UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended September 30, 2003
Commission file number: 001-31262
ASBURY AUTOMOTIVE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 01-0609375
- ------------------------------------- -------------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
Three Landmark Square, Suite 500, Stamford, Connecticut 06901, (203) 356-4400
- -------------------------------------------------------------------------------
(Address of, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes X No
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date (applicable only to corporate
registrants): The number of shares of common stock outstanding as of November
10, 2003 was 32,430,649 net of 1,590,013 treasury shares).
ASBURY AUTOMOTIVE GROUP, INC.
Form 10-Q Quarterly Report
Table of Contents
Part I - Financial Information
Page
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of
September 30, 2003 (Unaudited) and December 31, 2002.................1
Consolidated Statements of Income for the Three Months and
Nine Months Ended September 30, 2003 and 2002 (Unaudited)............2
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 2003 and 2002 (Unaudited) ...........3
Notes to Consolidated Financial Statements (Unaudited)...............4
Independent Accountants' Report ....................................10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk..........21
Item 4. Controls and Procedures.............................................21
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K....................................22
Signatures..........................................................23
Index to Exhibits...................................................25
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ASBURY AUTOMOTIVE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30, December 31,
ASSETS 2003 2002
------ ------------- ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents .................................................. $ 48,804 $ 22,613
Contracts-in-transit ....................................................... 86,380 91,190
Current portion of restricted marketable securities ........................ 1,591 1,499
Accounts receivable (net of allowance of $2,218 and $2,122) ................ 112,050 96,090
Inventories ................................................................ 560,268 591,839
Deferred income taxes ...................................................... 8,565 9,044
Prepaid and other current assets ........................................... 38,840 37,314
----------- -----------
Total current assets .......................................... 856,498 849,589
PROPERTY AND EQUIPMENT, net .................................................... 259,553 257,305
GOODWILL ....................................................................... 464,763 402,133
RESTRICTED CASH AND MARKETABLE SECURITIES ...................................... 2,974 4,892
OTHER ASSETS ................................................................... 62,620 61,866
ASSETS HELD FOR SALE ........................................................... 29,685 29,859
----------- -----------
Total assets .................................................. $ 1,676,093 $ 1,605,644
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Floor plan notes payable ................................................... $ 488,502 $ 528,591
Current maturities of long-term debt ....................................... 31,855 36,412
Accounts payable ........................................................... 40,924 40,120
Accrued liabilities ........................................................ 86,910 77,325
----------- -----------
Total current liabilities ..................................... 648,191 682,448
LONG-TERM DEBT ................................................................. 503,949 438,740
DEFERRED INCOME TAXES .......................................................... 32,170 29,972
OTHER LIABILITIES .............................................................. 15,658 15,580
LIABILITIES ASSOCIATED WITH ASSETS HELD FOR SALE ............................... 21,596 11,953
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value, 10,000,000 shares authorized .............. -- --
Common stock, $.01 par value, 90,000,000 shares authorized, 34,019,147 and
34,000,000 shares issued, including shares held in treasury, respectively 340 340
Additional paid-in capital ................................................. 411,016 410,718
Retained earnings .......................................................... 58,259 22,645
Treasury stock, at cost; 1,590,013 and 772,824 shares held, respectively ... (15,064) (6,630)
Accumulated other comprehensive loss ....................................... (22) (122)
----------- -----------
Total stockholders' equity .................................... 454,529 426,951
----------- -----------
Total liabilities and stockholders' equity .................... $ 1,676,093 $ 1,605,644
=========== ===========
See Notes to Consolidated Financial Statements.
1
ASBURY AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
REVENUES:
New vehicle ..................................... $ 786,042 $ 722,851 $ 2,184,833 $ 2,007,252
Used vehicle .................................... 319,028 306,033 915,845 887,247
Parts, service and collision repair ............. 143,032 128,429 411,858 373,941
Finance and insurance, net ...................... 37,366 33,289 100,497 87,721
----------- ----------- ----------- -----------
Total revenues .............................. 1,285,468 1,190,602 3,613,033 3,356,161
COST OF SALES:
New vehicle ..................................... 729,376 665,833 2,024,555 1,842,927
Used vehicle .................................... 291,316 278,866 833,003 806,393
Parts, service and collision repair ............. 66,701 61,437 193,939 176,996
----------- ----------- ----------- -----------
Total cost of sales ......................... 1,087,393 1,006,136 3,051,497 2,826,316
----------- ----------- ----------- -----------
GROSS PROFIT ....................................... 198,075 184,466 561,536 529,845
OPERATING EXPENSES:
Selling, general and administrative ............. 150,559 139,148 437,419 403,284
Depreciation and amortization ................... 5,141 4,549 15,007 14,280
----------- ----------- ----------- -----------
Income from operations ...................... 42,375 40,769 109,110 112,281
OTHER INCOME (EXPENSE):
Floor plan interest expense ..................... (4,633) (4,368) (14,263) (13,059)
Other interest expense .......................... (10,087) (10,074) (30,038) (28,748)
Interest income ................................. 188 283 450 945
Net losses from unconsolidated affiliates ....... -- -- -- (100)
Loss on sale of assets, net ..................... (95) (45) (454) (48)
Other, net ...................................... (79) 224 10 (114)
----------- ----------- ----------- -----------
Total other expense, net .................... (14,706) (13,980) (44,295) (41,124)
----------- ----------- ----------- -----------
Income before income taxes and discontinued
operations ............................... 27,669 26,789 64,815 71,157
INCOME TAX EXPENSE:
Income tax expense .............................. 10,503 10,695 25,287 22,732
Tax adjustment upon conversion from a L.L.C. to a
corporation .................................. -- -- -- 11,553
----------- ----------- ----------- -----------
Total income tax expense .................... 10,503 10,695 25,287 34,285
----------- ----------- ----------- -----------
Income from continuing operations ........... 17,166 16,094 39,528 36,872
DISCONTINUED OPERATIONS, net of tax ................ (922) (1,450) (3,914) (4,286)
----------- ----------- ----------- -----------
Net income .................................. $ 16,244 $ 14,644 $ 35,614 32,586
=========== =========== ===========
PRO FORMA TAX (BENEFIT) EXPENSE:
Pro forma income tax expense .................... 5,588
Tax adjustment upon conversion from a L.L.C. to a
corporation .................................. (11,553)
-----------
Tax affected pro forma net income ........... $ 38,551
===========
EARNINGS PER COMMON SHARE:
Basic ........................................... $ 0.50 $ 0.43 $ 1.09 $ 0.99
=========== =========== =========== ===========
Diluted ......................................... $ 0.50 $ 0.43 $ 1.09 $ 0.99
=========== =========== =========== ===========
PRO FORMA EARNINGS PER COMMON SHARE:
Basic ........................................... $ 1.17
===========
Diluted ......................................... $ 1.17
===========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
Basic ........................................... 32,419 34,000 32,721 32,813
=========== =========== =========== ===========
Diluted ......................................... 32,612 34,001 32,761 32,834
=========== =========== =========== ===========
See Notes to Consolidated Financial Statements.
2
ASBURY AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the Nine Months
Ended September 30,
-----------------------
2003 2002
---------- ----------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income ...................................................................... $ 35,614 $ 32,586
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation and amortization ................................................ 15,007 14,280
Depreciation and amortization from discontinued operations ................... 1,271 3,218
Change in allowance for doubtful accounts .................................... 96 (78)
(Gain) loss on sale of discontinued operations ............................... (297) 966
Deferred income taxes ........................................................ 2,618 14,754
Loss from unconsolidated affiliates, net ..................................... -- 100
Loss on sale of assets ....................................................... 454 48
Amortization of deferred finance fees ........................................ 3,933 3,212
Change in operating assets and liabilities, net of effects from acquisitions and
divestitures-
Contracts-in-transit ......................................................... 4,810 12,441
Accounts receivable, net ..................................................... (30,938) (25,731)
Proceeds from the sale of accounts receivable ................................ 15,023 12,597
Inventories .................................................................. 60,517 14,030
Floor plan notes payable ..................................................... (62,525) (30,823)
Accounts payable and accrued liabilities ..................................... 16,860 14,274
Other ........................................................................ 5,621 4,007
---------- ----------
Net cash provided by operating activities ............................ 68,064 69,881
---------- ----------
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures ............................................................ (33,434) (38,102)
Proceeds from the sale of assets ................................................ 682 1,380
Proceeds from the sale of discontinued operations ............................... 7,845 4,838
Acquisitions .................................................................... (72,378) (14,588)
Maturity of restricted marketable securities .................................... 1,826 1,826
Purchase of restricted asset .................................................... (750) --
Net issuance of finance contracts ............................................... (2,818) (276)
Other investing activities ...................................................... -- (752)
---------- ----------
Net cash used in investing activities .................................. (99,027) (45,674)
---------- ----------
CASH FLOW FROM FINANCING ACTIVITIES:
Distributions to members ........................................................ (3,010) (11,680)
Contributions ................................................................... -- 800
Repayments of debt .............................................................. (32,339) (352,362)
Proceeds from borrowings ........................................................ 100,689 272,629
Proceeds from initial public offering, net ...................................... -- 65,415
Payment of debt issuance costs .................................................. -- (7,875)
Proceeds from the exercise of stock options ..................................... 248 --
Purchase of treasury stock ...................................................... (8,434) --
---------- ----------
Net cash provided by (used in) financing activities .................... 57,154 (33,073)
---------- ----------
Net increase (decrease) in cash and cash equivalents ................... 26,191 (8,866)
CASH AND CASH EQUIVALENTS, beginning of period ...................................... 22,613 60,506
---------- ----------
CASH AND CASH EQUIVALENTS, end of period ............................................ $ 48,804 $ 51,640
========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-
Interest ...................................................................... $ 35,826 $ 32,639
========== ==========
Income taxes .................................................................. $ 13,287 $ 15,534
========== ==========
See Notes to Consolidated Financial Statements.
3
ASBURY AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation:
The consolidated balance sheet at September 30, 2003, the consolidated
statements of income for the three-month and nine-month periods ended September
30, 2003 and 2002, and the consolidated statements of cash flows for the
nine-month periods ended September 30, 2003 and 2002, are unaudited. In the
opinion of management, all adjustments necessary to present fairly the financial
position, results of operations and cash flows for the interim periods were
made. Certain items in the prior year's financial statements were reclassified
to conform to the current financial statement presentation. Due to seasonality
and other factors, the results of operations for interim periods are not
necessarily indicative of the results that would be realized for the entire
year. All significant intercompany balances and transactions have been
eliminated in consolidation.
Certain information and footnote disclosures, normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States of America, were omitted. Accordingly, these consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended December 31, 2002.
2. INVENTORIES:
Inventories consisted of the following:
(In thousands) September 30, 2003 December 31, 2002
------------------ -----------------
New vehicles $422,818 $464,501
Used vehicles 95,142 86,392
Parts, accessories and other 42,308 40,946
-------- --------
$560,268 $591,839
======== ========
3. EARNINGS PER SHARE:
Basic earnings per share is computed by dividing net income by the weighted
average common shares outstanding during the period. Diluted earnings per share
is computed by dividing net income by the weighted average common shares and
common share equivalents outstanding during the period.
The following table sets forth the computation of basic and diluted earnings per
common share:
For the Three Months For the Nine Months
(In thousands, except per share data) Ended September 30, Ended September 30,
------------------------- ------------------------
2003 2002 2003 2002
----------- ----------- ----------- ---------
Net income applicable to common shares:
Continuing operations ............................... $ 17,166 $ 16,094 $ 39,528 $ 36,872
Discontinued operations ............................. (922) (1,450) (3,914) (4,286)
---------- ---------- ---------- ---------
$ 16,244 $ 14,644 $ 35,614 $ 32,586
========== ========== ========== =========
Earnings per share:
Basic-
Continuing operations ............................. $ 0.53 $ 0.47 $ 1.21 $ 1.12
Discontinued operations ........................... (0.03) (0.04) (0.12) (0.13)
---------- ---------- ---------- ---------
$ 0.50 $ 0.43 $ 1.09 $ 0.99
========== ========== ========== =========
4
For the Three Months For the Nine Months
(In thousands, except per share data) Ended September 30, Ended September 30,
------------------------- ------------------------
2003 2002 2003 2002
----------- ----------- ----------- ---------
Diluted-
Continuing operations ............................. $ 0.53 $ 0.47 $ 1.21 $ 1.12
Discontinued operations ........................... (0.03) (0.04) (0.12) (0.13)
---------- ---------- ---------- ---------
$ 0.50 $ 0.43 $ 1.09 $ 0.99
========== ========== ========== =========
Common shares and common share equivalents outstanding:
Basic weighted average common shares ................ 32,419 34,000 32,721 32,813
Dilutive effect of common share equivalents
(stock options) ................................... 193 1 40 21
---------- ---------- ---------- ---------
Diluted weighted average common shares .............. 32,612 34,001 32,761 32,834
========== ========== ========== =========
4. INTANGIBLE ASSETS AND GOODWILL:
Intangible assets consist of the following (included in other assets on the
accompanying consolidated balance sheets):
September 30, December 31,
(In thousands) 2003 2002
------------- ------------
Amortizable intangible assets:
Noncompete agreements $ 5,331 $ 5,331
Lease agreements (amortization is included
in rent expense) 6,527 6,527
-------- --------
Total 11,858 11,858
Less - Accumulated amortization (8,350) (7,369)
-------- --------
Intangible assets, net $ 3,508 $ 4,489
======== ========
Unamortizable intangible assets - franchise rights $ 8,000 $ 8,000
======== ========
Amortization expense, net of discontinued operations, was $0.2 million and
$0.3 million for the three months ended September 30, 2003 and 2002,
respectively, and $0.7 million and $0.8 million for the nine months ended
September 30, 2003 and 2002, respectively.
The changes in the carrying amounts of goodwill for the period ended
September 30, 2003 are as follows:
(In thousands)
Balance as of December 31, 2002 $402,133
Additions related to current year acquisitions 64,503
Goodwill associated with divestitures (1,873)
--------
Balance as of September 30, 2003 $464,763
========
5
5. COMPREHENSIVE INCOME:
For the Three Months For the Nine Months
(In thousands) Ended September 30, Ended September 30,
--------------------- ---------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Net income ...................................... $ 16,244 $ 14,644 $ 35,614 $ 32,586
Other comprehensive income, net of tax:
Change in fair value of interest rate swaps ... -- -- -- (1,985)
Income tax expense ............................ -- -- -- 127
-------- -------- --------- ---------
-- -- -- (1,858)
Reclassification adjustment of loss on interest
rate swaps included in net income ........... 46 54 159 72
Income tax expense ............................ (13) (17) (59) (24)
--------- --------- --------- ---------
Comprehensive income ............................ $ 16,277 $ 14,681 $ 35,714 $ 30,776
========= ========= ========= =========
6. 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." APB No. 25 requires the use of the intrinsic
value method, which measures compensation cost as the excess, if any, of the
quoted market price of the stock at the measurement date over the amount an
employee must pay to acquire the stock. The Company makes disclosures of pro
forma net earnings and earnings per share as if the fair-value-based method of
accounting had been applied as required by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" and as
amended by SFAS No. 148, "Accounting for Stock-Based Compensation - Transition
Disclosure."
A reconciliation of the Company's net earnings to pro forma net earnings, and
the related pro forma earnings per share amounts, is as follows:
For the Three Months For the Nine Months
(In thousands, except per share data) Ended September 30, Ended September 30,
------------------------- -------------------------
2003 2002 2003 2002
----------- ----------- ----------- -----------
Net income ............................................... $ 16,244 $ 14,644 $ 35,614 $ 32,586
Adjustment to net earnings for:
Stock-based compensation expense included in net
earnings, net of tax ............................... 12 13 30 58
Pro forma stock-based compensation expense, net of tax (1,001) (1,439) (2,817) (4,061)
----------- ----------- ----------- -----------
Pro forma net income ..................................... $ 15,255 $ 13,218 $ 32,827 $ 28,583
=========== =========== =========== ===========
Earnings per share:
Basic - as reported .................................. $ 0.50 $ 0.43 $ 1.09 $ 0.99
=========== =========== =========== ===========
Basic - pro forma .................................... $ 0.47 $ 0.39 $ 1.00 $ 0.87
=========== =========== =========== ===========
Diluted - as reported ................................ $ 0.50 $ 0.43 $ 1.09 $ 0.99
=========== =========== =========== ===========
Diluted - pro forma .................................. $ 0.47 $ 0.39 $ 1.00 $ 0.87
=========== =========== =========== ===========
7. DISCONTINUED OPERATIONS:
During the first nine months of 2003, the Company classified as discontinued
operations eight full-service dealership locations (nine franchises), 10
used-only dealership locations and one ancillary business. Five full service
dealerships were divested during the first nine months of the year and three
dealerships were held for sale as of September 30, 2003. As of September 30,
2003, all of the 10 used-only dealership locations and the ancillary business
had been closed. The results of operations of these entities are accounted for
as discontinued operations in the consolidated
6
statements of income. Summary statement of income information relating to the
discontinued operations is as follows:
For the Three Months For the Nine Months
(In thousands) Ended September 30, Ended September 30,
--------------------- ---------------------
2003 2002 2003 2002
--------- --------- --------- ---------
Revenues ............................................ $ 8,382 $ 35,371 $ 54,611 $ 92,700
Cost of sales ....................................... 7,306 31,210 48,338 80,043
--------- --------- --------- ---------
Gross profit ................................... 1,076 4,161 6,273 12,657
Operating expenses .................................. 2,553 6,481 12,832 17,828
--------- --------- --------- ---------
Loss from operations ........................... (1,477) (2,320) (6,559) (5,171)
Other, net .......................................... (5) (146) (240) (502)
--------- --------- --------- ---------
Net loss ....................................... (1,482) (2,466) (6,799) (5,673)
Gain (loss) on disposition of discontinued operations (32) 27 297 (966)
--------- --------- --------- ---------
Loss before income taxes ....................... (1,514) (2,439) (6,502) (6,639)
Related tax benefit ................................. 592 989 2,588 2,353
--------- --------- --------- ---------
Discontinued operations ........................ $ (922) $ (1,450) $ (3,914) $ (4,286)
========= ========= ========= =========
8. PROPERTY AND EQUIPMENT AND REAL ESTATE OPERATING LEASES:
During the nine months ended September 30, 2003, the Company sold, in connection
with six sale/leaseback agreements, certain land and building assets for $23.0
million. Under the terms of these agreements, the Company is leasing the
properties from the purchaser for periods ranging from 15 to 22 years. Under one
of these sale/leaseback agreements, the Company sold land to an existing
president of one of the Company's platforms, who is also a member of its Board
of Directors. The sale price of the land of approximately $0.8 million was equal
to the purchase price paid for the land in January 2003. The Company believes
that this transaction was comparable to terms that would be obtained from an
unaffiliated third party. The Company is accounting for all of these sale/
leaseback transactions as operating leases. The estimated annual rental expense
under these agreements will be approximately $2.4 million.
During the nine months ended September 30, 2003, in connection with current year
acquisitions, the Company entered into two agreements to lease land and building
facilities. The Company is accounting for these transactions as operating
leases. The leases have 15-year initial terms and the estimated annual rental
expense under these agreements will be approximately $1.1 million.
9. ASSETS AND LIABILITIES HELD FOR SALE:
Assets and liabilities classified as held for sale as of September 30, 2003 and
December 31, 2002 include dealerships held for sale, real estate held for sale
and certain land and buildings which the Company intends to sell under sale/
leaseback agreements in the future, as discussed below. A summary of balance
sheet information related to assets and liabilities held for sale is as follows:
September 30, December 31,
(In thousands) 2003 2002
------------- ------------
Inventories ............................. $ 4,636 $12,952
------- -------
Total current assets ........... 4,636 12,952
Property and equipment, net ............. 25,049 16,867
Other ................................... -- 40
------- -------
Total assets ................... $29,685 $29,859
======= =======
Floor plan notes payable ................ $ 3,815 $11,828
------- -------
Total current liabilities....... 3,815 11,828
Other liabilities ....................... 17,781 125
------- -------
Total liabilities .............. $21,596 $11,953
======= =======
7
In connection with the construction and future sale/leaseback of dealership
facilities, the Company has entered into agreements to sell land to an
unaffiliated third party in the future. Under these agreements, the purchaser of
the properties advanced funds equal to the book value of the land currently
owned by the Company and advances the cost of construction for the dealership
facilities based on costs incurred by the Company to date. The Company
capitalized the cost of the land and continues to capitalize the cost of
construction as Assets Held for Sale on the accompanying balance sheet. In
addition, the Company records a corresponding liability equal to the amount of
the advanced funds, included in Liabilities Associated with Assets Held for Sale
on the accompanying balance sheet. The Company capitalizes the rent paid to the
third party, under the terms of the agreements, during the construction period.
The book value of the land and construction totaled $18.8 million and $8.3
million as of September 30, 2003 and December 31, 2002, respectively. Upon
completion of construction, the Company will execute the sale/leaseback
agreements with this third party and transfer the ownership of the land and
building assets, satisfying the related obligations. The estimated annual rental
expense under these agreements, based on advances made through September 30,
2003, will be approximately $1.6 million.
10. ACQUISITIONS:
For the nine months ended September 30, 2003, the Company made four acquisitions
(ten franchises) for approximately $72.4 million in cash, which were funded
under the Company's existing credit facility. The purchase price was allocated
to the underlying assets and liabilities based upon their estimated fair values.
The resulting preliminary estimate of goodwill and intangibles assets from these
transactions was approximately $64.5 million. The results of operations for
these acquisitions are included in the Company's consolidated results from the
dates of acquisition.
The seller of one of the dealerships was the existing president of one of the
Company's platforms. The Company believes that this transaction involves terms
that would be comparable to terms obtained from an unaffiliated third party.
11. NON-CASH INVESTING AND FINANCING ACTIVITY:
During the nine months ended September 30, 2003, the Company entered into a
capital lease for land and buildings in the amount of approximately $2.4
million. The lease has an initial term of 15 years.
In connection with the divestitures mentioned in Note 7, approximately $5.7
million of the proceeds were paid directly to the Company's lenders during the
nine months ended September 30, 2003.
In connection with the sale/leaseback transactions mentioned in Notes 8 and 9,
approximately $27.1 million of the sales proceeds were paid directly to the
Company's lenders during the nine months ended September 30, 2003. Of that
amount, approximately $5.5 million related to proceeds for the sale of assets
that were excluded from capital expenditures as shown on the consolidated
statement of cash flows for the period ended September 30, 2003.
12. 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.
8
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 of previously acquired dealerships 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.
13. SUBSEQUENT EVENT
Subsequent to September 30, 2003, a decision was rendered in the arbitration
proceedings with the estate of Brian E. Kendrick, the Company's former Chief
Executive Officer. The arbitration panel unanimously concluded that the Company
had fully satisfied its obligation under Mr. Kendrick's employment agreement
when it tendered the 2001 bonus payment of $0.5 million and 17,876 shares of the
Company's common stock in early 2002, and no further amounts are due the estate.
This decision will have no impact on the Company's future results of
operations, as all amounts related to the arbitration were properly accrued in
a prior period.
9
INDEPENDENT ACCOUNTANTS' REPORT
To the Shareholders of Asbury Automotive Group, Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of Asbury
Automotive Group, Inc. and subsidiaries ("the Company") as of September 30,
2003, and the related condensed consolidated statements of income for the
three-month and nine-month periods ended September 30, 2003 and 2002, and of
cash flows for the nine-month periods ended September 30, 2003 and 2002. These
interim financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures and
making inquiries of persons responsible for financial and accounting matters. It
is substantially less in scope than an audit conducted in accordance with
auditing standards generally accepted in the United States of America, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to such condensed consolidated interim financial statements for them to
be in conformity with accounting principles generally accepted in the United
States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of
Asbury Automotive Group, Inc. and subsidiaries as of December 31, 2002, and the
related consolidated statements of income, shareholders' equity, and cash flows
for the year then ended (not presented herein); and in our report dated February
25, 2003 (which includes an explanatory paragraph regarding the adoption of
Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets"), we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 2002 is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
/s/ Deloitte & Touche LLP
Stamford, Connecticut
October 30, 2003
10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The following discussion should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included in Item 1 of this
report. In addition, reference should be made to our audited consolidated
financial statements and notes thereto and related Management's Discussion and
Analysis of Financial Condition and Results of Operations included in our most
recent Annual Report on Form 10-K.
RESULTS OF OPERATIONS
Three Months Ended September 30, 2003, Compared to Three Months Ended
September 30, 2002
Net income for the third quarter of 2003 was $16.2 million compared with $14.6
million in the corresponding period last year. Net income includes the results
of discontinued operations, the majority of which consisted of certain now
closed non-core businesses, including the closing costs associated with our
Price 1 pilot program. Basic and diluted earnings per share, including
discontinued operations, were $0.50 for the three months ended September 30,
2003 versus $0.43 for the same period in 2002.
Net income from continuing operations for the third quarter of 2003 was $17.2
million compared with $16.1 million in the corresponding period a year ago.
Basic and diluted earnings per share from continuing operations for the third
quarter of 2003 were $0.53 compared to $0.47 in the prior year period.
Income from continuing operations before income taxes totaled $27.7 million for
the three months ended September 30, 2003, up 3% from $26.8 million for the same
period last year. The increase is primarily attributable to strong finance and
insurance ("F&I") and parts, service and collision repair ("fixed operations")
performance and the impact of acquisitions.
Revenues-
For the Three Months
(In thousands, except for unit and per vehicle data) Ended September 30,
----------------------- Increase %
2003 2002 (Decrease) Change
----------- ---------- ---------- -------
New Vehicle Data:
Retail revenues - same store (1) .................. $ 741,220 $ 712,039 $ 29,181 4%
Retail revenues - acquisitions .................... 37,492 --
---------- ----------
Total new retail ............................. 778,712 712,039 66,673 9%
Fleet revenues - same store (1) ................... 7,133 10,812 (3,679) (34%)
Fleet revenues -acquisitions ...................... 197 --
---------- ----------
Total new fleet revenues ..................... 7,330 10,812 (3,482) (32%)
---------- ----------
New vehicle revenue, as reported ............. $ 786,042 $ 722,851 $ 63,191 9%
========== ==========
New retail units - same store (1) ................. 25,597 26,755 (1,158) (4%)
New retail units - actual ........................ 26,867 26,755 112 0%
Used Vehicle Data:
Retail revenues - same store (1) .................. $ 228,338 $ 233,763 $ (5,425) (2%)
Retail revenues - acquisitions .................... 11,474 --
---------- ----------
Total used retail revenues ................... 239,812 233,763 6,049 3%
Wholesale revenues - same store (1) ............... 75,372 72,270 3,102 4%
Wholesale revenues - acquisitions ................. 3,844 --
---------- ----------
Total wholesale revenues ..................... 79,216 72,270 6,946 10%
---------- ----------
Used vehicle revenue, as reported ............ $ 319,028 $ 306,033 $ 12,995 4%
========== ==========
Used retail units - same store (1) ................ 15,124 15,119 5 0%
Used retail units - actual ........................ 15,774 15,119 655 4%
11
For the Three Months
(In thousands, except for unit and per vehicle data) Ended September 30,
----------------------- Increase %
2003 2002 (Decrease) Change
----------- ---------- ---------- -------
Parts, Service and Collision Repair:
Revenues - same store (1) ......................... $ 135,671 $ 128,429 $ 7,242 6%
Revenues - acquisitions ........................... 7,361 --
---------- ----------
Parts, service and collision repair
revenue, as reported ...................... $ 143,032 $ 128,429 $ 14,603 11%
========== ==========
Finance and Insurance:
Platform revenues - same store (1) ................ $ 34,749 $ 33,289 $ 1,460 4%
Corporate revenues ................................ 1,300 --
Revenues - acquisitions ........................... 1,317 --
---------- ----------
Finance and insurance revenue, as reported $ 37,366 $ 33,289 $ 4,077 12%
========== ==========
Total Revenue:
Same store (1) .................................... $1,222,483 $1,190,602 $ 31,181 3%
Corporate ......................................... 1,300 --
Acquisitions ...................................... 61,685 --
---------- ----------
Total revenue, as reported ................... $1,285,468 $1,190,602 $ 94,866 8%
========== ==========
(1) Same store amounts include the results of dealerships for the identical
months for each period presented in the comparison, commencing with the
first full month in which the dealership was owned by the Company.
Revenues of $1.3 billion for the three months ended September 30, 2003,
represented a $94.9 million or 8% increase over the three months ended September
30, 2002. Same store revenue grew $33.2 million or 3%, with the remaining
increase of $61.7 million derived from acquisitions. On a same store basis, our
new retail units were down 4% compared to the three months ended September 30,
2002. However, same store new vehicle retail revenues were up 4%, reflecting an
increase in our average selling price which was driven by our strong luxury and
midline import sales mix. Used retail vehicle unit sales were flat on a same
store basis compared to prior year period. Fixed operations revenues were up 6%
on a same store basis as strong import vehicle sales over the past several years
has resulted in incremental import customer pay and warranty work. Same store
F&I platform revenues grew 4% due to strong product sales, increased penetration
rates (the number of F&I contracts sold to the combined total of retail unit
sales), maturing of our preferred provider programs and our continued focus on
improvement of underperforming stores.
Gross Profit-
For the Three Months
(In thousands, except for unit and per vehicle data) Ended September 30,
----------------------- Increase %
2003 2002 (Decrease) Change
----------- ---------- ---------- -------
New Vehicle Data:
Retail gross profit - same store (1) ............... $ 53,780 $ 56,657 $ (2,877) (5%)
Retail gross profit - acquisitions ................. 2,587 --
-------- --------
Total new retail gross profit ................. 56,367 56,657 (290) (1%)
Fleet gross profit - same store (1) ................ 301 361 (60) (17%)
Fleet gross profit -acquisitions ................... (2) --
-------- --------
Total new fleet gross profit .................. 299 361 (62) (17%)
-------- --------
New vehicle gross profit, as reported.......... $ 56,666 $ 57,018 $ (352) (1%)
======== ========
New retail units - same store (1) ................. 25,597 26,755 (1,158) (4%)
New retail units - actual ......................... 26,867 26,755 112 0%
12
For the Three Months
(In thousands, except for unit and per vehicle data) Ended September 30,
----------------------- Increase %
2003 2002 (Decrease) Change
----------- ---------- ---------- -------
Used Vehicle Data:
Retail gross profit - same store (1) ................ $ 27,434 $ 28,916 $ (1,482) (5%)
Retail gross profit - acquisitions .................. 1,128 --
--------- ---------
Total used retail gross profit ................. 28,562 28,916 (354) (1%)
Wholesale gross profit - same store (1) ............. (857) (1,749) 892 51%
Wholesale gross profit - acquisitions ............... 7 --
--------- ---------
Total wholesale gross profit ................... (850) (1,749) 899 51%
--------- ---------
Used vehicle gross profit, as reported ......... $ 27,712 $ 27,167 $ 545 2%
========= =========
Used retail units - same store (1) .................. 15,124 15,119 5 0%
Used retail units - actual .......................... 15,774 15,119 655 4%
Parts, Service and Collision Repair:
Gross profit - same store (1) ....................... $ 72,525 $ 66,992 $ 5,533 8%
Gross profit - acquisitions ......................... 3,806 --
--------- ---------
Parts, service and collision repair
gross profit, as reported ................... $ 76,331 $ 66,992 $ 9,339 14%
========= =========
Finance and Insurance:
Platform gross profit - same store (1) .............. $ 34,749 $ 33,289 $ 1,460 4%
Corporate gross profit .............................. 1,300 --
Gross profit - acquisitions ......................... 1,317 --
--------- ---------
Finance and insurance gross profit, as reported $ 37,366 $ 33,289 $ 4,077 12%
========= =========
Platform gross profit per vehicle retailed -
same store (1) $ 853 $ 795 $ 58 7%
Platform gross profit per vehicle retailed - actual . $ 846 $ 795 $ 51 6%
Gross profit per vehicle retailed - actual .......... $ 876 $ 795 $ 81 10%
Total Gross Profit:
Gross profit - same store (1) ....................... $ 187,932 $ 184,466 $ 3,466 2%
Gross profit - corporate ............................ 1,300 --
Gross profit - acquisitions ......................... 8,843 --
--------- ---------
Total gross profit, as reported ................ $ 198,075 $ 184,466 $ 13,609 7%
========= =========
(1) Same store amounts include the results of dealerships for the identical
months for each period presented in the comparison, commencing with the
first full month in which the dealership was owned by the Company.
Gross profit for the quarter ended September 30, 2003, increased $13.6 million
or 7% over the quarter ended September 30, 2002. Same store retail gross profit
was up 3% for the same period. Consistent with our business model, we achieved
same store gross profit growth of 4% in F&I platform gross profit and increases
in same store fixed operations gross profit of 8% during the period. Same store
F&I platform gross profit per vehicle retailed ("PVR") increased 7%. F&I
platform gross profit provides an accurate measure of our finance and insurance
performance as it excludes revenue resulting from corporate negotiated contracts
which is not attributable to the retail units sold during the period. In
addition, wholesale losses during the quarter were in line with our third
quarter expectations, but significantly lower than the same quarter of the prior
year, during which used car auction prices were under significant pressure.
These items were offset by continued margin pressure on new and used vehicles.
Operating Expenses-
Selling, general and administrative ("SG&A) expenses for the quarter ended
September 30, 2003, increased $11.4 million or 8% over the quarter ended
September 30, 2002. Included in SG&A expenses for the quarter ended September
30, 2003 were $2.0 million of severance, relocation and hiring costs in
connection with management changes at our Oregon and Texas platforms and at the
13
corporate level. In addition, our insurance premiums were $5.2 million for the
quarter ended September 30, 2003, a $1.7 million increase compared to the same
quarter in the prior year, reflecting the current insurance environment.
Including the impact of these items, SG&A expenses as a percentage of gross
profit increased only 60 basis points to 76.0% for the quarter ended September
30, 2003, when compared to the same period in 2002.
Depreciation and Amortization-
Depreciation and amortization expense increased approximately $0.6 million to
$5.1 million for the quarter ended September 30, 2003, as compared to the same
period in 2002. The increase is primarily related to acquisitions.
Other Income (Expense)-
Floor plan interest expense increased to $4.6 million for the three months ended
September 30, 2003, from $4.4 million for the three months ended September 30,
2002. This 6% increase was primarily due to higher average inventory levels
during the 2003 quarter resulting primarily from acquisitions during 2003.
Non-floor plan interest expense remained essentially flat when compared to the
prior year quarter.
Income Tax Provision-
Income tax expense was $10.5 million for the three months ended September 30,
2003 compared to $10.7 million for the same quarter in the prior year. Our
effective tax rate for the three months ended September 30, 2003, was 38%
compared to 39.9% for the prior year quarter. As we operate nationally, our
effective tax rate is dependent upon our geographic revenue mix. We evaluate our
effective tax rate periodically based on our revenue sources. We will continue
to evaluate our effective tax rate in the future, and expect that our annual
effective tax rate will fluctuate between 38% and 39%.
Discontinued Operations-
The loss from discontinued operations of approximately $0.9 million for the
third quarter of 2003 included a loss associated with the sale of two "full
service" dealerships, the cost of closing our Price 1 pilot program and losses
incurred in the operation of three franchises which were classified as held for
sale as of September 30, 2003. Subsequent to the end of the quarter, we closed
one of the franchises that was held for sale and resigned the franchise. The
loss from discontinued operations for the third quarter ended September 30, 2002
was $1.5 million, including the operating losses from the stores mentioned
above, the operating losses generated during the quarter by the stores that were
sold or closed during the twelve-month period ended June 30, 2003, and the net
gain recognized on dealership and related real estate assets sold during the
quarter.
Nine Months Ended September 30, 2003, Compared to Nine Months Ended
September 30, 2002
Net income for the nine months ended September 30, 2003 was $35.6 million or
$1.09 per basic and diluted share, including a $3.9 million loss from
discontinued operations principally related to our Price 1 pilot program. Net
income for the nine months ended September 30, 2002 was $32.6 million or $0.99
per basic and diluted share. For the nine months ended September 30, 2002, tax
affected pro forma net income was $38.6 million or $1.17 per basic and diluted
share. Pro forma net income from continuing operations for the nine months ended
September 30, 2002 was $42.8 million or $1.26 per basic and diluted share. The
pro forma results for the prior year exclude a nonrecurring deferred income tax
provision required by Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes" related to our change in tax status from a
limited liability company to a "C" corporation in conjunction with our March
2002 initial public offering ("IPO"). In addition, the pro forma results from
continuing operations also assume that we were a publicly traded "C" corporation
for the entire period. A reconciliation of pro forma net income from continuing
operations to GAAP net income from continuing operations follows - see
"Reconciliation of Non-GAAP Financial Information".
Income from continuing operations before income taxes totaled $64.8 million for
the nine months ended September 30, 2003, down 9% from $71.2 million for the
nine months ended September 30, 2002. The decrease is attributable to continued
vehicle margin pressure, deterioration of our expense structure in the first
quarter, weak performance in our Oregon platform and charges of $3.2 million in
connection with management changes at our Oregon and Texas platforms and at the
corporate level. These items were offset by improvement in expense controls in
the second and third quarters and the improved performance of the Arkansas
platform, which was underperforming during 2002.
14
Revenues-
For the Nine Months
(In thousands, except for unit and per vehicle data) Ended September 30,
----------------------- Increase %
2003 2002 (Decrease) Change
----------- ---------- ---------- -------
New Vehicle Data:
Retail revenues - same store (1) .................. $2,072,222 $1,973,987 $ 98,235 5%
Retail revenues - acquisitions .................... 75,594 310
---------- ----------
Total new retail ............................. 2,147,816 1,974,297 173,519 9%
Fleet revenues - same store (1) ................... 36,822 32,955 3,867 12%
Fleet revenues -acquisitions ...................... 195 --
---------- ----------
Total new fleet revenues ..................... 37,017 32,955 4,062 12%
---------- ----------
New vehicle revenue, as reported ............. $2,184,833 $2,007,252 $ 177,581 9%
========== ==========
New retail units - same store (1) ................. 72,638 73,060 (422) (1%)
New retail units - actual ......................... 75,141 73,072 2,069 3%
Used Vehicle Data:
Retail revenues - same store (1) .................. $ 678,158 $ 678,941 $ (783) 0%
Retail revenues - acquisitions .................... 25,401 268
---------- ----------
Total used retail revenues ................... 703,559 679,209 24,350 4%
Wholesale revenues - same store (1) ............... 204,357 208,036 (3,679) (2%)
Wholesale revenues - acquisitions ................. 7,929 2
---------- ----------
Total wholesale revenues ..................... 212,286 208,038 4,248 2%
---------- ----------
Used vehicle revenue, as reported ............ $ 915,845 $ 887,247 $ 28,598 3%
========== ==========
Used retail units - same store (1) ................ 44,616 44,463 153 0%
Used retail units - actual ........................ 46,145 44,479 1,666 4%
Parts, Service and Collision Repair:
Revenues - same store (1) ......................... $ 395,882 $ 373,854 $ 22,028 6%
Revenues - acquisitions ........................... 15,976 87
---------- ----------
Parts, service and collision repair
revenue, as reported ...................... $ 411,858 $ 373,941 $ 37,917 10%
========== ==========
Finance and Insurance:
Platform revenues - same store (1) ................ $ 96,385 $ 87,701 $ 8,684 10%
Corporate revenues ................................ 1,300 --
Revenues - acquisitions ........................... 2,812 20
---------- ----------
Finance and insurance revenue, as reported $ 100,497 $ 87,721 $ 12,776 15%
========== ==========
Total Revenue:
Same store (1) ................................... $3,483,826 $3,355,474 $ 128,352 4%
Corporate ........................................ 1,300 --
Acquisitions ..................................... 127,907 687
---------- ----------
Total revenue, as reported .................. $3,613,033 $3,356,161 $ 256,872 8%
========== ==========
(1) Same store amounts include the results of dealerships for the identical
months for each period presented in the comparison, commencing with the
first full month in which the dealership was owned by the Company.
Revenues of $3.6 billion for the nine months ended September 30, 2003,
represented a $256.9 million or 8% increase over the nine months ended September
30, 2002. Same store revenue grew $129.7 million or 4%, with the remainder
derived from acquisitions. On a same store basis, new retail units were down 1%.
However, same store new vehicle retail revenues were up 5% reflecting an
increase in our average selling price driven by our strong luxury and mid-line
import sales mix. Used retail vehicle unit sales were unchanged compared to the
15
same period of the prior year, as new vehicle incentives continued to adversely
affect used vehicle sales. With ongoing focus on fixed operations and platform
F&I, we achieved 6% and 10% same store growth, respectively, as we continue to
benefit from the sharing of best practices between our platforms in these areas.
Gross Profit-
For the Nine Months
(In thousands, except for unit and per vehicle data) Ended September 30,
----------------------- Increase %
2003 2002 (Decrease) Change
----------- ---------- ---------- -------
New Vehicle Data:
Retail gross profit - same store (1) ............... $ 154,121 $ 163,325 $ (9,204) (6%)
Retail gross profit - acquisitions ................. 5,282 20
--------- ---------
Total new retail gross profit ................. 159,403 163,345 (3,942) (2%)
Fleet gross profit - same store (1) ................ 877 980 (103) (11%)
Fleet gross profit -acquisitions ................... (2) --
--------- ---------
Total new fleet gross profit .................. 875 980 (105) (11%)
--------- ---------
New vehicle gross profit, as reported ......... $ 160,278 $ 164,325 $ (4,047) (2%)
========= =========
New retail units - same store (1) ................. 72,638 73,060 (422) (1%)
New retail units - actual ......................... 75,141 73,072 2,069 3%
Used Vehicle Data:
Retail gross profit - same store (1) ............... $ 80,996 $ 82,771 $ (1,775) (2%)
Retail gross profit - acquisitions ................. 2,549 32
--------- ---------
Total used retail gross profit ................ 83,545 82,803 742 1%
Wholesale gross profit - same store (1) ............ (632) (1,950) 1,318 68%
Wholesale gross profit - acquisitions .............. (71) 1
--------- ---------
Total wholesale gross profit .................. (703) (1,949) 1,246 64%
--------- ---------
Used vehicle gross profit, as reported......... $ 82,842 $ 80,854 $ 1,988 2%
========= =========
Used retail units - same store (1) ................. 44,616 44,463 153 0%
Used retail units - actual ......................... 46,145 44,479 1,666 4%
Parts, Service and Collision Repair:
Gross profit - same store (1) ...................... $ 208,570 $ 196,888 $ 11,682 6%
Gross profit - acquisitions ........................ 9,349 57
--------- ---------
Parts, service and collision repair
gross profit, as reported .................. $ 217,919 $ 196,945 $ 20,974 11%
========= =========
Finance and Insurance:
Platform gross profit - same store (1) ............. $ 96,385 $ 87,701 $ 8,684 10%
Gross profit - corporate ........................... 1,300 --
Gross profit - acquisitions ........................ 2,812 20
--------- ---------
Finance and insurance gross profit, as reported $ 100,497 $ 87,721 $ 12,776 15%
========= =========
Platform gross profit per vehicle retailed -
same store (1) $ 822 $ 746 $ 76 10%
Platform gross profit per vehicle retailed - actual $ 818 $ 746 $ 72 10%
Gross profit per vehicle retailed - actual ......... $ 829 $ 746 $ 83 11%
Total Gross Profit:
Gross profit - same store (1) ...................... $ 540,317 $ 529,715 $ 10,602 2%
Gross profit - corporate ........................... 1,300 --
Gross profit - acquisitions ........................ 19,919 130
--------- ---------
Total gross profit, as reported ............... $ 561,536 $ 529,845 $ 31,691 6%
========= =========
(1) Same store amounts include the results of dealerships for the identical
months for each period presented in the comparison, commencing with the
first full month in which the dealership was owned by the Company.
16
Gross profit for the nine months ended September 30, 2003, increased $31.7
million or 6% over the same period ended September 30, 2002. Same store gross
profit increased 2% year over year driven by significant growth in F&I and fixed
operations, at 10% and 6%, respectively. These increases were offset by same
store decreases in gross profit for new and used vehicles.
Operating Expenses-
SG&A expenses for the nine months ended September 30, 2003 were $437.4 million,
up 8.5% from $403.3 million for the nine months ended September 30, 2002. The
majority of the increase was due to expense deterioration in several platforms
in the first quarter and the severance, relocation and hiring costs discussed
above. We experienced significant improvement in the second and third quarter
with our successful expense reduction initiatives.
Depreciation and Amortization-
Depreciation and amortization expense increased approximately $0.7 million to
$15.0 million for the nine months ended September 30, 2003, as compared to the
same period in 2002. This increase is primarily related to acquisitions.
Other Income (Expense)-
Floor plan interest expense increased 9.2% to $14.3 million for the nine months
ended September 30, 2003. This increase was due to higher average inventory
levels during the first nine months of 2003 as compared to the corresponding
period in 2002. The increase in non-floor plan interest expense of $1.3 million
from the same period of the prior year was principally attributable to the
higher interest rate on our Senior Subordinated Notes issued in June 2002.
Income Tax Provision-
Income tax expense was $25.3 million for the nine months ended September 30,
2003 compared to $34.3 million for the nine-month period ended September 30,
2002. Our effective tax rate for the nine months ended September 30, 2003, was
39% compared to 39.9% for the prior year period. As we operate nationally, our
effective tax rate is dependent upon our geographic revenue mix. We evaluate our
effective tax rate periodically based on our revenue sources. We will continue
to evaluate our effective tax rate in the future, and expect that our annual
effective tax rate will fluctuate between 38% and 39%.
For the time period from January 1, 2002 through the date of our IPO, we were
structured as a limited liability company and only provided a tax provision in
accordance with SFAS No. 109 for the nine "C" corporations that we owned
directly or indirectly during that period. Effective with our IPO, which closed
March 19, 2002, we converted to a corporation and became subject to federal,
state and local income taxes. During the nine months ended September 30, 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 our conversion. This liability represented the difference
between the financial statement and tax basis of our assets and liabilities at
the conversion date.
Discontinued Operations-
During the first nine months of 2003, we completed the sale of five "full
service" dealerships, closed six "Thomason Select" used-only lots in Oregon and
closed our four Price 1 pilot program used vehicle stores. As of September 30,
2003, we were actively pursuing the sale of three full service dealerships, one
of which was closed subsequent to the end of the quarter. The $3.9 million loss
from discontinued operations includes the operating losses of the dealerships
mentioned above offset by a net gain on the sales of the stores sold in the
first nine months of the year. The loss from discontinued operations for the
nine months ended September 30, 2002 was $4.3 million, which included the
results of operations of the dealerships mentioned above and the operating
losses and net loss on the sale of four dealerships, and related real estate
assets, sold during the first nine months of 2002.
17
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 the First Amended
and Restated Credit Agreement and the Floor Plan Facilities (as defined below),
mortgage notes and proceeds from sale/leaseback transactions. As of September
30, 2003 we had cash and cash equivalents of $48.8 million.
Credit Facilities-
On January 17, 2001, we entered into a committed financing agreement with Ford
Motor Credit Company, General Motors Acceptance Corporation and DaimlerChrysler
Services North America, LLC (the "Lenders") with total availability of $550
million. The committed financing agreement is used for acquisition financing and
working capital purposes. On June 6, 2003, we signed the First Amended and
Restated Credit Agreement (the "ARCA"), retaining all the essential provisions
of our original committed credit facility, but reducing the availability for
borrowings to $450 million and increasing our working capital borrowing capacity
from $25 million to $75 million. Our decision to amend the existing credit
facility was driven by our desire to reduce the commitment fee paid to the
Lenders, which is based on the unused portion of the facility, and to extend the
facility by one year through January 2006. All borrowings under the ARCA and our
original committed credit facility (collectively the "Committed Credit
Facility") bear interest at variable rates based on one-month LIBOR plus a
specified percentage that is dependent upon our adjusted debt level as of the
end of each quarter.
During the third quarter of 2002, we obtained consent from the Lenders for a
cash management sublimit of $75 million under our Committed Credit Facility. The
cash management sublimit allows us to repay up to $75 million of debt
outstanding under our Committed Credit Facility using cash that has been
centrally collected by our cash management system. The net amount repaid under
the cash management sublimit may be borrowed by us on short-term notice for
general corporate purposes. At September 30, 2003, approximately $306 million
was available for borrowings under the Committed Credit Facility, including $18
million under the cash management sublimit. Subsequent to September 30, 2003, we
repaid an additional $45 million under the cash management sublimit.
Floor Plan Financing-
We finance substantially all of our new vehicle inventory and a portion of our
used vehicle inventory under the floor plan financing credit facilities (the
"Floor Plan Facilities"). The Floor Plan Facilities provide used vehicle
financing up to a fixed percentage of the value of each financed used vehicle.
In connection with the ARCA, total availability under the floor plan facilities
was reduced from $750 million to $695 million. Amounts financed under the floor
plan arrangements bear interest at variable rates, which are typically tied to
LIBOR or the prime rate. As of September 30, 2003, we had $488.5 million
outstanding under all of our floor plan financing agreements.
Sale/Leaseback and Operating Lease Agreements-
During the nine months ended September 30, 2003, we sold, in connection with six
sale/leaseback agreements, certain land and building assets for approximately
$23 million. Under the terms of these agreements, we have committed to leaseback
the properties from the purchaser for periods ranging from 15 to 22 years. Under
one of these sale/leaseback agreements, we sold land to an existing president of
one of our platforms, who is also a member of our Board of Directors. The sale
price of the land of approximately $0.8 million was equal to the purchase price
paid for the land in January 2003. We believe that this transaction was
comparable to terms that would be obtained from an unaffiliated third party. We
are accounting for these transactions as operating leases. The estimated annual
rental expense under these agreements will be approximately $2.4 million.
In addition to the sale/leaseback agreements discussed above, in connection with
the construction and future sale/ leaseback of dealership facilities, we have
entered into agreements to sell additional land to an unaffiliated third party
in the future. Under these agreements, the purchaser of the properties advanced
funds equal to the book value of the land currently owned by us, and advances
the cost of construction for the dealership facilities based on costs incurred
to date. We capitalized the cost of the land and continue to capitalize the cost
of construction included in Assets Held for Sale on the accompanying balance
sheet and record a corresponding liability equal to the amount of the advanced
funds included in Liabilities Associated with Assets Held for Sale on the
accompanying balance sheet. In addition, we capitalize the rent paid to the
third party, under the terms of the agreements, during the construction period.
Upon completion of construction, we will enter into sale/ leaseback agreements
with this third party and transfer the ownership of the land and building
18
assets, satisfying the related obligations. The estimated annual rental expense
under these agreements, based on advances made through September 30, 2003, will
be approximately $1.6 million.
During the nine months ended September 30, 2003, in connection with current year
acquisitions, we entered into two agreements to lease land and building
facilities. We are accounting for these transactions as operating leases. The
leases have 15-year initial terms and the estimated annual rental expense under
these agreements will be approximately $1.1 million.
Acquisitions and Acquisition Financing-
For the nine months ended September 30, 2003, we made four acquisitions (ten
franchises) for approximately $72.4 million in cash, which were funded under our
Committed Credit Facility. The purchase price was allocated to the underlying
assets and liabilities based upon their estimated fair values. The resulting
preliminary estimate of goodwill and intangibles assets from these transactions
was approximately $64.5 million. The results of operations for these
acquisitions are included in our consolidated results from the dates of
acquisition.
The seller of one of the dealerships was the existing president of one of our
platforms. We believe that this transaction involves terms that would be
comparable to terms that would be obtained from an unaffiliated third party.
Capital Expenditure Financing
During the first nine months of 2003 and 2002, $7.2 million and $5.6 million,
respectively, of our capital expenditures were funded through collateralized
borrowings.
Cash Flow
Operating Activities-
Net cash provided by operating activities totaled $68.1 million for the nine
months ended September 30, 2003 consisting of net income of $35.6 million,
non-cash items of $23.1 million (primarily depreciation and amortization), and a
$9.4 million net increase in operating assets and liabilities. Operating assets
in the aggregate increased due to an increase in accrued liabilities primarily
driven by the timing of interest payments on our senior subordinated notes and
improved collections of contracts in transit, partially offset by increases in
accounts receivable due to normal seasonality.
Net cash provided by operating activities totaled $69.9 million for the nine
months ended September 30, 2002 consisting of net income of $32.6 million,
non-cash items of $36.5 million (primarily depreciation and amortization and
deferred income taxes) and a $0.8 million net increase in operating assets and
liabilities. This net increase was primarily the result of a reduction in
contracts in transit and inventory and increased accounts payable and accrued
liabilities, offset by increased payments on floor plan borrowings and increased
accounts receivable.
Investing Activities-
Net cash used in investing activities for the nine months ended September 30,
2003 was $99.0 million, as capital expenditures of $33.4 million, dealership
acquisitions of $72.4 million and the net issuance of finance contracts of $2.8
million was offset by the maturity of restricted marketable securities of $1.8
million and proceeds from the sale of discontinued operations of $7.8 million.
Net cash used in investing activities for the nine months ended September 30,
2002 was $45.7 million, as capital expenditures of $38.1 million and dealership
acquisitions of $14.6 million were offset by the maturity of restricted
marketable securities of $1.8 million, proceeds from the sale of discontinued
operations of $4.8 million and proceeds from the sale of fixed assets of $1.4
million.
Financing Activities-
Net cash provided by financing activities for the nine months ended September
30, 2003 was $57.2 million, as proceeds from borrowings of $100.7 million offset
debt repayments of $32.3 million, distributions to members in the first quarter
of $3.0 million (our final limited liability company distribution to our
members) and the repurchase of treasury stock of $8.4 million.
19
Net cash used in financing activities for the nine months ended September 30,
2002 was $33.1 million as proceeds from our initial public offering of $65.4
million and the net proceeds from borrowings of $264.8 million (mainly the
issuance of the Senior Subordinated Notes), were offset by repayments of debt of
$352.4 million (as we were required under our Committed Credit Facility to use
the majority of IPO proceeds and all subordinated debt proceeds to repay
existing debt), and distributions to members of $11.7 million.
Capital Expenditures
Capital spending other than for acquisitions, net of proceeds from and advances
associated with sale/leaseback transactions, is expected to total approximately
$44 million for the year ending December 31, 2003 and will be primarily related
to operational improvements and manufacturer-required spending to upgrade
existing dealership facilities.
Stock Repurchase
Pursuant to our Senior Subordinated Note indenture, we are permitted to
repurchase shares subject to the following restrictions: (i) up to $15 million
under a "Restricted Payments" building basket, plus (ii) up to $2 million per
fiscal year under our "Stock Repurchase" basket. The Restricted Payments
building basket equals the greater of $15 million, or 50% of the consolidated
net income beginning April 1, 2002 (less the cumulative amount of any Restricted
Payments since the Senior Subordinated Notes' inception). During 2002, we
repurchased 772,824 shares of our common stock for a purchase price of $6.6
million. During the nine months ended September 30, 2003, we repurchased an
additional 817,189 shares for an aggregate purchase price of $8.4 million.
Reconciliation of "Non-GAAP" Financial Information
For analysis purposes, in Management's Discussion and Analysis we discuss pro
forma net income from continuing operations and related earnings per share for
the nine months ended September 30, 2002. The consolidated statement of income
reconciles GAAP net income to tax affected pro forma net income by assuming that
we were taxed as a "C" corporation for all twelve months of 2002 and excluding
the one-time charge for our conversion from a limited liability company to a
corporation. The following table assumes that all discontinued entities were
sold prior to 2002 and all shares issued in our IPO were outstanding on January
1, 2002.
For the Nine
Months Ended
(In thousands, except for per share data) September 30, 2002
------------------
Tax affected pro forma net income ............................... $38,551
Discontinued operations ......................................... 4,286
-------
Pro forma net income from continuing operations ................. $42,837
=======
Pro forma earnings per share:
Basic ........................................................ $ 1.26
=======
Diluted ...................................................... $ 1.26
=======
Pro forma common shares and share equivalents:
Weighted average shares outstanding-
Basic ..................................................... 32,813
Adjustment for 4,500 shares offered March 14, 2002
as if offered on January 1, 2002 ....................... 1,187
-------
Pro forma basic shares .................................... 34,000
Dilutive effect of common share equivalents (stock options) 21
-------
Pro forma diluted shares .................................. 34,021
=======
20
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We are exposed to market risk from changes in interest rates on a significant
portion of our outstanding indebtedness. Based on $277.2 million of variable
rate long-term debt (including the current portion) outstanding at September 30,
2003, a 1% change in interest rates would result in a change of approximately
$2.8 million to our annual other interest expense. Based on floor plan amounts
outstanding at September 30, 2003, a 1% change in the interest rates would
result in a $4.9 million change to annual floor plan interest expense.
We receive interest credit assistance from certain automobile manufacturers,
which is reflected as a reduction in the cost of inventory on the balance sheet.
Although we can provide no assurance as to the amount of future floor plan
credits, it is our expectation, based on historical data, that an increase in
prevailing interest rates would result in increased interest credit assistance
from certain automobile manufacturers.
Item 4. Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
As of the end of the period covered by this report, the Company conducted an
evaluation (under the supervision of and with the participation of the Company's
management, including the chief executive officer and chief financial officer),
of the effectiveness of the design and operation of the Company's disclosure
controls and procedures (as defined in Rule 13a-15e and 15d-15e under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")). Based on this
evaluation, the Company's chief executive officer and chief financial officer
concluded that as of the end of such period: such disclosure controls and
procedures were reasonably designed to ensure that information required to be
disclosed by the Company in reports it files or submits under the Exchange Act
is recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the Securities and Exchange Commission.
CHANGES IN INTERNAL CONTROLS
There have not been any changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the fiscal quarter to which this report relates that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
. . .
Forward Looking Statements
This report contains "forward-looking statements" as that term is defined in the
Private Securities Litigation Reform Act of 1995. The forward-looking statements
include statements relating to goals, plans and projections regarding the
Company's financial position, results of operations, market position, product
development and business strategy. These statements are based on management's
current expectations and involve significant risks and uncertainties that may
cause results to differ materially from those set forth in the statements. These
risks and uncertainties include, among other things,
o market factors,
o the Company's relationships with vehicle manufacturers and other suppliers,
o risks associated with the Company's substantial indebtedness,
o risks related to pending and potential future acquisitions, and
o general economic conditions both nationally and locally and governmental
regulations and legislation.
There can be no guarantees the Company's plans for future operations will be
successfully implemented or that they will prove to be commercially successful.
We undertake no obligation to publicly update any forward-looking statement,
whether as a result of new information, future events or otherwise.
21
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Sublease dated July 28, 2003 between Monster Worldwide, Inc.
and Asbury Automotive Group
10.2 Severance Agreement with Executive Vice President and Chief
Financial Officer J. Gordon Smith, dated September 29, 2003
10.3 Indemnification Agreement with Executive Vice President and Chief
Financial Officer J. Gordon Smith, dated September 29, 2003
31.1 Certificate of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certificate of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certificate of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certificate of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
b. Reports on Form 8-K
Report filed July 11, 2003, under Item 7, related to issuance of a press
release announcing that the Company has reached a mutual agreement with
Wal-Mart Stores, Inc. to end the pilot "Price 1" program.
Report filed July 30, 2003, under Item 9, related to the issuance of a
press release announcing that Michael Kane has been named President and CEO
of the Company's Texas platform.
Report dated July 31, 2003, filed under Item 9 and furnished under Item 12,
related to issuance of a press release announcing the Company's earnings
for the second quarter and six months ended June 30, 2003.
Report filed September 17, 2003, under Item 5, related to issuance of a
press release announcing that J. Gordon Smith has been named the new Chief
Financial Officer.
Report filed October 9, 2003, under Item 5, related to issuance of a press
release announcing that the Company is hosting a live "Investor Day" video
web cast on October 15, 2003.
Report filed October 15, 2003, under Item 5, related to issuance of a press
release announcing that it disclosed selected preliminary financial
information for the quarter ended September 30, 2003, in conjunction with
its live "Investor Day" video web cast.
Report furnished October 30, 2003, under Item 12, related to issuance of a
press release announcing the Company's earnings for the third quarter and
nine months ended September 30, 2003.
Report filed November 4, 2003, under Item 5, related to issuance of a press
release announcing that a decision has been rendered in the private
arbitration proceeding relating to amounts claimed by the estate of Brian
E. Kendrick.
<
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Asbury Automotive Group, Inc.
-----------------------------------------------
(Registrant)
Date: November 14, 2003 /s/ Kenneth B. Gilman
----------------------------------------------
Kenneth B. Gilman
Chief Executive Officer
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Asbury Automotive Group, Inc.
------------------------------------------------
(Registrant)
Date: November 14, 2003 /s/ J. Gordon Smith
------------------------------------------------
J. Gordon Smith
Senior Vice President and Chief Financial Officer
24
Index to Exhibits
Exhibit
Number Description
10.1 Sublease dated July 28, 2003 between Monster Worldwide, Inc. and
Asbury Automotive Group
10.2 Severance Agreement with Executive Vice President and Chief
Financial Officer J. Gordon Smith, dated September 29, 2003
10.3 Indemnification Agreement with Executive Vice President and Chief
Financial Officer J. Gordon Smith, dated September 29, 2003
31.1 Certificate of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
31.2 Certificate of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934,
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
32.1 Certificate of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certificate of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
25
SUBLEASE (this "Sublease"), dated as of July 28, 2003, by and between
MONSTER WORLDWIDE, INC., a Delaware corporation, successor-by-merger to TMP
Worldwide Inc., a Delaware corporation, having an office at 622 Third Avenue,
38th Floor, New York, New York 10017 ("Sublandlord"), and ASBURY AUTOMOTIVE
GROUP, INC., a Delaware corporation having an address at 622 Third Avenue, 37th
Floor, New York, New York 10017 ("Subtenant").
W I T N E S S E T H:
WHEREAS, pursuant to a lease ("Original Lease") by and between 622
Third Avenue Company, LLC, successor-in-interest to 622 Building Company LLC, a
New York limited liability company ("Landlord"), as landlord, and Sublandlord,
as tenant, dated December 13, 1999, as amended by that certain Commencement Date
Agreement dated as of February 16, 2000 (the Original Lease, as the same has
been amended by such Commencement Date Agreement, and as may hereafter be
amended, the "Master Lease"), Landlord did demise and let unto Sublandlord, and
Sublandlord did hire and take from Landlord, certain premises as more
particularly identified in the Master Lease (collectively, the "Leased
Premises"), in a building known as and by the street address of 622 Third
Avenue, New York, New York (the "Building"); and
WHEREAS, Subtenant acknowledges and represents that it has received and
reviewed the Master Lease, a current copy of which is attached hereto as Exhibit
A and made a part hereof, except as hereinafter provided; and
WHEREAS, Sublandlord wishes to sublet to Subtenant, and Subtenant
desires to hire and rent from Sublandlord a portion of the Leased Premises being
the entire 37th floor as more particularly shown on Exhibit B attached hereto
(the "Premises"), and Subtenant is desirous of hiring and taking the Premises
from Sublandlord, upon the terms, covenants and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual covenants and promises
herein contained, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Sublandlord and Subtenant hereby
agree as follows:
1. TERM. Sublandlord hereby subleases to Subtenant, and Subtenant hereby
hires from Sublandlord, the Premises for the purposes set forth in
Section 4.01 of the Master Lease for a term commencing on the later of
the date (i) the parties hereto execute and deliver this Sublease, and
(ii) Sublandlord receives Landlord's written consent to this Sublease
as set forth in paragraph 16 of this Sublease (such later date being
the "Commencement Date"), and ending, unless sooner terminated pursuant
to any of the provisions of the Master Lease, this Sublease or pursuant
to applicable law, on September 29, 2015 at 5:00 p.m. E.S.T.
("Expiration Date"), upon the terms and conditions set forth in this
Sublease. If the term of the Master Lease is terminated prior to the
Expiration Date, this Sublease shall thereupon be terminated
automatically, unless Subtenant has a separate agreement with Landlord
to the contrary, and Sublandlord shall not be liable to Subtenant by
reason thereof unless (i) and to the extent that said termination shall
have been effected because of, or shall have resulted from, the breach
or default of Sublandlord, as tenant, under the Master Lease with
respect to an obligation not assumed by Subtenant under this Sublease,
or (ii) said termination shall have been effected because of, or shall
have resulted from, a breach or default by Sublandlord beyond
applicable notice and cure periods under this Sublease. In such event,
the Rent (hereinafter defined) for the month in which such termination
occurs shall be pro-rated based on the actual number of days in such
month unless such termination was the result of a default by Subtenant
hereunder. The provisions of this paragraph 1 shall be regarded as an
"express provision to the contrary" within the meaning of Section 223-a
of the Real Property Law of the State of New York.
2. BASE RENT. Subtenant shall pay to Sublandlord as and for base rent
("Base Rent") for the Premises the amounts set forth on Exhibit C
attached hereto and made a part hereof, payable in advance and without
notice or demand, commencing on the Commencement Date and at least
three (3) days prior to the first day of each month during the term of
this Sublease, except that Subtenant shall pay to Sublandlord the first
full monthly installment with Subtenant's execution and return of this
Sublease.
3. ADDITIONAL RENT.
(a) In addition to the Base Rent set forth above, commencing on the
Commencement Date, Subtenant shall pay to Sublandlord as additional
rent ("Additional Rent"), the following:
(i) additional rent equal to twenty five percent (25%) ("Subtenant's
Proportionate Share") of all amounts payable by Sublandlord, if any,
pursuant to the Master Lease for porters wage rate escalations (as set
forth in Article 22 of the Master Lease), except that for purposes of
this Sublease the Base Wage Rate (as defined in the Master Lease) shall
be the Base Wage Rate in effect for calendar year 2003;
(ii) additional rent equal to Subtenant's Proportionate Share of all
amounts payable by Sublandlord on account of electricity, as set forth
in Article 23 of the Master Lease, except that Subtenant shall have
the right, at any time during the term of this Sublease, at Subtenant's
sole cost and expense and in accordance with all laws and requirements of
governmental authority and in compliance with the Master Lease, to install
a submeter which measures consumption of electricity within the Premises
only, and, upon the installation and commencement of operation thereof
Subtenant shall no longer be required to pay to Sublandlord Subtenant's
Proportionate Share of electricity charges and shall thereafter commence
paying for electricity usage as measured by such submeter to Sublandlord
based upon the actual readings as shown on such meter from time-to-time.
Subtenant, at its sole cost and expense, shall be required to maintain
said meter in good operating condition;
(iii) additional rent equal to Subtenant's Proportionate Share of any Real
Estate Taxes (as defined in the Master Lease) as set forth in Section
22.01 of the Master Lease, except that for purposes of this Sublease,
Subtenant's Tax Base Factor shall be deemed to be actual Real Estate
Taxes for the period July 1, 2003 to June 30, 2004;
(iv) additional rent equal to Subtenant's Proportionate Share of any and all
additional rent payable by Sublandlord under any other provisions of
the Master Lease to the extent the same relates to the Premises or is
incurred by Subtenant;
(v) the cost of any additional services or materials requested of Landlord
by or on behalf or at the request of Subtenant; and
(vi) any other amounts payable by Subtenant pursuant to the provisions of
this Sublease.
(b) The aforesaid Additional Rent shall be payable by Subtenant to
Sublandlord upon the later of (i) five (5) days prior to the date
Sublandlord, as tenant under the Master Lease, is required to make a
corresponding payment, if any, for each item of Additional Rent, to the
Landlord, or (ii) twenty (20) days after presentation by Sublandlord to
Subtenant of the bills therefor, whether issued during or after the
term of this Sublease. This paragraph 3 shall survive the expiration or
earlier termination of this Sublease.
(c) Base Rent and Additional Rent is referred to in this Sublease
collectively as "Rent".
4. PAYMENT OF RENT. All Rent shall be paid to Sublandlord, or as
Sublandlord may direct by notice to Subtenant, in lawful money of the
United States of America which shall be legal tender for payment of all
debts and dues, public and private, at the time of payment, at the
principal office of Sublandlord, or such other place as Sublandlord may
by notice designate, without any abatement, deduction, set-off or
counterclaim whatsoever, except to the extent expressly provided in
this Sublease or incorporated herein from the Master Lease. Sublandlord
shall have the same remedies for default in the payment of Additional
Rent as for default in the payment of Base Rent.
5. CONDITION OF PREMISES.
(a) The Premises are hereby sublet and shall be delivered to Subtenant
"as-is" on the date hereof. The execution and delivery of this Sublease
by Subtenant shall be conclusive evidence that the Subtenant has
inspected the Premises and found them to be satisfactory for
Subtenant's occupancy as of the date of this Sublease.
(b) Neither Sublandlord nor Sublandlord's agents or representatives have
made any representations, warranties or promises with respect to the
condition, quality, permitted use, restrictions, value or adequacy of
the Premises and no rights, easements or licenses are granted by
Sublandlord or acquired by Subtenant, by implication or otherwise,
except as expressly set forth in this Sublease.
6. RIGHTS OF SUBTENANT. Subtenant shall be entitled to the benefit of all
of the rights and remedies of the tenant and all of the obligations of
Landlord pursuant to the Master Lease with respect to the Building
(other than the Leased Premises not included in the Premises) and the
Premises including, but not limited to, Landlord's obligations to
repair and restore and provide or render work and services, if any, and
Subtenant acknowledges and agrees that such obligations are and shall
be the responsibility of Landlord and not those of Sublandlord. In the
event Landlord shall fail or refuse to comply with any of the terms of
the Master Lease affecting the Premises or the use or occupancy thereof
by Subtenant or anyone claiming by, under or through Subtenant,
Subtenant may notify Sublandlord, and Sublandlord, at Subtenant's
request, shall take any action reasonably requested by Subtenant in
accordance with the Master Lease to enforce the provisions of the
Master Lease against Landlord, all at Subtenant's cost and expense
(unless the Landlord's failure or refusal to comply is as a result of
Sublandlord's default under the Master Lease with respect to an
obligation not assumed by Subtenant under this Sublease). If
Sublandlord shall fail take any action reasonably requested by
Subtenant to enforce the obligations of Landlord with respect to the
Premises, as set forth above, then, upon seven (7) days notice to
Sublandlord, Subtenant shall have the right, in its own name (and in
the name of the Sublandlord, if Subtenant shall have obtained
Sublandlord's prior written approval of the use of its name, not to be
unreasonably withheld or delayed, and Subtenant shall indemnify and
hold Sublandlord harmless from and against any and all damages, losses,
penalties, fines, costs or expenses, including, without limitation,
reasonable attorneys' fees and costs, which Sublandlord may incur or be
subject to as a result of any action taken by Subtenant in accordance
with this paragraph), and at its own cost, to compel performance by
Landlord pursuant to the terms of the Master Lease. Subtenant shall
have no claim against Sublandlord by reason of Landlord's failure or
refusal to comply with any of the terms of the Master Lease and no such
failure or refusal shall be deemed a constructive eviction hereunder
(unless the Landlord's failure or refusal to comply is as a result of
Sublandlord's default under the Master Lease with respect to an
obligation not assumed by Subtenant under this Sublease). This Sublease
shall remain in full force and effect notwithstanding Landlord's
failure or refusal to comply with any of the terms of the Master Lease,
and Subtenant shall pay the Rent provided in this Sublease without any
abatement, deduction, set-off or counterclaim, Subtenant's sole remedy
being the right to have Sublandlord enforce the provisions of the
Master Lease against Landlord at Subtenant's cost as set forth above.
Subtenant shall look solely to Landlord (i) to provide any and all
services and utilities required to be provided by Landlord under the
Master Lease, (ii) to make any of the repairs or restorations that
Landlord has agreed to make under the Master Lease, (iii) to comply
with any laws or requirements of public authorities with which Landlord
has agreed in the Master Lease to comply, and (iv) to take any action
with respect to the operation, administration, or control of the
Building or any of its public or common areas that the Landlord has
agreed in the Master Lease to take; and Subtenant shall not, under any
circumstances, seek to require or require Sublandlord to provide any of
such services or utilities, make such repairs or restorations, comply
with such laws or requirements, or take such action, nor shall
Subtenant make any claim upon Sublandlord for any damages, costs or
expenses which arise by reason of the negligence, whether by omission
or commission, or intentional, willful or tortious acts of Landlord,
unless Subtenant is not permitted to make such claim directly against
Landlord (in which case any judgment obtained by Subtenant with respect
to same shall be satisfied solely out of any recovery Sublandlord may
obtain from Landlord with respect to same, and not out of the personal
assets of Sublandlord), or unless Sublandlord fails to perform its
obligations under this paragraph 6 with respect thereto. Furthermore,
Sublandlord shall have no liability to Subtenant by reason of any
inconvenience, annoyance, interruption or injury to business or
operations arising from Landlord's making any repairs, alterations or
changes which Landlord is required or permitted by the Master Lease, or
required by law, to make in or to any portion of the Building and/or
the Premises, or in or to the fixtures, equipment or appurtenances of
the Building and/or the Premises.
7. REMEDIES. In addition to such rights and remedies as it may have
pursuant to applicable law, if Subtenant shall default under this
Sublease, Sublandlord shall have against Subtenant all of the rights
and remedies granted to Landlord pursuant to the Master Lease in the
event of a default by Sublandlord, as tenant under the Master Lease. In
addition to the other rights Sublandlord may have under the Master
Lease (as incorporated in this Sublease), this Sublease or pursuant to
applicable law, if Subtenant shall default under this Sublease beyond
the expiration of any applicable notice and cure periods, then
Sublandlord shall have the right, but not the obligation, without
notice to Subtenant in a case of emergency and otherwise after seven
(7) days notice to Subtenant, without waiving or releasing Subtenant
from any obligations hereunder, to perform any such obligation of
Subtenant in such manner and to such extent as Sublandlord shall
reasonably deem necessary. Subtenant shall pay to Sublandlord within
twenty (20) days after notice from Sublandlord (with reasonable
evidence of the amounts incurred), any and all actual, reasonable costs
incurred by Sublandlord in so doing, including, without limitation,
reasonable attorneys' fees and costs, together with interest thereon
(compounded monthly) at a rate of interest equal to the lesser of
twelve percent (12%) per annum or the highest legal rate from the date
such costs were incurred until the date Sublandlord is reimbursed.
8. PROVISIONS OF THE MASTER LEASE.
(a) This Sublease is in all respects subject to the terms and conditions of
the Master Lease. Except as otherwise provided in this Sublease, the
terms, provisions, covenants, stipulations, conditions, rights,
obligations, remedies and agreements contained in the Master Lease are
incorporated in this Sublease by reference and are made a part hereof
as if herein set forth at length and each and every provision, term,
condition and covenant of the Master Lease binding upon or inuring to
the benefit of Landlord thereunder shall, in respect of this Sublease,
bind or inure to the benefit of Sublandlord against Subtenant, and each
provision of the Master Lease binding upon or inuring to the benefit of
Sublandlord, as tenant thereunder shall, in respect of this Sublease,
bind or inure to the benefit of Subtenant against Sublandlord, with the
same force and effect as though those provisions were completely set
forth in this document. For the purpose of incorporation by reference
of provisions of the Master Lease into this Sublease, the words
"Lessor" or "Landlord" or "Owner" (whether or not capitalized) wherever
used in the Master Lease, shall be construed to mean "Sublandlord" and
the words "Lessee" or "Tenant" (whether or not capitalized) wherever
used in the Master Lease shall be construed to mean "Subtenant", and
the words "Premises" or "Demised Premises" (whether or not
capitalized), or words of similar import, wherever used in the Master
Lease, shall be construed to mean "Premises" as defined in this
Sublease, the words "Agreement", "lease", "Lease", or words of similar
import, wherever they appear in the Master Lease, shall be construed to
mean this Sublease, the word "rent" and words of similar import,
wherever used in the Master Lease, shall be construed to mean the Rent
payable under this Sublease, the words "term", "Commencement Date" and
"Expiration Date", or words of similar import, wherever used in the
Master Lease, shall be construed to mean, respectively, the term of
this Sublease and the dates set for the beginning and the end of the
term of this Sublease, and the words "sublease", "sublet" or
"subtenant", or words of similar import, wherever used in the Master
Lease, shall be construed to refer to sub-subleases, sub-sublettings
and sub-subtenants, respectively, and any prohibitions on assignment of
the Master Lease by Sublandlord, as tenant under the Master Lease,
shall be deemed to prohibit Subtenant from assigning this Sublease. To
the maximum extent possible, the provisions of the Master Lease
incorporated by reference into this Sublease shall be construed as
consistent with and complementary to the other provisions of this
Sublease, but in the event of any inconsistency, those provisions of
this Sublease not incorporated by reference from the Master Lease shall
control. Subtenant covenants and agrees to perform and observe and to
be bound by, all terms, covenants, obligations and conditions of the
Master Lease and the use thereof applicable to the tenant thereunder
except as provided to the contrary in this Sublease. Notwithstanding
anything in this Sublease to the contrary, Subtenant covenants and
agrees not to do or commit or suffer to be done or committed or fail to
do any acts or things, or create or suffer to be created, any
conditions that might create or result in a default or breach on the
part of Sublandlord under any of the terms, covenants or conditions of
the Master Lease or render Sublandlord liable for any charge, cost or
expense thereunder.
(b) Notwithstanding anything in this Sublease to the contrary, for purposes
of incorporation by reference into this Sublease, the following
provisions of the Master Lease are deemed deleted from the Master Lease
and are expressly not incorporated into this Sublease, except as
otherwise provided below in this subsection (b):
Article 1; Sections 2.01, 2.02, 2.04, 3.01, 3.02, 3.03, 4.04 (the final
sentence only), 5.01 (to the extent that it obligates Subtenant to make
supervisory payments to Sublandlord in addition to those payable to
Landlord), 5.05 (only the portions of the final sentence thereof
beginning with "provided that" and thereafter), 8.01(a) (the second
sentence only), and 8.01(d); 11.09 (the reference therein to September
30, 1999 only, provided that the date of this Sublease is substituted
in its place and stead); Article 24; Section 25.01 (only the fourth
sentence and the remainder of such Section); Section 25.04 (to the
extent it applies to any future sub-subtenants of Subtenant); Section
30.02 (the final sentence thereof only); Article 31; and Articles 37,
38, 39 and 42.
For purposes of the following provisions of the Master Lease, the term
"Landlord", as used therein, shall mean Landlord only and not
Sublandlord;
Section 6.02; Sections 8.01(c) and 8.04; Article 10 (to the extent the
"Landlord" therein has any obligation to restore or repair damage);
Article 14 (to the extent the "Landlord" therein has any obligation to
repair or restore the Building or any portion thereof); Article 15; and
Article 21.
(c) In order to facilitate the coordination of the provisions of this
Sublease with those of the Master Lease, the time periods contained in
the provisions of the Master Lease that are incorporated by reference
into this Sublease and for which the same action must be taken under
both the Master Lease and this Sublease (such as, for example and
without limitation, the time period for the curing of a default under
this Sublease that is also a default under the Master Lease, or for the
response to a request by Subtenant to Sublandlord which also requires
Landlord's consent), are changed for the purpose of incorporation by
reference by shortening or lengthening, as appropriate, that period in
each instance by two (2) business days such that in each instance
Subtenant shall have that much less time to observe or perform
hereunder than Sublandlord has, as the tenant under the Master Lease,
and Sublandlord shall have that much more time to observe, perform,
consent, approve, or otherwise act hereunder than Landlord has under
the Master Lease.
9. INSURANCE.
(a) Subtenant shall, at its expense, obtain and keep in force and effect
during the term of this Sublease such insurance as is required to be
carried by Sublandlord as tenant under the Master Lease. Such insurance
shall name Sublandlord, Landlord and such other persons as Sublandlord
shall designate as additional insureds.
(b) On or prior to the date Subtenant first enters into the Premises
(whether or not for the commencement of its ordinary business in the
Premises), Subtenant shall deliver to Sublandlord appropriate
certificates of insurance, including evidence of the waiver of
subrogation required pursuant to Section 9.04 of the Master Lease and
covering Subtenant's contractual indemnity pursuant to paragraph 10 of
this Sublease, and the insurance required to be carried by Subtenant
pursuant to this paragraph 9. Evidence of each renewal or replacement
of a policy shall be delivered to Sublandlord at least thirty (30) days
prior to the expiration of such policy.
10. INDEMNITY. In addition to any indemnification provisions incorporated
herein from the Master Lease, Subtenant shall indemnify Landlord and
Sublandlord, and Landlord's and Sublandlord's respective members,
directors, officers, shareholders, employees, agents, lenders and
managing agents ("Sublandlord Indemnified Parties") against, and hold
the Sublandlord Indemnified Parties harmless from, all claims, damages,
losses, liabilities, costs and expenses (including reasonable
attorneys' fees and disbursements and court costs) which any of the
Sublandlord Indemnified Parties may incur, pay or be subject to by
reason of (i) the non-performance or non-observance by Subtenant of the
terms, covenants, obligations and conditions of this Sublease or the
Master Lease (as applicable to Subtenant), and (ii) any tortious act or
negligence on the part of Subtenant, its agents, contractors, servants,
employees, invitees or licensees, and any claims made or damages
suffered or incurred as a result of Subtenant's or its agents,
contractors, servants, employees, invitees or licensees, occupancy of
the Premises and/or the Building.
11. BROKER. Subtenant and Sublandlord hereby represent and warrant to each
other that neither has dealt with any broker or real estate agent in
connection with this Sublease other than Newmark & Company Real Estate,
Inc. ("Newmark") and The Georgetown Group (collectively, "Broker").
Subtenant and Sublandlord hereby agree to indemnify, defend and hold
the other harmless from and against any and all claims, losses,
liabilities, costs and expenses (including reasonable attorneys' fees
and disbursements), resulting from any claims that may be made against
the other by any brokers, agents or persons claiming a commission, fee
or other compensation by reason of this Sublease, other than Broker, if
the same shall arise or result or claim to arise or result by, through
or on account of any act of the Subtenant or Sublandlord, as the case
may be. Sublandlord shall pay any fees due Broker in accordance with a
separate agreement between Sublandlord and Newmark.
12. SUBORDINATION. This Sublease is subject and subordinate to the Master
Lease as well as to all of the instruments and matters to which the
Master Lease is subordinate. If Landlord shall take over all right,
title and interest of Sublandlord under this Sublease, Subtenant shall
attorn to Landlord pursuant to the then executory provisions of this
Sublease, except that Landlord shall not (i) be liable for any previous
act or omission of Sublandlord under this Sublease, (ii) be subject to
any offset, not expressly provided in this Sublease, which thereto
accrued to Subtenant against Sublandlord, or (iii) be bound by any
previous modification of this Sublease not delivered to Landlord or by
any previous prepayment by Subtenant of more than one month's Rent.
13. NOTICES. Any notice or other communication by either party to the other
relating to this Sublease (other than a bill or statement for Rent due
sent by Sublandlord, provided that this provision shall not be deemed
to require Sublandlord to send any bill or statement of Rent due) shall
be in writing and shall be deemed to have been duly given upon receipt
when delivered to the recipient party in person (against signed
receipt) or three (3) days after being mailed by United States
Registered or Certified Mail, return receipt requested, postage
prepaid, or the next business day when sent by nationally recognized
overnight courier regularly maintaining a record of receipt, and
addressed: (a) if to Sublandlord, at the address hereinabove set forth,
Attention: General Counsel and Director of Real Estate, with a copy
sent in the same manner to Mr. Arthur H. Lerner, Vice Chairman, Newmark
& Company Real Estate, Inc., 125 Park Avenue, New York, New York 10017,
and to Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New
York, 10103, Attention: Kevin C. George, Esq. or (b) if to Subtenant
prior to its initial occupancy of the Premises, at 3 Landmark Square,
Suite 500, Stamford, Connecticut 06901, and after its initial occupancy
of the Premises at the address hereinabove set forth, in either case,
with a copy sent in the same manner to Schulte Roth & Zabel LLP, 919
Third Avenue, New York, NY 10022, Attention: Robert F. Nash, Esq.
Either party may by notice to the other party designate a different
address within the United States to which notices shall be sent.
14. ASSIGNMENT AND SUBLETTING. In addition to any restrictions on
subleasing and/or assigning set forth in the Master Lease and
incorporated into this Sublease by reference, Subtenant expressly
covenants and agrees that it shall not assign, mortgage, pledge or
encumber this Sublease nor sublet the Premises or any part thereof, nor
suffer or permit the Premises or any part thereof to be used or
occupied by others, except with the prior written consent of Landlord,
to the extent required under the Master Lease, and of Sublandlord,
which consent Sublandlord agrees not to unreasonably withhold, delay or
condition provided Landlord has consented (if required under the Master
Lease). If this Sublease be assigned, or if the Premises or any part
thereof be sublet or occupied by anyone other than Subtenant,
Sublandlord may, after default by Subtenant, collect rent from the
assignee, subtenant or occupant, and apply the net amount collected to
the Rent reserved in this Sublease, but no such assignment, subletting,
occupancy, or collection by Sublandlord shall be deemed a waiver of the
covenant set forth above or the acceptance of the assignee, subtenant
or occupant as subtenant or a release of Subtenant from the further
performance by Subtenant of covenants and agreements on the part of
Subtenant contained in this Sublease. Sublandlord covenants and agrees
to respond to any request for consent from Subtenant pursuant to this
paragraph 14 within the same period of time as the Landlord has to
respond to such a request from Sublandlord, as tenant under the Master
Lease.
15. HOLDOVER. Subtenant expressly assumes the obligations of Sublandlord to
Landlord in the event possession of the Premises is not surrendered at
the Expiration Date or sooner termination of the term of this Sublease,
including, without limitation, the payment to Sublandlord of two (2)
times the monthly minimum rent payable under the Master Lease for the
month prior to such termination, as set forth in Section 28.02 of the
Master Lease, and all additional rent payable pursuant to the Master
Lease, as well as payment to the Landlord of any damages and costs,
including, without limitation, reasonable attorney's fees, payable by
Sublandlord as a result thereof, except that to the extent any other
subtenant of Sublandlord and/or Sublandlord also holds over in the
Leased Premises after the Expiration Date, then the amounts payable by
Subtenant under this paragraph 15 shall be apportioned (i) among
Subtenant and any other subtenants of Sublandlord so holding over
equally for so long as such parties shall all be holding over, and (ii)
among Subtenant, any other subtenants of Sublandlord and Sublandlord so
holding over for so long as such parties shall be holding over based on
such parties' proportionate share of the Leased Premises then being
subleased by such party, in the case of Subtenant and any other
subtenants, and then being occupied in the case of Sublandlord.
16. CONSENT OF LANDLORD. This Sublease is subject to the written consent
("Consent") of Landlord to (a) this Sublease, and (b) Subtenant's
performance of the work described on Exhibit D attached hereto and made
a part hereof, and notwithstanding the execution of this Sublease by
the parties hereto, the term of this Sublease shall not commence until
Sublandlord receives Landlord's Consent. Subtenant agrees to provide to
Landlord promptly, any financial information of Subtenant reasonably
requested by Landlord in connection with the issuance of such consent
or evaluation of Subtenant. If Landlord fails to deliver the Consent,
on Landlord's standard form and otherwise reasonably satisfactory to
Sublandlord and Subtenant, within thirty (30) days after this Sublease
is fully-executed by the parties hereto Subtenant shall have the right,
commencing on such thirtieth (30th) day and for a period of two (2)
days thereafter, time being of the essence, to terminate this Sublease
by notice to Sublandlord during such period and prior to receipt of the
Consent by Sublandlord, and receive a refund of all amounts paid by
Subtenant to Sublandlord on account of this Sublease, without any
deduction or setoff whatsoever and no further liability on the part of
Sublandlord or Subtenant under this Sublease.
17. ENTIRE AGREEMENT/SUBLANDLORD'S CONSENT. This Sublease contains the
entire agreement between the parties relating to the subject matter
hereof and supersedes all prior negotiations, conversations,
correspondence and agreements. There are no representations or
warranties that are not set forth herein. No waiver, modification or
termination of this Sublease or any portion thereof shall be valid or
effective unless in writing signed by the parties hereto. In any
instance in which Sublandlord is required by any provision of this
Sublease or applicable law not unreasonably to withhold consent or
approval, Subtenant's sole remedy if Sublandlord unreasonably withholds
such consent or approval shall be an action for specific performance or
injunction requiring Sublandlord to grant such consent or approval, all
other remedies which would otherwise be available being hereby waived
by Subtenant.
18. SUCCESSORS AND ASSIGNS. The terms, conditions and covenants of this
Sublease shall be binding on and inure to the benefit of Sublandlord
and Subtenant and their respective successors, and except as otherwise
provided in this Sublease, their assigns.
19. GOVERNING LAW. This Sublease shall be governed by and construed in
accordance with the laws of the State of New York as if it were a
contract negotiated, entered into and wholly performed within the State
of New York.
20. COUNTERPARTS. This Sublease may be executed in any number of
counterparts and/or by facsimile, each of which shall be deemed an
original and all of which, when taken together, shall constitute one
and the same instrument, binding on the parties as if all parties had
signed one document on the same signature page, and the signature of
any party to any counterpart shall be deemed a signature to, and may be
appended or attached to, any other counterpart by Sublandlord.
21. NO OFFER. The submission of this Sublease is not and shall not be
deemed an offer. This Sublease is submitted to Subtenant for its review
and discussion purposes only and neither Subtenant nor Sublandlord
shall be bound unless and until Subtenant and Sublandlord shall execute
and deliver a copy of this Sublease.
22. SECURITY.
(a) Subtenant shall, upon its execution and return of this Sublease to
Sublandlord, deposit with Sublandlord as security for the full and
faithful performance and observance by Subtenant of the terms,
provisions, covenants and conditions of this Sublease, and any
modifications hereof, the sum of $481,000.00 in cash ("Security").
(b) Sublandlord may, at its sole option, retain, use or apply the whole or
any part of the Security to the extent required for payment of any:
(1) Base Rent;
(2) Additional Rent;
(3) other sums as to which Subtenant is obligated to pay under this
Sublease;
(4) sums which Sublandlord may expend or may be required to expend by
reason of Subtenant's default after any required notice and the
expiration of any applicable grace or cure period under this Sublease;
(5) loss or damage that Sublandlord may suffer by reason of Subtenant's
default, including, without limitation, any damages incurred by
Sublandlord; and
(6) all costs, if any, incurred by Sublandlord in connection with the
cleaning or repair of the Premises.
(c) In no event shall Sublandlord be obligated to apply the Security, or
any portion thereof. Sublandlord's right to bring an action or special
proceeding to recover damages or otherwise to obtain possession of the
Premises before or after any default or termination of this Sublease
shall not be affected by Sublandlord's holding of the Security.
(d) The Security shall not be nor be deemed (1) a limitation on
Sublandlord's damages or other rights and remedies available under this
Sublease, or at law or in equity; (2) a payment of liquidated damages,
or (3) an advance payment of Base Rent or Additional Rent.
(e) If Sublandlord uses, applies or retains all or any portion of the
Security, Subtenant shall restore and replenish the Security to its
original amount within five (5) days after written demand from
Sublandlord.
(f) Sublandlord shall keep the Security separate or segregated from its own
funds, and shall not commingle the Security with its own funds, as
required by law. Sublandlord shall have no fiduciary responsibilities
or trust obligations whatsoever with regard to the Security and shall
not assume the duties of a trustee for the Security.
(g) Sublandlord shall maintain the Security in an interest bearing account,
at a banking institution which maintains a place of business in New
York State. Subtenant shall be entitled to receive and retain all
interest that accrues thereon, less a one percent (1%) annual
administration fee payable to Sublandlord in connection with the
administration of such account, and Subtenant shall pay all taxes on
said interest (except for said one percent (1%) annual administration
fee). All interest earned on the Security to which Subtenant shall be
entitled shall accrue and be maintained in the account in which the
Security is maintained and constitute additional security hereunder for
the term of this Sublease and shall be released to Subtenant at the
expiration of this Sublease together with the Security, if and to the
extent Subtenant is entitled to the Security, or any portion thereof,
or such interest. Subtenant hereby authorizes Sublandlord to deduct
from such interest-bearing account annually, the one percent (1%)
administrative charge to which Sublandlord is entitled, without
additional authorization or consent from Subtenant.
(h) If Subtenant shall fully and faithfully comply with all of the terms,
provisions, covenants and conditions of this Sublease, and any
modifications hereof, any part of the Security (or interest thereon)
then not used, applied or retained by Sublandlord shall be returned to
Subtenant within forty-five (45) days after Subtenant has discharged
all of its then known obligations under this Sublease, and any
modifications hereof. In no event shall the release of the Security, or
any portion thereof, by Sublandlord be deemed to release Subtenant from
any liability under this Sublease, or affect Subtenant's
indemnification obligations under this Sublease, which arise, accrue or
first become known to Sublandlord after the release of any remaining
Security (or such interest thereon).
(i) Subtenant shall not, and shall not attempt to, assign, pledge or
otherwise encumber the Security, and Sublandlord and its successors and
assigns shall not be bound by any, or any attempted, assignment, pledge
or other encumbrance.
(j) In the event of a sale, assignment or transfer of Sublandlord's
interest in the Master Lease, Sublandlord shall transfer the Security
to the purchaser, assignee or transferee, as the case may be, and
Sublandlord shall thereupon automatically be released by Subtenant from
all liability for the return of the Security, and Subtenant agrees to
look solely to the purchaser, assignee or transferee for the return of
the Security.
(k) The payment by Subtenant and acceptance by Sublandlord of the Security
submitted by Subtenant shall not render this Sublease effective unless
and until Subtenant and Sublandlord shall have executed and each shall
have received a fully executed copy of this Sublease.
(l) For purposes of this Sublease, the phrase "Letter of Credit" shall mean
a clean, unconditional and irrevocable letter of credit which (i) is
issued by a bank or other institution satisfactory to Sublandlord
having a retail office in New York County, New York at which office the
Letter of Credit may be presented for payment, (ii) is for an amount
equal to the Security, (iii) is for a period of one (1) year from the
date of issuance thereof, and thereafter automatically renewable each
year thereafter with a final expiration no earlier than 147 months from
the date of issuance thereof, (iv) is payable to Sublandlord
(Attention: David Trapani) upon presentation only of a sight draft and
written certification to the issuer of such Letter of Credit stating
that Sublandlord is entitled to draw down such letter of credit in
accordance with the terms of this Sublease, (v) provides that prior to
the expiration or termination thereof, the issuer thereof will provide
notice to Sublandlord of the non-renewal or termination thereof at
least sixty (60) days prior to the expiration or termination thereof,
(vi) is freely transferable by Sublandlord without cost to Sublandlord,
and (vii) is otherwise in form and substance satisfactory to
Sublandlord.
(m) In lieu of the Security, Subtenant shall have the right at any time
during the term hereof to deposit and maintain with Sublandlord during
the entire term of this Sublease a Letter of Credit in the amount of
the Security, or to initially deposit a cash Security and thereafter at
any time during the term of this Sublease, substitute a Letter of
Credit for such cash Security. If (i) any default beyond applicable
notice and cure periods occurs under this Sublease, or (ii) Sublandlord
transfers its right, title and interest under the Master Lease to a
third party and the issuer of the Letter of Credit does not consent to
the transfer of such Letter of Credit to such third party or if
Subtenant at its expense, upon request of Sublandlord, fails or refuses
to replace the Letter of Credit delivered to Sublandlord with a Letter
of Credit issued to such third party or (iii) Sublandlord receives
notice or becomes aware that the issuer of the Letter of Credit does
not intend to renew it prior to the expiration thereof , and Subtenant
shall fail to provide a replacement Letter of Credit no later than
thirty (30) days prior to the expiration of the Letter of Credit then
in Sublandlord's possession, then, in any of such events, Sublandlord
may, at its option, draw down the Letter of Credit then in its
possession in full prior to the expiration thereof and the proceeds
thereof shall then be held and maintained by Sublandlord as the
Security. Subtenant shall pay all costs and expenses related to or in
any way arising out of the performance by Subtenant of its obligations
under this paragraph, including, without limitation, the issuance,
delivery, replacement, draw upon, transfer, maintenance or other
matters relating to the Letter of Credit, it being understood that
Sublandlord shall incur no cost or expense in connection therewith.
23. Furnishings. Provided Subtenant is not in default under this Sublease
beyond applicable notice and cure periods, Sublandlord hereby grants to
Subtenant a license ("License") to use and have the benefit of the
furniture, furnishings, telephone equipment (other than the PBX
switch), and other personal property located in the Premises on the
date of this Sublease and more particularly described on Exhibit E
attached hereto and made a part hereof (collectively, the
"Furnishings"), for the term of this Sublease and at no additional cost
to Subtenant. The Furnishings are provided to Subtenant "as is" and
"where is" and Sublandlord makes no representation or warranty with
respect to such Furnishings, including, without limitation, fitness for
a particular purpose, except that Sublandlord represents that it owns
the Furnishings free and clear and that the same are not subject to any
lease or any security agreement. The Furnishings shall not be removed
from the Premises by Subtenant and Subtenant shall maintain the
Furnishings in good order and repair and shall not permit any waste
with respect to the Furnishings. The Furnishings shall be delivered by
Subtenant to Sublandlord in the same condition and repair as received
by Subtenant, ordinary wear and tear excepted. Subtenant hereby
releases Sublandlord from all, and shall indemnify and hold Sublandlord
harmless from and against any, losses, liabilities, claims, damages,
and injuries caused by, arising out of or relating to, the use of the
Furnishings by Subtenant or its employees, agents, contractors,
sub-subtenants, officers or any other person claiming by, through or
under Subtenant. If Subtenant defaults under the terms and provisions
of this Sublease, Sublandlord may, at its option, terminate the License
by notice to Subtenant and upon the effective date of such notice,
Sublandlord may enter into the Premises, and Subtenant hereby grants
access to the Premises to Sublandlord for such purpose, to repossess
and remove the Furnishings from the Premises, all at Subtenant's sole
cost and expense. If Subtenant shall perform all of its material
obligations under this Sublease, at the Expiration Date the Furnishings
shall be deemed transferred and conveyed to Subtenant, and, upon
Subtenant's request Sublandlord shall execute a bill of sale to
Subtenant in form and substance reasonably satisfactory to the parties
to confirm such transfer and conveyance.
24. SUBLANDLORD'S CONTRIBUTION.
(a) Subject to compliance with and in accordance with subsection 24(b)
below, Sublandlord shall provide to Subtenant an improvement allowance
for the Premises of $260,000.00 (the "Allowance"). Subtenant may apply
the Allowance to those construction costs incurred by Subtenant in
connection with its improvements to the Premises for its initial
occupancy. To the extent the costs incurred by Subtenant to complete
Subtenant's improvements to the Premises for its initial occupancy
exceed the Allowance, Subtenant shall be solely responsible for such
excess. To the extent the costs incurred by Subtenant to complete
Subtenant's improvement in the Premises for its initial occupancy are
less than the Allowance, then Subtenant shall be entitled to a credit
against the Rent next due for such amount of the Allowance in excess of
Subtenant's actual construction costs. To the extent Landlord requires
restoration of any improvements made by Subtenant in the Premises prior
to the Leased Premises being returned to Landlord, Subtenant shall be
solely responsible for any costs to restore such improvements, and
restoration shall be completed prior to the Expiration Date.
(b) (i) Prior to the commencement of construction on any of Subtenant's
improvements in the Premises for its initial occupancy, Subtenant shall
provide to Sublandlord the following, all in form and substance
reasonably satisfactory to Sublandlord:
(A) Detailed plans and specifications for Subtenant's improvements prepared
by an architect licensed by the State of New York;
(B) Detailed budget for the improvements including a breakdown of the costs
of each line item, contractor's fee, applicable taxes, Landlord's fees,
if any, and all other costs to complete such work, sworn to by
Subtenant or its duly authorized representative authorized to bind
Subtenant as being true and complete;
(C) Landlord's written consent to (I) such improvements, (II) Subtenant's
general contractor and Subcontractors (hereinafter defined) performing
such work, (III) Subtenant's architect, (IV) the budget with respect to
such improvements, and (V) any other items Landlord is required to
approve, all to the extent required in the Master Lease;
(D) A certificate of insurance showing that all of the insurance required
by paragraph 9 of this Sublease is in effect and that the parties
required to be named thereon as additional insureds are so named, and
in addition, that Subtenant shall have procured and paid for builders'
risk insurance with respect to Subtenant's improvements;
(E) Evidence that all workers performing any portion of such work are
covered by workers compensation coverage as required by applicable law;
and
(F) All necessary permits, approvals, licenses and authorizations required
from any governmental authority in order to complete such work.
(ii) Prior to payment of the Allowance to Subtenant, Subtenant shall provide
the following items to Sublandlord, all of which shall be in form and
substance reasonably satisfactory to Sublandlord, and Sublandlord shall
issue a check payable to Subtenant within thirty (30) days of receipt
of the last of such items for the amount of the Allowance to which
Subtenant is entitled:
(A) A construction statement sworn to by Subtenant and its general
contractor identifying all construction costs subject to reimbursement
from the Allowance and evidence reasonably satisfactory to Sublandlord
that all of such costs have been paid in full by Subtenant;
(B) A list of all contractors, subcontractors (of any tier), materialmen,
suppliers, laborers and any other parties entitled to file a mechanic's
lien under the Lien Law of the State of New York against the real
property of which the Premises is a part (collectively,
"Subcontractors"), certified by Subtenant and its general contractor as
being true and correct and complete;
(C) Final unconditional waivers of lien in form and substance reasonably
satisfactory to Sublandlord from Subtenant's general contractor and
each Subcontractor;
(D) Prior to payment of the final installment of the Allowance (of not less
than $10,000.00), a copy of any final approvals or consents required by
all governmental authority having jurisdiction over such matters and
evidencing that all such work has been completed in accordance with all
applicable laws, rules, regulations and requirements; and
(E) Such other items as Sublandlord shall reasonably request.
(iii) All work performed by Subtenant in the Premises to prepare the same
for Subtenant's initial occupancy shall be prepared in accordance with the
requirements of the Master Lease applicable thereto, including all
rules and regulations, and in accordance with all applicable laws,
rules, regulations and requirements of governmental authority,
including, without limitation, the Americans With Disabilities Act of
1990, as amended, and any regulations enacted in accordance therewith.
(iv) If Sublandlord does not pay to Subtenant the Allowance within thirty
(30) days after Subtenant's compliance with the provisions of this
paragraph 24, and thereafter Subtenant notifies Sublandlord that
Subtenant has not received the Allowance within such thirty (30) day
period ("Nonreceipt Notice"), Subtenant shall be entitled to offset
against the Rent next becoming due and payable after the effective date
of the Nonreceipt Notice, the amount of Allowance then payable until
the Allowance is offset in full, unless Subtenant receives payment of
the Allowance within the thirty (30) days after the effective date of
the Nonreceipt Notice.
25. CARD KEY ACCESS. Subtenant shall have the use of the existing security
card access system ("Security System") located in the Premises on the
date of this Sublease for the term of this Sublease at no additional
cost or expense to Subtenant, except that Subtenant shall pay as and
when due as Additional Rent, if such amounts are billed to Sublandlord,
or otherwise directly to the entity which incurred such charges if such
entity bills Subtenant directly, (i) any reasonable and actual
reprogramming costs necessary for Subtenant's use of the Security
System in connection with the Premises, and (ii) any monthly
maintenance fees payable in connection with the use, maintenance,
repair and operation of the Security System in the Premises. The
Security System shall be delivered by Sublandlord "as is" and "where
is" and Sublandlord makes no representations or warranties with respect
to the Security System.
26. LAN. Subtenant shall have the use of the existing local area network
cabling ("LAN") located in the Premises on the date of this Sublease
for the term of this Sublease at no additional cost or expense to
Subtenant, except that Subtenant shall pay directly to the provider
thereof for any charges to connect the LAN to an INTERNET and telephone
service provider. The LAN shall be delivered by Sublandlord "as is" and
"where is" and Sublandlord makes no representations or warranties with
respect to the LAN.
27. SUBLANDLORD'S REPRESENTATIONS, WARRANTIES AND COVENANTS. Sublandlord
hereby represents and warrants to, and covenants and agrees with,
Subtenant as follows:
(a) Sublandlord covenants and agrees that while this Sublease is in full
force and effect, Sublandlord will not surrender or terminate or take
any action which would cause the termination of the Master Lease
without the prior written consent of Subtenant, except in the case of
casualty to or condemnation or eminent domain of the Building or
Premises or portion thereof, all in accordance with the terms and
conditions of the Master Lease or pursuant to a written agreement
between Landlord and Sublandlord following such casualty, condemnation
or eminent domain, and except to the extent that such termination will
not affect the Premises or Subtenant's occupancy of the Premises.
(b) Sublandlord warrants and represents to Subtenant that the Master Lease
attached hereto as Exhibit A is a true, correct and complete copy of
the Master Lease, is in full force and effect, and has not been
modified or amended except as expressly set forth herein.
(c) Sublandlord covenants and agrees that it shall not default in the
payment of its obligations to Landlord under the Master Lease, or
otherwise cause a default beyond the expiration of any applicable
notice and cure periods under the Master Lease, provided Subtenant is
not in default under its obligations under this Sublease beyond the
expiration of any applicable notice and cure periods.
(d) Sublandlord represents that it has received no written notice claiming
a violation of any applicable laws, governmental rules or regulations
with respect to the Premises.
(e) Sublandlord represents that it has not received any notice from
Landlord alleging a default by Sublandlord under the Master Lease which
has not been cured, and, to Sublandlord's knowledge, there is no
default on the part of either Sublandlord or Landlord under the Master
Lease.
IN WITNESS WHEREOF, the parties hereto have duly executed this Sublease
on or as of the day and year first above
Monster Worldwide, Inc., Sublandlord
By: /s/ John Caporale
--------------------------------------------
John Caporale, Director of Real Estate
By: /s/ Michael Silecy
--------------------------------------------
Michael Silecy, CFO
Asbury Automotive Group, Inc., Subtenant
By: /s/ Kenneth B. Gilman
-----------------------------------------
Kenneth B. Gilman, President and CEO
EXHIBIT A
Copy of the Master Lease Attached
EXHIBIT B
Floor Plan of the Premises Attached
EXHIBIT C
Base Rent Schedule
EXHIBIT D
Subtenant's Work
EXHIBIT E
Inventory of Furnishings
INDEMNIFICATION AGREEMENT
This Indemnification Agreement, dated as of September 29, 2003 (this
"Agreement"), is made by and between ASBURY AUTOMOTIVE GROUP, INC., a Delaware
corporation (the "Company"), and J. GORDON SMITH ("Indemnitee").
RECITALS:
Indemnitee is a director and/or officer of the Company and
his/her willingness to serve in such capacity is predicated, in substantial
part, upon the Company's willingness to indemnify him/her to the fullest extent
permitted by the laws of the state of Delaware, and upon the other undertakings
set forth in this Agreement.
Therefore, in recognition of the need to provide Indemnitee
with substantial protection against personal liability, in order to procure
Indemnitee's continued service as a director and/or officer of the Company and
to enhance Indemnitee's ability to serve the Company in an effective manner, and
in order to provide such protection pursuant to express contract rights
(intended to be enforceable irrespective of, among other things, any amendment
to the Company's certificate of incorporation or bylaws (collectively, the
"Constituent Documents"), any change in the composition of the Company's Board
of Directors (the "Board") or any change-in-control or business combination
transaction relating to the Company), the Company wishes to provide in this
Agreement for the indemnification of and the advancement of Expenses (as defined
in Section 1(c)) to Indemnitee as set forth in this Agreement and for the
continued coverage of Indemnitee under the Company's directors' and officers'
liability insurance policies.
In light of the considerations referred to in the preceding
recitals, it is the Company's intention and desire that the provisions of this
Agreement be construed liberally, subject to their express terms, to maximize
the protections to be provided to Indemnitee hereunder.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. Certain Definitions. In addition to terms defined elsewhere herein, the
following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "Claim" means (i) any threatened, asserted, pending or completed claim,
demand, action, suit or proceeding, whether civil, criminal, administrative,
arbitrative, investigative or other, and whether made pursuant to federal, state
or other law; and (ii) any inquiry or investigation, whether made, instituted or
conducted by the Company or any other party, including without limitation any
federal, state or other governmental entity, that Indemnitee reasonably
determines might lead to the institution of any such claim, demand, action, suit
or proceeding.
(b) "Disinterested Director" means a director of the Company who is not and was
not a party to the Claim in respect of which indemnification is sought by
Indemnitee.
(c) "Expenses" means reasonable attorneys' and experts' fees and expenses and
all other reasonable costs and expenses paid or payable in connection with
investigating, defending, being a witness in or participating in (including on
appeal), or preparing to investigate, defend, be a witness in or participate in
(including on appeal), any Claim, including such costs or expenses paid or
payable in connection with a Standard of Conduct Determination.
(d) "Incumbent Directors" means the individuals who, as of the date hereof, are
Directors of the Company and any individual becoming a Director subsequent to
the date hereof whose election, nomination for election by the Company's
stockholders, or appointment, was approved by a vote of at least two-thirds of
the then Incumbent Directors (either by a specific vote or by approval of the
proxy statement of the Company in which such person is named as a nominee for
director, without objection to such nomination); provided, however, that an
individual shall not be an Incumbent Director if such individual's election or
appointment to the Board occurs as a result of an actual or threatened election
contest (as described in Rule 14a-12(c) of the Exchange Act) with respect to the
election or removal of Directors or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board.
(e) "Indemnifiable Claim" means any Claim based upon, arising out of or
resulting from (i) any actual, alleged or suspected act or failure to act by
Indemnitee in his or her capacity as a director or officer of the Company or as
a director, officer, member, manager or trustee of any other corporation,
limited liability company, partnership, joint venture, trust or other entity or
enterprise, whether or not for profit, as to which Indemnitee is or was serving
at the request of the Company as a director, officer, member, manager or
trustee, or (ii) Indemnitee's status as a current or former director or officer
of the Company or as a current or former director, officer, member, manager or
trustee of the Company or any other entity or enterprise referred to in clause
(i) of this sentence or any actual, alleged or suspected act or failure to act
by Indemnitee in connection with any obligation or restriction imposed upon
Indemnitee by reason of such status. In addition to any service at the actual
request of the Company, for purposes of this Agreement, Indemnitee shall be
deemed to be serving or to have served at the request of the Company as a
director, officer, member, manager or trustee of another entity or enterprise if
Indemnitee is or was serving as a director, officer, member, manager or trustee
of such entity or enterprise and the Company directly or indirectly caused
Indemnitee to be nominated, elected, appointed, designated or selected to serve
in such capacity.
(f) "Indemnifiable Losses" means any and all Losses relating to, arising out of
or resulting from any Indemnifiable Claim.
(g) "Independent Counsel" means a law firm, or a member of a law firm, that is
experienced in matters of Delaware corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party (other than with respect
to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Indemnifiable Claim giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement.
(h) "Losses" means any and all Expenses, damages, losses, liabilities,
judgments, fines, penalties (whether civil, criminal or other) and amounts paid
in settlement, including without limitation all interest, assessments and other
charges paid or payable in connection with or in respect of any of the
foregoing.
(i) "Notification Date" means the date of receipt by the Company of written
notice from Indemnitee advising the Company of the final disposition of the
applicable Indemnifiable Claim.
2. Indemnification Obligation. Subject to Section 7, the Company shall
indemnify, defend and hold harmless Indemnitee, to the fullest extent permitted
by the laws of the State of Delaware as such laws may from time to time
hereafter be amended against any and all Indemnifiable Claims and Indemnifiable
Losses; provided, however, that, (a) except as provided in Section 5, Indemnitee
shall not be entitled to indemnification pursuant to this Agreement in
connection with any Claim initiated by Indemnitee against the Company or any
director or officer of the Company unless the Company has joined in or consented
to the initiation of such Claim and (b) no repeal or amendment of any law of the
State of Delaware shall in any way diminish or adversely affect the rights of
Indemnitee pursuant to this Agreement in respect of any occurrence or matter
arising prior to any such repeal or amendment.
3. Advancement of Expenses. Indemnitee shall have the right to advancement by
the Company prior to the final disposition of any Indemnifiable Claim of any and
all Expenses relating to, arising out of or resulting from any Indemnifiable
Claim paid or incurred by Indemnitee or which Indemnitee determines are
reasonably likely to be paid or incurred by Indemnitee; provided that Indemnitee
shall not be entitled to request the advancement of Expenses more than 60 days
in advance of the date on which Indemnitee reasonably determines such Expenses
are likely to be paid. Indemnitee's right to such advancement is not subject to
the satisfaction of any standard of conduct. Indemnitee shall submit to the
Company a written request specifying the Expenses for which Indemnitee seeks an
advancement under this Section 3, together with documentation reasonably
evidencing that Indemnitee has incurred such Expenses or, if such Expenses have
not yet been incurred, a reasonably detailed estimate of such Expenses and an
undertaking to provide such documentation once the estimated Expenses have been
incurred. Within twenty days after any such request properly made by Indemnitee,
the Company shall, in accordance with such request (but without duplication),
(a) pay such Expenses on behalf of Indemnitee, (b) advance to Indemnitee funds
in an amount sufficient to pay such Expenses, or (c) reimburse Indemnitee for
such Expenses; provided that Indemnitee shall repay, without interest, any
amounts actually advanced to Indemnitee that are in excess of amounts paid or
payable by Indemnitee in respect of Expenses relating to, arising out of or
resulting from such Indemnifiable Claim. In connection with any such payment,
advancement or reimbursement, Indemnitee shall execute and deliver to the
Company an undertaking, which need not be secured and shall be accepted without
reference to Indemnitee's ability to repay the Expenses, by or on behalf of the
Indemnitee, to repay, without interest, any amounts paid, advanced or reimbursed
by the Company in respect of Expenses relating to, arising out of or resulting
from any Indemnifiable Claim in respect of which it shall have been determined,
following the final disposition of such Indemnifiable Claim, that Indemnitee is
not entitled to indemnification hereunder.
4. Indemnification for Additional Expenses. Without limiting the generality or
effect of the foregoing, the Company shall indemnify and hold harmless
Indemnitee against and, if requested by Indemnitee, shall reimburse Indemnitee
for, or advance to Indemnitee, within twenty days of such request, any and all
Expenses paid or incurred by Indemnitee (or which Indemnitee determines are
reasonably likely to be paid or incurred by Indemnitee; provided that Indemnitee
shall not be entitled to request the advancement of Expenses more than 60 days
in advance of the date on which Indemnitee reasonably determines such Expenses
are likely to be paid) in connection with any Claim made, instituted or
conducted by Indemnitee for (a) indemnification or reimbursement or advance
payment of Expenses by the Company under any provision of this Agreement
(including a Standard of Conduct Determination), or under any other agreement or
provision of the Constituent Documents now or hereafter in effect relating to
Indemnifiable Claims, and/or (b) recovery under any directors' and officers'
liability insurance policies maintained by the Company; provided that, if
Indemnitee ultimately is determined not to be entitled to such indemnification,
reimbursement, advance payment of expenses or insurance recovery and Indemnitee
did not make, institute or conduct such Claim in good faith and with a
reasonable belief that such Claim was not frivolous, Indemnitee shall, and
Indemnitee hereby undertakes to, reimburse the Company, with interest, for all
such amounts received by Indemnitee promptly after receipt of a written demand
therefor from the Company.
5. Partial Indemnity. If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for some or a portion of any
Indemnifiable Loss but not for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
6. Procedure for Notification.
(a) Not later than fifteen (15) days after receipt by Indemnitee of notice of
the commencement of any Claim, Indemnitee will, if a claim in respect thereof is
to be made against the Company under this Agreement, notify the Company of the
commencement thereof; but the omission so to notify the Company will not relieve
it from any liability under this Agreement except to the extent, if any, that
such omission actually prejudices the use by the Company of defenses, rights or
insurance coverage.
(b) To obtain indemnification under this Agreement in respect of an
Indemnifiable Claim or Indemnifiable Loss, Indemnitee shall submit to the
Company a written request therefor including a reasonable description (based
upon information then available to Indemnitee) of such Indemnifiable Claim or
Indemnifiable Loss and the basis for the assertion of a claim under this
Agreement. If, at the time of the receipt of such request, the Company has
directors' and officers' liability insurance in effect under which coverage for
such Indemnifiable Claim or Indemnifiable Loss is potentially available, the
Company shall give prompt written notice of such Indemnifiable Claim or
Indemnifiable Loss to the applicable insurers in accordance with the procedures
set forth in the applicable policies. The Company shall provide to Indemnitee a
copy of such notice delivered to the applicable insurers, and copies of all
subsequent correspondence between the Company and such insurers regarding the
Indemnifiable Claim or Indemnifiable Loss, in each case substantially
concurrently with the delivery or receipt thereof by the Company. The failure by
Indemnitee to timely notify the Company of any Indemnifiable Claim or
Indemnifiable Loss shall not relieve the Company from any liability hereunder
unless, and only to the extent that, such failure actually prejudices the use by
the Company of defenses, rights or insurance coverage.
7. Determination of Right to Indemnification.
(a) To the extent that Indemnitee shall have been successful on the merits or
otherwise in defense of any Indemnifiable Claim, or in defense of any issue or
matter therein, Indemnitee shall be indemnified against all Indemnifiable Losses
relating to, arising out of or resulting from such Indemnifiable Claim or issue
or matter in accordance with Section 2 and no Standard of Conduct Determination
(as defined in Section 7(b)) shall be required.
(b) To the extent that the provisions of Section 7(a) are inapplicable to an
Indemnifiable Claim that shall have been finally disposed of, any determination
of whether Indemnitee has satisfied any applicable standard of conduct under
Delaware law that is a legally required condition precedent to indemnification
of Indemnitee hereunder against Indemnifiable Losses relating to, arising out of
or resulting from such Indemnifiable Claim (a "Standard of Conduct
Determination") shall be made as follows: (i) by a majority vote of the
Disinterested Directors, even if less than a quorum of the Board, (ii) if such
Disinterested Directors so direct, by a majority vote of a committee of
Disinterested Directors designated by a majority vote of all Disinterested
Directors, or (iii) if there are no such Disinterested Directors or if requested
by Indemnitee, by Independent Counsel in a written opinion addressed to the
Board, a copy of which shall be delivered to Indemnitee. Indemnitee will
cooperate with the person or persons making such Standard of Conduct
Determination, including providing to such person or persons, upon reasonable
advance request, any documentation or information which is not privileged or
otherwise protected from disclosure and which is reasonably available to
Indemnitee and reasonably necessary to such determination.
(c) The Company shall use its reasonable best efforts to cause any Standard of
Conduct Determination required under Section 7(b) to be made as promptly as
practicable and in no event later than 45 days after the Notification Date;
provided that such 45 day period may be extended for a reasonable time not to
exceed an additional 30 days if the person or persons making such determination
in good faith requires such additional time for the obtaining or evaluation or
documentation and/or information relating thereto If any such Standard of
Conduct Determination is not made within such 45 (or 75) day period, Indemnitee
shall be permitted to petition the Delaware Court of Chancery to make such
determination.
(d) If (i) Indemnitee shall be entitled to indemnification hereunder against any
Indemnifiable Losses pursuant to Section 7(a), (ii) no determination of whether
Indemnitee has satisfied any applicable standard of conduct under Delaware law
is a legally required condition precedent to indemnification of Indemnitee
hereunder against any Indemnifiable Losses, or (iii) Indemnitee has been
determined or deemed pursuant to Section 7(b) to have satisfied any applicable
standard of conduct under Delaware law which is a legally required condition
precedent to indemnification of Indemnitee hereunder against any Indemnifiable
Losses, then the Company shall pay to Indemnitee within twenty days after the
earliest date on which the applicable criterion specified in clause (i), (ii) or
(iii) above shall have been satisfied an amount equal to the amount of such
Indemnifiable Losses.
(e) If a Standard of Conduct Determination is to be made by Independent Counsel
pursuant to Section 7(b), the Independent Counsel shall be selected by the Board
of Directors, and the Company shall give written notice to Indemnitee advising
him or her of the identity of the Independent Counsel so selected. Indemnitee
may, within five business days after receiving written notice of selection from
the Company, deliver to the Company a written objection to such selection;
provided, however, that such objection may be asserted only on the ground that
the Independent Counsel so selected does not satisfy the criteria set forth in
the definition of "Independent Counsel" in Section 1(g), and the objection shall
set forth with particularity the factual basis of such assertion. Absent a
proper and timely objection, the person or firm so selected shall act as
Independent Counsel. If such written objection is properly and timely made and
substantiated, the Independent Counsel so selected may not serve as Independent
Counsel unless and until such objection is withdrawn or a court has determined
that such objection is without merit. If no Independent Counsel that is
permitted under the foregoing provisions of this Section 7(e) to make the
Standard of Conduct Determination shall have been selected within 30 days after
the Company gives its initial notice pursuant to the first sentence of this
Section 7(e) either the Company or Indemnitee may petition the Court of Chancery
of the State of Delaware for resolution of any objection which shall have been
made by the Indemnitee to the Company's selection of Independent Counsel and/or
for the appointment as Independent Counsel of a person selected by the Court or
by such other person as the Court shall designate, and the person or firm with
respect to whom all objections are so resolved or the person or firm so
appointed will act as Independent Counsel. In all events, the Company shall pay
all of the reasonable fees and expenses of the Independent Counsel incurred in
connection with the Independent Counsel's determination pursuant to Section
7(b).
8. Presumption of Entitlement. In making any Standard of Conduct Determination,
the person or persons making such determination shall presume that Indemnitee
has satisfied the applicable standard of conduct, and the Company may overcome
such presumption only by its adducing clear and convincing evidence to the
contrary. Any Standard of Conduct Determination that is adverse to Indemnitee
may be challenged by the Indemnitee in the Court of Chancery of the State of
Delaware. No determination by the Company (including by its directors or any
Independent Counsel) that Indemnitee has not satisfied any applicable standard
of conduct shall be a defense to any Claim by Indemnitee for indemnification or
reimbursement or advance payment of Expenses by the Company hereunder or create
a presumption that Indemnitee has not met any applicable standard of conduct.
9. No Other Presumption. For purposes of this Agreement, the termination of any
Claim by judgment, order, settlement (whether with or without court approval) or
conviction, or upon a plea of nolo contendere or its equivalent, will not create
a presumption that Indemnitee did not meet any applicable standard of conduct or
that indemnification hereunder is otherwise not permitted.
10. Non-Exclusivity. The rights of Indemnitee hereunder will be in addition to,
and not in limitation of, any other rights Indemnitee may have under the
Constituent Documents, or the substantive laws of the State of Delaware, any
other contract or otherwise (collectively, "Other Indemnity Provisions"). The
Company will not adopt any amendment to any of the Constituent Documents the
effect of which would be to deny, diminish or encumber Indemnitee's right to
indemnification under this Agreement.
11. Liability Insurance and Funding. For the duration of Indemnitee's service as
a director and/or officer of the Company, and thereafter for so long as
Indemnitee shall be subject to any pending or possible Indemnifiable Claim, the
Company shall use commercially reasonable efforts (taking into account the scope
and amount of coverage available relative to the cost thereof) to cause to be
maintained in effect policies of directors' and officers' liability insurance
providing coverage for Indemnitee of the Company that is at least substantially
comparable in scope and amount to that provided by the Company's current
policies of directors' and officers' liability insurance. Upon request, the
Company shall provide Indemnitee with a copy of all directors' and officers'
liability insurance applications, binders, policies, declarations, endorsements
and other related materials, and shall provide Indemnitee with a reasonable
opportunity to review and comment on the same. Without limiting the generality
or effect of the two immediately preceding sentences, the Company shall not
discontinue or significantly reduce the scope or amount of coverage from one
policy period to the next policy period (i) without the prior approval thereof
by a majority vote of the Incumbent Directors, even if less than a quorum, or
(ii) if at the time that any such discontinuation or significant reduction in
the scope or amount of coverage is proposed there are no Incumbent Directors,
without the prior written consent of Indemnitee (which consent shall not be
unreasonably withheld or delayed). In all policies of directors' and officers'
liability insurance obtained by the Company, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits,
subject to the same limitations, as are accorded to the Company's directors and
officers most favorably insured by such policy. The Company may, but shall not
be required to, create a trust fund, grant a security interest or use other
means, including without limitation a letter of credit, to ensure the payment of
such amounts as may be necessary to satisfy its obligations to indemnify and
advance expenses pursuant to this Agreement.
12. Subrogation. In the event of payment under this Agreement, the Company shall
be subrogated to the extent of such payment to all of the related rights of
recovery of Indemnitee against other persons or entities (other than
Indemnitee's successors), including any entity or enterprise referred to in
clause (i) of the definition of "Indemnifiable Claim" in Section 1. Indemnitee
shall take, at the request of the Company, all actions reasonably necessary to
secure such rights, including the execution of all papers reasonably required to
evidence such rights (all of Indemnitee's reasonable Expenses, including
attorneys' fees and charges, related thereto to be reimbursed by the Company).
13. No Duplication of Payments. The Company shall not be liable under this
Agreement to make any payment to Indemnitee in respect of any Indemnifiable
Losses to the extent Indemnitee has otherwise actually received payment (net of
Expenses incurred in connection therewith) under any insurance policy, the
Constituent Documents and Other Indemnity Provisions or otherwise (including
from any entity or enterprise referred to in clause (i) of the definition of
"Indemnifiable Claim" in Section 1(e)) in respect of such Indemnifiable Losses
otherwise indemnifiable hereunder.
14. Defense of Claims. The Company shall be entitled to participate in the
defense of any Indemnifiable Claim or to assume the defense thereof, with
counsel reasonably satisfactory to the Indemnitee; provided that if Indemnitee
reasonably believes, after consultation with counsel selected by Indemnitee,
that (a) the use of counsel chosen by the Company to represent Indemnitee would
present such counsel with an actual or potential conflict, (b) the named parties
in any such Indemnifiable Claim (including any impleaded parties) include both
the Company and Indemnitee and Indemnitee shall conclude that there may be one
or more legal defenses available to him or her that are different from or in
addition to those available to the Company, or (c) any such representation by
such counsel would be precluded under the applicable standards of professional
conduct then prevailing, then Indemnitee shall be entitled to retain separate
counsel (but not more than one law firm plus, if applicable, local counsel in
respect of any particular Indemnifiable Claim) at the Company's expense. The
Company shall not be liable to Indemnitee under this Agreement for any amounts
paid in settlement of any threatened or pending Indemnifiable Claim effected
without the Company's prior written consent. The Company shall not, without the
prior written consent of the Indemnitee, effect any settlement of any threatened
or pending Indemnifiable Claim which the Indemnitee is or could have been a
party unless such settlement solely involves the payment of money and includes a
complete and unconditional release of the Indemnitee from all liability on any
claims that are the subject matter of such Indemnifiable Claim. Neither the
Company nor Indemnitee shall unreasonably withhold its consent to any proposed
settlement.
15. Successors and Binding Agreement. (a) The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company to assume and agree to and perform this Agreement in the
same manner and to the same extent the Company would be required to perform if
no such succession had taken place. This Agreement shall be binding upon and
inure to the benefit of the Company and any successor to the Company, including
without limitation any person acquiring directly or indirectly all or
substantially all of the business or assets of the Company whether by purchase,
merger, consolidation, reorganization or otherwise (and such successor will
thereafter be deemed the "Company" for purposes of this Agreement), but shall
not otherwise be assignable or delegatable by the Company.
(b) This Agreement shall be binding on and inure to the benefit of and be
enforceable by the Indemnitee's personal or legal representatives, executors,
administrators, heirs, distributees, legatees and other successors.
(c) This Agreement is personal in nature and neither of the parties hereto
shall, without the written consent of the other, assign or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Sections 15(a) and 15(b). Without limiting the generality or effect of the
foregoing, Indemnitee's right to receive payments hereunder shall not be
assignable, whether by pledge, creation of a security interest or otherwise,
other than by a transfer by the Indemnitee's will or by the laws of descent and
distribution, and, in the event of any attempted assignment or transfer contrary
to this Section 15(c), the Company shall have no liability to pay any amount so
attempted to be assigned or transferred.
16. Notices. For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid or one business day after having been sent
for next-day delivery by a nationally recognized overnight courier service,
addressed to the Company (to the attention of the General Counsel of the
Company) and to Indemnitee at the addresses shown on the signature page hereto,
or to such other address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of changes of address will be
effective only upon receipt.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State. The Company and Indemnitee each
hereby irrevocably and unconditionally consent to the jurisdiction of the
Chancery Court of the State of Delaware for all purposes in connection with any
action or proceeding which arises out of or relates to this Agreement and agree
that any action instituted under this Agreement shall be brought only in the
Chancery Court of the State of Delaware.
18. Validity. If any provision of this Agreement or the application of any
provision hereof to any person or circumstance is held invalid, unenforceable or
otherwise illegal, the remainder of this Agreement and the application of such
provision to any other person or circumstance shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal shall be
reformed to the extent, and only to the extent, necessary to make it
enforceable, valid or legal. In the event that any court or other adjudicative
body shall decline to reform any provision of this Agreement held to be invalid,
unenforceable or otherwise illegal as contemplated by the immediately preceding
sentence, the parties thereto shall take all such action as may be necessary or
appropriate to replace the provision so held to be invalid, unenforceable or
otherwise illegal with one or more alternative provisions that effectuate the
purpose and intent of the original provisions of this Agreement as fully as
possible without being invalid, unenforceable or otherwise illegal.
19. Miscellaneous. No provision of this Agreement may be waived, modified or
discharged unless such waiver, modification or discharge is agreed to in writing
signed by Indemnitee and the Company. No waiver by either party hereto at any
time of any breach by the other party hereto or compliance with any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or at any
prior or subsequent time. No agreements or representations, oral or otherwise,
expressed or implied with respect to the subject matter hereof have been made by
either party that are not set forth expressly in this Agreement. References to
Sections are to references to Sections of this Agreement.
20. Certain Interpretive Matters. No provision of this Agreement shall be
interpreted in favor of, or against, either of the parties hereto by reason of
the extent to which any such party or its counsel participated in the drafting
thereof or by reason of the extent to which any such provision is inconsistent
with any prior draft hereof or thereof.
21. Counterparts. This Agreement may be executed in one or more counterparts,
each of which will be deemed to be an original but all of which together shall
constitute one and the same agreement.
[Signatures Appear On Following Page]
IN WITNESS WHEREOF, Indemnitee has executed and the Company has caused
its duly authorized representative to execute this Agreement as of the date
first above written.
ASBURY AUTOMOTIVE GROUP, INC.
3 Landmark Square, Suite 500
Stamford, Connecticut 06902
By: /s/ Kenneth B. Gilman
---------------------------------------
Name: Kenneth B. Gilman
Title: President & Chief Executive Officer
INDEMNITEE
/s/ J. Gordon Smith
--------------------------------------------
J. Gordon Smith
This agreement is entered into as of September 29,2003 between Asbury Automotive
Group, Inc. ("Asbury") and J. Gordon Smith ("Executive"), a key employee of
Asbury, in order to provide for an agreed-upon compensation in the event that
Executive's employment is terminated as defined in this agreement.
1. Severance Pay Arrangement
If a Termination (as defined below) of Executive's employment occurs at any
time during Executive's employment, Asbury will pay Executive 12 months of
Executive's base salary as of the date of Termination as Severance Pay.
Payment (subject to required withholding) will be made by Asbury to
Executive monthly on the regular payroll dates of Asbury starting with the
date of Termination.
If Executive participates in a bonus compensation plan at the date of
Termination, Severance Pay will also include a portion of the target bonus
for the year of Termination in an amount equal to the target bonus
multiplied by the percentage of such year that has expired through the date
of Termination.
In addition, Executive shall be entitled for 12 months following the date
of Termination to continue to participate at the same level of coverage and
Executive contribution in any health, dental, disability and life insurance
plans, as may be amended from time to time, in which Executive was
participating immediately prior to the date of Termination. Such
participation will terminate 30 days after Executive has obtained other
employment under which Executive is covered by equal benefits. Executive
agrees to notify Asbury promptly upon obtaining such other employment. At
the option of Executive, COBRA coverage will be available, as provided by
company policy, at the termination of the extended benefits provided above.
2. Change of Control Arrangement
In the event that a Termination occurs at any time within two years after a
Change of Control, then (1) the term "12 months" in the first and third
paragraphs of Section 1 of this agreement shall be replaced with "36
months" and (2) the term "one year" in Section 5 and Section 6 of this
agreement shall be replaced with "36 months". For purposes of this Section,
"Change of Control" shall having the meaning ascribed to such term in
Asbury's 2002 Stock Option Plan, as such plan may be amended from time to
time.
3. Definition of Termination Triggering Severance Pay
A "Termination" triggering the Severance Pay set forth above in Sections 1
and 2 is defined as (1) termination of Executive's employment by Asbury for
any reason, except death, disability, retirement, voluntary resignation or
"cause", or (2) termination by Executive because of mandatory relocation of
Executive's current principal place of business to a location more than 50
miles away, or (3) Asbury's reduction of Executive's base salary, or (4)
any material diminution of Executive's duties or job title, except in a
termination for "cause", death, "disability," retirement or voluntary
resignation. The definition of "cause" is: (a) Executive's gross negligence
or serious misconduct (including, without limitation, any criminal,
fraudulent or dishonest conduct) that is injurious to Asbury or any of its
affiliates; or (b) Executive being convicted of, or entering a plea of nolo
contendere to, any crime that constitutes a felony or involves moral
turpitude; or (c) Executive's material breach of Sections 4, 5 or 6 below
or (d) Executive's willful and continued failure to substantially perform
Executive's duties with Asbury or (e) Executive's material breach of a
material written policy of Asbury. The definition of "disability" is a
physical or mental disability or infirmity that prevents the performance by
Executive of his duties lasting (or likely to last, based on competent
medical evidence presented to Asbury) for a continuous period of six months
or longer.
4. Confidential Information Nondisclosure Provision
During and after employment with Asbury, Executive agrees not to disclose
to any person (other than to an employee or director of Asbury or any
affiliate and except as may be required by law) and not to use to compete
with Asbury or any affiliate any confidential or proprietary information,
knowledge or data that is not in the public domain that was obtained by
Executive while employed by Asbury with respect to Asbury or any affiliate
or with respect to any products, improvements, customers, methods of
distribution, sales, prices, profits, costs, contracts, suppliers, business
prospects, business methods, techniques, research, trade secrets or
know-how of Asbury or any affiliate (collectively, "Confidential
Information"). In the event Executive's employment terminates for any
reason, Executive will deliver to Asbury on or before the date of
termination all documents and data of any nature pertaining to Executive's
work with Asbury and will not take any documents or data or any
reproduction, or any documents containing or pertaining to any Confidential
Information. Executive agrees that in the event of a breach by Executive of
this provision, Asbury shall be entitled to inform all potential or new
employers of this provision and to cease payments and benefits that would
otherwise be made pursuant to Sections 1 and 2 above, as well as to obtain
injunctive relief and damages which may include recovery of amounts paid to
Executive under this agreement.
5. Non-Solicitation of Employees
Executive agrees that for a period of one year following final payment to
Executive as required under Sections 1and 2, Executive shall not directly
or indirectly solicit for employment or employ any person who, at any time
during the 12 months preceding such last day of Executive's employment, is
or was employed by Asbury or any affiliate or induce or attempt to persuade
any employee of Asbury or any affiliate to terminate their employment
relationship. Executive agrees that in the event of a breach by Executive
of this provision, Asbury shall be entitled to inform all potential or new
employers of this provision and to cease payments and benefits that would
otherwise be made pursuant to Sections 1 and 2 above, as well as to obtain
injunctive relief and damages which may include recovery of amounts paid to
Executive under this agreement.
6. Covenant Not to Compete
While Executive is employed by Asbury, Executive shall not directly or
indirectly engage in, participate in, represent or be connected with in any
way, as an officer, director, partner, owner, employee, agent, independent
contractor, consultant, proprietor or stockholder (except for the ownership
of a less than 5% stock interest in a publicly-traded corporation) or
otherwise, any business or activity which competes with the business of
Asbury or any affiliate unless expressly consented to in writing by the
Chief Executive Officer of Asbury (collectively, "Covenant Not To
Compete").
In the event Executive's employment terminates for any reason, the
provisions of the Covenant Not To Compete shall remain in effect for a
period of one year following final payment to Executive as required under
Sections 1 and 2, except that the prohibition above on "any business or
activity which competes with the business of Asbury or any affiliate" shall
be limited to Autonation, Sonic, Lithia, United Auto Group and other public
groups. Executive shall disclose in writing to Asbury the name, address and
type of business conducted by any proposed new employer of Executive if
requested in writing by Asbury. Executive agrees that in the event of a
breach by Executive of this Covenant Not To Compete, Asbury shall be
entitled to inform all potential or new employers of this Covenant and to
cease payments and benefits that would otherwise be made pursuant to
Sections 1 and 2 above, as well as to obtain injunctive relief and damages
which may include recovery of amounts paid to Executive under this
agreement.
7. Parachute Payment Limitation
Notwithstanding anything in this agreement to the contrary, if any
severance pay or benefits payable under this agreement (without the
application of this Section 7), either alone or together with other
payments, awards, benefits or distributions (or any acceleration of any
payment, award, benefit or distribution) pursuant to any agreement, plan or
arrangement with Asbury or any of its affiliates (the "Total Payments"),
would constitute a "parachute payment" (as defined in Section 280G of the
U.S. Internal Revenue Code of 1986, as amended, and regulations thereunder
(the "Code")), then [the following shall occur:
(a) tax counsel selected by Asbury's independent auditors and
acceptable to Executive shall compute the net present value to
Executive of all the Total Payments after reduction for the excise
taxes imposed by Code Section 4999 and for any normal income taxes
that would be imposed on Executive if such Total Payments
constituted Executive's sole taxable income; and
(b) said tax counsel shall next compute the maximum Total Payments that
can be provided without any such Total Payments being characterized
as "Excess Parachute Payments" (as defined in Code Section 280G)
and reduce the result by the amount of any normal income taxes that
would be imposed on Executive if such reduced Total Payments
constituted Executive's sole taxable income.
If the result derived in clause (a) above is greater than the result
derived in clause (b) above by more than 10% of the result derived in
clause (b) above, then Asbury shall pay Executive the full amount of the
Total Payments without reduction. If the result derived from clause (a)
above is not greater than the result derived in clause (b) above by more
than 10% of the result derived in clause (b) above, then Asbury shall pay
Executive the maximum Total Payments possible without any such Total
Payments being characterized as Excess Parachute Payments. The
determination of how such Total Payments will be reduced shall be made by
Executive in good faith after consultation with Asbury.
GENERAL PROVISIONS
A. Employment is At Will
Executive and Asbury acknowledge and agree that Executive is an "at
will" employee, which means that either Executive or Asbury may
terminate the employment relationship at any time, for any reason, with
or without cause or notice, and that nothing in this agreement shall be
construed as an express or implied contract of employment.
B. Execution of Release
As a condition to the receipt of the Severance Pay payments and
benefits described in Sections 1 and 2 above, Executive agrees to
execute a release of all claims arising out of Executive's employment
or termination, including, but not limited to, any claim of
discrimination, harassment or wrongful discharge under local, state or
federal law.
C. Other Provisions
This agreement shall be binding upon the heirs, executors,
administrators, successors and assigns of Executive and Asbury,
including any successor to Asbury.
The transfer of Executive from Asbury to any of its affiliates shall
not be deemed to be a termination pursuant to clause (1) of Section 3
of this agreement until such time as Executive is no longer employed by
Asbury or any of its affiliates. If Executive is transferred to an
affiliate of Asbury, references to "Asbury" herein shall be deemed to
include the applicable affiliate to which Executive is transferred.
The headings and captions are provided for reference and convenience
only and shall not be considered part of this agreement.
If any provision of this agreement shall be held invalid or
unenforceable, such holding shall not affect any other provisions, and
this agreement shall be construed and enforced as if such provisions
had not been included.
Any disputes arising under or in connection with this agreement shall
be resolved by third party mediation of the dispute and, if such
dispute is not resolved within 30 days, by binding arbitration, to be
held in New York City, New York, in accordance with the rules and
procedures of the American Arbitration Association. Judgment upon the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. Each party shall bear his or its own costs of the
mediation, arbitration or litigation.
All notices and other communications required or permitted under this
agreement shall be in writing (including a facsimile or similar
writing) and shall be deemed given when (1) delivered personally, (2)
sent by certified or registered mail, postage prepaid, return receipt
requested or delivered by overnight courier (provided that a written
acknowledgment of receipt is obtained by the overnight courier) to the
party concerned at the address indicated below or to such changed
address as such party may subsequently give such notice of or (3) if
given by facsimile, at the time transmitted to the respective facsimile
numbers set forth below, or to such other facsimile number as either
party may have furnished to the other in writing in accordance
herewith, and the appropriate confirmation received (or, if such time
is not during a business day, at the beginning of the next such
business day); provided, however, that notice of change of address
shall be effective only upon receipt:
If to Asbury: Asbury Automotive Group, Inc.
c/o General Counsel
3 Landmark Square
Suite 500
Stamford, CT 06901
Facsimile: (203) 356-4474
If to Executive: To the most recent address and facsimile number,
if applicable, of Executive set forth in the
personnel records of Asbury.
This agreement supercedes any and all agreements between Asbury and
Executive relating to payments upon termination of employment or
severance pay and may only be modified in writing signed by Asbury and
Executive.
This agreement shall be governed by and construed in accordance with
the laws of the State of Connecticut.
All payments hereunder shall be subject to any required withholding of
federal, state, local and foreign taxes pursuant to any applicable law
or regulation.
No provision of this agreement shall be waived unless the waiver is
agreed to in writing and signed by Executive and the Chief Executive
Officer of Asbury. No waiver by either party of any breach of, or of
compliance with, any condition or provision of this agreement by the
other party shall be considered a waiver of any other condition or
provision or of the same condition or provision at another time.
This agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
AGREED TO AS OF THE DATE FIRST WRITTEN ABOVE:
BY EXECUTIVE BY ASBURY AUTOMOTIVE GROUP, INC.
/s/ J. Gordon Smith /s/ Kenneth B. Gilman
-------------------------------- ----------------------------------
J. Gordon Smith Kenneth B. Gilman
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13a-15(e) OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kenneth B. Gilman, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Asbury
Automotive Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of circumstances under
which such statements were made, not misleading with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls
and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter that has materially affected, or is
reasonably likely to affect, the registrant's internal control over
financial reporting;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
function):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ Kenneth B. Gilman
- ---------------------------------------
Kenneth B. Gilman
Chief Executive Officer
November 14, 2003
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13a-15(e) OF THE SECURITIES EXCHANGE ACT OF 1934
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, J. Gordon Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Asbury Automotive
Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and we have:
(a) Designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most
recent fiscal quarter that has materially affected, or is reasonably
likely to affect, the registrant's internal control over financial
reporting;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation of internal control over financial reporting,
to the registrant's auditors and the audit committee of the registrant's
board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which and
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
control over financial reporting.
/s/ J. Gordon Smith
- ----------------------------------
J. Gordon Smith
Chief Financial Officer
November ___, 2003
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Asbury Automotive Group, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Kenneth B. Gilman, Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ Kenneth B. Gilman
Kenneth B. Gilman
Chief Executive Officer
November 14, 2003
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Asbury Automotive Group, Inc. (the
"Company") on Form 10-Q for the period ending September 30, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I, J.
Gordon Smith, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that, to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/ J. Gordon Smith
- --------------------------------------
J. Gordon Smith
Chief Financial Officer
November 14, 2003
