As filed with the Securities and Exchange Commission on September 28, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SONIC AUTOMOTIVE, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware 5511 56-2010790
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
5401 East Independence Boulevard
P.O. Box 18747
Charlotte, North Carolina 28212
Telephone (704) 532-3320
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
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Mr. O. Bruton Smith
Chairman and Chief Executive Officer
5401 East Independence Boulevard
P.O. Box 18747
Charlotte, North Carolina 28212
Telephone (704) 532-3320
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
Copies to:
Peter J. Shea, Esq.
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telephone (704) 372-9000
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<S> <C>
Proposed Proposed
Title of Each Class Maximum Maximum Amount Of
Of Securities To Amount To Be Offering Price Aggregate Offering Registration
Be Registered Registered Per Unit (1) Price (1) Fee (2)
11% Senior Subordinated Notes Due 2008, Series B ....... $125,000,000 99.25% $124,062,500 $36,600
Guarantees of 11% Senior Subordinated Notes, Series B .. $125,000,000 (3) (3) NONE (3)
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(1) Estimated solely for the purpose of calculating the registration fee,
pursuant to Rule 457(f) of Regulation C under the Securities Act of 1933.
(2) Each Registrant other than Sonic Automotive, Inc. is a subsidiary of Sonic
Automotive, Inc. and is guaranteeing payment of the Notes. Pursuant to
Rule 457(n) under the Securities Act of 1933, as amended, no registration
fee is required with respect to these guarantees.
(3) No separate consideration will be received for the guarantees of the Notes
by the subsidiaries of Sonic Automotive, Inc.
The Registrants hereby amend this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrants shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
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Primary
State or other Standard
Jurisdiction of Industrial
Exact Name of Registrant as Specified in its Incorporation Classification
Charter or Organization Code Number
<S> <C> <C>
Capital Chevrolet and Imports, Inc. Alabama 5511
Casa Ford of Houston, Inc. Texas 5511
Fort Mill Chrysler-Plymouth-Dodge Inc. South Carolina 5511
Fort Mill Ford, Inc. South Carolina 5511
Freedom Ford, Inc. Florida 5511
Frontier Oldsmobile-Cadillac, Inc. North Carolina 5511
Lone Star Ford, Inc. Texas 5511
Marcus David Corporation North Carolina 5511
Sonic Automotive of Chattanooga, LLC Tennessee 5511
Sonic Automotive - Clearwater, Inc. Florida 5511
Sonic Automotive Collision Center of Florida 5511
Clearwater, Inc.
Sonic Automotive of Georgia, Inc. Georgia 5511
Sonic Automotive - Hwy. 153 at Tennessee 5511
Shallowford Road,
Chattanooga, Inc.
Sonic Automotive of Nashville, LLC Tennessee 5511
Sonic Automotive of Nevada, Inc. Nevada 5511
Sonic Automotive of Tennessee, Inc. Tennessee 5511
Sonic Automotive - Florida 5511
1307 N. Dixie Hwy., NSB, Inc.
Sonic Automotive - Ohio 5511
1400 Automall Drive, Columbus, Inc.
Sonic Automotive - Ohio 5511
1455 Automall Drive, Columbus, Inc.
Sonic Automotive - Ohio 5511
1495 Automall Drive, Columbus, Inc.
Sonic Automotive - Ohio 5511
1500 Automall Drive, Columbus, Inc.
Sonic Automotive - Florida 5511
1720 Mason Ave., DB, Inc.
Sonic Automotive - Florida 5511
1720 Mason Ave., DB, LLC
Sonic Automotive - Florida 5511
1919 N. Dixie Hwy., NSB, Inc.
Sonic Automotive - Florida 5511
21699 U.S. Hwy 19 N., Inc.
Sonic Automotive - Florida 5511
241 Ridgewood Ave., HH, Inc.
Sonic Automotive South Carolina 5511
2424 Laurens Rd., Greenville, Inc.
Sonic Automotive - Tennessee 5511
2490 South Lee Highway, LLC
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I.R.S.
Employer Address, Including Zip Code, and
Exact Name of Registrant as Specified in its Identification Telephone Number, Including Area Code,
Charter Number of Registrant's Principal Executive Office
<S> <C> <C>
Capital Chevrolet and Imports, Inc. 63-1204447 711 Eastern Blvd. Montgomery, AL
36117; 334-272-8700
Casa Ford of Houston, Inc. 76-0430684 4701 I-10 East Baytown, TX 77521;
281-471-5550
Fort Mill Chrysler-Plymouth-Dodge Inc. 58-2285505 3310 Highway 51, Carowinds Blvd. Fort
Mill, SC 29715; 704-375-4799
Fort Mill Ford, Inc. 62-1289609 788 Gold Hill Rd., Fort Mill, SC 29715;
704-377-8877
Freedom Ford, Inc. 59-2214873 24825 US Highway 19 N. Clearwater, FL
34623; 813-797-2277
Frontier Oldsmobile-Cadillac, Inc. 56-1621461 2501 Roosevelt Blvd. West Monroe, NC
28110; 704-283-7594
Lone Star Ford, Inc. 76-0191708 8477 North Freeway, Houston, TX
77037; 281-931-3300
Marcus David Corporation 56-1708384 9101 South Blvd., Charlotte, NC 28273;
704-552-7600
Sonic Automotive of Chattanooga, LLC 62-1708471 5949 Brainerd Rd, Chattanooga, TN
37421; 423-894-5660
Sonic Automotive - Clearwater, Inc. 59-3501017 21799 US Highway 19 North Clearwater,
FL 33765; 813-799-1234
Sonic Automotive Collision Center of 59-3501024 2300 Drew St., Clearwater, FL 34625;
Clearwater, Inc. 813-797-6335
Sonic Automotive of Georgia, Inc. 58-2399219 5260 Peachtree Industrial Blvd.,
Chamblee, GA 30341; 770-452-0077
Sonic Automotive - Hwy. 153 at (*) Hwy 153 at Shallowford Road
Shallowford Road, Chattanooga, TN 37042;
Chattanooga, Inc.
Sonic Automotive of Nashville, LLC 62-1708481 4040 Armory Oaks Drive, Nashville, TN
37204; 615-254-5641
Sonic Automotive of Nevada, Inc. 88-0378636 3773 Howard Hughes Parkway Suite 300
North Las Vegas, NV 89109;
702-866-2222
Sonic Automotive of Tennessee, Inc. 62-1710960 5915 Brainard Rd., Chattanooga, TN
37421; 423-899-8934
Sonic Automotive - 59-3523302 1307 N. Dixie Hwy. New Smyrna Beach,
1307 N. Dixie Hwy., NSB, Inc. FL 32168; 904-428-9094
Sonic Automotive - 31-1604259 1400 Automall Dr. Columbus , OH
1400 Automall Drive, Columbus, Inc. 43228; 614-870-9559
Sonic Automotive - 31-1604276 1455 Automall Dr. Columubs, OH 43228;
1455 Automall Drive, Columbus, Inc. 614-870-5425
Sonic Automotive - 31-1604281 1495 Automall Dr. Columbus, OH 43228;
1495 Automall Drive, Columbus, Inc. 614-870-1495
Sonic Automotive - 31-1604285 1500 Automall Dr. Columbus, OH 43228;
1500 Automall Drive, Columbus, Inc. 614-870-8200
Sonic Automotive - 59-3523303 1720 Mason Ave. Daytona Beach, FL
1720 Mason Ave., DB, Inc. 32117; 904-274-4775
Sonic Automotive - Being 1720 Mason Ave. Daytona Beach, FL
1720 Mason Ave., DB, LLC applied for 32117; 904-274-4775
Sonic Automotive - 59-3523301 1919 N. Dixie Hwy. New Smyrna Beach,
1919 N. Dixie Hwy., NSB, Inc. FL 32168; 904-427-1313
Sonic Automotive - 59-3501021 21699 US Hwy. 19 N. Clearwater, FL
21699 U.S. Hwy 19 N., Inc. 33765; 813-799-6400
Sonic Automotive - 59-3523304 241 Ridgewood Ave. Holly Hill, FL
241 Ridgewood Ave., HH, Inc. 32117; 904-254-8441
Sonic Automotive 58-2384994 2424 Laurens Rd. Greenville, SC 29607;
2424 Laurens Rd., Greenville, Inc. 864-234-6400
Sonic Automotive - 62-1708486 2490 South Lee Highway Cleveland, OH
2490 South Lee Highway, LLC 37311; 423-478-5301
</TABLE>
(*) Entity has no I.R.S. Employer Identification Number because either it is
currently dormant with no operation or has no employees.
<PAGE>
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Primary
State or other Standard
Jurisdiction of Industrial
Exact Name of Registrant as Specified in its Incorporation Classification
Charter or Organization Code Number
<S> <C> <C>
Sonic Automotive South Carolina 5511
2752 Laurens Rd., Greenville, Inc.
Sonic Automotive - Ohio 5511
3700 West Broad Street, Columbus,
Inc.
Sonic Automotive - Florida 5511
3741 S. Nova Rd., PO, Inc.
Sonic Automotive - Ohio 5511
4000 West Broad Street, Columbus,
Inc.
Sonic Automotive Georgia 5511
5260 Peachtree Industrial Blvd., LLC
Sonic Automotive - Georgia 5511
5585 Peachtree Industrial Blvd., LLC
Sonic Automotive - Tennessee 5511
6025 International Drive, LLC
Sonic Chrysler-Plymouth-Jeep-Eagle, North Carolina 5511
LLC
Sonic Dodge, LLC North Carolina 5511
Sonic Peachtree Industrial Blvd., L.P. Georgia 5511
Town and Country Chrysler- Tennessee 5511
Plymouth-Jeep, LLC
Town and Country Chrysler- South Carolina 5511
Plymouth-Jeep of Rock Hill, Inc.
Town and Country Dodge of Tennessee 5511
Chattanooga, LLC
Town and Country Ford, Incorporated North Carolina 5511
Town and Country Ford of Cleveland, Tennessee 5511
LLC
Town and Country Jaguar, LLC Tennessee 5511
<CAPTION>
I.R.S.
Employer Address, Including Zip Code, and
Exact Name of Registrant as Specified in its Identification Telephone Number, Including Area Code,
Charter Number of Registrant's Principal Executive Office
<S> <C> <C>
Sonic Automotive 58-2384996 2752 Laurens Rd. Greenville, SC 29607;
2752 Laurens Rd., Greenville, Inc. 864-234-6437
Sonic Automotive - 31-1604296 3700 West Broad St. Columbus, OH
3700 West Broad Street, Columbus, 43228; 612-272-8100
Inc.
Sonic Automotive - 59-3532504 3741 S. Nova Rd. Port Orange, FL 32199;
3741 S. Nova Rd., PO, Inc. 940-322-1020
Sonic Automotive - 31-1604301 4000 W. Broad St. Columbus, OH 43228;
4000 West Broad Street, Columbus, 614-272-0000
Inc.
Sonic Automotive 62-1716095 5260 Peachtree Industrial Blvd. Chamblee,
5260 Peachtree Industrial Blvd., LLC GA 30341; 770-452-0077
Sonic Automotive - (*) 5585 Peachtree Industrial Blvd. Camblee,
5585 Peachtree Industrial Blvd., LLC GA 30341
Sonic Automotive - 62-1708490 6025 International Drive Chattanooga, TN
6025 International Drive, LLC 37421; 423-855-4981
Sonic Chrysler-Plymouth-Jeep-Eagle, 56-2044997 20435 Chartwell Center Drive Cornelius, NC
LLC 28031; 704-896-3800
Sonic Dodge, LLC 56-2044965 20700 Torrence Chapel Rd. Cornelius,
NC 28031; 704-892-7800
Sonic Peachtree Industrial Blvd., L.P. 56-2089761 5260 Peachtree Industrial Blvd.,
Chamblee, GA 30341; 770-452-0077
Town and Country Chrysler- 62-1708483 2496 South Lee Highway Cleveland, TN
Plymouth-Jeep, LLC 37311; 432-339-8756
Town and Country Chrysler- 56-2044964 380 North Anderson Rd. Rock Hill, SC
Plymouth-Jeep of Rock Hill, Inc. 29730; 803-324-4042
Town and Country Dodge of 62-1708487 402 W. Martin Luther King Blvd.
Chattanooga, LLC Chattanooga, TN 37402; 423-265-0505
Town and Country Ford, Incorporated 56-0887416 5401 E. Independence Blvd. Charlotte, NC
28212; 704-536-5600
Town and Country Ford of Cleveland, 62-1708484 717 South Lee Highway Cleveland, TN
LLC 37311; 423-472-5454
Town and Country Jaguar, LLC 62-1708491 5915 Brainard Rd. Chattanooga, TN
37421; 423-899-8934
</TABLE>
(*) Entity has no I.R.S. Employer Identification Number because either it is
currently dormant with no operation or has no employees.
<PAGE>
Information contained herein is subject to completion or amendment. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the Registration Statement becomes
effective. This Prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful under
the securities laws of any such state
SUBJECT TO COMPLETION, DATED SEPTEMBER 28, 1998
PROSPECTUS
[SONIC LOGO]
Offer to Exchange
All Outstanding
11% Senior Subordinated Notes Due 2008, Series A
($125,000,000 Principal Amount Outstanding)
for
11% Senior Subordinated Notes Due 2008, Series B
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This Exchange Offer (as defined below) and all withdrawal rights hereunder will
expire at 5:00 p.m., New York
City time, (as such date may be extended from time to time, the "Expiration
Date").
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Sonic Automotive, Inc., a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the
"Letter of Transmittal"), to exchange $1,000 in principal amount of its 11%
Senior Subordinated Notes Due 2008, Series A (the "New Notes") for each $1,000
in principal amount of its currently outstanding 11% Senior Subordinated Notes
Due 2008, Series B (the "Old Notes") (the Old Notes and the New Notes are
collectively referred to herein as the "Notes"). An aggregate principal amount
of $125.0 million of Old Notes is currently outstanding. See "The Exchange
Offer."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities. The Company has agreed
that, starting on the Expiration Date and ending on the close of business one
year after the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company will accept for exchange any and all Old Notes that are
validly tendered prior to 5:00 p.m., New York City time, on the Expiration
Date. Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date. The Exchange Offer is not conditioned
upon any minimum principal amount of the Old Notes being tendered for exchange.
However, the Exchange Offer is subject to the terms and provisions of the
Registration Rights Agreement dated as of July 31, 1998 (the "Registration
Rights Agreement"), among the Company, each of the Company's existing
subsidiaries (the "Guarantors") and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, BancAmerica Robertson Stephens and NationsBanc
Montgomery Securities LLC (the "Initial Purchasers"). The Old Notes may be
tendered only in multiples of $1,000. See "The Exchange Offer."
The Old Notes were issued in a transaction (the "Prior Offering") pursuant
to which the Company issued an aggregate of $125.0 million principal amount of
the Old Notes to the Initial Purchasers on July 31, 1998 pursuant to a Purchase
Agreement dated as of July 28, 1998 (the "Purchase Agreement") among the
Company, the Guarantors and the Initial Purchasers. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A under the Securities
Act. The Company, the Guarantors and the Initial Purchasers also entered into
the Registration Rights Agreement, pursuant to which the Company and the
Guarantors granted certain registration rights for the benefit of the holders
of the Old Notes. The Exchange Offer is intended to satisfy certain of the
Company's obligations under the Registration Rights Agreement with respect to
the Old Notes. See "The Exchange Offer -- Purpose and Effect."
The Old Notes were, and the New Notes will be, issued under the Indenture
dated as of July 1, 1998 (the "Indenture") among the Company, the Company's
existing domestic subsidiaries and U.S. Bank Trust National Association, as
trustee (in such capacity, the "Trustee"). The form and terms of the New Notes
will be identical in all material respects to the form and terms of the Old
Notes, except that (i) the New Notes have been registered under the Securities
Act and, therefore, will not bear legends restricting the transfer thereof, and
(ii) holders of New Notes will not be entitled to certain rights under the
Registration Rights Agreement intended for the holders of unregistered
securities. The Exchange Offer shall be deemed consummated upon the occurrence
of the delivery by the Company to U.S. Bank Trust National Association, as
registrar of the Old Notes (in such capacity, the "Registrar"), under the
Indenture of New Notes in the same aggregate principal amount as the aggregate
principal amount of Old Notes that are (cover continued on next page)
See "Risk Factors" beginning on page 15 for a discussion of certain
factors that should be considered in evaluating the Exchange Offer.
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THE NEW NOTES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
---------------
The date of Prospectus is , 1998.
<PAGE>
validly tendered by holders thereof pursuant to the Exchange Offer. See "The
Exchange Offer -- Termination of Certain Rights," " -- Procedures for Tendering
Old Notes" and "Description of the New Notes."
The Notes will bear interest at a rate equal to 11% per annum. Interest on
the Notes is payable semiannually, commencing February 1, 1999, on February 1
and August 1 of each year (each an "Interest Payment Date") and shall accrue
from July 31, 1998 or from the most recent Interest Payment Date with respect
to the Old Notes to which interest was paid or duly provided for. The Notes
will mature on August 1, 2008. See "Description of Notes."
The Notes will be redeemable for cash at the option of the Company, in
whole or in part, at any time on or after August 1, 2003 at the redemption
prices set forth herein, together with accrued and unpaid interest, if any, to
the date of redemption. In addition, at any time on or prior to August 1, 2001,
the Company may redeem up to 35% of the aggregate principal amount of the Notes
originally issued with the net proceeds of one or more Public Equity Offerings
(as defined herein), at a redemption price in cash equal to 111% of the
principal amount thereof, plus accrued and unpaid interest, if any, to the date
of redemption; provided that at least 65% of the aggregate principal amount of
the Notes originally issued remains outstanding immediately after such
redemption. See "Description of the New Notes -- Optional Redemption." Upon the
occurrence of a Change of Control (as defined herein), the Company will be
required to make an offer to repurchase all outstanding Notes at 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon,
if any, to the date of repurchase. There is no assurance that the Company will
have adequate funds to repurchase the Notes upon a Change of Control. See
"Description of the New Notes -- Purchase of Notes Upon a Change of Control."
The Notes will be unsecured senior subordinated obligations of the Company
and, as such, will be subordinated in right of payment to all other existing
and future senior indebtedness of the Company, and will rank pari passu in
right of payment with all other existing and future senior subordinated
indebtedness of the Company. The Notes will be guaranteed, jointly and
severally, on a senior subordinated basis (the "Guarantees") by the Guarantors.
The Guarantees will be unsecured senior subordinated obligations of the
Guarantors and will be subordinated in right of payment to all existing and
future senior indebtedness of the Guarantors. As of June 30, 1998, on a pro
forma basis after giving effect to the 1998 Acquisitions (as defined herein)
and the Prior Offering and the application of the net proceeds therefrom, (i)
the Company and the Guarantors would have had $4.3 million in aggregate
principal amount of indebtedness outstanding which would have ranked senior in
right of payment to the Notes ($2.9 million of which would have been secured)
and no indebtedness pari passu to the Notes or the Guarantees, as the case may
be, (ii) the Company would also have had $3.7 million of indebtedness senior
to, and $5.5 million of indebtedness subordinated to, the Notes and (iii) the
Guarantors would also have had $197.7 million of floor plan indebtedness and
$3.2 million of additional indebtedness which would have ranked senior in right
of payment to the Guarantees ($3.0 million of which would have been secured).
Based on existing interpretations of the Securities Act by the staff of
the Securities and Exchange Commission (the "Commission") set forth in
"no-action" letters issued to third parties, the Company believes that New
Notes issued pursuant to the Exchange Offer to any holder of Old Notes in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by such holder (other than (i) a broker-dealer who purchased Old
Notes directly from the Company for resale pursuant to Rule 144A under the
Securities Act or any other available exemption under the Securities Act or
(ii) a person that is an affiliate of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such holder
is acquiring the New Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution of the New Notes. Holders wishing to accept the
Exchange Offer must represent to the Company, as required by the Registration
Rights Agreement, that such conditions have been met. In addition, if such
holder is not a broker-dealer, it must represent that it is not engaged in, and
does not intend to engage in, a distribution of the New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "The Exchange Offer -- Resales of the
New Notes" and "Plan of Distribution." This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making or other
trading activities.
As of September 15, 1998, Cede & Co. ("Cede"), as nominee for The
Depository Trust Company, New York, New York ("DTC"), was the sole registered
holder of the Old Notes and held the Old Notes for certain of its participants.
The Company believes that no such participant is an affiliate (as such term is
defined in Rule 405 of the Securities Act) of the Company. There has previously
been only a limited secondary market, and no public market, for the Old Notes.
The Old Notes are eligible for trading in the Private Offering, Resales and
Trading through Automatic Linkages ("PORTAL") market. In addition, the Initial
Purchasers have advised the Company that they currently intend to make a market
in the New Notes; however, the Initial Purchasers are not obligated to do so
and any market making activities may be discontinued by the Initial Purchasers
at any time. Therefore, there can be no assurance that an active market for the
New Notes will develop. If such a trading market develops for the New Notes,
future trading prices will depend on many factors, including, among other
things, prevailing interest rates, the Company's results of operations and the
market for similar securities. Depending on such factors, the New Notes may
trade at a discount from their principal amount. See "Risk Factors -- Absence
of a Public Market for the Notes."
The Company and the Guarantors will not receive any proceeds from this
Exchange Offer, and no underwriter is being utilized in connection with the
Exchange Offer. Pursuant to the Registration Rights Agreement, the Company will
bear certain registration expenses.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH
THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
<PAGE>
The Old Notes were issued originally in global form (the "Global Old
Note"). The Global Old Note was deposited with, or on behalf of, DTC, as the
initial depository with respect to the Old Notes (in such capacity, the
"Depositary"). The Global Old Note is registered in the name of Cede, as
nominee of DTC, and beneficial interests in the Global Old Note are shown on,
and transfers thereof are effected only through, records maintained by the
Depositary and its participants. The use of the Global Old Note to represent
certain of the Old Notes permits the Depositary's participants, and anyone
holding a beneficial interest in an Old Note registered in the name of such a
participant, to transfer interests in the Old Notes electronically in
accordance with the Depositary's established procedures without the need to
transfer a physical certificate. New Notes issued in exchange for the Global
Old Note also will be issued initially as a note in global form (the "Global
New Note," and, together with the Global Old Note, the "Global Notes") and
deposited with, or on behalf of, the Depositary. After the initial issuance of
the Global New Note, New Notes in certificated form will be issued in exchange
for a holder's proportionate interest in the Global New Note only as set forth
in the Indenture.
<PAGE>
NOTICE TO NEW HAMPSHIRE RESIDENTS
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED
STATUTES WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS
EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE
CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER
RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE
FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A
TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH
THE PROVISION OF THIS PARAGRAPH.
---------------
THE INFORMATION CONTAINED IN THIS PROSPECTUS HAS BEEN FURNISHED BY THE
COMPANY AND OTHER SOURCES BELIEVED BY THE COMPANY TO BE RELIABLE. THIS
PROSPECTUS CONTAINS SUMMARIES, BELIEVED TO BE ACCURATE, OF CERTAIN TERMS OF
CERTAIN DOCUMENTS BUT REFERENCE IS MADE TO THE ACTUAL DOCUMENTS, CERTAIN OF
WHICH HAVE BEEN FILED AS EXHIBITS TO THE REGISTRATION STATEMENT OF WHICH THIS
PROSPECTUS IS A PART, FOR THE COMPLETE INFORMATION CONTAINED THEREIN. ALL SUCH
SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY THIS REFERENCE.
---------------
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act and Section
21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").
These statements appear in a number of places in this Prospectus and include
statements regarding the intent, belief or current expectations of the Company,
its directors or its officers with respect to, among other things: (i)
potential acquisitions by the Company; (ii) the Company's financing plans;
(iii) trends affecting the Company's financial condition or results of
operations; and (iv) the Company's business and growth strategies. Investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual results
may differ materially from those projected in the forward-looking statements as
a result of various factors. Among others, factors that could adversely affect
actual results and performance include local and regional economic conditions
in the areas served by the Company, the level of consumer spending,
relationships with manufacturers, competition, site selection and related
traffic and demographic patterns, inventory management and turnover levels,
realization of cost savings, and the Company's success in integrating recent
and potential future acquisitions. The accompanying information contained in
this Prospectus, including, without limitation, the information set forth under
the headings "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" identifies important
additional factors that could materially adversely affect actual results and
performance. Prospective investors are urged to carefully consider such
factors.
All forward-looking statements attributable to the Company are expressly
qualified in their entirety by the foregoing cautionary statement.
AVAILABLE INFORMATION
The Company is subject to the informational and reporting requirements of
the Exchange Act, and in accordance therewith is required to file periodic
reports, proxy statements and other information with the Commission relating to
its business, financial condition and other matters. Such reports, proxy
statements and other information, may be inspected and copied at the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at 7 World Trade
Center, Suite 1300, New York, New York 10048 and at 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The Commission maintains an Internet Web
site that contains reports, proxy and information statements and other
information regarding the Company and other registrants that file
electronically with the Commission. The address of such site is
http://www.sec.gov. Copies of all or any part of such materials may be obtained
from any such office upon payment of the fees prescribed by the Commission.
Such information may also be inspected and copied at the offices of the New
York Stock Exchange at 20 Broad Street, New York, New York 10005. The Company's
Class A common stock, par value $.01 per share, is traded on the New York Stock
Exchange under the symbol "SAH.".
This Prospectus constitutes a part of a registration statement (the
"Registration Statement") filed by the Company with the Commission under the
Securities Act. As permitted by the rules and regulations of the Commission,
this Prospectus does not contain all of the information contained in the
Registration Statement and the exhibits and schedules thereto and reference is
hereby made to the Registration Statement and the exhibits and schedules
thereto for further information with respect to the Company and the securities
offered hereby. Statements contained herein concerning the provisions of any
documents filed as an exhibit to the Registration Statement or otherwise filed
with the Commission are not necessarily complete, and in each instance
reference is made to the copy of such document so filed. Each such statement is
qualified in its entirety by such reference.
The Indenture (as defined herein) provides that the Company will furnish
copies of the periodic reports required to be filed with the Commission under
the Exchange Act to the holders of the Notes. If the Company is not subject to
the periodic reporting and informational
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requirements of the Exchange Act, it will, to the extent such filings are
accepted by the Commission, and whether or not the Company has a class of
securities registered under the Exchange Act, file with the Commission, and
provide the Trustee and the holders of the Notes within 15 days after such
filings with, annual reports containing the information required to be
contained in Form 10-K promulgated under the Exchange Act, quarterly reports
containing the information required to be contained in Form 10-Q promulgated
under the Exchange Act and from time to time such other information as is
required to be contained in Form 8-K promulgated under the Exchange Act. If
filing such reports with the Commission is not accepted by the Commission or
prohibited by the Exchange Act, the Company will also provide copies of such
reports, at its cost, to prospective purchasers of the Notes promptly upon
written request. In addition, the Company has agreed that, for so long as any
Old Notes remain outstanding as Old Notes it will furnish to the holders and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act until such time
as the Company has either exchanged the Old Notes for the New Notes or until
such time as the holders thereof have disposed of such Notes pursuant to an
effective registration statement under the Securities Act. See "Description of
the New Notes -- Certain Covenants -- Provisions of Financial Statements." Any
such request and requests for the agreements summarized herein should be
directed to: Mr. Todd Atenhan, Director of Investor Relations of the Company,
at 5401 E. Independence Blvd., Charlotte, North Carolina 28212, telephone:
1-888-766-4218.
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[SONIC LOGO GOES HERE]
[MAP GOES HERE]
<TABLE>
<CAPTION>
<S> <C> <C>
BMW AND VOLKSWAGEN OF CLEVELAND VILLAGE HONDA HATFIELD VOLKSWAGEN-JEEP LAKE NORMAN DODGE
NASHVILLE DODGE OF CHATTANOOGA HERITAGE LINCOLN-MERCURY LONE STAR FORD
BMW AND VOLVO OF DYER VOLVO HIGGINBOTHAM CHEVY-OLDS NELSON BOWERS FORD
CHATTANOOGA ECONOMY HONDA HIGGINBOTHAM AUTOMOBILES TOWN AND COUNTRY CHRYSLER-
CAPITOL CHEVROLET FORT MILL CHRYSLER- INFINITI OF CHATTANOOGA PLYMOUTH-JEEP OF ROCK HILL
CAPITOL IMPORTS PLYMOUTH-DODGE KEN MARKS FORD TOWN AND COUNTRY FORD
CASA FORD FORT MILL FORD KIA AND VOLKSWAGEN OF TOWN AND COUNTRY TOYOTA
CENTURY BMW FRONTIER OLDSMOBILE-CADILLAC CHATTANOOGA TOYOTA WEST
CLEARWATER MITSUBISHI HALIFAX FORD-MERCURY LAKE NORMAN CHRYSLER- TRADER BUD'S WESTSIDE
CLEARWATER TOYOTA HATFIELD HYUNDAI-ISUZU-SUBARU PLYMOUTH-JEEP CHRYSLER-PLYMOUTH
CLEVELAND CHRYSLER- HATFIELD LINCOLN-MERCURY TRADER BUD'S WESTSIDE DODGE
PLYMOUTH-JEEP
</TABLE>
Dealerships listed and locations shown above are on a pro forma basis
giving effect to the pending 1998 Acquisitions (as defined herein).
This Offering Memorandum includes statistical data regarding the retail
automotive industry. Unless otherwise indicated herein, such data is taken or
derived from information published by (i) The Wall Street Journal, (ii) a
division of Intertec Publishing Corp. in its "Ward's Dealer Business," (iii)
Crain's Communications, Inc. in its "Automotive News" and "1997 Market Data
Book" or (iv) the Industry Analysis Division of the National Automobile Dealers
Association ("NADA") in its "Industry Analysis and Outlook" and "Automotive
Executive Magazine" publications.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus.
References herein to "Sonic" or the "Company" are to Sonic Automotive, Inc.
and, unless the context indicates otherwise, its consolidated subsidiaries and
their respective predecessors. Unless otherwise indicated, references to "pro
forma" give effect to (i) the 1997 Acquisitions and the 1998 Acquisitions (each
as defined herein and, collectively, the "Acquisitions"), (ii) the Company's
initial public offering of its Class A Common Stock in November 1997 (the
"IPO"), (iii) the reorganization of the Company in anticipation of its IPO (the
"Reorganization"), and (iv) the Prior Offering and the application of the net
proceeds therefrom. References to "pro forma" do not give effect to the Jordan
Acquisition and the Tampa Volvo Acquisition (each as defined herein).
The Company
The Company is one of the top ten automotive retailers in the United
States, operating 27 dealerships and ten collision repair centers, as of June
30, 1998, in eight metropolitan areas of the southeastern and southwestern
United States. Sonic sells new and used cars and light trucks, sells
replacement parts, provides vehicle maintenance, warranty, paint and repair
services and arranges related financing and insurance ("F&I") for its
automotive customers. The Company operated dealerships as of June 30, 1998 in
the Atlanta, Georgia, Charlotte, North Carolina, Chattanooga, Tennessee,
Greenville/Spartanburg, South Carolina, Houston, Texas, Montgomery, Alabama,
Nashville, Tennessee and Tampa/Clearwater, Florida markets, each of which the
Company believes is experiencing favorable demographic trends. As of June 30,
1998, Sonic sold the following 20 domestic and foreign brands: BMW, Cadillac,
Chevrolet, Chrysler, Dodge, Ford, Honda, Hyundai, Infiniti, Jaguar, Jeep, KIA,
Lincoln, Mercury, Mitsubishi, Oldsmobile, Plymouth, Toyota, Volkswagen and
Volvo. In several of its markets, the Company's dealerships have a significant
market share for new cars and light trucks. As of September 15, 1998, the
Company had acquired or entered into definitive agreements to acquire 12
additional dealerships in certain of the Company's existing markets and in new
markets including Columbus, Ohio and Daytona Beach, Florida (which includes a
total of two dealerships being acquired in the Jordan Acquisition and the Tampa
Volvo Acquisition). Upon consummation of these acquisitions, the Company will
sell the following four additional brands: Acura, Isuzu, Mercedes and Subaru.
For the year ended December 31, 1997, the Company would have had pro forma
revenues and EBITDA (as defined herein) of $1.8 billion and $42.8 million,
respectively.
Company Strengths
Leading Automotive Retailer. The Company is one of the top ten automotive
retailers in the United States, operating 37 dealerships in ten metropolitan
areas on a pro forma basis. The Company believes that its leading position in
the highly fragmented automotive retailing industry combined with its strong
reputation and management team, successful history of acquiring and integrating
dealerships and strong financial condition have positioned the Company as a
premier consolidator of automotive dealerships, thereby providing the Company
with increased attractive acquisition opportunities.
Proven Track Record of Integrating and Improving Acquisitions. In recent
years, the Company has grown primarily through the acquisition of well-managed
dealerships in growing metropolitan and suburban geographic markets. During
1996 and 1997, the Company acquired 16 dealerships in five states for total
consideration of $104.5 million. Senior management of the Company has,
collectively, acquired and integrated the operations of more than 75
dealerships during their careers. This acquisition experience allows management
to identify and capitalize on opportunities for improvement, determine and
implement necessary corrective actions, and minimize acquisition risk.
Experienced Management Team. The Company is led by a strong senior
management team with extensive automotive retailing and aftermarket products
and services experience, including O. Bruton Smith, Chief Executive Officer,
and Nelson E. Bowers, II, Executive Vice President. The members of the
Company's senior management team have on average 19 years of automotive
industry experience. As of June 30, 1998, the Company's senior management owned
approximately 52.7% of the Company's outstanding Class A Common Stock and Class
B Common Stock, par value $.01 per share (the "Class B Common Stock" and
together with the Class A Common Stock, the "Common Stock").
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Consistent Record of Internal Growth. In addition to indentifying,
consummating and integrating attractive acquisitions, the Company continually
focuses on improving its existing dealership operations. As a result, the
Company has a history of strong internal growth with average same store sales
growth of 16.3%, 6.4% and 10.1% in 1995, 1996 and 1997, respectively.
Diverse Offering of Automotive Brands, Products and Services. The Company
sells on a pro forma basis a wide variety of 24 domestic and international
automotive brands (38.4% of pro forma gross profit in 1997) in ten metropolitan
areas which it believes (i) mitigates the effect of regional economic
conditions and changing consumer preferences and (ii) reduces its reliance on
any single manufacturer. In addition to selling a broad range of new vehicles,
the Company has a balanced portfolio of other automotive products and services
including used vehicles (16.9% of pro forma gross profit in 1997), F&I and
leasing (11.6%), and parts, service and collision repair services (33.1%). The
Company believes that this diverse offering of products and services improves
financial stability as sales of higher margin products and services offset in
part sales of lower margin new and used vehicles. In addition, sales of parts,
service and collision repair services are less cyclical than vehicle sales and
related product sales.
Economies of Scale. The Company's growth through acquisitions over the
past two years has resulted in increasing economies of scale as the Company
integrates acquired dealerships including (i) improved terms on bank and floor
plan financing, (ii) improved commissions on sales of finance and insurance
products, (iii) increased vendor consolidation opportunities, (iv) reduced
advertising and insurance costs as a percentage of sales, and (v) improved
inventory management.
Strategy
Acquire Dealerships. The Company believes that attractive acquisition
opportunities exist for dealership groups with significant equity capital and
experience in identifying, acquiring and professionally managing dealerships.
The automotive retailing industry is highly fragmented, with the largest 100
dealer groups generating approximately 10% of the industry's $640 billion of
total sales in 1996 and controlling less than 5% of all new vehicle dealerships
in the United States. The Company believes that these factors, together with
increasing capital costs of operating automobile dealerships, the lack of
alternative exit strategies (especially for larger dealerships) and the aging
of many dealership owners provide attractive consolidation opportunities. The
Company has implemented a "hub and spoke" acquisition strategy to acquire (i)
well-managed dealerships in new growing metropolitan and suburban geographic
markets, and (ii) additional dealerships in its existing markets that will
allow the Company to capitalize on regional economies of scale, offer a greater
breadth of products and services and/or increase brand diversity. In addition,
the Company selectively acquires dealerships which have underperformed the
industry average but which carry attractive product lines or have attractive
locations, thereby leveraging the Company's management infrastructure and
improving return on investment.
Increased Sales of Higher Margin Products and Services. The Company
intends to pursue opportunities to increase its sales of higher-margin products
and services by, for instance, expanding its collision repair business and
increasing sales of used vehicles. The Company's collision repair business
provides favorable margins and is not significantly affected by economic cycles
or consumer spending habits. The Company believes that, because of the high
capital investment required for collision repair shops and the cost of
complying with environmental and worker safety regulations, large volume body
shops will be more successful in the future than small volume shops. The
Company further believes that the collision repair industry is undergoing a
period of consolidation and that it is well positioned to expand its collision
repair business. Sonic also believes that significant opportunities exist to
improve its used vehicle departments, which historically have generated higher
margins on sales than its new vehicle departments, to (i) increase the number
of used vehicles sold and (ii) increase gross profit margins on sales of used
vehicles. For example, the Company's ability to manage inventory levels more
effectively created increased gross profit margins on sales of used vehicles to
9.9% for the first six months of 1998 from 8.5% for the first six months of
1997.
Enhance Profit Opportunities in Finance and Insurance. The Company offers
its customers a wide range of financing and leasing alternatives for the
purchase of vehicles, as well as credit life, accident and health and
disability insurance and extended service contracts. As a result of its size
and scale, the Company has been able to negotiate with lending institutions
that purchase its financing contracts and insurance carriers that underwrite
its insurance policies to increase commissions on the origination of customer
vehicle financing and insurance policies, which the Company believes will
result in increased revenues and profitability.
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Train, Develop and Incentivize Qualified Management. The Company believes
that well trained dealership personnel are the key to the long-term performance
of the Company and to the profitability of its dealerships. Sonic requires all
of its employees, from service technicians to regional vice presidents, to
participate in in-house training programs. The Company's senior management,
along with third party trainers from manufacturers, industry affiliates and
vendors, formally train all employees. The Company believes that its
comprehensive training of all employees and the institution of a multi-tiered
management structure to supervise effectively its dealership operations provide
the Company with a competitive advantage over other dealership groups. In
addition, the Company employs an incentive compensation program for each
officer, vice president and executive manager, a portion of which is provided
in the form of Company stock options, with additional incentives based on the
performance of individual profit centers. Sonic believes that this
organizational structure, together with the opportunity for promotion and for
equity participation, serve as a strong motivation for its employees.
Achieve High Levels of Customer Satisfaction. Customer satisfaction has
been and will continue to be a focus of the Company. The Company's personalized
sales process is designed to satisfy customers by providing high-quality
vehicles in a positive, "consumer friendly" buying environment. Some
manufacturers offer specific performance incentives, on a per vehicle basis, if
certain customer satisfaction index ("CSI") levels (which vary by manufacturer)
are achieved by a dealer. Manufacturers can withhold approval of acquisitions
if a dealer fails to maintain a minimum CSI score. To keep management focused
on customer satisfaction, the Company includes CSI results as a component of
its incentive compensation program.
The 1998 Acquisitions
In March 1998, the Company acquired two dealerships and a standalone
collision repair center located in Clearwater, Florida, for a total purchase
price of approximately $14.9 million, subject to adjustment based on the net
book value of the purchased assets and assumed liabilities as of the closing
date (the "Clearwater Acquisition"). The Clearwater Acquisition was financed
with $11.5 million in cash borrowed from Ford Motor Credit Company ("Ford Motor
Credit") under the Company's $75.0 million secured revolving line of credit
(the "Revolving Facility") and 3,960 shares of the Company's Class A
Convertible Preferred Stock, par value $.10 per share (the "Preferred Stock"
and, together with the Common Stock, the "Voting Stock"), with a liquidation
preference of approximately $4.0 million. By April 30, 1999, the Company will
be required to pay a contingent amount equal to 50% of the combined 1998
pre-tax earnings of the entities acquired, such amount not to exceed
approximately $1.8 million.
In July 1998, the Company acquired six dealerships located in Columbus,
Ohio for a total purchase price of approximately $48.6 million plus the
assumption of certain liabilities, subject to adjustment based on the value of
the net current assets of the sellers as of the closing date (the "Hatfield
Acquisition"). Of the total purchase price, the Company paid approximately
$34.6 million in cash ($26.2 million of which was financed by borrowings under
the Revolving Facility and the balance of which was financed by cash from the
Company's existing operations, which was subsequently replenished with a
portion of the net proceeds from the Prior Offering), and the balance of the
total purchase price was paid by the Company's issuance to the sellers of
14,025 shares of its Preferred Stock with a liquidation preference of
approximately $14.0 million.
Also in July 1998, the Company acquired one dealership located in
Greenville, South Carolina for a total purchase price of approximately $1.1
million plus the assumption of certain operating liabilities of the sellers
(the "Heritage Acquisition"). Of the total purchase price, the Company paid
approximately $0.7 million in cash (all of which was financed by borrowings
under the Revolving Facility), and the balance of the total purchase price was
paid by the Company's issuance to the sellers of 400 shares of its Preferred
Stock with a liquidation preference of $0.4 million. In connection with the
Heritage Acquisition, Chartown, a general partnership and an affiliate of the
Company through common control ("Chartown"), acquired the real property on
which the dealerships comprising the Heritage Acquisition are operated for
approximately $3.0 million, and the Company currently is leasing this real
property from Chartown. Chartown is expected to sell the real property
underlying these dealerships to Mar Mar Realty Trust, a real estate investment
trust affiliated with the Company through common control ("MMRT"), in the
future. The Company did not consummate the acquisition of the assets of the
Jaguar franchise that comprises a portion of the Heritage Acquisition because
Jaguar Cars, a division of Ford Motor Company ("Jaguar") declined to consent to
this acquisition. See "Risk Factors -- No Consent from Jaguar."
Also in July 1998, the Company acquired one dealership located in
Greenville, South Carolina and a satellite sales location in Spartanburg, South
Carolina for an aggregate purchase price of approximately $3.8 million in cash
(all of which was financed with a portion of the net proceeds of the Prior
Offering), warrants issued to the seller to purchase 75,000 shares of the
Company's Class A Common Stock at a purchase price equal to the market value of
the Class A Common Stock on the closing date and 2,166.5 shares of Preferred
Stock with a liquidation preference of approximately $2.2 million (the "Century
Acquisition"). The seller in the Century Acquisition is affiliated with the
seller in the Heritage Acquisition. In
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connection with the acquisition, Chartown purchased the real property
underlying the dealership and the satellite sales location. Chartown is
expected to sell the real property to MMRT in the future.
Also in July 1998, the Company acquired one dealership located in Houston,
Texas for a total purchase price of approximately $11.3 million, subject to
adjustment at a later date based upon a final determination of the net working
capital of the acquired dealership as of the closing date (the "Casa Ford
Acquisition"). Of the price paid at closing, the Company paid approximately
$9.0 million in cash (all of which was financed with a portion of the net
proceeds of the Prior Offering), and the balance was paid to the seller by the
Company's issuance of 2,313 shares of Preferred Stock with a liquidation
preference of approximately $2.3 million. In addition, the Company agreed to
pay to the seller in the future an additional contingent payment equal to five
times the amount by which the dealership's pre-tax earnings for 1998, if any,
exceed $2.5 million, and five times the amount by which the dealership's 1999
pre-tax earnings, if any, exceed the greater of $2.5 million or the
dealership's 1998 pre-tax earnings.
Also in July 1998, the Company acquired two dealerships located in
Montgomery, Alabama for a purchase price of approximately $8.1 million paid to
the sellers at the closing (the "Montgomery Acquisition"). The total purchase
price paid at closing was paid with approximately $3.4 million in cash
(approximately $0.1 million of which was financed by cash from the Company's
existing operations and approximately $3.3 million of which was financed with a
portion of the net proceeds of the Prior Offering) and with 4,194.3 shares of
Preferred Stock with a liquidation preference of approximately $4.2 million.
The remaining $0.6 million of the cash portion of the purchase price is payable
to the sellers on the first and second anniversaries of the closing date. The
Company has also agreed to pay an additional payment to the sellers, not to
exceed $3.3 million, contingent upon the future performance of the acquired
dealerships.
In September 1998, the Company acquired three dealerships and related
assets located in the Daytona Beach, Florida area for a total purchase price of
approximately $27.0 million, including the repayment of approximately $2.7
million in indebtedness owed by one of the sellers to its sole shareholder,
subject to adjustment based on the net book value of the purchased assets as of
the closing date (the "Higginbotham Acquisition"). The total purchase price was
paid with approximately $18.2 million in cash (all of which was financed with a
portion of the net proceeds from the Prior Offering), and with the issuance to
the sellers of Class A Common Stock with a market value at the date of closing
of approximately $8.3 million. The remaining $0.5 million of the cash portion
of the purchase price is payable to the seller in December 1998. In addition,
the Company also assumed certain liabilities of the sellers at closing. In
connection with the Higginbotham Acquisition, it is anticipated that MMRT will
acquire the real property on which these dealerships and related assets are
operated in the future, and that the Company will lease these properties from
MMRT.
In addition, the Company has entered into a definitive agreement, which
contains certain closing conditions and purchase price adjustments, providing
for the Company's purchase of a dealership located in Chattanooga, Tennessee,
for a purchase price of approximately $7.5 million plus an amount equal to the
net book value of the assets of the dealership (the "Economy Honda
Acquisition"). The Company's consummation of the Economy Honda Acquisition is
subject to the approval of Honda, which has informed the Company that its
approval is contingent upon the Company divesting its ownership of the
Cleveland Village Honda dealership, which is also located in Chattanooga, prior
to acquiring the Economy Honda dealership. The Company is currently negotiating
with potential buyers for the sale of the Cleveland Village Honda dealership.
There can be no assurance that the Company will be able to sell the Cleveland
Village Honda dealership or that the approval of Honda to the Economy Honda
Acquisition will be obtained. See "Risk Factors -- No Consent from Honda."
Hereinafter the Clearwater Acquisition, the Hatfield Acquisition, the
Heritage Acquisition, the Century Acquisition, the Casa Ford Acquisition, the
Montgomery Acquisition, the Higginbotham Acquisition and the Economy Honda
Acquisition are collectively referred to as the "1998 Acquisitions." The
aggregate purchase price for the 1998 Acquisitions is approximately $127.4
million, which has been or will be paid with approximately $88.3 million in
cash and with approximately 40,409 shares of Preferred Stock having an
aggregate liquidation preference of approximately $40.4 million. Of the $88.3
million cash portion of the aggregate purchase price, approximately $38.4
million was financed with borrowings under the Revolving Facility (which was
subsequently repaid with a portion of the net proceeds from the Prior
Offering), approximately $34.3 million with a portion of the net proceeds from
the Prior Offering, and approximately $8.5 million with cash generated from the
Company's existing operations (approximately $8.4 million of which was
subsequently replenished with a portion of the net proceeds from the Prior
Offering). The remaining $7.1 million of the cash portion of the aggregate
purchase price for the 1998 Acquisitions will be financed with a combination of
borrowings under the Revolving Facility and a portion of the net proceeds of
the Prior Offering. The 1998 Acquisitions have all been consummated, except for
the Economy Honda Acquisition for which the consent of Honda has not yet been
obtained. There can be no assurance that such consent will be obtained. See
"Risk Factors -- No Consent from Honda." In addition, the Company did not
consummate the acquisition of a Jaguar franchise representing a portion of the
Heritage Acquisition because Jaguar declined to consent to such acquisition.
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See "Risk Factors -- No Consent from Jaguar." Any manufacturer who does not
consent to an acquisition may seek to terminate its franchise agreement,
although relevant state franchising laws impose limitations on a manufacturer's
ability to terminate a franchise. See "Risk Factors -- Manufacturers'
Restrictions on Acquisitions" and "Business -- Relationships with
Manufacturers." Prior to their acquisition, the Company operated the
dealerships which comprise the Montgomery Acquisition, the Century Acquisition
and the Casa Ford Acquisition under separate management agreements. In
connection with the 1998 Acquisitions, the Company has or will acquire the
following additional or new dealership franchises: Acura, BMW, Chevrolet,
Chrysler, Dodge, Ford, Honda, Hyundai, Isuzu, Jeep, KIA, Lincoln, Mercedes,
Mercury, Mitsubishi, Oldsmobile, Plymouth, Subaru, Toyota and Volkswagen. For
additional information regarding the acquisitions described above, see "The
1998 Acquisitions."
Recent Developments
In August 1998, the Company entered into a definitive agreement for the
acquisition of the assets of an Infiniti dealership located in Charlotte, North
Carolina and the real estate upon which the dealership is operated, which real
estate the Company anticipates selling to MMRT in the future (the "Jordan
Acquisition"). In addition, in September 1998, the Company entered into a
definitive agreement for the acquisition of the assets of a Volvo dealership
located in Tampa, Florida (the "Tampa Volvo Acquisition"). The pro forma
information included in this Prospectus does not give effect to the Jordan
Acquisition or the Tampa Volvo Acquisition.
The Company was recently awarded two new Volvo franchises and a new
Oldsmobile franchise in the Atlanta market. The Company currently expects to
open these new dealerships in the first half of 1999.
On July 9, 1998, the Company entered into, subject to the approval of the
Company's Board of Directors and the Company's independent directors, a
Strategic Alliance Agreement and Agreement for the Mutual Referral of
Acquisition Opportunities (the "Alliance Agreement") with an operating
partnership controlled by MMRT. MMRT intends to acquire certain real estate
associated with various automobile dealerships, automotive aftermarket
retailers and other automotive related businesses and to lease such properties
to the business operators located thereon. Mr. Smith, the Company's Chairman
and Chief Executive Officer, serves as the chairman of MMRT's board of trustees
and is presently its largest shareholder. See "Risk Factors -- Potential
Conflicts of Interest" and "Certain Transactions -- Transactions with MMRT."
Under the Alliance Agreement, the Company has agreed to refer real estate
acquisition opportunities that arise in connection with its dealership
acquisitions to MMRT. In exchange, MMRT has agreed to refer dealership
acquisition opportunities to the Company and to provide to the Company, at the
Company's cost, certain real estate development, maintenance, survey and
inspection services. Pursuant to the Alliance Agreement, the Company has
entered into contracts to sell the real estate associated with Town and Country
Toyota and Fort Mill Ford, two of the Company's dealerships, for an aggregate
purchase price of approximately $10.3 million. In addition, the Alliance
Agreement provides for an agreed form of lease (the "Sonic Form Lease")
pursuant to which MMRT would lease real estate to the Company should MMRT
acquire real estate associated with any of the Company's operations. Presently,
the Company leases or intends to lease from MMRT 29 parcels of land associated
with 21 of its dealerships, including the real estate associated with Town and
Country Toyota and Fort Mill Ford that the Company will lease back from MMRT,
pursuant to leases substantially similar to the Sonic Form Lease. The aggregate
initial annual base rent to be paid by the Company for all 29 properties under
the leases with MMRT is approximately $7.7 million. MMRT has also entered into
new leases with each of Town and Country Ford and Lone Star Ford which provide
that the annual lease payments for their properties will each be increased to
approximately $1.1 million effective January 1, 2000, as compared to current
annual lease payments of approximately $0.4 million and $0.3 million,
respectively.
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The Prior Offering
The outstanding $125.0 million aggregate principal amount of Old Notes
were issued by the Company to the Initial Purchasers on July 31, 1997, pursuant
to the Purchase Agreement. The Initial Purchasers subsequently resold the Old
Notes in reliance on Rule 144A under the Securities Act. The Company, the
Guarantors and the Initial Purchasers also entered into the Registration Rights
Agreement pursuant to which the Company and the Guarantors granted certain
registration rights for the benefit of the holders of the Old Notes. The
Exchange Offer is intended to satisfy certain of the Company's obligations
under the Registration Rights Agreement with respect to the Old Notes. See "The
Exchange Offer -- Purpose and Effect."
The Exchange Offer
The Exchange Offer.............. The Company is offering upon the terms and
subject to the conditions set forth herein
and in the Letter of Transmittal to exchange
the New Notes for the outstanding Old Notes.
As of the date of this Prospectus, $125.0
million in aggregate principal amount of the
Old Notes is outstanding. As of September 15,
1998, there was one registered holder of the
Old Notes, Cede & Co., which held the Old
Notes for certain of its participants. See
"The Exchange Offer -- Terms of the Exchange
Offer."
Expiration Date................. 5:00 p.m., New York City time, on ,
1998 as the same may be extended from time to
time. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."
Conditions of the
Exchange Offer.................. The Exchange Offer is not conditioned upon
any minimum principal amount of Old Notes
being tendered for exchange. The only
condition to the Exchange Offer is the
declaration by the Commission of the
effectiveness of the Registration Statement
of which this Prospectus constitutes a part
(the "Exchange Offer Registration
Statement"). See "The Exchange Offer --
Conditions of the Exchange Offer."
Termination of Certain Rights... Pursuant to the Registration Rights
Agreement and the Old Notes, holders of Old
Notes have certain rights intended for the
holders of unregistered securities. Holders
of New Notes will not be and, upon
consummation of the Exchange Offer, holders
of Old Notes will no longer be, entitled to
certain rights under the Registration Rights
Agreement intended for holders of
unregistered securities except in certain
limited circumstances. See "The Exchange
Offer -- Termination of Certain Rights" and "
-- Procedures for Tendering Old Notes."
Accrued Interest................ The New Notes will bear interest at a rate
equal to 11% per annum. Interest shall accrue
from July 31, 1998 or from the most recent
Interest Payment Date with respect to the Old
Notes to which interest was paid or duly
provided for. See "Description of the New
Notes -- General."
Procedures for Tendering
Old Notes....................... Unless a tender of Old Notes is effected
pursuant to the procedures for book-entry
transfer as provided herein, each holder
desiring to accept the Exchange Offer must
complete and sign the Letter of Transmittal,
have the signature thereon guaranteed if
required by the Letter of Transmittal, and
mail or deliver the Letter of Transmittal,
together with the Old Notes or a Notice of
Guaranteed Delivery (as defined in the Letter
of Transmittal) and any other required
documents (such as evidence of authority to
act, if the Letter of Transmittal is signed
by someone acting in a fiduciary or
representative capacity), to the Exchange
Agent (as defined herein) at the address set
forth on the back cover page of this
Prospectus prior to 5:00 p.m., New York City
time, on the Expiration Date. Any Beneficial
Owner (as defined herein) of the Old Notes
whose Old Notes are registered in the name of
a nominee, such as a broker, dealer,
commercial bank or trust company and who
wishes to tender
8
<PAGE>
Old Notes in the Exchange Offer, should
instruct such entity or person to tender
promptly on such Beneficial Owner's behalf.
See "The Exchange Offer -- Procedures for
Tendering Old Notes."
Guaranteed Delivery Procedures... Holders of Old Notes who wish to tender
their Old Notes and (i) whose Old Notes are
not immediately available or (ii) who cannot
deliver their Old Notes or any other
documents required by the Letter of
Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the
procedure for book-entry transfer on a timely
basis), may tender their Old Notes according
to the guaranteed delivery procedures set
forth in the Letter of Transmittal. See "The
Exchange Offer -- Guaranteed Delivery
Procedures."
Acceptance of Old Notes and
Delivery of New Notes.......... Following effectiveness of the Exchange
Offer Registration Statement and the
consummation of the Exchange Offer
thereafter, the Company will accept any and
all Old Notes that are properly tendered in
the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The
New Notes issued pursuant to the Exchange
Offer will be delivered promptly after
acceptance of the Old Notes. See "The
Exchange Offer -- Acceptance of Old Notes for
Exchange; Delivery of New Notes."
Withdrawal Rights............... Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York City
time, on the Expiration Date. See "The
Exchange Offer -- Withdrawal Rights."
The Exchange Agent.............. U.S. Bank Trust National Association is the
exchange agent (in such capacity, the
"Exchange Agent"). The address and telephone
number of the Exchange Agent are set forth in
"The Exchange Offer -- The Exchange Agent;
Assistance."
Fees and Expenses............... All expenses incident to the Company's and
the Guarantors' consummation of the Exchange
Offer and compliance with the Registration
Rights Agreement will be borne by the
Company. The Company will also pay certain
transfer taxes applicable to the Exchange
Offer. See "The Exchange Offer -- Fees and
Expenses."
Resales of the New Notes........ Based on existing interpretations by the
staff of the Commission set forth in
"no-action" letters issued to third parties,
the Company believes that New Notes issued
pursuant to the Exchange Offer to any holder
of Old Notes in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by such holder (other than (i) a
broker-dealer who purchased the Old Notes
directly from the Company for resale pursuant
to Rule 144A under the Securities Act or any
other available exemption under the
Securities Act or (ii) a person that is an
affiliate of the Company within the meaning
of Rule 405 under the Securities Act),
without compliance with the registration and
prospectus delivery provisions of the
Securities Act, provided that such holder is
acquiring the New Notes in the ordinary
course of business and is not participating,
and has no arrangement or understanding with
any person to participate, in a distribution
of the New Notes. Each broker-dealer that
receives New Notes for its own account
pursuant to the Exchange Offer, where such
Old Notes were acquired by such broker as a
result of market-making or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of such New Notes. See "The Exchange
Offer -- Resales of the New Notes" and "Plan
of Distribution."
9
<PAGE>
Effect of Not Tendering Old Notes
for Exchange................... Old Notes that are not tendered or that are
not properly tendered will, following the
expiration of the Exchange Offer, continue to
be subject to the existing restrictions upon
transfer thereof. Except for certain limited
circumstances, the Company will have no
further obligations to provide for the
registration under the Securities Act of such
Old Notes following the expiration of the
Exchange Offer, and such Old Notes will, bear
interest at the same rate as the New Notes.
Description of New Notes
Notes Offered................... $125,000,000 aggregate principal amount of
11% Senior Subordinated Notes due 2008,
Series B.
Maturity Date................... August 1, 2008.
Interest Payment Dates.......... February 1 and August 1 of each year,
commencing February 1, 1999.
Optional Redemption............. The Notes are redeemable for cash at the
option of the Company, in whole or in part at
any time on or after August 1, 2003 at the
redemption prices set forth herein, together
with accrued and unpaid interest, if any, to
the date of redemption. In addition, at any
time prior to August 1, 2001, the Company may
redeem up to 35% of the original aggregate
principal amount of the Notes with the net
proceeds of one or more Public Equity
Offerings (as defined herein) at a redemption
price in cash equal to 111% of the principal
amount thereof, together with accrued and
unpaid interest, if any, to the redemption
date, provided that not less than 65% of the
aggregate principal amount of Notes
originally issued remain outstanding
immediately after such redemption. See
"Description of the New Notes -- Optional
Redemption."
Guarantees...................... The Old Notes are, and the New Notes will
be, guaranteed, jointly and severally, on a
senior subordinated basis, by all of the
Company's existing subsidiaries. See
"Description of the New Notes -- Guarantees."
Change of Control............... Upon the occurrence of a Change of Control,
each holder of the Notes may require the
Company to purchase all or a portion of such
holder's Notes at a cash purchase price equal
to 101% of the principal amount thereof,
together with accrued and unpaid interest, if
any, to the date of repurchase. See
"Description of the New Notes -- Purchase of
Notes Upon a Change of Control."
Ranking and Asset Encumbrances... The Notes will be unsecured senior
subordinated obligations of the Company and,
as such, will be subordinated in right of
payment to all other existing and future
senior indebtedness of the Company and will
rank pari passu in right of payment with all
other existing and future senior subordinated
indebtedness of the Company. The Guarantees
will be unsecured senior subordinated
obligations of the Guarantors and will be
subordinated in right of payment to all
existing and future senior indebtedness of
the Guarantors. As of June 30, 1998, on a pro
forma basis after giving effect to the 1998
Acquisitions and the Prior Offering and the
application of the net proceeds therefrom,
(i) the Company and the Guarantors would have
had $4.3 million in aggregate principal
amount of indebtedness outstanding which
would have ranked senior in right of payment
to the Notes ($2.9 million of which would
have been secured) and no indebtedness pari
passu to the Notes or the Guarantees, as the
case may be, (ii) the Company would also have
had $3.7 million of indebtedness senior to,
and $5.5 million of indebtedness
10
<PAGE>
subordinated to, the Notes and (iii) the
Guarantors would also have had $197.7
million of floor plan indebtedness and $3.2
million of additional indebtedness which
would have ranked senior in right of payment
to the Guarantees ($3.0 million of which
would have been secured).
Certain Covenants............... The indenture relating to the Notes (the
"Indenture") contains certain restrictive
covenants, including, but not limited to,
covenants with respect to the following
matters: (i) limitation on indebtedness; (ii)
limitation on restricted payments; (iii)
limitation on transactions with affiliates;
(iv) limitation on liens; (v) limitation on
disposition of proceeds of asset sales; (vi)
limitation on issuances of guarantees of and
pledges for indebtedness; (vii) limitation on
other senior subordinated indebtedness;
(viii) limitation on dividend and other
payment restrictions affecting subsidiaries;
(ix) limitation on unrestricted subsidiaries;
(x) limitation on the issuance of preferred
stock of subsidiaries; and (xi) restrictions
on mergers, consolidations and the transfer
of all or substantially all of the assets of
the Company. See "Description of the New
Notes -- Certain Covenants."
Use of Proceeds................. There will be no proceeds payable to the
Company or the Guarantors from this Exchange
Offer. The Company and the Guarantors are
conducting the Exchange Offer to satisfy
certain of their obligations under the
Registration Rights Agreement executed in
connection with the issuance of the Old
Notes. See "Use of Proceeds."
Registration Rights............. In connection with the sale of the Old
Notes, the Company and the Guarantors agreed,
at the Company's and the Guarantors' cost, to
use their reasonable best efforts to (i) file
within 60 days, and cause to become effective
within 135 days, of the date of original
issuance of the Old Notes, a registration
statement (the "Registration Statement"), of
which this Prospectus is a part, with respect
to a registered offer to exchange the Old
Notes for the New Notes with terms identical
in all material respects to the Old Notes
(except that the New Notes will not contain
terms with respect to transfer restrictions
or interest rate increases as described
below) and (ii) cause the Exchange Offer to
be consummated within 165 days of the
original issuance of the Old Notes. In the
event that any changes in law or the
applicable interpretations of the staff of
the Commission do not permit the Issuers to
effect the Exchange Offer, or if the Exchange
Offer Registration Statement is not declared
effective within 135 days or consummated
within 165 days following the date of
original issuance of the Old Notes, or upon
the request of any of the Initial Purchasers,
or if any holder of the Old Notes is not
permitted by applicable law to participate in
the Exchange Offer or elects to participate
in the Exchange Offer but does not receive
fully tradeable New Notes pursuant to the
Exchange Offer, the Issuers will use their
reasonable best efforts to cause a shelf
registration statement with respect to the
resale of the Old Notes (the "Shelf
Registration Statement") to become effective
within 165 days following the date of
original issuance of the Old Notes and to
keep the Shelf Registration Statement
effective for up to two years from the date
the Shelf Registration Statement is declared
effective by the Commission. The interest
rate on the Old Notes is subject to increase
under certain circumstances if the Company
and the Guarantors are not in compliance with
their obligations under the Registration
Rights Agreement. See "Exchange Offer."
11
<PAGE>
Absence of a Public Market for
the Notes...................... There is no public trading market for the
New Notes and the Company does not intend to
apply for listing of the New Notes on any
national securities exchange or for quotation
of the New Notes on any automated dealer
quotation system. The Company has been
advised by the Initial Purchasers that they
presently intend to make a market in the
Notes, although they are under no obligation
to do so and may discontinue any market
making activities at any time without any
notice. The Notes are eligible for trading in
the Private Offerings, Resale and Trading
through Automated Linkages ("PORTAL") market.
However, no assurance can be given as to the
liquidity of the trading market for the Notes
or that an active public market for the Notes
will develop. If an active trading market for
the Notes does not develop, the market price
and liquidity of the Notes may be adversely
affected. If the Notes are traded, they may
trade at a discount from their initial
offering price, depending on prevailing
interest rates, the market for similar
securities, the performance of the Company
and certain other factors. See "Risk Factors
-- Absence of Public Market for the Notes."
Risk Factors
See "Risk Factors" beginning on page 15 for a discussion of certain
factors that should be considered by prospective investors in evaluating an
investment in the Notes.
12
<PAGE>
Summary Historical and Pro Forma Consolidated Financial and Operating Data
<TABLE>
<CAPTION>
Six Months Ended June
Year Ended December 31, 30,
--------------------------------------------------- -----------------------
Pro
Actual Forma Actual
----------------------------------- --------------- -----------------------
1995 1996(a) 1997(b) 1997(c) 1997(b) 1998
----------- ----------- ----------- --------------- ----------- -----------
(Unaudited)
---------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Income Statement Data:
Revenues ................................... $311,323 $376,867 $536,001 $ 1,806,453 $212,886 $648,840
Cost of sales .............................. 272,130 332,122 473,003 1,584,440 189,254 566,392
-------- -------- -------- ----------- -------- --------
Gross profit ............................... 39,193 44,745 62,998 222,013 23,632 82,448
Selling, general and administrative
expenses ................................. 28,091 32,602 46,770 161,289 17,532 59,622
Operating income ........................... 10,270 11,067 14,906 54,095 5,704 20,975
Interest expense, floor plan ............... 4,504 5,968 8,007 19,123 3,018 7,341
Interest expense, other .................... 436 433 1,199 15,163 318 2,745
Income before income taxes and
minority interest ........................ 5,436 5,021 5,998 20,997 2,503 10,904
Net income ................................. 3,238 2,983 3,702 12,678 1,540 6,804
Consolidated Balance Sheet Data:
Cash and cash equivalents .................. $ 8,993 $ 6,679 $ 18,304 $ 9,238 $ 27,228
Receivables, net ........................... 9,085 11,908 19,784 12,897 35,761
Inventories ................................ 51,348 71,550 156,514 73,410 175,515
Property and equipment, net ................ 8,527 12,467 19,081 13,270 22,040
Total assets ............................... 79,462 110,976 291,450 120,384 369,623
Notes payable -- floor plan ................ 45,151 63,893 133,236 67,855 149,670
Long-term debt, including current
portion (d) .............................. 6,950 6,719 49,563 9,979 65,538
Minority interest .......................... 200 314 -- -- --
Stockholders' equity ....................... 16,306 26,295 84,365 28,406 103,401
Other Consolidated Financial Data:
Revenues:
Vehicle sales ............................ $267,650 $327,674 $467,858 $ 1,592,802 $185,216 $567,279
Parts, service and collision repairs ..... 35,860 42,075 57,537 176,299 22,907 68,020
Finance and insurance .................... 7,813 7,118 10,606 37,352 4,763 13,541
EBITDAR(e) ................................. $ 7,681 $ 7,619 $ 10,668 $ 55,117 $ 3,760 $ 19,337
Rental expense ............................. 977 1,089 2,149 12,328 543 3,837
-------- -------- -------- ----------- -------- --------
EBITDA(f) .................................. $ 6,704 $ 6,530 $ 8,519 $ 42,789 $ 3,217 $ 15,500
======== ======== ======== =========== ======== ========
Depreciation and amortization .............. $ 832 $ 1,076 $ 1,322 $ 6,629 $ 396 $ 1,851
Capital expenditures ....................... 1,509 1,907 2,007 886 1,261
Ratio of EBITDA to interest expense,
other .................................... 2.8x
Ratio of long-term debt to EBITDA(g) .......
Other Operating Data:
Dealerships ................................ 4 5 20 37 6 26
New vehicles units sold(h) ................. 10,273 11,693 15,715 48,079 6,533 16,601
Used vehicles units sold(h) ................ 5,172 5,488 6,712 32,478 2,638 9,719
<CAPTION>
Six Months
Ended June
30,
-------------
Pro
Forma
-------------
1998(c)
-------------
(Unaudited)
-------------
<S> <C>
Consolidated Income Statement Data:
Revenues ................................... $ 963,509
Cost of sales .............................. 842,095
---------
Gross profit ............................... 121,414
Selling, general and administrative
expenses ................................. 87,886
Operating income ........................... 30,395
Interest expense, floor plan ............... 10,061
Interest expense, other .................... 7,651
Income before income taxes and
minority interest ........................ 13,031
Net income ................................. 8,019
Consolidated Balance Sheet Data:
Cash and cash equivalents .................. $ 37,589
Receivables, net ........................... 43,550
Inventories ................................ 228,549
Property and equipment, net ................ 23,583
Total assets ............................... 512,177
Notes payable -- floor plan ................ 199,037
Long-term debt, including current
portion (d) .............................. 140,843
Minority interest .......................... --
Stockholders' equity ....................... 130,776
Other Consolidated Financial Data:
Revenues:
Vehicle sales ............................ $ 848,235
Parts, service and collision repairs ..... 94,070
Finance and insurance .................... 21,204
EBITDAR(e) ................................. $ 29,943
Rental expense ............................. 6,128
---------
EBITDA(f) .................................. $ 23,815
=========
Depreciation and amortization .............. $ 3,133
Capital expenditures .......................
Ratio of EBITDA to interest expense,
other .................................... 3.1x
Ratio of long-term debt to EBITDA(g) ....... 3.3x
Other Operating Data:
Dealerships ................................ 37
New vehicles units sold(h) ................. 25,195
Used vehicles units sold(h) ................ 17,094
</TABLE>
- ---------
(a) The Company acquired Fort Mill Ford, Inc. in February 1996. The acquisition
was accounted for using the purchase method of accounting. As a result,
the actual financial data does not include the results of this dealership
prior to the date it was acquired by the Company. Accordingly, the actual
financial data for periods after the acquisition may not be comparable to
data presented for periods prior to the acquisition.
(b) The Company acquired Fort Mill Chrysler-Plymouth-Dodge in June 1997, Lake
Norman Chrysler/Plymouth/Jeep and Lake Norman Dodge in September 1997,
Williams Motors and Ken Marks Ford in October 1997, and the Bowers
Automotive Group and Dyer & Dyer Volvo in November 1997 (collectively, the
"1997 Acquisitions"). The 1997 Acquisitions were accounted for using the
purchase method of accounting. As a result, the actual financial data does
not include the results of operations of these dealerships prior to the
date they were acquired by the Company. Accordingly, the actual financial
data for periods after the acquisitions may not be comparable to data
presented for periods prior to the acquisitions.
(footnotes continued on following page)
13
<PAGE>
(c) For information regarding the unaudited pro forma adjustments made to the
Company's historical financial data, which give effect to the IPO, the
Reorganization, the 1997 Acquisitions and the 1998 Acquisitions
(collectively, the "Acquisitions"), and the Prior Offering and the
application of the net proceeds therefrom, see "Unaudited Pro Forma
Consolidated Financial Data."
(d) Long-term debt, including current portion, includes the payable to the
Company's Chairman and the payable to affiliates of the Company. See the
Company's Consolidated Financial Statements and the related notes included
elsewhere in this Prospectus.
(e) EBITDAR is defined as earnings before interest (other than interest expense
related to notes payable-floor plan), taxes, depreciation, amortization,
rent expense and other non-recurring charges. While EBITDAR should not be
construed as a substitute for operating income or as a better measure of
liquidity than cash flows from operating activities, which are determined
in accordance with generally accepted accounting principles, it is
included herein to provide additional information with respect to the
ability of the Company to meet future debt service, capital expenditures
and working capital requirements. This measure may not be comparable to
similarly titled measures reported by other companies.
(f) EBITDA is defined as earnings before interest (other than interest expense
related to notes payable-floor plan), taxes, depreciation, amortization
and other non-recurring charges which is consistent with the measure used
to calculate the Company's Consolidated Fixed Charge Coverage Ratio for
purposes of the limitations on indebtedness covenant in the Indenture.
While EBITDA should not be construed as a substitute for operating income
or as a better measure of liquidity than cash flows from operating
activities, which are determined in accordance with generally accepted
accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet future debt
service, capital expenditures and working capital requirements. This
measure may not be comparable to similarly titled measures reported by
other companies.
(g) Ratio of long-term debt to EBITDA for the pro forma six months ended June
30, 1998 is calculated by dividing pro forma long-term debt, including
current portion, at June 30, 1998 by EBITDA for the pro forma year ended
December 31, 1997.
(h) The number of units sold consists of retail sales to consumers as opposed
to wholesale sales.
14
<PAGE>
RISK FACTORS
Prospective investors should carefully consider and evaluate all of the
information set forth in this Prospectus, including the principal risk factors
set forth below.
ADVERSE CONSEQUENCES OF FINANCIAL LEVERAGE
As of June 30, 1998, on a pro forma basis, the Company's total
consolidated long-term indebtedness (including certain affiliated payables),
total consolidated short-term indebtedness (including floor plan notes payable)
and total stockholders' equity would have been $139.6 million, $202.1 million
and $130.8 million, respectively. In addition, the Indenture and the Company's
and the Guarantors' other debt instruments will allow the Company and the
Guarantors to incur certain additional indebtedness, including secured
indebtedness. The Indenture permits the Company to incur inventory financing
without satisfaction of the fixed charge coverage test. See "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Description of the New Notes" and "Description of Certain Other
Indebtedness."
The degree to which the Company is leveraged could have important
consequences to the holders of Notes, including the following: (i) the
Company's ability to obtain additional financing for acquisitions, capital
expenditures, working capital or general corporate purposes may be impaired in
the future; (ii) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of principal and interest on the
Notes and borrowings under the Revolving Facility and a standardized floor plan
credit facility with Ford Motor Credit for each of the Company's dealership
subsidiaries (the "Floor Plan Facility" and, together with the Revolving
Facility, the "Ford Credit Facilities") and other indebtedness, thereby
reducing the funds available to the Company for its operations and other
purposes; (iii) certain of the Company's borrowings are and will continue to be
at variable rates of interest, which exposes the Company to the risk of
increased interest rates; (iv) the indebtedness outstanding under the Ford
Credit Facilities is secured by a pledge of substantially all the assets of the
Company's dealerships and will mature prior to the maturity of the Notes; and
(v) the Company may be substantially more leveraged than certain of its
competitors, which may place the Company at a relative competitive disadvantage
and make the Company more vulnerable to changing market conditions and
regulations. See "Description of the New Notes" and "Description of Certain
Other Indebtedness."
The Ford Credit Facilities and the Indenture contain numerous financial
and operating covenants that will limit the discretion of the Company's and the
Guarantors' management with respect to certain business matters. These
covenants will place significant restrictions on, among other things, the
ability of the Company or any of the Guarantors to incur additional
indebtedness, to create liens or other encumbrances, to make certain payments
and investments, and to sell or otherwise dispose of assets and merge or
consolidate with other entities. The Ford Credit Facilities also require the
Company and the Guarantors to meet certain financial ratios and tests. A
failure of the Company and the Guarantors to comply with the obligations
contained in the Ford Credit Facilities or the Indenture could result in an
event of default under the Ford Credit Facilities or the Indenture, which could
permit acceleration of the related debt and acceleration of debt under other
instruments that may contain cross acceleration or cross-default provisions.
See "Description of Certain Other Indebtedness." The Company did not meet the
specified debt to tangible equity ratio covenant of the Revolving Facility at
December 31, 1997, at March 31, 1998 and at June 30, 1998 and has obtained
waivers with regard to such requirement from Ford Motor Credit. The waivers are
subject to certain requirements to the effect that the Company meet modified
ratios. In connection with the issuance of the Old Notes, the Company and Ford
Motor Credit amended the Revolving Facility to provide that the Notes (which
are subordinated to the Revolving Facility) will be treated as equity capital
for purposes of this ratio and, accordingly, the Company is in compliance with
this covenant after giving effect to its issuance of the Old Notes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 12 to the Consolidated
Financial Statements.
The Company believes that, based on its current level of operations, it
will have sufficient capital to carry on its business, including acquisitions,
and will be able to meet its scheduled debt service requirements for the
forseeable future, although the Company may need to refinance the repayment of
principal of the Notes at maturity. However, there can be no assurance that the
future cash flow of the Company will be sufficient to meet the Company's
obligations and commitments. If the Company is unable to generate sufficient
cash flow from operations in the future to service its indebtedness and to meet
its other commitments, the Company will be required to adopt one or more
alternatives, such as refinancing or restructuring its debt or equity capital.
There can be no assurance that any of these actions could be effected on a
timely basis or on satisfactory terms or that these actions would enable the
Company to continue to satisfy its capital requirements. In addition, the terms
of existing or future franchise agreements or debt agreements, including the
Indenture and the Ford Credit Facilities, may prohibit the Company from
adopting any of these alternatives. See " -- Stock Ownership/Issuance Limits;
Limitation on Ability to Issue Additional Equity," and "Description of the New
Notes."
15
<PAGE>
SUBORDINATION OF THE NOTES AND THE GUARANTEES; ASSET ENCUMBRANCES; CHANGE OF
CONTROL OFFER
The payment of the principal of, premium, if any, and interest on the
Notes will be subordinated to the prior payment in full of all existing and
future senior indebtedness of the Company. Therefore, in the event of a
liquidation, dissolution, reorganization or any similar proceeding regarding
the Company, the assets of the Company will be available to pay obligations on
the Notes only after senior indebtedness has been paid in full, and there may
not be sufficient assets to pay amounts due on all or any of the Notes. In
addition, the Company may not pay principal of, premium, if any, interest on or
any other amounts owing in respect of the Notes, make any deposit pursuant to
defeasance provisions or purchase, redeem or otherwise retire the Notes, if any
senior indebtedness is not paid when due or any other default on senior
indebtedness occurs and the maturity of such indebtedness is accelerated in
accordance with its terms unless, in either case, such default has been cured
or waived, any such acceleration has been rescinded or such indebtedness has
been repaid in full. Moreover, under certain circumstances, if any non-payment
default exists with respect to Designated Senior Indebtedness (as defined
herein), the Company may not make any payments on the Notes for a specified
time, unless such default is cured or waived, any acceleration of such
indebtedness has been rescinded or such indebtedness has been repaid in full.
See "Description of the New Notes -- Ranking."
The Notes will be unsecured senior subordinated obligations of the Company
and, as such, will be subordinated in right of payment with all other existing
and future senior indebtedness of the Company and the Guarantors and pari passu
in right of payment to all existing and future senior subordinated indebtedness
of the Company and the Guarantors. As of June 30, 1998, on a pro forma basis
after giving effect to the 1998 Acquisitions and the Prior Offering and the
application of the net proceeds thereof, (i) the Company and the Guarantors
would have had $4.3 million in aggregate principal amount of indebtedness
outstanding which would have ranked senior in right of payment to the Notes
($2.9 million of which would have been secured) and no indebtedness pari passu
to the Notes or the Guarantees, as the case may be, (ii) the Company would also
have had $3.7 million of indebtedness senior to, and $5.5 million of
indebtedness subordinated to, the Notes and (iii) the Guarantors would also
have had $197.7 million of floor plan indebtedness and $3.2 million of
additional indebtedness which would have ranked senior in right of payment to
the Guarantees ($3.0 million of which would have been secured).
The Notes will not be secured by any assets of the Company or the
Guarantors. The indebtedness under the Ford Credit Facilities is secured by (i)
a pledge by the Company of all the capital stock, membership interests and
partnership interests of all of the Company's subsidiaries, (ii) guarantees by
all of the Company's subsidiaries that are, in turn, secured by a lien on all
of the assets of such subsidiaries (with the exception of the liens on the
assets of the Company's Ford dealership subsidiaries, which liens secure only
such Ford subsidiaries' obligations under the Floor Plan Facility) and (iii) a
lien on all of the Company's other assets, except for real estate owned by the
Company or its subsidiaries. In the event of a default on the Notes or a
bankruptcy, liquidation or reorganization of the Company, such assets will be
available to satisfy the obligations with respect to the indebtedness secured
thereby before any payment therefrom could be made on the Notes. In addition,
the Ford Credit Facilities are partially secured by a pledge of shares of
Speedway Motorsports, Inc. ("Speedway Motorsports") common stock owned by Sonic
Financial Corporation ("Sonic Financial"), a corporation controlled by Bruton
Smith. See "Certain Transactions -- The Smith Guarantees and Pledges."
Upon a Change of Control, the Company is required to offer to repurchase
all outstanding Notes at 101% of the principal amount thereof plus accrued and
unpaid interest to the repurchase date. However, there can be no assurance that
sufficient funds will be available at the time of any Change of Control to make
any required repurchases of Notes tendered. Moreover, the Revolving Facility
provides that certain change of control events with respect to the Company
would constitute a default thereunder. In such circumstances, the subordination
provisions in the Indenture would likely restrict payments to holders of Notes.
There can be no assurance that the Company will be able to obtain appropriate
consents under the Revolving Facility to enable it to fulfill such repurchase
obligations. Notwithstanding these provisions, the Company could enter into
certain transactions, including certain recapitalizations, that would not
constitute a Change of Control but would increase the amount of debt
outstanding at such time. See "Description of the New Notes -- Purchase of
Notes Upon a Change of Control."
DEPENDENCE UPON OPERATIONS OF SUBSIDIARIES; POSSIBLE INVALIDITY OF GUARANTEES;
POTENTIAL RELEASE OF GUARANTEES; FRAUDULENT CONVEYANCE
The Notes are the obligations of the Company. As of June 30, 1998,
substantially all of the consolidated assets of the Company were held by the
Guarantors and substantially all of the Company's cash flow and net income were
generated by the Guarantors. Therefore, the Company's ability to make interest
and principal payments when due to holders of the Notes is dependent, in part,
upon the receipt of sufficient funds from its subsidiaries.
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The Company's obligations under the Notes will be guaranteed on a senior
subordinated basis by the Guarantors. To the extent that a court were to find,
pursuant to federal or state fraudulent transfer laws or otherwise, that (i)
the Guarantees were incurred by the Guarantors with intent to hinder, delay or
defraud any present or future creditor or the Guarantors contemplated
insolvency with a design to prefer one or more creditors to the exclusion in
whole or in part of others; or (ii) a Guarantor did not receive fair
consideration or reasonably equivalent value for issuing its Guarantee and the
Guarantor (a) was insolvent, (b) was rendered insolvent by reason of the
issuance of the Guarantee, (c) was engaged or about to engage in a business or
transaction for which the remaining assets of the Guarantor constituted
unreasonably small capital to carry on its business, (d) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as
they matured or (e) was a defendant in an action for money damages or had a
judgment for money damages docketed against it (in either case, if after final
judgment, the judgment remained unsatisfied), the court could avoid or
subordinate the Guarantee in favor of the Guarantor's other creditors. Among
other things, a legal challenge of a Guarantee on fraudulent conveyance grounds
may focus on the benefits, if any, realized by the Guarantor as a result of the
issuance by the Company of the Notes. The measure of insolvency of the
Guarantor for purposes of the foregoing will vary depending upon the law of the
relevant jurisdiction. Generally, however, a company would be considered
insolvent for purposes of the foregoing if the sum of the company's debts is
greater than all of the company's property at a fair valuation, or if the
present fair saleable value of the company's assets is less than the amount
that will be required to pay its probable liability on its existing debts as
they become absolute and mature. There can be no assurance as to what standards
a court would apply to determine whether a Guarantor was solvent at the
relevant time. To the extent that a Guarantee were to be avoided as a
fraudulent conveyance or held unenforceable for any other reason, holders of
the Notes would cease to have any claim in respect of such Guarantor and would
be creditors solely of the Company and of the Guarantors whose Guarantees had
not been avoided or held unenforceable. In such event, the claims of the
holders of the Notes against the issuer of an invalid Guarantee would be
subject to the prior payment in full of all liabilities of such Guarantor
thereunder. There can be no assurance that, after providing for all prior
claims, there would be sufficient assets to satisfy the claims of the holders
of the Notes relating to the voided Guarantees.
Based upon financial and other information currently available to it, the
Company believes that the Notes and the Guarantees are being incurred for
proper purposes and in good faith and that each of the Company and the
Guarantors is solvent and will continue to be solvent after issuing the Notes
or the Guarantees, as the case may be, will have sufficient capital for
carrying on its business after such issuance and will be able to pay its debts
as they mature. See "Description of the New Notes," "Description of Certain
Other Indebtedness" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Guarantees may be released under certain circumstances upon resale,
exchange or transfer by the Company of the stock of the related Guarantor or
all or substantially all of the assets of such Guarantor to a non-affiliate.
See "Description of the New Notes -- Certain Covenants -- Limitation on
Issuances of Guarantees of and Pledges for Indebtedness."
In addition, the Company anticipates that some of the net proceeds of the
Offering will be applied to repay a portion of the indebtedness incurred by it
under the Revolving Facility, which was incurred to finance acquisitions by the
Company and its subsidiaries, and under the Floor Plan Facility. To the extent
that a court were to find that the issuance of the Notes violated federal or
state fraudulent transfer or conveyance laws, in the manner described above
with respect to the Guarantors, the court could avoid or modify the Company's
obligations to holders of the Notes in favor of the Company's other creditors.
To the extent that the issuance of the Notes were to be avoided as a fraudulent
conveyance or held unenforceable for any other reason, holders of the Notes
would cease to have any claim in respect of the Company and would be creditors
solely of the Guarantors whose Guarantees had not been avoided or held
unenforceable. In such event, the claims of the holders of the Notes against
the Company would be subject to the prior payment in full of all liabilities of
the Company. There can be no assurance that, after providing for all prior
claims, there would be sufficient assets to satisfy the claims of the holders
of the Notes.
DEPENDENCE ON AUTOMOBILE MANUFACTURERS
Each of the Company's dealerships operates pursuant to a franchise
agreement between the applicable automobile manufacturer (or authorized
distributor thereof) (the "Manufacturer") and the subsidiary of the Company
that operates such dealership. The Company is dependent to a significant extent
on its relationships with such Manufacturers.
Vehicles manufactured by Ford Motor Company ("Ford"), Chrysler Corporation
("Chrysler"), Toyota Motor Sales (U.S.A.) ("Toyota") and General Motors
Corporation ("GM") accounted for approximately 42.4%, 18.6%, 10.9% and 6.7%,
respectively, of the Company's 1997 new vehicle revenues on a pro forma basis.
No other Manufacturer accounted for more than 5% of the pro forma new vehicle
sales of the Company during 1997. See "Business -- New Vehicle Sales," and " --
Relationships with Manufacturers." Accordingly, a significant decline in the
sale of Ford, Chrysler, Toyota or GM new cars could have a
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material adverse effect on the Company. Manufacturers exercise a great degree
of control over the operations of the Company's dealerships. Each of the
franchise agreements provides for termination or non-renewal for a variety of
causes, including any unapproved change of ownership or management and other
material breaches of the franchise agreements. The Company has no reason to
believe that it will not be able to renew all of its existing franchise
agreements upon expiration, but there can be no assurance that any of such
agreements will be renewed or that the terms and conditions of such renewals
will be favorable to the Company. If a Manufacturer terminates or declines to
renew one or more of the Company's significant franchise agreements, such
action could have a material adverse effect on the Company and its business.
Actions taken by Manufacturers to exploit their superior bargaining position in
negotiating the terms of such renewals or otherwise could also have a material
adverse effect on the Company. See "Business -- Relationships with
Manufacturers."
The Company also depends on the Manufacturers to provide it with a
desirable mix of popular new vehicles that produce the highest profit margins
and which may be the most difficult to obtain from the Manufacturers. If the
Company is unable to obtain a sufficient allocation of the most popular
vehicles, its profitability may be materially adversely affected. In some
instances, in order to obtain additional allocations of these vehicles, the
Company purchases a larger number of less desirable models than it would
otherwise purchase and its profitability may be materially adversely affected
thereby. The Company's dealerships depend on the Manufacturers for certain
sales incentives and other programs that are intended to promote dealership
sales or support dealership profitability. Manufacturers have historically made
many changes to their incentive programs during each year. A reduction or
discontinuation of a Manufacturer's incentive programs may materially adversely
affect the profitability of the Company.
The success of each of the Company's dealerships depends to a great extent
on the financial condition, marketing, vehicle design, production capabilities
and management of the Manufacturers which the Company represents. Events such
as strikes and other labor actions by unions, or negative publicity concerning
a particular Manufacturer or vehicle model, may materially and adversely affect
the Company. Similarly, the delivery of vehicles from Manufacturers later than
scheduled, which may occur particularly during periods when new products are
being introduced, can lead to reduced sales. Although, the Company has
attempted to lessen its dependence on any one Manufacturer by establishing
dealer relationships with a number of different domestic and foreign automobile
Manufacturers, adverse conditions affecting Manufacturers, and Ford, Chrysler,
Toyota or GM in particular, could have a material adverse effect on the
Company. For instance, workers at a Chrysler engine plant went on strike in
April 1997 for 29 days. The strike by the United Auto Workers caused Chrysler's
vehicle production to drop during the Spring of 1997, especially for production
of its most popular truck and van models. This strike materially affected the
Company due to Chrysler's inability to provide the Company with a sufficient
supply of new vehicles and parts during such period. In the event of another
such strike, the Company may need to purchase inventory from other automobile
dealers at prices higher than it would be required to pay to the affected
Manufacturer in order to carry an adequate level and mix of inventory.
Consequently, such events could materially adversely affect the financial
results of the Company. In June 1998, the United Auto Workers went on strike at
two GM facilities in Flint, Michigan. The strike lasted 53 days, causing 27 GM
manufacturing facilities to shut down during the strike and severely affecting
production of GM vehicles during the strike period. See "Business -- New
Vehicle Sales" and " -- Relationship with Manufacturers."
Many Manufacturers attempt to measure customers' satisfaction with their
sales and warranty service experiences through systems which vary from
Manufacturer to Manufacturer but which are generally known as CSI. These
Manufacturers may use a dealership's CSI scores as a factor in evaluating
applications for additional dealership acquisitions and other matters such as
vehicle inventory allocations. The components of CSI have been modified from
time to time in the past, and there is no assurance that such components will
not be further modified or replaced by different systems in the future. To
date, the Company has not been adversely affected by these standards and has
not been denied approval of any acquisition based on low CSI scores, except for
Jaguar's refusal to approve the acquisition of the Chattanooga Jaguar franchise
comprising a portion of the 1997 Acquisitions which Jaguar claimed was in part
due to CSI scores below the level expected of Jaguar dealership franchises.
However, there can be no assurance that the Company will be able to comply with
such standards in the future. Failure of the Company's dealerships to comply
with the standards imposed by Manufacturers at any given time may have a
material adverse effect on the Company.
The Company must also obtain approvals by the applicable Manufacturer for
any of its acquisitions. See " -- Risks Associated with Acquisitions."
MATURE INDUSTRY; CYCLICAL AND LOCAL NATURE OF AUTOMOBILE SALES
The United States automobile dealership industry generally is considered a
mature industry in which minimal growth is expected in unit sales of new
vehicles. As a consequence, growth in the Company's revenues and earnings is
likely to be significantly affected by the Company's success in acquiring and
integrating dealerships and the pace and size of such acquisitions. See " --
Risks Associated with Acquisitions" and "Business -- Growth Strategy."
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The automobile industry is cyclical and historically has experienced
periodic downturns characterized by oversupply and weak demand. Many factors
affect the industry, including general economic conditions and consumer
confidence, the level of discretionary personal income, interest rates and
credit availability. For the year ended December 31, 1997, industry retail
sales increased 0.1% as a result of retail car sales declines of 2.7% offset by
retail truck sales gains of 3.8% from the same period in 1996. As of May 31,
1998, industry retail sales for the year to date increased 1.1% as a result of
retail car sales declines of 3.2% offset by retail truck sale gains of 6.4%
from the same period in 1997. Future recessions may have a material adverse
effect on the Company's business.
Local economic, competitive and other conditions also affect the
performance of dealerships. The Company's dealerships currently are located in
the Charlotte, Chattanooga, Daytona Beach, Nashville, Tampa/Clearwater,
Houston, Atlanta, Columbus, Greenville/Spartanburg and Montgomery markets.
While the Company intends to pursue acquisitions outside of these markets, the
Company expects that the majority of its operations will continue to be
concentrated in these areas for the foreseeable future. As a result, the
Company's results of operations will depend substantially on general economic
conditions and consumer spending habits in the Southeast and, to a lesser
extent, in the Houston and Columbus markets, as well as various other factors,
such as tax rates and state and local regulations, specific to North Carolina,
Tennessee, Florida, Texas, Georgia, Ohio, South Carolina and Alabama. There can
be no assurance that the Company will be able to expand geographically, or that
any such expansion will adequately insulate it from the adverse effects of
local or regional economic conditions. See "Business -- Strategy -- Acquire
Dealerships."
COMPETITION
Automobile retailing is a highly competitive business with over 22,000
franchised automobile dealerships in the United States at the beginning of
1996. The Company's competition includes franchised automobile dealerships
selling the same or similar makes of new and used vehicles offered by the
Company in the same markets as the Company and sometimes at lower prices than
those of the Company. These dealer competitors may be larger and have greater
financial and marketing resources than the Company. Other competitors include
other franchised dealers, private market buyers and sellers of used vehicles,
used vehicle dealers, service center chains and independent service and repair
shops. Gross profit margins on sales of new vehicles have been declining since
1986. The used car market faces increasing competition from non-traditional
outlets such as used-vehicle "superstores," which use sales techniques such as
one price shopping, and the Internet. Several groups have begun to establish
nationwide networks of used vehicle superstores. In many of the markets where
the Company has significant operations, used vehicle superstores operate in
competition with the Company. "No negotiation" sales methods are also being
tried for new cars by at least one of these superstores and by dealers for
Saturn and other dealerships. Some recent market entrants may be capable of
operating on smaller gross margins compared to the Company, and may have
greater financial, marketing and personnel resources than the Company. In
addition, Ford has announced that it is entering into joint ventures to acquire
dealerships in various cities in the United States and other manufacturers may
also directly enter the retail market in the future, which could have a
material adverse effect on the Company. The increased popularity of short-term
vehicle leasing also has resulted, as these leases expire, in a large increase
in the number of late model vehicles available in the market, which puts added
pressure on margins. As the Company seeks to acquire dealerships in new
markets, it may face increasingly significant competition (including from other
large dealer groups and dealer groups that have publicly-traded equity) as it
strives to gain market share through acquisitions or otherwise.
The Company's franchise agreements do not grant the Company the exclusive
right to sell a Manufacturer's product within a given geographic area. The
Company could be materially adversely affected if any of its Manufacturers
award franchises to others in the same markets where the Company is operating.
A similar adverse affect could occur if existing competing franchised dealers
increase their market share in the Company's markets. The Company's gross
margins may decline over time as it expands into markets where it does not have
a leading position. These and other competitive pressures could materially
adversely affect the Company's results of operations. See "Business --
Competition."
OPERATING CONDITION OF ACQUIRED BUSINESSES
Although the Company has conducted what it believes to be a prudent level
of investigation regarding the operating condition of the businesses to be
purchased in the 1998 Acquisitions in light of the circumstances of each
transaction, certain unavoidable levels of risk remain regarding the actual
operating condition of these businesses. Until the Company actually assumes
operating control of such assets, it will not be able to ascertain their actual
value and, therefore, will be unable to ascertain whether the price paid for
any of the 1998 Acquisitions represented a fair valuation. The same risk
regarding the actual operating condition of businesses to be acquired will also
apply to future acquisitions by the Company.
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RISKS OF CONSOLIDATING OPERATIONS AS A RESULT OF ACQUISITIONS
In connection with the 1998 Acquisitions, Sonic acquired or is acquiring
17 dealerships. Each of these dealerships has been operated and managed as a
separate independent entity to date, and the Company's future operating results
will depend on its ability to integrate the operations of these businesses and
manage the combined enterprise. There can be no assurance that the management
group will be able to effectively and profitably integrate in a timely manner
any of the dealerships included in the 1998 Acquisitions or any future
acquisitions, or to manage the combined entity without substantial costs,
delays or other operational or financial problems. The inability of the Company
to do so could have a material adverse effect on the Company's business,
financial condition and results of operations.
RISKS ASSOCIATED WITH ACQUISITIONS
The retail automobile industry is considered a mature industry in which
minimal growth is expected in unit sales of new vehicles. Accordingly, the
Company's future growth will depend in large part on its ability to acquire
additional dealerships as well as on its ability to manage expansion, control
costs in its operations and consolidate dealership acquisitions, including the
1998 Acquisitions, into existing operations. In pursuing a strategy of
acquiring other dealerships, including the 1998 Acquisitions, the Company faces
risks commonly encountered with growth through acquisitions. These risks
include, but are not limited to, incurring significantly higher capital
expenditures and operating expenses, failing to assimilate the operations and
personnel of the acquired dealerships, disrupting the Company's ongoing
business, dissipating the Company's limited management resources, failing to
maintain uniform standards, controls and policies, impairing relationships with
employees and customers as a result of changes in management and causing
increased expenses for accounting and computer systems, as well as integration
difficulties. Failure to retain qualified management personnel at any acquired
dealership may increase the risk associated with integrating such acquired
dealership. Installing new computer systems has in the past disrupted existing
operations as management and salespersons adjust to new technologies. In
addition, as contracts with existing suppliers of the Company's computer
systems expire, the Company's strategy may be to install new systems at its
existing dealerships. The Company expects that it will take approximately six
months to fully integrate an acquired dealership into the Company's operations
and realize the full benefit of the Company's strategies and systems. There can
be no assurance that the Company will be successful in overcoming these risks
or any other problems encountered with such acquisitions, including in
connection with the 1998 Acquisitions. Acquisitions may also result in
significant goodwill and other intangible assets that are amortized in future
years and reduce future stated earnings. See "The 1998 Acquisitions,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Strategy -- Acquire Dealerships."
Although there are many potential acquisition candidates that fit the
Company's acquisition criteria, there can be no assurance that the Company will
be able to consummate any such transactions in the future or identify those
candidates that would result in the most successful combinations, or that
future acquisitions will be able to be consummated at acceptable prices and
terms. In addition, increased competition for acquisition candidates could
result in fewer acquisition opportunities for the Company and higher
acquisition prices. The magnitude, timing and nature of future acquisitions
will depend upon various factors, including the availability of suitable
acquisition candidates, competition with other dealer groups for suitable
acquisitions, the negotiation of acceptable terms, the Company's financial
capabilities, the availability of skilled employees to manage the acquired
companies and general economic and business conditions.
In addition, the Company's future growth as a result of its acquisition of
automobile dealerships will depend on its ability to obtain the requisite
Manufacturer approvals. There can be no assurance that it will be able to
obtain such consents in the future. See " -- Manufacturers' Restrictions on
Acquisitions" and "Business -- Relationships with Manufacturers."
In certain cases, the Company may be required to file applications and
obtain clearances under applicable federal antitrust laws before consummation
of an acquisition. These regulatory requirements may restrict or delay the
Company's acquisitions, and may increase the cost of completing such
transactions.
LIMITATIONS ON FINANCIAL RESOURCES AVAILABLE FOR ACQUISITIONS; POSSIBLE
INABILITY TO REFINANCE EXISTING DEBT
The Company intends to finance acquisitions with cash on hand, through
issuances of equity or debt securities and through borrowings under credit
arrangements. There is no assurance that the Company will be able to obtain
additional debt or equity securities financing. Using cash to complete
acquisitions could substantially limit the Company's operating or financial
flexibility. Using stock to consummate acquisitions may be prohibited by the
Company's franchise agreements with Manufacturers. See " -- Stock
Ownership/Issuance Limits; Limitation on Ability to Issue Additional Equity."
If the Company is unable to obtain financing on acceptable terms, the Company
may be required to reduce significantly the scope of its presently anticipated
expansion, which could materially adversely affect the Company's business. See
"The 1998 Acquisitions,"
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Strategy --
Acquire Dealerships."
In addition, the Company is dependent to a significant extent on its
ability to finance the purchase of inventory, which in the automotive retail
industry involves significant sums of money in the form of floor plan
financing. As of June 30, 1998, the Company had approximately $149.7 million of
floor plan indebtedness outstanding, all of which is under the Floor Plan
Facility. Substantially all the assets of the Company's dealerships are pledged
to secure such indebtedness, which may impede the Company's ability to borrow
from other sources. Ford Motor Credit is associated with Ford. Consequently,
deterioration of the Company's relationship with Ford could adversely affect
its relationship with Ford Motor Credit and vice-versa. In addition, the
Company must obtain new floor plan financing or obtain consents to assume such
financing in connection with its acquisition of dealerships. See " --
Dependence on Automobile Manufacturers."
Bruton Smith initially guaranteed the obligations of the Company under the
Revolving Facility and such obligations were further secured with a pledge of
shares of common stock of Speedway Motorsports owned by Sonic Financial, a
corporation controlled by Mr. Smith, and having an estimated value at the time
of pledge of approximately $50.0 million (the "Revolving Pledge"). In December
1997, upon the increase of the borrowing limit under the Revolving Facility to
the maximum loan commitment of $75.0 million, Mr. Smith's personal guarantee of
the Company's obligations under the Revolving Facility was released, although
the Revolving Pledge remained in place and Mr. Smith was required to lend $5.5
million (the "Subordinated Smith Loan") to the Company to increase its
capitalization. The Subordinated Smith Loan was required by Ford Motor Credit
as a condition to its agreement to increase the borrowing limit under the
Revolving Facility because the net offering proceeds to the Company from its
IPO in November 1997 were significantly less than expected by the Company and
Ford Motor Credit. For further discussion of the Revolving Pledge and the
Subordinated Smith Loan, see "Certain Transactions -- The Smith Guarantees,
Pledges and Subordinated Loan." No assurance can be given that Mr. Smith or
Sonic Financial will provide similar or additional security or capitalization
for the benefit of the Company in connection with future refinancings of the
Company's debt or future additions or increases in financing sources of the
Company.
STOCK OWNERSHIP/ISSUANCE LIMITS; LIMITATION ON ABILITY TO ISSUE ADDITIONAL
EQUITY
Standard automobile franchise agreements prohibit transfers of any
ownership interests of a dealership and its parent, such as Sonic, and,
therefore, often do not by their terms accommodate public trading of the
capital stock of a dealership or its parent. All of the Manufacturers of which
Company subsidiaries are franchisees, except for Jaguar, have agreed to permit
trading in the Class A Common Stock. A number of Manufacturers impose
restrictions upon the transferability of the Class A Common Stock. Ford may
cause the Company to sell or resign from one or more of its Ford franchises if
any person or entity (other than the current holders of the Company's Class B
Common Stock and their lineal descendants and affiliates (collectively, the
"Smith Group")) acquires 15% or more of the Company's voting securities.
Likewise, General Motors, Toyota and Nissan Motor Corporation In U.S.A.
("Infiniti") may force the sale of their respective franchises if 20% of more
of the Company's voting securities are so acquired. American Honda Co., Inc.
("Honda") may force the sale of the Company's Honda franchise if any person or
entity, excluding members of the Smith Group, acquires 5% of the Common Stock
(10% if such entity is an institutional investor), and Honda deems such person
or entity to be unsatisfactory. Volkswagen of America, Inc. ("Volkswagen")
approved of the public sale of only 25% of the voting control of the Company
and requires prior approval of any change in control or management of the
Company that would affect the Company's control or management of its Volkswagen
franchise subsidiaries. Chrysler approved of the public sale of only 50% of the
Common Stock and requires prior approval of any future sales that would result
in a change in voting or managerial control of the Company. See "Business --
Relationships with Manufacturers." In a similar manner, the Company's lending
arrangements require that voting control over the Company be maintained by the
Smith Group. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources." Any transfer of
shares of the Company's Common Stock, including a transfer by members of the
Smith Group, will be outside the control of the Company and, if such transfer
results in a change in control of the Company, could result in the termination
or non-renewal of one or more of its franchise agreements and in a default
under its credit arrangements. Moreover, these issuance limitations may impede
the Company's ability to raise capital through additional equity offerings or
to issue Common Stock as consideration for, and therefore, to consummate,
future acquisitions. Such restrictions also may prevent or deter prospective
acquirors from acquiring control of the Company and, therefore, may adversely
impact the Company's equity value. See " -- Limitations on Financial Resources
Available for Acquisitions; Possible Inability to Refinance Existing Debt."
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MANUFACTURERS' RESTRICTIONS ON ACQUISITIONS
The Company is required to obtain the consent of the applicable
Manufacturer prior to the acquisition of any additional dealership franchises.
There can be no assurance that Manufacturers will grant such approvals. In the
course of acquiring Jaguar franchises associated with dealerships in
Chattanooga, Tennessee and Greenville, South Carolina, Jaguar declined to
consent to the Company's proposed acquisitions of those franchises.
Subsequently, the Company agreed with Jaguar not to acquire any Jaguar
franchise until August 3, 2001. See " -- No Consent from Jaguar." Obtaining the
consent of the Manufacturers for acquisitions of dealerships could also take a
significant amount of time. Obtaining the approvals of the Manufacturers for
the 1997 Acquisitions and the 1998 Acquisitions, other than Jaguar, which was
not obtained, took approximately five months. Although no assurances can be
given, the Company believes that Manufacturer approvals of subsequent
acquisitions from Manufacturers with which the Company has previously completed
applications and agreements may take less time. Excluding Jaguar, the Company
has obtained Manufacturer consent to all of the 1998 Acquisitions other than
from Honda in the Economy Honda Acquisition. The Company currently expects to
receive the consent of Honda to the Economy Honda Acquisition prior to the
closing of this acquisition, although there can be no assurance that such
consent will be obtained. See " -- No Consent from Honda." If the Company
experiences delays in obtaining, or fails to obtain, approvals of the
Manufacturers for acquisitions of dealerships, the Company's growth strategy
could be materially adversely affected. In determining whether to approve an
acquisition, the Manufacturers may consider many factors, including the moral
character, business experience, financial condition, ownership structure and
CSI scores of the Company and its management. In addition, under an applicable
franchise agreement or under state law a Manufacturer may have a right of first
refusal to acquire a dealership in the event the Company seeks to acquire a
dealership franchise.
In addition, a Manufacturer may limit the number of such Manufacturers'
dealerships that may be owned by the Company or the number that may be owned in
a particular geographic area. For example, Ford currently limits the Company to
no more than the lesser of (i) 15 Ford and 15 Lincoln Mercury dealerships or
(ii) that number of Ford and Lincoln Mercury dealerships accounting for 2% of
the preceding year's retail sales of those brands in the United States. It also
limits the Company to owning only one Ford dealership in any market area, as
defined by Ford, having three or less Ford dealerships in it and no more than
25% of the Ford dealerships in a market area having four or more Ford
dealerships. Chrysler has asked the Company to defer any further acquisitions
of Chrysler or Chrysler division dealerships until it has established a proven
performance record with the Chrysler dealerships it owns. BMW has made a
similar request. Moreover, Chrysler has previously announced its general policy
of limiting ownership to ten Chrysler dealerships in the United States, six
Chrysler dealerships in the same sales zone, as determined by Chrysler, and two
dealerships in the same market (but no more than one like vehicle line brand in
the same market). Toyota currently limits the number of dealerships which may
be owned by any one group to seven Toyota and three Lexus dealerships
nationally and restricts the number of dealerships that may be owned to (i) the
greater of one dealership, or 20% of the Toyota dealer count in a "Metro"
market (as defined by Toyota), (ii) the lesser of five dealerships or 5% of the
Toyota dealerships in any Toyota region (currently 12 geographic regions), and
(iii) two Lexus dealerships in any one of the four Lexus geographic areas.
Toyota further requires that at least nine months elapse between acquisitions.
Similarly, it is currently the policy of Honda to restrict any company from
holding more than seven Honda or more than three Acura franchises nationally
and to restrict the number of franchises to (i) one Honda dealership in a
"Metro" market (a metropolitan market represented by two or more Honda dealers)
with two to 10 Honda dealership points, (ii) two Honda dealerships in a Metro
market with 11 to 20 Honda dealership points, (iii) three Honda dealerships in
a Metro market with 21 or more Honda dealership points, (iv) no more than 4% of
the Honda dealerships in any one of the 10 Honda geographic zones, (v) one
Acura dealership in a Metro market (a metropolitan market with two or more
Acura dealership points), and (vi) two Acura dealerships in any one of the six
Acura geographic zones. Toyota and Honda also prohibit ownership of contiguous
dealerships and the coupling of a franchise with any other brand without their
consent. The Economy Honda Acquisition would violate Honda's contiguous
dealership policy since it would result in the Company having two contiguous
dealership points in Chattanooga. See "No Consent from Honda." GM has limited
the number of GM dealerships that the Company may acquire during the next 12
months to five additional GM dealership locations, which number may be
increased on a case-by-case basis. In addition, GM limits the maximum number of
GM dealerships that the Company may acquire to 50% of the GM dealerships, by
franchise line, in a GM-defined geographic market area having multiple GM
dealers.
As a condition to granting their consent to the 1997 Acquisitions, a
number of Manufacturers have also imposed certain other restrictions on the
Company. In addition to the restrictions under " -- Stock Ownership/Issuance
Limits; Limitation on Ability to Issue Additional Equity" above, these
restrictions principally consist of restrictions on (i) certain material
changes in the Company or extraordinary corporate transactions such as a
merger, sale of a material amount of assets or change in the Board of Directors
or management of the Company which could have a material adverse effect on the
Manufacturer's image or reputation or could be materially incompatible with the
Manufacturer's interests; (ii) the removal of a dealership
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general manager without the consent of the Manufacturer; and (iii) the use of
dealership facilities to sell or service new vehicles of other manufacturers.
If the Company is unable to comply with these restrictions, the Company
generally must (i) sell the assets of the dealerships to the Manufacturer or to
a third party acceptable to the Manufacturer, or (ii) terminate the dealership
agreements with the Manufacturer. Other manufacturers may impose other and more
stringent restrictions in connection with future acquisitions.
The Company will own, after giving effect to the 1998 Acquisitions, nine
Chrysler franchises, seven Ford franchises, four BMW franchises, four GM
franchises, three Toyota franchises, three Volkswagen franchises, three KIA
franchises, three Mercury franchises, two Honda franchises, two Lincoln
franchises, two Hyundai franchises, two Mitsubishi franchises, and one
franchise each of Acura, Infiniti, Isuzu, Mercedes and Subaru. See " -- No
Consent from Honda" and " -- No Consent from Jaguar."
NO CONSENT FROM HONDA
The Company has requested the consent of Honda to the acquisition of a
Honda dealership located in Chattanooga, Tennessee (the "Economy Honda
Dealership") by the Company relating to the Economy Honda Acquisition. Honda
has informed the Company that its acquisition of the Economy Honda Dealership
would violate Honda's policy against the ownership of contiguous dealerships,
which the Company has agreed to in its agreement with Honda, since the Company
already owns the Cleveland Village Honda dealership located in the Chattanooga
market. Therefore, Honda has further informed the Company that its approval of
the Company's acquisition of the Economy Honda Dealership is contingent upon
the Company divesting its ownership of the Cleveland Village Honda dealership
prior to such acquisition. The Company is currently negotiating with potential
buyers for the sale of the Cleveland Village Honda dealership. There can be no
assurance that the Company will be able to sell the Cleveland Village Honda
dealership or that the approval of Honda to the Economy Honda Acquisition will
be obtained. On a pro forma basis, the Cleveland Village Honda dealership
accounted for, and the Economy Honda Dealership would have accounted for,
approximately 1.9% and 2.7% of the Company's 1997 revenues and approximately
2.0% and 3.2% of gross profits, respectively.
NO CONSENT FROM JAGUAR
In the course of acquiring Jaguar franchises in Chattanooga, Tennessee and
Greenville, South Carolina, Jaguar declined to consent to the Company's
proposed acquisitions of these franchises. The Company is operating the
Chattanooga Jaguar franchise pursuant to a Service and Parts Agreement with
Jaguar and is providing management services to the present owners of the
Greenville Jaguar franchise pursuant to a Services Agreement. Both of these
arrangements will terminate upon the respective sales of these franchises to
third parties approved by Jaguar in the future. In settling legal actions
brought against Jaguar by the seller of the Chattanooga Jaguar franchise, the
Company agreed with Jaguar not to acquire any Jaguar franchise until August 3,
2001. The Chattanooga and Greenville Jaguar franchises, individually and in the
aggregate, would have accounted for less than 1% of the Company's 1997 revenues
and gross profits on a pro forma basis.
POTENTIAL CONFLICTS OF INTEREST
Bruton Smith, the Chairman and Chief Executive Officer of the Company,
will continue to serve as the Chairman and Chief Executive Officer of Speedway
Motorsports. Accordingly, the Company will compete with Speedway Motorsports
for the management time of Mr. Smith. Under his employment agreement with the
Company, Mr. Smith is required to devote approximately 50% of his business time
to the affairs of the Company. The remainder of his business time may be
devoted to other entities including Speedway Motorsports.
The Company has in the past and will likely in the future enter into
transactions with entities controlled by either Mr. Smith or Nelson Bowers or
other affiliates of the Company, including transactions with MMRT, a real
estate investment trust for which Mr. Smith serves as chairman of MMRT's board
of trustees and is presently its largest shareholder. The Company has recently
entered into certain transactions with MMRT. See "Prospectus Summary -- Recent
Developments" and "Certain Transactions -- Transactions with MMRT." The Company
believes that all of its existing arrangements are favorable to the Company and
were entered into on terms that, taken as a whole, reflect arm's-length
negotiations, although certain lease provisions included in such transactions
may be at below-market rates. Since no independent appraisals evaluating these
business transactions were obtained, there can be no assurance that such
transactions are on terms no less favorable than could have been obtained from
unaffiliated third parties. Potential conflicts of interest could also arise in
the future between the Company and these affiliated parties in connection with
the enforcement, amendment or termination of these arrangements. See "Certain
Transactions." The Company anticipates renegotiating its leases with all
related parties at lease expiration at fair market rentals, which may be higher
than current rents. For further discussion of these related party leases, see
"Certain Transactions -- Certain Dealership Leases."
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In addition to his interest and responsibilities with the Company, Nelson
Bowers has ownership interests in several non-Company entities, including a
Toyota dealership in Cleveland, Tennessee, an auto body shop in Chattanooga,
Tennessee, and an used-car auction house. These enterprises are involved in
businesses that are related to, and that compete with, the businesses of the
Company. Pursuant to his employment agreement, Mr. Bowers is not permitted to
participate actively in the operation of those businesses and is only permitted
to maintain a passive investment in these enterprises.
Under the General Corporation Law of Delaware generally, a corporate
insider is precluded from acting on a business opportunity in his individual
capacity if that opportunity is one which the corporation is financially able
to undertake, is in the line of the corporation's business, is of practical
advantage to the corporation and is one in which the corporation has an
interest or reasonable expectancy. Accordingly, corporate insiders are
generally required to engage in new business opportunities of the Company only
through the Company unless a majority of the Company's disinterested directors
decide under the standards discussed above that it is not in the best interest
of the Company to pursue such opportunities.
The Company's Amended and Restated Certificate of Incorporation (the
"Certificate") contains provisions providing that transactions between the
Company and its affiliates must be no less favorable to the Company than would
be available in corporate transactions in arm's-length dealing with an
unrelated third party. Moreover, any such transactions involving aggregate
payments in excess of $500,000 must be approved by a majority of the Company's
directors and a majority of the Company's independent directors. Otherwise, the
Company must obtain an opinion as to the financial fairness of the transaction
to be issued by an investment banking or appraisal firm of national standing.
In addition, the terms of the Ford Credit Facilities restrict, and the terms of
the Indenture will restrict, certain transactions with affiliates. See
"Description of the New Notes -- Certain Covenants -- Limitation on
Transactions with Affiliates."
LACK OF MAJORITY OF INDEPENDENT DIRECTORS
Independent directors do not constitute a majority of the Board, and the
Company's Board may not have a majority of independent directors in the future.
In the absence of a majority of independent directors, the Company's executive
officers, who also are principal stockholders and directors, could establish
policies and enter into transactions without independent review and approval
thereof, subject to certain restrictions under the Certificate. These and other
transactions could present the potential for a conflict of interest between the
Company and its minority stockholders and the controlling officers,
stockholders or directors. See "Management."
DEPENDENCE ON KEY PERSONNEL AND LIMITED MANAGEMENT AND PERSONNEL RESOURCES
The Company's success depends to a significant degree upon the continued
contributions of its management team (particularly its senior management) and
service and sales personnel. Additionally, Manufacturer franchise agreements
require the prior approval of the applicable Manufacturer before any change is
made in franchise general managers. For instance, Volvo has required that
Nelson Bowers and Richard Dyer maintain a 20% interest in, and be the general
managers of, the Company's Volvo dealerships formerly owned by them.
Consequently, the loss of the services of one or more of these key employees
could have a material adverse effect on the Company. Although the Company has
employment agreements with Bruton Smith, Bryan Scott Smith, Dennis D.
Higginbotham, Nelson Bowers, Theodore M. Wright, O. Ken Marks, Jr. and Jeffrey
C. Rachor, the Company will not have employment agreements in place with other
key personnel. In addition, as the Company expands it may need to hire
additional managers and will likely be dependent on the senior management of
any businesses acquired. The market for qualified employees in the industry and
in the regions in which the Company operates, particularly for general managers
and sales and service personnel, is highly competitive and may subject the
Company to increased labor costs in periods of low unemployment. The loss of
the services of key employees or the inability to attract additional qualified
managers could have a material adverse effect on the Company. In addition, the
lack of qualified management or employees employed by the Company's potential
acquisition candidates may limit the Company's ability to consummate future
acquisitions. See "Business -- Strategy -- Acquire Dealerships," " --
Competition" and "Management."
SEASONALITY
The Company's business is seasonal, with a disproportionate amount of
revenues occurring in the second, third and fourth fiscal quarters. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
IMPORTED PRODUCT RESTRICTIONS AND FOREIGN TRADE RISKS
Certain motor vehicles retailed by the Company, as well as certain major
components of vehicles retailed by the Company, are of foreign origin.
Accordingly, the Company is subject to the import and export restrictions of
various jurisdictions and is dependent to some extent upon general economic
conditions in and political relations with a number of foreign countries,
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particularly Germany, Japan and Sweden. Additionally, fluctuations in currency
exchange rates may adversely affect the Company's sales of vehicles produced by
foreign manufacturers. Imports into the United States may also be adversely
affected by increased transportation costs and tariffs, quotas or duties.
ADVERSE EFFECT OF GOVERNMENTAL REGULATION; ENVIRONMENTAL REGULATION COMPLIANCE
COSTS
The Company is subject to a wide range of federal, state and local laws
and regulations, such as local licensing requirements, and consumer protection
laws. The violation of these laws and regulations can result in civil and
criminal penalties being levied against the Company or in a cease and desist
order against Company operations that are not in compliance. Future
acquisitions by the Company may also be subject to regulation, including
antitrust reviews. The Company believes that it complies in all material
respects with all laws and regulations applicable to its business, but future
regulations may be more stringent and require the Company to incur significant
additional costs.
The Company's facilities and operations are also subject to federal, state
and local laws and regulations relating to environmental protection and human
health and safety, including those governing wastewater discharges, air
emissions, the operation and removal of underground storage tanks, the use,
storage, treatment, transportation and disposal of solid and hazardous
materials and wastes and the remediation of contamination associated with such
disposal or release. Certain of these laws and regulations may impose joint and
several liability on certain statutory classes of persons for the costs of
investigation and/or remediation of contaminated properties, regardless of
fault or the legality of the original disposal. These persons include the
present or former owner or operator of a contaminated property and companies
that generated, disposed of or arranged for the disposal of hazardous
substances found at the property.
Past and present business operations of the Company subject to such laws
and regulations include the use, storage handling and contracting for recycling
or disposal of hazardous or toxic substances or wastes, including
environmentally sensitive materials such as motor oil, waste motor oil and
filters, transmission fluid, antifreeze, freon, waste paint and lacquer
thinner, batteries, solvents, lubricants, degreasing agents, gasoline and
diesel fuels. The Company is subject to other laws and regulations as a result
of the past or present existence of underground storage tanks at many of the
Company's properties. The Company, like many of its competitors, has incurred,
and will continue to incur, capital and operating expenditures and other costs
in complying with such laws and regulations. In addition, soil and groundwater
contamination exist at certain of the Company's properties, and there can be no
assurance that other properties have not been contaminated by any leakage from
underground storage tanks or by any spillage or other releases of hazardous or
toxic substances or wastes. In addition, in connection with the Company's
recent or expected acquisitions, the Company could become subject to new or
unforeseen environmental costs or liabilities, certain of which could be
material.
Certain laws and regulations, including those governing air emissions and
underground storage tanks, have been amended so as to require compliance with
new or more stringent standards as of future dates. The Company cannot predict
what other environmental legislation or regulations will be enacted in the
future, how existing or future laws or regulations will be administered or
interpreted or what environmental conditions may be found to exist in the
future. Compliance with new or more stringent laws or regulations, stricter
interpretation of existing laws or the future discovery of environmental
conditions may require additional expenditures by the Company, some of which
may be material. See "Business -- Governmental Regulations and Environmental
Matters."
CONCENTRATION OF VOTING POWER
The Common Stock is divided into two classes with different voting rights,
which allows for the maintenance of control of the Company by the holders of
the Class B Common Stock. As of September 15, 1998, the holders of Class B
Common Stock had approximately 90.7% of the combined voting power of the
outstanding Voting Stock, representing 55.6% of the outstanding shares of
Voting Stock. Consequently, holders of Class B Common Stock effectively have
the ability to elect all of the directors of the Company and to control all
other matters requiring the approval of the Company's stockholders. See
"Principal Stockholders."
YEAR 2000 COMPLIANCE
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 software failures and it has completed an
assessment of its own operations in this regard. The Company has determined
that its systems are currently Year 2000 compliant and that the costs
associated with making its systems Year 2000 compliant were immaterial.
However, many of the Company's lenders and suppliers, including the Company's
suppliers that provide finance and insurance products, may be impacted by Year
2000 complications. The Company is in the process of making inquiries to its
lenders and suppliers regarding their Year 2000 compliance efforts, and it is
reviewing the Year 2000 disclosures in documents filed
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with the Commission for those lenders and suppliers that are publicly-held
companies. The Company does not believe that failure of the Company's lenders
or suppliers to ensure that their computer systems are Year 2000 compliant will
have a material adverse impact on the Company's business, results of
operations, and financial condition, although no assurances can be given in
this regard. Furthermore, there can be no assurances that Year 2000
deficiencies on the part of dealerships to be acquired by the Company would not
have a material adverse impact on the Company's business, results of
operations, and financial condition.
The Company has not yet established a contingency plan in the event that
its expectations regarding Year 2000 problems are incorrect, but the Company
intends to create such a contingency plan within the next six months. At this
time, it is impossible to state with certainty whether Year 2000 computer
software or equipment failures on the part of the Company or third parties
involved with the Company will have a material adverse impact on the Company's
results of operations, liquidity and financial condition. However, based on the
Company's assessment of its own operations, the Company believes that it is
adequately prepared to deal with Year 2000 problems which may arise.
SIGNIFICANT MATERIALITY OF GOODWILL
On a pro forma basis, goodwill would have represented approximately 32.8%
and 128.6% of the Company's total assets and stockholders' equity,
respectively, as of June 30, 1998. Goodwill arises when an acquiror pays more
for a business than the fair value of the tangible and separately measurable
intangible net assets. Generally accepted accounting principles require that
this and all other intangible assets be amortized over the period benefited.
The Company determined that the period benefited by the goodwill will be no
less than 40 years. If the Company were not to separately recognize a material
intangible asset having a benefit period less than 40 years, or were not to
give effect to shorter benefit periods of factors giving rise to a material
portion of the goodwill, earnings reported in periods immediately following the
acquisition would be overstated. In later years, the Company would be burdened
by a continuing charge against earnings without the associated benefit to
income valued by management in arriving at the consideration paid for the
businesses. Earnings in later years also could be significantly affected if
management determined then that the remaining balance of goodwill was impaired.
The Company reviewed with its independent accountants all of the factors and
related future cash flows which it considered in arriving at the amount
incurred in the 1998 Acquisitions. The Company concluded that the anticipated
future cash flows associated with intangible assets recognized in the
acquisitions will continue indefinitely, and there is no persuasive evidence
that any material portion will dissipate over a period shorter than 40 years.
ABSENCE OF A PUBLIC MARKET FOR THE NOTES
The Notes are new securities for which there currently is no trading
market and there can be no assurance as to the liquidity of any market for the
Notes that may develop, the ability of holders of the Notes to sell their
Notes, or the prices at which holders of the Notes would be able to sell their
Notes. If such markets were to exist, the Notes could trade at prices higher or
lower than their initial purchase prices depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. Although the Initial Purchasers have informed the Company
that they currently intend to make a market in the Notes, the Initial
Purchasers are not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no assurance
as to the development or liquidity of any market for the Notes. The Notes are
eligible for trading in the PORTAL market. The Company does not intend to apply
for listing of the Notes, or if issued, the Exchange Notes on any securities
exchange or for quotation on the National Association of Securities Dealers
Automated Quotation System.
CONSEQUENCES OF FAILURE TO EXCHANGE
Untendered Old Notes that are not exchanged for New Notes pursuant to the
Exchange Offer will remain restricted securities. Old Notes will continue to be
subject to the following restrictions on transfer and limitation of rights: (i)
Old Notes may be resold only if registered pursuant to the Securities Act, if
an exemption from registration is available thereunder, or if neither such
registration nor such exemption is required by law, (ii) Old Notes shall bear a
legend restricting transfer in the absence of registration or an exemption
therefrom, (iii) a holder of Old Notes who desires to sell or otherwise dispose
of all or any part of its Old Notes under an exemption from registration under
the Securities Act, if requested by the Company, must deliver to the Company an
opinion of counsel reasonably satisfactory in form and substance to the
Company, that such exemption is available and (iv) the Old Notes may no longer
have rights under the Registration Rights Agreement. Consequently, the Old
Notes will have less liquidity than the New Notes but will bear interest at the
same rate as that borne by the New Notes.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Notes were issued by the Company to the Initial Purchasers on July
31, 1998, pursuant to the Purchase Agreement. The Initial Purchasers
subsequently resold the Old Notes in reliance on Rule 144A under the Securities
Act.
In connection with the sale of the Old Notes, the purchasers thereof
became entitled to the benefits of certain registration rights. Pursuant to the
Registration Rights Agreement, the Company and the Guarantors agreed, for the
benefit of the holders of the Old Notes, at the Company's and the Guarantors'
cost, to use their reasonable best efforts (i) to file with the Commission the
Registration Statement of which this Prospectus is a part within 60 days after
the date of original issue of the Old Notes, (ii) to cause the Registration
Statement to be declared effective under the Securities Act within 135 days of
the date of original issue of the Old Notes, (iii) to keep the Registration
Statement effective until the closing of the Exchange Offer, and (iv) to cause
the Exchange Offer to be consummated within 165 days of the original issue date
of the Old Notes.
In the event that any changes in law or the applicable interpretations of
the staff of the Commission do not permit the Company and the Guarantors to
effect the Exchange Offer, or if for any other reason the Exchange Offer
Registration Statement is not declared effective within 135 days of the date of
original issue of the Old Notes or the Exchange Offer is not consummated within
165 days of the date of original issue of the Old Notes, or upon the request of
any of the Initial Purchasers, or if a holder of the Old Notes is not permitted
by applicable law to participate in the Exchange Offer or elects to participate
in the Exchange Offer but does not receive fully tradeable New Notes pursuant
to the Exchange Offer, the Company and the Guarantors will, in lieu of
effecting the registration of the New Notes pursuant to the Exchange Offer
Registration Statement and at the Company's and the Guarantors' cost, (a) as
promptly as practicable, file with the Commission the Shelf Registration
Statement covering resales of the Old Notes, (b) use their reasonable best
efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act by the 165th day after the original issue of the Old
Notes and (c) use their reasonable best efforts to keep effective the Shelf
Registration Statement for a period of two years after its effective date (or
for such shorter period that will terminate when all of the Notes covered by
the Shelf Registration Statement have been sold pursuant thereto or cease to be
outstanding). The Company will, in the event of the filing of a Shelf
Registration Statement, provide to each holder of the Old Notes copies of the
prospectus which is a part of the Shelf Registration Statement, notify each
such holder when the Shelf Registration Statement for the Notes has become
effective and take certain other actions as are required to permit unrestricted
resales of the Notes. A holder of Notes who sells such Notes pursuant to the
Shelf Registration Statement generally will be required to be named as a
selling security holder in the related prospectus and to deliver the prospectus
to purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by the
provisions of the Registration Rights Agreement which are applicable to such a
holder (including certain indemnification obligations).
In the event that (a) the Exchange Offer Registration Statement is not
filed with the Commission on or prior to the 60th calendar day following the
date of original issue of the Old Notes, (b) the Exchange Offer Registration
Statement is not declared effective on or prior to the 135th calendar day
following the date of original issue of the Old Notes, (c) the Exchange Offer
is not consummated or a Shelf Registration Statement is not declared effective,
in either case, on or prior to the 165th day following the date of original
issue of the Old Notes or (d) the Shelf Registration Statement is declared
effective but shall thereafter become unusable for more than 30 days in the
aggregate in any consecutive twelve-month period (each such event referred to
in clauses (a) through (d) above, a "Registration Default"), the interest rate
borne by the Notes shall be increased by one-quarter of one percent per annum
upon the occurrence of each Registration Default, which rate (as increased as
aforesaid) will increase by one quarter of one percent each 90-day period that
such additional interest continues to accrue under any such circumstance, with
an aggregate maximum increase in the interest rate equal to one percent (1%)
per annum. The Shelf Registration Statement will be required to remain
effective until the second anniversary of the Old Notes. Following the cure of
all Registration Defaults the accrual of additional interest will cease and the
interest rate will revert to the original rate.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
In the event the Exchange Offer is consummated, the Company will not be
required to file a Shelf Registration Statement relating to any outstanding Old
Notes other than those held by persons not eligible to participate in the
Exchange Offer, and the interest rate on such Old Notes will remain at its
initial level of 11%. The Exchange Offer shall be deemed to have been
consummated upon the earlier to occur of (i) the Company having exchanged New
Notes for all outstanding Old Notes
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(other than Old Notes held by persons not eligible to participate in the
Exchange Offer) pursuant to the Exchange Offer and (ii) the Company having
exchanged, pursuant to the Exchange Offer, New Notes for all Old Notes that
have been tendered and not withdrawn on the Expiration Date. Upon consummation,
holders of Old Notes seeking liquidity in their investment would have to rely
on exemptions to registration requirements under the securities laws, including
the Securities Act. See "Risk Factors -- Consequences of Failure to Exchange."
TERMS OF THE EXCHANGE OFFER
The Company hereby offers, upon the terms and subject to the conditions
set forth herein and in the accompanying Letter of Transmittal, to exchange
$1,000 in principal amount of the New Notes for each $1,000 in principal amount
of the outstanding Old Notes. The Company will accept for exchange any and all
Old Notes that are validly tendered on or prior to 5:00 p.m., New York City
time, on the Expiration Date. Tenders of the Old Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. The
Exchange Offer is not conditioned upon any minimum principal amount of Old
Notes being tendered for exchange. However, the Exchange Offer is subject to
the terms and provisions of the Registration Rights Agreement. See " --
Conditions of the Exchange Offer."
Old Notes may be tendered only in multiples of $1,000. Subject to the
foregoing, holders of Old Notes may tender less than the aggregate principal
amount represented by the Old Notes held by them, provided that they
appropriately indicate this fact on the Letter of Transmittal accompanying the
tendered Old Notes (or so indicate pursuant to the procedures for book-entry
transfer).
As of the date of this Prospectus, $125.0 million in aggregate principal
amount of the Old Notes is outstanding. As of September 15, 1998, there was one
registered holder of the Old Notes, Cede, as nominee for DTC, which held the
Old Notes for certain of its participants. Solely for reasons of
administration, the Company has fixed the close of business on , 1998 as
the record date (the "Record Date") for purposes of determining the persons to
whom this Prospectus and the Letter of Transmittal will be mailed initially.
Only a holder of the Old Notes (or such holder's legal representative or
attorney-in-fact) may participate in the Exchange Offer. There will be no fixed
record date for determining holders of the Old Notes entitled to participate in
the Exchange Offer. The Company believes that, as of the date of this
Prospectus, no such holder is an affiliate (as defined in Rule 405 under the
Securities Act) of the Company.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes and for the purposes of receiving the New Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be , 1998 at 5:00 p.m., New York City
time, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the Expiration Date shall be the latest date and time to which
the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the
Exchange Agent of any extension by oral or written notice and will make a
public announcement thereof, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date.
The Company reserves the right, in its sole discretion (subject to the
terms and provisions of the Registration Rights Agreement), (i) to delay
accepting any Old Notes, (ii) to extend the Exchange Offer, (iii) if any of the
conditions set forth below under " -- Conditions of the Exchange Offer" shall
not have been satisfied, to terminate the Exchange Offer, by giving oral or
written notice of such delay, extension, or termination to the Exchange Agent,
and (iv) to amend the terms of the Exchange Offer in any manner. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment by means of
a prospectus supplement that will be distributed to the registered holders of
the Old Notes. Modification of the Exchange Offer, including, but not limited
to, (i) extension of the period during which the Exchange Offer is open and
(ii) satisfaction of the conditions set forth below under " -- Conditions of
the Exchange Offer", may require that at least ten business days remain in the
Exchange Offer.
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CONDITIONS OF THE EXCHANGE OFFER
The Exchange Offer is not conditioned upon any minimum principal amount of
the Old Notes being tendered for exchange. However, the Exchange Offer is
conditioned upon the declaration by the Commission of the effectiveness of the
Exchange Offer Registration Statement of which this Prospectus constitutes a
part.
TERMINATION OF CERTAIN RIGHTS
The Registration Rights Agreement provides that, subject to certain
exceptions, in the event of a Registration Default, holders of Old Notes are
entitled to receive additional interest on their Notes. See " -- Purpose and
Effect." Holders of New Notes will not be and, upon consummation of the
Exchange Offer, holders of Old Notes will no longer be, entitled to (i) the
right to receive additional interest provided for in the event of a
Registration Default or (ii) certain other rights under the Registration Rights
Agreement intended for holders of Old Notes, except in certain limited
circumstances. The Exchange Offer shall be deemed consummated upon the delivery
by the Company to the Registrar under the Indenture of New Notes in the same
aggregate principal amount as the aggregate principal amount of Old Notes that
are tendered by holders thereof pursuant to the Exchange Offer.
ACCRUED INTEREST
The New Notes will bear interest at a rate equal to 11% per annum, which
interest shall accrue from July 31, 1998 or from the most recent interest
payment date with respect to the Old Notes to which interest was paid or duly
provided for. See "Description of Notes -- Principal, Maturity and Interest."
PROCEDURES FOR TENDERING OLD NOTES
The tender of a holder's Old Notes as set forth below and the acceptance
thereof by the Company will constitute a binding agreement between the
tendering holder and the Company upon the terms and subject to the conditions
set forth in this Prospectus and in the accompanying Letter of Transmittal.
Except as set forth below, a holder who wishes to tender Old Notes for exchange
pursuant to the Exchange Offer must transmit such Old Notes, together with a
properly completed and duly executed Letter of Transmittal (or comply with the
procedure for book-entry transfer if delivery of such Old Notes is to be made
by book-entry transfer to an account maintained by the Exchange Agent at DTC as
set forth below), including all other documents required by such Letter of
Transmittal, to the Exchange Agent at the address set forth on the back cover
page of this Prospectus prior to 5:00 p.m., New York City time, on the
Expiration Date. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF
SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL,
IT IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
Each signature on a Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed unless the Old Notes surrendered for
exchange pursuant hereto are tendered (i) by a registered holder of the Old
Notes who has not completed either the box entitled "Special Exchange
Instructions" or the box entitled "Special Delivery Instructions" in the Letter
of Transmittal, or (ii) by an Eligible Institution (as defined herein). In the
event that a signature on a Letter of Transmittal or a notice of withdrawal, as
the case may be, is required to be guaranteed, such guarantee must be by a firm
which is a member of a registered national securities exchange or the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or otherwise be an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (collectively, "Eligible Institutions"). If the Letter of
Transmittal is signed by a person other than the registered holder of the Old
Notes, the Old Notes surrendered for exchange must either (i) be endorsed by
the registered holder, with the signature thereon guaranteed by an Eligible
Institution, or (ii) be accompanied by a bond power, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution. The term "registered holder" as used herein with respect to the
Old Notes means any person in whose name the Old Notes are registered on the
books of the Registrar.
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's ATOP procedures for such transfer, and in such case no
Letter of Transmittal is required to be transmitted to the Exchange Agent.
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<PAGE>
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole discretion, which determination shall be
final and binding. The Company reserves the absolute right to reject any and
all Old Notes not properly tendered and to reject any Old Notes the Company's
acceptance of which might, in the judgment of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to particular Old Notes
either before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Old Notes in the Exchange
Offer). The interpretation of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects
or irregularities in connection with tenders of Old Notes for exchange must be
cured within such period of time as the Company shall determine. The Company
will use reasonable efforts to give notification of defects or irregularities
with respect to tenders of Old Notes for exchange but shall not incur any
liability for failure to give such notification. Tenders of the Old Notes will
not be deemed to have been made until such irregularities have been cured or
waived.
If any Letter of Transmittal, endorsement, bond power, power of attorney
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing and,
unless waived by the Company, proper evidence satisfactory to the Company, in
its sole discretion, of such person's authority to so act must be submitted.
Any beneficial owner of the Old Notes (a "Beneficial Owner") whose Old
Notes are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender Old Notes in the Exchange
Offer should contact such registered holder promptly and instruct such
registered holder to tender on such Beneficial Owner's behalf. If such
Beneficial Owner wishes to tender directly, such Beneficial Owner must, prior
to completing and executing the Letter of Transmittal and tendering Old Notes,
make appropriate arrangements to register ownership of the Old Notes in such
Beneficial Owner's name. Beneficial Owners should be aware that the transfer of
registered ownership may take considerable time.
By tendering, each registered holder will represent to the Company that,
among other things (i) the New Notes to be acquired in connection with the
Exchange Offer by the holder and each Beneficial Owner of the Old Notes are
being acquired by the holder and each Beneficial Owner in the ordinary course
of business of the holder and each Beneficial Owner, (ii) the holder and each
Beneficial Owner are not participating, do not intend to participate, and have
no arrangement or understanding with any person to participate, in the
distribution of the New Notes, (iii) the holder and each Beneficial Owner
acknowledge and agree that any person participating in the Exchange Offer for
the purpose of distributing the New Notes must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes acquired by such person and
cannot rely on the position of the staff of the Commission set forth in
"no-action" letters that are discussed herein under " -- Resales of the New
Notes," (iv) that if the holder is a broker-dealer that acquired Old Notes as a
result of market making or other trading activities, it will deliver a
prospectus in connection with any resale of New Notes acquired in the Exchange
Offer, (v) the holder and each Beneficial Owner understand that a secondary
resale transaction described in clause (iii) above should be covered by an
effective registration statement containing the selling security holder
information required by Item 507 of Regulation S-K of the Securities Act, and
(vi) neither the holder nor any Beneficial Owner is an "affiliate," as defined
under Rule 405 of the Securities Act, of the Company except as otherwise
disclosed to the Company in writing.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes or any other
documents required by the Letter of Transmittal to the Exchange Agent prior to
the Expiration Date (or complete the procedure for book-entry transfer on a
timely basis), may tender their Old Notes according to the guaranteed delivery
procedures set forth in the Letter of Transmittal. Pursuant to such procedures:
(i) such tender must be made by or through an Eligible Institution and a Notice
of Guaranteed Delivery (as defined in the Letter of Transmittal) must be signed
by such holder, (ii) on or prior to the Expiration Date, the Exchange Agent
must have received from the holder and the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
holder, the certificate number or numbers of the tendered Old Notes, and the
principal amount of tendered Old Notes, stating that the tender is being made
thereby and guaranteeing that, within four business days after the date of
delivery of the Notice of Guaranteed Delivery, the tendered Old Notes, a duly
executed Letter of Transmittal and any other required documents will be
deposited by the Eligible Institution with the Exchange Agent, and (iii) such
properly completed and executed documents required by the Letter of Transmittal
30
<PAGE>
and the tendered Old Notes in proper form for transfer must be received by the
Exchange Agent within four business days after the date of delivery of the
Notice of Guaranteed Delivery. Any Holder who wishes to tender Old Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery and Letter of
Transmittal relating to such Old Notes prior to 5:00 p.m., New York City time,
on the Expiration Date.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept any and all Old Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York City time, on the Expiration Date.
The New Notes issued pursuant to the Exchange Offer will be delivered promptly
after acceptance of the Old Notes. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted validly tendered Old Notes, when, as,
and if the Company has given oral or written notice thereof to the Exchange
Agent.
In all cases, issuances of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of such Old Notes, a properly completed and duly executed
Letter of Transmittal and all other required documents, or after completion of
the procedure for book-entry transfer, as the case may be; provided, however,
that the Company reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offer. If any
tendered Old Notes are not accepted for any reason, such unaccepted Old Notes
will be returned without expense to the tendering holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of the Old Notes may be withdrawn by delivery of a written notice
to the Exchange Agent at its address set forth on the back cover page of this
Prospectus at any time prior to 5:00 p.m., New York City time, on the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having deposited the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes, as applicable), (iii) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered (including any required
signature guarantees) or be accompanied by a bond power in the name of the
person withdrawing the tender, in satisfactory form as determined by the
Company in its sole discretion, duly executed by the registered holder, with
the signature thereon guaranteed by an Eligible Institution together with any
other documents required upon transfer by the Indenture, and (iv) specify the
name in which such Old Notes are to be re-registered, if different from the
Depositor, pursuant to such documents of transfer. Any questions as to the
validity, form and eligibility (including time of receipt) of such notices will
be determined by the Company, in its sole discretion. The Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange for
purposes of the Exchange Offer. Any Old Notes which have been tendered for
exchange but which are withdrawn will be returned to the holder thereof without
cost to such holder as soon as practicable after withdrawal. Properly withdrawn
Old Notes may be re-tendered by following one of the procedures described under
"The Exchange Offer -- Procedures for Tendering Old Notes" at any time on or
prior to the Expiration Date.
THE EXCHANGE AGENT; ASSISTANCE
U.S. Bank Trust National Association is the Exchange Agent. All tendered
Old Notes, executed Letters of Transmittal and other related documents should
be directed to the Exchange Agent. Questions and requests for assistance and
requests for additional copies of this Prospectus, the Letter of Transmittal
and other related documents should be addressed to the Exchange Agent as
follows:
BY REGISTERED OR CERTIFIED MAIL:
U.S. Bank Trust National Association
180 East Fifth Street
Mail Code: SPFT0210
St. Paul, Minnesota 55101
Attn: Specialized Finance
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BY HAND OR OVERNIGHT COURIER:
U.S. Bank Trust National Association
180 East Fifth Street
Mail Code: SPFT0210
St. Paul, Minnesota 55101
Attn: Specialized Finance
BY FACSIMILE:
(612) 244-1537 (MN)
Confirm by Telephone: (612) 244-5011 (MN)
FEES AND EXPENSES
All expenses incident to the Company's consummation of the Exchange Offer
and compliance with the Registration Rights Agreement will be borne by the
Company including, without limitation: (i) all registration and filing fees and
expenses (including fees and expenses of compliance with state securities or
Blue Sky laws), (ii) printing expenses (including expenses of printing
certificates for the New Notes in a form eligible for deposit with DTC and of
printing Prospectuses), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company, and (v) fees and
disbursements of independent certified public accountants.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptance of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Old Notes pursuant to the Exchange Offer. If, however, a transfer
tax is imposed for any reason other than the exchange of Old Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old
Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss will be recognized by the Company for
accounting purposes. The expenses of the Exchange Offer will be amortized over
the term of the New Notes.
RESALES OF THE NEW NOTES
Based on an interpretation by the staff of the Commission set forth in
"no-action" letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer to a holder in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by such
holder (other than (i) a broker-dealer who purchased Old Notes directly from
the Company for resale pursuant to Rule 144A under the Securities Act or any
other available exemption under the Securities Act, or (ii) a person that is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such holder is acquiring the
New Notes in the ordinary course of business and is not participating, and has
no arrangement or understanding with any person to participate, in a
distribution of the New Notes. The Company has not requested or obtained an
interpretive letter from the Commission staff with respect to this Exchange
Offer, and the Company and the holders are not entitled to rely on interpretive
advice provided by the staff to other persons, which advice was based on the
facts and conditions represented in such letters. However, the Exchange Offer
is being conducted in a manner intended to be consistent with the facts and
conditions represented in such letters. If any holder acquires New Notes in the
Exchange Offer for the purpose of distributing or participating in a
distribution of the New Notes, such holder cannot rely on the position of the
staff of the Commission enunciated in Morgan Stanley & Co., Incorporated
(available June 5, 1991), Exxon Capital Holdings Corporation (available April
13, 1989), Mary Kay Cosmetics, Inc. (available June 5, 1991) and Warnaco, Inc.
(available October 11, 1991), or interpreted in the Commission's letter to
Shearman & Sterling (available July 2, 1993), or similar "no-action" or
interpretive letters and must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives New Notes for its own account in
exchange for Old Notes, where such Old Notes
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<PAGE>
were acquired by such broker-dealer as a result of market making or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution."
It is expected that the New Notes will be freely transferable by the
holders thereof, subject to the limitations described in the immediately
preceding paragraph. Sales of New Notes acquired in the Exchange Offer by
holders who are "affiliates" of the Company within the meaning of the
Securities Act will be subject to certain limitations on resale under Rule 144
of the Securities Act. Such persons will only be entitled to sell New Notes in
compliance with the volume limitations set forth in Rule 144, and sales of New
Notes by affiliates will be subject to certain Rule 144 requirements as to the
manner of sale, notice and the availability of current public information
regarding the Company. Any such persons must consult their own legal counsel
for advice as to any restrictions that might apply to the resale of their
Notes.
USE OF PROCEEDS
There will be no proceeds payable to the Company or the Guarantors from
the Exchange Offer. The Company and the Guarantors are conducting the Exchange
Offer to satisfy certain of their obligations under the Registration Rights
Agreement executed in connection with the issuance of the Old Notes.
THE 1998 ACQUISITIONS
The Clearwater Acquisition. In March 1998, the Company completed the
Clearwater Acquisition effective January 1, 1998, which is comprised of a
Toyota dealership, a Mitsubishi dealership and a collision repair center, each
located in Clearwater, Florida, for a total purchase price of approximately
$14.9 million, subject to adjustment based on the net book value of the
purchased assets and assumed liabilities as of the closing date. The Clearwater
Acquisition was financed with $11.5 million in cash borrowed from Ford Motor
Credit under the Revolving Facility and 3,960 shares of Preferred Stock with a
liquidation preference of approximately $4.0 million as of the date of the
acquisition. By April 30, 1999, the Company will be required to pay a
contingent amount equal to 50% of the combined 1998 pre-tax earnings of the
entities acquired, such amount not to exceed approximately $1.8 million.
The Hatfield Acquisition. In July 1998, the Company completed the Hatfield
Acquisition, which is comprised of six individual dealerships located in
Columbus, Ohio selling Chrysler, Plymouth, Dodge, Hyundai, Isuzu, Jeep, KIA,
Lincoln, Mercury, Subaru, Toyota and Volkswagen brands of vehicles, for a total
purchase price of approximately $48.6 million plus the assumption of certain
liabilities, subject to adjustment based on the value of the net current assets
of the sellers as of the closing date. Of the total purchase price, the Company
paid approximately $34.6 million in cash ($26.2 million of which was financed
by borrowings under the Revolving Facility and the balance of which was
financed by cash from the Company's existing operations, which was subsequently
replenished with a portion of the net proceeds from the Prior Offering), and
the balance of the total purchase price was paid by the Company's issuance to
the sellers of 14,025 shares of its Preferred Stock with a liquidation
preference of approximately $14.0 million.
The Heritage Acquisition. In July 1998, the Company completed the Heritage
Acquisition, which is comprised of a Lincoln-Mercury dealership located in
Greenville, South Carolina, for a total purchase price of approximately $1.1
million plus the assumption of certain operating liabilities of the sellers. Of
the total purchase price, the Company paid approximately $0.7 million in cash
(all of which was financed by borrowings under the Revolving Facility), and the
balance of the total purchase price was paid by the Company's issuance to the
sellers of 400 shares of its Preferred Stock with a liquidation preference of
$0.4 million. In connection with the Heritage Acquisition, Chartown acquired
the real property on which the dealerships comprising the Heritage Acquisition
are operated for approximately $3.0 million, and the Company currently is
leasing this real property from Chartown. Chartown is expected to sell this
real property to MMRT in the future. The Company did not consummate the
acquisition of the assets of the Jaguar franchise that comprises a portion of
the Heritage Acquisition because Jaguar declined to consent to this
acquisition. See "Risk Factors -- No Consent from Jaguar."
The Century Acquisition. Also in July 1998, the Company completed the
Century Acquisition, which is comprised of a BMW dealership located in
Greenville, South Carolina and a satellite sales location in Spartanburg, South
Carolina. The total consideration paid by the Company for the Century
Acquisition consisted of approximately $3.8 million in cash (all of which was
financed with a portion of the net proceeds of the Prior Offering), the
issuance to the seller of warrants to purchase 75,000 shares of the Company's
Class A Common Stock at a purchase price equal to the market value of the Class
A Common Stock on the closing date and the issuance to the seller of 2,166.5
shares of Preferred Stock with a liquidation preference of approximately $2.2
million. The seller under the Century Acquisition is affiliated with the seller
under the Heritage Acquisition. In connection with the Century Acquisition,
Chartown acquired the real property on which the dealership and satellite sales
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location comprising the Century Acquisition are operated for approximately $5.0
million, and the Company is currently leasing this real property from Chartown.
Chartown is expected to sell the real property to MMRT in the future.
The Casa Ford Acquisition. Also in July 1998, the Company completed the
Casa Ford Acquisition, which is comprised of a Ford dealership located in the
Houston, Texas area, for a total purchase price paid at closing of
approximately $11.3 million. The price paid at closing is subject to adjustment
at a later date based upon a final determination of the net working capital of
the acquired dealership as of the closing date. Of the price paid at closing,
the Company paid approximately $9.0 million in cash (all of which was financed
with a portion of the net proceeds of the Prior Offering), and the balance was
paid to the seller by the Company's issuance of 2,313 shares of Preferred Stock
with a liquidation preference of approximately $2.3 million. In addition, the
Company agreed to pay to the seller in the future an additional contingent
payment equal to five times the amount by which the dealership's pre-tax
earnings for 1998, if any, exceed $2.5 million, and five times the amount by
which the dealership's 1999 pre-tax earnings, if any, exceed the greater of
$2.5 million or the dealership's 1998 pre-tax earnings.
The Montgomery Acquisition. Also in July 1998, the Company completed the
Montgomery Acquisition, which is comprised of a Chevrolet dealership, a KIA
dealership, a Mitsubishi dealership and a Hyundai dealership located in
Montgomery, Alabama, for a total purchase price of approximately $8.1 million
paid to the sellers at the closing. Of the purchase price paid at the closing,
the Company paid approximately $3.4 million in cash (approximately $0.1 million
of which was financed by cash from the Company's existing operations and
approximately $3.3 million of which was financed with a portion of the net
proceeds of the Prior Offering), and issued 4,194.3 shares of Preferred Stock
to the sellers having an aggregate liquidation preference of approximately $4.2
million. The remaining $0.6 million of the cash portion of the purchase price
is payable to the sellers on the first and second anniversaries of the closing
date. The Company has also agreed to pay an additional payment to the sellers,
not to exceed $3.3 million, contingent upon the future performance of the
acquired dealerships. The Company has agreed to pay 51% of this additional
payment, if any, to the sellers in the form of Preferred Stock, and 49% of such
payments in cash.
The Higginbotham Acquisition. In September 1998, the Company completed the
Higginbotham Acquisition, which is comprised of three individual dealerships
selling Acura, Chevrolet, Ford, Mercedes, Mercury and Oldsmobile brands of
vehicles, as well as two standalone used vehicle dealerships and an automobile
financing company, located in the Daytona Beach, Florida area for a total
purchase price of approximately $27.0 million, including the repayment of
approximately $2.7 million in indebtedness owed by one of the sellers to its
sole shareholder, subject to adjustment based on the net book value of the
purchased assets as of the closing date. The total purchase price was paid with
approximately $18.2 million in cash (all of which was financed with a portion
of the net proceeds from the Prior Offering), and with the issuance to the
sellers of Class A Common Stock with a market value at the date of closing of
approximately $8.3 million. The remaining $0.5 million of the cash portion of
the purchase price is payable to the seller in December 1998. In addition, the
Company also assumed certain liabilities of the sellers at closing. In
connection with the Higginbotham Acquisition, it is anticipated that MMRT will
acquire the real property on which these dealerships and related assets are
operated in the future, and that the Company will lease these properties from
MMRT.
The Economy Honda Acquisition. In March 1998, the Company signed a stock
purchase agreement regarding the Economy Honda Acquisition, which is comprised
of one Honda dealership located in Chattanooga, Tennessee. The Company has
agreed to pay a total price of $7.5 million plus an amount equal to the net
book value of the assets of the Economy Honda dealership. Preferred Stock will
be issued for 51% of the total purchase price, not to exceed $5.1 million in
liquidation preference as of the closing of the acquisition. The Company's
consummation of the Economy Honda Acquisition is subject to the approval of
Honda, which has informed the Company that its approval is contingent upon the
Company divesting its ownership of the Cleveland Village Honda dealership,
which is also located in Chattanooga, prior to acquiring the Economy Honda
dealership. The Company is currently negotiating with potential buyers for the
sale of the Cleveland Village Honda dealership. There can be no assurance that
the Company will be able to sell the Cleveland Village Honda dealership or that
the approval of Honda to the Economy Honda Acquisition will be obtained. See
"Risk Factors -- No Consent from Honda."
The 1998 Acquisitions. The aggregate purchase price for the 1998
Acquisitions is approximately $127.4 million, which has been or will be paid
with approximately $88.3 million in cash and with approximately 40,409 shares
of Preferred Stock having an aggregate liquidation preference of approximately
$40.4 million. Of the $88.3 million cash portion of the aggregate purchase
price, approximately $38.4 million was financed with borrowings under the
Revolving Facility (which was subsequently repaid with a portion of the net
proceeds from the Prior Offering), approximately $34.3 million with a portion
of the net proceeds from the Prior Offering and approximately $8.5 million with
cash generated from the Company's existing operations (approximately $8.4
million of which was subsequently replenished with a portion of the net
proceeds from the Prior Offering). The remaining $7.1 million of the cash
portion of the aggregate purchase price for the 1998 Acquisitions will be
financed
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with a combination of borrowings under the Revolving Facility and a portion of
the net proceeds of the Prior Offering. The 1998 Acquisitions have all been
consummated, except for the Economy Honda Acquisition for which the consent of
Honda has not yet been obtained. There can be no assurance that such consent
will be obtained. See "Risk Factors -- No Consent from Honda." In addition, the
Company did not consummate the acquisition of a Jaguar franchise representing a
portion of the Heritage Acquisition because Jaguar declined to consent to such
acquisition. See "Risk Factors -- No Consent from Jaguar." Any Manufacturer who
does not consent to an acquisition may seek to terminate its franchise
agreement, although relevant state franchising laws impose limitations on a
Manufacturer's ability to terminate a franchise. See "Risk Factors --
Manufacturers' Restrictions on Acquisitions" and "Business -- Relationships
with Manufacturers." Prior to their acquisition, the Company operated the
dealerships which comprise the Montgomery Acquisition, the Century Acquisition
and the Casa Ford Acquisition under separate management agreements.
Future Acquisitions. The Company intends to pursue additional acquisitions
in the future that will be financed with cash, debt or equity financing or a
combination thereof. See "Prospectus Summary -- Recent Developments." Although
the Company has identified and has held preliminary discussions with several
potential acquisition candidates, some of which may be material, at this time
the Company has no agreements to effect any such acquisitions other than the
Economy Honda Acquisition, the Jordan Acquisition and the Tampa Volvo
Acquisition. There is no assurance that the Company will consummate any future
acquisition, that any future acquisition will be on favorable terms to the
Company or that financing for such acquisitions will be available. Under the
Company's acquisition agreements, it is a condition (which condition may be
waived) to the Company's obligation to close an acquisition that the consent of
the applicable Manufacturer be obtained. No assurance can be given that any
such consents will be obtained. See "Risk Factors -- Risks Associated with
Acquisitions" and " -- Limitations on Financial Resources Available for
Acquisitions; Possible Inability to Refinance Existing Debt" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources."
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CAPITALIZATION
The following table sets forth the capitalization of the Company as of
June 30, 1998, (i) on an actual basis and (ii) as adjusted on a pro forma basis
for the pending 1998 Acquisitions and the Prior Offering and the application of
the net proceeds therefrom. See "Use of Proceeds" and the Company's
Consolidated Financial Statements and the related notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
As of June 30, 1998
---------------------------------
Actual As Adjusted
---------------- ----------------
(In thousands)
<S> <C> <C>
Short-term debt: (a) $ 1,234 $ 3,034
========== ==========
Long-term debt:
Revolving Facility (b) .......... $ 48,758 $ --
Mortgage notes .................. 3,914 3,914
Notes offered hereby ............ -- 124,063(c)
Subordinated Smith Loan ......... 5,500 5,500
Other debt ...................... 6,132 6,132
---------- ----------
Total long-term debt .................. 64,304 139,609
---------- ----------
Stockholders' equity ............. 103,401(d) 130,776(e)
---------- ----------
Total capitalization .................. $ 167,705 $ 270,385
========== ==========
</TABLE>
- ---------
(a) Includes current maturities of long-term debt and excludes $149.7 million
(actual) and $199.0 million (as adjusted) of short-term notes
payable-floor plan.
(b) As adjusted, the Company would have had $75.0 million of availability under
the Revolving Facility, subject to the satisfaction of certain conditions.
(c) Represents the $125.0 million principal amount of the Notes less
unamortized discount of $937,000.
(d) Includes Class A Common Stock, $.01 par value, 50,000,000 shares
authorized, 5,027,452 shares issued and outstanding; Class B Common Stock,
$.01 par value, 15,000,000 shares authorized, 6,250,000 shares issued and
outstanding; and preferred stock, $.10 par value, 3,000,000 shares
authorized, 13,034 shares issued and outstanding.
(e) In connection with the Hatfield Acquisition and the Economy Honda
Acquisition, the Company has issued or intends to issue approximately
19,125 additional shares of Preferred Stock with an aggregate liquidation
preference of approximately $19.1 million. The actual number of shares of
Preferred Stock to be so issued may vary depending on purchase price
adjustments in certain of the 1998 Acquisitions. In connection with the
Higginbotham Acquisition, the Company has issued Class A Common Stock
having a market value at the date of issuance of approximately $8.3
million.
36
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statement of operations data for the years ended
December 31, 1995, 1996 and 1997 and the selected consolidated balance sheet
data as of December 31, 1996 and 1997 are derived from the Company's audited
financial statements together with the notes thereto, included elsewhere in
this Prospectus. The selected consolidated statement of operations data for the
year ended December 31, 1994 and the selected consolidated balance sheet data
as of December 31, 1995 are derived from the Company's audited financial
statements not included herein. The selected consolidated statement of
operations data for the year ended December 31, 1993 and the selected
consolidated balance sheet data as of December 31, 1993 and 1994 are derived
from the Company's unaudited financial statements not included herein. The
selected consolidated statement of operations data for the six months ended
June 30, 1997 and June 30, 1998, and the selected balance sheet data as of June
30, 1998, are derived from the Company's unaudited financial statements
included elsewhere in this Prospectus. In the opinion of management, these
unaudited financial statements reflect all adjustments necessary for a fair
presentation of its results of operations and financial condition. All such
adjustments are of a normal recurring nature. The unaudited pro forma
consolidated financial data for the year ended December 31, 1997 and as of and
for the six month period ended June 30, 1998, are derived from the Unaudited
Pro Forma Consolidated Financial Data included elsewhere in this Prospectus.
The selected consolidated financial data should be read in conjunction with
"Unaudited Pro Forma Consolidated Financial Data", "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements for the year ended December 31, 1997 and the unaudited
Consolidated Financial Statements for the six months ended June 30, 1998, and
related notes included elsewhere in this Prospectus.
37
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
Actual
---------------------------------------------------------------------
1993 1994 1995 1996(a) 1997(b)
------------- ------------- ------------- ------------- -------------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Income
Statement Data:
Revenues .......................... $ 238,291 $ 267,734 $ 311,323 $ 376,867 $ 536,001
Cost of sales ..................... 209,113 233,833 272,130 332,122 473,003
--------- --------- --------- --------- ---------
Gross profit ...................... 29,178 33,901 39,193 44,745 62,998
Selling, general and adminis-
trative expenses ................. 22,070 23,810 28,091 32,602 46,770
Operating income .................. 6,320 9,253 10,270 11,067 14,906
Interest expense, floor plan ...... 2,743 3,001 4,504 5,968 8,007
Interest expense, other ........... 263 443 436 433 1,199
Income before income taxes
and minority interest ............ 3,314 5,809 5,436 5,021 5,998
Net income ........................ 2,613 3,676 3,238 2,983 3,702
Diluted net income per share ...... N/A N/A N/A N/A 0.53
Weighted average common
shares outstanding
(000's) .......................... N/A N/A N/A N/A 6,949
Consolidated Balance
Sheet Data:
Cash and cash equivalents ......... $ 3,507 $ 4,723 $ 8,993 $ 6,679 $ 18,304
Receivables, net .................. 7,020 8,645 9,085 11,908 19,784
Inventories ....................... 35,870 46,266 51,348 71,550 156,514
Property and equipment, net ....... 7,546 8,226 8,527 12,467 19,081
Total assets ...................... 54,917 69,061 79,462 110,976 291,450
Notes payable -- floor plan ....... 32,231 41,626 45,151 63,893 133,236
Long-term debt, including
current portion(e) ............... 4,142 3,773 6,950 6,719 49,563
Minority interest ................. 139 177 200 314 --
Stockholders' equity .............. 2,543 5,343 16,306 26,295 84,365
Other Consolidated
Financial Data:
Revenues:
Vehicle sales .................... $ 204,243 $ 228,569 $ 267,650 $ 327,674 $ 467,858
Parts, service and collision
repairs ......................... 30,337 33,984 35,860 42,075 57,537
Finance and
insurance ....................... 3,711 5,181 7,813 7,118 10,606
EBITDAR(f) ........................ $ 5,462 $ 8,086 $ 7,681 $ 7,619 $ 10,668
Rental expense .................... 1,097 996 977 1,089 2,149
--------- --------- --------- --------- ----------
EBITDA(g) ......................... $ 4,365 $ 7,090 $ 6,704 $ 6,530 $ 8,519
========= ========= ========= ========= ==========
Depreciation and amortization ..... $ 788 $ 838 $ 832 $ 1,076 $ 1,322
Capital expenditures .............. 2,559 1,260 1,509 1,907 2,007
Ratio of EBITDA to interest
expense, other ...................
Ratio of long-term debt to
EBITDA(h) ........................
Ratio of earnings to fixed
charges(i) ....................... 6.3x 8.5x 8.1x 7.3x 4.1 x
Other Operating Data:
Dealerships ....................... 4 4 4 5 20
New vehicles units sold(j) ........ 9,429 9,686 10,273 11,693 15,715
Used vehicles units sold(j) ....... 4,104 4,374 5,172 5,488 6,712
<CAPTION>
Year Ended
December 31, Six Months Ended June 30,
---------------- ------------------------------------------
Pro Pro
Forma Actual Forma
---------------- --------------------------- --------------
1997(c) 1997(b) 1998 1998(c)
---------------- ------------- ------------- --------------
(Unaudited)
-----------------------------------------------------------
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Consolidated Income
Statement Data:
Revenues .......................... $1,806,453 $ 212,886 $ 648,840 $ 963,509
Cost of sales ..................... 1,584,440 189,254 566,392 842,095
---------- --------- --------- ----------
Gross profit ...................... 222,013 23,632 82,448 121,414
Selling, general and adminis-
trative expenses ................. 161,289 17,532 59,622 87,886
Operating income .................. 54,095 5,704 20,975 30,395
Interest expense, floor plan ...... 19,123 3,018 7,341 10,061
Interest expense, other ........... 15,163 318 2,745 7,651
Income before income taxes
and minority interest ............ 20,997 2,503 10,904 13,031
Net income ........................ 12,678 1,540 6,804 8,019
Diluted net income per share ...... 0.88(d) N/A 0.58 0.55(d)
Weighted average common
shares outstanding
(000's) .......................... 14,415(d) N/A 11,637 14,658(d)
Consolidated Balance
Sheet Data:
Cash and cash equivalents ......... $ 9,238 $ 27,228 $ 37,589
Receivables, net .................. 12,897 35,761 43,550
Inventories ....................... 73,410 175,515 228,549
Property and equipment, net ....... 13,270 22,040 23,583
Total assets ...................... 120,384 369,623 512,177
Notes payable -- floor plan ....... 67,855 149,670 199,037
Long-term debt, including
current portion(e) ............... 9,979 65,538 140,843
Minority interest ................. -- -- --
Stockholders' equity .............. 28,406 103,401 130,776
Other Consolidated
Financial Data:
Revenues:
Vehicle sales .................... $1,592,802 $ 185,216 $ 567,279 $ 848,235
Parts, service and collision
repairs ......................... 176,299 22,907 68,020 94,070
Finance and
insurance ....................... 37,352 4,763 13,541 21,204
EBITDAR(f) ........................ $ 55,117 $ 3,760 $ 19,337 $ 29,943
Rental expense .................... 12,328 543 3,837 6,128
---------- --------- ---------- ----------
EBITDA(g) ......................... $ 42,789 $ 3,217 $ 15,500 $ 23,815
========== ========= ========== ==========
Depreciation and amortization ..... $ 6,629 $ 396 $ 1,851 $ 3,133
Capital expenditures .............. 886 1,261
Ratio of EBITDA to interest
expense, other ................... 2.8 x 3.1 x
Ratio of long-term debt to
EBITDA(h) ........................ 3.3 x
Ratio of earnings to fixed
charges(i) ....................... 2.1 x 6.0x 3.7 x 2.3 x
Other Operating Data:
Dealerships ....................... 37 6 26 37
New vehicles units sold(j) ........ 48,079 6,553 16,601 25,195
Used vehicles units sold(j) ....... 32,478 2,638 9,719 17,094
</TABLE>
(footnotes on following page)
38
<PAGE>
- ---------
(a) The Company acquired Fort Mill Ford, Inc. in February 1996. This
acquisition was accounted for using the purchase method of accounting. As
a result, the actual financial data does not include the results of this
dealership prior to the date it was acquired by the Company. Accordingly,
the actual financial data for periods after the acquisition may not be
comparable to data presented for periods prior to the acquisition.
(b) The Company acquired Fort Mill Chrysler-Plymouth-Dodge in June 1997, Lake
Norman Chrysler/Plymouth/Jeep and Lake Norman Dodge in September 1997,
Williams Motors and Ken Marks Ford in October 1997, and the Bowers
Automotive Group and Dyer & Dyer Volvo in November 1997. The 1997
Acquisitions were accounted for using the purchase method of accounting.
As a result, the actual financial data does not include the results of
operations of these dealerships prior to the date they were acquired by
the Company. Accordingly, the actual financial data for periods after the
acquisitions may not be comparable to data presented for periods prior to
the acquisitions.
(c) For information regarding the unaudited pro forma adjustments made to the
Company's historical financial data, which give effect to the IPO, the
Reorganization, the Acquisitions, and the Prior Offering and the
application of the net proceeds therefrom, see "Unaudited Pro Forma
Consolidated Financial Data."
(d) Weighted average common shares outstanding assumes a Class A Common Stock
price of $12.00 per share (the price per share of Class A Common Stock in
the IPO) for the Preferred Stock conversion factor. Had the Company used a
Class A Common Stock price of $16.44 (the June 30, 1998 closing price for
shares of Class A Common Stock on the NYSE), the pro forma weighted
average common shares outstanding would have been 13,691,000 and
13,934,000 resulting in a pro forma diluted net income per share of $0.93
and $0.58 for the pro forma twelve months ended December 31, 1997 and the
pro forma six months ended June 30, 1998, respectively.
(e) Long-term debt, including current portion, includes the payable to the
Company's Chairman and the Company's payable to affiliates of the Company.
See the Company's Consolidated Financial Statements and the related notes
thereto included elsewhere in this Prospectus.
(f) EBITDAR is defined as earnings before interest (other than interest expense
related to notes payable-floor plan), taxes, depreciation, amortization,
rent expense and other non-recurring charges. While EBITDAR should not be
construed as a substitute for operating income or as a better measure of
liquidity than cash flows from operating activities, which are determined
in accordance with generally accepted accounting principles, it is
included herein to provide additional information with respect to the
ability of the Company to meet future debt service, capital expenditures
and working capital requirements. This measure may not be comparable to
similarly titled measures reported by other companies.
(g) EBITDA is defined as earnings before interest (other than interest expense
related to notes payable-floor plan), taxes, depreciation, amortization
and other non-recurring charges which is consistent with the measure used
to calculate the Company's Consolidated Fixed Charge Coverage Ratio for
purposes of the limitation on indebtedness covenant in the Indenture.
While EBITDA should not be construed as a substitute for operating income
or as a better measure of liquidity than cash flows from operating
activities, which are determined in accordance with generally accepted
accounting principles, it is included herein to provide additional
information with respect to the ability of the Company to meet future debt
service, capital expenditures and working capital requirements. This
measure may not be comparable to similarly titled measures reported by
other companies.
(h) Ratio of long-term debt to EBITDA for the pro forma six months ended June
30, 1998 is calculated by dividing pro forma long-term debt, including
current portion, at June 30, 1998 by EBITDA for the pro forma year ended
December 31, 1997.
(i) Fixed charges is defined as interest (other than interest expense related
to notes payable-floor plan) and such portion of rent expense determined
to be representative of the interest factor. The ratio of earnings to
fixed charges is calculated by adding fixed charges to income before
income taxes and minority interest and dividing the sum by fixed charges.
(j) The number of units sold consists of retail sales to consumers as opposed
to wholesale sales.
39
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated statement of operations for
the year ended December 31, 1997 reflects the historical accounts of the
Company for that period, adjusted giving effect to the Acquisitions, the IPO,
the Reorganization, and the Prior Offering and the application of the net
proceeds therefrom, as if those events had occurred on the first day of the
period presented. The following unaudited pro forma combined and consolidated
statement of operations for the six months ended June 30, 1998 reflects the
historical accounts of the Company for that period, adjusted to give effect to
the 1998 Acquisitions (other than the Clearwater Acquisition which was
effective as of January 1, 1998), and the Prior Offering and the application of
the net proceeds therefrom, as if those events had occurred on the first day of
the period presented. The following unaudited pro forma consolidated balance
sheet as of June 30, 1998 reflects the historical accounts of the Company as of
that date as adjusted to give pro forma effect to the 1998 Acquisitions (other
than the Clearwater Acquisition, the Heritage Acquisition, the Montgomery
Acquisition, the Century Acquisition, and the Casa Ford Acquisition, which are
included in the historical accounts of the Company) and the Prior Offering and
the application of the net proceeds therefrom, as if those events had occurred
on June 30, 1998.
The unaudited pro forma consolidated financial data and accompanying notes
should be read in conjunction with the Consolidated Financial Statements and
related notes of the Company as well as the financial statements and related
notes of the Clearwater Dealerships and Affiliated Companies, the Hatfield
Automotive Group, Economy Honda Cars, Casa Ford of Houston, Inc., Higginbotham
Automotive Group, the Bowers Dealerships and Affiliated Companies, Lake Norman
Dodge Inc. and Affiliated Companies, Ken Marks Ford Inc. and Dyer and Dyer,
Inc., all of which are included elsewhere in this Prospectus. Such unaudited
pro forma consolidated data and accompanying notes do not give effect to the
Fort Mill Acquisition, the Williams Acquisition or the financing thereof
because such transactions are not required to be presented in this Prospectus
on a pro forma basis in accordance with SEC rules. The Company believes that
the assumptions used in the following statements provide a reasonable basis on
which to present the unaudited pro forma financial data. The unaudited pro
forma consolidated financial data are provided for informational purposes only
and should not be construed to be indicative of the Company's financial
condition, results of operations or covenant compliance had the transactions
and events described above been consummated on the dates assumed, and are not
intended to project the Company's financial condition on any future date or its
results of operation for any future period.
40
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
Year Ended December 31, 1997
<TABLE>
<CAPTION>
The Acquisition -----------------
----------------------------s (a) Pro Forma
------------------ Hatfield Higginbotham ------------------ Adjustments
1997 Automotive Automotive Other 1998 for the
Actual(b) Acquisitions(c) Group(d) Group Acquisitions(e) Acquisitions
----------- ----------------- ------------ -------------- ----------------- -----------------
(in thousands except per share data)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Vehicle sales .................. $467,858 $364,756 $251,981 $102,594 $405,613 $
Parts, service and
collision repair .............. 57,537 42,164 16,400 10,496 49,702
Finance and insurance 10,606 7,723 6,899 3,060 8,505 559 (f)
-------- -------- -------- -------- -------- ----------
Total revenues ................. 536,001 414,643 275,280 116,150 463,820 559
Cost of sales ................... 473,003 361,902 244,330 98,430 407,654 (879)(g)
-------- -------- -------- -------- -------- ----------
Gross profit .................... 62,998 52,741 30,950 17,720 56,166 1,438
Selling, general and
administrative
expenses ....................... 46,770 40,801 20,193 13,099 43,402 (5,925)(h)
2,658 (j)
Management bonus ................ 7,121 (7,121)(h)
Depreciation and
amortization ................... 1,322 914 221 338 1,245 (436)(l)
(601)(j)
3,611 (m)
----------
Operating income ................ 14,906 11,026 3,415 4,283 11,519 9,252
Interest expense, floor
plan ........................... 8,007 4,722 3,663 1,208 4,258 (2,608)(n)
Interest expense, other ......... 1,199 234 303 1,969 (923)(j)
267 (p)
(698)(q)
Other income .................... 298 180 224 20 466
-------- -------- -------- -------- --------
Income before income
taxes and minority
interest ....................... 5,998 6,250 (24) 2,792 5,758 13,214
Provision for income
taxes .......................... 2,249 178 1,140 5,401 (r)
4,211 (t)
----------
Income before minority
interest ....................... 3,749 6,072 (24) 2,792 4,618 3,602
Minority interest in
earnings of subsidiary 47
--------
Net income ...................... $ 3,702 $ 6,072 $ (24) $ 2,792 $ 4,618 $ 3,602
======== ======== ======== ======== ======== ==========
Pro forma basic net
income per share ...............
Pro forma weighted
average common
shares
outstanding -- basic
(000's) ........................
Pro forma diluted net
income per share (v) ...........
Pro forma weighted
average common
shares
outstanding -- diluted
(000's) (v) ....................
<CAPTION>
Pro Forma Pro Forma
Adjustments for the
for the Reorganization,
Reorganization, the Acquisitions,
the IPO and the IPO and
the Prior Offering the Prior Offering
-------------------- -------------------
(in thousands except
per share
data)
<S> <C> <C>
Revenues:
Vehicle sales .................. $ $1,592,802
Parts, service and
collision repair .............. 176,299
Finance and insurance 37,352
----------
Total revenues ................. 1,806,453
Cost of sales ................... 1,584,440
----------
Gross profit .................... 222,013
Selling, general and
administrative
expenses ....................... 291 (i) 161,289
Management bonus ................
Depreciation and
amortization ................... 15 (k) 6,629
Operating income ................ (306) 54,095
Interest expense, floor
plan ........................... (127)(o) 19,123
Interest expense, other ......... 12,812 (o) 15,163
Other income .................... 1,188
----------
Income before income
taxes and minority
interest ....................... (12,991) 20,997
Provision for income
taxes .......................... 6 (s) 8,319
(4,866) (u)
-----------
Income before minority
interest ....................... (8,131) 12,678
Minority interest in
earnings of subsidiary (47) (k)
-----------
Net income ...................... $ (8,084) $ 12,678
=========== ==========
Pro forma basic net
income per share ............... $ 1.08
==========
Pro forma weighted
average common
shares
outstanding -- basic
(000's) ........................ 11,735
==========
Pro forma diluted net
income per share (v) ........... $ 0.88
==========
Pro forma weighted
average common
shares
outstanding -- diluted
(000's) (v) .................... 14,415
==========
</TABLE>
(See accompanying notes to Unaudited Pro Forma Consolidated Statement of
Operations)
41
<PAGE>
Unaudited Pro Forma Consolidated Statement of Operations
Six Months Ended June 30, 1998
<TABLE>
<CAPTION>
The 1998 Acquisitions (a)
---------------------------------------------------
Higginbotham
Hatfield Automotive Other 1998
Actual(b) Automotive Group Group Acquisitions(e)
----------- ------------------ -------------- -----------------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Revenues:
Vehicle sales ................... $567,279 $133,661 $57,829 $ 89,466
Parts, service and collision
repair ......................... 68,020 8,774 5,363 11,913
Finance and insurance ........... 13,541 4,190 1,583 1,819
-------- -------- ------- --------
Total revenues .................. 648,840 146,625 64,775 103,198
Cost of sales .................... 566,392 130,221 55,166 90,391
-------- -------- ------- --------
Gross profit ..................... 82,448 16,404 9,609 12,807
Selling, general and adminis-
trative expenses ................ 59,622 11,308 6,948 10,103
Management bonus ................. 3,181
Depreciation and
amortization .................... 1,851 158 144 269
Operating income ................. 20,975 1,757 2,517 2,435
Interest expense, floor plan ..... 7,341 1,245 566 948
Interest expense, other .......... 2,745 145 264
Other income ..................... 15 244 20 69
-------- -------- ------- --------
Income before income taxes ....... 10,904 756 1,826 1,292
Provision for income taxes ....... 4,100 298
Net income ....................... $ 6,804 $ 756 $ 1,826 $ 994
======== ======== ======= ========
Pro forma basic net income
per share .......................
Pro forma weighted average
common shares
outstanding -- basic
(000's) .........................
Pro forma diluted net income
per share (v) ...................
Pro forma weighted average
common shares
outstanding -- diluted
(000's) (v) .....................
<CAPTION>
Pro Forma Pro Forma Pro Forma
Adjustments Adjustments for the
for the for the Acquisitions and
Acquisitions Prior Offering the Prior Offering
----------------- ---------------- -------------------
(in thousands except per share
data)
<S> <C> <C> <C>
Revenues:
Vehicle sales ................... $ $ $ 848,235
Parts, service and collision
repair ......................... 94,070
Finance and insurance ........... 71 (f) 21,204
---------- ---------- ---------
Total revenues .................. 71 963,509
Cost of sales .................... (75)(g) 842,095
---------- ---------- ---------
Gross profit ..................... 146 121,414
Selling, general and adminis-
trative expenses ................ (661)(h) 87,886
566 (j)
Management bonus ................. (3,181)(h)
Depreciation and
amortization .................... (149)(j) 3,133
(68)(l)
928 (m)
---------- ---------- ---------
Operating income ................. 2,711 30,395
Interest expense, floor plan ..... 24 (n) (63)(o) 10,061
Interest expense, other .......... (79)(j) 4,765 (o) 7,651
(189)(q)
Other income ..................... 348
---------- ----------- ---------
Income before income taxes ....... 2,955 (4,702) 13,031
Provision for income taxes ....... 1,146 (r) (1,763)(w) 5,012
1,231 (t)
---------- ---------- ---------
Net income ....................... $ 578 $ (2,939) $ 8,019
========== ========== =========
Pro forma basic net income
per share ....................... $ 0.68
=========
Pro forma weighted average
common shares
outstanding -- basic
(000's) ......................... 11,749
=========
Pro forma diluted net income
per share (v) ................... $ 0.55
=========
Pro forma weighted average
common shares
outstanding -- diluted
(000's) (v) ..................... 14,658
=========
</TABLE>
(See accompanying notes to Unaudited Pro Forma Consolidated Statement of
Operations)
42
<PAGE>
- ---------
(a) The Company has obtained Manufacturer consent to all of the 1998
Acquisitions other than from Honda in the Economy Honda Acquisition, which
the Company expects to receive prior to the closing of the acquisition.
There can be no assurance that such consent will be obtained. The
Company's request for consent to the acquisition of a Jaguar franchise
included in the 1997 Acquisitions and a Jaguar franchise included in the
Heritage Acquisition was denied. The two Jaguar franchises and the Economy
Honda Dealership, which are included in the Unaudited Pro Forma
Consolidated Financial Data, represented in the aggregate 3.2% and 3.6% of
the Company's pro forma revenues and gross profit for 1997, and 2.9% and
2.9% of the Company's pro forma revenues and gross profit for the first
six months of 1998. See "Risk Factors -- No Consent from Jaguar" and " --
No Consent from Honda."
(b) The actual consolidated statement of operations data for the Company for
the year ended December 31, 1997 includes the results of operations of the
following dealerships and dealership groups acquired during the year ended
December 31, 1997 (the "1997 Acquisitions") from their respective dates of
acquisition:
<TABLE>
<CAPTION>
Date
Dealership Acquired of Acquisition
- ------------------------------------- ------------------
<S> <C>
Fort Mill Chrysler-Plymouth-Dodge June 3, 1997
Lake Norman Dealerships September 1, 1997
Ken Marks Ford October 1, 1997
Williams Motors October 10, 1997
Dyer Volvo November 1, 1997
Bowers Dealerships November 1, 1997
</TABLE>
The actual consolidated statement of operations data for the Company the
six months ended June 30, 1998 includes the results of operations of the
following dealerships and dealership groups acquired during the first six
months of 1998 from their respective dates of acquisition:
<TABLE>
<CAPTION>
Date
Dealership Acquired of Acquisition
- -------------------------------------------------- ----------------
<S> <C>
Clearwater Dealerships and Affiliate Companies January 1, 1998
Casa Ford of Houston, Inc. May 1, 1998
Capitol Chevrolet and Imports April 1, 1998
Century BMW April 1, 1998
Heritage Lincoln Mercury April 1, 1998
</TABLE>
(c) Reflects the results of operations of the 1997 Acquisitions for the period
from January 1, 1997 to their respective dates of acquisition. Pro forma
adjustments have not been presented to include the results of (i) Fort
Mill Chrysler-Plymouth-Dodge for the period from January 1, 1997 to June
3, 1997, the effective date of the acquisition or (ii) Williams Motors for
the period from January 1, 1997 to October 10, 1997, the effective date of
acquisition, because management believes such results are not material.
(d) The combined statement of operations data for Hatfield Automotive Group
include the results of Trader Bud's Westside Chrysler-Plymouth from May 1,
1997, the effective date of the acquisition by Hatfield Automotive Group.
Pro forma adjustments have not been presented to include the results of
operations of Trader Bud's Westside Chrysler-Plymouth for the four month
period ended April 30, 1997 because management believes such results are
not material.
(e) Reflects the results of operations of the 1998 Acquisitions (other than the
Hatfield Acquisition and the Higginbotham Acquisition) for the year ended
December 31, 1997 and reflects the results of operations of the 1998
Acquisitions (other than the Hatfield Acquisition, the Higginbotham
Acquisition and the Clearwater Acquisition) from January 1, 1998 to their
respective dates of acquisition. Certain historical amounts have been
reclassified to conform to the Company's method of presentation.
(f) Reflects finance and insurance revenues generated by the 1997 Acquisitions
and the 1998 Acquisitions in the amounts of $252,000 and $307,000,
respectively for the year ended December 31, 1997, and by the 1998
Acquisitions (other than the Clearwater Acquisition) in the amount of
$71,000 for the six months ended June 30, 1998, that were paid directly to
the dealership owners or wholly-owned management companies and excluded
from revenue in the historical financial statements of the acquired
dealerships. No adjustment has been made to reflect such amounts for the
Economy Honda Acquisition, the Montgomery Acquisition, the Hatfield
Acquisition, the Century Acquisition or the Heritage Acquisition as such
amounts could not be reasonably ascertained.
(footnotes continued on following pages)
43
<PAGE>
(g) Adjustment reflects the conversion from the LIFO Method of inventory
accounting to the FIFO Method of inventory accounting for the 1997
Acquisitions and the 1998 Acquisitions (other than the Hatfield
Acquisition and the Clearwater Acquisition) in the amounts of $371,000 and
$508,000, respectively, for the year ended December 31, 1997 and for the
1998 Acquisitions (other than the Hatfield Acquisition and the Clearwater
Acquisition) in the amount of $75,000 for the six months ended June 30,
1998, to conform to the Company's method of accounting for vehicle
inventories.
(h) Reflects the net decrease in selling, general and administrative expenses
related to the net reduction in salaries, bonuses, fringe benefits and
related expenses of owners and officers of the acquired dealerships who
have become or will become employees, consistent with reduced salaries
pursuant to employment agreements with the Company, or whose positions
have been or will be eliminated as part of the Acquisitions.
(i) Reflects the increase in salaries of existing officers who entered into
employment agreements with the Company, effective upon consummation of the
IPO.
(j) Reflects the increase in rent expense related to lease agreements entered
into with the sellers of certain acquired dealerships for the dealerships'
real property that will not be acquired by the Company, and the decreases
in depreciation expense and interest expense related to mortgage
indebtedness encumbering such property of approximately $9.6 million (of
which $112,000 is included in current maturities of long-term debt)
bearing interest at rates from 7.0% to 10.0%.
(k) Reflects the elimination of minority interest in earnings as a result of
the acquisition of the 31% minority interest in Town & Country Toyota for
$3.2 million of Class B Common Stock in connection with the
Reorganization, and the amortization over 40 years of approximately $1.2
million in goodwill arising from such acquisition.
(l) Reflects the elimination of amortization expense related to goodwill that
arose in previous acquisitions in certain of the acquired dealerships from
the effective date of the acquisitions.
(m) Reflects the amortization over an assumed useful life of 40 years, of
intangible assets, consisting primarily of goodwill, resulting from the
Acquisitions which were assumed to occur on January 1, 1997. Certain of
the 1998 Acquisitions have purchase agreements which require the Company
to pay additional amounts in cash or Preferred Stock based on future
operating results. Amount includes amortization of the additional goodwill
associated with the $1.8 million contingent purchase price related to the
Clearwater Acquisition. Should the Company be required to pay the maximum
additional amounts contingent in the purchase agreements for the pending
1998 Acquisitions (other than Casa Ford), the Company would incur goodwill
amortization charges in addition to the amounts recorded in the Unaudited
Pro Forma Consolidated Statements of Operations of approximately $81,000
in 1997 and $40,000 for the six months ended June 30, 1998, respectively.
The Company's purchase agreement for Casa Ford does not provide a maximum
contingent amount to be paid based on future operating results, therefore
a maximum additional amount of amortization expense cannot be estimated.
See "The 1998 Acquisitions" and "Unaudited Pro Forma Consolidated Balance
Sheet."
(n) Reflects the decrease in interest expense, floor plan resulting from the
refinancing of the notes payable, floor plan arrangements of the Company
and the dealerships being acquired, under the Floor Plan Facility as if
such refinancing had occurred at the beginning of the period presented.
The aggregate balance of notes payable, floor plan arrangements of the
Company and the dealerships being acquired was $232.3 million and $200.6
million at December 31, 1997 and June 30, 1998, respectively, prior to the
assumed repayment by the Company reflected in (o) below. The average
interest rate under the Floor Plan Facility is approximately 7.6% compared
to historical interest rates ranging from 7.8% to 9.5%.
(o) Reflects the increase in interest expense associated with the Notes issued
in the Prior Offering and the decrease in interest expense as a result of
the assumed repayment of approximately $48.8 million of debt outstanding
under the Revolving Facility and $1.5 million of debt outstanding under
the Floor Plan Facility with the net proceeds from the Prior Offering not
used to finance the pending 1998 Acquisitions. See "Use of Proceeds."
(p) In connection with the Bowers Acquisition, the Company issued a promissory
note to the former owner in the amount of $4.0 million bearing interest at
NationsBank's prime rate less 0.5%. This adjustment reflects an increase
in interest expense related to the promissory note assuming a prime rate
of 8.5% as if the note was issued at the beginning of the period
presented.
(q) Reflects the decrease in interest expense related to debt, other than
mortgage indebtedness, which has not or will not be assumed of
approximately $8.1 million (of which $2.3 million is included in current
maturities of long-term debt) bearing interest at rates from 4.0% to
10.7%.
(footnotes continued on following page)
44
<PAGE>
(r) Reflects the net increase in provision for income taxes resulting from pro
forma adjustments above, computed using a combined statutory income tax
rate of approximately 39%.
(s) Reflects the net increase in the provision for income taxes due to the
amortization of goodwill related to the acquisition of the minority
interest pursuant to the Reorganization, calculated at the combined
statutory income tax rate of 39.9%.
(t) Certain of the acquired dealerships were not subject to federal and state
income taxes because they were either S corporations, partnerships, or
limited liability companies during the period indicated. Upon completion
of these acquisitions, these dealerships will be subject to federal and
state income tax as C corporations. This adjustment reflects the resulting
increase in the federal and state income tax provision as if these
entities had been taxable at the combined statutory income tax rate of
approximately 39%.
(u) Reflects the net decrease in the provision for income taxes resulting from
adjustments (i) and (o), computed using a combined statutory income tax
rate of 37.5%.
(v) Pro forma basic and diluted net income per share and the related weighted
average shares outstanding for the year ended December 31, 1997 have been
adjusted to reflect the issuance of 5 million shares of Class A Common
Stock in connection with the IPO and the issuance of 485,294 shares of
Class A Common Stock in connection with the Higginbotham Acquisition as if
such shares had been issued on January 1, 1997. Pro forma diluted net
income per share and the related weighted average shares outstanding for
the year ended December 31, 1997 includes the dilutive effect of the
issuance of 32,159 shares of Preferred Stock in connection with the 1998
Acquisitions. Warrants to purchase 44,391 shares of Class A Common Stock
issued in January 1998 in connection with the consummation of the 1997
Acquisitions and warrants to purchase 75,000 shares of Class A Common
Stock to be issued in connection with the 1998 Acquisitions were not
included in the reported amounts because they were anti-dilutive. Pro
forma net income per share and the related weighted average shares
outstanding for the six months ended June 30, 1998 includes the dilutive
effect of the issuance of 32,159 shares of Preferred Stock in connection
with the 1998 Acquisitions and warrants to purchase 75,000 shares of Class
A Common Stock issued in connection with the Century Acquisition as if
such shares and warrants had been issued on January 1, 1998. The following
is a reconciliation of the pro forma weighted average shares for the year
ended December 31, 1997 and the six months ended June 30, 1998:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1997 June 30, 1998
------------------- --------------
<S> <C> <C>
Weighted Average Shares -- Basic (actual) .............. 6,949 11,264
Issuance of Common Stock in connection with IPO ........ 4,301 --
Issuance of Common Stock in connection with Higginbotham
Acquisition ........................................... 485 485
----- ------
Weighted Average Shares -- Basic (pro forma) ........... 11,735 11,749
====== ======
Weighted Average Shares -- Diluted (actual) ............ 6,949 11,637
Issuance of Common Stock in connection with Higginbotham
Acquisition ........................................... 485 485
Issuance of common Stock in connection with IPO ........ 4,301 --
Class A Convertible Preferred Stock .................... 2,680 2,518
Warrants ............................................... -- 18
------ ------
Weighted Average Shares -- Diluted (pro forma) ......... 14,415 14,658
====== ======
</TABLE>
(w) Reflects the net decrease in the provision for income taxes resulting from
adjustment (o) computed using a combined statutory income tax rate of
37.5%.
45
<PAGE>
Unaudited Pro Forma Consolidated Balance Sheet
As of June 30, 1998
<TABLE>
<CAPTION>
The 1998 Acquisitions
------------------------------------------
Pro Forma Pro Forma
Hatfield Higginbotham Adjustments Adjustments
Automotive Automotive Other 1998 for the 1998 for the
Actual Group Group Acquisitions Acquisitions Prior Offering
---------- ------------ -------------- -------------- ------------------- ------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 27,228 $14,200 $ 4,628 $ 7,266 $ (58,950)(a) $ 120,126(b)
4,300 (h)
(15,733)(c) (65,476)(d)
Receivables ................... 35,761 3,294 2,292 496 (2,292)(c)
Inventories ................... 175,515 33,733 9,893 4,023 3,866 (e)
1,519 (a)
Finance notes receivable ...... 2,480 (41)(c)
Deferred incomes taxes ........ 669
Due from affiliates ........... 1,084 --
Other current assets .......... 3,854 480 557 57 (512)(c)
-------- ------- ------- ------- ----------- ----------
Total current assets ....... 244,111 51,707 19,850 11,842 (67,843) 54,650
Property and equipment, net 22,040 952 2,922 1,731
(4,062)(f)
Finance notes receivable ....... 1,564 (4)(c)
Goodwill, net .................. 102,948 971 847 65,308 (a)
(1,818)(g)
Other assets ................... 524 374 (374)(c) 3,937 (b)
-------- ------- ----------- ----------
Total assets ............... $369,623 $53,630 $25,557 $13,573 $ (8,793) $ 58,587
======== ======= ======= ======= =========== ==========
Liabilities and
Stockholders' Equity
Current Liabilities:
Notes payable-floor plan ...... $149,670 $35,343 $11,033 $ 4,300(h) $ (1,542)(d)
233 (a)
Trade accounts payable ........ 7,971 1,374 980 205 (980)(c)
Accrued interest .............. 1,584 156 10 (10)(c)
Other accrued liabilities ..... 17,949 1,195 1,896 902 (1,607)(c)
Dividends payable ............. 250 (250)(c)
Payable for Acquisitions ...... 15,726 1,250 (a) (15,176)(d)
Payable to affiliates ......... 445 609 3,035 (3,644)(c)
Current maturities of
long-term debt ............... 789 112 (112)(f)
-------- ------- ----------- ----------
Total current
liabilities ............... 194,134 38,677 17,316 1,107 (820) (16,718)
Long-term debt ................. 54,644 1,064 (20)(c) 124,063 (b)
(1,044)(f) (48,758)(d)
Payable to the Company's
Chairman ....................... 5,500
Payable to affiliates .......... 4,160 8,325 (8,325)(c)
Deferred income taxes .......... 1,079 78
Income tax payable ............. 6,705 234 (e)
Stockholders' Equity:
Receivable from
stockholder .................. -- -- --
Common Stock of
combined companies ........... 2,825 3,064 50 (5,939)(a)
Preferred Stock ............... 11,763 19,125 (a)
Class A Common Stock .......... 50 8,250 (a)
Class B Common Stock .......... 63
Paid-in capital ............... 68,535 1,744 (1,744)(a)
Retained earnings and
members' and partners'
equity ....................... 22,990 2,059 4,113 12,338 (13,258) (a)
(4,160)(c)
3,632 (e)
(2,906)(f)
(1,818)(g)
Total stockholders' equity ..... 103,401 6,628 7,177 12,388 1,182
-------- ------- ------- ------- ----------- ----------
Total liabilities and
stockholders' equity ........... $369,623 $53,630 $25,557 $13,573 $ (8,793) $ 58,587
======== ======= ======= ======= =========== ==========
<CAPTION>
Pro Forma
for the 1998
Acquisitions and
the Prior Offering
-------------------
<S> <C>
Assets
Current Assets:
Cash and cash equivalents $ 37,589
Receivables ................... 39,551
Inventories ................... 228,549
Finance notes receivable ...... 2,439
Deferred incomes taxes ........ 669
Due from affiliates ........... 1,084
Other current assets .......... 4,436
--------
Total current assets ....... 314,317
Property and equipment, net 23,583
Finance notes receivable ....... 1,560
Goodwill, net .................. 168,256
Other assets ................... 4,461
--------
Total assets ............... $512,177
========
Liabilities and
Stockholders' Equity
Current Liabilities:
Notes payable-floor plan ...... $199,037
Trade accounts payable ........ 9,550
Accrued interest .............. 1,740
Other accrued liabilities ..... 20,335
Dividends payable .............
Payable for Acquisitions ...... 1,800
Payable to affiliates ......... 445
Current maturities of
long-term debt ............... 789
--------
Total current
liabilities ............... 233,696
Long-term debt ................. 129,949
Payable to the Company's
Chairman ....................... 5,500
Payable to affiliates .......... 4,160
Deferred income taxes .......... 1,157
Income tax payable ............. 6,939
Stockholders' Equity:
Receivable from
stockholder .................. --
Common Stock of
combined companies ...........
Preferred Stock ............... 30,888
Class A Common Stock .......... 8,300
Class B Common Stock .......... 63
Paid-in capital ............... 68,535
Retained earnings and
members' and partners'
equity ....................... 22,990
Total stockholders' equity ..... 130,776
--------
Total liabilities and
stockholders' equity ........... $512,177
========
</TABLE>
(See accompanying notes to Unaudited Pro Forma Consolidated Balance Sheet)
46
<PAGE>
- ---------
(a) Reflects the preliminary allocation of the aggregate purchase price of the
1998 Acquisitions (other than the Clearwater Acquisition, the Heritage
Acquisition, the Montgomery Acquisition, the Century Acquisition, and the
Casa Ford Acquisition, which are included in the historical accounts of
the Company) based on the estimated fair value of the net assets acquired.
Because the carrying amount of the net assets acquired, which primarily
consist of accounts receivable, inventory, equipment, and floor plan
indebtedness, approximates their fair value, management believes the
application of purchase accounting will not result in a significant
adjustment to the carrying amount of those net assets. The amount of
goodwill and the corresponding amortization actually recorded may
ultimately be different from amounts estimated here, depending on the
actual fair value of tangible net assets acquired at closing of the 1998
Acquisitions. The estimated purchase price allocation consists of the
following:
<TABLE>
<CAPTION>
Hatfield Higginbotham
Automotive Automotive Other 1998
Group Group Acquisitions Total
------------ ------------- -------------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Estimated total consideration:
Cash .................................... $34,525 $18,244 $ 6,181 $58,950
Payable for acquisitions ................ -- 500 1,300 1,800
Class A Common Stock .................... -- 8,250 -- 8,250
Preferred Stock ......................... 14,025 -- 5,100 19,125
------- ------- ------- -------
Total .................................. 48,550 26,994 12,581 88,125
------- ------- ------- -------
Less: Estimated fair value of tangible net
assets acquired ......................... 10,752 7,734 4,331 22,817
------- ------- ------- -------
Excess of purchase price over fair value of
net tangible assets acquired ............ $37,798 $19,260 $ 8,250 $65,308
======= ======= ======= =======
</TABLE>
The Company has obtained Manufacturer consent to all of the 1998
Acquisitions other than from Honda in the Economy Honda Acquisition, which
the Company expects to receive prior to the closing of the acquisition.
There can be no assurance that such consent will be obtained. The Company's
request for consent to the acquisition of a Jaguar franchise included in the
1997 Acquisitions and a Jaguar franchise included in the Heritage
Acquisition was denied. The two Jaguar franchises and the Economy Honda
Dealership, which are included in the Unaudited Pro Forma Consolidated
Financial Data, represented in the aggregate 3.2% and 3.4% of the Company's
pro forma revenues and gross profit for 1997, and 2.9% and 2.8% of the
Company's pro forma revenues and gross profit for the first six months of
1998. See "Risk Factors -- No Consent from Jaguar" and " -- No Consent from
Honda."
(b) Reflects the proceeds (net of estimated debt issuance costs of $3.9
million) to the Company from the issuance of $125.0 million of the Notes
in the Prior Offering, less unamortized discount of $937,000.
(c) Reflects the elimination of certain assets and liabilities other than
goodwill, real property and related mortgage indebtedness of the acquired
dealerships that will not be acquired.
(d) Reflects the net proceeds from the Prior Offering in excess of amounts
required to consummate the 1998 Acquisitions (other than the Clearwater
Acquisition) that will be used to repay amounts outstanding under the
Revolving Facility, the Floor Plan Facility and the Payable for
Acquisitions.
(e) Reflects the conversion from the LIFO Method of inventory accounting to the
FIFO Method of inventory accounting at certain of the acquired
dealerships, including the resulting tax liability calculated at the
applicable statutory income tax rate ranging from 37.9% to 38.9%.
(f) Reflects the elimination of real property and related mortgage indebtedness
at certain of the dealerships which are not being acquired.
(g) Reflects the elimination of goodwill that arose in previous acquisitions of
certain of the acquired dealerships.
(h) Reflects the proceeds received from the issuance of floor plan notes
payable used to finance vehicles acquired in the Economy Honda
Acquisition.
47
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition should be read in conjunction with the Sonic Automotive, Inc. and
Subsidiaries Consolidated Financial Statements and the related notes thereto
included elsewhere herein.
Overview
The Company is one of the leading automotive retailers in the United
States, operating 27 dealerships and ten collision repair centers in the
southeastern and southwestern United States as of June 30, 1998. Sonic sells
new and used cars and light trucks, sells replacement parts, provides vehicle
maintenance, warranty, paint and repair services and arranges related F&I for
its automotive customers. The Company's business is geographically diverse,
with dealership operations in the Atlanta, Charlotte, Chattanooga,
Greenville/Spartanburg, Houston, Montgomery, Nashville and Tampa/Clearwater
markets as of June 30, 1998. Sonic sold 20 domestic and foreign brands as of
June 30, 1998, consisting of BMW, Cadillac, Chevrolet, Chrysler, Dodge, Ford,
Honda, Hyundai, Infiniti, Jaguar, Jeep, KIA, Lincoln, Mercury, Mitsubishi,
Oldsmobile, Plymouth, Toyota, Volkswagen and Volvo.
New vehicle revenues include both the sale and lease of new vehicles. Used
vehicle revenues include amounts received for used vehicles sold to retail
customers, other dealers and wholesalers. Other operating revenues include
parts and services revenues, fees and commissions for arranging F&I and sales
of third party extended warranties for vehicles (collectively, "F&I
transactions"). In connection with vehicle financing contracts, the Company
receives a fee (a "finance fee") from the lender for originating the loan. If,
within 90 days of origination, the customer pays off the loans through
refinancing or selling/trading in the vehicle or defaults on the loan, the
finance company will assess a charge (a "chargeback") for a portion of the
original commission. The amount of the chargeback depends on how long the
related loan was outstanding. As a result, the Company has established reserves
based on its historical chargeback experience. The Company also sells
warranties provided by third-party vendors, and recognizes a commission at the
time of sale.
While the automotive retailing business is cyclical, Sonic sells several
products and services that are not closely tied to the sale of new and used
vehicles. Such products and services include the Company's parts and service
and collision repair businesses, both of which are not dependent upon near-term
new vehicle sales volume. One measure of cyclical exposure in the automotive
retailing business is based on the dealerships' ability to cover fixed costs
with gross profit from revenues independent of vehicle sales. According to this
measurement of "fixed coverage," a higher percentage of non-vehicle sales
revenue to fixed costs indicates a lower exposure to economic cycles. Each
manufacturer requires its dealerships to report fixed coverage according to a
specific method, and the methods used vary widely among the manufacturers and
are not comparable.
The Company's cost of sales and profitability are also affected by the
allocations of new vehicles which its dealerships receive from Manufacturers.
When the Company does not receive allocations of new vehicle models adequate to
meet customer demand, it purchases additional vehicles from other dealers at a
premium to the Manufacturer's invoice, reducing the gross margin realized on
the sales of such vehicles. In addition, the Company follows a disciplined
approach in selling vehicles to other dealers and wholesalers when the vehicles
have been in the Company's inventory longer than the guidelines set by the
Company. Such sales are frequently at or below cost and, therefore, reduce the
Company's overall gross margin on vehicle sales. The Company's salary expense,
employee benefits costs and advertising expenses comprise the majority of its
selling, general and administrative ("SG&A") expenses. The Company's interest
expense fluctuates based primarily on the level of the inventory of new
vehicles held at its dealerships, substantially all of which is financed (such
financing being called "floor plan financing") as well as the amount of
indebtedness incurred for acquisitions.
The Company has accounted for all of its dealership acquisitions using the
purchase method of accounting and, as a result, does not include in its
financial statements the results of operations of these dealerships prior to
the date they were acquired by the Company. The Consolidated Financial
Statements of the Company discussed below reflect the results of operations,
financial position and cash flows of each of the Company's dealerships acquired
prior to June 30, 1998. As a result of the effects of the Acquisitions, the
historical consolidated financial information described in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" is
not necessarily indicative of the results of operations, financial position and
cash flows of the Company in the future or the results of operations, financial
position and cash flows which would have resulted had the Acquisitions occurred
at the beginning of the periods presented in the Consolidated Financial
Statements.
48
<PAGE>
The automobile industry is cyclical and historically has experienced
periodic downturns, characterized by oversupply and weak demand. Many factors
affect the industry including general economic conditions and consumer
confidence, the level of discretionary personal income, interest rates and
available credit.
The Company's profit margins are primarily impacted by changes in the
percentage of revenues attributed to new vehicle sales.
Results of Operations
The following table summarizes, for the periods presented, the percentages
of total revenues represented by certain items reflected in the Company's
statement of operations.
<TABLE>
<CAPTION>
Percentage of Total Revenues for
Three Months Ended Six Months Ended
Year Ended December 31, June 30, June 30,
----------------------------------- --------------------- ---------------------
1995 1996 1997 1997 1998 1997 1998
----------- ----------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
New vehicle sales .................... 60.0% 62.0% 64.2% 65.1% 60.7% 64.5% 59.7%
Used vehicle sales ................... 26.0% 24.9% 23.1% 22.2% 27.2% 22.5% 27.7%
Parts, service and collision repair .. 11.5% 11.2% 10.7% 10.5% 10.1% 10.8% 10.5%
Finance and insurance ................ 2.5% 1.9% 2.0% 2.2% 2.0% 2.2% 2.1%
Total revenues. ...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales ........................ 87.4% 88.1% 88.2% 88.8% 87.5% 88.9% 87.3%
Gross profit ......................... 12.6% 11.9% 11.8% 11.2% 12.5% 11.1% 12.7%
Selling, general and administrative .. 9.3% 8.9% 9.0% 8.2% 9.1% 8.4% 9.5%
Operating income ..................... 3.2% 2.9% 2.8% 3.0% 3.4% 2.7% 3.2%
Interest expense ..................... 1.6% 1.7% 1.7% 1.6% 1.5% 1.6% 1.6%
Income before income taxes ........... 1.7% 1.3% 1.5% 1.4% 1.9% 1.2% 1.7%
</TABLE>
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Revenues. Revenues grew in each of the Company's primary revenue areas for
the first six months of 1998 as compared with the first six months of 1997,
causing total revenues to increase 204.8% to $648.8 million. New vehicle sales
revenue increased 182.4% to $387.5 million in the first six months of 1998,
compared with $137.2 million in the first six months of 1997. The increase was
due primarily to an increase in new vehicle unit sales of 153.3% to 16,601, as
compared with 6,553 in the first six months of 1997 resulting principally from
additional unit sales contributed by the acquisitions of Jeff Boyd
Chrysler-Plymouth-Dodge in June 1997; Lake Norman Dodge and Affiliates in
September 1997; Ken Marks Ford in October 1997; Dyer Volvo and the Bowers
Dealerships and Affiliated Companies in November 1997; Clearwater Toyota,
Clearwater Mitsubishi, and Clearwater Collision Center in January 1998; Century
BMW, Heritage Lincoln Mercury, and Capitol Chevrolet and Imports in April 1998;
and Casa Ford in May 1998 (the "Closed Acquisitions"). The remainder of the
increase was due to an 11.5% increase in the average selling price of new
vehicles resulting principally from sales of higher priced import vehicles
contributed by the Closed Acquisitions.
Used vehicle revenues from retail sales increased 305.6% to $132.5 million
in the first six months of 1998 from $32.7 million in the first six months of
1997. The increase was due primarily to an increase in used vehicle unit sales
of 268.4% to 9,719, as compared with 2,638 in the first six months of 1997,
resulting from additional unit sales contributed by the Closed Acquisitions.
The remainder of the increase was due to a 10.1% increase in the average
selling price of used vehicles resulting principally from sales of higher
priced luxury and import vehicles contributed by the Closed Acquisitions along
with an increase in used vehicle revenues of 15.2% in the first six months of
1998 compared to the first six months of 1997 from used vehicle revenues from
stores owned for longer than one year.
The Company's parts, service and collision repair revenue increased 196.9%
to $68.0 million in the first six months of 1998 compared to $22.9 million in
the first six months of 1997, due principally to the Closed Acquisitions.
Finance and insurance revenue increased $8.8 million, or 184.3%, due
principally to increased new vehicle sales and related financing.
Gross Profit. Gross profit increased 248.9% to $82.4 million in the first
six months of 1998 from $23.6 million in the first six months of 1997 due
principally to increases in revenues contributed by dealerships acquired. Gross
profit as a percentage of sales increased to 12.7% from 11.1% due to increases
in new vehicle gross margins resulting from sales of higher margin import
vehicles contributed by acquired dealerships, as well as improved gross margins
of used vehicles
49
<PAGE>
resulting from efforts made to improve management of used vehicle inventories.
Additionally, gross margin percentages for each profit center are affected by
the mix of revenues within each profit center, correspondingly. Used vehicle
revenues increased and new vehicle revenues decreased as a percentage of total
revenues from 15.3% and 64.4% in the first six months of 1997, respectively,
compared to 20.4% and 59.7% for the first six months of 1998, respectively. The
revenue mix resulted in increased used vehicle gross profits and decreased new
vehicle gross profits as a percentage of the total gross profits from 11.7% and
38.0%, respectively, in the first six months of 1997 to 16.0% and 36.3% in the
first six months of 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, including depreciation and amortization, increased
242.9% to $61.5 million in the first six months of 1998 from $17.9 million in
the first six months of 1997. Such expenses as a percentage of revenues
increased to 9.5% from 8.4% due principally to expenses inherent with the
initial growth and formation of the Company. Additionally, as gross profits and
gross profit margins increase expenses related to employees commissions for
sales of related products increase, respectively.
Interest Expense, Floorplan. Interest expense, floorplan increased 143.3%
to $7.3 million from $3.0 million, due primarily to floorplan interest incurred
by the Closed Acquisitions. As a percentage of total revenues, floor plan
interest decreased from 1.4% to 1.1% primarily due to decreased interest rates
under the Company's floor plan financing arrangements, as well as improved
management of inventory levels.
Interest Expense, Other. Interest expense, other increased 764.2% to $2.7
million from $0.3 million, due primarily to interest incurred on acquisition
related indebtedness.
Net Income. As a result of the factors noted above, the Company's net
income increased by $5.3 million in the first six months of 1998 compared to
the first six months of 1997.
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30,
1997
Revenues. Revenues grew in each of the Company's primary revenue areas for
the three months ended June 30, 1998 as compared with the three months ended
June 30, 1997, causing total revenues to increase 237.8% to $385.5 million. New
vehicle sales revenue increased 214.5% to $233.7 million for the three months
ended June 30, 1998, compared with $74.3 million for the three months ended
June 30, 1997. The increase was due primarily to an increase in new vehicle
unit sales of 182.6% to 9,984, as compared with 3,533 for the three months
ended June 30, 1997 resulting principally from additional unit sales
contributed by the Closed Acquisitions. The remainder of the increase was due
to a 11.3% increase in the average selling price of new vehicles resulting
principally from sales of higher priced import vehicles contributed by the
Closed Acquisitions.
Used vehicle revenues from retail sales increased 344.5% to $76.0 million
for the three months ended June 30, 1998 from $17.1 million for the comparable
period of 1997. The increase was due primarily to an increase in used vehicle
unit sales of 293.4% to 5,386 as compared with 1,369 for the three months ended
June 30, 1997, resulting from additional unit sales contributed by the Closed
Acquisitions. The remainder of the increase was due to a 13.0% increase in the
average selling price of used vehicles resulting principally from sales of
higher priced luxury and import vehicles contributed by the Closed Acquisitions
along with an increase in used vehicle revenues of 12.1% for the three months
ended June 30, 1998 compared to the three months ended June 30, 1997 from used
vehicle revenues on a same store basis
The Company's parts, service and collision repair revenue increased 227.2%
to $39.0 million for the three months ended June 30, 1998 compared to $11.9
million for the same period of the prior year, due principally to the Closed
Acquisitions. Finance and insurance revenue increased $5.2 million, or 201.2%,
due principally to increased new vehicle sales and related financing.
Gross Profit. Gross profit increased 276.7% to $48.2 million for the three
months ended June 30, 1998 from $12.8 million for the three months ended June
30, 1997 due principally to increases in revenues contributed by dealerships
acquired. Gross profit as a percentage of sales increased to 12.5% from 11.2%
due to increases in new vehicle gross margins resulting from sales of higher
margin import vehicles contributed by acquired dealerships, as well as improved
gross margins of used vehicles resulting from efforts made to improve
management of used vehicle inventories.
Additionally, gross margin percentages for each profit center are affected
by the mix of revenues within each profit center, correspondingly. Used vehicle
revenues increased and new vehicle revenues decreased as a percentage of total
revenues from 14.9% and 65.1% for the three months ended June 30, 1997,
respectively, compared to 19.7% and 60.6% for the three months ended June 30,
1998, respectively. The revenue mix resulted in increased used vehicle gross
profits and decreased new vehicle gross profits as a percentage of the total
gross profits from 11.9% and 39.7%, respectively, for the three months ended
June 30, 1997 to 16.1% and 37.0% for the three months ended June 30, 1998.
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Selling, General and Administrative Expenses. Selling, general and
administrative expenses, including depreciation and amortization, increased
273.3% to $35.0 million for the three months ended June 30, 1998 from $9.4
million for the same period in the prior year. Such expenses as a percentage of
revenues increased to 9.1% from 8.2% due principally to expenses inherent with
the initial growth and formation of the Company. Additionally, as gross profits
and gross profit margins increase expenses related to employees commissions for
sales of related products increase, respectively.
Interest Expense, Floorplan. Interest expense, floorplan increased 144.4%
to $4.1 million from $1.7 million, due primarily to floorplan interest incurred
by the Closed Acquisitions. As a percentage of total revenues, floor plan
interest decreased from 1.5% to 1.1% primarily due to decreased interest rates
under the Company's floor plan financing arrangements, as well as improved
management of inventory levels.
Interest Expense, Other. Interest expense, other increased 932.3% to $1.7
million from $0.2 million, due primarily to interest incurred on acquisition
related indebtedness.
Net Income. As a result of the factors noted above, the Company's net
income increased by $3.7 million for the three months ended June 30, 1998
compared to comparable period of 1997.
Twelve Months Ended December 31, 1997 Compared to Twelve Months Ended
December 31, 1996
Revenues. Revenues grew in each of the Company's primary revenue areas for
1997 as compared with 1996, causing total revenues to increase 42.2% to $536.0
million. New vehicle sales revenue increased 47.0% to $343.9 million, compared
with $233.9 million. New vehicle unit sales increased from 11,693 to 15,715,
accounting for 34.4% of the increase in vehicle sales revenues. The remainder
of the increase was primarily due to a 9.4% increase in the average selling
price resulting from changes in vehicle prices, particularly a shift in
customer preference to higher cost light trucks and sport utility vehicles, and
additional revenues from the 1997 Acquisitions.
Used vehicle revenues from retail sales increased 25.1% from $68.0 million
in 1996 to $85.1 million in 1997. The increase in used vehicle revenues was due
principally to additional revenues contributed from the 1997 Acquisitions in
the fourth quarter of 1997.
The Company's parts, service and collision repair revenue increased 36.7%
to $57.5 million from $42.1 million, and declined as a percentage of revenue to
10.7% from 11.2%. The increase in service and parts revenue was due principally
to increased parts revenue, including wholesale parts, from the Company's Lone
Star Ford and Fort Mill Ford locations and additional revenues from the 1997
Acquisitions in the fourth quarter 1997. F&I revenue increased $3.5 million,
due principally to increased new vehicle sales and related financings.
Gross Profit. Gross profit increased 40.8% in 1997 to $63.0 million from
$44.7 million in 1996 due to increases in new vehicle sales revenues
principally at the Company's Lone Star Ford and Fort Mill Ford locations and
additional revenues from the 1997 Acquisitions in the third and fourth quarters
of 1997. Parts and service revenue increases also contributed to the increase
in gross profit.
Selling, General and Administrative Expenses. SG&A expenses, including
depreciation and amortization, increased 42.8% from $33.7 million to $48.1
million. These expenses increased due to increases in sales volume as well as
expenses associated with the 1997 Acquisitions and the Company's IPO.
Interest Expense, floor plan. Interest expense, floor plan increased 34.2%
to $8.0 million from $6.0 million, primarily due to the 1997 Acquisitions. As a
percentage of total revenues, floor plan interest decreased from 1.6% to 1.5%.
Interest Expense, other. Interest expense, other increased 176.9% from
$0.4 million to $1.2 million. The increase in interest expense was due to
funding of the 1997 Acquisitions in the fourth quarter.
Net Income. As a result of the factors noted above, the Company's net
income increased by $0.7 million in 1997 compared to 1996.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Revenues. The Company's total revenue increased 21.2% to $376.9 million in
1996 from $311.3 million in 1995. New vehicle sales increased 25.2% to $234.0
million in 1996 from $186.9 million in 1995, primarily because of the
acquisition in February 1996 of the Company's Fort Mill Ford dealership. The
inclusion of the results of the Fort Mill Ford dealership accounted for 69.0%
of the Company's overall increase in new vehicle sales in 1996. Of the increase
in sales, 60.7% was attributable to increases in unit sales from 1995 to 1996.
The remainder of the increase in new vehicle sales in 1996 was largely
attributable to an increase in average unit sales prices of 10.0% which the
Company believes was primarily due to
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changes in inventory mix (in response to shifting customer preferences to light
trucks and sport utility vehicles) and general increases in new vehicle sales
prices.
Used vehicle revenues from retail sales increased 12.0% to $68.0 million
in 1996 from $60.8 million in 1995. The inclusion of the results of the
Company's Fort Mill Ford dealership accounted for substantially all of this
increase in used vehicle sales. The Company attributes the remainder of the
increase in its used vehicle sales in 1996 to increases of approximately 5.6%
in the average retail-selling price per vehicle sold. Increases in average
retail selling prices were due to changes in product mix and general price
increases.
The Company's parts, service and collision repair revenue increased 17.3%
to $42.1 million for 1996, compared to $35.9 million in 1995. Of this increase,
$4.4 million or 64.5% was due to the inclusion of the Company's Fort Mill Ford
dealership in the 1996 results of operations. The remainder of the increase was
principally the result of improved service operations and wholesale parts
distribution at the Company's Town and Country Ford dealership. F&I revenues
declined $0.7 million, or 8.9%, due principally to reductions in sales of
finance and insurance products at Town and Country Ford.
Gross Profit. Gross profit increased 14.2% in 1996 to $44.7 million from
$39.2 million in 1995 primarily due to the addition of the Fort Mill Ford
dealership. Gross profit decreased from 12.6% to 11.9% as a percentage of sales
due principally to declines in F&I income and declines in gross profit margins
on the sale of used vehicles. Gross margins on new vehicles increased primarily
due to increases in the average selling price per unit due to a change in mix
of new vehicles sold, particularly higher margin light trucks and sport utility
vehicles.
Selling, General and Administrative Expenses. The Company's SG&A expenses
increased $4.8 million, or 16.4%, from $28.9 million in 1995 to $33.7 million
in 1996. However, as a percentage of revenue, SG&A expenses decreased from 9.3%
to 8.9%. Expenses associated with the Fort Mill Ford dealership acquired by the
Company in 1996 accounted for approximately 91.4% of this increase. The Company
attributes the remainder of the increase in selling, general and administrative
expenses primarily to higher compensation levels in 1996 and to an increase in
advertising expenses.
Interest Expense, floor plan. The Company's interest expense, floor plan
in 1996 increased 32.5% to $6.0 million from $4.5 million in 1995. Of this
increase, $1.0 million or 70.4% was attributable to floor plan financing at the
Company's Fort Mill Ford dealership acquired in February 1996. The remainder of
the increase primarily reflects an increase in floor plan interest rates during
1996.
Interest Expense, other. The Company's interest expense, other was $0.4
million in 1996 and 1995.
Net Income. The Company's net income in 1996 decreased 6.3% to $3.0
million from $3.2 million in 1995. This decrease was principally caused by
increased interest costs related to floor plan financing and debt assumed in
the acquisition of Fort Mill Ford.
Liquidity and Capital Resources
The Company's principal needs for capital resources are to finance
acquisitions and fund debt service and working capital requirements.
Historically, the Company has relied primarily upon internally generated cash
flows from operations, borrowings under its various credit facilities and
borrowings and capital contributions from its stockholders to finance its
operations and expansion. On November 10, 1997, the Company completed its IPO
providing approximately $53.7 million of additional capital resources for the
consummation of the 1997 Acquisitions.
On July 31, 1998, the Company completed the Prior Offering of the Old
Notes receiving approximately $120.1 million in net proceeds. These proceeds
were used to pay the cash portions of the purchase prices for certain 1998
Acquisitions and repay indebtedness under the Revolving Facility. The Notes
bear interest at 11% per annum and will mature on August 1, 2008. The Notes are
unsecured senior subordinated obligations of the Company and, as such, are
subordinated in right of payment to all other existing and future senior
indebtedness. In the Indenture, the Company and the Guarantors have agreed to
certain negative covenants, including covenants restricting or prohibiting the
payment of dividends, the incurrence of additional indebtedness, investment of
funds, sales of assets as well as other customary covenants.
The Company currently has in place the Floor Plan Facility, a standardized
floor plan credit facility with Ford Motor Credit for each of the Company's
dealership subsidiaries. As of June 30, 1998, there was an aggregate of $149.7
million outstanding under the Floor Plan Facility. The Floor Plan Facility at
June 30, 1998 had an effective rate of prime less 0.9%, subject to certain
incentives and other adjustments, which was 7.6%. Typically new vehicle floor
plan indebtedness exceeds the related inventory balances. The inventory balance
is generally reduced by the Manufacturer's purchase discounts, and such
reduction is not reflected in the related floor plan liability. These
Manufacturer purchase discounts are standard in the industry, typically occur
on all new vehicle purchases, and are not used to offset the related floor plan
liability. These discounts
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are aggregated and generally paid to the Company by the Manufacturer on a
quarterly basis. The related floor plan liability becomes due as vehicles are
sold.
The Company makes monthly interest payments on the amount financed under
the Floor Plan Facility but is not required to make loan principal repayments
prior to the sale of the vehicles. The underlying notes are due when the
related vehicles are sold and are collateralized by vehicle inventories and
other assets of the relevant dealership subsidiary. The Floor Plan Facility
contains a number of covenants including, among others, covenants restricting
the Company with respect to the creation of liens and changes in ownership,
officers and key management personnel.
The Company generated net cash of $2.1 million and $7.8 million from
operating activities in 1996 and 1997, respectively. The 1997 increase was
attributable principally to a decrease in receivables, inventory levels and
increased net income.
During the first six months of 1998, the Company generated net cash of
$3.0 million from operating activities, compared to $4.0 million in the first
six months of 1997. The decrease was attributable principally an increase in
receivables due to additional acquisitions and revenue growth.
Cash used in investing activities, excluding amounts paid in acquisitions,
was approximately $1.2 million for the year ended December 31, 1997 and related
primarily to acquisitions of property and equipment. Cash used in investing
activities was $1.5 million, $6.7 million and $86.8 million in 1995, 1996 and
1997 respectively, including $1.5 million, $1.9 million and $2.0 million of
capital expenditures during such periods.
Cash used for investing activities, excluding amounts paid in
acquisitions, was approximately $1.3 million for the first six months of 1998
and related primarily to acquisitions of property and equipment.
In 1996, cash provided by financing activities of $2.3 million primarily
reflected the purchase of capital stock by a stockholder of the Company, the
proceeds of which were used to fund the acquisition of Fort Mill Ford and the
purchase of capital stock by a stockholder of Town & Country Ford. Cash
provided by financing activities for the year ended December 31, 1997 was $90.7
million principally due to proceeds of the IPO and debt incurred for certain
acquisitions.
Cash provided by financing activities for the first six months of 1998 of
$15.0 million primarily reflects amounts borrowed under the Revolving Facility
to finance acquisitions.
In August 1997, the Company obtained a $20 million loan from NationsBank,
N.A. (the "NationsBank Facility"). The proceeds from the NationsBank Facility
were used in the consummation of the acquisition of the two Lake Norman
dealerships and of the Fort Mill Chrysler-Plymouth-Dodge dealership. The
NationsBank Facility was guaranteed by Mr. Bruton Smith personally, which
guarantee was released in February 1998. The NationsBank Facility matured in
February 1998 and was repaid in full with proceeds of the IPO and the Revolving
Facility.
In October 1997, the Company obtained the Revolving Facility from Ford
Motor Credit in the principal amount of $26.0 million. In December 1997, the
Company increased the aggregate amount available to borrow under this facility
to a maximum of $75.0 million pursuant to the Revolving Facility's terms. The
Revolving Facility bears interest at the Revolving Facility Prime Rate and will
mature in December 1999, unless the Company requests that such term be
extended, at the option of Ford Motor Credit, for additional one-year terms. No
assurance can be given that such extensions will be granted. The proceeds from
the Revolving Facility were used in the consummation of the acquisition of Ken
Marks Ford in 1997, the Clearwater Acquisition in March 1998 and the repayment
in February 1998 of $8.2 million of the amount borrowed under the NationsBank
Facility. Amounts to be drawn under the Revolving Facility are anticipated by
the Company to be used for the acquisition of additional dealership
subsidiaries in the future and to provide general working capital needs of the
Company not to exceed $10 million. At June 30, 1998 the balance outstanding on
the Revolving Facility was $48.8 million and the Revolving Credit Facility
Prime Rate was 8.5% per annum. All of the indebtedness outstanding under the
Revolving Facility was repaid with a portion of the net proceeds of the Prior
Offering on July 31, 1998.
The Company agreed under the Revolving Facility not to pledge any of its
assets to any third party (with the exception of currently encumbered real
estate and assets of the Company's dealership subsidiaries that are subject to
previous pledges or liens). The Revolving Facility also contains certain
negative covenants made by the Company, including covenants restricting or
prohibiting the payment of dividends, capital expenditures and material
dispositions of assets as well as other customary covenants. Additional
negative covenants include specified ratios of (i) total debt to tangible
equity (as defined in the Revolving Facility), (ii) current assets to current
liabilities, (iii) earnings before interest, taxes, depreciation and
amortization (EBITDA) to fixed charges, (iv) EBITDA to interest expense, (v)
EBITDA to total debt and (vi) the current lending commitment under the
Revolving Facility to scaled assets (as defined in the Revolving Facility).
Moreover, the loss of voting control over the Company by the Smith Group or the
failure by the Company, with certain exceptions, to own all the outstanding
equity,
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membership or partnership interests in its dealership subsidiaries will
constitute an event of default under the Revolving Facility. The Company did
not meet the specified debt to tangible equity ratios required by the Revolving
Facility at December 31, 1997, at March 31, 1998 and at June 30, 1998 and has
obtained waivers with regard to such requirement from Ford Motor Credit. The
waivers are subject to certain requirements to the effect that the Company must
meet modified ratios. In connection with the issuance of the Old Notes, the
Company and Ford Motor Credit amended the Revolving Facility to provide that
the Notes (which are subordinated to the Revolving Facility) will be treated as
equity capital for purposes of this ratio and, accordingly, the Company is
currently in compliance with this covenant after its issuance of the Old Notes.
See "Description of Certain Other Indebtedness."
Capital expenditures, excluding amounts paid in acquisitions, were $1.5
million, $1.9 million and $2.0 million in 1995, 1996 and 1997, respectively.
The Company's principal capital expenditures typically include building
improvements and equipment for use in the Company's dealerships. Capital
expenditures in 1995 and 1996 were primarily attributable to expenditures for
the addition of a standalone used car lot in 1996 and other capital
improvements at the Lone Star Ford dealership. During 1997, the Company
completed its previously announced acquisitions of Fort Mill
Chrysler-Plymouth-Dodge, Williams Motors, Dyer Volvo, the Bowers Dealerships
and Affiliated Companies and Ken Marks Ford, Inc. with an aggregate purchase
price, net of cash purchased, of $85.6 million.
Capital expenditures, excluding amounts paid in acquisitions, were $0.9
million and $1.3 million for the six months ended June 30, 1997 and 1998,
respectively. The Company expects total capital expenditures for 1998 to
approximate $2.5 million. The Company's principal capital expenditures
typically include building improvements and equipment for use in the Company's
dealerships.
In 1997, the Company authorized 3 million shares of "blank check"
preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. In March 1998, the
Board of Directors designated 300,000 shares of preferred stock as Preferred
Stock, which was divided into 100,000 of Series I Convertible Preferred Stock,
par value $0.10 per share (the "Series I Preferred Stock"), 100,000 shares of
Series II Convertible Preferred Stock, par value $0.10 per share (the "Series
II Preferred Stock"), and 100,000 shares of Series III Convertible Preferred
Stock, par value $0.10 per share (the "Series III Preferred Stock").
The Preferred Stock has a liquidation preference of $1,000 per share. Each
share of Preferred Stock is convertible, at the option of the holder, into that
number of shares of Class A Common Stock as is determined by dividing $1,000 by
the average closing price for the Class A Common Stock on the NYSE for the 20
days preceding the date of issuance of the shares of Preferred Stock (the
"Market Price"). Conversion of Series II Preferred Stock and Series III
Preferred Stock is subject to certain adjustments which have the effect of
limiting increases and decreases in the value of the Class A Common Stock
receivable upon conversion by 10% of the original value of the shares of Series
II Preferred Stock or Series III Preferred Stock.
The Preferred Stock is redeemable at the Company's option at any time
after the date of issuance. The redemption price of the Series I Preferred
Stock is $1,000 per share. The redemption price for the Series II Preferred
Stock and Series III Preferred Stock is as follows: (i) prior to the second
anniversary of the date of issuance, the redemption price is the greater of
$1,000 per share or the aggregate Market Price of the Class A Common Stock into
which it could be converted at the time of redemption, and (ii) after the
second anniversary of the date of issuance, the redemption price is the
aggregate Market Price of the Class A Common Stock into which it could be
converted at the time of redemption.
Each share of Preferred Stock entitles its holder to a number of votes
equal to that number of shares of Class A Common Stock into which it could be
converted as of the record date for the vote. Holders of preferred stock are
entitled to participate in dividends payable on the Class A Common Stock on an
"as-if-converted" basis. The Preferred Stock has no preferential dividends.
In July 1998, the Company completed the Hatfield Acquisition for a total
purchase price of $48.6 million, paid with $34.6 million in cash and with
14,025 shares of Series I Preferred Stock having a liquidation preference of
approximately $14.0 million. Of the cash portion of the purchase price,
approximately $26.2 million was financed with borrowings under the Revolving
Facility, which was subsequently repaid with a portion of the net proceeds from
the Prior Offering, and approximately $8.4 million was financed with cash from
the Company's existing operations, which was subsequently replenished with a
portion of the net proceeds from the Prior Offering.
On January 1, 1998, the Company began operation and obtained control of
Clearwater Toyota, Clearwater Mitsubishi and Clearwater Collision Center. On
April 1, 1998, the Company began operation and obtained control of Capitol
Chevrolet and Imports, Century BMW and Heritage Lincoln-Mercury. On May 1,
1998, the Company began operation and obtained
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control of Casa Ford of Houston, Inc. The aggregate purchase price for the
Clearwater Acquisition, the Montgomery Acquisition, the Century Acquisition,
the Heritage Acquisition, and the Casa Ford Acquisition was approximately $40.7
million, paid with approximately $29.0 million in cash and with 13,034 shares
of Preferred Stock (381 shares of Series I Preferred Stock, 6,380 shares of
Series II Preferred Stock, and 6,273 shares of Series III Preferred Stock)
having an aggregate liquidation preference of approximately $13.0 million and
an estimated fair value of approximately $11.7 million. Of the $29.0 million
cash portion of the aggregate purchase price, approximately $12.2 million was
financed with borrowings under the Revolving Facility, which was subsequently
repaid with a portion of the net proceeds from the Prior Offering,
approximately $16.1 million was financed with a portion of the net proceeds
from the Prior Offering, and approximately $0.1 million was paid with cash
generated from the Company's existing operations. The remaining $0.6 million of
the cash portion of the purchase price is payable to the seller of the
Montgomery Acquisition on the first and second anniversaries of the closing
date of the Montgomery Acquisition. In addition, the Company granted to the
seller of the Century Acquisition warrants to purchase 75,000 shares of the
Company's Class A Common Stock at a purchase price equal to the market value of
the Class A Common Stock on the date of grant. In accordance with terms of the
Clearwater Acquisition and the Montgomery Acquisition, the Company may be
required to pay additional amounts up to $5.1 million contingent on the future
performance of the dealerships acquired in such acquisitions. In addition, in
accordance with the terms of the Casa Ford Acquisition, the Company may be
required to pay additional amounts to the seller equal to five times the amount
by which the dealership's pre-tax earnings for 1998, if any, exceed $2.5
million, and five times the amount by which the dealership's pre-tax earnings
for 1999, if any, exceed the greater of $2.5 million or the dealership's 1998
pre-tax earnings. Any additional amounts paid will be accounted for as
additional goodwill. The Payable for Acquisitions in the amount of $16.1
million included in the accompanying consolidated financial statements
represents the consideration to be paid for the Montgomery Acquisition, Century
Acquisition, Heritage Acquisition, and Casa Ford Acquisition, which were closed
in July 1998. The Company did not consummate the acquisition of the assets of
the Jaguar franchise that comprises a portion of the Heritage Acquisition.
In September 1998, the Company completed the Higginbotham Acquisition for
a total purchase price of approximately $27.0 million, including the repayment
of approximately $2.7 million in indebtedness owed by one of the sellers to its
sole shareholder, subject to adjustment based on the net book value of the
purchased assets as of the closing date. The total purchase price was paid with
approximately $18.2 million in cash (all of which was financed with a portion
of the net proceeds from the Prior Offering), and with the issuance to the
sellers of Class A Common Stock with a market value at the date of closing of
approximately $8.3 million. The remaining $0.5 million of the cash portion of
the purchase price is payable to the seller in December 1998. In addition, the
Company also assumed certain liabilities of the sellers at closing. In
connection with the Higginbotham Acquisition, MMRT is anticipated to acquire
the real property on which these dealerships and related assets are operated,
and the Company will then lease these properties from MMRT.
In March 1998, the Company signed a stock purchase agreement regarding the
Economy Honda Acquisition. The Company has agreed to pay a total price of $7.5
million plus an amount equal to the net book value of the assets of the Economy
Honda Acquisition dealership. Preferred Stock will be issued for 51% of the
total purchase price, not to exceed $5.1 million in liquidation preference as
of the closing of the acquisition. The Company's consummation of the Economy
Honda Acquisition is subject to the approval of Honda, which has informed the
Company that its approval is contingent upon the Company divesting its
ownership of the Cleveland Village Honda dealership prior to acquiring the
Economy Honda dealership. The Company is currently negotiating with potential
buyers for the sale of the Cleveland Village Honda dealership.
Of the approximately $88.3 million cash portion of the aggregate purchase
price for the 1998 Acquisitions, approximately $38.4 million was obtained from
borrowings under the Revolving Facility (which was subsequently repaid with a
portion of the net proceeds from the Prior Offering), approximately $34.3
million was obtained with a portion of the net proceeds from the Prior
Offering, and approximately $8.5 million was obtained with cash generated from
the Company's existing operations (approximately $8.4 million of which was
subsequently replenished with a portion of the net proceeds from the Prior
Offering). The remaining $7.1 million of the cash portion of the aggregate
purchase price will be financed with a combination of borrowings under the
Revolving Facility and a portion of the net proceeds of the Prior Offering. The
Economy Honda Acquisition is expected to be consummated, subject to certain
closing conditions, in the fourth quarter of 1998.
The Company incurred a tax liability of approximately $7.1 million in
connection with the change in its tax basis of accounting for inventory from
LIFO to FIFO, which is payable over a six-year period beginning in January
1998. In addition, in connection with the Montgomery Acquisition and the Casa
Ford Acquisition, the Company will incur an additional estimated tax liability
in the amount of approximately $20 million as a result of the change in
accounting for the inventory from LIFO to FIFO, which will be a payable over a
six year period. As of June 30, 1998, the remaining cumulative balance of the
LIFO tax liability was $8.4 million. The Company expects to be pay such
obligation with cash provided by operations.
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The Company believes that the net proceeds from the Prior Offering,
together with funds generated through future operations and availability of
borrowings under its floor plan financing (or any replacements thereof) and its
other credit arrangements will be sufficient to fund its debt service and
working capital requirements and any seasonal operating requirements, including
its currently anticipated internal growth, for the foreseeable future. The
Company expects to fund any future acquisitions from its future cash flow from
operations, additional debt financing (including the Revolving Facility) or the
issuance of Class A Common Stock or the issuance of Preferred Stock or other
convertible instruments.
Year 2000 Compliance
The Company recognizes the need to ensure that its operations will not be
adversely impacted by Year 2000 software failures and it has completed an
assessment of its own operations in this regard. The Company has determined
that its systems are currently Year 2000 compliant and the costs associated
with making its systems Year 2000 compliant were immaterial. However, many of
the Company's lenders and suppliers, including suppliers that provide finance
and insurance products, may be impacted by Year 2000 complications. The Company
is in the process of making inquiries to its lenders and suppliers regarding
their Year 2000 compliance efforts, and it is reviewing the Year 2000
disclosures in documents filed with the Commission for those lenders and
suppliers that are publicly-held companies. The Company does not believe that
failure of the Company's lenders or suppliers to ensure that their computer
systems are Year 2000 compliant will have a material adverse impact on the
Company's business, results of operations, and financial condition, although no
assurances can be given in this regard. Furthermore, there can be no assurances
that Year 2000 deficiencies on the part of dealerships to be acquired by the
Company would not have a material adverse impact on the Company's business,
results of operations, and financial condition.
The Company has not yet established a contingency plan in the event that
its expectations regarding Year 2000 problems are incorrect, but the Company
intends to create such a contingency plan within the next six months. At this
time, it is impossible to state with certainty whether Year 2000 computer
software or equipment failures on the part of the Company or third parties
involved with the Company will have a material adverse impact on the Company's
results of operations, liquidity and financial condition. However, based on the
Company's assessment of its own operations, the Company believes that it is
adequately prepared to deal with Year 2000 problems which may arise.
Significant Materiality of Goodwill
Goodwill represents the excess purchase price over the estimated fair
value of the tangible and separately measurable intangible net assets acquired.
The cumulative amount of goodwill at December 31, 1997 and June 30, 1998 was
$75.0 million and $104.5 million, respectively. As a percentage of total assets
and stockholders' equity, goodwill, net of accumulated amortization,
represented 25.5% and 88.1%, respectively, at December 31, 1997, and 27.8% and
99.6%, respectively, at June 30, 1998. Generally accepted accounting principles
require that goodwill and all other intangible assets be amortized over the
period benefited. The Company has determined that the period benefited by the
goodwill will be no less than 40 years and, accordingly, is amortizing goodwill
over a 40 year period. If the Company were not to separately recognize a
material intangible asset having a benefit period of less than 40 years, or
were not to give effect to shorter benefit periods of factors giving rise to a
material portion of the goodwill, earnings reported in periods immediately
following the acquisition would be overstated. In later years, the Company
would be burdened by a continuing charge against earnings without the
associated benefit to income valued by management in arriving at the
consideration paid for the businesses acquired. Earnings in later years also
could be significantly affected if management then determined that the
remaining balance of goodwill was impaired. The Company periodically compares
the carrying value of goodwill with the anticipated undiscounted future cash
flows from operations of the businesses acquired in order to evaluate the
recoverability of goodwill. The Company has concluded that the anticipated
future cash flows associated with intangible assets recognized in its
acquisitions will continue indefinitely, and these is no pervasive evidence
that any material portion will dissipate over a period shorter than 40 years.
Seasonality
The Company's operations are subject to seasonal variations. The first
quarter generally contributes less revenue and operating profits than the
second, third and fourth quarters. Seasonality is principally caused by weather
conditions and the timing of manufacturer incentive programs and model
changeovers.
Effects of Inflation
Due to the relatively low levels of inflation in 1995, 1996 and 1997,
inflation did not have a significant effect on the Company's results of
operations for those periods.
56
<PAGE>
New Accounting Standards
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
Standard establishes standards of reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. This
Statement will be effective for the Company's fiscal year ending December 31,
1998, and the Company does not intend to adopt this Statement prior to the
effective date. Had the Company early adopted this Statement, it would have
reported comprehensive income of $2.4 million, $2.1 million and $3.8 million
for the years ended December 31, 1995, 1996 and 1997, respectively. The Company
adopted the interim-period reporting requirements of this standard for the six
months ended June 30, 1998. Comprehensive income amounted to $1.5 million and
$6.8 million for the six months ended June 30, 1997 and June 30, 1998,
respectively.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Standard redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. This Statement
will be effective for the Company's fiscal year ending December 31, 1998, and
need not be applied to interim financial statements in the initial year of its
application. The Company has not yet completed its analysis of which operating
segments it will disclose, if any.
Recent Developments
In August 1998, the Company entered into a definitive agreement for the
acquisition of the assets of the Jordan Acquisition. In addition, in September
1998, the Company entered into a definitive agrement for the acquisition of the
assets of the Tampa Volvo Acquisition.
The Company was recently awarded two new Volvo franchises and a new
Oldsmobile franchise in the Atlanta market. The Company currently expects to
open these new dealerships in the first half of 1999.
On July 9, 1998, the Company entered into, subject to the approval of the
Company's Board of Directors and the Company's independent directors, the
Alliance Agreement with an operating partnership controlled by MMRT. MMRT
intends to acquire certain real estate associated with various automobile
dealerships, automotive aftermarket retailers and other automotive related
businesses and to lease such properties to the business operators located
thereon. Mr. Smith, the Company's Chairman and Chief Executive Officer, serves
as the chairman of MMRT's board of trustees and is presently its largest
shareholder. See "Risk Factors -- Potential Conflicts of Interest" and "Certain
Transactions -- Transactions with MMRT."
Under the Alliance Agreement, the Company has agreed to refer real estate
acquisition opportunities that arise in connection with its dealership
acquisitions to MMRT. In exchange, MMRT has agreed to refer dealership
acquisition opportunities to the Company and to provide to the Company, at the
Company's cost, certain real estate development, maintenance, survey and
inspection services. Pursuant to the Alliance Agreement, the Company has
entered into contracts to sell the real estate associated with Town and Country
Toyota and Fort Mill Ford, two of the Company's dealerships, for an aggregate
purchase price of approximately $10.3 million. In addition, the Alliance
Agreement provides for an agreed form of lease (the "Sonic Form Lease")
pursuant to which MMRT would lease real estate to the Company should MMRT
acquire real estate associated with any of the Company's operations. Presently,
the Company leases or intends to lease from MMRT 29 parcels of land associated
with 21 of its dealerships, including the real estate associated with Town and
Country Toyota and Fort Mill Ford that the Company will lease back from MMRT,
pursuant to leases substantially similar to the Sonic Form Lease. The aggregate
initial annual base rent to be paid by the Company for all 29 properties under
the leases with MMRT is approximately $7.7 million. MMRT has also entered into
new leases with each of Town and Country Ford and Lone Star Ford which provide
that the annual lease payments for their properties will each be increased to
approximately $1.1 million effective January 1, 2000, as compared to current
annual lease payments of approximately $0.4 million and $0.3 million,
respectively.
57
<PAGE>
BUSINESS
The Company is one of the top ten automotive retailers in the United
States, operating 27 dealerships and ten collision repair centers, as of June
30, 1998, in eight metropolitan areas of the southeastern and southwestern
United States. Sonic sells new and used cars and light trucks, sells
replacement parts, provides vehicle maintenance, warranty, paint and repair
services and arranges related F&I for its automotive customers. The Company
operated dealerships as of June 30, 1998 in the Atlanta, Charlotte,
Chattanooga, Greenville/Spartanburg, Houston, Montgomery, Nashville and
Tampa/Clearwater markets, each of which the Company believes is experiencing
favorable demographic trends. As of June 30, 1998, Sonic sold the following 20
domestic and foreign brands: BMW, Cadillac, Chevrolet, Chrysler, Dodge, Ford,
Honda, Hyundai, Infiniti, Jaguar, Jeep, KIA, Lincoln, Mercury, Mitsubishi,
Oldsmobile, Plymouth, Toyota, Volkswagen and Volvo. In several of its markets,
the Company's dealerships have a significant market share for new cars and
light trucks. As of September 15, 1998, the Company had acquired or entered
into definitive agreements to acquire 12 additional dealerships in certain of
the Company's existing markets and in new markets including Columbus and
Daytona Beach (which includes a total of two dealerships being acquired in the
Jordan Acquisition and the Tampa Volvo Acquisition). Upon consummation of these
acquisitions, the Company will sell the following four additional brands:
Acura, Isuzu, Mercedes and Subaru. For the year ended December 31, 1997, the
Company would have had pro forma revenues and EBITDA of $1.8 billion and $42.8
million, respectively.
Company Strengths
Leading Automotive Retailer. The Company is one of the top ten automotive
retailers in the United States, operating 37 dealerships in ten metropolitan
areas on a pro forma basis. The Company believes that its leading position in
the highly fragmented automotive retailing industry combined with its strong
reputation and management team, successful history of acquiring and integrating
dealerships and strong financial condition have positioned the Company as a
premier consolidator of automotive dealerships, thereby providing the Company
with increased attractive acquisition opportunities.
Proven Track Record of Integrating and Improving Acquisitions. In recent
years, the Company has grown primarily through the acquisition of well-managed
dealerships in growing metropolitan and suburban geographic markets. During
1996 and 1997, the Company acquired 16 dealerships in five states for total
consideration of $104.5 million. Senior management of the Company has,
collectively, acquired and integrated the operations of more than 75
dealerships during their careers. This acquisition experience allows management
to identify and capitalize on opportunities for improvement, determine and
implement necessary corrective actions, and minimize acquisition risk.
Experienced Management Team. The Company is led by a strong senior
management team with extensive automotive retailing and aftermarket products
and services experience, including O. Bruton Smith, Chief Executive Officer,
and Nelson E. Bowers, II, Executive Vice President. The members of the
Company's senior management team have on average 19 years of automotive
industry experience. As of June 30, 1998, the Company's senior management and
employees owned approximately 52.8% of the Company's outstanding Common Stock.
Consistent Record of Internal Growth. In addition to identifying,
consummating and integrating attractive acquisitions, the Company continually
focuses on improving its existing dealership operations. As a result, the
Company has a history of strong internal growth with average same store sales
growth of 16.3%, 6.4% and 10.1% in 1995, 1996 and 1997, respectively.
Diverse Offering of Automotive Brands, Products and Services. The Company
sells on a pro forma basis a wide variety of 24 domestic and international
automotive brands (38.4% of pro forma gross profit in 1997) in ten metropolitan
areas which it believes (i) mitigates the effect of regional economic
conditions and changing consumer preferences and (ii) reduces its reliance on
any single manufacturer. In addition to selling a broad range of new vehicles,
the Company has a balanced portfolio of other automotive products and services
including used vehicles (16.9% of pro forma gross profit in 1997), F&I and
leasing (11.6%), and parts, service and collision repair services (33.1%). The
Company believes that this diverse offering of products and services improves
financial stability as sales of higher margin products and services offset in
part sales of lower margin new and used vehicles. In addition, sales of parts,
service and collision repair services are less cyclical than vehicle sales and
related product sales.
Economies of Scale. The Company's growth through acquisitions over the
past two years has resulted in increasing economies of scale as the Company
integrates acquired dealerships including (i) improved terms on bank and floor
plan financing, (ii) improved commissions on sales of finance and insurance
products, (iii) increased vendor consolidation opportunities, (iv) reduced
advertising and insurance costs as a percentage of sales, and (v) improved
inventory management.
58
<PAGE>
Strategy
Acquire Dealerships. The Company believes that attractive acquisition
opportunities exist for dealership groups with significant equity capital and
experience in identifying, acquiring and professionally managing dealerships.
The automotive retailing industry is highly fragmented, with the largest 100
dealer groups generating approximately 10% of the industry's $640 billion of
total sales in 1996 and controlling less than 5% of all new vehicle dealerships
in the United States. The Company believes that these factors, together with
increasing capital costs of operating automobile dealerships, the lack of
alternative exit strategies (especially for larger dealerships) and the aging
of many dealership owners provide attractive consolidation opportunities. The
Company has implemented a "hub and spoke" acquisition strategy to acquire (i)
well-managed dealerships in new growing metropolitan and suburban geographic
markets, and (ii) additional dealerships in its existing markets that will
allow the Company to capitalize on regional economies of scale, offer a greater
breadth of products and services and/or increase brand diversity. In addition,
the Company selectively acquires dealerships which have underperformed the
industry average but which carry attractive product lines or have attractive
locations, thereby leveraging the Company's management infrastructure and
improving return on investment.
Increased Sales of Higher Margin Products and Services. The Company
intends to pursue opportunities to increase its sales of higher-margin products
and services by, for instance, expanding its collision repair business and
increasing sales of used vehicles. The Company's collision repair business
provides favorable margins and is not significantly affected by economic cycles
or consumer spending habits. The Company believes that, because of the high
capital investment required for collision repair shops and the cost of
complying with environmental and worker safety regulations, large volume body
shops will be more successful in the future than small volume shops. The
Company further believes that the collision repair industry is undergoing a
period of consolidation and that it is well positioned to expand its collision
repair business. Sonic also believes that significant opportunities exist to
improve its used vehicle departments, which historically have generated higher
margins on sales than its new vehicle departments, to (i) increase the number
of used vehicles sold and (ii) increase gross profit margins on sales of used
vehicles. For example, the Company's ability to manage inventory levels more
effectively created increased gross profit margins on sales of used vehicles to
9.9% for the first six months of 1998 from 8.5% for the first six months of
1997.
Enhance Profit Opportunities in Finance and Insurance. The Company offers
its customers a wide range of financing and leasing alternatives for the
purchase of vehicles, as well as credit life, accident and health and
disability insurance and extended service contracts. As a result of its size
and scale, the Company has been able to negotiate with lending institutions
that purchase its financing contracts and insurance carriers that underwrite
its insurance policies to increase commissions on the origination of customer
vehicle financing and insurance policies, which the Company believes will
result in increased revenues and profitability.
Train, Develop and Incentivize Qualified Management. The Company believes
that well trained dealership personnel are the key to the long-term performance
of the Company and to the profitability of its dealerships. Sonic requires all
of its employees, from service technicians to regional vice presidents, to
participate in in-house training programs. The Company's senior management,
along with third party trainers from manufacturers, industry affiliates and
vendors, formally train all employees. The Company believes that its
comprehensive training of all employees and the institution of a multi-tiered
management structure to supervise effectively its dealership operations provide
the Company with a competitive advantage over other dealership groups. In
addition, the Company employs an incentive compensation program for each
officer, vice president and executive manager, a portion of which is provided
in the form of Company stock options, with additional incentives based on the
performance of individual profit centers. Sonic believes that this
organizational structure, together with the opportunity for promotion and for
equity participation, serve as a strong motivation for its employees.
Achieve High Levels of Customer Satisfaction. Customer satisfaction has
been and will continue to be a focus of the Company. The Company's personalized
sales process is designed to satisfy customers by providing high-quality
vehicles in a positive, "consumer friendly" buying environment. Some
manufacturers offer specific performance incentives, on a per vehicle basis, if
certain CSI levels (which vary by manufacturer) are achieved by a dealer.
Manufacturers can withhold approval of acquisitions if a dealer fails to
maintain a minimum CSI score. To keep management focused on customer
satisfaction, the Company includes CSI results as a component of its incentive
compensation program.
Industry Overview
Automotive retailing, with approximately $640 billion in 1996 retail
sales, is the largest consumer retail market in the United States, representing
approximately 8% of the domestic gross product based on data collected by NADA
and the U.S. Department of Commerce. Retail sales of new vehicles, which are
sold exclusively through new vehicle dealers, were approximately
59
<PAGE>
$328 billion. In addition, used vehicle retail sales in 1996 were estimated at
$311 billion, with approximately $260 billion in sales by franchised and
independent dealers and the balance in privately negotiated transactions. From
1992 to 1996, new vehicles sales have grown at an annual compound rate of
10.5%, while used vehicle sales have grown at a rate of 15.8% for retail used
vehicle sales and 6.7% for wholesale used vehicle sales. This significant
increase in sales revenue is primarily because the average price of a new
vehicle has risen at a compound average rate of 6.2% from 1992 to 1996 and
newer, high-quality used vehicles now comprise a larger part of the used
vehicle market. During this period, unit sales grew at rates of only 4.0% for
new vehicles, 6.4% for retail used vehicles and 1.4% for wholesale used
vehicles.
The following table sets forth information regarding vehicle sales by new
vehicle dealerships for the periods indicated.
<TABLE>
<CAPTION>
United States New Vehicle Dealers' Vehicle Sales (1)
----------------------------------------------------------
1992 1993 1994 1995 1996
--------------- ---------- ---------- ---------- ---------
(Units in millions; dollars in billions)
<S> <C> <C> <C> <C> <C>
New vehicle unit sales. ...................... 12.9 13.9 15.1 14.7 15.1
New vehicle sales (2) ........................ $ 220.3 $ 253.3 $ 289.1 $ 301.2 $ 328.4
Used vehicle unit sales-retail ............... 9.3 9.9 10.9 11.5 11.9
Used vehicle sales-retail (2) ................ $ 77.1 $ 90.7 $ 110.6 $ 126.9 $ 137.9
Used vehicle unit sales-wholesale ............ 6.9 6.4 6.9 7.0 7.3
Used vehicle sales-wholesale (2) ............. $ 26.2(3) $ 24.3 $ 27.9 $ 30.4 $ 33.9
Total vehicle sales .......................... $ 323.6 $ 368.3 $ 427.6 $ 458.5 $ 500.2
Annual growth in total vehicle sales ......... -- 13.8% 16.1% 7.2% 9.1%
</TABLE>
- ---------
(1) Reflects new vehicle dealership sales at retail and wholesale. In addition,
sales by independent retail used vehicle dealers were approximately $81,
$100, $134, $130 and $122 billion, respectively, and casual used car sales
were estimated at approximately $36, $33, $40, $52 and $51 billion,
respectively, for each of the five years ended December 31, 1996. As of
the date of this Prospectus, NADA has not published information for 1997
similar to that presented in the table.
(2) Sales figures are calculated by multiplying unit sales by the average sales
price for the year.
(3) The NADA did not report the averages sales price for wholesale transactions
prior to 1993. As a result, the 1992 wholesale used vehicle sales were
calculated using the 1993 average wholesale price for used vehicles.
For the year ended December 31, 1997, industry retail sales increased by
0.1% as a result of retail car sales declines of 2.7% offset by retail truck
sale gains of 3.8% from the same period in 1996. As of May 31, 1998, industry
retail sales for the year to date increased 1.1% as a result of retail car
sales declines of 3.2% offset by retail truck sale gains of 6.4% from the same
period in 1997.
In addition to new and used vehicles, dealerships offer a wide range of
other products and services, including repair and warranty work, replacement
parts, extended warranty coverage, financing and credit insurance. In 1996, the
average dealership's revenue consisted of 57.7% new vehicles sales, 30.4% used
vehicle sales, and 11.9% other products and services. As a result of intense
competition for new vehicle sales, the average dealership generates the
majority of its profits from the sale of used vehicles and other products and
services, including finance and insurance, mechanical and collision repair, and
parts and service. In 1996, for example, a used vehicle earned an average gross
margin of 11.0% as compared to a new vehicle's average gross margin of 6.4%, in
each case for sales by new vehicle dealerships. As is typical in the retailing
industry, dealership profitability varies widely across different stores and,
ultimately, profitability depends on effective management of inventory,
competition, marketing, quality control and, most importantly, responsiveness
to the customer.
New Vehicle Sales. Franchised dealerships were originally established by
automobile manufacturers for the distribution of their new vehicles. In return
for exclusive distribution rights within specified territories, manufacturers
exerted significant influence over their dealers by limiting the
transferability of ownership in dealerships, designating the dealership's
location, and managing the supply and composition of the dealership's
inventory. These arrangements resulted in the proliferation of small,
single-owner operations that, at their peak in the late 1940's, totaled almost
50,000. As a result of competitive, economic and political pressures during the
1970's and 1980's, significant changes and consolidation occurred in the
automotive retail industry. One of the most significant changes was the
increased penetration by foreign manufacturers and the resulting loss of market
share by domestic car makers, which forced many dealerships to close or sell to
better-capitalized dealership groups. According to industry data, the number of
franchised dealerships has declined from approximately 25,000 dealerships in
1990 to approximately 22,000 in 1996. Although significant consolidation has
taken place since the automotive retailing industry's inception, the industry
today remains highly fragmented, with the largest 100 dealer groups generating
approximately 10% of total sales revenues and controlling less than 5% of all
franchised dealerships.
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<PAGE>
Used Vehicle Sales. Sales of used vehicles have increased over the past
five years, primarily as a result of the substantial increase in new vehicle
prices and the greater availability of newer used vehicles due to the increased
popularity of short-term leases. Like the new vehicle market, the used vehicle
market is highly fragmented, with approximately 22,000 new vehicle dealers
accounting for approximately $172 billion in 1996 sales. In addition, an even
greater number of independent used car dealers accounted for approximately $122
billion in 1996 sales. Privately negotiated transactions accounted for the
remaining 1996 sales, estimated at $51 billion. In addition, an increasing
number of used vehicles are being sold by "superstore" outlets, which market
only used vehicles and offer a wide selection of low mileage, popular models.
In 1996, the top 100 new vehicle dealer groups accounted for less than 2% of
used vehicle sales.
Industry Consolidation. The Company believes that further consolidation is
likely due to increased capital requirements of dealerships, the limited number
of viable alternative exit strategies for dealership owners, and the desire of
certain manufacturers to strengthen their brand identity by consolidating their
franchised dealerships. The Company also believes that an opportunity exists
for dealership groups with significant equity capital, and experience in
identifying, acquiring and professionally managing dealerships, to acquire
additional dealerships for cash, stock, debt or a combination thereof. Publicly
owned dealer groups, such as the Company, are able to offer prospective sellers
tax advantaged transactions through the use of publicly traded stock which may,
in certain circumstances, make them more attractive to prospective sellers.
Dealership Operations
After giving effect to the 1998 Acquisitions, the Company will own eight
dealerships in the Charlotte market, ten dealerships in the
Nashville/Chattanooga market, two dealerships in the Greenville/Spartanburg
market, six dealerships in the Columbus market, three dealerships in the
Daytona Beach market, three dealerships in the Tampa/Clearwater market, two
dealerships in the Montgomery market, two dealerships in the Houston market,
and one dealership in the Atlanta market.
Since 1990 the Company has grown significantly, as a result of the
acquisition and integration of new vehicle dealerships and an increase in
revenues at its existing dealerships. The following table sets forth the name,
brands, year of acquisition and location of the dealerships acquired by or
awarded to the Company or its predecessors since 1990 and the dealership to be
acquired by the Company pursuant to the pending Economy Honda Acquisition:
<TABLE>
<CAPTION>
Year
Acquired Location
Dealerships and Brands ---------- -----------------
<S> <C> <C>
Town & Country Toyota ............................. 1990 Charlotte
Fort Mill Ford .................................... 1996 Charlotte
Fort Mill Chrysler-Plymouth-Dodge ................. 1997 Charlotte
Lake Norman Dodge ................................. 1997 Charlotte
Lake Norman Chrysler-Plymouth-Jeep-Eagle .......... 1997 Charlotte
Town & Country Chrysler-Plymouth-Jeep of Rock Hill 1997 Charlotte
Freedom Ford ...................................... 1997 Tampa/Clearwater
Infiniti of Chattanooga ........................... 1997 Chattanooga
Town & Country Ford of Cleveland .................. 1997 Chattanooga
Cleveland Village Honda ........................... 1997 Chattanooga
Cleveland Chrysler-Plymouth-Jeep-Eagle ............ 1997 Chattanooga
European Motors of Nashville
"BMW, Volkswagen" ............................... 1997 Nashville
European Motors
"BMW, Volvo" .................................... 1997 Chattanooga
Dodge of Chattanooga .............................. 1997 Chattanooga
KIA - VW of Chattanooga ........................... 1997 Chattanooga
Dyer Volvo ........................................ 1997 Atlanta
Hatfield Volkswagen-Jeep .......................... 1998 Columbus
Trader Bud's Westside Chrysler Plymouth
"KIA" ........................................... 1998 Columbus
Hatfield Lincoln Mercury .......................... 1998 Columbus
Trader Bud's Westside Dodge ....................... 1998 Columbus
Toyota West ....................................... 1998 Columbus
Hatfield Hyundai-Isuzu-Subaru ..................... 1998 Columbus
Century BMW ....................................... 1998 Greenville/
Spartanburg
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Year
Acquired Location
Dealerships and Brands ---------- -----------------
<S> <C> <C>
Heritage Lincoln Mercury .......... 1998 Greenville/
Spartanburg
Economy Honda1 .................... 1998 Chattanooga
Capitol Chevrolet
"KIA" ........................... 1998 Montgomery
Capitol Imports
"Hyundai, Mitsubishi" ........... 1998 Montgomery
Casa Ford ......................... 1998 Houston
Clearwater Mitsubishi ............. 1998 Tampa/Clearwater
Clearwater Toyota ................. 1998 Tampa/Clearwater
Higginbotham Automobiles
"Acura, Mercedes" ............... 1998 Daytona Beach
Higginbotham Chevy-Olds
"Chevrolet, Oldsmobile" ......... 1998 Daytona Beach
Halifax Ford-Mercury .............. 1998 Daytona Beach
</TABLE>
- ---------
1 The Company has not obtained the consent of Honda to the acquisition of the
Economy Honda dealership. See "Risk Factors -- No Consent from Honda."
Dealership Management
Operations of the dealerships are overseen by Regional Vice Presidents,
who report to the Company's Chief Operating Officer. Each of the Company's
dealerships is managed by an Executive Manager who is responsible for the
operations of the dealership and the dealership's financial and customer
satisfaction performance. The Executive Manager is responsible for selecting,
training and retaining dealership personnel. All Executive Managers report to
the Company's senior management on a regular basis and prepare a comprehensive
monthly financial and operating statement of their dealership. In addition, the
Company's senior management meets on a monthly basis with its Executive
Managers to address changing customer preferences, operational concerns and to
share best practices, such as maintaining a customer-friendly buying
environment, maximizing potential revenues per new vehicle sale through
increased F&I penetration, using customer calling and coupon programs to
attract and retain service customers, and continued training of dealership
personnel.
Each Executive Manager is complemented by a team which includes two senior
managers who aid in the operation of the dealership. The General Sales Manager
is primarily responsible for the operations, personnel, financial performance
and customer satisfaction performance of the new vehicle sales, used vehicle
sales, and finance and insurance departments. The Parts and Service Director is
primarily responsible for the operations, personnel, financial and customer
satisfaction performance of the service, parts and collision repair departments
(if applicable). Each of the departments of the dealership typically has a
manager who reports to the General Sales Manager or Parts and Service Director.
The Company's Regional Vice Presidents are as listed, with their region of
responsibility and age, on the following table:
<TABLE>
<CAPTION>
Name Age Region of Responsibility
- ---------------------------- ----- -----------------------------------------------------
<S> <C> <C>
Ken Marks, Jr. ............. 35 Florida
Jeffrey C. Rachor .......... 36 Mid-South (Tennessee, Georgia, Kentucky and Alabama)
Ivan A. Tufty .............. 57 Texas
William Sullivan ........... 65 North Carolina and South Carolina
</TABLE>
New Vehicle Sales
As of June 30, 1998, the Company sold 20 brands of cars and light trucks,
24 brands on a pro forma basis (including Jaguar, which the Company sells
pursuant to an interim services agreement with the seller under the Heritage
Acquisition). See "Risk Factors -- No Consent from Jaguar." The products have a
broad range of prices from lower priced, or economy vehicles, to luxury
vehicles. The Company believes that its brand, product and price diversity
reduces the risk of changes in customer preferences, product supply shortages
and aging products. Approximately 4.4% of new vehicle sales in 1997 were luxury
brands (for example, BMW, Cadillac, Infiniti and Volvo). See "Risk Factors --
Dependence on Automobile Manufacturers."
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<PAGE>
The following table presents information with respect to the Company's new
vehicle sales:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
--------------------------------------------------------------------- ---------------------------
1993 1994 1995 1996 1997 1997 1998
------------- ------------- ------------- ------------- ------------- ------------- -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Unit sales ............. 9,429 9,686 10,273 11,693 15,715 6,553 16,601
Sales revenue .......... $ 153,138 $ 164,970 $ 186,859 $ 233,979 $ 343,941 $ 137,208 $ 387,466
Gross profit ........... $ 11,087 $ 12,103 $ 13,926 $ 18,001 $ 26,427 $ 8,977 $ 29,919
Gross profit margin .... 7.2% 7.3% 7.5% 7.7% 7.7% 6.5% 7.7%
</TABLE>
New vehicle sales include retail lease transactions and lease-type
transactions, both of which are arranged by the Company. New vehicle leases
generally have short terms. Lease customers, therefore, return to the new
vehicle market more frequently. Leases also provide a source of late-model,
generally low mileage, vehicles for its used vehicle inventory. Generally,
leased vehicles are under warranty for the entire lease term, which allows the
Company to provide repair service to the lessee throughout the term of the
lease.
Used Vehicle Sales
The Company sells a broad variety of makes and models of used cars, vans,
trucks and sport utility vehicles. Used vehicles are obtained by the Company
through customer trade-ins, at "closed" auctions which may be attended only by
new vehicle dealers and which offer off-lease, rental and fleet vehicles, and
at "open" auctions which offer repossessed vehicles and vehicles sold by other
dealers. The Company sells its used vehicles to retail customers and, in the
case of vehicles in poor condition or vehicles which remain unsold for a
specified period of time, to other dealers or wholesalers. Sales to other
dealers or wholesalers are frequently close to or below cost and therefore
negatively affect the Company's gross margin on used vehicle sales.
The following table sets forth information on the Company's used vehicle
sales:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------------------------------------------------- --------------------------
1993 1994 1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------ ------------ -------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Retail unit sales ........... 4,104 4,374 5,172 5,488 6,712 2,638 9,719
Retail sales revenue ........ $ 37,742 $ 47,537 $60,766 $68,054 $85,132 $32,666 $132,508
Retail gross profit ......... 3,964 5,182 5,792 5,748 7,294 2,772 13,162
Retail gross margin ......... 10.5% 10.9% 9.5% 8.4% 8.6% 8.5% 9.9%
Wholesale unit sales ........ 4,189 4,656 5,009 5,344 7,287 2,750 9,011
Wholesale sales revenue ..... $ 13,363 $ 16,062 $20,025 $25,642 $38,785 $15,342 $ 47,305
Wholesale gross profit ...... 27 43 (45) (23) (599) (145) (193)
Wholesale gross margin ...... 0.2% 0.3% (0.2)% (0.1)% (1.5)% (0.9)% (0.4)%
Total unit sales ............ 8,293 9,030 10,181 10,832 13,999 5,388 18,730
Total revenue ............... $ 51,105 $ 63,599 $80,791 $93,696 $123,917 $48,008 $179,813
Total gross profit .......... 3,991 5,225 5,747 5,725 6,695 2,627 12,969
Total gross margin .......... 7.8% 8.2% 7.1% 6.1% 5.5% 5.5% 7.2%
</TABLE>
Service and Part Sales
As of June 30, 1998, the Company provided service and parts at each of its
franchised dealerships. The Company also provided maintenance and repair
services at its 27 new vehicle dealership facilities (37 on a pro forma basis),
offering both warranty and non-warranty services. Service and parts sales
provide higher gross margins than vehicle sales.
The following table sets forth information regarding the Company's service
and parts sales:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
---------------------------------------------------------------- -------------------------
1993 1994 1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------ ------------ ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales revenue .............. $ 27,243 $ 30,298 $ 31,958 $ 37,132 $ 51,033 $ 20,220 $ 60,687
Gross profit ............... 9,540 10,344 11,003 12,593 18,118 6,821 24,427
Gross profit margin ........ 35.0% 34.1% 34.4% 33.9% 35.5% 33.7% 40.3%
</TABLE>
63
<PAGE>
Collision Repair
As of June 30, 1998, the Company operated collision repair centers, or
body shops, at ten of its dealership locations (13 on a pro forma basis). The
Company's collision repair business provides favorable margins and, similar to
service and parts, is not significantly affected by business cycles or consumer
preferences. In addition, because of the higher cost of used vehicles,
insurance adjusters are more hesitant to declare a vehicle a total loss,
resulting in more significant, and higher cost, repair jobs.
The following table sets forth information regarding the Company's
collision repair operations:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
----------------------------------------------------------- -----------------------
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales revenue ............... $ 3,094 $ 3,686 $ 3,903 $ 4,942 $ 6,504 $ 2,687 $ 7,333
Gross profit ................ 1,516 1,870 1,956 2,452 3,092 1,283 3,797
Gross profit margin ......... 49.0% 50.7% 50.1% 49.6% 47.5% 47.8% 51.8%
</TABLE>
Finance and Insurance
The Company offers its customers a wide range of financing and leasing
alternatives for the purchase of vehicles. In addition, as part of each sale,
the Company additionally offers customers credit life, accident and health and
disability insurance to cover the financing cost of their vehicle, as well as
warranty or extended service contracts.
The Company assigns its vehicle financing contracts and leases to other
parties, instead of directly financing sales, which reduces the Company's
exposure to loss from financing activities. The Company receives a commission
from the lender for originating and assigning the loan or lease but is assessed
a chargeback fee by the lender if a loan is canceled, in most cases, within 90
days of making the loan. Early cancellation can result from early repayment
because of refinancing of the loan, the sale or trade-in of the vehicle, or
default on the loan. The Company establishes an allowance to absorb estimated
chargebacks and refunds. Finance and insurance commission revenue is recorded
net of such chargebacks. Commission expense related to finance and insurance
commission revenue is charged to cost of sales upon recognition of such
revenue.
The following table sets forth information regarding the Company's finance
and insurance operations:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended December 31, June 30,
------------------------------------------------------ ---------------------
1993 1994 1995 1996 1997 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Commission revenue ......... 3,711 5,181 7,813 7,118 10,606 4,763 13,541
Gross profit ............... 3,043 4,359 6,561 6,043 8,856 3,931 11,344
Gross margin ............... 82.0% 84.1% 84.0% 84.9% 83.5% 82.5% 83.8%
</TABLE>
Sales and Marketing
The Company's marketing and advertising activities vary among its
dealerships and among its markets. The Company advertises primarily through
television, newspapers, radio and direct mail and regularly conducts special
promotions designed to focus vehicle buyers on its product offerings. The
Company also utilizes computer technology to aid sales people in prospecting
for customers. Under arrangements with certain Manufacturers, the Company
receives a subsidy for a portion of its advertising expenses incurred in
connection with a manufacturer's vehicles.
Relationships with Manufacturers
Each of the Company's dealerships operates under a separate franchise or
dealer agreement (a "Dealer Agreement") which governs the relationship between
the dealership and the Manufacturer. In general, each Dealer Agreement
specifies the location of the dealership for the sale of vehicles and for the
performance of certain approved services in a specified market area. The
designation of such areas generally does not guarantee exclusivity within a
specified territory. In addition, most Manufacturers allocate vehicles on a
"turn and earn" basis which rewards high volume. A Dealer Agreement requires
the dealer to meet specified standards regarding showrooms, the facilities and
equipment for servicing vehicles, inventories, minimum net working capital,
personnel training, and other aspects of the business. The Dealer Agreement
with each dealership also gives the related Manufacturer the right to approve
the dealership's general manager and any material change in management or
ownership of the dealership. Each Manufacturer may terminate a Dealer Agreement
under certain circumstances, such as a change in control of the dealership
without Manufacturer approval, the impairment of the reputation or financial
condition
64
<PAGE>
of the dealership, the death, removal or withdrawal of the dealership's general
manager, the conviction of the dealership or the dealership's owner or general
manager of certain crimes, the failure to adequately operate the dealership or
maintain wholesale financing arrangements, insolvency or bankruptcy of the
dealership or a material breach of other provisions of the Dealer Agreement.
Many automobile manufacturers are still developing their policies
regarding public ownership of dealerships. The Company believes that these
policies will continue to change as more dealership groups sell their stock to
the public, and as the established, publicly-owned dealership groups acquire
more franchises. To the extent that new or amended manufacturer policies
restrict the number of dealerships which may be owned by a dealership group, or
the transferability of the Company's Common Stock, such policies could have a
material adverse effect on the Company. See "Risk Factors -- Dependence on
Automobile Manufacturers," " -- Manufacturers' Restrictions on Acquisitions," "
- -- Stock Ownership/Issuance Limits; Limitation on Ability to Issue Additional
Equity" and " -- Concentration of Voting Power."
The Company has received notice from Jaguar in which Jaguar has declined
to consent to the acquisition of the assets of two Jaguar dealerships, one in
Chattanooga and another in Greenville. On a pro forma basis, each of the Jaguar
dealerships on an individual basis and in the aggregate would have accounted
for less than 1% of the Company's 1997 revenues and gross profits. See "Risk
Factors -- No Consent from Jaguar."
The Company has received notice from Honda that its approval of the
Company's acquisition of the Economy Honda Dealership is contingent upon the
Company divesting its ownership of the Cleveland Village Honda dealership prior
to such acquisition. Honda's stated reason for this condition is that the
Company's ownership of the Economy Honda Dealership and the Cleveland Village
Honda dealership would violate Honda's policy against the ownership of
contiguous dealerships, and the Company agreed to comply with this policy
pursuant to its agreement with Honda. The Company is currently negotiating with
potential buyers for the sale of the Cleveland Village Honda dealership. There
can be no assurance that the Company will be able to sell the Cleveland Village
Honda dealership or that the approval of Honda to the Economy Honda Acquisition
will be obtained. On a pro forma basis, the Cleveland Village Honda dealership
accounted for, and the Economy Honda Dealership would have accounted for,
approximately 1.9% and 2.7% of the Company's 1997 revenues and approximately
2.0% and 3.2% of gross profits, respectively. See "Risk Factors -- No Consent
from Honda."
The Company's Dealer Agreement with Ford requires the Company to deliver
to Ford all Securities and Exchange Commission filings made by the Company or
third-parties with respect to the Company, including Schedules 13D and 13G. If
any such filing shows that (a) any person or entity would acquire 15% or more
of Sonic's voting securities, (b) any person or entity that owns or controls
15% or more of Sonic's voting securities (or other securities convertible into
such voting securities) intends or may intend to acquire additional voting
securities of Sonic, (c) an extraordinary corporate transaction, such as a
merger or liquidation, involving Sonic or any of its subsidiaries is
anticipated, (d) a material asset sale involving Sonic or any of its
subsidiaries is anticipated, (e) a change in Sonic's Board of Directors or
management is planned or has occurred, or (f) any other material change in
Sonic's business or corporate structure is planned or has occurred, then the
Company must give Ford notice of such event. If Ford reasonably determines that
such an event is not in its interest, the Company may be required to sell or
resign from one or more of its Ford franchises. Should Sonic or any of its Ford
franchisee subsidiaries enter into an agreement to transfer the assets of a
Ford franchisee subsidiary to a third party, the right of first refusal
described in the Ford Dealer Agreement will apply.
Under the Company's Dealer Agreements with Toyota and Infiniti, Toyota and
Infiniti have the right to approve any ownership or voting rights of Sonic of
20% or greater by any individual or entity. Honda may force the sale of the
Company's Honda franchise if any person or entity, other than members of the
Smith Group, acquires 5% or greater of the Common Stock (10% or greater if such
entity is an institutional investor), and Honda deems such person or entity to
be unsatisfactory. Volkswagen approved the sale of no more than 25% of the
voting control of Sonic in its IPO, and any future changes in ownership or
transfers among the Company's current stockholders that could effect the voting
or managerial control of Sonic's Volkswagen franchisee subsidiaries requires
the prior approval of Volkswagen. Similarly, Chrysler has approved of the
public sale of only 50% of the Common Stock and requires prior approval of any
future sales that would result in a change in voting or managerial control of
the Company.
Certain state statutes in Florida and other states limit manufacturers'
control over dealerships. Under Florida law, notwithstanding any contrary terms
in a dealer agreement, manufacturers may not unreasonably withhold approval for
the sale of a dealership. Acceptable grounds for disapproval include material
shortcomings in the character, financial condition or business experience of
the proposed transferee. In addition, dealerships may challenge manufacturers'
attempts to establish new dealerships in the dealer's markets, and state
regulators may deny applications to establish new dealerships for a number of
reasons, including a determination that the manufacturer is adequately
represented in the area. Manufacturers must have "good cause" for any
65
<PAGE>
termination or failure to renew a dealer agreement, and an automaker's license
to distribute vehicles in Florida may be revoked if, among other things, the
automaker has forced or attempted to force an automobile dealer to accept
delivery of motor vehicles not ordered by that dealer.
Under Texas law, despite the terms of contracts between manufacturers and
dealers, manufacturers may not unreasonably withhold approval of a transfer of
a dealership. It is unreasonable under Texas law for a manufacturer to reject a
prospective transferee of a dealership who is of good moral character and who
otherwise meets the manufacturer's written, reasonable and uniformly applied
standards or qualifications relating to the prospective transferee's business
experience and financial qualifications. In addition, under Texas law and the
laws of other states, franchised dealerships may challenge manufacturers'
attempts to establish new franchises in the franchised dealers' markets, and
state regulators may deny applications to establish new dealerships for a
number of reasons, including a determination that the manufacturer is
adequately represented in the region. Texas law limits the ability of
manufacturers to terminate or fail to renew franchises. In addition, other laws
in Texas and elsewhere limit the ability of manufacturers to withhold their
approval for the relocation of a franchise or require that disputes be
arbitrated. In addition, a manufacturer's license to distribute vehicles in
Texas may be revoked if, among other things, the manufacturer has forced or
attempted to force an automobile dealer to accept delivery of motor vehicles
not ordered by that dealer.
Georgia law provides that no manufacturer may arbitrarily reject a
proposed change of control or sale of an automobile dealership, and any
manufacturer challenging such a transfer of a dealership must provide written
reasons for its rejection to the dealer. Manufacturers bear the burden of proof
to show that any disapproval of a proposed transfer of a dealership is not
arbitrary. If a manufacturer terminates a franchise agreement due to a proposed
transfer of the dealership or for any other reason not considered to constitute
good cause under Georgia law, such termination will be ineffective. As an
alternative to rejecting or accepting a proposed transfer of a dealership or
terminating the franchise agreement, Georgia law provides that a manufacturer
may offer to purchase the dealership on the same terms and conditions offered
to the prospective transferee.
Under Tennessee law, a manufacturer may not modify, terminate or refuse to
renew a franchise agreement with a dealer except for good cause, as defined in
the governing Tennessee statutes. Further, a manufacturer may be denied a
Tennessee license, or have an existing license revoked or suspended if the
manufacturer modifies, terminates, or suspends a franchise agreement due to an
event not constituting good cause. Good cause includes material shortcomings in
the character, financial condition or business experience of the dealer. A
manufacturer's Tennessee license may also be revoked if the manufacturer
prevents or attempts to prevent the sale or transfer of the dealership by
unreasonably withholding consent to the transfer.
Alabama law prohibits manufacturers from terminating or refusing to
continue or renew a franchise agreement except for "good cause." "Good cause"
to discontinue a relationship may exist if, for example, a dealer violates a
material term of, or fails to perform its duties under, a franchise agreement.
In addition, a manufacturer is prohibited from interfering with the transfer of
a dealership unless the transfer is to a person who would not qualify for a
dealer's license under Alabama law. Finally, a manufacturer may not
unreasonably establish a new dealership within the market area of an existing
dealer. A manufacturer who violates Alabama law may be required to pay the
dealer for the damages incurred, as well as the costs of suing the manufacturer
for damages including attorneys fees.
Under Ohio law, a dealer must obtain manufacturer approval before it can
sell or transfer an interest in a dealership. The manufacturer may only
prohibit the sale or transfer, however, for "good cause" after considering,
among other things, the proposed new owner's business experience and financing.
Similarly, a manufacturer may terminate or refuse to continue or renew a
franchise agreement only for "good cause" considering, for example, the
dealership's sales, the dealer's investment in the business, and the dealer's
satisfaction of its warranty obligations. Finally, a manufacturer may not site
a new dealership in a relevant market area without either the consent of the
local dealers or by showing "good cause." Dealers may protest a manufacturer's
actions to the Ohio Motor Vehicle Dealers Board, and eventually the courts, if
there is no "good cause" for the transfer restriction or termination or siting
of a new dealership. If the manufacturer violates Ohio's automobile franchise
law, a dealer may be entitled to double its actual damages, as well as court
costs and attorneys fees, from a manufacturer.
South Carolina law forbids a manufacturer from imposing unreasonable
restrictions on a dealer's rights to transfer, sell, or renew a franchise
agreement unless the dealer is compensated. A manufacturer may not terminate or
refuse to renew a franchise agreement without due cause. Further, although a
dealer must obtain the manufacturer's consent to transfer a dealership, the
manufacturer may not unreasonably withhold its consent. Finally, manufacturers
are generally prohibited from acting in bad faith or engaging in arbitrary or
unconscionable conduct. Manufacturers who violate South Carolina's law may be
liable for double the actual damages incurred by the dealer and/or punitive
damages in limited circumstances.
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<PAGE>
Competition
The retail automotive industry is highly competitive. Depending on the
geographic market, the Company competes with both dealers offering the same
brands and product lines as the Company and dealers offering other automakers'
vehicles. The Company also competes for vehicle sales with auto brokers and
leasing companies. The Company competes with small, local dealerships and with
large multi-franchise auto dealerships. Many of the Company's competitors are
larger and have greater financial and marketing resources and are more widely
known than the Company. Some of the Company's competitors also may utilize
marketing techniques, such as the Internet or "no negotiation" sales methods,
not currently used by the Company.
The Company also competes with regional and national car rental companies,
which sell their used rental cars, and used automobile "superstores," such as
AutoNation and CarMax. The used vehicle superstores generally offer a greater
and more varied selection of vehicles than the Company's dealerships. In
addition, Ford has announced that it is entering into joint ventures to acquire
dealerships in various cities in the United States and other manufacturers may
also directly enter the retail market in the future, which could have a
material adverse effect on the Company. As the Company seeks to acquire
dealerships in new markets, it may face significant competition (including
competition from other publicly-owned dealer groups) as it strives to gain
market share. See "Risk Factors -- Competition."
The Company believes that the principal competitive factors in vehicle
sales are the marketing campaigns conducted by automakers, the ability of
dealerships to offer a wide selection of the most popular vehicles, the
location of dealerships and the quality of customer service. Other competitive
factors include customer preference for makes of automobiles, pricing
(including manufacturer rebates and other special offers) and warranties.
In addition to competition for vehicle sales, the Company also competes
with other auto dealers, service stores, auto parts retailers and independent
mechanics in providing parts and service. The Company believes that the
principal competitive factors in parts and service sales are price, the use of
factory-approved replacement parts, the familiarity with a dealer's makes and
models and the quality of customer service. A number of regional and national
chains offer selected parts and service at prices that may be lower than the
Company's prices.
In arranging or providing financing for its customers' vehicle purchases,
the Company competes with a broad range of financial institutions. The Company
believes that the principal competitive factors in providing financing are
convenience, interest rates and contract terms.
The Company's success depends, in part, on national and regional
automobile-buying trends, local and regional economic factors and other
regional competitive pressures. The Company sells its vehicles in the
Charlotte, Chattanooga, Nashville, Tampa/Clearwater, Houston, Atlanta,
Columbus, Daytona Beach, Greenville/Spartanburg and Montgomery markets.
Conditions and competitive pressures affecting these markets, such as
price-cutting by dealers in these areas, or in any new markets the Company
enters, could adversely affect the Company, although the retail automobile
industry as a whole might not be affected. See "Risk Factors -- Competition."
Governmental Regulations and Environmental Matters
A number of regulations affect the Company's business of marketing,
selling, financing and servicing automobiles. The Company also is subject to
laws and regulations relating to business corporations generally.
Under North Carolina, South Carolina, Tennessee, Florida, Georgia, Texas,
Ohio and Alabama law as well as the laws of other states into which the Company
may expand, the Company must obtain a license in order to establish, operate or
relocate a dealership or operate an automotive repair service. These laws also
regulate the Company's conduct of business, including its advertising and sales
practices. Other states may have similar requirements.
The Company's operations are also subject to laws governing consumer
protection. Automobile dealers and manufacturers are subject to so-called
"Lemon Laws" that require a manufacturer or the dealer to replace a new vehicle
or accept it for a full refund within one year after initial purchase if the
vehicle does not conform to the manufacturer's express warranties and the
dealer or manufacturer, after a reasonable number of attempts, is unable to
correct or repair the defect. Federal laws require certain written disclosures
to be provided on new vehicles, including mileage and pricing information.
The imported automobiles purchased by the Company are subject to United
States customs duties and, in the ordinary course of its business, the Company
may, from time to time, be subject to claims for duties, penalties, liquidated
damages, or other charges. Currently, United States customs duties are
generally assessed at 2.5% of the customs value of the automobiles
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<PAGE>
imported, as classified pursuant to the Harmonized Tariff Schedule of the
United States. See "Risk Factors -- Imported Product Restrictions and Foreign
Trade Risk."
The Company's financing activities with its customers are subject to
federal truth-in-lending, consumer leasing and equal credit opportunity
regulations as well as state and local motor vehicle finance laws, installment
finance laws, usury laws and other installment sales laws. Some states regulate
finance fees that may be paid as a result of vehicle sales. State and federal
environmental regulations, including regulations governing air and water
quality and the storage and disposal of gasoline, oil and other materials, also
apply to the Company.
The Company believes that it complies in all material respects with the
laws affecting its business. Possible penalties for violation of any of these
laws include revocation of the Company's licenses and fines. In addition, many
laws may give customers a private cause of action.
As with automobile dealerships generally, and service parts and body shop
operations in particular, the Company's business involves the use, storage,
handling and contracting for recycling or disposal of hazardous or toxic
substances or wastes, including environmentally sensitive materials such as
motor oil, waste motor oil and filters, transmission fluid, antifreeze, freon,
waste paint and lacquer thinner, batteries, solvents, lubricants, degreasing
agents, gasoline and diesel fuels. The Company's business also involves the
past and current operation and/or removal of aboveground and underground
storage tanks containing such substances or wastes. Accordingly, the Company is
subject to regulation by federal, state and local authorities establishing
health and environmental quality standards, and liability related thereto, and
providing penalties for violations of those standards. The Company is also
subject to laws, ordinances and regulations governing remediation of
contamination at facilities it operates or to which it sends hazardous or toxic
substances or wastes for treatment, recycling or disposal.
The Company believes that it does not have any material environmental
liabilities and that compliance with environmental laws and regulations will
not, individually or in the aggregate, have a material adverse effect on the
Company's results of operations or financial condition. However, soil and
groundwater contamination is known to exist at certain properties used by the
Company. Furthermore, environmental laws and regulations are complex and
subject to frequent change. In addition, the Company may assume environmental
liabilities, some of which may be material, in connection with its
acquisitions. There can be no assurance that compliance with amended, new or
more stringent laws or regulations, stricter interpretations of existing laws
or the future discovery of environmental conditions will not require additional
expenditures by the Company, or that such expenditures will not be material.
See "Risk Factors -- Adverse Effect of Government Regulation; Environmental
Regulatory Compliance Costs."
Facilities
The Company's principal executive offices are located at 5401 East
Independence Boulevard, Charlotte, North Carolina 28218, and its telephone
number is (704) 532-3301. These executive offices are located on the premises
owned by Town & Country Ford. The following table identifies each of the
properties to be utilized by the Company's operations and their respective
locations, after giving effect to the pending Economy Honda Acquisition:
<TABLE>
<CAPTION>
Dealership Location
- -------------------------------------- --------------------------------
<S> <C>
Town & Country Ford 5401 East Independence Blvd.
Charlotte, NC
Lone Star Ford 8477 North Freeway
Houston, TX
Fort Mill Ford 788 Gold Hill Rd.
Fort Mill, SC
Fort Mill Chrysler-Plymouth-Dodge 3310 Hwy. 51
Fort Mill, SC
Town & Country Toyota 9101 South Blvd.
Charlotte, NC
Frontier Oldsmobile-Cadillac 2501 Roosevelt Blvd.
Monroe, NC
Freedom Ford 24825 US Hwy. 19 North,
Clearwater & 3925 Tampa Rd.,
Oldsmar, FL
Dyer Volvo 5260 Peachtree Industrial Blvd.
Atlanta, GA
Lake Norman Chrysler-Plymouth-Jeep Chartwell Center Dr.
Cornelius, NC
</TABLE>
68
<PAGE>
<TABLE>
<CAPTION>
Dealership Location
- ------------------------------------------- ----------------------------------
<S> <C>
Lake Norman Dodge I-77 & Torrence Chapel Rd.
Cornelius, NC
KIA/VW of Chattanooga 6015 International Dr.
Chattanooga, TN
BMW/VW of Nashville 630 Murfreeboro Pike
Nashville, TN
BMW/Volvo of Chattanooga 5949 Brainard Rd
Chattanooga, TN
Infiniti of Chattanooga 5915 Brainard Rd.
Chattanooga, TN
Town & Country Ford of Cleveland 2496 South Lee Hwy.
Cleveland, TN
Dodge of Chattanooga 402 West Martin Luther King Blvd.
Chattanooga, TN
Cleveland Village Imports 2490 & 2492 South Lee Hwy.
Cleveland, TN
Cleveland Chrysler-Plymouth-Jeep 717 South Lee Hwy.
Cleveland, TN
Town & Country Chrysler-Plymouth 803 North Anderson Rd.
-Jeep of Rock Hill Rock Hill, SC
Volkswagen West & Jeep Eagle West 1455 Automall Dr.
Columbus, OH
Hatfield KIA & Trader 3700 West Broad St.
Bud's Westside Chrysler-Plymouth Columbus, OH
Hatfield Lincoln Mercury 1495 Automall Dr.
Columbus, OH
Trader Bud's Westside Dodge 4000 West Broad
Columbus, OH
Toyota West 1500 Automall Dr.
Columbus, OH
Hatfield Hyundai & Hatfield 1400 Automall Dr.
Isuzu & Hatfield Subaru Columbus, OH
Century BMW 2752 Laurens Rd.
Greenville, SC
Heritage Lincoln Mercury 2424 Laurens Rd.
Greenville, SC
Economy Honda Hwy 153 Shallowford Rd
Chattanooga, TN
Capital Chevrolet 711 Eastern Blvd.
Montgomery, AL
Capital KIA 845 Eastern Blvd.
Montgomery, AL
Capital Hyundai & Capital 190 Eastern Blvd.
Mitsubishi Montgomery, AL
Casa Ford 4701 I-10 East
Baytown, TX
Clearwater Mitsubishi 21699 US Hwy 19N
Clearwater, FL
Clearwater Toyota 21799 US Hwy 19N
Clearwater, FL
Clearwater Collision Center 2300 Drew Street
Clearwater, FL
</TABLE>
69
<PAGE>
<TABLE>
<CAPTION>
Dealership Location
- ---------------------------- ---------------------
<S> <C>
Halifax Ford-Mercury 1307 N. Dixie Hwy.
New Smyrna Beach, FL
Higginbotham Chevy-Olds 1919 N. Dixie Hwy.
New Smyrna Beach, FL
Higginbotham Automobiles 1720 Mason Ave.
Daytona Beach, FL
Sunrise Auto World 241 Ridgewood Ave.
Holly Hill, FL
HMC Finance 3741 S. Nova Rd.
Port Orange, FL
</TABLE>
The Company's dealerships are generally located along major U.S. or
interstate highways. One of the principal factors considered by the Company in
evaluating an acquisition candidate is its location. The Company prefers to
acquire dealerships located along major thoroughfares, primarily interstate
highways with ease of access, which can be easily visited by prospective
customers.
The Company owns certain of the real estate associated with Town & Country
Toyota and Fort Mill Ford. The remainder of the properties utilized by the
Company's dealership operations are leased. The Company believes that its
facilities are adequate for its current needs. In connection with its
acquisition strategy, the Company generally intends to lease the real estate
associated with a particular dealership whenever practicable.
On July 9, 1998, the Company entered into, subject to the approval of the
Company's Board of Directors and the Company's independent directors, the
Alliance Agreement with MMRT. MMRT owns certain real estate associated with
various automobile dealerships, automotive aftermarket retailers and other
automotive related businesses and leases such properties to the business
operators located thereon. Mr. Smith, the Company's Chairman and Chief
Executive Officer, serves as the chairman of MMRT's board of trustees and is
presently its controlling shareholder. See "Certain Transactions --
Transactions with MMRT."
Under the terms of its franchise agreements, the Company must maintain an
appropriate appearance and design of its facilities and is restricted in its
ability to relocate its dealerships. See " -- Relationships with
Manufacturers."
Employees
As of June 30, 1998, the Company employed approximately 3,600 people, of
whom approximately 570 were employed in managerial positions, 1,230 were
employed in non-managerial sales positions, 760 were employed in non-managerial
parts and service positions and 1,040 were employed in administrative support
positions.
The Company believes that many dealerships in the retail automobile
industry have difficulty in attracting and retaining qualified personnel for a
number of reasons, including the historical inability of dealerships to provide
employees with an equity interest in the profitability of the dealerships. The
Company provides certain executive officers, managers and other employees with
stock options and all employees with a stock purchase plan and believes this
type of equity incentive is attractive to existing and prospective employees of
the Company. See "Management -- Stock Option Plan" and " -- Employee Stock
Purchase Plan" and "Risk Factors -- Dependence on Key Personnel and Limited
Management and Personnel Resources."
The Company believes that its relationship with its employees is good.
None of the Company's employees is represented by a labor union. Because of its
dependence on the Manufacturers, however, the Company may be affected by labor
strikes, work slowdowns and walkouts at the Manufacturer's manufacturing
facilities. See "Risk Factors -- Dependence on Automobile Manufacturers."
Legal Proceedings and Insurance
From time to time, the Company is named in claims involving the
manufacture of automobiles, contractual disputes and other matters arising in
the ordinary course of the Company's business. Currently, no legal proceedings
are pending against or involve the Company that, in the opinion of management,
could reasonably be expected to have a material adverse effect on the business,
financial condition or results of operations of the Company.
Because of their vehicle inventory and nature of business, automobile
retail dealerships generally require significant levels of insurance covering a
broad variety of risks. The Company's insurance includes an umbrella policy as
well as insurance on its real property, comprehensive coverage for its vehicle
inventory, general liability insurance, employee dishonesty coverage and errors
and omissions insurance in connection with its vehicle sales and financing
activities.
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MANAGEMENT
Executive Officers and Directors; Key Personnel
The executive officers, directors and key personnel of the Company, and
their ages as of the date of this Prospectus, are as follows:
<TABLE>
<CAPTION>
Name Age Position(s) with the Company
- ------------------------------ ----- ---------------------------------------------------------------
<S> <C> <C>
O. Bruton Smith ......... 71 Chairman, Chief Executive Officer and Director*
Bryan Scott Smith ....... 30 President, Chief Operating Officer and Director*
Dennis D. Higginbotham .. 47 President of Retail Operations*
Nelson E. Bowers, II .... 53 Executive Vice President and Director*
Theodore M. Wright ...... 35 Chief Financial Officer, Vice President -- Finance, Treasurer,
Secretary and Director*
William P. Benton ....... 74 Director
William R. Brooks ....... 47 Director
William I. Belk ......... 49 Director
Jeffrey C. Rachor ....... 36 Regional Vice President -- Mid South Region
O. Ken Marks, Jr ........ 35 Regional Vice President -- Florida
Ivan A. Tufty ........... 57 Regional Vice President -- Texas
William M. Sullivan ..... 65 Regional Vice President -- North and South Carolina
</TABLE>
- ---------
* Executive Officer
O. Bruton Smith has been the Chairman, Chief Executive Officer and a
director of the Company since its organization in 1997. Mr. Smith currently is,
and since their acquisition by either the Company or Sonic Financial has been,
a director and the president of each of the Company's dealerships. Mr. Smith
has worked in the retail automobile industry since 1966. Mr. Smith's initial
term as a director of the Company will expire at the annual meeting of
stockholders of the Company to be held in 2000. Mr. Smith is also the chairman
and chief executive officer, a director and controlling shareholder, either
directly or through Sonic Financial, of Speedway Motorsports, Inc. ("SMI"). SMI
is a public company traded on the NYSE. Among other things, it owns and
operates the following NASCAR racetracks: Atlanta Motor Speedway, Bristol Motor
Speedway, Charlotte Motor Speedway, Sears Point Raceway and Texas Motor
Speedway. He is also the executive officer and a director of each of SMI's
operating subsidiaries. Additionally, Mr. Smith serves as chairman of the board
of trustees of Mar Mar Realty Trust, a Maryland real estate investment trust.
Under his employment agreement with the Company, Mr. Smith is required to
devote approximately 50% of his business time to the Company's business.
Bryan Scott Smith has been the President and Chief Operating Officer of
the Company since April 1997 and a director of the Company since its
organization in 1997. Mr. Smith, who is the son of Bruton Smith, has been an
executive officer of Town and Country Ford since 1993, and was a minority owner
of both Town and Country Ford and Fort Mill Ford prior to the acquisition by
the Company of those dealerships in 1997. Mr. Smith joined the Company's
predecessor in January 1991 on a full-time basis as an assistant used car
manager. In August of 1991, Mr. Smith became the used car manager at Town &
Country Ford. Mr. Smith was promoted to General Manager of Town & Country Ford
in November 1992 where he remained until his appointment to President and Chief
Operating Officer of the Company in April of 1997. Mr. Smith's term as a
director of the Company will expire at the annual meeting of stockholders of
the Company to be held in 1998.
Dennis D. Higginbotham has been the President of Retail Operations of the
Company since September 1998. Prior to joining the Company, Mr. Higginbotham
owned a controlling interest in, and served as the president of, Higginbotham
Chevrolet-Oldsmobile (from 1976 until September 1998), Halifax Ford-Mercury
(from 1987 until September 1998) and Higginbotham Automobiles (from 1995 until
September 1998), each of which was acquired by the Company in September 1998.
Mr. Higginbotham has worked in the automobile industry since 1965.
Nelson E. Bowers, II has been the Executive Vice President and a director
of the Company since December 1997. Prior to joining the Company, Mr. Bowers
owned a controlling interest in the Bowers automobile dealership group (the
"Bowers Dealerships") which were acquired by the Company in 1997, and he has
worked in the retail automobile industry since 1974. Mr. Bowers has served on
national dealer councils for BMW and Volvo and has owned and operated
dealerships since 1979. Several of the dealerships previously owned by Mr.
Bowers have been awarded the highest awards available from manufacturers for
customer satisfaction. Mr. Bowers' term as a director of the Company will
expire at the annual meeting of stockholders to be held in 1999.
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<PAGE>
Theodore M. Wright has been the Chief Financial Officer, Vice
President-Finance, Treasurer and Secretary of the Company since April 1997, and
a director of the Company since June 1997. Before joining the Company, Mr.
Wright was a Senior Manager and in charge of the Columbia, South Carolina
office of Deloitte & Touche LLP. Prior to joining the Columbia office, Mr.
Wright was a Senior Manager in Deloitte & Touche LLP's National Office
Accounting Research and SEC Services Departments from 1994 to 1995. From 1992
to 1994 Mr. Wright was an audit manager with Deloitte & Touche LLP. Mr.
Wright's term as a director of the Company will expire at the annual meeting of
stockholders to be held in 1999.
William R. Brooks has been a director of the Company since its formation.
Mr. Brooks also served as the Company's Treasurer, Vice President and Secretary
from its organization in February 1997 to April 1997 when Mr. Wright was
appointed to those positions. Since December 1994, Mr. Brooks has been the Vice
President, Treasurer, Chief Financial Officer and a director of SMI. Mr. Brooks
also serves as an executive officer and a director for various operating
subsidiaries of SMI. Before the formation of SMI in December 1994, Mr. Brooks
was the Vice President of the Charlotte Motor Speedway and a Vice President and
a director of Atlanta Motor Speedway. Mr. Brooks joined Sonic Financial from
Price Waterhouse in 1983. At Sonic Financial, he was promoted from Manager to
Controller in 1985 and again to Chief Financial Officer in 1989. Mr. Brooks'
term as a director of the Company will expire at the annual meeting of
stockholders to be held in 2000.
William P. Benton became a director of the Company in December 1997. Since
January 1997, Mr. Benton has been the Executive Director of Ogilvy & Mather, a
world-wide advertising agency. Mr. Benton has been a director of Speedway
Motorsports, Inc. since February 1995 and a director of Allied Holdings, Inc.
since February 1998. He is also a consultant to the Chairman and Chief
Executive Officer of TI Group. Prior to his appointment at Ogilvy & Mather, Mr.
Benton served as Vice Chairman of Wells, Rich, Greene/BDDP, Inc., an
advertising agency with offices in New York and Detroit. Mr. Benton retired
from Ford Motor Company as its Vice President of Marketing Worldwide in 1984
after a 37-year career with that company. Mr. Benton's term as a director of
the Company will expire at the annual meeting of stockholders to be held in
1998.
William I. Belk became a director of the Company in March 1998. Mr. Belk
is currently the Vice President and Director for Monroe Hardware Company,
Director for Piedmont Ventures, Inc., and Treasurer and Director for Old Well
Water, Inc. Mr. Belk previously held the position of Chairman and Director for
certain Belk stores (a privately held retail department store chain). Mr.
Belk's term as a director of the Company will expire at the annual meeting of
stockholders to be held in 1998.
Jeffrey C. Rachor is a Regional Vice President of the Company and has held
this position since the Company's acquisition of the Bowers Dealerships in
1997. Mr. Rachor has over 13 years experience in automobile retailing and was
the chief operating officer of the Bowers Dealerships from 1989 until their
acquisition by the Company in 1997. During this period, Mr. Rachor has also
served at various times as the general manager of Toyota, Saturn and
Chrysler-Plymouth-Jeep-Eagle dealerships. Prior to joining the Bowers
organization, Mr. Rachor was an assistant regional manager with American Suzuki
Motor Corporation from 1987 to 1989 and a Metro Sales Manager and a District
Sales Manager with GM's Buick Motor Division from 1983 to 1987.
O. Ken Marks, Jr. is a Regional Vice President of the Company and has held
this position since the Company's acquisition of Ken Marks Ford in 1997. Prior
to joining the Company, Mr. Marks owned a controlling interest in Ken Marks
Ford and operated that dealership as its chief executive since prior to 1992.
Mr. Marks is a Chairman's award winner from Ford and has over 13 years
experience in auto retailing. Ken Marks Ford is one of the top 100 automobile
dealerships in the United States and one of the 30 largest Ford dealerships.
Ivan A. Tufty is a Regional Vice President of the Company and has held
this position since the consummation of the Company's IPO in 1997. Mr. Tufty
also is the Executive Manager of Lone Star Ford, a position he has held since
1990. Under Mr. Tufty's leadership, Lone Star Ford has been recognized as one
of the 30 largest Ford dealerships and one of the 100 largest dealerships in
the United States. Mr. Tufty has over 40 years of experience in auto retailing
and was a dealer principal and equity owner for 12 years.
William M. Sullivan is a Regional Vice President of the Company and has
held this position since the consummation of the Company's IPO in 1997. Mr.
Sullivan also is the Vice-President of Town & Country Ford, a position he has
held since prior to 1992. Mr. Sullivan has over 25 years experience in auto
retailing as an Executive Manager, head of F&I and in other roles.
The Board of Directors of the Company is divided into three classes, each
of which, after a transitional period, will serve for three years, with one
class being elected at the Company's annual shareholder meeting each year.
Messrs. Bruton Smith and Brooks belong to the class of directors whose term
expires in 2000, Messrs. Bowers and Wright belong to the
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class of directors whose term expires in 1999, and Messrs. Scott Smith, Benton
and Belk belong to the class of directors whose term expires in 1998. The
executive officers are elected annually by, and serve at the discretion of, the
Company's Board of Directors.
Committees of the Board
There are two standing committees of the Board of Directors of the
Company, the Audit Committee and the Compensation Committee. The Audit
Committee was appointed on March 20, 1998 and consists of Messrs. Benton, Belk
and Brooks. The Compensation Committee currently has no members and its
functions are being performed by the full Board of Directors. The Board of
Directors intends to select members for its Compensation Committee at the
annual Board of Directors meeting to occur after the 1998 annual meeting of the
Company's stockholders. Set forth below is a summary of the principal functions
of each committee. There were no meetings held for either of the committees
during 1997.
Audit Committee. The Audit Committee recommends the appointment of the
Company's independent auditors, determines the scope of the annual audit to be
made, reviews the conclusions of the auditors and reports the findings and
recommendations thereof to the Board, reviews the Company's auditors, the
adequacy of the Company's system of internal control and procedures and the
role of management in connection therewith, reviews transactions between the
Company and its officers, directors and principal stockholders, and performs
such other functions and exercises such other powers as the Board from time to
time may determine.
Compensation Committee. The Compensation Committee administers certain
compensation and employee benefit plans of the Company, annually reviews and
determines executive officer compensation, including annual salaries, bonus
performance goals, bonus plan allocations, stock option grants and other
benefits, direct and indirect, of all executive officers and other senior
officers of the Company. The Compensation Committee administers the Company's
Stock Option Plan and the Company's Employee Stock Purchase Plan, and
periodically reviews the Company's executive compensation programs and takes
action to modify programs that yield payments or benefits not closely related
to the Company or executive performance. The policy of the Compensation
Committee's program for executive officers is to link pay to business strategy
and performance in a manner which is effective in attracting, retaining and
rewarding key executives while also providing performance incentives and
awarding equity-based compensation to align the long-term interests of
executive officers with those of Company stockholders. It is the Compensation
Committee's objective to offer salaries and incentive performance pay
opportunities that are competitive in the marketplace.
The Company currently has no standing nominating committee.
During 1997, there was one meeting of the Board of Directors of the
Company, with each director attending the meeting.
Executive Compensation
The following table sets forth compensation paid by or on behalf of the
Company to the Chief Executive Officer of the Company and to its other
executive officer with earnings greater than $100,000 during the year for
services rendered during the Company's fiscal years ended December 31, 1995,
1996 and 1997:
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------ Long-Term
Compensation Awards
Number of
Other Shares
Annual Underlying All Other
Name and Principal Position(s) Year Salary (1) Bonus(2) Compensation(3) Options(4) Compensation(5)
- -------------------------------- ------ ------------ ---------- ----------------- -------------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
O. Bruton Smith 1997 $326,704 -- $15,000 -- --
Chairman, Chief Executive 1996 164,750 -- 33,350 -- --
Officer and Director 1995 142,200 -- 41,350 -- --
Bryan Scott Smith 1997 273,767 $ 18,331 (5) 99,875 --
President, Chief Operating 1996 48,000 230,714 (5) -- --
Officer and Director 1995 48,000 168,670 (5) -- --
</TABLE>
- ---------
(1) Does not include the dollar value of perquisites and other personal
benefits.
(2) The amounts shown are cash bonuses earned in the specified year and paid in
the first quarter of the following year.
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<PAGE>
(3) The Company provides Bruton Smith with the use of automobiles for personal
use, the annual cost of which is reflected as Other Annual Compensation.
(4) The Company's Stock Option Plan was adopted in September 1997. Therefore,
no options were granted to any of the Company's executive officers in 1996
or 1995.
(5) The aggregate amount of perquisites and other personal benefits received
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for such executive officer.
Employment Agreements
The Company entered into employment agreements in 1997 with Messrs. Bruton
Smith, Scott Smith, Bowers, Wright, Marks and Rachor in 1997, and with Mr.
Higginbotham in 1998 (the "Employment Agreements"), which provide for an annual
base salary and certain other benefits. Pursuant to the Employment Agreements,
the 1998 base salaries of Messrs. Bruton Smith, Scott Smith, Bowers, Wright,
Marks, Rachor and Higginbotham will be $350,000, $300,000, $400,000, $180,000,
$48,000, $150,000 and $400,000, respectively. The executives will also receive
such additional increases as may be determined by the Compensation Committee.
The Employment Agreements, except those of Messrs. Higginbotham, Rachor and
Marks, provide for the payment of annual performance-based bonuses equal to a
percentage of the executive's base salary, upon achievement by the Company (or
relevant region) of certain performance objectives, based on the Company's
pre-tax income, to be established by the Compensation Committee. The Employment
Agreement for Mr. Higginbotham provides for the payment of bonuses as may be
determined and ratified from time to time by the Compensation Committee. The
Employment Agreements of Messrs. Rachor and Marks provide for the payment of
annual performance-based bonuses, paid in equal installments on a monthly
basis, equal to a percentage of the pre-tax earnings of subsidiaries of the
Company located within his regions of responsibility, in the case of Mr.
Rachor, and of Ken Marks Ford in the case of Mr. Marks. Under the terms of his
Employment Agreement, the Company will employ Mr. Bruton Smith through November
2000. Under the terms of their respective Employment Agreements, the Company
will employ Messrs. Scott Smith, Bowers, Wright, Marks and Rachor for five
years or until their respective Employment Agreements are terminated by the
Company or the executive. Under the terms of his Employment Agreement, the
Company will employ Mr. Higginbotham for three years or until his Employment
Agreement is terminated by the Company or by him. Messrs. Scott Smith, Bowers,
Wright, Marks and Rachor also receive under their Employment Agreements,
options pursuant to the Company's Stock Option Plan, for 99,875 shares, 79,313
shares, 38,188 shares, 35,250 shares and 41,125 shares, of the Class A Common
Stock, respectively, exercisable at the IPO price, vesting in three equal
annual installments beginning October 1998 and expiring in October 2007. Mr.
Higginbotham's Employment Agreement provides that he will receive options to
purchase Class A Common Stock in an amount and on terms consistent with the
grants of options for similar employees of the Company. To date, no options
have been granted to Mr. Higginbotham.
Each of the Employment Agreements contain similar noncompetition
provisions. These provisions, during the term of the Employment Agreement, (i)
prohibit the disclosure or use of confidential Company information, and (ii)
prohibit competition with the Company for the Company's employees and its
customers, interference with the Company's relationships with its vendors, and
employment with any competitor of the Company in specified territories. The
provisions referred to in (ii) above shall also apply for a period of two years
following the expiration or termination of an Employment Agreement. With
respect to Messrs. Bruton Smith, Scott Smith and Wright, the geographic
restrictions apply in any Standard Metropolitan Statistical Area ("SMSA") or
county in which the Company has a place of business at the time their
employment ends. With respect to Messrs. Bowers and Rachor, the restrictions
apply only in the SMSA's for Houston, Charlotte, Chattanooga, and Nashville,
provided that such noncompetition provisions do not apply to the operation of
Saturn of Chattanooga. With respect to Mr. Marks, the territorial restrictions
apply only in the SMSA's or counties in which the Company has a place of
business and about which Marks had access to confidential information or for
which he had operational or managerial involvement.
With respect to Mr. Higginbotham, the territorial restrictions apply only in
the SMSA's for Atlanta, Charlotte, Chattanooga, Columbus, Daytona Beach,
Houston, Montgomery, Nashville and Tampa-St. Petersburg-Clearwater.
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CERTAIN TRANSACTIONS
Registration Rights Agreement
In connection with the acquisition by the Company of Town & Country Ford,
Lone Star Ford, Fort Mill Ford, Town & Country Toyota and Frontier
Oldsmobile-Cadillac in 1997, the Company entered into a Registration Rights
Agreement dated as of June 30, 1997 (the "Class B Registration Rights
Agreement") with Sonic Financial, Bruton Smith, Scott Smith and William S.
Egan. Sonic Financial, Bruton Smith, Scott Smith and Egan Group, LLC, an
assignee of Mr. Egan (the "Egan Group") currently are the owners of record of
4,440,625, 1,035,625, 478,125 and 295,625 shares of Class B Common Stock,
respectively. Upon the registration of any of their shares or as otherwise
provided in the Certificate, such shares will automatically be converted into a
like number of shares of Class A Common Stock. Subject to certain limitations,
the Class B Registration Rights Agreement provides Sonic Financial, Bruton
Smith, Scott Smith and the Egan Group with certain piggyback registration
rights that permit them to have their shares of Common Stock, included in any
registration statement pertaining to the registration of Class A Common Stock
for issuance by the Company or for resale by them or other selling security
holders, with the exception of registration statements on Forms S-4 and S-8
relating to exchange offers (and certain other transactions) and employee stock
compensation plans, respectively. The Class B Registration Rights Agreement
expires in November 2007. Sonic Financial is controlled by the Company's
Chairman and Chief Executive Officer, Bruton Smith.
The Smith Advance
In connection with the acquisition by the Company of Fort Mill
Chrysler-Plymouth-Dodge, Bruton Smith advanced approximately $3.5 million to
the Company (the "Smith Advance"). The Smith Advance was used by the Company to
pay a portion of the cash consideration for this acquisition at closing. The
Smith Advance was evidenced by a demand note bearing interest at the minimum
statutory rate of 3.83% per annum. The Company repaid in full the principal of
and interest on the Smith Advance from the proceeds of the IPO in November
1997. Shortly following the Company's repayment of the Smith Advance, Mr. Smith
made the Subordinated Smith Loan to the Company in the amount of $5.5 million.
The financial effect to the Company from the repayment of the Smith Advance and
the subsequent Subordinated Smith Loan was substantially the same as if the
Smith Advance had not been repaid but instead had been increased from $3.5
million to $5.5 million. See "The Smith Guarantees, Pledges and Subordinated
Loan."
The Smith Guarantees, Pledges and Subordinated Loan
Under the NationsBank Facility, Bruton Smith guaranteed the obligations of
the Company and secured his guarantee with a pledge of shares of common stock
of Speedway Motorsports, owned directly by him. In February 1998, the Company
repaid in full the amounts owed under the NationsBank Facility and Mr. Smith's
guarantee was released.
Mr. Smith initially guaranteed the obligations of the Company under the
Revolving Facility and such obligations were further secured with the Revolving
Pledge of shares of common stock of Speedway Motorsports, owned by Sonic
Financial, a corporation controlled by Mr. Smith, and having an estimated value
at the time of pledge of approximately $50.0 million.
In December 1997, upon the increase of the borrowing limit under the
Revolving Facility to the maximum loan commitment of $75.0 million, Mr. Smith's
personal guarantee of the Company's obligations under the Revolving Facility
was released, although the Revolving Pledge remained in place and Mr. Smith was
required to lend the Subordinated Smith Loan of $5.5 million to the Company to
increase its capitalization. The Subordinated Smith Loan was required by Ford
Motor Credit as a condition to its agreement to increase the borrowing limit
under the Revolving Facility because the net offering proceeds to the Company
from its IPO in November 1997 were significantly less than expected by the
Company and Ford Motor Credit. The Subordinated Smith Loan is evidenced by the
Company's Subordinated Promissory Note dated December 1, 1997 in favor of Mr.
Smith, bears interest at NationsBank's announced prime rate plus 0.5% and
matures on November 30, 2000. All amounts owed by the Company to Mr. Smith
under the Subordinated Smith Loan are subordinate in right of payment to all
amounts owed by the Company under the Ford Credit Facilities pursuant to the
terms of a Subordination Agreement dated as of December 15, 1997 between Mr.
Smith and Ford Motor Credit. For further discussion of these lending
arrangements, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
Transactions with MMRT
The Company has entered into, subject to the approval of the Company's
Board of Directors and the Company's independent directors, the Alliance
Agreement with MMRT. Mr. Smith, the Company's Chairman and Chief Executive
Officer, serves as the chairman of MMRT's board of trustees and is presently
its controlling shareholder. Under the Alliance Agreement, the
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<PAGE>
Company has agreed to refer real estate acquisition opportunities that arise in
connection with its dealership acquisitions to MMRT. In exchange, MMRT has
agreed to refer dealership acquisition opportunities to the Company and to
provide certain real estate development and maintenance services to the
Company. MMRT will also arrange for property inspections and environmental
reports for prospective dealership properties at the Company's cost. Pursuant
to the Alliance Agreement, the Company has entered into contracts to sell the
real estate associated with Town and Country Toyota and Fort Mill Ford, two of
the Company's dealerships, for an aggregate purchase price of approximately
$10.3 million. In addition, the Alliance Agreement provides for an agreed form
of lease (the "Sonic Form Lease") pursuant to which MMRT would lease real
estate to the Company in connection with MMRT's future acquisitions of real
estate associated with the Company's operations. Presently, the Company leases
or intends to lease from MMRT 29 parcels of land associated with 21 of its
dealerships, including the real estate associated with Town and Country Toyota
and Fort Mill Ford that the Company will lease back from MMRT pursuant to
leases substantially similar to the Sonic Form Lease. The aggregate initial
annual base rent to be paid by the Company for all 29 properties under the
leases with MMRT is approximately $7.7 million.
The Company entered into the Alliance Agreement with MMRT rather than with
an unaffiliated third party for purposes consistent with the Company's
acquisition strategy. The Company is familiar with MMRT's growth and operating
strategy and believes that MMRT is well-positioned to identify and refer
attractive dealership acquisition opportunities for the Company in the course
of MMRT's acquisitions of real property. In addition, the Company's
relationship with MMRT will assist the Company in negotiating transactions with
sellers of dealerships that the Company has identified for acquisition. Many
dealership sellers who own their dealership's real property wish to sell the
dealership real property as well as dealership businesses. Inclusion of real
estate in a transaction may allow the Company to negotiate an acquisition on
more favorable terms. Finally, MMRT will provide development assistance to the
Company which will enable the Company to avoid additional costs associated with
hiring employees with real estate development expertise. For these reasons, the
Company feels that MMRT's growth and operating strategies are closely-aligned
with the Company's dealership acquisition strategy and that the Alliance
Agreement with MMRT will provide significant benefits to the Company on an
ongoing basis.
For acquisitions identified by the Company, the Alliance Agreement is
intended to operate in two different contexts, depending on whether the
dealership seller owns the dealership real property or leases the dealership
real property from an unaffiliated third party. For acquisitions where the
dealership seller owns the dealership real property, the Company will negotiate
acquisition of the real property from the seller on an arms'-length basis and
will assign its negotiated purchase rights to MMRT. MMRT will then acquire the
real property from the seller. The Company and MMRT will subsequently enter
into a lease agreement regarding the dealership real property using the Sonic
Form Lease to satisfy all non-economic terms of the lease agreement. The
economic terms of the lease agreement will be negotiated between the Company
and MMRT and will depend on several factors, including the projected earnings
capacity of the dealership, the quality, age and condition of the dealership
structure(s), the location of the dealership property and the rent paid for
comparable commercial properties. In accordance with the requirements of the
Company's Amended and Restated Certificate of Incorporation, the terms of any
lease agreement with MMRT involving aggregate payments in excess of $500,000
will be subject to the approval of the Company's Board of Directors and of the
Company's independent directors to ensure that such terms are no less favorable
to the Company than would be available to the Company in an arms'-length
transaction dealing with an unrelated third party. In addition, where
necessary, the Company will obtain independent appraisals to determine the
fairness of lease terms to the Company.
For acquisitions where the dealership real property is owned by an
unaffiliated third party and is leased to the dealership seller, MMRT will
negotiate with the unaffiliated third party to acquire the dealership real
property. If MMRT is successful in acquiring the dealership real property and
the Company completes its acquisition of the dealership business, then the
Company and MMRT will enter into a lease agreement regarding the dealership
real property using the Sonic Form Lease and will determine the economic terms
of the Lease Agreement according to the principles described in the paragraph
above.
The Company has agreed to sell the dealership real properties for the Town
and Country Toyota and Fort Mill Ford dealerships, which the Company currently
owns, to MMRT for approximately $5.7 million and $4.6 million, respectively.
The sales price for each of these parcels of real property was determined in
negotiations between the Company and MMRT based on the projected earnings
capacity of the dealership, from which a monthly lease payment was calculated.
Using this rent calculation, the Company and MMRT agreed to a capitalization
rate for the lease payments in order to determine a purchase price for the
properties themselves. This capitalization rate was based on several factors,
including the quality, age and condition of the dealership structure(s), the
location of the dealership property, the value of the properties for
alternative uses, the availability of similar properties in the area and recent
sales prices for comparable commercial properties in the area. An additional
factor in determining the sales price for each of the properties were
independent appraisals obtained by the Company for the Town and Country Toyota
and Fort Mill Ford properties in December 1997 and February 1996, respectively.
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These appraisals, after giving effect to the passage of time, indicate that the
sales price payable to the Company by MMRT for each of the properties exceeds
the appraised fair value of such properties determined in the independent
appraisals. The Company's Chief Executive Officer determined the sales price
for each of these properties, such determination being subject to the approval
by the Company's Board of Directors and the Company's independent directors to
ensure that the sales are on terms no less favorable to the Company than would
be available to the Company in an arms'-length transaction dealing with an
unrelated third party. In giving their approval for these sales, the Company's
directors are expected to evaluate the earnings capacities of the dealerships
and the capitalization rates for the related leases through an analysis of the
factors stated above as well as the previously mentioned independent
appraisals.
MMRT has entered into new leases with each of Town and Country Ford and
Lone Star Ford which provide that the annual lease payments for their
properties will each be increased to approximately $1.1 million effective
January 1, 2000, as compared to current annual lease payments of approximately
$0.4 million and $0.3 million, respectively. The lease rates for Town and
Country Ford and Lone Star Ford are currently at below market rates, as
supported by independent appraisal. Accordingly, MMRT, as a condition to its
agreement to purchase these properties, required that the Company agree to
enter into new lease agreements with MMRT that would reflect fair market rent
payments beginning January 1, 2000. The increase in lease rates for Town and
Country Ford and Lone Star Ford effective January 1, 2000 is subject to the
approval of the Company's Board of Directors and of the Company's independent
directors. As required by the Company's Amended and Restated Certificate of
Incorporation, the terms of these transactions must be no less favorable to the
Company than those available from an unrelated third party.
Certain Dealership Leases
Certain of the properties leased by the Company's dealership subsidiaries
are owned by officers, directors or holders of 5% or more of the Common Stock
of the Company or their affiliates. These leases contain terms comparable to,
or more favorable to the Company than, terms that would be obtained from
unaffiliated third parties. Town & Country Ford operates at facilities leased
from STC Properties, a North Carolina joint venture ("STC"). Town & Country
Ford maintains a 5% undivided interest in STC and Sonic Financial owns the
remaining 95% of STC. The STC lease on the Town & Country Ford facilities will
expire in October 2000. Annual payments under the STC lease were $510,085 for
each of 1995 and 1996, and $409,200 in 1997. Current minimum rent payments are
$409,000 annually ($34,083 monthly) through 1999. In connection with the
Alliance Agreement between MMRT and the Company, MMRT has agreed to purchase
the real property on which Town & Country Ford is operated from STC and has
entered into a lease with Town & Country Ford whereby the annual lease payment
by Town & Country Ford will be increased to approximately $1.1 million
effective January 1, 2000.
Lone Star Ford operates, in part, at facilities leased from Viking
Investments Associates, a Texas association ("Viking"), which is controlled by
Mr. Bruton Smith. Annual payments under the Viking lease were $331,302,
$360,000 and $360,000 for 1995, 1996 and 1997, respectively. Minimum annual
rents under this lease are $360,000 ($30,000 monthly), such amount being below
market. In connection with the Alliance Agreement, MMRT has agreed to purchase
the real property on which Lone Star Ford is operated from Viking and has
entered into a lease with Lone Star Ford whereby the annual lease payment by
Lone Star Ford will be increased to approximately $1.1 million effective
January 1, 2000.
KIA of Chattanooga operates at facilities leased from KIA Land
Development, a company in which Nelson Bowers, the Company's Executive Vice
President and a director, maintains an ownership interest. The Company
negotiated this lease in connection with the Bowers Acquisition. This triple
net lease expires in 2007 and the rent will be $11,070 per month. Annual
payments under this lease were $22,140 for 1997. The Company may renew this
lease at its option for two additional five year terms. At each renewal, the
lessor may adjust lease rents to reflect fair market rents for the property.
European Motors operates at its Chattanooga facilities under a triple net
lease from Mr. Bowers. The Company negotiated this lease in connection with the
Bowers Acquisition. The European Motors lease expires in 2007 and provides for
monthly rent of $23,320. Annual payments under this lease were $46,640 for
1997. This lease also provides for renewals on terms identical to the KIA of
Chattanooga lease.
Infiniti of Chattanooga operates at facilities leased from JAG Properties,
a company in which Mr. Bowers maintains an ownership interest. The Company
negotiated this lease in connection with the Bowers Acquisition. Annual
payments under this lease were $55,704 for 1997. This triple net lease expires
in 2017 and provides for monthly rent of $27,852. The Company may renew this
lease on terms identical to the KIA of Chattanooga renewal options.
Cleveland Chrysler-Plymouth-Jeep-Eagle leases its facilities from
Cleveland Properties LLC, a limited liability company in which Mr. Bowers
maintains an ownership interest. The Company negotiated this lease in
connection with the Bowers
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Acquisition. This triple net lease expires in 2011, provides for monthly rent
of $23,452 and may be renewed on terms identical to the KIA of Chattanooga
lease. Annual payments under this lease were $46,904 for 1997.
Cleveland Village Honda operates at facilities leased from Nelson Bowers
and another individual. Mr. Bowers owns a 75% undivided interest in the land
and buildings leased by Cleveland Village Honda, with the remaining interests
owned by an unrelated party. Such land and buildings are leased under two
leases: one is a triple net fixed lease expiring in October 2000 with rent of
$12,858 per month and the other, pertaining to a used car lot, is a
month-to-month lease with rent of $3,000 per month. Annual payments under this
lease were $31,716 for 1997.
In September 1998, MMRT entered into agreements to acquire all of the
foregoing properties in which Mr. Bowers has an interest subject to the
existing leases with the Company.
In July 1998, simultaneously with the closing of the Heritage Acquisition,
Chartown, a general partnership controlled by Mr. Bruton Smith and an affiliate
of the Company ("Chartown"), acquired the real property upon which the Heritage
Lincoln-Mercury dealership is operated for approximately $3.0 million. Chartown
and the Company's subsidiary that acquired the assets of the Heritage
Lincoln-Mercury dealership then entered into a lease agreement pursuant to
which the subsidiary leases the real property from Chartown. The lease is for a
ten year term with an option on the part of the lessee to extend for two
additional five-year terms. The annual base rental under this lease is
$349,860, adjusted every five years based on the consumer price index. The
Company anticipates that Chartown will sell this real estate property to MMRT
in the future.
Also in July 1998, simultaneously with the closing of the Century
Acquisition, Chartown acquired two separate parcels of real property upon which
the BMW dealership and the satellite sales location are operated, respectively,
for approximately $5.0 million. Chartown and the Company's subsidiary that
acquired the assets of Century BMW then entered into separate two lease
agreements for the BMW dealership property and the satellite sales location
property, respectively, pursuant to which the subsidiary leases each of these
properties from Chartown. Each of the leases is for a ten year term with an
option on the part of the lessee to extend for two additional five-year terms.
The annual base rentals under the BMW dealership lease and the satellite sales
location lease are $420,000 and $112,805, respectively, adjusted every five
years based on the consumer price index. The Company anticipates that Chartown
will sell each of these real estate properties to MMRT in the future.
Chartown Transactions
Chartown is a general partnership engaged in real estate development and
management. Before the Reorganization, Town & Country Ford maintained a 49%
partnership interest in Chartown with the remaining 51% held by SMDA
Properties, LLC, a North Carolina limited liability company ("SMDA"). Bruton
Smith owns an 80% direct membership interest in SMDA with the remaining 20%
owned indirectly through Sonic Financial. In addition, Sonic Financial also
held a demand promissory note for approximately $1.6 million issued by Chartown
(the "Chartown Note"), which was uncollectible due to insufficient funds. As
part of the Reorganization, the Chartown Note was canceled and Town & Country
Ford transferred its partnership interest in Chartown to Sonic Financial for
nominal consideration. In connection with that transfer, Sonic Financial agreed
to indemnify Town & Country Ford for any and all obligations and liabilities,
whether known or unknown, relating to Chartown and Town & Country Ford's
ownership thereof.
The Bowers Volvo Note
In connection with Volvo's approval of the Company's acquisition of a
Volvo franchise in the Bowers Acquisition, Volvo, among other things,
conditioned its approval upon Nelson Bowers acquiring and maintaining a 20%
interest in the Company's Sonic Automotive of Chattanooga, LLC ("Chattanooga
Volvo") subsidiary that will operate the Volvo franchise. Mr. Bowers financed
all of the purchase price for this 20% interest by issuing a promissory note
(the "Bowers Volvo Note") in favor of Sonic Automotive of Nevada, Inc. ("Sonic
Nevada"), the wholly owned subsidiary of the Company that controls a majority
interest in Chattanooga Volvo. The Bowers Volvo Note is secured by Mr. Bowers'
interest in Chattanooga Volvo.
The Bowers Volvo Note is for a principal amount of $900,000 and bears
interest at the lowest applicable federal rate as published by the U.S.
Treasury Department in effect on November 17, 1998. Accrued interest is payable
annually. The operating agreement of Chattanooga Volvo provides that profits
and distributions are to be allocated first to Mr. Bowers to the extent of
interest to be paid on the Bowers Volvo Note and next to the other members of
Chattanooga Volvo according to their percentages of ownership. No other profits
or any losses of Chattanooga Volvo will be allocated to Mr. Bowers under this
arrangement. Mr. Bowers' interest in Chattanooga Volvo will be redeemed and the
Bowers Volvo Note will be due and payable in full when Volvo no longer requires
Mr. Bowers to maintain his interest in Chattanooga Volvo.
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Other Transactions
Beginning in early 1997, certain of the Sonic Dealerships entered into
arrangements to sell to their customers credit life insurance policies
underwritten by American Heritage Life Insurance Company, an insurer
unaffiliated with the Company ("American Heritage"). American Heritage in turn
reinsures all of these policies with Provident American Insurance Company, a
Texas insurance company ("Provident American"). Under these arrangements, the
Sonic Dealerships paid an aggregate of $576,000 to American Heritage in
premiums for these policies for the year ended December 31, 1997. The Company
terminated this arrangement with American Heritage in 1997. Provident American
is a wholly owned subsidiary of Sonic Financial.
Town & Country Ford and Lone Star Ford had each made several non-interest
bearing advances to Sonic Financial, a company controlled by Bruton Smith. In
preparation for the Reorganization, a demand promissory note by Sonic Financial
evidencing $2.1 million of these advances was canceled in June 1997 in exchange
for the redemption of certain shares of the capital stock of Town & Country
Ford held by Sonic Financial. In addition, a demand promissory note by Sonic
Financial evidencing of $0.5 million of these advances was canceled in June
1997 pursuant to a dividend. Approximately $0.5 million remain outstanding
under these arrangements at December 31, 1997.
As part of the purchase price in connection with the Company's acquisition
of the Bowers Automotive Group in November 1997, the Company issued its
promissory note in the original principal amount of $4.0 million in favor of
Nelson Bowers (the "Bowers Acquisition Note"). The Bowers Acquisition Note is
payable in 28 equal quarterly installments and bears interest at the prime rate
less 0.5%.
The Company made certain advances to its shareholder, Sonic Financial, in
1997, which amounts are currently outstanding. As of December 31, 1997, the
amounts receivable from Sonic Financial with respect to such advances totalled
$622,000.
Town and Country Toyota has an amount payable to Bruton Smith, which
payable totals approximately $0.8 million as of December 31, 1997. This loan
bears interest at 8.75% per annum.
Certain subsidiaries of the Company (such subsidiaries together with the
Company and Sonic Financial being hereinafter referred to as the "Sonic Group")
have joined with Sonic Financial in filing consolidated federal income tax
returns for several years. Such subsidiaries joined with Sonic Financial in
filing for 1996 and for the period ending on June 30, 1997. Under applicable
federal tax law, each corporation included in Sonic Financial's consolidated
return is jointly and severally liable for any resultant tax. Under a tax
allocation agreement dated as of June 30, 1997, however, the Company agreed to
pay to Sonic Financial, in the event that additional federal income tax is
determined to be due, an amount equal to the Company's separate federal income
tax liability computed for all periods in which any member of the Sonic Group
has been a member of Sonic Financial's consolidated group less amounts
previously recorded by the Company. Also pursuant to such agreement, Sonic
Financial agreed to indemnify the Company for any additional amount determined
to be due from Sonic Financial's consolidated group in excess of the federal
income tax liability of the Sonic Group for such periods. The tax allocation
agreement establishes procedures with respect to tax adjustments, tax claims,
tax refunds, tax credits and other tax attributes relating to periods ending
prior to the time that the Sonic Group shall leave Sonic Financial's
consolidated group.
The Company acquired Town & Country Ford, Lone Star Ford, Town & Country
Toyota, Fort Mill Ford and Frontier Oldsmobile-Cadillac (the "Initial
Dealerships") in the Reorganization pursuant to four separate stock
subscription agreements (the "Subscription Agreements"). The Subscription
Agreements provide for the acquisition of 100% of the capital stock or
membership interests, as the case may be, of each of the Initial Dealerships
from Sonic Financial, Bruton Smith, the Egan Group (an assignee of Mr. Egan)
and Bryan Scott Smith in exchange for certain amounts of the Company's issued
and outstanding Class B Common Stock. See "Principal Stockholders."
For additional information concerning related party transactions of the
Company, see Note 7 to the Consolidated Financial Statements of Sonic and for
the businesses being acquired in the 1998 Acquisitions, see "The 1998
Acquisitions" and the Consolidated Financial Statements of the dealerships
being acquired in the pending 1998 Acquisitions contained elsewhere herein.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the Company's Voting Stock as of September 15, 1998, by
(i) each stockholder who is known to the Company to own beneficially five
percent or more of each class of the outstanding Voting Stock, (ii) each
director of Sonic, (iii) each executive officer of Sonic (including the Chief
Executive Officer), and (iv) all directors and executive officers of Sonic as a
group. Holders of Class A Common Stock are entitled to one vote per share on
all matters submitted to a vote of the stockholders of the Company. Holders of
Class B Common Stock are entitled to ten votes per share on all matters
submitted to a vote of the stockholders, except that the Class B Common Stock
is entitled to only one vote per share with respect to any transaction proposed
or approved by the Board of Directors of the Company or proposed by all the
holders of the Class B Common Stock or as to which any member of the Smith
Group or any affiliate thereof has a material financial interest other than as
a then existing stockholder of the Company constituting a (a) "going private"
transaction (as defined herein), (b) disposition of substantially all of the
Company's assets, (c) transfer resulting in a change in the nature of the
Company's business, or (d) merger or consolidation in which current holders of
Common Stock would own less than 50% of the Common Stock following such
transaction. In the event of any transfer outside of the Smith Group or the
Smith Group holds less than 15% of the total number of shares of Common Stock
outstanding, such transferred shares or all shares, respectively, of Class B
Common Stock will automatically convert into an equal number of shares of Class
A Common Stock. Holders of Preferred Stock are entitled to one vote per each
share of Class A Common Stock into which such Preferred Stock is convertible
into as of the record date of the Annual Meeting on all matters submitted to a
vote of the stockholders of the Company. Except as otherwise indicated below,
each of the persons named in the table has sole voting and investment power
with respect to the securities beneficially owned by him or it as set forth
opposite his or its name subject to community property laws where applicable.
<TABLE>
<CAPTION>
Number of
Number of Percentage of Shares of
Shares of Outstanding Class B
Class A Class A Common
Common Stock Common Stock
Beneficial Owner Owned Stock Owned
- ----------------------------------------- -------------- --------------- -----------
<S> <C> <C> <C>
O. Bruton Smith (2)(3) .................. -- -- 5,476,250
Sonic Financial Corporation (2) ......... -- -- 4,440,625
Bryan Scott Smith (2) ................... 33,292 (4) * 478,125
Nelson E. Bowers, II .................... 26,438 (5) * --
Theodore M. Wright ...................... 12,729 (6) * --
William R. Brooks ....................... 10,000 (7) * --
William P. Benton ....................... 10,000 (7) * --
William I. Belk ......................... 10,000 (7) * --
Citicorp (8)(10) ........................ 500,000 9.92% --
Citibank, N.A. (9)(10) .................. 500,000 9.92% --
Wellington Management Company,
LLP (11)(13) ........................... 497,000 9.86% --
Wellington Trust Company, N.A.
(12)(13) ............................... 308,300 6.12% --
Scott Fink (14) ......................... -- -- --
Michael S. Cohen (15) ................... -- -- --
Dan E. Hatfield (16) .................... -- -- --
Bud C. Hatfield (16) .................... -- -- --
Century Auto Sales, Inc. (17) ........... -- -- --
Aldo B. Paret (18) ...................... -- -- --
Frank McGough (19) ......................
All directors and executive officers as
a group (10 persons) (1)(10) ........... -- -- 5,954,375
<CAPTION>
Percentage of
Outstanding Number of Percentage of Percentage of
Class B Shares of Outstanding all Outstanding
Common Preferred Stock Preferred Voting
Beneficial Owner Stock Owned Stock Stock (1)
- ----------------------------------------- -------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
O. Bruton Smith (2)(3) .................. 87.62% -- -- 48.38%
Sonic Financial Corporation (2) ......... 71.05% -- -- 39.23%
Bryan Scott Smith (2) ................... 7.65% -- -- 4.51%
Nelson E. Bowers, II .................... -- -- -- *
Theodore M. Wright ...................... -- -- -- *
William R. Brooks ....................... -- -- -- *
William P. Benton ....................... -- -- -- *
William I. Belk ......................... -- -- -- *
Citicorp (8)(10) ........................ -- -- -- 4.42%
Citibank, N.A. (9)(10) .................. -- -- -- 4.42%
Wellington Management Company,
LLP (11)(13) ........................... -- -- -- 4.39%
Wellington Trust Company, N.A.
(12)(13) ............................... -- -- -- 2.72%
Scott Fink (14) ......................... -- 1,980 7.32% *
Michael S. Cohen (15) ................... -- 1,980 7.32% *
Dan E. Hatfield (16) .................... -- 3,750 13.86% *
Bud C. Hatfield (16) .................... -- 8,971 33.15% *
Century Auto Sales, Inc. (17) ........... -- 2,166.5 8.01% *
Aldo B. Paret (18) ...................... -- 2,313 8.55% *
Frank McGough (19) ...................... 4,194.3 15.50% *
All directors and executive officers as
a group (10 persons) (1)(10) ........... 95.27% -- -- 53.84%
</TABLE>
- ---------
* Less than one percent
(1) The percentage of total voting power is as follows: O. Bruton Smith,
79.42%, Sonic Financial Corporation, 64.40%. Bryan Scott Smith, 6.98%, and
Citicorp, Citibank, N.A.,Wellington Management Company, LLP, Wellington
Trust Company, N.A., Messrs. Bowers, Wright, Brooks, Benton, Belk, Fink
and Cohen, less than 1%.
(2) The address of such person or group is 5401 East Independence Boulevard,
Charlotte, North Carolina 28218.
(3) The Schedule 13D filed by the beneficial owner indicates that the shares of
Common Stock shown as owned by such person or group include all of the
shares shown as owned by Sonic Financial Corporation ("Sonic Financial")
elsewhere in the table. Bruton Smith owns the substantial majority Sonic
Financial's outstanding capital stock.
(footnotes continued on following page)
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<PAGE>
(4) Does not include 99,875 shares that underlie options to purchase shares of
Class A Common Stock granted by the Company pursuant to the Company's 1997
Stock Option Plan, which become exercisable in three equal installments
beginning in October 1998.
(5) Does not include 79,313 shares that underlie options to purchase shares of
Class A Common Stock granted by the Company pursuant to the Company's
Stock Option Plan, which become exercisable in three equal installments
beginning in October 1998.
(6) Does not include 38,188 shares that underlie options to purchase shares of
Class A Common Stock granted by the Company pursuant to the Company's
Stock Option Plan, which become exercisable in three equal installments
beginning in October 1998.
(7) Does not include 10,000 shares that underlie options to purchase shares of
Class A Common Stock granted by the Company pursuant to the Directors
Plan, which become exercisable in September 1998. For additional
information concerning options granted to the Company's independent
directors, see "Proposed Adoption of the Directors Plan" below.
(8) The Schedule 13D filed by the beneficial owner indicates that the shares of
Common Stock shown as owned by such entity or group include all the shares
shown as owned by Citibank, N.A. elsewhere in the table. Citicorp owns all
of the outstanding capital stock of Citibank, N.A.
(9) The Schedule 13D filed by the beneficial owner indicates that Citibank,
N.A. has sole voting power as to 72,000 shares of the 500,000 shares shown
with no voting power as to the remainder and has shared dispositive power
over all 500,000 shares.
(10) The address of such entity is 399 Park Avenue, New York, New York 10043.
(11) The Schedule 13D filed by the beneficial owner indicates that Wellington
Management Company has shared voting power as to 223,700 shares of the
497,000 shares shown with no voting power as to the remainder and has
shared dispositive power over all 497,000 shares.
(12) The Schedule 13D filed by the beneficial owner indicates that Wellington
Trust Company, N.A. has shared voting power as to 84,600 shares of the
308,300 shares shown with no voting power as to the remainder and has
shared dispositive power over all 308,300 shares.
(13) The address of such entity is 75 State Street, Boston, Massachusetts 02109.
(14) The address of such person is 3030 Turtle Brooke, Clearwater, Florida
33761.
(15) The address of such person is 49 Rolling Hill Lane, Old Westbury, New York
11568.
(16) The address of such person is 1500 Automall Drive, Columbus, Ohio 43228.
(17) The address of such entity is 2323 Laurens Road, Greenville, South Carolina
29607.
(18) The address of such person is 4615 Southwest Freeway, Suite 600, Houston,
Texas 77027.
(19) The address of such person is 711 Eastern Blvd., Montgomery, Alabama 36117.
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DESCRIPTION OF CERTAIN OTHER INDEBTEDNESS
The Revolving Facility
In October 1997, the Company obtained the Revolving Facility from Ford
Motor Credit in the principal amount of $26.0 million. In December 1997, the
Company increased the aggregate amount available to borrow under this facility
to a maximum $75.0 million pursuant to the Revolving Facility's terms. The
Revolving Facility bears interest at the Revolving Facility Prime Rate and
matures in December 1999, unless the Company requests that such term be
extended, at the option of Ford Motor Credit, for additional one year terms. No
assurance can be given that such extensions will be granted. The proceeds from
the Revolving Facility were used in the consummation of the acquisition of Ken
Marks Ford in 1997, the Clearwater Acquisition, the Hatfield Acquisition and
the repayment in February 1998 of $8.2 million of the amount borrowed under the
NationsBank Facility. Amounts to be drawn under the Revolving Facility are
anticipated by the Company to be used for paying a portion of the cash purchase
price of the pending 1998 Acquisitions, to refinance designated indebtedness,
for the acquisition of additional dealership subsidiaries in the future and to
provide general working capital needs of the Company not to exceed $10 million.
At September 15, 1998, no amounts were outstanding under the Revolving
Facility.
The Company agreed under the Revolving Facility not to pledge any of its
assets to any third party (with the exception of currently encumbered real
estate and assets of the Company's dealership subsidiaries that are subject to
previous pledges or liens). The Revolving Facility also contains certain
negative covenants made by the Company, including covenants restricting or
prohibiting the payment of dividends, capital expenditures and material
dispositions of assets as well as other customary covenants. Additional
covenants include specified ratios of (i) total debt to tangible equity (as
defined in the Revolving Facility) no greater than 14 to 1 before December 31,
1998 and thereafter no greater than 8 to 1 (the "Total Base Capital Ratio"),
(ii) total adjusted debt (as defined in the Revolving Facility) to tangible
equity no greater than 4 to 1 before December 31, 1998 and thereafter no
greater than 2.5 to 1 (the "Adjusted Total Base Capital Ratio"), (iii) current
assets to current liabilities of at least 1.25 to 1, (iv) earnings before
interest, taxes, depreciation, amortization and rent expense (EBITDAR) less
capital expenditures to fixed charges of at least 1.3 to 1 for each fiscal
quarter, (v) earnings before interest, taxes, depreciation and amortization
(EBITDA) to interest expense of at least 2 to 1 for each fiscal quarter, (vi)
EBITDA to total adjusted debt of more than 1 to 2.25 and (vii) the current
lending commitment under the Revolving Facility to scaled assets (as defined in
the Revolving Facility) of more than 3.5 to 1. Moreover, the loss of voting
control over the Company by the Smith Group or the failure by the Company, with
certain exceptions, to own all the outstanding equity, membership or
partnership interests in its dealership subsidiaries will constitute an event
of default under the Revolving Facility. The Company did not meet the Total
Base Capital Ratio and the Adjusted Total Base Capital Ratio covenants at
December 31, 1997, at March 31, 1998 and at June 30, 1998 and has obtained
waivers with regard to such requirement from Ford Motor Credit. The waivers are
subject to the requirement that the Company meet a Total Base Capital Ratio and
Adjusted Total Base Capital Ratio of 16 to 1 and 4 to 1, respectively, after
June 30, 1998 and 8 to 1 and 2.5 to 1, respectively, after December 31, 1998.
The Company and Ford Motor Credit have amended the Revolving Credit Facility to
provide that the Notes (which are subordinated to the Revolving Facility) will
be treated as equity capital for purposes of these ratios and, accordingly, the
Company is in compliance with these covenants after giving effect to the
issuance of the Notes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
The indebtedness under the Ford Credit Facilities is secured by (i) a
pledge by the Company of all the capital stock, membership interests and
partnership interests of all of the Company's subsidiaries, (ii) guaranties by
all of the Company's subsidiaries that are, in turn, secured by a lien on all
of the assets of such subsidiaries (with the exception of the liens on the
assets of the Company's Ford dealership subsidiaries, which liens only secure
such Ford subsidiaries' obligations under the Floor Plan Facility) and (iii) a
lien on all of the Company's other assets, except for real estate owned by the
Company or its subsidiaries. In addition, the Revolving Facility is partially
secured by a pledge of shares of SMI common stock owned by Sonic Financial, a
corporation controlled by Bruton Smith. See "Certain Transactions -- The Smith
Guarantees and Pledges."
The Floor Plan Facility
The Company currently has in place the Floor Plan Facility, a standardized
floor plan credit facility with Ford Motor Credit for each of the Company's
dealership subsidiaries. Each dealership subsidiary has its own agreement with
Ford Motor Credit for its inventory financing needs. As of June 30, 1998, there
was an aggregate of $149.7 million outstanding under the Floor Plan Facility.
The Floor Plan Facility at September 15, 1998 had an effective rate of prime
less 0.9%, subject to certain incentives and other adjustments, which was 7.6%.
Typically new vehicle floor plan indebtedness exceeds the related inventory
balances. The inventory balance is generally reduced by the Manufacturer's
purchase discounts, and such reduction is not reflected in the related floor
plan liability. These Manufacturer purchase discounts are standard in the
industry, typically occur on all new vehicle purchases, and are not used to
offset the related floor plan liability. These discounts are aggregated
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<PAGE>
and generally paid to the Company by the Manufacturer on a quarterly basis. The
related floor plan liability becomes due as vehicles are sold.
The Company makes monthly interest payments on the amount financed under
the Floor Plan Facility but is not required to make loan principal repayments
prior to the sale of the vehicles. The underlying notes are due when the
related vehicles are sold and are collateralized by vehicle inventories and
other assets of the applicable dealership subsidiary. For a description of the
security for repayment of the indebtedness of the Company and its subsidiaries
under the Floor Plan Facility, see " -- The Revolving Facility."
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<PAGE>
DESCRIPTION OF THE NEW NOTES
The Old Notes were, and the New Notes will be, issued under an Indenture
dated as of July 1, 1998 (the "Indenture") among the Company, the Guarantors
and U.S. Bank Trust National Association, as trustee (the "Trustee"), a copy of
the form of which will be made available to prospective purchasers of the Notes
upon request to the Company. Upon the issuance of the New Notes, the Indenture
will be subject to and governed by the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act"). References to ("Section ") mean the applicable
Section of the Indenture.
EXCEPT AS OTHERWISE INDICATED BELOW, THE FOLLOWING SUMMARY APPLIES TO BOTH
THE OLD NOTES AND THE NEW NOTES. AS USED HEREIN, THE TERM "NOTES" SHALL MEAN
THE OLD NOTES AND THE NEW NOTES, UNLESS OTHERWISE INDICATED.
The form and terms of the New Notes are substantially identical to the
form and terms of the Old Notes, except that (i) the New Notes will have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof and (ii) holders of New Notes will not be, and
upon consummation of the Exchange Offer, holders of the Old Notes will no
longer be, entitled to certain rights under the Registration Rights Agreement
intended for the holders of unregistered securities, except in certain limited
circumstances. The New Notes will be issued solely in exchange for an equal
principal amount of Old Notes. As of the date hereof, $125.0 million aggregate
principal amount of Old Notes is outstanding. See "The Exchange Offer."
The following summary of the material provisions of the Indenture does not
purport to be complete, and where reference is made to particular provisions of
the Indenture, such provisions, including the definitions of certain terms, are
qualified in their entirety by reference to all of the provisions of the
Indenture and those terms made a part of the Indenture by the Trust Indenture
Act. For definitions of certain capitalized terms used in the following
summary, see " -- Certain Definitions" or "The Exchange Offer."
General
The Notes will mature on August 1, 2008, will be limited to $125,000,000
aggregate principal amount, and will be unsecured senior subordinated
obligations of the Company. Each Note will bear interest at the rate of 11% per
annum from July 31, 1998 or from the most recent interest payment date to which
interest has been paid, payable semiannually in arrears on February 1 and
August 1 in each year, commencing February 1, 1999, to the Person in whose name
the Note (or any predecessor Note) is registered at the close of business on
the January 15 or July 15 next preceding such interest payment date. Interest
will be computed on the basis of a 360-day year comprised of twelve 30-day
months. (Sections 202, 301 and 309).
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes will be exchangeable and transferable, at the office or agency of
the Company in The City of New York maintained for such purposes (which
initially will be the corporate trust office of the Trustee); provided,
however, that payment of interest may be made at the option of the Company by
check mailed to the Person entitled thereto as shown on the security register.
(Sections 301, 305 and 1002) The Notes will be issued only in fully registered
form without coupons, in denominations of $1,000 and any integral multiple
thereof. (Section 302) No service charge will be made for any registration of
transfer, exchange or redemption of Notes, except in certain circumstances for
any tax or other governmental charge that may be imposed in connection
therewith. (Section 305)
As discussed under "The Exchange Offer," pursuant to the Registration
Rights Agreement, the Company and the Guarantors have agreed for the benefit of
the holders of the Old Notes, at the Company's and the Guarantors' cost to use
their reasonable best efforts, (i) to effect a registered Exchange Offer under
the Securities Act to exchange the Old Notes for the New Notes, which will have
terms identical in all material respects to the Old Notes (except that the New
Notes will not contain terms with respect to transfer restrictions or
requirements for exchange or registration) and (ii) in the event that any
changes in law or applicable interpretations of the staff of the Commission do
not permit the Company to effect the Exchange Offer, or if for any other reason
the Exchange Offer is not consummated within 165 calendar days after the
original issue of the Old Notes, or upon the request of any Initial Purchaser,
or if any holder of the Old Notes is not permitted by applicable law to
participate in the Exchange Offer or elects to participate in the Exchange
Offer but does not receive fully tradable New Notes, to register the Old Notes
for resale under the Securities Act through a shelf registration statement (the
"Shelf Registration Statement"). In the event that (a) the Registration
Statement of which this Prospectus is a part is not filed with the Commission
on or prior to the 60th calendar day following the date of original issue of
the Old Notes, (b) the Registration Statement has not been declared effective
on or prior to the 135th calendar day following the date of original issue of
the Old Notes, (c) the Exchange Offer is not consummated or a Shelf
Registration Statement is not declared effective, in either case, on or prior
to the 165th calendar day following the date of original issue of the Old Notes
or (d) the Shelf Registration Statement
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is declared effective but shall thereafter become unusable for more than 30
days in the aggregate (each such event referred to in clauses (a) through (d)
above, a "Registration Default"), the interest rate borne by the Old Notes
shall be increased by one-quarter of one percent per annum upon the occurrence
of each Registration Default, which rate (as increased as aforesaid) will
increase by an additional one quarter of one percent each 90-day period that
such additional interest continues to accrue under any such circumstance, with
an aggregate maximum increase in the interest rate equal to one percent (1%)
per annum. The Shelf Registration Statement will be required to remain
effective until the second anniversary of the issuance of the Old Notes.
Following the cure of all Registration Defaults the accrual of additional
interest will cease and the interest rate will revert to the original rate. See
"Exchange Offer; Registration Rights."
All payments of principal and interest will be made by the Company in same
day funds. The Notes will trade in the Same-Day Funds Settlement System of The
Depository Trust Company (the "Depositary" or "DTC") until maturity, and
secondary market trading activity for the Notes will therefore settle in same
day funds.
When issued, the New Notes will be a new issue of securities with no
established trading market. No assurance can be given as to the liquidity of
the trading market for the Notes. See "Risk Factors -- Absence of Public Market
for the Notes."
Guarantees
Payment of the Notes is guaranteed by the Guarantors jointly and
severally, fully and unconditionally, on a senior subordinated basis. The
Guarantors are comprised of all of the direct and indirect Restricted
Subsidiaries of the Company on the Issue Date. Substantially all of the
Company's operations are conducted through its subsidiaries. In addition, if
any Restricted Subsidiary of the Company becomes a guarantor or obligor in
respect of any other Indebtedness of the Company or any of the Restricted
Subsidiaries, the Company shall cause such Restricted Subsidiary to enter into
a supplemental indenture pursuant to which such Restricted Subsidiary shall
agree to guarantee the Company's obligations under the Notes. If the Company
defaults in payment of the principal of, premium, if any, or interest on the
Notes, each of the Guarantors will be unconditionally, jointly and severally
obligated to duly and punctually pay the same.
The obligations of each Guarantor under its Guarantee are limited to the
maximum amount which, after giving effect to all other contingent and fixed
liabilities of such Guarantor, and after giving effect to any collections from
or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, will result in the obligations of
such Guarantor under its Guarantee not constituting a fraudulent conveyance or
fraudulent transfer under Federal or state law. Each Guarantor that makes a
payment or distribution under its Guarantee shall be entitled to a contribution
from any other Guarantor in a pro rata amount based on the net assets of each
Guarantor determined in accordance with GAAP.
Notwithstanding the foregoing, in certain circumstances a Guarantee of a
Guarantor may be released pursuant to the provisions of subsection (c) under "
- -- Certain Covenants -- Limitation on Guarantees by Restricted Subsidiaries."
The Company also may, at any time, cause a Restricted Subsidiary to become a
Guarantor by executing and delivering a supplemental indenture providing for
the guarantee of payment of the Notes by such Restricted Subsidiary on the
basis provided in the Indenture.
Optional Redemption
The Notes will be subject to redemption at any time on or after August 1,
2003, at the option of the Company, in whole or in part, on not less than 30
nor more than 60 days' prior notice, in amounts of $1,000 or an integral
multiple thereof, at the following redemption prices (expressed as percentages
of the principal amount), if redeemed during the 12-month period beginning
August 1 of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
- ---------------- -------------
<S> <C>
2003 ......... 105.500%
2004 ......... 103.667%
2005 ......... 101.833%
</TABLE>
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the redemption date (subject to the
rights of holders of record on relevant record dates to receive interest due on
an interest payment date).
In addition, at any time prior to August 1, 2001, the Company, at its
option, may use the net proceeds of one or more Public Equity Offerings to
redeem up to an aggregate of 35% of the aggregate principal amount of Notes
originally issued under the Indenture at a redemption price equal to 111% of
the aggregate principal amount thereof, plus accrued and unpaid
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interest thereon, if any, to the redemption date; provided that at least 65% of
the initial aggregate principal amount of Notes remains outstanding immediately
after the occurrence of such redemption. In order to effect the foregoing
redemption, the Company must mail a notice of redemption no later than 30 days
after the closing of the related Public Equity Offering and must consummate
such redemption within 60 days of the closing of the Public Equity Offering.
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed in compliance with the
requirements of the principal national security exchange, if any, on which the
Notes are listed, or if the Notes are not so listed, on a pro rata basis, by
lot or by any other method the Trustee shall deem fair and reasonable;
provided, that Notes redeemed in part shall be redeemed only in integral
multiples of $1,000; provided, further, that any such redemption pursuant to
the provisions relating to a Public Equity Offering shall be made on a pro rata
basis or on as nearly a pro rata basis as practicable (subject to the
procedures of The Depository Trust Company or any other Depositary). (Sections
203, 1101, 1105 and 1107)
Sinking Fund
The Notes will not be entitled to the benefit of any sinking fund.
Purchase of Notes Upon a Change of Control
If a Change of Control shall occur at any time, then each holder of Notes
shall have the right to require that the Company purchase such holder's Notes
in whole or in part in integral multiples of $1,000, at a purchase price (the
"Change of Control Purchase Price") in cash in an amount equal to 101% of the
principal amount of such Notes, plus accrued and unpaid interest, if any, to
the date of purchase (the "Change of Control Purchase Date"), pursuant to the
offer described below (the "Change of Control Offer") and in accordance with
the other procedures set forth in the Indenture.
Within 30 days of any Change of Control, the Company shall notify the
Trustee thereof and give written notice of such Change of Control to each
holder of Notes, by first-class mail, postage prepaid, at his address appearing
in the security register, stating, among other things, that a Change of Control
has occurred and the date of such event; the circumstances and relevant facts
regarding such Change of Control (including, but not limited to, information
with respect to pro forma historical income, cash flow and capitalization after
giving effect to such Change of Control); the purchase price and the purchase
date which shall be fixed by the Company on a business day no earlier than 30
days nor later than 60 days from the date such notice is mailed, or such later
date as is necessary to comply with requirements under the Exchange Act; that
any Note not tendered will continue to accrue interest; that, unless the
Company defaults in the payment of the Change of Control Purchase Price, any
Notes accepted for payment pursuant to the Change of Control Offer shall cease
to accrue interest after the Change of Control Purchase Date; and certain other
procedures that a holder of Notes must follow to accept a Change of Control
Offer or to withdraw such acceptance. (Section 1014)
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
Purchase Price for all of the Notes that might be delivered by holders of the
Notes seeking to accept the Change of Control Offer. See " -- Ranking." The
failure of the Company to make or consummate the Change of Control Offer or pay
the Change of Control Purchase Price when due will give the Trustee and the
holders of the Notes the rights described under "Events of Default."
In addition to the obligations of the Company under the Indenture with
respect to the Notes in the event of a Change of Control, all of the Company's
Indebtedness under the Floor Plan Facility and the Revolving Facility also
contain an event of default upon a Change of Control as defined therein which
obligates the Company to repay amounts outstanding under such indebtedness upon
an acceleration of the Indebtedness issued thereunder. In addition, a Change of
Control could result in a termination or nonrenewal of one or more of the
Company's franchise agreements or its agreements with the Manufacturers.
The term "all or substantially all" as used in the definition of "Change
of Control" has not been interpreted under New York law (which is the governing
law of the Indenture) to represent a specific quantitative test. As a
consequence, in the event the holders of the Notes elected to exercise their
rights under the Indenture and the Company elected to contest such election,
there could be no assurance as to how a court interpreting New York law would
interpret the phrase.
The existence of a holder's right to require the Company to repurchase
such holder's Notes upon a Change of Control may deter a third party from
acquiring the Company in a transaction which constitutes a Change of Control.
The provisions of the Indenture will not afford holders of the Notes the
right to require the Company to repurchase the Notes in the event of a highly
leveraged transaction or certain transactions with the Company's management or
its Affiliates, including a reorganization, restructuring, merger or similar
transaction (including, in certain circumstances, an acquisition
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of the Company by management or its affiliates) involving the Company that may
adversely affect holders of the Notes, if such transaction is not a transaction
defined as a Change of Control. A transaction involving the Company's
management or its Affiliates, or a transaction involving a recapitalization of
the Company, will result in a Change of Control if it is the type of
transaction specified by such definition.
The Company will comply with the applicable tender offer rules, including
Rule 14e-1 under the Exchange Act, and any other applicable securities laws or
regulations in connection with a Change of Control Offer.
Ranking
The payment of the principal of, premium, if any, and interest on, the
Notes will be subordinated, as set forth in the Indenture, in right of payment,
to the prior payment in full of all Senior Indebtedness. The Notes will be
senior subordinated indebtedness of the Company ranking pari passu with all
other existing and future senior subordinated indebtedness of the Company and
senior to all existing and future Subordinated Indebtedness of the Company.
Upon the occurrence of any default in the payment of any Designated Senior
Indebtedness beyond any applicable grace period and after the receipt by the
Trustee from a representative of holders of any Designated Senior Indebtedness
(collectively, a "Senior Representative") of written notice of such default, no
payment (other than payments previously made pursuant to the provisions
described under " -- Defeasance or Covenant Defeasance of Indenture") or
distribution of any assets of the Company of any kind or character (excluding
certain permitted equity interests or subordinated securities) may be made on
account of the principal of, premium, if any, or interest on, the Notes or on
account of the purchase, redemption, defeasance or other acquisition of or in
respect of, the Notes unless and until such default shall have been cured or
waived or shall have ceased to exist or such Designated Senior Indebtedness
shall have been discharged or paid in full after which the Company shall resume
making any and all required payments in respect of the Notes, including any
missed payments.
Upon the occurrence and during the continuance of any non-payment default
with respect to any Designated Senior Indebtedness pursuant to which the
maturity thereof may then be accelerated immediately (a "Non-payment Default")
and after the receipt by the Trustee and the Company from a Senior
Representative of written notice of such Non-Payment Default, no payment (other
than payments previously made pursuant to the provisions described under " --
Defeasance or Covenant Defeasance of Indenture") or distribution of any assets
of the Company of any kind or character (excluding certain permitted equity
interests or subordinated securities) may be made by the Company on account of
the principal of, premium, if any, or interest on, the Notes or on account of
the purchase, redemption, defeasance or other acquisition of, or in respect of,
the Notes for the period specified below (the "Payment Blockage Period").
The Payment Blockage Period shall commence upon the receipt of notice of
the Non-payment Default by the Trustee and the Company from a Senior
Representative and shall end on the earliest of (i) the 179th day after such
commencement, (ii) the date on which such Non-payment Default (and all other
Non-payment Defaults as to which notice is given after such Payment Blockage
Period is initiated) is cured, waived or ceases to exist or on which such
Designated Senior Indebtedness is discharged or paid in full or (iii) the date
on which such Payment Blockage Period (and all Non-payment Defaults as to which
notice is given after such Payment Blockage Period is initiated) shall have
been terminated by written notice to the Company or the Trustee from the Senior
Representative initiating such Payment Blockage Period, after which, in the
case of clauses (i), (ii) and (iii), the Company will promptly resume making
any and all required payments in respect of the Notes, including any missed
payments. In no event will a Payment Blockage Period extend beyond 179 days
from the date of the receipt by the Company or the Trustee of the notice
initiating such Payment Blockage Period (such 179-day period referred to as the
"Initial Period"). Any number of notices of Non-payment Defaults may be given
during the Initial Period; provided that during any period of 365 consecutive
days only one Payment Blockage Period, during which payment of principal of,
premium, if any, or interest on, the Notes may not be made, may commence and
the duration of such period may not exceed 179 days. No Non-payment Default
with respect to Designated Senior Indebtedness that existed or was continuing
on the date of the commencement of any Payment Blockage Period will be, or can
be, made the basis for the commencement of a second Payment Blockage Period,
whether or not within a period of 365 consecutive days, unless such default has
been cured or waived for a period of not less than 90 consecutive days.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of Default
under the Indenture and would enable the holders of the Notes to accelerate the
maturity thereof. See " -- Events of Default."
The Indenture will provide that in the event of any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding in connection therewith, relative to the
Company or its assets, or any liquidation, dissolution or other winding up of
the Company, whether voluntary or involuntary, or whether or not
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involving insolvency or bankruptcy, or any assignment for the benefit of
creditors or other marshaling of assets or liabilities of the Company, all
Senior Indebtedness must be paid in full before any payment or distribution
(excluding distributions of certain permitted equity interests or subordinated
securities) is made on account of the principal of, premium, if any, or
interest on the Notes or on account of the purchase, redemption, defeasance or
other acquisition of or in respect of the Notes (other than payments previously
made pursuant to the provisions described under " -- Defeasance or Covenant
Defeasance of Indenture").
By reason of such subordination, in the event of liquidation or
insolvency, creditors of the Company who are holders of Senior Indebtedness may
recover more, ratably, than the holders of the Notes, and funds which would be
otherwise payable to the holders of the Notes will be paid to the holders of
the Senior Indebtedness to the extent necessary to pay the Senior Indebtedness
in full and the Company may be unable to meet its obligations fully with
respect to the Notes.
Each Guarantee of a Guarantor will be an unsecured senior subordinated
obligation of such Guarantor, ranking pari passu with, or senior in right of
payment to, all other existing and future Indebtedness of such Guarantor that
is expressly subordinated to Senior Guarantor Indebtedness. The Indebtedness
evidenced by the Guarantees will be subordinated to Senior Guarantor
Indebtedness to substantially the same extent as the Notes are subordinated to
Senior Indebtedness and during any period when payment on the Notes is blocked
by Designated Senior Indebtedness, payment on the Guarantees is similarly
blocked.
"Senior Indebtedness" means the principal of, premium, if any, and
interest (including interest, to the extent allowable, accruing after the
filing of a petition initiating any proceeding under any state, federal or
foreign bankruptcy law) on any Indebtedness of the Company (other than as
otherwise provided in this definition), whether outstanding on the Issue Date
or thereafter created, incurred or assumed, and whether at any time owing,
actually or contingent, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to the Notes. Notwithstanding the foregoing, "Senior
Indebtedness" shall (x) include the Floor Plan Facility and the Revolving
Facility to the extent the Company is a party thereto and (y) not include (i)
Indebtedness evidenced by the Notes, (ii) Indebtedness that is subordinate or
junior in right of payment to any Indebtedness of the Company, (iii)
Indebtedness which when incurred and without respect to any election under
Section 1111(b) of Title 11 United States Code, is without recourse to the
Company, (iv) Indebtedness which is represented by Redeemable Capital Stock,
(v) any liability for foreign, federal, state, local or other taxes owed or
owing by the Company to the extent such liability constitutes Indebtedness,
(vi) Indebtedness of the Company to a Subsidiary or any other Affiliate of the
Company or any of such Affiliate's Subsidiaries, (vii) to the extent it might
constitute Indebtedness, amounts owing for goods, materials or services
purchased in the ordinary course of business or consisting of trade accounts
payable owed or owing by the Company, and amounts owed by the Company for
compensation to employees or services rendered to the Company, (viii) that
portion of any Indebtedness which at the time of issuance is issued in
violation of the Indenture and (ix) Indebtedness evidenced by any guarantee of
any Subordinated Indebtedness or Pari Passu Indebtedness.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness under
the Floor Plan Facility or the Revolving Facility and (ii) any other Senior
Indebtedness which at the time of determination has an aggregate principal
amount outstanding of at least $25 million and which is specifically designated
in the instrument evidencing such Senior Indebtedness or the agreement under
which such Senior Indebtedness arises as "Designated Senior Indebtedness" by
the Company.
"Senior Guarantor Indebtedness" means the principal of, premium, if any,
and interest (including interest, to the extent allowable, accruing after the
filing of a petition initiating any proceeding under any state, federal or
foreign bankruptcy law) on any Indebtedness of any Guarantor (other than as
otherwise provided in this definition), whether outstanding on the Issue Date
or thereafter created, incurred or assumed, and whether at any time owing,
actually or contingent, unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant to which the same is
outstanding expressly provides that such Indebtedness shall not be senior in
right of payment to any Guarantee. Notwithstanding the foregoing, "Senior
Guarantor Indebtedness" shall (x) include the Floor Plan Facility and the
Revolving Facility to the extent any Guarantor is a party thereto and (y) not
include (i) Indebtedness evidenced by the Guarantees, (ii) Indebtedness that is
subordinated or junior in right of payment to any Indebtedness of any
Guarantor, (iii) Indebtedness which when incurred and without respect to any
election under Section 1111(b) of Title 11 United States Code, is without
recourse to any Guarantor, (iv) Indebtedness which is represented by Redeemable
Capital Stock, (v) any liability for foreign, federal, state, local or other
taxes owed or owing by any Guarantor to the extent such liability constitutes
Indebtedness, (vi) Indebtedness of any Guarantor to a Subsidiary or any other
Affiliate of the Company or any of such Affiliate's Subsidiaries, (vii) to the
extent it might constitute Indebtedness, amounts owing for goods, materials or
services purchased in the ordinary course of business or consisting of trade
accounts payable owed or owing by such Guarantor, and amounts owed by such
Guarantor for compensation to employees or services rendered to such Guarantor,
(viii) that portion of any Indebtedness which at the time of issuance
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is issued in violation of the Indenture and (ix) Indebtedness evidenced by any
guarantee of any Subordinated Indebtedness or Pari Passu Indebtedness.
The Indenture will limit, but not prohibit, the incurrence by the Company
and its Subsidiaries of additional Indebtedness, and the Indenture will
prohibit the incurrence by the Company of Indebtedness that is subordinated in
right of payment to any Senior Indebtedness of the Company and senior in right
of payment to the Notes.
As of June 30, 1998, on a pro forma basis, (i) the Company and the
Guarantors would have had $4.3 million in aggregate principal amount of
indebtedness outstanding which would have ranked senior in right of payment to
the Notes ($2.9 million of which would have been secured) and no indebtedness
pari passu to the Notes or the Guarantees, as the case may be, (ii) the Company
would also have had $3.7 million of indebtedness senior to, and $5.5 million of
indebtedness subordinated to, the Notes and (iii) the Guarantors would also
have had $197.7 million of floor plan indebtedness and $3.2 million of
additional indebtedness which would have ranked senior in right of payment to
the Guarantees ($3.0 million of which would have been secured). See "Risk
Factors -- Leverage" and "Capitalization".
Certain Covenants
The Indenture contains, among others, the following covenants:
Limitation on Indebtedness. The Company will not, and will not cause or
permit any of its Restricted Subsidiaries to, create, issue, incur, assume,
guarantee or otherwise in any manner become directly or indirectly liable for
the payment of or otherwise incur, contingently or otherwise (collectively,
"incur"), any Indebtedness (including any Acquired Indebtedness), unless such
Indebtedness is incurred by the Company or any Guarantor or constitutes
Acquired Indebtedness of a Restricted Subsidiary and, in each case, the
Company's Consolidated Fixed Charge Coverage Ratio for the most recent four
full fiscal quarters for which financial statements are available immediately
preceding the incurrence of such Indebtedness taken as one period is at least
equal to or greater than 2.00:1. (Section 1008)
Notwithstanding the foregoing, the Company and, to the extent specifically
set forth below, the Restricted Subsidiaries may incur each and all of the
following (collectively, the "Permitted Indebtedness"):
(i) Indebtedness of the Company and the Guarantors under the Company's
Revolving Facility (including any refinancing (as defined below) thereof)
in an aggregate principal amount at any one time outstanding not to exceed
the greater of (a) $75 million or (b) 30% of the Company's Consolidated
Tangible Assets, in any case under the Revolving Facility (including any
refinancing thereof) or in respect of letters of credit thereunder;
(ii) Indebtedness of the Company and the Guarantors under any Inventory
Facility;
(iii) Indebtedness of the Company pursuant to the Notes or the Exchange
Notes and Indebtedness of any Guarantor pursuant to a Guarantee of the
Notes or the Exchange Notes;
(iv) Indebtedness of the Company or any Restricted Subsidiary outstanding
on the Issue Date, listed on a schedule thereto and not otherwise referred
to in this definition of "Permitted Indebtedness;"
(v) Indebtedness of the Company owing to a Restricted Subsidiary;
provided that any Indebtedness of the Company owing to a Restricted
Subsidiary that is not a Guarantor is made pursuant to an intercompany note
in the form attached to the Indenture and is unsecured and is subordinated
in right of payment from and after such time as the Notes shall become due
and payable (whether at Stated Maturity, acceleration or otherwise) to the
payment and performance of the Company's obligations under the Notes;
provided, further, that any disposition, pledge or transfer of any such
Indebtedness to a Person (other than a disposition, pledge or transfer to a
Restricted Subsidiary) shall be deemed to be an incurrence of such
Indebtedness by the Company or other obligor not permitted by this clause
(v);
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary owing to the
Company or another Wholly Owned Restricted Subsidiary; provided that any
such Indebtedness is made pursuant to an intercompany note in the form
attached to the Indenture; provided, further, that (a) any disposition,
pledge or transfer of any such Indebtedness to a Person (other than a
disposition, pledge or transfer to the Company or a Wholly Owned Restricted
Subsidiary) shall be deemed to be an incurrence of such Indebtedness by the
obligor not permitted by this clause (vi), and (b) any transaction pursuant
to which any Wholly Owned Restricted Subsidiary, which has Indebtedness
owing to the Company or any other Wholly Owned Restricted Subsidiary,
ceases to be a Wholly Owned Restricted Subsidiary shall be deemed to be the
incurrence of Indebtedness by such Wholly Owned Restricted Subsidiary that
is not permitted by this clause (vi);
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(vii) guarantees of any Restricted Subsidiary made in accordance with the
provisions of " -- Limitation on Issuances of Guarantees of and Pledges for
Indebtedness;"
(viii) obligations of the Company or any Guarantor entered into in the
ordinary course of business (a) pursuant to Interest Rate Agreements
designed to protect the Company or any Restricted Subsidiary against
fluctuations in interest rates in respect of Indebtedness of the Company or
any Restricted Subsidiary as long as such obligations do not exceed the
aggregate principal amount of such Indebtedness then outstanding, (b) under
any Currency Hedging Agreements, relating to (i) Indebtedness of the
Company or any Restricted Subsidiary and/or (ii) obligations to purchase or
sell assets or properties, in each case, incurred in the ordinary course of
business of the Company or any Restricted Subsidiary; provided, however,
that such Currency Hedging Agreements do not increase the Indebtedness or
other obligations of the Company or any Restricted Subsidiary outstanding
other than as a result of fluctuations in foreign currency exchange rates
or by reason of fees, indemnities and compensation payable thereunder or
(c) under any Commodity Price Protection Agreements which do not increase
the amount of Indebtedness or other obligations of the Company or any
Restricted Subsidiary outstanding other than as a result of fluctuations in
commodity prices or by reason of fees, indemnities and compensation payable
thereunder;
(ix) Indebtedness of the Company or any Restricted Subsidiary represented
by Capital Lease Obligations or Purchase Money Obligations or other
Indebtedness incurred or assumed in connection with the acquisition or
development of real or personal, movable or immovable, property in each
case incurred for the purpose of financing or refinancing all or any part
of the purchase price or cost of construction or improvement of property
used in the business of the Company, in an aggregate principal amount
pursuant to this clause (ix) not to exceed $20 million outstanding at any
time; provided that the principal amount of any Indebtedness permitted
under this clause (ix) did not in each case at the time of incurrence
exceed the Fair Market Value, as determined by the Company in good faith,
of the acquired or constructed asset or improvement so financed;
(x) obligations arising from agreements by the Company or a Restricted
Subsidiary to provide for indemnification, customary purchase price closing
adjustments, earn-outs or other similar obligations, in each case, incurred
in connection with the acquisition or disposition of any business or assets
of a Restricted Subsidiary;
(xi) Indebtedness evidenced by letters of credit in the ordinary course
of business to support the Company's or any Restricted Subsidiary's
insurance or self-insurance obligations for workers' compensation and other
similar insurance coverages;
(xii) any renewals, extensions, substitutions, refundings, refinancings
or replacements (collectively, a "refinancing") of any Indebtedness
described in clauses (iii) and (iv) of this definition of "Permitted
Indebtedness," including any successive refinancings so long as the
borrower under such refinancing is the Company or, if not the Company, the
same as the borrower of the Indebtedness being refinanced and the aggregate
principal amount of Indebtedness represented thereby (or if such
Indebtedness provides for an amount less than the principal amount thereof
to be due and payable upon a declaration of acceleration of the maturity
thereof, the original issue price of such Indebtedness plus any accreted
value attributable thereto since the original issuance of such
Indebtedness) does not exceed the initial principal amount of such
Indebtedness plus the lesser of (I) the stated amount of any premium or
other payment required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being refinanced or (II) the
amount of premium or other payment actually paid at such time to refinance
the Indebtedness, plus, in either case, the amount of expenses of the
Company incurred in connection with such refinancing and (A) in the case of
any refinancing of Indebtedness that is Subordinated Indebtedness, such new
Indebtedness is made subordinated to the Notes at least to the same extent
as the Indebtedness being refinanced and (B) in the case of Pari Passu
Indebtedness or Subordinated Indebtedness, as the case may be, such
refinancing does not reduce the Average Life to Stated Maturity or the
Stated Maturity of such Indebtedness; and
(xiii) Indebtedness of the Company and its Restricted Subsidiaries or any
Guarantor in addition to that described in clauses (i) through (xii) above,
and any renewals, extensions, substitutions, refinancings or replacements
of such Indebtedness, so long as the aggregate principal amount of all such
Indebtedness shall not exceed $10 million outstanding at any one time in
the aggregate.
For purposes of determining compliance with this "Limitation on
Indebtedness" covenant, in the event that an item of Indebtedness meets the
criteria of more than one of the types of Indebtedness permitted by this
covenant, the Company in its sole discretion shall classify such item of
Indebtedness and only be required to include the amount of such Indebtedness as
one of such types.
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Limitation on Restricted Payments. (a) The Company will not, and will not
cause or permit any Restricted Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to holders
of, any shares of the Company's Capital Stock (other than dividends or
distributions payable solely in shares of its Qualified Capital Stock or in
options, warrants or other rights to acquire shares of such Qualified
Capital Stock);
(ii) purchase, redeem, defease or otherwise acquire or retire for value,
directly or indirectly, the Company's Capital Stock or any Capital Stock of
any Affiliate of the Company, including any Subsidiary of the Company
(other than Capital Stock of any Wholly Owned Restricted Subsidiary of the
Company), or options, warrants or other rights to acquire such Capital
Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled principal
payment, sinking fund payment or maturity, any Subordinated Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital Stock of
any Restricted Subsidiary to any Person (other than (a) to the Company or
any of its Wholly Owned Restricted Subsidiaries or (b) dividends or
distributions made by a Restricted Subsidiary (i) organized as a
partnership, limited liability company or similar pass-through entity to
the holders of its Capital Stock in amounts sufficient to satisfy the tax
liabilities arising from their ownership of such Capital Stock or (ii) on a
pro rata basis to all stockholders of such Restricted Subsidiary); or
(v) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing actions described in clauses (i) through (v), other than
any such action that is a Permitted Payment (as defined below), collectively,
"Restricted Payments") (the amount of any such Restricted Payment, if other
than cash, shall be the Fair Market Value of the assets proposed to be
transferred, as determined by the board of directors of the Company, whose
determination shall be conclusive and evidenced by a board resolution), unless
(1) immediately before and immediately after giving effect to such proposed
Restricted Payment on a pro forma basis, no Default or Event of Default shall
have occurred and be continuing and such Restricted Payment shall not be an
event which is, or after notice or lapse of time or both, would be, an "event
of default" under the terms of any Indebtedness of the Company or its
Restricted Subsidiaries; (2) immediately before and immediately after giving
effect to such Restricted Payment on a pro forma basis, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) under the
provisions described under " -- Limitation on Indebtedness;" and (3) after
giving effect to the proposed Restricted Payment, the aggregate amount of all
such Restricted Payments declared or made after the Issue Date and all
Designation Amounts does not exceed the sum of:
(A) $5 million;
(B) 50% of the aggregate Consolidated Net Income of the Company accrued on a
cumulative basis during the period beginning on the first day of the
Company's fiscal quarter in which the Issue Date occurs and ending on the
last day of the Company's last fiscal quarter ending prior to the date of
the Restricted Payment (or, if such aggregate cumulative Consolidated Net
Income shall be a loss, minus 100% of such loss);
(C) the aggregate Net Cash Proceeds received after the Issue Date by the
Company either (x) as capital contributions in the form of common equity
to the Company or (y) from the issuance or sale (other than to any of its
Subsidiaries) of Qualified Capital Stock of the Company or any options,
warrants or rights to purchase such Qualified Capital Stock of the
Company (except, in each case, to the extent such proceeds are used to
purchase, redeem or otherwise retire Capital Stock or Subordinated
Indebtedness as set forth below in clause (ii) or (iii) of paragraph (b)
below) (and excluding the Net Cash Proceeds from the issuance of
Qualified Capital Stock financed, directly or indirectly, using funds
borrowed from the Company or any Subsidiary until and to the extent such
borrowing is repaid);
(D) the aggregate Net Cash Proceeds received after the Issue Date by the
Company (other than from any of its Subsidiaries) upon the exercise of
any options, warrants or rights to purchase Qualified Capital Stock of
the Company (and excluding the Net Cash Proceeds from the exercise of any
options, warrants or rights to purchase Qualified Capital Stock financed,
directly or indirectly, using funds borrowed from the Company or any
Subsidiary until and to the extent such borrowing is repaid);
(E) the aggregate Net Cash Proceeds received after the Issue Date by the
Company from the conversion or exchange, if any, of debt securities or
Redeemable Capital Stock of the Company or its Restricted Subsidiaries
into or for Qualified Capital Stock of the Company plus, to the extent
such debt securities or Redeemable Capital Stock were issued after the
Issue Date, upon the conversion or exchange of such debt securities or
Redeemable Capital Stock,
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the aggregate of Net Cash Proceeds from their original issuance (and
excluding the Net Cash Proceeds from the conversion or exchange of debt
securities or Redeemable Capital Stock financed, directly or indirectly,
using funds borrowed from the Company or any Subsidiary until and to the
extent such borrowing is repaid); and
(F) (a) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the Issue Date, an amount
(to the extent not included in Consolidated Net Income) equal to the
lesser of the return of capital with respect to such Investment and the
initial amount of such Investment, in either case, less the cost of the
disposition of such Investment and net of taxes, and (b) in the case of
the designation of an Unrestricted Subsidiary as a Restricted Subsidiary
(as long as the designation of such Subsidiary as an Unrestricted
Subsidiary was deemed a Restricted Payment), the Fair Market Value of the
Company's interest in such Subsidiary provided that such amount shall not
in any case exceed the amount of the Restricted Payment deemed made at
the time the Subsidiary was designated as an Unrestricted Subsidiary.
(b) Notwithstanding the foregoing, and in the case of clauses (ii) through (iv)
below, so long as no Default or Event of Default is continuing or would arise
therefrom, the foregoing provisions shall not prohibit the following actions
(each of clauses (i) through (iv) and (viii) being referred to as a "Permitted
Payment"):
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at such date of declaration such payment was
permitted by the provisions of paragraph (a) of this Section and such
payment shall have been deemed to have been paid on such date of
declaration and shall not have been deemed a "Permitted Payment" for
purposes of the calculation required by paragraph (a) of this Section;
(ii) the repurchase, redemption, or other acquisition or retirement for
value of any shares of any class of Capital Stock of the Company in
exchange for (including any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which cash is paid in lieu
of the issuance of fractional shares or scrip), or out of the Net Cash
Proceeds of a substantially concurrent issuance and sale for cash (other
than to a Subsidiary) of, other shares of Qualified Capital Stock of the
Company; provided that the Net Cash Proceeds from the issuance of such
shares of Qualified Capital Stock are excluded from clause (3)(C) of
paragraph (a) of this Section;
(iii) the repurchase, redemption, defeasance, retirement or acquisition for
value or payment of principal of any Subordinated Indebtedness or
Redeemable Capital Stock in exchange for, or in an amount not in excess of
the Net Cash Proceeds of, a substantially concurrent issuance and sale for
cash (other than to any Subsidiary of the Company) of any Qualified Capital
Stock of the Company, provided that the Net Cash Proceeds from the issuance
of such shares of Qualified Capital Stock are excluded from clause (3)(C)
of paragraph (a) of this Section;
(iv) the repurchase, redemption, defeasance, retirement, refinancing,
acquisition for value or payment of principal of any Subordinated
Indebtedness (other than Redeemable Capital Stock) (a "refinancing")
through the substantially concurrent issuance of new Subordinated
Indebtedness of the Company, provided that any such new Subordinated
Indebtedness (1) shall be in a principal amount that does not exceed the
principal amount so refinanced (or, if such Subordinated Indebtedness
provides for an amount less than the principal amount thereof to be due and
payable upon a declaration of acceleration thereof, then such lesser amount
as of the date of determination), plus the lesser of (I) the stated amount
of any premium or other payment required to be paid in connection with such
a refinancing pursuant to the terms of the Indebtedness being refinanced or
(II) the amount of premium or other payment actually paid at such time to
refinance the Indebtedness, plus, in either case, the amount of expenses of
the Company incurred in connection with such refinancing; (2) has an
Average Life to Stated Maturity greater than the remaining Average Life to
Stated Maturity of the Notes; (3) has a Stated Maturity for its final
scheduled principal payment later than the Stated Maturity for the final
scheduled principal payment of the Notes; and (4) is expressly subordinated
in right of payment to the Notes at least to the same extent as the
Subordinated Indebtedness to be refinanced;
(v) the purchase, redemption, or other acquisition or retirement for value
of any class of Capital Stock of the Company from employees, former
employees, directors or former directors of the Company or any Subsidiary
pursuant to the terms of the agreements pursuant to which such Capital
Stock was acquired in an amount not to exceed $1.0 million in the aggregate
in any calendar year;
(vi) the repurchase, redemption or other acquisition or retirement for
value of Capital Stock of the Company issued pursuant to acquisitions by
the Company to the extent required by or needed to comply with the
requirements of any of the Manufacturers with which the Company or a
Restricted Subsidiary is a party to a franchise agreement;
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(vii) the repurchase, redemption, defeasance, retirement or acquisition for
value or payment of principal on the Smith Subordinated Loan; and
(viii) the payment of the contingent purchase price of an acquisition to
the extent such payment would be deemed a Restricted Payment. (Section
1009)
Limitation on Transactions with Affiliates. The Company will not, and will
not cause or permit any of its Restricted Subsidiaries to, directly or
indirectly, enter into any transaction or series of related transactions
(including, without limitation, the sale, purchase, exchange or lease of
assets, property or services) with or for the benefit of any Affiliate of the
Company (other than the Company or a Wholly Owned Restricted Subsidiary) unless
such transaction or series of related transactions is entered into in good
faith and in writing and (a) such transaction or series of related transactions
is on terms that are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that would be available in a
comparable transaction in arm's-length dealings with an unrelated third party,
(b) with respect to any transaction or series of related transactions involving
aggregate value in excess of $500,000 the Company delivers either an officers'
certificate to the Trustee certifying that such transaction or series of
related transactions complies with clause (a) above or such transaction or
series of related transactions is approved by a majority of the Disinterested
Directors of the board of directors of the Company, or in the event there is
only one Disinterested Director, by such Disinterested Director, and (c) with
respect to any transaction or series of related transactions involving
aggregate value in excess of $1 million, either (i) such transaction or series
of related transactions has been approved by a majority of the Disinterested
Directors of the board of directors of the Company, or in the event there is
only one Disinterested Director, by such Disinterested Director, or (ii) the
Company delivers to the Trustee a written opinion of an investment banking firm
of national standing or other recognized independent expert with experience
appraising the terms and conditions of the type of transaction or series of
related transactions for which an opinion is required stating that the
transaction or series of related transactions is fair to the Company or such
Restricted Subsidiary from a financial point of view; provided, however, that
this provision shall not apply to (i) employee benefit arrangements with any
officer or director of the Company, including under any stock option or stock
incentive plans, entered into in the ordinary course of business; (ii) any
transaction permitted as a Restricted Payment pursuant to the covenant
described in " -- Limitation on Restricted Payments"; (iii) the payment of
customary fees to directors of the Company and its Restricted Subsidiaries;
(iv) any transaction with any officer or member of the Board of Directors of
the Company involving indemnification arrangements; and (v) loans or advances
to officers of the Company in the ordinary course of business not to exceed $1
million in any calendar year. (Section 1010)
Limitation on Liens. The Company will not, and will not cause or permit
any Restricted Subsidiary to, directly or indirectly, create, incur or affirm
any Lien of any kind securing any Pari Passu Indebtedness or Subordinated
Indebtedness (including any assumption, guarantee or other liability with
respect thereto by any Restricted Subsidiary) upon any property or assets
(including any intercompany notes) of the Company or any Restricted Subsidiary
owned on the Issue Date or acquired after the Issue Date, or assign or convey
any right to receive any income or profits therefrom, unless the Notes or a
Guarantee in the case of Liens of a Guarantor are directly secured equally and
ratably with (or, in the case of Subordinated Indebtedness, prior or senior
thereto, with the same relative priority as the Notes shall have with respect
to such Subordinated Indebtedness) the obligation or liability secured by such
Lien except for Liens (A) securing any Indebtedness which became Indebtedness
pursuant to a transaction permitted under " -- Consolidation, Merger, Sale of
Assets" or securing Acquired Indebtedness which was created prior to (and not
created in connection with, or in contemplation of) the incurrence of such Pari
Passu Indebtedness or Subordinated Indebtedness (including any assumption,
guarantee or other liability with respect thereto by any Restricted Subsidiary)
and which Indebtedness is permitted under the provisions of "-- Limitation on
Indebtedness" or (B) securing any Indebtedness incurred in connection with any
refinancing, renewal, substitutions or replacements of any such Indebtedness
described in clause (A), so long as the aggregate principal amount of
Indebtedness represented thereby (or if such Indebtedness provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the maturity thereof, the original issue price
of such Indebtedness plus any accreted value attributable thereto since the
original issuance of such Indebtedness) is not increased by such refinancing by
an amount greater than the lesser of (i) the stated amount of any premium or
other payment required to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being refinanced or (ii) the amount
of premium or other payment actually paid at such time to refinance the
Indebtedness, plus, in either case, the amount of expenses of the Company
incurred in connection with such refinancing, provided, however, that in the
case of clauses (A) and (B), any such Lien only extends to the assets that were
subject to such Lien securing such Indebtedness prior to the related
acquisition by the Company or its Restricted Subsidiaries. Notwithstanding the
foregoing, any Lien securing the Notes granted pursuant to this covenant shall
be automatically and unconditionally released and discharged upon the release
by the holders of the Pari Passu Indebtedness or Subordinated Indebtedness
described above of their Lien on the property or assets of the Company or any
Restricted Subsidiary (including any deemed release upon payment in full of all
obligations under such Indebtedness), at such time as the holders of all such
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Pari Passu Indebtedness or Subordinated Indebtedness also release their Lien on
the property or assets of the Company or such Restricted Subsidiary, or upon
any sale, exchange or transfer to any Person not an Affiliate of the Company of
the property or assets secured by such Lien, or of all of the Capital Stock
held by the Company or any Restricted Subsidiary in, or all or substantially
all the assets of, any Restricted Subsidiary creating such Lien. (Section 1011)
Limitation on Sale of Assets. (a) The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly,
consummate an Asset Sale unless (i) at least 80% of the consideration from such
Asset Sale consists of (A) cash or Cash Equivalents, (B) the assumption of
Senior Indebtedness or Senior Guarantor Indebtedness by the party acquiring the
assets from the Company of any Restricted Subsidiary, (C) Replacement Assets or
(D) a combination of any of the foregoing; and (ii) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the Fair Market Value of the shares or assets subject to such
Asset Sale (as determined by the board of directors of the Company and
evidenced in a board resolution); provided that any notes or other obligations
received by the Company or any such Restricted Subsidiary from any transferee
of assets from the Company or such Restricted Subsidiary that are converted by
the Company or such Restricted Subsidiary into cash at Fair Market Value within
30 days after receipt shall be deemed to be cash for purposes of this
provision.
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale are not
required to be applied to repay permanently any Senior Indebtedness or Senior
Guarantor Indebtedness then outstanding as required by the terms thereof, or
the Company determines not to apply such Net Cash Proceeds to the permanent
prepayment of such Senior Indebtedness or Senior Guarantor Indebtedness or if
no such Senior Indebtedness or Senior Guarantor Indebtedness is then
outstanding, then the Company or a Restricted Subsidiary may within 365 days of
the Asset Sale invest the Net Cash Proceeds in Replacement Assets. The amount
of such Net Cash Proceeds not used or invested within 365 days of the Asset
Sale as set forth in this paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10 million or
more, the Company will apply the Excess Proceeds to the repayment of the Notes
and any other Pari Passu Indebtedness outstanding with similar provisions
requiring the Company to make an offer to purchase such Indebtedness with the
proceeds from any Asset Sale as follows: (A) the Company will make an offer to
purchase (an "Offer") from all holders of the Notes in accordance with the
procedures set forth in the Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of Notes that may be purchased out of an
amount (the "Note Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the Notes, and the denominator of which is the sum of the outstanding
principal amount of the Notes and such Pari Passu Indebtedness (subject to
proration in the event such amount is less than the aggregate Offered Price (as
defined herein) of all Notes tendered) and (B) to the extent required by such
Pari Passu Indebtedness to permanently reduce the principal amount of such Pari
Passu Indebtedness, the Company will make an offer to purchase or otherwise
repurchase or redeem Pari Passu Indebtedness (a "Pari Passu Offer") in an
amount (the "Pari Passu Debt Amount") equal to the excess of the Excess
Proceeds over the Note Amount; provided that in no event will the Company be
required to make a Pari Passu Offer in a Pari Passu Debt Amount exceeding the
principal amount of such Pari Passu Indebtedness plus the amount of any premium
required to be paid to repurchase such Pari Passu Indebtedness. The offer price
for the Notes will be payable in cash in an amount equal to 100% of the
principal amount of the Notes plus accrued and unpaid interest, if any, to the
date (the "Offer Date") such Offer is consummated (the "Offered Price"), in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate Offered Price of the Notes tendered pursuant to the Offer is less
than the Note Amount relating thereto or the aggregate amount of Pari Passu
Indebtedness that is purchased in a Pari Passu Offer is less than the Pari
Passu Debt Amount, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Notes and Pari
Passu Indebtedness surrendered by holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Notes to be purchased on a pro rata
basis. Upon the completion of the purchase of all the Notes tendered pursuant
to an Offer and the completion of a Pari Passu Offer, the amount of Excess
Proceeds, if any, shall be reset at zero.
(d) If the Company becomes obligated to make an Offer pursuant to clause
(c) above, the Notes and the Pari Passu Indebtedness shall be purchased by the
Company, at the option of the holders thereof, in whole or in part in integral
multiples of $1,000, on a date that is not earlier than 30 days and not later
than 60 days from the date the notice of the Offer is given to holders, or such
later date as may be necessary for the Company to comply with the requirements
under the Exchange Act.
(e) The Indenture will provide that the Company will comply with
applicable securities laws or regulations in connection with an Offer. (Section
1012)
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Limitation on Issuances of Guarantees of and Pledges for Indebtedness. (a)
The Company will not cause or permit any Restricted Subsidiary, other than a
Guarantor, directly or indirectly, to secure the payment of any Senior
Indebtedness of the Company and the Company will not, and will not permit any
Restricted Subsidiary to, pledge any intercompany notes representing
obligations of any Restricted Subsidiary (other than a Guarantor) to secure the
payment of any Senior Indebtedness unless in each case such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to the
Indenture providing for a guarantee of payment of the Notes by such Restricted
Subsidiary, which guarantee shall be on the same terms as the guarantee of the
Senior Indebtedness (if a guarantee of Senior Indebtedness is granted by any
such Restricted Subsidiary) except that the guarantee of the Notes need not be
secured and shall be subordinated to the claims against such Restricted
Subsidiary in respect of Senior Indebtedness to the same extent as the Notes
are subordinated to Senior Indebtedness of the Company under the Indenture.
(b) The Company will not cause or permit any Restricted Subsidiary (which
is not a Guarantor), directly or indirectly, to guarantee, assume or in any
other manner become liable with respect to any Indebtedness of the Company or
any Restricted Subsidiary unless such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to the Indenture providing for a
Guarantee of the Notes on the same terms as the guarantee of such Indebtedness
except that (A) such guarantee need not be secured unless required pursuant to
" -- Limitation on Liens," (B) if such Indebtedness is by its terms Senior
Indebtedness, any such assumption, guarantee or other liability of such
Restricted Subsidiary with respect to such Indebtedness shall be senior to such
Restricted Subsidiary's Guarantee of the Notes to the same extent as such
Senior Indebtedness is senior to the Notes and (C) if such Indebtedness is by
its terms expressly subordinated to the Notes, any such assumption, guarantee
or other liability of such Restricted Subsidiary with respect to such
Indebtedness shall be subordinated to such Restricted Subsidiary's Guarantee of
the Notes at least to the same extent as such Indebtedness is subordinated to
the Notes.
(c) Notwithstanding the foregoing, any Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it (and all Liens
securing the same) shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary, which transaction
is in compliance with the terms of the Indenture and such Restricted Subsidiary
is released from all guarantees, if any, by it of other Indebtedness of the
Company or any Restricted Subsidiaries or (ii) the release by the holders of
the Indebtedness of the Company of their security interest or their guarantee
by such Restricted Subsidiary (including any deemed release upon payment in
full of all obligations under such Indebtedness), at such time as (A) no other
Indebtedness of the Company has been secured or guaranteed by such Restricted
Subsidiary, as the case may be, or (B) the holders of all such other
Indebtedness which is secured or guaranteed by such Restricted Subsidiary also
release their security interest in or guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under
such Indebtedness). (Section 1013)
Limitation on Senior Subordinated Indebtedness. The Company will not, and
will not permit or cause any Guarantor to, directly or indirectly, create,
incur, issue, assume, guarantee or otherwise in any manner become directly or
indirectly liable for or with respect to or otherwise permit to exist any
Indebtedness that is subordinate in right of payment to any Indebtedness of the
Company or such Guarantor, as the case may be, unless such Indebtedness is also
pari passu with the Notes or the Guarantee of such Guarantor or subordinated in
right of payment to the Notes or such Guarantee at least to the same extent as
the Notes or such Guarantee are subordinated in right of payment to Senior
Indebtedness or Senior Indebtedness of such Guarantor, as the case may be, as
set forth in the Indenture. (Section 1017)
Limitation on Subsidiary Preferred Stock. The Company will not permit (a)
any Restricted Subsidiary of the Company to issue, sell or transfer any
Preferred Stock, except for (i) Preferred Stock issued or sold to, held by or
transferred to the Company or a Wholly Owned Restricted Subsidiary, and (ii)
Preferred Stock issued by a Person prior to the time (A) such Person becomes a
Restricted Subsidiary, (B) such Person merges with or into a Restricted
Subsidiary or (C) a Restricted Subsidiary merges with or into such Person;
provided that such Preferred Stock was not issued or incurred by such Person in
anticipation of the type of transaction contemplated by subclause (A), (B) or
(C) or (b) any Person (other than the Company or a Wholly Owned Restricted
Subsidiary) to acquire Preferred Stock of any Restricted Subsidiary from the
Company or any Restricted Subsidiary, except, in the case of clause (a) or (b),
upon the acquisition of all the outstanding Capital Stock of such Restricted
Subsidiary in accordance with the terms of the Indenture. (Section 1015)
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
to exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to (i) pay dividends or make any other
distribution on its Capital Stock or any other interest or participation in or
measured by its profits, (ii) pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (iii) make any Investment in the Company or any
other Restricted Subsidiary or (iv) transfer any of its properties or assets to
the Company or any other Restricted Subsidiary,
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except for: (a) any encumbrance or restriction pursuant to an agreement in
effect on the Issue Date; (b) any encumbrance or restriction, with respect to a
Restricted Subsidiary that is not a Restricted Subsidiary of the Company on the
Issue Date, in existence at the time such Person becomes a Restricted
Subsidiary of the Company and not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary, provided that
such encumbrances and restrictions are not applicable to the Company or any
Restricted Subsidiary or the properties or assets of the Company or any
Restricted Subsidiary other than such Subsidiary which is becoming a Restricted
Subsidiary; (c) customary provisions contained in an agreement that has been
entered into for the sale or other disposition of all or substantially all of
the Capital Stock or assets of a Restricted Subsidiary; provided however that
the restrictions are applicable only to such Restricted Subsidiary or assets;
(d) any encumbrance or restriction existing under or by reason of applicable
law; (e) customary provisions restricting subletting or assignment of any lease
governing any leasehold interest of any Restricted Subsidiary; (f) covenants in
franchise agreements with Manufacturers customary for franchise agreements in
the automobile retailing industry; (g) any encumbrance or restriction contained
in any Purchase Money Obligations for property to the extent such restriction
or encumbrance restricts the transfer of such property; (h) any encumbrances or
restrictions in security agreements securing Indebtedness (other than
Subordinated Indebtedness) of a Guarantor (including any Inventory Facility)
(to the extent that such Liens are otherwise incurred in accordance with
"-- Limitation on Liens") that restrict the transfer of property subject to
such agreements, provided that any such encumbrance or restriction is released
to the extent the underlying Lien is released or the related Indebtedness is
repaid; and (i) any encumbrance or restriction existing under any agreement
that extends, renews, refinances or replaces the agreements containing the
encumbrances or restrictions in the foregoing clauses (a) and (b), or in this
clause (i), provided that the terms and conditions of any such encumbrances or
restrictions are no more restrictive in any material respect than those under
or pursuant to the agreement evidencing the Indebtedness so extended, renewed,
refinanced or replaced. (Section 1016)
Limitation on Unrestricted Subsidiaries. The Company may designate after
the Issue Date any Subsidiary as an "Unrestricted Subsidiary" under the
Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) the Company would be permitted to make an Investment (other than a
Permitted Investment) at the time of Designation (assuming the
effectiveness of such Designation) pursuant to the first paragraph of " --
Limitation on Restricted Payments" above in an amount (the "Designation
Amount") equal to the greater of (1) the net book value of the Company's
interest in such Subsidiary calculated in accordance with GAAP or (2) the
Fair Market Value of the Company's interest in such Subsidiary as
determined in good faith by the Company's board of directors;
(c) the Company would be permitted under the Indenture to incur $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
covenant described under " -- Limitation on Indebtedness" at the time of
such Designation (assuming the effectiveness of such Designation);
(d) such Unrestricted Subsidiary does not own any Capital Stock in any
Restricted Subsidiary of the Company which is not simultaneously being
designated an Unrestricted Subsidiary;
(e) such Unrestricted Subsidiary is not liable, directly or indirectly,
with respect to any Indebtedness other than Unrestricted Subsidiary
Indebtedness, provided that an Unrestricted Subsidiary may provide a
Guarantee for the Notes; and
(f) such Unrestricted Subsidiary is not a party to any agreement,
contract, arrangement or understanding at such time with the Company or any
Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company or, in the event such
condition is not satisfied, the value of such agreement, contract,
arrangement or understanding to such Unrestricted Subsidiary shall be
deemed a Restricted Payment.
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant "
- -- Limitation on Restricted Payments" for all purposes of the Indenture in the
Designation Amount.
The Indenture will also provide that the Company shall not and shall not
cause or permit any Restricted Subsidiary to at any time (x) provide credit
support for, or subject any of its property or assets (other than the Capital
Stock of any Unrestricted Subsidiary) to the satisfaction of, any Indebtedness
of any Unrestricted Subsidiary (including any undertaking, agreement or
instrument evidencing such Indebtedness) (other than Permitted Investments in
Unrestricted Subsidiaries) or (y) be directly or indirectly liable for any
Indebtedness of any Unrestricted Subsidiary. For purposes of the foregoing, the
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Designation of a Subsidiary of the Company as an Unrestricted Subsidiary shall
be deemed to be the Designation of all of the Subsidiaries of such Subsidiary.
The Company may revoke any Designation of a Subsidiary as an Unrestricted
Subsidiary (a "Revocation") if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation;
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture; and
(c) unless such redesignated Subsidiary shall not have any Indebtedness
outstanding (other than Indebtedness that would be Permitted Indebtedness),
immediately after giving effect to such proposed Revocation, and after
giving pro forma effect to the incurrence of any such Indebtedness of such
redesignated Subsidiary as if such Indebtedness was incurred on the date of
the Revocation, the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to the covenant described
under " -- Limitation on Indebtedness."
All Designations and Revocations must be evidenced by a resolution of the
board of directors of the Company delivered to the Trustee certifying
compliance with the foregoing provisions. (Section 1018)
Provision of Financial Statements. Whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, the Company and each Guarantor
(to the extent such Guarantor would be required if subject to Section 13(a) or
15(d) of the Exchange Act) will, to the extent permitted under the Exchange
Act, file with the Commission the annual reports, quarterly reports and other
documents which the Company and such Guarantor would have been required to file
with the Commission pursuant to Sections 13(a) or 15(d) if the Company or such
Guarantor were so subject, such documents to be filed with the Commission on or
prior to the date (the "Required Filing Date") by which the Company and such
Guarantor would have been required so to file such documents if the Company and
such Guarantor were so subject. The Company and any Guarantor will also in any
event (x) within 15 days of each Required Filing Date (i) transmit by mail to
all holders, as their names and addresses appear in the security register,
without cost to such holders and (ii) file with the Trustee copies of the
annual reports, quarterly reports and other documents which the Company and
such Guarantor would have been required to file with the Commission pursuant to
Sections 13(a) or 15(d) of the Exchange Act if the Company and such Guarantor
were subject to either of such Sections and (y) if filing such documents by the
Company and such Guarantor with the Commission is not permitted under the
Exchange Act, promptly upon written request and payment of the reasonable cost
of duplication and delivery, supply copies of such documents to any prospective
holder at the Company's cost. If any Guarantor's financial statements would be
required to be included in the financial statements filed or delivered pursuant
to the Indenture if the Company were subject to Section 13(a) or 15(d) of the
Exchange Act, the Company shall include such Guarantor's financial statements
in any filing or delivery pursuant to the Indenture. The Indenture also
provides that, so long as any of the Notes remain outstanding, the Company will
make available to any prospective purchaser of Notes or beneficial owner of
Notes in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act, until such time as the Company has either
exchanged the Notes for securities identical in all material respects which
have been registered under the Securities Act or until such time as the holders
thereof have disposed of such Notes pursuant to an effective registration
statement under the Securities Act. (Section 1019)
Additional Covenants. The Indenture also contains covenants with respect
to the following matters: (i) payment of principal, premium and interest; (ii)
maintenance of an office or agency in The City of New York; (iii) arrangements
regarding the handling of money held in trust; (iv) maintenance of corporate
existence; (v) payment of taxes and other claims; (vi) maintenance of
properties; and (vii) maintenance of insurance.
Consolidation, Merger, Sale of Assets
The Company will not, in a single transaction or through a series of
related transactions, consolidate with or merge with or into any other Person
or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
Persons, or permit any of its Restricted Subsidiaries to enter into any such
transaction or series of related transactions, if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries on a
Consolidated basis to any other Person or group of Persons, unless at the time
and after giving effect thereto (i) either (a) the Company will be the
continuing corporation (in the case of a consolidation or merger involving the
Company) or (b) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person which acquires
by sale, assignment, conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of the Company and its
Restricted Subsidiaries on a Consolidated basis (the
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"Surviving Entity") will be a corporation duly organized and validly existing
under the laws of the United States of America, any state thereof or the
District of Columbia and such Person expressly assumes, by a supplemental
indenture, in a form reasonably satisfactory to the Trustee, all the
obligations of the Company under the Notes and the Indenture and the
Registration Rights Agreement, as the case may be, and the Notes and the
Indenture and the Registration Rights Agreement will remain in full force and
effect as so supplemented; (ii) immediately before and immediately after giving
effect to such transaction on a pro forma basis (and treating any Indebtedness
not previously an obligation of the Company or any of its Restricted
Subsidiaries which becomes the obligation of the Company or any of its
Restricted Subsidiaries as a result of such transaction as having been incurred
at the time of such transaction), no Default or Event of Default will have
occurred and be continuing; (iii) immediately before and immediately after
giving effect to such transaction on a pro forma basis (on the assumption that
the transaction occurred on the first day of the four-quarter period for which
financial statements are available ending immediately prior to the consummation
of such transaction with the appropriate adjustments with respect to the
transaction being included in such pro forma calculation), the Company (or the
Surviving Entity if the Company is not the continuing obligor under the
Indenture) could incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) under the provisions of " -- Certain Covenants -- Limitation on
Indebtedness;" (iv) at the time of the transaction, each Guarantor, if any,
unless it is the other party to the transactions described above, will have by
supplemental indenture confirmed that its Guarantee shall apply to such
Person's obligations under the Indenture and under the Notes; (v) at the time
of the transaction if any of the property or assets of the Company or any of
its Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of " -- Certain Covenants -- Limitation on Liens" are complied
with; and (vi) at the time of the transaction the Company or the Surviving
Entity will have delivered, or caused to be delivered, to the Trustee, in form
and substance reasonably satisfactory to the Trustee, an officers' certificate
and an opinion of counsel, each to the effect that such consolidation, merger,
transfer, sale, assignment, conveyance, transfer, lease or other transaction
and the supplemental indenture in respect thereof comply with the Indenture and
that all conditions precedent therein provided for relating to such transaction
have been complied with. (Section 801)
Each Guarantor will not, and the Company will not permit a Guarantor to,
in a single transaction or through a series of related transactions,
consolidate with or merge with or into any other Person (other than the Company
or any Guarantor) or sell, assign, convey, transfer, lease or otherwise dispose
of all or substantially all of its properties and assets on a Consolidated
basis to any Person or group of Persons (other than the Company or any
Guarantor), or permit any of its Restricted Subsidiaries to enter into any such
transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties
and assets of the Guarantor and its Restricted Subsidiaries on a Consolidated
basis to any other Person or group of Persons (other than the Company or any
Guarantor), unless at the time and after giving effect thereto: (i) either (a)
the Guarantor will be the continuing corporation (in the case of a
consolidation or merger involving the Guarantor) or (b) the Person (if other
than the Guarantor) formed by such consolidation or into which such Guarantor
is merged or the Person which acquires by sale, assignment, conveyance,
transfer, lease or disposition all or substantially all of the properties and
assets of the Guarantor and its Restricted Subsidiaries on a Consolidated basis
(the "Surviving Guarantor Entity") will be a corporation or limited liability
company duly organized and validly existing under the laws of the United States
of America, any state thereof or the District of Columbia and such Person
expressly assumes, by a supplemental indenture, in a form reasonably
satisfactory to the Trustee, all the obligations of such Guarantor under its
Guarantee of the Notes and the Indenture and the Registration Rights Agreement
and such Guarantee, Indenture and Registration Rights Agreement will remain in
full force and effect; (ii) immediately before and immediately after giving
effect to such transaction on a pro forma basis, no Default or Event of Default
will have occurred and be continuing; and (iii) at the time of the transaction
such Guarantor or the Surviving Guarantor Entity will have delivered, or caused
to be delivered, to the Trustee, in form and substance reasonably satisfactory
to the Trustee, an officers' certificate and an opinion of counsel, each to the
effect that such consolidation, merger, transfer, sale, assignment, conveyance,
lease or other transaction and the supplemental indenture in respect thereof
comply with the Indenture and that all conditions precedent therein provided
for relating to such transaction have been complied with; provided, however,
that this paragraph shall not apply to any Guarantor whose Guarantee of the
Notes is unconditionally released and discharged in accordance with paragraph
(b) under the provisions of " -- Certain Covenants -- Limitation on Issuances
of Guarantees of Indebtedness." (Section 801)
In the event of any transaction (other than a lease or a sale of
substantially all of the assets of the Company or a Guarantor that results in
the sale, assignment, conveyance, transfer or other disposition of assets
constituting or accounting for less than 95% of the consolidated assets,
revenues or Consolidated Net Income (Loss) of the Company or such Guarantor, as
the case may be) described in and complying with the conditions listed in the
two immediately preceding paragraphs in which the Company or any Guarantor, as
the case may be, is not the continuing corporation, the successor Person formed
or remaining or to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and
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power of, the Company or such Guarantor, as the case may be, and the Company or
any Guarantor, as the case may be, would be discharged from all obligations and
covenants under the Indenture and the Notes or its Guarantee, as the case may
be, and the Registration Rights Agreement. (Section 802)
Events of Default
An Event of Default will occur under the Indenture if:
(i) there shall be a default in the payment of any interest on any Note
when it becomes due and payable, and such default shall continue for a period
of 30 days (whether or not prohibited by the subordination provisions of the
Indenture);
(ii) there shall be a default in the payment of the principal of (or
premium, if any, on) any Note at its Maturity (upon acceleration, optional or
mandatory redemption, if any, required repurchase or otherwise) (whether or not
prohibited by the subordination provisions of the Indenture);
(iii) (a) there shall be a default in the performance, or breach, of any
covenant or agreement of the Company or any Guarantor under the Indenture or
any Guarantee (other than a default in the performance, or breach, of a
covenant or agreement which is specifically dealt with in clause (i), (ii) or
in clause (b), (c) or (d) of this clause (iii)) and such default or breach
shall continue for a period of 60 days after written notice (30 days in the
case of a default in the covenants described under " -- Certain Covenants --
Limitation on Indebtedness" or " -- Limitation on Restricted Payments") has
been given, by certified mail, (x) to the Company by the Trustee or (y) to the
Company and the Trustee by the holders of at least 25% in aggregate principal
amount of the outstanding Notes; (b) there shall be a default in the
performance or breach of the provisions described in " -- Consolidation,
Merger, Sale of Assets;" (c) the Company shall have failed to consummate an
Offer in accordance with the provisions of " -- Certain Covenants -- Limitation
on Sale of Assets;" or (d) the Company shall have failed to consummate a Change
of Control Offer in accordance with the provisions of "Purchase of Notes Upon a
Change of Control;"
(iv) one or more defaults, individually or in the aggregate, shall have
occurred under any of the agreements, indentures or instruments under which the
Company or any Restricted Subsidiary then has outstanding Indebtedness in
excess of $20 million in principal amount, individually or in the aggregate,
and either (a) such default results from the failure to pay such Indebtedness
at its stated final maturity or (b) such default or defaults resulted in the
acceleration of the maturity of such Indebtedness;
(v) any Guarantee shall for any reason cease to be, or shall for any
reason be asserted in writing by any Guarantor or the Company not to be, in
full force and effect and enforceable in accordance with its terms, except to
the extent contemplated by the Indenture and any such Guarantee;
(vi) one or more final judgments, orders or decrees (not subject to
appeal) of any court or regulatory or administrative agency for the payment of
money in excess of $20 million, either individually or in the aggregate
(exclusive of any portion of any such payment covered by insurance, if and to
the extent the insurer has acknowledged in writing its liability therefor),
shall be rendered against the Company, any Guarantor or any Subsidiary or any
of their respective properties and shall not be discharged or fully binded and
there shall have been a period of 60 consecutive days during which a stay of
enforcement of such judgment or order, by reason of an appeal or otherwise,
shall not be in effect;
(vii) any holder or holders of at least $20 million in aggregate principal
amount of Indebtedness of the Company, any Guarantor or any Restricted
Subsidiary after a default under such Indebtedness shall notify the Trustee of
the intended sale or disposition of any assets of the Company, any Guarantor or
any Restricted Subsidiary that have been pledged to or for the benefit of such
holder or holders to secure such Indebtedness or shall commence proceedings, or
take any action (including by way of set-off), to retain in satisfaction of
such Indebtedness or to collect on, seize, dispose of or apply in satisfaction
of Indebtedness, assets of the Company, any Guarantor or any Restricted
Subsidiary (including funds on deposit or held pursuant to lock-box and other
similar arrangements);
(viii) there shall have been the entry by a court of competent
jurisdiction of (a) a decree or order for relief in respect of the Company or
any Significant Restricted Subsidiary in an involuntary case or proceeding
under any applicable Bankruptcy Law or (b) a decree or order adjudging the
Company or any Significant Restricted Subsidiary bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment or composition of or in respect
of the Company or any Significant Restricted Subsidiary under any applicable
federal or state law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar official) of the Company or
any Significant Restricted Subsidiary or of any substantial part of their
respective properties, or ordering the winding up or liquidation of their
affairs, and any such decree or order for relief shall continue to be in
effect, or any such other decree or order shall be unstayed and in effect, for
a period of 60 consecutive days; or
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(ix) (a) the Company or any Significant Restricted Subsidiary commences a
voluntary case or proceeding under any applicable Bankruptcy Law or any other
case or proceeding to be adjudicated bankrupt or insolvent, (b) the Company or
any Significant Restricted Subsidiary consents to the entry of a decree or
order for relief in respect of the Company or such Significant Restricted
Subsidiary in an involuntary case or proceeding under any applicable Bankruptcy
Law or to the commencement of any bankruptcy or insolvency case or proceeding
against it, (c) the Company or any Significant Restricted Subsidiary files a
petition or answer or consent seeking reorganization or relief under any
applicable federal or state law, (d) the Company or any Significant Restricted
Subsidiary (I) consents to the filing of such petition or the appointment of,
or taking possession by, a custodian, receiver, liquidator, assignee, trustee,
sequestrator or similar official of the Company or such Significant Restricted
Subsidiary or of any substantial part of their respective properties, (II)
makes an assignment for the benefit of creditors or (III) admits in writing its
inability to pay its debts generally as they become due or (e) the Company or
any Significant Restricted Subsidiary takes any corporate action in furtherance
of any such actions in this paragraph (ix). (Section 501)
If an Event of Default (other than as specified in clauses (viii) and (ix)
of the prior paragraph) shall occur and be continuing with respect to the
Indenture, the Trustee or the holders of not less than 25% in aggregate
principal amount of the Notes then outstanding may, and the Trustee at the
request of such holders shall, declare all unpaid principal of, premium, if
any, and accrued interest on all Notes to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by the holders of
the Notes) and upon any such declaration, such principal, premium, if any, and
interest shall become due and payable immediately. If an Event of Default
specified in clause (viii) or (ix) of the prior paragraph occurs and is
continuing, then all the Notes shall ipso facto become and be due and payable
immediately in an amount equal to the principal amount of the Notes, together
with accrued and unpaid interest, if any, to the date the Notes become due and
payable, without any declaration or other act on the part of the Trustee or any
holder. Thereupon, the Trustee may, at its discretion, proceed to protect and
enforce the rights of the holders of Notes by appropriate judicial proceedings.
After a declaration of acceleration, but before a judgment or decree for
payment of the money due has been obtained by the Trustee, the holders of a
majority in aggregate principal amount of Notes outstanding by written notice
to the Company and the Trustee, may rescind and annul such declaration and its
consequences if (a) the Company has paid or deposited with the Trustee a sum
sufficient to pay (i) all sums paid or advanced by the Trustee under the
Indenture and the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agents and counsel, (ii) all overdue interest on all Notes
then outstanding, (iii) the principal of and premium, if any, on any Notes then
outstanding which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Notes and (iv) to
the extent that payment of such interest is lawful, interest upon overdue
interest at the rate borne by the Notes; (b) the rescission would not conflict
with any judgment or decree of a court of competent jurisdiction; and (c) all
Events of Default, other than the non-payment of principal of, premium, if any,
and interest on the Notes which have become due solely by such declaration of
acceleration, have been cured or waived as provided in the Indenture. No such
rescission shall affect any subsequent default or impair any right consequent
thereon. (Section 502)
The holders of not less than a majority in aggregate principal amount of
the Notes outstanding may on behalf of the holders of all outstanding Notes
waive any past default under the Indenture and its consequences, except a
default (i) in the payment of the principal of, premium, if any, or interest on
any Note (which may only be waived with the consent of each holder of Notes
affected) or (ii) in respect of a covenant or provision which under the
Indenture cannot be modified or amended without the consent of the holder of
each Note affected by such modification or amendment. (Section 513)
No holder of any of the Notes has any right to institute any proceedings
with respect to the Indenture or any remedy thereunder, unless the holders of
at least 25% in aggregate principal amount of the outstanding Notes have made
written request, and offered reasonable indemnity, to the Trustee to institute
such proceeding as Trustee under the Notes and the Indenture, the Trustee has
failed to institute such proceeding within 15 days after receipt of such notice
and the Trustee, within such 15-day period, has not received directions
inconsistent with such written request by holders of a majority in aggregate
principal amount of the outstanding Notes. Such limitations do not, however,
apply to a suit instituted by a holder of a Note for the enforcement of the
payment of the principal of, premium, if any, or interest on such Note on or
after the respective due dates expressed in such Note.
The Company is required to notify the Trustee within five business days of
the occurrence of any Default. The Company is required to deliver to the
Trustee, on or before a date not more than 60 days after the end of each fiscal
quarter and not more than 120 days after the end of each fiscal year, a written
statement as to compliance with the Indenture, including whether or not any
Default has occurred. (Section 1020) The Trustee is under no obligation to
exercise any of the rights or powers vested in it by the Indenture at the
request or direction of any of the holders of the Notes unless such holders
offer
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to the Trustee security or indemnity satisfactory to the Trustee against the
costs, expenses and liabilities which might be incurred thereby. (Section 603)
The Trust Indenture Act contains limitations on the rights of the Trustee,
should it become a creditor of the Company or any Guarantor, if any, to obtain
payment of claims in certain cases or to realize on certain property received
by it in respect of any such claims, as security or otherwise. The Trustee is
permitted to engage in other transactions, provided that if it acquires any
conflicting interest it must eliminate such conflict upon the occurrence of an
Event of Default or else resign.
Defeasance or Covenant Defeasance of Indenture
The Company may, at its option and at any time, elect to have the
obligations of the Company, any Guarantor and any other obligor upon the Notes
discharged with respect to the outstanding Notes ("defeasance"). Such
defeasance means that the Company, any such Guarantor and any other obligor
under the Indenture shall be deemed to have paid and discharged the entire
Indebtedness represented by the outstanding Notes, except for (i) the rights of
holders of such outstanding Notes to receive payments in respect of the
principal of, premium, if any, and interest on such Notes when such payments
are due, (ii) the Company's obligations with respect to the Notes concerning
issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or
stolen Notes, and the maintenance of an office or agency for payment and money
for security payments held in trust, (iii) the rights, powers, trusts, duties
and immunities of the Trustee and (iv) the defeasance provisions of the
Indenture. In addition, the Company may, at its option and at any time, elect
to have the obligations of the Company and any Guarantor released with respect
to certain covenants that are described in the Indenture ("covenant
defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or an Event of Default with respect to the Notes. In
the event covenant defeasance occurs, certain events (not including
non-payment, bankruptcy and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
Notes. (Sections 401, 402 and 403)
In order to exercise either defeasance or covenant defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit of
the holders of the Notes cash in United States dollars, U.S. Government
Obligations (as defined in the Indenture), or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm
of independent public accountants or a nationally recognized investment banking
firm, to pay and discharge the principal of, premium, if any, and interest on
the outstanding Notes on the Stated Maturity (or on any date after August 1,
2003 (such date being referred to as the "Defeasance Redemption Date"), if at
or prior to electing either defeasance or covenant defeasance, the Company has
delivered to the Trustee an irrevocable notice to redeem all of the outstanding
Notes on the Defeasance Redemption Date); (ii) in the case of defeasance, the
Company shall have delivered to the Trustee an opinion of independent counsel
in the United States stating that (A) the Company has received from, or there
has been published by, the Internal Revenue Service a ruling or (B) since the
Issue Date, there has been a change in the applicable federal income tax law,
in either case to the effect that, and based thereon such opinion of
independent counsel in the United States shall confirm that, the holders of the
outstanding Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred; (iii) in the case
of covenant defeasance, the Company shall have delivered to the Trustee an
opinion of independent counsel in the United States to the effect that the
holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at
the same times as would have been the case if such covenant defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as clauses (viii) or (ix)
under the first paragraph under -- "Events of Default" are concerned, at any
time during the period ending on the 91st day after the date of deposit (other
than a Default which results from the borrowing of amounts to finance the
defeasance and which borrowing does not result in a breach or violation of, or
constitute a default, under any other material agreement or instrument to which
the Company or any Restricted Subsidiary is a party or to which it is bound);
(v) such defeasance or covenant defeasance shall not cause the Trustee for the
Notes to have a conflicting interest as defined in the Indenture and for
purposes of the Trust Indenture Act with respect to any securities of the
Company or any Guarantor; (vi) such defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a Default under, the
Indenture or any other material agreement or instrument to which the Company,
any Guarantor or any Restricted Subsidiary is a party or by which it is bound;
(vii) such defeasance or covenant defeasance shall not result in the trust
arising from such deposit constituting an investment company within the meaning
of the Investment Company Act of 1940, as amended, unless such trust shall be
registered under such Act or exempt from registration thereunder; (viii) the
Company will have delivered to the Trustee an opinion of independent counsel in
the United States to the effect that (assuming that no holder of any Notes
would be considered an insider of the Company under
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any applicable bankruptcy or insolvency law) after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (ix) the Company shall have delivered to the Trustee an
officers' certificate stating that the deposit was not made by the Company with
the intent of preferring the holders of the Notes or any Guarantee over the
other creditors of the Company or any Guarantor with the intent of defeating,
hindering, delaying or defrauding creditors of the Company, any Guarantor or
others; (x) no event or condition shall exist that would prevent the Company
from making payments of the principal of, premium, if any, and interest on the
Notes on the date of such deposit or at any time ending on the 91st day after
the date of such deposit; and (xi) the Company will have delivered to the
Trustee an officers' certificate and an opinion of independent counsel, each
stating that all conditions precedent provided for relating to either the
defeasance or the covenant defeasance, as the case may be, have been complied
with. (Section 404)
Satisfaction and Discharge
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Notes as expressly provided for in the Indenture) as to all outstanding Notes
under the Indenture when (a) either (i) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid or Notes whose payment has been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust as provided for in the Indenture) have
been delivered to the Trustee for cancellation or (ii) all Notes not
theretofore delivered to the Trustee for cancellation (x) have become due and
payable, (y) will become due and payable at their Stated Maturity within one
year, or (z) are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name, and at the expense, of the Company; and the Company or any
Guarantor has irrevocably deposited or caused to be deposited with the Trustee
as trust funds in trust an amount in United States dollars sufficient to pay
and discharge the entire indebtedness on the Notes not theretofore delivered to
the Trustee for cancellation, including principal of, premium, if any, and
accrued interest at such Maturity, Stated Maturity or redemption date; (b) the
Company or any Guarantor has paid or caused to be paid all other sums payable
under the Indenture by the Company and any Guarantor; and (c) the Company has
delivered to the Trustee an officers' certificate and an opinion of independent
counsel in form and substance reasonably satisfactory to the Trustee each
stating that (i) all conditions precedent under the Indenture relating to the
satisfaction and discharge of such Indenture have been complied with and (ii)
such satisfaction and discharge will not result in a breach or violation of, or
constitute a default under, the Indenture or any other material agreement or
instrument to which the Company, any Guarantor or any Subsidiary is a party or
by which the Company, any Guarantor or any Subsidiary is bound. (Section 1201)
Modifications and Amendments
Modifications and amendments of the Indenture may be made by the Company,
each Guarantor, if any, and the Trustee with the consent of the holders of at
least a majority in aggregate principal amount of the Notes then outstanding;
provided, however, that no such modification or amendment may, without the
consent of the holder of each outstanding Note affected thereby: (i) change the
Stated Maturity of the principal of, or any installment of interest on, or
change to an earlier date any redemption date of, or waive a default in the
payment of the principal of, premium, if any, or interest on, any such Note or
reduce the principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or change the coin or currency in
which the principal of any such Note or any premium or the interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment after the Stated Maturity thereof (or, in the case of redemption, on or
after the redemption date); (ii) amend, change or modify the obligation of the
Company to make and consummate an Offer with respect to any Asset Sale or Asset
Sales in accordance with " -- Certain Covenants -- Limitation on Sale of
Assets" or the obligation of the Company to make and consummate a Change of
Control Offer in the event of a Change of Control in accordance with "Purchase
of Notes Upon a Change of Control," including, in each case, amending, changing
or modifying any definitions related thereto, but only to the extent such
definitions relate thereto; (iii) reduce the percentage in principal amount of
such outstanding Notes, the consent of whose holders is required for any such
supplemental indenture, or the consent of whose holders is required for any
waiver or compliance with certain provisions of the Indenture; (iv) modify any
of the provisions relating to supplemental indentures requiring the consent of
holders or relating to the waiver of past defaults or relating to the waiver of
certain covenants, except to increase the percentage of such outstanding Notes
required for such actions or to provide that certain other provisions of the
Indenture cannot be modified or waived without the consent of the holder of
each such Note affected thereby; (v) except as otherwise permitted under " --
Consolidation, Merger, Sale of Assets," consent to the assignment or transfer
by the Company or any Guarantor of any of
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its rights and obligations under the Indenture; or (vi) amend or modify any of
the provisions of the Indenture relating to the subordination of the Notes or
any Guarantee in any manner adverse to the holders of the Notes or any
Guarantee. (Section 902)
Notwithstanding the foregoing, without the consent of any holders of the
Notes, the Company, any Guarantor, any other obligor under the Notes and the
Trustee may modify or amend the Indenture: (a) to evidence the succession of
another Person to the Company or a Guarantor or any other obligor upon the
securities, and the assumption by any such successor of the covenants of the
Company or such Guarantor or obligor in the Indenture and in the Notes and in
any Guarantee in accordance with " -- Consolidation, Merger, Sale of Assets;"
(b) to add to the covenants of the Company, any Guarantor or any other obligor
upon the Notes for the benefit of the holders of the Notes or to surrender any
right or power conferred upon the Company or any Guarantor or any other obligor
upon the Notes, as applicable, in the Indenture, in the Notes or in any
Guarantee; (c) to cure any ambiguity, or to correct or supplement any provision
in the Indenture or in any supplemental indenture, the Notes or any Guarantee
which may be defective or inconsistent with any other provision in the
Indenture, the Notes or any Guarantee or make any other provisions with respect
to matters or questions arising under the Indenture, the Notes or any
Guarantee; provided that, in each case, such provisions shall not adversely
affect the interest of the holders of the Notes; (d) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act; (e) to add a Guarantor under
the Indenture; (f) to evidence and provide the acceptance of the appointment of
a successor Trustee under the Indenture; or (g) to mortgage, pledge,
hypothecate or grant a security interest in favor of the Trustee for the
benefit of the holders of the Notes as additional security for the payment and
performance of the Company's and any Guarantor's obligations under the
Indenture, in any property, or assets, including any of which are required to
be mortgaged, pledged or hypothecated, or in which a security interest is
required to be granted to the Trustee pursuant to the Indenture or otherwise.
(Section 901)
The holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture. (Section 1021)
Governing Law
The Indenture, the Notes and any Guarantee will be governed by, and
construed in accordance with, the laws of the State of New York, without giving
effect to the conflicts of law principles thereof.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage in
other transactions; however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue as Trustee with such conflict or resign as Trustee. (Sections 608
and 611)
The holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (which has not been cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Notes unless such holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense. (Section 602)
Certain Definitions
"Acquired Indebtedness" means Indebtedness of a Person (i) existing at the
time such Person becomes a Restricted Subsidiary or (ii) assumed in connection
with the acquisition of assets from such Person, in each case, other than
Indebtedness incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary or such acquisition, as the case may be.
Acquired Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary, as the case may be.
"Affiliate" means, with respect to any specified Person: (i) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person; (ii) any other Person that
owns, directly or indirectly, 5% or more of such specified Person's Capital
Stock or any officer or director of any such specified Person or other Person
or, with respect to any natural Person, any person having a relationship with
such Person by blood, marriage or adoption
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not more remote than first cousin; or (iii) any other Person 5% or more of the
Voting Stock of which is beneficially owned or held directly or indirectly by
such specified Person. For the purposes of this definition, "control" when used
with respect to any specified Person means the power to direct the management
and policies of such Person, directly or indirectly, whether through ownership
of voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of: (i) any
Capital Stock of any Restricted Subsidiary (other than directors qualifying
shares and transfers of Capital Stock required by a Manufacturer to the extent
the Company does not receive cash or Cash Equivalents for such Capital Stock);
(ii) all or substantially all of the properties and assets of any division or
line of business of the Company or any Restricted Subsidiary; or (iii) any
other properties or assets of the Company or any Restricted Subsidiary other
than in the ordinary course of business. For the purposes of this definition,
the term "Asset Sale" shall not include any transfer of properties and assets
(A) that is governed by the provisions described under "Consolidation, Merger,
Sale of Assets," (B) that is by the Company to any Wholly Owned Restricted
Subsidiary, or by any Restricted Subsidiary to the Company or any Wholly Owned
Restricted Subsidiary in accordance with the terms of the Indenture, (C) that
is of obsolete equipment, (D) that consists of defaulted receivables for
collection or any sale, transfer or other disposition of defaulted receivables
for collection, or (E) the Fair Market Value of which in the aggregate does not
exceed $2.5 million in any transaction or series of related transactions.
"Average Life to Stated Maturity" means, as of the date of determination
with respect to any Indebtedness, the quotient obtained by dividing (i) the sum
of the products of (a) the number of years from the date of determination to
the date or dates of each successive scheduled principal payment of such
Indebtedness multiplied by (b) the amount of each such principal payment by
(ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of 1978, as
amended, or any similar United States federal or state law or foreign law
relating to bankruptcy, insolvency, receivership, winding up, liquidation,
reorganization or relief of debtors or any amendment to, succession to or
change in any such law.
"Capital Lease Obligation" of any Person means any obligation of such
Person and its Restricted Subsidiaries on a Consolidated basis under any
capital lease of (or other agreement conveying the right to use) real or
personal property which, in accordance with GAAP, is required to be recorded as
a capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations, rights in or other equivalents (however designated) of such
Person's capital stock or other equity interests whether now outstanding or
issued after the Issue Date, partnership interests (whether general or
limited), any other interest or participation that confers on a Person that
right to receive a share of the profits and losses of, or distributions of
assets of (other than a distribution in respect of Indebtedness), the issuing
Person and any rights (other than debt securities convertible into Capital
Stock), warrants or options exchangeable for or convertible into such Capital
Stock.
"Cash Equivalents" means (i) marketable direct obligations, maturing not
more than one year after the date of acquisition, issued by the United States
of America, or an instrumentality or agency thereof, and guaranteed fully as to
principal, premium, if any, and interest by the United States of America, (ii)
any certificate of deposit, maturing not more than one year after the date of
acquisition, issued by a commercial banking institution that is a member of the
Federal Reserve System and that has combined capital and surplus and undivided
profits of not less than $500 million, whose debt has a rating, at the time as
of which any investment therein is made, of "P-1" (or higher) according to
Moody's Investors Service, Inc. ("Moody's") or any successor rating agency or
"A-1" (or higher) according to Standard & Poor's Rating Group, a division of
McGraw Hill, Inc. ("S&P") or any successor rating agency, (iii) commercial
paper, maturing not more than 180 days after the date of acquisition, issued by
a corporation (other than an Affiliate or Subsidiary of the Company) organized
and existing under the laws of the United States of America with a rating, at
the time as of which any investment therein is made, of "P-1" (or higher)
according to Moody's or "A-1" (or higher) according to S&P and (iv) any money
market deposit accounts issued or offered by a domestic commercial bank having
capital and surplus in excess of $500 million; provided that the short term
debt of such commercial bank has a rating, at the time of Investment, of "P-1"
(or higher) according to Moody's or "A-1" (or higher) according to S&P.
"Change of Control" means the occurrence of any of the following events:
(i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d)
of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have beneficial ownership of all shares
that such Person has the right to acquire, whether such right is exercisable
immediately or only after
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the passage of time), directly or indirectly, of more than 35% of the total
outstanding Voting Stock of the Company; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the board of directors of the Company (together with any new directors whose
election to such board or whose nomination for election by the stockholders of
the Company was approved by a vote of 66 2/3% of the directors then still in
office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved), cease for any
reason to constitute a majority of such board of directors then in office;
(iii) the Company consolidates with or merges with or into any Person or sells,
assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with
or merges into or with the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (A) the outstanding Voting Stock of the Company is changed
into or exchanged for (x) Voting Stock of the surviving corporation which is
not Redeemable Capital Stock or (y) cash, securities and other property (other
than Capital Stock of the surviving corporation) in an amount which could be
paid by the Company as a Restricted Payment as described under " -- Certain
Covenants -- Limitation on Restricted Payments" (and such amount shall be
treated as a Restricted Payment subject to the provisions in the Indenture
described under "-- Certain Covenants -- Limitation on Restricted Payments")
and (B) immediately after such transaction, no "person" or "group," other than
Permitted Holders, is the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have beneficial
ownership of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, more than 35% of the total outstanding Voting Stock of
the surviving corporation; or (iv) the Company is liquidated or dissolved or
adopts a plan of liquidation or dissolution other than in a transaction which
complies with the provisions described under " -- Consolidation, Merger, Sale
of Assets." For purposes of this definition, any transfer of an equity interest
of an entity that was formed for the purpose of acquiring voting stock of the
Company will be deemed to be a transfer of such portion of such voting stock as
corresponds to the portion of the equity of such entity that has been so
transferred.
"Class A Common Stock" means the Company's Class A Common Stock, par value
$.01 per share, or any successor common stock thereto.
"Commission" means the Securities and Exchange Commission, as from time to
time constituted, created under the Exchange Act, or if at any time after the
execution of the Indenture such Commission is not existing and performing the
duties now assigned to it under the Securities Act, Exchange Act and Trust
Indenture Act then the body performing such duties at such time.
"Commodity Price Protection Agreement" means any forward contract,
commodity swap, commodity option or other similar financial agreement or
arrangement relating to, or the value which is dependent upon, fluctuations in
commodity prices.
"Company" means Sonic Automotive, Inc., a corporation incorporated under
the laws of Delaware, until a successor Person shall have become such pursuant
to the applicable provisions of the Indenture, and thereafter "Company" shall
mean such successor Person.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for any
period, the ratio of (a) the sum of Consolidated Net Income (Loss), and in each
case to the extent deducted in computing Consolidated Net Income (Loss) for
such period, Consolidated Interest Expense, Consolidated Income Tax Expense and
Consolidated Non-cash Charges for such period, of such Person and its
Restricted Subsidiaries on a Consolidated basis, all determined in accordance
with GAAP, less all noncash items increasing Consolidated Net Income for such
period and less all cash payments during such period relating to noncash
charges that were added back to Consolidated Net Income in determining the
Consolidated Fixed Charge Coverage Ratio in any prior period to (b) the sum of
Consolidated Interest Expense for such period and cash and noncash dividends
paid on any Preferred Stock of such Person during such period, in each case
after giving pro forma effect to (i) the incurrence of the Indebtedness giving
rise to the need to make such calculation and (if applicable) the application
of the net proceeds therefrom, including to refinance other Indebtedness, as if
such Indebtedness was incurred, and the application of such proceeds occurred,
on the first day of such period; (ii) the incurrence, repayment or retirement
of any other Indebtedness by the Company and its Restricted Subsidiaries since
the first day of such period as if such Indebtedness was incurred, repaid or
retired at the beginning of such period (except that, in making such
computation, the amount of Indebtedness under any revolving credit facility
shall be computed based upon the average daily balance of such Indebtedness
during such period); (iii) in the case of Acquired Indebtedness or any
acquisition occurring at the time of the incurrence of such Indebtedness, the
related acquisition, assuming such acquisition had been consummated on the
first day of such period; and (iv) any acquisition or disposition by the
Company and its Restricted Subsidiaries of any company or any business or any
assets out of the ordinary course of business, whether by merger, stock
purchase or sale or asset purchase or sale, or any related repayment
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of Indebtedness, in each case since the first day of such period, assuming such
acquisition or disposition had been consummated on the first day of such
period; provided that (i) in making such computation, the Consolidated Interest
Expense attributable to interest on any Indebtedness computed on a pro forma
basis and (A) bearing a floating interest rate shall be computed as if the rate
in effect on the date of computation had been the applicable rate for the
entire period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of such Person, a
fixed or floating rate of interest, shall be computed by applying at the option
of such Person either the fixed or floating rate and (ii) in making such
computation, the Consolidated Interest Expense of such Person attributable to
interest on any Indebtedness under a revolving credit facility computed on a
pro forma basis shall be computed based upon the average daily balance of such
Indebtedness during the applicable period.
"Consolidated Income Tax Expense" of any Person means, for any period, the
provision for federal, state, local and foreign income taxes of such Person and
its Consolidated Restricted Subsidiaries for such period as determined in
accordance with GAAP.
"Consolidated Interest Expense" of any Person means, without duplication,
for any period, the sum of (a) the interest expense of such Person and its
Restricted Subsidiaries for such period, on a Consolidated basis (other than
interest expense under any Inventory Facility), including, without limitation,
(i) amortization of debt discount, (ii) the net costs associated with Interest
Rate Agreements, Currency Hedging Agreements and Commodity Price Protection
Agreements (including amortization of discounts), (iii) the interest portion of
any deferred payment obligation, (iv) all commissions, discounts and other fees
and charges owed with respect to letters of credit and bankers acceptance
financing and (v) accrued interest, plus (b) (i) the interest component of the
Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued
by such Person and its Restricted Subsidiaries during such period and (ii) all
capitalized interest of such Person and its Restricted Subsidiaries plus (c)
the interest expense under any Guaranteed Debt of such Person and any
Restricted Subsidiary to the extent not included under clause (a)(iv) above,
whether or not paid by such Person or its Restricted Subsidiaries.
"Consolidated Net Income (Loss)" of any Person means, for any period, the
Consolidated net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a Consolidated basis as determined in
accordance with GAAP, adjusted, to the extent included in calculating such net
income (or loss), by excluding, without duplication, (i) all extraordinary
gains or losses net of taxes (less all fees and expenses relating thereto),
(ii) the portion of net income (or loss) of such Person and its Restricted
Subsidiaries on a Consolidated basis allocable to minority interests in
unconsolidated Persons or Unrestricted Subsidiaries to the extent that cash
dividends or distributions have not actually been received by such Person or
one of its Consolidated Restricted Subsidiaries, (iii) net income (or loss) of
any Person combined with such Person or any of its Restricted Subsidiaries on a
"pooling of interests" basis attributable to any period prior to the date of
combination, (iv) any gain or loss, net of taxes, realized upon the termination
of any employee pension benefit plan, (v) gains or losses, net of taxes (less
all fees and expenses relating thereto), in respect of dispositions of assets
other than in the ordinary course of business, (vi) the net income of any
Restricted Subsidiary to the extent that the declaration of dividends or
similar distributions by that Restricted Subsidiary of that income is not at
the time permitted, directly or indirectly, by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (vii) any restoration to net income of any contingency reserve,
except to the extent provision for such reserve was made out of income accrued
at any time following the Issue Date, or (viii) any net gain arising from the
acquisition of any securities or extinguishment, under GAAP, of any
Indebtedness of such Person.
"Consolidated Non-cash Charges" of any Person means, for any period, the
aggregate depreciation, amortization and other non-cash charges of such Person
and its subsidiaries on a Consolidated basis for such period, as determined in
accordance with GAAP (excluding any non-cash charge which requires an accrual
or reserve for cash charges for any future period).
"Consolidated Tangible Assets" of any Person means (a) all amounts that
would be shown as assets on a consolidated balance sheet of such Person and its
Restricted Subsidiaries prepared in accordance with GAAP, less (b) the amount
thereof constituting goodwill and other intangible assets as calculated in
accordance with GAAP.
"Consolidation" means, with respect to any Person, the consolidation of
the accounts of such Person and each of its subsidiaries if and to the extent
the accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
"Currency Hedging Agreements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
foreign exchange contracts, currency swap agreements or other similar
agreements or arrangements designed to protect against the fluctuations in
currency values.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
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"Disinterested Director" means, with respect to any transaction or series
of related transactions, a member of the board of directors of the Company who
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of transactions.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute, and the rules and regulations promulgated by the
Commission thereunder.
"Fair Market Value" means, with respect to any asset or property, the sale
value that would be obtained in an arm's-length free market transaction between
an informed and willing seller under no compulsion to sell and an informed and
willing buyer under no compulsion to buy. Fair Market Value shall be determined
by the board of directors of the Company acting in good faith and shall be
evidenced by a resolution of the board of directors.
"Floor Plan Facility" means an agreement from Ford Motor Credit Company or
any other bank or asset-based lender pursuant to which the Company or any
Restricted Subsidiary incurs Indebtedness all of the net proceeds of which are
used to purchase, finance or refinance vehicles and/or vehicle parts and
supplies to be sold in the ordinary course of business of the Company and its
Restricted Subsidiaries and which may not be secured except by a Lien that does
not extend to or cover any property other than the property of the
dealership(s) which use the proceeds of the Floor Plan Facility.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied,
which are in effect on the Issue Date.
"Guarantee" means the guarantee by any Guarantor of the Company's
Indenture Obligations.
"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement
(i) to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to
assure the holder of such Indebtedness against loss, (iii) to supply funds to,
or in any other manner invest in, the debtor (including any agreement to pay
for property or services without requiring that such property be received or
such services be rendered), (iv) to maintain working capital or equity capital
of the debtor, or otherwise to maintain the net worth, solvency or other
financial condition of the debtor or to cause such debtor to achieve certain
levels of financial performance or (v) otherwise to assure a creditor against
loss; provided that the term "guarantee" shall not include endorsements for
collection or deposit, in either case in the ordinary course of business.
"Guarantor" means any Subsidiary which is a guarantor of the Notes,
including any Person that is required after the Issue Date to execute a
guarantee of the Notes pursuant to " -- Certain Covenants -- Limitation on
Liens" or " -- Limitation on Issuance of Guarantees of and Pledges for
Indebtedness" covenant until a successor replaces such party pursuant to the
applicable provisions of the Indenture and, thereafter, shall mean such
successor.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all indebtedness of such Person for borrowed money or for the deferred purchase
price of property or services, excluding any trade payables and other accrued
current liabilities arising in the ordinary course of business, but including,
without limitation, all obligations, contingent or otherwise, of such Person in
connection with any letters of credit issued under letter of credit facilities,
acceptance facilities or other similar facilities, (ii) all obligations of such
Person evidenced by bonds, notes, debentures or other similar instruments,
(iii) all indebtedness created or arising under any conditional sale or other
title retention agreement with respect to property acquired by such Person
(even if the rights and remedies of the seller or lender under such agreement
in the event of default are limited to repossession or sale of such property),
but excluding trade payables arising in the ordinary course of business, (iv)
all obligations of such Person under Interest Rate Agreements, Currency Hedging
Agreements or Commodity Price Protection Agreements of such Person, (v) all
Capital Lease Obligations of such Person, (vi) all Indebtedness referred to in
clauses (i) through (v) above of other Persons and all dividends of other
Persons, the payment of which is secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien, upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (vii) all
Guaranteed Debt of such Person, (viii) all Redeemable Capital Stock issued by
such Person valued at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends, (ix) Preferred Stock of any
Restricted Subsidiary of the Company which is not a Guarantor and (x) any
amendment, supplement, modification, deferral, renewal, extension, refunding or
refinancing of any liability of the types referred to in clauses (i) through
(ix) above. For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the
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terms of such Redeemable Capital Stock as if such Redeemable Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by, the
Fair Market Value of such Redeemable Capital Stock, such Fair Market Value to
be determined in good faith by the board of directors of the issuer of such
Redeemable Capital Stock.
"Indenture Obligations" means the obligations of the Company and any other
obligor under the Indenture or under the Notes, including any Guarantor, to pay
principal of, premium, if any, and interest when due and payable, and all other
amounts due or to become due under or in connection with the Indenture, the
Notes and the performance of all other obligations to the Trustee and the
holders under the Indenture and the Notes, according to the respective terms
thereof.
"Interest Rate Agreements" means one or more of the following agreements
which shall be entered into by one or more financial institutions: interest
rate protection agreements (including, without limitation, interest rate swaps,
caps, floors, collars and similar agreements) and/or other types of interest
rate hedging agreements from time to time.
"Inventory Facility" means any Floor Plan Facility or any other agreement
(including pursuant to a commercial paper program) pursuant to which the
Company or any Restricted Subsidiary incurs Indebtedness, the net proceeds of
which are used to purchase, finance or refinance vehicles and/or vehicle parts
and supplies to be sold in the ordinary course of business of the Company and
its Restricted Subsidiaries and which may not be secured except by a Lien that
does not extend to or cover any property other than the property of the
dealership(s) which use the proceeds of the Inventory Facility.
"Investment" means, with respect to any Person, directly or indirectly,
any advance, loan (including guarantees), or other extension of credit or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase, acquisition or ownership by such Person of any
Capital Stock, bonds, notes, debentures or other securities issued or owned by
any other Person and all other items that would be classified as investments on
a balance sheet prepared in accordance with GAAP.
"Issue Date" means the original issue date of the Notes under the
Indenture.
"Lien" means any mortgage or deed of trust, charge, pledge, lien
(statutory or otherwise), privilege, security interest, assignment, deposit,
arrangement, easement, hypothecation, claim, preference, priority or other
encumbrance upon or with respect to any property of any kind (including any
conditional sale, capital lease or other title retention agreement, any leases
in the nature thereof, and any agreement to give any security interest), real
or personal, movable or immovable, now owned or hereafter acquired. A Person
will be deemed to own subject to a Lien any property which it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, Capitalized Lease Obligation or other title retention agreement.
"Manufacturer" means a vehicle manufacturer which is a party to a
dealership franchise agreement with the Company or any Restricted Subsidiary.
"Maturity" means, when used with respect to the Notes, the date on which
the principal of the Notes becomes due and payable as therein provided or as
provided in the Indenture, whether at Stated Maturity, the Offer Date or the
redemption date and whether by declaration of acceleration, Offer in respect of
Excess Proceeds, Change of Control Offer in respect of a Change of Control,
call for redemption or otherwise.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any
Person, the proceeds thereof (without duplication in respect of all Asset
Sales) in the form of cash or Temporary Cash Investments including payments in
respect of deferred payment obligations when received in the form of, or stock
or other assets when disposed of for, cash or Temporary Cash Investments
(except to the extent that such obligations are financed or sold with recourse
to the Company or any Restricted Subsidiary) net of (i) brokerage commissions
and other reasonable fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) provisions for all
taxes payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties the subject of such Asset Sale, (iv) amounts required to be paid to
any Person (other than the Company or any Restricted Subsidiary) owning a
beneficial interest in the assets subject to the Asset Sale and (v) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an officers'
certificate delivered to the Trustee and (b) with respect to any issuance or
sale of Capital Stock or options, warrants or rights to purchase Capital Stock,
or debt securities or Capital Stock that have been converted into or exchanged
for Capital Stock as referred to under " -- Certain Covenants -- Limitation on
Restricted Payments," the proceeds of such issuance or sale in the form of
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cash or Temporary Cash Investments including payments in respect of deferred
payment obligations when received in the form of, or stock or other assets when
disposed of for, cash or Temporary Cash Investments (except to the extent that
such obligations are financed or sold with recourse to the Company or any
Restricted Subsidiary), net of attorney's fees, accountant's fees and
brokerage, consultation, underwriting and other fees and expenses actually
incurred in connection with such issuance or sale and net of taxes paid or
payable as a result thereof.
"Pari Passu Indebtedness" means (a) any Indebtedness of the Company that
is pari passu in right of payment to the Notes and (b) with respect to any
Guarantee, Indebtedness which ranks pari passu in right of payment to such
Guarantee.
"Permitted Holders" means (i) Mr. Bruton Smith or Mr. William S. Egan and
their respective guardians, conservators, committees, or attorneys-in-fact;
(ii) lineal descendants of Mr. Smith or Mr. Egan (in either case, a
"Descendant") and their respective guardians, conservators, committees or
attorneys-in-fact; and (ii) each "Family Controlled Entity" (as defined
herein). The term "Family Controlled Entity" means (a) any not-for-profit
corporation if at least 80% of its board of directors is composed of Mr. Smith,
Mr. Egan and/or Descendants; (b) any other corporation if at least 80% of the
value of its outstanding equity is owned by a Permitted Holder; (c) any
partnership if at least 80% of the value of the partnership interests are owned
by a Permitted Holder; and (d) any limited liability or similar company if at
least 80% of the value of the company is owned by a Permitted Holder; and (e)
any trusts created for the benefit of any of the persons listed in (i) or (ii)
of the prior sentence.
"Permitted Investment" means (i) Investments in any Wholly Owned
Restricted Subsidiary or any Person which, as a result of such Investment, (a)
becomes a Wholly Owned Restricted Subsidiary or (b) is merged or consolidated
with or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or any Wholly Owned Restricted Subsidiary; (ii)
Indebtedness of the Company or a Restricted Subsidiary described under clauses,
(v), (vi) and (vii) of the definition of "Permitted Indebtedness;" (iii)
Investments in any of the Notes; (iv) Temporary Cash Investments; (v)
Investments acquired by the Company or any Restricted Subsidiary in connection
with an Asset Sale permitted under "-- Certain Covenants -- Limitation on Sale
of Assets" to the extent such Investments are non-cash proceeds as permitted
under such covenant; (vi) any Investment to the extent the consideration
therefor consists of Qualified Capital Stock of the Company or any Restricted
Subsidiary; (vii) Investments representing Capital Stock or obligations issued
to the Company or any Restricted Subsidiary in the course of the good faith
settlement of claims against any other person by reason of a composition or
readjustment of debt or a reorganization of any debtor or any Restricted
Subsidiary; (viii) prepaid expenses advanced to employees in the ordinary
course of business or other loans or advances to employees in the ordinary
course of business not to exceed $1 million in the aggregate at any one time
outstanding; (ix) Investments in existence on the Issue Date; and (x) in
addition to the Investments described in clauses (i) through (x) above,
Investments in an amount not to exceed $10 million in the aggregate at any one
time outstanding. In connection with any assets or property contributed or
transferred to any Person as an Investment, such property and assets shall be
equal to the Fair Market Value (as determined by the Company's board of
directors) at the time of Investment
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"Public Equity Offering" means an underwritten public offering of common
stock (other than Redeemable Capital Stock) of the Company with gross proceeds
to the Company of at least $50 million pursuant to a registration statement
that has been declared effective by the Commission pursuant to the Securities
Act (other than a registration statement on Form S-4, Form S-8 or otherwise
relating to equity securities issuable under any employee benefit plan of the
Company).
"Purchase Money Obligation" means any Indebtedness secured by a Lien on
assets related to the business of the Company and any additions and accessions
thereto, which are purchased by the Company at any time after the Notes are
issued; provided that (i) the security agreement or conditional sales or other
title retention contract pursuant to which the Lien on such assets is created
(collectively a "Purchase Money Security Agreement") shall be entered into
within 90 days after the purchase or substantial completion of the construction
of such assets and shall at all times be confined solely to the assets so
purchased or acquired, any additions and accessions thereto and any proceeds
therefrom, (ii) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby be increased, except in connection
with the purchase of additions and accessions thereto and except in respect of
fees and other obligations in respect of such Indebtedness and (iii) (A) the
aggregate outstanding principal amount of Indebtedness secured thereby
(determined on a per asset basis in the case of any additions and accessions)
shall not at the time such Purchase Money Security Agreement is entered into
exceed 100% of the
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purchase price to the Company of the assets subject thereto or (B) the
Indebtedness secured thereby shall be with recourse solely to the assets so
purchased or acquired, any additions and accessions thereto and any proceeds
therefrom.
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Redeemable Capital Stock.
"Redeemable Capital Stock" means any Capital Stock that, either by its
terms or by the terms of any security into which it is convertible or
exchangeable or otherwise, is or upon the happening of an event or passage of
time would be, required to be redeemed prior to the final Stated Maturity of
the principal of the Notes or is redeemable at the option of the holder thereof
at any time prior to such final Stated Maturity (other than upon a change of
control of the Company in circumstances where the holders of the Notes would
have similar rights), or is convertible into or exchangeable for debt
securities at any time prior to such final Stated Maturity at the option of the
holder thereof.
"Replacement Assets" means properties and assets (other than cash or any
Capital Stock or other security) that will be used in a business of the Company
or its Restricted Subsidiaries existing on the Issue Date or in business
reasonably related thereto.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the board of directors of the Company by a board resolution
delivered to the Trustee as an Unrestricted Subsidiary pursuant to and in
compliance with the covenant described under " -- Certain Covenants --
Limitation on Unrestricted Subsidiaries."
"Revolving Facility" means the Credit Agreement among the Company, the
Guarantors and Ford Motor Credit Company dated as of December 15, 1997, as such
agreement, in whole or in part, may be amended, renewed, extended, substituted,
refinanced, restructured, replaced, supplemented or otherwise modified from
time to time (including, without limitation, any successive renewals,
extensions, substitutions, refinancings, restructurings, replacements,
supplementations or other modifications of the foregoing).
"Securities Act" means the Securities Act of 1933, as amended, or any
successor statute, and the rules and regulations promulgated by the Commission
thereunder.
"Significant Restricted Subsidiary" means, at any particular time, any
Restricted Subsidiary that, together with the Restricted Subsidiaries of such
Restricted Subsidiary (i) accounted for more than 5% of the Consolidated
revenues of the Company and its Restricted Subsidiaries for their most recently
completed fiscal year or (ii) is or are the owner(s) of more than 5% of the
Consolidated assets of the Company and its Restricted Subsidiaries as at the
end of such fiscal year, all as calculated in accordance with GAAP and as shown
on the Consolidated Financial Statements of the Company and its Restricted
Subsidiaries for such fiscal year.
"Smith Subordinated Loan" means the subordinated loan from O. Bruton Smith
to the Company in the principal amount of $5.5 million in existence on the
Issue Date.
"Stated Maturity" means, when used with respect to any Indebtedness or any
installment of interest thereon, the dates specified in such Indebtedness as
the fixed date on which the principal of such Indebtedness or such installment
of interest, as the case may be, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the Company or a
Guarantor subordinated in right of payment to the Notes or the Guarantee of
such Guarantor, as the case may be.
"Subsidiary" of a Person means (i) any corporation more than 50% of the
outstanding voting power of the Voting Stock of which is owned or controlled,
directly or indirectly, by such Person or by one or more other Subsidiaries of
such Person, or by such Person and one or more other Subsidiaries thereof, or
(ii) any limited partnership of which such Person or any Subsidiary of such
Person is a general partner, or (iii) any other Person in which such Person, or
one or more other Subsidiaries of such Person, or such Person and one or more
other Subsidiaries, directly or indirectly, has more than 50% of the
outstanding partnership or similar interests or has the power, by contract or
otherwise, to direct or cause the direction of the policies, management and
affairs thereof.
"Temporary Cash Investments" means (i) any evidence of Indebtedness,
maturing not more than one year after the date of acquisition, issued by the
United States of America, or an instrumentality or agency thereof, and
guaranteed fully as to principal, premium, if any, and interest by the United
States of America, (ii) any certificate of deposit, maturing not more than one
year after the date of acquisition, issued by, or time deposit of, a commercial
banking institution that is a member of the Federal Reserve System and that has
combined capital and surplus and undivided profits of not less than $500
million, whose debt has a rating, at the time as of which any investment
therein is made, of "P-1" (or higher) according to Moody's
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Investors Service, Inc. ("Moody's") or any successor rating agency or "A-1" (or
higher) according to Standard & Poor's Rating Group, a division of McGraw Hill,
Inc. ("S&P") or any successor rating agency, (iii) commercial paper, maturing
not more than one year after the date of acquisition, issued by a corporation
(other than an Affiliate or Subsidiary of the Company) organized and existing
under the laws of the United States of America with a rating, at the time as of
which any investment therein is made, of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to S&P and (iv) any money market deposit
accounts issued or offered by a domestic commercial bank having capital and
surplus in excess of $500 million; provided that the short term debt of such
commercial bank has a rating, at the time of Investment, of "P-1" (or higher)
according to Moody's or "A-1" (or higher) according to S&P.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended,
or any successor statute.
"Unrestricted Subsidiary" means any Subsidiary of the Company (other than
a Guarantor) designated as such pursuant to and in compliance with the covenant
described under "Certain Covenants -- Limitation on Unrestricted Subsidiaries."
"Unrestricted Subsidiary Indebtedness" of any Unrestricted Subsidiary
means Indebtedness of such Unrestricted Subsidiary (i) as to which neither the
Company nor any Restricted Subsidiary is directly or indirectly liable (by
virtue of the Company or any such Restricted Subsidiary being the primary
obligor on, guarantor of, or otherwise liable in any respect to, such
Indebtedness), except Guaranteed Debt of the Company or any Restricted
Subsidiary to any Affiliate, in which case (unless the incurrence of such
Guaranteed Debt resulted in a Restricted Payment at the time of incurrence) the
Company shall be deemed to have made a Restricted Payment equal to the
principal amount of any such Indebtedness to the extent guaranteed at the time
such Affiliate is designated an Unrestricted Subsidiary and (ii) which, upon
the occurrence of a default with respect thereto, does not result in, or permit
any holder of any Indebtedness of the Company or any Subsidiary to declare, a
default on such Indebtedness of the Company or any Subsidiary or cause the
payment thereof to be accelerated or payable prior to its Stated Maturity;
provided that notwithstanding the foregoing any Unrestricted Subsidiary may
guarantee the Notes.
"Voting Stock" of a Person means Capital Stock of such Person of the class
or classes pursuant to which the holders thereof have the general voting power
under ordinary circumstances to elect at least a majority of the board of
directors, managers or trustees of such Person (irrespective of whether or not
at the time Capital Stock of any other class or classes shall have or might
have voting power by reason of the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means a Restricted Subsidiary all the
Capital Stock of which (other than directors' qualifying shares and shares of
Capital Stock of a Restricted Subsidiary which a Manufacturer requires to be
held by another Person and which Capital Stock (together with any related
contractual arrangements) has no significant economic value with respect to
distributions of profits and losses in ordinary circumstances) is owned by the
Company or another Wholly Owned Restricted Subsidiary.
Book-Entry Delivery and Form
Notes will be issued only in fully registered form, without interest
coupons, in denominations of $1,000 and integral multiples thereof. Notes will
not be issued in bearer form.
New Notes
The New Notes will be represented by the New Global Note. The New Global
Note will be deposited upon issuance with the Trustee as custodian for DTC, in
New York, New York, and registered in the name of DTC or its nominee, in each
case for credit to an account of a direct or indirect participant in DTC as
described below.
Except as set forth below, the New Global Note may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. In addition, transfer of beneficial interests in the New Global
Note will be subject to the applicable rules and procedures of DTC and its
direct or indirect participants which may change from time to time. Beneficial
interests in the New Global Note may not be exchanged for New Notes in
certificated form except in the limited circumstances described below. See " --
Exchanges of Book-Entry Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes
may be presented for registration of transfer and exchange at the offices of
the Registrar.
Exchange of Book-Entry Notes for Certificated Notes
A beneficial interest in a Global Note may not be exchanged for a Note in
certificated form unless (i) DTC (x) notifies the Company that it is unwilling
or unable to continue as Depositary for the Global Note or (y) has ceased to be
a clearing agency registered under the Exchange Act, and in either case the
Company thereupon fails to appoint a successor Depositary,
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(ii) the Company, at its option, notifies the Trustee in writing that it elects
to cause the issuance of the Notes in certificated form or (iii) there shall
have occurred and be continuing an Event of Default or any event which after
notice or lapse of time or both would be an Event of Default with respect to
the Notes. In all cases, certificated Notes delivered in exchange for any
Global Note or beneficial interests therein will be registered in the names,
and issued in any approved denominations, requested by or on behalf of the
Depositary (in accordance with its customary procedures). Any certificated Note
issued in exchange for an interest in a Global Note will bear the legend
restricting transfers that is borne by such Global Note. Any such exchange will
be effected through the DTC Deposit/Withdrawal at Custodian ("DWAC") system and
an appropriate adjustment will be made in the records of the Registrar to
reflect a decrease in the principal amount of the relevant Global Note.
Certain Book-Entry Procedures for Global Notes
The descriptions of the operations and procedures of DTC, that follow are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the respective settlement systems and are subject
to change by them from time to time. The Company takes no responsibility for
these operations and procedures and urges investors to contact the system or
their participants directly to discuss these matters.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants ("participants") and facilitate the clearance
and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby
eliminating the need for physical transfer and delivery of certificates.
Participants include securities brokers and dealers, banks, trust companies and
clearing corporations and may include certain other organizations. Indirect
access to the DTC system is available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a participant, either directly or indirectly ("indirect
participants").
DTC has advised the Company that its current practice, upon the issuance
of the Global Notes, is to credit, on its internal system, the respective
principal amount of the individual beneficial interests represented by such
Global Notes to the accounts with DTC of the participants through which such
interests are to be held. Ownership of beneficial interest in the Global Notes
will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominees (with respect to interest of
participants) and the records of participants and indirect participants (with
respect to interests of persons other than participants).
As long as DTC, or its nominee, is the registered Holder of a Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner and
Holder of the Notes represented by such Global Note for all purposes under the
Indenture and the Notes. Except in the limited circumstances described above
under " -- Exchanges of Book-Entry Notes for Certificated Notes," owners of
beneficial interests in a Global Note will not be entitled to have any portions
of such Global Note registered in their names, and will not receive or be
entitled to receive physical delivery of Notes in definitive form and will not
be considered the owners or Holders of the Global Note (or any Notes
represented thereby) under the Indenture or the Notes.
Investors may hold their interests in a Global Note directly through DTC,
if they are participants in such system, or indirectly through organizations
which are participants in such system. All interests in a Global Note will be
subject to the procedures and requirements of DTC.
The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer beneficial interests in a Global Note to such persons may
be limited to that extent. Because DTC can act only on behalf of its
participants, which in turn act on behalf of indirect participants and certain
banks, the ability of a person having beneficial interests in a Global Note to
pledge such interest to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
Payments of the principal, of, premium, if any, and interest on Global
Notes will be made to DTC or its nominee as the registered owner thereof.
Neither the Company, the Trustee nor any of their respective agents will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interest in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
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The Company expects that DTC or its nominee, upon receipt of any payment
of principal of, premium, if any, or interest in respect of a Global Note
representing any Notes held by it or its nominee, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note for such Notes as shown
on the records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Note held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of
customers registered in "street name." Such payments will be the responsibility
of such participants. None of the Company or the Trustee will be liable for any
delay by DTC or any of its participants in identifying the beneficial owners of
the Notes, and the Company and the Trustee may conclusively rely on and will be
protected in relying on instructions from DTC or its nominee as the registered
owner of the Notes for all purposes.
Interests in the Global Notes will trade in DTC's Same-Day Funds
Settlement System and secondary market trading activity in such interests will
therefore settle in immediately available funds, subject in all cases to the
rules and procedures of DTC and its participants. Transfers between
participants in DTC will be effected in accordance with DTC's procedures, and
will be settled in same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes only at the direction of one or more participants to
whose accounts with DTC interests in the Global Notes are credited and only in
respect of such portion of the aggregate principal amount of the Notes as to
which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Notes, DTC reserves the
right to exchange the Global Notes for legended Notes in certificated form, and
to distribute such Notes to its participants.
Although DTC, has agreed to the foregoing procedures in order to
facilitate transfer of beneficial ownership interests in the Global Notes among
participants of DTC, it is under no obligation to perform or continue to
perform such procedures, and such procedures may be discontinued at any time.
None of the Company, the Trustee nor any of their respective agents will have
any responsibility for the performance by DTC, or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations, including maintaining, supervising or reviewing the
records relating to or payments made on account of, beneficial ownership
interests in Global Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 180 days after
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resales. In
addition, the Company agreed that it would not for a period of 120 days from
July 28, 1998, the date of the Offering Memorandum distributed in connection
with the sale of the Old Notes, directly or indirectly offer, sell, grant any
options to purchase or otherwise dispose of any debt securities other than in
connection with this Exchange Offer.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
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LEGAL MATTERS
Certain legal matters with respect to the legality of the New Notes being
offered hereby will be passed upon for the Company by Parker, Poe, Adams &
Bernstein L.L.P., Charlotte, North Carolina.
EXPERTS
The consolidated financial statements of Sonic Automotive, Inc. and
Subsidiaries, the combined financial statements of Clearwater Dealerships and
Affiliated Companies, the combined financial statements of Hatfield Automotive
Group, the financial statements of Economy Honda Cars, the financial statements
of Casa Ford of Houston, Inc., the combined financial statements of the
Higginbotham Automotive Group, the financial statements of Dyer & Dyer, Inc.,
the combined financial statements of Bowers Dealerships and Affiliated
Companies, the combined financial statements of Lake Norman Dodge, Inc. and
Affiliated Companies, and the financial statements of Ken Marks Ford, Inc.
included in this Prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein, and are
included in reliance upon the reports of such firm given upon their authority
as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act and in accordance therewith files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by the Company may be inspected and copied (at prescribed
rates) at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the Commissions
regional offices located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
The Commission also maintains a World Wide Web site containing such reports,
proxy statements and other information, at http://www.sec.gov. Quotations
relating to the Company's Common Stock appear on the New York Stock Exchange
and such reports, proxy statements and other information concerning the Company
can also be inspected at the offices of the New York Stock Exchange, 20 Broad
Street, New York, New York 10005.
The Company has agreed that, if at any time while the Notes are restricted
securities within the meaning of the Securities Act or the Company is not
subject to the informational requirements of the Exchange Act, the Company will
furnish to holders of the Notes and to prospective purchasers designated by
such holders the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act to permit compliance with Rule 144A in
connection with resales of the Notes.
114
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT ........................................................... F-4
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 1996 and 1997 and unaudited at June 30, F-5
1998
Consolidated Statements of Income for the years ended December 31, 1995, 1996 and 1997
and unaudited
for the six months ended June 30, 1997 and 1998 ...................................... F-6
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1995,
1996 and 1997
and unaudited for the six months ended June 30, 1998 ................................. F-7
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996 and
1997 and
unaudited for the six months ended June 30, 1997 and 1998 ............................ F-8
Notes to Consolidated Financial Statements ............................................ F-9
CLEARWATER DEALERSHIPS AND AFFILIATED COMPANIES
INDEPENDENT AUDITORS' REPORT ........................................................... F-26
COMBINED FINANCIAL STATEMENTS:
Combined Balance Sheet at December 31, 1997 ........................................... F-27
Combined Statement of Income and Retained Earnings for the year ended December 31, F-28
1997
Combined Statement of Cash Flows for the year ended December 31, 1997 ................. F-29
Notes to Combined Financial Statements ................................................ F-30
HATFIELD AUTOMOTIVE GROUP
INDEPENDENT AUDITORS' REPORT ........................................................... F-34
COMBINED FINANCIAL STATEMENTS:
Combined Balance Sheets at December 31, 1996 and 1997 and unaudited at June 30, 1998 .. F-35
Combined Statements of Income for the years ended December 31, 1995, 1996 and 1997 and
unaudited for
the six months ended June 30, 1997 and 1998 .......................................... F-36
Combined Statements of Stockholders' Equity for the years ended December 31, 1995,
1996 and 1997 and
unaudited for the six months ended June 30, 1998 ..................................... F-37
Combined Statements of Cash Flows for the years ended December 31, 1995, 1996 and 1997
and unaudited
for the six months ended June 30, 1997 and 1998. ..................................... F-38
Notes to Combined Financial Statements ................................................ F-39
ECONOMY HONDA CARS
INDEPENDENT AUDITORS' REPORT ........................................................... F-44
FINANCIAL STATEMENTS:
Balance Sheets at December 31, 1997 and unaudited at June 30, 1998 .................... F-45
Statements of Income for the year ended December 31, 1997 and unaudited for the six
months ended
June 30, 1997 and 1998 ............................................................... F-46
Statements of Stockholders' Equity for the year ended December 31, 1997 and unaudited
for the six months
ended June 30, 1998 .................................................................. F-47
Statements of Cash Flows for the year ended December 31, 1997 and unaudited for the
six months ended
June 30, 1997 and 1998 ............................................................... F-48
Notes to Financial Statements ......................................................... F-49
CASA FORD OF HOUSTON, INC.
INDEPENDENT AUDITORS' REPORT ........................................................... F-53
FINANCIAL STATEMENTS:
Balance Sheets at December 31, 1997 and unaudited at March 31, 1998 ................... F-54
Statements of Income for the year ended December 31, 1997 and unaudited for the three
months ended
March 31, 1997 and 1998 .............................................................. F-55
Statements of Stockholder's Equity for the year ended December 31, 1997 and unaudited
for the three
months ended March 31, 1998 .......................................................... F-56
Statements of Cash Flows for the year ended December 31, 1997 and unaudited for the
three months ended
March 31, 1997 and 1998 .............................................................. F-57
Notes to Financial Statements ......................................................... F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
Page
------
<S> <C>
HIGGINBOTHAM AUTOMOTIVE GROUP
INDEPENDENT AUDITORS' REPORT ........................................................... F-63
COMBINED FINANCIAL STATEMENTS:
Combined Balance Sheets at December 31, 1997 and unaudited at June 30, 1998 ........... F-64
Combined Statements of Income for the year ended December 31, 1997 and unaudited for
the six months
ended June 30, 1997 and 1998 ......................................................... F-65
Combined Statements of Stockholders' Equity for the year ended December 31, 1997 and
unaudited for the
six months ended June 30, 1998 ....................................................... F-66
Combined Statements of Cash Flows for the year ended December 31, 1997 and unaudited
for the six
months ended June 30, 1997 and 1998 .................................................. F-67
Notes to Combined Financial Statements ................................................ F-68
DYER & DYER, INC.
INDEPENDENT AUDITORS' REPORT ........................................................... F-74
FINANCIAL STATEMENTS:
Balance Sheets at December 31, 1995 and 1996 and unaudited at June 30, 1997 ........... F-75
Statements of Income and Retained Earnings for the years ended December 31, 1994, 1995
and 1996 and
unaudited for the six months ended June 30, 1996 and 1997 ............................ F-76
Statements of Stockholder's Equity for the years ended December 31, 1994, 1995 and
1996 and unaudited
for the six months ended June 30, 1997 ............................................... F-77
Statements of Cash Flows for the years ended December 31, 1994, 1995 and 1996 and
unaudited for the six
months ended June 30, 1996 and 1997 .................................................. F-78
Notes to Financial Statements ......................................................... F-79
BOWERS DEALERSHIPS AND AFFILIATED COMPANIES
INDEPENDENT AUDITORS' REPORT ........................................................... F-83
COMBINED FINANCIAL STATEMENTS:
Combined Balance Sheets at December 31, 1995 and 1996 and unaudited at June 30, 1997 .. F-84
Combined Statements of Income for the years ended December 31, 1995 and 1996 and
unaudited for the six
months ended June 30, 1996 and 1997 .................................................. F-85
Combined Statements of Stockholders' Equity for the years ended December 31, 1995 and
1996 and
unaudited for the six months ended June 30, 1997 ..................................... F-86
Combined Statements of Cash Flows for the years ended December 31, 1995 and 1996 and
unaudited for
the six months ended June 30, 1996 and 1997 .......................................... F-87
Notes to Combined Financial Statements ................................................ F-88
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
INDEPENDENT AUDITORS' REPORT ........................................................... F-95
COMBINED FINANCIAL STATEMENTS:
Combined Balance Sheets at December 31, 1996 and unaudited at June 30, 1997 ........... F-96
Combined Statements of Income for the year ended December 31, 1996 and unaudited for
the six months
ended June 30, 1996 and 1997 ......................................................... F-97
Combined Statements of Stockholders' Equity for the year ended December 31, 1996 and
unaudited for the
six months ended June 30, 1997 ....................................................... F-98
Combined Statements of Cash Flows for the year ended December 31, 1996 and unaudited
for the six
months ended June 30, 1996 and 1997 .................................................. F-99
Notes to Combined Financial Statements ................................................ F-100
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
Page
------
<S> <C>
KEN MARKS FORD, INC.
INDEPENDENT AUDITORS' REPORT ........................................................... F-105
FINANCIAL STATEMENTS:
Balance Sheets at April 30, 1997 and unaudited at July 31, 1997 ....................... F-106
Statements of Income for the year ended April 30, 1997 and unaudited for the three
months ended July 31,
1996 and 1997 ........................................................................ F-107
Statements of Stockholders' Equity for the year ended April 30, 1997 and unaudited for
the three months
ended July 31, 1997 .................................................................. F-108
Statements of Cash Flows for the year ended April 30, 1997 and unaudited for the three
months ended
July 31, 1996 and 1997 ............................................................... F-109
Notes to Financial Statements ......................................................... F-110
</TABLE>
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
SONIC AUTOMOTIVE, INC.
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheets of Sonic
Automotive, Inc. and Subsidiaries (the "Company") as of December 31, 1996 and
1997, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1996 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
March 2, 1998 (March 24, 1998 as to Notes 2, 8 and 9)
F-4
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1997 and June 30, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997 1998
----------- ---------- ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS (Note 5)
CURRENT ASSETS:
Cash and cash equivalents (Note 1) ............................................ $ 6,679 $ 18,304 $ 27,228
Marketable equity securities .................................................. 639 270 --
Receivables (net of allowance for doubtful accounts of $225 and $523 at
December 31, 1996 and 1997, respectively) .................................... 11,908 19,784 35,761
Inventories (Notes 1 and 3) ................................................... 71,550 156,514 175,515
Deferred income taxes (Note 6) ................................................ 280 405 669
Due from affiliates (Note 7) .................................................. -- 1,047 1,084
Other current assets .......................................................... 332 1,048 3,854
-------- -------- --------
Total current assets ......................................................... 91,388 197,372 244,111
PROPERTY AND EQUIPMENT, NET (Note 4) ............................................ 12,467 19,081 22,040
GOODWILL, NET (Note 1) .......................................................... 4,266 74,362 102,948
DUE FROM AFFILIATE (Note 7) ..................................................... 2,466 -- --
OTHER ASSETS .................................................................... 389 635 524
-------- -------- --------
TOTAL ASSETS .................................................................... $110,976 $291,450 $369,623
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- floor plan (Note 3) .......................................... $ 63,893 $133,236 $149,670
Trade accounts payable ........................................................ 3,643 6,612 7,971
Accrued interest .............................................................. 521 1,071 1,584
Other accrued liabilities (Note 6) ............................................ 3,032 10,748 17,949
Payable to affiliates (Note 7) ................................................ -- 445 445
Payable for acquisitions (Note 2) ............................................. -- -- 15,726
Current maturities of long-term debt (Note 5) ................................. 519 584 789
-------- -------- --------
Total current liabilities .................................................... 71,608 152,696 194,134
LONG-TERM DEBT (NOTE 5) ......................................................... 5,286 38,640 54,644
PAYABLE TO THE COMPANY'S CHAIRMAN (Notes 2 and 7) ............................... -- 5,500 5,500
PAYABLE TO AFFILIATES (Note 7) .................................................. 914 4,394 4,160
DEFERRED INCOME TAXES (Note 6) .................................................. 1,059 1,079 1,079
INCOME TAX PAYABLE (Note 6) ..................................................... 5,500 4,776 6,705
MINORITY INTEREST (Note 1) ...................................................... 314 -- --
COMMITMENTS AND CONTINGENCIES (Notes 7 and 10)
STOCKHOLDERS' EQUITY (Notes 1, 8 and 9):
Class A Preferred Stock, $.10 par, liquidation preference $1,000 per share,
3.0 million shares authorized, 13,034 shares issued and outstanding at
June 30, 1998 ................................................................ -- -- 11,763
Class A Common Stock, $.01 par, 50.0 million shares authorized;
5.0 million shares issued and outstanding .................................... -- 50 50
Class B Common Stock, $.01 par, 15.0 million shares authorized;
6.25 million shares issued and outstanding ................................... 63 63 63
Paid-in capital ............................................................... 13,333 68,045 68,535
Retained earnings ............................................................. 12,993 16,186 22,990
Unrealized gain (loss) on marketable equity securities ........................ (94) 21 --
-------- -------- --------
Total stockholders' equity ................................................... 26,295 84,365 103,401
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...................................... $110,976 $291,450 $369,623
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1995, 1996 and 1997 and the six months ended June 30,
1997 and 1998
(Dollars and shares in thousands, except per share amounts)
<TABLE>
<CAPTION>
Six months ended
Years ended December 31, June 30,
1995 1996 1997 1997 1998
----------- ----------- ------------- ----------- -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Vehicle sales .................................. $267,650 $327,674 $ 467,858 $185,216 $ 567,279
Parts, service and collision repair ............ 35,860 42,075 57,537 22,907 68,020
Finance and insurance (Note 1) ................. 7,813 7,118 10,606 4,763 13,541
-------- -------- --------- -------- ---------
Total revenues ................................ 311,323 376,867 536,001 212,886 648,840
COST OF SALES (Note 1) ........................... 272,130 332,122 473,003 189,254 566,392
-------- -------- --------- -------- ---------
GROSS PROFIT ..................................... 39,193 44,745 62,998 23,632 82,448
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ....................................... 28,091 32,602 46,770 17,532 59,622
DEPRECIATION AND AMORTIZATION .................... 832 1,076 1,322 396 1,851
-------- -------- --------- -------- ---------
OPERATING INCOME ................................. 10,270 11,067 14,906 5,704 20,975
OTHER INCOME AND EXPENSE:
Interest expense, floor plan (Note 3) .......... 4,504 5,968 8,007 3,018 7,341
Interest expense, other ........................ 436 433 1,199 318 2,745
Other income ................................... 106 355 298 135 15
-------- -------- --------- -------- ---------
Total other expense ........................... 4,834 6,046 8,908 3,201 10,071
-------- -------- --------- -------- ---------
INCOME BEFORE INCOME TAXES AND MINORITY
INTEREST ....................................... 5,436 5,021 5,998 2,503 10,904
PROVISION FOR INCOME TAXES (Note 6) .............. 2,176 1,924 2,249 916 4,100
-------- -------- --------- -------- ---------
INCOME BEFORE MINORITY INTEREST .................. 3,260 3,097 3,749 1,587 6,804
MINORITY INTEREST IN EARNINGS OF SUBSIDIARY
(Note 1) ....................................... 22 114 47 47 --
-------- -------- --------- -------- ---------
NET INCOME ....................................... $ 3,238 $ 2,983 $ 3,702 $ 1,540 $ 6,804
======== ======== ========= ======== =========
BASIC NET INCOME PER SHARE (Notes 1 and 8) ....... $ 0.53 $ 0.60
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING .................................... 6,949 11,264
========= =========
DILUTED NET INCOME PER SHARE (Notes 1 and 8) ..... $ 0.53 $ 0.58
========= =========
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING .................................... 6,949 11,637
========= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1995, 1996 and 1997 and the six months ended June 30,
1998
(Dollars and shares in thousands)
<TABLE>
<CAPTION>
Preferred Class A Class B
Stock Common Stock Common Stock
Shares Amount Shares Amount Shares Amount
-------- ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1994 ............ -- $ -- -- $-- 6,250 $63
Capital contributions ........ -- -- -- -- -- --
Net unrealized loss on
marketable equity
securities .................. -- -- -- -- -- --
Net income ................... -- -- -- -- -- --
BALANCE AT
DECEMBER 31, 1995 ............ -- -- -- -- 6,250 63
Capital contributions ........ -- -- -- -- -- --
Net unrealized loss on
marketable equity
securities .................. -- -- -- -- -- --
Net income ................... -- -- -- -- -- --
-- ------- -- --- ----- ---
BALANCE AT
DECEMBER 31, 1996 ............ -- -- -- -- 6,250 63
Capital contribution
(Note 1) .................... -- -- -- -- -- --
Public offering of
common stock
(Note 8) .................... -- -- 5,000 50 -- --
Stock redemption
(Note 7) .................... -- -- -- -- -- --
Dividend (Note 7) ............ -- -- -- -- -- --
Net unrealized gain on
marketable equity
securities .................. -- -- -- -- -- --
Net income ................... -- -- -- -- -- --
-- ------- ----- --- ----- ---
BALANCE AT
DECEMBER 31, 1997 ............ -- -- 5,000 50 6,250 63
-- ------- ----- --- ----- ---
Issuance of Preferred
Stock (Note 2)
(unaudited) ................. 13 11,763 -- -- -- --
Shares awarded under
stock compensation
plans (unaudited) ........... 27 --
Issuance of warrants
(unaudited) (Note 8) ........ --
Net unrealized loss on
marketable equity
securities (unaudited) ...... -- -- -- -- -- --
Net income (unaudited) ....... -- -- -- -- -- --
-- ------- ----- --- ----- ---
BALANCE AT
JUNE 30, 1998
(unaudited) .................. 13 $11,763 5,027 $50 6,250 $63
== ======= ===== === ===== ===
<CAPTION>
Unrealized
Gain/(Loss) on
Marketable Total
Paid-In Retained Equity Stockholders'
Capital Earnings Securities Equity
----------- ---------- --------------- --------------
<S> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1994 ............ $ 4,775 $ 6,772 $ -- $ 11,610
Capital contributions ........ 1,494 -- -- 1,494
Net unrealized loss on
marketable equity
securities .................. -- -- (35) (35)
Net income ................... -- 3,238 -- 3,238
BALANCE AT
DECEMBER 31, 1995 ............ 6,269 10,010 (35) 16,307
Capital contributions ........ 7,064 -- -- 7,064
Net unrealized loss on
marketable equity
securities .................. -- -- (59) (59)
Net income ................... -- 2,983 -- 2,983
-------- ------- ------ --------
BALANCE AT
DECEMBER 31, 1996 ............ 13,333 12,993 (94) 26,295
Capital contribution
(Note 1) .................... 3,208 -- -- 3,208
Public offering of
common stock
(Note 8) .................... 53,627 -- -- 53,677
Stock redemption
(Note 7) .................... (2,123) -- -- (2,123)
Dividend (Note 7) ............ -- (509) -- (509)
Net unrealized gain on
marketable equity
securities .................. -- -- 115 115
Net income ................... -- 3,702 -- 3,702
-------- ------- ------ --------
BALANCE AT
DECEMBER 31, 1997 ............ 68,045 16,186 21 84,365
-------- ------- ------ --------
Issuance of Preferred
Stock (Note 2)
(unaudited) ................. -- -- -- 11,763
Shares awarded under
stock compensation
plans (unaudited) ........... 224 224
Issuance of warrants
(unaudited) (Note 8) ........ 266 266
Net unrealized loss on
marketable equity
securities (unaudited) ...... -- -- (21) (21)
Net income (unaudited) ....... -- 6,804 -- 6,804
-------- ------- ------ --------
BALANCE AT
JUNE 30, 1998
(unaudited) .................. $ 68,535 $22,990 $ -- $103,401
======== ======= ====== ========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1996 and 1997 and the six months ended June 30,
1997 and 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Years ended December 31,
1995 1996 1997
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................................... $ 3,238 $ 2,983 $ 3,702
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ................................................. 832 1,076 1,322
Minority interest ............................................................. 22 114 47
(Gain) loss on disposal of property and equipment ............................. (39) 80 110
Gain on sale of marketable equity securities .................................. (106) (355) (298)
Change in deferred income taxes ............................................... 450 (241) (27)
Changes in assets and liabilities that relate to operations:
Receivables .................................................................. (229) (2,421) (594)
Inventories .................................................................. (5,025) (14,013) 1,430
Other assets ................................................................. 7 (80) (788)
Notes payable -- floor plan .................................................. 3,431 12,985 1,632
Accounts payable and other current liabilities ............................... (42) 1,439 1,694
Income tax payable ........................................................... 501 524 (504)
--------- ---------- ----------
Total adjustments ........................................................... (198) (892) 4,024
--------- ---------- ----------
Net cash provided by operating activities ..................................... 3,040 2,091 7,726
--------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired ................................... -- (5,127) (85,650)
Purchases of property and equipment ............................................ (1,509) (1,907) (2,007)
Proceeds from sales of property and equipment .................................. 557 4 43
Purchase of marketable equity securities ....................................... (1,623) (207) --
Proceeds from sales of marketable equity securities ............................ 1,074 515 784
--------- ---------- ----------
Net cash used in investing activities ......................................... (1,501) (6,722) (86,830)
--------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions .......................................................... 1,494 7,064 --
Public offering of common stock ................................................ -- -- 53,677
Proceeds from long-term debt ................................................... 3 599 45,892
Payments of long-term debt ..................................................... (269) (576) (13,353)
Issuance of shares under stock compensation plans .............................. -- -- --
Receipts from (advances to) affiliate companies ................................ 1,772 (4,771) (987)
Advances from the Company's Chairman (Note 7) .................................. -- -- 5,500
--------- ---------- ----------
Net cash provided by financing activities ..................................... 3,000 2,316 90,729
--------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................. 4,539 (2,315) 11,625
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 4,455 8,994 6,679
--------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 8,994 $ 6,679 $ 18,304
========= ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-- Cash paid during the period for:
Interest ....................................................................... $ 4,777 $ 6,489 $ 8,761
Income taxes ................................................................... $ 1,522 $ 2,042 $ 1,392
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Purchase of minority interest through exchange of common stock (Note 1) -- -- $ 3,208
Cancellation of notes payable from affiliates in exchange for common
stock (Note 7) ................................................................ -- -- $ 2,123
Cancellation of notes payable from affiliates pursuant to dividend (Note 7) -- -- $ 509
Preferred Stock issued pursuant to acquisition ................................. -- -- --
Payable for acquisitions (Note 2) .............................................. -- -- --
Issuance of warrants (Note 8) .................................................. -- -- --
<CAPTION>
Six months ended
June 30,
1997 1998
----------- ------------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................................... $ 1,540 $ 6,804
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ................................................. 396 1,851
Minority interest ............................................................. 47 --
(Gain) loss on disposal of property and equipment ............................. -- 104
Gain on sale of marketable equity securities .................................. (135) --
Change in deferred income taxes ............................................... -- --
Changes in assets and liabilities that relate to operations:
Receivables .................................................................. (989) (8,493)
Inventories .................................................................. 2,800 29,384
Other assets ................................................................. (370) (1,245)
Notes payable -- floor plan .................................................. 290 (25,867)
Accounts payable and other current liabilities ............................... 1,310 1,003
Income tax payable ........................................................... (934) (545)
--------- ----------
Total adjustments ........................................................... 2,438 (3,808)
--------- ----------
Net cash provided by operating activities ..................................... 3,978 2,996
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired ................................... (3,627) (7,808)
Purchases of property and equipment ............................................ (886) (1,261)
Proceeds from sales of property and equipment .................................. -- --
Purchase of marketable equity securities ....................................... -- --
Proceeds from sales of marketable equity securities ............................ -- --
--------- ----------
Net cash used in investing activities ......................................... (4,513) (9,069)
--------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions .......................................................... 3,209 --
Public offering of common stock ................................................ -- --
Proceeds from long-term debt ................................................... -- 23,688
Payments of long-term debt ..................................................... (180) (8,645)
Issuance of shares under stock compensation plans .............................. -- 224
Receipts from (advances to) affiliate companies ................................ 65 (270)
Advances from the Company's Chairman (Note 7) .................................. -- --
--------- ----------
Net cash provided by financing activities ..................................... 3,094 14,997
--------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ............................. 2,559 8,924
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................... 6,679 18,304
--------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ......................................... $ 9,238 $ 27,228
========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-- Cash paid during the period for:
Interest ....................................................................... $ 3,317 $ 9,573
Income taxes ................................................................... $ 930 $ 3,949
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING
ACTIVITIES:
Purchase of minority interest through exchange of common stock (Note 1) -- --
Cancellation of notes payable from affiliates in exchange for common
stock (Note 7) ................................................................ -- --
Cancellation of notes payable from affiliates pursuant to dividend (Note 7) -- --
Preferred Stock issued pursuant to acquisition ................................. -- $ 11,763
Payable for acquisitions (Note 2) .............................................. -- $ 15,726
Issuance of warrants (Note 8) .................................................. -- $ 266
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All tables in thousands except per share amounts)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- Sonic Automotive, Inc ("Sonic" or the
"Company") was incorporated in the State of Delaware in February 1997 in order
to effect a reorganization of certain affiliated companies (the
"Reorganization") and to undertake an initial public offering (the "IPO") of
the Company's Class A Common Stock par value $0.01 per share ("Class A Common
Stock"). The Company owns and operates automobile dealerships in Florida,
Georgia, North Carolina, South Carolina, Tennessee, and Texas and is in the
business of selling new and used cars and light trucks, selling replacement
parts, providing vehicle maintenance, warranty, paint, and repair services and
arranging related financing and insurance.
Pursuant to the Reorganization on June 30, 1997, certain companies
affiliated through common ownership and control became wholly-owned
subsidiaries of the Company through the exchange of their common stock or
membership interests for approximately 6.3 million shares of the Company's
Class B Common Stock, par value of $.01 per share ("Class B Common Stock"). The
financial statements for the periods through the effective date of the
Reorganization represent the combined data for these companies, which include
the following:
<TABLE>
<S> <C>
Town and Country Ford, Inc. ..................... Charlotte, North Carolina
Lone Star Ford, Inc. ............................ Houston, Texas
FMF Management, Inc. (d/b/a Fort Mill Ford) ..... Charlotte, North Carolina
Town and Country Toyota, Inc. ................... Charlotte, North Carolina
Frontier Oldsmobile-Cadillac, Inc. .............. Charlotte, North Carolina
</TABLE>
The Reorganization was accounted for at historical cost in a manner
similar to a pooling-of-interests as the entities were under the common
management and control of Mr. O. Bruton Smith, the Company's Chairman and Chief
Executive Officer.
Prior to the Reorganization, Town and Country Toyota, Inc. was 69% owned
by Mr. Bruton Smith. Lone Star Ford, Inc. and Frontier Oldsmobile-Cadillac,
Inc. were 100% owned by Sonic Financial Corporation ("SFC"), which in turn is
100% owned by Mr. Bruton Smith and related family trusts. Town and Country
Ford, Inc. was owned 80% by SFC and 20% by Mr. Scott Smith (Bruton Smith's
son). FMF Management, Inc. was owned 50% by SFC and 50% by Mr. Bruton Smith. In
connection with the Reorganization, the Company purchased the remaining 31%
minority interest in Town and Country Toyota, Inc. for $3.2 million in a
transaction accounted for using purchase accounting. On a pro forma basis for
the years ended December 31, 1996 and 1997, revenues would have been unchanged
and net income and net income per share would not be materially different had
the acquisition of this minority interest occurred on January 1, 1996 and
January 1, 1997, respectively.
The 1997 consolidated financial statements include the accounts of the
above five companies and also include the accounts and results of operations of
certain dealerships and dealership groups acquired during the year from the
respective dates of acquisition (see Note 2).
Principles of Consolidation -- All material intercompany transactions have
been eliminated in the consolidated financial statements.
Revenue Recognition -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed.
The Company arranges financing for customers through various financial
institutions and receives a commission from the lender equal to the difference
between the interest rates charged to customers over the predetermined interest
rates set by the financing institution. The Company also receives commissions
from the sale of credit life, accident, health and disability insurance and
extended service contracts to customers. The Company may be assessed a
chargeback fee in the event of early cancellation of a loan, insurance
contract, or service contract by the customer. Finance and insurance commission
revenue is recorded net of estimated chargebacks at the time the related
contract is placed with the financial institution.
Commissions expense related to finance and insurance commission revenue is
charged to cost of sales upon recognition of such revenue, net of estimated
chargebacks. Estimated commission expense charged to cost of sales was
approximately $1.3 million, $1.1 million and $1.8 million for the years ended
December 31, 1995, 1996, and 1997, respectively. Estimated
F-9
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
commission expense charged to cost of sales was approximately $0.8 million and
$2.2 million for the six months ended June 30, 1997 and 1998, respectively
(unaudited).
Dealer Agreements -- The Company purchases substantially all of its new
vehicles from manufacturers at the prevailing prices charged by the
manufacturer to its franchised dealers. The Company's sales could be
unfavorably impacted by the manufacturer's unwillingness or inability to supply
the dealership with an adequate supply of new vehicle inventory.
Each dealership operates under a dealer agreement with the manufacturer
which generally restricts the location, management and ownership of the
respective dealership. The ability of the Company to acquire additional
franchises from a particular manufacturer may be limited due to certain
restrictions imposed by manufacturers. Additionally, the Company's ability to
enter into other significant acquisitions may be restricted and the acquisition
of the Company's stock by third parties may be limited by the terms of the
franchise agreements.
Cash and Cash Equivalents -- The Company considers contracts in transit
and all highly liquid debt instruments with an initial maturity of three months
or less to be cash equivalents. Contracts in transit represent cash in transit
to the Company from finance companies related to vehicle purchases, and was
$5.2 million and $12.1 million at December 31, 1996 and 1997, respectively.
Inventories -- In connection with the Offering, the Company changed its
method of accounting for inventories of new vehicles from the last-in-first-out
method ("LIFO") to the first-in-first-out method ("FIFO"). In accordance with
Accounting Principles Board Opinion No. 20, "Accounting Changes", the
accompanying financial statements and related notes have been retroactively
restated to reflect that change. Accordingly, inventories of new vehicles,
including demonstrators, and parts and accessories are stated at the lower of
FIFO cost or market. Inventories of used vehicles are stated at the lower of
specific cost or market.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using straight-line methods over the estimated useful
lives of the assets. The range of estimated useful lives is as follows:
<TABLE>
<CAPTION>
Useful Lives
-------------
<S> <C>
Building and improvements .............. 5-40
Office equipment and fixtures .......... 5-15
Parts and service equipment ............ 15
Company vehicles ....................... 5
</TABLE>
Goodwill -- Goodwill represents the excess purchase price over the
estimated fair value of the tangible and separately measurable intangible net
assets acquired. The cumulative amount of goodwill at December 31, 1996,
December 31, 1997 and June 30, 1998 was $4.3 million, $75.0 million and $104.5
million, respectively. As a percentage of total assets and stockholders'
equity, goodwill, net of accumulated amortization, represented 3.8% and 16.2%,
respectively at December 31, 1996, 25.5% and 88.1%, respectively, at December
31, 1997, and 27.8% and 99.6%, respectively, at June 30, 1998. Generally
accepted accounting principles require that goodwill and all other intangible
assets be amortized over the period benefited. The Company has determined that
the period benefited by the goodwill will be no less than 40 years and,
accordingly, is amortizing goodwill over a 40 year period. If the Company were
not to separately recognize a material intangible asset having a benefit period
of less than 40 years, or were not to give effect to shorter benefit periods of
factors giving rise to a material portion of the goodwill, earnings reported in
periods immediately following the acquisition would be overstated. In later
years, the Company would be burdened by a continuing charge against earnings
without the associated benefit to income valued by management in arriving at
the consideration paid for the businesses acquired. Earnings in later years
also could be significantly affected if management then determined that the
remaining balance of goodwill was impaired. The Company periodically compares
the carrying value of goodwill with the anticipated undiscounted future cash
flows from operations of the businesses acquired in order to evaluate the
recoverability of goodwill. The Company has concluded that the anticipated
future cash flows associated with intangible assets recognized in its
acquisitions will continue indefinitely, and these is no pervasive evidence
that any material portion will dissipate over a period shorter than 40 years.
Income Taxes -- Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to the capitalization of
additional inventory costs for
F-10
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
income tax purposes, the recording of chargebacks and repossession losses on
the direct write-off method for income tax purposes, the direct write-off of
uncollectible accounts for income tax purposes, and the accelerated
depreciation method used for income tax purposes. The deferred tax assets and
liabilities represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled. In addition, deferred tax assets are recognized for state
operating losses that are available to offset future taxable income.
Stock-Based Compensation -- The Company measures the compensation cost of
its stock-based compensation plans under the provisions of Accounting
Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to
Employees," as permitted under Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based Compensation." Under the provisions
of APB No. 25, compensation cost is measured based on the intrinsic value of
the equity instrument awarded. Under the provisions of SFAS No. 123,
compensation cost is measured based on the fair value of the equity instrument
awarded.
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash on deposit with financial institutions. At times, amounts invested with
financial institutions may exceed FDIC insurance limits. Concentrations of
credit risk with respect to receivables are limited primarily to automobile
manufacturers and financial institutions. Credit risk arising from trade
receivables from commercial customers is reduced by the large number of
customers comprising the trade receivables balances.
Fair Value of Financial Instruments -- As of December 31, 1996 and 1997
the fair values of the Company's financial instruments including receivables,
due from affiliates, notes payable-floor plan, trade accounts payable, payables
to affiliated companies and the Company's Chairman and long-term debt
approximate their carrying values due either to length of maturity or existence
of variable interest rates that approximate prevailing market rates.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Advertising -- The Company expenses advertising costs in the period
incurred. Advertising expense amounted to $4.5 million, $5.0 million and $7.0
million for 1995, 1996 and 1997, respectively.
Impairment of Long-Lived Assets -- Effective January 1, 1996, the Company
adopted the provisions of SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of". This statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Adoption of SFAS No. 121 did not have a material impact on the
Company's results of operations, financial position, or cash flows.
Net Income per Share -- Effective December 31, 1997, the Company adopted
the provisions of SFAS No. 128, "Earnings per Share," which specifies the
computation, presentation and disclosure requirements for basic and diluted
earnings per share. The impact of adoption of SFAS No. 128 and required
disclosures are discussed in Note 8.
Impact of New Accounting Standards -- In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income." This Standard establishes standards
of reporting and display of comprehensive income and its components in a full
set of general-purpose financial statements. This Statement will be effective
for the Company's fiscal year ending December 31, 1998, and the Company does
not intend to adopt this Statement prior to the effective date. Had the Company
early adopted this Statement, it would have reported comprehensive income of
$2.4 million, $2.1 million and $3.8 million for the years ended December 31,
1995, 1996 and 1997, respectively.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Standard redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. This Statement
will be effective for the Company's fiscal year ending December 31, 1998, and
the Company does not intend
F-11
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
to adopt this Statement prior to the effective date. The Statement need not be
applied to interim financial statements in the initial year of its application.
The Company has not yet completed its analysis of which operating segments it
will disclose, if any.
Reclassification -- Certain prior year amounts have been reclassified to
conform with current year presentation.
Interim Financial Information -- The accompanying unaudited interim
financial information for the six months ended June 30, 1997 and 1998 has been
prepared on substantially the same basis as the audited financial statements,
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information set forth
therein. The results for interim periods are not necessarily indicative of the
results to be expected for the entire year.
2. BUSINESS ACQUISITIONS
Acquisitions Completed During Year Ended December 31, 1997
In November 1997, the Company completed its previously announced
acquisition of Dyer Volvo (the "Dyer Acquisition") located in Atlanta, Georgia
for a total purchase price of $18.7 million. Also in November, the Company
completed its previously announced acquisitions of the Bowers Dealerships and
Affiliated Companies (the "Bowers Acquisition") located primarily in
Chattanooga and Nashville, Tennessee, for a total purchase price of $30.8
million. In October, 1997, the Company completed its previously announced
acquisition of Ken Marks Ford, Inc. (the "Ken Marks Acquisition") located in
Clearwater, Florida for a total purchase price of $25.8 million. The Dyer
Acquisition and the Bowers Acquisition were financed primarily with $45.5
million in cash obtained from proceeds of the Company's public offering and
from operations, and with a $4 million promissory note that is payable in 28
equal quarterly installments to Nelson Bowers, former owner of the Bowers
Dealerships, bearing interest at prime less 0.5%. The Ken Marks Acquisition was
financed with $25 million in amounts borrowed under a revolving credit facility
(see Note 5) and with cash obtained from operations.
In October 1997, the Company completed its previously announced
acquisition of Williams Motors, Inc., now Town and Country Chrysler, Plymouth,
Jeep of Rock Hill, located in Rock Hill, South Carolina, for a total purchase
price of $1.9 million. In September, 1997, the Company completed its previously
announced acquisition of Lake Norman Dodge and Affiliates for a total purchase
price of $17.9 million. These acquisitions were financed with amounts borrowed
under a short-term line of credit maturing on February 15, 1998 (see Note 5).
In June 1997, the Company, through its wholly-owned subsidiary, Fort Mill
Chrysler-Plymouth-Dodge, acquired certain dealership assets and liabilities of
Jeff Boyd Chrysler-Plymouth-Dodge for a total purchase price of $3.7 million.
The acquisition was financed primarily with a $3.5 million note payable to Mr.
O. Bruton Smith (see Note 7).
All of the above acquisitions have been accounted for using the purchase
method of accounting, and the results of operations of each of the above
dealerships have been included in the accompanying consolidated financial
statements from their effective dates of acquisition. The purchase price of the
above acquisitions has been allocated to the assets and liabilities acquired
based on their estimated fair market value at the respective acquisition dates
as follows:
<TABLE>
<S> <C>
Working capital ......................... $ 28,247
Property and equipment .................. 3,969
Goodwill ................................ 69,528
Non-current liabilities assumed ......... (2,940)
--------
Total purchase price .................... $ 98,804
========
</TABLE>
The following unaudited pro forma financial information presents a summary
of consolidated results of operations as if the above transactions had occurred
as of the beginning of each period presented after giving effect to certain
adjustments, including amortization of goodwill, interest expense on
acquisition debt and related income tax effects. The pro forma financial
information does not give effect to adjustments relating to net reductions in
floorplan interest expense resulting from re-negotiated floorplan financing
agreements or to reductions in salaries and fringe benefits of former owners or
officers of acquired
F-12
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
2. BUSINESS ACQUISITIONS -- Continued
dealerships who have not been retained by the Company or whose salaries have
been reduced pursuant to employment agreements with the Company. Pro forma
results for Town and Country Chrysler, Plymouth, Jeep of Rock Hill and Fort
Mill Chrysler-Plymouth-Dodge are not included because Company management
believes that the pro forma results of operations would not have been
materially affected assuming these acquisitions had occurred on January 1,
1996. The pro forma results have been prepared for comparative purposes only
and are not necessarily indicative of the results of operations that would have
occurred had the acquisitions been completed on January 1, 1996. These results
are also not necessarily indicative of the results of future operations.
<TABLE>
<CAPTION>
Year ended
December 31,
---------------------------
1996 1997
------------- -------------
<S> <C> <C>
Total revenues ..................... $ 899,901 $ 949,081
Gross profit ....................... $ 113,772 $ 117,389
Net income ......................... $ 4,027 $ 5,439
Basic net income per share ......... $ 0.64 $ 0.78
</TABLE>
Acquisitions Completed During the Year Ended December 31, 1996
On February 1, 1996, the Company acquired Fort Mill Ford for a total
purchase price of $5.7 million. The acquisition has been accounted for using
the purchase method of accounting and the results of operations of Fort Mill
Ford have been included in the accompanying consolidated financial statements
from the date of acquisition. The purchase price has been allocated to the
assets and liabilities acquired based on their estimated fair market value at
the acquisition date as follows:
<TABLE>
<S> <C>
Working capital ......................... $ 822
Property and equipment .................. 3,022
Goodwill ................................ 4,364
Non-current liabilities assumed ......... (2,467)
--------
Total purchase price .................... $ 5,741
========
</TABLE>
The following unaudited pro forma financial data is presented as if Fort
Mill Ford had been acquired at January 1, 1995. Pro forma results of operations
for 1996 are not presented because the acquisition occurred in February 1996,
and the pro forma results for the year ended December 31, 1996 would not be
materially different from the historical results presented:
<TABLE>
<CAPTION>
December 31,
1995
-------------
<S> <C>
Total revenues ..................... $ 345,199
Net income ......................... $ 2,875
Basic net income per share ......... $ 0.46
</TABLE>
The pro forma information presented above is not necessarily indicative of
the operating results that would have occurred had Fort Mill Ford been acquired
on January 1, 1995. These results are also not necessarily indicative of the
results of future operations.
F-13
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------- June 30,
1996 1997 1998
---------- ----------- ------------
(Unaudited)
<S> <C> <C> <C>
New vehicles .................. $51,798 $118,751 $122,315
Used vehicles ................. 14,372 27,990 39,187
Parts and accessories ......... 4,940 9,085 12,467
Other ......................... 440 688 1,546
------- -------- --------
Total ......................... $71,550 $156,514 $175,515
======= ======== ========
</TABLE>
The inventory balance is generally reduced by manufacturer's purchase
discounts, and such reduction is not reflected in the related floor plan
liability.
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $63.9 million and
$133.2 million at December 31, 1996 and 1997, respectively, and $149.7 million
at June 30, 1998. The floor plan notes bear interest, payable monthly on the
outstanding balance, at an effective rate of prime less 0.9% (7.60% at June 30,
1998), subject to incentives and other adjustments. Total floor plan interest
expense amounted to $4.5 million, $6.0 million and $8.0 million in 1995, 1996
and 1997, respectively, and $3.0 million and $7.3 million at June 30, 1997 and
1998, respectively. The notes payable are due when the related vehicle is sold.
As such, these floor plan notes payable are shown as a current liability in the
accompanying consolidated balance sheets.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1997
----------- -----------
<S> <C> <C>
Land .................................. $ 2,678 $ 4,330
Building and improvements ............. 10,081 11,904
Office equipment and fixtures ......... 2,037 4,102
Parts and service equipment ........... 2,866 4,229
Company vehicles ...................... 437 727
-------- --------
Total, at cost ........................ 18,099 25,292
Less accumulated depreciation ......... (5,632) (6,211)
-------- --------
Property and equipment, net ........... $ 12,467 $ 19,081
======== ========
</TABLE>
F-14
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------
1996 1997
---------- ----------
<S> <C> <C>
Amounts outstanding under $26.0 million revolving credit facility with Ford Motor Credit
bearing
interest at prime plus 1% (9.5% at December 31, 1997) and maturing in October 1999,
collateralized by all assets of the Company ............................................. $ -- $25,070
Amounts outstanding under $20.0 million line of credit from NationsBank bearing interest
at 7.75%
and maturing February 15, 1998 .......................................................... -- 8,200
Mortgage note payable in monthly installments of $27,000, including interest at prime
plus 1/2%
(9.0% at December 31, 1997) through April 2001, at which time remaining principal
balance is
due, collateralized by building ......................................................... 3,063 2,999
Mortgage note payable in monthly installments of $12,000, plus interest at prime plus
3/4%, (9.25% at
December 31, 1997) through May 2004, collateralized by building ......................... 1,088 940
Other notes payable ...................................................................... 1,654 2,015
------ -------
5,805 39,224
Less current maturities .................................................................. (519) (584)
------ -------
Long-term debt ........................................................................... $5,286 $38,640
====== =======
</TABLE>
Future maturities of debt at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1998 ........................ $ 584
1999 ........................ 33,880
2000 ........................ 632
2001 ........................ 592
2002 ........................ 419
Thereafter .................. 3,117
-------
Total ....................... $39,224
=======
</TABLE>
On October 15, 1997, the Company obtained a secured, revolving acquisition
line of credit (the "Revolving Facility") from Ford Motor Credit with available
principal of $26 million. In January 1998 the Company increased the aggregate
amount available to borrow under this facility to $75 million pursuant to the
agreement with Ford Motor Credit. The Revolving Facility will mature in two
years, unless the Company requests that such term be extended, at the option of
Ford Motor Credit, for a number of additional one year terms to be negotiated
by the parties. No assurance can be given that such extensions will be granted.
The proceeds from the Revolving Facility were used in the consummation of the
Ken Marks Acquisition in October 1997 and for the repayment in February 1998 of
amounts borrowed under the Six-Month Facility (as defined below). Additional
amounts to be drawn under the Revolving Facility are to be used for the
acquisition of additional dealerships and to provide general working capital
needs of the Company not to exceed $10 million.
The Revolving Facility currently contains certain negative covenants made
by the Company, including covenants restricting or prohibiting the payment of
dividends, capital expenditures and material dispositions of assets as well as
other customary covenants. Additional negative covenants include specified
ratios of (i) debt to tangible equity (as defined in the Revolving Facility),
(ii) current assets to current liabilities, (iii) earnings before interest,
taxes, depreciation and amortization (EBITDA) to fixed charges, (iv) EBITDA to
interest expense, (v) EBITDA to total debt and (vi) EBITDA to total floor plan
debt. Moreover, the loss of voting control over the Company by the Smith Group
or the failure by the Company, with certain exceptions, to own all the
outstanding equity, membership or partnership interests in its dealership
subsidiaries will constitute an event of default under the Revolving Facility.
The Company did not meet the specified debt to tangible equity ratio at
December 31, 1997 and has obtained a waiver with regard to such requirement
from Ford Motor Credit. See Note 12.
The Company also agreed not to pledge any of its assets to any third party
(with the exception of currently encumbered real estate and assets of the
Company's dealership subsidiaries that are subject to previous pledges or
liens).
F-15
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
5. LONG-TERM DEBT -- Continued
On August 28, 1997, the Company obtained from NationsBank, N.A. a
short-term line of credit in an aggregate principal amount of up to $20 million
( the "Six-Month Facility"). Under the terms of the Six-Month Facility, amounts
outstanding bore interest at 7.75% and matured on February 15, 1998. Proceeds
from the Six-Month Facility were used to consummate the acquisitions of Lake
Norman Dodge and Affiliates and Williams Motors, Inc. Amounts outstanding at
December 31, 1997 have been classified as long-term as such amounts have been
subsequently refinanced with funds obtained from the Revolving Facility.
On February 16, 1998, the Company refinanced the $3 million mortgage note
payable. The mortgage note now matures February 2003 and is payable in 59
consecutive monthly installments of $26,000 each with a final balloon
installment for the unpaid balance due at maturity. The mortgage note bears
interest at the prime interest rate and is collateralized by a building.
6. INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
1995 1996 1997
--------- --------- ------------
<S> <C> <C> <C>
Current:
Federal ............................. $1,608 $1,857 $1,890
State ............................... 117 308 391
------ ------ ------
1,725 2,165 2,281
Deferred .............................. 427 (190) (27)
Change in valuation allowance ......... 24 (51) (5)
------ ------ --------
Total ................................. $2,176 $1,924 $2,249
====== ====== =======
</TABLE>
The reconciliation of the statutory federal income tax rate with the
Company's federal and state overall effective income tax rate is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal rate .......... 34.00% 34.00% 34.00%
State income taxes .............. 3.84 3.60 3.70
Miscellaneous ................... 2.19 0.71 (0.21)
------ ----- ------
Effective tax rates ............. 40.03% 38.31% 37.49%
====== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of the temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes. Significant
components of the Company's deferred tax assets and liabilities as of December
31 are as follows:
<TABLE>
<CAPTION>
1996 1997
----------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for bad debts ................... $ 86 $ 81
Inventory reserves ........................ 161 40
Net operating loss carryforwards .......... 75 120
Other ..................................... 76 151
-------- ------
Total deferred tax assets ................. 398 392
Valuation allowance ....................... (75) (70)
-------- ------
Deferred tax assets, net .................. 323 322
-------- ------
Deferred tax liabilities:
Basis difference in property and equipment (556) (799)
Basis difference in goodwill .............. -- (172)
Other ..................................... (546) (25)
-------- ------
Total deferred tax liability ............... (1,102) (996)
-------- ------
Net deferred tax liability ................. $ (779) $ (674)
======== ======
</TABLE>
F-16
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
6. INCOME TAXES -- Continued
The net changes in the valuation allowance against deferred tax assets
were a decrease of $51,000 for the year ended December 31, 1996 and a decrease
of $5,000 for the year ended December 31, 1997. The decrease was related
primarily to the expiration of state net operating loss carryforwards. At
December 31, 1997, the Company had state net operating loss carryforwards of
$1.2 million which will expire primarily between 1998 and 2002.
Certain of the Company's dealerships changed their method of accounting
for inventories of new vehicles for income tax purposes from LIFO to FIFO (see
Note 1) which resulted in an additional income tax liability. At December 31,
1996 and 1997, this liability was recorded as $5.5 million and $7.1 million,
respectively. The liability is payable over a six year period beginning in
January 1998. The current portion of the liability as of December 31, 1997 was
$2.3 million and is included in other accrued liabilities.
Certain subsidiaries of Sonic (such subsidiaries together with the Company
and SFC being hereinafter referred to as the "Sonic Group") have joined with
SFC in filing consolidated federal income tax returns for several years. Such
subsidiaries have also joined with SFC in filing for 1996 and for the six
months ending on June 30, 1997. Under applicable federal tax law, each
corporation included in SFC's consolidated return is jointly and severally
liable for any resultant tax. Under a tax allocation agreement dated as of June
30, 1997, however, the Company agreed to pay to SFC, in the event that
additional federal income tax is determined to be due, an amount equal to the
Company's separate federal income tax liability computed for all periods in
which any member of the Sonic Group has been a member of SFC's consolidated
group, less amounts previously recorded by the Company. Also pursuant to such
agreement, SFC agreed to indemnify the Company for any additional amount
determined to be due from SFC's consolidated group in excess of the federal
income tax liability of the Sonic Group for such periods. The tax allocation
agreement establishes procedures with respect to tax adjustments, tax claims,
tax refunds, tax credits and other tax attributes relating to periods ending
prior to the time that the Sonic Group shall leave SFC's consolidated group.
7. RELATED PARTIES
The Smith Guaranties, Pledges, Advance and Subordinated Loan:
In connection with the Company obtaining the NationsBank Facility, Mr.
Bruton Smith guaranteed the obligations of the Company and secured his
guarantee with a pledge of common stock of Speedway Motorsports Inc. ("SMI")
owned directly by him. In February 1998, the Company repaid in full the amounts
owed under the NationsBank Facility and Mr. Smith's guarantee was released.
In connection with the Company obtaining the Revolving Facility and a
global floor plan line of credit for all its dealership subsidiaries ("the
Floor Plan Facility" and, together with the Revolving Facility, the "Ford
Credit Facilities"), Mr. Smith personally guaranteed the obligations of the
Company under the Ford Credit Facilities, and such obligations were further
secured with a pledge of shares of common stock of SMI owned directly by him or
through Sonic Financial Corporation and having an estimated value at December
31, 1997 of approximately $50.0 million (the "Revolving Pledge").
In December 1997, upon increase of the borrowing limit under the Revolving
Facility to the maximum loan commitment of $75.0 million, the Revolving Pledge
remained in place, Mr. Smith's guarantee of the Revolving Facility was released
and Mr. Smith was required to lend $5.5 million (the "Subordinated Smith Loan")
to the Company to increase its capitalization as the result of offering
proceeds being significantly less than expected. The Subordinated Smith Loan
was required by Ford Motor Credit as a condition to its agreement to increase
the borrowing limit under the Revolving Facility. The Subordinated Smith Loan
is evidenced by the Company's Subordinated Promissory Note dated December 1,
1997 in favor of Mr. Smith, bears interest at prime plus 0.5% and matures on
November 30, 2000. All amounts owed by the Company to Mr. Smith under the
Subordinated Smith Loan are subordinate in right of payment to all amounts owed
by the Company under the Ford Credit Facilities pursuant to the terms of a
Subordination Agreement dated as of December 5, 1997 between Mr. Smith and Ford
Motor Credit.
In connection with the acquisitions by the Company of Fort Mill
Chrysler-Plymouth-Dodge, Bruton Smith advanced approximately $3.5 million to
the Company (the "Smith Advance"). The Smith Advance was used by the Company to
pay a portion of the cash consideration for this acquisition at closing. The
Smith Advance was evidenced by a demand note
F-17
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
7. RELATED PARTIES -- Continued
bearing interest at the minimum statutory rate of 3.83% per annum. The Company
repaid in full the principal of and interest on the Smith Advance from the
proceeds of the IPO.
Chartown Transactions
Chartown is a general partnership engaged in real estate development and
management. Before the Reorganization, Town & Country Ford maintained a 49%
partnership interest in Chartown with the remaining 51% held by SMDA
Properties, LLC, a North Carolina limited liability company ("SMDA"). Mr. Smith
owns an 80% direct membership interest in SMDA with the remaining 20% owned
indirectly through Sonic Financial. In addition, Sonic Financial also held a
demand promissory note for approximately $1.6 million issued by Chartown (the
"Chartown Note"), which was uncollectible due to insufficient funds. As part of
the Reorganization, the Chartown Note was canceled and Town & Country Ford
transferred its partnership interest in Chartown to Sonic Financial for nominal
consideration. In connection with that transfer, Sonic Financial agreed to
indemnify Town & Country Ford for any and all obligations and liabilities,
whether known or unknown, relating to Chartown and Town & Country Ford's
ownership thereof.
The Bowers Volvo Note
In connection with Volvo's approval of the Company's acquisition of a
Volvo franchise as part of the acquisition of the Bowers Dealerships and
Affiliated Companies Acquisition in 1997 (the "Bowers Acquisition"), Volvo,
among other things, conditioned its approval upon Nelson Bowers, the Company's
Executive Vice President and a Director, acquiring and maintaining a 20%
interest in the Company's Sonic Automotive of Chattanooga, LLC ("Chattanooga
Volvo") subsidiary that will operate the Volvo franchise. Mr. Bowers financed
all of the purchase price for this 20% interest by issuing a promissory note
(the "Bowers Volvo Note") in favor of Sonic Automotive of Nevada, Inc. ("Sonic
Nevada"), the wholly-owned subsidiary of the Company that controls a majority
interest in Chattanooga Volvo. The Bowers Volvo Note is secured by Mr. Bowers'
interest in Chattanooga Volvo.
The Bowers Volvo Note is for a principal amount of $900,000 and bears
interest at the lowest applicable federal rate as published by the U.S.
Treasury Department in effect on November 17, 1997. Accrued interest is payable
annually. The operating agreement of Chattanooga Volvo provides that profits
and distributions are to be allocated first to Mr. Bowers to the extent of
interest to be paid on the Bowers Volvo Note and next to the other members of
Chattanooga Volvo according to their percentages of ownership. No other profits
or any losses of Chattanooga Volvo will be allocated to Mr. Bowers under this
arrangement. Mr. Bowers' interest in Chattanooga Volvo will be redeemed and the
Bowers Volvo Note will be due and payable in full when Volvo no longer requires
Mr. Bowers to maintain his interest in Chattanooga Volvo.
Registration Rights Agreement:
As part of the reorganization of the Company in connection with its
initial public offering (the "Reorganization"), the Company entered into a
Registration Rights Agreement dated as of June 30, 1997 (the "Registration
Rights Agreements") with Sonic Financial, Bruton Smith, Scott Smith and William
S. Egan. Sonic Financial, Bruton Smith, Scott Smith and Egan Group, LLC, an
assignee of Mr. Egan (the "Egan Group") currently are the owners of record of
4,440,625, 1,035,625, 478,125 and 295,625 shares of Class B Common Stock,
respectively. Upon the registration of any of their shares or as otherwise
provided in the Company's Amended and Restated Certificate of Incorporation,
such shares will automatically be converted into a like number of shares of
Class A Common Stock. Subject to certain limitations, the Registration Rights
Agreements provide Sonic Financial Corporation ("SFC"), Bruton Smith, Scott
Smith and the Egan Group with certain piggyback registration rights that permit
them to have their shares of Common Stock, as selling security holders,
included in any registration statement pertaining to the registration of Class
A Common Stock for issuance by the Company or for resale by other selling
security holders, with the exception of registration statements on Forms S-4
and S-8 relating to exchange offers (and certain other transactions) and
employee stock compensation plans, respectively. These registration rights will
be limited or restricted to the extent an underwriter of an offering, if an
underwritten offering, or the Company's Board of Directors, if not an
underwritten offering, determines that the amount to be registered by Sonic
Financial, Bruton Smith, Scott Smith or the Egan Group would not permit the
sale of Class A Common Stock in the quantity and at the price originally sought
by the Company or
F-18
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
7. RELATED PARTIES -- Continued
the original selling security holders, as the case may be. The Registration
Rights Agreement expires on the November 17, 2007. Sonic Financial is
controlled by the Company's Chairman and Chief Executive Officer, Bruton Smith.
Other Related Party Transactions
Prior to June 30, 1997, two dealership subsidiaries of the Company had
each made several non-interest bearing advances to SFC ($2.5 million at
December 31, 1996). In preparation for the Reorganization, a demand promissory
note by SFC evidencing $2.1 million of these advances was canceled in June 1997
in exchange for the redemption of certain shares of the capital stock of Town &
Country Ford held by SFC. In addition, a demand promissory note by SFC
evidencing $509,000 of these advances was canceled in June 1997 pursuant to a
dividend.
The Company had amounts receivable from affiliates of $1.0 million at
December 31, 1997. Of this amount, $622,000 relates to advances made by the
Company to SFC at December 31, 1997. The remaining $425,000 at December 31,
1997, primarily relates to receivables from executives of the Company who were
former owners of certain dealerships acquired in 1997. These receivables
resulted from differences in the negotiated and actual net book value of the
dealerships at the date of acquisitions. The amounts receivable from affiliates
are non-interest bearing and are classified as current based on the expected
repayment dates.
The Company had amounts payable to affiliates of $914,000, $4.8 million at
December 31, 1996 and 1997 respectively. Amounts payable to affiliates includes
a note payable to the Company's Executive Vice-President and former owner of
the Bowers Dealerships resulting from the acquisition of the Bowers
Dealerships. The note is payable in 28 equal quarterly installments bearing
interest at prime less 0.5%. The balance outstanding under this note was $4.0
million at December 31, 1997. The current portion of this note amounted to
$445,000 at December 31, 1997. The remaining portion of the amount payable to
affiliates consisted of loans from affiliates, the majority of which bear
interest at 8.75%, and is classified as noncurrent based upon the expected
repayment dates.
During the years ended December 31, 1995 and December 31, 1996, Town &
Country Ford paid $48,000 to SFC as a management fee. SFC's services to Town &
Country Ford have included performance of the following functions, among
others: maintenance of lender and creditor relationships; tax planning;
preparation of tax returns and representation in tax examinations; record
maintenance; internal audits and special audits; assistance to independent
public accountants; and litigation support to company counsel. Payments of fees
to and receipt of services from SFC ceased in 1997.
Beginning in early 1997, certain of Sonic's dealerships have entered into
arrangements to sell to their customers credit life insurance policies
underwritten by American Heritage Life Insurance Company, an insurer
unaffiliated with Sonic ("American Heritage"). American Heritage in turn
reinsures all of these policies with Provident American Insurance Company, a
Texas insurance company and a wholly-owned subsidiary of SFC. Under these
arrangements, the dealerships paid an aggregate of $576,000 to American
Heritage in premiums for these policies for the twelve months ended December
31, 1997. The Company terminated this arrangement with American Heritage in
1997.
8. CAPITAL STRUCTURE, PUBLIC OFFERING OF COMMON STOCK, AND PER SHARE DATA
Preferred Stock -- In 1997, the Company authorized 3 million shares of
"blank check" preferred stock with such designations, rights and preferences as
may be determined from time to time by the Board of Directors. No preferred
shares were issued and outstanding as of December 31, 1997.
In March 1998, the Board of Directors designated 300,000 shares of
preferred stock as Class A Convertible Preferred Stock, par value $0.10 per
share, which was divided into 100,000 of Series I Convertible Preferred Stock,
par value $0.10 per share (the "Series I Preferred Stock"), 100,000 shares of
Series II Convertible Preferred Stock, par value $0.10 per share (the "Series
II Preferred Stock"), and 100,000 shares of Series III Convertible Preferred
Stock, par value $0.10 per share (the "Series III Preferred Stock" and together
with the Series I Preferred Stock and the Series II Preferred Stock,
collectively, the "Preferred Stock").
The Preferred Stock has a liquidation preference of $1,000 per share. Each
share of Preferred Stock is convertible, at the option of the holder, into that
number of shares of Class A Common Stock as is determined by dividing $1,000 by
the
F-19
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
8. CAPITAL STRUCTURE, PUBLIC OFFERING OF COMMON STOCK, AND PER SHARE
DATA -- Continued
average closing price for the Class A Common Stock on the NYSE for the 20 days
preceding the date of issuance of the shares of Preferred Stock (the "Market
Price"). Conversion of Series II Preferred Stock and Series III Preferred Stock
is subject to certain adjustments which have the effect of limiting increases
and decreases in the value of the Class A Common Stock receivable upon
conversion by 10% of the original value of the shares of Series II Preferred
Stock or Series III Preferred Stock.
The Preferred Stock is redeemable at the Company's option at any time
after the date of issuance. The redemption price of the Series I Preferred
Stock is $1,000 per share. The redemption price for the Series II Preferred
Stock and Series III Preferred Stock is as follows: (i) prior to the second
anniversary of the date of issuance, the redemption price is the greater of
$1,000 per share or the aggregate Market Price of the Class A Common Stock into
which it could be converted at the time of redemption, and (ii) after the
second anniversary of the date of issuance, the redemption price is the
aggregate Market Price of the Class A Common Stock into which it could be
converted at the time of redemption.
Each share of Preferred Stock entitles its holder to a number of votes
equal to that number of shares of Class A Common Stock into which it could be
converted as of the record date for the vote. Holders of preferred stock are
entitled to participate in dividends payable on the Class A Common Stock on an
"as-if-converted" basis. The Preferred Stock has no preferential dividends.
Stock Split -- All share and per share amounts included in the
accompanying financial statements for all periods presented have been adjusted
to reflect a 625 for 1 stock split of the Class B Common Stock effective as of
October 16, 1997.
Public Offering of Common Stock -- The Company completed an IPO of 5.0
million shares of its Class A Common Stock, par value $0.01 per share, on
November 12, 1997 at a price of $12 per share. Net proceeds of the IPO of
approximately $53.7 million were used to finance acquisitions (see Note 2) and
to repay amounts borrowed under lines of credit related to the acquisitions.
Class A Common Stock entitles its holder to one vote per share, while Class B
Common Stock entitles its holder to ten votes per share, except in certain
circumstances.
Warrants -- In connection with the acquisition of Dyer Volvo in November
1997, the Company issued on January 15, 1998 warrants to purchase 44,391 shares
of Class A Common Stock at $12 per share, which is currently exercisable and
expires on January 15, 2003. The Company has recorded the issuance of such
warrants at an estimated fair value pending completion of an independent
valuation.
Per Share Data -- The calculation of diluted net income per share
considers the potential dilutive effect of options and shares under the
Company's stock compensation plans, Class A Common Stock purchase warrants, and
Class A Convertible Preferred Stock. The following table illustrates the
dilutive effect of such items on EPS:
<TABLE>
<CAPTION>
Unaudited
For the twelve months ended For the six months ended
December 31, 1997 June 30, 1998
----------------------------- ----------------------------
Per-Share Per-Share
Income Shares Amount Income Shares Amount
-------- -------- ----------- -------- -------- ----------
(Dollars and Shares in thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Income available to common shareholders .......... $3,702 6,949 $ 0.53 $6,804 11,264 $ 0.60
======= =======
Effect of Dilutive Securities
Stock compensation plans ......................... -- -- -- 202
Warrants ......................................... -- -- -- 9
Convertible Preferred Stock ...................... -- -- -- 162
------ ----- ------ ------
Diluted EPS
Income available to common shareholders + assumed
conversions ..................................... $3,702 6,949 $ 0.53 $6,804 11,637 $ 0.58
====== ===== ======= ====== ====== =======
</TABLE>
Options to purchase 588,000 shares of Class A Common Stock at $12 per
share were outstanding in November and December of 1997, but were not included
in the computation of diluted EPS because the options' were anti-dilutive.
F-20
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
9. EMPLOYEE BENEFIT PLANS
Substantially all of the employees of the Company are eligible to
participate in a 401(k) plan maintained by SFC. Contributions by the Company to
the plan were not significant in any period presented.
Formula Stock Option Plan
In March 1998, the Board of Directors adopted the Formula Stock Option
Plan for the benefit of the Company's outside directors. The plan authorized
options to purchase up to an aggregate of 300,000 shares of Class A Common
Stock. Under the plan, each outside director shall be awarded on or before
March 31st of each year an option to purchase 10,000 shares at an exercise
price equal to the fair market value of common stock at the date of the award.
Employee Stock Purchase Plan
Effective January 1, 1998, the Board of Directors and stockholders of the
Company adopted the Employee Stock Purchase Plan (the "ESPP"). Under the terms
of the ESPP, on January 1 of each year all eligible employees electing to
participate will be granted an option to purchase shares of Class A Common
Stock. The Company's Compensation Committee will annually determine the number
of shares of Class A Common Stock available for purchase under each option. The
purchase price at which Class A Common Stock will be purchased through the ESPP
will be 85% of the lesser of (i) the fair market value of the Class A Common
Stock on the applicable Grant Date and (ii) the fair market value of the Class
A Common Stock on the applicable Exercise Date. Options will expire on the last
exercise date of the calendar year in which granted.
On March 20, 1998, the Board of Directors, pursuant to the Company's ESPP,
increased the authorized shares from 150,000 to 300,000 and issued options
exercisable for 150,000 shares of Class A Common Stock granting 310 shares per
participant participating in the ESPP.
Stock Option Plan
In October 1997, the Board of Directors and stockholders of the Company
adopted the Company's 1997 Stock Option Plan (the "Stock Option Plan") with
respect to Common Stock in order to attract and retain key personnel. Under the
Stock Option Plan, options to purchase up to an aggregate of 1.1 million shares
of Class A Common Stock may be granted to key employees of the Company and its
subsidiaries and to officers, directors, consultants and other individuals
providing services to the Company. In November 1997, the Company granted
options to purchase 588,000 shares of Class A Common Stock at an exercise price
equal to the initial public offering price of $12.00 per share. All of these
options will become exercisable in three equal annual installments beginning in
October 1998 with the last installment vesting in October 2000, and all these
options will expire in October 2007.
The Company has adopted the disclosure-only provisions of SFAS No. 123.
The Company granted 588,000 options in 1997 with weighted average grant-date
fair values of $5.66. No compensation cost has been recognized for the Stock
Option Plan. Had compensation cost for the stock options been determined based
on their fair value method as prescribed by SFAS No. 123, the Company's pro
forma net income and basic net income per share would have been $3.6 million
and $0.51, respectively, for 1997.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
expected volatility of 50% in 1997; risk-free interest rate of 5.6% in 1997;
and expected lives of 5 years in 1997. The model reflects that no dividends
were declared in 1997 and assumes that no dividends will be declared in the
future.
10. COMMITMENTS AND CONTINGENCIES
Operating Leases:
The Company leases certain of its dealership facilities under
noncancelable operating leases with terms ranging from one to twelve years,
with renewal options of up to ten years. A majority of the dealership
facilities are owned by officers, directors or holders of 5% or more of the
Common Stock of the Company or their affiliates. Minimum future rental payments
required under noncancelable operating leases are as follows:
F-21
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
10. COMMITMENTS AND CONTINGENCIES -- Continued
<TABLE>
<CAPTION>
Related Parties Third Parties Total
Year ending December 31, ----------------- --------------- ---------
<S> <C> <C> <C>
1998 ..................... $ 3,849 $ 2,023 $ 5,872
1999 ..................... 3,852 1,452 5,304
2000 ..................... 3,786 1,400 5,186
2001 ..................... 3,448 1,380 4,828
2002 ..................... 3,338 1,050 4,388
Thereafter ............... 16,146 4,480 20,626
------- ------- -------
Total .................... $34,419 $11,785 $46,204
======= ======= =======
</TABLE>
Total rent expense for the years ended December 31, 1995, 1996, and 1997
was approximately $841,000, $870,000, and $2.4 million, respectively. Of these
amounts, $841,000, $870,000 and $1.3 million, respectively, were paid to
related parties.
Other Contingencies:
The Company is contingently liable for customer contracts placed with
financial institutions of approximately $741,000 and $302,000 at December 31,
1996 and 1997, respectively. However, the Company's potential loss is limited
to the difference between the present value of the installment contract at the
date of the repossession and the market value of the vehicle at the date of
sale. Other accrued liabilities include a provision for repossession losses.
The Company provides a reserve for repossession losses based on the ratio that
historical loss experience bears to the amount of outstanding customer
contracts.
The Company has available $1.5 million under draft-clearing credit lines
with a bank in order to immediately fund the Company's checking account for
sold vehicle contracts from other financial institutions. The Company is
contingently liable to the bank until the contracts are approved by the
financial institutions. Amounts outstanding under these lines at December 31,
1996 and 1997 were $151,000 and $432,000, respectively.
The Company is involved in various legal proceedings. Management believes
that the outcome of such proceedings will not have a materially adverse effect
on the Company's financial position or future results of operations and cash
flows.
The Company has not entered into any agreement with respect to the
approval by Jaguar of the proposed acquisition of the assets of the Jaguar of
Chattanooga dealership (the "Jaguar Dealership") by the Company as part of the
Bowers Acquisition. The Company and Jaguar are continuing to negotiate with
respect to this matter, although no assurance can be given that such
negotiations will result in an arrangement that is favorable to the Company. If
Jaguar refuses to give its approval to the Company, the Company may not be able
to acquire the Jaguar Dealership. The Jaguar Dealership accounts for less than
1.5% of the Company's 1997 revenues and profits, respectively.
11. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the Company's results of operations as
presented in the Consolidated Statements of Income by quarter for 1996 and
1997. Amounts below reflect reclassifications of previously reported amounts to
conform with current year presentation and exclude net income per share for
those periods prior to the completion of the Offering.
F-22
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
11. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED) -- Continued
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1996:
Total revenues ........................... $ 85,684 $ 104,021 $ 93,910 $ 93,252
Gross profit ............................. $ 10,654 $ 11,860 $ 11,581 $ 11,725
Operating income ......................... $ 2,644 $ 2,920 $ 2,530 $ 2,973
Income before taxes and minority interest $ 1,604 $ 1,254 $ 1,121 $ 1,042
Year Ended December 31, 1997:
Total revenues ........................... $ 98,785 $ 114,101 $ 127,356 $ 195,759
Gross profit ............................. $ 11,228 $ 13,236 $ 15,105 $ 25,179
Operating income ......................... $ 2,262 $ 3,393 $ 3,469 $ 5,782
Income before taxes and minority interest $ 926 $ 1,577 $ 1,526 $ 1,969
Net income ............................... $ 541 $ 999 $ 911 $ 1,251
Diluted net income per share ............. $ 0.15 $ 0.14
</TABLE>
12. SUBSEQUENT EVENTS (UNAUDITED)
Pending Acquisitions
The Company has entered into definitive agreements to acquire a dealership
located in Chattanooga, Tennessee and a dealership group comprised of three
dealerships located in Daytona Beach, Florida for an aggregate purchase price
of approximately $26.2 million plus the net book value of the assets acquired.
The aggregate purchase price will be payable in approximately 12,183 shares of
Preferred Stock with a liquidation preference of approximately $1,000 per share
and the balance payable in cash obtained from the Company's existing
opearations and from the private placement of the Company's 11% Senior
Subordinated Notes in July 1998 (the "Offering" -- see Note 12). These
acquisitions are expected to be consummated in the third quarter of 1998.
Acquisitions Completed Subsequent to June 30, 1998
In July 1998, the Company completed its previously announced acquisition
of Hatfield Automotive Group located in Columbus Ohio (the "Hatfield
Acquisition") for a total purchase price of $48.6 million, paid with $34.6
million in cash and with 14,025 shares of Series I Preferred Stock (see Note 8)
having a liquidation preference of approximately $14.0 million. Of the cash
portion of the purchase price, $26.2 million was financed with borrowings under
the Revolving Facility (see Note 5), which was subsequently repaid with
proceeds from the Offering, and $8.4 million with proceeds from the Offering.
Acquisitions Completed During the Six Months Ended June 30, 1998
On January 1, 1998, the Company began operation and obtained control of
Clearwater Toyota, Clearwater Mitsubishi and Clearwater Collision Center (the
"Clearwater Acquisition") located in Clearwater, Florida. On April 1, 1998, the
Company began operation and obtained control of Capitol Chevrolet and Imports
located in Montgomery, Alabama (the "Montgomery Acquisition"), Century BMW
located in Greenville, South Carolina (the "Century Acquisition") and Heritage
Lincoln-Mercury located in Greenville, South Carolina (the "Heritage
Acquisition"). On May 1, 1998, the Company began operation and obtained control
of Casa Ford of Houston, Inc. located in Houston, Texas (the "Casa Ford
Acquisition"). The aggregate purchase price for the Clearwater Acquisition, the
Montgomery Acquisition, the Century Acquisition, the Heritage Acquisition, and
the Casa Ford Acquisition (collectively, the "1998 Acquisitions") was
approximately $40.7 million, paid with $29.0 million in cash and with 13,034
shares of Preferred Stock (381 shares of Series I Preferred Stock, 6,380 shares
of Series II Preferred Stock, and 6,273 shares of Series III Preferred Stock --
see Note 8) having an aggregate liquidation preference of approximately $13.0
million and an estimated fair value of approximately $11.7 million. Of the
$29.0 million cash portion of the aggregate purchase price, $15.4 million was
financed with borrowings under the Revolving Facility, which was subsequently
repaid with the proceeds from the Offering, $12.9 million with the proceeds
from the Offering, and $0.1 million with cash generated from the Company's
existing operations. The remaining $0.6 million of the cash portion
F-23
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
12. SUBSEQUENT EVENTS (UNAUDITED) -- Continued
of the purchase price is payable to the seller of the Montgomery Acquisition on
the first and second anniversaries of the closing date of the Montgomery
Acquisition. In addition, the Company will issue to the seller of the Century
Acquisition warrants to purchase 75,000 shares of the Company's Class A Common
Stock at a purchase price equal to the market value of the Class A Common Stock
on the date of grant. The Company will record these warrants at fair value at
time of issuance. In accordance with terms of the Clearwater Acquisition and
the Montgomery Acquisition, the Company may be required to pay additional
amounts up to $5.1 million contingent on the future performance of the
dealerships acquired in such acquisitions. In addition, in accordance with the
terms of the Casa Ford Acquisition, the Company may be required to pay
additional amounts to the seller equal to five times the amount by which the
dealership's pre-tax earnings for 1998, if any, exceed $2.5 million, and five
times the amount by which the dealership's pre-tax earnings for 1999, if any,
exceed the greater of $2.5 million or the dealership's 1998 pre-tax earnings.
Any additional amounts paid will be accounted for as additional goodwill. The
Payable for Acquisitions in the amount of $16.1 million included in the
accompanying consolidated financial statements represents the cash
consideration paid for the Montgomery Acquisition, Century Acquisition,
Heritage Acquisition, and Casa Ford Acquisition upon the closing of such
acquisitions in July 1998.
The 1998 Acquisitions have been accounted for using the purchase method of
accounting and the results of operations of such acquisitions have been
included in the accompanying unaudited consolidated financial statements from
the date the Company began operation and obtained control. The purchase price
of the 1998 Acquisitions has been allocated as shown below to the assets and
liabilities acquired based on their estimated fair market value at the
acquisition date. The purchase price and corresponding goodwill may ultimatley
be different than amounts recorded depending on the actual fair value of
tangible net assets acquired and changes in the estimated fair value of
Preferred Stock (see Note 8).
<TABLE>
<S> <C>
Working capital ........................ $ 11,826
Property and equipment ................. 2,462
Goodwill ............................... 29,147
Non-current liabilites assumed ......... (2,699)
--------
Total purchase price ................... $ 40,736
========
</TABLE>
The following unaudited pro forma financial information presents a summary
of consolidated results of operations as if the Clearwater Acquisition,
Montgomery Acquisition, Century Acquisition, Heritage Acquisition, Casa Ford
Acquisition, and acquisition of dealership groups completed in 1997 had
occurred at the beginning of the period in which the acquisitions were
completed and at the beginning of the immediately preceding period after giving
effect to certain adjustments, including amortization of goodwill, interest
expense on acquisition debt and related income tax effects. The pro forma
financial information does not give effect to adjustments relating to net
reductions in floor plan interest expense resulting from re-negotiated floor
plan financing agreements or to reductions in salaries and fringe benefits of
former owners or officers of acquired dealerships who have not been retained by
the Company or whose salaries have been reduced pursuant to employment
agreements with the Company. The pro forma results have been prepared for
comparative purposes only and are not necessarily indicative of the results of
operations that would have occurred had the acquisitions been completed at the
beginning of the periods presented. These results are also not necessarily
indicative of the results of future operations.
<TABLE>
<CAPTION>
Three Months Ending Six Months Ending
June 30, June 30,
--------------------------- ---------------------------
1997 1998 1997 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total revenues ....................... $ 359,659 $ 391,992 $ 689,565 $ 728,588
Gross profit ......................... $ 44,401 $ 50,376 $ 84,046 $ 94,551
Net Income ........................... $ 3,676 $ 5,043 $ 5,192 $ 6,901
Diluted net income per share ......... $ 0.30 $ 0.39 $ 0.42 $ 0.54
</TABLE>
Manufacturer's Restrictions on Acquisitions
In August 1998, in the course of acquiring Jaguar franchises associated
with dealerships in Chattanooga, Tennessee and Greenville, South Carolina,
Jaguar declined to consent to the Company's proposed acquisitions of those
franchises. The Company therefore agreed with Jaguar not to acquire any Jaguar
franchise until August 2001.
F-24
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued
12. SUBSEQUENT EVENTS (UNAUDITED) -- Continued
Dealership Leases:
On July 9, 1998, the Company entered into, subject to the approval of the
Company's Board of Directors and the Company's independent directors, a
Strategic Alliance Agreement and Agreement for the Mutual Referral of
Acquisition Opportunities (the "Alliance Agreement") with an operating
partnership controlled by Mar Mar Realty Trust, a Maryland real estate
investment trust ("MMRT"). MMRT owns the real estate associated with various
automobile dealerships, automotive aftermarket retailers and other automotive
related businesses and leases such property to the business operators located
thereon. O. Bruton Smith, the Company's Chairman and Chief Executive Officer,
serves as the chairman of MMRT's board of trustees and is presently its
controlling shareholder.
Under the Alliance Agreement, the Company has agreed to refer real estate
acquisition opportunities that arise in connection with its dealership
acquisitions to MMRT. In exchange, MMRT has agreed to refer dealership
acquisition opportunities to the Company and to provide to the Company, at the
Company's cost, certain real estate development, maintenance, survey, and
inspection services. Pursuant to the Alliance Agreement, the Company has
entered into contracts to sell the real estate associated with Town and Country
Toyota and Fort Mill Ford, two of the Company's dealerships, for an aggregate
purchase price of $10.3 million. In addition, the Alliance Agreement provides
for an agreed form of lease (the "Sonic Form Lease") pursuant to which MMRT
would lease real estate to the Company should MMRT acquire real estate
associated with any of the Company's operations. Presently, the Company leases
or intends to lease from MMRT 18 parcels of land associated with 16 of its
dealerships, including the real estate associated with Town and Country Toyota
and Fort Mill Ford which the Company will lease back from MMRT pursuant to
leases substantially similar to the Sonic Form Lease. The aggregate initial
annual base rent to be paid by the Company for all 18 properties under the
leases with MMRT is approximately $6.4 million.
Preferred Stock reported in the accompanying Unaudited Consolidated
Balance Sheet as of June 30, 1998 consists of 381 shares of Series I Preferred
Stock, 6,380 shares of Series II Preferred Stock, and 6,273 shares of Series
III Preferred Stock issued in connection with the consummation of the 1998
Acquisitions (see Note 2). These shares of Preferred Stock were preliminarily
recorded at their estimated fair value pending completion of an independent
valuation.
In connection with the Century Acquisition, the Company will issue to the
seller of the Century Acquisition warrants to purchase 75,000 shares of the
Company's Class A Common Stock at a purchase price equal to the market value of
the Class A Common Stock on the date of grant. The Company will record these
warrants at fair value at time of issuance.
Debt Covenants
At March 31, 1998 and June 30, 1998, the Company was not in compliance
with a financial covenant of the Revolving Facility. Ford Motor Credit has
provided the Company with a waiver of this violation through December 31, 1998.
Management expects to be in compliance with or to have amended the financial
covenant such that subsequent to December 31, 1998 they will be in compliance.
The Company did not meet the specified total debt to tangible equity ratios
required by the Revolving Facility at March 31, 1998 and at June 30, 1998 and
has obtained a waiver with regard to such requirement from Ford Motor Credit.
The waiver is subject to certain requirements to the effect that the Company
must meet modified ratios after December 31, 1998 and December 31, 1998. In
connection with the Offering, the Company and Ford Motor Credit amended the
Revolving Facility to provide that the Company's 11% Senior Subordinated Notes
due 2008 (the "Notes"), which are subordinated to the Revolving Facility, will
be treated as equity capital for purposes of this ratio and, accordingly, the
Company is in compliance with this covenant after giving effect to the issuance
of the Notes.
Senior Notes
In July 1998, the Company completed its private placement of the Notes.
Interest is payable February 1 and August 1 of each year, commencing February
1, 1999. The Notes contain certain restrictive covenants and are unsecured
senior subordinated obligations of the Company.
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
CLEARWATER DEALERSHIPS AND AFFILIATED COMPANIES
CLEARWATER, FLORIDA
We have audited the accompanying combined balance sheet of Clearwater
Dealerships and Affiliated Companies (the "Company"), which are under common
ownership and management, as of December 31, 1997, and the related combined
statement of income and retained earnings and of cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of the Company as of December 31,
1997, and the combined results of its operations and its combined cash flows
for the year then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
February 20, 1998
F-26
<PAGE>
CLEARWATER DEALERSHIPS AND AFFILIATED COMPANIES
COMBINED BALANCE SHEET
December 31, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .......................... $ 2,065,437
Accounts receivable ................................ 1,137,797
Inventories (Note 2) ............................... 9,214,628
Other current assets ............................... 282,148
------------
Total current assets ............................. 12,700,010
PROPERTY AND EQUIPMENT, NET (Notes 3 and 4) ......... 7,829,463
GOODWILL ............................................ 1,736,154
------------
TOTAL ASSETS ........................................ $ 22,265,627
============
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Notes payable -- floor plan (Note 2) ............... $ 8,321,386
Notes payable -- stockholder (Note 4) .............. 500,000
Trade accounts payable ............................. 789,425
Other accrued liabilities .......................... 465,618
Current maturities of long-term debt ............... 1,089,830
------------
Total current liabilities ........................ 11,166,259
------------
LONG-TERM DEBT (Note 4) ............................. 6,116,808
------------
CONTINGENCIES (Note 7)
COMBINED EQUITY (Note 5):
Common stock of combined companies ................. 1,202,064
Paid-in capital .................................... 1,210,334
Retained earnings .................................. 2,570,162
------------
Total stockholders' equity ....................... 4,982,560
------------
TOTAL LIABILITIES AND EQUITY ........................ $ 22,265,627
============
</TABLE>
See notes to combined financial statements.
F-27
<PAGE>
CLEARWATER DEALERSHIPS AND AFFILIATED COMPANIES
COMBINED STATEMENT OF INCOME AND RETAINED EARNINGS
Year ended December 31, 1997
<TABLE>
<S> <C>
REVENUES:
Vehicle sales .................................................... $ 108,811,979
Parts, service and collision repair .............................. 10,499,641
Finance and insurance (Note 1) ................................... 2,587,028
-------------
Total revenues ................................................. 121,898,648
COST OF SALES (Note 1) ............................................ 107,095,964
-------------
GROSS PROFIT ...................................................... 14,802,684
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ...................... 11,617,589
DEPRECIATION AND AMORTIZATION ..................................... 389,831
-------------
OPERATING INCOME .................................................. 2,795,264
-------------
OTHER INCOME AND EXPENSE:
Interest expense -- floor plan, net (Note 2) ..................... 77,253
Interest expense -- other financing arrangements ................. 721,259
Other income ..................................................... (193,799)
-------------
Total other expense ............................................ 604,713
-------------
NET INCOME ........................................................ 2,190,551
RETAINED EARNINGS, DECEMBER 31, 1996 .............................. 1,271,737
DISTRIBUTIONS ..................................................... (892,126)
-------------
RETAINED EARNINGS, DECEMBER 31, 1997 .............................. $ 2,570,162
=============
Pro Forma Provision for Income Taxes (Note 1) (unaudited) ......... $ 876,000
=============
Pro Forma Net Income (Note 1) (unaudited) ......................... $ 1,314,551
=============
</TABLE>
See notes to combined financial statements.
F-28
<PAGE>
CLEARWATER DEALERSHIPS AND AFFILIATED COMPANIES
COMBINED STATEMENT OF CASH FLOWS
Year ended December 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ........................................................................ $ 2,190,551
------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization ................................................... 389,831
Changes in assets and liabilities that related to operations:
Decrease in receivables ........................................................ 14,836
Decrease in inventories ........................................................ 115,045
Increase in other current assets ............................................... (152,703)
Decrease in other noncurrent assets ............................................ 11,280
Increase in notes payable -- floor plan ........................................ 432,528
Decrease in accounts payable and other accrued liabilities ..................... (1,058,983)
------------
Total adjustments ............................................................. (248,166)
------------
Net cash provided by operating activities ....................................... 1,942,385
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ............................................... (497,762)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stockholder distributions ......................................................... (892,126)
Payments of long-term debt ........................................................ (756,409)
------------
Net cash used in financing activities ........................................... (1,648,535)
------------
NET DECREASE IN CASH ............................................................... (203,912)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ..................................... 2,269,349
------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ........................................... $ 2,065,437
============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest .......................................... $ 1,608,448
============
</TABLE>
See notes to combined financial statements.
F-29
<PAGE>
CLEARWATER DEALERSHIPS AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
Year ended December 31, 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- Clearwater Dealerships and Affiliated
Companies (the "Company") operates two automobile dealerships and a body shop
in Tampa, Florida. The Company sells new and used cars and light trucks, sells
replacement parts, provides vehicle maintenance, warranty, paint and repair
services and arranges financing and insurance. The Company's two dealership
locations sell new vehicles manufactured by Mitsubishi and Toyota.
The accompanying combined financial statements include the accounts of the
following entities:
Clearwater Auto Resources, Inc. (Clearwater Toyota)
M&S Auto Resources, Inc. (Clearwater Mitsubishi)
Clearwater Collision Center, Inc.
The accompanying combined financial statements reflect the financial
position, results of operations, and cash flows of each of the above listed
companies. The combination of these entities has been accounted for at
historical cost in a manner similar to a pooling-of-interest because the
entities are under common management and control. All material intercompany
transactions have been eliminated.
Revenue Recognition -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed.
The Company arranges financing for customers through various financial
institutions and receives a commission from the lender equal to the difference
between the interest rates charged to customers over the predetermined interest
rates set by the financing institution. The Company also receives commissions
from the sale of credit life, accident, health and disability insurance and
extended service contracts to customers. The Company may be assessed a
chargeback fee in the event of early cancellation of a loan, insurance
contract, or service contract by the customer. Finance and insurance commission
revenue is recorded net of estimated chargebacks at the time the related
contract is placed with the financial institution.
Commissions expense related to finance and insurance commission revenue is
charged to cost of sales upon recognition of such revenue, net of estimated
chargebacks. Estimated commission expense charged to cost of sales was
approximately $608,362 for the year ended December 31, 1997.
Dealer Agreements -- The Company purchases substantially all of its new
vehicles from manufacturers at the prevailing prices charged by the
manufacturer to its franchised dealers. The Company's sales could be
unfavorably impacted by the manufacturer's unwillingness or inability to supply
the dealership with an adequate supply of new vehicle inventory.
Each dealership operates under a dealer agreement with the manufacturer.
The ability of the Company to acquire additional franchises from a particular
manufacturer may be limited due to certain restrictions imposed by
manufacturers. Additionally, the Company's ability to enter into significant
acquisitions may be restricted and the acquisition of the Company's stock by
third parties may be limited by the terms of the franchise agreement.
Cash and Cash Equivalents -- The Company considers contracts in transit
and all highly liquid debt instruments with an initial maturity of three months
or less to be cash equivalents. Contracts in transit represent cash in transit
to the Company from finance companies related to a vehicle purchase and was
$1,728,343 at December 31, 1997.
Inventories -- Inventories of new and used vehicles, including
demonstrators and parts and accessories, are valued at the lower of specific
cost or market.
F-30
<PAGE>
CLEARWATER DEALERSHIPS AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using straight-line methods over the estimated useful
lives of the assets. The range of estimated useful lives is as follows:
<TABLE>
<CAPTION>
Useful Lives
-------------
<S> <C>
Buildings and improvements .................. 31.5 - 39
Office equipment and fixtures ............... 3 - 7
Parts, service equipment and vehicles ....... 5 - 7
Company vehicles ............................ 5 - 7
Computer equipment .......................... 5 - 7
</TABLE>
Expenditures for maintenance and repairs are expensed as incurred.
Significant betterments are capitalized.
Goodwill -- Goodwill represents the excess purchase price over the
estimated fair value of the net assets acquired and is being amortized over a
15 year period. The Company periodically reviews goodwill to assess
recoverability. The Company's policy is to compare the carrying value of
goodwill with the expected undiscounted cash flows from operations of the
acquired business.
Income Taxes -- All entities included in the accompanying combined
financial statements are S Corporations. As such, these entities do not pay
federal or state corporate income taxes on their taxable income. The
stockholders are liable for individual income taxes on their respective shares
of the Company's taxable income.
The pro forma provision for income taxes and the pro forma net income for
the year ended December 31, 1997 reflect the amounts that would have been
recorded had the Company been taxed for federal and state purposes as if it was
a C Corporation.
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash deposits. At times, amounts invested with financial institutions may
exceed FDIC insurance limits.
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the
large number of customers comprising the trade receivables balances. Trade
receivables are concentrated in the Company's market area of Tampa Bay,
Florida.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments -- As of December 31, 1997 the fair
value of the Company's financial instruments including receivables, notes
payable-floor plan, trade accounts payable, notes payable stockholder and
long-term debt approximate their book values.
Advertising -- The Company expenses advertising costs in the period
incurred. Advertising expense for 1997 amounted to $2,085,797.
2. INVENTORIES AND RELATED NOTES PAYABLE-FLOOR PLAN
Inventories at December 31, 1997 consist of the following:
<TABLE>
<S> <C>
New vehicles .................. $ 6,661,309
Used vehicles ................. 1,901,207
Parts and accessories ......... 652,112
-----------
Total ......................... $ 9,214,628
===========
</TABLE>
F-31
<PAGE>
CLEARWATER DEALERSHIPS AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
2. INVENTORIES AND RELATED NOTES PAYABLE-FLOOR PLAN -- Continued
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $8,321,386 at December
31, 1997. The floor plan notes bear interest (8.5% at December 31, 1997) that
fluctuates with prime and are payable monthly on the outstanding balance. Total
floor plan interest expense amounted to $779,671 in 1997, which is offset by
$702,418 of floor plan assistance provided by the manufacturer. The notes
payable are due when the related vehicle is sold. As such, these floor plan
notes payable are shown as a current liability in the accompanying combined
balance sheet.
3. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 is comprised of the following:
<TABLE>
<S> <C>
Land .................................. $ 1,800,024
Buildings and improvements ............ 5,934,205
Office equipment and fixtures ......... 365,050
Parts and service equipment ........... 360,514
Leasehold improvements ................ 84,206
Company vehicles ...................... 36,304
Computer equipment .................... 9,753
-----------
8,590,056
Less accumulated depreciation ......... (760,593)
-----------
Property and equipment, net ........... $ 7,829,463
===========
</TABLE>
4. FINANCING ARRANGEMENTS
The Company has an unsecured demand note payable outstanding from a
stockholder in the amount of $500,000 at December 31, 1997. Interest on this
demand note is charged at 10%.
Long-term debt at December 31, 1997 consists of the following:
<TABLE>
<S> <C>
Mortgage note payable, due in monthly principal and interest installments of $33,839,
interest payable at
prime plus 1.0% (8.5% at December 31, 1997), with the unpaid principal balance due May $ 5,339,809
31, 2001
Mortgage note payable in monthly principal and interest installments of $6,090, interest
payable at
9.0%, with the unpaid prinicipal balance due February 28, 1999 .......................... 550,203
Notes payable in monthly principal and interest installments of $16,667, interest payable
at prime plus
0.5%, matures January 1, 2002 ........................................................... 800,000
Installment note payable in monthly principal and interest installments of $16,667,
interest payable at
prime plus 1.5%, with the unpaid principal balance due February 1, 2001 ................. 516,626
-----------
7,206,638
Less current maturities .................................................................. 1,089,830
-----------
Long-term debt ........................................................................... $ 6,116,808
===========
</TABLE>
Future maturities of long-term debt at December 31, 1997 are as follows:
<TABLE>
<S> <C>
Year Ending December 31:
1998 ........................ $ 1,089,830
1999 ........................ 1,131,896
2000 ........................ 606,068
2001 ........................ 4,362,177
2002 ........................ 16,667
-----------
Total ....................... $ 7,206,638
===========
</TABLE>
F-32
<PAGE>
CLEARWATER DEALERSHIPS AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
5. COMBINED EQUITY
The capital structure of the entities included in the combined financial
statements of the Company at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------
Shares Additional
Shares Issued and Paid-in Retained
Authorized Outstanding Amount Capital Earnings
------------ ------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Clearwater Auto Resources ....... 5,000 5,000 $ 200,000 $ -- $ 1,163,380
M & S Auto Resources ............ 1,000 1,000 1,000,000 1,210,334 1,197,699
Clearwater Collision Center ..... -- -- 2,064 -- 209,083
----------- ----------- -----------
Total ........................... $ 1,202,064 $ 1,210,334 $ 2,570,162
=========== =========== ===========
</TABLE>
6. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan, whereby substantially all of the employees
of the Company meeting certain service requirements are eligible to
participate. Contributions in 1997 by the Company were not significant.
7. CONTINGENCIES
The Company is involved in various legal proceedings. Management believes
that the outcome of such proceedings will not have a materially adverse effect
on the Company's financial position or future results of operations and cash
flows.
8. SUBSEQUENT EVENT (UNAUDITED)
The Company entered into an agreement with Sonic Automotive, Inc.
("Sonic") whereby Sonic purchased the net assets of the Company for a total
purchase price of approximately $14.9 million subject to adjustment based on
the net book value of the purchased assets and assumed liabilities as of the
closing date. This purchase price is comprised of $11.5 million of cash,
approximately $4 million in convertible preferred stock (3,960 shares) of Sonic
and a maximum of $1.8 million in additional cash pursuant to an earnings based
earnout provision included in the definitive purchase agreement. The purchase
price attributable to the convertible preferred stock will range from a low of
the $4 million shown above, to $4.4 million depending upon the market value of
the underlying common stock at date of conversion.
F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS OF
HATFIELD AUTOMOTIVE GROUP
Columbus, Ohio
We have audited the accompanying combined balance sheets of Hatfield
Automotive Group (the "Company"), which are under common ownership and
management, as of December 31, 1996 and 1997, and the related combined
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of the Company as of December 31,
1996 and 1997, and the combined results of its operations and its combined cash
flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
May 22, 1998
F-34
<PAGE>
HATFIELD AUTOMOTIVE GROUP
COMBINED BALANCE SHEETS
December 31, 1996 and 1997 and June 30, 1998
<TABLE>
<CAPTION>
December 31,
--------------------------------- June 30,
1996 1997 1998
--------------- --------------- --------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 11,630,711 $ 12,238,729 $14,200,066
Accounts receivable (no allowance necessary) ......... 3,014,936 3,391,406 3,294,135
Inventories (Note 3) ................................. 30,855,389 34,563,796 33,733,029
Other current assets (Note 6) ........................ 5,526,214 6,592,010 480,409
------------ ------------ -----------
Total current assets ............................... 51,027,250 56,785,941 51,707,639
PROPERTY AND EQUIPMENT, NET (Note 4) .................. 817,960 1,064,104 952,309
GOODWILL, NET (Notes 1 and 2) ......................... -- 983,333 970,833
------------ ------------ -----------
TOTAL ASSETS .......................................... $ 51,845,210 $ 58,833,378 $53,630,781
============ ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- floor plan (Note 3) ................. $ 28,941,767 $ 33,705,904 $35,343,179
Trade accounts payable ............................... 3,182,685 2,035,848 1,374,248
Other accrued liabilities ............................ 1,543,879 1,461,131 1,351,151
Payable to stockholder's -- current (Note 6) ......... 5,986,706 7,162,864 608,939
------------ ------------ -----------
Total current liabilities .......................... 39,655,037 44,365,747 38,677,517
------------ ------------ -----------
PAYABLE TO STOCKHOLDERS -- NON-CURRENT
(Note 6) ............................................. 6,815,121 8,176,482 8,325,052
COMMITMENTS AND CONTINGENCIES (Notes 6 and 8)
STOCKHOLDERS' EQUITY (Note 5):
Common stock of combined companies ................... 2,825,000 2,825,000 2,825,000
Paid-in capital ...................................... 804,000 1,744,000 1,744,000
Retained earnings .................................... 1,746,052 1,722,149 2,059,212
------------ ------------ -----------
Total stockholders' equity ......................... 5,375,052 6,291,149 6,628,212
------------ ------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............ $ 51,845,210 $ 58,833,378 $53,630,781
============ ============ ===========
</TABLE>
See notes to combined financial statements.
F-35
<PAGE>
HATFIELD AUTOMOTIVE GROUP
COMBINED STATEMENTS OF INCOME
For the years ended December 31, 1995, 1996 and 1997
and the six months ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
Six months ended
Year ended December 31, June 30,
----------------------------------------------- -------------------------------
1995 1996 1997 1997 1998
--------------- --------------- --------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Vehicle sales ........................... $164,216,610 $213,251,842 $251,980,884 $126,422,557 $133,660,846
Parts, service and collision repair ..... 11,905,030 13,971,959 16,399,819 7,601,130 8,774,251
Finance and insurance
(Notes 1 and 6) ....................... 4,748,018 6,113,302 6,898,899 3,415,232 4,190,125
------------ ------------ ------------ ------------ ------------
Total revenues ........................ 180,869,658 233,337,103 275,279,602 137,438,919 146,625,222
COST OF SALES (Note 1) ................... 160,396,271 206,201,099 244,329,244 122,650,266 130,220,430
------------ ------------ ------------ ------------ ------------
GROSS PROFIT ............................. 20,473,387 27,136,004 30,950,358 14,788,653 16,404,792
SELLING, GENERAL AND ADMINIS-
TRATIVE (Note 6) ........................ 13,694,632 16,250,976 20,193,275 9,855,048 11,308,119
MANAGEMENT BONUS (Note 6) ................ 3,809,573 6,339,005 7,120,875 3,735,000 3,181,319
DEPRECIATION AND
AMORTIZATION ............................ 38,836 107,461 221,463 106,565 158,210
------------ ------------ ------------ ------------ ------------
OPERATING INCOME ......................... 2,930,346 4,438,562 3,414,745 1,092,040 1,757,144
OTHER INCOME AND EXPENSE:
Interest expense -- floor plan .......... 2,926,256 3,036,515 3,662,711 1,439,607 1,245,500
Interest income ......................... (102,265) (155,804) (225,802) (57,897) (130,399)
Other (income) expense .................. 37,313 196,030 1,739 (55,134) (114,878)
------------ ------------ ------------ ------------ ------------
Total other expense ................... 2,861,304 3,076,741 3,438,648 1,326,576 1,000,223
------------ ------------ ------------ ------------ ------------
NET INCOME (LOSS) ........................ $ 69,042 $ 1,361,821 $ (23,903) $ (234,536) $ 756,921
============ ============ ============ ============ ============
Pro Forma Provision (Benefit) for
Income Taxes (Note 1) (unaudited)........ $ 27,000 $ 531,000 $ (9,000) $ (95,667) $ 308,748
============ ============ ============ ============ ============
Pro Forma Net Income (Loss) (Note 1)
(unaudited) ............................. $ 42,042 $ 830,821 $ (14,903) $ (330,203) $ 448,173
============ ============ ============ ============ ============
</TABLE>
See notes to combined financial statements.
F-36
<PAGE>
HATFIELD AUTOMOTIVE GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 5)
For the years ended December 31, 1995, 1996 and 1997
and the six months ended June 30, 1998
<TABLE>
<CAPTION>
Common Total
Stock of Combined Retained Stockholders'
Companies Paid-in Capital Earnings Equity
------------------- ----------------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 ............ $1,525,000 $ 354,000 $ 1,402,130 $ 3,281,130
Issuance of common stock ............... 700,000 -- -- 700,000
Dividends declared ..................... -- -- (1,086,941) (1,086,941)
Net income ............................. -- -- 69,042 69,042
---------- ----------- ------------ ------------
BALANCE DECEMBER 31, 1995 ............... 2,225,000 354,000 384,231 2,963,231
Issuance of common stock ............... 600,000 -- -- 600,000
Capital contribution ................... -- 450,000 -- 450,000
Net income ............................. -- -- 1,361,821 1,361,821
---------- ----------- ------------ ------------
BALANCE DECEMBER 31, 1996 ............... 2,825,000 804,000 1,746,052 5,375,052
Capital contribution ................... -- 940,000 -- 940,000
Net loss ............................... -- -- (23,903) (23,903)
---------- ----------- ------------ ------------
BALANCE AT DECEMBER 31, 1997 ............ 2,825,000 1,744,000 1,722,149 6,291,149
Net income (unaudited) ................. -- -- 756,921 756,921
---------- ----------- ------------ ------------
Dividends declared (unaudited) ......... -- -- 419,858 419,858
BALANCE AT JUNE 30, 1998 (unaudited) $2,825,000 $ 1,744,000 $ 2,059,212 $ 6,628,212
========== =========== ============ ============
</TABLE>
See notes to combined financial statements.
F-37
<PAGE>
HATFIELD AUTOMOTIVE GROUP
COMBINED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1995, 1996 and 1997
and the six months ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
----------------------------------------------- ------------------------------
1995 1996 1997 1997 1998
--------------- --------------- --------------- -------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) ............................. $ 69,042 $ 1,361,821 $ (23,903) $ (234,536) $ 756,921
------------ ------------ ------------ ------------ ------------
Adjustments to reconcile net income (loss)
to net cash (used in) provided by
operating activities:
Depreciation and amortization ............... 38,836 107,461 221,463 106,565 158,210
Changes in assets and liabilities that
related to operations:
(Increase) decrease in receivables ......... (135,483) (1,503,996) (376,470) 55,647 97,271
Decrease (increase) in inventories ......... 130,645 (8,769,439) (3,624,241) 200,487 830,767
Decrease (increase) in other current
assets .................................... (3,000,000) (2,525,214) (1,065,796) (1,497,867) 6,111,601
Increase in notes payable -- floor plan 264,242 7,356,921 4,764,137 3,540,914 1,637,275
Increase (decrease) in accounts payable
and other accrued liabilities ............. 1,041,176 1,106,795 (1,229,584) (113,253) (771,580)
------------ ------------ ------------ ------------ ------------
Total adjustments ......................... (1,660,584) (4,227,472) (1,310,491) 2,292,493 8,063,544
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
operating activities .................... (1,591,542) (2,865,651) (1,334,394) 2,057,957 8,820,465
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property and equipment ........... (138,936) (702,124) (423,048) -- (33,914)
Proceeds from sale of assets .................. -- -- -- 27,892 --
Purchase of business .......................... -- -- (1,112,058) (1,112,058) --
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (138,936) (702,124) (1,535,106) (1,084,166) (33,914)
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net increase (decrease) in amounts payable
to stockholders ............................. 2,306,507 5,144,349 3,037,518 2,190,503 (6,405,354)
Capital contribution .......................... -- -- 440,000 440,000
Distributions ................................. -- -- -- -- (419,859)
------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities .................... 2,306,507 5,144,349 3,477,518 2,630,503 (6,825,213)
------------ ------------ ------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS .......................... 576,029 1,576,574 608,018 3,604,294 1,961,337
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ........................... 9,478,108 10,054,137 11,630,711 11,630,711 12,238,729
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END
OF PERIOD ..................................... $ 10,054,137 $ 11,630,711 $ 12,238,729 $ 15,235,005 $ 14,200,066
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Cash paid during the period for interest ...... $ 1,746,200 $ 1,053,437 $ 1,263,618 $ 669,404 $ 470,878
============ ============ ============ ============ ============
NON-CASH FINANCING ACTIVITIES:
Dividends declared but not paid ............... $ 1,086,941 -- -- -- --
Issuance of common stock in exchange for
amounts payable to stockholders ............. $ 700,000 $ 600,000 -- -- --
Contribution to paid-in capital in exchange
for amounts payable to stockholders ......... -- $ 450,000 $ 500,000 $ 500,000 --
</TABLE>
See notes to combined financial statements.
F-38
<PAGE>
HATFIELD AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- Hatfield Automotive Group (the "Company")
operates six automobile dealerships and a body shop in Columbus, Ohio. The
Company sells new and used cars and light trucks, sells replacement parts,
provides maintenance, warranty, paint and repair services and arranges related
financing and insurance. The Company's six dealerships sell new vehicles
manufactured by Toyota, Lincoln, Mercury, Jeep, Eagle, Volkswagen, Hyundai,
Subaru, Isuzu, Chrysler, Plymouth, KIA and Dodge.
The accompanying combined financial statements include the accounts of the
following entities:
Hatfield Jeep Eagle, Inc., d/b/a Volkswagen West, Jeep Eagle West, Hatfield
KIA and Trader Bud's Westside Chrysler Plymouth
Hatfield Lincoln Mercury, Inc., d/b/a Hatfield Lincoln Mercury
Westside Dodge, Inc., d/b/a Westside Dodge
Toyota West, Inc., d/b/a Toyota West
Hatfield Hyundai, Inc., d/b/a Hatfield Hyundai, Hatfield Isuzu and
Hatfield Subaru
The accompanying combined financial statements reflect the financial
position, results of operations, and cash flows of each of the above listed
companies. The combination of these entities has been accounted for at
historical cost in a manner similar to a pooling-of-interest because the
entities are under common management and control. All material intercompany
transactions have been eliminated.
Revenue Recognition -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed.
The Company arranges financing for customers through various financial
institutions and receives a commission from the lender equal to the difference
between the interest rates charged to customers over the predetermined interest
rates set by the financing institution. The Company also receives commissions
from the sale of credit life, accident, health and disability insurance and
extended service contracts to customers. The Company may be assessed a
chargeback fee in the event of early cancellation of a loan, insurance
contract, or service contract by the customer. Finance and insurance commission
revenue is recorded net of estimated chargebacks at the time the related
contract is placed with the financial institution.
Commissions expense related to finance and insurance commission revenue is
charged to cost of sales upon recognition of such revenue, net of estimated
chargebacks. Estimated commission expense charged to cost of sales was
approximately $680,378, $718,927 and $959,426 for the years ended December 31,
1995, 1996, and 1997, respectively. Estimated commission expense charged to
cost of sales was approximately $426,848 and $534,533 for the six months ended
June 30, 1997 and 1998, respectively (unaudited).
Dealer Agreements -- The Company purchases substantially all of its new
vehicles from manufacturers at the prevailing prices charged by the
manufacturer to its franchised dealers. The Company's sales could be
unfavorably impacted by the manufacturer's unwillingness or inability to supply
the dealership with an adequate supply of new vehicle inventory.
Each dealership operates under a dealer agreement with the manufacturer.
The Company's dealer agreement does not give it the exclusive right to sell the
manufacturer's product within a given geographic area. The Company could be
materially adversely affected if the manufacturer awards franchises to others
in the same market where the Company is operating. A similar adverse affect
could occur if existing competing franchised dealers increase their market
share in the Company's market. The ability of the Company to acquire additional
franchises from a particular manufacturer may be limited due to certain
restrictions imposed by manufacturers. Additionally, ownership of the Company's
stock by third parties may be limited by the terms of the franchise agreements.
Cash and Cash Equivalents -- The Company considers contracts in transit
and all highly liquid debt instruments with an initial maturity of three months
or less to be cash equivalents. Contracts in transit represent cash in transit
to the Company from finance companies related to a vehicle purchase and were
$8,171,520 and $6,270,709 at December 1996 and 1997, respectively.
F-39
<PAGE>
HATFIELD AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Inventories -- Vehicle inventories are valued at the lower of specific
cost or market. Parts and accessories are valued at the lower of first-in,
first-out ("FIFO") cost or market.
Goodwill -- Goodwill represents the excess of purchase price over the
estimated fair value of the net assets acquired and is being amortized over a
40 year period. The cumulative amount of goodwill amortized at December 31,
1997 was $16,667. The Company periodically reviews goodwill to assess
recoverability. The Company's policy is to compare the carrying value of
goodwill with the expected undiscounted cash flows from operations.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using straight-line methods over the estimated useful
lives of the assets. The range of estimated useful lives is as follows:
<TABLE>
<CAPTION>
Useful Lives
-------------
<S> <C>
Office equipment and fixtures .......... 5
Parts and service equipment ............ 5
Leasehold improvements ................. 10
Computer equipment ..................... 5
</TABLE>
Expenditures for maintenance and repairs are expensed as incurred.
Significant betterments are capitalized.
Income taxes -- All of the Company's dealerships are organized as S
Corporations for federal and state income tax purposes. As such, the Company's
taxable income is included in the stockholders' annual income tax return.
Accordingly, no provision for federal or state income taxes has been included
in the Company's statements of income.
The pro forma provision for income taxes and the pro forma net income for
the years ended December 31, 1995, 1996 and 1997, and for the six months ended
June 30, 1997 and 1998, reflect amounts that would have been recorded had the
Company's income been taxed for federal and state purposes as if it was a C
Corporation.
Concentration of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash deposits. At times, amounts invested with financial institutions may
exceed FDIC insurance limits.
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the
large number of customers comprising the trade receivables balance. Trade
receivables are concentrated in the Company's principal market area of
Columbus, Ohio.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Advertising -- The Company expenses advertising costs in the period
incurred. Advertising expenses for 1995, 1996 and 1997 amount to $2,619,348,
$3,941,810 and $4,475,943, respectively.
Interim Financial Information -- The accompanying unaudited interim
financial information for the six months ended June 30, 1997 and 1998 has been
prepared on substantially the same basis as the audited financial statements,
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information set forth
therein. The results for interim periods are not necessarily indicative of the
results to be expected for the entire year.
2. BUSINESS ACQUISITION
On May 1, 1997, the Company acquired Trader Bud's Westside Chrysler
Plymouth for a total purchase price of $1,112,058. The acquisition has been
accounted for using purchase accounting and the results of operations of this
dealership have been included in the accompanying combined financial statements
from the date of acquisition. The total purchase price has been
F-40
<PAGE>
HATFIELD AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
2. BUSINESS ACQUISITION -- Continued
allocated to the assets and liabilities acquired at their estimated fair market
value at acquisition date as follows:
<TABLE>
<S> <C>
Inventory ...................... $ 84,166
Property and equipment ......... 27,892
Goodwill ....................... 1,000,000
----------
$1,112,058
==========
</TABLE>
The following unaudited pro forma financial information is presented as if
Trader Bud's Westside Chrysler Plymouth were acquired on January 1, 1996 and
January 1, 1997, respectively.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1996 1997
--------------- ---------------
<S> <C> <C>
Revenues .................. $259,336,000 $281,718,000
Gross profit .............. 30,612,000 32,684,000
Net income (loss) ......... 1,257,000 (67,000)
</TABLE>
The pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the operating results that would have
occurred had Trader Bud's Westside Chrysler Plymouth been acquired on January
1, 1996 and 1997, respectively. These results are also not necessarily
indicative of the results of future operations.
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
----------------------------- 1998
1996 1997 (Unaudited)
-------------- -------------- --------------
<S> <C> <C> <C>
New vehicles .................. $24,597,294 $ 29,227,278 $29,088,954
Used vehicles ................. 5,263,444 4,181,804 3,272,038
Parts and accessories ......... 966,895 1,125,050 1,333,942
Other ......................... 27,756 29,664 38,095
----------- ------------ -----------
Total ......................... $30,855,389 $ 34,563,796 $33,733,029
=========== ============ ===========
</TABLE>
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $28,941,767 and
$33,705,904 at December 31, 1996 and 1997, respectively. The floor plan notes
bear interest that fluctuates with prime. Interest is payable monthly on the
outstanding balance, ranging from 7.94% to 9.25% and 8.00% to 9.50% at December
31, 1996 and 1997, respectively. The notes payable are due when the related
vehicles are sold. As such, these floor plan notes payable are shown as a
current liability in the accompanying combined balance sheets.
F-41
<PAGE>
HATFIELD AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31, June 30,
------------------------------- 1998
1996 1997 (Unaudited)
--------------- --------------- ---------------
<S> <C> <C> <C>
Parts and service equipment ........... $ 1,173,892 $ 1,404,291 $ 1,412,254
Office equipment and fixtures ......... 424,894 504,973 530,926
Leasehold improvements ................ 303,407 422,616 360,104
Computer equipment .................... 35,999 57,252 57,252
------------ ------------ ------------
1,938,192 2,389,132 2,360,536
Less accumulated depreciation ......... (1,120,232) (1,325,028) (1,408,227)
------------ ------------ ------------
Property and equipment, net ........... $ 817,960 $ 1,064,104 $ 952,309
============ ============ ============
</TABLE>
5. COMBINED EQUITY
The capital structure of the entities included in the combined financial
statements of the Company at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------------------
Shares
Par Shares Issued and Paid-In
Value Authorized Outstanding Amount Capital
------------- ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Hatfield Jeep Eagle, Inc. .............. No Par 5,000 100 $ 225,000 $354,000
Hatfield Lincoln Mercury, Inc. ......... $ 100 10,000 6,000 600,000 450,000
Westside Dodge, Inc. Voting ............ No par 5,000 4,000 800,000 --
Non-voting ............................. No par 5,000 1,000 200,000 --
Toyota West, Inc. Voting .............. No par 250 250 250,000 --
Non-voting ............................. No par 250 250 250,000 --
Hatfield Hyundai, Inc. ................. No par 750 750 500,000 --
---------- --------
Total .................................. $2,825,000 $804,000
========== ========
</TABLE>
The capital structure of the entities included in the combined financial
statements of the Company at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------------------
Shares
Par Shares Issued and Paid-In
Value Authorized Outstanding Amount Capital
------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Hatfield Jeep Eagle, Inc. .............. No Par 5,000 100 $ 225,000 $1,294,000
Hatfield Lincoln Mercury, Inc. ......... $ 100 10,000 6,000 600,000 450,000
Westside Dodge, Inc. Voting ............ No par 5,000 4,000 800,000 --
Non-voting ............................. No par 5,000 1,000 200,000 --
Toyota West, Inc. Voting ............... No par 250 250 250,000 --
Non-voting ............................. No par 250 250 250,000 --
Hatfield Hyundai, Inc. ................. No par 750 750 500,000 --
---------- ----------
Total .................................. $2,825,000 $1,744,000
========== ==========
</TABLE>
6. RELATED PARTIES
The management bonuses were paid to Company stockholders and certain
management companies owned by a Company stockholder. Unpaid bonuses and
dividends are included in the amounts payable to stockholders -- non-current.
F-42
<PAGE>
HATFIELD AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
6. RELATED PARTIES -- Continued
Included in finance and insurance revenues are $433,599, $489,005 and
$480,875 for 1995, 1996 and 1997, respectively, in commissions generated from
selling credit life policies to customers which have been distributed to a
company owned by a stockholder.
Other current assets at December 31, 1996 and 1997 include $5,525,214 and
$6,653,925, respectively, of cash owned by stockholders on deposit in the
Company's cash management account. A liability for this amount is included in
amounts payable to stockholders -- current.
The Company leases all of its operating facilities directly from a Company
stockholder or from a corporation which is owned by that stockholder. Rent
expense under these leases was $1,680,000 in 1995 and 1996 and $2,360,000 in
1997. The Company also paid $166,756, $190,500 and $216,332 to these related
parties for property taxes for the years ended December 31, 1995, 1996 and
1997, respectively. Total rent expense was $1,746,050 in 1995, $1,724,660 in
1996, and $2,469,859 in 1997.
Other leases consist primarily of leases for office and computer
equipment. Future minimum rental payments required under noncancelable
operating leases at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Related Party Other Total
--------------- ----------- -------------
<S> <C> <C> <C>
Year ending December 31:
1998 ................... $2,460,000 $189,835 $2,649,835
1999 ................... 2,460,000 128,435 2,588,435
2000 ................... 2,335,000 109,618 2,444,618
2001 ................... 300,000 29,080 329,080
2002 ................... -- 15,798 15,798
---------- -------- ----------
Total .................. $7,555,000 $472,766 $8,027,766
========== ======== ==========
</TABLE>
7. EMPLOYEE BENEFIT PLAN
The Company has a contributory 401(k) plan covering substantially all
employees. Company contributions to the plan are equal to 25% of the first 6%
of participant contributions. Company contributions amounted to $47,528,
$63,015 and $76,922 in 1995, 1996, and 1997, respectively.
8. CONTINGENCIES
The Company is involved in various legal proceedings incurred in the
normal course of business. Management believes that the outcome of such
proceedings will not have a materially adverse effect on the Company's
financial position or future results of operations and cash flows.
9. SUBSEQUENT EVENT (UNAUDITED)
In February 1998, the Company signed an asset purchase agreement with
Sonic Automotive, Inc. ("Sonic") whereby Sonic would purchase substantially all
of the Company's assets for a total price of approximately $48.6 million plus
the assumption of certain liabilities of the Company. This acquisition was
consummated in July 1998. The total purchase price is subject to adjustment
based on a final determination of the value of the net current assets of the
Company. Of the total purchase price Sonic paid approximately $34.6 million in
cash and the balance was paid by the issuance of preferred stock with a
liquidation preference of approximately $14.0 million as of the closing date of
the acquisition. The acquisition of the assets of Toyota West, Inc. was closed
in escrow pending the approval of Toyota for the acquisition of this
dealership.
F-43
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
ECONOMY CARS, INC.
CHATTANOOGA, TENNESSEE
We have audited the accompanying balance sheet of Economy Cars, Inc.,
d/b/a Economy Honda Cars (the "Company"), as of December 31, 1997, and the
related statements of income, stockholders' equity, and cash flows for the year
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997, and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
May 11, 1998
F-44
<PAGE>
ECONOMY HONDA CARS
BALANCE SHEETS
December 31, 1997 and June 30, 1998
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------- ----------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 3,834,184 $ 7,266,329
Accounts receivable (net of allowance for doubtful accounts of $13,505
at December 31, 1997) .............................................. 842,907 496,292
Note receivable (Note 2) ............................................. 238,960 0
Inventories (Note 3) ................................................. 6,541,972 4,022,603
Other current assets ................................................. 4,477 57,898
----------- ------------
Total current assets ............................................... 11,462,500 11,843,121
PROPERTY AND EQUIPMENT, NET (Note 4) .................................. 1,791,974 1,730,670
----------- ------------
TOTAL ASSETS .......................................................... $13,254,474 $ 13,573,791
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable ............................................... $ 148,073 $ 205,299
Income taxes payable (Note 6) ........................................ 251,237 0
Deferred income taxes (Note 6) ....................................... 173,511 173,511
Other taxes payable .................................................. 215,619 208,058
Accrued payroll and bonuses .......................................... 105,174 450,245
Liability for finance chargebacks .................................... 95,550 68,764
Other accrued liabilities ............................................ 6,879 1,338
----------- ------------
Total current liabilities .......................................... 996,043 1,107.215
----------- -------------
DEFERRED INCOME TAXES (Note 6) ........................................ 78,449 78,449
----------- -------------
STOCKHOLDERS' EQUITY:
Common stock (no par, 2,000 shares authorized, 500 shares issued and
450 shares outstanding) ............................................ 50,000 50,000
Retained earnings .................................................... 12,329,982 12,538,121
Treasury stock (50 shares) ........................................... (200,000) (200,000)
----------- -------------
Total stockholders' equity ......................................... 12,179,982 12,388,128
----------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............................ $13,254,474 $ 13,573,792
=========== =============
</TABLE>
See notes to financial statements.
F-45
<PAGE>
ECONOMY HONDA CARS
STATEMENTS OF INCOME
Year ended December 31, 1997 and the six months ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
Six months
Year ended ended June 30,
December 31, ------------------------------
1997 1997 1998
--------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Vehicle sales ................................... $41,032,638 $21,020,878 $19,459,700
Parts, service and collision repair ............. 5,855,509 2,970,118 2,756,494
Finance and insurance (Note 1) .................. 1,383,106 801,745 472,438
----------- ----------- -----------
Total revenues ................................ 48,271,253 24,792,741 22,688,632
COST OF SALES (Note 1) ........................... 41,542,860 21,145,724 19,820,152
----------- ----------- -----------
GROSS PROFIT ..................................... 6,728,393 3,647,017 2,868,480
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ..... 5,142,472 2,611,619 2,584,792
DEPRECIATION ..................................... 130,996 64,518 70,857
----------- ----------- -----------
OPERATING INCOME ................................. 1,454,925 970,880 212,831
----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense -- floor plan (Note 3) ......... (2,791) (679) (3,102)
Interest income ................................. 75,852 13,886 88,584
Other income .................................... 119,261 39,750 37,190
----------- ----------- -----------
Total other income ............................ 192,322 52,957 122,672
----------- ----------- -----------
INCOME BEFORE INCOME TAXES ....................... 1,647,247 1,023,837 335,503
PROVISION FOR INCOME TAXES (Note 6) .............. 626,062 388,649 127,357
----------- ----------- -----------
NET INCOME ....................................... $ 1,021,185 $ 635,188 $ 208,146
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-46
<PAGE>
ECONOMY HONDA CARS
STATEMENTS OF STOCKHOLDERS' EQUITY
Year Ended December 31, 1997 and the six months ended June 30, 1998
<TABLE>
<CAPTION>
Total
Common Retained Treasury Stockholders'
Stock Earnings Stock Equity
---------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 ................. $50,000 $11,308,797 $ (200,000) $11,158,797
Net income .................................. -- 1,021,185 -- 1,021,185
------- ----------- ---------- -----------
BALANCE AT DECEMBER 31, 1997 ................. 50,000 12,329,982 (200,000) 12,179,982
Net income (unaudited) ...................... -- 208,146 -- 208,146
------- ----------- ---------- -----------
BALANCE AT JUNE 30, 1998 (unaudited) ......... $50,000 $12,538,128 $ (200,000) $12,388,128
======= =========== ========== ===========
</TABLE>
See notes to financial statements.
F-47
<PAGE>
ECONOMY HONDA CARS
STATEMENTS OF CASH FLOWS
Year ended December 31, 1997 and the six months ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
Six months ended
Year ended June 30,
December 31, ----------------------------
1997 1997 1998
------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................................. $1,021,185 $ 635,188 $ 208,146
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation .......................................................... 130,996 64,518 70,857
Loss on disposal of fixed assets ...................................... 2,258 -- --
Deferred income taxes ................................................. (39,266) 0 0
Changes in assets and liabilities that related to operations:
(Increase) decrease in accounts receivables .......................... (432,900) (109,163) 346,615
Decrease in inventories .............................................. 789,447 (179,870) 2,519,369
Decrease in prepaids and other current assets ........................ 330,940 304,268 (53,421)
Increase in trade accounts payable and accrued liabilities ........... 142,753 547,579 111,173
---------- ---------- ----------
Total adjustments ................................................... 924,228 627,332 2,994,593
---------- ---------- ----------
Net cash provided by operating activities ........................... 1,945,413 1,262,520 3,202,739
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ..................................... (196,016) (170,252) (9,554)
Proceeds from sale of assets ............................................ 4,685 -- --
Principal collected on notes receivable ................................. 47,358 24,739 238,960
---------- ---------- ----------
Net cash provided by (used in) investing activities ................. (143,973) (145,513) 229,406
---------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ................................ 1,801,440 1,117,007 3,432,145
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ........................... 2,032,744 2,032,744 3,834,184
---------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................. $3,834,184 $3,149,751 $7,266,329
========== ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-- Cash paid during the period for:
Interest ................................................................ $ 89,984 $ 63,880 $ 8,756
Income taxes ............................................................ $ 258,869 $ 98,914 $ 434,614
</TABLE>
See notes to financial statements.
F-48
<PAGE>
ECONOMY HONDA CARS
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- Economy Honda Cars (the "Company") operates
an automotive dealership, service department, body shop and parts and
accessories department in Chattanooga, Tennessee. The Company sells new and
used cars and light trucks, sells replacement parts and accessories, provides
vehicle maintenance, warranty, paint and repair services and arranges related
financing and insurance. The Company sells new vehicles manufactured by Honda.
Revenue Recognition -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed.
The Company arranges financing for customers through various financial
institutions and receives a commission from the lender equal to the difference
between the interest rates charged to customers over the predetermined interest
rates set by the financing institution. The Company also receives commissions
from the sale of credit life, accident, health and disability insurance and
extended service contracts to customers. The Company may be assessed a
chargeback fee in the event of early cancellation of a loan, insurance
contract, or service contract by the customer. Finance and insurance commission
revenue is recorded net of estimated chargebacks at the time the related
contract is placed with the financial institution.
Commissions expense related to finance and insurance commission revenue is
charged to cost of sales upon recognition of such revenue, net of estimated
chargebacks. Estimated commission expense charged to cost of sales was
approximately $251,233 for the year ended December 31, 1997. Estimated
commission expense charged to cost of sales was approximately $144,827 and
$89,333 for the six months ended June 30, 1997 and 1998, respectively
(unaudited).
Dealer Agreements -- The Company purchases substantially all of its new
vehicles from the manufacturer at the prevailing prices charged by the
manufacturer to its franchised dealers. The Company's sales could be
unfavorably impacted by the manufacturer's unwillingness or inability to supply
the dealership with an adequate supply of new vehicle inventory.
The Company operates under a dealer agreement with the manufacturer. The
Company's dealer agreement does not give it the exclusive right to sell the
manufacturer's product within a given geographic area. The Company could be
materially adversely affected if the manufacturer awards franchises to others
in the same market where the Company is operating. A similar adverse affect
could occur if existing competing franchised dealers increase their market
share in the Company's market. The ability of the Company to acquire additional
franchises from a particular manufacturer may be limited due to certain
restrictions imposed by manufacturers. Additionally, the Company's ability to
enter into significant acquisitions may be restricted and the acquisition of
the Company's stock by third parties may be limited by the terms of the
franchise agreement.
Cash and Cash Equivalents -- The Company considers contracts in transit
and all highly liquid debt instruments with an initial maturity of three months
or less to be cash equivalents. Contracts in transit represent cash in transit
to the Company from finance companies related to vehicle purchases and were
$919,251 at December 31, 1997.
Inventories -- Inventories of new and used vehicles, including
demonstrators and parts and accessories, are valued at the lower of specific
cost or market. Cost is determined using the last-in, first-out method ("LIFO")
for new vehicles and parts and accessories.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. The range of estimated useful lives is as follows:
<TABLE>
<CAPTION>
Useful Lives
-------------
<S> <C>
Buildings and improvements ............. 7-31.5
Office equipment and fixtures .......... 5-7
Parts and service equipment ............ 5-10
Company vehicles ....................... 5
</TABLE>
Expenditures for maintenance and repairs are expensed as incurred.
Significant betterments are capitalized.
Income Taxes -- The provision for income taxes includes federal and state
taxes currently payable and deferred taxes. Deferred taxes are determined
utilizing an asset and liability approach as required by Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. This method gives
consideration to the future tax consequences associated with differences
between financial accounting and tax basis of assets and liabilities. This
method gives immediate effect to
F-49
<PAGE>
ECONOMY HONDA CARS
NOTES TO FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
changes in income tax laws upon enactment. A valuation allowance is established
when necessary to reduce deferred tax assets to the amounts expected to be
realized.
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash deposits. At times, amounts invested with financial institutions may
exceed FDIC insurance limits.
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the
large number of customers comprising the trade receivables balances. Trade
receivables are concentrated in the Company's market area of Chattanooga,
Tennessee.
Fair Value of Financial Instruments -- As of December 31, 1997 the fair
value of the Company's financial instruments including accounts and notes
receivables and trade accounts payable approximate their book values.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Advertising -- The Company expenses advertising costs in the period
incurred. Advertising expense for 1997 amounted to $531,473.
Interim Financial Information -- The accompanying unaudited financial
information for the six months ended June 30, 1997 and 1998 has been prepared
on substantially the same basis as the audited financial statements, and
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information set forth
therein. The results of interim periods are not necessarily indicative of
results to be expected for the entire year.
2. NOTE RECEIVABLE
At December 31, 1997, the Company had a note receivable from an unrelated
party totaling $238,960. The note bore interest at 12% per annum and was
payable in monthly installments of $6,293. On April 7, 1998, the note was
purchased for cash by one of the Company's principal stockholders at the
recorded book value of $231,115 at that date.
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
New vehicles .................. $ 1,798,172 $2,390,339
Used vehicles ................. 4,902,142 1,910,137
Parts and accessories ......... 365,630 324,379
----------- ----------
7,065,944 4,624,855
LIFO reserve .................. (523,972) (602,252)
----------- ----------
Total ......................... $ 6,541,972 $4,022,603
=========== ==========
</TABLE>
Had the Company used the first-in, first-out method of valuing new
vehicles, parts and accessories inventory, pretax earnings would have been
$1,819,742 in 1997.
From time to time certain vehicles are pledged to collateralize floor plan
notes payable to financial institutions. The floor plan notes bear interest,
payable monthly on the outstanding balance at a rate that fluctuates with prime
(8.5% at
F-50
<PAGE>
ECONOMY HONDA CARS
NOTES TO FINANCIAL STATEMENTS -- Continued
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN -- Continued
December 31, 1997). Total floor plan interest expense amounted to $2,791 in
1997. The notes payable are due when the related vehicle is sold; however, the
Company generally pays floor plan as invoiced for vehicles during the year.
There is no balance outstanding under such floor plan notes at December 31,
1997.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------- ---------------
(Unaudited)
<S> <C> <C>
Land .................................. $ 624,430 $ 624,430
Buildings and improvements ............ 1,922,175 1,928,017
Office equipment and fixtures ......... 299,278 302,844
Parts and service equipment ........... 358,961 358,961
Company vehicles ...................... 62,254 62,254
------------ ------------
3,267,098 3,276,506
Less accumulated depreciation ......... (1,475,124) (1,545,836)
------------ ------------
Property and equipment, net ........... $ 1,791,974 $ 1,730,670
============ ============
</TABLE>
5. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan, whereby substantially all of the employees
of the Company meeting certain service requirements are eligible to
participate. Contributions by the Company in 1997 were approximately $39,000.
6. INCOME TAXES
The provision for income taxes consists of the following components for
the year ended December 31, 1997:
<TABLE>
<S> <C>
Current:
Federal ................ $ 559,667
State .................. 105,663
---------
665,330
---------
Deferred:
Federal ................ (33,061)
State .................. (6,207)
---------
39,268
---------
Total .................. $ 626,062
=========
</TABLE>
The reconciliation of the statutory federal income tax rate with the
Company's federal and state overall effective income tax rate is as follows for
the year ending December 31, 1997:
<TABLE>
<S> <C>
Statutory federal rate ......... 34.00%
State income taxes ............. 3.98%
Miscellaneous .................. 0.03%
-----
Effective tax rates ............ 38.01%
=====
</TABLE>
Deferred income taxes reflect the net tax effects of the temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes.
F-51
<PAGE>
ECONOMY HONDA CARS
NOTES TO FINANCIAL STATEMENTS -- Continued
6. INCOME TAXES -- Continued
Deferred income tax assets and liabilities consist of the following at
December 31, 1997:
<TABLE>
<S> <C>
Deferred tax assets, primarily from differences relating to chargebacks ........... $ 85,528
Deferred tax liabilities, primarily from differences relating to used car inventory
reserve .......................................................................... (337,488)
----------
Net deferred tax liabilities ...................................................... $ 251,960
==========
</TABLE>
7. SUBSEQUENT EVENT
On March 16, 1998, the Company entered into an agreement with Sonic
Automotive, Inc. ("Sonic") whereby Sonic will purchase all of the outstanding
capital stock of the Company for a total purchase price of $7.5 million plus an
amount equal to the net book value of the assets of the Company. This purchase
price will be paid in cash and convertible preferred stock of Sonic. Preferred
stock will be issued for 51% of the total purchase price, not to exceed $5.1
million in liquidation preference as of the closing of the acquisition.
F-52
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
CASA FORD OF HOUSTON, INC.
Houston, Texas
We have audited the accompanying balance sheet of Casa Ford of Houston,
Inc. (the "Company") as of December 31, 1997, and the related statements of
income, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1997, and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
June 4, 1998
F-53
<PAGE>
CASA FORD OF HOUSTON, INC.
BALANCE SHEETS
December 31, 1997 and March 31, 1998
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1) .................................. $ 1,386,749 $ 1,685,197
Accounts receivable (net of allowance for doubtful accounts of $1,553
at December 31, 1997) ............................................. 822,335 495,339
Inventories (Note 3) ................................................ 8,743,629 6,430,778
Other current assets ................................................ 283,717 315,144
----------- -----------
Total current assets .............................................. 11,236,430 8,926,458
PROPERTY AND EQUIPMENT, NET (Notes 4 and 5) .......................... 911,615 872,323
DEFERRED INCOME TAXES (Note 8) ....................................... 264,307 264,307
GOODWILL (Note 1) .................................................... 617,518 603,795
----------- -----------
TOTAL ASSETS ......................................................... $13,029,870 $10,666,883
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- floor plan (Note 3) ................................ $ 8,681,340 $ 6,149,209
Trade accounts payable .............................................. 432,860 294,196
Current maturities -- long-term debt (Note 5) ....................... 782,098 770,425
Income taxes payable (Note 8) ....................................... 149,725 233,795
Accrued payroll and bonuses ......................................... 188,080 24,255
Other accrued liabilities ........................................... 538,430 837,295
----------- -----------
Total current liabilities ......................................... 10,772,533 8,309,175
----------- -----------
LONG-TERM DEBT (Note 5) .............................................. 1,020,867 857,732
----------- -----------
COMMITMENTS (Notes 6 and 9)
STOCKHOLDERS' EQUITY:
Receivable from stockholder (Note 2) ................................ (428,310) (441,309)
Common stock ($100 par, 12,500 shares authorized, issued and
outstanding) ...................................................... 1,250,000 1,250,000
Retained earnings ................................................... 414,780 691,285
----------- -----------
Total stockholders' equity ........................................ 1,236,470 1,499,976
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ........................... $13,029,870 $10,666,883
=========== ===========
</TABLE>
See notes to financial statements.
F-54
<PAGE>
CASA FORD OF HOUSTON, INC.
STATEMENTS OF INCOME
Year ended December 31, 1997 and the three months ended March 31, 1997 and 1998
<TABLE>
<CAPTION>
Three months
Year ended ended March 31,
December 31, -----------------------------
1997 1997 1998
--------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Vehicle sales ................................... $ 58,239,109 $12,889,721 $15,165,697
Parts, service and collision repair ............. 6,025,033 1,290,680 1,498,063
Finance and insurance (Note 1) .................. 2,252,297 479,359 534,451
------------ ----------- -----------
Total revenues ................................ 66,516,439 14,659,760 17,198,211
COST OF SALES (Note 1) ........................... 57,164,094 12,656,805 14,629,714
------------ ----------- -----------
GROSS PROFIT ..................................... 9,352,345 2,002,955 2,568,497
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ..... 6,929,277 1,428,740 1,778,333
DEPRECIATION AND AMORTIZATION .................... 299,456 74,864 76,014
------------ ----------- -----------
OPERATING INCOME ................................. 2,123,612 499,351 714,150
------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense -- floor plan (Note 3) ......... (885,573) (202,407) (216,937)
Interest expense -- other ....................... (301,995) (71,332) (59,624)
Other income .................................... 129,518 89 9,541
------------ ----------- -----------
Total other expense ........................... (1,058,050) (273,650) (267,020)
------------ ----------- -----------
INCOME BEFORE INCOME TAXES ....................... 1,065,562 225,701 447,130
PROVISION FOR INCOME TAXES (Note 8) .............. 406,579 86,178 170,625
------------ ----------- -----------
NET INCOME ....................................... $ 658,983 $ 139,523 $ 276,505
============ =========== ===========
</TABLE>
See notes to financial statements.
F-55
<PAGE>
CASA FORD OF HOUSTON, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Year ended December 31, 1997 and the three months ended March 31, 1998
<TABLE>
<CAPTION>
Retained Total
Receivable Common Earnings Stockholders'
from Shareholder Stock (Deficit) Equity
------------------ -------------- --------------- --------------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 ........... (352,101) $ 1,250,000 $ (244,203) $ 653,696
Amounts loaned to stockholder ......... (76,209) -- -- (76,209)
Net income ............................ -- -- 658,983 658,983
-------- ----------- ----------- ----------
BALANCE AT DECEMBER 31, 1997 ........... (428,310) 1,250,000 414,780 1,236,470
Amounts loaned to stockholder ......... (12,999) -- -- (12,999)
Net income (unaudited) ................ -- -- 276,505 276,505
-------- ----------- ----------- ----------
BALANCE AT MARCH 31, 1998 (unaudited) $ (441,309) $ 1,250,000 $ 691,285 $1,499,976
========== =========== =========== ==========
</TABLE>
See notes to financial statements.
F-56
<PAGE>
CASA FORD OF HOUSTON, INC.
STATEMENTS OF CASH FLOWS
Year ended December 31, 1997 and the three months ended March 31, 1997 and 1998
<TABLE>
<CAPTION>
Three months ended
Year ended March 31,
December 31, ---------------------------------
1997 1997 1998
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................. $ 658,983 $ 139,523 $ 276,505
------------ ------------ ------------
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization ........................................ 354,346 74,864 76,014
Deferred income taxes ................................................ (140,290) (69,860) --
Changes in assets and liabilities that related to operations:
(Increase) decrease in accounts receivables ......................... 60,637 302,948 326,996
(Increase) decrease in inventories .................................. (369,151) 2,520,131 2,312,851
Increase in other current assets .................................... (69,385) (309,711) (31,427)
Increase (decrease) in income tax payable ........................... (40,341) (103,888) 84,070
Payments of floor plan notes payable ................................ (690,969) (2,952,473) (2,532,131)
Increase (decrease) in trade accounts payable and accrued liabilities 29,941 392,792 (3,624)
------------ ------------ ------------
Total adjustments .................................................. (865,212) (145,197) 232,749
------------ ------------ ------------
Net cash (used in) provided by operating activities ................ (206,229) (5,674) 509,254
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment .................................... (290,996) (17,338) (22,999)
------------ ------------ ------------
Net cash used in investing activities .............................. (290,996) (17,338) (22,999)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of long-term debt ............................................. (529,853) (253,428) (174,808)
------------ ------------ ------------
Amounts (loaned to) received from stockholder .......................... (76,209) 3,065 (12,999)
Net cash used in financing activities .............................. (606,062) (250,363) (187,807)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................... (1,103,287) (273,375) 298,448
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .......................... 2,490,036 2,490,036 1,386,749
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................ $ 1,386,749 $ 2,216,661 $ 1,685,197
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-- Cash paid during the period for:
Interest ............................................................... $ 64,241 $ 112,862 $ 89,417
============ ============ ============
Income taxes ........................................................... $ 597,500 $ 330,000 $ 86,555
============ ============ ============
</TABLE>
See notes to financial statements.
F-57
<PAGE>
CASA FORD OF HOUSTON, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- Casa Ford of Houston, Inc. (the "Company")
operates an automotive dealership, service department, body shop and parts and
accessories department in Houston, Texas. The Company sells new and used cars
and light trucks, sells replacement parts and accessories, provides vehicle
maintenance, warranty, paint and repair services and arranges related financing
and insurance. The Company sells new vehicles manufactured by Ford.
Revenue Recognition -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed.
The Company arranges financing for customers through various financial
institutions and receives a commission from the lender equal to the difference
between the interest rates charged to customers over the predetermined interest
rates set by the financing institution. The Company also receives commissions
from the sale of credit life, accident, health and disability insurance and
extended service contracts to customers. The Company may be assessed a
chargeback fee in the event of early cancellation of a loan, insurance
contract, or service contract by the customer. Finance and insurance commission
revenue is recorded net of estimated chargebacks at the time the related
contract is placed with the financial institution.
Commissions expense related to finance and insurance commission revenue is
charged to cost of sales upon recognition of such revenue, net of estimated
chargebacks. Estimated commission expense charged to cost of sales was
approximately $290,267 for the year ended December 31, 1997. Estimated
commission expense charged to cost of sales was approximately $60,827 and
$80,195 for the six months ended March 31, 1997 and 1998, respectively
(unaudited).
Dealer Agreements -- The Company purchases substantially all of its new
vehicles from the manufacturer at the prevailing prices charged by the
manufacturer to its franchised dealers. The Company's sales could be
unfavorably impacted by the manufacturer's unwillingness or inability to supply
the dealership with an adequate supply of new vehicle inventory.
The Company operates under a dealer agreement with the manufacturer. The
Company's dealer agreement does not give it the exclusive right to sell the
manufacturer's product within a given geographic area. The Company could be
materially adversely affected if the manufacturer awards franchises to others
in the same market where the Company is operating. A similar adverse effect
could occur if existing competing franchised dealers increase their market
share in the Company's market. The ability of the Company to acquire additional
franchises from a particular manufacturer may be limited due to certain
restrictions imposed by manufacturers. Additionally, the Company's ability to
enter into significant acquisitions may be restricted and the acquisition of
the Company's stock by third parties may be limited by the terms of the
franchise agreement.
Cash and Cash Equivalents -- The Company considers contracts in transit
and all highly liquid debt instruments with an initial maturity of three months
or less to be cash equivalents. Contracts in transit represent cash in transit
to the Company from finance companies related to vehicle purchases and was
$761,776 at December 31, 1997.
Inventories -- Inventories of new and demonstrator vehicles are valued at
the lower of last-in, first-out method ("LIFO") cost or market. Inventories of
used vehicles are stated at the lower of specific cost or market. All other
inventories are generally stated at replacement cost, which approximates cost
on the first-in, first-out method ("FIFO").
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets. The range of estimated useful lives is as follows:
<TABLE>
<CAPTION>
Useful Lives
-------------
<S> <C>
Leasehold improvements ................. 7-31.5
Office equipment and fixtures .......... 5-7
Parts and service equipment ............ 5-10
Company vehicles ....................... 5
</TABLE>
Expenditures for maintenance and repairs are expensed as incurred.
Significant betterments are capitalized.
Income Taxes -- The provision for income taxes includes federal and state
taxes currently payable and deferred taxes. Deferred taxes are determined
utilizing an asset and liability approach as required by Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. This method gives
consideration to the future tax consequences associated with differences
between financial accounting and tax basis of assets and liabilities. This
method gives immediate effect to
F-58
<PAGE>
CASA FORD OF HOUSTON, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
changes in income tax laws upon enactment. A valuation allowance is established
when necessary to reduce deferred tax assets to the amounts expected to be
realized.
Goodwill -- Goodwill is being amortized on a straight-line basis over a
period of 15 years. Accumulated amortization at December 31, 1997 was $205,839.
The Company periodically reviews goodwill to assess recoverability. The
Company's policy is to compare the carrying value of goodwill with the expected
undiscounted cash flows from operations.
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash deposits. At times, amounts invested with financial institutions may
exceed FDIC insurance limits.
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the
large number of customers comprising the trade receivables balances. Trade
receivables are concentrated in the Company's market area of Houston, Texas.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments -- As of December 31, 1997 the fair
value of the Company's financial instruments including accounts receivable,
receivable from shareholder, trade accounts payable, and long-term debt
approximate their book values.
Advertising -- The Company expenses advertising costs in the period
incurred. Advertising expense for 1997 amounted to $581,752.
Interim Financial Information -- The accompanying unaudited financial
information for the three months ended March 31, 1997 and 1998 have been
prepared on substantially the same basis as the audited financial statements,
and include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information set forth
therein. The results of interim periods are not necessarily indicative of
results to be expected for the entire fiscal year.
2. RECEIVABLE FROM STOCKHOLDER
At December 31, 1997, the Company had a receivable due from a related
party totaling $428,310, bearing no stated interest rate. The receivable was
paid in full as of April 1998 pursuant to a dividend.
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
New and demonstrator vehicles ......... $ 7,969,681 $ 4,980,041
Used vehicles ......................... 996,821 1,484,967
Parts and accessories ................. 412,757 432,264
Other ................................. 77,896 247,032
----------- -----------
9,457,155 7,144,304
LIFO reserve .......................... (713,526) (713,526)
----------- -----------
Total ................................. $ 8,743,629 $ 6,430,778
=========== ===========
</TABLE>
F-59
<PAGE>
CASA FORD OF HOUSTON, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN -- Continued
Had the Company used the first-in, first-out method of valuing new
vehicles and parts inventory, pretax earnings would have been $1,304,193 in
1997.
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $8,681,340 at December
31, 1997. The floor plan notes bear interest, payable monthly on the
outstanding balance at the prime rate plus 1% to 1-1/2% (prime rate was 8.5% at
December 31, 1997). Total floor plan interest expense amounted to $885,573 in
1997. The notes payable are due when the related vehicle is sold. As such,
these floor plan notes payable are shown as a current liability in the
accompanying balance sheet. The maximum credit available under the financing
arrangement is $7,800,000 for 1997.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
-------------- ------------
(Unaudited)
<S> <C> <C>
Leasehold improvements ................ $ 221,132 $ 222,496
Office equipment and fixtures ......... 780,133 785,025
Parts and service equipment ........... 437,504 454,163
Company vehicles ...................... 219,547 219,631
---------- ----------
1,658,317 1,681,315
Less accumulated depreciation ......... (746,701) (808,992)
---------- ----------
Property and equipment, net ........... $ 911,615 $ 872,323
========== ==========
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998
-------------- ------------
(Unaudited)
<S> <C> <C>
Unsecured note payable to a related party, in monthly installments of $25,500, plus
interest
at prime .............................................................................. $ 864,000 $ 787,500
Unsecured note payable in monthly installments of $14,880, plus interest at prime plus
1 1/2%, through February 2001 ......................................................... 570,960 524,237
Notes payable in monthly installments totaling $7,670, plus interest ranging from 9.7% to
10.7%, through December 2000 .......................................................... 104,433 92,389
Unsecured note payable in monthly installments of $2,083, plus interest at 8.55%, through
March 1999 ............................................................................ 31,250 27,083
Notes payable in monthly installments totaling $5,501, including interest at rates
ranging
from 4.748% to 9.312%, maturities from December 1998 to November 2000,
collateralized by Company vehicles .................................................... 156,921 142,934
Other notes payable ..................................................................... 75,401 54,014
----------- ----------
1,802,965 1,628,157
Less current maturities ................................................................. 782,098 770,425
----------- ----------
Long-term debt .......................................................................... $ 1,020,867 $ 857,732
=========== ==========
</TABLE>
F-60
<PAGE>
CASA FORD OF HOUSTON, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
5. LONG-TERM DEBT -- Continued
Future maturities of debt at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
- --------------------------
<S> <C>
1998 ................... $ 782,098
1999 ................... 544,503
2000 ................... 441,084
2001 ................... 35,280
-----------
Total .................. $ 1,802,965
===========
</TABLE>
6. OPERATING LEASES
The Company leases its business premises, modular space and various
equipment under non-cancelable operating leases with terms up to 10 years.
Future minimum rental payments required under non-cancelable leases at December
31, 1997 are as follows:
<TABLE>
<S> <C>
Year Ending December 31,
1998 ................... $ 305,560
1999 ................... 304,452
2000 ................... 304,452
2001 ................... 304,452
2002 ................... 304,452
Thereafter ............. 989,469
----------
Total .................. $2,512,837
==========
</TABLE>
Rent expense under all operating leases was $297,592 during 1997.
7. EMPLOYEE BENEFIT PLAN
The Company has a qualified 401(k) Profit Sharing Plan (the "Plan"),
whereby substantially all of the employees of the Company meeting certain
service requirements are eligible to participate. Contributions by the Company
in 1997 were $20,733.
8. INCOME TAXES
The provision (benefit) for income taxes consists of the following
components at December 31, 1997:
<TABLE>
<S> <C>
Current:
Federal .............. $ 482,949
State ................ 63,920
----------
546,869
Deferred:
Federal .............. (123,213)
State ................ (17,077)
----------
(140,290)
----------
Total ................ $ 406,579
==========
</TABLE>
F-61
<PAGE>
CASA FORD OF HOUSTON, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
8. INCOME TAXES -- Continued
The reconciliation of the statutory federal income tax rate with the
Company's federal and state overall effective income tax rate is as follows for
the year ending December 31, 1997:
<TABLE>
<S> <C>
Statutory federal rate ......... 34.00%
State income taxes ............. 2.90%
Miscellaneous .................. 1.26%
-----
Effective tax rate ............. 38.16%
=====
</TABLE>
Deferred income taxes reflect the net tax effects of the temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes.
Deferred income tax assets and liabilities consist of the following at
December 31, 1997:
<TABLE>
<S> <C>
Deferred tax assets -- primarily from differences relating to amortization of
extended
warranties ....................................................................... $ 522,261
Deferred tax liabilities -- primarily from differences relating to depreciation .... (29,389)
---------
Net deferred tax assets ............................................................ $ 492,872
=========
</TABLE>
9. COMMITMENTS
Ford Motor Company (FMC) owns vehicles which are used as short-term
rentals for which the Company pays FMC monthly fees. A portion of the fees are
applied against the purchase price. The Company must pay for the vehicles when
they are no longer used for rental. The contingent liability to FMC to purchase
the vehicles under this program was $902,057 at December 31, 1997.
10. SUBSEQUENT EVENT (UNAUDITED)
In April 1998, the Company entered into an agreement with Sonic
Automotive, Inc. ("Sonic") whereby Sonic purchased all of the outstanding
capital stock of the Company for a total purchase price of approximately $11.3
million. The initial purchase price was subject to adjustment based upon a
final determination of the net working capital of the Company. Of the total
purchase price approximately $9.0 million was paid in cash and the balance was
paid in 2,313 shares of Sonic preferred stock with a liquidation preference of
approximately $2.3 million.
F-62
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE STOCKHOLDERS OF
HIGGINBOTHAM AUTOMOTIVE GROUP
New Smyrna Beach, Florida
We have audited the accompanying combined balance sheet of Higginbotham
Automotive Group (the "Company"), which are under common ownership and
management, as of December 31, 1997, and the related combined statements of
income, stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the combined financial position of the Company as of December 31,
1997, and the combined results of its operations and its combined cash flows
for the year then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
August 21, 1998
F-63
<PAGE>
HIGGINBOTHAM AUTOMOTIVE GROUP
COMBINED BALANCE SHEETS
December 31, 1997 and June 30, 1998
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................. $ 4,653,226 $ 4,627,800
Accounts receivable ................................... 2,694,069 2,292,400
Finance notes receivable, net (Note 3) ................ 2,157,078 2,479,858
Inventories, net (Note 4) ............................. 14,442,063 9,893,278
Other current assets .................................. 449,690 556,828
----------- -----------
Total current assets ................................ 24,396,126 19,850,164
PROPERTY AND EQUIPMENT, NET (Notes 5 and 6) ............ 2,942,142 2,921,787
FINANCE NOTES RECEIVABLE, NET (Note 3) ................. 1,407,762 1,564,234
GOODWILL, NET (Note 1) ................................. 884,000 847,167
OTHER ASSETS ........................................... 364,936 373,918
----------- -----------
TOTAL ASSETS ........................................... $29,994,966 $25,557,270
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- floor plan (Note 4) .................. $16,217,355 $11,032,690
Notes payable -- other (Note 6) ....................... 3,237,083 3,034,879
Trade accounts payable ................................ 1,328,672 980,135
Dividends payable ..................................... 275,000 250,000
Current maturities -- long-term debt (Note 6) ......... 111,986 111,986
Accrued payroll and bonuses ........................... 299,996 135,284
Liability for finance chargebacks ..................... 287,160 306,568
Other accrued liabilities ............................. 717,179 1,464,300
----------- -----------
Total current liabilities ........................... 22,474,431 17,315,842
----------- -----------
LONG-TERM DEBT (Note 6) ................................ 1,117,533 1,063,720
----------- -----------
COMMITMENTS (Notes 8 and 10)
STOCKHOLDERS' EQUITY (Notes 2, 7 and 10):
Receivable from stockholder (Note 2) .................. (117,647)
Common stock of combined companies .................... 704,101 704,101
Paid-in capital ....................................... 2,360,301 2,360,301
Retained earnings ..................................... 3,456,247 4,113,306
----------- -----------
Total stockholders' equity .......................... 6,403,002 7,177,708
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ............. $29,994,966 $25,557,270
=========== ===========
</TABLE>
See notes to combined financial statements.
F-64
<PAGE>
HIGGINBOTHAM AUTOMOTIVE GROUP
COMBINED STATEMENTS OF INCOME
Year ended December 31, 1997 and the six months ended June 30, 1997 and 1998
<TABLE>
<CAPTION>
Six months
Year ended ended June 30,
December 31, -----------------------------
1997 1997 1998
--------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Vehicle sales ................................................ $102,594,217 $51,721,258 $57,829,376
Parts, service and collision repair .......................... 10,496,298 5,083,979 5,362,859
Finance and insurance (Note 1) ............................... 3,060,356 1,667,583 1,583,384
------------ ----------- -----------
Total revenues ............................................. 116,150,871 58,472,820 64,775,619
COST OF SALES (Note 1) ........................................ 98,429,984 49,530,115 55,166,730
------------ ----------- -----------
GROSS PROFIT .................................................. 17,720,887 8,942,705 9,608,889
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(Notes 3 and 8) .............................................. 13,099,284 6,617,958 6,948,065
DEPRECIATION AND AMORTIZATION ................................. 338,064 155,315 143,966
------------ ----------- -----------
OPERATING INCOME .............................................. 4,283,539 2,169,432 2,516,858
------------ ----------- -----------
OTHER INCOME (EXPENSE):
Interest expense -- floor plan, net (Note 3) ................. (1,207,774) (635,061) (565,843)
Interest expense -- other .................................... (303,126) (163,605) (144,532)
Other income ................................................. 20,283 9,622 19,870
------------ ----------- -----------
Total other expense ........................................ (1,490,617) (789,044) (690,505)
------------ ----------- -----------
NET INCOME .................................................... $ 2,792,922 $ 1,380,388 $ 1,826,353
============ =========== ===========
Pro forma provision for income taxes (Note 1) (unaudited) ..... $ 1,077,509 $ 532,554 $ 704,606
============ =========== ===========
Pro forma net income (Note 1) (unaudited) ..................... $ 1,715,413 $ 847,834 $ 1,121,747
============ =========== ===========
</TABLE>
See notes to combined financial statements.
F-65
<PAGE>
HIGGINBOTHAM AUTOMOTIVE GROUP
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (NOTE 7)
Year ended December 31, 1997 and the six months ended June 30, 1998
<TABLE>
<CAPTION>
Common
Stock of Total
Receivable Combined Paid-in Retained Stockholders'
from Stockholder Companies Capital Earnings Equity
------------------ ----------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 .................... $ -- $680,101 $1,994,301 $ 2,397,619 $ 5,072,021
Amounts loaned to stockholder .................. (117,647) -- -- -- (117,647)
Dividends declared ............................. -- -- (1,734,294) (1,734,294)
Capital contributions .......................... 24,000 366,000 -- 390,000
Net income ..................................... -- -- -- 2,792,922 2,792,922
---------- -------- ---------- ------------ ------------
BALANCE AT DECEMBER 31, 1997 .................... (117,647) 704,101 2,360,301 3,456,247 6,403,002
Stockholder loan repayment (unaudited) ......... 117,647 117,647
Dividends declared (unaudited) ................. (1,169,294) (1,169,294)
Net income (unaudited) ......................... 1,826,353 1,826,353
---------- -------- ---------- ------------ ------------
BALANCE AT JUNE 30, 1998 (unaudited) ............ $ 0 $704,101 $2,360,301 $ 4,113,306 $ 7,177,708
========== ======== ========== ============ ============
</TABLE>
See notes to combined financial statements.
F-66
<PAGE>
HIGGINBOTHAM AUTOMOTIVE GROUP
STATEMENTS OF CASH FLOWS
For the Year ended December 31, 1997 and the six months ended June 30, 1997 and
1998
<TABLE>
<CAPTION>
Six months ended
Year ended June 30,
December 31, ---------------------------------
1997 1997 1998
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................ $ 2,792,922 $ 1,380,388 $ 1,826,353
------------ ------------ ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on disposal of property and equipment .......................... (8,196) (31,163)
Depreciation and amortization ....................................... 338,064 155,315 143,966
Changes in assets and liabilities that relate to operations:
Decrease in accounts receivable .................................... 1,240,999 1,330,251 401,669
(Increase) decrease in inventories ................................. (1,818,431) 2,196,261 4,548,785
(Increase) in other current assets ................................. (313,642) (202,157) (107,138)
(Increase) decrease in noncurrent assets ........................... (35,178) 7,725 (8,982)
Increase (decrease) in floor plan notes payable .................... 1,897,022 (2,766,136) (5,184,665)
Increase in trade accounts payable and accrued liabilities ......... 329,888 482,122 253,280
Other .............................................................. (11,473) -- --
------------ ------------ ------------
Total adjustments ................................................. 1,619,053 1,172,218 46,915
------------ ------------ ------------
Net cash provided by operating activities ......................... 4,411,975 2,552,606 1,873,268
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ................................... (171,106) (38,360) (100,039)
Proceeds from disposal of property and equipment ...................... 43,800 13,261
Notes receivable ...................................................... (3,672,375) (2,215,490) (2,253,734)
Principal collected on notes receivable ............................... 4,246,561 2,230,071 1,774,482
------------ ------------ ------------
Net cash provided by (used in) investing activities ............... 446,880 (23,779) (566,030)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt .......................................... 20,144 267,998 --
Payments of long-term debt ............................................ (107,500) -- (53,813)
Dividends paid ........................................................ (1,491,294) (1,166,294) (1,194,294)
Amounts (advanced to) received from stockholder ....................... (958,922) (775,028) (84,557)
Issuance of common stock .............................................. 390,000 390,000
------------ ------------
Net cash provided by (used in) financing activities ............... (2,147,572) (1,283,324) (1,332,664)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................... 2,711,283 1,245,503 (25,426)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......................... 1,941,943 1,941,943 4,653,226
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................... $ 4,653,226 $ 3,187,446 $ 4,627,800
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-- Cash paid during the period for interest ........................... $ 321,763 $ 135,679 $ 165,050
============ ============ ============
</TABLE>
See notes to combined financial statements.
F-67
<PAGE>
HIGGINBOTHAM AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- Higginbotham Automotive Group (the "Company")
operates three automobile dealerships, one stand-alone used car facility, three
service departments, a body shop, and a finance company in the Daytona Beach
area of Florida. The Company sells new and used cars and light trucks, sells
replacement parts, provides maintenance, warranty, paint and repair services
and arranges related financing and insurance. The Company's three new vehicle
dealership locations sell vehicles manufactured by Acura, Mercedes, Chevrolet,
Oldsmobile, Ford and Mercury.
The accompanying combined financial statements include the accounts of the
following entities:
Higginbotham Automobiles, Inc.
Higginbotham Chevrolet-Oldsmobile, Inc.
Halifax Ford-Mercury, Inc.
Sunrise Auto World, Inc.
HMC Finance Corporation
The accompanying combined financial statements reflect the financial
position, results of operations, and cash flows of each of the above listed
companies. The combination of these entities has been accounted for at
historical cost in a manner similar to a pooling-of-interests because the
entities are under common management and control. All material intercompany
transactions have been eliminated.
Revenue Recognition -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed.
The Company arranges financing for customers through various financial
institutions and receives a commission from the lender equal to the difference
between the interest rates charged to customers over the predetermined interest
rates set by the financing institution. The Company also receives commissions
from the sale of credit life, accident, health and disability insurance and
extended service contracts to customers. The Company may be assessed a
chargeback fee in the event of early cancellation of a loan, insurance
contract, or service contract by the customer. Finance and insurance commission
revenue is recorded net of estimated chargebacks at the time the related
contract is placed with the financial institution.
Commissions expense related to finance and insurance commission revenue is
charged to cost of sales upon recognition of such revenue, net of estimated
chargebacks. Estimated commission expense charged to cost of sales was
approximately $519,405 for the year ended December 31, 1997. Estimated
commission expense charged to cost of sales was approximately $275,417 and
$270,806 for the six months ended June 30, 1997 and 1998, respectively
(unaudited).
Dealer Agreements -- The Company purchases substantially all of its new
vehicles from the manufacturers at the prevailing prices charged by the
manufacturers to their franchised dealers. The Company's sales could be
unfavorably impacted by the manufacturers' unwillingness or inability to supply
the dealerships with an adequate supply of new vehicle inventory.
The Company operates under dealer agreements with each manufacturer. The
Company's dealer agreements do not give it the exclusive right to sell the
manufacturers' product within a given geographic area. The Company could be
materially adversely affected if the manufacturers award franchises to others
in the same market where the Company is operating. A similar adverse effect
could occur if existing competing franchised dealers increase their market
share in the Company's market. The ability of the Company to acquire additional
franchises from a particular manufacturer may be limited due to certain
restrictions imposed by manufacturers. Additionally, the Company's ability to
enter into significant acquisitions may be restricted and the acquisition of
the Company's stock by third parties may be limited by the terms of the
franchise agreements.
Cash and Cash Equivalents -- The Company considers contracts in transit
and all highly liquid debt instruments with an initial maturity of three months
or less to be cash equivalents. Contracts in transit represent cash in transit
to the Company from finance companies related to vehicle purchases and were
approximately $1,516,000 at December 31, 1997.
Allowances for Credit Losses -- The Company provides for credit losses
using the allowance method. Accordingly, credit losses are charged to the
related allowance, and recoveries are credited to the allowance. Additions to
the allowance for credit losses are provided by charges to operations based on
various factors, including historical losses and existing
F-68
<PAGE>
HIGGINBOTHAM AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
economic conditions, which, in management's judgment, deserve current
recognition in estimating losses. Because of the uncertainty inherent in the
estimation process, management's estimate of the allowance for credit losses
may change in the near term.
Inventories -- Inventories of new and used vehicles, including
demonstrators, and parts and accessories are valued at the lower of specific
cost or market. Cost is determined using the last-in, first-out method ("LIFO")
for new vehicles and certain parts and accessories, and the first-in, first-out
method ("FIFO") for all other inventories.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives of the assets. The range of estimated useful lives is as
follows:
<TABLE>
<CAPTION>
Useful Lives
-------------
<S> <C>
Buildings and improvements ............. 5-40
Office equipment and fixtures .......... 5-7
Parts and service equipment ............ 5-7
Company vehicles ....................... 5
</TABLE>
Expenditures for maintenance and repairs are expensed as incurred.
Significant betterments are capitalized.
Goodwill -- Goodwill represents the excess of the purchase price over the
estimated fair value of the net assets acquired and is being amortized on a
straight-line basis over a 15 year period. The cumulative amount of goodwill
amortization was approximately $221,000 at December 31, 1997. The Company
periodically reviews goodwill to assess recoverability. The Company's policy is
to compare the carrying value of goodwill with the expected undiscounted cash
flows from operations of the acquired business.
Income Taxes -- All of the entities included in the Company's accompanying
combined financial statements are organized as S Corporations for federal and
state income tax purposes. As such, the Company's taxable income is included in
the stockholders' annual income tax returns. Accordingly, no provision for
federal or state income taxes has been included in the Company's combined
statement of income.
The pro forma provision for income taxes and the pro forma net income for
the year ended December 31, 1997, and for the six months ended June 30, 1997
and 1998, reflect amounts that would have been recorded had the Company's
income been taxed for federal and state purposes as if it was a C Corporation.
Fair Value of Financial Instruments -- As of December 31, 1997 the fair
values of the Company's financial instruments including accounts and finance
notes receivables, receivables from stockholders, notes payable - floor plan,
trade accounts payable, payables to affiliated companies and long-term debt
approximate their carrying values due to either their length to maturity or the
existence of variable interest rates that approximate prevailing market rates.
Advertising -- The Company expenses advertising costs in the period
incurred. Advertising expenses for 1997 amounted to approximately $1,081,000.
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash on deposit with financial institutions. At times, amounts invested with
financial institutions may exceed FDIC insurance limits.
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the
large number of customers comprising the trade receivables balances. Trade
receivables are concentrated in the Company's market area of Daytona Beach,
Florida.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
F-69
<PAGE>
HIGGINBOTHAM AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Interim Financial Information -- The accompanying unaudited financial
information for the six months ended June 30, 1997 and 1998 has been prepared
on substantially the same basis as the audited financial statements, and
includes all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information set forth
therein. The results of interim periods are not necessarily indicative of
results to be expected for the entire fiscal year.
2. RECEIVABLES FROM STOCKHOLDERS
At December 31, 1997, the Company had receivables due from stockholders
totaling $117,647, bearing no stated interest rate. The receivable was paid in
full as of June 1998 pursuant to a dividend.
3. FINANCE NOTES RECEIVABLE
The Company regularly provides financing to customers purchasing used
vehicles under a Buy-Here-Pay-Here installment note program. These customer
finance notes receivable have terms up to 36 months and provide for interest at
the rate of approximately 29%. As of December 31, 1997, the balances due on
finance notes totaled $4,265,946. The Company's allowance for credit losses for
these finance notes was approximately $701,000 at January 1, 1997 and December
31, 1997. The Company provided for and charged against the allowance losses of
approximately $739,000 during 1997.
4. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------- ---------------
(Unaudited)
<S> <C> <C>
New and demonstrator vehicles ......... $ 14,320,621 $ 9,828,062
Used vehicles ......................... 2,802,854 2,738,187
Parts and accessories ................. 542,185 571,440
Other ................................. 40,268 19,454
------------ ------------
17,705,928 13,157,143
LIFO reserve .......................... (3,263,865) (3,263,865)
------------ ------------
Inventories, net ...................... $ 14,442,063 $ 9,893,278
============ ============
</TABLE>
Had the Company used the first-in, first-out method of valuing new
vehicles and certain parts and accessories, pretax earnings would have been
$2,869,044 in 1997.
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $16,217,355 at
December 31, 1997. The floor plan notes bear interest, payable monthly on the
outstanding balances at rates ranging from prime to prime plus 1% (prime rate
was 8.5% at December 31, 1997). Total floor plan interest expense amounted to
$1,207,774 in 1997. The notes payable are due when the related vehicle is sold.
As such, these floor plan notes payable are shown as a current liability in the
accompanying combined balance sheet.
F-70
<PAGE>
HIGGINBOTHAM AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------- ---------------
(Unaudited)
<S> <C> <C>
Land .................................. $ 254,592 $ 254,592
Buildings and improvements ............ 3,489,286 3,479,508
Office equipment and fixtures ......... 870,494 948,030
Parts and service equipment ........... 674,746 711,461
Company vehicles ...................... 77,877 97,774
------------ ------------
5,366,995 5,491,365
Less accumulated depreciation ......... (2,424,853) (2,569,578)
------------ ------------
Property and equipment, net ........... $ 2,942,142 $ 2,921,787
============ ============
</TABLE>
6. FINANCING ARRANGEMENTS
Notes payable - other consists principally of a promissory note and
advances from a stockholder and advances from an affiliate company under common
ownership by a Company stockholder. The Company routinely finances its finance
notes receivable (see Note 3) through the issuance of short-term promissory
notes which are payable to a Company stockholder. The maximum amount that can
be advanced under the note is $3,000,000. This note has been and is expected to
be renewed on an annual basis.
Notes payable - other consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------- ------------
(Unaudited)
<S> <C> <C>
Unsecured short-term promissory note to the principal stockholder - due on demand,
interest at 10% ................................................................ $2,857,792 $2,657,792
Unsecured non-interest bearing note to the principal stockholder - due on demand . 163,503 160,699
Unsecured non-interest bearing advances from an affiliate company - due on demand 215,788 216,388
---------- ----------
Notes payable - other ............................................................ $3,237,083 $3,034,879
========== ==========
</TABLE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
-------------- --------------
(Unaudited)
<S> <C> <C>
Mortgage note payable to Barnett Bank of Volusia County, FL, due in monthly principal
installments of $8,958, plus interest at the bank's prime rate (8.0% at December 31,
1997) with the unpaid balance due September 9, 1999, secured by the Company's real
property located at 1307 North Dixie Freeway, New Smyrna Beach, FL ................. $1,209,375 $1,155,633
Other ................................................................................ 20,144 20,073
---------- ----------
1,229,519 1,175,706
Less current maturities .............................................................. (111,986) (111,986)
---------- ----------
Long-term debt ....................................................................... $1,117,533 $1,063,720
========== ==========
</TABLE>
F-71
<PAGE>
HIGGINBOTHAM AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
6. FINANCING ARRANGEMENTS -- Continued
Future maturities of long-term debt at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
- --------------------------
<S> <C>
1998 ................... $ 111,986
1999 ................... 1,106,709
2000 ................... 5,209
2001 ................... 5,615
----------
Total .................. $1,229,519
==========
</TABLE>
7. COMBINED STOCKHOLDERS' EQUITY
The capital structure of the entities included in the combined financial
statements of the Company at December 31, 1997 is as follows:
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------
Shares
Par Shares Issued and Paid-In
Value Authorized Outstanding Amount Capital
<S> <C> <C> <C> <C> <C>
Higginbotham Automobiles, Inc. ................. $ 1 100 100 $ 100 $1,994,301
Higginbotham Chevrolet -- Oldsmobile, Inc...... 100 3,000 2,400 224,000 366,000
Halifax Ford -- Mercury, Inc. .................. No Par 100 100 289,795 --
Sunrise Auto World, Inc. ....................... No Par 100 100 25,000 --
HMC Finance Corporation ........................ No Par 100 100 165,206 --
-------- ----------
Total .......................................... $704,101 $2,360,301
======== ==========
</TABLE>
8. RELATED PARTY TRANSACTIONS
Management bonuses of $276,834 were paid to Company stockholders and
certain management companies owned by the Company's principal stockholder in
1997. Unpaid bonuses and dividends are included in accrued payroll and bonuses
and dividends payable, respectively, in the accompanying combined balance
sheet.
The Company has entered into short-term management and expense
reimbursement agreements with Higginbotham Management Company ("HMC") for
management and consultation services. HMC is an affiliated entity owned by the
Company's principal stockholder. Under these agreements, fixed monthly
management fees together with certain contingency payments based on the number
of new and used vehicles sold during the month and provisions for reimbursement
for expenditures are incurred by HMC on the Company's behalf. The Company paid
fees under these agreements totaling approximately $1,120,000 in 1997 which are
included in selling, general and administrative expenses in the accompanying
combined statement of income.
The Company leases substantially all of its facilities directly from the
Company's principal stockholder or from a corporation which is owned by that
stockholder. Rent expense under these leases was approximately $517,000 in
1997. Other leases consist primarily of leases for certain business premises,
modular space and various equipment with terms up to twenty years. Rent expense
under all operating leases was approximately $569,000 during 1997. Future
minimum rental payments required under non-cancelable operating leases at
December 31, 1997 are as follows:
F-72
<PAGE>
HIGGINBOTHAM AUTOMOTIVE GROUP
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
8. RELATED PARTY TRANSACTIONS -- Continued
<TABLE>
<CAPTION>
Related
Year Ending December 31, Party Other Total
<S> <C> <C> <C>
1998 ..................... $ 465,572 $142,138 $ 607,710
1999 ..................... 461,676 100,707 562,383
2000 ..................... 329,176 66,630 395,806
2001 ..................... 302,676 59,038 361,714
2002 ..................... 292,818 23,447 316,265
Thereafter ............... 1,559,786 894 1,560,680
---------- -------- ----------
Total .................... $3,411,704 $392,854 $3,804,558
========== ======== ==========
</TABLE>
9. EMPLOYMENT BENEFIT PLANS
The Company has a qualified 401(k) Profit Sharing Plan (the "Plan"),
whereby substantially all of the employees of the Company meeting certain
service requirements are eligible to participate. Contributions by the Company
in 1997 were approximately $19,000.
10. STOCK COMPENSATION ARRANGEMENT
Effective January 1, 1997, the Company entered into an incentive stock
plan agreement with a Company stockholder who owns 360 shares of Higginbotham
Chevrolet-Oldsmobile, Inc. This agreement provides a base salary and bonus with
an option to use this compensation along with any other compensation earned
from the Company and any entity controlled by the principal stockholder, to
purchase up to 25% of the outstanding stock of Higginbotham Chevrolet --
Oldsmobile, Inc.(see Note 7). As of December 31, 1997, no stock has been
purchased under this agreement.
11. SUBSEQUENT EVENT (UNAUDITED)
In July 1998, the Company signed an asset purchase agreement with Sonic
Automotive, Inc. ("Sonic") whereby Sonic will purchase the Company's assets for
a total price of approximately $27.0 million including the repayment of
approximately $2.7 million in indebtedness. The total purchase price was paid
with approximately $18.2 million in cash and Class A Common Stock with a market
value of approximately $8.3 million as of the closing date of the acquisition.
The remaining $0.5 million of the cash portion of the purchase price is payable
in December 1998.
F-73
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDER OF
DYER & DYER, INC.
Atlanta, Georgia
We have audited the accompanying balance sheets of Dyer & Dyer, Inc. (the
"Company") as of December 31, 1995 and 1996, and the related statements of
income, stockholder's equity, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of December
31, 1995 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 1996 in conformity
with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
August 7, 1997
F-74
<PAGE>
DYER & DYER, INC.
BALANCE SHEETS
December 31, 1995 and 1996 and June 30, 1997
<TABLE>
<CAPTION>
December 31,
------------------------------- June 30,
1995 1996 1997
--------------- --------------- --------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ...................................... $ 1,522,546 $ 941,280 $ 172,937
Receivables .................................................... 432,779 1,213,846 2,535,230
Inventories (Notes 1 and 2) .................................... 9,043,156 15,071,313 11,128,333
Prepaid expenses ............................................... 274,998 103,958 32,267
------------ ------------ ------------
Total current assets ........................................ 11,273,479 17,330,397 13,868,767
PROPERTY AND EQUIPMENT, NET (Notes 1 and 3) ..................... 774,909 1,279,774 1,156,207
OTHER ASSETS .................................................... 287,628 292,250 297,424
------------ ------------ ------------
TOTAL ASSETS .................................................... $ 12,336,016 $ 18,902,421 $ 15,322,398
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable, floor plan (Note 2) ............................. $ 2,610,935 $ 7,146,245 $ 5,533,925
Trade accounts payable ......................................... 511,292 1,131,472 --
Income taxes payable (Notes 1 and 5) ........................... -- 238,712 238,712
Accrued payroll and bonuses .................................... 82,183 229,297 277,377
Other accrued liabilities ...................................... 196,537 261,932 235,360
------------ ------------ ------------
Total current liabilities ................................... 3,400,947 9,007,658 6,285,374
INCOME TAXES PAYABLE (Note 5) ................................... 21,012 477,423 238,711
COMMITMENTS (Note 4)
STOCKHOLDER'S EQUITY:
Common stock, $100 par value--3,000 shares authorized; 1,531
shares issued; 781 shares outstanding ........................ 153,100 153,100 153,100
Paid-in capital ................................................ 27,623 27,623 27,623
Retained earnings .............................................. 13,709,477 14,212,760 13,593,733
------------ ------------ ------------
Total ....................................................... 13,890,200 14,393,483 13,774,456
Less treasury stock (750 shares at cost) ....................... (4,976,143) (4,976,143) (4,976,143)
------------ ------------ ------------
Total stockholder's equity .................................. 8,914,057 9,417,340 8,798,313
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY ...................... $ 12,336,016 $ 18,902,421 $ 15,322,398
============ ============ ============
</TABLE>
See notes to financial statements.
F-75
<PAGE>
DYER & DYER, INC.
STATEMENTS OF INCOME
Years ended December 31, 1994, 1995 and 1996
and the six months ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
-------------------------------------------- -----------------------------
1994 1995 1996 1996 1997
-------------- -------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Vehicle sales ........................... $52,245,947 $52,613,480 $60,870,919 $30,767,026 $31,373,513
Parts, service and collision repair ..... 8,680,440 9,097,763 11,163,230 5,481,708 5,960,212
Finance and insurance (Note 1) .......... 203,198 404,505 542,474 213,711 128,911
----------- ----------- ----------- ----------- -----------
Total ................................ 61,129,585 62,115,748 72,576,623 36,462,445 37,462,636
COST OF SALES (Note 1) ................... 54,127,162 55,784,883 62,559,885 31,975,433 32,381,114
----------- ----------- ----------- ----------- -----------
GROSS PROFIT ............................. 7,002,423 6,330,865 10,016,738 4,487,012 5,081,522
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ................................ 6,154,468 5,613,128 6,984,895 3,347,148 3,494,565
DEPRECIATION AND AMORTIZATION ............ 123,228 90,538 126,359 45,451 150,621
----------- ----------- ----------- ----------- -----------
OPERATING INCOME ......................... 724,727 627,199 2,905,484 1,094,413 1,436,336
OTHER INCOME AND EXPENSE:
Interest expense, floor plan ............ 56,944 171,690 372,590 178,970 276,393
Other income ............................ 609,684 314,788 452,063 234,834 247,213
----------- ----------- ----------- ----------- -----------
Total other income (expense) ......... 552,740 143,098 79,473 55,864 (29,180)
----------- ----------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES ............... 1,277,467 770,297 2,984,957 1,150,277 1,407,156
PROVISION FOR INCOME TAXES (Notes 1
and 5) .................................. 491,365 295,850 954,846 954,846 --
----------- ----------- ----------- ----------- -----------
NET INCOME ............................... $ 786,102 $ 474,447 $ 2,030,111 $ 195,431 $ 1,407,156
=========== =========== =========== =========== ===========
PRO FORMA PROVISION FOR INCOME TAXES
(Note 5) ................................ $ 1,149,507 $ 442,972 $ 541,896
=========== =========== ===========
PRO FORMA NET INCOME (Note 5) ............ $ 1,835,450 $ 707,305 $ 865,260
=========== =========== ===========
</TABLE>
See notes to financial statements
F-76
<PAGE>
DYER & DYER, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
Years ended December 31, 1994, 1995 and 1996
and the six months ended June 30, 1997
<TABLE>
<CAPTION>
Total
Common Paid-in Treasury Retained Stockholder's
Stock Capital Stock Earnings Equity
----------- --------- ---------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE
DECEMBER 31, 1993 .............. $153,100 $27,623 $ (4,976,143) $ 12,448,928 $ 7,653,508
Net income ..................... -- -- -- 786,102 786,102
-------- ------- ------------ ------------ ------------
BALANCE
DECEMBER 31, 1994 .............. 153,100 27,623 (4,976,143) 13,235,030 8,439,610
Net income ..................... -- -- -- 474,447 474,447
-------- ------- ------------ ------------ ------------
BALANCE
DECEMBER 31, 1995 .............. 153,100 27,623 (4,976,143) 13,709,477 8,914,057
Dividends ...................... -- -- -- (1,526,828) (1,526,828)
Net income ..................... -- -- -- 2,030,111 2,030,111
-------- ------- ------------ ------------ ------------
BALANCE
DECEMBER 31, 1996 .............. 153,100 27,623 (4,976,143) 14,212,760 9,417,340
Dividends (unaudited) .......... -- -- -- (2,026,183) (2,026,183)
Net income (unaudited) ......... -- -- -- 1,407,156 1,407,156
-------- ------- ------------ ------------ ------------
BALANCE
JUNE 30, 1997 (unaudited) ...... $153,100 $27,623 $ (4,976,143) $ 13,593,733 $ 8,798,313
======== ======= ============ ============ ============
</TABLE>
See notes to financial statements.
F-77
<PAGE>
DYER & DYER, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1994, 1995 and 1996
and the six months ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
--------------------------------------------- -------------------------------
1994 1995 1996 1996 1997
------------- --------------- --------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ....................................... $ 786,102 $ 474,447 $ 2,030,111 $ 195,431 $ 1,407,156
Adjustments to reconcile net income to net
cash provided by operating activities:
(Gain) loss on disposal of fixed assets ......... 8,011 11,757 86,745 -- (116)
Depreciation and amortization ................... 123,228 90,538 126,359 45,451 150,621
Changes in assets and liabilities that relate
to operations:
(Increase) decrease in accounts receivable ...... (390,834) 191,714 (768,730) (39,751) (1,355,959)
(Increase) decrease in inventories .............. 11,184 (4,213,189) (6,028,157) (1,566,226) 3,942,980
(Increase) decrease in prepaid expenses ......... 79,966 (177,992) 171,040 218,576 71,691
Increase (decrease) in notes payable,
floor plan ..................................... (127,470) 2,581,585 4,535,310 290,990 (1,612,320)
Increase (decrease) in accounts payable ......... 7,048 498,092 620,180 (376,134) (1,131,472)
Increase (decrease) in other accrued
liabilities .................................... 105,201 (187,726) 147,106 170,944 25,008
Increase (decrease) in income taxes
payable ........................................ (20,682) 8,484 760,526 760,526 (242,212)
---------- ------------- ------------- ------------- -------------
Total adjustments .............................. (204,348) (1,196,737) (349,621) (495,624) (151,779)
---------- ------------- ------------- ------------- -------------
Net cash provided by (used) in
operating activities ......................... 581,754 (722,290) 1,680,490 (300,193) 1,255,377
---------- ------------- ------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............... (18,485) (181,259) (717,969) (14,013) (26,938)
Increase in cash value of life insurance ......... (15,398) (26,316) (4,622) (2,311) (5,174)
Deposits held by financial institutions .......... 13,001 10,849 (12,337) 22,238 34,575
---------- ------------- ------------- ------------- -------------
Net cash provided by (used) in investing
activities ................................... (20,882) (196,726) (734,928) 5,914 2,463
---------- ------------- ------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid ................................... -- -- (1,526,828) (759,810) (2,026,183)
---------- ------------- ------------- ------------- -------------
INCREASE (DECREASE) IN CASH ....................... 560,872 (919,016) (581,266) (1,054,089) (768,343)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD ........................................... 1,880,690 2,441,562 1,522,546 1,522,546 941,280
---------- ------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........ $2,441,562 $ 1,522,546 $ 941,280 $ 468,457 $ 172,937
========== ============= ============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest ........................................ $ 57,766 $ 176,464 $ 509,621 $ 247,970 $ 279,460
Income taxes .................................... $ 399,605 $ 438,810 $ 31,826 $ 31,826 $ 242,237
</TABLE>
See notes to financial statements.
F-78
<PAGE>
DYER & DYER, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- Dyer & Dyer, Inc. (the "Company") was
incorporated in South Carolina in 1978, and operates a Volvo automobile
dealership in Atlanta, Georgia. The Company sells new and used cars, sells
replacement parts, provides vehicle maintenance, warranty, paint and repair
services and arranges related financing and insurance.
In August 1997, the Company signed a definitive purchase agreement whereby
its net assets would be acquired by Sonic Automotive, Inc. ("Sonic") for $18
million. This acquisition is to be effective prior to the completion of an
anticipated public offering of common stock by Sonic Automotive in 1997. In
addition to the $18 million, the Company's stockholder will receive a warrant
entitling the holder to acquire common stock of Sonic Automotive at an exercise
price equal to the public offering stock price.
In connection with Volvo's approval of the sale of the Company to Sonic,
Volvo, among other things, conditioned its approval upon Richard Dyer,
acquiring and maintaining a 20% interest in the subsidiary of Sonic that will
operate the Volvo franchise. Mr. Dyer will finance all of the purchase price
for this 20% interest by the issuance of a promissory note to be secured by Mr.
Dyers' interest in the dealership. The principal amount of the note will be
$3.6 million and it will bear interest at the lowest applicable federal rate,
payable annually. Mr. Dyers' interest in the dealership will be redeemed and
the note will be due and payable in full when Volvo no longer requires Mr. Dyer
to maintain his interest in the dealership.
Revenue Recognition -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed.
The Company arranges financing for customers through various financial
institutions and receives a commission from the lender equal to the difference
between the interest rates charged to customers over the predetermined interest
rates set by the financing institution. The Company also receives commissions
from the sale of credit life, accident, health and disability insurance and
extended service contracts to customers. The Company may be assessed a
chargeback fee in the event of early cancellation of a loan, insurance
contract, or service contract by the customer. Finance and insurance commission
revenue is recorded net of estimated chargebacks at the time the related
contract is placed with the financial institution.
Commissions expense related to finance and insurance commission revenue is
charged to cost of sales upon recognition of such revenue, net of estimated
chargebacks. Estimated commission expense charged to cost of sales was
approximately $6,096, $8,215 and $12,388 for the years ended December 31, 1994,
1995, and 1996, respectively. Estimated commission expense charged to cost of
sales was approximately $6,411 and $3,867 for the six months ended June 30,
1996 and 1997, respectively (unaudited).
Dealer Agreements -- The Company purchases substantially all of its new
vehicles from the manufacturer at the prevailing prices charged by the
manufacturer to its franchised dealers. The Company's sales could be
unfavorably impacted by the manufacturer's unwillingness or inability to supply
the dealership with an adequate supply of new car inventory.
The dealership operates under a dealer agreement with the manufacturer
which generally restricts the location, management and ownership of the
dealership. The ability of the Company to acquire additional franchises may be
limited due to certain restrictions imposed by the manufacturer. Additionally,
the Company's ability to enter into significant acquisitions may be restricted
and the acquisition of the Company's stock by third parties may be limited by
the terms of the franchise agreement.
The manufacturer has implemented various incentive programs for its
dealers that provide for specified payments to the dealers based on the results
of customer satisfaction surveys and the implementation of certain standardized
policies and procedures. These programs are for a limited duration and remain
subject to cancellation by the manufacturer at any time. Incentive payments
credited to cost of sales amounted to approximately $210,000, $267,000 and
$1,326,000 during 1994, 1995 and 1996, respectively, and $290,000 and $912,000
for the six months ended June 30, 1996 and 1997, respectively.
Cash and Cash Equivalents -- The Company considers contracts in transit
and all highly liquid debt instruments with an initial maturity of three months
or less to be cash equivalents. Contracts in transit represent cash in transit
to the Company from finance companies related to vehicle purchases, and was
approximately $1,522,000 and $934,000 at December 31, 1995 and 1996,
respectively, and $167,000 at June 30, 1997.
F-79
<PAGE>
DYER & DYER, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- Continued
Inventories -- Inventories of new vehicles, including demonstators, are
valued at the lower of last-in, first-out ("LIFO") cost or market. Inventories
of used vehicles are stated at the lower of first-in, first-out ("FIFO") cost
or market, and parts and accessories are stated at the lower of specific cost
or market.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives of the assets. The range of estimated useful lives are
as follows:
<TABLE>
<CAPTION>
Useful Lives
-------------
<S> <C>
Office equipment and fixtures ......... 5-7
Parts and service equipment ........... 5
Company vehicles ...................... 5
</TABLE>
Leasehold improvements are amortized over the lesser of the terms of their
respective leases or the estimated useful lives of the related assets.
Expenditures for maintenance and repairs are expensed as incurred. Significant
betterments are capitalized.
Income Taxes -- For the years ended December 31, 1994 and 1995, the
Company was a C Corporation and, therefore, provided for income taxes using the
balance sheet method. There were no significant deferred tax assets and
liabilities as of December 31, 1995. Effective January 1, 1996, the Company
elected to be treated as an S Corporation for federal and state income tax
purposes. As such the Company's taxable income is included in the stockholder's
annual income tax return. Accordingly, no provision for federal or state income
taxes has been included in the Company's statements of income for the periods
beginning after December 31, 1995, except for the amounts associated with the
Company's change to an S corporation (See Note 5).
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash on deposit with financial institutions. At times, amounts invested with
financial institutions may exceed FDIC insurance limits.
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the
large number of customers comprising the trade receivables balances. Trade
receivables are concentrated in the Atlanta, Georgia area.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Advertising -- The Company expenses advertising costs in the period
incurred. Advertising expense approximated $709,000, $525,000 and $765,000
during 1994, 1995 and 1996, respectively.
Impairment of Long-Lived Assets -- Effective January 1, 1996, the Company
adopted the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Adoption of SFAS No. 121 did not have a material impact on the
Company's results of operations or financial position.
Interim Financial Information -- The accompanying unaudited financial
information for the six months ended June 30, 1996 and 1997 has been prepared
on substantially the same basis as the audited financial statements, and
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial information set forth
therein. The results of interim periods are not necessarily indicative of
results to be expected for the entire fiscal year.
F-80
<PAGE>
DYER & DYER, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
2. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------- June 30,
1995 1996 1997
------------- ------------- --------------
(Unaudited)
<S> <C> <C> <C>
New vehicles .................. $5,692,043 $ 7,980,256 $ 5,017,765
Used vehicles ................. 2,768,230 6,362,410 5,542,979
Parts and accessories ......... 503,490 586,129 420,959
Other ......................... 79,393 142,518 146,630
---------- ----------- -----------
Total ......................... $9,043,156 $15,071,313 $11,128,333
========== =========== ===========
</TABLE>
At December 31, 1995 and 1996 and at June 30, 1997, the excess of current
replacement cost over the stated LIFO valuation of new vehicles, parts and
accessories amount to $2,387,114, $2,503,330 and $2,503,330 (unaudited),
respectively.
Had the Company used the FIFO method of valuing new vehicle, parts and
accessories inventory, pretax earnings would have been $1,335,380, $1,200,776
and $3,101,173 in 1994, 1995 and 1996, respectively.
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $2,610,935 and
$7,146,245 at December 31, 1995 and 1996, respectively. The floor plan notes
bear interest, payable monthly on the outstanding balance, at the prime rate
plus 1/2% to 1 1/2% (prime rate was 8.25% at December 31, 1996). Total floor
plan interest expense amounted to $56,944, $171,690 and $372,590 in 1994, 1995
and 1996, respectively. The notes payable are due when the related vehicle is
sold. As such, these floor plan notes payable are shown as a current liability
in the accompanying balance sheets.
3. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31,
------------------------------- June 30,
1995 1996 1997
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Leasehold improvements ........................ $ 1,479,385 $ 1,885,415 $ 1,885,415
Furniture and fixtures ........................ 1,372,801 1,546,987 1,550,022
Other equipment ............................... 565,398 571,778 571,778
Computer equipment ............................ 188,851 195,598 198,428
Service vehicles .............................. 117,535 122,916 143,989
------------ ------------ ------------
3,723,970 4,322,694 4,349,632
Less accumulated depreciation and amortization (2,949,061) (3,042,920) (3,193,425)
------------ ------------ ------------
Property and equipment, net ................... $ 774,909 $ 1,279,774 $ 1,156,207
============ ============ ============
</TABLE>
F-81
<PAGE>
DYER & DYER, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
4. LEASES
The Company leases its business premises under noncancelable operating
leases for five to twenty-five year terms from a partnership partially owned by
the sole stockholder of the Company. Future minimum rental payments required
under noncancelable leases at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997 ........................ $ 754,162
1998 ........................ 756,956
1999 ........................ 759,832
2000 ........................ 762,800
2001 ........................ 765,856
Thereafter .................. 5,551,504
----------
Total ....................... $9,351,110
==========
</TABLE>
Rent expense approximated $711,000, $708,000 and $715,000 during 1994,
1995 and 1996, respectively.
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal ......... $439,714 $231,720 $811,620
State ........... 47,463 40,864 143,226
-------- -------- --------
487,177 272,584 954,846
Deferred ......... 4,188 23,266 --
-------- -------- --------
Total ............ $491,365 $295,850 $954,846
======== ======== ========
</TABLE>
Effective with the Company's S Corporation election, it was required to
recapture its December 31, 1995 LIFO reserve of approximately $2,400,000 and
pay tax on that amount for both Federal and State income tax purposes. The
taxes are payable in four equal annual installments beginning March 15, 1996.
This conversion to S Corporation status resulted in the recognition of
approximately $955,000 in income tax expense.
As a result of the Company's change to S Corporation status on January 1,
1996 (see Note 1), it is exposed to potential future taxes on built-in gains
which were present on the date of the conversion. If the planned acquisition of
the net assets of the Company described in Note 1 is consummated, the disposal
of tangible and intangible property which appreciated prior to the election of
S Corporation status will result in the assessment of the built-in gains tax.
The pro forma provision for income taxes and the pro forma net income for
the year ended December 31, 1996 and the six months ended June 30, 1996 and
1997 reflect amounts that would have been recorded had the Company's income
been taxed for federal and state purposes as if it was a C Corporation.
6. RETIREMENT PLAN
The Company has a contributory 401(k) plan covering substantially all
employees. Company contributions to the Plan are equal to 25% of the first 4%
of participant contributions. Company contributions amounted to $1,000, $18,000
and $18,000 in 1994, 1995 and 1996, respectively.
F-82
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARDS OF DIRECTORS AND STOCKHOLDERS OF
BOWERS DEALERSHIPS AND AFFILIATED COMPANIES
Chattanooga, Tennessee
We have audited the accompanying combined balance sheets of Bowers
Dealerships and Affiliated Companies (the "Company"), which are under common
ownership and management, as of December 31, 1995 and 1996, and the related
combined statements of income, stockholders' equity, and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Company as of
December 31, 1995 and 1996, and the combined results of its operations and its
combined cash flows for the years then ended in conformity with generally
accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
August 7, 1997 (October 16, 1997 as to Note 1)
F-83
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
December 31, 1995 and 1996 and June 30, 1997
<TABLE>
<CAPTION>
December 31,
--------------------------- June 30,
1995 1996 1997
------------- ------------- --------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .............................. $ 1,385,006 $ 2,738,432 $ 4,766,608
Receivables ............................................ 1,622,865 3,088,329 2,648,740
Inventories (Note 3) ................................... 10,752,116 19,605,557 30,948,007
Other current assets (Note 7) .......................... 994,715 2,067,241 2,778,937
----------- ----------- -----------
Total current assets ................................ 14,754,702 27,499,559 41,142,292
PROPERTY AND EQUIPMENT, NET (Note 4) .................... 870,400 3,825,229 4,105,822
GOODWILL, NET (Note 1) .................................. 978,735 4,374,573 8,285,460
OTHER ASSETS ............................................ 560,729 564,240 658,529
----------- ----------- -----------
TOTAL ASSETS ............................................ $17,164,566 $36,263,601 $54,192,103
=========== =========== ===========
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Notes payable -- floor plan (Note 3) ................... $10,187,565 $16,695,482 $26,771,632
Notes payable -- other (Note 6) ........................ 1,770,025 3,256,407 3,684,869
Trade accounts payable ................................. 185,858 1,012,806 1,189,736
Accrued interest ....................................... 69,164 105,505 178,143
Other accrued liabilities .............................. 580,745 1,397,118 1,424,075
Current maturities of long-term debt ................... 363,851 285,469 427,557
----------- ----------- -----------
Total current liabilities ........................... 13,157,208 22,752,787 33,676,012
----------- ----------- -----------
LONG-TERM DEBT (Note 6) ................................. 668,390 2,224,813 2,332,276
COMMITMENTS AND CONTINGENCIES (Notes 5 and 10)
EQUITY
Common stock of combined companies (Note 8): ........... 300,000 300,000 300,000
Retained earnings and members' and partners' equity .... 3,038,968 10,986,001 17,883,815
----------- ----------- -----------
Total equity ........................................ 3,338,968 11,286,001 18,183,815
----------- ----------- -----------
TOTAL LIABILITIES AND EQUITY ............................ $17,164,566 $36,263,601 $54,192,103
=========== =========== ===========
</TABLE>
See notes to combined financial statements
F-84
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF INCOME
Years ended December 31, 1995 and 1996
and the six months ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
----------------------------- -----------------------------
1995 1996 1996 1997
-------------- -------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C>
REVENUES:
Vehicle sales .................................... $67,318,855 $ 91,182,583 $37,133,540 $63,950,004
Parts, service and collision repair .............. 3,939,295 7,969,924 3,337,725 9,107,226
Finance and insurance (Note 1) ................... 1,843,590 2,337,303 1,107,834 1,496,912
----------- ------------ ----------- -----------
Total revenues ................................ 73,101,740 101,489,810 41,579,099 74,554,142
COST OF SALES (Note 1) ............................ 63,860,705 88,137,717 35,724,354 64,206,340
----------- ------------ ----------- -----------
GROSS PROFIT ...................................... 9,241,035 13,352,093 5,854,745 10,347,802
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ...... 7,724,640 11,426,205 4,887,868 8,032,401
DEPRECIATION AND AMORTIZATION ..................... 186,545 364,958 137,879 309,048
----------- ------------ ----------- -----------
OPERATING INCOME .................................. 1,329,850 1,560,930 828,998 2,006,353
OTHER INCOME AND EXPENSE:
Interest expense, floor plan ..................... 964,399 1,177,603 569,072 880,676
Interest expense, other .......................... 75,365 195,954 64,374 118,666
Other income (expense) ........................... (29,827) 120,511 21,714 421,730
----------- ------------ ----------- -----------
Total other expense ........................... 1,069,591 1,253,046 611,732 577,612
----------- ------------ ----------- -----------
INCOME BEFORE INCOME TAXES (Note 1) ............... 260,259 307,884 217,266 1,428,741
PROVISION FOR INCOME TAXES ........................ 41,879 60,851 60,215 30,927
----------- ------------ ----------- -----------
NET INCOME ........................................ $ 218,380 $ 247,033 $ 157,051 $ 1,397,814
=========== ============ =========== ===========
PRO FORMA PROVISION FOR INCOME TAXES (Note 1) ..... $ 101,709 $ 120,321 $ 84,907 $ 558,352
=========== ============ =========== ===========
PRO FORMA NET INCOME (Note 1) ..................... $ 158,550 $ 187,563 $ 132,359 $ 870,389
=========== ============ =========== ===========
</TABLE>
See notes to combined financial statements
F-85
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF EQUITY
Years ended December 31, 1995 and 1996
and the six months ended June 30, 1997
<TABLE>
<CAPTION>
Retained
Common Earnings
Stock of and Members'
Combined and Partners' Total
Companies Equity Equity
----------- --------------- -------------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 ................. $300,000 $ 1,032,746 $ 1,332,746
Capital contribution ........................ -- 1,787,842 1,787,842
Net income .................................. -- 218,380 218,380
-------- ----------- -----------
BALANCE AT DECEMBER 31, 1995 ................. 300,000 3,038,968 3,338,968
Capital contribution ........................ -- 7,700,000 7,700,000
Net income .................................. -- 247,033 247,033
-------- ----------- -----------
BALANCE AT DECEMBER 31, 1996 ................. 300,000 10,986,001 11,286,001
Capital contribution (unaudited) ............ -- 5,500,000 5,500,000
Net income (unaudited) ...................... -- 1,397,814 1,397,814
-------- ----------- -----------
BALANCE AT JUNE 30, 1997 (unaudited) ......... $300,000 $17,883,815 $18,183,815
======== =========== ===========
</TABLE>
See notes to combined financial statements.
F-86
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1996 and
the six months ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
Year ended December 31, Six months ended June 30,
------------------------------- -------------------------------
1995 1996 1996 1997
--------------- --------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................... $ 218,380 $ 247,033 $ 157,051 $ 1,397,814
------------ ------------- ------------ ------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization .......................... 186,545 364,958 137,879 309,048
Changes in assets and liabilities that relate to
operations:
(Increase) decrease in receivables .................... 479,709 (1,465,463) 492,538 439,590
(Increase) decrease in inventories .................... 149,322 (2,990,886) (129,128) (8,623,984)
Increase in other current assets ...................... (231,440) (1,072,526) (538,493) (711,698)
Increase in other non-current assets .................. (450,803) (3,511) (135,291) (94,289)
Increase (decrease) in notes payable -- floor plan..... (198,815) 6,507,915 2,301,244 10,076,150
Increase (decrease) in accounts payable and
accrued expenses ..................................... (1,151,902) 1,679,663 1,073,370 276,524
------------ ------------- ------------ ------------
Total adjustments .................................... (1,217,384) 3,020,150 3,202,119 1,671,341
------------ ------------- ------------ ------------
Net cash provided by (used in) operating
activities ........................................... (999,004) 3,267,183 3,359,170 3,069,155
------------ ------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of business, net of cash received ............... -- (9,840,438) (4,790,970) (6,718,465)
Additions to property and equipment ...................... (263,811) (2,737,742) (2,850,697) (500,528)
------------ ------------- ------------ ------------
Net cash used in investing activities ................. (263,811) (12,578,180) (7,641,667) (7,218,993)
------------ ------------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions .................................... 1,787,842 7,700,000 2,700,000 5,500,000
Proceeds from long-term debt ............................. 272,084 1,872,169 1,872,169 500,000
Payments of long-term debt ............................... (797,363) (394,129) (114,690) (250,448)
Proceeds from notes payable -- other ..................... 1,410,025 1,486,382 1,600,994 539,000
Payments of notes payable -- other ....................... (220,000) -- -- (110,538)
------------ ------------- ------------ ------------
Net cash provided by financing activities ............. 2,452,588 10,664,422 6,058,473 6,178,014
------------ ------------- ------------ ------------
NET INCREASE IN CASH ...................................... 1,189,773 1,353,425 1,775,976 2,028,176
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............ 195,234 1,385,007 1,385,007 2,738,432
------------ ------------- ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................. $ 1,385,007 $ 2,738,432 $ 3,160,983 $ 4,766,608
============ ============= ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION --
Cash paid during the period for:
Interest ................................................. $ 1,021,118 $ 1,337,216 $ 649,259 $ 926,704
Income taxes ............................................. $ 96,391 $ 76,081 $ 35,636 $ 27,620
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Net liabilities recorded from combining
affiliated companies ................................... $ 372,533 $ -- $ -- $ --
</TABLE>
See notes to combined financial statements.
F-87
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- Bowers Dealerships and Affiliated Companies
(the "Company") operates automobile dealerships in the Chattanooga and
Nashville, Tennessee areas. The Company sells new and used cars and light
trucks, sells replacement parts, provides vehicle maintenance, warranty, paint
and repair services and arranges financing and insurance. As of December 31,
1996, the Company had eight dealership locations selling new vehicles
manufactured by BMW, Chrysler, Ford, Honda, Infiniti, Jaguar, and Volkswagen.
Subsequent to December 31, 1996 the Company acquired a Dodge dealership. (see
Note 2).
The accompanying combined financial statements include the accounts of the
following entities:
<TABLE>
<CAPTION>
Name Location Structure
- -------------------------------------------------------- ------------- --------------------------
<S> <C> <C>
Cleveland Village Imports, Inc. ................. Chattanooga C Corporation
Nelson Bowers Ford, L.P. ........................ Chattanooga Limited Partnership
Infiniti of Chattanooga, Inc. ................... Chattanooga C Corporation
Cleveland Chrysler Plymouth Jeep Eagle, LLC ..... Chattanooga Limited Liability Company
Jaguar of Chattanooga, LLC ...................... Chattanooga Limited Liability Company
KIA of Chattanooga .............................. Chattanooga Limited Liability Company
European Motors of Nashville LLC ................ Nashville Limited Liability Company
European Motors LLC ............................. Chattanooga Limited Liability Company
</TABLE>
The combined financial statements have been prepared in connection with a
planned acquisition of the net assets of these entities and the aforementioned
Dodge dealership by Sonic Automotive ("Sonic"). Sonic will purchase the net
assets of the above entities for a total purchase price of $27.6 million,
comprised of $23.6 in cash and a $4 million note payable. This acquisition is
to be effective prior to the completion of an anticipated public offering of
common stock by Sonic in 1997. The accompanying combined financial statements
reflect the financial position, results of operations, and cash flows of each
of the above listed dealerships. The combination of these entities has been
accounted for at historical cost in a manner similar to a pooling-of-interest
because the entities are under common management and control. All material
intercompany transactions have been eliminated.
In connection with Volvo's approval of the sale of the Company's Volvo
dealership to Sonic, Volvo, among other things, conditioned its approval upon
Nelson Bowers, acquiring and maintaining a 20% interest in the subsidiary of
Sonic that will operate the Volvo franchise. Mr. Bowers will finance all of the
purchase price for this 20% interest by issuing a promissory note to the
subsidiary of Sonic that controls the majority interest in Chattanooga Volvo.
This note will be secured by Mr. Bowers' interest in Chattanooga Volvo. The
principal amount of the note will be approximately $900,000 and it will bear
interest at the lowest applicable federal rate payable annually. Mr. Bowers'
interest in Chattanooga Volvo will be redeemed and this note will be due and
payable in full when Volvo no longer requires Mr. Bowers to maintain his
interest in Chattanooga Volvo.
Revenue Recognition -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed.
The Company arranges financing for customers through various financial
institutions and receives a commission from the lender equal to the difference
between the interest rates charged to customers over the predetermined interest
rates set by the financing institution. The Company also receives commissions
from the sale of credit life, accident, health and disability insurance and
extended service contracts to customers. The Company may be assessed a
chargeback fee in the event of early cancellation of a loan, insurance
contract, or service contract by the customer. Finance and insurance commission
revenue is recorded net of estimated chargebacks at the time the related
contract is placed with the financial institution.
Commissions expense related to finance and insurance commission revenue is
charged to cost of sales upon recognition of such revenue, net of estimated
chargebacks. Estimated commission expense charged to cost of sales was
approximately $279,480 and $380,903 for the years ended December 31, 1995 and
1996, respectively. Estimated commission expense charged to cost of sales was
approximately $192,285 and $261,319 for the six months ended June 30, 1996 and
1997, respectively (unaudited).
F-88
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Dealer Agreements -- The Company purchases substantially all of its new
vehicles from manufacturers at the prevailing prices charged by the
manufacturer to its franchised dealers. The Company's sales could be
unfavorably impacted by the manufacturer's unwillingness or inability to supply
the dealership with an adequate supply of new car inventory.
Each dealership operates under a dealer agreement with the manufacturer
except Volkswagen of Nashville which operates under a management agreement
which generally restricts the location, management and ownership of the
respective dealership. The ability of the Company to acquire additional
franchises from a particular manufacturer may be limited due to certain
restrictions imposed by manufacturers. Additionally, the Company's ability to
enter into significant acquisitions may be restricted and the acquisition of
the Company's stock by third parties may be limited by the terms of the
franchise agreement.
Cash and Cash Equivalents -- The Company considers contracts in transit
and all highly liquid debt instruments with an initial maturity of three months
or less to be cash equivalents. Contracts in transit represent cash in transit
to the Company from finance companies related to a vehicle purchase, and was
$654,165 and $1,702,294 at December 31, 1995 and 1996, respectively.
Inventories -- Inventories of new and used vehicles, including
demonstrators, are valued at the lower of first-in, first-out ("FIFO") cost or
market, and parts and accessories are stated at the lower of specific cost or
market.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over the
estimated useful lives of the assets. The range of estimated useful lives is as
follows:
<TABLE>
<CAPTION>
Useful Lives
-------------
<S> <C>
Building ....................................... 31.5-39
Office equipment and fixtures .................. 5-7
Parts, service equipment and vehicles .......... 7
</TABLE>
Leasehold improvements are amortized over the lesser of the terms of their
respective leases or the estimated useful lives of the related assets.
Expenditures for maintenance and repairs are expensed as incurred.
Significant betterments are capitalized.
Goodwill -- Goodwill represents the excess of purchase price over the
estimated fair value of the net assets acquired and is being amortized over a
40 year period. The cumulative amount of goodwill amortization at December 31,
1995 and 1996 was $33,561 and $87,723, respectively.
The Company periodically reviews goodwill for impairment by comparing the
carrying amount of goodwill with the estimated undiscounted future cash flows
from operations of the acquired business.
Income Taxes -- With the exception of Infiniti of Chattanooga, Inc. and
Cleveland Village Imports, Inc., all entities included in the accompanying
combined financial statements are either S Corporations, Limited Partnerships
or Limited Liability Companies (LLC). As such, these entities do not pay
Federal corporate income taxes on their taxable income. In addition, the
Limited Partnerships and LLC's are not subject to state income taxes. The
stockholders or partners are liable for individual income taxes on their
respective shares of the Company's taxable income.
Because Infiniti of Chattanooga, Inc. and Cleveland Village Imports, Inc.
is a C Corporation, federal and state income taxes are provided for in the
financial statements and consist of taxes currently due plus deferred taxes. In
addition, the S Corporations are subject to Tennessee income taxes which are
provided for in the financial statements. Income taxes are provided for income
taxes using the balance sheet method. Deferred taxes result primarily from
warranty accruals and the accelerated depreciation method used for income tax
purposes. The deferred tax assets and liabilities represent the future tax
return consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or settled. In
addition, deferred tax assets are recognized for state operating losses that
are available to offset future taxable income.
F-89
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
The pro forma provision for income taxes and the pro forma net income for
the years ended December 31, 1995 and 1996, and for the six months ended June
30, 1996 and 1997 reflect amounts that would have been recorded had the
Company's income been taxed for federal and state purposes as if it was a C
Corporation.
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash deposits. At times, amounts invested with financial institutions may
exceed FDIC insurance limits.
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the
large number of customers comprising the trade receivables balances. Trade
receivables are concentrated in the Company's two market areas of Chattanooga
and Nashville, Tennessee.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Advertising -- The Company expenses advertising costs in the period
incurred. Advertising expense amounted to $744,674 and $1,132,263 for 1995 and
1996, respectively.
Impairment of Long-Lived Assets -- Effective January 1, 1996, the Company
adopted the provisions of SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of. This statement
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may be
impaired. Adoption of SFAS No. 121 did not have a material impact on the
Company's results of operations or financial position.
Interim Financial Information -- The accompanying unaudited financial
information for the six months ended June 30, 1997 has been prepared on
substantially the same basis as the audited financial statements, and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial information set forth therein. The results
of interim periods are not necessarily indicative of results to be expected for
the entire fiscal year.
2. BUSINESS ACQUISITIONS
European Motors LLC -- In May 1996, the Company acquired European Motors
LLC for a total purchase price of $4,790,970. The acquisition has been
accounted for as a purchase and the results of operations of European Motors
LLC have been included in the accompanying combined financial statements from
the date of acquisition. The total purchase price has been allocated to the
assets and liabilities acquired at their estiamted fair market value at
acquisition date as follows:
<TABLE>
<S> <C>
Inventory ...................... $3,840,970
Property and equipment ......... 250,000
Goodwill ....................... 700,000
----------
Total .......................... $4,790,970
==========
</TABLE>
F-90
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
2. BUSINESS ACQUISITIONS -- Continued
European Motors of Nashville, Inc. -- In October 1996, the Company
acquired European Motors of Nashville, Inc. The total purchase price was
$5,049,468. The acquisition has been accounted for using purchase accounting
and the results of operations of this dealership has been included in the
accompanying combined financial statements from the date of acquisition. The
total purchase price has been allocated to the assets and liabilities acquired
at their estimated fair market value at acquisition date as follows:
<TABLE>
<S> <C>
Inventory ...................... $2,003,086
Property and equipment ......... 296,382
Goodwill ....................... 2,750,000
----------
Total .......................... $5,049,468
==========
</TABLE>
Dodge of Chattanooga -- On March 1, 1997, the Company acquired Dodge of
Chattanooga for a total purchase price of $6,718,465. The acquisition has been
accounted for as a purchase and the results of operations of Dodge of
Chattanooga have been included in the accompanying unaudited combined financial
statements from the date of acquisition through June 30, 1997. The purchase
price has been allocated to the assets and liabilities acquired at their
estimated fair market value at acquisition date as follows:
<TABLE>
<S> <C>
Inventory .............. $2,718,465
Goodwill ............... 4,000,000
----------
Total .................. $6,718,465
==========
</TABLE>
The following unaudited pro forma financial data is presented as if
European Motors of Nashville, Inc. and European Motors LLC were acquired on
January 1, 1995 and January 1, 1996, respectively.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------
1995 1996
--------------- ---------------
<S> <C> <C>
Revenues ........... $130,223,683 $136,389,810
============ ============
Net income ......... $ 694,050 $ 476,033
============ ============
</TABLE>
The following unaudited pro forma financial data is presented as if Dodge
of Chattanooga, Inc. was acquired on January 1, 1996 and January 1, 1997,
respectively:
<TABLE>
<CAPTION>
Six months ended June 30,
-----------------------------
1996 1997
-------------- --------------
<S> <C> <C>
Revenues ............... $57,230,202 $78,452,142
=========== ===========
Net income ............. $ 635,737 $ 1,404,814
=========== ===========
</TABLE>
The pro forma information presented above is not necessarily indicative of
the operating results that would have occurred had European Motors of
Nashville, Inc. and European Motors LLC been acquired on January 1, 1995 and
1996, respectively and Dodge of Chattanooga on January 1, 1996 and January 1,
1997. These results are also not necessarily indicative of the results of
future operations.
F-91
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------- June 30,
1995 1996 1997
------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
New vehicles .................. $ 8,261,122 $13,622,029 $19,572,873
Used vehicles ................. 1,911,689 4,178,998 9,235,162
Parts and accessories ......... 564,263 1,707,880 1,837,802
Other ......................... 15,042 96,650 302,170
----------- ----------- -----------
Total ......................... $10,752,116 $19,605,557 $30,948,007
=========== =========== ===========
</TABLE>
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $10,187,565 and
$16,695,482 at December 31, 1995 and 1996, respectively. The floor plan notes
bear interest, that fluctuates with prime and are payable monthly on the
outstanding balance, ranging from 6.25% to 9.75% at December 31, 1996. Total
floor plan interest expense amounted to $964,399 and $1,177,603 in 1995 and
1996, respectively. The notes payable are due when the related vehicle is sold.
As such, these floor plan notes payable are shown as a current liability in the
accompanying combined balance sheets.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------- June 30,
1995 1996 1997
------------ ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Land .................................. $ -- $ 608,307 $ 638,557
Buildings and improvements ............ 22,149 1,723,644 1,723,644
Office equipment and fixtures ......... 844,823 1,208,546 1,422,551
Parts and service equipment ........... 630,827 1,200,983 1,491,388
Leasehold improvements ................ 254,693 262,260 262,261
---------- ---------- ----------
1,752,492 5,003,740 5,538,401
Less accumulated depreciation ......... 882,092 1,178,511 1,432,579
---------- ---------- ----------
Property and equipment, net ........... $ 870,400 $3,825,229 $4,105,822
========== ========== ==========
</TABLE>
5. OPERATING LEASES
The Company leases its business premises under noncancelable operating
leases for one to twenty-six year terms. Future minimum rental payments
required under noncancelable leases at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997 ........................ $ 929,765
1998 ........................ 687,431
1999 ........................ 387,120
2000 ........................ 387,120
2001 ........................ 387,120
Thereafter .................. 4,994,184
----------
Total ....................... $7,772,740
==========
</TABLE>
Rent expense under these noncancelable leases amounted to $458,999 and
$740,187 during 1995 and 1996, respectively.
F-92
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
6. FINANCING ARRANGEMENTS
Notes payable-other consists of a demand note to a bank and advances
principally from a stockholder. The stockholder advances are restricted to
investment in a cash management fund sponsored by finance companies. Other
current assets at December 31, 1995 and 1996 include $797,000 and $1,041,000,
respectively, of restricted cash in the cash management fund.
Notes payable-other consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------- June 30,
1995 1996 1997
------------- ------------- ------------
(Unaudited)
<S> <C> <C> <C>
Unsecured stockholder advances restricted for investment -- due on demand,
interest ranging from 8.5% to 9.25% ..................................... $ 552,000 $1,041,000 $1,580,000
Other unsecured non-interest bearing stockholder advances due on demand ... 1,218,025 2,215,407 2,104,869
---------- ---------- ----------
Notes payable -- other .................................................... $1,770,025 $3,256,407 $3,684,869
========== ========== ==========
</TABLE>
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------- June 30,
1995 1996 1997
------------ ------------- --------------
(Unaudited)
<S> <C> <C> <C>
Mortgage note payable on land and building with a carrying value of
$2,302,487, interest payable at 8.9%, due June 1, 2001........................ $ -- $1,799,152 $1,767,753
Note payable due to stockholder, interest payable at 9.5%, due December 31,
2001 ......................................................................... 564,000 564,000 564,000
Note payable related to purchase of dealership, due February 28, 1999 .......... -- -- 333,333
Notes payable for equipment with a carrying value of $76,608, interest payable
ranging from 9.6% to 11.18%, payable in full November 15, 1997 ............... 109,380 76,199 45,332
Note payable on company owned vehicles, with a carrying value of
approximately $20,253, bearing interest at 9.5%............................... 298,861 20,253 --
Note payable to an unrelated car dealership, due December 3, 1999 .............. 60,000 45,000 45,000
Note payable -- other .......................................................... -- 5,678 4,415
---------- ---------- ----------
1,032,241 2,510,282 2,759,833
Less current maturities ........................................................ (363,851) (285,469) (427,557)
---------- ---------- ----------
Long-term debt ................................................................. $ 668,390 $2,224,813 $2,332,276
========== ========== ==========
</TABLE>
Future maturities of the above debt at December 31, 1996 are as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997 ........................ $ 285,469
1998 ........................ 259,650
1999 ........................ 372,930
2000 ........................ 89,829
2001 ........................ 1,502,404
----------
Total ....................... $2,510,282
==========
</TABLE>
7. RELATED PARTIES
The Company operates certain dealerships at facilities leased from
affiliated companies. The leases are classified as operating leases. Future
minimum rent payments are $483,390 in 1997, $387,390 annually through 2001 and
$4,994,184 thereafter. Rent expense in 1995 and 1996 for these leases amounted
to $315,390 and $441,390, respectively.
F-93
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
7. RELATED PARTIES -- Continued
The Company has made non-interest bearing advances to stockholders
totaling $403,415, which was outstanding as of December 31, 1995 and 1996 and
June 30, 1997, respectively. These amounts are reflected in other non-current
assets in the accompanying combined balance sheets.
The Company also made advances to stockholders totaling $459,818, which
primarily relates to the purchase of real estate and the construction of a
facility owned by an entity affiliated through common ownership. This amount is
included in other current assets, as it is the opinion of Company management
that this amount will be collected in full by December 31, 1997.
The Company purchases advertising services from an entity affiliated
through common ownership. Advertising expenses from services received from this
entity included in the accompanying statements of operations for the years
ended December 31, 1995 and 1996 was $422,777 and $412,982, respectively.
The Company sells extended warranty contracts to customers related to
vehicle sales through warranty contracts procured from an entity affiliated
through common ownership. Total premiums paid to this affiliated entity for
these contracts totaled $389,620 and $453,850 for the years ended December 31,
1995 and 1996, respectively.
The Company purchases products and services from an entity affiliated
through common ownership relative to automobile etching and automobile pack
products sold to customers. Total products and services purchased for the years
ended December 31, 1995 and 1996 was $69,733 and $97,164 respectively.
For the year ended December 31, 1996, the Company paid $23,760 for
services provided to an automobile auction entity which is related through
common ownership.
8. EQUITY
During 1997, an entity affiliated through common ownership began paying
the salaries of certain executive officers and other selling, general and
administrative expenses relating to the Company. The affiliated company charged
the Company management fees during the six months ended June 30, 1997 totaling
$864,000 for the reimbursement of amounts paid by the affiliate on behalf of
the Company.
The capital structure of the entities included in the combined financial
statements of the Company at December 31, 1995 is as follows:
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------
Shares Retained Earnings
Par Shares Issued and and Members' and
Value Authorized Outstanding Amount Partners' Equity
-------- ------------ ------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Cleveland Village Imports, Inc. ................. No par 2,000 2,000 $300,000 $ 552,817
Nelson Bowers Ford, L.P. ........................ -- 759,039
Cleveland Chrysler Plymouth Jeep Eagle, LLC ..... -- 562,328
Jaguar of Chattanooga, LLC ...................... -- 1,164,784
-------- ----------
$300,000 $3,038,968
======== ==========
</TABLE>
F-94
<PAGE>
BOWERS DEALERSHIPS
AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
8. EQUITY -- Continued
The capital structure of the entities included in the combined financial
statements of the Company at December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------
Shares Retained Earnings
Par Shares Issued and and Members' and
Value Authorized Outstanding Amount Partners' Equity
-------- ------------ ------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
Cleveland Village Imports, Inc. ................. No par 2,000 2,000 $300,000 $ 563,672
Nelson Bowers Ford, L.P. ........................ -- 699,958
Cleveland Chrysler Plymouth Jeep Eagle, LLC ..... -- 417,300
Jaguar of Chattanooga, LLC ...................... -- 1,141,782
European Motors of Nashville, LLC ............... -- 5,014,936
European Motors LLC ............................. -- 3,148,353
-------- -----------
$300,000 $10,986,001
======== ===========
</TABLE>
9. EMPLOYEE BENEFIT PLANS
In April 1997, the Company established a 401(k) plan, whereby
substantially all of the employees of the company meeting certain service
requirements are eligible to participate. Contributions by the Company to the
plan were not significant in any period presented.
10. CONTINGENCIES
The Company is involved in various legal proceedings. Management believes
that the outcome of such proceedings will not have a materially adverse effect
on the Company's financial position or future results of operations and cash
flows.
F-95
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
LAKE NORMAN DODGE, INC.
Cornelius, North Carolina
We have audited the accompanying combined balance sheet of Lake Norman
Dodge, Inc. and Affiliated Companies (the "Company"), which are under common
ownership and management, as of December 31, 1996, and the related combined
statements of income, stockholders' equity, and cash flows for the year then
ended. These combined financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the combined financial position of the Company as of
December 31, 1996, and the combined results of its operations and its combined
cash flows for the year then ended in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
August 7, 1997
(September 29, 1997 as to Note 1)
F-96
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
COMBINED BALANCE SHEETS
December 31, 1996 and June 30, 1997
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS (Note 4)
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 3,491,358 $ 3,466,789
Receivables ....................................... 1,998,315 2,535,247
Inventories (Note 2) .............................. 23,603,843 22,778,488
Prepaid expenses .................................. -- 243,870
----------- -----------
Total current assets ............................ 29,093,516 29,024,394
----------- -----------
PROPERTY AND EQUIPMENT, NET (Note 3) ............... 485,880 566,875
----------- -----------
OTHER ASSETS (NOTE 6):
Due from employees ................................ 281,497 302,628
Due from related partnership ...................... 159,554 159,554
----------- -----------
Total other assets .............................. 441,051 462,182
----------- -----------
TOTAL ASSETS ....................................... $30,020,447 $30,053,451
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable-floor plan (Note 2) ................. $25,957,314 $25,865,010
Trade accounts payable ............................ 1,364,121 1,351,664
Note payable to bank (Note 4) ..................... 68,168 27,644
Other accrued liabilities ......................... 765,620 472,485
Current maturities of long-term debt .............. 142,857 71,429
----------- -----------
Total current liabilities ....................... 28,298,080 27,788,232
----------- -----------
LONG-TERM DEBT (Note 4) ............................ 785,715 785,714
----------- -----------
COMMITMENTS (Note 5)
STOCKHOLDERS' EQUITY:
Common stock of combined companies ................ 75,000 75,000
Paid-in capital ................................... 600,009 600,009
Retained earnings ................................. 261,643 804,496
----------- -----------
Total stockholders' equity ...................... 936,652 1,479,505
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......... $30,020,447 $30,053,451
=========== ===========
</TABLE>
See notes to combined financial statements.
F-97
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF INCOME
Year ended December 31, 1996 and the six months ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
Year ended Six months ended June 30,
December 31, -----------------------------
1996 1996 1997
--------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Vehicle sales .............................. $124,538,878 $55,071,168 $69,798,274
Finance and insurance (Note 1) ............. 3,617,296 1,773,355 1,949,987
Parts and service .......................... 9,543,187 4,371,529 5,321,329
------------ ----------- -----------
Total revenues ........................... 137,699,361 61,216,052 77,069,590
COST OF SALES (Note 1) ...................... 122,144,997 54,058,544 68,487,590
------------ ----------- -----------
GROSS PROFIT ................................ 15,554,364 7,157,508 8,582,000
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 13,876,217 6,523,200 6,721,836
DEPRECIATION AND AMORTIZATION ............... 88,987 37,414 46,900
------------ ----------- -----------
OPERATING INCOME ............................ 1,589,160 596,894 1,813,264
------------ ----------- -----------
OTHER INCOME AND EXPENSE:
Interest expense, floor plan ............... 1,552,250 588,951 1,185,518
Interest expense, other .................... 49,540 2,880 67,647
Other income ............................... 257,747 113,277 176,322
------------ ----------- -----------
Total other expense ...................... 1,344,043 478,554 1,076,843
------------ ----------- -----------
NET INCOME .................................. $ 245,117 $ 118,340 $ 736,421
============ =========== ===========
PRO FORMA INCOME TAX PROVISION
(Note 1) ................................... $ 97,213 $ 46,934 $ 292,138
============ =========== ===========
PRO FORMA NET INCOME
(Note 1) ................................... $ 147,904 $ 71,406 $ 444,283
============ =========== ===========
</TABLE>
See notes to combined financial statements.
F-98
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
Year ended December 31, 1996 and the six months ended June 30, 1997
<TABLE>
<CAPTION>
Common Stock Total
------------------- Paid-in Retained Stockholders'
Shares Amount Capital Earnings Equity
-------- ---------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 ............ 75 $75,000 $475,009 $ 728,963 $1,278,972
Capital contribution .................. -- -- 125,000 -- 125,000
Net income ............................ -- -- -- 245,117 245,117
Distributions to owners ............... -- -- -- (712,437) (712,437)
-- ------- -------- ---------- ----------
BALANCE AT DECEMBER 31, 1996 ............ 75 75,000 600,009 261,643 936,652
Net income (unaudited) ................ -- -- -- 736,421 736,421
Distributions to owners (unaudited) ... -- -- -- (193,568) (193,568)
-- ------- -------- ---------- ----------
BALANCE AT JUNE 30, 1997 (unaudited) .... 75 $75,000 $600,009 $ 804,496 $1,479,505
== ======= ======== ========== ==========
</TABLE>
See notes to combined financial statements.
F-99
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
Year ended December 31, 1996 and the six months ended June 30, 1996 and 1997
<TABLE>
<CAPTION>
Year ended Six months ended June 30,
December 31, ---------------------------
1996 1996 1997
---------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................................. $ 245,117 $ 118,340 $ 736,421
------------- ---------- ----------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Bad debts and repossessions ........................................... 44,523 -- 9,910
Depreciation and amortization expense ................................. 88,987 37,414 46,900
Increase in LIFO reserve .............................................. 169,316 177,898 324,486
Changes in assets and liabilities that relate to operations:
Increase in receivable ............................................... (533,128) (417,366) (546,842)
Increase (decrease) in inventories ................................... (10,887,995) 1,039,475 500,867
Increase (decrease) in prepaid expenses .............................. 15,895 (271,689) (243,870)
(Increase) decrease in accounts payable .............................. 109,802 (240,517) (12,456)
(Increase) decrease in notes payable floor plan ...................... 13,226,616 547,291 (92,304)
(Increase) decrease in other accrued liabilities ..................... 488,012 1,281,747 (293,135)
------------- ---------- ----------
Total adjustments ................................................... 2,722,028 2,154,253 (306,444)
------------- ---------- ----------
Net cash provided by operating activities ........................... 2,967,145 2,272,593 429,977
------------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ..................................... (282,711) (141,084) (127,895)
Advances to employees -- net ............................................ (86,179) (87,558) (21,131)
Advances to related partnership -- net .................................. (159,553) -- --
------------- ---------- ----------
Net cash used in investing activities ............................... (528,443) (228,642) (149,026)
------------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank note ................................................. 100,000 100,000 --
Payments on bank note ................................................... (69,331) (30,214) (40,524)
Proceeds from long-term debt ............................................ 1,000,000 1,000,000 --
Payments on long-term debt .............................................. (71,429) -- (71,428)
Capital contribution .................................................... 125,000 -- --
Distributions to owners ................................................. (712,437) (540,205) (193,568)
------------- ---------- ----------
Net cash provided by (used in) financing activities ................. 371,803 529,581 (305,520)
------------- ---------- ----------
NET INCREASE (DECREASE) IN CASH .......................................... 2,810,505 2,573,532 (24,569)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ........................... 680,853 680,853 3,491,358
------------- ---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................. $ 3,491,358 $3,254,385 $3,466,789
============= ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest ................................ $ 1,601,790 $ 591,831 $1,253,165
============= ========== ==========
</TABLE>
See notes to combined financial statements.
F-100
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- Lake Norman Dodge, Inc. and Affiliated
Companies' (the "Company") operates two automobile dealerships in the
Charlotte, North Carolina area. The Company sells new and used cars and light
trucks, sells replacement parts, provides vehicle maintenance, warranty, paint
and repair services and arranges related financing and insurance.
The combined financial statements include the accounts of Lake Norman
Dodge, Inc. ("LND") and its subsidiary, Lake Norman
Chrysler-Plymouth-Jeep-Eagle, LLC ("LNCPJE") and certain proprietorships of
Phil Gandy and Quinton Gandy. LND is 100% owned by Phil Gandy and Quinton
Gandy. All significant intercompany balances and planned transactions have been
eliminated in combination.
The combined financial statements have been prepared in connection with a
planned acquisition of the net assets of these entities by Sonic Automotive,
Inc. ("Sonic"). In May 1997, the Company signed a definitive purchase agreement
whereby its outstanding capital stock would be acquired by Sonic for
$18,200,000. This acquisition was consummated on September 29, 1997, and is
being done in contemplation of an anticipated public offering of common stock
by Sonic in 1997.
The accompanying combined financial statements reflect the financial
position, results of operations, and cash flows of each of the above listed
entities. The combination of these entities has been accounted for at
historical cost in a manner similar to a pooling-of-interest because the
entities are under common management and control. All material intercompany
transactions have been eliminated.
LNCPJE was organized on March 18, 1996, as a North Carolina limited
liability company and commenced operations on July 1, 1996. The certain
proprietorships of Phil Gandy and Quinton Gandy include commissions earned
related to sales of extended warranty contracts through LND and LNCPJE, which
were paid directly to Phil Gandy and Quinton Gandy at the option of LND and
LNCPJE. Earned commissions relating to the sales of these contracts reflect a
recurring transaction relating to the dealerships and therefore these
proprietorships have been included in the accompanying combined financial
statements.
Revenue Recognition -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed.
The Company arranges financing for customers through various financial
institutions and receives a commission from the lender equal to the difference
between the interest rates charged to customers over the predetermined interest
rates set by the financing institution. The Company also receives commissions
from the sale of credit life, accident, health and disability insurance and
extended service contracts to customers. The Company may be assessed a
chargeback fee in the event of early cancellation of a loan, insurance
contract, or service contract by the customer. Finance and insurance commission
revenue is recorded net of estimated chargebacks at the time the related
contract is placed with the financial institution.
Commissions expense related to finance and insurance commission revenue is
charged to cost of sales upon recognition of such revenue, net of estimated
chargebacks. Estimated commission expense charged to cost of sales was
approximately $338,785 for the year ended December 31, 1996. Estimated
commission expense charged to cost of sales was approximately $213,529 and
$215,235 for the six months ended June 30, 1996 and 1997, respectively
(unaudited).
Dealer Agreements -- The Company purchases substantially all of its new
vehicles from manufacturers at the prevailing prices charged by the
manufacturer to its franchised dealers. The Company's sales could be
unfavorably impacted by the manufacturers' unwillingness or inability to supply
the dealership with an adequate supply of new car inventory.
Each dealership operates under a dealer agreement with the manufacturer
which generally restricts the location, management and ownership of the
respective dealership. The ability of the Company to acquire additional
franchises from a particular manufacturer may be limited due to certain
restrictions imposed by manufacturers. Additionally, the Company's ability to
enter into significant acquisitions may be restricted and the acquisition of
the Company's stock by third parties may be limited by the terms of the
franchise agreement.
Cash and Cash Equivalents -- The Company considers contracts in transit
and all highly liquid debt instruments with an initial maturity of three months
or less to be cash equivalents. Contracts in transit represent cash in transit
to the Company from finance companies related to vehicle purchases, and was
$2,110,467 at December 31, 1996.
F-101
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Inventories -- Inventories of new vehicles, including demonstrators, are
valued at the lower of last-in, first-out ("LIFO") cost or market. Inventories
of used vehicles are stated at the lower of first-in, first-out ("FIFO") cost
or market, and parts and accessories are stated at the lower of specific cost
or market.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed over the estimated useful lives of the assets using
primarily accelerated methods. The range of estimated useful lives is as
follows:
<TABLE>
<CAPTION>
Useful lives
-------------
<S> <C>
Parts and service equipment ............ 5 years
Office equipment and fixtures .......... 5-7 years
Company vehicles ....................... 5 years
</TABLE>
Leasehold improvements are amortized over the lesser of the terms of their
respective leases or the estimated useful lives of the related assets.
Expenditures for maintenance and repairs are expensed as incurred.
Significant betterments are capitalized.
Income Taxes -- LND has elected to be treated as an S Corporation for
federal and state income tax purposes, and LNCPJE is a limited liability
company (LLC). As such the stockholders and members, respectively, include
their pro rata share of the Company's taxable income for the year in their
individual income tax returns. The proprietorship income of Phil and Quinton
Gandy combined herein is also included in their personal income tax returns.
Accordingly, no provision for federal or state income taxes has been included
in the accompanying combined statement of income.
The pro forma provision for income taxes and the pro forma net income for
the year ended December 31, 1996 and for the six months ended June 30, 1996 and
1997 reflect amounts that would have been recorded had the Company's income
been taxed for federal and state purposes as if it was a C Corporation.
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash deposits. At times, amounts invested with financial institutions may
exceed FDIC insurance limits.
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the
large number of customers comprising the trade receivables balances. Trade
receivables are concentrated in the Charlotte, North Carolina metropolitan
area.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Advertising Costs -- The Company expenses all costs of advertising when
incurred. Advertising costs of $1,828,534 are included in operating expenses
for 1996.
Interim Financial Information -- The accompanying unaudited financial
information for the six months ended June 30, 1997 has been prepared on
substantially the same basis as the audited financial statements, and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial information set forth therein. The results
for interim periods are not necessarily indicative of the results to be
expected for the entire fiscal year.
The combined statement of income for the year ended December 31, 1996
includes expenses approximating $1,200,000 for discretionary bonuses to
stockholders determined at year end. Of this amount approximately $565,000 was
incurred through June 30, 1996. Given the planned acquisition by Sonic, it is
uncertain if a similar discretionary bonus will be awarded in 1997. As such, no
bonus has been accrued through June 30, 1997.
F-102
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
2. INVENTORIES AND RELATED NOTES PAYABLE -- FLOORPLAN
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
New vehicles .................. $16,617,268 $18,626,219
Used vehicles ................. 6,437,598 3,720,437
Parts and accessories ......... 548,977 431,832
----------- -----------
Total ......................... $23,603,843 $22,778,488
=========== ===========
</TABLE>
Had the Company used the FIFO method of valuing new vehicle inventory,
inventories would have been $1,564,142 higher and net income would have been
$414,432 as of and for the year ended December 31, 1996. The inventory balance
is generally reduced by the manufacturer's purchase discounts and such
reduction is not reflected in the related floor plan liability. These
manufacturer purchase discounts are standard in the industry, typically occur
on all new vehicle purchases, and are not used to offset the related floor plan
liability. These discounts are aggregated and generally paid by the
manufacturer on a quarterly basis. The related floor plan liability becomes due
as vehicles are sold.
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $25,957,314 at
December 31, 1996. The floor plan notes bear interest, payable monthly on the
outstanding balance, at the prime rate plus 0.5% (8.75% at December 31, 1996).
Total floor plan interest expense amounted to $1,552,250 in 1996. The notes
payable are due when the related vehicle is sold. As such, these floor plan
notes payable are shown as a current liability in the accompanying balance
sheet.
3. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1997
-------------- ------------
(Unaudited)
<S> <C> <C>
Service equipment ................... $ 309,944 $ 373,652
Parts and accessory equipment ....... 35,480 38,876
Vehicles ............................ 11,809 53,898
Furniture and fixtures .............. 212,155 278,479
Leasehold improvements .............. 460,097 497,345
---------- ----------
1,029,485 1,242,250
Less accumulated depreciation ....... (543,605) (675,375)
---------- ----------
Property and equipment, net ......... $ 485,880 $ 566,875
========== ==========
</TABLE>
F-103
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
4. NOTE PAYABLE TO BANK AND LONG-TERM DEBT
The note payable with a balance of $68,168 at December 31, 1996 is due in
monthly installments of $7,172, including interest at 8.25%, through October,
1997. The note is collateralized by modular buildings used in Company
operations.
In July, 1996, the Company borrowed $1,000,000 from Chrysler Financial
Corporation. Payments of $11,905 plus interest at prime plus .5% (8.75% at
December 31, 1996) are due monthly, through July, 2003. The loan is
collateralized by a security interest in all assets of LNCPJE. Principal is due
as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997 ............................ $142,857
1998 ............................ 142,857
1999 ............................ 142,857
2000 ............................ 142,857
2001 ............................ 142,857
2002 ............................ 142,857
Thereafter ...................... 71,430
--------
928,572
Less current maturities ......... 142,857
--------
Long-term debt .................. $785,715
========
</TABLE>
5. OPERATING LEASES
The Company leases its operating facilities from its shareholders under
three separate leases expiring March, 2000 and June, 2001. Monthly payments
under these leases at December 31, 1996, total $83,000. One of these leases has
an option for renewal for two additional five year terms. The Company pays all
operating costs such as utilities, repairs, maintenance and insurance relating
to these facilities. Total payments made to related parties under these leases
in 1996 were $786,000 exclusive of operating costs.
At December 31, 1996 future minimum rental payments under these operating
leases are as follows:
<TABLE>
<CAPTION>
Year
- ---------------------
<S> <C>
1997 .............. $ 996,000
1998 .............. 996,000
1999 .............. 996,000
2000 .............. 564,000
2001 .............. 210,000
----------
Total ............. $3,762,000
==========
</TABLE>
The Company leases automobiles through Chrysler Finance under twenty-four
and thirty-six month agreements expiring at various dates. The Company pays
monthly rental of varying amounts. In addition, the Company pays all operating
costs, including insurance, repairs, and maintenance. Payments under automobile
leases were $170,800 in 1996.
At December 31, 1996, minimum future lease payments under these leases are
as follows:
<TABLE>
<S> <C>
1997 ............... $216,000
1998 ............... 81,000
--------
Total .............. $297,000
========
</TABLE>
F-104
<PAGE>
LAKE NORMAN DODGE, INC. AND AFFILIATED COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- Continued
6. RELATED PARTIES
Due from Related Parties -- Due from employees includes $219,878 due from
shareholders. These amounts bear interest at the prevailing U. S. Treasury
rates for short-term debt, are noncollateralized and have no specific repayment
terms.
Amounts due from related partnership are noninterest bearing,
noncollateralized and have no specific repayment terms.
7. EMPLOYEE SAVINGS PLAN
The Company operates a savings plan under Section 401(k) of the Internal
Revenue Code. This plan allows employees to defer a portion of their income on
a pre-tax basis through plan contributions. The Company makes matching
contributions up to 2% of employee salary. Company contributions to the plan in
1996 totaled $56,800. The Company also paid plan expenses of $1,312.
F-105
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
KEN MARKS FORD, INC.
Clearwater, Florida
We have audited the accompanying balance sheet of Ken Marks Ford, Inc.
(the "Company") as of April 30, 1997, and the related statements of income,
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of April 30,
1997, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
August 26, 1997 (October 15, 1997 as to Note 1)
F-106
<PAGE>
KEN MARKS FORD, INC.
BALANCE SHEETS
April 30, 1997 and July 31, 1997
<TABLE>
<CAPTION>
April 30, July 31,
1997 1997
------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS (Note 4)
CURRENT ASSETS:
Cash and cash equivalents ................................................ $ 2,504,102 $ 2,937,429
Receivables .............................................................. 2,374,483 1,558,416
Inventories (Note 2) ..................................................... 11,216,499 11,809,574
Prepaid expenses and other current assets ................................ 529,633 265,122
Deferred income taxes (Note 5) ........................................... 91,742 91,742
----------- -----------
TOTAL CURRENT ASSETS ................................................... 16,716,459 16,662,283
PROPERTY AND EQUIPMENT (Note 3) ........................................... 470,738 530,257
OTHER ASSETS .............................................................. 14,000 14,000
----------- -----------
TOTAL ASSETS .............................................................. $17,201,197 $17,206,540
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- floor plan (Note 2) ..................................... $12,557,574 $12,720,185
Trade accounts payable ................................................... 678,252 691,537
Accrued payroll and bonuses .............................................. 836,425 718,767
Other accrued liabilities (Note 7) ....................................... 777,388 541,500
Allowance for insurance, service contract and finance income chargebacks . 224,544 224,544
Income tax payable (Note 5) .............................................. 15,161 0
----------- -----------
TOTAL CURRENT LIABILITIES .............................................. 15,089,344 14,896,533
----------- -----------
DEFERRED INCOME TAXES (Note 5) ............................................ 17,705 17,705
COMMITMENTS AND CONTINGENCIES (Notes 6 and 7)
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value, 500 shares authorized and issued........... 500 500
Paid-in capital .......................................................... 423,800 423,800
Retained earnings ........................................................ 1,669,848 1,868,002
----------- -----------
Total stockholders' equity ............................................. 2,094,148 2,292,302
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ................................ $17,201,197 $17,206,540
=========== ===========
</TABLE>
See notes to financial statements.
F-107
<PAGE>
KEN MARKS FORD, INC.
STATEMENTS OF INCOME
Year ended April 30, 1997 and the three months ended July 31, 1996 and 1997
<TABLE>
<CAPTION>
Year ended Three months ended July 31,
April 30, -----------------------------
1997 1996 1997
--------------- -------------- --------------
(Unaudited)
<S> <C> <C> <C>
REVENUES:
Vehicle sales ............................................ $130,045,246 $33,823,641 $33,167,639
Parts, service and collision repairs ..................... 13,116,124 3,660,782 2,930,561
Finance and insurance (Note 1) ........................... 2,188,071 596,854 529,109
------------ ----------- -----------
Total revenues ......................................... 145,349,441 38,081,277 36,627,309
COST OF SALES (Note 1) .................................... 127,281,076 33,231,739 32,296,634
------------ ----------- -----------
GROSS PROFIT .............................................. 18,068,365 4,849,538 4,330,675
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 7) ..... 15,333,774 3,914,881 3,542,942
DEPRECIATION AND AMORTIZATION ............................. 100,771 20,846 20,302
------------ ----------- -----------
OPERATING INCOME .......................................... 2,633,820 913,811 767,431
OTHER INCOME AND EXPENSE:
Interest expense, floor plan (Note 2) .................... 2,008,468 480,132 485,358
Other income ............................................. 140,916 16,189 40,654
------------ ----------- -----------
Total other income and expense ......................... 1,867,552 463,943 444,704
------------ ----------- -----------
INCOME BEFORE INCOME TAXES ................................ 766,268 449,868 322,727
PROVISION FOR INCOME TAXES (Note 5) ....................... 295,988 173,649 124,573
------------ ----------- -----------
NET INCOME ................................................ $ 470,280 $ 276,219 $ 198,154
============ =========== ===========
</TABLE>
See notes to financial statements.
F-108
<PAGE>
KEN MARKS FORD, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Year ended April 30, 1997 and the three months ended July 31, 1997
<TABLE>
<CAPTION>
Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
-------- ----------- ------------- --------------
<S> <C> <C> <C> <C>
BALANCE
APRIL 30, 1996 .................... $500 $423,800 $1,219,568 $1,643,868
Dividends ......................... -- -- (20,000) (20,000)
Net income ........................ -- -- 470,280 470,280
---- -------- ---------- ----------
BALANCE
APRIL 30, 1997 .................... 500 423,800 1,669,848 2,094,148
Net income (unaudited) ............ -- -- 198,154 198,154
---- -------- ---------- ----------
BALANCE
JULY 31, 1997 (unaudited) ......... $500 $423,800 $1,868,002 $2,292,302
==== ======== ========== ==========
</TABLE>
See notes to financial statements.
F-109
<PAGE>
KEN MARKS FORD, INC.
STATEMENTS OF CASH FLOWS
Year ended April 30, 1997 and the three months ended
July 31, 1996 and 1997
<TABLE>
<CAPTION>
Three months ended July 31,
Year ended ---------------------------
April 30, 1997 1996 1997
--------------- ------------- -------------
(Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .............................................................. $ 470,280 $ 276,219 $ 198,154
------------ ---------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ......................................... 100,771 20,846 20,302
Deferred income taxes ................................................. 13,763 6,600 --
Loss on disposal of property and equipment ............................ 45,192 -- --
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable ........................... (1,033,143) 323,213 816,067
(Increase) decrease in inventories ................................... 5,197,288 1,129,058 (593,075)
(Increase) decrease in prepaid expenses .............................. 429,467 (595,810) 264,511
Decrease in due from related parties ................................. 134,141 -- --
Increase (decrease) in notes payable, floor plan ..................... (3,401,971) (663,355) 162,611
Increase in trade accounts payable ................................... 322,319 219,902 13,285
Decrease in accrued payroll and bonuses .............................. (284,875) (400,442) (117,658)
Increase (decrease) in accrued expenses and other payables ........... (848,544) 484,719 (235,888)
Decrease in allowance for insurance, service contract and finance
income chargebacks .................................................. (85,107) -- --
Increase (decrease) in income tax payable ............................ (39,839) 112,049 (15,161)
------------ ---------- ----------
Total adjustments ................................................... 549,462 636,780 314,994
------------ ---------- ----------
Net cash provided by operating activities ............................. 1,019,742 912,999 513,148
------------ ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment ..................................... (183,674) (5,060) (79,821)
------------ ---------- ----------
Net cash used in investing activities ................................. (183,674) (5,060) (79,821)
------------ ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid to stockholders .......................................... (20,000) -- --
------------ ---------- ----------
Net cash used in financing activities ................................. (20,000) -- --
------------ ---------- ----------
NET INCREASE IN CASH ..................................................... 816,068 907,939 433,327
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ............................. 1,688,034 1,688,034 2,504,102
------------ ---------- ----------
CASH AND CASH EQUIVALENTS, END OF YEAR ................................... $ 2,504,102 $2,595,973 $2,937,429
============ ========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest .............................................................. $ 2,008,468 $ 480,132 $ 485,358
Income taxes .......................................................... $ 322,064 $ 55,000 $ 144,000
</TABLE>
See notes to financial statements.
F-110
<PAGE>
KEN MARKS FORD, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business -- Ken Marks Ford, Inc. (the "Company") operates
an automobile dealership in the Tampa-Clearwater areas in Florida. The Company
sells new and used cars, sells replacement parts, provides vehicle maintenance,
warranty, paint and repair services and arranges related financing and
insurance.
In July 1997, the Company signed a definitive purchase agreement whereby
its outstanding capital stock would be acquired by Sonic Automotive, Inc.
("Sonic") for $25,482,500. This acquisition was consummated on October 15,
1997, and is being done in contemplation of an anticipated public offering of
common stock by Sonic Automotive, Inc. in 1997.
Revenue Recognition -- The Company records revenue when vehicles are
delivered to customers, and when vehicle service work is performed.
The Company arranges financing for customers through various financial
institutions and receives a commission from the lender equal to the difference
between the interest rates charged to customers over the predetermined interest
rates set by the financing institution. The Company also receives commissions
from the sale of credit life, accident, health and disability insurance and
extended service contracts to customers. The Company may be assessed a
chargeback fee in the event of early cancellation of a loan, insurance
contract, or service contract by the customer. Finance and insurance commission
revenue is recorded net of estimated chargebacks at the time the related
contract is placed with the financial institution.
Commissions expense related to finance and insurance commission revenue is
charged to cost of sales upon recognition of such revenue, net of estimated
chargebacks. Estimated commission expense charged to cost of sales was
approximately $410,166 for the year ended April 30, 1997. Estimated commission
expense charged to cost of sales was approximately $120,059 and $101,237 for
the three months ended July 31, 1996 and 1997, respectively (unaudited).
Dealer Agreements -- The Company purchases substantially all of its new
vehicles from manufacturers at the prevailing prices charged by the
manufacturer to its franchised dealers. The Company's sales could be
unfavorably impacted by the manufacturer's unwillingness or inability to supply
the dealership with an adequate supply of new car inventory. Each dealership
operates under a dealer agreement with the manufacturer. These agreements
generally restrict the location, management and ownership of the respective
dealership.
Cash and Cash Equivalents -- The Company considers contracts in transit
and all highly liquid debt instruments with an initial maturity of three months
or less to be cash equivalents. Contracts in transit represent cash in transit
to the Company from finance companies related to vehicle purchases, and was
approximately $628,000 at April 30, 1997.
Inventories -- Inventories of new vehicles, including demonstrators, are
valued at the lower of last-in, first-out ("LIFO") cost or market. Inventories
of parts and accessories are valued on a LIFO basis using the Current Year
Parts Price Index. Inventories of used vehicles are valued on a specific
identification basis.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation is computed using straight-line and accelerated methods over
the estimated useful lives of the assets. The range of estimated useful lives
is as follows:
<TABLE>
<CAPTION>
Useful Lives
-------------
<S> <C>
Leasehold improvements ........... 18-31 years
Machinery and equipment .......... 5-7 years
Furniture and fixtures ........... 5-7 years
</TABLE>
Income Taxes -- Deferred income tax assets and liabilities are determined
based on the difference between financial reporting and tax basis of assets and
liabilities, and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
Concentrations of Credit Risk -- Financial instruments which potentially
subject the Company to concentrations of credit risk consist principally of
cash deposits. At times, amounts invested with financial institutions may
exceed FDIC insurance limits.
F-111
<PAGE>
KEN MARKS FORD, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- Continued
Concentrations of credit risk with respect to receivables are limited
primarily to automobile manufacturers and financial institutions. Credit risk
arising from trade receivables from commercial customers is reduced by the
large number of customers comprising the trade receivables balance. Trade
receivables are concentrated in the Tampa-Clearwater metropolitan area.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Advertising -- The Company expenses advertising costs in the period
incurred. Advertising expenses approximated $991,000 for the year ended April
30, 1997.
2. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories consist of the following:
<TABLE>
<CAPTION>
April 30, July 31,
1997 1997
------------- --------------
(Unaudited)
<S> <C> <C>
New vehicles .................. $ 8,477,840 $ 9,270,932
Used vehicles ................. 2,341,929 2,193,166
Parts and accessories ......... 396,730 345,476
----------- -----------
Total ......................... $11,216,499 $11,809,574
=========== ===========
</TABLE>
At April 30, 1997, the excess of current replacement cost over the stated
LIFO valuation of new vehicles, parts and accessories amounts to $2,749,237.
The inventory balance generally is reduced by the manufacturer's purchase
discounts, and such reduction is not reflected in the related floor plan
liability. These manufacturer purchase discounts are standard in the industry,
typically occur on all new vehicle purchases, and are not used to offset the
related floor plan liability. These discounts are aggregated and generally paid
by the manufacturer on a quarterly basis. The related floor plan liability
becomes due as vehicles are sold.
Had the Company used the FIFO method of valuing new vehicle, parts and
accessories inventory, pretax earnings would have been $949,454 for the year
ended April 30, 1997.
All new vehicles are pledged to collateralize floor plan notes payable to
financial institutions in the amount of $12,557,574 at April 30, 1997. The
floor plan notes bear interest, payable monthly on the outstanding balance, at
the prime rate plus 1% (9.5% at April 30, 1997). Total floor plan interest
expense amounted to $2,008,468 during the year ended April 30, 1997. The notes
payable become due when the related vehicle is sold. As such, these floor plan
notes payable are shown as a current liability in the accompanying balance
sheet.
Certain inventory items collateralize the revolving line of credit
described in Note 4. All new vehicles and demonstrators and substantially all
parts and accessories are purchased from Ford Motor Company.
3. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment is comprised of the following:
April 30, July 31,
1997 1997
------------- ------------
(Unaudited)
<S> <C> <C>
Parts and service equipment ........... $ 333,063 $ 340,284
Furniture and fixtures ................ 400,152 409,991
Leasehold improvements ................ 481,815 544,576
---------- ----------
1,215,030 1,294,851
Less accumulated depreciation ......... (744,292) (764,594)
---------- ----------
Property and equipment, net ........... $ 470,738 $ 530,257
========== ==========
</TABLE>
F-112
<PAGE>
KEN MARKS FORD, INC.
NOTES TO FINANCIAL STATEMENTS -- Continued
4. FINANCING ARRANGEMENT
The Company has a revolving line of credit with Ford Motor Credit
Corporation in the amount of $2,500,000. At April 30, 1997, no amount was
outstanding relating to this line of credit, which is collateralized by
personal guarantees from the stockholders and the net assets of the Company.
5. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
April 30,
1997
----------
<S> <C>
Current taxes ...................... $282,225
Deferred taxes ..................... 13,763
--------
Provision for income taxes ......... $295,988
========
</TABLE>
Deferred income tax assets and liabilities consist of the following:
<TABLE>
<CAPTION>
April 30,
1997
------------
<S> <C>
Deferred tax asset -- current, primarily from differences relating to finance and
insurance reserves and allowance for bad debts ................................... $ 91,742
Deferred tax liability -- long-term, primarily from differences relating to (17,705)
---------
depreciation
Net deferred tax asset ............................................................. $ 74,037
=========
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Ford Motor Company (FMC) owns vehicles which are used as short-term
rentals for which the Company pays FMC monthly fees. A portion of the fees are
applied against the purchase price the Company must pay for the vehicles when
they are no longer used for rental. The contingent liability to FMC to purchase
the vehicles under this program was approximately $1,771,000 at April 30, 1997.
The Company is a defendant in various legal proceedings incurred in the
normal course of business. Management believes that the outcome of such
proceedings will not have a materially adverse effect on the Company's
financial position or future operations and cashflows.
7. RELATED PARTY TRANSACTIONS
The Company leases its operating facility from a corporation which is
owned by the Company's stockholders. The lease is currently on a month-to-month
basis. Rent charged to expense under this lease was $359,630 for the year ended
April 30, 1997. In addition, management fees of $675,000 for the year ended
April 30, 1997 were paid by the Company to the above corporation and are
included in selling, general and administrative expenses. In addition, related
party payables of $270,000 were included in other accrued liabilities at April
30, 1997.
F-113
<PAGE>
================================================================================
No dealer, salesperson or other individual has been authorized to give any
information or to make any representations not contained in this Prospectus in
connection with the offering covered by this Prospectus. If given or made, such
information or representations must not be relied upon as having been
authorized by the Issuers or the Initial Purchasers. This Prospectus does not
constitute an offer to sell, or a solicitation of an offer to buy, the Notes or
Guarantees in any jurisdiction where, or to any person to whom, it is unlawful
to make such offer or solicitation. Neither the delivery of this Prospectus nor
any sale made hereunder shall, under any circumstances, create an implication
that there has not been any change in the facts set forth in this Prospectus or
in the affairs of the Issuers since the date hereof.
--------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
---------
<S> <C>
Prospectus Summary ................................. 3
Risk Factors ....................................... 15
The Exchange Offer ................................. 27
Use of Proceeds .................................... 33
The 1998 Acquisitions .............................. 33
Capitalization ..................................... 36
Selected Consolidated Financial Data ............... 37
Unaudited Pro Forma Consolidated Financial
Data ............................................ 40
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ...................................... 48
Business ........................................... 58
Management ......................................... 71
Certain Transactions ............................... 75
Principal Stockholders ............................. 80
Description of Certain Other Indebtedness .......... 82
Description of the New Notes ....................... 84
Plan of Distribution ............................... 113
Legal Matters ...................................... 114
Experts ............................................ 114
Available Information .............................. 114
Index to Financial Statements ...................... F-1
</TABLE>
================================================================================
================================================================================
(SONIC logo)
Offer to exchange all outstanding
11% Senior Subordinated Notes Due 2008, Series A
($125,000,000 Principal Amount)
for
11% Senior Subordinated Notes Due 2008, Series B
--------------------------------
PROSPECTUS
--------------------------------
ALL TENDERED OLD NOTES, EXECUTED
LETTERS OF TRANSMITTAL AND OTHER
RELATED DOCUMENTS SHOULD BE
DIRECTED TO THE EXCHANGE AGENT.
QUESTIONS AND REQUESTS FOR ASSISTANCE
AND REQUESTS FOR ADDITIONAL COPIES OF
THE PROSPECTUS, THE LETTER OF
TRANSMITTAL AND OTHER RELATED
DOCUMENTS SHOULD BE ADDRESSED TO
THE EXCHANGE AGENT AS FOLLOWS:
BY REGISTERED OR CERTIFIED MAIL:
U.S. Bank Trust National Association
180 East Fifth Street
Mail Code: SPFT0210
St. Paul, Minnesota 55101
Attn: Specialized Finance
BY HAND OR OVERNIGHT COURIER:
U.S. Bank Trust National Association
180 East Fifth Street
Mail Code: SPFT0210
St. Paul, Minnesota 55101
Attn: Specialized Finance
BY FACSIMILE:
(612) 244-1537 (MN)
Confirm by Telephone (612) 244-5011 (MN)
(Originals of all documents submitted by facsimile should be sent promptly by
hand, overnight courier, or registered or certified mail)
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 20. Indemnification of Directors and Officers
The Company's Bylaws effectively provide that the Company shall, to the
full extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as amended from time to time ("Section 145"), indemnify all
persons whom it may indemnify pursuant thereto. In addition, the Company's
Certificate of Incorporation eliminates personal liability of its directors to
the full extent permitted by Section 102(b)(7) of the General Corporation Law
of the State of Delaware, as amended from time to time ("Section 102(b)(7)").
Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by a third party if such directors or
officers acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent
that the court in which the action or suit was brought shall determine upon
application that the defendant officers or directors are reasonably entitled to
indemnity for such expenses despite such adjudication of liability.
Section 102(b)(7) provides that a corporation may eliminate or limit that
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith of which involve
intentional misconduct or a knowing violation of law, (iii) for willful or
negligent conduct in paying dividends or repurchasing stock out of other than
lawfully available funds or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or
limit the liability of a director for any act or omission occurring prior to
the date when such provision becomes effective.
The Company maintains insurance against liabilities under the Securities
Act of 1933 for the benefit of its officers and directors.
Section 4(b) of the Registration Rights Agreement (filed as Exhibit 4.1 to
this Registration Statement) provides that the holders of the Old Notes covered
by this Registration Statement severally and not jointly will indemnify and
hold harmless the Company, the Guarantors, and their respective officers,
directors, partners, employees, representatives and agents from and against any
loss, liability, claim, damage or expense caused by any untrue statement or
omission, or alleged untrue statement or omission, in the Registration
Statement, in the Prospectus or in any amendment or supplement thereto, in each
case to the extent that the statement or omission was made in reliance upon and
in conformity with written information furnished to the Company by the holders
of the Old Notes covered by this Registration Statement expressly for use
therein, provided, however, that no such holder of the Old Notes shall be
liable for any claims hereunder in excess of the amount of net proceeds
received by such holder of the Old Notes from the sale of Registrable
Securities pursuant to such Registration Statement.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ------------------------------------------------------------------------------------------------------
<S> <C>
3.1* Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to
Exhibit 3.1 to the Registration Statement on Form S-1 (File No. 333-33295) of the Company (the
"Form S-1")).
3.2* Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the Form S-1).
4.1 Registration Rights Agreement dated as of July 31, 1998 among Sonic Automotive, Inc., the
Guarantors named therein and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith,
Incorporated, NationsBanc Montgomery Securities LLC and BancAmerica Robertson Stephens.
4.2 Indenture dated as of July 1, 1998 between Sonic Automotive, Inc. and U.S. Bank Trust National
Association.
4.3 Form of 11% Senior Subordinated Note Due 2008, Series B.
5.1* * Opinion of Parker, Poe, Adams & Bernstein L.L.P. regarding the legality of the securities being
registered.
10.1* Form of Lease Agreement to be entered into between the Company (or its subsidiaries) and Nelson E.
Bowers, II or his affiliates (incorporated by reference to Exhibit 10.1 to the Form S-1).
10.2* Form of Lease Agreement to be entered into between the Company (or its subsidiaries) and Marks
Holding Company, Inc. (incorporated by reference to Exhibit 10.2 to the Form S-1).
10.3* Lease Agreement dated as of January 1, 1995 between Lone Star Ford, Inc. and Viking Investment
Associates (incorporated by reference to Exhibit 10.3 to the Form S-1).
10.4* Lease Agreement dated as of October 23, 1979 between O. Bruton Smith, Bonnie Smith and Town and
Country Ford, Inc. (incorporated by reference to Exhibit 10.4 to the Form S-1).
10.5* North Carolina Warranty Deed dated as of April 24, 1987 between O. Bruton Smith and Bonnie Smith,
as Grantors, and STC Properties, as Grantee (incorporated by reference to Exhibit 10.5 to the Form
S-1).
10.6* Lease dated January 13, 1995 between JAG Properties LLC and Jaguar of Chattanooga LLC
(incorporated by reference to Exhibit 10.6 to the Form S-1).
10.7* Lease dated October 18, 1991 by and between Nelson E. Bowers II, Thomas M. Green, Jr., and Infiniti
of Chattanooga, Inc. (incorporated by reference to Exhibit 10.7 to the Form S-1).
10.8* Amendment to Lease Agreement dated as of January 13, 1995 among Nelson E. Bowers II,
Thomas M. Green, Jr., JAG Properties LLC and Infiniti of Chattanooga, Inc. (incorporated by
reference to Exhibit 10.8 to the Form S-1).
10.9* Lease dated March 15, 1996 between Cleveland Properties LLC and Cleveland Chrysler-Plymouth-
Jeep-Eagle LLC (incorporated by reference to Exhibit 10.9 to the Form S-1).
10.10* Lease Agreement dated January 2, 1993 among Nelson E. Bowers II, Thomas M. Green, Jr. and
Cleveland Village Imports, Inc. (incorporated by reference to Exhibit 10.10 to the Form S-1).
10.11* Ford Motor Credit Company Automotive Wholesale Plan Application for Wholesale Financing dated
August 10, 1972 by Lone Star Ford, Inc. (incorporated by reference to Exhibit 10.11 to the Form S-1).
10.12* Ford Motor Credit Company Automotive Wholesale Plan Application for Wholesale Financing and
Security Agreement dated August 22, 1984 by Town and Country Ford, Inc. (incorporated by reference
to Exhibit 10.12 to the Form S-1).
10.13* Wholesale Floor Plan Security Agreement dated October 5, 1990 between Marcus David Corporation
(d/b/a Town & Country Toyota) and World Omni Financial Corp. (incorporated by reference to Exhibit
10.13 to the Form S-1).
10.14* Demand Promissory Note dated October 5, 1990 of Marcus David Corporation (d/b/a Town & Country
Toyota) in favor of World Omni Financial Corp. (incorporated by reference to Exhibit 10.14 to the
Form S-1).
10.15* Security Agreement & Master Credit Agreement (Non-Chrysler Corporation Dealer) dated April 21,
1995 between Cleveland Chrysler-Plymouth-Jeep-Eagle LLC and Chrysler Credit Corporation
(incorporated by reference to Exhibit 10.15 to the Form S-1).
10.15a* Promissory Note dated April 21, 1995 in favor of Chrysler Credit Corporation by Cleveland Chrysler
Plymouth Jeep Eagle, LLC (incorporated by reference to Exhibit 10.15a to the Form S-1).
10.16* Promissory Note dated April 21, 1995 in favor of Chrysler Credit Corporation by Saturn of
Chattanooga, Inc. (incorporated by reference to Exhibit 10.16a to the Form S-1).
10.17* Security Agreement & Master Credit Agreement (Non-Chrysler Corporation Dealer) dated April 24,
1995 between Nelson Bowers Ford, L.P. and Chrysler Credit Corporation (incorporated by reference to
Exhibit 10.17 to the Form S-1).
10.17a* Promissory Note dated April 21, 1995 in favor of Chrysler Credit Corporation by Nelson Bowers Ford
L.P. (incorporated by reference to Exhibit 10.17a to the Form S-1).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ----------------------------------------------------------------------------------------------------
<S> <C>
10.18* Floor Plan Agreement dated May 6, 1996 between European Motors, LLC and NationsBank, N.A.
(incorporated by reference to Exhibit 10.18 to the Form S-1).
10.19* Floor Plan Agreement dated April 11, 1996 between KIA of Chattanooga, LLC and NationsBank, N.A.
(incorporated by reference to Exhibit 10.19 to the Form S-1).
10.19a* Security Agreement dated April 11, 1996 between KIA of Chattanooga, LLC and NationsBank, N.A.
(incorporated by reference to Exhibit 10.19a to the Form S-1).
10.20* Floor Plan Agreement dated October 17, 1996 between European Motors of Nashville, LLC and
NationsBank, N.A. (incorporated by reference to Exhibit 10.20 to the Form S-1).
10.20a* Security Agreement dated October 17, 1996 between European Motors of Nashville, LLC and
NationsBank, N.A. (incorporated by reference to Exhibit 10.20a to the Form S-1).
10.21* Floor Plan Agreement dated March 5, 1997 between Nelson Bowers Dodge, LLC (d/b/a Dodge of
Chattanooga) and NationsBank, N.A. (incorporated by reference to Exhibit 10.21 to the Form S-1).
10.22* Security Agreement and Master Credit Agreement dated May 15, 1996 between Lake Norman Chrysler
Plymouth Jeep Eagle, LLC and Chrysler Financial Corporation (incorporated by reference to Exhibit
10.22 to the Form S-1).
10.22a* Promissory Note dated May 15, 1996 in favor of Chrysler Financial Corporation by Lake Norman
Chrysler Plymouth Jeep Eagle, LLC (incorporated by reference to Exhibit 10.22a to the Form S-1).
10.23* Security Agreement & Capital Loan Agreement dated May 15, 1996 between Lake Norman Dodge,
Inc. and Chrysler Financial Corp. (incorporated by reference to Exhibit 10.23 to the Form S-1).
10.23a* Promissory Note dated May 15, 1996 in favor of Chrysler Financial Corporation by Lake Norman
Dodge, Inc. (incorporated by reference to Exhibit 10.23a to the Form S-1).
10.23b* Promissory Note dated May 15, 1996 in favor of Chrysler Financial Corporation by Lake Norman
Dodge, Inc. (incorporated by reference to Exhibit 10.23b to the Form S-1).
10.24* Security Agreement and Master Credit Agreement (Non-Chrysler Corporation Dealer) dated May 15,
1996 between Lake Norman Chrysler Plymouth Jeep Eagle, LLC and Chrysler Financial Corporation
(incorporated by reference to Exhibit 10.24 to the Form S-1).
10.24a* Promissory Note dated May 15, 1996 in favor of Chrysler Financial Corporation by Lake Norman
Chrysler Plymouth Jeep Eagle, LLC (incorporated by reference to Exhibit 10.24a to the Form S-1).
10.25* Floor Plan Agreement dated September 1, 1996 between NationsBank, N.A. and Dyer & Dyer, Inc.
(incorporated by reference to Exhibit 10.25 to the Form S-1).
10.25a* Security Agreement dated September 1, 1996 between NationsBank, N.A. and Dyer & Dyer, Inc.
(incorporated by reference to Exhibit 10.25a to the Form S-1).
10.26* Security Agreement and Master Credit Agreement (Non-Chrysler Corporation Dealer) dated April 21,
1995 between Cleveland Village Imports, Inc. (d/b/a Cleveland Village Honda, Inc.) and Chrysler
Credit Corporation (incorporated by reference to Exhibit 10.26 to the Form S-1).
10.27* Jaguar Credit Corporation Automotive Wholesale Plan Application for Wholesale Financing and
Security Agreement dated March 14, 1995 by Jaguar of Chattanooga LLC (incorporated by reference
to Exhibit 10.27 to the Form S-1).
10.28* Assignment of Joint Venture Interest in Chartown dated as of June 30, 1997 among Town and Country
Ford, Inc., SMDA LLC and Sonic Financial Corporation (incorporated by reference to Exhibit 10.28 to
the Form S-1).
10.29* Form of Employment Agreement between the Company and O. Bruton Smith (incorporated by
reference to Exhibit 10.29 to the Form S-1).
10.30* Form of Employment Agreement between the Company and Bryan Scott Smith (incorporated by
reference to Exhibit 10.30 to the Form S-1).
10.31* Form of Employment Agreement between the Company and Theodore M. Wright (incorporated by
reference to Exhibit 10.31 to the Form S-1).
10.32* Form of Employment Agreement between the Company and Nelson E. Bowers, II (incorporated by
reference to Exhibit 10.32 to the Form S-1).
10.33* Tax Allocation Agreement dated as of June 30, 1997 between the Company and Sonic Financial
Corporation (incorporated by reference to Exhibit 10.33 to the Form S-1).
10.34* Form of Sonic Automotive, Inc. Stock Option Plan (incorporated by reference to Exhibit 10.34 to the
Form S-1).
10.35* Form of Sonic Automotive, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit
10.35 to the Form S-1).
10.36* Subscription Agreement dated as of June 30, 1997 between O. Bruton Smith and the Company
(incorporated by reference to Exhibit 10.36 to the Form S-1).
10.37* Subscription Agreement dated as of June 30, 1997 between Sonic Financial Corporation and the
Company (incorporated by reference to Exhibit 10.37 to the Form S-1).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- -------------------------------------------------------------------------------------------------------
<S> <C>
10.38* Subscription Agreement dated as of June 30, 1997 between Bryan Scott Smith and the Company
(incorporated by reference to Exhibit 10.38 to the Form S-1).
10.39* Subscription Agreement dated as of June 30, 1997 between William S. Egan and the Company
(incorporated by reference to Exhibit 10.39 to the Form S-1).
10.40* Asset Purchase Agreement dated as of May 27, 1997 by and among Sonic Auto World, Inc., Lake
Norman Dodge, Inc., Lake Norman Chrysler-Plymouth-Jeep-Eagle LLC, Quinton M. Gandy and
Phil M. Gandy, Jr. (confidential portions omitted and filed separately with the SEC) (incorporated by
reference to Exhibit 10.40 to the Form S-1).
10.41* Asset Purchase Agreement dated as of June 24, 1997 by and among Sonic Auto World, Inc., Kia of
Chattanooga, LLC, European Motors of Nashville, LLC, European Motors, LLC, Jaguar of
Chattanooga LLC, Cleveland Chrysler-Plymouth-Jeep-Eagle LLC, Nelson Bowers Dodge, LLC,
Cleveland Village Imports, Inc., Saturn of Chattanooga, Inc., Nelson Bowers Ford, L.P., Nelson E.
Bowers II, Jeffrey C. Rachor, and the other shareholders named herein (confidential portions omitted
and filed separately with the SEC) (incorporated by reference to Exhibit 10.41 to the Form S-1).
10.41 a* Amendment to Asset Purchase Agreement dated October 16, 1997 re: Bowers Acquisition
(incorporated by reference to Exhibit 10.41a to the Form S-1).
10.42* Stock Purchase Agreement dated as of July 29, 1997 between Sonic Auto World, Inc. and Ken Marks,
Jr., O.K. Marks, Sr. and Michael J. Marks (confidential portions omitted and filed separately with the
SEC) (incorporated by reference to Exhibit 10.42 to the Form S-1).
10.43* Asset Purchase Agreement dated as of August 1997 by and among Sonic Automotive, Inc., Dyer &
Dyer, Inc. and Richard Dyer (confidential portions omitted and filed separately with the SEC)
(incorporated by reference to Exhibit 10.43 to the Form S-1).
10.43 a* Amendment to Asset Purchase Agreement dated October 16, 1997 re: Dyer Acquisition (incorporated
by reference to Exhibit 10.43a to the Form S-1).
10.44* Security Agreement and Master Credit Agreement dated April 21, 1995 between Cleveland Chrysler
Plymouth Jeep Eagle and Chrysler Credit Corporation (incorporated by reference to Exhibit 10.44 to
the Form S-1).
10.45* Promissory Note dated as of August 28, 1997 by Sonic Automotive, Inc. in favor of NationsBank,
N.A. (incorporated by reference to Exhibit 10.45 to the Form S-1).
10.46* Credit Agreement dated October 15, 1997 by and between Sonic Automotive, Inc. and Ford Motor
Credit Company (incorporated by reference to Exhibit 10.46 to the Form S-1).
10.47* Automotive Wholesale Plan Application For Wholesale Financing And Security Agreement dated
June 29, 1982 between Ford Motor Credit Company and O.K. Marks Ford, Inc. (incorporated by
reference to Exhibit 10.47 to the Form S-1).
10.48* Supplemental Agreement between the Company and Ford Motor Company (incorporated by reference
to Exhibit 10.48 to the Form S-1).
10.49* Agreement between Toyota Motors Sales USA and the Company (incorporated by reference to Exhibit
10.49 to the Form S-1).
10.50* Ford Sales and Service Agreement with Town and Country Ford (incorporated by reference to Exhibit
10.50 to the Form S-1).
10.51* Ford Sales and Service Agreement with Lone Star Ford (incorporated by reference to Exhibit 10.51 to
the Form S-1).
10.52* Ford Sales and Service Agreement with Fort Mill Ford (incorporated by reference to Exhibit 10.52 to
the Form S-1).
10.53* Ford Sales and Service Agreement with Ken Marks Ford (incorporated by reference to Exhibit 10.53 to
the Form S-1).
10.54* Ford Sales and Service Agreement with Nelson Bowers Ford (incorporated by reference to Exhibit
10.54 to the Form S-1).
10.55* Chrysler Sales and Service Agreement with Fort Mill Chrysler-Plymouth-Dodge (incorporated by
reference to Exhibit 10.55 to the Form S-1).
10.56* Plymouth Sales and Service Agreement with Fort Mill Chrysler-Plymouth-Dodge (incorporated by
reference to Exhibit 10.56 to the Form S-1).
10.57* Dodge Sales and Service Agreement with Fort Mill Chrysler-Plymouth-Dodge (incorporated by
reference to Exhibit 10.57 to the Form S-1).
10.58* Dodge Sales and Service Agreement with Sonic Dodge, LLC d/b/a Lake Norman Dodge (incorporated
by reference to Exhibit 10.58 to the Form S-1).
10.59* Chrysler Sales and Service Agreement with Sonic Chrysler-Plymouth-Jeep-Eagle, LLC d/b/a Lake
Norman Chrysler-Plymouth-Jeep-Eagle (incorporated by reference to Exhibit 10.59 to the Form S-1).
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ----------------------------------------------------------------------------------------------------------
<S> <C>
10.60* Plymouth Sales and Service Agreement with Sonic Chrysler-Plymouth-Jeep-Eagle, LLC d/b/a Lake
Norman Chrysler-Plymouth-Jeep-Eagle (incorporated by reference to Exhibit 10.60 to the Form S-1).
10.61* Jeep Sales and Service Agreement with Sonic Chrysler-Plymouth-Jeep-Eagle, LLC d/b/a Lake Norman
Chrysler-Plymouth-Jeep-Eagle (incorporated by reference to Exhibit 10.61 to the Form S-1).
10.62* Chrysler Sales and Service Agreement with Cleveland Chrysler-Plymouth-Jeep-Eagle (incorporated by
reference to Exhibit 10.62 to the Form S-1).
10.63* Plymouth Sales and Service Agreement with Cleveland Chrysler-Plymouth-Jeep-Eagle (incorporated by
reference to Exhibit 10.63 to the Form S-1).
10.64* Jeep Sales and Service Agreement with Cleveland Chrysler-Plymouth-Jeep-Eagle (incorporated by
reference to Exhibit 10.64 to the Form S-1).
10.65* Dodge Sales and Service Agreement with Nelson Bowers Dodge (incorporated by reference to Exhibit
10.65 to the Form S-1).
10.66* Volvo Authorized Retailer Agreement with European Motors, LLC d/b/a Volvo of Chattanooga
(incorporated by reference to Exhibit 10.66 to the Form S-1).
10.67* Volvo Sales Agreement with Dyer & Dyer, Inc. (incorporated by reference to Exhibit 10.67 to the
Form S-1).
10.68* Toyota Dealer Agreement with Marcus David Corporation d/b/a Town & Country Toyota (incorporated
by reference to Exhibit 10.68 to the Form S-1).
10.69* Sonic Automotive, Inc. Formula Stock Option Plan for Independent Directors (incorporated by
reference to Exhibit 10.69 to the Company's Amended Annual Report on Form 10-K/A for the year
ended December 31, 1997 (the "1997 Form 10-K/A")).
10.70* Amended and Restated Credit Agreement dated as of December 15, 1997 (the "Credit Agreement")
between Sonic Automotive, Inc., as borrower, and Ford Motor Credit Company, as lender (incorporated
by reference to Exhibit 10.70 to the 1997 Form 10-K/A).
10.71* Promissory Note dated December 15, 1997 in the amount of $75 million by Sonic Automotive, Inc., as
borrower, in favor of Ford Motor Credit Company, as lender, under the Credit Agreement (incorporated
by reference to Exhibit 10.71 to the 1997 Form 10-K/A).
10.72* Subordinated Promissory Note dated December 1, 1997 in the amount of $5.5 million by Sonic
Automotive, Inc., as borrower, in favor of O. Bruton Smith, as lender (incorporated by reference to
Exhibit 10.72 to the 1997 Form 10-K/A).
10.73* Subordination Agreement dated as of December 15, 1997 between O. Bruton Smith and Ford Motor
Credit Company and acknowledged by Sonic Automotive, Inc. (incorporated by reference to Exhibit
10.73 to the 1997 Form 10-K/A).
10.74* Asset Purchase Agreement dated December 31, 1997 between Sonic Automotive, Inc., as buyer, and
M & S Resources, Inc., Clearwater Auto Resources, Inc., and Clearwater Collision Center, Inc., as
sellers and Scott Fink, Michael Cohen, Jeffrey Schumon, and Timothy McCabe as shareholders of the
sellers (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated
March 30, 1998 (the "March 1998 Form 8-K")).
10.75* Amendment No. 1 and Supplement to Asset Purchase Agreement dated as of March 24, 1998 between
Sonic Automotive, Inc., as buyer, and M & S Resources, Inc., Clearwater Auto Resources, Inc., and
Clearwater Collision Center, Inc., as sellers and Scott Fink, Michael Cohen, Jeffrey Schumon, and
Timothy McCabe as shareholders of the sellers (incorporated by reference to Exhibit 99.2 to the March
1998 Form 8-K).
10.76* Asset Purchase Agreement dated as of February 4, 1998 between Sonic Automotive, Inc., as buyer, and
Hatfield Jeep Eagle, Inc., Hatfield Lincoln Mercury, Inc., Trader Bud's Westside Dodge, Inc., Toyota
West, Inc., and Hatfield Hyundai Inc., as sellers and Bud C. Hatfield, Dan E. Hatfield and Dan E.
Hatfield, as Trustee of the Bud C. Hatfield, Sr. Special Irrevocable Trust as shareholders of the sellers
(incorporated by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998 (the "1998 First Quarter Form 10-Q").
10.77* Agreement and Plan of Merger dated as of February 10, 1998 between Sonic Automotive, Inc., as
buyer, and Capitol Chevrolet, Inc., Capitol Imports, LTD., and Frank E. McGough, Jr., as sellers
(incorporated by reference to Exhibit 10.4 to the 1998 First Quarter Form 10-Q).
10.78* Stock Purchase Agreement dated as of March 16, 1998 between Sonic Automotive, Inc., as buyer, and
Freeman Smith, as stockholder and the other stockholders named therein (incorporated by reference to
Exhibit 10.5 to the 1998 First Quarter Form 10-Q).
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ---------------------------------------------------------------------------------------------------------
<S> <C>
10.79* Amendment No. 1 and Supplement to Asset Purchase Agreement dated as of May 28, 1998 by and
among Sonic Automotive, Inc., Hatfield Jeep Eagle, Inc., Hatfield Lincoln Mercury, Inc., Westside
Dodge, Inc., Toyota West, Inc., Hatfield Hyundai, Inc., Bud C. Hatfield, Dan E. Hatfield and Dan E.
Hatfield, as Trustee of The Bud C. Hatfield, Sr. Special Irrevocable Trust (incorporated by reference to
Exhibit 99.6 to the Company's Current Report on Form 8-K dated July 9, 1998 (the "July 9, 1998
Form 8-K")).
10.80* Asset Purchase Agreement dated April 10, 1998 by and among Sonic Automotive, Inc., Century Auto
Sales, Inc., and A. Foster McKissick, III and Murray P. McKissick (incorporated by reference to
Exhibit 99.9 to the July 9, 1998 Form 8-K).
10.81* Contract to Purchase and Sell Real Property dated as of April 10, 1998 by and between the Company,
Century Auto Sales, Inc. and Fairway Investments, LLC (incorporated by reference to Exhibit 99.10 to
the July 9, 1998 Form 8-K).
10.82* Asset Purchase Agreement dated April 10, 1998 by and among the Company, Fairway Management
Company d/b/a Heritage Lincoln-Mercury-Jaguar, and Fairway Ford, Inc (incorporated by reference to
Exhibit 99.11 to the July 9, 1998 Form 8-K).
10.83* Contract to Purchase and Sell Real Property dated as of April 10, 1998 by and between the Company
and Fairway Ford, Inc (incorporated by reference to Exhibit 99.12 to the July 9, 1998 Form 8-K).
10.84* Stock Purchase Agreement dated as of April 30, 1998 by and among the Company, Aldo B. Paret and
Casa Ford of Houston, Inc (incorporated by reference to Exhibit 99.13 to the July 9, 1998 Form 8-K).
10.85* Asset Purchase Agreement dated as of July 7, 1998 by and among the Company, HMC Finance
Corporation, Inc., Halifax Ford-Mercury, Inc., Higginbotham Automobiles, Inc., Higginbotham
Chevrolet-Oldsmobile, Inc., Sunrise Auto World, Inc. and Dennis D. Higginbotham (the
"Higginbotham Purchase Agreement") (incorporated by reference to Exhibit 99.14 to the July 9, 1998
Form 8-K).
10.85a Amendment No. 1 and Supplement to Higginbotham Purchase Agreement dated as of
September 16, 1998.
10.86* Amendment No. 2 and Supplement to Asset Purchase Agreement dated as of July 8, 1998 between
Sonic Automotive, Inc. Hatfield Jeep Eagle, Inc. Hatfield Lincoln Mercury, Inc. and Hatfield Hyundai,
Inc., Bud C. Hatfield, Dan E. Hatfield and Dan E. Hatfield, as trustee of The Bud C. Hatfield Sr.
Special Irrevocable Trust (incorporated by reference to Exhibit 99.3 to the Company's Current Report
on Form 8-K dated July 24, 1998 (the "July 24, 1998 Form 8-K")).
10.87* Strategic Alliance Agreement and Agreement for the Mutual Referral of Acquisition Opportunities
dated July 9, 1998, between Sonic Automotive, Inc. and Mar Mar Realty, L.P. (incorporated by
reference to Exhibit 99.7 to the July 24, 1998 Form 8-K).
10.88 Purchase Agreement dated as of July 28, 1998 between Sonic Automotive, Inc., the Guarantors named
therein and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith, Incorporated, NationsBanc
Montgomery Securities LLC and BancAmerica Robertson Stephens.
10.89 Subordination Agreement dated as of July 31, 1998 between O. Bruton Smith and U.S. Bank Trust
National Association.
10.90 Employment Agreement between the Company and Dennis D. Higginbotham.
11.1* Statement regarding computation of per share earnings (incorporated by reference to Exhibit 11.1 to
the 1996 Form 10-K).
12.1* Statement regarding computation of ratios.
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
23.2** Consent of Parker, Poe, Adams & Bernstein L.L.P. (included in Exhibit 5.1).
24.1 Powers of Attorney (included on the signature pages of this Registration Statement).
25.1 Form T-1 Statement of Eligibility and Qualification under the Trust Indenture Act of 1939 of U.S.
Bank Trust National Association.
27.1 Financial Data Schedule.
99.1** Form of Letter of Transmittal reporting Exchange Offer.
99.2** Notice of Guaranteed Delivery.
</TABLE>
- ---------
* Filed previously.
** To be filed by amendment.
Item 22. Undertakings
Each of the undersigned Registrants hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of such
Registrant's annual report pursuant to section 13(a) or section 15 (d) of the
Exchange Act (and,
II-6
<PAGE>
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, each of the
Registrants has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by a Registrant of expenses
incurred or paid by a director, officer or controlling person of such
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, such Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
Each of the undersigned Registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
Each of the undersigned Registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
Chairman and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive, Inc., do
hereby constitute and appoint Messrs. O. Bruton Smith, Bryan Scott Smith, and
Theodore M. Wright, each with full power of substitution, our true and lawful
attorney-in-fact and agent to do any and all acts and things in our names and
in our behalf in our capacities stated below, which acts and things either of
them may deem necessary or advisable to enable Sonic Automotive, Inc. to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for any and all of us in our names, in the capacities stated
below, any and all amendments (including post-effective amendments) hereto and
any subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that they shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------------------------------------- ---------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH Chairman, Chief Executive Officer and September 25, 1998
---------------------------------- Director (principal executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH President, Chief Operating Officer and September 25, 1998
---------------------------------- Director
Bryan Scott Smith
/s/ NELSON E. BOWERS, II Executive Vice President and Director September 25, 1998
----------------------------------
Nelson E. Bowers, II
/s/ THEODORE M. WRIGHT Chief Financial Officer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Vice President -- Finance, Treasurer,
Secretary and Director
/s/ WILLIAM P. BENTON Director September 25, 1998
----------------------------------
William P. Benton
/s/ WILLIAM R. BROOKS Director September 25, 1998
----------------------------------
William R. Brooks
/s/ WILLIAM I. BELK Director September 25, 1998
----------------------------------
William I. Belk
</TABLE>
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
CAPITOL CHEVROLET AND IMPORTS, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Capitol Chevrolet and
Imports, Inc., do hereby constitute and appoint Mr. Theodore M. Wright, with
full power of substitution, our true and lawful attorney-in-fact and agent to
do any and all acts and things in our names and in our behalf in our capacities
stated below, which acts and things he may deem necessary or advisable to
enable Capitol Chevrolet and Imports, Inc. to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but not limited to, power and authority to sign for any
and all of us in our names, in the capacities stated below, any and all
amendments (including post-effective amendments) hereto and any subsequent
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission;
and we do hereby ratify and confirm all that he shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
CASA FORD OF HOUSTON, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Casa Ford of Houston, Inc.,
do hereby constitute and appoint Mr. Theodore M. Wright, with full power of
substitution, our true and lawful attorney-in-fact and agent to do any and all
acts and things in our names and in our behalf in our capacities stated below,
which acts and things he may deem necessary or advisable to enable Casa Ford of
Houston, Inc. to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
FORT MILL CHRYSLER-PLYMOUTH-DODGE INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Fort Mill
Chrysler-Plymouth-Dodge Inc., do hereby constitute and appoint Mr. Theodore M.
Wright, with full power of substitution, our true and lawful attorney-in-fact
and agent to do any and all acts and things in our names and in our behalf in
our capacities stated below, which acts and things he may deem necessary or
advisable to enable Fort Mill Chrysler-Plymouth-Dodge Inc. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for any and all of us in our names, in the capacities stated below, any
and all amendments (including post-effective amendments) hereto and any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
FORT MILL FORD, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Fort Mill Ford, Inc., do
hereby constitute and appoint Mr. Theodore M. Wright, with full power of
substitution, our true and lawful attorney-in-fact and agent to do any and all
acts and things in our names and in our behalf in our capacities stated below,
which acts and things he may deem necessary or advisable to enable Fort Mill
Ford, Inc. to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
FREEDOM FORD, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Freedom Ford, Inc., do
hereby constitute and appoint Mr. Theodore M. Wright, with full power of
substitution, our true and lawful attorney-in-fact and agent to do any and all
acts and things in our names and in our behalf in our capacities stated below,
which acts and things he may deem necessary or advisable to enable Freedom
Ford, Inc. to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
FRONTIER OLDSMOBILE-CADILLAC, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Frontier
Oldsmobile-Cadillac, Inc., do hereby constitute and appoint Mr. Theodore M.
Wright, with full power of substitution, our true and lawful attorney-in-fact
and agent to do any and all acts and things in our names and in our behalf in
our capacities stated below, which acts and things he may deem necessary or
advisable to enable Frontier Oldsmobile-Cadillac, Inc. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for any and all of us in our names, in the capacities stated below, any
and all amendments (including post-effective amendments) hereto and any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
LONE STAR FORD, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Lone Star Ford, Inc., do
hereby constitute and appoint Mr. Theodore M. Wright, with full power of
substitution, our true and lawful attorney-in-fact and agent to do any and all
acts and things in our names and in our behalf in our capacities stated below,
which acts and things he may deem necessary or advisable to enable Lone Star
Ford, Inc. to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
MARCUS DAVID CORPORATION
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Marcus David Corporation, do
hereby constitute and appoint Mr. Theodore M. Wright, with full power of
substitution, our true and lawful attorney-in-fact and agent to do any and all
acts and things in our names and in our behalf in our capacities stated below,
which acts and things he may deem necessary or advisable to enable Marcus David
Corporation to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE OF CHATTANOOGA, LLC
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned governors and officers of Sonic Automotive of
Chattanooga, LLC, do hereby constitute and appoint Mr. Theodore M. Wright, with
full power of substitution, our true and lawful attorney-in-fact and agent to
do any and all acts and things in our names and in our behalf in our capacities
stated below, which acts and things he may deem necessary or advisable to
enable Sonic Automotive of Chattanooga, LLC to comply with the Securities Act
of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for any and all of us in our names, in the capacities stated below, any
and all amendments (including post-effective amendments) hereto and any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Governor September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Governor
</TABLE>
II-17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE-CLEARWATER, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive-Clearwater,
Inc., do hereby constitute and appoint Mr. Theodore M. Wright, with full power
of substitution, our true and lawful attorney-in-fact and agent to do any and
all acts and things in our names and in our behalf in our capacities stated
below, which acts and things he may deem necessary or advisable to enable Sonic
Automotive-Clearwater, Inc. to comply with the Securities Act of 1933, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but not limited to, power and authority to sign for any and all
of us in our names, in the capacities stated below, any and all amendments
(including post-effective amendments) hereto and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and we do
hereby ratify and confirm all that he shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE COLLISION CENTER
OF CLEARWATER, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive Collision
Center of Clearwater, Inc., do hereby constitute and appoint Mr. Theodore M.
Wright, with full power of substitution, our true and lawful attorney-in-fact
and agent to do any and all acts and things in our names and in our behalf in
our capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive Collision Center of Clearwater, Inc. to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but not limited to, power
and authority to sign for any and all of us in our names, in the capacities
stated below, any and all amendments (including post-effective amendments)
hereto and any subsequent registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE OF GEORGIA, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive of Georgia,
Inc., do hereby constitute and appoint Mr. Theodore M. Wright, with full power
of substitution, our true and lawful attorney-in-fact and agent to do any and
all acts and things in our names and in our behalf in our capacities stated
below, which acts and things he may deem necessary or advisable to enable Sonic
Automotive of Georgia, Inc. to comply with the Securities Act of 1933, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but not limited to, power and authority to sign for any and all
of us in our names, in the capacities stated below, any and all amendments
(including post-effective amendments) hereto and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and we do
hereby ratify and confirm all that he shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - HWY. 153
AT SHALLOWFORD ROAD, CHATTANOOGA, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive - Hwy. 153
at Shallowford Road, Chattanooga, Inc. do hereby constitute and appoint Mr.
Theodore M. Wright, with full power of substitution, our true and lawful
attorney-in-fact and agent to do any and all acts and things in our names and
in our behalf in our capacities stated below, which acts and things he may deem
necessary or advisable to enable Sonic Automotive - Hwy. 153 at Shallowford
Road, Chattanooga, Inc. to comply with the Securities Act of 1933, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement, including
specifically, but not limited to, power and authority to sign for any and all
of us in our names, in the capacities stated below, any and all amendments
(including post-effective amendments) hereto and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and we do
hereby ratify and confirm all that he shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE OF NASHVILLE, LLC
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned governors and officers of Sonic Automotive of
Nashville, LLC, do hereby constitute and appoint Mr. Theodore M. Wright, with
full power of substitution, our true and lawful attorney-in-fact and agent to
do any and all acts and things in our names and in our behalf in our capacities
stated below, which acts and things he may deem necessary or advisable to
enable Sonic Automotive of Nashville, LLC, to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but not limited to, power and authority to sign for any
and all of us in our names, in the capacities stated below, any and all
amendments (including post-effective amendments) hereto and any subsequent
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission;
and we do hereby ratify and confirm all that he shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Governor September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Governor
</TABLE>
II-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE OF NEVADA, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive of Nevada,
Inc., do hereby constitute and appoint Mr. Bryan Scott Smith, with full power
of substitution, our true and lawful attorney-in-fact and agent to do any and
all acts and things in our names and in our behalf in our capacities stated
below, which acts and things he may deem necessary or advisable to enable Sonic
Automotive of Nevada, Inc. to comply with the Securities Act of 1933, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but not limited to, power and authority to sign for any and all
of us in our names, in the capacities stated below, any and all amendments
(including post-effective amendments) hereto and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and we do
hereby ratify and confirm all that he shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- ------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH Chief Executive Officer and Director September 25, 1998
---------------------------------- (principal executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH President (principal financial and September 25, 1998
---------------------------------- accounting officer) and Director
Bryan Scott Smith
</TABLE>
II-23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE OF TENNESSEE, INC.
By: /s/ BRYAN SCOTT SMITH
-------------------------------------
Bryan Scott Smith
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive of
Tennessee, Inc., do hereby constitute and appoint Mr. Bryan Scott Smith, with
full power of substitution, our true and lawful attorney-in-fact and agent to
do any and all acts and things in our names and in our behalf in our capacities
stated below, which acts and things he may deem necessary or advisable to
enable Sonic Automotive of Tennessee, Inc. to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but not limited to, power and authority to sign for any
and all of us in our names, in the capacities stated below, any and all
amendments (including post-effective amendments) hereto and any subsequent
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission;
and we do hereby ratify and confirm all that he shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ------------------------------------ -------------------
<S> <C> <C>
/s/ BRYAN SCOTT SMITH President, Chief Executive Officer September 25, 1998
---------------------------------- (principal executive officer) and
Bryan Scott Smith Director
/s/ THEODORE M. WRIGHT Treasurer (principal financial and September 25, 1998
---------------------------------- accounting officer), Secretary and
Theodore M. Wright Director
</TABLE>
II-24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 1307 N. DIXIE HWY.,
NSB, INC.
By: /s/ O. BRUTON SMITH
---------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive - 1307 N.
Dixie Hwy., NSB, Inc., do hereby constitute and appoint Mr. Theodore M. Wright,
with full power of substitution, our true and lawful attorney-in-fact and agent
to do any and all acts and things in our names and in our behalf in our
capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive - 1307 N. Dixie Hwy., NSB, Inc. to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for any and all of us in our names, in the capacities stated
below, any and all amendments (including post-effective amendments) hereto and
any subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 1400 AUTOMALL DRIVE,
COLUMBUS, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive - 1400
Automall Drive, Columbus, Inc., do hereby constitute and appoint Mr. Theodore
M. Wright, with full power of substitution, our true and lawful
attorney-in-fact and agent to do any and all acts and things in our names and
in our behalf in our capacities stated below, which acts and things he may deem
necessary or advisable to enable Sonic Automotive - 1400 Automall Drive,
Columbus, Inc. to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 1455 AUTOMALL DRIVE,
COLUMBUS, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive - 1455
Automall Drive, Columbus, Inc., do hereby constitute and appoint Mr. Theodore
M. Wright, with full power of substitution, our true and lawful
attorney-in-fact and agent to do any and all acts and things in our names and
in our behalf in our capacities stated below, which acts and things he may deem
necessary or advisable to enable Sonic Automotive - 1455 Automall Drive,
Columbus, Inc. to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-27
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 1495 AUTOMALL DRIVE,
COLUMBUS, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive - 1495
Automall Drive, Columbus, Inc., do hereby constitute and appoint Mr. Theodore
M. Wright, with full power of substitution, our true and lawful
attorney-in-fact and agent to do any and all acts and things in our names and
in our behalf in our capacities stated below, which acts and things he may deem
necessary or advisable to enable Sonic Automotive - 1495 Automall Drive,
Columbus, Inc. to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-28
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 1500 AUTOMALL DRIVE,
COLUMBUS, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive - 1500
Automall Drive, Columbus, Inc., do hereby constitute and appoint Mr. Theodore
M. Wright, with full power of substitution, our true and lawful
attorney-in-fact and agent to do any and all acts and things in our names and
in our behalf in our capacities stated below, which acts and things he may deem
necessary or advisable to enable Sonic Automotive - 1500 Automall Drive,
Columbus, Inc. to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-29
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 1720 MASON AVE., DB,
INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive - 1720
Mason Ave., DB, Inc., do hereby constitute and appoint Mr. Theodore M. Wright,
with full power of substitution, our true and lawful attorney-in-fact and agent
to do any and all acts and things in our names and in our behalf in our
capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive - 1720 Mason Ave., DB, Inc. to comply with
the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for any and all of us in our names, in the capacities stated
below, any and all amendments (including post-effective amendments) hereto and
any subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 1720 MASON AVE., DB,
LLC
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned governors and officers of Sonic Automotive - 1720
Mason Ave., DB, LLC do hereby constitute and appoint Mr. Theodore M. Wright,
with full power of substitution, our true and lawful attorney-in-fact and agent
to do any and all acts and things in our names and in our behalf in our
capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive - 1720 Mason Ave., DB, LLC to comply with
the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for any and all of us in our names, in the capacities stated
below, any and all amendments (including post-effective amendments) hereto and
any subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Governor (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Governor September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Governor
</TABLE>
II-31
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 1919 N. DIXIE HWY.,
NSB, INC.
By: /s/ O. BRUTON SMITH
---------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive - 1919 N.
Dixie Hwy., NSB, Inc., do hereby constitute and appoint Mr. Theodore M. Wright,
with full power of substitution, our true and lawful attorney-in-fact and agent
to do any and all acts and things in our names and in our behalf in our
capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive - 1919 N. Dixie Hwy., NSB, Inc. to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for any and all of us in our names, in the capacities stated
below, any and all amendments (including post-effective amendments) hereto and
any subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-32
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 21699 U.S. HWY 19
N., INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive - 21699
U.S. Hwy 19 N., Inc., do hereby constitute and appoint Mr. Theodore M. Wright,
with full power of substitution, our true and lawful attorney-in-fact and agent
to do any and all acts and things in our names and in our behalf in our
capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive - 21699 U.S. Hwy 19 N., Inc. to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for any and all of us in our names, in the capacities stated
below, any and all amendments (including post-effective amendments) hereto and
any subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-33
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 241 RIDGEWOOD AVE.,
HH, INC.
By: /s/ O. BRUTON SMITH
---------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive - 241
Ridgewood Ave., HH, Inc., do hereby constitute and appoint Mr. Theodore M.
Wright, with full power of substitution, our true and lawful attorney-in-fact
and agent to do any and all acts and things in our names and in our behalf in
our capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive - 241 Ridgewood Ave., HH, Inc. to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for any and all of us in our names, in the capacities stated
below, any and all amendments (including post-effective amendments) hereto and
any subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE 2424 LAURENS RD.,
GREENVILLE, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive 2424
Laurens Rd., Greenville, Inc., do hereby constitute and appoint Mr. Theodore M.
Wright, with full power of substitution, our true and lawful attorney-in-fact
and agent to do any and all acts and things in our names and in our behalf in
our capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive 2424 Laurens Rd., Greenville, Inc. to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but not limited to, power
and authority to sign for any and all of us in our names, in the capacities
stated below, any and all amendments (including post-effective amendments)
hereto and any subsequent registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-35
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 2490 SOUTH LEE
HIGHWAY, LLC
By: /s/ O. BRUTON SMITH
---------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned governors and officers of Sonic Automotive - 2490
South Lee Highway, LLC, do hereby constitute and appoint Mr. Theodore M.
Wright, with full power of substitution, our true and lawful attorney-in-fact
and agent to do any and all acts and things in our names and in our behalf in
our capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive - 2490 South Lee Highway, LLC to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for any and all of us in our names, in the capacities stated
below, any and all amendments (including post-effective amendments) hereto and
any subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Governor September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Governor
</TABLE>
II-36
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE 2752 LAURENS RD.,
GREENVILLE, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive 2752
Laurens Rd., Greenville, Inc., do hereby constitute and appoint Mr. Theodore M.
Wright, with full power of substitution, our true and lawful attorney-in-fact
and agent to do any and all acts and things in our names and in our behalf in
our capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive 2752 Laurens Rd., Greenville, Inc. to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but not limited to, power
and authority to sign for any and all of us in our names, in the capacities
stated below, any and all amendments (including post-effective amendments)
hereto and any subsequent registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 3700 WEST BROAD
STREET,
COLUMBUS, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive - 3700 West
Broad Street, Columbus, Inc. do hereby constitute and appoint Mr. Theodore M.
Wright, with full power of substitution, our true and lawful attorney-in-fact
and agent to do any and all acts and things in our names and in our behalf in
our capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive - 3700 West Broad Street, Columbus, Inc.
to comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-38
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 3741 S. NOVA RD. PO,
INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive - 3741 S.
Nova Rd., PO, Inc., do hereby constitute and appoint Mr. Theodore M. Wright,
with full power of substitution, our true and lawful attorney-in-fact and agent
to do any and all acts and things in our names and in our behalf in our
capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive - 3741 S. Nova Rd., PO, Inc. to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for any and all of us in our names, in the capacities stated
below, any and all amendments (including post-effective amendments) hereto and
any subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 4000 WEST BROAD
STREET,
COLUMBUS, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive - 4000 West
Broad Street, Columbus, Inc., do hereby constitute and appoint Mr. Theodore M.
Wright, with full power of substitution, our true and lawful attorney-in-fact
and agent to do any and all acts and things in our names and in our behalf in
our capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive - 4000 West Broad Street, Columbus, Inc.
to comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-40
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE 5260 PEACHTREE
INDUSTRIAL
BLVD., LLC
By: /s/ O. BRUTON SMITH
---------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned governors and officers of Sonic Automotive 5260
Peachtree Industrial Blvd., LLC, do hereby constitute and appoint Mr. Theodore
M. Wright, with full power of substitution, our true and lawful
attorney-in-fact and agent to do any and all acts and things in our names and
in our behalf in our capacities stated below, which acts and things he may deem
necessary or advisable to enable Sonic Automotive 5260 Peachtree Industrial
Blvd., LLC to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Governor September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Governor
</TABLE>
II-41
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 5585 PEACHTREE
INDUSTRIAL BLVD., LLC
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned governors and officers of Sonic Automotive - 5585
Peachtree Industrial Blvd., LLC, do hereby constitute and appoint Mr. Theodore
M. Wright, with full power of substitution, our true and lawful
attorney-in-fact and agent to do any and all acts and things in our names and
in our behalf in our capacities stated below, which acts and things he may deem
necessary or advisable to enable Sonic Automotive - 5585 Peachtree Industrial
Blvd., LLC to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Governor September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Governor
</TABLE>
II-42
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC AUTOMOTIVE - 6025 INTERNATIONAL
DRIVE, LLC
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned governors and officers of Sonic Automotive - 6025
International Drive, LLC, do hereby constitute and appoint Mr. Theodore M.
Wright, with full power of substitution, our true and lawful attorney-in-fact
and agent to do any and all acts and things in our names and in our behalf in
our capacities stated below, which acts and things he may deem necessary or
advisable to enable Sonic Automotive - 6025 International Drive, LLC to comply
with the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for any and all of us in our names, in the capacities stated
below, any and all amendments (including post-effective amendments) hereto and
any subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Governor September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Governor
</TABLE>
II-43
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC CHRYSLER-PLYMOUTH-JEEP-EAGLE, LLC
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned managers and officers of Sonic
Chrysler-Plymouth-Jeep-Eagle, LLC, do hereby constitute and appoint Mr.
Theodore M. Wright, with full power of substitution, our true and lawful
attorney-in-fact and agent to do any and all acts and things in our names and
in our behalf in our capacities stated below, which acts and things he may deem
necessary or advisable to enable Sonic Chrysler-Plymouth-Jeep-Eagle, LLC to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but not limited to, power
and authority to sign for any and all of us in our names, in the capacities
stated below, any and all amendments (including post-effective amendments)
hereto and any subsequent registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-44
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC DODGE, LLC
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned managers and officers of Sonic Dodge, LLC, do hereby
constitute and appoint Mr. Theodore M. Wright, with full power of substitution,
our true and lawful attorney-in-fact and agent to do any and all acts and
things in our names and in our behalf in our capacities stated below, which
acts and things he may deem necessary or advisable to enable Sonic Dodge, LLC
to comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Manager (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Manager September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Manager
</TABLE>
II-45
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
TOWN AND COUNTRY
CHRYSLER-PLYMOUTH-JEEP, LLC
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned governors and officers of Town and Country
Chrysler-Plymouth-Jeep, LLC, do hereby constitute and appoint Mr. Theodore M.
Wright, with full power of substitution, our true and lawful attorney-in-fact
and agent to do any and all acts and things in our names and in our behalf in
our capacities stated below, which acts and things he may deem necessary or
advisable to enable Town and Country Chrysler-Plymouth-Jeep, LLC to comply with
the Securities Act of 1933, as amended, and any rules, regulations and
requirements of the Securities and Exchange Commission, in connection with this
Registration Statement, including specifically, but not limited to, power and
authority to sign for any and all of us in our names, in the capacities stated
below, any and all amendments (including post-effective amendments) hereto and
any subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Governor September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Governor
</TABLE>
II-46
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
TOWN AND COUNTRY CHRYSLER-PLYMOUTH-JEEP
OF ROCK HILL, INC.
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Town and Country
Chrysler-Plymouth-Jeep of Rock Hill, Inc., do hereby constitute and appoint Mr.
Theodore M. Wright, with full power of substitution, our true and lawful
attorney-in-fact and agent to do any and all acts and things in our names and
in our behalf in our capacities stated below, which acts and things he may deem
necessary or advisable to enable Town and Country Chrysler-Plymouth-Jeep of
Rock Hill, Inc. to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that he shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-47
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
TOWN AND COUNTRY DODGE OF
CHATTANOOGA, LLC
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned governors and officers of Town and Country Dodge of
Chattanooga, LLC, do hereby constitute and appoint Mr. Theodore M. Wright, with
full power of substitution, our true and lawful attorney-in-fact and agent to
do any and all acts and things in our names and in our behalf in our capacities
stated below, which acts and things he may deem necessary or advisable to
enable Town and Country Dodge of Chattanooga, LLC to comply with the Securities
Act of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for any and all of us in our names, in the capacities stated below, any
and all amendments (including post-effective amendments) hereto and any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Governor September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Governor
</TABLE>
II-48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
TOWN AND COUNTRY FORD, INCORPORATED
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned directors and officers of Town and Country Ford,
Incorporated, do hereby constitute and appoint Mr. Theodore M. Wright, with
full power of substitution, our true and lawful attorney-in-fact and agent to
do any and all acts and things in our names and in our behalf in our capacities
stated below, which acts and things he may deem necessary or advisable to
enable Town and Country Ford, Incorporated to comply with the Securities Act of
1933, as amended, and any rules, regulations and requirements of the Securities
and Exchange Commission, in connection with this Registration Statement,
including specifically, but not limited to, power and authority to sign for any
and all of us in our names, in the capacities stated below, any and all
amendments (including post-effective amendments) hereto and any subsequent
registration statement filed pursuant to Rule 462(b) under the Securities Act
of 1933, as amended and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission;
and we do hereby ratify and confirm all that he shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- -------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President and Director (principal September 25, 1998
---------------------------------- executive officer)
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Director
</TABLE>
II-49
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
TOWN AND COUNTRY FORD OF CLEVELAND, LLC
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned governors and officers of Town and Country Ford of
Cleveland, LLC, do hereby constitute and appoint Mr. Theodore M. Wright, with
full power of substitution, our true and lawful attorney-in-fact and agent to
do any and all acts and things in our names and in our behalf in our capacities
stated below, which acts and things he may deem necessary or advisable to
enable Town and Country Ford of Cleveland, LLC to comply with the Securities
Act of 1933, as amended, and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but not limited to, power and authority to
sign for any and all of us in our names, in the capacities stated below, any
and all amendments (including post-effective amendments) hereto and any
subsequent registration statement filed pursuant to Rule 462(b) under the
Securities Act of 1933, as amended and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission; and we do hereby ratify and confirm all that he shall do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Governor September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Governor
</TABLE>
II-50
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
TOWN AND COUNTRY JAGUAR, LLC
By: /s/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
President
POWER OF ATTORNEY
We, the undersigned governors and officers of Town and Country Jaguar,
LLC, do hereby constitute and appoint Mr. Theodore M. Wright, with full power
of substitution, our true and lawful attorney-in-fact and agent to do any and
all acts and things in our names and in our behalf in our capacities stated
below, which acts and things he may deem necessary or advisable to enable Town
and Country Jaguar, LLC to comply with the Securities Act of 1933, as amended,
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement, including
specifically, but not limited to, power and authority to sign for any and all
of us in our names, in the capacities stated below, any and all amendments
(including post-effective amendments) hereto and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and we do
hereby ratify and confirm all that he shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ----------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer) September 25, 1998
----------------------------------
O. Bruton Smith
/s/ BRYAN SCOTT SMITH Vice President and Governor September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Vice President, Treasurer (principal September 25, 1998
---------------------------------- financial and accounting officer),
Theodore M. Wright Secretary and Governor
</TABLE>
II-51
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Charlotte, state of
North Carolina, on September 25, 1998.
SONIC PEACHTREE INDUSTRIAL BLVD., L.P.
By: /s/ O. BRUTON SMITH
-------------------------------------
Sonic Automotive of Georgia, Inc.
General Partner
O. Bruton Smith, President
POWER OF ATTORNEY
We, the undersigned directors and officers of Sonic Automotive of Georgia,
Inc., as the sole General Partner of Sonic Peachtree Industrial Blvd., L.P., do
hereby constitute and appoint Messrs. O. Bruton Smith, Bryan Scott Smith, and
Theodore M. Wright, each with full power of substitution, our true and lawful
attorney-in-fact and agent to do any and all acts and things in our names and
in our behalf in our capacities stated below, which acts and things either of
them may deem necessary or advisable to enable Sonic Peachtree Industrial
Blvd., L.P. to comply with the Securities Act of 1933, as amended, and any
rules, regulations and requirements of the Securities and Exchange Commission,
in connection with this Registration Statement, including specifically, but not
limited to, power and authority to sign for any and all of us in our names, in
the capacities stated below, any and all amendments (including post-effective
amendments) hereto and any subsequent registration statement filed pursuant to
Rule 462(b) under the Securities Act of 1933, as amended and to file the same,
with all exhibits thereto, and other documents in connection therewith, with
the Securities and Exchange Commission; and we do hereby ratify and confirm all
that they shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ---------------------------------------- -------------------
<S> <C> <C>
/s/ O. BRUTON SMITH President (principal executive officer September 25, 1998
---------------------------------- of Sonic Automotive of Georgia, Inc.
O. Bruton Smith and Sonic Peachtree Industrial
Blvd., L.P.)
/s/ BRYAN SCOTT SMITH Vice President and Director September 25, 1998
----------------------------------
Bryan Scott Smith
/s/ THEODORE M. WRIGHT Treasurer (principal financial and September 25, 1998
---------------------------------- accounting officer of Sonic
Theodore M. Wright Automotive of Georgia, Inc. and
Sonic Peachtree Industrial Blvd.,
L.P.), Vice President, Secretary
and Director
</TABLE>
II-52
EXHIBIT 4.1
Registration Rights Agreement
Dated As of July 31, 1998
among
Sonic Automotive, Inc.
TOWN AND COUNTRY FORD INCORPORATED,
MARCUS DAVID CORPORATION,
FRONTIER OLDSMOBILE--CADILLAC, INC.,
SONIC DODGE, LLC,
SONIC CHRYSLER--PLYMOUTH--JEEP--EAGLE, LLC,
FORT MILL FORD, INC.,
TOWN AND COUNTRY CHRYSLER--PLYMOUTH--JEEP OF ROCK HILL, INC.,
FORT MILL CHRYSLER--PLYMOUTH--DODGE INC.,
LONE STAR FORD, INC.,
SONIC AUTOMOTIVE OF NEVADA, INC.,
SONIC AUTOMOTIVE OF TENNESSEE, INC.,
SONIC AUTOMOTIVE - 6025 INTERNATIONAL DRIVE, LLC,
SONIC AUTOMOTIVE OF NASHVILLE, LLC,
SONIC AUTOMOTIVE OF CHATTANOOGA, LLC,
TOWN AND COUNTRY JAGUAR, LLC,
TOWN AND COUNTRY CHRYSLER--PLYMOUTH--JEEP, LLC,
TOWN AND COUNTRY DODGE OF CHATTANOOGA, LLC,
SONIC AUTOMOTIVE - 2490 SOUTH LEE HIGHWAY, LLC,
TOWN AND COUNTRY FORD OF CLEVELAND, LLC,
FREEDOM FORD, INC.,
SONIC AUTOMOTIVE 5260 PEACHTREE INDUSTRIAL BLVD., LLC,
SONIC AUTOMOTIVE OF GEORGIA, INC.,
SONIC PEACHTREE INDUSTRIAL BLVD., L.P.,
SONIC AUTOMOTIVE - CLEARWATER, INC.,
SONIC AUTOMOTIVE 21699 U.S. HWY. 19 N., INC.,
SONIC AUTOMOTIVE COLLISION CENTER OF CLEARWATER, INC.,
SONIC AUTOMOTIVE - 1400 AUTOMALL DRIVE, COLUMBUS, INC.,
SONIC AUTOMOTIVE - 1455 AUTOMALL DRIVE, COLUMBUS, INC.
SONIC AUTOMOTIVE - 1495 AUTOMALL DRIVE, COLUMBUS, INC.
SONIC AUTOMOTIVE - 1500 AUTOMALL DRIVE, COLUMBUS, INC.
SONIC AUTOMOTIVE - 3700 WEST BROAD STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE - 4000 WEST BROAD STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE 2424 LAURENS RD., GREENVILLE, INC.,
SONIC AUTOMOTIVE 2752 LAURENS RD., GREENVILLE, INC.,
SONIC AUTOMOTIVE - 5585 PEACHTREE INDUSTRIAL BLVD., LLC,
CAPITOL CHEVROLET AND IMPORTS, INC.,
SONIC AUTOMOTIVE - 1919 N. DIXIE HWY., NSB, INC.,
SONIC AUTOMOTIVE - 1307 N. DIXIE HWY., NSB, INC.,
SONIC AUTOMOTIVE - 1720 MASON AVE., DB, INC.,
SONIC AUTOMOTIVE - 3741 S. NOVA RD., PO, INC. and
SONIC AUTOMOTIVE -241 RIDGEWOOD AVE., HH, INC..
SONIC AUTOMOTIVE-HWY. 153 at SHALLOWFORD ROAD, CHATTANOOGA, INC.
and
Merrill Lynch, Pierce, Fenner & Smith
Incorporated,
NationsBanc Montgomery Securities LLC
and
BancAmerica Robertson Stephens
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into this 31st day of 1998, among Sonic Automotive, Inc., a Delaware
corporation (the "Company"), and Town and Country Ford, Inc., a North Carolina
corporation, Marcus David Corporation, a North Carolina corporation, Frontier
Oldsmobile-Cadillac, Inc., a North Carolina corporation, Sonic Dodge, LLC, a
North Carolina limited liability company, Sonic Chrysler-Plymouth-Jeep-Eagle,
LLC, a North Carolina limited liability company, Fort Mill Ford, Inc., a South
Carolina corporation, Town and Country Chrysler-Plymouth-Jeep of Rock Hill,
Inc., a South Carolina corporation, Fort Mill Chrysler-Plymouth-Dodge, Inc., a
South Carolina corporation, Lone Star Ford, Inc., a Texas corporation, Sonic
Automotive of Nevada, Inc., a Nevada corporation, Sonic Automotive of Tennessee,
Inc., a Tennessee corporation, Sonic Automotive-6025 International Drive, LLC, a
Tennessee limited liability company, Sonic Automotive of Nashville, LLC, a
Tennessee limited liability company, Sonic Automotive of Chattanooga, LLC, a
Tennessee limited liability company, Town and Country Jaguar, LLC, a Tennessee
limited liability company, Town and Country Chrysler-Plymouth-Jeep, LLC, a
Tennessee limited liability company, Town and Country Dodge of Chattanooga, LLC,
a Tennessee limited liability company, Sonic Automotive-2490 South Lee Highway,
LLC, a Tennessee limited liability company, Town and Country Ford of Cleveland,
LLC, an Ohio limited liability company, Freedom Ford, Inc., a Florida
corporation, Sonic Automotive 5260 Peachtree Industrial Blvd, LLC, a Georgia
limited liability company, Sonic Automotive of Georgia, Inc., a Georgia
corporation, Sonic Peachtree Industrial Blvd., L.P., a Georgia limited
partnership, Sonic Automotive - Clearwater, Inc., a Florida corporation, Sonic
Automotive 21699 U.S. Hwy 19 N., Inc., a Florida corporation, Sonic Automotive
Collision Center of Clearwater, Inc., a Florida corporation, Sonic Automotive -
1400 Automall Drive, Columbus, Inc., an Ohio corporation, Sonic Automotive -
1455 Automall Drive, Columbus, Inc., an Ohio corporation, Sonic Automotive -
1495 Automall Drive, Columbus, Inc., an Ohio corporation, Sonic Automotive -
1500 Automall Drive, Columbus, Inc., an Ohio corporation, Sonic Automotive -
3700 West Broad Street, Columbus, Inc., an Ohio corporation, Sonic Automotive -
4000 West Broad Street, Columbus, Inc., an Ohio corporation, Sonic Automotive
2424 Laurens Rd., Greenville, Inc., a South Carolina corporation, Sonic
Automotive 2752 Laurens Rd., Greenville, Inc., a South Carolina corporation,
Sonic Automotive - 5585 Peachtree Industrial Blvd., LLC, a Georgia limited
liability company, Capitol Chevrolet and Imports, Inc., an Alabama corporation,
Sonic Automotive - 1919 N. Dixie Hwy., NSB, Inc., a Florida corporation, Sonic
Automotive - 1307 N. Dixie Hwy., NSB, Inc., a Florida corporation, Sonic
Automotive - 1720 Mason Ave., DB, Inc., Inc., a Florida corporation, Sonic
Automotive - 3741 S. Nova Rd., PO, Inc., a Florida corporation, Sonic Automotive
- - 241 Ridgewood Ave., HH, Inc., a Florida corporation and Sonic Automotive-Hwy.
153 at Shallowford Road, Chattanooga, Inc., a Tennessee corporation (each a
"Guarantor" and collectively, the "Guarantors") and Merrill Lynch, Pierce,
Fenner & Smith Incorporated, NationsBanc Montgomery
-1-
<PAGE>
Securities LLC and BancAmerica Robertson Stephens (collectively, the "Initial
Purchasers").
This Agreement is made pursuant to the Purchase Agreement, dated
July 31, 1998, among the Company, the Guarantors and the Initial Purchasers (the
"Purchase Agreement"), which provides for the sale by the Company to the Initial
Purchasers of an aggregate of $125 million principal amount of the Company's 11%
Senior Subordinated Notes due 2008, Series A, and related guarantees
(collectively, the "Securities"). In order to induce the Initial Purchasers to
enter into the Purchase Agreement, the Company has agreed to provide to the
Initial Purchasers and their direct and indirect transferees the registration
rights set forth in this Agreement. The execution of this Agreement is a
condition to the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms
shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
time to time.
"1934 Act" shall mean the Securities Exchange Act of l934, as
amended from time to time.
"Closing Date" shall mean the Closing Time as defined in the
Purchase Agreement.
"Company" shall have the meaning set forth in the preamble and shall
also include the Company's successors.
"Depositary" shall mean The Depository Trust Company, or any other
depositary appointed by the Company, provided, however, that such
depositary must have an address in the Borough of Manhattan, in the City
of New York.
"Exchange Offer" shall mean the exchange offer by the Company of
Exchange Securities for Registrable Securities pursuant to Section 2.1
hereof.
"Exchange Offer Registration" shall mean a registration under the
1933 Act effected pursuant to Section 2.1 hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such registration
statement, including the Prospectus contained therein, all exhibits
thereto and all documents incorporated by reference therein.
-2-
<PAGE>
"Exchange Period" shall have the meaning set forth in Section 2.1
hereof.
"Exchange Securities" shall mean (i) the 11% Senior Subordinated
Notes due 2008, Series B issued by the Company and (ii) the related
guarantees issued by the Guarantors, in each case under the Indenture
containing terms identical to the Securities in all material respects
(except for references to certain interest rate provisions, restrictions
on transfers and restrictive legends), to be offered to Holders of
Securities in exchange for Registrable Securities pursuant to the Exchange
Offer.
"Holder" shall mean an Initial Purchaser, for so long as it owns any
Registrable Securities, and each of its successors, assigns and direct and
indirect transferees who become registered owners of Registrable
Securities under the Indenture and each Participating Broker-Dealer that
holds Exchange Securities for so long as such Participating Broker-Dealer
is required to deliver a prospectus meeting the requirements of the 1933
Act in connection with any resale of such Exchange Securities.
"Indenture" shall mean the Indenture relating to the Securities, the
Exchange Securities and the Private Exchange Securities, dated as of July
1, 1998, between the Company and U.S. Bank Trust National Association, as
trustee, as the same may be amended, supplemented, waived or otherwise
modified from time to time in accordance with the terms thereof.
"Initial Purchaser" or "Initial Purchasers" shall have the meaning
set forth in the preamble.
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of Outstanding (as defined in the Indenture)
Registrable Securities; provided that whenever the consent or approval of
Holders of a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by the Company and other obligors
on the Securities or any Affiliate (as defined in the Indenture) of the
Company shall be disregarded in determining whether such consent or
approval was given by the Holders of such required percentage amount.
"Participating Broker-Dealer" shall mean any of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, NationsBanc Montgomery Securities LLC
and BancAmerica Robertson Stephens and any other broker-dealer which makes
a market in the Securities and exchanges Registrable Securities in the
Exchange Offer for Exchange Securities.
"Person" shall mean an individual, partnership (general or limited),
corporation, limited liability company, trust or unincorporated
organization, or a government or agency or political subdivision thereof.
"Private Exchange" shall have the meaning set forth in Section 2.1
hereof.
-3-
<PAGE>
"Private Exchange Securities" shall have the meaning set forth in
Section 2.1 hereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus
as amended or supplemented by any prospectus supplement, including any
such prospectus supplement with respect to the terms of the offering of
any portion of the Registrable Securities covered by a Shelf Registration
Statement, and by all other amendments and supplements to a prospectus,
including post-effective amendments, and in each case including all
material incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the
preamble.
"Registrable Securities" shall mean the Securities and, if issued,
the Private Exchange Securities; provided, however, that the Securities
and, if issued, the Private Exchange Securities, shall cease to be
Registrable Securities when (i) a Registration Statement with respect to
such Securities and, if issued, such Private Exchange Securities, shall
have been declared effective under the 1933 Act and such Securities or
Private Exchange Securities, as the case may be, shall have been disposed
of pursuant to such Registration Statement, (ii) such Securities and, if
issued, such Private Exchange Securities have been sold to the public
pursuant to Rule l44 (or any similar provision then in force, but not Rule
144A) under the 1933 Act, (iii) such Securities or Private Exchange
Securities, as the case may be, shall have ceased to be outstanding or
(iv) the Exchange Offer is consummated (except in the case of Securities
purchased from the Company and continued to be held by the Initial
Purchasers).
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or National Association of
Securities Dealers, Inc. (the "NASD") registration and filing fees,
including, if applicable, the fees and expenses of any "qualified
independent underwriter" (and the reasonable fees and expenses of its
counsel) that is required to be retained by any holder of Registrable
Securities in accordance with the rules and regulations of the NASD, (ii)
all fees and expenses incurred in connection with compliance with state
securities or blue sky laws and compliance with the rules of the NASD
(including reasonable fees and disbursements of counsel for any
underwriters or Holders in connection with blue sky qualification of any
of the Exchange Securities or Registrable Securities and any filings with
the NASD), (iii) all expenses of any Persons in preparing or assisting in
preparing, word processing, printing and distributing any Registration
Statement, any Prospectus, any amendments or supplements thereto, any
underwriting agreements, securities sales agreements and other documents
relating to the performance of and compliance with this Agreement, (iv)
all fees and expenses incurred in connection with the listing, if any, of
any of the Registrable Securities on any securities exchange or
-4-
<PAGE>
exchanges, (v) all rating agency fees, (vi) the fees and disbursements of
counsel for the Company and of the independent public accountants of the
Company, including the expenses of any special audits or "cold comfort"
letters required by or incident to such performance and compliance, (vii)
the fees and expenses of the Trustee, and any escrow agent or custodian,
(viii) the reasonable fees and expenses of the Initial Purchasers in
connection with the Exchange Offer, including the reasonable fees and
expenses of counsel to the Initial Purchasers in connection therewith,
(ix) the reasonable fees and disbursements of Fried, Frank, Harris,
Shriver & Jacobson, special counsel representing the Holders of
Registrable Securities and (x) any fees and disbursements of the
underwriters customarily required to be paid by issuers or sellers of
securities and the fees and expenses of any special experts retained by
the Company in connection with any Registration Statement, but excluding
underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of Registrable Securities by a Holder.
"Registration Statement" shall mean any registration statement of
the Company which covers any of the Exchange Securities or Registrable
Securities pursuant to the provisions of this Agreement, and all
amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"SEC" shall mean the Securities and Exchange Commission or any
successor agency or government body performing the functions currently
performed by the United States Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2.2 hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2.2 of this
Agreement which covers all of the Registrable Securities or all of the
Private Exchange Securities on an appropriate form under Rule 415 under
the 1933 Act, or any similar rule that may be adopted by the SEC, and all
amendments and supplements to such registration statement, including
post-effective amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by reference
therein.
"Trustee" shall mean the trustee with respect to the Securities, the
Exchange Securities and the Private Exchange Securities under the
Indenture.
2. Registration Under the 1933 Act.
2.1 Exchange Offer. The Company and the Guarantors shall, for the
benefit of the Holders, at the Company's and the Guarantors' cost, use their
reasonable best efforts to (A) prepare and, as soon as practicable but not later
than 60 days following
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<PAGE>
the Closing Date, file with the SEC an Exchange Offer Registration Statement on
an appropriate form under the 1933 Act with respect to a proposed Exchange Offer
and the issuance and delivery to the Holders, in exchange for the Registrable
Securities (other than Private Exchange Securities), of a like principal amount
of Exchange Securities, (B) to cause the Exchange Offer Registration Statement
to be declared effective under the 1933 Act within 135 days of the Closing Date,
(C) keep the Exchange Offer Registration Statement effective until the closing
of the Exchange Offer and (D) cause the Exchange Offer to be consummated not
later than 165 days following the Closing Date. The Exchange Securities will be
issued under the Indenture. Upon the effectiveness of the Exchange Offer
Registration Statement, the Company and the Guarantors shall promptly commence
the Exchange Offer, it being the objective of such Exchange Offer to enable each
Holder eligible and electing to exchange Registrable Securities for Exchange
Securities (assuming that such Holder (a) is not an affiliate of the Company
within the meaning of Rule 405 under the 1933 Act, (b) is not a broker-dealer
tendering Registrable Securities acquired directly from the Company for its own
account, (c) acquired the Exchange Securities in the ordinary course of such
Holder's business and (d) has no arrangements or understandings with any Person
to participate in the Exchange Offer for the purpose of distributing the
Exchange Securities) to transfer such Exchange Securities from and after their
receipt without any limitations or restrictions under the 1933 Act and under
state securities or blue sky laws.
In connection with the Exchange Offer, the Company and the
Guarantors shall:
(a) mail as promptly as practicable to each Holder a copy of
the Prospectus forming part of the Exchange Offer Registration Statement,
together with an appropriate letter of transmittal and related documents;
(b) keep the Exchange Offer open for acceptance for a period
of not less than 30 calendar days after the date notice thereof is mailed to the
Holders (or longer if required by applicable law) (such period referred to
herein as the "Exchange Period");
(c) utilize the services of the Depositary for the Exchange
Offer;
(d) permit Holders to withdraw tendered Registrable Securities
at any time prior to 5:00 p.m. (Eastern Standard Time), on the last business day
of the Exchange Period, by sending to the institution specified in the notice, a
telegram, telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable Securities delivered for exchange,
and a statement that such Holder is withdrawing such Holder's election to have
such Securities exchanged;
(e) notify each Holder that any Registrable Security not
tendered will remain outstanding and continue to accrue interest, but will not
retain any rights under this Agreement (except in the case of the Initial
Purchasers and Participating Broker-Dealers as provided herein); and
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(f) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
If, prior to consummation of the Exchange Offer, the Initial
Purchasers hold any Securities acquired by them and having the status of an
unsold allotment in the initial distribution, the Company and the Guarantors
upon the request of any Initial Purchaser shall, simultaneously with the
delivery of the Exchange Securities in the Exchange Offer, issue and deliver to
such Initial Purchaser in exchange (the "Private Exchange") for the Securities
held by such Initial Purchaser, a like principal amount of debt securities of
the Company, guaranteed by the Guarantors on a senior basis, that are identical
(except that such securities shall bear appropriate transfer restrictions) to
the Exchange Securities (the "Private Exchange Securities").
The Exchange Securities and the Private Exchange Securities shall be
issued under (i) the Indenture or (ii) an indenture identical in all material
respects to the Indenture and which, in either case, has been qualified under
the Trust Indenture Act of 1939, as amended (the "TIA"), or is exempt from such
qualification and shall provide that the Exchange Securities shall not be
subject to the transfer restrictions set forth in the Indenture but that the
Private Exchange Securities shall be subject to such transfer restrictions. The
Indenture or such indenture shall provide that the Exchange Securities, the
Private Exchange Securities and the Securities shall vote and consent together
on all matters as one class and that none of the Exchange Securities, the
Private Exchange Securities or the Securities will have the right to vote or
consent as a separate class on any matter. The Private Exchange Securities shall
be of the same series as and the Company and the Guarantors shall use all
commercially reasonable efforts to have the Private Exchange Securities bear the
same CUSIP number as the Exchange Securities. Neither the Company nor any of the
Guarantors shall have any liability under this Agreement solely as a result of
such Private Exchange Securities not bearing the same CUSIP number as the
Exchange Securities.
As soon as practicable after the close of the Exchange Offer and/or
the Private Exchange, the Company and the Guarantors shall:
(i) accept for exchange all Registrable Securities duly
tendered and not validly withdrawn pursuant to the Exchange Offer in
accordance with the terms of the Exchange Offer Registration
Statement and the letter of transmittal which shall be an exhibit
thereto;
(ii) accept for exchange all Securities properly tendered
pursuant to the Private Exchange;
(iii)deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities so accepted for exchange;
and
(iv) cause the Trustee promptly to authenticate and deliver
Exchange Securities or Private Exchange Securities, as the case may
be, to each Holder of Registrable Securities so accepted for
exchange in a
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<PAGE>
principal amount equal to the principal amount of the Registrable
Securities of such Holder so accepted for exchange.
Interest on each Exchange Security and Private Exchange Security
will accrue from the last date on which interest was paid on the Registrable
Securities surrendered in exchange therefor or, if no interest has been paid on
the Registrable Securities, from the date of original issuance. The Exchange
Offer and the Private Exchange shall not be subject to any conditions, other
than (i) that the Exchange Offer or the Private Exchange, or the making of any
exchange by a Holder, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) the due tendering of Registrable
Securities in accordance with the Exchange Offer and the Private Exchange, (iii)
that each Holder of Registrable Securities exchanged in the Exchange Offer shall
have represented that all Exchange Securities to be received by it shall be
acquired in the ordinary course of its business and that at the time of the
consummation of the Exchange Offer it shall have no arrangement or understanding
with any person to participate in the distribution (within the meaning of the
1933 Act) of the Exchange Securities and shall have made such other
representations as may be reasonably necessary under applicable SEC rules,
regulations or interpretations to render the use of Form S-4 or other
appropriate form under the 1933 Act available and (iv) that no action or
proceeding shall have been instituted or threatened in any court or by or before
any governmental agency with respect to the Exchange Offer or the Private
Exchange which, in the Company's and the Guarantors' judgment, would reasonably
be expected to impair the ability of the Company and the Guarantors to proceed
with the Exchange Offer or the Private Exchange. The Company and the Guarantors
shall inform the Initial Purchasers of the names and addresses of the Holders to
whom the Exchange Offer is made, and the Initial Purchasers shall have the right
to contact such Holders and otherwise facilitate the tender of Registrable
Securities in the Exchange Offer.
2.2 Shelf Registration. (i) If, because of any changes in law, SEC
rules or regulations or applicable interpretations thereof by the staff of the
SEC, the Company and the Guarantors are not permitted to effect the Exchange
Offer as contemplated by Section 2.1 hereof, (ii) if for any other reason the
Exchange Offer Registration Statement is not declared effective within 135 days
following the original issue of the Registrable Securities or the Exchange Offer
is not consummated within 165 days after the original issue of the Registrable
Securities, (iii) upon the request of any of the Initial Purchasers or (iv) if a
Holder is not permitted by applicable law to participate in the Exchange Offer
or elects to participate in the Exchange Offer but does not receive fully
tradeable Exchange Securities pursuant to the Exchange Offer, then in case of
each of clauses (i) through (iv) the Company and the Guarantors shall, at their
cost:
(a) As promptly as practicable, file with the SEC, and
thereafter shall use their reasonable best efforts to cause to be
declared effective within 165 days after the original issue of the
Registrable Securities, a Shelf Registration Statement relating to
the offer and sale of the Registrable Securities by the Holders from
time to time in accordance with the methods
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<PAGE>
of distribution elected by the Majority Holders participating in the
Shelf Registration and set forth in such Shelf Registration
Statement.
(b) Use their reasonable best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the
Prospectus forming part thereof to be usable by Holders for a period
of two years from the date the Shelf Registration Statement is
declared effective by the SEC, or for such shorter period that will
terminate when all Registrable Securities covered by the Shelf
Registration Statement have been sold pursuant to the Shelf
Registration Statement or cease to be outstanding or otherwise to be
Registrable Securities (the "Effectiveness Period"); provided,
however, that the Effectiveness Period in respect of the Shelf
Registration Statement shall be extended to the extent required to
permit dealers to comply with the applicable prospectus delivery
requirements of Rule 174 under the 1933 Act and as otherwise
provided herein.
(c) Notwithstanding any other provisions hereof, use their
reasonable best efforts to ensure that (i) any Shelf Registration
Statement and any amendment thereto and any Prospectus forming part
thereof and any supplement thereto complies in all material respects
with the 1933 Act and the rules and regulations thereunder, (ii) any
Shelf Registration Statement and any amendment thereto does not,
when it becomes effective, contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and (iii)
any Prospectus forming part of any Shelf Registration Statement, and
any supplement to such Prospectus (as amended or supplemented from
time to time), does not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the
statements, in light of the circumstances under which they were
made, not misleading.
The Company and the Guarantors shall not permit any securities other
than Registrable Securities to be included in the Shelf Registration Statement.
The Company and the Guarantors further agree, if necessary, to supplement or
amend the Shelf Registration Statement, as required by Section 3(b) below, and
to furnish to the Holders of Registrable Securities copies of any such
supplement or amendment promptly after its being used or filed with the SEC.
2.3 Expenses. The Company and the Guarantors shall pay all
Registration Expenses in connection with the registration pursuant to Section
2.1 or 2.2. Each Holder shall pay all underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of such Holder's
Registrable Securities pursuant to the Shelf Registration Statement.
2.4. Effectiveness. (a) The Company and the Guarantors will be
deemed not have used their reasonable best efforts to cause the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
to become, or to
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<PAGE>
remain, effective during the requisite period if the Company or any of the
Guarantors voluntarily takes any action that would, or omits to take any action
which omission would, result in any such Registration Statement not being
declared effective or in the Holders of Registrable Securities covered thereby
not being able to exchange or offer and sell such Registrable Securities during
that period as and to the extent contemplated hereby, unless such action is
required by applicable law.
(b) An Exchange Offer Registration Statement pursuant to
Section 2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2
hereof will not be deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that if, after it has been declared
effective, the offering of Registrable Securities pursuant to an Exchange Offer
Registration Statement or a Shelf Registration Statement is interfered with by
any stop order, injunction or other order or requirement of the SEC or any other
governmental agency or court, such Registration Statement will be deemed not to
have become effective during the period of such interference, until the offering
of Registrable Securities pursuant to such Registration Statement may legally
resume.
2.5 Interest. The Indenture executed in connection with the
Securities will provide that in the event that either (a) the Exchange Offer
Registration Statement is not filed with the Commission on or prior to the 60th
calendar day following the date of original issue of the Securities, (b) the
Exchange Offer Registration Statement has not been declared effective on or
prior to the 135th calendar day following the date of original issue of the
Securities or (c) the Exchange Offer is not consummated or a Shelf Registration
Statement is not declared effective, in either case, on or prior to the 165th
calendar day following the date of original issue of the Securities (each such
event referred to in clauses (a) through (c) above, a "Registration Default"),
the interest rate borne by the Securities and the Private Exchange Securities
shall be increased ("Additional Interest") by one-quarter of one percent per
annum upon the occurrence of each Registration Default, which rate will increase
by one quarter of one percent each 90-day period that such Additional Interest
continues to accrue under any such circumstance, provided that the maximum
aggregate increase in the interest rate will in no event exceed one percent (1%)
per annum. Following the cure of all Registration Defaults the accrual of
Additional Interest will cease and the interest rate will revert to the original
rate.
If the Shelf Registration Statement is declared effective but shall
thereafter become unusable by the Holders for any reason, and the aggregate
number of days in any consecutive twelve-month period for which the Shelf
Registration Statement shall not be usable exceeds 30 days in the aggregate,
then the interest rate borne by the Securities and the Private Exchange
Securities (so long as the Private Exchange Securities have the status of an
unsold
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<PAGE>
allotment at the time of the Exchange Offer) will be increased by 0.25% per
annum of the principal amount of the Securities and the Private Exchange
Securities for the first 90-day period (or portion thereof) beginning on the
31st such date that such Shelf Registration Statement ceases to be usable, which
rate shall be increased by an additional 0.25% per annum of the principal amount
of the Securities and the Private Exchange (so long as the Private Exchange
Securities have the status of an unsold allotment at the time of the Exchange
Offer) at the beginning of each subsequent 90-day period, provided that the
maximum aggregate increase in the interest rate will in no event exceed one
percent (1%) per annum. Any amounts payable under this paragraph shall also be
deemed "Additional Interest" for purposes of this Agreement. Upon the Shelf
Registration Statement once again becoming usable, the interest rate borne by
the Securities and the Private Exchange Securities will be reduced to the
original interest rate if the Company is otherwise in compliance with this
Agreement at such time. Additional Interest shall be computed based on the
actual number of days elapsed in each 90-day period in which the Shelf
Registration Statement is unusable.
The Company and the Guarantors shall notify the Trustee within five
business days after each and every date on which an event occurs in respect of
which Additional Interest is required to be paid (an "Event Date"). Additional
Interest shall be paid by depositing with the Trustee, in trust, for the benefit
of the Holders of Registrable Securities, on or before the applicable semiannual
interest payment date, immediately available funds in sums sufficient to pay the
Additional Interest then due. The Additional Interest due shall be payable on
each interest payment date to the record Holder of Securities and Private
Exchange Securities entitled to receive the interest payment to be paid on such
date as set forth in the Indenture. Each obligation to pay Additional Interest
shall be deemed to accrue from and including the day following the applicable
Event Date.
3. Registration Procedures.
In connection with the obligations of the Company and the Guarantors
with respect to Registration Statements pursuant to Sections 2.1 and 2.2 hereof,
the Company and the Guarantors shall:
(a) prepare and file with the SEC a Registration Statement, within
the relevant time period specified in Section 2, on the appropriate form under
the 1933 Act, which form (i) shall be selected by the Company and the
Guarantors, (ii) shall, in the case of a Shelf Registration, be available for
the sale of the Registrable Securities by the selling Holders thereof, (iii)
shall comply as to form in all material respects with the requirements of the
applicable form and include or incorporate by reference all financial statements
required by the SEC to be filed therewith or incorporated by reference therein,
and (iv) shall comply in all respects with the requirements of Regulation S-T
under the 1933 Act, and use their reasonable best efforts to cause such
Registration Statement to become effective and remain effective in accordance
with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under applicable
law to keep such Registration Statement effective for the applicable period; and
cause each Prospectus to be supplemented by any required prospectus supplement,
and as so supplemented to be filed pursuant to Rule 424 (or any similar
provision then in force) under the 1933 Act and comply with the provisions of
the 1933 Act, the 1934 Act and the rules and regulations thereunder applicable
to them with respect to the disposition of all securities covered by each
Registration Statement during the applicable period in
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<PAGE>
accordance with the intended method or methods of distribution by the selling
Holders thereof (including sales by any Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Securities, at least five business days prior to filing, that a
Shelf Registration Statement with respect to the Registrable Securities is being
filed and advising such Holders that the distribution of Registrable Securities
will be made in accordance with the method selected by the Majority Holders
participating in the Shelf Registration; (ii) furnish to each Holder of
Registrable Securities and to each underwriter of an underwritten offering of
Registrable Securities, if any, without charge, as many copies of each
Prospectus, including each preliminary Prospectus, and any amendment or
supplement thereto and such other documents as such Holder or underwriter may
reasonably request, including financial statements and schedules and, if the
Holder so requests, all exhibits, in order to facilitate the public sale or
other disposition of the Registrable Securities; and (iii) hereby consent to the
use of the Prospectus or any amendment or supplement thereto by each of the
selling Holders of Registrable Securities in connection with the offering and
sale of the Registrable Securities covered by the Prospectus or any amendment or
supplement thereto;
(d) use their reasonable best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue sky" laws
of such jurisdictions as any Holder of Registrable Securities covered by a
Registration Statement and each underwriter of an underwritten offering of
Registrable Securities shall reasonably request by the time the applicable
Registration Statement is declared effective by the SEC, and do any and all
other acts and things which may be reasonably necessary or advisable to enable
each such Holder and underwriter to consummate the disposition in each such
jurisdiction of such Registrable Securities owned by such Holder; provided,
however, that none of the Company and the Guarantors shall be required to (i)
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), or (ii) take any action which would subject it to general service
of process or taxation in any such jurisdiction where it is not then so subject;
(e) notify promptly each Holder of Registrable Securities under a
Shelf Registration or any Participating Broker-Dealer who has notified the
Company and the Guarantors that it is utilizing the Exchange Offer Registration
Statement as provided in paragraph (f) below and, if requested by such Holder or
Participating Broker-Dealer, confirm such advice in writing promptly (i) when a
Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any request by the
SEC or any state securities authority for post-effective amendments and
supplements to a Registration Statement and Prospectus or for additional
information after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the initiation of
any proceedings for that purpose, (iv) in the case of a Shelf Registration, if,
between the effective date of such Registration Statement and the closing of any
sale of Registrable Securities covered
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<PAGE>
thereby, the representations and warranties of the Company and the Guarantors
contained in any underwriting agreement, securities sales agreement or other
similar agreement, if any, relating to the offering cease to be true and correct
in all material respects, (v) of the happening of any event or the discovery of
any facts during the period a Shelf Registration Statement is effective which
makes any statement made in such Registration Statement or the related
Prospectus untrue in any material respect or which requires the making of any
changes in such Registration Statement or Prospectus in order to make the
statements therein not misleading, (vi) of the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Registrable Securities or the Exchange Securities, as the case may be, for sale
in any jurisdiction or the initiation or threatening of any proceeding for such
purpose and (vii) of any determination by the Company that a post-effective
amendment to such Registration Statement would be appropriate;
(f) (A) in the case of the Exchange Offer Registration Statement (i)
include in the Exchange Offer Registration Statement a section entitled "Plan of
Distribution" which section shall be reasonably acceptable to Merrill Lynch on
behalf of the Participating Broker-Dealers, and which shall contain a summary
statement of the positions taken or policies made by the staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that holds
Registrable Securities acquired for its own account as a result of market-making
activities or other trading activities and that will be the beneficial owner (as
defined in Rule 13d-3 promulgated under the 1934 Act) of Exchange Securities to
be received by such broker-dealer in the Exchange Offer, whether such positions
or policies have been publicly disseminated by the staff of the SEC or such
positions or policies, in the reasonable judgment of Merrill Lynch on behalf of
the Participating Broker-Dealers and its counsel, represent the prevailing views
of the staff of the SEC, including a statement that any such broker-dealer who
receives Exchange Securities for Registrable Securities pursuant to the Exchange
Offer may be deemed a statutory underwriter and must deliver a prospectus
meeting the requirements of the 1933 Act in connection with any resale of such
Exchange Securities, (ii) furnish to each Participating Broker-Dealer who has
delivered to the Company the notice referred to in Section 3(e), without charge,
as many copies of each Prospectus included in the Exchange Offer Registration
Statement, including any preliminary prospectus, and any amendment or supplement
thereto, as such Participating Broker-Dealer may reasonably request, (iii)
hereby consent to the use of the Prospectus forming part of the Exchange Offer
Registration Statement or any amendment or supplement thereto, by any Person
subject to the prospectus delivery requirements of the SEC, including all
Participating Broker- Dealers, in connection with the sale or transfer of the
Exchange Securities covered by the Prospectus or any amendment or supplement
thereto, and (iv) include in the transmittal letter or similar documentation to
be executed by an exchange offeree in order to participate in the Exchange Offer
(x) the following provision:
"If the exchange offeree is a broker-dealer holding Registrable
Securities acquired for its own account as a result of market-making
activities or other trading activities, it will deliver a prospectus
meeting the requirements of the 1933 Act in connection with any
resale of Exchange Securities received
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in respect of such Registrable Securities pursuant to the Exchange
Offer;" and
(y) a statement to the effect that by a broker-dealer making the acknowledgment
described in clause (x) and by delivering a Prospectus in connection with the
exchange of Registrable Securities, the broker-dealer will not be deemed to
admit that it is an underwriter within the meaning of the 1933 Act; and
(B) in the case of any Exchange Offer Registration
Statement, the Company and the Guarantors agree to deliver to the Initial
Purchasers on behalf of the Participating Broker-Dealers upon the effectiveness
of the Exchange Offer Registration Statement (i) an opinion of counsel or
opinions of counsel substantially in the form attached hereto as Exhibit A, (ii)
officers' certificates substantially in the form customarily delivered in a
public offering of debt securities and (iii) a comfort letter or comfort letters
in customary form to the extent permitted by Statement on Auditing Standards No.
72 of the American Institute of Certified Public Accountants (or if such a
comfort letter is not permitted, an agreed upon procedures letter in customary
form) from the Company's independent certified public accountants (and, if
necessary, any other independent certified public accountants of any subsidiary
of the Company or of any business acquired by the Company for which financial
statements are, or are required to be, included in the Registration Statement)
at least as broad in scope and coverage as the comfort letter or comfort letters
delivered to the Initial Purchasers in connection with the initial sale of the
Securities to the Initial Purchasers;
(g) (i) in the case of an Exchange Offer, furnish counsel for the
Initial Purchasers and (ii) in the case of a Shelf Registration, furnish counsel
for the Holders of Registrable Securities copies of any comment letters received
from the SEC or any other request by the SEC or any state securities authority
for amendments or supplements to a Registration Statement and Prospectus or for
additional information;
(h) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities, and each underwriter, if any, without charge, at least
one conformed copy of each Registration Statement and any post-effective
amendment thereto, including financial statements and schedules (without
documents incorporated therein by reference and all exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to facilitate the timely preparation and
delivery of certificates representing Registrable Securities to be sold and not
bearing any restrictive legends; and enable such Registrable Securities to be in
such denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters, if any, may
reasonably request at least three business days prior to the closing of any sale
of Registrable Securities;
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(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Sections 3(e)(v)
and 3(e)(vi) hereof, as promptly as practicable after the occurrence of such an
event, use their best efforts to prepare a supplement or post-effective
amendment to the Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable Securities
or Participating Broker-Dealers, such Prospectus will not contain at the time of
such delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading or will remain so
qualified. At such time as such public disclosure is otherwise made or the
Company determines that such disclosure is not necessary, in each case to
correct any misstatement of a material fact or to include any omitted material
fact, the Company agrees promptly to notify each Holder of such determination
and to furnish each Holder such number of copies of the Prospectus as amended or
supplemented, as such Holder may reasonably request;
(l) in the case of a Shelf Registration, within a reasonable time
prior to the filing of any Registration Statement, any Prospectus, any amendment
to a Registration Statement or amendment or supplement to a Prospectus or any
document which is to be incorporated by reference into a Registration Statement
or a Prospectus after initial filing of a Registration Statement, provide copies
of such document to the Initial Purchasers on behalf of such Holders; and make
representatives of the Company and the Guarantors as shall be reasonably
requested by the Holders of Registrable Securities, or the Initial Purchasers on
behalf of such Holders, available for discussion of such document;
(m) use their reasonable best efforts to obtain a CUSIP number for
all Exchange Securities, Private Exchange Securities or Registrable Securities,
as the case may be, not later than the effective date of a Registration
Statement, and provide the Trustee with printed certificates for the Exchange
Securities, Private Exchange Securities or the Registrable Securities, as the
case may be, in a form eligible for deposit with the Depositary;
(n) (i) cause the Indenture to be qualified under the TIA in
connection with the registration of the Exchange Securities or Registrable
Securities, as the case may be, (ii) cooperate with the Trustee and the Holders
to effect such changes to the Indenture as may be required for the Indenture to
be so qualified in accordance with the terms of the TIA and (iii) execute, and
use their reasonable best efforts to cause the Trustee to execute, all documents
as may be required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable the Indenture to be so qualified in
a timely manner;
(o) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and appropriate
actions in order to expedite or facilitate the disposition of such Registrable
Securities and in such connection whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:
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<PAGE>
(i) make such representations and warranties to the Holders of
such Registrable Securities and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to
underwriters in similar underwritten offerings as may be reasonably
requested by them;
(ii) obtain opinions of counsel to the Company and the
Guarantors and updates thereof (which counsel and opinions (in form,
scope and substance) shall be reasonably satisfactory to the
managing underwriters, if any, and the holders of a majority in
principal amount of the Registrable Securities being sold) addressed
to each selling Holder and the underwriters, if any, covering the
matters customarily covered in opinions requested in sales of
securities or underwritten offerings and such other matters as may
be reasonably requested by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof from
the Company's and the Guarantors' independent certified public
accountants (and, if necessary, any other independent certified
public accountants of any subsidiary of the Company or of any
business acquired by the Company for which financial statements are,
or are required to be, included in the Registration Statement)
addressed to the underwriters, if any, and use reasonable efforts to
have such letter addressed to the selling Holders of Registrable
Securities (to the extent consistent with Statement on Auditing
Standards No. 72 of the American Institute of Certified Public
Accounts), such letters to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters to
underwriters in connection with similar underwritten offerings;
(iv) enter into a securities sales agreement with the Holders
and an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable Securities, which agreement
shall be in form, substance and scope customary for similar
offerings;
(v) if an underwriting agreement is entered into, cause the
same to set forth indemnification provisions and procedures
substantially equivalent to the indemnification provisions and
procedures set forth in Section 4 hereof with respect to the
underwriters and all other parties to be indemnified pursuant to
said Section or, at the request of any underwriters, in the form
customarily provided to such underwriters in similar types of
transactions; provided such underwriting agreement shall contain
customary provisions regarding indemnification of the Company and
the Guarantors with the respect to information provided by the
underwriters; and
(vi) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings to the Holders of a majority in principal amount of the
Registrable Securities being sold and the managing underwriters, if
any.
-16-
<PAGE>
The above shall be done at (i) the effectiveness of such Registration Statement
(and each post-effective amendment thereto) and (ii) each closing under any
underwriting or similar agreement as and to the extent required thereunder. In
the case of any underwritten offering, the Company and the Guarantors shall
provide written notice to the Holders of all Registrable Securities of such
underwritten offering at least 15 days prior to the filing of a prospectus
supplement for such underwritten offering. Such notice shall (x) offer each such
Holder the right to participate in such underwritten offering, (y) specify a
date, which shall be no earlier than 10 days following the date of such notice,
by which such Holder must inform the Company of its intent to participate in
such underwritten offering and (z) include the instructions such Holder must
follow in order to participate in such underwritten offering;
(p) in the case of a Shelf Registration or if a Prospectus is
required to be delivered by any Participating Broker-Dealer in the case of an
Exchange Offer, make available for inspection by representatives of the Holders
of the Registrable Securities, any underwriters participating in any disposition
pursuant to a Shelf Registration Statement, any Participating Broker-Dealer and
any counsel or accountant retained by any of the foregoing, all financial and
other records, pertinent corporate documents and properties of the Company and
the Guarantors reasonably requested by any such persons, and cause the
respective officers, directors, employees, and any other agents of the Company
and the Guarantors to supply all information reasonably requested by any such
representative, underwriter, special counsel or accountant in connection with a
Registration Statement, and make such representatives of the Company and the
Guarantors available for discussion of such documents as shall be reasonably
requested by the Initial Purchasers;
(q) (i) in the case of an Exchange Offer Registration Statement,
within a reasonable time prior to the filing of any Exchange Offer Registration
Statement, any Prospectus forming a part thereof, any amendment to an Exchange
Offer Registration Statement or amendment or supplement to such Prospectus,
provide copies of such document to the Initial Purchasers and to counsel to the
Holders of Registrable Securities and make such changes in any such document
prior to the filing thereof as the Initial Purchasers or counsel to the Holders
of Registrable Securities may reasonably request and, except as otherwise
required by applicable law, not file any such document in a form to which the
Initial Purchasers on behalf of the Holders of Registrable Securities and
counsel to the Holders of Registrable Securities shall not have previously been
advised and furnished a copy of or to which the Initial Purchasers on behalf of
the Holders of Registrable Securities or counsel to the Holders of Registrable
Securities shall reasonably object, and make the representatives of the Company
and the Guarantors available for discussion of such documents as shall be
reasonably requested by the Initial Purchasers; and
(ii) in the case of a Shelf Registration, within a reasonable
time prior to filing any Shelf Registration Statement, any Prospectus forming a
part thereof, any amendment to such Shelf Registration Statement or amendment or
supplement to such Prospectus, provide copies of such document to the Holders of
Registrable
-17-
<PAGE>
Securities, to the Initial Purchasers, to counsel for the Holders and to the
underwriter or underwriters of an underwritten offering of Registrable
Securities, if any, make such changes in any such document prior to the filing
thereof as the Initial Purchasers, the counsel to the Holders or the underwriter
or underwriters reasonably request and not file any such document in a form to
which the Majority Holders, the Initial Purchasers on behalf of the Holders of
Registrable Securities, counsel for the Holders of Registrable Securities or any
underwriter shall not have previously been advised and furnished a copy of or to
which the Majority Holders, the Initial Purchasers of behalf of the Holders of
Registrable Securities, counsel to the Holders of Registrable Securities or any
underwriter shall reasonably object, and make the representatives of the Company
and the Guarantors available for discussion of such document as shall be
reasonably requested by the Holders of Registrable Securities, the Initial
Purchasers on behalf of such Holders, counsel for the Holders of Registrable
Securities or any underwriter.
(r) in the case of a Shelf Registration, use their reasonable best
efforts to cause all Registrable Securities to be listed on any securities
exchange on which similar debt securities issued by the Company are then listed
if requested by the Majority Holders, or if requested by the underwriter or
underwriters of an underwritten offering of Registrable Securities, if any;
(s) in the case of a Shelf Registration, use their reasonable best
efforts to cause the Registrable Securities to be rated by the appropriate
rating agencies, if so requested by the Majority Holders, or if requested by the
underwriter or underwriters of an underwritten offering of Registrable
Securities, if any;
(t) otherwise comply with all applicable rules and regulations of
the SEC and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering at least 12 months which shall
satisfy the provisions of Section 11(a) of the 1933 Act and Rule 158 promulgated
thereunder;
(u) cooperate and assist in any filings required to be made with the
NASD and, in the case of a Shelf Registration, in the performance of any due
diligence investigation by any underwriter and its counsel (including any
"qualified independent underwriter" that is required to be retained in
accordance with the rules and regulations of the NASD); and
(v) upon consummation of an Exchange Offer or a Private Exchange,
obtain (i) a customary opinion of counsel to the Company and the Guarantors
addressed to the Trustee for the benefit of all Holders of Registrable
Securities participating in the Exchange Offer or a Private Exchange, and which
includes an opinion that (A) each of the Company and the Guarantors has duly
authorized, executed and delivered the Exchange Securities and/or Private
Exchange Securities, as applicable, and the related indenture, and (B) each of
the Exchange Securities and related indenture constitute legal, valid and
binding obligations of each of the Company and the Guarantors, enforceable
against the Company and the Guarantors in accordance with its respective terms
(with customary exceptions) and (ii) an officers' certificate containing the
certifications substantially similar to those set forth in Section 5(c) of the
Purchase Agreement.
-18-
<PAGE>
In the case of a Shelf Registration Statement, the Company and the
Guarantors may (as a condition to such Holder's participation in the Shelf
Registration) require each Holder of Registrable Securities to furnish to the
Company and the Guarantors such information regarding the Holder and the
proposed distribution by such Holder of such Registrable Securities as the
Company and the Guarantors may from time to time reasonably request in writing.
In the case of a Shelf Registration Statement, each Holder agrees
that, upon receipt of any notice from the Company and the Guarantors of the
happening of any event or the discovery of any facts, each of the kind described
in Section 3(e)(v) and 3(e)(vi) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to a Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(k) hereof, and, if so directed by the Company and the
Guarantors, such Holder will deliver to the Company and the Guarantors (at their
expense) all copies in such Holder's possession, other than permanent file
copies then in such Holder's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice.
In the event that the Company and the Guarantors fail to effect the
Exchange Offer or file any Shelf Registration Statement and maintain the
effectiveness of any Shelf Registration Statement as provided herein, the
Company and the Guarantors shall not file any Registration Statement with
respect to any securities (within the meaning of Section 2(1) of the 1933 Act)
of the Company and the Guarantors other than Registrable Securities.
If any of the Registrable Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
underwriter or underwriters and manager or managers that will manage such
offering will be selected by the Majority Holders of such Registrable Securities
included in such offering and shall be acceptable to the Company and the
Guarantors. No Holder of Registrable Securities may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
4. Indemnification; Contribution.
(a) The Company and the Guarantors, jointly and severally, agree to
indemnify and hold harmless the Initial Purchasers, each Holder, each
Participating Broker-Dealer, each Person who participates as an underwriter (any
such Person being an "Underwriter") and each Person, if any, who controls any
Holder or Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
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<PAGE>
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment or supplement thereto)
pursuant to which Exchange Securities or Registrable Securities were
registered under the 1933 Act, including all documents incorporated
therein by reference, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to
make the statements therein not misleading, or arising out of any
untrue statement or alleged untrue statement of a material fact
contained in any Prospectus (or any amendment or supplement thereto)
or the omission or alleged omission therefrom of a material fact
necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 4(d) below) any such
settlement is effected with the written consent of the Company and
the Guarantors; and
(iii)against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by any
indemnified party), reasonably incurred in investigating, preparing
or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company and the
Guarantors by the Holder, Participating Broker-Dealer or Underwriter expressly
for use in a Registration Statement (or any amendment thereto) or any Prospectus
(or any amendment or supplement thereto).
(b) Each Holder severally, but not jointly, agrees to indemnify and
hold harmless the Company, the Guarantors, the Initial Purchasers, each
Underwriter and the other selling Holders, and each of their respective
directors and officers, and each Person, if any, who controls the Company, the
Guarantors, the Initial Purchasers, any Underwriter or any other selling Holder
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act,
against any and all loss, liability, claim, damage and expense described in the
indemnity contained in Section 4(a) hereof, as incurred, but only
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<PAGE>
with respect to untrue statements or omissions, or alleged untrue statements or
omissions, made in the Shelf Registration Statement (or any amendment thereto)
or any Prospectus included therein (or any amendment or supplement thereto) in
reliance upon and in conformity with written information with respect to such
Holder furnished to the Company by such Holder expressly for use in the Shelf
Registration Statement (or any amendment thereto) or such Prospectus (or any
amendment or supplement thereto); provided, however, that no such Holder shall
be liable for any claims hereunder in excess of the amount of net proceeds
received by such Holder from the sale of Registrable Securities pursuant to such
Shelf Registration Statement.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action or proceeding commenced
against it in respect of which indemnity may be sought hereunder, but failure so
to notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying party or parties be liable for the fees and
expenses of more than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. No indemnifying
party shall, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 4 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 4(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) If the indemnification provided for in this Section 4 is for any
reason unavailable to or insufficient to hold harmless an indemnified party in
respect of any
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<PAGE>
losses, liabilities, claims, damages or expenses referred to therein, then each
indemnifying party shall contribute to the aggregate amount of such losses,
liabilities, claims, damages and expenses incurred by such indemnified party, as
incurred, in such proportion as is appropriate to reflect the relative fault of
the Company and the Guarantors on the one hand and the Holders and the Initial
Purchasers each on the other hand in connection with the statements or omissions
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative fault of the Company and the Guarantors on the one hand and
the Holders and the Initial Purchasers each on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company and the
Guarantors, the Holders or the Initial Purchasers and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company, the Guarantors the Holders and the Initial Purchasers agree
that it would not be just and equitable if contribution pursuant to this Section
4 were determined by pro rata allocation (even if the Initial Purchasers were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to above in
this Section 4. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
4 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 4, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities sold by it were offered exceeds the amount
of any damages which such Initial Purchaser has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission.
No Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 4, each Person, if any, who controls an
Initial Purchaser or Holder within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
Initial Purchaser or Holder, and each director of the Company and such
Guarantor, as the case may be, and each Person, if any, who controls the Company
and such Guarantor, as the case may be, within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company. The Initial Purchasers' respective obligations to
contribute pursuant to this Section 4 are several in proportion to the
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<PAGE>
principal amount of Securities set forth opposite their respective names in
Schedule A to the Purchase Agreement and not joint.
5. Miscellaneous.
5.1 Rule 144 and Rule 144A. For so long as the Company is subject to
the reporting requirements of Section 13 or 15 of the 1934 Act, the Company and
the Guarantors covenant that they will file the reports required to be filed by
them under the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules
and regulations adopted by the SEC thereunder. If the Company ceases to be so
required to file such reports, the Company and the Guarantors covenant that they
will upon the request of any Holder of Registrable Securities (a) make publicly
available such information as is necessary to permit sales pursuant to Rule 144
under the 1933 Act, (b) deliver such information to a prospective purchaser as
is necessary to permit sales pursuant to Rule 144A under the 1933 Act and it
will take such further action as any Holder of Registrable Securities may
reasonably request, and (c) take such further action that is reasonable in the
circumstances, in each case, to the extent required from time to time to enable
such Holder to sell its Registrable Securities without registration under the
1933 Act within the limitation of the exemptions provided by (i) Rule 144 under
the 1933 Act, as such Rule may be amended from time to time, (ii) Rule 144A
under the 1933 Act, as such Rule may be amended from time to time, or (iii) any
similar rules or regulations hereafter adopted by the SEC. Upon the request of
any Holder of Registrable Securities, the Company and the Guarantors will
deliver to such Holder a written statement as to whether they have complied with
such requirements.
5.2 No Inconsistent Agreements. The Company and the Guarantors have
not entered into and the Company and the Guarantors will not after the date of
this Agreement enter into any agreement which is inconsistent with the rights
granted to the Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with the rights granted to the holders of
the Company's and the Guarantor's other issued and outstanding securities under
any such agreements.
5.3 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company and the Guarantors have obtained the written
consent of Holders of at least a majority in aggregate principal amount of the
outstanding Registrable Securities affected by such amendment, modification,
supplement, waiver or departure.
5.4 Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (a) if to a Holder, at the most current address given by such Holder to
the Company and the Guarantors by means of a notice given in accordance with the
provisions of this Section 5.4, which address initially is the address set forth
in the Purchase Agreement with respect to the Initial
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<PAGE>
Purchasers; and (b) if to the Company and the Guarantors, initially at the
Company's address set forth in the Purchase Agreement, and thereafter at such
other address of which notice is given in accordance with the provisions of this
Section 5.4.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; two business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall
be concurrently delivered by the person giving the same to the Trustee under the
Indenture, at the address specified in such Indenture.
5.5 Successor and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders; provided that nothing herein shall be deemed to
permit any assignment, transfer or other disposition of Registrable Securities
in violation of the terms of the Purchase Agreement or the Indenture. If any
transferee of any Holder shall acquire Registrable Securities, in any manner,
whether by operation of law or otherwise, such Registrable Securities shall be
held subject to all of the terms of this Agreement, and by taking and holding
such Registrable Securities such person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and provisions of this
Agreement, including the restrictions on resale set forth in this Agreement and,
if applicable, the Purchase Agreement, and such person shall be entitled to
receive the benefits hereof.
5.6 Third Party Beneficiaries. The Initial Purchasers (even if the
Initial Purchasers are not Holders of Registrable Securities) shall be third
party beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Holders, on the other hand, and shall have
the right to enforce such agreements directly to the extent they deem such
enforcement necessary or advisable to protect their rights or the rights of
Holders hereunder. Each Holder of Registrable Securities shall be a third party
beneficiary to the agreements made under this Registration Rights Agreement
between the Company and the Guarantors, on the one hand, and the Initial
Purchasers, on the other hand, and shall have the right to enforce such
agreements directly to the extent it deems such enforcement necessary or
advisable to protect its rights hereunder.
5.7. Specific Enforcement. Without limiting the remedies available
to the Initial Purchasers and the Holders, the Company and the Guarantors
acknowledge that any failure by the Company and the Guarantors to comply with
their obligations under Sections 2.1 through 2.4 hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it would not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be
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<PAGE>
required to specifically enforce the Company's and the Guarantor's obligations
under Sections 2.1 through 2.4 hereof.
5.8. Restriction on Resales. Until the expiration of two years after
the original issuance of the Securities and the Guarantees, the Company and the
Guarantors will not, and will cause their "affiliates" (as such term is defined
in Rule 144(a)(1) under the 1933 Act) not to, resell any Securities and
Guarantees which are "restricted securities" (as such term is defined under Rule
144(a)(3) under the 1933 Act) that have been reacquired by any of them and shall
immediately upon any purchase of any such Securities and Guarantees submit such
Securities and Guarantees to the Trustee for cancellation.
5.9 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
5.10 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
5.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.12 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
<TABLE>
<S> <C>
SONIC AUTOMOTIVE, INC.
By: /s/ B. Scott Smith
----------------------------
Name: B. Scott Smith
Title: President and Chief
Operating Officer
TOWN AND COUNTRY FORD
INCORPORATED
MARCUS DAVID CORPORATION
FRONTIER
OLDSMOBILE--CADILLAC, INC.
SONIC DODGE, LLC
SONIC
CHRYSLER--PLYMOUTH--JEEP--
EAGLE,
LLC
FORT MILL FORD, INC.
TOWN AND COUNTRY
CHRYSLER--PLYMOUTH--JEEP
OF ROCK HILL, INC.
FORT MILL
CHRYSLER--PLYMOUTH--DODGE
INC.
LONE STAR FORD, INC.
SONIC AUTOMOTIVE OF
NEVADA, INC.
SONIC AUTOMOTIVE OF
TENNESSEE, INC.
SONIC AUTOMOTIVE - 6025
INTERNATIONAL
DRIVE, LLC
SONIC AUTOMOTIVE OF
NASHVILLE, LLC
SONIC AUTOMOTIVE OF
CHATTANOOGA, LLC
TOWN AND COUNTRY JAGUAR,
LLC
TOWN AND COUNTRY CHRYSLER
--PLYMOUTH--JEEP, LLC
TOWN AND COUNTRY DODGE OF
CHATTANOOGA, LLC
SONIC AUTOMOTIVE - 2490 SOUTH LEE
HIGHWAY, LLC,
TOWN AND COUNTRY FORD OF CLEVELAND,
LLC
FREEDOM FORD, INC.
SONIC AUTOMOTIVE 5260
PEACHTREE
INDUSTRIAL BLVD., LLC
SONIC AUTOMOTIVE OF
GEORGIA, INC.
SONIC PEACHTREE INDUSTRIAL
BLVD., L.P.
SONIC AUTOMOTIVE -
CLEARWATER, INC.
SONIC AUTOMOTIVE 21699 U.S.
HWY. 19 N., INC.
SONIC AUTOMOTIVE COLLISION
CENTER OF
CLEARWATER, INC.
SONIC AUTOMOTIVE - 1400
AUTOMALL DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 1455
AUTOMALL DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 1495
AUTOMALL DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 1500 AUTOMALL DRIVE,
</TABLE>
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<PAGE>
COLUMBUS, INC.
SONIC AUTOMOTIVE - 3700 WEST BROAD
STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE - 4000 WEST BROAD
STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE 2424 LAURENS RD.,
GREENVILLE, INC.
SONIC AUTOMOTIVE 2752 LAURENS RD.,
GREENVILLE, INC.
SONIC AUTOMOTIVE - 5585 PEACHTREE
INDUSTRIAL BLVD., LLC
CAPITOL CHEVROLET AND IMPORTS, INC.,
SONIC AUTOMOTIVE - 1919 N.
DIXIE HWY., NSB, INC.
SONIC AUTOMOTIVE - 1307 N.
DIXIE HWY., NSB, INC.
SONIC AUTOMOTIVE - 1720 MASON AVE.,
DB, INC.
SONIC AUTOMOTIVE -3741 S. NOVA RD.,
PO, INC.
SONIC AUTOMOTIVE - 241 RIDGEWOOD
AVE., HH, INC.
SONIC AUTOMOTIVE-HWY. 153 at
SHALLOWFORD ROAD, CHATTANOOGA, INC.
By: /s/ B. Scott Smith
---------------------------
Name: B. Scott Smith
Title: Authorized Officer
-27-
<PAGE>
Confirmed and accepted as
of the date first above
written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
BANCAMERICA ROBERTSON STEPHENS
BY: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Barry S. Price
-----------------------------
Name:
Title:
-28-
exhibit 4.2
SONIC AUTOMOTIVE, INC., as Issuer,
TOWN AND COUNTRY FORD INCORPORATED,
MARCUS DAVID CORPORATION,
FRONTIER OLDSMOBILE--CADILLAC, INC.,
SONIC DODGE, LLC,
SONIC CHRYSLER--PLYMOUTH--JEEP--EAGLE, LLC,
FORT MILL FORD, INC.,
TOWN AND COUNTRY CHRYSLER--PLYMOUTH--JEEP OF ROCK HILL, INC.,
FORT MILL CHRYSLER--PLYMOUTH--DODGE INC.,
LONE STAR FORD, INC.,
SONIC AUTOMOTIVE OF NEVADA, INC.,
SONIC AUTOMOTIVE OF TENNESSEE, INC.,
SONIC AUTOMOTIVE - 6025 INTERNATIONAL DRIVE, LLC,
SONIC AUTOMOTIVE OF NASHVILLE, LLC,
SONIC AUTOMOTIVE OF CHATTANOOGA, LLC,
TOWN AND COUNTRY JAGUAR, LLC,
TOWN AND COUNTRY CHRYSLER--PLYMOUTH--JEEP, LLC,
TOWN AND COUNTRY DODGE OF CHATTANOOGA, LLC,
SONIC AUTOMOTIVE - 2490 SOUTH LEE HIGHWAY, LLC,
TOWN AND COUNTRY FORD OF CLEVELAND, LLC,
FREEDOM FORD, INC.,
SONIC AUTOMOTIVE 5260 PEACHTREE INDUSTRIAL BLVD., LLC,
SONIC AUTOMOTIVE OF GEORGIA, INC.,
SONIC PEACHTREE INDUSTRIAL BLVD., L.P.,
SONIC AUTOMOTIVE - CLEARWATER, INC.,
SONIC AUTOMOTIVE 21699 U.S. HWY. 19 N., INC.,
SONIC AUTOMOTIVE COLLISION CENTER OF CLEARWATER, INC.,
SONIC AUTOMOTIVE - 1400 AUTOMALL DRIVE, COLUMBUS, INC.,
SONIC AUTOMOTIVE - 1455 AUTOMALL DRIVE, COLUMBUS, INC.
SONIC AUTOMOTIVE - 1495 AUTOMALL DRIVE, COLUMBUS, INC.
SONIC AUTOMOTIVE - 1500 AUTOMALL DRIVE, COLUMBUS, INC.
SONIC AUTOMOTIVE - 3700 WEST BROAD STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE - 4000 WEST BROAD STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE 2424 LAURENS RD., GREENVILLE, INC.,
SONIC AUTOMOTIVE 2752 LAURENS RD., GREENVILLE, INC.,
SONIC AUTOMOTIVE - 5585 PEACHTREE INDUSTRIAL BLVD., LLC,
CAPITOL CHEVROLET AND IMPORTS, INC.,
SONIC AUTOMOTIVE - 1919 N. DIXIE HWY., NSB, INC.,
SONIC AUTOMOTIVE - 1307 N. DIXIE HWY., NSB, INC.,
SONIC AUTOMOTIVE - 1720 MASON AVE., DB, INC.,
SONIC AUTOMOTIVE - 3741 S. NOVA RD., PO, INC.
SONIC AUTOMOTIVE -241 RIDGEWOOD AVE., HH, INC. and
SONIC AUTOMOTIVE - HWY. 153 at SHALLOWFORD ROAD, CHATTANOOGA, INC.
as Guarantors,
and
U.S. Bank Trust National Association, as Trustee
INDENTURE
Dated as of July 1, 1998
11% Senior Subordinated Notes due 2008
<PAGE>
Reconciliation and tie between Trust Indenture Act of 1939, as amended,
and Indenture, dated as of July 1, 1998
<TABLE>
<CAPTION>
<S> <C>
Trust Indenture Indenture
Act Section Section
----------- -------
ss.310 (a)(1)...............................................609
(a)(2)...............................................609
(b)..................................................608, 610
ss.311 (a)..................................................613
ss.312 (a)..................................................701
(c)..................................................702
ss.313 (a)..................................................703
(c)..................................................703, 704
ss.314 (a)..................................................704
(a)(4)...............................................1018
(c)(1)...............................................103
(c)(2)...............................................103
(e)..................................................103
ss.315 (a)..................................................601(b)
(b)..................................................602
(c)..................................................601(a)
(d)..................................................601(c), 603
(e)..................................................514
ss.316 (a)(last sentence)...................................101 ("Outstanding")
(a)(1)(A)............................................502, 512
(a)(1)(B)............................................513
(b)..................................................508
(c)..................................................105
ss.317 (a)(1) 503
(a)(2) 504
(b)..................................................1003
ss.318 (a)..................................................108
Note: This reconciliation and tie shall not, for any purpose, be deemed to be a part
of this Indenture.
</TABLE>
- 1 -
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
PARTIES......................................................................1
RECITALS.....................................................................1
ARTICLE ONE DEFINITIONS AND OTHER
PROVISIONS OF GENERAL APPLICATION .................................2
Section 101. Definitions. ...................................................2
"Acquired Indebtedness"....................................3
"Affiliate"................................................3
"Applicable Procedures"....................................3
"Asset Sale"...............................................4
"Average Life to Stated Maturity"..........................4
"Bankruptcy Law"...........................................4
"Board of Directors".......................................5
"Board Resolution".........................................5
"Book-Entry Security"......................................5
"Business Day".............................................5
"Capital Lease Obligation".................................5
"Capital Stock"............................................5
"Cash Equivalents".........................................5
"Cedel"....................................................6
"Change of Control"........................................6
"Class A Common Stock".....................................7
"Code".....................................................7
"Commission"...............................................7
"Commodity Price Protection Agreement".....................7
"Company"..................................................8
"Company Request" or "Company Order".......................8
"Consolidated Fixed Charge Coverage Ratio".................8
"Consolidated Income Tax Expense"..........................9
"Consolidated Interest Expense"............................9
"Consolidated Net Income (Loss)"...........................9
"Consolidated Non-cash Charges"...........................10
"Consolidated Tangible Assets"............................10
"Consolidation"...........................................10
"Corporate Trust Office"..................................10
"Currency Hedging Agreements".............................11
"Default".................................................11
"Depositary"..............................................11
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<PAGE>
PAGE
----
"Designated Senior Indebtedness"..........................10
"Disinterested Director"..................................10
"Euroclear"...............................................11
"Event of Default"........................................12
"Exchange Act"............................................12
"Exchange Offer"..........................................12
"Exchange Offer Registration Statement"...................12
"Fair Market Value".......................................12
"Floor Plan Facility".....................................12
"Generally Accepted Accounting Principles" or
"GAAP"..................................................12
"Global Securities".......................................13
"Guarantee"...............................................13
"Guaranteed Debt".........................................13
"Guarantor"...............................................13
"Holder"..................................................13
"Indebtedness"............................................14
"Indenture"...............................................15
"Indenture Obligations"...................................16
"Initial Securities"......................................16
"Initial Purchasers"......................................16
"Interest Payment Date"...................................16
"Interest Rate Agreements"................................16
"Inventory Facility"......................................16
"Investment"..............................................16
"Issue Date"..............................................17
"Lien"....................................................17
"Manufacturer"............................................17
"Maturity"................................................17
"Moody's".................................................17
"Net Cash Proceeds".......................................17
"Non-U.S. Person".........................................18
"Officers' Certificate"...................................18
"Opinion of Counsel"......................................18
"Opinion of Independent Counsel"..........................19
"Outstanding".............................................19
"Pari Passu Indebtedness".................................20
"Paying Agent"............................................20
"Permitted Holders".......................................20
"Permitted Investment"....................................20
"Person"..................................................21
"Predecessor Security"....................................21
"Preferred Stock".........................................21
- ii -
<PAGE>
PAGE
"Prospectus"..............................................21
"Public Equity Offering"..................................22
"Purchase Money Obligation"...............................22
"QIB".....................................................22
"Qualified Capital Stock".................................22
"Redeemable Capital Stock"................................23
"Redemption Date".........................................24
"Redemption Price"........................................24
"Registration Rights Agreement"...........................24
"Registration Statement"..................................24
"Regular Record Date".....................................24
"Regulation S"............................................24
"Regulation S Global Securities"..........................25
"Responsible Officer".....................................25
"Replacement Assets"......................................25
"Restricted Subsidiary"...................................25
"Revolving Facility"......................................25
"Rule 144A"...............................................25
"Rule 144A Global Securities".............................26
"S&P".....................................................26
"Securities Act"..........................................26
"Senior Guarantor Indebtedness"...........................26
"Senior Indebtedness".....................................27
"Senior Representative"...................................27
"Series B Global Securities"..............................27
"Shelf Registration Statement"............................27
"Significant Restricted Subsidiary".......................28
"Smith Subordinated Loan".................................28
"Special Record Date".....................................28
"Stated Maturity".........................................28
"Subordinated Indebtedness"...............................28
"Subsidiary"..............................................28
"Successor Security"......................................29
"Temporary Cash Investments"..............................29
"Trustee".................................................29
"Trust Indenture Act".....................................29
"Unrestricted Subsidiary".................................30
"Unrestricted Subsidiary Indebtedness"....................30
"Voting Stock"............................................30
"Wholly Owned Restricted Subsidiary"......................30
Section 102. Other Definitions. ............................................31
Section 103. Compliance Certificates and Opinions. .........................31
Section 104. Form of Documents Delivered to Trustee. .......................32
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<PAGE>
PAGE
Section 105. Acts of Holders. ..............................................33
Section 106. Notices, etc., to the Trustee, the Company and any
Guarantor. ...............................................35
Section 107. Notice to Holders; Waiver. ....................................35
Section 108. Conflict with Trust Indenture Act. ............................36
Section 109. Effect of Headings and Table of Contents. .....................36
Section 110. Successors and Assigns. .......................................36
Section 111. Separability Clause. ..........................................36
Section 112. Benefits of Indenture. ........................................36
SECTION 113. GOVERNING LAW. ................................................37
Section 114. Legal Holidays. ...............................................37
Section 115. Independence of Covenants. ....................................37
Section 116. Schedules and Exhibits. .......................................37
Section 117. Counterparts.. ................................................37
ARTICLE TWO SECURITY FORMS ....................................38
Section 201. Forms Generally. ..............................................38
Section 202. Form of Face of Security. .....................................39
Section 203. Form of Reverse of Securities. ................................53
Section 204. Form of Guarantee. ..........................................61
ARTICLE THREE THE SECURITIES ...................................63
Section 301. Title and Terms. ..............................................63
Section 302. Denominations. ................................................64
Section 303. Execution, Authentication, Delivery and Dating. ...............64
Section 304. Temporary Securities. .........................................66
Section 305. Registration, Registration of Transfer and Exchange. ..........66
Section 306. Book Entry Provisions for Global Securities. ..................68
Section 307. Special Transfer and Exchange Provisions. .....................70
Section 308. Mutilated, Destroyed, Lost and Stolen Securities. .............73
Section 309. Payment of Interest; Interest Rights Preserved. ...............74
Section 310. CUSIP Numbers. ................................................75
Section 311. Persons Deemed Owners. ........................................75
Section 312. Cancellation. .................................................76
Section 313. Computation of Interest. ......................................76
- iii -
<PAGE>
PAGE
ARTICLE FOUR DEFEASANCE AND COVENANT
DEFEASANCE ............................................76
Section 401. Company's Option to Effect Defeasance or Covenant
Defeasance. ..............................................76
Section 402. Defeasance and Discharge. .....................................76
Section 403. Covenant Defeasance. ..........................................77
Section 404. Conditions to Defeasance or Covenant Defeasance. ..............77
Section 405. Deposited Money and U.S. Government Obligations to
Be Held in Trust; Other Miscellaneous Provisions. ........80
Section 406. Reinstatement. ................................................80
ARTICLE FIVE REMEDIES .......................................81
Section 501. Events of Default. ............................................81
Section 502. Acceleration of Maturity; Rescission and Annulment. ...........83
Section 503. Collection of Indebtedness and Suits for Enforcement by
Trustee. .................................................84
Section 504. Trustee May File Proofs of Claim. .............................85
Section 505. Trustee May Enforce Claims without Possession of
Securities. ..............................................86
Section 506. Application of Money Collected. ...............................86
Section 507. Limitation on Suits. ..........................................87
Section 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest. ....................................88
Section 509. Restoration of Rights and Remedies. ...........................88
Section 510. Rights and Remedies Cumulative. ...............................88
Section 511. Delay or Omission Not Waiver. .................................88
Section 512. Control by Holders. ...........................................89
Section 513. Waiver of Past Defaults. ......................................89
Section 514. Undertaking for Costs. ........................................89
Section 515. Waiver of Stay, Extension or Usury Laws. ......................90
Section 516. Remedies Subject to Applicable Law. ...........................90
ARTICLE SIX THE TRUSTEE ......................................90
Section 601. Duties of Trustee. ............................................90
Section 602. Notice of Defaults. ...........................................92
Section 603. Certain Rights of Trustee. ....................................92
Section 604. Trustee Not Responsible for Recitals, Dispositions of
Securities or Application of Proceeds Thereof. ...........94
Section 605. Trustee and Agents May Hold Securities; Collections;
etc. .....................................................94
Section 606. Money Held in Trust. ..........................................94
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<PAGE>
PAGE
Section 607. Compensation and Indemnification of Trustee and Its
Prior Claim. .............................................95
Section 608. Conflicting Interests. ........................................95
Section 609. Trustee Eligibility. ..........................................96
Section 610. Resignation and Removal; Appointment of Successor
Trustee. .................................................96
Section 611. Acceptance of Appointment by Successor. .......................98
Section 612. Merger, Conversion, Consolidation or Succession to
Business. ................................................98
Section 613. Preferential Collection of Claims Against Company. ............99
ARTICLE SEVEN HOLDERS' LISTS AND REPORTS
BY TRUSTEE AND COMPANY ......................................99
Section 701. Company to Furnish Trustee Names and Addresses of
Holders. .................................................99
Section 702. Disclosure of Names and Addresses of Holders. ................100
Section 703. Reports by Trustee. ..........................................100
Section 704. Reports by Company and Guarantors. ...........................100
ARTICLE EIGHT CONSOLIDATION, MERGER, SALE
OF ASSETS ............................................101
Section 801. Company and Guarantors May Consolidate, etc., Only on
Certain Terms. ..........................................102
Section 802. Successor Substituted. .......................................104
ARTICLE NINE SUPPLEMENTAL INDENTURES ...............................105
Section 901. Supplemental Indentures and Agreements without
Consent of Holders. .....................................105
Section 902. Supplemental Indentures and Agreements with Consent
of Holders. .............................................106
Section 903. Execution of Supplemental Indentures and Agreements.
..........................................................................107
Section 904. Effect of Supplemental Indentures. ...........................108
Section 905. Conformity with Trust Indenture Act. .........................108
Section 906. Reference in Securities to Supplemental Indentures. ..........108
Section 907. Notice of Supplemental Indentures. ...........................108
ARTICLE TEN COVENANTS ......................................108
Section 1001. Payment of Principal, Premium and Interest. .................109
- vi -
<PAGE>
PAGE
Section 1002. Maintenance of Office or Agency. ............................109
Section 1003. Money for Security Payments to Be Held in Trust. ............109
Section 1004. Corporate Existence. ........................................111
Section 1005. Payment of Taxes and Other Claims. ..........................111
Section 1006. Maintenance of Properties. ..................................112
Section 1007. Maintenance of Insurance. ...................................112
Section 1008. Limitation on Indebtedness. .................................112
Section 1009. Limitation on Restricted Payments. ..........................115
Section 1010. Limitation on Transactions with Affiliates. .................120
Section 1011. Limitation on Liens. ........................................121
Section 1012. Limitation on Sale of Assets. ...............................122
Section 1013. Limitation on Issuances of Guarantees of and Pledges
for Indebtedness. .......................................127
Section 1014. Purchase of Securities upon a Change of Control. ............128
Section 1015. Limitation on Subsidiary Preferred Stock. ...................132
Section 1016. Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries. ....................133
Section 1017. Limitation on Senior Subordinated Indebtedness. .............134
Section 1018. Limitations on Unrestricted Subsidiaries. ...................134
Section 1019. Provision of Financial Statements. ..........................136
Section 1020. Statement by Officers as to Default. ........................137
Section 1021. Waiver of Certain Covenants. ................................138
ARTICLE ELEVEN REDEMPTION OF SECURITIES .............................138
Section 1101. Rights of Redemption. .......................................139
Section 1102. Applicability of Article. ...................................139
Section 1103. Election to Redeem; Notice to Trustee. ......................139
Section 1104. Selection by Trustee of Securities to Be Redeemed. ..........139
Section 1105. Notice of Redemption. .......................................140
Section 1106. Deposit of Redemption Price. ................................141
Section 1107. Securities Payable on Redemption Date. ......................141
Section 1108. Securities Redeemed or Purchased in Part. ...................142
ARTICLE TWELVE SATISFACTION AND
DISCHARGE ............................................142
Section 1201. Satisfaction and Discharge of Indenture. ....................142
Section 1202. Application of Trust Money. .................................143
ARTICLE THIRTEEN GUARANTEES ...................................144
Section 1301. Guarantors' Guarantee. .....................................144
- vii -
<PAGE>
PAGE
Section 1302. Continuing Guarantee; No Right of Set-Off;
Independent Obligation. .................................144
Section 1303. Guarantee Absolute. ........................................145
Section 1304. Right to Demand Full Performance. ..........................148
Section 1305. Waivers. ...................................................148
Section 1306. The Guarantors Remain Obligated in Event the
Company Is No Longer Obligated to Discharge
Indenture Obligations. ..................................149
Section 1307. Fraudulent Conveyance; Contribution; Subrogation. ..........150
Section 1308. Guarantee Is in Addition to Other Security. ................151
Section 1309. Release of Security Interests. .............................151
Section 1310. No Bar to Further Actions. .................................151
Section 1311. Failure to Exercise Rights Shall Not Operate as a
Waiver; No Suspension of Remedies. ......................151
Section 1312. Trustee's Duties; Notice to Trustee. .......................152
Section 1313. Successors and Assigns. ....................................153
Section 1314. Release of Guarantee. ......................................153
Section 1315. Execution of Guarantee. ....................................154
ARTICLE FOURTEEN SUBORDINATION OF
SECURITIES ............................................154
Section 1401. Securities Subordinate to Senior Indebtedness. ..............154
Section 1402. Payment Over of Proceeds Upon Dissolution, etc. .............155
Section 1403. Suspension of Payment When Designated Senior
Indebtedness in Default. ................................156
Section 1404. Payment Permitted if No Default. ............................158
Section 1405. Subrogation to Rights of Holders of Senior
Indebtedness. ...........................................158
Section 1406. Provisions Solely to Define Relative Rights. ................158
Section 1407. Trustee to Effectuate Subordination. ........................159
Section 1408. No Waiver of Subordination Provisions. ......................159
Section 1409. Notice to Trustee. ..........................................160
Section 1410. Reliance on Judicial Orders or Certificates. ................161
Section 1411. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights. .......................161
Section 1412. Article Applicable to Paying Agents. ........................161
Section 1413. No Suspension of Remedies. ..................................162
Section 1414. Trustee's Relation to Senior Indebtedness. ..................162
TESTIMONIUM
SIGNATURES AND SEALS
ACKNOWLEDGMENTS
- viii -
<PAGE>
PAGE
ANNEX A Form of Intercompany Note
SCHEDULE I Existing Indebtedness
EXHIBIT A Regulation S Certificate
EXHIBIT B Restricted Security Certificate
EXHIBIT C Unrestricted Security Certificate
APPENDIX I Form of Transferee Certificate for Series A Securities
APPENDIX II Form of Transferee Certificate for Series B Securities
- ix -
<PAGE>
INDENTURE, dated as of July 1, 1998, between Sonic Automotive, Inc.,
a Delaware corporation (the "Company"), and Town and Counrty Ford, Inc., a North
Carolina corporation, Marcus David Corporation, a North Carolina corporation,
Frontier Oldsmobile-Cadillac, Inc., a North Carolina corporation, Sonic Dodge,
LLC, a North Carolina limited liability company, Sonic
Chrysler-Plymouth-Jeep-Eagle, LLC, a North Carolina limited liability company,
Fort Mill Ford, Inc., a South Carolina corporation, Town and Country
Chrysler-Plymouth-Jeep of Rock Hill, Inc., a South Carolina corporation, Fort
Mill Chrysler-Plymouth-Dodge, Inc., a South Carolina corporation, Lone Star
Ford, Inc., a Texas corporation, Sonic Automotive of Nevada, Inc., a Nevada
corporation, Sonic Automotive of Tennessee, Inc., a Tennessee corporation, Sonic
Automotive-6025 International Drive, LLC, a Tennessee limited liability company,
Sonic Automotive of Nashville, LLC, a Tennessee limited liability company, Sonic
Automotive of Chattanooga, LLC, a Tennessee limited liability company, Town and
Country Jaguar, LLC, a Tennessee limited liability company, Town and Country
Chrysler-Plymouth-Jeep, LLC, a Tennessee limited liability company, Town and
Country Dodge of Chattanooga, LLC, a Tennessee limited liability company, Sonic
Automotive-2490 South Lee Highway, LLC, a Tennessee limited liability company,
Town and Country Ford of Cleveland, LLC, an Ohio limited liability company,
Freedom Ford, Inc., a Florida corporation, Sonic Automotive 5260 Peachtree
Industrial Blvd, LLC, a Georgia limited liability company, Sonic Automotive of
Georgia, Inc., a Georgia corporation, Sonic Peachtree Industrial Blvd., L.P., a
Georgia limited partnership, Sonic Automotive - Clearwater, Inc., a Florida
corporation, Sonic Automotive 21699 U.S. Hwy 19 N., Inc., a Florida corporation,
Sonic Automotive Collision Center of Clearwater, Inc., a Florida corporation,
Sonic Automotive - 1400 Automall Drive, Columbus, Inc., an Ohio corporation,
Sonic Automotive - 1455 Automall Drive, Columbus, Inc., an Ohio corporation,
Sonic Automotive - 1495 Automall Drive, Columbus, Inc., an Ohio corporation,
Sonic Automotive - 1500 Automall Drive, Columbus, Inc., an Ohio corporation,
Sonic Automotive - 3700 West Broad Street, Columbus, Inc., an Ohio corporation,
Sonic Automotive - 4000 West Broad Street, Columbus, Inc., an Ohio corporation,
Sonic Automotive 2424 Laurens Rd., Greenville, Inc., a South Carolina
corporation, Sonic Automotive 2752 Laurens Rd., Greenville, Inc., a South
Carolina corporation, Sonic Automotive - 5585 Peachtree Industrial Blvd., LLC, a
Georgia limited liability company, Capitol Chevrolet and Imports, Inc., an
Alabama corporation, Sonic Automotive - 1919 N. Dixie Hwy., NSB, Inc., a Florida
corporation, Sonic Automotive - 1307 N. Dixie Hwy., NSB, Inc., a Florida
corporation, Sonic Automotive - 1720 Mason Ave, DB, Inc., a Florida corporation,
Sonic Automotive - 3741 S. Nova Rd., PO, Inc., a Florida corporation, Sonic
Automotive - 241 Ridgewood Ave., HH, Inc., a Florida corporation and Sonic
Automotive - Hwy. 153 at Shallowford Road, Chattanooga, Inc., a Tennessee
corporation (each a "Guarantor" and collectively, the "Guarantors") and
U.S. Bank Trust National Association, as Trustee (the "Trustee").
- 1 -
<PAGE>
RECITALS OF THE COMPANY AND THE GUARANTORS
The Company has duly authorized the creation of an issue of 11%
Senior Subordinated Notes due 2008, Series A (the "Series A Securities" or the
"Initial Securities"), and an issue of 11% Senior Subordinated Notes due 2008,
Series B (the "Series B Securities" and, together with the Series A Securities,
the "Securities"), of substantially the tenor and amount hereinafter set forth,
and to provide therefor the Company has duly authorized the execution and
delivery of this Indenture and the Securities;
Each Guarantor has duly authorized the issuance of a Guarantee of
the Securities, of substantially the tenor hereinafter set forth, and to provide
therefor, each Guarantor has duly authorized the execution and delivery of this
Indenture and its Guarantee;
This Indenture is subject to, and shall be governed by, the
provisions of the Trust Indenture Act that are required to be part of and to
govern indentures qualified under the Trust Indenture Act;
All acts and things necessary have been done to make (i) the
Securities, when duly issued and executed by the Company and authenticated and
delivered hereunder, the valid obligations of the Company, (ii) the Guarantees,
when executed by each of the Guarantors and delivered hereunder, the valid
obligation of each of the Guarantors and (iii) this Indenture a valid agreement
of the Company and each of the Guarantors in accordance with the terms of this
Indenture;
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article, and include the plural as well as the singular;
- 2 -
<PAGE>
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP;
(d) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(e) all references to $, US$, dollars or United States dollars shall
refer to the lawful currency of the United States of America; and
(f) all references herein to particular Sections or Articles refer
to this Indenture unless otherwise so indicated.
Certain terms used principally in Article Four are defined in
Article Four.
"Acquired Indebtedness" means Indebtedness of a Person (i) existing
at the time such Person becomes a Restricted Subsidiary or (ii) assumed in
connection with the acquisition of assets from such Person, in each case, other
than Indebtedness incurred in connection with, or in contemplation of, such
Person becoming a Restricted Subsidiary or such acquisition, as the case may be.
Acquired Indebtedness shall be deemed to be incurred on the date of the related
acquisition of assets from any Person or the date the acquired Person becomes a
Restricted Subsidiary, as the case may be.
"Affiliate" means, with respect to any specified Person: (i) any
other Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person; (ii) any other Person
that owns, directly or indirectly, 5% or more of such specified Person's Capital
Stock or any officer or director of any such specified Person or other Person
or, with respect to any natural Person, any person having a relationship with
such Person by blood, marriage or adoption not more remote than first cousin; or
(iii) any other Person 5% or more of the Voting Stock of which is beneficially
owned or held directly or indirectly by such specified Person. For the purposes
of this definition, "control" when used with respect to any specified Person
means the power to direct the management and policies of such Person, directly
or indirectly, whether through ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
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"Applicable Procedures" means, with respect to any transfer or
transaction involving a Global Security or beneficial interest therein, the
rules and procedures of the Depositary for such Security, Euroclear and Cedel,
in each case to the extent applicable to such transaction and as in effect at
the time of such transfer or transaction.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease
or other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback Transaction) (collectively, a "transfer"),
directly or indirectly, in one or a series of related transactions, of: (i) any
Capital Stock of any Restricted Subsidiary (other than directors' qualifying
shares and transfers of Capital Stock required by a Manufacturer to the extent
the Company does not receive cash or Cash Equivalents for such Capital Stock);
(ii) all or substantially all of the properties and assets of any division or
line of business of the Company or any Restricted Subsidiary; or (iii) any other
properties or assets of the Company or any Restricted Subsidiary other than in
the ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include any transfer of properties and assets (A) that is
governed by the provisions described under Article Eight hereof, (B) that is by
the Company to any Wholly Owned Restricted Subsidiary, or by any Restricted
Subsidiary to the Company or any Wholly Owned Restricted Subsidiary in
accordance with the terms of this Indenture, (C) that is of obsolete equipment,
(D) that consists of defaulted receivables for collection or any sale, transfer
or other disposition of defaulted receivables for collection, or (E) the Fair
Market Value of which in the aggregate does not exceed $2.5 million in any
transaction or series of related transactions.
"Average Life to Stated Maturity" means, as of the date of
determination with respect to any Indebtedness, the quotient obtained by
dividing (i) the sum of the products of (a) the number of years from the date of
determination to the date or dates of each successive scheduled principal
payment of such Indebtedness multiplied by (b) the amount of each such principal
payment; by (ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, United States Bankruptcy Code of
1978, as amended, or any similar United States federal or state law relating to
bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or
relief of debtors or any amendment to, succession to or change in any such law.
"Board of Directors" means the board of directors of the Company or
any Guarantor, as the case may be, or any duly authorized committee of such
board.
"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or any Guarantor, as the case
may be, to have been duly adopted by the Board of Directors and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
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"Book-Entry Security" means any Global Securities bearing the legend
specified in Section 202 evidencing all or part of a series of Securities,
authenticated and delivered to the Depositary for such series or its nominee,
and registered in the name of such Depositary or nominee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions or trust companies in
The City of New York or the city in which the Corporate Trust Office of the
Trustee is located are authorized or obligated by law, regulation or executive
order to close.
"Capital Lease Obligation" of any Person means any obligation of
such Person and its Subsidiaries on a Consolidated basis under any capital lease
of real or personal property which, in accordance with GAAP, has been recorded
as a capitalized lease obligation.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of such Person's
capital stock or other equity interests whether now outstanding or issued after
the date hereof, partnership interests (whether general or limited), any other
interest or participation that confers on a Person that right to receive a share
of the profits and losses of, or distributions of assets of (other than a
distribution in respect of Indebtedness), the issuing Person and any rights
(other than debt securities convertible into Capital Stock), warrants or options
exchangeable for or convertible into such Capital Stock.
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"Cash Equivalents" means (i) marketable direct obligations, maturing
not more than one year after the date of acquisition, issued by the United
States of America, or an instrumentality or agency thereof, and guaranteed fully
as to principal, premium, if any, and interest by the United States of America,
(ii) any certificate of deposit, maturing not more than one year after the date
of acquisition, issued by a commercial banking institution that is a member of
the Federal Reserve System and that has combined capital and surplus and
undivided profits of not less than $500 million, whose debt has a rating, at the
time as of which any investment therein is made, of "P- 1" (or higher) according
to Moody's or any successor rating agency or "A-1" (or higher) according to S&P
or successor rating agency, (iii) commercial paper, maturing not more than180
days after the date of acquisition, issued by a corporation (other than an
Affiliate or Subsidiary of the Company) organized and existing under the laws of
the United States of America with a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to Moody's or "A-1"
(or higher) according to S&P and (iv) any money market deposit accounts issued
or offered by a domestic commercial bank having capital and surplus in excess of
$500 million; provided that the short term debt of such commercial bank has a
rating, at the time of Investment, of "P-1" (or higher) according to Moody's or
"A-1" (or higher) according to S&P.
"Cedel" means Cedel, S.A. (or any successor securities clearing
agency).
"Change of Control" means the occurrence of any of the following
events: (i) any "person" or "group" (as such terms are used in Sections 13(d)
and 14(d) of the Exchange Act), other than Permitted Holders, is or becomes the
"beneficial owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act,
except that a Person shall be deemed to have beneficial ownership of all shares
that such Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly, of more
than 35% of the total outstanding Voting Stock of the Company; (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election to such board or whose nomination for election by the
stockholders of the Company was approved by a vote of 66 2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved), cease
for any reason to constitute a majority of such Board of Directors then in
office; (iii) the Company consolidates with or merges with or into any Person or
sells, assigns, conveys, transfers, leases or otherwise disposes of all or
substantially all of its assets to any Person, or any Person consolidates with
or merges into or with the Company, in any such event pursuant to a transaction
in which the outstanding Voting Stock of the Company is converted into or
exchanged for cash, securities or other property, other than any such
transaction where (A) the outstanding Voting Stock of the Company is changed
into or exchanged for (x) Voting Stock of the surviving corporation which is not
Redeemable Capital Stock or (y) cash, securities and other property (other than
Capital Stock of the surviving corporation) in an
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amount which could be paid by the Company as a Restricted Payment as described
in Section 1009 herein (and such amount shall be treated as a Restricted Payment
subject to the provisions in this Indenture described in Section 1009 herein)
and (B) immediately after such transaction, no "person" or "group," other than
Permitted Holders, is the beneficial owner (as defined in Rules 13d-3 and 13d-5
under the Exchange Act, except that a person shall be deemed to have beneficial
ownership of all securities that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time),
directly or indirectly, more than 35% of the total outstanding Voting Stock of
the surviving corporation; or (iv) the Company is liquidated or dissolved or
adopts a plan of liquidation or dissolution other than in a transaction which
complies with the provisions described under Article Eight herein. For purposes
of this definition, any transfer of an equity interest of an entity that was
formed for the purpose of acquiring voting stock of the Company will be deemed
to be a transfer of such portion of such voting stock as corresponds to the
portion of the equity of such entity that has been so transferred.
"Class A Common Stock" means the Company's Class A Common Stock, par
value $.01 per share, or any successor common stock thereto.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or if at any time
after the execution of this Indenture such Commission is not existing and
performing the duties now assigned to it under the Securities Act, Exchange Act
and Trust Indenture Act then the body performing such duties at such time.
"Commodity Price Protection Agreement" means any forward contract,
commodity swap, commodity option or other similar financial agreement or
arrangement relating to, or the value which is dependent upon, fluctuations in
commodity prices.
"Company" means Sonic Automotive, Inc., a corporation incorporated
under the laws of Delaware, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by any one of its Chairman of the Board,
its President, its Chief Executive Officer, its Chief Financial Officer or a
Vice President (regardless of Vice Presidential designation), and by any one of
its Treasurer, an Assistant Treasurer, its Secretary or an Assistant Secretary,
and delivered to the Trustee.
"Consolidated Fixed Charge Coverage Ratio" of any Person means, for
any period, the ratio of (a) the sum of Consolidated Net Income (Loss), and in
each case to
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the extent deducted in computing Consolidated Net Income (Loss) for such period,
Consolidated Interest Expense, Consolidated Income Tax Expense and Consolidated
Non-cash Charges for such period, of such Person and its Restricted Subsidiaries
on a Consolidated basis, all determined in accordance with GAAP, less all
noncash items increasing Consolidated Net Income for such period and less all
cash payments during such period relating to noncash charges that were added
back to Consolidated Net Income in determining the Consolidated Fixed Charge
Coverage Ratio in any prior period to (b) the sum of Consolidated Interest
Expense for such period and cash and noncash dividends paid on any Preferred
Stock of such Person during such period, in each case after giving pro forma
effect to (i) the incurrence of the Indebtedness giving rise to the need to make
such calculation and (if applicable) the application of the net proceeds
therefrom, including to refinance other Indebtedness, as if such Indebtedness
was incurred, and the application of such proceeds occurred, on the first day of
such period; (ii) the incurrence, repayment or retirement of any other
Indebtedness by the Company and its Restricted Subsidiaries since the first day
of such period as if such Indebtedness was incurred, repaid or retired at the
beginning of such period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facility shall be computed based upon
the average daily balance of such Indebtedness during such period); (iii) in the
case of Acquired Indebtedness or any acquisition occurring at the time of the
incurrence of such Indebtedness, the related acquisition, assuming such
acquisition had been consummated on the first day of such period; and (iv) any
acquisition or disposition by the Company and its Restricted Subsidiaries of any
company or any business or any assets out of the ordinary course of business,
whether by merger, stock purchase or sale or asset purchase or sale, or any
related repayment of Indebtedness, in each case since the first day of such
period, assuming such acquisition or disposition had been consummated on the
first day of such period; provided that (i) in making such computation, the
Consolidated Interest Expense attributable to interest on any Indebtedness
computed on a pro forma basis and (A) bearing a floating interest rate shall be
computed as if the rate in effect on the date of computation had been the
applicable rate for the entire period and (B) which was not outstanding during
the period for which the computation is being made but which bears, at the
option of such Person, a fixed or floating rate of interest, shall be computed
by applying at the option of such Person either the fixed or floating rate and
(ii) in making such computation, the Consolidated Interest Expense of such
Person attributable to interest on any Indebtedness under a revolving credit
facility computed on a pro forma basis shall be computed based upon the average
daily balance of such Indebtedness during the applicable period.
"Consolidated Income Tax Expense" of any Person means, for any
period, the provision for federal, state, local and foreign income taxes of such
Person and its Consolidated Restricted Subsidiaries for such period as
determined in accordance with GAAP.
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"Consolidated Interest Expense" of any Person means, without
duplication, for any period, the sum of (a) the interest expense of such Person
and its Restricted Subsidiaries for such period, on a Consolidated basis (other
than interest expense under any Inventory Facility), including, without
limitation, (i) amortization of debt discount, (ii) the net costs associated
with Interest Rate Agreements, Currency Hedging Agreements and Commodity Price
Protection Agreements (including amortization of discounts), (iii) the interest
portion of any deferred payment obligation, (iv) all commissions, discounts and
other fees and charges owed with respect to letters of credit and bankers
acceptance financing and (v) accrued interest, plus (b) (i) the interest
component of the Capital Lease Obligations paid, accrued and/or scheduled to be
paid or accrued by such Person and its Restricted Subsidiaries during such
period and (ii) all capitalized interest of such Person and its Restricted
Subsidiaries, plus (c) the interest expense under any Guaranteed Debt of such
Person and any Restricted Subsidiary to the extent not included under clause
(a)(iv) above, whether or not paid by such Person or its Restricted
Subsidiaries.
"Consolidated Net Income (Loss)" of any Person means, for any
period, the Consolidated net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a Consolidated basis as determined in accordance
with GAAP, adjusted, to the extent included in calculating such net income (or
loss), by excluding, without duplication, (i) all extraordinary gains or losses
net of taxes (less all fees and expenses relating thereto), (ii) the portion of
net income (or loss) of such Person and its Restricted Subsidiaries on a
Consolidated basis allocable to minority interests in unconsolidated Persons or
Unrestricted Subsidiaries to the extent that cash dividends or distributions
have not actually been received by such Person or one of its Consolidated
Restricted Subsidiaries, (iii) net income (or loss) of any Person combined with
such Person or any of its Restricted Subsidiaries on a "pooling of interests"
basis attributable to any period prior to the date of combination, (iv) any gain
or loss, net of taxes, realized upon the termination of any employee pension
benefit plan, (v) gains or losses, net of taxes (less all fees and expenses
relating thereto), in respect of dispositions of assets other than in the
ordinary course of business, (vi) the net income of any Restricted Subsidiary to
the extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is not at the time permitted, directly or
indirectly, by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Restricted Subsidiary or its stockholders, (vii) any
restoration to net income of any contingency reserve, except to the extent
provision for such reserve was made out of income accrued at any time following
the Issue Date, or (viii) any net gain arising from the acquisition of any
securities or extinguishment, under GAAP, of any Indebtedness of such Person.
"Consolidated Non-cash Charges" of any Person means, for any period,
the aggregate depreciation, amortization and other non-cash charges of such
Person and its subsidiaries on a Consolidated basis for such period, as
determined in accordance with
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GAAP (excluding any non-cash charge which requires an accrual or reserve for
cash charges for any future period).
"Consolidated Tangible Assets" of any Person means (a) all amounts
that would be shown as assets on a Consolidated balance sheet of such Person and
its Restricted Subsidiaries prepared in accordance with GAAP, less (b) the
amount thereof constituting goodwill and with intangible assets as calculated in
accordance with GAAP.
"Consolidation" means, with respect to any Person, the consolidation
of the accounts of such Person and each of its subsidiaries if and to the extent
the accounts of such Person and each of its subsidiaries would normally be
consolidated with those of such Person, all in accordance with GAAP. The term
"Consolidated" shall have a similar meaning.
"Corporate Trust Office" means the office of the Trustee or an
affiliate or agent thereof at which at any particular time the corporate trust
business for the purposes of this Indenture shall be principally administered,
which office at the date of execution of this Indenture is located at 100 Wall
Street, 20th Floor, New York, New York 10005.
"Currency Hedging Agreements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
foreign exchange contracts, currency swap agreements or other similar agreements
or arrangements designed to protect against the fluctuations in currency values.
"Default" means any event which is, or after notice or passage of
any time or both would be, an Event of Default.
"Depositary" means, with respect to the Securities issued in the
form of one or more Book-Entry Securities, The Depository Trust Company ("DTC"),
its nominees and successors, or another Person designated as Depositary by the
Company, which must be a clearing agency registered under the Exchange Act.
"Designated Senior Indebtedness" means (i) all Senior Indebtedness
under the Floor Plan Facility or the Revolving Facility and (ii) any other
Senior Indebtedness which at the time of determination has an aggregate
principal amount outstanding of at least $25 million and which is specifically
designated in the instrument evidencing such Senior Indebtedness or the
agreement under which such Senior Indebtedness arises as "Designated Senior
Indebtedness" by the Company.
"Disinterested Director" means, with respect to any transaction or
series of related transactions, a member of the Board of Directors of the
Company who does not have any material direct or indirect financial interest in
or with respect to such transaction or series of related transactions.
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"Euroclear" means the Euroclear Clearance System (or any successor
securities clearing agency).
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute, and the rules and regulations promulgated by
the Commission thereunder.
"Exchange Offer" means the exchange offer by the Company and the
Guarantors of Series B Securities for Series A Securities to be effected
pursuant to Section 2.1 of the Registration Rights Agreement.
"Exchange Offer Registration Statement" means the registration
statement under the Securities Act contemplated by Section 2.1 of the
Registration Rights Agreement.
"Fair Market Value" means, with respect to any asset or property,
the sale value that would be obtained in an arm's-length free market transaction
between an informed and willing seller under no compulsion to sell and an
informed and willing buyer under no compulsion to buy. Fair Market Value shall
be determined by the Board of Directors of the Company acting in good faith and
shall be evidenced by a Board Resolution.
"Floor Plan Facility" means an agreement from Ford Motor Credit
Company or any other bank or asset-based lender pursuant to which the Company or
any Restricted Subsidiary incurs Indebtedness all of the net proceeds of which
are used to purchase, finance or refinance vehicles and/or vehicle parts and
supplies to be sold in the ordinary course of business of the Company and its
Restricted Subsidiaries and which may not be secured except by a Lien that does
not extend to or cover any property other than the property of the dealership(s)
which use the proceeds of the Floor Plan Facility.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, which
(i) for the purpose of determining compliance with the covenants contained in
this Indenture, are in effect as of the Issue Date, and (ii) for purposes of
compliance with the reporting requirements contained in this Indenture, are in
effect from time to time.
"Global Securities" means the Rule 144A Global Securities, the
Regulation S Global Securities and the Series B Global Securities to be issued
as Book-Entry Securities issued to the Depositary in accordance with Section
306.
"Guarantee" means the guarantee by any Guarantor of the Company's
Indenture Obligations.
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"Guaranteed Debt" of any Person means, without duplication, all
Indebtedness of any other Person referred to in the definition of Indebtedness
below guaranteed directly or indirectly in any manner by such Person, or in
effect guaranteed directly or indirectly by such Person through an agreement (i)
to pay or purchase such Indebtedness or to advance or supply funds for the
payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as
lessee or lessor) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss, (iii) to supply funds to, or in
any other manner invest in, the debtor (including any agreement to pay for
property or services without requiring that such property be received or such
services be rendered), (iv) to maintain working capital or equity capital of the
debtor, or otherwise to maintain the net worth, solvency or other financial
condition of the debtor or to cause such debtor to achieve certain levels of
financial performance or (v) otherwise to assure a creditor against loss;
provided that the term "guarantee" shall not include endorsements for collection
or deposit, in either case in the ordinary course of business.
"Guarantor" means any Subsidiary which is a guarantor of the
Securities, including any Person that is required after the Issue Date to
execute a guarantee of the Securities pursuant to Section 1011 or Section 1013
until a successor replaces such party pursuant to the applicable provisions of
this Indenture and, thereafter, shall mean such successor.
"Holder" means a Person in whose name a Security is registered in
the Security Register.
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"Indebtedness" means, with respect to any Person, without
duplication, (i) all indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, excluding any trade payables
and other accrued current liabilities arising in the ordinary course of
business, but including, without limitation, all obligations, contingent or
otherwise, of such Person in connection with any letters of credit issued under
letter of credit facilities, acceptance facilities or other similar facilities,
(ii) all obligations of such Person evidenced by bonds, notes, debentures or
other similar instruments, (iii) all indebtedness created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even if the rights and remedies of the seller or lender
under such agreement in the event of default are limited to repossession or sale
of such property), but excluding trade payables arising in the ordinary course
of business, (iv) all obligations of such Person under Interest Rate Agreements,
Currency Hedging Agreements or Commodity Price Protection Agreements of such
Person, (v) all Capital Lease Obligations of such Person, (vi) all Indebtedness
referred to in clauses (i) through (v) above of other Persons and all dividends
of other Persons, the payment of which is secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien, upon or with respect to property (including, without limitation,
accounts and contract rights) owned by such Person, even though such Person has
not assumed or become liable for the payment of such Indebtedness, (vii) all
Guaranteed Debt of such Person, (viii) all Redeemable Capital Stock issued by
such Person valued at the greater of its voluntary or involuntary maximum fixed
repurchase price plus accrued and unpaid dividends, (ix) Preferred Stock of any
Restricted Subsidiary of the Company which is not a Guarantor and (x) any
amendment, supplement, modification, deferral, renewal, extension, refunding or
refinancing of any liability of the types referred to in clauses (i) through
(ix) above. For purposes hereof, the "maximum fixed repurchase price" of any
Redeemable Capital Stock which does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Redeemable Capital Stock as if
such Redeemable Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such price
is based upon, or measured by, the Fair Market Value of such Redeemable Capital
Stock, such Fair Market Value to be determined in good faith by the board of
directors of the issuer of such Redeemable Capital Stock.
"Indenture" means this instrument as originally executed (including
all exhibits and schedules thereto) and as it may from time to time be
supplemented or amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any
other obligor under this Indenture or under the Securities, including any
Guarantor, to pay principal of, premium, if any, and interest when due and
payable, and all other amounts due or to become due under or in connection with
this Indenture, the Securities and the
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performance of all other obligations to the Trustee and the Holders under this
Indenture and the Securities, according to the respective terms hereof and
thereof.
"Initial Securities" has the meaning stated in the first recital of
this Indenture.
"Initial Purchasers" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated, NationsBanc Montgomery Securities LLC and BancAmerica Robertson
Stephens.
"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Securities.
"Interest Rate Agreements" means one or more of the following
agreements which shall be entered into by one or more financial institutions:
interest rate protection agreements (including, without limitation, interest
rate swaps, caps, floors, collars and similar agreements) and/or other types of
interest rate hedging agreements from time to time.
"Inventory Facility" means any Floor Plan Facility or any other
agreement (including pursuant to a commercial paper program) pursuant to which
the Company or any Restricted Subsidiary incurs Indebtedness, the net proceeds
of which are used to purchase, finance or refinance vehicles and/or vehicle
parts and supplies to be sold in the ordinary course of business of the Company
and its Restricted Subsidiaries and which may not be secured except by Lien that
does not extend to or cover any property other than the property of the
dealership(s) which use the proceeds of the Inventory Facility.
"Investment" means, with respect to any Person, directly or
indirectly, any advance, loan (including guarantees), or other extension of
credit or capital contribution to (by means of any transfer of cash or other
property to others or any payment for property or services for the account or
use of others), or any purchase, acquisition or ownership by such Person of any
Capital Stock, bonds, notes, debentures or other securities issued or owned by
any other Person and all other items that would be classified as investments on
a balance sheet prepared in accordance with GAAP.
"Issue Date" means the original issue date of the Securities under
this Indenture.
"Lien" means any mortgage or deed of trust, charge, pledge, lien
(statutory or otherwise), privilege, security interest, assignment, deposit,
arrangement, easement, hypothecation, claim, preference, priority or other
encumbrance upon or with respect to any property of any kind (including any
conditional sale, capital lease or other title retention agreement, any leases
in the nature thereof, and any agreement to give any security interest), real or
personal, movable or immovable, now owned or hereafter
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acquired. A Person will be deemed to own subject to a Lien any property which it
has acquired or holds subject to the interest of a vendor or lessor under any
conditional sale agreement, Capitalized Lease Obligation or other title
retention agreement.
"Manufacturer" means a vehicle manufacturer which is a party to a
dealership franchise agreement with the Company or any Restricted Subsidiary.
"Maturity" means, when used with respect to the Securities, the date
on which the principal of the Securities becomes due and payable as therein
provided or as provided in this Indenture, whether at Stated Maturity, the Offer
Date or the Redemption Date and whether by declaration of acceleration, Offer in
respect of Excess Proceeds, Change of Control Offer in respect of a Change of
Control, call for redemption or otherwise.
"Moody's" means Moody's Investors Service, Inc. or any successor
rating agency.
"Net Cash Proceeds" means (a) with respect to any Asset Sale by any
Person, the proceeds thereof (without duplication in respect of all Asset Sales)
in the form of cash or Temporary Cash Investments including payments in respect
of deferred payment obligations when received in the form of, or stock or other
assets when disposed of for, cash or Temporary Cash Investments (except to the
extent that such obligations are financed or sold with recourse to the Company
or any Restricted Subsidiary) net of (i) brokerage commissions and other
reasonable fees and expenses (including fees and expenses of counsel and
investment bankers) related to such Asset Sale, (ii) provisions for all taxes
payable as a result of such Asset Sale, (iii) payments made to retire
Indebtedness where payment of such Indebtedness is secured by the assets or
properties the subject of such Asset Sale, (iv) amounts required to be paid to
any Person (other than the Company or any Restricted Subsidiary) owning a
beneficial interest in the assets subject to the Asset Sale and (v) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale, all as reflected in an Officers'
Certificate delivered to the Trustee and (b) with respect to any issuance or
sale of Capital Stock or options, warrants or rights to purchase Capital Stock,
or debt securities or Capital Stock that have been converted into or exchanged
for Capital Stock as referred to in Section 1009, the proceeds of such issuance
or sale in the form of cash or Temporary Cash Investments including payments in
respect of deferred payment obligations when received in the form of, or stock
or other assets when disposed of for, cash or Temporary Cash Investments (except
to the extent that such obligations are financed or sold with recourse to the
Company or any Restricted
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Subsidiary), net of attorney's fees, accountant's fees and brokerage,
consultation, underwriting and other fees and expenses actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"Non-U.S. Person" means a Person that is not a "U.S. person" as
defined in Regulation S under the Securities Act.
"Officers' Certificate" means a certificate signed by the Chairman
of the Board, the President, the Chief Executive Officer, the Chief Financial
Officer or a Vice President (regardless of Vice Presidential designation), and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company or any Guarantor, as the case may be, and in form and
substance reasonably satisfactory to, and delivered to, the Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, any Guarantor or the Trustee, unless an Opinion of
Independent Counsel is required pursuant to the terms of this Indenture, and who
shall be acceptable to the Trustee, and which opinion shall be in form and
substance reasonably satisfactory to the Trustee.
"Opinion of Independent Counsel" means a written opinion of counsel
which is issued by a Person who is not an employee, director or consultant
(other than non-employee legal counsel) of the Company or any Guarantor and who
shall be acceptable to the Trustee, and which opinion shall be in form and
substance reasonably satisfactory to the Trustee.
"Outstanding" when used with respect to Securities means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) Securities theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Securities, or portions thereof, for whose payment or redemption
money in the necessary amount has been theretofore deposited with the Trustee or
any Paying Agent (other than the Company or an Affiliate thereof) in trust or
set aside and segregated in trust by the Company or an Affiliate thereof (if the
Company or an Affiliate thereof shall act as its own Paying Agent) for the
Holders of such Securities; provided that if such Securities are to be redeemed,
notice of such redemption has been duly given pursuant to this Indenture or
provision therefor reasonably satisfactory to the Trustee has been made;
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(c) Securities, to the extent provided in Sections 402 and 403, with
respect to which the Company has effected defeasance or covenant defeasance as
provided in Article Four; and
(d) Securities in exchange for or in lieu of which other Securities
have been authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to the
Trustee and the Company proof reasonably satisfactory to each of them that such
Securities are held by a bona fide purchaser in whose hands the Securities are
valid obligations of the Company; provided, however, that in determining whether
the Holders of the requisite principal amount of Outstanding Securities have
given any request, demand, authorization, direction, notice, consent or waiver
hereunder, Securities owned by the Company, any Guarantor, or any other obligor
upon the Securities or any Affiliate of the Company, any Guarantor or such other
obligor shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows to be so owned shall be so disregarded.
Securities so owned which have been pledged in good faith may be regarded as
Outstanding if the pledgee establishes to the reasonable satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company, any Guarantor or any other obligor upon the
Securities or any Affiliate of the Company, any Guarantor or such other obligor.
"Pari Passu Indebtedness" means (a) any Indebtedness of the Company
that is pari passu in right of payment to the Securities and (b) with respect to
any Guarantee, Indebtedness which ranks pari passu in right of payment to such
Guarantee.
"Paying Agent" means any Person (including the Company) authorized
by the Company to pay the principal of, premium, if any, or interest on, any
Securities on behalf of the Company.
"Permitted Holders" means (i) Mr. Bruton Smith or Mr. William S.
Egan and their respective guardians, conservators, committees, or
attorneys-in-fact; (ii) lineal descendants of Mr. Smith or Mr. Egan (in either
case, a "Descendant") and their respective guardians, conservators, committees
or attorneys-in-fact; and (iii) each "Family Controlled Entity" (as defined
herein). The term "Family Controlled Entity" means (a) any not-for-profit
corporation if at least 80% of its board of directors is composed of Mr. Smith,
Mr. Egan and/or Descendants; (b) any other corporation if at least 80% of the
value of its outstanding equity is owned by a Permitted Holder; (c) any
partnership if at least 80% of the value of the partnership interests are owned
by a Permitted Holder; (d) any limited liability or similar company if at least
80% of the value of the company is
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owned by a Permitted Holder; and (e) any trusts created for the benefit of any
of the persons listed in (i) or (ii) of the prior sentence.
"Permitted Investment" means (i) Investments in any Wholly Owned
Restricted Subsidiary or any Person which, as a result of such Investment, (a)
becomes a Wholly Owned Restricted Subsidiary or (b) is merged or consolidated
with or into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or any Wholly Owned Restricted Subsidiary; (ii)
Indebtedness of the Company or a Restricted Subsidiary described under clauses
(v), (vi) and (vii) of the definition of "Permitted Indebtedness"; (iii)
Investments in any of the Securities; (iv) Temporary Cash Investments; (v)
Investments acquired by the Company or any Restricted Subsidiary in connection
with an Asset Sale permitted under Section 1012 herein to the extent such
Investments are non-cash proceeds as permitted under such covenant; (vi) any
Investment to the extent the consideration therefor consists of Qualified
Capital Stock of the Company or any Restricted Subsidiary; (vii) Investments
representing Capital Stock or obligations issued to the Company or any
Restricted Subsidiary in the ordinary course of the good faith settlement of
claims against any other Person by reason of a composition or readjustment of
debt or a reorganization of any debtor or any Restricted Subsidiary; (viii)
prepaid expenses advanced to employees in the ordinary course of business or
other loans or advances to employees in the ordinary course of business not to
exceed $1 million in the aggregate at any one time outstanding; (ix) Investments
in existence on the Issue Date; and (x) in addition to the Investments described
in clauses (i) through (x) above, Investments in an amount not to exceed $10
million in the aggregate at any one time outstanding. In connection with any
assets or property contributed or transferred to any Person as an Investment,
such property and assets shall be equal to the Fair Market Value (as determined
by the Company's Board of Directors) at the time of Investment.
"Person" means any individual, corporation, limited liability
company, partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 308 in exchange for a
mutilated Security or in lieu of a lost, destroyed or stolen Security shall be
deemed to evidence the same debt as the mutilated, lost, destroyed or stolen
Security.
"Preferred Stock" means, with respect to any Person, any Capital
Stock of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
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"Prospectus" means the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including any such
prospectus supplement with respect to the terms of the offering of any portion
of the Series A Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Public Equity Offering" means an underwritten public offering of
common stock (other than Redeemable Capital Stock) of the Company with gross
proceeds to the Company of at least $50 million pursuant to a registration
statement that has been declared effective by the Commission pursuant to the
Securities Act (other than a registration statement on Form S-4, Form S-8 or
otherwise relating to equity securities issuable under any employee benefit plan
of the Company).
"Purchase Money Obligation" means any Indebtedness secured by a Lien
on assets related to the business of the Company and any additions and
accessions thereto, which are purchased by the Company at any time after the
Securities are issued; provided that (i) the security agreement or conditional
sales or other title retention contract pursuant to which the Lien on such
assets is created (collectively a "Purchase Money Security Agreement") shall be
entered into within 90 days after the purchase or substantial completion of the
construction of such assets and shall at all times be confined solely to the
assets so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom, (ii) at no time shall the aggregate principal amount of the
outstanding Indebtedness secured thereby be increased, except in connection with
the purchase of additions and accessions thereto and except in respect of fees
and other obligations in respect of such Indebtedness and (iii) (A) the
aggregate outstanding principal amount of Indebtedness secured thereby
(determined on a per asset basis in the case of any additions and accessions)
shall not at the time such Purchase Money Security Agreement is entered into
exceed 100% of the purchase price to the Company of the assets subject thereto
or (B) the Indebtedness secured thereby shall be with recourse solely to the
assets so purchased or acquired, any additions and accessions thereto and any
proceeds therefrom.
"QIB" means a "Qualified Institutional Buyer" under Rule 144A under
the Securities Act.
"Qualified Capital Stock" of any Person means any and all Capital
Stock of such Person other than Redeemable Capital Stock.
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"Redeemable Capital Stock" means any Capital Stock that,
either by its terms or by the terms of any security into which it
is convertible or exchangeable or otherwise, is or upon the
happening of an event or passage of time would be, required to be
redeemed prior to the final Stated Maturity of the principal of
the Securities or is redeemable at the option of the holder
thereof at any time prior to such final Stated Maturity (other
than upon a change of control of the Company in circumstances
where a Holder would have similar rights), or is convertible into
or exchangeable for debt securities at any time prior to any such
Stated Maturity at the option of the holder thereof.
"Redemption Date" when used with respect to any Security to
be redeemed pursuant to any provision in this Indenture means the
date fixed for such redemption by or pursuant to this Indenture.
"Redemption Price" when used with respect to any Security to
be redeemed pursuant to any provision in this Indenture means the
price at which it is to be redeemed pursuant to this Indenture.
"Registration Rights Agreement" means the Registration
Rights Agreement, dated as of July 31, 1998, among the Company,
the Guarantors and the Initial Purchasers.
"Registration Statement" means any registration statement of
the Company and the Guarantors which covers any of the Series A
Securities (and related guarantees) or Series B Securities (and
related guarantees) pursuant to the provisions of the
Registration Rights Agreement, and all amendments and supplements
to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by
reference therein.
"Regular Record Date" for the interest payable on any
Interest Payment Date means the January 15 or July 15 (whether or
not a Business Day) next preceding such Interest Payment Date.
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"Regulation S" means Regulation S under the Securities Act,
as amended from time to time.
"Regulation S Global Securities" means one or more permanent
global Securities in registered form representing the aggregate
principal amount of Securities sold in reliance on Regulation S
under the Securities Act.
"Responsible Officer" when used with respect to the Trustee
means any officer or employee assigned to the Corporate Trust
Office or any agent of the Trustee appointed hereunder, including
any vice president, assistant vice president, secretary,
assistant secretary, or any other officer or assistant officer of
the Trustee or any agent of the Trustee appointed hereunder to
whom any corporate trust matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Replacement Assets" means properties and assets (other than
cash or any Capital Stock or other security) that will be used in
a business of the Company or its Restricted Subsidiaries existing
on the Issue Date or in business reasonably related thereto.
"Restricted Subsidiary" means any Subsidiary of the Company
that has not been designated by the Board of Directors of the
Company by a Board Resolution delivered to the Trustee as an
Unrestricted Subsidiary pursuant to and in compliance with
Section 1018 herein.
"Revolving Facility" means the Credit Agreement among the
Company, the Guarantors and Ford Motor Credit Company as of
December 15, 1997, as such agreement, in whole or in part, may be
amended, renewed, extended, substituted, refinanced,
restructured, replaced, supplemented or otherwise modified from
time to time (including, without limitation, any successive
renewals, extensions, substitutions, refinancings,
restructurings, replacements, supplementations or other
modifications of the foregoing).
"Rule 144A" means Rule 144A under the Securities Act, as
amended from time to time.
"Rule 144A Global Securities" means one or more permanent
global Securities in registered form representing the aggregate
principal amount of Securities sold in reliance on Rule 144A
under the Securities Act.
"S&P" means Standard & Poor's Rating Group, a division of
McGraw Hill, Inc. or any successor rating agency.
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"Securities Act" means the Securities Act of 1933, as
amended, or any successor statute and the rules and regulations
promulgated by the Commission thereunder.
"Senior Guarantor Indebtedness" means the principal of,
premium, if any, and interest (including interest, to the extent
allowable, accruing after the filing of a petition initiating any
proceeding under any state, federal or foreign bankruptcy law) on
any Indebtedness of any Guarantor (other than as otherwise
provided in this definition), whether outstanding on the Issue
Date or thereafter created, incurred or assumed, and whether at
any time owing, actually or contingent, unless, in the case of
any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding
expressly provides that such Indebtedness shall not be senior in
right of payment to any Guarantee. Notwithstanding the foregoing,
"Senior Guarantor Indebtedness" shall (x) include the Floor Plan
Facility and the Revolving Facility to the extent any Guarantor
is a party thereto and (y) not include (i) Indebtedness evidenced
by the Guarantees, (ii) Indebtedness that is subordinated or
junior in right of payment to any Indebtedness of any Guarantor,
(iii) Indebtedness which when incurred and without respect to any
election under Section 1111(b) of Title 11 United States Code is
without recourse to any Guarantor, (iv) Indebtedness which is
represented by Redeemable Capital Stock, (v) any liability for
foreign, federal, state, local or other taxes owed or owing by
any Guarantor to the extent such liability constitutes
Indebtedness, (vi) Indebtedness of any Guarantor to a Subsidiary
or any other Affiliate of the Company or any of such Affiliate's
Subsidiaries, (vii) to the extent it might constitute
Indebtedness, amounts owing for goods, materials or services
purchased in the ordinary course of business or consisting of
trade accounts payable owed or owing by such Guarantor, and
amounts owed by such Guarantor for compensation to employees or
services rendered to such Guarantor, (viii) that portion of any
Indebtedness which at the time of issuance is issued in violation
of this Indenture and (ix) Indebtedness evidenced by any
guarantee of any Subordinated Indebtedness or Pari Passu
Indebtedness.
"Senior Indebtedness" means the principal of, premium, if
any, and interest (including interest, to the extent allowable,
accruing after the filing of a petition initiating any proceeding
under any state, federal or foreign bankruptcy law) on any
Indebtedness of the Company (other than as otherwise provided in
this definition), whether outstanding on the Issue Date or
thereafter created, incurred or assumed, and whether at any time
owing, actually or contingent, unless, in the case of any
particular Indebtedness, the instrument creating or evidencing
the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of
payment to the Notes. Notwithstanding the foregoing, "Senior
Indebtedness" shall (x) include the Floor Plan Facility and the
Revolving Facility to the extent the Company is a party thereto
and (y) not include (i) Indebtedness evidenced by the Securities,
(ii) Indebtedness that is subordinate or junior in right of
payment to any Indebtedness of the Company, (iii) Indebtedness
which when incurred and without respect to any election under
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Section 1111(b) of Title 11 United States Code is without
recourse to the Company, (iv) Indebtedness which is represented
by Redeemable Capital Stock, (v) any liability for foreign,
federal, state, local or other taxes owed or owing by the Company
to the extent such liability constitutes Indebtedness, (vi)
Indebtedness of the Company to a Subsidiary or any other
Affiliate of the Company or any of such Affiliate's Subsidiaries,
(vii) to the extent it might constitute Indebtedness, amounts
owing for goods, materials or services purchased in the ordinary
course of business or consisting of trade accounts payable owed
or owing by the Company, and amounts owed by the Company for
compensation to employees or services rendered to the Company,
(viii) that portion of any Indebtedness which at the time of
issuance is issued in violation of this Indenture and (ix)
Indebtedness evidenced by any guarantee of any Subordinated
Indebtedness or Pari Passu Indebtedness.
"Senior Representative" means the agent, indenture trustee
or other trustee or representative for any Senior Indebtedness.
"Series B Global Securities" means one or more permanent
Global Securities in registered form representing the aggregate
principal amount of Series B Securities exchanged for Series A
Securities pursuant to the Exchange Offer.
"Shelf Registration Statement" means a "shelf" registration
statement of the Company and the Guarantors pursuant to Section
2.2 of the of the Registration Rights Agreement, which covers all
of the Registrable Securities (as defined in the Registration
Rights Agreement) on an appropriate form under Rule 415 under the
Securities Act, or any similar rule that may be adopted by the
Commission, and all amendments and supplements to such
registration statement, including post-effective amendments, in
each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference
therein.
"Significant Restricted Subsidiary" means, at any particular
time, any Restricted Subsidiary that, together with the
Restricted Subsidiaries of such Restricted Subsidiary (i)
accounted for more than 5% of the Consolidated revenues of the
Company and its Restricted Subsidiaries for their most recently
completed fiscal year or (ii) is or are the owner(s) of more than
5% of the Consolidated assets of the Company and its Restricted
Subsidiaries as at the end of such fiscal year, all as calculated
in accordance with GAAP and as shown on the Consolidated
financial statements of the Company and its Restricted
Subsidiaries for such fiscal year.
"Smith Subordinated Loan" means the subordinated loan from
Bruton Smith to the Company in the principal amount of $5.5
million in existence on the Issue Date.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section
309.
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"Stated Maturity" means, when used with respect to any
Indebtedness or any installment of interest thereon, the dates
specified in such Indebtedness as the fixed date on which the
principal of such Indebtedness or such installment of interest,
as the case may be, is due and payable.
"Subordinated Indebtedness" means Indebtedness of the
Company or a Guarantor subordinated in right of payment to the
Securities or the Guarantee of such Guarantor, as the case may
be.
"Subsidiary" of a Person means (i) any corporation more than
50% of the outstanding voting power of the Voting Stock of which
is owned or controlled, directly or indirectly, by such Person or
by one or more other Subsidiaries of such Person, or by such
Person and one or more other Subsidiaries thereof, or (ii) any
limited partnership of which such Person or any Subsidiary of
such Person is a general partner, or (iii) any other Person in
which such Person, or one or more other Subsidiaries of such
Person, or such Person and one or more other Subsidiaries,
directly or indirectly, has more than 50% of the outstanding
partnership or similar interests or has the power, by contract or
otherwise, to direct or cause the direction of the policies,
management and affairs thereof.
"Successor Security" of any particular Security means every
Security issued after, and evidencing all or a portion of the
same debt as that evidenced by, such particular Security; and,
for the purposes of this definition, any Security authenticated
and delivered under Section 307 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or
stolen Security.
"Temporary Cash Investments" means (i) any evidence of
Indebtedness, maturing not more than one year after the date of
acquisition, issued by the United States of America, or an
instrumentality or agency thereof, and guaranteed fully as to
principal, premium, if any, and interest by the United States of
America, (ii) any certificate of deposit, maturing not more than
one year after the date of acquisition, issued by, or time
deposit of, a commercial banking institution that is a member of
the Federal Reserve System and that has combined capital and
surplus and undivided profits of not less than $500 million,
whose debt has a rating, at the time as of which any investment
therein is made, of "P-1" (or higher) according to Moody's or any
successor rating agency or "A-1" (or higher) according to S&P or
any successor rating agency, (iii) commercial paper, maturing not
more than one year after the date of acquisition, issued by a
corporation (other than an Affiliate or Subsidiary of the
Company) organized and existing under the laws of the United
States of America with a rating, at the time as of which any
investment therein is made, of "P-1" (or higher) according to
Moody's or "A-1" (or higher) according to S&P, and (iv) any money
market deposit accounts issued or offered by a domestic
commercial bank having capital and surplus in excess of $500
million; provided
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that the short term debt of such commercial bank has a rating, at
the time of Investment, of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to S&P.
"Trustee" means the Person named as the "Trustee" in the
first paragraph of this Indenture, until a successor trustee
shall have become such pursuant to the applicable provisions of
this Indenture, and thereafter "Trustee" shall mean such
successor trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended, or any successor statute.
"Unrestricted Subsidiary" means any Subsidiary of the
Company (other than a Guarantor) designated as such pursuant to
and in compliance with Section 1018 herein.
"Unrestricted Subsidiary Indebtedness" of any Unrestricted
Subsidiary means Indebtedness of such Unrestricted Subsidiary (i)
as to which neither the Company nor any Restricted Subsidiary is
directly or indirectly liable (by virtue of the Company or any
such Subsidiary being the primary obligor on, guarantor of, or
otherwise liable in any respect to, such Indebtedness), except
Guaranteed Debt of the Company or any Restricted Subsidiary to
any Affiliate, in which case (unless the incurrence of such
Guaranteed Debt resulted in a Restricted Payment at the time of
incurrence) the Company shall be deemed to have made a Restricted
Payment equal to the principal amount of any such Indebtedness to
the extent guaranteed at the time such Affiliate is designated an
Unrestricted Subsidiary and (ii) which, upon the occurrence of a
default with respect thereto, does not result in, or permit any
holder of any Indebtedness of the Company or any Subsidiary to
declare, a default on such Indebtedness of the Company or any
Subsidiary or cause the payment thereof to be accelerated or
payable prior to its Stated Maturity; provided that
notwithstanding the foregoing any Unrestricted Subsidiary may
guarantee the Securities.
"Voting Stock" means Capital Stock of the class or classes
pursuant to which the holders thereof have the general voting
power under ordinary circumstances to elect at least a majority
of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time Capital Stock of any
other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"Wholly Owned Restricted Subsidiary" means a Restricted
Subsidiary all the Capital Stock of which (other than directors'
qualifying shares and shares of Capital Stock of a Restricted
Subsidiary which a Manufacturer requires to be held by another
Person and which Capital Stock (together with any related
contractual arrangements) has no significant economic value (with
respect to distributions of profits or losses in ordinary
circumstances) is owned by the Company or another Wholly Owned
Restricted Subsidiary (other than directors' qualifying shares).
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Section 102. Other Definitions.
Term Defined in Section
---- ------------------
"Act" 105
"Agent Members" 306
"Change of Control Offer" 1014
"Change of Control Purchase Date" 1014
"Change of Control Purchase Notice" 1014
"Change of Control Purchase Price" 1014
"covenant defeasance" 403
"Defaulted Interest" 309
"defeasance" 402
"Defeasance Redemption Date" 404
"Defeased Securities" 401
"Excess Proceeds" 1012
"incur" 1008
"Offer" 1012
"Offer Date" 1012
"Offered Price" 1012
"Pari Passu Debt Amount" 1012
"Pari Passu Offer" 1012
"Permitted Indebtedness" 1008
"Permitted Payment" 1009
"Private Placement Legend" 202
"Purchase Money Security Agreement" 101
"refinancing" 1008
"Required Filing Date" 1019
"Restricted Payments" 1009
"Securities" Recitals
"Security Amount" 1012
"Security Register" 305
"Security Registrar" 305
"Series A Securities" Recitals
"Series B Securities" Recitals
"Special Payment Date" 309
"Surviving Entity" 801
"Surviving Guarantor Entity" 801
"U.S. Government Obligations" 404
Section 103. Compliance Certificates and Opinions.
------------------------------------
Upon any application or request by the Company to the Trustee
to take any action under any provision of this Indenture and as may be requested
by the Trustee, the
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Company and any Guarantor (if applicable) and any other obligor on the
Securities (if applicable) shall furnish to the Trustee an Officers' Certificate
in a form and substance reasonably acceptable to the Trustee stating that all
conditions precedent, if any, provided for in this Indenture (including any
covenant compliance with which constitutes a condition precedent) relating to
the proposed action have been complied with, and an Opinion of Counsel in a form
and substance reasonably acceptable to the Trustee stating that in the opinion
of such counsel all such conditions precedent, if any, have been complied with,
except that, in the case of any such application or request as to which the
furnishing of such certificates or opinions is specifically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or Opinion of Counsel with respect to compliance
with a condition or covenant provided for in this Indenture shall include:
(a) a statement that each individual signing such certificate or
individual or firm signing such opinion has read and understands such covenant
or condition and the definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such individual or such
firm, he or it has made such examination or investigation as is necessary to
enable him or it to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
individual or such firm, such condition or covenant has been complied with.
Section 104. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
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Any certificate of an officer of the Company, any Guarantor or other
obligor on the Securities may be based, insofar as it relates to legal matters,
upon a certificate or opinion of, or representations by, counsel, unless such
officer has actual knowledge that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion may be based, insofar as it relates
to factual matters, upon a certificate or opinion of, or representations by, an
officer or officers of the Company, any Guarantor or other obligor on the
Securities stating that the information with respect to such factual matters is
in the possession of the Company, any Guarantor or other obligor on the
Securities, unless such officer or counsel has actual knowledge that the
certificate or opinion or representations with respect to such matters are
erroneous. Opinions of Counsel required to be delivered to the Trustee may have
qualifications customary for opinions of the type required and counsel
delivering such Opinions of Counsel may rely on certificates of the Company or
government or other officials customary for opinions of the type required,
including certificates certifying as to matters of fact, including that various
financial covenants have been complied with.
Any certificate or opinion of an officer of the Company, any Guarantor or
other obligor on the Securities may be based, insofar as it relates to
accounting matters, upon a certificate or opinion of, or representations by, an
accountant or firm of accountants in the employ of the Company, unless such
officer has actual knowledge that the certificate or opinion or representations
with respect to the accounting matters upon which his certificate or opinion may
be based are erroneous. Any certificate or opinion of any independent firm of
public accountants filed with the Trustee shall contain a statement that such
firm is independent with respect to the Company.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 105. Acts of Holders.
---------------
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company. Such
instrument or instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the Holders signing
such instrument or instruments. Proof of execution of any such
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<PAGE>
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section 105.
(b) The ownership of Securities shall be proved by the Security
Register.
(c) Any request, demand, authorization, direction, notice, consent,
waiver or other Act by the Holder of any Security shall bind every future Holder
of the same Security or the Holder of every Security issued upon the transfer
thereof or in exchange therefor or in lieu thereof, in respect of anything done,
suffered or omitted to be done by the Trustee, any Paying Agent or the Company,
any Guarantor or any other obligor of the Securities in reliance thereon,
whether or not notation of such action is made upon such Security.
(d) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(e) If the Company shall solicit from the Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act, the
Company may, at its option, by or pursuant to a Board Resolution, fix in advance
a record date for the determination of such Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company shall have no obligation to do so. Notwithstanding Trust
Indenture Act Section 316(c), any such record date shall be the record date
specified in or pursuant to such Board Resolution, which shall be a date not
more than 30 days prior to the first solicitation of Holders generally in
connection therewith and no later than the date such first solicitation is
completed.
If such a record date is fixed, such request, demand, authorization,
direction, notice, consent, waiver or other Act may be given before or after
such record date, but only the Holders of record at the close of business on
such record date shall be deemed to be Holders for purposes of determining
whether Holders of the requisite proportion of Securities then Outstanding have
authorized or agreed or consented to such request, demand, authorization,
direction, notice, consent, waiver or other Act, and for this purpose the
Securities then Outstanding shall be computed as of such record date; provided
that no such request, demand, authorization, direction, notice, consent, waiver
or other Act by the Holders on such record date shall
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<PAGE>
be deemed effective unless it shall become effective pursuant to the provisions
of this Indenture not later than six months after such record date.
(f) For purposes of this Indenture, any action by the Holders which
may be taken in writing may be taken by electronic means or as otherwise
reasonably acceptable to the Trustee.
Section 106. Notices, etc., to the Trustee, the Company and any Guarantor.
------------------------------------------------------------
Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:
(a) the Trustee by any Holder or by the Company or any Guarantor or
any other obligor on the Securities shall be sufficient for every purpose
(except as provided in Section 501(c)) hereunder if in writing and mailed,
first-class postage prepaid, or delivered by recognized overnight courier, to or
with the Trustee at its Corporate Trust Office, or at any other address
previously furnished in writing to the Holders or the Company, any Guarantor or
any other obligor on the Securities by the Trustee; or
(b) the Company or any Guarantor by the Trustee or any Holder shall
be sufficient for every purpose (except as provided in Section 501(c)) hereunder
if in writing and mailed, first-class postage prepaid, or delivered by
recognized overnight courier, to the Company or such Guarantor addressed to it
c/o Sonic Automotive, Inc., 5401 East Independence Boulevard, Charlotte, North
Carolina 28218, Attention: Chief Financial Officer or at any other address
previously furnished in writing to the Trustee by the Company or such Guarantor.
Section 107. Notice to Holders; Waiver.
-------------------------
Where this Indenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, or delivered by
recognized overnight courier, to each Holder affected by such event, at its
address as it appears in the Security Register, not later than the latest date,
and not earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice when mailed to a Holder in the aforesaid manner shall
be conclusively deemed to
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<PAGE>
have been received by such Holder whether or not actually received by such
Holder. Where this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice. Waivers of notice by Holders shall be filed with the Trustee, but such
filing shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause, it shall be impracticable to mail notice of any event
as required by any provision of this Indenture, then any method of giving such
notice as shall be reasonably satisfactory to the Trustee shall be deemed to be
a sufficient giving of such notice.
Section 108. Conflict with Trust Indenture Act.
---------------------------------
If any provision hereof limits, qualifies or conflicts with any
provision of the Trust Indenture Act or another provision which is required or
deemed to be included in this Indenture by any of the provisions of the Trust
Indenture Act, the provision or requirement of the Trust Indenture Act shall
control. If any provision of this Indenture modifies or excludes any provision
of the Trust Indenture Act that may be so modified or excluded, the latter
provision shall be deemed to apply to this Indenture as so modified or to be
excluded, as the case may be.
Section 109. Effect of Headings and Table of Contents.
----------------------------------------
The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.
Section 110. Successors and Assigns.
----------------------
All covenants and agreements in this Indenture by the Company and
the Guarantors shall bind their respective successors and assigns, whether so
expressed or not.
Section 111. Separability Clause.
-------------------
In case any provision in this Indenture or in the Securities or
Guarantees shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 112. Benefits of Indenture.
---------------------
Nothing in this Indenture or in the Securities or Guarantees,
express or implied, shall give to any Person (other than the parties hereto and
their successors hereunder, any Paying Agent and the Holders) any benefit or any
legal or equitable right, remedy or claim under this Indenture.
-31-
<PAGE>
SECTION 113. GOVERNING LAW.
-------------
THIS INDENTURE, THE SECURITIES AND THE GUARANTEES SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
Section 114. Legal Holidays.
--------------
In any case where any Interest Payment Date, Redemption Date,
Maturity or Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or premium, if any, need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on such Interest Payment Date or Redemption Date, or at
the Maturity or Stated Maturity and no interest shall accrue with respect to
such payment for the period from and after such Interest Payment Date,
Redemption Date, Maturity or Stated Maturity, as the case may be, to the next
succeeding Business Day.
Section 115. Independence of Covenants.
-------------------------
All covenants and agreements in this Indenture shall be given
independent effect so that if a particular action or condition is not permitted
by any such covenants, the fact that it would be permitted by an exception to,
or be otherwise within the limitations of, another covenant shall not avoid the
occurrence of a Default or an Event of Default if such action is taken or
condition exists.
Section 116. Schedules and Exhibits.
----------------------
All schedules and exhibits attached hereto are by this reference
made a part hereof with the same effect as if herein set forth in full.
Section 117. Counterparts.
------------
This Indenture may be executed in any number of counterparts, each
of which shall be deemed an original; but all such counterparts shall together
constitute but one and the same instrument.
ARTICLE TWO
SECURITY FORMS
Section 201. Forms Generally.
---------------
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<PAGE>
The Securities, the Guarantees and the Trustee's certificate of
authentication thereon shall be in substantially the forms set forth in this
Article Two, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted hereby and may have such letters,
numbers or other marks of identification and such legends or endorsements placed
thereon as may be required to comply with the rules of any securities exchange,
any organizational document or governing instrument or applicable law or as may,
consistently herewith, be determined by the officers executing such Securities
and Guarantees, as evidenced by their execution of the Securities and
Guarantees. Any portion of the text of any Security may be set forth on the
reverse thereof, with an appropriate reference thereto on the face of the
Security.
The definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods or may be produced in any other
manner permitted by the rules of any securities exchange on which the Securities
may be listed, all as determined by the officers executing such Securities, as
evidenced by their execution of such Securities.
Initial Securities offered and sold in reliance on Rule 144A shall
be issued initially in the form of one or more Rule 144A Global Securities,
substantially in the form set forth in Section 202, deposited upon issuance with
the Trustee, as custodian for the Depositary, registered in the name of the
Depositary, or its nominee, in each case for credit to an account of a direct or
indirect participant of the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Rule 144A Global Securities may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depositary or its nominee, as hereinafter provided.
Initial Securities offered and sold in reliance on Regulation S
shall be issued in the form of one or more Regulation S Global Securities,
substantially in the form set forth in Section 202, deposited upon issuance with
the Trustee, as custodian for the Depositary, registered in the name of the
Depositary, or its nominee in each case for credit by the Depositary to an
account of a direct or indirect participant of the Depositary, duly executed by
the Company and authenticated by the Trustee as hereinafter provided; provided,
however, that upon such deposit through and including the 40th day after the
later of the commencement of the Offering and the original issue date of the
Securities (such period through and including such 40th day, the "Restricted
Period"), all such Securities shall be credited to or through accounts
maintained at the Depositary by or on behalf of Euroclear or Cedel unless
exchanged for interests in the Rule 144A Global Securities in accordance with
the transfer and certification requirements described below. The aggregate
principal amount of the Regulation S Global Securities may from time to time be
increased or decreased by adjustments made on the records of the Trustee, as
custodian for the Depositary or its nominee, as hereinafter provided.
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<PAGE>
Series B Securities exchanged for Series A Securities shall be
issued initially in the form of one or more Series B Global Securities,
substantially in the form set forth in Section 202, deposited upon issuance with
the Trustee, as custodian for the Depositary, registered in the name of the
Depositary or its nominee, in each case for credit to an account of a direct or
indirect participant of the Depositary, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Series B Global Securities may from time to time be increased or
decreased by adjustments made on the records of the Trustee, as custodian for
the Depositary or its nominee, as hereinafter provided.
Section 202. Form of Face of Security.
------------------------
(a) The form of the face of any Series A Securities authenticated
and delivered hereunder shall be substantially as follows:
Unless and until (i) an Initial Security is sold under an effective
Registration Statement or (ii) an Initial Security is exchanged for a Series B
Security in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, then such Initial Security shall
bear the legend set forth below (the "Private Placement Legend") on the face
thereof:
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES
LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION AS SET FORTH BELOW.
BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS
A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A")) OR (B) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY PRIOR TO THE DATE
WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF
AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE
COMPANY WAS
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<PAGE>
THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY)
ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT
WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR
SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE
144A INSIDE THE UNITED STATES, TO A PERSON IT REASONABLY BELIEVES IS
A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT
PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) OUTSIDE THE UNITED STATES
PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS IN AN OFFSHORE
TRANSACTION WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES
ACT, OR (E) PURSUANT TO ANOTHER AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE
COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR
TRANSFER (I) PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY
OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (II) IN EACH OF THE FOREGOING
CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM
APPEARING ON THE OTHER SIDE OF THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. AS USED HEREIN, THE
TERMS "UNITED STATES," "OFFSHORE TRANSACTION," AND "U.S. PERSON"
HAVE THE RESPECTIVE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
[Legend if Security is a Global Security]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY.
TRANSFERS OF THIS
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<PAGE>
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL
SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE
RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307 OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND
TO THE EXTENT SET FORTH IN ARTICLE FOURTEEN OF THE INDENTURE TO THE
OBLIGATIONS (INCLUDING INTEREST) OWED BY THE COMPANY AND CERTAIN OF
ITS SUBSIDIARIES TO ALL SENIOR INDEBTEDNESS; AND EACH HOLDER HEREOF
BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF THE
SUBORDINATION AS SET FORTH IN SAID ARTICLE FOURTEEN OF THE
INDENTURE."
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<PAGE>
SONIC AUTOMOTIVE, INC.
------------------
11% SENIOR SUBORDINATED NOTE DUE 2008, SERIES A
CUSIP NO.
83545GAA0
No. 1 $125,000,000
Sonic Automotive, Inc., a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
___________ or registered assigns, the principal sum of $125,000,000 United
States dollars on August 1, 2008, at the office or agency of the Company
referred to below, and to pay interest thereon from July 31, 1998, or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, semiannually on February 1 and August 1 in each year, commencing
February 1, 1999 at the rate of 11% per annum, subject to adjustments as
described in the second following paragraph, in United States dollars, until the
principal hereof is paid or duly provided for. Interest shall be computed on the
basis of a 360-day year comprised of twelve 30-day months.
The Holder of this Series A Security is entitled to the benefits of
the Registration Rights Agreement among the Company, the Guarantors and the
Initial Purchasers, dated July 31, 1998, pursuant to which, subject to the terms
and conditions thereof, the Company and the Guarantors are obligated to
consummate the Exchange Offer pursuant to which the Holder of this Security (and
related Guarantees) shall have the right to exchange this Security (and related
Guarantees) for 11% Senior Subordinated Notes due 2008, Series B and related
Guarantees (herein called the "Series B Securities") in like principal amount as
provided therein. The Series A Securities and the Series B Securities are
together (including related Guarantees) referred to as the "Securities." The
Series A Securities rank pari passu in right of payment with the Series B
Securities.
In the event that (a) the Exchange Offer Registration Statement is
not filed with the Commission on or prior to the 60th calendar day following the
date of original issue of the Series A Securities, (b) the Exchange Offer
Registration Statement has not been declared effective on or prior to the 135th
calendar day following the date of original issue of the Series A Securities,
(c) the Exchange Offer is not consummated or a Shelf Registration Statement is
not declared effective, in either case, on or prior to the 165th calendar day
following the date of original issue of the Series A Securities or
(d) the Shelf Registration Statement is declared effective but shall thereafter
become unusable for more than 30 days in the aggregate (each such event referred
to in clauses (a) through (d) above, a "Registration Default"), the interest
rate borne by the Series A
-37-
<PAGE>
Securities shall be increased by one-quarter of one percent per annum upon the
occurrence of each Registration Default, which rate (as increased aforesaid)
will increase by an additional one quarter of one percent each 90-day period
that such additional interest continues to accrue under any such circumstance,
with an aggregate maximum increase in the interest rate equal to one percent
(1%) per annum. The Shelf Registration Statement will be required to remain
effective until the second anniversary of the Series A Securities. Following the
cure of all Registration Defaults, the accrual of additional interest will cease
and the interest rate will revert to the original rate.
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or any Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest, which
shall be the January 15 or July 15 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for, and interest on such defaulted interest
at the interest rate borne by the Series A Securities, to the extent lawful,
shall forthwith cease to be payable to the Holder on such Regular Record Date,
and may either be paid to the Person in whose name this Security (or any
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such defaulted interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by this Indenture not inconsistent with the requirements of such exchange, all
as more fully provided in this Indenture.
Payment of the principal of, premium, if any, and interest on, this
Security, and exchange or transfer of the Security, will be made at the office
or agency of the Company in The City of New York maintained for that purpose
(which initially will be a corporate trust office of the Trustee located at 100
Wall Street, 20th Floor, New York, New York, 10005), or at such other office or
agency as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that payment of interest may be
made at the option of the Company by check mailed to the address of the Person
entitled thereto as such address shall appear on the Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Security is entitled to the benefits of the Guarantees by the
Guarantors of the punctual payment when due and performance of the Indenture
Obligations made in
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<PAGE>
favor of the Trustee for the benefit of the Holders. Reference is made to
Article Thirteen of the Indenture for a statement of the respective rights,
limitations of rights, duties and obligations under the Guarantees of the
Guarantors.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Security shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers.
Sonic Automotive, Inc.
By:______________________________________
Name:
Title:
Attest:
_________________________________
Name:
Title:
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<PAGE>
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11% Senior Subordinated Notes due 2008, Series A
referred to in the within-mentioned Indenture.
U.S Bank Trust National Association,
as Trustee
By: _________________________________
Authorized Signer
Dated:
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant
to Section 1012 or Section 1014, as applicable, of the Indenture, check the Box:
[ ].
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 1012 or Section 1014 as applicable, of the
Indenture, state the amount (in original principal amount):
$ ________________
Your
Date: ____________________________ Signature:___________________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:________________________________________
-40-
<PAGE>
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
(b) The form of the face of any Series B Securities authenticated
and delivered hereunder shall be substantially as follows:
[Legend if Security is a Global Security]
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITARY OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF
THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN
ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN SECTIONS 306 AND 307
OF THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITARY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO
THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR
PAYMENT AND ANY SUCH CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF
CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF
DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND
TO THE EXTENT
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<PAGE>
SET FORTH IN ARTICLE FOURTEEN OF THE INDENTURE TO THE OBLIGATIONS
(INCLUDING INTEREST) OWED BY THE COMPANY AND CERTAIN OF ITS
SUBSIDIARIES TO ALL SENIOR INDEBTEDNESS; AND EACH HOLDER HEREOF BY
ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF THE
SUBORDINATION AS SET FORTH IN SAID ARTICLE FOURTEEN OF THE
INDENTURE."
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<PAGE>
Sonic Automotive, Inc.
------------------
11% SENIOR SUBORDINATED NOTE DUE 2008, SERIES B
CUSIP NO.
83545GAB8
No. __________ $_____________________
Sonic Automotive, Inc., a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to
______________________ or registered assigns, the principal sum of
_____________________ United States dollars on August 1, 2008, at the office or
agency of the Company referred to below, and to pay interest thereon from July
31, 1998, or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, semiannually on February 1 and July 1 in each
year, commencing February 1, 1999 at the rate of 11% per annum, in United States
dollars, until the principal hereof is paid or duly provided for; provided that
to the extent interest has not been paid or duly provided for with respect to
the Series A Security exchanged for this Series B Security, interest on this
Series B Security shall accrue from the most recent Interest Payment Date to
which interest on the Series A Security which was exchanged for this Series B
Security has been paid or duly provided for. Interest shall be computed on the
basis of a 360-day year comprised of twelve 30-day months.
This Series B Security was issued pursuant to the Exchange Offer
pursuant to which the 11% Senior Subordinated Notes due 2008, Series A and
related Guarantees (herein called the "Series A Securities") in like principal
amount were exchanged for the Series B Securities and related Guarantees. The
Series B Securities rank pari passu in right of payment with the Series A
Securities.
In addition, for any period in which the Series A Security exchanged
for this Series B Security was outstanding, in the event that (a) the Exchange
Offer Registration Statement is not filed with the Commission on or prior to the
30th calendar day following the date of original issue of the Series A Security,
(b) the Exchange Offer Registration Statement has not been declared effective on
or prior to the 135th calendar day following the date after the original issue
of the Series A Security, (c) the Exchange Offer is not consummated or a Shelf
Registration Statement is not declared effective, in either case, on or prior to
the 135th calendar day following the date of original issue of the Series A
Security or (d) the Shelf Registration Statement is declared effective but shall
thereafter become unusable for more than 30 days in the aggregate (each such
event referred to in clauses (a) through (d) above, a "Registration Default"),
the interest rate borne by the Series A Securities shall be increased by
one-quarter of one percent per
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<PAGE>
annum upon the occurrence of each Registration Default, which rate (as increased
as aforesaid) will increase by an additional one quarter of one percent each
90-day period that such additional interest continues to accrue under any such
circumstance, with an aggregate maximum increase in the interest rate equal to
one percent (1%) per annum. The Shelf Registration Statement will be required to
remain effective until the second anniversary of the Securities. Following the
cure of all Registration Defaults the accrual of additional interest will cease
and the interest rate will revert to the original rate; provided that, to the
extent interest at such increased interest rate has been paid or duly provided
for with respect to the Series A Security, interest at such increased interest
rate, if any, on this Series B Security shall accrue from the most recent
Interest Payment Date to which such interest on the Series A Security has been
paid or duly provided for; provided, however, that, if after any such reduction
in interest rate, a different event specified in clause (a), (b), (c) or (d)
above occurs, the interest rate shall again be increased pursuant to the
foregoing provisions.
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or any Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest, which
shall be the January 15 or July 15 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for, and interest on such defaulted interest
at the interest rate borne by the Series B Securities, to the extent lawful,
shall forthwith cease to be payable to the Holder on such Regular Record Date,
and may either be paid to the Person in whose name this Security (or any
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such defaulted interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities not less than 10
days prior to such Special Record Date, or be paid at any time in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in this Indenture.
Payment of the principal of, premium, if any, and interest on, this
Security, and exchange or transfer of the Security, will be made at the office
or agency of the Company in The City of New York maintained for such purpose
(which initially will be a corporate trust office of the Trustee located at 100
Wall Street, 20th Floor, New York, New York, 10005, or at such other office or
agency as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; provided, however, that payment of interest may be
made at the option of the Company by check mailed to the address of the Person
entitled thereto as such address shall appear on the Security Register.
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<PAGE>
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Security is entitled to the benefits of the Guarantees by the
Guarantors of the punctual payment when due and performance of the Indenture
Obligations made in favor of the Trustee for the benefit of the Holders.
Reference is made to Article Thirteen of the Indenture for a statement of the
respective rights, limitations of rights, duties and obligations under the
Guarantees of the Guarantors.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Security shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers.
Sonic Automotive, Inc.
By:__________________________________
Title:_______________________________
Attest:
- --------------------------------
Authorized Officer
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11% Senior Subordinated Notes due 2008, Series B
referred to in the within-mentioned Indenture.
U.S. Bank Trust National Association,
as Trustee
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<PAGE>
By: _________________________________
Authorized Signer
Dated:
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant
to Section 1012 or Section 1014, as applicable, of the Indenture, check the Box:
[ ].
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<PAGE>
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 1012 or Section 1014 as applicable, of the
Indenture, state the amount (in original principal amount):
$ ___________________
Your
Date:_______________________________ Signature:__________________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:_____________________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
Section 203. Form of Reverse of Securities.
-----------------------------
(a) The form of the reverse of the Series A Securities shall be
substantially as follows:
Sonic Automotive, Inc.
11% Senior Subordinated Note due 2008, Series A
This Security is one of a duly authorized issue of Securities of the
Company designated as its 11% Senior Subordinated Notes due 2008, Series A
(herein called the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount to $125,000,000,
issued under and subject to the terms of an indenture (herein called the
"Indenture") dated as of July 1, 1998, among the Company, the Guarantors and
U.S. Bank Trust National Association, as trustee (herein called the "Trustee,"
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Guarantors, the Trustee and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
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<PAGE>
The Securities are subject to redemption at any time on or after
August 1, 2003, at the option of the Company, in whole or in part, on not less
than 30 nor more than 60 days' prior notice, in amounts of $1,000 or an integral
multiple thereof, at the following redemption prices (expressed as percentages
of the principal amount), if redeemed during the 12-month period beginning
August 1 of the years indicated below:
Redemption
Year Price
- ----
2003........................... 105.50%
2004........................... 103.667%
2005........................... 101.833%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
In addition, at any time on or prior to August 1, 2001, the Company
may, at its option, use the net proceeds of one or more Public Equity Offerings
to redeem up to an aggregate of 35% of the aggregate principal amount of
Securities originally issued under the Indenture at a redemption price equal to
111% of the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the Redemption Date; provided that at least 65% aggregate
principal amount the of Securities initially issued remains outstanding
immediately after the occurrence of such redemption. In order to effect the
foregoing redemption, the Company must mail a notice of redemption no later than
30 days after the closing of the related Public Equity Offering and must
consummate such redemption within 60 days of the closing of the Public Equity
Offering.
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities or portions thereof to be redeemed pro rata, by lot
or by any other method the Trustee shall deem fair and reasonable.
Upon the occurrence of a Change of Control, each Holder may require
the Company to purchase such Holder's Securities in whole or in part in integral
multiples of $1,000, at a purchase price in cash in an amount equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase, pursuant to a Change of Control Offer in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from any Asset Sale, which proceeds are not used to
repay permanently any Senior Indebtedness or Senior Guarantor Indebtedness or
invested in Replacement Assets or exceeds a specified amount the Company will be
required to apply such proceeds to the repayment of the Securities and certain
Indebtedness ranking pari passu in right of payment to the Securities.
-48-
<PAGE>
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Securities and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which require the consent of all the Holders) as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
the Guarantors and the rights of the Holders under the Indenture and the
Securities and the Guarantees at any time by the Company and the Trustee with
the consent of the Holders of at least a majority in aggregate principal amount
of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of at least a majority in aggregate principal
amount of the Securities (100% of the Holders in certain circumstances) at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company and the Guarantors with certain provisions of the
Indenture and the Securities and the Guarantees and certain past Defaults under
the Indenture and the Securities and the Guarantees and their consequences. Any
such consent or waiver by or on behalf of the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, any Guarantor or any other obligor on the Securities (in the event such
Guarantor or such other obligor is obligated to make payments in respect of the
Securities), which is absolute and
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<PAGE>
unconditional, to pay the principal of, premium, if any, and interest on, this
Security at the times, place, and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or its attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interests in the Rule 144A Global
Securities or the Regulation S Global Securities if (x) the Depositary notifies
the Company that it is unwilling or unable to continue as Depositary for such
Global Security and a successor Depositary is not appointed by the Company
within 90 days or (y) there shall have occurred and be continuing an Event of
Default and the Security Registrar has received a request from the Depositary.
Upon any such issuance, the Trustee is required to register such certificated
Series A Securities in the name of, and cause the same to be delivered to, such
Person or Persons (or the nominee of any thereof). All such certificated Series
A Securities would be required to include the Private Placement Legend.
Series A Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series A Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
At any time when the Company is not subject to Sections 13 or 15(d)
of the Exchange Act, upon the written request of a Holder of a Series A
Security, the Company will promptly furnish or cause to be furnished such
information as is specified pursuant to Rule 144A(d)(4) under the Securities Act
(or any successor provision thereto) to such Holder or to a prospective
purchaser of such Series A Security who such Holder informs the Company is
reasonably believed to be a "Qualified Institutional Buyer" within the meaning
of Rule 144A under the Securities Act, as the case may be, in order to permit
compliance by such Holder with Rule 144A under the Securities Act.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, any Guarantor, the Trustee and any agent of the Company,
any Guarantor or
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<PAGE>
the Trustee may treat the Person in whose name this Security is registered as
the owner hereof for all purposes, whether or not this Security is overdue, and
neither the Company, any Guarantor, the Trustee nor any such agent shall be
affected by notice to the contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF.
All terms used in this Security which are defined in the Indenture
and not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
[The Transferee Certificate, in the form of Appendix I hereto, will
be attached to the Series A Security.]
(b) The form of the reverse of the Series B Securities shall be
substantially as follows:
Sonic Automotive, Inc.
11% Senior Subordinated Note due 2008, Series B
This Security is one of a duly authorized issue of Securities of the
Company designated as its 11% Senior Subordinated Notes due 2008, Series B
(herein called the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount to $125,000,000,
issued under and subject to the terms of an indenture (herein called the
"Indenture") dated as of July 1, 1998, among the Company, the Guarantors and
U.S. Bank Trust National Association, as trustee (herein called the "Trustee,"
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Guarantors, the Trustee and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
-51-
<PAGE>
The Securities are subject to redemption at any time on or after
August 1, 2003, at the option of the Company, in whole or in part, on not less
than 30 nor more than 60 days' prior notice, in amounts of $1,000 or an integral
multiple thereof, at the following redemption prices (expressed as percentages
of the principal amount), if redeemed during the 12-month period beginning
August of the years indicated below:
Redemption
Year Price
- ---- --------------
2003........................... 105.50%
2004........................... 103.667%
2005........................... 101.833%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
In addition, at any time on or prior to August 1, 2001, the Company
may, at its option, use the net proceeds of one or more Public Equity Offerings
to redeem up to an aggregate of 35% of the aggregate principal amount of
Securities originally issued under the Indenture at a redemption price equal to
111% of the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the Redemption Date; provided that at least 65% aggregate
principal amount of the Securities initially issued remains outstanding
immediately after the occurrence of such redemption. In order to effect the
foregoing redemption, the Company must mail a notice of redemption no later than
45 days after the closing of the related Public Equity Offering and must
consummate such redemption within 60 days of the closing of the Public Equity
Offering.
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities or portions thereof to be redeemed pro rata, by lot
or by any other method the Trustee shall deem fair and reasonable.
Upon the occurrence of a Change of Control, each Holder may require
the Company to purchase such Holder's Securities in whole or in part in integral
multiples of $1,000, at a purchase price in cash in an amount equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase, pursuant to Change of Control Offer and in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from any Asset Sale, which proceeds are not used to
repay permanently any Senior Indebtedness or Senior Guarantor Indebtedness or
invested in Replacement Assets or exceeds a specified amount, the Company will
be required to apply such proceeds to the repayment of the Securities and
certain Indebtedness ranking pari passu in right of payment to the Securities.
-52-
<PAGE>
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Securities and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which required the consent of all of the Holders) as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the Guarantors and the rights of the Holders under the Indenture and
the Securities and the Guarantees at any time by the Company and the Trustee
with the consent of the Holders of at least a majority in aggregate principal
amount of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of at least a majority in aggregate principal
amount of the Securities (100% of the Holders in certain circumstances) at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company and the Guarantors with certain provisions of the
Indenture and the Securities and the Guarantees and certain past Defaults under
the Indenture and the Securities and the Guarantees and their consequences. Any
such consent or waiver by or on behalf of the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, any Guarantor or any other obligor on the Securities (in the event such
Guarantor or such other obligor is obligated to make payments in respect of the
Securities), which is absolute and
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<PAGE>
unconditional, to pay the principal of, and premium, if any, and interest on,
this Security at the times, place, and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or its attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interests in the Rule 144A Global
Securities or the Regulation S Global Securities if (x) the Depositary notifies
the Company that it is unwilling or unable to continue as Depositary for such
Global Security and a successor Depositary is not appointed by the Company
within 90 days or (y) there shall have occurred and be continuing an Event of
Default and the Security Registrar has received a request from the Depositary.
Upon any such issuance, the Trustee is required to register such certificated
Series B Securities in the name of, and cause the same to be delivered to, such
Person or Persons (or the nominee of any thereof).
Series B Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series B Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, any Guarantor, the Trustee and any agent of the Company,
any Guarantor or the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security is
overdue, and neither the Company, any Guarantor, the Trustee nor any such agent
shall be affected by notice to the contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF.
All terms used in this Security which are defined in the Indenture
and not otherwise defined herein shall have the meanings assigned to them in the
Indenture.
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<PAGE>
[The Transferee Certificate, in the form of Appendix II hereto, will
be attached to the Series B Security.]
Section 204. Form of Guarantee.
-----------------
The form of Guarantee shall be set forth on the Securities
substantially as follows:
GUARANTEE
For value received, each of the undersigned hereby absolutely, fully and
unconditionally and irrevocably guarantees, jointly and severally with each
other Guarantor, to the holder of this Security the payment of principal of,
premium, if any, and interest on this Security upon which these Guarantees are
endorsed in the amounts and at the time when due and payable whether by
declaration thereof, or otherwise, and interest on the overdue principal and
interest, if any, of this Security, if lawful, and the payment or performance of
all other obligations of the Company under the Indenture or the Securities, to
the holder of this Security and the Trustee, all in accordance with and subject
to the terms and limitations of this Security and Article Thirteen of the
Indenture. This Guarantee will not become effective until the Trustee duly
executes the certificate of authentication on this Security. These Guarantees
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to conflict of law principles thereof.
Dated:
TOWN AND COUNTRY FORD INCORPORATED
MARCUS DAVID CORPORATION
FRONTIER OLDSMOBILE--CADILLAC, INC.
SONIC DODGE, LLC
SONIC
CHRYSLER--PLYMOUTH--JEEP--EAGLE,
LLC
FORT MILL FORD, INC.
TOWN AND COUNTRY CHRYSLER--PLYMOUTH--JEEP
OF ROCK HILL, INC.
FORT MILL CHRYSLER--PLYMOUTH--DODGE
INC.
LONE STAR FORD, INC.
SONIC AUTOMOTIVE OF NEVADA, INC.
SONIC AUTOMOTIVE OF TENNESSEE, INC.
SONIC AUTOMOTIVE - 6025 INTERNATIONAL
DRIVE, LLC
SONIC AUTOMOTIVE OF NASHVILLE, LLC
SONIC AUTOMOTIVE OF CHATTANOOGA, LLC
TOWN AND COUNTRY JAGUAR, LLC
TOWN AND COUNTRY CHRYSLER
-55-
<PAGE>
--PLYMOUTH--JEEP, LLC
TOWN AND COUNTRY DODGE OF
CHATTANOOGA, LLC
SONIC AUTOMOTIVE - 2490 SOUTH LEE
HIGHWAY, LLC,
TOWN AND COUNTRY FORD OF CLEVELAND,
LLC
FREEDOM FORD, INC.
SONIC AUTOMOTIVE 5260 PEACHTREE
INDUSTRIAL BLVD., LLC
SONIC AUTOMOTIVE OF GEORGIA, INC.
SONIC PEACHTREE INDUSTRIAL BLVD., L.P.
SONIC AUTOMOTIVE - CLEARWATER, INC.
SONIC AUTOMOTIVE 21699 U.S. HWY. 19 N., INC.
SONIC AUTOMOTIVE COLLISION CENTER OF
CLEARWATER, INC.
SONIC AUTOMOTIVE - 1400 AUTOMALL DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 1455 AUTOMALL DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 1495 AUTOMALL DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 1500 AUTOMALL DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 3700 WEST BROAD
STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE - 4000 WEST BROAD
STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE 2424 LAURENS RD.,
GREENVILLE, INC.
SONIC AUTOMOTIVE 2752 LAURENS RD.,
GREENVILLE, INC.
SONIC AUTOMOTIVE - 5585 PEACHTREE
INDUSTRIAL BLVD., LLC
CAPITOL CHEVROLET AND IMPORTS, INC.,
SONIC AUTOMOTIVE - 1919 N. DIXIE HWY., NSB,
INC.
SONIC AUTOMOTIVE - 1307 N. DIXIE HWY., NSB,
INC.
SONIC AUTOMOTIVE - 1720 MASON AVE., DB,
INC.
SONIC AUTOMOTIVE - 3741 S. NOVA RD., PO,INC.
SONIC AUTOMOTIVE - 241 RIDGEWOOD AVE.,
HH, INC.
-56-
<PAGE>
SONIC AUTOMOTIVE - HWY. 153 at SHALLOWFORD
ROAD, CHATTANOOGA, INC.
By______________________________________________
Name:
Title:
Attest: ________________________
Name:
Title:
ARTICLE THREE
THE SECURITIES
Section 301. Title and Terms.
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The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $125,000,000 in
principal amount of Securities, except for Securities authenticated and
delivered upon registration of transfer of, or in exchange for, or in lieu of,
other Securities pursuant to Section 303, 304, 305, 306, 307, 308, 906, 1012,
1015 or 1108.
The Securities shall be known and designated as the "11% Senior
Subordinated Notes due 2008" of the Company. The Stated Maturity of the
Securities shall be August 1, 2008, and the Securities shall each bear interest
at the rate of 11% per annum, as such interest rate may be adjusted as set forth
in the Securities, from July 31, 1998, or from the most recent Interest Payment
Date to which interest has been paid, payable semiannually on February 1 and
August 1 in each year, commencing February 1, 1999, until the principal thereof
is paid or duly provided for. Interest on any overdue principal, interest (to
the extent lawful) or premium, if any, shall be payable on demand.
The principal of, premium, if any, and interest on, the Securities
shall be payable and the Securities shall be exchangeable and transferable at an
office or agency of the Company in The City of New York maintained for such
purposes (which initially will be a corporate trust office of the Trustee
located at 100 Wall Street, 20th Floor, New York, New York, 10005); provided,
however, that payment of interest may be made at the option of the Company by
check mailed to addresses of the Persons entitled thereto as shown on the
Security Register.
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For all purposes hereunder, the Series A Securities and the Series B
Securities will be treated as one class and are together referred to as the
"Securities." The Series A Securities rank pari passu in right of payment with
the Series B Securities.
The Securities shall be subject to repurchase by the Company
pursuant to an Offer as provided in Section 1012.
Holders shall have the right to require the Company to purchase
their Securities, in whole or in part, in the event of a Change of Control
pursuant to Section 1014.
The Securities shall be redeemable as provided in Article Eleven and
in the Securities.
The Indebtedness evidenced by these Securities shall be subordinated
in right of payment with all other Senior Indebtedness.
At the election of the Company, the entire Indebtedness on the
Securities or certain of the Company's obligations and covenants and certain
Events of Default thereunder may be defeased as provided in Article Four.
Section 302. Denominations.
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The Securities shall be issuable only in fully registered form
without coupons and only in denominations of $1,000 and any integral multiple
thereof.
Section 303. Execution, Authentication, Delivery and Dating.
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The Securities shall be executed on behalf of the Company by one of
its Chairman of the Board, its President, its Chief Executive Officer, its Chief
Financial Officer or one of its Vice Presidents under its corporate seal
reproduced thereon attested by its Secretary or one of its Assistant
Secretaries. The signatures of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Securities executed by the Company to
the Trustee (with or without Guarantees endorsed thereon) for authentication,
together with a Company Order for the authentication and delivery of such
Securities; and the Trustee in
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accordance with such Company Order shall authenticate and make available for
delivery such Securities as provided in this Indenture and not otherwise.
Each Security shall be dated the date of its authentication.
No Security or Guarantee endorsed thereon shall be entitled to any
benefit under this Indenture or be valid or obligatory for any purpose unless
there appears on such Security a certificate of authentication substantially in
the form provided for herein duly executed by the Trustee by manual signature of
an authorized officer, and such certificate upon any Security shall be
conclusive evidence, and the only evidence, that such Security has been duly
authenticated and delivered hereunder and is entitled to the benefits of this
Indenture.
In case the Company or any Guarantor, pursuant to Article Eight,
shall, in a single transaction or through a series of related transactions, be
consolidated or merged with or into any other Person or shall sell, assign,
convey, transfer, lease or otherwise dispose of all or substantially all of its
properties and assets to any Person, and the successor Person resulting from
such consolidation or surviving such merger, or into which the Company or such
Guarantor shall have been merged, or the successor Person which shall have
participated in the sale, assignment, conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article Eight, any of the Securities authenticated
or delivered prior to such consolidation, merger, sale, assignment, conveyance,
transfer, lease or other disposition may, from time to time, at the request of
the successor Person, be exchanged for other Securities executed in the name of
the successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section 303 in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Securities at the time Outstanding for Securities authenticated
and delivered in such new name.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities on behalf of the Trustee. Unless limited by
the terms of such appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as any Security Registrar or Paying
Agent to deal with the Company and its Affiliates.
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If an officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates such Security such Security shall
be valid nevertheless.
Section 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and make
available for delivery, temporary Securities which are printed, lithographed,
typewritten or otherwise produced, in any authorized denomination, substantially
of the tenor of the definitive Securities in lieu of which they are issued and
with such appropriate insertions, omissions, substitutions and other variations
as the officers executing such Securities may determine, as conclusively
evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at the office or agency of the Company designated for such purpose
pursuant to Section 1002, without charge to the Holder. Upon surrender for
cancellation of any one or more temporary Securities, the Company shall execute
and the Trustee (in accordance with a Company Order for the authentication of
such Securities) shall authenticate and make available for delivery in exchange
therefor a like principal amount of definitive Securities of authorized
denominations. Until so exchanged the temporary Securities shall in all respects
be entitled to the same benefits under this Indenture as definitive Securities.
Section 305. Registration, Registration of Transfer and Exchange.
The Company shall cause the Trustee to keep, so long as it is the
Security Registrar, at the Corporate Trust Office of the Trustee, or such other
office as the Trustee may designate, a register (the register maintained in such
office or in any other office or agency designated pursuant to Section 1002
being herein sometimes referred to as the "Security Register") in which, subject
to such reasonable regulations as the Security Registrar may prescribe, the
Company shall provide for the registration of Securities and of transfers of
Securities. The Trustee shall initially be the "Security Registrar" for the
purpose of registering Securities and transfers of Securities as herein
provided. The Company may change the Security Registrar or appoint one or more
co-Security Registrars without notice.
Upon surrender for registration of transfer of any Security at the
office or agency of the Company designated pursuant to Section 1002, the Company
shall execute, and the Trustee shall (in accordance with a Company Order for the
authentication of such Securities) authenticate and make available for delivery,
in the name of the designated transferee or transferees, one or more new
Securities of the same series of any authorized denomination or denominations,
of a like aggregate principal amount.
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Furthermore, any Holder of the Global Security shall, by acceptance
of such Global Security, agree that transfers of beneficial interests in such
Global Security may be effected only through a book-entry system maintained by
the Holder of such Global Security (or its agent), and that ownership of a
beneficial interest in a Security shall be required to be reflected in a book
entry.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination or denominations, of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange, the
Company shall execute, and the Trustee shall (in accordance with a Company Order
for the authentication of such Securities) authenticate and make available for
delivery, Securities of the same series which the Holder making the exchange is
entitled to receive; provided that no exchange of Series A Securities for Series
B Securities shall occur until an Exchange Offer Registration Statement shall
have been declared effective by the Commission and that the Series A Securities
exchanged for the Series B Securities shall be canceled.
All Securities issued upon any registration of transfer or exchange
of Securities shall be the valid obligations of the Company, evidencing the same
Indebtedness, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer, or for exchange, repurchase or redemption, shall (if so required by
the Company or the Trustee) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar, duly executed by the Holder thereof or his attorney duly authorized
in writing.
No service charge shall be made to a Holder for any registration of
transfer, exchange or redemption of Securities, except for any tax or other
governmental charge that may be imposed in connection therewith, other than
exchanges pursuant to Sections 303, 304, 305, 308, 906, 1012, 1014 or 1108 not
involving any transfer.
The Company shall not be required (a) to issue, register the
transfer of or exchange any Security during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of the Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing or (b) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemed
portion of Securities being redeemed in part.
Every Security shall be subject to the restrictions on transfer
provided in the legend required to be set forth on the face of each Security
pursuant to Section 202, and the restrictions set forth in this Section 305, and
the Holder of each Security, by such
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Holder's acceptance thereof (or interest therein), agrees to be bound by such
restrictions on transfer.
Except as provided in the preceding paragraph, any Security
authenticated and delivered upon registration of transfer of, or in exchange
for, or in lieu of, any Global Security, whether pursuant to this Section 305,
Section 304, 308, 906 or 1108 or otherwise, shall also be a Global Security and
bear the legend specified in Section 202.
Section 306. Book Entry Provisions for Global Securities.
(a) Each Global Security initially shall (i) be registered in the
name of the Depositary for such Global Security or the nominee of such
Depositary, (ii) be deposited with, or on behalf of, the Depositary or with the
Trustee as custodian for such Depositary and (iii) bear legends as set forth in
Section 202.
Members of, or participants in, the Depositary ("Agent Members")
shall have no rights under this Indenture with respect to any Global Security
held on their behalf by the Depositary, or the Trustee as its custodian, or
under such Global Security, and the Depositary may be treated by the Company,
the Trustee and any agent of the Company or the Trustee as the absolute owner of
such Global Security for all purposes whatsoever. Notwithstanding the foregoing,
nothing herein shall prevent the Company, the Trustee or any agent of the
Company or the Trustee from giving effect to any written certification, proxy or
other authorization furnished by the Depositary or shall impair, as between the
Depositary and its Agent Members, the operation of customary practices governing
the exercise of the rights of a holder of any Security.
(b) Notwithstanding any other provision in this Indenture, no Global
Security may be exchanged in whole or in part for Securities registered, and no
transfer of a Global Security in whole or in part may be registered, in the name
of any Person other than the Depositary for such Global Security or a nominee
thereof unless (i) such Depositary (A) has notified the Company that it is
unwilling or unable to continue as Depositary for such Global Security or (B)
has ceased to be a clearing agency registered as such under the Exchange Act,
and in either case the Company fails to appoint a successor Depositary, (ii) the
Company, at its option, executes and delivers to the Trustee a Company Order
stating that it elects to cause the issuance of the Securities in certificated
form and that all Global Securities shall be exchanged in whole for Securities
that are not Global Securities (in which case such exchange shall be effected by
the Trustee) or (iii) there shall have occurred and be continuing an Event of
Default or any event which after notice or lapse of time or both would be an
Event of Default with respect to such Global Security.
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(c) If any Global Security is to be exchanged for other Securities
or canceled in whole, it shall be surrendered by or on behalf of the Depositary
or its nominee to the Trustee, as Security Registrar, for exchange or
cancellation as provided in this Article Three. If any Global Security is to be
exchanged for other Securities or canceled in part, or if another Security is to
be exchanged in whole or in part for a beneficial interest in any Global
Security, then either (i) such Global Security shall be so surrendered for
exchange or cancellation as provided in this Article Three or (ii) the principal
amount thereof shall be reduced or increased by an amount equal to the portion
thereof to be so exchanged or canceled, or equal to the principal amount of such
other Security to be so exchanged for a beneficial interest therein, as the case
may be, by means of an appropriate adjustment made on the records of the
Trustee, as Security Registrar, whereupon the Trustee, in accordance with the
Applicable Procedures, shall instruct the Depositary or its authorized
representative to make a corresponding adjustment to its records. Upon any such
surrender or adjustment of a Global Security, the Trustee shall, subject to this
Section 306(c) and as otherwise provided in this Article Three, authenticate and
deliver any Securities issuable in exchange for such Global Security (or any
portion thereof) to or upon the order of, and registered in such names as may be
directed by, the Depositary or its authorized representative. Upon the request
of the Trustee in connection with the occurrence of any of the events specified
in the preceding paragraph, the Company shall promptly make available to the
Trustee a reasonable supply of Securities that are not in the form of Global
Securities. The Trustee shall be entitled to rely upon any order, direction or
request of the Depositary or its authorized representative which is given or
made pursuant to this Article Three if such order, direction or request is given
or made in accordance with the Applicable Procedures.
(d) Every Security authenticated and delivered upon registration of
transfer of, or in exchange for or in lieu of, a Global Security or any portion
thereof, whether pursuant to this Article Three or otherwise, shall be
authenticated and delivered in the form of, and shall be, a Global Security,
unless such Security is registered in the name of a Person other than the
Depositary for such Global Security or a nominee thereof.
(e) The Depositary or its nominee, as registered owner of a Global
Security, shall be the Holder of such Global Security for all purposes under
this Indenture and the Securities, and owners of beneficial interests in a
Global Security shall hold such interests pursuant to the Applicable Procedures.
Accordingly, any such owner's beneficial interest in a Global Security will be
shown only on, and the transfer of such interest shall be effected only through,
records maintained by the Depositary or its nominee or its Agent Members.
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Section 307. Special Transfer and Exchange Provisions.
(a) Certain Transfers and Exchanges. Transfers and exchanges of
Securities and beneficial interests in a Global Security of the kinds specified
in this Section 307 shall be made only in accordance with this Section 307.
(i) Rule 144A Global Security to Regulation S Global Security.
If the owner of a beneficial interest in the Rule 144A Global
Security wishes at any time to transfer such interest to a Person
who wishes to acquire the same in the form of a beneficial interest
in the Regulation S Global Security, such transfer may be effected
only in accordance with the provisions of this paragraph and
paragraph (iv) below and subject to the Applicable Procedures. Upon
receipt by the Trustee, as Security Registrar, of (a) an order given
by the Depositary or its authorized representative directing that a
beneficial interest in the Regulation S Global Security in a
specified principal amount be credited to a specified Agent Member's
account and that a beneficial interest in the Rule 144A Global
Security in an equal principal amount be debited from another
specified Agent Member's account and (b) a Regulation S Certificate
in the form of Exhibit A hereto, satisfactory to the Trustee and
duly executed by the owner of such beneficial interest in the Rule
144A Global Security or his attorney duly authorized in writing,
then the Trustee, as Security Registrar but subject to paragraph
(iv) below, shall reduce the principal amount of the Rule 144A
Global Security and increase the principal amount of the Regulation
S Global Security by such specified principal amount as provided in
Section 306(c).
(ii) Regulation S Global Security to Rule 144A Global
Security. If the owner of a beneficial interest in the Regulation S
Global Security wishes at any time to transfer such interest to a
Person who wishes to acquire the same in the form of a beneficial
interest in the Rule 144A Global Security, such transfer may be
effected only in accordance with this paragraph (ii) and subject to
the Applicable Procedures. Upon receipt by the Trustee, as Security
Registrar, of (a) an order given by the Depositary or its authorized
representative directing that a beneficial interest in the Rule 144A
Global Security in a specified principal amount be credited to a
specified Agent Member's account and that a beneficial interest in
the Regulation S Global Security in an equal principal amount be
debited from another specified Agent Member's account and (b) if
such transfer is to occur during the Restricted Period, a Restricted
Securities Certificate in the form of Exhibit B hereto, satisfactory
to the Trustee and duly executed by the owner of such beneficial
interest in the Regulation S Global Security or his attorney duly
authorized in writing, then the Trustee, as Security
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Registrar, shall reduce the principal amount of the Regulation S
Global Security and increase the principal amount of the Rule 144A
Global Security by such specified principal amount as provided in
Section 306(c).
(iii) Exchanges between Global Security and Non-Global
Security. A beneficial interest in a Global Security may be
exchanged for a Security that is not a Global Security as provided
in Section 307(b), provided that, if such interest is a beneficial
interest in the Rule 144A Global Security, or if such interest is a
beneficial interest in the Regulation S Global Security and such
exchange is to occur during the Restricted Period, then such
interest shall bear the Private Placement Legend (subject in each
case to Section 307(b).
(iv) Regulation S Global Security to be Held Through Euroclear
or Cedel during Restricted Period. The Company shall use its best
efforts to cause the Depositary to ensure that, until the expiration
of the Restricted Period, beneficial interests in the Regulation S
Global Security may be held only in or through accounts maintained
at the Depositary by Euroclear or Cedel (or by Agent Members acting
for the account thereof), and no person shall be entitled to effect
any transfer or exchange that would result in any such interest
being held otherwise than in or through such an account; provided
that this paragraph (iv) shall not prohibit any transfer or exchange
of such an interest in accordance with paragraph (ii) above.
(b) Private Placement Legends. Rule 144A Securities and their
Successor Securities and Regulation S Securities and their Successor Securities
shall bear a Private Placement Legend, subject to the following:
(i) subject to the following clauses of this Section 307(b), a
Security or any portion thereof which is exchanged, upon transfer or
otherwise, for a Global Security or any portion thereof shall bear
the Private Placement Legend borne by such Global Security while
represented thereby;
(ii) subject to the following Clauses of this Section 307(b),
a new Security which is not a Global Security and is issued in
exchange for another Security (including a Global Security) or any
portion thereof, upon transfer or otherwise, shall bear the Private
Placement Legend borne by such other Security;
(iii) Exchange Securities, and all other Securities sold or
otherwise disposed of pursuant to an effective registration
statement under the Securities Act, together with their respective
Successor Securities, shall not bear a Private Placement Legend;
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(iv) at any time after the Securities may be freely
transferred without registration under the Securities Act or without
being subject to transfer restrictions pursuant to the Securities
Act, a new Security which does not bear a Private Placement Legend
may be issued in exchange for or in lieu of a Security (other than a
Global Security) or any portion thereof which bears such a legend if
the Trustee has received an Unrestricted Securities Certificate
substantially in the form of Exhibit C hereto, satisfactory to the
Trustee and duly executed by the Holder of such legended Security or
his attorney duly authorized in writing, and after such date and
receipt of such certificate, the Trustee shall authenticate and
deliver such a new Security in exchange for or in lieu of such other
Security as provided in this Article Three;
(v) a new Security which does not bear a Private Placement
Legend may be issued in exchange for or in lieu of a Security (other
than a Global Security) or any portion thereof which bears such a
legend if, in the Company's judgment, placing such a legend upon
such new Security is not necessary to ensure compliance with the
registration requirements of the Securities Act, and the Trustee, at
the direction of the Company, shall authenticate and deliver such a
new Security as provided in this Article Three; and
(vi) notwithstanding the foregoing provisions of this Section
307(b), a Successor Security of a Security that does not bear a
particular form of Private Placement Legend shall not bear such form
of legend unless the Company has reasonable cause to believe that
such Successor Security is a "restricted security" within the
meaning of Rule 144, in which case the Trustee, at the direction of
the Company, shall authenticate and deliver a new Security bearing a
Private Placement Legend in exchange for such Successor Security as
provided in this Article Three.
By its acceptance of any Security bearing the Private Placement
Legend, each Holder of such a Security acknowledges the restrictions on transfer
of such Security set forth in this Indenture and in the Private Placement Legend
and agrees that it will transfer such Security only as provided in this
Indenture.
The Security Registrar shall retain copies of all letters, notices
and other written communications received pursuant to Section 306 or this
Section 307. The Company shall have the right to inspect and make copies of all
such letters, notices or other written communications at any reasonable time
upon the giving of reasonable written notice to the Security Registrar.
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In the event that Regulation S is amended during the term of this
Indenture to alter the applicable holding period, all reference in this
Indenture to a holding period for Non-U.S. Persons will be deemed to include
such amendment.
Section 308. Mutilated, Destroyed, Lost and Stolen Securities.
If (a) any mutilated Security is surrendered to the Trustee, or (b)
the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Security, and there is delivered to the
Company, any Guarantor and the Trustee, such security or indemnity, in each
case, as may be required by them to save each of them harmless, then, in the
absence of notice to the Company, any Guarantor or the Trustee that such
Security has been acquired by a bona fide purchaser, the Company shall execute
and upon a Company Request the Trustee shall authenticate and deliver, in
exchange for any such mutilated Security or in lieu of any such destroyed, lost
or stolen Security, a replacement Security of like tenor and principal amount,
bearing a number not contemporaneously outstanding and each Guarantor shall
execute a replacement Guarantee.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a replacement Security, pay such Security.
Upon the issuance of any replacement Securities under this Section,
the Company may require the payment of a sum sufficient to pay all documentary,
stamp or similar issue or transfer taxes or other governmental charges that may
be imposed in relation thereto and any other expenses (including the fees and
expenses of the Trustee) connected therewith.
Every replacement Security and Guarantee issued pursuant to this
Section in lieu of any destroyed, lost or stolen Security shall constitute an
original additional contractual obligation of the Company and any Guarantor,
whether or not the destroyed, lost or stolen Security shall be at any time
enforceable by anyone, and shall be entitled to all benefits of this Indenture
equally and proportionately with any and all other Securities duly issued
hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
Section 309. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on the Stated Maturity of such interest shall be paid to the
Person in whose
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name the Security (or any Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest payment.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on the Stated Maturity of such interest, and interest
on such defaulted interest at the then applicable interest rate borne by the
Securities, to the extent lawful (such defaulted interest and interest thereon
herein collectively called "Defaulted Interest"), shall forthwith cease to be
payable to the Holder on the Regular Record Date; and such Defaulted Interest
may be paid by the Company, at its election in each case, as provided in
Subsection (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or any relevant
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest,
which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date (not less than 30
days after such notice) of the proposed payment (the "Special
Payment Date"), and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall
make arrangements satisfactory to the Trustee for such deposit prior
to the Special Payment Date, such money when deposited to be held in
trust for the benefit of the Persons entitled to such Defaulted
Interest as in this Subsection provided. Thereupon the Trustee shall
fix a Special Record Date for the payment of such Defaulted Interest
which shall be not more than 15 days and not less than 10 days prior
to the date of the Special Payment Date and not less than 10 days
after the receipt by the Trustee of the notice of the proposed
payment. The Trustee shall promptly notify the Company in writing of
such Special Record Date. In the name and at the expense of the
Company, the Trustee shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder at its address
as it appears in the Security Register, not less than 10 days prior
to such Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date and Special Payment
Date therefor having been so mailed, such Defaulted Interest shall
be paid to the Persons in whose names the Securities are registered
on such Special Record Date and shall no longer be payable pursuant
to the following Subsection (b).
(b) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as
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may be required by this Indenture not inconsistent with the
requirements of such exchange, if, after written notice given by the
Company to the Trustee of the proposed payment pursuant to this
Subsection, such payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section 309, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other Security.
Section 310. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if
then generally in use), and the Company, or the Trustee on behalf of the
Company, shall use CUSIP numbers in notices of redemption or exchange as a
convenience to Holders; provided, however, that any such notice shall state that
no representation is made as to the correctness of such numbers either as
printed on the Securities or as contained in any notice of redemption or
exchange and that reliance may be placed only on the other identification
numbers printed on the Securities; and provided further, however, that failure
to use CUSIP numbers in any notice of redemption or exchange shall not affect
the validity or sufficiency of such notice.
Section 311. Persons Deemed Owners.
Prior to due presentment of a Security for registration of transfer,
the Company, any Guarantor, the Trustee and any agent of the Company, any
Guarantor or the Trustee may treat the Person in whose name any Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of, premium, if any, and (subject to Section 309) interest on, such
Security and for all other purposes whatsoever, whether or not such Security is
overdue, and neither the Company, any Guarantor, the Trustee nor any agent of
the Company, any Guarantor or the Trustee shall be affected by notice to the
contrary.
Section 312. Cancellation.
All Securities surrendered for payment, purchase, redemption,
registration of transfer or exchange shall be delivered to the Trustee and, if
not already canceled, shall be promptly canceled by it. The Company and any
Guarantor may at any time deliver to the Trustee for cancellation any Securities
previously authenticated and delivered hereunder which the Company or such
Guarantor may have acquired in any manner whatsoever, and all Securities so
delivered shall be promptly canceled by the Trustee. No Securities shall be
authenticated in lieu of or in exchange for any Securities canceled as provided
in this Section 312, except as expressly permitted by this Indenture. All
canceled Securities held by the Trustee shall be returned to the Company. The
Trustee
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shall provide the Company a list of all Securities that have been canceled from
time to time as requested by the Company.
Section 313. Computation of Interest.
Interest on the Securities shall be computed on the basis of a
360-day year comprised of twelve 30-day months.
ARTICLE FOUR
DEFEASANCE AND COVENANT DEFEASANCE
Section 401. Company's Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution, at any time,
with respect to the Securities, elect to have either Section 402 or Section 403
be applied to all of the Outstanding Securities (the "Defeased Securities"),
upon compliance with the conditions set forth below in this Article Four.
Section 402. Defeasance and Discharge.
Upon the Company's exercise under Section 401 of the option
applicable to this Section 402, the Company, each Guarantor and any other
obligor upon the Securities, if any, shall be deemed to have been discharged
from its obligations with respect to the Defeased Securities on the date the
conditions set forth in Section 404 below are satisfied (hereinafter,
"defeasance"). For this purpose, such defeasance means that the Company, each
Guarantor and any other obligor under this Indenture shall be deemed to have
paid and discharged the entire Indebtedness represented by the Defeased
Securities, which shall thereafter be deemed to be "Outstanding" only for the
purposes of Section 405 and the other Sections of this Indenture referred to in
(a) and (b) below, and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company and upon Company Request, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of Defeased Securities to receive, solely from the trust fund described
in Section 404 and as more fully set forth in such Section, payments in respect
of the principal of, premium, if any, and interest on, such Securities, when
such payments are due, (b) the Company's obligations with respect to such
Defeased Securities under Sections 304, 305, 308, 1002 and 1003, (c) the rights,
powers, trusts, duties and immunities of the Trustee hereunder, including,
without limitation, the Trustee's rights under Section 607, and (d) this Article
Four. Subject to compliance with this Article
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Four, the Company may exercise its option under this Section 402 notwithstanding
the prior exercise of its option under Section 403 with respect to the
Securities.
Section 403. Covenant Defeasance.
Upon the Company's exercise under Section 401 of the option
applicable to this Section 403, the Company and each Guarantor shall be released
from itsobligations under any covenant or provision contained or referred to in
Sections 1005 through 1020, inclusive, and the provisions of clause (iii) of
Section 801(a), with respect to the Defeased Securities, on and after the date
the conditions set forth in Section 404 below are satisfied (hereinafter,
"covenant defeasance"), and the Defeased Securities shall thereafter be deemed
to be not "Outstanding" for the purposes of any direction, waiver, consent or
declaration or Act of Holders (and the consequences of any thereof) in
connection with such covenants, but shall continue to be deemed "Outstanding"
for all other purposes hereunder. For this purpose, such covenant defeasance
means that, with respect to the Defeased Securities, the Company and each
Guarantor may omit to comply with and shall have no liability in respect of any
term, condition or limitation set forth in any such Section, whether directly or
indirectly, by reason of any reference elsewhere herein to any such Section or
by reason of any reference in any such Section to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 501(c), (d), (f) or (g) but, except as
specified above, the remainder of this Indenture and such Defeased Securities
shall be unaffected thereby.
Section 404. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either
Section 402 or Section 403 to the Defeased Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of such Securities, (a) cash in United States
dollars, (b) U.S. Government Obligations, or (c) a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants or a nationally recognized investment banking
firm expressed in a written certification thereof delivered to the Trustee, to
pay and discharge, and which shall be applied by the Trustee to pay and
discharge, the principal of, premium, if any, and interest on, the Defeased
Securities, on the Stated Maturity of such principal or interest (or on any date
after August 1, 2003 (such date being referred to as the "Defeasance Redemption
Date") if at or prior to electing to exercise either its option applicable to
Section 402 or its option applicable to Section 403, the Company has delivered
to the Trustee an irrevocable notice to redeem the Defeased Securities on the
Defeasance Redemption Date). For this purpose, "U.S.
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Government Obligations" means securities that are (i) direct obligations of the
United States of America for the timely payment of which its full faith and
credit is pledged or (ii) obligations of a Person controlled or supervised by
and acting as an agency or instrumentality of the United States of America the
timely payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a Depositary receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act), as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such Depositary receipt, provided that (except as required by law) such
custodian is not authorized to make any deduction from the amount payable to the
holder of such Depositary receipt from any amount received by the custodian in
respect of the U.S. Government Obligation or the specific payment of principal
of or interest on the U.S. Government Obligation evidenced by such Depositary
receipt;
(2) In the case of an election under Section 402, the Company shall
have delivered to the Trustee an Opinion of Independent Counsel in the United
States stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the date
hereof, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of Independent
Counsel in the United States shall confirm that, the Holders of the Outstanding
Securities will not recognize income, gain or loss for federal income tax
purposes as a result of such defeasance and will be subject to federal income
tax on the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred;
(3) In the case of an election under Section 403, the Company shall
have delivered to the Trustee an Opinion of Independent Counsel in the United
States to the effect that the Holders of the Outstanding Securities will not
recognize income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such covenant defeasance had not occurred;
(4) No Default or Event of shall have occurred and be continuing on
the date of such deposit or insofar as Section 501(h) or (i) is concerned, at
any time during the period ending on the 91st day after the date of deposit (it
being understood that this condition shall not be deemed satisfied until the
expiration of such period) (other than a Default which results from the
borrowing of amounts to finance the defeasance and which borrowing does not
result in a breach or violation of, or constitute a default, under any other
material agreement or instrument to which the Company or any Restricted
Subsidiary is a party or to which it is bound);
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(5) Such defeasance or covenant defeasance shall not cause the
Trustee for the Securities to have a conflicting interest in violation of and
for purposes of the Trust Indenture Act with respect to any other securities of
the Company or any Guarantor;
(6) Such defeasance or covenant defeasance shall not result in a
breach or violation of, or constitute a Default under, this Indenture or any
other material agreement or instrument to which the Company, any Guarantor or
any Restricted Subsidiary is a party or by which it is bound;
(7) Such defeasance or covenant defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder;
(8) The Company shall have delivered to the Trustee an Opinion of
Independent Counsel in the United States to the effect that (assuming that no
Holder of any Securities would be considered an insider of the Company under any
applicable bankruptcy or insolvency law) after the 91st day following the
deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally;
(9) The Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the holders of the Securities or any Guarantee over the other
creditors of the Company or any Guarantor with the intent of defeating,
hindering, delaying or defrauding creditors of the Company, any Guarantor or
others;
(10) No event or condition shall exist that would prevent the
Company from making payments of the principal of, premium, if any, and interest
on the Securities on the date of such deposit or at any time ending on the 91st
day after the date of such deposit; and
(11) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Independent Counsel, each stating that all
conditions precedent provided for relating to either the defeasance under
Section 402 or the covenant defeasance under Section 403 (as the case may be)
have been complied with.
Opinions of Counsel or Opinions of Independent Counsel required to
be delivered under this Section shall be in form and substance reasonably
satisfactory to the Trustee may have qualifications customary for opinions of
the type required and counsel delivering such opinions may rely on certificates
of the Company or government or other officials customary for opinions of the
type required, which certificates shall be limited as to matters of fact,
including that various financial covenants have been complied with.
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Section 405. Deposited Money and U.S. Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all
United States dollars and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee pursuant to Section 404 in respect of the
Defeased Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (excluding the Company or
any of its Affiliates acting as Paying Agent), as the Trustee may determine, to
the Holders of such Securities of all sums due and to become due thereon in
respect of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 404 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is
imposed, assessed or for the account of the Holders of the Defeased Securities.
Anything in this Article Four to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any United States dollars or U.S. Government Obligations held by it as
provided in Section 404 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect defeasance or covenant defeasance.
Section 406. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or U.S. Government Obligations in accordance with Section 402 or 403, as
the case may be, by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, then
the Company's obligations under this Indenture and the Securities and any
Guarantor's obligations under any Guarantee shall be revived and reinstated,
with present and prospective effect, as though no deposit had occurred pursuant
to Section 402 or 403, as the case may be, until such time as the Trustee or
Paying Agent is permitted to apply all such United States dollars or U.S.
Government Obligations in accordance with Section 402 or 403, as the case may
be; provided, however, that if the Company makes any payment to the Trustee or
Paying Agent of principal of, premium, if any, or interest on any Security
following the reinstatement of its obligations, the Trustee or Paying Agent
shall promptly pay any such amount to the Holders of the Securities and the
Company shall be subrogated to the rights
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of the Holders of such Securities to receive such payment from the United States
dollars and U.S. Government Obligations held by the Trustee or Paying Agent.
ARTICLE FIVE
REMEDIES
Section 501. Events of Default.
"Event of Default," wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) there shall be a default in the payment of any interest on any
Security when it becomes due and payable, and such default shall continue for a
period of 30 days (whether or not prohibited by the subordination provisions of
this Indenture);
(b) there shall be a default in the payment of the principal of (or
premium, if any, on) any Security at its Maturity (upon acceleration, optional
or mandatory redemption, required repurchase or otherwise) (whether or not
prohibited by the subordination provisions of this Indenture);
(c) (i) there shall be a default in the performance, or breach, of
any covenant or agreement of the Company or any Guarantor under this Indenture
or any Guarantee (other than a default in the performance, or breach, of a
covenant or agreement which is specifically dealt with in clause (a), (b) or in
clause (ii), (iii) or (iv) of this clause (c)) and such default or breach shall
continue for a period of 60 days after written notice (30 days in the case of a
default under Section 1008 or Section 1009 herein) has been given, by certified
mail, (x) to the Company by the Trustee or (y) to the Company and the Trustee by
the Holders of at least 25% in aggregate principal amount of the outstanding
Securities; (ii) there shall be a default in the performance or breach of the
provisions of Article Eight; (iii) the Company shall have failed to consummate
an Offer in accordance with the provisions of Section 1012; or (iv) the Company
shall have failed to consummate a Change of Control Offer in accordance with the
provisions of Section 1014;
(d) one or more defaults, individually or in the aggregate, shall
have occurred under any of the agreements, indentures or instruments under which
the Company or any Restricted Subsidiary then has outstanding Indebtedness in
excess of $20 million in principal amount, individually or in the aggregate, and
either (i) such default results from the failure to pay such Indebtedness at its
stated final maturity or (ii) such default or defaults resulted in the
acceleration of the maturity of such Indebtedness;
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(e) any Guarantee shall for any reason cease to be, or shall for any
reason be asserted in writing by any Guarantor or the Company not to be, in full
force and effect and enforceable in accordance with its terms, except to the
extent contemplated by this Indenture and any such Guarantee;
(f) one or more final judgments, orders or decrees (not subject to
appeal) of any court or regulatory or administrative agency for the payment of
money in excess of $20 million, either individually or in the aggregate
(exclusive of any portion of any such payment covered by insurance, if and to
the extent the insurer has acknowledged in writing its liability therefor),
shall be rendered against the Company, any Guarantor or any Subsidiary or any of
their respective properties and shall not be discharged or fully binded and
there shall have been a period of 60 consecutive days during which a stay of
enforcement of such judgment or order, by reason of an appeal or otherwise,
shall not be in effect;
(g) any holder or holders of at least $20 million in aggregate
principal amount of Indebtedness of the Company, any Guarantor or any Restricted
Subsidiary after a default under such Indebtedness shall notify the Trustee of
the intended sale or disposition of any assets of the Company, any Guarantor or
any Subsidiary that have been pledged to or for the benefit of such holder or
holders to secure such Indebtedness or shall commence proceedings, or take any
action (including by way of set-off), to retain in satisfaction of such
Indebtedness or to collect on, seize, dispose of or apply in satisfaction of
Indebtedness, assets of the Company, any Guarantor or any Restricted Subsidiary
(including funds on deposit or held pursuant to lock-box and other similar
arrangements);
(h) there shall have been the entry by a court of competent
jurisdiction of (i) a decree or order for relief in respect of the Company or
any Significant Restricted Subsidiary in an involuntary case or proceeding under
any applicable Bankruptcy Law or (ii) a decree or order adjudging the Company or
any Significant Restricted Subsidiary bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment or composition of or in respect of the
Company or any Significant Restricted Subsidiary under any applicable federal or
state law, or appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) of the Company or any Significant
Restricted Subsidiary or of any substantial part of their respective properties,
or ordering the winding up or liquidation of their respective affairs, and any
such decree or order for relief shall continue to be in effect, or any such
other decree or order shall be unstayed and in effect, for a period of 60
consecutive days; or
(i) (i) the Company or any Significant Restricted Subsidiary
commences a voluntary case or proceeding under any applicable Bankruptcy Law or
any other case or proceeding to be adjudicated bankrupt or insolvent, (ii) the
Company or any Significant Restricted Subsidiary consents to the entry of a
decree or order for relief in respect of the Company or such Significant
Restricted Subsidiary in an involuntary case or proceeding
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under any applicable Bankruptcy Law or to the commencement of any bankruptcy or
insolvency case or proceeding against it, (iii) the Company or any Significant
Restricted Subsidiary files a petition or answer or consent seeking
reorganization or relief under any applicable federal or state law, (iv) the
Company or any Significant Restricted Subsidiary (1) consents to the filing of
such petition or the appointment of, or taking possession by, a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar official of the
Company or such Significant Restricted Subsidiary or of any substantial part of
their respective properties, (2) makes an assignment for the benefit of
creditors or (3) admits in writing its inability to pay its debts generally as
they become due or (v) the Company or any Significant Restricted Subsidiary
takes any corporate action in furtherance of any such actions in this paragraph
(i).
Section 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than an Event of Default specified in
Sections 501(h) and (i) shall occur and be continuing with respect to this
Indenture, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Securities then Outstanding may, and the Trustee at the
request of such Holders shall, declare all unpaid principal of, premium, if any,
and accrued interest on all Securities to be due and payable immediately, by a
notice in writing to the Company (and to the Trustee if given by the Holders of
the Securities) and upon any such declaration, such principal, premium, if any,
and interest shall become due and payable immediately. If an Event of Default
specified in clause (h) or (i) of Section 501 occurs and is continuing, then all
the Securities shall ipso facto become and be due and payable immediately in an
amount equal to the principal amount of the Securities, together with accrued
and unpaid interest, if any, to the date the Securities become due and payable,
without any declaration or other act on the part of the Trustee or any Holder.
Thereupon, the Trustee may, at its discretion, proceed to protect and enforce
the rights of the Holders of the Securities by appropriate judicial proceedings.
After a declaration of acceleration with respect to the Securities,
but before a judgment or decree for payment of the money due has been obtained
by the Trustee as hereinafter in this Article provided, the Holders of a
majority in aggregate principal amount of the Securities Outstanding, by written
notice to the Company and the Trustee, may rescind and annul such declaration
and its consequences if:
(a) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(i) all sums paid or advanced by the Trustee under this
Indenture and the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel,
(ii) all overdue interest on all Outstanding Securities,
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(iii) the principal of and premium, if any, on any Outstanding
Securities which have become due otherwise than by such declaration
of acceleration and interest thereon at the rate borne by the
Securities, and
(iv) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities;
(b) the rescission would not conflict with any judgment or decree of
a court of competent jurisdiction; and
(c) all Events of Default, other than the non-payment of principal
of, premium, if any, and interest on the Securities which have become due solely
by such declaration of acceleration, have been cured or waived as provided in
Section 513. No such rescission shall affect any subsequent Default or impair
any right consequent thereon.
Section 503. Collection of Indebtedness and Suits for Enforcement by
Trustee.
The Company and each Guarantor covenant that if
(a) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(b) default is made in the payment of the principal of or premium,
if any, on any Security at the Stated Maturity thereof or otherwise,
the Company and such Guarantor will, upon demand of the Trustee, pay to it, for
the benefit of the Holders of such Securities, the whole amount then due and
payable on such Securities for principal and premium, if any, and interest, with
interest upon the overdue principal and premium, if any, and, to the extent that
payment of such interest shall be legally enforceable, upon overdue installments
of interest, at the rate borne by the Securities; and, in addition thereto, such
further amount as shall be sufficient to cover the costs and expenses of
collection, including the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel.
If the Company or any Guarantor, as the case may be, fails to pay
such amounts forthwith upon such demand, the Trustee, in its own name and as
trustee of an express trust, may institute a judicial proceeding for the
collection of the sums so due and unpaid and may prosecute such proceeding to
judgment or final decree, and may enforce the same against the Company or any
Guarantor or any other obligor upon the Securities and collect the moneys
adjudged or decreed to be payable in the manner provided by law out of the
property of the Company, any Guarantor or any other obligor upon the Securities,
wherever situated.
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If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders under this Indenture or any Guarantee by such appropriate private or
judicial proceedings as the Trustee shall deem most effectual to protect and
enforce such rights, including seeking recourse against any Guarantor pursuant
to the terms of any Guarantee, whether for the specific enforcement of any
covenant or agreement in this Indenture or in aid of the exercise of any power
granted herein or therein, or to enforce any other proper remedy, including,
without limitation, seeking recourse against any Guarantor pursuant to the terms
of a Guarantee, or to enforce any other proper remedy, subject however to
Section 512. No recovery of any such judgment upon any property of the Company
or any Guarantor shall affect or impair any rights, powers or remedies of the
Trustee or the Holders.
Section 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor,
including any Guarantor, upon the Securities or the property of the Company or
of such other obligor or their creditors, the Trustee (irrespective of whether
the principal of the Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand on the Company for the payment of overdue principal
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise,
(a) to file and prove a claim for the whole amount of principal, and
premium, if any, and interest owing and unpaid in respect of the Securities and
to file such other papers or documents as may be necessary or advisable in order
to have the claims of the Trustee (including any claim for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel) and of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
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reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 505. Trustee May Enforce Claims without Possession of Securities.
All rights of action and claims under this Indenture, the Securities
or the Guarantees may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the Trustee shall be
brought in its own name and as trustee of an express trust, and any recovery of
judgment shall, after provision for the payment of the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, be
for the ratable benefit of the Holders of the Securities in respect of which
such judgment has been recovered.
Section 506. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article or
otherwise on behalf of the Holders or the Trustee pursuant to this Article or
through any proceeding or any arrangement or restructuring in anticipation or in
lieu of any proceeding contemplated by this Article shall be applied, subject to
applicable law, in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal,
premium, if any, or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: To the payment of the amounts then due and unpaid upon the
Securities for principal, premium, if any, and interest, in respect of which or
for the benefit of which such money has been collected, ratably, without
preference or priority of any kind, according to the amounts due and payable on
such Securities for principal, premium, if any, and interest; and
THIRD: The balance, if any, to the Person or Persons entitled
thereto, including the Company, provided that all sums due and owing to the
Holders and the Trustee have been paid in full as required by this Indenture.
Section 507. Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture or the
Securities, or for the appointment of a receiver or trustee, or for any other
remedy hereunder, unless
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(a) such Holder has previously given written notice to the Trustee
of a continuing Event of Default;
(b) the Holders of not less than 25% in aggregate principal amount
of the Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
trustee hereunder;
(c) such Holder or Holders have offered to the Trustee a reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 15 days after its receipt of such notice,
request and offer (and if requested, provision) of indemnity has failed to
institute any such proceeding; and
(e) no direction inconsistent with such written request has been
given to the Trustee during such 15-day period by the Holders of a majority in
principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture, any Security or any Guarantee to affect, disturb or prejudice
the rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture,
any Security or any Guarantee, except in the manner provided in this Indenture
and for the equal and ratable benefit of all the Holders.
Section 508. Unconditional Right of Holders to Receive Principal, Premium
and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right based on the terms stated herein, which is
absolute and unconditional, to receive payment of the principal of, premium, if
any, and (subject to Section 309) interest on such Security on the respective
Stated Maturities expressed in such Security (or, in the case of redemption or
repurchase, on the Redemption Date or the repurchase date) and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
Section 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or any Guarantee and such
proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case the Company, any Guarantor, any other obligor on the Securities, the
Trustee and the Holders shall, subject to any
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determination in such proceeding, be restored severally and respectively to
their former positions hereunder, and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
Section 510. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
Section 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security
to exercise any right or remedy accruing upon any Event of Default shall impair
any such right or remedy or constitute a waiver of any such Event of Default or
an acquiescence therein. Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to time, and as
often as may be deemed expedient, by the Trustee or by the Holders, as the case
may be.
Section 512. Control by Holders.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, provided that
(a) such direction shall not be in conflict with any rule of law or
with this Indenture (including, without limitation, Section 507) or any
Guarantee, expose the Trustee to personal liability, or be unduly prejudicial to
Holders not joining therein; and
(b) subject to the provisions of Section 315 of the Trust Indenture
Act, the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction.
Section 513. Waiver of Past Defaults.
The Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities may on behalf of the Holders of all
Outstanding Securities waive any past Default hereunder and its consequences,
except a Default
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(a) in the payment of the principal of, premium, if any, or interest
on any Security (which may only be waived with the consent of each Holder of the
Securities affected); or
(b) in respect of a covenant or a provision hereof which under this
Indenture cannot be modified or amended without the consent of the Holder of
each Security Outstanding affected by such modification or amendment.
Upon any such waiver, such Default shall cease to exist, and any
Event of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other Default or impair any right consequent thereon.
Section 514. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security
by his acceptance thereof shall be deemed to have agreed, that any court may in
its discretion require, in any suit for the enforcement of any right or remedy
under this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant, but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal of, premium, if any, or interest on, any Security on or after the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on or after the Redemption Date).
Section 515. Waiver of Stay, Extension or Usury Laws.
Each of the Company and the Guarantors covenants (to the extent that
it may lawfully do so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury or other law wherever enacted, now or at any time
hereafter in force, which would prohibit or forgive the Company or any Guarantor
from paying all or any portion of the principal of, premium, if any, or interest
on the Securities contemplated herein or in the Securities or which may affect
the covenants or the performance of this Indenture; and each of the Company and
the Guarantors (to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
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Section 516. Remedies Subject to Applicable Law.
All rights, remedies and powers provided by this Article Five may be
exercised only to the extent that the exercise thereof does not violate any
applicable provision of law in the premises, and all the provisions of this
Indenture are intended to be subject to all applicable mandatory provisions of
law which may be controlling in the premises and to be limited to the extent
necessary so that they will not render this Indenture invalid, unenforceable or
not entitled to be recorded, registered or filed under the provisions of any
applicable law.
ARTICLE SIX
THE TRUSTEE
Section 601. Duties of Trustee.
Subject to the provisions of Trust Indenture Act Sections 315(a)
through 315(d):
(a) if a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in its exercise
thereof as a prudent person would exercise or use under the circumstances in the
conduct of his own affairs;
(b) except during the continuance of a Default or an Event of
Default:
(1) the Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are adverse to
the Trustee; and
(2) in the absence of bad faith or willful misconduct on its
part, the Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed therein,
upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the
Trustee shall examine the certificates and opinions to determine
whether or not they conform to the requirements of this Indenture;
(c) the Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) this Subsection (c) does not limit the effect of
Subsection (b) of this Section 601;
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(2) the Trustee shall not be liable for any error of judgment
made in good faith by a Responsible Officer, unless it is proved
that the Trustee was negligent in ascertaining the pertinent facts;
and
(3) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith, in accordance with a
direction of the Holders of a majority in principal amount of
Outstanding Securities relating to the time, method and place of
conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power confirmed upon the Trustee under
this Indenture;
(d) no provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it;
(e) whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to Subsections
(a), (b), (c) and (d) and (f) of this Section 601; and
(f) the Trustee shall not be liable for interest on any money or
assets received by it except as the Trustee may agree with the Company. Assets
held in trust by the Trustee need not be segregated from other assets except to
the extent required by law.
Section 602. Notice of Defaults.
Within 30 days after a Responsible Officer of the Trustee receives
notice of the occurrence of any Default, the Trustee shall transmit by mail to
all Holders and any other Persons entitled to receive reports pursuant to
Section 313(c) of the Trust Indenture Act, as their names and addresses appear
in the Security Register, notice of such Default hereunder known to the Trustee,
unless such Default shall have been cured or waived; provided, however, that,
except in the case of a Default in the payment of the principal of, premium, if
any, or interest on any Security, the Trustee shall be protected in withholding
such notice if and so long as a trust committee of Responsible Officers of the
Trustee in good faith determines that the withholding of such notice is in the
interest of the Holders.
Section 603. Certain Rights of Trustee.
Subject to the provisions of Section 601 hereof and Trust Indenture
Act Sections 315(a) through 315(d):
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon receipt by it of any resolution, certificate,
statement, instrument,
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opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of Indebtedness or other paper or document believed by it
to be genuine and to have been signed or presented by the proper party or
parties;
(b) any request or direction of the Company mentioned herein shall
be sufficiently evidenced by a Company Request or Company Order and any
resolution of the Board of Directors may be sufficiently evidenced by a Board
Resolution;
(c) the Trustee may consult with counsel of its selection and any
advice of such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon in accordance with such
advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction of
any of the Holders pursuant to this Indenture, unless such Holders shall have
offered to the Trustee security or indemnity satisfactory to the Trustee against
the costs, expenses and liabilities which might be incurred therein or ,
(e) the Trustee shall not be liable for any action taken or omitted
by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture other than any
liabilities arising out of the negligence, bad faith or willful misconduct of
the Trustee;
(f) the Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
approval, appraisal, bond, debenture, note, coupon, security or other paper or
document unless requested in writing to do so by the Holders of not less than a
majority in aggregate principal amount of the Securities then Outstanding;
provided that, if the payment within a reasonable time to the Trustee of the
costs, expenses or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured to the
Trustee by the security afforded to it by the terms of this Indenture, the
Trustee may require reasonable indemnity against such expenses or liabilities as
a condition to proceeding; the reasonable expenses of every such investigation
so requested by the Holders of not less than 25% in aggregate principal amount
of the Securities Outstanding shall be paid by the Company or, if paid by the
Trustee or any predecessor Trustee, shall be repaid by the Company upon demand;
provided, further, the Trustee in its discretion may make such further inquiry
or investigation into such facts or matters as it may deem fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it shall
be entitled to examine the books, records and premises of the Company,
personally or by agent or attorney; and
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(g) the Trustee may execute any of the trusts or powers hereunder
or perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder.
(h) Except with respect to Section 1001, the Trustee shall have no
duty to inquire as to the performance of the Company with respect to the
covenants contained in Article 10. In addition, the Trustee shall not be deemed
to have knowledge of an Event of Default except (i) any Default or Event of
Default occurring pursuant to Sections 1001, 501(a) or 50l(b) or (ii) any
Default or Event of Default of which the Trustee shall have received written
notification or obtained actual knowledge.
(i) Delivery of reports, information and documents to the Trustee
under Section 1019 is for informational purposes only and the Trustee's receipt
of the foregoing shall not constitute constructive notice of any information
contained therein or determinable from information contained therein, including
the Company's compliance with any of their covenants hereunder (as to which the
Trustee is entitled to rely exclusively on Officer's Certificates).
Section 604. Trustee Not Responsible for Recitals, Dispositions of
Securities or Application of Proceeds Thereof.
The recitals contained herein and in the Securities, except the
Trustee's certificates of authentication, shall be taken as the statements of
the Company, and the Guarantors, and the Trustee assumes no responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities, except that the Trustee
represents that it is duly authorized to execute and deliver this Indenture,
authenticate the Securities and perform its obligations hereunder and that the
statements made by it in any Statement of Eligibility and Qualification on Form
T-1 supplied to the Company are true and accurate subject to the qualifications
set forth therein. The Trustee shall not be accountable for the use or
application by the Company of Securities or the proceeds thereof.
Section 605. Trustee and Agents May Hold Securities; Collections; etc.
The Trustee, any Paying Agent, Security Registrar or any other agent
of the Company, in its individual or any other capacity, may become the owner or
pledgee of Securities, with the same rights it would have if it were not the
Trustee, Paying Agent, Security Registrar or such other agent and, subject to
Trust Indenture Act Sections 310 and 311, may otherwise deal with the Company
and receive, collect, hold and retain collections from the Company with the same
rights it would have if it were not the Trustee, Paying Agent, Security
Registrar or such other agent.
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Section 606. Money Held in Trust.
All moneys received by the Trustee shall, until used or applied as
herein provided, be held in trust for the purposes for which they were received,
but need not be segregated from other funds except to the extent required by
mandatory provisions of law. Except for funds or securities deposited with the
Trustee pursuant to Article Four, the Trustee shall be required to invest all
moneys received by the Trustee, until used or applied as herein provided, in
Temporary Cash Investments in accordance with the directions of the Company.
Section 607. Compensation and Indemnification of Trustee and Its Prior
Claim.
The Company covenants and agrees to pay to the Trustee from time to
time, and the Trustee shall be entitled to, such compensation as the parties
shall agree in writing from time to time for all services rendered by it
hereunder (which compensation shall not be limited by any provision of law in
regard to the compensation of a trustee of an express trust) and the Company
covenants and agrees to pay or reimburse the Trustee and each predecessor
Trustee upon its request for all reasonable expenses, disbursements and advances
incurred or made by or on behalf of the Trustee in accordance with any of the
provisions of this Indenture (including the reasonable compensation and the
expenses and disbursements of its counsel and of all agents and other persons
not regularly in its employ) except any such expense, disbursement or advance as
may arise from its negligence, bad faith or willful misconduct. The Company also
covenants and agrees to indemnify the Trustee and each predecessor Trustee for,
and to hold it harmless against, any claim, loss, liability, tax, assessment or
other governmental charge (other than taxes applicable to the Trustee's
compensation hereunder) or expense incurred without negligence, bad faith or
willful misconduct on its part, arising out of or in connection with the
acceptance or administration of this Indenture or the trusts hereunder and its
duties hereunder, including enforcement of this Section 607 and also including
any liability which the Trustee may incur as a result of failure to withhold,
pay or report any tax, assessment or other governmental charge, and the costs
and expenses of defending itself against or investigating any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The obligations of the Company under this Section 607 to compensate
and indemnify the Trustee and each predecessor Trustee and to pay or reimburse
the Trustee and each predecessor Trustee for reasonable expenses, disbursements
and advances shall constitute an additional obligation hereunder and shall
survive the satisfaction and discharge of this Indenture and the resignation or
removal of the Trustee and each predecessor Trustee.
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Section 608. Conflicting Interests.
The Trustee shall comply with the provisions of Section 310(b) of
the Trust Indenture Act.
Section 609. Trustee Eligibility.
There shall at all times be a Trustee hereunder which shall be
eligible to act as trustee under Trust Indenture Act Section 310(a) and is a
member of a bank holding company which shall have a combined capital and surplus
of at least $250,000,000, to the extent there is an institution eligible and
willing to serve. If the Trustee does not have a Corporate Trust Office in The
City of New York, the Trustee may appoint an agent in The City of New York
reasonably acceptable to the Company to conduct any activities which the Trustee
may be required under this Indenture to conduct in The City of New York. If such
Trustee publishes reports of condition at least annually, pursuant to law or to
the requirements of federal, state, territorial or District of Columbia
supervising or examining authority, then for the purposes of this Section 609,
the combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section 609, the Trustee shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.
Section 610. Resignation and Removal; Appointment of Successor Trustee.
(a) No resignation or removal of the Trustee and no appointment of a
successor trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor trustee under Section 611.
(b) The Trustee, or any trustee or trustees hereafter appointed, may
at any time resign by giving written notice thereof to the Company no later than
20 Business Days prior to the proposed date of resignation. Upon receiving such
notice of resignation, the Company shall promptly appoint a successor trustee by
written instrument executed by authority of the Board of Directors of the
Company, a copy of which shall be delivered to the resigning Trustee and a copy
to the successor trustee. If an instrument of acceptance by a successor trustee
shall not have been delivered to the Trustee within 30 days after the giving of
such notice of resignation, the resigning Trustee may, or any Holder who has
been a bona fide Holder of a Security for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor trustee. Such court may
thereupon, after such notice, if any, as it may deem proper, appoint and
prescribe a successor trustee.
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(c) The Trustee may be removed at any time for any cause or for no
cause by an Act of the Holders of not less than a majority in aggregate
principal amount of the Outstanding Securities, delivered to the Trustee and to
the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with the provisions of
Trust Indenture Act Section 310(b) after written request therefor by
the Company or by any Holder who has been a bona fide Holder of a
Security for at least six months,
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request therefor by the
Company or by any Holder who has been a bona fide Holder of a
Security for at least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent, or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation,
then, in any case, (i) the Company by a Board Resolution may remove the Trustee,
or (ii) subject to Section 514, the Holder of any Security who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor trustee. Such
court may thereupon, after such notice, if any, as it may deem proper and
prescribe, remove the Trustee and appoint a successor trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by a Board Resolution, shall promptly appoint a successor trustee and
shall comply with the applicable requirements of Section 611. If, within 60 days
after such resignation, removal or incapability, or the occurrence of such
vacancy, the Company has not appointed a successor Trustee, a successor trustee
shall be appointed by the Act of the Holders of a majority in principal amount
of the Outstanding Securities delivered to the Company and the retiring Trustee.
Such successor trustee so appointed shall forthwith upon its acceptance of such
appointment become the successor trustee and supersede the successor trustee
appointed by the Company. If no successor trustee shall have been so appointed
by the Company or the Holders of the Securities and accepted appointment in the
manner hereinafter provided, the Trustee or the Holder of any Security who has
been a bona fide Holder for at least six months may, subject to Section 514, on
behalf of
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himself and all others similarly situated, petition any court of competent
jurisdiction for the appointment of a successor trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor trustee by mailing
written notice of such event by first-class mail, postage prepaid, to the
Holders of Securities as their names and addresses appear in the Security
Register. Each notice shall include the name of the successor trustee and the
address of its Corporate Trust Office or agent hereunder.
Section 611. Acceptance of Appointment by Successor.
Every successor trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an instrument
accepting such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee as if originally named as
Trustee hereunder; but, nevertheless, on the written request of the Company or
the successor trustee, upon payment of its charges pursuant to Section 607 then
unpaid, such retiring Trustee shall pay over to the successor trustee all moneys
at the time held by it hereunder and shall execute and deliver an instrument
transferring to such successor trustee all such rights, powers, duties and
obligations. Upon request of any such successor trustee, the Company shall
execute any and all instruments for more fully and certainly vesting in and
confirming to such successor trustee all such rights and powers.
No successor trustee with respect to the Securities shall accept
appointment as provided in this Section 611 unless at the time of such
acceptance such successor trustee shall be eligible to act as trustee under the
provisions of Trust Indenture Act Section 310(a) and this Article Six and shall
have a combined capital and surplus of at least $250,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 609.
Upon acceptance of appointment by any successor trustee as provided
in this Section 611, the Company shall give notice thereof to the Holders of the
Securities, by mailing such notice to such Holders at their addresses as they
shall appear on the Security Register. If the acceptance of appointment is
substantially contemporaneous with the appointment, then the notice called for
by the preceding sentence may be combined with the notice called for by Section
610. If the Company fails to give such notice within 10 days after acceptance of
appointment by the successor trustee, the successor trustee shall cause such
notice to be given at the expense of the Company.
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Section 612. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee (including the trust created by this Indenture) shall be
the successor of the Trustee hereunder, provided that such corporation shall be
eligible under Trust Indenture Act Section 310(a) and this Article Six and shall
have a combined capital and surplus of at least $250,000,000 and have a
Corporate Trust Office or an agent selected in accordance with Section 609,
without the execution or filing of any paper or any further act on the part of
any of the parties hereto.
In case at the time such successor to the Trustee shall succeed to
the trusts created by this Indenture any of the Securities shall have been
authenticated but not delivered, any such successor to the Trustee may adopt the
certificate of authentication of any predecessor Trustee and deliver such
Securities so authenticated; and, in case at that time any of the Securities
shall not have been authenticated, any successor to the Trustee may authenticate
such Securities either in the name of any predecessor hereunder or in the name
of the successor trustee; and in all such cases such certificate shall have the
full force which it is anywhere in the Securities or in this Indenture provided
that the certificate of the Trustee shall have; provided that the right to adopt
the certificate of authentication of any predecessor Trustee or to authenticate
Securities in the name of any predecessor Trustee shall apply only to its
successor or successors by merger, conversion or consolidation.
Section 613. Preferential Collection of Claims Against Company.
If and when the Trustee shall be or become a creditor of the Company
(or other obligor under the Securities), the Trustee shall be subject to the
provisions of the Trust Indenture Act regarding the collection of claims against
the Company (or any such other obligor). A Trustee who has resigned or been
removed shall be subject to Trust Indenture Act Section 311(a) to the extent
indicated therein.
ARTICLE SEVEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and Addresses of Holders.
The Company will furnish or cause to be furnished to the Trustee
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(a) semiannually, not more than 10 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the names
and addresses of the Holders as of such Regular Record Date; and
(b) at such other times as the Trustee may reasonably request in
writing, within 30 days after receipt by the Company of any such request, a list
of similar form and content to that in subsection (a) hereof as of a date not
more than 15 days prior to the time such list is furnished;
provided, however, that if and so long as the Trustee shall be the Security
Registrar, no such list need be furnished.
Section 702. Disclosure of Names and Addresses of Holders.
Holders may communicate pursuant to Trust Indenture Act Section
312(b) with other Holders with respect to their rights under this Indenture or
the Securities, and the Trustee shall comply with Trust Indenture Act Section
312(b). The Company, the Trustee, the Security Registrar and any other Person
shall have the protection of Trust Indenture Act Section 312(c). Further, every
Holder of Securities, by receiving and holding the same, agrees with the Company
and the Trustee that neither the Company nor the Trustee or any agent of either
of them shall be held accountable by reason of the disclosure of any information
as to the names and addresses of the Holders in accordance with Trust Indenture
Act Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under Trust Indenture Act Section 312.
Section 703. Reports by Trustee.
(a) Within 60 days after May 15 of each year commencing with the
first May 15 after the issuance of Securities, the Trustee, if so required under
the Trust Indenture Act, shall transmit by mail to all Holders, in the manner
and to the extent provided in Trust Indenture Act Section 313(c), a brief report
dated as of such May 15 in accordance with and with respect to the matters
required by Trust Indenture Act Section 313(a). The Trustee shall also transmit
by mail to all Holders, in the manner and to the extent provided in Trust
Indenture Act Section 313(c), a brief report in accordance with and with respect
to the matters required by Trust Indenture Act Section 313(b)(2).
(b) A copy of each report transmitted to Holders pursuant to this
Section 703 shall, at the time of such transmission, be mailed to the Company
and filed with each stock exchange, if any, upon which the Securities are listed
and also with the Commission. The Company will notify the Trustee promptly if
the Securities are listed on any stock exchange.
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Section 704. Reports by Company and Guarantors.
The Company and each Guarantor, as the case may be, shall:
(a) file with the Trustee, within 15 days after the Company or any
Guarantor, as the case may be, is required to file the same with the Commission,
copies of the annual reports and of the information, documents and other reports
(or copies of such portions of any of the foregoing as the Commission may from
time to time by rules and regulations prescribe) which the Company or any
Guarantor may be required to file with the Commission pursuant to Section 13 or
Section 15(d) of the Exchange Act; or, if the Company or any Guarantor, as the
case may be, is not required to file information, documents or reports pursuant
to either of said Sections, then it shall (i) deliver to the Trustee annual
audited financial statements of the Company and its Subsidiaries, prepared on a
Consolidated basis in conformity with GAAP, within 120 days after the end of
each fiscal year of the Company, and (ii) file with the Trustee and, to the
extent permitted by law, the Commission, in accordance with the rules and
regulations prescribed from time to time by the Commission, such of the
supplementary and periodic information, documents and reports which may be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time to time in such rules and regulations;
(b) file with the Trustee and the Commission, in accordance with the
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by the
Company or any Guarantor, as the case may be, with the conditions and covenants
of this Indenture as are required from time to time by such rules and
regulations (including such information, documents and reports referred to in
Trust Indenture Act Section 314(a)); and
(c) within 15 days after the filing thereof with the Trustee,
transmit by mail to all Holders in the manner and to the extent provided in
Trust Indenture Act Section 313(c), such summaries of any information, documents
and reports required to be filed by the Company or any Guarantor, as the case
may be, pursuant to Section 1019 hereunder and subsections (a) and (b) of this
Section as are required by rules and regulations prescribed from time to time by
the Commission.
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ARTICLE EIGHT
CONSOLIDATION, MERGER, SALE OF ASSETS
Section 801. Company and Guarantors May Consolidate, etc., Only on
Certain Terms.
(a) The Company will not, in a single transaction or through a
series of related transactions, consolidate with or merge with or into any other
Person or sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties and assets to any Person or group of
Persons, or permit any of its Restricted Subsidiaries to enter into any such
transaction or series of related transactions if such transaction or series of
related transactions, in the aggregate, would result in a sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company and its Restricted Subsidiaries on a
Consolidated basis to any other Person or group of Persons, unless at the time
and after giving effect thereto:
(i) either (a) the Company will be the continuing corporation
(in the case of a consolidation or merger involving the Company) or
(b) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person
which acquires by sale, assignment, conveyance, transfer, lease or
disposition all or substantially all of the properties and assets of
the Company and its Restricted Subsidiaries on a Consolidated basis
(the "Surviving Entity") will be a corporation duly organized and
validly existing under the laws of the United States of America, any
state thereof or the District of Columbia and such Person expressly
assumes, by a supplemental indenture, in a form reasonably
satisfactory to the Trustee, all the obligations of the Company
under the Securities and this Indenture and the Registration Rights
Agreement, as the case may be, and the Securities and this Indenture
and the Registration Rights Agreement will remain in full force and
effect as so supplemented;
(ii) immediately before and immediately after giving effect to
such transaction on a pro forma basis (and treating any Indebtedness
not previously an obligation of the Company or any of its Restricted
Subsidiaries which becomes the obligation of the Company or any of
its Restricted Subsidiaries as a result of such transaction as
having been incurred at the time of such transaction), no Default or
Event of Default will have occurred and be continuing;
(iii) immediately before and immediately after giving effect
to such transaction on a pro forma basis (on the assumption that the
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transaction occurred on the first day of the four-quarter period for
which financial statements are available ending immediately prior to
the consummation of such transaction with the appropriate
adjustments with respect to the transaction being included in such
pro forma calculation), the Company (or the Surviving Entity if the
Company is not the continuing obligor hereunder) could incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) under
Section 1008;
(iv) at the time of the transaction, each Guarantor, if any,
unless it is the other party to the transactions described above,
will have by supplemental indenture confirmed that its Guarantee
shall apply to such Person's obligations under this Indenture and
under the Securities;
(v) at the time of the transaction if any of the property or
assets of the Company or any of its Restricted Subsidiaries would
thereupon become subject to any Lien, the provisions of Section 1011
are complied with; and
(vi) at the time of the transaction the Company or the
Surviving Entity will have delivered, or caused to be delivered, to
the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an Opinion of Counsel, each to
the effect that such consolidation, merger, transfer, sale,
assignment, conveyance, transfer, lease or other transaction and the
supplemental indenture in respect thereof comply with this Indenture
and that all conditions precedent herein provided for relating to
such transaction have been complied with.
(b) Each Guarantor will not, and the Company will not permit a
Guarantor to, in a single transaction or through a series of related
transactions, consolidate with or merge with or into any other Person (other
than the Company or any Guarantor) or sell, assign, convey, transfer, lease or
otherwise dispose of all or substantially all of its properties and assets on a
Consolidated basis to any Person or group of Persons (other than the Company or
any Guarantor), or permit any of its Restricted Subsidiaries to enter into any
such transaction or series of transactions if such transaction or series of
transactions, in the aggregate, would result in a sale, assignment, conveyance,
transfer, lease or disposition of all or substantially all of the properties and
assets of the Guarantor and its Restricted Subsidiaries on a Consolidated basis
to any other Person or group of Persons (other than the Company or any
Guarantor), unless at the time and after giving effect thereto:
(i) either (1) the Guarantor will be the continuing
corporation (in the case of a consolidation or merger involving the
Guarantor) or (2) the Person (if other than the Guarantor) formed by
such consolidation or into
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which such Guarantor is merged or the Person which acquires by sale,
assignment, conveyance, transfer, lease or disposition all or
substantially all of the properties and assets of the Guarantor and
its Restricted Subsidiaries on a Consolidated basis (the "Surviving
Guarantor Entity") duly organized and validly existing under the
laws of the United States of America, any state thereof or the
District of Columbia and such Person expressly assumes, by a
supplemental indenture, in a form satisfactory to the Trustee, all
the obligations of such Guarantor under its Guarantee of the
Securities and this Indenture and the Registration Rights Agreement
and such Guarantee, Indenture and Registration Rights Agreement will
remain in full force and effect;
(ii) immediately before and immediately after giving effect to
such transaction, on a pro forma basis, no Default or Event of
Default will have occurred and be continuing; and
(iii) at the time of the transaction such Guarantor or the
Surviving Guarantor Entity will have delivered, or caused to be
delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an Opinion
of Counsel, each to the effect that such consolidation, merger,
transfer, sale, assignment, conveyance, lease or other transaction
and the supplemental indenture in respect thereof comply with this
Indenture and that all conditions precedent therein provided for
relating to such transaction have been complied with.
(c) Notwithstanding the foregoing, the provisions of Section 801(b)
shall not apply to any Guarantor whose Guarantee of the Notes is unconditionally
released and discharged in accordance with paragraph (b) under Section 1013.
Section 802. Successor Substituted.
Upon any consolidation or merger, or any sale, assignment,
conveyance, transfer, lease or disposition of all or substantially all of the
properties and assets of the Company or any Guarantor, if any, in accordance
with Section 801, the successor Person formed by such consolidation or into
which the Company or such Guarantor, as the case may be, is merged or the
successor Person to which such sale, assignment, conveyance, transfer, lease or
disposition is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company or such Guarantor, as the case may be,
under this Indenture, the Securities and/or the related Guarantee, as the case
may be, with the same effect as if such successor had been named as the Company
or such Guarantor, as the case may be, herein, in the Securities and/or in the
Guarantee, as the case may be, and the Company or such Guarantor, as the case
may be, shall be discharged from all obligations and covenants under this
Indenture and the Securities or its Guarantee, as the
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case may be; provided that in the case of a transfer by lease or a sale of
substantially all of the assets of the Company or a Guarantor that results in
the sale, assignment, conveyance, transfer or other disposition of assets
constituting or accounting for less than 95% of the consolidated assets ,
revenues or Consolidated Net Income (Loss) of the Company or such Guarantor, as
the case may be, the predecessor shall not be released from the payment of
principal and interest on the Securities or its Guarantee, as the case may be.
ARTICLE NINE
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures and Agreements without Consent of
Holders.
Without the consent of any Holders, the Company, the Guarantors, if
any, and any other obligor under the Securities when authorized by a Board
Resolution, and the Trustee, at any time and from time to time, may enter into
one or more indentures supplemental hereto or agreements or other instruments
with respect to this Indenture, the Securities or any Guarantee, in form and
substance satisfactory to the Trustee, for any of the following purposes:
(a) to evidence the succession of another Person to the Company or a
Guarantor or any other obligor upon the Securities, and the assumption by any
such successor of the covenants of the Company or such Guarantor or obligor
herein and in the Securities and in any Guarantee in accordance with Article
Eight;
(b) to add to the covenants of the Company, any Guarantor or any
other obligor upon the Securities for the benefit of the Holders, or to
surrender any right or power conferred upon the Company or any Guarantor or any
other obligor upon the Securities, as applicable, herein, in the Securities or
in any Guarantee;
(c) to cure any ambiguity, or to correct or supplement any provision
herein or in any supplemental indenture, the Securities or any Guarantee which
may be defective or inconsistent with any other provision herein or in the
Securities or any Guarantee or to make any other provisions with respect to
matters or questions arising under this Indenture, the Securities or the
Guarantees; provided that, in each case, such provisions shall not adversely
affect the interest of the Holders;
(d) to comply with the requirements of the Commission in order to
effect or maintain the qualification of this Indenture under the Trust Indenture
Act, as contemplated by Section 905 or otherwise;
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(e) to add a Guarantor pursuant to the requirements of Section 1013
hereof or otherwise;
(f) to evidence and provide the acceptance of the appointment of a
successor trustee hereunder; or
(g) to mortgage, pledge, hypothecate or grant a security interest in
favor of the Trustee for the benefit of the Holders as additional security for
the payment and performance of the Company's or any Guarantor's Indenture
Obligations, in any property, or assets, including any of which are required to
be mortgaged, pledged or hypothecated, or in which a security interest is
required to be granted to the Trustee pursuant to this Indenture or otherwise.
Section 902. Supplemental Indentures and Agreements with Consent of
Holders.
Except as permitted by Section 901, with the consent of the Holders
of at least a majority in aggregate principal amount of the Outstanding
Securities, by Act of said Holders delivered to the Company, each Guarantor, if
any, and the Trustee, the Company and each Guarantor (if a party thereto) when
authorized by Board Resolutions, and the Trustee may (i) enter into an indenture
or indentures supplemental hereto or agreements or other instruments with
respect to any Guarantee in form and substance satisfactory to the Trustee, for
the purpose of adding any provisions to or amending, modifying or changing in
any manner or eliminating any of the provisions of this Indenture, the
Securities or any Guarantee (including but not limited to, for the purpose of
modifying in any manner the rights of the Holders under this Indenture, the
Securities or any Guarantee) or (ii) waive compliance with any provision in this
Indenture, the Securities or any Guarantee (other than waivers of past Defaults
covered by Section 513 and waivers of covenants which are covered by Section
1021); provided, however, that no such supplemental indenture, agreement or
instrument shall, without the consent of the Holder of each Outstanding Security
affected thereby:
(a) change the Stated Maturity of the principal of, or any
installment of interest on, or change to an earlier date any Redemption Date of,
or waive a default in the payment of the principal of, premium, if any, or
interest on, any such Security or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption thereof, or
change the coin or currency in which the principal of any Security or any
premium or the interest thereon is payable, or impair the right to institute
suit for the enforcement of any such payment on or after the Stated Maturity
thereof (or, in the case of redemption, on or after the Redemption Date);
(b) amend, change or modify the obligation of the Company to make
and consummate an Offer with respect to any Asset Sale or Asset Sales in
accordance with Section 1012 or the obligation of the Company to make and
consummate a Change
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of Control Offer in the event of a Change of Control in accordance with Section
1014, including, in each case, amending, changing or modifying any definitions
relating thereto but only to the extent such definitions relate thereto;
(c) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such supplemental
indenture, or the consent of whose Holders is required for any waiver or
compliance with certain provisions of this Indenture;
(d) modify any of the provisions of this Section 902 or Section 513
or 1022, except to increase the percentage of such Outstanding Securities
required for any such actions or to provide that certain other provisions of
this Indenture cannot be modified or waived without the consent of the Holder of
each such Security affected thereby;
(e) except as otherwise permitted under Article Eight, consent to
the assignment or transfer by the Company or any Guarantor of any of its rights
and obligations hereunder; or
(f) amend or modify any of the provisions of this Indenture in any
manner which subordinates the Securities issued hereunder in right of payment to
any other Indebtedness of the Company or which subordinates any Guarantee in
right of payment to any other Indebtedness of the Guarantor issuing such
Guarantee.
Upon the written request of the Company and each Guarantor, if any,
accompanied by a copy of Board Resolutions authorizing the execution of any such
supplemental indenture or Guarantee, and upon the filing with the Trustee of
evidence of the consent of Holders as aforesaid, the Trustee shall join with the
Company and each Guarantor in the execution of such supplemental indenture or
Guarantee.
It shall not be necessary for any Act of Holders under this Section
902 to approve the particular form of any proposed supplemental indenture or
Guarantee or agreement or instrument relating to any Guarantee, but it shall be
sufficient if such Act shall approve the substance thereof.
Section 903. Execution of Supplemental Indentures and Agreements.
In executing, or accepting the additional trusts created by, any
supplemental indenture, agreement, instrument or waiver permitted by this
Article Nine or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and (subject to Trust
Indenture Act Sections 315(a) through 315(d) and Section 603(a) hereof) shall be
fully protected in relying upon, an Opinion of Counsel and an Officers'
Certificate stating that the execution of such supplemental indenture, agreement
or instrument (a) is authorized or permitted by this Indenture and (b) does not
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violate the provisions of any agreement or instrument evidencing any other
Indebtedness of the Company, any Guarantor or any other Restricted Subsidiary.
The Trustee may, but shall not be obligated to, enter into any such supplemental
indenture, agreement or instrument which affects the Trustee's own rights,
duties or immunities under this Indenture, any Guarantee or otherwise.
Section 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
Section 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article Nine
shall conform to the requirements of the Trust Indenture Act as then in effect.
Section 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article Nine may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Board of Directors, to any such supplemental indenture may be prepared and
executed by the Company and each Guarantor and authenticated and delivered by
the Trustee in exchange for Outstanding Securities.
Section 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company, any Guarantor and the
Trustee of any supplemental indenture pursuant to the provisions of Section 902,
the Company shall give notice thereof to the Holders of each Outstanding
Security affected, in the manner provided for in Section 106, setting forth in
general terms the substance of such supplemental indenture. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
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ARTICLE TEN
COVENANTS
Section 1001. Payment of Principal, Premium and Interest.
The Company shall duly and punctually pay the principal of, premium,
if any, and interest on the Securities in accordance with the terms of the
Securities and this Indenture.
Section 1002. Maintenance of Office or Agency.
The Company shall maintain an office or agency where Securities may
be presented or surrendered for payment. The Company also will maintain in The
City of New York an office or agency where Securities may be surrendered for
registration of transfer, redemption or exchange and where notices and demands
to or upon the Company in respect of the Securities and this Indenture may be
served. The office of the Trustee, at its Corporate Trust Office initially
located at 100 Wall Street, 20th Floor, New York, New York 10005, will be such
office or agency of the Company, unless the Company shall designate and maintain
some other office or agency for one or more of such purposes. The Company will
give prompt written notice to the Trustee of the location and any change in the
location of any such offices or agencies. If at any time the Company shall fail
to maintain any such required offices or agencies or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the office of the Trustee and the Company
hereby appoints the Trustee such agent as its agent to receive all such
presentations, surrenders, notices and demands.
The Company may from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes, and may from time
to time rescind such designation. The Company will give prompt written notice to
the Trustee of any such designation or rescission and any change in the location
of any such office or agency.
The Trustee shall initially act as Paying Agent for the Securities.
Section 1003. Money for Security Payments to Be Held in Trust.
If the Company or any of its Affiliates shall at any time act as
Paying Agent, it will, on or before each due date of the principal of, premium,
if any, or interest on any of the Securities, segregate and hold in trust for
the benefit of the Holders entitled thereto a sum sufficient to pay the
principal, premium, if any, or interest so becoming due until such sums shall be
paid to such Persons or otherwise disposed of as herein provided, and will
promptly notify the Trustee of its action or failure so to act.
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If the Company or any of its Affiliates is not acting as Paying
Agent, the Company will, on or before each due date of the principal of,
premium, if any, or interest on any of the Securities, deposit with a Paying
Agent a sum in same day funds sufficient to pay the principal, premium, if any,
or interest so becoming due, such sum to be held in trust for the benefit of the
Persons entitled to such principal, premium or interest, and (unless such Paying
Agent is the Trustee) the Company will promptly notify the Trustee of such
action or any failure so to act.
If the Company is not acting as Paying Agent, the Company will cause
each Paying Agent other than the Trustee to execute and deliver to the Trustee
an instrument in which such Paying Agent shall agree with the Trustee, subject
to the provisions of this Section, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal of,
premium, if any, or interest on the Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(b) give the Trustee notice of any Default by the Company or any
Guarantor (or any other obligor upon the Securities) in the making of any
payment of principal, premium, if any, or interest on the Securities;
(c) at any time during the continuance of any such Default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held in
trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all aspects with the
provisions of this Indenture relating to the duties, rights and liabilities of
such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then
held by the Company, in trust for the payment of the principal of, premium, if
any, or interest on any Security and remaining unclaimed for two years after
such principal and premium, if any, or interest has become due and payable shall
promptly be paid to the Company on Company Request, or (if then held by the
Company) shall be discharged from such trust; and the Holder of such Security
shall thereafter, as an unsecured general creditor, look
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only to the Company for payment thereof, and all liability of the Trustee or
such Paying Agent with respect to such trust money, and all liability of the
Company as trustee thereof, shall thereupon cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
may at the expense of the Company cause to be published once, in the New York
Times and The Wall Street Journal (national edition), and mail to each such
Holder, notice that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
notification, publication and mailing, any unclaimed balance of such money then
remaining will promptly be repaid to the Company.
Section 1004. Corporate Existence.
Subject to Article Eight, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect the corporate
existence and related rights and franchises (charter and statutory) of the
Company and each Restricted Subsidiary; provided, however, that the Company
shall not be required to preserve any such right or franchise or the corporate
existence of any such Restricted Subsidiary if the Board of Directors of the
Company shall determine that the preservation thereof is no longer necessary or
desirable in the conduct of the business of the Company and its Restricted
Subsidiaries as a whole; and provided, further, however, that the foregoing
shall not prohibit a sale, transfer or conveyance of a Restricted Subsidiary or
any of its assets in compliance with the terms of this Indenture.
Section 1005. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, on or before the date the same shall become due and payable, (a) all
taxes, assessments and governmental charges levied or imposed upon the Company
or any of its Restricted Subsidiaries shown to be due on any return of the
Company or any of its Restricted Subsidiaries or otherwise assessed or upon the
income, profits or property of the Company or any of its Restricted Subsidiaries
if failure to pay or discharge the same could reasonably be expected to have a
material adverse effect on the ability of the Company or any Guarantor to
perform its obligations hereunder and (b) all lawful claims for labor, materials
and supplies, which, if unpaid, would by law become a Lien upon the property of
the Company or any of its Restricted Subsidiaries, except for any Lien permitted
to be incurred under Section 1011, if failure to pay or discharge the same could
reasonably be expected to have a material adverse effect on the ability of the
Company or any Guarantor to perform its obligations hereunder; provided,
however, that the Company shall not be required to pay or discharge or cause to
be paid or discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings properly instituted and diligently conducted and in respect of which
appropriate reserves (in the good faith judgment of management of the Company)
are being maintained in accordance with GAAP.
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Section 1006. Maintenance of Properties.
The Company shall cause all material properties owned by the Company
or any of its Restricted Subsidiaries or used or held for use in the conduct of
its business or the business of any of its Restricted Subsidiaries to be
maintained and kept in good condition, repair and working order (ordinary wear
and tear excepted) and supplied with all necessary equipment and will cause to
be made all necessary repairs, renewals, replacements, betterments and
improvements thereof, all as in the reasonable judgment of the Company may be
consistent with sound business practice and necessary so that the business
carried on in connection therewith may be properly conducted at all times;
provided, however, that nothing in this Section shall prevent the Company from
discontinuing the maintenance of any of such properties if such discontinuance
is, in the reasonable judgment of the Company, desirable in the conduct of its
business or the business of any of its Restricted Subsidiaries; and provided,
further, however, that the foregoing shall not prohibit a sale, transfer or
conveyance of a Restricted Subsidiary or any of its properties or assets in
compliance with the terms of this Indenture.
Section 1007. Maintenance of Insurance.
The Company shall at all times keep all of its and its Restricted
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company in good faith to be financially sound and responsible,
against loss or damage to the extent that property of similar character is
usually so insured by corporations similarly situated and owning like properties
in the same general geographic areas in which the Company and its Restricted
Subsidiaries operate, except where the failure to do so could not reasonably be
expected to have a material adverse effect on the condition (financial or
otherwise), earnings, business affairs or prospects of the Company and its
Restricted Subsidiaries, taken as a whole.
Section 1008. Limitation on Indebtedness.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, create, issue, incur, assume, guarantee or otherwise
in any manner become directly or indirectly liable for the payment of or
otherwise incur, contingently or otherwise (collectively, "incur"), any
Indebtedness (including any Acquired Indebtedness), unless such Indebtedness is
incurred by the Company or any Guarantor or constitutes Acquired Indebtedness of
a Restricted Subsidiary and, in each case, the Company's Consolidated Fixed
Charge Coverage Ratio for the most recent four full fiscal quarters for which
financial statements are available immediately preceding the incurrence of such
Indebtedness taken as one period is at least equal to or greater than 2.0:1.
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Notwithstanding the foregoing, the Company and, to the extent
specifically set forth below, the Restricted Subsidiaries may incur each and all
of the following (collectively, the "Permitted Indebtedness"):
(i) Indebtedness of the Company and the Guarantors under the
Revolving Facility (including any refinancing (as defined below) thereof) in an
aggregate principal amount at any one time outstanding not to exceed the greater
of (a) $75 million or (b) 20% of the Company's Consolidated Tangible Assets, in
any case under the Revolving Facility (including any refinancing thereof) or in
respect of letters of credit thereunder;
(ii) Indebtedness of the Company and the Guarantors under any
Inventory Facility.
(iii) Indebtedness of the Company pursuant to the Securities and
Indebtedness of any Guarantor pursuant to a Guarantee of the Securities;
(iv) Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date and listed on Schedule I hereto and not otherwise
referred to in this definition of Permitted Indebtedness;
(v) Indebtedness of the Company owing to a Restricted Subsidiary;
provided that any Indebtedness of the Company owing to a Restricted Subsidiary
that is not a Guarantor is made pursuant to an intercompany note in the form
attached as Annex A to this Indenture and is unsecured and subordinated in right
of payment from and after such time as the Securities shall become due and
payable (whether at Stated Maturity, acceleration or otherwise) to the payment
and performance of the Company's obligations under the Securities; provided,
further, that any disposition, pledge or transfer of any such Indebtedness to a
Person (other than a disposition, pledge or transfer to a Restricted Subsidiary)
shall be deemed to be an incurrence of such Indebtedness by the Company or other
obligor not permitted by this clause (v);
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary owing to
the Company or another Wholly Owned Restricted Subsidiary; provided that any
such Indebtedness is made pursuant to an intercompany note in the form attached
as Annex A to this Indenture; provided, further, that (a) any disposition,
pledge or transfer of any such Indebtedness to a Person (other than a
disposition, pledge or transfer to the Company or a Wholly Owned Restricted
Subsidiary) shall be deemed to be an incurrence of such Indebtedness by the
obligor not permitted by this clause (vi), and (b) any transaction pursuant to
which any Wholly Owned Restricted Subsidiary, which has Indebtedness owing to
the Company or any other Wholly Owned Restricted Subsidiary, ceases to be a
Wholly Owned Restricted Subsidiary shall be deemed to be the incurrence of
Indebtedness by such Wholly Owned Restricted Subsidiary that is not permitted by
this clause (vi);
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(vii) guarantees of any Restricted Subsidiary made in accordance
with the provisions of Section 1013;
(viii)obligations of the Company or any Guarantor entered into in
the ordinary course of business (a) pursuant to Interest Rate Agreements
designed to protect the Company or any Restricted Subsidiary against
fluctuations in interest rates in respect of Indebtedness of the Company or any
Restricted Subsidiary as long as such obligations do not exceed the aggregate
principal amount of such Indebtedness then outstanding, (b) under any Currency
Hedging Agreements, relating to (i) Indebtedness of the Company or any
Restricted Subsidiary and/or (ii) obligations to purchase or sell assets or
properties, in each case, incurred in the ordinary course of business of the
Company or any Restricted Subsidiary; provided, however, that such Currency
Hedging Agreements do not increase the Indebtedness or other obligations of the
Company or any Restricted Subsidiary outstanding other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder or (c) under any Commodity Price
Protection Agreements which do not increase the amount of Indebtedness or other
obligations of the Company or any Restricted Subsidiary outstanding other than
as a result of fluctuations in commodity prices or by reason of fees,
indemnities and compensation payable thereunder;
(ix) Indebtedness of the Company or any Restricted Subsidiary
represented by Capital Lease Obligations or Purchase Money Obligations or other
Indebtedness incurred or assumed in connection with the acquisition or
development of real or personal, movable or immovable, property in each case
incurred for the purpose of financing or refinancing all or any part of the
purchase price or cost of construction or improvement of property used in the
business of the Company, in an aggregate principal amount pursuant to this
clause (ix) not to exceed $20 million outstanding at any time; provided that the
principal amount of any Indebtedness permitted under this clause (ix) did not in
each case at the time of incurrence exceed the Fair Market Value, as determined
by the Board of Directors of the Company in good faith, of the acquired or
constructed asset or improvement so financed;
(x) obligations arising from agreements by the Company or a
Restricted Subsidiary to provide for indemnification, customary purchase price
closing adjustments, earn-outs or other similar obligations, in each case,
incurred in connection with the acquisition or disposition of any business or
assets of a Restricted Subsidiary;
(xi) Indebtedness evidenced by letters of credit in the ordinary
course of business to support the Company's or any Restricted Subsidiary's
insurance or self-insurance obligations for workers' compensation and other
similar insurance coverages;
(xii) any renewals, extensions, substitutions, refundings,
refinancings or replacements (collectively, a "refinancing") of any Indebtedness
described in clauses (iii)
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and (iv) of this definition of "Permitted Indebtedness," including any
successive refinancings so long as the borrower under such refinancing is the
Company or, if not the Company, the same as the borrower of the Indebtedness
being refinanced and the aggregate principal amount of Indebtedness represented
thereby (or if such Indebtedness provides for an amount less than the principal
amount thereof to be due and payable upon a declaration of acceleration of the
maturity thereof, the original issue price of such Indebtedness plus any
accreted value attributable thereto since the original issuance of such
Indebtedness) does not exceed the initial principal amount of such Indebtedness
plus the lesser of (I) the stated amount of any premium or other payment
required to be paid in connection with such a refinancing pursuant to the terms
of the Indebtedness being refinanced or (II) the amount of premium or other
payment actually paid at such time to refinance the Indebtedness, plus, in
either case, the amount of expenses of the Company incurred in connection with
such refinancing and (A) in the case of any refinancing of Indebtedness that is
Subordinated Indebtedness, such new Indebtedness is made subordinated to the
Securities at least to the same extent as the Indebtedness being refinanced and
(B) in the case of Pari Passu Indebtedness or Subordinated Indebtedness, as the
case may be, such refinancing does not reduce the Average Life to Stated
Maturity or the Stated Maturity of such Indebtedness; and
(xiii)Indebtedness of the Company and its Restricted Subsidiaries or
any Guarantor in addition to that described in clauses (i) through (xii) above,
and any renewals, extensions, substitutions, refinancings or replacements of
such Indebtedness, so long as the aggregate principal amount of all such
Indebtedness shall not exceed $10 million outstanding at any one time in the
aggregate.
For purposes of determining compliance with this Section 1008, in
the event that an item of Indebtedness meets the criteria of more than one of
the types of Indebtedness permitted by this Section 1008, the Company in its
sole discretion shall classify such item of Indebtedness and only be required to
include the amount of such Indebtedness as one of such types.
Section 1009. Limitation on Restricted Payments.
(a) The Company will not, and will not cause or permit any Restricted
Subsidiary to, directly or indirectly:
(i) declare or pay any dividend on, or make any distribution to
holders of, any shares of the Company's Capital Stock (other
than dividends or distributions payable solely in shares of
its Qualified Capital Stock or in options, warrants or other
rights to acquire shares of such Qualified Capital Stock);
(ii) purchase, redeem, defease or otherwise acquire or retire for
value, directly or indirectly, the Company's Capital Stock or
any Capital
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Stock of any Affiliate of the Company, including any
Subsidiary of the Company (other than Capital Stock of any
Wholly Owned Restricted Subsidiary of the Company), or
options, warrants or other rights to acquire such Capital
Stock;
(iii) make any principal payment on, or repurchase, redeem, defease,
retire or otherwise acquire for value, prior to any scheduled
principal payment, sinking fund payment or maturity, any
Subordinated Indebtedness;
(iv) declare or pay any dividend or distribution on any Capital
Stock of any Restricted Subsidiary to any Person (other than
(a) to the Company or any of its Wholly Owned Restricted
Subsidiaries or (b) dividends and distributions made by a
Restricted Subsidiary (i) organized as a partnership, limited
liability company or similar pass-through entity to the
holders of its Capital Stock in amounts sufficient to satisfy
the tax liabilities arising from their ownership of such
Capital Stock or (ii) on a pro rata basis to all stockholders
of such Restricted Subsidiary); or
(v) make any Investment in any Person (other than any Permitted
Investments)
(any of the foregoing actions described in clauses (i) through (v), other than
any such action that is a Permitted Payment (as defined below), collectively,
"Restricted Payments") (the amount of any such Restricted Payment, if other than
cash, shall be the Fair Market Value of the assets proposed to be transferred,
as determined by the board of directors of the Company, whose determination
shall be conclusive and evidenced by a board resolution), unless (1) immediately
before and immediately after giving effect to such proposed Restricted Payment
on a pro forma basis, no Default or Event of Default shall have occurred and be
continuing and such Restricted Payment shall not be an event which is, or after
notice or lapse of time or both, would be, an "event of default" under the terms
of any Indebtedness of the Company or its Restricted Subsidiaries; (2)
immediately before and immediately after giving effect to such Restricted
Payment on a pro forma basis, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under Section 1008 herein; and
(3) after giving effect to the proposed Restricted Payment, the aggregate amount
of all such Restricted Payments declared or made after the Issue Date and all
Designation Amounts does not exceed the sum of:
(A) $5 million;
(B) 50% of the aggregate Consolidated Net Income of the Company accrued
on a cumulative basis during the period beginning on the first day
of the
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Company's fiscal quarter in which the Issue Date occurs and ending
on the last day of the Company's last fiscal quarter in which the
Issue Date occurs ending prior to the date of the Restricted Payment
(or, if such aggregate cumulative Consolidated Net Income shall be a
loss, minus 100% of such loss);
(C) the aggregate Net Cash Proceeds received after the Issue Date by the
Company either (x) as capital contributions in the form of common
equity to the Company or (y) from the issuance or sale (other than
to any of its Subsidiaries) of Qualified Capital Stock of the
Company or any options, warrants or rights to purchase such
Qualified Capital Stock of the Company (except, in each case, to the
extent such proceeds are used to purchase, redeem or otherwise
retire Capital Stock or Subordinated Indebtedness as set forth below
in clause (ii) or (iii) of paragraph (b) below) (and excluding the
Net Cash Proceeds from the issuance of Qualified Capital Stock
financed, directly or indirectly, using funds borrowed from the
Company or any Subsidiary until and to the extent such borrowing is
repaid);
(D) the aggregate Net Cash Proceeds received after the Issue Date by the
Company (other than from any of its Subsidiaries) upon the exercise
of any options, warrants or rights to purchase Qualified Capital
Stock of the Company (and excluding the Net Cash Proceeds from the
exercise of any options, warrants or rights to purchase Qualified
Capital Stock financed, directly or indirectly, using funds borrowed
from the Company or any Subsidiary until and to the extent such
borrowing is repaid);
(E) the aggregate Net Cash Proceeds received after the Issue Date by the
Company from the conversion or exchange, if any, of debt securities
or Redeemable Capital Stock of the Company or its Restricted
Subsidiaries into or for Qualified Capital Stock of the Company
plus, to the extent such debt securities or Redeemable Capital Stock
were issued after the Issue Date, upon the conversion or exchange of
such debt securities or Redeemable Capital Stock the aggregate of
Net Cash Proceeds from their original issuance (and excluding the
Net Cash Proceeds from the conversion or exchange of debt securities
or Redeemable Capital Stock financed, directly or indirectly, using
funds borrowed from the Company or any Subsidiary until and to the
extent such borrowing is repaid); and
(F) (a) in the case of the disposition or repayment of any Investment
constituting a Restricted Payment made after the Issue Date, an
amount (to the extent not included in Consolidated Net Income) equal
to the lesser of the return of capital with respect to such
Investment and the initial amount of such Investment, in either
case, less the cost of the disposition of such
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Investment and net of taxes, and (b) in the case of the designation
of an Unrestricted Subsidiary as a Restricted Subsidiary (as long as
the designation of such Subsidiary as an Unrestricted Subsidiary was
deemed a Restricted Payment), the Fair Market Value of the Company's
interest in such Subsidiary provided that such amount shall not in
any case exceed the amount of the Restricted Payment deemed made at
the time the Subsidiary was designated as an Unrestricted
Subsidiary.
(b) Notwithstanding the foregoing, and in the case of clauses (ii) through
(iv) below, so long as no Default or Event of Default is continuing or would
arise therefrom, the foregoing provisions shall not prohibit the following
actions (each of clauses (i) through (iv) and (viii) being referred to as a
"Permitted Payment"):
(i) the payment of any dividend within 60 days after the
date of declaration thereof, if at such date of
declaration such payment was permitted by the provisions
of paragraph (a) of this Section and such payment shall
have been deemed to have been paid on such date of
declaration and shall not have been deemed a "Permitted
Payment" for purposes of the calculation required by
paragraph (a) of this Section 1009;
(ii) the repurchase, redemption, or other acquisition or
retirement for value of any shares of any class of
Capital Stock of the Company in exchange for (including
any such exchange pursuant to the exercise of a
conversion right or privilege in connection with which
cash is paid in lieu of the issuance of fractional
shares or scrip), or out of the Net Cash Proceeds of a
substantially concurrent issuance and sale for cash
(other than to a Subsidiary) of, other shares of
Qualified Capital Stock of the Company; provided that
the Net Cash Proceeds from the issuance of such shares
of Qualified Capital Stock are excluded from clause
(3)(C) of paragraph (a) of this Section 1009;
(iii) the repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal of any
Subordinated Indebtedness or Redeemable Capital Stock in
exchange for, or in an amount not in excess of the Net
Cash Proceeds of, a substantially concurrent issuance
and sale for cash (other than to any Subsidiary of the
Company) of any Qualified Capital Stock of the Company,
provided that the Net Cash Proceeds from the issuance of
such shares of
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Qualified Capital Stock are excluded from clause (3)(C)
of paragraph (a) of this Section 1009;
(iv) the repurchase, redemption, defeasance, retirement,
refinancing, acquisition for value or payment of
principal of any Subordinated Indebtedness (other than
Redeemable Capital Stock) (a "refinancing") through the
substantially concurrent issuance of new Subordinated
Indebtedness of the Company, provided that any such new
Subordinated Indebtedness (1) shall be in a principal
amount that does not exceed the principal amount so
refinanced (or, if such Subordinated Indebtedness
provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of
acceleration thereof, then such lesser amount as of the
date of determination), plus the lesser of (I) the
stated amount of any premium or other payment required
to be paid in connection with such a refinancing
pursuant to the terms of the Indebtedness being
refinanced or (II) the amount of premium or other
payment actually paid at such time to refinance the
Indebtedness, plus, in either case, the amount of
expenses of the Company incurred in connection with such
refinancing; (2) has an Average Life to Stated Maturity
greater than the remaining Average Life to Stated
Maturity of the Securities; (3) has a Stated Maturity
for its final scheduled principal payment later than the
Stated Maturity for the final scheduled principal
payment of the Securities; and (4) is expressly
subordinated in right of payment to the Securities at
least to the same extent as the Subordinated
Indebtedness to be refinanced;
(v) the purchase, redemption, or other acquisition or
retirement for value of any class of Capital Stock of
the Company from employees, former employees, directors
or former directors of the Company or any Subsidiary
pursuant to the terms of the agreements to which such
Capital Stock was acquired in an amount not to exceed
$1.0 million in the aggregate in any calendar year;
(vi) the repurchase, redemption or other acquisition or
retirement for value of Capital Stock of the Company
issued pursuant to acquisitions by the Company to the
extent required by or needed to comply with the
requirements of any of the
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Manufacturers with which the Company or a Restricted
Subsidiary is a party to a franchise agreement;
(vii) the repurchase, redemption, defeasance, retirement or
acquisition for value or payment of principal on the
Smith Subordinated Loan; and
(viii) the payment of the contingent purchase price of an
acquisition to the extent such payment would be deemed a
Restricted Payment.
Section 1010. Limitation on Transactions with Affiliates.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, enter into any transaction
or series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) with or for the
benefit of any Affiliate of the Company (other than the Company or a Wholly
Owned Restricted Subsidiary) unless such transaction or series of related
transactions is entered into in good faith and in writing and (a) such
transaction or series of related transactions is on terms that are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that would be available in a comparable transaction in arm's-length
dealings with an unrelated third party, (b) with respect to any transaction or
series of related transactions involving aggregate value in excess of $500,000,
the Company delivers an Officers' Certificate to the Trustee certifying that
such transaction or series of related transactions complies with clause (a)
above or such transaction or series of related transactions is approved by a
majority of the Disinterested Directors of the Board of Directors, or in the
event there is only one Disinterested Director, by such Disinterested Director,
and (c) with respect to any transaction or series of related transactions
involving aggregate value in excess of $1 million, either (A) such transaction
or series of related transactions has been approved by a majority of the
Disinterested Directors of the Company, or in the event there is only one
Disinterested Director, by such Disinterested Director, or (B) the Company
delivers to the Trustee a written opinion of an investment banking firm of
national standing or other recognized independent expert with experience
appraising the terms and conditions of the type of transaction or series of
related transactions for which an opinion is required stating that the
transactions or series of related transactions is fair to the Company or such
Restricted Subsidiary from a financial point of view; provided, however, that
this provision shall not apply to (i) compensation and employee benefit
arrangements with any officer or director of the Company, including under any
stock option or stock incentive plans, entered into in the ordinary course of
business; (ii) any transaction permitted as a Restricted Payment pursuant to
Section 1009; (iii) the payment of customary fees to directors of the Company
and its Restricted Subsidiaries; (iv) any transaction with any officer or member
of the Board of Directors of the Company
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involving indemnification arrangements; and (v) loans or advances to officers of
the Company in the ordinary course of business not to exceed $1 million in any
calendar year.
Section 1011. Limitation on Liens.
The Company will not, and will not cause or permit any Restricted
Subsidiary to, directly or indirectly, create, incur or affirm any Lien of any
kind securing any Pari Passu Indebtedness or Subordinated Indebtedness
(including any assumption, guarantee or other liability with respect thereto by
any Restricted Subsidiary) upon any property or assets (including any
intercompany notes) of the Company or any Restricted Subsidiary owned on the
Issue Date or acquired after the Issue Date, or assign or convey any right to
receive any income or profits therefrom, unless the Securities or a Guarantee in
the case of Liens of a Guarantor are directly secured equally and ratably with
(or, in the case of Subordinated Indebtedness, prior or senior thereto, with the
same relative priority as the Securities shall have with respect to such
Subordinated Indebtedness) the obligation or liability secured by such Lien
except for Liens (A) securing any Indebtedness which became Indebtedness
pursuant to a transaction permitted under Article Eight or securing Acquired
Indebtedness which was created prior to (and not created in connection with, or
in contemplation of) the incurrence of such Pari Passu Indebtedness or
Subordinated Indebtedness (including any assumption, guarantee or other
liability with respect thereto by any Restricted Subsidiary) and which
Indebtedness is permitted under the provisions of Section 1008 or (B) securing
any Indebtedness incurred in connection with any refinancing, renewal,
substitutions or replacements of any such Indebtedness described in clause (A),
so long as the aggregate principal amount of Indebtedness represented thereby
(or if such Indebtedness provides for an amount less than the principal amount
thereof to be due and payable upon a declaration of acceleration of the maturity
thereof, the original issue price of such Indebtedness plus any accreted value
attributable thereto since the original issuance of such Indebtedness) is not
increased by such refinancing by an amount greater than the lesser o (i) the
stated amount of any premium or other payment required to be paid in connection
with such a refinancing pursuant to the terms of the Indebtedness being
refinanced or (ii) the amount of premium or other payment actually paid at such
time to refinance the Indebtedness, plus, in either case, the amount of expenses
of the Company incurred in connection with such refinancing; provided, however,
that in the case of clauses (A) and (B), any such Lien only extends to the
assets that were subject to such Lien securing such Indebtedness prior to the
related acquisition by the Company or its Restricted Subsidiaries.
Notwithstanding the foregoing, any Lien securing the Securities granted pursuant
to this covenant shall be automatically and unconditionally released and
discharged upon the release by the holders of the Pari Passu Indebtedness or
Subordinated Indebtedness described above of their Lien on the property or
assets of the Company or any Restricted Subsidiary (including any deemed release
upon payment in full of all obligations under such Indebtedness), at such time
as the holders of all such Pari Passu Indebtedness or
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Subordinated Indebtedness also release their Lien on the property or assets of
the Company or such Restricted Subsidiary, or upon any sale, exchange or
transfer to any Person not an Affiliate of the Company of the property or assets
secured by such Lien, or of all of the Capital Stock held by the Company or any
Restricted Subsidiary in, or all or substantially all the assets of, any
Restricted Subsidiary creating such Lien.
Section 1012. Limitation on Sale of Assets.
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, consummate an Asset Sale unless (i) at
least 80% of the consideration from such Asset Sale consists of (A) cash or Cash
Equivalents, (B) the assumption of Senior Indebtedness or Senior Guarantor
Indebtedness by the party acquiring the assets from the Company of any
Restricted Subsidiary, (C) Replacement Assets or (D) a combination of any of the
foregoing; and (ii) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the shares or assets subject to such Asset Sale (as determined by the
Board of Directors of the Company and evidenced in a Board Resolution); provided
that any notes or other obligations received by the Company or any such
Restricted Subsidiary from any transferee of assets from the Company or such
Restricted Subsidiary that are converted by the Company or such Restricted
Subsidiary into cash at Fair Market Value within 30 days after receipt shall be
deemed to be cash for purposes of this provision.
(b) If all or a portion of the Net Cash Proceeds of any Asset Sale
are not required to be applied to repay permanently any Senior Indebtedness or
Senior Guarantor Indebtedness then outstanding as required by the terms thereof,
or the Company determines not to apply such Net Cash Proceeds to the permanent
prepayment of such Senior Indebtedness or Senior Guarantor Indebtedness, or if
no such Senior Indebtedness or Senior Guarantor Indebtedness is then
outstanding, then the Company or a Restricted Subsidiary may within 365 days of
the Asset Sale invest the Net Cash Proceeds in Replacement Assets. The amount of
such Net Cash Proceeds not used or invested within 365 days of the Asset Sale as
set forth in this paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $10 million
or more, the Company will apply the Excess Proceeds to the repayment of the
Securities and any other Pari Passu Indebtedness outstanding with similar
provisions requiring the Company to make an offer to purchase such Indebtedness
with the proceeds from any Asset Sale as follows: (A) the Company will make an
offer to purchase (an "Offer") from all holders of the Securities in accordance
with the procedures set forth in this Indenture in the maximum principal amount
(expressed as a multiple of $1,000) of Securities that may be purchased out of
an amount (the "Security Amount") equal to the product of such Excess Proceeds
multiplied by a fraction, the numerator of which is the outstanding principal
amount of the Securities, and the denominator of which is the sum of the
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outstanding principal amount of the Securities and such Pari Passu Indebtedness
(subject to proration in the event such amount is less than the aggregate
Offered Price (as defined herein) of all Securities tendered) and (B) to the
extent required by such Pari Passu Indebtedness to permanently reduce the
principal amount of such Pari Passu Indebtedness, the Company will make an offer
to purchase or otherwise repurchase or redeem Pari Passu Indebtedness (a "Pari
Passu Offer") in an amount (the "Pari Passu Debt Amount") equal to the excess of
the Excess Proceeds over the Security Amount; provided that in no event will the
Company be required to make a Pari Passu Offer in a Pari Passu Debt Amount
exceeding the principal amount of such Pari Passu Indebtedness plus the amount
of any premium required to be paid to repurchase such Pari Passu Indebtedness.
The offer price for the Securities will be payable in cash in an amount equal to
100% of the principal amount of the Securities plus accrued and unpaid interest,
if any, to the date (the "Offer Date") such Offer is consummated (the "Offered
Price"), in accordance with the procedures set forth herein. To the extent that
the aggregate Offered Price of the Securities tendered pursuant to the Offer is
less than the Security Amount relating thereto or the aggregate amount of Pari
Passu Indebtedness that is purchased in a Pari Passu Offer is less than the Pari
Passu Debt Amount, the Company may use any remaining Excess Proceeds for general
corporate purposes. If the aggregate principal amount of Securities and Pari
Passu Indebtedness surrendered by holders thereof exceeds the amount of Excess
Proceeds, the Trustee shall select the Securities to be purchased on a pro rata
basis. Upon the completion of the purchase of all the Securities tendered
pursuant to an Offer and the completion of a Pari Passu Offer, the amount of
Excess Proceeds, if any, shall be reset at zero.
(d) When the aggregate amount of Excess Proceeds exceeds $10
million, such Excess Proceeds will, prior to any purchase of Securities
described in paragraph (c) above, be set aside by the Company in a separate
account pending (i) deposit with the Depositary or a paying agent of the amount
required to purchase the Securities tendered in an Offer or Pari Passu
Indebtedness tendered in a Pari Passu Offer, (ii) delivery by the Company of the
Offered Price to the holders of the Securities tendered in an Offer or Pari
Passu Indebtedness tendered in a Pari Passu Offer and (iii) the completion of
the purchase of all the Securities tendered pursuant to the Offer and the
completion of the Pari Passu Offer. Such Excess Proceeds may be invested in
Temporary Cash Investments, provided that the maturity date of any such
investment made after the amount of Excess Proceeds exceeds $10 million shall
not be later than the Offer Date. The Company shall be entitled to any interest
or dividends accrued, earned or paid on such Temporary Cash Investments;
provided that the Company shall not withdraw such interest from the separate
account if an Event of Default has occurred and is continuing.
(e) If the Company becomes obligated to make an Offer pursuant to
clause (c) above, the Securities and the Pari Passu Indebtedness shall be
purchased by the Company, at the option of the holders thereof, in whole or in
part in integral multiples of $1,000, on a date that is not earlier than 30 days
and not later than 60 days from the date
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the notice of the Offer is given to holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange
Act.
(f) The Company will comply with the applicable tender offer rules,
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws or regulations in connection with an Offer.
(g) Subject to paragraph (e) above, within 30 days after the date on
which the amount of Excess Proceeds equals or exceeds $10 million, the Company
shall send or cause to be sent by first-class mail, postage prepaid, to the
Trustee and to each Holder, at his address appearing in the Security Register, a
notice stating or including:
(1) that the Holder has the right to require the Company to
repurchase, subject to proration, such Holder's Securities at the
Offered Price;
(2) the Offer Date;
(3) the instructions a Holder must follow in order to have his
Securities purchased in accordance with paragraph (c) of this
Section;
(4) (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the
Company, the most recent subsequently filed Quarterly Report on Form
10-Q, as applicable, and any Current Report on Form 8-K of the
Company filed subsequent to such Quarterly Report, other than
Current Reports describing Asset Sales otherwise described in the
offering materials (or corresponding successor reports) (or in the
event the Company is not required to prepare any of the foregoing
Forms, the comparable information required pursuant to Section
1020), (ii) a description of material developments, if any, in the
Company's business subsequent to the date of the latest of such
reports, (iii) if material, appropriate pro forma financial
information, and (iv) such other information, if any, concerning the
business of the Company which the Company in good faith believes
will enable such Holders to make an informed investment decision
regarding the Offer;
(5) the Offered Price;
(6) the names and addresses of the Paying Agent and the
offices or agencies referred to in Section 1002;
(7) that Securities must be surrendered prior to the Offer
Date to the Paying Agent at the office of the Paying Agent or to an
office or agency referred to in Section 1002 to collect payment;
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(8) that any Securities not tendered will continue to accrue
interest and that unless the Company defaults in the payment of the
Offered Price, any Security accepted for payment pursuant to the
Offer shall cease to accrue interest on and after the Offer Date;
(9) the procedures for withdrawing a tender; and
(10) that the Offered Price for any Security which has been
properly tendered and not withdrawn and which has been accepted for
payment pursuant to the Offer will be paid promptly following the
Offered Date.
(g) Holders electing to have Securities purchased hereunder will be
required to surrender such Securities at the address specified in the notice
prior to the Offer Date. Holders will be entitled to withdraw their election to
have their Securities purchased pursuant to this Section 1012 if the Company
receives, not later than one Business Day prior to the Offer Date, a telegram,
telex, facsimile transmission or letter setting forth (1) the name of the
Holder, (2) the certificate number of the Security in respect of which such
notice of withdrawal is being submitted, (3) the principal amount of the
Security (which shall be $1,000 or an integral multiple thereof) delivered for
purchase by the Holder as to which his election is to be withdrawn, (4) a
statement that such Holder is withdrawing his election to have such principal
amount of such Security purchased, and (5) the principal amount, if any, of such
Security (which shall be $1,000 or an integral multiple thereof) that remains
subject to the original notice of the Offer and that has been or will be
delivered for purchase by the Company.
(h) The Company shall (i) not later than the Offer Date, accept for
payment Securities or portions thereof tendered pursuant to the Offer, (ii) not
later than 10:00 a.m. (New York time) on the Offer Date, deposit with the
Trustee or with a Paying Agent an amount of money in same day funds (or New York
Clearing House funds if such deposit is made prior to the Offer Date) sufficient
to pay the aggregate Offered Price of all the Securities or portions thereof
which are to be purchased on that date and (iii) not later than 10:00 a.m. (New
York time) on the Offer Date, deliver to the Paying Agent an Officers'
Certificate stating the Securities or portions thereof accepted for payment by
the Company. The Paying Agent shall promptly mail or deliver to Holders of
Securities so accepted payment in an amount equal to the Offered Price of the
Securities purchased from each such Holder, and the Company shall execute and
the Trustee shall promptly authenticate and mail or deliver to such Holders a
new Security equal in principal amount to any unpurchased portion of the
Security surrendered. Any Securities not so accepted shall be promptly mailed or
delivered by the Paying Agent at the Company's expense to the Holder thereof.
For purposes of this Section 1012, the Company shall choose a Paying Agent which
shall not be the Company.
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Subject to applicable escheat laws, the Trustee and the Paying Agent
shall return to the Company any cash that remains unclaimed, together with
interest, if any, thereon, held by them for the payment of the Offered Price;
provided, however, that (x) to the extent that the aggregate amount of cash
deposited by the Company with the Trustee in respect of an Offer exceeds the
aggregate Offered Price of the Securities or portions thereof to be purchased,
then the Trustee shall hold such excess for the Company and (y) unless otherwise
directed by the Company in writing, promptly after the Business Day following
the Offer Date the Trustee shall return any such excess to the Company together
with interest or dividends, if any, thereon.
(i) Securities to be purchased shall, on the Offer Date, become due
and payable at the Offered Price and from and after such date (unless the
Company shall default in the payment of the Offered Price) such Securities shall
cease to bear interest. Such Offered Price shall be paid to such Holder promptly
following the later of the Offer Date and the time of delivery of such Security
to the relevant Paying Agent at the office of such Paying Agent by the Holder
thereof in the manner required. Upon surrender of any such Security for purchase
in accordance with the foregoing provisions, such Security shall be paid by the
Company at the Offered Price; provided, however, that installments of interest
whose Stated Maturity is on or prior to the Offer Date shall be payable to the
Person in whose name the Securities (or any Predecessor Securities) is
registered as such on the relevant Regular Record Dates according to the terms
and the provisions of Section 309; provided, further, that Securities to be
purchased are subject to proration in the event the Excess Proceeds are less
than the aggregate Offered Price of all Securities tendered for purchase, with
such adjustments as may be appropriate by the Trustee so that only Securities in
denominations of $1,000 or integral multiples thereof, shall be purchased. If
any Security tendered for purchase shall not be so paid upon surrender thereof
by deposit of funds with the Trustee or a Paying Agent in accordance with
paragraph (h) above, the principal thereof (and premium, if any, thereon) shall,
until paid, bear interest from the Offer Date at the rate borne by such
Security. Any Security that is to be purchased only in part shall be surrendered
to a Paying Agent at the office of such Paying Agent (with, if the Company, the
Security Registrar or the Trustee so requires, due endorsement by, or a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar or the Trustee duly executed by, the Holder thereof or such Holder's
attorney duly authorized in writing), and the Company shall execute and the
Trustee shall authenticate and deliver to the Holder of such Security, without
service charge, one or more new Securities of any authorized denomination as
requested by such Holder in an aggregate principal amount equal to, and in
exchange for, the portion of the principal amount of the Security so surrendered
that is not purchased. The Company shall publicly announce the results of the
Offer on or as soon as practicable after the Offer Date.
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Section 1013. Limitation on Issuances of Guarantees of and Pledges for
Indebtedness.
(a) The Company will not cause or permit any Restricted Subsidiary,
other than a Guarantor, directly or indirectly, to secure the payment of any
Senior Indebtedness of the Company and the Company will not, and will not permit
any Restricted Subsidiary to, pledge any intercompany notes representing
obligations of any Restricted Subsidiary (other than a Guarantor) to secure the
payment of any Senior Indebtedness unless in each case such Restricted
Subsidiary simultaneously executes and delivers a supplemental indenture to this
Indenture providing for a guarantee of payment of the Securities by such
Restricted Subsidiary, which guarantee shall be on the same terms as the
guarantee of the Senior Indebtedness (if a guarantee of Senior Indebtedness is
granted by any such Restricted Subsidiary) except that the guarantee of the
Securities need not be secured and shall be subordinated to the claims against
such Restricted Subsidiary in respect of Senior Indebtedness to the same extent
as the Securities are subordinated to Senior Indebtedness of the Company under
this Indenture.
(b) The Company will not cause or permit any Restricted Subsidiary
(which is not a Guarantor), directly or indirectly, to guarantee, assume or in
any other manner become liable with respect to any Indebtedness of the Company
or any Restricted Subsidiary unless such Restricted Subsidiary simultaneously
executes and delivers a supplemental indenture to this Indenture providing for a
Guarantee of the Securities on the same terms as the guarantee of such
Indebtedness except that (A) such guarantee need not be secured unless required
pursuant to Section 1011, (B) if such Indebtedness is by its terms Senior
Indebtedness, any such assumption, guarantee or other liability of such
Restricted Subsidiary with respect to such Indebtedness shall be senior to such
Restricted Subsidiary's Guarantee of the Securities to the same extent as such
Senior Indebtedness is senior to the Securities and (C) if such Indebtedness is
by its terms expressly subordinated to the Securities, any such assumption,
guarantee or other liability of such Restricted Subsidiary with respect to such
Indebtedness shall be subordinated to such Restricted Subsidiary's Guarantee of
the Securities at least to the same extent as such Indebtedness is subordinated
to the Securities.
(c) Notwithstanding the foregoing, any Guarantee by a Restricted
Subsidiary of the Securities shall provide by its terms that it (and all Liens
securing the same) shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's Capital Stock in, or all or
substantially all the assets of, such Restricted Subsidiary, which transaction
is in compliance with the terms of this Indenture and pursuant to which
transaction such Subsidiary is released from all guarantees, if any, by it of
other Indebtedness of the Company or any Restricted Subsidiaries or (ii) the
release by the holders of the Indebtedness of the Company of their security
interest or their guarantee by such Restricted Subsidiary (including any deemed
release upon payment in
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full of all obligations under such Indebtedness), at such time as (A) no other
Indebtedness of the Company has been secured or guaranteed by such Restricted
Subsidiary, as the case may be, or (B) the holders of all such other
Indebtedness which is secured or guaranteed by such Restricted Subsidiary also
release their security interest in or guarantee by such Restricted Subsidiary
(including any deemed release upon payment in full of all obligations under such
Indebtedness).
Section 1014. Purchase of Securities upon a Change of Control.
(a) If a Change of Control shall occur at any time, then each Holder
shall have the right to require that the Company purchase such Holder's
Securities in whole or in part in integral multiples of $1,000, at a purchase
price (the "Change of Control Purchase Price") in cash in an amount equal to
101% of the principal amount of such Securities, plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Purchase
Date"), pursuant to the offer described below in this Section 1014 (the "Change
of Control Offer") and in accordance with the other procedures set forth in
subsections (b), (c), (d) and (e) of this Section 1014.
(b) Within 30 days of any Change of Control, the Company shall
notify the Trustee thereof and give written notice (a "Change of Control
Purchase Notice") of such Change of Control to each Holder by first-class mail,
postage prepaid, at his address appearing in the Security Register, stating
among other things:
(1) that a Change of Control has occurred, the date of such
event, and that such Holder has the right to require the Company to
repurchase such Holder's Securities at the Change of Control
Purchase Price;
(2) the circumstances and relevant facts regarding such Change
of Control (including, but not limited to, information with respect
to pro forma historical income, cash flow and capitalization after
giving effect to such Change of Control);
(3) (i) the most recently filed Annual Report on Form 10-K
(including audited consolidated financial statements) of the
Company, the most recent subsequently filed Quarterly Report on Form
10-Q, as applicable, and any Current Report on Form 8-K of the
Company filed subsequent to such Quarterly Report (or in the event
the Company is not required to prepare any of the foregoing Forms,
the comparable information required to be prepared by the Company
and any Guarantor pursuant to Section 1020), (ii) a description of
material developments, if any, in the Company's business subsequent
to the date of the latest of such reports and (iii) such other
information, if any, concerning the business of the Company which
the Company in good faith believes will enable such Holders to
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make an informed investment decision regarding the Change of Control
Offer;
(4) that the Change of Control Offer is being made pursuant to
this Section 1014 and that all Securities properly tendered pursuant
to the Change of Control Offer will be accepted for payment at the
Change of Control Purchase Price;
(5) the Change of Control Purchase Date, which shall be a
Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed, or such later date as is necessary to
comply with requirements under the Exchange Act;
(6) the Change of Control Purchase Price;
(7) the names and addresses of the Paying Agent and the
offices or agencies referred to in Section 1002;
(8) that Securities must be surrendered on or prior to the
Change of Control Purchase Date to the Paying Agent at the office of
the Paying Agent or to an office or agency referred to in Section
1002 to collect payment;
(9) that the Change of Control Purchase Price for any Security
which has been properly tendered and not withdrawn will be paid
promptly following the Change of Control Offer Purchase Date;
(10) the procedures that a Holder must follow to accept a
Change of Control Offer or to withdraw such acceptance;
(11) that any Security not tendered will continue to accrue
interest; and
(12) that, unless the Company defaults in the payment of the
Change of Control Purchase Price, any Securities accepted for
payment pursuant to the Change of Control Offer shall cease to
accrue interest after the Change of Control Purchase Date.
(c) Upon receipt by the Company of the proper tender of Securities,
the Holder of the Security in respect of which such proper tender was made shall
(unless the tender of such Security is properly withdrawn) thereafter be
entitled to receive solely the Change of Control Purchase Price with respect to
such Security. Upon surrender of any such Security for purchase in accordance
with the foregoing provisions, such Security shall be paid by the Company at the
Change of Control Purchase Price; provided,
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however, that installments of interest whose Stated Maturity is on or prior to
the Change of Control Purchase Date shall be payable to the Holders of such
Securities, or one or more Predecessor Securities, registered as such on the
relevant Regular Record Dates according to the terms and the provisions of
Section 309. If any Security tendered for purchase in accordance with the
provisions of this Section 1015 shall not be so paid upon surrender thereof, the
principal thereof (and premium, if any, thereon) shall, until paid, bear
interest from the Change of Control Purchase Date at the rate borne by such
Security. Holders electing to have Securities purchased will be required to
surrender such Securities to the Paying Agent at the address specified in the
Change of Control Purchase Notice at least one Business Day prior to the Change
of Control Purchase Date. Any Security that is to be purchased only in part
shall be surrendered to a Paying Agent at the office of such Paying Agent (with,
if the Company, the Security Registrar or the Trustee so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company and the Security Registrar or the Trustee, as the case may be, duly
executed by, the Holder thereof or such Holder's attorney duly authorized in
writing), and the Company shall execute and the Trustee shall authenticate and
deliver to the Holder of such Security, without service charge, one or more new
Securities of any authorized denomination as requested by such Holder in an
aggregate principal amount equal to, and in exchange for, the portion of the
principal amount of the Security so surrendered that is not purchased.
(d) The Company shall (i) not later than the Change of Control
Purchase Date, accept for payment Securities or portions thereof tendered
pursuant to the Change of Control Offer, (ii) not later than 10:00 a.m. (New
York time) on the Change of Control Purchase Date, deposit with the Trustee or
with a Paying Agent an amount of money in same day funds sufficient to pay the
aggregate Change of Control Purchase Price of all the Securities or portions
thereof which are to be purchased as of the Change of Control Purchase Date and
(iii) not later than 10:00 a.m. (New York time) on the Change of Control
Purchase Date, deliver to the Paying Agent an Officers' Certificate stating the
Securities or portions thereof accepted for payment by the Company. The Paying
Agent shall promptly mail or deliver to Holders of Securities so accepted
payment in an amount equal to the Change of Control Purchase Price of the
Securities purchased from each such Holder, and the Company shall execute and
the Trustee shall promptly authenticate and mail or deliver to such Holders a
new Security equal in principal amount to any unpurchased portion of the
Security surrendered. Any Securities not so accepted shall be promptly mailed or
delivered by the Paying Agent at the Company's expense to the Holder thereof.
The Company will publicly announce the results of the Change of Control Offer on
the Change of Control Purchase Date. For purposes of this Section 1014, the
Company shall choose a Paying Agent which shall not be the Company.
(e) A tender made in response to a Change of Control Purchase Notice
may be withdrawn if the Company receives, not later than one Business Day prior
to the
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Change of Control Purchase Date, a telegram, telex, facsimile transmission or
letter, specifying, as applicable:
(1) the name of the Holder;
(2) the certificate number of the Security in respect of which
such notice of withdrawal is being submitted;
(3) the principal amount of the Security (which shall be
$1,000 or an integral multiple thereof) delivered for purchase by
the Holder as to which such notice of withdrawal is being submitted;
(4) a statement that such Holder is withdrawing his election
to have such principal amount of such Security purchased; and
(5) the principal amount, if any, of such Security (which
shall be $1,000 or an integral multiple thereof) that remains
subject to the original Change of Control Purchase Notice and that
has been or will be delivered for purchase by the Company.
(f) Subject to applicable escheat laws, the Trustee and the Paying
Agent shall return to the Company any cash that remains unclaimed, together with
interest or dividends, if any, thereon, held by them for the payment of the
Change of Control Purchase Price; provided, however, that, (x) to the extent
that the aggregate amount of cash deposited by the Company pursuant to clause
(ii) of paragraph (d) above exceeds the aggregate Change of Control Purchase
Price of the Securities or portions thereof to be purchased, then the Trustee
shall hold such excess for the Company and (y) unless otherwise directed by the
Company in writing, promptly after the Business Day following the Change of
Control Purchase Date the Trustee shall return any such excess to the Company
together with interest, if any, thereon.
(g) The Company shall comply, to the extent applicable, with the
applicable tender offer rules, including Rule 14e-1 under the Exchange Act, and
any other applicable securities laws or regulations in connection with a Change
of Control Offer.
(h) Notwithstanding the foregoing, the Company will not be required
to make a Change of Control Offer if a third party makes the Change of Control
Offer, in the manner, at the times and otherwise in compliance with the
requirements set forth in this Indenture applicable to a Change of Control Offer
made by the Company and purchases all the Securities validly tendered and not
withdrawn under such Change of Control Offer.
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Section 1015. Limitation on Subsidiary Preferred Stock.
The Company will not permit (a) any Restricted Subsidiary of the
Company to issue, sell or transfer any Preferred Stock, except for (i) Preferred
Stock issued or sold to, held by or transferred to the Company or a Wholly Owned
Restricted Subsidiary, and (ii) Preferred Stock issued by a Person prior to the
time (A) such Person becomes a Restricted Subsidiary, (B) such Person merges
with or into a Restricted Subsidiary or (C) a Restricted Subsidiary merges with
or into such Person; provided that such Preferred Stock was not issued or
incurred by such Person in anticipation of the type of transaction contemplated
by subclause (A), (B) or (C) or (b) any Person (other than the Company or a
Wholly Owned Restricted Subsidiary) to acquire Preferred Stock of any Restricted
Subsidiary from the Company or any Restricted Subsidiary, except, in the case of
clause (a) or (b), upon the acquisition of all the outstanding Capital Stock of
such Restricted Subsidiary in accordance with the terms of this Indenture.
Section 1016. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries.
The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause to
exist or become effective any consensual encumbrance or restriction on the
ability of any Restricted Subsidiary to (i) pay dividends or make any other
distribution on its Capital Stock, or any other interest or participation in or
measured by its profits, (ii) pay any Indebtedness owed to the Company or any
other Restricted Subsidiary, (iii) make any Investment in the Company or any
other Restricted Subsidiary or (iv) transfer any of its properties or assets to
the Company or any other Restricted Subsidiary, except for: (a) any encumbrance
or restriction pursuant to an agreement in effect on the Issue Date; (b) any
encumbrance or restriction, with respect to a Restricted Subsidiary that is not
a Restricted Subsidiary of the Company on the Issue Date, in existence at the
time such Person becomes a Restricted Subsidiary of the Company and not incurred
in connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary, provided that such encumbrances and restrictions are not applicable
to the Company or any Restricted Subsidiary or the properties or assets of the
Company or any Restricted Subsidiary other than such Subsidiary which is
becoming a Restricted Subsidiary; (c) customary provisions contained in an
agreement that has been entered into for the sale or other disposition of all or
substantially all of the Capital Stock or assets of a Restricted Subsidiary;
provided, however, that the restrictions are applicable only to such Restricted
Subsidiary or assets; (d) any encumbrance or restriction existing under or by
reason of applicable law; (e) customary provisions restricting subletting or
assignment of any lease governing any leasehold interest of any Restricted
Subsidiary; (f) covenants in franchise agreements with Manufacturers customary
for franchise agreements in the automobile retailing industry; (g) any
encumbrance or restriction contained in any Purchase Money Obligations for
property to the extent such restriction or encumbrance restricts the
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transfer of such property; (h) any encumbrances or restrictions in security
agreements securing Indebtedness (other than Subordinated Indebtedness) of a
Guarantor (including any Inventory Facility) (to the extent that such Liens are
otherwise incurred in accordance with Section 1011) that restrict the transfer
of property subject to such agreements, provided that any such encumbrance or
restriction is released to the extent the underlying Lien is released or the
related Indebtedness is repaid; and (i) any encumbrance or restriction existing
under any agreement that extends, renews, refinances or replaces the agreements
containing the encumbrances or restrictions in the foregoing clauses (a) and
(b), or in this clause (i), provided that the terms and conditions of any such
encumbrances or restrictions are no more restrictive in any material respect
than those under or pursuant to the agreement evidencing the Indebtedness so
extended, renewed, refinanced or replaced.
Section 1017. Limitation on Senior Subordinated Indebtedness.
The Company will not, and will not permit or cause any Guarantor to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise in
any manner become directly or indirectly liable for or with respect to or
otherwise permit to exist any Indebtedness that is subordinate in right of
payment to any Indebtedness of the Company or such Guarantor, as the case may
be, unless such Indebtedness is also pari passu with the Securities or the
Guarantee of such Guarantor or subordinated in right of payment to the
Securities or such Guarantee at least to the same extent as the Securities or
such Guarantee are subordinated in right of payment to Senior Indebtedness or
Senior Indebtedness of such Guarantor, as the case may be, as set forth in this
Indenture.
Section 1018. Limitations on Unrestricted Subsidiaries.
The Company may designate after the Issue Date any Subsidiary as an
"Unrestricted Subsidiary" under this Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of
or after giving effect to such Designation;
(b) the Company would be permitted to make an Investment (other than
a Permitted Investment) at the time of Designation (assuming the effectiveness
of such Designation) pursuant to the first paragraph of Section 1009 herein in
an amount (the "Designation Amount") equal to the greater of (1) the net book
value of the Company's interest in such Subsidiary calculated in accordance with
GAAP or (2) the Fair Market Value of the Company's interest in such Subsidiary
as determined in good faith by the Company's board of directors;
(c) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to Section 1008 at the
time of such Designation (assuming the effectiveness of such Designation);
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(d) such Unrestricted Subsidiary does not own any Capital Stock in
any Restricted Subsidiary of the Company which is not simultaneously being
designated an Unrestricted Subsidiary;
(e) such Unrestricted Subsidiary is not liable, directly or
indirectly, with respect to any Indebtedness other than Unrestricted Subsidiary
Indebtedness, provided that an Unrestricted Subsidiary may provide a Guarantee
for the Securities; and
(f) such Unrestricted Subsidiary is not a party to any agreement,
contract, arrangement or understanding at such time with the Company or any
Restricted Subsidiary unless the terms of any such agreement, contract,
arrangement or understanding are no less favorable to the Company or such
Restricted Subsidiary than those that might be obtained at the time from Persons
who are not Affiliates of the Company or, in the event such condition is not
satisfied, the value of such agreement, contract, arrangement or understanding
to such Unrestricted Subsidiary shall be deemed a Restricted Payment.
In the event of any such Designation, the Company shall be deemed to
have made an Investment constituting a Restricted Payment pursuant to Section
1009 for all purposes of this Indenture in the Designation Amount.
The Company shall not and shall not cause or permit any Restricted
Subsidiary to at any time (x) provide credit support for, or subject any of its
property or assets (other than the Capital Stock of any Unrestricted Subsidiary)
to the satisfaction of, any Indebtedness of any Unrestricted Subsidiary
(including any undertaking, agreement or instrument evidencing such
Indebtedness) (other than Permitted Investments in Unrestricted Subsidiaries) or
(y) be directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary. For purposes of the foregoing, the Designation of a Subsidiary of
the Company as an Unrestricted Subsidiary shall be deemed to be the Designation
of all of the Subsidiaries of such Subsidiary.
The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation") if:
(a) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation;
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at such
time, have been permitted to be incurred for all purposes of this Indenture; and
(c) unless such redesignated Subsidiary shall not have any
Indebtedness outstanding (other than Indebtedness that would be Permitted
Indebtedness), immediately after giving effect to such proposed Revocation, and
after giving pro forma effect to the
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incurrence of any such Indebtedness of such redesignated Subsidiary as if such
Indebtedness was incurred on the date of the Revocation, the Company could incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
Section 1008 herein.
All Designations and Revocations must be evidenced by a resolution
of the Board of Directors of the Company delivered to the Trustee certifying
compliance with the foregoing provisions.
Section 1019. Provision of Financial Statements.
Whether or not the Company is subject to Section 13(a) or 15(d) of
the Exchange Act, the Company and each Guarantor (to the extent such Guarantor
would be required if subject to Section 13(a) or 15(d) of the Exchange Act)
will, to the extent permitted under the Exchange Act, file with the Commission
the annual reports, quarterly reports and other documents which the Company and
such Guarantor would have been required to file with the Commission pursuant to
Sections 13(a) or 15(d) if the Company or such Guarantor were so subject, such
documents to be filed with the Commission on or prior to the date (the "Required
Filing Date") by which the Company and such Guarantor would have been required
so to file such documents if the Company and such Guarantor were so subject. The
Company will also in any event (x) within 15 days of each Required Filing Date
(i) transmit by mail to all Holders, as their names and addresses appear in the
Security Register, without cost to such Holders and (ii) file with the Trustee
copies of the annual reports, quarterly reports and other documents which the
Company and such Guarantor would have been required to file with the Commission
pursuant to Sections 13(a) or 15(d) of the Exchange Act if the Company and such
Guarantor were subject to either of such Sections and (y) if filing such
documents by the Company and such Guarantor with the Commission is not permitted
under the Exchange Act, promptly upon written request and payment of the
reasonable cost of duplication and delivery, supply copies of such documents to
any prospective Holder at the Company's cost. If any Guarantor's financial
statements would be required to be included in the financial statements filed or
delivered pursuant to this Indenture if the Company were subject to Section
13(a) or 15(d) of the Exchange Act, the Company shall include such Guarantor's
financial statements in any filing or delivery pursuant to this Indenture. In
addition, so long as any of the Securities remain outstanding, the Company will
make available to any prospective purchaser of Securities or beneficial owner of
Securities in connection with any sale thereof the information required by Rule
144A(d)(4) under the Securities Act, until such time as the Company has either
exchanged the Securities for securities identical in all material respects which
have been registered under the Securities Act or until such time as the Holders
thereof have disposed of such Securities pursuant to an effective registration
statement under the Securities Act.
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Section 1020. Statement by Officers as to Default.
(a) The Company will deliver to the Trustee, on or before a date not
more than 120 days after the end of each fiscal year of the Company ending after
the date hereof, and 60 days after the end of each fiscal quarter ending after
the date hereof, a written statement signed by two executive officers of the
Company and the Guarantors, one of whom shall be the principal executive
officer, principal financial officer or principal accounting officer of the
Company and the Guarantors, as to compliance herewith, including whether or not,
after a review of the activities of the Company during such year and of the
Company's and each Guarantor's performance under this Indenture, to the best
knowledge, based on such review, of the signers thereof, the Company and each
Guarantor have fulfilled all of their respective obligations and are in
compliance with all conditions and covenants under this Indenture throughout
such year and, if there has been a Default specifying each Default and the
nature and status thereof and any actions being taken by the Company with
respect thereto.
(b) When any Default or Event of Default has occurred and is
continuing, or if the Trustee or any Holder or the trustee for or the holder of
any other evidence of Indebtedness of the Company or any Subsidiary gives any
notice or takes any other action with respect to a claimed default the Company
shall deliver to the Trustee by registered or certified mail or facsimile
transmission followed by an originally executed copy of an Officers' Certificate
specifying such Default, Event of Default, notice or other action, the status
thereof and what actions the Company is taking or proposes to take with respect
thereto, within five Business Days after the occurrence of such Default or Event
of Default.
Section 1021. Waiver of Certain Covenants.
The Company may omit in any particular instance to comply with any
covenant or condition set forth in Sections 1006 through 1011, 1013 and 1015
through 1020, if, before or after the time for such compliance, the Holders of
not less than a majority in aggregate principal amount of the Securities at the
time Outstanding shall, by Act of such Holders, waive such compliance in such
instance with such covenant or provision, but no such waiver shall extend to or
affect such covenant or condition except to the extent so expressly waived, and,
until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such covenant or condition shall remain
in full force and effect.
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ARTICLE ELEVEN
REDEMPTION OF SECURITIES
Section 1101. Rights of Redemption.
(a) The Securities are subject to redemption at any time on or after
August 1, 2003, at the option of the Company, in whole or in part, subject to
the conditions, and at the Redemption Prices, specified in the form of Security,
together with accrued and unpaid interest, if any, to the Redemption Date
(subject to the right of Holders of record on relevant Regular Record Dates and
Special Record Dates to receive interest due on relevant Interest Payment Dates
and Special Payment Dates).
(b) In addition, at any time prior to August 1, 2001, the Company
may, at its option, use the net proceeds of one or more Public Equity Offerings
to redeem up to an aggregate of 35% of the aggregate principal amount of
Securities originally issued under this Indenture at a redemption price equal to
111% of the of the principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the Redemption Date; provided that at least 65% of the
initial aggregate principal amount of Securities remains outstanding immediately
after the occurrence of such redemption. In order to effect the foregoing
redemption, the Company must mail a notice of redemption no later than 30 days
after the closing of the related Public Equity Offering and must consummate such
redemption within 60 days of the closing of the Public Equity Offering.
Section 1102. Applicability of Article.
Redemption of Securities at the election of the Company or
otherwise, as permitted or required by any provision of this Indenture, shall be
made in accordance with such provision and this Article Eleven.
Section 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Company Order and an Officers' Certificate.
In case of any redemption at the election of the Company, the Company shall, not
less than 45 nor more than 60 days prior to the Redemption Date fixed by the
Company (unless a shorter notice period shall be satisfactory to the Trustee),
notify the Trustee in writing of such Redemption Date and of the principal
amount of Securities to be redeemed.
Section 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities or portions thereof to be redeemed in compliance with the national
security exchange, if any, on which the securities are listed, or if the
securities are not so listed, on a pro rata
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basis, by lot or by any other method the Trustee shall deem fair and reasonable;
provided, further, that any such redemption pursuant to the provisions relating
to a Public Equity offering shall be made on a pro rata basis or on as nearly a
pro rata basis as practicable (subject to the procedures of The Depositary Trust
Company or any other Depositary).
The Trustee shall promptly notify the Company and the Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
Section 1105. Notice of Redemption.
Notice of redemption shall be given by first-class mail, postage
prepaid, mailed not less than 30 days nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at its address
appearing in the Security Register.
All notices of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be redeemed, the
identification of the particular Securities to be redeemed;
(d) in the case of a Security to be redeemed in part, the principal
amount of such Security to be redeemed and that after the Redemption Date upon
surrender of such Security, new Security or Securities in the aggregate
principal amount equal to the unredeemed portion thereof will be issued;
(e) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(f) that on the Redemption Date the Redemption Price will become
due and payable upon each such Security or portion thereof to be redeemed, and
that (unless the Company shall default in payment of the Redemption Price)
interest thereon shall cease to accrue on and after said date;
(g) the names and addresses of the Paying Agent and the offices or
agencies referred to in Section 1002 where such Securities are to be surrendered
for payment of the Redemption Price;
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(h) the CUSIP number, if any, relating to such Securities; and
(i) the procedures that a Holder must follow to surrender the
Securities to be redeemed.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's written request,
by the Trustee in the name and at the expense of the Company. If the Company
elects to give notice of redemption, it shall provide the Trustee with a
certificate stating that such notice has been given in compliance with the
requirements of this Section 1105.
The notice if mailed in the manner herein provided shall be
conclusively presumed to have been given, whether or not the Holder receives
such notice. In any case, failure to give such notice by mail or any defect in
the notice to the Holder of any Security designated for redemption as a whole or
in part shall not affect the validity of the proceedings for the redemption of
any other Security.
Section 1106. Deposit of Redemption Price.
On or prior to any Redemption Date, the Company shall deposit with
the Trustee or with a Paying Agent (or, if the Company or any of its Affiliates
is acting as Paying Agent, segregate and hold in trust as provided in Section
1003) an amount of money in same day funds sufficient to pay the Redemption
Price of, and (except if the Redemption Date shall be an Interest Payment Date
or Special Payment Date) accrued interest on, all the Securities or portions
thereof which are to be redeemed on that date. The Paying Agent shall promptly
mail or deliver to Holders of Securities so redeemed payment in an amount equal
to the Redemption Price of the Securities purchased from each such Holder. All
money, if any, earned on funds held in trust by the Trustee or any Paying Agent
shall be remitted to the Company. For purposes of this Section 1106, the Company
shall choose a Paying Agent which shall not be the Company.
Section 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities
so to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified and from and after such date (unless the
Company shall default in the payment of the Redemption Price and accrued
interest) such Securities shall cease to bear interest. Holders will be required
to surrender the Securities to be redeemed to the Paying Agent at the address
specified in the notice of redemption at least one Business Day prior to the
Redemption Date. Upon surrender of any such Security for redemption in
accordance with said notice, such Security shall be paid by the Company at the
Redemption Price together with accrued interest to the Redemption Date;
provided, however, that installments of interest whose Stated Maturity is on or
prior to the Redemption Date shall be payable to the Holders of such Securities,
or one or more
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Predecessor Securities, registered as such on the relevant Regular Record Dates
and Special Record Dates according to the terms and the provisions of Section
309.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the rate borne by such
Security.
Section 1108. Securities Redeemed or Purchased in Part.
Any Security which is to be redeemed or purchased only in part shall
be surrendered to the Paying Agent at the office or agency maintained for such
purpose pursuant to Section 1002 (with, if the Company, the Security Registrar
or the Trustee so requires, due endorsement by, or a written instrument of
transfer in form satisfactory to the Company, the Security Registrar or the
Trustee, as the case may be, duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute,
and the Trustee shall authenticate and deliver to the Holder of such Security
without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder in aggregate principal amount equal to,
and in exchange for, the unredeemed portion of the principal of the Security so
surrendered that is not redeemed or purchased.
ARTICLE TWELVE
SATISFACTION AND DISCHARGE
Section 1201. Satisfaction and Discharge of Indenture.
This Indenture shall be discharged and shall cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
Securities as expressly provided for herein) as to all Outstanding Securities
hereunder, and the Trustee, upon Company Request and at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(a) either
(1) all the Securities theretofore authenticated and delivered
(except (i) lost, stolen or destroyed Securities which have been
replaced or paid as provided in Section 308 or (ii) all Securities
whose payment has theretofore been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust as provided in Section 1003)
have been delivered to the Trustee for cancellation; or
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(2) all Securities not theretofore delivered to the Trustee
for cancellation (i) have become due and payable, (ii) will become
due and payable at their Stated Maturity within one year or (iii)
are to be called for redemption within one year under arrangements
reasonably satisfactory to the Trustee for the giving of notice of
redemption by the Trustee in the name, and at the expense, of the
Company; and the Company or any Guarantor has irrevocably deposited
or caused to be deposited with the Trustee as trust funds in trust
an amount in United States dollars sufficient to pay and discharge
the entire Indebtedness on the Securities not theretofore delivered
to the Trustee for cancellation, including the principal of,
premium, if any, and accrued interest on, such Securities at such
Maturity, Stated Maturity or Redemption Date;
(b) the Company or any Guarantor has paid or caused to be paid all
other sums payable hereunder by the Company and any Guarantor; and
(c) the Company have delivered to the Trustee an Officers'
Certificate and an Opinion of Independent Counsel, in form and substance
reasonably satisfactory to the Trustee, each stating that (i) all conditions
precedent herein relating to the satisfaction and discharge hereof have been
complied with and (ii) such satisfaction and discharge will not result in a
breach or violation of, or constitute a default under, this Indenture or any
other material agreement or instrument to which the Company, any Guarantor or
any Restricted Subsidiary is a party or by which the Company, any Guarantor or
any Restricted Subsidiary is bound.
Notwithstanding the satisfaction and discharge hereof, the
obligations of the Company to the Trustee under Section 607 and, if United
States dollars shall have been deposited with the Trustee pursuant to subclause
(2) of subsection (a) of this Section 1201, the obligations of the Trustee under
Section 1202 and the last paragraph of Section 1003 shall survive.
Section 1202. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
United States dollars deposited with the Trustee pursuant to Section 1201 shall
be held in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal of,
premium, if any, and interest on, the Securities for whose payment such United
States dollars have been deposited with the Trustee.
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ARTICLE THIRTEEN
GUARANTEES
Section 1301. Guarantors' Guarantee.
For value received, each of the Guarantors, in accordance with this
Article Thirteen, hereby absolutely, fully, unconditionally and irrevocably
guarantees, jointly and severally with each other and with each other Person
which may become a Guarantor hereunder, to the Trustee and the Holders, as if
the Guarantors were the principal debtor, the punctual payment and performance
when due of all Indenture Obligations (which for purposes of this Guarantee
shall also be deemed to include all commissions, fees, charges, costs and other
expenses (including reasonable legal fees and disbursements of one counsel)
arising out of or incurred by the Trustee or the Holders in connection with the
enforcement of this Guarantee).
Section 1302. Continuing Guarantee; No Right of Set-Off; Independent
Obligation.
(a) This Guarantee shall be a continuing guarantee of the payment
and performance of all Indenture Obligations and shall remain in full force and
effect until the payment in full of all of the Indenture Obligations and shall
apply to and secure any ultimate balance due or remaining unpaid to the Trustee
or the Holders; and this Guarantee shall not be considered as wholly or
partially satisfied by the payment or liquidation at any time or from time to
time of any sum of money for the time being due or remaining unpaid to the
Trustee or the Holders. Each Guarantor, jointly and severally, covenants and
agrees to comply with all obligations, covenants, agreements and provisions
applicable to it in this Indenture including those set forth in Article Eight.
Without limiting the generality of the foregoing, each Guarantor's liability
shall extend to all amounts which constitute part of the Indenture Obligations
and would be owed by the Company under this Indenture and the Securities but for
the fact that they are unenforceable, reduced, limited, impaired, suspended or
not allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving the Company.
(b) Each Guarantor, jointly and severally, hereby guarantees that
the Indenture Obligations will be paid to the Trustee without set-off or
counterclaim or other reduction whatsoever (whether for taxes, withholding or
otherwise) in lawful currency of the United States of America.
(c) Each Guarantor, jointly and severally, guarantees that the
Indenture Obligations shall be paid strictly in accordance with their terms
regardless of any law, regulation or order now or hereafter in effect in any
jurisdiction affecting any of such terms or the rights of the holders of the
Securities.
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(d) Each Guarantor's liability to pay or perform or cause the
performance of the Indenture Obligations under this Guarantee shall arise
forthwith after demand for payment or performance by the Trustee has been given
to the Guarantors in the manner prescribed in Section 106 hereof.
(e) Except as provided herein, the provisions of this Article
Thirteen cover all agreements between the parties hereto relative to this
Guarantee and none of the parties shall be bound by any representation, warranty
or promise made by any Person relative thereto which is not embodied herein; and
it is specifically acknowledged and agreed that this Guarantee has been
delivered by each Guarantor free of any conditions whatsoever and that no
representations, warranties or promises have been made to any Guarantor
affecting its liabilities hereunder, and that the Trustee shall not be bound by
any representations, warranties or promises now or at any time hereafter made by
the Company to any Guarantor.
(f) This Guarantee is a guarantee of payment, performance and
compliance and not of collectibility and is in no way conditioned or contingent
upon any attempt to collect from or enforce performance or compliance by the
Company or upon any event or condition whatsoever.
(g) The obligations of the Guarantors set forth herein constitute
the full recourse obligations of the Guarantors enforceable against them to the
full extent of all their assets and properties.
Section 1303. Guarantee Absolute.
The obligations of the Guarantors hereunder are independent of the
obligations of the Company under the Securities and this Indenture and a
separate action or actions may be brought and prosecuted against any Guarantor
whether or not an action or proceeding is brought against the Company and
whether or not the Company is joined in any such action or proceeding. The
liability of the Guarantors hereunder is irrevocable, absolute and unconditional
and (to the extent permitted by law) the liability and obligations of the
Guarantors hereunder shall not be released, discharged, mitigated, waived,
impaired or affected in whole or in part by:
(a) any defect or lack of validity or enforceability in respect of
any Indebtedness or other obligation of the Company or any
other Person under this Indenture or the Securities, or any
agreement or instrument relating to any of the foregoing;
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(b) any grants of time, renewals, extensions, indulgences,
releases, discharges or modifications which the Trustee or the
Holders may extend to, or make with, the Company, any
Guarantor or any other Person, or any change in the time,
manner or place of payment of, or in any other term of, all or
any of the Indenture Obligations, or any other amendment or
waiver of, or any consent to or departure from, this Indenture
or the Securities, including any increase or decrease in the
Indenture Obligations;
(c) the taking of security from the Company, any Guarantor or any
other Person, and the release, discharge or alteration of, or
other dealing with, such security;
(d) the occurrence of any change in the laws, rules, regulations
or ordinances of any jurisdiction by any present or future
action of any governmental authority or court amending,
varying, reducing or otherwise affecting, or purporting to
amend, vary, reduce or otherwise affect, any of the Indenture
Obligations and the obligations of any Guarantor hereunder;
(e) the abstention from taking security from the Company, any
Guarantor or any other Person or from perfecting, continuing
to keep perfected or taking advantage of any security;
(f) any loss, diminution of value or lack of enforceability of any
security received from the Company, any Guarantor or any other
Person, and including any other guarantees received by the
Trustee;
(g) any other dealings with the Company, any Guarantor or any
other Person, or with any security;
(h) the Trustee's or the Holders' acceptance of compositions from
the Company or any Guarantor;
(i) the application by the Holders or the Trustee of all monies at
any time and from time to time received from the Company, any
Guarantor or any other Person on account of any indebtedness
and liabilities owing by the Company or any Guarantor to the
Trustee or the Holders, in such manner as the Trustee or the
Holders deems best and the changing of such application in
whole or in part and at any time or from time to time, or any
manner of application of collateral,
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or proceeds thereof, to all or any of the Indenture Obligations, or
the manner of sale of any collateral;
(j) the release or discharge of the Company or any Guarantor of
the Securities or of any Person liable directly as surety or
otherwise by operation of law or otherwise for the Securities,
other than an express release in writing given by the Trustee,
on behalf of the Holders, of the liability and obligations of
any Guarantor hereunder;
(k) any change in the name, business, capital structure or
governing instrument of the Company or any Guarantor or any
refinancing or restructuring of any of the Indenture
Obligations;
(l) the sale of the Company's or any Guarantor's business or any
part thereof;
(m) subject to Section 1314, any merger or consolidation,
arrangement or reorganization of the Company, any Guarantor,
any Person resulting from the merger or consolidation of the
Company or any Guarantor with any other Person or any other
successor to such Person or merged or consolidated Person or
any other change in the corporate existence, structure or
ownership of the Company or any Guarantor or any change in the
corporate relationship between the Company and any Guarantor,
or any termination of such relationship;
(n) the insolvency, bankruptcy, liquidation, winding-up,
dissolution, receivership, arrangement, readjustment,
assignment for the benefit of creditors or distribution of the
assets of the Company or its assets or any resulting discharge
of any obligations of the Company (whether voluntary or
involuntary) or of any Guarantor (whether voluntary or
involuntary) or the loss of corporate existence;
(o) subject to Section 1314, any arrangement or plan of
reorganization affecting the Company or any Guarantor;
(p) any failure, omission or delay on the part of the Company to
conform or comply with any term of this Indenture;
(q) any limitation on the liability or obligations of the Company
or any other Person under this Indenture, or any discharge,
termination, cancellation, distribution, irregularity,
invalidity or unenforceability in whole or in part of this
Indenture;
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(r) any other circumstance (including any statute of limitations)
that might otherwise constitute a defense available to, or
discharge of, the Company or any Guarantor; or
(s) any modification, compromise, settlement or release by the
Trustee, or by operation of law or otherwise, of the Indenture
Obligations or the liability of the Company or any other
obligor under the Securities, in whole or in part, and any
refusal of payment by the Trustee, in whole or in part, from
any other obligor or other guarantor in connection with any of
the Indenture Obligations, whether or not with notice to, or
further assent by, or any reservation of rights against, each
of the Guarantors.
Section 1304. Right to Demand Full Performance.
In the event of any demand for payment or performance by the Trustee
from any Guarantor hereunder, the Trustee or the Holders shall have the right to
demand its full claim and to receive all dividends or other payments in respect
thereof until the Indenture Obligations have been paid in full, and the
Guarantors shall continue to be jointly and severally liable hereunder for any
balance which may be owing to the Trustee or the Holders by the Company under
this Indenture and the Securities. The retention by the Trustee or the Holders
of any security, prior to the realization by the Trustee or the Holders of its
rights to such security upon foreclosure thereon, shall not, as between the
Trustee and any Guarantor, be considered as a purchase of such security, or as
payment, satisfaction or reduction of the Indenture Obligations due to the
Trustee or the Holders by the Company or any part thereof. Each Guarantor,
promptly after demand, will reimburse the Trustee and the Holders for all costs
and expenses of collecting such amount under, or enforcing this Guarantee,
including, without limitation, the reasonable fees and expenses of counsel.
Section 1305. Waivers.
(a) Each Guarantor hereby expressly waives (to the extent permitted
by law) notice of the acceptance of this Guarantee and notice of the existence,
renewal, extension or the non-performance, non-payment, or non-observance on the
part of the Company of any of the terms, covenants, conditions and provisions of
this Indenture or the Securities or any other notice whatsoever to or upon the
Company or such Guarantor with respect to the Indenture Obligations, whether by
statute, rule of law or otherwise. Each Guarantor hereby acknowledges
communication to it of the terms of this Indenture and the Securities and all of
the provisions therein contained and consents to and
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approves the same. Each Guarantor hereby expressly waives (to the extent
permitted by law) diligence, presentment, protest and demand for payment with
respect to (i) any notice of sale, transfer or other disposition of any right,
title to or interest in the Securities by the Holders or in this Indenture, (ii)
any release of any Guarantor from its obligations hereunder resulting from any
loss by it of its rights of subrogation hereunder and (iii) any other
circumstances whatsoever that might otherwise constitute a legal or equitable
discharge, release or defense of a guarantor or surety or that might otherwise
limit recourse against such Guarantor.
(b) Without prejudice to any of the rights or recourses which the
Trustee or the Holders may have against the Company, each Guarantor hereby
expressly waives (to the extent permitted by law) any right to require the
Trustee or the Holders to:
(i) enforce, assert, exercise, initiate or exhaust any
rights, remedies or recourse against the Company, any
Guarantor or any other Person under this Indenture or
otherwise;
(ii) value, realize upon, or dispose of any security of the
Company or any other Person held by the Trustee or the
Holders;
(iii) initiate or exhaust any other remedy which the Trustee
or the Holders may have in law or equity; or
(iv) mitigate the damages resulting from any default under
this Indenture;
before requiring or becoming entitled to demand payment from such Guarantor
under this Guarantee.
Section 1306. The Guarantors Remain Obligated in Event the Company Is No
Longer Obligated to Discharge Indenture Obligations.
It is the express intention of the Trustee and the Guarantors that
if for any reason the Company has no legal existence, is or becomes under no
legal obligation to discharge the Indenture Obligations owing to the Trustee or
the Holders by the Company or if any of the Indenture Obligations owing by the
Company to the Trustee or the Holders becomes irrecoverable from the Company by
operation of law or for any reason whatsoever, this Guarantee and the covenants,
agreements and obligations of the Guarantors contained in this Article Thirteen
shall nevertheless be binding upon the Guarantors, as principal debtor, until
such time as all such Indenture Obligations have been paid in full to the
Trustee and all Indenture Obligations owing to the Trustee or the
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Holders by the Company have been discharged, or such earlier time as Section 402
shall apply to the Securities and the Guarantors shall be responsible for the
payment thereof to the Trustee or the Holders upon demand.
Section 1307. Fraudulent Conveyance; Contribution; Subrogation.
(a) Each Guarantor that is a Subsidiary of the Company, and by its
acceptance hereof each Holder, hereby confirms that it is the intention of all
such parties that the Guarantee by such Guarantor pursuant to its Guarantee not
constitute a fraudulent transfer or conveyance for purposes of the Bankruptcy
Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act
or any similar federal or state law. To effectuate the foregoing intention, the
Holders and such Guarantor hereby irrevocably agree that the obligations of such
Guarantor under its Guarantee shall be limited to the maximum amount which,
after giving effect to all other contingent and fixed liabilities of such
Guarantor, and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
this Indenture, will result in the obligations of such Guarantor under its
Guarantee not constituting such fraudulent transfer or conveyance.
(b) Each Guarantor that makes a payment or distribution under its
Guarantee shall be entitled to a contribution from each other Guarantor, if any,
in a pro rata amount based on the net assets of each Guarantor, determined in
accordance with GAAP.
(c) Each Guarantor hereby waives all rights of subrogation or
contribution, whether arising by contract or operation of law (including,
without limitation, any such right arising under federal bankruptcy law) or
otherwise by reason of any payment by it pursuant to the provisions of this
Article Thirteen until payment in full of all Indenture Obligations.
Section 1308. Guarantee Is in Addition to Other Security.
This Guarantee shall be in addition to and not in substitution for
any other guarantees or other security which the Trustee may now or hereafter
hold in respect of the Indenture Obligations owing to the Trustee or the Holders
by the Company and (except as may be required by law) the Trustee shall be under
no obligation to marshal in favor of each of the Guarantors any other guarantees
or other security or any moneys or other assets which the Trustee may be
entitled to receive or upon which the Trustee or the Holders may have a claim.
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Section 1309. Release of Security Interests.
Without limiting the generality of the foregoing and except as
otherwise provided in this Indenture, each Guarantor hereby consents and agrees,
to the fullest extent permitted by applicable law, that the rights of the
Trustee hereunder, and the liability of the Guarantors hereunder, shall not be
affected by any and all releases for any purpose of any collateral, if any, from
the Liens and security interests created by any collateral document and that
this Guarantee shall continue to be effective or be reinstated, as the case may
be, if at any time any payment of any of the Indenture Obligations is rescinded
or must otherwise be returned by the Trustee upon the insolvency, bankruptcy or
reorganization of the Company or otherwise, all as though such payment had not
been made.
Section 1310. No Bar to Further Actions.
Except as provided by law, no action or proceeding brought or
instituted under Article Thirteen and this Guarantee and no recovery or judgment
in pursuance thereof shall be a bar or defense to any further action or
proceeding which may be brought under Article Thirteen and this Guarantee by
reason of any further default or defaults under Article Thirteen and this
Guarantee or in the payment of any of the Indenture Obligations owing by the
Company.
Section 1311. Failure to Exercise Rights Shall Not Operate as a Waiver; No
Suspension of Remedies.
(a) No failure to exercise and no delay in exercising, on the part
of the Trustee or the Holders, any right, power, privilege or remedy under this
Article Thirteen and this Guarantee shall operate as a waiver thereof, nor shall
any single or partial exercise of any rights, power, privilege or remedy
preclude any other or further exercise thereof, or the exercise of any other
rights, powers, privileges or remedies. The rights and remedies herein provided
for are cumulative and not exclusive of any rights or remedies provided in law
or equity.
(b) Nothing contained in this Article Thirteen shall limit the right
of the Trustee or the Holders to take any action to accelerate the maturity of
the Securities pursuant to Article Five or to pursue any rights or remedies
hereunder or under applicable law.
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Section 1312. Trustee's Duties; Notice to Trustee.
(a) Any provision in this Article Thirteen or elsewhere in this
Indenture allowing the Trustee to request any information or to take any action
authorized by, or on behalf of any Guarantor, shall be permissive and shall not
be obligatory on the Trustee except as the Holders may direct in accordance with
the provisions of this Indenture or where the failure of the Trustee to request
any such information or to take any such action arises from the Trustee's
negligence, bad faith or willful misconduct.
(b) The Trustee shall not be required to inquire into the existence,
powers or capacities of the Company, any Guarantor or the officers, directors or
agents acting or purporting to act on their respective behalf.
Section 1313. Successors and Assigns.
All terms, agreements and conditions of this Article Thirteen shall
extend to and be binding upon each Guarantor and its successors and permitted
assigns and shall enure to the benefit of and may be enforced by the Trustee and
its successors and assigns; provided, however, that the Guarantors may not
assign any of their rights or obligations hereunder other than in accordance
with Article Eight.
Section 1314. Release of Guarantee.
Concurrently with the payment in full of all of the Indenture
Obligations, the Guarantors shall be released from and relieved of their
obligations under this Article Thirteen. Upon the delivery by the Company to the
Trustee of an Officers' Certificate and, if requested by the Trustee, an Opinion
of Counsel to the effect that the transaction giving rise to the release of this
Guarantee was made by the Company in accordance with the provisions of this
Indenture and the Securities, the Trustee shall execute any documents reasonably
required in order to evidence the release of the Guarantors from their
obligations under this Guarantee. If any of the Indenture Obligations are
revived and reinstated after the termination of this Guarantee, then all of the
obligations of the Guarantors under this Guarantee shall be revived and
reinstated as if this Guarantee had not been terminated until such time as the
Indenture Obligations are paid in full, and each Guarantor shall enter into an
amendment to this Guarantee, reasonably satisfactory to the Trustee, evidencing
such revival and reinstatement.
This Guarantee shall terminate with respect to each Guarantor and
shall be automatically and unconditionally released and discharged as provided
in Section 1013(b).
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Section 1315. Execution of Guarantee.
(a) To evidence the Guarantee, each Guarantor hereby agrees to
execute the guarantee substantially in the form set forth in Section 205, to be
endorsed on each Security authenticated and delivered by the Trustee and that
this Indenture shall be executed on behalf of each Guarantor by its Chairman of
the Board, its President, its Chief Executive Officer, Chief Operating Officer
or one of its Vice Presidents, under its corporate seal reproduced thereon
attested by its Secretary or one of its Assistant Secretaries. The signature of
any of these officers on the Securities may be manual or facsimile.
(b) Any person that was not a Guarantor on the Issue Date may become
a Guarantor by executing and delivering to the Trustee (i) a supplemental
indenture in form and substance satisfactory to the Trustee, which subjects such
person to the provisions (including the representations and warranties) of this
Indenture as a Guarantor, (ii) in the event that as of the date of such
supplemental indenture any Registrable Securities are outstanding, an instrument
in form and substance satisfactory to the Trustee which subjects such person to
the provisions of the Registration Rights Agreement with respect to such
outstanding Registrable Securities, and (iii) an Opinion of Counsel to the
effect that such supplemental indenture has been duly authorized and executed by
such person and constitutes the legal, valid and binding obligation of such
person (subject to such customary assumptions and exceptions as may be
acceptable to the Trustee in its reasonable discretion).
(c) If an officer whose signature is on this Indenture no longer
holds that office at the time the Trustee authenticates a Security on which this
Guarantee is endorsed, such Guarantee shall be valid nevertheless.
ARTICLE FOURTEEN
SUBORDINATION OF SECURITIES
Section 1401. Securities Subordinate to Senior Indebtedness.
The Company covenants and agrees, and each Holder of a Security, by
his acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article, the Indebtedness
represented by the Securities and the payment of the principal of, premium, if
any, and interest on, the Securities are hereby expressly made subordinate and
subject in right of payment as provided in this Article to the prior payment in
full of all Senior Indebtedness.
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This Article Thirteen shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or continue to
hold Senior Indebtedness; and such provisions are made for the benefit of the
holders of Senior Indebtedness; and such holders are made obligees hereunder and
they or each of them may enforce such provisions.
Section 1402. Payment Over of Proceeds Upon Dissolution, etc.
In the event of (a) any insolvency or bankruptcy case or proceeding,
or any receivership, liquidation, reorganization or other similar case or
proceeding in connection therewith, relative to the Company or its assets, or
(b) any liquidation, dissolution or other winding up of the Company, whether
voluntary or involuntary, or whether or not involving insolvency or bankruptcy,
or (c) any assignment for the benefit of creditors or any other marshaling of
assets or liabilities of the Company, then and in any such event:
(1) the holders of Senior Indebtedness shall be entitled to receive
payment in full of all amounts due on or in respect of Senior Indebtedness
before the Holders of the Securities are entitled to receive any payment or
distribution of any kind or character (excluding securities of the Company or
any other corporation that are equity securities or are subordinated in right of
payment to all Senior Indebtedness, that may be outstanding, to substantially
the same extent as, or to a greater extent than, the Securities are so
subordinated as provided in this Article ("Permitted Junior Securities")) on
account of the principal of, premium, if any, or interest on the Securities or
on account of the purchase, redemption, defeasance or other acquisition of, or
in respect of, the Securities (other than amounts previously set aside with the
Trustee, or payments previously made, in either case, pursuant to the provisions
of Sections 402 and 403 of this Indenture); and
(2) any payment or distribution of assets of the Company of any kind
or character, whether in cash, property or securities (excluding Permitted
Junior Securities), by set-off or otherwise, to which the Holders or the Trustee
would be entitled but for the provisions of this Article shall be paid by the
liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or liquidating trustee
or otherwise, directly to the holders of Senior Indebtedness or their
representative or representatives or to the trustee or trustees under any
indenture under which any instruments evidencing any of such Senior Indebtedness
may have been issued, ratably according to the aggregate amounts remaining
unpaid on account of the Senior Indebtedness held or represented by each, to the
extent necessary to make payment in full, of all Senior Indebtedness remaining
unpaid, after giving effect to any concurrent payment or distribution to the
holders of such Senior Indebtedness; and
(3) in the event that, notwithstanding the foregoing provisions of
this Section, the Trustee or the Holder of any Security shall have received any
payment or
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distribution of assets of the Company of any kind or character, whether in cash,
property or securities (excluding Permitted Junior Securities), in respect of
principal, premium, if any, and interest on the Securities before all Senior
Indebtedness is paid in full, then and in such event such payment or
distribution (excluding Permitted Junior Securities) shall be paid over or
delivered forthwith to the trustee in bankruptcy, receiver, liquidating trustee,
custodian, assignee, agent or other Person making payments or distributions of
assets of the Company for application to the payment of all Senior Indebtedness
remaining unpaid, to the extent necessary to pay all Senior Indebtedness in full
after giving effect to any concurrent payment or distribution to or for the
holders of Senior Indebtedness.
The consolidation of the Company with, or the merger of the Company
with or into, another Person or the liquidation or dissolution of the Company
following the sale, assignment, conveyance, transfer, lease or other disposal of
its properties and assets substantially as an entirety to another Person upon
the terms and conditions set forth in Article Eight shall not be deemed a
dissolution, winding up, liquidation, reorganization, assignment for the benefit
of creditors or marshaling of assets and liabilities of the Company for the
purposes of this Section if the Person formed by such consolidation or the
surviving entity of such merger or the Person which acquires by sale,
assignment, conveyance, transfer, lease or other disposal of such properties and
assets substantially as an entirety, as the case may be, shall, as a part of
such consolidation, merger, sale, assignment, conveyance, transfer, lease or
other disposal, comply with the conditions set forth in Article Eight.
Section 1403. Suspension of Payment When Designated Senior Indebtedness
in Default.
(a) Unless Section 1402 shall be applicable, upon the occurrence and
during the continuance of any default in the payment of any Designated Senior
Indebtedness beyond any applicable grace period (a "Payment Default") and after
the receipt by the Trustee from a Senior Representative of any Designated Senior
Indebtedness of written notice of such default, no payment (other than amounts
previously set aside with the Trustee or payments previously made, in either
case, pursuant to Section 402 or 403 in this Indenture) or distribution of any
assets of the Company or any Subsidiary of any kind or character (excluding
Permitted Junior Securities) may be made by the Company on account of the
principal of, premium, if any, or interest on, the Securities, or on account of
the purchase, redemption, defeasance or other acquisition of or in respect of,
the Securities unless and until such Payment Default shall have been cured or
waived or shall have ceased to exist or such Designated Senior Indebtedness
shall have been discharged or paid in full, after which the Company shall
(subject to the other provisions of this Article Thirteen) resume making any and
all required payments in respect of the Securities, including any missed
payments.
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(b) Unless Section 1402 shall be applicable, (1) upon the occurrence
and during the continuance of any non-payment default with respect to any
Designated Senior Indebtedness pursuant to which the maturity thereof may then
be accelerated immediately (a "Non-payment Default") and (2) after the receipt
by the Trustee and the Company from a Senior Representative of any Designated
Senior Indebtedness of written notice of such Non-payment Default, no payment
(other than any amounts previously set aside with the Trustee, or payments
previously made, in either case, pursuant to the provisions of Sections 402 or
403 in this Indenture) or distribution of any assets of the Company of any kind
or character (excluding Permitted Junior Securities) may be made by the Company
or any Subsidiary on account of the principal of, premium, if any, or interest
on, the Securities, or on account of the purchase, redemption, defeasance or
other acquisition of, or in respect of, the Securities for the period specified
below ("Payment Blockage Period").
(c) The Payment Blockage Period shall commence upon the receipt of
notice of the Non-payment Default by the Trustee and the Company from a Senior
Representative and shall end on the earliest of (i) the 179th day after such
commencement, (ii) the date on which such Non-payment Default (and all
Nonpayment Defaults as to which notice is given after such Payment Blockage
Period is initiated) is cured, waived or ceases to exist or on which such
Designated Senior Indebtedness is discharged or paid in full, or (iii) the date
on which such Payment Blockage Period (and all Non-payment Defaults as to which
notice is given after such Payment Blockage Period is initiated) shall have been
terminated by written notice to the Company or the Trustee from the Senior
Representative initiating such Payment Blockage Period, after which, in the case
of clauses (i), (ii) and (iii), the Company shall promptly resume making any and
all required payments in respect of the Securities, including any missed
payments. In no event will a Payment Blockage Period extend beyond 179 days from
the date of the receipt by the Company and the Trustee of the notice initiating
such Payment Blockage Period (such 179-day period referred to as the "Initial
Period"). Any number of notices of Non-payment Defaults may be given during the
Initial Period; provided that during any period of 365 consecutive days only one
Payment Blockage Period, during which payment of principal of, premium, if any,
or interest on, the Securities may not be made, may commence and the duration of
such period may not exceed 179 days. No Nonpayment Default with respect to any
Designated Senior Indebtedness that existed or was continuing on the date of the
commencement of any Payment Blockage Period will be, or can be, made the basis
for the commencement of a second Payment Blockage Period, whether or not within
a period of 365 consecutive days, unless such default has been cured or waived
for a period of not less than 90 consecutive days. The Company shall deliver a
notice to the Trustee promptly after the date on which any Non-payment Default
is cured or waived or ceases to exist or on which the Designated Senior
Indebtedness related thereto is discharged or paid in full, and the Trustee is
authorized to act in reliance on such notice.
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(d) In the event that, notwithstanding the foregoing, the Company
shall make any payment to the Trustee or the Holder of any Security prohibited
by the foregoing provisions of this Section, then and in such event such payment
shall be paid over and delivered forthwith to a Senior Representative of the
holders of the Designated Senior Indebtedness or as a court of competent
jurisdiction shall direct.
Section 1404. Payment Permitted if No Default.
Nothing contained in this Article, elsewhere in this Indenture or in
any of the Securities shall prevent the Company, at any time except during the
pendency of any case, proceeding, dissolution, liquidation or other winding-up,
assignment for the benefit of creditors or other marshaling of assets and
liabilities of the Company referred to in Section 1402 or under the conditions
described in Section 1403, from making payments at any time of principal of,
premium, if any, or interest on the Securities.
Section 1405. Subrogation to Rights of Holders of Senior Indebtedness.
After the payment in full, the Holders of the Securities shall be
subrogated to the rights of the holders of such Senior Indebtedness to receive
payments and distributions of cash, property and securities applicable to the
Senior Indebtedness until the principal of, premium, if any, and interest on,
the Securities shall be paid in full. For purposes of such subrogation, no
payments or distributions to the holders of Senior Indebtedness of any cash,
property or securities to which the Holders of the Securities or the Trustee
would be entitled except for the provisions of this Article, and
no payments over pursuant to the provisions of this Article to the holders of
Senior Indebtedness by Holders of the Securities or the Trustee, shall, as among
the Company, its creditors other than holders of Senior Indebtedness, and the
Holders of the Securities, be deemed to be a payment or distribution by the
Company to or on account of the Senior Indebtedness.
Section 1406. Provisions Solely to Define Relative Rights.
The provisions of this Article are intended solely for the purpose
of defining the relative rights of the Holders of the Securities on the one hand
and the holders of Senior Indebtedness on the other hand. Nothing contained in
this Article or elsewhere in this Indenture or in the Securities is intended to
or shall (a) impair, as among the Company, its creditors other than holders of
Senior Indebtedness and the Holders of the Securities, the obligation of the
Company, which is absolute and unconditional, to pay to the Holders of the
Securities the principal of, premium, if any, and interest on, the Securities as
and when the same shall become due and payable in accordance with their terms;
or (b) affect the relative rights against the Company or the Holders of the
Securities and creditors of the Company other than the holders of Senior
Indebtedness; or
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(c) prevent the Trustee or the Holder of any Security from exercising all
remedies otherwise permitted by applicable law upon default under this
Indenture, subject to the rights, if any, under this Article of the holders of
Senior Indebtedness (1) in any case, proceeding, dissolution, liquidation or
other winding up, assignment for the benefit of creditors or other marshaling of
assets and liabilities of the Company referred to in Section 1402, to receive,
pursuant to and in accordance with such Section, cash, property and securities
otherwise payable or deliverable to the Trustee or such Holder, or (2) under the
conditions specified in Section 1303, to prevent any payment prohibited by such
Section or enforce their rights pursuant to Section 1303(d).
Section 1407. Trustee to Effectuate Subordination.
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article and
appoints the Trustee his attorney-in-fact for any and all such purposes,
including, in the event of any dissolution, winding-up, liquidation or
reorganization of the Company whether in bankruptcy, insolvency, receivership
proceedings, or otherwise, the timely filing of a claim for the unpaid balance
of the indebtedness of the Company owing to such Holder in the form required in
such proceedings and the causing of such claim to be approved.
Section 1408. No Waiver of Subordination Provisions.
(a) No right of any present or future holder of any Senior
Indebtedness to enforce subordination as herein provided shall at any time in
any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any non-compliance by the Company with the terms, provisions and covenants
of this Indenture, regardless of any knowledge thereof any such holder may have
or be otherwise charged with.
(b) Without limiting the generality of subsection (a) of this
Section, the holders of Senior Indebtedness may, at any time and from time to
time, without the consent of or notice to the Trustee or the Holders of the
Securities, without incurring responsibility to the Holders of the Securities
and without impairing or releasing the subordination provided in this Article or
the obligations hereunder of the Holders of the Securities to the holders of
Senior Indebtedness, do any one or more of the following: (1) change the manner,
place or terms of payment or extend the time of payment of, or renew or alter,
Senior Indebtedness or any instrument evidencing the same or any agreement under
which Senior Indebtedness is outstanding; (2) sell, exchange, release or
otherwise deal with any property pledged, mortgaged or otherwise securing Senior
Indebtedness; (3) release any Person liable in any manner for the collection or
payment of
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Senior Indebtedness; and (4) exercise or refrain from exercising any rights
against the Company and any other Person; provided, however, that in no event
shall any such actions limit the right of the Holders of the Securities to take
any action to accelerate the maturity of the Securities pursuant to Article Five
of this Indenture or to pursue any rights or remedies hereunder or under
applicable laws if the taking of such action does not otherwise violate the
terms of this Article.
Section 1409. Notice to Trustee.
(a) The Company shall give prompt written notice to the Trustee of
any fact known to the Company which would prohibit the making of any payment to
or by the Trustee in respect of the Securities. Notwithstanding the provisions
of this Article or any other provision of this Indenture, the Trustee shall not
be charged with knowledge of the existence of any facts which would prohibit the
making of any payment to or by the Trustee in respect of the Securities, unless
and until the Trustee shall have received written notice thereof from the
Company or a holder of Senior Indebtedness or from a Senior Representative or
any trustee, fiduciary or agent therefor; and, prior to the receipt of any such
written notice, the Trustee shall be entitled in all respects to assume that no
such facts exist; provided, however, that if the Trustee shall not have received
the notice provided for in this Section by Noon, Eastern Time, on the Business
Day prior to the date upon which by the terms hereof any money may become
payable for any purpose (including, without limitation, the payment of the
principal of, premium, if any, or interest on any Security), then, anything
herein contained to the contrary notwithstanding but without limiting the rights
and remedies of the holders of Senior Indebtedness, a Senior Representative or
any trustee, fiduciary or agent thereof, the Trustee shall have full power and
authority to receive such money and to apply the same to the purpose for which
such money was received and shall not be affected by any notice to the contrary
which may be received by it after such date; nor shall the Trustee be charged
with knowledge of the curing of any such default or the elimination of the act
or condition preventing any such payment unless and until the Trustee shall have
received an Officers' Certificate to such effect.
(b) The Trustee shall be entitled to rely on the delivery to it of a
written notice to the Trustee and the Company by a Person representing himself
to be a Senior Representative or a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor) to establish that such notice has been given by a
Senior Representative or a holder of Senior Indebtedness (or a trustee,
fiduciary or agent therefor); provided, however, that failure to give such
notice to the Company shall not affect in any way the ability of the Trustee to
rely on such notice. In the event that the Trustee determines in good faith that
further evidence is required with respect to the right of any Person as a holder
of Senior Indebtedness to participate in any payment or distribution pursuant to
this Article, the Trustee may request such Person to furnish evidence to the
reasonable
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satisfaction of the Trustee as to the amount of Senior Indebtedness held by such
Person, the extent to which such Person is entitled to participate in such
payment or distribution and any other facts pertinent to the rights of such
Person under this Article, and if such evidence is not furnished, the Trustee
may defer any payment to such Person pending judicial determination as to the
right of such Person to receive such payment.
Section 1410. Reliance on Judicial Orders or Certificates.
Upon any payment or distribution of assets of the Company referred
to in this Article, the Trustee and the Holders of the Securities shall be
entitled to rely upon any order or decree entered by any court of competent
jurisdiction in which such insolvency, bankruptcy, receivership, liquidation,
reorganization, dissolution, winding up or similar case or proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee for the benefit of creditors, agent or other person
making such payment or distribution, or a certificate of a Senior
Representative, delivered to the Trustee or to the Holders of Securities for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of Senior Indebtedness and other indebtedness of the
Company, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this Article,
provided that the foregoing shall apply only if such court has been fully
apprised of the provisions of this Article.
Section 1411. Rights of Trustee as a Holder of Senior Indebtedness;
Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article with respect to any Senior Indebtedness which
may at any time be held by it, to the same extent as any other holder of Senior
Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of
its rights as such holder. Nothing in this Article shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 607.
Section 1412. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall
have been appointed by the Company and be then acting under this Indenture, the
term "Trustee" as used in this Article shall in such case (unless the context
otherwise requires) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were named in this Article in addition to or in place of the Trustee; provided,
however, that Section 1411 shall not apply to the Company or any Affiliate of
the Company if it or such Affiliate acts as Paying Agent.
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Section 1413. No Suspension of Remedies.
Nothing contained in this Article shall limit the right of the
Trustee or the Holders of Securities to take any action to accelerate the
maturity of the Securities pursuant to Article Five of this Indenture or to
pursue any rights or remedies hereunder or under applicable law, subject to the
rights, if any, under this Article of the holders, from time to time, of Senior
Indebtedness to receive the cash, property or securities receivable upon the
exercise of such rights or remedies.
Section 1414. Trustee's Relation to Senior Indebtedness.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Article against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness and the Trustee shall
not be liable to any holder of Senior Indebtedness if it shall in good faith
mistakenly (absent negligence or willful misconduct) pay over or deliver to
Holders, the Company or any other Person moneys or assets to which any holder of
Senior Indebtedness shall be entitled by virtue of this Article or otherwise.
* * *
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IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the day and year first above written.
SONIC AUTOMOTIVE, INC.
By: /s/ B. Scott Smith
----------------------------------
Name: B. Scott Smith
Title: Authorized Office3r
Attest: /s/ Theodore M. Wright
---------------------------
Name: Theodore M. Wright
Title: Authorized Officer
TOWN AND COUNTRY FORD
INCORPORATED
MARCUS DAVID CORPORATION
FRONTIER OLDSMOBILE--CADILLAC, INC.
SONIC DODGE, LLC
SONIC
CHRYSLER--PLYMOUTH--JEEP--EAGLE,
LLC
FORT MILL FORD, INC.
TOWN AND COUNTRY
CHRYSLER--PLYMOUTH--JEEP OF ROCK
HILL, INC.
FORT MILL
CHRYSLER--PLYMOUTH--DODGE
INC.
LONE STAR FORD, INC.
SONIC AUTOMOTIVE OF NEVADA, INC.
SONIC AUTOMOTIVE OF TENNESSEE, INC.
SONIC AUTOMOTIVE - 6025
INTERNATIONAL
DRIVE, LLC
SONIC AUTOMOTIVE OF NASHVILLE, LLC
SONIC AUTOMOTIVE OF CHATTANOOGA,
LLC
TOWN AND COUNTRY JAGUAR, LLC
TOWN AND COUNTRY CHRYSLER
--PLYMOUTH--JEEP, LLC
TOWN AND COUNTRY DODGE OF
CHATTANOOGA, LLC
SONIC AUTOMOTIVE - 2490 SOUTH LEE
HIGHWAY, LLC,
TOWN AND COUNTRY FORD OF
CLEVELAND,
LLC
FREEDOM FORD, INC.
SONIC AUTOMOTIVE 5260 PEACHTREE
INDUSTRIAL BLVD., LLC
SONIC AUTOMOTIVE OF GEORGIA, INC.
SONIC PEACHTREE INDUSTRIAL BLVD., L.P.
SONIC AUTOMOTIVE - CLEARWATER, INC.
SONIC AUTOMOTIVE 21699 U.S. HWY. 19 N.,
INC.
SONIC AUTOMOTIVE COLLISION CENTER OF
CLEARWATER, INC.
SONIC AUTOMOTIVE - 1400 AUTOMALL DRIVE,
<PAGE>
COLUMBUS, INC.
SONIC AUTOMOTIVE - 1455 AUTOMALL
DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 1495 AUTOMALL
DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 1500 AUTOMALL
DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 3700 WEST BROAD
STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE - 4000 WEST BROAD
STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE 2424 LAURENS RD.,
GREENVILLE, INC.
SONIC AUTOMOTIVE 2752 LAURENS RD.,
GREENVILLE, INC.
SONIC AUTOMOTIVE - 5585 PEACHTREE
INDUSTRIAL BLVD., LLC
CAPITOL CHEVROLET AND IMPORTS, INC.,
SONIC AUTOMOTIVE - 1919 N. DIXIE HWY.,
NSB,
INC.
SONIC AUTOMOTIVE - 1307 N. DIXIE HWY.,
NSB,
INC.
SONIC AUTOMOTIVE - 1720 MASON AVE.,
DB,
INC.
SONIC AUTOMOTIVE - 3741 S. NOVA RD., PO,
INC.
SONIC AUTOMOTIVE - 241 RIDGEWOOD
AVE.,
HH, INC.
SONIC AUTOMOTIVE - HWY. 153 at
SHALLOWFORD
ROAD, CHATTANOOGA, INC.
By: /s/ B. Scott Smith
------------------------------
Name: B. Scott Smith
Title: Authorized Officer
Attest: /s/ Theodore M. Wright
--------------------------
Name: Theodore M. Wright
Title: Authorized Officer
U.S. BANK TRUST NATIONAL
ASSOCIATION
By: /s/ Judith M. Zuzek
----------------------------
Name:
Title:
<PAGE>
STATE OF NORTH CAROLINA )
) ss.:
COUNTY OF UNION )
On the 29th day of July, 1998, before me personally came Theodore M.
Wright, to me known, who, being by me duly sworn, did depose and say that he
resides at Charlotte, NC; that he is Authorized Officer of Sonic Automotive,
Inc., a corporation described in and which executed the foregoing instrument;
and that he signed his name thereto pursuant to authority of the Board of
Directors of such corporation.
(NOTARIAL
SEAL)
/s/Donna M. Bowen My Comm. exp. 8-12-98
--------------------------------------------
SONIC AUTOMOTIVE, INC
<PAGE>
STATE OF NORTH CAROLINA )
) ss.:
COUNTY OF UNION )
On the 29th day of July, 1998, before me personally came Theodore M.
Wright, to me known, who, being by me duly sworn, did depose and say that he
resides at Charlotte, NC; that he is Authorized Officer of the corporations
listed below, corporations described in and which executed the foregoing
instrument; and that he signed his name thereto pursuant to authority of the
Board of Directors of such corporations.
(NOTARIAL
SEAL)
/s/ Donna M. Bowen My Comm. exp. 8-12-98
--------------------------------------------
TOWN AND COUNTRY FORD
INCORPORATED
MARCUS DAVID CORPORATION
FRONTIER OLDSMOBILE--CADILLAC,
INC.
FORT MILL FORD, INC.
TOWN AND COUNTRY
CHRYSLER--PLYMOUTH--JEEP OF
ROCK HILL, INC.
FORT MILL
CHRYSLER--PLYMOUTH--DODGE
INC.
LONE STAR FORD, INC.
SONIC AUTOMOTIVE OF NEVADA, INC.
SONIC AUTOMOTIVE OF TENNESSEE,
INC.
FREEDOM FORD, INC.
SONIC AUTOMOTIVE OF GEORGIA, INC.
SONIC AUTOMOTIVE - CLEARWATER,
INC.
SONIC AUTOMOTIVE 21699 U.S. HWY. 19 N., INC.
SONIC AUTOMOTIVE COLLISION CENTER OF
CLEARWATER, INC.
SONIC AUTOMOTIVE - 1400 AUTOMALL DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 1455 AUTOMALL DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 1495 AUTOMALL DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 1500 AUTOMALL DRIVE,
COLUMBUS, INC.
SONIC AUTOMOTIVE - 3700 WEST BROAD
STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE - 4000 WEST BROAD
<PAGE>
STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE 2424 LAURENS RD.,
GREENVILLE, INC.
SONIC AUTOMOTIVE 2752 LAURENS RD.,
GREENVILLE, INC.
CAPITOL CHEVROLET AND IMPORTS, INC.,
SONIC AUTOMOTIVE - 1919 N. DIXIE HWY., NSB,
INC.
SONIC AUTOMOTIVE - 1307 N. DIXIE HWY., NSB,
INC.
SONIC AUTOMOTIVE - 1720 MASON AVE., DB,
INC.
SONIC AUTOMOTIVE - 3741 S. NOVA RD.,
PO, INC.
SONIC AUTOMOTIVE - 241 RIDGEWOOD AVE.,
HH, INC.
SONIC AUTOMOTIVE - HWY. 153 at
SHALLOWFORD ROAD, CHATTANOOGA, INC.
<PAGE>
STATE OF NORTH CAROLINA )
) ss.:
COUNTY OF UNION )
On the 29th day of July, 1998, before me personally came Theodore M.
Wright, to me known, who, being by me duly sworn, did depose and say that he
resides at Charlotte, NC; that he is Authorized Officer of the limited liability
corporations listed below, limited liability corporations described in and which
executed the foregoing instrument; and that he signed his name thereto pursuant
to authority of the Board of Directors of such limited liability corporations.
(NOTARIAL
SEAL)
/s/ Donna M. Bowen My Comm. exp. 8-12-98
-----------------------------------------
SONIC DODGE, LLC
SONIC
CHRYSLER--PLYMOUTH--JEEP--EAGLE,
LLC
SONIC AUTOMOTIVE - 6025 INTERNATIONAL
DRIVE, LLC
SONIC AUTOMOTIVE OF NASHVILLE, LLC
SONIC AUTOMOTIVE OF CHATTANOOGA, LLC
TOWN AND COUNTRY JAGUAR, LLC
TOWN AND COUNTRY CHRYSLER
--PLYMOUTH--JEEP, LLC
TOWN AND COUNTRY DODGE OF
CHATTANOOGA, LLC
SONIC AUTOMOTIVE - 2490 SOUTH LEE
HIGHWAY, LLC,
TOWN AND COUNTRY FORD OF CLEVELAND,
LLC
SONIC AUTOMOTIVE 5260 PEACHTREE
INDUSTRIAL BLVD., LLC
<PAGE>
STATE OF NORTH CAROLINA )
) ss.:
COUNTY OF UNION )
On the 29th day of July, 1998, before me personally came Theodore M.
Wright, to me known, who, being by me duly sworn, did depose and say that he
resides at Charlotte, NC; that he is Authorized Officer of Sonic Peachtree
Industrial Blvd., L.P., a limited partnership described in and which executed
the foregoing instrument; and that he signed his name thereto pursuant to
authority of the partners of such limited partnership.
(NOTARIAL
SEAL)
/s/ Donna M. Bowen My Comm. exp. 8-12-98
-----------------------------------------
SONIC PEACHTREE INDUSTRIAL BLVD., L.P.
Exhibit 4.3
THE OBLIGATIONS EVIDENCED HEREBY ARE SUBORDINATE IN THE MANNER AND
TO THE EXTENT SET FORTH IN ARTICLE FOURTEEN OF THE INDENTURE TO THE
OBLIGATIONS (INCLUDING INTEREST) OWED BY THE COMPANY AND CERTAIN OF
ITS SUBSIDIARIES TO ALL SENIOR INDEBTEDNESS; AND EACH HOLDER HEREOF
BY ITS ACCEPTANCE HEREOF, SHALL BE BOUND BY THE PROVISIONS OF THE
SUBORDINATION AS SET FORTH IN SAID ARTICLE FOURTEEN OF THE
INDENTURE.
SONIC AUTOMOTIVE, INC.
------------------
11% SENIOR SUBORDINATED NOTE DUE 2008, SERIES B
CUSIP NO.
83545GAB8
No. __________ $_________________
Sonic Automotive, Inc., a Delaware corporation (herein called the
"Company," which term includes any successor Person under the Indenture
hereinafter referred to), for value received, hereby promises to pay to Cede &
Co. or registered assigns, the principal sum of $______________ United States
dollars on August 1, 2008, at the office or agency of the Company referred to
below, and to pay interest thereon from July 31, 1998, or from the most recent
Interest Payment Date to which interest has been paid or duly provided for,
semiannually on February 1 and August 1 in each year, commencing February 1,
1999 at the rate of 11% per annum, subject to adjustments as described in the
second following paragraph, in United States dollars, until the principal hereof
is paid or duly provided for; PROVIDED that to the extent interest has not been
paid or duly provided for with respect to the Series A Security exchanged for
this Series B Security, interest on this Series B Security shall accrue from the
most recent Interest Payment Date to which interest on the Series A Security
which was exchanged for this Series B Security has been paid or duly provided
for. Interest shall be computed on the basis of a 360-day year comprised of
twelve 30-day months.
<PAGE>
This Series B Security was issued pursuant to the Exchange Offer
pursuant to which the 11% Senior Subordinated Notes due 2008, Series A and
related Guarantees (herein called the "Series A Securities") in like principal
amount were exchanged for the Series B Securities and related Guarantees. The
Series A Securities and the Series B Securities are together (including related
Guarantees) referred to as the "Securities." The Series B Securities rank PARI
PASSU in right of payment with the Series A Securities.
In addition, for any period in which the Series A Security exchanged
for this Series B Security was outstanding, in the event that (a) the Exchange
Offer Registration Statement is not filed with the Commission on or prior to the
60th calendar day following the date of original issue of the Series A Security,
(b) the Exchange Offer Registration Statement has not been declared effective on
or prior to the 135th calendar day following the date of original issue of the
Series A Security, (c) the Exchange Offer is not consummated or a Shelf
Registration Statement is not declared effective, in either case, on or prior to
the 165th calendar day following the date of original issue of the Series A
Security or (d) the Shelf Registration Statement is declared effective but shall
thereafter become unusable for more than 30 days in the aggregate (each such
event referred to in clauses (a) through (d) above, a "Registration Default"),
the interest rate borne by the Series A Securities shall be increased by
one-quarter of one percent per annum upon the occurrence of each Registration
Default, which rate (as increased aforesaid) will increase by an additional one
quarter of one percent each 90-day period that such additional interest
continues to accrue under any such circumstance, with an aggregate maximum
increase in the interest rate equal to one percent (1%) per annum. The Shelf
Registration Statement will be required to remain effective until the second
anniversary of the Series A Securities. Following the cure of all Registration
Defaults, the accrual of additional interest will cease and the interest rate
will revert to the original rate; PROVIDED that, to the extent interest at such
increased interest rate has been paid or duly provided for with respect to the
Series A Security, interest at such increased interest rate, if any, on this
Series B Security shall accrue from the most recent Interest Payment Date to
which such interest on the Series A Security has been paid or duly provided for;
PROVIDED, HOWEVER, that, if after any such reduction in interest rate, a
different event specified in clause (a), (b), (c) or (d) above occurs, the
interest rate shall again be increased pursuant to the foregoing provisions.
The interest so payable, and punctually paid or duly provided for,
on any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or any Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest, which
shall be the January 15 or July 15 (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date. Any such interest not so
punctually paid, or duly provided for,
<PAGE>
and interest on such defaulted interest at the interest rate borne by the Series
B Securities, to the extent lawful, shall forthwith cease to be payable to the
Holder on such Regular Record Date, and may either be paid to the Person in
whose name this Security (or any Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such defaulted
interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or be paid
at any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and upon such
notice as may be required by such exchange, all as more fully provided in this
Indenture.
Payment of the principal of, premium, if any, and interest on, this
Security, and exchange or transfer of the Security, will be made at the office
or agency of the Company in The City of New York maintained for such purpose
(which initially will be a corporate trust office of the Trustee located at 100
Wall Street, 20th Floor, New York, New York, 10005), or at such other office or
agency as may be maintained for such purpose, in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts; PROVIDED, HOWEVER, that payment of interest may be
made at the option of the Company by check mailed to the address of the Person
entitled thereto as such address shall appear on the Security Register.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
This Security is entitled to the benefits of the Guarantees by the
Guarantors of the punctual payment when due and performance of the Indenture
Obligations made in favor of the Trustee for the benefit of the Holders.
Reference is made to Article Thirteen of the Indenture for a statement of the
respective rights, limitations of rights, duties and obligations under the
Guarantees of the Guarantors.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof or by the
authenticating agent appointed as provided in the Indenture by manual signature
of an authorized signer, this Security shall not be entitled to any benefit
under the Indenture, or be valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed by the manual or facsimile signature of its authorized officers.
Sonic Automotive, Inc.
By: __________________________________
Name:
Title:
Attest:
- ----------------------------
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the 11% Senior Subordinated Notes due 2008, Series B
referred to in the within-mentioned Indenture.
U.S Bank Trust National Association,
as Trustee
By: _________________________________
Authorized Signer
Dated:
<PAGE>
Sonic Automotive, Inc.
11% Senior Subordinated Note due 2008, Series B
This Security is one of a duly authorized issue of Securities of the
Company designated as its 11% Senior Subordinated Notes due 2008, Series B
(herein called the "Securities"), limited (except as otherwise provided in the
Indenture referred to below) in aggregate principal amount to $125,000,000,
issued under and subject to the terms of an indenture (herein called the
"Indenture") dated as of July 1, 1998, among the Company, the Guarantors and
U.S. Bank Trust National Association, as trustee (herein called the "Trustee,"
which term includes any successor trustee under the Indenture), to which
Indenture and all indentures supplemental thereto reference is hereby made for a
statement of the respective rights, limitations of rights, duties, obligations
and immunities thereunder of the Company, the Guarantors, the Trustee and the
Holders of the Securities, and of the terms upon which the Securities are, and
are to be, authenticated and delivered.
The Securities are subject to redemption at any time on or after
August 1, 2003, at the option of the Company, in whole or in part, on not less
than 30 nor more than 60 days' prior notice, in amounts of $1,000 or an integral
multiple thereof, at the following redemption prices (expressed as percentages
of the principal amount), if redeemed during the 12-month period beginning
August 1 of the years indicated below:
Redemption
Year Price
---- ------
2003........................... 105.500%
2004........................... 103.667%
2005........................... 101.833%
and thereafter at 100% of the principal amount, in each case, together with
accrued and unpaid interest, if any, to the Redemption Date (subject to the
rights of Holders of record on relevant record dates to receive interest due on
an Interest Payment Date).
In addition, at any time on or prior to August 1, 2001, the Company
may, at its option, use the net proceeds of one or more Public Equity Offerings
to redeem up to an aggregate of 35% of the aggregate principal amount of
Securities originally issued under the Indenture at a redemption price equal to
111% of the aggregate principal amount thereof, plus accrued and unpaid interest
thereon, if any, to the Redemption Date; provided that at least 65% aggregate
principal amount of the Securities initially issued remains outstanding
immediately after the occurrence of such redemption. In order to effect the
foregoing redemption, the Company must mail a notice of redemption no later than
30 days after the closing of the related Public
<PAGE>
Equity Offering and must consummate such redemption within 60 days of the
closing of the Public Equity Offering.
If less than all of the Securities are to be redeemed, the Trustee
shall select the Securities or portions thereof to be redeemed pro rata, by lot
or by any other method the Trustee shall deem fair and reasonable.
Upon the occurrence of a Change of Control, each Holder may require
the Company to purchase such Holder's Securities in whole or in part in integral
multiples of $1,000, at a purchase price in cash in an amount equal to 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
date of purchase, pursuant to a Change of Control Offer in accordance with the
procedures set forth in the Indenture.
Under certain circumstances, in the event the Net Cash Proceeds
received by the Company from any Asset Sale, which proceeds are not used to
repay permanently any Senior Indebtedness or Senior Guarantor Indebtedness or
invested in Replacement Assets or exceeds a specified amount, the Company will
be required to apply such proceeds to the repayment of the Securities and
certain Indebtedness ranking PARI PASSU in right of payment to the Securities.
In the case of any redemption or repurchase of Securities in
accordance with the Indenture, interest installments whose Stated Maturity is on
or prior to the Redemption Date will be payable to the Holders of such
Securities of record as of the close of business on the relevant Regular Record
Date or Special Record Date referred to on the face hereof. Securities (or
portions thereof) for whose redemption and payment provision is made in
accordance with the Indenture shall cease to bear interest from and after the
Redemption Date.
In the event of redemption or repurchase of this Security in
accordance with the Indenture in part only, a new Security or Securities for the
unredeemed portion hereof shall be issued in the name of the Holder hereof upon
the cancellation hereof.
If an Event of Default shall occur and be continuing, the principal
amount of all the Securities may be declared due and payable in the manner and
with the effect provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (a)
the entire Indebtedness on the Securities and (b) certain restrictive covenants
and related Defaults and Events of Default, in each case upon compliance with
certain conditions set forth therein.
<PAGE>
The Indenture permits, with certain exceptions (including certain
amendments permitted without the consent of any Holders and certain amendments
which require the consent of all the Holders) as therein provided, the amendment
thereof and the modification of the rights and obligations of the Company and
the Guarantors and the rights of the Holders under the Indenture and the
Securities and the Guarantees at any time by the Company and the Trustee with
the consent of the Holders of at least a majority in aggregate principal amount
of the Securities at the time Outstanding. The Indenture also contains
provisions permitting the Holders of at least a majority in aggregate principal
amount of the Securities (100% of the Holders in certain circumstances) at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company and the Guarantors with certain provisions of the
Indenture and the Securities and the Guarantees and certain past Defaults under
the Indenture and the Securities and the Guarantees and their consequences. Any
such consent or waiver by or on behalf of the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders of this
Security and of any Security issued upon the registration of transfer hereof or
in exchange herefor or in lieu hereof whether or not notation of such consent or
waiver is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, any Guarantor or any other obligor on the Securities (in the event such
Guarantor or such other obligor is obligated to make payments in respect of the
Securities), which is absolute and unconditional, to pay the principal of,
premium, if any, and interest on, this Security at the times, place, and rate,
and in the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, duly endorsed by, or accompanied by a written instrument of transfer in
form satisfactory to the Company and the Security Registrar duly executed by,
the Holder hereof or its attorney duly authorized in writing, and thereupon one
or more new Securities, of authorized denominations and for the same aggregate
principal amount, will be issued to the designated transferee or transferees.
Certificated securities shall be transferred to all beneficial
holders in exchange for their beneficial interests in the Rule 144A Global
Securities or the Regulation S Global Securities if (x) the Depositary notifies
the Company that it is unwilling or unable to continue as Depositary for such
Global Security and a successor Depositary is not appointed by the Company
within 90 days or (y) there shall have occurred and be continuing an Event of
Default and the Security Registrar has received
<PAGE>
a request from the Depositary. Upon any such issuance, the Trustee is required
to register such certificated Series B Securities in the name of, and cause the
same to be delivered to, such Person or Persons (or the nominee of any thereof).
Series B Securities in certificated form are issuable only in
registered form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to certain
limitations therein set forth, the Series B Securities are exchangeable for a
like aggregate principal amount of Securities of a differing authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, any Guarantor, the Trustee and any agent of the Company,
any Guarantor or the Trustee may treat the Person in whose name this Security is
registered as the owner hereof for all purposes, whether or not this Security is
overdue, and neither the Company, any Guarantor, the Trustee nor any such agent
shall be affected by notice to the contrary.
THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES THEREOF.
All capitalized terms used in this Security which are defined in the
Indenture and not otherwise defined herein shall have the meanings assigned to
them in the Indenture.
<PAGE>
GUARANTEES
For value received, each of the undersigned hereby absolutely, fully and
unconditionally and irrevocably guarantees, jointly and severally with each
other Guarantor, to the holder of this Security the payment of principal of,
premium, if any, and interest on this Security upon which these Guarantees are
endorsed in the amounts and at the time when due and payable whether by
declaration thereof, or otherwise, and interest on the overdue principal and
interest, if any, of this Security, if lawful, and the payment or performance of
all other obligations of the Company under the Indenture or the Securities, to
the holder of this Security and the Trustee, all in accordance with and subject
to the terms and limitations of this Security and Article Thirteen of the
Indenture. This Guarantee will not become effective until the Trustee duly
executes the certificate of authentication on this Security. These Guarantees
shall be governed by and construed in accordance with the laws of the State of
New York, without regard to conflict of law principles thereof.
Dated:
TOWN AND COUNTRY FORD INCORPORATED
MARCUS DAVID CORPORATION
FRONTIER OLDSMOBILE--CADILLAC, INC.
SONIC DODGE, LLC
SONIC CHRYSLER--PLYMOUTH--JEEP--EAGLE, LLC
FORT MILL FORD, INC.
TOWN AND COUNTRY CHRYSLER--PLYMOUTH--JEEP OF
ROCK HILL, INC.
FORT MILL CHRYSLER--PLYMOUTH--DODGE INC.
LONE STAR FORD, INC.
SONIC AUTOMOTIVE OF NEVADA, INC.
SONIC AUTOMOTIVE OF TENNESSEE, INC.
SONIC AUTOMOTIVE - 6025 INTERNATIONAL DRIVE, LLC
SONIC AUTOMOTIVE OF NASHVILLE, LLC
SONIC AUTOMOTIVE OF CHATTANOOGA, LLC
TOWN AND COUNTRY JAGUAR, LLC
TOWN AND COUNTRY CHRYSLER--PLYMOUTH--JEEP, LLC
TOWN AND COUNTRY DODGE OF CHATTANOOGA, LLC
SONIC AUTOMOTIVE - 2490 SOUTH LEE HIGHWAY, LLC
TOWN AND COUNTRY FORD OF CLEVELAND, LLC
FREEDOM FORD, INC.
SONIC AUTOMOTIVE 5260 PEACHTREE INDUSTRIAL BLVD., LLC
SONIC AUTOMOTIVE OF GEORGIA, INC.
SONIC PEACHTREE INDUSTRIAL BLVD., L.P.
SONIC AUTOMOTIVE - CLEARWATER, INC.
SONIC AUTOMOTIVE 21699 U.S. HWY. 19 N., INC.
SONIC AUTOMOTIVE COLLISION CENTER OF CLEARWATER, INC.
SONIC AUTOMOTIVE - 1400 AUTOMALL DRIVE, COLUMBUS, INC.
<PAGE>
SONIC AUTOMOTIVE - 1455 AUTOMALL DRIVE, COLUMBUS, INC.
SONIC AUTOMOTIVE - 1495 AUTOMALL DRIVE, COLUMBUS, INC.
SONIC AUTOMOTIVE - 1500 AUTOMALL DRIVE, COLUMBUS, INC.
SONIC AUTOMOTIVE - 3700 WEST BROAD STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE - 4000 WEST BROAD STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE 2424 LAURENS RD., GREENVILLE, INC.
SONIC AUTOMOTIVE 2752 LAURENS RD., GREENVILLE, INC.
SONIC AUTOMOTIVE - 5585 PEACHTREE INDUSTRIAL BLVD., LLC
CAPITOL CHEVROLET AND IMPORTS, INC.
SONIC AUTOMOTIVE - 1919 N. DIXIE HWY., NSB, INC.
SONIC AUTOMOTIVE - 1307 N. DIXIE HWY., NSB, INC.
SONIC AUTOMOTIVE - 1720 MASON AVE., DB, INC.
SONIC AUTOMOTIVE - 3741 S. NOVA RD., PO, INC.
SONIC AUTOMOTIVE - 241 RIDGEWOOD AVE., HH, INC.
SONIC AUTOMOTIVE - HWY. 153 at SHALLOWFORD ROAD,
CHATTANOOGA, INC.
CASA FORD OF HOUSTON, INC.
SONIC AUTOMOTIVE - 1720 MASON AVE., DB, LLC
By: ______________________________________
Name: ______________________________
Title: _______________________________
Attest: _______________________
Name: ________________________
Title: _________________________
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant
to Section 1012 or Section 1014, as applicable, of the Indenture, check the Box:
[ ].
If you wish to have a portion of this Security purchased by the
Company pursuant to Section 1012 or Section 1014 as applicable, of the
Indenture, state the amount (in original principal amount):
$___________________
Date: ____________________ Your Signature: ____________________________
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee: ___________________________________________________
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
<PAGE>
FORM OF TRANSFEREE CERTIFICATE
I or we assign and transfer this Security to:
Please insert social security or other identifying number of assignee
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
Print or type name, address and zip code of assignee and irrevocably appoint
- ------------------------------------------------------------------------
[Agent], to transfer this Security on the books of the Company. The Agent may
substitute another to act for him.
Dated ___________________ Signed ___________________________
(Sign exactly as name appears on the other side of this Security)
[Signature must be guaranteed by an eligible Guarantor Institution (banks, stock
brokers, savings and loan associations and credit unions) with membership in an
approved guarantee medallion program pursuant to Securities and Exchange
Commission Rule 17Ad-15]
AMENDMENT NO. 1
AND
SUPPLEMENT
TO
ASSET PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 AND SUPPLEMENT TO ASSET PURCHASE AGREEMENT (this
"AMENDMENT") is made and entered into as of this 16th day of September, 1998, by
and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the "BUYER"), and HMC
FINANCE CORPORATION, INC., a Florida corporation ("HMC"), HALIFAX FORD-MERCURY,
INC., a Florida corporation ("HALIFAX"), HIGGINBOTHAM AUTOMOBILES, INC., a
Florida corporation ("HAI"), HIGGINBOTHAM CHEVROLET-OLDSMOBILE, INC., a Florida
corporation ("HCO"), and SUNRISE AUTO WORLD, INC., a Florida corporation
("SUNRISE" and, together with HMC, HALIFAX, HAI, and HCO, collectively, the
"SELLERS" and each, individually, a "SELLER"), and DENNIS D. HIGGINBOTHAM (the
"STOCKHOLDER").
WITNESSETH:
WHEREAS, the parties hereto have entered into the Asset Purchase Agreement
dated as of July 7, 1998 (the "ASSET PURCHASE AGREEMENT"); capitalized terms
used herein and not otherwise defined herein shall have the meanings assigned to
them in the Asset Purchase Agreement;
WHEREAS, the parties hereto wish to amend and supplement the Asset
Purchase Agreement as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the receipt and legal sufficiency of which are hereby
acknowledged. and intending to be legally bound, the parties hereto hereby agree
as follows:
1. Schedules; Issuance of Preferred Stock. All of the Schedules to the
Asset Purchase Agreement (including a revised Index thereof) have been agreed to
by the parties and are attached to this Amendment. Such Schedules include a new
Schedule 3.5 - Used Vehicles, and a new Schedule 5.5 - Prepaid Expenses and
Deposits. All shares of Preferred Stock shall be issued to Dennis D.
Higginbotham, as trustee; accordingly, Part III of Schedule 2.2 is hereby
deleted. Such shares of Preferred Stock shall be issued by the Buyer on
September 18, 1998 unless otherwise mutually agreed in writing by the Buyer and
Dennis D. Higginbotham prior to September 18, 1998.
2. Assumption of Certain Floor Planning Indebtedness: Reduction of New
Vehicle Purchase Price. The parties acknowledge and agree that, notwithstanding
the disclosure of any Retained Liabilities in the Schedules, the Buyer is not
assuming any Retained Liabilities including, without limitation, all liabilities
or obligations of the Sellers under lines of credit,
<PAGE>
long and short term indebtedness; provided, however, the parties agree that the
"Liabilities" do include all "floor planning" indebtedness outstanding to
NationsBank and Ford Motor Credit as of the Closing ("INDEBTEDNESS").
Accordingly, the New Vehicle Purchase Price shall be reduced by the amount of
the Indebtedness. At the Closing, the Sellers' Agent will deliver estoppel
and/or payoff letters from Ford Motor Credit and NationsBank and the Buyer shall
assume the Indebtedness and be obligated to pay the Indebtedness in accordance
with its respective terms.
3. Real Property Purchase Agreements. The parties hereby waive the
respective conditions to the Closing set forth in Sections 8.14 and 9.7 of the
Asset Purchase Agreement; provided, however, such waiver shall not be construed
as a waiver of the respective rights and obligations of the parties under the
Real Property Purchase Agreements. Contemporaneously herewith, the Buyer and the
Owners are entering into a lease or leases of the Real Property pending the
closings under the Real Property Purchase Agreements. The Sellers and the
Stockholder acknowledge that the Buyer may assign the Real Property Purchase
Agreements to Mar Mar Realty Trust, or an affiliate thereof, it being understood
that such assignment shall not relieve the Buyer of its obligations under the
Real Property Purchase Agreements.
4. Amendments. The definition of "CLOSING DATE" in Article I of the Asset
Purchase Agreement is hereby amended to be the date of this Amendment.
5. Release from Personal Guarantees. The Buyer shall use its best
reasonable efforts to obtain the release of Dennis D. Higginbotham from his
personal guarantees of those Liabilities specified in Schedule 9.12 to the Asset
Purchase Agreement, as well as any such personal guarantees of the Indebtedness.
If necessary in order to obtain such release of any particular personal
guaranty, the Buyer shall substitute a guaranty by the Buyer of the Liability in
question. Pending such release of Dennis D. Higginbotham, the Buyer will
indemnify and hold harmless Dennis D. Higginbotham from and against all
Liabilities (including the Indebtedness) personally guaranteed by him.
6. Asset Purchase Agreement Confirmed. Except as provided in this
Amendment, the Asset Purchase Agreement is hereby confirmed, as amended hereby,
and shall continue in full force and effect.
[SIGNATURES ON NEXT PAGE]
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day, month and year first above written.
THE BUYER: SONIC AUTOMOTIVE, INC.
By: /s/ Theodore M. Wright
---------------------------------------
Name: Theodore M. Wright
Title: Vice President
Federal Taxpayer I.D.: 51-0363307
THE SELLERS: HMC FINANCE CORPORATION, INC.
By: /s/ Dennis D. Higginbotham
-----------------------------------------
Name: Dennis D. Higginbotham
Title: President
Federal Taxpayer I.D.: 59-3095116
HALIFAX FORD-MERCURY, INC.
By: /s/ Dennis D. Higginbotham
-----------------------------------------
Name: Dennis D. Higginbotham
Title: President
Federal Taxpayer I.D.: 59-2806650
HIGGINBOTHAM AUTOMOBILES, INC.
By: /s/ Dennis D. Higginbotham
-----------------------------------------
Name: Dennis D. Higginbotham
Title: President
Federal Taxpayer I.D.: 59-3278207
HIGGINBOTHAM CHEVROLET-
OLDSMOBILE, INC.
By: /s/ Dennis D. Higginbotham
-----------------------------------------
Name: Dennis D. Higginbotham
Title: President
Federal Taxpayer I.D.: 59-1671876
3
<PAGE>
SUNRISE AUTO WORLD, INC.
By: /s/ Dennis D. Higginbotham
-----------------------------------------
Name: Dennis D. Higginbotham
Title: President
Federal Taxpayer I.D.: 59-3297730
THE STOCKHOLDER: /s/ Dennis D. Higginbotham (SEAL)
-------------------------------
DENNIS D. HIGGINBOTHAM
4
<PAGE>
INDEX OF SCHEDULES AND EXHIBITS
TO
ASSET PURCHASE AGREEMENT
Schedules
---------
<TABLE>
<CAPTION>
<S> <C>
Schedule 2.2 Part I - Allocation of Purchase Price Among Sellers
Part II - Allocation of Purchase Price and Liabilities to Assets
Part III - [Intentionally Deleted]
Schedule 2.4 Part I - Liabilities
Part II - Retained Liabilities
Schedule 2.5 Promissory Note from HMC to Dennis D. Higginbotham
Schedule 3.1 New Vehicles
Schedule 3.2 Demonstrators
Schedule 3.5 Used Vehicles
Schedule 5.4 Fixtures and Equipment (Book Depreciation Schedule)
Schedule 5.5 Prepaid Expenses and Deposits
Schedule 5.9 HMC Receivables
Schedule 6.2 Compliance re: Buyer
Schedule 7.1 Stockholders
Schedule 7.2 Compliance re: Seller and Stockholder
Schedule 7.3 Pending or Threatened Actions, Suits or Proceedings
Schedule 7.4 Encumbrances on the Assets
Schedule 7.5 Permits and Approvals
Schedule 7.7 Employees
Schedule 7.10 Compliance with Laws
Schedule 9.12 Personal Guarantees by Dennis D. Higginbotham
</TABLE>
Exhibits
A Form of Bills of Sale
B Statement of Rights and Preferences
C Form of Non-Competition Agreement
D Form of Employment Agreement - Dennis Higginbotham
5
EXHIBIT 10.88
<TABLE>
<S> <C>
SONIC AUTOMOTIVE, INC. (a Delaware corporation)
TOWN AND COUNTRY FORD INCORPORATED (a North Carolina corporation),
MARCUS DAVID CORPORATION (a North Carolina corporation),
FRONTIER OLDSMOBILE--CADILLAC, INC. (a North Carolina corporation),
SONIC DODGE, LLC (a North Carolina limited liability company),
SONIC CHRYSLER--PLYMOUTH--JEEP--EAGLE, LLC
(a North Carolina limited liability company),
FORT MILL FORD, INC. (a South Carolina corporation),
TOWN AND COUNTRY CHRYSLER--PLYMOUTH--JEEP OF ROCK HILL, INC.
(a South Carolina corporation),
FORT MILL CHRYSLER--PLYMOUTH--DODGE INC. (a South Carolina corporation),
LONE STAR FORD, INC. (a Texas corporation),
SONIC AUTOMOTIVE OF NEVADA, INC. (a Nevada corporation),
SONIC AUTOMOTIVE OF TENNESSEE, INC.(a Tennessee corporation),
SONIC AUTOMOTIVE--6025 INTERNATIONAL DRIVE, LLC
(a Tennessee limited liability company),
SONIC AUTOMOTIVE OF NASHVILLE, LLC (a Tennessee limited liability company),
SONIC AUTOMOTIVE OF CHATTANOOGA, LLC (a Tennessee limited liability company),
TOWN AND COUNTRY JAGUAR, LLC (a Tennessee limited liability company),
TOWN AND COUNTRY CHRYSLER--PLYMOUTH--JEEP, LLC
(a Tennessee limited liability company),
TOWN AND COUNTRY DODGE OF CHATTANOOGA, LLC
(a Tennessee limited liability company),
SONIC AUTOMOTIVE--2490 SOUTH LEE HIGHWAY, LLC
(a Tennessee limited liability company),
TOWN AND COUNTRY FORD OF CLEVELAND, LLC (an Ohio limited liability company),
FREEDOM FORD, INC. (a Florida corporation),
SONIC AUTOMOTIVE 5260 PEACHTREE INDUSTRIAL BLVD., LLC (a Georgia limited liability company),
SONIC AUTOMOTIVE OF GEORGIA, INC. (a Georgia corporation),
SONIC PEACHTREE INDUSTRIAL BLVD., L.P. (a Georgia limited partnership),
SONIC AUTOMOTIVE -- CLEARWATER, INC. (a Florida corporation),
SONIC AUTOMOTIVE 21699 U.S. HWY. 19 N., INC. (a Florida corporation),
SONIC AUTOMOTIVE COLLISION CENTER OF CLEARWATER, INC. (a Florida corporation),
SONIC AUTOMOTIVE -- 1400 AUTOMALL DRIVE, COLUMBUS, INC. (an Ohio corporation),
SONIC AUTOMOTIVE -- 1455 AUTOMALL DRIVE, COLUMBUS, INC. (an Ohio corporation)
SONIC AUTOMOTIVE -- 1495 AUTOMALL DRIVE, COLUMBUS, INC. (an Ohio corporation)
SONIC AUTOMOTIVE -- 1500 AUTOMALL DRIVE, COLUMBUS, INC. (an Ohio corporation)
SONIC AUTOMOTIVE -- 3700 WEST BROAD STREET, COLUMBUS, INC. (an Ohio corporation)
SONIC AUTOMOTIVE -- 4000 WEST BROAD STREET, COLUMBUS, INC. (an Ohio corporation)
SONIC AUTOMOTIVE 2424 LAURENS RD., GREENVILLE, INC. (a South Carolina corporation),
SONIC AUTOMOTIVE 2752 LAURENS RD., GREENVILLE, INC. (a South Carolina corporation),
SONIC AUTOMOTIVE -- 5585 PEACHTREE INDUSTRIAL BLVD., LLC (a Georgia limited liability company),
CAPITOL CHEVROLET AND IMPORTS, INC. (an Alabama corporation),
SONIC AUTOMOTIVE - 1919 N. DIXIE HWY., NSB, INC. (a Florida corporation),
SONIC AUTOMOTIVE - 1307 N. DIXIE HWY., NSB, INC. (a Florida corporation),
SONIC AUTOMOTIVE - 1720 MASON AVE., DB, INC. (a Florida corporation),
SONIC AUTOMOTIVE - 3741 S. NOVA RD., PO, INC. (a Florida corporation)
SONIC AUTOMOTIVE -241 RIDGEWOOD AVE., HH, INC. (a Florida corporation) and
SONIC AUTOMOTIVE - HWY. 153 at SHALLOWFORD ROAD, CHATTANOOGA, INC.
$125,000,000
11% Senior Subordinated Notes due 2008
PURCHASE AGREEMENT
Dated: July 28, 1998
</TABLE>
================================================================================
<PAGE>
PURCHASE AGREEMENT............................................................2
SECTION 1. Representations and Warranties.....................................4
(a) Representations and Warranties by the Company
and the Guarantors................................................4
(i) Similar Offerings........................................4
(ii) Offering Memorandum......................................4
(iii) Independent Accountants..................................4
(iv) Financial Statements.....................................4
(v) No Material Adverse Change in Business...................5
(vi) Good Standing of the Company.............................5
(vii) Good Standing of Subsidiaries............................5
(viii) Capitalization...........................................6
(ix) Authorization of Offering under the Ford Motor
Credit Facility..........................................6
---------------
(x) Authorization of Agreements..............................6
---------------------------
(xi) Authorization of the Indenture...........................6
------------------------------
(xii) Authorization of the Securities, the Guarantees
-----------------------------------------------
and the Exchange Securities..............................7
(xiii) Description of the Securities, the Guarantees,
the Indenture, the Registration Rights Agreement
and the Exchange Securities..............................7
---------------------------
(xiv) Absence of Defaults and Conflicts........................7
---------------------------------
(xv) Absence of Labor Disputes................................8
---------------------------------
(xvi) Absence of Proceedings...................................8
---------------------------------
(xvii) Possession of Intellectual Property......................9
-----------------------------------
(xviii) Absence of Further Requirements..........................9
-------------------------------
(xix) Possession of Licenses and Permits.......................9
----------------------------------
(xx) Title to Property........................................10
-----------------
(xxi) Tax Returns..............................................10
-----------
(xxii) Insurance................................................11
---------
(xxiii) Solvency.................................................11
--------
(xxiv) Stabilization or Manipulation............................11
-----------------------------
-i-
<PAGE>
(xxv) Related Party Transactions...............................11
(xxvi) Suppliers................................................11
---------
(xxvii) Environmental Laws.......................................11
------------------
(xxviii) Registration Rights......................................12
-------------------
(xxix) Accounting Controls......................................12
-------------------
(xxx) Investment Company Act...................................12
----------------------
(xxxi) Rule 144A Eligibility....................................13
---------------------
(xxxii) No General Solicitation..................................13
-----------------------
(xxxiii) No Registration Required.................................13
------------------------
(xxxiv) No Directed Selling Efforts..............................13
---------------------------
(xxxv) PORTAL...................................................13
------
(xxxvi) Acquisition Agreements...................................13
----------------------
(xxxvii) Franchise Agreements.....................................14
(xxxviii)Year 2000................................................14
---------
(b) Officer's Certificates..............................................14
SECTION 2. Sale and Delivery to Initial Purchasers; Closing...................14
------------------------------------------------
(a) Securities and Guarantees.........................................14
(b) Payment...........................................................14
(c) Qualified Institutional Buyer.....................................15
(d) Denominations; Registration.......................................15
SECTION 3. Covenants of the Company and the Guarantors........................15
-------------------------------------------
(a) Offering Memorandum...............................................15
(b) Notice and Effect of Material Events..............................15
(c) Amendment to Offering Memorandum and Supplements..................16
(d) Qualification of Securities and Guarantees for Offer and Sale.....16
(e) Integration.......................................................16
(f) Rating of Securities..............................................16
-ii-
<PAGE>
(g) Rule 144A Information.............................................17
(h) Restriction on Resales............................................17
(i) Use of Proceeds...................................................17
(j) Restriction on Sale of Securities.................................17
(k) DTC Clearance.....................................................17
(l) Legends...........................................................17
(m) Interim Financial Statements......................................18
(n) Periodic Reports..................................................18
SECTION 4. Payment of Expenses................................................18
-------------------
(a) Expenses..........................................................18
(b) Termination of Agreement..........................................19
SECTION 5. Conditions of Initial Purchasers' Obligations......................19
---------------------------------------------
(a) Opinion of Counsel for the Company and the Guarantors.............19
(b) Opinion of Counsel for the Initial Purchasers.....................19
(c) Officers' Certificate.............................................19
(d) Accountants' Letters and Consents.................................20
(e) Bring-down Letters................................................20
(f) Maintenance of Rating.............................................20
(g) PORTAL............................................................20
(h) Chief Financial Officer's Certificate.............................20
(i) Registration Rights Agreement and Indenture.......................21
(j) Manufacturers' Consents...........................................21
(k) Ford Motor Credit.................................................21
(l) Smith Subordination Agreement.....................................21
-iii-
<PAGE>
(m) Additional Documents..............................................21
(n) Termination of Agreement..........................................21
SECTION 6. Indemnification....................................................21
---------------
(a) Indemnification of Initial Purchasers.............................21
(b) Indemnification of Company, Guarantors, and Directors.............22
(c) Actions against Parties; Notification............................22
(d) Settlement without Consent if Failure to Reimburse................23
SECTION 7. Contribution.......................................................23
SECTION 8. Representations, Warranties and Agreements to Survive Delivery.....25
--------------------------------------------------------------
SECTION 9. Termination of Agreement...........................................25
------------------------
(a) Termination; General..............................................25
(b) Liabilities.......................................................25
SECTION 10. Default by One or More of the Initial Purchasers..................25
------------------------------------------------
SECTION 11. Notices...........................................................26
-------
SECTION 12. Parties...........................................................26
-------
SECTION 13. Governing Law And Time............................................27
----------------------
SECTION 14. Effect of Headings................................................27
------------------
Schedule A--Initial Purchasers
Schedule B--Subsidiaries which are Guarantors
Schedule C--Securities
Exhibit A--Form of Opinion
Exhibit B--Form of Comfort Letter
-iv-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
$125,000,000
11 % Senior Subordinated Notes due 2008
SONIC AUTOMOTIVE, INC. (a Delaware corporation)
TOWN AND COUNTRY FORD INCORPORATED (a North Carolina corporation),
MARCUS DAVID CORPORATION (a North Carolina corporation),
FRONTIER OLDSMOBILE--CADILLAC, INC. (a North Carolina corporation),
SONIC DODGE, LLC (a North Carolina limited liability company),
SONIC CHRYSLER--PLYMOUTH--JEEP--EAGLE, LLC (a North Carolina limited liability company),
FORT MILL FORD, INC. (a South Carolina corporation),
TOWN AND COUNTRY CHRYSLER--PLYMOUTH--JEEP OF ROCK HILL, INC. (a South Carolina corporation),
FORT MILL CHRYSLER--PLYMOUTH--DODGE INC. (a South Carolina corporation),
LONE STAR FORD, INC. (a Texas corporation),
SONIC AUTOMOTIVE OF NEVADA, INC. (a Nevada corporation),
SONIC AUTOMOTIVE OF TENNESSEE, INC.(a Tennessee corporation),
SONIC AUTOMOTIVE -- 6025 INTERNATIONAL DRIVE, LLC (a Tennessee limited liability company),
SONIC AUTOMOTIVE OF NASHVILLE, LLC (a Tennessee limited liability company),
SONIC AUTOMOTIVE OF CHATTANOOGA, LLC (a Tennessee limited liability company),
TOWN AND COUNTRY JAGUAR, LLC (a Tennessee limited liability company),
TOWN AND COUNTRY CHRYSLER--PLYMOUTH--JEEP, LLC (a Tennessee limited liability company),
TOWN AND COUNTRY DODGE OF CHATTANOOGA, LLC (a Tennessee limited liability company),
SONIC AUTOMOTIVE -- 2490 SOUTH LEE HIGHWAY, LLC (a Tennessee limited liability company),
TOWN AND COUNTRY FORD OF CLEVELAND, LLC (an Ohio limited liability company),
FREEDOM FORD, INC. (a Florida corporation),
SONIC AUTOMOTIVE 5260 PEACHTREE INDUSTRIAL BLVD., LLC (a Georgia limited liability company),
SONIC AUTOMOTIVE OF GEORGIA, INC. (a Georgia corporation),
SONIC PEACHTREE INDUSTRIAL BLVD., L.P. (a Georgia limited partnership),
SONIC AUTOMOTIVE -- CLEARWATER, INC. (a Florida corporation),
SONIC AUTOMOTIVE 21699 U.S. HWY. 19 N., INC. (a Florida corporation),
SONIC AUTOMOTIVE COLLISION CENTER OF CLEARWATER, INC. (a Florida corporation),
SONIC AUTOMOTIVE -- 1400 AUTOMALL DRIVE, COLUMBUS, INC. (an Ohio corporation),
SONIC AUTOMOTIVE -- 1455 AUTOMALL DRIVE, COLUMBUS, INC. (an Ohio corporation)
SONIC AUTOMOTIVE -- 1495 AUTOMALL DRIVE, COLUMBUS, INC. (an Ohio corporation)
SONIC AUTOMOTIVE -- 1500 AUTOMALL DRIVE, COLUMBUS, INC. (an Ohio corporation)
SONIC AUTOMOTIVE -- 3700 WEST BROAD STREET, COLUMBUS, INC. (an Ohio corporation)
SONIC AUTOMOTIVE -- 4000 WEST BROAD STREET, COLUMBUS, INC. (an Ohio corporation)
SONIC AUTOMOTIVE 2424 LAURENS RD., GREENVILLE, INC. (a South Carolina corporation),
SONIC AUTOMOTIVE 2752 LAURENS RD., GREENVILLE, INC. (a South Carolina corporation),
SONIC AUTOMOTIVE -- 5585 PEACHTREE INDUSTRIAL BLVD., LLC (a Georgia limited liability company),
CAPITOL CHEVROLET AND IMPORTS, INC. (an Alabama corporation),
SONIC AUTOMOTIVE - 1919 N. DIXIE HWY., NSB, INC. (a Florida corporation),
SONIC AUTOMOTIVE - 1307 N. DIXIE HWY., NSB, INC. (a Florida corporation),
SONIC AUTOMOTIVE - 1720 MASON AVE., DB, INC. (a Florida corporation),
SONIC AUTOMOTIVE - 3741 S. NOVA RD., PO, INC. (a Florida corporation)
SONIC AUTOMOTIVE -241 RIDGEWOOD AVE., HH, INC. (a Florida corporation) and
SONIC AUTOMOTIVE - HWY. 153 at SHALLOWFORD ROAD, CHATTANOOGA, INC.
</TABLE>
-1-
<PAGE>
PURCHASE AGREEMENT
July 28, 1998
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
NationsBanc Montgomery Securities LLC
BancAmerica Robertson Stephens
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Sonic Automotive, Inc., a Delaware corporation (the "Company"), and each
of the Guarantors listed on Schedule B hereto (the "Guarantors") confirm their
respective agreements with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner &
Smith Incorporated ("Merrill Lynch") and each of the other Initial Purchasers
named in Schedule A hereto (collectively, the "Initial Purchasers," which term
shall also include any initial purchaser substituted as hereinafter provided in
Section 10 hereof), for whom Merrill Lynch is acting as representative (in such
capacity, the "Representative"), with respect to (i) the issue and sale by the
Company and the purchase by the Initial Purchasers, acting severally and not
jointly, of the respective principal amounts set forth in said Schedule A of
$125,000,000 aggregate principal amount of the Company's 11% Senior Subordinated
Notes due 2008 (the "Securities") and (ii) the issue and sale by the Guarantors
and the purchase by the Initial Purchasers, acting severally and not jointly, of
the senior subordinated guarantees (the AGuarantees@) of the Company's
obligations under the Securities. The Securities and the Guarantees are to be
issued pursuant to an indenture dated as of July 1, 1998 (the "Indenture") among
the Company, the Guarantors and U.S. Bank Trust, as trustee (the "Trustee").
Securities issued in book-entry form will be issued to Cede & Co. as nominee of
The Depository Trust Company ("DTC") pursuant to a letter agreement, to be dated
as of the Closing Time (as defined in Section 2(b)) (the "DTC Agreement"), among
the Company, the Trustee and DTC.
The Company and the Guarantors understand that the Initial Purchasers
propose to make an offering of the Securities (together with the related
Guarantees) on the terms and in the manner set forth herein and agree that the
Initial Purchasers may resell, subject to the conditions set forth herein, all
or a portion of the Securities and the Guarantees to purchasers ("Subsequent
Purchasers") at any time after the date of this Agreement. The Securities and
the Guarantees are to be offered and sold through the Initial Purchasers without
being registered under the Securities Act of 1933, as amended (the "1933 Act"),
in reliance upon exemptions therefrom. Pursuant to
-2-
<PAGE>
the terms of the Securities, the Guarantees and the Indenture, investors that
acquire Securities and Guarantees may only resell or otherwise transfer such
Securities and Guarantees if such Securities and Guarantees are hereafter
registered under the 1933 Act or if an exemption from the registration
requirements of the 1933 Act is available (including the exemption afforded by
Rule 144A ("Rule 144A") or Regulation S ("Regulation S") pursuant to the rules
and regulations promulgated under the 1933 Act by the Securities and Exchange
Commission (the "Commission")).
The Company and the Guarantors have prepared and delivered to each Initial
Purchaser copies of a preliminary offering memorandum dated July 8, 1998 (the
"Preliminary Offering Memorandum") and have prepared and will deliver to each
Initial Purchaser, on the date hereof or the next succeeding day, copies of a
final offering memorandum dated July 28, 1998 (the "Final Offering Memorandum"),
each to be used by such Initial Purchaser in connection with its solicitation
of, purchases of, or offering of the Securities and the Guarantees. "Offering
Memorandum" means, with respect to any date or time referred to in this
Agreement, the most recent offering memorandum (whether the Preliminary Offering
Memorandum or the Final Offering Memorandum, or any amendment or supplement to
either such document), including exhibits thereto and any documents incorporated
therein by reference, which has been prepared and delivered by the Company and
the Guarantors to the Initial Purchasers in connection with their solicitation
of, purchases of, or offering of the Securities and the Guarantees.
All references in this Agreement to financial statements and schedules and
other information which is "contained," "included" or "stated" in the Offering
Memorandum (or other references of like import) shall be deemed to mean and
include all such financial statements and schedules and other information which
are incorporated by reference in the Offering Memorandum; and all references in
this Agreement to amendments or supplements to the Offering Memorandum shall be
deemed to mean and include the filing of any document under the Securities
Exchange Act of 1934, as amended (the "1934 Act") which is incorporated by
reference in the Offering Memorandum.
The holders of the Securities and the Guarantees will be entitled to the
benefits of the registration rights agreement to be dated as of the Closing Time
(the "Registration Rights Agreement"), among the Company, the Guarantors and the
Initial Purchasers, pursuant to which the Company and the Guarantors will agree
to file, as soon as practicable after the Closing Time but in any event within
30 days of the Closing Time, a registration statement with the Commission
registering the Exchange Securities (as defined in the Registration Rights
Agreement) under the 1933 Act.
-3-
<PAGE>
SECTION 1. Representations and Warranties.
(a) Representations and Warranties by the Company and the Guarantors. The
Company and each of the Guarantors, jointly and severally, represent and warrant
to each Initial Purchaser as of the date hereof and as of the Closing Time
referred to in Section 2(b) hereof, and agrees with each Initial Purchaser as
follows:
(i) Similar Offerings. The Company and the Guarantors have
not, directly or indirectly, solicited any offer to buy or offered to
sell, and will not, directly or indirectly, solicit any offer to buy or
offer to sell, in the United States or to any United States citizen or
resident, any security which is or would be integrated with the sale of
the Securities and the Guarantees in a manner that would require the
Securities or the Guarantees to be registered under the 1933 Act.
(ii) Offering Memorandum. The Offering Memorandum does not,
and at the Closing Time will not, include an untrue statement of a
material fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, that this representation,
warranty and agreement shall not apply to statements in or omissions from
the Offering Memorandum made in reliance upon and in conformity with
information furnished to the Company and the Guarantors in writing by any
Initial Purchaser through Merrill Lynch expressly for use in the Offering
Memorandum.
(iii) Independent Accountants. Each of the accountants who
certified the financial statements and supporting schedules (of (i) the
Company, (ii) its Subsidiaries (as defined below in Section (a)(vii)) or
(iii) any entities acquired or to be acquired by the Company or any of
its Subsidiaries or any of whose assets were or are to be acquired by the
Company or any of its Subsidiaries) included in the Offering Memorandum
are independent certified public accountants within the meaning of
Regulation S-X under the 1933 Act with respect to the Company, the
Guarantors, their respective Subsidiaries and any such entities acquired
or to be acquired by or whose assets were or are to be acquired by the
Company or its Subsidiaries.
(iv)Financial Statements. The financial statements of the
Company, together with the related schedules and notes, included in the
Offering Memorandum present fairly the financial position of the Company
and its consolidated Subsidiaries at the dates indicated and the combined
statements of income, statements of stockholders' equity and statements
of cash flows of the Company and its consolidated Subsidiaries for the
periods specified; said financial statements have been prepared in
conformity with United States generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved.
The financial statements of the entities acquired or to be acquired by
the Company or any of its Subsidiaries or any of whose assets were or are
to be acquired by the Company or any of its Subsidiaries, together with
the related schedules and notes, included in the Offering Memorandum
present fairly the financial position of the entities covered thereby at
the dates indicated and the statements of income, changes in
shareholders' equity and cash flows of the entities covered thereby for
the periods specified; said financial statements have been prepared in
conformity with United States
-4-
<PAGE>
GAAP applied on a consistent basis throughout the periods involved. The
selected financial data and the summary financial information included in
the Offering Memorandum present fairly the information shown therein and
have been compiled on a basis consistent with that of the audited
financial statements included in the Offering Memorandum. The
consolidating pro forma financial statements and other pro forma
financial information (including the summary pro forma financial
information) of the Company, its Subsidiaries and entities acquired or to
be acquired by the Company or its Subsidiaries and the related notes
thereto included in the Offering Memorandum present fairly the
information shown therein, have been prepared in accordance with the
Commission=s published rules and guidelines with respect to pro forma
financial statements and pro forma financial information and have been
properly compiled on the bases described therein, and the assumptions
used in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions and
circumstances referred to therein.
(v) No Material Adverse Change in Business. Since the
respective dates as of which information is given in the Offering
Memorandum, except as otherwise stated therein, (A) there has been no
material adverse change in the condition (financial or otherwise),
earnings, business affairs or business prospects of the Company and its
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business (a "Material Adverse Effect"), (B) there have
been no transactions entered into by the Company or any of its
Subsidiaries, other than those in the ordinary course of business, which
are material with respect to the Company and its Subsidiaries considered
as one enterprise, and (C) there has been no dividend or distribution of
any kind declared, paid or made by the Company on any class of its
capital stock.
(vi) Good Standing of the Company. The Company has been duly
organized and is validly existing as a corporation in good standing under
the laws of the State of Delaware and has corporate power and authority
to own, lease and operate its properties and to conduct its business as
described in the Offering Memorandum and to enter into and perform its
obligations under this Agreement, the Registration Rights Agreement, the
Indenture, the Securities, the Exchange Securities, and the DTC Agreement
and to enter into and consummate all the transactions in connection
therewith as contemplated in the Offering Memorandum; and the Company is
duly qualified as a foreign corporation to transact business and is in
good standing in each other jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to be
in good standing would not result in a Material Adverse Effect.
(vii) Good Standing of Subsidiaries. Each subsidiary of the
Company (each a "Subsidiary" and collectively the "Subsidiaries") is
listed on Schedule B attached hereto. Each Subsidiary is a corporation,
limited liability company or limited partnership duly organized, as the
case may be, validly existing and in good standing under the laws of the
jurisdiction of its organization, has corporate, limited liability
company or limited partnership, as the case may be, power and authority
to own, lease and operate its properties and to conduct its business as
described in the Offering Memorandum and is
-5-
<PAGE>
duly qualified as a foreign corporation to transact business and is in
good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except where the failure so to qualify or to be
in good standing would not result in a Material Adverse Effect; except as
otherwise disclosed in the Offering Memorandum, all of the issued and
outstanding capital stock of each Subsidiary has been duly authorized and
validly issued, is fully paid and non-assessable and is owned by the
Company, directly or through the Subsidiaries, free and clear of any
security interest, mortgage, pledge, lien, encumbrance, claim or equity;
none of the outstanding shares of capital stock of the Subsidiaries was
issued in violation of any preemptive or similar rights arising by
operation of law, or under the charter or by-laws of any Subsidiary or
under any agreement to which the Company or any Subsidiary is a party.
(viii) Capitalization. The authorized, issued and
outstanding capital stock of the Company is as set forth in the Offering
Memorandum in the column entitled "Actual" under the caption
ACapitalization@ (except for subsequent issuances, if any, pursuant to
employee benefit plans referred to in the Offering Memorandum or pursuant
to the exercise of convertible securities or options referred to in the
Offering Memorandum). The shares of issued and outstanding capital stock
of the Company have been duly authorized and validly issued and are fully
paid and non-assessable; and except as disclosed in the Offering
Memorandum, none of the outstanding shares of capital stock of the
Company was issued in violation of the preemptive or other similar rights
of any securityholder of the Company arising by operation of law, under
the charter or by-laws of the Company, under any agreement to which the
Company or any of the Subsidiaries is a party or otherwise.
(ix) Authorization of Offering under the Ford Motor Credit
Facility. The Company shall have received the consent of Ford Motor
Credit Company ("Ford Motor Credit") under the Amended and Restated
Credit Agreement dated as of December 15, 1997 (the "Revolving Credit
Facility") between the Company and Ford Motor Credit to permit the
issuance and sale of the Securities pursuant to the terms of this
Agreement and the Indenture, in any case in a form reasonably acceptable
to the Initial Purchasers.
(x) Authorization of Agreements. This Agreement and the
Registration Rights Agreement have each been duly authorized by the
Company and each of the Guarantors. This Agreement has been, and as of
the Closing Time the Registration Rights Agreement will have been, duly
executed and delivered by the Company and each of the Guarantors. Upon
the execution and delivery thereof by the Company and each of the
Guarantors, the Registration Rights Agreement will constitute a valid and
binding obligation of the Company and each of the Guarantors, enforceable
against the Company and each of the Guarantors in accordance with its
terms. The DTC Agreement has been duly authorized by the Company; as of
the Closing Time, the DTC Agreement will have been duly executed and
delivered by the Company; and, upon the execution and delivery thereof by
the Company, the DTC Agreement will constitute a valid and binding
obligation of the Company, enforceable against the Company in accordance
with its terms.
(xi) Authorization of the Indenture. The Indenture has been
duly authorized by the Company and each of the Guarantors and, at the
Closing Time, will have been duly executed and delivered by the Company
and each of the Guarantors and will constitute a
-6-
<PAGE>
valid and binding agreement of the Company and each of the Guarantors,
enforceable against the Company and each of the Guarantors in accordance
with its terms.
(xii) Authorization of the Securities, the Guarantees and
the Exchange Securities. The Securities have been duly authorized by the
Company and, at the Closing Time, will have been duly executed by the
Company and, when authenticated in the manner provided for in the
Indenture and delivered against payment of the purchase price therefor,
will constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms and will be in the
form contemplated by, and entitled to the benefits of, the Indenture. The
Guarantees have been duly authorized by each of the Guarantors and, at
the Closing Time, will have been duly executed by each of the Guarantors
and, when authenticated in the manner provided for in the Indenture and
delivered against payment of the purchase price therefor, will constitute
valid and binding obligations of each of the Guarantors, enforceable
against each of the Guarantors in accordance with their terms, and will
be in the form contemplated by, and entitled to the benefits of, the
Indenture. The Exchange Securities (as defined in the Registration Rights
Agreement) have been duly authorized by the Company and each of the
Guarantors and, when executed and authenticated and issued and delivered
by the Company and each of the Guarantors in exchange for the Securities
and the Guarantees pursuant to the Exchange Offer (as defined in the
Registration Rights Agreement), will constitute valid and binding
obligations of the Company and each of the Guarantors.
(xiii) Description of the Securities, the Guarantees, the
Indenture, the Registration Rights Agreement and the Exchange Securities.
The Securities, the Guarantees, the Indenture, the Registration Rights
Agreement, the Revolving Credit Facility and the floor plan credit
facilities between Ford Motor Credit and the Guarantors (the AFloor Plan
Facilities@ and, together with the Revolving Facilities, the AFord Credit
Facilities@) conform and will conform in all material respects to the
respective statements relating thereto contained in the Offering
Memorandum and will be in substantially the respective forms previously
delivered to the Initial Purchasers. The Exchange Securities will conform
in all material respects to the statements relating thereto contained in
the Offering Memorandum and the Registration Statement (as defined in the
Registration Rights Agreement) at the time it becomes effective. There
are no contracts or documents which are required to be described or
referred to in a registration statement on Form S-1 under the 1933 Act
which have not been described or referred to in the Offering Memorandum.
(xiv) Absence of Defaults and Conflicts. (1) Except as
disclosed in the Offering Memorandum, neither the Company nor any of the
Subsidiaries is in violation of its charter or by-laws or in default in
the performance or observance of any obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, deed of trust,
loan or credit agreement, note, lease or other agreement or instrument to
which the Company or any of the Subsidiaries is a party or by which any
of them may be bound, or to which any of the property or assets of the
Company or any of the Subsidiaries is subject (collectively, "Agreements
and Instruments") or has violated or is in violation of any applicable
law, statute, rule, regulation, judgment, order, writ or decree of any
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government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of the Subsidiaries or any of
their assets or properties, except in each case for such defaults or
violations that would not result in a Material Adverse Effect. (2) Except
as disclosed in the Offering Memorandum, the execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the
Indenture, the DTC Agreement, the Securities, the Guarantees, the
Exchange Securities and any other agreement or instrument entered into or
issued or to be entered into or issued by the Company or any of the
Guarantors in connection with the transactions contemplated hereby or
thereby or in the Offering Memorandum or in connection with the
consummation of the transactions contemplated herein and in the Offering
Memorandum (including the issuance and sale of the Securities and the
Guarantees and the use of the proceeds from the sale of the Securities
(together with the related Guarantees as described in the Offering
Memorandum under the caption "Use of Proceeds" and consummation of the
1998 Acquisitions (as defined in the Offering Memorandum)) and compliance
by the Company and the Guarantors with their respective obligations
hereunder have been duly authorized by all necessary corporate or
partnership action and do not and will not, whether with or without the
giving of notice or passage of time or both, conlict with or constitute a
breach of, or default or a Repayment Event (as defined below) under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any of the Subsidiaries
(other than existing liens on properties being acquired in the 1998
Acquisitions) pursuant to, the Agreements and Instruments, nor will such
action result in any violation of the provisions of the charter or
by-laws of the Company or any of the Subsidiaries or any applicable law,
statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any of the Subsidiaries or any of
their assets or properties. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company or any of the Subsidiaries.
(xv)Absence of Labor Disputes. No material labor dispute
with the employees of the Company or any of the Subsidiaries exists or,
to the knowledge of the Company and the Guarantors, is imminent, and
except as disclosed in the Offering Memorandum, the Company and the
Guarantors are not aware of any existing or imminent labor disturbance by
the employees of any of their or any of the Subsidiaries' principal
suppliers, manufacturers, customers or contractors, which, in either
case, may reasonably be expected to result in a Material Adverse Effect.
(xvi) Absence of Proceedings. Except as disclosed in the
Offering Memorandum, there is no action, suit, proceeding, inquiry or
investigation, in each case before or by any court or governmental agency
or body, domestic or foreign, now pending, or, to the knowledge of the
Company or any Guarantor, threatened, against or affecting the Company or
any Subsidiary thereof which, singly or in the aggregate, might
reasonably be expected to result in a Material Adverse Effect, or which,
singly or in the aggregate, might reasonably be expected to materially
and adversely affect the properties
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or assets of the Company or any of the Subsidiaries or the consummation
of this Agreement or the performance by the Company and the Guarantors of
their respective obligations hereunder or under the Securities, the
Guarantees or the Exchange Securities. The aggregate of all pending legal
or governmental proceedings to which the Company or any Subsidiary
thereof is a party or of which any of their respective property or assets
is the subject which are not described in the Offering Memorandum,
including ordinary routine litigation incidental to the business, could
not reasonably be expected to result in a Material Adverse Effect.
(xvii) Possession of Intellectual Property. The Company and
the Subsidiaries own, possess or license, or can acquire on reasonable
terms, adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other intellectual
property (collectively, "Intellectual Property") presently employed by
them in connection with the business now operated by them, and neither
the Company nor any of the Subsidiaries has received any notice or is
otherwise aware of any infringement of or conflict with asserted rights
of others with respect to any Intellectual Property (including
Intellectual Property which is licensed) or of any facts or circumstances
which would render any Intellectual Property invalid or inadequate to
protect the interest of the Company or any of the Subsidiaries therein,
and which infringement or conflict (if the subject of any unfavorable
decision, ruling or finding) or invalidity or inadequacy, singly or in
the aggregate, would reasonably be expected to result in a Material
Adverse Effect.
(xviii) Absence of Further Requirements. Except as may be
required under state securities laws, no filing with, or authorization,
approval, consent, license, order, registration, qualification or decree
of, any court or governmental authority or agency is necessary or
required for the performance by the Company or any of the Guarantors of
their respective obligations hereunder, in connection with the offering,
issuance or sale of the Securities and the Guarantees hereunder or the
consummation of the transactions contemplated by or for the due
execution, delivery or performance of this Agreement, the Registration
Rights Agreement, the Indenture, the DTC Agreement, the Securities, the
Guarantees, the Exchange Securities or any other agreement or instrument
entered into or issued or to be entered into or issued by the Company or
any of the Subsidiaries in connection with the consummation of the
transactions contemplated herein and in the Offering Memorandum
(including the issuance and sale of the Securities and the Guarantees and
the use of the proceeds from the sale of the Securities and the
Guarantees as described in the Offering Memorandum under the caption "Use
of Proceeds" and the consummation of the 1998 Acquisitions).
(xix) Possession of Licenses and Permits. The Company and
the Subsidiaries possess such permits, licenses, approvals, consents,
certificates and other authorizations (collectively, "Governmental
Licenses") issued by the appropriate federal, state, local or foreign
regulatory agencies or bodies necessary to conduct the business now
operated by them, except where the failure to possess such Governmental
Licenses would not, singly or in the aggregate, have a Material Adverse
Effect, the Company and the Subsidiaries are in compliance with the terms
and conditions of all such Governmental Licenses and with
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the rules and regulations of the regulatory authorities and governing
bodies having jurisdiction with respect thereto, except where the failure
so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full force
and effect would not have a Material Adverse Effect; and neither the
Company nor any of the Subsidiaries has received any written notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses, nor are there, to the knowledge of the Company or
any Guarantor, pending or threatened actions, suits, claims or
proceedings against the Company or any Subsidiary before any court,
governmental agency or body or otherwise that, if successful, would
limit, revoke, cancel, suspend or cause not to be renewed any
Governmental License, in each case, which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would result
in a Material Adverse Effect.
(xx) Title to Property. The Company and the Subsidiaries
have good and marketable title to all real property owned by the Company
and the Subsidiaries and good title to all other properties owned by
them, in each case, (except for pledges of real property pursuant to the
Ford Credit Facilities and the existing deed of trust on the real
property owned by Fort Mill Ford) free and clear of all mortgages,
pledges, liens, security interests, claims, restrictions or encumbrances
of any kind except such as (a) are described in the Offering Memorandum
or (b) do not, singly or in the aggregate, materially affect the value of
such property and do not interfere with the use made and proposed to be
made of such property by the Company or any of the Subsidiaries; and all
of the leases and subleases material to the business of the Company and
the Subsidiaries, considered as one enterprise, and under which the
Company or any of the Subsidiaries holds properties described in the
Offering Memorandum, are in full force and effect, and neither the
Company nor any of the Subsidiaries has any notice of any material claim
of any sort that has been asserted by anyone adverse to the rights of the
Company or any of the Subsidiaries under any of the leases or subleases
mentioned above, or affecting or questioning the rights of the Company or
any Subsidiary to the continued possession of the leased or subleased
premises under any such lease or sublease.
(xxi) Tax Returns. All United States federal income tax
returns of the Company and the Subsidiaries required by law to be filed
have been filed and all taxes shown by such returns or pursuant to any
assessment received by the Company or any Subsidiary, which are due and
payable, have been paid, except assessments against which appeals have
been or will be promptly taken and as to which adequate reserves have
been provided. The Company and the Subsidiaries have filed all other tax
returns that are required to have been filed by them pursuant to
applicable foreign, federal, state, local or other law, and have paid all
taxes due pursuant to such returns or pursuant to any assessment received
by the Company and the Subsidiaries, except for such taxes, if any, as
are being contested in good faith and by appropriate proceedings and as
to which adequate reserves have been provided. The charges, accruals and
reserves on the books of the Company in respect of all federal, state,
local and foreign tax liabilities of the Company and each Subsidiary for
any years not finally determined are adequate to meet any assessments or
re-assessments
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for additional income tax for any years not finally determined, except to
the extent of any inadequacy that would not result in a Material Adverse
Effect.
(xxii) Insurance. The Company and the Subsidiaries carry or
are entitled to the benefits of insurance, with financially sound and
reputable insurers, in such amounts and covering such risks as is
generally maintained by companies of established repute engaged in the
same or similar business, and all such insurance is in full force and
effect.
(xxiii) Solvency. The Company and each of the Guarantors is,
and immediately after the Closing will be, Solvent. As used herein, the
term "Solvent" means, with respect to the Company and each Guarantor, as
the case may be, on a particular date, that on such date (A) the fair
market value of the assets of the Company or such Guarantor is greater
than the total amount of liabilities (including contingent liabilities)
of the Company or such Guarantor, (B) the present fair salable value of
the assets of the Company or such Guarantor is greater than the amount
that will be required to pay the probable liabilities of the Company or
such Guarantor on its debts as they become absolute and mature, (C) the
Company or such Guarantor is able to realize upon its assets and pay its
debts and other liabilities, including contingent obligations, as they
mature, and (D) the Company or such Guarantor does not have unreasonably
small capital.
(xxiv) Stabilization or Manipulation. Neither the Company
nor any Guarantor nor any of their respective officers, directors or
controlling persons has taken, directly or indirectly, any action
designed to cause or to result in, or that has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation
of the price of any security of the Company or any Guarantor in order to
facilitate the sale or resale of the Securities or the Guarantees. The
Company and the Guarantors have not distributed and, prior to the later
to occur of (i) the Closing Time and (ii) completion of the distribution
of the Securities and the Guarantees, will not distribute any offering
material in connection with the offering and sale of the Securities and
the Guarantees other than the Offering Memorandum or other materials, if
any, permitted by the 1933 Act and approved by the Representative.
(xxv) Related Party Transactions. No relationship, direct or
indirect, exists between or among any of the Company, the Guarantors or
any affiliate of the Company or any Guarantor, on the one hand, and any
director, officer, stockholder, customer or supplier of any of them, on
the other hand, which is required by the 1933 Act or by the rules and
regulations enacted thereunder to be described in a registration
statement on Form S-1 which is not so described or is not described as
required in the Offering Memorandum.
(xxvi) Suppliers. No supplier of merchandise to the Company
or any of the Subsidiaries has ceased shipments of merchandise to the
Company or any of the Subsidiaries, other than in the normal and ordinary
course of business consistent with past practices, which cessation would
not result in a Material Adverse Effect.
(xxvii) Environmental Laws. Except as described in the
Offering Memorandum and except for such matters as would not, singly or
in the aggregate, result in a Material Adverse Effect, (A) neither the
Company nor any of the Subsidiaries is in violation of any
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federal, state, local or foreign statute, law, rule, regulation,
ordinance, code, policy or rule of common law or any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment, relating to pollution
or protection of human health, the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or
subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum or petroleum products or nuclear or radioactive material
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials (collectively, "Environmental Laws"), (B) the Company
and the Subsidiaries have all permits, licenses, authorizations and
approvals required for their respective businesses under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens, notices
of noncompliance or violation, investigation or proceedings relating to
any Environmental Law against the Company or any of the Subsidiaries and
(D) there are no events, facts or circumstances that might reasonably be
expected to form the basis of any liability or obligation of the Company
or any of the Subsidiaries, including, without limitation, any order,
decree, plan or agreement requiring clean-up or remediation, or any
action, suit or proceeding by any private party or governmental body or
agency, against or affecting the Company or any of the Subsidiaries
relating to any Hazardous Materials or Environmental Laws.
(xxviii) Registration Rights. Except as described in the
Offering Memorandum, there are no holders of securities (debt or equity)
of the Company or any Guarantor, or holders of rights (including, without
limitation, preemptive rights), warrants or options to obtain securities
of the Company or any Guarantor, who in connection with the issuance,
sale and delivery of the Securities, the Guarantees and the Exchange
Securities, if any, and the execution, delivery and performance of this
Agreement and the Registration Rights Agreement, have the right to
request the Company or any Guarantor to register securities held by them
under the 1933 Act.
(xxix) Accounting Controls. The Company and its consolidated
Subsidiaries maintain a system of internal accounting controls sufficient
to provide reasonable assurances that (A) transactions are executed in
accordance with management's general or specific authorization; (B)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with United States GAAP and to maintain
accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and (D)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xxx) Investment Company Act. The Company and each of the
Guarantors is not, and upon the issuance and sale of the Securities and
the Guarantees as herein contemplated and the application of the net
proceeds therefrom as described in the Offering Memorandum will not be,
an "investment company" or an entity "controlled" by
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an "investment company" as such terms are defined in the Investment
Company Act of 1940, as amended (the "1940 Act").
(xxxi) Rule 144A Eligibility. The Securities and the
Guarantees are eligible for resale pursuant to Rule 144A and will not be,
at the Closing Time, of the same class as securities listed on a national
securities exchange registered under Section 6 of the 1934 Act, or quoted
in a U.S. automated interdealer quotation system.
(xxxii) No General Solicitation. None of the Company, the
Guarantors, any of their respective affiliates, as such term is defined
in Rule 501(b) under the 1933 Act ("Affiliates"), or any person acting on
any of their behalf (other than the Initial Purchasers, as to whom the
Company and the Guarantors make no representation) has engaged or will
engage, in connection with the offering of the Securities and the
Guarantees, in any form of general solicitation or general advertising
within the meaning of Rule 502(c) under the 1933 Act.
(xxxiii) No Registration Required. Subject to compliance by
the Initial Purchasers with the representations and warranties set forth
in Section 2, it is not necessary in connection with the offer, sale and
delivery of the Securities and the Guarantees to the Initial Purchasers
and to each Subsequent Purchaser in the manner contemplated by this
Agreement and the Offering Memorandum to register the Securities and the
Guarantees under the 1933 Act or to qualify the Indenture under the Trust
Indenture Act of 1939, as amended.
(xxxiv) No Directed Selling Efforts. With respect to those
Securities and Guarantees sold in reliance on Regulation S, if any, (A)
none of the Company, the Guarantors, any of their respective Affiliates
or any person acting on their behalf (other than the Initial Purchasers,
as to whom the Company and the Guarantors make no representation) has
engaged or will engage in any directed selling efforts within the meaning
of Regulation S and (B) each of the Company, the Guarantors, any of their
respective Affiliates and any person acting on their behalf (other than
the Initial Purchasers, as to whom the Company and the Guarantors make no
representation) has complied and will comply with the offering
restrictions requirement of Regulation S.
(xxxv) PORTAL. There are no securities of the Company or any
of the Guarantors which are of the same class as the Securities or the
Guarantees that are listed on a national securities exchange registered
under Section 6 of the 1934 Act, or quoted in a United States automated
inter dealer quotation system. The Company and the Guarantors have been
advised by the National Association of Securities Dealers, Inc. PORTAL
Market that the Securities and the Guarantees will be designated Private
Offerings, Resales and Trading Through Automated Linkages ("PORTAL")
eligible securities in accordance with the rules and regulations of the
National Association of Securities Dealers, Inc.
(xxxvi) Acquisition Agreements. The acquisition agreements
related to the 1998 Acquisitions as described in the Offering Memorandum
(the "Acquisition Agreements"), have been duly authorized, executed and
delivered by the Company and, assuming the due authorization, execution
and delivery thereof by the parties thereto other than the Company,
constitutes a valid and binding obligation of the parties thereto,
enforceable
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against the parties thereto in accordance with its terms. All of the
representations and warranties of all parties included in such
Acquisition Agreements are true and correct, and the Company and the
Guarantors have no reason to believe that any of the covenants included
in such Acquisition Agreements have been breached or that the conditions
to closing included in such Acquisition Agreements have not been or will
not be satisfied prior to the Closing Date and the Company has received
manufacturers consents to the 1998 Acquisitions, except as disclosed in
the Offering Memorandum.
(xxxvii) Franchise Agreements. Each franchise agreement, in
each case between a Subsidiary and the applicable Manufacturer (as
defined in the Offering Memorandum) has been duly authorized by the
Company and such Subsidiaries, and, as of the Closing Time, the Company
shall have obtained all consents, authorizations and approvals from the
Manufacturers required to consummate the Offering and the 1998
Acquisitions except as disclosed in the Offering Memorandum.
(xxxviii) Year 2000. All disclosure regarding Year 2000
compliance that is appropriate to be described in a registration
statement on Form S-1 under the 1933 Act (including information required
by Staff Legal Bulletin Number 5) has been included in the Offering
Memorandum. Neither the Company nor any of the Subsidiaries will incur
significant operating expenses or costs to ensure that its information
systems will be year 2000 compliant, other than as disclosed in the
Offering Memorandum. The Company is not aware of any Year 2000 issues
effecting its customers or suppliers that could have a Material Adverse
Effect.
(b) Officer's Certificates. Any certificate signed by any officer of the
Company or any of the Subsidiaries delivered to the Initial Purchasers or to
counsel for the Initial Purchasers shall be deemed a representation and warranty
by the Company or any of the Subsidiaries to each Initial Purchaser as to the
matters covered thereby.
SECTION 2. Sale and Delivery to Initial Purchasers; Closing.
(a) Securities and Guarantees. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Company and the Guarantors agree to sell to each Initial Purchaser,
severally and not jointly, and each Initial Purchaser, severally and not
jointly, agrees to purchase from the Company and the Guarantors, at the price
set forth in Schedule C, the aggregate principal amount of Securities (including
the Guarantees) set forth in Schedule A opposite the name of such Initial
Purchaser, plus any additional principal amount of Securities (including the
Guarantees) which such Initial Purchaser may become obligated to purchase
pursuant to the provisions of Section 10 hereof.
(b) Payment. Payment of the purchase price for, and delivery of
certificates for, the Securities and the Guarantees shall be made at the office
of Fried, Frank, Harris, Shriver & Jacobson, or at such other place as shall be
agreed upon by the Representative and the Company and the Guarantors at 9:00
A.M. (New York Time) on the fourth business day after the date hereof (unless
postponed in accordance with the provisions of Section 10), or such other time
not later than ten business days after such date as shall be agreed upon by the
Representative and the
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Company and the Guarantors (such time and date of payment and delivery being
herein called the "Closing Time").
Payment shall be made to the Company and the Guarantors by wire transfer
of immediately available funds to a bank account designated by the Company and
the Guarantors, against delivery to the respective accounts of the Initial
Purchasers of certificates for the Securities and the Guarantees to be purchased
by them. It is understood that each Initial Purchaser has authorized the
Representative, for its account, to accept delivery of, receipt for, and make
payment of the purchase price for, the Securities and the Guarantees which it
has agreed to purchase. Merrill Lynch, individually and not as representative of
the Initial Purchasers, may (but shall not be obligated to) make payment of the
purchase price for the Securities and the Guarantees to be purchased by any
Initial Purchaser whose funds have not been received by the Closing Time, but
such payment shall not relieve such Initial Purchaser from its obligations
hereunder. The certificates representing the Securities and the Guarantees shall
be registered in the name of Cede & Co. pursuant to the DTC Agreement, or
physical certificates representing the Securities and the Guarantees shall be
registered in the names and denominations requested by the Initial Purchasers,
and in either case shall be made available for examination and packaging by the
Initial Purchasers in The City of New York not later than 9:00 A.M. on the last
business day prior to the Closing Time.
(c) Qualified Institutional Buyer. Each Initial Purchaser severally and
not jointly represents and warrants to, and agrees with, the Company and each of
the Guarantors that it is a "qualified institutional buyer" within the meaning
of Rule 144A under the 1933 Act (a "Qualified Institutional Buyer").
(d) Denominations; Registration. Certificates representing the Securities
(including the Guarantees) shall be in such denominations ($1,000 or integral
multiples thereof) and registered in such names as the Representative may
request in writing at least one full business day before the Closing Time.
SECTION 3. Covenants of the Company and the Guarantors. The Company and
the Guarantors, jointly and severally, covenant with each Initial Purchaser as
follows:
(a) Offering Memorandum. The Company and the Guarantors, as promptly as
possible, will furnish to each Initial Purchaser, without charge, such number of
copies of the Preliminary Offering Memorandum, the Final Offering Memorandum and
any amendments and supplements thereto as such Initial Purchaser may reasonably
request.
(b) Notice and Effect of Material Events. The Company and the Guarantors
will immediately notify each Initial Purchaser, and confirm such notice in
writing, of (x) any filing made by the Company or any Guarantor of information
relating to the offering of the Securities and the Guarantees with any
securities exchange or any other regulatory body in the United States or any
other jurisdiction, and (y) prior to the completion of the placement of the
Securities and the Guarantees by the Initial Purchasers, any material changes in
or affecting the earnings, business affairs or business prospects of the Company
and the Subsidiaries which (i) make any statement in
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the Offering Memorandum false or misleading or (ii) are not disclosed in the
Offering Memorandum. In such event or if during such time any event shall occur
or condition shall exist as a result of which it is necessary, in the opinion of
the Company and the Guarantors, their counsel, the Initial Purchasers or counsel
for the Initial Purchasers, to amend or supplement the Final Offering Memorandum
in order that the Final Offering Memorandum not include any untrue statement of
a material fact or omit to state a material fact necessary in order to make the
statements therein not misleading in the light of the circumstances then
existing, the Company will forthwith amend or supplement the Final Offering
Memorandum by preparing and furnishing to each Initial Purchaser an amendment or
amendments of, or a supplement or supplements to, the Final Offering Memorandum
(in form and substance satisfactory in the opinion of counsel for the Initial
Purchasers) so that, as so amended or supplemented, the Final Offering
Memorandum will not include an untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances existing at the time it is delivered to a Subsequent
Purchaser, not misleading.
(c) Amendment to Offering Memorandum and Supplements. The Company and the
Guarantors will advise each Initial Purchaser promptly of any proposal to amend
or supplement the Offering Memorandum and will not effect such amendment or
supplement without the consent of the Initial Purchasers. Neither the consent of
the Initial Purchasers to, nor the Initial Purchasers= delivery of, any such
amendment or supplement, shall constitute a waiver of any of the conditions set
forth in Section 5 hereof.
(d) Qualification of Securities and Guarantees for Offer and Sale. The
Company and the Guarantors will endeavor, in cooperation with the Initial
Purchasers, to register or qualify the Securities and the Guarantees for
offering and sale under the applicable securities laws of such jurisdictions as
the Representative may designate and will maintain such qualifications in effect
as long as required for the sale of the Securities and the Guarantees; provided,
however, that the Company and the Guarantors shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation or
as a dealer in securities in any jurisdiction in which it is not so qualified or
to subject itself to taxation in respect of doing business in any jurisdiction
in which it is not otherwise so subject.
(e) Integration. The Company and the Guarantors agree that they will not
and will cause their affiliates not to make any offer or sale of securities of
the Company or any Guarantor of any class if, as a result of the doctrine of
"integration" referred to in Rule 502 promulgated under the 1933 Act, such offer
or sale could be deemed to render invalid (for the purpose of (i) the sale of
the Securities and the Guarantees by the Company and the Guarantors to the
Initial Purchasers, (ii) the resale of the Securities and the Guarantees by the
Initial Purchasers to Subsequent Purchasers or (iii) the resale of the
Securities and the Guarantees by such Subsequent Purchasers to others) the
exemption from the registration requirements of the 1933 Act provided by Section
4(2) thereof or by Rule 144A or by Regulation S thereunder or otherwise.
(f) Rating of Securities. The Company and the Guarantors shall take all
reasonable action necessary to enable Standard & Poor's Ratings Group, a
division of McGraw Hill, Inc.
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("S&P"), and Moody's Investors Service, Inc. ("Moody's"), to provide their
respective credit ratings of the Securities and the Guarantees.
(g) Rule 144A Information. The Company and the Guarantors agree that, in
order to render the Securities and the Guarantees eligible for resale pursuant
to Rule 144A under the 1933 Act, while any of the Securities and the Guarantees
remain outstanding, it will make available, upon request, to any holder of
Securities and Guarantees or prospective purchasers of Securities and Guarantees
the information specified in Rule 144A(d)(4), unless the Company and the
Guarantors furnish information to the Commission pursuant to Section 13 or 15(d)
of the 1934 Act (such information, whether made available to holders or
prospective purchasers or furnished to the Commission, is hereinafter referred
to as "Additional Information").
(h) Restriction on Resales. Until the expiration of two years after the
original issuance of the Securities and the Guarantees, the Company and the
Guarantors will not, and will cause their "affiliates" (as such term is defined
in Rule 144(a)(1) under the 1933 Act) not to, resell any Securities and
Guarantees which are "restricted securities" (as such term is defined under Rule
144(a)(3) under the 1933 Act) that have been reacquired by any of them and shall
immediately upon any purchase of any such Securities and Guarantees submit such
Securities and Guarantees to the Trustee for cancellation.
(i) Use of Proceeds. The Company and the Guarantors will use the net
proceeds received by them from the sale of the Securities and the Guarantees in
the manner specified in the Offering Memorandum under "Use of Proceeds."
(j) Restriction on Sale of Securities . During a period of 180 days from
the date of the Offering Memorandum, the Company and the Guarantors will not,
without the prior written consent of Merrill Lynch, directly or indirectly,
issue, sell, offer to sell, grant any option for the sale of, or otherwise
dispose of, any debt securities or guarantees of debt securities of the Company
or any of the Guarantors, or any securities convertible or exchangeable into or
exercisable for any debt securities or guarantees of debt securities of the
Company or any of the Guarantors, and will not file a registration statement in
connection therewith (other than a registration statement registering solely the
Securities, the Guarantees and/or the Exchange Securities); provided, however,
the Company may incur indebtedness under the Ford Motor Credit Facility and the
Guarantors may incur indebtedness under their respective floor plan facilities
with Ford Motor Credit.
(k) DTC Clearance . The Company and the Guarantors will use all reasonable
efforts in cooperation with the Initial Purchasers to permit the Securities and
the Guarantees to be eligible for clearance and settlement through DTC.
(l) Legends. Each certificate representing a Security (including a
Guarantee) will bear the legend contained in "Notices to Investors" in the
Offering Memorandum for the time period and upon the other terms stated in the
Offering Memorandum.
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(m) Interim Financial Statements. Prior to the Closing Time, the Company
shall furnish to the Initial Purchasers any unaudited interim financial
statements of the Company, promptly after they have been completed, for any
periods subsequent to the periods covered by the financial statements appearing
in the Offering Memorandum.
(n) Periodic Reports. For a period of three years after the Closing Time,
the Company and the Guarantors will furnish to the Initial Purchasers copies of
all annual reports, quarterly reports and current reports (excluding exhibits)
filed with the Commission on Forms 10-K, 10-Q and 8-K, or such other similar
forms as may be designated by the Commission, and such other documents, reports
and information as shall be furnished by the Company and the Guarantors
generally to the holders of the Securities and the Guarantees or to security
holders of its publicly issued securities generally.
SECTION 4. Payment of Expenses.
(a) Expenses . The Company and the Guarantors, jointly and severally, will
pay all expenses incident to the performance of their respective obligations
under this Agreement, including (i) the preparation, printing and any filing of
the Offering Memorandum and the Registration Statement (including financial
statements and any schedules or exhibits) and of each amendment or supplement
thereto, including the preliminary prospectuses and the prospectus to be
contained in the Registration Statement, (ii) the preparation, printing and
delivery to the Initial Purchasers of this Agreement, the Registration Rights
Agreement, the Indenture and such other documents as may be required in
connection with the offering, purchase, sale and delivery of the Securities and
the Guarantees, (iii) the preparation, issuance and delivery of the certificates
for the Securities and the Guarantees to the Initial Purchasers, including any
charges of DTC in connection therewith, (iv) the fees and disbursements of the
Company's and the Guarantors' counsel, accountants and other advisors, (v) the
qualification of the Securities and the Guarantees under securities laws in
accordance with the provisions of Section 3(d) hereof, including filing fees and
the reasonable fees and disbursements of counsel for the Initial Purchasers in
connection therewith and in connection with the preparation of any memorandum
related to blue sky matters, any supplement thereto or any survey of investment
qualifications, (vi) the fees and expenses of the Trustee, including the fees
and disbursements of counsel for the Trustee in connection with the Indenture
and the Securities and the Guarantees, (vii) any fees payable in connection with
the rating of the Securities and the Guarantees and the listing of the
Securities and the Guarantees with the PORTAL market, and (viii) any filing fees
incident to, and any reasonable fees and disbursements of counsel to the Initial
Purchasers in connection with, the review by the National Association of
Securities Dealers, Inc. of the terms of th sale of the Securities and the
Guarantees.
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(b) Termination of Agreement. If this Agreement is terminated by the
Representative in accordance with the provisions of Section 5 or Section 9(a)(i)
or 9(a)(ii) hereof, the Company and the Guarantors, jointly and severally, shall
reimburse the Initial Purchasers for all of their out-of-pocket expenses,
including the reasonable fees and disbursements of counsel for the Initial
Purchasers.
SECTION 5. Conditions of Initial Purchasers' Obligations. The obligations
of the several Initial Purchasers hereunder are subject to the accuracy of the
representations and warranties of the Company and the Guarantors contained in
Section 1 hereof or in certificates of any officer of the Company or any of the
Subsidiaries delivered pursuant to the provisions hereof, to the performance by
the Company and the Guarantors of their covenants and other obligations
hereunder, and to the following further conditions:
(a) Opinion of Counsel for the Company and the Guarantors. At the Closing
Time, the Initial Purchasers shall have received the favorable opinion, dated as
of the Closing Time, of Parker, Poe, Adams & Bernstein L.L.P., counsel for the
Company and the Guarantors, in form and substance satisfactory to counsel for
the Initial Purchasers, together with signed or reproduced copies of such
letters for each of the other Initial Purchasers, to the effect set forth in
Exhibit A hereto and to such further effect as counsel for the Initial
Purchasers may reasonably request. In giving such opinion such counsel may rely,
as to certain matters governed by the law of New York, upon the opinions of
counsel satisfactory to the Representative.
(b) Opinion of Counsel for the Initial Purchasers. At the Closing Time,
the Initial Purchasers shall have received the favorable opinion, dated as of
the Closing Time, of Fried, Frank, Harris, Shriver & Jacobson, counsel for the
Initial Purchasers, together with signed or reproduced copies of such letter for
each of the other Initial Purchasers, with respect to certain matters set forth
in paragraphs (i), (ii), (iii), (iv), (v), (vi), (vii) (solely as to the
information in the Offering Memorandum under "Description of the Notes"), (x)
and the penultimate paragraph of Exhibit A hereto. In giving such opinion such
counsel may rely, as to all matters governed by the laws of jurisdictions other
than the law of the State of New York and the federal law of the United States
and the General Corporation Law of the State of Delaware, upon the opinions of
counsel satisfactory to the Representative. Such counsel may also state that,
insofar as such opinion involves factual matters, they have relied, to the
extent they deem proper, upon certificates of officers of the Company, the
Guarantors and the Subsidiaries and certificates of public officials.
(c) Officers' Certificate. At the Closing Time, (i) the Offering
Memorandum, as it may then be amended or supplemented, including any documents
incorporated by reference therein, shall not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) there shall not
have been, since the date hereof or since the respective dates as of which
information is given in the Offering Memorandum, any material adverse change in
the condition (financial or otherwise), earnings, business affairs or business
prospects of the Company and its Subsidiaries, considered as one enterprise,
whether or not arising in the ordinary course of business; (iii) the Company and
the Guarantors shall have complied with all agreements and satisfied all
conditions
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on its part to be performed or satisfied at or prior to the Closing Time; and
(iv) the representations and warranties of the Company and the Guarantors in
Section 1 shall be accurate and true and correct as though expressly made at and
as of the Closing Time. At the Closing Time, the Initial Purchasers shall have
received a certificate of the Chief Executive Officer of the Company and the
Chief Financial Officer of the Company, and equivalent officials of each
Guarantor, dated as of the Closing Time, to such effect.
(d) Accountants' Letters and Consents. At the time of the execution of
this Agreement, the Initial Purchasers shall have received from Deloitte &
Touche LLP, Elliot Davis LLP and Cherry ? letters dated such date, in form and
substance satisfactory to the Representative and to counsel for the Initial
Purchasers, together with signed or reproduced copies of such letters for each
of the other Initial Purchasers, containing statements and information of the
type ordinarily included in accountants' "comfort letters" to Initial Purchasers
with respect to the financial statements and certain financial information
contained in the Offering Memorandum and in the form included in Exhibit B
attached hereto. To the extent an audit report of Deloitte & Touche LLP, Elliot
Davis & Co. or Cherry Beckert is included in the Offering Memorandum, such
accounting firm shall include either in such letter or in a separate writing a
consent to the inclusion of its report in the Offering Memorandum and to the
reference to it under the caption "Independent Public Accountants" in the
Offering Memorandum.
(e) Bring-down Letters. At the Closing Time, the Initial Purchasers shall
have received from Deloitte & Touche LLP, Elliot Davis & Co. and Cherry Beckert
letters, dated as of the Closing Time, to the effect that it reaffirms the
statements made in such letters furnished pursuant to subsection (d) of this
Section, except that the specified date referred to shall be a date not more
than three business days prior to the Closing Time.
(f) Maintenance of Rating. At the Closing Time, the Securities and the
Guarantees shall be rated at least B-3 by Moody's and B-__ by S&P, and the
Company and the Guarantors shall have delivered to the Representative a letter
dated the Closing Time, from each such rating agency, or other evidence
satisfactory to the Representative, confirming that the Securities and the
Guarantees have such ratings; and since the date of this Agreement, there shall
not have occurred a downgrading in the rating assigned to the Securities and the
Guarantees or any of the Company's and the Guarantor's other debt securities by
any nationally recognized securities rating agency, and no such securities
rating agency shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of the Securities and
the Guarantees or any of the Company's and the Guarantor's other debt
securities.
(g) PORTAL. At the Closing Time, the Securities and the Guarantees shall
have been designated for trading on PORTAL.
(h) Chief Financial Officer's Certificate. At the Closing Time, the
Initial Purchasers shall have received a certificate of the principal financial
officer of the Company and the Guarantors as to certain agreed upon accounting
matters.
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(i) Registration Rights Agreement and Indenture. The Company and each of
the Guarantors shall have duly authorized, executed and delivered the
Registration Rights Agreement and the Indenture to the Initial Purchasers in a
form and substance satisfactory to the Representative and counsel for the
Initial Purchasers.
(j) Manufacturers' Consents. The Representative shall have received on or
as of the Closing Time, as the case may be, a certificate, in a form and
substance satisfactory to the Representative, of two executive officers of the
Company certifying that each of the Company and its subsidiaries owns, possesses
or has obtained all required consents and approvals from all Manufacturers with
respect to the 1998 Acquisitions and the Offering and such consents and
approvals shall be in a form satisfactory to the Representatives other than
those consents not received as described in the Offering Memorandum.
(k) Ford Motor Credit. Prior to or at the Closing Time, the Company shall
have received the consent of Ford Motor Credit under the Ford Motor Credit
Facility for the issuance and sale of the Securities pursuant to the terms of
this Agreement and the Indenture.
(l) Smith Subordination Agreement. Prior to or at the Closing Time, the
Representative shall have received a subordination agreement, in form and
substance satisfactory to the Representative, subordinating the indebtedness
represented by the Subordinated Smith Loan (as defined in the Offering
Memorandum) to the Securities.
(m) Additional Documents. At the Closing Time, counsel for the Initial
Purchasers shall have been furnished with such documents and opinions as they
may require (including any consents under any agreements to which the Company or
any Guarantor is a party) for the purpose of enabling them to pass upon the
issuance and sale of the Securities and the Guarantees as herein contemplated,
or in order to evidence the accuracy of any of the representations or
warranties, or the fulfillment of any of the conditions, herein contained; and
all proceedings taken by the Company and the Guarantors in connection with the
issuance and sale of the Securities and the Guarantees as herein contemplated
shall be satisfactory in form and substance to the Initial Purchasers and
counsel for the Initial Purchasers.
(n) Termination of Agreement. If any condition specified in this Section
shall not have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the Representative by notice to the Company at
any time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4 and
except that Sections 1, 6 and 7 shall survive any such termination and remain in
full force and effect.
SECTION 6. Indemnification.
(a) Indemnification of Initial Purchasers. The Company and each of the
Guarantors, jointly and severally, agree to indemnify and hold harmless each
Initial Purchaser and each person,
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if any, who controls any Initial Purchaser within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Offering
Memorandum or the Final Offering Memorandum (or any amendment or
supplement thereto), or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim
whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission; provided that (subject to Section
6(d) below) any such settlement is effected with the written consent of
the Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by the Representative),
reasonably incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under (i) or
(ii) above;
provided, however, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company or the
Guarantors by any Initial Purchaser through Merrill Lynch expressly for use in
the Offering Memorandum (or any amendment thereto).
(b) Indemnification of Company, Guarantors, and Directors. Each Initial
Purchaser severally agrees to indemnify and hold harmless the
Company, the Guarantors and their directors, and each person, if any, who
controls the Company or the Guarantors within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act against any and all loss, liability,
claim, damage and expense described in the indemnity contained in subsection (a)
of this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Offering
Memorandum in reliance upon and in conformity with written information furnished
to the Company or the Guarantors by such Initial Purchaser through Merrill Lynch
expressly for use in the Offering Memorandum.
(c) Actions against Parties; Notification. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
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materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by the Representative, and,
in the case of parties indemnified pursuant to Section 6(b) above, counsel to
the indemnified parties shall be selected by the Company. An indemnifying party
may participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) Settlement without Consent if Failure to Reimburse. If at any time an
indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) effected without its written consent if (i) such settlement is
entered into more than 45 days after receipt by such indemnifying party of the
aforesaid request, (ii) such indemnifying party shall have received notice of
the terms of such settlement at least 30 days prior to such settlement being
entered into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
SECTION 7. Contribution. If the indemnification provided for in Section 6
hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Guarantors on the one hand and the Initial Purchasers on the other hand from the
offering of the Securities and the Guarantees pursuant to this Agreement or (ii)
if the allocation provided by clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Guarantors on the one hand and of the Initial Purchasers on the other hand
in connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations.
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The relative benefits received by the Company and the Guarantors on the
one hand and the Initial Purchasers on the other hand in connection with the
offering of the Securities and the Guarantees pursuant to this Agreement shall
be deemed to be in the same respective proportions as the total net proceeds
from the offering of the Securities and the Guarantees pursuant to this
Agreement (before deducting expenses) received by the Company and the Guarantors
and the total underwriting discount received by the Initial Purchasers, bear to
the aggregate initial offering price of the Securities and the Guarantees.
The relative fault of the Company and the Guarantors on the one hand and
the Initial Purchasers on the other hand shall be determined by reference to,
among other things, whether any such untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or the Guarantors, or by the Initial
Purchasers, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company, the Guarantors and the Initial Purchasers agree that it would
not be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Initial Purchasers were treated
as one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 7. The aggregate amount of losses, liabilities, claims, damages and
expenses incurred by an indemnified party and referred to above in this Section
7 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Initial Purchaser
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities (including the Guarantees) purchased by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such Initial Purchaser has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Initial Purchaser within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such Initial
Purchaser, and each director of the Company and each Guarantor, and each person,
if any, who controls the Company and each Guarantor within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company and each Guarantor. The Initial
Purchasers' respective obligations to contribute pursuant to this Section 7 are
several in proportion to the principal amount of Securities (including the
Guarantees) set forth opposite their respective names in Schedule A hereto and
not joint.
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SECTION 8. Representations, Warranties and Agreements to Survive Delivery.
All representations, warranties and agreements contained in this Agreement or in
certificates of officers of the Company or any of the Subsidiaries submitted
pursuant hereto, shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of any Initial Purchaser or
controlling person, or by or on behalf of the Company or any Guarantor, and
shall survive delivery of the Securities (including the Guarantees) to the
Initial Purchasers.
SECTION 9. Termination of Agreement.
(a) Termination; General. The Representative may terminate this Agreement,
by notice to the Company and the Guarantors, at any time at or prior to the
Closing Time (i) if there has been, since the time of execution of this
Agreement or since the respective dates as of which information is given in the
Offering Memorandum, any material adverse change in the condition (financial or
otherwise), earnings, business affairs or business prospects of the Company and
the Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there shall have occurred a downgrading
in the rating assigned to the Securities or the Guarantees or any of the
Company's or any Guarantor's other debt securities by any nationally recognized
securities rating agency, or if such securities rating agency shall have
publicly announced that it has under surveillance or review, with possible
negative implications, its rating of the Securities, the Guarantees or any of
the Company's or Guarantor's other debt securities or guarantees of debt
securities, or (iii) if there has occurred any material adverse change in the
financial markets in the United States or the international financial markets,
any outbreak of hostilities or escalation thereof or other calamity or crisis or
any change or development involving a prospective change in national or
international political, financial or economic conditions, in each case the
effect of which is such as to make it, in the judgment of the Representative,
impracticable to market the Securities or the Guarantees or to enforce contracts
for the sale of the Securities or the Guarantees, or (iv) if trading in any
securities of the Company or any Guarantor has been suspended or limited by the
Commission or the NASDAQ National Market System, or if trading generally on the
American Stock Exchange or the New York Stock Exchange or in the NASDAQ National
Market System has been suspended or limited, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices have been required, by any
of said exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority, or
(v) if a banking moratorium has been declared by either Federal, Delaware or New
York authorities.
(b) Liabilities. If this Agreement is terminated pursuant to this Section,
such termination shall be without liability of any party to any other party
except as provided in Section 4 hereof, and provided further that Sections 1, 6
and 7 shall survive such termination and remain in full force and effect.
SECTION 10. Default by One or More of the Initial Purchasers. If one or
more of the Initial Purchasers shall fail at Closing Time to purchase the
Securities which it or they are obligated to purchase under this Agreement (the
"Defaulted Securities"), the Representative shall have the right, but not the
obligation, within 24 hours thereafter, to make arrangements for one or
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more of the non-defaulting Initial Purchasers, or any other initial purchasers,
to purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Representative shall not have completed such arrangements within such
24-hour period, then
(a) if the number of Defaulted Securities does not exceed 10% of the
aggregate principal amount of the Securities to be purchased hereunder,
each of the non-defaulting Initial Purchasers shall be obligated,
severally and not jointly, to purchase the full amount thereof in the
proportions that their respective obligations hereunder bear to the
obligations of all non-defaulting Initial Purchasers, or
(b) if the number of Defaulted Securities exceeds 10% of the
aggregate principal amount of the Securities to be purchased hereunder,
this Agreement shall terminate without liability on the part of any
non-defaulting Initial Purchaser.
No action taken pursuant to this Section shall relieve any defaulting
Initial Purchaser from liability in respect of its default.
In the event of any such default which does not result in a termination of
this Agreement, either the Representative, the Company or the Guarantors shall
have the right to postpone the Closing Time for a period not exceeding seven
days in order to effect any required changes in the Offering Memorandum or in
any other documents or arrangements. As used herein, the term "Initial
Purchaser" includes any person substituted for an Initial Purchaser under this
Section 10.
SECTION 11. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Initial
Purchasers shall be directed to the Representative at North Tower, World
Financial Center, New York, New York 10281-1209, attention of Pascal Maeter,
with a copy to Fried, Frank, Harris, Shriver & Jacobson, 1 New York Plaza, New
York, New York 10004, attention of Stuart H. Gelfond, Esq.; notices to the
Company or the Guarantors shall be directed to them at Sonic Automotive, Inc.,
5401 East Independence Boulevard, P.O. Box 18747, Charlotte, North Carolina
28218, attention of Theodore Wright; with a copy to Peter J. Shea, Esq., Parker,
Poe, Adams & Bernstein L.L.P, 2500 Charlotte Plaza, Charlotte, North Carolina
28244.
SECTION 12. Parties. This Agreement shall inure to the benefit of and be
binding upon the Initial Purchasers, the Company and the Guarantors and their
respective successors. Nothing expressed or mentioned in this Agreement is
intended or shall be construed to give any person, firm or corporation, other
than the Initial Purchasers, the Company and the Guarantors and their respective
successors and the controlling persons and officers and directors referred to in
Sections 6 and 7 and their heirs and legal representatives, any legal or
equitable right, remedy or claim under or in respect of this Agreement or any
provision herein contained. This Agreement and all conditions and provisions
hereof are intended to be for the sole and exclusive benefit of the Initial
Purchasers, the Company and the Guarantors and their respective successors, and
said controlling persons and officers and directors and their heirs and legal
representatives, and for the
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benefit of no other person, firm or corporation. No purchaser of Securities and
Guarantees from any Initial Purchaser shall be deemed to be a successor by
reason merely of such purchase.
SECTION 13. Governing Law And Time. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY HEREIN REFER TO NEW YORK CITY TIME.
SECTION 14. Effect of Headings. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
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If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the Company and the Guarantors a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the Initial Purchasers, the Company and the Guarantors in
accordance with its terms.
<TABLE>
<S> <C>
Very truly yours,
SONIC AUTOMOTIVE, INC.
By: /s/ O. Bruton Smith
------------------------------
Name: O. Bruton Smith
Title: Chief Executive Officer
TOWN AND COUNTRY FORD INCORPORATED
MARCUS DAVID CORPORATION
FRONTIER OLDSMOBILE--CADILLAC, INC.
SONIC DODGE, LLC
SONIC CHRYSLER--PLYMOUTH--JEEP--EAGLE, LLC
FORT MILL FORD, INC.
TOWN AND COUNTRY CHRYSLER--PLYMOUTH--JEEP OF ROCK
HILL, INC.
FORT MILL CHRYSLER--PLYMOUTH--DODGE INC.
LONE STAR FORD, INC.
SONIC AUTOMOTIVE OF NEVADA, INC.
SONIC AUTOMOTIVE OF TENNESSEE, INC.
SONIC AUTOMOTIVE -- 6025 INTERNATIONAL DRIVE, LLC
SONIC AUTOMOTIVE OF NASHVILLE, LLC
SONIC AUTOMOTIVE OF CHATTANOOGA, LLC
TOWN AND COUNTRY JAGUAR, LLC
TOWN AND COUNTRY CHRYSLER--PLYMOUTH--JEEP, LLC
TOWN AND COUNTRY DODGE OF CHATTANOOGA, LLC
SONIC AUTOMOTIVE B 2490 SOUTH LEE HIGHWAY, LLC,
TOWN AND COUNTRY FORD OF CLEVELAND, LLC
FREEDOM FORD, INC.
SONIC AUTOMOTIVE 5260 PEACHTREE INDUSTRIAL BLVD., LLC
SONIC AUTOMOTIVE OF GEORGIA, INC.
SONIC PEACHTREE INDUSTRIAL BLVD., L.P.
SONIC AUTOMOTIVE -- CLEARWATER, INC.
SONIC AUTOMOTIVE 21699 U.S. HWY. 19 N., INC.
SONIC AUTOMOTIVE COLLISION CENTER OF CLEARWATER, INC.
SONIC AUTOMOTIVE -- 1400 AUTOMALL DRIVE, COLUMBUS, INC.
SONIC AUTOMOTIVE -- 1455 AUTOMALL DRIVE, COLUMBUS, INC.
SONIC AUTOMOTIVE -- 1495 AUTOMALL DRIVE, COLUMBUS, INC.
SONIC AUTOMOTIVE -- 1500 AUTOMALL DRIVE, COLUMBUS, INC.
SONIC AUTOMOTIVE -- 3700 WEST BROAD STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE -- 4000 WEST BROAD STREET, COLUMBUS, INC.
SONIC AUTOMOTIVE 2424 LAURENS RD., GREENVILLE, INC.
SONIC AUTOMOTIVE 2752 LAURENS RD., GREENVILLE, INC.
SONIC AUTOMOTIVE - HWY. 153 at SHALLOWFORD ROAD,
CHATTANOOGA, INC.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
SONIC AUTOMOTIVE -- 5585 PEACHTREE INDUSTRIAL BLVD., LLC
CAPITOL CHEVROLET AND IMPORTS, INC.,
SONIC AUTOMOTIVE - 1919 N. DIXIE HWY., NSB, INC.
SONIC AUTOMOTIVE - 1307 N. DIXIE HWY., NSB, INC.
SONIC AUTOMOTIVE - 1720 MASON AVE., DB, INC.
SONIC AUTOMOTIVE - 3741 S. NOVA RD., PO, INC.
SONIC AUTOMOTIVE - 241 RIDGEWOOD AVE., HH, INC.
</TABLE>
By: /s/ B. Scott Smith
-------------------------------------
Name: B. Scott Smith
Title: Authorized Officer
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
BANCAMERICA ROBERTSON STEPHENS
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Barry S. Price
-------------------------------------
Authorized Signatory
For itself and the other Initial Purchasers
named in Schedule A hereto.
<PAGE>
SONIC AUTOMOTIVE -- 5585 PEACHTREE INDUSTRIAL BLVD., LLC
CAPITOL CHEVROLET AND IMPORTS, INC.,
SONIC AUTOMOTIVE - 1919 N. DIXIE HWY., NSB, INC.
SONIC AUTOMOTIVE - 1307 N. DIXIE HWY., NSB, INC.
SONIC AUTOMOTIVE - 1720 MASON AVE., DB, INC.
SONIC AUTOMOTIVE - 3741 S. NOVA RD., PO, INC.
SONIC AUTOMOTIVE - 241 RIDGEWOOD AVE., HH, INC.
By:
-------------------------------------
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
BANCAMERICA ROBERTSON STEPHENS
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: /s/ Barry S. Price
-------------------------------------
Authorized Signatory
For itself and the other Initial Purchasers
named in Schedule A hereto.
EXHIBIT 10.89
SUBORDINATION AGREEMENT
This Subordination Agreement (as the same may from time to time be
amended, modified or restated, the "Agreement") is dated as of July 31, 1998 and
is entered into by and between O. BRUTON SMITH (the "Junior Creditor") and U.S.
Bank Trust National Association (the "Trustee"), a bank organized under the laws
of the United States, as Trustee under an Indenture dated as of July 1, 1998
(the "Indenture") among Sonic Automotive, Inc. (the "Issuer"), the Guarantors
named therein (the "Guarantors"), and the Trustee, and acting hereunder for the
benefit of the holders (the "Holders") of the Issuer's $125,000,000 in principal
amount of Senior Subordinated Notes Due 2008 (the "Issuer's Senior Notes")
issued pursuant to the Indenture (in such capacity, "Senior Creditor").
W I T N E S S E T H:
WHEREAS, the Junior Creditor has a financial interest in the Issuer
relating to the Issuer's obligation to repay the Junior Creditor a debt in the
principal amount of $5,500,000 evidenced by the Issuer's Subordinated Promissory
Note dated December 15, 1997 (collectively with any instrument that may be
substituted for such note, the "Subordinated Note");
WHEREAS, the Issuer and the Trustee have entered into the Indenture for
the benefit of the Holders and providing for the issuance by the Issuer's Senior
Notes;
WHEREAS, the Junior Creditor acknowledges that the issuance of the
Issuer's Senior Notes and the Issuer's receipt of the proceeds from the sale
thereof is of direct pecuniary value to the Junior Creditor;
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged by the Junior Creditor, and in order to induce the Holders
to purchase the Issuer's Senior Notes for the benefit of the Issuer and to
provide the ranking of the Issuer's Senior Notes among the Issuer's debt as
disclosed in the Issuer's Final Offering Memorandum dated July 28, 1998 relating
to the sale of the Issuer's Senior Notes, the Junior Creditor hereby agrees with
Trustee, for the benefit of the Holders, as hereinafter set forth.
1. Certain Defined Terms. In addition to the terms defined above and
elsewhere in this Agreement, the following terms used in this Agreement shall
have the following meanings, applicable both to the singular and the plural
forms of the terms defined:
<PAGE>
As used in this Agreement:
"Ford Subordination Agreement" shall mean that certain Subordination
Agreement between the Junior Creditor and Ford Motor Credit Company dated
December 15, 1997.
"Issuer" shall mean Sonic Automotive, Inc., a Delaware corporation or any
successor assign or assign of Sonic Automotive, Inc., including, without
limitation, a receiver, trustee or debtor-in-possession.
"Senior Debt" shall mean (a) the indebtedness evidenced by the Issuer's
Senior Notes and all other obligations, liabilities, and indebtedness issued or
arising pursuant to the Indenture, in each case whether now existing or
hereafter arising (and whether such indebtedness arises or accrues before or
after the commencement of any bankruptcy, insolvency or receivership
proceedings) directly between Issuer and the Senior Creditor, or acquired
outright, conditionally or as collateral security from another by the Senior
Creditor, including, without limitation, interest and fees accruing pre-petition
or post-petition at the rate or rates prescribed in Issuer's Senior Notes and
costs, expenses, and attorneys' and paralegals' fees, whenever incurred (and
whether or not such claims, interest, costs, expenses or fees are allowed or
allowable in any such proceeding); and (b) amounts disbursed or advanced
(including, without limitation in connection with the provision of any financing
or other financial accommodations pursuant to Section 364 of the Bankruptcy
Code) by the Senior Creditor which the Senior Creditor, in its good faith
discretion and to the extent the same may be permitted under the Indenture,
deems necessary or desirable to preserve or protect any collateral now or
hereafter securing all or any portion of the Senior Debt or to enhance the
likelihood or maximize the amount of repayment of the Senior Debt, including,
but not limited to, all protective advances, costs, expenses, and attorneys' and
paralegals' fees, whensoever made, advanced or incurred by the Senior Creditor
in connection with the Senior Debt or the collateral therefor ("Preservation
Debt").
"Subordinated Debt" shall mean (a) all principal of, and premium, if any,
and interest on, the Subordinated Note, and (b) all other indebtedness, fees,
expenses, obligations and liabilities of the Issuer (or any other person, firm,
partnership or corporation for the benefit of Issuer) to the Junior Creditor,
whether now existing or hereafter incurred or created, under or with respect to
the Subordinated Note, in each case, whether such amounts are due or not due,
direct or indirect, absolute or contingent.
2. Standby; Subordination. The payment and performance of the Subordinated
Debt is hereby subordinated to the Senior Debt and, except as set forth in
Section 3 below, the Junior Creditor will not accelerate, ask, demand, sue for,
take or receive from Issuer, by setoff or in any other manner, the whole or any
part of the Subordinated Debt, including, without limitation, the taking of any
negotiable instruments evidencing such amounts, nor any security for any of the
Subordinated Debt, unless and until all of the Senior Debt shall have been fully
and indefeasibly paid and satisfied in cash. The Junior Creditor also hereby
agrees that, regardless of whether the Senior Debt is secured or unsecured, upon
satisfaction in full of the Senior Debt (in this one instance, as this term is
defined in the Ford
- 2 -
<PAGE>
Subordination Agreement) and the termination of all financing arrangements
between the Issuer and/or any of its affiliates and Ford Motor Credit Company,
then the Senior Creditor shall be subrogated for the Junior Creditor with
respect to the Junior Creditor's claims against the Issuer and the Junior
Creditor's rights, liens and security interests, if any, in any of the Issuer's
assets or any other assets securing the Senior Debt and the proceeds thereof
until all of the Senior Debt has been fully and indefeasibly paid and satisfied
in cash.
3. Permitted Payments. Notwithstanding the provisions of Section 2 of this
Agreement, until the occurrence of a "Default" or an "Event of Default" (as
these terms are defined in the Indenture), and provided that (i) there shall not
then exist any breach of this Agreement by the Junior Creditor which has not
been waived, in writing, by the Senior Creditor, and (ii) the payment described
below, if made, would not give rise to the occurrence of an Event of Default,
Issuer may pay to the Junior Creditor, and the Junior Creditor may accept from
Issuer, regularly scheduled payments of interest, when due, on an unaccelerated
basis, pursuant to the Subordinated Note provided the maximum interest rate at
which such payments shall be permitted shall not exceed the "Prime Rate"
announced from time to time by NationsBank N.A. in Charlotte, North Carolina, or
any successor, plus 0.5% per annum ("Permitted Payments"), it being understood
and agreed by the Junior Creditor that the Subordinated Note may not be modified
or amended without the prior written consent of the Senior Creditor.
4. Enforcement Rights. Prior to the indefeasible payment in full in cash
of the Senior Debt and the termination of all financing arrangements between
Issuer and the Senior Creditor, the Junior Creditor shall not have any right to
enforce any claim with respect to the Subordinated Debt, including, without
limitation, any Permitted Payment, or otherwise to take any action against the
Issuer or the Issuer's property without the Senior Creditor's prior written
consent.
5. Liens; Permitted Transfers. The Junior Creditor hereby represents as of
the date hereof that the Junior Creditor has not been granted or obtained any
liens or security interests in any assets of the Debtor Parties or any other
assets securing the Senior Debt. The Junior Creditor agrees that, without the
prior written consent of the Senior Creditor, the Junior Creditor shall not take
any liens on or security interests in any assets of the Issuer or any other
assets securing the Senior Debt. The Junior Creditor acknowledges and agrees
that, to the extent the terms and provisions of this Agreement are inconsistent
with the Subordinated Note, the Subordinated Note shall be deemed to be subject
to this Agreement. The Junior Creditor agrees that, without the prior written
consent of the Senior Creditor, the Junior Creditor shall not take any liens on
or security interests in any assets of the Issuer or any other assets securing
the Senior Debt. In the event that the Issuer proposes to sell, assign,
transfer, lease, convey or otherwise dispose of any of its property (a
"Transfer") and such Transfer is either permitted pursuant to the Indenture or
pursuant to a separate consent executed by the Senior Creditor, then such
Transfer shall be deemed to be permitted and consented to by the Junior Creditor
and shall not constitute a violation or breach of any terms contained in the
Subordinated Note. The Junior Creditor acknowledges and agrees that, to the
extent the terms and provisions of this Agreement are inconsistent with the
Subordinated Note, the Subordinated Note shall be deemed to be subject to this
Agreement.
- 3 -
<PAGE>
6. Subordinated Debt Owed Only to the Junior Creditor. The Junior Creditor
warrants and represents that (a) the Junior Creditor has not previously assigned
(other than to the extent set forth in the Ford Subordination Agreement) any
interest in the Subordinated Debt or any security interest in connection
therewith, if any; (b) no other party owns an interest in the Subordinated Debt
or security therefor other than the Junior Creditor (whether as joint holders of
the Subordinated Debt, participants or otherwise); and that the entire
Subordinated Debt is owing only to the Junior Creditor. The Junior Creditor
covenants that the entire Subordinated Debt shall continue to be owing only to
the Junior Creditor and all security therefor, if any, shall continue to be held
solely for the benefit of the Junior Creditor.
7. Senior Creditor Priority. In the event of any distribution, division,
or application, partial or complete, voluntary or involuntary, by operation of
law or otherwise, of all or any part of the assets of Issuer or the proceeds
thereof to the creditors of Issuer or readjustment of the obligations and
Subordinated Debt of Issuer, whether by reason of liquidation, bankruptcy,
arrangement, receivership, assignment for the benefit of creditors or any other
action or proceeding involving the readjustment of all or any part of the Senior
Debt or the Subordinated Debt, or the application of the assets of Issuer to the
payment or liquidation thereof, or upon the dissolution or other winding up of
Issuer's business, or upon the sale of all or substantially all of Issuer's
assets (an "Insolvency or Liquidation Proceeding"), then, and in any such event,
(i) the Senior Creditor shall be entitled to receive indefeasible payment in
full in cash of any and all of the Senior Debt prior to the payment of all or
any part of the Subordinated Debt, and (ii) any payment or distribution of any
kind or character, whether in cash, securities or other property, subject to the
rights of others under the Ford Subordination Agreement, which shall be payable
or deliverable upon or with respect to any or all of the Subordinated Debt shall
be paid or delivered directly to the Senior Creditor for application on any of
the Senior Debt, due or not due, until the Senior Debt shall have first been
fully and indefeasibly paid and satisfied in cash.
8. Grant of Authority to the Senior Creditor. Subject to the prior and
superior rights of the holders of the Senior Debt (in this one instance as such
term is defined in the Ford Subordination Agreement) and further in the event of
the occurrence of any Insolvency or Liquidation Proceeding, and in order to
enable the Senior Creditor to enforce its rights hereunder in any of the
aforesaid actions or proceedings, the Senior Creditor is hereby irrevocably
authorized and empowered, in the Senior Creditor's discretion, to file, make and
present for and on behalf of the Junior Creditor such proofs of claims against
the Issuer on account of the Subordinated Debt or other motions or pleadings as
the Senior Creditor may deem expedient or proper and to vote such proofs of
claims in any such proceeding and to receive and collect any and all dividends
or other payments or disbursements made thereon in whatever form the same may be
paid or issued and to apply the same on account of any portion of the Senior
Debt. Subject to the prior and superior rights of the holders of the Senior Debt
(in this one instance as such term is defined in the Ford Subordination
Agreement), in voting such proofs of claim in any proceeding, the Senior
Creditor may act in a manner consistent with its sole interest and shall have no
duty to take any action to optimize or maximize the Junior Creditor's recovery
with respect to its claim. Subject to the prior and superior rights of the
holders of the Senior Debt (in this one instance as such term
- 4 -
<PAGE>
is defined in the Ford Subordination Agreement), the Junior Creditor irrevocably
authorizes and empowers the Senior Creditor to demand, sue for, collect and
receive each of the aforesaid payments and distributions described in Section 7
above and give acquittance therefor and to file claims and take such other
actions, in the Senior Creditor's own name or in the name of the Junior Creditor
or otherwise, as the Senior Creditor may deem necessary or advisable. Subject to
the prior and superior rights of the holders of the Senior Debt (in this one
instance as such term is defined in the Ford Subordination Agreement), to the
extent that payments or distributions are made in property other than cash, the
Junior Creditor authorizes the Senior Creditor to sell such property to such
buyers and on such terms as the Senior Creditor, in its sole discretion, shall
determine. Subject to the prior and superior rights of the holders of the Senior
Debt (in this one instance as such term is defined in the Ford Subordination
Agreement), the Junior Creditor will execute and deliver to the Senior Creditor
such powers of attorney, assignments and other instruments or documents,
including notes and stock certificates (together with such assignments or
endorsements as the Senior Creditor shall deem necessary), as may be requested
by the Senior Creditor in order to enable the Senior Creditor and to enforce any
and all claims of the Senior Creditor upon or with respect to any or all of the
Subordinated Debt and to collect and receive any and all payments and
distributions which may be payable or deliverable at any time upon or with
respect to the Subordinated Debt, all for the Senior Creditor's own benefit.
Subject to the prior and superior rights of the holders of the Senior Debt (in
this one instance as such term is defined in the Ford Subordination Agreement),
following the indefeasible payment in full in cash of the Senior Debt, the
Senior Creditor shall remit to the Junior Creditor, all dividends or other
payments or distributions paid to and held by the Senior Creditor in excess of
the Senior Debt. Each of the powers and authorizations granted to the Senior
Creditor in this Section 8, being coupled with an interest, is irrevocable.
9. Payments Received by the Junior Creditor. Subject to the rights of Ford
Motor Credit Company under the Ford Subordination Agreement, and except for
Permitted Payments received by the Junior Creditor prior to the occurrence of an
a "Default" or "Event of Default" as provided in Section 3 above, should any
payment or distribution or security or instrument or proceeds thereof be
received by the Junior Creditor upon or with respect to the Subordinated Debt or
any other obligations of the Issuer to the Junior Creditor prior to the
indefeasible payment in full in cash of all of the Senior Debt and termination
of all financing arrangements between the Issuer and the Senior Creditor, the
Junior Creditor shall receive and hold the same in a segregated account in
trust, as trustee, for the benefit of the Senior Creditor, and shall forthwith
deliver the same to the Senior Creditor, in precisely the form received (except
for the endorsement or assignment of the Junior Creditor where necessary), for
application on any of Senior Debt, due or not due, and, until so delivered, the
same shall be held in trust by the Junior Creditor as the property of the Senior
Creditor. Subject to the rights of Ford Motor Credit Company under the Ford
Subordination Agreement, in the event of the failure of the Junior Creditor to
make any such endorsement or assignment to the Senior Creditor, the Senior
Creditor, or any of its officers or employees, is hereby irrevocably authorized
to make the same (which authorization, being coupled with an interest, is
irrevocable).
- 5 -
<PAGE>
10. Instrument Legend. Any instrument evidencing any of the Subordinated
Debt (including, without limitation, the Subordinated Note), or any portion
thereof, will, on the date hereof, be inscribed with a legend conspicuously
indicating that payment thereof is subordinated to the claims of the Senior
Creditor pursuant to the terms of this Agreement, and a copy thereof will be
delivered to the Senior Creditor on the date hereof. Any instrument evidencing
any of the Subordinated Debt, or any portion thereof, which is hereafter
executed by Issuer, will, on the date thereof, be inscribed with the aforesaid
legend and a copy thereof will be delivered to the Senior Creditor on the date
of its execution or within five (5) business days thereafter.
11. Reimbursements for Expenses and Borrowings from Issuer; Restriction on
Assignment of Claims. Except as permitted in Section 3 hereof, the Junior
Creditor agrees that until the Senior Debt has been indefeasibly paid in full in
cash and satisfied and all financing arrangements between the Debtor Parties and
the Senior Creditor have been terminated, the Junior Creditor will not, directly
or indirectly, accept or receive the benefit of any remuneration or
reimbursement for expenses on account of the Subordinated Debt from or on behalf
of any Debtor Party and will not assign or transfer to others any claim the
Junior Creditor has or may have against Issuer, unless such assignment or
transfer is made expressly subject to this Agreement.
12. Continuing Nature of Subordination. This Agreement shall be effective
and may not be terminated or otherwise revoked by the Junior Creditor until the
Senior Debt shall have been indefeasibly paid in full in cash and satisfied and
all financing arrangements among Debtor Parties and the Senior Creditor have
been terminated. The Junior Creditor hereby waives to the fullest extent
permitted by applicable law any right it may have to terminate or revoke this
Agreement or any of the provisions of this Agreement. In the event the Junior
Creditor shall have any right under applicable law otherwise to terminate or
revoke this Agreement which right cannot be waived, such termination or
revocation shall not be effective until written notice of such termination or
revocation, signed by the Junior Creditor, is actually received by the Senior
Creditor's officer responsible for such matters. In the absence of the
circumstances described in the immediately preceding sentence, this is a
continuing agreement of subordination and the Senior Creditor may continue, at
any time and without notice to the Junior Creditor, to extend credit or other
financial accommodations and loan monies to or for the benefit of a Debtor Party
on the faith hereof. Any termination or revocation described hereinabove shall
not affect this Agreement in relation to (a) any of the Senior Debt which arose
or was committed to prior to receipt thereof, or (b) any of the Senior Debt
created after receipt thereof if such Senior Debt is Preservation Debt.
13. Additional Agreements between the Senior Creditor and Issuer. The
Senior Creditor at any time and from time to time, either before or after any
such aforesaid notice of termination or revocation, may enter into such
agreement or agreements with a Issuer as the Senior Creditor may deem proper,
extending the time of payment of or renewing or otherwise altering the terms,
including, without limitation increasing the principal amount thereof, of all or
any portion of the Senior Debt or affecting the security underlying any or all
of the Senior Debt, and may exchange, sell, release, surrender or otherwise deal
with any such security, without in any way thereby impairing or affecting this
Agreement.
- 6 -
<PAGE>
14. Junior Creditor's Waivers. All of the Senior Debt shall be deemed to
have been made or incurred in reliance upon this Agreement. The Junior Creditor
expressly waives all notice of the acceptance by the Senior Creditor of the
subordination and other provisions of this Agreement and all other notices not
specifically required pursuant to the terms of this Agreement whatsoever, and
the Junior Creditor expressly waives reliance by the Senior Creditor upon the
subordination and other agreements as herein provided. In the event that the
Junior Creditor has or at any time acquires any lien upon or security interest
in the assets securing the Senior Debt, or any part thereof, to the fullest
extent permitted by applicable law, the Junior Creditor hereby waives any right
that the Junior Creditor may have whether such right arises under Sections 9-504
or 9-505 of the Uniform Commercial Code or other applicable law, to receive
notice of the Senior Creditor's intended disposition of such assets (or a
portion thereof) or of the Senior Creditor's proposed retention of such assets
in satisfaction of the Senior Debt (or a portion thereof). The Junior Creditor
further agrees that in the event Issuer consents or fails to object to a
proposed retention of such assets (or a portion thereof) by the Senior Creditor
in satisfaction of the Senior Debt (or a portion thereof), the Junior Creditor
hereby consents to such proposed retention regardless of whether the Junior
Creditor is provided with notice of such proposed retention. The Junior Creditor
agrees that the Junior Creditor will not interfere with or in any manner oppose
a disposition of any assets securing the Senior Debt by the Senior Creditor. The
Junior Creditor agrees that the Senior Creditor has not made any warranties or
representations with respect to the due execution, legality, validity,
completeness or enforceability of the Issuer's Senior Notes, or the
collectibility of the Senior Debt, that the Senior Creditor shall be entitled to
manage and supervise its financial accommodations to Issuer in accordance with
applicable law and its usual practices, modified from time to time as deemed
appropriate under the circumstances, without regard to the existence of any
rights that the Junior Creditor may now or hereafter have in or to any of the
assets of Issuer, and that Senior Creditor shall have no liability to the Junior
Creditor for, and waive any claim which the Junior Creditor may now or hereafter
have against, the Senior Creditor arising out of any and all actions which the
Senior Creditor, in good faith, takes or omits to take (including, without
limitation, actions with respect to the creation, perfection or continuation of
liens or security interests in any collateral now or hereafter securing any of
the Senior Debt, actions with respect to the occurrence of an Event of Default,
actions with respect to the foreclosure upon, sale, release, or depreciation of,
or failure to realize upon, any of the Collateral and actions with respect to
the collection of any claim for all or any part of the Senior Debt from any
account debtor, guarantor or any other party) with respect to the Senior Debt or
any agreement related thereto or to the collection of the Senior Debt or the
valuation, use, protection or release of the collateral now or hereafter
securing any of the Senior Debt for the Senior Debt.
15. Invalidated Payments. To the extent that the Senior Creditor receives
payments on, or proceeds of collateral for, the Senior Debt which are
subsequently invalidated, declared to be fraudulent or preferential, set aside,
avoided and/or required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or federal law, common law, equitable cause or
pursuant to the Indenture, then, to the extent of such payment or proceeds
received, the Senior Debt, or part thereof, intended to be satisfied shall be
revived
- 7 -
<PAGE>
and continue in full force and effect as if such payments or proceeds had not
been received by the Senior Creditor.
16. Bankruptcy Issues. The Junior Creditor agrees that the Senior Creditor
may consent to the use of cash collateral or provide financing to a Issuer
(under Section 363 or Section 364 of the Bankruptcy Code or otherwise) on such
terms and conditions and in such amounts as the Senior Creditor, in its sole
discretion, may decide and that, in connection with such cash collateral usage
or such financing, the Issuer (or a trustee appointed for the estate of the
Issuer) may grant to the Senior Creditor liens and security interests upon all
assets of the Issuer, which liens and security interests (i) shall secure
payment of all Senior Debt (whether such Senior Debt arose prior to the filing
of the petition for relief or arise thereafter); and (ii) shall be superior in
priority to the liens and security interests, if any, held by the Junior
Creditor on the assets of the Debtor Parties. All allocations of payments
between the Senior Creditor and the Junior Creditor shall, subject to any court
order, continue to be made after the filing or other commencement of any
Insolvency or Liquidation Proceeding on the same basis that the payments were to
be allocated prior to the date of such filing or commencement. The Junior
Creditor agrees that he will not object to or oppose a sale or other disposition
of any assets securing the Senior Debt (or any portion thereof) free and clear
of security interests, liens or other claims of the Junior Creditor, if any,
under Section 363 of the Bankruptcy Code or any other provision of the
Bankruptcy Code if the Senior Creditor has consented to such sale or disposition
of such assets. In the event that the Junior Creditor has or at any time
acquires any security for the Subordinated Debt, the Junior Creditor agrees not
to assert any right it may have to "adequate protection" of its interest in such
security in any Insolvency or Liquidation Proceeding and agrees that he will not
seek to have the automatic stay lifted with respect to such security, without
the prior written consent of the Senior Creditor. The Junior Creditor waives any
claim he may now or hereafter have arising out of the Senior Creditor's
election, in any proceeding instituted under Chapter 11 of the Bankruptcy Code,
of the application of Section 1111(b)(2) of the Bankruptcy Code, and/or any
borrowing or grant of a security interest under Section 364 of the Bankruptcy
Code by a Issuer, as debtor in possession. The Junior Creditor agrees not to
initiate or prosecute or encourage any other person to initiate or prosecute any
claim, action or other proceeding (i) challenging the enforceability of the
Senior Creditor's claim, (ii) challenging the enforceability of any liens or
security interests in assets securing the Senior Debt or (iii) asserting any
claims which the Issuer may hold with respect to the Senior Creditor. The Junior
Creditor agrees that he will not seek participation or participate on any
creditors' committee without the Senior Creditor's prior written consent. In the
event that the Senior Creditor consents to such participation, at the request of
the Senior Creditor, the Junior Creditor will resign from his position on such
committee. To the extent that the Senior Creditor receives payments on, or
proceeds of collateral for, the Senior Debt which are subsequently invalidated,
declared to be fraudulent or preferential, set aside and/or required to be
repaid to a trustee, receiver or any other party under any bankruptcy law, state
or federal law, common law, or equitable cause, then, to the extent of such
payment or proceeds received, the Senior Debt, or part thereof, intended to be
satisfied shall be revived and continue in full force and effect as if such
payments or proceeds had not been received by the Senior Creditor.
- 8 -
<PAGE>
17. Senior Creditor's Waivers. No right of the Senior Creditor to enforce
the subordination or other terms as provided in this Agreement shall at any time
in any way be prejudiced or impaired by any act or failure to act on the part of
Issuer or by any act or failure to act by the Senior Creditor, or by any
noncompliance by Issuer with the terms, provisions and covenants of this
Agreement, or the Subordinated Note, regardless of any knowledge thereof which
the Senior Creditor may have or be otherwise charged with. No waiver shall be
deemed to be made by the Senior Creditor of any of the Senior Creditor's rights
hereunder, unless the same shall be in writing signed on behalf of the Senior
Creditor, and each waiver, if any, shall be a waiver only with respect to the
specific instance involved and shall in no way impair the rights of the Senior
Creditor or the obligations of the Junior Creditor to the Senior Creditor in any
other respect at any other time. The failure of the Senior Creditor to enforce
at any time any provision of this Agreement shall not be construed to be a
waiver of such provisions, nor in any way to affect the validity of this
Agreement or any part hereof or the right of the Senior Creditor thereafter to
enforce each and every such provision. No waiver by the Senior Creditor of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
18. Information Concerning Financial Condition of Issuer. The Junior
Creditor hereby assumes responsibility for keeping informed of the financial
condition of Issuer, any and all endorsers and any and all guarantors of the
Senior Debt and of all other circumstances bearing upon the risk of nonpayment
of the Senior Debt and/or Subordinated Debt that diligent inquiry would reveal,
and the Junior Creditor hereby agrees that the Senior Creditor shall not have
any duty to advise the Junior Creditor of information known to the Senior
Creditor regarding such condition or any such circumstances. In the event the
Senior Creditor, in its sole discretion, undertakes, at any time or from time to
time, to provide any such information to the Junior Creditor, the Senior
Creditor shall be under no obligation (i) to provide any such information to the
Junior Creditor on any subsequent occasion, or (ii) to undertake any
investigation not a part of Senior Creditor's regular business routine and shall
be under no obligation to disclose any information which, pursuant to accepted
or reasonable commercial finance practices, the Senior Creditor wishes to
maintain confidential. The Junior Creditor hereby agrees that all payments
received by the Senior Creditor may be applied, reversed, and reapplied, in
whole or in part, to any portion of the Senior Debt, as the Senior Creditor, in
its sole discretion, deem appropriate and assent to any extension or
postponement of the time of payment of the Senior Debt or to any other
indulgence with respect thereto, to any substitution, exchange or release of
collateral which may at any time secure the Senior Debt and to the addition or
release of any other party or person primarily or secondarily liable therefor.
Without in any way limiting the generality of the foregoing
paragraph, the Senior Creditor, may, at any time and from time to time, without
the consent of, or notice to, the Junior Creditor without incurring any
liabilities to the Junior Creditor and without impairing or releasing the
subordination and other benefits provided in this Agreement (even if any right
of subrogation or other right or remedy of the Junior Creditor is affected,
impaired or extinguished thereby) do any one or more of the following:
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<PAGE>
(i) change the manner, place or terms of payment or change or extent
the time of payment of, or renew, exchange, amend, increase or alter, the
terms of any of the Senior Debt or any lien in any of any collateral now
or hereafter securing all or any portion of the Senior Debt or guaranty
thereof or any liability of a Issuer or any guarantor, or any liability
incurred directly or indirectly in respect thereof (including, without
limitation, any extension of the Senior Debt, without any restriction as
to the tenor or terms of any such extension), or otherwise amend, renew,
exchange, extend, modify, supplement in any manner the Senior Debt or any
related documents.
(ii) sell, exchange, release, surrender, realize upon, enforce or
otherwise deal with in any manner and in any order any part of the
Collateral or other property securing the Senior Debt or any liability of
a Issuer or any guarantor to such holder, or any liability incurred
directly or indirectly in respect thereof;
(iii) settle or compromise any Senior Debt or any other liability of
a Issuer or any guarantor or any security therefor or any liability
incurred directly or indirectly in respect thereof and apply any sums by
whomsoever paid and however realized to any liability (including, without
limitation, the Senior Debt) in any manner or order; and
(iv) exercise or delay in or refrain from exercising any right or
remedy against a Issuer or any security or any guarantor or any other
Person, elect any remedy and otherwise deal freely with a Issuer and the
collateral and any security and any guarantor or any liability of a Issuer
or any guarantor to such holder or any liability incurred directly or
indirectly in respect thereof.
The Senior Creditor shall have no duty to the Junior Creditor with
respect to the preservation or maintenance of any collateral now or hereafter
securing all or any portion of the Senior Debt or the manner in which Senior
Creditor enforces its rights in such collateral or to preserve or maintain the
rights of any Person in such collateral, and the Junior Creditor hereby waive
any and all claims which the Junior Creditor may now or hereafter have against
the Senior Creditor which relate to such preservation, maintenance or
enforcement. The Junior Creditor agrees not to assert and hereby waives, to the
fullest extent permitted by law: any right to demand, request, plead or
otherwise assert or otherwise claim the benefit of, any marshalling,
appraisement, valuation or other similar right that may otherwise be available
under applicable law or any other similar rights a junior creditor may have
under applicable law.
19. CONSENT TO JURISDICTION; SERVICE OF PROCESS.
(A) THE JUNIOR CREDITOR CONSENTS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED WITHIN NEW YORK AND WAIVES PERSONAL SERVICE OF ANY AND ALL
PROCESS UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY
REGISTERED MAIL DIRECTED TO THE JUNIOR CREDITOR AT THE ADDRESS STATED BELOW AND
SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED THREE (3) DAYS
- 10 -
<PAGE>
AFTER THE SAME SHALL HAVE BEEN POSTED AS AFORESAID. THE JUNIOR CREDITOR WAIVES
ANY OBJECTION BASED UPON FORUM NON CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY
ACTION INSTITUTED HEREUNDER. NOTHING IN THIS SECTION 17 SHALL AFFECT THE RIGHT
OF THE SENIOR CREDITOR TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR AFFECT THE RIGHT OF THE SENIOR CREDITOR TO BRING ANY ACTION OR PROCEEDING
AGAINST THE JUNIOR CREDITOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
(B) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER
PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE
PROVISIONS OF SECTIONS 17, 18, 19 AND 21, WITH COUNSEL OF ITS CHOICE AND IS
FULLY AWARE OF THE LEGAL CONSEQUENCES AND EFFECTS OF AND HAS KNOWINGLY AGREED TO
THE PROVISIONS HEREOF.
20. ARM'S LENGTH AGREEMENT. EACH OF THE PARTIES TO THIS AGREEMENT AGREES
AND ACKNOWLEDGES THAT THIS AGREEMENT HAS BEEN NEGOTIATED IN GOOD FAITH, AT ARM'S
LENGTH, AND NOT BY ANY MEANS FORBIDDEN BY LAW.
21. INJUNCTIVE RELIEF. THE JUNIOR CREDITOR ACKNOWLEDGES AND AGREES THAT
ITS COVENANTS AND OBLIGATIONS UNDER THIS AGREEMENT AND THE OTHER DOCUMENTS,
INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH ARE INTEGRAL TO THE
SENIOR CREDITOR'S REALIZATION OF ITS RIGHTS AGAINST, AND THE VALUE OF ITS
INTEREST IN, THE ASSETS OF A DEBTOR PARTY AND ITS AFFILIATES, THAT A BREACH OF
ANY OF THE COVENANTS AND OBLIGATIONS OF THE JUNIOR CREDITOR HEREUNDER OR UNDER
THE OTHER DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH
SHALL ENTITLE THE SENIOR CREDITOR TO INJUNCTIVE RELIEF AND SPECIFIC PERFORMANCE
WITHOUT THE NECESSITY OF PROVING IRREPARABLE INJURY TO THE SENIOR CREDITOR OR
THAT THE SENIOR CREDITOR DO NOT HAVE AN ADEQUATE REMEDY AT LAW IN RESPECT OF
SUCH BREACH (EACH OF WHICH ELEMENTS THE JUNIOR CREDITOR ADMITS EXIST) AND, AS A
CONSEQUENCE, THE JUNIOR CREDITOR AGREES THAT EACH AND EVERY COVENANT AND
OBLIGATION APPLICABLE TO IT AND CONTAINED IN THIS AGREEMENT OR THE OTHER
DOCUMENTS INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH SHALL BE
SPECIFICALLY ENFORCEABLE AGAINST IT. THE JUNIOR CREDITOR HEREBY WAIVES AND
AGREES NOT TO ASSERT ANY DEFENSES AGAINST AN ACTION FOR SPECIFIC PERFORMANCE OF
ITS RESPECTIVE COVENANTS AND OBLIGATIONS HEREUNDER AND/OR UNDER THE OTHER
DOCUMENTS, INSTRUMENTS AND AGREEMENTS EXECUTED IN CONNECTION HEREWITH.
22. Notices. Except as otherwise provided for herein, whenever it is
provided herein that any notice, demand, request, consent, approval, declaration
or other communication shall or may be given to or served upon either of the
parties by the other, or whenever either of the parties desires to give or serve
upon the other communication with respect to this Agreement,
- 11 -
<PAGE>
such notice, demand, request, consent, approval, declaration or other
communication shall be in writing (including, but not limited to, facsimile
communication), and shall either be delivered in person, telecopied,
telegraphed, sent by reputable overnight courier or mailed by first class mail,
or registered or certified mail, return receipt requested, postage prepaid or
provided for, addressed as follows:
(i) If to the Senior Creditor at:
c/o U.S. Bank Trust National Association
Corporate Trust Services
U.S. Bank Trust Center
Mail Code SPFT0210
180 East Fifth Street
St. Paul, Minnesota 55101
(ii) If to the Junior Creditor at:
O. Bruton Smith
5401 East Independence Boulevard
P.O. Box 18747
Charlotte, North Carolina 78218
or to such other address as any party designates to the other parties in the
manner herein prescribed.
23. GOVERNING LAW. ANY DISPUTE BETWEEN ANY OF THE JUNIOR CREDITOR AND THE
SENIOR CREDITOR ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY
OF THE OTHER DOCUMENTS, INSTRUMENTS OR AGREEMENTS EXECUTED IN CONNECTION
HEREWITH AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE
RESOLVED IN ACCORDANCE WITH THE LAWS (WITHOUT REGARD TO THE CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF NEW YORK.
24. Counterparts; Facsimile Effectiveness. This Agreement may be executed
in one or more counterparts, each of which shall be considered an original
counterpart, and shall become a binding agreement when the Senior Creditor and
the Junior Creditor and Issuer have each executed one counterpart. Each of the
parties hereto agrees that a signature transmitted to the Senior Creditor or its
counsel by facsimile transmission shall be effective to bind the party so
transmitting its signature.
25. Complete Agreement; Merger. This Agreement, including the schedules
and exhibits hereto, contain the entire understanding of the parties hereto with
regard to the subject matter contained herein. This Agreement supersedes all
prior or contemporaneous negotiations, promises, covenants, agreements and
representations of every nature whatsoever with respect to
- 12 -
<PAGE>
the matters referred to in this Agreement, all of which have become merged and
finally integrated into this Agreement. Each of the parties understands that in
the event of any subsequent litigation, controversy or dispute concerning any of
the terms, conditions or provisions of this Agreement, no party shall be
entitled to offer or introduce into evidence any oral promises or oral
agreements between the parties relating to the subject matter of this Agreement
not included or referred to herein and not reflected by a writing included or
referred to herein.
26. No Third Party Beneficiaries. This Agreement is solely for the benefit
of the Senior Creditor and its respective successors and assigns and the Junior
Creditor and its successors and is not intended to confer upon the Issuer or any
other third party any rights or benefits.
27. Severability. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
28. Section Titles. The section titles contained in this Agreement are and
shall be without substantive meaning or content of any kind whatsoever and are
not a part of the agreement between the parties hereto.
29. No Strict Construction. The parties (directly and through their
counsel) hereto have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties hereto and no presumption or burden of proof shall arise favoring
or disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
30. No Conflict with Ford Subordination Agreement. Senior Creditor
acknowledges the existence of the Ford Subordination Agreement and has been
provided with copy of the Ford Subordination Agreement by Junior Creditor.
Senior Creditor agrees that notwithstanding any provision contained in this
Subordination Agreement, to the extent of a conflict between the terms of the
Ford Subordination Agreement and this Subordination Agreement, the terms of the
Ford Subordination Agreement shall control.
[Signatures begin on following page]
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<PAGE>
IN WITNESS WHEREOF, this Subordination Agreement has been signed as of
this 29th day July, 1998.
/s/ O. Bruton Smith
-------------------------
O. BRUTON SMITH
Acknowledged and accepted as of
this 30th day of July, 1998, by:
U.S. BANK TRUST NATIONAL ASSOCIATION AS TRUSTEE UNDER THAT
CERTAIN INDENTURE DATED AS OF JULY 1, 1998 FOR THE BENEFIT OF THE
HOLDERS OF SONIC AUTOMOTIVE, INC. SENIOR SUBORDINATED NOTE DUE
2008
By: /s/ Judith M. Zuzek
- --------------------------------------
Title: Trust Officer
Without in any way establishing any rights with respect to the terms thereof on
behalf of any of the undersigned, the undersigned acknowledges receipt of a copy
of the foregoing Subordination Agreement this 31st day of July, 1998 and agrees
to take no action or refrain from taking action inconsistent with the terms
thereof.
SONIC AUTOMOTIVE, INC.
By: /s/ B. Scott Smith
-------------------------------
Its: President
------------------------
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") made this 16th day of September,
1998 between SONIC AUTOMOTIVE, INC., a Delaware corporation (the "Employer") and
DENNIS D. HIGGINBOTHAM ("Employee").
R E C I T A L S
WHEREAS, Employer desires to acquire certain of the automobile dealership
assets of Employee within the State of Florida; and
WHEREAS, Employer desires to retain the services of Employee in order to
manage the existing dealerships and acquire and manage additional dealerships;
and
WHEREAS, Employee is prepared to perform those duties as set forth in this
Agreement.
NOW, THEREFORE, the parties intending to be legally bound agree as
follows:
1. Term of Employment Employer hereby employs Employee, and Employee
hereby accepts employment from Employer, for the period commencing with the
closing of the sale transferring those assets in which Employee has an interest
in various dealerships in the State of Florida to Employer (the "Commencement
Date") and ending three (3) years thereafter, unless sooner terminated pursuant
to the provisions of paragraph 5 hereof (the "Employment Period").
2. Duties of Employee. Employee shall be employed by Employer as
President of Retail Operations for Sonic Automotive, Inc. Employee shall report
to Employer's Chief Executive Officer and the Employer's Board of Directors.
Employee shall be proposed as a nominee for election to Employer's Board of
Directors as promptly as reasonably practicable after the Closing. Employee
shall assist in the management and supervision of all Employerowned dealerships.
Employee shall serve Employer faithfully in the performance of Employee's duties
and shall devote his full time and best efforts to his employment, including the
regularly established working hours and such additional time as the requirements
of Employer and the performance of the Employee's duties require. Employee
agrees to observe and comply with all the rules and regulations of Employer as
adopted and furnished to Employee by Employer's Board of Directors from time to
time. Employee specifically understands that Employer shall have final authority
over the terms and conditions of all acquisitions. Employee shall not be
required to relocate his base of employment from the Daytona Beach area.
3. Compensation. For all services rendered by Employee under this
Agreement, he shall be entitled to compensation in accordance with the
following:
<PAGE>
(a) Base Salary. During the Employment Period, the Employee
shall receive an annual base salary ("Annual Base Salary") of FOUR HUNDRED
THOUSAND AND NO/100 DOLLARS ($400,000.00) which shall be paid in equal monthly
installments in the amount of THIRTY-THREE THOUSAND THREE HUNDRED THIRTY-THREE
AND THIRTY-THREE/100 DOLLARS ($33,333.33).
(b) Additional Salary and Bonus. In addition to the Annual
Base Salary as hereinabove provided, Employer shall pay to the Employee such
additional amounts as may be determined and ratified from time to time by the
Compensation Committee of Employer's Board of Directors.
4. Fringe Benefits. During the Employment Period, Employee shall
receive with other similarly situated employees of the Employer, all the fringe
benefits of Employer, together with the following additional fringe benefits:
(a) The use of four demonstrator vehicles annually of
Employee's choice, including all reasonably related expenses such as insurance,
maintenance and gasoline.
(b) Medical insurance coverage for Employee and his dependents
and reimbursement of the Employee for the reasonable costs of disability
insurance with a reasonable monthly benefit for life and with a waiting period
of no more than ninety (90) days.
(c) Prompt reimbursement for all reasonable employment,
travel, entertainment and other business related expenses incurred by the
Employee in accordance with the policies, practices and procedures of the
Employer.
(d) An office, located in New Smyrna Beach, Florida and
selected by Employee, of a size and with furnishings and other appointments, and
with secretarial assistance, comparable to that provided with respect to other
peer executives of the Employer.
(e) An annual paid vacation in accordance with the policies,
practices and procedures of the Employer as in effect generally at any time with
respect to other peer executives of the Employer.
(f) Reimbursement for use of personal aircraft for specified
business purposes which have been previously approved by Employer, at $1,500 per
hour, and reimbursement of pilot's reasonable out-of-pocket overnight
expenditures when required.
5. Termination of Employment. This Agreement shall terminate as
follows:
(a) Death or Disability. The Employee's employment shall
terminate automatically upon the Employee's death during the Employment Period.
If the Employer determines in good faith that the Employee becomes unable to
perform the essential functions of his position, with or without reasonable
accommodation, and that such inability is likely to
2
<PAGE>
continue for a period of more than six (6) months, then Employer shall give to
the Employee written notice of its intention to terminate the Employee's
employment. In such event, the Employee's employment with the Employer shall
terminate effective on the thirtieth (30th) day after receipt of such notice by
the Employee provided that, within the thirty (30) days after such receipt, the
Employee shall not have returned to full time performance of the Employee's
duties.
(b) Cause. The Employer may terminate the Employee's
employment at any time, without notice and with immediate effect for Cause. For
purposes of this Agreement "Cause" shall mean
(i) a material breach by the Employee of the Employee's
obligations as set forth herein (other than due to disability)
which material breach is not remedied within five (5) business
days after receipt of written notice from the Employer
specifying such a breach;
(ii) the conviction of the Employee of a felony;
(iii) actions by Employee involving moral turpitude;
(iv) willful failure of Employee to comply with
reasonable directives of Employer's Board of Directors;
(v) chronic absenteeism of Employee;
(vi) willful misconduct of Employee resulting in damage
to Employer; or
(vii) Employee's illegal use of controlled substances.
(c) Without Cause. Either Employee or Employer may terminate
this Agreement at any time, for any reason or without any reason. Such a
termination shall be deemed a termination "without cause".
6. Obligations of the Employer Upon Termination. The parties agree
as follows:
(a) Generally. Except as provided in paragraph 6(b) below,
upon termination of Employee's employment for any reason, Employee shall be
entitled only to payment of his Annual Base Salary, together with those fringe
benefits described in paragraphs 4(a) and 4(b) hereof, through the effective
date of such termination.
(b) Without Cause. If Employee's employment is terminated by
Employer without cause, then Employer shall continue to pay Employee his Annual
Base Salary, together with those fringe benefits described in paragraphs 4(a)
and 4(b) hereof, for a period of one year from the date of such termination. Any
payments under this Section 6 will be offset against (and
3
<PAGE>
will thereby reduce) any other severance to which Employee might be entitled
from Employer pursuant to any agreement or policy
7. Stock Option. Employee shall be eligible to participate in the
Sonic Automotive, Inc. 1998 Stock Option Plan (the "Stock Option Plan").
Employee's initial grant of options under the Stock Option Plan shall be in an
amount which is consistent with the grants of stock options for similar
employees of the Employer. The exercise price of such initial options shall be
the fair market value of the shares of the common stock of Employer on the date
of such initial grant. Any grants of options under the Stock Option Plan shall
be subject to ratification at the discretion of Employer's Board of Directors.
The terms and conditions of any options granted to Employee pursuant to the
Stock Option Plan shall otherwise be governed by the provisions of the Stock
Option Plan.
8. Restrictive Covenants. For purposes of this Agreement,
"Restrictive Covenants" mean the provisions of this paragraph 8. It is
stipulated and agreed that Employer is engaged in the business of owning and
operating automobile and/or truck dealerships, which business includes, without
limitation, the marketing and selling of new and used vehicles and the servicing
of automobiles and trucks (the "Business"). It is further stipulated and agreed
that as a result of Employee's employment by Employer, and as a result of
Employee's continued employment hereunder, Employee has and will have access to
valuable, highly confidential, privileged and proprietary information relating
to Employer's Business, including, without limitation, existing and future
inventory information, customer lists, sales methods and techniques, costs and
costing methods, pricing techniques and strategies, sales agreements with
customers, profits and product line profitability information, unpublished
present and future marketing strategies and promotional programs, and other
information regarded by Employer as proprietary and confidential (the
"Confidential Information"). It is further acknowledged that the unauthorized
use or disclosure by Employee of any of the Confidential Information would
seriously damage Employer in its Business.
In consideration of the provisions of this paragraph 8, the
compensation and benefits referred to in paragraphs 3 and 4 hereof, which
Employee acknowledges are legally sufficient to support enforceability by the
Employer of the Restrictive Covenants against Employee, Employee agrees as
follows:
(a) During the term of this Agreement and after its
termination or expiration for any reason, Employee will not, without Employer's
prior written consent, use, divulge, disclose, furnish or make accessible to any
third person, company or other entity, any aspect of the Confidential
Information (other than as required in the ordinary discharge of Employee's
duties hereunder).
(b) During the term of this Agreement and for a period of two
years after the date of the expiration or termination of this Agreement for any
reason (the "Restrictive Period"), Employee shall not, directly or indirectly:
4
<PAGE>
(i) Employ or solicit the employment of any person who
at any time during the twelve (12) calendar months immediately
preceding the termination or expiration of this Agreement for
any reason was employed by Employer;
(ii) Provide or solicit the provision of products or
services, similar to those provided by Employer to any person
or entity within the "Restricted Territory," as hereinafter
defined, who purchased or leased automobiles, trucks or
services from Employer at any time during the twelve (12)
calendar months immediately preceding the termination or
expiration of this Agreement for any reason;
(iii) Interfere or attempt to interfere with the terms
or other aspects of the relationship between Employer and any
person or entity from whom Employer has purchased automobiles,
trucks, parts, supplies, inventory or services at any time
during the twelve (12) calendar months immediately preceding
the termination or expiration of this Agreement for any
reason;
(iv) Engage in competition with Employer or its
respective successors and assigns by engaging, directly or
indirectly, in a business involving the sale or leasing of
automobiles or trucks or which is otherwise substantially
similar to the Business, within the "Restricted Territory," as
hereinafter defined; or
(v) Provide information to, solicit or sell for,
organize or own any interest in (either directly or through
any parent, affiliate or subsidiary corporation, partnership,
or other entity), or become employed or engaged by, or act as
agent for, any person, corporation or other entity that is
directly or indirectly engaged in a business in the
"Restricted Territory," as hereinafter defined, which is
substantially similar to the Business or competitive with
Employer's business; provided, however, that nothing herein
shall preclude the Employee from holding not more than three
percent (3%) of the outstanding shares of any publicly held
company which may be so engaged in a trade or business
identical or similar to the Business of the Employer. As used
herein, "Restricted Territory" means the Standard Metropolitan
Statistical Areas, as determined by the United States Office
of Management and Budget, for: Houston, Texas; Charlotte,
North Carolina; Chattanooga, Tennessee; Nashville, Tennessee;
TampaSt. Petersburg - Clearwater, Florida; Daytona Beach,
Florida; Columbus, Ohio; Atlanta, Georgia; and Montgomery,
Alabama.
9. Remedies. It is stipulated that a breach by Employee of the
Restrictive Covenants would cause irreparable damage to Employer. Employer, in
addition to any other rights or remedies which Employer may have, shall be
entitled to an injunction restraining
5
<PAGE>
Employee from violating or continuing any violation of such Restrictive
Covenants. Such right to obtain injunctive relief may be exercised at the option
of Employer, concurrently with, prior to, after or in lieu of, the exercise of
any other rights or remedies which Employer may have as a result of any such
breach or threatened breach. Employee agrees that upon breach of any of the
Restrictive Covenants, Employer shall be entitled to an accounting and repayment
of all profits, royalties, compensation, and/or other benefits that Employee
directly or indirectly has realized or may realize as a result of, or in
connection with, any such breach. Employee further agrees that the Restrictive
Period shall be extended by a period of time equal to any period of time in
which any Employee is in violation of the Restrictive Covenants.
10. Acknowledgment of Reasonableness. Employee has carefully read
and considered the provisions of this Agreement and has had the opportunity for
consultation with an attorney of Employee's choice and agrees that the
restrictions set forth herein are fair and reasonably required for the
protection of Employer. In the event that any provision relating to the
Restrictive Period, the Restricted Territory or the scope of the restrictions
shall be declared by a court of competent jurisdiction to exceed the maximum
period of time, geographical area or scope that such court deems reasonable and
enforceable under applicable law, such time period, geographical area or scope
of restriction held reasonable and enforceable by the court shall thereafter be
the Restricted Period, Restricted Territory and/or scope under this Agreement.
11. Surrender of Books and Records. Employee acknowledges that all
files, records, lists, designs, specifications, books, products, plans and other
materials owned or used by Employer in connection with conduct of its business
shall at all times remain the property of Employer, and that upon termination or
expiration of this Agreement for any reason, Employee will immediately surrender
to Employer all such materials.
12. Entire Agreement. This Agreement contains the entire agreement
of the parties hereto, and shall not be modified or changed in any respect
except by a writing executed by the parties hereto.
13. Successors and Assigns. The rights and obligations of Employee
under this Agreement shall inure to the benefit of Employer, its successors and
assigns, and shall be binding upon Employee and his respective successors, heirs
and assigns. Employer shall have the right to assign, transfer, or convey this
Agreement to its affiliated companies, successor entities, or assignees or
transferees of substantially all of Employer's business activities. This
Agreement, being personal in nature to the Employee, may not be assigned by
Employee without Employer's prior written consent.
14. Notice. All notices required and permitted to be give hereunder
shall be in writing and shall be deemed to have been given when mailed by
certified or registered mail, return receipt requested, addressed to the
intended recipient as follows or at such other address as is provided by either
party to the other:
6
<PAGE>
If to Employer: With a copy to:
Sonic Automotive, Inc. Parker, Poe, Adams & Bernstein L.L.P.
5401 East Independence Boulevard 2500 Charlotte Plaza
P. O. Box 18747 Charlotte, North Carolina 28244
Charlotte, North Carolina 28218 Telecopier No.: (704) 334-4706
Telecopier No.: (704) 532-3323 Attention: Edward W. Wellman, Jr.
Attention: Chief Financial Officer
If to Employee: With a copy to:
Dennis D. Higginbotham Cobb, Cole & Bell
Higginbotham Management, Inc. P. O. Box 2491
P.O. Box 770 150 Magnolia Avenue
104 Riverside Drive Daytona Beach, Florida 32114
New Smyrna Beach, Florida 32170 Telecopier No.: (904) 238-7003
Telecopier No.: (904) 426-8111 Attention: Larry Marsh
15. Governing Law; Forum. This Agreement shall, in all respects, be
governed by and construed according to the laws of the State of Florida. Any
dispute or controversy arising out of or relating to this Agreement shall also
be governed by the laws of the State of Florida.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first above written.
EMPLOYEE:
/s/ Dennis D. Higginbotham
--------------------------------------(SEAL)
Dennis D. Higginbotham
EMPLOYER:
SONIC AUTOMOTIVE, INC.
By: /s/ O. Bruton Smith
-----------------------------------
Title: Chief Executive Officer
7
EXHIBIT 21.1
SONIC AUTOMOTIVE, INC.
LIST OF SUBSIDIARIES
Capitol Chevrolet and Imports, Inc.
Casa Ford of Houston, Inc.
Fort Mill Chrysler-Plymouth-Dodge Inc.
Fort Mill Ford, Inc.
Freedom Ford, Inc.
Frontier Oldsmobile-Cadillac, Inc.
Lone Star Ford, Inc.
Marcus David Corporation
Sonic Automotive of Chattanooga, LLC
Sonic Automotive - Clearwater, Inc.
Sonic Automotive Collision Center of Clearwater, Inc.
Sonic Automotive of Georgia, Inc.
Sonic Automotive - Hwy. 153 at Shallowford Road, Chattanooga, Inc.
Sonic Automotive of Nashville, LLC
Sonic Automotive of Nevada, Inc.
Sonic Automotive of Tennessee, Inc.
Sonic Automotive - 1307 N. Dixie Hwy., NSB, Inc.
Sonic Automotive - 1400 Automall Drive, Columbus, Inc.
Sonic Automotive - 1455 Automall Drive, Columbus, Inc.
Sonic Automotive - 1495 Automall Drive, Columbus, Inc.
Sonic Automotive - 1500 Automall Drive, Columbus, Inc.
Sonic Automotive - 1720 Mason Ave., DB, Inc.
Sonic Automotive - 1720 Mason Ave., DB, LLC
Sonic Automotive - 1919 N. Dixie Hwy., NSB, Inc.
Sonic Automotive - 21699 U.S. Hwy 19 N., Inc.
Sonic Automotive - 241 Ridgewood Ave., HH, Inc.
Sonic Automotive - 2424 Laurens Rd., Greenville, Inc.
Sonic Automotive - 2490 South Lee Highway, LLC
Sonic Automotive - 2752 Laurens Rd., Greenville, Inc.
Sonic Automotive - 3700 West Broad Street, Columbus, Inc.
Sonic Automotive - 3741 S. Nova Rd., PO, Inc.
Sonic Automotive - 4000 West Broad Street, Columbus, Inc.
Sonic Automotive - 5260 Peachtree Industrial Blvd., LLC
Sonic Automotive - 5585 Peachtree Industrial Blvd., LLC
Sonic Automotive - 6025 International Drive, LLC
Sonic Chrysler-Plymouth-Jeep-Eagle, LLC
Sonic Dodge, LLC
Sonic Peachtree Industrial Blvd., L.P.
Town and Country Chrysler-Plymouth-Jeep, LLC
Town and Country Chrysler-Plymouth-Jeep of Rock Hill, Inc.
Town and Country Dodge of Chattanooga, LLC
Town and Country Ford, Incorporated
Town and Country Ford of Cleveland, LLC
Town and Country Jaguar, LLC
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
Sonic Automotive, Inc.:
We consent to the use in this Registration Statement of Sonic Automotive, Inc.
on Form S-4 of (i) our report dated March 2, 1998 (March 24, 1998 as to Notes 2,
8 and 9) on the consolidated financial statements of Sonic Automotive, Inc. and
Subsidiaries as of December 31, 1996 and 1997 and for each of the three years in
the period ended December 31, 1997; (ii) our report dated February 20, 1998 on
the financial statements of Clearwater Dealerships and Affiliated Companies as
of and for the year ended December 31, 1997; (iii) our report dated May 22, 1998
on the combined financial statements of Hatfield Automotive Group as of December
31, 1996 and 1997 and for each of the three years in the period ended December
31, 1997; (iv) our report dated May 11, 1998 on the financial statements of
Economy Cars, Inc. as of and for the year ended December 31, 1997; (v) our
report dated June 4, 1998 on the financial statements of Casa Ford of Houston,
Inc. as of and for the year ended December 31, 1997; (vi) our report dated
August 21, 1998 on the combined financial statements of Higginbotham Automotive
Group as of and for the year ended December 31, 1997; (vii) our report dated
August 7, 1997 on the financial statements of Dyer & Dyer, Inc. as of December
31, 1995 and 1996 and for each of the three years in the period ended December
31, 1996; (viii) our report dated August 7, 1997 (October 16, 1997 as to Note 1)
on the combined financial statements of Bowers Dealerships and Affiliated
Companies as of December 31, 1995 and 1996 and for each of the two years in the
period ended December 31, 1996; (ix) our report dated August 7, 1997 (September
29, 1997 as to Note 1) on the combined financial statements of Lake Norman
Dodge, Inc. and Affiliated Companies as of and for the year ended December 31,
1996; (x) our report dated August 26, 1997 (October 15, 1997 as to Note 1) on
the financial statements of Ken Marks Ford, Inc. as of and for the year ended
April 30, 1997 appearing in the Prospectus, which is part of this Registration
Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
September 25, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
Statement of Eligibility Under the
Trust Indenture Act of 1939 of a Corporation
Designated to Act as Trustee
U.S. BANK TRUST NATIONAL ASSOCIATION
(Exact name of Trustee as specified in its charter)
United States 41-0257700
(State of Incorporation) (I.R.S. Employer
Identification No.)
U.S. Bank Trust Center
180 East Fifth Street
St. Paul, Minnesota 55101
(Address of Principal Executive Offices) (Zip Code)
SONIC AUTOMOTIVE, INC.
(Exact name of Registrant as specified in its charter)
Delaware 56-2010790
(State of Incorporation) (I.R.S. Employer
Identification No.)
5401 East Independence Boulevard
P.O. Box 18747
Charlotte, North Carolina 28212
(Address of Principal Executive Offices) (Zip Code)
11% SENIOR SUBORDINATED NOTES DUE 2008
(Title of the Indenture Securities)
<PAGE>
GENERAL
1. General Information Furnish the following information as to the
Trustee.
(a) Name and address of each examining or supervising authority to which it
is subject.
Comptroller of the Currency
Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes
2. AFFILIATIONS WITH OBLIGOR AND UNDERWRITERS If the obligor or any
underwriter for the obligor is an affiliate of the Trustee, describe each
such affiliation.
None
See Note following Item 16.
Items 3-15 are not applicable because to the best of the Trustee's
knowledge the obligor is not in default under any Indenture for which the
Trustee acts as Trustee.
16. LIST OF EXHIBITS List below all exhibits filed as a part of this statement
of eligibility and qualification.
1. Copy of Articles of Association.*
2. Copy of Certificate of Authority to Commence Business.*
3. Authorization of the Trustee to exercise corporate trust powers
(included in Exhibits 1 and 2; no separate instrument).*
4. Copy of existing By-Laws.*
5. Copy of each Indenture referred to in Item 4. N/A.
6. The consents of the Trustee required by Section 321(b) of the act.
7. Copy of the latest report of condition of the Trustee published pursuant
to law or the requirements of its supervising or examining authority is
incorporated by reference to Registration Number 333-53211.
* Incorporated by reference to Registration Number 22-27000.
<PAGE>
NOTE
The answers to this statement insofar as such answers relate to what
persons have been underwriters for any securities of the obligors within three
years prior to the date of filing this statement, or what persons are owners of
10% or more of the voting securities of the obligors, or affiliates, are based
upon information furnished to the Trustee by the obligors. While the Trustee has
no reason to doubt the accuracy of any such information, it cannot accept any
responsibility therefor.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
Trustee, U.S. Bank Trust National Association, an Association organized and
existing under the laws of the United States, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Saint Paul and State of Minnesota on the 10th day of August,
1998.
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ RICHARD H. PROKOSCH
--------------------------------
Richard H. Prokosch
Assistant Vice President
/s/ JOANN M. SCHALK
- -------------------
JoAnn M. Schalk
Assistant Secretary
<PAGE>
EXHIBIT 6
CONSENT
In accordance with Section 321(b) of the Trust Indenture Act of 1939, the
undersigned, U.S. BANK TRUST NATIONAL ASSOCITION hereby consents that reports of
examination of the undersigned by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon its request therefor.
Dated: August 10, 1998
U.S. BANK TRUST NATIONAL ASSOCIATION
/s/ RICHARD H. PROKOSCH
------------------------------
Richard H. Prokosch
Assitant Vice President
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Consoli-
dated Balance Sheet, Consolidated Statement of Income and Consolidated Statement
of Cash Flows included in the Company's Form S-4 Registration Statement for the
six months ending June 30, 1998, and is qualified in its entirety by reference
to such Financial Statements.
</LEGEND>
<CIK> 0001043509
<NAME> SONIC AUTOMOTIVE, INC.
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 27,228
<SECURITIES> 0
<RECEIVABLES> 35,761
<ALLOWANCES> 2,300
<INVENTORY> 175,515
<CURRENT-ASSETS> 244,111
<PP&E> 22,040
<DEPRECIATION> 0
<TOTAL-ASSETS> 369,623
<CURRENT-LIABILITIES> 194,134
<BONDS> 54,644
0
11,763
<COMMON> 113
<OTHER-SE> 91,525
<TOTAL-LIABILITY-AND-EQUITY> 369,623
<SALES> 567,279
<TOTAL-REVENUES> 648,840
<CGS> 566,392
<TOTAL-COSTS> 566,392
<OTHER-EXPENSES> 61,473
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,086
<INCOME-PRETAX> 10,904
<INCOME-TAX> 4,100
<INCOME-CONTINUING> 6,804
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,804
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.58
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Consoli-
dated Balance Sheet, Consolidated Statement of Income and Consolidated Statement
of Cash Flows included in the Company's Form S-4 Registration Statement for the
year ending December 31, 1997, and is qualified in its entirety by reference to
such Financial Statements.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 18,304
<SECURITIES> 270
<RECEIVABLES> 19,784
<ALLOWANCES> 523
<INVENTORY> 156,514
<CURRENT-ASSETS> 197,372
<PP&E> 19,081
<DEPRECIATION> 0
<TOTAL-ASSETS> 291,450
<CURRENT-LIABILITIES> 152,696
<BONDS> 38,640
0
0
<COMMON> 113
<OTHER-SE> 84,252
<TOTAL-LIABILITY-AND-EQUITY> 291,450
<SALES> 467,858
<TOTAL-REVENUES> 536,001
<CGS> 473,003
<TOTAL-COSTS> 473,003
<OTHER-EXPENSES> 48,092
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,206
<INCOME-PRETAX> 5,998
<INCOME-TAX> 2,249
<INCOME-CONTINUING> 3,749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,702
<EPS-PRIMARY> 0.53
<EPS-DILUTED> 0.53
</TABLE>
