects with all Environmental Laws. (d) Neither the Company nor any of its Subsidiaries has received any written order, notice of liability, complaint, request for information, claim, or demand from any government authority or private claimant, whether based in contract, tort, implied or express warranty, strict liability, or any other common law theory, or any criminal or civil statute, arising from or with respect to (i) the presence, release or threatened release of any Hazardous Material or any other environmental condition on, in or under the Real Property or any other property formerly used or leased by the Company, (ii) any other circumstances forming the basis of any actual or alleged violation by the Company or its Subsidiaries of any Environmental Law or any liability of the Company or its Subsidiaries under any Environmental Law, (iii) any remedial or removal action required to be taken by the Company or its Subsidiaries under any Environmental Law, or (iv) any harm, injury or damage to real or personal property, natural resources, the environment or any person alleged to have resulted from the foregoing. Neither the Company nor any of its Subsidiaries has entered into any agreements concerning any removal or remediation of Hazardous Materials. (e) No lawsuits, civil actions, criminal actions, administrative proceedings, investigations or enforcement or other governmental actions are pending or to the Company's knowledge, threatened, under any Environmental Law with respect to the Company or its Subsidiaries or, to the Company's knowledge, the Real Property. (f) The Company has not released, discharged, spilled or disposed of, and, to the knowledge of the Company, the Real Property does not contain, any Hazardous Materials and, to the knowledge of the Company, no Hazardous Materials have migrated onto the Real 25 Property, and, to the knowledge of the Company, no environmental condition exists (including, without limitation, the presence, release, threatened release or disposal of Hazardous Materials) related to the Real Property, to any property previously owned, operated or leased by the Company or any of its Subsidiaries, or to the Company's or any of its Subsidiaries' past or present operations, which would constitute a violation of any Environmental Law or otherwise give rise to costs, liabilities or obligations under any Environmental Law by the Company and any of its Subsidiaries. (g) To the Company's knowledge, neither the Company or any of its Subsidiaries, nor any of their respective predecessors in interest for whom the Company has assumed environmental liability by contract or by operation of law, has transported or disposed of, or arranged for the transportation or disposal of, any Hazardous Materials to any location (i) which is listed on the National Priorities List, the CERCLIS list under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, or any similar federal, state or local list, (ii) which is the subject of any federal, state or local enforcement action or other investigation, or (iii) about which the Company or any of its Subsidiaries has received a potentially responsible party notice under any Environmental Law. (h) To the Company's knowledge, no environmental lien has attached or is threatened to be attached to the Real Property. (i) The Leased Premises do not contain nor, to the knowledge of the Company, does any other property previously owned, operated or leased by the Company or any of its Subsidiaries contain, any: (i) septic tanks into which process wastewater or any Hazardous Materials have been disposed; (ii) asbestos; (iii) polychlorinated biphenyls (PCBs); (iv) underground injection or monitoring wells; or (v) underground storage tanks. (j) Except as made available for review by Parent prior to the date hereof, there have been no environmental assessment studies or reports made relating to the Leased Premises or any other property or facility previously operated or leased by the Company or its Subsidiaries and that are in the Company's possession or control. (k) The Company and its Subsidiaries have not agreed in writing nor, to the Company's knowledge, have they agreed orally to assume, defend, undertake, guarantee, or provide indemnification for, any liability, including, without limitation, any obligation for corrective or remedial action, of any other person or entity under any Environmental Law for environmental matters or conditions. Section 3.35 Year 2000 Matters. The Company's quarterly report on Form 10-Q for the period ended June 30, 1999 truly and completely describes the Company's process and preparation for addressing the impact of its operations that could be adversely affected by the "Year 2000 Problem" (that is, the risk that computer applications used by the Company and its Subsidiaries may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999). Section 3.36 Business Generally. The Company has no knowledge of the existence of any conditions, including, without limitation, any actual or potential competitive factors in the 26 markets in which the Company and its Subsidiaries participate, which have not been disclosed in writing to the Parent and which could reasonably be expected to have a Material Adverse Effect on the Company, other than general business and economic conditions generally affecting the industry and markets in which the Company and its Subsidiaries participate. Section 3.37 Manufacturer Communications. No Manufacturer has (a) notified the Company or any of its Subsidiaries of any deficiency in dealership operations, including, but not limited to, the following areas: (i) brand imaging, (ii) facility conditions, (iii) sales efficiency, (iv) customer satisfaction, (v) warranty work and reimbursement, or (vi) sales incentives except, in the case of (a)(iii), (iv) and (vi) preceding, for such matters the failure of which to cure or comply with could not reasonably be expected to materially adversely affect the Company's relationship with the Manufacturer or affect the Company's ability to complete the Merger; (b) otherwise advised the Company or any of its Subsidiaries of a present or future need for facility improvements or upgrades in connection with the Company's or any of the Subsidiaries' businesses; or (c) notified the Company or any of its Subsidiaries of the awarding or possible awarding of its franchise to an entity or entities other than the Company and its Subsidiaries in the Metropolitan Statistical Area in which the Company and its Subsidiaries operate. Section 3.38 Pending Acquisitions. Each of the agreements, as amended to date (collectively, the "Acquisition Agreements"), governing the Pending Acquisitions (such Pending Acquisitions set forth in Section 3.38 of the Company Disclosure Schedule) has been duly authorized, executed and delivered by the Company and, to the Company's knowledge, each of the other parties thereto, and constitutes a legally valid and binding obligation of the Company and, to the Company's knowledge is enforceable against each such party thereto in accordance with its terms; and except as described in the Form S-1, each of the representations and warranties of the Company and its subsidiaries and each of the other parties set forth in the Acquisition Agreements as modified by any disclosure schedule to such Acquisition Agreements was true and correct at the time such representations and warranties were made and will be true and correct at and as of the Closing Date. The Company has delivered to Parent true and complete copies of each Acquisition Agreement and the Company has no reason to believe that it will not be able to consummate the transactions contemplated by the Acquisition Agreements which have not been previously consummated. Section 3.39 Related Party Transactions. There are no business relationships or related party transactions of the nature described in Item 404 of Regulation S-K involving the Company or any of businesses being acquired pursuant to the Acquisitions and any person described in such Item that are required to be disclosed in the Registration Statement and which have not been so disclosed. 27 ARTICLE IIIA REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Each Stockholder hereby represents and warrants to the Parent and Newco, severally as to itself only, as follows: Section 3A.1 Power and Authority; Validity of Agreement. Such Stockholder has the legal capacity, power and authority to enter into and perform all of its obligations under this Agreement. The execution, delivery and performance of this Agreement by such Stockholder will not violate any other agreement to which such Stockholder is a party, including, without limitation, any voting agreement, shareholders' agreement or voting trust. This Agreement has been duly and validly executed and delivered by such Stockholder and constitutes a valid and binding obligation of such Stockholder enforceable against such Stockholder in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and subject, as to enforceability, to general principles of equity, including principles of commercial reasonableness, good faith and fair dealing (regardless of whether enforcement is sought in a proceeding at law or in equity). Section 3A.2 No Conflicts; Consents and Approvals. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated hereby will not, conflict with or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to any third party right of termination, cancellation, material modification or acceleration of any obligation or to loss of a material benefit under, any provision of the Certificate of Incorporation, By-laws, partnership agreement, limited liability company agreement or other constituent documents of such Stockholder (if such Stockholder is an entity) or any loan or credit agreement, note, bond, mortgage, indenture, lease, or other agreement, instrument, permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to such Stockholder or any of its properties or assets, other than such conflicts, violations or defaults or terminations, cancellations or accelerations which individually or in the aggregate do not materially impair the ability of such Stockholder to perform its obligations hereunder. No consent, approval, order or authorization of, or registration, declaration, or filing with, any governmental entity is required by or with respect to the execution and delivery of this Agreement by such Stockholder and the consummation by such Stockholder of the transactions contemplated hereby. Section 3A.3 Ownership of Shares. Such Stockholder is the record and/or beneficial owner of that number of Company Securities set forth opposite such Stockholder's name on Exhibit A hereto (such Company Securities being sometimes hereafter called the "Existing Shares" and, together with any shares of Company Common Stock or Company Preferred Stock acquired of record or beneficially by such Stockholder in any capacity after the date hereof and prior to the termination hereof, whether upon the exercise of warrants or options, conversion of convertible securities, purchase, exchange or otherwise, collectively referred to as the "Shares"). Also listed on Exhibit A are such other securities of the Company, including any options or warrants, owned by such Stockholder. 28 (i) On the date hereof, the Existing Shares constitute all of the outstanding shares of Company Common Stock, Company Preferred Stock and Company Warrants, as the case may be, owned of record and/or beneficially by the Stockholders. (ii) Such Stockholder has sole power of disposition, sole voting power and sole power to demand dissenter's or appraisal rights, in each case with respect to the Existing Shares owned by such Stockholder, with no restrictions on such rights, subject to applicable federal securities laws and the terms of this Agreement. (iii) Such Stockholder will have sole power of disposition, sole voting power and sole power to demand dissenter's or appraisal rights, in each case with respect to the shares of Company Common Stock or Company Preferred Stock, other than Existing Shares, if any, which become beneficially owned by such Stockholder with no restrictions on such rights, subject to applicable federal securities laws and the terms of this Agreement. Section 3A.4 No Encumbrances. The Existing Shares and the certificates representing the Existing Shares are now, and the Shares and the certificates representing such shares at all times during the term hereof will be, held by such Stockholder, free and clear of all claims, liens, charges, security interests, proxies, voting trusts or agreements, understandings or arrangements and any other encumbrances of any kind or nature whatsoever, except as otherwise provided in this Agreement. Section 3A.5 Brokers and Intermediaries. No broker, investment banker, financial advisor or other person is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of such Stockholder. Section 3A.6 Special Representations Regarding the Reorganization Common Stock. Each of the Stockholders severally and not jointly represents and warrants to the Parent and Newco as follows with respect to the shares of Reorganization Common Stock to be issued to the Stockholders pursuant to this Agreement (the "Reorganization Shares"): (i) Such Stockholder understands that, except as set forth in this Agreement, the Reorganization Shares will not be registered under the Securities Act or applicable state securities laws on the basis that the sale provided for in this Agreement and the issuance of the Reorganization Shares hereunder is exempt from registration under the Securities Act pursuant to Section 4(2) thereof, and that the Parent's reliance on such exemption is predicated on the representations and warranties of such Stockholder. (ii) The Reorganization Shares are being acquired for the account of such Stockholder for the purposes of investment and not with a view to the distribution thereof, as those terms are used in the Securities Act and the rules and regulations promulgated thereunder. (iii) Such Stockholder has delivered to the Parent an Investor Qualification Questionnaire regarding such Stockholder. As indicated in such Investor Qualification Questionnaire, such Stockholder is an "accredited investor" within the meaning of Rule 501(a) of Regulation D promulgated under the Securities Act; and such Stockholder has 29 sufficient knowledge and experience in financial and business matters so as to be capable of evaluating the merits and risks of acquiring the Reorganization Shares. (iv) Such Stockholder has had made available to it copies of: (i) the Prospectus of the Parent dated April 29, 1999; (ii) the Form 10-K filing of the Parent for the year ended December 31, 1998; (iii) the Form 10-Q filing of the Parent for the quarter ended March 31, 1999; (iv) the Form 10-Q filing of the Parent for the quarter ended June 30, 1999; (v) all Form 8-K filings of the Parent filed since the most recent 10-Q filing of the Parent; and has been furnished such other information, and has had an opportunity to ask such questions and have them answered by the Parent, as such Stockholder has deemed necessary in order to make an informed investment decision with respect to the acquisition of the Reorganization Shares. (v) Such Stockholder understands, and has the financial capability of assuming, the economic risk of an investment in the Reorganization Shares for an indefinite period of time. (vi) Such Stockholder has been advised that such Stockholder will not be able to sell, pledge or otherwise dispose of the Reorganization Shares, or any interest therein, without first complying with the relevant provisions of the Securities Act and any applicable state securities laws, and that the provisions of Rule 144, permitting routine sales of securities of certain issuers subject to the terms and conditions thereof, is not currently available to such Stockholder with respect to the Reorganization Shares. (vii) Such Stockholder has, to the extent such Stockholder has deemed necessary, consulted with such Stockholder's own investment advisors, legal counsel and tax advisors regarding an investment in the Reorganization Shares. (viii) Such Stockholder acknowledges that, except as specifically set forth in this Agreement, the Parent and Newco are not under any obligation (i) to register the Reorganization Shares, or (ii) to furnish any information or to take any other action to assist such Stockholder in complying with the terms and conditions of any exemption which might be available under the Securities Act or any state securities laws with respect to sales of the Reorganization Shares by such Stockholder in the future. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT AND NEWCO The Parent and Newco represent and warrant to the Company and the Stockholders as follows: Section 4.1 Organization, Standing and Corporate Power. Each of the Parent and Newco is duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated and has the requisite corporate power and authority to carry on its business as now being conducted. Each of the Parent and Newco is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its business or the ownership or leasing of its properties makes such qualification or licensing necessary, other than 30 in such jurisdictions where the failure to be so qualified or licensed (individually or in the aggregate) would not have a Material Adverse Effect with respect to it. Section 4.2 Subsidiaries. Section 4.3 Capital Structure. (a) The authorized capital stock of the Parent consists of: (i) 3,000,000 shares of Preferred Stock, par value $0.10 per share, of the Parent, of which 300,000 shares are designated Class A Convertible Preferred Stock and are, in turn, divided into 100,000 shares of Series I (the "Parent Series I Preferred Stock"), 100,000 shares of Series II (the "Parent Series II Preferred Stock") and 100,000 shares of Series III (the "Parent Series III Preferred Stock"); as of September 21, 1999, there were 9,360 shares of Parent Series I Preferred Stock issued and outstanding with no such shares of Parent Series I Preferred Stock held in the treasury of the Parent, 7,675 shares of Parent Series II Preferred Stock issued and outstanding with no such shares of Parent Series II Preferred Stock held in the treasury of the Parent, and 11,683 shares of Parent Series III Preferred Stock issued and outstanding with no such shares of Parent Series III Preferred Stock held in the treasury of the Parent; (ii) 100,000,000 shares of the Parent Common Stock, par value $.01 per share, as of September 21, 1999, there were 23,644,696 shares of Parent Common Stock issued and outstanding with no such shares of Parent Common Stock held in the treasury of the Parent; and (iii) 30,000,000 shares of Class B Common Stock, par value $.01 per share, of the Parent (the "Parent Class B Common Stock"); as of September 21, 1999, there were 12,250,000 shares of Parent Class B Common Stock issued and outstanding with no such shares of Parent Class B Common Stock held in the treasury of the Parent. Except as set forth above, no shares of capital stock or other equity securities of the Parent are issued or outstanding. All outstanding shares of capital stock of the Parent are duly authorized, validly issued, fully paid and nonassessable. (b) The authorized capital stock of Newco consists of 1000 shares of common stock, par value $.01 per share, all of which have been validly issued, are fully paid and nonassessable and are owned by the Parent, free and clear of any Lien. Section 4.4 Authority; Noncontravention. (a) Each of the Parent and Newco has all requisite corporate power and authority to enter into this Agreement and to consummate the transactions contemplated by this Agreement. The execution and delivery of this Agreement by the Parent and Newco and the consummation by the Parent and Newco of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate action on the part of the Parent and Newco. (b) This Agreement has been duly executed and delivered by the Parent and Newco and constitutes a valid and binding obligation of each of the Parent and Newco, 31 enforceable against each of the Parent and Newco in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency or similar laws, now or hereafter in effect, affecting creditors, rights generally, and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. (c) Except as set forth in Schedule 4.4(c) hereto, the execution and delivery of this Agreement do not, and the consummation by the Parent and Newco of the transactions contemplated by this Agreement and compliance by the Parent and Newco with the provisions of this Agreement will not, conflict with, or result in any breach or violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation, or any loss of a material benefit under, or result in the creation of any Lien upon any of the properties or assets of the Parent or Newco under, (i) the Certificate of Incorporation or By-laws of the Parent or Newco, (ii) any loan or credit agreement, note, bond, mortgage, indenture, lease or other agreement, instrument, permit, concession, franchise or license applicable to the Parent or Newco or its properties or assets, or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgment, order, decree, statute, law, ordinance, rule, regulation or arbitration award applicable to the Parent or Newco or their respective properties or assets, other than, in the case of clauses (ii) and (iii), any such conflicts, breaches, violations, defaults, rights, losses or Liens that individually or in the aggregate could not have a Material Adverse Effect with respect to the Parent or Newco or could not prevent, hinder or materially delay the ability of the Parent or Newco to consummate the transactions contemplated by this Agreement. (d) No consent, approval, order or authorization of, or registration, declaration or filing with, or notice to, any governmental entity is required by or with respect to the Parent or Newco in connection with the execution and delivery of this Agreement by the Parent and Newco or the consummation by the Parent and Newco of any of the transactions contemplated by this Agreement, except for (i) the filing of a pre-merger notification and report form under the HSR Act, (ii) the filing with the SEC of such reports under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby, (iii) the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and appropriate documents with the relevant authorities of other states in which the Company is qualified to do business and (iv) such other consents, approvals, orders, authorizations, registrations, declarations, filings or notices, the failure of which to make or obtain, individually or in the aggregate, would not (x) prevent or delay the consummation of the Reorganization or (y) have a Material Adverse Effect with respect to the Parent or Newco. Section 4.5 SEC Documents. The Parent has filed with the SEC all reports, schedules, forms, statements and other documents required pursuant to the Securities Act and the Exchange Act since November 17, 1997 (collectively, and in each case including all exhibits and schedules thereto and documents incorporated by reference therein, the "Parent SEC Documents"). As of their respective dates, the SEC Documents complied in all material respects with the requirements of the Securities Act, or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Parent SEC Documents, and none of the Parent SEC Documents (including any and all financial statements included therein) as of such dates contained any untrue statement of a material fact or omitted to state a material 32 fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The consolidated financial statements of the Parent included in all Parent SEC Documents filed since November 17, 1997 (the "Parent SEC Financial Statements") comply as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles (except, in the case of unaudited consolidated quarterly statements, as permitted by Form 10-Q of the SEC), applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present in accordance with generally accepted accounting principles the consolidated financial position of the Parent (and its Subsidiaries) as of the dates thereof and the consolidated results of its operations and cash flows for the periods then ended (subject, in the case of unaudited quarterly statements, to normal year-end audit adjustments). The audited consolidated balance sheet of the Parent as of December 31, 1998 is referred to herein as the "Parent Balance Sheet." Section 4.6 [INTENTIONALLY LEFT BLANK.] Section 4.7 Litigation. There is (i) no suit, action or proceeding pending, and (ii) to the knowledge of the Parent, no suit, action or proceeding threatened against or investigation pending with respect to the Parent or any of its Subsidiaries that, individually or in the aggregate, would have a Material Adverse Effect with respect to the Parent or prevent, materially hinder or materially delay the ability of the Parent to consummate the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Parent which, individually or in the aggregate, would have any such Material Adverse Effect. Section 4.8 Brokers. No broker, investment banker, financial advisor or other Person, other than Stephens, Inc., the fees and expenses of which will be paid by the Parent or its Affiliates (as defined in Section 9.5), is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Parent or its Affiliates. Section 4.9 Interim Operations of Newco. Newco was formed on August 20, 1999 solely for the purpose of engaging in the transactions contemplated hereby, has engaged in no other business activities and has conducted its operations only as contemplated hereby. Section 4.10 Absence of Certain Changes or Events. Since the date of the Parent Balance Sheet, Parent and its Subsidiaries have conducted their businesses only in the ordinary course in a manner consistent with past practice, and since such date there has not been: (a) any Material Adverse Effect on the Parent or any of its Subsidiaries or any fact or circumstance that would be reasonably likely to result in an Material Adverse Effect on the Parent or any of its Subsidiaries or (b) any material change by Parent or any of its Subsidiaries in its accounting methods, principles or practices; (c) any revaluation by Parent or any of its Subsidiaries of any material asset or any writedown of the value of inventory, or any write-off of notes or accounts receivable other than in the ordinary course of business consistent with past practice; or (d) any other action or event that would have been a violation of Section 6.1 of this Agreement had such 33 action or event occurred after the date of this Agreement and that could reasonably be expected to result in a Material Adverse Effect on the Parent or any of its Subsidiaries. Section 4.11 Compliance with Laws, Etc. To the knowledge of the Parent, each of the Parent and its Subsidiaries has conducted its operations and business in compliance with, (i) all applicable laws, rules, regulations and codes (including, without limitation, any laws, rules, regulations and codes relating to anticompetitive practices, contracts, discrimination, employee benefits, employment, health, safety, fire, building and zoning), and (ii) all applicable orders, rules, writs, judgments, injunctions, decrees and ordinances, except where the failure to so comply could not reasonably be expected to have a Material Adverse Effect on the Parent or its Subsidiaries. The Parent and its Subsidiaries have not received any notification of any asserted present or past failure by it to comply with such laws, rules or regulations, or such orders, writs, judgments, injunctions, decrees or ordinances. ARTICLE V COVENANTS OF THE COMPANY Section 5.1 Conduct of Business of the Company. (a) During the period from the date of this Agreement until the Closing (except as otherwise expressly contemplated by the terms of this Agreement), the Company shall act and carry on its business in the usual, regular and ordinary course of business consistent with past practice and use its reasonable best efforts to preserve substantially intact its current business organization, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers, licensors, licensees, advertisers, distributors and others having significant business dealings with it. Without limiting the generality of the foregoing, during the period from the date of this Agreement to the Closing, the Company shall not, nor shall it permit any of its Subsidiaries to, and except as set forth in Schedule 5.1 hereto, without the prior written consent of the Parent: (i) (A) declare, set aside or pay any dividends on, or make any other distributions in respect of, any of its capital stock, (B) split, combine or reclassify any capital stock of the Company or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of capital stock of the Company, or (C) purchase, redeem or otherwise acquire any shares of capital stock of the Company or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities; (ii) authorize for issuance, issue, deliver, sell, pledge or otherwise encumber any shares of its capital stock, any other voting securities or any securities convertible into, or any rights, warrants or options to acquire, any such shares, voting securities or convertible securities or any other securities or equity equivalents (including without limitation stock appreciation rights) other than the issuance of the Company Common Stock upon the exercise of the Company Options awarded but unexercised on the date of this Agreement and in accordance with their present terms (such issuances being referred to herein as "Permitted Changes"); 34 (iii) amend its Certificate of Incorporation, or By-laws; (iv) except for the Pending Acquisitions (as defined in Section 9.5) acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial portion of the stock or assets of, or by any other manner, any business or any corporation, partnership, joint venture, association or other business organization or division thereof; (v) sell, lease, license, mortgage or otherwise encumber or subject to any Lien (as defined in Section 9.5) or otherwise dispose of any of its properties or assets, except sales of inventory in the ordinary course of business consistent with past practice; (vi) (A) except pursuant to credit arrangements in effect as of the date hereof and disclosed in Schedule 3.21 hereto, incur any indebtedness for borrowed money or guarantee any such indebtedness of another Person, issue or sell any debt securities or warrants or other rights to acquire any debt securities, guarantee any debt securities of another Person, enter into any "keep well" or other agreement to maintain any financial statement condition of another Person or enter into any arrangement having the economic effect of any of the foregoing, or (B) make any loans, advances or capital contributions to, or investments in, any other Person; (vii) acquire or agree to acquire any assets, other than in the ordinary course of business consistent with past practice, that are material, individually or in the aggregate, or make or agree to make any capital expenditures except capital expenditures of less than $50,000, individually, or less than $100,000 in the aggregate; (viii) pay, discharge or satisfy any claims (including claims of stockholders), liabilities or obligations (absolute, accrued, asserted or unasserted, contingent or otherwise), except for the payment, discharge or satisfaction of (x) liabilities or obligations in the ordinary course of business consistent with past practice or in accordance with their terms as in effect on the date hereof, or (y) claims settled or compromised to the extent permitted by Section 5.1(a)(xii), or waive, release, grant, or transfer any rights of material value or modify or change in any material respect any existing material license, lease, contract or other document, other than in the ordinary course of business consistent with past practice; (ix) adopt a plan of complete or partial liquidation or resolutions providing for or authorizing such a liquidation or a dissolution, merger, consolidation, restructuring, recapitalization or reorganization; (x) enter into any collective bargaining agreement; (xi) change any material accounting principle used by it, except as required by the SEC or applicable law; (xii) settle or compromise any litigation or settle a dispute under any contract or other agreement (whether or not commenced prior to the date of this Agreement) other than settlements or compromises of litigation where the amount paid (after giving effect to insurance proceeds actually received) in settlement or compromise does not exceed $100,000, provided that the aggregate amount paid in connection with the settlement or compromise of all such matters shall not exceed $250,000; 35 (xiii) engage in any transaction with, or enter into any agreement, arrangement, or understanding with, directly or indirectly, any Affiliates (as defined in Section 9.5) of the Company; (xiv) except as contemplated by this Agreement, abandon any Pending Acquisitions; or (xv) authorize any of, or commit or agree to take any of, the foregoing actions. (b) During the period from the date of this Agreement to the Closing, the Company shall not adopt or amend (except as may be required by law) any bonus, profit sharing, compensation, stock option, pension, retirement, deferred compensation, employment or other employee benefit plan, agreement, trust, fund or other arrangement (including any Company Plan) for the benefit or welfare of any employee, director or former director or employee or, other than increases for individuals (other than officers and directors) in the ordinary course of business consistent with past practice, increase the compensation or fringe benefits of any director, employee or former director or employee or pay any benefit not required by any existing plan, arrangement or agreement. (c) During the period from the date of this Agreement to the Closing, the Company shall not grant any new or modified severance or termination arrangement or increase or accelerate any benefits payable under its severance or termination pay policies in effect on the date hereof. (d) During the period from the date of this Agreement to the Closing, except in the ordinary course of business and consistent with past practice, the Company shall not make any Tax election, change or request to change its method of accounting, or settle or compromise any federal, state, local or foreign Tax liability. Section 5.2 Cooperation Regarding Notice of Appraisal Rights. The Company will cooperate with the Parent and Newco in connection with the Parent's and Newco's performance of their obligations under Section 2.7(d). Without limiting the generality of the foregoing, at the Closing, the Company will deliver to the Parent a list of the Company's stockholders of record as of the Closing setting forth the name and mailing address of, and the number of shares of Company Common Stock held by, each stockholder. Section 5.3 Access to Information; Confidentiality. (a) The Company shall, and shall cause its officers, employees, counsel, financial advisors and other representatives to, afford to the Parent and its representatives and to potential financing sources reasonable access during normal business hours to its properties, books, contracts, commitments, personnel and records, including security position listings and other information concerning beneficial owners and/or record owners of the Company's securities which may be relevant to the Reorganization, and, during such period, the Company shall, and shall cause its officers, employees and representatives to, furnish promptly to the Parent (i) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal or state securities laws and (ii) all 36 other information concerning its business, properties, financial condition, operations and personnel as the Parent may from time to time reasonably request. Each of the Parent and Newco will hold, and will cause its respective directors, officers, employees, accountants, counsel, financial advisors and other representatives and Affiliates to hold, any nonpublic information in confidence to the extent required by, and in accordance with, the provisions of the Letter Agreement dated August 13, 1999 from the Company to, and accepted by, Parent regarding confidential treatment of the negotiation of a potential business combination (the "Confidentiality Agreement"). (b) No investigation pursuant to this Section 5.3 shall affect any representations or warranties of the parties herein or the conditions to the obligations of the parties hereto. Section 5.4 No Solicitation. The Company shall not (whether directly or indirectly through advisors, agents or other intermediaries), nor shall the Company authorize or permit any of its officers, directors, agents, representatives, advisors to (a) solicit, initiate or take any action knowingly to facilitate the submission of inquiries, proposals or offers from any Person (other than Newco or the Parent) relating to (i) any acquisition or purchase of any of the consolidated assets of the Company and its Subsidiaries (other than sales or disposition of assets in the ordinary course of business) any class of equity securities of the Company, (ii) any tender offer (including a self tender offer) or exchange offer of any class of equity securities of the Company, (iii) any merger, consolidation, business combination, sale of substantially all assets, recapitalization, liquidation, dissolution or similar transaction involving the Company other than the transactions contemplated by this Agreement, or (iv) any other transaction the consummation of which would or could reasonably be expected to impede, interfere with, prevent or materially delay the Reorganization or which would or could reasonably be expected to materially dilute the benefits to the Parent of the transactions contemplated hereby (collectively, "Transaction Proposals"), (b) agree to or endorse any Transaction Proposal, or (c) enter into or participate in any discussions or negotiations regarding any of the foregoing, or furnish to any other Person any information with respect to its business, properties or assets or any of the foregoing, or otherwise cooperate in any way with, or knowingly assist or participate in, facilitate or encourage, any effort or attempt by any other Person (other than Newco or the Parent) to do or seek any of the foregoing. (b) Notwithstanding anything in Section 5.2(b) to the contrary, to the extent the Company's Board of Directors receives an unsolicited bona-fide written proposal with respect to a Transaction Proposal to acquire all of the outstanding shares of capital stock of the Company which the Board of Directors determines, after consultation with its independent financial advisors, may be reasonably likely to result in a transaction (an "Alternative Transaction") that is more favorable to the shareholders of the Company than the transactions contemplated by the Reorganization and this Agreement (taking into account the nature of the proposed transaction, the nature and amount of the consideration, the Bridge Financing contemplated by Section 5.10 below, the likelihood of completion and any other factors deemed appropriate by the Board of Directors), the Board of Directors, upon the advice from outside legal counsel to the Company that the Board of Directors of the Company is required in the exercise of its fiduciary duty under the DGCL to do so, may engage in any negotiations concerning, or provide any confidential information or data to, or have any discussions with, any 37 person relating to an Alternative Transaction or otherwise facilitate such person presenting an Alternate Transaction to the Company's shareholders; provided, however, that upon engaging in such negotiations or discussions, providing such information or otherwise facilitating any effort to present to the Company's shareholders an Alternative Transaction, the Company shall give notice to Parent of the Company's engagement in such activities ("Alternative Transaction Notice"). Prior to furnishing nonpublic information to, or entering into discussions or negotiations with, any other persons or entities, the Company shall obtain from such person or entity an executed confidentiality agreement with terms no less favorable, taken as a whole, to the Company than those contained in the Confidentiality Agreement, but which confidentiality agreement shall not include any provision calling for an exclusive right to negotiate with the Company, and the Company shall advise Parent of the nature of such nonpublic information delivered to such person reasonably promptly following its delivery to the requesting party. If the Board of Directors determines that an Alternative Transaction is more favorable to the shareholders of the Company than the Reorganization and this Agreement as provided above, the Board of Directors of the Company may then (and only then) recommend that Alternative Transaction. Nothing herein shall in any way limit the obligations of the Stockholders contained in this Agreement. Section 5.5 Public Announcements. Neither the Company nor any of its Subsidiaries will issue any press release or public statement with respect to the transactions contemplated by this Agreement, including the Reorganization, without the Parent's prior consent (such consent not to be unreasonably withheld), except as may be required by applicable law or court process. In addition to the foregoing, the Company and the Parent will consult with each other before issuing, and provide the to the other the opportunity to review and comment upon, any such press release or other public statements with respect to such transactions. Section 5.6 Cooperation in Obtaining Manufacturer Approval; Parts Return. The Company shall promptly notify the Manufacturers (as defined in Section 9.5) of the execution and delivery of this Agreement, and thereafter shall use reasonable best efforts in cooperating with the Parent in the preparation of and delivery to the Manufacturers, as soon as practicable after the date hereof, of applications and any other information necessary to obtain the Manufacturers' consents to or the approval of the transactions contemplated by this Agreement. At the request of the Parent, the Company shall use its reasonable best efforts to assist the Parent in effecting any one-time parts return offered by the Manufacturers. Section 5.7 Closing Conditions. The Company shall use all reasonable best efforts to satisfy promptly the conditions to Closing set forth in Article VII hereof required herein to be satisfied by the Company prior to Closing. Section 5.8 HSR Act. The Company shall promptly prepare and file Notification and Report Forms under the HSR Act with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division"), and respond as promptly as practicable to all inquiries received from the FTC or the Antitrust Division for additional information or documentation. 38 Section 5.9 Concerning Company Plans. (a) If requested by the Parent not less than five (5) days prior to the Closing, the Company shall terminate its 401(k) Plan not later than the day prior to the Closing and, in connection therewith, the Company shall amend such 401(k) Plan to fully vest all accounts of all participants in such 401(k) Plan and to provide for the distribution of all such accounts. At the Closing, the Company shall deliver to the Parent a duly executed plan amendment and resolutions of the Company's Board of Directors reflecting the termination of such 401(k) Plan and such related amendments to such 401(k) Plan, provided that the Parent shall have timely requested the termination of the Company's 401(k) Plan. If requested by the Parent not less than five (5) days prior to the Closing, the Company shall also terminate all other Company Plans as of the Closing Date and shall provide the Parent at Closing with documentation satisfactory to the Parent evidencing such terminations. Section 5.10 Bridge Financing. (a) In consideration of the issuance by Sonic Financial Corporation and/or O. Bruton Smith (collectively, the "Guarantor") of one or more guaranties (the "Guaranty") of the Company's indebtedness to Ford Motor Credit or other financing institutions of approximately $107,000,000 to enable the Company to complete the Pending Acquisitions which were pending on August 25, 1999, the Company in the Merger Agreement granted, and does hereby in this Agreement confirm its grant, to the Parent an option (the "Option") to purchase up to all of the dealership properties included in such Pending Acquisitions, including, without limitation, the Lucas Group acquisition which closed effective September 30, 1999 (the "Dealership Properties"), on the following terms, in the event that this Agreement is terminated prior to the Closing: (i) The Option shall be exercisable for a period of sixty (60) days (the "Option Period") commencing on the ninety-first (91st) day after the date of such termination of this Agreement, unless the Company shall, during the ninety (90) day period after such termination, have caused a complete release and discharge of the Guarantor from the Guaranty. The Company hereby agrees to use its best reasonable efforts to obtain such release and discharge. (ii) (The Option shall be exercisable from time to time during the Option Period with respect to any or all of the Dealership Properties; provided, however, with respect to any distinct dealership group (for example, the Lucas Group), the Option, if exercised, must be exercised as to all Dealership Properties within that group. (iii) The Option may be assigned by the Parent to any Person. (iv) The exercise price for the Option will be the price (including directly related transactions expenses) at which the Dealership Property was purchased by the Company (the "Exercise Price"). (v) With respect to any exercise of the Option during the Option Period, the period during which the Parent will have to close the purchase (the "Closing Period") will begin on the date of exercise and will end one hundred twenty (120) days after the end of the 39 Option Period. The purchase will be made pursuant to purchase documentation substantially equivalent including as to form, representations and warranties and indemnification obligations of the agreements pursuant to which such Dealership Properties were purchased by the Company. The parties will negotiate in good faith and will reasonably cooperate with each other to finalize the purchase documentation and close the purchase within the Closing Period. (vi) The entire proceeds of the Exercise Price with respect to any particular Dealership Property shall be applied toward the prepayment of the indebtedness secured by the Guaranty or the reimbursement of the Guarantor to the extent of any amount paid by the Guarantor pursuant to the Guaranty. In the event that the Company shall sell any of the Dealership Properties at any time, the proceeds of the sale shall also be applied to reduce the indebtedness secured by the Guaranty. (vii) Notwithstanding the last sentence of Section 5.10(a)(vi) above, during the Option Period, the Company will not sell or otherwise dispose of, or attempt in any way to sell or otherwise dispose of, any of the Dealership Properties. (viii) Notwithstanding the expiration of Option Period or the Closing Period with respect to any particular exercise under the Option, in the event that the Guarantor is required to pay any amount under the Guaranty, the Option shall be reinstated on the terms of this Section 5.10, except that there shall be no limitations on the duration of the Option Period or on any Closing Period. Notwithstanding the foregoing, the Company may terminate such reinstated Option prior to the exercise thereof by the Parent by (i) reimbursing the Guarantor in full for all amounts paid by it under the Guaranty, together with interest thereon at the rate of 12% per annum, and (ii) obtaining a complete release and discharge of the Guarantor from the Guaranty. (ix) The Guarantor shall be paid a fee for issuance of the Guaranty in an amount equal to twenty-five basis points (.0025) of the principal amount of indebtedness guaranteed. Such fee will be paid at the time of the first draw down under the bridge facility. (x) The provisions of this Section 5.10 shall survive the termination of this Agreement. (b) The rights of the parties under this Section 5.10 are subordinate to the rights of the Manufacturers. Section 5.11 280G Consent. Prior to the Closing, the Company shall take such steps as may be necessary to prevent any payment or benefit from being subject to the excise tax payable under Section 4999 of the Code or the loss of deductibility under Section 280G of the Code in connection with the transactions contemplated by this Agreement. Section 5.12 Tax Free Reorganization. The Company shall use its best reasonable efforts to cause the Securities Purchase to be treated as a tax free reorganization within the meaning of Section 368(a) of the Code. 40 ARTICLE VA COVENANTS OF THE STOCKHOLDERS Section 5A.1 Agreement to Vote; Proxy. (a) Each of the Stockholders hereby agrees that, until the Termination Date (as defined in Section 5A.11 below), at any meeting of the stockholders of the Company, however called (including any adjournments or postponements thereof), or in connection with any written consent of the stockholders of the Company, such Stockholder shall vote (or cause to be voted) the Shares held of record or beneficially by such Stockholder (i) in favor of the Reorganization, the execution and delivery by the Company of this Agreement and the approval of the terms thereof and each of the actions contemplated by this Agreement and any actions required in furtherance hereof and thereof; (ii) against any action or agreement that would result in a breach of any covenant, representation or warranty or any other obligation or agreement of the Company under this Agreement; and (iii) except as specifically requested in writing by the Parent in advance, against the following actions or agreements (other than the Reorganization and the transactions contemplated by this Agreement): (A) any extraordinary corporate transaction, such as a merger, consolidation or other business combination involving the Company or any of its Subsidiaries (including, without limitation, any Transaction Proposal); (B) a sale, lease or transfer of any assets of the Company or any of its Subsidiaries (other than in the ordinary course of business) or reorganization, recapitalization, dissolution or liquidation of the Company or any of its Subsidiaries, (C) any change in the management or board of directors of the Company; (D) any change in the present capitalization or dividend policy of the Company or any of its Subsidiaries; (E) any amendment to the Company's Certificate of Incorporation or By-Laws; (F) any other material change in the corporate structure or business of the Company or any of its Subsidiaries; or (G) any other action which is intended, or could reasonably be expected, to impede, interfere with, delay, postpone, discourage or adversely affect, the Reorganization or the transactions contemplated by this Agreement or the contemplated economic benefits of any of the foregoing. No Stockholder shall enter into any agreement or understanding with any person or entity prior to the Termination Date to vote or give instructions after the Termination Date in any manner inconsistent with clauses (i), (ii) or (iii) of the preceding sentence. (b) PROXY. EACH STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS, THE PARENT AND O. BRUTON SMITH, CHIEF EXECUTIVE OFFICER OF THE PARENT, AND THEODORE M. WRIGHT, VICE PRESIDENT-FINANCE AND CHIEF FINANCIAL OFFICER OF THE PARENT, IN THEIR RESPECTIVE CAPACITIES AS OFFICERS OF THE PARENT, AND ANY INDIVIDUAL WHO SHALL HEREAFTER SUCCEED TO ANY SUCH OFFICE OF THE PARENT, AND ANY OTHER DESIGNEE OF THE PARENT, EACH OF THEM INDIVIDUALLY, SUCH STOCKHOLDER'S IRREVOCABLE (UNTIL THE TERMINATION DATE) PROXY AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE THE SHARES AS INDICATED IN SECTION 5A.1(a) ABOVE. EACH STOCKHOLDER INTENDS THIS PROXY TO BE IRREVOCABLE (UNTIL THE TERMINATION DATE) AND COUPLED WITH AN INTEREST AND WILL TAKE SUCH FURTHER ACTION AND EXECUTE 41 SUCH OTHER INSTRUMENTS AS MAY BE NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY PROXY PREVIOUSLY GRANTED BY SUCH STOCKHOLDER WITH RESPECT TO THE SHARES. (c) Notwithstanding anything contained in this Agreement to the contrary, as to any Stockholder who is also a director of the Company, the obligations of such Stockholder under this Section 5A.1 and Section 5A.2 below to support the Reorganization in his capacity as stockholder shall in no way prevent such Stockholder from exercising his fiduciary duties as a director of the Company, with respect to the Reorganization or an Alternative Transaction, it being also understood that the exercise of such fiduciary duties shall not affect such Stockholder's obligations in his capacity as a stockholder under this Section 5A.1 and Section 5A.2 below to support the Reorganization. Section 5A.2 No Solicitation. Prior to the Termination Date, no Stockholder shall (directly or indirectly through advisors, agents or other intermediaries), nor shall such Stockholder authorize or permit any of their officers, directors, agents, representatives or advisors to (i) solicit, initiate or take any action knowingly to facilitate the submission of inquiries, proposals or offers from any Person (other than the Parent or any of its affiliates) relating to any Transaction Proposal, or (ii) enter into or participate in any discussions or negotiations regarding any of the foregoing, or furnish to any other Person any information with respect to the business, properties or assets or any of the foregoing, or otherwise cooperate in any way with, or knowingly assist or participate in, facilitate or encourage, any effort or attempt by any other Person (other than the Parent or any of its affiliates) to do or seek any of the foregoing. If a Stockholder receives any such inquiry or proposal, then such Stockholder shall promptly inform the Parent of the terms and conditions, if any, of such inquiry or proposal and the identity of the person making it. Each Stockholder will immediately cease and cause its advisors, agents and other intermediaries to cease any and all existing activities, discussions or negotiations with any parties conducted heretofore with respect to any of the foregoing, and shall use its reasonable best efforts to cause any such parties in possession of confidential information about the Company that was furnished by or on behalf of the Company to return or destroy all such information in the possession of any such party or in the possession of any agent or advisor of such party. Section 5A.3 Restriction on Transfer, Proxies and Non-Interference. Prior to the Termination Date, no Stockholder shall, directly or indirectly: (i) except to the Parent pursuant to this Agreement, offer for sale, sell, transfer, tender, pledge, encumber, assign or otherwise dispose of, any or all of the Shares owned by it, and no Stockholder shall, directly or indirectly, enforce or permit the execution of the provisions of any redemption agreement with the Company or enter into any contract, option or other arrangement or understanding with respect to or consent to the offer for sale, sale, transfer, tender, pledge, encumbrance, assignment or other disposition of, or exercise any discretionary powers to distribute, any or all of the Shares owned by it or any interest therein, (ii) except as contemplated hereby, grant any proxies or powers of attorney with respect to the Shares, deposit any Shares into a voting trust or enter into any voting agreement with respect to any Shares, or (iii) take any action that would make any representation or warranty of such Stockholder contained herein untrue or incorrect or have the effect of preventing or disabling any Stockholder from performing its obligations under this Agreement. Notwithstanding the foregoing, a Stockholder may transfer Shares to such 42 Stockholder's spouse or lineal descendant (natural or adopted) or to an executor, administrator or testamentary trustee (in their capacity as such) of such Stockholder or to a trust the beneficiaries of which include only such Stockholder and his or her spouse or lineal descendants; provided, however, it shall be a condition precedent to such transfer that the transferee agree in a writing reasonably satisfactory to the Parent and Newco to be bound by the terms of this Agreement with respect to the shares so transferred, and provided, further, that such transfer shall not release the transferring Stockholder from its obligations under this Agreement with respect to the Shares so transferred, and the Parent and Newco shall be entitled to continue to treat the transferring Stockholder as the owner of the Shares transferred for all purposes of this Agreement. Section 5A.4 Additional Shares. Each of the Stockholders hereby agrees, while this Agreement is in effect, to promptly notify the Parent of the number of any new shares of Company Common Stock or Company Preferred Stock acquired by such Stockholder after the date hereof. Section 5A.5 Waiver of Appraisal and Dissenter's Rights. Each Stockholder hereby waives any rights of appraisal or rights to dissent from the Reorganization (including the Merger) that such Stockholder may have. Section 5A.6 Actions Regarding Company Expenses. Each of the Stockholders agrees that they shall take no actions and shall not vote their Shares in favor of any action which shall cause a substantial increase in the expenses which are the subject of the indemnity contained in Section 5A.7(d) below. Section 5A.7 Indemnity; Escrow Agreement. (a) The Stockholders hereby agree to indemnify and save the Parent and the Surviving Corporation, their respective shareholders, officers, directors and employees, and the successors and assigns of each of the foregoing (each, an "Indemnitee") harmless from and against, for and in respect of, any and all damages, losses, obligations, liabilities, demands, judgments, injuries, penalties, claims, actions or causes of action, encumbrances, costs, and expenses (including, without limitation, reasonable attorneys' fees and expert witness fees), suffered, sustained, incurred or required to be paid by any Indemnitee (collectively, "Damages") arising out of, based upon, in connection with, or as a result of (i) the untruth, inaccuracy or breach of any representation and warranty of the Company contained in or made pursuant to this Agreement, including in any Schedule or certificate delivered hereunder or in connection herewith, and (ii) the breach or nonfulfillment of any covenant or agreement of the Company contained in this Agreement or in any other agreement, document or instrument delivered hereunder or pursuant hereto. With respect to the Stockholders' obligations to pay Damages pursuant to this Section 5A.7(a), the Stockholders shall have no personal liability, and the Parent's and the Surviving Corporation's sole recourse shall be to make demand for payment out of the Escrow Amount (as defined in Section 5A.7(b) below). (b) At the Closing, the Stockholders shall place into escrow with First Union National Bank or another escrow agent mutually acceptable to the parties hereto (the "Escrow Agent") 473,571 shares (adjusted for any stock dividend, subdivision, reclassification, split-up, combination, or the like, with respect to the Parent Common Stock) of Reorganization Common 43 Stock (the "Escrow Shares" or "Escrow Amount"), pro rata among the Stockholders according to the number of shares of Parent Common Stock issued to the Stockholders in exchange for the Company Common Stock and the Company Warrants (such shares being hereinafter called the "Pro Rata Shares"), in accordance with the escrow agreement in the form of Exhibit D hereto, with such other changes thereto as the Escrow Agent shall reasonably request (the "Escrow Agreement"). The term of the Escrow Agreement shall be for the period beginning with the Closing and ending on March 31, 2001 (the "Escrow Period"). If the Parent shall have made no claims for indemnification under Section 5A.7(a) above or otherwise under this Section 5A.7, during the Escrow Period, the Parent will execute a joint instruction with the Stockholders' Agent pursuant to the Escrow Agreement to instruct the Escrow Agent to pay all of the Escrow Shares to the Stockholders pursuant to the terms of the Escrow Agreement, pro rata according to their respective Pro Rata Shares. To the extent that the Parent shall be entitled to Damages, the Stockholders' Agent shall execute a joint instruction with the Parent pursuant to the Escrow Agreement to instruct the Escrow Agent to disburse to the Parent from the Escrow Amount that number of Escrow Shares having a Market Price at the time of disbursement equal to the amount of such Damages. All such disbursements from the Escrow Shares shall be charged to the Stockholders pro rata according to their Pro Rata Shares of the Escrow Shares. As used herein, the term "Market Price" shall mean the average of the daily closing prices on the NYSE for one share of Parent Common Stock for the twenty (20) consecutive trading days ending on and including the trading day immediately prior to the date of determination. Reference is hereby made to Section 9.16 with respect to certain matters concerning the Stockholders' Agent. (c) The parties acknowledge that the purchase agreements for the Pending Acquisitions (the "Pending Purchase Agreements") provide that the Company is entitled to indemnification for breaches of representations, warranties and covenants contained therein in accordance with the terms of such agreements. The Parent and the Stockholders agree that: (i) If an Indemnitee is entitled to indemnification under this Agreement and the breach which gives rise to such right of indemnification under this Agreement shall also be a matter for which the Company is entitled to pursue indemnification under any of the Pending Purchase Agreements, the Indemnitee (or Parent, on their behalf) shall first attempt to recover such Damages as are indemnifiable under the Pending Purchase Agreements from the indemnifying persons under such Pending Purchase Agreements. Such claims are referred to herein as "Dual Indemnity Claims." (ii) Provided a Dual Indemnity Claim shall be made prior to the Claim, Termination Date as such term is defined in the Escrow Agreement, during such period as the Parent is pursuing indemnification pursuant to the terms of a Pending Purchase Agreement, it shall be entitled to retain Escrow Shares relating to such breaches as a Pending Claim as provided in the Escrow Agreement to cover the amount of such Dual Indemnity Claims as are also covered by the indemnification provisions of this Agreement. (iii) When a Dual Indemnity Claim shall be finally resolved pursuant to the terms of a Pending Acquisition Agreement, the resolution of such claim shall be determinative except in the case where the amount of damages for such Dual Indemnity Claim shall exceed the indemnification obligations of the indemnifying parties under such Pending Acquisition Agreement. In such case the Stockholders' Agent (as such term is defined in the 44 Escrow Agreement) shall have opportunity to defend such claim in its entirety pursuant to the terms of this Agreement. Upon the resolution of a Dual Indemnity Claim, any Escrow Shares held beyond the Claim Termination Date in respect of such Pending Claim shall, to the extent not required to cover other pending Claims, be released. (d) The parties hereby agree that the Parent shall be entitled to claim against the Escrow Amount with respect to the actual amount of "one-time" charges and adjustments (net of tax benefits), the categories of which are generally summarized (with current estimates thereof which estimates are for information purposes only) in Exhibit E hereto and consisting of (i) (A) redemption premiums related to payments to the Trust Company of the West and its affiliates ("TCW") in connection with the sale of the shares of the Company Preferred Stock hereunder and (B) prepayment penalties in connection with the prepayment of the Company's indebtedness under the promissory notes issued to TCW by the Company (the "TCW Loan"); (ii) severance payments (including those payable when the employee terminates "for good reason" under the relevant employment contract) and stay-on bonuses to certain employees of the Company; (iii) the tax charges for stock grants made to certain employees of the Company and disclosed in the Company Disclosure Schedule (the "FAA Stock Grants"); (iv) out-of-pocket expenses incurred by the Company in connection with its recently attempted initial public offering; (v) fees or commissions payable to Merrill Lynch and NCM Associates for their services to the Company in connection with the Reorganization; (vi) transaction fees and expenses incurred in connection with the Reorganization, including those for services rendered by its legal counsel and accountants, but excluding fees and expenses of legal counsel in connection with the Registration Statement contemplated by the Merger Agreement; (vii) costs and expenses incurred in connection with the divestiture of DSW Associates, Inc., d/b/a "Auto Town" by the Company; (viii) payments under contracts with "change of control" clauses which are triggered by the Reorganization and not included in clause (ii) above; and (ix) expenses of establishing the "bridge financing" contemplated by Section 5.10 of this Agreement; provided, however, that the aggregate total of such actual charges and adjustments enumerated above shall be reduced by (i) the out-of-pocket expenses of the IPO referred to in clause (iv) above up to $1,500,000 and (ii) the dollar amount equal to any net income earned by the Company from July 1, 1999 through the Closing Date and, if the Closing Date takes place prior to December 31, 1999, the sum of $123,288 per day for each day from the Closing Date to and including December 31, 1999; and provided further that such charges and adjustments shall exclude (x) any unamortized deferred loan costs incurred by the Company in the prepayment of the TCW Loan, (y) the increase in the Company's equity capitalization base in connection with the FAA Stock Grants, and (z) any non-cash items related to the divestiture or liquidation of DSW Associates, Inc. d/b/a "Auto Town", including unamortized deferred loan costs. (e) With respect to any claim against the Escrow Amount by the Parent for a breach of Section 3.18 of this Agreement regarding the Company's representation and warranty to the effect that the Company and its subsidiaries consolidated pro-forma pre-tax earnings will be a minimum of $45,000,000 (the "Minimum Amount"), Parent shall be entitled to recover from such Escrow Amount any discrepancy from the Minimum Amount on a dollar-for-dollar basis. (f) With respect to any claim against the Escrow Amount by the Parent for a breach of Section 3.5 of this Agreement regarding the Company's representation and warranty to 45 the effect, without limitation, that the Company's consolidated financial statements as of June 30, 1999 have been prepared in accordance with generally accepted accounting principles and fairly present the consolidated financial position of the Company, the Parent shall not be entitled to claim that such one time charges and expenses as are considered in Section 5A.7(d) above have caused or contributed to a breach of such representation. (g) The Parent shall be entitled to a claim against the Escrow Amount for any Damages in excess of $50,000 incurred as a result of the Department of Labor audit of the Company's 401(k) Plan. (h) The Parent shall be entitled to a claim against the Escrow Amount for any Damages in excess of the sum of (i) $100,000 plus (ii) the Company's accruals therefore in accordance with GAAP, incurred as a result of the Pierson/Portin litigation (or related class action) referred to in Section 3.7 of the Company Disclosure Schedule. Section 5A.8 Further Assurances. From time to time, at the request of the Stockholders, on the one hand, or at the request of the Parent, on the other hand, and without further consideration, each party hereto shall execute and deliver such additional documents and take all such further action as may be necessary or desirable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. Section 5A.9 Certain Events. Each Stockholder agrees that this Agreement and the obligations hereunder shall attach to all Shares and shall be binding upon any person or entity to which legal or beneficial ownership of such Shares shall pass, whether by operation of law or otherwise. Section 5A.10 Stop Transfer. Each Stockholder agrees with, and covenants to the Parent that it shall not request that the Company register the transfer (book-entry or otherwise) of any certificate or uncertificated interest representing any of the Shares. Section 5A.11 Termination. The obligations of each Stockholder under Sections 5A.1, 5A.2, 5A.3 and 5A.10 of this Agreement shall terminate upon the first to occur of (a) the Closing, and (b) the date that is one hundred eighty (180) days after the date this Agreement is terminated in accordance with its terms (such earlier date being the "Termination Date"). Except as set forth in this Section 5A.11 all other agreements and obligations of the parties hereto shall survive the Closing and/or the Termination Date, as applicable. ARTICLE VI COVENANTS OF THE PARENT Section 6.1 Conduct of Business of Parent. During the period from the date of this Agreement to the Closing (except as otherwise expressly contemplated by the terms of this Agreement), the Parent shall act and carry on its business in the usual, regular and ordinary course of business consistent with past practice and use its reasonable best efforts to preserve substantially intact its current business organization, keep available the services of its current officers and employees and preserve its relationships with customers, suppliers, licensors, licensees, advertisers, distributors and others having significant business dealings with it and 46 provided that nothing contained in the foregoing shall prevent the Parent from its business of acquiring automobile dealerships. Section 6.2 [INTENTIONALLY LEFT BLANK] Section 6.3 Access to Information; Confidentiality. (a) Parent shall, and shall cause its officers, employees, counsel, financial advisors and other representatives to, afford to the Company and its representatives reasonable access during normal business hours to its properties, books, contracts, commitments, personnel and records, including security position listings and other information concerning beneficial owners and/or record owners of the Parent's securities which may be relevant to the Reorganization, and, during such period, the Parent shall, and shall cause its officers, employees and representatives to, furnish promptly to the Company (i) a copy of each report, schedule, registration statement and other document filed by it during such period pursuant to the requirements of federal or state securities laws and (ii) all other information concerning its business, properties, financial condition, operations and personnel as the Company may from time to time reasonably request. The Company will hold, and will cause its respective directors, officers, employees, accountants, counsel, financial advisors and other representatives and Affiliates to hold, any nonpublic information in confidence to the same extent that nonpublic information regarding the Company, as contemplated by Section 5.3 above, is required to be held confidential by the Parent and Newco pursuant to the Confidentiality Agreement. (b) No investigation pursuant to this Section 6.3 shall affect any representations or warranties of the parties herein or the conditions to the obligations of the parties hereto. Section 6.4 Indemnification. (a) The certificate of incorporation and the by-laws of the Surviving Corporation shall contain the provisions with respect to indemnification and exculpation from liability substantially as set forth in the Company's certificate of incorporation and by-laws on the date of this Agreement, which provisions shall not be amended, repealed or otherwise modified for a period of six years from the Closing in any manner that would adversely affect the rights thereunder of individuals who on or prior to the Closing were directors, officers, employees or agents of the Company, unless such modification is required by law. (b) From and after the Effective Time, the Parent agrees to indemnify and agrees to cause the Surviving Corporation to indemnify each person who is now, or who becomes after the Closing, an officer or director of the Company or any of it Subsidiaries (the "Indemnified Parties"), to the fullest extent permitted by applicable law, with respect to all acts and omissions arising out of the Indemnified Parties' services as officers, directors, employees or agents of the Company or as trustees or fiduciaries of any plan for the benefit of employees of the Company, occurring prior to the Closing including, without limitation, the transactions 47 contemplated by this Agreement. Without limitation of the foregoing, in the event any such Indemnified Party is or becomes involved in any capacity in any action, proceeding or investigation in connection with any matter, including without limitation, the transactions contemplated by this Agreement, occurring prior to, and including, the Closing, the Parent, from and after the Closing, will pay as incurred such Indemnified Party's reasonable legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. Subject to Section 6.4(c), the Parent shall advance (in reasonable amounts) and pay all reasonable expenses, including attorneys' fees, that may be incurred by any Indemnified Party in enforcing this Section 6.4 or any action involving an Indemnified Party resulting from the transactions contemplated by this Agreement. Notwithstanding anything to the contrary contained herein, the Parent shall not have any obligation hereunder to any Indemnified Party when and if a court of competent jurisdiction shall ultimately determine, and such determination shall have become final, that the indemnification of such Indemnified Party in the manner contemplated hereby is prohibited by, or otherwise is not available pursuant to, applicable law. (c) Any Indemnified Party wishing to claim indemnification under this Section 6.4, upon learning of any claim, action, suit, proceeding or investigation which may give rise to a right to indemnification under this Section 6.4, shall promptly notify the Parent thereof. In the event of any such claim, action, suit, proceeding or investigation, (i) the Parent or the Surviving Corporation shall have the right to assume the defense thereof (with counsel engaged by the Parent or the Surviving Corporation to be reasonably acceptable to the Indemnified Party) and, provided there is no conflict of interest, the Parent shall not be liable to such Indemnified Party for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof, (ii)the Indemnified Party will cooperate in the defense of any such matter, and (iii)the Parent shall not be liable for any settlement effected without its prior written consent. (d) Parent and the Surviving Corporation, shall, until the sixth anniversary of the Closing or such earlier date as may be mutually agreed upon by Parent, the Surviving Corporation and the applicable Indemnified Party, cause to be maintained in effect, to the extent available, the policies of directors' and officers' liability insurance maintained by the Company and its Subsidiaries as of the date hereof (or policies of at least the same coverage and amounts containing terms that are not less advantageous to the insured parties) with respect to claims arising from facts or events that occurred on or prior to the Closing, including without limitation all claims based upon, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving the Reorganization and any and all related events. In lieu of maintaining the Company's current policies, Parent may cause to be obtained and maintained in effect directors' and officers' liability insurance of at least the same coverage and amounts and containing terms that are, as a whole, substantially no less advantageous than policies presently maintained by the Company with respect to claims arising from facts or events which occurred on or before the Closing. Notwithstanding the foregoing, in no event shall Parent or the Surviving Corporation be required pursuant to this Section 6.4(d) to expend, in order to maintain or procure insurance coverage pursuant to this Section 6.5, any amount per annum in excess of 150% of the annual rate of premiums currently being paid for the current Company officers' and directors' liability insurance policy. (e) The obligations of the Company, the Surviving Corporation and the Parent under this Section 6.4 shall not be terminated or modified in such a manner as to adversely affect any of the Indemnified Parties without the consent of such Indemnified Party (it being expressly agreed that each such Indemnified Party shall be a third party beneficiary of this Section 6.4). 48 Section 6.5 Public Announcements. Neither the Parent nor Newco will issue any press release or public statement with respect to the transactions contemplated by this Agreement, including the Reorganization, without the Company's prior consent (such consent not to be unreasonably withheld), except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with the NYSE. In addition to the foregoing, the Parent will consult with the Company before issuing, and provide the Company the opportunity to review and comment upon, any such press release or other public statements with respect to such transactions. Section 6.6 Newco Obligations. Parent shall cause Newco to perform all of its obligations, agreements and covenants under this Agreement. Section 6.7 Application to Manufacturers. Subject to the reasonable cooperation of the Company, the Parent shall provide to the Manufacturers as promptly as practicable after the execution and delivery of this Agreement any application or other information with respect to such application necessary in connection with the seeking of the consent of the Manufacturers to the transactions contemplated by this Agreement. Section 6.8 Closing Conditions. Parent shall use all reasonable best efforts to satisfy promptly the conditions to Closing set forth in Article VII hereof required herein to be satisfied by the Parent prior to Closing. Section 6.9 HSR Act. Parent shall promptly prepare and file Notification and Report Forms under the HSR Act with the FTC and the Antitrust Division, and respond as promptly as practicable to all inquiries received from the FTC or the Antitrust Division for additional information or documentation, and the Parent shall pay all filing fees in connection therewith, including any such filing fee required to be paid by Thomas A. Price. Section 6.10 Tax Free Reorganization. Parent and the Company shall use its best reasonable efforts to cause the Securities Purchase to be treated as a tax free reorganization within the meaning of Section 368(a) of the Code. Section 6.11 Additional Agreements of Parent. At the Closing, the Parent shall, or shall cause the Surviving Corporation immediately after the Closing to: (a) Repay all outstanding loans (set forth in Schedule 6.11(a) hereto) by the officers of the Company to the Company; (b) Secure the release of all officers of the Company, or any of such officers' Affiliates from any guaranties (set forth in Schedule 6.11(b) hereto) they have given in favor of the Company; and (c) Repay all outstanding loans under the promissory notes issued to TCW and its Affiliates. 49 Section 6.12 Employee Benefits. (a) Parent will give, or will cause Surviving Corporation to give, to each employee of Parent or Surviving Corporation who immediately prior to the Effective Time was an employee of the Company (each such employee, a "Continuing Employee") full credit for purposes of eligibility, vesting, vacation, seniority and sick pay to the extent permissible under applicable law. In the event Parent causes Surviving Corporation to terminate a welfare plan so that there is a short plan year, Parent will use its best efforts to, or will cause Surviving Corporation to provide each Continuing Employee with credit for the remaining short plan year for any co-payments and deductibles paid under each comparable employee welfare benefit plan maintained by Company prior to the Effective Time in satisfying any applicable deductible or co-payment requirements under any of Parent's employee welfare benefit plans that such Continuing Employees are eligible to participate in after the Effective Time. From and after the Effective Time, the Continuing Employees shall be eligible to participate in Parent's or Surviving Corporation's employee benefit plans and arrangements in which similarly situated employees of Parent or Surviving Corporation participate, to the same extent as such similarly situated employees. ARTICLE VII CONDITIONS PRECEDENT Section 7.1 Conditions to Each Party's Obligation To Effect the Reorganization. The respective obligation of each party to effect the Reorganization is subject to the satisfaction or waiver on or prior to the Closing Date of the following conditions: (a) The waiting period (and any extension thereof) applicable to the Reorganization under the HSR Act shall have been terminated or shall have expired. (b) No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Reorganization shall be in effect; provided, however, that the parties hereto shall use their best efforts to have any such injunction, order, restraint or prohibition vacated. (c) The Parent and the Company shall each have received written opinions from their respective counsel to the effect that the Securities Purchase will constitute a reorganization within the meaning of Section 368(a) of the Code; provided, however, that if the counsel to either the Parent or the Company does not render such opinion, this condition shall nonetheless be deemed to be satisfied with respect to such party if counsel to the other party renders such opinion to such party. The parties to this Agreement agree to make reasonable representations as requested by such counsel for the purpose of rendering such opinions. (d) Employment Agreement. The Parent and Thomas A. Price shall have entered into a mutually agreed upon employment agreement. 50 Section 7.2 Conditions to Obligations of the Parent and Newco. The obligations of the Parent and Newco to effect the Reorganization are further subject to the following conditions: (a) Representations and Warranties. The representations and warranties of the Company and the Stockholders set forth in this Agreement shall be true and correct, in each case as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, except (in the case of the representations and warranties of the Company only) where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to "materiality" or "Material Adverse Effect" set forth therein) would not individually or in the aggregate have a Material Adverse Effect, or (in the case of the representations and warranties of any particular Stockholder only) where the failure of such representations and warranties to be so true and correct would prevent the purchase of the Company Securities from such Stockholder in accordance with the terms hereof such that the condition set forth in Section 7.2(g) below would not be satisfied. The Parent shall have received (i) with respect to the representations and warranties of the Company, a certificate signed on behalf of the Company by the chief executive officer and the chief financial officer of the Company, and (ii) with respect to the representations and warranties of the Stockholders, a certificate signed by the Stockholders' Agent on behalf of each of the Stockholders, in each case to the effect set forth in this paragraph. (b) Performance of Obligations. The Company and the Stockholders shall have performed the respective obligations required to be performed by them under this Agreement at or prior to the Closing Date (except, in the case of the obligations of the Company only, for such failures to perform either individually or in the aggregate that would not have a Material Adverse Effect with respect to the Company or materially adversely affect the ability of the Company to consummate the transactions herein contemplated or perform its obligations hereunder). (c) Consents, etc. The Parent shall have received evidence, in form and substance reasonably satisfactory to it, that such licenses, permits, consents, approvals, authorizations, qualifications and orders of governmental authorities and other third parties as are necessary in connection with the transactions contemplated hereby have been obtained, except where the failure to obtain such licenses, permits, consents, approvals, authorizations, qualifications and orders individually or in the aggregate would not have a Material Adverse Effect with respect to the Company, provided, however, that insofar as the foregoing Material Adverse Effect exception relates to Leases of Real Property, the parties agree that it would constitute a Material Adverse Effect if the failure to obtain the consent from a particular landlord under a Lease could reasonably be expected to result in the inability of a dealership to continue its operations substantially at that location. (d) No Litigation. There shall not be pending any suit, action or proceeding by any Governmental Entity or by any other Person, which has a reasonable likelihood of success and which, if successful, would have a Material Adverse Effect with respect to the Company or the Parent, or materially adversely affect the ability of the parties hereto to consummate the transactions contemplated herein. 51 (e) Closing Documentation. The Parent shall have received the following documents, agreements and instruments from the Company: (i) an opinion of Gray Cary Ware & Freidenrich LLP, dated the Closing Date and addressed to the Parent and Newco, in substantially the form of Exhibit F hereto; (ii) certificates dated as of a recent date from the Secretary of State of the States of Delaware and any other applicable states to the effect that each of the Company and its Subsidiaries is duly incorporated and in good standing in such state and stating that the Company and its Subsidiaries owes no franchise taxes in such state and listing all documents of the Company and its Subsidiaries on file with said Secretary of State; (iii) a copy of the Certificate of Incorporation of the Company, including all amendments thereto, certified as of a recent date by the Secretary of State of the State of Delaware; (iv) evidence, reasonably satisfactory to the Parent, of the authority and incumbency of the persons acting on behalf of the Company in connection with the execution of any document delivered in connection with this Agreement; (v) Uniform Commercial Code Search Reports on Form UCC-11 with respect to the Company and its Subsidiaries from the states and local jurisdictions where the principal place of business of the Company and its Subsidiaries and their respective assets are located, the search reports of which shall confirm compliance with Section 3.15 (and Schedule thereto) of this Agreement; (vi) the corporate minute books and stock record books of the Company and its Subsidiaries; (vii) estoppel letters of lenders to the Company, in form and substance reasonably satisfactory to the Parent, with respect to amounts (including any pre-payment penalties) owing by the Company as of the Closing; and (viii) such other instruments and documents as the Parent shall reasonably request not inconsistent with the provisions hereof. (f) No Material Adverse Change. There shall have been no Material Adverse Change in the Company since June 30, 1999. (g) Company Securities. The Company Securities held by the Stockholders as of the Closing Date shall include not less than 96% of the issued and outstanding shares of Company Common Stock, or such lesser percentage, not less than 90%, as shall have been specifically agreed to by the Parent pursuant to Section 9.15. (h) Manufacturer Approval. The Manufacturers shall have given any required approval of the Reorganization and shall have given any required approval of O. Bruton Smith or his designee as the authorized dealer operator of the Company's and its Subsidiaries' dealership 52 franchises with the Manufacturers at the present dealership locations in their existing facilities as currently configured for dealership operations, and the Manufacturers shall have executed any required dealer agreements and/or amendments or supplements thereto in connection with the foregoing. (i) Prepayment of Convertible Debt; Termination of Registration Rights. All convertible debt shall have been prepaid, and the Parent shall have received reasonably satisfactory evidence thereof. Additionally, all of the registration rights underlying the Company Warrants shall have been terminated. (j) Delivery of Company Securities. The respective Stockholders shall have delivered the certificate or certificates representing all of the Company Securities, in accordance with Section 1.1 hereof. (k) [INTENTIONALLY LEFT BLANK] (l) [INTENTIONALLY LEFT BLANK] (m) Auto Town Spin-Off. The divestiture or liquidation of DSW Associates, Inc., d/b/a Auto Town, shall have been completed with the prior approval of the Parent. The Company shall inform the Parent of the manner of divesting, liquidating or otherwise disposing of DSW Associates, d/b/a "Auto Town", prior to the Completion thereof, it being understood that the Parent shall not unreasonably withhold such prior approval. Notwithstanding the foregoing, it shall be a basis for the Parent to withhold its approval if such divestiture, liquidation or other disposition is on terms which could result in any continuing material liability or obligation of the Company to Auto Town or its stockholders. (n) Termination of Stockholder Agreement. The Stockholder Agreement dated as of July 11, 1997, as amended to date, by and among the Company, Thomas Price, Donald Strough, Steven Hallock, Fred Cziska, Al Babbington, John Driebe, Embarcadero Automotive, L.L.C., Raintree Capital LLC, BB Investments and certain affiliates of Trust Company of the West, shall have been terminated. (o) [INTENTIONALLY LEFT BLANK] (p) The Parent shall have obtained the consents or approvals of the parties set forth in Schedule 4.4(c) hereto. Notwithstanding the foregoing, the obligations of the Parent and Newco to effect the Reorganization shall not be relieved by the failure of any of the foregoing conditions if such failure is the result, direct or indirect, of any breach by the Parent or Newco of any of their obligations under this Agreement. Section 7.3 Conditions to Obligation of the Company and the Stockholders. The obligations of the Company and the Stockholders to effect the Reorganization are further subject to the following conditions: 53 (a) Representations and Warranties. The representations and warranties of the Parent and Newco set forth in this Agreement shall be true and correct, in each case as of the date of this Agreement and (except to the extent such representations and warranties speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, except where the failure of such representations and warranties to be so true and correct (without giving effect to any limitation as to "materiality" or "Material Adverse Effect" set forth therein) would not individually or in the aggregate have a Material Adverse Effect with respect to, the Parent and Newco. The Company shall have received a certificate signed on behalf of the Parent by an authorized officer of the Parent to the effect set forth in this paragraph. (b) Performance of Obligations of the Parent and Newco. The Parent and Newco shall have performed the obligations required to be performed by them under this Agreement at or prior to the Closing Date (except for such failures to perform, either individually or in the aggregate, that would not have a Material Adverse Effect with respect to the Parent and Newco or materially adversely affect the ability of the Parent and Newco to consummate the transactions herein contemplated or perform their respective obligations hereunder). (c) Closing Documentation. The Company shall have received the following documents, agreements and instruments from the Parent: (i) an opinion of Parker, Poe, Adams & Bernstein L.L.P., dated the Closing Date and addressed to the Company and the Stockholders, substantially in the form of Exhibit G hereto; (ii) certificates dated as of a recent date from the Secretary of State of the State of Delaware to the effect that the Parent is duly incorporated and in good standing in such State; (iii) a copy of the Parent's Certificate of Incorporation, including all amendments thereto, certified by the Secretary of State of the State of Delaware; (iv) evidence reasonably satisfactory to the Company as to the authority and incumbency of the persons acting on behalf of the Parent in connection with the execution of any document delivered in connection with this Agreement; and (v) such other instruments and documents as the Company shall reasonably request not inconsistent with the provisions hereof. Notwithstanding the foregoing, the obligations of the Company and the Stockholders to effect the Reorganization shall not be relieved by the failure of any of the foregoing conditions if such failure is the result, direct or indirect, of any breach by the Company or any of the Stockholders of any of their respective obligations under this Agreement. (d) No Material Adverse Change. There shall have been no Material Adverse Change in Parent since the Parent Balance Sheet Date. 54 (e) Delivery of Parent Common Stock. Newco shall have delivered to the respective Stockholders the certificates representing the Parent Common Stock, in accordance with Section 1.2 hereof. ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER Section 8.1 Termination. This Agreement may be terminated and abandoned at any time prior to the Closing: (a) by mutual written consent of the Parent, the Company and the Stockholders' Agent; or (b) by either the Parent or the Company, if any governmental entity shall have issued an order, decree or ruling or taken any other action permanently enjoining, restraining or otherwise prohibiting the Reorganization and such order, decree, ruling or other action shall have become final and nonappealable; or (c) by (i) the Parent, if the Reorganization shall not have been consummated on or before the Closing Date Deadline (as defined in Section 9.5) (other than due to the failure of the Parent or Newco to perform its obligations under this Agreement required to be performed at or prior to the Closing), or (ii) the Company, if the Reorganization shall not have been consummated on or before the Closing Date Deadline (other than due to the failure of the Company or any of the Stockholders to perform its obligations under this Agreement required to be performed at or prior to the Closing); provided, however, that any such termination by either such party shall be subject to the right of the other party to extend the Closing Date Deadline, as contemplated by Section 9.5; or (d) by the Parent, if the holders of a majority of the outstanding shares of the Company Common Stock and Company Preferred Stock shall not have approved the Reorganization, this Agreement and the consummation of the transactions contemplated hereby; or (e) by the Parent, if the Company or its Board of Directors shall have (i) withdrawn, modified or amended in any respect adverse to the Parent its approval or recommendation of this Agreement or any of the transactions contemplated herein, (ii) recommended any Transaction Proposal from a Person other than the Parent or Newco or any of their Affiliates, or (iii) resolved to do any of the foregoing; or (f) by the Parent if a breach of any representation, warranty, covenant or agreement on the part of the Company or any of the Stockholders set forth in this Agreement shall have occurred which if uncured would cause any condition set forth in Section 7.2(a) or Section 7.2(b) not to be satisfied, and such breach is incapable of being cured or, if capable of being cured, shall not have been cured within twenty (20) business days following receipt by the Company of written notice of such breach from Parent; or 55 (g) by the Company, if a breach of any representation, warranty, covenant or agreement on the part of Parent or Newco set forth in this Agreement shall have occurred which if uncured would cause any condition set forth in Section 7.3(a) or Section 7.3(b) not to be satisfied, and such breach is incapable of being cured or, if capable of being cured, shall not have been cured within twenty (20) business days following receipt by Parent of written notice of such breach from the Company. Section 8.2 Effect of Termination. In the event of termination of this Agreement by either the Company or the Parent as provided in Section 8.1, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of the Parent, Newco or the Company, other than the provisions of Section 3.11 (Brokers), Section 4.8 (Brokers), the last sentence of Section 5.3(a) (Access to Information; Confidentiality), the last sentence of Section 6.3(a) (Access to Information; Confidentiality), Section 5.10 (Bridge Financing), this Section 8.2, Section 9.3 (Fees and Expenses), Section 9.8 (Entire Agreement; No Third Party Beneficiaries) and Section 9.9 (Governing Law). Nothing contained in this Section shall relieve any party of any liability for any breach of the representations, warranties, covenants or agreements set forth in this Agreement. Section 8.3 Amendment. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. Notwithstanding the foregoing, the Stockholders' Agent may execute any such writing on behalf of all of the Stockholders so long as such writing does not (a) amend any provision of Articles I, IIIA or VA hereof or (b) amend any other provision of this Agreement in a way which materially increases any liability or materially decreases any right of the Stockholders hereunder. Section 8.4 Extension; Waiver. At any time prior to the Closing, the parties may (a) extend the time for the performance of any of the obligations or other acts of the other parties, (b) waive any inaccuracies in the representations and warranties contained in this Agreement or in any document delivered pursuant to this Agreement or (c) waive compliance with any of the agreements or conditions contained in this Agreement. Any agreement on the part of a party to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party. Notwithstanding the foregoing, the Stockholders' Agent may execute any such agreement on behalf of all of the Stockholders so long as such agreement does not apply to an extension or waiver with respect to any provision of Article I, IIIA or VA hereof or to any other provision of this Agreement where such extension or waiver materially increases any liability or materially decreases any right of the Stockholders hereunder. The failure of any party to this Agreement to assert any of its rights under this Agreement or otherwise shall not constitute a waiver of such rights. Section 8.5 Procedure for Termination, Amendment, Extension or Waiver. A termination of this Agreement pursuant to Section 8.1, an amendment of this Agreement pursuant to Section 8.3 or an extension or waiver pursuant to Section 8.4 shall, in order to be effective, require in the case of the Parent or the Company, action by its Board of Directors or the duly authorized designee of its Board of Directors. 56 ARTICLE IX GENERAL PROVISIONS Section 9.1 Best Reasonable Efforts. Upon the terms and subject to the conditions set forth in this Agreement, each of the parties agrees to use its best reasonable efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable under applicable laws and regulations to consummate and make effective, in the most expeditious manner practicable, the Reorganization and the other transactions contemplated by this Agreement. The Parent and the Company will use their best reasonable efforts and cooperate with one another (i) in promptly determining whether any filings are required to be made or consents, approvals, waivers, licenses, permits or authorizations are required to be obtained (or, which if not obtained, would result in an event of default, termination or acceleration of any agreement or any put right under any agreement) under any applicable law or regulation or from any governmental entities or third parties, including parties to loan agreements or other debt instruments, in connection with the transactions contemplated by this Agreement, including the Reorganization and (ii) in promptly making any such filings, in furnishing information required in connection therewith and in timely seeking to obtain any such consents, approvals, permits or authorizations. Section 9.2 Survival of Representations and Warranties. The representations and warranties of the Stockholders contained in this Agreement shall survive the Closing. Except as provided in the last sentence of this Section 9.2, none of the representations and warranties of the Company, the Parent or Newco contained in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Closing and all such representations and warranties will be extinguished on consummation of the Reorganization and neither the Company, the Parent or Newco, nor any officer, director, or employee or stockholder of the Company, the Parent or Newco, shall be under any liability whatsoever with respect to any such representation or warranty of the Company, the Parent or Newco contained after such time. This Section 9.2 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Closing. Notwithstanding the foregoing, for purposes of the indemnification obligations of the Stockholders under Section 5A.7 of this Agreement, the representations and warranties of the Company contained in this Agreement shall be deemed to survive the Closing. Section 9.3 Fees and Expenses. (a) If this Agreement is terminated pursuant to Section 8.1(d) or Section 8.1(e), then the Company shall (provided that the Parent or Newco is not then in material breach of its obligations under this Agreement), promptly, but in no event later than four (4) business days after the termination of this Agreement, reimburse the Parent and Newco for all documented out-of-pocket expenses and fees (including, without limitation, fees payable to all banks, investment banking firms and other financial institutions, and their respective agents and counsel, and all fees of counsel, accountants, financial printers, experts and consultants to Newco and its Affiliates), whether incurred prior to, on or after the date hereof, in connection with the Reorganization and the consummation of all transactions contemplated by this Agreement and the financing thereof. 57 (b) In the event a fee is or becomes payable pursuant to Section 9.3(a) hereof, the Company agrees promptly, but in no event later than four (4) business days following written notice thereof, together with related bills or receipts, to reimburse the Parent and Newco for all reasonable out-of-pocket costs, fees and expenses, including, without limitation, the reasonable fees and disbursements of counsel and the expenses of litigation, incurred in connection with collecting the expenses pursuant to said Section 9.3(a), as a result of any breach by the Company of its obligations under this Section 9.3. (c) Except as provided otherwise in Section 9.3(a) above, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby and thereby shall be paid by the party incurring such expenses. Section 9.4 Notices. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if (i) delivered personally, (ii) sent by overnight courier (providing proof of delivery) or (iii) upon transmission (with confirmed delivery to the recipient of such communication) by facsimile to the parties at the following addresses (or at such other address for a party as shall be specified by like notice): (a) if to the Parent or Newco, to(a) Sonic Automotive, Inc. 5401 East Independence Boulevard Charlotte, North Carolina 28212 Attention: Mr. Theodore M. Wright with a copy to Parker, Poe, Adams & Bernstein, LLP 2500 Charlotte Plaza Charlotte, North Carolina 28244 Attention: Edward W. Wellman, Jr. (b) if to the Company, to FirstAmerica Automotive, Inc. 601 Brannon Street San Francisco, California 94107 Attention: Mr. Thomas A. Price 58 with copies to: Gray, Cary, Ware & Freidenrich, LLP 400 Hamilton Avenue Palo Alto, California 94301-1825 Attention: Andrew D. Zeif, Esq. or (c) if to the Stockholders or any of them, to the addresses listed below their respective names on Exhibit A attached hereto. Section 9.5 Certain Definitions. For purposes of this Agreement: (a) "Affiliate" of any Person means another Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person; (b) The terms "beneficially own" or "beneficial ownership" with respect to any securities shall mean having "beneficial ownership" of such securities (as determined pursuant to Rule 13d-3 under the Exchange Act), including pursuant to any agreement, arrangement or understanding, whether or not in writing. Without duplicative counting of the same securities by the same holder, securities beneficially owned by a Person shall include securities beneficially owned by all other Persons with whom such Person would constitute a "group" as described in Section 13(d)(3) of the Exchange Act. (c) "Closing Date Deadline" means December 31, 1999; provided, however, if as of such date the approvals of the Manufacturers contemplated by Section 7.2(h) shall not have been obtained or the waiting period (and any extension thereof) applicable to the Reorganization under the HSR Act shall not have been terminated or shall not have expired, the Parent or the Company may, by written notice to the other, elect to extend the Closing Date Deadline for an additional sixty (60) days. (d) "Knowledge" with respect to the Company means the actual knowledge of the following persons: Thomas A. Price, Donald V. Strough, W. Bruce Bercovich, Charles R. Oglesby, Debra L. Smithart, and David J. Moeller, in each case after reasonable investigation and inquiry; provided, however, the Company shall be deemed to have knowledge of all material facts disclosed in the agreements (including related disclosure schedules) with respect to the Pending Acquisition; (e) "Lien" means any pledge, claim, lien, charge, encumbrance or security interest of any kind or nature whatsoever; (f) "Manufacturers" means Acura Division of American Honda Motor Co., Inc., BMW of North America, Inc., Cadillac Motor Car Division of General Motors Corp., Chevrolet Motor Division of General Motors Corp., Chrysler-Plymouth-Jeep (Chrysler Corp.), Dodge Division of Chrysler Corp., Ford Division of Ford Motor Co., Honda Division of America Honda Motor Co., Inc., American Isuzu Motors, Inc., Lexus Division of Toyota Motor Sales, 59 U.S.A., Inc., Daimler-Chrysler (Mercedes), Mitsubishi Motor Sales of America, Inc., Nissan Motor Corporation in U.S.A., Oldsmobile Division of General Motors Corp., Toyota Motor Sales, U.S.A., Inc., Volkswagen of America, Inc. and Volvo Cars North-America, Inc. (g) "Material Adverse Change" or "Material Adverse Effect" means, when used in connection with any Person, any change or effect that either individually or in the aggregate with all other such changes or effects is materially adverse to the business, assets, liabilities, financial condition or results of operations of such Person but shall exclude any change or effect resulting from (i) general economic conditions or (ii) general conditions in the automotive industry; (h) "Pending Acquisitions" means the pending acquisitions identified as such in Amendment No. 4 to the Company's Registration Statement on Form S-1 (Registration No. 333-75907), as well as the following pending acquisitions: Capitol Ford, Inc.; and RAB Motors, Inc., d/b/a Lexus of Marin and Land Rover of Marin. The fact that any Pending Acquisition identified in the foregoing Registration Statement shall have closed prior to the date hereof or the Closing shall not affect its status hereunder as a Pending Acquisition. (i) "Person" means an individual, corporation, partnership, joint venture, association, trust, unincorporated organization or other entity; and (j) "Subsidiary" of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first Person. (k) In the event of a stock dividend or distribution, or any change in the Company Common Stock or Company Preferred Stock by reason of any stock dividend, split-up, recapitalization, combination, exchange of shares or the like, the term "Shares" shall be deemed to refer to and include the Shares as well as all such stock dividends and distributions and any shares into which or for which any or all of the Shares may be changed or exchanged. Section 9.6 Interpretation. When a reference is made in this Agreement to a Section, Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include", "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." Section 9.7 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties. Section 9.8 Entire Agreement; No Third-Party Beneficiaries. This Agreement and the other agreements referred to herein constitute the entire agreement, and supersede all prior agreements and understandings, both written and oral, among the parties with respect to the 60 subject matter of this Agreement. This Agreement, other than Section 6.4, is not intended to confer upon any Person other than the parties hereto any rights or remedies. Section 9.9 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, regardless of the laws that might otherwise govern under principles of conflicts of laws. Section 9.10 Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns. Section 9.11 Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement. Section 9.12 Consent to Jurisdiction. Any judicial proceeding brought with respect to this Agreement must be brought in any court of competent jurisdiction in the State of California, and, by execution and delivery of this Agreement, each party (i) accepts, generally and unconditionally, the exclusive jurisdiction of such courts and any related appellate court, and irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement and (ii) irrevocably waives any objection it may now or hereafter have as to the venue of any such suit, action or proceeding brought in such a court or that such court is an inconvenient forum. THE PARTIES HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING TO WHICH THEY ARE PARTIES INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT. Section 9.13 Severability. Whenever possible, each provision or portion of any provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision or portion of any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability will not affect any other provision or portion of any provision in such jurisdiction, and this Agreement will be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein. Section 9.14 Construction. This Agreement shall be construed equitably in accordance with its terms, without regard to the degree to which the Company, the Stockholders or the Parent, or their respective legal counsel, have participated in the drafting of this Agreement. Section 9.15 Effectiveness of this Agreement; Merger Agreement and Stockholder Agreement Superseded. This Agreement shall become effective when it shall have been executed by the Parent, Newco and Stockholders who hold, benefiically and of record, at least 61 96% of the issued and outstanding shares of Company Common Stock, or such lesser percentage, not less than 90%, as shall be specifically agreed to in writing by the Parent. Upon the effectiveness of this Agreement and provided that this Agreement shall have been executed by the Stockholders who are party to the Stockholder Agreement, each of the Merger Agreement and the Stockholder Agreement shall be superseded hereby and of no further force or effect. Section 9.16 Concerning the Stockholders' Agent. By their respective signatures below, the Stockholders hereby acknowledge the appointment of Thomas A. Price as the Stockholders' Agent hereunder and under the Escrow Agreement. The parties hereto agree that a decision, consent, instruction or other act of the Stockholders' Agent, including, but not limited to, a termination, amendment, extension or waiver of this Agreement pursuant to Section 8.1, Section 8.3 and Section 8.4 hereof, shall constitute a decision, consent, instruction or other act, as the case may be, of the Stockholders and shall be final, binding and conclusive upon the Stockholders; and the parties hereto agree that the Escrow Agent, the Parent, Newco and the Surviving Corporation may each rely upon any such decision, consent, instruction or other act of the Stockholders' Agent as being the decision, consent, instruction or other act, as the case may be, of the Stockholders. [SIGNATURES APPEAR ON FOLLOWING PAGES] 62 COUNTERPART SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION IN WITNESS WHEREOF, the Parent, Newco, the Company and the Stockholders have signed this Agreement or have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above. PARENT: SONIC AUTOMOTIVE, INC. By: /s/ Theodore M. Wright ----------------------------------- Name: Theodore M. Wright Title: Chief Financial Officer, Vice President-Finance, Treasurer and Secretary NEWCO: FAA ACQUISITION CORP. By: /s/ Theodore M. Wright ----------------------------------- Name: Theodore M. Wright Title: Vice President, Secretary and Treasurer COMPANY: FIRSTAMERICA AUTOMOTIVE, INC. By: /s/ Thomas A. Price ----------------------------------- Name: Thomas A. Price Title: President and Chief Executive Officer COUNTERPART SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION STOCKHOLDERS: /s/ Thomas A. Price /s/ Gwendolyn L. Price - ------------------------------------ ------------------------------- Name: Thomas A. Price, Spouse: Gwendolyn L. Price individually and as trustee /s/ Donald V. Strough /s/ Linda L. Strough - ------------------------------------ ------------------------------- Name: Donald V. Strough Spouse: Linda L. Strough /s/ T. Al Babbington /s/ Alliana W. Babbington - ------------------------------------ ------------------------------- Name: T. Al Babbington Spouse: Alliana W. Babbington /s/ John M. Driebe /s/ Christina Driebe - ------------------------------------ ------------------------------- Name: John M. Driebe Spouse: Christina Driebe /s/ Fred Cziska /s/ Teresa Cziska - ------------------------------------ ------------------------------- Name: Fred Cziska Spouse: Teresa Cziska /s/ Steve Hallock /s/ Kathryn Hallock - ------------------------------------ ------------------------------- Name: Steve Hallock Spouse: Kathryn Hallock /s/ Brad Hallock - ------------------------------------ ------------------------------- Name: Brad Hallock Spouse: COUNTERPART SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION BB INVESTMENTS a California General Partnership /s/ W. Bruce Bercovich - ---------------------------- Name: W. Bruce Bercovich EMBARCADERO AUTOMOTIVE, LLC /s/ W. Bruce Bercovich - ---------------------------- Name: W. Bruce Bercovich GEARY PLAZA IRREVOCABLE TRUST /s/ W. Bruce Bercovich - ---------------------------- Name: W. Bruce Bercovich TCW SHARED OPPORTUNITY FUND II, L.P. By: TCW Investment Management Company, its investment advisor /s/ Jean-Marc Chapus - ---------------------------- Name: Jean-Marc Chapus TCW SHARED OPPORTUNITY FUND II, L.P. By: TCW Investment Management Company, its investment advisor /s/ Nicholas W. Tell, Jr. - ---------------------------- Name: Nicholas W. Tell, Jr. COUNTERPART SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION TCW LEVERAGED INCOME TRUST II, L.P. By: TCW (LINC II), L.P., as General Partner By TCW Advisors (Bermuda), Limited, as General Partner /s/ Nicholas W. Tell, Jr. - ---------------------------- Name: Nicholas W. Tell, Jr. Managing Director By: TCW Investment Management Company its investment advisor /s/ Jean-Marc Chapus - ---------------------------- Name: Jean-Marc Chapus Managing Director By: TCW Investment Management Company its investment advisor COUNTERPART SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION TCW/CRESCENT MEZZANINE PARTNERS, L.P. TCW/CRESCENT MEZZANINE TRUST TCW/CRESCENT MEZZANINE INVEST- MENT PARTNERS, L.P. By: TCW/Crescent Mezzanine, L.L.C. its general partner or managing owner /s/ Jean-Marc Chapus - ---------------------------- Name: Jean-Marc Chapus President TCW LEVERAGED INCOME TRUST, L.P. By: TCW Advisors (Bermuda), Limited, as General Partner /s/ Nicholas W. Tell, Jr. - ---------------------------- Name: Nicholas W. Tell, Jr. Managing Director By: TCW Investment Management Company its investment advisor /s/ Jean-Marc Chapus - ---------------------------- Name: Jean-Marc Chapus Managing Director COUNTERPART SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION CRESCENT/MACH I PARTNERS, L.P. By: TCW Asset Management Company, as investment manager and attorney-in-fact /s/ Jean-Marc Chapus - -------------------------- Name: Jean-Marc Chapus Managing Director /s/ Nicholas W. Tell, Jr. - -------------------------- Name: Nicholas W. Tell, Jr. Managing Director ASIAN PACIFIC By:_______________________ RAINTREE CAPITAL By: /s/ Douglas Y. Bech ---------------------- Douglas Y. Bech /s/ Ralph McBride - -------------------- Ralph McBride /s/ Thomas R. Powers - -------------------- Thomas R. Powers /s/ Jack R. Tompkins - -------------------- Jack R. Tompkins /s/ Brian Tucker - -------------------- Brian Tucker /s/ Bert Wollen - -------------------- Bert Wollen COUNTERPART SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION WARRANT HOLDERS: /s/ T.J. Holterhoff /s/ Canale Holterhoff - ----------------------------------- -------------------------------- Name: T.J. Holterhoff Spouse: Canale Holterhoff /s/ Carlanee Foushee /s/ Dennis S. Morgan - ----------------------------------- -------------------------------- Name: Carlanee Foushee Spouse: Dennis S. Morgan BROWN, GIBBONS, LANG By: /s/ Scott H. Lang _______________________________ Scott H. Lang CAPMAN, INC. By: _______________________________ EX-27 8 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-Q FOR THE NINE MONTHS ENDING SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 69,865 0 54,831 1,465 362,645 499,929 42,315 0 910,150 344,950 214,235 0 27,254 360 306,251 910,150 1,904,602 2,186,946 1,897,956 1,897,956 214,436 0 27,295 47,621 18,250 29,371 0 0 0 29,371 0.98 0.88
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