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Filed Pursuant to Rule 424(b)(1)
Registration No. 333-91340
PROSPECTUS
$250,000,000
ASBURY AUTOMOTIVE GROUP, INC.
EXCHANGE OFFER FOR
UP TO $250,000,000 PRINCIPAL AMOUNT OUTSTANDING
OF 9% SENIOR SUBORDINATED NOTES DUE 2012
FOR A LIKE PRINCIPAL AMOUNT
OF NEW 9% SENIOR SUBORDINATED NOTES DUE 2012
------------------
We are offering to exchange new 9% Senior Subordinated Notes due 2012 (the
"New Notes") for all of our outstanding unregistered 9% Senior Subordinated
Notes due 2012 (the "Original Notes"). The new 9% Senior Subordinated Notes due
2012 will be free of the transfer restrictions that apply to our outstanding
unregistered 9% Senior Subordinated Notes due 2012 that you currently hold, but
will otherwise have substantially the same terms of the outstanding Original
Notes. This offer will expire at 5:00 p.m., New York City time, on August 21,
2002, unless we extend it. The New Notes will not trade on any established
exchange.
------------------------
Each broker-dealer that receives New Notes for its own account pursuant to
this exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The letter of transmittal
accompanying this prospectus states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of New Notes received in exchange for outstanding
Original Notes where such outstanding Original Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. We have agreed that, for a period of 180 days after the expiration
of this exchange offer, we will make this prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 TO READ ABOUT IMPORTANT FACTORS YOU
SHOULD CONSIDER IN CONNECTION WITH THIS EXCHANGE OFFER.
------------------------
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN RECOMMENDED BY ANY UNITED STATES
FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY
OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
Prospectus dated July 22, 2002.
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TABLE OF CONTENTS
<Table>
Prospectus Summary.......................................... 1
Risk Factors................................................ 9
Forward-Looking Statements.................................. 21
Use of Proceeds............................................. 21
The Exchange Offer.......................................... 22
Capitalization.............................................. 30
Selected Consolidated Historical and As Adjusted Financial
Data...................................................... 31
Business.................................................... 52
Management.................................................. 70
Related Party Transactions.................................. 81
Principal Shareholders...................................... 84
Description of Other Indebtedness........................... 86
Description of the New Notes................................ 88
United States Federal Income Tax Consequences............... 132
Plan of Distribution........................................ 133
Legal Matters............................................... 133
Independent Accountants..................................... 133
Where You Can Find More Information......................... 134
</Table>
------------------------
No manufacturer or distributor has been involved, directly or indirectly, in
the preparation of this prospectus or in the exchange offer being made hereby.
No manufacturer or distributor has been authorized to make any statements or
representations in connection with this exchange offer, and no manufacturer or
distributor has any responsibility for the accuracy or completeness of this
prospectus or for the exchange offer.
i
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PROSPECTUS SUMMARY
The following is a summary of some of the information contained in this
prospectus. It may not contain all the information that is important to you. To
understand this exchange offer fully, you should read carefully the entire
prospectus, including the risk factors beginning on page 9 and the financial
statements and related notes. For the purposes of this prospectus, references to
"Asbury," "Company," "we," "us" and "our" refer to Asbury Automotive
Group, Inc., and unless the context otherwise requires, its subsidiaries and
their respective predecessors in interest.
THIS PROSPECTUS INCLUDES STATISTICAL DATA REGARDING THE AUTOMOTIVE RETAILING
INDUSTRY. UNLESS OTHERWISE INDICATED, SUCH DATA IS TAKEN OR DERIVED FROM
INFORMATION PUBLISHED BY:
- The Industry Analysis Division of the National Automobile Dealers
Association, also known as "NADA," NADA Data 2001.
- Automotive News 2002 Market Data Book.
- CNW Marketing/Research.
- Sales & Marketing Management 2001 Survey of Buying Power and Media
Markets.
- Bureau of Economic Analysis.
- J.D. Power.
Although we believe these industry sources are reliable, we have not
independently researched or verified this information. Accordingly, investors
should not place undue reliance on this information.
BUSINESS
OUR COMPANY
We are one of the largest automotive retailers in the United States,
currently operating 127 franchises at 91 dealership locations. We offer an
extensive range of automotive products and services, including new and used
vehicles and related financing and insurance, vehicle maintenance and repair
services, replacement parts and service contracts. Our retail network is
organized into nine regional dealership groups, or "platforms," which are
located in 17 market areas that we believe represent attractive opportunities,
generally due to the presence of relatively few dealerships and high rates of
population and income growth. Our revenues for the twelve months ended
March 31, 2002 were $4.3 billion.
Our franchises include a diverse portfolio of 36 American, European, and
Asian brands, and 67% of our 2001 new vehicle retail revenues were from either
luxury or mid-line import brands. We sell vehicles under the following brand
names: Acura, Audi, BMW, Buick, Cadillac, Chevrolet, Chrysler, Dodge, Ford, GMC,
Honda, Hyundai, Infiniti, Isuzu, Jaguar, Jeep, Kia, Land Rover, Lexus, Lincoln,
Mazda, Mercedes-Benz, Mercury, MINI, Mitsubishi, Nissan, Pontiac, Porsche,
Suzuki, Toyota, Volkswagen and Volvo. Additionally, we sell a limited number of
heavy trucks under the Hino, Isuzu, Navistar and Peterbilt brands.
We compete in a large and highly fragmented industry comprised of
approximately 22,150 franchised dealerships. The U.S. automotive retailing
industry is estimated to have annual sales of approximately $1 trillion, with
the 100 largest dealer groups generating less than 10% of total sales revenues
and controlling less than 8% of all franchised dealerships.
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OUR STRENGTHS
We believe our competitive strengths are as follows:
- DIVERSIFIED REVENUE AND PROFIT STREAMS. Used vehicle sales and parts,
service and collision repair generate higher profit margins than new
vehicle sales and tend to fluctuate less with economic cycles.
- HIGHLY VARIABLE COST STRUCTURE. Our variable cost structure helps us
manage expenses in a variety of economic environments, as the majority of
our operating expenses consist of incentive-based compensation, vehicle
carrying costs, advertising and other variable and controllable costs.
- ADVANTAGEOUS BRAND MIX. We believe our current brand mix includes a higher
proportion of luxury and mid-line import franchises to total franchises
than most public automotive retailers, accounting for approximately 67% of
new retail vehicle revenue in the year 2001. Luxury and mid-line imports
generate above average gross margins on new vehicles and have greater
customer loyalty and repeat purchase than mid-line domestic and value
automobiles.
- REGIONAL PLATFORMS WITH STRONG LOCAL BRANDS. Each of our platforms is
comprised of between 7 and 24 franchises and, on a pro forma basis for
2001, generated an average of approximately $500 million in revenues. We
believe that our cultivation of strong local brands can be beneficial
because: consumers may prefer to interact with a locally recognized brand;
placing our franchises in one region under a single brand allows us to
generate significant advertising savings; and our platforms can retain
customers even as they purchase and service different automobile brands.
- EXPERIENCED AND INCENTIVIZED MANAGEMENT. The former platform owners of
seven of our nine platforms, each with greater than 24 years of experience
in the automotive retailing industry, continue to manage their respective
platforms. At the platform level all our senior management are compensated
on an incentive-based pay system and the majority have a stake in our
performance based upon their ownership of approximately 23.5% of our total
equity as of March 31, 2002.
OUR STRATEGY
Our objective is to be the most profitable automotive retailer in our
platforms' respective markets. To achieve this objective, we intend to follow
the outlined strategy:
- FOCUS ON HIGHER MARGIN PRODUCTS AND SERVICES. We will continue to focus
our efforts on products and services that generate higher profit margins
than new vehicle sales, such as used vehicle retail sales, finance and
insurance, parts, service and collision repair, from which we currently
derive approximately two-thirds of our total gross profit.
- DECENTRALIZED DEALERSHIP OPERATIONS AND CENTRALIZED ADMINISTRATIVE AND
STRATEGIC FUNCTIONS. We believe that decentralized dealership operations
on a platform basis, completed by centralized technology and financial
controls, enable us to provide timely market-specific responses to sales,
services, marketing and inventory requirements.
- CONTINUED GROWTH THROUGH TARGETED ACQUISITIONS. We will seek to establish
platforms in new markets through acquisitions of large, profitable and
well-managed dealership groups. We will also pursue additional dealerships
within our established markets to complement our platforms.
------------------------
Our principal executive offices are located at 3 Landmark Square, Suite 500,
Stamford, Connecticut 06901. Our telephone number is (203) 356-4400. Information
contained on our website or that can be accessed through our website is not
incorporated by reference in this prospectus. You should not consider
information contained on our website or that can be accessed through our website
to be part of this prospectus.
2
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THE OFFERING
SUMMARY OF TERMS OF THE EXCHANGE OFFER
<Table>
Background................................ On June 5, 2002, we completed a private placement of the
Original Notes. In connection with that private
placement, we entered into a registration rights
agreement in which we agreed, among other things, to
complete an exchange offer.
The Exchange Offer........................ We are offering to exchange our New Notes which have
been registered under the Securities Act of 1933, as
amended (the "Securities Act") for a like principal
amount of our outstanding, unregistered Original Notes.
Original Notes may only be tendered in integral
multiples of $1,000 principal amount.
As of the date of this prospectus, $250,000,000 in
aggregate principal amount of our Original Notes are
outstanding.
Resale of New Notes....................... We believe that New Notes issued pursuant to the
exchange offer in exchange for Original Notes may be
offered for resale, resold and otherwise transferred by
you without compliance with the registration and
prospectus delivery provisions of the Securities Act,
provided that:
- you are acquiring the New Notes in the ordinary course
of your business;
- you have not engaged in, do not intend to engage in,
and have no arrangement or understanding with any person
to participate in the distribution of the New Notes;
and
- you are not our affiliate as defined under Rule 405 of
the Securities Act.
Each participating broker-dealer that receives New Notes
for its own account pursuant to the exchange offer in
exchange for Original Notes that were acquired as a
result of market-making or other trading activity must
acknowledge that it will deliver a prospectus in
connection with any resale of New Notes. See "Plan of
Distribution".
Consequences If You Do Not Exchange Your
Original Notes.......................... Original Notes that are not tendered in the exchange
offer or are not accepted for exchange will continue to
bear legends restricting their transfer. You will not be
able to offer or sell the Original Notes unless:
- pursuant to an exemption from the requirements of the
Securities Act; or
- the Original Notes are registered under the Securities
Act.
After the exchange offer is closed, we will no longer
have an obligation to register the Original Notes,
except for some
</Table>
3
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<Table>
limited exceptions. See "Risk Factors--Failure to
Exchange Your Original Notes."
Expiration Date........................... 5:00 p.m., New York City time, on August 21, 2002,
unless we extend the exchange offer.
Certain Conditions to the Exchange
Offer................................... The exchange offer is subject to certain customary
conditions, which we may waive.
Special Procedures for Beneficial
Holders................................. If you beneficially own Original Notes which are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to
tender in the exchange offer, you should contact such
registered holder promptly and instruct such person to
tender on your behalf. If you wish to tender in the
exchange offer on your own behalf, you must, prior to
completing and executing the letter of transmittal and
delivering your Original Notes, either arrange to have
the Original Notes registered in your name or obtain a
properly completed bond power from the registered
holder. The transfer of registered ownership may take a
considerable time.
Withdrawal Rights......................... You may withdraw your tender of Original Notes at any
time before the offer expires.
Accounting Treatment...................... We will not recognize any gain or loss for accounting
purposes upon the completion of the exchange offer. The
expenses of the exchange offer that we pay will increase
our deferred financing costs in accordance with
generally accepted accounting principles. See "The
Exchange Offer--Accounting Treatment."
Certain Tax Consequences.................. The exchange pursuant to the exchange offer generally
should not be a taxable event for U.S. federal income
tax purposes.
Use of Proceeds........................... We will not receive any proceeds from the exchange or
the issuance of New Notes in connection with the
exchange offer.
Exchange Agent............................ The Bank of New York is serving as exchange agent in
connection with the exchange offer.
</Table>
4
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SUMMARY DESCRIPTION OF THE SECURITIES TO BE REGISTERED
The New Notes have the same financial terms and covenants as the Original
Notes, which are as follows:
<Table>
Issuer.................................... Asbury Automotive Group, Inc.
Notes Offered............................. $250 million aggregate principal amount of 9% Senior
Subordinated Notes due 2012.
Maturity Date............................. June 15, 2012.
Issue Price............................... 9% plus accrued interest, if any, from June 5, 2002.
Interest.................................. 9% per annum, payable semi-annually in arrears on June
15 and December 15, commencing December 15, 2002.
Guarantors................................ The New Notes will be guaranteed by substantially all
our current subsidiaries and all of our future domestic
restricted subsidiaries that have outstanding, incur or
guarantee any other indebtedness. Each subsidiary
guarantor will provide a guarantee of the payment of
principal, premium, if any, and interest on the notes on
a senior subordinated basis.
Ranking................................... The New Notes are senior subordinated debt. Both the New
Notes and the subsidiary guarantees rank:
- junior to all of our and the subsidiary guarantors'
existing and future indebtedness (other than trade
payables but including any borrowings under our credit
facility and floor plan facilities), except
indebtedness that expressly provides it is not senior
to the notes and the subsidiary guarantees.
- equally with any of our and the subsidiary guarantors'
future senior subordinated indebtedness
- senior to any of our and the subsidiary guarantors'
future junior subordinated indebtedness and
- effectively junior to all existing and future
indebtedness of our non-guarantor subsidiaries.
No Entitlement to Sinking Fund............ The New Notes will not be entitled to the benefit of any
sinking fund.
Optional Redemption....................... Any time prior to June 15, 2005, we may, at our option,
use the net proceeds of one or more equity offerings to
redeem up to 35% of the aggregate principal amount of
New Notes.
At any time prior to June 15, 2007, we may, at our
option, redeem all or a portion of the New Notes in cash
at a price equal to 100% of their principal amount plus
the applicable premium described under "Description of
the New Notes--Optional Redemption."
On and after June 15, 2007, we may, at our option,
redeem all or a portion of the New Notes in cash at the
redemption prices described under "Description of the
New Notes--
</Table>
5
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<Table>
Optional Redemption", plus accrued and unpaid interest,
if any, to the date of redemption.
Mandatory Offer to Repurchase............. If we sell assets under specific circumstances, or
experience specific kinds of changes of control, we may
be required to offer to repurchase the New Notes at the
prices set forth in "Description of the New
Notes--Repurchase at the Option of Holders."
Basic Covenants of the Indenture.......... The indenture governing the notes contains covenants
that, among other things, limits our ability and the
ability of our restricted subsidiaries to:
- incur indebtedness or issue preferred shares;
- pay dividends or make other equity distributions in
respect of our capital stock or to make certain other
restricted payments;
- make investments;
- create liens;
- agree to payment restrictions affecting our restricted
subsidiaries;
- merge, consolidate or transfer or sell all or
substantially all of our assets;
- enter into transactions with our affiliates; and
- designate our subsidiaries as unrestricted
subsidiaries.
These covenants are subject to important qualifications
and exceptions. For more details, see the section
entitled "Description of the New Notes--Certain
Covenants."
Absence of a Public Market for the New
Notes................................... There is no public trading market for the New Notes, and
we do not intend to apply for listing of the New Notes
on any national securities exchange or for quotation of
the notes on any automated dealer quotation system. See
"Risk Factors--We cannot assure you that an active
trading market will develop for the notes."
</Table>
RISK FACTORS
Investing in the New Notes involves substantial risks. See the "Risk
Factors" section of this prospectus for a description of certain of the risks
you should carefully consider before determining whether to participate in the
exchange offer or invest in the notes.
ADDITIONAL INFORMATION
Our executive offices are located at 3 Landmark Square, Suite 500, Stamford,
Connecticut 06901. Our telephone number is (203) 356-4400. We were incorporated
in Delaware on February 15, 2002.
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SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL AND OTHER DATA
The summary below presents our historical consolidated financial information
and should be read in conjunction with the consolidated financial statements and
related notes appearing elsewhere in this prospectus. The pro forma column for
the year ended December 31, 2001, and for the three months ended March 31, 2002,
reflects our completed and probable acquisitions and divestitures as of
March 31, 2002, and our initial public offering and the use of proceeds thereof,
as if each had occurred at the beginning of the respective period. The pro forma
as adjusted column for the year ended December 31, 2001, and for the three
months ended March 31, 2002, reflects (i) the adjustments made in the pro forma
column and (ii) the offering of the Original Notes and the use of proceeds
thereof to repay outstanding indebtedness, as if all had occurred at the
beginning of the respective period.
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
2001
------------------------------------
PRO FORMA
PRO AS
1999(1) 2000(1) ACTUAL(1) FORMA ADJUSTED
---------- ---------- ---------- ---------- ----------
($ IN THOUSANDS EXCEPT PER VEHICLE DATA)
INCOME STATEMENT
DATA:
Revenues:
New vehicle........ $1,769,030 $2,393,014 $2,532,203 $2,720,326 $2,720,326
Used vehicle....... 764,599 1,049,279 1,144,076 1,237,371 1,237,371
Parts, service and
collision
repair........... 332,022 427,917 481,533 525,758 525,758
Finance and
insurance, net... 61,697 87,698 105,247 109,343 109,343
---------- ---------- ---------- ---------- ----------
Total revenues....... 2,927,348 3,957,908 4,263,059 4,592,798 4,592,798
Cost of Sales........ 2,494,074 3,367,277 3,598,567 3,889,568 3,889,568
---------- ---------- ---------- ---------- ----------
Gross profit....... 433,274 590,631 664,492 703,230 703,230
Selling, general and
administrative..... 335,000 441,889 510,430 539,360 539,360
Depreciation and
amortization....... 16,555 24,385 30,591 31,196 31,196
---------- ---------- ---------- ---------- ----------
Income from
operations....... 81,719 124,357 123,471 132,674 132,674
Floor plan interest
expense............ (22,451) (36,069) (27,238) (30,248) (30,248)
Other interest
expense............ (24,385) (41,648) (44,653) (44,196) (42,946)
Income before income
taxes, minority
interest,
extraordinary loss
and discontinued
operations......... 39,804 45,775 52,390 59,105 60,355
Provision for income
taxes.............. 1,742 3,570 4,980 25,652 26,356
Net income........... $ 15,649 $ 30,715 $ 44,184 $ 33,453 $ 33,999
========== ========== ========== ========== ==========
OTHER FINANCIAL DATA:
EBITDA(2)............ $ 78,995 $ 119,407 $ 131,266 $ 132,743 $ 137,743
EBITDA margin........ 2.7% 3.0% 3.1% 3.0% 3.0%
Capital
expenditures....... $ 22,327 $ 36,062 50,032 50,032 50,032
OTHER OPERATING DATA:
Finance and insurance
revenue per retail
vehicle sold....... $ 544 $ 585 $ 673 $ 651 $ 651
New vehicle retail
units sold......... 69,360 93,031 95,130 101,729 101,729
Used vehicle retail
units sold......... 44,083 56,925 61,213 66,240 66,240
Franchises........... 103 119 131 128 128
<Caption>
THREE MONTHS ENDED MARCH 31,
------------------------------------------------
2001 2002
--------- ------------------------------------
PRO FORMA
PRO AS
ACTUAL(1) ACTUAL FORMA ADJUSTED
--------- ---------- ---------- ----------
($ IN THOUSANDS EXCEPT PER VEHICLE DATA)
INCOME STATEMENT
DATA:
Revenues:
New vehicle........ $570,270 $ 631,105 $ 651,739 $ 651,739
Used vehicle....... 282,145 285,849 297,005 297,005
Parts, service and
collision
repair........... 116,054 125,068 132,769 132,769
Finance and
insurance, net... 23,258 26,563 27,290 27,290
-------- ---------- ---------- ----------
Total revenues....... 991,727 1,068,585 1,108,803 1,108,803
Cost of Sales........ 837,063 896,610 931,408 931,408
-------- ---------- ---------- ----------
Gross profit....... 154,664 171,975 177,395 177,395
Selling, general and
administrative..... 117,221 133,015 138,065 138,065
Depreciation and
amortization....... 7,041 5,833 5,938 5,938
-------- ---------- ---------- ----------
Income from
operations....... 30,402 33,127 33,392 33,392
Floor plan interest
expense............ (8,934) (4,350) (4,543) (4,543)
Other interest
expense............ (12,441) (9,778) (9,286) (9,849)
Income before income
taxes, minority
interest,
extraordinary loss
and discontinued
operations......... 9,650 18,822 19,386 18,823
Provision for income
taxes.............. 1,168 13,747 7,722 7,502
Net income........... $ 6,676 $ 5,162 $ 11,664 $ 11,321
======== ========== ========== ==========
OTHER FINANCIAL DATA:
EBITDA(2)............ $ 30,132 $ 34,533 $ 34,710 $ 34,710
EBITDA margin........ 3.0% 3.2% 3.1% 3.1%
Capital
expenditures....... 10,326 8,593 8,593 8,593
OTHER OPERATING DATA:
Finance and insurance
revenue per retail
vehicle sold....... $ 641 $ 709 $ 704 $ 704
New vehicle retail
units sold......... 21,518 22,529 23,292 23,292
Used vehicle retail
units sold......... 14,773 14,933 15,476 15,476
Franchises........... 119 128 128 128
</Table>
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<Table>
<Caption>
AS OF MARCH 31, 2002
-----------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
--------- --------- -----------
($ IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 78,112 $ 81,805 $ 81,805
Inventories................................................. 510,799 526,584 526,584
Working capital............................................. 168,428 175,710 175,710
Total assets................................................ 1,504,372 1,533,436 1,541,311
Floor plan notes payable.................................... 451,003 462,898 462,898
Total debt (excluding floor plan notes payable)............. 486,221 503,080 510,955
Total equity................................................ 405,813 405,813 405,813
</Table>
- ------------------------
(1) Effective with our initial public offering and conversion from a limited
liability company to a "C" corporation on March 13, 2002, we changed our
method of accounting for certain inventories from last-in, first-out
("LIFO") to specific identification and first-in, first-out ("FIFO"). The
new method of accounting was adopted to better match revenues and expenses
and to more clearly reflect periodic income. Our financial statements have
been restated to apply the new method retroactively. The effect of the
accounting change on net income previously reported for years 1999 through
2001 is:
<Table>
<Caption>
1999 2000 2001
-------- -------- --------
Net income as previously reported................ $16,148 $28,927 $43,829
Adjustment for effect of a change in accounting
principle that is applied retroactively........ (499) 1,788 355
------- ------- -------
Net income, as adjusted.......................... $15,649 $30,715 $44,184
======= ======= =======
</Table>
- ------------------------
(2) We define EBITDA as net income plus depreciation and amortization, other
interest expense, income tax expense and adjustment, minority interest, net
losses from unconsolidated affiliates, gain (loss) on the sale of assets and
discontinued operations. While EBITDA is not intended to represent cash flow
from operations as defined by GAAP and should not be considered as an
indicator of operating performance or an alternative to cash flow from
operating activities (as measured by GAAP) as a measure of liquidity, we
include it to provide additional information as to our ability to meet our
fixed charges, including interest on the notes, and is presented solely as a
supplemental measure. Our EBITDA may not be comparable to EBITDA of other
entities because other entities may not calculate EBITDA in the same manner
as we do. This method may not conform to the manner in which consolidated
cash flow is calculated for purposes of the indenture governing the notes.
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RISK FACTORS
You should carefully consider the following risks and other information in
this prospectus before deciding to acquire any of the New Notes or to exchange
any of the Original Notes.
RISKS RELATED TO THE NOTES
IF YOU FAIL TO EXCHANGE YOUR ORIGINAL NOTES, THEY WILL CONTINUE TO BE RESTRICTED
SECURITIES AND MAY BECOME LESS LIQUID.
Original Notes which you do not tender or we do not accept will, following
the exchange offer, continue to be restricted securities, and you may not offer
to sell them except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities law. We will
issue New Notes in exchange for the Original Notes pursuant to the exchange
offer only following the satisfaction of the procedures and conditions set forth
in "The Exchange Offer--Procedures for Tendering." Such procedures and
conditions include timely receipt by the exchange agent of such Original Notes
and of a properly completed and duly executed letter of transmittal.
Because we anticipate that most holders of Original Notes will elect to
exchange such Original Notes, we expect that the liquidity of the market for any
Original Notes remaining after the completion of the exchange offer may be
substantially limited. Any Original Notes tendered and exchanged in the exchange
offer will reduce the aggregate principal amount at maturity of the Original
Notes outstanding. Following the exchange offer, if you did not tender your
Original Notes you generally will not have any further registration rights, and
such Original Notes will continue to be subject to certain transfer
restrictions. Accordingly, the liquidity of the market for such Original Notes
could be adversely affected. The Original Notes are currently eligible for sale
pursuant to Rule 144A and Regulation S through the Private Offerings, Resale and
Trading through Automated Linkages market of the National Association of
Securities Dealers, Inc.
OUR SUBSTANTIAL LEVEL OF INDEBTEDNESS MAY LIMIT CASH FLOW AVAILABLE TO INVEST IN
THE ONGOING NEEDS OF OUR BUSINESS WHICH COULD PREVENT US FROM FULFILLING OUR
OBLIGATIONS UNDER THE NOTES.
We have a significant amount of indebtedness after the consummation of the
offering of the Original Notes. After giving effect to the application of the
proceeds of that offering, on a pro forma as adjusted basis, as of March 31,
2002, our total indebtedness would have been $511.0 million (excluding floor
plan notes payable), our shareholders' equity would have been $405.8 million and
our total indebtedness comprised 56% of our total capitalization (total
capitalization being defined as total equity plus total indebtedness). In
addition, as of March 31, 2002, we had $462.9 million of floor plan notes
payable outstanding on a pro forma as adjusted basis. We and our subsidiaries
will be permitted to incur substantial indebtedness in the future. The indenture
governing the notes does not limit the total amount of debt we or our
subsidiaries may incur. After accounting for the use of proceeds from the
offering of the Original Notes and adjusting for our completed and probable
acquisitions and divestitures, we have available approximately $443.1 million
for future borrowings under our credit facility.
Our level of indebtedness could have significant adverse consequences to
you. For example, it could:
- require us to dedicate a substantial portion of our cash flow from
operations to the payment of debt service, reducing the availability of
our cash flow to fund working capital, capital expenditures, acquisitions
and other general corporate purposes,
- increase our vulnerability to adverse economic or industry conditions,
9
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- limit our ability to obtain additional financing in the future to enable
us to react to changes in our business or industry,
- prevent us from raising the funds necessary to repurchase all notes
tendered to us upon the occurrence of specific changes of control in our
ownership, which could constitute a default under the indenture governing
the notes, or
- place us at a competitive disadvantage compared to businesses in our
industry that have less indebtedness.
Additionally, any failure to comply with covenants in the instruments
governing our debt could result in an event of default which, if not cured or
waived, could have a material adverse effect on us. See "Description of the New
Notes." We will have substantial debt service obligations, consisting of
required cash payments of principal and interest for the foreseeable future.
We may need to refinance all or a portion of our indebtedness, including the
credit facility, in order to meet our obligations under the New Notes and to
meet our other liquidity needs. We may not be able to do so on commercially
reasonable terms or at all.
WE ARE A HOLDING COMPANY AND AS A RESULT ARE DEPENDENT ON OUR SUBSIDIARIES TO
GENERATE SUFFICIENT CASH AND DISTRIBUTE CASH TO US TO SERVICE OUR INDEBTEDNESS,
INCLUDING THE NOTES.
Our ability to make payments on our indebtedness, fund our ongoing
operations and invest in capital expenditures and any acquisitions will depend
on our subsidiaries' ability to generate cash in the future and distribute that
cash to us. It is possible that our subsidiaries may not generate sufficient
cash from operations in an amount sufficient to enable us to service our
indebtedness, including the notes. Many of our subsidiaries are subject to
restrictions on the payment of dividends under certain circumstances pursuant to
their franchise agreements, dealer agreements, other agreements with
manufacturers, mortgages, loan facilities and floor plan agreements. For
example, most of the agreements contain minimum working capital or net worth
requirements, and some manufacturers' dealer agreements specifically prohibit a
distribution to us if the distribution would cause the dealership to fail to
meet such manufacturer's capitalization guidelines, including net working
capital. These restrictions limit our ability to utilize profits generated from
one subsidiary at other subsidiaries or, in some cases, at the parent company.
The above factors could also render our subsidiary guarantors financially or
contractually unable to make payments under their guarantees of the New Notes.
See "Description of Other Indebtedness."
YOUR RIGHT TO RECEIVE PAYMENTS ON THE NEW NOTES IS JUNIOR TO OUR EXISTING AND
FUTURE SENIOR INDEBTEDNESS AND THE EXISTING AND FUTURE SENIOR INDEBTEDNESS OF
OUR GUARANTORS.
The New Notes and the guarantees will be subordinated to the prior payment
in full of our and the guarantors' respective current and future senior
indebtedness to the extent set forth in the indenture. On a pro forma as
adjusted basis, as of March 31, 2002, after applying the proceeds of the
offering of the Original Notes as described under "Use of Proceeds," these notes
and the guarantees would have been subordinated to approximately $261.0 million
of total senior indebtedness, including $106.9 million of senior indebtedness
under our credit facility. On a pro forma as adjusted basis, the notes would
also have been subordinated to $462.9 million of senior indebtedness under our
floor plan facilities. Because of the subordination provisions of the notes, in
the event of the bankruptcy, liquidation or dissolution of Asbury or any
guarantor, our assets or the assets of the guarantors would be available to pay
obligations under the notes and our other senior subordinated obligations only
after all payments had been made on our or the guarantors' senior indebtedness.
Sufficient assets may not remain after all these payments have been made to make
required payments on the notes and any other senior subordinated obligations,
including payments of interest when due. As a result holders of
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notes may receive less, ratably, than our other unsecured general creditors if
we are the subject of a bankruptcy, liquidation, reorganization or similar
proceeding.
In addition, we will be prohibited from making all payments on the New Notes
and the guarantees in the event of a payment default on our senior indebtedness
(including borrowings under our credit facility and floor plan facilities) and,
for limited periods, upon the occurrence of other defaults under our credit
facility and floor plan facilities. In the event of a non-payment default under
our senior indebtedness, we may not have sufficient funds to pay all our
creditors, including the holders of the notes. See "Description of the New
Notes."
THE NEW NOTES AND SUBSIDIARY GUARANTEES ARE NOT SECURED.
In addition to being subordinated to all of our and our guarantors' existing
and future senior indebtedness, the New Notes and subsidiary guarantees will not
be secured by any of our assets or those of our subsidiaries. Our obligations
under our credit facility are secured by a blanket lien on all of our assets. In
addition, substantially all our new and used vehicle inventory, among other
assets, is pledged to secure our obligations under our floor plan facilities
under which we finance vehicle purchases. Finally, the terms of the New Notes do
not restrict us from granting liens to secure debt that is senior in right of
payment to the New Notes. If we become insolvent or are liquidated, or if
payment under the credit facility or any other secured senior indebtedness is
accelerated, the lenders under the credit facility or holders of other secured
senior indebtedness will be entitled to exercise the remedies available to a
secured lender under applicable law (in addition to any remedies that may be
available under documents pertaining to the credit facility or our other senior
indebtedness).
RESTRICTIONS IMPOSED BY OUR CREDIT FACILITY AND THE INDENTURE GOVERNING THE NEW
NOTES LIMIT OUR ABILITY TO OBTAIN ADDITIONAL FINANCING AND TO PURSUE BUSINESS
OPPORTUNITIES.
The operating and financial restrictions and covenants in our debt
instruments, including our credit facility and the New Notes, may adversely
affect our ability to finance our future operations or capital needs or to
pursue certain business activities. In particular, our credit facility requires
us to maintain certain financial ratios. Our ability to comply with these ratios
may be affected by events beyond our control. A breach of any of these covenants
or our inability to comply with the required financial ratios could result in a
default under our credit facility. In the event of any default under our credit
facility, the lenders under that facility could elect to declare all borrowings
outstanding, together with accrued and unpaid interest and other fees, to be due
and payable, to require us to apply all of our available cash to repay these
borrowings or to prevent us from making debt service payments on the New Notes,
any of which would be an event of default under the notes. See "Description of
Other Indebtedness" and "Description of the New Notes."
IT MAY NOT BE POSSIBLE FOR US TO PURCHASE NEW NOTES ON THE OCCURRENCE OF A
CHANGE IN CONTROL.
Upon the occurrence of specific change of control events, we will be
required to offer to repurchase all of the New Notes at 101% of the principal
amount of the New Notes plus accrued and unpaid interest, including any special
interest, to the date of purchase. We cannot assure you that there will be
sufficient funds available for us to make any required repurchase of the New
Notes upon a change of control. Our failure to purchase tendered notes would
constitute a default under the indenture governing the New Notes, which, in
turn, would constitute a default under our credit facility and other debt
instruments. See "Description of the New Notes--Repurchase at Option of Holders
Change of Control."
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THE NEW NOTES WILL BE EFFECTIVELY JUNIOR TO THE LIABILITIES OF OUR CURRENT AND
FUTURE NON-GUARANTOR SUBSIDIARIES.
The New Notes will effectively be subordinated to all existing and future
liabilities (including trade payables) of our subsidiaries that are not
guarantors. Currently, we only have one immaterial subsidiary that will not
guarantee the New Notes. However, subsidiaries we may establish or acquire in
the future that are foreign subsidiaries, or which do not have any indebtedness
or guarantees of indebtedness or which we designate as unrestricted subsidiaries
in accordance with the indenture will not be required to guarantee the New
Notes. In the event that any of our non-guarantor subsidiaries become insolvent,
liquidate, reorganize, dissolve or otherwise wind up, the assets of those
subsidiaries will be used first to satisfy the claims of their creditors,
including trade creditors, banks and other lenders. Consequently your claims as
a holder of New Notes will be effectively subordinated to all of the claims of
the creditors of our non-guarantor subsidiaries.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
GUARANTEES AND REQUIRE HOLDERS OF NOTES TO RETURN PAYMENTS RECEIVED FROM
GUARANTORS.
Under U.S. bankruptcy law and comparable provisions of state fraudulent
transfer laws, a subsidiary guarantee can be voided, or claims under a
subsidiary guarantee may be subordinated to all other debts of that subsidiary
guarantor if, among other things, the subsidiary guarantor, at the time it
incurred the indebtedness evidenced by its guarantee:
- intended to hinder, delay or defraud any present or future creditor or
received less than reasonably equivalent value or fair consideration for
the issuance of the guarantee;
- the subsidiary guarantor;
- was insolvent or rendered insolvent by reason of issuing the guarantee;
- was engaged in a business or transaction for which the subsidiary
guarantor's remaining assets constituted unreasonably small capital; or
- intended to incur, or believed that it would incur, debts beyond its
ability to pay those debts as they become due.
In addition, any payment by that subsidiary guarantor under a guarantee
could be voided and required to be returned to the subsidiary guarantor or to a
fund for the benefit of the creditors of the subsidiary guarantor under such
circumstances.
The measures of insolvency for purposes of fraudulent transfer laws will
vary depending upon the governing law. Generally, a guarantor would be
considered insolvent if:
- the sum of its debts, including contingent liabilities, was greater than
the fair salable value of all of its assets;
- the present fair salable value of its assets was less than the amount that
would be required to pay its probable liability on its existing debts,
including contingent liabilities, as they became absolute and mature; or
- it could not pay its debts as they became due.
In the event the guarantee of the New Notes by a subsidiary guarantor is
voided as a fraudulent conveyance, holders of the notes would effectively be
subordinated to all indebtedness and other liabilities of that guarantor.
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WE CANNOT ASSURE YOU THAT AN ACTIVE TRADING MARKET WILL DEVELOP FOR THE NEW
NOTES.
The New Notes are new issues of securities for which there is currently no
trading market. We do not intend to apply for listing of the New Notes on any
securities exchange or to seek approval for quotation through an automated
quotation system. Accordingly, there can be no assurance that an active market
will develop upon completion of the exchange offer or, if developed, that such
market will be sustained or as to the liquidity of any market. In addition, the
liquidity of the trading market in the New Notes, if developed, and the market
price quoted for the New Notes, may be adversely affected by changes in the
overall market for high yield securities and by changes in our financial
performance or prospects or in the financial performance or prospects of
companies in our industry generally.
RISKS RELATED TO OUR DEPENDENCE ON VEHICLE MANUFACTURERS
IF WE FAIL TO OBTAIN RENEWALS OF ONE OR MORE OF OUR FRANCHISE AGREEMENTS ON
FAVORABLE TERMS, IF SUBSTANTIAL FRANCHISES ARE TERMINATED, OR IF CERTAIN
MANUFACTURERS' RIGHTS UNDER THEIR AGREEMENTS WITH US ARE TRIGGERED, OUR
OPERATIONS MAY BE SIGNIFICANTLY COMPROMISED.
Each of our dealerships operates under the terms of a franchise agreement
with the manufacturer (or manufacturer-authorized distributor) of each vehicle
brand it carries. Our dealerships may obtain new vehicles from manufacturers,
sell new vehicles and display vehicle manufacturers' trademarks only to the
extent permitted under franchise agreements. As a result of our dependence on
these franchise rights, manufacturers exercise a great deal of control over our
day-to-day operations and the terms of our franchise agreements implicate key
aspects of our operations, acquisition strategy and capital spending.
Each of our franchise agreements provides the manufacturer with the right to
terminate the agreement or refuse to renew it after the expiration of the term
of the agreement under specified circumstances. We cannot assure you we will be
able to renew any of our existing franchise agreements or that we will be able
to obtain renewals on favorable terms. Specifically, many of our franchise
agreements provide that the manufacturer may terminate the agreement or direct
us to divest the subject dealerships, if the dealership undergoes a change of
control. Some of our franchise agreements also provide the manufacturer with the
right to purchase from us any franchise we seek to sell. Provisions such as
these may provide manufacturers with superior bargaining positions in the event
that they seek to terminate our franchise agreements or renegotiate the
agreements on terms that are disadvantageous to us. Our results of operations
may be materially and adversely affected to the extent that our franchise rights
become compromised or our operations restricted due to the terms of our
franchise agreements or if we lose substantial franchises. See
"Business--Franchise Agreements."
In addition, we have agreements with Toyota which provide that in the event
that our payment obligations under our Committed Credit Facility or the notes
are accelerated or demand for payment is made under our subsidiaries' guarantees
of the credit facility or the notes, Toyota will have the right to purchase our
Toyota and Lexus dealerships for cash at their fair market value, unless the
acceleration or demand is waived within a cure period of no less than 30 days
after Toyota's exercise of its right to purchase. If fair market value cannot be
agreed by the parties, it will be determined by an independent
nationally-recognized and experienced appraiser.
MANUFACTURERS' STOCK OWNERSHIP RESTRICTIONS LIMIT OUR ABILITY TO ISSUE
ADDITIONAL EQUITY, WHICH MAY HAMPER OUR ABILITY TO MEET OUR FINANCING NEEDS.
Some of our automobile franchise agreements prohibit transfers of any
ownership interests of a dealership or, in some cases, its parent. Our
agreements with several manufacturers provide that, under certain circumstances,
we may lose the franchise if a person or entity acquires an ownership interest
in us above a specified level (ranging from 20% to 50% depending on the
particular manufacturer's
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restrictions) or if a person or entity acquires the right to vote 20% or more of
our common stock without the approval of the applicable manufacturer. This
trigger level can fall to as low as 5% if another vehicle manufacturer is the
entity acquiring the ownership interest or voting rights. One manufacturer,
Toyota, in addition to imposing the restrictions previously mentioned, provides
that we may be required to sell our Toyota franchises (including Lexus) if
without its consent the owners of our equity prior to our initial public
offering cease to control a majority of our voting stock or if Timothy C.
Collins ceases to control us.
Violations by our shareholders of these ownership restrictions are generally
outside of our control and may result in the termination or non-renewal of one
or more franchises, which may have a material adverse effect on us. We cannot
assure you that manufacturers will grant the approvals required for such
acquisitions. Moreover, if we are unable to obtain the requisite approval in a
timely manner we may not be able to issue additional equity in the time
necessary to take advantage of a market opportunity dependent on ready financing
or an equity issuance. These restrictions may also prevent or deter prospective
acquirers from acquiring control of us and, therefore, may adversely impact the
value of our common stock. See "Business--Franchise Agreements."
MANUFACTURERS' RESTRICTIONS ON ACQUISITIONS MAY LIMIT OUR FUTURE GROWTH.
We are required to obtain the consent of the applicable manufacturer before
we can acquire any additional dealership franchises. We cannot assure you that
manufacturers will consent to future acquisitions which may deter us from being
able to take advantage of a market opportunity. Obtaining manufacturer consent
for acquisitions may also take a significant amount of time which may negatively
affect our ability to acquire an attractive target. In addition, under an
applicable franchise agreement or under state law, a manufacturer may have a
right of first refusal to acquire a dealership that we seek to acquire.
Many vehicle manufacturers place limits on the total number of franchises
that any group of affiliated dealerships may obtain. A manufacturer may place
generic limits on the number of franchises or share of total franchises or
vehicle sales maintained by an affiliated dealership group on a national,
regional or local basis. Manufacturers may also tailor these types of
restrictions to particular dealership groups. Our current franchise mix has
caused us to reach the present franchise ceiling, set by agreement or corporate
policy, with Acura, and we are close to our franchise ceiling with Toyota, Lexus
and Jaguar. We may have difficulty in obtaining additional franchises from
manufacturers once we reach their franchise ceilings.
As a condition to granting their consent to our acquisitions, a number of
manufacturers may impose additional restrictions on us. Manufacturers'
restrictions typically prohibit:
- material changes in our company or extraordinary corporate transactions
such as a merger, sale of a substantial amount of assets or any change in
our board of directors or management that may have a material adverse
effect on the manufacturer's image or reputation or may be materially
incompatible with the manufacturer's interests;
- the removal of a dealership general manager without the consent of the
manufacturer; and
- the use of dealership facilities to sell or service new vehicles of other
manufacturers.
Manufacturers may direct us to apply our resources to capital projects that we
may not otherwise have chosen to do.
Manufacturers may direct us to implement costly capital improvements to
dealerships as a condition for renewing our franchise agreements with them.
Manufacturers also typically require that their franchises meet specific
standards of appearance. These factors, either alone or in combination,
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could cause us to divert our financial resources to capital projects from uses
that management believes may be of higher long-term value to us.
OUR DEALERS DEPEND UPON VEHICLE SALES AND, THEREFORE, THEIR SUCCESS DEPENDS IN
LARGE PART UPON CUSTOMER DEMAND FOR THE PARTICULAR VEHICLE LINES THEY CARRY.
The success of our dealerships depends in large part on the overall success
of the vehicle lines they carry. New vehicle sales generate the majority of our
total revenue and lead to sales of higher-margin products and services such as
parts and service operations and finance and insurance products. Although we
have sought to limit our dependence on any one vehicle brand, we have focused
our new vehicle sales operations in mid-line import and luxury brands. Further,
in 2001, Honda, Ford, Toyota, Nissan, Lexus, Acura and Mercedes-Benz accounted
for 17%, 12%, 10%, 8%, 6%, 5% and 5% of our revenues from new retail vehicle
sales, respectively. No other franchise accounted for more than 5% of our total
new vehicle retail sales revenue in 2001. If one or more vehicle lines that
separately or collectively account for a significant percentage of our new
vehicle sales suffer from decreasing consumer demand, our new vehicle sales and
related revenues may be materially reduced.
IF WE FAIL TO OBTAIN A DESIRABLE MIX OF POPULAR NEW VEHICLES FROM MANUFACTURERS,
OUR PROFITABILITY WILL BE NEGATIVELY IMPACTED.
We depend on manufacturers to provide us with a desirable mix of popular new
vehicles. Typically, popular vehicles produce the highest profit margins but
tend to be the most difficult to obtain from manufacturers. Manufacturers
generally allocate their vehicles among their franchised dealerships based on
the sales history of each dealership. If our dealerships experience prolonged
sales slumps, those manufacturers will cut back their allotments of popular
vehicles to our dealerships and new vehicle sales and profits may decline.
IF AUTOMOBILE MANUFACTURERS DISCONTINUE INCENTIVE PROGRAMS, OUR SALES VOLUME
AND/OR PROFIT MARGIN ON EACH SALE MAY BE MATERIALLY AND ADVERSELY AFFECTED.
Our dealerships depend on manufacturers for certain sales incentives,
warranties and other programs that are intended to promote and support new
vehicle sales. Manufacturers often make many changes to their incentive programs
during each year. Some key incentive programs include:
- customer rebates on new vehicles;
- dealer incentives on new vehicles;
- special financing or leasing terms;
- warranties on new and used vehicles; and
- sponsorship of used vehicle sales by authorized new vehicle dealers.
A reduction or discontinuation of key manufacturers' incentive programs may
reduce our new vehicle sales volume resulting in decreased vehicle sales and
related revenues.
ADVERSE CONDITIONS AFFECTING ONE OR MORE MANUFACTURERS MAY NEGATIVELY IMPACT OUR
PROFITABILITY.
The success of each of our dealerships depends to a great extent on vehicle
manufacturers':
- financial condition;
- marketing efforts;
- vehicle design;
- production capabilities;
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- reputation;
- management; and
- labor relations.
Adverse conditions affecting these and other important aspects of
manufacturers' operations and public relations may adversely affect our ability
to market their automobiles to the public and, as a result, significantly and
detrimentally affect our profitability.
OUR FAILURE TO MEET A MANUFACTURER'S CONSUMER SATISFACTION AND FINANCIAL AND
SALES PERFORMANCE REQUIREMENTS MAY ADVERSELY AFFECT OUR ABILITY TO ACQUIRE NEW
DEALERSHIPS AND OUR PROFITABILITY.
Many manufacturers attempt to measure customers' satisfaction with their
purchase and warranty service experiences through rating systems which are
generally known as consumer satisfaction indexes, or CSI, which augment
manufacturers' monitoring of dealerships' financial and sales performance.
Manufacturers may use these performance indicators as a factor in evaluating
applications for additional acquisitions. The components of these performance
indicators have been modified by various manufacturers from time to time in the
past, and we cannot assure you that these components will not be further
modified or replaced by different systems in the future. Some of our dealerships
have had difficulty from time to time meeting these standards. We cannot assure
that we will be able to comply with these standards in the future. A
manufacturer may refuse to consent to our acquisition of one of its franchises
if it determines our dealerships do not comply with its performance standards.
This may impede our ability to execute our acquisition strategy. In addition, we
receive payments from the manufacturers based, in part, on CSI scores, and
future payments may be materially reduced or eliminated if our CSI scores
decline.
IF STATE DEALER LAWS ARE REPEALED OR WEAKENED, OUR DEALERSHIPS WILL BE MORE
SUSCEPTIBLE TO TERMINATION, NON-RENEWAL OR RE-NEGOTIATION OF THEIR FRANCHISE
AGREEMENTS.
State dealer laws generally provide that a manufacturer may not terminate or
refuse to renew a franchise agreement unless it has first provided the dealer
with written notice setting forth good cause and stating the grounds for
termination or nonrenewal. Some state dealer laws allow dealers to file protests
or petitions or attempt to comply with the manufacturer's criteria within the
notice period to avoid the termination or nonrenewal. Though unsuccessful to
date, manufacturers' lobbying efforts may lead to the repeal or revision of
state dealer laws. If dealer laws are repealed in the states in which we
operate, manufacturers may be able to terminate our franchises without providing
advance notice, an opportunity to cure or a showing of good cause. Without the
protection of state dealer laws, it may also be more difficult for our dealers
to renew their franchise agreements upon expiration. In addition, these laws
restrict the ability of automobile manufacturers to directly enter the retail
market in the future. If manufacturers obtain the ability to directly retail
vehicles and do so in our markets, such competition could have a material
adverse effect on us. See "Business--Franchise Agreements State Dealer Laws."
RISKS RELATED TO OUR ACQUISITION STRATEGY
IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE ACQUISITIONS, WE WILL BE UNABLE TO
REALIZE DESIRED RESULTS FROM OUR GROWTH THROUGH ACQUISITION STRATEGY AND
ACQUIRED OPERATIONS WILL DRAIN RESOURCES FROM COMPARATIVELY PROFITABLE
OPERATIONS.
The automobile retailing industry is considered a mature industry in which
relatively slow growth is expected in industry unit sales. Accordingly, our
future growth depends in large part on our ability to acquire additional
dealerships, manage expansion, control costs in our operations and consolidate
acquired dealerships into our organization. In pursuing our strategy of
acquiring other dealerships, we
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face risks commonly encountered with growth through acquisitions. These risks
include, but are not limited to:
- incurring significantly higher capital expenditures and operating
expenses;
- failing to integrate the operations and personnel of the acquired
dealerships;
- entering new markets with which we are unfamiliar;
- incurring undiscovered liabilities at acquired dealerships;
- disrupting our ongoing business;
- diverting our management resources;
- failing to maintain uniform standards, controls and policies;
- impairing relationships with employees, manufacturers and customers as a
result of changes in management;
- causing increased expenses for accounting and computer systems;
- failing to obtain manufacturers' consents to acquisitions of additional
franchises; and
- incorrectly valuing acquired entities.
We may not adequately anticipate all the demands that our growth will impose
on our personnel, procedures and structures, including our financial and
reporting control systems, data processing systems and management structure.
Moreover, our failure to retain qualified management personnel at any acquired
dealership may increase the risk associated with integrating the acquired
dealership. If we cannot adequately anticipate and respond to these demands, we
may fail to realize acquisition synergies and our resources will be focused on
incorporating new operations into our structure rather than on areas that may be
more profitable.
WE MAY BE UNABLE TO CAPITALIZE ON ACQUISITION OPPORTUNITIES BECAUSE OF FINANCING
CONSTRAINTS.
We have substantial indebtedness and, as a result, significant debt service
obligations. Our substantial indebtedness could limit the future availability of
debt financing to fund acquisitions. We intend to finance some of our
acquisitions by issuing shares of common stock as full or partial consideration
for acquired dealerships. The extent to which we will be able or willing to
issue common stock for acquisitions will depend on the market value of our
common stock from time to time and the willingness of potential acquisition
candidates to accept common stock as part of the consideration for the sale of
their businesses. Moreover, manufacturer consent is required before we can
acquire additional dealerships and, in some cases, to issue additional equity.
See "Risk Factors--Manufacturers' restrictions on acquisitions may limit our
future growth," and "Risk Factors--Manufacturers' stock ownership restrictions
limit our ability to issue additional equity, which may hamper our ability to
meet our financing needs."
We may be required to use available cash or other sources of debt or equity
financing. We cannot assure you that we will be able to obtain additional
financing by issuing stock or debt securities, and using cash to complete
acquisitions may substantially limit our operating or financial flexibility or
our ability to meet our debt service obligations, including with respect to the
notes. If we are unable to obtain financing on acceptable terms, we may be
required to reduce the scope of our presently anticipated expansion, which may
materially and adversely affect our growth strategy.
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THE COMPETITION WITH OTHER DEALER GROUPS TO ACQUIRE AUTOMOTIVE DEALERSHIPS IS
INTENSE, AND WE MAY NOT BE ABLE TO FULLY IMPLEMENT OUR GROWTH THROUGH
ACQUISITION STRATEGY IF ATTRACTIVE TARGETS ARE ACQUIRED BY COMPETING GROUPS OR
PRICED OUT OF OUR REACH DUE TO COMPETITIVE PRESSURES.
We believe that the U.S. automotive retailing market is fragmented and
offers many potential acquisition candidates that meet our targeting criteria.
However, we compete with several other national dealer groups, some of which may
have greater financial and other resources, and competition with existing dealer
groups and dealer groups formed in the future for attractive acquisition targets
may result in fewer acquisition opportunities and increased acquisition costs.
We will have to forego acquisition opportunities to the extent that we cannot
negotiate acquisitions on acceptable terms.
RISKS RELATED TO COMPETITION
THE LOSS OF KEY PERSONNEL AND LIMITED MANAGEMENT AND PERSONNEL RESOURCES MAY
ADVERSELY AFFECT OUR OPERATIONS AND GROWTH.
Our success depends to a significant degree upon the continued contributions
of our management team, particularly our senior management and service and sales
personnel. Additionally, manufacturer franchise agreements may require the prior
approval of the applicable manufacturer before any change is made in dealership
general managers. We do not have employment agreements with most of our
dealership managers and other key dealership personnel. Consequently, the loss
of the services of one or more of these key employees may materially impair the
efficiency and productivity of our operations.
In addition, we may need to hire additional managers as we expand. The
market for qualified employees in the industry and in the regions in which we
operate, particularly for general managers and sales and service personnel, is
highly competitive and may subject us to increased labor costs during periods of
low unemployment. The loss of the services of key employees or the inability to
attract additional qualified managers may adversely affect the ability of our
dealerships to conduct their operations in accordance with the standards set by
our headquarters management.
SUBSTANTIAL COMPETITION IN AUTOMOBILE SALES AND SERVICES MAY ADVERSELY AFFECT
OUR PROFITABILITY.
The automotive retailing and servicing industry is highly competitive with
respect to price, service, location and selection. Our competition includes:
- franchised automobile dealerships in our markets that sell the same or
similar new and used vehicles that we offer;
- other national or regional affiliated groups of franchised dealerships;
- privately negotiated sales of used vehicles;
- service center chain stores; and
- independent service and repair shops.
We do not have any cost advantage in purchasing new vehicles from
manufacturers. We typically rely on advertising, merchandising, sales expertise,
service reputation and dealership location to sell new and used vehicles. Our
franchise agreements do not grant us the exclusive right to sell a
manufacturer's product within a given geographic area. Our revenues or
profitability may be materially and adversely affected if competing dealerships
expand their market share or are awarded additional franchises by manufacturers
that supply our dealerships.
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RISKS RELATED TO THE AUTOMOTIVE INDUSTRY
OUR BUSINESS WILL BE HARMED IF OVERALL CONSUMER DEMAND SUFFERS FROM A SEVERE OR
SUSTAINED DOWNTURN.
Our business is heavily dependent on consumer demand and preferences. Our
revenues will be materially and adversely affected if there is a severe or
sustained downturn in overall levels of consumer spending. Retail vehicle sales
are cyclical and historically have experienced periodic downturns characterized
by oversupply and weak demand. These cycles are often dependent on general
economic conditions and consumer confidence, as well as the level of
discretionary personal income and credit availability. Future recessions may
have a material adverse effect on our retail business, particularly sales of new
and used automobiles. Our sales of trucks and bulk sales of vehicles to
corporate customers are also cyclical and dependent on overall levels of
economic activity. In addition, severe or sustained increases in gasoline prices
may lead to a reduction in automobile purchases or a shift in buying patterns
from luxury/SUV models (which typically provide high profit margins to
retailers) to smaller, more economical vehicles (which typically have lower
margins).
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY UNFAVORABLE CONDITIONS IN OUR LOCAL
MARKETS, EVEN IF THOSE CONDITIONS ARE NOT PROMINENT NATIONALLY.
Our performance is also subject to local economic, competitive and other
conditions prevailing in our platforms' particular geographic areas. Our
dealerships currently are located primarily in the Atlanta, Austin, Chapel Hill,
Dallas-Fort Worth, Fayetteville, Fort Pierce, Greensboro, Houston, Jackson,
Jacksonville, Little Rock, Orlando, Portland, Richmond, St. Louis, Tampa and
Texarkana markets. Although we intend to pursue acquisitions outside of these
markets, our current operations are based in these areas. As a consequence, our
results of operations depend substantially on general economic conditions and
consumer spending levels in the Southeast and Texas, and to a lesser extent in
the Northwest and Midwest.
THE SEASONALITY OF THE AUTOMOBILE RETAIL BUSINESS MAGNIFIES THE IMPORTANCE OF
OUR SECOND AND THIRD QUARTER RESULTS.
The automobile industry is subject to seasonal variations in revenues.
Demand for automobiles is generally lower during the first and fourth quarters
of each year. Accordingly, we expect our revenues and operating results
generally to be lower in our first and fourth quarters than in our second and
third quarters. Therefore, if conditions surface during the second or third
quarters that retard automotive sales, such as high fuel costs, depressed
economic conditions or similar adverse conditions, our revenues for the year
will be disproportionately adversely affected.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY IMPORT PRODUCT RESTRICTIONS AND
FOREIGN TRADE RISKS THAT MAY IMPAIR OUR ABILITY TO SELL FOREIGN VEHICLES
PROFITABLY.
A significant portion of our new vehicle business will involve the sale of
vehicles, parts or vehicles composed of parts that are manufactured outside the
United States. As a result, our operations will be subject to customary risks of
importing merchandise, including fluctuations in the relative values of
currencies, import duties, exchange controls, trade restrictions, work stoppages
and general political and socio-economic conditions in foreign countries. The
United States or the countries from which our products are imported may, from
time to time, impose new quotas, duties, tariffs or other restrictions, or
adjust presently prevailing quotas, duties or tariffs, which may affect our
operations and our ability to purchase imported vehicles and/or parts at
reasonable prices.
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OUR CAPITAL COSTS AND OUR RESULTS OF OPERATIONS MAY BE MATERIALLY AND ADVERSELY
AFFECTED BY A RISING INTEREST RATE ENVIRONMENT.
We finance our purchases of new and, to a lesser extent, used vehicle
inventory under a floor plan borrowing arrangement under which we are charged
interest at floating rates. We obtain capital for acquisitions and for some
working capital purposes under a similar arrangement. As a result, our debt
service expenses may rise with increases in interest rates. Rising interest
rates may also have the effect of depressing demand in the interest rate
sensitive aspects of our business, particularly new and used vehicle sales,
because many of our customers finance their vehicle purchases. As a result,
rising interest rates may have the effect of simultaneously increasing our costs
and reducing our revenues. Given our debt composition on a pro forma as adjusted
basis as of March 31, 2002, for each one percent increase in interest rates, our
total annual interest expense, including floor plan interest, would increase by
$7.0 million.
OTHER RISKS RELATED TO OUR BUSINESS
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL REGULATION COMPLIANCE COSTS MAY
ADVERSELY AFFECT OUR PROFITABILITY.
We are subject to a wide range of federal, state and local laws and
regulations, such as local licensing requirements, consumer protection laws and
environmental requirements governing, among other things, discharges into the
air and water, above ground and underground storage of petroleum substances and
chemicals, handling and disposal of wastes and remediation of contamination
arising from spills and releases. If we or our properties violate these laws and
regulations, we may be subject to civil and criminal penalties, or a cease and
desist order may be issued against our operations that are not in compliance.
Our future acquisitions may also be subject to governmental regulation,
including antitrust reviews. We believe that all of our platforms comply in all
material respects with all applicable laws and regulations relating to our
business, but future laws and regulations may be more stringent and require us
to incur significant additional costs. See "Business--Governmental Regulations"
and "Business--Environmental Matters."
IF WE ARE UNABLE TO RETAIN KEY MANAGEMENT OR OTHER PERSONNEL, WE MAY BE UNABLE
TO SUCCESSFULLY DEVELOP OUR BUSINESS.
We depend on our executive officers as well as other key personnel. Not all
our key personnel are bound by employment agreements, and those with employment
agreements are bound only for a limited period of time. If we are unable to
retain our key personnel, we may be unable to successfully develop and implement
our business plans. Further, we do not maintain "key man" life insurance
policies on any of our executive officers or key personnel.
THERE MAY BE RISKS RELATED TO OUR PRIOR USE OF ARTHUR ANDERSEN LLP AS OUR
INDEPENDENT PUBLIC ACCOUNTANT
Our consolidated financial statements for the years ended December 31, 2001
and December 31, 2000, to the extent and for the periods indicated in their
report, have been audited by Arthur Andersen LLP, independent public
accountants. Because Arthur Andersen LLP has not consented to the incorporation
by reference of their report in this prospectus supplement, you may not be able
to recover against Arthur Andersen LLP under Section 11 of the Securities Act
for any untrue statements of a material fact contained in the financial
statements audited by Arthur Andersen LLP or any omissions to state a material
fact required to be stated therein.
The conviction of Arthur Andersen LLP on obstruction of justice charges may
adversely affect Arthur Andersen LLP's ability to satisfy any claims arising
from the provision of auditing services to us and may impede our access to the
capital markets after completion of the Original Notes offering.
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Arthur Andersen LLP, which audited our financial statements incorporated by
reference in this prospectus supplement for the years ended December 31, 2001
and December 31, 2000, has informed us that on March 14, 2002, an indictment was
unsealed charging it with federal obstruction of justice arising from the
government's investigation of Enron Corp. On June 15, 2002, Arthur Andersen LLP
was convicted of these charges. The Securities and Exchange Commission, or SEC,
stated that it will continue accepting financial statements audited by Arthur
Andersen LLP so long as Arthur Andersen LLP is able to make specified
representations to us. It is possible that events arising out of the indictment
may adversely affect the ability of Arthur Andersen LLP to satisfy any claims
arising from its provision of auditing services to us, including claims that may
arise out of Arthur Andersen LLP's audit of our financial statements
incorporated by reference in this prospectus supplement.
Should we seek to access the public capital markets after we complete the
Original Notes offering, SEC rules will require us to include or incorporate by
reference in any prospectus three years of audited financial statements. The
SEC's current rules would require us to present audited financial statements for
one or more fiscal years audited by Arthur Andersen LLP and obtain their consent
and representations until our audited financial statements for the fiscal year
ending December 31, 2003 become available in the first quarter of 2004. If prior
to that time the SEC ceases accepting financial statements audited by Arthur
Andersen LLP or if Arthur Andersen LLP becomes unable to make the
representations to us required by the SEC, it is possible that our available
audited financial statements for the years ended December 31, 2001,
December 31, 2000 and December 31, 1999 audited by Arthur Andersen LLP might not
satisfy the SEC's requirements. In that case, we would be unable to access the
public capital markets unless Deloitte & Touche LLP, our current independent
accounting firm, or another independent accounting firm, is able to audit the
financial statements originally audited by Arthur Andersen LLP. Any delay or
inability to access the public capital markets caused by these circumstances
could have a material adverse effect on our business profitability and growth
prospects.
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that are based on
current expectations, estimates, forecasts and projections about the industry in
which we operate, management's beliefs and assumptions made by management. Such
statements include, in particular, statements about our plans, strategies and
prospects under the headings "Prospectus Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and "Plan of Distribution." Words such as "expects," "anticipates,"
"intends," "plans," "believes," "seeks," "estimates," variations of such words
and similar expressions are intended to identify such forward-looking
statements. These statements are not guarantees of future performance and
involve risks, uncertainties and assumptions which are difficult to predict.
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in such forward-looking statements. The forward-looking
statements included herein are made only as of the date of this prospectus and
we undertake no obligation to publicly update such forward-looking statements to
reflect subsequent events or circumstances.
USE OF PROCEEDS
This exchange offer is intended to satisfy our obligations under the
registration rights agreement entered into in connection with the issuance of
the Original Notes. We will not receive any cash proceeds from the issuance of
the New Notes in the exchange offer.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Original Notes we entered into a
registration rights agreement with the purchasers, under which we agreed to use
our best efforts to file and have declared effective an exchange offer
registration statement under the Securities Act.
We are making the exchange offer in reliance on the position of the SEC as
set forth in certain no-action letters. However, we have not sought our own
no-action letter. Based upon these interpretations by the SEC, we believe that a
holder of New Notes, but not a holder who is our "affiliate" within the meaning
of Rule 405 of the Securities Act, who exchanges Original Notes for New Notes in
the exchange offer, generally may offer the New Notes for resale, sell the New
Notes and otherwise transfer the New Notes without further registration under
the Securities Act and without delivery of a prospectus that satisfies the
requirements of Section 10 of the Securities Act. This does not apply, however,
to a holder who is our "affiliate" within the meaning of Rule 405 of the
Securities Act. We also believe that a holder may offer, sell or transfer the
New Notes only if the holder acquires the New Notes in the ordinary course of
its business and is not participating, does not intend to participate and has no
arrangement or understanding with any person to participate in a distribution of
the New Notes.
Any holder of the Original Notes using the exchange offer to participate in
a distribution of New Notes cannot rely on the no-action letters referred to
above. A broker-dealer that acquired Original Notes directly from us, but not as
a result of market-making activities or other trading activities must comply
with the registration and prospectus delivery requirements of the Securities Act
in the absence of an exemption from such requirements.
Each broker-dealer that receives New Notes for its own account in exchange
for Original Notes, as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. This prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Original Notes where such
Original Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The letter of transmittal states that by
acknowledging and delivering a prospectus, a broker-dealer will not be
considered to admit that it is an "underwriter" within the meaning of the
Securities Act. We have agreed that for a period of 180 days after the
expiration date, we will make this prospectus available to broker-dealers for
use in connection with any such resale. See "Plan of Distribution."
Except as described above, this prospectus may not be used for an offer to
resell, resale or other transfer of New Notes.
The exchange offer is not being made to, nor will we accept tenders for
exchange from, holders of Original Notes in any jurisdiction in which the
exchange offer or the acceptance of it would not be in compliance with the
securities or blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE
Upon the terms and subject to the conditions of the exchange offer, we will
accept any and all Original Notes validly tendered prior to 5:00 p.m., New York
time, on the expiration date. The date of acceptance for exchange of the
Original Notes, and completion of the exchange offer, is the exchange date,
which will be the first business day following the expiration date (unless
extended as described in this document). We will issue, on or promptly after the
exchange date, an aggregate principal amount of up to $250,000,000 of New Notes
for a like principal amount of outstanding Original Notes tendered and accepted
in connection with the exchange offer. The New Notes issued in connection with
the exchange offer will be delivered on the earliest practicable date following
the exchange date. Holders
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may tender some or all of their Original Notes in connection with the exchange
offer, but only in $1,000 increments of principal amount at maturity.
The terms of the New Notes are identical in all material respects to the
terms of the Original Notes, except that the New Notes have been registered
under the Securities Act and are issued free from any covenant regarding
registration, including the payment of liquidated damages upon a failure to file
or have declared effective an exchange offer registration statement or to
complete the exchange offer by certain dates. The New Notes will evidence the
same debt as the Original Notes and will be issued under the same indenture and
entitled to the same benefits under that indenture as the Original Notes being
exchanged. As of the date of this prospectus, $250,000,000 in aggregate
principal amount of the Original Notes are outstanding.
In connection with the issuance of the Original Notes, we arrange for the
Original Notes originally purchased by qualified institutional buyers and those
sold in reliance on Regulation S under the Securities Act to be issued and
transferable in book-entry form through the facilities of The Depository Trust
Company, acting as depositary. Except as described under "Description of
Original Notes--Book-Entry, Delivery and Form," the New Notes will be issued in
the form of a global note registered in the name of DTC or its nominee and each
beneficial owner's interest in it will be transferable in book-entry form
through DTC. See "Description of Original Notes--Book-Entry, Delivery and Form."
Holders of Original Notes do not have any appraisal or dissenters' rights in
connection with the exchange offer. Original Notes which are not tendered for
exchange or are tendered but not accepted in connection with the exchange offer
will remain outstanding and be entitled to the benefits of the indenture under
which they were issued, but will not be entitled to any registration rights
under the registration rights agreement.
We shall be considered to have accepted validly tendered Original Notes if
and when we have given oral or written notice to the exchange agent. The
exchange agent will act as agent for the tendering holders for the purposes of
receiving the New Notes from us.
If any tendered old Original Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events described in this
prospectus or otherwise, we will return the Original Notes, without expense, to
the tendering holder as quickly as possible after the expiration date.
Holders who tender Original Notes will not be required to pay brokerage
commissions or fees or, subject to the instructions in the letter of
transmittal, transfer taxes on exchange of Original Notes in connection with the
exchange offer. We will pay all charges and expenses, other than certain
applicable taxes described below, in connection with the exchange offer. See
"--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The expiration date for the exchange offer is 5:00 p.m., New York City time,
on August 21, 2002, unless extended by us in our sole discretion (but in no
event to a date later than September 3, 2002), in which case the term
"expiration date" shall mean the latest date and time to which the exchange
offer is extended.
We reserve the right, in our sole discretion:
- to delay accepting any Original Notes, to extend the offer or to terminate
the exchange offer if, in our reasonable judgment, any of the conditions
described below shall not have been satisfied, by giving oral or written
notice of the delay, extension or termination to the exchange agent, or
- to amend the terms of the exchange offer in any manner.
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If we amend the exchange offer in a manner that we consider material, we
will disclose such amendment by means of a prospectus supplement, and we will
extend the exchange offer for a period of five to ten business days.
If we determine to make a public announcement of any delay, extension,
amendment or termination of the exchange offer, we will do so by making a timely
release through an appropriate news agency.
INTEREST ON THE NEW NOTES
Interest on the New Notes will accrue at the rate of 9% per annum from the
most recent date to which interest on the New Notes has been paid or, if no
interest has been paid, from the date of the indenture governing the notes.
Interest will be payable semiannually in arrears on June 15 and December 15,
commencing on December 15, 2002.
CONDITIONS TO THE EXCHANGE OFFER
Despite any other term of the exchange offer, we will not be required to
accept for exchange, or exchange New Notes for, any Original Notes and may
terminate the exchange offer as provided in this prospectus before the
acceptance of the Original Notes, if:
- any action or proceeding is instituted or threatened in any court or by or
before any governmental agency relating to the exchange offer which, in
our reasonable judgment, might materially impair our ability to proceed
with the exchange offer or materially impair the contemplated benefits of
the exchange offer to us, or any material adverse development has occurred
in any existing action or proceeding relating to us or any of our
subsidiaries;
- any change, or any development involving a prospective change, in our
business or financial affairs or any of our subsidiaries has occurred
which, in our reasonable judgment, might materially impair our ability to
proceed with the exchange offer or materially impair the contemplated
benefits of the exchange offer to us;
- any law, statue, rule or regulation is proposed, adopted or enacted, which
in our reasonable judgment, might materially impair our ability to proceed
with the exchange offer or materially impair the contemplated benefits of
the exchange offer to us; or
- any governmental approval has not been obtained, which approval we, in our
reasonable discretion, consider necessary for the completion of the
exchange offer as contemplated by this prospectus.
The conditions listed above are for our sole benefit and may be asserted by
us regardless of the circumstances giving rise to any of these conditions. We
may waive these conditions in our reasonable discretion in whole or in part at
any time and from time to time. The failure by us at any time to exercise any of
the above rights shall not be considered a waiver of such right, and such right
shall be considered an ongoing right which may be asserted at any time and from
time to time.
If we determine in our reasonable discretion that any of the conditions are
not satisfied, we may:
- refuse to accept any Original Notes and return all tendered Original Notes
to the tendering holders;
- extend the exchange offer and retain all Original Notes tendered before
the expiration of the exchange offer, subject, however, to the rights of
holders to withdraw these Original Notes (See "--Withdrawal of Tenders"
below); or
- waive unsatisfied conditions relating to the exchange offer and accept all
properly tendered Original Notes which have not been withdrawn.
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PROCEDURES FOR TENDERING
Unless the tender is being made in book-entry form, to tender in the
exchange offer, a holder must
- complete, sign and date the letter of transmittal, or a facsimile of it,
- have the signatures guaranteed if required by the letter of transmittal,
and
- mail or otherwise deliver the letter of transmittal or the facsimile, the
Original Notes and any other required documents to the exchange agent
prior to 5:00 p.m., New York City time, on the expiration date.
Any financial institution that is a participant in DTC's Book-Entry Transfer
Facility system may make book-entry delivery of the Original Notes by causing
DTC to transfer the Original Notes into the exchange agent's account. Although
delivery of Original Notes may be effected through book-entry transfer into the
exchange agent's account at DTC, the letter of transmittal (or facsimile), with
any required signature guarantees and any other required documents, must, in any
case, be transmitted to and received or confirmed by the exchange agent at its
addresses set forth under the caption "exchange agent" below, prior to
5:00 p.m., New York City time, on the expiration date. Delivery of documents to
DTC in accordance with its procedures does not constitute delivery to the
exchange agent.
The tender by a holder of Original Notes will constitute an agreement
between us and the holder in accordance with the terms and subject to the
conditions set forth in this prospectus and in the letter of transmittal.
The method of delivery of Original Notes and the letter of transmittal and
all other required documents to the exchange agent is at the election and risk
of the holders. Instead of delivery by mail, we recommend that holders use an
overnight or hand delivery service. In all cases, holders should allow
sufficient time to assure delivery to the exchange agent before the expiration
date. No letter of transmittal of Original Notes should be sent to us. Holders
may request their respective brokers, dealers, commercial banks, trust companies
or nominees to effect the tenders for such holders.
Any beneficial owner whose Original Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on behalf of the beneficial owner. If the beneficial
owner wishes to tender on that owner's own behalf, the owner must, prior to
completing and executing the letter of transmittal and delivery of such owner's
Original Notes, either make appropriate arrangements to register ownership of
the Original Notes in the owners' name or obtain a properly completed bond power
from the registered holder. The transfer of registered ownership may take
considerable time.
Signature on a letter of transmittal or a notice of withdrawal must be
guaranteed by an eligible guarantor institution within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934, unless the Original
Notes tendered pursuant thereto are tendered:
- by a registered holder who has not completed the box entitled "Special
Issuance Instructions" or "Special Delivery Instructions" on the letter of
transmittal, or
- for the account of an eligible guarantor institution.
In the event that signatures on a letter or transmittal or a notice of
withdrawal are required to be guaranteed, such guarantee must be by:
- a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.,
- a commercial bank or trust company having an office or correspondent in
the United States, or
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- an "eligible guarantor institution".
If the letter of transmittal is signed by a person other than the registered
holder of any Original Notes, the Original Notes must be endorsed by the
registered holder or accompanied by a properly completed bond power, in each
case signed or endorsed in blank by the registered holder.
If the letter of transmittal or any Original Notes or bond powers are signed
or endorsed by trustees, executors, administrators, guardians, attorney-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by us,
submit evidence satisfactory to us of their authority to act in that capacity
with the letter of transmittal.
We will determine all questions as to the validity, form, eligibility
(including time of receipt) and acceptance and withdrawal of tendered Original
Notes in our sole discretion. We reserve the absolute right to reject any and
all Original Notes not properly tendered or any Original Notes whose acceptance
by us would, in the opinion of our U.S. counsel, be unlawful. We also reserve
the right to waive any defects, irregularities or conditions of tender as to any
particular Original Notes either before or after the expiration date. Our
interpretation of the terms and conditions of the exchange offer (including the
instructions in the letter of transmittal) will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Original Notes must be cured within a time period we will determine. Although
we intend to request the exchange agent to notify holders of defects or
irregularities relating to tenders of Original Notes, neither we, the exchange
agent nor any other person will have any duty or incur any liability for failure
to give such notification. Tenders of Original Notes will not be considered to
have been made until such defects or irregularities have been cured or waived.
Any Original Notes received by the exchange agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived will
be returned by the exchange agent to the tendering holders, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
In addition, we reserve the right, as set forth above under the caption
"Conditions to the Exchange Offer," to terminate the exchange offer.
By tendering, each holder represents to us, among other things, that:
- the New Notes acquired in connection with the exchange offer are being
obtained in the ordinary course of business of the person receiving the
New Notes, whether or not such person is the holder;
- neither the holder nor any such other person has an arrangement or
understanding with any person to participate in the distribution of such
New Notes; and
- neither the holder nor any such other person is our "affiliate" (as
defined in Rule 405 under the Securities Act).
If the holder is a broker-dealer which will receive New Notes for its own
account in exchange for Original Notes, it will acknowledge that it acquired
such Original Notes as the result of market-making activities or other trading
activities and it will deliver a prospectus in connection with any resale of
such New Notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
A holder who wishes to tender its Original Notes and:
- whose Original Notes are not immediately available;
- who cannot deliver the holder's Original Notes, the letter of transmittal
or any other required documents to the exchange agent prior to the
expiration date; or
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- who cannot complete the procedures for book-entry transfer before the
expiration date
may effect a tender if
- the tender is made through an eligible guarantor institution;
- before the expiration date, the exchange agent receives from the eligible
guarantor institution:
-- a properly completed and duly executed notice of guaranteed delivery
by facsimile transmission, mail or hand delivery,
-- the name and address of the holder, and
-- the certificate number(s) of the Original Notes and the principal
amount at maturity of Original Notes tendered, stating that the
tender is being made and guaranteeing that, within three New York
Stock Exchange trading days after the expiration date, the letter of
transmittal and the certificate(s) representing the Original Notes
(or a confirmation of book-entry transfer), and any other documents
required by the letter of transmittal will be deposited by the
eligible guarantor institution with the exchange agent; and
- the exchange agent receives, within three New York Stock Exchange trading
days after the expiration date, a properly completed and executed letter
of transmittal or facsimile, as well as the certificate(s) representing
all tendered Original Notes in proper form for transfer or a confirmation
of book-entry transfer, and all other documents required by the letter of
transmittal.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Original Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the expiration
date.
To withdraw a tender of Original Notes in connection with the exchange
offer, a written facsimile transmission notice of withdrawal must be received by
the exchange agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the expiration date. Any such notice of withdrawal must:
- specify the name of the person who deposited the Original Notes to be
withdrawn,
- identify the Original Notes to be withdrawn (including the certificate
number or numbers and principal amount at maturity of such Original
Notes),
- be signed by the depositor in the same manner as the original signature on
the letter of transmittal by which such Original Notes were tendered
(including any required signature guarantees) or be accompanied by
documents or transfer sufficient to have the trustee register the transfer
of such Original Notes into the name of the person withdrawing the tender,
and
- specify the name in which any such Original Notes are to be registered, if
different from that of the depositor.
We will determine all questions as to the validity, form and eligibility
(including time of receipt) of such withdrawal notices. Any Original Notes so
withdrawn will be considered not to have been validly tendered for purposes of
the exchange offer, and no New Notes will be issued unless the Original Notes
withdrawn are validly re-tendered. Any Original Notes which have been tendered
but which are not accepted for exchange or which are withdrawn will be returned
to the holder without cost to such holder as soon as practicable after
withdrawal, rejection of tender or termination of the exchange offer. Properly
withdrawn Original Notes may be re-tendered by following one of the procedures
described above under the caption "Procedures for Tendering" at any time prior
to the expiration date.
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EXCHANGE AGENT
The Bank of New York has been appointed as exchange agent in connection with
the exchange offer. Questions and requests for assistance, requests for
additional copies of this prospectus or of the letter of transmittal should be
directed to the exchange agent, at its offices at One Wall Street, New York,
N.Y. 10286. The exchange agent's telephone number is (212) 495-1784 and
facsimile number is (212) 815-5915.
FEES AND EXPENSES
We will not make any payment to brokers, dealers or others soliciting
acceptances of the exchange offer. We will pay certain other expenses to be
incurred in connection with the exchange offer, including the fees and expenses
of the exchange agent and certain accounting and legal fees.
Holders who tender their Original Notes for exchange will not be obligated
to pay transfer taxes. If, however:
- New Notes are to be delivered to, or issued in the name of, any person
other than the registered holder of the Original Notes tendered, or
- if tendered Original Notes are registered in the name of any person other
than the person signing the letter of transmittal, or
- if a transfer tax is imposed for any reason other than the exchange of
Original Notes in connection with the exchange offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption from them is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed directly to the tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Original
Notes as reflected in our accounting records on the date of the exchange.
Accordingly, we will not recognize any gain or loss for accounting purposes upon
the completion of the exchange offer. The expenses of the exchange offer that we
pay will increase our deferred financing costs in accordance with generally
accepted accounting principles.
CONSEQUENCES OF FAILURES TO PROPERLY TENDER ORIGINAL NOTES IN THE EXCHANGE
Issuance of the New Notes in exchange for the Original Notes under the
exchange offer will be made only after timely receipt by the exchange agent of
such Original Notes, a properly completed and duly executed letter of
transmittal and all other required documents. Therefore, holders of the Original
Notes desiring to tender such Original Notes in exchange for New Notes should
allow sufficient time to ensure timely delivery. We are under no duty to give
notification of defects or irregularities of tenders of Original Notes for
exchange. Original Notes that are not tendered or that are tendered but not
accepted by us will, following completion of the exchange offer, continue to be
subject to the existing restrictions upon transfer thereof under the Securities
Act, and, upon completion of the exchange offer, certain registered rights under
the registration rights agreement will terminate.
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In the event the exchange offer is completed, we will not be required to
register the remaining Original Notes. Remaining Original Notes will continue to
be subject to the following restrictions on transfer:
- the remaining Original Notes may be resold only if registered pursuant to
the Securities Act, if any exemption from registration is available, or if
neither such registration nor such exemption is required by law, and
- the remaining Original Notes will bear a legend restricting transfer in
the absence of registration or an exemption.
We do not currently anticipate that we will register the remaining Original
Notes under the Securities Act. To the extent that Original Notes are tendered
and accepted in connection with the exchange offer, any trading market for
remaining Original Notes could be adversely affected.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth our ratio of earnings to fixed charges for
the periods indicated:
<Table>
<Caption>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------- ----------------
1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- -------- ----------------
Ratio of Earnings to Fixed Charges......... 1.43x 2.01x 1.76x 1.54x 1.64x 2.13x
</Table>
For purposes of computing the above ratios: (1) earnings consist of pre-tax
income from continuing operations before equity method earnings or losses PLUS
fixed charges MINUS minority interest in pre-tax income of entities that have
not incurred fixed charges; and (2) fixed charges consist of interest expense on
debt and amortization of deferred debt issuance costs, and that portion of
rental expense representative of interest.
29
<Page>
CAPITALIZATION
The following table sets forth our consolidated cash and cash equivalents
and capitalization as of March 31, 2002 (i) on an actual basis, (ii) on a pro
forma basis to give effect to our completed and probable acquisitions and
divestitures and (iii) on a pro forma as adjusted basis to give effect to our
completed and probable acquisitions and divestitures as of May 31, 2002, as well
as to the offering of the Original Notes and the application of the net
proceeds. You should read this table in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," "Use
of Proceeds", our audited and unaudited financial statements and the related
notes and the other financial information included elsewhere in this prospectus.
<Table>
<Caption>
MARCH 31, 2002
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
Cash and cash equivalents................................... $ 78,112 $ 81,805 $ 81,805
======== ======== ========
Short-term debt (including current portion of long-term
debt)(1).................................................. $ 56,532 $ 56,532 $ 56,532
======== ======== ========
Long-term debt
Senior Credit Facility(2)................................. $332,138 $348,997 $106,872
Senior Mortgage Notes..................................... 86,008 86,008 86,008
Other Senior Debt/Capital Leases.......................... 11,543 11,543 11,543
Senior Subordinated Notes offered hereby.................. -- -- 250,000
-------- -------- --------
Total long-term debt........................................ 429,689 446,548 454,423
Equity
Preferred stock, par value $.01 per share, 10 million
shares authorized; no shares issued or outstanding...... -- -- --
Common stock, par value $.01 per share, 90 million shares
authorized; 34 million shares issued and outstanding,
pro forma as adjusted(3)................................ 340 340 340
Additional paid-in capital................................ 413,838 413,838 413,838
Retained earnings......................................... (10,278) (10,278) (10,278)
Accumulated other comprehensive income.................... 1,913 1,913 1,913
-------- -------- --------
Total equity................................................ 405,813 405,813 405,813
-------- -------- --------
Total capitalization........................................ $835,502 $852,361 $860,236
======== ======== ========
</Table>
- ------------------------
(1) Does not include floor plan notes payable of $451,003, $462,898 and
$462,898, respectively, which reflect amounts payable for purchases of
specific vehicle inventories.
(2) Total availability of $550 million.
(3) Does not include (a) options issued under our 1999 option plan for 1,072,738
shares of common stock with a weighted average exercise price of $16.56 per
share and (b) 1,500,000 shares of common stock reserved for issuance under
our 2002 stock option plan, under which options to purchase for 993,939
shares of common stock were issued on March 13, 2002.
30
<Page>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following table sets forth our historical selected consolidated data for
the periods indicated. The data from the years ended December 31, 1997, 1998,
1999, 2000 and 2001 are derived from our audited financial statements, some of
which are included elsewhere in this prospectus. The financial statements for
the years ended December 31, 1997, 1998, 1999, 2000 and 2001 were audited by
Arthur Andersen LLP, independent public accountants. The unaudited financial
statements include all adjustments, consisting of normal recurring accruals,
which we consider necessary for a fair presentation of the financial position
and the results of operations for this period.
We consider the Nalley (Atlanta) platform, our first platform, which we
acquired on February 20, 1997, to be our predecessor. The results of the Nalley
(Atlanta) platform for the period between January 1, 1997, to February 20, 1997,
are set forth in footnote (2) and were audited by Dixon Odom P.L.L.C. The
historical selected financial information may not be indicative of our future
performance. The information should be read in conjunction with, and is
qualified in its entirety by reference to, our consolidated financial statements
and the related notes included elsewhere in this prospectus.
<Table>
<Caption>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------------------- ---------------------
1997(1)(2) 1998(1) 1999(1) 2000(1) 2001(1) 2001 2002
---------- ---------- ---------- ---------- ---------- -------- ----------
(UNAUDITED)
($ IN THOUSANDS)
INCOME STATEMENT DATA:
Revenues:
New vehicle........................ $298,967 $ 687,850 $1,769,030 $2,393,014 $2,532,203 $570,270 $ 631,105
Used vehicle....................... 91,933 221,828 764,599 1,049,279 1,144,076 282,145 285,849
Parts, service and collision
repair........................... 69,425 156,037 332,022 427,917 481,533 116,054 125,068
Finance and insurance, net......... 4,304 19,149 61,697 87,698 105,247 23,258 26,563
-------- ---------- ---------- ---------- ---------- -------- ----------
Total revenues..................... 464,629 1,084,864 2,927,348 3,957,908 4,263,059 991,727 1,068,585
Cost of sales........................ 411,359 929,886 2,494,074 3,367,277 3,598,567 837,063 896,610
-------- ---------- ---------- ---------- ---------- -------- ----------
Gross profit......................... 53,270 154,978 433,274 590,631 664,492 154,664 171,975
Selling, general and administrative
expenses........................... 45,432 127,336 335,000 441,889 510,430 117,221 133,015
Depreciation and amortization........ 1,118 6,303 16,555 24,385 30,591 7,041 5,833
-------- ---------- ---------- ---------- ---------- -------- ----------
Income from operations............... 6,720 21,339 81,719 124,357 123,471 30,402 33,127
Floor plan interest expense.......... (4,160) (7,730) (22,451) (36,069) (27,238) (8,934) (4,350)
Other interest expense............... (698) (7,104) (24,385) (41,648) (44,653) (12,441) (9,778)
Interest income...................... 27 1,108 3,021 5,846 2,528 1,185 315
Net losses from unconsolidated
affiliates......................... -- -- (616) (6,066) (3,248) (1,000) (100)
Gain (loss) on sale of assets........ 54 9,307 2,365 (1,533) (384) -- --
Other income, net.................... 760 727 151 888 1,914 438 (392)
-------- ---------- ---------- ---------- ---------- -------- ----------
Total other expense, net............. (4,017) (3,692) (41,915) (78,582) (71,081) (20,752) (14,305)
-------- ---------- ---------- ---------- ---------- -------- ----------
Income before income tax expense,
minority interest, extraordinary
loss and discontinued operations... 2,703 17,647 39,804 45,775 52,390 9,650 18,822
Income tax expense................... 1,742 3,570 4,980 1,168 13,747
Minority interest in subsidiary
earnings(3)........................ 801 14,303 20,520 9,740 1,240 144 --
-------- ---------- ---------- ---------- ---------- -------- ----------
Income before extraordinary loss and
discontinued operations............ 1,902 3,344 17,542 32,465 46,170 8,338 5,075
-------- ---------- ---------- ---------- ---------- -------- ----------
Extraordinary loss on early
extinguishment of debt............. -- (734) (752) -- (1,433) (1,433) --
Discontinued operations.............. -- -- (1,141) (1,750) (553) (229) 87
Net income........................... $ 1,902 $ 2,610 $ 15,649 $ 30,715 $ 44,184 6,676 5,162
======== ========== ========== ========== ========== ======== ==========
Ratio of earnings to fixed charges... 1.43 2.01 1.76 1.54 1.64 1.40 2.13
OTHER FINANCIAL DATA:
EBITDA(4)............................ $ 4,465 $ 21,747 $ 78,995 $ 119,407 $ 131,266 $ 30,132 $ 34,533
EBITDA margin........................ 1.0% 2.0% 2.7% 3.0% 3.1% 3.0% 3.2%
Capital expenditures................. $ 2,018 $ 11,356 $ 22,327 $ 36,062 $ 50,032 $ 10,326 $ 8,593
</Table>
31
<Page>
<Table>
<Caption>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------------------- ---------------------
1997(1)(2) 1998(1) 1999(1) 2000(1) 2001(1) 2001 2002
---------- ---------- ---------- ---------- ---------- -------- ----------
(UNAUDITED)
($ IN THOUSANDS)
OTHER OPERATING DATA:
Finance and insurance revenue per
retail vehicle sold................ $ 429 $ 446 $ 544 $ 585 $ 673 $ 641 $ 709
New vehicle retail units sold........ 6,523 27,734 69,360 93,031 95,130 21,518 22,529
Used vehicle retail units sold....... 3,510 15,205 44,083 56,925 61,213 14,773 14,933
Franchises........................... 18 73 103 119 131 119 128
</Table>
<Table>
<Caption>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------- THREE MONTHS ENDED
1997 1998 1999 2000 2001 MARCH 31, 2002
--------- --------- --------- --------- --------- -------------------
(UNAUDITED)
($ IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents............. $ 10,075 $ 25,624 $ 44,822 $ 47,241 $ 60,506 $ 78,112
Inventories........................... 73,158 259,452 437,272 558,164 496,054 510,799
Total current assets.................. 108,349 394,725 619,098 779,125 757,614 799,855
Property and equipment, net........... 29,907 125,410 141,786 218,153 256,402 258,379
Goodwill.............................. 17,151 144,514 226,321 364,164 392,856 392,287
Total assets.......................... 162,690 713,031 1,037,644 1,408,223 1,465,013 1,504,372
Floor plan notes payable.............. 66,305 232,297 385,263 499,332 451,375 451,003
Total current liabilities............. 85,503 323,061 497,339 628,644 609,997 631,427
Total debt (excluding floor plan notes
payable)............................ 24,567 241,316 324,260 471,664 538,337 486,221
Total equity.......................... 36,812 130,954 201,188 325,883 347,907 405,813
</Table>
- ------------------------------
(1) Effective with our initial public offering and conversion from a limited
liability company to a "C" corporation on March 13, 2002, we changed our
method of accounting for certain inventories from last-in, first-out
("LIFO") to specific identification and first-in, first-out ("FIFO"). The
new method of accounting was adopted to better match revenues and expenses
and to more clearly reflect periodic income. Our financial statements have
been restated to apply the new method retroactively. The effect of the
accounting change on net income previously reported for years 1997 through
2001 is:
<Table>
<Caption>
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
Net income as previously reported.................... $1,522 $3,081 $16,148 $28,927 $43,829
Adjustment for effect of a change in accounting
principle that is applied retroactively............ 380 (471) (499) 1,788 355
------ ------ ------- ------- -------
Net income, as adjusted.............................. $1,902 $2,610 $15,649 $30,715 $44,184
====== ====== ======= ======= =======
</Table>
(2) Selected financial data for the Nalley platform predecessor is as follows:
<Table>
<Caption>
PERIOD FROM
JANUARY 1, 1997 TO
FEBRUARY 20, 1997
-------------------
Total revenues.............................................. $43,263
Income from operations...................................... 87
</Table>
(3) On April 30, 2000, the then parent company and the minority owners of our
subsidiaries reached an agreement whereby their respective equity interests
were transferred into escrow and subsequently into Asbury Automotive
Oregon L.L.C. in exchange for equity interests in Asbury Automotive Oregon
L.L.C., which we refer to as the "minority member transaction." Following
the minority member transaction, the then parent company changed its name to
Asbury Automotive Holdings L.L.C. and Asbury Automotive Oregon L.L.C.
changed its name to Asbury Automotive Group L.L.C. Substantially all
minority interests in our subsidiaries were eliminated effective April 30,
2000, in connection with the minority member transaction.
(4) We define EBITDA as net Income plus depreciation and amortization, other
interest expense, income tax expense and adjustment, minority interest, net
losses from unconsolidated affiliates, gain (loss) on the sale of assets and
discontinued operations. While EBITDA is not intended to represent cash flow
from operations as defined by GAAP and should not be considered as an
indicator of operating performance or an alternative to cash flow (as
measured by GAAP) as a measure of liquidity, it is included herein to
provide additional information as to our ability to meet our fixed charges,
including interest on the notes, and is presented solely as a supplemental
measure. Our EBITDA may not be comparable to EBITDA of other entities
because other entities may not calculate EBITDA in the same manner as we do.
This method may not conform to the manner in which consolidated cash flow is
calculated for purposes of the indenture governing the notes.
32
<Page>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma balance sheet as of March 31, 2002, gives
effect to the following transactions and events as if they had occurred on
March 31, 2002:
(a) our insignificant acquisitions (acquisition date in parenthesis) of Rice
Marko Chrysler, Inc. (April 8, 2002) (North Carolina) and Dickinson Buick
Company (May 3, 2002) (North Carolina);
(b) our probable insignificant acquisitions (to be acquired through asset
acquisitions) of High Point Chevrolet, L.L.C. (North Carolina); and
Troncalli Chrysler, Inc. (Atlanta)
(c) the divestitures of (divestiture date in parenthesis) Gray Daniels
Suzuki (April 1, 2002) (Mississippi) and Gray Daniels Daewoo/Isuzu
(May 3, 2002) (Mississippi);
(d) the probable divestiture of Coggin Mazda (Jacksonville); and
(e) the offering, including our use of all of the net proceeds to us to
reduce debt outstanding as required by our credit facility.
The following unaudited pro forma income statements for the year ended
December 31, 2001, and for the three months ended March 31, 2002, gives effect
to the transactions and events listed above as well as the following
transactions as if they occurred on January 1, 2001 (since the following
transactions all took place prior to March 31, 2002, their impact is already
reflected in our historical balance sheet as of March 31, 2002, and in our
historical income statements for the periods subsequent to the acquisition dates
mentioned below):
(a) our insignificant acquisitions (acquisition date in parenthesis) of Audi
of North America (May 18, 2001) and Roswell Infiniti, Inc. (May 18, 2001)
(Atlanta);
(b) our insignificant acquisitions consummated subsequent to June 30, 2001
(acquisition dates in parenthesis), of Dealer Profit Systems, Inc.
(July 2, 2001) (Tampa), Key Cars, Inc. (July 2, 2001) (d/b/a Metro
Imports) (Mississippi), Brandon Ford, Inc. (July 2, 2001) (d/b/a
Gray-Daniels Ford) (Mississippi), Gage Motor Car Company L.L.C.
(September 18, 2001) (d/b/a Pegasus Motor Car Company) (North Carolina),
Crest Pontiac, Inc. (October 21, 2001) (d/b/a Kelly Pontiac)
(Jacksonville), Tom Wimberly Auto World (November 5, 2001) (Mississippi),
the remaining 49% interest of Deland Automotive Group that we had not
previously acquired (December 31, 2001) (Jacksonville);
(c) our divestiture (transaction date in parenthesis) of Crown
Pontiac/GMC/Isuzu (January 23, 2002) (North Carolina) and Thomason Subaru
(February 11, 2002) (Oregon);
(d) our recently completed initial public offering (IPO), which closed on
March 19, 2002, whereby we received net proceeds of approximately
$62,800, of which $50,423 were used to repay debt as incurred under our
credit facility;
(e) the change in our tax status resulting from our conversion to a "C"
corporation; and
(f) the effect of the Original Notes offering whereby we received total
proceeds of $250,000, of which $7,875 was used to pay associated finance
fees with the balance used to repay our credit facility.
The information, other than the individually insignificant acquisitions, is
based upon our historical financial statements and should be read in conjunction
with (a) our historical financial statements, (b) the related notes to such
financial statements and (c) other information contained elsewhere in this
prospectus.
The unaudited pro forma financial information is not necessarily indicative
of what our actual financial position or results of operations would have been
had all of the previously mentioned acquisitions, divestitures and the Original
Notes offering occurred on the dates previously mentioned, nor does it give
effect to:(a) any pending transactions other than those previously mentioned
above or the Original Notes offering; (b) our results of operations since
March 31, 2002; or (c) the results of final valuations of all assets and
liabilities of the acquisitions mentioned above due to pre-acquisition
contingencies. We may revise the allocation of the purchase price of these
acquisitions when additional information becomes available in accordance with
Accounting Principles Board Opinion No. 16. Accordingly, the pro forma financial
information is not intended to be indicative of the financial position or
results of operations as of the date of this prospectus, as of the Original
Notes offering or any period ending at the Original Notes offering, or as of or
for any other future date or period.
33
<Page>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 2002
($ IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<Table>
<Caption>
COMPLETED COMPLETED
HISTORICAL AND PROBABLE AND PROBABLE
ASBURY ACQUISITIONS DIVESTITURES
AUTOMOTIVE AFTER PRO FORMA AFTER PRO FORMA
GROUP 3/31/02(1) ADJUSTMENTS(2) SUB-TOTAL 3/31/02(3) ADJUSTMENTS(4)
---------- ------------ -------------- ---------- ------------ --------------
ASSETS
CURRENT ASSETS:
Cash and equivalents................. $ 78,112 $ 26 3,667 $ 81,805 $ -- $ --
Contracts-in-transit................. 86,217 -- -- 86,217 -- --
Accounts receivable, net............. 84,592 -- -- 84,592 -- --
Inventory............................ 510,799 19,018 -- 529,817 (3,233) --
Prepaid and other current assets..... 40,135 9 -- 40,144 -- --
---------- ------- ------- ---------- ------- -------
Total current assets................. 799,855 19,053 3,667 822,575 (3,233) --
PROPERTY AND EQUIPMENT, net............ 258,379 1,113 -- 259,492 (75) --
GOODWILL, net.......................... 392,287 -- 7,939 400,226 (1,400) --
OTHER ASSETS........................... 53,851 -- 2,000 55,851 -- --
---------- ------- ------- ---------- ------- -------
Total assets........................... $1,504,372 $20,166 $13,606 $1,538,144 $(4,708) $ --
========== ======= ======= ========== ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable............. $ 451,003 $14,696 $ -- $ 465,699 $(2,801) $ --
Current maturities of long term
debt............................... 46,338 -- -- 46,338 -- --
Short-term debt...................... 10,194 -- -- 10,194 -- --
Accounts payable..................... 38,257 35 -- 38,292 -- --
Accrued liabilities.................. 85,635 275 -- 85,910 -- --
---------- ------- ------- ---------- ------- -------
Total current liabilities............ 631,427 15,006 -- 646,433 (2,801) --
LONG-TERM/SENIOR DEBT.................. 429,689 -- 18,766 448,455 -- (1,907)
SUBORDINATED DEBT...................... -- -- -- -- -- --
OTHER LIABILITIES...................... 37,443 -- -- 37,443 -- --
---------- ------- ------- ---------- ------- -------
Non-Current Liabilities.............. 467,132 -- 18,766 485,898 -- (1,907)
---------- ------- ------- ---------- ------- -------
Total Liabilities.................... 1,098,559 15,006 18,766 1,132,331 (2,801) (1,907)
SHAREHOLDERS' EQUITY
Contributed capital.................. -- -- -- -- -- --
Common stock of par value $.01 shares
authorized 90,000,000 issued and
outstanding 34,000,000............. 340 -- -- 340 -- --
Additional paid-in capital........... 413,838 -- -- 413,838 -- --
Retained earnings.................... (10,278) 5,160 (5,160) (10,278) (1,907) 1,907
Accumulated other comprehensive
income............................. 1,913 -- -- 1,913 -- --
---------- ------- ------- ---------- ------- -------
Total shareholders' equity........... 405,813 5,160 (5,160) 405,813 (1,907) 1,907
---------- ------- ------- ---------- ------- -------
Total liabilities and shareholders'
equity............................. $1,504,372 $20,166 $13,606 $1,538,144 $(4,708) $ --
========== ======= ======= ========== ======= =======
<Caption>
PRO PRO FORMA PRO FORMA
FORMA ADJUSTMENTS(5) AS ADJUSTED
---------- -------------- -----------
ASSETS
CURRENT ASSETS:
Cash and equivalents................. $ 81,805 $ -- $ 81,805
Contracts-in-transit................. 86,217 -- 86,217
Accounts receivable, net............. 84,592 -- 84,592
Inventory............................ 526,584 -- 526,584
Prepaid and other current assets..... 40,144 -- 40,144
---------- --------- ----------
Total current assets................. 819,342 -- 819,342
PROPERTY AND EQUIPMENT, net............ 259,417 -- 259,417
GOODWILL, net.......................... 398,826 -- 398,826
OTHER ASSETS........................... 55,851 7,875 63,726
---------- --------- ----------
Total assets........................... $1,533,436 $ 7,875 $1,541,311
========== ========= ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable............. $ 462,898 $ -- $ 462,898
Current maturities of long term
debt............................... 46,338 -- 46,338
Short-term debt...................... 10,194 -- 10,194
Accounts payable..................... 38,292 -- 38,292
Accrued liabilities.................. 85,910 -- 85,910
---------- --------- ----------
Total current liabilities............ 643,632 -- 643,632
LONG-TERM/SENIOR DEBT.................. 446,548 (242,125) 204,423
SUBORDINATED DEBT...................... -- 250,000 250,000
OTHER LIABILITIES...................... 37,443 -- 37,443
---------- --------- ----------
Non-Current Liabilities.............. 483,991 7,875 491,866
---------- --------- ----------
Total Liabilities.................... 1,127,623 7,875 1,135,498
SHAREHOLDERS' EQUITY
Contributed capital.................. -- -- --
Common stock of par value $.01 shares
authorized 90,000,000 issued and
outstanding 34,000,000............. 340 -- 340
Additional paid-in capital........... 413,838 -- 413,838
Retained earnings.................... (10,278) (10,278)
Accumulated other comprehensive
income............................. 1,913 -- 1,913
---------- --------- ----------
Total shareholders' equity........... 405,813 -- 405,813
---------- --------- ----------
Total liabilities and shareholders'
equity............................. $1,533,436 $ 7,875 $1,541,311
========== ========= ==========
</Table>
34
<Page>
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
($ IN THOUSANDS EXCEPT PER SHARE DATA)
<Table>
<Caption>
ACQUISITIONS CONSUMMATED
HISTORICAL ACQUISITIONS CONSUMMATED AND PROBABLE
ASBURY CONSUMMATED PRO FORMA BETWEEN PRO FORMA ACQUISITIONS
AUTOMOTIVE BEFORE ADJUSTMENTS 7/1/01 AND ADJUSTMENTS SUB-TOTAL AFTER
GROUP 6/30/01(6) (7) 12/31/01(6) (8) 12/31/01 3/31/02(6)
---------- ------------- ----------- ------------- ----------- ---------- -------------
REVENUES:
New vehicle................ $2,532,203 $10,747 $ -- $104,123 $ -- $2,647,073 $ 81,716
Used vehicle............... 1,144,076 2,915 -- 51,286 -- 1,198,277 44,259
Parts, service and
collision repair......... 481,533 2,318 -- 18,675 -- 502,526 24,045
Finance and insurance,
net...................... 105,247 76 -- 1,956 -- 107,279 2,295
---------- ------- ----- -------- ------- ---------- --------
Total revenues........... 4,263,059 16,056 -- 176,040 -- 4,455,155 152,315
COST OF SALES................ 3,598,567 15,052 -- 154,899 -- 3,768,518 133,995
---------- ------- ----- -------- ------- ---------- --------
Gross profit............. 664,492 1,004 -- 21,141 -- 686,637 18,320
OPERATING EXPENSES:
Selling, general
administrative........... 510,430 755 -- 15,053 -- 526,238 14,493
Depreciation and
amortization............. 30,591 15 54 243 -- 30,903 316
---------- ------- ----- -------- ------- ---------- --------
Income from operations....... 123,471 234 (54) 5,845 -- 129,496 3,511
OTHER INCOME (EXPENSE):
Floor plan interest
expense.................. (27,238) (252) -- (1,808) -- (29,298) (1,113)
Other interest expense..... (44,653) (18) (327) (34) (2,752) (47,784) --
Interest income............ 2,528 -- -- -- -- 2,528 --
Net loses from
unconsolidated
affiliates............... (3,248) -- -- 2 -- (3,246) --
Gain (loss) on sale of
assets................... (384) -- -- -- -- (384) --
Other income............... 1,914 (18) -- 87 -- 1,983 --
---------- ------- ----- -------- ------- ---------- --------
Total other income
(expense), net......... (71,081) (288) (327) (1,753) (2,752) (76,201) (1,113)
---------- ------- ----- -------- ------- ---------- --------
Net income before income
taxes and minority
interest................. 52,390 (54) (381) 4,092 (2,752) 53,295 2,398
INCOME TAX EXPENSE........... 4,980 -- -- -- -- 4,980 --
MINORITY INTEREST............ 1,240 -- -- (1,240) -- -- --
DISCONTINUED OPERATIONS...... (553) -- -- -- -- (553) --
EXTRAORDINARY LOSS........... (1,433) -- -- -- -- (1,433) --
---------- ------- ----- -------- ------- ---------- --------
Net income................. 44,184 (54) (381) 5,332 (2,752) 46,329 2,398
PRO FORMA INCOME TAX EXPENSE
(BENEFIT)(6)............... 16,917 (22) (152) 2,133 (1,101) 17,775 959
---------- ------- ----- -------- ------- ---------- --------
Pro forma net income....... $ 27,267 $ (32) $(229) $ 3,199 $(1,651) $ 28,554 $ 1,439
========== ======= ===== ======== ======= ========== ========
Earnings per common share
Basic......................
Diluted....................
Weighted average shares
outstanding (000's)
Basic......................
Diluted....................
<Caption>
COMPLETED
AND PROBABLE
PRO FORMA DIVESTITURES PRO FORMA
ADJUSTMENTS AFTER PRO FORMA ADJUSTMENTS PRO FORMA
(9) 3/31/02(10) ADJUSTMENTS PRO FORMA (14) AS ADJUSTED
----------- ------------ ----------- ---------- ----------- -----------
REVENUES:
New vehicle................ $ -- $ (8,463) $ -- $2,720,326 $ -- $2,720,326
Used vehicle............... -- (5,165) -- 1,237,371 -- 1,237,371
Parts, service and
collision repair......... -- (813) -- 525,758 -- 525,758
Finance and insurance,
net...................... -- (231) -- 109,343 -- 109,343
------- -------- ------ ---------- ------ ----------
Total revenues........... -- (14,672) -- 4,592,798 -- 4,592,798
COST OF SALES................ -- (12,945) -- 3,889,568 -- 3,889,568
------- -------- ------ ---------- ------ ----------
Gross profit............. -- (1,727) -- 703,230 -- 703,230
OPERATING EXPENSES:
Selling, general
administrative........... -- (1,371) -- 539,360 -- 539,360
Depreciation and
amortization............. -- (23) -- 31,196 -- 31,196
------- -------- ------ ---------- ------ ----------
Income from operations....... -- (333) -- 132,674 -- 132,674
OTHER INCOME (EXPENSE):
Floor plan interest
expense.................. -- 163 -- (30,248) -- (30,248)
Other interest expense..... (1,540) -- 5,128(11) (44,196) 1,250 (42,946)
Interest income............ -- -- -- 2,528 -- 2,528
Net loses from
unconsolidated
affiliates............... -- -- -- (3,246) -- (3,246)
Gain (loss) on sale of
assets................... -- -- -- (384) -- (384)
Other income............... -- (6) -- 1,977 -- 1,977
------- -------- ------ ---------- ------ ----------
Total other income
(expense), net......... (1,540) 157 5,128 (73,569) 1,250 (72,319)
------- -------- ------ ---------- ------ ----------
Net income before income
taxes and minority
interest................. (1,540) (176) 5,128 59,105 1,250 60,355
INCOME TAX EXPENSE........... -- -- -- 4,980 -- 4,980
MINORITY INTEREST............ -- -- -- -- -- --
DISCONTINUED OPERATIONS...... -- -- 553(12) -- -- --
EXTRAORDINARY LOSS........... -- -- 1,433(13) -- -- --
------- -------- ------ ---------- ------ ----------
Net income................. (1,540) (176) 7,114 54,125 1,250 55,375
PRO FORMA INCOME TAX EXPENSE
(BENEFIT)(6)............... (616) (70) 2,624 20,672 704 21,376
------- -------- ------ ---------- ------ ----------
Pro forma net income....... $ (924) $ (106) $4,490 $ 33,453 $ 546 $ 33,999
======= ======== ====== ========== ====== ==========
Earnings per common share
Basic...................... $ 1.00(15)
==========
Diluted.................... $ 1.00(15)
==========
Weighted average shares
outstanding (000's)
Basic...................... 34,000(15)
==========
Diluted.................... 34,022(15)
==========
</Table>
35
<Page>
UNAUDITED PRO FORMA STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2002
($ IN THOUSANDS EXCEPT PER SHARE DATA)
<Table>
<Caption>
CONSUMMATED COMPLETED
HISTORICAL AND PROBABLE AND PROBABLE
ASBURY ACQUISITIONS PRO FORMA DIVESTITURES
AUTOMOTIVE AFTER 3/31/02 ADJUSTMENTS AFTER 3/31/02 PRO FORMA
GROUP (6) (9) (10) ADJUSTMENTS PRO FORMA
---------- ------------- ----------- ------------- ----------- ----------
REVENUES:
New vehicle....................... $ 631,105 $22,355 $ -- $(1,721) $ -- $ 651,739
Used vehicle...................... 285,849 11,187 -- (31) -- 297,005
Parts, service and collision
repair.......................... 125,068 7,837 -- (136) -- 132,769
Finance and insurance, net........ 26,563 727 -- -- -- 27,290
---------- ------- ----- ------- ---- ----------
Total revenues.................. 1,068,585 42,106 -- (1,888) -- 1,108,803
COST OF SALES..................... 896,610 36,569 -- (1,771) -- 931,408
---------- ------- ----- ------- ---- ----------
Gross profit.................... 171,975 5,537 -- (117) -- 177,395
OPERATING EXPENSES:
Selling, general administrative... 133,015 5,143 -- (93) -- 138,065
Depreciation and amortization..... 5,833 111 -- (6) -- 5,938
---------- ------- ----- ------- ---- ----------
Income from operations.............. 33,127 283 -- (18) -- 33,392
OTHER INCOME (EXPENSE):
Floor plan interest expense....... (4,350) (221) -- 28 -- (4,543)
Other interest expense............ (9,778) -- (432) -- 924(12) (9,286)
Interest income................... 315 -- -- -- -- 315
Net losses from unconsolidated
affiliates...................... -- -- -- -- -- --
Gain (loss) on sale of assets..... (100) -- -- -- -- (100)
Other income...................... (392) -- -- -- -- (392)
---------- ------- ----- ------- ---- ----------
Total other income (expense),
net........................... (14,305) (221) (432) 28 924 (14,006)
---------- ------- ----- ------- ---- ----------
Net income before income taxes and
minority interest............... 18,822 62 (432) 10 924 19,386
INCOME TAX EXPENSE.................. 13,747 -- -- -- -- 13,747
MINORITY INTEREST................... -- -- -- -- -- --
DISCONTINUED OPERATIONS............. 87 -- -- -- (87)(14) --
---------- ------- ----- ------- ---- ----------
Net income...................... 5,162 62 (432) 10 837 5,639
PRO FORMA INCOME TAX EXPENSE
(BENEFIT)(6)...................... (6,245) 24 (168) 4 360 (6,025)
---------- ------- ----- ------- ---- ----------
Pro forma net income.............. $ 11,407 $ 38 $(264) $ 6 $477 $ 11,664
========== ======= ===== ======= ==== ==========
Earnings per common share
Basic.............................
Diluted...........................
Weighted average shares outstanding
(000's)
Basic.............................
Diluted...........................
<Caption>
PRO FORMA
ADJUSTMENTS PRO FORMA AS
(14) ADJUSTED
----------- ------------
REVENUES:
New vehicle....................... $ -- $ 651,739
Used vehicle...................... -- 297,005
Parts, service and collision
repair.......................... -- 132,769
Finance and insurance, net........ -- 27,290
----- ----------
Total revenues.................. -- 1,108,803
COST OF SALES..................... -- 931,408
----- ----------
Gross profit.................... -- 177,395
OPERATING EXPENSES:
Selling, general administrative... -- 138,065
Depreciation and amortization..... -- 5,938
----- ----------
Income from operations.............. -- 33,392
OTHER INCOME (EXPENSE):
Floor plan interest expense....... -- (4,543)
Other interest expense............ (563) (9,849)
Interest income................... -- 315
Net losses from unconsolidated
affiliates...................... -- --
Gain (loss) on sale of assets..... -- (100)
Other income...................... -- (392)
----- ----------
Total other income (expense),
net........................... (563) (14,569)
----- ----------
Net income before income taxes and
minority interest............... (563) 18,823
INCOME TAX EXPENSE.................. -- 13,747
MINORITY INTEREST................... -- --
DISCONTINUED OPERATIONS............. -- --
----- ----------
Net income...................... (563) 5,076
PRO FORMA INCOME TAX EXPENSE
(BENEFIT)(6)...................... (220) (6,245)
----- ----------
Pro forma net income.............. $(343) $ 11,321
===== ==========
Earnings per common share
Basic............................. $ 0.33(15)
==========
Diluted........................... $ 0.33(15)
==========
Weighted average shares outstanding
(000's)
Basic............................. 34,000(15)
==========
Diluted........................... 34,034(15)
==========
</Table>
36
<Page>
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
($ IN THOUSANDS EXCEPT SHARE DATA)
(1) Reflects the impact (historical results) of all acquisitions completed
subsequent to March 31, 2002, and currently probable as if the transactions
were consummated as of March 31, 2002.
(2) Reflects the fair value and other acquisition related adjustments to the
individually insignificant acquisitions completed subsequent to March 31,
2002, and currently probable. Amounts for certain of the acquisitions are
subject to final purchase price adjustments for items such as tangible net
worth and seller's representations regarding the adequacy of certain
reserves. In addition, the allocation of amounts to acquired intangibles is
subject to final valuation. The total purchase price for the probable
acquisition after March 31, 2002, is $18,766 in cash. The initial
allocation of the total purchase price of the above mentioned individually
insignificant acquisitions is as follows:
<Table>
<Caption>
PROBABLE
ACQUISITIONS
------------
Working Capital............................................. $ 7,714
Property and Equipment...................................... 1,113
Goodwill.................................................... 7,939
Franchise Rights............................................ 2,000
-------
Total purchase price........................................ $18,766
=======
</Table>
(3) Reflects the impact (historical results) of our divestitures completed
subsequent to March 31, 2002, and our currently probable divestitures as if
the transactions were consummated as of March 31, 2002.
(4) Reflects the proceeds received by us from the divestitures completed
subsequent to March 31, 2002, and the currently probable divestitures. We
assume the proceeds ($1,907) will be used to reduce a portion of our
borrowings as contractually required under the acquisition financing credit
facility.
(5) Reflects the proceeds received by us from the Original Notes offering
($250,000, net of estimated Initial Purchasers discounts, fees and expenses
of $7,875). We assumed the entire net proceeds of $242,125 is to be used to
reduce a portion of our borrowings as contractually required under our
acquisition financing credit facility.
(6) Reflects the impact (historical results) of the individually insignificant
acquisitions consummated before June 30, 2001, consummated between July 1,
2001 and December 31, 2001, and consummated and probable acquisitions after
March 31, 2002, as if the transactions were consummated on January 1, 2001.
Goodwill and intangibles with indefinite lives arising from acquisitions
subsequent to June 30, 2001, are not subject to amortization in accordance
with Statement of Financial Accounting Standards (SFAS) No. 142. Prior to
the adoption of SFAS 142 pro forma amortization expense related to these
acquisitions would have been $1,005.
(7) Reflects adjustments to the individually insignificant acquisitions
consummated before June 30, 2001, as if they occurred on January 1, 2001,
for (a) goodwill amortization using the straight-line method and a 40 year
life, (b) interest expense based on the amount of acquisition financing
used to fund the acquisition purchase price and the weighted average
effective interest rate on our credit facility (9.8% for the year ended
December 31, 2001), and (c) tax expense based on a 40% effective rate.
37
<Page>
(8) Reflects adjustments to the individually insignificant acquisitions
consummated between July 1, 2001, and December 31, 2001, as if they
occurred on January 1, 2001, for (a) interest expense based on the amount
of acquisition financing used to fund the acquisition purchase price and
the weighted average interest rate on our credit facility for 2001 (9.8%
for the year ended December 31, 2001) and (b) tax expense based on a 40%
effective rate.
(9) Reflects adjustments to the individually insignificant acquisitions
consummated after December 31, 2001 and currently probable, as if they
occurred on January 1, 2001, for (a) interest expense based on the amount
of acquisition financing used to fund the acquisition purchase price and
the weighted average effective interest rate on our credit facility (9.8%
for the year ended December 31, 2001, and 8.4% for the three months ended
March 31, 2002) and (b) tax expense based on a 40% effective rate.
(10) Reflects the impact (historical results) of our divestitures completed
after March 31, 2002, and our currently probable divestitures as if the
transactions were consummated on January 1, 2001.
(11) Reflects an adjustment to the divestitures completed subsequent to
March 31, 2002, and the currently probable divestitures as if they
occurred on January 1, 2001, for interest expense reflecting the repayment
of outstanding borrowings from the proceeds of these transactions ($1,907)
as contractually required under our credit facility and required under the
related mortgage note as the underlying collateral is being sold. The
credit facility bears interest at a variable rate based on LIBOR. The
reduction to interest expense was calculated based on the weighted average
effective interest rate on our credit facility (9.8% for the year ended
December 31, 2001, and 8.4% for the three months ended March 31, 2002)
multiplied by the portion of the proceeds from these transactions used to
repay the credit facility as mentioned above. An adjustment to interest
expense reflects the repayment of outstanding borrowings under our credit
facility from a portion of the proceeds ($50,423) from our recently
completed initial public stock offering. The credit facility bears
interest at a variable rate based on LIBOR. The reduction to interest
expense was calculated based on the weighted average effective interest
rate on our credit facility (9.8% for the year ended December 31, 2001,
and 8.4% for the three months ended March 31, 2002) multiplied by the
proceeds from our initial public offering used to repay the credit
facility as mentioned above and tax expense based on a 40% effective rate.
(12) Reflects the elimination of discontinued operations.
(13) Reflects the elimination of extraordinary loss.
(14) Reflects an adjustment to include additional interest expense for the
issuance of the notes contemplated in the Original Notes offering at a
weighted average effective interest rate of 9.3% (the weighted average
effective interest rate includes a coupon rate of 9.0% for the notes in
the Original Notes offering and the amortization of $7,875 of associated
financing fees), for the year ended December 31, 2001, and the three
months ended March 31, 2002, offset by the reduction of interest expense
related to the repayment of $242,125 of our credit facility from the
proceeds of the Original Notes offering. The reduction to interest expense
was calculated based on the weighted average effective interest rate on
our credit facility (9.8% for the year ended December 31, 2001, and 8.4%
for the three months ended March 31, 2002) multiplied by the proceeds from
the Original Notes offering used to pay the credit facility.
(15) Earnings per share:
Basic earnings per share is computed by dividing net income by the assumed
weighted-average common shares outstanding during the period. Diluted earnings
per share is computed by dividing net income by the assumed weighted-average
common shares and common share equivalents outstanding during the period.
38
<Page>
The basic and diluted earnings per share and number of common share and
common share equivalents are as follows:
<Table>
<Caption>
FOR THE THREE
FOR THE YEAR ENDED MONTHS ENDED
DECEMBER 31, 2001 MARCH 31, 2002
------------------ ---------------
Earnings per share:
Basic....................................................... $ 1.00 $ 0.33
======= =======
Diluted..................................................... $ 1.00 $ 0.33
======= =======
Common shares and common share equivalents (in thousands):
Weighted average shares outstanding....................... 34,000 34,000
======= =======
Basic shares.............................................. 34,000 34,000
Shares issuable with respect to additional common share
equivalents (stock options)............................. 22 34
------- -------
Diluted equivalent shares................................. 34,022 34,034
======= =======
</Table>
39
<Page>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED IN
THE FORWARD-LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS, INCLUDING BUT NOT
LIMITED TO THOSE DESCRIBED UNDER "RISK FACTORS" BEGINNING ON PAGE 9, AND
INCLUDED IN OTHER PORTIONS OF THIS PROSPECTUS.
OVERVIEW
We are a national automotive retailer, currently operating 127 franchises at
91 dealership locations in nine states and 17 markets in the U.S. We also
operate 25 collision repair centers that serve our markets.
Our revenues are derived from selling new and used cars, light trucks and
replacement parts, providing vehicle maintenance, warranty, paint and repair
services and arrangement of vehicle finance, insurance and service contracts for
our automotive customers and the sale of heavy trucks.
Since inception, we have grown through the acquisition of nine large
platforms and additional tuck-in acquisitions. All acquisitions were accounted
for using the purchase method of accounting. As a result, the operations of the
acquired dealerships are included in the consolidated statements of income
commencing on the date acquired.
Our gross profit tends to vary with our revenue mix, that is the mix of
revenues we derive from new vehicle sales, used vehicles sales, parts, service
and collision repair and finance and insurance revenues. Our gross profit on the
sale of products and services generally varies significantly across product
lines, with vehicle sales generally resulting in lower gross profits, and parts,
service and collision repair and finance and insurance revenues resulting in the
higher gross profits. As a result, when our vehicle sales increase or decrease
at a rate greater than our other revenue sources, our gross margin responds
inversely.
Selling, general and administrative expenses ("SG&A") consist primarily of
fixed and incentive-based compensation for sales, administrative, finance and
general management personnel, rent, advertising, insurance and utilities. A
significant portion of our selling expenses are variable (such as sales
commissions), and a significant portion of our general and administrative
expenses are subject to our control (such as advertising expenses), allowing our
cost structure to adapt in response to trends in our business.
Sales of motor vehicles (particularly new vehicles) have historically
fluctuated with general macroeconomic conditions such as general business
cycles, consumer confidence, availability of consumer credit, fuel prices and
interest rates. Although these factors may impact our business, we believe that
any future negative trends due to the above factors may be mitigated by the
performance of our parts, service and collision repair operations, our variable
cost structure, regional diversity and advantageous brand mix.
Our operations are subject to modest seasonal variations that are somewhat
offset by our regional diversity. We typically generate more revenue and
operating income in the second and third quarters than in the first and fourth
quarters. Seasonality is based upon, among other things, weather conditions,
manufacturer incentive programs, model changeovers and consumer buying patterns.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2002, COMPARED TO THREE MONTHS ENDED MARCH 31, 2001
Pro forma net income for the three months ended March 31, 2002, was
$11.3 million before discontinued operations, or $0.33 per share basic and
diluted. These pro forma results (i) exclude a
40
<Page>
non-recurring charge of $11.6 million related to the establishment of a net
deferred tax liability associated with our conversion to a corporation,
(ii) include a pro forma tax charge of $5.3 million as if we were a corporation
for the entire quarter and (iii) assume that all shares issued in our initial
public offering (IPO) were outstanding for the entire quarter. Actual net income
was $5.2 million, or $0.17 per share basic and diluted.
Income before income taxes, minority interest, extraordinary loss and
discontinued operations of $18.8 million during the three months ended
March 31, 2002, was up 55% over the same period last year, after adjusting for
the elimination of goodwill amortization. Pro forma net income and per share
amounts have not been provided for the prior year quarter as we believe that due
to changes in our tax status, such comparisons with the current year quarter
would not be meaningful.
REVENUES
Revenues of $1.068 billion for the three months ended March 31, 2002,
represented a $76.9 million or 8% increase over the three months ended
March 31, 2001. Same store retail revenues (excluding fleet and wholesale) were
up $15.4 million or 2%.
New vehicle retail revenues were up $59.0 million or 11%, and 4% on a same
store basis. New vehicle retail units were up 5% during the quarter and down 1%
on a same store basis, while average selling prices were up 6% over the same
quarter last year, principally due to the shift in mix to luxury brands and from
cars to light trucks and sport utility vehicles ("SUVs").
Used vehicle retail revenues were up $7.5 million or 4%, but down 5% on a
same store basis. Used vehicle retail units were up 1% during the quarter and
down 6% on a same store basis as manufacturer incentives contributed to stronger
than expected trends in new vehicles at the expense of used vehicles. Average
selling prices were up 2% over the same quarter last year.
Parts, service and collision repair revenues were up $9.0 million or 8% in
the current quarter versus the same quarter last year and up 1% on a same store
basis. Increases in service and parts business were partially offset by lower
collision repair revenues due to milder weather conditions throughout the United
States in the current quarter versus the prior year quarter.
Finance and insurance (F&I) revenues during the three months ended
March 31, 2002, increased $3.3 million or 14% over the same period last year. On
a same store basis, F&I revenues were up 10% over the prior period, while F&I
per vehicle retailed (F&I PVR) was $709 during the first quarter of 2002, an 11%
improvement over the first quarter of 2001. These results principally reflect
new programs (including preferred lender programs) initiated over the past year.
GROSS PROFIT
Gross profit for the quarter ended March 31, 2002, increased $17.3 million
or 11% over the quarter ended March 31, 2001. Same store retail gross profit
(our preferred productivity measurement) was up 4%.
Gross profit as a percentage of revenues for the current quarter was 16.1%
as compared to 15.6% for the same quarter last year as we experienced margin
improvements across all product lines. New vehicle and used vehicle retail
margins increased to 8.4% and 12.2%, respectively, principally due to the change
in mix from cars to light trucks and SUVs mentioned above. Parts, service and
collision repair margins increased to 52.5% due to a slight shift towards higher
margin service business.
OPERATING EXPENSES
SG&A expenses for the quarter ended March 31, 2002, increased $15.8 million
or 13% over the quarter ended March 31, 2001. SG&A expenses as a percentage of
revenues increased to 12.4% in the
41
<Page>
first quarter of 2002 from 11.8% in the first quarter of 2001. Contributing to
this increase was increased variable compensation related to higher gross profit
margins, increased insurance costs of $1.2 million and one-time IPO-related
compensation of $0.5 million. Depreciation and amortization decreased
$1.2 million to $5.8 million as goodwill amortization of $2.5 million in the
three months ended March 31, 2001, did not recur in the current quarter due to
elimination of such amortization pursuant to SFAS 142. This was offset by
increased depreciation principally due to capital expenditures made in 2001. In
addition, start-up expenses related to the Price 1 Auto Store used car pilot
program of $1.1 million were included in SG&A expenses for the quarter ended
March 31, 2002. The Price 1 Auto Store used car pilot program is a six-month,
five-store pilot in Houston, Texas to sell used vehicles at Wal-Mart locations.
Both we and Wal-Mart intend to evaluate the program at the end of the pilot.
OTHER INCOME (EXPENSE)
Floor plan interest expense decreased to $4.4 million for the quarter ended
March 31, 2002, from $8.9 million for the quarter ended March 31, 2001. This
decline was primarily due to lower interest rates in 2002 versus 2001 and lower
inventory levels in the current quarter. Other interest expense decreased by
$2.7 million from the prior year principally due to lower interest rates,
partially offset by increased borrowings used to fund acquisitions completed
after January 1, 2001. Net losses from unconsolidated affiliates for the quarter
ended March 31, 2002, and March 31, 2001, were related to our share of losses in
an automotive finance company. Other income (expense) in the first quarter of
2002 reflected certain non-operating expenses associated with the IPO of
$0.6 million, while the first quarter of 2001 included a gain on an interest
rate swap transaction of $0.4 million.
INCOME TAX PROVISION
During the quarter ended March 31, 2002, we recorded, in accordance with
SFAS No. 109, a one-time non-recurring charge of $11.6 million related to the
establishment of a net deferred tax liability, in connection with the Company's
conversion from a limited liability company to a corporation. This liability
represented the difference between the financial statement and tax basis of the
assets and liabilities of the Company at the conversion date. Our pro forma tax
rate for the quarter of approximately 40%, is based on the estimated effective
tax rate for the year. During the three months ended March 31, 2001, income tax
was provided in accordance with SFAS 109 on only the "C" corporations owned
directly or indirectly by Asbury Automotive Group L.L.C. (our predecessor)
during that period.
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT
In connection with the repayment of certain term notes with borrowings under
the Committed Credit Facility (as defined below), the Company incurred
prepayment penalties and wrote off the unamortized portion of deferred financing
fees, aggregating $1.4 million in the first quarter of 2001.
DISCONTINUED OPERATIONS
We divested two dealerships during the first quarter of 2002 and in
accordance with SFAS 144 these dealerships have been treated as discontinued
operations in both periods presented. In the quarter ended March 31, 2002, the
Company recognized a $0.6 million net gain on the disposal of the dealerships
and incurred $0.5 million of losses from operations. The loss from discontinued
operations in the quarter ended March 31, 2001, related to the operations of
those dealerships.
42
<Page>
YEAR ENDED DECEMBER 31, 2001, COMPARED TO YEAR ENDED DECEMBER 31, 2000
REVENUES
Our revenues for the year ended December 31, 2001, increased $305.2 million
or 7.7% over the year ended December 31, 2000. The increase was primarily due to
$340.1 million of revenues from acquisitions, partially offset by a decrease in
same store (dealerships owned longer than one year) revenues, of $34.9 million
or 0.9%. Same store revenue increases at three of our platforms (Jacksonville up
11.0%, St. Louis up 9.2% and Texas up 8.6%) were offset by significant same
store decreases at (a) our Oregon platform (down 17.8%) primarily due to changes
in our business practices and restrictions in our sales policies, declining Ford
sales related to the Firestone tire recall and the effect on employment and
consumer spending in the Pacific Northwest from the technology downturn,
(b) our Arkansas platform (down 12.1%) due to declining demand in the local
market, increased competition and issues with Ford related to the Firestone
recall and (c) our Atlanta platform (down 7.0%) principally due to a downturn in
its heavy truck business primarily related to cyclical factors affecting the
heavy truck industry.
Same store revenues from vehicle sales were off 1.6% primarily due to the
conditions noted above in Oregon, Arkansas and Atlanta. Overall, sales were
impacted by a slight decline in demand in the automotive industry as new
vehicles sold in the U.S. declined from 17.4 million units in 2000 to
17.2 million units in 2001. Despite this national decline, our Jacksonville
platform continued its strong performance with an 11.7% increase in same store
vehicle sales over the prior year. In addition, our Texas and St. Louis
platforms posted 8.9% and 8.4% increases, respectively. Finance and insurance
revenues per vehicle retailed were $673 for the year ended December 31, 2001, a
15.0% increase over the year ended December 31, 2000.
Parts, service and collision repair revenues on a same store basis were up
5.2% in 2001 over 2000 due to a continued emphasis on those products. Eight of
the nine platforms in our organization generated an increase in parts, service
and collision repair in the year ended December 31, 2001, over the same period
last year.
GROSS PROFIT
Gross profit for the year ended December 31, 2001 increased $73.9 million or
12.5% over the year ended December 31, 2000. The increase was primarily due to
$54.0 million of gross profit from acquisitions and an increase in same store
gross profit of $19.9 million or 3.4%. Overall, gross profit as a percentage of
revenues for the year ended December 31, 2001 was 15.6% as compared to 14.9% for
the year ended December 31, 2000. This increase is primarily attributable to a
shift in product mix to higher margin parts, service and collision repair
services and finance and insurance.
OPERATING EXPENSES
SG&A expenses for the year ended December 31, 2001 increased $68.5 million
or 15.5% over the year ended December 31, 2000. The increase was primarily due
to $40.3 million of SG&A from acquisitions and an increase in same store SG&A of
$28.2 million or 6.5%. Same store SG&A in 2001 included certain charges totaling
$7.9 million, including $6.7 million related to severance payments and the
repurchase of a carried interest, and $1.2 million primarily related to the
rebranding of our Oregon platform. SG&A as a percentage of revenues increased to
12.0% in the year ended December 31, 2001, from 11.2% in the year ended
December 31, 2000. Contributing to this increase were the aforementioned charges
in 2001, increased variable compensation related to higher gross profit margins,
higher advertising and insurance costs, and expense control initiatives in
Oregon lagging behind revenue declines. The increase in depreciation and
amortization is principally attributable to acquisitions.
43
<Page>
OTHER INCOME (EXPENSE)
Floor plan interest expense decreased to $27.2 million for the year ended
December 31, 2001 from $36.1 million for the year ended December 31, 2000,
primarily due to a decline in interest rates in 2001, offset by the incremental
impact of acquisitions and our decision to finance a greater percentage of our
vehicles. Other interest expense increased by $3.0 million over the year ended
December 31, 2000, principally due to increased borrowings used to fund
acquisitions, partially offset by a decline in interest rates. Net losses from
unconsolidated affiliates of $3.2 million in the year ended December 31, 2001,
represent our share of losses in an automotive finance company and the write
down of our investment in CarsDirect.com (which was distributed to an entity
owned by certain of our shareholders), while losses in the year ended
December 31, 2000, primarily reflect our share of losses in our investment in
Greenlight.com, which was fully written off as of December 31, 2000. Interest
income was $3.3 million lower for the year ended December 31, 2001, as compared
to 2000 due to lower interest rates and a decrease in average available cash.
YEAR ENDED DECEMBER 31, 2000, COMPARED TO YEAR ENDED DECEMBER 31, 1999
REVENUES
Our revenues for the year ended December 31, 2000, increased $1.03 billion
or 35.2% over the year ended December 31, 1999. The increase was primarily due
to $1.05 billion related to acquisitions and offset by a decrease in same store
revenues of $20.4 million or 0.7%.
Same store revenues from vehicle sales decreased $31.4 million, or 1.2%,
primarily due to declines in our Oregon platform (down 21.4%) and Arkansas
platform (down 9.9%). The decline in the Oregon platform resulted mainly from
changes in our business practices, increased restrictions in our sales policies,
declines in demand in the local market and declines in Ford sales related to the
Firestone tire recall. Our Arkansas platform saw reduced sales principally due
to increases in competition and declines in Ford sales related to the Firestone
tire recall. These declines were mostly offset by strong year-over-year
increases at five of our platforms. Finance and insurance revenues per vehicle
retailed were $585 for the twelve months ended December 31, 2000, a 7.5%
increase over the twelve months ended December 31, 1999.
Parts, service and collision repair revenues on a same store basis were up
3.3% in fiscal 2000 versus fiscal 1999 principally due to a focus on this higher
margin product line. Six of our eight platforms posted year-over-year revenue
increases in this area.
GROSS PROFIT
Gross profit for the year ended December 31, 2000, increased $157.4 million
or 36.3% over the year ended December 31, 1999. The increase was primarily due
to $143.8 million related to acquisitions and an increase in same store gross
profit of $13.6 million or 3.2%. Gross profit as a percentage of revenues for
the year ended December 31, 2000, was 14.9% as compared to 14.8% for the year
ended December 31, 1999. This increase was primarily attributable to increased
finance and insurance revenues per vehicle sold, improved margins on new
vehicles due to a shift away from lower margin fleet sales and increased margins
on used vehicles due to reduced losses on wholesale dispositions.
OPERATING EXPENSES
SG&A expenses for the year ended December 31, 2000, increased
$106.9 million or 31.9% over the year ended December 31, 1999. The increase was
primarily due to $106.2 million of SG&A expenses related to acquisitions and an
increase in same store SG&A expenses of $0.7 million or 0.2%. SG&A expenses as a
percentage of revenues decreased to 11.2% in 2000 from 11.4% in 1999 principally
due to containment of variable and fixed compensation costs. Advertising costs
increased
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$12.6 million primarily due to a significant number of acquisitions completed
after January 1, 1999. Depreciation and amortization increased $7.8 million to
$24.4 million principally due to a significant number of acquisitions completed
after January 1, 1999.
OTHER INCOME (EXPENSE)
Floor plan interest expense increased to $36.1 million for the year ended
December 31, 2000, from $22.5 million for the year ended December 31, 1999,
primarily due to a significant number of acquisitions completed after
January 1, 1999, higher interest rates throughout 2000 as compared to 1999, and
a greater number of vehicles in inventory. Other interest expense increased by
$17.3 million over the prior year principally due to increased borrowings used
to fund acquisitions completed after January 1, 1999, and to a lesser extent,
higher interest rates. Equity investment losses for the years ended
December 31, 2000, and December 31, 1999, primarily reflect our share of losses
in our investment in Greenlight.com of $6.9 million and $0.8 million,
respectively. Interest income was $2.8 million higher for the year ended
December 31, 2000, due to higher interest rates and an increase in average
available cash.
LIQUIDITY AND CAPITAL RESOURCES
We require cash to fund working capital needs, finance acquisitions of new
dealerships and fund capital expenditures. These requirements are met
principally from cash flow from operations, borrowings under our credit
facilities and floor plan financing as described below, mortgage notes and
issuances of equity interests. As of March 31, 2002, we had cash and cash
equivalents of $78.1 million.
CREDIT FACILITIES
On January 17, 2001, we entered into a committed financing agreement (the
"Committed Credit Facility") with Ford Motor Credit Company, General Motors
Acceptance Corporation and Chrysler Financial Company, L.L.C. with total
availability of $550 million. The Committed Credit Facility is used for
acquisition financing and working capital purposes. At the date of closing, the
Company utilized $330.6 million of the Committed Credit Facility to repay
certain existing term notes and pay certain fees and expenses of the closing. At
May 31, 2002, $219.4 million was available for borrowings. On a pro forma as
adjusted basis, after giving effect to the proceeds of the Original Notes
offering, that amount has increased to $443.1 million. All borrowings under the
Committed Credit Facility bear interest at variable rates based on LIBOR plus a
specified percentage depending on our attainment of certain leverage ratios and
the outstanding balance under this facility.
This credit facility imposes a blanket lien upon all our assets, and
contains covenants that, among other things, place significant restrictions on
our ability to incur additional debt, encumber our property and other assets,
repay other debt, dispose of assets, invest capital and permit our subsidiaries
to issue equity securities. This credit facility also imposes mandatory minimum
requirements with regard to the terms of transactions to acquire prospective
targets, before we can borrow funds under the facility to finance the
transactions. The terms of our credit facility require us on an ongoing basis to
meet certain financial ratios, including a current ratio, as defined in our
credit facility, of at least 1.2 to 1, a fixed charge coverage ratio, as defined
in our credit facility, of no less than 1.2 to 1, and a leverage ratio, as
defined in our credit facility, of no greater than 4.4 to 1. A breach of these
covenants or any other of the covenants in the facility would be cause for
acceleration of repayment and termination of the facility by the lenders. This
credit facility also contains provisions for default upon, among other things, a
change of control, a material adverse change, the non-payment of obligations and
a default under other agreements. As of the date of this prospectus, we were in
compliance with all of the covenants. The terms of the Committed Credit Facility
provides that a default under the Floor Plan Facilities described below, among
other obligations, constitutes a default under the Committed Credit Facility.
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The Committed Credit Facility requires us to apply 80% of the net proceeds
of equity offerings and 100% of the net proceeds of debt offerings to repayment
of outstanding indebtedness under the facility.
Substantially all our subsidiaries have guaranteed, and substantially all of
our future subsidiaries will be required to guarantee, our obligations under the
Committed Credit Facility. Substantially all of our assets not subject to
security interests granted to floor plan lenders are subject to security
interests to lenders under the Committed Credit Facility. We pay annually in
arrears a commitment fee for the credit facility of 0.35% of the undrawn amount
available to us. The Committed Credit Facility provides for an indefinite series
of one-year extensions at our request, if approved by the lenders at their sole
discretion. Conversely, we can terminate the Committed Credit Facility by
repaying all of the outstanding balances under the facility and the related
uncommitted floor plan lines plus a termination fee. The termination fee,
currently equal to 2% of the amount outstanding under the Committed Credit
Facility, declines one percentage point on each of the anniversaries of the
facility over the next two years. We have extended the maturity of the Committed
Credit Facility to January 2005. As of March 31, 2002, without taking into
account the offering of the Original Notes, $217.9 million remained available to
us for additional borrowings under the Committed Credit Facility. After the use
of the proceeds from the offering of the Original Notes, we have approximately
$448.6 million available to us.
In addition, we have $10 million available through other revolving credit
facilities, which are secured by notes receivable for finance contracts. The
borrowings are repayable on the lenders' demand and accrue interest at variable
rates. These facilities are subject to certain financial and other covenants. As
of March 31, 2002, we had $10 million outstanding under these facilities.
As of December 31, 2001, we had the following contractual payment
obligations:
<Table>
<Caption>
TOTAL 2002 2003 2004 2005 2006 THEREAFTER
-------- -------- -------- -------- -------- -------- ----------
Floor Plan Financing.............. $451,375 $451,375 $ -- $ -- $ -- $ -- $ --
Other Short-Term Debt............. $ 10,000 $ 10,000 -- -- -- -- --
Long Term Debt including capital
lese obligation................. $528,337 $ 35,789 $49,569 $ 5,148 $398,880 $ 3,414 $35,537
Operating Leases:
Third parties................... $113,695 $ 14,334 $12,928 $11,275 $ 10,346 $ 9,012 $55,800
Related parties................. $105,439 $ 12,850 $12,983 $12,929 $ 12,966 $12,923 $40,878
</Table>
We expect to incur additional obligations in the future.
GUARANTEES
We have guaranteed four loans made by financial institutions either directly
to our management or to non-consolidated entities controlled by our management
which totaled approximately $9.1 million at March 31, 2002.
FLOOR PLAN FINANCING
On January 17, 2001, and in connection with the Committed Credit Facility,
the Company obtained uncommitted floor plan financing lines of credit for new
and used vehicles (the "Floor Plan Facilities"). We refinanced substantially all
of our then existing floor plan debt under the Floor Plan Facilities. The Floor
Plan Facilities do not have specified maturities. They bear interest at variable
rates based on
46
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LIBOR or the prime rate and are provided by Ford Motor Credit Company, Chrysler
Financial Company L.L.C. and General Motors Acceptance Corporation, with total
availability of $750 million.
<Table>
Ford Motor Credit Company................................... $330 million
Chrysler Financial Company L.L.C............................ $315 million
General Motors Acceptance Corporation....................... $105 million
------------
Total Floor Plan Lines.................................... $750 million
============
</Table>
In addition, we have ancillary floor plan facilities for our heavy truck
business within our Atlanta platform with total availability of $32 million as
of March 31, 2002.
We finance substantially all of our new vehicle inventory and a portion of
our used vehicle inventory under the floor plan financing credit facilities. We
are required to make monthly interest payments on the amount financed, but are
not required to repay the principal prior to the sale of the vehicle. The Floor
Plan Facilities also provide used vehicle financing up to a fixed percentage of
the value of each financed used vehicle. These floor plan arrangements grant a
security interest in the financed vehicles as well as the related sales
proceeds. Amounts financed under the floor plan arrangements bear interest at
variable rates, which are typically tied to LIBOR or the prime rate. As of
March 31, 2002, we had $451.0 million outstanding under all of our floor plan
financing agreements.
MORTGAGES
As of March 31, 2002, we had 12 outstanding real estate mortgages at six
operating platforms totaling $120.4 million. The mortgage notes bear interest at
fixed and variable rates (the weighted average interest rates were 9.3% and 7.9%
for years ended December 31, 2000 and 2001, respectively, and 5.7% for the
fiscal quarter ended March 31, 2002). These obligations are secured by the
related property, plant and equipment and mature between 2002 and 2015. Under
the terms of our Committed Credit Facility, no guarantees from us or any of our
subsidiaries are allowed in support of our mortgage notes. Mortgage lenders
include Twin City Bank, Commerce Bank, Comerica Bank, Ford Motor Credit Company
and General Motors Acceptance Corporation.
CASH FLOW
Cash flow from operations totaled $16.4 million for the three months ended
March 31, 2002, as net income plus non-cash items of $22.7 million, a
$4.9 million net decrease in accounts receivable and contracts-in-transit and an
increase in floor plan notes payable of $4.9 million were offset by an increase
in inventories of $17.2 million. Net cash flow used in investing activities was
$7.1 million, principally related to capital expenditures offset by proceeds
from the dispositions of certain franchises. Net cash flow from financing
activities was $8.3 million, as net proceeds from the IPO were partially offset
by a net reduction in borrowings.
Cash flows from operations totaled $96.5 million for the year ended
December 31, 2001, as net income plus non-cash items of $84.5 million, along
with a reduction in inventories of $106.4 million, offset a reduction in floor
plan notes payable of $80.8 million. In addition, contracts-in-transit and
accounts receivable had a net increase of $18.9 million. Net cash flow used in
investing activities was $98.3 million, principally related to acquisitions of
$50.2 million, capital expenditures of $50.0 million, proceeds from the sale of
assets of $2.1 million and an investment in CarsDirect.com of $1.2 million. Net
cash flow from financing activities was $15.0 million, as a net increase in
borrowings of $43.8 million (principally to fund acquisitions), was partially
offset by $26.3 million used to pay member distributions and repurchase certain
members' equity. In addition, new borrowings under the acquisition line of
$330.6 million were used to repay existing debt and finance certain fees and
expenses of the closing of the credit facilities.
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CAPITAL EXPENDITURES
Capital spending for the year ended December 31, 2001, was $50.0 million and
for the three months ended March 31, 2002 and 2001 was $8.6 million and
$10.3 million, respectively. Capital spending other than from acquisitions is
estimated to be approximately $65 to $70 million during the year ended
December 31, 2002, primarily related to operational improvements and spending to
upgrade existing dealership facilities.
Our future growth is dependent on our ability to acquire additional
dealerships and successfully operate existing dealerships. We believe that cash
flow generated from operations, working capital availability under the
acquisition line, availability under our floor plan arrangements as well as
mortgage financings, will be sufficient to fund debt service, working capital
requirements and capital spending. Future acquisitions will be funded from cash
flow from operations, capital available under our Committed Credit Facility and
through the public or private issuance of equity or debt securities.
USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the date of the financial statements and
reported amounts of revenues and expenses during the periods presented. Actual
amounts could differ from those estimates. A summary of our significant
accounting policies are presented in the Notes to Consolidated Financial
Statements. Certain of our accounting policies employing the use of estimates
are as follows:
INVENTORIES
Our inventories are stated at the lower of cost or market. As of March 31,
2002, we used the specific identification method and the "first-in, first-out"
method ("FIFO"), to value our inventories. We maintain a reserve for inventory
units where cost basis exceeds fair value. In assessing lower of cost or market
for new vehicles, we primarily consider the aging of vehicles along with the
timing of annual and model changeovers. The assessment of lower of cost or
market for used vehicles considers recent data and trends such as loss
histories, current aging of the inventory and current market conditions.
NOTES RECEIVABLE FINANCE CONTRACTS
As of March 31, 2002, we had outstanding notes receivable from finance
contracts of $31.1 million (net of an allowance for credit losses of
$4.7 million). These notes have initial terms ranging from 12 to 60 months, and
are collateralized by the related vehicles. The assessment of our allowance for
credit losses considers historical loss ratios and the performance of the
current portfolio with respect to past due accounts. We continually analyze our
current portfolio against our historical performance. In addition, we attribute
minimal value to the underlying collateral in our assessment of the reserve.
CHARGEBACK RESERVE
We receive commissions from the sale of various insurance contracts, vehicle
service contracts to customers and through the arrangement of financing vehicles
for customers. We may be charged back ("chargeback") for such commissions in the
event of early termination of the contracts by customers. The revenues from
financing fees and commissions are recorded at the time of the sale of the
vehicles and a reserve for future chargebacks is established at that time. The
reserve carefully considers our historical chargeback percentages and timing of
such chargebacks as well as national industry trends, and this data is evaluated
on a product-by-product basis.
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RELATED PARTY TRANSACTIONS
Certain of our directors, beneficial owners and their affiliates, and
platform management have engaged in transactions with us. These transactions
primarily relate to long-term operating leases of facilities. Rent expense
attributable to related parties was $12.2 million during the year ended
December 31, 2001, and future minimum payments under related party long-term
non-cancelable operating leases as of December 31, 2001, were $105.4 million.
This practice is fairly common in the automotive retail industry.
During 1998, we purchased an option to acquire certain properties from one
of our directors. The purchase option, initially based on the aggregate
appraised value, adjusts each year for movements in the Consumer Price Index.
The purchase option of $50,396,000 can only be exercised in total. We currently
have no intent to exercise this option.
We paid $5.9 million in advertising fees to two separate entities in which
two of our shareholders had substantial interests. In addition, we paid
$0.4 million in expenses related to private airplane use for airplanes owned by
several of our directors.
We believe these transactions involved terms comparable to, or more
favorable to us than, terms that would be obtained from an unaffiliated third
party.
In the first quarter of 2002, we purchased land from one of our directors
for $2 million. The appraised value of the property prior to our purchase was
$800,000 less than the purchase price due partially to competition for this
property with the remainder being offset by a rent-free lease we entered into
with this director for an adjacent property.
RECENT ACCOUNTING PRONOUNCEMENTS
On June 30, 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS 142"). SFAS 142 eliminates goodwill amortization over
its estimated useful life. However, goodwill will be subject to at least an
annual assessment for impairment by applying a fair-value based test.
Additionally, acquired intangible assets should be separately recognized if the
benefit of the intangible is obtained through contractual or other legal rights,
or if the intangible asset can be sold, transferred, licensed, rented or
exchanged, regardless of the acquirer's intent to do so. Intangible assets with
definitive lives will need to be amortized over their useful lives. The
statement requires that by June 30, 2002, a company must establish its fair
value benchmarks in order to test for impairment. The Company adopted this
statement effective January 1, 2002, but is still in the process of evaluating
its benchmark assessments. The adoption of this statement resulted in
elimination of approximately $9.8 million of goodwill amortization annually,
subsequent to December 31, 2001. The Company does not anticipate that the
ultimate adoption of SFAS 142 will result in an impairment of goodwill, based on
the fair value based test; however, changes in the facts and circumstances
relating to the Company's goodwill and other intangible assets could result in
an impairment of intangible assets in the future. Management does not believe,
other than the elimination of goodwill amortization as discussed above, that the
adoption of SFAS 142 will have a material impact on our financial condition or
liquidity.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). This statement
supersedes FASB Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," and the accounting and
reporting provisions of APB Opinion No. 30, "Reporting the Results of
Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," and
establishes accounting standards for the impairment and disposal of long-lived
assets and criteria for determining when a long-lived asset is held for sale.
The statement removes the requirement to allocate goodwill to long-lived assets
to be tested
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for impairment, requires that the depreciable life of a long-lived asset to be
abandoned be revised in accordance with APB Opinion No. 20, "Accounting
Changes," provides that one accounting model be used for long-lived assets to be
disposed of by sale, whether previously held and used or newly acquired and
broadens the presentation of discontinued operations to include more disposal
transactions. The Company adopted the provisions of SFAS 144 effective
January 1, 2002. The adoption of this statement resulted in income from
discontinued operations of $87 for the three months ended March 31, 2002 and
losses of $1,141, $1,750, $553 and $229 for the years ended December 31, 1999,
2000 and 2001 and for the three months ended March 31, 2001, respectively, being
reclassified to discontinued operations on the accompanying statements of
income. As a result of our adoption of this statement, future dispositions will
result in reclassifications of financial statement data to discontinued
operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK
We are exposed to market risk from changes in interest rates on
substantially all of our outstanding indebtedness. Outstanding balances under
the acquisition line bear interest at a variable rate based on a margin over the
benchmark LIBOR rate. Given amounts outstanding at March 31, 2002, a 1% change
in the LIBOR rate would result in a change of approximately $1.7 million to our
annual non-floor plan interest expense after giving effect to the interest rate
swaps discussed below. Similarly, amounts outstanding under floor plan financing
arrangements (including the floor plan line) bear interest at variable rates
based on a margin over LIBOR or prime. Based on floor plan amounts outstanding
at March 31, 2002, a 1% change in the LIBOR rate would result in a $4.5 million
change to annual floor plan interest expense.
INTEREST RATE SWAPS
During the first quarter of 2002, the Company terminated three swap
agreements, having a combined total notional principal amount of $300 million,
all maturing in November 2003 and entered into three new swap agreements with
the same notional value and maturity date. This was done to make the interest
rate resets of the swaps correspond with the rate reset terms of the underlying
debt in order to eliminate any ineffectiveness. The original swap agreements had
an aggregate fair value of $1.7 million at the date of termination. Such amount
will be amortized into income using the effective interest method through
November 2003. The swaps require us to pay fixed rates with a weighted average
of approximately 2.99% and receive in return amounts calculated at one-month
LIBOR. The aggregate fair value of the swap arrangements, including the
unamortized portion of the terminated swaps, at March 31, 2002 was
$3.1 million. Our swap agreements have been designated and qualify as cash flow
hedges of our forecasted variable interest rate payments. To the extent the swap
arrangements are not "perfectly effective" (for example, because scheduled rate
resets on the swaps and the underlying debt are not simultaneous), the
ineffectiveness is reported in "other income" in the income statement. For the
quarter ended March 31, 2002, the ineffectiveness reflected in earnings was
immaterial. The new swap agreements do not contain any ineffectiveness. We
entered into these swap arrangements with Goldman Sachs Capital Markets, L.P.,
an affiliate of Goldman, Sachs & Co., one of the initial purchasers of the notes
offered hereby.
During 1998, we caused a subsidiary to enter into swap arrangements with a
bank in an aggregate initial notional principal amount of $31 million in order
to fix a portion of our interest expense and reduce our exposure to floating
interest rates. These swaps required the subsidiary to pay fixed rates ranging
from 4.7% to 5.2% on the notional principal amounts, and receive in return
payments calculated at LIBOR. In December 2000, we terminated our swap
arrangements resulting in a gain of $0.4 million which was recognized in the
quarter ended March 31, 2001, in connection with our refinancing of certain
existing debt utilizing our credit facilities.
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Management continually monitors interest rates and trends in rates and will
from time to time reevaluate the advisability of entering into additional
derivative transactions to hedge our interest rate risk and may consider
restructuring our debt from floating to fixed rate.
FOREIGN CURRENCY EXCHANGE RISK
All our business is conducted in the U.S. where all our revenues and
expenses are transacted in U.S. dollars. As a result, our operations are not
subject to foreign exchange risk.
CHANGE IN AUDITORS
On May 13, 2002, we removed Arthur Andersen LLP ("Andersen") as our
independent public accountants and on May 16, 2002, retained Deloitte & Touche
LLP to serve as our independent public accountants for the fiscal year 2002.
This replacement was recommended by the Audit Committee of our Board of
Directors and approved by the Board of Directors. See "Independent Accountants".
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<Page>
BUSINESS
COMPANY
We are one of the largest automotive retailers in the United States
currently operating 127 franchises at 91 dealership locations. We offer our
customers an extensive range of automotive products and services including new
and used vehicles and related financing and insurance, vehicle maintenance and
repair services, replacement parts and service contracts. We were formed in 1995
by then-current management and Ripplewood Investments L.L.C. Our revenues for
the twelve months ended March 31, 2002, were $4.3 billion.
Our retail network is organized into nine regional dealership groups, or
"platforms," which are groups of dealerships operating under a distinct brand.
Our franchises include a diverse portfolio of 36 American, European and Asian
brands and 67% of our 2001 new vehicle retail revenues were from either luxury
or mid-line import brands. Our platforms are located in markets or clusters of
markets that we believe represent attractive opportunities, generally due to the
presence of relatively few dealerships and high rates of population and income
growth. The following is a detailed breakdown of our platforms:
<Table>
<Caption>
DATE OF INITIAL PLATFORM
PLATFORM REGIONAL BRANDS ACQUISITION MARKETS FRANCHISES
- ------------------------ --------------- ----------------- ----------------------------
ATLANTA
Nalley Automotive Group.... September 1996 Atlanta Acura, Audi, Chevrolet,
Chrysler(d), Dodge, Hino,
Honda, Infiniti, Isuzu
Truck, Jaguar, Jeep,
Lexus(a), Navistar,
Peterbilt
ST. LOUIS
Plaza Motor Company........ December 1997 St. Louis Audi, BMW, Cadillac,
Infiniti, Land Rover(b),
Lexus, Mercedes-Benz,
Porsche
TEXAS
David McDavid Automotive
Group.................... April 1998 Dallas/Fort Worth Acura, Buick, GMC, Honda,
Lincoln, Mercury, Pontiac,
Suzuki
Houston Honda, Kia, Nissan
Austin Acura
TAMPA
Courtesy Dealership September 1998 Tampa Chrysler, GMC, Hyundai,
Group.................... Infiniti, Isuzu, Jeep, Kia,
Lincoln, Mazda(a), Mercedes-
Benz, Mercury, Mitsubishi,
Nissan, Pontiac, Toyota
JACKSONVILLE
Coggin Automotive Company.. October 1998 Jacksonville Chevrolet, GMC(a), Honda(a),
Kia, Mazda(c), Nissan(a),
Orlando Pontiac(a), Toyota
Buick, Chevrolet, GMC, Ford,
</Table>
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<Page>
<Table>
<Caption>
DATE OF INITIAL PLATFORM
PLATFORM REGIONAL BRANDS ACQUISITION MARKETS FRANCHISES
- ------------------------ --------------- ----------------- ----------------------------
Fort Pierce Honda(a), Lincoln, Mercury,
Pontiac
BMW, Honda, Mercedes-Benz
OREGON
Thomason Auto Group........ December 1998 Portland Ford(a), Honda, Hyundai(a),
Nissan, Toyota
NORTH CAROLINA
Crown Automotive Company... December 1998 Greensboro Acura, Audi, BMW, Dodge,
GMC, Honda, Kia, Mitsubishi,
Nissan, Pontiac, Volvo,
Chrysler, Chevrolet(d)
Chapel Hill Honda, Volvo
Fayetteville Ford, Dodge
Richmond, VA Acura, BMW(a), Porsche, MINI
ARKANSAS
North Point (previously
known as McLarty
Companies)............... February 1999 Little Rock BMW, Ford, Lincoln(a),
Mazda, Mercury(a), Nissan,
Toyota, Volkswagen, Volvo
Texarkana, TX Chrysler, Dodge, Ford
MISSISSIPPI
Gray-Daniels(e)............ April 2000 Jackson Chrysler, Ford, Hyundai,
Jeep, Lincoln, Mazda,
Mercury, Mitsubishi,
Nissan(a), Toyota
</Table>
- ------------------------
(a) This platform market has two of these franchises.
(b) Minority owned and operated by us. See "Related Party Transactions" for a
description of our ownership interest in this franchise.
(c) Pending divestiture.
(d) Pending acquisition.
(e) We acquired our initial dealerships in Jackson, Mississippi in April 2000.
With the acquisition of Gray-Daniels Ford in July 2001, we organized our
Jackson dealerships into our ninth platform.
Each platform originally operated as an independent business before being
acquired and integrated into our operations, and each continues to enjoy high
local brand name recognition and regional concentration.
We compete in a large and highly fragmented industry comprised of
approximately 22,150 franchised dealerships. The U.S. automotive retailing
industry is estimated to have annual sales of approximately $1 trillion, with
the 100 largest dealer groups generating less than 10% of total sales revenues
and controlling less than 8% of all franchised dealerships. We believe that
further consolidation is likely due to increased capital requirements of
dealerships, the limited number of viable exit strategies for dealership owners
and the desire of certain manufacturers to strengthen their brand identity by
consolidating their franchised dealerships. We also believe that an opportunity
exists
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for dealership groups with significant equity capital and experience in
identifying, acquiring and professionally managing dealerships, to acquire
additional dealerships.
COMPANY HISTORY
We were formed in 1995 by then current management and Ripplewood Holdings
L.L.C. (now known as Ripplewood Investments L.L.C.) In 1997, an investment fund
affiliated with Freeman Spogli & Co. Inc. acquired a significant interest in
us. These three groups identified an opportunity to aggregate a number of the
nation's top retail automotive dealers into one cohesive organization. We
acquired eight of our platforms between 1997 and 1999, and combined them on
April 30, 2000. In the combination, dealers holding ownership interests in their
respective platforms transferred their interests to the Oregon platform in
exchange for ownership interests in the Oregon platform. Dealers who held
interests in the Oregon platform did not exchange their interests, but had their
holdings adjusted to reflect their overall ownership interest in the
consolidated company. The Oregon platform then changed its name to Asbury
Automotive Group L.L.C. and became the parent company to our platforms and other
companies. Since the consolidation of the eight platforms as of April 30, 2000,
a ninth platform, the Mississippi platform, was formed on July 2, 2001,
following our acquisition of five franchises in the Jackson market, which we
added to five franchises that we previously acquired in this market. On
March 13, 2002, we effected an initial public offering of our common stock and
on March 14, 2002, our common stock was listed on the New York Stock Exchange
under the ticker symbol "ABG".
OUR STRENGTHS
We believe our competitive strengths are as follows:
- DIVERSIFIED REVENUE AND PROFIT STREAMS. Our operations provide a
diversified revenue base that we believe mitigates the impact of
fluctuating new car sales volumes. Used car sales and parts, service and
collision repair sales, which represented 38% of our total 2001 revenue,
generate higher profit margins than new car sales and tend to fluctuate
less with economic cycles. Our finance and insurance business,
substantially all of which is commission based, has no associated costs of
goods sold and represented 3% of revenues and 16% of gross profit in 2001.
- NEW VEHICLES. Our franchises include a diverse portfolio of 36 American,
European and Asian brands. We believe that our diverse brand, product and
price mix enables us to reduce our exposure to specific product supply
shortages and changing customer preferences. New vehicle sales were
approximately 59% of our total revenues and 31% of total gross profit in
2001.
- USED VEHICLES. We sell used vehicles at virtually all our franchised
dealerships. Retail sales of used vehicles, which have higher gross
margins than new vehicles, have become an increasingly significant source
of profit for us, making up approximately 27% of our total revenues and
16% of total gross profit in 2001. We obtain used vehicles through
customer trade-ins, auctions restricted to new vehicle dealers (offering
off-lease, rental and fleet vehicles) and "open" auctions which offer
repossessed vehicles and vehicles sold by other dealers. We sell the
majority of our used vehicles to retail customers. We dispose of used
vehicles that are not purchased by retail customers through sales to other
dealers and at auctions.
- PARTS, SERVICE AND COLLISION REPAIR. We sell parts and provide maintenance
and repair service at all our franchised dealerships. In addition, we have
25 free-standing collision repair centers in close proximity to
dealerships in substantially all our platforms. Our dealerships and
collision repair centers collectively operate approximately 1,600 service
bays. Revenues from parts, service and collision repair centers were
approximately 11% of our total revenues and 37% of our total gross profit
in 2001. We believe that parts and service revenues are more stable than
vehicle sales. Industry-wide, parts and service revenues have consistently
increased over the last 20 years.
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We believe that this is due to the increased cost of maintaining vehicles,
the added technical complexity of vehicles and the increased number of
vehicles on the road.
- FINANCE AND INSURANCE. We arranged third-party customer financing on over
70% of the vehicles we sold in 2001. These transactions result in
commissions being paid to us by the indirect lenders, including
manufacturer-captive finance arms. In addition to finance commissions,
these transactions create other highly profitable sales commission
opportunities, including selling extended service contracts and various
insurance-related products to the consumer. Our size and sales volume
motivate vendors to provide these products to us at substantially reduced
fees compared to industry norms which results in competitive advantages as
well as acquisition synergies. Profits from finance and insurance
generated approximately 3% of our total revenues and 16% of our total
gross profit in 2001. On substantially all of these products, we earn
sales-based commissions while taking no risk related to loan payments,
insurance payments or investment performance, which are fully borne by
third-parties.
HIGHLY VARIABLE COST STRUCTURE
Our variable-cost structure helps us manage expenses in a variety of
economic environments, as the majority of our operating expenses consist of
incentive-based compensation, vehicle carrying costs, advertising and other
variable and controllable costs. For example, on average the general managers
and salespeople of our dealerships have over 80% of their compensation tied to
profits, profit margins and certain other metrics.
ADVANTAGEOUS BRAND MIX
We classify our primary franchise sales lines into luxury, mid-line import,
mid-line domestic and value. We believe that our current brand mix includes a
higher proportion of luxury and mid-line import franchises to total franchises
than most other public automotive retailers. Luxury and mid-line imports
together accounted for approximately 67% of our 2001 new retail vehicle revenues
and comprise over half of our total franchises. Luxury and mid-line imports
generate above average gross margins on sales, have greater customer loyalty and
repeat purchases and utilize parts and service and maintenance services at the
point of sale more frequently than mid-line domestic and value automobiles.
Luxury and mid-line imports have also gained market share at the expense of
mid-line domestics over time. We also believe that luxury vehicle sales are less
susceptible to economic cycles than other types of vehicles.
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The following table reflects current franchises and the share of new retail
vehicle revenue represented by each class of franchises:
<Table>
<Caption>
% OF 2001
NEW RETAIL VEHICLE
CLASS/FRANCHISE CURRENT REVENUE
- --------------- -------- ------------------
LUXURY
BMW......................................................... 6
Lincoln..................................................... 6
Acura....................................................... 5
Audi........................................................ 3
Infiniti.................................................... 3
Lexus....................................................... 3
Mercedes-Benz............................................... 3
Volvo....................................................... 3
Porsche..................................................... 2
Cadillac.................................................... 1
Jaguar...................................................... 1
Land Rover(a)............................................... 1
---
TOTAL LUXURY.............................................. 37 29%
MID-LINE IMPORT
Honda....................................................... 11
Nissan...................................................... 9
Mazda(b).................................................... 5
Toyota...................................................... 5
Mitsubishi.................................................. 3
MINI........................................................ 1
Volkswagen.................................................. 1
---
TOTAL MID-LINE IMPORT..................................... 35 38%
MID-LINE DOMESTIC
Ford........................................................ 7
GMC......................................................... 6
Mercury..................................................... 6
Pontiac..................................................... 6
Chrysler(c)................................................. 4
Dodge....................................................... 4
Chevrolet(c)................................................ 3
Jeep........................................................ 3
Buick....................................................... 2
---
TOTAL MID-LINE DOMESTIC................................... 41 25%
VALUE
Hyundai..................................................... 4
Kia......................................................... 4
Isuzu....................................................... 1
Suzuki...................................................... 1
---
TOTAL VALUE................................................. 10 4%
HEAVY TRUCKS
Hino........................................................ 1
Isuzu....................................................... 1
Navistar.................................................... 1
Peterbilt................................................... 1
---
TOTAL HEAVY TRUCKS........................................ 4 4%
--- ---
TOTAL....................................................... 127 100%
=== ===
</Table>
- ------------------------
(a) Minority owned and operated by us. See "Related Party Transactions" for a
description of our ownership interest in this franchise.
(b) Includes one pending divestiture.
(c) Does not include one pending acquisition.
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REGIONAL PLATFORMS WITH STRONG LOCAL BRANDS
Each of our platforms is comprised of between 7 and 24 franchises and, on a
pro forma basis for 2001, sold an average of over 18,500 vehicles and generated
an average of approximately $500 million in revenues. Each of our platforms
maintains a strong local brand that has been enhanced through local advertising
over many years. We believe that our cultivation of strong local brands can be
beneficial because consumers may prefer to interact with a locally recognized
brand; placing our franchises in one region under a single brand allows us to
generate significant advertising savings; and our platforms can retain customers
even as they purchase and service different automobile brands. Furthermore, we
believe that the majority of our dealerships are located in geographic areas
with above average population growth, relatively low dealer concentration and
favorable franchise laws.
EXPERIENCED AND INCENTIVIZED MANAGEMENT
- RETAIL AND AUTOMOTIVE MANAGEMENT EXPERIENCE. We have a management team
with extensive experience and expertise in the retail and automotive
sectors. Kenneth B. Gilman, our president and chief executive officer,
served for 25 years at Limited Brands (formerly The Limited, Inc.) where
his most recent assignment was as chief executive officer of Lane Bryant,
a retailer of women's clothing and a subsidiary of Limited Brands. From
1993 to 2001, Mr. Gilman served as vice chairman and chief administrative
officer of the Limited Brands with responsibility for, among other things,
finance, information technology, supply chain management and production.
Thomas R. Gibson, our co-founder and chairman of the board spent most of
his 28-year automotive career working with automobile retail dealers
throughout the U.S., including serving as president and chief operating
officer of Subaru of America. Thomas F. Gilman, our senior vice president
and chief financial officer, served for 25 years at DaimlerChrysler where
his knowledge of the dealer network allowed him to play a key role
assisting DaimlerChrysler dealerships during the recession in the
automotive industry in the early 1990s. Robert D. Frank, our senior vice
president of automotive operations, spent most of his 34-year career
working in all aspects of automotive operations including serving as chief
operating officer of the Larry Miller Group and as vice president of
Chrysler's Asian operations. In addition, the former platform owners of
seven of our nine platforms, each with greater than 24 years of experience
in the automotive retailing industry, continue to manage their respective
platforms.
- INCENTIVIZATION AT EVERY LEVEL. We tie compensation to performance by
relying upon an incentive-based pay system at both the platform and
dealership levels. At the platform level all our senior management are
compensated on an incentive-based pay system and the majority have a stake
in our performance based upon their ownership of approximately 23.5% of
our total equity as of March 31, 2002. We also create incentives at the
dealership level. Each dealership is managed as a separate profit center
by a trained and experienced general manager who has primary
responsibility for decisions relating to inventory, advertising, pricing
and personnel. We compensate our general managers based on dealership
profitability, and the compensation of department managers and salespeople
is similarly based upon departmental profitability and individual
performance, respectively. Approximately 80% of compensation earned by our
dealerships' general managers and sales forces in 2001 was earned through
commissions and performance-based bonuses.
OUR STRATEGY
Our objective is to be the most profitable automotive retailer in our
platforms' respective markets. To achieve this objective, we intend to expand
our higher margin businesses, emphasize decentralized dealership operations
while maintaining strong centralized administrative functions and grow through
targeted acquisitions.
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FOCUS ON HIGHER MARGIN PRODUCTS AND SERVICES
While new vehicle sales are critical to drawing customers to our
dealerships, used vehicle retail sales, parts, service and collision repair and
finance and insurance provide significantly higher profit margins and account
for the majority of our profitability. In addition, we have discipline-specific
executives at both the corporate and platform levels who focus on both
increasing the penetration of current services and expanding the breadth of our
offerings to customers. While each of our platforms operates independently in a
manner consistent with its specific market's characteristics, each platform will
pursue an integrated strategy to grow these higher margin businesses to enhance
profitability and stimulate internal growth.
- PARTS, SERVICE AND COLLISION REPAIR. Each of our platforms offers parts,
performs vehicle service work and operates collision repair centers, all
of which provide important sources of recurring revenue with high gross
profit margins. Currently, gross profit generated from these businesses
absorbs approximately 60% of our total operating expenses, excluding
salespersons' compensation. We intend to continue to grow this
higher-margin business and increase this cost absorption rate by adding
new service bays, increasing capacity utilization of existing service bays
and ensuring high levels of customer satisfaction within our parts,
service and collision repair operations. In addition, given the increased
sophistication of vehicles, our repair operations provide detailed
expertise and state-of-the-art diagnostic equipment which we believe
independent dealers cannot adequately provide. Finally, warranty work
cannot be completed by independent dealers, as this work must be done at a
certified dealership.
- FINANCE AND INSURANCE. We intend to continue to bolster our finance and
insurance revenues by offering a broad range of conventional finance and
lease alternatives to fund the purchase of new and used vehicles. In
addition to offering these third-party financing products, we intend to
expand our already broad offering of third-party products like credit
insurance, extended service contracts, maintenance programs and a host of
other niche products to meet all of our customer needs on a "one stop"
shopping basis. Furthermore, based on size and scale, we believe we will
be able to continue negotiating with lending institutions and product
providers to increase our commissions on each of the products and services
we sell. Moreover, continued in-depth sales training efforts and
innovative computer technologies will serve as important tools in growing
our finance and insurance profitability. We have increased finance and
insurance revenue per vehicle retailed (F&I PVR) from $544 for the year
ended December 31, 1999, to $709 for the quarter ended March 31, 2002.
DECENTRALIZED DEALERSHIP OPERATIONS AND CENTRALIZED ADMINISTRATIVE AND STRATEGIC
FUNCTIONS
We believe that decentralized dealership operations on a platform basis
enable our retail network to provide market-specific responses to sales,
service, marketing and inventory requirements. These operations are complemented
by centralized technology and financial controls, as well as sharing of best
practices and market intelligence throughout the organization.
While our administrative headquarters is located in Stamford, Connecticut,
the day-to-day responsibility for the dealerships rests with each regional
management team. Each of our platforms has a management structure that is
intended to promote and reward entrepreneurial spirit and the achievement of
team goals.
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The chart below depicts our typical platform management structure:
AVERAGE EXPERIENCE OF PLATFORM MANAGEMENT
[PLATFORM MANAGEMENT CHART]
Each of our dealerships is managed by a general manager who has authority
over day-to-day operations. Our platform management teams' thorough
understanding of their local markets enables them to effectively run day-to-day
operations, market to customers, recruit new employees and gauge acquisition
opportunities in their local markets. The general manager of each dealership is
supported by a management team consisting, in most circumstances, of a new
vehicle sales manager, a used vehicle sales manager, a finance and insurance
manager and parts and service managers. Our dealerships are operated as distinct
profit centers in which the general managers are given significant autonomy. The
general managers are responsible for the operations, personnel and financial
performance of their dealerships.
We employ professional management practices in all aspects of our
operations, including information technology and employee training. A peer
review process is also in place in which the platform managers address best
practices, operational challenges and successes, and formulate goals for other
platforms. Our dealership operations are complemented by centralized technology
and strategic and financial controls, as well as sharing of best practices and
market intelligence throughout the organization. Corporate and platform
management utilize computer-based management information systems to monitor each
dealership's sales, profitability and inventory on a regular, detailed basis. We
believe the application of professional management practices provides us with a
competitive advantage over many dealerships. In addition, the corporate
headquarters coordinates a platform peer review process. On a rotating basis,
each platform's operations are examined in detail by management from other
platforms. Through this process, we identify areas for improvement and
disseminate best practices company-wide.
CONTINUED GROWTH THROUGH TARGETED ACQUISITIONS
We intend to continue to grow through acquisitions. We will seek to
establish platforms in new markets through acquisitions of large, profitable and
well-managed dealership groups with leading
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market positions. In addition, we will pursue tuck-in acquisitions to complement
the related platform by increasing brand diversity, market coverage and
services.
- PLATFORM ACQUISITIONS. We will seek to establish platforms in new
geographic markets through acquisitions of large, profitable and
well-managed dealership groups. We target metropolitan and high-growth
suburban markets in which we are not currently present and platforms with
superior operational and financial management personnel. We believe that
the retention of existing high quality management who understand the local
market enables acquired platforms to continue to operate efficiently,
while allowing us to source future acquisitions more effectively and
expand our operations without having to employ and train untested new
personnel. We also believe retention of the local, established brand name
is important to attracting a broad and loyal customer base. We believe we
are well-positioned to pursue larger, established acquisition candidates
as a result of our platform management retention strategies, the
reputation of our existing platform managers as leaders in the automotive
retailing industry, our size, our financial resources and our ability to
offer our public equity as an acquisition currency. We have historically
acquired platforms using an average of approximately 40% equity, and we
expect equity to be a significant portion of future platform acquisition
currency.
- TUCK-IN ACQUISITIONS. One of our goals is to become the market leader in
every region in which we operate a platform. We plan to acquire additional
dealerships in each of the markets in which we operate to increase our
brand mix, products and services offered in that market. Tuck-In
acquisitions are typically re-branded immediately and operate thereafter
under the respective platform's strong local brand name. Since 1995 we
have made 20 tuck-in acquisitions (representing 46 franchises) to add
additional strength and brand diversity to our platforms. We believe that
these acquisitions in the past and in the future will facilitate our
regional operating efficiencies and cost savings in areas such as
advertising and facility and personnel utilization. In addition, we have
generally been able to improve the gross profit of tuck-in dealerships
following an acquisition. We believe this is due to improvements in
finance and insurance revenue per vehicle, greater capacity utilization of
service bays, improved management practices and enhanced unit sales
volumes related to the strength of our local brand names.
- FOCUS ON ACQUISITIONS PROVIDING GEOGRAPHIC AND BRAND DIVERSITY. By
focusing on geographic and brand diversity, we seek to manage economic
risk and drive growth and profitability. By having a presence in all major
brands and by avoiding concentration with one manufacturer, we are well
positioned to reduce our exposure to specific product supply shortages and
changing customer preferences. At the same time, we will seek to continue
to increase the proportion of our dealerships that are in markets with
favorable demographic characteristics or that are franchises of
fast-growing, high margin brands. In particular, we will focus on luxury
dealerships (such as BMW, Lexus and Mercedes-Benz) and mid-line import
dealerships (such as Honda, Toyota and Nissan). On an ongoing basis we
will continue to evaluate the performance of our dealerships to determine
if the sale of a particular dealership is advisable.
SALES AND MARKETING
NEW VEHICLE SALES. Our new vehicle retail sales include new vehicle sales,
new vehicle retail lease transactions and other similar agreements, which are
arranged by our individual dealerships. New vehicle leases, which are provided
by third-parties, generally have short terms, which cause customers to return to
a dealership more frequently than in the case of financed purchases. In
addition, leases provide us with a steady source of late-model, off-lease
vehicles for our used vehicle inventory. Generally, leased vehicles remain under
factory warranty for the term of the lease, allowing dealerships to provide
repair service to the lessee throughout the lease term. Historically, less than
1% of our new vehicle sales revenue is derived from fleet sales, which are
generally conducted on a commission basis.
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We design our dealership service to meet the needs of our customers and
establish relationships that will result in both repeat business and additional
business through customer referrals. Our dealerships employ varying sales
techniques to address changes in consumer preference.
We incentivize our dealership managers to employ more efficient selling
approaches, engage in extensive follow-up to develop long-term relationships
with customers and extensively train sales staffs to be able to meet customer
needs. We continually evaluate innovative ways to improve the buying experience
for our customers and believe that our ability to share best practices across
our dealerships gives us an advantage over other dealerships.
We acquire substantially all our new vehicle inventory from manufacturers.
Manufacturers allocate limited inventory among their franchised dealers based
primarily on sales volume and input from dealers. We finance our inventory
purchases through revolving credit arrangements known in the industry as floor
plan facilities.
USED VEHICLE SALES. Used vehicle sales typically generate higher gross
margins than new vehicle sales. We intend to grow our used vehicle sales by
maintaining a high quality inventory, providing competitive prices and extended
service contracts and continuing to enhance our marketing initiatives.
Profits from sales of used vehicles are dependent primarily on the ability
of our dealerships to obtain a high quality supply of used vehicles and
effectively manage inventory. New vehicle operations provide our used vehicle
operations with a large supply of high quality trade-ins and off-lease vehicles,
which we believe are the best sources of attractive used vehicle inventory. We
supplement our used inventory with vehicles purchased at auctions.
Used vehicles are generally offered at our dealerships for 30 to 45 days on
average, after which, if they have not been sold to a retail buyer, they are
either sold to an outside dealer or offered at auction. During 2001,
approximately 79% of used vehicles sales were made to retail buyers. We may
transfer used vehicles among dealerships to provide balanced inventories of used
vehicles at each of our dealerships. We believe that acquisitions of additional
dealerships will expand the internal market for transfer of used vehicles among
our dealerships and, therefore, increase the ability of each dealership to offer
a balanced mix of used vehicles. We developed integrated computer inventory
systems allowing us to coordinate vehicle transfers among our dealerships,
primarily on a regional basis.
Several steps have been taken towards building client confidence in our used
vehicle inventory, one of which includes participation in the manufacturers'
certification processes which are available only to new vehicle franchises. This
process makes certain used vehicles eligible for new vehicle benefits such as
new vehicle finance rates and extended manufacturer warranties. In addition,
each dealership offers extended warranties, which are provided by third parties,
on our used car sales.
We recently entered into an agreement with Wal-Mart Stores, Inc. Under this
agreement, we are initiating a six-month pilot in Houston, Texas to sell used
vehicles at Wal-Mart locations under the Price 1 Auto Store brand name. Both we
and Wal-Mart intend to evaluate the program at the end of the pilot.
PARTS, SERVICE AND COLLISION REPAIR. Historically, the automotive repair
industry has been highly fragmented. However, we believe that the increased use
of advanced technology in vehicles has made it difficult for independent repair
shops to have the expertise required to perform major or technical repairs.
Additionally, manufacturers permit warranty work to be performed only at
franchised dealerships. As a result, unlike independent service stations or
independent and superstore used car dealerships with service operations, our
franchised dealerships are qualified to perform work covered by manufacturer
warranties on increasingly technologically complex motor vehicles.
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Our profitability in parts and service can be attributed to our
comprehensive management system, including the use of variable rate pricing
structures, cultivation of strong client relationships through an emphasis on
preventive maintenance and the efficient management of parts inventory.
We use variable rate structures designed to reflect the difficulty and
sophistication of different types of repairs to compensate employees working in
parts and service. The percentage mark-ups on parts are also variably priced
based on market conditions for different parts.
One of our major goals is to retain each vehicle purchaser as a long-term
customer of our parts and service department. Currently, approximately 30% of
customers return to our dealerships for other services after the vehicle
warranty expires. Therefore we believe that significant opportunity for growth
exists in the auxiliary services part of our business. Each dealership has
systems in place to track customer maintenance records and notify owners of
vehicles purchased at the dealerships when their vehicles are due for periodic
services. Service and repair activities are an integral part of our overall
approach to customer service.
FINANCE AND INSURANCE. We arranged customer financing on over 70% of the
vehicles we sold in 2001. These transactions generate commission revenue from
indirect lenders, including manufacturer captive finance arms. In addition to
finance commissions, each of these transactions creates other opportunities for
more profitable sales, such as extended service contracts and various
insurance-related products for the consumer. Our size and volume capabilities
motivate vendors to provide these products at substantially reduced fees
compared to the industry average which result in competitive advantages as well
as acquisition synergies. Furthermore, many of the insurance products we sell
result in additional underwriting profits and investment income yields based on
portfolio performances.
ADVERTISING. Our largest advertising medium is local newspapers, followed
by radio, television, direct mail and the yellow pages. The retail automotive
industry has traditionally used locally produced, largely non-professional
materials, often developed under the direction of each dealership's general
manager. Each of our platforms has created common marketing materials for their
dealerships using professional advertising agencies. Our corporate chief
marketing officer helps oversee and share creative materials and general
marketing best practices across platforms. Our total company marketing expense
was $43.1 million in 2001 which translates into an average of $276 per retail
vehicle sold. In addition, manufacturers' direct advertising spending in support
of their brands provides approximately 60% of the total amount spent on new car
advertising in the U.S.
COMMITMENT TO CUSTOMER SERVICE. We are focused on providing a high level of
customer service to meet the needs of an increasingly sophisticated and
demanding automotive consumer. We strive to cultivate lasting relationships with
our customers, which we believe enhances the opportunity for significant repeat
and referral business. For example, our platforms regard service and repair
operations as an integral part of the overall approach to customer service,
providing an opportunity to foster ongoing relationships with customers and
deepen loyalty.
INTERNET AND E-COMMERCE. We believe that the Internet and e-commerce
represents a potential opportunity to build our platforms' brands and expand the
geographic borders of their markets. We are applying e-commerce to our strategy
of executing professionally developed best practices under the supervision of
discipline-specific central management throughout our autonomous platforms. We
believe that our e-commerce strategy constitutes a coherent, cost-effective and
sustainable approach that allows us to leverage the Internet.
Each platform has established a website that incorporates a professional
design to reinforce the platform's unique brand and advanced functionalities to
ensure that the website can hold the attention of customers and perform the
informational and interactive functions for which the Internet is uniquely
suited. Manufacturer website links provide our platforms with key sources of
referrals. Many platforms
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use the Internet to communicate with customers both prior to vehicle purchase
and after purchase to coordinate and market maintenance and repair services.
MANAGEMENT INFORMATION SYSTEM. We consolidate financial, accounting and
operational data received from our dealers nationwide through an exclusive
private communication network.
The data from the dealers is gathered and processed through their individual
dealer management system. All our dealers use software from ADP, Inc.,
Reynolds & Reynolds, Co. or UCS, Inc. as their dealer management system. Our
systems strategy allows for our platforms to choose the dealer management system
that best fits their daily operational needs. We aggregate the information from
the three systems at our corporate headquarters to create one single view of the
business using Hyperion financial systems.
Our information technology allows us to quickly integrate and aggregate the
information from a new acquisition. By creating a connection over our private
network between the dealer management system and corporate Hyperion financial
systems, corporate management can quickly view the financial, accounting and
operational data of the newly acquired dealer. In that way, we can efficiently
integrate the acquired dealer into our operational strategy. The Hyperion system
allows senior and platform management to easily and quickly review operating and
financial data at a variety of levels. For example, from our headquarters,
management can review the performance of any specific department (e.g., parts
and services) at any particular dealership. This system also allows us to
quickly compile and monitor our consolidated financial results.
COMPETITION
In new vehicle sales, our platforms compete primarily with other franchised
dealerships in their regions. We do not have any cost advantage in purchasing
new vehicles from the manufacturers. Instead, we rely on advertising and
merchandising, sales expertise, service reputation, strong local brand names and
location of our dealerships to sell new vehicles. In recent years, automobile
dealers have also faced increased competition in the sale or lease of new
vehicles from independent leasing companies, on-line purchasing services and
warehouse clubs. Our used vehicle operations compete with other franchised
dealers, independent used car dealers, automobile rental agencies and private
parties for supply and resale of used vehicles. See "Risk Factors--Substantial
competition in automobile sales may adversely affect our profitability."
In our vehicle financing business, we compete with direct consumer lending
institutions such as local banks, savings and loans and credit unions, including
through the Internet. Our ability to offer manufacturer-subsidized financing
terms as part of an incentive-based sales strategy can place us at a competitive
advantage relative to independent financing companies. We also compete in this
area based on:
- interest rates; and
- convenience of "one stop shopping," which we offer by arranging vehicle
financing provided by third parties at the point of purchase.
We seek to leverage our volume of business to obtain relatively favorable
financing terms for our customers.
We compete against other franchised dealers to perform warranty repairs and
against other automobile dealers, franchised and independent service centers for
non-warranty repair and routine maintenance business. We compete with other
automobile dealers, service stores and auto parts retailers in our parts
operations. We believe that the principal competitive factors in parts and
service sales are the use of factory-approved replacement parts, price, the
familiarity with a manufacturer's
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brands and models and the quality of customer service. A number of regional and
national chains offer selected parts and services at prices that may be lower
than our prices.
FACILITIES
We have 127 franchises situated in 91 dealership locations throughout nine
states. We lease 58 of these locations and own the remainder. We have five
locations in Mississippi and two locations in North Carolina where we lease the
land but own the building facilities. The locations are included in the leased
column of the table below. In addition, we operate 25 collision repair centers.
<Table>
<Caption>
OWNED LEASED OWNED LEASED
-------- -------- -------- --------
COLLISION REPAIR
DEALERSHIPS CENTERS
------------------- -------------------
Arkansas....................................... 1 5 1 1
Atlanta........................................ 3(a) 8(b) 2 2
Jacksonville................................... 14 3 5 1
Mississippi.................................... 1 6 0 1
North Carolina................................. 10 7 1 1
Oregon......................................... 0 7 0 2
St. Louis...................................... 4 1 1 0
Tampa.......................................... 0 12 0 2
Texas.......................................... 0 9 0 5
-- -- -- --
Total.......................................... 33 58 10 15
== == == ==
</Table>
- ------------------------
(a) One of our dealerships in Atlanta that owns a new vehicle facility operates
a separate used vehicle facility that is leased.
(b) One of our dealerships in Atlanta that leases a new vehicle facility
operates a separate used vehicle facility that is owned.
We lease our corporate headquarters, which is located at 3 Landmark Square,
Suite 500, in Stamford, Connecticut.
FRANCHISE AGREEMENTS
Each of our dealerships operates pursuant to franchise agreements between
the applicable manufacturer and the dealership. The typical automotive franchise
agreement specifies the locations at which the dealer has the right and
obligation to sell the manufacturer's automobiles and related parts and products
and to perform certain approved services. The franchise agreement grants the
dealer the non-exclusive right to use and display the manufacturer's trademarks,
service marks and designs in the form and manner approved by the manufacturer.
The allocation of new vehicles among dealerships is subject to the
discretion of the manufacturer, which generally does not guarantee a dealership
exclusivity within a given territory. A franchise agreement may impose
requirements on the dealer concerning such matters as the showrooms, the
facilities and equipment for servicing vehicles, the maintenance of inventories
of vehicles and parts, the maintenance of minimum net working capital, the
achievement of certain sales targets, minimum customer service and satisfaction
standards and the training of personnel. Compliance with these requirements is
closely monitored by the manufacturer. In addition, many manufacturers require
each dealership to submit monthly and annual financial statements.
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We are subject to additional provisions contained in supplemental
agreements, framework agreements or franchise addenda, which we collectively
refer to as "franchise framework agreements." Many of our dealerships are also
subject to these agreements. Franchise framework agreements impose requirements
similar to those discussed above, as well as limitations on changes in our
ownership or management and limitations on the number of a particular
manufacturer's franchises we may own. In addition, we are party to an agreement
with General Motors Corporation under which we have divested ourselves of and
agreed not to acquire Saturn franchises.
PROVISIONS FOR TERMINATION OR NON-RENEWAL OF FRANCHISE AGREEMENTS. Certain
franchise agreements expire after a specified period of time, ranging from one
to five years, and we expect to renew expiring agreements for franchises we wish
to continue in the ordinary course of business. Typical franchise agreements
provide for termination or non-renewal by the manufacturer under certain
circumstances, including insolvency or bankruptcy of the dealership, failure to
adequately operate the dealership, failure to maintain any license, permit or
authorization required for the conduct of business, or material breach of other
provisions of the franchise agreement. Some of our franchise agreements and
franchise framework agreements provide that the manufacturer may acquire our
dealerships or terminate the franchise agreement if a person or entity acquires
an equity interest or voting control above a specified level (ranging from 20%
to 50% depending on the particular manufacturer's restriction) in us without the
approval of the applicable manufacturer. This trigger can fall to as low as 5%
if the entity acquiring the equity interest in us is another automobile
manufacturer or a felon whose conviction stems from fraudulent sales practices
or violations of state or federal consumer protection laws. The terms of
provisions of this type may be interpreted by manufacturers to apply to certain
of the transactions involved in the Original Notes offering. Some manufacturers
also restrict changes in the membership of our board of directors. Our agreement
with one manufacturer, Toyota, in addition to imposing the restrictions
previously mentioned, provides that it may require us to sell our Toyota
franchises (including Lexus) according to the terms of the agreement if, without
its consent, the owners of our equity prior to our initial public offering cease
to control a majority of our voting stock or if Timothy C. Collins ceases to
control us through imputed control of Ripplewood Investments L.L.C. Although our
franchise agreements may not be renewed or may be terminated prior to the
conclusion of their terms, manufacturers have rarely chosen to take such action.
Further, as discussed below, state dealer laws substantially limit the ability
of manufacturers to terminate or fail to renew franchise agreements. See "Risk
Factors". If we fail to obtain renewals of one or more of our franchise
agreements on favorable terms, if substantial franchises are terminated, or if
certain manufacturers' rights under their agreements with us are triggered, our
operations could be significantly compromised."
MANUFACTURERS' LIMITATIONS ON ACQUISITIONS. We are required to obtain the
consent of the applicable manufacturer before we can acquire any additional
dealership franchises. Six of our manufacturers impose limits on the number of
dealerships we are permitted to own at the metropolitan, regional and national
levels. These limits vary according to the agreements we have with each of the
manufacturers but are generally based on fixed numerical limits or on a fixed
percentage of the aggregate sales of the manufacturer. We currently own the
maximum number of dealerships allowed under our franchise agreement with Acura
and have only one more dealership available for Jaguar. We are also approaching
the ownership limits allocated under our framework franchise agreement with
Toyota/Lexus. Unless we renegotiate these franchise agreements or receive the
consent of the manufacturers, we may be prevented from making further
acquisitions upon reaching the limits provided for in these framework franchise
agreements.
STATE DEALER LAWS. We operate in states that have state dealer laws
limiting manufacturers' ability to terminate dealer franchise agreements. We are
basing the following discussion of state dealer laws on our understanding of
these laws and therefore, the description may not be accurate. State dealer laws
generally provide that it is a violation for manufacturers to terminate or
refuse to renew franchise
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agreements unless they provide written notice to the dealers setting forth good
cause and stating the grounds for termination or nonrenewal. State dealer laws
typically require 60 to 90 days advance notice to dealers prior to termination
or nonrenewal of a franchise agreement. Some state dealer laws allow dealers to
file protests or petitions within the notice period and allow dealers an
opportunity to comply with the manufacturers' criteria. These statutes also
provide that manufacturers are prohibited from unreasonably withholding approval
for a proposed change in ownership of the dealership. Acceptable grounds for
disapproval include material reasons relating to the character, financial
ability or business experience of the proposed transferee. See "Risk Factors--If
state dealer laws are repealed or weakened, our dealerships will be more
susceptible to termination, non-renewal or re-negotiation of their franchise
agreements."
GOVERNMENTAL REGULATIONS
A number of federal, state and local regulations affect our marketing,
selling, financing and servicing of automobiles. The nine platforms also are
subject to state laws and regulations relating to business corporations
generally.
Under various state laws, each of our dealerships must obtain a license in
order to establish, operate or relocate a dealership or provide certain
automotive repair services. These laws also regulate conduct of our businesses,
including advertising and sales practices. Other states into which we may expand
our operations in the future are likely to have similar requirements.
The sales of third-party financing products to our customers are subject to
federal truth-in-lending, consumer leasing and equal credit opportunity
regulations as well as state and local motor vehicle finance laws, installment
finance laws, insurance laws, usury laws and other installment sales laws. Some
states regulate finance fees that may be paid as a result of vehicle sales.
Penalties for violation of any of these laws or regulations may include
revocation of necessary licenses, assessment of criminal and civil fines and
penalties, and in certain instances, create a private cause of action for
individuals. We believe that we comply substantially with all laws and
regulations affecting our business and do not have any material liabilities
under such laws and regulations and that compliance with all such laws and
regulations will not, individually or in the aggregate, have a material adverse
effect on our capital expenditures, earnings or competitive position, and we do
not anticipate that such compliance will have a material effect on us in the
future. See "Risk Factors--Governmental regulations and environmental regulation
compliance costs may adversely affect our profitability."
ENVIRONMENTAL MATTERS
We are subject to a wide range of environmental laws and regulations,
including those governing discharges into the air and water, the storage of
petroleum substances and chemicals, the handling and disposal of wastes and the
remediation of contamination. As with automobile dealerships generally, and
service and parts and collision repair center operations in particular, our
business involves the generation, use, handling and disposal of hazardous or
toxic substances and wastes. Operations involving the management of wastes are
subject to requirements of the Federal Resource Conservation and Recovery Act
and comparable state statutes. Pursuant to these laws, federal and state
environmental agencies have established approved methods for handling, storage,
treatment, transportation and disposal of regulated substances and wastes with
which we must comply.
Our business also involves the use of above ground and underground storage
tanks. Under applicable laws and regulations, we are responsible for the proper
use, maintenance and abandonment of our regulated storage tanks and for
remediation of subsurface soils and groundwater impacted by releases from
existing or abandoned storage tanks. In addition to these regulated tanks, we
own, operate, or have otherwise closed in place other underground and above
ground devices or containers (such as automotive lifts and service pits) that
may not be classified as regulated tanks, but which could
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or may have released stored materials into the environment, thereby potentially
obligating us to clean up any soils or groundwater resulting from such releases.
We are also subject to laws and regulations governing remediation of
contamination at or from our facilities or to which we send hazardous or toxic
substances or wastes for treatment, recycling or disposal. The Comprehensive
Environmental Response, Compensation and Liability Act, or CERCLA, also known as
the "Superfund" law, imposes liability, without regard to fault or the legality
of the original conduct, on those that are considered to have contributed to the
release of a "hazardous substance." Responsible parties include the owner or
operator of the site or sites where the release occurred and companies that
disposed or arranged for the disposal of the hazardous substances released at
such sites. These responsible parties may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment and for damages to natural resources. It is not
uncommon for neighboring landowners and other third parties to file claims for
personal injury and property damage allegedly caused by the release of hazardous
substances. Currently, we are not subject to any Superfund liabilities.
Further, the Federal Clean Water Act and comparable state statutes prohibit
discharges of pollutants into regulated waters without the necessary permits,
require containment of potential discharges of oil or hazardous substances and
require preparation of spill contingency plans. We believe that we are in
material compliance with those wastewater discharge requirements as well as
requirements for the containment of potential discharges and spill contingency
planning.
Environmental laws and regulations are very complex and it has become
difficult for businesses that routinely handle hazardous and non-hazardous
wastes to achieve and maintain full compliance with all applicable environmental
laws. From time to time we experience incidents and encounter conditions that
will not be in compliance with environmental laws and regulations. However, none
of our dealerships have been subject to any material environmental liabilities
in the past and we do not anticipate that any material environmental liabilities
will be incurred in the future. Nevertheless, environmental laws and regulations
and their interpretation and enforcement are changed frequently and we believe
that the trend of more expansive and stricter environmental legislation and
regulations is likely to continue. Hence, there can be no assurance that
compliance with environmental laws or regulations or the future discovery of
unknown environmental conditions will not require additional expenditures by us,
or that such expenditures would not be material. See "Risk Factors--Governmental
regulations and environmental regulation compliance costs may adversely affect
our profitability."
EMPLOYEES
As of March 31, 2002, we employed approximately 7,745 persons, of whom
approximately 620 were employed in managerial positions, approximately 2,110
were employed in non-managerial sales positions, approximately 4,065 were
employed in non-managerial parts and service positions, approximately 750 were
employed in administrative support positions and approximately 200 were employed
in non-managerial finance and insurance positions.
We believe our relationship with our employees is favorable. None of our
employees are represented by a labor union. Because of our dependence on vehicle
manufacturers, however, we may be affected adversely by labor strikes, work
slowdowns and walkouts at vehicle manufacturers' production facilities and
transportation modes.
LEGAL PROCEEDINGS AND INSURANCE
From time to time, we and our nine platforms are named in claims involving
the manufacture of automobiles, contractual disputes and other matters arising
in the ordinary course of our business. Currently, no legal proceedings are
pending against us or the nine platforms that, in management's
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opinion, could be expected to have a material adverse effect on our business,
financial condition or results of operations.
Because of their vehicle inventory and nature of business, automobile retail
dealerships generally require significant levels of insurance covering a broad
variety of risks. Our insurance program includes three umbrella policies with a
total per occurrence and aggregate limit of $100 million. We also have insurance
on our real property, comprehensive coverage for our vehicle inventory, garage
liability and general liability insurance, employee dishonesty insurance and
errors and omissions insurance in connection with our vehicle sales and
financing activities.
INDUSTRY OVERVIEW
Automotive retailing, with 2001 industry sales of approximately $1 trillion,
is the largest consumer retail market in the U.S., representing approximately
10% of gross domestic product according to figures provided by the Bureau of
Economic Analysis. From 1997 through 2001, retail new vehicle unit sales have
grown at a 2.9% compound annual rate. Over the same period, retail used vehicle
units have grown at a 0.7% compound annual rate. Retail sales of new vehicles,
which are conducted exclusively through new vehicle dealers, were approximately
$380 billion in 2001. In addition, used vehicle sales in 2001 were estimated at
$376 billion, with approximately $268 billion in sales by franchised and
independent dealers and the balance in privately negotiated transactions.
Of the approximately 17.2 million new vehicles sold in the United States in
2001, approximately 28% were manufactured by General Motors Corporation, 23% by
Ford Motor Company, 15% by DaimlerChrysler Corporation, 10% by Toyota Motor
Corp., 7% by Honda Motor Co., Ltd., 4% by Nissan Motor Co., Ltd. and 13% by
other manufacturers. Sales of newer used vehicles have increased over the past
five years, primarily as a result of the greater availability of newer used
vehicles due to the increased popularity of short-term leases. Approximately
42.6 million used vehicles were sold in 2001. Franchised dealers accounted for
15.9 million, or 37%, of all used vehicle units sold. Independent lots accounted
for 34% with the balance accounted for in privately negotiated transactions.
INDUSTRY CONSOLIDATION. Franchised dealerships were originally established
by automobile manufacturers for the distribution of new vehicles. In return for
granting dealers exclusive distribution rights within specified territories,
manufacturers exerted significant influence over their dealers by limiting the
transferability of ownership in dealerships, designating the dealership's
location, and managing the supply and composition of the dealership's inventory.
These arrangements resulted in the proliferation of small, single-owner
operations that, at their peak in the late 1940's, totaled almost 50,000. As a
result of competitive, economic and political pressures during the 1970's and
1980's, significant changes and consolidation occurred in the automotive retail
industry. One of the most significant changes was the increased penetration by
foreign manufacturers and the resulting loss of market share by domestic
manufacturers, which forced many dealerships to close or sell to better
capitalized dealership groups. According to industry data, the number of
franchised dealerships has declined from approximately 27,900 in 1980 to
approximately 22,150 in 2001. Although significant consolidation has taken place
since the automotive retailing industry's inception, the industry today remains
highly fragmented, with the largest 100 dealer groups generating less than 10%
of total sales revenues and controlling less than 8% of all franchised
dealerships.
We believe that further consolidation is likely due to increased capital
requirements of dealerships, the limited number of viable alternative exit
strategies for dealership owners and the desire of certain manufacturers to
strengthen their brand identity by consolidating their franchised dealerships.
We also believe that an opportunity exists for dealership groups with
significant equity capital and experience in identifying, acquiring and
professionally managing dealerships, to acquire additional dealerships for cash,
stock, debt or a combination thereof. Publicly-owned dealer groups, such as
ours, are able to offer
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prospective sellers tax-advantaged transactions through the use of publicly
traded stock which may, in certain circumstances, make them more attractive to
prospective sellers.
INDUSTRY OPPORTUNITIES. In addition to new and used vehicles, dealerships
offer a wide range of other products and services, including repair and warranty
work, replacement parts, extended warranty coverage, financing and insurance. In
2000, the average dealership's revenue consisted of 60% new vehicle sales, 29%
used vehicle sales and 11% parts and services and finance and insurance. Sales
of newer used vehicles by franchised dealers have increased over the past five
years, primarily as a result of the substantial increase in new vehicle prices
and the greater availability of newer used vehicles due to the increased
popularity of short-term leases. Franchised dealers retailed 15.9 million used
vehicles in 2001, amounting to only 37% of all used vehicles sold in the U.S.
Independent used vehicle dealers and private transactions accounted for the rest
of the 42.6 million used vehicles sold in 2001.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below are the names of our executive officers and directors,
together with their ages and positions.
<Table>
<Caption>
NAME AGE POSITION
- ---- -------- --------
Kenneth B. Gilman......................... 56 President, Chief Executive Officer and Director
Thomas R. Gibson.......................... 59 Chairman of the Board
Thomas F. Gilman.......................... 51 Senior Vice President and Chief Financial Officer
Robert D. Frank........................... 54 Senior Vice President--Automotive Operations
Thomas G. McCollum........................ 46 Vice President--Finance and Insurance
Philip R. Johnson......................... 53 Vice President--Human Resources
Allen T. Levenson......................... 39 Vice President--Marketing and Customer Experience
John C. Stamm............................. 45 Vice President--Fixed Operations
Timothy C. Collins........................ 45 Director
Ben David McDavid......................... 60 Director
John M. Roth.............................. 43 Director
Ian K. Snow............................... 32 Director
Thomas C. Israel.......................... 58 Director
Vernon E. Jordan, Jr...................... 66 Director
Philip F. Maritz.......................... 41 Director
Thomas F. "Mack" McLarty.................. 56 Director
</Table>
Set forth below is a brief description of our directors' and executive
officers' business experience.
KENNETH B. GILMAN has served as our president, chief executive officer and
director since December 2001. He joined us following a 25-year career with
Limited Brands (formerly The Limited, Inc.), the multi-brand apparel retailer,
where his most recent assignment was as chief executive officer of Lane Bryant.
From 1993 to 2001, Mr. Gilman served as vice chairman and chief administrative
officer of The Limited, Inc. with responsibility for finance, information
technology, supply chain management, production, real estate, legal and internal
audit. From 1987 to 1993, he was executive vice president and chief financial
officer. He joined The Limited's executive committee in 1987 and was elected to
its board in 1990. Mr. Gilman began his career at The Limited as assistant
controller in 1976. His career progression at The Limited from 1976 to 2001
encompassed a variety of assignments and promotions including vice president,
treasurer, senior vice president and corporate controller. During his time at
The Limited, the company grew from a single division of $69 million in sales to
more than ten divisions with over $10 billion in sales. He holds a bachelor's
degree from Pace University and is a Certified Public Accountant.
THOMAS R. GIBSON is our Chairman of the board. He is one of our founders and
served as our interim chief executive officer from October 2001 to
December 2001, as our president and chief executive officer between
November 1995 and November 1999, and as our chairman since 1995. Mr. Gibson has
over 30 years experience in the automotive retailing industry. Prior to joining
us, he served as president and chief operating officer of Subaru of America.
Mr. Gibson was part of Lee Iacocca's management team at Chrysler from 1980 to
1982, where he served as director of marketing operations and general manager of
import operations. He began his career in 1967 with the Ford Motor Company and
held key marketing and field management positions in both the Lincoln-Mercury
and Ford divisions. Mr. Gibson serves on the board of directors of IKON Office
Solutions, including its Audit, Executive and Strategies committees. Mr. Gibson
is a graduate of DePauw University and holds a master's in business
administration from Harvard University.
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THOMAS F. GILMAN has served as our senior vice president and chief financial
officer since January 2002. From April 2001 to January 2002, Mr. Gilman served
as our vice president and chief financial officer. From 1973 to 2000,
Mr. Gilman worked for Chrysler/DaimlerChrysler Corporation. At Chrysler,
Mr. Gilman began his finance career in manufacturing operations at the
divisional and plant levels, including 3 years at Chrysler de Mexico.
Mr. Gilman's experiences at Chrysler included participation of the Chrysler Loan
Guarantee efforts, the acquisition by Chrysler of American Motors (Jeep) and the
creation of the 1990 Billion Dollar Cost Reduction Program. From 1990 to 1994,
Mr. Gilman was responsible for Chrysler Corporation's credit operations,
extending financial assistance to automotive retail dealers and distributors
worldwide. In late 1994 to mid-1995, Mr. Gilman was Director of Finance for
Chrysler's Asia-Pacific region. In 1995, Mr. Gilman led the finance organization
at Chrysler Financial Company, L.L.C. where he became chief financial officer of
the captive finance company. In 1998, Mr. Gilman was selected as a member of the
Daimler-Benz/Chrysler Corporation Merger Integration Team and appointed as a
member of the Financial Services Committee of DaimlerChrysler Services, AG,
positions he held until June, 2000. In July of 2000, Mr. Gilman founded CEO
Solutions, LLC, an independent consulting practice, and served as President and
CEO until April 2001. Mr. Gilman graduated from Villanova University with a
bachelor's degree in finance. Thomas Gilman and Kenneth Gilman are not related.
ROBERT D. FRANK has served as our senior vice president of automotive
operations since January 2002. From October 2001 to January 2002, Mr. Frank
served as our vice president of manufacturer business development. From 1997 to
2001, he served with DaimlerChrysler in several executive capacities, including
as president and chief executive officer for Venezuela operations and as vice
president/general manager for Asia Pacific Operations, where he was responsible
for all Chrysler's Asian operations. From 1993 to 1997, Mr. Frank served as
chief operating officer of the Larry Miller Group, the sports, entertainment,
media, insurance, auto dealership and business services conglomerate with
responsibility for all automotive, sports and entertainment businesses. From
1968 to 1992, he held various roles at Chrysler Corporation including zone
manager, sales executive and vice president of marketing for Canada operations.
Mr. Frank holds a bachelor's degree in economics from the University of
Missouri.
THOMAS G. MCCOLLUM has been our vice president of finance and insurance
since April 2001. Mr. McCollum has over 25 years of experience in finance and
insurance. From 1982 to 2001, Mr. McCollum served as executive vice president
for Aon's Resource Group (formally Pat Ryan & Associates). He joined Aon in 1982
where he employed innovative, customer focused finance and insurance programs to
improve same store results. Mr. McCollum holds a bachelor's degree in business
from Sam Houston University.
PHILIP R. JOHNSON has been our vice president of human resources since
June 2000. Mr. Johnson has held top human resources positions in large national
and regional retail companies for the past 22 years. He operated his own human
resources consulting practice from 1998 to 2000. From 1994 to 1998 he served as
senior vice president of human resources at Entex Information Services, a
national personal computer systems integrator. Mr. Johnson served as executive
vice president of human resources at Macy's East from 1993 to 1994, and as
senior vice president of human resources at Saks Fifth Avenue from 1991 to 1993.
He has also held senior human resources positions at Marshall Fields and
Gimbels. Mr. Johnson holds a bachelor's degree and master's in business
administration from the University of Florida.
ALLEN T. LEVENSON has served as our vice president of customer experience
and chief marketing officer since March 2001. From 1999 to 2001, Mr. Levenson
co-founded and served as president and chief executive officer of a
business-to-consumer e-commerce company, Gazelle.com. From 1998 to 1999, he
served as Vice President of Marketing for United Rentals, a market leader and
consolidator in the equipment rental industry. From 1996 to 1998, he served as
vice president of sales and marketing for Petroleum Heat & Power Inc., and he
also served as Vice President of Marketing for
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The Great Atlantic & Pacific Tea Company from 1993 to 1996. Mr. Levenson began
his career in 1985 with two leading strategy consulting firms, McKinsey &
Company and Bain & Company. He received his undergraduate degree from Tufts
University and a master's in business administration from the Wharton School at
the University of Pennsylvania.
JOHN C. STAMM has served as our vice president of fixed operations since
January 2002. From June 2000 to January 2002, Mr. Stamm served as our director
of fixed operations (parts, service and collision repair). He has over 27 years
of automotive retailing experience. From 1999 to 2000, he was a fixed operations
consultant for Coughlin Automotive in Newark, Ohio. From 1996 to 1999, he served
as the vice president and general manager of McCuen Management Corporation in
Westerville, Ohio, where he was responsible for providing sales and marketing
consulting and training services, directing and overseeing the McCuen business
and purchasing inventories and supplies for all McCuen companies. From
February 1995 to December 1995, Mr. Stamm was the general manager of Performance
Toyota of Ohio, a large automobile dealership controlled by Automanage, Inc. of
Ohio. From 1993 to 1994, he was the general manager of Mid-Ohio Imported Car
Company, an automobile dealership. From 1987 to 1993, Mr. Stamm served in
various capacities at Automanage Inc. including general manager, general sales
manager, fixed operations consultant and parts and service director of a number
of automobile dealerships under the control of Automanage, Inc.
TIMOTHY C. COLLINS has served as a member of our board of directors since
1996 and has been a member of our compensation committee since 1996.
Mr. Collins founded Ripplewood Holdings L.L.C. in 1995 and currently serves as
its senior managing director and chief executive officer. From 1991 to 1995,
Mr. Collins managed the New York office of Onex Corporation, a leveraged buy-out
group headquartered in Canada. Previously, Mr. Collins was a vice president at
Lazard Freres & Company and held various positions at Booz, Allen & Hamilton and
Cummins Engine Company. He also currently serves on the board of directors of
Ripplewood Holdings L.L.C., Shinsei Bank, Ltd. (formerly The Long-Term Credit
Bank of Japan, Limited), Kraton Polymers L.L.C., Niles Parts Co., Ltd, Nippon
Columbia Co., Ltd, WRC Media, Inc. and various other privately held Ripplewood
portfolio companies. Mr. Collins received a master's in business administration
from Yale University's School of Organization and Management and a bachelor's
degree in philosophy from DePauw University.
BEN DAVID MCDAVID has served as a member of our board of directors since
February 2000 and as president and chief executive officer of Asbury Automotive
Texas since 1998. Mr. McDavid has been an automobile dealer for 40 years,
opening his first dealership in 1962. Prior to selling his dealerships to us in
1998, David McDavid owned and operated 17 franchises. During that time he served
on the Dealer Council for Pontiac, GMC Truck and Oldsmobile, as Chairman of the
Honda National Dealer Council, and as founding Chairman of the Acura National
Dealer Council. He attended the University of Houston and graduated from the
General Motors Institute Dealership Management Program in Flint, Michigan.
JOHN M. ROTH has been a member of our board of directors since our board was
established in 1996 and a member of our compensation committee since 1996.
Mr. Roth joined Freeman Spogli & Co. LLC in 1988, and became a general partner
in 1993. Mr. Roth was a member of Kidder, Peabody & Company, Inc.'s mergers and
acquisitions group from 1984 to 1988. He is also a member of the board of
directors of Advance Auto Parts, Inc., AFC Enterprises, Inc., Galyan's Trading
Company, Inc. and a number of privately held corporations. Mr. Roth holds a
bachelor's degree and master's in business administration from the Wharton
School at the University of Pennsylvania.
IAN K. SNOW has served as a member of our board of directors since 1996, and
a member of our compensation committee since 1996. He joined Ripplewood Holdings
L.L.C. in 1995, and he is currently a managing director. Prior to joining
Ripplewood in 1995, Mr. Snow was a financial analyst in the Media Group at
Salomon Brothers Inc, where he focused on strategic advisory and capital raising
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assignments for clients in the media industry. He also currently serves on the
board of directors of Kraton Polymers L.L.C., a privately held Ripplewood
portfolio company. Mr. Snow received a bachelor's degree in history from
Georgetown University.
THOMAS C. ISRAEL has served as a member of our board of directors since
April 19, 2002. He is Chairman and Chief Executive Officer of A.C. Israel
Enterprises, Inc., a family holding company specializing in private investments.
He began his career at ACLI International Incorporated, a worldwide commodity
import/export company, and became its Chief Financial Officer in 1978, a
position he held until it was sold to Donaldson, Lufkin & Jenrette in 1981.
Mr. Israel sits on the board of Directors of Griffin Land & Nurseries, Inc.
Mr. Israel graduated from Yale University in 1966.
VERNON E. JORDAN, JR. has served as a member of our board of directors since
April 19, 2002. He is currently a Managing Director of Lazard Freres & Co. Prior
to joining Lazard, Mr. Jordan was a senior executive partner with the law firm
of Akin, Gump, Strauss, Hauer & Feld, L.L.P., where he remains of counsel.
Mr. Jordan's corporate and other directorships include: America Online Latin
America, Inc., American Express Company, Callaway Golf Company, Clear Channel
Communications, Inc., Dow Jones & Company, Inc., Howard University, J.C. Penny
Company, Inc., Revlon Inc., Sara Lee Corporation, Shinsei Bank, Ltd. (Senior
Advisor), Xerox Corporation, LBJ Foundation, International Advisory Board of
DaimlerChrysler, Fuji Bank and Barrick Gold. Mr. Jordan is a graduate of DePauw
University and the Howard University Law School.
PHILIP F. MARITZ has served as a member of our board of directors since
April 19, 2002. He is the co-founder of Maritz, Wolf & Co., which manages the
Hotel Equity Fund, a private equity investment fund that owns 18 luxury hotels
and resorts with $1.6 billion in annual revenue, and serves as Chairman of the
Board of Rosewood Hotels & Resorts. In 1990, he founded Maritz Properties, a
commercial real estate development and investment firm. Other work experience
includes positions with AT&T, Morgan Stanley, and Spieker Properties. He serves
on several not-for-profit boards, and he is also a corporate director of
Wolff-DiNapoli, a Los Angeles-based investment and development firm. Mr. Maritz
received a bachelor's degree from Princeton University and a master's in
business administration from the Stanford School of Business.
THOMAS F. "MACK" MCLARTY, III has served as a member of our board of
directors since April 19, 2002. He has been our vice chairman since May 2000. He
began his 32-year career in the automotive retailing industry by building
McLarty Leasing Systems, the platform his grandfather founded, into one of
America's largest transportation companies. Mr. McLarty also serves as vice
chairman of Kissinger McLarty Associates, an international consulting firm
formed in 1999 by the merger of Mr. McLarty's and Dr. Henry Kissinger's
consulting operations. Between 1992 and 1998, Mr. McLarty served as White House
Chief of Staff, Special Envoy for the Americas and Counselor to President Bill
Clinton. He also was appointed to the National Petroleum Council by President
George H. W. Bush and served on the St. Louis Federal Reserve Board from 1989
until joining the White House in 1992. Mr. McLarty currently serves on the board
of directors of Axciom Corporation. Mr. McLarty is a graduate the University of
Arkansas.
BOARD OF DIRECTORS
Our board of directors currently consists of Messrs. Timothy C. Collins,
Thomas R. Gibson, Kenneth B. Gilman, Thomas C. Israel, Vernon E. Jordan, Jr.,
Philip F. Maritz, Ben David McDavid, Thomas F. "Mack" McLarty, John M. Roth and
Ian K. Snow. The appointment of these independent directors was not be subject
to a vote by shareholders.
TERMS. Our board of directors is divided into three classes. The first
class of directors consists of Thomas C. Israel, Thomas R. Gibson and Ben David
McDavid, each of whom will serve for a term of one year. The second class of
directors consists of Philip F. Maritz, John M. Roth and Ian K. Snow, each of
whom will serve for a term of two years. The third class of directors consists
of Timothy C.
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Collins, Kenneth B. Gilman, Vernon E. Jordan, Jr. and Thomas F. "Mack" McLarty,
each of whom will serve for a term of three years. After these directors have
served their initial terms, each person nominated to serve as a director will be
nominated to serve for a term of three years. Directors will hold office until
the annual meeting of shareholders in the year in which the term of their class
expires and until their successors have been duly elected and qualified.
Executive officers are appointed by, and serve at the discretion of, the board
of directors. Under a shareholders agreement entered into by holders of a
majority of our outstanding common stock, shareholders who are parties to the
agreement are required to vote their shares with respect to nominations to our
board of directors in accordance with the terms of the agreement.
COMMITTEES OF THE BOARD OF DIRECTORS
EXECUTIVE COMMITTEE. We have an executive committee consisting of
Messrs. Kenneth B. Gilman, John M. Roth and Ian K. Snow. The executive
committee, when the board of directors is not in session, has the power to
exercise all the authority of the board of directors except that the executive
committee does not have the power to, among other things, amend or repeal the
by-laws, authorize distributions, fill vacancies on the board of directors or
any of its committees, approve a plan of merger, consolidation or reorganization
or authorize or approve the reacquisition or sale of shares.
AUDIT COMMITTEE. We have an audit committee consisting of Messrs. Thomas C.
Israel, Vernon E. Jordan, Jr. and Philip F. Maritz. The audit committee has
responsibility for, among other things:
- recommending to the board of directors the selection of our independent
auditors,
- reviewing and approving the scope of the independent auditors' audit
activity and extent of non-audit services,
- reviewing with management and the independent accountants the adequacy of
our basic accounting systems and the effectiveness of our internal audit
plan and activities,
- reviewing with management and the independent accountants our financial
statements and exercising general oversight of our financial reporting
process, and
- reviewing litigation and other legal matters that may affect our financial
condition and monitoring compliance with our business ethics and other
policies.
COMPENSATION COMMITTEE. The compensation committee consists of
Messrs. Thomas C. Israel, John M. Roth and Ian K. Snow. This committee has
general supervisory power over, and the power to grant awards under, the 1999
option plan and the 2002 stock option plan. The compensation committee has
responsibility for, among other things, reviewing the recommendations of the
chief executive officer as to the appropriate compensation of our principal
executive officers and certain other key personnel, periodically examining the
general compensation structure and supervising our welfare, pension and
compensation plans.
DIRECTORS' COMPENSATION
Directors who are full-time employees of ours or our affiliates, including
Asbury Automotive Holdings L.L.C., and its two principals, Ripplewood
Investments L.L.C. and Freeman Spogli, will not receive a retainer or fees for
service on our board of directors or on committees of our board. We compensate
each independent member of our board of directors with an annual retainer of
$25,000. Each independent director will also receive $1,000 for each meeting of
the board or committee ($750 for meetings conducted by telephone) and each
independent committee chair will be paid an additional $500. In addition, each
independent director has been issued options under our 2002 option plan for
3,000 shares at the time of appointment and will receive 2,000 shares at each
anniversary date of that appointment. Finally, each independent director is
entitled to receive a demonstrator vehicle.
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EXECUTIVE COMPENSATION, EMPLOYMENT AGREEMENTS
The following table sets forth certain summary information concerning the
compensation provided by us in 2000 and 2001 to our executive management team.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
AWARDS OF
ANNUAL COMPENSATION COMMON STOCK
------------------- UNDERLYING OTHER ANNUAL
NAME AND POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- ----------------- -------- -------- -------- ------------ ------------
Kenneth B. Gilman, President and Chief
Executive Officer(1)..................... 2001 $ 43,269 $ 0 737,500 $ 1,500(2)
Brian E. Kendrick, President and Chief
Executive Officer(3)..................... 2001 750,000 0 0 46,893(4)
2000 750,000 750,000 0 99,061(5)
Thomas F. Gilman, Senior Vice President and
Chief Financial Officer.................. 2001 313,846 139,600 (6) 40,592(7)
Thomas R. Gibson, Chairman of the Board.... 2001 313,461 0 0 73,227(8)
2000 526,000 0 0 109,192(9)
Thomas G. McCollum, Vice President--Finance
and Insurance............................ 2001 207,692 110,000 (10) 142,464(11)
Philip R. Johnson, Vice President--Human
Resources................................ 2001 260,192 79,800 0 9,620(12)
2000 133,846 56,000 15,577 5,457(13)
</Table>
- ------------------------
(1) Became President and Chief Executive Officer on December 3, 2001, and the
amount shown represents compensation earned from that date until the end
2001.
(2) $1,500 represents payments for automobile use.
(3) Mr. Kendrick served as our President and Chief Executive Officer from
November 1999 until his death on October 4, 2001.
(4) $14,787 represents a tax gross-up of income.
(5) $21,414 represents reimbursement for legal expenses incurred, $15,255
represents payments for automobile use and $38,146 represents a tax
gross-up of income.
(6) Mr. Gilman was granted at his employment date in April 2001 the option to
acquire $500,000 worth of limited liability company interests in us prior
to our incorporation. That option was exercised in January 2002 and the
limited liability company interests acquired upon such exercise were
converted into 38,567 shares of our common stock immediately preceding our
initial public offering of common stock. In accordance with the terms of
Mr. Gilman's employment, when that option was exercised, we granted
Mr. Gilman an option to acquire an additional $500,000 worth of limited
liability company interests in us, which option was converted into an
option to purchase 38,793 shares of our common stock at an exercise price
of $12.89 per share.
(7) $15,590 represents a tax gross-up of income.
(8) $24,184 represents payment for automobile use.
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(9) $47,805 represents a tax gross-up of income, $22,000 represents payment for
automobile use and $15,950 represents reimbursement for accounting
expenses.
(10) Mr. McCollum was granted at his employment date in April 2001 the option
to acquire $300,000 worth of limited liability company interests in us
prior to our incorporation. That option was exercised in January 2002 and
the limited liability company interests acquired upon such exercise
converted into 23,140 shares of our common stock immediately preceding our
initial public offering of common stock. In accordance with the terms of
Mr. McCollum's employment, when that option was exercised, we granted
Mr. McCollum an option to acquire an additional $300,000 worth of limited
liability company interests in us prior to our incorporation, which option
was converted into an option to purchase 23,276 shares of our common stock
at an exercise price of $12.89 per share.
(11) Includes $74,146 reimbursement for moving expenses and $62,027
representing a tax gross-up of income.
(12) $9,620 represents payment for automobile use.
(13) $5,457 represents payments for automobile use.
EMPLOYMENT AGREEMENTS
KENNETH B. GILMAN. Mr. Gilman has an employment agreement with us to serve
as our chief executive officer and president until December 31, 2004, unless
terminated earlier in accordance with his employment agreement. During the term
of his agreement, Mr. Gilman will receive an annual salary of $750,000 and will
be eligible to earn an annual bonus of up to his annual salary if we achieve
performance targets set by the board of directors and an additional bonus of up
to his annual salary if we exceed those targets by an amount determined by the
board of directors.
We granted Mr. Gilman options to acquire up to 737,500 shares of our common
stock immediately preceding the initial public offering of our common stock at
an exercise price of $17.93 per share, which vest ratably over a three-year
period. If Mr. Gilman is employed by us two years from the date of the initial
public offering, he will be granted an additional option to purchase from us up
to the lesser of 0.5% of our then-outstanding common stock or $5 million worth
of our then outstanding common stock at the then fair value. The options expire
five years after their grant date but will expire sooner if Mr. Gilman's
employment terminates before that date.
If we have a change in control, we will pay Mr. Gilman 299% of the average
annual base salary and bonus paid to Mr. Gilman over the previous five full
calendar years (or the term of his employment, if shorter). In addition,
Mr. Gilman's options will immediately vest and be exercisable unless Mr. Gilman
would be subject to a golden parachute excise tax imposed under the Code. If we
do not renew Mr. Gilman's employment at the end of the term, we will pay him an
amount equal to his annual base salary and the bonus he earned in the previous
year. If we terminate Mr. Gilman's employment without cause or if he leaves with
good reason at any time, we will pay him an amount equal to the present value of
two year's annual salary and an additional amount equal to the bonus Mr. Gilman
earned in the previous year. During the term of Mr. Gilman's employment and for
two years after the termination of his contract (one year if we do not renew his
contract), he is subject to non-competition and non-solicitation provisions.
THOMAS F. GILMAN. Mr. Gilman entered into a severance agreement with us,
dated May 15, 2001, providing for one year of base salary and benefits
continuation and a pro-rated bonus if he is terminated. He will not be entitled
to severance in the event of termination due to death, disability, retirement,
voluntary resignation or cause. Mr. Gilman may trigger severance payments if his
office is relocated by more than 50 miles, his base salary is reduced or his
duties or title are diminished.
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Mr. Gilman is restricted by non-solicitation and non-compete restrictions for
one year following termination.
Mr. Gilman was granted at his employment date in April 2001 the option to
acquire $500,000 worth of limited liability company interests in us prior to our
incorporation. That option was exercised in January 2002 and the limited
liability company interests acquired upon such exercise converted into 38,567
shares of our common stock immediately preceding the initial public offering of
our common stock. In accordance with the terms of Mr. Gilman's employment, when
that option was exercised, we granted Mr. Gilman an option to acquire an
additional $500,000 worth of limited liability company interests in us prior to
our incorporation, which option was converted into an option to purchase 38,793
shares of our common stock at an exercise price of $12.89 per share. In
addition, in 2002, Mr. Gilman was granted an option to acquire 118,000 shares of
our common stock at an exercise price of $14.75 per share.
THOMAS R. GIBSON. Mr. Gibson entered into a severance agreement with us,
dated February 8, 2002, providing for one year of base salary and benefits
continuation and a pro-rated bonus if he is terminated. He will not be entitled
to severance in the event of termination due to death, disability, retirement,
voluntary resignation or cause. Mr. Gibson may trigger severance payments if his
office is relocated by more than 50 miles, his base salary is reduced or his
duties or title are diminished. Mr. Gibson is restricted by non-solicitation and
non-compete restrictions for one year following termination. In addition,
Mr. Gibson was given, on the date of the initial public offering of our common
stock, an option to acquire 90,909 shares of our common stock at an exercise
price of $16.50 per share.
THOMAS G. MCCOLLUM. Mr. McCollum entered into a severance agreement with
us, dated April 16, 2001, providing for one year of base salary and benefits
continuation and a pro-rated bonus if he is terminated. He will not be entitled
to severance in the event of termination due to death, disability, retirement,
voluntary resignation or cause. Mr. McCollum may trigger severance payments if
his office is relocated by more than 50 miles, his base salary is reduced or his
duties or title are diminished. Mr. McCollum is restricted by non-solicitation
and non-compete restrictions for one year following termination.
Mr. McCollum was granted at his employment date in April 2001 the option to
acquire $300,000 worth of limited liability company interests in us prior to our
incorporation. That option was exercised in January 2002 and the limited
liability company interests acquired upon such exercise converted into 23,140
shares of our common stock immediately preceding the initial public offering of
our common stock. In accordance with the terms of Mr. McCollum's employment,
when that option was exercised, we granted Mr. McCollum an option to acquire
23,276 shares of our common stock at an exercise price of $12.89 per share.
PHILIP R. JOHNSON. Mr. Johnson entered into a severance agreement with us,
dated April 3, 2001, providing for one year of base salary and benefits
continuation and a pro-rated bonus if he is terminated. He will not be entitled
to severance in the event of termination due to death, disability, retirement,
voluntary resignation or cause. Mr. Johnson may trigger severance payments if
his office is relocated by more than 50 miles, his base salary is reduced or his
duties or title are diminished. Mr. Johnson is restricted by non-solicitation
and non-compete restrictions for one year following termination.
1999 OPTION PLAN
In January 1999, we adopted an option plan under which we issued
non-qualified options granting the right to purchase limited liability company
interests in us prior to our incorporation. Under our 1999 option plan, which
was amended and restated effective December 1, 2001, we granted options to
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certain of our directors, officers, employees and consultants for terms and at
exercise prices and vesting schedules set by the compensation committee of our
board of directors. Prior to our initial public offering of common stock, we
issued options under our 1999 option plan for the purchase of 1,072,738 shares
of our common stock in accordance with the plan. The options granted under our
1999 plan that have not vested prior to a change in control of us will vest and
become exercisable upon a change of control. We are no longer issuing options
under our 1999 option plan.
The following table provides certain information regarding options granted
to our executive officers during 2001 and during 2002 through the date hereof
under our 1999 option plan:
OPTION GRANTS IN LAST FISCAL YEAR AND CURRENT FISCAL YEAR TO DATE
<Table>
<Caption>
PERCENT OF TOTAL POTENTIAL REALIZABLE
OPTIONS VALUE AT ASSUMED ANNUAL
NUMBER OF GRANTED TO RATES OF STOCK PRICE
SECURITIES EMPLOYEES IN APPRECIATION FOR OPTION
UNDERLYING THE PERIOD EXERCISE OR TERM(1)
OPTIONS DESCRIBED BASE PRICE EXPIRATION -----------------------
NAME GRANTED ABOVE ($/SH) DATE 10% ($000) 5% ($000)
- ---- ---------- ---------------- ----------- ---------- ---------- ----------
Kenneth B. Gilman............ 737,500 35.7% $17.93 12/06 $19,411 $15,383
Thomas F. Gilman............. 38,793 1.9% $12.89 4/11 $ 1,644 $ 1,033
118,000 5.7% $14.75 2/07 $ 3,106 $ 2,461
6,061 0.3% $16.50 3/12 $ 257 $ 161
Thomas G. McCollum........... 23,276 1.1% $12.89 4/11 $ 987 $ 620
12,121 0.6% $16.50 3/12 $ 514 $ 323
John C. Stamm................ 3,879 0.2% $12.89 7/11 $ 164 $ 104
12,121 0.6% $16.50 3/12 $ 514 $ 323
Allen T. Levenson............ 15,517 0.8% $12.89 3/11 $ 658 $ 413
12,121 0.6% $16.50 3/12 $ 514 $ 323
</Table>
- ------------------------
(1) Amounts represent hypothetical values that could be achieved for the
respective options if exercised at the end of the option term. These values
are based on assumed rates of stock price appreciation of 5% and 10%
compounded annually from the date the respective options were granted to
their expiration date based on the market price of the underlying securities
on the date of the grant. These assumptions are not intended to forecast
future appreciation of our stock price. The potential realizable value
computation does not take into account federal or state income tax
consequences of option exercises or sales of appreciated stock.
The options generally vest annually from the date of grant with respect to
33.33% of the shares covered by the options.
2002 STOCK OPTION PLAN
At the time of our initial public offering, we granted certain senior
employees options under our 2002 stock option plan to purchase a total of
993,939 shares of our common stock. A primary purpose of our 2002 stock option
plan is to attract and retain directors, officers and other key employees. The
following is a description of the material terms of the 2002 stock option plan.
TYPE OF AWARDS. The 2002 stock option plan provides for grants of
nonqualified stock options.
SHARES SUBJECT TO THE STOCK OPTION PLAN; OTHER LIMITATIONS ON
AWARDS. Subject to potential adjustment by the compensation committee of our
board of directors as described below, we may issue
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options to purchase a maximum of 1,500,000 shares of our common stock under our
2002 stock option plan. Subject to potential adjustment by the compensation
committee as described below, the plan limits option grants to individual
participants to options to purchase a maximum of 350,000 shares in any single
fiscal year. Shares underlying options may be issued from our authorized but
unissued common stock or satisfied with common stock held in our treasury. If
any option is forfeited, expires or is otherwise terminated or canceled, other
than by reason of exercise or vesting, then the shares covered by that option
will again become available under the 2002 stock option plan.
Our compensation committee has the authority to adjust the terms and
conditions of, and the criteria included in, any outstanding options in order to
prevent dilution or enlargement of the benefits intended to be made available
under the plan as a result of any unusual or nonrecurring events (including any
dividend or other distribution, whether in the form of cash, shares of our
common stock, other securities or other property, recapitalization, stock split,
reverse stock split, reorganization, merger, consolidation, split-up, spin-off,
combination, repurchase, exchange of shares of our common stock or our other
securities or other similar corporate transaction or event) affecting us, our
affiliates, our financial statements or the financial statements of any of our
affiliates, or any changes in applicable laws, regulations or accounting
principles. In such events, the compensation committee may provide for a cash
payment to the option holder in return for the cancelation of the option in an
amount equal to the excess, if any, of the fair market value of our shares of
common stock over the aggregate exercise price of the option.
ELIGIBILITY. Awards may be made to any director, officer or other key
employee of us or any of our subsidiaries, including any prospective officer or
key employee, selected by the compensation committee.
ADMINISTRATION. The compensation committee administers the 2002 stock
option plan. The compensation committee has the authority to construe, interpret
and implement the 2002 stock option plan, and prescribe, amend and rescind rules
and regulations relating to the plan. The determination of the compensation
committee on all matters relating to the 2002 stock option plan or any award
agreement is final and binding.
STOCK OPTIONS. The compensation committee may grant to our directors,
officers and senior employees nonqualified stock options to purchase shares of
common stock from us (at the price set forth in the award agreement), subject to
such terms and conditions as the compensation committee may determine. No
grantee of an option will have any of the rights of one of our shareholders with
respect to shares subject to their award until the issuance of the shares.
Except as the compensation committee may otherwise establish in an option
agreement at the time of grant, the exercise price of each option granted under
the 2002 stock option plan will be the initial public offering price per share
of our common stock and the exercise price of each option granted under the plan
after the initial public offering will be equal to the fair market value of a
share of our common stock on the date of grant.
Except as the compensation committee may otherwise establish in an option
agreement, options that are granted under the 2002 stock option plan will become
vested and exercisable with respect to one-third of the shares subject to those
options on each of the first three anniversaries of the date of grant.
Except as the compensation committee may otherwise establish in an option
agreement, options granted under the 2002 stock option plan will expire without
any payment upon the earlier of the tenth anniversary of the option's date of
grant and the date the optionee ceases to be employed by us or one of our
subsidiaries. In no event may an option granted under the 2002 stock option plan
be exercisable after the tenth anniversary of the date of grant.
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CHANGE OF CONTROL. In the event of a change in control of us, options that
are outstanding and unexercisable or unvested at the time of the change of
control will vest and become exercisable immediately prior to the change of
control. In the event of a sale or disposition of substantially all our assets,
or a merger of us with or into another entity, or a merger of any of our
subsidiaries with or into another entity if such merger would require the
approval of our shareholders, options granted under the 2002 stock option plan
and outstanding at the time of the sale or merger will either continue in
effect, be assumed or an equivalent option will be substituted by the successor
entity or a parent or subsidiary company of such successor entity. If the option
does not continue in effect or the successor entity refuses to assume or
substitute for the outstanding option, the option will become fully vested and
exercisable. If the option becomes fully vested and exercisable in lieu of the
option's continuation, assumption or substitution, option holders will be
notified that the options granted under the 2002 stock option plan shall be
fully vested and exercisable for a period of fifteen days from the date of such
notice, or such shorter period as the compensation committee may determine to be
reasonable, and the option will terminate upon the expiration of such period.
NONASSIGNABILITY. Except to the extent otherwise provided in the option
agreement, no option granted to any person under the 2002 stock option plan is
assignable or transferable other than by will or by the laws of descent and
distribution, and all options are exercisable during the life of the grantee
only by the grantee or the grantee's legal representative.
AMENDMENT AND TERMINATION. The 2002 stock option plan is scheduled to
terminate on the tenth anniversary of the date of the plan. Our board of
directors may at any time amend, alter, suspend, discontinue or terminate the
2002 stock option plan and, unless otherwise expressly provided in an option
agreement, the compensation committee may waive any conditions under, or amend
the terms of, any outstanding option. However, shareholder approval of any of
those actions must be obtained if such approval is necessary to comply with any
tax or regulatory requirement applicable to the 2002 stock option plan. In
addition, if such an action would impair the rights of any option holder with
respect to options granted prior to the action, then the action will not be
effective without the consent of the affected option holder.
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RELATED PARTY TRANSACTIONS
Certain of our directors, beneficial owners and their affiliates, have
engaged in transactions with us. Transactions with two of our directors,
Mr. Ben David McDavid and Mr. Thomas F. "Mack" McLarty and two of our former
principal shareholders, Mr. Luther Coggin and Mr. C.V. Nalley, are described
below. We believe these transactions involved terms comparable to, or more
favorable to us than, terms that would be obtained from an unaffiliated third
party.
We lease the following properties used by the Texas platform for dealership
lots and offices from Mr. McDavid, his immediate family members and his
affiliates:
- properties leased from Mr. McDavid with an aggregate monthly rental fee of
$189,000;
- properties leased from David McDavid Family Properties, a partnership in
which Mr. McDavid and his immediate family have a 100% ownership interest,
for aggregate monthly rental fees of $90,000;
- property leased from BroMac Inc., an "S" corporation in which Mr. McDavid
and his immediate family have a 100% ownership interest, for a monthly
rental fee of $1,500;
- properties leased from Sterling Real Estate Partnership, a partnership in
which Mr. McDavid and his immediate family have a 100% ownership interest,
for aggregate monthly rental fees of $70,000;
- property leased from Texas Coastal Properties, a partnership in which
Mr. McDavid and his immediate family have a 100% ownership interest, for a
monthly rental fee of $4,000; and
- property leased from D.Q. Automobiles Inc., a corporation in which
Mr. McDavid has a 100% ownership interest, for a monthly rental fee of
$14,700.
With respect to the above mentioned leases with Mr. McDavid, we have a
purchase option to acquire the related properties. The purchase option,
initially based on the aggregate appraised value, adjusts each year for changes
in the Consumer Price Index. The purchase option of $50,396,000 can only be
exercised in total. We currently have no intent to exercise this option.
In addition, we also lease the following properties from Mr. McDavid, his
immediate family members and his affiliates:
- property leased from McCreek Partners L.L.C., a limited liability
corporation which is wholly owned by McCreek, Ltd., a partnership in which
Mr. McDavid and his immediate family hold a 100% ownership interest, for a
monthly rental fee of $5,300;
- approximately ten acres of land in Frisco, Texas, leased from McFrisco
Partners I, Ltd., an entity in which Mr. McDavid and his immediate family
hold a 100% ownership interest, for a monthly rental fee of $55,000 per
month from April 20, 2001, through October 31, 2001, and, beginning
November 1, 2001, for a monthly rental fee of $80,000 plus 1% of the
incurred construction costs of the new dealership facility until the
construction is completed at which time the monthly rent will be increased
to $90,000 a month plus 1% of the incurred construction costs. Once
construction is completed, rent will increase to approximately $150,000
per month; and
- approximately three acres of land adjacent to our current Nissan
dealership in Houston, Texas, for four years, rent-free. The land will be
used in the operations of our Honda dealership. We estimate fair market
rent over the four-year term (i.e., our savings to offset the above-market
purchase price above) to be $250,000.
In the first quarter of 2002, we purchased from Mr. McDavid approximately
two acres of land adjacent to our Honda dealership facility in Houston, Texas,
for $2,000,000. The existing Honda facility will become the new home for our
Nissan dealership, and we will construct an additional facility on
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these two acres for Nissan dealership expansion. The purchase price for the land
is approximately $800,000 more than the appraised value. This difference in the
purchase price is accounted for in part by competition with General Motors
(Saturn) to purchase the property and in part by Mr. McDavid's agreement to
lease us three acres adjacent to our Nissan dealership in Houston, Texas,
rent-free.
We entered into an agreement to purchase approximately four acres of land in
Plano, Texas, from Mr. McDavid for the construction of a new body shop for the
appraised value of $1,700,000.
We lease the following properties used by the Atlanta platform for
dealership lots and offices from Mr. Nalley, his immediate family and his
affiliates:
- properties owned by Chevrolet Metro Realty, Inc., a corporation in which
Mr. Nalley has a 100% ownership interest, for aggregate monthly rental
fees of $53,200;
- property owned by Heavy Duty Trucks Realty, Inc., a corporation in which
Mr. Nalley has a 100% ownership interest, for a monthly rental fee of
$37,400;
- property owned by Union City Honda Auto Realty, Inc., a corporation in
which Mr. Nalley has a 100% ownership interest, for a monthly rental fee
of $52,500; and
- property owned by Marietta Lexus Auto Realty, Inc., a corporation in which
Mr. Nalley has a 100% ownership interest, for a monthly rental fee of
$93,600.
We lease property and offices used by the Jacksonville platform from Coggin
Management Company, a corporation in which Mr. Coggin has a 100% ownership
interest, for a monthly rental fee of $10,500.
We lease the following properties used by the Arkansas platform for
dealership lots and offices from Mr. McLarty, his immediate family members and
his affiliates:
- property leased from NPF Holdings L.L.C., a limited liability company in
which Mr. McLarty has a 58.5% ownership interest for a monthly rental fee
of $61,926;
- property leased from MHC Properties G.P., a partnership in which
Mr. McLarty has an 85.5% ownership interest, for a monthly rental fee of
$13,801;
- property leased from Prestige Properties, GP, a partnership in which MHC
Properties GP, of which Mr. McLarty owns 85.5%, holds a 68% ownership
interest, for a monthly rental fee of $38,572;
- properties leased from Hope Auto Company, a corporation in which
Mr. McLarty has an 86% ownership interest, for a monthly rental fee of
$6,763; and
- property leased from Summerhill Partnership, L.P., a limited partnership
in which Mr. McLarty has a 49.88% ownership interest, for a monthly rental
fee of $30,000.
OTHER RELATED PARTY TRANSACTIONS
Mr. McLarty entered into a consulting agreement with us to provide
management and consulting services for a term of three years beginning
February 23, 1999. In February 2002, Mr. McLarty's consulting agreement was
amended to extend the term of the agreement and to increase his annual
compensation to $500,000.
In February 2001, Mr. McLarty purchased a number of used vehicles from us
after fire damage to our Hope, Arkansas dealership. The total purchase price
paid by Mr. McLarty to us was $378,000.
The Loomis Corporation, a corporation in which Mr. McDavid and his immediate
family hold a 21% ownership interest, has entered into various agreements to
provide advertising services to the Texas platform for an aggregate value of
$1,025,035 from June 30, 2000, to January 31, 2002. The
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Loomis Corporation also began providing advertising services to the Jacksonville
platform in April 2001, for an aggregate value of $739,422 from April 2001 to
February 2002.
Mr. Nalley and Mr. McDavid periodically lease their private aircraft to us
and currently charge us for employees who use the aircraft to fly on business
trips. The total amount paid to Mr. Nalley and Mr. McDavid since January 1,
1998, for use of their aircraft is $804,600 and $110,856 respectively.
Currently, we own a 10% interest in a Land Rover franchise operated under
the St. Louis platform, Asbury Automotive Holdings L.L.C. owns a 40% interest in
this franchise and John R. Capps, a former holder of over 5% of our common
stock, owns the remaining 50% interest. We have entered into a binding
assignment and assumption agreement whereby Asbury Automotive Holdings L.L.C.
and Mr. Capps have agreed to sell their interests to us. This agreement is held
in escrow at the Bank of New York pending manufacturer consent to the
transaction.
From January 1, 1999, to December 31, 2001, Mr. Nalley has paid the Atlanta
platform $93,500 to perform accounting and other administrative functions for a
dealership owned outside of Asbury by Mr. Nalley.
In May 1999 we sold a hotel business which was acquired in our 1998
acquisition of Coggin Automotive Corporation back to Luther Coggin for
$2.4 million. This transaction had no impact on our income statement. Coggin
Automotive Corporation still maintains a guarantee on certain debt of this
business, which had an outstanding balance of $4.5 million as of December 31,
2001.
The Jacksonville platform engages in management duties including co-signing
checks and reviewing accounting records for a Holiday Inn Hotel owned by
Mr. Coggin for a monthly fee of $1,500 which began in May 1999.
On April 19, 2001, we redeemed Mr. Gibson's carried interest in us for a
purchase price of $2,250,000.
Mr. Nalley entered into an employment agreement with the Atlanta platform to
serve as its president and chief executive officer from March 1, 2000, to
March 1, 2005. The agreement provides for an annual base salary of $500,000 and
an annual bonus based upon the performance of the Atlanta platform of up to
$1,000,000. If Mr. Nalley's employment is terminated for reasons other than
voluntary resignation, cause, death or disability, the Atlanta platform will pay
him his base salary for the balance of the employment term and a pro-rata
portion of his annual bonus.
Mr. Coggin entered into an employment agreement with the Jacksonville
platform to serve as its chairman and chief executive officer from October 30,
1998, to October 30, 2003. The agreement provides for an annual base salary of
$250,000, adjusted in accordance with a cost of living index, and an annual
bonus based upon the performance of the Jacksonville platform of up to $250,000.
If Mr. Coggin's employment is terminated for reasons other than voluntary
resignation, cause, death or disability, the Jacksonville platform will pay him
his base salary for the balance of the employment term and a pro-rata portion of
his annual bonus.
Mr. McDavid entered into an employment agreement with the Texas platform to
serve as its president and chief executive officer from May 1, 1998, to May 1,
2003. The agreement provides for an annual base salary of $500,000. Mr. McDavid
also receives an annual discretionary bonus in an amount determined by our
board. If Mr. McDavid's employment is terminated for reasons other than
voluntary resignation, cause, death or disability, the Texas platform will pay
him his base salary for the balance of the employment term.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information as of May 15, 2002, with
respect to the beneficial ownership of our outstanding common stock by
(i) stockholders known by us to own beneficially more than 5% of our outstanding
common stock, (ii) each director, (iii) each executive officer, and (iv) all
directors and executive officers as a group. The number of shares of our common
stock outstanding as of May 15 was 34,000,000.
<Table>
<Caption>
COMMON STOCK
BENEFICIALLY OWNED
-----------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT
- ------------------------ --------- --------
PRINCIPAL SHAREHOLDERS
Ripplewood Investments L.L.C.(1)............................ 8,954,900 26.3%
One Rockefeller Plaza
32nd Floor
New York, NY 10020
Freeman Spogli & Co.(2)(3).................................. 8,595,843 25.3%
CURRENT DIRECTORS
Kenneth B. Gilman(4)........................................ 10,100
Timothy C. Collins(5)(6).................................... 0 *
Ben David McDavid(4)........................................ 1,075,093 3.2%
Ian K. Snow(5)(6)........................................... 0 *
John M. Roth(3)(7).......................................... 0 *
Thomas R. Gibson(4)......................................... 45,840 *
Thomas C. Israel(4)......................................... 62,500 *
Vernon E. Jordan(4)......................................... 0 *
Philip F. Maritz(4)......................................... 0 *
Thomas F. McLarty(4)........................................ 454,114 1.3%
NAMED OFFICERS WHO ARE NOT DIRECTORS
Thomas F. Gilman(4)(8)...................................... 90,831 *
Philip R. Johnson(4)(9)..................................... 20,345 *
Allen T. Levenson(4)(10).................................... 6,172 *
Thomas G. McCollum(4)(11)................................... 30,899 *
John C. Stamm(4)(12)........................................ 5,172 *
All directors and executive officers of Asbury as a group
(15 persons).............................................. 1,801,066 5.1
</Table>
- ------------------------
(*) Less than one percent of our common stock.
(1) Represents 51% of the shares owned by Asbury Automotive Holdings L.L.C.
Ripplewood Investments L.L.C. (formerly known as Ripplewood Holdings
L.L.C.) is the owner of approximately 51% of the membership interests of
Asbury Automotive Holdings and is deemed to be a member of a group that
owns the shares of Asbury Automotive Holdings. Asbury Automotive Holdings
owns 17,550,743 shares of common stock, which constitutes 51.6% of the
outstanding common stock. In addition, pursuant to a shareholders agreement
between Asbury Automotive Holdings L.L.C. and certain former owners of our
platforms that own 25.8% of the outstanding common stock, Asbury Automotive
Holdings has the right to control the vote of those former platform owners
on certain matters, including certain persons nominated by Asbury
Automotive Holdings to our board of directors. Therefore, Asbury Automotive
Holdings may be deemed to be the beneficial owner of an aggregate of 77.4%
of the common stock.
(2) Represents 49% of the shares owned by Asbury Automotive Holdings L.L.C.
FS Equity Partners III, L.P., FS Equity Partners International L.P. and FS
Equity Partners IV, L.P., investment funds
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affiliated with Freeman Spogli & Co., are the owners of approximately 49%
of the membership interests of Asbury Automotive Holdings and are deemed to
be members of a group that own the shares of Asbury Automotive Holdings and
the shares subject to the shareholders agreement described in
footnote (1). The business address of Freeman Spogli & Co., FS Equity
Partners III, FS Equity Partners IV is 11100 Santa Monica Boulevard, Suite
1900, Los Angeles, California 90025. The business address of FS Equity
Partners International L.P. is c/o Paget-Brown & Company, Ltd., West Winds
Building, Third Floor, Grand Cayman, Cayman Islands, British West Indies.
(3) Address: c/o Freeman Spogli & Co. Inc. at 11100 Santa Monica Boulevard,
Suite 1900, Los Angeles, CA 90025.
(4) Address: c/o our principal executive offices at 3 Landmark Square, Suite
500, Stamford, CT 06901.
(5) Does not include 17,550,743 shares of common stock held by Asbury
Automotive Holdings L.L.C. an entity in which Ripplewood Investments L.L.C.
holds an ownership interest of approximately 51% or the shares covered by
the shareholders agreement, as described in footnote (1). Mr. Collins is
the chief executive officer of Ripplewood Investments L.L.C. Both
Mr. Collins and Mr. Snow expressly disclaim beneficial ownership of any
shares held by Ripplewood Investments L.L.C. except to the extent of their
pecuniary interests in them.
(6) Address: c/o Ripplewood Investments L.L.C. at One Rockefeller Plaza, 32nd
Floor, New York, NY 10020.
(7) Does not include 17,550,743 shares of common stock held of record by Asbury
Automotive Holdings L.L.C., an entity in which investment funds affiliated
with Freeman Spogli & Co., or the shares covered by the shareholders
agreement, as described in Footnote (2), hold approximately a 49% ownership
interest. Mr. Roth is a director, member, partner or executive officer of
the general partners of each of these investment funds. Mr. Roth expressly
disclaims beneficial ownership of any shares held by such investment funds
except to the extent of his pecuniary interest in them.
(8) Includes 52,264 shares issuable upon exercise of options exercisable within
60 days of the date of the Original Notes offering.
(9) Includes 10,345 shares issuable upon exercise of options exercisable within
60 days of the date of the Original Notes offering.
(10) Includes 6,172 shares issuable upon exercise of options exercisable within
60 days of the date of the Original Notes offering.
(11) Includes 7,759 shares issuable upon exercise of options exercisable within
60 days of the date of the Original Notes offering.
(12) Includes 5,172 shares issuable upon exercise of options exercisable within
60 days of the date of the Original Notes offering.
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DESCRIPTION OF OTHER INDEBTEDNESS
CREDIT FACILITIES
On January 17, 2001, we entered into a committed financing agreement (the
"Committed Credit Facility") with Ford Motor Credit Company, General Motors
Acceptance Corporation and Chrysler Financial Company, L.L.C. with total
availability of $550 million. The Committed Credit Facility is used for
acquisition financing and working capital purposes. At the date of closing, the
Company utilized $330.6 million of the Committed Credit Facility to repay
certain existing term notes and pay certain fees and expenses of the closing.
All borrowings under the Committed Credit Facility bear interest at variable
rates based on LIBOR plus a specified percentage depending on our attainment of
certain leverage ratios and the outstanding balance under this facility.
The Committed Credit Facility imposes a blanket lien upon all our assets,
and contains covenants that, among other things, place significant restrictions
on our ability to incur additional debt, encumber our property and other assets,
repay other debt, dispose of assets, invest capital and permit our subsidiaries
to issue equity securities. This credit facility also imposes mandatory minimum
requirements with regard to the terms of transactions to acquire prospective
targets, before we can borrow funds under the facility to finance the
transactions. The terms of the credit facility require us on an ongoing basis to
meet certain financial ratios, including a current ratio, as defined in our
credit facility, of at least 1.2 to 1, a fixed charge coverage ratio, as defined
in our credit facility, of no less than 1.2 to 1, and a leverage ratio, as
defined in our credit facility, of no greater than 4.4 to 1. A breach of these
covenants or any other of the covenants in the facility would be cause for
acceleration of repayment and termination of the facility by the lenders. This
credit facility also contains provisions for default upon, among other things, a
change of control, a material adverse change, the non-payment of obligations and
a default under other agreements. As of the date of this prospectus, we were in
compliance with all of the covenants. The terms of the Committed Credit Facility
provides that a default under the Floor Plan Facilities described below, among
other obligations, constitutes a default under the Committed Credit Facility.
The Committed Credit Facility requires us to apply 80% of the net proceeds
of equity offerings and 100% of the net proceeds of debt offerings to
outstanding indebtedness under the Committed Credit Facility. Our subsidiaries
have guaranteed, and substantially all of our future subsidiaries will be
required to guarantee, our obligations under this credit facility. Substantially
all of our assets not subject to security interests granted to floor plan
lenders are subject to security interests to lenders under the Committed Credit
Facility. We pay annually in arrears a commitment fee for the credit facility of
0.35% of the undrawn amount available to us. The Committed Credit Facility
provides for an indefinite series of one-year extensions at our request, if
approved by the lenders at their sole discretion. Conversely, we can terminate
the Committed Credit Facility by repaying all of the outstanding balances under
the facility and the related uncommitted floor plan lines plus a termination
fee. The termination fee, currently equal to 2% of the amount outstanding under
the Committed Credit Facility, declines one percentage point on each of the
anniversaries of the facility over the next two years. We have extended the
maturity of the Committed Credit Facility to January 2005. As of March 31, 2002,
and without giving effect to the application of the proceeds of the Original
Notes offering, $217.9 million remained available to us for additional
borrowings under the Committed Credit Facility. After the application of the
proceeds from the Original Notes offering we will have approximately
$443.1 million available to us.
In addition, we have $10 million available through other revolving credit
facilities, which are secured by notes receivable for finance contracts. The
borrowings are repayable on the lenders' demand and accrue interest at variable
rates. These facilities are subject to certain financial and other covenants. As
of March 31, 2002, we had $10 million outstanding under these facilities.
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GUARANTEES
We have guaranteed four loans made by financial institutions either directly
to our management or to non-consolidated entities controlled by our management
which totaled approximately $9.1 million at March 31, 2002.
FLOOR PLAN FINANCING
On January 17, 2001, and in connection with the Committed Credit Facility,
the Company obtained uncommitted floor plan financing lines of credit for new
and used vehicles (the "Floor Plan Facilities"). The Company refinanced
substantially all of its existing floor plan debt under the Floor Plan
Facilities. The Floor Plan Facilities do not have specified maturities. They
bear interest at variable rates based on LIBOR or the prime rate and are
provided by Ford Motor Credit Company, Chrysler Financial Company L.L.C. and
General Motors Acceptance Corporation, with total availability of $750 million.
<Table>
Ford Motor Credit Company................................... $330 million
Chrysler Financial Company L.L.C............................ $315 million
General Motors Acceptance Corporation....................... $105 million
------------
Total Floor Plan Lines.................................... $750 million
============
</Table>
In addition, we have ancillary floor plan facilities for our heavy trucks
business within our Atlanta platform with total availability of $37 million as
of March 31, 2002.
We finance substantially all of our new vehicle inventory and a portion of
our used vehicle inventory under the floor plan financing credit facilities. We
are required to make monthly interest payments on the amount financed, but are
not required to repay the principal prior to the sale of the vehicle. The Floor
Plan Facilities also provide used vehicle financing up to a fixed percentage of
the value of each financed used vehicle. These floor plan arrangements grant a
security interest in the financed vehicles as well as the related sales
proceeds. Amounts financed under the floor plan arrangements bear interest at
variable rates, which are typically tied to LIBOR or the prime rate. As of
March 31, 2002, we had $451.0 million outstanding under all of our floor plan
financing agreements. The terms of certain floor plan arrangements impose upon
us and our subsidiaries ongoing covenants including financial ratio
requirements.
MORTGAGE NOTES
As of March 31, 2002, we had outstanding 12 real estate mortgages at six
operating platforms with principal balances totaling $120.4 million. The
mortgage notes bear interest at fixed and variable rates (the weighted average
interest rates were 9.3% and 7.9% for years-ended December 31, 2000 and 2001,
respectively, and 5.7% for the fiscal quarter ended March 31, 2002). These
obligations are secured by the related property, plant and equipment and mature
between 2002 and 2015. Under the terms of our Committed Credit Facility, no
guarantees from us or any of our subsidiaries are allowed in support of our
mortgage notes. Mortgage lenders include Twin City Bank, Commerce Bank, Comerica
Bank, Ford Motor Credit Company and General Motors Acceptance Corporation. The
terms of certain mortgage debt require our subsidiaries to comply with specific
financial ratio requirements and other ongoing covenants.
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DESCRIPTION OF THE NEW NOTES
You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions." In this description, "Asbury" refers only
to Asbury Automotive Group, Inc. and not to any of its Subsidiaries.
Asbury issued the Original Notes under an indenture dated June 5, 2002 among
itself, the Guarantors and The Bank of New York, as trustee, in a private
transaction that is not subject to the registration requirements of the
Securities Act. The terms of the notes include those stated in the indenture and
those made part of the indenture by reference to the Trust Indenture Act of
1939, as amended. The New Notes will be issued under the same indenture and will
be identical in all material respects to the Original Notes, except that the New
Notes have been registered under the Securities Act and are free of any
obligation regarding registration, including the payments of liquidated damages
upon failure to file or have declared effective an exchange offer registration
statement or to consummate an exchange offer by certain dates. Unless
specifically stated to the contrary, the following description applies equally
to the New Notes and the Original Notes.
The following description is a summary of the material provisions of the
indenture. It does not restate that agreement in its entirety. We urge you to
read the indenture because it, and not this description, define your rights as
holders of New Notes. Copies of the indenture are available as set forth under
"Available Information." Certain defined terms used in this description but not
defined below under "Certain Definitions" have the meanings assigned to them in
the indenture.
The registered Holder of a New Note will be treated as the owner of it for
all purposes. Only registered Holders will have rights under the indenture.
BRIEF DESCRIPTION OF THE NEW NOTES AND THE GUARANTEES
THE NEW NOTES
The New Notes:
- are general unsecured senior subordinated obligations of Asbury;
- are subordinated in right of payment to all existing and future Senior
Debt of Asbury, including borrowings under the Credit Agreement and
Floor Plan Facilities;
- rank PARI PASSU in right of payment with any future Senior Subordinated
Indebtedness of Asbury;
- are effectively junior to all existing and future liabilities,
including trade payables, of Asbury's non-guarantor Subsidiaries; and
- are unconditionally guaranteed on a senior subordinated basis by the
Guarantors.
THE GUARANTEES
The New Notes are guaranteed by substantially all of Asbury's Restricted
Subsidiaries.
Each guarantee of the New Notes:
- is a general unsecured senior subordinated obligation of the Guarantor;
- is subordinated in right of payment to all existing and future Senior
Debt of that Guarantor; and
- ranks PARI PASSU in right of payment with any future Senior
Subordinated Indebtedness of that Guarantor.
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Assuming Asbury had completed the offering of the Original Notes and applied
the net proceeds thereof, and pro forma for our completed and probable
acquisitions and divestitures, as of March 31, 2002, Asbury and the Guarantors
would have had Senior Debt outstanding of approximately $261.0 million, and
approximately $443.1 million would have been available to Asbury for additional
borrowings under its credit facility, all of which would constitute Senior Debt
ranking ahead of the New Notes. As indicated above and as discussed in detail
below under the caption "Subordination," payments on the New Notes and under
these guarantees will be subordinated to the payment of Senior Debt. The
indenture will permit both Asbury and the Guarantors to incur additional debt,
including Senior Debt.
As of the date of the issuance of the New Notes, all of Asbury's
Subsidiaries, excluding one immaterial Subsidiary, will be guaranteeing the New
Notes. Not all of our future Subsidiaries will be obligated to guarantee the New
Notes. In the event of a bankruptcy, liquidation or reorganization of any of
these non-guarantor Subsidiaries, the non-guarantor Subsidiaries will pay the
holders of their debt and their trade creditors before they will be able to
distribute any of their assets to us.
As of the date of the issuance of the New Notes, all of our subsidiaries
will be "Restricted Subsidiaries." However, under the circumstances described
below under the subheading "Certain Covenants Designation of Restricted and
Unrestricted Subsidiaries," we will be permitted to designate certain of our
subsidiaries as "Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will
not be subject to many of the restrictive covenants in the indenture. Our
Unrestricted Subsidiaries will not guarantee the New Notes. See "Risk
Factors--The notes will be effectively junior to the liabilities of our current
and future non-guarantor subsidiaries."
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be initially issued in a total principal amount of
$250 million. Asbury may issue additional notes ("Additional Notes") under the
indenture from time to time after the Original Notes offering with the same
CUSIP number as the notes offered hereby if such Additional Notes are fungible
with the New Notes offered hereby for United States federal income tax purposes.
Any issuance of Additional Notes will be subject to the covenant described below
under the caption "Certain Covenants Incurrence of Indebtedness and Issuance of
Preferred Stock." The New Notes and any Additional Notes subsequently issued
under the indenture will rank equally and will be treated as a single class for
all purposes under the indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase. Asbury will issue New Notes in
denominations of $1,000 and integral multiples of $1,000. The New Notes will
mature on June 15, 2012.
Interest on the New Notes will accrue at the rate of 9% per annum and will
be payable semi-annually in arrears on June 15 and December 15 of each year,
commencing on December 15, 2002. Asbury will make each interest payment to the
Holders of record on the immediately preceding June 1 and December 1.
Interest on the New Notes will accrue from the date of original issuance or,
if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NEW NOTES
If a Holder has given wire transfer instructions to Asbury, Asbury will pay
all principal, interest and premium, if any, on that Holder's New Notes in
accordance with those instructions. All other payments on New Notes will be made
at the office or agency of the paying agent and registrar within the City and
State of New York (which will initially be the corporate trust office of the
trustee) unless Asbury elects to make interest payments by check mailed to the
Holders at their address set forth in the register of Holders.
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PAYING AGENT AND REGISTRAR FOR THE NEW NOTES
The trustee under the indenture will initially act as paying agent and
registrar for the New Notes. Asbury may change the paying agent or registrar
without prior notice to the Holders of the New Notes, and Asbury or any of its
Restricted Subsidiaries may act as paying agent or registrar.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
indenture. The registrar and the trustee may require a Holder to furnish
appropriate endorsements and transfer documents in connection with a transfer of
New Notes. Holders will be required to pay all taxes due on transfer. Asbury is
not required to transfer or exchange any New Note selected for redemption. Also,
Asbury is not required to transfer or exchange any New Note for a period of
15 days before a selection of New Notes to be redeemed.
SUBSIDIARY GUARANTEES
The New Notes will be guaranteed by each of Asbury's current and future
Domestic Subsidiaries which incurs, has outstanding or guarantees any
Indebtedness. Subject to the conditions described below, the Guarantors will,
jointly and severally, unconditionally guarantee on an unsecured and senior
subordinated basis the performance and punctual payment when due, whether at
stated maturity, by acceleration or otherwise, of all obligations of Asbury
under the indenture and the New Notes, whether for principal, premium, if any,
or interest on the New Notes or otherwise. The Guarantors will also pay, on an
unsecured and senior subordinated basis and in addition to the amount stated
above, any and all expenses (including counsel fees and expenses) incurred by
the trustee under the indenture in enforcing any rights under a Subsidiary
Guarantee with respect to a Guarantor. Each Subsidiary Guarantee will be
subordinated to the prior payment in full of all Senior Debt of that Guarantor
on the same basis as the New Notes are subordinated to the Senior Debt of
Asbury. The obligations of each Guarantor under its Subsidiary Guarantee will be
limited as necessary to prevent that Subsidiary Guarantee from constituting a
fraudulent conveyance under applicable law. See "Risk Factors--Federal and state
statutes allow courts, under specific circumstances, to void guarantees and
require note-holders to return payments received from guarantors." Except as
described below under "Repurchase at the Option of Holders Asset Sales" and
"Certain Covenants", Asbury is not restricted from selling or otherwise
disposing of its direct or indirect Equity Interests in the Guarantors.
A Guarantor may not sell or otherwise dispose of all or substantially all of
its assets to, or consolidate with or merge with or into (whether or not such
Guarantor is the surviving Person), another Person, other than Asbury or another
Guarantor, unless:
(1) immediately after giving effect to that transaction, no Default exists;
and
(2) either:
(a) the Person acquiring the property in any such sale or disposition or
the Person formed by or surviving any such consolidation or merger
assumes all the obligations of that Guarantor under the indenture,
its Subsidiary Guarantee and the registration rights agreement
pursuant to a supplemental indenture satisfactory to the trustee and
completes all other required documentation; or
(b) the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the indenture.
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The Subsidiary Guarantee of a Guarantor will be released and the Guarantor
released of all obligations under its Guarantee:
(1) in connection with any sale or other disposition of all or substantially
all of the assets of that Guarantor (including by way of merger or
consolidation) to a Person that is not (either before or after giving
effect to such transaction) a Restricted Subsidiary of Asbury, if the
sale or other disposition complies with the "Asset Sale" provisions of
the indenture;
(2) in connection with any sale of all of the Capital Stock of a Guarantor
to a Person that is not (either before or after giving effect to such
transaction) a Restricted Subsidiary of Asbury, if the sale complies with
the "Asset Sale" provisions of the indenture;
(3) upon the Legal Defeasance or Covenant Defeasance of the notes in
accordance with the terms of the indenture; or
(4) if Asbury designates such Guarantor as an Unrestricted Subsidiary in
accordance with the applicable provisions of the indenture.
See "Repurchase at the Option of Holders Asset Sales", "Legal Defeasance and
Covenant Defeasance" and "Designation of Restricted and Unrestricted
Subsidiaries."
SUBORDINATION
SENIOR DEBT VERSUS NEW NOTES
The payment of principal, interest and premium and Special Interest, if any,
on the New Notes will be subordinated to the prior payment in full of all Senior
Debt of Asbury, including Senior Debt incurred after the date of the indenture.
The holders of Senior Debt will be entitled to receive payment in full of
all Obligations due in respect of Senior Debt (including interest after the
commencement of any bankruptcy proceeding at the rate specified in the
applicable Senior Debt) before the Holders of New Notes will be entitled to
receive any payment with respect to the New Notes (except that Holders of New
Notes may receive and retain Permitted Junior Securities and payments made from
the trust, if any, as described under "Legal Defeasance and Covenant Defeasance"
to the extent permitted thereby), in the event of any distribution to creditors
of Asbury:
(1) in a liquidation or dissolution of Asbury;
(2) in a bankruptcy, reorganization, insolvency, receivership or similar
proceeding relating to Asbury or its property;
(3) in an assignment for the benefit of creditors; or
(4) in any marshaling of Asbury's assets and liabilities.
LIABILITIES OF SUBSIDIARIES VERSUS NEW NOTES
As of the date of the Indenture, all of our Subsidiaries (except for one
immaterial Subsidiary) are guaranteeing the New Notes. However, not all of our
future Subsidiaries will be obligated to guarantee the notes. Claims of
creditors of such non-guarantor Subsidiaries, including trade creditors holding
indebtedness or guarantees issued by such non-guarantor Subsidiaries, generally
will effectively have priority with respect to the assets and earnings of such
non-guarantor Subsidiaries over the claims of our creditors, including holders
of the New Notes, even if such claims do not constitute Senior Debt.
Accordingly, the New Notes will be effectively subordinated to creditors
(including trade creditors) and preferred stockholders, if any, of such
non-guarantor Subsidiaries. Moreover, the indenture does not impose any
limitation on the incurrence by such Subsidiaries of liabilities that are not
considered
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Indebtedness or preferred stock under the indenture. See "Certain Covenants
Certain Covenants Incurrence of Indebtedness and Issuance of Preferred Stock."
OTHER SENIOR SUBORDINATED INDEBTEDNESS VERSUS NEW NOTES
Only Indebtedness of Asbury or any of its Subsidiaries that is Senior Debt
of such Person will rank senior to the New Notes or the relevant Subsidiary
Guarantee, as the case may be, in accordance with the provisions of the
indenture. The New Notes and each Subsidiary Guarantee will in all respects rank
PARI PASSU with all other Senior Subordinated Indebtedness of Asbury and the
relevant Subsidiary, respectively.
Asbury and the Guarantors have agreed in the indenture that Asbury and such
Guarantors will not incur, directly or indirectly, any Indebtedness that is
contractually subordinate or junior in right of payment to Asbury' Senior Debt,
or the Senior Debt of such Guarantors, unless such Indebtedness is Senior
Subordinated Indebtedness of such Person or is expressly subordinated in right
of payment to Senior Subordinated Indebtedness of such Person. The indenture
does not treat unsecured Indebtedness as subordinated or junior to Secured
Indebtedness merely because it is unsecured.
Asbury also may not make any payment in respect of the New Notes (except in
the form of Permitted Junior Securities or from the trust described under "Legal
Defeasance and Covenant Defeasance" when permitted thereby) if:
(1) a payment default on Designated Senior Debt occurs and is continuing
beyond any applicable grace period; or
(2) any other default occurs and is continuing on any series of Designated
Senior Debt that permits holders of that series of Designated Senior Debt
to accelerate its maturity, and the trustee receives a notice of such
default (a "Payment Blockage Notice") from Asbury or the holders of any
Designated Senior Debt.
Payments on the New Notes will be resumed at the first to occur of the
following:
(1) in the case of a payment default, upon the date on which such default is
cured or waived; and
(2) in the case of a nonpayment default, upon the earlier of the date on
which such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is received, unless
the maturity of any Designated Senior Debt has been accelerated.
No new Payment Blockage Notice may be delivered unless and until:
(1) 360 days have elapsed since the delivery of the immediately prior
Payment Blockage Notice; and
(2) all scheduled payments of principal, interest and premium and Special
Interest, if any, on the New Notes that have come due have been paid in
full in cash.
The failure to make any payment on the New Notes by reason of the
subordination provisions of the indenture will not be construed as preventing
the occurrence of an Event of Default with respect to the New Notes by reason of
the failure to make a required payment. Upon termination of any period of
payment blockage, Asbury will be required to resume making any and all required
payments under the New Notes, including any missed payments. No nonpayment
default that existed or was continuing on the date of delivery of any Payment
Blockage Notice to the trustee will be, or be made, the basis for a subsequent
Payment Blockage Notice.
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If the trustee or any Holder of the New Notes receives a payment in respect
of the New Notes (except in Permitted Junior Securities or from the trust
described under "Legal Defeasance and Covenant Defeasance") when:
(1) the payment is prohibited by these subordination provisions; and
(2) the trustee or the Holder has actual knowledge that the payment is
prohibited;
the trustee or the Holder, as the case may be, will hold the payment in trust
for the benefit of the holders of Senior Debt. Upon the proper written request
of the holders of Senior Debt, the trustee or the Holder, as the case may be,
will deliver the amounts in trust to the holders of Senior Debt or their proper
representative.
Asbury must promptly notify holders of Senior Debt if payment of the notes
is accelerated because of an Event of Default.
As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or reorganization of Asbury, Holders of New Notes may
recover less ratably than creditors of Asbury who are holders of Senior Debt.
See "Risk Factors--Your right to receive payments on the New Notes is junior to
our existing and future senior indebtedness and the existing and future senior
indebtedness of our guarantors."
"DESIGNATED SENIOR DEBT" MEANS:
(1) any Obligations outstanding under the Credit Agreement and Floor Plan
Facilities; and
(2) after payment in full of all Obligations under the Credit Agreement and
Floor Plan Facilities, any other Senior Debt permitted under the
indenture, the principal amount of which is $25.0 million or more and
that has been designated by Asbury as "Designated Senior Debt."
"PERMITTED JUNIOR SECURITIES" MEANS:
(1) Equity Interests in Asbury or any Guarantor; or
(2) debt securities that are subordinated to all Senior Debt (and any debt
securities issued in exchange for Senior Debt) to substantially the same
extent as, or to a greater extent than, the notes and the Subsidiary
Guarantees are subordinated to Senior Debt under the indenture.
"SENIOR DEBT" MEANS:
(1) all Indebtedness of Asbury or any Guarantor outstanding under Credit
Facilities, and all Hedging Obligations with respect thereto, and under
Floor Plan Facilities;
(2) any other Indebtedness of Asbury or any Guarantor permitted to be
incurred under the terms of the indenture; and
(3) all Obligations with respect to the items listed in the preceding
clauses (1) and (2);
unless, in the case of clauses (1) and (2), the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with or
subordinated in right of payment to the notes or any Subsidiary Guarantee, as
the case may be.
Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
(1) any liability for federal, state, local or other taxes owed or owing by
Asbury;
(2) any intercompany Indebtedness of Asbury or any of its Subsidiaries to
Asbury or any of its Affiliates;
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(3) any trade payables; or
(4) the portion of any Indebtedness that is incurred in violation of the
indenture.
OPTIONAL REDEMPTION
At any time prior to June 15, 2005, Asbury may at its option on any one or
more occasions redeem New Notes (which includes ADDITIONAL Notes, if any) in an
aggregate principal amount not to exceed 35% of the aggregate principal amount
of New Notes (which includes Additional Notes, if any) issued under the
indenture (and any Original Notes issued under the indenture and remaining
outstanding) at a redemption price of 109% of the principal amount, plus accrued
and unpaid interest and Special Interest, if any, to the redemption date, with
the net cash proceeds from one or more Equity Offerings; PROVIDED that:
(1) at least 65% of the aggregate principal amount of New Notes (which
includes Additional Notes, if any) issued under the indenture (and
Original Notes issued under the indenture and remaining outstanding prior
to the redemption) remains outstanding immediately after the redemption
(excluding any notes held by Asbury or any of its Subsidiaries or
Affiliates); and
(2) the redemption occurs within 45 days of the date of the closing of such
Equity Offering.
At any time prior to June 15, 2007, Asbury will be entitled at its option to
redeem all or a portion of the New Notes (and any Original Notes issued under
the indenture and remaining outstanding), upon not less than 30 nor more than
60 days prior notice, at a redemption price equal to 100% of the principal
amount of the New Notes (and any Original Notes issued under the indenture and
remaining outstanding) redeemed plus the Applicable Premium as of, and accrued
and unpaid interest AND Special Interest, if any, to, the date of redemption
(the "Redemption Date").
"APPLICABLE PREMIUM" means, with respect to a New Note or Original Note at
any Redemption Date, the greater of (i) 1.0% of the principal amount of such
note and (ii) the excess of (A) the present value at such time of (1) the
redemption price of such New Note or Original Note at June 15, 2007 (such
redemption price as described in the table below) plus (2) all required INTEREST
payments due on such New Note or Original Note through June 15, 2007 computed,
in both cases, using a discount rate equal to the Treasury Rate plus 50 basis
points, over, (B) the principal amount of such New Note or Original Note.
"TREASURY RATE" means the yield to maturity at a time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15
(519) which has become publicly available at least two business days prior to
the Redemption Date (or, if such Statistical Release is no longer published, any
publicly available source similar market data)) most nearly equal to the period
from the Redemption Date to June 15, 2007, PROVIDED, HOWEVER, that if the period
from the Redemption Date to June 15, 2007 is not equal to the constant maturity
of a United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of a year) from the weekly average yields of United States
Treasury securities for which such yields are given, except that if the period
from the Redemption Date to June 15, 2007 is less than one year, the weekly
average yield on actually traded United States Treasury securities adjusted to a
constant maturity of one year shall be used.
On and after June 15, 2007, Asbury will be entitled at its option to redeem
all or a portion of the New Notes and any Original Notes remaining outstanding
upon not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest (and Special Interest, if any, on Original Notes), if any, on
the New Notes redeemed, to the applicable redemption date (subject to the right
of Holders of record on
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the relevant record date to receive interest due on the relevant interest
payment date), if redeemed during the twelve-month period beginning on June 15
of the years indicated below:
<Table>
<Caption>
YEAR PERCENTAGE
- ---- ----------
2007........................................................ 104.50%
2008........................................................ 103.00%
2009........................................................ 101.50%
2010 and thereafter......................................... 100.00%
</Table>
SELECTION AND NOTICE
If less than all of the New Notes and any Original Notes remaining
outstanding are to be redeemed in connection with any redemption, the trustee
will select New Notes and any Original Notes remaining outstanding (or portions
of notes) for redemption as follows:
(1) if the New Notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the New Notes are listed; or
(2) if the New Notes are not listed on any national securities exchange, on
a pro rata basis, by lot or by such method as the trustee deems fair and
appropriate.
No New Notes of $1,000 or less can be redeemed in part. Notices of
redemption will be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder of New Notes to be redeemed at
its registered address, except that redemption notices may be mailed more than
60 days prior to a redemption date if the notice is issued in connection with a
defeasance of the notes or a satisfaction and discharge of the indenture.
Notices of redemption may not be conditional.
If any New Note is to be redeemed in part only, the notice of redemption
that relates to that New Note will state the portion of the principal amount of
that New Note that is to be redeemed. A new New Note in principal amount equal
to the unredeemed portion of the original New Note will be issued in the name of
the Holder of New Notes upon cancellation of the original New Note. New Notes
called for redemption become due on the date fixed for redemption. On and after
the redemption date, interest will cease to accrue on notes or portions of them
called for redemption.
NO MANDATORY REDEMPTION OR SINKING FUND
Asbury is not required to make mandatory redemption or sinking fund payments
with respect to the New Notes. However, under certain circumstances, Asbury may
be required to offer to purchase notes as described under the captions
"Repurchase of Notes at the Option of Holders Asset Sales" and "Change of
Control." The indenture does not prohibit Asbury from purchasing notes in the
open market or otherwise at any time and from time to time.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
If a Change of Control occurs, each Holder of New Notes will have the right
to require Asbury to repurchase all or any part (equal to $1,000 or an integral
multiple of $1,000) of that Holder's notes validly tendered pursuant to the
offer described below (the "Change of Control Offer"). The offer price in any
Change of Control Offer will be payable in cash and will be equal to 101% of the
aggregate principal amount of New Notes repurchased plus accrued and unpaid
interest, if any, on the New Notes repurchased, to the date of purchase (the
"Change of Control Payment"). Within thirty days following any Change of
Control, Asbury will mail a notice to each Holder describing the
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transaction or transactions that constitute the Change of Control and offering
to repurchase New Notes on the date specified in the notice (the "Change of
Control Payment Date"), which date will be no earlier than 30 days and no later
than 60 days from the date such notice is mailed, pursuant to the procedures
required by the indenture and described in such notice. Asbury will comply with
the requirements of Section 14(e) of and Rule 14e-1 under the Exchange Act and
any other securities laws and regulations thereunder to the extent those laws
and regulations are applicable in connection with the repurchase of the notes as
a result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the indenture
relating to the Change of Control, Asbury will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the indenture by virtue of such conflict.
On the Change of Control Payment Date, Asbury will, to the extent lawful:
(1) accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of Control
Payment in respect of all New Notes or portions of New Notes properly
tendered; and
(3) deliver or cause to be delivered to the trustee the New Notes properly
accepted together with an officers' certificate stating the aggregate
principal amount of notes or portions of notes being purchased by Asbury.
The paying agent will promptly mail to each Holder of New Notes properly
tendered the Change of Control Payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new New Note equal in principal amount to any unpurchased portion
of the notes surrendered, if any; PROVIDED that each new New Note will be in a
principal amount of $1,000 or an integral multiple of $1,000.
Prior to complying with any of the provisions of this "Change of Control"
covenant, but in any event within 90 days following a Change of Control, Asbury
will either repay all outstanding Senior Debt or obtain the requisite consents,
if any, under all agreements governing outstanding Senior Debt to permit the
repurchase of New Notes required by this covenant. Asbury will publicly announce
the results of the Change of Control Offer on or as soon as practicable after
the Change of Control Payment Date.
The provisions described above that require Asbury to make a Change of
Control Offer following a Change of Control will be applicable whether or not
any other provisions of the indenture are applicable. Except as described above
with respect to a Change of Control, the indenture does not contain provisions
that permit the Holders of the notes to require that Asbury repurchase or redeem
the New Notes in the event of a takeover, recapitalization or other similar
transaction.
Asbury will not be required to make a Change of Control Offer upon a Change
of Control if a third party makes the Change of Control Offer in the manner, at
the times and otherwise in compliance with the requirements set forth in the
indenture applicable to a Change of Control Offer made by Asbury and purchases
all New Notes properly tendered and not withdrawn under the Change of Control
Offer.
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The Change of Control purchase feature of the New Notes may in certain
circumstances make more difficult or discourage a sale or takeover of Asbury
and, thus, the removal of incumbent management. The Change of Control purchase
feature is a result of negotiations between Asbury and the initial purchasers.
We have no present intention to engage in a transaction involving a Change of
Control, although it is possible that we could decide to do so in the future.
Subject to the limitations discussed below, we could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
indenture, but that could increase the amount of Indebtedness outstanding at
such time or otherwise affect our capital structure or credit ratings.
Restrictions on Asbury's ability to incur additional Indebtedness are contained
in the covenants described under "Certain Covenants Incurrence of Indebtedness
and Issuance of Preferred Stock." Such restrictions can only be waived with the
consent of the Holders of a majority in principal amount of the notes then
outstanding. Except for the limitations contained in such covenants, however,
the indenture will not contain any covenants or provisions that may afford
Holders of the New Notes protection in the event of a highly leveraged
transaction.
The definition of Change of Control includes a phrase relating to the direct
or indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of Asbury and its Restricted
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all," there is no precise established
definition of the phrase under applicable law. Accordingly, the ability of a
Holder of New Notes to require Asbury to repurchase its notes as a result of a
sale, lease, transfer, conveyance or other disposition of less than all of the
assets of Asbury and its Restricted Subsidiaries taken as a whole to another
Person or group may be uncertain.
ASSET SALES
Asbury will not, and will not permit any of its Restricted Subsidiaries to,
consummate an Asset Sale unless:
(1) Asbury (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of the Asset Sale at least equal to the fair
market value of the assets or Equity Interests issued or sold or
otherwise disposed of;
(2) the fair market value is determined by Asbury's Board of Directors; and
(3) at least 75% of the consideration received in the Asset Sale by Asbury
or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following will
be deemed to be cash:
(a) any liabilities, as shown on Asbury's or such Restricted Subsidiary's
most recent balance sheet, of Asbury or any Restricted Subsidiary
(other than contingent liabilities and liabilities that are by their
terms subordinated to the notes or any Subsidiary Guarantee) that are
assumed by the transferee of any such assets and the lender releases
Asbury or such Restricted Subsidiary from further liability;
(b) any securities, notes or other obligations received by Asbury or any
such Restricted Subsidiary from such transferee that are promptly
converted by Asbury or such Restricted Subsidiary into cash or Cash
Equivalents, to the extent of the cash or Cash Equivalents received
in that conversion; and
(c) Replacement Assets.
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Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
Asbury or the Restricted Subsidiary, as the case may be, may apply an amount
equal to such Net Proceeds at its option:
(1) to repay any Senior Debt of Asbury or any of its Restricted Subsidiaries
and, if the Senior Debt repaid is revolving credit Indebtedness, to
correspondingly reduce commitments with respect thereto;
(2) to acquire all or substantially all of the assets of, or all of the
Voting Stock of, another Permitted Business;
(3) to make a capital expenditure; or
(4) to acquire other long-term assets that are used or useful in a Permitted
Business.
Pending the final application of any Net Proceeds, Asbury may temporarily
reduce revolving credit borrowings or otherwise invest the Net Proceeds in any
manner that is not prohibited by the indenture.
If any portion of the Net Proceeds from Asset Sales is not applied or
invested as provided in the preceding paragraph, such amount will constitute
"Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds
$10.0 million, Asbury will make an offer to holders of the New Notes (and to
holders of other Senior Subordinated Indebtedness of Asbury designated by
Asbury) to purchase New Notes (and such other Senior Subordinated Indebtedness
of Asbury) pursuant to and subject to the conditions contained in the indenture
(the "Asset Sale Offer"). Asbury will purchase notes tendered pursuant to the
Asset Sale Offer at a purchase price of 100% of their principal amount (or, in
the event such other Senior Subordinated Indebtedness of Asbury was issued with
significant original issue discount, 100% of the accreted value thereof) without
premium, plus accrued but unpaid interest (or, in respect of such other Senior
Subordinated Indebtedness of Asbury, such lesser price, if any, as may be
provided for by the terms of such Senior Subordinated Indebtedness) in
accordance with the procedures (including prorating in the event of
oversubscription) set forth in the indenture (the "Asset Sale Offer Price").
Asbury will be required to complete the Asset Sale Offer no earlier than
30 days and no later than 60 days after notice of the Asset Sale Offer is
provided to the Holders, or such later date as may be required by applicable
law. If the aggregate purchase price of the securities tendered exceeds the Net
Proceeds allotted to their purchase, Asbury will select the securities to be
purchased on a pro rata basis but in round denominations, which in the case of
the notes will be denominations of $1,000 principal amount or multiples thereof.
If any Excess Proceeds remain after consummation of an Asset Sale Offer, Asbury
may use those Excess Proceeds for any purpose not otherwise prohibited by the
indenture. Upon completion of each Asset Sale Offer, the amount of Excess
Proceeds will be reset at zero.
Asbury will comply with the requirements of Section 14(e) of and Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent those laws and regulations are applicable in connection with each
repurchase of New Notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the provisions of
the indenture relating to an Asset Sale Offer, Asbury will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the Asset Sale provisions of the indenture by
virtue of such conflict.
The agreements governing Asbury's outstanding and future Senior Debt could
prohibit Asbury from purchasing any New Notes, and also provide that certain
change of control or asset sale events with respect to Asbury would constitute a
default under these agreements. In the event a Change of Control or Asset Sale
occurs at a time when Asbury is prohibited from purchasing notes, Asbury could
seek the consent of its senior lenders to the purchase of notes or could attempt
to refinance the borrowings that contain such prohibition. If Asbury does not
obtain such a consent or repay such borrowings, Asbury will remain prohibited
from purchasing New Notes. In such case, Asbury's failure
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to purchase tendered New Notes would constitute an Event of Default under the
indenture which would, in turn, likely constitute a default under such Senior
Debt. In such circumstances, the subordination provisions in the indenture would
likely restrict payments to the Holders of New Notes. See "Risk Factors" Your
right to receive payments on the New Notes is junior to our existing and future
senior indebtedness and the existing and future senior indebtedness of our
guarantors."
The provisions under the indenture relating to Asbury's obligation to make
an offer to repurchase the New Notes as a result of a Change of Control or an
Asset Sale may be waived or modified with the written consent of the Holders of
a majority in principal amount of the notes then outstanding.
CERTAIN COVENANTS
RESTRICTED PAYMENTS
Asbury will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly:
(1) declare or pay any dividend on, or make any other payment or
distribution on account of, Asbury's or any of its Restricted
Subsidiaries' Equity Interests (including, without limitation, any
payment in connection with any merger or consolidation involving Asbury
or any of its Restricted Subsidiaries) or to the direct or indirect
holders of Asbury's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or
distributions payable (i) in Equity Interests (other than Disqualified
Stock) of Asbury or (ii) to Asbury or a Restricted Subsidiary;
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation
involving Asbury) any Equity Interests of Asbury or any direct or
indirect parent of Asbury (other than any such Equity Interests owned by
Asbury or any of its Restricted Subsidiaries);
(3) make any payment on or with respect to, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness that is
subordinated to the notes or the Subsidiary Guarantees, except a payment
of interest or principal at the Stated Maturity thereof; or
(4) make any Restricted Investment (all such payments and other actions set
forth in these clauses (1) through (4) above being collectively referred
to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default has occurred and is continuing or would occur as a
consequence of such Restricted Payment;
(2) Asbury would, after giving pro forma effect thereto as if such
Restricted Payment had been made at the beginning of the applicable
four-quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described below under
the caption "Incurrence of Indebtedness and Issuance of Preferred
Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all other
Restricted Payments made by Asbury and its Restricted Subsidiaries after
the date of the indenture (excluding Restricted Payments permitted by
clauses (2), (3) and (4) of the next succeeding paragraph), is less than
the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of Asbury for the period (taken as
one accounting period) from the beginning of the fiscal quarter
during which the notes are initially issued to the end of Asbury's
most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or,
if such Consolidated Net Income for such period is a deficit, less
100% of such deficit), PLUS
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(b) 100% of the aggregate net cash proceeds received by Asbury since the
date of the indenture as a contribution to its common equity capital
or from the issue or sale of Equity Interests of Asbury (other than
Disqualified Stock) or from the issue or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of Asbury that have been converted into or exchanged for
such Equity Interests (other than Equity Interests, Disqualified
Stock or debt securities sold to a Subsidiary of Asbury), plus
(c) to the extent that any Restricted Investment that was made after the
date of the indenture is sold for cash or otherwise liquidated or
repaid, purchased or redeemed for cash, the lesser of (i) such cash
(less the cost of disposition, if any) and (ii) the amount of such
Restricted Investment, plus
(d) to the extent that any Unrestricted Subsidiary of Asbury is
redesignated as a Restricted Subsidiary after the date of the
indenture, the lesser of (i) the fair market value of Asbury's
Investment in such Subsidiary as of the date of such redesignation
and (ii) such fair market value as of the date on which such
Subsidiary was originally designated as an Unrestricted Subsidiary.
So long as no Default has occurred and is continuing or would be caused
thereby (except in the case of clause (1) below), the preceding provisions will
not prohibit:
(1) the payment of any dividend or distribution on, or redemption of, Equity
Interests, within 60 days after the date of declaration of the dividend
or the giving of notice thereof, if, at the date of such declaration or
the giving of such notice the payment would have complied with the
provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other acquisition
of any subordinated Indebtedness of Asbury or any Guarantor or of any
Equity Interests of Asbury, or the making of any Investment, in exchange
for, or out of the net cash proceeds of the substantially concurrent
sale (other than to a Restricted Subsidiary of Asbury) of, or capital
contribution in respect of, Equity Interests of Asbury (other than
Disqualified Stock); provided that the amount of any such net cash
proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition or any such Investment will
be excluded from clause (3)(b) of the preceding paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Asbury or any Guarantor with the net cash
proceeds from an incurrence of Permitted Refinancing Indebtedness;
(4) the payment of any dividend or other payment or distribution by a
Restricted Subsidiary of Asbury to the holders of its Equity Interests
on a pro rata basis;
(5) repurchases of Equity Interests deemed to occur upon exercise of stock
options if those Equity Interests represent all or a portion of the
exercise price of those options;
(6) the repurchase, redemption or other acquisition or retirement for value
of any Equity Interests of Asbury or any Restricted Subsidiary of Asbury
(in the event such Equity Interests are not owned by Asbury or any of
its Restricted Subsidiaries) in an amount not to exceed $2.0 million in
any fiscal year;
(7) the purchase by Asbury of fractional shares arising out of stock
dividends, splits or combinations or business combinations; or
(8) Restricted Payments not to exceed $15.0 million under this clause (8) in
the aggregate, plus, to the extent Restricted Payments made pursuant to
this clause (8) are Investments made by
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Asbury or any of its Restricted Subsidiaries in any Person and such
Investment is sold for cash or otherwise liquidated or repaid, purchased
or redeemed for cash, an amount equal to the lesser of (i) such cash
(less the cost of disposition, if any) and (ii) the amount of such
Restricted Payment, provided, that the amount of such cash will be
excluded from clause (3)(d) of the preceding paragraph.
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by Asbury or such Restricted Subsidiary, as
the case may be, pursuant to the Restricted Payment. The fair market value of
any assets or securities that are required to be valued by this covenant will be
determined by Asbury's Board of Directors.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
Asbury will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect to
(collectively, "incur") any Indebtedness (including Acquired Debt), and Asbury
will not issue any Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock; PROVIDED, HOWEVER, that
Asbury may incur Indebtedness (including Acquired Debt) or issue Disqualified
Stock and Asbury's Restricted Subsidiaries may incur Indebtedness (including
Acquired Debt) or issue preferred stock, in each case, if the Fixed Charge
Coverage Ratio for Asbury's most recently ended four full fiscal quarters for
which internal financial statements are available immediately preceding the date
on which such additional Indebtedness is incurred or such Disqualified Stock or
preferred stock is issued would have been at least 2.0 to 1, determined on a pro
forma basis (including a pro forma application of the net proceeds therefrom),
as if the additional Indebtedness had been incurred or the preferred stock or
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The first paragraph of this covenant will not prohibit the incurrence of any
of the following items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Asbury or any of its Restricted Subsidiaries of
Indebtedness and letters of credit under Credit Facilities, in an
aggregate principal amount at any one time outstanding under this
clause (1) (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of Asbury and its
Restricted Subsidiaries thereunder) not to exceed the greater of:
(a) $550 million LESS the aggregate amount of all Net Proceeds of Asset
Sales applied by Asbury or any of its Restricted Subsidiaries since
the date of the indenture to repay term Indebtedness under a Credit
Facility or to repay revolving credit Indebtedness and effect a
corresponding commitment reduction thereunder, in each case, in
satisfaction of the covenant described above under the caption
"Repurchase at the Option of Holders Asset Sales"; or
(b) 30% of Asbury's Consolidated Net Tangible Assets as of the date of
such incurrence;
(2) the incurrence by Asbury or any of its Restricted Subsidiaries of
Existing Indebtedness;
(3) the incurrence by Asbury or any of its Restricted Subsidiaries of
Indebtedness represented by the Original Notes and the related
Subsidiary Guarantees issued on the date of the indenture and the New
Notes and the related Subsidiary Guarantees to be issued pursuant to the
exchange offer;
(4) the incurrence by Asbury or any of its Restricted Subsidiaries of
Indebtedness under Floor Plan Facilities;
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(5) the incurrence by Asbury or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage
financings or purchase money obligations, in each case, incurred for the
purpose of financing all or any part of the purchase price or cost of
construction or improvement of property, plant or equipment used in the
business of Asbury or such Restricted Subsidiary, in an aggregate
principal amount, including all Permitted Refinancing Indebtedness
incurred to refund or refinance any Indebtedness incurred pursuant to
this clause (5), not to exceed, at any time outstanding, $30 million;
(6) the incurrence by Asbury or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace Indebtedness (other
than intercompany Indebtedness) that was permitted by the indenture to
be incurred under the first paragraph of this covenant or clauses (2),
(3), (5) or (6) of this paragraph;
(7) the incurrence by Asbury or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among Asbury and its Restricted
Subsidiaries; provided, that:
(a) if Asbury or any Guarantor is the obligor on such Indebtedness owing
to a Restricted Subsidiary, such Indebtedness must be expressly
subordinated to the prior payment in full in cash of all Obligations
with respect to the notes, in the case of Asbury, or the Subsidiary
Guarantee, in the case of a Guarantor; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
Asbury or a Restricted Subsidiary of Asbury and (ii) any sale or
other transfer of any such Indebtedness to a Person that is not
either Asbury or a Restricted Subsidiary of Asbury; will be deemed,
in each case, to constitute an incurrence of such Indebtedness by
Asbury or such Restricted Subsidiary, as the case may be, that was
not permitted by this clause (7);
(8) the incurrence by Asbury or any of its Restricted Subsidiaries of
Hedging Obligations in the ordinary course of business and not for
speculative purposes;
(9) the guarantee by Asbury or any of its Restricted Subsidiaries of
Indebtedness of Asbury or a Restricted Subsidiary of Asbury that was
permitted to be incurred by another provision of this covenant;
(10) Indebtedness arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument drawn against
insufficient funds in the ordinary course of business, provided, that
such Indebtedness is extinguished within five Business Days of its
incurrence;
(11) Obligations in respect of performance, bid and surety bonds and
completion guarantees provided by Asbury or any of its Restricted
Subsidiaries related to the construction of vehicle dealerships in the
ordinary course of business; and
(12) the incurrence by Asbury or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) which, when taken together with all other
Indebtedness of Asbury and its Restricted Subsidiaries outstanding on
the date of such incurrence and incurred pursuant to this clause (12),
does not exceed $20 million.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of proposed
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (12) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, Asbury will be permitted to
divide and classify such item of Indebtedness on the date of its incurrence, or
later reclassify all or a portion of such item of Indebtedness, in any manner
that complies with this covenant. Indebtedness under Credit Facilities
outstanding on the date on which notes are first issued and authenticated under
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the indenture will be deemed to have been incurred on such date in reliance on
the exception provided by clause (1) of the definition of Permitted Debt.
Accrual of interest and dividends, accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, changes to amounts outstanding in
respect of Hedging Obligations solely as a result of fluctuations in interest
rates and the payment of dividends on Disqualified Stock or preferred stock in
the form of additional shares of the same class of Disqualified Stock or
preferred stock will not be deemed to be an incurrence of Indebtedness or an
issuance of Disqualified Stock or preferred stock for purpose of this covenant.
ANTI-LAYERING
Asbury will not incur, create, issue, assume, guarantee or otherwise become
liable for any Indebtedness that is subordinate or junior in right of payment to
any Senior Debt of Asbury and senior in any respect in right of payment to the
notes. No Guarantor will incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to the Senior Debt of such Guarantor and senior in any respect in right
of payment to such Guarantor's Subsidiary Guarantee.
LIENS
Asbury will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create, incur, assume or suffer to exist any Lien of any
kind securing Indebtedness or Attributable Debt on any asset now owned or
hereafter acquired, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES
Asbury will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, create or permit to exist or become effective any
consensual encumbrance or restriction on the ability of any of its Restricted
Subsidiaries to:
(1) pay dividends or make any other distributions on its Capital Stock to
Asbury or any of its Restricted Subsidiaries, or with respect to any
other interest or participation in, or measured by, its profits, or pay
any indebtedness owed to Asbury or any of its Restricted Subsidiaries;
(2) make loans or advances to Asbury or any of its Restricted Subsidiaries;
or
(3) transfer any of its properties or assets to Asbury or any of its
Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) any agreement in effect or entered into on the date of the indenture,
including agreements governing Existing Indebtedness, Credit Facilities
and Floor Plan Facilities as in effect on the date of the indenture and
any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of those
agreements, provided that the amendments, modifications, restatements,
renewals, increases, supplements, refundings, replacement or
refinancings of such instrument are no more restrictive, taken as a
whole, with respect to such dividend and other payment restrictions
than those contained in such agreement on the date of the indenture;
(2) the indenture, the Original Notes, the New Notes and the Subsidiary
Guarantees;
(3) applicable law and any applicable rule, regulation or order;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Asbury or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the
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extent such Indebtedness or Capital Stock was incurred in connection
with or in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets
of the Person, so acquired, provided that, in the case of Indebtedness,
such Indebtedness was permitted by the terms of the indenture to be
incurred;
(5) customary non-assignment provisions in leases entered into in the
ordinary course of business;
(6) purchase money obligations for property acquired that impose
restrictions on the transfer of that property of the nature described
in clause (3) of the preceding paragraph; provided that any such
encumbrance or restriction is released to the extent the underlying
Lien is released or the related Indebtedness is repaid;
(7) any agreement for the sale or other disposition of assets, including,
without limitation, customary restrictions with respect to a Subsidiary
pursuant to an agreement that has been entered into for the sale or
disposition of substantially all of the Capital Stock or substantially
all of the assets of that Subsidiary;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are no more restrictive, taken as a whole, than those
contained in the agreements governing the Indebtedness being
refinanced;
(9) Liens that limit the right of the debtor to dispose of the assets
subject to such Liens;
(10) covenants in a franchise or other agreement entered into in the
ordinary course of business with a Manufacturer customary for franchise
agreements in the vehicle retailing industry;
(11) customary provisions in joint venture agreements, asset sale
agreements, stock sale agreements and other similar agreements entered
into in the ordinary course of business; and
(12) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of
business.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Asbury may not, directly or indirectly: (1) consolidate or merge with or
into another Person (whether or not Asbury is the surviving corporation); or
(2) sell, assign, transfer, convey or otherwise dispose of all or substantially
all of the properties or assets of Asbury and its Restricted Subsidiaries taken
as a whole, in one or more related transactions, to another Person; unless:
(1) either: (a) Asbury is the surviving corporation; or (b) the Person
formed by or surviving any such consolidation or merger (if other than
Asbury) or to which such sale, assignment, transfer, conveyance or other
disposition has been made is a corporation organized or existing under
the laws of the United States, any state of the United States or the
District of Columbia (any such Person, the "Successor Company");
(2) the Successor Company assumes all the obligations of Asbury under the
New Notes, any Original Notes, the indenture and the registration rights
agreement pursuant to agreements reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default exists; and
(4) Asbury or the Successor Company will, on the date of such transaction
after giving pro forma effect thereto and any related financing
transactions as if the same had occurred at the beginning of the
applicable four-quarter period, be permitted to incur at least $1.00 of
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additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant described above under
the caption "Incurrence of Indebtedness and Issuance of Preferred Stock."
The foregoing clause (4) will not prohibit (a) a merger between Asbury and
any of its Restricted Subsidiaries or (b) a merger between Asbury and an
Affiliate with no liabilities (other than DE MINIMIS liabilities); provided that
the Affiliate is incorporated and the merger undertaken solely for the purpose
of reincorporating Asbury in another state of the United States, so long as the
amount of Indebtedness of Asbury and its Restricted Subsidiaries is not
increased thereby.
In addition, Asbury may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. This "Merger, Consolidation or Sale of
Assets" covenant will not apply to a sale, assignment, transfer, conveyance or
other disposition of assets between or among Asbury and any of the Guarantors.
The Successor Company will be the successor to Asbury and shall succeed to,
and be substituted for, and may exercise every right and power of, Asbury under
the indenture, and the predecessor company, in the case of a merger,
consolidation or sale of all of Asbury's assets, shall be released from its
obligations with respect to the notes, including with respect to its obligation
to pay the principal of and interest and Special Interest, if any, on the notes.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIES
The Board of Directors may designate any Restricted Subsidiary of Asbury to
be an Unrestricted Subsidiary if no Default has occurred and is continuing at
the time of the designation and if that designation would not cause a Default.
If a Restricted Subsidiary of Asbury is designated as an Unrestricted
Subsidiary, the aggregate fair market value of all outstanding Investments owned
by Asbury and its Restricted Subsidiaries in the Subsidiary properly designated
will be deemed to be an Investment made as of the time of the designation and
will reduce the amount available for Restricted Payments under the first
paragraph of the covenant described above under the caption "Restricted
Payments" or Permitted Investments, as determined by Asbury. That designation
will only be permitted if the Investment would be permitted at that time and if
the Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. In addition, no such designation may be made unless the proposed
Unrestricted Subsidiary does not own any Capital Stock in any Restricted
Subsidiary that is not simultaneously subject to designation as an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if the redesignation would not cause a Default.
TRANSACTIONS WITH AFFILIATES
Asbury will not, and will not permit any of its Restricted Subsidiaries to,
make any payment to, or sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
or make or amend any transaction, contract, agreement, understanding, loan,
advance or guarantee with, or for the benefit of, any Affiliate (each, an
"Affiliate Transaction"), unless:
(1) the Affiliate Transaction is on terms that are not materially less
favorable to Asbury or the relevant Restricted Subsidiary than those that
would have been obtained in a comparable transaction by Asbury or such
Restricted Subsidiary with an unrelated Person; and
(2) Asbury delivers to the trustee:
(a) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, a resolution of the Board of Directors set forth in an
officers' certificate certifying that such Affiliate Transaction
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complies with this covenant and that such Affiliate Transaction has
been approved by a majority of the disinterested members of the Board
of Directors; and
(b) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of
$15.0 million, an opinion as to the fairness to the Holders of such
Affiliate Transaction from a financial point of view issued by an
accounting, appraisal or investment banking firm of national
standing.
Notwithstanding the foregoing, the following items will not be deemed to be
Affiliate Transactions and, therefore, will not be subject to the provisions of
the prior paragraph:
(1) any employment agreement entered into by Asbury or any of its Restricted
Subsidiaries in the ordinary course of business of Asbury or such
Restricted Subsidiary;
(2) transactions between or among Asbury and/or its Restricted Subsidiaries;
(3) transactions with a Person that is an Affiliate of Asbury solely because
Asbury owns an Equity Interest in, or controls, such Person;
(4) payment of reasonable directors fees;
(5) issuances or sales of Equity Interests (other than Disqualified Stock)
to Affiliates of Asbury;
(6) the pledge of Equity Interests of Unrestricted Subsidiaries to support
the Indebtedness thereof; and
(7) Restricted Payments that are permitted by the provisions of the
indenture described above under the caption "Restricted Payment."
ADDITIONAL SUBSIDIARY GUARANTEES
Any Domestic Subsidiary of Asbury which incurs, has outstanding or
guarantees any Indebtedness will, simultaneously with such incurrence or
guarantee (or, if the Domestic Subsidiary has outstanding or guarantees
Indebtedness at the time of its creation or acquisition, at the time of such
creation or acquisition), become a Guarantor and execute and deliver to the
trustee a supplemental indenture pursuant to which such Subsidiary will agree to
guarantee Asbury's obligations under the notes; PROVIDED, HOWEVER, that all
Subsidiaries that have properly been designated as Unrestricted Subsidiaries in
accordance with the indenture for so long as they continue to constitute
Unrestricted Subsidiaries will not have to comply with the requirements of this
covenant.
PAYMENTS FOR CONSENT
Asbury will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration to or for the
benefit of any Holder of New Notes or Original Notes for or as an inducement to
any consent, waiver or amendment of any of the terms or provisions of the
indenture or the notes unless such consideration is offered to be paid and is
paid to all Holders of the notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
REPORTS
Whether or not required by the SEC, so long as any notes are outstanding,
Asbury will furnish to the Holders of notes, within the time periods specified
in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be reuired to
be contained in a filing with the SEC on Forms 10-Q and 10-K if Asbury
were required to file such Forms, including a "Management's Discussion
and Analysis of Financial Condition and Results of Operations"
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and, with respect to the annual information only, a report on the annual
financial statements by Asbury's certified independent accountants; and
(2) all current reports that would be required to be filed with the SEC on
Form 8-K if Asbury were required to file such reports.
In addition, following the consummation of the exchange offer contemplated
by the registration rights agreement, whether or not required by the SEC, Asbury
will file a copy of all of the information and reports referred to in clauses
(1) and (2) above with the SEC for public availability within the time periods
specified in the SEC's rules and regulations (unless the SEC will not accept
such a filing) and make such information available to securities analysts and
prospective investors upon request. In addition, Asbury and the Guarantors have
agreed that, for so long as any notes remain outstanding, they will furnish to
the Holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
If Asbury has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph will include a reasonably detailed presentation, either
on the face of the financial statements or in the footnotes thereto, and in
Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of Asbury and
its Restricted Subsidiaries separate from the financial condition and results of
operations of the Unrestricted Subsidiaries of Asbury.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default for 30 days in the payment when due of interest on, or Special
Interest with respect to, the notes whether or not prohibited by the
subordination provisions of the indenture;
(2) default in payment when due of the principal of, or premium, if any, on
the notes, whether or not prohibited by the subordination provisions of
the indenture;
(3) failure by Asbury to comply with the provisions described under the
caption "Certain Covenants Merger, Consolidation or Sale of Assets";
(4) failure by Asbury or any of its Restricted Subsidiaries to comply for
30 days after receipt of notice with the provisions described under the
captions "Repurchase at the Option of Holders Change of Control,"
"Repurchase at the Option of Holders Asset Sales," or "Certain Covenants
Restricted Payments," "Certain Covenants Incurrence of Indebtedness and
Issuance of Preferred Stock";
(5) failure by Asbury or any of its Restricted Subsidiaries to comply for
60 days after receipt of notice with any of the other agreements in the
indenture;
(6) default under any mortgage, indenture or instrument under which there
may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by Asbury or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by Asbury or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the indenture, if that default:
(a) is caused by a failure to pay principal at its stated maturity after
giving effect to any applicable grace period provided in such
Indebtedness (a "Payment Default"); or
(b) results in the acceleration of such Indebtedness prior to its express
maturity,
and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $15.0 million or more;
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(7) failure by Asbury or any of its Restricted Subsidiaries to pay final
judgments aggregating in excess of $15.0 million, which judgments are
not paid, discharged or stayed for a period of 60 days;
(8) except as permitted by the indenture, any Subsidiary Guarantee shall be
held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any Guarantor, or
any Person acting on behalf of any Guarantor, shall deny or disaffirm
its obligations under its Subsidiary Guarantee; and
(9) certain events of bankruptcy or insolvency described in the indenture
with respect to Asbury or any of its Restricted Subsidiaries.
However, a default under clauses (4) or (5) will not constitute an Event of
Default until the trustee or the holders of 25% in aggregate principal amount of
the outstanding notes notify Asbury of the default and Asbury does not cure such
default within the time specified after receipt of such notice. In the case of
an Event of Default arising from certain events of bankruptcy or insolvency,
with respect to Asbury, any Restricted Subsidiary that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding notes will become due and
payable immediately without further action or notice. If any other Event of
Default occurs and is continuing, the trustee or the Holders of at least 25% in
aggregate principal amount of the then outstanding notes may declare all the
notes to be due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, Holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from Holders of the
notes notice of any continuing Default if it determines that withholding notes
is in their interest, except a Default relating to the payment of principal or
interest or Special Interest.
The Holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the Holders of all of the
notes waive any existing Default and its consequences under the indenture except
a continuing Default in the payment of interest or Special Interest on, or the
principal of, the notes (other than the non-payment of principal of or interest
or Special Interest, if any, on the notes that became due solely because of the
acceleration of the notes).
In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of Asbury with the
intention of avoiding payment of the premium that Asbury would have had to pay
if Asbury then had elected to redeem the notes pursuant to the optional
redemption provisions of the indenture, an equivalent premium will also become
and be immediately due and payable to the extent permitted by law upon the
acceleration of the notes.
A Default under the notes, unless cured or waived, could trigger
manufacturer rights to acquire certain of our dealerships. See "Risk Factors.
"If we fail to obtain renewals of one or more of our franchise agreements on
favorable terms, if substantial franchises are terminated, or if certain
manufacturers' rights under their agreements with us are triggered, our
operations could be significantly compromised."
Asbury is required to deliver to the trustee within 90 days after the end of
each fiscal year a statement regarding compliance with the indenture during such
fiscal year. Immediately upon becoming aware of any Default or Event of Default,
Asbury is required to deliver to the trustee a statement specifying such
Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of Asbury or any
Guarantor, as such, will have any liability for any obligations of Asbury or the
Guarantors under the notes, the indenture,
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the Subsidiary Guarantees, or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each Holder of notes by accepting
a note waives and releases all such liability. The waiver and release are part
of the consideration for issuance of the notes. The waiver may not be effective
to waive liabilities under the federal securities laws and it is the view of the
SEC that such waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Asbury may, at its option and at any time, elect to terminate all of the
obligations of itself and the Guarantors with respect to the notes and the
indenture ("Legal Defeasance") except for:
(1) the rights of Holders to receive payments in respect of the principal
of, or interest or premium and Special Interest, if any, on such notes
when such payments are due from Defeasance Trust (as defined below);
(2) Asbury's obligations to issue temporary notes, register the transfer or
exchange of notes, to replace mutilated, destroyed, lost or stolen notes
and to maintain a registrar and paying agent in respect of the notes;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
the related obligations of Asbury and the Guarantors; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Asbury may, at its option and at any time, elect to have the
obligations of Asbury and the Guarantors released with respect to certain
covenants that are described in the indenture ("Covenant Defeasance") and
thereafter any omission to comply with those covenants will not constitute a
Default or Event of Default with respect to the New Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, rehabilitation and insolvency events with respect to Asbury)
described under "Events of Default and Remedies" will no longer constitute an
Event of Default with respect to the notes.
If Asbury exercises its Legal Defeasance option, each Guarantor will be
released from all of its obligations with respect to its Guarantee.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Asbury must irrevocably deposit with the trustee, in trust (the
"Defeasance Trust"), for the benefit of the Holders of the notes, cash
in U.S. dollars, non-callable Government Securities, or a combination of
cash in U.S. dollars and non-callable Government Securities, in amounts
as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants, to pay the principal of, or interest and
premium and Special Interest, if any, on the outstanding notes on the
stated maturity or on the applicable redemption date, as the case may
be, and Asbury must specify whether the notes are being defeased to
maturity or to a particular redemption date;
(2) in the case of Legal Defeasance only, Asbury must deliver to the trustee
an opinion of counsel reasonably acceptable to the trustee confirming
that (a) Asbury has received from, or there has been published by, the
Internal Revenue Service a ruling or (b) since the date of the
indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such opinion
of counsel will confirm that, the Holders of the outstanding notes will
not recognize income, gain or loss for federal income tax purposes as a
result of such Legal Defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred;
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(3) in the case of Covenant Defeasance, Asbury must deliver to the trustee
an opinion of counsel reasonably acceptable to the trustee confirming
that the Holders of the outstanding notes will not recognize income,
gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(4) no Default has occurred and is continuing on the date of such deposit
(other than a Default resulting from the borrowing of funds to be
applied to such deposit);
(5) such Legal Defeasance or Covenant Defeasance will not result in a breach
or violation of, or constitute a default under any material agreement or
instrument (other than the indenture) to which Asbury or any of its
Restricted Subsidiaries is a party or by which Asbury or any of its
Restricted Subsidiaries is bound;
(6) Asbury must deliver to the trustee an officers' certificate stating that
the deposit was not made by Asbury with the intent of preferring the
Holders of New Notes over the other creditors of Asbury with the intent
of defeating, hindering, delaying or defrauding creditors of Asbury or
others; and
(7) Asbury must deliver to the trustee an officers' certificate and an
opinion of counsel, each stating that all conditions precedent relating
to the Legal Defeasance or the Covenant Defeasance have been complied
with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next three succeeding paragraphs, the indenture or
the notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting Holder):
(1) reduce the principal amount of notes whose Holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note or
alter the provisions with respect to the redemption of the notes (other
than provisions relating to the covenants described above under the
caption "Repurchase at the Option of Holders");
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of, or
interest or premium, or Special Interest, if any, on the notes (except a
rescission of acceleration of the notes by the Holders of at least a
majority in aggregate principal amount of the notes and a waiver of the
payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to waivers
of past Defaults or the rights of Holders of notes to receive payments
of principal of, or interest or premium or Special Interest, if any, on
the notes;
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(7) waive a redemption payment with respect to any note (other than a
payment required by one of the covenants described above under the
caption "Repurchase at the Option of Holders");
(8) release any Guarantor from any of its obligations under its Subsidiary
Guarantee or the indenture, except in accordance with the terms of the
indenture; or
(9) make any change in the preceding amendment and waiver provisions.
In addition, any amendment to, or waiver of, the provisions of the indenture
relating to subordination that adversely affects the rights of the Holders of
the notes will require the consent of the Holders of at least 75% in aggregate
principal amount of notes then outstanding.
Notwithstanding the foregoing, without the consent of any Holder of notes,
Asbury, the Guarantors and the trustee may amend or supplement the indenture or
the notes:
(1) to cure any ambiguity, defect or inconsistency or to make a modification
of a formal, minor or technical nature or to correct a manifest error;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Asbury's or any Guarantor's obligations
to Holders of notes in the case of a merger or consolidation or sale of
all or substantially all of Asbury's assets;
(4) to add Guarantees with respect to the notes or to secure the notes;
(5) to add to the covenants of Asbury or any Guarantor for the benefit of
the Holders of the notes or surrender any right or power conferred upon
Asbury or any Guarantor;
(6) to make any change that would provide any additional rights or benefits
to the Holders of notes or that does not adversely affect the legal
rights under the indenture of any such Holder;
(7) to comply with requirements of the SEC in connection with the
qualification of the indenture under the Trust Indenture Act;
(8) to evidence and provide for the acceptance and appointment under the
indenture of a successor trustee pursuant to the requirements thereof;
or
(9) to provide for the issuance of New Notes.
However, no amendment may be made to (A) the subordination provisions of the
indenture or (B) the conditions precedent to Legal Defeasance and Covenant
Defeasance described in clause (5) under the caption "Legal Defeasance and
Covenant Defeasance," in each case, that adversely affects the rights of any
holder of Senior Debt of Asbury or a Guarantor then outstanding unless the
holders of such Senior Debt (or their representative) consents to such change.
The consent of the Holders is not necessary under the indenture to approve
the particular form of any proposed amendment. It is sufficient if such consent
approves the substance of the proposed amendment.
After an amendment under the indenture becomes effective, we are required to
mail to holders of the New Notes a notice briefly describing such amendment.
However, the failure to give such notice to all holders of the notes, or any
defect therein, will not impair or affect the validity of the amendment.
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SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder, when:
(1) either:
(a) all notes that have been authenticated, except lost, stolen or
destroyed notes that have been replaced or paid and notes for whose
payment money has been deposited in trust and thereafter repaid to
Asbury, have been delivered to the trustee for cancellation; or
(b) all notes that have not been delivered to the trustee for
cancellation have become due and payable by reason of the mailing of
a notice of redemption or otherwise or will become due and payable
within one year and Asbury or any Guarantor has irrevocably deposited
or caused to be deposited with the trustee as trust funds in trust
solely for the benefit of the Holders, cash in U.S. dollars,
non-callable Government Securities, or a combination of cash in U.S.
dollars and non-callable Government Securities, in amounts as will be
sufficient without consideration of any reinvestment of interest, to
pay and discharge the entire indebtedness on the notes not delivered
to the trustee for cancellation for principal, premium and Special
Interest, if any, and accrued interest to the date of maturity or
redemption;
(2) no Default or Event of Default has occurred and is continuing on the
date of the deposit or will occur as a result of the deposit and the
deposit will not result in a breach or violation of, or constitute a
default under, any other instrument to which Asbury or any Guarantor is
a party or by which Asbury or any Guarantor is bound;
(3) Asbury or any Guarantor has paid or caused to be paid all sums payable
by it under the indenture; and
(4) Asbury has delivered irrevocable instructions to the trustee under the
indenture to apply the deposited money toward the payment of the notes
at maturity or the redemption date, as the case may be.
In addition, Asbury must deliver an officers' certificate and an opinion of
counsel to the trustee stating that all conditions precedent to satisfaction and
discharge have been satisfied.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of Asbury or any Guarantor, the indenture
limits its right to obtain payment of claims in certain cases, or to realize on
certain property received in respect of any such claim as security or otherwise.
The trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within
90 days, apply to the SEC for permission to continue or resign. If the trustee
fails to either eliminate the conflicting interest, obtain permission or resign
within 10 days of the expiration of the 90 day period, the trustee is required
to notify the Holders to this effect and any Holder that has been a bona fide
holder for at least six months may petition a court to remove the trustee and
appoint a successor trustee.
The Holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
occurs and is continuing, the trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
Holder of notes, unless such Holder has offered to the trustee security and
indemnity satisfactory to it against any loss, liability or expense.
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ADDITIONAL INFORMATION
Anyone who receives this prospectus may obtain a copy of the indenture and
registration rights agreement without charge by writing to Asbury Automotive
Group, Inc., 3 Landmark Square, Suite 500, Stamford, Connecticut, 06901,
Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
RULE 144A AND REGULATION S NOTES
The Original Notes were offered and sold to qualified institutional buyers
in reliance on Rule 144A ("Rule 144A Notes"). Original Notes also may be offered
and sold in offshore transactions in reliance on Regulation S ("Regulation S
Notes"). Except as set forth below, notes were issued in registered, global form
in minimum denominations of $1,000 and integral multiples of $1,000. Original
Notes were issued only against payment in immediately available funds.
Rule 144A Notes initially will be represented by one or more notes in
registered, global form without interest coupons (collectively, the "Restricted
Global Notes") and will be deposited with the trustee as custodian for The
Depository Trust Company ("DTC"), in New York, New York, and registered in the
name of DTC or its nominee. The Restricted Global Notes (and any notes issued in
exchange therefor), including beneficial interests in the Restricted Global
Notes, will be subject to certain restrictions on transfer set forth therein and
in the indenture and will bear the legend regarding such restrictions set forth
under "Notice to Investors."
Regulation S Notes will be initially represented by global notes in fully
registered form without interest coupons (collectively the "Temporary
Regulation S Global Notes") registered in the name of a nominee of DTC and
deposited with the trustee, for the accounts of the Euroclear System
("Euroclear") and Clearstream (formerly known as Cedelbank) ("Clearstream").
When the Restricted Period (as defined below) terminates the trustee will
exchange the portion of the Temporary Regulation S Global Notes for interests in
Regulation S Global Notes (the "Regulation S Global Notes" and, together with
the Restricted Global Notes, the "Global Notes" or each individually, a "Global
Note"). Until the 40th day after the latest of the commencement of the offering
and the original issue date of the notes (such period, the "Restricted Period"),
beneficial interests in the Temporary Regulation S Global Notes may be held only
through Euroclear or Clearstream, unless delivery is made through the Restricted
Global Notes in accordance with the certification requirements described below.
After the Restricted Period, beneficial interests in the Regulation S Global
Notes may be held through other organizations participating in the DTC system.
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for notes
in certificated form except in the limited circumstances described below. See
"Exchange of Book-Entry Notes for Certificated Notes." In addition, beneficial
interests in Restricted Global Notes may not be exchanged for beneficial
interests in the Regulation S Global Note or vice versa except in accordance
with the transfer and certification requirements described below under
"Exchanges Between the Restricted Global Notes and the Regulation S Global
Notes."
EXCHANGES BETWEEN THE RESTRICTED GLOBAL NOTES AND THE REGULATION S GLOBAL
NOTES
Beneficial interests in the Restricted Global Notes may be exchanged for
beneficial interests in the Regulation S Global Notes and vice versa only in
connection with a transfer of such interest. Such transfers are subject to
compliance with the certification requirements described below.
Prior to the expiration of the Restricted Period, a beneficial interest in a
Temporary Regulation S Global Note may be transferred to a person who takes
delivery in the form of an interest in the
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Restricted Global Notes only upon receipt by the trustee of a written
certification from the transferor (in the form provided in the indenture) to the
effect that such transfer is being made to a person who the transferor
reasonably believes is purchasing for its own account or accounts as to which it
exercises sole investment discretion and that such person is a QIB, in each case
in a transaction meeting the requirements of Rule 144A and in accordance with
any applicable securities laws of any state of the United States or any other
jurisdiction (a "Restricted Global Note Certificate"). After the expiration of
the Restricted Period, such certification requirements will not apply to such
transfers of beneficial interests in the Regulation S Global Notes.
Beneficial interests in the Restricted Global Note may be transferred to a
person who takes delivery in the form of an interest in a Temporary
Regulation S Global Note only upon receipt by the trustee of a written
certification from the transferor (in the form provided in the indenture) to the
effect that such transfer is being made in accordance with Rule 903 or Rule 904
of Regulation S, in the case of an exchange for an interest in the Temporary
Regulation S Global Note, or in accordance with Rule 903 or 904 of
Regulation S, or, if available, Rule 144, in the case of an exchange for an
interest in the Regulation S Global Note (a "Regulation S Global Note
Certificate") and that, if such transfer occurs prior to the expiration of the
Restricted Period, the interest transferred will be held immediately thereafter
through Euroclear or Clearstream.
Any beneficial interest in one of the Global Notes that is transferred to a
person who takes delivery in the form of an interest in another Global Note
will, upon transfer, cease to be an interest in such Global Note and will become
an interest in another Global Note and, accordingly, will thereafter be subject
to all transfer restrictions and other procedures applicable to beneficial
interests in such other Global Note for as long as it remains such an interest.
Any exchange of a beneficial interest in a Regulation S Global Note or a
Temporary Regulation S Global Note for a beneficial interest in the Restricted
Global Note will be effected through DTC by means of an instruction originated
by the trustee through the DTC Deposit/Withdraw at Custodian ("DWAC") system.
Accordingly, in connection with any such exchange, appropriate adjustments will
be made in the records of the Security Register to reflect an increase in the
principal amount of such Restricted Global Note or vice versa, as applicable.
EXCHANGES OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A beneficial interest in a Global Note may not be exchanged for a Note in
certificated form unless (i) DTC (x) notifies Asbury that it is unwilling or
unable to continue as Depository for such Global Note or (y) has ceased to be a
clearing agency registered under the Exchange Act, (ii) in the case of a Global
Note held for an account of Euroclear or Clearstream, Euroclear or Clearstream,
as the case may be, (A) is closed for business for a continuous period of
14 days (other than by reason of statutory or other holidays) or (B) announces
an intention permanently to cease business or does in fact do so, (iii) there
shall have occurred and be continuing an Event of Default with respect to the
notes or (iv) a request for certificates has been made upon 60 days' prior
written notice given to the trustee in accordance with DTC's customary
procedures and a copy of such notice has been received by the Company from the
trustee. In all cases, certificated notes delivered in exchange for any Global
Note or beneficial interests therein will be registered in the names, and issued
in approved denominations, requested by or on behalf of DTC (in accordance with
its customary procedures). Any certificated notes issued in exchange for an
interest in a Global Note will bear the legend restricting transfers that is
borne by such Global Note. Any such exchange will be effected only through the
DWAC System and an appropriate adjustment will be made in the records of the
Security Register to reflect a decrease in the principal amount of the relevant
Global Note.
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EXCHANGES OF CERTIFICATED NOTES FOR BOOK-ENTRY NOTES
Other notes, which will be issued in certificated form, may not be exchanged
for beneficial interests in any Global Note unless such exchange complies with
Rule 144A, in the case of an exchange for an interest in the Restricted Global
Note, or Regulation S or (if available) Rule 144, in the case of an exchange for
an interest in the Regulation S Global Note. In addition, in connection with any
such exchange and transfer, the trustee must have received on behalf of the
transferor a Restricted Global Note Certificate or a Regulation S Global Note
Certificate, as applicable. Any such exchange will be effected through the DWAC
System and an appropriate adjustment will be made in the records of the Security
Register to reflect an increase in the principal amount of the relevant Global
Note.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC, Euroclear
and Clearstream is provided solely as a matter of convenience. These operations
and procedures are solely within the control of the respective settlement
systems and are subject to changes by them from time to time. Asbury and
Guarantor take no responsibility for these operations and procedures and urge
investors to contact the system or their participants directly to discuss these
matters.
Upon the issuance of the Temporary Regulation S Global Notes, the
Regulation S Global Notes and the Restricted Global Notes, DTC will credit, on
its internal system, the respective principal amount of the individual
beneficial interests represented by such Global Notes to the accounts with DTC
("participants") or persons who hold interests through participants. Ownership
or beneficial interests in the Global Notes will be shown on, and the transfer
of that ownership will be effected only through, records maintained by DTC or
its nominee (with respect to interests of participants) and the records of
participants (with respect to interest of persons other than participants).
AS LONG AS DTC, OR ITS NOMINEE, IS THE REGISTERED HOLDER OF A GLOBAL NOTE,
DTC OR SUCH NOMINEE, AS THE CASE MAY BE, WILL BE CONSIDERED THE SOLE OWNER AND
HOLDER OF THE NOTES REPRESENTED BY SUCH GLOBAL NOTE FOR ALL PURPOSES UNDER THE
INDENTURE AND THE NOTES. Except in the limited circumstances described above
under "Exchanges of Book-Entry Notes for Certificated Notes," owners of
beneficial interests in a Global Note will not be entitled to have portions of
such Global Note registered in their names, will not receive or be entitled to
receive physical delivery of notes in definitive form and will not be considered
the owners or Holders of the Global Note (or any notes presented thereby) under
the indenture or the notes. In addition, no beneficial owner of an interest in a
Global Note will be able to transfer that interest except in accordance with
DTC's applicable procedures (in addition to those under the indenture referred
to herein and, if applicable, those of Euroclear and Clearstream). In the even
that owners of beneficial interests in a Global Note become entitled to receive
notes in definitive form, such notes will be issued only in registered form in
denominations of U.S.$1,000 and integral multiples thereof.
Investors may hold their interests in the Temporary Regulation S Global
Notes and the Regulation S Global Notes through Clearstream or Euroclear, if
they are participants in such systems, or indirectly through organizations which
are participants in such systems. After the expiration of the Restricted Period
(but not earlier), investors may also hold their interests in the Regulation S
Global Notes through organizations other than Clearstream and Euroclear that are
participants in the DTC system. Clearstream and Euroclear will hold interests in
the Temporary Regulation S Global Notes and the Regulation S Global Notes on
behalf of their participants through customers' securities accounts in their
respective accounts in their respective names on the books of their respective
depositaries, which, in turn, will hold such interests in the Temporary
Regulation S Global Notes and the Regulation S Global Notes in customers'
securities accounts in the depositaries' names on the books of DTC. Investors
may hold their interests in the Restricted Global Notes directly through DTC, if
they are participants in such system, or indirectly through organizations
(including Euroclear and Clearstream)
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which are participants in such system. All interests in a Global Note, including
those held through Euroclear or Clearstream, may be subject to the procedures
and requirements of DTC. Those interests held through Euroclear and Clearstream
may also be subject to the procedures and requirements of such system.
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interests in a Global Note to such persons may be limited to
that extent. Because DTC can act only on behalf of participants, which in turn
act on behalf of indirect participants and certain banks, the ability of a
person having beneficial interests in a Global Note to pledge such interests to
persons or entities that do not participate in the DTC system, or otherwise take
action in respect of such interests, may be affected by the lack of a physical
certificate evidencing such interests.
Payments of the principal of and interest on Global Notes will be made to
DTC or its nominee as the registered owner thereof. Neither Asbury, the trustee
nor any of their respective agents will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
Except for trades involving only Euroclear or Clearstream, beneficial
interests in the Global Notes will trade in DTC's Same-Day Funds Settlement
System, and secondary market trading activity in such interests will therefore
settle in immediately available funds. Asbury expects that DTC or its nominee,
upon receipt of any payment of principal or interest in respect of a Global Note
representing any Notes held by it or its nominee, will immediately credit
participants' accounts with payment in amounts proportionate to their respective
beneficial interests in the principal amount of such Notes as shown on the
records of DTC or its nominee. Asbury also expects that payments by participants
to owners of beneficial interests in such Global Notes held through such
participants will be governed by standing instructions and customary practices,
as is now the case with securities held for the accounts of customers registered
in "street name." Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
participants in Euroclear and Clearstream will be effected in the ordinary way
in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the notes
described above, cross-market transfers between DTC participants, on the one
hand, and Euroclear or Clearstream participants on the other hand, will be
effected by DTC in accordance with DTC rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global Note in DTC,
and making or receiving payment in accordance with normal procedures for same
day funds settlement applicable to DTC. Euroclear participants and Clearstream
participants may not deliver instructions directly to the depositaries for
Euroclear or Clearstream.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a DTC
participant will be credited, and any such crediting will be reported to the
relevant Euroclear or Clearstream participant, during the securities settlement
processing day (which must be a business day for Euroclear and Clearstream)
immediately following the DTC settlement date. Cash received on Euroclear or
Clearstream as a result of sales of interests in a Global Note by or through a
Euroclear or Clearstream participants to a DTC participant will be received with
value on the DTC settlement date but will be available in the relevant Euroclear
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or Clearstream cash account only as of the business day for Euroclear or
Clearstream following the DTC settlement date.
DTC has advised Asbury that it will take any action permitted to be taken by
a Holder of notes (including the presentation of Notes for exchange as described
below) only at the direction of one or more participants to whose account with
DTC interests in the Global Notes are credited and only in respect of such
portion of the aggregate principal amount of the notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default (as defined below) under the notes, DTC reserves the
right to exchange the Global Notes for legended notes in certificated form, and
to distribute such notes to its participants.
DTC has advised Asbury as follows: DTC is
- a limited purpose trust company organized under the laws of the State of
New York,
- a "banking organization" within the meaning of New York Banking law,
- a member of the Federal Reserve System,
- a "clearing corporation" within the meaning of the Uniform Commercial
Code, as amended, and
- a "Clearing Agency" registered pursuant to the provisions of Section 17A
of the Exchange Act.
DTC was created to hold securities for its participants and facilitate the
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. DTC is
partially owned by some of these participants or their representatives. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures in order to facilitate transfers of beneficial ownership interests in
the Global Notes among participants of DTC, Euroclear and Clearstream, they are
under no obligation to perform or continue to perform such procedures, and such
procedures may be discontinued at any time. None of Asbury, the Trustee nor any
of their respective agents will have any responsibility for the performance by
DTC, Euroclear and Clearstream, their participants or indirect participants of
their respective obligations under the rules and procedures governing their
operations, including maintaining, supervising or reviewing the records relating
to, or payments made on account of, beneficial ownership interests in Global
Notes.
SAME DAY SETTLEMENT AND PAYMENT
Asbury will make payments in respect of the notes represented by the Global
Notes (including principal, premium, if any, interest and Special Interest, if
any) by wire transfer of immediately available funds to the accounts specified
by the Global Note Holder. Asbury will make all payments of principal, interest
and premium and Special Interest, if any, with respect to Certificated Notes by
wire transfer of immediately available funds to the accounts specified by the
Holders of the Certificated Notes or, if no such account is specified, by
mailing a check to each such Holder's registered address. The notes represented
by the Global Notes are expected to be eligible to trade in the PORTAL market
and to trade in DTC's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such notes will, therefore, be required by
DTC to be settled in immediately available funds. Asbury expects that secondary
trading in any Certificated Notes will also be settled in immediately available
funds.
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CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other Person
is merged with or into or became a Subsidiary of such specified Person,
whether or not such Indebtedness is incurred in connection with, or in
contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control,"
as used with respect to any Person, means the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; PROVIDED that beneficial ownership of 10% or more of the
Voting Stock of a Person will be deemed to be control. For purposes of this
definition, the terms "controlling," "controlled by" and "under common control
with" have correlative meanings.
"ASSET SALE" means:
(1) the sale, lease, conveyance or other disposition of any assets or
rights; provided that the sale, conveyance or other disposition of all
or substantially all of the assets of Asbury and its Restricted
Subsidiaries taken as a whole will be governed by the provisions of the
indenture described above under the caption "Repurchase at the Option of
HoldersChange of Control" and/or the provisions described above under
the caption "Certain CovenantsMerger, Consolidation or Sale of Assets"
and not by the provisions of the Asset Sale covenant; and
(2) the issuance of Equity Interests by any of Asbury's Restricted
Subsidiaries or the sale of Equity Interests in any of its Restricted
Subsidiaries.
Notwithstanding the preceding, the following items will not be deemed to be
Asset Sales:
(1) for purposes of the covenant described above under the caption
"Repurchase at the Option of the HoldersAsset Sales" only, any single
transaction or series of related transactions that involves assets
having a fair market value of less than $2.5 million;
(2) a transfer of assets between or among Asbury and its Restricted
Subsidiaries,
(3) an issuance of Equity Interests by a Subsidiary to Asbury or to a
Restricted Subsidiary of Asbury;
(4) the sale or lease of inventory or accounts receivable in the ordinary
course of business;
(5) the sale of obsolete or damaged equipment in the ordinary course of
business;
(6) the sale or other disposition of cash or Cash Equivalents;
(7) for purposes of the covenant described above under the caption
"Repurchase at the Option of the HoldersAsset Sales" only, a Restricted
Payment or Permitted Investment that is permitted by the covenant
described above under the caption "Certain Covenants Restricted
Payments";
(8) any sale of Equity Interests in, or Indebtedness or other securities of,
an Unrestricted Subsidiary; and
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(9) the creation of Liens.
"ASSET SALE OFFER" has the meaning set forth above under the caption
"Repurchase at the Option of Holders Asset Sales."
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means, at
the time of determination, the present value of the obligation of the lessee for
net rental payments during the remaining term of the lease included in such sale
and leaseback transaction including any period for which such lease has been
extended or may, at the option of the lessor, be extended. Such present value
shall be calculated using a discount rate equal to the rate of interest implicit
in such transaction, determined in accordance with GAAP.
"BENEFICIAL OWNER" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as that term is used in Section 13(d)(3)
of the Exchange Act), such "person" will be deemed to have beneficial ownership
of all securities that such "person" has the right to acquire by conversion or
exercise of other securities, whether such right is currently exercisable or is
exercisable only upon the occurrence of a subsequent condition. The terms
"Beneficially Owns" and "Beneficially Owned" have a corresponding meaning.
"BOARD OF DIRECTORS" means:
(1) with respect to a corporation, the board of directors of the
corporation;
(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such Person
serving a similar function.
"CAPITAL LEASE OBLIGATION" means, at the time any determination is to be
made, the amount of the liability in respect of a capital lease that would at
that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"CAPITAL STOCK" means:
(1) in the case of a corporation, corporate stock;
(2) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however
designated) of corporate stock;
(3) in the case of a partnership or limited liability company, partnership
or membership interests (whether general or limited); and
(4) 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.
"CASH EQUIVALENTS" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality of the United
States government (provided that the full faith and credit of the United
States is pledged in support of those securities) having maturities of
not more than six months from the date of acquisition;
(3) time deposit accounts, certificates of deposit and money market deposits
maturing within 180 days of the date of acquisition thereof issued by a
bank or trust company which is organized and existing under the laws of
the United States, or any state thereof, and which
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bank or trust company has capital and surplus aggregating in excess of
$500.0 million and has outstanding debt which is rated "A" (or such
similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under
the Securities Act) or any money-market fund sponsored by a registered
broker dealer or mutual fund distributor;
(4) repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clauses (2) and
(3) above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Ratings Services (or
carrying an equivalent rating by another nationally recognized rating
agency if both of such two rating agencies cease publishing ratings of
investments) and maturing not more than 180 days after the date of
acquisition;
(6) money market funds at least 95% of the assets of which constitute Cash
Equivalents of the kinds described in clauses (1) through (5) of this
definition; and
(7) in the case of any Subsidiary organized or having its principal place of
business outside the United States, investments denominated in the
currency of the jurisdiction in which that Subsidiary is organized or
has its principal place of business which are similar to the items
specified in clauses (1) through (6) above, including, without
limitation, any deposit with a bank that is a lender to any Restricted
Subsidiary of Asbury.
"CHANGE OF CONTROL" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other disposition
(other than by way of merger or consolidation), in one or a series of
related transactions, of all or substantially all of the properties or
assets of Asbury and its Restricted Subsidiaries, taken as a whole, to
any "person" (as that term is used in Section 13(d)(3) of the Exchange
Act) other than a Permitted Holder;
(2) the adoption of a plan relating to the liquidation or dissolution of
Asbury;
(3) the consummation of any transaction (including, without limitation, any
merger or consolidation) the result of which is that any "person" (as
defined above), other than a Permitted Holder, becomes the Beneficial
Owner, directly or indirectly, of more than 50% of the Voting Stock of
Asbury, measured by voting power rather than number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of Asbury are not Continuing Directors; or
(5) Asbury consolidates with, or merges with or into, any Person, or any
Person consolidates with, or merges with or into, Asbury, in any such
event pursuant to a transaction in which any of the outstanding Voting
Stock of Asbury or such other Person is converted into or exchanged for
cash, securities or other property, other than any such transaction
where the Voting Stock of Asbury outstanding immediately prior to such
transaction is converted into or exchanged for Voting Stock (other than
Disqualified Stock) of the surviving or transferee Person constituting a
majority of the outstanding shares of such Voting Stock of such
surviving or transferee Person (immediately after giving effect to such
issuance).
"CONSOLIDATED CASH FLOW" means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period PLUS, without
duplication:
(1) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net
Income; plus
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(2) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period whether or not capitalized ((i) including,
without limitation, amortization of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of
any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect
to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or received
pursuant to Hedging Obligations and (ii) excluding interest expense
attributable to Indebtedness incurred under Floor Plan Facilities), to
the extent that any such expense was deducted in computing such
Consolidated Net Income; plus
(3) depreciation, amortization (including amortization of goodwill and other
intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period) and other non-cash expenses (excluding any
such non-cash expense to the extent that it represents an accrual of or
reserve for cash expenses in any future period or amortization of a
prepaid cash expense that was paid in a prior period) of such Person and
its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income; minus
(4) non-cash items increasing such Consolidated Net Income for such period,
other than the accrual of revenue in the ordinary course of business,
in each case, on a consolidated basis and determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, with respect to any specified Person for
any period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; PROVIDED that:
(1) the Net Income (or loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting
will not be included, except that such Net Income will be included to
the extent of the amount of dividends or distributions paid in cash to
the specified Person or a Restricted Subsidiary of the Person;
(2) the Net Income of any Restricted Subsidiary will be excluded to the
extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at
the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by
operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders;
(3) the Net Income (or loss) of any Person acquired in a pooling of
interests transaction for any period prior to the date of such
acquisition will be excluded; and
(4) the cumulative effect of a change in accounting principles will be
excluded.
"CONSOLIDATED NET TANGIBLE ASSETS" of any Person means, as of any date, the
amount which, in accordance with GAAP, would be set forth under the caption
"Total Assets" (or any like caption) on a consolidated balance sheet of such
Person and its Restricted Subsidiaries, as of the end of the most recently ended
fiscal quarter for which internal financial statements are available, less all
intangible assets, including, without limitation, goodwill, organization costs,
patents, trademarks, copyrights, franchises, and research and development costs.
"CONTINUING DIRECTORS" means, as of any date of determination, any member of
the Board of Directors of Asbury who:
(1) was a member of such Board of Directors on the date of the indenture; or
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(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members
of such Board at the time of such nomination or election.
"COVENANT DEFEASANCE" has the meaning set forth above under the caption
"Legal Defeasance and Covenant Defeasance."
"CREDIT AGREEMENT" means that certain Credit Agreement, dated as of
January 17, 2001 by and among Asbury Automotive Group L.L.C. and Ford Motor
Credit Company, Chrysler Financial Company LLC, General Motors Acceptance
Corporation and the other lenders thereto providing for revolving credit
borrowings, including any related notes, guarantees, collateral documents,
instruments and agreements executed in connection therewith, and in each case as
amended, modified, renewed, refunded, replaced or refinanced from time to time.
"CREDIT FACILITIES" means, one or more debt facilities (including, without
limitation, the Credit Agreement) or commercial paper facilities, in each case
with banks or other institutional lenders providing for revolving credit loans,
term loans, or letters of credit, in each case, as amended, extended, renewed,
restated, supplemented, Refinanced, replaced or otherwise modified (in whole or
in part, and without limitation as to amount, terms, conditions, covenants and
other provisions, or lenders or holders) from time to time.
"DEFAULT" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"DEFEASANCE TRUST" has the meaning set forth above under the caption "Legal
Defeasance and Covenant Defeasance."
"DESIGNATED SENIOR DEBT" has the meaning set forth above under the caption
"Subordination."
"DISQUALIFIED STOCK" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder of the Capital Stock), or
upon the happening of any event (other than any event solely within the control
of the issuer thereof), matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
of the Capital Stock, in whole or in part, on or prior to the date that is
91 days after the date on which the notes mature. Notwithstanding the preceding
sentence, any Capital Stock that would constitute Disqualified Stock solely
because the holders of the Capital Stock have the right to require Asbury to
repurchase such Capital Stock upon the occurrence of a change of control or an
asset sale will not constitute Disqualified Stock if the terms of such Capital
Stock provide that Asbury may not repurchase or redeem any such Capital Stock
pursuant to such provisions unless such repurchase or redemption complies with
the covenant described above under the caption "Certain Covenants Restricted
Payments."
"DOMESTIC SUBSIDIARY" means any Restricted Subsidiary of Asbury that was
formed under the laws of the United States or any state of the United States or
the District of Columbia.
"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).
"EQUITY OFFERING" means any primary offering of common stock of Asbury;
provided that, if such primary offering is not a public offering, it shall not
include the portion of such offering made to an Affiliate of Asbury.
"EXCESS PROCEEDS" has the meaning set forth above under the caption
"Repurchase at the Option of Holders Assets Sales."
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"EXISTING INDEBTEDNESS" means the Indebtedness of Asbury and its Restricted
Subsidiaries (other than Indebtedness under the Credit Agreement and under Floor
Plan Facilities) in existence on the date of the indenture, until such amounts
are repaid.
"FIXED CHARGES" means, with respect to any specified Person and its
Restricted Subsidiaries for any period, the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, including, without limitation,
amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance
financings, and net of the effect of all payments made or received
pursuant to Hedging Obligations (but excluding interest expense
attributable to Indebtedness incurred under Floor Plan Facilities); plus
(2) the consolidated interest of such Person and its Restricted Subsidiaries
that was capitalized during such period; plus
(3) any interest expense on Indebtedness of another Person that is
Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether or not in cash, on any series
of preferred stock of such Person or any of its Restricted Subsidiaries,
other than dividends on Equity Interests payable solely in Equity
Interests of Asbury (other than Disqualified Stock) or the applicable
Restricted Subsidiary to Asbury or a Restricted Subsidiary of Asbury,
times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the effective combined federal, state and local
tax rate of such Person for such period as specified by the chief
financial officer of such Person in good faith, expressed as a decimal,
in each case, on a consolidated basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any specified Person for
any period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the specified
Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees,
repays, repurchases or redeems any Indebtedness (other than ordinary working
capital borrowings) or issues, repurchases or redeems preferred stock subsequent
to the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated and on or prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect
to such incurrence, assumption, Guarantee, repayment, repurchase or redemption
of Indebtedness, or such issuance, repurchase or redemption of preferred stock,
and the use of the proceeds therefrom as if the same had occurred at the
beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
reference period or subsequent to such reference period and on or prior
to the Calculation Date will be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period will be calculated on a
pro forma basis in accordance with Regulation S-X under the
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Securities Act, but without giving effect to clause (3) of the proviso
set forth in the definition of Consolidated Net Income;
(2) the Consolidated Cash Flow attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, will be excluded; and
(3) the Fixed Charges attributable to discontinued operations, as determined
in accordance with GAAP, and operations or businesses disposed of prior
to the Calculation Date, will be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be
obligations of the specified Person or any of its Restricted
Subsidiaries following the Calculation Date.
For purposes of this definition, whenever PRO FORMA effect is to be given to
an acquisition of assets, the amount of income or earnings relating thereto and
the amount of Fixed Charges associated with any Indebtedness incurred in
connection therewith, the PRO FORMA calculations shall be determined in good
faith by the Chief Financial officer of Asbury. If any Indebtedness bears a
floating rate of interest and is being given PRO FORMA effect, the interest on
such Indebtedness shall be calculated as if the rate in effect on the date of
determination had been the applicable rate for the entire period (taking into
account any Hedging Obligation applicable to such Indebtedness if such Hedging
Obligation has a remaining term in excess of 12 months).
"FLOOR PLAN FACILITY" means an agreement with Ford Motor Credit Company,
General Motors Acceptance Corporation, DaimlerChrysler Services North America
LLC or any other lending institution affiliated with a Manufacturer or any bank
or asset-based lender under which Asbury or its Restricted Subsidiaries incur
Indebtedness, all of the net proceeds of which are used to purchase, finance or
refinance vehicles and/or vehicle parts and supplies to be sold in the ordinary
course of the business of Asbury and its Restricted Subsidiaries and which may
not be secured except by a Lien that does not extend to or cover any property
other than property of the dealership(s) which use the proceeds of the Floor
Plan Facility or other dealerships who have incurred Indebtedness from the same
lender.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
"GUARANTEE" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"GUARANTORS" means:
(1) each of Asbury's Subsidiaries as of the date of the indenture (other
than Asbury Insurance Company Ltd., a Cayman Islands corporation); and
(2) any other subsidiary that executes a Subsidiary Guarantee in accordance
with the provisions of the indenture;
and their respective successors and assigns.
"HEDGING OBLIGATIONS" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and interest
rate collar agreements; and
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(2) other agreements or arrangements of a similar character designed to
protect such Person against fluctuations in interest rates.
"HOLDER" means the Person in whose name a note is registered on the
registrar's books.
"INDEBTEDNESS" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof);
(3) in respect of banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued
expense or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) would appear as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any Indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date will be:
(1) the accreted value of the Indebtedness, in the case of any Indebtedness
issued with original issue discount; or
(2) the principal amount of the Indebtedness.
In addition, for the purpose of avoiding duplication in calculating the
outstanding principal amount of Indebtedness for purposes of the covenant
described under the caption "Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock", Indebtedness arising solely by reason of the
existence of a Lien to secure other Indebtedness permitted to be incurred under
the covenant described under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock" will not be considered incremental
Indebtedness.
Indebtedness shall not include the obligations of any Person (A) resulting
from the endorsement of negotiable instruments for collection in the ordinary
course of business and (B) under stand-by letters of credit to the extent
collateralized by cash or Cash Equivalents.
"INVESTMENTS" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees or other obligations), advances or capital
contributions (excluding commission, travel and similar advances to officers and
employees made in the ordinary course of business), purchases or other
acquisitions for consideration of Indebtedness, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If Asbury or
any Restricted Subsidiary of Asbury sells or otherwise disposes of any Equity
Interests of any direct or indirect Restricted Subsidiary of Asbury such that,
after giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of Asbury, Asbury will be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of
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the covenant described above under the caption "Certain Covenants Restricted
Payments." The acquisition by Asbury or any Restricted Subsidiary of Asbury of a
Person that holds an Investment in a third Person will be deemed to be an
Investment by Asbury or such Subsidiary in such third Person in an amount equal
to the fair market value of the Investment held by the acquired Person in such
third Person in an amount determined as provided in the final paragraph of the
covenant described above under the caption "Certain Covenants Restricted
Payments."
Except as otherwise provided for herein, the amount of an Investment shall
be its fair value at the time the Investment is made and without giving effect
to subsequent changes in value.
"LEGAL DEFEASANCE" has the meaning set forth above under the caption "Legal
Defeasance and Covenant Defeasance."
"LIEN" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction.
"MANUFACTURER" means a vehicle manufacturer which is party to a dealership
or national framework franchise agreement with Asbury or a Restricted Subsidiary
of Asbury.
"NET INCOME" means, with respect to any specified Person, the net income
(loss) of such Person, determined in accordance with GAAP and before any
reduction in respect of preferred stock dividends, excluding, however:
(1) any gain (or loss), together with any related provision for taxes on
such gain (or loss), realized in connection with: (a) any Asset Sale; or
(b) the disposition of any securities by such Person or any of its
Restricted Subsidiaries or the extinguishment of any Indebtedness of
such Person or any of its Restricted Subsidiaries; and
(2) any extraordinary gain (or loss), together with any related provision
for taxes on such extraordinary gain (or loss).
"NET PROCEEDS" means the aggregate cash proceeds received by Asbury or any
of its Restricted Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale, but only as and when received), in
each case net of:
(1) the direct costs relating to such Asset Sale, including, without
limitation, legal, accounting and investment banking fees, and sales
commissions, recording fees, title transfer fees, appraiser fees and any
relocation expenses incurred as a result of the Asset Sale;
(2) taxes paid or payable as a result of the Asset Sale, in each case, after
taking into account any available tax credits or deductions and any tax
sharing arrangements;
(3) amounts required to be applied to the permanent repayment of
Indebtedness secured by a Lien on the asset or assets that were the
subject of such Asset Sale;
(4) all pro rata distributions and other pro rata payments required to be
made to minority interest holders in Restricted Subsidiaries of Asbury
or joint ventures as a result of such Asset Sale; and
(5) any reserve for adjustment in respect of the sale price of such asset or
assets established in accordance with GAAP.
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"NON-RECOURSE DEBT" means Indebtedness:
(1) as to which neither Asbury nor any of its Restricted Subsidiaries
(a) provides credit support of any kind (including any undertaking,
agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable as a guarantor or otherwise, or
(c) constitutes the lender;
(2) no default with respect to which (including any rights that the holders
of the Indebtedness may have to take enforcement action against an
Unrestricted Subsidiary) would permit upon notice, lapse of time or both
any holder of any other Indebtedness of Asbury or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause
the payment of the Indebtedness to be accelerated or payable prior to
its stated maturity; and
(3) as to which the lenders have been notified in writing (which may be by
the terms of the instrument evidencing such Indebtedness) that they will
not have any recourse to the stock (other than the stock of an
Unrestricted Subsidiary pledged by Asbury or any of its Restricted
Subsidiaries) or assets of Asbury or any of its Restricted Subsidiaries.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PAYMENT DEFAULT" has the meaning set forth above under the caption "Events
of Default and Remedies."
"PERMITTED BUSINESS" means any business that derives a majority of its
revenues from the businesses engaged in by Asbury and its Restricted
Subsidiaries on the date of original issuance of the notes and/or activities
that are reasonably similar, ancillary, incidental, complementary or related to,
or a reasonable extension, development or expansion of, the businesses in which
Asbury and its Restricted Subsidiaries are engaged on the date of original
issuance of the notes.
"PERMITTED HOLDER" means:
(1) Asbury Automotive Holdings L.L.C., so long as 100% of its Equity
Interests are beneficially owned, directly or indirectly, by the
entities described in clauses (2) and (3);
(2) Ripplewood Investments L.L.C. ("Ripplewood") and entities which are
Affiliates of Ripplewood (without regard to the proviso in the
definition of Affiliate), so long as Ripplewood is the beneficial owner
of more than 50% of the Voting Stock of, or otherwise controls, such
entities; and
(3) Freeman Spogli & Co. LLC and entities which are Affiliates of Freeman
Spogli & Co. LLC (without regard to the proviso in the definition of
Affiliate), so long as Freeman Spogli & Co. LLC or its managing members
are the beneficial owners of more than 50% of the Voting Stock of, or
otherwise control, such entities.
"PERMITTED INVESTMENTS" means:
(1) any Investment in Asbury or in a Restricted Subsidiary of Asbury;
(2) any Investment in cash or Cash Equivalents;
(3) any Investment by Asbury or any Restricted Subsidiary of Asbury in a
Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of Asbury; or
(b) such Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, Asbury or a Restricted Subsidiary of Asbury;
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(4) any Investment made as a result of the receipt of non-cash consideration
from an Asset Sale that was made pursuant to and in compliance with the
covenant described above under the caption "Repurchase at the Option of
Holders--Asset Sales";
(5) any Investment to the extent made in exchange for the issuance of Equity
Interests (other than Disqualified Stock) of Asbury;
(6) Hedging Obligations;
(7) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers' compensation, performance and
other similar deposits;
(8) transactions with officers, directors and employees of Asbury or any of
its Restricted Subsidiaries entered into in the ordinary course of
business (including compensation, employee benefit or indemnity
arrangements with any such officer, director or employee) and consistent
with past business practices;
(9) any Investment consisting of a guarantee permitted under "Certain
Covenants Incurrence of Indebtedness and Issuance of Preferred Stock"
above;
(10) Investments consisting of non-cash consideration received in the form of
securities, notes or similar obligations in connection with dispositions
of obsolete assets or assets damaged in the ordinary course of business
and permitted pursuant to the indenture;
(11) advances, loans or extensions of credit to suppliers in the ordinary
course of business by Asbury or any of its Restricted Subsidiaries;
(12) Investments (including debt obligations) 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;
(13) loans and advances to employees made in the ordinary course of business
not to exceed $2.5 million in the aggregate at any one time outstanding;
(14) payroll, travel and similar advances to cover matters that are expected
at the time of such advances ultimately to be treated as expenses for
accounting purposes and that are made in the ordinary course of
business;
(15) Investments in any Person to the extent such Investment existed on date
of the indenture and any Investment that replaces, refinances or refunds
such an Investment, provided that the new Investment is in an amount
that does not exceed that amount replaced, refinanced or refunded and is
made in the same Person as the Investment replaced, refinanced or
refunded;
(16) trade receivables and prepaid expenses, in each case arising in the
ordinary course of business; provided that such receivables and prepaid
expenses would be recorded as assets in accordance with GAAP; and
(17) other Investments in any Person having an aggregate fair market value,
when taken together with all other Investments made pursuant to this
clause (17) since the date of the indenture, not to exceed
$15.0 million.
"PERMITTED JUNIOR SECURITIES" has the meaning set forth above under the
caption "Subordination."
"PERMITTED LIENS" means:
(1) Liens of Asbury or any of its Restricted Subsidiaries securing Senior
Debt that was permitted by the terms of the indenture to be incurred;
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(2) Liens upon any property or assets of Asbury or any of its Restricted
Subsidiaries, now owned or hereafter acquired, which secures any
Indebtedness that ranks pari passu with or subordinate to the notes;
provided that:
(a) if such Lien secures Indebtedness which is PARI PASSU with the notes,
the notes are secured on an equal and ratable basis with the
Indebtedness so secured until such time as such Indebtedness is no
longer secured by a Lien, or
(b) if such Lien secures Indebtedness which is subordinated to the notes,
any such Lien shall be subordinated to a Lien granted to the holders
of the notes in the same collateral as that securing such Lien to the
same extent as such subordinated Indebtedness is subordinated to the
notes;
(3) Liens in favor of Asbury or any of its Restricted Subsidiaries;
(4) Liens on property of a Person existing at the time such Person is merged
with or into or consolidated with Asbury or any Subsidiary of Asbury;
provided that such Liens were in existence prior to the contemplation of
such merger or consolidation and do not extend to any assets other than
those of the Person merged into or consolidated with Asbury or the
Subsidiary;
(5) Liens on property existing at the time of acquisition of the property by
Asbury or any Subsidiary of Asbury, provided that such Liens were in
existence prior to the contemplation of such acquisition;
(6) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business;
(7) Liens to secure Indebtedness (including Capital Lease Obligations)
permitted by clause (5) of the second paragraph of the covenant entitled
"Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock" covering only the assets acquired with such Indebtedness;
(8) Liens existing on the date of the indenture;
(9) Liens for taxes, assessments or governmental charges or claims that are
not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded,
provided that any reserve or other appropriate provision as is required
in conformity with GAAP has been made therefore; and
(10) Liens incurred in the ordinary course of business of Asbury or any
Restricted Subsidiary of Asbury with respect to obligations that do not
exceed $10.0 million at any one time outstanding.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of Asbury or any
of its Restricted Subsidiaries issued to Refinance other Indebtedness of Asbury
or any of its Restricted Subsidiaries (other than intercompany Indebtedness);
PROVIDED that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount
(or accreted value, if applicable) of the Indebtedness being Refinanced
(plus all accrued interest on the Indebtedness and the amount of all
expenses and premiums incurred in connection therewith);
(2) such Permitted Refinancing Indebtedness has a final maturity date later
than the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity
of, the Indebtedness being Refinanced;
(3) if the Indebtedness being Refinanced is subordinated in right of payment
to the notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date
129
<Page>
of, and is subordinated in right of payment to, the notes on terms at
least as favorable to the Holders of notes as those contained in the
documentation governing the Indebtedness Refinanced; and
(4) such Indebtedness is incurred either by Asbury or by the Restricted
Subsidiary who is the obligor on the Indebtedness being Refinanced.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company or government or other entity.
"REFINANCE" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such Indebtedness. "Refinanced" and
"Refinancing" shall have correlative meanings.
"REPLACEMENT ASSETS" means (x) properties and assets (other than cash or any
Capital Stock or other security) that will be used in a Permitted Business of
Asbury and its Restricted Subsidiaries or (y) Capital Stock of any Person that
will become on the date of acquisition thereof a Restricted Subsidiary as a
result of such Acquisition and that is involved principally in Permitted
Businesses.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of such Person that
is not an Unrestricted Subsidiary.
"SENIOR DEBT" has the meaning set forth above under the caption
"Subordination."
"SENIOR SUBORDINATED INDEBTEDNESS" means, with respect to any Person, the
notes (in the case of Asbury), the Subsidiary Guarantees (in the case of a
Guarantor) and any other Indebtedness of such Person that specifically provides
that such Indebtedness is to rank PARI PASSU with the notes or such Subsidiary
Guarantee, as the case may be, in right of payment and is not subordinated by
its terms in right of payment to any Indebtedness or other obligation of such
Person which is not Senior Debt of such Person.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act of 1933, as amended, as such Regulation is in
effect on the date of the indenture.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which the payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and will not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"SUBSIDIARY" means, with respect to any specified Person:
(1) any corporation, limited liability company, association or other
business entity whether now existing or hereafter formed or acquired of
which more than 50% of the total voting power of shares of Capital Stock
entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees of the corporation,
association or other business entity is at the time owned or controlled,
directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person (or a combination thereof); and
(2) any partnership whether now existing or hereafter formed or acquired
(a) the sole general partner or the managing general partner of which is
such Person or a Subsidiary of such Person or (b) the only general
partners of which are that Person or one or more Subsidiaries of that
Person (or any combination thereof).
"SUBSIDIARY GUARANTEE" means a Guarantee by a Guarantor of Asbury's
obligations with respect to the notes.
130
<Page>
"UNRESTRICTED SUBSIDIARY" means any Subsidiary of Asbury that is designated
by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution and any Subsidiary of an Unrestricted Subsidiary, but only to the
extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or understanding
with Asbury or any Restricted Subsidiary of Asbury unless the terms of
any such agreement, contract, arrangement or understanding are no less
favorable to Asbury or such Restricted Subsidiary than those that might
be obtained at the time from Persons who are not Affiliates of Asbury;
(3) is a Person with respect to which neither Asbury nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results;
(4) has not guaranteed or otherwise directly or indirectly provided credit
support for any Indebtedness of Asbury or any of its Restricted
Subsidiaries; and
(5) has at least one director on its Board of Directors that is not a
director or executive officer of Asbury or any of its Restricted
Subsidiaries and has at least one executive officer that is not a
director or executive officer of Asbury or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of Asbury as an Unrestricted Subsidiary will
be evidenced to the trustee by filing with the trustee a certified copy of the
Board Resolution giving effect to such designation and an officers' certificate
certifying that such designation complied with the preceding conditions and was
permitted by the covenant described above under the caption "Certain Covenants
Restricted Payments." If, at any time, any Unrestricted Subsidiary would fail to
meet the preceding requirements as an Unrestricted Subsidiary, it will
thereafter cease to be an Unrestricted Subsidiary for purposes of the indenture
and any Indebtedness of such Subsidiary will be deemed to be incurred by a
Restricted Subsidiary of Asbury as of such date and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under the
caption "Certain Covenants--Incurrence of Indebtedness and Issuance of Preferred
Stock," Asbury will be in default of such covenant. The Board of Directors of
Asbury may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; PROVIDED that such designation will be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of Asbury of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation will only be
permitted if (1) such Indebtedness is permitted under the covenant described
under the caption "Certain Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock," calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period; and (2) no
Default or Event of Default would be in existence following such designation.
"VOTING STOCK" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:
(1) the sum of the products obtained by multiplying (a) the amount of each
then remaining installment, sinking fund, serial maturity or other
required payments of principal, including payment at final maturity, in
respect of the Indebtedness, by (b) the number of years (calculated to
the nearest one-twelfth) that will elapse between such date and the
making of such payment; by
(2) the then outstanding principal amount of such Indebtedness.
131
<Page>
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain U.S. federal income tax
consequences of the exchange offer to holders of Original Notes, but is not a
complete analysis of all potential tax effects. The summary below is based upon
the Internal Revenue Code of 1986, as amended (the "Code"), regulations of the
Treasury Department, administrative rulings and pronouncements of the Internal
Revenue Service and judicial decisions, all of which are subject to change,
possibly with retroactive effect. This summary does not address all of the U.S.
Federal income tax consequences that may be applicable to particular holders,
including dealers in securities, financial institutions, insurance companies and
tax-exempt organizations. In addition, this summary does not consider the effect
of any foreign, state, local, gift, estate or other tax laws that may be
applicable to a particular holder. This summary applies only to a holder that
acquired Original Notes at original issue for cash and holds such Original Notes
as a capital asset within the meaning of Section 1221 of the Code.
An exchange of Original Notes for New Notes pursuant to the exchange offer
will not be treated as a taxable exchange or other taxable event for U.S.
federal income tax purposes. Accordingly, there will be no U.S. federal income
tax consequences to holders who exchange their Original Notes for New Notes in
connection with the exchange offer and any such holder will have the same
adjusted tax basis and holding period in the New Notes as it had in the Original
Notes immediately before the exchange.
The foregoing discussion of certain U.S. federal income tax considerations
does not consider the facts and circumstances of any particular holder's
situation or status. Accordingly, each holder of Original Notes considering this
exchange offer should consult its own tax advisor regarding the tax consequences
of the exchange offer to it, including those under state, foreign and other tax
laws.
132
<Page>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the exchange offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Original Notes
where such Original Notes were acquired as a result of market-making activities
or other trading activities. The Company has agreed that, for a period of
180 days after the expiration date, it will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resale.
We will not receive any proceeds from any sale of New Notes by
broker-dealers. New notes received by broker-dealers for their own account
pursuant to the exchange offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
exchange offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The letter of transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days after the expiration date we will promptly send
additional copies of this prospectus and any amendment or supplement to this
prospectus to any broker-dealer that requests such documents in the letter of
transmittal. We agreed to pay all expenses incident to the exchange offer
(including the expenses of one counsel for the Holders of the Original Notes)
other than commissions of concessions of any brokers or dealers and will
indemnify the Holders of the Original Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the New Notes will be passed upon for
us by John Kessler, Esq.
INDEPENDENT ACCOUNTANTS
CHANGE IN AUDITORS
On May 13, 2002, we removed Arthur Andersen LLP ("Andersen") as our
independent public accountants and on May 16, 2002 retained Deloitte & Touche
LLP ("D&T") to serve as our independent public accountants for the fiscal year
2002.
Andersen's reports on our consolidated financial statements for the years
ended December 31, 2001 and December 31, 2000, did not contain an adverse
opinion or disclaimer of opinion, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles.
During the years ended December 31, 2001, and December 31, 2000, and through
the date of this prospectus, there were no disagreements with Andersen on any
matter of accounting principle or practice, financial statement disclosure, or
auditing scope or procedure which, if not resolved to
133
<Page>
Andersen's satisfaction, would have caused them to make reference to the subject
matter in connection with their report on our consolidated financial statements
for such years; and there were no reportable events as defined in Item
304(a)(1)(v) of Regulation S-K. We provided Andersen with a copy of the
foregoing disclosures.
During the years ended December 31, 2001, and December 31, 2000, and through
the date hereof, we did not consult D&T with respect to the application of
accounting principles to a specified transaction, either completed or proposed,
or the type of audit opinion that might be rendered on our consolidated
financial statements, or any other matters or reportable events as set forth in
Items 304(a)(2)(i) and (ii) of Regulation S-K.
Our financial statements included in this prospectus to the extent and for
the periods indicated in their report have been audited by Arthur Andersen LLP
and Dixon Odom, P.L.L.C., each of which are independent public accountants, as
indicated in their respective reports with respect thereto, and are included in
the prospectus in reliance upon the authority of these firms as experts in
giving these reports. Because Arthur Andersen LLP has not consented to the
inclusion of their report in this prospectus, you will not be able to recover
against Arthur Andersen LLP under Section 11 of the Securities Act for any
untrue statements of a material fact contained in the financial statements
audited by Arthur Andersen LLP or any omissions to state a material fact
required to be stated therein.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act with respect to this exchange offer. This prospectus does not
contain all the information contained in the registration statement and the
exhibits and schedules to the registration statement. For further information
with respect to us, we refer you to the registration statement and the exhibits
and schedules filed as part of the registration statement. Statements contained
in this prospectus as to the contents of the:
- 1999 Option Plan,
- 2002 Stock Option Plan,
- Severance Pay Agreement of Thomas R. Gibson,
- Severance Pay Agreement of Philip R. Johnson,
- Severance Pay Agreement of Thomas F. Gilman
- Severance Pay Agreement of Thomas G. McCollum,
- Severance Pay Agreement of Allen T. Levenson,
- Severance Pay Agreement of Robert D. Frank,
- Severance Pay Agreement of John C. Stamm,
- Severance Pay Agreement of Kenneth B. Gilman,
- Severance Pay Agreement of C.V. Nalley,
- Severance Pay Agreement of Ben David McDavid,
- Severance Pay Agreement of Luther Coggin,
- Credit Agreement, dated as of January 17, 2001, between Asbury Automotive
Group L.L.C. and Ford Motor Credit Company, Chrysler Financial Company,
LL.C., and General Motors Acceptance Corporation,
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<Page>
- Form of Shareholders Agreement between Asbury Automotive Holdings L.L.C.
and the shareholders named therein,
- Chrysler Dodge Dealer Agreement,
- Ford Dealer Agreement,
- General Motors Dealer Agreement,
- Honda Dealer Agreement,
- Mercedes Dealer Agreement,
- Nissan Dealer Agreement, and
- Toyota Dealer Agreement
are qualified in all respects by reference to the actual text of the
exhibit. We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). In accordance with the
Exchange Act, we file reports and other information with the Securities and
exchange Commission (the "Commission"). The reports and other information can be
inspected and copied at the public reference facilities that the Commission
maintains at Room 1200, 450 Fifth Street, N.W., Washington, D.C. 20549. Copies
of these materials can be obtained at prescribed rates from the Public Reference
Section of the Commission at the principal offices of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission also maintains a web site
at HTTP://WWW.SEC.GOV, which contains reports, proxy statements and other
information regarding registrants that file electronically with the Commission.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room.
135
<Page>
INDEX TO FINANCIAL STATEMENTS
<Table>
<Caption>
PAGE
-----------
Asbury Automotive Group, Inc.
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 2000 and
2001 and March 31, 2002 (unaudited)..................... F-3
Consolidated Statements of Income for the years ended
December 31, 1999, 2000 and 2001 and for the three
months ended March 31, 2001 (unaudited) and 2002
(unaudited)............................................. F-4
Consolidated Statements of Members'/Shareholders' Equity
for the years ended December 31, 1999, 2000 and 2001 and
for the three months ended March 31, 2001 (unaudited)
and 2002 (unaudited).................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 2000 and 2001 and for the three
months ended March 31, 2001 (unaudited) and 2002
(unaudited)............................................. F-6
Notes to Consolidated Financial Statements................ F-7 - F-32
Business Acquired by Asbury Automotive Group L.L.C.
(Hutchinson Automotive Group)
Report of Independent Public Accountants.................. F-33
Combined Statements of Income for the year ended
December 31, 1999 and for the period from January 1,
2000 through June 30, 2000.............................. F-34
Combined Statements of Shareholders' Equity for the year
ended December 31, 1999 and for the period from
January 1, 2000 through June 30, 2000................... F-35
Combined Statements of Cash Flows for the year ended
December 31, 1999 and for the period from January 1,
through June 30, 2000................................... F-36
Notes to Combined Financial Statements.................... F-37 - F-41
Business Acquired by Asbury Automotive Oregon L.L.C.
(Thomason Auto Group)
Report of Independent Public Accountants.................. F-42
Combined Statement of Income for the period from
January 1, 1999 through December 9, 1999................ F-43
Combined Statement of Shareholders' Equity for the period
from January 1, 1999 through December 9, 1999........... F-44
Combined Statement of Cash Flows for the period from
January 1, 1999 through December 9, 1999................ F-45
Notes to Combined Financial Statements.................... F-46 - F-50
Business Acquired by Asbury Automotive Arkansas L.L.C.
(McLarty Combined Entities)
Report of Independent Public Accountants.................. F-51
Combined Statement of Income for the period from
January 1, 1999 through November 17, 1999............... F-52
Combined Statement of Shareholders' Equity for the period
from January 1, 1999 through November 17, 1999.......... F-53
Combined Statement of Cash Flows for the period from
January 1, 1999 through November 17, 1999............... F-54
Notes to Combined Financial Statements.................... F-55 - F-59
Business Acquired by Asbury Automotive North Carolina L.L.C.
(Crown Automotive Group)
Report of Independent Public Accountants.................. F-60
Combined Statement of Income for the period from
January 1, 1999 through April 6, 1999................... F-61
Combined Statement of Shareholders' Equity for the period
from January 1, 1999 through April 6, 1999.............. F-62
Combined Statement of Cash Flows for the period from
January 1, 1999 through April 6, 1999................... F-63
Notes to Combined Financial Statements.................... F-64 - F-68
</Table>
F-1
<Page>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Asbury Automotive Group, Inc.:
We have audited the accompanying consolidated balance sheets of Asbury
Automotive Group, Inc. and subsidiaries as of December 31, 2000 and 2001, and
the related consolidated statements of income, members' equity and cash flows
for each of the three years in the period ended December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Asbury Automotive
Group, Inc. and subsidiaries as of December 31, 2000 and 2001, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.
As explained in Note 2 to the financial statements, the Company has given
retroactive effect to the change in accounting for certain inventories from the
last-in, first-out ("LIFO") method to the specific identification and first-in,
first-out ("FIFO") methods.
/s/ Arthur Andersen LLP
Stamford, Connecticut
February 21, 2002 (except with respect to the
change in accounting discussed above and in
Note 2 and the matters discussed in
Note 20 for which the date is May 8, 2002)
F-2
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
CONSOLIDATED BALANCE SHEETS,
AS ADJUSTED (NOTE2)
(DOLLARS IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<Table>
<Caption>
DECEMBER 31, MARCH 31,
----------------------- -----------
2000 2001 2002
---------- ---------- -----------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 47,241 $ 60,506 $ 78,112
Contracts-in-transit................................... 76,554 93,044 86,217
Current portion of restricted marketable securities.... 1,304 1,410 1,455
Accounts receivable (net of allowance of $2,396, $2,375
and $2,347).......................................... 76,168 81,347 84,592
Inventories............................................ 558,164 496,054 510,799
Deferred income taxes.................................. -- -- 8,264
Prepaid and other current assets....................... 19,694 25,253 30,416
---------- ---------- ----------
Total current assets................................. 779,125 757,614 799,855
PROPERTY AND EQUIPMENT, net.............................. 218,153 256,402 258,379
GOODWILL, net............................................ 364,164 392,856 392,287
RESTRICTED MARKETABLE SECURITIES......................... 7,798 6,807 5,849
OTHER ASSETS............................................. 38,983 51,334 48,002
---------- ---------- ----------
Total assets......................................... $1,408,223 $1,465,013 $1,504,372
========== ========== ==========
LIABILITIES AND MEMBERS'/SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable............................... $ 499,332 $ 451,375 $ 451,003
Short-term debt........................................ 16,290 10,000 10,194
Current maturities of long-term debt................... 19,495 35,789 46,338
Accounts payable....................................... 36,823 33,573 38,257
Deferred income taxes.................................. 2,723 3,876 --
Accrued liabilities.................................... 53,981 75,384 85,635
---------- ---------- ----------
Total current liabilities............................ 628,644 609,997 631,427
LONG-TERM DEBT........................................... 435,879 492,548 429,689
DEFERRED INCOME TAXES.................................... 1,043 1,370 27,585
OTHER LIABILITIES........................................ 16,774 13,191 9,858
COMMITMENTS AND CONTINGENCIES
MEMBERS'/SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares
authorized........................................... -- -- --
Common stock, $.01 par value, 90,000,000 shares
authorized, 34,000,000 issued and outstanding........ -- -- 340
Additional paid-in capital............................. 413,838
Contributed capital.................................... 306,573 305,363 --
Retained earnings...................................... 19,310 40,888 (10,278)
Accumulated other comprehensive income................. -- 1,656 1,913
Total members'/shareholders' equity.................. 325,883 347,907 405,813
---------- ---------- ----------
Total liabilities and members'/shareholders'
equity............................................. $1,408,223 $1,465,013 $1,504,372
========== ========== ==========
</Table>
See Notes to Consolidated Financial Statements.
F-3
<Page>
ASBURY AUTOMOTIVE GROUP. INC.
CONSOLIDATED STATEMENTS OF INCOME,
AS ADJUSTED (NOTE 2)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)
<Table>
<Caption>
FOR THE THREE
FOR THE YEARS ENDED MONTHS
DECEMBER 31, ENDED MARCH 31,
------------------------------------ ---------------------
1999 2000 2001 2001 2002
---------- ---------- ---------- -------- ----------
(UNAUDITED)
REVENUES:
New vehicle............................................... $1,769,030 $2,393,014 $2,532,203 $570,270 $ 631,105
Used vehicle.............................................. 764,599 1,049,279 1,144,076 282,145 285,849
Parts, service and collision repair....................... 332,022 427,917 481,533 116,054 125,068
Finance and insurance, net................................ 61,697 87,698 105,247 23,258 26,563
---------- ---------- ---------- -------- ----------
Total revenues.......................................... 2,927,348 3,957,908 4,263,059 991,727 1,068,585
---------- ---------- ---------- -------- ----------
COST OF SALES:
New vehicle............................................... 1,628,908 2,200,659 2,322,466 524,126 578,770
Used vehicle.............................................. 699,040 957,083 1,038,319 257,027 258,388
Parts, service and collision repair....................... 166,126 209,535 237,782 55,910 59,452
---------- ---------- ---------- -------- ----------
Total cost of sales..................................... 2,494,074 3,367,277 3,598,567 837,063 896,610
---------- ---------- ---------- -------- ----------
GROSS PROFIT................................................ 433,274 590,631 664,492 154,664 171,975
OPERATING EXPENSES:
Selling, general and administrative....................... 335,000 441,889 510,430 117,221 133,015
Depreciation and amortization............................. 16,555 24,385 30,591 7,041 5,833
---------- ---------- ---------- -------- ----------
Income from operations.................................. 81,719 124,357 123,471 30,402 33,127
---------- ---------- ---------- -------- ----------
OTHER INCOME (EXPENSE):
Floor plan interest expense............................... (22,451) (36,069) (27,238) (8,934) (4,350)
Other interest expense.................................... (24,385) (41,648) (44,653) (12,441) (9,778)
Interest income........................................... 3,021 5,846 2,528 1,185 315
Net losses from unconsolidated affiliates................. (616) (6,066) (3,248) (1,000) (100)
Gain (loss) on sale of assets............................. 2,365 (1,533) (384) -- --
Other income.............................................. 151 888 1,914 438 (392)
---------- ---------- ---------- -------- ----------
Total other expense, net................................ (41,915) (78,582) (71,081) (20,752) (14,305)
---------- ---------- ---------- -------- ----------
Income from continuing operations before income taxes,
minority interest and extraordinary loss................ 39,804 45,775 52,390 9,650 18,822
INCOME TAX EXPENSE:
Income tax expense........................................ 1,742 3,570 4,980 1,168 2,194
Tax adjustment upon conversion from an L.L.C. to a
corporation............................................. 11,553
---------- ---------- ---------- -------- ----------
MINORITY INTEREST IN SUBSIDIARY EARNINGS.................... 20,520 9,740 1,240 144 --
---------- ---------- ---------- -------- ----------
Income from continuing operations before extraordinary
loss...................................................... 17,542 32,465 46,170 8,338 5,075
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT.......... (752) -- (1,433) (1,433) --
DISCONTINUED OPERATIONS..................................... (1,141) (1,750) (553) (229) 87
---------- ---------- ---------- -------- ----------
Net income.............................................. $ 15,649 $ 30,715 44,184 $ 6,676 5,162
========== ========== ========== ======== ==========
PRO FORMA INCOME TAX EXPENSE (BENEFIT) (net of effect on
minority interest):
Income tax expense........................................ $ 16,917 $ 5,299
Tax adjustment upon conversion from an L.L.C. to a
corporation............................................... -- (11,553)
---------- ----------
Tax affected pro forma net income....................... $ 27,267 $ 11,416
========== ==========
EARNINGS PER COMMON SHARE:
Basic..................................................... $ 0.17
==========
Diluted................................................... $ 0.17
==========
PRO FORMA EARNINGS PER COMMON SHARE:
Basic..................................................... $ 0.92 $ 0.37
========== ==========
Diluted................................................... $ 0.92 $ 0.37
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING (in thousands):
Basic..................................................... 29,500 30,400
========== ==========
Diluted................................................... 29,522 30,434
========== ==========
</Table>
See Notes to Consolidated Financial Statements.
F-4
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF MEMBERS'/SHAREHOLDERS' EQUITY,
AS ADJUSTED (NOTE 2) (DOLLARS IN THOUSANDS)
<Table>
<Caption>
ACCUMULATED
ADDITIONAL RETAINED OTHER
COMMON PAID-IN CONTRIBUTED EARNINGS COMPREHENSIVE
STOCK CAPITAL CAPITAL (DEFICIT) INCOME TOTAL
-------- ---------- ----------- --------- ------------- --------
BALANCE AS OF DECEMBER 31, 1998, as
previously reported................ $ -- $ -- $ 130,580 $ (3,200) $ -- $127,380
Add adjustments for the cumulative
effect on prior years of applying
retroactively the new method of
accounting for inventories (Note
2)............................... -- -- 4,190 (616) -- 3,574
---- -------- --------- -------- ------ --------
BALANCE AS OF DECEMBER 31, 1998, as
adjusted........................... -- -- 134,770 (3,816) -- 130,954
Contributions...................... -- -- 38,100 -- -- 38,100
Distributions...................... -- -- -- (9,874) -- (9,874)
Net income......................... -- -- -- 15,649 -- 15,649
Reclassification of minority member
deficits......................... -- -- 26,359 -- -- 26,359
---- -------- --------- -------- ------ --------
BALANCE AS OF DECEMBER 31, 1999...... -- -- 199,229 1,959 -- 201,188
Contributions...................... -- -- 20,650 -- -- 20,650
Contribution of equity interest by
minority members................. -- -- 86,694 -- -- 86,694
Distributions...................... -- -- -- (13,364) -- (13,364)
Net income......................... -- -- -- 30,715 -- 30,715
---- -------- --------- -------- ------ --------
BALANCE AS OF DECEMBER 31, 2000...... -- -- 306,573 19,310 -- 325,883
Net income......................... -- -- -- 44,184 -- 44,184
Fair value of interest rate
swaps............................ -- -- -- -- 1,656 1,656
Issuance of equity interest for
acquisitions..................... -- -- 5,000 -- -- 5,000
Distributions...................... -- -- -- (22,606) -- (22,606)
Members' equity repurchased........ -- -- (3,710) -- -- (3,710)
Members' equity surrendered in
purchase price settlement........ -- -- (2,500) -- -- (2,500)
---- -------- --------- -------- ------ --------
BALANCE AS OF DECEMBER 31, 2001...... -- -- 305,363 40,888 1,656 347,907
Contributions (unaudited).......... -- -- 800 -- -- 800
Distributions (unaudited).......... -- -- (11,655) -- -- (11,655)
Net income (unaudited)............. -- -- -- 5,162 -- 5,162
Change in fair value of interest
rate swaps, net of $1,230 tax
effect (unaudited)............... -- -- -- -- 257 257
Stock and stock option compensation
(unaudited)...................... -- 549 -- -- -- 549
Proceeds from initial public
offering, net (unaudited)........ 45 62,748 -- -- -- 62,793
Reclassification of members' equity
due to the exchange of membership
interests for shares of common
stock (unaudited)................ 295 350,541 (294,508) (56,328) -- --
---- -------- --------- -------- ------ --------
BALANCE AS OF MARCH 31, 2002
(unaudited)........................ $340 $413,838 $ -- $(10,278) $1,913 $405,813
==== ======== ========= ======== ====== ========
</Table>
See Notes to Consolidated Financial Statements.
F-5
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS,
AS ADJUSTED (NOTE 2) (DOLLARS IN THOUSANDS)
<Table>
<Caption>
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------- --------------------
1999 2000 2001 2001 2002
--------- --------- --------- --------- --------
(UNAUDITED)
CASH FLOW FROM OPERATING ACTIVITIES:
Net income............................................... $ 15,649 $ 30,715 $ 44,184 $ 6,676 $ 5,162
Adjustments to reconcile net income to net cash provided
by operating activities................................
Depreciation and amortization.......................... 16,676 24,503 30,768 7,007 5,808
(Gain) loss on sale of assets.......................... (2,365) 1,533 384
Gain on sale of discontinued operations................ -- -- -- -- (559)
Minority interest in subsidiary earnings............... 20,520 9,740 1,240 -- --
Deferred income taxes.................................. -- -- -- -- 11,115
Extraordinary loss on early extinguishment of debt..... 752 -- 1,433 1,433 --
Net losses from unconsolidated affiliates.............. 616 6,066 3,248 1,000 100
Other non-cash charges................................. 716 564 3,197 875 1,044
Changes in operating assets and liabilities, net of effects
from acquisitions and divestiture of assets..............
Contracts-in-transit................................... (2,260) (19,632) (16,490) 4,211 6,827
Accounts receivable, net............................... (13,101) (17,500) (20,025) (15,741) (6,403)
Proceeds from sale of accounts receivable.............. 18,108 19,867 17,624 4,967 4,448
Inventories............................................ (50,075) (24,758) 106,430 23,792 (17,233)
Floor plan notes payable............................... 36,402 38,200 (80,812) (13,109) 4,865
Accounts payable and accrued liabilities............... (1,032) (8,335) 12,344 2,728 3,355
Other.................................................. 6,270 2,049 (7,000) (3,144) (2,129)
--------- --------- --------- --------- --------
Net cash provided by operating activities.............. 46,876 63,012 96,525 20,695 16,400
--------- --------- --------- --------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures..................................... (22,327) (36,062) (50,032) (10,326) (8,593)
Proceeds from the sale of assets......................... 15,803 6,054 2,083 484 --
Proceeds from the sale of discontinued operations........ -- -- -- -- 3,377
Acquisitions (net of cash and cash equivalents acquired
of $13,154, $12,776 and $1,049 in 1999, 2000 and 2001,
respectively).......................................... (106,443) (183,840) (50,150) (2,224) --
Investments in unconsolidated affiliates................. (7,500) -- (1,200) (1,200) --
Proceeds from restricted marketable securities........... 1,253 1,423 885 568 913
Net receipt (issuance) of finance contracts.............. (6,250) (480) 121 (571) (850)
Other investing activities............................... (183) -- -- -- (1,901)
--------- --------- --------- --------- --------
Net cash used in investing activities.................. (125,647) (212,905) (98,293) (13,269) (7,054)
--------- --------- --------- --------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions to members................................. (9,874) (13,364) (22,606) (1,803) (4,202)
Repurchase of members' equity............................ -- -- (3,710) -- --
Contributions from members............................... 38,100 20,650 -- -- 800
Repayments of debt....................................... (34,565) (14,597) (343,401) (326,318) (58,211)
Proceeds from borrowings................................. 112,930 159,411 399,717 335,650 2,509
Payment of debt issuance costs........................... -- -- (12,530) (12,191) --
Proceeds from initial public offering, net............... -- -- -- -- 67,364
Net cash contributions from (distributions to) minority
members of subsidiaries................................ (8,622) 212 -- -- --
Other financing costs.................................... -- -- (2,437) -- --
--------- --------- --------- --------- --------
Net cash provided by (used in) financing activities.... 97,969 152,312 15,033 (4,662) 8,260
--------- --------- --------- --------- --------
Net increase in cash and cash equivalents.............. 19,198 2,419 13,265 2,764 17,606
CASH AND CASH EQUIVALENTS, beginning of period............. 25,624 44,822 47,241 47,241 60,506
--------- --------- --------- --------- --------
CASH AND CASH EQUIVALENTS, end of period................... $ 44,822 $ 47,241 $ 60,506 $ 50,005 $ 78,112
========= ========= ========= ========= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for
Interest (net of amounts capitalized).................. $ 42,758 $ 77,322 $ 69,276 $ 20,371 $ 12,880
========= ========= ========= ========= ========
Income taxes........................................... $ 1,364 $ 3,302 $ 4,647 $ 1,903 $ 67
========= ========= ========= ========= ========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of equity for acquisitions...................... $ 27,190 $ 13,050 $ 5,000 $ -- $ --
========= ========= ========= ========= ========
Members' equity surrendered in purchase price
settlement............................................. $ -- $ -- $ 2,500 $ -- $ --
========= ========= ========= ========= ========
</Table>
See Note 4 for additional supplemental non-cash investing activities.
See Notes to Consolidated Financial Statements.
F-6
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
Asbury Automotive Group, Inc. ("Asbury" or the "Company") is a national
automotive retailer, operating 90 new and used car dealerships (including 128
franchises) and 24 collision repair centers in 17 metropolitan areas of the
Southeastern, Midwestern, Southwestern and Northwestern United States as of
March 31, 2002. Asbury sells new and used vehicles, light trucks and replacement
parts, provides vehicle maintenance, warranty, paint and repair services and
arranges vehicle finance, insurance and service contracts for its automotive
customers. Asbury offers, collectively, 32 domestic and foreign brands of new
vehicles. In addition, one dealership sells four brands of commercial motor
trucks.
The Company was formed in 1995 and is controlled by Asbury Automotive
Holdings L.L.C. which is controlled by Ripplewood Investments L.L.C.
2. CHANGE IN METHOD OF ACCOUNTING FOR CERTAIN INVENTORIES
The Company has historically valued certain of its inventories on the
last-in, first-out ("LIFO") method. As of March 19, 2002, the Company changed
its method of valuation of such inventories to the specific identification and
first-in, first-out ("FIFO") methods. The Company believes that the change to
the specific identification and FIFO methods results in a better matching of
revenue and expense and most clearly reflects periodic income. Financial
statements of prior years have been restated to apply the new methodology
retroactively. The effect of the accounting change on income for 1999, 2000 and
2001 is as follows:
<Table>
<Caption>
1999 2000 2001
-------- -------- --------
Effect on Net income.................................. $(499) $1,788 $355
</Table>
The balances of retained earnings for 1999, 2000, and 2001 have been
adjusted for the effect (net of income taxes where applicable) of applying
retroactively the new method of accounting.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements reflect the consolidated accounts of Asbury and its
wholly-owned subsidiaries. The equity method of accounting is used for
investments in which the Company has significant influence. Generally, this
represents common stock ownership or partnership equity of at least 20% but not
more than 50%. All intercompany transactions have been eliminated in
consolidation.
REVENUE RECOGNITION
Revenue from the sale of new and used vehicles is recognized upon delivery,
passage of title, signing of the sales contract and approval of financing.
Revenue from the sale of parts and services is recognized upon delivery of parts
to the customer or when vehicle service work is performed. Sales discounts and
service coupons are accounted for as a reduction to the sales price at the point
of sale.
F-7
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Manufacturer incentives and rebates, including holdbacks, are not recognized
until earned in accordance with the respective manufacturers incentive programs.
The Company receives commissions from the sale of credit life and disability
insurance and vehicle service contracts to customers. In addition, the Company
arranges financing for customers through various institutions and receives
commissions equal to the difference between the loan rates charged to customers
over predetermined financing rates set by the financing institution.
The Company may be charged back ("chargebacks") for financing fees,
insurance or vehicle service contract commissions in the event of early
termination of the contracts by customers. The revenues from financing fees and
commissions are recorded at the time of the sale of the vehicles and a reserve
for future chargebacks is established based on historical operating results and
the termination provisions of the applicable contracts. Finance, insurance and
vehicle service contract revenues, net of estimated chargebacks, are included in
finance and insurance revenue in the accompanying consolidated statements of
income.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments that have an
original maturity of three months or less at the date of purchase.
CONTRACTS-IN-TRANSIT
Contracts-in-transit represent receivables from finance companies for the
portion of the vehicle purchase price financed by customers through sources
arranged by the Company.
INVENTORIES
Inventories are stated at the lower of cost or market. The Company uses the
specific identification method and the "first-in, first-out" method ("FIFO") to
account for its inventories. The Company assesses the lower of cost or market
reserve requirement on an individual unit basis, historical loss rates, the age
and composition of the inventory and current market conditions. The lower of
cost or market reserves were $5,264, $4,689 and $6,503 as of December 31, 2000
and 2001 and for the three months ended March 31, 2002, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold improvements
are capitalized and amortized over the lesser of
F-8
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the life of the lease or the useful life of the related asset. The range of
estimated useful lives is as follows (in years):
<Table>
Buildings and leasehold improvements........................ 5-35
Machinery and equipment..................................... 3-10
Furniture and fixtures...................................... 3-10
Company vehicles............................................ 3-5
</Table>
Expenditures for major additions or improvements, which extend the useful
lives of assets, are capitalized. Minor replacements, maintenance and repairs,
which do not improve or extend the lives of such assets, are charged to
operations as incurred.
The Company capitalizes interest on borrowings during the active
construction period of major capital projects. Capitalized interest is added to
the cost of the assets and is amortized over the estimated useful lives of the
assets. Capitalized interest expense totaled $779 and $129 for the year ended
December 31, 2001 and for the three months ended March 31, 2002, respectively.
GOODWILL AND LONG-LIVED ASSETS
Goodwill represents the excess of purchase price over the fair value of the
net tangible and other intangible assets acquired at the date of acquisition.
Goodwill is amortized on a straight-line basis over 40 years. Amortization
expense charged to operations totaled $4,960, $8,330, and $9,564 for the years
ended December 31, 1999, 2000 and 2001, respectively. Accumulated amortization
totaled $15,041 and $24,748 as of December 31, 2000 and 2001, respectively.
Other intangible assets, included in other assets on the accompanying
consolidated balance sheets, relate mostly to value assigned to manufacturer
franchise rights. The non-compete agreements and favorable lease rights are
amortized on a straight-line basis over the life of the agreements ranging from
3-15 years. The value associated with the manufacturer franchise rights is
deemed to have an indefinite life based on the provisions and/or characteristics
of the manufacturer franchise agreements.
IMPAIRMENT OF GOODWILL AND LONG-LIVED ASSETS
The recoverability of the Company's long-lived assets, including intangibles
with identifiable lives is assessed by comparing the carrying amounts of such
assets to the estimated undiscounted cash flows relating to those assets. The
Company would conclude that an asset was impaired if the sum of such expected
future cash flows is less than the carrying amount of the related asset. If the
Company was to determine that an asset was impaired, the impairment loss would
be the amount by which the carrying amount of the related asset exceeds its fair
value. Events that would trigger an impairment assessment of long-lived assets
include but are not limited to: a significant decrease in the market value of an
asset or in the extent or manner in which an asset is used, a significant
adverse change in legal factors or in the business climate that could affect the
value of an asset or, a history of operating on cash flow losses
F-9
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
or a forecast that demonstrates losses of an asset. The Company does not believe
its long-lived assets are impaired at March 31, 2002.
The Company follows the provisions of SFAS No. 142 on assessing the
recoverability of goodwill and nonamortizable, indefinite life intangible assets
(see Recent Accounting Pronouncements for further disclosure).
EQUITY-BASED COMPENSATION
The Company accounts for equity-based compensation issued to employees in
accordance with Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company, as permitted by Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," has chosen to account for equity options at their intrinsic
value. The Company has granted options either at or above market value and
accordingly, no compensation expense has been recorded for its option plan.
TAX STATUS
The Company consists primarily of limited liability companies and
partnerships (with the Company as the parent), which are treated as one
partnership for tax purposes. Under this structure, such companies and
partnerships are not subject to income taxes but instead the members of the
Company are taxed on their respective distributive shares of the Company's
taxable income. Therefore, no provision for federal or state income taxes has
been included in the financial statements for the limited liability companies
and partnerships.
The Company has nine subsidiaries which for income tax purposes are "C"
corporations under the provisions of the U.S. Internal Revenue Code and,
accordingly, follow the liability method of accounting for income taxes in
accordance with SFAS No. 109, "Accounting for Income Taxes." Under this method,
deferred income taxes are recorded based upon differences between the financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that are assumed to be in effect when the underlying
assets are realized and liabilities are settled. A valuation allowance reduces
deferred tax assets when it is more likely than not that some or all of the
deferred tax assets will not be realized.
ADVERTISING
The Company expenses production and other costs of advertising as incurred
net of earned manufacturer credits and other discounts. Advertising expense
totaled $29,622, $42,233 and $43,131 for the years ended December 31, 1999, 2000
and 2001 and $10,503 and $13,113 for the three-month periods ended March 31,
2001 and 2002 net of earned manufacturer credits of $7,035, $10,698, $11,019,
$1,782 and $2,535, respectively, and is included in selling, general and
administrative expense in the accompanying consolidated statements of income.
For the years ended December 31, 1999, 2000 and 2001, approximately $4,000,
$5,200 and $5,946 and for the three-month periods ended March 31, 2001
F-10
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and 2002 approximately $290 and $790, respectively, was paid to two separate
entities in which two shareholders had substantial interests.
USE OF ESTIMATES
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the date of the financial statements and
reported amounts of revenues and expenses during the periods presented. Actual
results could differ from those estimates, particularly related to realization
of inventory values, allowance for credit losses (see Note 7) and reserves for
future chargebacks.
STATEMENTS OF CASH FLOWS
The net change in floor plan financing of inventories, which is a customary
financing technique in the industry, is reflected as an operating activity in
the accompanying consolidated statements of cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of restricted
marketable securities, floor plan notes payable and long-term debt. The carrying
amounts of its financial instruments approximate their fair values at
December 31, 2000 and 2001 and March 31, 2002 due to their relatively short
duration and variable interest rates.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash deposits. The Company
maintains cash balances in financial institutions with strong credit ratings. At
times, amounts invested with financial institutions may be in excess of FDIC
insurance limits.
Concentrations of credit risk with respect to contracts-in-transit and
accounts receivable are limited primarily to automakers and financial
institutions. Credit risk arising from receivables from commercial customers is
minimal due to the large number of customers comprising the Company's customer
base.
For the year ended December 31, 2001, Honda, Ford, Toyota, Nissan, Lexus,
Acura and Mercedes Benz accounted for 17%, 12%, 10%, 8%, 6%, 5% and 5% of our
revenues from new vehicle sales, respectively. No other franchise accounted for
more than 5% of our total new vehicle revenue sales in 2001.
F-11
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DERIVATIVE INVESTMENTS AND HEDGING ACTIVITIES
The Company utilizes derivative financial investments for the purpose of
hedging the risks of certain identifiable and anticipated transactions. In
general, the types of risks hedged are those relating to the variability of
future earnings and cash flows caused by movements in interest rates. The
Company documents its risk management strategy and hedge effectiveness at the
inception of and during the term of each hedge. Currently, the only derivatives
being used by the Company are interest rate swaps for the purpose of hedging the
cash flows of variable rate debt.
The Company utilizes such derivatives only for the purpose of hedging the
related risks, not for speculation. The derivatives which have been designated
and qualify as cash flow hedging instruments are reported at fair value. The
gain or loss on the effective portion of the hedge is initially reported as a
component of other comprehensive income. The remaining gain or loss, if any, is
recognized currently in earnings. Amounts in accumulated other comprehensive
income are reclassified into net income in the same period in which the hedged
forecasted transaction affects earnings.
SEGMENT REPORTING
The Company follows the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." Based upon definitions
contained in SFAS No. 131, the Company has determined that it operates in one
segment and has no international operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities and measure those instruments at
fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security or a foreign
currency-denominated forecasted transaction. The accounting for changes in the
fair value of a derivative (gains or losses) depends on the intended use of the
derivative and the resulting designation. SFAS No. 137 amended the effective
date to all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS
No. 138, issued in June 2000, addressed a limited number of issues that were
causing implementation difficulties for numerous entities applying SFAS
No. 133. The adoption of SFAS No.133 did not have a material impact on the
Company's results of operations, financial position, liquidity or cash flows.
F-12
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
On June 30, 2001, the Financial Accounting Standards Board ("FASB")
finalized and issued Statements of Financial Accounting Standards No. 141,
"Business Combinations" ("SFAS 141") and No. 142, "Goodwill and Other Intangible
Assets" ("SFAS 142").
SFAS 141 requires all business combinations initiated after June 30, 2001 to
be accounted for using the purchase method, eliminating the pooling of interests
method.
SFAS No. 142 eliminates goodwill amortization over its estimated useful
life. However, goodwill will be subject to at least an annual assessment for
impairment by applying a fair value based test. Additionally, acquired
intangible assets should be separately recognized if the benefit of the
intangible asset is obtained through contractual or other legal rights, or if
the intangible asset can be sold, transferred, licensed, rented, or exchanged,
regardless of the acquirer's intent to do so. Intangible assets with definitive
lives will need to be amortized over their useful lives. The statement requires
that by June 30, 2002, a company must establish its fair value benchmarks in
order to test for impairment. The Company adopted this statement effective
January 1, 2002, but is still in the process of evaluating its benchmark
assessments. The Company does not anticipate that the ultimate adoption of all
the provisions of SFAS No. 142 will result in an impairment of goodwill, based
on the fair value based test; however, changes in the facts and circumstances
relating to the Company's goodwill and other intangible assets could result in
an impairment of intangible assets in the future.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." SFAS No. 144 supercedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of" and the accounting and reporting provisions of Accounting
Principles Board Opinion (APB) No. 30, "Reporting the Results of Operations
Reporting the Effects of The Disposal of a Segment Business and Extraordinary,
Unusual and Infrequently Occurring Events and Transactions." SFAS No. 144
establishes a single accounting model for assets to be disposed of by sale
whether previously held and used or newly acquired. SFAS No. 144 retains the
provisions of APB No. 30 for presentation of discontinued operations in the
income statement, but broadens the presentation to include a component of an
entity. The Company adopted this statement effective January 1, 2002. The
adoption of this statement resulted in income from discontinued operations of
$87 for the three months ended March 31, 2002 and losses of $1,141, $1,750, $553
and $229 for the years ended December 31, 1999, 2000 and 2001 for the three
months ended March 31, 2001, respectively being classified to discontinued
operations of the accompanying statements of income.
4. ACQUISITIONS
OVERVIEW
Prior to the Minority Member Transaction discussed later in this note, the
Company had consummated eight major platform acquisitions ("platforms"), which
were effected through its subsidiaries in which the sellers received, in
addition to cash consideration, an interest in the platform subsidiary
established to effect the related acquisition. Minority ownership interests
related to such
F-13
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
4. ACQUISITIONS (CONTINUED)
transactions ranged from 20% to 49%. Such acquisitions were accounted for using
the purchase method of accounting; however, as also discussed below, certain of
these acquisitions were effected through leveraged buy-out transactions. A
leveraged buy-out is a transaction where in excess of 50% of the purchase price
has been financed. According to Emerging Issues Task Force (EITF) 88-16
transactions meeting the criteria of a leveraged buy-out where the previous
control group receives a greater than 20% interest in the acquired company, the
net assets associated with the previous control group should be stated at
historical cost. In such cases, the historical book value (carryover basis) was
used to measure the portion of assets acquired and liabilities assumed
attributed to such minority members of the subsidiaries. In connection with the
Minority Member Transaction, as discussed below, the minority interests in the
subsidiaries were acquired using the purchase method of accounting. As such, on
April 30, 2000 the impact of carryover basis accounting associated with the
interests transferred into Asbury Automotive Oregon L.L.C., ("Asbury Oregon"),
have been eliminated.
The Company has consummated additional acquisitions through its subsidiaries
and certain of these acquisitions resulted in the issuance of minority
interests. Certain of these additional acquisitions were combined to create a
ninth platform.
The operations of the acquired dealerships are included in the accompanying
consolidated statements of income commencing on the date acquired.
MINORITY MEMBER TRANSACTION
On April 30, 2000, Asbury, the then parent company, and the minority members
of Asbury's subsidiaries reached an agreement whereby their respective equity
interests were transferred into escrow pending the approval of the vehicle
manufacturers. On August 30, 2000 the vehicle manufacturers, of which approval
was required, approved the transaction and the respective equity interests were
released from escrow and were transferred into Asbury Oregon in exchange for
equity interests in Asbury Oregon (the "Minority Member Transaction"). On the
date the equity interests were transferred into escrow, the exchange of the
minority members' interests was accounted for using the purchase method of
accounting whereby the values of the related minority interests transferred into
Asbury Oregon were recorded at their estimated fair values, approximately
$93,710. The accompanying consolidated balance sheets include the allocations of
the purchase price to tangible and intangible net assets transferred. This
allocation resulted in recording approximately $23,679 of goodwill. Following
the Minority Member Transaction, the then parent company, Asbury, changed its
name to Asbury Automotive Holdings L.L.C. ("Asbury Holdings") and Asbury Oregon
changed its name to Asbury Automotive Group L.L.C. Subsequent to the Minority
Member Transaction, Asbury Holdings owns approximately 59% of the member
interest of the Company with the remaining member interest being held by the
former minority members of the Company's subsidiaries.
F-14
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
4. ACQUISITIONS (CONTINUED)
1999
During 1999, the Company acquired one platform (consisting of 6
dealerships), and 9 other dealerships as well as the remaining interest of a
dealership partially purchased in 1998 for an aggregate purchase price of
$119,597, including the proceeds from $73,784 in borrowings and the issuance of
minority interests to certain of the previous controlling shareholders.
The accompanying consolidated financial statements include the results of
operations of acquisitions acquired in 1999 subsequent to the date of the
respective acquisitions. The following unaudited pro forma financial data
reflects the 1999 acquisitions as if they occurred on January 1, 1999.
<Table>
<Caption>
1999
-----------
(UNAUDITED)
Revenues.................................................... $3,370,470
Income from continuing operations before income taxes,
minority interest and extraordinary loss.................. 44,812
</Table>
2000
During 2000, the Company acquired 18 dealerships for an aggregate purchase
price of $197,648, including the proceeds from $140,820 in borrowings and the
issuance of member equity interests to certain of the previous controlling
shareholders.
The accompanying consolidated financial statements include the results of
operations of acquisitions acquired in 1999 and 2000 subsequent to the date of
the respective acquisitions. The following unaudited pro forma financial data
reflects the 1999 and 2000 acquisitions and the effect of the Minority Member
Transaction as if they occurred on January 1, 1999.
<Table>
<Caption>
1999 2000
---------- ----------
(UNAUDITED)
Revenues............................................. $4,189,491 $4,220,047
Income from continuing operations before income
taxes, minority interest and extraordinary loss.... 52,891 48,407
</Table>
2001
During 2001 the Company acquired 7 dealerships for an aggregate purchase
price of $51,199 principally funded through the Company's acquisition credit
facility and the issuance of a $5,000 equity interest in the Company to certain
of the selling shareholders.
The accompanying consolidated financial statements include the results of
operations of the acquisitions completed in 2000 and 2001 from the date of the
respective acquisitions. The following
F-15
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
4. ACQUISITIONS (CONTINUED)
unaudited pro forma financial data reflects the 2000 and 2001 acquisitions as if
they occurred on January 1, 2000.
<Table>
<Caption>
2000 2001
---------- ----------
(UNAUDITED)
Revenues............................................. $4,527,765 $4,451,921
Income from continuing operations before income
taxes, minority interest and extraordinary loss.... 50,859 53,295
</Table>
The unaudited pro forma selected financial data does not purport to
represent what the Company's results of operations would have actually been had
the transactions in fact occurred as of an earlier date or project the results
for any future period. Pro forma adjustments included in the amounts above
relate primarily to: (a) pro forma amortization expense; (b) adjustments to
compensation expense and management fees to the post acquisition contracted
amounts and; (c) increases in interest expense resulting from the net cash
borrowings used to complete the related acquisitions.
The foregoing acquisitions were all accounted for under the purchase method
of accounting. Except as discussed below, the historical book values of the
assets and liabilities were recorded at their fair value as of the acquisition
dates. Certain of these acquisitions were affected through leveraged buyout
transactions. Prior to the Minority Member Transaction, the accompanying
consolidated financial statements reflected the use of carryover basis (i.e.,
the historical values of the acquired company prior to the acquisition) in order
to measure the portion of assets acquired and liabilities assumed attributed to
certain minority members of the subsidiaries.
In certain of these transactions, just prior to the leveraged buy-out of the
related controlling interest, the net book value attributable to the minority
interests was increased to reflect its fair value. This amount along with the
historical carrying amount of the net assets acquired was the basis for
determining the amount of carryover basis used to record the leveraged buy-out
of the acquisition.
The following table summarizes the Company's acquisitions:
<Table>
<Caption>
ACQUISITIONS CONSUMMATED IN
-------------------------------
1999 2000 2001
-------- --------- --------
Cash paid for businesses acquired............ $119,597 $ 196,616 $ 51,199
Equity issued................................ -- -- 5,000
Issuance of minority equity interest......... 27,190 13,050 --
Less: Predecessor cost adjustment............ (18,828) (9,582) --
Goodwill..................................... (87,754) (129,557) (40,317)
-------- --------- --------
Estimated fair value of net tangible and
other intangible assets acquired........... $ 40,205 $ 70,527 $ 15,882
======== ========= ========
</Table>
F-16
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
4. ACQUISITIONS (CONTINUED)
As a result of the Minority Member Transaction, $82,783 of predecessor cost
adjustment has been eliminated as part of the purchase accounting applied.
The allocation of purchase price to assets acquired and liabilities assumed
for 2001 acquisitions has been based on preliminary estimates of fair value and
may be revised as additional information concerning valuation of such assets and
liabilities becomes available. The preliminary allocation of purchase price for
2001 acquisitions is as follows:
<Table>
Working capital............................................. $ 7,213
Fixed assets................................................ 6,454
Other assets................................................ 153
Goodwill.................................................... 40,317
Franchise rights............................................ 5,000
Other liabilities........................................... (864)
Acquisition of minority interest............................ (2,074)
-------
Total purchase price........................................ $56,199
=======
</Table>
Amounts for certain of the acquisitions are subject to final purchase price
adjustments for items such as tangible net worth and seller's representations
regarding the adequacy of certain reserves. In addition, the allocation of
amounts to acquired intangibles is subject to final valuation.
MINORITY INTERESTS
The use of carryover basis accounting for those acquisitions effected
through leveraged buy-out transactions combined with the impact of distributing
to the sellers a portion of the borrowings used to consummate such acquisitions
resulted in minority shareholder deficits in those subsidiaries. In 1998, such
deficits were recorded as a reduction of members' equity. In 1999, the Company
determined that the minority portion of those shareholder deficits were
realizable. Accordingly, these amounts were reclassified to, and offset against,
other minority interest amounts. All minority interests were eliminated as a
result of the Minority Member Transaction.
5. INVESTMENTS IN UNCONSOLIDATED AFFILIATES
In the fourth quarter of 1999, the Company made a $7,500 investment in
Greenlight.com ("Greenlight"), a startup Internet company engaged in the retail
sale of new vehicles. The investment was accounted for under the equity method
whereby the Company recorded pre-tax losses of $764 and $6,938 in 1999 and 2000,
respectively, related to its investment in and expenses paid on the behalf of
Greenlight. As of December 31, 2000, the Company's investment was fully
written-off through equity investment losses. In 2001, the Company invested an
additional $1,200 into Greenlight. Following the Company's additional
investment, Greenlight was merged into CarsDirect.com ("CarsDirect") a company
also engaged in the retail sale of new vehicles over the Internet. The Company's
investment
F-17
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
5. INVESTMENTS IN UNCONSOLIDATED AFFILIATES (CONTINUED)
in CarsDirect totaled approximately 3% of CarsDirect's total equity after the
merger. The Company's cost basis investment in CarsDirect is fully reserved for
as of December 31, 2001.
6. DIVESTITURES
During 1999, the Company completed the sale of certain real estate assets
for net cash proceeds of $13,016 recognizing a gain of $2,392. The gain was
comprised of the difference of $3,459 between the recorded book value as of the
date of the sale and the net cash proceeds is attributed to the use of carryover
basis in valuing the minority interest in the related assets. Of that
difference, $1,067 relates to the sale of an asset back to one of the Company's
minority members within the purchase price allocation period and was therefore
accounted for as an adjustment to the related purchase price. In addition, the
Company sold other fixed assets for cash proceeds of $2,787, recognizing a $27
loss.
During 2000, the Company sold three dealerships and certain fixed assets for
net cash proceeds of $6,054 and recorded a net loss on sale of these assets of
$1,533. The loss was comprised of $1,650 of losses from the sale of dealerships
which was offset by $117 of gains from the sale of fixed assets.
During 2001, the Company received net cash proceeds of $2,083 and recorded a
$384 net loss on the sale of assets. The net loss was comprised of a $421 loss
related to the divestiture of two franchises offset by a $37 gain on the sale of
fixed assets.
The above mentioned gain in 1999, which resulted from the use of carryover
basis to value the minority interest in the related assets, is also reflected in
minority interest in subsidiary earnings on the respective accompanying
consolidated statements of income.
7. INVENTORIES AND RELATED FLOOR PLAN NOTES PAYABLE
Inventories consist of the following:
<Table>
<Caption>
DECEMBER 31,
------------------- MARCH 31,
2000 2001 2002
-------- -------- -----------
(UNAUDITED)
New vehicles................................. $445,354 $381,011 $380,947
Used vehicles................................ 74,529 74,885 90,640
Parts and accessories........................ 38,281 40,158 39,212
-------- -------- --------
Total inventories.......................... $558,164 $496,054 $510,799
======== ======== ========
</Table>
The inventory balance is reduced by manufacturers' purchase discounts; such
reduction is not reflected in related floor plan liability.
Floor plan notes payable reflect amounts payable for purchases of specific
vehicle inventories and are due to various floor plan lenders bearing interest
at variable rates based on LIBOR or prime. For the years ended December 31, 2000
and 2001, and three months ended March 31, 2002, the weighted
F-18
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
7. INVENTORIES AND RELATED FLOOR PLAN NOTES PAYABLE (CONTINUED)
average interest rates on floor plan notes payable outstanding were 8.7%, 6.3%
and 4.0%, respectively. Floor plan arrangements permit borrowings based upon new
and used vehicle inventory levels. Vehicle payments on notes are due when the
related vehicles are sold. The notes are collateralized by substantially all
vehicle inventories of the respective subsidiary and are subject to certain
financial and other covenants.
8. ACCOUNTS AND NOTES RECEIVABLE
ACCOUNTS RECEIVABLE
The Company has agreements to sell certain of its trade receivables, without
recourse as to credit risk, in an amount not to exceed $25,000 per year. The
receivables are sold at a discount which is included in selling, general and
administrative expenses in the accompanying consolidated statements of income.
The discounts totaled $543, $556 and $476 for the years ended December 31, 1999,
2000, 2001 and $119 and $92 for the three-month periods ended March 31, 2001 and
2002, respectively. At December 31, 2000 and 2001 and March 31, 2002, $19,867,
$17,624 and $4,448 of receivables, respectively, were sold under these
agreements and were reflected as reductions of trade accounts receivable.
NOTES RECEIVABLE
Notes receivable for finance contracts, included in prepaid and other
current assets and other assets on the accompanying consolidated balance sheets,
have initial terms ranging from 12 to 60 months bearing interest at rates
ranging from 7.5% to 29.9% and are collateralized by the related vehicles. Notes
receivable finance contracts consists of the following:
<Table>
<Caption>
DECEMBER 31,
------------------- MARCH 31,
2000 2001 2002
-------- -------- -----------
(UNAUDITED)
Gross contract amounts due.................... $ 34,614 $ 34,857 $ 35,737
Less Allowance for credit losses.............. (4,760) (4,631) (4,662)
-------- -------- --------
29,854 30,226 31,075
Current maturities, net....................... (14,741) (13,916) (14,165)
-------- -------- --------
Notes receivable, net of current portion...... $ 15,113 $ 16,310 $ 16,910
======== ======== ========
</Table>
F-19
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
8. ACCOUNTS AND NOTES RECEIVABLE (CONTINUED)
Contractual maturities of gross notes receivable finance contracts at
December 31, 2001 are as follows:
<Table>
2002........................................................ $13,916
2003........................................................ 10,321
2004........................................................ 7,195
2005........................................................ 2,889
2006........................................................ 536
-------
$34,857
=======
</Table>
9. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consist of the following:
<Table>
<Caption>
DECEMBER 31,
------------------- MARCH 31,
2000 2001 2002
-------- -------- -----------
(UNAUDITED)
Land......................................... $ 60,031 $ 67,937 $ 67,964
Buildings and leasehold improvements......... 121,809 154,759 158,982
Machinery and equipment...................... 27,966 32,537 32,702
Furniture and fixtures....................... 19,641 24,636 24,254
Company vehicles............................. 19,162 24,236 23,877
-------- -------- --------
Total...................................... 248,609 304,105 307,779
Less Accumulated depreciation................ (30,456) (47,703) (49,400)
-------- -------- --------
Property and equipment, net................ $218,153 $256,402 $258,379
======== ======== ========
</Table>
10. SHORT-TERM DEBT
One of the Company's subsidiaries had $25,000 available under the terms of
certain revolving credit facilities through April 2001 and $10,000 available
under one credit facility thereafter, of which $13,667, $10,000 and $10,000 was
outstanding at December 31, 2000 and 2001, and March 31, 2002, respectively. The
credit facilities are secured by the notes receivable of the respective
subsidiary. Such amounts are payable on demand, and accrue interest at variable
rates (the weighted average interest rates were 10.0% and 8.6% for the years
ended December 31, 2000 and 2001 and 5.6% for the three-month period ended
March 31, 2002, respectively). In addition, another one of the Company's
subsidiaries had $2,623 outstanding on a revolving credit facility as of
December 31, 2000, representing the full amount available under the facility.
Such amount was repaid in January 2001.
The credit facilities mentioned above are subject to certain financial and
other covenants.
F-20
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
11. LONG-TERM DEBT
Long-term debt consists of the following at:
<Table>
<Caption>
DECEMBER 31,
------------------- MARCH 31,
2000 2001 2002
-------- -------- -----------
(UNAUDITED)
Term notes payable to banks (including the Committed Credit
Facility, as defined below) bearing interest at fixed and
variable rates (the weighted average interest rates were
10.1% and 9.8% for the years-ended December 31, 2000 and
2001 and 8.4% for the three-month period ended March 31,
2002, respectively), maturing in January 2005, secured by
the assets of the related subsidiary companies............ $318,582 $383,269 $332,138
Mortgage notes payable to banks bearing interest at fixed
and variable rates (the weighted average interest rates
were 9.3% and 7.9% for years-ended December 31, 2000 and
2001, and 5.7% for the three-month period ended March 31,
2002, respectively), maturing at various dates from 2002
to 2015. These obligations are secured by property, plant
and equipment of the related subsidiary companies which
had an approximate net book value of $157,084 at December
31, 2001.................................................. 114,646 121,730 120,448
Non-interest bearing note payable to former shareholders of
one of the Company's subsidiaries, net of unamortized
discount of $1,886, $1,113 and $893 as of December 31,
2000 and 2001 and March 31, 2002, respectively, determined
at an effective interest rate of 6.4%, payable in
semiannual installments of approximately $913, due January
2006, secured by marketable securities.................... 8,453 7,138 6,445
Notes payable to financing institutions secured by
rental/loaner vehicles bearing interest at variable rates
(the weighted average interest rates were 8.7% and 7.6%
for the years ended December 31, 2000 and 2001, and 5.6%
for the three-month period ended March 31, 2002,
respectively), maturing at various dates from 2002 to
2004...................................................... 7,269 10,741 10,377
Capital lease obligations................................... 4,058 2,297 2,058
Other notes payable......................................... 2,366 3,162 4,561
-------- -------- --------
455,374 528,337 476,027
Less Current portion........................................ (19,495) (35,789) (46,338)
-------- -------- --------
Long-term portion........................................... $435,879 $492,548 $429,689
======== ======== ========
</Table>
F-21
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
11. LONG-TERM DEBT (CONTINUED)
The aggregate maturities of long-term debt at December 31, 2001, are as
follows:
<Table>
2002........................................................ $ 35,789
2003........................................................ 49,569
2004........................................................ 5,148
2005........................................................ 398,880
2006........................................................ 3,414
Thereafter.................................................. 35,537
--------
$528,337
========
</Table>
Prior to January 17, 2001, the Company had variable rate notes, primarily
based on LIBOR which were subject to normal lending terms and contained
covenants which limited the Company's ability to incur additional debt and
transfer cash outside the related subsidiary (such restrictions include
transferring funds upstream to the Company). In addition, the various debt
agreements required the related subsidiary to maintain certain financial ratios.
On January 17, 2001, the Company entered into a three year committed
financing agreement (the "Committed Credit Facility") with Ford Motor Credit
Company, General Motors Acceptance Corporation and Chrysler Financial Company
L.L.C. with total availability of $550 million. The Committed Credit Facility is
used for working capital and acquisition financing. At the date of closing, the
Company utilized $330,599 of the Committed Credit Facility to repay certain
existing term notes and pay certain fees and expenses of the closing. All
borrowings under the Committed Credit Facility bear interest at variable rates
based on LIBOR plus a specified percentage depending on the Company's attainment
of certain leverage ratios and the outstanding balance under this Facility.
The terms of the Committed Credit Facility require the Company to maintain
certain financial covenants including a current ratio, a fixed charge coverage
ratio and a leverage ratio.
The Company has extended the maturity of the Committed Credit Facility
through January 2005.
Also on January 17, 2001, and in connection with the Committed Credit
Facility, the Company obtained uncommitted floor plan financing lines of credit
for new vehicles (the "New Floor Plan Lines"). The Company refinanced
substantially all of its existing floor plan debt under the New Floor Plan
Lines. The New Floor Plan Lines do not have specified maturities. They bear
interest at variable rates based on LIBOR or prime and are provided by:
<Table>
Ford Motor Credit Company................................... $330 million
Chrysler Financial Company L.L.C............................ 315 million
General Motors Acceptance Corporation....................... 105 million
------------
Total floor plan lines...................................... $750 million
============
</Table>
F-22
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
11. LONG-TERM DEBT (CONTINUED)
The Company finances substantially all of its new vehicle inventory and a
portion of its used vehicle inventory under the floor plan financing credit
facilities. The Company is required to make monthly interest payments on the
amount financed, but is not required to repay the principal prior to the sale of
the vehicle. These floor plan arrangements grant a security interest in the
financed vehicles as well as the related sales proceeds. Amounts financed under
the floor plan financing bear interest at variable rates, which are typically
tied to LIBOR or a prime rate.
Each of the above three lenders also provides, in its reasonable discretion,
uncommitted floor plan financing for used vehicles. Such used vehicle financing
is provided up to a fixed percentage of the value of each financed used vehicle.
At December 31, 2000 and 2001, the Company held investments in restricted
marketable securities (U.S. Treasury Strips), which serve as collateral for a
non-interest bearing note payable due to former shareholders of one of the
Company's subsidiaries. These marketable securities are classified as held to
maturity and accordingly stated at cost which approximates fair market value and
mature in 2006. The principal on the non-interest-bearing note is repaid from
the proceeds of the maturity of such securities.
Deferred financing fees aggregated approximately $1,711, $8,832 and $7,918
as of December 31, 2000 and 2001 and March 31, 2002, net of accumulated
amortization of $1,068, $3,568 and $4,613, respectively, and are included in
other assets on the accompanying consolidated balance sheets.
12. FINANCIAL INSTRUMENTS
The Company has entered into interest rate swap agreements to reduce the
effects of changes in interest rates on its floating LIBOR rate long-term debt.
At December 31, 2001, the Company had outstanding three interest rate swap
agreements with a financial institution, having a combined total notional
principal amount of $300 million, all maturing in November 2003. The aggregate
fair value of the swap arrangements at December 31, 2001 was $1,776. For the
year ended December 31, 2001, the ineffectiveness reflected in earnings was
$120. The measurement of hedge ineffectiveness is based on a comparison of the
change in fair value of the actual swap and the change in fair value of a
hypothetical swap with terms that identically match the critical terms of the
floating rate debt. The ineffectiveness of these swaps is reported in other
income in the accompanying consolidated statement of income. During the first
quarter of 2002, the Company terminated its three interest rate swap agreements
and immediately entered into three new interest rate swap agreements for the
same combined notional principal amount, with the same maturity date,
November 2003. The original swap agreements had an aggregate fair market value
of $1,727 at the date of termination. Such amount will be amortized into income
using the effective interest method through November 2003, the maturity date of
the original agreements. The new swaps agreements also require the Company to
pay fixed rates with a weighted average of approximately 2.99% and receive in
return amounts calculated at one-month LIBOR. The swap agreements have been
designated and qualify as cash flow hedges of the Company's forecasted variable
interest rate payments. At March 31, 2002, the aggregate fair value of the
unamortized portion of the terminated swaps and the swaps currently in place was
$3,143. For the quarter, the
F-23
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
12. FINANCIAL INSTRUMENTS (CONTINUED)
ineffectiveness reflected in earnings, prior to the termination of the original
swaps, was not material. The new swap agreements do not contain any
ineffectiveness.
Additionally, in December 2000, the Company terminated a swap agreement
resulting in a gain of $375 which was deferred and recorded to income in the
first quarter of 2001 when the related debt was extinguished.
13. INCOME TAXES (UNAUDITED)
Effective March 19, 2002, the Company converted to a corporation and is now
subject to federal, state and local income taxes. In connection with the IPO and
in accordance with SFAS No. 109 "Accounting for Income Taxes," the Company
recorded a one-time nonrecurring charge of $11,553 for deferred taxes upon the
exchange of the limited liability company interest in Asbury Automotive Group
L.L.C. for the Company's stock. This charge relates to a net deferred tax
liability associated with the difference between the financial statement and tax
basis of the assets and liabilities of the Company at the conversion date. Prior
to the conversion to a corporation, Asbury Automotive Group L.L.C. was comprised
primarily of limited liability companies and partnerships (with Asbury
Automotive Group L.L.C. as the parent), which were treated as one partnership
for tax purposes. In addition, Asbury Automotive Group L.L.C. had nine
subsidiaries that were already corporations and followed the provisions of SFAS
No. 109. For the period from January 1, 2002 through March 31, 2002, the Company
recorded a tax provision of $2,194 relating to income from operations of the
Company's preexisting corporations (noted above) for the three months ended
March 31, 2002 and income from operations of the remainder of the Company's
subsidiaries for the period from March 19, 2002 through March 31, 2002.
For those subsidiaries subject to income tax, provisions have been made for
deferred taxes based on differences between financial statement and tax basis of
assets and liabilities using currently enacted tax rates and regulations.
F-24
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
13. INCOME TAXES (UNAUDITED) (CONTINUED)
The pro forma provision for income taxes reflects the income tax expense
that would have been reported if the Company had been a C corporation. The
components of unaudited pro forma income taxes for the year ended December 31,
2001 are as follows:
<Table>
<Caption>
DECEMBER 31, MARCH 31,
2001 2002
------------ ---------
Pro forma income taxes:
Current:
Federal............................................. $18,479 $ 7,396
State............................................... 2,640 1,376
Less: minority portion.............................. (519) --
------- -------
Total current....................................... 20,600 8,772
Deferred:
Federal............................................. 1,164 9,244
State............................................... 166 1,030
Less: minority portion.............................. (33) --
------- -------
Total deferred...................................... 1,297 10,274
------- -------
Total pro forma income taxes.......................... $21,897 $19,046
======= =======
</Table>
The following tabulation reconciles the expected corporate federal income
tax expense for the year ended December 31, 2001 to the Company's unaudited pro
forma income tax expense:
<Table>
<Caption>
DECEMBER 31, MARCH 31,
2001 2002
------------ ---------
Expected pro forma income tax expense................. 35.0% 35.0%
State income tax, net of federal tax effect........... 5.0 4.0
Non-deductible goodwill and other intangibles......... 2.5 --
Other, net............................................ 2.0 0.8
---- ----
44.5% 39.8%
==== ====
</Table>
F-25
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
14. EARNINGS PER SHARE (UNAUDITED)
Basic earnings per share is computed by dividing net income by the assumed
weighted-average common shares outstanding during the period. Diluted earnings
per share is computed by dividing net income by the assumed weighted-average
common shares and common share equivalents outstanding during the period.
The basic and diluted earnings per share and number of common share and
common share equivalents are as follows:
<Table>
<Caption>
FOR THE THREE
FOR THE YEAR MONTHS ENDED
ENDED DECEMBER MARCH 31,
31, 2001 2002
-------------- -------------
Earnings per common share:
Basic:
Income from continuing operations before
extraordinary loss........................... $ 0.96 $ 0.17
Extraordinary loss on early extinguishment of
debt......................................... (0.03) --
Discontinued operations........................ (0.01) --
------ ------
Net income..................................... $ 0.92 $ 0.17
====== ======
Diluted:
Income from continuing operations before
extraordinary loss........................... $ 0.96 $ 0.17
Extraordinary loss on early extinguishment of
debt......................................... (0.03) --
Discontinued operations........................ (0.01) --
------ ------
Net income..................................... $ 0.92 $ 0.17
====== ======
Weighted average shares outstanding (in
thousands):
Basic shares................................... 29,500 30,400
Shares issuable with respect to additional
common share equivalents (stock options)..... 22 34
------ ------
Diluted share equivalents...................... 29,522 30,434
====== ======
</Table>
15. RELATED-PARTY TRANSACTIONS
In connection with its acquisitions, the Company paid $1,000 during 1999, to
certain of its members for transaction related services.
In May 1999, the Company sold back to one of its shareholders a hotel
business that it acquired in the previous year from him for $2,400. This
transaction had no impact the Company's consolidated statement of income. The
Company continues to maintain a guarantee on certain debt of that business which
had an outstanding balance of $4,500 as of December 31, 2001.
F-26
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
15. RELATED-PARTY TRANSACTIONS (CONTINUED)
In addition to the advertising expenses (Note 3) and operating leases
(Note 15), the Company paid $180, $118 and $405 for the years ended
December 31, 1999, 2000 and 2001, to various entities owned by its members for
plane usage. Such amounts are included in selling, general and administrative
expense on the accompanying consolidated statements of income.
The Company receives management fees from non-consolidated entities owned by
its shareholders for accounting and other administrative services. Such amounts
totaled $54, $54 and $35 for the years ended December 31, 1999, 2000 and 2001,
and is included as an offset to selling, general and administrative expenses in
the accompanying consolidated statements of income.
In January 2001 the Company sold $378 of inventory to one of its
shareholders.
The Company has entered into an agreement to acquire land from one of its
shareholders for $1,700 which equaled the appraised value. The funds for this
transaction are currently in escrow.
In the first quarter 2002 the Company purchased land from one of its
shareholders for $2,000. The appraised value of the property is $800 less than
the anticipated purchase price due partially to demand for this property with
the remainder being offset by a rent-free lease to be entered into with this
member for an adjacent piece of property.
16. OPERATING LEASES
The Company leases various facilities and equipment under long-term
operating lease agreements, including leases with its members or entities
controlled by the Company's shareholders. In instances where the Company entered
into leases in which the rent escalates over time the Company has straight-lined
the rent expense over the life of the lease. Rent expense amounted to $16,943,
$22,616 and $25,679 for the three years ended December 31, 1999, 2000 and 2001
and $5,957 and $6,794 for the three-month periods ended March 31, 2001 and 2002,
respectively. Of these amounts, $10,405, $14,103, $12,175, $3,063 and $3,212,
respectively, were paid to entities controlled by its shareholders.
Future minimum payments under long-term, non-cancelable operating leases as
of December 31, 2001, are as follows:
<Table>
<Caption>
RELATED PARTIES THIRD PARTIES TOTAL
--------------- ------------- --------
2002..................................... $ 12,850 $ 14,334 $ 27,184
2003..................................... 12,893 12,928 25,821
2004..................................... 12,929 11,275 24,204
2005..................................... 12,966 10,346 23,312
2006..................................... 12,923 9,012 21,935
Thereafter............................... 40,878 55,800 96,678
-------- -------- --------
Total.................................. $105,439 $113,695 $219,134
======== ======== ========
</Table>
F-27
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
16. OPERATING LEASES (CONTINUED)
The Company has an option to acquire certain properties from one of the
related party entities mentioned above. The purchase option, initially based on
the aggregate appraised value, adjusts each year for movements in the Consumer
Price Index. The purchase option of $50,396 can only be exercised in total.
17. COMMITMENTS AND CONTINGENCIES
A significant portion of the Company's vehicle business involves the sale of
vehicles, parts or vehicles composed of parts that are manufactured outside the
United States. As a result, the Company's operations are subject to customary
risks of importing merchandise, including fluctuations in the relative values of
currencies, import duties, exchange controls, trade restrictions, work stoppages
and general political and socio-economic conditions in foreign countries. The
United States or the countries from which the Company's products are imported
may, from time to time, impose new quotas, duties, tariffs or other
restrictions, or adjust presently prevailing quotas, duties or tariffs, which
may affect our operations and our ability to purchase imported vehicles and/ or
parts at reasonable prices.
Manufacturers may direct the Company to implement costly capital
improvements to dealerships as a condition for renewing the Company's franchise
agreements with them. Manufacturers also typically require that their franchises
meet specific standards of appearance. These factors, either alone or in
combination, could cause the Company to divert its financial resources to
capital projects from uses that management believes may be of higher long-term
value to the Company, such as acquisitions.
Substantially all of the Company's facilities are subject to federal, state
and local provisions regarding the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the Company expect such
compliance to have, any material effect upon the capital expenditures, net
earnings, financial condition, liquidity or competitive position of the Company.
Management believes that its current practices and procedures for the control
and disposition of such materials comply with applicable federal, state and
local requirements.
The Company is involved in legal proceedings and claims, which arise in the
ordinary course of its business and with respect to certain of these claims, the
sellers have indemnified the Company. In the opinion of management of the
Company, the amount of ultimate liability with respect to these actions will not
materially affect the financial condition, liquidity or the results of
operations of the Company.
The dealerships operated by the Company hold franchise agreements with a
number of vehicle manufacturers. In accordance with the individual franchise
agreements, each dealership is subject to certain rights and restrictions
typical of the industry. The ability of the manufacturers to influence the
operations of the dealerships or the loss of a franchise agreement could have a
negative impact on the Company's operating results.
The Company has guaranteed four loans made by financial institutions either
directly to management or to non-consolidated entities controlled by management
which totaled approximately
F-28
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
17. COMMITMENTS AND CONTINGENCIES (CONTINUED)
$9,100 at December 31, 2001. Three of these guarantees, made on behalf of one of
our platform chief executives and two other platform executives, were made in
conjunction with those executives acquiring equity in the Company. The primary
obligors of these notes are the platform executives. The guarantees were made in
December 1999 and in April 1998 respectively. In each of these cases the Company
believed that it was important for each of the individuals to have equity at
risk. The fourth guarantee is made by a corporation acquired by the Company in
October 1998 and guarantees an industrial revenue bond. Under the terms of the
industrial revenue bond, the Company could not remove itself as a guarantor. The
primary obligor of the note is the non-dealership business entity and that
entity's partners as individuals.
18. EQUITY BASED ARRANGEMENTS
In 1999, the Company adopted an equity option plan for certain management
employees (the "Option Plan") that, as amended, provides for the grant of equity
interests not to exceed $18,000. The grants are stated at a dollar amount based
on the Company's entity value except as the Compensation Committee may otherwise
provide. Except as the Compensation Committee may otherwise provide, that the
exercise price of the grant is equal to the fair market value (as defined) of
the grant on the grant date. Equity interests in the Company purchased by
employees pursuant to the Option Plan are callable by the Company under certain
circumstances at their fair value (as defined) and vest over a period of three
years. The following tables summarize information about option activity and
amounts:
<Table>
<Caption>
MEMBERSHIP
INTEREST
PERCENTAGE
----------
Options outstanding December 31, 1998.......................
Granted................................................... .029%
-----
Options outstanding December 31, 1999....................... .029
Granted................................................... .004
Canceled.................................................. (.029)
-----
Options outstanding December 31, 2000....................... .004%
Granted................................................... .039
Canceled.................................................. (.002)
-----
Options outstanding December 31, 2001....................... .041
=====
</Table>
As of December 31, 2000 and 2001, the weighted average remaining contractual
life was 9.07 and 9.71 years respectively. The number of options exercisable as
of December 31, 2000 and 2001, was .001%.
F-29
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
18. EQUITY BASED ARRANGEMENTS (CONTINUED)
Had the fair value method of accounting been applied to the Company's stock
option plan, the pro forma impact on the Company's net income would have been as
follows for the years ended December 31, 1999, 2000 and 2001:
<Table>
<Caption>
1999 2000 2001
-------- -------- --------
Net income as reported...................................... $15,649 $30,715 $44,184
Pro forma net income........................................ 15,197 30,540 43,283
</Table>
The fair value of options granted, which is amortized to expense over the
option vesting period in determining the pro forma impact, is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions:
<Table>
<Caption>
1999 2000 2001
-------- -------- --------
Expected life of option........................... 5 years 5 years 5 years
Risk-free interest rate........................... 6.14% 6.47% 4.15%
Expected volatility............................... 55% 55% 54%
Expected dividend yield........................... 0% 0% 0%
</Table>
The Company has an arrangement whereby, under certain circumstances, certain
senior executives will participate in the increase in the value of the Company.
The executives would be eligible to receive a portion of the remaining
distributable cash generated from a sale or liquidation of the Company or a
Board declared distribution in excess of the capital contributed to the Company
plus a compounded 8% rate of return. No circumstances have occurred which would
cause such participation nor does the Company presently believe any remaining
distributable cash is available for such executives and, accordingly, no
compensation expense has been recorded for the three years ended December 31,
1999, 2000 or 2001.
19. RETIREMENT PLANS
The Company and several of the subsidiaries have existing 401(k) salary
deferral/savings plans for the benefit of substantially all such employees.
Employees electing to participate in the plans may contribute up to 15% of their
annual compensation limited to the maximum amount that can be deducted for
income tax purposes each year. Vesting varies at each respective subsidiary.
Certain subsidiaries match a portion of the employee's contributions dependent
upon reaching certain operating goals. Expenses related to subsidiary matching
totaled $873, $1,920 and $2,578 for the years ended December 31, 1999, 2000 and
2001, respectively, and aggregated approximately $607 and $679 for the
three-month periods ended March 31, 2001 and 2002, respectively. In 2001, the
Company consolidated substantially all of its existing 401(k) salary
deferral/savings plans into one plan.
20. SUBSEQUENT EVENTS
On March 14, 2002, the Company completed an initial public offering ("IPO")
of 4,500,000 shares of its common shares at a price of $16.50 per share. The IPO
proceeds received, net of underwriting
F-30
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
20. SUBSEQUENT EVENTS (CONTINUED)
discount and expenses, were $62.8 million. Pursuant to the terms of the
Company's $550 million Committed Credit Facility, 80% of the net IPO proceeds
were used to repay debt under this facility. The remaining net proceeds will be
used for working capital, future platform or dealership acquisitions and general
corporate purposes.
Upon the closing of the IPO on March 19, 2002, Asbury Automotive Group
L.L.C. became a wholly-owned subsidiary of Asbury Automotive Group, Inc.
Membership interests in the limited liability company were exchanged for
29,500,000 shares of common stock in the new corporation on the basis of 295,000
shares of common stock for each 1% membership interest.
During the first quarter of 2002, the Company divested two dealerships, one
each in Oregon and North Carolina. The results of operations are accounted for
as discontinued operations in the consolidated statements of income. A summary
of balance sheet and statement of income information relating to the
discontinued operations is as follows:
<Table>
<Caption>
DECEMBER 31,
2001
------------
(UNAUDITED)
Assets:
Cash and cash equivalents................................. $3,545
Inventory................................................. 5,363
Fixed assets, net......................................... 1,094
Other..................................................... 1,465
------
Total assets.............................................. 11,467
------
Liabilities:
Floor plan notes payable.................................. 6,900
Accounts payable and accrued liabilities.................. 4,873
Other..................................................... 149
------
Total liabilities......................................... 11,922
------
Net assets of discontinued operations....................... $ (455)
======
</Table>
F-31
<Page>
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999, 2000 AND 2001 AND MARCH 31, 2001 AND 2002
(INFORMATION AT MARCH 31, 2001 AND FOR THE THREE MONTHS ENDED
MARCH 31, 2001 AND 2002 IS UNAUDITED)
(DOLLARS IN THOUSANDS)
20. SUBSEQUENT EVENTS (CONTINUED)
Statement of Income:
<Table>
<Caption>
FOR THE THREE
FOR THE YEARS ENDED DECEMBER MONTHS ENDED
31, MARCH 31,
------------------------------ -------------------
1999 2000 2001 2001 2002
-------- -------- -------- -------- --------
(UNAUDITED)
Revenues........................................ $84,786 $73,497 $58,467 $15,138 $3,127
Cost of sales................................... 76,627 64,449 50,501 13,077 2,935
------- ------- ------- ------- ------
Gross profit.................................... 8,159 9,048 7,966 2,061 192
Selling, general and administrative............. 8,369 9,433 7,835 2,043 619
Depreciation.................................... 121 118 177 34 25
------- ------- ------- ------- ------
Loss from operations............................ (331) (503) (46) (16) (452)
Other, net...................................... (810) (1,247) (507) (213) (20)
------- ------- ------- ------- ------
Net loss........................................ (1,141) (1,750) (553) (229) (472)
Net gain on disposition of discontinued
operations.................................... -- -- -- -- 559
------- ------- ------- ------- ------
Discontinued operations......................... $(1,141) $(1,750) $ (553) $ (229) $ 87
======= ======= ======= ======= ======
</Table>
As of March 31, 2002, $3,893 of real estate assets related to the North
Carolina dealership divestiture were still held by the Company. The Company
anticipates that these assets will be sold in the third quarter of 2002.
F-32
<Page>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Asbury Automotive Group L.L.C.:
We have audited the accompanying combined statements of income,
shareholders' equity and cash flows of the Business Acquired by Asbury
Automotive Group L.L.C. (Hutchinson Automotive Group) for the period from
January 1, 2000 through June 30, 2000, and for the year ended December 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of the
Business Acquired by Asbury Automotive Group L.L.C. for the period from
January 1, 2000, through June 30, 2000 and for the year ended December 31, 1999,
in conformity with accounting principles generally accepted in the United
States.
/s/ Arthur Andersen LLP
Stamford, Connecticut
June 15, 2001
F-33
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
COMBINED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR JANUARY 1, 2000
ENDED THROUGH
DECEMBER 31, 1999 JUNE 30, 2000
----------------- ---------------
REVENUE:
New vehicles.............................................. $197,556 $ 58,061
Used vehicles............................................. 112,109 35,903
Parts, service and collision repair....................... 25,744 8,285
Finance and insurance, net................................ 7,123 1,713
-------- --------
Total revenue............................................. 342,532 103,962
-------- --------
COST OF SALES:
New vehicles.............................................. 179,016 52,784
Used vehicles............................................. 100,648 31,875
Parts, service and collision repair....................... 14,486 4,703
-------- --------
Total cost of sales....................................... 294,150 89,362
-------- --------
GROSS PROFIT................................................ 48,382 14,600
OPERATING EXPENSES:
Selling, general and administrative....................... 31,696 10,705
Depreciation and amortization............................. 1,018 260
-------- --------
Income from operations.................................... 15,668 3,635
-------- --------
OTHER INCOME (EXPENSE):
Floor plan interest expense............................... (1,675) (635)
Other income, net......................................... 225 58
-------- --------
Total other expense, net.................................. (1,450) (577)
-------- --------
Net income................................................ $ 14,218 $ 3,058
======== ========
</Table>
See Notes to Combined Financial Statements.
F-34
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
COMBINED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
COMMON STOCK RETAINED
AND ADDITIONAL EARNINGS
PAID-IN-CAPITAL (DEFICIT) TOTAL
--------------- --------- --------
BALANCE AS OF DECEMBER 31, 1998............................ $24,601 $ 9,637 $ 34,238
Distributions............................................ -- (13,797) (13,797)
Net income............................................... -- 14,218 14,218
------- -------- --------
BALANCE AS OF DECEMBER 31, 1999............................ 24,601 10,058 34,659
Distributions............................................ -- (36,068) (36,068)
Net income............................................... -- 3,058 3,058
------- -------- --------
BALANCE AS OF JUNE 30, 2000................................ $24,601 $(22,952) $ 1,649
======= ======== ========
</Table>
See Notes to Combined Financial Statements.
F-35
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
COMBINED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
FOR THE PERIOD
FOR THE YEAR JANUARY 1, 2000
ENDED THROUGH
DECEMBER 31, 1999 JUNE 30, 2000
------------------ ----------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income................................................ $ 14,218 $ 3,058
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization............................. 1,018 260
Change in operating assets and liabilities, net of effects
from acquisitions and divestiture of assets
Contracts-in-transit...................................... (188) 1,386
Accounts receivable....................................... (711) 376
Inventories............................................... (1,727) 1,444
Floor plan notes payable.................................. 6,941 220
Accounts payable and accrued liabilities.................. 463 (357)
Other..................................................... (158) (424)
-------- --------
Net cash provided by operating activities................. 19,856 5,963
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (949) (48)
Proceeds from the sale of assets.......................... 7 3
Cash and cash equivalents associated with the sale to
Asbury.................................................. -- (1,930)
Acquisitions.............................................. -- --
-------- --------
Net cash used in investing activities..................... (942) (1,975)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions............................................. (13,797) (11,225)
Contributions............................................. -- --
Repayments of debt........................................ (676) --
Proceeds from borrowings.................................. -- --
-------- --------
Net cash provided by (used in) financing activities....... (14,473) (11,225)
-------- --------
Net increase (decrease) in cash and cash equivalents...... 4,441 (7,237)
CASH AND CASH EQUIVALENTS, beginning of period.............. 3,162 7,603
-------- --------
CASH AND CASH EQUIVALENTS, end of period.................... $ 7,603 $ 366
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 1,665 $ 605
======== ========
Non-cash distributions (net assets of the business sold to
Asbury on April 14, 2000)............................... $ -- $ 24,843
======== ========
</Table>
See Notes to Combined Financial Statements.
F-36
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
Asbury Automotive Jacksonville L.P. ("Asbury Jacksonville") acquired the
operations of Buddy Hutchinson Cars, Inc. ("Toyota") and Buddy Hutchinson
Chevrolet, Inc. ("Chevrolet") on April 14, 2000 and the operations of Buddy
Hutchinson Imports, Inc. ("Imports") on July 1, 2000 for $57,266 including the
issuance of a $5,000 equity interest in Asbury Jacksonville to the majority
shareholder of the selling entities. Asbury Automotive Arkansas L.L.C. ("Asbury
Arkansas") acquired the operations of Regency Toyota Inc. ("Regency"), Mark
Escude Nissan, Inc. ("Nissan"), Mark Escude Nissan North, Inc. ("Nissan North"),
Mark Escude Motors, Inc. ("Mitsubishi") and Mark Escude Daewoo, Inc. ("Daewoo")
on April 14, 2000 for $32,976 including the issuance of a $2,500 equity interest
in Asbury Arkansas to the dealer operator of those entities. The companies
mentioned above will from hereafter be referred to as the "Company" or
"Hutchinson Automotive Group." Asbury Jacksonville and Asbury Arkansas are
subsidiaries of Asbury Automotive Group L.L.C. ("Asbury").
The Company is engaged in the sale of new and used vehicles, light trucks
and replacement parts, provides vehicle maintenance, warranty, paint and repair
services and arranges vehicle finance, insurance and service contracts for its
automotive customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements reflect the combined accounts of Toyota, Regency,
Nissan, Nissan North and Mitsubishi for the year ended December 31, 1999, and
for the period from January 1, 2000 through April 13, 2000, the accounts of
Chevrolet for the year ended December 31, 1999, and for the period from
January 1, 2000 through April 13, 2000, the accounts of Daewoo for the period
from August 1, 1999 through December 31, 1999, and for the period from
January 1, 2000 through April 13, 2000, and the accounts of Imports for the year
ended December 31, 1999, and for the period from January 1, 2000 through
June 30, 2000.
All intercompany transactions have been eliminated during the period of
common ownership.
REVENUE RECOGNITION
Revenue from the sale of new and used vehicles is recognized upon delivery,
passage of title and signing of the sales contract. Revenue from the sale of
parts and services is recognized upon delivery of parts to the customer or when
vehicle service work is performed.
The Company receives commissions from the sale of credit life and disability
insurance and vehicle service contracts to customers. In addition, the Company
arranges financing for customers through various institutions and receives
commissions equal to the difference between the loan rates charged to customers
over predetermined financing rates set by the financing institution.
The Company may be charged back ("chargebacks") for financing fees,
insurance or vehicle service contract commissions in the event of early
termination of the contracts by customers. The revenue from financing fees and
commissions is recorded at the time of the sale of the vehicles and a reserve
for future chargebacks is established based on historical operating results and
the termination provisions of the applicable contracts. Finance, insurance and
vehicle service contract revenue, net of estimated
F-37
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
chargebacks, is included in finance and insurance revenue in the accompanying
combined statements of income.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments that have an
original maturity of three months or less at the date of purchase.
CONTRACTS-IN-TRANSIT
Contracts-in-transit represent receivables from finance companies for the
portion of the vehicle purchase price financed by customers through sources
arranged by the Company.
INVENTORIES
Inventories are stated at the lower of cost or market. The Company uses the
"last-in, first-out" method ("LIFO") to account for the new vehicle inventories
of all its dealerships except for the Daewoo and the parts inventories of
Regency and Nissan South, the specific identification method to account for the
used vehicle inventories of all its dealerships, and the "first-in, first-out"
method ("FIFO") to account for the new vehicle inventory of Daewoo and the parts
inventories of all its dealerships, except for Regency and Nissan South. Had the
FIFO method been used to determine the cost of inventories valued using the LIFO
method, net income would have increased (decreased) by ($131), ($62) and $299
for the years ended December 31, 1998 and 1999 and for the period from
January 1, 2000 through June 30, 2000, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold improvements
are capitalized and amortized over the lesser of the life of the lease or the
useful life of the related asset. The range of estimated useful lives is as
follows (in years)
<Table>
Buildings and leasehold improvements........................ 5 - 35
Machinery and equipment..................................... 5 - 7
Furniture and fixtures...................................... 5 - 7
Company vehicles............................................ 3 - 5
</Table>
Expenditures for major additions or improvements, which extend the useful
lives of assets, are capitalized. Minor replacements, maintenance and repairs,
which do not improve or extend the lives of such assets, are charged to
operations as incurred.
GOODWILL
Goodwill represents the excess of purchase price over the fair value of the
net assets acquired at date of acquisition. Goodwill is amortized on a
straight-line basis over 40 years. Amortization expense
F-38
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
charged to operations totaled $106 and $53 for the year ended December 31, 1999,
and for the period from January 1, 2000 through June 30, 2000, respectively.
Accumulated amortization totaled $240 as of December 31, 1999.
IMPAIRMENT OF LONG-LIVED ASSETS
The recoverability of the Company's long-lived assets, including goodwill
and other intangibles, is assessed by comparing the carrying amounts of such
assets to the estimated undiscounted cash flows relating to those assets. The
Company does not believe its long-lived assets are impaired at December 31,
1999.
TAX STATUS
The Company's shareholders have elected to be taxed as "S" corporations as
defined by the Internal Revenue Code. The shareholders of the Company are taxed
on their share of the Company's taxable income. Therefore, no provision for
federal or state income taxes has been included in the financial statements.
ADVERTISING
The Company expenses production and other costs of advertising as incurred.
Advertising expense for the year ended December 31, 1999, and for the period
from January 1, 2000 through June 30, 2000, totaled $5,499 and $1,668,
respectively.
USE OF ESTIMATES
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the date of the financial statements and
reported amounts of revenues and expenses during the periods presented. Actual
results could differ from those estimates.
STATEMENTS OF CASH FLOWS
The net change in floor plan financing of inventories, which is a customary
financing technique in the industry, is reflected as an operating activity in
the accompanying combined statements of cash flows.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist primarily of floor plan notes
payable and long-term debt. The carrying amounts of its financial instruments
approximate their fair values at December 31, 1999 due to their relatively short
duration and variable interest rates.
F-39
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash deposits. The Company
maintains cash balances in financial institutions with strong credit ratings. At
times, amounts invested with financial institutions may be in excess of FDIC
insurance limits.
Concentrations of credit risk with respect to contracts-in-transit and
accounts receivable are limited primarily to automakers and financial
institutions. Credit risk arising from receivables from commercial customers is
minimal due to the large number of customers comprising the Company's customer
base.
SEGMENT REPORTING
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Based upon definitions contained in SFAS No. 131, the
Company has determined that it operates in one segment and has no international
operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities and measure those instruments at
fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security or a foreign
currency-denominated forecasted transaction. The accounting for changes in the
fair value of a derivative (gains or losses) depends on the intended use of the
derivative and the resulting designation. SFAS No. 137 amended the effective
date to all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS
No. 138, issued in June 2000, addressed a limited number of issues that were
causing implementation difficulties for numerous entities applying SFAS
No. 133. The Company has determined that the adoption of SFAS No.133 will not
have a material impact on its results of operations, financial position,
liquidity or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". SAB No. 101 was
effective for years beginning after December 31, 1999, and provides
clarification related to recognizing revenue in certain circumstances. Adoption
of SAB No. 101 did not have a material impact on the Company's revenue
recognition policies.
F-40
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE GROUP L.L.C.
(HUTCHINSON AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
3. FLOOR PLAN NOTES PAYABLE
Floor plan notes payable reflect amounts payable for purchases of specific
vehicle inventories and are due to various floor plan lenders bearing interest
at variable rates based on prime. During 1999, the weighted average interest on
floor plan notes payable outstanding was 8.25%. Floor plan arrangements permit
borrowings based upon new and used vehicle inventory levels. Vehicle payments on
notes are due when the related vehicles are sold. The notes are collateralized
by substantially all vehicle inventories of the Company and are subject to
certain financial and other covenants.
4. OPERATING LEASES
The Company leases various facilities and equipment under long-term
operating lease agreements. Rent expense for the year ended December 31, 1999
and for the period from January 1, 2000 through June 30, 2000, totaled to $174
and $57, respectively.
5. COMMITMENTS AND CONTINGENCIES
Substantially all of the Company's facilities are subject to federal, state
and local provisions regarding the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the Company expect such
compliance to have, any material effect upon the capital expenditures, net
earnings, financial condition, liquidity or competitive position of the Company.
Management believes that its current practices and procedures for the control
and disposition of such materials comply with applicable federal, state and
local requirements.
The Company is involved in legal proceedings and claims, which arise in the
ordinary course of its business and with respect to certain of these claims, the
Company has indemnified Asbury. In the opinion of management of the Company, the
amount of ultimate liability with respect to these actions will not materially
affect the financial position or the results of operations of the Company.
6. RETIREMENT PLAN
The Company maintains a 401(k) salary deferral/savings plan for the benefit
of all of its employees over the age of 21 who have completed one year of
service. Employees electing to participate in the plan may contribute a
percentage of annual compensation limited to the maximum amount that can be
deducted for income tax purposes each year. Participants vest in their employer
matching contributions over a seven-year period. The Company matches 25% of the
first 4% of the employee's salary contributed. Expenses related to Company
matching totaled $56 and $17 for the year ended December 31, 1999, and for the
period from January 1, 2000 through June 30, 2000, respectively.
F-41
<Page>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Asbury Automotive Group L.L.C.:
We have audited the accompanying combined statements of income,
shareholders' equity and cash flows of the Business Acquired by Asbury
Automotive Oregon L.L.C. (Thomason Auto Group) for the period from January 1,
1999, through December 9, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of the
Business Acquired by Asbury Automotive Oregon L.L.C. for the period from
January 1, 1999 through December 9, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Arthur Andersen LLP
New York, New York
April 26, 2001
F-42
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
FOR THE PERIOD FROM
JANUARY 1, 1999
THROUGH
DECEMBER 9, 1999
-------------------
REVENUES:
New vehicles.............................................. $86,120
Used vehicles............................................. 60,084
Parts, service and collision repair....................... 8,610
Finance and insurance, net................................ 4,142
-------
Total revenues............................................ 158,956
-------
COST OF SALES:
New vehicles.............................................. 80,892
Used vehicles............................................. 54,930
Parts, service and collision repair....................... 4,362
-------
Total cost of sales....................................... 140,184
-------
GROSS PROFIT................................................ 18,772
OPERATING EXPENSES:
Selling, general and administrative....................... 15,471
Depreciation and amortization............................. 371
-------
Income from operations.................................... 2,930
-------
OTHER INCOME (EXPENSE):
Floor plan interest expense............................... (800)
Other interest expense.................................... (83)
Loss on sale of assets.................................... (25)
Other income, net......................................... 204
-------
Total other expense, net.................................. (704)
-------
Income before income taxes................................ 2,226
-------
INCOME TAX EXPENSE --
Net income................................................ $ 2,226
=======
</Table>
See Notes to Combined Financial Statements.
F-43
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
COMMON STOCK RETAINED
AND ADDITIONAL EARNINGS
PAID-IN CAPITAL (DEFICIT) TOTAL
--------------- --------- --------
BALANCE AS OF DECEMBER 31, 1998............................. $1,767 $(4,908) $(3,141)
Contributions............................................. -- 1,375 1,375
Net income................................................ -- 2,226 2,226
------ ------- -------
BALANCE AS OF DECEMBER 9, 1999.............................. $1,767 $(1,307) $ 460
====== ======= =======
</Table>
See Notes to Combined Financial Statements.
F-44
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
FOR THE PERIOD
FROM JANUARY 1,
1999 THROUGH
DECEMBER 9, 1999
----------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,226
Adjustments to reconcile net income to net cash provided
by operating activities.................................
Depreciation and amortization............................. 371
Loss on sale of assets.................................... 25
Change in operating assets and liabilities, net of effects
from divestiture of assets..............................
Contracts-in-transit...................................... 60
Accounts receivable, net.................................. 192
Due from related parties.................................. --
Inventories............................................... 3,022
Floor plan notes payable.................................. 754
Accounts payable and accrued liabilities.................. (3,339)
Other..................................................... (505)
-------
Net cash provided by operating activities................... 2,806
-------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (158)
Proceeds from the sale of assets.......................... --
Net issuance of finance contracts......................... --
-------
Net cash used in investing activities..................... (158)
-------
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions to shareholders............................. --
Contributions............................................. 1,375
Repayments of debt........................................ (291)
Proceeds from borrowings.................................. --
-------
Net cash provided by (used in) financing activities....... 1,084
-------
Net increase in cash and cash equivalents................. 3,732
CASH AND CASH EQUIVALENTS, beginning of period.............. 2,397
-------
CASH AND CASH EQUIVALENTS, end of period.................... $ 6,129
=======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for
Interest.................................................. $ 883
=======
Income taxes.............................................. $ --
=======
Non-cash distributions (net assets of the business sold to
Asbury on December 4, 1998)............................... $ --
=======
</Table>
See Notes to Combined Financial Statements.
F-45
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS
Asbury Automotive Oregon L.L.C. ("Asbury") acquired its dealership
operations through the December 4, 1998 acquisition of Thomason Auto
Group, Inc. ("TAG"), Dee Thomason Ford, Inc. ("Ford"), Thomason Imports, Inc.
("Imports"), Thomason Nissan ("Nissan"), Thomason Auto Credit Northwest, Inc.
("TACN") and Thomason on Canyon, L.L.C. ("Canyon") and the December 10, 1999,
acquisition of Thomason Toyota, Inc. ("Toyota"). The combined accounts of the
companies mentioned above will from hereafter be referred to collectively as the
"Company" or "Thomason Auto Group".
On December 4, 1998, the operations of TAG, Ford, Imports, Nissan, TACN and
Canyon were acquired by Asbury for $49,075 in cash and the issuance of a
minority interest to the majority shareholder the Company. On December 10, 1999,
Asbury acquired the operations of Toyota for $18,875 in cash and the issuance of
a minority interest to the same shareholder.
The purchase agreements dated December 4, 1998, and December 10, 1999,
between the shareholders of the Company and Asbury included an adjustment to the
purchase price based on the tangible net worth of the respective assets of the
Company on the related closing dates as well as indemnities for certain
pre-closing contingencies which included certain employment practices. On
April 26, 2001, the shareholders of the Company agreed to pay Asbury $2,800 in
cash and forfeited a portion of their interest in Asbury valued at $2,500 as
final settlement of the purchase agreement.
The accompanying combined statement of income for the year ended
December 31, 1998, includes $1,500 of selling, general and administrative
expense related to certain selling practices. Such amount was paid in 1999. The
majority shareholder of the Company contributed $1,375 in 1999 to cover such
costs.
The Company is engaged in the sale of new and used vehicles, light trucks
and replacement parts, provides vehicle maintenance, warranty, paint and repair
services and arranges vehicle finance, insurance and service contracts for its
automotive customers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial statements include the results of Toyota for the
year ended December 31, 1998 and for the period from January 1, 1999 through
December 9, 1999.
All intercompany transactions have been eliminated during the period of
common ownership.
REVENUE RECOGNITION
Revenue from the sale of new and used vehicles is recognized upon delivery,
passage of title and signing of the sales contract. Revenue from the sale of
parts and services is recognized upon delivery of parts to the customer or when
vehicle service work is performed.
The Company receives commissions from the sale of credit life and disability
insurance and vehicle service contracts to customers. In addition, the Company
arranges financing for customers through various institutions and receives
commissions equal to the difference between the loan rates charged to customers
over predetermined financing rates set by the financing institution.
F-46
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company may be charged back ("chargebacks") for financing fees,
insurance or vehicle service contract commissions in the event of early
termination of the contracts by customers. The revenue from financing fees and
commissions is recorded at the time of the sale of the vehicles and a reserve
for future chargebacks is established based on historical operating results and
the termination provisions of the applicable contracts. Finance, insurance and
vehicle service contract revenue, net of estimated chargebacks, is included in
finance and insurance revenue in the accompanying combined statements of income.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments that have an
original maturity of three months or less at the date of purchase.
CONTRACTS-IN-TRANSIT
Contracts-in-transit represent receivables from finance companies for the
portion of the vehicle purchase price financed by customers through sources
arranged by the Company.
INVENTORIES
Inventories are stated at the lower of cost or market. The Company uses the
"last-in, first-out" method ("LIFO") to account for all new vehicle inventories,
the specific identification method to account for used vehicle inventories, and
the "first-in, first-out" method ("FIFO") to account for parts inventories. Had
the FIFO method been used to cost inventories valued using the LIFO method, net
income would have increased by $66 for the period from January 1, 1999 through
December 9, 1999, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and depreciated using the
straight-line method over their estimated useful lives. Leasehold improvements
are capitalized and amortized over the lesser of the life of the lease or the
useful life of the related asset.
Expenditures for major additions or improvements, which extend the useful
lives of assets, are capitalized. Minor replacements, maintenance and repairs,
which do not improve or extend the lives of such assets, are charged to
operations as incurred.
TAX STATUS
The shareholders of the Company's subsidiaries, with the exception of TACN,
have elected to be treated as "S" corporations. The shareholders of the "S"
corporations are taxed on their share of those companies' taxable income.
Therefore, no provision for federal or state income taxes has been included in
the financial statements for the "S" corporations.
TACN is a "C" corporation under the provisions of the U.S. Internal Revenue
Code and, accordingly, follows the liability method of accounting for income
taxes in accordance with Statement
F-47
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." Under this method, deferred income taxes are recorded based upon
differences between the financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the underlying assets are realized and liabilities are settled. A
valuation allowance reduces deferred tax assets when it is more likely than not
that some or all of the deferred tax assets will not be realized.
ADVERTISING
The Company expenses production and other costs of advertising as incurred.
Advertising expense for the period from January 1, 1999 through December 9,
1999, totaled $2,483, of which $989, was paid to an entity in which the majority
shareholder had a substantial interest.
USE OF ESTIMATES
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the date of the financial statements and
reported amounts of revenues and expenses during the periods presented. Actual
results could differ from those estimates.
STATEMENTS OF CASH FLOWS
The net change in floor plan financing of inventories, which is a customary
financing technique in the industry, is reflected as an operating activity in
the accompanying combined statements of cash flows.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash deposits. The Company
maintains cash balances in financial institutions with strong credit ratings. At
times, amounts invested with financial institutions may be in excess of FDIC
insurance limits.
Concentrations of credit risk with respect to contracts-in-transit and
accounts receivable are limited primarily to automakers and financial
institutions. Credit risk arising from receivables from commercial customers is
minimal due to the large number of customers comprising the Company's customer
base.
SEGMENT REPORTING
The Company follows the provisions of SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". Based upon definitions
contained in SFAS No. 131, the Company has determined that it operates in one
segment and has no international operations.
F-48
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities and measure those instruments at
fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security or a foreign
currency-denominated forecasted transaction. The accounting for changes in the
fair value of a derivative (gains or losses) depends on the intended use of the
derivative and the resulting designation. SFAS No. 137 amended the effective
date to all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS
No. 138, issued in June 2000, addressed a limited number of issues that were
causing implementation difficulties for numerous entities applying SFAS
No. 133. The Company has determined that the adoption of SFAS No.133 will not
have a material impact on its results of operations, financial position,
liquidity or cash flows.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". SAB No. 101 was
effective for years beginning after December 31, 1999, and provides
clarification related to recognizing revenue in certain circumstances. Adoption
of SAB No. 101 did not have a material impact on the Company's revenue
recognition policies.
3. INTEREST EXPENSE
Floor plan notes payable reflect amounts payable for purchases of specific
vehicle inventories and are due to various floor plan lenders bearing interest
at variable rates based on prime. Floor plan arrangements permit borrowings
based upon new and used vehicle inventory levels. Vehicle payments on notes are
due when the related vehicles are sold. The notes are collateralized by
substantially all vehicle inventories of the Company and are subject to certain
financial and other covenants.
The Company's notes payable are due to financing institutions and are
secured by rental vehicles bearing interest at variable rates and mature at
various dates all in 1999.
4. OPERATING LEASES
The Company leases various facilities and equipment under long-term
operating lease agreements, including leases with its majority shareholder or
entities controlled by its majority shareholder. Rent expense for the period
from January 1, 1999 through December 9, 1999, totaled $1,078. Of this amount,
$887 was paid to entities controlled by its shareholders.
F-49
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE OREGON L.L.C.
(THOMASON AUTO GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
5. COMMITMENTS AND CONTINGENCIES
Substantially all of the Company's facilities are subject to federal, state
and local provisions regarding the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the Company expect such
compliance to have, any material effect upon the capital expenditures, net
earnings, financial condition, liquidity or competitive position of the Company.
Management believes that its current practices and procedures for the control
and disposition of such materials comply with applicable federal, state and
local requirements.
The Company is involved in legal proceedings and claims, which arise in the
ordinary course of its business and with respect to certain of these claims, the
Company has indemnified Asbury. In the opinion of management of the Company, the
amount of ultimate liability with respect to these actions will not materially
affect the financial position or the results of operations of the Company.
Prior to the sale of the business, the Company was in the practice of
guaranteeing consumer installment loans on a limited recourse basis.
Substantially all of these loans were issued to one finance company pursuant to
vehicle sales by the Company. Under the guarantee, upon repossession of the
vehicle collateralizing the loans by the finance company, the Company was liable
for all or part of the loan balance. The accompanying combined financial
statements include a provision for repossession losses of $619 which is included
in selling, general and administrative expenses, for the period from January 1,
1999 through December 9, 1999.
In December 1999, prior to the sale of Toyota to Asbury, the Company and
Asbury collectively agreed to transfer all remaining recourse liability back to
the finance company initially issuing the paper. The transaction resulted in a
$223 gain in the period from January 1, 1999, through December 9, 1999.
6. RETIREMENT PLANS
The Company maintains a 401(k) salary deferral/savings plan for the benefit
of all its employees upon reaching one year of service with the Company.
Employees electing to participate in the plan may contribute up to 15% of their
annual compensation limited to the maximum amount that can be deducted for
income tax purposes each year. Participants vest upon the completion of seven
years of service. The Company matches a portion of the employee's contributions
dependent upon reaching certain operating goals. Expenses related to Company
matching totaled $25 for the period from January 1, 1999 through December 9,
1999.
7. RELATED-PARTY TRANSACTIONS
The Company had $15,162 of vehicle sales to Asbury and $5,516 of vehicle
purchases from Asbury for the period from January 1, 1999 through December 9,
1999, respectively.
The Company paid management fees of $596 during the period from January 1,
1999 through December 9, 1999, to Asbury.
F-50
<Page>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Asbury Automotive Group L.L.C.:
We have audited the accompanying combined statements of income,
shareholders' equity and cash flows of the Business Acquired by Asbury
Automotive Arkansas L.L.C. referred to as "the McLarty Combined Entities" (see
Note 1) for the period from January 1, 1999 through November 17, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of the
McLarty Combined Entities for the period from January 1, 1999 through
November 17, 1999, in conformity with accounting principles generally accepted
in the United States.
/s/ Arthur Andersen LLP
Little Rock, Arkansas
July 18, 2001
F-51
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(MCLARTY COMBINED ENTITIES)
COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
FOR THE PERIOD FROM
JANUARY 1, 1999 THROUGH
NOVEMBER 17, 1999
------------------------
REVENUE:
New vehicle............................................... $ 78,076
Used vehicle.............................................. 32,368
Parts, service and collision repair....................... 6,663
Finance and insurance, net................................ 1,968
--------
Total revenue............................................. 119,075
--------
COST OF SALES:
New vehicle............................................... 71,924
Used vehicle.............................................. 30,028
Parts, service and collision repair....................... 3,739
--------
Total cost of sales....................................... 105,691
--------
GROSS PROFIT................................................ 13,384
OPERATING EXPENSES:
Selling, general and administrative....................... 10,072
Depreciation and amortization............................. 110
--------
Income from operations.................................... 3,202
--------
OTHER INCOME (EXPENSE):
Floor plan interest expense............................... (1,030)
Other interest expense.................................... (13)
Other income, net......................................... 152
--------
Total other expense....................................... (891)
--------
NET INCOME.................................................. $ 2,311
========
</Table>
See Notes to Combined Financial Statements.
F-52
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(MCLARTY COMBINED ENTITIES)
COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
COMMON STOCK
AND ADDITIONAL RETAINED
PAID-IN CAPITAL EARNINGS TOTAL
--------------- -------- --------
BALANCE AS OF DECEMBER 31, 1998............................. $4,477 $ 3,673 $ 8,150
Net income................................................ -- 2,311 2,311
Distributions............................................. -- (2,224) (2,224)
Contributions............................................. 1,989 -- 1,989
------ ------- -------
BALANCE AS OF NOVEMBER 17, 1999............................. $6,466 $ 3,760 $10,226
====== ======= =======
</Table>
See Notes to Combined Financial Statements.
F-53
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(MCLARTY COMBINED ENTITIES)
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
FOR THE PERIOD FROM
JANUARY 1, 1999
THROUGH NOVEMBER 17,
1999
---------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income................................................ $ 2,311
Adjustments to reconcile net income to net cash provided
by operating activities-
Depreciation and amortization............................. 110
Gain on sale of assets.................................... (63)
Change in operating assets and liabilities, net of effects
from acquisitions and divestiture of assets-
Contracts-in-transit...................................... (1,104)
Accounts receivable, net.................................. (734)
Inventories............................................... 3,723
Prepaid expenses and other current assets................. (8)
Other assets.............................................. 308
Floor plan notes payable.................................. 14,099
Accounts payable and accrued liabilities.................. 1,156
Other long-term liabilities............................... (237)
--------
Net cash provided by operating activities................. 19,561
--------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (266)
Proceeds from the sale of assets.......................... 80
Cash and cash equivalents contributed to Asbury Arkansas
under Exchange Agreement................................ (2,120)
Other..................................................... 588
--------
Net cash used in investing activities..................... (1,718)
--------
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions............................................. (2,224)
Contributions............................................. 1,989
Repayment of debt......................................... (1,174)
Proceeds from debt........................................
Net advances from (repayments to) related parties......... (17,791)
--------
Net cash used in financing activities..................... (19,200)
--------
Net decrease in cash and cash equivalents................. (1,357)
CASH AND CASH EQUIVALENTS, beginning of period.............. 1,357
--------
CASH AND CASH EQUIVALENTS, end of period.................... $ --
========
SUPPLEMENTAL INFORMATION:
Cash paid for interest.................................... $ 1,008
========
</Table>
See Notes to Combined Financial Statements.
F-54
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(MCLARTY COMBINED ENTITIES)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The McLarty Combined Entities (the "Company") represents the combined
dealership operations of North Point Ford, Inc., North Point Mazda, Inc.,
Premier Autoplaza, Inc., Hope Auto Company, McLarty Auto Mall, Inc.
(collectively referred to as the "First Dealerships"), and Prestige, Inc.
("Prestige").
On February 23, 1999, pursuant to an exchange agreement (the "Exchange
Agreement") among Asbury Arkansas L.L.C. ("Asbury Arkansas"), the Company and
Asbury Automotive Group, L.L.C. ("AAG"), the operations of the First Dealerships
were transferred to Asbury Arkansas in exchange for cash and a 49% interest in
Asbury Arkansas. Concurrently, AAG contributed $13,995 in cash in exchange for a
51% interest in Asbury Arkansas. On November 18, 1999, the operations of
Prestige were transferred to Asbury Arkansas in consummation of the Exchange
Agreement.
The accompanying 1999 combined statements of income, shareholders' equity
and cash flows reflect the activities of the First Dealerships from January 1,
1999 through February 22, 1999, which represents the date of closing of the
exchange transactions involving the First Dealerships, and the activities of
Prestige from January 1, 1999 through November 17, 1999.
The Company operates six automobile dealerships in the central and
southwestern regions of the State of Arkansas. The dealerships are engaged in
the sale of new and used motor vehicles and related products and services,
including vehicle service and parts, finance and insurance products and other
after-market products.
The business combination described above was accounted for under the
purchase method of accounting on the financial statements of Asbury Arkansas.
The accompanying financial statements do not include the effect of any
adjustments resulting from the ultimate allocation of the purchase price by
Asbury Arkansas.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The financial statements for each of these entities are presented on a
combined basis as they have substantially common ownership. All significant
intercompany transactions and balances have been eliminated in combination.
REVENUE RECOGNITION
Revenue from the sale of new and used vehicles is recognized upon delivery,
passage of title and signing of the sales contract. Revenue from the sale of
parts and services is recognized upon delivery of parts to the customer or when
vehicle service work is performed.
The Company receives commissions from the sale of credit life and disability
insurance and vehicle service contracts to customers. In addition, the Company
arranges financing for customers through various institutions and receives
commissions equal to the difference between the loan rates charged to customers
over predetermined financing rates set by the financing institution.
F-55
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(MCLARTY COMBINED ENTITIES)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company may be charged back ("chargebacks") for financing fees,
insurance or vehicle service contract commissions in the event of early
termination of the contracts by customers. The revenue from financing fees and
commissions is recorded at the time of the sale of the vehicles and a reserve
for future chargebacks is established based on historical operating results and
the termination provisions of the applicable contracts. Finance, insurance and
vehicle service contract revenue, net of estimated chargebacks, is included in
finance and insurance revenue in the accompanying combined statements of income.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments that have an
original maturity of three months or less at date of purchase.
CONTRACTS-IN-TRANSIT
Contracts-in-transit represent receivables from finance companies for the
portion of the vehicle purchase price financed by customers through sources
arranged by the Company.
INVENTORIES
The majority of the Company's inventories are accounted for using the
"first-in, first-out" method ("FIFO") and are valued using the lower of cost or
market. The Company's parts inventories are stated at replacement cost in
accordance with industry practice. The Company valued certain inventories using
the "last-in, first-out" method ("LIFO"). If the FIFO method had been used to
determine the cost of inventories, net income would have been greater by $56 for
the period from January 1, 1999 through November 17, 1999.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided utilizing the straight-line method over the estimated useful lives of
the assets.
GOODWILL
Goodwill represents the excess of purchase price over the face value of the
net tangible and other intangible assets acquired at the date of acquisition net
of accumulated amortization. Goodwill is amortized on a straight-line basis over
40 years.
FINANCE RECEIVABLES AND ADVANCES
The Company has an arrangement with a finance company, whereby the finance
company extends credit to certain of the Company's customers in connection with
vehicle sales. Under the arrangement, the Company originates installment
contracts, which are assigned to the finance company without recourse, along
with security interests in the related vehicles. The finance company advances
the Company a portion of the payments due under the contracts, groups the
contracts into pools and
F-56
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(MCLARTY COMBINED ENTITIES)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
services the contracts. The finance company retains a servicing fee equal to 20%
of contractual payments due on a pool-by-pool basis. In the event of customer
default, the Company has no obligation to repay any advanced amounts or other
fees to the finance company.
TAX STATUS
The entities comprising the Company are Subchapter "S" Corporations, as
defined in the Internal Revenue Code of 1986, and thus the taxable income or
losses of the Company are included in the individual tax returns of the
shareholders for federal and state income tax purposes. Therefore, no provisions
for taxes have been included in the accompanying combined financial statements.
ADVERTISING
The Company expenses production and other costs of advertising as incurred
or when such advertising initially takes place. The Company's combined statement
of income includes advertising expense of $1,444 for the period from January 1,
1999 through November 17, 1999.
USE OF ESTIMATES
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the date of the financial statements and
reported amounts of revenues and expenses during the periods presented. Actual
results could differ from those estimates.
STATEMENTS OF CASH FLOWS
The net change in floor plan financing of inventories, which is a customary
financing technique in the industry, is reflected as an operating activity in
the statements of cash flows.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash deposits. The Company
maintains cash balances in financial institutions with strong credit ratings. At
times, amounts invested with financial institutions may be in excess of FDIC
insurance limits.
Concentrations of credit risk with respect to contracts-in-transit and
accounts receivable are limited primarily to automakers and financial
institutions. Credit risk arising from receivables from commercial customers is
minimal due to the large number of customers comprising the Company's customer
base.
SEGMENT REPORTING
The Company follows the provisions of Statement of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Based upon
F-57
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(MCLARTY COMBINED ENTITIES)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
definitions contained in SFAS No. 131, the Company has determined that it
operates in one segment and has no international operations.
MAJOR SUPPLIERS AND DEALERSHIP AGREEMENTS
The Company enters into agreements with the automakers that supply new
vehicles and parts to its dealerships. The Company's overall sales could be
impacted by the automakers' ability or unwillingness to supply the dealerships
with a supply of new vehicles. Dealership agreements generally limit location of
dealerships and retain automaker approval rights over changes in dealership
management and ownership. Each automaker is entitled to terminate the dealership
agreement if the dealership is in material breach of its terms.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities and measure those instruments at
fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security or a foreign
currency-denominated forecasted transaction. The accounting for changes in the
fair value of a derivative (gains or losses) depends on the intended use of the
derivative and the resulting designation. SFAS No. 137 amended the effective
date of SFAS No. 133 to all fiscal quarters of fiscal years beginning after
June 15, 2000. SFAS No. 138, issued in June 2000, addressed a limited number of
issues that were causing implementation difficulties for numerous entities
applying SFAS No. 133. The Company has determined that the adoption of SFAS
No. 133 will not have a material impact on its results of operations, financial
position, liquidity or cash flows.
3. INTEREST EXPENSE
Floor plan notes payable reflect amounts payable for purchase of specific
vehicle inventories and are due to various floor plan lenders bearing interest
at variable rates based on prime. The interest rates related to floor plan notes
payable ranged from 7.75% to 8.75%. Floor plan arrangements permit borrowings
based upon new and used vehicle inventory levels. Vehicle payments on notes are
due when the related vehicles are sold. The notes are collateralized by
substantially all vehicle inventories of the Company and are subject to certain
financial and other covenants.
Long-term debt consists of various notes payable to banks and corporations,
bearing interest at both fixed and variable rates and secured by certain of the
Company's assets. Interest rates ranged from 7.75% to 8.75%.
F-58
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE ARKANSAS L.L.C.
(MCLARTY COMBINED ENTITIES)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
4. COMMITMENTS AND CONTINGENCIES
The Company leases various facilities and equipment under non-cancelable
operating lease agreements, including leases with related parties. Rent expense
for the period presented in the accompanying combined statements of income is
shown below:
<Table>
<Caption>
FOR THE PERIOD FROM
JANUARY 1, 1999 THROUGH
NOVEMBER 17, 1999
-----------------------
Related parties....................................... $529
Third parties......................................... 127
----
Total................................................. $656
====
</Table>
Substantially all of the Company's facilities are subject to federal, state
and local provisions regarding the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the Company expect such
compliance to have, any material effect upon the capital expenditures, net
earnings, financial condition, liquidity or competitive position of the Company.
Management believes that its current practices and procedures for the control
and disposition of such materials comply with applicable federal, state and
local requirements.
The Company is involved in legal proceedings and claims, which arise in the
ordinary course of its business. In the opinion of management of the Company,
the amount of ultimate liability with respect to these actions will not
materially affect the financial position or the results of operations of the
Company.
5. RELATED-PARTY TRANSACTIONS
The Company had amounts payable to related parties that consisted primarily
of advances made to the Company by certain shareholders and officers. These
balances accrued interest at rates corresponding to interest rates charged by
certain floor plan institutions.
The Company paid management fees to an entity that is owned by certain
Company shareholders totaling approximately $52 during the period from
January 1, 1999 through November 17, 1999.
The entities included in the Company had various levels of ownership
interest in the Sunlight Mesa Insurance Company ("Mesa"), which aggregate to
100%. Mesa operates as a reinsurer of credit life, accident and health insurance
and has no direct policies in force. As Mesa's results of operations and
financial position were not material, they have not been combined into the
accompanying financial statements. Instead, the Company has recorded their
interest in Mesa using the cost method of accounting for investments. The
Company's investment in Mesa was not contributed to Asbury Arkansas as a part of
the business combination discussed in Note 1.
6. RETIREMENT PLANS
The Company maintains 401(k) plans (the "Plans") at each of the dealerships,
which cover substantially all employees. The Company makes matching
contributions to the Plans of up to 2% of participating employees' salaries. The
Company's combined statement of income includes contributions of $16 for the
period from January 1, 1999 through November 17, 1999.
F-59
<Page>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Asbury Automotive Group L.L.C.:
We have audited the accompanying combined statements of income,
shareholders' equity and cash flows of the Business Acquired by Asbury
Automotive North Carolina L.L.C. (Crown Automotive Group) for the period from
January 1, 1999 through April 6, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of the
Business Acquired by Asbury Automotive North Carolina L.L.C. for the period from
January 1, 1999 through April 6, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Arthur Andersen LLP
New York, New York
July 18, 2001
F-60
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP) COMBINED STATEMENT OF INCOME
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
FOR THE PERIOD FROM
JANUARY 1, 1999
THROUGH APRIL 6,
1999
-------------------
REVENUE:
New vehicle............................................... $14,424
Used vehicle.............................................. 13,148
Parts, service and collision repair....................... 4,815
Finance and insurance, net................................ 555
-------
Total revenue............................................. 32,942
-------
COST OF SALES:
New vehicle............................................... 13,413
Used vehicle.............................................. 12,341
Parts, service and collision repair....................... 2,556
-------
Total cost of sales....................................... 28,310
-------
GROSS PROFIT................................................ 4,632
OPERATING EXPENSES:
Selling, general and administrative....................... 3,579
Depreciation and amortization............................. 18
-------
Income from operations.................................... 1,035
-------
OTHER INCOME (EXPENSE):
Floor plan interest expense............................... (93)
Other interest expense.................................... (48)
Other income, net......................................... 687
-------
Net income................................................ $ 1,581
=======
</Table>
See Notes to Combined Financial Statements.
F-61
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP) COMBINED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
COMMON STOCK RETAINED
AND ADDITIONAL EARNINGS
PAID-IN CAPITAL (DEFICIT) TOTAL
--------------- --------- --------
BALANCE AS OF DECEMBER 31, 1998............................. $3,424 $ (713) $2,711
Distributions............................................. -- (340) (340)
Net income................................................ -- 1,581 1,581
------ ------ ------
BALANCE AS OF APRIL 6, 1999................................. $3,424 $ 528 $3,952
====== ====== ======
</Table>
See Notes to Combined Financial Statements.
F-62
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP) COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<Table>
<Caption>
FOR THE PERIOD FROM
JANUARY 1, 1999
THROUGH APRIL 6,
1999
-------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income................................................ $1,581
Adjustments to reconcile net income to net cash provided
by operating activities
Depreciation and amortization............................. 18
Change in operating assets and liabilities, net of effects
from acquisitions and divestiture of assets
Contracts-in-transit...................................... (580)
Accounts receivable, net.................................. (1,450)
Inventories............................................... (743)
Prepaid and other......................................... 3
Floor plan notes payable.................................. (428)
Accounts payable and accrued liabilities.................. 2,074
------
Net cash provided by operating activities................. 475
------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures...................................... (15)
Net issuance of notes receivable.......................... --
------
Net cash used in investing activities..................... (15)
------
CASH FLOW FROM FINANCING ACTIVITIES:
Contributions............................................. --
Repayments of notes payable............................... --
Distributions............................................. (340)
------
Net cash used in financing activities..................... (340)
------
Net increase (decrease) in cash and cash equivalents...... 120
CASH AND CASH EQUIVALENTS, beginning of period.............. --
------
CASH AND CASH EQUIVALENTS, end of period.................... $ 120
------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 76
======
Non-cash distributions (net assets of the business sold to
Asbury on December 11, 1998)............................ $ --
======
</Table>
See Notes to Combined Financial Statements.
F-63
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Asbury Automotive North Carolina L.L.C. ("Asbury") acquired its dealership
operations through the December 11, 1998, acquisition of the non-Honda/Acura
operations of CAC Automotive, Inc. ("CAC"), CAR Automotive, Inc. ("CAR"), CFC
Finance, Inc. ("CFC"), and CAM Automotive, Inc. ("CAM") and the April 7, 1999,
acquisition of the Honda/Acura dealerships of the above-mentioned entities. The
combined accounts of the entities mentioned above will from hereafter be
referred to collectively as "the Company" or "Crown Automotive Group." These
combined statements do not include the real estate entities in which the Company
conducts its dealership operations. As a result, rent expense is included in the
accompanying combined statements of income as discussed in Note 3.
On December 11, 1998, the non-Honda/Acura operations of CAC, CAR, CFC, CAM
and the real estate assets of Asbury North Carolina Real Estate Holdings L.L.C.
were acquired by Asbury for $80,828 in cash and the issuance of a 49% equity
interest to certain of the former shareholders of the Company.
On April 7, 1999, the Honda/Acura dealerships operations were acquired by
Asbury for $10,073 in cash and the issuance of a 49% equity interest to the same
shareholders.
The Company is engaged in the sale of new and used vehicles, light trucks
and replacement parts, provides vehicle maintenance, warranty, paint and repair
services and arranges vehicle finance, insurance and service contracts for its
automotive customers located in Greensboro, Chapel Hill and Raleigh, North
Carolina, and Richmond, Virginia.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying combined financial statements reflect the combined accounts
of the Honda/ Acura operations for the year ended December 31, 1998 and for the
period from January 1, 1999 through April 6, 1999.
All significant intercompany transactions have been eliminated during the
period of common ownership.
REVENUE RECOGNITION
Revenue from the sale of new and used vehicles is recognized upon delivery,
passage of title and signing of the sales contract. Revenue from the sale of
parts and services is recognized upon delivery of parts to the customer or when
vehicle service work is performed.
The Company receives commissions from the sale of credit life and disability
insurance and vehicle service contracts to customers. In addition, the Company
arranges financing for customers through various institutions and receives
commissions equal to the difference between the loan rates charged to customers
over predetermined financing rates set by the financing institution.
The Company may be charged back ("chargebacks") for financing fees,
insurance or vehicle service contract commissions in the event of early
termination of the contracts by customers. The revenue from financing fees and
commissions is recorded at the time of the sale of the vehicles and a reserve
for
F-64
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
future chargebacks is established based on historical operating results and the
termination provisions of the applicable contracts. Finance, insurance and
vehicle service contract revenue, net of estimated chargebacks, is included in
finance and insurance revenue in the accompanying combined statements of income.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include highly liquid investments that have an
original maturity of three months or less at date of purchase.
CONTRACTS-IN-TRANSIT
Contracts-in-transit represent receivables from finance companies for the
portion of the vehicle purchase price financed by customers through sources
arranged by the Company.
INVENTORIES
New and used vehicle inventories are valued at the lower of cost or market
utilizing the "last-in, first-out" (LIFO) method. Parts inventories are valued
at the lower of cost or market utilizing the "first-in, first-out" (FIFO)
method. If the FIFO method had been used to determine cost for inventories
valued using the LIFO method, net income would have increased by $10 for the
period from January 1, 1999 through April 6, 1999.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization are
provided for utilizing the straight-line method over the estimated useful life
of the asset.
TAX STATUS
The Company's shareholders have elected to be taxed as S corporations as
defined by the Internal Revenue Code. The shareholders of the Company are taxed
on their share of the Company's taxable income. Therefore, no provision for
federal or state income taxes has been included in the financial statements.
ADVERTISING
The Company expenses production and other costs of advertising as incurred
or when such advertising initially takes place. Advertising costs aggregated
approximately $250 for the period from January 1, 1999, through April 6, 1999.
USE OF ESTIMATES
Preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the date of the financial
F-65
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
statements and reported amounts of revenues and expenses during the periods
presented. Actual results could differ from those estimates.
STATEMENTS OF CASH FLOWS
The net change in floor plan financing of inventories, which is a customary
financing technique in the industry, is reflected as an operating activity in
the accompanying combined statements of cash flows.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash deposits. The Company
maintains cash balances in financial institutions with strong credit ratings. At
times, amounts invested with financial institutions may be in excess of FDIC
insurance limits.
Concentrations of credit risk with respect to contracts-in-transit and
accounts receivable are limited primarily to automakers and financial
institutions. Credit risk arising from receivables from commercial customers is
minimal due to the large number of customers comprising the Company's customer
base.
SEGMENT REPORTING
The Company follows the provisions of Statements of Financial Accounting
Standards ("SFAS") No. 131, "Disclosures about Segments of an Enterprise and
Related Information". Based upon definitions contained in SFAS No. 131, the
Company has determined that it operates in one segment and has no international
operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities and measure those instruments at
fair value. If certain conditions are met, a derivative may be specifically
designated as (a) a hedge of the exposure to changes in the fair value of a
recognized asset or liability or an unrecognized firm commitment, (b) a hedge of
the exposure to variable cash flows of a forecasted transaction or (c) a hedge
of the foreign currency exposure of a net investment in a foreign operation, an
unrecognized firm commitment, an available-for-sale security or a foreign
currency-denominated forecasted transaction. The accounting for changes in the
fair value of a derivative (gains or losses) depends on the intended use of the
derivative and the resulting designation. SFAS No. 137 amended the effective
date to all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS
No. 138, issued in June 2000, addressed a limited number of issues that were
causing implementation difficulties for numerous entities applying SFAS
No. 133. The Company has determined that the adoption of SFAS No. 133 will not
have a material impact on its results of operations, financial position,
liquidity or cash flows.
F-66
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition." SAB No.101 was
effective for years beginning after December 31, 1999, and provides
clarification related to recognizing revenue in certain circumstances. Adoption
of SAB No.101 did not have a material impact on the Company's revenue
recognition policies.
3. RELATED-PARTY TRANSACTIONS
Asbury acquired the real estate used in the dealership operations of the
entities included in these financial statements in the December 10, 1998
acquisition. Prior to the acquisition, the real estate was owned by the majority
shareholder of the Company or owned through entities in which the majority
shareholder of the Company held a controlling interest. Rent expense included in
the accompanying statement of income paid to those real estate entities totaled
$497 for the period from January 1, 1999 through April 6, 1999. The related real
estate had a fair market value of $56,200 at the date of acquisition by Asbury.
4. OPERATING LEASES
The Company held various lease agreements for land expiring through 2005.
In addition to the related party real estate leases mentioned above, the
Company is party to various equipment operating leases with remaining terms in
excess of one year. Expense related to these leases approximated $45 for the
period from January 1, 1999 through April 6, 1999.
5. COMMITMENTS AND CONTINGENCIES
Substantially all of the Company's facilities are subject to federal, state
and local provisions regarding the discharge of materials into the environment.
Compliance with these provisions has not had, nor does the Company expect such
compliance to have, any material effect upon the capital expenditures, net
earnings, financial condition, liquidity or competitive position of the Company.
Management believes that its current practices and procedures for the control
and disposition of such materials comply with applicable federal, state and
local requirements.
The Company is involved in legal proceedings and claims, which arise in the
ordinary course of its business and with respect to certain of these claims, the
Company has indemnified Asbury. In the opinion of management of the Company, the
amount of ultimate liability with respect to these actions will not materially
affect the financial condition, liquidity or the results of operations of the
Company.
Included in other income, net is $683 of income from the settlement of a
class action lawsuit with a certain vehicle manufacturer.
6. RETIREMENT PLAN
The Company participates in a retirement program administered by the
National Automobile Dealers and Associates Retirement Plan (the "Plan"). The
Plan is a multi-employer defined contribution 401(k) plan. Each regular
full-time employee who is at least 21 years of age, but not over
F-67
<Page>
BUSINESS ACQUIRED BY ASBURY AUTOMOTIVE NORTH CAROLINA L.L.C.
(CROWN AUTOMOTIVE GROUP)
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. RETIREMENT PLAN (CONTINUED)
56, and who has been continuously employed by the Company for one year or more
is eligible to participate in the Plan. The Plan requires that the Company match
the employees' voluntary contributions to the extent of 2% of the compensation
of participants. Contributions to the Plan made by the Company amounted to
approximately $26 for the period from January 1, 1999 through April 6, 1999.
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the notes offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
F-68
<Page>
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$250,000,000
9% SENIOR SUBORDINATED NOTES DUE 2012
ASBURY AUTOMOTIVE GROUP, INC.
EXCHANGE OFFER FOR
UP TO $250,000,000 PRINCIPAL AMOUNT OUTSTANDING
OF 9% SENIOR SUBORDINATED NOTES DUE 2012
FOR A LIKE PRINCIPAL AMOUNT
OF NEW 9% SENIOR SUBORDINATED NOTES DUE 2012
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PROSPECTUS
JULY 22, 2002
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