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Tax Allocation Agreement

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SONIC FINANCIAL CORPORATION
TAX ALLOCATION AGREEMENT


This Tax Allocation Agreement is entered into as of June 30, 1997, by and between Sonic Financial Corporation, a North Carolina corporation ("Sonic"), and Sonic Auto World, Inc., a Delaware corporation ("SAW").


R E C I T A L S:


A. Sonic is the parent corporation of an affiliated group of corporations (the "Sonic Group") within the meaning of section 1504(a) of the Internal Revenue Code of 1986, as amended (the "Code"), which affiliated group consists of Sonic, Town & Country Ford, Inc., a North Carolina corporation; Lone Star Ford, Inc., a Texas corporation; Frontier-Oldsmobile-Cadillac, Inc., a North Carolina corporation, FMF Management, Inc., a North Carolina corporation; SAW (hereinafter SAW and the members of the Sonic Group other than Sonic hereinafter referred to as the "SAW Group").


B. It is contemplated that in connection with an internal restructuring of the Sonic Group and an initial public offering of common stock of SAW, the SAW Group will leave the Sonic Group.


C. SAW and Sonic wish to agree with respect to certain federal income tax matters that may arise after the time the SAW Group leaves the Sonic Group.


NOW, THEREFORE, in consideration of mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:


1. PAYMENTS BY SAW TO SONIC WITH RESPECT TO SAW'S SEPARATE COMPANY FEDERAL INCOME TAX LIABILITY.


With respect to any period commencing on or after January 1, 1993, during which any member of the SAW Group was includable in the consolidated federal income tax return filed or to be filed by Sonic, SAW shall pay to Sonic an amount equal to SAW's hypothetical separate return federal income tax liability computed for such period as follows ("Separate Return Liability"):


(a) In computing SAW's Separate Return Liability it shall be assumed that SAW is a parent of an affiliated group of corporations with respect to the SAW Group and that SAW files its own consolidated return under the Code for the SAW Group. To the extent applicable, references to SAW shall include all members of the SAW Group.


(b) It is agreed that the Separate Return Liability shall include any alternative minimum taxes which Sonic shall be assessed to the extent such taxes are based upon SAW's income.


(c) Each member of the SAW Group hereby agrees that they will not carryback from any taxable year in which they are not a member of the Sonic Group any net operating loss, net capital loss, tax credit or other tax carryover into any year in which they were a member of the Sonic Group except to the extent required by applicable law. If such carryback is required by law, Sonic will, if requested by SAW, file an amended return for such consolidated period and any refund, credit, or other benefit arising from the carryback shall be paid by Sonic to SAW pursuant to the provisions of Section 3 hereof, relating to refunds.


Payment of amounts due hereunder shall be made in installments on such dates and in such amounts as if SAW was a separate taxpayer required to make federal corporate income tax estimate payments under the Code of its Separate Return Liability. The parties acknowledge that as of the date this Agreement is entered into SAW has paid Sonic all amounts due (subject to paragraph 3 below) for all years.


2. INDEMNIFICATION BY SONIC.


Subject to paragraphs 3 and 4 below, Sonic agrees to indemnify and hold SAW harmless from and against any and all federal income tax liabilities of the Sonic Group in excess of SAW's Separate Return Liability.


3. ADJUSTMENTS TO SAW'S TAX LIABILITY.


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