As Filed Electronically with the Securities and Exchange
Commission on January 8, 1999
Registration No. 333-69901
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
SONIC AUTOMOTIVE, INC.
(Exact name of Registrant as Specified in Its Charter)
DELAWARE 56-2010790
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5401 EAST INDEPENDENCE BLVD. 28212
P.O. BOX 18747 (Zip Code)
CHARLOTTE, NORTH CAROLINA
(Address of Principal Executive Offices)
SONIC AUTOMOTIVE, INC. FORMULA STOCK OPTION PLAN FOR INDEPENDENT DIRECTORS
(Full Title of the Plan)
MR. O. BRUTON SMITH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SONIC AUTOMOTIVE, INC.
5401 EAST INDEPENDENCE BLVD.
P.O. BOX 18747
CHARLOTTE, NORTH CAROLINA 28212
(704) 532-3320
(Name, Address 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
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT OFFERING AGGREGATE AMOUNT OF
TO BE TO BE PRICE OFFERING REGISTRATION
REGISTERED REGISTERED (1) PER SHARE (1) PRICE (1) FEE (1)
<S> <C> <C> <C> <C>
Class A
Common Stock
($0.01 par value) 30,000 shares Not Applicable Not Applicable Not Applicable
</TABLE>
(1) A registration fee of $1,285.00 was paid with the initial filing
of this Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on December 30, 1998.
This Post-Effective Amendment No. 1 to the Registration Statement on
Form S-8 initially filed by the Registrant on December 30, 1998 (File No.
333-69901) contains a Reoffer Prospectus relating to certain resales of Control
Shares prepared in accordance with the requirements of General Instruction C to
Form S-8.
<PAGE>
PROSPECTUS
SONIC AUTOMOTIVE, INC.
30,000 SHARES
CLASS A COMMON STOCK
($.01 Par Value)
SONIC AUTOMOTIVE, INC.
FORMULA STOCK OPTION PLAN FOR INDEPENDENT DIRECTORS
The selling security holders identified in this Prospectus may periodically
offer and sell the shares of our Class A Common Stock. The shares will be issued
upon the exercise of stock options that have been granted to the selling
security holders pursuant to our Formula Stock Option Plan For Independent
Directors. We are registering the offer and sale of the shares to allow the
selling security holders to freely trade their 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 January 7, 1999 was $36.875 per share. You are urged to obtain
current market data.
On December 16, 1998, we declared a 2-for-1 stock split that is applicable
to all Common Stock holders of record as of January 4, 1999 and will be
effective as of January 25, 1999. None of the share information contained in
this Prospectus reflects this stock split. See "Material Changes."
SEE "RISK FACTORS" BEGINNING ON PAGE 2 FOR A DISCUSSION OF CERTAIN FACTORS
TO BE CONSIDERED BY PURCHASERS OF THE SHARES.
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 January 8, 1999
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TABLE OF CONTENTS
SUMMARY 2
RISK FACTORS 2
USE OF PROCEEDS 13
SELLING SECURITY HOLDERS 14
PLAN OF DISTRIBUTION 14
MATERIAL CHANGES 14
DESCRIPTION OF CAPITAL STOCK 15
CERTAIN MANUFACTURER RESTRICTIONS 18
SHARES ELIGIBLE FOR FUTURE SALE 19
WHERE YOU CAN FIND MORE INFORMATION ABOUT THE COMPANY 19
INCORPORATION OF DOCUMENTS BY REFERENCE 20
INDEMNIFICATION OF OFFICERS AND DIRECTORS 21
EXHIBITS 22
UNDERTAKINGS 22
SIGNATURES 24
INDEX TO EXHIBITS 25
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
identifying, 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.
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
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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.
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"):
PERCENTAGE OF
OUR 1997 NEW VEHICLE
MANUFACTURER PRO FORMA REVENUES
- ------------ ------------------
Ford Motor Company 42.4%
Chrysler Corporation 18.6%
Toyota Motor Sales (U.S.A.) 10.9%
General Motors Corporation 6.7%
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.
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.
If a Manufacturer terminates or declines to renew one or more of the
Company's significant franchise agreements, such action could have a material
adverse effect on the Company and its business.
Actions taken by Manufacturers to exploit their superior bargaining
position in negotiating the terms of such renewals or otherwise could also have
a material adverse effect on the Company.
The Company also depends on the Manufacturers to provide it with a
desirable mix of popular new vehicles that produce the highest profit margins
and which may be the most difficult to obtain from the Manufacturers.
If the Company is unable to obtain a sufficient allocation of the most
popular vehicles, its profitability may be materially adversely affected. In
some instances, in order to obtain additional allocations of these vehicles, the
Company purchases a larger number of less desirable models than it would
otherwise purchase and its profitability may be materially adversely affected
thereby.
The Company's dealerships depend on the Manufacturers for certain sales
incentives and other programs that are intended to promote dealership sales or
support dealership profitability. Manufacturers have historically made many
changes to their incentive programs during each year. A reduction or
discontinuation of a Manufacturer's incentive programs may materially adversely
affect the profitability of the Company.
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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 addition, 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. 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.
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.
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
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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 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.
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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 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.
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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.
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.
POTENTIAL ADVERSE MARKET PRICE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE
The 6,200,000 shares of Class B Common Stock owned beneficially by
existing stockholders of the Company, the 119,187 shares of Class A Common Stock
underlying warrants issued in connection with the Company's acquisitions, the
1,191,131 shares of
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Class A Common Stock underlying its outstanding Preferred Stock if such
Preferred Stock were converted on December 22, 1998, and 591,109 shares of Class
A Common Stock issued in connection with the Company's acquisitions or upon
conversion of Preferred 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. Resales of approximately 816,436 of the above restricted
shares of Class A Common Stock that have been issued by the Company in
connection with business acquisitions or upon conversion of Preferred Stock
issued by the Company in connection with business acquisitions have been
registered with the Commission and are available for public resale. In addition,
the Company has granted options exercisable for 1,250,009 shares of Class A
Common Stock under its 1997 Stock Option Plan, Formula Stock Option Plan for
Independent Directors 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 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 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
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 restricts 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
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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 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
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recently entered into certain transactions with MMRT. The Company believes that
all of its existing arrangements are favorable to the Company and were entered
into on terms that, taken as a whole, reflect arm's-length negotiations,
although certain lease provisions included in such transactions may be at
below-market rates. Since no independent appraisals evaluating these business
transactions were obtained, there can be no assurance that such transactions are
on terms no less favorable than could have been obtained from unaffiliated third
parties. Potential conflicts of interest could also arise in the future between
the Company and these affiliated parties in connection with the enforcement,
amendment or termination of these arrangements. 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 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.
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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.
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
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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 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
We will not receive any proceeds from the sale of shares by the Selling
Security Holders. The proceeds from all such sales will be retained by the
Selling Security Holders.
SELLING SECURITY HOLDERS
The following persons are currently directors of the Company, each of whom
is eligible to sell pursuant to this Prospectus the number of Shares set forth
opposite his name in the table below.
<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF SHARES OF CLASS A
CLASS A COMMON NUMBER OF COMMON STOCK BENEFICIALLY
SELLING SECURITY HOLDERS STOCK BENEFICIALLY SHARES OFFERED OWNED AFTER OFFERING:
OWNED PRIOR TO NUMBER PERCENT
OFFERING
<S> <C> <C> <C> <C>
William R. Brooks, Director 10,000 10,000 0 0%
William P. Benton, Director 10,000 10,000 0 0%
William I. Belk, Director 10,000 10,000 0 0%
</TABLE>
PLAN OF DISTRIBUTION
The Selling Security Holders have advised the Company that they intend to
sell the Shares offered hereby from time to time on or off the New York Stock
Exchange at prices prevailing in such market at the time of sale. The Selling
Security Holders may also sell all of any portion of such Shares from time to
time in private transactions at negotiated prices. Any such transactions may be
effectuated directly or through broker-dealers, who may act as agent or as
principal. The Selling Security Holders, and any broker-dealers participating in
such transactions, may be deemed to be underwriters within the meaning of the
Securities Act.
Broker-dealers participating in such transactions as agent may receive
fees or commissions from Selling Security Holders or from the other parties to
the transactions. Usual and customary, or specifically negotiated, brokerage
fees or commissions are to be paid by the Selling Security Holders.
Broker-dealers who acquire Shares as principal may thereafter resell such Shares
on the New York Stock Exchange, in negotiated transactions or otherwise at
market prices prevailing at the time of sale. Any commissions paid or any
discounts or concessions allowed to such broker-dealers, and, if any such
broker-dealers purchase Shares as principal, any profits received by them on the
resale of such Shares, may be deemed to be underwriting compensation within the
meaning of the Securities Act. The Company will pay the expenses incident to the
registration of the Shares offered hereby.
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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 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.
On December 16, 1998, the Company's Board of Directors announced a 2-for-1
stock split applicable to the Common Stock. The stock split is applicable to all
Common Stock holders of record as of January 4, 1999. The stock split will be
effected as a 100% stock dividend payable on January 25, 1999. None of the share
information contained in this Prospectus reflects this stock split.
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 December 16, 1998, the Company had 5,730,559 outstanding shares of
Class A Common Stock, 6,200,000 outstanding shares of Class B Common Stock and
28,167.3 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
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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 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.
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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 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.
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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 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.
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
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change which, together 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 December 16, 1998, the Company had outstanding 5,730,559 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 1,191,131 shares of
Class A Common Stock issuable upon conversion of outstanding Preferred Stock,
assuming such shares of Preferred Stock were converted on December 22, 1998, and
the 591,109 shares of Class A Common Stock issued in connection with the
Company's acquisitions or upon conversion of Preferred Stock issued in
connection with 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 1,250,009
shares of Class A Common Stock under its 1997 Stock Option Plan, Formula Stock
Option Plan for Independent Directors 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.
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
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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 supersede 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:
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.
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
Atenhan, 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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PART II
INFORMATION REQUIRED IN THE
REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
The Securities and Exchange 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 Registration
Statement, and information that we file later with the Securities and Exchange
Commission will automatically update and supersede this information. Sonic
Automotive, Inc. (the "Company," and sometimes referred to herein as the
"Registrant") incorporates by reference the documents listed below and any
future filings made with the Securities and Exchange Commission under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"):
(i) the Company's Annual Report on Form 10-K for its fiscal year ended
December 31, 1997 (File No. 1-13395);
(ii) the Company's Amended Annual Report on Form 10-K/A for the year
ended December 31, 1997;
(iii) the Company's Quarterly Report on Form 10-Q for its fiscal quarter
ended March 31, 1998;
(iv) the Company's Quarterly Report on Form 10-Q for its fiscal quarter
ended June 30, 1998;
(v) the Company's Quarterly Report on Form 10-Q for its fiscal quarter
ended September 30, 1998;
(vi) the Company's Current Reports on Form 8-K, filed the following
dates: March 30, 1998, July 9, 1998, and July 24, 1998;
(vii) 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;
(viii)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;
(ix) 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 SEC pursuant to Section 12 of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"); and
(x) the Company's Definitive Proxy Materials dated November 2, 1998.
All documents subsequently filed by the Registrant pursuant to sections 13(a),
13(c), 14 or 15(d) of the Exchange Act, prior to the filing of a post-effective
amendment which indicates that all securities offered hereby have been sold or
which deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents. Any statement contained herein
or in a document, all or a portion of which is incorporated or deemed to be
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this Registration Statement to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or amended, to constitute a part of this Registration
Statement.
Item 6. Indemnification of Officers and Directors
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The Registrant's Bylaws effectively provide that the Registrant 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 Registrant'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 attorneys' fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by a third party if such directors or
officers acted in good faith and in a manner they reasonably believed to be in,
or not opposed to, the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to a matter
as to which they shall have acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation,
except that no indemnification shall be made if such person shall have been
adjudged liable to the corporation, unless and only to the extent that the court
in which the action or suit was brought shall determine upon application that
the defendant officers or directors are reasonably entitled to indemnity for
such expenses despite such adjudication of liability.
Section 102(b)(7) provides that a corporation may eliminate or limit 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 Securities
Act for the benefit of its officers and directors.
Item 8. Exhibits
Exhibit
Number Description
------- -----------
4.1* Sonic Automotive, Inc. Formula Stock Option Plan For
Independent Directors (the "Plan") (incorporated by
reference to Exhibit 10.69 to the Company's Amended
Annual Report on Form 10-K/A for the year ended
December 31, 1997 (File No. 1-13395))
4.2* Form of Formula Stock Option Agreement
and Grant pursuant to the Sonic
Automotive, Inc. Formula Stock Option
Plan For Independent Directors (included
within the Plan)
5.1* Opinion of Parker, Poe, Adams &
Bernstein L.L.P. regarding the legality
of securities registered
23.1 Consent of Deloitte & Touche LLP
23.2* Consent of Parker, Poe, Adams &
Bernstein L.L.P. (included in Exhibit
5.1 to this Registration Statement)
--------------------------
* Filed Previously
Item 9. 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 the Registration Statement
(or most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a
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fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing,
any increase or decrease in the volume of securities
offered (if the total dollar value of securities offered
would not exceed that which was registered), any
deviation from the high or low end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Securities and Exchange
Commission pursuant to Rule 424(b) if, in the aggregate,
the changes in volume and price represent no more that
20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in
the effective registration statement; and
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8, or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in the
Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial BONA
FIDE offering thereof; and
(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 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of
the Exchange Act) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the
initial BONA FIDE offering thereof.
(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 Securities and Exchange 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.
22
<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-8 and has duly caused this Amendment to the
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 8th
day of January, 1999.
SONIC AUTOMOTIVE, INC.
By: /s/ THEODORE M. WRIGHT
-----------------------------------
THEODORE M. WRIGHT
Chief Financial Officer, Vice President-
Finance, Treasurer Secretary (principal
financial and accounting officer) and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the 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/ * Chief Executive Officer January 8, 1999
--------------------- (principal executive officer)
O. BRUTON SMITH and Chairman
/s/ * President, Chief Operating January 8, 1999
--------------------- Officer and Director
B. SCOTT SMITH
/s/ THEODORE M. WRIGHT Chief Financial Officer, January 8, 1999
--------------------- Vice President-Finance, Treasurer
THEODORE M. WRIGHT Secretary (principal financial and
accounting officer) and Director
/s/ * President of Retail Operations January 8, 1999
--------------------- and Director
DENNIS D. HIGGINBOTHAM
/s/ * Director January 8, 1999
---------------------
WILLIAM R. BROOKS
/s/ * Director January 8, 1999
---------------------
WILLIAM P. BENTON
/s/ * Director January 8, 1999
---------------------
WILLIAM I. BELK
* By: /s/ THEODORE M. WRIGHT January 8, 1999
--------------------------
THEODORE M. WRIGHT
(ATTORNEY-IN-FACT FOR
EACH OF THE PERSONS INDICATED)
</TABLE>
23
<PAGE>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
4.1* Sonic Automotive, Inc. Formula Stock Option Plan For Independent
Directors (the "Plan") (incorporated by reference to Exhibit
10.69 to the Company's Amended Annual Report on Form 10-K/A for
the year ended December 31, 1997 (File No. 1-13395))
4.2* Form of Formula Stock Option Agreement and Grant pursuant to the
Sonic Automotive, Inc. Formula Stock Option Plan For Independent
Directors (included within the Plan)
5.1* Opinion of Parker, Poe, Adams & Bernstein L.L.P. regarding the
legality of securities registered
23.1 Consent of Deloitte & Touche LLP
23.2* Consent of Parker, Poe, Adams & Bernstein L.L.P. (included in
Exhibit 5.1 to the Registration Statement)
24* Power of Attorney (included on the signature page to the
Registration Statement).
- ----------------------
* Filed Previously.
24
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
Sonic Automotive, Inc.:
We consent to the incorporation by reference in this Post-Effective Amendment
No. 1 to the Registration Statement of Sonic Automotive, Inc. on Form S-8 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).
Deloitte & Touche LLP
Charlotte, North Carolina
January 8, 1999
