As filed with the Securities and Exchange Commission on December 1, 1998
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
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:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities to Amount to be Offering Price Aggregate Registration
be Registered Registered (1) Per Unit(2) Offering Price(2) Fee
<S> <C> <C> <C> <C>
Class A Common Stock, par value
$0.01 per share.................. 720,281 $ 26.72 $19,245,908 $5,678
</TABLE>
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(1) Includes the registration for resale of the following securities of the
Registrant issued in certain transactions not involving a public offering:
(i) all shares of Class A Common Stock issuable upon conversion of 2,566.5
shares of the Registrant's Class A Convertible Preferred Stock, Series II,
(ii) all shares of Class A Common Stock issuable upon conversion of 2,313
shares of the Registrant's Class A Convertible Preferred Stock, Series
III, and (iii) 485,294 shares of Class A Common Stock. Estimated solely
for purposes of calculating the registration fee in connection with this
Registration Statement; assumes that all shares of the Registrant's Class
A Convertible Preferred Stock are converted into shares of Class A Common
Stock based on a market price of $22.54 per share of Class A Common Stock
(the average of the daily closing prices of the Class A Common Stock on
the New York Stock Exchange for the 20 consecutive trading days ending one
trading day prior to November 30, 1998).
(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
amount of the registration fee. The average of the high and low prices
reported on the New York Stock Exchange was $26.72 on November 30, 1998.
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant 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>
Information contained in this Prospectus is not complete and may be changed. A
Registration Statement relating to these securities has been filed with the
Securities and Exchange Commission. The selling security holders may not sell
these securities until the Registration Statement becomes effective. This
Prospectus is not an offer to sell or the solicitation of an offer to buy nor
will there be any sale of these securities in any state where the offer,
solicitation or sale is not permitted.
SUBJECT TO COMPLETION, DATED DECEMBER 1, 1998
PROSPECTUS
720,281 Shares*
[Sonic Automotive, Inc. Logo Appears Here]
Class A Common Stock
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The selling security holders who are identified in this Prospectus may
offer and sell all of the shares of Class A Common Stock of Sonic Automotive,
Inc. offered hereby from time to time. We previously issued the shares either
in connection with our recent acquisition of the selling security holders'
businesses or upon the selling security holders' conversion of our Preferred
Stock issued in connection with our business acquisitions. We are registering
the offer and sale of the shares to satisfy our contractual obligations to
provide the selling security holders with freely tradable shares. The Company
will not receive any of the proceeds from the sale of the shares offered
hereby. The Company does not know when the proposed sale of the shares by the
selling security holders will occur. See "Use of Proceeds," "Selling Security
Holders" and "Plan of Distribution."
The Class A Common Stock is traded on The New York Stock Exchange, Inc.
(the "NYSE") under the symbol "SAH." The last NYSE sale price of the Class A
Common Stock on November 30, 1998 was $26.94 per share. You are urged to obtain
current market data.
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* The shares offered hereby include the resale of 485,294 shares of Class A
Common Stock and a presently indeterminate number of shares of Class A
Common Stock issuable upon the conversion of certain shares of the
Company's Class A Convertible Preferred Stock (the "Preferred Stock"). The
number of shares indicated to be offered for resale hereby is an estimate
based upon November 30, 1998 being the Preferred Stock conversion date for
such shares of Preferred Stock. This estimate is subject to adjustment and
could be materially less or more than such estimated amount depending upon
factors we cannot now predict, including the future market price of the
Class A Common Stock and the decisions by the holders of the Preferred
Stock as to when to convert such shares. If the date of November 30, 1998
was used as the date of conversion for all such Preferred Stock, then the
Company would be obligated to issue a total of approximately:
(1) 123,732 shares of Class A Common Stock upon conversion of 2,566.5
shares of Class A Convertible Preferred Stock, Series II (the "Series II
Preferred Stock"); and
(2) 111,255 shares of Class A Common Stock upon conversion of 2,313 shares
of Class A Convertible Preferred Stock, Series III (the "Series III
Preferred Stock").
You should not use the foregoing discussion as a prediction of the future
market price of the Class A Common Stock or the date when holders will
elect to convert Preferred Stock into shares of Class A Common Stock. See
"Risk Factors -- Purchasers of the Shares Being Offered Will Be Diluted
When Preferred Stock is Converted" and "Description of Capital Stock."
See "Risk Factors" beginning on page 4 for a discussion of certain factors
you should consider before purchasing any shares being offered.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this Prospectus. Any representation to the contrary is
a criminal offense.
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This Prospectus is not an offer to sell the
shares and is not soliciting an offer to buy the shares in any state where the
offer or sale is not permitted. You should not assume that the information in
this Prospectus or any of its supplements is accurate as of any date other than
the date on the front of these documents.
The date of this Prospectus is December , 1998
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION ABOUT THE COMPANY
The Company files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and information relate to the Company's business,
financial condition and other matters. You may read and copy these reports,
proxy statements and other information at the Public Reference Room 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. You may obtain information on the operation of the Commission's
Public Reference Room in Washington, D.C. by calling the Commission at
1-800-SEC-0330. Copies may be obtained from the Commission upon payment of the
prescribed fees. 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. Such information may also be read
and copied at the offices of the NYSE at 20 Broad Street, New York, New York
10005.
The Commission allows us to "incorporate by reference" the information we
file with them, which means that we can disclose important information to you
by referring to those documents. The information incorporated by reference is
considered to be part of this Prospectus, and information that we file later
with the Commission will automatically update and supercede this information.
We incorporate by reference the documents listed below and any future filings
made with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), until the selling
security holders sell all the shares offered hereby or we decide or terminate
this offering earlier:
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1. The Company's Annual Report on Form 10-K for its fiscal year ended December 31, 1997 (File No. 1-13395)
(dated March 31, 1998) and Form 10-K/A Amendment No. 1 (dated April 8, 1998).
2. The Company's Quarterly Reports on Form 10-Q for its fiscal quarters ended March 31, 1998, June 30, 1998
and September 30, 1998.
3. The Company's Current Reports on Form 8-K, filed the following dates: March 30, 1998, July 9, 1998, and
July 24, 1998.
4. The Company's Amended Current Report on Form 8-K/A, filed on July 24, 1998, amending its Current Report
on Form 8-K filed on March 30, 1998.
5. The Company's Amended Current Report on Form 8-K/A, filed on August 20, 1998, amending its Current
Report on Form 8-K filed on July 24, 1998.
6. The description of the Company's Class A Common Stock contained in the Company's Registration Statement
on Form 8-A, as amended, filed with the Commission pursuant to Section 12 of the Exchange Act.
7. The Company's Definitive Proxy Materials dated November 2, 1998.
8. The Company's Registration Statement on Form S-4 (Registration Nos. 333-64397 and 333-64397-001 through
333-64397-044) dated November 3, 1998.
</TABLE>
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request, a copy of any or all
of the documents incorporated by reference in this Prospectus (excluding
exhibits to such documents unless such exhibits are specifically incorporated
by reference). Written or telephone requests should be directed to Mr. Todd
Altenhan, Director of Investor Relations, 5401 East Independence Blvd., P.O.
Box 18747, Charlotte, North Carolina, 28212, Telephone (704) 532-3320.
This Prospectus is a part of a Registration Statement on Form S-3 (the
"Registration Statement") filed with the Commission by the Company. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. Statements about the contents
of contracts or other documents contained in this Prospectus or in any other
filing to which we refer you are not necessarily complete. You should review
the actual copy of such documents filed as an exhibit to the Registration
Statement or such other filing. Copies of the Registration Statement and these
exhibits may be obtained from the Commission as indicated above upon payment of
the fees prescribed by the Commission.
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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 of 1933
(the "Securities Act") and Section 21E of 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:
o local and regional economic conditions in the areas served by the
Company;
o the level of consumer spending;
o relationships with manufacturers;
o competition;
o site selection and related traffic and demographic patterns;
o inventory management and turnover levels;
o realization of cost savings; and
o 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 heading "Risk Factors,"
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.
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SUMMARY
The Company is one of the top ten automotive retailers in the United
States, operating dealerships and collision repair centers in the metropolitan
areas of the Southeast, Midwest and Southwest. We sell new and used cars and
light trucks, sell replacement parts, provide vehicle maintenance, warranty,
paint and repair services and arrange related financing and insurance for our
automotive customers.
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, we selectively acquire dealerships which have underperformed the
industry average but which carry attractive product lines or have attractive
locations. In such cases, our current managers will operate the acquired
business to improve the return on our investment in the business. In addition
to indentifying, consummating and integrating attractive acquisitions, we
continually focus on improving our existing dealership operations.
The Class A Common Stock is traded on the NYSE under the trading symbol
"SAH." Our principal executive offices are located at 5401 East Independence
Blvd., P.O. Box 18747, Charlotte, North Carolina 28212, Telephone (704) 532-
3320.
RISK FACTORS
You should carefully consider and evaluate all of the information in this
Prospectus, including the risk factors set forth below, before investing in the
shares being offered.
Automobile Manufacturers Exercise Significant Control Over The Company's
Operations and the Company Is Dependent on Them to Operate its Business
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 the following Manufacturers accounted for the
indicated approximate percentage of the Company's 1997 new vehicle revenues on
a pro forma basis taking into account the Company's initial public offering in
1997, its reorganization in connection therewith and its acquisitions of
businesses in 1997 and in 1998 (hereinafter referred to as "pro forma"):
<TABLE>
<CAPTION>
Percentage of
Our 1997 New Vehicle
Manufacturer Pro Forma Revenues
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Ford Motor Company 42.4%
Chrysler Corporation 18.6%
Toyota Motor Sales (U.S.A.) 10.9%
General Motors Corporation 6.7%
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No other Manufacturer accounted for more than 5% of the pro forma new
vehicle sales of the Company during 1997. Accordingly, a significant decline in
the sale of Ford, Chrysler, Toyota or GM new cars could have a 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 believes that it will be able to renew all of its
existing franchise agreements upon expiration.
o There can be no assurance that any of our franchise agreements will be
renewed or that the terms and conditions of such renewals will be favorable to
the Company.
o 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.
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o 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.
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.
o 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.
o 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.
A Manufacturer's Adversity May Adversely Affect the Company's Profitability
The success of each of the Company's dealerships depends to a great extent
on the Manufacturers':
o financial condition;
o marketing;
o vehicle design;
o production capabilities; and
o management.
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.
The Company's Failure to Meet A Manufacturer's Consumer Satisfaction
Requirements May Adversely Affect the Company's Ability to Acquire New
Dealerships.
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. 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 Company's 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.
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The Company must also obtain approvals by the applicable Manufacturer for
any of its acquisitions. See " -- Risks Associated with Acquisitions May Hinder
the Company's Ability to Increase Revenues or Earnings."
Automobile Retailing Is A Mature Industry With Limited Growth Potential in New
Vehicle Sales and the Company Must Rely on Its Acquisition Strategy to Increase
Its Revenues and Earnings.
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.
The Cyclical and Local Nature of Automobile Sales May Adversely Affect the
Company's Profitability
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 October
31, 1998, industry retail sales for the year to date increased 2.6% as a result
of retail car sales declines of 1.6% offset by retail truck sale gains of 7.9%
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.
High Competition in Automobile Retailing Reduces the Company's Profit Margins
on Vehicle Sales.
Automobile retailing is a highly competitive business with over 22,000
franchised automobile dealerships in the United States at the beginning of
1997. 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
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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.
The Operating Condition of Acquired Businesses Cannot Be Determined Accurately
Until the Company Assumes Control. The Company May Pay Too Much to Acquire
Certain Businesses.
Although the Company has conducted what it believes to be a prudent level
of investigation regarding the operating condition of the businesses purchased
by the Company 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 acquisition price paid represented a
fair valuation.
Risks of Consolidating Operations as a Result of Recent Acquisitions May
Adversely Affect the Company's Future Operating Results.
In connection with the Company's 1998 acquisitions, we acquired 17
dealerships. Each of these dealerships was operated and managed as a separate
independent entity until acquired. The Company's future operating results will
depend on our ability to integrate the operations of these businesses and
manage the combined enterprise. There can be no assurance that we 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. Our inability to do so could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Risks Associated with Acquisitions May Hinder the Company's Ability to Increase
Revenues and Earnings.
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 its
1998 acquisitions, into existing operations. In pursuing a strategy of
acquiring other dealerships, the Company faces risks commonly encountered with
growth through acquisitions. These risks include, but are not limited to:
o incurring significantly higher capital expenditures and operating
expenses,
o failing to assimilate the operations and personnel of the acquired
dealerships,
o disrupting the Company's ongoing business,
o dissipating the Company's limited management resources,
o failing to maintain uniform standards, controls and policies,
o impairing relationships with employees and customers as a result of
changes in management and
o 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.
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
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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.
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 the Company's Financial Resources Available for Acquisitions and
the Company's Possible Inability to Refinance Existing Debt May Restrict the
Company's Future Growth.
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. 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.
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 September 30, 1998, the Company had approximately $174.0
million of floor plan indebtedness outstanding, all of which is under the
Company's floor plan credit facility (the "Floor Plan Facility") with Ford
Motor Credit. 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.
O. Bruton Smith, the Company's Chief Executive Officer and Chairman of the
Board, initially guaranteed the obligations of the Company under the Company's
unsecured line of credit (the "Revolving Facility") with Ford Motor Credit.
Such obligations were further secured with a pledge of shares of common stock
of Speedway Motorsports, Inc. owned by Sonic Financial Corporation, 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 current 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 initial public offering in November 1997 were significantly less than
expected by the Company and Ford Motor Credit.
Manufacturer Stock Ownership/Issuance Limits Limit the Company's Ability to
Issue Additional Equity to Meet Its Financing Needs
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 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.
o 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, (together with the Class A Common Stock, the
"Common Stock") and their lineal descendants and affiliates (collectively, the
"Smith Group")) acquires 15% or more of the Company's voting securities.
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o 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.
o American Honda Co., Inc. 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.
o Volkswagen of America, Inc. 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.
o 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.
In a similar manner, the Company's lending arrangements require that
voting control over the Company be maintained by the Smith Group. 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.
Purchasers of the Shares Being Offered Will Be Diluted When Preferred Stock is
Converted.
Purchasers of the shares being offered may experience immediate and
substantial dilution in the then-trading price of the Common Stock upon the
conversion of Preferred Stock by selling security holders. The Preferred Stock
entitles the holders thereof to convert such shares into shares of Class A
Common Stock. The exact number of shares of Common Stock issuable upon
conversion of all of the shares of Preferred Stock held by selling security
holders cannot currently be estimated but, generally, such issuances of Common
Stock will vary inversely with the market price of the Common Stock. If
November 30, 1998 was used as the date of conversion of all shares of Preferred
Stock held by the selling security holders, then the Company would be obligated
to issue a total of approximately:
(1) 123,732 shares of Class A Common Stock upon conversion of 2,566.5
shares of Series II Preferred Stock held by selling security holders;
and
(2) 111,255 shares of Class A Common Stock upon conversion of 2,313
shares of Series III Preferred Stock held by selling security holders.
The number of shares of Class A Common Stock offered for resale by this
Prospectus upon conversion of the shares of Preferred Stock held by selling
security holders is an estimate based upon the average of the daily closing
prices for the Common Stock on the NYSE for the 20 consecutive trading days
ending one trading day prior to November 30, 1998. This number is subject to
adjustment and could be materially less or more than such estimated amount
depending upon factors which cannot be predicted by the Company at this time,
including the future market price of the Common Stock and the decisions by the
selling security holders as to when to convert such shares of Preferred Stock.
Sales of substantial amounts of Class A Common Stock by such selling security
holders, or the perception that such sales could occur, could adversely affect
the market price for the Class A Common Stock.
Potential Adverse Market Price Effect of Additional Shares Eligible for Future
Sale
The 6,200,000 shares of Class B Common Stock owned beneficially by
existing stockholders of the Company, the 30,000 shares of Class A Common Stock
underlying options granted by the Company under its Directors Formula Stock
Option Plan, the 119,187 shares of Class A Common Stock underlying warrants
issued in connection with the Company's acquisitions, the 1,250,885 shares of
Class A Common Stock underlying its outstanding Preferred Stock if such
Preferred Stock were converted on November 30, 1998, and 485,294 shares of
Class A Common Stock issued in connection with the Company's acquisitions, are
"restricted securities" as defined in Rule 144 under the Securities Act, and
may in the future be resold in compliance with Rule 144. The 6,200,000 shares
of Class B Common Stock are subject to certain piggyback registration rights.
In addition, the Company has granted options exercisable for 1,220,009 shares
of Class A Common Stock under its 1997 Stock Option Plan and 1997 Employee
Stock Purchase Plan, and all such shares are registered with the Commission and
available for public resale. No prediction can be made as to the effect that
resale of
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shares of Common Stock, or the availability of shares of Common Stock for
resale, will have on the market price of the Class A Common Stock prevailing
from time to time. The resale of substantial amounts of Common Stock, or the
perception that such resales may occur, could materially and adversely affect
prevailing market prices for the Common Stock and the ability of the Company to
raise equity capital in the future.
Manufacturers' Restrictions on Acquisitions Could Limit the Company's Future
Growth
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 to Acquisitions 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 Company's 1997 and 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 its
1998 acquisitions other than from Honda in the acquisition of Economy Honda in
Chattanooga, Tennessee (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 for the Economy
Honda Acquisition." 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.
o Ford currently limits the Company to no more than the lesser of (1) 15
Ford and 15 Lincoln Mercury dealerships or (2) 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 Ford-defined market area
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.
o 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's general policy of limits
ownership to ten Chrysler dealerships in the United States, six Chrysler
dealerships in the same Chrysler-defined sales zone and two dealerships in
the same market (but no more than one like vehicle line brand in the same
market).
o 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 (1) the greater
of one dealership, or 20% of the Toyota dealer count in a Toyota-defined
"Metro" market, (2) the lesser of five dealerships or 5% of the Toyota
dealerships in any Toyota region (currently 12 geographic regions), and
(3) two Lexus dealerships in any one of the four Lexus geographic areas.
Toyota further requires that at least nine months elapse between
acquisitions.
o Honda restricts any company from holding more than seven Honda or more
than three Acura franchises nationally and to restrict the number of
franchises to (1) one Honda dealership in a Honda-defined "Metro" market
with two to 10 Honda dealership points, (2) two Honda dealerships in a
Metro market with 11 to 20 Honda dealership points, (3) three Honda
dealerships in a Metro market with 21 or more Honda dealership points, (4)
no more than 4% of the Honda dealerships in any one of the 10 Honda
geographic zones, (5) one Acura dealership in a Metro market, and (6) 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
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in the Company having two contiguous dealership points in Chattanooga. See
" -- No Consent from Honda for Economy Honda Acquisition."
o 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 Company's 1997
acquisitions, a number of Manufacturers have also imposed certain other
restrictions on the Company. These restrictions principally consist of
restrictions on (1) 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; (2) the removal of a
dealership general manager without the consent of the Manufacturer; and (3) 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 (1) sell the assets of the dealerships to the
Manufacturer or to a third party acceptable to the Manufacturer, or (2)
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 its 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 for Economy Honda Acquisition" and " -- No Consent to
Acquisitions from Jaguar."
No Consent from Honda for Economy Honda Acquisition
The Company has requested the consent of Honda 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, since the Company already owns the Cleveland Village
Honda dealership located in the Chattanooga market. Therefore, Honda's approval
of the Economy Honda Acquisition, is contingent upon the Company divesting its
ownership of the Cleveland Village 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. 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 2.1% and 3.0% of gross profits, respectively.
No Consent to Acquisitions 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. 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 Between the Company and Its Officers Could
Adversely Affect the Company's Future Performance
Bruton Smith will continue to serve as the Chairman and Chief Executive
Officer of Speedway Motorsports, Inc. 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 Mar Mar Realty
Trust ("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. The
Company
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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. The Company
anticipates renegotiating its leases with all related parties at lease
expiration at fair market rentals, which may be higher than current rents.
In addition to his interest and responsibilities with the Company, Nelson
Bowers, the Company's Executive Vice President, 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
"Charter") 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 Revolving Facility, and the terms of the Indenture
will restrict, certain transactions with affiliates.
Lack of Majority of Independent Directors Could Result in Conflicts with
Management and Majority Shareholders That May Reduce the Company's Future
Performance.
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 Charter. 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.
The Loss of Key Personnel and the Limited Management and Personnel Resources of
the Company Could Adversely Affect the Company's Operations and Growth
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, the Company's
President and Chief Operating Officer, Dennis D. Higginbotham, the Company's
President of Retail Operations, Nelson Bowers, Theodore M. Wright, the
Company's Chief Financial Officer, Vice President-Finance, Treasurer and
Secretary, O. Ken Marks, Jr., a Regional Vice President of the Company, and
Jeffrey C. Rachor, a Regional Vice President of the Company, 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
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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.
Seasonality of the Automotive Retail Business Adversely Affects First Quarter
Revenues.
The Company's business is seasonal, with a disproportionate amount of
revenues occurring in the second, third and fourth fiscal quarters.
Imported Product Restrictions and Foreign Trade Risks May Impair the Company's
Ability to Sell Foreign Vehicles Profitably.
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,
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.
Governmental Regulation and Environmental Regulation Compliance Costs May
Adversely Affect the Company's Profitability.
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.
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Concentration of Voting Power and Antitakeover Provisions of the Company's
Charter May Reduce Stockholder Value in Any Potential Change of Control of the
Company
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. 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, 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 Company's
Board of Directors, proposed by or on behalf of the holders of the Class B
Common Stock or their affiliates or as to which any members 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, (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. The two classes vote
together as a single class on all matters, except where class voting is
required by Delaware law, which exception would apply, among other situations,
to a vote on any proposal to modify the voting rights of the Class A Common
Stock. See "Description of Capital Stock." As of October 23, 1998, the holders
of Class B Common Stock had approximately 89.7% of the combined voting power of
the outstanding voting capital stock of the Company, representing 52.8% of such
outstanding voting shares. Accordingly such 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. In addition, the Company may issue additional shares of Class B
Common Stock to members of the Smith Group in the future for fair market value.
The disproportionate voting rights of the Class B Common Stock under the
above-mentioned circumstances could have a material adverse effect on the
market price of the Class A Common Stock. Such disproportionate voting rights
may make the Company a less attractive target for a takeover than it otherwise
might be, or render more difficult or discourage a merger proposal, a tender
offer or a proxy contest, even if such actions were favored by a majority of
the holders of the Class A Common Stock.
Certain provisions of the Certificate and the Company's Bylaws make it
more difficult for stockholders of the Company to effect certain corporate
actions. See "Description of Capital Stock -- Delaware Law, Certain Charter and
Bylaw Provisions and Certain Franchise Agreement Provisions." Under the
Company's 1997 Stock Option Plan, options outstanding thereunder become
immediately exercisable upon a change in control of the Company. The
agreements, corporate documents and laws described above, as well as provisions
of the Company's franchise agreements (permitting Manufacturers to terminate
such agreements upon a change of control) and provisions of the Company's
lending arrangements (creating an event of default thereunder upon a change in
control), may have the effect of delaying or preventing a change in control of
the Company or preventing stockholders from realizing a premium on the sale of
their shares of Class A Common Stock upon an acquisition of the Company.
Year 2000 Computer Problems May Create Costs and Problems Adversely Affecting
the Company's Profitability
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 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
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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.
Amortization of Goodwill From Acquisitions Could Change, Resulting in
Significant Reduction in Earnings for Future Periods
Goodwill would have represented approximately 33.2% and 124.0% of the
Company's total assets and stockholders' equity, respectively, as of September
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.
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USE OF PROCEEDS
The Company will not receive any proceeds from the sale by the selling
security holders of the shares offered hereby. The proceeds from the sales of
shares offered hereby shall be retained solely for the account of the selling
security holders.
SELLING SECURITY HOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the shares to be offered hereby as of November 30,
1998, and as adjusted to reflect the sale of the securities offered hereby, by
the selling security holders. Except as otherwise indicated, to the knowledge
of the Company, all persons listed below have sole voting and investment power
with respect to their securities, except to the extent that authority is shared
by spouses under applicable law or as otherwise noted below. The information in
the table concerning the selling security holders who may offer Class A Common
Stock hereunder from time to time is based on information provided to the
Company by such securityholders, except for the assumed conversion ratio of
shares of Preferred Stock into Common Stock, which is based solely on the
assumptions discussed or referenced in footnote (1) to the table. Information
concerning such selling security holders may change from time to time and any
changes of which the Company is advised will be set forth in a Prospectus
Supplement to the extent required. See "Plan of Distribution." To the knowledge
of the Company, none of the selling security holders has had within the past
three years any material relationship with the Company or any of its
predecessors or affiliates, except as set forth in the end notes to the
following table.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Shares Beneficially
Owned Prior to to be Sold Owned After
the Offering (1) in the Offering (1) the Offering
------------------ --------------------- -----------------
Name of Selling Stockholder Number Number Number Percent
- ------------------------------------ ------------------ --------------------- -------- --------
<S> <C> <C> <C> <C>
Dennis Higginbotham ................ 485,294(2) 485,294 0 *
Aldo B. Paret(3) ................... 112,255 111,255 1,000 *
Century Auto Sales, Inc ............ 104,209 104,209 0 *
Fairway Management Company ......... 19,523 19,523 0 *
</TABLE>
- ---------
*Represents less than 1% of the outstanding Common Stock.
(1) Except in the case of Shares indicated with the footnote (2), such
beneficial ownership represents an estimate of the number of shares of Class A
Common Stock issuable upon the conversion of shares of Preferred Stock
beneficially owned by such person, assuming November 30, 1998 is the conversion
date for such Preferred Stock. The average of the daily closing prices of the
Class A Common Stock on the NYSE for the 20 consecutive trading days ending on
the trading day immediately before such date was used to determine the number
of shares of Class A Common Stock issuable upon conversion of the Preferred
Stock. The actual number of shares of Class A Common Stock offered hereby is
subject to adjustment and could be materially less or more than the estimated
amount indicated depending upon factors which cannot be predicted by the
Company at this time, including, among others, application of the conversion
provisions based on market prices prevailing at the actual date of conversion.
You should not use the foregoing information as a prediction of the future
market price of the Class A Common Stock or the date when holders will elect to
convert shares of Preferred Stock into shares of Class A Common Stock. The
shares of Preferred Stock were issued in private placement transactions that
were exempt from the registration requirements of the Securities Act. See "Risk
Factors -- Purchasers of the Shares Being Offered Will Be Diluted When
Preferred Stock is Converted."
(2) Represents beneficial ownership of shares of Class A
Common Stock issued in a private placement to Mr. Higginbotham in connection
with the acquisition of businesses owned by him. Mr. 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, Halifax
Ford-Mercury and Higginbotham Automobiles, each of which was acquired by the
Company in September 1998.
(3) Mr. Paret is currently employed by the Company's subsidiary, Casa Ford of
Houston, Inc., pursuant to an employment agreement entered into in July 1998.
Prior to joining the Company, Mr. Paret owned a controlling interest in, and
served as the president of, Casa Ford of Houston, Inc., which was acquired by
the Company in July, 1998.
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PLAN OF DISTRIBUTION
The selling security holders may sell or distribute some or all of the
shares from time to time through dealers or brokers or other agents or directly
to one or more purchasers, including pledgees, in transactions (which may
involve crosses and block transactions) on the NYSE or other exchanges on which
the Class A Common Stock may be listed for trading, in privately negotiated
transactions (including sales pursuant to pledges) or in the over-the-counter
market, or in brokerage transactions, or in a combination of such transactions.
Such transactions may be effected by the selling security holders at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices, or at fixed prices, which may be changed.
Brokers, dealers, or other agents participating in such transactions as agent
may receive compensation in the form of discounts, concessions or commissions
from the selling security holders (and, if they act as agent for the purchaser
of such shares, from such purchaser). Such discounts, concessions or
commissions as to a particular broker, dealer, or other agent might be in
excess of those customary in the type of transaction involved. This Prospectus
also may be used, with the Company's consent, by donees of the selling security
holders, or by other persons, including pledgees, acquiring the shares and who
wish to offer and sell such shares under circumstances requiring or making
desirable its use. To the extent required, the Company will file, during any
period in which offers or sales are being made, one or more supplements to this
Prospectus to set forth the names of donees or pledgees of selling security
holders and any other material information with respect to the plan of
distribution not previously disclosed.
The selling security holders and any such brokers, dealers or other agents
that participate in such distribution may be deemed to be "underwriters" within
the meaning of the Securities Act, and any discounts, commissions or
concessions received by any such brokers, dealers or other agents might be
deemed to be underwriting discounts and commissions under the Securities Act.
Neither the Company nor the selling security holders can presently estimate the
amount of such compensation. The Company knows of no existing arrangements
between any selling security holder and any other selling security holder,
broker, dealer or other agent relating to the sale or distribution of the
shares.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of any of the shares may not simultaneously engage in
market activities with respect to the Common Stock for the applicable period
under Regulation M prior to the commencement of such distribution. In addition
and without limiting the foregoing, the selling security holders will be
subject to applicable provisions of the Exchange Act and the rules and
regulations thereunder, including without limitation Rule 10b-5 and Regulation
M, which provisions may limit the timing of purchases and sales of any of the
shares by the selling security holders. All of the foregoing may affect the
marketability of the Class A Common Stock.
The Company will pay substantially all of the expenses incident to this
offering of the shares by the selling security holders to the public other than
commissions, concessions and discounts of brokers, dealers or other agents.
Each selling security holder may indemnify any broker, dealer, or other agent
that participates in transactions involving sales of the shares against certain
liabilities, including liabilities arising under the Securities Act. The
Company may agree to indemnify the selling security holders and any such
statutory "underwriters" and controlling persons of such "underwriters" against
certain liabilities, including certain liabilities under the Securities Act.
In order to comply with certain states' securities laws, if applicable,
the shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers.
MATERIAL CHANGES
There have been no material changes in the Company's affairs which have
occurred since the end of the latest fiscal year for which certified financial
statements were included in the latest annual report to security holders and
which have not been described in a report on Form 10-Q or Form 8-K under the
Exchange Act.
The historical audited financial statements of businesses acquired by the
Company since December 31, 1997 and the financial statements of the Company pro
forma for such acquisitions are hereby incorporated by reference to the
Unaudited Pro Forma Consolidated Financial Data of the Company for the year
ended December 31, 1997 and the six months ended June 30, 1998, 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
17
<PAGE>
financial statements of Ken Marks Ford, Inc., which are included in the final
prospectus dated November 5, 1998 that was included in the Company's
Registration Statement on Form S-4 (Registration Nos. 333-64397 and
333-64397-001 through 333-64397-044), which was filed with the Commission by
the Company on November 3, 1998 and declared effective by the Commission on
November 5, 1998.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of (i) 50,000,000 shares
of Class A Common Stock, $.01 par value, (ii) 15,000,000 shares of Class B
Common Stock, $.01 par value, and (iii) 3,000,000 shares of preferred stock,
$.10 par value (of which 300,000 shares have been designated as the Preferred
Stock). As of October 23, 1998, the Company had 5,588,888 outstanding shares of
Class A Common Stock, 6,200,000 outstanding shares of Class B Common Stock and
27,058.8 outstanding shares of the Preferred Stock.
The following summary description of the Company's capital stock does not
purport to be complete and is qualified in its entirety by reference to the
Company's Amended and Restated Certificate of Incorporation (the "Charter")
(which was filed as an exhibit to the Company's Registration Statement on Form
S-1 (File No. 333-33295)), the Company's Certificate of Designations relating
to the Preferred Stock (the "Designation") (which was filed as an exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998), and to Delaware law. Reference is made to such exhibits and to Delaware
law for a detailed description of the provisions thereof summarized below.
Common Stock
The Company's Class A Common Stock and Class B Common Stock are equal in
all respects except for voting rights, conversion rights of the Class B Common
Stock and as required by law, as discussed more fully below.
Voting Rights; Conversion of Class B Common Stock to Class A Common Stock
The voting powers, preferences and relative rights of the Class A Common
Stock and the Class B Common Stock are subject to the following provisions.
Holders of Class A Common Stock have 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 except as described below.
Holders of all classes of Common Stock entitled to vote will vote together as a
single class on all matters presented to the stockholders for their vote or
approval except as otherwise required by Delaware Law. There is no cumulative
voting with respect to the election of directors. In the event any shares of
Class B Common Stock held by a member of the Smith Group are transferred
outside of the Smith Group, such shares will automatically be converted into
shares of Class A Common Stock. In addition, if the total number of shares of
Common Stock held by members of the Smith Group is less than 15% of the total
number of shares of Common Stock outstanding, all of the outstanding shares of
Class B Common Stock automatically will be reclassified as Class A Common
Stock. In any merger, consolidation or business combination, the consideration
to be received per share by holders of Class A Common Stock must be identical
to that received by holders of Class B Common Stock, except that in any such
transaction in which shares of common stock are distributed, such shares may
differ as to voting rights to the extent that voting rights now differ between
the classes of Common Stock.
Notwithstanding the foregoing, the holders of Class A Common Stock and
Class B Common Stock vote as a single class, with each share of each class
entitled to one vote per share, with respect to any transaction proposed or
approved by the Board of Directors of the Company or proposed by or on behalf
of 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, (b) sale or other disposition of all or substantially all of the
Company's assets, (c) sale or transfer which would cause the nature of the
Company's business to be no longer primarily oriented toward automobile
dealership operations and related activities or (d) merger or consolidation of
the Company in which the holders of the Common Stock will own less than 50% of
the Common Stock following such transaction. A "going private" transaction is
defined as any "Rule 13e-3 Transaction," as such term is defined in Rule 13e-3
promulgated under the Securities Exchange Act of 1934. An "affiliate" is
defined as (i) any individual or entity who or that, directly or indirectly,
controls, is controlled by, or is under common control with any member of the
Smith Group, (ii) any corporation or organization (other than the Company or a
majority-owned subsidiary of the Company) of which any member of the Smith
Group is an officer partner or is, directly or indirectly, the beneficial owner
of 10% or more of any class of voting securities, or in which any member of the
Smith Group has a substantial beneficial interest, (iii) a voting trust or
similar arrangement pursuant to which any member of the Smith Group generally
controls the vote of the shares of Common Stock held by or subject to such
trust or arrangement, (iv) any other trust or
18
<PAGE>
estate in which any member of the Smith Group has a substantial beneficial
interest or as to which any member of the Smith Group serves as trustee or in a
similar fiduciary capacity, or (v) any relative or spouse of any member of the
Smith Group or any relative of such spouse, who has the same residence as any
member of the Smith Group.
As used in this Prospectus, the term the "Smith Group" consists of the
following persons: (i) Mr. Smith and his guardian, conservator, committee, or
attorney-in-fact; (ii) William S. Egan and his guardian, conservator,
committee, or attorney-in-fact; (iii) each lineal descendant of Messrs. Smith
and Egan (a "Descendant") and their respective guardians, conservators,
committees or attorneys-in-fact; and (iv) each "Family Controlled Entity." The
term "Family Controlled Entity" means (i) any not-for-profit corporation if at
least 80% of its board of directors is composed of Mr. Smith, Mr. Egan and/or
Descendants; (ii) any other corporation if at least 80% of the value of its
outstanding equity is owned by members of the Smith Group; (iii) any
partnership if at least 80% of the value of the partnership interests are owned
by members of the Smith Group; and (iv) any limited liability or similar
company if at least 80% of the value of the company is owned by members of the
Smith Group. For a discussion of the effects of the disproportionate voting
rights of the Common Stock, see "Risk Factors -- Concentration of Voting Power
and Antitakeover Provisions of the Company's Charter May Reduce Stockholder
Value in Any Potential Change of Control of the Company."
Under the Company's Charter and Delaware Law, the holders of Class A
Common Stock and/or Class B Common Stock are each entitled to vote as a
separate class, as applicable, with respect to any amendment to the Company's
Certificate that would increase or decrease the aggregate number of authorized
shares of such class, increase or decrease the par value of the shares of such
class, or modify or change the powers, preferences or special rights of the
shares of such class so as to affect such class adversely.
Dividends
Holders of the Class A Common Stock and the Class B Common Stock are
entitled to receive ratably such dividends, if any, as are declared by the
Company's Board of Directors out of funds legally available for that purpose,
provided, that dividends paid in shares of Class A Common Stock or Class B
Common Stock shall be paid only as follows: shares of Class A Common Stock
shall be paid only to holders of Class A Common Stock and shares of Class B
Common Stock shall be paid only to holders of Class B Common Stock. The
Company's Charter provides that if there is any dividend, subdivision,
combination or reclassification of either class of Common Stock, a
proportionate dividend, subdivision, combination or reclassification of the
other class of Common Stock shall simultaneously be made.
Other Rights
Stockholders of the Company have no preemptive or other rights to
subscribe for additional shares. In the event of the liquidation, dissolution
or winding up of the Company, holders of Class A Common Stock and Class B
Common Stock are entitled to share ratably in all assets available for
distribution to holders of Common Stock after payment in full of creditors. No
shares of any class of Common Stock are subject to a redemption or a sinking
fund.
Transfer Agent and Registrar
The Company has appointed First Union National Bank as the transfer agent
and registrar for the Common Stock.
Preferred Stock
Dividends. The Preferred Stock has no preferential dividends. Rather,
holders of Preferred Stock are entitled to participate in dividends payable on
the Class A Common Stock on an "as-if-converted" basis.
Voting Rights. 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.
Liquidation Rights. The Preferred Stock has a liquidation preference of
$1,000 per share.
Conversion Rights. Each share of Preferred Stock is convertible into
shares of Class A Common Stock at the holder's option at specified conversion
rates. After the second anniversary of the date of issuance, any shares of
Preferred Stock which have not been converted are subject to mandatory
conversion to Class A Common Stock at the option of the Company. No fractional
shares of Class A Common Stock will be issued upon conversion of any shares of
Preferred Stock. Instead, the Company will pay cash equal to the value of such
fractional share.
Generally, each share of Preferred Stock is convertible into that number
of shares of Class A Common Stock that has an aggregate Market Price at the
time of conversion equal to $1,000 (with certain adjustments for the Series II
and Series III Preferred Stock). "Market Price" is defined as the average
closing price per share of Class A Common Stock on the
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<PAGE>
New York Stock Exchange for the twenty trading days immediately preceding the
date of conversion. If the Class A Common Stock is no longer listed on the New
York Stock Exchange, then the Market Price will be determined on the basis of
prices reported on the principal exchange on which the Class A Common Stock is
listed, or if not so listed, prices furnished by NASDAQ. If the Class A Common
Stock is not listed on an exchange or reported on by NASDAQ, then the Market
Price will be determined by the Company's Board of Directors.
Before the first anniversary of the date of issuance of Preferred Stock,
each holder of Preferred Stock is unable to convert without first giving Sonic
ten business days' notice and an opportunity to redeem such Preferred Stock at
the then applicable redemption price.
Redemption. The Preferred Stock is redeemable at the Company's option at
any time after the date of issuance. The redemption price for the Series I
Preferred Stock is $1,000 per share. The redemption price for the Series II
Preferred Stock and the 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. There is no restriction on Sonic's ability
to redeem the Preferred Stock while there is an arrearage in payment of
dividends on such Preferred Stock.
Delaware Law, Certain Charter and Bylaw Provisions and Certain Franchise
Agreement Provisions
Certain provisions of Delaware Law and of the Company's Charter and
Bylaws, summarized in the following paragraphs, may be considered to have an
antitakeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by stockholders.
Delaware Antitakeover Law. The Company, a Delaware corporation, is subject
to the provisions of Delaware Law, including Section 203. In general, Section
203 prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which such person became an interested
stockholder unless: (i) prior to such date, the Board of Directors approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder; or (ii) upon becoming an
interested stockholder, the stockholder then owned at least 85% of the voting
stock, as defined in Section 203; or (iii) subsequent to such date, the
business combination is approved by both the Board of Directors and by holders
of at least 66 2/3% of the corporation's outstanding voting stock, excluding
shares owned by the interested stockholder. For these purposes, the term
"business combination" includes mergers, asset sales and other similar
transactions with an "interested stockholder." An "interested stockholder" is a
person who, together with affiliates and associates, owns (or, within the prior
three years, did own) 15% or more of the corporation's voting stock. Although
Section 203 permits a corporation to elect not to be governed by its
provisions, the Company to date has not made this election.
Classified Board of Directors. The Company's Bylaws provide for the Board
of Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of
Directors will be elected each year. Classification of the Board of Directors
expands the time required to change the composition of a majority of directors
and may tend to discourage a takeover bid for the Company. Moreover, under
Delaware Law, in the case of a corporation having a classified board of
directors, the stockholders may remove a director only for cause. This
provision, when coupled with the provision of the Bylaws authorizing only the
board of directors to fill vacant directorships, will preclude stockholders of
the Company from removing incumbent directors without cause, simultaneously
gaining control of the Board of Directors by filing the vacancies with their
own nominees.
Special Meetings of Stockholders. The Company's Bylaws provide that
special meetings of stockholders may be called only by the Chairman or by the
Secretary or any Assistant Secretary at the request in writing of a majority of
the Board of Directors of the Company. The Company's Bylaws also provide that
no action required to be taken or that may be taken at any annual or special
meeting of stockholders may be taken without a meeting; the powers of
stockholders to consent in writing, without a meeting, to the taking of any
action is specifically denied. These provisions may make it more difficult for
stockholders to take action opposed by the Board of Directors.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Company's Bylaws provide that stockholders seeking to bring
business before an annual meeting of stockholders, or to nominate candidates
for election as directors at an annual or a special meeting of stockholders,
must provide timely notice thereof in writing. To be timely, a stockholder's
notice must be delivered to, or mailed and received at, the principal executive
office of the
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Company, (i) in the case of an annual meeting that is called for a date that is
within 30 days before or after the anniversary date of the immediately
preceding annual meeting of stockholders, not less than 60 days nor more than
90 days prior to such anniversary date, and, (ii) in the case of an annual
meeting that is called for a date that is not within 30 days before or after
the anniversary date of the immediately preceding annual meeting, or in the
case of a special meeting of stockholders called for the purpose of electing
directors, not later than the close of business on the tenth day following the
day on which notice of the date of the meeting was mailed or public disclosure
of the date of the meeting was made, whichever occurs first. The Bylaws also
specify certain requirements for a stockholder's notice to be in proper written
form. These provisions may preclude some stockholders from bringing matters
before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
Conflict of Interest Procedures. The Company's Charter contains provisions
providing that transactions between the Company and its affiliates must be no
less favorable to the Company than would be available in transactions involving
arms'-length dealing with unrelated third parties. Moreover, any such
transaction 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 transactions to be issued by an investment banking or
appraisal firm of national standing.
Restrictions under Franchise Agreements. The Company's franchise
agreements impose restrictions on the transfer of the Common Stock. A number of
Manufacturers prohibit transactions which affect changes in management control
of the Company. For instance, Ford may cause the Company to sell or resign from
its Ford franchises if any person or entity acquires 15% or more of the
Company's voting securities. Likewise, General Motors, Toyota and Infiniti may
force the sale of their respective franchises if 20% or more of the Company's
voting securities are so acquired. 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% of the Common Stock (10% if such entity is an institutional
investor), and Honda deems such person or entity to be unsatisfactory.
Volkswagen has 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 franchisee subsidiaries. Chrysler also 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. Such restrictions may prevent or deter prospective acquirers from
obtaining control of the Company. See "Risk Factors -- Manufacturer Stock
Ownership/Issuance Limits Limit the Company's Ability to Issue Additional
Equity to Meet Its Financing Needs."
CERTAIN MANUFACTURER RESTRICTIONS
Under agreements between the Company and certain Manufacturers, the
Company has agreed to provide the statements provided below.
The Company's agreement with Honda requires that it provide the following
statement in this Prospectus:
No automobile manufacturer has been involved, directly or indirectly, in
the preparation of this Prospectus or in the offering being made hereby. No
automobile manufacturer has made any statements or representations in
connection with the offering or has provided any information or materials that
were used in connection with the offering, and no automobile manufacturer has
any responsibility for the accuracy or completeness of this Prospectus.
Under the Company's Dealer Agreement with General Motors ("GM"), the
Company has agreed, among other things, to disclose the following provisions:
Sonic will deliver to GM copies of all Schedules 13D and 13G, and all
amendments thereto and terminations thereof, received by Sonic, within five
days of receipt of such Schedules. If Sonic is aware of any ownership of its
stock that should have been reported to it on Schedule 13D but that is not
reported in a timely manner, it will promptly give GM written notice of such
ownership, with any relevant information about the owner that Sonic possesses.
If Sonic, through its Board of Directors or through shareholder action,
proposes or if any person, entity or group sends Sonic a Schedule 13D, or any
amendments thereto, disclosing (a) an agreement to acquire or the acquisition
of aggregate ownership of more than 20% of the voting stock of Sonic and (b)
Sonic, through its Board of Directors or through shareholder action, proposes
or if any plans or proposals which relate to or would result in the following:
(i) the acquisition by any person of more than 20% of the voting stock of Sonic
other than for the purposes of ordinary passive investment; (ii) an
extraordinary corporate transaction, such as a material merger, reorganization
or liquidation, involving Sonic or a sale or transfer of a material amount of
assets of Sonic and its subsidiaries; (iii) any change which, together
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with any changes made to the Board of Directors within the preceding year,
would result in a change in control of the then current Board of Sonic; or (iv)
in the case of an entity that produces motor vehicles or controls or is
controlled by or is under common control with an entity that either produces
motor vehicles or is a motor vehicle franchisor, the acquisition by any person,
entity or group of more than 20% of the voting stock of Sonic and any proposal
by any such person, entity or group, through the Sonic Board of Directors or
shareholders action, to change the Board of Directors of Sonic, then, if such
actions in GM's business judgment could have a material or adverse effect on
its image or reputation in the GM dealerships operated by Sonic or be
materially incompatible with GM's interests (and upon notice of GM's reasons
for such judgment), Sonic has agreed that it will take one of the remedial
actions set forth in the next paragraph within 90 days of receiving such
Schedule 13D or such amendment.
If Sonic is obligated under the previous paragraph to take remedial
action, it will (a) transfer to GM or its designee, and GM or its designee will
acquire the assets, properties or business associated with any GM dealership
operated by Sonic at fair market value as determined in accordance with GM's
Dealership Agreement with the Company, or (b) provide evidence to GM that such
person, entity or group no longer has such threshold level of ownership
interest in Sonic or that the actions described in clause (b) of the previous
paragraph will not occur.
Should Sonic or its GM franchisee subsidiary enter into an agreement to
transfer the assets of the GM franchisee subsidiary to a third party, the right
of first refusal described in the GM Dealer Agreement shall apply to any such
transfer.
SHARES ELIGIBLE FOR FUTURE SALE
As of October 23, 1998, the Company had outstanding 5,588,888 shares of
Class A Common Stock. All of these shares are freely transferable and may be
resold without further registration under the Securities Act, except for any
shares purchased by an "affiliate" of the Company (as defined by Rule 144 under
the Securities Act), which shares will be subject to the resale limitations of
Rule 144. The 6,200,000 shares of Class B Common Stock outstanding, which are
convertible into Class A Common Stock, the 30,000 shares of Class A Common
Stock underlying options granted under the Company's Directors Formula Stock
Option Plans, the 119,187 shares of Class A Common Stock underlying warrants
issued in connection with certain of the Company's acquisitions, the 1,250,885
shares of Class A Common Stock issuable upon conversion of outstanding
Preferred Stock, assuming such shares of Preferred Stock were converted on
November 30, 1998, and the 485,294 shares of Class A Common Stock issued in
connection with one of the Company's acquisitions, are "restricted" securities
within the meaning of Rule 144 irrespective of whether the conversion right is
exercised.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted securities"
for at least one year may, under certain circumstances, resell within any
three-month period, such number of shares as does not exceed the greater of one
percent of the then-outstanding shares of Class A Common Stock or the average
weekly trading volume of Class A Common Stock during the four calendar weeks
prior to such resale. Rule 144 also permits, under certain circumstances, the
resale of shares without any quantity limitation by a person who has satisfied
a two-year holding period and who is not, and has not been for the preceding
three months, an affiliate of the Company. In addition, holding periods of
successive non-affiliate owners are aggregated for purposes of determining
compliance with these one- and two-year holding period requirements.
In addition, the Company has granted options exercisable for 1,220,009
shares of Class A Common Stock under its 1997 Stock Option Plan and 1997
Employee Stock Purchase Plan, and all such shares are registered with the
Commission and available for public resale.
All of the 6,200,000 shares of Class B Common Stock currently outstanding
have been held for at least one year. Any transfer of shares of the Class B
Common Stock to any person other than a member of the Smith Group will result
in a conversion of such shares to Class A Common Stock.
The availability of shares for sale or actual sales under Rule 144 and the
perception that such shares may be sold may have a material adverse effect on
the market price of the Class A Common Stock. Sales under Rule 144 also could
impair the Company's ability to market additional equity securities.
Additionally, the Company has entered into a Registration Rights Agreement
with Sonic Financial, Bruton Smith, Scott Smith and William Egan. The
Registration Rights Agreement provides piggyback registration rights with
respect to 6,250,000 shares of Common Stock in the aggregate.
22
<PAGE>
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby has been
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
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.
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports, which are incorporated by reference herein, and have
been so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
23
<PAGE>
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
-----
<S> <C>
Where You Can Find More Information about
the Company ............................ 2
Cautionary Notice Regarding Forward-Looking
Statements ............................. 3
Summary ................................... 4
Risk Factors .............................. 4
Use of Proceeds ........................... 16
Selling Security Holders .................. 16
Plan of Distribution ...................... 16
Material Changes .......................... 17
Description of Capital Stock .............. 18
Certain Manufacturer Restrictions ......... 21
Shares Eligible for Future Sale ........... 22
Legal Matters ............................. 22
Experts ................................... 23
</TABLE>
[Sonic Automotive, Inc. Logo Appears Here]
Class A Common Stock
--------------------------------
P R O S P E C T U S
--------------------------------
December , 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the fees and expenses in connection with
the issuance and distribution of the securities being registered hereunder. All
of the costs identified below will be paid by the Company. Except for the SEC
registration fee, all amounts are estimates.
<TABLE>
<S> <C>
SEC Registration Fee ................ 5,678
NYSE Listing Fee .................... 2,521
Printing and Engraving Expenses ..... 15,000
Legal Fees and Expenses ............. 15,000
Accounting Fees and Expenses ........ 15,000
Miscellaneous Expenses .............. 1,801
------
Total ............................... 55,000
======
</TABLE>
Item 15. 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
actions, 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 interest 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 the
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 or 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 Act for the benefit of its officers and
directors.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officer or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
II-1
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ------------------------------------------------------------------------------------------------------
<S> <C>
4.1* Form of Certificate for the Company's Class A Common Stock (incorporated by reference to Exhibit
4.1 to the Registration Statement on Form S-1 (File No. 333-33295) of the Company).
4.2 Form of Certificate for the Company's Class A Convertible Preferred Stock, Series I.
4.3 Form of Certificate for the Company's Class A Convertible Preferred Stock, Series II.
4.4 Form of Certificate for the Company's Class A Convertible Preferred Stock, Series III.
4.5* Certificate of Designations for the Company's Class A Convertible Preferred Stock (incorporated by
reference to Exhibit 4.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1998).
4.6* Asset Purchase Agreement dated April 10, 1998 by and among the Company, Century Auto Sales, Inc.,
A. Foster McKissick, III and Murray P. McKissick (incorporated by reference to Exhibit 99.9 to the
Company's Current Report on Form 8-K filed July 9, 1998 (the "July 9, 1998 Form 8-K")).
4.7* 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).
4.8* 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).
4.9* 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).
4.10* Amendment No. 1 and Supplement to the Higginbotham Purchase Agreement dated as of September
16, 1998 (incorporated by reference to Exhibit 10.85a to the Company's Registration Statement on
Form S-4 (Registration Nos. 333-64397 and 333-64397-001 through 333-64397-044) dated November
3, 1998).
5.1* * Opinion of Parker, Poe, Adams & Bernstein, L.L.P. regarding the legality of the securities being
registered.
23.1* * Consent of Parker, Poe, Adams & Bernstein, L.L.P. (included in Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney (included on Signature Page of Registration Statement).
27* Financial Data Schedule (incorporated by reference to Exhibit 27 to the Company's Quarterly Report
on Form 10-Q for its fiscal quarter ended September 30, 1998).
</TABLE>
- ---------
* Filed previously.
** To be filed by amendment.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
this Registration Statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in this Registration Statement;
II-2
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not
apply if the information required to be included in a post-effective amendment
by these paragraphs is contained in periodic reports filed with or furnished by
the Registrant pursuant to Section 13 or 15(d) of the Exchange Act that are
incorporated by reference in this Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in this Registration Statement
shall be deemed to be a new registration statement relating to the securities
offered herein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant 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 the Registrant of expenses
incurred or paid by a director, officer or controlling person of the 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, the 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 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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and 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 this 1st day
of December, 1998.
SONIC AUTOMOTIVE, INC.
By: /S/ O. BRUTON SMITH
-------------------------------------
O. Bruton Smith
Chairman and Chief Executive Officer
We the undersigned directors and officers of Sonic Automotive, Inc., do
hereby constitute and appoint each of 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 or 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 below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- -------------------------------------- ------------------------------------------ -----------------
<S> <C> <C>
/s/ O. BRUTON SMITH Chief Executive Officer December 1, 1998
---------------------------------- (principal executive officer)
O. Bruton Smith and Chairman
/s/ B. SCOTT SMITH President, Chief Operating Officer and December 1, 1998
---------------------------------- Director
B. Scott Smith
/s/ THEODORE M. WRIGHT Chief Financial Officer, Vice President- December 1, 1998
---------------------------------- Finance, Treasurer and Secretary
Theodore M. Wright (principal financial and accounting
officer) and Director
/s/ NELSON E. BOWERS II Executive Vice President and Director December 1, 1998
----------------------------------
Nelson E. Bowers II
/s/ WILLIAM R. BROOKS Director December 1, 1998
----------------------------------
William R. Brooks
/s/ WILLIAM P. BENTON Director December 1, 1998
----------------------------------
William P. Benton
/s/ WILLIAM I. BELK Director December 1, 1998
----------------------------------
William I. Belk
</TABLE>
II-4
Exhibit 4.2
Number Shares
P-___ ________
SONIC AUTOMOTIVE, INC.
Incorporated Under the Laws of Delaware
(See Stock Legend on Reverse Side)
This Certifies that__________________________________________________ is the
registered holder of_________________________________________________ Shares
of the Class A Preferred Stock, Series I, of Sonic Automotive, Inc.
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed
this_______________day of_________________A.D. 19__
___________________________ _____________________________
Secretary President
<PAGE>
THE SHARES OF CLASS A PREFERRED STOCK, SERIES I, OF SONIC AUTOMOTIVE, INC. (THE
"COMPANY") REPRESENTED BY THIS CERTIFICATE HAVE SUCH POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
ARE SUBJECT TO SUCH QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCE AND/OR RIGHTS, AS ARE SET FORTH IN THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF THE COMPANY. THE COMPANY WILL FURNISH WITHOUT
CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A COPY OF THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF THE COMPANY.
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES OR BLUE SKY LAWS ("BLUE SKY LAW") AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER, OR AN
EXEMPTION FROM, THE ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAW.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM --as tenants in common UNIF GIFT MIN ACT-- ......Custodian.......
TEN ENT --as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to Minors
JT TEN --as joint tenants with right of
survivorship and not as tenants Act..................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received,_____________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
| |
- --------------------------------------__________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint_____________________________________________________________________
________________________________________________________________________________
Attorney to transfer the said shares on the books of the within-named Corporat-
tion with full power of substitution in the premises.
Dated,__________________
__________________________________
In presence of
___________________________
(copy below appears on right side of certificate)
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
Exhibit 4.3
Number Shares
P-___ ________
SONIC AUTOMOTIVE, INC.
Incorporated Under the Laws of the State of Delaware
(See Stock Legend on Reverse Side)
This Certifies that__________________________________________________ is the
registered holder of_________________________________________________ Shares
of the Class A Preferred Stock, Series II, of Sonic Automotive, Inc.
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed
this_______________day of_________________A.D. 19__
___________________________ _____________________________
Secretary President
<PAGE>
THE SHARES OF CLASS A PREFERRED STOCK, SERIES II, OF SONIC AUTOMOTIVE, INC. (THE
"COMPANY") REPRESENTED BY THIS CERTIFICATE HAVE SUCH POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
ARE SUBJECT TO SUCH QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCE AND/OR RIGHTS, AS ARE SET FORTH IN THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF THE COMPANY. THE COMPANY WILL FURNISH WITHOUT
CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A COPY OF THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF THE COMPANY.
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES OR BLUE SKY LAWS ("BLUE SKY LAW") AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER, OR AN
EXEMPTION FROM, THE ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAW.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM --as tenants in common UNIF GIFT MIN ACT-- ......Custodian.......
TEN ENT --as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to Minors
JT TEN --as joint tenants with right of
survivorship and not as tenants Act..................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received,_____________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
| |
- --------------------------------------__________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint_____________________________________________________________________
________________________________________________________________________________
Attorney to transfer the said shares on the books of the within-named Corporat-
tion with full power of substitution in the premises.
Dated,__________________
__________________________________
In presence of
___________________________
(copy below appears on right side of certificate)
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
Exhibit 4.4
Number Shares
P-___ ________
SONIC AUTOMOTIVE, INC.
Incorporated Under the Laws of the State of Delaware
(See Stock Legend on Reverse)
This Certifies that__________________________________________________ is the
registered holder of_________________________________________________ Shares
of the Class A Preferred Stock, Series III, of Sonic Automotive, Inc.
transferable only on the books of the Corporation by the holder hereof in
person or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be
hereunto affixed
this_______________day of_________________A.D. 19__
___________________________ _____________________________
Secretary President
<PAGE>
THE SHARES OF CLASS A PREFERRED STOCK, SERIES III, OF SONIC AUTOMOTIVE, INC.
(THE "COMPANY") REPRESENTED BY THIS CERTIFICATE HAVE SUCH POWERS, DESIGNATIONS,
PREFERENCES AND RELATIVE PARTICIPATING, OPTIONAL OR OTHER SPECIAL RIGHTS, AND
ARE SUBJECT TO SUCH QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCE AND/OR RIGHTS, AS ARE SET FORTH IN THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF THE COMPANY. THE COMPANY WILL FURNISH WITHOUT
CHARGE TO EACH STOCKHOLDER WHO SO REQUESTS A COPY OF THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF THE COMPANY.
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES OR BLUE SKY LAWS ("BLUE SKY LAW") AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER, OR AN
EXEMPTION FROM, THE ACT AND ANY APPLICABLE STATE SECURITIES OR BLUE SKY LAW.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM --as tenants in common UNIF GIFT MIN ACT-- ......Custodian.......
TEN ENT --as tenants by the (Cust) (Minor)
entireties under Uniform Gifts to Minors
JT TEN --as joint tenants with right of
survivorship and not as tenants Act..................
in common (State)
Additional abbreviations may also be used though not in the above list.
For value received,_____________________hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
| |
- --------------------------------------__________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
represented by the within Certificate, and do hereby irrevocably constitute
and appoint_____________________________________________________________________
________________________________________________________________________________
Attorney to transfer the said shares on the books of the within-named Corporat-
tion with full power of substitution in the premises.
Dated,__________________
__________________________________
In presence of
___________________________
(copy below appears on right side of certificate)
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
Sonic Automotive, Inc.:
We consent to the incorporation by reference in this Registration Statement of
Sonic Automotive, Inc. on Form S-3 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 combined 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 all appearing
in the Prospectus dated November 5, 1998 that was included in Sonic Automotive,
Inc.'s Registration Statement on Form S-4 (Registration Statement Nos.
333-64397 and 333-64397-001 through 333-64397-044).
We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of this Registration Statement.
Deloitte & Touche LLP
December 1, 1998
